Author - Mrunmayee Jogalekar

  • Mrunmayee Jogalekar
25 Feb

Selective improvement visible, total market turnaround still far away: Mr Unnikrishnan, Themax

Update on the Indian Equity Market:

The weakness witnessed in global equity markets on Friday got reflected in the Indian Equity market at start of the week on Monday. Concerns mounted about the ability of authorities to keep the coronavirus from spreading further beyond China. NIFTY50 closed 2.0% lower at 11,839 level. All NIFTY50 stocks closed in the red. The worst performers were JSWSTEEL (-7.4%), VEDL (-6.5%) and TATASTEEL (-6.3%). METAL (-5.4%), AUTO (-3.5%) and PHARMA (-3.1%) were among the worst hit. No sectoral index closed positively.

Selective improvement visible, total market turnaround still far away: Mr Unnikrishnan, Themax

Excerpts from an interview with Mr Unnikrishnan, MD – Thermax published in Mint dated 24th February 2020.

  • Orders in January were better than the past couple of months. Selective improvement is visible towards the end of 1HFY20 and at the start of 2HFY20E. A total turnaround is far away.
  • There is a lot of traction and capacity build-up in the oil and gas industry. Mr. Unnikrishnan expects a lot more orders coming from the sector in 2HFY21E.
  • The cement sector is seeing positive movement. Most cement companies in India are not overleveraged and there are some greenfield and brownfield expansions expected.
  • Mr. Unnikrishnan thinks Oil & gas, and cement are the only 2 sectors where there could be investments in FY21E.
  • The consumer facing industry is seeing improvement in the utilization levels from December. The negativity in consumer-facing industry, FMCG and durables for the last 6-7 months should start reversing in 1HFY21E. This means that some companies will start ordering from 2HFY20E, which will benefit Thermax.
  • Thermax was facing some issues in terms of slower payments coming in from both the private sector and government orders. Mr Unnikrishnan says private sector payments are improving due to improved performance. There is no improvement in the pace of public sector payments despite the issue being taken up to the highest levels. Including the contracting fraternity, Rs 1,750 bn is stuck with PSUs and government departments, some of which are on account of project completions getting delayed.
  • Mr. Unnikrishnan sees a positive movement in India related to the environment, both in air pollution control and in wastewater and effluent treatment. Many ‘A’ category industries are moving into ESG (Environmental, social, and governance) mode as they understand that without ESG, investments will not come to them. So a higher level of voluntary compliance is seen from the industry.
  • CLSA put out a note saying that this will be a year to focus on emission reduction for companies like NTPC. As per Mr. Unnikrishnan, NTPC has already completed this in half of their plants and they have/ will already initiate action on the rest. Pre dominant part of Indian power generation is with state electricity boards and none of them have placed orders for the Flue-gas-desulfurisation (FGD). That means about 100,000 mega-watts worth of coal-fired power plants are yet to initiate action. When it happens, it will be a huge market opportunity. However, most of these state electricity boards, except 2 are financially stranded.
  • Thermax is in negotiations with multiple private Indian cement companies for pollution control and carbon footprint reduction. Thermax has done multiple plants and is in negotiations with multiple Indian cement companies for generating electricity from their waste heat. There could be some orders in this area in 4QFY20E itself and also a few in 1HFY21E.

Consensus Estimate: (Source: market screener website)

The closing price of Thermax Ltd. was ₹ 970/- as of 24-February-2020. It traded at 35x/ 26x/ 22x the consensus earnings estimate of ₹ 28/ 37/ 45 for FY20E/ FY21E/ FY22E respectively.
The consensus target price for Thermax Ltd. is Rs 1,063 implying a P/E of 24x over the FY22E EPS of Rs 45/-

By Engineering, Thermax , , , , 0 Comments Read more...
13 Feb

‘At the bottom of the barrel, see uptick going forward’- Amit Kalyani, Deputy MD, Bharat Forge

Update on the Indian Equity Market:

On Wednesday, NIFTY closed positive (+0.8%) at 12,201. NIFTY50 was led by HINDUNILVR (+5.1%), KOTAKBANK (+2.2%), and EICHERMOT (+1.9%). YESBANK (-1.5%), SBIN (-1.2%) were the top NIFTY50 losers. FMCG (+1.9%), PVT BANK (+0.7%) and FIN SERVICE (+0.7%) were the top gaining sectors. PSU BANK (-1.9%), REALTY (-0.8%) and PHARMA (-0.7%) were among the losing sectors.

