Author - Rujuta Tamhankar

  • Rujuta Tamhankar
21 Oct

Increased revenue guidance due to robust demand environment – Larsen & Toubro Technology services

Update on the Indian Equity Market: 

On Thursday, NIFTY closed lower at 18,178 (-0.5%) led by IT (-2.5%), CONSUMER DURABLES (-1.8%), and METAL (-1.8%). PSU BANK (+2.7%), BANK (+1.3%), and FINANCIAL SERVICES (+1.2%)  were the gaining sectors. Top gainers in NIFTY50 were KOTAKBANK(+6.9%), TATAMOTORS (+4.5%), and GRASIM (+3.5%). The top losers were ASIAN PAINTS (-4.9%), HINDALCO (-3.8%), and INFOSYS(-2.5%). 

Edited excerpts of an interview with Amit Chadha, MD, and CEO of L&T Tech Services  with CNBCTV18 on 20th October 2021: 

  • The company has increased its FY22 revenue guidance for the second consecutive quarter to 19-20 percent from the previous 15-17 percent owing to the strong demand and robust supply chain. 
  • Earlier the company had anticipated a USD 1 bn runrate between Q2FY23E and Q3FY23E, which could be met sooner than expected. 
  • The company took on board about 1,200 freshers in the last six months and plans to hire about 2,000 in 3QFY22E and 4QFY22E. 
  • On the margin front, the company has delivered EBITDA margins in the 18% range despite the wage hikes and the overhead costs in FY21, going forward the company expects them to stay in the 18 percent range. 
  • With the robust market environment and the company’s order pipeline improvement to about 18% over 1QFY22, the company’s overall aim is to reach a USD 1.5 billion run rate by FY25.
  • The company expects the demand for CY22 and CY23 to remain at the current level.
  • The average deal size in the engineering business is between USD 10 million and USD 25 million. The firm has landed a number of transactions ranging from USD 10 to USD 25 million. They are also looking for agreements worth more than USD 50 million.
  • The offshoring revenue has increased by 100 bps. The company expects the offshoring revenue percentages to stabilize and improve further on account of the optimistic demand environment from its clients in the United States and Europe, in CY22.
  • On the acquisition front, the company is looking for a US or European-based company in the ISV segment or transportation segment, or in the medical technologies segment. The company is currently assessing different companies for the purpose and is in various stages of conversation with different companies.  The company has an appetite for acquiring a company with a revenue of 50 million dollars as well, given the company’s strong balance sheet and cash flow.

 Asset Multiplier Comments 

  • The management commentary of continued strength in end demand aided by significant deal wins, and healthy deal pipelines suggest growth could significantly exceed the upper end of the revised guidance.
  • The aggressive recruiting and re-skilling initiatives, will assist the business to overcome supply-side limitations.

Consensus Estimate (Source: market screener websites) 

  • The closing price of Larsen & Toubro Technology services was ₹ 4726/- as of 21-Oct-21. It traded at 54x/46x/39x the consensus EPS estimate of ₹ 88/102/121 for FY22E/ FY23E/FY24E respectively. 
  • The consensus target price of ₹ 3,965/- implies a PE multiple of 32x on FY24E EPS of ₹ 125/-. 

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

 

By IT, LTTS 0 Comments Read more...
06 Oct

Demand growth visible despite price hikes – Blue Star

Update on the Indian Equity Market:

On Wednesday, NIFTY ended lower at 17,629 (-1.1%). All the sectors were losers today led by METAL (-3.0%), PSUBANK (-1.9%), and PHARMA (-1.9%). Among the stocks, TATACONSUM (+2.5%), ONGC (+2.2%), and UPL (+1.7%) led the gainers while HINDALCO (-4%), SBILIFE (-3.6%), and INDUSINDBK (-3.4%) led the losers.

Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star with CNBC TV18 on 5th October 2021:

  • The sales of room air conditioners in the month of Sep-21 were better than last year (Sep-20) and have reached the pre-pandemic levels.
  • The summer season, which is the strongest quarter for the company, was impacted by the second COVID-19 wave. It will be extremely tough for the company to make up for it in 2QFY22E and 3QFY22E.
  • However, demand from the month of Jul-21 has been considerably higher than industry expectations. As people are working from home and spending more time in their homes, they are renovating and upgrading their houses which could be the reason for robust demand. The company anticipates strong demand throughout the next festival season.
  • In 1QFY22, Bluestar was at 35% of pre-pandemic levels and in Sep-21 have reached the pre-pandemic levels.
  • The company is getting growth from first-time buyers, as the number of first-time purchasers has considerably grown. Despite the price seen in the months of Jan-21, Apr-21and Sep-21 the demand is not impacted. 50 percent of buyers used consumer finance schemes.
  • In terms of price hikes, there was an average rise of roughly 4% in the month of Sep-21.
  • On a YoY basis, the company anticipates a 1% decrease in margins due to raw material inflation, which would be compensated by operating costs. Hence the overall EBIT/PBT Margins would not be impacted.
  • The firm does not anticipate any significant increases in freight and commodities in the near term.
  • The B2B segment is performing well in the manufacturing sector. There are also various infrastructure projects like metro railway project and data center which are important segments for Bluestar. It includes air conditioning and electro-mechanical work. The company is closely tracking this segment and participating actively in the enquiries.
  • In the B2B segment, the important sector is building which includes offices and light commercial or retail (shops, showrooms, boutiques, and restaurants). Such kind of infrastructure is built upon in many Tier-3/4/5 cities. The manufacturing, commercial segment, and buildings account for 30%, 40%, and 30% of the B2B segment revenues respectively.

Asset Multiplier Comments

  • There has been a bounce-back in demand starting from July-21 which will likely be reflected in 2QFY22 sales numbers. However, a complete recovery will likely be visible in 1QFY23E.
  • Upcoming investments in infrastructure and a recovery in real estate bode well for the company that predominantly services large infra-projects. The Company will have the added benefits of PLI Schemes, New Greenfield Project in FY23 adding to top-line growth and margin improvement.

Consensus Estimate: (Source: market screener website)

  • The closing price of BLUESTAR was ₹ 871/- as of 06-Oct-2021. It traded at 52x/33x/27x the consensus earnings per share estimate of ₹ 17/26/32 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 845/- implies a PE multiple of 26x on FY24E EPS of ₹ 32/-.

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 Sep

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

 

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.2% lower at 17,711. Top gainers in NIFTY50 were NTPC (+6.4%), COALINDIA (+6.2%), and POWERGRID (+6.7%). The top losers were HDFC (-2.1%), KOTAKBANK (-1.8%), and ASIANPAINT (-1.8%). The top gaining sectors were PSU (+2.7%), METAL (+2.3%), and PHARMA (+1.7%) while the top sectoral losers were PRIVATEBANK (-1.1%), FINANCIAL SERVICES (-0.9%), and FMCG (-0.6%).

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

Excerpts of an interview with Mr. Abhay Soi, chairman and managing director at Max Healthcare, aired on CNBC TV18 on 28th September 2021:

  • Hospitals are making 20 percent plus ROCE while receiving less than 1% of their income from COVID patients. At the current operating rate, the firm is generating free cash flows of around Rs 1,1000 million.
  • The chairman indicated that a x% rise in revenue would improve free cash flows by roughly 2x%. He also stated that the firm will generate Rs 50 -60 mn in internal accruals alone over the next four to five years.
  • The business’s present debt levels are lower than its EBITDA from the 2QFY22, and the company hopes to be debt-free by the 3QFY22. Over the following four to five years, the business intends to leverage its balance sheet to two times debt to EBITDA.
  • The Company plans to expand its capacity in Gurugram, by building a 500-bed hospital in the next three to four years, at a budget of Rs. 35bn. At the moment, their hospitals are roughly 78% full. The deployment of funds would be limited to brownfields and greenfield, as well as some light asset models. The business has no plans to do Mergers & Acquisitions in the hospital space.
  • The company intends to do acquisitions in the diagnostic space. In the Delhi NCR region, which has a population of 40 mn people it is currently the third biggest diagnostic chain.
  • When speaking about retail business in terms of economic value and volume the company ranks 3rd or 4th in the country.

Asset Multiplier comments:

  • We believe Max is entering a high growth phase led by expansion at Saket (Delhi) and Nanavati (Mumbai). It’s solid balance sheet and production of operational cash flow are anticipated to support organic and inorganic efforts.
  • With a robust development strategy and a positive outlook for the retail sector, we believe Max Healthcare is well-positioned to capitalize on the opportunity in the Indian hospital market for offering quality healthcare services across the country.

