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01 Sep

Tanishq stands to benefit from Hallmarking – Titan

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.3% down at 17,076. Top gainers in NIFTY50 were ASIANPAINT (+3.1%), TATAMOTORS (+2.6%), and SBILIFE (+1.9%). The top losers were M&M (-3.0%), CIPLA (-2.7%), and TATASTEEL (-2.7%). The top gaining sectors were REALTY (+5.6%), CONSUMER DURABLES (+2.0%), and PSUBANK (+0.9%), while the top sectoral losers were METAL (-1.8%), IT (-1.3%), and FINANCIAL SERVICES (-0.2%).

Tanishq stands to benefit from Hallmarking – Titan

Edited excerpts of an interview with Mr. Ashok Sonthalia, Chief Financial Officer, Titan with CNBCTV18 on 1^st Sep, 2021:

At the time when brokers can no longer sell digital gold, Tanishq has launched digital gold.
While explaining the rationale behind the idea, Mr. Sonthalia informed that digital gold was one of the ways consumers wanted to lock-in the gold price. So, the company decided to experiment with it.
Digital gold has been launched recently in some pockets, response of which is yet to be seen. Company hopes that digital gold provides another way to consumers who want to invest with Tanishq in gold. They can buy at appropriate time and convert it into physical form.
Smaller players are facing severe challenge due to Hallmarking and it has led to lot of supply chain challenges.
Titan has been preparing for gold hallmarking for long time, without expecting any extension from the government. The well advance preparation has helped Tanishq to be 100% hallmarked currently.
The whole Hallmarking Unique ID (HUID) process is creating some teething trouble, due to which supply chain has gotten elongated by 5-7 days. This leads to having more inventory to that extent. But other than that, Tanishq is going to be fine on hallmarking and the company believes that these teething issues will also be sorted out going forward.
Government has been flexible regarding hallmarking as it has given a lot of time to the industry. The rule was introduced in Jun-21, no penalties were imposed until the end of Aug-21, so that manufacturers, wholesalers, and retailers of gold jewelry get enough time to comply.
Hallmarking will be positive for industry as consumers will be confident of buying gold from anywhere.
According to Mr. Sonthalia, the earlier model of pure gold and low making charges will be challenged now. Tanishq is in a favorable position as it always had pure gold plus making charges.
Tanishq will gain from hallmarking as it will be challenging for unorganized and small player to correct and re align their model now.
Mr. Sonthalia commented that the recovery of Tanishq has been pretty good post the second wave of COVID-19. Everyone in the organised sector including Tanishq is doing well.
According to him, the shift from unorganised to organised was a slightly longer-term story, but some of the elements have given an impetus and to that extent, organised sector is gaining from the unorganised sector and Tanishq is also benefitting.
His comments on 2QFY22E:
- Tanishq jewelry and eyewear are in the growth phase.
- The stores are still not fully operational. They are running between 80%-90%.
- While Physical stores are operating at a slightly less capacity, digital and omni have supplemented to some extent.
According to company guidance given earlier, Titan plans to open 35 stores in FY22E. 11 stores have already been opened.
Company is working on physical and digital sales point aggressively. In 1QFY22, the physical retail stores expansion plan got impacted due to second wave but it is confident of completing the target by Mar-22E.The focus and investment on digital and omni is also going in a big way.
Many time the enquiry and selection of jewelry starts digital or in video calls but ends in physical stores. So, stores are not going to lose their importance and Titan plans to be very aggressive there too.

Asset Multiplier Comments

We believe that Mandatory hallmarking will standardize the purity of gold jewelry. It will take the industry towards being more structured and even further push the ongoing shift of business and customers from the unorganised to the organised jewelry segment.
With re-opening of stores, increasing wedding sentiments and rising vaccination pace, jewelry demand is expected to improve further. Hallmarking will benefit Tanishq as it has competitive edge over other small players who are facing issues.

Consensus Estimate (Source: market screener website)

The closing price of Titan was ₹ 1,944/- as of 1-Sep-21. It traded at 94x/68x/57x the consensus EPS estimate of ₹ 20.4/28.4/33.8 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 1,737/- implies a PE multiple of 51x on FY24E EPS of ₹ 33.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

By Assetmultiplier Titan 0 Comments Read more...

