Author - Rutuja Chavan

31 May

Expect Double Digit growth for India business – Torrent Pharma

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the red at 16,854 (-0.5%), dragged by KOTAKBANK (-3.5%), SUNPHARMA (-2.6%), and HDFC (-1.8%). Some of the gainers were ONGC (+5.2%), NTPC (+4.4%), and M&M (+3.4%).

Among the sectoral indices, REALTY (+2%), MEDIA (+1.5%), and METAL (+1.3%) led the gainers, and NIFTY PSU BANK (-1%), NIFTY BANK (-1.0%) and NIFTY FINANCIAL SERVICES (-0.9%) led the losers.

Excerpts of an interview with Mr. Sudhir Menon, CFO & ED, Torrent Pharma (TORRENT) with CNBCTV18 on 27th May 2022:

  • In 4QFY22, TORRENT reported an EBITDA margin of 26.3% as compared to 25.5% in 3QFY22. 3QFY22 was impacted on account of higher than expected price erosion in the US. TORRENT believes that the worst has already happened for the US.
  • IN FY23, TORRENT expects certain margin levers to play out. A few of these levers could be the price increase-driven margin improvement in the Branded Business which contributes 70% of overall revenues as of 4QFY22.
  • Certain cost optimization measures were undertaken in 4QFY22 by realigning capacities between its facilities in India which are expected to come through from 1QFY23.
  • Cash burn impact of 1-1.5% on the liquid facility which was discontinued in the US is expected to roll back into the margins.
  • There was an impact of increased freight expenses on the margins of 1.2-1.3% in 3QFY22 which continued in 4QFY22. TORRENT expects these costs to normalize over the next 2-3 quarters of FY23.
  • Overall, revenue growth in FY23 is expected to be better than FY22 and that would enable TORRENT to have operating leverage play out positively in the near term. TORRENT has guided for 300 bps margin improvement in FY23.
  • Acquisition of Dr. Reddy’s Laboratories’ 4 brands would help fill up the portfolio gap in gynecology and urology. As per AIOCD (All Indian Origin Chemists & Distributors) data set, the 4 brands combined had a revenue of Rs 450-500 mn.
  • India business registered 15% revenue growth in FY22 and most of the existing therapies TORRENT has outperformed the market.
  • TORRENT is growing at 2x of the market growth in therapies like GI (Gastro-Intestinal), CNS (Central Nervous System), and Anti-Diabetics and this is expected to continue.
  • It expects the Indian market to deliver low double-digit growth over the next two years and TORRENT is expected to grow 200 bps above the market as per its historical trend as it is over-indexed in some of the high growth markets.
  • One of the objectives TORRENT had taken was to achieve the 10 lakh MR (Medical Representatives) productivity in FY22. Now that it has achieved this productivity, TORRENT has been expanding its field force which is expected to bring in incremental revenue growth.
  • The new product pipeline is looking good for the next few years and TORRENT is seeing some of the large-size markets going off-patent in the coming years. With the incremental growth coming in the future, TORRENT believes it is well-placed to achieve double-digit growth for India Business.
  • The US story has not been playing out well for TORRENT because of the new launches not coming through due to pending US FDA inspections.
  • TORRENT has around 57 ANDA pending approvals. In the next 2-3 months if the US FDA reinspection takes place, TORRENT expects new products to start coming in from 4QFY23.

Asset Multiplier Comments  

  • The growth trajectory in TORRENT’s India branded generics business is expected to continue, due to new product launches in the upcoming quarters.
  • We expect a revival in tender business and new launches to drive growth in the Germany Business. Brazil is expected to continue its momentum in both the branded and generic segments.
  • With the worst of price erosion in the US business over, an improvement is expected with the resumption of USFDA inspections.
  • We expect cost-optimization measures, normalization in freight expenses, and closure of the Pennsylvania (US) facility to aid margin expansion in FY23.

Consensus Estimates: (Source: market screener website)

  • The closing price of TORRENT was ₹ 2,835 /- as of 31-May-2022.  It traded at 34x/27x the consensus earnings estimate of ₹ 84/ 106/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,194/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 106/-.

