Author - Sharvari Joshi

05 May

Confident‌ ‌of‌ ‌achieving‌ ‌FY22‌ ‌growth‌ ‌guidance-‌ ‌L&T‌ ‌Technology‌

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 14,618 (+0.8%). Top gainers in NIFTY50 were Sun Pharma (+5.9%), UPL (+4.8%), and IndusInd Bank (+2.5%). The top losers were Adani Ports (-3.6%), Bajaj FInance (-1.8%), and SBI Life (-1.3%). The top sectoral gainers were PHARMA (+4.1%), BANK (+1.6%), and PVT BANK (+1.5%) and the only sectoral loser was REALTY (-1.0%).
Excerpts of an interview with Mr Amit Chadha, MD & CEO, L&T Technology (LTTS) with CNBC -TV18 dated 4th May 2021

  • US & Europe back on track in terms of decision making cycles and budgets.
  • They have been a little worried about the near-term execution challenges in India. Taking that into account and assuming that things will come back sometime in May, they have guided 13-15 percent growth in revenue in FY22. However, they aspire to do more.
  • The company will be able to maintain an EBIT margin of 17 percent. They are back at 16.6 percent EBIT in 4QFY21. As they move forward, the entire focus will be to ensure they continue to grow profitably. 
  • No projects have been cancelled due to the 2nd wave of COVID.
  • There is still some headroom to achieve 80% utilization levels.
  • Attrition at 12 percent is the lowest in the industry. But Mr Chadha is expecting attrition to pick up in 1QFY22 due to seasonality. 
  • The company will be hiring 1,200 freshers in FY22 and has given increments to junior and mid-level employees effective April 1. However, senior employees will be given wage hikes from July 1.
  • Commercial aerospace segment is still weak and will take time to recover. Growth trajectory of transportation is robust; plant engineering grew 10% QoQ.
  • They have been picky on the hi-tech deals given their focus on margin. 

Asset Multiplier comments:

  • As businesses increasingly move their operations to the cloud, the demand for enabling software and services will continue to increase.
  • The ongoing pandemic has pushed many enterprises to implement work-from-home policies for the first time, and this has created a demand for collaborative applications and softwares, which is likely to drive growth for software companies.

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

  • The closing price of LTTS was ₹ 2,569/- as of 05-May-2021.  It traded at 30x/ 26x the consensus earnings estimate of ₹ 85.5/ 99.9 for FY22E/23E respectively.
  • The consensus price target is ₹ 2,486/- which trades at 25x the earnings estimate for FY23E of ₹ 99.9/-

 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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26 Apr

Confident of being profitable at PAT level – Nazara Tech

Update on the Indian Equity Market:

On Monday, NIFTY closed at 14,485 (+1.0%). Top gainers in NIFTY50 were Axis Bank (+4.2%), JSW Steel (+3.4%), and Ultratech Cement (+3.3%). The top losers were Cipla (-2.9%), Britannia (-2.8%), and HCL Tech (-2.7%). The top sectoral gainers were REALTY (+3.4%), METAL (+2.0%), and PVT BANK (+1.8%) and the only sectoral loser was PHARMA (-0.9%).


Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Tech (NAZARA) with CNBC -TV18 dated 23rd April 2021

  • The Company’s EBITDA numbers are a good indication of the health of the operations. In terms of Gamified Early Learning, e-Sports and Freemium, he said that they are very positive about these three segments. 
  • These three verticals are being driven by the massive consumer trends and have accelerated since the last year because of the pandemic.
  • He believes all three segments will continue to drive growth. According to him, the paying subscribers for Gamified Early Learning segment have grown 172 percent from April 2020 to March 2021.
  • In the e-Sports business, Nazara Technologies is a market leader with an 80 percent share. Their attempt & aspiration is to innovate more and grow in this market.
  • They are very gung-ho about Freemium because in-app purchase – the habit of buying virtual items is going to increase in India and that will become a very strong growth driver.
  • On Real Money gaming, the company has a strategically cautious approach. Telco Subscription business is a mature business. 
  • It is a cash cow for them. This business generates around 20-28 percent EBITDA, hence the opportunity is big.
  • They do not have any debt on their books, they are a cash-rich company. So, there is no interest to be paid out.

