Author - Tanmay Gadre

08 Jul

Bear Markets- A test of Investors’ Emotions

 

During a bear market, your portfolio’s value is falling. You are receiving news highlighting the harsh realities of the stock market. It can become tough to escape the negativity that one feels. It is not just an uncomfortable experience; negative emotions affect one’s ability to make rational decisions.

There are 3 ways in which emotions can materially affect an investor during a bear market:

  • Emotions can affect rational decision-making: Emotions may impact rational decision-making and lead us to irrational decisions. Elements that affect investors in such cases are powerful images and stories that amplify the emotional response. Fear and sense of increased risk will be increased due to anxiety and panic of other people.
  • Emotions can lead to short-term decisions: Severe negative emotions make investors vulnerable and drastically reduce their decision-making time. Acting rapidly to respond to strong emotional cues is clearly a natural instinct many times. But it impacts their ability to withstand tough periods in the market or to invest for the long term.
  • Emotions can make us ignore probabilities: In a bear market, one’s fears increase by the stories of how much worse things will get. Provoked emotions make one far less sensitive to changes in probability. The ability to reasonably assess the probability of future developments gets severely reduced. The strength of feeling outweighs the strength of evidence.

 How to reduce the influence of emotions?

  • An investor should remove oneself from the emotional stimulus. Turn off the financial market news and check the portfolio less frequently. Long-term investors should not do things that would provoke a short-term emotional response.
  • One should never make in-the-moment investment decisions. These are likely to be driven by how one feels at that specific point in time. One should always step away and hold off from making a decision. Reflect on the decision with a calm state of mind.

These aren’t solutions as one cannot disconnect oneself from the impact of emotions on investment decisions. However, one must be aware that the negative feelings of stress, anxiety, and fear that one experiences during a bear market. These may encourage some of the worst behavior and one must do the best to avoid/reduce them.

 

Source: behaviouralinvestment.com

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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30 Jun

Money related fears and how to conquer them

 

Mr. Hemant Beniwal says that ‘fear’ is a constant emotion among people that is brought up by money. This emotion influences our financial decisions. Following are the 5 most common money related fears and how one can overcome them:

1) Fear of losing all the money: Many people work hard to earn money and save it. But some end up losing money due to bad investment decisions. Losing all of their money is something that people scared of. Instead of having irrational fears, it is better to take small steps toward managing money. One can take help from professionals to invest the money. By doing this, one can become more confident of the investment decisions and not make big mistakes/losses.

2) Fear of never having enough money: People are always worried of outliving their created wealth, and that they will never have enough money considering medical expenses of old age. One should make a financial plan for one’s retirement goals and also consider the money needed to sustain the lifestyle and other goals post retirement. One should then work on executing the financial plan and review it regularly so that enough money is retained.

3)  Fear of making mistakes while managing one’s money: People are very scared to lose their hard-earned money, and hence let it lie idle in the savings account to avoid making bad investment decisions and avoid losing money. One should take steps to increase one’s investment knowledge, and first start with zero or low-risk investments and then riskier (volatile) investments. Help from financial planners can be used to match investments with the risk-taking ability from an emotional and financial perspective.

4)  Fear of financial identity theft: A lot of money-based transactions are done using of debit, credit cards, etc. which leads to the fear of account getting hacked or credit card duplication. This is not irrational and cybercrime cases are increasing. Don’t share usernames and passwords of online accounts with others, regularly check financial statements, update your contact number and address with the bank, and don’t click suspicious links. This can help you control the security of online financial transactions.

5) Fear of talking about money: People fear of losing money if they talk about it. They may feel that others have too much or too less in their comparison. But it is important to talk about money with trustworthy people like one’s parents, life partner as they may have gone through many situations at different stages of life. It is important to have frank and open discussions with one’s financial planner as it will make the financial plan realistic and help in achieving financial objectives.

Source- 6 Common Money Fears and how to Conquer them by Hemant Beniwal (https://www.tflguide.com/)

1) Many times, we have our own mental picture about saving money and using it. We should discuss it with more experienced individuals, read more articles on money management that can help in getting a better clarity about the mental picture.

