Author - Sharvari Joshi

20 Jan

Repayment rates for all our loan portfolios very healthy: Chandra Shekhar Ghosh, Bandhan Bank

Update on the Indian Equity Market:

On Friday, NIFTY closed lower at 12,352. Among sectoral indices NIFTY Pharma (+1.7%), NIFTY Auto (+0.4%), NIFTY Media (+0.4%) closed higher. NIFTY Bank (-0.8%) and NIFTY Pvt Bank (-0.8%) were the losers. The biggest gainers were Bharti Airtel (+5.5%), Dr. Reddy (+3.0%) and Reliance (+2.8%) whereas Infratel (-11.1%), IndusInd Bank (-2.6%), and GAIL (-2.1%) ended with losses.

Excerpts from an interview of Mr Chandra Shekhar Ghosh (MD & CEO), Bandhan Bank with Economic times dated 15-01-2019:

  • There are two factors for profit growth; one is that they have controlled the non-performing assets. The repayment rates for all their loan portfolios have been very healthy which contributes directly to the interest income.
  • The second factor is their reach in rural areas, which at 70% while other private banks which have average deployments of 27%. Most of their business is in areas where costs are minimal, which is an advantage for them.
  • In his visits to most of their rural centres, he did not see any impact of the slowdown. There are talks at the top level, but at ground level, it is totally different.
  • They were a bit conservative in growing their books in the first three quarters. According to him, the next quarter the growth will normalize because the last quarters are generally strong.
  • They have taken a small portion of the reserves (₹200 crore) for additional provisioning due to political uncertainty as there have been talks of political unrest.
  • Normal repayment rates are above 98% on microfinance loans while in Assam it is over 99%. Three weeks ago, the repayment rates dipped to 78% in Assam because people couldn’t reach banks due to roadblocks and curfews. Within two weeks, it came back to above 93%.
  • About 16% of their microfinance loan book is in Assam. In some corners, there has been some political turmoil. They have made the provisions.
  • Penetration of housing loans is still low. They see opportunities in this segment.
  • MSME is a good market. However, there needs to be proper documentation by these businesses for banks to gauge repayment abilities and offer credit. Once awareness of these important aspects of documentation is spread, it’ll turn into a good opportunity.

Consensus Estimate (Source: market screener and Investing.com website)

  • The closing price of Bandhan Bank as on 17-January-2020 was ₹ 481/-. It traded at 4.9x / 3.9x / 3.2x the consensus Book Value for FY20E / 21E / 22E of ₹ 97.5/ 123.0/ 151.0 respectively.
  • Consensus target price of ₹ 641/- implies a Price to Book multiple of 4.2x on FY22E Book Value of ₹ 151/-

By Bandhan Bank, Bank 0 Comments Read more...
10 Jan

‘Biocon optimistic about hitting $1 billion in revenue by FY22 on back of new launches’ – Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 12,025 (-0.2%). Among the stocks, Bharti Airtel (+3.1%), Yes Bank (+2.2%) and TCS (+2.15%) were the gainers. Eicher Motors (-4.3%), Coal India (-2.5%), and LT (-2.2%) were the top losing stocks. IT (+0.4%) and FMCG (+0.1%) were the sectoral gainers. All the sectors ended in the red.

‘Biocon optimistic about hitting $1 billion in revenue by FY22 on back of new launches’ – Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon

Excerpts from an interview with Kiran Mazumdar Shaw, Chairperson and Managing Director- Biocon published in Livemint on 08th January 2020:

  • They would get a benchmark valuation through some private equity investment before they take it to the market for an initial public offering (IPO) and according to her this is the first step where True North has invested in Biocon’s Biologics and they set a base level benchmark valuation.
  • They might raise little more private equity prior to the IPO. This gives them an idea of where they believe they can unlock the value in terms of Biocon Biologics in the next few years.
  • They have been in discussion with several private equity forums and of course True North has been first of the block and they will be socializing and entertaining other investment opportunities from other private equity firms.
  • In 2020, hopefully they will see private equity funding complete before they go for an IPO. The plan is obviously to invite private equity and use it for many of their current funding needs.
  • They have set up a very expensive biologics facility. So private equity funding will actually come in very handy instead of raising extra loans, debt finance.
  • They plan to extend the private equity funding to $200-300 million or more levels and True North is expected to take up additional stake along with others.
  • The opportunities are very well marked out, and she feels optimistic about hitting the target of $1 billion of revenue in biologics by FY22.
  • They are now in the US market with both Trastuzumab and Pegfilgrastim. Both have had pretty strong entries.
  • They have also got Glargine and Bevacizumab that will make an entry into the market by FY22 and we also expect insulin Aspart to be in the US market by that time.
  • There are many launches that are planned by FY22 and she believes that they have worked out a fairly conservative kind of metrics to get them to that FY22 billion dollar target. So that is why they remain quite confident that they will be able to hit that target.
  • She believes that they have a very robust pipeline; they have 28 molecules, either in the market or under development. They have just commissioned first expansion of their very large biologics facility in Bengaluru.
  • Biocon has to be viewed as a balanced portfolio with small molecules, biologics and research services and those who want a pure play investment opportunity in either biologics or research services can opt for either Syngene or Biocon Biologics. She thinks they have made it into an interesting investment opportunity by structuring it this way.
  • Biocon will continue to be a very strong performer considering the fact that it intends to have majority stake in both Syngene and Biologics.
  • As capex needs of biologics business are very high both in terms of manufacturing capacity as well as R&D investment, they will use the funding across the board.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon Ltd was ₹ 282/- as on 08th January-20. It traded at 37x/ 28x/ 21x the consensus earnings estimate of ₹ 7.5/ 10.1/ 13.2 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 294/- which implies a PE multiple of 22x on FY22E EPS of ₹ 13.2/-
By Biocon, Pharmaceuticals , , , 0 Comments Read more...
31 Dec

‘Hindustan Unilever’s offer to pay tax benefit amount back to the government was unprecedented’

Update on the Indian Equity Market:

On Monday, Nifty closed 0.1% higher at 12,261. Among the stocks, Tata Motors (+4.3%), Eicher Motors (+2.6%) and UPL (+1.8%) were the gainers. Yes Bank (-1.2%), ICICI Bank (-0.9%), and SBI (-0.8%) ended in the red. Auto (+1.5%), Metal (+1.2%) and Media (+0.7%) were the top sectoral gainers. PSU Banks (-1.2%) was the top loser.

Excerpts from an interview with Mr Sudhir Sitapati, Executive Director:Foods & Refreshment, Hindustan Unilever Ltd

  • HUL has been around for 100 years and there have been major ups and downs. So regardless of what the situation is emerging, every year is different in India. It is not unique to this year or last year. Every year has its challenges, but HUL has always got some trick up its sleeves somewhere to compete in the market.
  • Taxes on a lot of products were reduced with GST but they were not able to implement the price reductions on the day on which the taxes were reduced because they had stocks in the factory, in the warehouse and they, cannot be transporting stocks all over this country.
  • What HUL did was it calculated the tax benefit that it would get that it could not pass on to the consumers and voluntarily Sanjiv Mehta, chairman, offered to pay that amount to the government.
  • It was meant to be passed on to the consumers. As they couldn’t pass it on to the consumers and what they couldn’t pass on doesn’t belong to them is what they thought and it goes back to the government.
  • Through the history of HUL, it has balanced between top-line growth and bottom-line growth depending on the circumstance.
  • HUL is famous for being a marketing powerhouse. What is less known about HUL is that it’s a cost powerhouse. As long as there is cost, it’s their job to go after it. Margins are a consequence of that.
  • The company’s philosophy has been to chase consumer value and to do it in the most efficient manner and they reckon that fixed costs are roughly half the cost and half the costs are variable. So the more you grow volumes the more your margins expand.
  • The fundamental reason for GSK consumer acquisition is different. The real reason is that the HFD category’s penetration is 25% if we take the weighted average penetration of HUL today and it goes back to the question on what the mix of growth for HUL is. Sometimes it has been top line, sometimes it has been bottom-line. If we take categories and their penetration on one side and the growth on the other, the general rule of thumb in consumer goods marketing is that the lower the penetration, the faster the growth.
  • In the ’90s when their personal products were the engine of growth, they were all 25-sub 30% penetration. Now all those categories are 80-90% penetration. So the primary thing that GSK does is it takes down the weighted penetration.
  • It is not about getting extra distribution, it is not about the cost-saving. All that will happen. It is about the fact that the weighted average penetration of HUL will come down with such a large category. That is the real reason for GSK acquisition.
  • HUL has been doing extremely well for the last decade at least and the milestones or the goals that they have continued to remain the same. They continue to grow fast, markets have ups and downs. This is not the first down or up they have seen in the market. So life is normal for them.

