Inquiries and booking coming back as more states are unlocking- Maruti Suzuki

Update on the Indian Equity Market:

On Thursday, NIFTY closed up at 15,790 (+0.6%). Top gainers in NIFTY50 were Infy (+3.5%), TCS (+3.3%), and JSW Steel (+2.2%). The top losers were Reliance (-2.6%), IOC (-1.3%), and Coal India (-1.1%). The top sectoral gainers were IT (+2.8%), PVT BANK (+0.8%) and BANK (0.7%) and sectoral losers were PSU BANK (-1.4%), MEDIA (-1.1%), and REALTY (-0.8%).
Excerpts of an interview with Mr. Shashank Srivastava, ED, Maruti Suzuki (MARUTI) with ET Now dated 22nd June 2021

  • Car is a discretionary product. It is a very large-item product; it is probably the second-largest purchase people make in their lifetime in India. As a result, future demand depends on the economy in general — the per capita income growth and the sentiment.
  • Per capita income growth is expected around 10% as RBI had indicated, lower than the budget figure which was indicated around 14% or so. After the second wave, there has been a lowering down of expectations of economic growth.
  • The rural sentiment is a little more negative at this time of the year compared with last year. The fundamentals of the economy in the rural area are still strong. There can be a good bounce back.
  • OEMs are a little apprehensive of making forward projections at this time because of all this uncertainty. People are talking of a third wave. Unless the sentiment related to Covid becomes negative, there can still be a bounce back.
  • Inquiry levels are getting better. Last week’s levels were almost similar to what they had at the beginning of April. That is pretty good.
  • Closure of outlets, because of weekend lockdowns or whatever, naturally causes a dip. Having said that, inquiries and bookings seem to be coming back as more and more states are unlocking.
  • Cost of running and fuel efficiency are important criteria for the Indian buyer. There are substantial savings if you use CNG. Besides, the availability of CNG now is also much better. They have had good traction on that front.
  • A couple of years back, they were making about 100-1,000 CNG cars a year. In FY21 they did something like 1,58,000-1,60,000. This year they are projecting sales of almost 2,50,000 for CNG.
  • The percentage of electric vehicles being sold in India as well as globally is still very small. The primary reason for it is that the cost of acquisition of electric vehicles is extremely high, largely because the battery costs are very high. There is also the distance-per-charge limitation.
  • Cheaper technology is currently not available, which is one of the basic hindrances to the progress of EVs. The other major factor is the lack of charging infrastructure.
  • In hatchbacks their market share is 65-66%, in sedans almost 50%, in PVs segment, they are more than 60% now, and in vans, they are 90-95%. The one area which seems to be a weak area for them seems to be SUVs.
  • There too, in the entry-level, they are sitting pretty with the Brezza, the number one model there in the entry-level SUV segment.
  • In the mid-SUV segment where competition has the Seltos and the Creta, they have the S Cross. Their numbers are not so great yet. They are quite conscious of this fact and they are watching this SUV segment very closely.
  • After April’s plant shut down owing to the oxygen issue, they restarted production on May 17. They brought forward the maintenance shutdown from June to May. Since the restart, they have been ramping up rapidly. Their utilization is pretty strong at the moment.
  • About semiconductors, there is a global shortage. Maruti has been able to manage production well largely because they have the advantage of a large portfolio — different vehicles using different levels of semiconductors.
  • If semiconductors are not available of a particular type in a particular variant, they then go and produce more of the other. They are just hoping that the situation will normalize in a while.

Asset Multiplier comments:

  • There has been a good bounce back in volumes for auto companies in 4QFY21 and volume data is showing good recovery.
  • In a post-COVID-19 environment, the entry-level hatchback segment, national scrappage policy, and new launches are expected to drive sales.
  • The Indian electric vehicle (EV) market also might see positive movement in 2021-2022.

