Author - Mrunmayee Jogalekar

  • Mrunmayee Jogalekar
17 Sep

Will not need to dip into capital for provisioning –Indiabulls Housing

Update on the Indian Equity Market:

On Wednesday, Nifty closed with0.7% gains at 11,605. Within NIFTY50, DRREDDY (+4.4%), M&M (+4.0%), and HINDALCO (+3.9%) were the top gainers, while INDUSINDBK (-2.0%), NTPC (-1.6%), and INFRATEL (-1.1%) were the top losers. Among the sectoral indices, REALTY(+2.3%), PHARMA (+2.1%), and AUTO (+1.5%) gained the most. MEDIA (-1.6%) andPSU BANK (-0.5%)ended with losses.

Will not need to dip into capital for provisioning –Indiabulls Housing

Excerpts of an interview with Mr. Gagan Banga, Vice Chairman and MD, Indiabulls Housing Finance (IBULHSGFIN), aired on CNBC-TV18dated 15th September 2020:
• Indiabulls Housing has raised Rs 6,830 mn via QIP and Rs 5,220 mn through stake sale in OakNorth bank to build capital buffer. This will be used as growth capital. With this capital raise, the capital adequacy has gone up to 31%.
• Higher capital buffer will also help as a positive affirmation for credit rating agencies. Indiabulls Housing has been on a downward rating trajectory from AAA to AA. Management wants to get it back atleast to AA+ levels.
• Management has plans to increase capital further by about Rs 10,000 mn and increase capital adequacy up to 32%.
• In 1QFY21, AUM was flattish and similar trend persists for 2QFY21. Management expects growth from 2HFY21.
• Indiabulls Housing continues its strategy of reducing the real estate developer book. The gross developer book has reduced by Rs 180 bn in the last 2 years. In 1QFY21 and 2QFY21 the sell down has been about Rs 30 bn and 21 bn respectively. These developer loans are being refinanced by Indian PSU and private banks, as well as through a few securitization transactions with foreign institutions.
• Of the Rs 180 bn sell downs so far, there has been no discount required as the properties are prime with good LTVs of ballpark 50%.
• As a result of reduction in developer loans book, Indiabulls Housing is getting converted into a retail lending focused company.
• As Indiabulls Housing pursues growth in retail book, management expects AUM growth of 10% for FY21E. True to the adopted asset light model, the balance sheet growth will remain lower at 5%.
• Within retail book, the ratio of home loans to Loan Against Property (LAP) is 60:40.LAP segment on a risk adjusted basis has attractive RoA. On the asset quality front, this product has a 50% LTV and monthly principal amortization and the product is performing well.
• Through the last few months, initially 50-55% of LAP borrowers had taken moratorium but by August the number had declined to 20%. By September, the EMIs are getting backed and there is no significant increase in people who are not able to pay.
• Indiabulls Housing also raised Rs 15 bn to put into completion of projects which is a positive for the industry. Over the last 60-90 days, apartments across the board are selling at a strong momentum.
• Indiabulls Housing is now at a quarterly pre-provisioning operating profit (PPOP) level of about Rs 6,000 mn. Like in 1QFY21, material portion of the PPOP will be used to make provisions throughout FY21E. Indiabulls Housing will not need to dip into capital for provisioning.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of IBULHSGFIN was ₹ 187/- as of 16-September-2020. It traded at 0.5x/ 0.5x/ 0.4x the consensus BVPS estimate of ₹ 392/408/ 445 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 160/- implies a PE multiple of 0.3x on FY23E EPS of ₹ 473/-.

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 Housing Finance, Indiabulls Housing Finance , , , 0 Comments Read more...
08 Sep

Remains financially strong and net debt free–Page Industries

Update on the Indian Equity Market:

On Monday, Nifty closed with0.35% gains at 11,374. Within NIFTY50, INFRATEL (+5.7%), HDFCLIFE (+3.2%), and DRREDDY (+2.3%) were the top gainers, while M&M (-3.6%), UPL (-2.8%), and BAJFINANCE (-2.5%) were the top losers. Among the sectoral indices, FMCG (+0.6%), IT (+0.6%), and MEDIA (+0.3%) gained the most. REALTY (-0.9%), AUTO (-0.5%), and PVT BANK (-0.3%) ended with losses.

