Miscellaneous

14 Feb

Commodity price inflation? Not much of a worry for Hindalco

Update on the Indian Equity Market:

On Monday, Nifty ended at 16,843 (-3%), a fall of 531 points due to fear of rising inflation, oil prices and aggravating geopolitical uncertainties among Russia & Ukraine. Among the sectoral indices, PSU BANK (-6.0%), REALTY (-5.3%), METAL (-5.1%) were the top losers. In NIFTY 50, except TCS (+0.9%) all the other 49 stocks fell with JSWSTEEL (-6.5%), HDFCLIFE (-6.4%) & TATASTEEL (-5.7%) being the top losers.

Hindalco released its 3QFY22 results on 10th February. Following are the excerpts from an interview with Mr. Satish Pai, MD of Hindalco Industries (HINDALCO) with The Economic Times on 11th February 2022:

  • On a standalone basis, Hindalco Industries’ India Aluminium business reported its highest ever EBITDA of Rs. 33,640mn and 41% EBITDA margin.
  • On the back of favorable macros, with commodity price inflation affecting it in both ways, the price of aluminum has been higher and the input cost inflation was kept under control by holding inventory and doing upfront procurement.
  • In 4QFY22, the company expects to maintain the margins as the aluminum prices are already at $3,000 per tonne, up from about $2,670 per tonne in Q3. Furthermore, the company expects cost inflation to flatten out in the second half of CY2022.
  • The company expects the prices of aluminum and copper to remain at the existing elevated levels at least for this calendar year. This is largely due to the European energy crisis driving up gas prices further resulting in a rise in aluminum prices.
  • On the demand side, the growth drivers for aluminum and copper will be electric vehicles, solar panels, the housing sector, packaging. Looking at the stronger demand, the company is planning to ramp up capacity. Novelis, the American subsidiary, which is in the business of aluminum, volumes will be around 4mn tons per year. India will be producing about 1.3mn tons of aluminum and about 500,000 tons of copper.
  • The company significantly reduced its consolidated debt from Rs.538bn last year to Rs.437bn as of December 2021 end. The company is not planning for further deleveraging, after the repayment of Rs.6bn worth of bonds in 1QFY23. It is focused on putting the cash to use by doing organic capex projects.

Asset Multiplier Comments

  • The price of aluminum is likely to remain elevated from a short supply due to carbon emission-related concerns in China and smelter disruptions. But a quick resolution to the European crisis may lead to a major correction in aluminum prices as a result of correction in energy prices in Europe.
  • Looking beyond the short-term uncertainties, the medium to longer-term structural demand for aluminum will remain strong on the back of good demand for aluminum automotive sheets, aluminum beverage cans, and pent-up demand from the aviation industry.
  • Hindalco being the largest secondary aluminum producer and the largest aluminum recycling company in the world, is likely to be better positioned to digest the input cost inflation without taking a substantial hit on the margins.

Consensus Estimate (Source: Marketscreener & TIKR websites):

  • The closing price of HINDALCO was Rs. 520/- as of 14-February-2022. It traded at 9.8x/9.1x/8.8x the consensus earnings estimates of ₹ 53/57/59 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 640/- implies a P/E Multiple of 10.8x on FY24E EPS estimate of ₹ 59/-

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 Dec

The cost structure is not impacted only because of an increase in fuel prices. – TCI

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,204 (-0.06%), 10 points lower. Among the sectoral indices, IT (+1%), HEALTHCARE (+0.46%) and PHARMA (+0.44%) were the gainers and OIL & GAS (-1.4%), METAL (-1.2%), REALTY (-1%) led the losers. Among the NIFTY50 components, NTPC (+2.7%), INDUSINDBK (+2%), and HCLTECH (+1.9%) were the top gainers while BAJAJ-AUTO (-1.9%), RELIANCE (-1.6%) and JSWSTEEL (-1.58%) led the laggards.

