Author - Tanmay Gadre

07 Mar

To produce 60% of energy from non-carbon sources in next five years– Tata Power

Update on the Indian Equity Market:

On Monday, NIFTY ended at 15,863 (-2.4%) as it closed near the day’s open level of 15,868. Among the sectoral indices, METAL (+2.1%) was the only gainer, whereas REALTY (-5.5%), PRIVATE BANK (-4.8%), and PSU BANK (-4.6%) led the losers. Among the stocks, ONGC (+13.2%), HINDALCO (+6.3%), and COALINDIA (+4.2%) led the gainers while INDUSINDBK (-8.1%), MARUTI (-6.5%), and AXISBANK (-6.4%) led the losers.

Excerpts of an interview with Mr. Praveer Sinha, CEO and MD of Tata Power (TATAPOWER) with The Economic Times on 4th March 2022:

  • Coal needs to be looked at from two perspectives, domestic coal, and international coal. The domestic coal availability is very good. India doesn’t import much Russian coal and it will stay insulated as its price is expected to increase as the Russia-Ukraine war continues.
  • For domestic coal, the cost of diesel will go up and the mining cost of coal will also go up. It will have an impact but not a very large impact. In India, nearly 600 million tons of coal are supplied by domestic coal companies.
  • Merchant tariff rates will remain distressed. Normally 190-gigawatt consumption is seen in peak summer which may go up to 220 gigawatts. The line-up of coal inventory needs to be done so that the company doesn’t have the situation of zero coal stocks in its plants.
  • The company has a long-term arrangement with Indonesian coal companies through which it keeps on receiving its required coal every month. It gets coal at the price defined by the local government from Indonesia.
  • From producing 15% of its energy from non-carbon sources four years ago, to nearly 30% now, Tata Power plans on producing nearly 60% of its energy from non-carbon sources in the next five years.
  • The company says that the coal prices have been high for the last year and will continue to remain in this range. It expected the prices to come down near $100 in the later part of CY-2022, but the prices will now remain upward of $150.
  • No capacity addition is happening in thermal and all the old plants will get decommissioned once completely used. There is a trend that all future investments will happen in renewable energy such as solar, wind, and hybrid solutions of solar, wind, hydro.

Asset Multiplier Comments

  • Tata Power’s long-term arrangements with Indonesian coal companies for buying coal give it a cushion against the rising coal prices in the short to mid-term.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Power was ₹ 217/- as of 07-March-2022. It traded at 28x/24x the consensus earnings estimate of ₹ 7.9/9.4 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 206 /- implies a P/E multiple of 22x on FY24E EPS estimate of ₹ 9.4/-

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

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24 Feb

Plan to open 18-20 hotels in a year – Indian Hotels

Update on the Indian Equity Market:

On Thursday, Nifty closed at 16,248 (-4.8%) near the intraday low of 16,203. All the sectoral indices were losers led by PSU BANK (-8.3%), REALTY (-7.2%), and MEDIA (-7.0%). Among the NIFTY 50 stocks, all the stocks were losers led by TATAMOTORS (-10.7%), INDUSINDBK (-8.5%), and UPL (-8.3%).

Edited excerpts of an interview with Mr. Puneet Chhatwal, MD and CEO, Indian Hotels, with CNBC TV18 on 23rd February 2022:

