Author - Richa Varu Rathod

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

Updates on Indian Market:

On Friday, BSE benchmark Sensex plunged over 434 points, while Nifty slipped below 11,200-mark as growth concerns overshadowed rate cut. Earlier in the day, the Reserve Bank of India cut interest rates for a fifth straight time by 25 basis points to 5.15 per cent, stepping up efforts to kick-start economic growth. In its fourth bi-monthly policy meet for FY20, the monetary policy committee cut FY20 GDP growth forecast sharply to 6.1 per cent from 6.9 per cent, taking into account the lower-than-expected growth rate in Q1FY20. Bank majors, including HDFC Bank (-2.8%), ICICI Bank (-3.1%), Kotak Mahindra Bank (-3.3%), State Bank of India (-1.7%) and Axis Bank (-1.8%) together dragged Sensex by over 340 points. All sectoral indices except BSE IT and Teck closed lower.

IndusInd Bank’s Romesh Sobti: We have seen significant recoveries in stressed accounts

 Excerpts from an interview with Romesh Sobti – Managing Director & CEO, IndusInd Bank

·       Mr Sobti mentioned that because of the heightened speculation and conjecture on a particular account – a housing finance company, the bank was obliged to inform the stock exchanges what was the actual exposure to the entity.

·       He added that one of their big initiatives was the provision coverage ratio (PCR) which had fallen after one large infrastructure relationship they classified as NPA (non-performing asset. INDUSINDBK made large provisions for it and the same was communicated to the market as well. Their aim is to take that PCR back to at least the 60s and there is a good beneficial impact that it has come as a consequence of the tax savings. A large part of tax savings will help them to raise the PCR and is expected to reflect from Sep-19 quarter itself.

·       He clarified that exposures in various sectors have remained constant. There has not been a residual loss because of so-called stressed account. In fact, there have been very significant recoveries in the stressed accounts. They were not stressed in their books as they are not overdue.

·       Mr Sobti said even though there has been some conjecture and speculation on the higher-margin businesses like a commercial vehicle or microfinance institutions (MFIs) these portfolios are performing very robustly and well up to their credit standards seeing no adverse trends.

·       He mentioned that the deposit growth has been strong in the last few quarters and has remained robust in this quarter because of the huge drive to raise retail fixed deposits.

·       Mr Sobti expects deposit growth to show the same trend as seen in the past since INDUSINDBK is getting Rs 50-60 bn of retail deposits every quarter.

 Consensus Estimate (Source: market screener website)

 ·       The stock price was Rs 1282/- as of close price of 04-10-19 and traded at 14x /11x /9x the consensus EPS for FY20E / 21E / 22E EPS of Rs 88/112/133 respectively. Consensus target price of ₹ 1807/- implies a PE multiple of 16x on FY21 EPS of ₹112/-

India should aim to become largest FDI recipient: Ravi Shankar Prasad

Update on the Indian Market:

On Wednesday, Indian stock markets fell sharply. Sensex declined over 500 points (-1.29%) while NIFTY fell nearly 150 points (1.28%) and breached the 11,450 mark. Nifty Midcap and Smallcap indices plunged 2 % each. All sectoral indices, except IT, traded in the red on NSE, led by Nifty Auto (-3.84%) and Nifty Realty (-3.1 per cent). Biggest Nifty losers were SBI and Tata Motors, each of which was down over 6%. Other major losers included Maruti Suzuki, M&M, HDFC and Tata Steel.

