Author - Assetmultiplier

02 May

The commuter segment has seen a slowdown over the past 3 years  – Bajaj Auto

 

 

Update on the Indian Equity Market:

The Indian indices opened the week in the red. NIFTY ended 0.2% lower at 17,069 led by INDUSINDBK (3.9%), COALINDIA (2.6%), and POWERGRID (2.1%). EICHERMOT (-3.4%), APOLLOHOSP (-3.4%), and TITAN (-2.9%) were top losers.

Among the sectoral indices, METAL (+0.6%), PRIVATE BANK (+0.5%) and MEDIA (+0.4%) were the top gainers. CONSUMER DURABLES (-2.0%), IT (-1.5%), and AUTO (-1.4%) led the sectoral laggards.

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto with CNBC-TV18 on 28th April 2022: 

  • EV transition provides the company with a huge opportunity in the scooter segment. The company is currently not present in the ICE scooter segment, ASEAN Markets are heavily skewed towards the non-motorcycle segment, so EV Scooters provide Bajaj Auto with a global opportunity.
  • The company launched has launched Chetak EV Scooter 2 years ago and will launch soon launch a new version in June-2022. The recent EV Fire incidents will impact buyer behavior in terms of safety concerns and brand preference but the transition to EV is inevitable.
  • The Mass Market segment (~100cc) has lost over 15% volume over the last 3 years due to economic slowdown in the rural parts of the country and decreased purchasing power of low-income groups due to COVID-19 and inflation.
  • The commuter segment contributes about 50% of 2 wheeler industry’s volumes, so the company is on the lookout for how the monsoon performs as it expects a revival in demand if a robust monsoon leads to a rise in disposable incomes which will be critical for the 2 wheeler industry’s turnaround.
  • The export segment has performed steadily with the company reporting the highest-ever volumes from the export segment. The company is a market leader or the runner-up in key export markets of Latin America, Africa, and ASEAN.
  • Demand will be buoyant during Q1, due to pent-up demand and marriage season in rural India, however, that cannot ve extrapolated to the outlook for FY23. Q2FY23 will be crucial to determine whether the 2 Wheeler industry is set for a turnaround after reaching a decadal low due to structural problems of inflation and unemployment across rural India.

Asset Multiplier Comments:

  • Bajaj Auto like other mass-market producers has borne the brunt of rural slowdowns and decline in demand, increasing commodity costs, and supply chain constraints but the issues seem to have bottomed out and the industry as a whole is set for a turnaround in FY23.
  • High export exposure and a robust portfolio of premium brands like Dominar, Pulsar, and KTM-Husqvarna have insulated Bajaj Auto from the slowdown in the commuter segment and made it better placed amongst the all the players in the 2 wheeler industry.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of Bajaj Auto was ₹ 3,623/- as of 02-May-2022. It traded at 19x/ 16x the consensus earnings estimate of ₹ 194/226 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,120/- implies a P/E Multiple of 18x on the FY24E EPS estimate of ₹ 226/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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13 Apr

Loss Aversion…

It is a human tendency to avoid a loss as much as possible. A loss of Rs. 1000 gives much more pain than the amount of joy derived after gaining Rs.1000. Humans have a bias against loss and this has been proved in many behavioral studies. Loss aversion must be inbuilt in humans as in ancient times, being careless in hunting or an injury or getting excluded from the group could lead a human to die as the world was harsh. Therefore people who were cautious survived and investors today are their descendants. So evolution has made them such that they fear loss more than they like to gain.

Few day-to-day examples – People are hesitant to sell a favorite old car or a piano even if it is not of much use to them now. If they are forced to sell it, they ask for a high price as they feel they are giving away something valuable and cannot bear to see it go.

Doesn’t everyone get tempted by offers such as ‘Buy 2, Get 1 Free’ even though they might not need three! People want to take up the offer as they do not want to lose the one that is given free. Everyone is apprehensive about taking up a new role in the company that they work in or changing a job as they are in a comfortable place and do not want to risk it. Caution is good but being so cautious that investors don’t take up any risks or challenges will not help them achieve their goals or ambitions.