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

  • The closing price of HUL was ₹ 1,939 /- as of 30th December 19. It traded at 58x/ 49x/ 42x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.2/39.7/46.0 respectively.
  • Consensus target price of ₹ 2,137/- implies a PE multiple of 46x on FY22E EPS of ₹ 46.0/-.

By Consumer, FMCG, HUL 0 Comments Read more...
19 Dec

Increase in the average rates not significant, says Indian Hotels CEO Puneet Chhatwal

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 0.5% higher at 12,225. NIFTY50 gainers includes M&M (+3.6%), Sun Pharma (+2.5%), and JSW Steel (+2.1%). NIFTY50 losers includes Tata motors (-2.9%), GAIL (-2.1%) and Grasim (-1.9%). Pharma (+1.2), and Media (+0.8%) were the top sectoral gainers. PSU Banks (-1.9) and Media (-0.4%) were the only losing sectors.

Excerpts from an interview with Mr Chhatwal, CEO, Indian Hotels. The interview was published in Livemint dated 18th December 2019

  • IH has a lot of last-minute pick-ups and till now the demand has been holding quite well. The volumes are okay. What has not done so well this year is the increase in the average rates.
  • IH has come from such a low base and there has been the GST reduction since 1st October, but the rate increases are not as evident as all of them would like to see.
  • Weddings are recession proof so weddings happen and they happen this time of the year, so they do fill-up the hotels.
  • Similar is the case in all those religious circuits that they are strong in. They just opened hotel in Tirupati, so if people have to go to Tirupati they will go to IH. According to him, the unrest in the North-East or in Delhi won’t have an impact on this kind of business.
  • Their backbone is really the Taj brand and on the luxury segment, whether it is chauffeur driven cars or it is hotels, disruption has not really played a significant role. They announced the opening of the 50th Ginger and they have repositioned the Ginger brand.
  • This year started with the terror attack in Sri Lanka. They have three properties there so they went down. Colombo has bounced back quite well, Bentota has not. It is hopefully coming because now it is the season time. The year before that there was the political unrest in Maldives.
  • London has been very strong, New York and  San Francisco has been strong. Cape Town has problems or challenges both politically as well as with water availability. If you have a larger portfolio, large footprint, it balances out.
  • Opening hotels is definitely on their agenda. They have guided that IH will open a hotel a month, they are ahead on that too. They will open 12 hotels this year and this number may even increase to more than a hotel a month across all IH brands.
  • Their own capex has been limited to either renovating their most iconic asset in Delhi, the Mansingh, or bringing to life in 3-4 months the Connaught and that is where IH is putting in capex. Otherwise, it is normal capex, which is 4-5% of total revenue.
  • When IH builds new destinations like they built Goa as a destination 40-50 years ago, it took 3-4 years but then now everybody breaks even in Goa very fast. Now they are doing the same with Andaman with Havelock.
  • They are actually at 19% EBITDA margins for this year, year-to-date and the second half is more important. One is that 60% of revenues come from there and the margins are much higher in the second half.
  • IH is definitely looking at a further improvement and improvement has been almost 600 basis points in the first half so that is very positive news. 

Consensus Estimate (Source: market screener website)

  • The closing price of Indian hotels was ₹ 146/- as of 18-December-19. It traded at 42x/34x/29x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 3.5/4.3 /5.1 respectively.
  • Consensus target price of ₹ 187/- implies a PE multiple of 37x on FY22E EPS of ₹ 5.1/-

By Hotels, Indian Hotels 0 Comments Read more...
10 Dec

Demand has been quite decent: Subbu Subramaniam, Chief Financial Officer, Titan Co. Ltd

Update on the Indian Equity Market:

On Monday, NIFTY50 closed -0.13% higher at 11,936. NIFTY50 gainers includes BPCL (+2.2%), Axis Bank (+2.1%) and Adani Ports (+2.0%). NIFTY50 losers includes TCS (-3.0%), HCL tech (-1.6%) and Cipla (-1.3%). Auto (+0.8%), Metal (+0.5%) and Financial Services (+0.4%) were the top gainers and Realty (-1.6), IT (-0.9%), and Media (-0.8%) were the top losing sectors.

Excerpts from an interview with Mr. Subbu Subramaniam, CFO, Titan Co. The interview was published in Livemint dated 05th December 2019.

