Author - Mrunmayee Jogalekar

  • Mrunmayee Jogalekar
11 Jun

Expect supply shortage in June-July– Maruti Suzuki

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,116. Within NIFTY50, INDUSINDBK (+10.0%), HINDALCO (+3.1%), and AXISBANK (+2.8%) were the top gainers, while HEROMOTOCO (-3.5%), GAIL (-2.9%) and COALINDIA (-2.4%) were the top losers. Among the sectoral indices, PSU BANK (+3.5%), PVT BANK (+2.1%), and Realty (+1.9%) gained the most.  The losing sectors were AUTO (-1.1%), METAL (-0.6%), and MEDIA (-0.3%).

 

Expect supply shortage in June-July– Maruti Suzuki

 

Excerpts of an interview with Mr.R C Bhargava, Chairman–Maruti Suzuki published in Business Standard dated 10th June 2020:

  • Maruti will not be able to assemble more than 30-40 % of normal levels of production in June. So there will be no issue in selling what is produced as he expects demand will be higher than supply in June and July.
  • Maruti depends on 370-380 vendors and tier 2 and tier 3 suppliers in order to assemble cars. The supply chain is impacted if the vendors are facing issues in terms of labor, logistics, or are still in restricted zones. If the suppliers cannot produce the required components, Maruti cannot assemble cars.
  • Due to this supply issue and demand being higher than supply, Mr. Bhargava does not expect that Maruti will have to sell its cars at a discount.
  • However, Mr. Bhargava is not certain of the trend post-July and if the current demand scenario is only due to some pent-up demand from the lockdown period.
  • As per the Society of Indian Automobile Manufacturers (SIAM) data for the month of May, the volumes saw an 88% decline. Mr. Bhargava believes that the sales will go up gradually.

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

  • The closing price of MARUTIwas ₹ 5,686/- as of 10-June-2020. It traded at 38.4x/ 24.6x the consensus EPS estimate of ₹ 148/ 231 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 5,564/- implies a PE multiple of 24.1x on FY22E EPS of ₹ 231.

 

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, Maruti Suzuki 0 Comments Read more...
02 Jun

India’s intrinsic growth story intact–Siemens India

Update on the Indian Equity Market:

On Monday, Nifty closed higher (+2.6%) at 9,826. Within NIFTY50, BAJFINANCE (+10.5%), BAJAJFINSV(+7.8%), and TITAN (+7.7%) were the top gainers, while DRREDDY (-2.9%), INFRATEL (-2.5%) and ULTRACEMCO (-2.2%) were the top losers. All the sectoral indices gained in the session led byPSU BANK (+7.6%), METAL (+3.9%) and FIN SERVICE (+3.6%).

Excerpts of an interview with Mr.Sunil Mathur, MD & CEO –Siemens India published in Business Standard dated 1st June 2020:

  • The process of resuming operations has been complicated. Social distancing has to be carried out without upsetting the machinery process in a factory.
  • There are various concerns related to supply chains, capacity utilization, logistics, and labor-related concerns.
  • There are different conversations happening with customers. Some customers want to wait for normalcy to return before taking delivery of materials as projects have halted. Some customers who had already ordered materials now have a different view of the business and might have to rethink or defer their capex plans.
  • Siemens is still receiving orders as their business is varied and they are heavy on digitization. But the ordering in general has become sluggish as companies are not in offices to provide physical signatures to book an order.
  • Some customers are talking about delaying payments. Siemens on its part has not yet delayed payments to their suppliers. But it’s a fine balance as if customers are not paying, Siemens will have to rethink about payments to their suppliers.
  • Currently, no customer will agree to an increase in prices and no supplier will agree to a reduction in cost. Siemens will have to manage both and still be profitable. The strategy of the last seven years, of focusing on profitable growth, continues for Siemens.
  • The Covid crisis is a hiccup, but India’s intrinsic growth story has not changed. India needs to ramp up green energy, power transmission and distribution, Metro rail, and railways. Siemens expects orders across segments.
  • Of the Rs 20 tn stimulus package, Rs 900bn package for distribution companies is a step in the right direction. Support for agriculture is also a good measure. But Mr. Mathur believes the government needs to step up infra spends to fuel the economy. It was mentioned in the package, but the conversion to actual tendering on ground remains to be seen.

