Author - Rujuta Tamhankar

  • Rujuta Tamhankar
12 May

Remain optimistic on business prospects but cautious in the near-term – UPL

Update on the Indian Equity Market:

On Thursday, NIFTY ended lower at 15,808 (-2.2%). All the sectoral indices ended in the red led by PSUBANK (-5.4%), METAL (-3.7%), and PRIVATEBANK (-3.5%). Among the stocks, WIPRO (+0.8%), EICHERMOT (+0.2%), and HCLTECH (+0.1%) led the gainers, while ADANIPORTS (-5.8%), INDUSINDBK (-5.7%), and TATAMOTORS (-4.2%) led the losers.

Excerpts of an interview with Mr. Jaidev Shroff, Global CEO, UPL with CNBC-TV18 on 9th May 2022:

  • The company remains optimistic about business prospects although cautious in the near term due to the global supply chain and shipping disruptions.
  • The company is quite comfortable committing to conservative guidance of 10% revenue growth in FY23E due to global uncertainties.
  • Europe had a challenging quarter in Q4FY22 with low single-digit growth. Europe has continued to ban certain traditional products which also impacts the portfolio. Europe is expected to be the slowest growing region in FY23E. The company expects a 7-8% YOY growth in the Europe business in FY23E.
  • In 4QFY22 Indian business grew by 63% on a YoY basis. The company anticipates the India business to continue this growth momentum for FY23E on the back of new launches in 4QFY22, strong commodity prices for farm products, and investments in sustainable technologies.
  • The company is investing in sustainable solutions that will provide considerable value to farmers, making agriculture more sustainable.
  • There is a global need for sustainable agriculture techniques and technologies. A slew of new technologies is being introduced by the company under the Natural Plant Protection (NPP) vertical. The company is reorganizing to focus on this business vertical which is expected to grow faster than the traditional businesses.
  • In FY22, the company incurred a debt of Rs 182,500 mn. The company’s goal is to reduce the debt to equity ratio to 2, or Rs 30,000 mn in absolute terms, by FY23E.

Asset Multiplier Comments

  • For FY23E, the management has guided growth across revenue and EBITDA at 10% and 12-15% YoY, supported by strong commodity prices, increased demand for biofuels fueled by high cost, and reduced availability of fertilizers.
  • Strengthening the supply chain through a reduction in imports and diversifying the raw material sourcing mix ensures a reliable supply base.
  • Reorganizing the firm’s focus towards the high margin and sustainable solutions business positions the company favorably to reach the company’s long-term growth objective of 7-10% from FY23-FY27E.

Consensus Estimates: (Source: Market screener website)

  • The closing price of UPL was ₹ 510/- as of 12-May-2022.  It traded at 8/7x the consensus earnings estimate of ₹ 62.1/72.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 974/- implies a P/E Multiple of 13.4x on the FY24E EPS estimate of ₹ 72.6/-

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 UPL 0 Comments Read more...
21 Apr

Time to reimagine supply chain strategies to be future-ready– Tata Motors

Update on the Indian Equity Market:

On Thursday, NIFTY ended 256 points in the green and closed at 17,392. AUTO (+2.2%), FINANCIAL SERVICES (+1.5%), and PRIVATE BANK (+1.5%) were the gainers, whereas, MEDIA (-0.1) was the only loser. Among the stocks, EICHERMOT (+4.4%), COALINDIA (+4%), and M&M (+3.2%) were the top gainers, and CIPLA (-1.2%), HINDALCO (-0.8%), and ONGC (-0.6%) were the top losers.