  • The company is seeing a very strong pickup in occupancies on the domestic front from February 2022. Everything is currently dependent on the domestic business as the international traffic is still shut. Business in cities like Mumbai, Delhi, and Bangalore will be benefitted as air travel opens up.
  • Leisure business has been performing better than pre-covid times. The company is seeing performance between 120%-150% of its pre-covid levels in this segment.
  • The business coming from corporate travel is lagging behind the pre-covid levels. The occupancy on the corporate and typical business destinations is reaching near the pre-covid levels. The occupancy is near 90%.
  • The rates, though lagging has increased due to a low base effect, and are double the rates of August-September 2021. If the rates increase by another 30-40%, the company will cross the pre-covid high of 2019-2020, in terms of corporate rates.
  • The geopolitical factors like the Russia-Ukraine war might cause volatility in the industry and might delay the bounce-back of the industry, but won’t derail it.
  • The Revenue per available room (RevPAR), which is a multiplicator of the average rate and occupancy is getting close to 90 percent on the domestic front.
  • Regarding costs, Mr. Chhatwal has mentioned the following factors- i) the industry had once in a 100-year opportunity to adjust its cost base. ii) the company had the 2nd best Q3 quarter in the last 10 years due to the adjustment of the cost base. iii) the company is keeping a tab on the costs increase caused by inflation.
  • The thought of ‘less is more’ helps the company with reducing its costs as people have begun expecting fewer amenities post covid. The company is also catering to a new segment of car drive-in to the destination which has developed post covid.
  • The company has restructured its capital to support its traditional and new businesses which include HomeStay of Ama, Home delivery and QSR of Qmin, and reimagined Ginger. The company is planning to open at least 1.5 hotels a month which takes it to 18-20 openings projected for this year across all of its brands.

Asset Multiplier Comments

  • The Russia-Ukraine war might impact the hotel and the travel industry in the short to mid-term. Demand for rooms at the Indian hotels might remain impacted as travel-related fear among people may stay for a while.
  • Given the strong brand value of Indian Hotels, revenue generation from new segments, and its new businesses, the long-term growth story of the company remains intact.

Consensus Estimate (Source: market screener website)

  • The closing price of Indian Hotels was ₹ 194 /- as of 24-February-2022. It traded at 69x/ 40x the consensus EPS estimates of ₹ 3/₹ 5 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 237 /- implies a P/E Multiple of 47x on FY24E EPS estimate of ₹ 5/-.

 

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 Feb

Growth to be driven by entering new geographies– Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,606 (+0.8%) as it closed near the intraday high of 17,639. Among the sectoral indices, MEDIA (+1.7%), METAL (+1.2%), and FINANCIAL SERVICES (+1.2%) ended higher, whereas AUTO (-0.1%), and PSU BANK (-0.1%) were the losers. Among the stocks, ONGC (+3.6%), TATASTEEL (+2.0%), and INFY (+2.0%) led the gainers while MARUTI (-1.7%), IOC (-0.9%), and SHREECEM (-0.7%) led the losers.

Granules released its 3QFY22 results on 8th February. Following aren the excerpts of an interview with Mr. Krishna Prasad Chigurupati, Chairman and MD of Granules India (GRANULES) with CNBC TV18 on 9th February 2022:

  • The company has been operating at 60% of its production capacity for Paracetamol due to raw material shortages. It sells only APIs (active pharmaceutical ingredients) in India. All of its FDs (finished dosages) are sold in Europe and the US.
  • The company’s FD segment is more profitable than its other segments. The share of FDs as a part of revenues fell by 3-4%. This fall is due to inventory rationalisation by its customers in US. The company states this as one of the reasons that the margins couldn’t improve. The management sees some uptick in FD sales going forward.
  • Paracetamol’s prices have been increased to pass on the raw material price increases to the customers.
  • The freight cost is an important component for the company and the costs haven’t improved in the last 6 months. The freight costs can go as high as 4-5% of the company’s revenues.
  • In FY23, the company will be crossing EBITDA margins of around 20-21%, but it is not confident of achieving the margins of 23%. The company expects to achieve a minimum of 12% growth in revenues by FY23 end.
  • The company received 3 ANDA approvals in the US in 3QFY22. The company expects the market size for their aggregate to be around USD 400-500 mn. The company doesn’t expect any growth in revenues from these products.
  • The company plans to enter new geographical markets such as the Canadian, and South African markets. The company expects its new markets to account for 35-40% of its revenues, instead of 25-30% of total revenue as of now.

 Asset Multiplier Comments

  • The raw material prices for the company’s molecules (core and non-core) and freight costs are likely to stay high for the next 2 quarters. Therefore, we expect the EBITDA margin to be under pressure during this period.
  • As the company’s supplier for Paracetamol-related raw materials is about to start its plant by 15th Feb 2022, we expect the situation of raw material shortage to reduce from March.