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

  • The closing price ofSIEMENS was ₹ 1,125/- as of 1-June-2020. It traded at 51.1x/ 34.8x/ 30.7x the consensus EPS estimate of ₹ 22.0/ 32.3/ 36.7 for FY20E/ FY21E/ FY22E respectively. (Siemens’s fiscal year is on a September ending basis)
  • Consensus target price of ₹ 1,173/- implies a PE multiple of 32.0x on FY22E EPS of ₹ 36.7.

 

 

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 Diversified 0 Comments Read more...
21 May

We are all about Made in India, Made for India– Nestle India

Update on the Indian Equity Market:

On Monday, Nifty closed higher (+2.1%) at 9,067. Within NIFTY50, DRREDDY (+5.9%), HDFC (+5.9%), and M&M (+5.7%) were the top gainers, while INFRATEL (-7.0%), INDUSINDBK (-2.6%) and HEROMOTOCO (-2.3%) were the top losers. All the sectoral indices gained in the session led by PHARMA (+4.1%), FIN SERVICE (+3.1%) and MEDIA (+2.4%).

We are all about Made in India, Made for India– Nestle India

Excerpts of an interview with Mr.Suresh Narayanan, Chairman, & MD –Nestle India published in Business Standard dated 20th May 2020:

  • Nestle has not been able to establish contact with all retail partners yet and does not have the exact count of stock in trade channel. As a result, it is difficult to quantify the business impact caused by the lockdown.
  • Nestle’s manufacturing had come to a halt and is gradually being ramped up to 70% of capacity.
  • On being asked whether the loss in business since April 1 could be at least 30%, Mr. Narayanan said that the impact could be higher than that.
  • Narayanan expressed that PM Modi’s call for swadeshi was misinterpreted by some. Nestle India is all about Made in India, Made for India, and serving India and Indian customers. Nestle is operating in India for the last 108 years, employees 7,200 Indians, works with over 100,000 Indian farmers and contributes ~ Rs 36,000 mn in taxes each year.
  • Narayanan observes that consumer preferences are changing. Many consumers may scale down due to poor consumer sentiment- leading to growth in popular products in essential categories. Some consumers may scale up towards safer/ more hygienic products. The shifting dynamics may lead to some product redundancy.
  • The ongoing reverse migration from urban to rural may boost rural market growth.
  • Nestle is working on its product portfolio to identify brands and products with better prospects. This exercise is also leading to a rescheduling of the innovation pipeline, wherein some projects may no longer be relevant. However, the pace of innovation will not slow down. Nestle has launched 50 products in last 3 years and will continue the trend.
  • Some operational issues still persist. Initial challenges like arranging trucks have become less severe. Obtaining permits (e-passes) for interstate transport is still an issue for Nestle. In terms of retail outlets, only 40%-50% have been activated so far.
  • Distribution in smaller towns and markets is better than large centers.
  • This crisis has accelerated e-commerce as a growth engine. Nestle has seen 90% jump in business through e-commerce (from 1.5% share of revenue a year ago to 3% now).
  • Narayanan expressed that he plans to be very conservative in terms of reopening of offices. The branch offices will remain shut for a few more weeks. Only the head office is functioning with a dozen employees vs. the capacity of 600. Even field executives have been allowed to operate only in green zones.

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

  • The closing price of NESTLEIND was ₹ 16,303/- as of 20-May-2020. It traded at 70.8x/ 59.5x the consensus EPS estimate of ₹ 230/ 274 for CY20E/ CY21E respectively.
  • Consensus target price of ₹ 16,464/- implies a PE multiple of 60.1x on CY21E EPS of ₹ 274

 

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 FMCG, Nestle India 0 Comments Read more...
12 May

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

Update on the Indian Equity Market:

 

On Monday, Nifty closed marginally negative (-0.13%) at 9,239. Within NIFTY50, HEROMOTOCO (+6.1%), TATAMOTORS (+5.9%), and INFRATEL (+5.9%) were the top gainers, while ICICIBANK (-4.6%), BPCL (-3.2%) and DRREDDY (-3.0%) were the top losers. Among the sectoral indices,AUTO (+4.3%), MEDIA (+2.7%) and IT (+1.4%) gained the most. PVT BANK (-2.2%), BANK (-2.1%) and FIN SERVICE (-1.8%) were the top losers.

