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This week in a nutshell (20th-24th December)

Technical talks

NIFTY opened the week on 20th December at 16,824 and closed on 24th December at 17,004. It gained  1.1% during the week. The index is trading below its 10DMA of 17,057 which might act as a resistance. On the downside, the 16,971 level might act as a support. The RSI (44), and MACD turning downward suggests a possible decline.

Weekly highlights

  • The US indices closed the week in green as investors speculated that the spreading Covid Omicron variant may not adversely affect human health, businesses and lockdown-like situations might not arise, and hence the stock buying picked up. S&P 500 was up by 2.3%, Nasdaq 100 by 3.2%, and Dow Jones by 1.7%.
  • The Turkish currency lira tumbled to a record low after its President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to the Islamic ban of high-interest rates as a basis of his policy. The president feels that Turkey can free itself from reliance on foreign capital flows by abandoning policies that prioritized higher interest rates and strong inflows.
  • The Indian government reduced the import tax on refined palm oil to 12.5%, from earlier 17.5%, in an effort to cool near-record high vegetable oil prices. This would make refined palm oil more attractive than crude palm oil for Indian buyers.
  • Sebi suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives. This has not only led to a fall in prices of these commodities, but also to scaling back of inventories by traders, who say the flow of imports will slow down since they do not have a hedging platform.
  • Zee Entertainment Enterprises (Zee) and Sony Pictures Networks India (SPNI) signed a definitive agreement that will let the two merge their networks, digital assets, production operations and programme libraries. The merged entity will have a 27% market share of the general entertainment space. After the completion of the deal, Sony Sony Pictures Entertainment will hold a 50.86% stake in the combined entity, the promoters of Zee will hold a 3.99% stake and the remaining shareholders of Zee will hold a 45.15% in the merged entity.
  • Tata Motors has incorporated Tata Passenger Electric Mobility Limited (TPEML), a wholly-owned subsidiary that is involved in the manufacturing of electric motor vehicles, with an initial capital of Rs 7000 mn.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 65890 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 69156 mn this week.

 

Things to watch out for next week

  • As investors around the world seem to be cautious about the Fed’s announcement of three 25 bps increase in interest rates in CY 2022, we may see a further sell-off in Indian stocks next week by the FIIs.We may see a reduction in the level of activity as most investors in the US and Europe are away on holidays. 

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.”

Focus and future is on digital platform: Zee Entertainment and Sony Group

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,072 (+0.7%), 117 points higher. Among the sectoral indices, REALTY (+2.3%), PSU BANK (+1.6%), and FMCG (+1.3%) led the gainers. MEDIA (-1.1%) and METAL (-0.2%) were among the losers. Among the NIFTY50 components, POWERGRID (+3.7%), IOC (+3.0%), and ONGC (+2.7%) were the top gainers while DIVISLAB (-1.8%), JSWSTEEL (-1.7%), and BHARTIARTL (-0.8%) led the laggards.

Excerpts of an interview with Mr. Puneet Goenka, CEO and MD, Zee Entertainment (ZEEL), Mr. Ravi Ahuja, Chairman of Global television and corporate development, Sony Pictures Entertainment and Mr. N P Singh, MD and CEO of Sony Pictures Networks India with Business Standard on 22nd December 2021:

  • The deal ensued when Sony saw an opportunity in the high growth Indian media Industry when they bought Ten sports from Zee Entertainment in FY18.
  • Zee Entertainment and Sony both have a foothold in the digital OTT market with Zee5 and Sonyliv, respectively. As the firm has not received any regulatory clearances from the Competition Commission of India, the management does not have any precise operational plans, yet.
  • Invesco had reservations as the existing ZEEL promoters were given an option to increase stake in the merged company to 20%. Management has clarified the promoters will have to buy from the open market and there will not be any preferential allotment. As the matter between ZEEL and Invesco is still sub-judice the management has not shared further details.
  • Management is considering market share, growth possibilities, and profitability to provide strong value to shareholders and customers. The management anticipates the merged business to be in a position of leadership and powerful enough to compete with global competitors by FY25E.
  • The merged entity will be an Indian asset on the portfolio of Sony Pictures Entertainment, and given the size of the Indian market, the entity will be a significant revenue contributor to the multinational media company.
  • Even though digital and OTT platforms are experiencing increase in viewership and broadcasting is under immense pressure, the management believes that it still has a role to play in the dynamic entertainment business. The digital business needs scale. The merged company will have a capital of $ 15.7 mn. This arrangement gives the company advantages which the individual companies would not have.
  • Linear TV will continue for the foreseeable future. The future focus is on the digital as both old and new subscriber base is increasing. The company would invest in content, technology and distribution in this direction.