Excerpts of an interview with Mr. Rajesh Khatri, Vice President-PV Operations, Tata Motors with CNBC TV-18 on the 18th of April 2022:

  • Covid-19 has affected global supply networks all across the world, particularly in the auto industry, which is currently recovering from a supply chain shock. The worldwide chip scarcity is still wreaking havoc on the automotive industry in particular. Lockdowns in Shanghai hampered supply, and consignments are now lying at airports. Geopolitical threats, on the other hand, have yet to be felt on the ground. The effects of the war on the automobile industry are yet unknown.
  • The company feels it is time to reconsider its strategic goals. Previously, supply chains were centered on cost optimization, with the goal of sourcing items at the lowest feasible price as quickly as possible. To be future-ready, the company believes that it needs a more agile, productive, robust, digital, and sustainable supply chain.
  • The company believes that adopting a digitally integrated value chain in conjunction with a collaborative approach will be more effective, whereas proactive risk management will prepare organizations for any uncertainties that demand a total supply chain transformation.
  • The company is attempting to increase visibility across the entire value chain to identify any potential risks. As a result, the firm has mapped all of its suppliers and locations to build a Supplier Grid, which is monitored to better analyze risk and take preventative steps.
  • In addition, the firm is diversifying its supplier risks rather than depending on a single supplier, which will assist the company to gain flexibility, dependability, and reliability within the supply chain.
  • To address the chip availability issue, the company is designing electronic components with catalog chips and developing alternate architecture with next-generation chips.
  • The company is utilizing AI (Artificial Intelligence) to create a digital control tower for simulating supply scenarios to predict supply chain risks.
  • No big investments are needed for the supply chain measures.

Asset Multiplier Comments:

  • The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. We believe, the company’s supply-side issues and commodity headwinds stabilize gradually. The company continues to address the supply chain bottlenecks via a strategic approach which will augur well for the company in the future.
  • We expect the company to benefit from the improving consumer demand for Passenger vehicles and Electric vehicles with the receding Omicron effect, the launch of new products.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of TATAMOTORS was ₹ 440 /- as of 21-Apr-2022. It traded at 20x/11x the consensus earnings estimate of ₹ 22/41 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 547 /- implies a P/E Multiple of 13x on the FY24E EPS estimate of ₹ 41/-

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 Tata Motors, Uncategorized 0 Comments Read more...
06 Apr

Revenue growth expected to pick up in FY24-25E  – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY settled 150 points lower at 17,807 (-0.8%). HDFCBANK (-3.6%), HDFC (-3.3%), and HDFCLIFE (-2.4%) were the top losers. COALINDIA (+3.1%), NTPC (2.6%), and TATASTEEL (+1.9%) were the gainers. Among the sectors, IT (-1.6%), FINANCIAL SERVICES(-1.6%), and PRIVATE BANK (-1.3%) led the losers. PSU BANK (+2.0%), METAL (+1.4%), and OIL&GAS (+1.0%) led the gainers.

Excerpts of an interview with Mr. R Madhavan, Chairman, and Managing Director, Hindustan Aeronautics (HAL) with CNBC-TV18 on 5th April 2022:

  • The company recorded peak revenues of Rs 240,000 mn in FY22.
  • The projects currently undertaken will fructify only in FY24E and FY25E. Hence the company expects moderate growth of 6-7% for FY23E mostly through the repairs and overhauling (ROH) route. Beyond that the company expects revenue growth to be 9%, and 12% for FY24E and FY25E respectively because of new projects coming in place.
  • All the projects which include Light Combat Aircraft (LCA) Tejas, helicopters (Light Utility Helicopters (LUH) and Light Combat Helicopters (LCH)), and the Hindustan Turbo Trainer-40 (HTT-40) are indigenous. The IP (Integrity pact) for helicopters lies with the company (HAL) while the IP for LCAs lies with the DRDO.
  • The company received two new orders from the Ministry of Defense for a consideration of Rs 38,870 mn.
  •  The company is looking at various options for fundraising, as it wants to move away from the current product profile that they have. It is looking at Boeing, Civil MRO (maintenance), and Passenger to Freight conversion business. The company is also looking at partnerships for the design and development of engines for helicopters.
  • Safran Aircraft’s partnership is for the engines. The company expects to secure a financial partnership with a private player for their 10-12 tonne helicopters for the design, development, and manufacture of helicopters.
  • HAL expects the order book by the end of FY22 to be more than Rs 1,000 bn. Helicopter orders expected by the company are for 200 LUH, 140 LCH, and an order for 70 HTT-40 turbo trainers for approximately Rs. 70,000 to 80,000 mn.