Excerpts of an interview with Mr. Vineet Agarwal, MD of Transport Corporation of India (TCI), with ET Now on 28th December 2021:

  • TCI is very conservative about their growth because of the fear of how the third wave of covid or new omicron variant impact supply chain or consumer demand but in 1HFY22 TCI performed above their targets. TCI guided for 15% to 20% growth in the top line and 30% to 40% growth in the bottom line for FY22.
  • Cost structure was not only impacted because of fuel prices but rising lubricant prices, tyre prices, driver wages and toll charges. Not only road sector but rail and coastal shipping side were also impacted due to higher input cost. TCI does not see any margin pressure as the company passes on higher input cost to end customers.
  • Due to the changes in the industries and economy, the logistic sector is at the point of change. Customers demand also change and demand comes from all kind of areas. The big change from a demand perspective led to a huge amount of demand for organized players like TCI in the logistic sector.
  • Customers are outsourcing more and more logistics, not only road or warehousing but multi-mode logistics also. TCI offers a combination of multi-modal services which will be the growth driver in the future.
  • Improvement in infrastructure like buildings new expressways, new ports directly impacting positively on improvement and efficiency of logistics industry which drive more business for organized players. TCI expects logistic looking attractive in several sectors and regions in the coming years.
  • A good initiative like PM Gati Shakti Programme, creates a platform where products can move smoothly across the country irrespective of the mode of transport. In India more than 60% of cargo moves by road, 20% to 25% by rail. India has to shift aggressively towards a cheaper mode of transport like railways and coastal shipping.
  • TCI seeing Increased use of IoT and things like drones, the evolution of introducing other new products going to be a game-changer for the logistic sector.
  • TCI planned to spend about Rs 5000 mn for the next three years for buying trucks or ships, railway rakes, and construction of warehouses. TCI growing faster than the market and this will lead to market share gains for TCI.
  • Many companies in the logistic sector looking at green logistics. TCI looking at less carbon emission and moving from road to rail to sea and reducing the amount of carbon footprint. The company expects many companies in the logistics sector to think about moving towards multimodal for green logistics.
  • Customers want green logistics and TCI has to evolve. TCI is offering different solutions to customers from road to rail to sea and a combination of them. TCI has their own services for road, seaways business and TCI has a JV with Concor to run rail logistics that gives TCI a little bit of edge while offering services.

Asset Multiplier Comments

  • We think TCI’s diversified range of services via a single window leads to capturing higher wallet share of its customer. Consistently growing E-Commerce industry drives the growth for TCI. Well-diversified range of services helps TCI in volatile times.
  • As the economic activities started ramping up, supply chain issues have started to resolve and normalization of input cost is happening. We think TCI may perform very well in the logistic sector.

Consensus Estimate: (Source: TIKR website)

  • The closing price of TCI was ₹ 760/- as of 30-December-2021. It traded at 25x/23x/17x the EPS estimates of ₹ 30.4/33.5/45.4/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 734/- implies a P/E Multiple of 16x on FY24E EPS of ₹ 45.4/-

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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30 Sep

Expect yearly addition of cards to be 2.4 million – SBI Cards

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.5% lower at 17,618. Top gainers in NIFTY50 were Bajaj Finance (+2.1%), Bajaj Finserv (+2.1%), and Tata Motors (+1.0%). The top losers were Power Grid (-2.8%), Asian Paints (-2.3%), and Shree Cement (-2.2%). The top gaining sectors were Realty (+1.5%), Consumer Durables (+1.0%), and PSU Banks (+0.8%), while the top sectoral losers were Media (-0.9%), Metal (-0.9%), and Bank (-0.8%).

