Author - Maitreyee Vaishampayan

  • Maitreyee Vaishampayan
10 Jun

Expect robust demand but need to watch for supply issues– Galaxy Surfactants

Update on the Indian Equity Market:

On Thursday, Nifty snapped its two-day losing streak to end at 15,738 (+0.7%). Among the sectoral indices, MEDIA (+4.6%), REALTY (+3.3%), and PSU BANK (+2.4%) led the gainers while AUTO (-0.1%) was the only sectoral loser. Among the stocks, BAJFINANCE (+7.7%), BAJAJFINSV (+3.8%), and SBIN (+2.6%) led the gainers while BAJAJ-AUTO (-1.0%), EICHERMOT (-0.7%), and UPL (-0.7%) led the losers.

Excerpts of an interview with Mr. U Shekhar, Founder, and MD, Galaxy Surfactants (GALAXYSURF) with CNBC TV-18 on 9th June 2021:

  • Operating margins have gone down in 4QFY21 due to a sharp increase in raw material prices. As a result, revenue increase has been in direct correlation with the increase in material prices.
  • Overall, for the year sales volume growth was ~5.2% with specialty care products growing 15.7% in 2HFY21 over 1HFY21. Performance surfactants volume grew ~8.8% in FY21.
  • FY21 and FY22E are going to be focused on mitigating supply chain disruptions. Demand will be strong with a focus on GALAXYSURF’s response to customers’ supply chain requirements.
  • New products have been launched and expect EBITDA per ton to increase sequentially.
  • The delay in the arrival of raw material along with sustained higher freight costs remains a concern for the regular availability of raw material.
  • There could be certain costs to maintain an inventory that might have a marginal impact on margins.
  • FY21 was a ten months performance, especially for India. The US and Egypt business was not impacted as much, in terms of operations. The growth in terms of specialty care was in 2HFY21 when customers’ demand improved. With the introduction of new products in FY22, they are confident of additional revenues from new customers. A 6-8% volume growth is expected.
  • International sales have remained stable at ~65%. Mr. Shekhar expects a ratio of 65-35/67-33 for international and domestic sales.

 

Asset Multiplier Comments

  • The Company has given a Capex guidance of Rs 1.5bn for FY22, with a large part to be spent on the specialty care portfolio. The ongoing capex projects are expected to be completed in 1HFY22, resulting in the introduction of new products, which will aid volume growth post 2HFY22.
  • With clients’ focus on reducing carbon footprint, the launch of new green products will strengthen the Company’s market position in specialty care products.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of GALAXYSURF was ₹ 3,061/- as of 10-June-2021. It traded at 34x/ 30x the consensus earnings estimate of ₹ 89/102 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,742/- implies a PE multiple of 27x on FY23E EPS of ₹ 102/-.

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 Chemicals, Galaxy Surfactants , , 0 Comments Read more...
05 Jun

This week in a nutshell (31st May – 4th June)

Technical talks

NIFTY opened the week on 31st May at 15,438 and closed on 4th June at 15,670. It made a weekly gain of 2%. The index is trading at its all-time high level. Indicators like RSI (14) 70 and downward turning MACD suggest a downward correction. The index might take support of its 10DMA of 15,458 before making a strong move on either side.

