Author - Richa Varu Rathod

  • Richa Varu Rathod
26 May

Confident of double-digit growth in FY22 on pent-up demand – Emami

Update on the Indian Equity Market:

Domestic markets started cautiously positive and witnessed a strong rebound as it gained momentum from expectations of another set of relief measures. The new stimulus package is expected to focus on boosting the worst-hit sectors like tourism, aviation and hospitality along with MSMEs. Nifty ended above 15,300 as value buying was seen in the IT sector while Metals stocks remained in the correction phase due to muted international commodity prices.
Among the sectoral indices, REALTY (+2.8%), MEDIA (+1.9%), and IT (+1.8%) were top gainers while METAL (-1.9%), and PSU BANK(-0.3%) were among the top losers. Among the stocks, BAJAJFINSV (+4.6%), BAJFINANCE (+2.7%), and INFY (+2.5%) were the top gainers. POWERGRID (-3.0%), HINDALCO (-2.5%), and JSWSTEEL (-2.4%) were the top losers.

Edited excerpts of an interview with Mr. Mohan Goenka, Director, Emami with CNBC TV18 dated 26th May, 2021:

• Emami reported good Q4 earnings on a favourable base with 39% volume growth in domestic business. Director, Mohan Goenka says he’s confident of double-digit growth in FY22 on pent-up demand. He added their promoter pledge is at 30% & they will reduce it to 15% in the next 1 year.
• Revenue was over Rs 9000 mn in 3QFY21 v/s ~Rs 7300 mn in 4QFY21. But these numbers are not comparable on QoQ basis due seasonality in business. Emami has shown a decent growth in 2 years horizon and when compared to 4QFY19 the growth is robust.
• All categories like Zandu Balm, Kesh King, Men’s grooming products and Menthoplus has grown much better in 4QFY21 over 3QFY21.
• 40-45% of the sales comes from the winter portfolio.
• Emami started with a good note and first two weeks of April saw a very good demand. Emami has seasonal products and has healthy summer products like Navratna Tel and cool talc, however the demand tapered this season. But it is also seen that the demand really bounces back as soon as cases comes down and this time when market opens up, the company is confident of delivering a double-digit volume growth as the pent-up demand comes through.
• Seeing the input price inflation, Emami has taken 4% price hike which will take care of the input cost pressure leading to a stable Gross Margin.
• Rural demand has been impacted across geographies in second wave. The Company expects demand to pick up quickly as soon as lockdowns are lifted.
• Having the healthcare range in the portfolio, Emami was able to sell products even in the month of April and May. The demand for these products was seen to be robust.
• In the last 2 years contribution of E-commerce has reached ~4% of domestic business from 0.5%. It is expected to reach at least 6% in next 2-3 years.
• Cost reduction was seen in employee cost, other expenses and advertisement, EBITDA margin was at all time high at 30% level and target is to sustain margins going ahead.
• No need to add capacity as of now as the capacity utilization is ~60%.

Asset Multiplier Comments
• We believe that competition in Emami’s key product categories such as skin, and hair oil, will continue to remain high. Nevertheless, we remain optimistic about the favourable base, and robust demand and growth in health and hygiene market, especially in rural markets.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Emami was ₹ 504/- as of 26-May-20. It traded at 42.5x/32.1x the consensus EPS estimate of ₹ 11.8/15.6 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 564/- implies a PE multiple of 36x on FY23E EPS of ₹ 15.6/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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17 May

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Update on the Indian Equity Market:

Market started the week on strong note, bulls took center stage today as the vaccination drive is expected to pick up momentum. Nifty was up ~245 points (1.7%) at 14923. Among the sectoral indices, BANK (+4.0%), PSU BANK (+3.8%), and PVT BANK (+3.0%) were top gainers while MEDIA (-0.5%) and PHARMA (-0.2%) were among the top losers. Among the stocks, INDUSINDBK (+7.5%), SBIN (+6.7%), and ICICIBANK (+4.5%) were the top gainers. CIPLA (-2.3%), BHARTIARTL (-2.3%), and LT (-1.9%) were the losers.