Asset Multiplier comments:

  • As Nazara operates in high-growth business segments such as gaming, gamified learning, and Esports, they will continue to drive profitable growth. The management is prioritizing growth over profit maximization at this stage so that they can achieve and maintain market leadership in the segments they operate in.
  • E-sports, which contribute ~37% to the total revenue is disrupting traditional sports worldwide. It is an outcome of sports and gaming intersecting to create fast-paced spectator entertainment content.

Consensus Estimate: 

  • The consensus estimates and price targets are not available for NAZARA.

 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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13 Apr

Coronavirus curbs have impacted the cement supply chain – JK Cement

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,505 (+1.4%). Top gainers in NIFTY50 were M&M (+7.8%), Bajaj Finserv (+6.6%), and Tata Motors (+5.4%). The top losers were Dr Reddy (-3.9%), TCS (-3.9%), and Tech M (-3.3%). The top sectoral gainers were PSU BANKS (+4.5%), AUTO (+4.3%), and FIN SERVICES (+3.4%) while the sectoral losers were IT (-3.3%) and PHARMA (-1.2%).


Excerpts of an interview with Mr. Rajnish Kapur, COO, J.K.Cement (JKCEMENT) with CNBC -TV18 dated 12th April 2021

  • Currently. lockdowns have not impacted the production per se in any of their operations. What they are now witnessing is on the supply side, movement of the cement outside the plant has got affected. In some of the cities, there are partial lockdowns, some places it is night curfew, and in some cities in MP where the day movement is also not allowed. 
  • Raw material cost is a matter of concern. The pet coke price has risen ~110 per cent and today imported pet coke is costing about $ 126 per tonne. 
  • Similarly, coal prices have increased by 54 per cent so these two combined would have an impact of anything about Rs 250 per tonne on the cost of production.
  • They are actually looking at total power and fuel cost increase of somewhere in the region of Rs 250-275 in 1Q and 2QFY22. 
  • There doesn’t seem to be any indicators at this point in time that the cost is going to go down. There has been a marginal increase in the price of cement by ~Rs 5-10 in the markets where they operate.
  • At an industry level, they are not much concerned about demand at this point in time. They feel that the country has got enough to work upon. 
  • As an industry, they are looking at something between 10 and 12 per cent growth in FY22 which has just started.

Asset Multiplier comments:

  • Cement production reached 329 million tonnes (MT) in FY20 and is projected to reach 381 MT by FY22. However, the consumption stood at 327 MT in FY20 and is expected to reach 379 MT by FY22. (https://www.ibef.org/industry/cement-india.aspx)
  • India has a high quantity and quality of limestone deposits (the raw material for cement) throughout the country. Hence, the cement industry has a huge potential for growth.
  • The Eastern states of India are likely to be the newer and untapped markets for cement companies. These could contribute to the cement companies’ bottom line in the future.

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

  • The closing price of JKCEMENT was ₹ 2,852/- as of 13th April 2021.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 107/ 123 for FY22E/23E respectively.
  • The consensus price target is ₹ 2,574/- which trades at 21x the earnings estimate for FY23E of ₹ 123/-

 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 Apr

The Week in a nutshell (30th March-1st April)

Technical Talks

NIFTY opened the week on 30 th March at 14,628 and closed on 1 st April at 14,867, a weekly
gain of 1.6%. On the upside, 15,536 could be a resistance to watch for. On the downside,
100 DMA of 14,139 might act as a support. RSI on the uptrend at 52 and reducing negativity
in MACD indicates that the market might see some uptrend in the coming days.

Weekly highlights

● The government has approved a Rs 109 bn production-linked incentive scheme for the food
processing industry (PTI). The scheme will attract investments from global and domestic
companies in the food processing sector.
● GST collections rose 27% to hit a record high of nearly Rs 1,240 bn in March, helping to
narrow the deficit for the full financial year to ~7%. Revenue from imported goods jumped
70%, while those from domestic transactions, including services imports, were 17% higher
than the corresponding periods of 2020. Economic activities are picking up which will be
positive for economy linked stocks.
● A sharp recovery in the US dollar, hints of a strong global economic outlook, and a surge in
US treasury yields continue to hit the safe investment demand and thus the price of gold.
The Gold futures have fallen from a high of US $ 1962 to the US $ 1730 on April 1. A
possible physical demand recovery due to the upcoming marriage season in India and China
can attract fresh buyers.
● OPEC+ agreed on Thursday to gradually ease its oil output cuts from May. The new U.S.
administration called on Saudi Arabia to keep energy affordable, mirroring Donald Trump's
practice of calling OPEC's leader over oil policy.
● Auto volumes for the month of March-21 were reported. Companies have been talking of
the supply chain being impacted due to the global chip shortage issue. Despite the supply
chain issues, most companies reported good performance. Maruti and Tata Motors reported
2% and 15% MoM growth. NIFTY AUTO witnessed a gain of 1.6% on Thursday.
● Foreign Institutional Investors (FIIs) were net buyers in Indian equity of Rs 26,044 mn,
against net selling of Rs 67,013 mn in the previous week. Domestic Institutional Investors
(DIIs) continued to be net buyers of Rs 39,660 mn, lower than last week’s buying of Rs
50,181 mn.

