Author - Mrunmayee Jogalekar

Rural demand is still strong, vehicle availability an issue – M&MFIN

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 0.2% higher at 14,895. Within NIFTY50, JSWSTEEL (+9.6%), TATASTEEL(+6.6%), and BAJAJFINSV(+6.5%) were top gainers, while HEROMOTOCO (-2.4%),EICHERMOT(-2.3%), and BAJAJ-AUTO(-1.8%) were the top losing stocks. Among the sectoral indices, METAL (+4.5%), PHARMA (+0.3%), and FINANCIAL SERVICES 25/50 (+0.2%) were the highest gainers, while PSU BANK (-1.1%), AUTO (-1.0%), and FMCG (-0.4%) were the top losers.

 

Rural demand is still strong, vehicle availability an issue – M&MFIN

 

Excerpts of an interview with Mr. Ramesh Iyer, MD&Vice Chairman, M&M Financial (M&MFIN), aired on CNBC-TV18 on 26th April 2021:

  • M&MFIN represents the rural and semi-urban vehicle markets. Non-availability of vehicles has led to a lower growth in disbursements for M&MFIN.
  • MHCVswere a growth story for M&MFIN earlier and this segment has also been under pressure leading to lower growth.
  • Collections are good while disbursements are slower, again contributing to a slower growth on the balance sheet.
  • Iyer expects 2HFY22E to be strong once the availability of vehicles is smoothened. The demand in rural India is still strong.
  • Iyer thinks that they have sufficient provisioning for current book. As the 2nd Covid-19 wave is spreading to the rural areas unlike the 1st wave, M&MFIN will take a very cautious approach in 1HFY22E.
  • M&MFIN had GNPA of about 9% in 4QFY21. The seasonality of agriculture means that there is a tendency for GNPAs to go up in the 1st half of the financial year, even without Covid disruption. So 1HFY22E will be the correct period to watch out for in terms of asset quality trends.
  • Iyer is positive on the agri cash flow on back of good monsoon forecast. Infra projects were ready to start which have again faced disruption due to the second wave of covid-19. But as those projects also start post monsoon, the asset growth should be back in 2HFY22E.
  • Industry players are seeing customers wanting smaller EMIs and extended period- i.e. restructuring, which again seems necessary from customer perspective. Regulators’ decision on the same remains to be seen.

Asset Multiplier Comments

  • Several states have imposed lockdowns or restrictions to curb the rising Covid-19 cases. Vehicle demand could see further slowdown due to restricted public mobility, leading to slower disbursements for vehicle financiers.
  • Several banks as well as NBFCs that have reported 4QFY21 results have commented that current provisioning seems adequate. But the situation is still developing and any stress in the loan book will only be visible by the end of 1QFY22E.

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

  • The closing price of M&MFIN was ₹ 165 as of 29-April-2021. It traded at 1.3x/ 1.1x the consensus BVPS estimate of ₹ 131/145 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 186/- implies a PE multiple of 1.3x on FY23E BVPS of ₹145/-.

 

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 (April 19th to April 23rd)

Technical talks

NIFTY opened the week on 19thApril at 14,307and closed on 23rd April at 14,341, a marginal increase of 0.2%.NIFTY has been hovering around the 100 DMA of 14,374 throughout the week. This remains the crucial level to watch out for before moving in either direction.