2) We must not accept the status quo, neither must we be under the impression that we already understand everything that is there to understand about managing money. Keeping an open mind and a learning attitude can help us in taking better monetary decisions.

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

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29 Jun

The Evolving Chemical Sector

The Indian Chemical Sector has developed well in the last 10 years wherein, the companies built their initial capabilities to cater to the demand in the domestic and the international markets. Stepping in the FY23, the sector has many opportunities and growth drivers, and a few headwinds. Let’s discuss them in detail:

Opportunities and Growth Drivers:

  • China plus one: Supply chain disruptions and raw material unavailability from China caused during the Covid-19 pandemic have made many countries re-think their strategies and their over dependence on China as a raw material supplier. These countries have started reducing their dependence on China and investing in India as a part of the strategy “China plus one”. The Indian Chemical companies will benefit from this arrangement, and due to relaxed policies regarding foreign investments in the companies in this sector.
  • Hydrogen based energy: The world is looking at hydrogen as a clean alternative for fossil fuels as they aim towards carbon neutrality. The Chemical sector can benefit from this opportunity by becoming key material suppliers (for electrodes, electrolysers), operating hydrogen production assets, distributing or selling hydrogen, and thereby engaging in the emerging hydrogen market.
  • PLI scheme: The Indian government may bring PLI (production linked incentive) scheme for the chemical sector to boost domestic production and exports. This will help in manufacturing all core chemicals and supplying them to domestic as well as global markets.
  • Indian opportunity: As India is pushing for green energy and mobility shift to EVs, the Indian specialty chemical companies are well positioned to use their capabilities to create chemicals for batteries, electrolysers and solar panels.
  • Other tailwinds: The Indian chemical sector is experiencing strong global tailwinds coming from demand for chemicals from pharmaceutical companies, chemicals required for batteries, EV batteries, etc. The companies are expanding their capabilities so as to meet these ever-growing requirements.

Headwinds:

  • Supply- side issues: Many chemical producers are still dependent on China for procuring their key raw materials. The supply side issues persist as many of the suppliers in China remain shut, or are functioning at little capacity. This has led to increased raw material costs and reduced margins.
  • High freight costs: As the world struggles to contain high ocean freight costs, many chemical producing companies have to either take a margin hit or have to pass on the costs to their customers.

Is it the right time to invest?

  • We believe that the headwinds faced by the industry are temporary in nature, and can be dealt with in few quarters. The long-term growth story of the industry remains intact with a growing demand for its products across geographies.
  • As the stocks remain affected by multiple issues including the Russia-Ukraine war, rising interest rates, high raw material costs, high freight costs, etc. this may be the right time to look at the listed chemical manufacturing companies from a longer-term perspective.

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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10 Jun

To sustain ~7 percent NIM in FY23– Shriram Transport Finance

 

Update on the Indian Equity Market:

On Thursday, NIFTY closed at 16,478 (+0.7%) near its intraday high of 16,493 level. Among the NIFTY 50 stocks, DRREDDY (+3.0%), BPCL (+2.8%), and RELIANCE (+2.6%) led the gainers while TATASTEEL (-4.2%), SHREECEM (-2.0%), and GRASIM (-1.6%) led the losers. Among the sectoral indices, OIL & GAS (+2%), HEALTHCARE (+1.3%), and PHARMA (+1.2%) led the gainers, while METAL (-1.3%), and PSU BANK (-0.3%) were the only losers.