Experts of an interview with Mr. Rama Mohan Rao Amara, MD & CEO at SBI Cards aired on CNBC TV18 on 29th September 2021:

  • The industry has recorded strong spending at the aggregate level. SBI Cards crossed pre- pandemic levels in terms of run rate.
  • The company adopted sustainable strategy and leveraged on every opportunity that they have that is reflected in improvement in market share. Both channels- direct sources and the parent company SBI are contributing equally to improvement in market share.
  • The results of strategy they implemented are reflecting in their improvement in market share, the market share was improving steadily and they have aim for very sustainable performance. This has also helped in diversification of risk and profitability of portfolio.
  • Gradual unlocking has a positive impact on spends per card. In 1QFY22, online spends were contributing to the card spend. With the unlocking, point of sale (POS) contribution is increasing, discretionary spends improved due to categories like jewelry, apparel, and restaurant spends are increasing. Non-discretionary categories such as insurance, health and wellness are also contributing in a big way.
  • SBI Cards aimed for 10,000 new accounts per day and they reached that level and they maintaining it consistently. They have to manage attrition for net growth of the company.
  • SBI Cards has open market and banca customer channel in open market they have many collaborations.
  • He expects growth of around 4 million card additions in a year & India is still an underpenetrated market when it comes to credit cards.
  • They are planning to expand their market into tier-III and tier-IV cities with the help of their bank channels which beneficiary for SBI Cards in customer addition.
  • The market expansion in tier-III and tier-IV cities takes slightly longer time compared to tier-I and tier-II.
  • If they are growing at 2 million, then it is safe to presume that it will be five times minimum for the industry, he mentioned.

Asset Multiplier comments:

  • The company is expected growth in tier-III and tier-IV cities, which might be lucrative for the industry.
  • SBI Cards might be have an advantage than other peers are their branch channels in tier-III and tier-IV cities which beneficiary for SBI Cards in customer addition.
  • The risk from growth of the Fintech organizations might be contraction in the market share of SBI cards.

Consensus Estimate: (Source: market screener websites)

  • The closing price of SBI Cards was ₹ 1,027/- as of 30-September-2021.  It traded at 12x/ 10x/ 7x the consensus book value estimate of ₹ 84/108/139 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,185/- which trades at 9x the book value estimate for FY24E of ₹ 139/-

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 Sep

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

 

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.2% lower at 17,711. Top gainers in NIFTY50 were NTPC (+6.4%), COALINDIA (+6.2%), and POWERGRID (+6.7%). The top losers were HDFC (-2.1%), KOTAKBANK (-1.8%), and ASIANPAINT (-1.8%). The top gaining sectors were PSU (+2.7%), METAL (+2.3%), and PHARMA (+1.7%) while the top sectoral losers were PRIVATEBANK (-1.1%), FINANCIAL SERVICES (-0.9%), and FMCG (-0.6%).

Hospitals seeing a 20% plus Return on Capital Employed – Max Healthcare

Excerpts of an interview with Mr. Abhay Soi, chairman and managing director at Max Healthcare, aired on CNBC TV18 on 28th September 2021:

  • Hospitals are making 20 percent plus ROCE while receiving less than 1% of their income from COVID patients. At the current operating rate, the firm is generating free cash flows of around Rs 1,1000 million.
  • The chairman indicated that a x% rise in revenue would improve free cash flows by roughly 2x%. He also stated that the firm will generate Rs 50 -60 mn in internal accruals alone over the next four to five years.
  • The business’s present debt levels are lower than its EBITDA from the 2QFY22, and the company hopes to be debt-free by the 3QFY22. Over the following four to five years, the business intends to leverage its balance sheet to two times debt to EBITDA.
  • The Company plans to expand its capacity in Gurugram, by building a 500-bed hospital in the next three to four years, at a budget of Rs. 35bn. At the moment, their hospitals are roughly 78% full. The deployment of funds would be limited to brownfields and greenfield, as well as some light asset models. The business has no plans to do Mergers & Acquisitions in the hospital space.
  • The company intends to do acquisitions in the diagnostic space. In the Delhi NCR region, which has a population of 40 mn people it is currently the third biggest diagnostic chain.
  • When speaking about retail business in terms of economic value and volume the company ranks 3rd or 4th in the country.