Remains financially strong and net debt free–Page Industries

Excerpts of an interview with Mr. Chandrasekar, CFO, Page Industries, aired on ETNow dated 7th September 2020:
• Page Industries has seen significant improvement in demand. From 0 sales in April, -80% YoY in May, -40% YoY in June, -30% YoY in July to a YoY growth in August, there is a good month-on-month uptick. Outlook remains optimistic for rest of the year.
• The buildup in demand has been gradual so Mr. Chandrasekar doesn’t think it was just pent up demand. Secondary sales are more than factory sales. All indications suggest that things are getting back to normalcy.
• August sales are a pretty good indication that demand is back. But predicting full year growth rate is still difficult.
• Sales via e-commerce inJuly and August were better than the past trend. E-commerce has seen YoY growth of about 200%. Purchasing modes have changed across sectors. In terms of margins and investments for Page, e-commerceis more or less similar to other distribution channels.
• Procurement control works between a range of +/-1% so raw material cost has remained more or less the same. Page is trying to work on procurement optimization, but in the near future,raw material cost will be rangebound.
• Page has done significant optimization on the other operating expense including wages, factory overheads, selling overheads, advertising,and corporate overheads. They have managed significant reductions over 4QFY20 as well as 1QFY20.
• Page’s cash position of Rs 1,700 mn as of 1QFY21 is better than any time during the past year. They have done a lot of work across working capital. Page has not borrowed any funds and continues to remain net debt free.
• Page is also paying vendors earlier than they are asking. MSMEs need support to remain afloat at this point. It is also in the interest of Page to help the small businesses as they are trusted vendor partners. Despite that, Page has improved its cash position.
• Page hasretained all employees during this difficult time.
• A specific European fund has raised concerns that Page Industries is not following best manufacturing practices. Mr. Chandrasekar assured that Page’s manufacturing practices are based on fundamental and ethical policies. Page has published sustainability report for the past 2 years in the public domain which can be referred to address concerns. Page has been in the business long enough to know that it’s a people intensive business and the company hasto take care of its employees.
• Men Innerwear market is growing at about 11% YoY and is expected to grow to Rs 900 bn by 2028 from 350 bn currently. Women innerwear market is expected to grow at about 12.5% YoY to Rs 680 bn by 2028 from Rs 210 bn currently. Page is very small in the overall market size. Premiumization will continue to happen in the market so maintaining market share is not an issue. The issue is about increasing geographical reach and introducing new offerings in the women and kids segments.
• Page will resume capex and other business investments once the business gets back to normal levels from the covid-19 disruption.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of PAGEIND was ₹ 18,296/- as of 7-September-2020. It traded at 91.5x/ 47.0x/ 38.7x the consensus EPS estimate of ₹ 200/ 389/ 473 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 17,617/- implies a PE multiple of 37.2x on FY23E EPS of ₹ 473/-.

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 Page Industries 0 Comments Read more...
28 Aug

COVID has created both opportunities and challenges for Pharma companies- Lupin

Update on the Indian Equity Market:

On Tuesday, Nifty closed flattish with just 0.1% gains at 11,559. Within NIFTY50, INDUSINDBK (+6.5%), M&M (+4.2%), and TATAMOTORS (+4.1%) were the top gainers, while ONGC (-1.4%), RELIANCE (-1.4%) and BAJAJAUTO (-1.3%) were the top losers. Among the sectoral indices, REALTY (+6.4%), PSU BANK (+1.1%), and AUTO (+1.0%) gained the most. FMCG (-0.3%) and IT (-0.1%) ended with losses.