How does Loss Aversion affect personal finance?

  1. Many investors do not sell loss-making investments hoping against hope that someday they might be profitable. This delay leads to further loss due to the erosion of the capital value.
  2. On the other hand, investors tend to sell off stocks whose prices are rising. investors feel that if they do not sell them, prices might fall and they will end up making losses.
  3. Many investors stay away from falling markets as they cannot digest losses. When the markets come back to their true valuations, high-quality stocks & Mutual Funds would bounce back. People would have lost the chance to buy attractive stocks at low prices.
  4. People invest maximum amount in safe, low-interest investment products that provide no great returns nor are able to beat inflation.

Source: www.tflguide.com by Hemant Beniwal

Asset Multiplier Comments:

  • Holding on to loss-making investments hoping that they will turn around or averaging an investment with shaky fundamentals is a definitive way that results in capital erosion.
  • Even the most seasoned investors demonstrate loss-averse behavior, the only way to avoid the trap is to cut our losses as early as possible and ensure our capital is preserved.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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16 Mar

Musings on the market

With state elections out of the way, the stock markets will stay focused on the ongoing Russia-Ukraine conflict and energy prices and its implications for domestic and global growth and inflation (interest rates).

We hope for diplomatic breakthroughs to end the ongoing Russia-Ukraine conflict and no further sanctions on Russia’s oil/natural gas exports. This could limit further damage to global supply chains and prices of materials and foodstuff. The decline in share prices in the last month has made many stocks attractive to long-term investors. We believe that even when diplomatic solutions are found, the world will not go to the situation as it existed before Russia entered Ukraine. Material costs will stay higher for longer, consumption will be reduced and interest rates will move up in 2022. Lockdown in China’s Shenzhen and Jilin province amid a surge in fresh cases may impact industries such as chemicals and automobiles. Issues with respect to the ports causing delays with shipping may hurt the global supply chain.

For the past few months, foreigners have sold Indian stocks in large quantities. Indians have continued to buy but not in equal strength. We believe that Indian indices may not fall sharply in the next few months if global conflict does not worsen. We think investors should now start to invest in a mix of defensive and pro-cyclical sectors now.

Sector Business Outlook
Pharma Steady growth in India. International business momentum picking up. Restarting of US FDA inspections may lead to quicker approvals, adding to topline growth.
Consumer Revenue and Margin growth will be challenged for the next few quarters.
Software Services The demand outlook is robust for the next 2-3 years. Winners will be focused on Digital solutions for clients.
Insurance Increasing demand as income levels rise. Increased supply of shares may cap the valuations for the next few months.
Defence The importance of having strong local manufacturing for defence needs is underscored by recent global developments.
Financial Services Increasing demand as COVID fears fades, stronger margins as the size of bad loans fall, sufficient new worth due to recent capital raising.
Auto and components A mixed outlook as supply constraints may ease over the next few quarters. Demand may suffer due to rising petrol prices.

 

Jason Leach points out that statistics abound showing that market corrections without recession are buying opportunities. Outside of recession, and after declines of 10%+, the US S&P 500 Index is higher one year later approximately 90% of the time with an average return of 25%+ (32 corrections since 1980 – source: LPL Research).

Data also shows that market corrections outside of recession around geopolitical tensions are buying opportunities. Outside of recession, only once since 1939 was the US S&P 500 Index lower one year after a domestic political or geopolitical shock (29 occurrences), with a median one-year return of 13% (source: Deutsche Bank).

Does this mean investors should be fully invested now? Not so fast, we think. Jason Zweig reminds us that glaringly obvious big fears, like the risk of nuclear war, can blind investors to insidious but more likely dangers, like the ravages of inflation. Second, investors need not only the courage to act (continue with regular investments in stocks) but the courage not to act—the courage to resist (not giving to the temptation of new products, hot IPOs).