  • Titan has embarked on Omni channel in five flagship stores in Bengaluru. They are planning to adopt Omni channel across all their divisions. Their websites are done; their e-commerce platforms are quite robust now.
  • The Omni part has just about started; they are starting with the watch division. They have started it with Bengaluru, but this could get rolled out fairly quickly.
  • Even as they start rolling out for the watch division across the country, they may  start in a couple of months in Tanishq, as well in jewelry division.
  • So, Omni is going to be the way they will all do business. People can look at a product anywhere, whether it is online or offline, and choose to take the goods from anywhere. So, that is the strategy, it is more of an enabler.
  • Jewelry margins depend to a large degree on top-line growth, because that is where economies of scale work and the operating leverage kick in. On a gross margin basis, they are generally in the same ballpark as they have been.
  • As they stand right in the middle of the quarter, he restrained from giving any number at this point in time, but EBIT should generally, be in the ballpark of growth – margins that we have been having in the financial year.
  • Demand has been quite decent. November itself has not been bad. Despite Diwali being a little early, demand has been generally fine. Of course, they also had more promotions, which was required under the circumstances. The wedding season has been quite decent.

Consensus Estimate (Source: market screener, Investing.com website)

  • The closing price of Titan Co. was ₹ 1,175/- as of 09-December-19. It trades at 68x/ 49x/ 41x the Consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 18.7/ 23.9/ 29.0 respectively.
  • Consensus target price of ₹ 1,216/- implies a PE multiple of 42x on FY22E EPS of ₹ 29/-

By FMCG, Titan, Uncategorized 0 Comments Read more...
29 Nov

TeamLease Services Ltd- Telecom should be back in 4-6% profit range from Q1FY20

On Thursday, NIFTY50 closed 0.44% higher. NIFTY50 gainers includes Infratel (+14.2%), UPL (+5.5%) and JSW Steel (+4.2%). NIFTY50 losers includes Zeel (-2.5%), Hero Motocorp (-2.1%) and HDFC (-1.2%). NIFTY Auto (-0.3%) was the only losing sector while NIFTY PSU BANK (+3.4%), NIFTY Metal (+1.9%) and NIFTY Realty (+1.1%) were the top gaining sectors.

Excerpts from an interview with Mr. Ravi Vishwanath, the Chief Financial Officer of TeamLease Services. The interview was published in Livemint dated 27th November 2019.

  • According to Mr Vishwanath, things are looking better. While they expected the previous quarter to come in at the same 20% range as the usual growth is, they came in a tad short at 16%.
  • He believes that between Q3 and Q4 they should be able to get to their targets. They will also try and see if they can claw back some of the deficit that they had in H1.
  • The current pipeline is looking pretty strong and they have no reason to believe that Q3 should be a soft quarter. In fact, Q3 should be a reasonably strong quarter and so should Q4.
  • In the IT sector, they deal with service companies, product companies, and captives.
  • As they provide staff to all these three different kinds of IT companies, their growth in product and captives, though small in percentage terms, is reasonably good for the first half of the year.
  • They got slightly impacted in the service sector on account of higher absorption by these companies of their staff onto their payroll, something that has never happened before.
  • He believes that the growth in Q3 and Q4 should come back, and more than Q3 it will come back for them in IT in Q4.
  • Telecom has been a little soft for the whole of last year and for the first two quarters of the current year as well. It is primarily on account of certain projects that they undertook in Q1 of FY19, which continue to linger. They hope to come out of it by Q4 and telecom should be back in the 4-6% profit range from Q1 of next year.
  • They believe that their associate growth in telecom for next year would certainly be 10-15% which would translate to 15-20% growth year-on-year.
  • Outside IT and telecom, the sectors that they have been seeing hiring pickup is BFSI, fin-tech, e-commerce, logistics, and warehousing.
  • The other sectors are warming up to it because from the existing clients, their growth is coming back, which is all the other sectors put together.

