Tag - price hike

    • Tag -
  • price hike
10 Mar

‘Experience of the Future’ stores next big thing – Westlife Development

Update on the Indian Equity Market:

On Thursday, NIFTY50 ended in the green for the 3rd straight session at 16,595 (+1.5%). The trends for five state assembly elections may have aided the sentiment as the ruling BJP led in the majority of the seats in India’s largest state of Uttar Pradesh.

Among the sectoral indices, FMCG (+3.0%), PSU BANK (+2.3%), and METAL (+2.3%) led the gainers while IT (-0.1%) was the only sectoral index that closed in the red. Among the NIFTY50 stocks, HINDUNILVR (+5.2%), TATASTEEL (+4.3%), and GRASIM (+4.1%) led the gainers while COALINDIA (-3.8%), TECHM (-1.5%), and DRREDDY (-1.2%) led the losers.

Excerpts of an interview with Mr. Amit Jatia, Vice Chairman, Westlife Development published in Financial Express on 10th March 2022:

  • India has an inflationary tendency, so cutting costs is a part of the Company’s DNA. Vice-Chairman believes sales growth should be accompanied by a 100-250bps cost reduction YoY to survive.
  • If a certain cost increased, the company finds a reduction in some other avenue to maintain the balance. He doesn’t believe this policy will change in the next three to five years.
  • He believes inflation is here to stay. The company takes a 3-5% price hike every year and CY22 will not be any different.
  • Currently, there are a total of 316 McDonald’s outlets out of which 248 have McCafe inside them, which are proper coffee shops.
  • The company is working on accelerating the expansion of its network and plans to have over 500 stores in the next 3-5 years. This will require an investment of over Rs 8bn.
  • The expansion strategy will also be aligned to the company’s omnichannel strategy with a robust portfolio of ‘experience of the future’ (EOTF) stores, drive-throughs, and stores with separate take-out windows. The company will be doubling its drive-throughs within India. Menu innovation, omnichannel presence, and network expansion will continue to be the key levers for Westlife.
  • The EOTF stores are a big thing now, as the company is trying to change the way the QSR industry will operate in the future.
  • There are no favorites when one talks about the McDonald’s brand. Offerings like McAloo Tikki, McChicken, McSpicy, McVeggie are all consumer favourites, and the company is not dependent on one product.
  • The eating behaviour of customers has changed tremendously. Earlier, consumers were focused on snacking when eating out at a QSR, now they are looking at a complete meal. As a result, the Company’s focus has shifted towards larger opportunities which are meals.
  • In the last 2 years, the company has pivoted to become an omnichannel brand wherein the digital channels are accelerated at a phenomenal rate for McDonald’s. Its drive-through, contact-less take-away, on-the-go service ensured continuity of operations. Also, as stores were reopened delivery continued to grow. So, both in-store dining and delivery have provided an impetus to revenue and profitability growth. In 3QFY22, as most of the dine-in restrictions were eased, revenue from convenience channels grew 55% YoY with McDelivery reporting its highest ever revenue so far.
  • The new range of burgers along with the Fried Chicken platform and McCafe helped accelerate the average unit volume growth by 30% without any significant capex investment.

Asset Multiplier Comments

  • With increased focus on hygiene due to the pandemic, customers’ preference has shifted towards branded products. We believe McDonald’s (Westlife Development) is well-placed to benefit from this opportunity due to its brand recall, strong network, and variety of products.
  • With the new launches such as Fried chicken, the company is evolving from being just a burger company and providing tough competition to its peers.
  • With the entry into adjacent spaces such as Gourmet burgers and Fried chicken without incremental capex, the company will be able to improve its margins and provide better returns to shareholders.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of Westlife Development was ₹ 478 /- as of 10-March-2022. It traded at 76x/ 52x the consensus earnings estimate of ₹ 6.3/9.2 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 629/- implies a P/E multiple of 68x on FY24E EPS estimate of ₹ 9.2/-

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 Consumer, Westlife development , , 0 Comments Read more...
03 Mar

Price hikes make sense when loss ratios are moving up- Bajaj Allianz General Insurance


Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 16,498 (-0.6%). Among the sectoral indices, OIL & GAS(+1.5%), IT (+1.2%), and METAL (+1.2%) closed higher while AUTO (-2.3%), CONSUMER DURABLES (-1.3%), OIL & FINANCIAL SERVICES 25/50 (-1.3%) closed lower. Among the stocks, ONGC (+4.6%), UPL (+4.5%), and POWERGRID (+2.8%) were the top gainers while ULTRACEMCO (-6.7%), ASIANPAINT (-5.2%), and HDFCLIFE (-5%) were among the top losers.