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director and Chief Executive Officer, Asian Paints with Economic Times dated 14th May, 2021:
• Performance in Q3FY21 was good with 20% volume growth. Q4FY21 further accelerated on that in terms of demand — not only from the retail business, but also from the projects business which had been a bit down in previous 2 quarters. Big corporate institutions, builders, cooperative societies — everyone went for painting and maintenance in Q4. Another big thing seen was with respect to market structures, with T1 and T2 cities contributing in a very big way in Q4 as compared to Q3. In Q2-Q3 these cities were depressed because of a larger number of cases and the paranoia in the market. A third area was the luxury and premium products which kind of took off, propelling overall growth. There was a little bit of a pent-up demand, but largely a lot of new demand came in. So, that is basically how Q4 differed from Q3.
• Home décor business did quite well. Asian Paints now has ~18 stores across the country that offer all home décor solutions under one roof. It has got amazing response from the market in terms of offers for the consumer and company is quite pleased with it.
• When asked about the impact so far of the second wave of the pandemic and how does he see things playing out Q1 of FY22 he commented that things have been good thus far. There have been disruptions with localised lockdowns affecting some of their backend processes. But he thinks April-21 has still been largely good in terms of business. May is looking a little tough as most of the country is in a lockdown-like situation. They are finding very few markets to offer service at the moment. Picture will be clearer once vaccinations catch up and some bit of normalcy returns.
• When asked about the kind of rise in costs in Q4 because of crude and other prices and his outlook on operating margins going ahead he said that Gross margins in Q4 were lower a little bit both QoQ as well as YoY. This was largely due to the high inflationary pressures that built up starting the last week of December 2020. Material inflation has been to the tune of 7% to 8% in terms of crude derivatives as well as critical raw materials like Titanium dioxide and monomers that go into the paste. Management puts to use all sourcing efficiencies and formulation efficiencies, and sought to control overheads in a very strong manner which limited the damage to some extent in Q4. Asian Paints didn’t affect any increase in prices because they felt demand might not be very good given the widespread paranoia. Company took a 2.8% increase in prices on May 1 as the management is pretty confident that some of the inflationary pressures would come down going ahead, after which the company can look at more price increases to kind of do justice to the overall margins.
• There is definitely customer sensitivity to price hikes. It is observed that 2% to 4% hikes don’t really impact the purchasing of the customer very strongly, because it’s an addition of just Rs 400-500 in a work worth Rs 15,000. From a point of view of projects though, the price sensitivity is higher because the additional cost becomes higher. The company is confident that if prices are raised in a measured manner, it won’t hurt margins much.
• When asked about the expenditure on distribution, brand building, marketing earmarked for the financial year he informed that overall, they are integrating the whole area with paint. A typical home store would have large amounts of paint as well as home décor stuff. Any promotion done for a home store also accelerates the paint category as well. Asian Paints is looking at offering very strong value to the consumer, so it would bring down the stress on margins. It will depend on which way the market possibly goes, but the plan is to move into a strategic area that has been set and move strongly from the share of surface to the share of space within homes in a big way.

Asset Multiplier Comments
• The growth for most of the FMCG companies in 4QFY21 has been good. Even after commodity cost going up, they seem to have retained their pricing power. But we think, due to stricter lockdowns, the outlook for 1QFY21 seems to be bleak. In 1QFY21, we believe most of these FMCG stocks will moderate.
• Asian Paints’ underlying volume growth was quite robust. Seeing a similar kind of volume growth trajectory going forward seems difficult due to recent lockdowns. We might have to see price hikes, cost push and margin pressures in short term which will lead to correction in the subsequent quarter. But being the market leader, the long-term story remains intact.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Asian Paints was ₹ 2,782/- as of 17-May-20. It traded at 72.4x/60.7x the consensus EPS estimate of ₹ 38.3/45.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 2,678/- implies a PE multiple of 58.5x on FY23E EPS of ₹ 45.7/-.

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.”

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22 Apr

Targeting Sputnik V import by June; to be priced at $10 – Dr Reddy’s Lab

Update on the Indian Equity Market:

On Thursday, the Nifty index ended with gains of 0.8% at 14,406 levels led by Metals and Financials. Within NIFTY50, WIPRO (+3.5%), ICICIBANK (+3.45%), and TATASTEEL (+3.2%) were the top gainers, while SHREECEM (-2.8%), TITAN(-2.7%), and TATACONSUM (-1.9%) were the top losing stocks. Among the sectoral indices, FMCG (-0.7%), PHARMA (-0.4%) and IT (-0.2%) were the losers, and BANK (+2.2%), FINSERVICE (+2.1%) AND MEDIA (+1.9%) were the top gainers.