Weekly highlights

  • The Ministry of Defence (MoD) announced a list of 108 items of defence equipment that must be compulsorily procured from indigenous sources. The list includes items that will be banned for import in a staggered manner from December 2021 to December 2025. There is a special focus on weapons/systems which are currently under development/trials (in India). This embargo is expected to benefit Bharat Electronics Ltd, Solar Industries India Ltd, and other PSU which have a presence in the defence sector.
  • Automobile companies reported the monthly sales volume for May-21. The lockdowns in states such as Maharashtra, Haryana, Karnataka, and Tamil Nadu (key automotive hubs) forced carmakers to halt production. The impact of lockdowns was visible with companies reporting high double-digit month-on-month (MoM) decline across segments (Source- Business Standard). While a pickup in vaccination is expected to be a positive development for the sector, the semiconductor shortage remains a key issue to meeting the pent-up demand.
  • The Monetary Policy Committee (MPC) of RBI decided to keep the repo rate unchanged at 4 percent. The stance remains accommodative for as long as necessary to revive and sustain growth on a durable basis. The Committee lowered the GDP projection for FY22 from 10.5% (April-21) to 9.5%. The RBI also announced government securities acquisition programme worth Rs 1.2 tn in second quarter. The 10-year bond yield closed at 6.03% vs 5.99% on Friday.
  • The RBI has announced a Rs. 150 bn package for contact intensive sectors like hotels, restaurants, tourism, aviation, and ancillary services. These industries which have been hit hard due to the virus outbreak, have been provided a much-needed liquidity dose.
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 54,618mn, an increase from the previous week’s Rs 20,400mn purchase. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 2,442 mn which is lower compared to last week’s selling of Rs 3,240 mn.

Things to watch out for next week

  • With the result season almost over, companies have started publishing annual reports. Management commentary on the future outlook and strategy to mitigate the impact of 2nd wave is something to watch for. Vaccination progress and unlock process across India may be the catalysts for the market movement.
By #WeekInANutshell , 0 Comments Read more...
25 May

Will offer better interest rates to depositors once loan book starts growing – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally higher at 15208 (+0.1%) as it could not sustain the intraday higher levels. Among the sectoral indices, MEDIA (+3.2%), IT (+1.0%), and AUTO (+0.7%) ended higher while PSU BANK (-1.3%), PRIVATE BANK (-0.9%), and BANK (-0.8%) led the losers. Among the stocks, ASIANPAINT (+3.5%), TITAN (+3.3%), and JSWSTEEL (+3.0%) led the gainers while HDFCBANK (-1.9%), HDFCLIFE (-1.4%), and AXISBANK (-1.2%) led the losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in The Economic Times on 23rd May 2021:

  • SBIN has been cautious in terms of building a healthy balance sheet. After careful evaluation and ensuring there are enough risk mitigants, they underwrite the risk.
  • There has been a growth in the retail book, and the retail book’s stress is the least possible. The growth in the retail book provides a decent earnings headroom in the future.
  • The corporate credit growth in 4QFY21 looks muted but they have sanctioned limits that have been utilised to the extent of ~30%. They have seen 70% utilisation. There are sanctioned term loans that have not been availed to the extent of 28-30%.
  • They expect strong growth post demand recovery once Covid 2.0 subsidies. He is hopeful of robust credit growth in the corporate segment going forward. The Agriculture segment is going to be in focus in FY22 in addition to retaining the retail advances growth.
  • The resolution framework (RF) 2 announced on May 5 allows the banks to offer the resolution up to Rs 250 mn to individuals. The individuals in the personal loan segment can be offered the resolution or restructuring as needed.
  • SBIN does not expect much of a problem in the cash flow of their retail borrowers. There could be some anxieties but the bank isn’t concerned much.
  • When it comes to raising funds from the market, it is a function of liquidity in the market. Going forward, Mr. Khara believes the corporates will continue to borrow from banks. Depending upon their risk rating, corporates will be looking at borrowing from the markets. Bank borrowing or borrowing from the market, the only difference is the instrument. SBIN is a strong player in the market borrowing and has a treasury book of Rs 13000 bn.
  • In 4QFY21, the credit costs have gone down by more than 100bps but credit costs evolve as it will be a function of the macro and how the book behaves going forward. They would prefer to maintain the credit costs at these levels because going below the current levels would affect the profitability.
  • SBIN would prefer to offer better interest rates to depositors once the loan book starts growing.
  • Khara believes the deposit rates have bottomed out and there would not be any further cutting down of the deposit rate.
  • Economic situation permitting, SBIN would like to build the loan book and he expects to grow at a pace of at least 10%.

Asset Multiplier Comments

  • SBIN has been focusing on improving asset quality with credit cost and slippages reported in 4QFY21 being the lowest in 20 years. Despite Covid-19 induced stress, the retail loan book has done well and is stable.
  • With a gradual recovery in the return ratios, there could be a much better translation of operating profit to net profit in FY22-23E led by lower credit costs.