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 May

Slow and Steady wins the Race

The most common excuse that people spell out when explaining the benefits of investing in a disciplined manner is not being able to save money by the end of the month. When it comes to investing, one need not wait till the time one can accumulate a lump sum to take the first step into investing in the stock market. Even saving Rs. 1,000 a month and investing in an equity-linked mutual fund, may accumulate lakhs a few years down the line. This form of small but periodic form of investment is called Systematic Investment Plan (SIP). One way of saving for investments is by cutting down unnecessary expenses.

A penny saved is a penny earned.

This age-old adage is the mantra for wealth creation. This is why budgeting becomes an important exercise. Most people spend first before they even think about saving, which is not a very helpful approach to savings or investing. Instead, follow the hierarchy of Earn – Save – Spend and these savings can be channelized into an investment product. Within the investment product universe, one of the options which aid long-term wealth creation is investing in an equity-based mutual fund for one’s long-term goals. The beauty of this approach will become apparent only after a couple of years when there is a neat sum gathering in one’s account, thanks to the market-linked gains that the investment may be accruing, all of which is an enriching experience. Just monitoring it and seeing it grow makes investors confident of their improving financial condition. As a result, investors tend to automatically start spending less and invest more.

SIP versus EMI.

Most people who find it hard to save and invest would happily purchase expensive items in debt. Paying EMIs (Equated Monthly Instalments) to buy a new car or a phone feels easier than investing some amount gradually to afford it in one go. Steer clear of instant gratification. It is better to start an SIP than to shell out money on EMIs. SIPs are the best EMI one pays. There is no point in paying interest on luxury. It is better to become rich enough to afford luxury.

Why SIP matters

The stock market is volatile. One day it is on an upward journey, but the tide may turn the next day.  Investors should avoid predicting the stock market moves. With SIP money gets invested at different market levels that will support one’s portfolio when there is a sudden market crash. The portfolio will not crash the way individual stocks or the benchmark indices like Sensex and Nifty may crash. SIP is a weapon to tame market volatility.

Compounding is the eighth wonder of the world. The longer one stays invested and runs their SIPs, the higher rewards they earn. For example, Rs 5,000 SIP each month will give Rs 11 lakh after 10 years at a compound annual growth rate of 12 percent. Continue it for another 10 years, and it will become Rs 46 lakh. One can start an SIP for short-term goals also. However, the selection of investment products will change accordingly. Investors should always align their investment strategy with their financial goals and timeline.

To conclude, one should believe in the power of SIP where one can start small to make their bigger dreams come true. Slow and steady wins the race – the timeless moral of the Tortoise and the Hare story cannot be timelier in the current market scenario. In an era of quick money-making where everyone is behaving like a rabbit, be a tortoise to beat them all.

Source: ‘Slow and Steady Wins the Race’ by Kapil Holkar in the October 2021 issue of Outlook Money

Asset Multiplier comments:

  • SIPs help investors reduce their portfolio risk, contain emotional biases, and are a disciplined approach to investing.
  • The longer one stays invested and runs their SIPs, the higher rewards can be earned due to the effect of compounding. The sooner one starts, the more time there is for the invested money to produce results.
  • SIPs differ across time horizons and risk profiles. Investors can achieve their short-term, medium-term, and longer-term financial goals by investing in SIPs in one go rather than choosing to pay EMIs.

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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26 May

Targeting revenues of USD 70 mn from exports – Bharat Electronics

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green at 16,170 (+0.9%). TATASTEEL (+5%), APOLLOHOSP (+5%), and JSWSTEEL (+4.5%) led the gainers while UPL (-2%), DIVISLAB (-2%) and SUNPHARMA (-1%) led the losers. Among the sectoral indices, PSU BANK (+3%), METAL (+2.7%), and BANK (+2.2%) led the gainers, while FMCG (-0.2%) was the only loser.

Excerpts of an interview with Mrs. Anandi Ramalingam, CMD, Bharat Electronics (BEL) with CNBC-TV18 on 25th May 2022: 