Weekly highlights

  • FIIs continued their selling spree with a net outflow of Rs 49,870 mn during the week. DIIs continued to be net buyers as they pumped in Rs 62,250 mn in the week.
  • The daily rise in covid-19 cases in India reached a record on 22ndApril when the number crossed 0.33 mn. This is the highest number of new cases recorded in a single day in the world. Several Indian states have imposed stricter restrictions or lockdowns in response. The worsening conditions have led to volatility in the equity markets.
  • Government of India announced the next phase of Covid-19 vaccination drive will start from 1st May 2021. Everyone above the age of 18 will be eligible to get vaccinated. Amidst concerns over shortage of vaccines, producers have been asked to ramp up production. This is a developing scenario as there are also concerns regarding raw material procurement from the US.
  • US Equity indices came off from their record highs oflast week. The indices ended the week on a lower note as reports indicated that President Biden will propose to significantly increase capital gains tax for wealthy individuals.
  • Insurance Regulatory and Development Authority of India (IRDAI) reported March monthly business figures for life insurers. The industry New Business Premium (NBP) grew by 71% YoY. Mar-20 was a low base due to Covid-19 led disruption. For the quarter 4QFY21, the NBP growth was 35% YoY.

Things to watch out for next week

  • The ongoing 4QFY21 result season will gain traction next week as several big companies across sectors start to report quarterly numbers. Managements’ comments over the business impact of second wave of Covid-19 will be important.

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% higher at 14,819. Within NIFTY50, JSWSTEEL (+5.3%), WIPRO (+2.4%), and SBIN (+2.2%) were top gainers, while ADANIPORTS (-2.8%), TATACONSUM (-1.4%), and UPL (-1.3%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.9%), AUTO (+1.6%), and PRIVATE BANK (+1.5%) were the highest gainers, while no sector ended with losses.

 

Volume boost expected from commissioning of Western Dedicated Freight Corridor– CONCOR

 

Excerpts of an interview with Mr. V Kalyana Rama, MD& Chairman, Container Corporation of India (CONCOR), aired on CNBC-TV18 dated on 6th April 2021:

  • CONCOR had good volumes in 4QFY21. Overall for FY21, handling volumes for CONCOR were 2.8% less YoY, while originating volumes were higher on a YoY basis.
  • Rama hopes FY22E will be a good year as demand has picked up and is expected to continue. Export demand has also increased in the last 6 months.
  • CONCOR has paid Rs 5,900 mn to Indian Railways in relation to a dispute, and the issue is now resolved.
  • According to a comment by DIPAM (Department of Investment and Public Asset Management) secretary, divestment of CONCOR may not happen in 1QFY22E. CONCOR divestment can take place only after Indian Railways finalizes land lease policy, which has to be approved by the Cabinet.
  • Commissioning of Western Dedicated Freight Corridor (DFC) is expected to be completed by June 2022. Connection up to Palanpur is expected to start any day now. This will help in connecting to 2 ports- Mundra and Pipavav. This will be a big volume boost in the northern India container movement business. The connection upto Mumbai port will take another year.
  • The DFC will lead to higher revenues. There is also a possibility to increase EBITDA margins due to double stacking and high capacity wagons. CONCOR is planning to have a 100% double stacking movement for all containers meant for northern India.
  • In the short term, Mr. Rama expects more growth in EXIM business as exports are picking up. In the domestic market, he is seeing more people coming toward containerization which will also aid growth. In addition, CONCOR is focusing on bulk transportation of commodities.

Asset Multiplier Comments

  • In the Union Budget for FY22E, Government of India (GoI) has budgeted inflow of Rs 17.5 lakh mn from divestment in PSUs.
  • To kick start the privatization of PSUs, GoI will float the Expression of Interest (EoI) for divestment in CONCOR. GoI plans to divest 30.8% stake and cede management control in the Rs 355 bn market cap (as on 6th April 2021) company.
  • Several Indian as well as global companies seem to be interested in getting a stake in India’s largest container and terminal operator.
  • There has been scepticism on whether GoI will be able to successfully execute their PSU divestment strategy.  Success of this privatization will pave way for further divestments in other PSUs.

 

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

  • The closing price of CONCOR was ₹ 583as of 6-April-2021. It traded at 35x/ 27x the consensus EPS estimate of ₹16.7/21.4 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 520/- implies a PE multiple of 24x on FY23E EPS of ₹21.4/-.

 

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.”