29 Aug

This Week in a nutshell (Aug 23rd to Aug 27th)

This Week in a nutshell (Aug 23^rd to Aug 27^th)

Technical talks

NIFTY opened the week on 23^rd Aug at 16,450 and closed on 27^th Aug at 16,705. This is the highest closing ever for the index. The index made a weekly gain of 2.9%. On the technical front, 16,650 will act as immediate support and if this level is broken, the Nifty may slide to 16,575-16,500 levels. On the upper side, 16,780 will act as a hurdle. Once the level is breached, the Nifty can move to 16,840-16,900 levels.

Weekly highlights

Dalal Street rose to record closing highs on Friday, weekly gains were led by IT (+2.9%), Financial Services (+2.1%) and Pharma sector (1.7%).
The midcap index logged its best week in two-and-a-half months. However, weakness in auto sector played spoilsport, keeping the upside in check.
The US Food and Drug Administration’s full approval to Pfizer and BioNTech’s coronavirus vaccine rekindled hope and optimism about a quicker recovery from a slowdown caused by the pandemic.
Renewed tensions between China and the US, the fear of a rise in the number of Covid-19 Delta variant infections, suicide attacks at the Kabul airport in Afghanistan that killed at least 12 US service members and scores of Afghans and the US central bankers’ annual symposium kept investors cautious around the globe.
As the trading week ended, Indian market participants and analysts keenly awaited updates from the annual Jackson Hole symposium in Wyoming for more clarity on the US monetary policy going forward.
S. Fed Chair Jerome Powell’s wait-and-see approach in a much-anticipated address on Friday gave US investors and market participants some reassurance that the central bank’s extraordinary efforts to prop up the economy were likely to support riskier assets a while longer.
US Stocks gained ground after the release of the text of Powell’s speech, with the benchmark S&P 500 index hitting a record high, while the lack of any new hints on when the U.S. central bank is likely to begin paring bond purchases led Treasury bond yields and the U.S. dollar lower.
The foreign institutional investors (FII) sold equities worth Rs 68,333 mn, while domestic institutional investors (DIIs) bought equities worth Rs 63,826 crore. So far in August, FIIs have sold equities worth Rs 76,525 mn and DIIs have bought equities worth Rs 80,782 mn.

Things to watch out for next week

Indian Markets – Indian investors are likely to react to the statement made by the US Federal Reserve Chairman Jerome Powell in the Jackson Hole symposium in which he has also hinted about tapering by end of CY21. Investors will also eye 1QFY22 GDP print, auto sales numbers and global cues in coming week.
US Markets – Markets will keep an eye on a window into how the Delta variant has rippled through the economy, with the release of the U.S. jobs report for the month of Aug-21, following recent weak readings on consumer sentiment and retail sales. The seven-day average of new reported cases reached about 155,000, the highest in about seven months, Reuters data through Thursday showed.

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15 Aug

This Week in a nutshell (Aug 9 th to Aug 13 th )

Technical talks

NIFTY opened the week on 9^th Aug at 16,223 and closed on 13^th Aug at 16,529. This is the highest closing ever for the index. The index made a weekly gain of 1.8%. On the upside, the index might be headed to 17,110. The 16,590 and 16,700 levels will act as potential resistance points, while supports will come in at 16,300 and 16,210.

Weekly highlights

The market was volatile at the start of the week due to weak global cues however, the bulls managed to push the benchmark indices well in the green.
BSE announcing the rule regarding Add-on Price Band Framework caused selling pressures in mid and small cap stocks which were down 1% and 2% respectively this week.
The country’s exports rose by 50.5 percent during August 1-7, on account of healthy growth in the shipments of engineering goods, gems and jewellery as well as petroleum products, according to provisional commerce ministry data. Imports during the week too grew by about 70 percent, leaving a trade deficit of USD 3 bn.
Consumer Price Index-Based inflation (CPI) for July came in at 5.59 percent, back within the Monetary Policy Committee’s inflation targeting range of 4 (+/-2) percent, on the back of softening food prices. The Consumer Food Price Inflation (CFPI) for July cooled to 3.96 percent compared with 5.15 percent in June.
Finance Minister Nirmala Sitharaman said that the government is committed to the revival of the economy and will continue to undertake various steps to boost growth.
The market closed with Nifty posting a net gain of 291 points (1.8%), on a weekly basis mainly contributed by IT sector which is up 4.4% this week. Whereas, Pharma, PSU Banks and Auto sector underperformed.
US markets were weak at the beginning as a tumble in oil prices signalled investor unease about the Covid-19 pandemic and the strength of the economic recovery. However, the rising US Treasury bills uplifted the sentiments of the investors.
Fed at the start of the week said that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.
USD 1 tn infrastructure bill was passed during the week which could provide the nation’s biggest investment in decades in roads, bridges, airports and waterways.
The US markets closed at all time high as investors warmed to jobs data showing a steady U.S. economic recovery.
According to economists polled by Reuters, Fed will announce a plan to taper its asset purchases in Sept-21 and the U.S. jobless rate would remain above its pre-pandemic level for at least a year.
Oil prices fell for a second day on Friday after the International Energy Agency warned that demand growth for crude and its products had slowed sharply as surging cases of COVID-19 worldwide has forced governments to revive restrictions on movement.
The foreign institutional investors (FII) bought Rs 8,790 mn worth of Indian equity shares last week. Domestic institutional investors (DII) undertook Rs 6,370 mn of net buying during this week.

