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Dated:- 21st August 2019

Updates on the Indian market:

With the completion of result season and no major economic news today, the markets continued the downward journey. Most of this decline came during the closing hours. The Nifty fell by 98 points (-0.9%). Some of the biggest losers in NSE 50 were Tata Motors (-9.5%), Indiabulls Housing (-8.9%) and Yes Bank (-8.6%). All the NIFTY sectorial indexes fell.  With a 3% decline, PSU Bank and Metal sectors were the worst performers.

REPCO Home Finance: Confident of recovering 90% of its non-performing assets

Following are the excerpts from the interview given by Mr Yashpal Gupta, MD & CEO of Repco Home Finance published in Livemint.

·       The loan loss of guarantee given by the government to non-banks may not help the company. He was optimistic about the announcement on priority sector lending through Non-Banking Financial Companies (NBFC).

·       All the Non-Performing Assets (NPA) are from the retail segment as 100% of the loan book is to the retail segment. According to him, the first quarter slightly lags in recoveries and it is a yearly phenomenon for the company. The second part is that because the customers are retail, even after they become NPA, they continue to pay, unlike corporate or builder loans.

·       Out of the NPAs as of June 2019, more than 50% of the accounts are paid with a gap of 2-3 months. It is the technical issue which keeps them as NPA; otherwise, the company does not see any problem as all other numbers are very good according to Mr Gupta.

·       Most of the NPAs are coming from non-salaried class. Earlier, these customers used to pay and the payments used to be in cash. It was affected because they are integrating into the formal economy. The salaried segment is not affected that much. Within product-wise, LAP and home loan are equally distributed.

·       The loan book growth during the quarter was at 13% and the company has given guidance of 12-15% YoY loan book growth for the year. The salaried segment percentage has increased from 45% to 48% during the quarter. The company is confident that the lower prepayment rates along with muted disbursements will lead to loan book growth.

Consensus Estimate (Source: market screener website)

·       The closing price of Repco was Rs 315/- as of 21^st August 2019. It traded at a price to Book Value (P/BV) multiple of 1.09x/0.96x the consensus Book Value estimates for FY20/21E of Rs 290/330 respectively.

·       Consensus target price of Rs 447/- implies a P/BV of 1.35x on EPS of Rs 330 for the year ending Mar-21E.

Dated: 19th August 2019

Quarterly Performance:

1. Net Sales for the quarter stood at Rs 10,110 mn a growth of 18% YoY. The growth was driven by API (Active Pharmaceutical Ingredient) revenue growth of 37% YoY. The Domestic API grew by 9% while exports grew by 47% YoY. The Sartans (used in hypertension treatment) sales helped in the growth for the APIs. India finished dosage business for the quarter grew 13% YoY while the International finished dosage business grew 12% YoY.
2. The EBITDA for the quarter stood at Rs 1,950 mn, a growth of 40% YoY. The growth at the operating level includes a reduction in the remediation cost in the quarter compared to last year and a reduction in the R&D cost. The remediation cost for the quarter stood at Rs 60 mn while the R&D cost was close to 2.5% of the total sales.
3. The EBITDA margins for the quarter were at 19.3% as against 16.3% in 1QFY19.
4. The PAT for the quarter was at Rs 1,320 mn showing a growth of 101% YoY.

Management Commentary:

1. IPCA management expects the domestic business to remain stable and deliver revenue growth of 13-14% in FY20E.
2. The API business was led by an increase in the sales of Sartans. The Company has seen strong demand for Valsartan and Losartan in the export markets.
3. The Institutional business declined 28% YoY in this quarter because of the slow offtake of the Global Fund business. The Company has received an order of Rs 280 mn in this quarter. They expect the order for the full year of FY20E to be around Rs 900 mn. The Institutional business revenues are expected to be in the range of Rs 2,250-2,500 mn for the full year FY20E which includes Global Fund order.
4. The USFDA issue for the 3 plants (Pitampura, Piparia & Ratlam) remains unchanged as IPCA expects FDA to visit these plants.
5. The remediation cost for the full year of FY20E is expected to be less than Rs 100 mn.
6. The Capex for the quarter was around Rs 600 mn and is expected to be Rs 2,200-2,300 mn for FY20E. the CAPEX would majorly include debottlenecking of the capacities.
7. The tax rate for the whole year is expected to be 20% as it is a MAT (Minimum Alternate Tax) company.

