Pratik Talvatkar | Assetmultiplier

20 Jan

CTC acquisition enables to scale up in insurance sector – Tech Mahindra

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,757 (-1%). Among the sectoral indices, METAL (+0.5%) and REALTY (+0.2%) were the only gainers while PHARMA (-1.7%), IT (1.66%), and HEALTHCARE (-1.3%) closed in the red. POWERGRID (+4.8%), BHARTIARTL (+2.2%), and GRASIM (+1.7%) were the top gainers. BAJAJFINSV (-4.6%), BAJAJ-AUTO (-3.7%), and DIVIS (-2.9%) were among the top losers.

Tech Mahindra recently announced the acquisition of Com Tec Co IT (CTC), an East-European IT Services company with a presence in the digital engineering and outsourced product development space, for EUR 310m.

Excerpts from an interview of Mr. Vivek Agarwal, President, BFSI, HLS, and Corporate Development, Tech Mahindra with ET NOW dated 18^th January 2022:

Tech Mahindra is optimistic about the insurance industry in digital transformation and the industry itself is going through a significant transformation largely due to disruptive technologies.
Mr. Agarwal said CTC brings deep domain competence and a successful track record, in the long run, to serve insurers for transforming their journey.
Mr. Agarwal further added, the basic capability set that Tech Mahindra gets from CTC is digital engineering talent as a service line and as a capability, it’s a very high growth segment as enterprises transform for the future. Tech Mahindra expects this capability adds more value to existing customers of the company as well as new customers.
As Europe is becoming a big talent hub Tech Mahindra established a presence in Latvia and Belarus through CTC acquisition. The talent quality coming from that region is exceptional and the company expects to grow on the talent base in that region.
Tech Mahindra’s acquisitions are driven by close integration and driving synergies. From the CTC acquisition, Tech Mahindra stands to gain vertical synergy in the insurance sector. The company expects that it can directly sell services to the client base of CTC.
Tech Mahindra is looking to work on and exploit the service line synergy around digital engineering and clients also want the top-class capability to help them to transform, with the combination of Tech Mahindra and CTC company will be able to offer those capabilities to their clients.
The insurance and reinsurance industry has a huge presence in Europe but the company not only focuses on Europe it serves a global client base. From the financial metrics perspective, Mr. Agarwal expects the business to generate industry-leading EBIT margins and this would reflect in the EPS and free cash flow.
Tech Mahindra is looking for those sectors which has high growth opportunity and the insurance sector is one of those. The insurance industry has a mile in terms of digital transformation and some of the peers of Tech Mahindra have a strong presence in that sector and the company expects that they will perform higher than the industry average rate.
CTC is going to be an integral part of Tech Mahindra’s business and does not consider a subcontracting base. This will become a more important base for Tech Mahindra to expand its talent supply pool.

Asset Multiplier comments:

We think the CTC acquisition enable Tech Mahindra to expand its footprint in the insurance sector and expand its Eastern European presence.
It will provide Tech Mahindra with tech talent having differentiated capabilities in end-to-end digital engineering which can be scaled up across different industries.

Consensus Estimate: (Source: Market screener website)

The closing price of Tech Mahindra was ₹ 1,669/- as of 20-January-2022. It traded at 26x/23x/20x the consensus Earnings per share estimate of ₹ 64.2/ 73.9/ 82.6/- for FY22E/FY23E/FY24E respectively.
The consensus average target price is ₹ 1,864/- which implies a PE multiple of 23x on FY24E EPS of 82.6/-.

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.”

By Pratik Talvatkar IT, Tech M 0 Comments Read more...

11 Jan

Margin improvement expected from 4QFY22 – KEC International

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 18,056 (+0.3%). Among the sectoral indices, IT (+1%), REALTY (+0.5%), and FINANCIAL SERVICES (+0.3%) closed higher while METAL (-1.9%), FMCG (-0.4%) and PSU BANK (-0.2%) closed in the red. HCLTECH (+4.5%), ADANIPORT (+3.5%), and HDFC (+1.8%) were the top gainers. JSWSTEEL (-3.1%), TATASTEEL (-2.9%), and BPCL (-1.7%) were among the top losers.