Asset Multiplier Comments

  • The merger plan would need shareholder approval as well as clearance from regulatory bodies such as SEBI and the Competition Commission of India (CCI). The merger approval is awaited, as is information on the status of the EGM sought by Invesco. If the approvals are not received, the merger will be scrapped.
  • The merger is projected to be beneficial in terms of market consolidation and revenue synergy. As the market leader, the merged company would have pricing power in terms of earning ad revenues. The resolution of channel overlap and OTT platforms would be key areas to monitor.

Consensus Estimate: (Source: market screener website)

  • The closing price of Zee Entertainment was ₹ 338/- as of 23-December-2021. It traded at 25x/21x/17x the EPS estimates of ₹ 13.5/16.5/19.1/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 366/- implies a P/E Multiple of 21 on FY23 EPS estimate of ₹ 17.4/-.

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.”

 

 

Back on construction targets, to complete 50 restaurants this year – Burger King India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,517 (+0.3%) as it closed near the opening level of 17,524. Among the sectoral indices, MEDIA (+3.7%), FMCG (+1.4%), and OIL&GAS (+1.0%) ended higher, whereas BANK (-0.5%), FINANCIAL SERVICES (-0.5%), and PRIVATE BANK (-0.4%) led the losers. Among the stocks, ITC (+4.9%), L&T (+3.0%), and ASIANPAINT (+2.2%) led the gainers while HDFCBANK (-1.8%), TITAN (-1.4%), and NESTLEIND (-1.1%) led the losers.

Excerpts of an interview with Mr. Rajeev Varman, CEO of Burger King India (BURGERKING) with CNBC TV18 on 7th December 2021:

  • The company is back on its construction targets with over 20 restaurants under construction, and 38 restaurants in the pipe line. The company plans to complete the construction of around 50 restaurants this year. Its target is to build 70 restaurants in next year, and keep on building in the similar manner in upcoming years.
  • Company’s target is to build 700 restaurants which it will complete by December 2027.
  • Burger King India (BKI) has launched its café in 4 of its restaurants, 10 cafés in construction, and plans to build more cafés along with building new restaurants. The company plans to build 75 cafés by the end of 2022.
  • The Company is going to launch new products specifically for its cafés. It plans to serve opportunities that it will receive at lunch and dinner peak time, and the time in between. It calls its coffee products as ‘Coffee Uncomplicated’, and provides a product named coffee shots for which it has received good reviews.
  • In the 2QFY22, the company reported 65% growth over its pre-covid numbers through delivery. The company has recovered 65% of it’s dine-in orders in 2QFY22.
  • The company has over 1.5 million app downloads which it believes will gradually grow. It has made available its stunner menu on the app, which it considers as entry level point for its consumers and is available only through app.
  • The CEO feels that BKI’s upcoming acquisition of BK Indonesia will bring synergies as BKI will add 200 restaurants in 1 day. The company will also experience synergies in terms of Capex, as it plans to build 35 new restaurants every year in Indonesia after completing the acquisition.

 

Asset Multiplier Comments

  • The company is likely to remain non-profitable for few more quarters as it is currently undergoing organic and inorganic expansion.
  • Currently within the QSR companies, Westlife Development and Jubilant Foodworks have a higher scale of operations, and have started generating positive free cash flow in the last 2 years.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may delay the planned execution of building new restaurants.

Consensus Estimate: (Source: market screener website)

  • The closing price of BURGERKING was ₹ 162/- as on 9-Dec-2021.  Its consensus earnings estimates are -2.0/0.01/0.94 for FY22E/FY23E/FY24E respectively. As the earnings are close to zero, we don’t arrive at a meaningful PE multiple.
  • The consensus target price is ₹ 198/-.

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 (25th Oct to 29th Oct)

Technical talks

NIFTY opened the week on 25th October at 18,299 and closed on 29th October at 17671 during the week, the index lost 2.5%. Nifty is trading at an RSI of 43, with support at 17,565 and resistance at 18,158.

