Tag - spending

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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18 Dec

It’s a perfect storm in the consumer goods sector, says Godrej’s Gambhir

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.9% higher at 12,082. NIFTY50 gainers include Tata Steel (+4.6%), Bharti Airtel (+4.5%), Vedanta (+3.4%) and Hindalco (+3.3%). NIFTY50 losers include Sun Pharma (-1.3%), GAIL (-0.9%) and Bajaj Auto (-0.7%). Metal (+2.9), IT (+1.9%) and Media (+1.0%) were the top sectoral gainers. Pharma (-0.3) and Realty (-0.3%) were the only losing sectors.

Excerpts from an interview with Mr Vivek Gambhir, MD & CEO, Godrej Consumer Products Ltd (GCPL). The interview was published in Livemint dated 16th December 2019

  • For packaged consumer goods companies, rural growth slowed to a seven-year low in the September quarter, according to market researcher Nielsen India.
  • A general gloom in consumer sentiment and stagnating wages continue to impact sales of daily goods in India’s hinterland said, Mr Vivek Gambhir.
  • The slowdown has been persistent for the last three or four quarters according to Mr Gambhir. GCPL saw the first signs around October 2018. Over the last few quarters, along with the slowdown in demand, they have seen liquidity pressure in the channels (wherein traders and distributors have limited access to cash or credit from the market). Similarly, over the last three to six months, consumer sentiment has also worsened. So, in some ways, what the Company is seeing currently is a perfect storm in the FMCG sector with the confluence of slowing demand, channel liquidity pressure and weakening consumer sentiment which has been exacerbating the situation.
  • Reasons for the slowdown: Data on real wage growth in the rural sector shows that real wages have been flat or declining over the last one or two years. According to him, what consumers do is, once certain products are within their spending basket, they spend on them for a while. Then they start dipping into their savings. Even savings rates have come down in India recently. But when sentiment becomes sour, then things start affecting the sector.
  • GCPL has seen such a similar kind of situation in its first couple of quarters. They have seen a volume growth of 6-7%, which is not a bad volume growth. Volume growth is not translating into value growth because of consumer incentives and offers. He believes that is the right call to take as the P&L is quite healthy. GCPL is sitting on attractive margins. The need of the hour is to stimulate demand. Ideally, GCPL would like to be at double-digit volume growth and the efforts going forward will be to get back there.
  • In a slowdown, home and personal care get impacted more than food, according to him. The indulgence categories like beauty products and chocolates continue to grow as consumers like some ‘feel-good” factor even in a slowdown. The slowdown has been quite pervasive and has impacted most categories, particularly in rural India. Within the home and personal care, discretionary categories such as skin creams, conditioners, hair oil, hair colour get impacted. But more items are considered as discretionary for rural consumers given their lower income levels.
  • In the last two or three months, both staples and discretionary have been impacted quite a bit; that is consumer sentiment has worsened. People had very high expectations post the elections. Since they did not see any improvements, the mood seems to have worsened.
  • Views on changing goods and services tax (GST) slabs again: At this stage, trying to do too much with GST rates will be a mistake in his opinion. Companies need time to let the GST rates settle. There are a lot of implementation issues that need to be addressed. The Companies need to continue to work with various stakeholders, particularly small businesses and, in GCPL case, channel partners, to help them deal with what has been one of the largest tax reforms in Indian history post-independence. At this stage, trying to do too much with GST rates to drive short-term collections may not be the right strategy. It is important to stay the course, rather than to make rate changes that are currently being discussed.

Consensus Estimate (Source: market screener website)

  • The closing price of Godrej Consumer Products Ltd was ₹ 677/- as of 17-December-19. It traded at 43x/37x/33x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 16.0/18.6 /20.7 respectively.
  • Consensus target price of ₹ 753/- implies a PE multiple of 36.4x on FY22E EPS of ₹ 20.7/-.
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