Bluestar: 1QFY20 – Increase in raw material prices impact profitability

Dated:- 16th August 2019

1QFY20 Results

·       Bluestar (BLSTR) reported consolidated revenue growth of 4% YoY to Rs 15,755 mn in 1QFY20. The Electro-Mechanical Projects and Packaged Air Conditioning Systems (EMP) segment reported muted revenues at Rs 6,239 mn impacted by a slowdown in the execution of projects business. The Main business of ACs – Unitary Products (UP) – segment revenues grew by 9% YoY to Rs 9,069 mn. The Professional Electronics and Industrial Systems (PEIS) segment revenues declined by 23% YoY to Rs 446 mn on a higher base of 1QFY19.

·       The EBITDA declined by 16% YoY to Rs 1,149 mn. The raw material costs increased by ~440 bps YoY while the other expenses reduced by ~325 bps YoY. The EBITDA margin contracted by ~180 bps YoY to 7.3%.

·       All segmental margins were lower YoY. In the UP segment, the EBIT margins declined by ~50bps YoY to 10.9%. The EMP segment margins declined by ~100 bps YoY to 5.4%. The PEIS segment margins declined by ~450 bps to 9.9% impacted by the variation in the mix of new orders.

·       The other income was higher at Rs 217 mn on account of receipt of an industrial promotion subsidy for the manufacturing facility at Wada.  The finance costs were lower at Rs 82 mn (v/s Rs 121 mn in 1QFY19) due to the effective management of working capital and consequently lower borrowings in Q1FY20. Consolidated PAT stood at Rs 768 mn v/s Rs 916 mn in 1QFY19.

Management Commentary

·       Rs 140 mn industrial promotion subsidy received for the manufacturing facility at Wada; includes Rs 84 mn allocated to the EMP segment and Balance Rs 56 mn allocated towards the UP segment.

·       For the EMP Segment, the order book reported a growth of 34% Yoy to Rs 28,410 mn and the order intake increased by ~55% YoY at ~Rs 9,669 mn

·       The UP-segment margins were impacted due to the adverse product mix. In 1QFY20, there was an increase in the demand for 2 Star – 3Star fixed speed ACs which are comparatively lower margin products.

·       Management guided for 12-15% YoY revenue growth for the Room AC segment for FY20E and margin guidance of ~9.5%-10%. BLSTR’s current market share is ~12.5% and the management expects to reach 13.5% by FY20E end.

·       The Market size of Room ACs is ~Rs 110 -120 bn with annual volumes of 5.5 mn-6 mn units. The industry market share of inverter AC segment was ~60% in Q1FY20, BLSTR’s inverter share was 52% during the quarter.

Consensus Estimate (Source: market screener website)

·       The closing price of BLSTR was Rs 702/- as of 16-August-19. It traded at 30x / 25x the consensus EPS for FY 20E / FY 21E EPS of Rs 23.3 / 28.3 respectively.

·       Consensus target price of Rs 776/- implies a PE of 27x on FY21E EPS of Rs 28.3.

Visaka Industries Ltd (VSKI IN): Demand pickup seen from the beginning of 2Q

Dated:- 14th August 2019

Visaka Industries Ltd (VSKI IN): Demand pickup seen from the beginning of 2Q   

1QFY20 Results

·       Visaka Industries Ltd reported ~2% YoY growth in revenues at Rs 3,528 mn in 1QFY20. The Building Products (BP) segment revenues remained stable YoY at Rs 2,960/- and the Synthetic Yarn (Yarn) segment revenues grew ~13% YoY to Rs 568 mn.

·       The EBITDA margins declined YoY to 13.8% v/s 15.4% in 1QFY19 impacted by an increase in material costs by ~200 bps YoY to 49%.

·       The segmental EBIT margins in BP declined by ~340 bps YoY to ~13.7% while in Yarn; the margins increased by ~225 bps to ~11%.

·       VSKI reported a YoY decline in other income at Rs 15 mn v/s Rs 69 mn in 1QFY19; which included a one-time income from an insurance claim. This resulted in a decline of ~24% YoY in PAT at Rs 231 mn v/s Rs 303 mn in 1QFY19.

Management Commentary

·       The BP segment performance was impacted due to lower sales of cement asbestos sheets in May 2019. The long span of general elections and adverse weather conditions led to lower demand. The cement asbestos sheets reported a 4% YoY volume decline and 150 bps margin decline in 1QFY20.

·       The roofing industry volumes reported a decline of ~5.6% YoY in 1QFY20 while VSKI dropped by 2% YoY.

·       The volumes of the boards and panel products grew by ~28% YoY. The Jhajjar plant is operating at ~45% capacity and is expected to scale up to ~70-80% utilisation level in FY20E.

·       The ATUM roofs reported ~Rs 8.4 mn revenues in 1QFY20. Management expects to close orders of ~Rs 35 mn in 2QFY20 which will scale up subsequently.

·       The Yarn segment volumes grew by 6.6% YoY and the effective price increase was ~7% YoY for 1QFY20.     