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

  • The closing price of MARUTI was ₹ 7,531/- as of 24-June-2021.  It traded at 35x/ 27x the consensus earnings estimate of ₹ 214/ 284 for FY22E/23E respectively.
  • The consensus price target is ₹ 6,367/- which trades at 22x the earnings estimate for FY23E of ₹ 284/-

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.”

 

Naukri is a cash cow for Info Edge – Info Edge

Update on the Indian Equity Market:

On Wednesday, Nifty closed in the red at 15,687 (-0.5%). Among the sectoral indices, Auto (+0.5%) was the only one to close higher. Metal (-1.1%), IT (-0.9%), and Pvt Bank (-0.6%) closed in the red. Maruti (+2.3%), Titan (+1.5%), and Bajaj Fiserv (+1.3%) were the top gainers. Adani Ports (-3.3%), Wipro (-2.9%), and Divis Labs (-1.5%) were among the top losers.

Excerpts of an interview of Mr. Hitesh Oberoi, MD & CEO, Info Edge with CNBC-TV18 dated 22nd June 2021:

  • Speaking about the company, Mr. Oberoi said the digital transformation story is panning out in all categories.
  • The recruiting vertical of Info Edge, Naukri.com has generated Rs 1,950mn of cash in 4QFY21. The Naukri vertical is acting as a cash cow to fund other investments made in the operating business like 99acres.com, Jeevansathi.com, and Shiksha.com.
  • Speaking about EBITDA margins, he said the collection of money is done in advance, and revenue is recognized over a period of time. The billing growth in 4QFY21 was 25% YoY.
  • The 99acers.com business was affected due to the Covid19 2nd wave but now there is some recovery.
  • In Q4FY21, billings for shiksha.com grew by 50% YoY. The education technology is doing well for the company. The schools and colleges are shut for the past 1-1.5 years which has acted as a catalyst to speed up the growth.
  • The company plans to focus on its 4 existing verticals.
  • There is enough cash on books but no immediate acquisition on the cards.

 

 

Asset Multiplier comments:

  • We believe digital transformation led by Covid-19 is acting as a catalyst for verticals like Shiksha.com and Naukri.com
  • We believe the recovery in the 99acers.com vertical will depend upon how 3rd wave pans out. The 3rd wave might hamper the recovery seen in this vertical.

 

Consensus Estimate: (Source: market screener and Investing.com website)

  • The closing price of Info Edge Ltd was ₹ 4,779 as of 23-June 2021.  It traded at 138x/102x the consensus Earnings per share estimate of ₹ 34.7/46.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 2,873/- which implies a PE multiple of 62x on FY23E EPS of 46.7/-.

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.”

45% of sales from consumer segment helped margin expansion – Globus Spirits

Update on the Indian Equity Market:

Following global peers, the Indian indices opened higher on Tuesday. The gains were erased by afternoon and NIFTY closed at 15,773, below the intraday high of 15,896. Within the index, MARUTI (+5.2%), UPL (+3.9%), and SHREECEM (+3.3%) ended higher while ASIANPAINT (-1.8%), BAJFINANCE (-1.6%), and NESTLEIND (-1.2%) ended lower. Among the sectoral indices, AUTO (+1.3%), IT (+0.6%), and METAL (+0.3%) ended with gains while REALTY (-0.7%), BANK (-0.4%), and PRIVATE BANK (-0.4%) were the laggards.

Excerpts of an interview with Mr. Shekhar Swarup, Joint MD, Globus Spirits (GLOBUSSPR) with CNBC-TV 18 on 21st June 2021:

  • They have been undergoing a structural change in the organisation in the last 18 months. There has been a higher demand for alcohol from Oil Marketing Companies (OMCs) in ethanol. That has helped increase margins for GLOBUSSPR.
  • There has been a structural change in the consumer segment. In FY21, 45% of the sales came from this segment, vs 35% in FY20. The increased sales from the consumer segment have also helped increase margins.
  • The lockdowns in April-May 21 have impacted volumes. In Rajasthan and Haryana, there haven’t been widespread lockdowns for alcohol sales. In West Bengal, there were lockdowns for some time. The impact hasn’t been as severe as the same time last year.
  • He believes they are in a position to grow the volumes in 1QFY22E.
  • As the share of consumer business is increasing, margins are growing. The cost escalation has been passed onto the consumers and he expects margin enhancement in the future.
  • They have an expansion project which is expected to be ready for operation in 3QFY22E. This is a 100 percent increase to capacities in West Bengal, which translates to about a third increase in their total capacities. Once these capacities come on stream, ethanol and ENA volumes are expected to grow further.
  • Manufacturing (distillery segment) margins were growing in the last 18months and have stabilised in the last 3months.
  • The premium segment is a new one for them and there be an investment into it for future growth.
  • The majority of the consumer business comes from the value segment. The Indian Made India Liquor (IMIL) and medium liquor segment has done well in FY21. Some new products are expected to be launched in this segment in FY22.

Asset Multiplier Comments

  • The company has a presence in 2 segments: Consumer business, marketing, and selling of IMIL and Indian-made Foreign Liquor (IMFL), and bulk manufacturing business of selling ethanol to OMCs and franchise bottling for brands.
  • GLOBUSSPR is expected to be one of the beneficiaries of the changing ethanol policy, leading to a growth in revenues and margin expansion. The focus on the consumer segment by addition of new products and distribution network expansion is expected to aid margin expansion.

Consensus Estimate: (Source: NSE website)

  • The closing price of GLOBUSSPR was ₹ 595/- as of 22-June-2021. The company reported an EPS of ₹ 48.9/- for FY21.
  • The consensus earnings estimate and price target estimates are not available.

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.”

We are clearly looking for sustained profitable growth: ITC

Update on the Indian Equity Market:

Nifty 50 closed with gains of 63 points to 15,746 on Monday. Dalal Street investors defied the global trend to rescue benchmark indices from the negative territory on Monday.

Among the sectoral indices, PSU BANK (+4.11%), REALTY (+2.33%), and BANK (+0.91%) were top gainers while AUTO (-0.41%) and IT (-0.28%) were top losers.

Among the stocks, ADANIPORTS (+5.13%), NTPC (+3.96%), and TITAN (+1.79%) were the top gainers. UPL (-4.38%), WIPRO (-1.16%), and TATAMOTORS (-1.01%) were the top losers.

 

We are clearly looking for sustained profitable growth: ITC

Edited excerpts of an interview with Mr. Sanjay Puri, Chairman and Managing Director at ITC with Business Standard dated 21st June, 2021:

The second wave of the Covid-19 pandemic has hit business sentiment, but ITC chairman and managing director, Sanjiv Puri, says that with vaccination picking up pace, consumers will gain confidence and the economy will recover progressively.