Things to watch out
● RBI Monetary Policy Committee to announce the new policy on 7 April. No interest rate
changes are expected in this meeting too. After a cumulative reduction of 115 bps in the
policy repo rate to 4.00 per cent in two of the out-of-cycle meetings held in March 2020 and
May 2020, the Monetary Policy Committee (MPC) kept the repo rate unchanged in the
subsequent policy reviews. Since the last policy review, the CPI inflation has risen from a low
of 4.1 per cent in January 2021, to a sharper-than-expected 5.0 per cent in February 2021.
Consensus expects no changes in interest rates.
● Due to the everyday rise in covid cases, the Government is planning a weekend lockdown in
Maharashtra and planning to close restaurants, Malls, parks etc. How the market reacts to
these rising cases in the country will be the key thing to watch out for.

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30 Mar

Maintaining FY22 guidance of topline of over Rs 100 bn – Dixon Technologies

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,844 (+2.3%). Top gainers in NIFTY50 were UPL (+7.6%), JSW Steel (+4.9%), and Shree Cement (+4.9%). The top losers were Hindalco (-0.3%), Axis Bank (-0.2%), and M&M (-0.1%). The top sectoral gainers were IT (+2.9%), METAL (+2.8%), and PHARMA (+2.7%), and the only sectoral loser was REALTY (-0.03%).
Excerpts of an interview with Mr. Atul Lall, MD, Dixon Technologies (DIXON) with CNBC -TV18 dated 26th March 2021

  • He estimates FY21 revenue to be around Rs 62-63 bn, which is a decent growth over last year’s revenue of almost Rs 44 bn. They will also have growth in profitability. 
  • This is despite Q1 being a complete washout because of the pandemic. In FY22, they are targeting very aggressive growth. 
  • He had previously mentioned a revenue estimate of Rs 100 bn plus in FY22 and a significant increase in the bottom line as well. They still stand by the same; possibility they will do even better.
  • He expects the EBITDA margins to remain in the range of 4.4-4.5 percent going ahead on the back of the product mix. He is also expecting a 25-30 percent CAGR run-rate in topline post FY22.
  • He expects Capex to be ~2,500-2,600 mn in FY22 and he expects FY22 to be a solid growth year for the company.
  • He said that commodity price rise is impacting the consumer durable companies.
  • They have two kinds of revenue streams. One is an OEM revenue stream wherein they work on a prescriptive basis. All price increases on the commodity side, they have been able to pass on to their principle because that is the way the contracts are drafted.
  • He also said that for FY21, Dixon Technologies has met the eligibility criteria on investment and revenue threshold for handset manufacturing PLI. However, they have not yet heard from the government.

Asset Multiplier comments:

  • The COVID-19 pandemic has left a lasting impact across all walks of life, and the electronics industry is no exception as it has also suffered a decline in growth. This is a temporary phase – especially for consumer electronics and appliances – as some of these devices have grown to be an integral part of our lives.
  • The electronics industry is basically divided into two categories—industrial electronics and consumer electronics. The latter has witnessed more growth than the former due to its popularity among consumers and because of more foreign direct investment in it. 
  • The industrial electronics segment in India is still facing challenges because of various taxation policies and the lack of an ecosystem for manufacturing components.