Among sectors top losers were Nifty Private bank (-3.6%), BANK (-3.0%), and IT (-2.8%). PSU Bank (+0.1%) was the only sectoral gainer in the week.

Weekly highlights

  • This week was a tumultuous one for stock prices as they reacted to this week’s results.
  • China’s Evergrande Group has stated plans to prioritise the expansion of its electric car sector over the main real estate businesses. Evergrande chairman Hui Ka Yan stated that the company’s new electric car initiative will be its major business, rather than real estate, during the next ten years.
  • The third-quarter earnings season resumed with results from US IT behemoths Apple, Tesla, Amazon, Facebook, Microsoft, and Google. Companies are indicating increased labor costs and operational disruptions impacting earnings.
  • The US budget deficit for 2021 totaled USD 2.77 trillion, the second biggest on record but a decrease from the all-time high of USD 3.13 trillion in 2020. Both years’ deficits represent trillions of dollars in government expenditure to mitigate the terrible effects of a worldwide epidemic.
  • Profits at China’s industrial firms rose at a faster pace in September even as surging raw material prices and supply bottlenecks squeezed margins and weighed on factory activity.
  • According to a CRISIL Ratings analysis of India’s top three PV original equipment makers (OEMs or vehicle makers) with a combined market share of 71%, a global shortage of semiconductors will moderate India’s passenger vehicle (PV) sales to 11-13 percent this fiscal, around 400-600 basis points (bps) lower than what could have been without the scarcity.
  • Last week, the number of Americans asking for unemployment benefits fell to a pandemic low of 281,000, indicating that the labour market and economy are still recovering from last year’s coronavirus slump.
  • Indian equities were downgraded this week by major foreign brokerages- Morgan Stanley, UBS, Nomura.
  • The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 1,57,023 mn. Domestic institutional investors (DIIs) turned buyers this week and bought equities worth of Rs 94,272mn.

 

Things to watch out for next week:

  • US Fed tapering expected, with an increase in interest rates. The central bank is largely anticipated to declare that it will begin unwinding its $120 bn monthly bond purchases, with the scheme expected to end entirely by the middle of FY23.
  • Several earnings reports are expected next week  including those from pharmaceutical giants such as Pfizer and Moderna in the US. In India, companies such as HDFC, Tata Motors, and Sun Pharma are set to announce earnings.
  • The next week will be a truncated one for Indian equity markets due to Diwali. 

 

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.”

Another price hike if gas prices rise further – Somany Ceramics

Update on the Indian Equity Market:

On Wednesday, NIFTY ended higher at 18,162 (+0.9%) as it closed near the intraday high level of 18,198. Among the sectoral indices, AUTO (+3.4%), METAL (+1.5%), and IT (+1.2%) ended higher, whereas REALTY (-0.2%) was the only sector which ended lower. Among the stocks, TATAMOTORS (+21%), M&M (+5.2%), and TATACONSUM (+4.3%) led the gainers while MARUTI (-2.6%), ONGC (-2.2%), and SBILIFE (-1.8%) led the losers.

Excerpts of an interview with Mr. Abhishek Somany, MD, of Somany Ceramics (SOMANYCERA) with CNBC TV18 on 12th October 2021:

  • About 1000 plants that manufacture ceramics and are located in Morbi, Gujarat have decided to increase prices as the gas prices have gone up. There has already been a price increase this week and there will be a further price increase in the next 15-20 days. When this happens, Somany Ceramics will increase prices again.
  • The gas price constitutes 25-28% of the company’s cost. The industry has increased price by ~Rs 2-3 a square foot. The industry passed on a reasonable increase in gas prices. As the gas prices stabilise, the industry will be able to pass on 80+% of the prices to its customers.
  • The company is at 100% capacity utilisation though the prices have gone up. The demand is back, at least for brand new players. It is good news for the industry as the demand for the real estate sector has picked up.
  • Tile is not a very large renovation market. About 18-20% is used in renovation, rest is used in the new application.

 

Asset Multiplier Comments

  • As the demand for real estate is picking up, this will prove as a tailwind for Somany Ceramics in the near to mid-term, as the company’s product (tiles) is used largely in new applications.
  • The company’s margins may improve as the raw material prices stabilise, along with an increased price of company’s products.

