15 Aug

Investing rules of Bernard Baruch

Bernard Mannes Baruch was an American financier and statesman. According to historian Thomas A. Krueger: For half a century Bernard Baruch was one of the country’s richest and most powerful men. Bernard Baruch has made millions in the US bull market in stocks since 1924. However, he started anticipating a Wall Street crash as early as 1927 and sold stocks short periodically in 1927 and 1928.

Baruch would reiterate his life lessons in a list of rules on how to invest. The list is pulled from the lessons he learned over a lifetime in the markets. Here are his ten investment rules:

  1. Don’t speculate unless you can make it a full-time job.
  2. Beware of barbers, beauticians, waiters — of anyone — bringing gifts of “inside” information or “tips.”
  3. Before you buy a security, find out everything you can about the company, its management and competitors, its earnings and possibilities of growth.
  4. Don’t try to buy at the bottom and sell at the top. This can’t be done — except by liars.
  5. Learn how to take your losses quickly and cleanly. Don’t expect to be right all the time. If you have made a mistake, cut your losses as quickly as possible.
  6. Don’t buy too many different securities. Better have only a few investments that can be watched.
  7. Make a periodic reappraisal of all your investments to see whether changing developments have altered their prospects.
  8. Study your tax position to know when you can sell to the greatest advantage.
  9. Always keep a good part of your capital in a cash reserve. Never invest all your funds.
  10. Don’t try to be a jack of all investments. Stick to the field you know best.

These “rules” mainly reflect two lessons that experience has taught him — that getting the facts of a situation before acting is of crucial importance, and that getting these facts is a continuous job that requires eternal vigilance.

Source: https://novelinvestor.com/bernard-baruchs-investing-rules/

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15 Aug

This Week in a nutshell (Aug 9 th to Aug 13 th )

Technical talks

NIFTY opened the week on 9th Aug at 16,223 and closed on 13th Aug at 16,529. This is the highest closing ever for the index. The index made a weekly gain of 1.8%. On the upside, the index might be headed to 17,110. The 16,590 and 16,700 levels will act as potential resistance points, while supports will come in at 16,300 and 16,210.

Weekly highlights

  • The market was volatile at the start of the week due to weak global cues however, the bulls managed to push the benchmark indices well in the green.
  • BSE announcing the rule regarding Add-on Price Band Framework caused selling pressures in mid and small cap stocks which were down 1% and 2% respectively this week.
  • The country’s exports rose by 50.5 percent during August 1-7, on account of healthy growth in the shipments of engineering goods, gems and jewellery as well as petroleum products, according to provisional commerce ministry data. Imports during the week too grew by about 70 percent, leaving a trade deficit of USD 3 bn.
  • Consumer Price Index-Based inflation (CPI) for July came in at 5.59 percent, back within the Monetary Policy Committee’s inflation targeting range of 4 (+/-2) percent, on the back of softening food prices. The Consumer Food Price Inflation (CFPI) for July cooled to 3.96 percent compared with 5.15 percent in June.
  • Finance Minister Nirmala Sitharaman said that the government is committed to the revival of the economy and will continue to undertake various steps to boost growth.
  • The market closed with Nifty posting a net gain of 291 points (1.8%), on a weekly basis mainly contributed by IT sector which is up 4.4% this week. Whereas, Pharma, PSU Banks and Auto sector underperformed.
  • US markets were weak at the beginning as a tumble in oil prices signalled investor unease about the Covid-19 pandemic and the strength of the economic recovery. However, the rising US Treasury bills uplifted the sentiments of the investors.
  • Fed at the start of the week said that the U.S. economy is growing rapidly and that while the labor market still has room for improvement, inflation is already at a level that could satisfy one leg of a key test for the beginning of interest rate hikes.
  • USD 1 tn infrastructure bill was passed during the week which could provide the nation’s biggest investment in decades in roads, bridges, airports and waterways.
  • The US markets closed at all time high as investors warmed to jobs data showing a steady U.S. economic recovery.
  • According to economists polled by Reuters, Fed will announce a plan to taper its asset purchases in Sept-21 and the U.S. jobless rate would remain above its pre-pandemic level for at least a year.
  • Oil prices fell for a second day on Friday after the International Energy Agency warned that demand growth for crude and its products had slowed sharply as surging cases of COVID-19 worldwide has forced governments to revive restrictions on movement.
  • The foreign institutional investors (FII) bought Rs 8,790 mn worth of Indian equity shares last week. Domestic institutional investors (DII) undertook Rs 6,370 mn of net buying during this week.

 

Things to watch out for next week

  • The monthly U.S. retail sales report and earnings from retailers such as Walmart and Target could shed more light on the health of the U.S. consumer. Investors are also keeping a close eye on Treasury yields, with rising yields often viewed as a sign of economic optimism that could also boost value stocks.
  • Indian Markets – With 1QFY22 result season almost over, focus will be on the global cues, vaccination progress in India, IPO listings and FII buying that will steer market next week.

