Author - Richa Varu Rathod

The attrition situation won’t change for the next few quarters – Mindtree

Update on the Indian Equity Market:

On Monday, Nifty closed higher at 18,308 (+0.3%). AUTO (+2.1%), REALTY (+1.3%), and CONSUMER DURABLES (+0.5%) were the top gainers while HEALTHCARE (-0.9%), PHARMA (-0.7%), and BANK (-0.4%) were top losing sectors.

The top losers were HCLTECH (-5.7%), HDFCBANK (-1.4%), and CIPLA (-1.3%) while HEROMOTOCO (+5.1%), GRASIM (+3.5%), and ONGC (+3.2%) were the top gainers.

 Edited excerpts of an interview with Mr. Debashis Chatterjee, Managing Director, and Chief Executive Officer, Mindtree with Economic Times on 14th January 2021:

  • A lot of transformation deals are happening as the clients are looking at maximising their revenues. Clients are also looking at cost optimisation and there is a lot of effort in terms of workplace modernisation, and workforce transformation for every client.
  • Most of the deals are digital and cloud led which are short cycle deals. The short cycle deals over some time develop into larger strategic relationships.
  • From an overall TCV standpoint, Mindtree has YTD USD 1.2 bn deal wins, which is 21% up YoY. The pipeline is robust and the company is confident of the deals to flow through in the coming quarters.
  • The deal pipeline is a mix of both large and transformation deals. At present, the short cycle deals are more and the company expects it to eventually get translated into multiyear initiatives.
  • The company is focused on taking the margins to healthy levels. It is satisfied with a 20% EBITDA margin on yearly basis. It has put processes to track the margins and various levers which are working well for the company.
  • The travel transport and hospitality portfolio has reached the pre-pandemic levels (USD 200 mn run rate in 3QFY22).
  • The company has diversified its travel transport and hospitality portfolio beyond airlines and hospitality. It has ventured into food and beverage, surface transformation, and cruise liners making the portfolio more resilient to the virus. The company expects this portfolio to get less impacted by the omicron variant.
  • Mindtree has been looking at Merger and Acquisition (M&A) and will be open to looking at inorganic M&As as well. It has done one inorganic in the past and is seeing good results.
  • At least for the next couple of quarters, Mr. Chatterjee doesn’t think the attrition scenario to change. The management has organized themselves to deal with and manage the talent in a more nimble and agile manner.

Asset Multiplier Comments

  • We think Mindtree has a resilient business model and has a proven track record of strong execution capabilities. The company’s plan to hire at least 1,500 freshers per quarter displays management’s confidence in winning deals going ahead.
  • We believe robust deal wins, sustainable growth, focus on multiyear engagements and margin expansion will aid topline and bottom-line growth.

Consensus Estimate (Source: market screener website)

  •  The closing price of Mindtree was ₹ 4,510/- as of 17-January-2022. It traded at 47x/ 41x/ 36x the consensus earnings estimates of ₹ 96/ 111/ 128 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,570/- implies a P/E Multiple of 36x on FY24E EPS estimate of ₹ 128/-.

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 (10-14 Jan)


Technical talks

NIFTY opened the week on 10th Jan at 17,913 and closed on 14th Jan at 18,255. During the week, NIFTY added another 2.5% and ended up with a decent bullish candle on the weekly chart, suggesting the bulls are in no mood to give up. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI is at 64.  Going ahead, for the bulls, 18,375-18,400 would be the immediate hurdle and on the flip side, 18,150 would be the support level. If the index succeeds to close below the same, the Nifty50 could retest 18,050-18,000 levels.

Among sectoral indices, Realty (+4.9%), PSU Banks (+4.1%), and Media (+3.3%) were the top gainers while this week while FMCG (-0.13%) was the only loser.

