Miscellaneous

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.”

 

Optimistic on Sun NXT – Sun TV

Update on the Indian Equity Market:

On Wednesday, Nifty closed in the red at 15,107. Among the sectoral indices, Realty (+1.6%), Pharma (+0.7%), and IT (+0.4%) closed higher. PVT Bank (-0.7%), Fin Services (-0.2%) and FMCG (-0.1%) closed in the red. Cipla (+2.8%), Bajaj Finserv (+2.8%), and SBI Life (+2.7%) closed on a positive note. Eicher Motors (-2.2%), Bharti Airtel (-1.6%), and HDFC Bank (-1.2%) were among the top losers.

Excerpts from an interview of Mr. SL Narayan, CFO, Sun Group with CNBC-TV18 dated 09th February 2021:

  • The company expects double-digit growth across financials.
  • Narayan said things are looking good since January-21.
  • The advertising revenues are still lagging but the company is in a better position as compared to Q1FY21.
  • The company was impacted more as compared to large peers because of its dependence on local revenues.
  • He said the entire ecosystem is affected and hence there is some impact on the company as well.
  • On Sun NXT, he said the company had a large contract that came up for renewal. However, the negotiations couldn’t be concluded on time and its revenues were not recognized in Q3FY21.
  • Speaking about subscribers for Sun NXT, he said the company is not spending on customer acquisition because they don’t want to build an OTT at a significant upfront investment.
  • Movie releases will bring back the growth in subscription revenues.
  • A lot of new movies will be hitting the screen in coming times.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Sun TV was ₹ 528 as of 10-February-2021.  It traded at 15x/13x/12x the consensus Earnings per share estimate of ₹ 35.8/39.3/42.3 for FY21E/FY22E/ FY23E respectively.
  • The consensus average target price is ₹ 566/- which implies a PE multiple of 13x on FY23E EPS of 42.3/-.

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.”

 

Demand recovering despite product prices at historic highs – Indian Oil Corp.

Update on the Indian Equity Market:

On Friday, Nifty50 ended 1.5% lower at 14,372 dragged by the metal and banking stocks. AUTO (+1.4%), and IT (+0.2%) were the only sectoral indices to end the day with gains. METAL (-3.9%), BANK (-3.2%), and PRIVATE BANK (-3.2%) led the sectoral losers. Auto stocks led the gainers with BAJAJ AUTO (+11.2%), HEROMOTOCO (+4.0%), and EICHERMOT (+1.8%) leading the pack. AXISBANK (-4.5%), ASIANPAINT (-4.3%), and JSWSTEEL (-4.0%) were the top losers.

Excerpts of an interview with Mr. Shrikant Vaidya, Chairman, Indian Oil Corporation (IOC) published in Business Standard on 21st January 2021:

  • Crude oil prices are rising does not impact IOC’s margins as refining margins are influenced by product cracks. Product cracks are yet to recover fully. The increase in crude oil prices is likely to boost margins through inventory gains, provided prices stabilise at these levels.
  • India is set to drive global oil demand over the long term. Vaccine rollout suggests a more certain recovery in the oil market in 2021, but demand uncertainty still looms. Saudi Arabia’s decision to reduce crude oil production by 1 mn barrels a day in February and March has provided support to the market but demand concerns remain.
  • We may have to wait for fiscal conditions to improve before a significant reduction in excise duty rates are announced.
  • With the upcoming Budget, he reiterated the petroleum industry’s demand to move petrol, diesel, aviation turbine fuel, natural gas, and crude oil under GST. Exclusion of these products which account for ~60 percent of refined product volumes, with crude oil and natural gas has resulted in stranded taxes in the hands of oil & gas companies.
  • Oil consumption posted a month-on-month increase for the fourth straight month in December 2020. The easing of restrictions has revived demand from transportation.
  • IOC is sticking to the investment plans as those are based on long term demand potential in the country. Though they have faced temporary issues due to pandemic restrictions, IOC is on track to achieve its capex target of Rs 260 bn in FY21.
  • Since the easing of lockdown, IOC has commenced work on 2800 projects at an anticipated cost totaling Rs 2 trillion.