 

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.”

 

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12 Aug

Taking a conservative approach while phasing out NPAs – Manappuram Finance

Update on the Indian Equity Market:

On Thursday, NIFTY ended higher at 16,364 (+0.5%) as it closed near the intraday high level of 16,375. Among the sectoral indices, MEDIA (+2.3%), IT (+1.8%), and PSU BANK (+1.3%) ended higher, whereas PHARMA (-1.1%) and HEALTHCARE (-0.4%) ended lower. Among the stocks, POWERGRID (+6.0%), TECHM (+4.7%), and TATAMOTORS (+3.9%) led the gainers while EICHERMOT (-4.1%), DRREDDY (-0.8%), and CIPLA (-0.6%) led the losers.

Excerpts of an interview with Mr. VP Nandakumar, MD and CEO of Mannapuram Finance (MANAPPURAM) with Economic Times on 11th August 2021:

  • The two-third of the company’s primary business is lending against jewellery. The company has seen a sharp correction in the price fluctuation of metal used in jewellery and it believes that it has managed those prices well.
  • The company had to phase out its high loan to value (LTV) loans off the book, otherwise it would’ve faced a situation where the loan receivables would’ve overshot than the current price. As the company grows, it is targeting high ticket loans through differential pricing and is hopeful of a growth of around 15% on its gold loan book.
  • The gold auctions have been 2% of the disbursals, instead of the expected 3-4%. The expected credit loss (ECL) provisioning reported is low due to that. The company has provided adequately in microfinance and has been very conservative with the write off after 180 days.
  • The company has maintained a very high capital adequacy ratio of 35% and it wants to limit its capital allocation for unsecured business to around 15% of the net worth. The company does not have any plan on bringing in capital in at least next 1 year. The right time would be when the company is able to demonstrate that it can manage the MFI book well, better than the market.

Asset Multiplier Comments

  • To fight the gold price volatility Manappuram is taking the right steps like decreasing the LTV and has also come up with products/schemes to attract high ticket size customers. Despite the weak performance in quarter one, the company is confident of delivering 15% YoY Gold AUM growth in FY22E and stable NIMs.
  • Involvement of less paperwork, availability of flexible schemes and quick disbursements of the loan amount remains the strong points for gold loan companies. Due to the recent gold price decline, the gold loan company is experiencing a rough patch, but given the nature of the business we remain confident on the business model.

Consensus Estimate: (Source: market screener website)

  • The closing price of MANAPPURAM was ₹ 167/- as on 12-Aug-2021. It traded at 1.64x/1.32x the consensus book value estimate of ₹ 103/128 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 169/- implies a PB multiple of 1.32x on FY23E BVPS of ₹ 128/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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11 Aug

Price hikes neutralised material price increase – Berger Paints

Update on the Indian Equity Market:

On Wednesday, Indian stocks recovered from sharp declines and closed the session almost unchanged. The Nifty50 ended marginally higher at 16,282 led by TATASTEEL (+4.0%), JSWSTEEL (+3.5%), and IOC (+2.5%). SHREECEM (-2.1%), KOTAKBANK (-1.9%), and SUNPHARMA (-1.8%) led the laggards. Among the sectoral indices, METAL (+3.1%), OIL & GAS (+1.2%), and PSU BANK (+0.5%) led the gainers. PHARMA (-1.5%), PRIVATE BANK (-0.7%), and BANK (-0.6%) led the laggards.

Excerpts of an interview with Mr. Abhijit Roy, MD & CEO, Berger Paints (BERGEPAINT) with Economic Times on 10th August 2021:

  • April and May months were impacted due to the lockdown restrictions. In June and July, demand bounced back to normal. Demand is likely to remain strong in the subsequent months.
  • The Company has taken price hikes in the water-based paints which contribute to a bulk of their sales. This hike neutralised the entire raw material price increase. In solvent-based enamel paints, they are yet to pass on the entire price increase. In industrial paints, negotiations are ongoing and expected to be finalised soon.
  • Some erosion in terms of gross margin is expected to be made up by cost savings and BERGEPAINT expects to retain the current level of margins.
  • The price increase is about 5-6%, taken in stages. Despite the discretionary nature of their products, demand hasn’t really been affected.
  • The revenue from new construction projects declined in FY21. With the easing of restrictions, there has been a surge in new construction projects. New construction projects and repainting are contributing to overall growth in the business.
  • The inventory levels are low at the company level. With every price increase, there was an increase in dealer-level inventory.
  • BERGEPAINT has always welcomed competition. The company has its own strengths and built its own network over time. Brand building takes a long time in the paints category, and BERGEPAINT continues to maintain its market share.