Weekly highlights

  • The Indian Indices opened high as India Inc started the earnings season with a bang giving hopes to investors that the numbers will surprise positively.
  • Amid weak global markets and rising COVID-19 cases, the domestic market displayed strong momentum on expectations of a healthy start to the earnings season. However, rising inflation and a worsening pandemic soured the mood on Dalal Street by the end of the week.
  • The World Bank projected India’s GDP growth at 8.3% for FY22E and 8.7% for FY23E.
  • The National Statistical Office released inflation data during the week. India’s headline retail inflation jumped to 5.59 percent in Dec-21. The latest Consumer Price Index (CPI) inflation print is 68 basis points higher than the Nov-21 level of 4.91 percent. It is the highest inflation has been since Jul-21 when it had also come in at 5.59 percent.
  • Globally, bourses were muted at the start of the week as reports of record-high Eurozone inflation at 5% kept investors on edge. However, Fed’s testimony to Congress uplifted the sentiments of the investors going ahead.
  • Fed Chair Jerome Powell acknowledged on Tuesday that high inflation has emerged as a serious threat to the Federal Reserve’s goal of helping put more Americans back to work and that the Fed will raise rates more than it now plans if needed to stem the surging prices.
  • The U.S. stock indexes rose as the week progressed after data showed that while U.S. inflation was at its highest in decades.
  • The consumer price index rose 0.5% in Dec-21 after advancing 0.8% in Nov-21. In addition to higher rents, consumers also paid more for food. Prices paid by U.S. consumers jumped 7 percent YoY in Dec-21. This shows that rising costs for food, rent, and other necessities are heightening the financial pressures on America’s households.
  • The weekly jobless claims report from the Labor Department was published on Thursday showing the number of Americans filing new claims for unemployment benefits increased to an eight-week high in the first week of January amid raging COVID-19 infections.
  • However, U.S. stocks closed mixed on Friday, but all three major indexes suffered weekly losses as the prospect of rising interest rates and weaker economic data cast some doubt on the strength of the recovery from the COVID-19 pandemic.
  • The foreign institutional investors (FII) sold equities worth Rs 40,029 mn, while domestic institutional investors (DIIs) bought equities worth Rs 36,293 mn.

Things to watch out for next week

  • Markets will react to the results of two heavyweights- HCL Technologies and HDFC Bank in early trade on Monday.
  • Earnings will continue to influence the market mood. Rising COVID-19 cases and threats to further curb movement and businesses and rising inflation might also set the direction of the markets.

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.”

 

 

 

Clocked 100% collection efficiency in December-21 – M&M Financial Services

Update on the Indian Equity Market:

On Wednesday, the domestic market witnessed a recovery following a mild dip. Increasing covid cases leading to stricter restrictions pressurized market volatility. NIFTY closed at 17,925 (+0.7%).

BANK (+2.3%), PRIVATE BANK(+2.1%), and FINANCIAL SERVICES (+2.0%) were the top gainers and IT (-1.9%), MEDIA (-0.4%), and HEALTHCARE (-0.3%) were the top losing sectors.

The top losers were TECHM (-2.8%), INFY (-2.7%), and HCLTECH (-1.7%) while BAJAJFINSV (+5.0%), BAJFINANCE (+4.4%), and KOTAKBANK (+3.5%) were the top gainers.

 Edited excerpts of an interview with Mr. Ramesh Iyer, Managing Director, M&M Financial Services with ET on 4th January 2021:

  • A turnaround was seen in rural India in terms of vehicles and tractors. Growth across all categories was witnessed by the company and that has registered the growth in disbursements.
  • Rural demand continues to be buoyant. The yields have been good because of the good monsoon. Therefore the sentiments are continuing to remain positive across the country.
  • Good growth momentum was seen by the company and the recoveries have been good for the company.
  • In tractors, volume growth and gain in market share were witnessed by the company. M&M Financial Services have gone deeper and has covered more dealerships. It has put people across various dealerships which have aided the volume growth in tractors.
  • Productwise Performance:
    • M&M Financial Services has gained market share in tractors and Mahindra auto products.
    • Cars are witnessing volume growth.
    • Pre-owned vehicles have been a very buoyant segment.
  • There had been temporary pressure since 1QFY22 because of the market conditions. As the consumers come back to the market and start earning, a rollback is expected which was witnessed in 2QFY22. The company continues to see recovery in 3QFY22 and is confident that this momentum will continue going forward. It has clocked 100% collection efficiency in the month of Dec-21 and is improving on a month-on-month basis.
  • The NPAs are steadily reducing from 1QFY22 and the company is confident of bringing it below 4% levels by end of FY22E. The second half is always good for the rural market and the post-harvest quarter is always the best.
  • The company is seeing a turnaround in economic activity. Tourism has picked up substantially which is contributing to people earning better and being able to repay well.
  • Collections from every segment and every geography have been witnessed by the company. It seems to be the trend going forward and therefore M&M Financial Services is confident to bring net NPA to below 4% by Mar-22E.
  • On the latest norms by RBI on asset quality, Mr. Iyer commented that regulatory requirements are under the IRAC norms and not under the Ind-AS norms. Therefore, as far as the P&L is concerned, a major impact on the P&L might not be seen. However, under the IRAC norms, one would see an increase in NPA due to the approach that would now have to be adopted going forward. But the ground reality is that these consumers earn and pay and therefore adhering to a particular due date is difficult for them and there will be a little pressure point for the retail industry. This will cause a little increase in NPAs so far as IRAC norms are concerned.
  • The company doesn’t see any substantial change in the loan mix as far as AUM is concerned. AUM growth for FY22E is expected to remain range-bound because it is difficult to catch up with the business lost in one quarter. But the sentiments are positive and growth is expected from FY23E.