Targeting May end or early June for Sputnik V import; vaccine to be priced at $10, says Dr Reddy’s Lab

Excerpts of an interview with Mr. G V Prasad, Co Chairman and Managing Director, Dr Reddy’s Laboratories (DRL), aired on CNBC-TV18 dated on 20th April 2021:

  • V Prasad, Co-Chairman and MD at Dr Reddy’s Laboratories (DRL), on Tuesday, said that the target for the import of Sputnik V vaccine, against COVID-19, is May end or early June.
  • DRL is doing its best to accelerate the import and expects to get products launched in Q1FY22E. The cold chain and logistics are in place as they talk to the Russian Direct Investment Fund (RDIF) to accelerate the shipments.
  • He also mentioned that the launch of the India-made Sputnik V vaccine is likely to be in the Q2FY22E. Each manufacturer is in a different stage of the manufacturing process. But he hopes that in Q2 India will have Indian manufactured vaccine available at least from one-two players. So, overall Q2 should see the launch of the Indian vaccine.
  • Prasad clarified the pricing on the vaccine and said it would be uniform across the globe. He added that starting with the imported vaccine, the Russian organization has a uniform price of US $10 across the world. So, when it comes in, it will be priced at the same price that this product is offered anywhere else in the world.
  • The Pharma companies manufacturing the vaccines along with the government will have to come up with a price, which he hopes to be less than the imported price. He assured that the companies will not make profit out of this vaccine and expects the vaccine price not to be higher than US$10. 2 doses of vaccines are required and Mr. Prasad doesn’t think price would be an issue and people are willing to pay this price and don’t need to be subsidized.
  • Meanwhile, he welcomed the government’s announcement of liberalized and accelerated Phase 3 strategy of COVID-19 vaccination from May 1. The government said that anyone above 18 years of age will be eligible for vaccination from May 1. This announcement was a very major move by the government which will improve availability, by decentralizing the whole process, the logistics will be much better and it will be market-driven. So, he is optimistic about the way forward.
  • He believed that the private sector can now fully participate in the vaccine drive now and India will see a rise in availability. A rise in private organizations setting up vaccination centers will be seen and the imported vaccine will immediately relieve some pressure. People will also have the choice to get vaccinated with their choice of vaccines.
  • Last, he noted that there will not be any shortage of Remdesivir in the coming weeks. He said that Favipiravir is still available as it is not in much demand. He thinks there has been a significant overuse of Remdesivir. There is a gap in the market as the shortage was sudden and DRL is doing its best to improve the supply of Remdesivir and from next week onwards, they will have a good number of supplies for this product.
  • On April 5, the RDIF and drug firm Panacea Biotec had said that they had agreed to produce 100 million doses per year of Sputnik V COVID-19 vaccine in India.
  • The efficacy of Sputnik V is 91.6 percent as confirmed by the data published in the leading medical journal, Lancet. It has been registered in 59 countries globally, the statement said. The price of Sputnik V is US $10 per shot, it added.

Asset Multiplier Comments

  • Although DRL denied to comment on the profit margins expected from the vaccine and said they are not here to make profits out of this situation we feel that Pharma sector as a whole will see a high single digit or low double-digit growth in FY22E led by covid’s second wave related opportunities.
  • The increasing cases and lockdowns in major states in India will impact the market sentiment. The investors will rush back to the defensives and Pharma sector being one of them is likely to benefit.

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

  • The closing price of DRREDDY was ₹ 5,200 as of 22-April-2021. It traded at 26x/ 22x the consensus EPS estimate of ₹ 196/233 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 5,491/- implies a PE multiple of 23x on FY23E EPS of ₹233/-.

 

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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07 Oct

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Sep

Infra development imperative to revive economic activity – L&T

Update on the Indian Equity Market:
On Tuesday, NIFTY was up by 82 pts (+0.7%) at 11,521.
Among the sectoral indices, REALTY (-0.7%), MEDIA (-0.42%), and FMCG (-0.2%) were the top losers and PHARMA (+1.9%), PVT BANK (+1.9%), and BANK (+1.7%) were the top gainers.
Among the stocks, INDUSINDBNK (+4.7%), CIPLA (+2.9%), and UPL (+2.8%) were the top gainers. TITAN (-1.4%), MARUTI (-1.1%), and HDFCLIFE (-0.9%) were the top losers.

Infra development imperative to revive economic activity – L&T

Edited excerpts of an interview with Mr. S.N. Subrahmanyan, Chief Executive Officer and Managing Director of Larsen & Toubro Ltd with The Hindu dated 12th September 2020:

Engineering conglomerate Larsen & Toubro Ltd. (L&T) recently completed divestment of its electrical and automation (E&A) business to Schneider Electric for ₹14,000 Crs. The company is also planning to divest or dilute certain concession businesses as part of the strategic review of its business portfolio, said CEO and MD S.N. Subrahmanyan.