Consensus Estimate: (Source: market screener website)

  • The closing price of GRANULES was ₹ 312/- as of 10-February-2022. It traded at 18x/13x/11x the consensus earnings estimates of ₹17/24.2/27.9 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 359 /- implies a P/E Multiple of 13x on FY24E EPS estimate of ₹ 27.9/-

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

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05 Feb

This week in a nutshell (31st January- 4th February)

Technical talks

NIFTY opened the week on 31st January at 17,301 and closed on 4th February at 17,516. It made a gain of 1.2% during the week. The index is trading below its 100DMA of 17,649 which might act as a resistance. On the downside, the 17,438 level might act as a support. The RSI (48), and MACD turning downward suggests a further possible decline.

Weekly highlights

  • The US indices closed the week in green as US state employment data was released which showed a drop in claims for unemployment benefits. During the week, the stocks buying picked up again. S&P 500 was up by 6%, Nasdaq 100 by 1.7%, and Dow Jones by 1.1%.
  • Adani Total Gas Ltd (ATGL), the joint venture between Adani Group and Total Energies of France, said that it will invest Rs 200 bn in setting up city gas infrastructure across the country over the next 8 years, with 60 percent of the money being used towards 14 licenses it won recently. With the addition of 14 geographical areas, it won in the latest bid round for city gas distribution (CGD) licences, Adani Total Gas now has a footprint in 95 districts spread across 12 states, catering to more than 9 mn households.
  • Bengaluru-based electric vehicle company Ather Energy will set up 1,000 fast charging stations for electric two-wheelers across Karnataka. The company plans to keep charging at these stations to be free of cost for everyone for first 1 or 2 years.
  • Meta’s (Facebook’s parent company) stock price fell by 26 percent on 3rd February after the company issued a weak forecast, citing Apple’s privacy changes and increased competition. The huge drop erased over $200 bn from Meta’s market capitalisation.
  • According to the commerce ministry, India’s eight core infrastructure sectors grew by 3.8 % in Dec-21, compared to 3.4 % in Nov-21. Natural gas and Cement were the largest contributors to an increased output in Dec-21 with 19.5% and 12.9% increase respectively.
  • The Centre’s fiscal deficit rose to 50.4% of the FY22 target in April-December 2021, with a huge increase seen in tax collections as well as capital expenditure for the month of December 2021, data released by the Controller General of Accounts showed. The Economic Survey for FY22, tabled on 31st January, said the Centre was well on track to meet its fiscal deficit target of 6.8 % of the Gross Domestic Product (GDP).
  • The ADP National Employment report showed that the private payrolls decreased by 301,000 jobs in Jan-22 after increasing by 776,000 in Dec-21. This was the first drop in private payrolls since Dec-20. The initial claims for state unemployment benefits dropped 23,000 to 238,000, suggesting that the slowdown in job growth in January was likely temporary.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 76,953 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 59,237 mn in this week.

Things to watch out for next week

  • As the budget 2022 announcement is behind us, we expect the budget-related volatility in the stock market to reduce in the next week.
  • With the announcement of government’s increased borrowing, and rising inflation, the monetary policy committee (MPC) meeting of RBI will be a key event to watch for the market next week.

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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19 Jan

Datawrkz’s products will help optimise user acquisition cost – Nazara Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY ended at 17,938 (-0.1%) as it closed near the intraday low of 17,885. Among the sectoral indices, PSU BANK (+2.2%), MEDIA (+1.0%), and METAL (+0.8%) ended higher, whereas IT (-2.1%), FINANCIAL SERVICES 25/50 (-1.1%), and FINANCIAL SERVICES (-1.1%) led the losers. Among the stocks, ONGC (+3.5%), TATAMOTORS (+1.9%), and UPL (+1.9%) led the gainers while INFY (-2.9%), SHREECEM (-2.8%), and ASIANPAINT (-2.7%) led the losers.