  • For FY23, BEL is expected to maintain a growth of about 15% YoY. EBITDA margins are expected to be in the range of 20-22% in FY23E.
  • Raw material content stood at 59.9% in FY22 and BEL is hopeful that it would come down to 56-57% because of the indigenization efforts that have been put in place.
  • BEL has guided for a lower EBITDA Margin range even though the Gross Margins are expected to expand because most of the contracts are fixed-term contracts whose prices are fixed when they are signed. But BEL has not been able to maintain this with its suppliers.
  • Many of the suppliers, post-covid, have started demanding higher prices. BEL is trying to deliver its contracts with minimal delay. It has not been able to pass on the increased input prices to its customers so even if the material content as a percentage is expected to decline, BEL is maintaining a lower EBITDA Margin guidance.
  • BEL is confident of logging in Rs 200 bn orders in FY23. Exports declined to USD 33 mn in FY22 from USD 52 mn in FY21 mainly due to the geopolitical crisis that took place in 4QFY22. Due to the crisis, logistics and financial transactions with international customers were impacted.
  • BEL received an order book of USD 179 mn in FY22 as many marketing offices have been set up in the overseas market and have started yielding results. BEL hopes to maintain the same order pipeline in FY23.
  • Revenues from exports are expected to increase as uncertainties and logistical issues have started easing out. BEL is targeting to clock in revenues worth USD 70 mn from exports.
  • BEL will be incurring a Capex of Rs 5-6 bn coupled with Rs 13bn of additional CapEx provided it gets selected for the PLI Scheme (Production-Linked Incentive).
  • The CapEx under PLI Scheme is done as a consortium with HAL (Hindustan Aeronautics Ltd) and other private companies.

Asset Multiplier Comments

  • We think BEL is well-positioned to tap the opportunities with the government’s Make in India and Atmanirbhar Bharat initiatives.
  • Looking at the healthy order book (both domestic and exports), strong export order inflows of USD 179 mn in FY22, intending to reduce dependence on defense and diversification into non-defense segments we expect good revenue growth for the next 2-3 years.

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

  • The closing price of Bharat Electronics Ltd was ₹ 227/- as of 26-May-2022.  It traded at 20x/ 17x the consensus earnings estimate of ₹ 11.3 / 13.2/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 242/- implies a P/E Multiple of 18x on the FY24E EPS estimate of ₹ 13.2/-.

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 May

How to Deal with the Behavioural Challenges of Bear Markets

It is at times of severe market stress that investors’ worst behavioral impulses come to pass. Whilst the recent losses in the value of portfolios are undoubtedly painful; the poor decisions that investors will make as a result of the blazing environment will likely prove more damaging to their long-term outcomes.

Against such a turbulent market backdrop, which behavioral issues should investors be most concerned about?

  • Myopic Loss Aversion: Short-term losses are difficult, but they are also an inevitable feature of investing in risky assets. Indeed, the high long-term returns from equities investments are a result of their volatility and the risk of significant losses; in order to reap the benefits, investors must be willing to endure difficult periods. For most investors (particularly younger ones) it makes sense to reframe the issue – rather than markets falling steeply, they should think about the likelihood that long-term expected returns from risky assets are now materially higher.
  • Recency: Obsession with recent and salient issues means that they overwhelm one’s thinking. Whether it is wars, inflationary pressures or coronavirus. This is not to say that such issues are not important but from a long-term investment perspective, they are less vital than one thinks and feels they are at the time.  Investors should make investments such that they would have to leave them untouched and unseen for the next ten years.
  • Risk Perception: Investors are poor at judging risks.  They are prone to ignoring certain threats whilst hugely overstating others. Their judgment about the materiality of risk tends to be driven by its availability (how aware they are of it) and its emotional impact on them. The Russian invasion of Ukraine is a particularly damaging risk for investors because the magnitude of the impact is highly uncertain and it is deeply important.  Investors also need to be clear about what risks they are considering when making an investment decision – is it the risk of short-term losses, the risk of being whipsawed by volatile markets, or the risk of failing to meet their long-term objectives?
  • Narratives: Although investors should be driven by evidence, many of the investment decisions they make are founded on convincing stories.  In times of profound uncertainty, this flawed feature of one’s decision-making becomes highly problematic.  It is incredibly uncomfortable to acknowledge that investors have no clarity around a major issue such as the Russia-Ukraine war; so, they construct stories to relieve their discomfort.  These narratives help them ‘understand’ what has happened, but also, more damagingly, give them undue confidence about what will happen in the future.  It is better to admit not knowing an issue, rather than concocting a story.
  • Overconfidence: In the past three months everyone has become an expert in diplomacy and economics, despite having no previous grounding in the subject.  It is okay to have an opinion, but the vast majority of people are guessing, and nobody knows the near-term market or economic impact of the war.  Investors shouldn’t make investment decisions that suggest they do.