 

Capital raise on cards to fund aggressive growth plans – Can Fin Homes

Update on the Indian Equity Market:

On Thursday, Nifty closed 1.5% lower at 14,325. Within NIFTY50, TATASTEEL (+2.9%), DRREDDY (+0.8%), and ICICIBANK (+0.6%) were top gainers, while IOC (-4.0%),MARUTI (-3.9%), and COALINDIA(-3.4%) were the top losing stocks. Among the sectoral indices, METAL (+0.02%) was the only gainer whileMEDIA (-3.1%), AUTO (-2.8%), and PSU BANK (-2.6%) ended with the most losses.

Capital raise on cards to fund aggressive growth plans – Can Fin Homes

Excerpts of an interview with Mr. Girish Kousgi, MD& CEO, Can Fin Homes (CANFINHOME), published on Economic times dated on 24th March 2021:

  • CANFINHOME witnessed a decline in loan book in the last couple quarters. This was due to repayments being higher than incremental disbursements. But December 2020 onward, the business is seeing a comeback.
  • CANFINHOME’s disbursements have been strong since December 2020. December 2020 disbursements were equal to disbursements in October 2020 and November 2020 put together. February 2021 saw disbursements at an all-time high and March 2021 is expected to be even better.
  • The demand for affordable housing revived couple months ago, while the non-affordable housing demand is back to 90% levels.
  • Several financial institutions have been focusing on mortgage segment. CANFINHOME has changed its pricing strategy to retain customers and attract good customers.CANFINHOME has moderated its pricing to be at par with best banks in India. This will contribute to CANFINHOME’s expectation of 17-18% loan book growth in next few quarters.
  • CANFINHOME’s aggressive pricing strategy will put a pressure on its margins. Mr Kousgi said the management will look for opportunities to improve yields where possible.
  • CANFINHOME has a capital adequacy of 24% and leverage at 7.3x. While the capital adequacy is comfortable, Mr Kousgi says capital raise is shortly on the cards to fund aggressive growth plans for next 3-5 years.
  • Kousgi does not anticipate any additional covid-19 related provision requirement.

 Asset Multiplier Comments:

  • Demand for housing has seen a revival in last few months due to attractive prices, lower interest rates, lower stamp duties, and other benefits.
  • In the covid-19 era, banks refrained from lending to the more risky segments such as unsecured consumer loans, SMEs, and vehicle finance.Several banks have ramped up their lending in the home loans space due to lack of other lending options. This has led to increased competition in the mortgage lending space.

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

  • The closing price of CANFINHOMEwas ₹ 575 as of 25-March-2021. It traded at 3.0x/ 2.5x/ 2.1x the consensus BVPS estimate of ₹ 192/233/271 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 593/- implies a PB multiple of 2.2x on FY23E BVPS of ₹271/-.

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 (March 15th to March 19th)

This week in a nutshell (March 15th to March 19th)

Technical talks

  • NIFTY opened the week starting 15th  March at 15,048 and closed on 19th March at 14,744, declining 2% in the 5 trading sessions. 
  • The index broke its support of 50 DMA on Thursday and rebounded back to almost the same level on Friday. Now 50 DMA at 14,748 will be the crucial resistance level to watch out for. On the downside, the index may find support at 100 DMA of 13,909. 