Excerpts from an interview of Mr. Vimal Kejriwal, MD, and CEO, KEC International with CNBC-TV18 dated 7^th January 2022:

On 6^th January 2022, the cabinet cleared ₹ 120bn plan to set up infrastructure to transmit electricity from renewable energy projects to boost green sources. This will help meet half of the nation’s energy requirement by 2030, and the expected timeline for this project was around 4-5 years.
Kejriwal expects the conversion in orders is likely to take place in Q2FY23E or Q3FY23E. The Company will likely get ~15% to 20% business and is expected to generate Rs ~20,000 mn business for KEC.
On the margins side, he added it will not be more margin accretive because of the heavy competition with big giants like Power Grid or Adani Transmission, or starlight. Heavy competition from biggies leaves less space for EPC to generate profit and leads to maintaining normal margins.
KEC doesn’t see the postponement of tenders on the ground situation and KEC is not looking to the postponement of orders. KEC is the lowest bidder or L1 in another order of ₹ 60,000 Mn and KEC expects that many of them converted during the Q4FY22 so even if the tenders get postponed KEC sees healthy orders coming in the 2HFY22.
Improvement in margins will start from 4QFY22 onwards led by softened steel and cement prices and improvement in the availability of steel. New orders are at the current prices and the execution has started kicking in and the company expects from 1QFY23 and 2QFY23 the margins would be near double digits.
In the civil segment, KEC performed well in FY21 and did the business of ₹ 10,000 – 11,000 mn, and in FY22 the civil segment is expected to be doubled in terms of business and another 50% increase might be seen in FY23. The civil order book closed at ~₹ 60,000 mn as of today. The civil segment is primarily driven by metros, water projects, and metals and mining, these three areas where KEC seeing significant growth to be continuing.
In the railway segment, KEC underperformed because of disturbance in the market due to heavy competition but KEC expects good growth in FY22. KEC has taken a stand of wait and watch in conventional railways but the company seeing significant growth in the metro side rather than conventional in the near term.
On the revenues Mr. Kejriwal further added, they expect ~15% to 20% growth in FY22 and, ~50% to 60% order book is still from conventional railways but they seeing changes in revenue breakup and metros will be the focussed area rather than conventional for KEC. The Government has embarked on “Mission Raftar” where KEC is expected to get most of the orders other than that company seeing some slowdown in conventional railways.

Asset Multiplier comments:

We think the healthy order book, expansion of business in newer geographies, and diversification in revenue segments will be the key positives for KEC International but the heavy competition by big players in the sector and increased commodity prices pull back the profitability and the margins.
Healthy growth opportunity in global and domestic transmission and distribution sector, electrification of railways and rural region and government’s measures towards boost infrastructure driven growth for KEC International.

Consensus Estimate: (Source: Market screener website)

The closing price of KEC International was ₹ 497/- as of 11-January-2022. It traded at 24x/16x/13x the consensus Earnings per share estimate of ₹ 21/32/39/- for FY22E/FY23E/FY24E respectively.
The consensus average target price is ₹ 520/- which implies a PE multiple of 13x on FY24E EPS of 39/-.

By Pratik Talvatkar Engineering 0 Comments Read more...

30 Dec

The cost structure is not impacted only because of an increase in fuel prices. – TCI

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,204 (-0.06%), 10 points lower. Among the sectoral indices, IT (+1%), HEALTHCARE (+0.46%) and PHARMA (+0.44%) were the gainers and OIL & GAS (-1.4%), METAL (-1.2%), REALTY (-1%) led the losers. Among the NIFTY50 components, NTPC (+2.7%), INDUSINDBK (+2%), and HCLTECH (+1.9%) were the top gainers while BAJAJ-AUTO (-1.9%), RELIANCE (-1.6%) and JSWSTEEL (-1.58%) led the laggards.