Things to watch out for next week

The monthly U.S. retail sales report and earnings from retailers such as Walmart and Target could shed more light on the health of the U.S. consumer. Investors are also keeping a close eye on Treasury yields, with rising yields often viewed as a sign of economic optimism that could also boost value stocks.
Indian Markets – With 1QFY22 result season almost over, focus will be on the global cues, vaccination progress in India, IPO listings and FII buying that will steer market next week.

By Assetmultiplier #WeekInANutshell 0 Comments Read more...

05 Aug

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4^th Aug, 2021:

Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

Asset Multiplier Comments

Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

Consensus Estimate (Source: market screener websites)

The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

By Assetmultiplier Tata Consumer 1QFY22results, demand, FMCG 0 Comments Read more...

28 Jul

Growth visible across segments, pricing pressure in US a concern – Alembic Pharma

Update on the Indian Equity Market:

The market witnessed the continuation of the bearish movement due to acute turmoil in Chinese stock markets. Nifty was down 37 points or 0.24% at 15,709.

Among the sectoral indices, METAL (+1.22%) AND IT (+0.21%) were gainers while PSU BANK(-1.88%), AUTO (-0.93%) and REALTY (-0.79%) were top losers. Among the stocks, BHARTIARTL (+5.04%), TATASTEEL (+2.81%), and SBILIFE (+2.16%) were the top gainers while KOTAKBANK (-2.59%), DRREDDY (2.55%) and TATAMOTORS (-2.2%) were the top losers.

Alembic Pharma sees growth across segments; says pricing pressure in the US a concern

Edited excerpts of an interview with Mr Pranav Amin, Managing Director at Alembic Pharmaceutical with CNBCTV18 on 28^th July 2021:

Alembic Pharma posted its Q1FY22 earnings. EBITDA, margins and profit have all come in below street estimates, the US generics business has seen a steep fall as well. Pranav Amin

Street estimates of EBITDA Margin for 1QFY22 were ~23-24% for the quarter v/s actual reported margin of 18%. The market was disappointed with the performance and stock tanked ~11% post results. Mr Amin explained the reason for the margin decline. He said that US business since the last five years has had a CAGR of about 25 per cent. Part of the growth in the US business was due to the Sartan opportunity, where the company did well.
Also there have been a lot of disruptions in the market. Since November or December, disruptions were seen and there was a lot of supply in the market, which has led to pricing pressure in the US market. So that is what has broadly caused the dip in the margins for this quarter.
US business declined by 38% YoY reason being the price erosion. Volumes were flat but pricing pressure was seen in other products as well other than the sartans in US business which led to the decline in US business.
Guidance on US business – In the last 5-6 quarters the average US revenue has been ~$70mn because of the sartans. Moving forward, the company has withdrawn all guidance. As far as the business is concerned, very robust growth is seen in the Indian market and the company expects it to continue.
API business grew by 6% YoY in 1QFY22, last year there were a lot of disruptions in API business because of COVID especially from China. The European business also grew very well, last year, had a growth of 13 per cent. So by and large, all the other businesses are doing okay. It’s just the US that is facing pricing pressure.
The company has withdrawn the EPS guidance for FY22 because
- the markets have been quite dynamic, as is seen on some of the pricing in the Sartans and some of the other products.
- There’s still no clarity on the FDA inspection of new facilities.
- Competition is witnessed in some of the other larger products of the company.
India Business – India Business does not have a COVID-19 related portfolio. COVID-19 has been tougher for Alembic as most of the portfolio was not used for COVID-19 treatment. Speciality and Acute portfolios have shown good growth. The company expects to grow faster than the market.