 

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

 

Excerpts of an interview with Mr.Tapan Singhel, MD&CEO- Bajaj Allianz General Insurance (Part of Bajaj Finserv) published in Business Standard dated 11th May 2020:

  • The staff of Bajaj Allianz General Insurance (BAGIC) was prepared when the lockdown started as they had gone into Work from home (WFH) before the lockdown was announced.
  • During the lockdown, BAGIC has issued around 1.7 mn policies and settled around 900,000 claims.
  • BAGIC has seen that people are more productive in the WFH structure. If that continues, WFH may become the new norm.
  • BAGIC’s growth for FY19 has been 16% vs. industry growth of 9%.
  • Many enquiries are coming up in the retail health segment. Health policies have Covid-19 cover even now. But the spike in health product sales has not been as much as could be expected. This is surprising given the already low penetration levels of health insurance in India.
  • Among other insurance segments, property business has seen positive movement. Motor business is down 40-50% as new car sales have paused.
  • Due to the current crisis, 2 business segments should ideally see a spike that hasn’t happened yet. For the current prices of health insurance products, people should queue to buy cover. But that exponential growth hasn’t panned out as it should in the current scenario. Secondly, cyber insurance cover should also spike given that cyber crimes have moved up 1000%. Even then, there is hardly any sale of individual cyber cover with an annual premium of Rs 700 for a cover of Rs 1 lakh.
  • In the lockdown period, claims on existing health policies have reduced as most hospitals are operating at 30-50% occupancy. Covid-19 claims haven’t moved up significantly either.
  • Mr.  Singhel is of the opinion that there should be a regulator for hospitals to ensure standardization of rates. Insurance companies do their part by negotiating with hospitals to get standardized rates. In the end, the customer has to pay. If claims ratios go up, insurance companies will increase the prices of products. Customers will be burdened by that.

Consensus Estimate: (Source: market screener website)

  • The closing price of BAJAJFINSV was ₹ 4,565/- as of 11thMay 2020. It traded at 2.1x/ 1.8x the consensus BVPS estimate of ₹ 2,173/ 2,583 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 8,305/- implies a PB multiple of 3.2x on FY22E BVPS of ₹ 2,583.

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 Bajaj Finserv, NBFC , , 0 Comments Read more...
30 Apr

Higher but manageable inventory levels – MrAnil Kumar Chaudhary, Chairman, SAIL

Update on the Indian Equity Market:

 

On Wednesday, NIFTY50 closed positive (+1.8%) at 9,553. Within NIFTY50, HINDALCO (+7.0%), ADANIPORTS (+6.6%) and HDFC (+6.5%) were the top gainers, while AXISBANK (-3.6%), ASIANPAINT (-2.7%) and HINDUNILVR (-2.4%) were the top losers. Among the sectoral indices,METAL (+3.7%), FINANCIAL SERVICES (+3.4%) and MEDIA (+2.7%) gained the most. FMCG(-0.4%) andPHARMA (-0.01%) closed in the negative.

 

Higher but manageable inventory levels – MrAnil Kumar Chaudhary, Chairman, SAIL

 

Excerpts of an interview with Mr. Anil Kumar Chaudhary, Chairman,SAIL broadcasted on CNBC TV18on 24th April 2020:

  • As with most industries, steel industry is also facing issues in running facilities. Steel is a continuous process industry and has to continue to run albeit at a lower level.
  • Domestic orders have dried up. SAIL is dependent on export orders for now. As a result of continuous production and lower sales, there is a buildup of inventory.
  • Chaudhary believes that the current inventory level is high but manageable. Higher inventory is not unprecedented for steel industry. Current inventory for SAIL is close to 2 mn ton.
  • Inventory level was also high during the slowdown in July- October 2019. 31st October 2019 also had high inventory like current levels. But as of 31st Jan 2020, the inventory levels reduced to 1st April 2019 level.Mr. Chaudhary expects that similar performance will repeat if everything goes well and lockdown lifts on 3rd May 2020.
  • Chaudhary is confident that after lifting of lockdown there will be substantial demand from construction and infrastructure sectors. That should take care of SAIL’s high inventory levels. Other sectors such as automobiles or engineering may take time to revive.
  • For SAIL specifically, they have not seen issues in logistics. In lockdown, railways have become more efficient and even portsare able to handle exports.
  • Cash flow is a bit strained due to lower sales and continued fixed costs. Quite a few debtors have been due for repayments and SAIL has been getting those payments.
  • After lockdown, road transport has to be restored. Government is also really concerned about current state of affairs and they also want to ensure that the supply chains are restored as fast as possible.
  • SAIL has close to 70,000 employees.SAIL has to be able to ramp up production in time to bring down per ton cost of production. SAIL continues to incur fixed costs of about Rs 15,000 mnper month, major expense due to employee cost.
  • Chaudhary is confident that some government measures are going to help such as waiver of certain charges from power companies in some states. Interest cost in % terms has also come down.