‘At the bottom of the barrel, see uptick going forward’- Amit Kalyani, Deputy MD, Bharat Forge

Excerpts from an interview with Mr Amit Kalyani, Deputy MD, Bharat Forge aired on CNBCTV18 on 10th February 2020:

  • In the domestic auto industry, the Commercial Vehicle (CV) and Passenger Vehicle (PV) volume decline has reached the bottom. However, any growth is not visible at this point.
  • On the global auto market, seeing good growth in PVs. 3QFY20 was an aberration for Bharat Forge due to a strike at GM, one of their big customers. Mr Kalyani expects business to be sequentially higher in 4QFY20.
  • Overall, the Indian auto industry sentiment is not very positive. There are a lot of unknowns in the transition phase leading up to shift to BS6. Bharat Forge’s domestic customers are not willing to give any forecasts for more than 1 – 1.5 months.
  • Revenue from North America declined over 30% in 3QFY20. Mr Kalyani commented that he doesn’t expect any further decline in CVs in the North American market. He expects the PV exports to go up in 4QFY20E as well as FY21E as Bharat Forge has won a lot of new product orders.
  • The Europe CV business is also expected to go up in FY21 due to new product wins. This growth will be in the form of additional value per vehicle so even if volumes decline, Bharat Forge will see growth.
  • Bharat Forge is engaged in a lot of cost reduction, both on fixed and variable costs. By the end of FY21E, the company will have a substantial cost reduction exercise completed which will help margins. In 9MFY20, even though operating at 50% capacity, Bharat Forge’s margins are at about 24%.
  • In 3QFY20, profitability has bottomed out. Mr Kalyani expects some improvement in 4QFY20E, but it won’t be substantial.
  • Bharat Forge’s business is a derived demand business. The company can only focus on maximizing revenue depending on customer demand and cost-efficiency.
  • Bharat Forge is in a position to take advantage of any opportunities that come up. The company has created a lot of capacity. They are able to fulfil all demand operating at 50% capacity. The company is strong financially and technologically.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bharat Forge was ₹ 483/- as on 12-February-20. It traded at 34x/ 25x/ 19x the consensus EPS estimate of ₹ 14.1/19.5/25.5 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 469/- which implies a PE multiple of 18x on FY22E EPS of ₹ 25.5/-
By Bharat Forge 0 Comments Read more...
05 Feb

TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Update on the Indian Equity Market:

On Monday, NIFTY closed positive (+0.5%), recovering slightly from the post-budget decline seen on Saturday. Consumer stocks were the top gainers across NIFTY50 led by ASIANPAINT (+6.3%), NESTLEIND (+5.0%) and HINDUNILVR (+4.8%). INFRATEL (-6.1%), YESBANK (-4.6%) and ITC (-4.6%) were the top NIFTY losers. MEDIA (+1.7%), REALTY (+1.6%) and AUTO (+1.5%) were the top gaining sectors. PSU BANK (-2.5%), IT (-1.3%) and PHARMA (-0.5%) were the sectors that ended negatively.

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TeamLease CFO: Confident to reach target margin of 3.5% in 4 years.