The company has guided investors to launching 15 products in the US and management wants to stick to it. Strategically company is working on cost optimization, renovating portfolio and seeing where volumes can be maximized for some of the products to remain competitive in US markets. The filing and launches are on track.

Asset Multiplier Comments

The near-term outlook remains muted due to significant erosion in US sales which would also weigh on margin. Further, inspections at new plants have been delayed due to COVID-19 which has led to delay in the launches of complex generics
The company’s plan to launch 15 products in the US and consistent performance in Indian branded formulations will help Alembic to perform going forward.

Consensus Estimate (Source: tikr. com and market screener websites)

The closing price of Alembic Pharma was ₹ 796/- as of 28-Jul-21. It traded at 21.5x/17.2x/14.6x the consensus EPS estimate of ₹ 37.6/47/55.5 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 965/- implies a PE multiple of 17x on FY24E EPS of ₹ 55.5/-.

By Assetmultiplier Alembic Pharma 1QFY22results, pharma 0 Comments Read more...

14 Jun

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11^th June 2021:

Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

Asset Multiplier Comments

Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

Consensus Estimate (Source: tikr. com and market screener websites)

The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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12 Apr

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

Update on the Indian Equity Market:

On Monday, Nifty plunged 3.5% at 14,310 due to rising COVID-19 cases, vaccine supply issues and the possibility of a lockdown in various parts of the country. Within NIFTY50, DRREDDY’S (+7.1%), CIPLA (+2.7%), and DIVISLAB (+1.1%) were top gainers, while TATAMOTORS (-9.7%), ADANIPORT (-8.9%), and INDUSINDBK (-8.6%) were the top losing stocks. Among the sectoral indices, PSU BANK (-9.3%), MEDIA (-8.1%) and REALTY (-7.5%) were the highest losers, and there were no gainers.

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

Excerpts of an interview with Mr. Sunil Kataria, CEO, India and South Asian Association of Regional Cooperation (SAARC) at Godrej Consumer Products (GODREJCP), aired on CNBC-TV18 dated on 9^th April 2021:

All the SAARC countries have continued to do well and growth has been robust for Godrej Consumer. Exports faced challenges in the 1HFY21 primarily because of lockdown, but it bounced back strongly in 2HFY21.
Thumb rule for FMCGs is whenever FMCG grows well, the Indian rural growth lead by 1.5x of urban growth. Pre covid, rural growth had gone down to 0.8x of urban, but the good news is now it has regained to 1.5x-1.7x of urban growth.
Mr Kataria expects
- Good monsoon and with strong rural investment done, rural story will continue to hold very strong.
- In this Budget, there is a lot of investment gone behind infrastructure sector which will stimulate demand and growth in core sectors. This will lead to good urban growth.
The top 3 important areas for Godrej Consumer are:
- Household insecticides: Godrej Consumer is the category leader in this segment and have done most of the innovations here. India’s outlook towards health and hygiene has changed permanently, a strong momentum in this category is seen by Godrej Consumer this year and expects to continue to hold this momentum
- Health and Hygiene: Godrej Consumer have done a lot of investment will continue to invest in this segment. It has moved beyond personal wash into being personal and home hygiene portfolio.
- Go-To-Market Strategy: Sharp investments done in building a next level of GTM, this will be a big enabler in future.
Godrej Consumer Products posted a strong Q4FY21 update. The company said it has clocked in broad-based sales across all key categories and sees India sales growth around 30 percent this quarter.
This time, the COVID upsurge will see more of localized lockdowns rather than very far-ranging, wide impacting lockdowns. Therefore, a localized geography-based limited impact will happen on demand, which could impact certain discretionary categories.
People have started taking hygiene categories more casually and some stabilizing of demand is happening. Essentials and hygiene categories are expected to see an uptick again.
The whole consumption demand has looked up well across most of the segments and Mr. Kataria is pleasantly surprised with the kind of recovery in the demand that has happened even after the festive season.
Growth has been broad-based across all segments and that gives a lot of confidence and it talks about the quality of company’ growth across all the 3 segments – soap, hair color and household insecticides.
The company has taken calibrated price hikes across the portfolio and it is going to keep a close watch on price and demand of the products. More price increases are expected going forward if inflation continues, but not at the cost of volume growth. Therefore, some short-term pressure on gross margins is expected to be seen.