Excerpts of an interview with Mr. Vineet Agarwal, MD of Transport Corporation of India (TCI), with ET Now on 28^th December 2021:

TCI is very conservative about their growth because of the fear of how the third wave of covid or new omicron variant impact supply chain or consumer demand but in 1HFY22 TCI performed above their targets. TCI guided for 15% to 20% growth in the top line and 30% to 40% growth in the bottom line for FY22.
Cost structure was not only impacted because of fuel prices but rising lubricant prices, tyre prices, driver wages and toll charges. Not only road sector but rail and coastal shipping side were also impacted due to higher input cost. TCI does not see any margin pressure as the company passes on higher input cost to end customers.
Due to the changes in the industries and economy, the logistic sector is at the point of change. Customers demand also change and demand comes from all kind of areas. The big change from a demand perspective led to a huge amount of demand for organized players like TCI in the logistic sector.
Customers are outsourcing more and more logistics, not only road or warehousing but multi-mode logistics also. TCI offers a combination of multi-modal services which will be the growth driver in the future.
Improvement in infrastructure like buildings new expressways, new ports directly impacting positively on improvement and efficiency of logistics industry which drive more business for organized players. TCI expects logistic looking attractive in several sectors and regions in the coming years.
A good initiative like PM Gati Shakti Programme, creates a platform where products can move smoothly across the country irrespective of the mode of transport. In India more than 60% of cargo moves by road, 20% to 25% by rail. India has to shift aggressively towards a cheaper mode of transport like railways and coastal shipping.
TCI seeing Increased use of IoT and things like drones, the evolution of introducing other new products going to be a game-changer for the logistic sector.
TCI planned to spend about Rs 5000 mn for the next three years for buying trucks or ships, railway rakes, and construction of warehouses. TCI growing faster than the market and this will lead to market share gains for TCI.
Many companies in the logistic sector looking at green logistics. TCI looking at less carbon emission and moving from road to rail to sea and reducing the amount of carbon footprint. The company expects many companies in the logistics sector to think about moving towards multimodal for green logistics.
Customers want green logistics and TCI has to evolve. TCI is offering different solutions to customers from road to rail to sea and a combination of them. TCI has their own services for road, seaways business and TCI has a JV with Concor to run rail logistics that gives TCI a little bit of edge while offering services.

Asset Multiplier Comments

We think TCI’s diversified range of services via a single window leads to capturing higher wallet share of its customer. Consistently growing E-Commerce industry drives the growth for TCI. Well-diversified range of services helps TCI in volatile times.
As the economic activities started ramping up, supply chain issues have started to resolve and normalization of input cost is happening. We think TCI may perform very well in the logistic sector.

Consensus Estimate: (Source: TIKR website)

The closing price of TCI was ₹ 760/- as of 30-December-2021. It traded at 25x/23x/17x the EPS estimates of ₹ 30.4/33.5/45.4/- for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 734/- implies a P/E Multiple of 16x on FY24E EPS of ₹ 45.4/-

By Pratik Talvatkar Miscellaneous 0 Comments Read more...

22 Dec

Demand is robust but supply-side constraints due to new variant – Sonata Software

Update on the Indian Equity Market:

On Wednesday, the benchmark index NIFTY 50 closed at 16,955 (+1.1%), 185 points higher. Among the sectoral indices, REALTY (+3.0%), PHARMA (+2.0%), and METAL (+1.8%) led the gainers. None of the sectoral indices ended with losses. Among the NIFTY50 components, HINDALCO (+4%), TATAMOTORS (+3.7%), and DIVISLAB (+3.5%) were the top gainers while SBILIFE (-1%), WIPRO (-0.7%), and GRASIM (-0.4%) led the laggards.

Excerpts of an interview with Mr. Jagannathan Chakravarthi, CFO of Sonata Software with CNBC-TV18 on 20^th December 2021:

Chakravarthi said they did not see any impact on demand due to the omicron variant and they also don’t expect any impact. Due to omicron, they expect there will be some supply-side constraints but the company has taken initiatives to mitigate the risk like diversified delivery centers in various locations globally. The pipeline is very strong and company expects the demand continues for the next 8 to 12 quarters.
On working from the office Mr. Chakravarthi said, they are not very clear about working from the office. The large players have started the process but Sonata exploring and evaluating possibilities of how much workforce will work from home for now and they said the company is not going back to an earlier stage of 100% work from home. The industry is in the wait and watch kind of situation and the company will decide after some clarity comes on omicron and its impact.
In the shorter term, there will be some cost pressure. The salary increases, retention bonus, and salary increment cycle are likely to put pressure on cost. 3QFY22 is expected to be a little moderate in terms of attrition for the overall industry but the company will look at how 4QFY22 and 1QFY23E are coming out in terms of attrition and cost pressure. The impact of cost increases is expected for one or two quarters and margins will not substantially be affected because of that.
On client addition, he said there is no pressure on new client addition. Company qualifying the clients according to their qualifying mechanism and prioritizing the clients because the demand is huge. The company is at high levels of utilization and it has to match up with supply-side also.
Sonata Software is at EBITDA levels of 27% to 28% which is an industry-leading margin. The company expects if the changes happen in the business for the medium term they will continue to maintain a 23% to 25% EBITDA level for a longer run.
The company expects demand to continue to be robust and the company will be at an industry-leading growth rate. It’s hiring has been strong for the last 2 quarters and the company is now well prepared for omicron compared to the delta variant.

Asset Multiplier Comments

We think Sonata Software will be able to add more clients as they have strong hiring plans and are investing in senior talent to meet the strong demand momentum. This is likely to drive the growth of the company in the longer run. The hiring also controls the attrition rate and utilization levels.
Share of digital revenue has been continuously improving from the last few quarters in International IT Services (IITS). We think a higher share from digital revenue drives the higher margins in IITS. Healthy traction in Retail, Commodity and travel segment we expect strong revenue growth in going forward.

Consensus Estimate: (Source: market screener website)

The closing price of Sonata software was ₹ 814/- as of 22-December-2021. It traded at 25x/20x/18x the EPS estimates of ₹ 32.4/41.5/46.5/- for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 964/- implies a P/E Multiple of 23x on FY23 EPS estimate of ₹ 41.5/-.

By Pratik Talvatkar IT 0 Comments Read more...

19 Dec

This week in a nutshell (13-17 Dec)

Technical talks

NIFTY opened the week on 13^thDecember at 17,619 and ended the week on 17^thDecember at16,985. The index made a weekly loss of 3.6%. On the upside, 17,125 could act a resistance while 16,807 could act as a support. RSI (14) of 39 indicates the index is nearing the oversold zone.

Among the indices, IT was the only sector which ended the week with gains of 2%. REALTY (-8.4%), MEDIA (-8%), and PSU BANK (-7.8%) led the laggards.

Weekly highlights

The US indices closed the week in the red, dragged by the hawkish stance of the Federal Reserve, and increasing worries of the Omicron variant of the COVID-19 virus. These factors combined with continued FII selling led the Indian markets lower, as Indian equities wiped out previous week’s gains and the Nifty50 ended ~4% lower.
Federal Reserve officials have indicated they favor raising interest rates in 2022 at a rate faster than expected. The Fed chair, Jerome Powell announced the doubling in the pace of monthly bond purchases. The Federal will be buying USD 60bn of bonds each month from Jan-22, half the level prior to the Nov-21 taper, and USD 30bn less than it purchased in Dec-21.Fed presented aschedule of rate hikes, there will be three rate hikes in 2022, two in 2023 and two more in 2024.
Union Cabinet approved Rs 760bn incentive plan for semiconductor and display board production in the country, the investment of will be spend over the next 5 to 6 years period. PLI scheme boost India’s semiconductor and display manufacturing ecosystem.
Wholesale price inflation rose to a record high of 14.2% in Nov-21 due to the increased manufacturing and food prices, inflation in fuel prices and global supply chain issues.
The Bank of England increased its interest rates for the first time since the starting of COVID-19pandemic. BOE increased its main interest rates from a historic low of 0.1% to 0.25% as the inflation pressure rises. In November-21,the Consumer Price Index hit a 10-year high and was above the central bank’s target. Bank expects that in April-2022 inflation will be around 6%.
Fears over the impact of Omicron variant of the COVID-19 virus led a fall in the oil prices on Friday.With the number of cases doubling, several countries have announced restrictions. The OPEC+ said in their last meeting held in early December that they could meet ahead of their scheduled meeting on 4^th Jan 2022, if the oil demand is impacted severely due to the Omicron variant.
Foreign Institutional Investors (FII) continued to be net sellers this week, selling shares worth Rs 104,620 mn. Domestic Institutional Investors (DII) continued to be buyers, and invested Rs 67,400 mn in Indian equities this week.