Consensus Estimate (Source: market screener website)

• The closing price of IPCA Labs Ltd was Rs 951/- as of 19-August-19. It trades at 22x/17x/ 16x the consensus EPS for FY20E /21E/FY22E of Rs 43.9/ 54.7/ 60.0 respectively.

Consensus target price of Rs 1,021/- implies a P/E of 19x on March-FY21E year ended.

Dated – 19th August 2019

About company

• Galaxy Surfactants Limited is a leading manufacturer of performance surfactants and specialty care products with over 200 product grades used in Home and Personal Care industry. Galaxy surfactants has its presence in 70 countries with more than 1700 Customers.

Q1FY20

• Galaxy Surfactants reported 7% YoY decrease in their revenue at Rs 6,650 Mn
• Total Volume grew by 4% on YoY basis to 54,767 MT.
• Galaxy reported EBITDA growth of 12% YoY basis to Rs 970 Mn.
• Profit after tax stood at Rs 530 Mn, a jump of 15% YoY basis.

Management Commentary

• -7% decrease in the revenue was mainly caused by decrease in their raw material cost (Fatty alcohol), which declined by 19%.
• Galaxy surfactants completed its capex at Jhagadia plant, which increased the capacity by 50,000 MT.
• Capex guidance for the year FY20 is Rs 1250 Mn.
• Management guided that EBITA per tonne will be in the range of 15,000 MT to 17,000 MT.
• There was marginal impact of Ind AS 116 on the company.
• As per the current scenario in domestic market, management expects Q2FY20 to be weaker, whereas in Q3FY20 & Q4FY20 management expects revival of demand in domestic market.
• Galaxy surfactants continuous to perform well in Rest of the world market. In Q1FY20 company reported 26.5% YoY increase in their sales volume (in MT).

 Consensus Estimate (Source: market screener website)

• The closing price of Galaxy Surfactants was Rs 1,302/- as of 19-August-2019. It traded at 21.4x/18.4x consensus EPS for FY20E and FY21E is Rs 60.8/- & Rs 70.6/- respectively.
• Consensus target price of Rs 1,340/- implies a PE of 19.0x on FY21E EPS of Rs 70.6

For more visit www.assetmultiplier.co.in

Dated: 13th August 2019

• APL Apollo volume grew 29% YoY at 388,511 tonnes for the quarter driven by volume growth from GP pipes, Hollow DFT pipes and Normal Hollow pipes of 33%, 30% and 33% YoY respectively.
• Net Revenues were higher by 24% YoY at Rs 20,716 mn. The growth was driven by an uptick in the domestic and overseas market. The value-added products in the categories of Hollow Pipes, DFT (Direct Forming Technology) pipes and GP (Pre- Galvanised) pipes contributed to the revenue growth.
• The revenues include a contribution from Apollo Tricoat for 13 days of the operation in this quarter which amounted to Rs 117 mn.
• EBITDA for the quarter grew 15% YoY at Rs 1,250 mn. The EBITDA margins were at 6.0% as against 6.5% in 1QFY19. EBITDA per ton stood at Rs 3,334.5 vs Rs 3,584.4 in 1QFY19. The key factors impacting the operating performance were:
• Increased spend on Brand development and marketing activities, which stood at Rs 107 mn during the quarter.
• Stamp duty of Rs 23 mn for the acquisition of the Shankara plant during the quarter resulted in higher other expenditure.
• Raw material prices during the quarter were down by ~Rs 1,500/ ton which impacted inventory valuations
• Depreciation stood at Rs 202 mn in 1QFY20, higher by 33% YoY and interest costs stood at Rs 283 mn, higher by 7% YoY. Depreciation was higher due to the commissioning of new capacities and the establishment of a new warehouse in Dubai in the quarter.
• In 1QFY20, PAT grew by 11% to Rs 521 mn. Net profit growth was impacted by higher depreciation and increased tax rate (36% for the quarter).