In these environments, making sensible long-term investment decisions is highly likely to leave one looking foolish in the short term. This doesn’t mean one should not make them.  The advantage of being able to invest for the long-term is at its greatest when it is the hardest thing to do.  The only way to benefit from this is to have a sensible investment plan that is clear about objectives and the decision-making process.  Sticking with this through tough times can provide a major behavioral edge.

Source: How to Deal with the Behavioral Challenges of Bear Markets by Joe Wiggins behaviouralinvestment.com

Asset Multiplier Comments:

  • In these uncertain times, the only thing investors can control is their investment process. So, investors should try not to get consumed by immediacy and noise.
  • One advantage of bear markets is that they allow you to buy quality stocks at high margin of safety. Fundamentally good companies tend to perform better in the long run so buying them at cheaper valuations may turn out to be advantageous.
  • Diversifying investments across various asset classes and sectors may help investors contain their portfolio risks.

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 May

Rising interest rates to have a positive impact on NIMs – SBI

Update on the Indian Equity Market:

On Monday, NIFTY ended at 15,842 (+0.4%). PSUBANK (+3%), REALTY (+2.6%), and AUTO (+2.3%) were the sectoral gainers while IT (-0.7%), FMCG (-0.35%), and PHARMA (-0.2%) were the losers.

Among the stocks, EICHERMOT (+8%), APOLLOHOSP (+4.2%), and UPL (+2.8%) led the gainers, while ULTRACEMCO (-3%), SHREECEM (-2.5%), and ASIANPAINT (-1.7%) led the losers.

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, SBI with CNBC-TV18 on 15th May 2022:

  • In terms of advances, SBI has a pipeline of about Rs 4,600 bn worth of proposals. Currently, its corporate book stands at Rs 8,100bn, and if this number fructifies, then it is going to reflect in a healthy corporate book for the bank.
  • There is enough demand in the economy. The growth is coming from the investment demand which is there from the infrastructure projects being led by the government of India. This is going to be the major lever that will bring in more and more spending for investment purposes in the economy.
  • Focus on PLI schemes, and increase in exports are some of the other growth levers that give SBI the confidence and conviction to see decent growth in their loan book.
  • SBI expects ROE (Return on Equity) to be near 15% by FY23 and reach the equivalent level by FY24.
  • It has a Capital Adequacy Ratio that can easily support 10-11% growth in the loan book but it will be closely watching the scenario in terms of growth as it doesn’t want capital to be a constraint when it comes to growth of the bank.
  • SBI expects its slippages to be down but will be closely monitoring them due to the rising interest situation.
  • The asset quality of the bank is expected to be at least at the current levels of 4% if not improved.
  • Normally, there is always a lag between the deposit rates increase and that leads to a situation where the loan interest rates might start moving faster as compared to deposits. This will have a positive impact on the NIMs of the bank.

Asset Multiplier Comments

  • We expect loan book momentum to remain healthy with economic activities picking up and the government’s initiatives to boost infrastructure-related investments.
  • We expect a higher mix of floating loans and CASA mix to contribute to margin expansion in a rising interest rate scenario.
  • We expect moderation in slippages over the subsequent quarters.

Consensus Estimates: (Source: Market screener and investing.com website)

  • The closing price of SBI was ₹ 456/- as of 15-May-2022.  It traded at 1.3x/1.2x the consensus book value per share estimate of ₹ 342/388 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a P/BVPS multiple of 1.6x on the FY24E BVPS estimate of ₹ 388/-.

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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12 May

The Myth of Consistent Outperformance

In the active fund management industry, there is no better sign of investment insight than to overcome the odds and produce excess returns with unfailing regularity. This notion is bogus because patterns of consistent outperformance are exactly what one would expect to see if results were entirely random. This measure alone tells us nothing and believing in it would lead investors to an array of investing mistakes.

The careers of most star fund managers have been shaped by seemingly rare runs of good form. Performance consistency is also often used as a tool for rating and filtering active fund managers – with skill linked to how regularly they beat their benchmarks over each year/quarter/month. To think that the delivery of regular benchmark beating returns is indicative of skill, investors need to believe one of two things:

  • For a fund manager or team to outperform consistently, investors must suppose that they can accurately predict future market conditions. Without having this ability, it is impossible to position a portfolio to outperform in a constantly evolving environment.
  • Financial markets will consistently reward a certain investment style. If investors do not accept the first notion, then they must believe that a fund manager has a flawless approach that always outperforms- regardless of the market conditions.