COVID has created both opportunities and challenges for Pharma companies- Lupin

Excerpts of an interview with Mr. Ramesh Swaminathan, Executive Director- CFO and Head- Corporate Affairs, Lupin, published on Economic times website dated 26th August 2020:
• Lupin has the approval to manufacture generic version of ProAir- albuterol sulphate. This is a very important market for LUPIN in the inhalation space. The overall market for Ventolin, Proventil and ProAir combined is $ 1.1 bn with volume share of 44%, 9% and 47% respectively.
• The Albuterol Sulphate is a complex product and the competition expected is less. The price erosion could also be potentially lower due to lower competition.
• Lupin has been working on 12 to 15 products in the respiratory segment for the past several quarters. A large chunk of Lupin’s R&D spends is for complex generics including the inhalations portfolio, biosimilars, and complex injectables. The drugs device combination in the inhalation space makes it particularly interesting and challenging, though the mechanical trials associated with it are daunting and expensive.
• Generic ProAir is a very profitable product and Lupin will try to maximize on that considering their market share record. Even though the device itself and API will be imported, given the price stickiness, the gross margins are expected to be good.
• Apart from ProAir, Lupin has plans for several other products in the Respiratory space. Some known products include Fostair in the EU market, first to file in terms of Spiriva which could be in FY23, Dulera in FY22 and a host of other products.
• Generic market in the US has been witnessing a decline. What was potentially a $67 bn market 3-4 years ago has come down to $ 57-58 bn levels. Companies which were at the top have come down in terms of market share whereas Indian companies have been ramping up. But there is a lot of potential in other emerging markets. The good thing about any generic portfolio is that it can be levered across various markets.
• Lupin’s US revenue of $ 155-158 mn in 1QFY21 was an aberration and they expect to bounce back from those levels 2QFY21E onward. Lupin had a stroke of bad luck with metformin and that would also be back by the end of 2QFY21. Products like Albuterol lined up will help Lupinto be back into the revenue levels seen over the last several quarters.
• Covid has brought in opportunities for Pharma companies but also posed a lot of challenges to the supply chain. One of the opportunities is the Albuterol market itself which is growing at 13%. But in general, the topline has been impacted across markets.
• In case of India, after virtually no growth in 1QFY21, July was okay, and in August Lupin reached the same levels as last year and expect things to pick up September onwards.
• Both acute and chronic in the US have declined and markets like Philippines or Latin America, Mexico in particular, have been significantly impacted.
• Sales promotion and travel expenses have certainly come down. Lupin is also exploring newer ways of promoting their products with doctors in India as well as overseas.

Consensus Estimate (Source: market screenerwebsite)
• The closing price of LUPIN was ₹ 983/- as of 27-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 25.7/ 37.6/ 47.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 882/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 47.1/-.

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 Lupin, Pharmaceuticals 0 Comments Read more...
19 Aug

Working toward becoming a technology and IP driven organization- PIIND

Update on the Indian Equity Market:

On Tuesday, Nifty closed 1.2% higher at 11,385. Within NIFTY50, GRASIM(+6.5%), ULTRACEMCO (+3.3%), and JSWSTEEL (+3.1%) were the top gainers, while BPCL (-1.2%), TECHM (-0.9%) and CIPLA (-0.8%) were the top losers. Among the sectoral indices, REALTY (+4.0%), PVT BANK (+2.2%), BANK (+2.2%), and MEDIA (+2.2%) gained the most. PHARMA (-0.1%) was the only sector to end with losses.

Working toward becoming a technology and IP driven organization- PIIND

Excerpts of an interview with Mr. Mayank Singhal, MD&CEO, PI Industries (PIIND) published on Economic times website dated 12th August 2020:
• The companyplans to invest the Rs 20,000 mn QIP funds across different categories over the next 2 quarters. One way is into inorganic opportunities to get into complementary adjacencies- including pharmaceuticals. The other way is by acquisition of smaller blocks which could be synergistic and complementary in terms of technology.
• PIIND has 1 or 2 branded products that it plans to launch in the Indian domestic market in FY21. They also plan to commercialize 2 new products for the global contract manufacturing business.
• Over last 5-6 years, PIIND has made aggressive investments in R&D to become a more knowledge-based partner. They are working towardbecoming more of a technology and IP driven organization over next 4-5 years.
• Mr. Singhal expects India to fare well in the global shift in manufacturing. If supported through strong policies in the area of manufacturing chemical industry, India could move to the next level. India should specifically focus towards IP generation and creation which wouldbe an edge over the Chinese competition.
• In India about 50-60% of agriculture is dependent on monsoons. PIIND has 30-40% of its revenue dependent on India. Considering good monsoons currently, PIIND like all India business-based companies will do well.
• PIIND is supplying an intermediate to a Japanese client, for a drug approved for Covid-19 treatment. PIIND is also looking to supply the intermediate to Indian producers entering into the space.
• PIIND plans to grow aggressively in next 3-4 years by utilizing its competency in chemistry and technology. With that into perspective, PIIND has also recently filed 7 patent applications based on process in chemistry capabilities.
Consensus Estimate (Source: marketscreener website)
• The closing price of PIIND was ₹ 1,965/- as of 18-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 44.1/ 55.8/ 68.5 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 2,014/- implies a PE multiple of 29.4x on FY23E EPS of ₹ 68.5.