Management Commentary

• The management has maintained its 20% plus volume guidance for FY20E & FY21E respectively.
• They have set a PAT target growth of 25% for FY20E & FY21e on the back of the improved operating performance going forward.
• They expect the EBITDA per tonne to remain muted at Rs 3,300-3400 for FY20E considering the slowdown in the economy which will have some impact on the Company. They expect EBITDA per tonne to be around Rs 4,000-5,000 tonne in the long term.
• The Company sees no further Capex requirement for next 2 years. They expect the Capex to be around Rs 500 mn annually for the next two years.
• As per the Company, Shri Lakshmi Metal Udyog, APL Apollo Tubes wholly-owned subsidiary, has concluded the acquisition of Apollo Tricoat in June 2019.
• In 1QFY20, Apollo Tricoat started commercial production of its first two product categories namely, the In-line Galvanized (ILG) pipes and Designer Pipes at the existing Greenfield plant at Malur, Bengaluru. The plant has a capacity of 150,000 tons per annum.
• In the month of July 2019, Apollo Tricoat commenced commercial production of Door Frames at its greenfield manufacturing facility at Dujana, Dadri having a capacity of 50,000 MTPA.
• All three launched product segments are higher-margin value-added products, given their niche product applications in India. The Company is also on track to launch the other innovative products category of Narrow Sections by September 2019. An improved portfolio of all the four value-added segments is expected to broaden the product mix and should enable the Company to deliver a healthy financial and operational performance going forward.
• Kerala contributes around 8-10% to the total sales volume for APL Apollo. As Kerala has been hit by floods, the management expects a negative impact on the sales volume. Thus to cover up the volume loss, the Company will focus on other states for a healthy growth in volumes.

Consensus Estimate (Source: market screener website)

• The closing price of APL Apollo Tubes Ltd was Rs 1,299/- as of 13-August-19. It trades at 15x /11x the consensus EPS for FY20E /21E of Rs 88.1/ 114.0 respectively.
• Consensus target price of Rs 1,981/- implies a P/E of 17x on March-FY21E year ended.

What’s your risk tolerance? How do you identify it? Both are important questions that I doubt investors spend a ton of time thinking about at first. They’re also abstract questions thanks to all the convoluted definitions of risk. During an interview, Daniel Kahneman was asked his thoughts about identifying risk tolerance. He suggested a better way to frame the question: what’s your loss tolerance? How much loss can you endure before hitting the breakpoint where emotions push you to change your portfolio? By reframing it, Kahneman forces you to think in terms of Rupees, not percentages. That may not seem like a big difference, but emotions trigger in Rupees terms. Lost Rupees can be quickly equated to missed goals and dreams — less money to spend, a canceled vacation, a postponed retirement — that make you nauseous in ways that a percentage won’t.

Kahneman went on to explain its importance in minimizing regret and how to fit it into portfolio construction.

The main question that he found useful to ask when someone is very wealthy is how much loss is the individual willing to tolerate? That is, what fraction of their wealth are they actually willing to lose? It turns out that fraction is usually not very large. That’s a very important parameter. How much do they really want to protect as much as possible, and how much are they willing to consider losing? That varies a lot among individuals. By and large, the very wealthy mostly want to protect their wealth, and they’re willing to play with a small fraction of it. That is the fraction they are prepared to lose, but it’s not a large fraction. So they’re loss averse, not risk as such.