Consensus Estimate: (Source: market screener website)

  • The closing price of SOMANYCERA was ₹ 830/- as of 13-Oct-2021.  It traded at 33.7x/23.5x/18.3x the consensus earnings estimate of ₹ 25/35/45 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 810/- implies a PE multiple of 17.9x on FY24E EPS of ₹ 45/-.

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 (Aug 23rd to Aug 27th)

This Week in a nutshell (Aug 23rd to Aug 27th)

Technical talks

NIFTY opened the week on 23rd Aug at 16,450 and closed on 27th Aug at 16,705. This is the highest closing ever for the index. The index made a weekly gain of 2.9%. On the technical front, 16,650 will act as immediate support and if this level is broken, the Nifty may slide to 16,575-16,500 levels. On the upper side, 16,780 will act as a hurdle. Once the level is breached, the Nifty can move to 16,840-16,900 levels.

Weekly highlights

  • Dalal Street rose to record closing highs on Friday, weekly gains were led by IT (+2.9%), Financial Services (+2.1%) and Pharma sector (1.7%).
  • The midcap index logged its best week in two-and-a-half months. However, weakness in auto sector played spoilsport, keeping the upside in check.
  • The US Food and Drug Administration’s full approval to Pfizer and BioNTech’s coronavirus vaccine rekindled hope and optimism about a quicker recovery from a slowdown caused by the pandemic.
  • Renewed tensions between China and the US, the fear of a rise in the number of Covid-19 Delta variant infections, suicide attacks at the Kabul airport in Afghanistan that killed at least 12 US service members and scores of Afghans and the US central bankers’ annual symposium kept investors cautious around the globe.
  • As the trading week ended, Indian market participants and analysts keenly awaited updates from the annual Jackson Hole symposium in Wyoming for more clarity on the US monetary policy going forward.
  • S. Fed Chair Jerome Powell’s wait-and-see approach in a much-anticipated address on Friday gave US investors and market participants some reassurance that the central bank’s extraordinary efforts to prop up the economy were likely to support riskier assets a while longer.
  • US Stocks gained ground after the release of the text of Powell’s speech, with the benchmark S&P 500 index hitting a record high, while the lack of any new hints on when the U.S. central bank is likely to begin paring bond purchases led Treasury bond yields and the U.S. dollar lower.
  • The foreign institutional investors (FII) sold equities worth Rs 68,333 mn, while domestic institutional investors (DIIs) bought equities worth Rs 63,826 crore. So far in August, FIIs have sold equities worth Rs 76,525 mn and DIIs have bought equities worth Rs 80,782 mn.

Things to watch out for next week

  • Indian Markets – Indian investors are likely to react to the statement made by the US Federal Reserve Chairman Jerome Powell in the Jackson Hole symposium in which he has also hinted about tapering by end of CY21. Investors will also eye 1QFY22 GDP print, auto sales numbers and global cues in coming week.
  • US Markets – Markets will keep an eye on a window into how the Delta variant has rippled through the economy, with the release of the U.S. jobs report for the month of Aug-21, following recent weak readings on consumer sentiment and retail sales. The seven-day average of new reported cases reached about 155,000, the highest in about seven months, Reuters data through Thursday showed.

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.”

 

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E 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.”

 

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.4% down at 15,748. Top gainers in NIFTY50 were POWERGRID (+2.3%), CIPLA (+1.5%), and NESTLEIND (+1.3%). The top losers were IOC (-2.4%), ONGC (-2.2%), and HINDALCO (-2.1%). The only sectoral gainers were PHARMA (+0.6%) and FMCG (+0.5%) while the top sectoral losers were PSU BANK (-1.5%), METAL (-1.2%), and PRIVATE BANK (-1.0%).