Things to watch out for next week

In the next week investors will be watching US Consumer confidence numbers to understand if purchasers are switchingtheir habits due to theconcernsof Omicron variant and high inflation. The US markets have a truncated next week as markets will remain shut on Friday on account of Christmas Day.
The Indian equity market is likely to see more selling pressure next week amid US dollar appreciation and the concern over the spread of omicron variant. Action is likely to be stock specific till end of December-21.

By Pratik Talvatkar #WeekInANutshell 0 Comments Read more...

08 Dec

Private CAPEX visible as demand came back post 2nd wave – Axis Bank

Update on the Indian Equity Market:

On Wednesday, Nifty ended higher at 17,470 (+1.7%). PSU BANK (+2.6%), MEDIA (+2.5%), and AUTO (2.3%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, BAJFINANCE (+3.6%), MARUTI (+3.2%), and HINDALCO (+3.1%) were the top gainers while HDFCLIFE (-1.2%), KOTAKBANK (-0.8%), and POWERGRID (-0.3%) were the top losers.

Edited excerpts of an interview with Mr. Amitabh Chaudhry, MD and CEO of Axis Bank with CNBCTV18 on 7^th December 2021:

After the 2^nd wave of COVID-19, the credit demand came back, government spending increased, the festive season also went well, and the reinvestment coming back. RBI data shows corporate growth in October-2021 after the consistent decline in the previous 12 months.
The government spending increased across all sectors, especially in Infrastructure and Defence. Mr. Chaudhry said private capex is visible in refineries, renewable energy, data storage, warehousing, logistics, and commodities. He expects in the next 9 to 12 months real capex will resume but it’s dependent on the virus situation.
Chaudhry said the bank’s growth is in line and similar to its peers in sectors in which Axis Bank wants to grow.
The Bank did not see any growth in the large corporate segment due to the pricing. It sees the rates in this segment are not similar to the one it wants to lend at. As the private capex and risk premium come back then it will start lending again to the large corporates.
Overall Axis Bank’s unsecured loan is under control within the risk guidelines. It sees some scope of growth in the credit card segment, as the AUM in the credit card declined post-Covid and is now recovering.
On the unsecured personal loan side, Axis Bank sees decent growth and expects that to pick up as the market for personal loans is huge. On the credit card side, it has seen good acquisition momentum, and Axis Bank continues to sign up new alliances and that should reflect on the credit card segment growth.
Chaudhry said the granularity of their deposit franchise suffered over the last 5 to 7 years and Axis has been gradually building it back. From 2020 onwards every quarter their CASA deposits growth has been catching up with industry leaders and the transformation that they are undertaking on their liability side will continue to add that growth going forward.
Chaudhry further said that the kind of deposits they have, the outflow percentage as decided by RBI are higher and they have a higher proportion of their assets and investments which carry lower interest margins.

Asset Multiplier Comments:

We expect margins to improve in the near-term on the back of an improvement in its product mix which is expected to change in favour of retail segments, granular liability franchise, and a reduction in the mix of Rural Infrastructure Development Fund (RIDF) bonds.
Stable asset quality, higher recoveries and healthy provision coverage ratio of ~70% coupled with additional provision buffer is likely to support bank’s balance sheet from any potential stress.

Consensus Estimate (Source: market screener and TIKR websites)

The closing price of AXISBANK was ₹ 696/- as of 08-December-21. It traded at 2x/1.6x/1.5x the consensus BVPS estimate of ₹ 369/417/475 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 948/- implies a PB multiple of 2.3x on FY23E BVPS of ₹ 417/-.

By Pratik Talvatkar Axis Bank, Bank 0 Comments Read more...