Excerpts from an interview with Mr N Ravi Vishwanath, CFO, TeamLease that aired on CNBC-TV18 on 29th January 2020:

  • In 3QFY20, TeamLease’s revenue growth slowed down to ~15% from the range of 20% that the company used to deliver. The slow growth is largely reflective of the general economic slowdown. There is also impact of some large deals getting shifted from 3QFY20 to 4QFY20.
  • Over the long term should be able to maintain the growth of 20% as always committed.
  • The revenue for 9MFY20 has grown by up 18%. Management does not expect the full-year growth for FY20 to reach 20%. In FY21E, the topline growth could get back to 20%.
  • The specialized staffing business which included the IT, telecom and infra staffing is expected to grow over 20% in FY21E (IT, telecom, infra).
  • As far as telecom sector staffing is concerned, the worst is over for TeamLease. In FY19, they got into certain telecom, infra, and radiofrequency projects which resulted in lower profitability. The company has exited some of those mandates and will exit the 1 or 2 that are left as and when they get completed.
  • TeamLease has exited some lower profit mandates, especially in telecom. This should lead to better profitability going into FY21E. On the flip side, the company is in talks and has almost signed some better margin mandates in telecom now. The management expects the situation to only get better from here.
  • The per associate per month (realization in general staffing) has grown 5% YoY. Mr Vishwanath thinks that this growth will continue.
  • The management is targeting a margin of 3.5% over the next 4 years.

Consensus Estimate: (Source: market screener website)

  • The closing price of TEAMLEASE was ₹ 2,472/- as on 3-February 2020. It traded at 40.5x/ 31.8x/ 24.7x the consensus earnings estimate of ₹ 61.1/ 77.8/ 100.0 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 2,762/- which implies a PE multiple of 27.6x on FY22E EPS of ₹ 100.0/-

 

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By TeamLease , , 0 Comments Read more...
24 Jan

Zee Entertainment: Margins will improve once ad revenues bounce back.

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green with 0.6% gains.  The gains were led by YESBANK (+6.6%), IOC (+5.9%), GAIL (+2.8%). The stocks that were beaten down in today’s session included ZEEL (-7.2%), UPL (-3.9%) and CIPLA (-1.4%). Most of the sectoral indices ended positive lead by REALTY (+2.1%), PSU BANK (+1.2%) and BANK (+1.0%). MEDIA (-2.1%) was the only sector that ended in the red.

Excerpts from an interview with Mr Rohit Gupta, CFO, ZEEL that aired on CNBC-TV18 on 22nd January 2020:

  • ZEEL reported 3QFY20 numbers. The growth in subscription revenue continued to be strong at 21.7% for 3QFY20 and 31.0% for 9MFY20. The economic slowdown and weakness in consumer sectors led to a decline in advertisement revenue.
  • In the last 5 years, ZEEL’s advertising revenue has grown at a CAGR of 16% while the topline growth has shown a CAGR of 12%. EBITDA also doubled in the same period.
  • Current year’s advertising revenue is impacted by 2-3 factors.  Two of ZEEL’s Free-to-air channels have become paid channels and removal of free dish had an impact of 500 bps. Also, in 3QFY19, the revenue growth was 20% on back of 30% growth in 3QFY18. On such high base, the decline this time is high at -15%. Advertising revenue should come back in the next 2-3 quarters.
  • After TRAI’s new tariff order last year (NTO 1.0), ZEEL has grown stronger. The reasons being very strong customer connect and brand pull of channel. The implementation of the NTO 1.0 has not completed a year yet and industry is still in a stabilizing phase for the entire subscription revenues. However, NTO 1.0 has been good both for consumers and industry.
  • ZEEL has been working on improving their balance sheet. The cash and equivalents have improved from 1,479 cr to 1,767 cr in 3QFY20. Management is working on improving FCF and PAT to cash conversion ratio. They expect to improve both in excess of 50% in the coming year.
  • ZEEL’s margins have been in excess of 30% for many quarters. However, 3QFY20 margins were lower than 27%.  The management says margins will improve as the advertising revenue bounces back.

Consensus Estimate: (Source: market screener website)

  • The closing price of ZEEL was ₹ 279/- as on 22nd January 2020. It traded at 15.9x/ 13.5x/ 12.6x the consensus earnings estimate of ₹ 17.6/ 20.7/ 22.2 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 334/- which implies a PE multiple of 15.0x on FY22E EPS of ₹ 22.2/-

By zee 0 Comments Read more...
16 Jan

Improved activity post the extended rains is leading to improvement in repayments.