Asset Multiplier Comments

  • HAL’s marquee projects, such as the LCA Tejas and LCA and LUH helicopters, are slated to play a key part in India’s transition to Atma Nirbhar Bharat for defense. The company also intends to make significant strides in the International market with LCA Tejas and their other products.
  • We believe that their order book of Rs 792,290 mn as of 3QFY22 and the expected order book visibility as stated by the company reiterates the revenue expansion story. Moreover, HAL’s focus on indigenization of components, systems, and accessories is expected to result in cost savings supporting the margins and profit.

Consensus Estimate: (Source: investing and tickr websites)

  • The closing price of HAL was ₹ 1,550/- as of 6-April-2022. It traded at 14x/ 12x the consensus earnings estimate of ₹ 109/ 126/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,824/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 126/-

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 hshould 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 Defense , 0 Comments Read more...
14 Mar

This Week in a Nutshell (7th-11th March)

Technical talks

NIFTY opened the week on 7th March at 15,867 and ended at 16,630 on 11th March. NIFTY regained 2.4% throughout the week. The next support and resistance levels for the index would be 16,800 and 16,400 respectively.

All the sectoral indices gained this week, with Media  (+6.7%), Pharma (+6.3%), and IT (+3.4%) being the gainers.

Weekly highlights

  • Early in the week, Wall Street indices plummeted as oil prices soared to their highest levels since 2008, above $130 per barrel, owing to the ongoing conflict between Russia and Ukraine. Asian stocks followed the lead of their Wall Street counterparts.
  • The threat of a US and European ban on Russian products, as well as a delay in Iranian talks, triggered a massive stagflationary shock for international markets on Monday, sending oil prices soaring by more than 10%.
  • Global oil prices fell on Wednesday by the most in nearly two years after OPEC member the United Arab Emirates said it supported pumping more oil into a market roiled by supply disruptions due to sanctions on Russia. Brent and Crude WTI closed at USD 112.67 /barrel, USD 109.33/barrel respectively.
  • Indian Insurance monthly data for February 2022 was released during the week, the industry’s new business premium rose 27% over the previous month to Rs 27,465 crore in February 2022, 22% higher on a YoY basis.
  • The International Monetary Fund indicated that the war in Ukraine has sent a wave of more than 1 mn refugees to neighboring countries while triggering unprecedented sanctions on Russia. The US banned Russian oil imports while Britain would slowly phase out the imports.
  • The domestic market also witnessed a heavy sell-off early in the week however, the mood was reversed as the results of the state election turned positive for the market, and oil prices started cooling off.
  • US consumer prices surged in February 2022, culminating in the largest annual increase in 40 years, and inflation is poised to accelerate further in the months ahead as Russia’s war against Ukraine drives up the costs of crude oil and other commodities.
  • Japanese household spending rose for the first time in six months in January on a year-on-year basis, largely because of weakness in the prior year, even as the fast spread of the COVID-19 Omicron variant likely weighed on consumption later in the month.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 246,884 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 177,291 mn.

Things to watch out for next week

  • The markets will react to the FOMC meeting and the interest rate decision slated to come during this week.
  • By March 15th, companies are expected to file their advance tax that would signal the expected earnings of the listed companies in upcoming quarters.
  • The market will focus on the reduction of commodity prices and diplomatic development between Russia & Ukraine.
  • The market will also focus on inflation data to be released in India & the US, and the US Fed meeting is scheduled for next week.