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

  • The closing price ofSAIL was ₹ 30.1/- as of 29-April-2020. It traded at 8.4x/ 4.1x the consensus EPS estimate of ₹ 3.6/ 7.3 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 35.1/- implies a PE multiple of 4.8x on FY22E EPS of ₹ 7.3/-.

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 Metals, SAIL, Uncategorized , , 0 Comments Read more...
21 Apr

Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

Update on the Indian Equity Market:

 

On Monday, Nifty closed unchangedat 9,262. Within NIFTY50, TATAMOTORS (+4.2%), SUNPHARMA (+3.9%) and HDFCBANK (+3.6%) were the top gainers, while HINDALCO (-5.6%), JSWSTEEL (-5.6%) and AXISBANK (-5.4%) were the top losers. Among the sectoral indices,PSU BANK (+4.2%), IT (+1.6%) and REALTY (+0.6%) gained the most. METAL (-3.3%), FMCG (-2.1%) and AUTO (-1.4%) were the top losers.

 

Post pandemic, recovery to be V-shaped – Mr N Ganapathy Subramaniam, COO – TCS

 

Excerpts of an interview with Mr N Ganapathy Subramaniam, COO- TCS published in Business Standard dated 20th April 2020:

  • Back in December, TCS dealt quickly in China. That led to none of their employees getting affected by covid-19.
  • TCS has formed a committee that meets every day and coordinates operations globally. More than 90% of the workforce is working from home (WFH). As long as the work is getting done, TCS is not in a hurry to get employees back in the office space.
  • In March, 2/3rd of the business impact was due to supply side issues. This was due to employees having to WFH and approvals had to be obtained from clients for the same.
  • In 1QFY21E, 80% of the business impact will come from demand side. There are various discussions happening with clients. Some clients are asking how TCS can help them in their business in current stressed situation, some clients are asking for pricing discounts, while some are asking to halt projects. On the other hand there are also situations where clients are asking to accelerate projects and finish ahead of time. TCS has also got certain additional work from clients where their other vendors could not do it, and also in cases to help moving operations to WFH.
  • TCS has seen some suspension of projects in certain pockets, but there have been no cancellations.
  • It is difficult to assess the current situation. But when the pandemic is contained and economic activity resumes, all sectors will rebound simultaneously. Once the pandemic is over, the recovery will be swift and V-shaped. Given the deal pipeline and demand scenario, management is optimistic of reaching the 3QFY20 revenue level of ₹ 390 bn in 3QFY21E.
  • TCS has various levers that it will implement to undertake cost optimization. First and the biggest available lever is how a project can be executed within budget and time. Second is reduction in employee costs on account of no salary hikes and reduction in travel costs due to WFH. Third, marketing costs will come down with more digital marketing. The other cost efficiencies can be achieved by controlling utility costs and contracting costs.
  • TCS is open to look at M&A opportunities in these times as according to the management, these are good times to buy. TCS had its biggest acquisition (captive BPO of Citigroup) during the Global financial crisis.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 1,819/- as of 20-April- It traded at 20.9x/ 21.3x/ 19.1x the consensus EPS estimate of ₹ 86.9/ 85.5/ 95.4 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 1,829/- implies a PE multiple of 19.2x on FY22E EPS of ₹ 95.4.

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

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Update on the Indian Equity Market:

On Tuesday, Nifty closed 8.8% higher at 8,792, taking cues from global markets.  All components of NIFTY50 ended with gains led by INDUSINDBK (+25.0%), AXISBANK (+20.1%) and GRASIM (+15.0%). All sectoral indices also ended with gains. NIFTY PVT BANK (+11.1%), NIFTY PHARMA (+10.4%) and NIFTY BANK (+10.4%) gained the most.

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Edited excerpts of an interview with Kiran Mazumdar Shaw, Chairperson and Managing Director of Biocon Ltd.; dated 1st April 2020. The interview aired on CNBC-TV18.