30 Nov

Increased rubber prices not sustainable – CEAT

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 16,983 (-0.4%). Among the sectoral indices, CONSUMER DURABLES (+2.2%), REALTY (+0.6%), and IT (+0.5%) ended higher, whereas METAL (-1.9%), AUTO (-0.9%), and PRIVATE BANK (-0.7%) led the losers. Among the stocks, POWERGRID (+3.1%), SHREECEM (+3.0%), and BAJAJFINSV (+2.0%) led the gainers while TATASTEEL (-4.0%), KOTAKBANK (-3.1%), and JSWSTEEL (-2.7%) led the losers.

Excerpts of an interview with Mr. Kumar Subbiah, CFO at CEAT LTD. with CNBC TV18 on 26^th November 2021:

The rubber industry is currently struggling with a big demand-supply mismatch and this will impact tyre manufacturers. Approximately 60% of India’s rubber requirement is sourced locally.
Availability of natural rubber from local suppliers has been difficult in the last couple of weeks. The quantity of rubber was coming into the market was lower because of heavy rains in Kerala therefore tapping was slightly lower. Another reason was the inventory levels of the traders was also on the lower side.
The demand-supply mismatch is a short-term problem, the availability is a major challenge right now. Shortage of 30% to 40% is on a short-term basis.
As of now, it doesn’t affect CEAT’s production because they have inventory in the pipeline. But if adequate quantities of rubber are not supplied from the local markets, then the option is to import the natural rubber. If the Government facilitates in terms of concession in import duty, it will help the manufacturers.
An import of natural rubber needs to be planned because in the current situation it takes a little longer time for vessels to come from Southeast Asian markets.
The rubber prices in the local market as well as in the international market have gone up. It moved up from Rs 170 per kg to Rs 180 per kg due to the demand-supply gap in the local market. The increase in rubber prices will have a negative impact on margins.
The company expects the rubber prices will come down shortly and the current prices are not sustainable. The prices will come down closer to import parity levels soon.
Demand continuesto be similar to the previous quarter, there are different categories and they performed differently. The company expects some weakness in Truck, Bus and farm tyres to continue. The company expects weakness particularly in two-wheelers and passenger cars segments due to the shortage of chips.
In the export segment, CEAT is facing the issue of availability of containers, vessels, and increase in freight costs. It has seen some softness in material prices, but the vessels movement, container availability, continue to be a challenge. Post covid the company saw a positive response from the international markets.

Asset Multiplier Comments

The Global lockdowns, higher freight cost and issues of container availability and vessels might be impacting CEAT’s revenue, as out of total sales ~20% of sales come from Exports.
Increase in rubber prices are likely to continue in 2HFY22, and this higher input cost may affect margins in short term. The recovery in local rubber market will drive the company’s margin recovery in near term.

Consensus Estimate: (Source: market screener website)

The closing price of CEAT LTD. was ₹ 1,165/- as on 30-Nov-2021. It traded at 18x/13x/12x the consensus earnings estimate of ₹ 65/88/98 for FY22E/FY23E/FY24E respectively.
The consensus target price of ₹ 1,334/- implies a PE multiple of 14x on FY24E EPS of ₹ 98/-.

By Pratik Talvatkar Auto, Auto Ancillary, CEAT 0 Comments Read more...

09 Nov

Expect 9-10% credit growth by end of FY22 – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,044 (+0.1%). AUTO (+1%), OIL and GAS (+0.8%), and PSU BANK (+0.8%) led the sectorial gainers. FINANCIAL SERVICES (-0.7%), FINANCIAL SERVICES 25/50 (-0.6%), and FMCG (-0.3%) were sectoral losers. The top gainers in NIFTY50 were M&M (+5.2%), TATAMOTORS (+2.0%), and HEROMOTOCO (+1.0%). The top losers were BRITANNIA (-3%), HDFC BANK (-2%), and HDFC (-1%).

