Author - Assetmultiplier

Update on the market: On Thursday, Nifty ended 5 days streak by closing -0.5% at 10,980. Yes Bank, Maruti Suzuki, Tata motors were among the biggest losers. Indiabulls Housing finance ltd, Asian paints, Axis bank were the gainers. Among sectoral indices Auto (-1.81%), Realty (-0.69%), IT(-0.68%), FMCG(-0.71%) closed lower while PSU banks (0.18%),Pharma (0.18%), Financial services (0.24%) ended on a positive note.

Excerpts from an interview of P.S.Jayakumar, CEO Bank of Baroda with  CNBC-TV18

• While having a discussion on amalgamation Mr Jayakumar says 3 things stand out of his mind, one is how do they define new business proposition, the second thing is around the people integration and the third which is equally important is the technology integration.
• Mr Jayakumar says, one of the biggest challenge while integrating is to articulate new business model post the merger or amalgamation.
• In BOB’s case it is about the synergies, the cost structures, cost savings and the revenue pickups that are coming in.
• Customers are getting the benefit of a larger overseas and product platform.
• Mr Jayakumar says, getting the technology integration is the more difficult task because it takes much effort and energy to get in line with core banking systems.
• Speaking about Products link to repo rate, Mr Jayakumar says that there could be some challenges with respect to margins, because pricing depends on external benchmark.
• From earnings perspective, if the dilution that happens because of NPA’s is managed than then there is a pick up that is coming.
• Further adding on margins, he says the consensus view seems to be further decline of 50 basis points (bps) in repo rate.
• From a short-term perspective if the treasury portfolio is improved and some resolutions that the bank is expecting are passed than the bank will be in position to handle the net interest margins (NIM)
• From a long- term perspective, he believes that the monetary transmission takes place and will not affect the margins of the bank.
• Taking about NPA’s Mr Jayakumar says, there are two elements one is slippage number and other is recovery number. He says, that the recovery number would start moving up in Q3 and Q4 as the insolvency and bankruptcy code (IBC) process and the changes then on resolves itself.
• Speaking with respect to BOB’s portfolio, the bank expects the net NPA as of March to be lower than the prior period or prior March and going towards the 3% or sub-3 % percent level.

Consensus Estimate (Source: market screener website)

• The closing price of Bank of Baroda was Rs 96 /- as of 12th September 2019. It traded at a price to Book Multiple (P/B) multiple of 0.6x/0.5x the consensus Book value estimates for FY20/21E of Rs 165/ 179 respectively.
• Consensus target price of Rs 132/- implies a P/B multiple of 0.7x on B/V of Rs 179 for the year ending Mar-21E.

Update on Indian market: On Friday, Nifty gained (+0.91%) to 10,946. Within NIFTY stocks, top performers were Maruti (+3.9%), Tech M (+3.8%) and Tata Steel (+3.4%) and worst performers were Indiabulls Housing (-4.6%) and Yes bank (-1.9%). Among the sectoral indices, best performers were Auto (+2.6%) and Media (+1.9%) and Pvt banks (+1.4%). Worst performing sectors were Realty (-0.6%) and FMCG (-0.2).  

Excerpts from an interview with Mr Ajith Rai, chairman and managing director of Suprajit Engineering published in Livemint dated 5th September 2019.

• The auto ancillaries are probably weathering the storm slightly better. In Suprajit’s case, quite a few of these OEMs have reduced their shares of the business because of their business slow down by 10-20%.
• Companies such as Suprajit have diverse exposure, not only customer wise, across the segment from two-wheelers to LCV, HCV and automotive. They also have multi-sector exposure.
• They are in two-wheelers, they are in the aftermarkets, they are in exports and they are in non-automotive business. So, fortunately, for Suprajit, though the Indian OEM business is an insignificant part for them, from the overall perspective they have not been that badly affected.
• From an overall point of view, this slowdown is certainly affecting all of the auto ancillary companies but it is a question of how badly or how least affected one is. Suprajit is one of the least affected ones in this business.
• Suprajit has 17 plants across with capacity utilization of around 75% at this moment plus or minus 5% depending upon the plant and the units.
• They are improving their operational efficiencies. They are able to deal with the slowdown more efficiently.
• They get regular schedules from OEMs. At the end of the month, they get the schedule for the next month but during the month also, there is a lot of fluctuation that happens with the OEMs because they also go by what their distributors and the end-users want. So there is a change during the month itself.
• Mr Rai said that “Over the 35 years of my life as an auto ancillary, there have been at least four slowdowns or cyclical downturns and these downturns typically last anywhere from 12 months to 24 months. We are through for about 12 months. It started somewhere in last September. So we are already one year into it and probably at least another six months to 12 months is still pending.”
• There are multiple reasons for the slowdown or the cyclical downturn. Right now it could be the EV threat, it could be the additional cost or it could be the BS-VI issues or the GST. 
• They all are basically waiting for whether the GST comes down or not, whether the GST effect is there or not, whenever that happens, somebody has to take a hit. 
• However, the real story is that the demand itself has to pick up. He thinks it will have to go through the whole cycle to get back to normalcy.