  • Biocon received an Establishment Inspection Report (EIR) with Voluntary Action Indicated for it’s Malaysian unit in respect of production of glargine. Insulin glargine is a long-acting, manmade version of human insulin.
  • This is an important EIR for Biocon and with that, the management is confident that the approval will come in sooner than later. Inspection went well but in terms of launch, management needs to keep track of current crisis as US is going through a very bad phase.
  • Post the crisis, there will be a huge effort to bring down healthcare costs. Biosimilars will be extremely important in this effort. Insulin therapies are also going to play a very important role in cost cutting and biosimilar glargine, insulins and others are going to be extremely important.
  • In terms of opportunity, biosimilars business is a USD 7 bn business globally and USD 4 bn business in the US. With biosimilars, the access to insulin glargine is much larger. Biocon has a very important role to play in providing affordable access to glargine.
  • Including the private labs in testing for the current crisis has been a good move on part of the government. The issue regarding less number of approved kits is resolved and more kits are now being produced. The challenge now is that state governments are now restricting private labs from testing. Maharashtra, Telangana, Gujarat, West Bengal have put heavy restrictions on private labs. If private labs are restricted from conducting tests in large numbers, the purpose of including them in the testing arena is defeated.
  • Biocon has a turnover target of USD 1 bn in Biologics by FY22E. There is a lull created by the logistics issues currently. However, the target is still 2 years away and management hopes that the crisis will pass soon. This is a time when biosimilars will have a huge impact on global healthcare and that’s why Biocon will have a very big role to play.
  • The private sector is in close cooperation with government on various fronts including research, private testing, vaccine development, therapy developments and antibody based serological testing. This crisis has shown that we have to focus on these areas and our public health system has to be improved and there is a lot of opportunity for us to build a very robust healthcare ecosystem.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon was ₹ 319/- as of 7–April–2020. It traded at 42.5x/ 31.9x/ 24.5x the consensus EPS estimate of ₹ 7.5/ 10.0/ 13.0 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 311/- implies a PE multiple of 23.9x on FY22E EPS of ₹ 13.
By Healthcare, Uncategorized 0 Comments Read more...
26 Mar

Business cannot take priority over the safety of people- Mr Pawan Goenka, MD, Mahindra & Mahindra

Update on the Indian Equity Market:

On Tuesday night, PM Narendra Modi announced a nationwide lockdown for the next 21 days to fight against the spread of Covid-19. On Wednesday, NIFTY continued gains for the 2nd day and ended at 8,318 (+6.6%). This rally might be in the expectation that an economic package to counter economic disruptions might be announced soon.

Among the sectoral indices, Financials gained the most while no sector index ended negatively. FIN SERV (+9.7%), PVT BANK (+8.5%) and BANK (+8.4%), AUTO (+4.3%) were the top gainers. Out of the NIFTY50 stocks, RELIANCE (+13.8%), HDFCBANK (+12.4%) and KOTAKBANK (+11.9%) rallied the most. INDUSINDBK (-3.3%), IOC (-3.1%) and COALINDIA (-2.8%)  were among the few stocks that ended in red.

Business cannot take priority over the safety of people- Mr Pawan Goenka, MD, Mahindra & Mahindra

Edited excerpts of an interview with Mr Pawan Goenka, Managing Director of Mahindra & Mahindra; dated 23rd March 2020. The interview aired on CNBC-TV18.