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 #WeekInANutshell 0 Comments Read more...
02 Mar

Biocon Biologics to launch an IPO by FY24E – BIOCON

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,605 (-1.1%). Among the sectoral indices, AUTO (-3.0%), PRIVATE BANK (-2.4%), and BANK (-2.3%) closed lower while METALS (+4.1%), MEDIA (+1.9%), OIL & GAS (+1.2%) closed higher. Among the stocks, COALINDIA (+8.5%), HDFCLIFE (+7.0%), and SBILIFE (+5.7%) were the top gainers while MARUTI (-6.0%), DR REDDY (-5.2%), and BAJAJ AUTO (-4.6%) were among the top losers.

Excerpts from an interview of Mrs. Kiran Mazumdar Shaw, Chairperson (BIOCON) with Economic Times dated 1st March 2022:

  • Acquiring Viatris’s Biosimilar business accelerates the company’s presence in the commercial space in the developed markets. The business will be transferred to Biocon Biologics, the biosimilar arm of the company.
  • The company has 7 molecules launched in the global markets and another 14 molecules are under development.
  • The advantage that the company has in the Biologics segment over its competition is that they are fully integrated end-to-end play- manufacturing and R&D. The management believes that with manufacturing, R&D, and the increased scale due to the acquisition of Viatris, they have higher negotiating power to sign bigger deals.
  • Biosimilars is a very complex business and comparatively young segment, hence early movers have an advantage.
  • The deal will be financed using a mix of debt and equity, also the company has hinted at a possibility of an IPO in the future.
  • The management expects the new venture to generate a lot of cash which would help the company with the payback.

Asset Multiplier comments:

  • While the acquisition of Viatris biosimilar gives the company access to a well-established front end in the developed market, it has a significant impact on the company’s near-term financials.
  • We believe the firm is well-positioned for growth, particularly in the biosimilars category, due to the ramp-up of interchangeable Semglee and new launches such as Bevacizumab, Aspart, and Adalimumab in both established and emerging countries.

Consensus Estimate: (Source: Market screener website)

  • The closing price of BIOCON was ₹ 345 as of 2-March-2022. It traded at 57x/34x/23x the consensus earnings per share estimate of ₹ 6/ 10/ 15/ for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 407 /- which implies a PE per share multiple of 27x on FY24E EPS of ₹ 15/-.

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 Chemicals 0 Comments Read more...
17 Feb

Expect Demand to reach 100% of the pre-covid level in FY23E – VIP Industries

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,304 (-0.1%) led by PSU BANK (-1.2%), PRIVATE BANK (-1.2%), and BANK (-1.1%) which were the top losers while the only gainers were OIL & GAS (+0.8%) and FMCG (+0.3%).

Among the Nifty50 constitutents, the top losers were ICICIBANK (-2.2%), AXISBANK (-2.0%), and ULTRACEMO (-1.9%) while TATACONSUM (+2.7%), HDFC (+1.9%), and ONGC (+1.7%) were the top gainers.

 Edited excerpts of an interview with Mr. Dilip Piramal, Chairman of VIP Industries with Economic Times on 16th February 2022:

  • The Company took a staggered 5% price hike in FY21 and is planning to take another 5% price hike in Mar/Apr 22.
  • Hard luggage is the fastest-growing sector because it is slightly cheaper than the upper end of soft luggage.
  • In hard luggage, there are two types – the polypropylene molded luggage and the Poly-Carbonate Acrylonitrile Butadiene Styrene and polypropylene is cheaper which is selling extremely well.
  • In soft luggage, backpacks are one category that had the least growth because schools have not opened up fully. The school segment is very big for backpacks and hence the sales are low. However, uprises and full trolleys and the rest are doing comparatively well.
  • 1st quarter of the year is usually the best for the company; however, they have missed these in the last 2 years in FY21 and FY20 due to the pandemic. The company is hopeful that 1QFY23E will be in full swing and the company should be back to the pre-Covid level.

Asset Multiplier Comments

  • We believe that the 3QFY22 earnings were a decent performance despite omicron restrictions from VIP Industries. We expect a demand revival from 1QFY23E due to the pent-up travel demand, reopening old schools and colleges, reduction in COVID-19 restrictions for international travel.
  • With demand green shoots visible, we expect VIP Industries to be a key beneficiary of the increased movement of leisure and business tourists both domestically and internationally. We are positive about the stock.