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.2% lower. The NIFTY was dragged down by INDUSINDBK (-5.6%), WIPRO (-3.5%) and SBIN (-1.2%). The top performing NIFTY stocks were YESBANK (+3.5%), HEROMOTOCO (+2.5%) and TATAMOTORS (+ 2.0%). The worst performing sectors were NIFTY PVT BANK (-0.9%), NIFTY BANK (-0.8%) and NIFTY IT (-0.1%). Sectors that performed well included NIFTY REALTY (+1.3%), NIFTY AUTO (+1.2%) and NIFTY MEDIA (+0.8%).

Improved activity post the extended rains is leading to improvement in repayments.

Excerpts from an interview with Mr Umesh Revankar, MD – Shriram Transport Finance Co. The interview aired on CNBC-TV18 on 13th January 2020.

  • Shriram Transport (SRTRANSFIN) has raised $ 500 mn through an overseas bond issue. The issue was oversubscribed with a demand of $ 2.2 bn.
  • The issue happened at a coupon of 5.10%. The company’s first US $ bond in April 2019 was at a coupon of 5.92% and the subsequent issue was at a coupon of 5.32%. Over the period, the cost of borrowing is coming down. The all-in, post hedging cost of the current issue is a little less than 10%.
  • The rationale behind borrowing in the offshore market is the diversification of sources of funds. The all-in cost of domestic funds currently is around 9.25% to 9.50%. Offshore cost is 50-60 bps higher as of now.  As STF goes ahead, the cost of borrowing offshore is coming down. The company’s bonds are trading lower than 5% in the market.
  • Mr Revankar believes there will be some revival in demand, especially after the steep drop in MHCV. LCV segment is doing well. Even though there is a YoY drop, last year was the peak for LCVs, against that 15% drop is still good.
  • The inventory levels with manufacturers is coming down. As inventories come down, discounts will come down. In an increasing discount scenario, people tend to wait for further discounts. CVs are earning assets. Customers look at a resale price as it is not personal consumption. When discounts start to come down, there will be more comfort in buying as the value to the asset will be established. Because of these reasons, Mr Revankar expects pre-buying to happen before the BS-VI transition.
  • Shriram Transport is expected to have AUM growth of 8-9% for FY20. Earlier, the management was aiming for double-digit growth. However, 1HFY20 was conservative in terms of lending. The company reduced LTV, controlled lending, focused on only used vehicles, and did not lend much for new vehicles. Mr. Revankar expects that confidence should come back in 2HFY20 and FY20 should see AUM growth.
  • After the extended rainfall, mining and infra activities have finally started. That’s why cement and steel prices are also moving upward. Infra and mining will give some activity for transportation and general business. There is a definite improvement in repayments.
  • On the asset quality front, Shriram Transport disruption in 2QFY20 caused by extended rains. The impact has been arrested in 3QFY20. The asset quality should definitely improve from 4QFY20.
  • Shriram Transport’s lending is to individual operators and their cash flows are not very steady. The company is very patient with customers so there will be some asset quality movement. But the management is not much alarmed by such moves.

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

  • The closing price of SRTRANSFIN was ₹ 1,097/- as of 15-January-2020. It traded at 1.4x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 807/ 933/ 1075 respectively.
  • Consensus target price of ₹ 1,316/- implies a Price to Book multiple of 1.2x on FY22E Book Value of ₹ 1075/-.
By NBFC, Shriram Transport Finance 0 Comments Read more...
07 Jan

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Update on the Indian Equity Market:

On Monday, NIFTY took a hit and declined 1.9% due to escalation in US-Iran tensions. India is highly dependent on crude oil imports and the market is worried about a rise in crude oil prices and the resultant rise in inflation. Among the sectoral indices, the worst hit were NIFTY PSU BANKS (-4.3%), NIFTY METAL (-2.9%) and NIFTY BANK (-2.6%). No sector closed in the green. Among NIFTY50 stocks, SBIN (-4.6%), BAJFINANCE (-4.5%) and VEDL (-4.5%) were the worst hit. TITAN (+1.5%), WIPRO (+0.3%) and DRREDDY (0.04%) were among the very few gainers.

