Author - Sharvari Joshi

12 Aug

Healthcare and hygiene portfolio has grown by 29% in Q1 – Emami

Update on the Indian Equity Market:
On Tuesday, NIFTY closed in the green at 11,322 (+0.5%). Top gainers in NIFTY50 were Zee (+5.2%), JSW Steel (+3.9%), and Axis bank (+3.9%). The top losers were Shree Cement (-3.9%), Titan (-3.6%), and UPL (-2.3%). The top sectoral gainers were MEDIA (+1.9%), PVT BANK (+1.7%) and METAL (+1.6%) and sectoral losers were PHARMA (-1.4%), IT (-0.5%), and REALTY (-0.5%).

Excerpts of an interview with Mr NH Bhansali, CEO, Emami with ET now dated 10th August 2020:

● April was impacted badly. They progressed well in May and in June they grew in single digit. The July trajectory is also good. They grew in double digits in July and they expect the growth to resume.
● On the international front also, while they have declined in the first quarter but in the second quarter, they expect to improve on the international front as well. They expect moderate growth in 2QFY21.
● The healthcare and hygiene portfolio has grown by 29% in Q1FY21 and it contributed around 43% of the turnover in the first quarter. While the summer brands and other brands including the male grooming all de-grew by 44%.
● This pulled down the overall growth which contributed around 57%. Going forward they expect good growth from the healthcare and hygiene products kind of sanitizers.
● new launches there in the healthcare and sanitizers like Boroplus Sanitizer, soaps, aloe vera gel, zandu immunity range, chyawanprash they all contributed around 5% of the turnover.
● Navratna and others were declining in the first quarter but now in June-July they have started recovering. Kesh King range was declining in April-May but cumulatively in June, the Kesh King range has been able to wipe out its losses.
● It is stable now, it has maintained its growth and they expect now the growth to come in in the second quarter. Summer brands have also now started picking up while the decline earlier was higher but in June-July the decline has been lesser.
● The gross margins have reduced by 230 bps and EBITDA margins has improved by 480 bps. The gross margin has been mainly because of the benign cost and they expect this kind of margins to continue.
● On the EBITDA level, they had taken many initiatives, right from reducing on the advertisements which was not required in the April as they were completely off air in April, May and June now gradually they are resuming some of the advertisements
● They have internally targeted to improve their costs by around Rs 80-100 crore in the next 12 months and they are well on the path and they would continue to achieve it.
● They have made 12 new launches in this quarter and which were all around health and hygiene and sanitizers and all. In the times to come, they are planning to get into the home hygiene products which may include disinfectants, toilet cleaners and bathroom cleaners and other things.
● Rural demand has picked up well, in fact, it is visible in the rural areas compared to the urban but there is no significant down trading on LUPs.
● They have initiated so many things, they have done digital marketing because their focus is more on addressing the consumers digitally without physical touch so while the retail and modern trade has been impacted, and they are exploring other channels also.
● They are doing a lot many initiatives by telemarketing, digital marketing, tele-calling for taking the orders and ensuring that the supplies are done on time. In fact, the E-commerce business has more than doubled in this first quarter despite such a decline and it is continuing to grow.

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

● The closing price of Emami was ₹ 337/- as of 11-August-2020. It traded at 34x/ 31x the consensus earnings estimate of ₹ 9.9/ 10.8 for FY21E/22E respectively.
● The consensus price target is ₹ 301/- which trades at 28x the earnings estimate for FY22E of ₹ 10.8/-
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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04 Aug

Regional lockdowns creating choppiness in operations – Mahindra Logistics

Update on the Indian Equity Market:

On Monday, NIFTY closed in red at 10,899 (-1.6%). Top gainers in NIFTY50 were Tata Motors (+6.9%), Titan (+3.6%), and Tata Steel (+1.6%). The top losers were UPL (-5.4%), IndusInd Bank (-3.7%), and HDFC Life (-3.7%). The top sectoral gainers were PSU BANK (+0.5%) and METAL (+0.3%) and sectoral losers were PVT BANK (-2.9%), BANK (-2.3%), and FIN SERVICES (-2.2%).