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, State Bank of India (SBIN) with CNBC-TV18 on 08^th November 2021:

In two to three broad components the credit growth is seen. One is retail credit, which has grown more than 15% on a YOY basis. Muted growth was seen in corporate credit.
SBIN got unavailed limits, both in working capital as well as undisbursed term loans, and both of them aggregate to about Rs 4,500,000 mn. SBI also got the pipeline for the proposals which are being processed of Rs 1,150,000 mn.
SBIN expects as capacity utilisation improves, there will be a good credit growth in corporate sector in near term. The numbers are quite good in the month of October for the corporate credit and the bank expects there should be a decent growth will be seen in corporate credit in 2HFY22.
SBIN registered a credit growth of more than 6% on YoY. The company’s Retail and International book both performed well, international book growing more than 16% on YoY. But the corporate side is the only one which was pulling down the growth.
SBIN expects credit growth to be in the range of 9% to 10% at the end of FY22.
SBIN is processing loans of commodity, infrastructure, and FMCG sectors. The commodity sector is expected to reach its full capacity utilization and they are expanding and also the demand was back on track in FMCG sector. As a result of this, SBIN expects good credit growth from these sectors.
On NPAs, SBIN does not see any challenges as far as corporate credit is concerned. As far as retail is concerned the quality of retail is quite good. SBIN expects to operate in a range of 3.1% to 3.25% in Net Interest Margins.
SBIN witnessed some challenges in end of 1QFY22, but the collection machinery was improved significantly. They started pre-collection calls which means they informing customers well in advance for their EMI due. The customer centricity helped in reducing stress asserts in the retail sector.
SBIN has a restructured book of Rs 3,00,000 mn. History suggests about 30% of restructured book has a probability of becoming NPA. The current restructuring has happened essentially on account of the disruption in cash flow due to Covid-19. SBIN has seen an improvement in cash flows.
SBIN made the Covid related provisions of Rs 62,000 mn. They have provided well for the potential risk which might emanate from this.
SBIN collaborated with many fintech companies when it comes to offering their digital solutions. The Bank is actively engaged in terms of looking at what value addition fintech bring.

Asset Multiplier Comments

SBIN has reported a robust performance and has fought off the COVID-19 impact and displayed resilience in asset quality performance. The bank has been reporting continued traction in earnings, led by controlled provisions.
The improved credit growth prospects, stable NIMs and improving asset quality with adequate provisioning coverage will help SBIN to achieve its target of delivering 15% ROE through various cycles.

Consensus Estimate (Source: Market screener and TIKR Websites)

The closing price of SBIN was ₹ 529/- as of 09-November-21. It traded at 2x/1.5x/1x the book value per share estimates of ₹ 302/343/388 for FY22E/ FY23E/ FY24E respectively.
The consensus target price of ₹ 620/- implies a price/book value multiple of 2x on FY23E BPS of ₹ 343/-

By Pratik Talvatkar Bank, SBI 0 Comments Read more...

07 Nov

This week in a nutshell (1st – 3rd November)

Technical talks

NIFTY opened the week on 1^st November at 17,783 and closed on 3^rdNovember at 17,829. It made a weekly gain of ~0.25%. Nifty is trading at an RSI of 51 with support at 17,613 and resistance at 17,846.

Among the sectoral indices, REALTY (+9.9%), PSU BANK (+4.5%), and MEDIA (+4.0%) led the gainers. There were no sectoral losers this week.

Weekly highlights

US markets continued their upward trend S&P 500 rose ~1.8% and Nasdaq also gained ~2.8% this week.
The US Labor market got back on track in October to beat the estimates and broad-based payroll gains show greater progress filling millions of vacancies as the effect of declining in delta variant.
Reserve Bank of India announced a revised prompt corrective actions framework for banks which will be effective from 1^st of Jan 2022. Capital adequacy, asset quality, and leverage will be important parameters for the monitoring banks under the new frameworks.
The government of India reduced the Central Excise Duty on Petrol and Diesel by Rs 5 and Rs 10respectively. The Government said the reduction in excise duty will help boost consumption and keep inflation low.
US Democrats passed USD 1 trillion infrastructure bill. Administration oversees the biggest upgradation of America’s roads, railways, and other transportation infrastructure.
NITI Aayog and World Bank are working together to facilitate a program for faster and easier financing of electric vehicles. The interest rates on Electric Two Wheelers and Electric Three Wheelers is expected to come down to 10% to 12%. According to experts there is afaster adoption of EVs amid a rise in fuel prices and consumers also choosing cleaner and greener mobility.
The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 3,580 mn. Domestic institutional investors (DIIs) became buyers this week and bought equities worth Rs 3,060 mn.

