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01 May

This week in a nutshell (25th – 29th April)

Technical talks

NIFTY opened the week at 17,006 on 25th April. The index closed 0.8% lower at 17,102 on 29th April. RSI (14) of 49 and MACD are trending downwards. On the upside, the 20DMA weekly of 17,273 could act as resistance while 16,379 could act as support.

FMCG (+1.3%), Auto (+0.5%), and Private Bank (0.2%) were the sectoral gainers in the week. Media (-6%), PSE (-4.4%), and IT (-2.5%) led the laggards.

Weekly highlights

  • The US indices closed the week lower as the market priced in weak earnings from tech giants, inflation worries, and aggressive monetary policy tightening by the Federal Reserve. S&P 500 was down 3.6%, Nasdaq 100 4.5%, and Dow Jones was down 2.8%.
  • With the Q4 earnings season going in full swing, Indian indices are driven by rising input prices, margin pressures, and weak future expectations by companies.
  • Life Insurance Corporation of India, India’s largest life insurer, is set to launch its IPO on May 4. The IPO, according to its red herring prospectus, will comprise an offer for sale of 220 mn equity shares at Rs 902-949 apiece. How the IPO performs amidst uncertainties caused due to geopolitical tensions and foreign sell-offs remains to be seen.
  • The RBI is expected to raise policy rates among major central banks in Asia to tackle the surged inflation. Traders have been pricing a potential 25bps hike in repo rates in June. This has resulted in increased volatility in recent trading sessions.
  • For April 2021-February 2022, the Index of Industrial Production in India averaged 129.97 against 130.1 in the corresponding pre-pandemic period of FY20. Shortage of key raw materials, rising pricing pressures, and global geopolitical risks are some of the challenges faced by the manufacturing sector. Sectors such as chemicals, machinery, and electrical equipment logged an annual contraction in industrial output in February.
  • In light of the recent battery-related fires inside electric two-wheelers, the Union government has asked all-electric two-wheeler brands to refrain from launching new products in the market. The makers are free to sell current models in the market. This is expected to give the government more time to set up an authority for taking a closer look at the cause behind these fires.
  • Traders in the US are pricing a 50 bps interest rate hike when the Fed meets next on May 3rd. Traders are expecting a potential 75bps hike in June, following the meeting next week.
  • A mixed set of earnings from US tech giants has left investors feeling anxious. Investors expected healthy earnings to hold the markets up after a vicious sell-off caused due to an increasingly hawkish Fed and geopolitical tensions stemming from the Russia-Ukraine crisis.
  • FII (Foreign Institutional Investors) continued to be sellers this week and sold shares worth Rs 1,14,450 mn while DII (Domestic Institutional Investors) continued to be buyers and bought shares worth Rs 97,000 mn.

Things to watch out for next week

  • Continuing with the Q4 results season, management commentary about near-term economic recovery, rising cost inflation, and margin pressures are expected to drive the markets.
  • Rising Covid-19 cases in Shanghai, China, and subsequent lockdowns will continue to impact oil prices and equity markets globally. The supply chain disruption for key inputs coming from China is expected to continue to hurt investor sentiments.

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 #WeekInANutshell , , 0 Comments Read more...
19 Mar

This Week in a Nutshell (14th-18th March)

Technical talks

NIFTY opened the week on 14th March at 16,646 and ended at 17,287 on 17th March. NIFTY gained 1.8% throughout the week. The next support and resistance levels for the index would be 16,711 and 17,380 respectively.

All the sectoral indices gained this week, with Financial Services  (+6.8%), Bank (+5.7%), and Auto (+5.6%) being the gainers.