For the individual who is very concerned about losses, he thinks stop-loss order is certainly a good approach. That’s the major question you want to ask the investor. How much are willing to lose? Then you have to take steps so that they won’t lose more than they are willing to lose. That’s in effect a stop-loss policy.

Daniel Kahneman is an Israeli-American psychologist and economist. His notable work is in area of the psychology of judgment and decision-making, as well as behavioral economics. He was awarded the 2002 Nobel Memorial Prize in Economic Sciences.

Dated: 7th August 2019

Quarterly Performance:

Key Highlights:

1. Net sales for the quarter were Rs 52,082 mn, a growth of 16% YoY. The Jewelry/ Watches/ Eyewear business revenues grew 14%/ 20%/ 13% YoY respectively. Other which includes SKINN (skincare) & Taneira (sarees) grew 53% YoY.
2. EBITDA stood at Rs 5,734 mn, a growth of 18% YoY. EBITDA margins were 11.1% vs 10.8% in 1QFY19.
3. As an impact of Ind AS- 116, Titan reported an increase in the depreciation and interest of 86% and 211% YoY respectively.
4. The impact of Ind AS- 116 in the P&L for Titan for the quarter was an increase in interest cost and depreciation by Rs 200 mn and Rs 330 mn respectively and a reduction in rent by Rs 490 mn, resulting in EBITDA going up by Rs 510 mn and PBT lower by Rs 20 mn.
5. The net profit was Rs 3,662 mn, an increase of 10% YoY. Tax rate stood at 29%.

Management Commentary:

1. Management has cut its 22% growth guidance for the jewellery business. They expect the demand for the jewellery to be impacted in 2QFY20 as well due to the rising gold prices. They expect some revival in the demand for the jewellery by September this year.
2. Management expects a recovery in demand with stabilisation of the gold prices.
3. Management highlighted wedding jewellery sales have been lower than their expectations due to a smaller number of wedding days in 1st half of wedding season.
4. The performance from the South region was good whereas West and East India continue to remain most impacted post spike in the gold price
5. They expect a 20% plus growth in the jewellery business in the 2HFY20E.
6. They have maintained the SSS (same-store sales) growth guidance of 14-15% YoY.
7. The watch business has shown a 20% YoY growth in this quarter on the back of the institutional order from TCS of Rs 560 m. Adjusted for this, watch business revenue grew 11% YoY.
8. There was a one-off expense of Rs 400 mn for the Business Associate Meet which impacted the EBIT margins according to the management. This is a non- recurring expense.
9. Management expects an improvement in the margins with revenue growth coming in accompanied by the increased demand in the market.

Consensus Estimate (Source: market screener website)

• The closing price of Titan is Rs 1,036/- on 07-Aug-19. It traded at 52x / 42x/ 35x the consensus EPS for FY 20E / FY 21E/ FY22E EPS of Rs 19.9 / 24.5/ 29.3 respectively.
• Consensus target price of Rs 1,204/- implies a PE of 49x on FY21E EPS of Rs 24.5.

Dated: 6th August 2019

1QFY20 result update:

• Consolidated Revenue grew 2% YoY (-% QoQ) to Rs 5,506 mn. API, Synthesis, Ingredients and FD segments contributed to 67%,11%,3% and 19% of revenues  respectively.
• EBITDA declined 3% YoY (+27% QoQ) to Rs 832 mn. Reported EBITDA margins contracted by 80 bps YoY to 15.1% from 15.9% in 1QFY19.
• Net Profit fell 9% YoY to Rs 151 mn

Management Commentary:

• Due to delay in shipment, revenues of Rs 750-100 mn are pushed to 2QFY20.
• Laurus has incurred capex of Rs 450 mn in 1QFY20 and has guided for Rs 1,500-2000 mn capex in FY20.
• Laurus is very positive about finished dosage business and expects revenues to reach to Rs 4,200 mn for FY20.
• Company expects ~10% growth in API business for FY20. Company expects ARV revenues to be in the range if Rs 1,300-1,400 mn in FY20
• Laurus has completed backward integration and supply issues from China have been mitigated. This has led to an improvement in the gross margin.