Consensus Estimate: (Source: market screener website)

  • The closing price of IOC was ₹ 96/- as of 22-January-2021. It traded at 8x/ 7x/ 6x the consensus earnings estimate of ₹ 12.8/ 14.2/ 17.3 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 115 implies a PE multiple of 7x on FY23E EPS of ₹ 17.3/-.

 

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.”

Dramatic recovery in advertising revenues – Sun TV

Update on the Indian Equity Market:
On Monday Nifty closed 0.1% higher at 13,568. Among the sectoral indices, Media (+1.8%), Auto (+0.6%), and Metal (+0.8%) closed higher. Nifty PSU Bank (-1.5%), FMCG (-1.3%), and Pharma (-0.2%) closed lower. Bajaj Finance (+5.1%), Bajaj Finserv (+4.2%), and Eicher Motors (+3.1%) closed on a positive note. HUL (-2.1%), Nestle (-2.1%), and BPCL (-1.8%) were among the top losers.

Excerpts from an interview of Mr. SL Narayanan CFO, Sun Group with CNBC-TV18 dated 14th December 2020:

● Mr. Narayanan said the company has dramatic recovery in advertising revenues.
● The recovery on QoQ basis is better but the kind of set back company witnessed in the 1st half of the year the recovery is not that sharp to recover all the deficits.
● He said the subscription will become the mainstay of media companies like Sun Tv.
● 9 years back, the subscription revenues were averaging around Rs 85 crore a quarter which was Rs 340 crore run rate annually. That number has now touched Rs 2,000cr.
● Speaking on infrastructure, he said the company has prepared in the last 3-4 years for streaming.
● The company is investing in more forms of content.
● He said the telecom companies are sourcing content from media companies.
● The company is looking to spend Rs 400 cr on original content and in addition to this, the company will be producing movies.
● The company will also Rs 200 cr for exclusive content on Sun Next.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Sun TV was ₹ 500 as of 14-December-2020. It traded at 14x/ 13x/ 12x the consensus Earnings per share estimate of ₹ 35.5/39.1/41.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Sun TV is ₹ 523/- which implies a PE multiple of 12x on FY23E EPS of 41.9/-.
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.”

An uptick in demand during Diwali – VST Tillers Tractors

Update on the Indian Equity Market:
On Thursday Nifty closed 1.0% higher at 12,906. Among the sectoral indices, PSU Banks (+1.9%), Metal (+3.9%), and Fin Services (+1.7%) closed higher. None of the sectors closed lower. Eicher Motors (-1.6%), Maruti (-0.7%), and BPCL (-0.7%) closed on a negative note. JSW Steel (+7.0%), Tata Steel (+5.2%), and Grasim (+4.4%) were among the top gainers.

Excerpts from an interview of Mr. Antony Cherukara, MD, VST Tillers with CNBC-TV18 dated 23rd November 2020:

● Better agriculture and the festive season have led to rising demand for tractors and farm equipment.
● Speaking on the outlook, Mr. Cherukara says, the outlook is positive as an uptick in demand is seen.
● There was an uptick in demand during the Diwali festival.
● On tillers, he says, the import slowdown is coming into place, and going forward there will be an effect on demand based on that.
● 15-20% of imports of tillers were from China earlier. The Chinese tillers are cheaper as compared to Indian manufacturers. The quality of Indian tillers is good.
● On tractor sales, he says, the expected growth for tractors in FY21E is expected to be in the range of 12-15%, and a 20%+ growth is expected in tillers.
● There is not much visibility on Q4FY21 as of now.
● Speaking on cash on the books, he says, the cash flow is healthy and the company has generated 70cr + of additional cash flow in H1FY21.
● The relocation of the Benagluru facility to Hosur is on track and it is expected to be done by Q4FY21E. There will savings after this relocation.