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

  • The closing price of SBIN was ₹ 414/- as of 25-May-2021. It traded at 1.4x/ 1.2x the consensus book value estimate of ₹ 300/ 339 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 456/- implies a PB multiple of 1.3x on FY23E BV of ₹ 339/-.

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 SBI , , 0 Comments Read more...
12 May

Localised lockdowns impacting collection efficiency – Bandhan Bank

Update on the Indian Equity Market:

The Indian benchmark indices closed in the red for the second day, due to concerns over the impact of faster inflation on dollar flows into emerging markets. The Nifty50 ended the day at 14,697 (-1.0%), dragged by TATASTEEL (-4.8%), HINDALCO (-3.5%), and JSWSTEEL (-3.5%). The top gainers in the index were TATAMOTORS (+3.2%), TITAN (+1.6%), and MARUTI (+1.3%). The sectoral gainers were PSU BANK (+3.2%), MEDIA (+0.7%), and AUTO (+0.2%), while METAL (-3.0%), PRIVATE BANK (-1.6%), and BANK (-1.3%) led the sectoral losers.

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank (BANDHANBNK) published in Mint on 12th May 2021:

  • The complete impact of the second wave is yet to be felt, but Mr. Ghosh expects business to bounce back by June-21.
  • The impact of the second wave of the virus has been localised lockdowns. The advantage of localised lockdowns is businesses are still functional. There was a lack of access to villages and smaller localities last year, affecting collection efficiency.
  • Following localised lockdowns, collection efficiency has dropped 300-400bps from March-21. The drop has been due to complete lockdowns in certain areas and with branches in such areas, executives cannot go out for collections. This impact has been felt in April-21, he expects the efficiency to bounce back by June-21.
  • The microfinance part of their business is better off without moratoriums. In their case, borrowers repay if they can come to the bank’s offices or where the collection executives can reach. Wherever it is not permitted, the executives are not venturing out. Mr. Ghosh believes this is better than a moratorium, as nobody would want to repay under a blanket benefit.
  • The bank is providing loan restructuring if customers request it. The customers who are able to pay 50% or 75% in instalments are paying. The customers take it upon themselves to repay so that credit score isn’t impacted. About 78% of NPA (Non-performing Asset) customers have repaid in March-21.
  • He expects similar growth in credit growth in FY22 as last year (~20%).

Asset Multiplier Comments

  • As the bank has a higher exposure to rural and semiurban areas, there was a lower impact on its operations in 4QFY21. With lockdown restrictions imposed in rural areas as well due to the second wave, the bank may face issues with collection.
  • In the recently released 4QFY21 results, the Bank has recognised higher provisions for weaker borrowers adequately. While the impact of the second wave cannot be measured so soon, the bank is likely to maintain its conservative stance and maintain higher provisioning buffers going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of BANDHANBNK was ₹ 288/- as of 12-May-2021. It traded at 2.3x/ 1.9x the consensus book value estimate of ₹ 126/ 155 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 384/- implies a PB multiple of 2.5x on FY23E BV of ₹ 155/-.

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 Bandhan Bank, Bank , 0 Comments Read more...
03 May

Plan to cross USD 1bn revenue by FY23 – Laurus Labs

Update on the Indian Equity Market:

The Nifty50 made a comeback in the last hour to end the day a little changed at 14,634. Among the index components, SBILIFE (+5.4%), BHARTIARTL (+4.5%), and ADANIPORTS (+4.5%) ended the day with gains. TITAN (-4.6%), INDUSINDBK (-2.3%), and RELIANCE (-1.9%) ended in the red. METAL (+2.2%), FMCG (+1.1%), and PHARMA (+0.3%) were the top sectoral gainers while MEDIA (-1.4%), PRIVATE BANK (-1.1%), and BANK (-1.0%) led the sectoral losers.

Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs aired on CNBC TV-18 on 30th April 2021:

  • Laurus Labs recently declared 4QFY21 results, wherein Active Pharmaceutical Ingredient (API) revenue is up 88 percent and formulations are up 61 percent YoY. EBITDA margins reported were 33.4%.
  • They have the capacities, products to be made, and customer demand and expect reasonable growth in FY22.
  • The 30% + EBITDA margin is a benchmark. They will aim to achieve these margins to maintain healthy growth.
  • They continue to invest in infrastructure, investing Rs 7,000mn in FY21. They have earmarked Rs 15,000-17,000 mn for FY22 and FY23 for capex to augment their capacities in all 3 divisions.
  • The growth in API business has nothing to do with manufacturing Covid-19 drugs. The growth came primarily from antiretroviral, oncology and contract manufacturing for other generic companies. So far, there hasn’t been any disruption in the supply chain and no impact is expected from the 2nd Covid wave. There was an increase in logistic cost though.
  • The internal target is to cross USD 1bn in revenues by FY23E. With the capex incurred in FY21 and planned in FY22-23E, there will be a growth in revenues in FY22-23E.
  • The raw material price increase in products such as Paracetamol and Azithromycin was due to higher demand. In the products Laurus labs is manufacturing, the demand has not shot up as it has for the 2 products.
  • They are not passing on any of the incremental costs to customers. Due to covid-19, there was an incremental expense of USD 10mn, which was not passed onto customers.
  • Rather than investing in a one-time product, they are investing in the longer term. There is significant investment being made in the CRAMS business as they foresee sizeable growth in that division.

Asset Multiplier Comments

  • The ramp-up in formulations business is expected to continue over FY20-23E. The execution in the US and EU are crucial to drive the next leg of formulations growth.
  • With a renewed focus on the synthesis segment, with R&D, increase in the number of customers, and addition of capabilities positions Laurus to evolve its business mix over the next 3-5 years.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 478/- as of 03-May-2021. It traded at 22x/ 20x the consensus earnings estimate of ₹ 21.3/ 23.9 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 414/- implies a PE multiple of 17x on FY23E EPS of ₹ 23.9/-.

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 Laurus labs , 0 Comments Read more...
01 May

This week in a nutshell (April 26th to April 30th)

Technical talks

NIFTY opened the week on 26th April at 14,449 and closed on 30th April at 14,631. It made a weekly gain of 1%. The index is trading above its 20DMA of 14,618 which might act as a support. On the upside 50DMA of 14,783 might act as a resistance. The RSI (50), and MACD turning downwards suggests a further possible decline.

Weekly highlights

  • The Reserve Bank of India (RBI) capped the tenure of MDs and CEOs of private banks at 15years. Promoters can hold this post for a maximum of 12 years but the RBI can choose to give them a 3-year extension under extraordinary circumstances. These rules apply to private banks, small finance banks, and wholly-owned subsidiaries of foreign banks. These new rules will apply once the tenure of existing MDs/CEOs for which approvals have been taken is completed. This will impact banks such as Kotak Mahindra Bank, where Mr. Uday Kotak has been the head of the institution for 17 years and there could be a change in the management once his term is completed in 2024.
  • The Securities and Exchange Board of India (SEBI) has directed the mutual fund (MF) industry that a fifth of the salary of top executives is to be paid in the form of mutual fund schemes they oversee. The allotment of MF units will be done every month and will be subject to a 3-year lock-in. The industry welcomed the move as it increases accountability and would ensure a better selection of securities.
  • Several automobile manufacturing companies have announced plans to shut down plants for up to a fortnight from May 1. The surge in Covid-19 cases and scattered lockdowns across states and cities are the reasons attributed to the temporary shutdown. This will impact production and sales in the June-21 quarter.
  • FII (Foreign Institutional Investors) selling and DII (Domestic Institutional Investors) buying trend continued this week as well. There was a net outflow of Rs 44571mn from the FII kitty while DII invested Rs 52833 mn.