Consensus Estimate (Source: marketscreener website)

• The closing price of Suprajit engineering was Rs 160/- as on 6^th September 2019. It traded at 17x / 14x the consensus EPS for FY 20E / FY 21E of Rs 9.4 / 11.1 respectively. 
• Consensus target price of Rs 182/- implies a PE of 16x on FY21E EPS of Rs 11.1.

Dated: 29th August 2019
Market update:

With no big catalyst today, the markets continued to fall for third straight day as Nifty dropped -0.9% to 10,948. Today was also the monthly F&O (Futures and Options) expiry day which led to volatile trading session. It is important to note that the FIIs have continued to sell their positions in spite of rollback of additional surcharge. This highlights that the focus is on the economy and corporate earnings growth.

Among the sectoral indices, Pharma was an outlier with the index rising 2.3%. 7 out of 11 major indices were in the red zone with Financial services (-1.9%) and Banks (-1.8%) led the drop. Within the stocks, Sun pharma (+5.2%) bharti infratel (+3.5%), JSW steel (+3.0%) were the best performers while SBI (-3.7%), Yes bank (-3.5%) and HDFC (-2.68%) were the worst performers.

HDFC Life – Robust FY20 strategy to drive growth

Key highlights from interview with Mrs. VIbha Padalkar (CEO- HDFC Life) that appeared in Economic Times – 29^th August 2019

• The market realises a couple of things. One is that insurance companies have a much longer horizon in terms of everything and fundamentals of Indian macros are pretty strong and worldwide it is seen as very strong emerging market.
• The understanding of what insurance products can offer which are different from investment related insurance products as it was known earlier, is becoming more and more apparent.
• Protection is something that insurance companies are beginning to focus on and HFDC Life has been the market leaders in that space.
• They expect the industry to grow from strength to strength despite all the macro level volatility that they are seeing.
• HDFC Life has always believed in the principles of strong growth and profitability. Market share is an outcome. It will continue to beat overall industry growth but not necessarily be the first in terms of profitability as well as market share.
• 1Q margins were very robust, just shy of 30% and this was on the back of a lot of focus on  non-par product which is Sanchay Plus. However, on a full year basis, this will stabilize somewhat. It will certainly be higher than where it ended last year but nevertheless rationalise.
• She believes in a balanced product mix. HDFC life might be exiting the year with a non-par portfolio in the range of about 35 odd per cent.
• HDFC Life continues to be interested in evaluating inorganic growth opportunities that come its way. They have a currency and a strong balance sheet but they want to do this in a sensible manner. As regards Max Life, nothing is on the table right now but they continue to remain interested.

Strategy for FY20:

1. In Q1, agency channel grew 121%, bancassurance grew upwards of 45%, broker channel grew three times, online channel almost doubled. In FY20, they want to continue to forge ahead through all its channels. They want to be firing on all the channels.
2. They want to continue to be known as product innovator and they have a few in the pipeline and they are hoping that by the end of 3Q, they can take some more blockbuster products to market which will be first of its kind.
3. They are known as a technology-focussed life insurer. On that part as well, they have mentioned in the past that they have tied up with Ivy Camp and they are looking under their Futurance umbrella at a whole host of start-ups that can work with them.
4. Be it in the pension space or the life insurance space, they are looking at it as an end-to-end platform.
5. Forging ahead in the ecosystem such as the recent tie up with Airtel. They are having more conversations that are happening with the new ecosystem partners who at present have a very huge customer base who have not really thought that they could sell financial services products through their own channels.