Excerpts of an interview with Mr. Umesh Revankar, Vice-Chairman and Managing Director at Shriram Transport Finance (SRTRANSFIN) with CNBC TV18 on 9th June 2022: 

  • The down cycle of commercial vehicles started 4 years ago. Mr. Revankar believes that currently, the industry is in an upcycle which will continue for the next 3-to 4 years.
  • New vehicle price hikes limited the industry’s growth scope last year. Going forward, there will be a gradual increase in the cycle instead of a steep increase due to geopolitical aspects, and higher fuel cost considerations.
  • The government’s goal is to build long-term logistics infrastructure and road transport which will create a demand for commercial vehicles in the next 3-4 years. This will work in favor of the transport industry.
  • Most of the company’s borrowing has a tenure of 2-4 years. Its cost of borrowing was higher 2 years ago compared to right now. The company is now borrowing its loans at much lower rates than 2-3 years ago.
  • The company believes that the RBI’s repo rate hikes won’t impact it much and that any increase in the borrowing costs can be easily passed on to its customers without losing any credit demand.
  • The company believes that it can sustain the NIM (net interest margin) of 7% from 4QFY22 even in FY23.
  • Fuel cost is 40% of the operational cost for the company of running a vehicle. Transporters either pass it to end-users or manufacturers and don’t bear any of these costs. In case of low demand, and higher vehicle supply, the transporters have to bear the costs and take a margin hit.
  • He believes that the demand for transporters has been robust and the transporters are not facing any challenge in passing on the fuel costs.
  • He believes that there is a good demand for vehicles in rural areas. The demand had dampened in between due to the increase in prices of vehicles. As the prices of the output of Rabi crop, wheat, and oil have increased, it has benefitted the farmers in the rural areas. So now, the people have adjusted themselves to the higher-priced vehicles.

 Asset Multiplier Comments

  • We believe that the company is bound to benefit from the economic activity rebound which will drive demand and cyclical recovery in new CVs.
  • With the current provisions at 7.2% (Provision Coverage Ratio at 50%), we expect loan loss provisioning to normalize at ~2% levels.

Consensus Estimates (Source: market screener website)

  • The closing price of SRTRANSFIN was ₹ 1,170/- as of 09-June-2022.  It traded at 8x/ 7x the consensus earnings estimate of ₹ 146/ 162 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,495/- implies a P/E Multiple of 9x on the FY24E EPS estimate of ₹ 162/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered 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 May

This week in a nutshell (16th May- 20th May)

Technical talks

NIFTY opened the week on 16th May at 15,845 and closed on 20th May at 16,266. It made a gain of 2.7% during the week. The index is trading below the 20DMA level of 16,514 which might act as a resistance. On the downside, the 10 DMA level of 16,072 might act as a support. The RSI (44), and MACD turning upward suggests a further possible upside.

Among the sectoral indices, AUTO (+4.8%), FMCG (+4.5%), and REALTY (+4.3%) led the gainers, whereas IT (-2.8%) was the only loser during the week.

Weekly highlights

  • The US indices closed the week in the red as investors worried that inflation and rising interest rates may adversely affect the overall demand and performance of businesses. Broad-based selling led to S&P 500 closing down 3%, Nasdaq 100 by 4.5%, and Dow Jones by 3%.
  • International Holding Company PJSC (IHC) announced the completion of Rs 154bn investment in Adani Group’s companies namely Adani Green Energy, Adani Transmission, and Adani Enterprises. IHC’s investment will support and accelerate Adani Group’s growth plan to supply the country with 45 gigawatts (9% of India’s non-fossil energy) by 2030.
  • The Adani Group has entered into agreements to acquire Swiss cement major Holcim Ltd.’s stake in Ambuja Cements and ACC Ltd as ~ USD 10.5 bn. After this deal, the Adani group will become the second-largest cement maker in the country with a capacity of about 70 Metric tons Per Annum.
  • Maruti Suzuki India has planned to invest Rs 180bn in its new manufacturing facility in Haryana to roll out 1 mn units per annum in 8 years. The first set of vehicles is expected to roll out of the facility in 2025.
  • Indonesia, the world’s largest supplier of palm oil said that it will lift a ban on exports from Monday (23rd May). Indonesian President Joko Widodo said that the decision will take place despite bulk cooking oil being at higher prices than the target, as the government considers the welfare of 17 million workers in the palm oil industry.
  • The Union Cabinet on Wednesday approved the National Biofuel Policy-2018 with several amendments, the major one on advancing the blending target of 20% blending of ethanol in petrol to 2025-26 from 2030 earlier. The policy is intended to help in meeting the target of reducing import dependence on fossil fuels.
  • India’s power ministry said that it would cut domestic fuel supply to state government-run utilities by 5% if they do not import coal for blending by June 15, as officials struggle to address rising power demand. A heatwave pushed power use to a record high and forced India to reverse a policy of slashing coal imports.
  • Data released on Tuesday showed that India’s wholesale price index (WPI) based inflation rose to 15% in April 2022, a double-digit figure for the 13th consecutive month. It has spiked further due to the Russia-Ukraine Conflict, and headwinds arising out of disruption in the global supply chain. Fuel Inflation rose to ~39%, and food inflation was ~8%.
  • FII (Foreign Institutional Investors) continued to be net sellers, selling of shares worth Rs 114,013 mn and DII (Domestic Institutional Investors) continued to be net buyers, buying of shares worth Rs 94,729 mn this week.