  • He says that certain business segments of the company were impacted by the pandemic last year, but recovered in the second half and revenues from the non-cigarettes FMCG business – created organically and inorganically– grew 16 per cent on a comparable basis in FY21, which is nearly twice that of the industry peer group average.
  • The second wave have impacted sentiments severely, both in rural and urban centers. There has been a surge in cases in rural India this time and therefore rural sentiment has been under some pressure resulting in tendency to conserve.
  • Monsoon is expected to be good and given the fact that manufacturing was not shut during the lockdowns this time, the loss of non-agricultural income could be lower than that of last year. With pace of vaccination increasing, cases reducing, increasing mobility and consumer confidence economy is expected to recover.
  • ITC’s FMCG revenues and margins were higher on YoY basis but lower sequentially in 4QFY21. Mr. Puri commented that ITC is clearly investing for sustained profitable growth. Following a strategic review of the portfolio, the lifestyle retailing business has been shrunk. The food business has been reorganized into clusters to enable sharper focus. In addition, purposeful innovation, multi-channel growth engines, scaling up market reach, and digitalization are enhancing competitiveness. The interventions are evident in FMCG margins, which have gone up by 640 bps in the last four years.
  • He suggested to look at the growth of the business on YoY basis. In 4QFY21 the FMCG margins were up 115 bps YoY except the education and stationery products business, lifestyle retailing business and Sunrise which has been acquired in FY21.
  • ITC will continue to look for value accretive inorganic opportunities. ITC has acquired Sunrise, Savlon and Nimyle in the past few years. These have grown manifold since their acquisition.
  • ITC is exploring an “alternative structure” for hotels. Given the pandemic, this decision will be revisited and final decision will be taken when things normalize.
  • ITC have adopted an asset right strategy for the hotels business, which is making appreciable progress with a healthy generation of leads and pipeline for management contracts.
  • ITC have progressively invested in a number of Integrated consumer goods manufacturing and logistics facilities (ICMLs) in the first phase and any further expansion will be paced out over time. However, investments across segments will continue towards capacity gearing in line with demand, technology upgrades and cost reduction to strengthen competitiveness and accelerate growth.
  • ITC have been trading at 2013 levels when the benchmark indices have gone up sharply. His message to the investors is that ITC is sharply focused on creating long term sustained value for stakeholders. From FY17 to FY20, ITC’s EPS grew by 47%. The Return on segment capital employed have moved up from 61% in FY17 to 72% in FY20. In FY21, some business segments were impacted on account of the pandemic, but they recovered in 2HFY21. A number of structural interventions have been made to sustain higher levels of competitiveness, growth and profitability.
  • The company is building an FMCG business at scale, leveraging unique enterprise strengths, purposeful innovation, investment ibn digitization, among others. In other segments like agriculture and paperboards, ITC continues to strengthen their leadership position and build new levers of growth and competitiveness.
  • In the agri business, ITC is accelerating value added agricultural products, while in paperboards, sustainable and plastic substitute packaging solutions will be a new vector of growth. ITC will continue to explore more opportunities that lie at the inter-section of their unique enterprise strengths, sustainability, and digital.

 

Asset Multiplier Comments

  • ITC’s business segments have been performing well on the back of demand growth, aiding topline performance. With margins expected to improve moving forward we believe profitability to grow further.
  • We believe lockdowns are temporary hurdles and expect recovery post 1QFY22E. We believe stable cigarette taxation and FMCG profitability are key positives in near term.

 

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

  •  The closing price of ITC was ₹ 205/- as of 21-Jun-21. It traded at 16x/15x the consensus EPS estimate of ₹ 12.5/14.0 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 250/- implies a PE multiple of 18x on FY23E EPS of ₹ 14.0/-.

 

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.”

 

This Week in a nutshell (June 14th to June 19th)

This Week in a nutshell (June 14th to June 19th)

Technical talks

NIFTY opened the week on 14th June at 15,812 and closed 1% lower on 18th June at 15,683. The index came off from it’s all-time high levels as indicated by last week’s RSI and MACD trends. The index has broken past 10DMA of 15,749 but seems to have found support at 20DMA of 15,603. These two levels on either side will be crucial indicators to understand the index movement hereon. 

Weekly highlights

  • In response to the improving economic indicators and rising inflation, the US Federal Reserve indicated that fed interest rate hikes could start in 2023. The earlier indication was for the interest rates to remain near zero throughout 2023 and only start increasing in 2024. Rising interest rates would mean funds flowing away from equities and into the debt market as well as out of emerging markets and into the US. This development led to some consolidation in broader equity indices in the US as well as India. 
  • In it’s monthly bulletin, RBI said that the impact of the covid-19 second wave led lockdowns has impacted the FY22E output by Rs 2 lakh crore. The report also said that unlike the first wave, the second wave has impacted rural India and in turn, the rural demand scenario.
  • Shares of Adani group companies tumbled in response to a report stating that National Securities Depository Ltd. (NSDL) had frozen accounts of 3 foreign funds who are among top investors of Adani group companies. Despite clarifications from the group, the stocks continued to decline for most of the week- some declining as much as 18%. 
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 10,596  mn. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 4,878 mn.