  • As a contribution to tackling the Covid-19 crisis, the Mahindra Group has taken certain steps. The Group has started work on how their manufacturing facilities can be used to make ventilators. They have put their projects team on standby to assist the government or the army in erecting temporary care facilities. In addition, Mahindra Holidays will offer their resorts as temporary care facilities.
  • The foremost consideration is given to the well-being of the group’s employees. Plants in Nagpur, Kandivali and Chakan have already shut down. Over the next few days, most plants will be shut down.
  • No one is in a mood to buy cars right now. Dealerships are also shutting down due to lockdowns. The automotive business is slowing down. Tractor business is also slowing down, although not to the same extent.
  • Mahindra Group is playing it by the day as things are very dynamic. It is difficult to predict how long the shutdown will last. If lockdown lasts only until 31st March, the business that has slowed down will come back in the next 2-3 months. If lockdown lasts longer than 31st March, the comeback will take much longer.
  • Need for tractors in agriculture cannot disappear. The tractor buying peaks in May-June period. If Mahindra does not miss out this season, then the tractor business will be fine. However, to tap that season, production will have to take place in April. But in the current scenario, the business will not take priority over the safety of the Group’s people and communities.
  • For the auto and tractor business point of view, the foremost responsibility of the company is to make payments to its suppliers and low wage earners-especially the contract workers and daily wage workers.
  • Mahindra Finance is closely watching the concern of liquidity in the market. There is a concern of EMI payments not happening but that will not happen immediately. The farmers have probably already received revenue from the previous cycle and so there might not be an issue.
  • The big unknown from the perspective of Mahindra Financial is what will happen to the financial cycle, i.e money coming into the NBFC from both borrowings and EMI payments. It is very important to get that cycle going. But right now, the sales pull will also be less hence the demand for financing will be less.
  • The group has an advantage in terms of business diversification.
  • Mr Goenka is of the opinion that although the Government is also under pressure and we should not expect too much, the government has to step in at this point. Mr Goenka has mentioned three things that he expects from the government at this point:
  1. For the auto industry, the immediate issue is the 31st March deadline to liquidate BS-IV inventory. It is not in the hands of the Government as it’s a supreme court matter. Mr Goenka is hoping that the court extends the deadline and gives extra time to liquidate the BS-IV vehicles. As no OEM is manufacturing BS-IV vehicles any longer, there is no problem of excessive dumping of those vehicles.
  2. The second area where Government intervention is needed is to help in the liquidity situation. If a moratorium of say 3 months is imposed on recognition of EMI non-payment as NPAs, NBFCs will be able to have a bit of a breathing room. The government needs to ensure that the financial cycle does not break down because it will take a long time to repair if broken.
  3. Thirdly, the Government must not delay any payments due to the industry as right now the industry needs funds.

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

  • The closing price of M&M was ₹ 274/- as of 25-March-2020. It traded at 7.2x/ 7.7x/ 6.7x the consensus EPS estimate of ₹ 38.3/ 35.4/ 40.6 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 651/- implies a PE multiple of 16.0x on FY22E EPS of ₹ 40.6/-
By Auto, Mahindra & Mahindra , , 0 Comments Read more...
17 Mar

Margins to improve due to crash in crude prices – Mr Surana, BPCL

Update on the Indian Equity Market:

On Monday, NIFTY50 closed 7.6% lower at 9,199, erasing the gains of Friday. All sectoral indices closed in the red with METAL (-8.9%), PVT BANK (-8.8%) and BANK (-8.3%) being impacted the most. Of the NIFTY50 components, INDUSINDBK (-18.4%), JSWSTEEL (-14.8%) and VEDL (-10.9%) were the worst performers. YESBANK was the only index component to close in the green with a 45% gain.

Margins to improve due to crash in crude prices – Mr Surana, BPCL

Excerpts from an interview with Mr M K Surana, Chairman and MD, Hindustan Petroleum Corporation Ltd. (HPCL) with CNBC -TV18 dated 9th March 2020:

  • The crash in crude prices is governed by factors different than those which are normally seen. The crash is abnormal, sharp and not guided by purely demand-side factors.
  • Mr Surana expects that in the near term, there will be softness in most Middle East crudes. This may lead to better margins on refining side in the near term. Brent Dubai differential may increase slightly, making Middle East crude slightly more favourable from refining point of view.
  • The lower crude price is good for refiners and means better margins in the near future. But the choppiness will not be correcting.
  • The gross refining margins (GRMs) and the cracks were low in the recent past. But in this particular event, the Saudi crude has reduced OSP by almost USD 6 per barrel in all markets and not just Asian markets. That should improve the cracks in the near future. In fact, the 6th March vs 9th March futures/forwards are already seeing a little jump of cracks.
  • The BPCL divestment impact on industry dynamics depends on how the divestment proceeds. Assuming private players are involved, there may be certain changes in the way businesses are picked up.
  • Sudden fall in crude causes inventory losses. However, there are still 20 days in March (at the time of the interview). After such a sudden fall, a pick up if it happens is also sharp. So, we may see days of gains also in March so the inventory will depend on the net price. However, on the margins, they are expected to be better in nearer months.
  • On the demand in India, February was better than earlier months for both diesel and petrol. Mr Surana was of the view that it is difficult to identify where the demand is coming from as many factors are working in contradictory directions.
  • As far as the Coronavirus impact is concerned, there was no impact in India in February. It is only now that concerns are being raised.