Things to watch out for next week

  • The next week’s focus will be on the world economic forum (WEF) to be held in Davos from 22nd May to 26th The key topics that would be addressed during the sessions at WEF include ease of doing business reforms, energy transition, digital economy, startups, emphasis on innovation, and research in the healthcare ecosystem.
  • We expect the markets to remain volatile as investors show the sentiments of fear guided by news related to the Ukraine-Russia war, supply-related constraints, and rising inflation.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered 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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09 May

Plan to become USD 500 mn company by 2026 – Cigniti Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended at 16,302 (-0.7 %) as it closed near the day’s opening level of 16,228. Among the sectoral indices, IT (+0.1%), was the only gainer, whereas MEDIA (-2.7%), PSU BANK (-2.3%), and OIL&GAS (-2.1%) led the losers. Among the stocks, POWERGRID (+3.1%), HCL TECH (+3.1%), and INFY (+2%) led the gainers, while RELIANCE (-4.3%), NESTLEIND (-2.9%), and HEROMOTOCO (-2.8%) led the losers.

Excerpts of an interview with Mr. Shrikanth Chakkilam, CEO & Non-Executive Director of Cigniti Technologies (CIGNITITEC) with The Economic Times on 8th May 2022:

  • The company’s 75% revenues come from five sectors: Banking, Financial Services and Insurance BFSI (20%), Travel and Hospitality TTH (16%), Retail and Ecommerce (15%), Healthcare and Life sciences HCLS (13%), and independent software vending ISV (12%). The management believes that these sectors support Cigniti’s revenue growth and will continue to do so during the digital transformation in these sectors in the coming years.
  • Attrition in FY22 was at an all-time high of 30%. The revenue per employee in US dollar terms is USD 45,378. The current job market has become highly volatile and more complicated than usual.
  • The high attrition has increased the cost of hiring, and also the cost of training new employees, direct and indirect costs for advertising available positions, performing background checks, paying out referral bonuses, etc.
  • Intangible costs to the company include management’s time spent reviewing resumes, making calls, and conducting interviews, as well as the time spent by dedicated recruiting staff and the HR department.
  • To deal with these challenges, the company is increasing freshers’ hiring, increasing re-skilling programs through online learning, and ensuring engagement initiatives.
  • The plan is to become USD 500 mn company by 2026, effective from 2021. The company increased its investment in building capabilities, sales, marketing infrastructure, and investment in employee retention and rehiring. These investments reduced the company’s margins which it expects to neutralize in FY23.
  • The company’s 85% of revenues come from North America, yet Mr. Chakkilam believes that the dollar variation is not a concern. He considers inflation as a nominal worry which is constant across businesses.
  • The company’s recently approved acquisition of Aparaa Digital (RoundSqr), a specialist in AI/ML, data, and blockchain engineering services would help strengthen its digital ambitions and help offer digital engineering services to its clients. The company is confident of retaining a high teen growth rate in FY23.

Asset Multiplier Comments

  • Though the management doesn’t consider dollar variation a concern for the company, a strengthening dollar, and its adverse rate movements may hamper the earnings of the company.
  • We expect the margins to remain impacted in the medium term due to the sectoral headwinds.
  • The company may not be impacted by commodity inflation as it provides software services. But as the employees start coming back to offices, its transport and commuting costs will go up thereby increasing its other expenses, which will also end up impacting its margins.