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 Agro chemicals, PI Industries 0 Comments Read more...
10 Aug

Plan to diversify and de-risk operations using QIP funds- PIIND

Update on the Indian Equity Market:

 

On Friday, Nifty closed almost flat- just 0.1% higher at 11,214. Within NIFTY50, ASIANPAINT (+4.7%), BAJFINANCE (+3.7%), and UPL (+3.5%) were the top gainers, while TITAN (-2.5%), HCLTECH (-2.1%) and INFY (-2.0%) were the top losers. Among the sectoral indices, PSU BANK (+1.0%), PVT BANK (+0.9%), and METAL (+0.9%) gained the most.  IT (-1.0%), PHARMA (-0.6%), and REALTY (-0.3%) made the most losses.

 

Plan to diversify and de-risk operations using QIP funds- PIIND

 

Excerpts of an interview with Mr.Mayank Singhal, MD&CEO, PI Industries (PIIND) aired on CNBC-TV18 dated 7th August 2020:

  • PIIND reported 41% growth in 1QFY21. Looking at 2QFY21, management expects export business to continue to grow as it is backed by a good order book.
  • For the domestic business, 1Q is about pre-placement of products. There has been a good demand with the early onset and higher levels of monsoons. Looking at present scenario, management expects domestic business to be in line with estimated growth.
  • PIIND’s latest acquisition, Isagro, started contributing to the revenues 4QFY20 onward. In 1QFY21, Isagro contributed Rs 1,000 mn to the total revenue, a growth of 13% YoY. Out of that, Rs 300 mn were exports.
  • Management expects Isagro integration to be complete by 3QFY21E. Initiative for Isagro is to make it a horticulture specialist in the distribution segment by offering different value proposition to farmers.
  • PIIND expects to commercialize 4-5 new products in FY21. New products do not have a substantial impact on revenue in the first year of commercialization. These products will do well over next 3-5 years.
  • PIIND recently raised capital via QIP. Management is looking at M&A opportunities in adjacent segments, widening technology portfolio and de-risking operations and plan to create a different organization in next 5 years.
  • PIIND was able to have a very good growth in 1QFY21 as the team anticipated certain challenges that could come arise because of China. They were able to adapt swiftly in terms of supply chain and proper management of plants. PIIND lost 10-15 days of production in the early days but is now operating at full capacity.
  • PIIND has formed 2 new subsidiaries for pharma intermediates. The discussions are in very initial phases now. Management expects to share a more detailed communication in next couple quarters.

Consensus Estimate: (Source: investing.com website)

  • The closing price of PIIND was ₹ 1,950/- as of 07-Aug-2020. It traded at 43.7x/ 35.6x/ 29.2x the consensus EPS estimate of ₹ 44.6/ 54.7/ 66.7 for FY21E/ FY22E/ FY23E respectively.
  • Consensus target price of ₹ 1,805/- implies a PE multiple of 27.1x on FY23E EPS of ₹ 66.7.

 

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 PI Industries 0 Comments Read more...
30 Jul

Gold loan is currently the easiest access to credit- IIFL Finance

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% lower at 11,203. Within NIFTY50, DRREDDY (+6.3%), TATASTEEL (+4.0%), and INDUSINDBK (+3.1%) were the top gainers, while RELIANCE (-3.9%), M&M (-2.7%) and HCLTECH (-2.5%) were the top losers. Among the sectoral indices, PHARMA (+3.1%), PSU BANK (+1.5%), andMETAL (+0.9%) gained the most.  AUTO (-1.2%), IT (-0.9%), and FIN SERVICE (-0.6%)made the most losses.