Consensus Estimate (Source: market screener website)

  • The closing price of VIP Industries was ₹ 657 /- as of 17-February-2022. It traded at 109X/51x/ 37x the consensus EPS estimates of ₹ 6/ 13/ 18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 766 /- implies a P/E Multiple of 43x on FY24E EPS estimate of ₹ 18/-.

 

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 VIP Industries 0 Comments Read more...
10 Feb

Expect the food business to clock Rs 8,500 to 10,000 mn revenues by FY24E – Marico

Update on the Indian Equity Market:

On Wednesday, Nifty closed higher at 17,463 (+1.1%) led by Auto (+2.2%), MEDIA (+1.9%), and METALS (+1.9%) while the only losers were PSU BANK (-0.6%) and OIL & GAS (-0.2%).

Among the NIFTY components, the top losers were ONGC (-1.5%), BPCL (-0.6%), and ITC (-0.5%) while COALINDIA (+5.6%), MARUTI (+4.2%), and IOC (+3.3%) were the top gainers.

Edited excerpts of an interview with Mr. Saugata Gupta, MD & CEO of Marico with CNBC TV18 on 7th February 2021:

  • Gross margins expanded sequentially due to falling copra prices which are currently in the deflationary phase. In terms of EBITDA margins, the company expects crude inflation to continue.
  • The management expects gross margins to rise in 1QFY23E. In the long-term, the company expects 19 percent plus EBITDA Margins. The company has significant innovation capabilities in food and digital.
  • On the demand side, due to rising food inflation, which is down-trading, rural demand has slowed from a high base. However, the management anticipates that, in the future, demand will begin to improve as a result of direct benefit transfers, MSP, and a successful monsoon season.
  • There was a broad-based growth in foods, where Marico maintained market share and penetration. The company intends to enter two or more food business categories by 4QFY22E or 1QFY23E.  By FY22E, the management forecasts the food industry to be worth about Rs 5,000 mn, with a target of Rs 8,500 to 10,000 mn by FY24E, implying a CAGR growth of 25% to 30%.
  • The company has greater competence in terms of food innovation pipeline execution, and the company is confident that the food sector will become one of its primary growth drivers, as the revenue goals and aspirations are well within reach.
  • The Company plans to grow its total addressable market by entering categories such as infant care, colors, and shampoo, as well as repeating its success in Bangladesh into countries like Vietnam, the Middle East, and North Africa. In India, the non-core product portfolio, which includes skincare and male grooming, is forecast to contribute to overall revenue in the mid-teens to high teens range by FY25E, which is currently in the single digits in terms of contribution.

Asset Multiplier Comments

  • The slow pace of recovery in rural demand post-COVID remains an important challenge for Marico. High growth premium segments are helping the company sustain its high EBITDA margin levels (~19-20%).
  • Digital Brands like Beardo and Just Herbs allow Marico to add to its topline and decrease its reliance on its traditional coconut oil business.

Consensus Estimate (Source: market screener website)

  • The closing price of Marico was ₹ 505 /- as of 9-February-2022. It traded at 51x/42x/ 39x the consensus EPS estimates of ₹ 10/ 12/ 13 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 579 /- implies a P/E Multiple of 45x on FY24E EPS estimate of ₹ 13/-.

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 Marico 0 Comments Read more...
10 Feb

Place your bets wisely!

The vast majority of people have no edge over others in the stock market. Even professional fund managers who have demonstrated skill in picking stocks in the past struggle to beat the market once their high costs are taken into account.

The way of the Rational Investor– Keeping costs low is vital to being a Rational Investor. Since you are not going to outperform the market, it makes no sense to pay a penny more than you have to in order to achieve as close to the market’s return as you can. By keeping costs low, you can end up richer than those who pay a high price to try to beat the market and fail.