Consensus Estimate (Source: marketscreener website)

• The closing price of Laurus is Rs 317/- as on 6^th August 2019. It traded at 18x / 12x the consensus EPS for FY 20E / FY 21E of Rs 17.2 / 26.7 respectively.
• Consensus target price of Rs 435/- implies a PE of 16x on FY21E EPS of Rs 26.7.

• The total revenues grew 6% YoY to Rs 113,614 mn for the quarter. The revenues from cigarettes business were reported at Rs 54,334 mn, YoY growth of 6% in 1QFY20. The FMCG/ Hotels/ Agri/ Paperboards business grew 8%/ 15%/ 15%/ 13% respectively in 1QFY20.
• The total EBIT was reported at Rs 48,270 mn, YoY growth of 12%. The Cigarette business, which contributed 86% of the total EBIT of the company, reported EBIT margins at 70.8%, YoY growth of 140 bps. Hotels and Agri business margins were under pressure with a decline of 130 bps/ 60 bps at 2.6% and 5.6% respectively.
• The net profit for the quarter was Rs 31,739 mn, YoY growth of 13% as compared to Rs 28,187 mn in 1QFY19. The calculated tax rate was at 34% for the quarter.

Key highlights from the press release:

• Cigarettes: A punitive and discriminatory taxation and regulatory regime, together with a sharp increase in illegal trade in recent years, continues to pose significant operating challenges to the legal cigarette industry in the country. Performance during the quarter was also impacted by weakness in the overall demand environment. Excessive taxation has made legal, duty-paid cigarettes in India amongst the costliest in the world in terms of per capita affordability.
• FMCG: Amidst the market slowdown across urban and rural markets, the FMCG business reported a YoY growth of 8% led by Atta, Potato Chips, Premium Cream Biscuits and Noodles in the Branded Packaged Foods Business, Liquids (Handwash & Bodywash) in the Personal Care Products Businesses and Notebooks in the Education & Stationery Products Business. The segment EBITDA reported YoY growth of 41% despite stepped-up investments in brand building, gestation and start-up costs of new categories.
• Hotels: Revenues grew 15% on the back of new properties, amidst relatively soft demand conditions. In spite of reporting 18% YoY growth in EBITDA, the segmental EBIT declined 21% as the additional depreciation pertaining to new properties weighed on segment results. The Business made steady progress during the quarter in the construction of an ITC Hotel in Ahmedabad and WelcomHotels in Amritsar, Guntur & Bhubaneswar.
• Agri Business: The company has recently forayed into Frozen snacks segment under ‘ITC Master Chef’ brand and it continues to be scaled up. However, lack of trading opportunities in Oilseeds and Pulses, subdued demand for leaf tobacco in international markets, relatively steeper depreciation in currencies of competing origins in recent years and adverse business mix weighed on Segment Results.
• Paperboards business: The company strengthened the business on the back of strong volume growth in value-added paperboard segment and product mix enrichment. The growth in the Packaging & Printing Business was impacted due to sluggish demand conditions in the FMCG industry and exports. Capacity utilisation of the recently commissioned facilities, viz., Value Added Paperboard machine, Bleached Chemical Thermo Mechanical Pulp mill and Decor machine, was further ramped up during the quarter.

Consensus Estimate (Source: marketscreener website)

• The closing price of ITC Ltd is Rs 260/- as on 6^th August 2019. It traded at 23x / 21x the consensus EPS for FY 20E / FY 21E of Rs 11.2 / 12.5 respectively.
• Consensus target price of Rs 332/- implies a PE of 27x on FY21E EPS of Rs 12.5/-.