Things to watch out for next week

  • As the result season is now well behind us, the stock markets will be driven by macro developments. The covid-19 situation as well as vaccination drive will continue to be important metrics to be tracked. 

 

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.” 

 

Provisions for slippages will affect short term outlook – LIC Housing Finance

Update on Indian Equity Market:

On Thursday, markets ended lower with Nifty losing 76 points to close at 15,691. ULTRACEMCO (+1.7%), TCS (+1.6%), and INFY (+1.4%) were the top gainers on the index while ADANIPORTS (-9.0%), INDUSINDBK (-3.0%), and HINDALCO (-3.0%) were the top losers for the day. Among the sectoral indices,  METAL (-2.3%),  REALTY (-1.7%), and PSU BANK (-1.4%) were the top losers, while IT (+0.6%) and FMCG (+0.1%) were the only gainers.

Excerpts of an interview with Mr Y Vishwanath Gawd, MD and CEO of LIC Housing Finance on CNBCTV18 dated 16th June 2021 :

  • Retail stress was the leading cause of slippages in non-performing assets (NPA). Substantial new provisions were needed to be made due to the Supreme Court Order last year, which compelled the company to make provisions in 4QFY21.
  • Project Finance and Developer Loans form just 7% of the loan book, so not much issue of NPAs there as the company has made adequate provisions for the loan book.
  • The One-time restructuring facility was provided last year by the government. Around 1.5-2% of the portfolio was restructured using the same facility, this year the company expects a similar restructuring process to be followed, the only concern will be an expectation of a longer repayment structure.
  • The disbursements grew over 97% YoY however the same was not reflected in the order book growth due to faster and larger repayments, consumers shifting their loans to other companies for better terms and restructuring offers during the pandemic.
  • Substantial reduction in the cost of funds has seen the margins improve to around 2.3-2.4% but the company expects margins to stabilise at these levels due to bottoming out of lending rates.
  • As far as the capital infusion is concerned, the company promoter LIC is investing through preferential allotment of 45.4 mn of equity shares which will further shore up leverage and provided much-needed cash impetus. 
  • The focus in FY22 will be to increase market penetration and further improve all the ratios to deliver better value and post incremental growth in the loan book portfolio.

Asset Multiplier Comments:

  • LIC Housing Finance has seen its NPA Provisions bottoming out due to the Supreme Court order. A substantial loan book growth, and improving margins will be the cause of higher growth rates going ahead.
  • As the stress from the Covid-19 pandemic subsides, the affordable housing industry will gather pace which promises better days for the company.

Consensus Estimates (Source: market screener website): 

  • The closing price of LIC Housing Finance was ₹480/- as of 17-June-2021.  It traded at 1.03x/ 0.92x the BVPS estimate of ₹ 462/ ₹ 518  for FY22E/23E respectively.
  • The consensus price target is ₹ 507/- which trades at 0.95x the BVPS estimate for FY23E of ₹ 518/-

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.”

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.”

Green shoots visible as unlock begins – Titan

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,869 (+0.4%). Among the sectoral indices, Realty (+1.3%), PVT Bank (+1.1%), and Media (+2.0%) closed higher. Pharma (-0.9%), PSU Bank (-0.3%), and Metal (-0.1%) closed in the red. Asian Paints (+2.9%), HDFC Life (+1.8%), and Axis Bank (+1.7%) were the top gainers. Divis Labs (-1.6%), Adani ports (-1.6%), and Coal India (-1.4%) were among the top losers.