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star (BLUESTARCO), aired on CNBC TV18 dated 29thJune 2021:

  • Markets started reopening in first week of June 2021. Since then, demand has been much better than anticipated. The loss of summer sales will still keep the numbers lower than 1QFY20 by almost 25-30%. However, sales in 1QFY22 will be much better than 1QFY21.
  • In January 2021, BLUESTARCO took a price hike of 5-8% due to cost inflation. Despite that, BLUESTARCO had record sales in 4QFY21with 37% YoY growth.
  • BLUESTARCO took a second price hike in April 2021 to the tune of 3-5%. As the company cannot absorb the exorbitant input cost inflation, it plans to take a third price hike in mid-August 2021.
  • Naturally, consumers have migrated to lower end products and may continue to do that due to the several price hikes.
  • Mr.Thiagarajan maintains the guidance of 8-8.5% margins in the cooling products. BLUESTARCO does not want to sacrifice margins to gain volume.
  • Government’s Production linked incentive (PLI)scheme will have a positive impact in coming months.
  • Embracing the technology of aluminium heat exchangers will reduce the costs and increase energy efficiency for AC industry. Auto industry has shifted to this technology while the AC industry has not done so yet.
  • The next energy level change is scheduled for 1st January 2022 which will push up prices by another 7%. For demand to continue to grow at least at 10% CAGR, these cost rationalizationmeasures will have to be taken.
  • For room ACs, delivering 8% EBITDA margin is possible in 1HFY22. 8.5% is the upper target band which may not be possible in the short term.
  • Demand in Tier 1 cities has been worst affected. For BLUESTARCO, Tier 3,4,5 cities form 65% of revenue. This aspirational middleclass segment in Tiers 3,4,5 cities is what will drive the growth going ahead so BLUESTARCO has repositioned itself in line with this expectation.

 

Asset Multiplier comments:

  • Industries across the board have been facing input cost pressures and are trying to pass on the costs through price hikes.
  • However, passing on the entire cost inflation is proving to be difficult in an already sensitive demand scenario.
  • Consumer discretionary items are sensitive to pricing, so companies will have to calibrate pricing based on competitive scenario. Consumers will shift to a lower priced product if the price difference is large.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of BLUESTARCO was ₹ 815/- as of 29-June-2021.  It traded at 44x/ 31x the consensus earnings estimate of ₹ 18.5/ 26.7 for FY22E/23E respectively.
  • The consensus price target is ₹ 819/- which trades at 31x the earnings estimate for FY23E of ₹ 26.7/-

 

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.”

 

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11th June 2021:

  • Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
  • The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
  • Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
  • 95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
  • The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
  • The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
  • Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
  • Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
  • More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

 Asset Multiplier Comments

  • Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
  • The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

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

 The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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How to Think About Investing Cash on the Side lines…

With markets reaching new highs, investors are wondering how to invest their cash. When it comes to deploying cash on the sidelines, there are no easy answers. Charlie Bilello wrote these pointers based on his study of US markets. These may be true for other markets as well.

Investing is just a game of odds and the historical probabilities up until now suggest the following: If you sit in cash over a 1-year period, you have a 30% chance of outperforming the market. If you sit in cash for 10 years those odds fall to 16%. Over 25-year periods, cash has yet to beat the US stock market.

Sitting in cash has an opportunity cost on average, and that opportunity cost increases with time (8% over 1-year periods, 1,297% over 25-year periods). If you are waiting for lower prices to get in, chances are you will get them (74% of the time), but you also have to be prepared to wait forever (26% of the time there’s no lower low). If you are waiting for a bear market (-20%) or more to get in at lower prices, you may never get that chance (only happens 21% of the time).

Slowly wading into the market via dollar-cost averaging has beaten a lump-sum only 32% of the time over 1-year periods and 27% of the time over 3-year periods. The longer the time period you spread that initial investment over, the lower your odds are of outperforming a lump sum today.

Timing the market based on valuation is not an easy task, and you have to be prepared to sit in cash for many years or even decades depending on your methodology. Had such a strategy been applied historically, it would have lagged buy-and-hold because equities with high valuations can still have positive (and cash-beating) returns over time.

Timing the market based on interest rates is not a strategy supported by the data which shows almost no correlation between the two variables. The notion that rising rates are “bad” for equities is a myth.

Does that mean everyone should just close their eyes and invest all their cash on the sidelines today in a lump sum? Bilello concludes most certainly not. Successful investing is about psychology more than anything else and if putting everything in today via a lump sum causes you to lose sleep at night, you will not be able to stick with that portfolio for a week, never mind next 20+ years. The portfolio with the highest expected return is completely irrelevant if you can’t handle its higher level of risk. Far better to be in a portfolio with lower returns that you can compound over 20+ years than one with a higher return that you are likely to abandon at the first sign of trouble. The goal for all investors should be to remain invested long enough to reap the enormous benefits of long-term compounding. That starts with finding a portfolio and a plan that is best suited to you.