Things to watch out for next week

Results season continues in India with companies such as Britannia, MRF, M&M, ZEE, Coal India, and ONGC are set to announce earnings.

Trade data and more 3Q company earnings will show whether supply chain glitches are decreased or not.
Investors’ optimism might be seen next week on the back of the government’s move to cut Excise duty on Petrol and Diesel.

By Pratik Talvatkar #WeekInANutshell 0 Comments Read more...

25 Oct

Both urban and rural markets have shown strong recovery – Asian Paints

Update on the Indian Equity Market:

On Monday, NIFTY closed at 18,125 (+0.1%). Private bank (+2.2%), Bank (+2.2%), and Financial Services (+1.3%) were the sectorial gainers, while Realty (-2.8%), Auto (-1.8%), and Consumer Durables (-1.4%) were the losers. The top gainers in NIFTY50 were ICICI Bank (+11.5%), AXIS Bank (+3.5%), and ONGC (+2.7%). The top losers were BPCL (-3.3%), Bajaj Finserv (-3.3%), and SBI Life (-2.9%).

Excerpts of an interview with Mr. Amit Syngle, MD, and CEO of Asian Paints with ET Now on 22^nd Oct 2021:

In 2QFY22, both value and volume growth has been very strong. Unlike FY21, Metro T1 and T2 cities have performed well this year. The demand sentiment in the bigger cities have been pretty good because they are growing rapidly compared to T3 and T4 cities.
The difference between value and volume growth is not much, and overall, both are healthy because of leeway with respect to the premium in the luxury products.
Real estate and construction have been picking up and that has contributed to the overall growth. Institutional markets also looking strong, though it cannot be attributed to pent up demand. During the quarter they have seen very healthy volume growth.
They feel that new demand has come in at this point of time. In Q1FY22, May was affected very badly but in June the growth was good.
Overall, the sentiments have been much better. The markets have been great and monsoons have provided very strong sentiments which may have contributed to a very strong volume growth.
Asian Paints has a strong presence in both rural and urban markets. They are expanding their business in rural markets aggressively in the last two years. The monsoon has been good and it is strongly reflecting on the whole agriculture income.
The trend shows in H1 was that while T1 and T2 cities have done well. The T3 and T4 cities have performed relatively lower but the overall growth has been quite satisfactory.
Increase in the prices of raw material is not only in India, it is happening across the world. Asian Paints took some pre-emptive actions in terms of taking price increase but they did not want to destabilise the markets.
In 2QFY22 the inflationary trends continued and they expect this inflationary trend continue well into Q3FY22 as well. This is really unprecedented in terms of what they have seen in last 40 years, they are taking one series of price increase to address margins issues.
They are looking at formulation efficiencies in a big way. They have done lots of work in last six months, bringing innovation in technology both in terms of formulation as well as manufacturing and that has given very good results.
They have taken an overall price increase of about 7.5% over the last six months. Going forward, the pace of price hikes would be a little bit higher.
Price increase is not the only strategy, the company will look at a lot of other areas so that they are able to improve the overall margin trajectory.
The price elasticity is more towards the economy set of products not towards the premium or luxury products. Overall price elasticity exists as far as demand in concern. They definitely see what they are going to balance is in terms of saying how do they take price hikes so that market sentiments not affected.

Asset Multiplier Comments

The paints sector is likely to deliver strong topline growth as the organized players have started gaining market share from the unorganized ones. This growth will be aided by opportunities in the rural market which offers good prospects after a good monsoon season.
In 2QFY22, Asian Paints missed street estimates on the bottom line due to a rise in raw material prices. Steep inflation in raw material prices impacted the operating margins. The Company is confident of turning around the situation in the coming quarter due to festive demand.

Consensus Estimate (Source: market screener websites)

The closing price of Asian Paints was ₹ 2,923/- as of 25-October-21. It traded at 89x/65x/53x the consensus EPS estimate of ₹ 32.8/45/54.6 for FY22E/ FY23E/FY24E respectively.
The consensus target price of ₹ 3,076/- implies a PE multiple of 56x on FY24E EPS of ₹ 54.6/-.

By Pratik Talvatkar Asian Paints 0 Comments Read more...

Author - Pratik Talvatkar