·       Management guides for a recovery in all the segments in the rest of FY20E. As per their commentary; the cement asbestos roofs reported better volumes June 2019 onwards while the boards and panels and Yarn products continued to grow.

Consensus Estimate (Source: market screener website)

·       The closing price of VSKI was Rs 311/- as of 14-Aug-2019. It traded at 7x / 6x the consensus EPS for 20E /21E EPS of Rs 45.1/ 51.8 respectively.

·       Consensus target price of Rs 487.5/- implies a PE of 9x on FY21E EPS of Rs 51.8/-

APL Apollo Tubes Ltd: 1QFY20 Results – Value-added products panning out well.

Dated: 13th August 2019

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

Management Commentary

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

Consensus Estimate (Source: market screener website)

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

Voltas Ltd (VOLT IN): Unitary cooling products performance takes the heat off in 1QFY20.

Dated:- 9th August 2019

1QFY20 Results

·       Voltas reported a 24% YoY growth in consolidated revenues to Rs 26,540 mn. The revenue growth was driven by 47% YoY growth in the Unitary Cooling Products (UCP) (main revenue earning air conditioners) segment at Rs 17,488 mn. The Electro-Mechanical Projects (EMP) segment revenues declined by 5% YoY to Rs 8,241 mn and the Engineering Product Services (EPS) segment revenues declined by 4% YoY to Rs 740 mn.

·       The EBITDA margin declined by 35 bps YoY in 1QFY20 to 11% from 11.35% in 1QFY19.

·       Voltas reported EBIT margin expansion of ~60 bps YoY in UCP to 13.1%. The EBIT margins declined by ~220 bps YoY and ~230 bps YoY in EMP (8%) and EPS (32.4%) respectively.

·       Voltas reported a one-time expenditure of ~Rs 430 mn towards a Voluntary Retirement Benefits Scheme. The adjusted Consolidated PAT for 1QFY20 stood at Rs 1,941 mn v/s Rs 1,839 mn in 1QFY19. The profit share in the joint ventures including was Rs 213 mn in this quarter v/s Rs 193 mn in 4QFY19.

Management Commentary

·       Voltas continues to be the market leader in Room Air conditioner business with a market share of 24.1% for 1QFY20 (25.3% for June 2019) at Multi-Brand Outlets. The Air Conditioning industry grew by 36% YoY; Voltas grew higher than the industry YoY growth of ~47%. The inverter ACs accounted for more than 50% of the total revenues.

·       Commercial Refrigeration products and Air Coolers witnessed increased demand in the quarter. The air purifiers too received an encouraging response.

·       Management guided for UCP segment EBIT margins to remain in the range of 11-12% for FY20E.

·       In the EMP segment, the order book stood at Rs 47,560 mn, higher by ~3% YoY. The domestic order intake during 1QFY20 was Rs 4,490 mn v/s Rs 1,500 mn in 1QFY19. On the International front, Voltas continues to be cautious.

Consensus Estimate (Source: market screener website)

·       The closing price of VOLT was Rs 606/- as of 09-Aug-2019. It traded at 33x / 28 x / 24x the consensus EPS for 20E /21E /22E EPS of Rs 18.2 / 21.8 / 25.1 respectively.

· Consensus target price of Rs 630/- implies a PE of 25 x on FY22E EPS of Rs 25.1/-

Radico Khaitan (RDCK) – 1QFY20 – Cost pressure curbs high spirits

Dated :- 9th August 2019

1QFY20 Results

  • Radico Khaitan’s (RDCK) revenues grew by 20.8% YoY to Rs 623 Mn driven by 12% YoY volume growth in Indian Made Foreign Liquor (IMFL).
  • The higher margin Prestige & Above volumes increased by 16% YoY to 2.0 mn cases and the Regular & Other brands volumes reported an increase of 10.2% YoY to 4.3 mn cases.
  • EBITDA improved by 9.3% YoY to Rs 989 Mn. The EBITDA margins declined by ~170 bps to 15.9% impacted by increase in raw material costs.
  • PAT grew by 15.6% YoY to Rs 548 Mn driven by reduction in finance cost.

Management Commentary

  • The margins in 1QFY20 were lower 18% YoY on account of increase in Extra Neutral Alcohol (ENA) prices and ~15% YoY increase in glass bottles. The restriction on operations at the molasses plant by the Central Pollution Control Board during 1QFY20, led to additional costs of Rs 65mn.
  • Rampur Indian Single Malt and Jaisalmer Indian Craft Gin continue to see strong traction in the Indian as well as international markets. RDCK has tripled the manufacturing capacity of Rampur Indian Single Malt which will benefit company in the long run.
  • The management guided for ~9% volume growth in IMFL for FY20E led by ~14% YoY in the Prestige & Above category and ~6% YoY growth in the Regular & Other Brands category.
  • Raw material price pressure will keep the gross margins at ~47% and the EBITDA margins in the range of 16%-16.5% for FY20E.
  • RDCK is expected to be a debt free company within next 18 months.

Consensus Estimate (Source:

  • The closing price of RDCK was Rs 322/- on 09-Aug-19. It traded at 22x / 20x / 16x the consensus EPS for 20E /21E /22E EPS of Rs 14.1/ 15.5 /20.1 respectively.
  • Consensus target price of Rs 454/- implies a PE of 23x on FY21E EPS of Rs 20.1.

