Author - Sharvari Joshi

05 May

Will resume operations at plants only when dealerships open up – Rajiv Bajaj, Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in red at 9,292 (-5.7%). Top gainers in NIFTY50 were Cipla (+3.7%), Bharti Airtel (+3.3%) and Sun Pharma (+0.3%). The top losers were Hindalco (-10.7%), ICICI Bank (-10.6%) and VEDL (-10.4%). Top sectoral gainer was PHARMA (+0.4%) and sectoral losers were PVT BANKS -8.6%), FIN SERVICES (-8.4%) and BANKS (-8.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, managing director – Bajaj Auto with CNBC -TV18 dated 29th April 2020:

  • He expects the two-wheeler manufacturer to operate at about 50 percent capacity next month.
  • Prime Minister Narendra Modi on Monday told states that India has to work on restarting the economy as well as continue the fight against COVID-19. Several states are keen to extend the lockdown in hotspots.
  • In the last one week itself they have seen some positive developments, specifically their Pantnagar plant has been given approval progressively to operate at full capacity, which they cannot till their dealerships open up.
  • They have that approval on the supply side. Progressively they are getting the same approval for their Aurangabad plant.
  • The Chakan plant outside Pune has not received a nod for production, which is unfortunate as that is the company’s main export plant. On 28th April, they received permission to shift goods from there.
  • He said, “In the month of April, fortunately because we do export, we will see sales of something like 30,000-35,000 numbers. In May, we are looking at operating at about 50 percent of capacity across all our plants put together which points to about 200,000 vehicles. Again the majority would be for exports.
  • In June, we are hoping – subject to how things are unlocked – to record something in excess of 250,000 vehicles, which means we are about our two-third capacity. So from this point of view, it is not so bad for us but that is again because half of what we make is exported,”he added.
  • They have already implemented almost all of the cost cutting measures. It will save them somewhere between Rs 150 crore and Rs 200 crore this year.
  • What they have continued to clearly communicate to people is that there are no plans to cut jobs and they are not going to cut jobs at this stage.
  • He said, “I would make only one recommendation which is we cannot save ourselves out of this crisis. We have to sail ourselves out of this crisis. If the government cannot reduce goods and services tax (GST), there are other suggestions I had made with respect to the insurance, with respect to the absurd safety norms that were brought in last year. If those things are corrected at the front end and there is some liquidity brought in the NBFCs etc, the demand side will be fine.”

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

  • The closing price of Bajaj Auto Ltd was ₹ 2,433/- as of 4-May-2020.  It traded at 14x/ 15x/ 13x the consensus earnings estimate of ₹ 169/ 163 / 185 for FY20E/21E/22E respectively.
  • The consensus price target of Bajaj Auto Ltd is ₹ 2,998/- which trades at 16x the earning estimate for FY22E of ₹ 185/-.

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.”

By Auto, Bajaj Auto 0 Comments Read more...
23 Apr

AC sales likely to decline 30% in 2020- says Blue Star’s B Thiagarajan

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 9,187 (+2.3%). Top gainers in NIFTY50 were ZEEL (+20.0%), Reliance (+9.8%) and Asian Paints (+5.2%). The top losers were ONGC (-5.2%), VEDL (-2.5%) and L&T (-1.7%). Top sectoral gainers were Media (+6.5%), Auto (+2.5%) and FMCG (+2.5%) and sectoral losers were Realty (-0.8%) and PSU Banks (-0.1%).
Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star Ltd with CNBC -TV18 dated 22nd April 2020:

  • He expects a big decline in the AC segment as he thinks the upcoming summer is going to a tough one.
  • He said things are tough and the industry will de-grow by at least 30 per cent compared to the previous year.
  • About 45 days ago they were worried whether they will lose sales during the summer season. But things have entirely changed. He thinks they can still salvage the situation by attempting to sell in the month of May and June.
  • Room air conditioners are not going to impact the health of the people. Central air conditioning – there are certain solutions which will make people comfortably use the central air conditioning system.
  • On the lower end kind of consumer durable products, he feels, the recovery is going to be faster.

