Author - Mrunmayee Jogalekar

  • Mrunmayee Jogalekar
22 Sep

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.1% lower at 17,547. Top gainers in NIFTY50 were COALINDIA (+3.6%), TECHM (+3.6%), and HINDALCO (+2.7%). The top losers were NESTLEIND (-1.5%), HDFC (-1.4%), and ICICIBANK (-1.2 %). The top gaining sectors were MEDIA (+13.6%), REALTY (+8.5%), and METAL (+1.5%) while the top sectoral losers were FINANCIAL SERVICES (-0.9%), BANK (-0.8%), and PRIVATE BANK (-0.7%).

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Excerpts of an interview with Mr. Sumant Kathpalia, MD & CEO – IndusInd bank (INDUSINDBK), aired on CNBC TV18 on 21st September 2021:

  • INDUSINDBK has planned a credit cost of 160-190 bps for FY22E with an additional 60-70 bps contingent provisions for Vodafone-Idea exposure. Will continue to take extra provision. There have been structural positive developments in case of the industry, but INDUSINDBK will wait for any further action from the Vodafone-Idea promoters before revising/lowering their planned provisions.
  • Collection efficiency in vehicle finance has been improving every month from the June-21 levels. In August, net collection was 97.5%. The bus segment and 3-wheeler segment are impacted due and require restructuring.
  • In the micro finance (MFI) segment, collections have to be looked at state wise. The overall portfolio efficiency is 94% barring states of Kerala, West Bengal, and Orissa that have accessibility issues. MFI will bounce back much stronger in 2HFY22 when covid-19 concerns reduce further.
  • In the vehicle finance book, seeing robust growth in car loans- especially used cars and scooters (90-95% of pre-covid), tractors (140% of pre-covid), construction equipment, LCVs (90-95% of pre-covid), and HCV (70%). Vehicle finance disbursements are almost coming to pre-covid levels (95-97%).
  • INDUSINDBK has been cautious with growth in MFI segment- specifically in Kerala, West Bengal, and Orissa and overall disbursement is at 70-80% of pre-covid levels.
  • On the non-vehicle side the bank is seeing growth coming back in loan against property LAP, MSME, commercial banking, and working capital.
  • In 1QFY22 loan book declined QoQ, whereas, management expects 2QFY22E to have some growth, but real growth will come in 2HFY22E.
  • FY22E exit growth in advances should be in double digits.
  • Within the corporate book, large corporates are seeing public sector spending but private sector capex has not taken off as expected, while working capital growth is robust. On the commercial side, there is deleveraging happening, while MSME is showing robust growth.
  • FY22E NIMs should be in the range of 4.15% to 4.25%. NIMs in 1QFY22 were 4.06% due to excess liquidity, and that will continue in 2QFY22E.
  • INDUSIND’s PPOP (Pre-provisioning Operating Profit) will continue to be be 5%+.
  • GNPA should remain within range of 2.6%-2.7% GNPA, and begin to reduce gradually, NPA should remain in range of 0.75%-0.84%
  • Restructuring book will increase in 2QFY22E as some vehicle finance segments need an extension in repayment.

Asset Multiplier comments:

  • Vehicle segments of buses and 3 wheelers have been impacted due to lower demand as schools, colleges and many offices are still shut. 3-wheeler drivers depend on the daily income and hence find it difficult to service loans when the requirement of 3-wheelere is lesser. Lending institutions across board are seeing asset quality issues in the vehicle finance space.
  • Corporate growth trends remain to be seen as there has been an increased focus on balance sheet strengthening across industries. Higher deleveraging and investing from internal cash flows could lead to lower corporate loan book growth for lenders.