Weekly highlights

  • This week, FII buying intensity increased as they pumped in Rs 58,929 mn in the Indian equity market. DIIs turned net sellers with Rs 30,366 mn net outflow from equities.
  • The Consumer Price Index (CPI) inflation for the month of February came in at 5.03% against 4.06% in January 2021. An increase in inflation reduces the scope for a further repo rate cut by the Monetary Policy Committee. Repo rate cuts are a monetary measure of boosting economic growth.
  • India’s trade data for the month of February was released this week. Exports saw a YoY growth of 0.7% to USD 27.9 bn, while imports saw a YoY jump of 7.0% to USD 40.5 bn. The trade deficit for February 2021 was USD 12.6 bn vs USD 10.2 bn for the same month last year.
  • For the month of January 2021, the Index of Industrial Production (IIP) declined 1.6%. YoY decline in IIP suggests that the economy is still not entirely out of the shadow of covid-19 issues.
  • GOI announced its much-anticipated vehicle scrappage policy this week. Under this policy, Commercial Vehicles (CVs) aged 20+ years and Passenger Vehicles (PVs) aged 15+ years will be de-registered in absence of a fitness certificate. The policy also includes incentives to vehicle owners for scrapping old vehicles including scrap value, road tax rebate, discount on new vehicles, and waiver of registration fees for new vehicles. This policy is expected to boost auto demand in an environment where auto sales have been suffering for the past several quarters.
  • The US Fed reiterated its stance on keeping the interest rates near zero in the next few years. This announcement acted as a reassurance to the market that the US central bank will continue to remain pro-growth.

Things to watch out for next week

  • The yearlong suspension of the Insolvency and Bankruptcy Board of India (IBC) is coming to an end on 25th March 2021. The suspension was implemented to protect the corporate debtors from defaulting due to the Covid-19 impact. If there is no further extension of the suspension, it will open up an important avenue for creditors to resolve bad assets.

 

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.”

 

Disbursement growth will be higher than AUM growth– CHOLAFIN

Update on the Indian Equity Market:

 

On Monday, Nifty closed 0.1% higher at 14,956. Within NIFTY50, UPL (+7.1%), GAIL (+4.3%), and LT (+3.4%) were the top gainers, while INDUSINDBK (-2.2%), SHREECEM (-2.2%), and BAJFINANCE (-2.1%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.6%), MEDIA (+1.0%), and METAL (+0.8%) were the top gainers while REALTY (-1.1%), FMCG (-0.5%), and FINANCIAL SERVICES (-0.4%) were the top losers.

 

Disbursement growth will be higher than AUM growth– CHOLAFIN

 

Excerpts of an interview with Mr. D Arul Selvan, Executive VP and CFO, Cholamandalam Investment and Finance (CHOLAFIN), aired on CNBC-TV18 on 4th March 2021:

  • Commercial Vehicles (CV) replacement has been delayed by about 2 years now due to a series of factors such as axle load norms, BS6 implementation, and covid-19 impact. Mr. Selvan expects the replacement demand to kick in as CVs have to be replaced sooner or later. February 2021 itself saw good growth across CV segments.
  • Disbursements will have good growth in FY22E, but the AUM growth will not be the same. During the moratorium period, disbursements dropped but AUM was not impacted in the absence of repayments. Now as repayments also happen, disbursement growth will be higher while the AUM growth will be lower.
  • CHOLAFIN is adequately provided and won’t see higher credit costs. The collections are also improving. February as a 28-day month generally has lower absolute collections. However, collections in February 2021 have been marginally higher than January 2021.
  • Selvan is seeing that the earning potential of customers is improving and they are now able to service loans comfortably.
  • CHOLAFIN’s 4QFY21E RoE should be significantly better than FY20 reported numbers and directionally, the RoE would now improve.
  • Mr Selvan expects that the NIMs will be stable. NIMs could have marginally improved but CHOLAFIN is now scaling up on M&HCV segment which has lower NIMs. M&HCV lending business has a lower yield but it is compensated by much lower operating expenses and lower loan losses.

 

Asset Multiplier Comments:

  • CV cycle recovery has been a matter of debate between industry players for some time now. Some companies seem to be banking on the hope that CV recovery is here, while some players think we are still some time away from the upcycle.
  • Lenders across board have been witnessing improvement in collection efficiency. This is attributable to opening up of the economy post lockdown.

 

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

  • The closing price of CHOLAFIN was ₹ 537 as of 8-March-2021. It traded at 4.5x/ 3.8x/ 3.1x the consensus BVPS estimate of ₹ 119/142/171 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 444/- implies a PB multiple of 2.6 on FY23E BVPS of ₹171/-.