Weekly highlights

  • The retail inflation rate in India – measured by the Consumer Price Index (CPI)- came in at 6.07% in February 2022 as compared to 5.93% in February 2021. Commodity prices are expected to remain at elevated levels due to the geopolitical tensions disrupting supply chains and rising costs.
  • Russia-Ukraine update: Ukraine has warned that peace negotiations could last for weeks and said evacuations of combat zones continued, with another 5,000 people leaving Mariupol. Russia repeated a threat to target arms convoys sent by the US and its allies.
  • After losing ground for 5 consecutive days in the hopes of Russia-Ukraine coming to some sort of agreement, WTI crude settled above US$100/barrel on 18th March after negotiations between Russia and Ukraine deteriorated. Oil prices are expected to remain volatile till there’s some resolution on what Russia’s ultimate goal is.
  • The Federal Reserve on Wednesday raised interest rates by 25bps for the first time since 2018 and laid out an aggressive plan to push borrowing costs to restrictive levels. Investors in the US seemed to shrug off the initial jitters of the rate hike as Feds Chair Jerome Powell said the economy is strong enough to weather the rate hikes and maintain its current strong hiring and wage growth.
  • The Bank of England on Thursday hiked its main interest rate to its pre-pandemic level by 0.25%, the third increase in a row, to battle decades-high inflation. K. inflation hit a 30-year high in January and is expected to rise further as Russia’s invasion keeps energy prices high.
  • NASDAQ (+2%) and S&P500 (+1%) rallied for the fourth consecutive session on Friday as Fed met market expectations by starting its rate-hiking cycle on Wednesday.
  • The foreign institutional investors (FII) turned buyers this week and bought equities worth Rs 16,860 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 12,900mn.

Things to watch out for next week

  • The geopolitical tensions between Russia and Ukraine are expected to continue impacting supply chains, high commodity prices, and volatility in crude oil prices.
  • In India, the next few weeks are expected to be quiet on the corporate front as companies will be in a silent period before the announcement of the FY22 earnings.

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 #WeekInANutshell , , 0 Comments Read more...
03 Feb

Product Specific Price Erosion in US Markets – Sun Pharma


Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,560 (-1.2%). Among the sectoral indices IT (-2.1%), REALTY (-1.7%), and FINANCIAL SERVICES (-1.4%) were top losers, and AUTO (+0.4%) and CONSUMER DURABLES (+0.1%) were sectoral gainers. HEROMOTOCO (+2.3%), BAJAJ-AUTO (+2.1%) and DIVISLAB (+0.9%) were the top gainers. HDFC (-3.5%), ONGC (-3.0%), and SBILIFE (-2.9%) were among the top losers.

Excerpts from an interview of Mr. CS Muralidharan, CFO of Sun Pharma, with CNBC-TV18 dated 02nd February 2022:

  • The government’s focus on healthcare initiatives and push for modernisation in the Union Budget 2022 bodes well for the industry, the incentive for manufacturers is something to look for considering the medium-term horizon.
  • US Specialty Revenues for 9MFY2022 exceeded full-year FY2021 Revenues, the growth in revenues was fuelled by contribution from all the products. Winlevi was recently launched in the US in November 2022 is showing good traction.
  • The company is on a very good footing now because they have been focusing on increasing their prescription of core products which has helped the company record good growth in the global specialty business.
  • The company is now increasing its geographical presence across the globe as a part of the strategy to leverage its pipeline across global markets, it recently launched its Derma-Specialty products Illumya and Cequa in Canada which is seeing good traction.
  • Price Erosion in the US has been a product-specific issue for the company as compared to its other peers which have seen pricing erosion across the board. The company has seen pricing erosion in the ex-Taro generic business but it has managed to control the same by leveraging new launches and efficient supply chain management.
  • Global uncertainty around COVID-19, especially the caseload in the US has impacted the company’s ability to give guidance over the medium term. The company has plans to continue its growth momentum by focusing on specialty revenues and Indian business and the rest of the world emerging markets.
  • EBITDA margins are seeing some pressures due to rising costs. However, the company has reiterated that margins will say stable due to increased operational efficiencies and cost-saving measures.
  • Despite strong competitive pressures, the company has consistently managed to improve its market share in the domestic business and outperform the industry growth by a large margin.

Asset Multiplier comments:

  • US Generic Business has been seeing competitive pricing pressures for all pharma manufacturers. Sun Pharma has effectively managed to mitigate pricing pressures due to prudent policies.
  • Domestic India and the Rest of the World Emerging Market Business has seen good traction in the past few quarters, Sun Pharma can leverage its presence to unlock the next stage of the growth cycle in these markets.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Sun Pharma was ₹ 885/- as of 03-February-2022.  It traded at 28x/25x/22x the consensus Earnings per share estimate of ₹ 32/35/40/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 972/- which implies a PE multiple of 24x on FY24E EPS of ₹ 40/-.