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

  • The closing price of DIXON was ₹ 3,635/- as of 30-March-2021.  It traded at 122x/ 67x/ 49x the consensus earnings estimate of ₹ 29.7/ 54.5/ 74.4 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 3,288/- which trades at 44x the earnings estimate for FY23E of ₹ 74.4/-

 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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23 Mar

Card industry has reached pre-COVID levels now – SBI Cards

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 14,814 (+0.5%). Top gainers in NIFTY50 were Shree Cement (+4.7%), Ultratech Cement (+2.7%), and Divi’s Lab (+2.6 %). The top losers were Hindalco (-2.4%), ONGC (-2.1%), and Powergrid (-2.0%). The top sectoral gainers were PSU BANK (+2.9%), PVT BANK (+1.7%), and BANK (+1.7%) while the sectoral losers were METAL (-0.6%), IT (-0.4%) and MEDIA (-0.3%).
Excerpts of an interview with Mr. Rama Mohan Rao Amara, MD & CEO, SBI Cards (SBICARD) with CNBC -TV18 dated 22nd March 2021

  • The cards industry reached pre-COVID levels in November 2020, while the SBI Card reached pre-COVID levels in October 2020 and the share of online spending has steadily increased for the company and he expects the trend to continue.
  • The only positive outcome of COVID-19 is an increase in digital means by everyone. The share of online spending has increased. 
  • It used to be around 44 percent in SBICARD. That has steadily increased to 53 percent, almost a 900 basis points increase. 
  • Some of the segments like travel, entertainment, restaurants, etc. continue to be depressed, but other segments did record good growth. 
  • The way people chose online means to spend like utilities, groceries, insurance payments, etc. they have come handsomely. So this secular trend of online spending is likely to continue.
  • Q4 spends are lower than Q3. Q3 spends were elevated as it was the festive season. 
  • The credit cost for the short term will remain elevated, like 3QFY21. They made Rs 11,000 mn of management overlay which is much beyond the Rs 9,400 mn of base provisioning. 
  • They were very prudent in terms of categorizing the 30-day delinquency RBI RE on par with NPA and making stage 3 provisioning. So this is a journey and this has been the focus area for the company. So, the credit cost trajectory will be co-related to the decline in the contribution of RBI RE

Asset Multiplier comments:

  • The credit card market in India is smaller compared to its counterpart debit card however, the market is anticipated to witness significant growth in the coming years. With the increasing popularity of credit cards, banks are focusing on urban and semi-urban markets in order to increase their share in the market.
  • For SBI cards, the Credit Card industry has demonstrated a strong resilience as both card spends and new customer acquisitions have reached pre-COVID levels.
  • Increasing preference of consumers towards cashless transactions is likely to give a good growth boost to SBI cards.

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

  • The closing price of SBICARD was ₹ 958/- as of 23-March-2021.  It traded at 81x/ 45x/ 33x the consensus earnings estimate of ₹ 11.9/ 21.1/ 28.7 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1,139/- which trades at 40x the earnings estimate for FY23E of ₹ 28.7/-

 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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07 Mar

This week in a nutshell (March 1st to March 5th)

Technical Talks

NIFTY opened the week on 1st March at 14,703 and closed on 5th March at 14,938, it made a weekly gain of 1.6%. The index is trading below its 20DMA of 15,027, which might act as a resistance. On the downside, 10DMA of 14,894 might act as a support. The index might trade in the range of the above-mentioned levels before making a strong move on either side.

Weekly highlights

  • After three sessions of gains, the Market snapped for the last 2 days of the week as Nifty ended below 15,100, dragged by losses in metal, financial stocks amid weak global cues as bond yields rose again.
  • The NITI Aayog, which is in the process of selecting public sector units for privatisation, is likely to put out its first list, focusing on companies in non-strategic sectors, along with those that have got Cabinet approval for stake sale or are in the final stage of due diligence.
  • Saudi Arabia had decided to maintain its voluntary cut of 1 million barrels per day through April even after oil prices rallied over the past two months.
  • U.S. West Texas Intermediate (WTI) crude futures climbed 17 cents, or 0.3%, to $64.00. Brent crude rose 10 cents, or 0.2%, to $66.84 a barrel, but down from a high of $67.75 hit on Thursday. 
  • Foreign Institutional Investors (FIIs) continued to be net buyers in Indian equity of Rs 22,000 mn, but the quantum of inflows declined from the previous week of Rs 1,81,700 mn, which was due to the bulk deal of Bosch. Conversely, Domestic Institutional Investors (DIIs) continued to be net sellers with an increased net outflow of Rs 26,350 mn.