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

● The closing price of VST Tillers Tractors was ₹ 1930 as of 26-November-2020. It traded at 22x/ 20x/ 14x the consensus Earnings per share estimate of ₹ 87.3/98.8/136 for FY21E/ FY22E/ FY23E respectively.
● Consensus average target price for VST Tillers Tractors is ₹ 1,977/- which implies a PE multiple of 15x on FY23E EPS of 136/-.

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.”

FY22 to be a game changer – Dixon Technologies

Update on the Indian Equity Market:
On Thursday, Indian equity markets snapped a two-day losing streak with the Nifty50 closing 1.5% higher at 11,449. RELIANCE (+7.3%) was the top gainer after reports of potential investments in its retail arm, Reliance Retail. BPCL (+6.0%), and ASIANPAINT (4.2%) were the other lead gainers in the index. INFRATEL (-4.8%), HINDALCO (-2.9%), and TATASTEEL (-2.3%) led the losers. Among the sectoral indices, PSU BANK (+2.5%), MEDIA (+1.3%), and FINANCIAL SERVICES 25/50 (+1.01%) were the top gainers. METAL (-1.1%), and PHARMA (-0.01%) were the only sectoral indices to end in the red.
*Nifty Financial Services 25/50 is a new capped version of the Nifty Financial Services index.

Edited excerpts of an interview with Mr. Atul Lall, MD, Dixon Technologies (India) with CNBC-TV18 on 8th September 2020:
• A government panel has recently cleared $100 bn of mobile export proposals from global manufacturers.
• Dixon has submitted 2 applications under the production-linked incentive scheme (PLI) but has not received an official nod yet. It might take a week to ten days to receive official communication from the government.
• They have large contracts for exports and domestic markets lined up with big global brands. The focus is to accelerate project implementation and production is planned to start by Q4FY21.
• The government is giving a 4-6 percent incentive for manufacturing under the PLI scheme for the next 5 years, which Mr. Lall calls the government handholding in the infancy stage of any industry. There is some disability in manufacturing mobile in India when compared to China, and the scheme is helping reduce that.
• They are seeing significant traction from large global players looking to shift base from China and other countries to India.
• Year 1 is a very short period and they get barely 3 months to generate revenues in this fiscal (FY21). In year 2, in one application, there is a ceiling of about Rs 3000-4000 crore. If they get both the applications, they will be able to generate revenues of Rs 8000 crore through mobile manufacturing, which is a big leap for a company like theirs.
• There will be a small margin expansion with a large volume expansion next year, which is going to be a game-changer.
• In the LED TV segment, the order book is very strong and they are operating at 110% capacity and with the government shifting imports of a certain kind of televisions from OGL (Open General License) to a restricted category, their order book is increasing. They have already expanded their capacity from 3.6 mn to 4.4 mn units, there is a further expansion planned to take it to 5.5 mn units. This increased capacity is almost 33% of the Indian TV requirement. This second round of capacity expansion will be completed by March 2021.
• The capacity expansion is happening across verticals, including mobiles and washing machines.
• There will be significant growth in Q2 on a YoY basis. Plants for LED TV, mobiles, and washing machines are running at almost 110% capacity. Lighting being an extensive manpower-oriented segment, they had to re-engineer the lines because of social distancing is working at 80% capacity. The one vertical that is not performing as well, which is the security surveillance systems, working at 50% capacity. Overall, the business has been good.
• FY21 will be better than FY20 both on the top line as well as the bottom line.

Consensus Estimate: (Source: market screener website)
• The closing price of Dixon Technologies (India) was ₹ 9400/- as of 10-September-2020. It traded at 91.3x/ 50x/ 36.7x the consensus earnings estimate of ₹ 103/ 188 / 256 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 7936/- implies a PE multiple of 31x on FY23E EPS of ₹ 256/-.

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.”