Asset Multiplier comments:

  • We believe Max is entering a high growth phase led by expansion at Saket (Delhi) and Nanavati (Mumbai). It’s solid balance sheet and production of operational cash flow are anticipated to support organic and inorganic efforts.
  • With a robust development strategy and a positive outlook for the retail sector, we believe Max Healthcare is well-positioned to capitalize on the opportunity in the Indian hospital market for offering quality healthcare services across the country.

 

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

 

  • The closing price of Max Healthcare was ₹ 356/- as of 29-September-2021.  It traded at 47x/37x/34x the consensus earnings estimate of ₹ 7.0/9.6/10.5 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 385/- which trades at 35x the earnings estimate for FY24E of ₹ 10.9/-

 

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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23 Sep

We will remain as third private telco, not turning into a PSU – Vodafone Idea

Update on Indian Equity Market:

On Thursday, the benchmark Nifty50 made a record high of 17,844 and closed at 17,823 (+1.6%). BAJAJFINSV (+4.6%), HINDALCO (+4.5%), and LT (+3.7%) led the gainers. HDFCLIFE (-1.1%), DRREDDY (-1.0%), and JSWSTEEL (-0.6%) led the laggards. Among the sectoral indices, REALTY (+8.7%), FINANCIAL SERVICES (+2.3%), and BANK (+2.2%) led the gainers. MEDIA (-1.7%) was the only sector that ended in the red.

Excerpts of an interview with Mr. Ravinder Takkar, MD & CEO, Vodafone Idea (IDEA) published in Business Standard on 23rd September 2021:

  • The recent telecom package suggests the government recognizes the importance of the telecom industry. Also, it recognizes that competition in the industry is important and does not want a monopoly or a duopoly.
  • While the company has always stated it wants to be the third player, there have been questions around its survival. With the reforms, there is no reason to believe that Vodafone Idea will go away and the telecom market will have less than three players.
  • The four-year moratorium on the spectrum and AGR (adjusted gross revenue) dues will allow the company to make investments and continue to focus on the network. Their 4G network covers 1bn people currently and there is a potential opportunity to increase by 100-150mn. The company plans to increase its capacity, provide a great experience and introduce new services by deploying cash saved due to the moratorium.
  • The reforms package has addressed investor concerns and Mr. Takkar believes it’s a great opportunity to get external funding. The funding can come from new investors, existing promoters, or a mix of both.
  • The talks of Vodafone Idea being converted into a PSU or the government having a role in running the company are incorrect. The government wants the management of Vodafone Idea to run it efficiently and competitively.
  • The tariff has been one of the biggest challenges in the industry and pricing has been used as a tool to kill competition, gain market share, and create a scenario of stress.
  • To fix the industry, pricing has to improve and that has been the company’s stance for a long time. The reforms have created the right environment for price increases. Price increases will come soon and it will be gradual so that there isn’t a huge shock for the customers.
  • There are two elements in ARPU (average revenue per user per month) – pricing and customer mix. The difference with the competitor’s ARPU is due to the mix of customers. Vodafone Idea has a higher proportion of 2G customers. As migration from 2G to 4G happens, the ARPU is expected to improve. As pricing in the industry goes up, ARPU will go up for everyone.
  • The ARPU in India needs to increase to ₹ 200 as it was five years ago, and eventually increase to ₹ 300 for the industry to be sustainable.

Asset Multiplier Comments

  • The government’s relief package provides 4 years of moratorium on AGR and spectrum dues which are expected to reduce the payment burden for Vodafone Idea significantly. With the option to convert deferred dues into equity, the worst-case scenario is the company would be owned by the Government, which ensures survival.
  • Though the government’s relief package has provided a much-needed breather for the Company, it has to accelerate capex in 4G to recoup some of the lost market share. Additionally, increasing ARPU would help in strong cash generation.

