Author - Aniket Khanolkar

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.”

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.”

Expect the margins to expand in FY22E – Solar Industries

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,583 (+1.0%). Among the sectoral indices, Metal (+2.1%), Realty (+1.4%), and Bank (+1.1%) closed higher. Media (-1.4%), PSU Bank (-0.7%), and Auto (-0.2%) closed in the red. JSW steel (+3.3%), ICICI Bank (+3.0%), and Reliance (+2.8%) were the top gainers. M&M (-4.3%), Adani port (-0.9%), and HDFC Life (-0.6%) were among the top losers.

Excerpts of an interview of Mr. Manish Nuwal, CEO, Solar Industries with CNBC-TV18 dated 28th May 2021:

  • Speaking about Q4FY21 performance, Mr. Nuwal said, the numbers had grown on a low base of Q4FY20. Compared on a normal base, the volume has grown ~24%.
  • In Q4FY21, sales had a growth of ~45% YoY, this was led by volume growth of ~13% and a price increase of 25%. On the international side, the business is performing as per expectations.
  • The company expects a 30% revenue growth in FY22E.
  • Speaking about defence business, he said the business was impacted due to the Covid crisis. Currently, the order book is Rs 6,800mn, and the company recently received an order of multimode hand grenades. The production has already started for multimode hand grenades. The numbers will reflect in FY22E.
  • The target is to receive Rs 3,000mn revenue from defense in FY22E.
  • In terms of incremental defence order, he said the company will participate in the coming RFPs (request for proposal) to grow the order book.
  • Speaking about EBITDA margins, he said going forward the company expects the margins to expand in FY22E. EBITDA margins stood at 21% in Q4FY21.
  • In FY22E, the company plans to spend Rs 3,150mn on Capex.
  • The working capital cycle days have also improved from 113 days to 108 days in FY21. The target is to bring it down to 100days.
  • The debt levels are comfortable and the company is planning for aggressive Capex in the next 2 years. The company announced the setting up of 2 new plants. 1 in south India and the other in North India.
  • The plants are expected to get commissioned within 2 years.

 

Asset Multiplier comments:

  • We believe order book in the defense segment will aid revenue growth in FY22E which in turn might lead to EBITDA margin expansion.
  • The target to lower working capital days will improve the cash conversion cycle and lead to effective utilization of cash.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Solar Ltd was ₹ 1,550 as of 31-May 2021.  It traded at 38x/32x the consensus Earnings per share estimate of ₹ 40.9/49 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,463/- which implies a PE multiple of 30x on FY23E EPS of 49/-.

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.”

Aim to double the number of direct outlets in 1 year – Tata Consumer Products

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,338 (+0.2%). Among the sectoral indices, PSU Bank (+2.9%), Bank (+1.2%), and IT (+1.1%) closed higher. Realty (-1.2%), Pharma (-0.2%), and FMCG (-0.01%) closed in the red. Shree Cement (+4.1%), SBIN (+3.1%), and Bajaj Auto (+2.2%) were the top gainers. HDFC (-2.7%), ONGC (-1.5%), and IOC (-1.4%) were among the top losers.

Excerpts of an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer Products with CNBC-TV18 dated 27th May 2021:

  • Speaking about ROCE, Mr. Sunil D’souza said the aim is to achieve double-digit ROCE by end of FY22E.
  • On tea prices, he said the drought-like conditions have kept the prices up. The tea prices are up ~60% YoY. The estimates suggest the prices will start coming down in 30-60days.
  • The company will resort to gradual price hikes if tea prices do not correct. The aim will be to achieve a 33-35% EBITDA margin on Indian beverages by 2nd half of FY22E.
  • On logistical issues, he said the base tea and salt businesses are growth levers for the company. The Sampann and Soulfull brands are growing in the pantry space. The plan is to increase overall distribution. The target is to double the number of direct outlets in 1 year. The company will achieve 1mn outlets by Sept-Oct 21.
  • On Starbucks, he said it witnessed a 14% revenue growth in Q4FY21 despite operations with 50% seating.
  • Take away and delivery compensated for the affected dine-in capacity.
  • The competitors are under pressure which will benefit Starbucks. The company has added 40 additional stores in FY21 despite the pandemic. There is an expansion in cities and different formats.
  • Speaking about ad spends, he said currently it is ~6% of sales but it will increase to double-digit in the short to medium term. In the FMCG space advertising is important to build brand equity.
  • On the rural segment, he said the 2nd wave has impacted the rural segment as well. For the company it is acting as an opportunity as the share of rural for the company was smaller as compared to competitors. The target is to increase rural distribution to ~9,000 distributors from the current 2,000 distributors in FY22E.

 

Asset Multiplier comments:

  • We believe rising tea prices and increased spends in advertising might put pressure on EBITDA margins in the near term.
  • An increase in the number of direct dealers might lead to better product availability and visibility. It will also help to manage the competition.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer Products Ltd was ₹ 650 as of 27-May 2021.  It traded at 53x/44x the consensus Earnings per share estimate of ₹ 12.1/14.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 675/- which implies a PE multiple of 15x on FY23E EPS of 14.7/-.

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.”

Impossible to pass on 100% price increase – Escorts

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,108 (+1.2%). Among the sectoral indices, Auto (+3.2%), Media (+1.7%), and Metal (+1.7%) closed higher. PSU Bank (-1.3%), Pharma (-0.2%), and FMCG (-0.2%) closed in the red. M&M (+5.8%), Bajaj Auto (+5.2%), and Titan (+5.0%) were the top gainers. Bharti Airtel (-2.3%), ITC (-1.1%), and Coal India (-0.9%) were among the top losers.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts Ltd with CNBC-TV18 dated 17th May 2021:

  • Speaking about the impact on demand, Mr. Bharat Madan said the impact of the 2nd wave is serious.
  • On the rural side, things are better as compared to urban. The rural segment is expected to do well led by pent-up demand.
  • Sowing starts from mid of May and goes on till July, farmers don’t require tractors for sowing. He said even if the situation normalizes in June then demand would be back for tractors.
  • The channels have opened, but rising infection level is impacting the demand.
  • For FY22E, the situation is dynamic and depends on how the month of June shapes up.
  • Speaking about commodity prices, he said the raw material prices witnessed steep inflation of ~7-8%. The company passed 2 price increases of about ~4-5%.
  • There is further pressure in 1QFY22E, and passing 100% price hikes is not possible considering the current demand situation.
  • The company will take another price hike in Q1FY22E.
  • Speaking on exports, he said the JV has started producing tractors (Kubota tractors). The JV will start producing tractors with the Escorts brand from 2QFY22E.
  • The new JV will add a capacity of 30,000 units.
  • The exports have shown 30% volume growth in the last few weeks. The exports will a focus area going ahead.

 

Asset Multiplier comments:

  • We believe rising raw material prices will impact EBITDA margins in the near term, and it will be difficult to pass on the entire cost to the customers.
  • We also believe rural India is less affected as compared to urban areas and a good monsoon along will government measures might bring back the demand for tractors if the situation normalizes by May end.

 

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

  • The closing price of Escorts Ltd was ₹ 1,178 as of 18-May 2021.  It traded at 15x/12x the consensus Earnings per share estimate of ₹ 81.2/94.9 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,452/- which implies a PE multiple of 15x on FY23E EPS of 94.9/-.

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.”