Consensus Estimate (Source: market screener website)

  • The closing price of TeamLease Services Ltd was ₹ 2,515/- as of 28-November-19. It traded at 45x/ 30x/ 22x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 56.3/ 85.2/ 116.0 respectively.
  • Consensus target price of ₹ 2,983/- implies a PE multiple of 26x on FY22E EPS of ₹ 116/-

By Miscellaneous 0 Comments Read more...
21 Nov

“Royal Enfield’s looking to create a new product every quarter”- Vinod Dasari, CEO, Royal Enfield

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.5% higher at 11,999. Zee Entertainment (+8.1%), Sun Pharma (+5.3%) and IndusInd Bank (+4.9%) were the top NIFTY50 gainers. Infratel (-3.2%), IOC (-1.5%) and Kotak Mahindra Bank (-1.4%) were the top NIFTY50 losers. Among the sectors, NIFTY Pharma (+3.3%) and NIFTY Media (+3.2%) were the sectoral indices that closed positive. NIFTY Realty (-1.5%) and NIFTY PSU Bank (-0.7%) were the worst-performing sectors.

Excerpts from an interview with Mr Vinod Dasari, Chief Executive Officer, Royal Enfield published in  Livemint on 20th November 2019.

  • He looks at downturn or short term difficulties as a blessing in disguise and according to him, one should never let go of a downturn as an opportunity.
  • Looking at the long-term picture, whether it is their processes or manufacturing plant, they continued with the capex and completed it.
  • Vallam phase II is done now, they have the capacity of a million bikes, they are not going to build any new big plants anytime in near future.
  • The first strategy that they had is that they connected marquee rides to their hobbies. Every rider can do something to support a cause. So, when one thinks about Royal Enfield rider, one thinks of a gentler soul.
  • The second major thing was making the stores much more accessible. Over the last ten years, there were 900 outlets across the country and mostly in cities but they came up with this concept, a Studio Store and they initially planned to put up around 200 stores during the year.
  • But by October, they put up 500 and those are doing extremely well. More than 90% of them are profitable within two months. That has increased the reach and more and more people who are worried about not getting service they now want to do.
  • Historically, whatever Royal Enfield was making was selling. When the downturn came, it was a blessing in disguise. They thought why they should make this and tell the customer you must buy this, they will make whatever is available for customers to choose. So customer chooses the colour, the branding etc.
  • In November 2019, they launched ‘Make-Your-Own’. This is the first time in the world somebody can actually – on their mobile phone choose graphics, choose accessories, choose all of that and the order goes directly to the factory. So they brought down stock so much, they have less than three weeks stock now.
  • In our country like many other places, a lot of things happen on sentiment. When they see that they had a record retail sale that helped boost the morale, reduce inventory, our dealers are excited.
  • All those 500 studio stores that they have, 100% of them were done by existing dealers. That shows the confidence their dealers have in Royal Enfield and the product plans and things that they are willing to do.
  • 90% of their sales were coming from products sold in India, less than 5% was from outside; this is a year ago, and less than 5% was from the aftermarket. In the long term, they will significantly want to grow that percentage from outside India and as much they get from the aftermarket.
  • They had 900 stores in India, they have 600 outlets outside India, and in places like Barcelona, Madrid, Paris, London, all of these places where people go and visit and they see a Royal Enfield and they say this is our country’s product and I should buy it in India or wherever they go from.
  • They are proud of the fact that an Indian company based in Chennai exporting worldwide and giving riding experience worldwide.
  • The CKD plant will be announced shortly in the next few months. It is very small; it is maybe a USD 1 million investment. So, no plan changes.
  • Good thing is even though they had a 20% volume drop in wholesale, revenue drop was only 9% and that was because they had newer products like the Interceptor with much higher average selling price than compared to a Bullet.
  • They have had growth in the export market that has a much higher revenue base. So, according to him, they will not see a 10% growth, but they will continue to try and do as well as they did last year.

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

  • The closing price of Eicher Motors Ltd was ₹ 21,485/- as of 20-November-2019. It traded at 28x/ 25x/ 22x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 774/ 870/ 998 respectively.
  • Consensus target price of ₹ 20,606/- implies a PE multiple of 21x on FY22E EPS of ₹ 998/-.

By Auto, Eicher Motors 0 Comments Read more...
08 Nov

“Titan’s market share gain story intact”- S. Subramaniam, chief financial officer, Titan Co. Ltd.

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.42% higher at 12,016. Infratel (+3.5%), Sun pharma (+3.4%) and IndusInd Bank (+2.8%) were the top NIFTY50 gainers. UPL (-7.8%), Yes Bank (-3.6%) and GAIL (-3.5%) were the top NIFTY50 losers. Among the sectors, NIFTY METAL (+1.1%), NIFTY REALTY (0.9%) were the sectoral indices that closed positive. NIFTY PSU banks (-1.5%) and NIFTY AUTO (-0.2%) were the worst performing sectors.