 

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 400,000 + volumes in March 2021– Bajaj Auto

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed 1.1% higher at 14,919. Within NIFTY50, TATAMOTORS (+5.1%), M&M(+4.6%), and WIPRO(+4.5%) were the top gainers, while ONGC (-2.6%), HDFC(-1.2%), and DRREDDY (-1.1%) were the top losing stocks. Among the sectoral indices, AUTO (+3.2%), IT (+3.0%), and FMCG (+1.4%)were the top gainerswhile PSU BANK (-0.2%) was the only sector to end with losses.

 

Expect 400,000 + volumes in March 2021– Bajaj Auto

 

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto, aired on CNBC-TV18 on 1st March 2021:

  • Bajaj Auto reported total wholesale volumes of 375,017 units for February 2021, a growth of 6% YoY. According to Mr. Sharma, there was a shortfall in the volumes due to several factors.
  • Domestic 2-wheeler retails were higher than wholesale as Bajaj Auto was deliberately clearing stock. February onward, Bajaj Auto has started to focus aggressively on the entry-level segment.
  • The 2nd big shortfall was in exports, as there was a big spill over due to shipping container schedule. Bajaj Auto also lost some volumes in premium segment in domestic as well as exports market.
  • As all the above factors go away, Mr. Sharma expects monthly volumes to again go beyond 400,000 units in March 2021.
  • A 4% hit from raw material inflation is expected in 4QFY21. Bajaj Auto’s response to this will be after a very careful view of the fragile demand recovery.
  • Sharma estimates that the domestic 2-wheeler industry retails had a YoY decline in February 2021.Bajaj Auto saw a YoY retail growth. But a decline in retail volumes is not a good sign for the industry.
  • Bajaj Auto has taken a price hike in 3QFY21, but that has not impacted the customers significantly. The strategy is to increase the prices and simultaneously improve the product proposition for the customer. Further hikes will have to be taken in fragments, and cannot be taken at once.
  • Bajaj Auto is seeing a steady increase in 3-wheeler sales which is an important segment for the company. This is the tipping point for Bajaj to reach out to the customer with innovative financing schemes.
  • As Bajaj Auto was gaining market share in above 125 cc segment, they were losing in the below 125 cc segment. To address this, Bajaj Auto has now taken some initiatives which will help them grow both the segments. But for the industry, the below 125 cc segment has suffered.

 

Asset Multiplier Comments:

  • For the month of February 2021, Hero Motocorp has reported domestic 2-wheeler wholesales of 484,433 units, a growth of 0.8% YoY. For the same period, TVS Motors has reported 195,145 units, a growth of 15% YoY. Against this, Bajaj Auto’ s domestic 2-wheeler segment reported 1% YoY growth.
  • For domestic 3-wheelers in February 2021, Bajaj Auto reported a 27% YoY decline in wholesales while TVS Motors reported a 24% YoY decline.
  • Sales in the 3-wheeler segment saw steeper declines since the covid-19 pandemic on account of lower mobility. Several banks and NBFCs had taken a very cautious approach to auto lending. As 3-wheelers are predominantly purchased through loans, low finance availability put a roadblock in 3-wheeler volume recovery.

 

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

  • The closing price of BAJAJ-AUTO was ₹ 3,950as of 2-March-2021. It traded at 25x/ 20x/ 18x the consensus EPS estimate of ₹ 158/193/221 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 3,950/- implies a PE multiple of 18x on FY23E EPS of ₹221/-.