Consensus Estimates:

  • The closing price of Cigniti was ₹ 412/- as of 09-May-2022. The consensus price target estimate for Cigniti’s stock is unavailable. It traded at 17x the earnings of ₹ 33 for FY22.

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

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28 Apr

Mutual fund to contribute 75% of the revenues in coming years – Nippon AMC

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,245 (+1.2%) as it closed above the day’s opening level of 17,190. Among the sectoral indices, FMCG (+2.2%), OIL&GAS (+1.2%), and Bank (+1.1%) led the gainers, whereas MEDIA (-3.2%) was the only loser. Among the stocks, HDFCLIFE (+4.3%), HINDUNILVR (+4.3%), and SBILIFE (+3.7%) led the gainers, while BAJAJ-AUTO (-2.0%), BHARTIARTL (-0.9%), and HINDALCO (-0.8%) led the losers.

Excerpts of an interview with Mr. Prateek Jain, CFO of Nippon Life India Asset Management (NAM-INDIA) with The Economic Times on 27th April 2022:

  • The company’s mutual fund AUM market share has gone up from 7.1% in FY21 to ~7.4% in FY22, with a growth of 26 bps.
  • Its 8-10 equity schemes are in the top quartiles and 10-14 fixed income schemes are in the top two quartiles. The management expects higher growth to come from these schemes in the upcoming quarters.
  • In FY22, the company saw the addition of almost 32 mn folio in the industry. The company added around 7 mn folios.
  • Jain believes that the company has created a moat in terms of its physical and digital presence which attracts retail clients. Due to this, he believes that one in every three people invest with Nippon India Mutual Fund.
  • People have started investing through mutual funds once they started going back to work, post lockdown. This is happening as more people are opting for direct investment.
  • With increased digital penetration and investors systematically investing in mutual funds, new investors will get added and equity assets through retail participation will keep increasing.
  • In the last 10 years, the industry has grown from AUM Rs 6,600 bn in 2012 to around Rs 38,000 bn. Mr. Jain believes that the industry is still underpenetrated with AUM to GDP ratio of 18%, whereas in matured markets, AUM to GDP ratio is around 80. He believes that the industry may see 5 times AUM growth in the coming decade.
  • Considering SIP as one of the measurement scales for the industry growth, the SIP was about Rs 70,000 mn 2 years ago during the covid lockdown. It has increased to Rs 120,000 mn today.
  • The company expects the alternatives, ETF, and other advisory opportunity businesses together to contribute to 25% of the revenue. Rest 75% of revenue will come from the mutual fund business.
  • The company saw 58% of its purchases happening digitally and it has well-placed digital assets and has partnered with all the key aggregators and market players.

 

Asset Multiplier Comments

  • Nippon AMC has been steadily gaining market share on the back of expansion of ETF and SIP segments, its penetration in B-30 Cities gives it an edge over its competitors as major expansion is expected to be driven from non-Metro cities.
  • The SIP segment is sticky, because the inflows are impacted the least and major outflows don’t happen due to the discipline of investors, rising share of SIP AUM bodes well for the company as it insulates the company from sudden market corrections and shocks.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nippon AMC was ₹ 321/- as of 28-Apr-2022. It traded at 23x/22x the consensus earnings estimate of ₹ 14/15 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 427/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 15/-

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

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12 Apr

Aspiring for double-digit revenue growth in FY23 – TCS

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 17,530 (-0.8 %) as it closed near the day’s opening level of 17,585. Among the sectoral indices, PRIVATE BANK (+0.5%), and BANK (+0.4%) were the gainers, whereas REALTY (-2.8%), METAL (-2.7%), and OIL&GAS (-2.4%) led the losers. Among the stocks, AXISBANK (+1.6%), KOTAKBANK (+1.2%), and POWERGRID (+0.8%) led the gainers, while HINDALCO (-5.8%), COALINDIA (-5.0%), and GRASIM (-3.7%) led the losers.