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Dated: 29th July 2019

Result Update

• Apcotex reported a YoY decline of 2% in the revenues at Rs 1,467 mn. The Gross Margins (Revenues minus cost of goods sold) were reported at 33.4% for 1QFY20, a YoY improvement of 330 bps from 30.1% in 1QFY19.
• Despite the sharp jump in gross margins, EBITDA margins improved by a muted 40 bps YoY to 12.3% as compared to 11.9% in 1QFY19. This is due to a sharp increase in other expenses by 16% YoY to Rs 211 mn. The absolute EBITDA for the quarter was reported at Rs 181 mn, a meagre 1% YoY increase from Rs 179 mn in 1QFY19.
• The PAT for the quarter grew YoY 1% at Rs 114 million as compared to Rs 112 mn in 1QFY19.

Conference Call highlights:

• Mark to Market (MTM) losses for the quarter have been reported in Other Comprehensive Income (OCI) instead of Operating Income (OI). Total MTM loss for the quarter was reported at Rs 6.9 mn as compared to Rs 0.74 mn in 1QFY19.
• The company has spent Rs 600 mn of the planned Rs 900 mn of CapEx till 1QFY20. Remaining Rs 300 mn will be spent in the next 3 quarters of FY20E. The company incurs maintenance CapEx of Rs 60-70 mn every year.
• The auto ancillary business contributed 30% whereas the contribution from construction business for the quarter was in the range of 12-14%. Both the industries are facing slowdown and the company expects the slowdown to remain in the economy in the coming quarters as well.
• The debottlenecking of Nitrile Butadiene Rubber (NBR) plant is expected to be operational by January 20E. 80% of the work is complete and the company is in the final stages of completion of the debottlenecking plan.
• The launch of the solar power plant expansion project is further delayed until October 2019. The initial deadline was July 2019. The company is facing some issues regarding civil construction and environmental problems. The management was confident in launching the power plant before the new deadline.

Consensus Estimate (Source: Reuters website)

• The closing price of Apcotex is Rs 188/- on 29-Jul-19. It traded at 18x / 15x the consensus EPS for FY 20E / FY 21E EPS of Rs 10.6 / 12.8 respectively.

Dated: 24th July 2019

Result:

• Reported NII grew 17% YoY (+7% QoQ) for 1QFY20 to Rs 1,479 mn. Reported NIMs were at 3.18% showing an increase of 40 bps QoQ.
• In 1QFY20, PPOP grew by 15% YoY (+12% QoQ) to Rs 1,316 mn. Reported PAT grew 8% YoY (+21% QoQ) at Rs 810 mn.
• Loan book grew 17% YoY on the back of disbursements growth of 10% YoY.
• Asset quality deteriorated sequentially in 1QFY20. GNPAs and NNPAs were at 0.73% and 0.52% respectively in 1QFY20 compared to 0.62% and 0.43% respectively in 4QFY19.

Management commentary:

• The company expects to bring NPAs down to March 19 levels by 2QFY20.
• During the quarter, the company made NPA provisions of Rs 67.5 mn and standard asset provisions of Rs 19.1 mn.
• In Karnataka, AUM growth was 7%, while ex-Karnataka AUM growth was 22%. Overall, southern region grew 15% and non-south regions reported 20% growth.
• Growth in Metro cities is ~11% while non-metro growth is ~30%.
• The company expects to benefit from the new affordable housing projects coming up on the outskirts of Bangalore. Can Fin will be focusing on tier 2-3 cities.
• Management is hopeful of achieving loan book of Rs 23,000 mn by end of FY20

Consensus Estimate (Source: Market screener website)

• The stock price was Rs 390/- as of close price of 24^th July 2019 and traded at 2.5x/ 2.1x the consensus book value for FY20E / 21E of Rs 158 / 186 respectively. 
• Consensus target price is Rs 431/- implying P/B of 2.3x for FY21E book value of Rs 186.

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management