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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10 Mar

Don’t invest like a Billionaire…

“If you want to learn how to shoot a cover drive, emulate Sachin Tendulkar. If you want to learn how to cook, watch Sanjeev Kapoor. If you want to get rich, do what rich people do…right?”

This is a often repeated fallacy that imitating rich and famous people’s investing strategies will result in success, however nothing could be farther from the truth. The intuition is obvious—if that person is rich, they must know how to handle their finances. And if they’re doing something with their money, I should probably do the same thing. 

The problem with this strategy is that their investing goals might be completely different than yours, aside from growing your wealth, there might be nothing common between your financial dreams and theirs. The rich and famous make investment choices that align with their lifestyles. 

A famous renowned mutual fund manager that can, and does, change strategies in a heartbeat. If he’s bullish on electric motorcycles on Monday morning, he may sell the entire position by Thursday afternoon. Within the last few months, he may have short sold the stock of any automobile company, and called for “the mother of all crashes” in crypto. You’ll see plenty of articles about what Mutual Fund Managers may be trading at any point in time because “Guess what this ace investor is Buying…” is a click-inducing headline. But it’s impossible to track his whipsawing strategy by following the headlines—you’ll only know his next move well after it’s made. You can follow him into the halfpipe, but you might end up in traction.

the CEOs and insiders—is it possible that these folks are selling because they know disaster is around the corner? Sure. But let’s remember that these people sometimes just need cash, too. Most of a CEO’s pay doesn’t come in the form of a biweekly salary; it comes in stock-based compensation. So, whether they want to buy a boat or need to pay their kid’s tuition, selling stock will be the primary way to get cash. They might also be selling as part of an ongoing plan to reduce their concentration in their company’s stock. Diversification is a tenet of Investing 101, hardly an ominous sign of impending doom. You can follow them into the halfpipe, but you might be misinterpreting their motives.

The lesson is simple, the right investing strategy can’t be found by blindly imitating rich people or by listening to “experts” on the news channels every morning. Investing is a very personal discipline, and you don’t know their time horizons, motivations, or even their personal finance acumen—plenty of rich folks end up going broke.   

Ultimately, you can’t find the “right” strategy by following anyone in the world because the search begins within YOU. Your goals, your saving and spending habits, and your personality are unique and crucial inputs to your investment strategy. If you need help matching YOU with your investments, it’s time to talk to a financial advisor. The best advisors aren’t the smoothest talkers or those with the most expensive suits. The best advisors are those who truly listen to understand you, then devise a strategy that fits.     

Source: Don’t invest like a billionaire by demystifyingmarkets.com

Asset Multiplier Comments

  • Investing is a deeply personal exercise that is based on a lot of parameters which differ from person to person. Blindly following rich people or investing gurus for financial advice is not the best approach to investing.
  • Everyone’s income, savings, goals regarding investing, expectations from wealth generation is different, so the best way to start investing is consulting a financial advisor who can help us with a tailor-made plan for investing.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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03 Mar

What to do in these times?

As Indian markets continue to fall along with most other international markers, investors are wondering if this is the time to buy their favorite stocks. The latest trigger for the decline was the Russia – Ukraine conflict. The situation keeps changing every day but the impact on commodities – oil, sunflower oil, metals such as aluminum, copper and nickel, corn, wheat – prices have been immediate. The auto industry would be specifically affected as Russia is also a significant supplier of palladium a key component in semiconductor chips. Natural gas prices are already on the rise and Russia’s ejection from the global swift system could cause a lag in trade payments affecting balance sheets. The best outcome from investors’ perspective would be the cessation of hostilities and the world going back to its previous way of working. The possibility of this happening is fairly low.

Indian investors have to worry about three more developments in early March. We expect oil prices to be increased any time after 7th March (the last date of polling in UP). Credit rating agency ICRA points out that “While it is difficult to pinpoint the exact amount of lagged revision in RSPs (retail selling prices) of MS (motor spirit) and HSD (high-speed diesel) that is warranted by the surge in crude oil prices to the current levels, we expect it to be in a range of Rs 6-8/litre, i.e., similar to the cushion offered by potential excise reversion to pre-Covid rates,” its Chief Economist Aditi Nayar said in a report.