Risk Tolerance / Loss Tolerance

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

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

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

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

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

Mahindra & Mahindra Ltd- 1QFY20- Slowdown hurting the profitability

Dated: 8th August 2019

Quarterly Performance:

Key Highlights:

  1. Net sales were at Rs 128,050 mn, a decline of 4% YoY. The domestic auto sales volume for the quarter was 5% down YoY whereas the exports were down 20% YoY. The export sales were impacted due to the South Asia region which declined 61% YoY. The domestic tractor volumes were down 15% YoY whereas exports have shown a muted growth of 1% YoY.
  2. EBITDA stood at Rs 17,940 mn, a decline of 15% YoY. The operating performance was impacted due to subdued sales and also due to increased advertising & marking expenses.
  3. The operating margins were at 14% vs 15.8% in 1QFY19.
  4. Net profit before the exceptional income was at Rs 9,180 mn for the quarter, a decline of 26% YoY.
  5. The Company reported an exceptional income of Rs 13,600 mn for the quarter which increased the PAT by 80% YoY at Rs 22,600 mn. This was on account of gain on sale of shares by M&M benefit trust and gain on buy-back by an associate/transfer of certain long-term investments.

Management Commentary:

  • Management expects some revival in the tractor industry post-August-19. They have guided for flattish sales for FY20E. They expect a 6-8% sales volume growth for the tractor industry in the coming few months. Good monsoons, an uptick in sowing and low base effect in the 2nd half of the year could provide further upside.
  • Dealer inventory is under control. Company is only at around 2,000-3,000 tractors higher than the desired level of inventory.
  • The management has refrained from providing any industry guidance. Auto industry might see some upsides on account of decent monsoons, favourable commodity prices and pre-buying in the latter part of the year. The rate cut transmission by banks, stimulus in the form of GST rate cut and supportive govt. policies would further help the industry according to M&M management.
  • Post-BS-VI, the small engine vehicle (1.2-litre engines) would 100% be petrol variant. They expect the diesel & petrol mix to be 50:50 post-BS-VI launch.
  •  M&M took a marginal price increase in both auto and FES (Farm Equipment Segment) segments this quarter.

Consensus Estimate (Source: market screener website)

  • The closing price of M&M Ltd is Rs 522/- on 08-Aug-19. It traded at 12.6x / 12.3x the consensus EPS for FY 20E / FY21E EPS of Rs 41.56 / 42.28 respectively.

Indiabulls Housing Finance 1QFY20 result update: Asset quality deteriorates sequentially.

Dated: 7th August 2019

  • Loan assets declined 10% YoY to Rs 1,131 bn. The decline is primarily due to efforts taken for reduction in the Commercial Real Estate (CRE) book.
  • NII at Rs 14,750 mn was 13% lower YoY. Pre-provisioning operating profits at 12,536 mn were 15% lower YoY.
  • Provisions were at Rs 1,476 mn compared to Rs 649 mn and Rs 1,645 mn in 1QFY19 and 4QFY19 respectively.
  • PAT at Rs 8,020 mn was lower by 24% YoY.
  • Asset Quality worsened sequentially from GNPAs and NNPAs of 0.88% and 0.69% respectively in 4QFY19 to 1.47% and 1.10% respectively in 1QFY20.

Management Commentary:

  • IBHFL reduced exposure to CRE loans amounting to Rs 60 bn in 1QFY20. Efforts to reduce CRE exposure is in anticipation of the proposed merger with Lakshmi Vilas Bank (LVB).
  • Management has guided to quarterly disbursements of Rs 100 bn from 2QFY20. Guidance for loan book growth for FY20E is in mid-teens.
  • Management expects spreads to remain stable in 300-325 bps range.
  • IBHFL recovered Rs 7 bn from Palais Royale in 1QFY20 against earlier guidance of Rs 2 bn. Against the recovery, Rs 4.5 bn was used to make additional voluntary provisions. Under ECL norms, companies cannot make floating provisions. Hence IBHFL has proactively classified certain accounts as Stage 3 (including Zee group, CCD group) and provided against them.

Consensus estimates (Source: Marketscreener website):

  • IBHFL closing price (as on 07-08-2019) was Rs 446/- per share. It was trading at a P/B of 1.1x/ 0.9x its book value per share estimates of Rs 417/ 493 for FY20E/ FY21E respectively. Consensus target price over next 12 months is Rs 910/- implying P/B of 1.85x for FY21E BV of Rs 493

Titan Company Ltd (Titan)- 1QFY20- Rising Gold prices impacting the Jewellery biz, Growth Guidance intact for the long- term.

Dated: 7th August 2019

Quarterly Performance:

Key Highlights:

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

Management Commentary:

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

Consensus Estimate (Source: market screener website)

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

Laurus Labs 1QFY20 results: Temporary troubles, growth story intact

Dated: 6th August 2019

1QFY20 result update:

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

Management Commentary:

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

Consensus Estimate (Source: marketscreener website)

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