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

  • The closing price of INDUSINDBK was ₹ 1,143/- as of 22-September-2021.  It traded at 1.9x/1.6x/1.4x the consensus BVPS estimate of ₹ 615/693/804 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,139/- which trades at 1.4x the BVPS estimate for FY24E of ₹ 804/-

 

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 Bank, IndusInd Bank 0 Comments Read more...
13 Sep

Will keep investing to grow the household insecticides market – Godrej Consumer

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.1% lower at 17,355. Top gainers in NIFTY50 were COALINDIA (+3.9%), HINDALCO (+3.3%), and KOTAKBANK (+1.7%). The top losers were RELIANCE (-2.3%), ICICIBANK (-1.8%), and SBILIFE (-0.9%). The top gaining sectors were MEDIA (+1.3%), METAL (+1.3%), and IT (+0.9%) while the top sectoral losers were BANK (-0.6%), PRIVATE BANK (-0.5%), and PSU BANK (-0.4%).

Will keep investing to grow the household insecticides market – Godrej Consumer

Excerpts of an interview with Mr. Sunil Kataria, CEO- India & SAARC at Godrej Consumer Products (GODREJCP), aired on CNBC TV18 on 9th September 2021:

  • Input cost inflation has not slowed down against the expectation that the inflation would come down in the July-August period. Current inflation pressures may remain for another 6 months.
  • Demand is holding steady currently. Rural demand was strong even in the 1st wave of covid-19. The positive thing now is that urban demand has also seen a sharp recovery.
  • Discretionary demand has come back strong. Provided the festive season does not get disrupted and continued ramp-up of vaccination, further growth should be possible.
  • GODREJCP is taking calibrated price increases in some products to mitigate the higher input cost prices. Further mitigation is being done via overhead cost control. GODREJCP has taken 7%-8% price hikes so far in FY22.
  • Management expects to maintain EBITDA margins in the 25%-26% band. This operating performance will be delivered without compromising on ad spends. Ad spends are an important investment in brand building.
  • The core business of soaps and household insecticides had strong tailwinds in FY21 and did not suffer due to the covid-19 disruption.
  • Discretionary items like hair color and hair care faced a challenge in 1HFY21 but came back strongly in 2HFY21.
  • Management expects both- core and discretionary categories to perform well going forward. Mr. Kataria expects overall double-digit growth across all categories.
  • GODREJCP is seeing big momentum in personal wash and hygiene so increasing capacity additions there. But capex outlay is not an issue for a cash-rich FMCG business.
  • Being the market leader in household insecticides, GODREJCP will undertake continued investments in increasing product portfolio and brand building in household insecticides.

Asset Multiplier comments:

  • Consumer staples, as well as discretionary companies across board, have been taking price hikes to mitigate the impact of input cost pressure. However, all managements are taking a calibrated approach as demand is still a bit fragile in some product baskets due to the economic impact of lockdowns.
  • How the rural demand shapes up from here remains to be seen as the covid-19 2nd wave has impacted rural India more than the 1st

Consensus Estimate: (Source: market screener websites)

 

  • The closing price of GODREJCP was ₹ 1,119/- as of 13-September-2021.  It traded at 59x/51x/44x the consensus earnings estimate of ₹ 19.0/22.0/25.2 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,058/- which trades at 42x the earnings estimate for FY24E of ₹ 25.2/-

 

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, Godrej Consumer Products 0 Comments Read more...
05 Sep

This week in a nutshell (August 30th to September 3rd)

This week in a nutshell (August 30th to September 3rd)

Technical talks

NIFTY opened the week on 30th August at 16,776 and closed on 3rd September at 17,324. It made a weekly gain of 3.3%. The index is trading beyond all moving averages and at all-time high levels. 10DMA of 16,880 is the closest support. The RSI (83) suggests that the index is overbought.