• When asked about the next move after divesting in E&A he informed that they keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of consistent, long-term planning process. As per this, they may divest or dilute certain concession businesses such as L&T Metro Rail (Hyderabad) and Nabha Power Ltd.
• When asked about the plans for E&A sale proceeds, he stated that they are in middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past five months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid. Accordingly, the sale proceeds will be utilised partly for deleveraging the consolidated debt and also to strengthen the liquidity buffer warranted by the current economic environment. As business conditions improve post-COVID-19, some of the equity unlocked by the divestment will also be invested for growing the business at the group level. A certain part will also be used to reward the stakeholders.
• His comments on business operations coming back to normal: As the country unlocks, means of transport open, supply chains resume and labor returns, operations at about 90% of project sites and all manufacturing facilities have resumed and are gradually moving into normality. They remain positive.
• When asked about the workers coming back to work, he commented that Pre-pandemic, they had around 2.7 lakh labourers on rolls. This came down to 70,000 by end-May when the lockdown was lifted. Most of the labourers and workers went back to their villages and towns. But, L&T have all the reasons to be positive now as about 2.2 lakh are back on rolls and most of the sites are back to more or less normality. The amount of steel and cement L&T is purchasing is going up and that indicates better progress.
• His comments on getting new business: Infrastructure development is imperative to revive economic activity, create employment and infuse more liquidity into the system. Additionally, funded projects by the World Bank, Japan International Cooperation Agency and Asian Development Bank, among others, should start moving faster. L&T, therefore, is optimistic that sectors such as hospitals, power transmission and distribution, water, railways, roads, renewable energy and defence will start showing greater traction.
• When asked how is L&T readying for the fourth industrial revolution i.e. Digital, he said that over the last few years, L&T has deliberately and slowly enhanced its technology footprint and is charting a course in recent years that will see its technology portfolio increase its contribution vis-a-vis its traditional businesses. In FY15, the world was seeing a tectonic shift with digital technologies. These emerging technologies were creating new processes, new business models and entirely new businesses. Digitalisation and digital transformation were sweeping the business world. L&T was seeing and experiencing this first-hand from the clients of IT services companies.
• He further added that L&T saw the opportunity of digital as twofold. First, to digitally transform its own operations and use these new technologies to get better at what it was already doing well; and second, to look at digital as a new business opportunity that could shape its future portfolio. L&T started doing both and it acted swiftly with determination.

Consensus Estimate: (Source: market screener website)

• The closing price of L&T was ₹ 915/- as of 15-Sep-2020. It traded at 28x/24x/21x the consensus EPS estimate of ₹ 95.8/111/127 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 2467/- implies a PE multiple of 19.4x on FY23E EPS of ₹ 127/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Sep

Expect double digit growth over the next 5 years – Kansai Nerolac

Update on the Indian Equity Market:
On Friday, NIFTY was down 194pts (-1.7%) at 11,334. Among the sectoral indices, METAL (-3.0%), PSUBANK (-2.7%), and REALTY(-2.3%) were the top losers and there were no gainers. Among the stocks, MARUTI (+1.8%) was the only gainer. TATASTEEL (-3.9%), AXISBANK(-3.8%), and ADANIPORTS (-3.6%) were the top losers.

Edited excerpts of an interview with Mr. HM Bharuka, Vice Chairman and Managing Director of Kansai Nerolac with ETNOW dated 3rd September 2020:

• His comments on completing 100 years: Feels proud to complete 100 years, there are few companies in India who have thrived and survived 100 years. Surviving through various crises in the past 100 years and going through Covid indicates the strength of the company.
• His views on the next 3-5 years and visibility for the business: Paint industry since 1991 is having double-digit growth. He thinks the penetration level is still low, per capita income is rising, and expects double-digit growth for the next 20-25 years. Looking at various parameters like consumer, demography, infrastructure, auto industry gives confidence that these sectors will grow from hereon and sees good prospects for the paint industry for the next 20-25 years.
• When asked about his views on auto sales numbers picking up in the month of Aug-20 he commented that it is slowly picking up, because of the pandemic and financial crisis, the auto industry was facing problems. But every 3-5 years, the auto industry does see a dip and then recovers back. It was about to recover but due to the pandemic it got postponed and now we can see month on month improvement, but he thinks still there is a long way to go. Commercial vehicles are still in problem and for 2 wheelers, some companies have done well and the others have not. Overall, he thinks it will take time for the auto industry to recover but positive signs are beginning to show up. In fact, he thinks pandemic would accelerate if we are able to sort out financial issues, because of the social distancing norm and people avoiding public transport, everyone would now like to own their own private vehicle. India should focus on the auto industry as it an important core industry and can become an export hub for auto and auto components and is optimistic about the auto sector.
• When asked about the demand scenario and whether he sees continuing volume growth for the rest of the year he stated that despite there being problems like non-availability of painters and people fearing to interact with each other still, Nerolac saw growth from May-20 onwards, which is a positive sign. Posting double-digit growth in 1FY21 indicates the strong nature of the paint industry and is confident about the architecture industry and is also positive on auto, infrastructure, and white goods segment.
• When asked about the possibility of market share shifting from urban to rural areas, he informed that the penetration level of this industry is low in rural areas, so in any case, Nerolac is supposed to do better in rural areas as compared to the urban market. Due to this pandemic, the rural economy is doing well and expects rural demand to continue to grow faster than urban going forward. He is counting more on the rural market to do well for double-digit growth for the company.
• When asked whether Indian companies are complete “aatmanirbhar”, he said that India has only one manufacturer of TiO2, an important raw material for paints, and that too is government-controlled. More than 2/3rd of India’s TiO2 consumption is currently being imported. He believes there is a big opportunity to make TiO2, Monomers, and other pigments used for specialty paints in India.
• His comments on strategy for the next 5 years: This is the industry is a defensive and growing industry which is reflected in PE multiple ranging from 40-60x. For the next 5 years, Nerolac expects to continue to grow in double digits if growth continues there are few players as entry barriers are high and hence expect margins to expand. Of course, global consolidation will take place, but despite that, all major players are in India and it is expected that current players will expand its topline and bottom line. He expects 12% compounded growth for the company and stock return to be higher than 12%. He sees a golden period for investors and shareholders. Commenting on dividend payout, he said that this industry has positive cash flow, and when there are no other investment opportunities there is no point keeping the cash as ROCE goes down. So, certainly, cash should be given back if no other investment opportunities are found.

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

• The closing price of Kansai Nerolac was ₹ 486/- as of 04-Sep-2020. It traded at 59x/43x/36x the consensus EPS estimate of ₹ 8.27/11.5/13.7 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 426/- implies a PE multiple of 31x on FY23E EPS of ₹ 13.7/-

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.”

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27 Aug

Pandemic has impacted all layers of FMCG – Nestlé

Update on the Indian Equity Market:
On Wednesday, NIFTY ended up 77 pts (+0.7%) at 11,550.
Among the sectoral indices, MEDIA (+2.5%), AUTO (+1.5%) and PVT BANK (+1.8%) were the top gainers while FMCG (-0.2%) and PHARMA (-0.1%) were the losers.
Among the stocks, TATAMOTORS (+8.8%), HEROMOTOCO (+6.4%), and INDUSINDBK (+6.0%) were the top gainers. BHARTIARTL (-2.9%), ULTRACEMCO (-2.2%), and ASIANPAINT (-1.4%) were the top losers.

Pandemic has impacted all layers of FMCG – Nestlé

Edited excerpts of an interview with Mr. Suresh Narayanan, MD & CEO of Nestle with Mint dated 25th August 2020:

• Food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time, Nestlé boss Suresh Narayanan said.
• His comments on consumer sentiment and mobility:
o Covid-19 is not just a health challenge, it is also a humanitarian call to redefine the way humans live, engage and work innovatively.
o Companies that are better placed to react to the new normal will naturally be preferred more by consumers.
o Food companies need to leverage their in-depth knowledge of food habits, nutrition, quality and safety in order to innovate and renovate, and adapt to this new normal.
o They need to respond to new demands, reset defining relationships with consumers and reconsider their product portfolio in the post-covid era to make products healthier, while allowing consumers to make an indulgent choice.
• His outlook for the Indian economy in the short and medium term: India’s economy is showing signs of recovery after withstanding the impact of covid-19. Some sectors were impacted more than others. With easing of restrictions on economic activities, businesses are slowly getting back on track. The government announced several measures to ensure business continuity and sectoral revival.
• When asked what other measures government should take to drive demand, he replied that the government has taken measures to increase liquidity and is hopeful that it will help the economic climate and push up demand. MGNREGA inputs have maintained an income source for a large number of people in rural areas and helped maintain demand. A good monsoon also helps. While we do see a push up in rural demand, as the economy starts opening up, it should create jobs and help build up urban demand as well. A strong focus on infrastructure development will revive the job sector as well as demand.
• Nestlé has witnessed better growth in Tier 2, 3 and 4 cities, semi-urban areas than urban areas during the lockdown. Rural consumption continues to be stronger than urban demand.
• Strong performance was delivered in the e-commerce channel. The demand in all out-of-home consumption channels experienced a sharp decline due to the lockdown. However, Nestlé brands enjoy trust, credibility and strength as far as in-home consumption is concerned. This boosted sales of dairy whitener, milk and coffee, all of which performed well. Maggi witnessed solid growth towards the end of the quarter after initial supply constraints.
• When asked whether consumer preferences will change when things will go normal, he stated that Covid-19 has had a profound impact on the pace, channel, texture and frequency of consumption, across a variety of segments in FMCG. There is a redefinition of out-of-home consumption in favor of brands and formats that are more in-home.
• Channel contexts have undergone sharp changes with a surge in e-commerce. Nestlé witnessed contribution of e-commerce going up significantly, while out-of home has not done well. If you look at e-commerce channels in the US, what took eight years in terms of penetration was achieved in eight weeks. Clearly the e-commerce journey is here to stay and there will be recalibration of channels.
• Quality, safety, nutrition and trust have undergone sharper re-definition and consumers tend to favor tried-and-tested brands and relationships formed herein. A new word has been added to the lexicon of consumer needs, which is “immunity” for self and the family. Categories that are in favor have changed and, together with the economic pandemic that followed Covid-19, a recalibration of the consumer wallets is taking place where essentials are taking precedence over luxuries, however affordable they are.
• When asked how Nestle has prepared to adapt to this change, he commented that their entire innovation funnel is undergoing a change. Every business is recalibrating in the context of newly relevant consumer behaviors that are coming in, that is, what innovations we should go with, what innovation should be left out.
• He is a great believer that in a crisis, one should engage, not disengage. If we disengage, then the consumer has other choices. Going forward, consumers are going to be more digitally active than they were earlier, and food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time. Overall, Nestlé have accelerated digital engagements across key parts of our portfolio and put out innovative digital campaigns to engage with consumers.

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

• The closing price of Nestle India was ₹ 16,202/- as of 26-Aug-2020. It traded at 71x/51x/62x the consensus EPS estimate of ₹ 228/269/311 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 16,758/- implies a PE multiple of 54x on FY23E EPS of ₹ 311/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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18 Aug

‘Even with Covid, our fresh slippages will be in control’ – SBI

Update on the Indian Equity Market:
On Monday, NIFTY ended up 81 pts (+0.7%) at 11,259.
Among the sectoral indices, MEDIA (+2.6%), AUTO (+2.4%) and METAL (+2.5%) were top gainers while PSUBANK (-0.5%) and PHARMA (-0.3%) were the losers.
Among the stocks, NTPC (+7.5%), EICHERMOT (+4.8%) and ZEEL (+4.7%) were the top gainers. SBI (-1.6%), BHARTIARTL (-1.5%) and BPCL (-1.3%) were the top losers.

‘Even with Covid, our fresh slippages will be in control’ – SBI

Edited excerpts of an interview with Mr. Rajnish Kumar, Chairman of SBI with Business Standard dated 14th Aug, 2020:

SBI Chairman Rajnish Kumar doesn’t see any reason to fear a sudden rise in bad debt during the pandemic. Legacy loans are well taken care of, the bank has enough capital, and the exposure to sectors affected by the Covid-19 stress is minuscule in relation to the balance sheet.