Consensus estimates (Marketscreener website):

• The stock price was Rs 541/- as of close price of 29^th August 2019 and trades at P/E multiple of 72x / 62x / 56x the consensus EPS of Rs 7.5/ 8.8 /9.6 for FY20E /21E / 22E respectively. 
• Consensus target price is Rs 529/- implying P/E of 55x for FY22E EPS of Rs 9.6.

Dated : 27th August 2019

Update on Indian Market:

Indian markets moved up on Tuesday. Nifty closed 0.43% higher. Among the sectoral Nifty indices, Bank (0.63%), Auto (1.85%), Metal (2.09%) closed higher, whereas Pharma (-0.16%), IT (-1.35%), Media (-0.18%) closed lower.

Is it the best time to buy cars?

Excerpts from an interview of Mr Nikunj Sanghi, Director Federation of Automobile Dealers Associations (FADA) given to ETNOW – dated 19 August 2019

• Large amounts of discounts are given by OEM’s, dealers to tackle the pressure to push inventory out, as BS-VI transition is just around the corner.
• Speaking about the discounts Mr Sanghi says, the discount on diesel vehicles are the highest because in smaller vehicles, diesel as a fuel is taking a hit and the customer is shifting towards petrol.
• Most manufacturers have said that they will not produce diesel variant of small cars, because the cost of small car becoming a BS-VI is higher as a proportion to total cost.
• Mr Sanghi don’t expect further increase in discounts because they are already on peak, also the monsoon has done reasonably and a lot of shortfall of the monsoon has been covered.
• The festive season is also on its way and both dealers and manufacturers are looking at a much better festival season than the past five, six months that they have already seen.
• Mr Sanghi believes that major correction took place in passenger vehicle segment, but inventory continues to be a concern for two-wheeler and Commercial vehicles dealers and manufacturers.
• A relief is expected from the guarantee scheme for the NBFC’s that the government of India has floated, which will help in inventory funding. When money comes in system, it creates a better environment for dealers.
•  Corrections have also taken place in terms of man power a lot of OEM’s are now cutting down production and hiving off staff, he believes the pain is likely to continue for some period of time.
• Mr Sanghi says, that the level of inventory in the pipeline is sufficient for the festival season and don’t expect a build up in inventory as it normally happens.

Our views – In our view, the festive season is expected to be robust because of the heavy discounts offered by auto manufacturers. The other factor is that most of the companies are expected to roll out the BS-VI compliant vehicles as early as this December. This is expected to increase price of vehicles. Hence this might be a strong festive season for companies 

Michael Batnick writes that one of the biggest challenges investors face is their desire to tinker. Like Pascal said, “All of humanity’s problems stem from man’s inability to sit quietly in a room alone.”

You don’t dig up a young tree every time storms. It needs time to grow. The roots can handle wind and rain and thunder. Likewise, a diversified portfolio needs time to grow, and can also withstand some discomfort. Beyond discomfort, investors will have to survive tornadoes from time to time. 

Morgan Housel recently framed how different investors might deal with market turbulence: If you view every debt-fueled recession, market crash, and asset bubble as an example of your fellow people acting crazy you might get cynical, which makes it hard to be a long-term optimist even when you should be. If you view them as inevitable you realize they’re just part of the ride and an occasional reminder that the fasten-your-seatbelt sign should never be turned off.

So, finally, here are the three things you can do to think and act for the long-term:

• You can’t think long-term if you’re not saving money. Everyone knows what their income is, not everyone has a handle on the other side of the ledger. You don’t have to create an agonizingly detailed spreadsheet of every Rupee that goes out, but you must have a rough idea of what you can afford to save every month. And those savings must be automated. When your income comes in, savings go out. Pay yourself first. (I understand that saving money is a luxury many people don’t have, but if you’re reading this, I assume you’re one of the fortunate ones)
• You can’t think long-term if you are experiencing a short-term cash crunch. The best way to avoid this is to keep your big-ticket items to a reasonable percentage of your income. Coffee won’t break the bank, a mortgage and car payments can. The second best way to avoid a short-term cash crunch is to have cash in the bank. Six months seems reasonable, but if you’re responsible with your bills, I’m okay with having less.
• You can’t think long-term if you take more risk than you can stomach. If you thought about how much higher the market might be in twenty years, would you care how low it went tomorrow? In theory no, in reality, obviously yes. And this is where planning comes into play. If you really hate seeing your account go down, then figure out where your maximum pain point is and work backward. For example, if 10% is the maximum loss you can tolerate, using the assumption that stocks can get cut in half, you should have no more than 20% of your portfolio in stocks at any time. Of course, this will severely limit your upside, but investing isn’t just about maximizing return, it’s about maximizing a return that you can reasonably expect to achieve.

Batnick concludes that if these seem obvious to you, good, that’s the idea. This isn’t rocket science. Thinking long-term is hard, which is why it can be so rewarding. Acting on short-term impulses, on the other hand, is a short cut, which rarely works out well. The most successful investors are able to ignore the things today that they know won’t matter tomorrow.

Dated – 19th August 2019

About company

• Galaxy Surfactants Limited is a leading manufacturer of performance surfactants and specialty care products with over 200 product grades used in Home and Personal Care industry. Galaxy surfactants has its presence in 70 countries with more than 1700 Customers.

Q1FY20

• Galaxy Surfactants reported 7% YoY decrease in their revenue at Rs 6,650 Mn
• Total Volume grew by 4% on YoY basis to 54,767 MT.
• Galaxy reported EBITDA growth of 12% YoY basis to Rs 970 Mn.
• Profit after tax stood at Rs 530 Mn, a jump of 15% YoY basis.

Management Commentary

• -7% decrease in the revenue was mainly caused by decrease in their raw material cost (Fatty alcohol), which declined by 19%.
• Galaxy surfactants completed its capex at Jhagadia plant, which increased the capacity by 50,000 MT.
• Capex guidance for the year FY20 is Rs 1250 Mn.
• Management guided that EBITA per tonne will be in the range of 15,000 MT to 17,000 MT.
• There was marginal impact of Ind AS 116 on the company.
• As per the current scenario in domestic market, management expects Q2FY20 to be weaker, whereas in Q3FY20 & Q4FY20 management expects revival of demand in domestic market.
• Galaxy surfactants continuous to perform well in Rest of the world market. In Q1FY20 company reported 26.5% YoY increase in their sales volume (in MT).

 Consensus Estimate (Source: market screener website)

• The closing price of Galaxy Surfactants was Rs 1,302/- as of 19-August-2019. It traded at 21.4x/18.4x consensus EPS for FY20E and FY21E is Rs 60.8/- & Rs 70.6/- respectively.
• Consensus target price of Rs 1,340/- implies a PE of 19.0x on FY21E EPS of Rs 70.6

For more visit www.assetmultiplier.co.in

Dated: 13th August 2019

• APL Apollo volume grew 29% YoY at 388,511 tonnes for the quarter driven by volume growth from GP pipes, Hollow DFT pipes and Normal Hollow pipes of 33%, 30% and 33% YoY respectively.
• Net Revenues were higher by 24% YoY at Rs 20,716 mn. The growth was driven by an uptick in the domestic and overseas market. The value-added products in the categories of Hollow Pipes, DFT (Direct Forming Technology) pipes and GP (Pre- Galvanised) pipes contributed to the revenue growth.
• The revenues include a contribution from Apollo Tricoat for 13 days of the operation in this quarter which amounted to Rs 117 mn.
• EBITDA for the quarter grew 15% YoY at Rs 1,250 mn. The EBITDA margins were at 6.0% as against 6.5% in 1QFY19. EBITDA per ton stood at Rs 3,334.5 vs Rs 3,584.4 in 1QFY19. The key factors impacting the operating performance were:
• Increased spend on Brand development and marketing activities, which stood at Rs 107 mn during the quarter.
• Stamp duty of Rs 23 mn for the acquisition of the Shankara plant during the quarter resulted in higher other expenditure.
• Raw material prices during the quarter were down by ~Rs 1,500/ ton which impacted inventory valuations
• Depreciation stood at Rs 202 mn in 1QFY20, higher by 33% YoY and interest costs stood at Rs 283 mn, higher by 7% YoY. Depreciation was higher due to the commissioning of new capacities and the establishment of a new warehouse in Dubai in the quarter.
• In 1QFY20, PAT grew by 11% to Rs 521 mn. Net profit growth was impacted by higher depreciation and increased tax rate (36% for the quarter).