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, Mr. Samir Seksaria, CFO, and Mr. N Ganapathy Subramaniam, COO & ED of Tata Consultancy Services (TCS) with CNBC TV18 on the 12th April 2022:

  • The company’s deal wins of USD 11.3 bn comprise large deals and even spread deals of all sizes. The regular pipeline is strong, with the third-largest deal worth around USD 250mn. The management is focused to keep on moving up the median level of the deals.
  • The company’s average quarterly deal wins used to be in the range of USD 6-7 bn, and are now between the USD 8-9 bn range. The management feels that this number will keep on increasing due to the demand visibility that it can see.
  • The company believes that its employee cost is stabilizing. The attrition rate is reaching a higher level and in the next 6-8 months it will stabilize. In the last 2.5 years, the company has invested heavily in building its talent pool and upskilling it. The management believes that it will help the company in improving its operational performance to the 26-28% margins range.
  • The management believes that the pricing and realization will be key levers for improving the company’s margins. The better realization will be achieved by 3 things- 1) Incremental pricing for renewals and new deals, 2) Better realization through a better portfolio mix, and 3) Improving realization per FTE (full-time equivalent employee) basis.
  • The company aspires to grow its revenues with a double-digit growth rate in FY23. The management believes that the industry is still far away from the peak of the digital investment cycle. They believe that they are still in the early to mid-stage of their clients’ migration to hyper scaler space and the leveraging of native technologies.
  • Speaking of its big-size deal wins, the company is looking toward cloud transformation deals as the biggest opportunity in almost every industry. The company used technologies like metaverse and augmented reality features for one of its telecom retail clients in North America so that its customers could feel the retail stores and products. All of this comes at a decent price point for the company due to the technologies that it employs

Asset Multiplier Comments

  • TCS’ size and capabilities have positioned it well to benefit from the technological upcycle, cloud migration, and digital transformation that the IT industry has entered into.
  • We also believe that the continued strong deal wins with a suitable portfolio mix will help the management retain its double-digit revenue growth even in FY23.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 12-Apr-2022. It traded at 31x/28x the consensus earnings estimate of ₹ 118/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,041/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 134/-

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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02 Apr

This week in a nutshell (28th March- 1st April)

Technical talks

NIFTY opened the week on 28th March at 17,182 and closed on 1st April at 17,670. It made a gain of 2.8% during the week. The index is trading below the upper Bollinger Band level of 17,937 which might act as a resistance. On the downside, the 17,324 level might act as a support. The RSI (63), and MACD turning upward suggests a further possible upside.

Among the sectoral indices, REALTY (+5.7%), FINANCIAL SERVICES (+5.1%), and BANK (+4.9%) led the gainers during the week. PHARMA (-0.2%) was the week’s only loser. 

Weekly highlights

  • The US indices closed the week with marginal gains as concerns regarding the continuing conflict between Russia and Ukraine persisted with its inflationary effect on prices. S&P 500 was up by 0.1%, Nasdaq 100 by 0.7%, and Dow Jones was down by 0.1%.
  • The US president Joe Biden has announced that the U.S. will release 1 million barrels of oil per day from its strategic reserves. The announcement came as the White House looked forward to combat a spike in energy prices caused by Russia’s invasion of Ukraine. 
  • Russia has offered crude oil to India at a discount of USD 35 per barrel on pre-war prices. Russia has offered Rupee-Ruble-denominated payments using Russia’s messaging system SPFS (System for Transfer of Financial Messages). The direct purchase is expected to involve Russia’s Rosneft PJSC and the Asian nation’s biggest processor Indian Oil Corp., which have an optional term contract. A final decision is yet to be made.
  • Axis Bank has bought Citigroup’s consumer banking business in India for up to Rs 123 bn and it expects the transaction to get completed in 9-12 months. Around 3,600 Citi employees will be transferred to Axis Bank, and Citi expects the release of about USD $800 mn of allocated tangible common equity after the deal.
  • The board of directors of PVR Limited (PVR) and INOX Leisure Limited (INOX) on Sunday approved an all-stock amalgamation of INOX with PVR at their respective meetings. Post-merger, PVR’s Promoters will have a 10.6% stake while INOX’s Promoters will have a 16.7% stake in the combined entity. Inox shareholders will receive three shares in PVR for 10 shares of Inox.
  • Emami on Friday said it has acquired the ‘Dermicool’ brand from Reckitt Benckiser (India) Ltd for a total consideration of Rs 4,320 mn. It is a brand popular for providing respite from prickly heat caused during the summer season. The acquisition is funded through internal accruals.
  • Adani Total Gas has forayed into electric mobility by launching its first electric vehicle charging station (EVCS) in Ahmedabad. The company aims to expand its network by setting up 1,500 EVCS across the country and has kept an expansion plan ready once the demand for EV ecosystem picks up in India. 
  • FII (Foreign Institutional Investors) and DII (Domestic Institutional Investors) were net buyers this week. There was a net inflow of Rs 55900 mn from the FII while DII invested Rs 50525 mn.