Excerpts of an interview of Mr Ajoy Chawla, CEO, Jewellery Division, Titan with CNBC-TV18 dated 14th June 2021:

  • Speaking about the shop openings, Mr Chawla said the company is focusing to reopen shops for the past 2 weeks.
  • The recovery is expected to be slow, but there are green shoots visible as the unlock begins in certain states.
  • Speaking about pent-up demand, he said the wedding demand is likely to come back in 2HFY22E. Wedding buying is complex and people do take time to buy.
  • The company is witnessing pent-up demand for small occasion buying like birthdays, and anniversaries.
  • The overall market share is in 5-6% mark from 4%, 2 years back.
  • The company is gaining market share as new customers are coming in. The recovery is better in the case of a new buyer where unlock has begun.
  • Independent jewellers are under stress financially. The trust factor and safety protocol are higher in organized players like Titan, which attracts more people.
  • The company is targeting 100% vaccination for all partners, front line, and store staff.
  • He said that few people have started buying on e-commerce channels on the digital play, which is surprising. However, the ticket size is smaller (below Rs 50,000).
  • Speaking about products, he said, the gold prices have again gone up. The biggest customer need will be lightweight jewellery as the budgets don’t increase in the same proportion. The company is working on lightweights products and will launch as markets open up.

Asset Multiplier comments:

  • We believe people will not postpone weddings beyond 1QFY22E as the future situation is uncertain. This might lead to higher jewelry buying from 2QFY22E.
  • Stress in the organized sector might help Titan to increase its market share by adding new first-time customers.

 Consensus Estimate: (Source: market screener and Investing.com website)

  • The closing price of Titan Ltd was ₹ 1,722 as of 15-June 2021.  It traded at 79x/62x the consensus Earnings per share estimate of ₹ 21.8/27.9 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,532/- which implies a PE multiple of 55x on FY23E EPS of 27.9/-.

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.”

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11th June 2021:

  • Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
  • The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
  • Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
  • 95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
  • The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
  • The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
  • Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
  • Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
  • More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

 Asset Multiplier Comments

  • Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
  • The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

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

 The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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.”

 

This Week in a nutshell (June 7th to June 11th)

Technical talks

NIFTY opened the week on 7th June at 15,725 and closed on 11th June at 15,799. The index closed this week on a flat note. The index is trading at its all-time high levels. Indicators like RSI (14) 70 and downward turning MACD suggest a downward correction is likely. The index may take support of its 10DMA of 15,676 before making a strong move on either side.

Weekly highlights

  • The week opened on a positive note as declining COVID-19 cases and positive global stocks boosted sentiment. Later the market traded lower as profit booking was witnessed in major financial stocks. The week ended on a positive note as NIFTY registered their longest stretch of weekly gains since January as new coronavirus cases slow.
  • The latest World Bank report on global economic recovery post the COVID-19 pandemic predicted India’s GDP growth at 8.3 percent for the FY22. The growth projection was slashed from 10.1 percent predicted in April due to the second wave of the COVID-19 in the country.
  • The US S&P 500 was weak, with investors standing by for news of a global minimum corporate tax rate, lingering inflation fears, and a lack of market-moving economic news. It continued to be weak as US CPI release was awaited.
  • China’s PPI (Producer Price Index) came out. It jumped 9.0% from a year ago in May, accelerating from April’s 6.8% increase according to the National Bureau of Statistics. The result topped the 8.6% increase expected by economists polled by The Wall Street Journal, and marked the fastest YoY rise since Sep-08, when producer prices rose 9.1%. The statistics bureau said that soaring crude-oil, iron-ore and metals prices boosted factory-gate prices last month, and drove China’s imports to the fastest increase in over a decade.
  • The outlook for Indian economic activity is brightening as pandemic restrictions ease and vaccinations increase. Government and central bank stimulus will continue to help. The central bank now holds more than half of the 10-year bond because of its purchases of government debt.
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 17,410 mn. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 8,240 mn.

Things to watch out for next week

  • Next week, investors’ focus will largely be dominated by economic data as the country reports official data on retail and wholesale inflation. A persistent higher print may put more pressure on RBI’s Monetary Policy Committee to start thinking about the policy normalisation.
  • On the global front, investors will keenly look for data on industrial production and retail sales from US and China on June 15 and June 16, respectively, which may set the tone for world equities for the week.

 

 

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.”