Management Commentary

• The management has maintained its 20% plus volume guidance for FY20E & FY21E respectively.
• They have set a PAT target growth of 25% for FY20E & FY21e on the back of the improved operating performance going forward.
• They expect the EBITDA per tonne to remain muted at Rs 3,300-3400 for FY20E considering the slowdown in the economy which will have some impact on the Company. They expect EBITDA per tonne to be around Rs 4,000-5,000 tonne in the long term.
• The Company sees no further Capex requirement for next 2 years. They expect the Capex to be around Rs 500 mn annually for the next two years.
• As per the Company, Shri Lakshmi Metal Udyog, APL Apollo Tubes wholly-owned subsidiary, has concluded the acquisition of Apollo Tricoat in June 2019.
• In 1QFY20, Apollo Tricoat started commercial production of its first two product categories namely, the In-line Galvanized (ILG) pipes and Designer Pipes at the existing Greenfield plant at Malur, Bengaluru. The plant has a capacity of 150,000 tons per annum.
• In the month of July 2019, Apollo Tricoat commenced commercial production of Door Frames at its greenfield manufacturing facility at Dujana, Dadri having a capacity of 50,000 MTPA.
• All three launched product segments are higher-margin value-added products, given their niche product applications in India. The Company is also on track to launch the other innovative products category of Narrow Sections by September 2019. An improved portfolio of all the four value-added segments is expected to broaden the product mix and should enable the Company to deliver a healthy financial and operational performance going forward.
• Kerala contributes around 8-10% to the total sales volume for APL Apollo. As Kerala has been hit by floods, the management expects a negative impact on the sales volume. Thus to cover up the volume loss, the Company will focus on other states for a healthy growth in volumes.

Consensus Estimate (Source: market screener website)

• The closing price of APL Apollo Tubes Ltd was Rs 1,299/- as of 13-August-19. It trades at 15x /11x the consensus EPS for FY20E /21E of Rs 88.1/ 114.0 respectively.
• Consensus target price of Rs 1,981/- implies a P/E of 17x on March-FY21E year ended.

What’s your risk tolerance? How do you identify it? Both are important questions that I doubt investors spend a ton of time thinking about at first. They’re also abstract questions thanks to all the convoluted definitions of risk. During an interview, Daniel Kahneman was asked his thoughts about identifying risk tolerance. He suggested a better way to frame the question: what’s your loss tolerance? How much loss can you endure before hitting the breakpoint where emotions push you to change your portfolio? By reframing it, Kahneman forces you to think in terms of Rupees, not percentages. That may not seem like a big difference, but emotions trigger in Rupees terms. Lost Rupees can be quickly equated to missed goals and dreams — less money to spend, a canceled vacation, a postponed retirement — that make you nauseous in ways that a percentage won’t.

Kahneman went on to explain its importance in minimizing regret and how to fit it into portfolio construction.

The main question that he found useful to ask when someone is very wealthy is how much loss is the individual willing to tolerate? That is, what fraction of their wealth are they actually willing to lose? It turns out that fraction is usually not very large. That’s a very important parameter. How much do they really want to protect as much as possible, and how much are they willing to consider losing? That varies a lot among individuals. By and large, the very wealthy mostly want to protect their wealth, and they’re willing to play with a small fraction of it. That is the fraction they are prepared to lose, but it’s not a large fraction. So they’re loss averse, not risk as such.

For the individual who is very concerned about losses, he thinks stop-loss order is certainly a good approach. That’s the major question you want to ask the investor. How much are willing to lose? Then you have to take steps so that they won’t lose more than they are willing to lose. That’s in effect a stop-loss policy.

Daniel Kahneman is an Israeli-American psychologist and economist. His notable work is in area of the psychology of judgment and decision-making, as well as behavioral economics. He was awarded the 2002 Nobel Memorial Prize in Economic Sciences.