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Excerpts from an interview with Mr TT Srinivasaraghavan – MD, Sundaram Finance. The interview aired on CNBC TV18 on 2nd January 2020.

  • Being a vehicle finance lender, Sundaram Finance has been impacted due to the demand slowdown across the auto sector.
  • Mr Srinivasaraghavan says there is no underlying reason for the demand situation to change as far as CVs, especially MHCVs, are concerned. He does not see any green shoots as of now. Some green shoots might be visible 3QFY21 onwards.
  • There is little bit of replacement demand for buses by municipalities and state governments. Not so much improvement on the Infrastructure front.
  • Infrastructure was the engine that drove the economy for the last 5 years and everyone had hoped that would continue. Expected action on the infrastructure front by the government hasn’t happened. If the FM’s recent announcement of Rs 102 tn infrastructure projects kicks off, then there could be some serious projects coming up that would trigger buying.
  • Sundaram Finance’s disbursements in 1HFY20 were 1.5% lower YoY compared to 15.5% growth YoY in 1HFY19.  Mr Srinivasaraghavan says that disbursement growth is not in the top 3 priorities in current conditions. With PVs down 18% YoY, MHCVs down 52% YoY and overall CVs down 22% YoY, now is not the time to chase growth. Maintaining robust portfolio quality and maintaining healthy margins are the priorities. These are turbulent times and one must fasten their seatbelts and hang on.
  • Sundaram Finance has seen a significant lowering in the cost of funds compared to a year-ago period.  Their market share has also improved, partly due to liquidity issues faced by some players. But even though the market share has improved, the market size itself has shrunk.
  • Sundaram Finance’s asset quality has deteriorated from GNPAs of 1.3% at the end of 4QFY19 to 2.2% as of the end of 2QFY20. Mr Srinivasaraghavan does not think the asset quality will improve dramatically in the near term although it will go back to more reasonable levels eventually.
  • NPA is a fair reflection of the stress the customers are facing. Transport operators are facing enormous stress due to a combination of overall economic factors such as projects not happening, terrible freight rates, state government pulling the plug on already running or awarded projects.  The operators will need 6-9 months for them to get out of this pressure on cash flows. The best that the company can do is to nurse the customers through this difficult period even if the asset quality is what it is.
  • Sundaram Finance has seen a small element of pre-buying from some larger customers in the last weeks of December. Mr Srinivasaraghavan’s suspicion is that they are coming up for replacement in the next 3-6 months and that’s why they are buying now when they can better negotiate the BS-IV prices. Also perhaps there are specific sectors where customers are seeing some green shoot. But green shoots all around is not the case yet.

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

  • The closing price of SUNDARMFIN was ₹ 1,611/- as of 06-January-2020. It traded at 3.1x / 2.8x / 2.6x the consensus Book Value for FY20E / 21E / 22E of ₹ 514/ 582/ 623 respectively.
  • Consensus target price of ₹ 1,826/- implies a Price to Book multiple of 2.9x on FY22E Book Value of ₹ 623/-.
By NBFC, Sundaram Finance 0 Comments Read more...
26 Dec

IndiaMART: Collection growth expected to decelerate

Update on the Indian Equity Market:

On Tuesday, NIFTY ended 0.4% lower at 12,212 level. BPCL (-2.7%), HCLTECH (-1.7%) and RELIANCE (-1.7%) dragged NIFTY down. YESBANK (+3.0%), CIPLA (+2.0%) and INDUSINDBK (+1.3%) were the top NIFTY gainers. NIFTY IT (-0.5%), NIFTY MEDIA (-0.5%) and NIFTY AUTO (-0.4%) were the worst performing sectors while NIFTY METAL (+0.5%), NIFTY REALTY (+0.5%) and NIFTY PHARMA (+0.1%) were the best performing sectors.