Asset Multiplier Comments

Post the virus outbreak, FMCG companies have stepped up supply chain agility and increased the GTM approach to ensure adequate stock. Teams have been put on “hyper-alert” to ensure that supply chains are uninterrupted in the case of disruptions due to localised lockdowns and curfews.
Overall, FMCG companies might get impacted due to regional lockdowns but this time it would be milder than last time lockdowns.

Consensus Estimate (Source: investing. com and market screener websites)

The closing price of GODREJCP was ₹ 715 as of 12-April-2021. It traded at 40x/ 35x the consensus EPS estimate of ₹ 18.5/20.9 for FY22E/ FY23E respectively.
The consensus target price of ₹ 814/- implies a PE multiple of 39x on FY23E EPS of ₹20.9/-.

By Assetmultiplier FMCG, Godrej Consumer Products FMCGSector, lockdowns, recovery 0 Comments Read more...

01 Feb

Budget 2021: Promising but ambitious one!

The Budget 2021, a highly unique one due to the pandemic, provided the confidence to the investors as witnessed by Nifty50, which closed the day 4.7% higher at 14,281. First do no harm or “primum non nocere”, is a doctrine as old as medicine itself. The Finance Minister adopted this approach to capital markets, taxation and the results are there for all to see. Investors were expecting harsh revenue raising measures as epidemic related expenses mounted while revenues shrank. Finance minister presented an expansionary budget without significant increase in taxation.

Following are the key highlights from the budget 2021;

The nominal growth rate target has been set at 14.4% for FY22 as against 10% in FY21.
The estimated fiscal deficit stands at 9.5% in FY21 vs 3.5% as per the previous estimate. The deficit is expected to be 6.8% for FY22.
India FY21 Gross Tax revenue estimate said to be reduced by about Rs 5 lakh crore. The Government is estimating FY22 expenditure at about Rs 35 lakh crore.
A sharp increase in capital expenditure on the infrastructure segment- Rs 5.54 lakh crore, 34% higher than the budget estimate of FY21.
Announcing its version of a bad bank, the Government will set up an asset reconstruction and management company to take over the bad loans. A bad bank will act as an aggregator of all stressed assets in the system. It is set up to buy the bad loans and other illiquid holdings of another financial institution.
Reducing customs duty uniformly to 7.5% on semi, flat and long products of non-alloy, alloy and stainless steel. Exempting duty on steel scrap till March 2022. To provide relief to copper recyclers, reducing duty on copper scrap from 5% to 2.5%.
Raising customs duty on some auto parts to 15%, on cotton from 0% to 10%, on raw silk and silk yarn from 10% to 15%.
Set aside Rs 15,700 crore for medium and small enterprises in FY22, double of what was budgeted in the FY21.
The central government aims to garner Rs 1.75 lakh crore through divestments in FY22. In FY21, the government had budgeted to raise Rs 2.1 lakh crore through divestments but managed to achieve only Rs 50,304 crore. The central government will further incentivize states to divest assets.
Provide Rs 20,000 crore in FY22 for re-capitalization of public sector banks.
Proposed to increase the permissible limit for Foreign Direct Investment for insurance companies to 74% from 49% along with allowing foreign ownership and control with safeguards.
The much-awaited voluntary vehicle scrappage policy is claimed to be bringing Rs 43,000 crore business opportunity by boosting consumption in the auto industry and helping the environment. Vehicles would undergo fitness tests in automated fitness centers after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.
To further augment road infrastructure, more economic corridors are being planned. 3,500 km of national highway works in Tamil Nadu, investment of Rs 1.03 lakh crore 1,100 km of national highway works in Kerala, investment of Rs 65,000 crore 675 km of highway works in West Bengal, cost of Rs 25,000 crore.
The imposition of Agriculture, Infrastructure & Development Cess on the following items after reducing customs duty is expected to fund infrastructure for agriculture.