The international crude oil price, in Indian basket terms, surpassed the USD 100 per barrel mark on February 24 for the first time since September 4, 2014, the report said. The price of the Indian crude oil basket has averaged USD 93.1 per barrel so far in February 2022, a 10.5 percent surge relative to USD 84.2 per barrel in January 2022, it added.

Another development to watch out for is the results of five state assembly polls that will be announced on 10th March. Global investors are watching Fed action on interest rates to be announced on 16th March. This may bring some volatility to asset prices in emerging markets such as India.

The third development to watch will be the IPO of Life Insurance Corporation. The timing and size of the issue have not been announced yet. This could be a very large issue and reduce the liquidity in the market. Investors may sell other holdings to invest in this IPO. This could lead to a decline in share prices around the time of the IPO.

Another development to watch out for would be the conclusion of the Winter Olympics in China, which had affected the supply of key raw materials, especially heavy metals and pharma companies, due to Beijing’s determination to reduce pollution. We can expect the supply chain woes dependent on Chinese raw materials to ease, lowering the pressure on costs.

Should we add defensive sectors to the portfolio?

In uncertain economic times, investors have preferred to invest in defensive sectors like software services, pharma, and the consumer sector in the past. Is it time to do that again now?

We think the demand outlook for these sectors might not get impacted in the short term but high commodity prices will keep the margins under pressure for longer than anticipated. Companies will struggle to protect their margins and juggle between passing the inflation to consumers and cost-cutting. This may impact profit outlook adversely for the medium term eventually impacting the share prices. Industries getting impacted due to the shortage/inflation of RM and energy prices will have to cut down their discretionary spending. Companies may have to restrict ad and IT budgets to protect their margins. This may slow down the growth of Media and Entertainment and software companies in the medium term.

In summary, we think that investors should be patient with their investments before any clarity emerges on the prevailing economic issues- how the war and Indian elections affect the oil prices and Fed’s meeting on 15th March.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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13 Dec

This Week in a nutshell (Dec 6th to Dec 10th)

Technical talks

NIFTY opened the week on 6th Dec at 17,209 and closed on 10th Dec at 17,511. Going ahead, the level of 17,350 is likely to act as strong support in the near term and the levels of 17,615 will act as immediate resistance levels.

Top gainers during the week were Nifty Media (+9.3%), Nifty PSU (+6.2%) and Nifty Realty (+4.6%) while no indices ended in the red.

Weekly highlights

  • India’s airlines and airports are expected to lose Rs 19,5640 mn and Rs 5,1160 mn, respectively, in FY21 owing to significant disruption caused by the COVID-19 epidemic, according to the Minister of State for Civil Aviation V K Singh.
  • Job openings in the United States increased in October, while hiring fell, indicating a deepening labour shortage. This might impede employment growth and the entire economy. On the last day of October, job postings grew by 431,000 to 11.0 million, indicating a rise in labour demand.
  • New applications for US unemployment benefits fell dramatically last week, reaching levels not seen since 1969.
  • Japan’s wholesale inflation touched a record 9.0 % in November, owing to pricing pressures caused by supply constraints and rising raw material costs.
  • RBI Governor Shaktikanta Das announced that the MPC has opted to keep the inflation forecast at 5.3 per cent in FY21-FY22. The central bank maintained its cautious stance on growth, and with no major changes in headline inflation, it confirms the perception that it is watchful, rather than paranoid, about inflation.
  • Dow futures rose about 3% as investors were less concerned over the new Covid omicron type.
  • The foreign institutional investors (FII) sold equities worth Rs 92,020 mn, while domestic institutional investors (DIIs) bought equities worth Rs 72,136 mn.