Excerpts of an interview with Mr. Nitish Mittersain, founder and MD of Nazara Technologies (NAZARA) with Economic Times on 19th January 2022:

  • The company has discussed an issue of preferential shares, with its board. This issue is for funding the acquisition of a company called Datawrkz which is an AdTech platform based in Bangalore. Datawrkz earns 70% of its revenues from the US.
  • Datawrkz focuses on optimizing customer acquisition costs, especially on mobile. It has a product called Primus that generates higher revenues for publishers. When customers are monetizing through ads, its products and tools help them optimize the yield that they are getting on the ads.
  • NAZARA has a large user acquisition cost that comprises almost 20% or more of its revenues. Therefore, the company plans to deploy Datawrkz’s products and technologies to optimise its user acquisition cost. It also plans to use Primus to optimize the yields from its ads that may help it to increase its revenues.
  • The company has valued Datawrkz at Rs 2,250 mn. Initially, the company plans to take a 33% stake for Rs 600 mn, out of which Rs 350 mn will be paid in cash and the balance Rs 250 mn will be paid in cash or through shares and the balance will be decided based on their performance in CY2023.
  • In India, Datawrkz will be able to scale up using NAZARA’s network, and Datawrkz will be helpful for NAZARA to scale up its revenues in the US.
  • In CY2021, Datawrkz posted revenue of 900mn with about a 12% EBITDA margin. Though Datawrkz is generating positive cash flow, NAZARA’s focus will be to grow in terms of revenue and strategic initiatives, and not focus very strongly on margins as it believes that the business can scale significantly.

 

Asset Multiplier Comments

  • We believe that Nazara Tech’s acquisition of the stake in Datawrkz will benefit it in the reduction of user acquisition costs, and the use of Primus will help in increasing revenues for its e-sports, gamified learning, and other segments.
  • Datawrkz’s presence in multiple geographies including US and Singapore will turn out to be beneficial for Nazara to scale its presence in those markets.

Consensus Estimate: (Source: market screener website)

  • The closing price of NAZARA was ₹ 2,494/- as of 19-January-2022. It traded at 167x/ 105x/ 68x the consensus earnings estimates are ₹ 14.2/22.7/35.2 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,598/- implies a P/E Multiple of 74x 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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25 Dec

This week in a nutshell (20th-24th December)

Technical talks

NIFTY opened the week on 20th December at 16,824 and closed on 24th December at 17,004. It gained  1.1% during the week. The index is trading below its 10DMA of 17,057 which might act as a resistance. On the downside, the 16,971 level might act as a support. The RSI (44), and MACD turning downward suggests a possible decline.

Weekly highlights

  • The US indices closed the week in green as investors speculated that the spreading Covid Omicron variant may not adversely affect human health, businesses and lockdown-like situations might not arise, and hence the stock buying picked up. S&P 500 was up by 2.3%, Nasdaq 100 by 3.2%, and Dow Jones by 1.7%.
  • The Turkish currency lira tumbled to a record low after its President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to the Islamic ban of high-interest rates as a basis of his policy. The president feels that Turkey can free itself from reliance on foreign capital flows by abandoning policies that prioritized higher interest rates and strong inflows.
  • The Indian government reduced the import tax on refined palm oil to 12.5%, from earlier 17.5%, in an effort to cool near-record high vegetable oil prices. This would make refined palm oil more attractive than crude palm oil for Indian buyers.
  • Sebi suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives. This has not only led to a fall in prices of these commodities, but also to scaling back of inventories by traders, who say the flow of imports will slow down since they do not have a hedging platform.
  • Zee Entertainment Enterprises (Zee) and Sony Pictures Networks India (SPNI) signed a definitive agreement that will let the two merge their networks, digital assets, production operations and programme libraries. The merged entity will have a 27% market share of the general entertainment space. After the completion of the deal, Sony Sony Pictures Entertainment will hold a 50.86% stake in the combined entity, the promoters of Zee will hold a 3.99% stake and the remaining shareholders of Zee will hold a 45.15% in the merged entity.
  • Tata Motors has incorporated Tata Passenger Electric Mobility Limited (TPEML), a wholly-owned subsidiary that is involved in the manufacturing of electric motor vehicles, with an initial capital of Rs 7000 mn.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 65890 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 69156 mn this week.