Consensus Estimate: (Source: market screener website)

  • The closing price of IDEA was ₹ 10.6/- as of 23-Sept-2021. The consensus estimates of loss per share for FY22E/FY23E/FY24E are ₹ 9.2/ 6.8/ 6.0 /-.
  • The consensus target price is ₹ 6.5/-.

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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27 Jul

Recovery seen in June, growth momentum ahead – SBI Cards

Update on Indian Equity Market:

On Tuesday, markets ended lower with Nifty closing at 15,746 (-0.5%). HINDALCO (+4.3%), SBILIFE (+3.2%), and TATASTEEL (+2.7%) were the top gainers on the index while DRREDDY (-10.3%), CIPLA (-3.5%) and AXISBANK (-3.3%) were the top losers for the day. Among the sectoral indices, METAL (+1.5%) and PSU BANK (+0.4%) were the gainers, while PHARMA (-4.3%), PRIVATE BANK (-0.9%) and REALTY (-0.7%) were the top losers.

 

Excerpts of an interview with Mr. Rama Mohan Rao Amara, MD & CEO, SBI Cards on CNBCTV18 dated 26th July 2021:

 

  • The Company suffered stress from the 3rd week of April till mid-June. Reduction of lockdown restrictions provided the push for the company to ramp up sales and sourcing, and July shows further signs of progress.
  • The company’s New Account Acquisition in the first quarter was lower due to the lockdown effect, however, the company has achieved its run rate of 3,00,000 card issuance per month.
  • Consumer sentiment and discretionary spending are coming back to pre-pandemic levels. The company is optimistic about further growth in sourcing, which is mostly done through bankers, which was affected due to lockdown.
  • Average monthly spending per card was at Rs 11,000 but it’s slowly inching up to indicate increased levels of discretionary spending and rebounding of economic activity in July. The company expects it to grow to Rs 13,000-13,500 levels barring any major disruptions.
  • Recovery is seen in both distribution channels- Bankers and Open Market distributions. With the opening up of the economy further, the company expects to grow from its minimum run rate of 3,00,000 card issues per month by leveraging multi-channel partnerships that the company has developed.
  • 52-53% of FY21 sourcing was done through banker channels which leverages its presence in tier 3, tier 4 towns, and rural areas, indicative of an increased digital penetration in rural areas.
  • Expansion of E-commerce and other online platforms into rural areas has seen a shift to digital transactions across rural areas, which has helped the company tap into its existing banking customer base, which also helps the company keep a track of its delinquencies.
  • The impact of the entire Mastercard ban accounts for less than 2% of monthly sourcing for the company, so the company has little risk. Even so, the company is proactively negotiating with its partners to mitigate the effects.

Asset Multiplier Comments:

  • Credit Cards Industry in India, is in its nascent stages of penetration, and there’s tremendous growth potential with digital penetration in Indian Rural Markets a thrust area for everyone.
  • SBI Cards can leverage the SBI Brand and its penetration across India to unlock growth potential that can rarely be done so easily by any other of its competitors.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of SBI Cards was ₹ 1,017/- as of 27-July-2021.  It traded at 54x/38x the EPS estimate of ₹19/₹ 27 for FY22E/23E.
  • The consensus price target of ₹ 1,184/- implies a 44x PE multiple for FY23E EPS of ₹ 27/-.

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

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13 Jul

Confident of delivering 16-18% CC revenue growth in FY22 – Vaibhav Global

Update on the Indian Equity Market:

On Tuesday, NIFTY closed up at 15,805 (+0.7%). Top gainers in NIFTY50 were ICICI Bank (+2.7%), HDFC (+2.6%), and Grasim (+2.6%). The top losers were Adani Ports (-2.0%), Dr Reddy (-1.1%), and HCLT (-0.9%). The top sectoral gainers were FIN SERVICES (+1.4%), PVT BANK (+1.3%) and BANK (+1.2%) and sectoral losers were MEDIA (-0.6%), IT (-0.3%) and FMCG (-0.2%).