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 Sun Pharma , , 0 Comments Read more...
12 Jan

Demand momentum robust, seen steady growth in the order book – Blue Star


 

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 18,212 (+0.9%). Among the sectoral indices, REALTY (+1.9%), OIL & GAS (+1.5%), and AUTO (+1.5%), closed higher while  PHARMA (-0.2%)  and HEALTHCARE (-0.2%) closed in the red. M&M (+4.5%), BHARTIARTL (+3.7%), and INDUSINDBK (+2.8%) were the top gainers. TITAN (-1.6%), TATASTEEL (-1.5%), and SHREECEM (-1.1%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Blue Star with Economic Times dated 6th January 2022:

  • Right from August onwards, the company has had a good festival season, the demand held up till the New Year sale in quite a few markets. Building up to Sankranti, the sales are good, however, the spike in COVID cases can have some impact on the retail movement, and the company doesn’t expect much loss of sales as it is peak winter season.
  • The company had taken 3 price hikes in CY21 and it has no plans of further price hikes on the back of stabilising commodity prices, improved product portfolio, and efficient supply chain. The company expects commodity prices to be stable over the summer season.
  • The company has improved its supply chain efficiency with regards to insulating itself from shocks by ordering semiconductors till FY23 in advance, blocking raw material inventory for 6 months instead of its usual policy of 3 months. The supply chain challenges continue but it has somewhat eased and the company is fully secured for the summer season.
  • The company has seen robust demand in the room air conditioner industry owing to excellent momentum from tier-3, tier-4, and tier-5 towns. The penetration in the middle class is fast improving.
  • PLI has become an important enabler to create a huge component ecosystem. To earn the PLI, the industry has to improve its revenue which means the competition will be intense and prices will come down while the scale builds up. It is a question of maintaining profitability by building scale.
  • IT, ITES workforce are returning to offices and therefore air conditioning demand is coming. The biggest demand is from the manufacturing sector. Huge expansions are taking place thanks to the PLI in various sectors the government has offered. Capacity expansion is leading to new factories coming up, thus the company expects a huge demand for industrial cooling.
  • There are many social infrastructure projects like the metro railways or water-related projects and the resulting order book is at a record high at this point. It is very encouraging as far as the B2B segment is concerned and the cash flow is also good indicating encouraging signs for the segment.
  • Once in two years, energy labels are getting changed and therefore people will have to buy higher energy efficiency products. But the demand for five-star ACs is not going up significantly because the consumers are predominately first-time, middle-class buyers, who are more price-driven.
  • However in the B2B segment, the real hot selling products are highly energy-efficient like VRB (Vanadium redox battery) or the VFD (Variable Frequency Drive) driven, as manufacturers are more focused on setting up green buildings, platinum rated, and gold rated factories.

Asset Multiplier comments:

  • We think the healthy order book, expansion of business in the B2C segment, and PLI Investments will be the key positives for Bluestar but the supply chain and increased commodity prices may impact profitability.
  • Healthy growth opportunities in Industrial Manufacturing induced Capex and the government’s boost for social infrastructure will drive growth for Bluestar.

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 1,006/- as of 12-January-2022.  It traded at 60x/37x/30x the consensus Earnings per share estimate of ₹ 17/27/33/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,025/- which implies a PE multiple of 31x on FY24E EPS of ₹ 33/-.

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 Blue star , , 0 Comments Read more...
21 Dec

Product Development for Next-Gen EVs under Focus – Sona Comstar

Update on the Indian Equity Market:

After Monday’s freefall, Indian equities recovered on Tueday as the NIFTY 50 closed at 16,771 (+0.9%). None of the sectoral indices ended with losses. METAL (+2.9%), MEDIA (+2.5%), and CONSUMER DURABLES (+2.0%) were the best performers of the day.

Among the NIFTY 50 components, HCLTECH (+4.3%), WIPRO (+3.8%), and UPL (+3.6%) were the gainers. POWERGRID (-1.7%), AXISBANK (-1.1%), and BAJFINANCE (-0.7%) led the laggards.