                                                                       Things to watch out

  • With the quarterly result season out of the way, market moves are reliant on macroeconomic developments & global markets.  
  • On March 10, RBI will purchase four government securities of different maturity dates aggregating to Rs 20,000 crore and sell three securities aggregating to Rs 15,000 using the multiple price auction method. The decision was taken after a review of current liquidity and financial conditions
By #WeekInANutshell 0 Comments Read more...
25 Feb

The next 2-3 years will be very good for the CV segment: Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 15,097 (+0.77%). Top gainers in NIFTY50 were Coal India (+8.6%), UPL (+7.3%), and Adani Ports (+5.9%). The top losers were ICICI Bank (-1.9%), Nestle (-1.4%), and Divis Labs (-1.4%). The top sectoral gainers were METAL (+3.9%), REALTY (+1.7%), and MEDIA (+1.3%) and sectoral losers were FMCG (-0.3%) and FIN SERVICES (-0.2%).

Excerpts of an interview with Mr Vinod Aggarwal, MD & CEO, Eicher Motors (EICHERMOT) with CNBC -TV18 dated 24th February 2021

  • Tata Motors, addressing auto analysts, gave very positive comments on the commercial vehicle (CV) industry saying it is likely to grow 36-38 per cent in FY22 and Mr Aggarwal, Eicher motors analyzed the demand trends.
  • This year first half was a washout. Based on this low base, there will be good growth next year.
  • Growth will be better than FY20 and it should be somewhere between FY19 and FY20. They are expecting the industry to do much better in FY22.
  • They are already at pre-COVID levels as far as the truck industry is concerned. Buses are down but hopefully, schools will be opening soon so next year it will be much better
  • He expects replacements to be very strong in the CV industry. Within two years, the company should reach its earlier peak ofFY19 or even cross that.
  • He expects that for the CV industry, the next two-three years will be very good because they have a lot of pent-up replacement demand.
  • The sentiment is positive. Since the economic sentiment is positive, people have started replacing their old trucks.
  • Electronic control units (ECU) shortage is one of the major supply constraints. They are trying to cope up and manage the situation.
  • The transport industry runs on economic growth therefore diesel price increase might increase freight levels and increase inflationary pressures.
  • Tippers performance is back to peak levels now and they have grown more than 20%.

 

Asset Multiplier comments:

  • Overall Industry growth is picking up in the January-March period for the two-wheeler industry, which has witnessed a recovery in the festive period from COVID-19 induced disruptions.
  • As economies start gaining momentum, the Indian CV industry is also picking up demand faster. January-March volumes are better than pre-covid levels.
  • Eicher Motors is targeting export markets and aiming at new product launches in the coming two years. ‘Make you own’ initiative which allows customers to customize the bikes is also gaining momentum especially in millennials.

 

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

  • The closing price of EICHERMOT was ₹ 2,554/- as of 25-February-2021.  It traded at 48x/ 30x/ 24x the consensus earnings estimate of ₹ 52.8/ 85.1/ 106 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 2,773/- which trades at 26x the earnings estimate for FY23E 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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22 Feb

Leisure occupancy sees demand boom but business occupancy still low: Lemon Tree

Update on the Indian Equity Market:

On Monday, NIFTY closed at 14,676 (-2.0%). Top gainers in NIFTY50 were Adani Ports (+2.8%), JSW Steel (+2.3%), and Hindalco (+2.0%). The top losers were Eicher Motors (-5.1%), M&M (-4.7%), and Tech M (-4.6%). The top sectoral gainers were METAL (+1.6%), and sectoral losers were MEDIA (-3.4%), IT (-2.9%) and REALTY (-2.8%)
Excerpts of an interview with Mr. Vikramjit Singh, President, Lemon Tree Hotels (LEMONTREE) with CNBC -TV18 dated 19th February 2021

  • The COVID-19 pandemic hit the hospitality sector hard and things are just starting to look up now.
  • The large corporates are the biggest laggards predominantly because the IT companies have not started travel; their employees are still working from home. Therefore, this segment has seen the slowest recovery.
  • However, the big surprise is the leisure/retail segment; they have not only recovered but today their retail contribution is about 115-120 percent of pre-COVID levels.
  • In tier-I cities occupancies are now catching up, they are roughly about 20 percent below pre-COVID level but the big dip is in the average room rate (ARR), the average rates today are still 40-50 percent below what they were for the same period pre-COVID so the revenue recovery has not happened. Tier-II is doing very well.
  • On the expansion front, Lemon Tree opened 5 hotels in the COVID fiscal and will open hotels in Coorg, Port Blair, Dehradun, Mumbai and other places.
  • In the COVID fiscal, they have opened 5 hotels; they opened hotels in Dwarka, Aligarh, Jhansi, Vijayawada and Goa.
  • So today, as things stand, they have about 8,300 rooms in 84 hotels across 51 cities and they have 2,200 room additions in the pipeline.