India should aim to become largest FDI recipient: Ravi Shankar Prasad

Key takeaways from the interview of Mr Ravi Shankar Prasad, Communications and IT minister

  • Communications and IT minister Ravi Shankar Prasad expressed that India should aim to become the largest foreign direct investment (FDI) recipient globally as the country offers a huge market and investor-friendly policies.
  • With the recent announcements on tax-relief for manufacturing, India is now at par with the tax regime of countries like Vietnam and Thailand.
  • He also mentioned that country offers a huge market for companies like Apple and others to make for India and export while adding that the far-reaching decisions taken by Government of India has also been heard by Apple. Apple has started production in India in a very effective way.
  • He assured that he will make his team open and accessible for foreign investors as we need investments.
  • The minister said India has become the 5th largest economy globally and FDI has seen a jump over the last few years and grossed USD 64 bn in FY19.
  • Telecom sector attracted FDI worth USD 2.67 bn, and in electronics, computer software and hardware, the amount stood at USD 6.4 bn.
  • He further said India has been leveraging technology not just for benefits to economy and commerce but also digital empowerment.

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)/Tech M expanding its collaboration with telecommunication giant AT&T

Update on Indian market: On Monday, Nifty ended above 11,000 mark led by a rally in the heavyweight financial stocks. Yes Bank, Maruti Suzuki, L&T were among the biggest gainers in Sensex, surging up to 4.2%. HCL Tech, Infosys, Tech Mahindra emerged among the biggest losers, shedding up to 1.5%

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)

VBL completed its QIP of Rs 9,000 mn on 4th Sept 2019. VBL approved the allotment of 1,47,05,882 equity shares of Face Value Rs 10/- each to the eligible qualified institutional buyers at issue price of Rs 612 per equity share aggregating to ~ Rs 9,000 mn pursuant to the Issue. Total Borrowings as on Jun-19 was Rs 32,533 mn and after this issuance, the debt will reduce to Rs 23,533 mn. VBL plans to use the QIP proceeds to repay the debts, this will reduce the interest cost and may help PAT margins to expand.

Tech M expanding its collaboration with telecommunication giant AT&T

Tech Mahindra Ltd., a leadingprovider of digital transformation, consulting and business reengineering services and solutions, announced expansion of its strategic collaboration with AT&T to accelerate AT&T’s IT network application, shared systems modernization and movement to the cloud. Tech Mahindra will assume management of many of the applications which support AT&T’s network and shared systems.

Tech M’s deal with AT&T is a multi-year agreement which will enable AT&T to focus on core objectives, including having the most advanced software-defined 5G network, and migrate the majority of its non-network workloads to the public cloud by 2024. This comprehensive program will help drive sustainable operational improvement across the network and software development domains.

When asked about the deal Mr. Jon Summers, CIO of AT&T Communications stated that their agreement with Tech Mahindra is another step forward in delivering greater flexibility across their IT operations. This includes optimizing core operations and modernizing internal network applications to accelerate innovation as AT&T march forward to their goal of a nationwide 5G network by the first half of 2020. He also mentioned that this collaboration with Tech Mahindra will ultimately help accelerate its network operations and overall technology leadership.

MD & CEO of Tech M, Mr. C P Gurnani mentioned that this deal is a step towards elevating Tech Mahindra’s long-standing strategic relationship with AT&T to help make the vision of a 5G-enabled future, a reality. As part of TechMNxt charter, Tech Mahindra is betting big on 5G — the network of the future and is focused on technology-led innovation to enable digital transformation for their customers globally.

According to the management, Tech M and AT&T aim to improve the agility in rolling out and supporting networks of the future, while improving returns on investment through technology-led transformation AT&T and Tech Mahindra will integrate several world-class technologies and platforms in areas like artificial intelligence, DevOps, data analytics and 5G.

Consensus Estimate (Source: marketscreener website)

The closing price of VBL was Rs 623/- as of 09-September-19. It traded at 43x/33x/25x the consensus EPS for CY 19E/CY 20E /CY 21E EPS of Rs 14.7/19.0/25.7 respectively· Consensus target price of Rs 720/- implies a PE of 28x on CY21E EPS of Rs 25.7 

The closing price of Tech M was Rs 720/- as of 09-September-19. It traded 15.2x/13.6x/12.3x the consensus EPS for FY20E/FY21E/FY22E EPS of Rs 47.5/53.1/58.7 respectively. Consensus target price of Rs 754/- implies a PE of 14.1x on FY21E EPS of Rs 53.1