Excerpts of an interview with Mr Rampraveen Swaminathan, MD & CEO, Mahindra Logistics with ET now dated 3rd August 2020:

  • They had expected Q1FY21 to be a very difficult quarter as they saw the full impact of the national lockdown in April and a continuing impact in May and June as well, based on lockdowns in different parts and different states.
  • As a B2B business, they have seen very significant cessation of operations for many of their customers both in terms of services and manufacturing.
  • Despite that, there were a lot of positives as well for one of their efforts on cost reduction and cost management actually showed a lot of positive results. They were able to get a marginal profit (EBITDA) for the quarter.
  • A lot of work on cash flow management and receivables management resulted in strong positive cash flow operations in the quarter.
  • It has been three very different months and June was a much stronger month. In fact, June from a revenue and earnings perspective was better than April and May together.
  • They ended the quarter with some good momentum and it is something which they are hoping to leverage on in coming quarters.
  • The pandemic had two broad sets of challenges for them, the first one was on the supply side with shortage of trucks, drivers and with reverse migration of labour.
  • Towards the end of the quarter, they started seeing a very strong recovery at least in their operations but today, they have got 65% plus of their partner fleets back in operations and maybe 80% of their warehouses are now operating.
  • There are no significant challenges there but from a demand side which is the other set of challenges, some end markets have been obviously impacted more than others.
  • Over the next few months, they are expecting two-three things to rework positively for them. First they have seen a good trajectory or traction in order intake on the segments which are growing – e-commerce, FMCG, pharma and so on. They are hoping to gain some leverage from that.
  • The second thing is that they expect the farm sector to be doing better and to continue in the near term. That will play out positively for them.
  • The third thing is that they expect volumes in their existing operations to start coming back as customers start creeping up on operations, an automotives and discrete
  • There are a series of regional lockdowns which create choppiness in operations and demand and that is something which they have to work.
  • Local lockdowns definitely have a very large impact on enterprise mobility business because they are providing services to IT and IT enabled companies and large facilities on providing employee mobility.
  • On the transportation side of their business, a large part consists of line-haul which is really movement between states and that got impacted very significantly in the national lockdown. But in local lockdowns, that is not impacted so much.
  • The warehousing and value added services especially in terms of the work which they do for the e-commerce company or consumer company where they are providing distribution solutions, they see daily impact of volumes moving up and down because of local lockdowns.
  • Through the quarter they have paid all they employees fully as they have paid their third party associates as well through the entire lockdown but they did control a lot of other controllable discretionary expenses and those things at sites and otherwise allowed them to both offset the operating cost increases because of Covid and actually even more because they were able to create the headroom to preserve overall gross margins at a percentage level despite the stop in volumes.
  • He expects that some part of those benefits will continue through the rest of this year. There will be some impact as they try to scale up operations and as they launch new sites, but some of the learning and cost reductions will be more perennial and through the rest of this year as well.
  • They will have to infuse more working capital. As an asset light company they work closely with the partners and they will obviously have some rise in working capital but they hope to be able to manage and maintain the cash flow management initiatives they have launched in the last quarter.

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

  • The closing price of Mahindra Logistics was ₹ 299/- as of 3-August-2020.  It traded at 53x/ 25x/20x the consensus earnings estimate of ₹ 5.6/ 12.2/ 14.8 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 316/- which trades at 21x the earnings estimate for FY23E of ₹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.”

By Mahindra Logistics 0 Comments Read more...
23 Jul

Crude prices will continue to be less than $45 – HPCL

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in red at 11,132 (-0.3%). Top gainers in NIFTY50 were Axis Bank (+6.7%), Titan (+4.9%) and Power Grid (+3.6%). The top losers were Hero Motocorp (-3.3%), BPCL (-3.1%) and HUL (-3.1%). Top sectoral gainers were PVT BANK (+0.7%), MEDIA (+0.5%) and BANK (+0.4%) and sectoral losers were PSU BANK (-1.6%), AUTO (-1.3%) and IT (-1.1%).
Excerpts of an interview with Mr M.K.Surana, CMD, HPCL with ET now dated 22nd July 2020:

  • Demand had picked up quite sharply after June and it reached around 88% or so. Normally in the Q2 of the financial year, because of the onset of the monsoon, demand reduces generally on a tonnage basis. The same effect is being seen this July as well.
  • It is slightly aided by some of the localised lockdowns in Karnataka, Maharashtra and other states. That’s why demand has been lower on the diesel side. Petrol demand is good more or less.
  • It is still 84% of normal and the trend is in line with what happens every year in the second quarter of the year as soon as the monsoon sets in.
  • Last year the monsoon was slightly delayed and so if you see year on year, that will also have some impact and this time it is slightly early.
  • There has not been any substantial worrisome trend as such. Rather it has been a consistently improving trend as far as demand is concerned. The impact that is seen is only because of the monsoon and the local lockdowns.
  • Next month, it should rebound to June level. Beyond 90%, definitely it will take some time to reach 100% as industrial and construction activities pick up. That should happen in the third quarter of the year.
  • He has maintained this view for a long time that the oil refining and marketing companies did not get fully valued the way our markets work. There is a huge potential, huge value in terms of the asset base.
  • Total demand consists of two parts – one is essential requirements for normal transportation of the people, for agriculture and industrial use. There the price elasticity has not been seen in the past to any extent.
  • As far as exports are concerned, it anyway happens on international pricing and one should remember that even the domestic prices are aligned to international pricing and the exports or imports whatever happens on the international pricing.
  • HPCL projects are at a very advanced stage. They will be trying to complete major projects like Vizag refinery expansion or Mumbai refinery expansion in the next calendar year.
  • Every year they take up some new projects that they may prioritise depending on the situation, but as far as all the projects which are already onsite and under construction are concerned, they do not have a rethinking on that.
  • They are comfortable with the borrowing level, as of today, their debt to equity ratio is less than one and long-term debt is less than around Rs 23,000 crore. Even short term debt they have brought down substantially to around Rs 32,000 crore.
  • Indian fuel retailing was started by MNCs like Esso, Burmah Shell, Caltex etc. Some of these MNCs after nationalisation became PSEs. It is done globally and it was not vastly different in India as compared to other parts of the world.
  • As far as the demand front is concerned, 85-90% of the demand has already come. By the end of June, they had touched 91%. The onset of monsoon may cause some reduction in the diesel demand but it will pick up. On the demand front, it has shown a very smart and quick and V-shape recovery and they are very happy with that.
  • As far as the prices of crude are concerned, they have remained in the $40 range and they think that it will continue to be less than $45 because some of the shale players will start returning as they are comfortable with $40 as the breakeven price.
  • With the reasonable crude prices and with improving cracks demand recovery, he believes that they would do well.

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

  • The closing price of HPCL was ₹ 228/- as of 22-July-2020.  It traded at 7x/ 6x the consensus earnings estimate of ₹ 32.1/ 39.4 for FY21E/22E respectively.
  • The consensus price target of HPCL is ₹ 272/- which trades at 7x the earnings estimate for FY22E of ₹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.”

By HPCL 0 Comments Read more...
14 Jul

With growth, margins will also improve – TCS

Update on the Indian Equity Market:

On Monday, NIFTY closed at 10,815 (+0.4%). Top gainers in NIFTY50 were Tech M (+5.5%), Hindalco (+3.8%), and HCLT (+3.7%). The top losers were Power grid (-2.2%), Bajaj Finance (-2.1%), and HDFC Bank (-1.9%). Top sectoral gainers were IT (+1.7%), METAL (+1.5%), and FMCG (+1.3%) and sectoral losers were REALTY (-1.6%), PSU BANK (-1.6%), and FIN SERVICES (-1.3%).