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

  • The closing price of Blue Star Ltd was ₹ 565/- as of 22-April-2020.  It traded at 26x/ 22x/ 19x the consensus earnings estimate of ₹ 21.9/ 25.9 /30.4 for FY20E/21E/22E respectively.
  • The consensus price target of Blue Star Ltd is ₹ 779/- which trades at 26x the earning estimate of ₹4/-
By Blue star, Consumer durable 0 Comments Read more...
13 Apr

Expect more pressure on power demand if lockdown persists- AK Singh, CMD, NHPC and Rajeev Sharma, CMD, Power Finance Corporation

Update on the Indian Equity Market:
On Thursday, NIFTY closed in green at 9,112 (+4.2%). Top gainers in NIFTY50 were M&M (+17.5%),
Maruti (+13.9%) and Cipla (+13.1%). The top losers were HUL (-3.3%), Dr Reddy’s (-2.2%) and Tech M
(-2.1%). Top sectoral gainers were Auto (+10.5%), Financial services (+5.8%) and Pvt Bank (+5.1%).
There were no sectoral losers.

Excerpts of an interview with Mr AK Singh, CMD of NHPC and Mr Rajeev Sharma, CMD, Power
Finance Corporation (PFC) with CNBC -TV18 dated 9 th April 2020:

  • The power ministry is working on a liquidity package for the sector and it has also issued a host of clarifications on relaxations for the distribution companies (DISCOMS).
  • After this scheme of 90-days moratorium, they have finalised their scheme for moratorium and the board has approved this and some DISCOMs are paying, some are not but as the situation unfolds, he is expecting the payments, said Mr Sharma (PFC).
  • He further added that they have prepared an action plan also for these three months to mobilise funds because they need to make repayments for their borrowings but they don’t see any problem. There is enough liquidity in the market.
  • Detailing the liquidity package which the government is pondering over, he added it is under advanced stage of discussion with the ministry of power.
  • They are requesting for a robust payment security mechanism as they extend further loans to DISCOMs, they are asking for a state government guarantee along with a provision in their annual budget for their repayments.
  • Very soon, this liquidity infusion scheme will be out and REC and PFC will be helping the state DISCOMs to pay the receivables.
  • “Just 21-day lockdown is not going to create much problem for us and it is not going to last more also. We are planning to restart the project which is on hold right now. So, I don’t think there is going to be much difference on this account for a company like us,” Mr. Singh added.
  • Power demand has declined 25-30 per cent. If the lockdown continues, this will put further pressure on DISCOMs and there will be more stress on balance-sheets.
  • As of now, he doesn’t see any problem of liquidity in the market. Enough money is available. Long-term Repo Operations (LTRO) has been declared by Reserve Bank of India (RBI), they are in consultation with State Bank of India (SBI).
  • It is cheaper money and banks can lend it over and above their exposure limits. In LTRO, that limit won’t be applied, so they are in consultation with SBI for that and with other banks also for commercial papers and other taxable bonds also, Mr Sharma explained.

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

  • The closing price of NHPC Ltd was ₹ 22/- as of 9th April 2020.  It traded at 8x/ 7x/ 7x the consensus earnings estimate of ₹ 2.8/ 2.9 /3.3 for FY20E/21E/22E respectively and the closing price of PFC Ltd was ₹ 90/- as of 9th April 2020.  It traded at 4x/ 3x/ 3x the consensus earnings estimate of ₹ 24.4/ 29.6 /34.8 for FY20E/21E/22E respectively
  • Consensus target price for NHPC Ltd. is ₹ 27/- which implies a PE multiple of 8x on FY22E EPS of ₹ 3.3/- and Consensus target price for PFC Ltd. is ₹ 136/- which implies a PE multiple of 4x on FY22E EPS of ₹ 34.8/-.

 

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31 Mar

Focus is on building capacity for home visits – Ameera Shah of Metropolis

Update on the Indian Equity Market:

On Friday, NIFTY closed marginally higher at 8,660 (+0.2%). The top losers in NIFTY50 were Bajaj Finance (-7.9%), Hero Motocorp (-7.9%) and IndusInd bank (-5.7%). Top gainers in NIFTY50 were Coal India (+6.4%), Axis Bank (+6.2%) and Cipla (+6.1%). Top sectoral losers were Auto (-2.4%), Media (-1.1%) and Realty (-0.4%) and top sectoral gainers were Bank (+1.8%), Pvt Banks (+1.7%) and Metal (+0.8%).