 

Asset Multiplier Comments

  • We think strong buoyancy in demand, particularly in rural centers, driven by healthy farm cash flows and a pickup in Infrastructure spending by the Center and state governments will help aid revenue growth.
  • With a recovery in collections, M&M Financial Services seems to be well-positioned to accelerate its disbursements and gain market share.

 

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

  • The closing price of M&M Financial Services was ₹ 154/- as of 05-Jan-22. It traded at 1.22x/1.12x/1.00 x the consensus BVPS estimate of ₹ 125/136/154 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 202/- implies a PBVPS multiple of 1.31x on FY24E EPS of ₹ 154/-.

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.”

 

Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Update on the Indian Equity Market:

On Monday, Benchmark indices erased previous session losses and ended higher with Nifty closing at 17,086 (+0.49%).

PHARMA (+1.62%), HEALTHCARE (+1.42%) and FINANCIAL SERVICES (+0.91%) were the top gainers and MEDIA (-1.06%), FMCG (-0.08%) and METAL (-0.06%) were top losing sectors.

The top losers were HINDALCO (-3.7%), BRITANNIA (-3.36%), and ONCG (-3.27%) while TECHM (+3.44%), CIPLA (+2.26%) and  DRREDDY (+2.06%) were the top gainers.

 Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Edited Excerpts of an interview with Atul Lall, Managing Director, Dixon Tech with CNBCTV18 on 24th Dec, 2021:

  • According to broker report the company is expected to deliver 60-70% sales CAGR over the next 3 years. Mr Lall stated that the company is confident of delivering these numbers.
  • The company has grown from Rs 44 bn in FY20 to Rs 64 bn in revenues in FY21. The company is targeting to reach Rs 110 bn in FY22E even after Jun-21 quarter being weak due to Covid-19. It expects revenue to be in the range of Rs 170 bn in FY23E. He is confident of this aggressive growth and to be in the lead position in its sector.
  • On the margin front, FY22E has been extremely difficult year for Dixon, particularly for Original Design Manufacturing business. Softening of commodity prices has been seen both in polymer and metal side over the past few weeks. A decline in the freight cost is also been witnessed recently and is relatively stable at present.
  • In B2B (Business to Business) there is a lag in passing off the cost increases to the customers. Company expects to pass on the price increases by next (Mar-22E) quarter but in the Dec-21 quarter the margins are expected to be under pressure.
  • The chip shortage situation has improved slightly but the situation is not fully under control. Most of the companies including Dixon have aligned their forecasting, have started building more inventories and are well aware of the longer lead times. The production situation is much better but the chip shortage problem has not been resolved yet.
  • There was a Directorate of Revenue Intelligence (DRI) survey in Tirupati plant and corporate office pertaining to Television vertical. The issues raised by DRI were interpretational in nature. The company extended all the possible support to the officers and the company is committed to defend its stand in front of DRI.
  • Focus of FY22E – Dixon has got into Mobile vertical and it is expected to be the growth driver going forward and to contribute significantly to the total revenue of the company.
  • Dixon has got into a Joint Venture with Bharti and have got the approval under the telecom verdict to manufacture consumer premises devices. It is expected to start manufacturing from Mar-22E quarter for Airtel. In FY23E a huge ramp up is expected by the company from Mobile vertical.
  • Dixon have tied up with some major customers for manufacturing IT products, a ramp up in its production is expected.
  • Dixon have launched fully automatic top loading machines which is expected to contribute to the growth from FY23E.
  • Dixon is also rolling out Refrigerator products, the production of the same is expected to start from 4QFY22E. A reasonably good growth is expected to be seen from the existing verticals.
  • Under the PLI scheme: The company have started production and investment on IT hardware side, telecom Side and white boards. Backward integration for lighting products under PLI scheme is under process. Company expects to start the production of components of lighting products from 1QFY23E.