Things to watch out for next week

  • The Automobile companies will report monthly volume data for April-21. The data will be important to ascertain the impact of the second Covid-19 wave and lockdowns on the demand.
  • The 4QFY21 result season continues in the next week as well. The Commentary from biggies such as Hero MotoCorp and HDFC will be critical.
By #WeekInANutshell , , 0 Comments Read more...
21 Apr

Expect 20 percent plus EBITDA margins to continue – Mindtree

Update on the Indian Equity Market:

The Indian Equity market indices gained after the Indian government announced that all citizens over the age of 18 can have Covid-19 vaccinations from May 1.  The markets pared morning gains as investors were worried due to the increasing Covid-19 cases in the second wave. Nifty 50 ended at 14,296 (-0.4%).  Among the stocks, DRREDDY (+3.6%), BAJAJFINSV (+3.5%), and HDFCLIFE (+3.0%) ended with gains while ULTRACEMCO (-4.9%), HCLTECH (-3.4%), and HDFC (-3.3%) led the losers. Among the sectoral indices, MEDIA (+3.0%), PHARMA (+1.3%), and AUTO (+1.0%) led the gainers while IT (-1.4%), FMCG (-0.6%), and FINANCIAL SERVICES (-0.6%) led the losers.

Excerpts of an interview with Mr. Debashis Chatterjee, MD & CEO, Mindtree aired on CNBC TV-18 on 19th April 2021:

  • Mindtree reported 4QFY21 quarterly results, with the consolidated net profit reporting a ~54% YoY growth to Rs 3,174 mn due to strong operational efficiency.
  • Two successive quarters of 5percent plus growth instills confidence in the Company in terms of momentum generated by deal closures.
  • The order book stood at USD 1.4 bn as of 31-March-21. The order book was 12% more than the previous year. The pipeline has never been stronger and with the changes done in terms of the 4*4*4 strategy- the execution is going well.
  • They have focused on some of the strategic accounts and focusing on cross-selling and up-selling as a part of their strategy. Considering these factors, they remain confident of delivering double-digit growth in FY22E and maintaining the margins at 20 percent plus.
  • They have added net 1600 employees in 4QFY21. Owing to a strong pipeline and a high demand, Mr. Chatterjee expects hiring to be robust in the next couple of quarters.
  • The war for talent has aggravated in the last couple of quarters. With a focus on cross-skilling of employees, they have been able to contain the attrition.
  • There has been a delay in BFSI deal closures, which are expected to happen in 1QFY22. Given the interest rate regimes, there have been some in-sourcing trends in the banking clients. Post the deal closures in 1QFY22, there is some recovery expected in the BFSI vertical.

Asset Multiplier Comments

  • The commentary on deal signings, consistent margin improvement, and the ability to sustain these improved margins are key positives for the Company.
  • The pandemic accelerated clients’ interest in Data, Cloud migration, and other disruptive technologies, across IT services companies. This is expected to benefit IT services companies for the foreseeable future.

Consensus Estimate: (Source: market screener website)

  • The closing price of MINDTREE was ₹ 2,033/- as of 20-April-2021. It traded at 25x/ 24x the consensus earnings estimate of ₹ 80.1/ 86.1 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 1,857 implies a PE multiple of 22x on FY23E EPS of ₹ 86.1/-.

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 IT, Mindtree , , 0 Comments Read more...
08 Apr

Uptick in demand to continue for the next 1-2 quarters – SAIL

Update on the Indian Equity Market:

On Thursday, the Indian equities ended with gains despite the weekly options expiry led volatility. The Nifty50 ended at 14,874 (+0.4%) lower than the day’s high of 14,984. METAL (+3.9%), IT (+1.2%), and REALTY (+0.8%) led the sectoral gainers while PSU BANK (-0.9%), PRIVATE BANK (-0.6%), and BANK (-0.6%) led the losers. JSWSTEEL (+9.6%), TATASTEEL (+5.4%), and SHREECEM (+4.8%) were the top gainers among Nifty50 components. SUNPHARMA (-1.1%), INDUSINDBK (-1.1%), and SBILIFE (-1.0%) led the laggards.