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website http://www.assetmultiplier.co.in/

Excerpts from an interview of Ameera Shah, MD of Metropolis and Sudarshan Jain, Secretary-General of Indian Pharmaceutical Alliance with CNBC -TV18 dated 26th March 2020:

  • A lot of people have similar symptoms to COVID-19, flu-like symptoms, sore throat, fever, and cough and are wanting to get checked. So, they are seeing a lot of demand in cities for patients with prescriptions wanting to test for coronavirus.
  • Right now they are focusing on building the capacity for home visits but the biggest challenge that they are having at this point is their manpower who are willing to go for home services to people’s houses.
  • They are having a challenge in having enough instrumentation, enough reagents and chemicals to do the testing.
  • While they could collect samples in Delhi, Chennai, or Bangalore, bringing them to Mumbai is becoming a challenge because of the lack of commercial flights.
  • The stocks are available for 3-4 months requirement. As far as hydroxychloroquine and azithromycin is concerned, they have got the capacity to produce 3-4 million tablets of hydroxychloroquine in the country. So, they are totally prepared and they have got all the capability for the production of the goods.
  • Zydus Cadila and IPCA are the world’s largest producers and they can totally prepared to supply whatever the requirement. They are ramping it up and are in discussions with all the city governments. They are totally prepared for supplying the products.

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

  • The closing price of Metropolis Healthcare was ₹ 1,370/- as of 27-March-2020.  It traded at 44x/ 37x/ 31x the consensus earnings estimate of ₹ 31.4/ 36.6 /44.5 for FY20E/21E/22E respectively.
  • The consensus target price for Metropolis Healthcare is ₹ 1,577/- which implies a PE multiple of 35x on FY22E EPS of ₹ 44.5/-.
By Metropolis 0 Comments Read more...
20 Mar

Challenging time for the world; aim to cut costs upto 20% – Vedanta’s Anil Agarwal

Update on the Indian Equity Market:

On Thursday, NIFTY continued its negative trend, closing at 8,263 (-2.4%). The top losers in NIFTY50 were Infratel (-18.3%), Zee (-13.8%) and Shree cement (-12.4%). Top gainers in NIFTY50 were ITC (+6.8%), Bharti Airtel (+4.5%) and Infosys (+3.3%). All the sectors ended on a negative note, and the top sectoral losers were Auto (-5.8%), Metal (-5.3%) and Media (-4.8%).

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website http://www.assetmultiplier.co.in/

Excerpts from an interview of Mr Anil Agarwal, Chairamn, Vedanta with CNBC -TV18 dated 17th March 2020:

  • Definitely this is a very challenging time for the world because a lot was depending on China. Entire leadership of the world has come into the action and they are doing whatever is necessary.
  • India is in a better position. Whatever is being manufactured in India is being sold in India.
  • According to him, India has a huge home consumption, which is a great advantage. India has got logistics and supply chain which is not much dependent on the world. So, India is little bit isolated.
  • Out of 15 best companies in the world, 9 are run by Indians. Indian minds are good and he is sure this will give advantage to India. For coronavirus nobody has a solution, the only thing is not to panic and to safeguard ourselves.
  • Oil has come down almost 50 percent. Definitely a lot of companies will shut their door and some of the people who are strong can cut their cost. Out of 100 companies, 50-60 will remain; 30-40 will go away.
  • In India, they have a different position. As far as Vedanta is concerned, they have a home market and they have a cost advantage. They are looking to tighten their cost. They have a process of reducing our cost upto 20 percent whether from the mining or the logistics.
  • As far as Vedanta is concerned, they still make 10 percent profit. They are not going to stop any of their growth projects because that will increase their production to 40-50 percent.
  • They are looking to reduce costs. For the world, he will go with what the analysts are saying but India demand will continue to be there.
  • They used to import a lot of things from China but India has a capability and entrepreneurship – this is the time when government should support manufacturing in India.
  • He encourages investing in India. This is a great opportunity, Vedanta will also look at it but this is an opportunity for the world oil company to look at Bharat Petroleum Corporation Ltd (BPCL) and take the advantage of this time.
  • Vedanta will also look at Air India. For NMDC – as far as Vedanta is concerned, we will do expression of interest (EoI) if we qualify and then look at what is the benefit.

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

  • The closing price of Vedanta was ₹ 70/- as of 19-March-2020.  It traded at 4.5x/ 4.0x/ 3.6x the consensus earnings estimate of ₹ 15.7/ 17.3 /19.2 for FY20E/21E/22E respectively.
  • Consensus target price for Vedanta is ₹ 162/- which implies a PE multiple of 8.4x on FY22E EPS of ₹ 19.2/-.
By Vedanta 0 Comments Read more...
06 Mar

See a gap of 2-3 days without inventory; material shipments arriving by sea- Krishna Chigurupati, Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY closed marginally higher (+0.2%) at 11,269 after a continuous losing streak in the previous days. The top gainers in NIFTY50 were Yes Bank (+26.9%), Eicher Motor (+2.9%) and Kotak Bank (+2.6%), whereas Zeel (-5.6%), Hindalco (-2.9%) and Infratel (-2.6%) were the top losers. Among sectoral indices, PSU Bank (+1.4%), FMCG (+1.1%) and Pharma (+0.7%) were the gainers while Realty (-1.1%), Metal (-0.8%) and Media (-0.7%) closed in red.