Stories over randomness

The existence of consistent outperformers is almost certainly the result of fortune rather than skill.  In any activity where there is a significant amount of randomness and luck in the results, outcomes alone tell one next to nothing about the presence of skill. The only way of attempting to pinpoint skill is by drawing a link between process and outcomes. In order to claim performance consistency is evidence of skill, one should justify the part of the process that leads to such unwavering returns.

Consistently poor behavior

The obsession with performance consistency is not just a harmless distraction, but an issue that leads to poor outcomes for investors. There are three main problems:

  • It leaves investors holding unrealistic expectations about what active funds can achieve. A rule of thumb to follow- if a fund has outperformed the market for five years straight, then at some point it will underperform for five years straight.
  • Buying funds that have shown unusually strong run of performance leads to entering markets at expensive valuations. Markets tend to converge to their mean values over time and by walking into expensive valuations investors may have to sit through painful mean reversion.
  • Narratives surrounding consistent outperformance promote the glorification of star fund managers.

Source: The Myth of Consistent Outperformance by Joe Wiggins on www.behaviouralinvestment.com

Asset Multiplier Comments

  • Fund investors should focus on the consistency of the philosophy and process of a fund manager. In an unpredictable environment, one’s investment approach is the only thing that can be controlled.
  • Believing that consistent outperformance is the evidence of skill can lead to capital erosion.
  • Instead of chasing active mutual funds, investors can go passive. Sticking to this approach in a disciplined way will ensure slightly better performance than active funds over the long run as fees are comparatively lower.

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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06 May

A few basic questions…: Part II

(In continuation with the previous article…)

Where should investors spend their time?

Investors should focus on that sweet spot. They can revisit each business that’s near buyable levels, to make sure they don’t miss anything on risk and quality. While evaluating their buying opportunities, investors should also explicitly check if they are being too cheap. Investors should be prepared to buy at a price that strikes a balance between losing money and missing opportunities.

What will happen in the short run?

Anything. It is impossible to predict what will happen in the short run. Investors can keep revisiting these basic questions at every price level for their consideration set. There is no investment process that can reliably deliver good short-term results. Aiming for good short-term results jeopardizes good long-term results. One side benefit of sticking to safe and good is that one is less likely to question business fundamentals just because price tanks. In weaker businesses that periodically require kindness of strangers, reflexivity complicates life.

What will happen in the long run?

Across decisions, one should hope for outcomes that are better than bad, with wipe-outs being rare. In aggregate, investors hope for satisfactory returns, both absolute and relative. But they are far from certain and there’s a decent chance they won’t work out at all. Investors’ assurance is a vague comfort drawn from history and experience. Even if it works out, the long run can turn out to be painfully long.

What will one miss?

A lot. It’s not possible to catch every great opportunity of the coming decade. There will surely be icky banks and dodgy unicorns among tomorrow’s rockstars. Many a 50 PE will look cheap in hindsight, like in those cherrypicked back-tests. Investors should not aim to capture every likely winner. They should aim to do their best within what works for them.

More generally, the focus is central to any sensible method. Investors should zoom in on a subset of opportunities that fit into their way of thinking. What’s left out is usually way larger than what’s in. Straying outside their focus area implies that investors either don’t have a method or will implement it poorly. Living with FOMO (Fear of Missing Out) and envy is part of investing process.

How do these questions help?

Reassurance. Everyone knows what to do. The problem lies in sticking to it in scary times. If investors are at peace with their chosen approach, they’re less likely to lose their nerve or try to become someone else. Explicitly going back to basics helps one be more at peace with one’s chosen approach and act in line with it. Investors should avoid getting consumed by immediacy and noise.

Source: A Few Basic Questions from www.buggyhuman.substack.com By Anand Sridharan.

Asset Multiplier comments:

  • Investors should revisit the above-mentioned questions to stay aligned with their investment process.
  • Aiming for short-term results hinders the process of long-term wealth creation.
  • Instead of evaluating every winner, filtering out stocks that don’t match one’s investment strategy reduces the size of the stock universe and strengthens conviction.

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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04 May

20% growth in disbursements expected for the next 3-4 years – Can Fin Homes

Update on the Indian Equity Market:

On Wednesday, NIFTY ended 2.3% lower at 16,667 after RBI announced a 40bps repo rate hike. The decision of the MPC was announced as investors await US Federal Reserve’s rate decision.