 

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 credit costs to gradually normalize in FY22E – Axis Bank

Update on the Indian Equity Market:

 

Wednesday was a pause from normalcy at NSE as the exchange closed down at 11.40 am due to issues at both their telecom service providers. To compensate, NSE & BSE extended trading hours from 3.45 pm to 5 pm. Nifty closed 1.9% higher at 14,982. Within NIFTY50, HDFCBANK (+5.4%), COALINDIA (+5.3%), and AXISBANK (+5.2%) were the top gainers, while UPL (-2.4%), POWERGRID (-1.5%), and DRREDDY (-1.5%) were the top losing stocks. Among the sectoral indices, PRIVATE BANK (+3.9%), BANK (+3.8%), and FINANCIAL SERVICES (+3.4%) were the only gainers while IT (-0.1%)    was the only sector to end with losses.

 

Expect credit costs to gradually normalize in FY22E – Axis Bank

 

Excerpts of an interview with Mr Amitabh Chaudhry, MD & CEO, Axis Bank, aired on CNBC-TV18 on 23rd February 2021:

  • AXISBANK was expecting to see slippages rise in 2HFY21. AXISBANK has already seen a large part of the slippages already happening in 3QFY21. Management expects slippages to be comparatively lower in 4QFY21, and stability to return in FY22E.
  • Management has been prudent in upfronting the provision hit and being conservative on restructuring and the Emergency Credit Line Guarantee Scheme (ECLGS).
  • Management expects the credit costs to start moving back to long-term averages gradually.
  • AXISBANK’s retail disbursements were back to pre-Covid levels in 3QFY21. They have seen the momentum continue till now. If economic activity slows down again, it will impact loan demand with a lag.
  • AXISBANK reported a 5.9% growth in advances in 3QFY21 which is conservative compared to growth reported by peers.
  • On the wholesale segment, AXISBANK is focusing on only certain segments as pricing is under pressure.
  • AXISBANK had slowed down on the SME book 2 years back. The SME book is now restructured and growth has started to come back.
  • On the Retail book, AXISBANK was cautious on the uptick when the demand came back, but December was very strong for them.
  • AXISBANK’s capital adequacy is among the industry best. He does not see the need for further equity issue in the next couple of years. Regardless, AXISBANK has the approval to raise Rs 50 bn via equity.
  • AXISBANK’s proposed deal with Max Life has received CCI approval. IRDAI approval has to be obtained by Max Life and the timeline for that cannot be predicted.
  • AXISBANK is always looking out for opportunities for acquisition. One space where they do not have a presence in the health and non-life side. If the right opportunity comes in, management will be open to acting on it. AXISBANK also wants to scale up subsidiaries, but only if opportunities appear at the right price.

 

Asset Multiplier Comments:

  • Most large banks have indicated that their credit costs have been upfronted and would see normalization FY22E onward. AXISBANK is no different in this aspect.
  • The banking sector overall is showing signs of improvement as the economy is getting back on track. However, the recovery hinges on the prevalence of this normalcy. In the event of a second wave of Covid-19 and any further disruption in the economic recovery, the performance across sectors will be impacted.

 

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

  • The closing price of AXISBANK was ₹ 753 as of 24-February-2021. It traded at 2.3x/ 2.0x/ 1.8x the consensus BVPS estimate of ₹ 328/ 368/ 419 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 764/- implies a PB multiple of 1.8x on FY23E BVPS of ₹419/-.

 

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.”

 

Don’t expect CV cycle turn for another 12-18 months– SKF India

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 0.6% lower at 15,119. Within NIFTY50, ONGC (+7.6%), GAIL (+7.0%), and BPCL (+4.7%) were the top gainers, while BAJFINANCE (-2.5%), M&M (-2.2%), and TATAMOTORS (-2.2%) were the top losing stocks. Among the sectoral indices, PSU BANK (+5.6%), IT (+1.3%), and METAL (+1.3 %)were the onlygainerswhileFINANCIAL SERVICES (-1.5%), AUTO (-1.4%), and PRIVATE BANK(-1.1%) were the top losing sectors.