• His comments on restructuring of retail loans: SBI team is working on what the policy would be and to whom the relief should be extended. But mostly, the relief, if needed, would be for housing loans where a person has lost a job and is unable to pay his EMI or there’s been a temporary salary cut. In the case of SBI, the housing loan book under moratorium is about ~ Rs 32,000 crore. But he believes most customers would start paying EMIs from September as the moratorium comes to an end. But whoever needs relief should get it.
• When asked whether banks will have enough time to prepare resolution for all under the latest restructuring scheme, he replied that he doesn’t think they will have to wait for the RBI for such an exercise. There are not many accounts in the corporate group of ~ Rs 1,500 crore and above which would need to go to the committee because a lot of work has already happened under the June 7 framework. There will be some modalities that the committee will suggest, but the ground work such as who would need restructuring, their projections, estimations, etc., can be done.
• His views on banker’s ability to project the topline and bottom line: Future projection is the first thing that is considered in any proposal. Of course, the Covid-19 scenario brings in a lot of uncertainty. Nobody knows how long the pandemic will continue and what the revival plan will be. When you give credit or restructure, it’s based on certain assumptions, and even the current exercise will have to return to those assumptions, particularly for the term loans. The maximum one can postpone or restructure the instalments is for two years. So, whoever had to pay in five years will have to pay now in seven years. Another criterion is that the account should be performing. Whatever you have to do is within these two boundaries.
• When asked if SBI will need additional funds for the restructuring exercise he informed that the bank already has Rs 20,000 crs as an enabling provision. SBI will need to raise money from the equity market only if there is a growth in assets, for any sort of provisions for bad loans. For any risk capital, SBI have sufficient earnings and have the value sitting in subsidiaries.
• He stated that restructuring for retail has come for the first time, and is sure that lenders will make their assessment of portfolio. Moratorium by itself is not a pointer that everybody would apply or need restructuring. In the case of SBI, housing loans worth Rs 32,000 crore are under moratorium where zero or one installment has been paid. He believes many of them will start paying from September as moratorium was available and they were preserving cash. The loan to value for SBI in this segment is 60%. The restructuring would be needed in cases where income was impacted which is not a huge number and hence, any fear of large-scale restructuring is uncalled for.
• When asked whether he is concerned about the NPA situation if the pandemic lingers, he said that the scenarios are not uniform for every bank or every institution, it depends on the underwriting practices, or to which sectors they are exposed to, and what their level of risk diversification is. When negative growth is expected, it is natural that stress in the system will go up. It is a wait and watch situation for everyone. In the last three years, most banks have done a lot of clean-up and provision coverage ratio are at an all-time high. As for SBI, the provision coverage ratio (PCR) has improved from 61 to more than 86 per cent. Legacy NPA today is 1.86 per cent, and it was 5 per cent plus.
• He further commented on bad debt impact for SBI: He informed that SBI’s legacy costs are very minimal. As an example, today, in the corporate book, SBI’S net NPA is Rs 10,500 crore. Just one quarter’s earnings are sufficient to make it zero. The corporate book has no legacy credit cost left. In baseline scenario, not accounting for Covid, it is 1-1.5 per cent of slippages. Considering Covid, he believes in the worst-case scenario this 1.5 per cent can become 2.5-3 per cent. SBI’s exposure to the sectors impacted by Covid-19 is minuscule in relation to the size of the balance sheet.

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

• The closing price of SBI was ₹ 193/- as of 17-Aug-2020. It traded at 0.76x/0.7x/0.64x the consensus book value estimate of ₹ 258/279/305 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.86x on FY23E BVPS of ₹ 305/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Aug

Tractor demand will continue to remain buoyant – M&M

Update on the Indian Equity Market:
On Thursday, NIFTY ended up 99 pts (+0.89%) at 11,200.
Among the sectoral indices, IT (+1.8%), FMCG (+1.4%) and METAL (+1.4%) were top gainers while PSUBANK (-0.32%) was the only loser.
Among the stocks, TATASTEEL (+3.8%), INFY (+2.9%) and GAIL (+2.6%) were the top gainers. EICHERMOT (-1.3%), SHREECEM (-1.2%) and ADANIPORTS (-0.9%) were the top losers.

Tractor demand will continue to remain buoyant – M&M

Edited excerpts of an interview with Mr. Hemant Sikka, President, Farm Equipment Sector (FES), Mahindra & Mahindra Ltd with Business Standard dated 5th August 2020:

Hemant Sikka commented that the company noticed a turnaround in tractor business in December. Things were going very well.

• Comments on key factors driving sales: This is the peak season for tractors. The strong demand momentum continued, aided by positive sentiments due to good cash flows to farmers, higher kharif sowing, a timely and normal monsoon cumulatively across June and July, and continued higher rural spending by the government. While it is too early to share target figures for the entire year, it is expected that this demand will continue to remain buoyant in the coming months.
• He informed that 75% of the tractor sales are on finance, M&M have aligned finances very well starting in May itself building out further in June and July. In addition to land preparation, tractors provide machine power for performing various farm applications and can be used to pull a variety of farm equipment, while also relieving the burden on farm labor and improving farmer’s livelihood.
• When asked about the supply chain constraints he replied that with tractor capacity at nearly 95%, some localized lockdowns enforced in certain cities are hampering the ramp-up of the supply chain, thus affecting production at OEMs. More than 90% of the dealers have started.
• When asked about the Capex plans, he said that K2 is a large investment, and K2 will be over by the end of FY21, some will be before FY22. (Under K2 project, the company is creating a new platform on which a new range of tractors, developed in collaboration with Mitsubishi of Japan, to further strengthen its position, both in the domestic).
• The company also made engine investments in the recent past. Investment in Swaraj tractor was also made by M&M. He further added that they are not compromising with the products for the future. It’s just that the company is completing a peak of Capex in this Capex cycle.
• While FES has a strong tractor portfolio, M&M is building technology skill sets beyond it and working on introducing a range of farm machinery, with the idea of taking technologies used in large landholding farms around the world and making them affordable and accessible to small landholding farmers. This is based on having established three global technology Centers of Excellence in Japan, Finland & Turkey, through acquisitions made over the last couple of years, from new products will be launched in FY21.
• Simultaneously, M&M is also focusing and developing Farming as a Service vertical (FaaS), which will focus on giving farmers advisory and precision farming technologies to help our farmers increase their productivity and get more output from their efforts.