Excerpts of an interview with V Ramakrishnan, CFO, TCS and Milind Lakkad, CHRO, TCS with ET now dated 10th July 2020:

  • 95% of our people are working from home and only 1% come to work for various reasons. It has been a change for everybody. It hasn’t been an easy cakewalk but they have done very different things.
  • Associate health and well being has been a paramount thing for them and has been a key factor in decision making.
  • They do everything while continuing to take care of associates’ health and ensure that they continue to be a happy organisation.
  • The aspiration of 26-28% margin is very much intact. Of course this pandemic has changed certain dynamics. So, the timing of when they will get back, is dependent on the recovery. They are confident of recovery in the coming quarters.
  • Recovery will be very segment and specific country driven, but they expect that to happen across many of the sectors.
  • Along with growth, obviously the margins will also be improving because in the current quarter, the reduction in the margins is directly related to the contraction in the demand and in the revenue.
  • While they were able to get back almost 300 bps outside of anything to do with employee cost but still they had a dip of about5% that is directly related to the drop in revenue so with improvement in the recovery, they will also see the improvement in margins.
  • The investment is driven by what is required to make sure that they are abreast of what is happening on the technology front to make sure that TCS people are equipped and in terms of what they can showcase to their So the investments have been going on and the balance sheet is strong.
  • They will continue to invest in research and innovation, in building capabilities at scale among the employees and also in labs and customer experience areas.
  • Going forward, they will continue to get all 40,000 offers they made in the campuses in India and that will go through from this mid-July though the year. The engagement with the fresher recruits and everything else is on very actively for the last three months and they will honour all of those offers.
  • They have to be conscious that some of the sectors have been badly affected and there is an expectation from some of the customers and some of the sectors for support. They have been very supportive and we have looked at it in the contextually and depending on the relationship, it is a very mutually beneficial relationship.
  • Their dividend or return policy has been 80% to 100% of free cash flow. So, there is no departure from that policy. In the last couple of years, they have been very close to 100% or even slightly higher. They will stay within that range.
  • Customers’ ability and willingness to adapt to the Work from home model and to be able to connect people from wherever they are. So, the location independence of this model will change the dynamics for everybody.
  • They always thought that the most important meetings have to happen in person and that is not the case anymore. They just come together, discuss and have a chat and then the two CEOs connect in a jiffy. Those are big things that will help establish a deeper relationship with customers going forward.

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

  • The closing price of TCS was ₹ 2,222/- as of 13-July-2020.  It traded at 27x/ 23x the consensus earnings estimate of ₹ 82.6/ 95.6 for FY21E/22E respectively.
  • The consensus price target of TCS is ₹ 2,088/- which trades at 22x the earnings estimate for FY22E of ₹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 IT, TCS 0 Comments Read more...
03 Jul

We plan to raise Rs 6,000-8,000 crore in FY21 – Canara Bank

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green at 10,552 (+1.2%). Top gainers in NIFTY50 were M&M (+6.4%), HEROMOTOCO (+5.2) and TITAN (+3.8%). The top losers were AXISBANK (-1.9%), UPL (-1.0%) and VEDL (-0.9%). Top sectoral gainers were Auto (+2.8%), IT (+2.6%) and Metal (+0.6%) and sectoral losers were Bank (-0.1%) and PSU banks (-0.1%).

Edited Excerpts of an interview with Mr. LV Prabhakar, CEO, Canara Bank Ltd with Financial Express dated 2nd July 2020:

  • They have recovered from written-off accounts about Rs 1,470 crore, which is nearly 13% higher. Apart from that, the CRAR has been maintained at 13.65% and gross NPAs have been brought down by 62 basis points to 8.21%. PCR has increased by 773 bps to 75.86%.
  • This time, sufficient provisioning for all the expected risks has been made. For staff expenses, they have extra provision of about Rs 1,100 crore. NPA provisioning, they have set aside about Rs 11,596 crore for the year and for the quarter, they have made about Rs 5,300 crore.
  • As Syndicate Bank is getting merged with them, they have made Rs 340 crore extra provisioning.
  • In Q1FY21, they declared Dewan Housing Finance as a fraud. They have taken the impact in Q4FY20, which is about Rs 497 crore of extra provisions.
  • They have done extra provisioning because in the Covid scenario, they want to make their balance sheet strong. So wherever possible, they have proactively made provisioning. Simultaneously, they have taken care that CRAR did not get affected.
  • In the first month of Q2, they will have a board meeting, in which they are planning to get an approval for Rs 6,000-8,000 crore of capital. As of now, their capital ratios are adequate.
  • In order to factor in growth and any probable effect (of Covid), they are planning to go for a capital raise. This will be raised in Q3 or Q4 of FY21 in the form of or maybe AT-I (additional tier-I) bonds.
  • There is a risk there because now nobody wants to subscribe to AT-I bonds after some problems with another bank , or they could go for some kind of tier-II issue. In March 2020, they raised Rs 3,000 crore at 7.12% in tier-II category.
  • In terms of the number of borrowers, 19% and in terms of amount, 17% of the borrowers have availed moratorium.
  • Some people have preferred to pay back. In the MSME segment, about 38% of the people have opted for it, whereas in retail it is only 5%. Some of them are housing loans and a few for vehicle loans.
  • Whatever deferment is available is going to be for accounts which have defaulted after March 25. Before that the cases that came can be taken forward.
  • They expect that about Rs 3,700 crore will be recovered from NCLT in FY21. The main account expected (to be resolved) is Bhushan Power and Steel.
  • With Canara Covid support and the 100% government-guaranteed emergency credit line, in the last three months they have already disbursed about Rs 91,600 crore.
  • In FY21, they expect growth ranging around 7-8%. There will definitely be demand from retail for housing and vehicle loans. With all the support that MSMEs, there should be traction there, too.
  • NBFCs always need money because they invest further. As soon as the infrastructure side picks up, there will be demand from corporates as well.

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

  • The closing price of Canara Bank Ltd was ₹ 105/- as of 02-July-2020.  It traded at 0.3x/ 0.3x the consensus book value of ₹ 337 /336 for FY21E/22E respectively.
  • The consensus price target of Canara Bank is ₹ 127/- which trades at 0.4x the book value of ₹ 336/-

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 Bank, Canara Bank 0 Comments Read more...
24 Jun

We expect many M&A opportunities in our subsidiary businesses- HDFC

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 10,471 (+1.5%). Top gainers in NIFTY50 were Bajaj Finance (+9.3%), Larsen & Toubro (+6.7%) and IndusInd Bank (+6.5%). The top losers were Reliance (-1.4%), Bharti Airtel (-0.6%) and VEDL (-0.1%). Top sectoral gainers were PSU BANKS (+3.4%), REALTY (+2.9%) and PVT BANKS (+2.7%) and there were no sectoral losers.

Excerpts of an interview with Mr. Keki Mistry, CEO, HDFC with Economic times dated 22nd June 2020:

  • Over the next one-and-a-half to two years, a number of opportunities will come up to make investments. They will look at good M&A transactions not just in the mortgage business but also in their subsidiaries – be it life insurance, general insurance, or AMC.
  • If such an opportunity does come up, then they do not want to start looking at whether they have adequate capital or not. That’s why at this point they want to take an in-principle approval from shareholders, which would take about five to six weeks roughly.
  • After they get the approval, they will be ready with some plan; whether they would do equity or do some other instrument which will convert into equity at a future date.
  • Today the plan is that out of that Rs 14,000 crore, some part will be pure equity and some part will be an instrument convertible into equity at a future date – could be two years later, three years late.
  • One must also remember that every rupee they invest into their subsidiaries reduces resources from a tier one point, and therefore, the need for capital at that point of time. It impacts their capital ratios.
  • When they invest, say, Rs 5,000 crore into a subsidiary, that sum gets deducted straight away from their net worth and capital for the purpose of calculating capital issued. So that is the only reason why they are looking at capital raising.
  • Whenever they believe the opportunity is right and it is a good time to go to the market that is the time they will reach out to the market. Their capital adequacy as of March 31, 2020, for tier one capital was 16.6% and total capital was 17.7%.
  • Housing loan is a lot more secure, than a car loan or a consumer loan or a personal loan. The reason being that is the advance has already been paid for a property, which always has a value.
  • This is obviously a much greater crisis than we had in the past, but what we had in 2008-2009 was also an economic crisis and to some extent in 2002, 1992, 1998 and at various other points of time.
  • In the short term, one might see non-performing loans inch up, but once normalcy comes back, non-performing loans will come back to normal levels. Something similar will happen this year also.
  • Recovery is on track, which has been a lot faster than what he would have expected it to be. The entire month of April was lockdown, offices were shut and there was very little business that they could do. They could do some disbursements, but that was for loans taken earlier.
  • What they have seen from the second half of May is that with every passing day, loan disbursement is getting better and better compared with what it was in the previous year. That trend has fortunately remained.
  • Business is picking up, disbursements are picking up. As there was little business for one-and-a-half months, they are still not close in their average.