 

Things to watch out for next week

  • As investors around the world seem to be cautious about the Fed’s announcement of three 25 bps increase in interest rates in CY 2022, we may see a further sell-off in Indian stocks next week by the FIIs.We may see a reduction in the level of activity as most investors in the US and Europe are away on holidays. 

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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09 Dec

Back on construction targets, to complete 50 restaurants this year – Burger King India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,517 (+0.3%) as it closed near the opening level of 17,524. Among the sectoral indices, MEDIA (+3.7%), FMCG (+1.4%), and OIL&GAS (+1.0%) ended higher, whereas BANK (-0.5%), FINANCIAL SERVICES (-0.5%), and PRIVATE BANK (-0.4%) led the losers. Among the stocks, ITC (+4.9%), L&T (+3.0%), and ASIANPAINT (+2.2%) led the gainers while HDFCBANK (-1.8%), TITAN (-1.4%), and NESTLEIND (-1.1%) led the losers.

Excerpts of an interview with Mr. Rajeev Varman, CEO of Burger King India (BURGERKING) with CNBC TV18 on 7th December 2021:

  • The company is back on its construction targets with over 20 restaurants under construction, and 38 restaurants in the pipe line. The company plans to complete the construction of around 50 restaurants this year. Its target is to build 70 restaurants in next year, and keep on building in the similar manner in upcoming years.
  • Company’s target is to build 700 restaurants which it will complete by December 2027.
  • Burger King India (BKI) has launched its café in 4 of its restaurants, 10 cafés in construction, and plans to build more cafés along with building new restaurants. The company plans to build 75 cafés by the end of 2022.
  • The Company is going to launch new products specifically for its cafés. It plans to serve opportunities that it will receive at lunch and dinner peak time, and the time in between. It calls its coffee products as ‘Coffee Uncomplicated’, and provides a product named coffee shots for which it has received good reviews.
  • In the 2QFY22, the company reported 65% growth over its pre-covid numbers through delivery. The company has recovered 65% of it’s dine-in orders in 2QFY22.
  • The company has over 1.5 million app downloads which it believes will gradually grow. It has made available its stunner menu on the app, which it considers as entry level point for its consumers and is available only through app.
  • The CEO feels that BKI’s upcoming acquisition of BK Indonesia will bring synergies as BKI will add 200 restaurants in 1 day. The company will also experience synergies in terms of Capex, as it plans to build 35 new restaurants every year in Indonesia after completing the acquisition.

 

Asset Multiplier Comments

  • The company is likely to remain non-profitable for few more quarters as it is currently undergoing organic and inorganic expansion.
  • Currently within the QSR companies, Westlife Development and Jubilant Foodworks have a higher scale of operations, and have started generating positive free cash flow in the last 2 years.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may delay the planned execution of building new restaurants.

Consensus Estimate: (Source: market screener website)

  • The closing price of BURGERKING was ₹ 162/- as on 9-Dec-2021.  Its consensus earnings estimates are -2.0/0.01/0.94 for FY22E/FY23E/FY24E respectively. As the earnings are close to zero, we don’t arrive at a meaningful PE multiple.
  • The consensus target price is ₹ 198/-.

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 Nov

Betting on a healthy orderbook – Dixon Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended flat at 17,054 (-0.01%) as it closed near the opening level of 17,056. Among the sectoral indices, IT (+0.8%), CONSUMER DURABLES (+0.2%), and FINANCIAL SERVICES (+0.1%) ended higher, whereas MEDIA (-2.2%), PSU BANK (-2.0%) and REALTY (-1.7%) led the losers. Among the stocks, KOTAKBANK (+2.4%), HCLTECH (+2.2%), and HDFCLIFE (+1.7%) led the gainers while BPCL (-2.6%), SUNPHARMA (-2.3%), and ADANIPORTS (-2.1%) led the losers.