Things to watch out for next week

  • We expect the next week to remain less volatile. Market will await the results for the quarter ending March-22. News flow from Ukraine is the only potential source of volatility in the global markets. 
  • The release of data from the US Purchasing Managers’ Index (PMI) and Fed Reserve’s minutes will give investors additional insights into current economic conditions. 

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

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21 Mar

Capex of Rs 5500 mn to expand room air conditioner manufacturing capacity– Blue Star

Update on the Indian Equity Market:

On Monday, NIFTY ended at 17,118 (-1.0%) as it closed near the intraday low level of 17,096. Among the sectoral indices, METAL (+1.5%), MEDIA (+0.5%), and PHARMA (+0.0%) were the gainers, whereas FMCG (-1.7%), FINANCIAL SERVICES 25/50 (-1.4%) and AUTO (-1.2%) led the losers. Among the stocks, COALINDIA (+3.3%), HINDALCO (+2.2%), and UPL (+1.8%) led the gainers, while BRITANNIA (-3.5%), GRASIM (-3.1%), and TATACONSUM (-3.1%) led the losers.

Excerpts of an interview with Mr. B Thiagarajan, MD of Blue Star (BLUESTARCO) with The Economic Times on 17th March 2022:

  • The company expects a very positive summer season after two consecutive poor summer seasons. The company will attempt to grow its sales 25-30% faster than the industry.
  • BLUESTARCO has stocked its inventory till June-22 and it will hold the current prices till May-22. Two developments might affect the product prices- 1) The ongoing Russia-Ukraine war may sharply increase the commodity prices post May-22, 2) The company may exhaust its stock by May and may have to review the prices by mid-April.
  • The company is expanding its room air conditioners manufacturing capacity, with a third factory coming up in Sri City. The company is making a total investment of Rs 5,500 mn in three phases, Rs 2,200 mn being invested in the first phase. The factory may get commissioned in the 3QFY23E.
  • The company has applied for the PLI scheme under which it may receive Rs 730 mn for its investment in the factory.
  • The company is expanding the manufacturing capacity for commercial refrigeration and deep freezer units by around 250,000 units. This factory located in Wada will get commissioned in the first week of April-2022.
  • The CEO expects the semiconductor supply issue to stabilise during the 3-4 months before the Diwali-festival season. The company is betting on the fact that the penetration of room air conditions in India is 7% and will improve.

Asset Multiplier Comments

  • We expect the demand for the room ACs to remain robust due to hybrid working models, online schooling, and low penetration in the Indian market.
  • The upcoming deep freezer factory in Wada will help in substituting imports thereby reducing imports of some SKUs.
  • The company has launched a comprehensive range of affordable ACs and is eyeing a market share of 14% in 2022. (Blue Star’s press release)

Consensus Estimate: (Source: market screener website)

  • The closing price of Blue Star was ₹ 972/- as of 21-March-2022. It traded at 36x/28x the consensus earnings estimate of ₹ 27/35 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,092/- implies a P/E Multiple of 31x on FY24E EPS estimate of ₹ 35/-

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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