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

• The closing price of M&M was ₹ 610/- as of 06-Aug-2020. It traded at 24x/18x/16x the consensus earnings estimate of ₹ 25.7/34.0/39.5 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 585/- implies a PE multiple of 15x on FY23E EPS of ₹ 39.5/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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29 Jul

Confident of future as a lot of new demand has come in June – Asian Paints

Update on the Indian Equity Market:

On Tuesday, NIFTY ended up 169 pts (+1.5%) at 11,300.
Among the sectoral indices, AUTO (+3.2%), METAL (+2.2%) and IT (+2.4%) were top gainers while MEDIA (-0.2%) was the only loser.
Among the stocks, ULTRACEMCO (+7.0%), KOTAKBANK (+4.7%) and TCS (+4.7%) were the top gainers. ICICIBANK (-1.8%), INFRATEL (-1.6%) and NESTLEIND (-1.4%) were the top losers.

Confident of future as a lot of new demand has come in June – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director & Chief Executive Officer, Asian Paints with Economic Times dated 27th July, 2020:

We saw a lot of secondary demand come up across the cities and that has boosted our confidence that a lot of new demand has come in areas of painting, waterproofing and so on, says Amit Syngle, MD & CEO.

• His comments on 1QFY21 result: There was no business activity from 20th March to end of April due to the lockdown. The entire month of April was an absolute washout. A lot of pent up demand was seen in May and people had to look at some of those real pent up maintenance issues. Therefore, in May, there was very satisfying pent up demand across the country. However, a good part of it was seen in June, triggered by Asian Paint’s safe painting campaign which gave people confidence that it was safe to get a set of painters to get your house painted. A lot of secondary demand came up across the cities and that has boosted the company’s confidence that it was not only the pent up demand which we saw in May but a lot of new demand which came in both in the area of painting, waterproofing and so on. This was also led by another campaign which Asian Paints did with terrace waterproofing. A lot of demand which has come in the June is new paint demand and that has boosted confidence in the market.
• When asked about how confident he is of this new paint demand trend continuing he replied that the month of July has been more challenging in terms of the sporadic lockdown across various states. But till now, the indications have been good in terms of looking at how the paint demand is coming and he feels that today the trend is changing. Some of the tier one-tier two cities which were slow to kind of recover are recovering at a higher rate the surge was possibly shown at the smaller cities which were the tier three, tier four cities. He further added that there might be slowing down a little as Covid is spreading more into the hinterland but there is a balancing which is happening with respect to that and therefore the current indications are that volumes are still looking decent.
• When asked about the demand pattern of premium decoratives, he stated that some products are at the luxury and premium end and are also solutions based. If people are looking at that kind of an antibacterial protection for their homes, it is still value for money coming at the luxury end. But in general, there is a little bit of downtrading where people are coming down from the luxury end and looking at more premium products and upgrading far more strongly. A lot of discretionary spend is happening in terms of maintenance rather than absolutely décor. Therefore, he is of the view that a part of this painting has come in because people would like healthy and hygienic homes, fairly clean and beautiful homes
• His stated his views on pricing strategy: Overall, the company has been very cautious and is looking at ways and means in terms of better material costs, sourcing efficiencies and formulation efficiency. As of now, there is a little bit of neutrality coming because there is a rupee which has depreciated. Raw material prices are going up as demand comes back. Volatility will continue and he will be more focused in terms of internal efficiencies and going ahead, he doesn’t see any changes in terms of prices till the time there is a stability in terms of the environment we are in.

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

• The closing price of Asian Paints was ₹ 1,756/- as of 28-July-2020. It traded at 67x/ 51x/ 44x the consensus earnings estimate of ₹ 26.7/34.9/40.9 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 1,810/- implies a PE multiple of 44x on FY23E EPS of ₹ 40.9/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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