Excerpts of an interview with Ms. Soma Mondal, Chairman, Steel Authority of India Ltd (SAIL) published in The Economic Times on 7th April 2021:

  • There are three reasons why steel prices are among the highest in a decade. One, there have been supply-side constraints, even in the second and third phase of Covid, which has impacted the ramping up of capacities in certain parts of the world. Second, China is expected to close down some inefficient units as they have a target for reducing carbon footprint. Last, being raw material supply constraints have led to a rise in iron ore prices. These factors are driving steel prices up and the demand has picked up.
  • The uptick in demand is likely to continue for the next 1-2 quarters. As prices go up, many closed capacities expected to open up, supply constraints will be eased. The increased supplies are expected to put downward pressure on prices.
  • As the vaccination drive in on, the Covid situation is expected to come under control. This will lead to some pick-up in production, which is currently hampered due to increasing Covid cases.
  • The Company is focusing on reducing its borrowing. In April-20, the debt was Rs 520 bn, which was reduced to ~ Rs 350bn by March-21. They would like to bring the debt level even more because they want to start the next phase of expansion.
  • A total focus on the balance sheet, increased volume thrust on increasing efficiencies, reducing cost, and techno economic improvement will help improve the balance sheet and leverage position.
  • The conversion costs are high for SAIL because of wages and salaries. At higher volumes, this would go down. They are reducing their manpower, hence they are not recruiting as much. With a balanced approach to recruitment and increasing their volumes, the cost of production and conversion costs will be reduced.
  • Their primary aim is to meet the domestic demand and having a strategic presence in the export market.
  • With major capacities not coming up anywhere other than in India, she expects the demand and prices to remain strong. With a lower leveraged position, SAIL would plan the next phase of expansion.

Asset Multiplier Comments

  • The demand from the auto, construction, and white goods sector and infrastructure focus by the Indian government has led to the creation of demand for steel.
  • The strong demand and rising prices since the easing of lockdown restrictions are expected to continue driving the profitability of Indian steel manufacturers.

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

  • The closing price of SAIL was ₹ 96/- as of 08-April-2021. It traded at 7x/ 6x the consensus earnings estimate of ₹ 14.6/ 15.8 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 82 implies a PE multiple of 5x on FY23E EPS of ₹ 15.8/-.

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 SAIL , , 0 Comments Read more...
29 Mar

The week in a nutshell (22nd-26th March)

Technical Talks

 NIFTY opened the week on 22nd March at 14,736 and closed on 26th March at 14,507, it made a weekly loss of 1.5%. The index is trading below its 10DMA of 14,680, which might act as a resistance. On the downside, 100DMA of 14,053 might act as a support. The short-term moving average is cutting longer-term moving from above which might lead to further correction in the index.                                                           

Weekly highlights

  • Loan moratorium case: The Supreme Court directed that no compound or penal interest shall be charged from borrowers for the six-month loan moratorium period, which was announced last year amid the COVID19 pandemic. The amount already charged shall be refunded, credited, or adjusted. The apex court refused to interfere with the Centre’s and Reserve Bank of India’s (RBI’s) decision to not extend the loan moratorium beyond August 31 last year. Banks can start declaring their bad loans (loans which have not been repaid for 90 days or more), with the Supreme Court vacating the relief granted earlier not to declare the accounts of borrowers as NPA.
  • SEBI on AT-1 Bonds: The Securities and Exchange Board of India (SEBI) amended the norms for valuing perpetual bonds. Now the maturity would be 10 years until March 31, 2022, and would be increased to 20 and 30 years over the subsequent 6-month period. From April 2023 onwards, the residual maturity of AT1 bonds will be 100 years from the date of issuance of the bond. As per estimates, banks have issued AT1 and tier 2 bonds worth ₹ 3.5 tn. A fifth of these bonds are held by Mutual funds. This move by SEBI provides much-needed relief to the MF industry. (Source- Business Standard edition 23 March 21)
  • Oil: A container ship blocking the Suez Canal created a new setback for global trade as officials stopped all ships entering the channel. A ship ran aground in the Suez Canal is blocking transit in both directions through one of the world’s busiest shipping channels for oil and grain and other trade linking Asia and Europe. Officials suggest it might take weeks to clear the blockage, which will impact ~30 percent of the world’s shipping container volume daily and ~12 percent of the total global trade of all goods. Oil prices jumped about 6 percent on Wednesday after this incident.
  • The Insolvency and Bankruptcy Code (IBC) suspension which ended on Wednesday, March 24 has not been extended by the Government. This is a welcome move by the banking sector as it will help reduce the burden of Non-Performing Assets (NPAs) on their balance sheets.
  • The institutions swapped their strategy from the last week, with FIIs outflow for the week totaling Rs 67,013 mn. The DIIs turned net buyers to the tune of Rs 50,181 mn.