Excerpts of an interview with Mr. Sunjay Kapur, Chairman of Sona Comstar with CNBC-TV18 on 20th December 2021:

  • Sona Comstar has inaugurated a new state of art research and innovation center in Chennai. This facility is dedicated solely to electric vehicles with an aim to foster the development of advanced products for next-generation electrified vehicles.
  • The semi-conductor shortage situation has not improved much over the past few weeks, as the number of chips required per vehicle are increasing as OEMs shift focus towards more digitally integrated systems in vehicles.
  • This is a trend across other industries as well, where the demand for more complex and efficient chips is increasing, adding to the supply issues. Currently, the Auto industry consumes 7% of semiconductor supply, which is slated to go up to 20% in the next 5 years.
  • There’s no immediate relief in sight as there’s no anticipation of a slowdown in demand, so until the supply catches up this issue will persist in the medium term.
  • Logistics, CIF, and Raw Material Inflation are near-term headwinds for the company, the demand persists the challenge lies in solving the supply-side issues in the medium term.
  • The company has set up a state-of-the-art Testing and R&D Facility in Chennai to develop 30-50 Kw Motors and Controllers for EVs. The company is in talks with global OEMs to gauge the demand arising from a shift towards EVs.
  • Conversion from ICE to EVs in terms of the 2 Wheeler market provides a once-in-a-lifetime opportunity for all auto-ancillary companies. The company believes that in a market of this size, competition can co-exist with significant market share

Asset Multiplier Comments

  • The shift to EVs provides a massive growth opportunity for all auto and auto ancillary companies and Sona Comstar is perfectly placed to take advantage of its unique R&D-led product portfolio.
  • The Auto Industry is reeling from the semi-conductor shortage crisis and with no respite in sight, we believe the company will be under pressure in the medium term until the supply side issues are sorted out.

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

  • The closing price of Sona Comstar was ₹ 709/- as of 21-December-2021.  It traded at 118x/ 75x the EPS estimates of ₹ 6.0/ 9.5/- for FY22E/FY23E respectively.
  • The consensus target price of ₹ 708/- implies a P/E Multiple of 75x on FY23 EPS estimate of ₹ 9.5/-.

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.”

By Auto Ancillary , , 0 Comments Read more...
11 Nov

Investments in EV Business a priority – Mahindra and Mahindra

Update on the Indian Equity Market:

 

On Thursday, Indian benchmarks declined for the third consecutive session with NIFTY closing at 17,874 (-0.8%). Among the sectoral indices, METAL (+0.4%),  CONSUMER DURABLES (+0.3%) were the only gainers. REALTY (-2.3%), PSU BANK (-1.8%), PHARMA (-1.4%) led the laggards. Among the stocks, TITAN (+1.7%), HINDALCO (+1.1%), and JSWSTEEL (+0.6%) led the gainers, while SBIN (-2.8%), ONGC (-2.6%), and SBILIFE (-2.5%) led the laggards.

 

Excerpts of an interview with Mr. Manoj Bhat, CFO, Mahindra and Mahindra (M&M) with CNBC-TV18 on 10th  November 2021:

  • Raw Material Inflation has been a key headwind for the industry due the commodity cycle turning, However the company is taking a calibrated approach to passing on the costs to consumers through price hikes as the commodity cycles are transient in nature.
  • The company already has taken 3 price hikes in the farm segment and 2 in the auto segment, and there’s still robust demand and thus the company plans to adopt a wait and watch policy.
  • The entire auto industry has seen margins getting contracted severely and the company thinks that the margins have bottomed out at these levels. However the impact was seen in this quarter due to volume loss as a result of semiconductor issue and new product launches which are margin dilutive in the first few quarters.
  • The Company expects margins to improve over 2HFY22 due to scale benefit from volume recovery as the semiconductor situation improves, and calibrated price hikes if necessary.
  • The semi-conductor issue is a global one and it peaked in Q2FY22, but there’s signs of improvement across the world with improving visibility and the company expects normalcy in 1HFY23.
  • Tractor volumes were impacted due to erratic monsoons, however even on an inflated base of FY21, the company expects high single digit growth in FY22. The demand fluctuation is short term the company expects demand to stabilise in 4QFY22 led by market share gain by the company.
  • EV Three Wheelers segment has shown tremendous growth of 317% YoY in Q2FY22 with a 63% market share. The company expects 20% of current 3 wheeler segment to shift to EV by FY25, and the company has plans to invest Rs 30 bn over FY23-25 to expand its dominant position.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • Notwithstanding the semiconductor shortage, it has received a positive response for its new launches such as Thar, XUV 300, and Bolero Neo. The company has indicated its loyal customers are willing to wait as long as 9-12 months to get the new cars. We like the customer loyalty and expect the company’s top line to benefit in the medium to long term.
  • While its revamping its SUV portfolio, the company has ambitious plans to launch electric varients in its UV and 3W portfolio. This may help improve the product penetration.