Things to watch out for next week

  • This week’s market action will be dominated by the US Federal Reserve’s meeting on December 15th, data on the novel covid variant omicron, and November inflation data.
  • All eyes will be on the Federal Open Market Committee meeting. This committee is expected to consider stopping the bond-buying programme and raising interest rates, according to consensus. The interest rate decisions of the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Japan will also be widely observed.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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07 Dec

Acquired biz segment seeing steep growth – Tech Mahindra

Update on the Indian Equity Market:

On Tuesday, Nifty ended in the green amid weak global cues. It ended at 17,176 (+1.6%) after making a high of 17,251. METAL (+3.1%), PRIVATE BANK (+2.5%), and BANK (+2.5%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, HINDALCO (+5.1%), TATASTEEL (+4.0%), and AXISBANK (+3.6%) were the top gainers while BRITANNIA (-0.6%), CIPLA (-0.6%), and DIVISLAB (-0.4%) were the top losers.

Edited excerpts of an interview with Mr. Vivek Agarwal, President-BFSI and Corporate Development at Tech Mahindra (TECHM) with CNBCTV18 on 6th December 2021:

  • The last couple of years have opened a new segment of WFH, this acquisition helps TECHM service their customers with a new channel and takes. It takes away a lot of dependency on physical infrastructure and helps provide services from anywhere.
  • The entire WFH segment has been witnessing explosive growth over the last couple of years. From a long-term perspective, 55% of customer experience workers are expected to work from home or from anywhere by 2024. This represents huge a addressable market space for TECHM.
  • From a synergies viewpoint, the company will be taking these capabilities to their existing customers and Activus Connect has its customer base as well which represents a significant cross-sell opportunity for TECHM.
  • TECHM expects this explosive growth to continue over the next 3-4 years.
  • The acquired company has industry-standard margins and on the growth front, the business’ organic growth is been exceptional. From a long-term perspective of its core business, TECHM expects to generate 30-40% additional revenues through synergies and take these capabilities to the existing customers.
  • The acquired company has a unique technology platform that lets one apply all the good practices around data, security, and performance management for remote workers.
  • TECHM expects the business to have industry-leading growth on its own and is excited about the synergies that will be created out of this acquisition in the knowledge segment space.
  • The margins of this company are expected to be at par with what TECHM does which is their objective in every acquisition they do.
  • While certain capabilities are specific to particular sectors, the offering per se is sector agnostic.
  • Return to the office for TECHM employees is largely voluntary. Some of them are returning in hybrid mode and this work model is expected to continue. However, 15-20% of their workforce has started coming to the office which mainly comprises of the top management of the company.

Asset Multiplier Comments

  • TECHM has grown organically & inorganically (dollar revenue CAGR FY17-21 of 4%). The company will continue to acquire for scale, synergies, cross-sell benefits, and upselling.
  • We expect healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud to drive revenues.
  • Higher offshoring, synergies in portfolio companies, automation, & operating leverage is expected to help margin expansion.

Consensus Estimate (Source: market screener and Tikr websites)

  • The closing price of TECHM was ₹ 1,575/- as of 07-December-21. It traded at 25x/22x/19x the consensus EPS estimate of ₹ 64/73/81 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,783/- implies a PE multiple of 22x on FY24E EPS of ₹ 81/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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22 Nov

Increasing prices of products a last resort – ITC

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,417 (-2.0%). The top gainers in NIFTY50 were BHARTIARTL (+3.8%), JSWSTEEL (+1.6%), and ASIANPAINT (+1.0%). The top losers were BAJFINANCE (-5.6%), BAJAJFINSV (-4.8%), and TATAMOTORS (-4.6%). Sectoral losers were PSU BANK (-4.5%), REALTY (-4.2%), and MEDIA (-3.9%). There were no sectoral gainers for the day.