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

  • The closing price of HDFC Ltd was ₹ 1,843/- as of 23-June-2020. It traded at 3.5x/ 3.2x the consensus book value of ₹ 529 /571 for FY21E/22E respectively.
  • The consensus price target of HDFC Ltd is ₹ 1,982/- which trades at 3.5x the FY22E book value of ₹ 571/-.

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 HDFC, Housing Finance 0 Comments Read more...
16 Jun

Stake sale in SBI Life done only to meet minimum public shareholding requirements- SBI

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 9,814 (-1.6%). Top gainers in NIFTY50 were GAIL (+3.7%), Wipro (+2.6) and HCLT (+2.5%). The top losers were IndusInd Bank (-7.2%), Axis bank (-4.5%) and Tata Motors (-4.4%). The three sectoral gainers were PSU Banks (+1.4%), Media (+0.9%), and Pharma (+0.1%). The sectoral losers were Pvt bank (-3.8%), Bank (-3.6%) and Realty (-3.0%).

Edited excerpts of an interview with Mr Dinesh Kumar Khara, MD, SBI with Economic times dated 12th June 2020:

  • Stake sale in SBI Life has not been done just with the intention of shoring up capital with the bank. It is more from the point of view of meeting the minimum public shareholding (MPS) requirement. They are under commitment to offload another 2.1% by the end of September.
  • The current shareholding is 60% and post divestment of another 2.10% will be at 55.50%.
  • As far as the core parameters are concerned, SBI Life Insurance is doing very well. They are focusing on the protection part and that is also doing very well.
  • There is no plan as of now to offload anything more than this in SBI Life for the time being.
  • The insurance sector is still under-penetrated and there is a huge opportunity for a group like SBI to offer the insurance products for a large population across the length and breadth of the country. So they have a huge opportunity.
  • In the ULIP space, for the last couple of years, they have started building up a sharper focus for the protection products and that is doing very well.
  • For the past many years when the ULIP was getting sold since they had a larger component of ULIP on the debt side, they did not have any challenges on the debt side of the ULIP.

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

  • The closing price of SBI Ltd was ₹ 174/- as of 15-June-2020.  It traded at 0.7x/ 0.6x the consensus book value of ₹ 255 /280 for FY21E/22E respectively.
  • The consensus price target of SBI Ltd is ₹ 272/- which trades at 1.0x the FY22E book value of ₹ 280/-

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 Bank, SBI 0 Comments Read more...
04 Jun

It is time to really transform the agriculture sector – ITC

Update on the Indian Equity Market:

On Wednesday, NIFTY closed above 10,000 at 10,061 (-0.83%). Top gainers in NIFTY50 were M&M (+5.4%), Bajaj Finance (+3.2%) and Kotak Bank (+3.1%). The top losers were Zee (-2%), NTPC (-1.9%) and Infratel (-1.9%). Top sectoral gainer was PSU BANK (+5.2%), REALTY (+3.1%) and BANK (+2.0%) and sectoral losers were IT (-0.4%), and METAL (-0.2%).