 

Asset Multiplier Comments

  • We think Dixon is one of the largest beneficiaries of the government’s PLI scheme and new segments such as electronics/IT products, telecom products and LED lights & AC component will help the company to achieve its target of 60% CAGR for over next 3 years.
  • Domestic mobile production is set to grow under PLI scheme. We believe Dixon is one of the main beneficiaries which will drive future revenue for Dixon.

 

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

 

  • The closing price of Dixon Tech Ltd was ₹ 5,617/- as of 27-Dec-21. It traded at 127x/72x/52x the consensus EPS estimate of ₹ 44.2/77.7/108 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 5,079/- implies a PE multiple of 47x on FY24E EPS of ₹ 108/-.

 

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.”

 

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, markets continued to decline for a third straight session on the back of unsupportive global cues. The Nifty index ended lower by 0.6% at 17,226 levels. REALTY (-1.9%) PSU BANK (-1.4%) and MEDIA (-1.4%) were the top losers while AUTO (+0.5%) was the only gaining sector today. BAJAJFINANCE (-2.9%), BAJAJFINSV (-2.5%), and ADANIPORTS (-2.4%) were the top losers while SUNPHARMA (+2.8%) KOTAKBANK (+1.5%), and MARUTI (+0.9%) were the top gainers.

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjay Saraswat, head of Medium and Heavy Commercial vehicle (M&HCV) at Ashok Leyland with CNBC-TV18 on 14th December 2021:

  • Ashok Leyland saw a pick-up in sales in the month of November-21, the overall numbers were above street expectations.
  • The M&HCV sales improved 10% YoY, but Light Commercial Vehicles sales continued to remain under pressure.
  • The Internal Combustion Engine (ICE) Trucks are performing well and growing faster than other segments.
  • Although MCVs performance is not satisfactory, it is expected to perform well from 4QFY22E.
  • According to the truck financers, the demand for Tipper Segment is improving on the back of increasing infrastructure and mining activities. Mr. Saraswat commented that the Tipper segment is growing equal to the industry growth. The company has improved its market share in the last 2 months and is continuing to improve further on an MoM basis. The company has a wide range of Tippers available as it has recently launched Avatar Brand under Tipper Segment which is doing phenomenally well.
  • From FY22E, Company has decided to keep the wholesale and retail volumes equal. In the month of Nov-21, the retail and wholesale sales volumes were almost the same.
  • According to the Federation of Automobiles Dealers, although the demand is back in Commercial Vehicles it is still away from pre-pandemic levels. Mr. Saraswat commented that FY18/FY19 was the best period in terms of sales and currently the numbers are far away from that period. But every month and quarter things are improving and moving in that direction.
  • The company is experiencing chip shortage issues for some of the models which are impacting the sales. The company is not able to fulfill the demand for vehicles especially LCVs due to the shortage.
  • Year till date FY22E, industry sales have doubled on a YoY basis. The base of FY21 was low due to pandemic and BSIV to BSVI transition, especially 1HFY21. For 2HFY22E the growth rate is expected to decline as the base improved gradually. For FY22E, Mr. Saraswat expects the volume growth to be in the range of 30-35% YoY.

 

Asset Multiplier Comments

  • We expect sales to pick up gradually in 2HFY22E on the back of seasonality, improvement in core economic indicators, increase in replacement demand, and easing restrictions.
  • We believe, Ashok Leyland is well-positioned to benefit from a strong recovery in the CV cycle on account of new product launches and a well-diversified product portfolio. It will also benefit from the cyclical recovery, especially in buses and higher tonnage trucks where it has a higher market share.

 

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

  • The closing price of Ashok Leyland Ltd was ₹ 126/- as of 15-December-21. It traded at 26x/17x the consensus EPS estimate of ₹ 5.0/7.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 158/- implies a PE multiple of 21x on FY24E EPS of ₹ 7.6/-.

 

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.”

 

Real Estate demand growth driven by rising income levels – HDFC

Update on the Indian Equity Market:

On Monday, markets plunged sharply in continuation to Friday’s fall. After the flat start, weak global cues and updates on the new COVID variant started weighing on the sentiment as the day progressed.