This week in a nutshell (May 10th to May 14th)

                                                                              Technical Talks

NIFTY opened the week on 10th May at 14,928 and closed on 14th May at 14,678. It made a weekly loss of 2%. The index is trading above its 100DMA of 14,576 which might act as a support. On the upside 50DMA of 14,724 might act as a resistance. The index might trade range-bound before making a strong move on either side.                                                 

                                                                                Weekly highlights

  • Moody’s Investor services reduced its FY22E economic growth forecast for India to 9.3% from 13.7% estimated earlier. Investment banks like credit Suisse have also lowered India’s real GDP forecast as mentioned in the previous note.
  • US drugmaker Eli Lilly and Co has issued royalty-free, non-exclusive voluntary licenses to produce its Baricitnib drug to Cipla, Lupin, and Sun Pharma. The drug is used with a combination of Remdesivir for the treatment of Covid-19. This will ensure improvement in the local treatment options available to the infected patients in India.
  • The Federation of Automobile Dealers Association (FADA) expects sales to return to their peak levels of March 2019 only by FY23E. FADA said registrations of new vehicles, including cars, SUVs, motorbikes, and trucks, for April 21 were 28% lower than March 21.
  • During this week, Oil prices were lifted by fears of a gasoline (petrol) shortage after a cyber-attack caused an outage at the largest US fuel pipeline system. The fuel pipeline in the U.S. restarted now, but it will take several days for the supply chain to return to normal.
  • The foreign institutional investors (FII) Sold Rs 36,199 mn worth Indian equity shares last week. Domestic institutional investors (DII) were also net sellers during this week with Rs 1,817mn of outflow.

                                                             Things to watch out for this week

  • The 4QFY21 result season will continue in the next week as well. The commentary from companies’ management will be key to access the medium/long-term outlook on markets. The current situation is dynamic and changing very rapidly.

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.”

Cautious on MSME Portfolio – Indusind Bank

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,497 (-0.9%). Among the sectoral indices, PSU Bank (+3.4%) was the only gainer. Pharma (-2.0%), Auto (-0.9%), and Financial Services (-0.8%) closed in the red. SBI Life (+2.7%), BPCL (+1.6%), and ONGC (+1.4%) were the top gainers. Tata Consumer (-4.3%), CIPLA (-3.1%), and Dr Reddy (-2.1%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, Indusind Bank with CNBC-TV18 dated 03rd May 2021:

  • Speaking on the retail slippages, Mr Kathpalia said the increases in slippages were led by the commercial vehicle segment.
  • The collections in the month of April were 1% lower than the expected collections.
  • Speaking about MSME portfolio, he said the portfolio is worth Rs 110bn. These are loans given to small entrepreneurs for working capital requirements.
  • The loans given to entrepreneurs are secured in nature. The slippages in Q4FY21 were 3.5-4% and provisions are made.
  • The bank has given Rs 14bn into ECLGS scheme of SME portfolio. The commercial vehicle side of the book is doing well for the bank.
  • Transportation segment portfolio on the retail side is still lagging.
  • Speaking about vehicle finance, he said the disbursements had a growth of 30% YoY and in Commercial vehicles, the growth was 40% YoY.
  • The bank has a 12-14% market share in these segments and the bank will continue to maintain its high market share.
  • Speaking about the current environment, he said there is demand from large corporates and mid corporates. Going ahead the bank will stay cautious on its MSME portfolio.
  • In 4QFY21, the bank reported flat Net Interest Income (NII). Mr. Kathpalia said it was an outcome of low loan growth (3% YoY reported).

 

Asset Multiplier comments:

  • Several banks have a cautious stance on the MSME segment as lockdowns due to the 2nd wave of Covid-19 might impact small businesses.
  • In 4QFY21, Indusind Bank reported 30% YoY and 8% QoQ growth in vehicle disbursements. Certain state specific lockdowns might lead to decline in monthly auto sales which may impact the vehicle finance segment in 1HFY22E.

 

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

  • The closing price of Indusind Bank was ₹ 912 as of 04-May-2021.  It traded at 1.4x/1.3 x the consensus BV per share estimate of ₹ 614/691 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,046/- which implies a PB multiple of 1.5x on FY23E BVPS of 691/-.