IndiaMART: Collection growth expected to decelerate

Excerpts of an interview with Mr Dinesh Agarwal- Founder and CEO, IndiaMART InterMESH Ltd. The interview was broadcasted on CNBC-TV18 dated 24th December 2019.

  • IndiaMART is India’s largest online B2B market place. The stock price has rallied 120% since listing in July 2019.
  • IndiaMART’s revenue growth for the last couple of years has been robust. Revenue growth in 1HFY20 was strong at 29% but the growth is expected to decelerate going forward due to overall economic slowdown.
  • IndiaMART collects money in advance and has Rs 6,290 mn deferred revenue pool. The deferred revenue flows into the revenue eventually.
  • The incremental growth in the deferred revenue has slowed down considerably over the last 2 quarters. The impact on revenue will show up over the next couple of quarters if the economic conditions do not improve substantially quickly. Growth will be lower than the 25% growth guidance given earlier.
  • IndiaMART has 137,000 paying subscribers. The subscribers have been growing 15% YoY. The net customer addition is about 5,000 per quarter. The slowing economy has impacted the net additions. In 2QFY20 IndiaMART added only 4,000 customers because of pressure on sales and revenue.
  • Management believes they will grow at 15% on the customer side and about 5% on the average revenue per customer.
  • Mr Agarwal said that collection growth has come down to 15%-16% in the last two quarters from 30% earlier. IndiaMART has successfully reduced business in MSME space. IndiaMART is well diversified in terms of industries and geography coverage.  They already have more than 140,000 product categories and about 60 mn products. They deal into 1,000 plus small towns, cities and tier-III villages. Management believes their core business will continue to remain robust.
  • Management has taken additional bets in SaaS [software as a service] and fintech opportunities for SMEs. They have invested in mobile accounting software for micro SMEs called Vyapar.
  • IndiaMART’s cost base has been growing at 16%-18%. As long as revenue base continues to grow faster, margins will expand. Being a technology company, the product has already been built so the margins should continue to improve.
  • In 2QFY20, EBITDA margin jumped YoY from 18%-19% to 23%. This level of margin is sustainable and can further improve QoQ if the economic condition is not very bad.

Consensus Estimate (Source: market screener website)

  • The closing price of IndiaMART was ₹ 2,074/- as of 24-December-19. It traded at 54x/32x/27x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 38.2/63.8 /76.3 respectively.
  • Consensus target price of ₹ 2,202/- implies a PE multiple of 29x on FY22E EPS of ₹ 76.3/-.
By IndiaMART, Miscellaneous 0 Comments Read more...
17 Dec

Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Update on the Indian Equity Market:

On Monday, NIFTY50 closed 0.2% lower. NIFTY IT (+1.0%), NIFTY REALTY (+0.3%), NIFTY FIN SERV (+0.1%) closed higher. NIFTY METAL (-1.3%), NIFTY FMCG (-1.2%, NIFTY AUTO (-1.0%) were the top losing sectors. Among NIFTY50 stocks, TCS (+2.8%), HCLTECH (+1.7%) and TECHM (+1.7%) were the top performers. GRASIM (-2.4%), ADANIPORTS (-2.3%) and ITC (-1.9%) were the top losers.

Motherson Sumi: FY20 revenue target will be achieved through acquisitions.

Excerpts from an interview with Vivek Chaand Sehgal, Chairman, Motherson Sumi Systems published in ET Auto dated 15th December 2019.