Excerpts from an interview of Mr. Krishna Prasad Chigurupati, Chairman and MD- Granules India with CNBC-TV18 dated – 3rd March 2020:

  • He said, “We just have to apply to the Directorate General of Foreign Trade (DGFT) for permissions and then they would give us permission to export based on past exports”.
  • In the worst case, maybe some of the shipments from this month may spill over to next month. Otherwise, two quarters put together he doesn’t see any big impact.
  • Most of the intermediates or the raw materials come from China. For example with regards to Paracetamol – the key intermediate comes from China and there has been a disruption or delay for about a week.
  • They have inventory for another 10 days but materials are arriving. So, there could be a gap of about 2-3 days without inventory but the shipments are already on the way and they should be getting them by next week. So, there is no issue on the inventories side.
  • It depends on how quickly the government acts on awarding permission to exports so there could possibly be little spill over into the next quarter. There could be a little fall in 4QFY20 which will be made up in the next quarter.
  • Airlifting of some products is happening. Air freights have gone up, the prices have gone up and there could be an increase in the cost of raw materials.
  • As far as their products are concerned there is absolutely no issue, everything is coming by sea. So, he doesn’t see any impact on margins.
  • They supply APIs to Indian companies, Paracetamol especially, but formulations are all for exports. They never sell any formulations within India. 

Consensus Estimate: (Source: market screener website)

  • The closing price of Granules India was ₹ 178/- as of 05-March-2020.  It traded at 13x/ 11x/ 9x the consensus earnings estimate of ₹ 13.6/ 15.5/ 19.2 for FY20E/FY21E/FY22E respectively.
  • The consensus target price for Granules is ₹ 172/- which implies a PE multiple of 9x on FY22E EPS of ₹ 19.2/-.
By Granules, Pharmaceuticals 0 Comments Read more...
27 Feb

Expect to address FDA observations in time to launch Glargine: Christiane Hamacher, Biocon Biologics

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 11,678 (-1.0%). The worst sectoral performers were Auto (-2.1%), Realty (-1.7%) and IT (-1.4%). There were no sectoral gainers. The top gaining stocks for NIFTY50 were YESBANK (+4.9%), SBIN (+0.4%) and HCLT (+0.2%) while the losers were GAIL (-5.1%), SUNPHARMA (-3.8%) and TATAMOTORS (-3.6%).

Excerpts from an interview with Dr. Christiane Hamacher, MD and CEO of Biocon Biologics aired on CNBC18 TV on 24nd February 2020:

  • They have received three observations from US FDA under form 483 and they are procedural in nature. They largely aim at process improvements.
  • They don’t have any repeat observations and they will be submitting an action plan very soon to address these observations.
  • They are expecting to address all the observations well in time to meet the target action date for their biosimilar Glargine in June 2020 and they expect to be in a position to launch in 2nd half of this calendar year in the US by their partner Mylan.
  • So, there is no delay when it comes to launching in the second half of 2020.
  • As a transition from New Drug Application (NDA) to Biologics License Application (BLA) for certain biologics will not actually affect their submission for biosimilar Glargine.
  • That was submitted another pathway and they are very clear that they expect their biosimilar will continue to be reviewed under the same pathway. So, they don’t foresee any delay when it comes to this review process.
  • Biosimilar Glargine together with their biosimilar Trastuzumab, and their biosimilar Pegfilgratim in the US, in the near future will be a very important component to achieve the revenue guidance of USD 1 billion that they have given for FY22.
  • They see much less competition compared to other areas like oncology and they have a huge portfolio. Along with their partner Mylan, they are very well positioned to be a leading player in the insulin biosimilar space.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon was ₹ 298/- as of 26-February-2020.  It traded at 40x/ 30x/ 23x the consensus earnings estimate of ₹ 7.5/ 10.1/ 13.1 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 313/- which implies a PE multiple of 24x on FY22E EPS of ₹ 13.1/-
By Biocon , , , 0 Comments Read more...
17 Feb