                        Things to watch out

  • The Auto Companies will be reporting their monthly volume data for March. The non-availability of chips may impact sales this month. A Business Standard report suggested an average delay of ~6months for Maruti Suzuki’s Ertiga CNG variant delivery and 1.5-2 months for all other models. The delay could be as long as 8-10 months for Mahindra & Mahindra’s All-New Thar and 1.5-2 months for its Scorpio, and Bolero. This suggests that despite the demand, Companies are facing problems with supplying sufficient stocks due to the global semiconductor shortage.

 

By #WeekInANutshell 0 Comments Read more...
17 Mar

Lighting category is 2x that of fans category, see significant growth potential – Orient Electric

Update on the Indian Equity Market:

Nifty continued its losing streak, ending in the red for the fourth straight day ahead of the US Fed reserve policy statement on Wednesday. Nifty closed at 14721 (-1.3%), dragged by the PSU BANK (-3.8%), MEDIA (-3.0%), and REALTY (-3.0%) indices. None of the sectoral indices ended with gains. Among the stocks, only ITC (+1.5%), and INFY (+0.2%) closed in the green while BPCL (-5.0%), ONGC (-4.7%), TATAMOTORS (-4.5%) led the laggards.

Excerpts of an interview with Mr. Rakesh Khanna, MD, and CEO, Orient Electric with CNBC TV-18 on 16th March 2021:

  • The sales in 3QFY21 were good for the entire industry, due to pent-up demand, and staying at home has increased interest in home appliances.
  • The strong demand is continuing in 4QFY21, it is partly pent-up demand and partly due to change in behavior.
  • The management expects the EBITDA margin in 4QFY21 to be better than 3QFY21. This is due to operational leverage which comes with increased revenues with costs remaining stable, some good opportunities to help improve efficiencies. This efficiency improvement has largely been due to cost-cutting.
  • With raw material costs increasing, there could be some pressure on the margins in the time to come.
  • Recently, the company has diversified into lighting, switchgear, air coolers, and water heaters.
  • Lighting as a category is nearly twice in terms of size compared to the fans category, and the management expects significant growth in that segment.
  • Coolers are gaining traction as people are worried about getting fresh air. Water heaters adoption is going up due to change in consumer behavior.
  • The kitchen appliances are doing very well. Mr. Khanna is of the opinion the new categories the company has diversified into have a lot of potential.
  • To get a better brand recall in these new categories, the Ad spend could increase for the new categories.
  • They are operating at full capacity and the surge in demand has enabled the company to improve efficiencies at existing production facilities.
  • The company has been improving its EBITDA margin on a YoY basis for the last couple of years. As the company continues scaling up, they are confident of achieving operational efficiency to achieve better EBITDA margins.

Asset Multiplier Comments

  • During the lockdown period, consumer appliances and electrical sales were impacted. The pent-up demand and banning of certain items from China have helped the domestic electrical appliances companies. As a result, these companies are diversifying from their legacy categories to other categories.
  • Orient Electric already enjoys strong recall in the minds of consumers, being present in India for over six decades. Such a company will enjoy customer loyalty when it enters into new product categories.

Consensus Estimate: (Source: market screener website)

  • The closing price of Orient Electric was ₹ 313/- as of 17-March-2021. It traded at 61x/ 48x/ 39x the consensus earnings estimate of ₹ 5.1/ 6.5/ 8.0 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 310 implies a PE multiple of 39x on FY23E EPS of ₹ 8.0/-.

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 Consumer durable, Orient Electric , , 0 Comments Read more...