Asset Multiplier comments:

  • The most talked-about trend that is fast catching up in Resorts & Hotels is Work away from home, where guests experience a completely new and refreshing environment. As most of the corporates have extended WFH till the second half of 2021, this trend will be embraced by most working professionals.
  • The onset of COVID-19 and the subsequent travel restrictions and nation-wide lockdown, however, have had an unprecedented impact on the sector.
  • Upscale/Luxury Leisure and Branded Economy/Mid-market business hotels are expected to lead the recovery growth in the sector.

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

  • The closing price of LEMONTREE was ₹ 41/- as of 22-February-2021.  It traded at NM/ NM/ 215x the consensus earnings estimate of ₹ -1.9/ -0.8/ 0.2 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 40/- which trades at 209x the earnings estimate for FY23E of ₹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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16 Feb

Non-COVID business recovered, saw 40% pick-up – Apollo Hospital

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 15,313 (-0.01%). Top gainers in NIFTY50 were Power Grid (+6.3%), ONGC (+4.9%), and Tata Steel (+3.8%). The top losers were ICICI Bank (-2.3%), Axis Bank (-2.2%), and Eicher Motors (-1.6%). The top sectoral gainers were METAL (+2.9%), PSU BANK (+1.6%), and PHARMA (+0.5%) and sectoral losers were MEDIA (-0.8%), FMCG (-0.7%) and BANK (-0.5%)

Excerpts of an interview with Ms. Sunita Reddy, MD, Apollo Hospital (APOLLOHOSP)  with CNBC -TV18 dated 15th February 2021

  • Total hospital occupancy is at 63 percent. Out of these, 17 percent of the revenue is coming from COVID.
  • The non-COVID business has recovered, they have seen 40 percent pick-up in non-COVID work. There has been a 36 percent improvement in elective surgical work.
  • This has reflected in the average revenue per occupied bed (ARPOB) which was at Rs 38,000 in 2QFY21 moving up to Rs 40,100 in 3QFY21.
  • In terms of international patient inflow, it was barely 2 percent. Most of the international patients were from countries like Bangladesh and Myanmar. Definite improvement is expected from March when travel opens up.
  • The digital business peaked during COVID. They had done about 250,000 teleconsults during the first two quarters and in Q3 they are doing about 2,000 a day.
  • Many of the doctors are now coming back to the offices, they are seeing growth again in the OP.
  • They have seen 21 percent growth in the pharmacy business, with both the front end and the back end. Margins have been good at ~6.5 percent and this is after they added 150 stores in 3QFY21 and about 400 stores for the full year.  They are currently at 4,000 stores in the pharmacy.
  • Pharmacy business revenues have picked up by 16.4 percent and continue to grow. Margins continue to improve.
  • Going forward they are expected to see healthy margins because in the mature stores they are seeing margins of 9 percent.
  • They are still seeing strong growth in the diagnostic business in spite of tapering off of COVID.

Asset Multiplier comments:

  • Rapid expansion and maturity of older hospitals have kept overall growth higher. Health care technology investment and deals continue to provide opportunities.
  • The health care industry’s response to COVID 19 has been one of persistence and commitment, especially by front-line caregivers. The pandemic has significantly shifted industry trends and accelerated the pace of change.
  • Digitalization has become a major component in a sustainable healthcare model. Virtual care and telemedicine enabled the continuity of care during the recent health crisis, and these solutions are expected to continue growing in importance as patients value efficiency and convenience.

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

  • The closing price of APOLLOHOSP was ₹ 3,205/- as of 16-February-2021.  It traded at 348x/ 65x/ 44x the consensus earnings estimate of ₹ 9.2/ 49.1/ 72.8 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 2,898/- which trades at 40x the earnings estimate for FY23E of ₹ 72.8/-

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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