NIFTY ended 1.7% down at 16,912. IT (-2.7%), HEALTHCARE(-1. 9%), and PHARMA (-1.9%) were the top losers and there were no sectoral gainers. The top losers were INDUSINDBK (-3.7%), TATACONSUM (-3.4%), and BAJAJFINSV (-3.3%) while UPL (+0.4%) was the only stock in green.

Real Estate demand growth driven by rising income levels – HDFC

Edited excerpts of an interview with MR. Keki Mistry, Vice-Chairman and Managing Director of Housing Development Finance Corporation (HDFC Ltd) with CNBCTV18 on 3rd December 2021:

  • On new norms on recognition of Non-Performing Assets for Banks and NBFCs issued by RBI: He stated that a few years back NPA were recognized on a 180 days basis that got changed to 90 days. According to the new guidelines published by RBI, once the account is recognized as NPA, Banks won’t be able to upgrade it to standard assets till the whole loan has been repaid. Earlier, an NPA account, after payment of 1-2 installments could be categorized as a standard asset. Temporarily, there will be limited impact on Profit and Loss Account for most of the companies including HDFC but the reported Gross NPAs number will look higher for next 3-4 quarters.
  • The real estate market has steadily picked up after the slowdown in the 1HCY21 due to the COVID-19 pandemic and the resultant lockdowns.
  • Mr. Mistry thinks that the interest rates have been bottomed out but he doesn’t see that having a significant impact on the market.
  • He thinks that the runway for growth is across the country. In the period from CY17-CY20, the demand was largely focused on the tier-II tier-III towns in the outskirts of big cities. In the last one or two years, cities like Delhi, Mumbai, Bangalore, Pune, Hyderabad, and Chennai are reporting strong growth. A pickup in demand in the metro cities has been witnessed recently.
  • Mr. Mistry attributed the rise in demand to
    • Income levels rising in the past few years. He explained that the real estate prices have been stable but the income levels grew on an average by 8% per annum in the last 4 years resulting in cumulative 34-35% growth in income levels.
    • Low-interest rates
    • Feel good factor: He stated that the malls, hospitals, shops, hotels, and restaurants are full as the feel-good effect is driving and keeping people motivated.
    • The myth that there is oversupply in Mumbai and Delhi markets has disappeared, so people are not waiting for property rates to subside anymore.
  • The HDFC chief believes that affordability has increased in the market and it is an opportune time to buy real estate. To supplement this, he said that October-21 saw the highest level of loan disbursements by HDFC. This indicates strong demand and he expects it to sustain for a long time.
  • Mr. Mistry also believes that the lending rates have bottomed out but he does not expect the RBI to start raising rates in a hurry. But throughout the next 6-12 months rate hike is possible. It depends a lot on global factors like inflation, oil prices, and other factors which are not within our control.
  • The yield curve, according to him, has been steep due to excess liquidity in the system. This has been reflected in the demand seen in the high-end market which has seen a pickup after being subdued from CY17 to CY20.

Asset Multiplier Comments

  • Looking at the macro growth drivers, well-diversified loan portfolio, and adequate liquidity on hand our outlook over the long term remains positive on HDFC Ltd.
  • We think the new rule would impact in the near short term but in long term we expect the NPA levels to normalize. Stable collection efficiency and provisions higher than regulatory requirements will help support the company to maintain a healthy Balance Sheet.

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

  • The closing price of HDFC Ltd was ₹ 2,769/- as of 06-December-21. It traded at 4.2x/3.9x/3.5x the consensus BVPS estimate of ₹ 659/705/781 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,251/- implies a PBV multiple of 4.2x on FY24E BVPS of ₹ 781/-.

 

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 (Nov 22nd to Nov 26th)

This Week in a nutshell (Nov 22nd to Nov 26th)

Technical talks

NIFTY opened the week on 22nd Nov at 17,796 and closed on 26th Nov at 17,026. During the week, NIFTY lost more than 4 percent and has formed a bearish candle with its opening and closing being near the highest as well as the lowest point of the week, respectively. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI marked a fresh 14-week low.

Going ahead, the level of 16,700 is likely to act as strong support in the near term and the levels of 17,300 and 17,480 will act as immediate resistance levels. Nifty Pharma gained 2.3 percent this week while Nifty Auto (-8.4%) and Nifty PSU Bank (-6.5%) lost the most.