  • Motherson Sumi has projected $18 bn revenue for FY20. There is no further scope for organic growth and growth will come from acquisitions. The timing of acquisitions cannot be pre-planned. Due to pain in the system, valuations are very low and the management is standing by the March 2020 target.
  • New acquisitions have to be on the management’s terms. They require the new acquisitions to deliver 40% ROCE and are ready to walk away if the criterion is not met.
  • Management has 11 companies under the radar for acquisition. The topline could be anywhere between $30-35 bn. The timeline could be longer but management is confident to hit a number close to their topline target.
  • According to Mr Sehgal, the current situation in Indian automobile space is worse than the 2009 crisis. In 2009, a particular segment of the world was affected and the strike back was fast. Currently, the slowdown is prolonged. Every aspect of not just Indian but the global automotive industry is going through a churn.
  • Motherson is in a better place than peers because almost its entire order book and new plants cater to new models by OEMs.
  • Things should improve in the next 6-9 months with clarity on EU, hopeful end to the American trade war and shift to BS-VI in India.
  • On the global side, some stress is felt in India and China.   Europe is in little stress but is coming out of it. America is in a re-assessment mode and is thinking of build-in America.
  • Motherson has maintained a strategy such that no company, no component, no carmaker should contribute more than 15% of their turnover. In the last five years, they have opened around 34-35 plants around the world. They are working to set up plants in countries where needed. Motherson is not affected so much by the trade wars, because they are producing locally in those places.
  • Peers should focus on cutting costs to bring down the cost of parts.
  • Green shoots are visible but it is uncertain whether the industry has bottomed out.

Consensus Estimate (Source: market screener website)

  • The closing price of Motherson Sumi systems was ₹ 141/- as of 16-December-2019. It traded at 26.1x/ 20.7x/ 17.4x the consensus EPS for FY20E/FY21E/FY22E of ₹ 5.4/ 6.8/ 8.1 respectively.
  • Consensus target price of ₹ 145/- implies a PE multiple of 17.9x on FY22E EPS of ₹ 8.1/-.
By Auto, Motherson Sumi 0 Comments Read more...
06 Dec

Edelweiss: Market confidence needs to return for corporate earnings revival.

Update on the Indian Equity Market:

On Thursday, RBI maintained status quo on repo rates at 5.15% in its 5th bi-monthly monetary policy meeting. The market was expecting another rate cut after a cumulative 135 bps cut so far in 2019.  RBI has lowered its Real GDP growth forecast for FY20E from 6.1% to 5.0%. NIFTY turned negative after the surprise announcement and closed 0.2% lower. Among NIFTY50 stocks, the top performers were ZEE (6.2%), TCS (+2.0%) and ITC (+1.6%) while the worst performers were JSWSTEEL (-3.5%), COALINDIA (-3.4%) and BHARTIAIRTEL (-2.7%). NIFTY MEDIA (+2.9%), NIFTY IT (1.3%) and NIFTY FMCG (+0.3%) were the top gaining sectors while NIFTY METAL (-2.3%), NIFTY PSU BANK (-1.8%) and NIFTY PHARMA (-0.9%) were the top losing sectors.

Edelweiss: Market confidence needs to return for corporate earnings revival.

Excerpts from of an interview of Mr Rashesh Shah- Chairman and CEO- Edelweiss Financial Services published in Mint dated 5th December 2019.

  • Comment on the Emerging Ideas Conference: The event is mainly for High Net Worth Individuals (HNIs). The mood is starting to change from the sense of gloom that prevailed from last 5-6 months. People are now looking for opportunities to invest looking at 2020 and 2021.
  • Comment on Corporate Earnings recovery: The last 4-5 years have had very low corporate earnings growth rate. Looking at the current environment, there is a lot of liquidity, interest rates are fairly low and corporate tax rates are lowest in India’s economic history. Now the confidence just needs to come back and that will have a snowball effect. Edelweiss economists have estimated about 100–125 bps of India’s GDP growth comes from global growth. If global growth picks up, India’s GDP growth and corporate earnings growth can get some revival. 
  • Comment on Edelweiss and NBFC sector: For NBFCs, the worst seems to be over. Repairing earnings and growth is still 4-5 quarters away. A lot of NBFCs have become stronger, raised capital, managed liquidity and re-evaluated their business approach. NBFCs have been working on a model where they will be in partnership with banks rather than having competition with banks. All this will take 4 quarters where there will not be a lot of growth.
  • On non-NBFC front, Edelweiss is seeing fair amount of activity in asset management and wealth management including ARC.
  • On Edelweiss’s asset quality: In last one year, asset quality was under stress for all banks and NBFCs due to system liquidity stress. Stalled projects that are economically viable need to be completed. Availability of last mile funding will help. With lower interest rates, lower corporate tax rate profitability of housing projects will improve. In next 2-3 quarters many projects will be back on stream. In 1HFY20, Edelweiss took credit cost of Rs 4,460 mn compared to Rs 4,600 mn in FY19 as they took a proactive provisioning approach. Credit cost in FY20E will be double that of FY19E.
  • Comment on Bond ETF: Government of India is sponsoring a bond ETF where Edelweiss is the asset manager. The first ETF is going to be a bond portfolio of highly rated government PSUs. The average retail investor will get a yield of 7% – 7.5% and liquidity as it will be listed in the market.