 

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

 

  • The closing price of Max Healthcare was ₹ 356/- as of 29-September-2021.  It traded at 47x/37x/34x the consensus earnings estimate of ₹ 7.0/9.6/10.5 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 385/- which trades at 35x the earnings estimate for FY24E of ₹ 10.9/-

 

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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21 Sep

Focusing on expanding ‘ready to eat’ product portfolio- Tata Consumer Products

Update on Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,562 (+0.9%). The top gainers on the index were JSWSTEEL (+6.0%), ONGC (+5.2%), and BAJAJFINANCE (+5.1%). The laggards were led by MARUTI (-2.5%), BPCL (-1.47%), and HEROMOTOCO (-1.2%). Among the sectoral indices, REALTY (+3.6%), METAL (+2.6%), and IT (+1.9%) led the gainers while AUTO (-0.5%), CONSUMER DURABLES (-0.2%), and PSU (-0.1%), led the losers.

Excerpts of an interview with Mr. Sunil D’Souza, MD & CEO, Tata Consumer Products on 20 September 2021 with Economic Times:

  • Tata Consumer is seeing a month-over-month recovery in its packaged and out-of-home businesses on the back of higher consumer confidence and people venturing out. Packaged and out-of-home businesses are expected to recover to pre-pandemic levels.
  • Tata Consumer translates about 75% of their costs into the price. As the curve on cost starts coming down, margins will improve. The improvement will be visible on a quarter-on-quarter basis which is already visible in Q1FY22 vs Q4FY21.
  • The company is committed to delivering double-digit growth through portfolio growth, brand strengthening, and cost synergies. The company will maintain a tight focus on costs. This strong top-line growth will be driven by portfolio mix, pricing power, market share, cost reduction which then will translate into the bottom line.
  • Tea prices in September-20 were roughly 70% – 80% higher than September-19 during the disruption. As things settled down tea prices declined. The second spike in tea prices was observed in June-21.
  • Tea is a big part of the business; the company expects a gradual shift from unbranded to branded tea on the back of rising consumer income. In India, over 30-40% of the tea is unbranded. They aim to double their direct reach in 12 months and indirect reach in 36 months. They are on track to deliver of doubling their reach in 12 months. By end of September 2021, the company will be north of a million outlets covering directly.
  • The company has increased focus on brand strengthening by increasing ad & promotion expenditure by 50% YOY in 1QFY21 creating consumer pull towards the brands.
  • The company has initiated a series of launches with the most recent being Chakra Care and Gold care.
  • Tata Sampann products offer quality nutrition for which they are priced at a premium, providing a good price-value equation to the consumer.
  • Currently, the share of ‘ready to eat products’ is 5% of the revenue. As Convenience is a huge factor, Tata Consumer is looking forward to expanding their ‘ready to eat’ product portfolio by launching differentiated products in the organic and inorganic categories.
  • Tata consumer bought Soulfull as there is a huge opportunity to expand it. Soullfull has a great brand built and they have mastered how to treat millets and make great products out of millets. After the acquisition, the number of outlets that they used to service has increased to 50,000 from 10,000 outlets.
  • E-commerce sales were 2.5% of the total revenue pre-pandemic which grew to 5% in Mar-21 and 7% in June-21.
  • The company has launched its flagship stores in Mumbai and Delhi. They are trying to perfect the whole mix. Once they perfect it they’ll launch it across India.
  • In FY21 Starbucks added equal number of outlets as in FY20 and expects to continue the momentum. They were severely impacted by both the waves during the pandemic. However, the last 2 months were better and the company is already starting to see growth beyond pre-pandemic.

Asset Multiplier Comments

  • Tata consumer has been expanding into different FMCG segments with differentiated premium products giving it an advantage over its competitors.
  • A strong digital presence and product customization to meet the demands of diverse geographies will fuel future revenue development in the coming years.

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

  • The closing price of Tata Consumer Products was ₹ 860/- as of 21-Sept-2021. It traded at 72x/61x/48x the consensus EPS estimate of ₹ 12/14/18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 779/- implies a PE multiple of 43x on FY23E EPS 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.”

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