Items	Revised basic customs duty rates
Apple	15%
Alcoholic beverages falling in chapter 22	50%
Crude edible oil (Palm, Soyabean, Sunflower)	15%
Coal, lignite, peat	1%
Specified fertilizers (Urea, MoP, DAP)	0%
Ammonium Nitrate	2.5%
Peas, Kabuli chana, Bengal gram, Lentils	10%

Government sets agriculture credit target of Rs 16.5 lakh crore for FY22 to increase provision to a rural infra development fund to Rs 40,000 crore from Rs 30,000 crore. Five major fishing harbours to be developed as hubs for economic activity.
Proposed an outlay of Rs 2.23 lakh crore towards the healthcare sector, 137% higher than Rs 94,452 crore projected in FY21. The spending will include a new centrally sponsored scheme, the PM Atmanirbhar Swasth Bharat Yojana, to strengthen the health infrastructure of the country. The government plans to spend Rs 64,180 crore on the scheme spanning over six years.
The Government will rationalize customs duty on gold & silver. The gold currently attracts an import duty of 12.5% which has been reduced to 7.5% and Agriculture, Infrastructure & Development Cess of 2.5% is imposed.

Impact of the budget announcement on the sectors

The formation of the bad bank will help the banks to liquidate its non-performing loans in a comparatively easier way. The banking industry is expected to benefit out of it.
The Government is expected to provide higher recapitalisation to the Public Sector Undertaking (PSU) banks. This will aid in providing relief from capital erosion due to the COVID impact.
The vehicle scrappage policy, although a voluntary one, is expected to provide tailwinds in the auto industry, especially the Commercial Vehicles segment. The tractor and two-wheeler makers expect increased allocation towards the rural economy.
The increased spending on the healthcare sector is expected to provide opportunities for the growth of the industry. The healthcare infrastructure is expected to improve as a result of increasing spending towards the sector.

Investment Strategy

With the Government’s approach to have an expansionary budget, investors will be focusing more on winners like cyclical players instead of focusing on safety net stocks like those belonging to Pharma and Consumer sectors.
We believe that the mid-cap stocks will be a late-cycle story with the focus on the expansionary budget. We have already recommended quality mid-caps in the past and we will continue to spot opportunities in the mid-caps space as and when they arise.

We will be watching the execution of the budget very closely as any deviation from the expected performance, especially the receipts side, which can affect the interest rates meaningfully.

By Assetmultiplier Uncategorized Budget, Finance Minister, Fiscal deficit, Government of India 0 Comments Read more...

04 Mar

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 479 pts up and Nifty above 11,300 level partly led by Reserve Bank of India (RBI) comment that it was ready to take appropriate actions to ensure orderly functioning of financial markets and preserve financial stability.

NIFTY Metal (+5.6%), NIFTY Pharma (+5.1%) and NIFTY Media (+3.3%) were the top-performing sectors. None of the sectors ended in the negative. Among the stocks, Vedanta (+8.3%), Sun Pharma (+7.2%), and Hindalco (+6.9%) were the top gainers. ITC (-0.6%) and Yes Bank (-0.5%) were the only stocks in the red at market close.

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Combination of a weak economic backdrop combined with added costs due to transition to BS-VI from BS-IV makes the outlook for April-June quarter quite weak for domestic business, is the word coming in from Rakesh Sharma, Executive Director, Bajaj Auto.

Edited excerpts of an interview with Mr. Rakesh Sharma, Executive Director, Bajaj Auto; dated 2nd March 2020:

When asked about the outlook for the next 2 months, Mr. Sharma stated that the underlying economic situation remains the same, which is a high single-digit decline in the retail industry and there are issues of transition from BS-IV to BS-VI, which will add costs April onwards. So, the combination of a weak economic backdrop combined with added costs makes the outlook for April-June quarter quite weak for domestic business.
He commented that exports have had an outstanding run. Bajaj Auto had the highest ever quarter in Q3. It had the highest ever sales in January with strong growth of 15% in February. He also informed that there is an Egypt issue, which is going to be finally brought to rest in April because last year it was in April when Egypt went down. So, without Egypt there has been good strong single-digit growth in the commercial vehicle (CV) business.
Speaking about Coronavirus he said that they are watchful about the impact of coronavirus as yet there is no impact in their markets. However, some disruption in Chinese supply chains of motorcycles will definitely be an area of opportunity for a company like Bajaj Auto, who commands 35% market share in Africa. Therefore, he expects the export performance to continue January and February the way it has been doing in Q3.
When asked about the auto component supply disruption due to coronavirus hitting the production of their peers like TVS and Hero Motocorp by 10% he said that they are impacted by less than 5%. They have taken steps of airlifting critical components although slightly expensive.
He informed that electric scooter had some sourcing from Wuhan itself, so that has got affected but other than that it’s a manageable situation for Bajaj Auto. If the trajectory of supply chain improvement continues as it is occurring in China, then he doesn’t see a disruption of production in April-May also.
He commented on BSIV to BSVI evolution and said that BS-IV stocks are under control. In fact, for motorcycles, there is about 20 days of sale taking February as sale and in others like commercial vehicles they are 11-12 days of sales. The company is going through an odd period where the company is running down the BS-IV and not yet being able to fully ramp-up the BS-VI. The ramp-up is expected to start to occur in March.
When asked about the price increase on account of BS-VI he said that the price increase is between Rs 6,000 and Rs 10,000 depending on the model. The 150cc plus model, fuel injection system is used the price increase is up to Rs 10,000. So the cost increase is between 6-10%.
He stated that when there was BS-III to BS-IV transition, the economic backdrop was that of growth. The major difference this time is that the economic backdrop is not very supportive and the demand will get impacted due to the price increase. He expects it will be 10-15% decline in April to August period and hopefully, when festivities kick in, they will serve as a trigger to reverse the down cycle.
When asked about the outlook for FY21E volume, he said that the second half will not be able to compensate for the double-digit decline of the first half and might end up even-stevens or slightly negative for the industry in the whole year.