Execution back on track with return of labour and availability of raw materials: Dilip Buildcon

Update on the Indian Equity Market:
On Thursday, NIFTY closed in red at 11,312 (-0.8%). Top gainers in NIFTY50 were NTPC (+6.9%), ONGC (+3.3%), and Power grid (+2.6%). The top losers were Tata Motors (-2.6%), HDFC (-2.3%), and Axis bank (-2.2%). The top sectoral gainers were MEDIA (+3.1%), METAL (+1.0%) and REALTY (+0.4%) and sectoral losers were FIN SERVICES (-1.3%), PVT BANKS (-1.3%), and BANK (-1.3%).

Excerpts of an interview with Mr Rohan Suryavanshi, Head -Strategy & Planning, Dilip Buildcon with ET now dated 18th August 2020:
● 1QFY21 was impacted by Covid but the good news is that they have had a very strong order book. The Rs 8,900 crore worth of orders that they have won are spread across different verticals.
● They have dam irrigation orders, tunnel orders, special bridge orders and also road orders. All these have different lead times of two to four years and these orders will start sort of giving revenues in the later part of this year which would be about the end of Q3FY21 to the start of Q4FY21.
● Execution has definitely picked up from when the lockdown was imposed. They have started seeing reverse migration of now labourers coming back to sites. They have also started seeing normalisation in all the raw material supply chains which has been disrupted.
● 90% plus of their labourers have come back to the sites and all the raw material disruptions are behind barring some sites where there might be local disruptions.
● The only thing that is impacting right now are the monsoons. Since they have had good monsoons across the country that is impacting work for the industry as a whole.
● For the past couple of years, they have been focussing on debt reduction and working capital cycle improvement which had also seen their debt equity ratio falling to 0.81 last year from 1.06 a year before.
● In FY21, because of Covid and because of the impact that it has had, they will avail of a moratorium, and also avail of whatever facilities the RBI has given them.
● Current debt numbers and the current working capital cycle numbers will not go up from here and will actually reduce and this is all obviously dependent on how the rest of the year looks and hopefully they would not have any more large disruptions or shutdowns because all those things will impact revenue and profitability.
● In 1QFY21, their revenues were only reduced by about 17% as a YoY basis from same quarter last year, which is exceptionally good as opposed to the industry average of about 40% plus reduction in revenues.
● The business model of having their own people, having their own equipment, doing everything on their own without any subcontracting has definitely helped them in getting this revenue and being ahead of the curve when the recovery came.

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

● The closing price of Dilip Buildcon was ₹ 404/- as of 20-August-2020. It traded at 18x/ 11x the consensus earnings estimate of ₹ 22.0/ 37.7 for FY21E/22E respectively.
● The consensus price target is ₹ 406/- which trades at 11x the earnings estimate for FY22E of ₹ 37.7/-
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.”

Covid19 Tests will become a part of company’s portfolio – Dr Lal Path Labs

Update on the Indian Equity Market:

On Wednesday, Nifty closed 0.06% higher at 11,102. Among the sectoral indices Metal (+4.0%), Auto (+1.8%) and Media (+1.1%) closed higher. Pharma (-0.5%), Fin services (-0.2%) and PSU Banks (-0.2%) closed on a negative side. Hindalco (+9.1%), Tata Steel (+6.7%) and Eicher Motor (+4.4%) closed on a positive note. UPL (-1.5%), HDF Life (-1.5%), and Wipro (-1.0%) were among the top losers.

Excerpts from an interview of Mr. Om Manchanda, MD, Dr Lal Path Labs with ET Now on 3rd August 2020:

  • The business was impacted in the months of April and May due to lockdown restrictions. It restricted the movement of samples to various cities.
  • The movement of patients was also impacted due to lockdown. There was a steep fall in walk-in customers.
  • The company also witness a sharp fall in OPD.
  • Recovery started in late part of May as lockdown restrictions started to get lifted.
  • They witnessed a sharp recovery in June but the trends are early as there may be pent up demand coming up.
  • The company witnessed some gains as competitors were not able to serve some markets.
  • On impact of covid on diagnostic space, Mr. Manchanda said the government has built capacity in the recent past and 60% of business is coming from the government side. The company will be working in a supporting role to the governments.
  • Tests for Covid-19 will become a part of company’s portfolio, but the trend line is not yet clear.
  • Q1 was a bad quarter for the company, non covid business had shown recovery in June. Company expects that the growth will come back in later part of the year by Q3FY21E.
  • Business related to covid is a new business for the company.
  • Historically the company had grown organically. The model is urban based.
  • The company picks up a geography and tries to cater all diagnostic needs in that area.
  • Mr Manchanda said the company is neither a wellness company nor a diagnostic company but a full-service model.
  • There are close to 215 labs as of now.