 

Don’t expect CV cycle turn for another 12-18 months– SKF India

 

Excerpts of an interview with Mr. Manish Bhatnagar, MD, SKF India, aired on CNBC-TV18 on 12thFebruary 2021:

  • SKF reported strong 3QFY21 results where the Revenue/ EBITDA/ PAT growth was 16%/ 152%/ 151% respectively on a YoY basis.
  • EBITDA margins reported in 3QFY21 were 22.0% vs. 10.1% in 3QFY20. A quarter of the PBT delivered in 3QFY21 came from a one-time benefit; rest of the improvement is sustainable.
  • SKF was a front runner in opening up operations as early as end of April 2020. Come July-August 2020, SKF was the only company that could supply bearings to the customers when they began to ramp up production. This led to market share gain and significant growth for SKF.
  • SKF caters to 2 main segments, automotive and other industries, and is diversified in terms of type of industries.
  • On automotive, SKF is bullish on rural economy linked sub-segments which includes tractors and 2-wheelers. SKF is also positive on PVs on back of new model launches. SKF is conservative on CVs and management doesn’t expect the CV cycle to pick up for another 12-18 months.
  • On the Industrial side, SKF expects industrials to pick up soon after having lagged automotive in last 6 months. Management is bullish on everything related to infrastructure- cement, steel, and construction equipment.
  • Rise in steel and metal prices is concerning and if it continues, will impact everyone across the economy and could negatively impact the demand recovery scenario.
  • SKF’s benchmark going forward is FY19 performance and they expect to grow in double digits across all segments.

 

Asset Multiplier Comments:

  • CV OEMs have seen growth on back of e-commerce, industrial production, infrastructure projects, mining. Most sub-segments of CVs expect buses are now showing signs of revival.
  • OEMs commentary has been positive on the future CV demand on back of indicators like fleet utilizations almost near pre-covid levels, consumer sentiment index trending up, and improvement in financing availability.
  • While there are green shoots visible in the last few months, it is still early to be certain of a turn in the CV cycle. The demand situation is still fragile and can deteriorate in face of any disruption ranging from a second wave of Covid-19 in India, any further lockdowns, material cost inflation, or price hikes.

 

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

  • The closing price of SKFINDIAwas ₹ 2,344 as of 18-February-2021. It traded at 40x/ 36x/ 30x the consensus EPS estimate of ₹58.0/65.5/78.1 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 1,948/- implies a PE multiple of 25x on FY23E EPS of ₹78.1/-.

 

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.”

 

This week in a nutshell (Feb 8th to Feb 12th)

Technical Talks

  • NIFTY opened the week on 8th Feb at 15,064 and closed on 12th Feb at 15,163, a weekly gain of 0.7%. The index was range-bound during the week. With RSI (69) nearing the overbought zone and MACD on a declining trend, the technical indicators show a possible decline. On the downside, 10DMA of 14,921 could act as a support. On the upside, 15,257 is the key level to watch out for as the index tried to test this level during the week but could not sustain.

Weekly highlights

  • Foreign Institutional Investors (FIIs) continued to be net buyers in Indian equity of Rs 5,870 mn, but the quantum of inflows declined from the previous week of Rs 12,1340 mn. Conversely, Domestic Institutional Investors (DIIs) continued to be net sellers with an increased net outflow of Rs 9,560 mn vs the previous week Rs 5,643 mn.
  • Sectoral updates:
    • IRDAI released monthly business data for January 2021 for both Life and non-life insurance companies.
    • For the General insurance industry as a whole, the growth in Gross Direct Premium Underwritten was +6.7% YoY for the month and +2.8% YoY for FY21 YTD.
    • For the Life Insurance industry, the New Business Premium growth was +3.7% YoY for the month and a decline of -1.2% YoY for FY21 YTD.

 Things to watch out

  • The 3QFY21 results season will be nearly concluded in the coming week. With that, the result-led stock-specific movements will come to an end and the focus may again shift to macro developments.