Excerpts of an interview with Mr. B Sumant, Executive Director, ITC with Business Standard dated 22nd November 2021:

  • Responding speedily to some of the emerging trends, ITC launched 120 products in FY21 and many of them were first to market products. These included sanitization products, such as Savlon disinfectant spray and for ease of cooking, the ITC Master Chef frozen snacks, pastes, and gravies were launched.
  • Innovations of ITC are crafted based on long-term consumer trends. ITC expects the demand for smart cooking solutions to be sustainable in the longer term and health and nutrition products gain strength with increasing awareness among people.
  • To enhance accessibility from the lower end of the market, ITC come up with low-unit-price products across segments like deodorants, ghee, and hygiene.
  • The demand for top-end innovative products as well as low-unit-price products from top-end people continued as they have money in their hand, they are looking for avenues to spend.
  • Raw material inflation affected the entire industry in 2QFY22. ITC did not pass the effect of raw material price hikes to consumers, as increasing the prices of the products is the last option. Rather than price hikes, ITC is focusing on effective cost management, premiumization, favourable business mix to mitigate costs and enhance efficiency.
  • The urban demand recovered faster after the 2nd Covid wave; it has moved from -5% to 14% for the industry as well as rural demand also increased from 1% growth to 17% growth over the FY21.
  • For ITC, the rural percentage has gone up even further, the share of rural sales has increased from 28% to 29%, while the urban share is around 71%. ITC has a steady focus on driving distribution penetration into rural India by various strategies.
  • Out of total sales, 7% of sales comes from E-Commerce. The modern sales also seeing a resurgence after the 2nd Covid wave because all outlets are opened. all other channels are higher than pre-Covid levels, but the wholesale which was impacted by the restrictions in inter-state movement during the pandemic.
  • ITC is witnessing encouraging results in supply chain optimization and cost efficiency due to the digitalization and use of technology. ITC leveraged digital technology across every node of supply chain.
  • ITC E-Store has been an effective platform to gain consumer insights and ITC reconstruct their entire strategy for E-Commerce.

 Asset Multiplier Comments

  • Hygiene products such as sanitisers and disinfectant sprays gained prominence during CY20 when the spread of the virus was rampant. Now, as the economy is returning to normalcy, demand for these products has reduced.
  • Rising commodity costs, freight rates and logistical challenges are the headwinds facing the industry and company.

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

  • The closing price of ITC was ₹ 231/- as of 22-November-2021.  It traded at 19x/17x/15x the consensus earnings estimate of ₹ 12.2/13.8/15 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 270/- which trades at 20x the earnings estimate for FY23E of ₹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.”

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13 Oct

Another price hike if gas prices rise further – Somany Ceramics

Update on the Indian Equity Market:

On Wednesday, NIFTY ended higher at 18,162 (+0.9%) as it closed near the intraday high level of 18,198. Among the sectoral indices, AUTO (+3.4%), METAL (+1.5%), and IT (+1.2%) ended higher, whereas REALTY (-0.2%) was the only sector which ended lower. Among the stocks, TATAMOTORS (+21%), M&M (+5.2%), and TATACONSUM (+4.3%) led the gainers while MARUTI (-2.6%), ONGC (-2.2%), and SBILIFE (-1.8%) led the losers.

Excerpts of an interview with Mr. Abhishek Somany, MD, of Somany Ceramics (SOMANYCERA) with CNBC TV18 on 12th October 2021:

  • About 1000 plants that manufacture ceramics and are located in Morbi, Gujarat have decided to increase prices as the gas prices have gone up. There has already been a price increase this week and there will be a further price increase in the next 15-20 days. When this happens, Somany Ceramics will increase prices again.
  • The gas price constitutes 25-28% of the company’s cost. The industry has increased price by ~Rs 2-3 a square foot. The industry passed on a reasonable increase in gas prices. As the gas prices stabilise, the industry will be able to pass on 80+% of the prices to its customers.
  • The company is at 100% capacity utilisation though the prices have gone up. The demand is back, at least for brand new players. It is good news for the industry as the demand for the real estate sector has picked up.
  • Tile is not a very large renovation market. About 18-20% is used in renovation, rest is used in the new application.

 

Asset Multiplier Comments

  • As the demand for real estate is picking up, this will prove as a tailwind for Somany Ceramics in the near to mid-term, as the company’s product (tiles) is used largely in new applications.
  • The company’s margins may improve as the raw material prices stabilise, along with an increased price of company’s products.