 

Gold loan is currently the easiest access to credit- IIFL Finance

 

Excerpts of an interview with Mr.Saurabh Kumar,Head- Gold Loans, IIFL Finance (IIFL)published on the Economic Times website dated 29thJuly2020:

  • In the last 1 year, gold prices have risen 50%. This is a big benefit for borrowers as they are able to borrow 50% more compared to what they could last year against the same amount of gold.
  • In the past month, there has been a 25-30% growth in gold loan business.
  • IIFL is now at pre-covid levels in terms of gold loan disbursements.
  • There is a lot of demand for gold loans from farmers and SMEs. There is a pickup in agricultural activities leading to capital requirement for farmers. As businesses try to unlock, they are also trying to bridge working capital gaps.
  • There is approximately 24,000 tonnes of gold in India and gold is saved for a rainy day. Out of the entire gold, only 5-6% is leveraged against gold loans. The current situation brought on by covid-19 is the kind of rainy day when people need to leverage gold to survive, or take control of opportunities in the current context. Thus the opportunity for gold loans is huge.
  • Primary customers of gold loans are farmers and SMEs across sectors. All of them need working capital at this point in time. Gold is the easiest access to credit currently. It requires minimal paperwork. A person can walk into an NBFC branch like IIFL and pledge theirjewelry and walk out with a loan in 30 minutes.
  • Gold loan is typically for a tenure of about six to nine months. Farmers and SME customers get flexibility to repay unlike overdraft products or a term loan where there is a fixed duration and there are prepayment charges, penalties etc.
  • Borrowers usually repay a gold loan by making a payment once in two/three months or the moment they have cash inflows. During March to May, IIFL had given moratorium to the customers which led to slower repayments. As businesses are unlocking, a lot of repayments are happening. Borrowers are opting out of moratorium and making payments. As the businesses start operating, IIFL Finance expects to see near normal levels in July and August.

Consensus Estimate: (Source: investing.com website)

  • The reported BVPS as of 1QFY21 was Rs 126.8/-
  • The closing price of IIFL was₹ 71.2 /- as of 29-July-2020 and was trading at 0.6x the 1QFY21 BVPS.
  • Consensus estimates are not available for IIFL.

 

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 IIFL, NBFC 0 Comments Read more...
21 Jul

Increasing number of borrowers are moving out of moratorium- L&T Finance Holdings

Update on the Indian Equity Market:

 

On Monday, Nifty closed 1.1% higherat 11,022. Within NIFTY50,BRITANNIA (+5.1%), WIPRO (+4.4%), and INFY (+4.4%) were the top gainers, while SUNPHARMA(-3.9%), CIPLA (-2.2%) andZEEL (-1.7%) were the top losers. Among the sectoral indices, IT (+2.6%), FIN SERVICE (+1.6%), and BANK(+1.6%) gained the most.  PHARMA (-1.6%) was the only sector to close in red.

 

Increasing number of borrowers are moving out of moratorium- L&T Finance Holdings

 

Excerpts of an interview with Mr. Dinanath Dubhashi, MD&CEO, L&T Finance Holdings Ltd (L&TFH)published on Economic Times website dated17thJuly2020:

  • In 1QFY21, entire Rs 2,250 mn of exceptional gains have been put towards one-time provisions for COVID-19 impact.
  • In 1QFY21, the three months- April, May and June have been 3 very distinct months. Moving from lockdown to unlock, there was an uptick from April to May to June. The uptick has been very good in rural areas and noticeable everywhere else also. That is reason for being optimistic.
  • In terms of sectors showing revival, tractor is one industry where there is actually positive growth in the month of June 2020 versus June 2019. All disbursements to tractors have grown by 19% YoY in June 2020. The quarterly numbers are negative because April was zero but June has shown the first uptick.
  • There is no concrete answer on how NPAs will be but there are a few noticeable trends in terms of moratorium. For micro loans, loans under moratorium in June have reduced to 48% from 100% in April and May 100%. In the same period, for 2-wheelers, loans under moratorium in June have gone down to 33% from 58-60%. In April, the overall portfolio under moratorium was 75%, it has reduced to 18% in June 2020. Substantial number of accounts under moratorium in June have already paid off in July. So an increasing number of people are paying.
  • L&TFH is holding Rs 90 bn of excess liquidity vs normal levels of around Rs 35-40 bn. As a result of this excess cash, there was a negative carry of Rs 840 mn in 1QFY21. This resulted in NIMs being lower in 1QFY21.