Active management comes at a cost– Fees are always important in finance, but even more so for the Rational Investor.  Paying initial fees just to get into an active fund is becoming a thing of the past, but you might still save another 2% a year by investing in an index tracking fund, compared to an active one. If a 2% annual saving does not seem like a lot to you, then you’re forgetting the power of compounding returns. If you think you have great edge in the market and you could easily make up this 1.5% to 2% annual cost difference by picking stocks or choosing superior active fund managers or timing the markets or whatever other approach you take, then good luck to you. All the odds and evidence are against you. If you don’t have an edge, then the sooner you get out of the expensive investment approaches and into cheap index tracking products, the better off you will be.

How to get an active manager’s sports car– Conversely, consider the 85-90% of investors who invest in active managers as opposed to index tracking funds, either directly or via their pension funds. Over the long run only a very small percentage of investors who take the active approach will be lucky enough to invest with managers that give better returns after fees. The rest have simply paid a staggering amount of money to the financial industry over their investment lives, and will have less money in retirement as a result.

Passive investing requires patience– The key to reaping the greatest savings is to have the patience for the compounding impact of the lower expenses to take effect. It is like making money while you sleep; lower fees make a little bit of money, all the time.In the early years you can barely see the difference between the active and index tracking investment approaches. In the later years the benefits are obvious – but they are only there for the investor who kept his or her discipline with lower fees.

Ignore the siren songs of sexy managers– you must remember it will take discipline to stick to this approach. The index tracker will perform slightly better over the long-term than the average active fund, and that outperformance will come from the cumulative advantage of lower fees. Meanwhile the many active funds out there will be all over the map, the best performers will try to scream the loudest about how their special angle or edge has ensured their amazing returns that year. We might even be tempted to believe these managers and abandon our boring and average index tracking strategy. But please stick to your index investing plans unless you can clearly explain to yourself why you have edge. The chances are you don’t, and you will be wealthier in the long run from acknowledging this.

Source: The cost of active fund management published on Monevator

Asset Multiplier comments:

  • The most underutilised investment skill is patience, but it can be developed.
  • Fund outperformance is unpredictable, and forecasting a successful mutual fund may be difficult. An additional savings of 2% (of management fees) put in a low-cost passive route may be a better decision for an investor.
  • The gap between price and value, often known as the margin of safety, protects an investor from unanticipated occurrences and allows him or her to obtain extra profits in the absence of such events.

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 Investment articles 0 Comments Read more...
03 Feb

Government’s focus on infra to invigorate strength of the economy

A key goal of the budget CY22 is in the execution of the Capex plan and crowding in private investment. The budget aims to stimulate the economy by beefing up public investments, creating demand for industrial inputs like cement, steel, and capital goods, and generating jobs. Finance minister Nirmala Sitharaman prioritized growth over fiscal reduction, increasing capital and infrastructure investment. In FY23, capital spending accounts for about 85% of the budget. The fiscal deficit target for FY23 has been set at 6.4 percent, a modest decrease from 6.9 percent in FY22.

The budget proposes a 35.4% increase in Capex, a 15% expansion of the national highways network with the addition of 25,000 km of roads, the development of four multimodal logistics parks in the coming year, a focus on electric vehicle (EV) charging infrastructure, and a new battery swapping policy. It also suggested a 7.5% customs tax decrease for all project capital goods imports over time, as well as a budget commitment of Rs 19.5 bn for the production-linked incentive (PLI) plan for polysilicon solar module manufacturing. The divestment target is reasonable at Rs. 68 bn in FY23, down from Rs. 78 bn in FY22. The initial public offering (IPO) of LIC, which is expected in March 2022, will meet this divestment goal. The government intends to sell a 5% stake in the company to raise Rs. 75 bn, with considerable demand, predicted from both retail and institutional investors. LIC IPO is not only expected to facilitate the huge influx of retail investors into the Indian equity markets but also expected to reduce the money flows in different sectors.