Consensus Estimate: (Source: market screener website)

  • The closing price of SOMANYCERA was ₹ 830/- as of 13-Oct-2021.  It traded at 33.7x/23.5x/18.3x the consensus earnings estimate of ₹ 25/35/45 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 810/- implies a PE multiple of 17.9x on FY24E EPS of ₹ 45/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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27 Sep

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Update on the Indian Equity Market:

On Monday, NIFTY closed flat at 17,855. The top gainers in NIFTY50 were MARUTI (+6.4%), M&M (+4.3%), and TATAMOTORS (+4.1%). The top losers were HCLTECH (-4.4%), TECHM (-3.3%), and WIPRO(-3.2%).

The top gaining sectors were AUTO (+3.2%), REALTY (+3.0%), and MEDIA (+1.6%), while the top sectoral losers were IT (-2.9%), HEALTHCARE (-1.3%), and PHARMA (-0.9%).  

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Edited excerpts of an interview with Mr. Manish Agarwal, Chief Executive Officer, Nazara Technologies (Nazara) with ETNow on 23rd September 2021:

  • Nazara categorizes its consumers based on the age group and all their acquisitions fit in these cohorts. One is 2-12-year-old young kids, 14-25-year-old male sports fans, and then above 25 gamers.
  • Nazara is present in emerging markets like India, South Asia, South Africa, and the Middle East which are seeing a strong tailwind across gaming and adjacencies to gaming.
  • The company’s last acquisition Publishme allows the company to build gaming IPs in the Middle East.
  • Having an on-the-ground understanding of what the consumer needs and how it would pan out in terms of retention engagement, consumer acquisition, and community building are important aspects for the company to succeed.
  • Nazara three years back took a call that gaming is a talent-driven business and that talent is passionate about what they create and you need to work with that talent to grow those companies.
  • Nazara’s telco business which is 15 years old, contributes around 13-14% to the company’s overall portfolio and its acquired IPs are in their growing phase like kiddopia, Nodwins, Sportskeeda, and the World Cricket Championship.
  • The company’s strategy has been to build all the friends of Nazara as a concept and then continue to build value with those founders at subsidiary levels.
  • Gaming as a secular trend was in a very advanced stage even before COVID due to two key reasons i.e launch of Jio and UPI transactions.
  • Pre-pandemic, the company was growing around 48-50% YoY. The combination of acquisition and organic growth helped the company to grow ~87% and continues to see the same momentum of growth in different businesses.
  • India is still 2-4 years old in e-gaming and esports. India’s gaming is still a very small market and is limited to mobile as an access device. The growth of this market is expected to come in the next 3-5 years.
  • It is always important as an industry to look into the markets which are far ahead (seven-eight years ahead) and then work with stakeholders today to ensure creating and evangelising the benefits of gaming.
  • Looking at the risk of gaming, it is predominantly limited to skill-based real money gaming where people are waging their money to win a large part of the money. The non-real money gaming part which is free to play mobile gaming, e-sports, or gamified learning does not fall into this bracket.
  • Clarity regarding the difference between games of chance and games of skill will help to bring clarity to the policy.
  • The company expects National E-sport Championship in the coming time to create a positive perception about gaming. This will take time and can only change through large ticket items like Olympics plus constant engagements with the stakeholders.

Asset Multiplier Comments

  • We believe rising gaming culture, evolving E-sports, improvement in digital payment and tech infrastructure, favorable macro-economic, and demographic drivers in India provide an opportunity for the growth of the company.
  • Nazara has created the entire network through selective acquisitions. This will help to explore the gaming sector boom in India.

 

Consensus Estimate (Source: market screener websites)

  •  The closing price of Nazara Technologies was ₹ 2,280/- as of 27-Sep-21. It traded at 146x/90x/61x the consensus EPS estimate of ₹ 14.7/23.6/35 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,060/- implies a PE multiple of 59x on FY24E EPS of ₹ 35/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

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