Weekly highlights

  • Trends for FII and DII activity reversed compared to last week. FIIs were net buyers of Indian equities with an inflow of Rs 68,677 mn. DIIs turned bearish with a net outflow of Rs 14,211 mn.
  • As per data released by Ministry of Statistics and Programme Implementation, India’s GDP growth for 1QFY22 is estimated to be 20.1%. This growth is on low base of 1QFY21, where the GDP contraction was 24.4% YoY.
  • Ministry of Commerce and Industry released India’s preliminary foreign trade data for Aug-21. According to the press release, India’s merchandise exports for Aug-21 increased 45.2% over low base of Aug-20 and 27.5% over Aug-19. Merchandise imports for Aug-21 increased 51.5% over Aug-20 and 17.9% over Aug-19. The trade deficit widened at USD 13.87 bn in Aug-21 compared to USD 8.2 bn in Aug-20.
  • Indian Auto OEMs reported wholesale data for Aug-21. Carmakers were impacted by the global electronic component shortage, leading to production uncertainties. OEMs expect the pain to continue even in the upcoming crucial festive period. Some companies expect Sep-21 production volumes to be lower by as much as 60% of normal levels.
  • US jobs data for August came out on Friday and the numbers were lower than street forecasts. Lower job additions could mean that the US Fed may further delay any increase in interest rates.

Things to watch out for next week

  • Post the end of 1QFY22 result season, we are in a quiet period with relatively lesser market developments.

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 #WeekInANutshell 0 Comments Read more...
23 Aug

Now comfortable with organic as well as inorganic growth – Shree Cement

Update on the Indian Equity Market:

On Monday, NIFTY closed 0.3% higher at 16,496. Top gainers in NIFTY50 were HCLTECH (+4.3%), TCS (+2.1%), and NESTLEIND (+2.0%). The top losers were GRASIM (-3.1%), ADANIPORTS (-2.8%), and M&M (-2.6%). The top gaining sectors were IT (+1.7%), OIL & GAS (+0.4%), and FINANCIAL SERVICES (+0.4%) while the top sectoral losers were MEDIA (-1.7%), AUTO (-1.5%), and REALTY (-1.0%).

Now comfortable with organic as well as inorganic growth – Shree Cement

Excerpts of an interview with Mr. HM Bangur, MD of Shree Cement (SHREECEM), aired on CNBC TV18 on 20th August 2021:

  • SHREECEM saw good average prices in 1QFY22 and management expects prices to remain good. The issue is on the raw material cost pressure. Commodity prices have increased almost 2x vs last year.
  • SHREECEM has hedged fuel upto end of November 2021, meaning energy prices for 2QFY22E will remain at par with 1QFY22.
  • Despite this, management agrees that cement prices have to increase eventually or else margins will suffer for the entire industry. The current commodity cost pressure cannot be endured by companies for a long time.
  • SHREECEM targets to have volumes of 27 to 28 mn tonne for FY22E, translating to a low growth YoY.
  • EBITDA per tonne for SHREECEM should sustain around 1QFY22 levels of Rs 1,481, with a band of +/- Rs 50.
  • Demand in the Northern and Southern India has been good. There is a seasonality factor in Eastern India where demand picks up only after October. There have been no surprises on the demand front. Pressure on demand has subsided after the April-May period as the Covid-19 cases reduced.
  • SHREECEM has about Rs 64,000 mn cash on book. The capex intensity for last 2 years was lower due to Covid-19 disruption. SHREECEM had completed their QIP just a few months before the onset of Covid-19 in India in 2020.
  • On the subject of cash utilization, SHREECEM is planning to order a 4 mn tonne cement unit in north India in the next 1 month.
  • Unlike before, SHREECEM is now comfortable with inorganic growth as well and is looking for acquisition opportunities. Till now were averse to acquisitions- now comfortable with both organic and inorganic growth. Capex gap for 2 years due to covid that’s why there is cash acquisition as did QIP just before covid.

Asset Multiplier comments:

  • In FY21, despite impact of covid-19 on the revenue, Cement companies in India managed to maintain good EBITDA levels due to good pricing, cost optimization, fuel mix optimization and increase in use of green power.
  • Demand for cement in India is expected to remain healthy due to Government’s push on infrastructure, roads and railways, housing and rural development.