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

  • The closing price of L&TFHwas ₹ 62.8/- as of 20-July-2020. It traded at 0.8x / 0.7x the consensus BVPS estimate of ₹ 77.3/ 89.0 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 72.3/- implies a PE multiple of 0.8x on FY22E BVPS of ₹ 89.0/-.

 

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 L&T Finance Holdings, NBFC 0 Comments Read more...
10 Jul

Aim to go back to 20%-22% ROE- Mahindra & Mahindra

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 1.0% higher at 10,755. Within NIFTY50, HINDALCO (+6.6%), HDFC (+4.3%), and SBIN (+4.1%) were the top gainers, while INFRATEL (-1.9%), COALINDIA (-1.5%) and TECHM (-1.2%) were the top losers. Among the sectoral indices, METAL (+1.9%), FIN SERVICE (+1.6%), and BANK(+1.4%) gained the most.  FMCG(-0.3%) was the only sector to close in red.

 

Aim to go back to 20%-22% ROE- Mahindra & Mahindra

 

Excerpts of an interview with Mr. Anish Shah, Joint MD–Mahindra & Mahindra published on ET Auto dated 7thJuly2020:

  • M&M’s loss making subsidiaries had a difficult couple of years. M&M is now looking to take direct action.
  • The loss-making subsidiaries are being evaluated and categorized into 3 groups – Category A: companies with clear path to 18% Return on Equity (ROE). Category B: companies with unclear path to profitability but can deliver quantified strategic benefit, and Category C: Calls for a possible exit through alliance or sale as it does not fit into A or B.
  • This review of subsidiaries will be carried out every 6 months to ensure businesses are on track and milestones are being achieved.
  • Over the last 4 years, profits of M&M were being eroded by the loss-making subsidiaries- 1% in FY17, 12% in FY18 because of international subsidiaries, 25% in FY19, and over 1.7% in FY20.
  • 2 years ago, M&M management started ‘challenge round’ where as Head of Group Strategy, Mr. Anish Shah was asked to challenge all proposals and recommend to the board whether to invest or not. In the process, tough calls have been taken on two-wheeler business, Baby Oye, and Mom and Me among others.
  • In 4QFY20, M&M took a call to stop further investments in SsangYong and Gen Z. Almost 60% of losses came from SsangYong and Gen Z.
  • By the end of this FY21E, the remaining loss making subsidiaries will be addressed and shut down in absence of a clear path. Entering into FY22, a lot of these problems will be history.
  • M&M aims to have a simpler structure going forward. While the focus is looking at the loss making subsidiaries and getting them back on track, M&M does not want to change the spirit of entrepreneurship.
  • Multiple reasons led to the losses in last 2 years. The environment is one reason and excess confidence in some business is the other. Essentially, there will be a higher financial discipline that will come in.
  • M&M’s share price, as of high of August 2018, had a 31% annualized growth rate over a period of 17 years. The factors that drove this return were, – earnings-per-share growth of 34%, cash generation of Rs 23 bn per year on an annualized basis and annual return on equity of 22%. In order to get back to that kind of performance, M&M will have to get back to 20%-22% RoE and 30%-plus growth rate in cash generation.
  • M&M’s ROE in the last few years has gone down from 20% to 12%. In stage 1, by fixing loss making subsidiaries M&M should be back to 18% ROE. In the next stage, taking a look at 0-10% ROE businesses and fixing them, should mean going back to 20-22% of ROE.
  • M&M’s preference is to have a solid and conservative business over a rapidly growing risky business. M&M Finance’s business is strong and M&M is putting in capital to ensure that in any scenario, if things get much worse, there is no impact on the business. Mahindra Finance has always raised capital before it is needed, so they didn’t wait until the capital was needed. There were some analyst concerns regarding the capital issue but M&M is confident that M&M Finance should have a very high degree of subscription.
  • M&M aims to be the gateway to the largest and fastest growing themes in India and hospitality is one of them. M&M has a timeshare model and a long-term bond with the consumers. As a result, M&M expects that it’s hospitality business may not be impacted much. Post the COVID-19 crisis, M&M’s hospitality business can grow much faster.
  • As for Meru, M&M is looking at it closely to see what the real path to profitability is. M&M does not have a definitive answer to that yet.