Consensus Estimate: (Source: market screener website)

  • The closing price of Dr Lal Path Labs was ₹ 1,850/- as of 5-August-2020.  It traded at 71x/50x/44X the consensus earnings per share estimate of ₹ 25.9/37/42 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price for Dr Lal Path Labs is ₹ 1,769/- which implies a PE multiple of 42x on FY23E EPS of ₹ 42/-.

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.”

 

Slow and steady recovery over the next 2-4 years – Info Edge

Update on the Indian Equity Market:

On Tuesday, amid rising coronavirus cases and fresh lockdowns being imposed in some of the Covid-19 hotspots in India, the Nifty50 ended 1.8% lower at 10,607. PRIVATE BANK (-3.3%), PSU BANK (-3.1%), and BANK (-3.2%) dragged the index lower. PHARMA (+0.5%) was the only sectoral index to end in the green. Among the Nifty50 stocks, DRREDDY (+1.9%), TITAN (+0.9%), and BHARTIARTL (0.3%) were the only gainers. INDUSINDBK (-5.5%), AXISBANK (-4.9%), and EICHERMOT (-4.5%) led the laggards.

Edited excerpts of an interview with Hitesh Oberoi, MD & CEO, Info Edge India with Economic Times on 13th July 2020:

  • The months of April and May witnessed lockdown and a halt in all business activities. The JobSpeak Index published monthly is closely linked to revenue on their platform and it has gone up by 33%. The activities on all the platforms- 99acres, Naukri, Shiksha, and Jeevansathi are almost back to normal.
  • They are growing 25-30% in the emerging markets already. The big cities like Mumbai and Delhi, which are more impacted by Covid and lockdown, they are still down 25-30%.
  • Revenue in Naukri and all the verticals will follow with a lag, that’s how it always works. Green shoots in sectors like IT, healthcare, pharma, and tech can be seen. Other sectors like travel, tourism, hospitality, and auto things continue to be 70-80% below where they were last year.
  • The company is a cash-rich company, with Rs 1,500 crore cash with a 50% EBITDA margin and they see a lot of opportunity going ahead. There are four verticals from an internal business standpoint: jobs, real estate, matrimony, and education.
  • Although the company is a clear leader in jobs, they want to do many things in that vertical, which will require investment over time. They already have a play in recruitment automation which they want to scale up. They invested in an HR services company, createHR, and are looking at what can be done in adjacent spaces.
  • Things are only getting started right in the real estate vertical. They are currently in the residential buy segment and plan to get into rentals and commercial real estate. Even in the residential buy segment, the plan is to break away from the rest of the pack and investment will be required in multiple areas, going forward.
  • On the matrimony portal, Jeevansathi volumes have doubled or tripled in the last couple of years. There is still a long way to go as it is still the number three player.
  • In all the verticals, investments will be made in the product development, branding, and innovation. A lot more strategic investing will be done in adjacent areas.
  • They have invested in three education companies in the last year and are open to the idea of acquiring companies and doing more M&A in the categories they operate in. To be able to do these activities, the cash they currently have won’t be sufficient, hence the board has enabled QIP to raise more money.
  • Capital raising is not something which is done every year, it is done maybe once in five to seven years. Hopefully, the capital raised will last for a couple of years. Info Edge has never done a large M&A but done a bunch of strategic investments. At the same time, to buy any company in the internet space, a lot of money is required. They do not want to risk all the money they have in the bank on an M&A. Should an opportunity arise to buy a distressed asset or something that will help gain market share, they want to be ready and that is why they are raising funds.
  • About a year ago, Zomato was losing $ 40 million a month which was brought down to $ 20 million a month before Covid. April and May were bad for all companies, including Zomato and Swiggy. Due to Covid, the volumes have fallen and the business is down to about 50% levels. The crazy discounting, spend on customer acquisition which companies were doing is now over and companies are focusing on fixing their supply chains and other issues. As a result, Zomato which was losing ₹ 30-40 an order till some time back, is now making ₹ 30 an order.
  • Zomato is now very comfortable on cash and has enough money in the bank to last them a couple of years. There are a lot of investors interested in investing in Zomato and talks with a few are going on right now.
  • People not being able to go out and dine anymore like they used to, is probably a big opportunity for all the delivery companies. Since dining out can be very expensive, people were doing that maybe once or twice a month. For that kind of money, they can order in food maybe twice or thrice. Consumers do not want to just eat home food all the time and since going out to dine is unsafe, ordering in will therefore increase.