Weekly highlights

  • The week started in red amid concerns over the government’s reform measures after farm laws repeal announcement and weak listing of the country’s largest fintech firm Paytm.
  • However, on Thursday optimism over near-term growth prospects boosted sentiment after credit rating agency Moody’s said it expects India’s economic growth to rebound strongly in the next financial years.
  • The party was short-lived as on Friday the new variant of Coronavirus certainly spooked the market participants across the globe. NIFTY was down by 2.9 percent and also, marked a fresh swing low on Friday by slipping below the 17,000 mark.
  • As per UK officials, the new Coronavirus variant has a spike protein that is dramatically different from the one, which vaccines are based, raising fears it could evade the immune response reported by early reports from the media.
  • Wall Street retreated from record highs on Monday, and shares of lenders rallied as two-year US Treasury yields rose after President Joe Biden tapped Jerome Powell to continue as Federal Reserve chair. However, rising Treasury yields prompted investors to sell Tesla and other Big Tech names and buy stocks with lower valuations.
  • On Friday, S&P500 was down by 2.27% due to worries about a new strain of the virus, named Omicron. The Dow Jones Industrial Average fell by 2.5%, its biggest one-day percentage drop since oct-20. The new strain might complicate the outlook for how aggressively the Federal Reserve normalizes monetary policy to fight inflation.
  • S. officials said Friday they would impose travel restrictions on eight southern African countries in response to the new variant found in South Africa. It has also been reported in Israel and Belgium.
  • The foreign institutional investors (FII) sold equities worth Rs 21,125 mn, while domestic institutional investors (DIIs) bought equities worth Rs 10,934 mn.

Things to watch out for next week

  • Post 2QFY22 quarterly earnings season, markets this week will be driven mostly by updates related to the new coronavirus variant that sent equities tumbling globally on Friday, macroeconomic data announcements, and auto sales numbers.
  • US: Investors will be watching Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen’s appearance before Congress to discuss the government’s COVID response on 30th Nov as well as U.S. employment numbers, due out next Friday.

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.”

 

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Update on the Indian Equity Market:

On Monday, NIFTY ended flat amid volatility at 18,109 (+0.04%). HEALTHCARE (+2.13%), PHARMA (+1.45%) and FMCG (+0.94%) were the top gaining sectors. METAL (-1.82%), PSU BANK (-1.43%) and FINANCIAL SERVICES (-0.34%) were top losers.

Top gainers in NIFTY50 were POWERGRID (+3.13%), ONGC (+2.46%) and ITC (+2.25%). The top losers were COALINDIA (-4.34%), TATASTEEL (-3.32%), and HINDALCO (-2.68%).

 

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Edited Excerpts of an interview with Vinati Saraf Mutreja, Managing Director, Vinati Organics with ETNOW on 11th Nov, 2021:

  • The revenue for 2QFY22 was flat sequentially and grew by 70% YoY. The margins for 1HFY22 are at the levels of 26-27%, lower than earlier guidance of 30% for FY22E.
  • The revenue growth guidance for FY22E remains unchanged. Company expects to cross Rs 15,000 mn in FY22E which will result in 50% YoY revenue growth. EBITDA Margins are expected to be at 30% level for FY22E.
  • The margins of 2QFY22 were impacted due to heavy floods in Mahad Factory in the month of Jun-21. It resulted in loss of profits which is insured and claimed for.
  • The revenue growth guidance of ~ 50% for FY22E is a result of price hike due to raw material cost going up.
  • Management is confident of delivering EBITDA margin of 30% as absolute EBITDA per tonne is intact.
  • Raw material prices are still high, freight costs have softened a bit. Most of the Freight cost is absorbed by customers and are able to pass it through.
  • Acrylamide Tertiary Butyl Sulphonic (ATBS) (high margin product) has been a star product for Vinati Organics. FY21 was a slow year for ATBS but comparing current volumes to pre-COVID levels it has grown by ~50-60% on volume basis.
  • Butyl Phenol has seen good offtake in the market, sales have increased by 70% YoY. However, the margins are under pressure as company is a new entrant, it is cutting price to gain market share. Raw materials are exceptionally high over the last 6 months which the company is not able to pass through completely. However, the demand outlook for Butyl Phenol is strong.
  • The niche and specialty products are performing well.
  • Iso Butyl Benzene (IBB) is performing a bit slow. It accounts for less than 10% of the total revenue. A lot of IBB Customers are seeing high inventory levels of IB and IBB as they had stocked up the product in FY21.
  • Vinati Organics is planning a capex of Rs 2,500 mn. It will account for 4-5 new niche and specialty products. It will cater to various segments like agro chem, fragrance chemicals and plastic additives. The products are expected to be on stream by 3QFY23E.
  • The power crunch in China doesn’t impact the company’s supply chain as none of the important raw material is imported from China. China is competitor of Vinati Organics as far as ATBS is concerned. This could be one of the reasons of customers shifting their focus from China to Vinati for ATBS products. China is also market for IBB and ATBS products. Vinati is able to export the products to China.