Excerpts of an interview with Mr Vineet Ganeriwala, Group CFO, Vaibhav Global (VAIBHAVGBL) with ET Now dated 12th July 2021

  • In FY21, they grew their unique customer base by about 39% and reached the half-million mark. A part of it was induced by the pandemic. A lot of people were at home and there was high TV viewership and heightened web traffic throughout last year.
  • Their business model is such that it works in all kinds of economic cycles. They have been working on it, expanding their product portfolios, and are getting good traction by retaining old customers and getting new customers on board.
  • When the economies open up, some softening might be seen in certain periods but they are pretty confident of delivering their guidance to the market which is 16% to 18% constant currency revenue growth for FY22.
  • They are an omnichannel player. They sell via TV as well as the web. They are present in marketplaces like Amazon, eBay, etc. They use all kinds of social platforms — Facebook, Instagram, etc. This unique positioning gives a fantastic shopping experience to their customers, a high recall value, and the value positioning which they command.
  • Talking about the TV viewership, he said pay-TV may see a decline in the next few years. The decline in TV viewership of their customer demographics (above 45-50 years) is very low.
  • While the pay-TV decline is seen in the US, at the same time, over the air (OTA) moves are growing. From 13 million homes, maybe seven years back now the OTA which is free-to-air homes in the US has already crossed 20 million. They are constantly increasing their presence there.
  • In the new age stream of OTT, they are consciously investing and are increasing their presence there as well. They recently revamped their Roku app and tied it up with YouTube. They are present in almost all prominent digital, OTT, and streaming devices.
  • While they gave guidance of 16-18% constant currency growth in FY22, they gave guidance of 15-17% for the medium and long term as well.
  • While they will keep working on increasing their market share in the US and the UK, the B2C revenue has been growing at a CAGR of 16% for the last six years. Still, they have a market share of about 2.5-3%. Even in these two geographies, they are pretty confident of increasing the market share there.
  • They announced their German company in January this year. Their team is physically there in Germany already. Their website is already launched in Germany. TV is already live in their partner studio. Their studio which is under construction will be live in a few days. They are pretty excited about the German venture.
  • Part of the growth will come from the US and the UK; part of the growth will come from newer geographies like Germany. Once they stabilize and operationalize the German operation, they would look into other geographies like Japan.
  • They will keep the cash on the balance sheet. They want to build a kitty for the future, both organic and inorganic opportunities. They plan to invest about US$2 million of capex in rolling out the German business this year and similar other organic opportunities for plans as well. Otherwise, they will look at any inorganic opportunities which come their way.
  • Their inventory in terms of holding number days has been going down in the last 2-3 years. in March-20, they had about $60 million of inventory. In terms of the number of days of sales gone down by about 20% year-on-year. While the absolute number might have increased slightly, the sales growth has been much faster.
  • Being a regional supply chain player, in case of any transit delays, they are able to procure material from other countries and even procure locally from the US and the UK. To that extent, their operations are very smooth and they do not see any challenge on that front.
  • As a result of a delay some transient inventory would shoot up in the 2QFY22 but that would be a timing difference. As soon as the shipment situation improves, they will bring that down like they did last year.

Asset Multiplier comments:

  • We believe that the company has good growth prospects due to its presence in different geographies. Also, presence in both B2B and B2C will drive the growth faster.
  • consumer attention is constantly shifting. So, their omnichannel presence strengthens their positioning in the industry.

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

  • The closing price of VAIBHAVGBL was ₹ 813/- as of 13-July-2021. It is trading at 54x FY21 EPS of Rs 15.
  • Consensus estimates are not available for VAIBHAVGBL.

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

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16 Jun

Normalized revenue growth could have been around 15% in 4QFY21- JK Paper

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 15,767 (-0.6%). Top gainers in NIFTY50 were Tata Consumer (+2.1%), Nestle (+1.5%), and ONGC (+1.1%). The top losers were Adani ports (-7.9%), Tata Steel (-2.9%), and Hindalco (-2.8%). The top sectoral gainers were FMCG (+0.5%) and IT (+0.2%) and sectoral losers were METAL (-2.8%), REALTY (-1.2%), and MEDIA (-1.1%).