 

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

 

  • The closing price of SHREECEM was ₹ 25,854/- as of 23-August-2021.  It traded at 35x/ 30x/ 25x the consensus earnings estimate of ₹ 741/ 866/ 1,019 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 27,718/- which trades at 27x the earnings estimate for FY24E of ₹ 1,019/-

 

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 Shree cement , , 0 Comments Read more...
17 Aug

Infrastructure in place to compete in online pharmacy space – Apollo Hospitals

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.3% up at 16,615. Top gainers in NIFTY50 were TATACONSUM (+3.8%), WIPRO (+3.3%), and TECHM (+3.2%). The top losers were JSWSTEEL (-2.4%), ADANIPORTS (-2.3%), and TATAMOTORS (-2.2%). The top gaining sectors were IT (+2.6%), HEALTHCARE (+1.7%), and FMCG (+1.4%) while the top sectoral losers were METAL (-2.3%), PSU BANK (-1.8%), and PRIVATE BANK (-0.8%).

Infrastructure in place to compete in online pharmacy space – Apollo Hospitals

Excerpts of an interview with Ms Suneeta Reddy, MD of Apollo Hospitals (APOLLOHOSP), published on ET Now on 17th August 2021:

  • In 1QFY22, 26% of the total 30% revenue growth was because of Covid revenue. Surgical volumes have started picking up from July 2021.
  • In an attempt to have an omnichannel presence, Apollo’s 247 digital platform offers services, such as online pharmacy and teleconsultations, that are easier to access for the customer. 247 is helping Apollo to expand its reach and funnel patients into the system.
  • 247 is the fastest growing healthcare app in India. Apollo has earmarked Rs 1,500 mn in FY22E as spends for the digital platform, as customer acquisition and marketing are high for the business.
  • Apollo pharmacies have crossed 4,200 stores in India and the company is planning another 150 stores addition. Apollo has a distribution presence in 16,000 pin codes. Due to the wide reach, Apollo has the capability of 24×7 delivery within two hours which is a USP in the e-pharmacy space.
  • In addition to the distribution capabilities, Apollo has 5,500 doctors available for tele-consult within 15 minutes and testing infrastructure. All these factors will help Apollo to compete with other corporate houses entering the online pharmacy space.
  • Apollo plans to spend Rs 2,500 mn on capex in FY22E and Rs 4,500 mn on an acquisition. With a debt-to-equity ratio of 0.48 and cash and equivalents of Rs 8,800 mn, Apollo is fully funded to undertake the investments.

Asset Multiplier comments:

  • Online pharmacies have seen a big growth in revenues during the covid-19 second wave. Consumers are preferring the convenience and limited contact nature of online shopping of common medicines, household medical devices such as oximeters, thermometers, and certain FMCG products sold by these players.

 

Consensus Estimate: (Source: market screener)

 

  • The closing price of APOLLOHOSP was ₹ 4,921/- as of 17-August-2021.  It traded at 86x/ 66x/ 53x the consensus earnings estimate of ₹ 56.9/ 75.1/ 92.8 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 4,399/- which trades at 47x the earnings estimate for FY24E of ₹ 92.8/-

 

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 Apollo Hospital, Healthcare , 0 Comments Read more...
10 Aug

New auto launches doing well – M&M

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.1% up at 16,280. Top gainers in NIFTY50 were BHARTIARTL (+3.8%), TECHM (+2.8%), and HDFC (+1.8%). The top losers were SHREECEM (-4.1%), JSWSTEEL (-3.6%), and TATASTEEL (-2.8%). The top gaining sectors were IT (+0.9%), FINANCIAL SERVICES (+0.3%), and HEALTHCARE (+0.2%) while the top sectoral losers were METAL (-2.8%), PSU BANK (-2.6%), and MEDIA (-2.4%).