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

  • The closing price of M&M was ₹ 563/- as of 09-July-2020. It traded at 22.1x/ 16.7x the consensus EPS estimate of ₹ 25.5/ 33.7for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 556/- implies a PE multiple of 16.5x on FY22E EPS of ₹ 33.7/-.

 

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...
01 Jul

Replacing China as a global chemical supplier is a medium to long term story- Lupin

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed marginally lower at 10,302. Within NIFTY50, SHREECEM (+3.1%), MARUTI (+2.7%), and ICICIBANK (+2.6%) were the top gainers, while BPCL(-2.5%), POWERGRID (-1.9%) and SUNPHARMA (-1.9%) were the top losers. Among the sectoral indices, AUTO (+1.1%), FMCG (+0.3%), and FIN SERVICE (+0.3%) gained the most.  PSU BANK (-1.8%), MEDIA (-1.7%) and PHARMA (-1.5%) were the losing sectors.

 

Replacing China as a global chemical supplier is a medium to long term story- Lupin

 

Excerpts of an interview with Mr. Ramesh Swaminathan, Global CFO –Lupinpublished in Economic Times dated26thJune 2020:

  • The US Generic market has seen different phases in terms of pricing in the last 2 decades. Pricing was good during 2001-2005. In the 2005-2009 period, there was a sharp decline in prices which picked up later. 2011-2015 saw some tailwinds for pricing. 2015 onward due to customer consolidation and increased competition in generic space, the Pharma companies lost bargaining power leading to pricing pressure. However today, the situation has stabilized and everything depends on the portfolio.
  • There have been a lot of Indian generic entrants in the US generic space and that is where the competition is higher. US companies such as Teva, Mylan, and Sandoz have lost market share to the new entrants. But the smaller companies are now realizing that earning ROCE is not as easy. Companies have to invest in FDA approved manufacturing facilities of different kinds, there is a waiting period for getting ANDA approvals, and there is a working capital blockage. As a result, some players are backing out which will bring some pricing stability going forward.
  • In the last several years, Lupin, along with the other bigger companies, is focusing on delivering more complex generics including complex injectables, inhalation, etc. Complex injectables as a segment are growing at over 6-7%. Inhalations segment is growing at over 15%. These segments have lower competition because of the complexity involved.
  • In the specialty segment, a lot of the products are coming into the market over the next few years, which will help with the realizations for Indian generic companies. Companies need to have deep pockets because Specialty calls for a very different kind of approach. Innovation quotient and clinical data play a critical part.
  • Biosimilars is the sunrise industry for Indian pharma companies. There are considerable entry barriers, but once a company has a clone, has done immunogenicity studies well and, then potentially development risk will be mitigated. The pricing will also be better due to lower competition. Europe has adapted more to biosimilars. Once the American market picks up, the realization for players in that market would be much higher.
  • Lupin has got into women’s health because that is one space which has been vacated by big pharma and to that extent, the competition there is much lower.
  • Replacing China as a chemical producer for the world will be a medium to long term story. India has about 25% of USFDA approved API capacities in the world but there is still some way to go when it comes to supply. The government is trying to encourage this shift but the investments have to materialize.
  • There are 3 specific growth drivers for Indian pharma companies. One is the large American market, specifically the complex products which Lupin is also getting into. Second, the Indian domestic market is still underpenetrated. Due to the COVID-19 situation, there is going to be thrust from the Indian government and more public awareness which will aid faster growth. Third, many emerging markets are underpenetrated and if the portfolio is right, there is potential for growth in those markets.
  • There might be some demand contraction in India as well as America due to COVID-19 disruption. However, it is a very temporary situation and the second half of FY21E will be much better.
  • The flavor of the day seems to be a nationalistic foot forward. We can see in India as well as in America and other parts of the world. Lupin has been conscious about this for a while and has local manufacturing in countries where it operates. For Indian pharma companies, the basic paradigm should be low-cost manufacturing from India but supplemented with local manufacturing capabilities in overseas markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of lupin was ₹ 910/- as of 30-June-2020. It traded at 31.9x/ 23.4x the consensus EPS estimate of ₹ 28.5/ 38.9 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 852/- implies a PE multiple of 21.9x on FY22E EPS of ₹ 38.9.