Excerpts from an interview with S. Subramaniam, chief financial officer, Titan Co. Ltd broadcasted on CNBC on 7th November 2019.

  • June onwards it has been really tight and the entire industry has been in turmoil. As far as are we are concerned, our market share gains story is intact but it is unfortunately in a very declining jewellery market.
  • Even from Dussehra to Diwali, which is the festive season, for 33 days they have grown 10%.
  • They are in tough times. Gold prices have been high but, importantly, consumer sentiment has not been encouraging. consumers are trying to save money. They don’t want to invest too much.
  • Gold coins sales being little higher, which means that people who are investing in the category also are looking at it more from the savings perspective rather than actually spending money on jewellery as adornment.
  • They are now looking at 11-13% growth in second half. They also have a higher base but 10% in the festive season was not bad at all under the circumstances.
  • Typically when gold prices do go up there is pent up demand when it comes to the wedding part of the segment, people do have to finally end up investing. So, to some extent we could see a shift on a month-on-month or quarter-on-quarter basis.
  • Even the millennials when they get married, they have exactly the set of jewellery that otherwise would have been bought and if anything the design quotient is much higher these days.
  • They have seen east do quite well, they have seen south do relatively quite well, but the region that gets impacted the most has been west.
  • FY20 is expected to be a fairly bad year. They are not going to meet their 20% target and they have given that guidance also now. Their goal for the next six months is 11-13%.
  • One of the biggest drivers in the last three years has been the gold exchange programme. Today it accounts for almost 40% of the revenues. They need more growth drivers like that.
  • They do not want to have any quarter where they have less than 10% margin. They are well within their own internal plans as far as the margin for the watch business is concerned.
  • They are trying to even it out better than having 18% in the first half and then going down to 7-8% in the second half. So, in FY20, we should look at second half to be more than 10%. So, it is a conscious decision and, therefore, it is not really a fall.

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

  • The closing price of Titan was ₹ 1,166/- as of 7th November 2019. It traded at 63x/ 48x/ 39x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 18.6/ 24.4/ 29.7 respectively.
  • Consensus target price of ₹ 1,246/- implies a PE multiple of 42x on FY22E EPS of ₹ 29.7/-.
By Consumer, Titan 0 Comments Read more...
31 Oct

Fashion segment grew in double-digits on a base of 18-20%: Mr Kishore Biyani, CEO, Future Group

Update on the Indian Equity Market:

On Wednesday, NIFTY closed up with 0.5% gain at 11,844. GAIL (+6.3%), Grasim (+3.6%) and SBI (+3.5%) were the top NIFTY50 gainers. Infratel (-5.2%), Yes Bank (-3.6%) and Cipla (-2.1%) were the top NIFTY50 losers. Among the sectors, NIFTY PSU BANK (+3.7%), NIFTY IT (+1.4%) and NIFTY FMCG (+1.0%) were the top performers while NIFTY MEDIA (-0.6%), NIFTY REALTY (-0.5%) and NIFTY AUTO (-0.3%) were the top losers.

Excerpts from an interview with Mr Kishore Biyani from Livemint on 30th October 2019:

  • Festive demand starts in August sometime with Onam for Kerala and that did quite well. Followed by Puja in the Eastern part of India which again did very well. Dussehra in some parts of India also did well.
  • Diwali started a little late and the business picked up from September and till now they have been seeing some very good traction on Diwali also, but it picked up late.
  • They deal in food, fashion as such. For food, the consumption continues. It is all about some category shifts here and there. Fashion surprisingly has done well for them.
  • Men’s fashion has changed significantly in terms of what a man is wearing and after a while, the change has come in. So, change is making fashion drive that business. Value fashion has done well.
  • Central has done phenomenally well which is a departmental store format which has achieved its numbers.
  • Women’s fashion has been a little slower than what it used to be last year and they are seeing some shifts in footwear also.
  • With the wedding season starting November onwards, they expect to see a lot of shifts which are going to happen. This summer, weddings were much slower, so any category which was related to wedding had seen some kind of sluggishness, whether it was personal care, beauty, footwear —anything related to the wedding saw some moments which were much slower than expected.
  • The larger ticket size items definitely, which we are hearing in terms of auto sales, real estate sales, consumer durables have held on onto some categories, again some categories have seen some slowdown there, but in smaller ticket items also we are seeing some variation.
  • Fashion has done very well in 2018. So they are looking at a huge base of growth of 18-20%, but fashion would have grown in double-digits in 2019 for them.
  • Non-fashion, food in the first quarter grew quite well. Second-quarter has been little lower than Q1, but nevertheless, the growth continues.
  • Foodhall is breaking even and Foodhall, in fact, has probably done better. Now they have three Foodhalls in Mumbai and four in Delhi. This festive season Foodhall has done brilliant numbers because of the gifting backlog they had. A lot of gifting orders they had picked up this year.
  • ₹650 crore of extra EBITDA in Future Retail definitely helps in the long term to build a very strong balance sheet.