Consensus Estimate: (Source: market screener, investing.com website)

The closing price of Bajaj Auto was ₹ 2,792/- as of 3-March-20. It traded at 16x/ 15x/ 14x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 173/184/205 respectively.
Consensus target price of ₹ 3,280/- implies a PE multiple of 16x on FY22E EPS of ₹ 205/-.

By Assetmultiplier Bajaj Auto Auto sector, bajaj, Coronavirus 0 Comments Read more...

25 Nov

Bandhan Bank: Assets Under Management in North-East is low

Update on the Indian Equity Market:

The markets ended the weak on a negative note as NIFTY settled 54 points lower at 11,914. Among the sectoral indices, METALS (2.1%), MEDIA (2.0%) and AUTO (0.4%) topped the chart whereas IT (-1.9%), BANK (-0.8%) and PVT BANK (-0.7%) pared the gains. Within the index stocks, TATASTEEL (4.2%), EICHERMOT (4.1%) and ZEEL (3.1%) led the index higher whereas INFRATEL (-4.1%), INFY (-2.9%) and TCS (-2.4%) were the laggards.

Bandhan Bank: Assets Under Management in North-East is low

Key takeaways from the interview of Mr Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank dated 22^nd November 2019 published in LiveMint:

Mr Ghosh started the interview with his remarks on the current situation in Assam. He said that the bank is operating in Assam for the last 13 years. Two out of 30 districts in the state are being protested by some women, backed by political groups for certain demands. 2-3% of the total loan book of the bank is from those districts.
He stated that the protests started two weeks ago. They are demanding three things. First, to lower interest rate. The micro-finance industry is totally regulated by the Reserve Bank of India (RBI). The Apex banks cap the interest rates. The interest rate charged by Bandhan is 17.95%. This is low as compared to the cap provided by RBI.
The second demand is to have an agreement on loan applications in the local language. On this issue, Bandhan is specific in using language for all applications.
Third, they want the government to monitor these types of activities. He mentioned that it is a good step and is manageable.
The micro-credit portfolio in Assam is 18% of the total loan book. The bank has experienced such kind of issues in some corners of states. He is confident that everything becomes normal in a few weeks’ time.
Bandhan measures its growth based on the number of new customers, not on the basis of AUM. The bank has added 20% new customers compared to last year. He is confident to be able to sustain that growth.
On being asked about diversifying in new areas, he said that the bank is already diversified. Bandhan is present in 34 states and union territories (UT) as a bank. By micro-credit, it is present in 29 states and UT.
About GRUH merger, he said that currently, GRUH operates through 195 branches that were opened earlier. From day one, 106 out of 1,009 Bandhan branches have opened GRUH housing loan desk. In a similar way, Bank is driving the affordable housing loan to citizens in West Bengal, Bihar, Jharkhand and Assam. This will help the Bank to diversify its portfolio.

Consensus Estimate (Source: market screener website)

The closing price of Bandhan Bank was ₹ 526/- as of 22-November-19. It traded at 5.3x/ 4.2 x/ 3.5x the consensus BV estimate for FY20E/ FY21E/ FY22E of ₹ 97.7/ 124.0/ 152.0 respectively.
Consensus target price of ₹ 636/- implies a PB multiple of 4.2x on FY22E BV of ₹ 152.0/-.

By Assetmultiplier Bank 0 Comments Read more...

Author - Assetmultiplier