Excerpts from an interview of Mr. Tapan Singhel, MD & CEO of Bajaj Allianz General Insurance (BAGIC) in Business Standard dated 3rd March 2022:

  • During the third wave in January 2022, claims moved up 241 percent compared to December 2021 but the severity and hospitalization were low as compared to the second wave. The claim ratio did move up but not as much as it did in the second wave.
  • COVID claims contributed 20% to the overall claim ratio. The company has settled COVID-related claims of over Rs 8,000 mn since April 2020.
  • There was a 20 percent movement in BAGIC’s loss ratios. They were the only ones to make underwriting profits in CY21 but COVID-19 still impacted the profitability of the business. There was some relief in the motor segment as the claim ratios declined during the pandemic.
  • BAGIC would have considered increasing its premiums had COVID-19 been a regular phenomenon.
  • Mr. Singhel worries about the rising medical inflation which has gone up 30-45 percent in the last three years from a typical range of 10-15 percent. He also pointed out the need to have regulators for hospitals to control hospital bill inflation and a reduction in GST of 18% on premiums.
  • The premiums on group health policies have gone up due to price hikes taken to manage increasing loss ratios in that segment. In retail health, companies can take price hikes only after three years. During the pandemic, many consumers purchased covid- related products. Overall, on a base effect, growth in retail seems lower.
  • The insurance industry has a direct correlation with the volumes of vehicles being sold. The semiconductor shortage has caused sales volumes to decline resulting in muted growth in motor insurance premiums.
  • Hikes in motor third-party premiums will be taken when loss ratios start moving up in this segment. The industry seems comfortable with the existing situation.
  • As infrastructure is the main focus of our country, Mr. Singhel believes there should be solutions to provide funding to contractors and free up their capital. He believes surety bonds to be a very good move by the regulator and the government and that BAGIC will be keeping an eye on this business. The idea is to not replace bank guarantees entirely.
  • BAGIC is sure that any acquisition they do would be adding value to the company, in terms of distribution or processes.

Asset Multiplier comments:

  • We expect the health claims ratio to moderate from its peak levels that were observed during the pandemic.
  • With economic activities picking up, we believe BAGIC is well placed to maintain its combined ratio at pre-covid levels over FY23 and 24.
  • Improvements in operating efficiencies and moderation in claims ratio are expected to improve BAGIC’s profitability over the subsequent quarters.

Consensus Estimate: (Source: Market screener website)

  • BAGIC is a subsidiary of Bajaj Finserv Ltd. The closing price of Bajaj FInserv was ₹ 15,704 as of 3-March-2022. It traded at 6.4x/5.5x/4.7x the consensus book value per share estimate of ₹ 2,452/ 2,848/ 3,326/ for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 16,341/- which implies a PE per share multiple of 4.9x on FY24E BVPS of ₹ 3,326/-.

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 Bajaj General Insurance, Insurance , , 0 Comments Read more...
15 Sep

Expects volumes to beat industry growth by 10% – JK CEMENT

Update on Indian Equity Market:

On Wednesday, NIFTY ended at 17,519 (+0.8%) as it closed near its high at 17,533. Among the sectoral indices, PSU BANK (+2.8%), CONSUMER DURABLES (+1.0%), and AUTO (+0.9%) ended higher, whereas MEDIA (-1.6%) ended lower. Among the stocks NTPC (+7.5%), BHARTIARTL (+4.8%), and COALINDIA (+4.0%) led the gainers while TATACONSUM (-1.0%), NESTLEIND (-0.6%), and GRASIM (-0.5%) led the losers.

Excerpts of an interview with Mr. Rajneesh Kapoor, Chief Operating Officer, JK Cement (JKCEMENT) with CNBC TV18 on 12th September 2021:

  • JKCEMENT saw an average price decline of 3-4% across all regions in India excluding the East. Traditionally, August is a time where prices drop as a result of peak monsoons. JKCEMENT expects this sentiment to continue in the month of September as well.
  • However, this year’s August was slightly different as the company saw the highest volumes in terms of market demand in FY22 and Kapoor expects this trend to continue hereafter.
  • Volumes in Q3FY22 and Q4FY22 are going to be really good as a result of an increase in capacity utilization hence, there could be an uptick in prices in October and November as the monsoon starts receding. September could see a price uptick of 1.2%.
  • Demand has been healthy across all regions in the country amounting to 40-50% on a year-to-date basis. However, the prices at this point of time are marginally below on a Y-o-Y basis as compared to last year.
  • The real challenge that the industry faces today is in terms of cost. US Petcoke which used to be imported at a rate of 74$ to 78$ per ton is currently trading at 190$ per ton. This problem gets complemented by the scarcity of coal not only in India but also in international markets. China has stopped coal production for safety reasons and Indonesia, also a big supplier has peak monsoons which is why coal supplies have gone down. As a result, fuel cost has increased close to 100%.
  • Going forward, the price increase is going to be a necessity and this could take place post-monsoon.
  • In terms of volumes, JKCEMENT expects good growth because of capacity growth in FY20. Mr. Kapoor expects JKCEMENT to be 10 percent ahead of the market.
  • Capacity addition highlights: Capacity expansion at Panna, Madhya Pradesh is progressing as per the schedule and is expected to be commissioned by Mar-23.