 

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.”

 

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23 Jun

Expect profit in all quarters of FY21–PNB

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,323. Within NIFTY50, BAJAJAUTO (+7.1%), BAJFINANCE (+5.9%), and BAJAJFINSV (+4.8%) were the top gainers, while WIPRO (-1.7%), GAIL (-1.2%) and ONGC (-1.1%) were the top losers. Among the sectoral indices, PSU BANK (+3.9%), METAL (+2.6%), and PHARMA (+2.2%) gained the most.  IT (-0.3%) was the only sector to end in the red.

 

Expect profit in all quarters of FY21–PNB

 

Excerpts of an interview with Mr.S S Mallikarjuna Rao, MD&CEO–Punjab National Bank (PNB)published in Business Standard dated 22ndJune 2020:

  • Management expects credit growth of 6% in FY21E from the earlier estimate of 12%.
  • The credit recovery in MSMEs and retail segments is expected to be faster than other bigger segments. Growth in bigger segments will probably come from January 2021.
  • PNB management expects robust comeback in certain sectors of MSMEs in October. Hospitality and travel segments will be slower to recover but less labor-intensive sectors and highly technology-oriented industries will come back faster.
  • PNB does not see any pain in the hospitality portion of the loan book at the moment. Pain may come from the telecom sector which is in stress. But even in telecom, PNB has non-funded exposure, i.e. bank guarantees are given in favor of government. In PNB’s loan book, they do not see any incremental pain in any sectors apart from those already identified.
  • Mr Rao expects profit in every quarter of FY21. In 1HFY20, PNB might earn Rs 18,000 mn from treasury due to yield advantage. In 1QFY21 itself, PNB has booked Rs 11,000 mn treasury gains compared to normal quarterly run rate of Rs 4,000- 5,000 mn. Provisioning burden will impact the profit, but the backlog of provisions would not continue after September.In 2HFY21E, earning will accrue from lending as operating profit stabilizes.
  • PNB has a high stake of government at 85%. The Government stake has to be brought down in 2 years as the threshold for minimum public shareholding is 25%. So incremental fund raising will be via QIP/ public issue/ LIC/ tier-1 or tier-2 capital.
  • Post amalgamation of PNB with Oriental Bank of Commerce, and United Bank of India, there are a lot of non-core asset in the form of properties that PNB will look to sell. Rs 3,000 – 4,000 mn can be generated through this route in FY21E. PNB does not plan to divest interest in joint ventures and associates, including stake in PNB Housing, as they want to hold onto the brand name and see the entities grow.
  • Post the amalgamation, IRDAI has given exemption to PNB to hold stake in 2 insurance companies. There is no sunset clause for this exemption and PNB will continue to hold share in both the companies.
  • On the progress in amalgamation process, organizational restructuring will be complete from 1st July 2020. Technology integration of surrounding applications and ATMs will be complete by September. Core banking integration for one bank will be done by December 2020, and for the other bank by March 2021.
  • For the amalgamated entity, 500,000 customers are eligible under the emergency credit guarantee scheme and Rs 150 – 160 bn can be disbursed. PNB has already sanctioned loans worth Rs 30 bn to 120,000 customers and the remaining gap can be filled in by first week of July.

Consensus Estimate: (Source: market screenerand investing.com websites)

  • The closing price of PNB was ₹ 35.8/- as of 22-June-2020. It traded at 0.7x/ 0.4x the consensus BVPS estimate of ₹ 53.6/ 86.6for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 52.7/- implies a PBmultiple of 0.6x on FY22E BVPS of ₹ 86.6.

 

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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