Asset Multiplier Comments

  • Demand for ATBS continues to remain strong with increased demand from the oil and gas industry, which forms 25-30% of its global demand.
  • We think new product launches, strong demand for products like ATBS which are high margin products and backward and forward integration will help company to achieve its target of ~50% revenue growth and EBITDAM at the level of 30% in FY22.
  • Vinati’s proposed merger with Veeral Additives Private Limited (VAPL) aligns well with their growth strategy through synergy. The global market demand for Antioxidants (AOs) is robust and the total capacity (post-merger) positions Vinati to drive growth.

 

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

 The closing price of Vinati Organics was ₹ 1,998/- as of 15-Nov-21. It traded at 64x/44x/35x the consensus EPS estimate of ₹ 31.6/45.5/57.8 for FY22E/ FY23E/FY24E respectively.

  • The consensus target price of ₹ 1,893/- implies a PE multiple of 33x on FY24E EPS of ₹ 57.8/-.

 

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.”

 

Choosing volume over short-term margins – Marico

Update on the Indian Equity Market:

On Monday, market witnessed some swift recovery. NIFTY closed at 17,930 (+1.5%) led by REALTY (+4.0%), METAL (+3.1%), and MEDIA (+2.6%). There were no sectors in red. Top gainers in NIFTY50 were INDUSINDBK (+7.5%), HINDALCO (+4.5%), and BHARTIARTL (+4.2%). The top losers were UPL (-2.6%), BAJAJFINSV (-1.6%), and M&M (-0.4%).

Choosing volume over short-term margins – Marico

Edited Excerpts of an interview with Mr. Saugata Gupta, Chief Executive Officer and Managing Director, Marico with ETNOW on 29th Oct, 2021:

  • There was a pipeline filling as the opening up happened last year and this year. Slight moderation of growth in rural areas was witnessed. Exponential growth was witnessed in e-commerce earlier. As things have opened up, modern trade is recovering as some of the demand is getting transferred to organised modern trade.
  • Inflation is a cause of concern because of two factors:
    • It leads to price increases and impacts the total share of wallet for an FMCG.
    • It affects demand. There has been a slight moderation in demand which was seen towards the second half of 2QFY22.
  • The company has already experienced significant inflation in FY21 as a large portion of input cost was copra led. Now that has moderated.
  • Marico had significant pressure even in the 1QFY22 but now from 2QFY22 onwards, gross margins are improving QoQ.
  • Company will continue to see gross margins improving in 2HFY22E. Marico is expecting moderation from both vegetable oils and crude based raw materials which is more likely to happen in 4QFY22E.
  • Once the input costs normalize, EBITDA margins are expected to start improving from 4QFY22E.
  • Company should be able to get back to medium term aspirations from 1QFY23E.
  • Considering continued inflation and price increases, company will choose volume over short-term margins. Continued inflation could have some impact on the consumption situation. But some moderation is expected to start happening in the 4QFY22E.
  • In India business, 24% value growth and 8% volume growth was seen in 2QFY22. So, 16% was inflation. Company is in wait and watch mode. The biggest uncertainty for the company is crude as crude impacts raw material and packaging costs. The only reason there could be further price hikes could be because of crude.
  • In the immediate term, company has taken some price increases. So, another round of price increases is not expected at least in 3QFY22E. 15% price increase has already been taken in Saffola because of the significant increase in vegetable oil prices.
  • In 2QFY22 rural growth was slightly higher than urban but currently company is witnessing moderation of rural growth. It could be because of inflation or pent-up demand of other non FMCG categories as the economy is now opened up.
  • Marico is looking for organic and inorganic growth both. Beardo is expected to touch Rs 1000 mn by Dec-21. If Just Herbs continued its momentum of growth, it will be a potential Rs 1,000 mn core brand. Company aims to grow more from organic stable.
  • Marico is a supportive and strong strategic partner in the growth of these brands in terms of supporting capabilities and other things. But it still will continue to look at inorganic opportunities in this sector.