 

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

  • The closing price of M&M was ₹ 925/- as of 11-November-21. It traded at 24x/ 20x/ 17x the consensus EPS estimate of ₹ 39/ 46/ 54 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,050/- implies a PE multiple of 19x on FY24E EPS of ₹ 54/-.

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 Mahindra & Mahindra , , , 0 Comments Read more...
19 Oct

Organic growth to sustain as guided, no big bang acquisitions planned– HCLTECH

Update on the Indian Equity Market:

On Tuesday, NIFTY50 ended its 7-day winning streak to close at 18,419 (-0.3%), dragged down by REALTY (-4.7%), PSUBANK (-3.7%), and FMCG (-3.2%). The sectoral gainers were IT (2.2%), and FINANCIAL SERVICES (0.2%). Among the stocks, TECHM (+4.3%), LT (+3.3%), and INFY (+1.8%) led the gainers while ITC (-6.3%), TATAMOTORS (-4.9%), and EICHERMOT (-4.5%) were the top laggards.

HCLTECH missed the street estimates in the declared earnings for the quarter ended 30th September 2021. Mr. C Vijayakumar, Chief Executive Officer, and Mr. Prateek Aggarwal, Chief Financial Officer at HCL Technologies discussed the quarter gone by and reaffirmed its annual FY22 guidance in an interview with CNBC-TV18 on 18th October 2021:

  • The Products and Platforms business has been a laggard in FY22, with quarterly slippages affecting the guidance of the segment but the impact is immaterial to the top-line growth, where the company has reaffirmed its EBIT margin guidance of 19-21%.
  • Q2FY22 was the best quarter for the company with unprecedented growth in client mining, large deal wins, and total headcount. The company has introduced a formal dividend pay-out policy on the back of its commitment to rationalise capital allocation.
  • The Company has rolled out the first tranche of wage hikes in Q2FY22 and expects the second tranche to be rolled out in Q3FY22. It expects the slippages in the Products and Platforms business to be recovered in the upcoming quarter.
  • The company had a track record of a high dividend pay-out until FY20. With a significant outflow due to an acquisition, the pay-outs were subdued over the past few quarters. With a recovery in free cash flows and demand from investors, the company has decided to come up with a formal dividend policy with higher pay-outs.
  • The current demand environment has established momentum in the organic business. The company plans to focus on executing current demands rather than go all-in after a major acquisition. The company may add small tuck-ins to expand capabilities or geographies.
  • In Q2Fy22, the company had a strong deal win rate. The pipeline in Q1FY22 was at the highest level ever, it slightly moderated because the company closed a lot of deals.
  • The pipeline has a good mix of mid-size and large deals. There is also a lot of momentum in existing accounts, where customers are ramping up on several digital initiatives, with smaller ticket transformational projects are being taken up by the company.
  • The company expects to exceed its initial guidance on hiring 20,000-22,000 freshers on the back of robust demand and backfilling attrition in the recent quarters.
  • Momentum is seen across all verticals with BFSI and Manufacturing being the leaders. The manufacturing vertical is seeing an uptick in engineering services with various transformational deals and projects being undertaken.

 

Asset Multiplier Comments

  • COVID-19 pandemic has unmistakably created a paradigm shift in the ITES Industry, with a strong focus on digitisation around the world across both size and verticals will result in a high growth period for the industry.
  • HCL Tech like its peers will also continue to face supply-side crunch and attrition problems. The situation is expected to improve over the next few quarters which will help to reduce the margin pressures.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 1,232/- as of 19-October-2021. It traded at 25x/ 22x/20x the consensus earnings estimate of ₹ 49/ 56/ 63. for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1360/- implies a PE multiple of 22x on FY24E EPS of ₹ 63/-.