Government will decide whether to divest more after one-year lock-in: IRCTC’s Pratap

Update on the Indian Equity Market:

On Friday, NIFTY closed at 12,113 (-0.5%). Among the NIFTY50, YESBANK (+5.4%), BHARTIARTL (+4.4%), and UPL (+2.5%) were the top gainers. GAIL (-5.5%), INFRATEL (-5.5%) and INDUSINDBK (-3.7%) were the top losers. In sectoral indices, PSU BANK (-2.0%), METAL (-1.4%) and BANK (-1.3%) were among the losing sectors. There were no sectoral gainers.
Excerpts from an interview with Mahendra Pratap, Chairman and Managing Director, Indian Railway Catering and Tourism Corporation (IRCTC) published in Livemint on 14th February 2020:

  • ₹200 crore run rate in ticketing revenues will continue. Till September the convenience fee was not there on internet ticketing and September onwards they have started levying it on issue of tickets and it works out to almost ₹52 crore per month.
  • In Q3FY20 two new plants were commissioned, Bhopal and Jagi Road, and in the next quarter, expect two more plants at Sankrail near Kolkata and Jabalpur being commissioned. There are two more in the pipeline, Una in Himachal Pradesh and Vijayawada in Andhra Pradesh.
  • They will perhaps be commissioned in Q1FY21 and then there is a plan for two more plants in Bhubaneswar and Visakhapatnam, which may come up in Q3FY21.
  • All these plants will be at different phases of their capacity because when a plant is commissioned, normally in the first year it produces 50-60% which helps in assimilating the production as well as distribution and logistics mechanism.
  • In the second year, it runs at 75-80% and only in the third year do they go for full-fledged capacity. So there are plants which will give more production next year, new plants will be commissioned. So this run-up will continue at least for the next two years.
  • The first private train was commissioned on 4 October. It ran for almost a quarter. It has given a gross revenue of about ₹15 crore and almost breakeven. The second train was flagged off on 17 January between Ahmedabad and Mumbai and the response in that train has been better than expected.
  • The third train is going to start on 16th March. It will be flagged off from Varanasi—between Varanasi and Indore. It is basically a pilgrimage special, connecting three religious places.
  • In catering, the tariff was revised in November 2019 which will result in increased license fee and concession fee from the trains as well as an increase in turnover from Rajdhani, Shatabdi, and Duronto trains. They are managing about 350 trains.
  • There is competition. In fact a lot of these trains have a transparent bidding process and it is purely on PPP mode.
  • They manage two hotels and two Rail Yatri Niwas. That is BNR Hotel at Puri and Ranchi and Rail Yatri Niwas at Delhi and Howrah.
  • They are also coming up with a hotel at Lucknow, which is a budget hotel and they plan to set up one budget hotel at Kevadiya near the Statue of Unity.
  • They have sufficient cash; they have almost ₹1,000 crore balance with them.
  • The 87.4% stake is with the government, 12.6% was divested last year.

Consensus Estimate:

  • The closing price of IRCTC was ₹ 1,558 as on 14-February-20. The consensus estimate for EPS of IRCTC is not available. IRCTC reported a net profit of ₹ 12.9 and ₹23.6 per share for the quarter and nine months ended December 31, 2019, respectively. It reported a net profit of ₹ 19 per share for the year ended March 31, 2019.
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06 Feb

‘Business to Lagos has not been impacted and there’s no reason to be circumspect’- Mr. Rakesh Sharma, executive director, Bajaj Auto

Update on the Indian Equity Market:

On Wednesday, NIFTY closed positive (+0.9%) at 12,090. NIFTY50 led by TATAMOTORS (+10.7%), YESBANK (+8.6%) and TATASTEEL (+5.8%). ZEEL (-6.4%), HEROMOTOCO (-3.6%) and DRREDDY (-3.1%) were the top NIFTY losers. METAL (+3.1%), REALTY (+2.2%) and FIN SERVICE (+1.4%) were the top gaining sectors. MEDIA (-0.8%) was the only sector that ended negatively.