Excerpts of an interview with Mr Sanjeev Puri, chairman & MD-ITC Ltd with Livemint dated 2nd June 2020:

  • We need to really accelerate the economic growth in areas that create large livelihoods. There is no other sector in India, like agriculture, where nearly 50% of the livelihoods are engaged in. India needs to really transform the agriculture sector.
  • Government has moved to amend the nearly six-decade-old Essential Commodities Act to bring better price realization for farmers and to attract investments into the farm sector.
  • The government has laid the foundation for some transformative reforms, by providing alternative market access to farmers and the modification to the Essential Commodities Act.
  • These are powerful tools, which over time, will bring the buyers and sellers of agri-produce close and enable a lot of collaboration.
  • More competitive value chains in the farm sector and investments in food processing will ensure enormous job opportunities.
  • He believes that India needs to go the whole hog on value addition there, need to improve the productivity of the agriculture value chains, we need to create a strong ‘phygital’ (a physical and digital) system to empower the farmers and connect them to markets.
  • By creating a very competitive value chain, with a lot of focus on value addition, India will be able to take a bigger share of the global trade in food processing and agriculture.
  • Agriculture is nearly half of India’s workforce. However, the quality of earnings there is definitely on the lower side. They actually need to improve the quality of earnings by improvement in productivity, in the quality of produce, get into pesticide-free production, get into organics, get into horticulture, which raises the incomes. They need to move forward as far as processing is concerned and add a lot of value to agri produce.
  • The central/state governments and the industry need to work together to bring the migrant labourers back from their villages.
  • Corporates themselves are under pressure during this time of the pandemic, because of the stalling of economic activities. This is the time when they have to show enormous amounts of compassion.

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

  • The closing price of ITC Ltd was ₹ 197/- as of 3rd June 2020.  It traded at 16x/ 14x the consensus earnings estimate of ₹ 12.1/ 13.8 for FY21E/22E respectively.
  • The consensus price target of ITC Ltd is ₹ 237/- which trades at 17x the earnings estimate for FY22E of ₹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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26 May

Over A Third of NBFC Loan book under Moratorium – Edelweiss

Update on the Indian Equity Market:

On Friday, NIFTY closed in the red at 9,039 (-0.74%). Top gainers in NIFTY50 were ZEEL (+7.1%),
M&M (+4.4) and CIPLA (+3.3%). The top losers were AXISBANK (-5.2%), HDFC (-5.1%) and
BAJAJFINSERV (-4.6%). Top sectoral gainers were IT (+1.4%), Media (+1.2%) and Pharma (+0.8%) and
sectoral losers were Fin service (-3.1%), PVT bank (-2.8%) and Bank (-2.6%).

Excerpts of an interview with Rashesh Shah, CEO, Edelweiss group with Bloomberg dated 20th May 2020:

  • Mr Shah said, “For us and for most NBFCs, about 35-38 per cent of the customers have availed of the moratorium. For the last 18 months, NBFCs have been squeezed for liquidity. Ironically, when we entered January 2020, I felt that liquidity had now been managed. And then Covid-19 happened.”
  • NBFCs have been coping with a liquidity crisis ever since the collapse of the IL&FS Group in 2018.
  • With the Covid-19 pandemic amplifying the economic slowdown, NBFCs are expected to face liquidity and solvency strains again. Moody’s Investors Services expects the moratorium to eventually weaken asset quality and add to liquidity stress.
  • April has been extremely challenging for NBFCs from a liquidity perspective. That was particularly because, for NBFCs, the moratorium was a one-way ride. While they had to offer moratoriums to their own customers, they themselves did not receive similar relief on repayments from banks—sparking concerns of asset-liability and cash-flow mismatches.
  • Non-bank lenders are continuing to repay their loans as scheduled. Most NBFCs have decided not to ask for a moratorium from banks and instead ask for fresh loans, as fresh funding can come on new terms and with a lot of specificity as to what you need.
  • Mr Shah expects the company to pay back Rs 4,000 crore to banks as part of its normal repayment schedule. Their ask is they get these funds back as long-term repo operation bonds, a loan or some other form so that they can maintain their liquidity reserves.
  • Mr Shah said Edelweiss, at any point, maintains at least Rs 6,000-8,000 crore of liquidity reserves. Over the last 18 months, the company has kept between 14-20% of its borrowings as liquidity reserves. That would be around 1.5-2.5 times their three-month repayments, Shah said. “We have been aiming for at least 2 times the three-month repayment as liquidity reserve and banks have seen that most NBFCs have reserves that will last at least till the end of July.”
  • Despite the government’s initiatives for the NBFC sector, Mr Shah believes that non-bank lenders have been treated somewhat unfairly. Increasingly NBFCs have been curtailed in what they can do and cannot do.
  • “The problem NBFCs are grappling with is asset-liability mismatch, when suddenly the commercial paper market and debt market closed down then the bank moratorium issue has come about, all this creates a lot of asset-liability mismatch risk.”, he added.
  • Someone in the system needs to take the ALM risk,” he said. “Banks can take it because they have the RBI backstop. But in the last 18 months, we said NBFCs cannot take it, now we say mutual funds cannot take it, then who will take that risk?”
  • Edelweiss also expects some amount of increase in stress and credit costs. However, since the company does not have a significant retail portfolio, it expects the risks to be limited. Credit cost was at 2% and then they had upped it to 4-4.5% of the book. It will now go to 5%.
  • For the industry though, retail loans will see some stress in the near-to-medium term. Long term, collateralized loans will not see much of an impact. Short term unsecured loans will see a lot of impacts.