New auto launches doing well – M&M

Excerpts of an interview with Dr. Anish Shah, MD & CEO of M&M, aired on CNBC-TV18 on 9th August 2021:

  • M&M reported an exceptional loss of Rs 800 mn in 1QFY22. This hit was on account of residual impairment of past investments. Management does not expect such hits going forward.
  • In 1QFY22, M&M’s market share in domestic tractors has gone up by 260 bp to 41.8%. M&M has been ahead of the industry in price hikes, and market share gain has not come at the expense of margins.
  • M&M has already taken 3 price hikes in this year and is not looking at further increases.
  • Demand is picking up but supply chain is facing issues and has not reached normalcy yet.
  • Indian tractor industry registered a strong growth of 27% in FY21. Against that, M&M has guided to tractor industry growth of 3-5% for FY22E. Looking at history, management thinks there could be some demand correction. Not seeing any pressures on demand on ground today, but looking at uncertainties, management is being conservative.
  • On the planned sale of investment in Ssangyong, management said a number of buyers have expressed interest. M&M has taken enough provisions so there is no further hit expected.
  • Restructuring has been completed in terms of categorizing entities in groups. Going ahead, M&M plans to continue the fiscal discipline. If entities in Category A & B don’t adhere to set standards, management will categorize them in Category C.  (Reference: In an effort to improve consolidated performance, M&M had categorized all loss-making international subsidiaries into 3 categories. Category A (had a clear path to profitability), Category B (had a quantifiable strategic impact), and Category C (had an unclear path to profitability that mandated an exit and initiation of an appropriate action plan for the same)).
  • Categories A & B have performed well in 1QFY22 and the turnaround is visible. Category A companies reported a profit of 300 mn in 1QFY22 vs a loss of 1,030 mn in 1QFY21. Category B companies reported a profit of Rs 310 mn in 1QFY22 vs a loss of 170 mn in 1QFY21.
  • M&M’s new products such as Thar, XUV 300, Bolero neo are doing well along with older power brands. M&M is seeing good demand across segments including in pickup trucks.
  • In the EV space, M&M sells the most vehicles in India.
  • EV adoption in 3-wheelers is going well- the 3 important factors of cost parity, range anxiety and charging/ battery swapping infrastructure have been addressed for 3-wheeleres. EV adoption in 4-wheelers will still take some time.
  • M&M is in the process of outlining plans for a 4-wheeler EV platform which will enable them to design high capability 4-wheelers. Battista, which is the electric car being launched by M&M’s subsidiary Pininfarina, has among the best technologies in EV. M&M will look to bring that technology in Indian cars as well.
  • On capacities, M&M has adequate capacities in the automotive segment. Management could look into adding capacities in Tractor segment and has earmarked Rs 30,000 mn over next 3 years for the same. Management has also earmarked Rs 30,000 mn over next 3 years for EV investments.

Asset Multiplier comments:

  • EV is the big trend which will shape the future of auto industry globally. Auto companies across segments have been increasing investments in the EV space. While most players are moving in the right direction, how the competitive landscape shapes up over the next few years is anybody’s guess.
  • Rural India has been impacted due to the 2nd wave of covid-19. Despite the forecast of a normal monsoon for the 3rd straight year, tractor demand could come under pressure considering impact in rural India.

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

 

  • The closing price of M&M was ₹ 786/- as of 10-August-2021.  It traded at 20x/ 17x/ 15x the consensus earnings estimate of ₹ 39.0/ 45.6/ 51.7 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 948/- which trades at 18x the earnings estimate for FY24E of ₹ 51.7/-

 

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 Auto, Mahindra & Mahindra 0 Comments Read more...
04 Aug

Aim to grow across the value chain– Deepak Nitrite

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.8% up at 16,259. Top gainers in NIFTY50 were HDFC(+4.6%), KOTAKBANK (+3.9%), and ICICIBANK (+3.1%). The top losers were GRASIM (-2.5%), TITAN (-2.1%), and TATAMOTORS (-1.8%). The TOP gaining sectorswere FINANCIAL SERVICES (+2.6%),BANK (+2.3%), and PRIVATE BANK (+1.9%) while the top sectoral losers were REALTY (-1.7%), MEDIA (-1.2%), AUTO(-0.9%), and FMCG (-0.9%).