VIP Industries Ltd – Weak Yuan positive for VIP

Dated : 4th Sept 2019

Update on Indian market:

Domestic equity indices BSE Sensex and NSE Nifty fell over 2 percent on Tuesday. NSE Nifty ended at 10,798, down 225 points or 2.04 %. Market sentiment got impacted due to subdued auto numbers and a set of macroeconomic data like GDP data showing the country’s growth rate slumped for the fifth straight quarter to hit an over six-year low of 5 %. Growth of eight core industries dropped to 2.1 percent in July, mainly due to a contraction in coal, crude oil, and natural gas production. PMI data showed the country’s manufacturing sector activity declined to its 15-month low in August. The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) declined to 51.4 in August, its lowest mark since May 2018, from 52.5 in July. The Indian Rupee fell by 64 paise to reach 72 mark against the US dollar and sustained outflows by foreign portfolio investors (FPI). Gainers among Nifty50 stocks were Tech M (1.4%) and HCL Tech (0.5%) while the losers were Tata Steel (-4.5%), Ultratech and ICICI Bank(-4.4%).  

 
VIP Industries Ltd – Weak Yuan positive for VIP

Key highlights of the Interview by Mr. Dilip G Piramal, Chairman of VIP Industries on CNBC TV18

VIP Industries is into manufacturing of luggage and travel accessories and imports less than 50% of the raw material from China. The Chairman of the company in the recent interview stated that a weakening yuan helps.

He also mentioned that:

1.    August and September traditionally weakest months of the year.

2.    Luggage is a narrow segment with limited players, so they don’t see contract manufacturing or single-brand retail having a significant impact on competition.

3.    Weakening of Rupee will benefit as VIP is also getting into exports gradually.

4.      Demand has not picked up yet, VIP Ind is in wait & watch mode. No plans for price cuts to propel demand.

5.      Due to China-US trade war Chinese manufacturers have become more dependent on India which benefits the company to get better schemes and offers from them.

6.      100% Foreign Direct Investment in contract manufacturing will improve the Indian economy gradually and in 5-10 years a lot of the low-end manufacturing from China will move to India because India is a country with a very large population. A lot of the manufacturing is moving already from China to Vietnam, Cambodia but these countries do not have so much of the population. There are so many large industries at the lower-end, readymade garments being the largest and all other consumer goods industries like shoes, toys, everything else will move out of China gradually.

Consensus estimates (Marketscreener website):

·       The stock price was Rs 422/- as of close price of 3rd September 2019 and trades at P/E multiple of 36x / 29x the consensus EPS of Rs 12.2/ 15.0 for FY20E /21E respectively. 

·       Consensus target price is Rs 500/- implying P/E of 33x for FY21E EPS of Rs 15.0/-

Amazon deal not just for funds; it’s to share payment ecosystem: Future Group Founder Kishore Biyani

Dated: 29th August 2019

Updates on Indian Market:

On Wednesday, BSE benchmark Sensex plunged over 300 points intraday, but recovered to settle at 37,452, down  0.50%, while the Nifty closed below the 11,050-mark led by a rebound in HDFC and gains in IT stocks. Yes Bank, Tata Steel shares emerged among the biggest losers, slumping up to 7%. Concerns over the state of the Indian economy stayed as analysts believe government’s dole-outs may not do much to prop up demand.

Amazon deal not just for funds; it’s to share payment ecosystem: Future Group Founder Kishore Biyani

Global E-Commerce giant Amazon acquired a 49% stake in Future Group’s Future Coupons, with an option to acquire the entire stake later. Future Coupons Limited is engaged in developing innovative value-added payment products and solutions such as corporate gift cards, loyalty cards, and reward cards primarily for corporate and institutional customers. Future Coupons currently does not own a stake in Future Retail but recently subscribed to convertible warrants for Rs 20 bn.

According to the founder of Future Group – Kishore Biyani, the deal is not just to raise money but also to become a part of the payment ecosystem. The deal is basically aimed at enhancing the payments portfolio of both companies.