Asset Multiplier Comments

  • The construction business is expected to resume its pace after the monsoon recedes and hence the demand for cement could go up.
  • JKCEMENT has decided to do several capacity expansions and up-gradation of its existing kilns.
  • These could contribute in increasing JKCEMENT’s market share and revenues.

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

  • The closing price of JKCEMENT was ₹ 3395 /- as on 15-Sept-2021. It traded at 28x/25x the consensus EPS estimate of ₹ 123/138 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 3,429/- implies a PE multiple of 25x on FY23E EPS of ₹138/-

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 Cement, JK Cement , , 0 Comments Read more...
02 Sep

Expect a substantial price hike due to spike in input costs – Maruti Suzuki

Update on Indian Equity Market:

On Thursday, NIFTY ended at 17,234 (+0.9%) as it closed near its high at 17,243. Among the sectoral indices, OIL & GAS (+0.8%), CONSUMER DURABLES (+0.6%), and FMCG (+0.6%) ended higher, whereas PSU BANK (-0.5%) and AUTO (-0.2%) ended lower. Among the stocks SHREECEM (+6.0%), HDFCLIFE (+5.8%), and CIPLA (+3.5%) led the gainers while M&M (-1.9%), ONGC (-0.9%), and BAJAJ-AUTO (-0.9%) led the losers.

Excerpts of an interview with Mr. Shashank Shrivastava, Executive Director of Maruti Suzuki (MARUTI) with CNBC TV18 on 31st August 2021:

  • MARUTI is looking to cut production in September due to a shortage of semiconductors. The auto manufacturer is also getting ready for a substantial price hike in the upcoming month and this will be the fourth one since January due to a sharp rise in commodity costs.
  • Commodity prices started going up from April-20 and they impacted MARUTI’s material cost, which is 75 percent of the total cost of manufacturing. The increase in prices of commodities like steel and copper was close to 50% and precious metals like Rhodium had a price hike of 257%.
  • Since they were already coming out of a bad year (FY20) which was 18% less than FY19 and Covid-19 had badly affected 1QFY21, they did not wish to compromise demand and hence there was no price hike.
  • However, they did increase prices in January by 1.4% in the hopes of some softening in commodity prices which did not pan out as expected. This made them deploy an additional price hike of 3.4% in April and another hike of 0.3% in CNG vehicles in August.
  • Shrivastava confirmed that the upcoming price rise would be substantial and it would be deployed across all models produced by MARUTI.
  • He did not reveal any production numbers for September since that depends on how the shortage situation pans out for their semi-conductor vendors.
  • The number of electronic components varies from product to product and model to model within MARUTI’s large portfolio and for the past few months, they have been trying to adjust production to maintain high levels of production.

 

Asset Multiplier Comments

  • Semiconductors are silicon chips that cater to control and memory functions. The shortage of such a crucial component has been impacting the automotive industry globally along with other industries, forcing them to cut down on production.
  • MARUTI reported a decline of 20% in sales in August, as compared to July 2021.
  • Owing to a supply constraint of electronic components due to the semiconductor shortage situation, MARUTI expects a decline of 60% in vehicle production in the month of September in Haryana and Gujarat. As certain fixed costs are to be incurred, margins could be affected in the short term.
  • With the festivities coming up, there could be a rise in demand for vehicles and how MARUTI is able to match this festive buying with its supply remains to be seen.
  • MARUTI is in no rush to join the electric vehicle bandwagon until they make it feasible for customers in terms of affordability.

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

  • The closing price of MARUTI was ₹ 6,780/- as of 02-Sept-2021. It traded at 40x/27x/21x the consensus EPS estimate of ₹ 188/280/354 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 7,560/- implies a PE multiple of 21x on FY24E EPS of ₹354/-

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 Auto, Maruti Suzuki , , 0 Comments Read more...