Consensus Estimate (Source: market screener & Investing.com website) 

Future Retail:

  • The stock price was ₹ 383/- as of close price of 30th October and traded at 22x /23x /20x the consensus EPS for FY20E / 21E / 22E of  17.4/ 16.9/ 19.5 respectively.
  • Consensus target price of ₹ 560/- implies a Price to earnings multiple of 29x on FY22E EPS of ₹ 19.5/-.

Future Lifestyle Fashion:

  • The stock price was ₹ 410/- as of close price  of 30th October and traded at 38x /31x /28x the consensus EPS for FY20E / 21E / 22E of Rs 10.8/ 13.5/ 15.0 respectively.
  • Consensus target price of ₹ 555/- implies a Price to earnings multiple of 37x on FY22E EPS of ₹ 15.0/-.
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18 Oct

Blue Star- The demand in the festival season is expected to grow 12% YoY in FY20

Update on the Indian Equity Market:

On Thursday, NIFTY was up 1.07% to close at 11,586 level. The top performers in the index were yes bank (+15.47%), Tata motors (+13.27%) and Eicher Motors (+7.96%). HCL tech (-1.06%), VEDL (-0.97%) and Grasim (-0.59%) were the worst performing NIFTY stocks. Among the sectorial indices, NIFTY Auto (+3.13%), NIFTY PSU Banks (+3.0%) and NIFTY PVT Bank (+1.71%) were the top gainers. NIFTY IT (-0.41%) was the only negative performing index today as all the other indices were in green.

Excerpts of an interview with B. Thiagarajan, managing director, Blue Star (From Livemint dated 17/10/2019)

  • According to Mr. Thiagrajan, the festival season has been good.   Summer season has been great. Starting with Onam, the Dussehra season and now leading up to Diwali the consumption seems to be good and they are doing better than the market.
  • They are launching new TV commercial, print and digital campaigns in an orbit-shifting move. It is because the market is doing well.
  • They have engaged Virat Kohli and it is a new orbit-shifting move as far as Blue Star is concerned.
  • Advertising expesnes will be somewhere around 12% over last year in value terms. Considering the entire festival season up to New Year perhaps starting from Onam. So far that figure is holding good.
  • They would like to grow faster than the market. If the market is growing by 12%, they would aim to have 17% growth in the festival season. He expects between 10-12% market growth, anywhere between 15-17% Blue Star growth. This is in terms of room air conditioners.
  • In air conditioners the penetration levels are around 6%, there are many first-time buyers, low-end products are getting sold, and consumer finance is at an all-time high.
  • 90% energy consumption reduction has been achieved in AC. So it is no longer viewed as an energy guzzling device. Altogether, the monsoon season has ended well. Though there will be some delayed crops, he thinks agriculture income will be good.
  • Therefore tier-3-4-5 markets also should be doing well. This prompts him to say that anywhere between 10% and 12% growth should be taking place in the market.
  • Association with Virat will be for 14 months. Just like Virat is good in T20, one day and test cricket, Blue Star is a player in corporate commercial; light commercial like shop, showroom, and boutiques and residential. They need the mass connect because tier-3-4-5 towns are doing well. They are proud of that association.
  • They will spend around ₹550 mn out of the revenue target in this association. In terms of percentage of ad expenses to revenue it is not going to make a difference because they are growing and this association is going to bring more sales, they are excited about this.

Consensus Estimate (Source: market screener website)

  • The stock price was ₹ 826/- as of close of 17-10-19 and traded at 39x/ 29x/ 23x the consensus EPS for FY20E / 21E / 22E EPS of ₹ 23.1 /28.3 /36.1 respectively.
  • Consensus target price of ₹ 805/- implies a PE multiple of 22x on FY22E EPS of ₹ 36.1/-.
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