Mr Biyani mentioned that they have a database of 8 bn transactions and 55 mn customers. Payments are one platform where they can acquire the customer base and if the customer starts using your payment mechanism then loyalty increases. So it’s about getting into the ecosystem. Meanwhile, Amazon had also emphasized the same saying that the tie-up between the two will enhance Amazon’s existing portfolio of investments in the payments landscape in India.

Food distribution centres: Mr Biyani also stated that the company has embarked on Rs 10 bn investment plan to create distribution centres for its food-on-demand venture. The group’s supply chain company, Future Supply Solutions plan to set up about 38 such centres. Named India Food Grid, the project will connect the entire country through a single, multi-layer network.

Media reports that Future Coupons, owned by Future Group promoter Biyani, holds 39.6 million warrants in Future Retail, which when exercised, will convert into a 7.3% stake in the company. Future Coupons said the stake will be acquired for about Rs 20 bn through warrants in February. The first tranche of Rs 5bn was issued in April. Amazon is paying the remaining amount of Rs 15 bn to get 3.5% stake in Future Retail, said officials aware of the development. This translates into Amazon valuing Future Retail at more than double its current market capitalisation of about Rs 210 bn  

Consensus Estimate (Source: market screener website)

Future Retail stock price was Rs 391/- as of close price of 28-08-19 and traded at 45x /37x /28x the consensus EPS for FY20E / 21E / 22E EPS of Rs 17/17.8/19.5 respectively. Consensus target price is Rs 533/- implying PE of 27x for FY22E EPS of Rs 19.5.

Varun Beverages Ltd. 2QCY19 – Hot summer boosts beverage sales

Dated: 2nd August 2019

Varun Beverages Ltd. (VBL) reported consolidated revenue growth of 36.5% YoY to Rs 28,105 mn in 2QCY19.
• Consolidation of South and West regions from 1St May 2019, extended summers, penetration into existing geographies and good growth from international geographies led to volume growth of 44% YoY. Out of total volume sales of 192 mn cases, 172 mn were sold in India and 24 mn cases in international markets (Sri Lanka, Morocco and Zimbabwe).
• Organic volume growth in India was 18.5% whereas it was 34.2% in international geographies. 
• Realisation per case declined by ~5% due to change in product mix in India post-acquisition of South and West sub-territories, the introduction of packages water in Morocco and lower sales realisation in Zimbabwe to avoid forex fluctuations. 
• Gross Margins declined by 70 bps as sugar prices increased by ~3%. Management expects raw material prices to be stable for CY19.
• Net debt stood at Rs. 37,295 mn as on June 30, 2019, as against Rs. 26,715 mn as on 31st December 2018. Debt: Equity ratio stood at 1.49x as on 30th June 2019 and Debt: EBITDA ratio stood at 2.95x for the trailing twelve months EBITDA. 
Management Commentary
• Company will start selling beverages in Zimbabwe in local currency now instead of USD. Hence, revenues may move up in the coming quarters, but there is a possibility of providing for higher currency depreciation. 
• Production of Tropicana Juices at its Pathankot plant has commenced from 1st Jul’19.
• The company plans to enter the dairy products market under its own brands in the coming quarters. It will be required to pay 1% royalty to Pepsi for selling these dairy brands.
• Capex for CY19 and CY20 is expected to remain less than depreciation cost.
• Company is running at ~60% capacity utilisation levels after the newly acquired regions.
• EBITDAM are expected to be in the range of 21-22% for consolidated business.
• Management expects ROCE levels to improve by 200-250 bps every year.

Consensus Estimate (Source: market screener website)
The closing price of VBL was Rs 623/- as of 02-August-19. It traded at 43x/ 34x the consensus EPS for CY 20E / CY 21E EPS of Rs 14.6/18.6 respectively· Consensus target price of Rs 713/- implies a PE of 38x on CY21E EPS of Rs 18.6