Aim to grow across the value chain– Deepak Nitrite

Excerpts of an interview with the Mr. Deepak Mehta, Chairman and MD of Deepak Nitrite, published on ET Now dated 3rd August 2021:

  • The growth plan for Deepak Nitrite is to be present across the value chain from building blocks to final specialty chemicals. This will give the company a competitive edge over global peers.
  • Deepak Nitrite continues to look for opportunities to complement existing business. Earlier the company was only into nitration chemistry. Then the company went on to add hydrogenation. As both these are catalytic chemistries, the company then looked into what can be done in catalysis.
  • Deepak Nitrite has also recently committed to add fluorination to its capabilities.
  • On specialty chemicals side, Deepak Nitrite will keep adding complementary businesses to provide a wide basket of capabilities to clients.
  • Even on the commodity chemicals side, Deepak Nitrite is trying to offer a broader spectrum.
  • Several American and European end user clients have shown willingness to look at India in their China +1 strategy. But long-term commitments towards India or any country have been slow because of the demand uncertainties in the covid-19 pandemic era.
  • As a strategy, every three or four years, Deepak Nitrite will go back to looking at major investmentsfor the next stage of growth.

Asset Multiplier comments:

  • Indian Specialty chemical companies have come in the spotlight in the last few months due to several tailwinds in the sector. Higher demand expectation from end user segments, supply chain diversification from China dependence, import substitution have all been tailwinds for the sector.
  • Companies with niche capabilities are benefitting due to their expertise in respective areas.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of Deepak Nitrite was ₹ 2,067/- as of 4-August-2021.  It traded at 30x/ 27x/ 25x the consensus earnings estimate of ₹ 67.9/ 76.9/ 81.4 for FY22E/23E/24E respectively.
  • The consensus price target is ₹2,037/- which trades at 25x the earnings estimate for FY24E of ₹ 81.4/-

 

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, Deepak Nitrite 0 Comments Read more...
01 Aug

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

This week in a nutshell (July 26thto July 30th)

Technical talks

NIFTY opened the week on 26thJulyat 15,849and closed on 30th July at 15,763, a decline of 0.5%.NIFTY has been getting strong resistance around the 20 DMA of 15,788 throughout the week. This remains the crucial level to watch out foras it’s capping Nifty’s upward movement.

Weekly highlights

·         FIIs were net sellers each day of the week with a net total outflow of Rs 108,250 m. DIIs continued to give support to the market through daily net buying. DIIs pumped in Rs 82,550 mn in the market this week.

·         The US equities kept up with all time high levels through the week. Strong quarterly results and Fed rates retained at near zero levels aided the positive sentiments.

·         An increase in regulatory crackdown on Chinese tech companies led to a selloffin Chinese equities. Whether this remains a long term concern and other Asian markets will see the benefit of higher allocation remains to be seen.

·         International Monetary Fund (IMF) has cut India’s FY22E GDP forecast to 9.5% due to setback from the second wave of Covid-19.

Things to watch out for next week

·         July 2021 monthly auto sales data will be released in the coming week. This data would be crucial to understand the demand trend post easing of lockdowns.

·         RBI’s Monetary Policy Committee (MPC) is scheduled to meet between August 4th to 6th. MPC’s comments on inflation, economy growth will be something to watch out for.

·         The quarterly result season continues with companies such as HDFC, Bharti Airtel, and Dabur reporting earnings next week. Management commentary on consumer demand post easing of lockdowns and near term outlook will be critical.

 

By #WeekInANutshell 0 Comments Read more...
19 Jul

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16th July 2021:

  • WIPRO has guided to an annual revenue run rate of US$ 10 bn.
  • Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
  • WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
  • Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
  • WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
  • Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
  • 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
  • WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
  • Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
  • As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

 

Asset Multiplier comments:

  • Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
  • Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

 

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.”

 

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08 Jul

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

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.”

 

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