Asset Multiplier Comments

  • We think the new engines of growth i.e. food portfolio and digital first brands are tracking well. As the prices of copra is normalizing, we expect margins improvement going forward.
  • Management’s guidance of double-digit topline growth and improvement in gross margins going forward will help company to earn good returns.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Marico was ₹ 574/- as of 01-Nov-21. It traded at 56.5x/47.9x/42.1x the consensus EPS estimate of ₹ 10.1/11.9/13.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 601/- implies a PE multiple of 44.5x on FY24E EPS of ₹ 13.5/-.

 

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.”

 

Cyber Security and ESG emerging as new pockets of growth – Larsen & Toubro Infotech

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 18,266 (-0.83%) led by CONSUMER DURABLES (-2.91%), REALTY (-2.16%) and METAL (-2.06%). PSU BANK (+1.54%) and MEDIA (+1.03%) were the only gaining sectors.

Top gainers in NIFTY50 were BHARTIARTL (+3.96%), SBIN (+2.66%) and TATAMOTORS (+1.62%). The top losers were HINDALCO (-3.94%), BPCL (-2.66%), and TITAN (-2.61%).

Edited excerpts of an interview with Mr. Sanjay Jalona, Chief Executive Officer and Managing Director, Larsen & Toubro Infotech with CNBCTV18 on 19th Oct 2021:

  • The company is seeing three key drivers of revenue growth
    • Restructuring: Every industry is reimagining its processes to deal with the new normal. All industrial manufacturing companies, which typically have been business-to-business (B2B) companies, are spending to transform from B2B to business-to-consumer (B2C) and that creates a lot of opportunities for the company in the tech world.
    • Cyber Security and environmental, social, and governance (ESG) are emerging as new pockets of growth. Work from home culture requires information security which is a big area of growth. ESG is another area having potential as every company has a goal on carbon neutrality and sustainability. So, ESG creates a lot of data opportunities for the industry, unlike in the past.
    • Great Resignation: Companies are currently seeing a double-digit attrition rate which they are not used to.
  • There has been a change in the way, format, and size of the deals. There are a lot of deals for the transformation journeys of the customers.
  • Large deals typically are consolidation deals that have taken a back seat in their (customers) priorities as customers are focusing on their digital transformation journey. The bulk of investment, time, and efforts are going into the digital transformation journey.
  • Overall, the deal pipeline will be stronger for the company. The large deal pipeline will continue to be strong for at least the next two to three years.
  • Even after giving 2 consecutive wage hikes, the attrition rate for 3QFY22 stands at ~19.6% (up 470 bps QoQ). The reason for such a high attrition rate is that the talent market is very hot currently as every company is hiring tech talent. The overall demand is high and will continue to be high for the next 2-3 years. The need for automating is creating a further gap in the skill set that is required.
  • To cope up with the high attrition rate:
    • The company have increased the freshers hiring target to 5,500 v/s 4,500 for FY22E,
    • Plans to hire additional 1000 employees on Hired Trained Deployed (HTD) basis,
    • It is also ramping up the skilling and upskilling program for the company’s talent, and
    • Evaluating ways to hire non-tech (non-engineers) bright talents across India who desire to enter the computer field to create a talent pool.
  •  The company has given guidance to cross Rs 2 bn in revenues.

 Asset Multiplier Comments

  • The company has been performing consistently well with robust and broad-based growth – across verticals, geographies, and service lines.
  • We believe that the large deal wins, strong large deal pipeline, and aggressive hiring/re-skilling plans, which would help overcome the supply-side constraints will help the company to drive profitable and sustainable growth in the medium term.

Consensus Estimate (Source: market screener websites)

  • The closing price of Larsen & Toubro Infotech was ₹ 6,960/- as of 20-Oct-21. It traded at 52x/44x/38x the consensus EPS estimate of ₹ 131/156/179 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 6,090/- implies a PE multiple of 34x on FY24E EPS of ₹ 179/-.

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.”