Excerpts of an interview with Mr. AS Mehta, President & Director, JK Paper (JKPAPER) with CNBC TV18 dated 14th June 2021

  • Sales were impacted for 10 days in 4QFY21. Normalized revenue growth in 4QFY21 could have been around 15 percent.
  • In 4QFY21, the Sirpur plant volume was close to 70 percent of its capacity, which was not there in the 4QFY20.
  • Going forward the full impact of this new high-efficiency boiler for the company is likely to be in the range of Rs 300-350 mn on an annualized basis.
  • The pulp prices at some point of time crossed US$ 800 per tonne, but that is not a sustainable pulp price level. The pulp prices are currently in the same band of US$ 780-800 per tonne and it may continue for some more time.
  • There is no way that the pulp prices can remain in the current band. It can only sustain for a short period. Sustainable prices could be close to US$ 600 plus-minus US$ 20-30.
  • There is no direct connection between global pulp prices and local paper prices. Local paper prices are impacted due to the demand and supply scenario.
  • Post the first covid wave, paper prices dropped by ~18-20% but it revived after demand recovery.
  • Gujarat project is close to Rs 20 bn expansion project. In this project, they are putting up a new board machine & pulp mill. The projected date for completion was April or May but it was delayed due to covid. They are likely to start the trial and the final commission may happen in July. Both the additions will be on stream by the end of 2QFY21.
  • If the situation remains normal, there could be an increase in revenue. There might be some impact but overall performance should be good.

Asset Multiplier comments:

  • The Paper industry was one of the worst-hit due to lockdowns in CY20 and 1HCY21. Now that the lockdowns have been eased, offices have started operating at capacity.
  • Though in-person classes are shut, with online schools and colleges restarting, there will be demand for paper products from students. Hence, there could be a revival in the paper industry.

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

  •  The closing price of JKPAPER was ₹ 175/- as of 16-June-2021. It traded at 5x/ 4x the consensus earnings estimate of ₹ 32.0/ 45.8 for FY22E/23E respectively.
  • The consensus price target is ₹ 225/- which trades at 5x the earnings estimate for FY23E of ₹ 45.8/-

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

By JK Paper 0 Comments Read more...
31 May

Expect the margins to expand in FY22E – Solar Industries

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,583 (+1.0%). Among the sectoral indices, Metal (+2.1%), Realty (+1.4%), and Bank (+1.1%) closed higher. Media (-1.4%), PSU Bank (-0.7%), and Auto (-0.2%) closed in the red. JSW steel (+3.3%), ICICI Bank (+3.0%), and Reliance (+2.8%) were the top gainers. M&M (-4.3%), Adani port (-0.9%), and HDFC Life (-0.6%) were among the top losers.

Excerpts of an interview of Mr. Manish Nuwal, CEO, Solar Industries with CNBC-TV18 dated 28th May 2021:

  • Speaking about Q4FY21 performance, Mr. Nuwal said, the numbers had grown on a low base of Q4FY20. Compared on a normal base, the volume has grown ~24%.
  • In Q4FY21, sales had a growth of ~45% YoY, this was led by volume growth of ~13% and a price increase of 25%. On the international side, the business is performing as per expectations.
  • The company expects a 30% revenue growth in FY22E.
  • Speaking about defence business, he said the business was impacted due to the Covid crisis. Currently, the order book is Rs 6,800mn, and the company recently received an order of multimode hand grenades. The production has already started for multimode hand grenades. The numbers will reflect in FY22E.
  • The target is to receive Rs 3,000mn revenue from defense in FY22E.
  • In terms of incremental defence order, he said the company will participate in the coming RFPs (request for proposal) to grow the order book.
  • Speaking about EBITDA margins, he said going forward the company expects the margins to expand in FY22E. EBITDA margins stood at 21% in Q4FY21.
  • In FY22E, the company plans to spend Rs 3,150mn on Capex.
  • The working capital cycle days have also improved from 113 days to 108 days in FY21. The target is to bring it down to 100days.
  • The debt levels are comfortable and the company is planning for aggressive Capex in the next 2 years. The company announced the setting up of 2 new plants. 1 in south India and the other in North India.
  • The plants are expected to get commissioned within 2 years.