Consensus Estimate: (Source: market screener website)

  • The closing price of Info Edge (India) was ₹ 2,899/- as of 14-July-2020. It traded at 112x/ 81x the consensus earnings estimate of ₹ 25.8/ 35.9 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 2,557/- implies a PE multiple of 71x on FY22E EPS of ₹ 35.9/-.

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.”

 

Cement prices have managed to hold up – Heidelberg Cement

Update on the Indian Equity Market:

On Friday Nifty closed 0.9% higher at 10,383. Among the sectoral indices, IT (+4.1%), PSU Bank (+1.0%), Metal (+0.6%) closed higher. FMCG (-1.2%), Realty (-0.9%) and Pharma (-0.5%) closed lower. Infosys (+6.6%), BPCL (+6.5%) and TCS (+4.9%) closed on a positive note. Bajaj Finance (-3.1%), ITC (-3.1%) and Bharti Infratel (-2.8%) were among the top losers.

Excerpts from an interview of Mr Jamshed N Cooper, MD, Heidelberg Cement with ET Now 25th June 2020:

  • Cement prices have managed to hold up even when the construction activity has halted. Mr. Cooper said it is a different mix and varies from state to state.
  • Government spending is higher in many of the projects, the company is trying to complete before monsoon sets in.
  • The labor availability is better in central India and South is weak as the market depends on migrant labor.
  • Capacity utilization will be between 55% and 60%. Many of the cement companies have a very high breakeven. Most of the companies have high debt and to serve high debt with lower volume is a task. The cement companies have a pressure to keep price up as they have to maintain margins with lower volumes.
  • The construction industry is not going to be hit so badly except for the monsoon period. Building industry, construction industry is one of the largest employers of the labor workforce, with their employment the infrastructure industry will come in picture.
  • Either the government will provide employment or somehow employment is going to get generated in the building industry because there is a huge demand for housing. He added that it is the best time for the government to use this work force to start building rural houses for the poor so that this cycle can continue.
  • About lockdown effect he said a mistake was made by keeping cement plant shut during lockdown. The cement was not getting in market place and labor force was ideal which had a cascading effect.
  • A little bit of slowdown is expected in the construction industry and hence in the demand for cement. Going forward the labor will start returning after the monsoons sowing happens.
  • It is expected that at least 60% of the labor is likely to return after Diwali. Once workforce gets back to their workplace’s things should be moving perfectly well.
  • On housing infrastructure push led by the government, he said whole push has to be from the housing sector because 60% of the cement is used in the housing sector and in this at least another 5-7% will come from the government.
  • The pricing is here to stay as companies cannot breakeven with lower volumes and if they don’t breakeven the companies will get in trouble.

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

  • The closing price of Heidelberg cement was ₹ 182/- as of 26-June-2020.  It traded at 19.5x/ 12.2x the consensus Earnings per share estimate of ₹ 9.3/14.8 for FY21E/ FY22E respectively.
  • The consensus average target price for Heidelberg is ₹ 197/- which implies a PE multiple of 13.3x on FY22E EPS of ₹14.8/-.

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