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

  • The closing price of BPCL was ₹ 365/- as of 16-March-2020.  It traded at 10.9x/8.6x/8.2x the consensus earnings estimate of ₹ 33.4/ 42.4 /44.5 for FY20E/21E/22E respectively.
  • The consensus target price for BPCL is ₹ 506/- which implies a PE multiple of 11.4x on FY22E EPS of ₹ 44.5/-.
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05 Mar

Debt reduction plan on track – Praveer Sinha, Tata Power

Update on the Indian Equity Market:

After a small jump yesterday, NIFTY continued the declining trend on Wednesday by closing 0.4% lower at 11,254. In addition to the global markets’ anxiety, fresh coronavirus cases reported in India led to the selling pressure.  Leading the losses were YESBANK (-6.1%), EICHERMOT (-4.0%) and BAJFINANCE (-3.9%). CIPLA (+4.8%), DRREDDY (+4.1%) and SUNPHARMA (+2.8%) were among the top gainers. Among sectors, NIFTY MEDIA (-2.0%), NIFTY BANK (-1.7%), NIFTY PVT BANK (-1.7%) were the worst hit. NIFTY PHARMA (+2.0%) and NIFTY IT (+1.0%) were the only sectors to close on a positive note.

Debt reduction plan on track – Praveer Sinha, Tata Power

Excerpts from an interview of Mr. Praveer Sinha, Managing Director, and Chief Executive Officer, Tata Power published in Mint dated 4th March 2020

  • India is very dependent on China and Taiwan for sourcing solar panels. India imports 90% of its solar panels from China.  As a result, the renewable energy business in India is getting impacted by the Covid-19 outbreak. Many projects are getting delayed and the delay will last for another 2-3 months.
  • On supply of power to states, Tata Power has been waiting for more than a year for the states to resolve the issues related to tariff hike.  Tata Power will be constrained to close the units around 10th March 2020, if the issues are not resolved quickly. The issues mainly pertain to 5 states- Gujarat, Maharashtra, Punjab, Rajasthan and Haryana.
  • Out of the 5 states, Gujarat is ready to revise the power purchase agreement (PPA) with Tata Power. Maharashtra also seems to have moved forward and the new government is making a decision. Punjab, Haryana, and Rajasthan are yet to take any decision and this is where the delay in signing a revised PPA is coming in.
  • Tata Power has an accumulated loss of Rs 110 bn as of December 2019. Loses have come down drastically due to lower coal prices and better sourcing of coal as well as better blending. But the issues still need to be resolved in order to have continued supply from the Mundra plant, which is one of the lowest cost plants even with revised tariff.
  • Tata Power has concluded a deal for the synergy plant in South Africa and money will come in by March 2020. Management expects discussions for Zambia plant and shipping business to both conclude by 2QFY21E. Management also expects to divest Baramulti Suksessarana Tbk (BSSR) and Antang Gunung Meratus (AGM) by 3QFY21E. In the last 1 year, Tata Power also has been able to get more than $ 100 mn from Arutmin. Everything is on track in terms of the debt reduction plan. It is just a question of getting the right buyer and the right price. Considering all these plans, management expects Rs 60 bn of debt reduction by end of FY21E.
  • Tata Power does incremental capex for their regulated business such as transmission and distribution in Mumbai or Delhi distribution as well as some capex in generation business, especially Flue-gas desulphurization (FGD). These generate RoE of 15.5%. This capex has been helping Tata Power in improving EBITDA. Since last year, the average EBITDA has increased in the range of 22-24%. Whatever Investments the company is doing is generating good cash which is useful for growth.
  • Tata Power is also looking at monetizing some other businesses. They have great opportunities especially in renewables where they can leverage the growth they have. Tata Power already has 2,700 MW of operating renewable assets and another 700 MW is getting commissioned.
  • There is no impact on the shipping of coal. The shipping to China has actually increased as their coal mines are not operating. Tata Power is also getting all their coal shipments as they have firm contracts with all coal companies and shipping companies.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Power Company was ₹ 44.4/- as of 04-March-2020.  It traded at 10.8x/8.2x/ 7.3x the consensus earnings estimate of ₹ 4.1 / 5.4 / 6.1 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Tata Power Company is ₹ 72.3/- which implies a PE multiple of 11.9x on FY22E EPS of ₹ 6.1/-.
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