 

Asset Multiplier comments:

  • We believe order book in the defense segment will aid revenue growth in FY22E which in turn might lead to EBITDA margin expansion.
  • The target to lower working capital days will improve the cash conversion cycle and lead to effective utilization of cash.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Solar Ltd was ₹ 1,550 as of 31-May 2021.  It traded at 38x/32x the consensus Earnings per share estimate of ₹ 40.9/49 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,463/- which implies a PE multiple of 30x on FY23E EPS of 49/-.

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

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07 Apr

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% higher at 14,819. Within NIFTY50, JSWSTEEL (+5.3%), WIPRO (+2.4%), and SBIN (+2.2%) were top gainers, while ADANIPORTS (-2.8%), TATACONSUM (-1.4%), and UPL (-1.3%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.9%), AUTO (+1.6%), and PRIVATE BANK (+1.5%) were the highest gainers, while no sector ended with losses.

 

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

 

Excerpts of an interview with Mr. V Kalyana Rama, MD& Chairman, Container Corporation of India (CONCOR), aired on CNBC-TV18 dated on 6th April 2021:

  • CONCOR had good volumes in 4QFY21. Overall for FY21, handling volumes for CONCOR were 2.8% less YoY, while originating volumes were higher on a YoY basis.
  • Rama hopes FY22E will be a good year as demand has picked up and is expected to continue. Export demand has also increased in the last 6 months.
  • CONCOR has paid Rs 5,900 mn to Indian Railways in relation to a dispute, and the issue is now resolved.
  • According to a comment by DIPAM (Department of Investment and Public Asset Management) secretary, divestment of CONCOR may not happen in 1QFY22E. CONCOR divestment can take place only after Indian Railways finalizes land lease policy, which has to be approved by the Cabinet.
  • Commissioning of Western Dedicated Freight Corridor (DFC) is expected to be completed by June 2022. Connection up to Palanpur is expected to start any day now. This will help in connecting to 2 ports- Mundra and Pipavav. This will be a big volume boost in the northern India container movement business. The connection upto Mumbai port will take another year.
  • The DFC will lead to higher revenues. There is also a possibility to increase EBITDA margins due to double stacking and high capacity wagons. CONCOR is planning to have a 100% double stacking movement for all containers meant for northern India.
  • In the short term, Mr. Rama expects more growth in EXIM business as exports are picking up. In the domestic market, he is seeing more people coming toward containerization which will also aid growth. In addition, CONCOR is focusing on bulk transportation of commodities.

Asset Multiplier Comments

  • In the Union Budget for FY22E, Government of India (GoI) has budgeted inflow of Rs 17.5 lakh mn from divestment in PSUs.
  • To kick start the privatization of PSUs, GoI will float the Expression of Interest (EoI) for divestment in CONCOR. GoI plans to divest 30.8% stake and cede management control in the Rs 355 bn market cap (as on 6th April 2021) company.
  • Several Indian as well as global companies seem to be interested in getting a stake in India’s largest container and terminal operator.
  • There has been scepticism on whether GoI will be able to successfully execute their PSU divestment strategy.  Success of this privatization will pave way for further divestments in other PSUs.

 

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

  • The closing price of CONCOR was ₹ 583as of 6-April-2021. It traded at 35x/ 27x the consensus EPS estimate of ₹16.7/21.4 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 520/- implies a PE multiple of 24x on FY23E EPS of ₹21.4/-.

 

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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