Excerpts of an interview with Mr. Atul Lall, MD of Dixon Tech India (DIXON) with CNBC TV18 on 26th November 2021:

  • DIXON is a beneficiary of PLI scheme for IT hardware and it has tied up with Acer, a Taiwanese IT hardware firm for manufacturing laptops. The company has already started manufacturing laptops in its in-house facility for Acer.
  • From the laptop segment, the company expects to achieve a minimum targeted revenue of Rs 500 mn in the 1st year of manufacturing. From 2nd year onward, the company expects to achieve a PLI scheme upward revenue ceiling of Rs 6bn, Rs 16bn, and Rs 24bn respectively.
  • DIXON’s laptop segment being a prescriptive business (DIXON work based on Acer’s laptop designs), the operating margins will be in around of 4%.
  • The company’s capex for FY22 is expected to be Rs 4,500 mn, out of which the capex for laptop segment will be Rs 200 mn. In FY23, the capex is expected to increase to Rs 2500 mn.
  • Speaking of its segments, the company has a healthy order book for mobiles. It is also planning to enter in a JV with Bharti Airtel to provide telecom related products, IoT (Internet of Things) devices. The company is also launching LED monitors in the 4QFY22. The company’s revenue target for FY23E is around Rs 170 – Rs 175 bn.
  • Company’s ODM (old design machines) business is facing commodity price increase pressure and there’s a lag in passing on the price increase to its customers. The company is seeing some softening in prices. It expects margin pressures to remain in the short term, but later it will be able to pass it on to the customers.
  • 90% of the company’s own design revenues come from the lighting segment. Due to its large scale in this segment, the company is able to benefit from operating leverage. The margin pressure easing is happening in the segment.

 

Asset Multiplier Comments

  • The laptop segment revenue estimates seem to increase exponentially. As it’s a prescriptive business, with low operating margins, it may take several quarters for the company to meaningfully benefit for the segment.
  • The markets for laptops, mobiles, and IoT devices are quite competitive. Therefore, we may have to see how company’s plans for its new segments pan out.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may affect the manufacturing and planned executions of new product launches of DIXON.

Consensus Estimate: (Source: market screener website)

  • The closing price of DIXON was ₹ 5,005/- as on 29-Nov-2021. It traded at 114x/65x/47x the consensus earnings estimate of ₹ 45/78/108 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4986/- implies a PE multiple of 46x on FY24E EPS of ₹ 108/-.

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 Dixon technologies, IT 0 Comments Read more...
13 Nov

This week in a nutshell (November 8th to November 12th)

Technical talks

NIFTY opened the week on 8th November at 18,040 and closed on 12th November at 18,103. It made a weekly gain of 0.3%. The index is trading above its 20DMA of 18,080 which might act as a support. On the upside 50DMA of 18,211 might act as a resistance. The RSI (56), and MACD turning downward suggests a further possible decline. 

Among the sectoral indices, IT (+2.1%), REALTY (+1.7%), and ENERGY (+1.3%) led the gainers. MEDIA(-0.1%) and PSU BANK(-0.1%) were the only sectoral losers.

Weekly highlights

  • Three public sector oil firms will install 22,000 electric vehicle (EV) charging stations over the next 3-5 years to support the nation’s target to reduce its carbon intensity and reach net zero emissions by 2070. Indian Oil Corporation (IOC) will set up EV charging facilities at 10,000 fuel outlets over the next three years, Bharat Petroleum Corporation Ltd (BPCL) will set up 7,000 stations over the next five years while Hindustan Petroleum Corporation Ltd (HPCL) plans to setup 5,000 stations.
  • Zomato plans to invest $1 bn over the next two years, with a large portion of it to be invested in for quick-commerce. The company plans to invest $50 mn in CureFit, plans to acquire 8% stake in logistics tech firm Shiprocket for about $75 mn, and a 16% stake in Magicpin for $50 mn.
  • The Reserve Bank of India (RBI) announced the launch of its first global hackathon ‘HARBINGER 2021 – Innovation for Transformation’ with the theme ‘Smarter Digital Payments’. The hackathon will invite participants to identify and develop solutions that have the potential to make digital payments accessible to the under-served, enhance the ease of payments and user experience, and strengthen the security of digital payments and promote customer protection, RBI said in a statement.
  • Indian indices declined due to the risk of rising US inflation. The US inflation data showed that the Consumer Price Index (CPI) had risen to a 6.2%  annual rate in October, the highest since 1990. 
  • Vodafone Idea (VI) is working on a restructuring plan under which Kumar Mangalam Birla will make an investment and the Indian Banks will restructure the company’s loans. With the freed-up capital for the next four years due to the moratorium, the company will participate in the auction of the 5G spectrum.
  • FII (Foreign Institutional Investors) were net sellers and DII (Domestic Institutional Investors) were net buyers this week. There was a net outflow of Rs 49,024 mn from the FII while DII invested Rs 53,932 mn.