Excerpts from an interview with Mr. Rakesh Sharma, Executive Director, Bajaj Auto published on Livemint on 5th February 2020:

  • There has been a ban on the movement of two-wheelers and three-wheelers on certain roads in Lagos city for quite some time. There has been a law that says two-wheelers and three-wheelers cannot ply within Lagos city on these roads.
  • What has happened now is that there has been a restatement of this law and thereafter more rigorous enforcement because of congestion which they are experiencing and that is what has triggered this spate of news.
  • There are some 400 roads and by lanes within the Lagos city which had been identified quite a few years ago, maybe a couple of years ago. So they are just enforcing those things that these vehicles are not permitted.
  • Nigeria is a large country and motorcycles in Lagos city is probably only 6-7% of their business. Similarly, three-wheelers is also about 10% of their business so it is really not a very significant event as of now.
  • One can run a motorcycle on a commercial basis in certain areas, but what happens is it becomes more inconvenient as suddenly if you have to go from point ‘A’ to point ‘B’ and in middle there is a road where it is not allowed, it becomes a problem.
  • Total two wheeler exports to Nigeria are less than 30% of their exports, in the magnitude of 25% or so.
  • As things stand now, they are not anticipating any major impact. In international business, this kind of things happens all the time.
  • Bangladesh did it last year when they did not permit the three-wheelers so these things sort of cancel each other. So it is not a significant event from their perspective- not for Nigeria and not for the international business.
  • It is difficult to imagine that this kind of thing suddenly becoming an epidemic across Nigeria. So according to him, they will wait and watch.
  • At this stage, it is not even a setback. It is temporary irritation and he said he would not classify this as a setback. They encounter these things all the time in emerging markets. It does not really make them sit up and sweat.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Auto was ₹ 3,158/- as on 5-February-2020. It traded at 18x/ 17x/ 15x the consensus earnings estimate of ₹ 174 /183 /204 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 3,226/- which implies a PE multiple of 16x on FY22E EPS of ₹ 204/-
By Auto, Bajaj Auto 0 Comments Read more...
29 Jan

C&S Electric acquisition is margin accretive: Siemens: Sunil Mathur, MD & CEO, Siemens India

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 12,060 (-0.5% down its previous close).  The top gainers for the day were BPCL (+2.5%), HDFC (+1.6%) and Bajaj Finance (+1.2%). The stocks that were down in today’s session included Vedanta (-4.5%), Bharti Airtel (-4.4%) and Tata Motors (-3.2%). The sectoral gainers for the day were NIFTY Financial services (+0.3%) and NIFTY IT (+0.3%). The top losing sectors were NIFTY Metal (-2.4%), NIFTY Auto (-1.2%) and NIFTY Media (-1.1%).

Excerpts from an interview with Mr Sunil Mathur, Managing Director and Chief Executive Officer, Siemens India from Livemint dated 28th January 2020:

  • C&S Electric is an excellent acquisition for them. They are in a space that is a market for the future. Infrastructure is a huge market in India. A lot needs to be done and this is in the low voltage space of infrastructure.
  • They were present in low voltage but very strong on the industrial side. What they lacked was a presence on the infrastructure side.
  • They are looking at smart infrastructure as being a thrust area for them in the country and so this is perfect in that space. So, strategically it is a very good growth area and it is EPS accretive as well.
  • C&S Electric did about ₹1,200 cr in terms of revenue and profitability in the range of 10-15% in last year. They are growing very well.
  • They see a huge potential in this business not only from a domestic purpose but also from an export perspective. They see markets that are hugely competitive and what they would like to use this acquisition for is to also develop a manufacturing hub here and they can use them for design and manufacturing into low-cost markets outside the country.
  • The profitability is in the 10-15% range, and if we look at the multiples from that perspective, both the revenue multiples as well as the EBITDA multiples, they are very comparable to the Schneider-L&T deal as well as compared to a lot of the other deals in the same space.
  • It will improve RoCE because they are sitting on a lot of cash. They have ₹5,000 cr of cash. This is a ₹2,000 cr acquisition. So this should improve their RoCE and as it is margin accretive so it will help return on investment (RoIs) as well.
  • A lot of it depends on when they get the regulatory approvals and when they start up over there, but if we take a volume of ₹1,200 cr topline and take a 10% bottom line and we are already there. Of course, that is a starting point.
  • For export businesses, they will have to use their global network to start getting into customers and introducing their products to customers. So, they will build this up over a period of time but the potential is huge.
  • The multiples today are terrifically high and so they have got to balance all that together and see whether it makes sense or not.

Consensus Estimate: (Source: market screener website)

  • The closing price of Siemens Ltd was ₹ 1,502/- as on 28-January-2020. It traded at 49x/ 36x/ 31x the consensus earnings estimate of ₹ 30.5/ 41.7/ 48.6 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 1,462/- which implies a PE multiple of 30x on FY22E EPS of ₹ 48.6/-
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