The FED’s liquidity normalization initiative has gained traction and market interest rates have risen as a result of this. This is projected to normalize the returns from different asset classes, including equities. The Indian equity market saw exit by the foreign institutional investors in the last few months, mainly because the US has entered a phase of aggressive liquidity normalization and rising interest rates. It is the high rate of economic growth and the accompanying high level of inflation that has led to the policy modifications in the US. However, the government’s private investment policy encounters a significant hurdle a massive tightening of borrowing costs in the economy. The expectation was that the RBI will keep its accommodative policy stance until the economy is fully recovered. With the budget announcement, however, the RBI is expected to hike its policy rates.

As the liquidity reduces, financing large deficits becomes difficult in rising interest rates scenario which dampens the returns from equities. We believe that sectors such as defense (which has been allocated 13.3% of the total budget with a focus on indigenization), infrastructure, metals, cement, and ancillaries are expected to remain in the spotlight with a particular emphasis on firms with low PE multiples.

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 Investment articles , , 0 Comments Read more...
01 Feb

Expect cost inflation of 4-5% to continue – Diageo India (United Spirits)

Update on the Indian Equity Market:

On Tuesday, Nifty closed higher at 17,576 (+1.4%). METAL (+4.5%), PHARMA (+2.3%), and HEALTHCARE (+2.2%) were the top gainers while AUTO (-0.8%), OIL & GAS (-0.7%), and PSU BANK (-0.6%) were top losing sectors.

The top gainers were TATASTEEL (+7.5%), SUNPHARMA (+6.9%), and INDUSINDBK (+6.1%) while BPCL (-4.5%), IOC (-2.8%), and TATAMOTORS (-2.6%) were the top losers.

Edited excerpts of an interview with Ms. Hina Nagarajan, Managing Director, and Chief Executive Officer, Diageo, India with CNBC TV18 on 31st January 2022:

  • The company’s management is focused on sustaining the present demand momentum, and it is dedicated to providing a sustained double-digit growth rate in terms of volume.
  • The management expects cost inflation of 4-5 percent to continue in the future. The company experienced 2.5 percent portfolio inflation, which was offset by a favorable product mix, and operational savings. The ethanol blending pricing strategy and grain price rises have had an influence on extra neutral alcohol (ENA), which was previously flat.
  • The company is in the process of submitting price raise proposals to state governments in order to combat inflation.
  • Through the value chain, revenue management levers of the mix, and trade efficiency, the organization is focusing on productivity.
  • On the EBITDA margin front, which is now in the 16-17 percent range, management is sticking to its mid to upper teen guidance. In the long run, the company aims to achieve and maintain high teen margins.
  • The company is confident in its ability to attain mid-high teen margins and is unwilling to accept any levels below those specified.
  • In terms of competition, the company is doing well in their super-premium portfolio, but there is some aggressiveness from their competitors. However, management claims that the company is well-positioned to take advantage of the premiumization trend and that the portfolio’s innovation and renovations will drive growth for the category.
  • Consumers have reacted well to their innovations and renovations in the signature and Blackdog categories, and the launch of Royal Challenger American Pride, an American bourbon-based whiskey, has received excellent feedback.
  • The scotch category, which accounts for 20 to 24 percent of overall sales, is rapidly expanding. Scotch is expected to be a major growth driver in the future.

Asset Multiplier Comments

  • We expect improving regulatory environment, investment in ad spends, adoption of home delivery trend will help bring in topline growth.
  • Improved product mix due to premiumization and cost saving efforts will help achieve company’s EBITDAM guidance of mid to high teens.

Consensus Estimate (Source: market screener website)

  •  The closing price of UNSP was ₹ 884 /- as of 1-February-2022. It traded at 68x/ 55x/ 44x the consensus earnings estimates of ₹ 13/ 16/ 20 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 954/- implies a P/E Multiple of 48x on FY24E EPS estimate of ₹ 20/-.

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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