Consensus Estimate (Source: market screener)

  • The closing price of Edelweiss was ₹ 113/- as of 05-December-2019. It traded at 1.3/ 1.2x/ 1.1x the consensus BV for FY 20E/ FY 21E/ FY 22E of ₹ 87/ 94/ 105 respectively.
  • Consensus target price of ₹ 145/- implies a PB multiple of 1.4x on FY22E BV of ₹ 105/-.


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27 Nov

Quess Corp: Expect EBITDA growth of 30% in FY20E.

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.3% lower. The decline was led by Zee (-7.3%), Bharti Infratel (-6.5%) and Grasim (-4.4%). NIFTY50 gainers included ICICI bank (+3.1%), GAIL (+2.5%) and Dr. Reddy (+1.9%). MEDIA (-3.6%), IT (-1.2%) and REALTY (-0.9%) were the top losing sectors while PVT BANK (+0.6%), BANK (+0.5%) and FIN SERV (+0.4%) were the only sectors that gained.

Quess Corp: Expect EBITDA growth of 30% in FY20E.

Excerpts from an interview with Mr Ajit Isaac, Chairman and MD, Quess Corp. The interview was published in Mint dated 26th November 2019.

  • In 1HFY20, Quess Corp has hired about 59,000 people to their workforce against 56,000 people hired in the whole of FY19. The size of the workforce as of November 2019 is 380,000.
  • Second half is usually a period of lesser headcount addition as large part of addition is for the festive season that ends towards October-November. December-January is a slow period and then February onwards there is a pick-up again.
  • Fourth quarter tends to have a better EBITDA growth as certain activities peak in that period such as collections in banks, academics, consumption of food, etc.
  • Quess Corp will likely end FY20E with close to 400,000 headcount. Addition in the 2HFY20 will be about 20,000-25,000 people.
  • Quess Corp is benefiting from a few sources. Firstly it is gaining market share from competition. Second is the benefit from movement of employment from the informal sector to the formal sector. Quess Corp is able to benefit from this transition due to its nationwide presence.  Thirdly, companies are preferring players that are more compliant and have no regulatory issues. As a result, Quess Corp workforce size is expanding.
  • Quess Corp will see 30% growth in EBITDA in FY20E.
  • Employment trend is better in non-IT than in the IT sector.
  • IT sector can be broken down in parts. It includes the Indian IT services companies, product companies, captives such as JP Morgan, Goldman Sachs which set up large campuses here to service their international requirements, and lastly, e-commerce and related ventures. Out of the above four segments, IT services has seen least growth in employment. Largest growth is in captives followed by e-commerce.
  • In the non-IT sectors, Quess Corp has added a lot of people in Banking and financial services sector and consumer sector. Consumer sector is doing well as companies want to shift to variable costs in the economic slowdown.

Consensus Estimate (Source: market screener website)

  • The closing price of Quess Corp was ₹ 532/- as of 26-November-19. It traded at 26x/ 19x/ 15x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 20.3/ 27.6/ 35.8 respectively.
  • Consensus target price of ₹ 714/- implies a PE multiple of 20x on FY22E EPS of ₹ 35.8/-.
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