Among the NIFTY stocks, APOLLOHOSP (-6.6%), and ADANIPORTS (-5%) and HINDALCO (-4.8%) were top losers while ONGC (+3.8%), BRITANNIA (+3.3%), and POWERGRID (2.5%) were the top gainers. Among the sectoral indices, CONSUMER DURABLES (-3.6%), REALTY (-3.3%), and METAl (-3.2%) were the top losers and there were no sectoral gainers in the session.

Excerpts of an interview with Mr. Girish Kousgi, MD & CEO, Can Fin Homes (CAN FIN) with CNBC-TV18 on 2nd May 2022: 

  • CAN FIN had given a growth guidance of about 18-20% both on book and disbursements. Disbursements and book growth have been at an all-time high sequentially in Q4FY22.
  • In terms of NIMs, pre-covid levels were at 3.9%, but this number was dropped to retain customers and take on the competition during the covid time. The demand came back after October 2020. Competition eased out in Q4FY21 and from there on the CANFIN’s performance improved.
  • NIM (net interest margin) is not expected to sustain 4.15% levels as they also included a benefit of LCR (Liquidity Coverage Ratio) investment, but they are expected to be between 3.7% to 3.75% for the next few quarters.
  • CANFIN’s spreads are expected to be around 2.5%.
  • In terms of growth, economic activities have picked up, and real estate has revived and is going strong. In Q4FY22, they saw a slight increase in interest rates and are expecting any further rise to be manageable enough for the company.
  • Historically, CAN FIN has managed to build its book at higher yields and expects this to continue in the future.
  • Growth is expected to be intact at 20% for the next 3-4 years on book and disbursements.
  • With the onset of covid, the provisions stood at Rs 870 mn and these were used in the subsequent quarters writing it back. CAN FIN has started building on the provisions by providing Rs 150 mn additional provisions.
  • Kousgi intends to continue as MD and CEO of the company till September 2024.
  • Every year, CAN FIN has a Regulator NHB audit and nothing came out of the same this year.

Asset Multiplier Comments:

  • With the pick-up in economic activities, we expect CAN FIN to continue its underwriting practices and loan growth trajectory. Over the next three years, the LAP (Loan against Property) book is expected to grow at a faster pace than home loans. The company plans to increase the proportion of LAP loans from 5% to 10% over the next three years.
  • We believe its better credit ratings to be positive in achieving a lower cost of funds. India’s demographics and the retail business are expected to work in favor of CAN FIN.
  • In the current rising interest rate environment, we expect some margin compression over the next few quarters.

Consensus Estimate: (Source: Marketscreener and investing.com websites)

  • The closing price of Can Fin Homes was ₹ 604 /- as of 04-May-2022. It traded at 2.2x/ 1.8x the consensus book value per share estimate of ₹ 273/319 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 755/- implies a P/BVPS multiple of 2.3x on the FY24E BVPS estimate of ₹ 226/-

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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01 May

This week in a nutshell (25th – 29th April)

Technical talks

NIFTY opened the week at 17,006 on 25th April. The index closed 0.8% lower at 17,102 on 29th April. RSI (14) of 49 and MACD are trending downwards. On the upside, the 20DMA weekly of 17,273 could act as resistance while 16,379 could act as support.

FMCG (+1.3%), Auto (+0.5%), and Private Bank (0.2%) were the sectoral gainers in the week. Media (-6%), PSE (-4.4%), and IT (-2.5%) led the laggards.