Things to watch out for next week

  • As investors around the world seem to be cautious about the rising inflation and a possible earlier-than-estimated rise in interest rates by Fed, we may see a further sell-off in Indian stocks next week by the FIIs.

 

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 Oct

Confident of maintaining 15- 20% growth in VNB – HDFC Life

Update on the Indian Equity Market:

On Tuesday, NIFTY ended higher at 18,268 (+0.8%) as it closed near the intraday high level of 18,310. Among the sectoral indices, REALTY (+3.6%), METAL (+2.7%), and MEDIA (+2.6%) ended higher, whereas PRIVATE BANK (-0.2%) was the only sector that ended lower. Among the stocks, TATAMOTORS (+6.0%), TATASTEEL (+4.2%), and SBILIFE (+3.8%) led the gainers while INDUSINDBK (-1.9%), ICICIBANK (-1.2%), and POWERGRID (-0.8%) led the losers.

Excerpts of an interview with Ms. Vibha Padalkar, MD and CEO, of HDFC Life Insurance (HDFCLIFE) with CNBC TV18 on 25th October 2021:

  • The company is bullish on prospects of the life insurance industry, assuming no covid 3rd wave takes place. As people get comfortable with the status quo, the company expects the demand for life insurance to come back.
  • The company has grown at a rate of 20%, which is faster than the industry growth rate and it is confident that it will continue to grow at this rate. VNB (Value of New Business) growth between 15-20% is possible.
  • From the product mix, Unit linked, participating, non-participating, annuity, and protection contribute around 26%, 30%, 32%,5%, and 7% of the APE (Annualised Premium Equivalent) respectively.
  • The company has paid out 2,456 claims worth Rs 5,560mn in 1HFY22, and it maintains an additional  Rs 2,000+ mn of provisions in case it needs to pay out any additional claims.
  • The company expects a 10-15% price hike in reinsurance products and it is in negotiation with its reinsurance providing partner over the price hikes. This will be done by the end of 3QFY22.
  • Individual term insurance doesn’t disproportionately contribute to the VNB of the company. The reinsurers charge HDFC life for the product over the lifetime of the policy, whereas the customers pay premium under the limited pay for 5-6 years altogether. As the period between these 2 differs, the company hasn’t yet figured out the cost it will pass on to its customers.
  • The company’s cash will go down by 12 to 14% after the acquisition and merger of Exide Life. HDFC life’s solvency may go down to 175-180% from the current 190-195%, but the profits from the next two quarters may get added on to the solvency and help bridge the gap.

 

Asset Multiplier Comments

  • As Exide Life’s agency channel will add 40% to the company’s current agency channel, the company will benefit from the effect of operating leverage. This will help improve the company’s margins.
  • The company has posted 20.8% YoY growth in APE and 23.6% YoY growth in VNB (Value of new business) numbers in 2QFY22. Given its better than industry growth rate, and the management’s confidence in maintaining it in the future, this might have a positive impact on the company’s fundamentals.
  • Increase in reinsurance costs will likely drive term insurance rates higher in the next few quarters. This may have impact on its future profitability.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFCLIFE was ₹ 690/- as of 26-Oct-2021.  It traded at 100x/ 76x/ 64x the consensus earnings estimate of ₹ 6/ 9/ 11/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 787/- implies a PE multiple of 74x on FY24E EPS of ₹ 10.7/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

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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