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 HCL Technologies, IT , , , , , 0 Comments Read more...
16 Sep

Semiconductor shortage to persist – Motherson Sumi

Update on Indian Equity Market:
On Thursday, markets ended on a high with Nifty closing 110 points higher to close at 17,630. INDUSINDBK (+7.3%), ITC (+6.6%), and SBI (+4.5%) were the top gainers on the index while GRASIM (-1.8%), BHARTIARTL (-1.3%), and TCS (-1.3%) were the top losers for the day. Among the sectoral indices PSU BANK (+5.4%), PRIVATE BANK (+2.7%), and BANK (+2.2%) were the top gainers, while MEDIA (-1.7%), METALS (-0.6%), and IT (-0.6%) were laggards.

Excerpts of the Interview with Mr VC Sehgal, Chairman of Motherson Sumi with CNBCTV18, dated 15th September 2021:

A lot of struggling semiconductors manufacturers are coming back on stream. However, with the uncertainty and guidance from manufacturers, the company expects this issue to persist beyond Q2CY22.
The sophistication required and the manufacturing processes of these semiconductor chips are extremely complex, the current structural barriers faced by these manufacturers can’t be removed overnight.
Demand has picked up for the entire sector, however, there’s a rise in inventory for OEMs as manufacturers wait for semiconductors to be supplied to complete the production and deliver the automobiles.
OEMs like Motherson Sumi are agnostic towards the engine that is fitted into the automobile, whether EV or ICE. However, the shift towards EV is value accretive for the company.
PLI scheme is more focused on technology transfer and development than actual production, however, these schemes coupled with the EV push by the government will result in robust demand for OEMs.
Raw Material price hikes and other margin pressures are a function of cycles and thus the company is not planning to take any aggressive steps to counter it. Right now the focus is only on delivering on the pent-up demand as fast as possible.

Asset Multiplier Comments:
Semiconductor shortage is an issue that’s going to persist for the upcoming quarters and is universal. The Auto and Ancillary Sector has to bear the brunt until things get better.
Motherson Sumi by the virtue of its product portfolio is indifferent to the ICE/EV competition, thus it is better placed for robust growth ahead once the supply side issues subside.

Consensus Estimates (Source: market screener website):
The closing price of Motherson Sumi was ₹224/- as of 16-September-2021. It traded at 32x/20x/17x the EPS estimate of ₹ 7/₹ 11/₹ 13 for FY22E/23E/24E
The consensus price target is ₹ 256/- which trades at 19x the EPS estimate for FY24E of ₹13/-
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, Auto Ancillary, Motherson Sumi , , 0 Comments Read more...
30 Aug

Strong tailwinds for Steel production in India – Jindal Steel and Power

Update on Indian Equity Market:

On Monday, markets ended at an all-time closing high with Nifty closing 226 points higher to close at 16,931. BHARTIARTL (5.0%), DIVISLAB (4.2%), and AXISBANK (4.0%) were the top gainers on the index while TECHM (-1.4%), NESTLEIND (-1.1%), and EICHERMOT(-1.1%) were the top losers for the day. Among the sectoral indices,  METAL  (2.5%), PSU BANK (2.0%), and BANK (2.0%) were the top gainers, while IT (-0.6%) was the only laggard.

Excerpts of the Interview with Mr. VR Sharma, Managing Director at Jindal Steel and Power Ltd on Economic Times, dated 24th August 2021:

  • The steep fall in Iron Ore prices has lifted the market spirits across the world. However, that hasn’t translated to a fall in steel prices due to stiffness in coking coal prices and high input costs for other ferrous metals. 
  • The lower iron prices aided by a $1000/MT steel price in international markets are translating into improved gross margins for producers, and the market will likely stabilise at these levels.
  • India has to reach a level of about 300 million tonnes by 2030. In nine years, it may be producing about 300 million tonnes of steel and consuming the same quantity. 
  • Overnight it is very difficult to build up capacities. Building up capacities takes about three to four years, all-steel producers are bullish about India’s prospects, and a Rs. 2 tn investment is expected to be made over the next 5 years.
  • The sector is showing healthy growth and the demand has already begun to pick up, the company expects the entire steel sector to shine in the upcoming years.
  • Steel demand will continue because infrastructure projects are in offing and there are a lot many projects on the table now. The construction sector is booming and the shipbuilding sector, defence sector, and the oxygen cryogenic plants are increasing in terms of number.
  • Headwinds such as adverse Chinese Steel Policy, logistical bottlenecks, Covid induced supply disruptions have led to coking coal prices being inflated. This is putting pressure on steel prices which are not expected to recover in the short term.
  • The industry expects to shift from coking coal to indigenous coal, which is both cost friendly and environment friendly and offers protection from such price shocks.
  • The Chinese steel industry has seen a  dip in production and consequently exports, being the second-largest steel producer, India is well poised to take the benefits of  Chinese fallback,

Asset Multiplier Comments:

  • The cyclical recovery in the steel sector may have finally arrived. With the tailwinds for this industry, it is likely to grow fast over new capex and recovery cycle for the decade. 
  • Jindal Steel and Power is one of the largest steel producers in India. It is well poised to reap the benefits of scale and the tailwinds. It is likely to deliver great value to its shareholders.

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 379/- as of 30-August-2021.  It traded at 7x/5x the EPS estimate of ₹56/₹ 77  for FY22E/23E. 
  • The consensus price target is ₹ 538/- implies a PE multiple of 7x on FY23E EPS of ₹ 77/-.

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 Jindal Steel & Power Limited , , 0 Comments Read more...
16 Aug

Production loss to be minimal despite semi-conductor Shortage: Bharat Forge

 

Update on Indian Equity Market:

On Monday, markets ended higher with Nifty closing 34 points higher to close at 16,130, TATASTEEL(3.7%), BAJFINANCE (3.4%) M&M (2.4%) were the top gainers on the index while MARUTI (-2.6%),SHREECEM (-2.3%) and EICHERMOT (-2.3%) were the top losers for the day. Among the sectoral indices,  METAL  (1.5%), OIL & GAS (0.9%) and  FINANCIAL SERVICES (0.4%) were the top gainers, while MEDIA (-1.4%),  PSU BANK (-1%) and AUTO (-0.9%) were the top losers.

 

Excerpts of an interview with Baba Kalyani, CMD of Bharat Forge on CNBCTV18 dated 13th August 2021:

 

  • Despite mounting input cost inflation, Company managed to expand its margins by 100 bps sequentially and posted robust growth on both Revenue and Net profit Fronts in Q1FY22
  • Semi-Conductor shortage is a universal phenomenon that’s affecting industries and businesses across the world. In the case of OEMs, most of them have taken adequate steps to address this issue. 
  • In the short term, everyone is suffering some loss in production, however, the company expects no adverse impact on production in the medium-long term. The company reiterated that the situation was outside the control of anyone and its a matter of when and not if the issue will be resolved,
  • He stated that the industry has resorted to rationing of semiconductors to produce higher-value products. This will impact the supply in the short term. 
  • A lot of Passenger vehicle manufacturers have resorted to reducing the production of lower end passenger cars against higher value cars that offer better realisations.
  • Cost Reduction was the company’s important priority in the past 2 years and the company has optimised costs through downsizing, IoT and WC Management, to produce the best margins this company has seen.
  • The company has a strong balance sheet and healthy cash balance, the company plans to take forward its growth through inorganic acquisitions aimed at future technologies like e-mobility, renewables etc as the company gears itself for the future.

 

Asset Multiplier Comments:

 

  • The Semi-Conductor shortage will be dealt with sooner rather than later, barring any major disruptions, OEM and the entire Auto and Ancillary sector is recovering well.
  • Bharat Forge has managed to improve its margins and its plans to grow across all segments through strategic investments as it gets ready for the future are on the right track.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Bharat Forge was ₹803/- as of 16-August-2021.  It traded at 45x/29x /26x the EPS estimate of ₹18/₹ 28/₹ 31 for FY22E/23E/24E.
  • The consensus price target is ₹ 900/- which trades at 30x the EPS estimate for FY24E of ₹ 31/-

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