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.”

The rise in raw material cost may hit margins – Bajaj Auto

Update on the Indian Equity Market:

On Monday, Nifty closed in the red at 14,736 (-0.05%). Among the sectoral indices, Realty (+2.70%), FMCG (+1.70%), and IT (+1.85%) closed higher. PVT Bank (-1.70%), Bank (-1.63%), and Financial Services (-1.15%) closed in the red. Adani Ports (+5.17%), Britannia (+2.63%), and TCS (+2.58%) were the top gainers. Indusind Bank (-4.19%), Power Grid (-3.17%), and ICICI Bank (-2.20%) were among the top losers.

Excerpts from an interview of Mr Soumen Ray, CFO, Bajaj Auto with CNBC-TV18 dated 19th March 2021:

  • Speaking on the new dividend distribution policy, Mr Soumen Ray says, The Company will give up to 90% pay-out provided that the company has surplus funds in tune of Rs 150 bn or more.
  • He says, It also depends on Capex plans. The company is having surplus cash of Rs 180 bn.
  • The average annual Capex is around Rs2.5- 3bn and the company is using its assets effectively. The company is planning to put 1 factory in Chakan and cost is near $100mn.
  • The earlier policy was a 50% dividend pay-out.
  • On EV space, he says, The Company has strong EV plans but Capex required for EVs doesn’t need a large amount of money. It is important to sell the vehicle initially with lower profit and later scale-up that segment.
  • The EBITDA space of Bajaj Auto gives adequate ammunition to sell EV’s initially at not a great profit and later scale it up.
  • Speaking about raw material costs, he says, between Q4FY21E and 1QFY22E the industry will see a significant rise in raw material prices. This will lead to a hit on margins.
  • To avoid a dip in consumer sentiment the company will gradually increase its product prices.
  • Speaking on the Export market, he says, the demand continues to be healthy and INR has not depreciated as compared to other countries. The price of oil going up is positive for some African, and Latin American markets.
  • The container issue has improved from what it was in December 2020.
  • The company is giving discounts to some segments.

 

Asset Multiplier comments:

  • We believe the increase in dividend payout ratio will result in an effective capital allocation thereby improving the return of equity ratio (ROE).
  • We believe the gradual rise in product prices to offset higher raw material cost, high fuel prices, and rising cases of covid-19 might impact the near-term demand of 2 wheelers in the domestic market.

 

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

  • The closing price of Bajaj Auto was ₹ 3,667 as of 22-March-2021.  It traded at 23x/19x/17x the consensus Earnings per share estimate of ₹ 158/193/221 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 18x on FY23E EPS of 221/-.

Will incur Rs 10000 mn Capex per year over next 3-4 years – Aarti Industries

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,910 (-0.1%). Among the sectoral indices, IT (+1.3%), FMCG (+0.9%), and AUTO (+0.2%) closed higher. PSU Bank (-1.3%), PVT Bank (-1.0%), and Financial Services (-0.8%) closed in the red. Asian Paints (+4.7%), Dr. Reddy’s Laboratories (+2.6%), and HUL (+1.59%) closed on a positive note. CIPLA (-1.6%), Tata Steel (-1.6%), and ICICI Bank (-1.5%) were among the top losers.

Excerpts from an interview of Mr. Rajendra V Gogri, Chairman and MD, Aarti Industries with CNBC-TV18 dated 15th March 2021:

  • Gogri said the demand is higher. The discretionary sector demand has picked up.
  • Considering China plus one factor, demand is diverted to India. India comes ahead of other countries like Vietnam, Bangladesh, and Malaysia when it comes to specialty chemicals.
  • The company is expecting pre-Covid demand in Q4FY21E.
  • Speaking on capacity, he said the company will incur a Capex of Rs 10,000 mn each year for the next 3-4 years.
  • This Capex will be utilized to introduce new products as well as the expansion of existing products.
  • The company will not directly participate in the Pharma PLI scheme, however, the Pharma PLI Scheme is expected to benefit the general chemical sector indirectly.
  • The company has posted single-digit revenue growth in 9MFY21 and a flat bottom line YoY is expected in FY21E. However, Mr. Gogri guided for a 20% growth in top-line as well as in bottom line in FY22E.
  • Exports are usually 40-45% of total revenues and the rest is domestic sales. The major growth is expected on the discretionary side which was badly affected in 1FY21.
  • Speaking on capacity utilization, he said some plants are running at 80-90% utilization levels and new capacities are running at 20-30% utilization levels.
  • Speaking on the demerger of the Pharmaceutical business, he said a committee has been set up to look at the available option. The decision of the committee is yet to come on board.

 

Asset Multiplier comments:

  • As per a study conducted by McKinsey & Company, the Indian specialty market is expected to grow to $40bn over the next 4 years from $28bn in 2018.
  • Within the specialty chemical segments in India, surfactants, specialty polymers, and textile chemicals and dyes are among the top segments expected to further grow in line with market demand.
  • Indian specialty companies need to ramp up capacities and infrastructure to get maximum advantage from specialty chemical sector growth prospects.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Aarti Industries was ₹ 1,286 as of 16-March-2021.  It traded at 41x/29x/25x the consensus Earnings per share estimate of ₹ 31.0/44.0/52.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,241/- which implies a PE multiple of 24x on FY23E EPS of 52.1/-.

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.”

 

Expect to take another price hike from April – Bluestar

 Update on the Indian Equity Market:

On Wednesday, Nifty closed in the green at 15,175. Among the sectoral indices, Metal (+1.9%), IT (+1.7%), and Pharma (+1.8%) closed higher. PSU Bank (-0.2%) was the only sector that closed in the red. Eicher Motors (+3.1%), JSW Steel (+3.0%), and Hindalco (+2.3%) closed on a positive note. SBI Life (-3.5%), ONGC (-1.8%), and HDFC Life (-1.5%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Bluestar with CNBC-TV18 dated 09th March 2021:

  • The demand for cooling products has picked up since the festival season. 20% sales growth is expected in Q4FY21E.
  • The Indian Meteorological Department (IMD) has indicated for hotter than usual summer season in 2021.
  • Thiagarajan expects 25% sales growth in the summer season for Bluestar.
  • The demand recovery is primarily due to people spending more time at home.
  • The disposable income is expected to be higher in the hands of people as there is saving due to no summer vacations and less travel.
  • The company has taken a price increase by 3-5% since Jan-21 on its products. The second price hike has not yet been taken by the company.
  • The second price hike might come from April 1. The rise in raw materials, transportation charges, and ABS plastic costs are not coming down.
  • The dealers are stocking up ahead of the season.
  • Room AC market share for the Bluestar was ~12.8% last year and currently it is 13%. The company targets to maintain a 15% market share by FY23E.
  • Food delivery and the pharma sector are driving the growth of commercial refrigeration.
  • In the Electromechanical projects segment, growth is coming from the manufacturing sector.
  • Thiagarajan says Room air conditioners are poised for growth in coming years led by positive announcements under the PLI scheme.

 

Asset Multiplier comments:

  • The coming summer season will be crucial for Air cooling products as last summer season was a washout led by lockdowns.
  • Industry players are bullish on the upcoming summer season as early sales indicate an uptrend.
  • On the commodity cost front, inflationary pressure is witnessed by the industry. Most AC players have resorted to taking price hikes.
  • Increased demand due to rise in temperature bodes well for the industry but an increase in commodity cost might hurt operating margins in the coming next 2 quarters.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 932 as of 10-March-2021.  It traded at 94x/47x/36x the consensus Earnings per share estimate of ₹ 9.87/19.9/26.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 761/- which implies a PE multiple of 29x on FY23E EPS of 26.1/-.

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.”