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

  • The closing price of EDELWEISS was ₹ 42/- as of 22-May-2020.  It trades at 0.5x/ 0.4x its book value of ₹ 90.2 /100.0 for FY21E/22E respectively.
  • The consensus price target of EDELWEISS is ₹ 99/- which trades at 1.0x the book value of ₹ 100/-

 

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14 May

Will focus more on secured loans, as it looks to diversify loan book says Bandhan Bank’s Chandra Shekhar Ghosh

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 9,383 (+2.0%). Top gainers in NIFTY50 were ZEEL
(+7.7%), Axis Bank (+7.0%) and ULTRACEMCO (+6.4%). The top losers were Nestle (-5.2%), Sun
Pharma (-2.2%) and Bharti Airtel (-1.1%). Sectoral gains were supported by Banks. Top sectoral
gainers were PSU Banks (+6.1%), Bank (+4.1%) and PVT Bank (+3.9%) and sectoral losers were
Pharma (-1.1%) and FMCG (-0.7%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, CEO, Bandhan Bank Ltd with Financial
Express dated 13 th May 2020:

● Bandhan Bank expects around four weeks could be needed for normalisation of its
microfinance collections after the countrywide lock-down is lifted
● For microloan, 100% loan moratorium in value opted for April as they could not meet their
microfinance borrowers for collections due to the lock down.
● Around 79% of their microfinance borrowers have an average deposit balance of around Rs
3,070, which is equivalent to over four weekly instalments.
● Around 87% of their housing loan EMIs had come in April, while 65% (in value) of SME
instalments had come during the month. Around 41% (in value) of NBFC-MFI’s instalments
had been paid.
● They have started operations in microfinance business with opening offices in the green
zones across the country. They have disbursed some microfinance loans, though the amount
is very small.
● They will disburse more loans to micro-credit customers if they need because they know
their credit history for a long time. They have not yet started fresh disbursement in the non-
micro-credit sector (after the lock down is imposed).
● After restarting the operations, customers will look into their cash flow conditions.
Depending on that they will take a call on fresh loans.
● The faster the lock down is lifted, the faster they will get back to the pre-lockdown period in
terms of collections from different sectors. Until that happens there will be requirements for
supports from the RBI and the government. The loan moratorium has helped.
● Going forward, they would like to go for more diversification of their loan book, more
secured loan book than the current book.
● As of now, around 62% of their loan book is micro-credit. They would like to be more focus
on affordable housing and MSME sectors. Also, they would like to go for more geographic
expansion across the country.

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

● The closing price of Bandhan Bank Ltd was ₹ 254/- as of 13-May-2020.  It traded at 2.3x/ 1.9x
the consensus earnings estimate of ₹ 111 /135 for FY21E/22E respectively.
● The consensus price target of Bandhan Bank Ltd is ₹ 316/- which trades at 2.3x the book value of
₹ 135/-

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 advisers to determine the merit, risks, and suitability of the information provided.

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