Weekly highlights

  • The US indices closed the week lower as the market priced in weak earnings from tech giants, inflation worries, and aggressive monetary policy tightening by the Federal Reserve. S&P 500 was down 3.6%, Nasdaq 100 4.5%, and Dow Jones was down 2.8%.
  • With the Q4 earnings season going in full swing, Indian indices are driven by rising input prices, margin pressures, and weak future expectations by companies.
  • Life Insurance Corporation of India, India’s largest life insurer, is set to launch its IPO on May 4. The IPO, according to its red herring prospectus, will comprise an offer for sale of 220 mn equity shares at Rs 902-949 apiece. How the IPO performs amidst uncertainties caused due to geopolitical tensions and foreign sell-offs remains to be seen.
  • The RBI is expected to raise policy rates among major central banks in Asia to tackle the surged inflation. Traders have been pricing a potential 25bps hike in repo rates in June. This has resulted in increased volatility in recent trading sessions.
  • For April 2021-February 2022, the Index of Industrial Production in India averaged 129.97 against 130.1 in the corresponding pre-pandemic period of FY20. Shortage of key raw materials, rising pricing pressures, and global geopolitical risks are some of the challenges faced by the manufacturing sector. Sectors such as chemicals, machinery, and electrical equipment logged an annual contraction in industrial output in February.
  • In light of the recent battery-related fires inside electric two-wheelers, the Union government has asked all-electric two-wheeler brands to refrain from launching new products in the market. The makers are free to sell current models in the market. This is expected to give the government more time to set up an authority for taking a closer look at the cause behind these fires.
  • Traders in the US are pricing a 50 bps interest rate hike when the Fed meets next on May 3rd. Traders are expecting a potential 75bps hike in June, following the meeting next week.
  • A mixed set of earnings from US tech giants has left investors feeling anxious. Investors expected healthy earnings to hold the markets up after a vicious sell-off caused due to an increasingly hawkish Fed and geopolitical tensions stemming from the Russia-Ukraine crisis.
  • FII (Foreign Institutional Investors) continued to be sellers this week and sold shares worth Rs 1,14,450 mn while DII (Domestic Institutional Investors) continued to be buyers and bought shares worth Rs 97,000 mn.

Things to watch out for next week

  • Continuing with the Q4 results season, management commentary about near-term economic recovery, rising cost inflation, and margin pressures are expected to drive the markets.
  • Rising Covid-19 cases in Shanghai, China, and subsequent lockdowns will continue to impact oil prices and equity markets globally. The supply chain disruption for key inputs coming from China is expected to continue to hurt investor sentiments.

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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28 Apr

A few basic questions…: Part I

The following article is taken from “A few basic questions’ by Mr. Anand Sridharan who is an investor at Nalanda Capital.

In stormy seas, it’s good to revalidate what ones true North is. Investors can do this by asking themselves basic questions about how they think about investing & what that implies for how they should act now.

Each investor has an investment process that hopefully (a) gels with who they are, and (b) works over the long run. Revisiting principles of that process can help clear the mind in murky times and strengthen conviction to act on the implications of that process.

The author has listed some basic questions and what they mean to him to illustrate his process. Below are some of the questions whose answers would be different as each investor operates under different contexts, constraints, and preferences. What matters across everyone’s answers isn’t correctness but internal consistency.

What is one trying to do? The author intends to indefinitely own safe and good businesses purchased at reasonable valuations. To further elaborate on this, Safe means avoiding things that resemble bad people or bad neighborhoods or things investors can’t figure out. It is better to avoid than price big risks.  Good is partly quantitative. The author’s primary metric is the return on capital. Over 20% for over five years is his rough bar. Investors should incline toward a business that has strengthened its competitive position within its industry. The qualitative part involves a construct where goodness is likely to sustain.

If the author is correct about safe and good, his consideration set is confined to enterprises that are above average. Purchasing goods at near-par or slightly above-par prices appears sensible. A relevant reference point for determining what is par is that the average business has historically been valued at a mid to high teens multiple of earnings over time. Valuation discipline is to avoid disastrous outcomes when investors are wrong or something unexpected happens.

What should one try not to do? Within what’s safe and good, the investors should not: 1. Pay any price just because they really like a business. 2. Wait for an unreasonably cheap price either.

Where does the current environment leave one on what to do and not do?

Everything’s fallen in price but a lot of it isn’t actionable. Bad businesses getting beaten down doesn’t help (e.g., bad bank below book). On the opposite end, 80 PE falling to 50 PE for a ‘great’ business doesn’t help one either. Valuations for the author’s consideration set are mostly ‘less outrageous but too high for his comfort’. In the middle, a (small) sweet spot of safe enough, good enough, reasonable enough is emerging.

Source: A Few Basic Questions from www.buggyhuman.substack.com By Anand Sridharan.

Asset Multiplier comments:

  • Abiding by one’s own investment process in a disciplined way is the simplest way of wealth creation over time. Staying undaunted amidst noise and chaos is the key to remaining invested over the long term.
  • Investors should be willing to pay a price that finds a balance between losing money and missing out on a good deal.

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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