Asset Multiplier Comments

  • BERGEPAINT 1QFY22 results beat street estimates as the impact of lockdowns was not as severe as anticipated. Most companies have been bearing the brunt of higher crude oil prices. BERGEPAINT was no exception and reported margins were lower sequentially.
  • Though near-term headwinds remain due to higher raw material prices, we believe BERGEPAINT to benefit from rising distribution reach, a strong presence in urban markets, and calibrated pricing.

Consensus Estimate: (Source: market screener website)

  • The closing price of BERGEPAINT was ₹ 820/- as on 11-August-2021. It traded at 88x/ 71x/ 59x the consensus earnings estimate of ₹ 9.3/11.5/13.8 for FY22E/ 23E/ 24E.
  • The consensus target price of ₹ 696/- implies a PE multiple of 50x on FY24E EPS of ₹ 13.8/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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10 Aug

New auto launches doing well – M&M

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.1% up at 16,280. Top gainers in NIFTY50 were BHARTIARTL (+3.8%), TECHM (+2.8%), and HDFC (+1.8%). The top losers were SHREECEM (-4.1%), JSWSTEEL (-3.6%), and TATASTEEL (-2.8%). The top gaining sectors were IT (+0.9%), FINANCIAL SERVICES (+0.3%), and HEALTHCARE (+0.2%) while the top sectoral losers were METAL (-2.8%), PSU BANK (-2.6%), and MEDIA (-2.4%).

New auto launches doing well – M&M

Excerpts of an interview with Dr. Anish Shah, MD & CEO of M&M, aired on CNBC-TV18 on 9th August 2021:

  • M&M reported an exceptional loss of Rs 800 mn in 1QFY22. This hit was on account of residual impairment of past investments. Management does not expect such hits going forward.
  • In 1QFY22, M&M’s market share in domestic tractors has gone up by 260 bp to 41.8%. M&M has been ahead of the industry in price hikes, and market share gain has not come at the expense of margins.
  • M&M has already taken 3 price hikes in this year and is not looking at further increases.
  • Demand is picking up but supply chain is facing issues and has not reached normalcy yet.
  • Indian tractor industry registered a strong growth of 27% in FY21. Against that, M&M has guided to tractor industry growth of 3-5% for FY22E. Looking at history, management thinks there could be some demand correction. Not seeing any pressures on demand on ground today, but looking at uncertainties, management is being conservative.
  • On the planned sale of investment in Ssangyong, management said a number of buyers have expressed interest. M&M has taken enough provisions so there is no further hit expected.
  • Restructuring has been completed in terms of categorizing entities in groups. Going ahead, M&M plans to continue the fiscal discipline. If entities in Category A & B don’t adhere to set standards, management will categorize them in Category C.  (Reference: In an effort to improve consolidated performance, M&M had categorized all loss-making international subsidiaries into 3 categories. Category A (had a clear path to profitability), Category B (had a quantifiable strategic impact), and Category C (had an unclear path to profitability that mandated an exit and initiation of an appropriate action plan for the same)).
  • Categories A & B have performed well in 1QFY22 and the turnaround is visible. Category A companies reported a profit of 300 mn in 1QFY22 vs a loss of 1,030 mn in 1QFY21. Category B companies reported a profit of Rs 310 mn in 1QFY22 vs a loss of 170 mn in 1QFY21.
  • M&M’s new products such as Thar, XUV 300, Bolero neo are doing well along with older power brands. M&M is seeing good demand across segments including in pickup trucks.
  • In the EV space, M&M sells the most vehicles in India.
  • EV adoption in 3-wheelers is going well- the 3 important factors of cost parity, range anxiety and charging/ battery swapping infrastructure have been addressed for 3-wheeleres. EV adoption in 4-wheelers will still take some time.
  • M&M is in the process of outlining plans for a 4-wheeler EV platform which will enable them to design high capability 4-wheelers. Battista, which is the electric car being launched by M&M’s subsidiary Pininfarina, has among the best technologies in EV. M&M will look to bring that technology in Indian cars as well.
  • On capacities, M&M has adequate capacities in the automotive segment. Management could look into adding capacities in Tractor segment and has earmarked Rs 30,000 mn over next 3 years for the same. Management has also earmarked Rs 30,000 mn over next 3 years for EV investments.

Asset Multiplier comments:

  • EV is the big trend which will shape the future of auto industry globally. Auto companies across segments have been increasing investments in the EV space. While most players are moving in the right direction, how the competitive landscape shapes up over the next few years is anybody’s guess.
  • Rural India has been impacted due to the 2nd wave of covid-19. Despite the forecast of a normal monsoon for the 3rd straight year, tractor demand could come under pressure considering impact in rural India.

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

 

  • The closing price of M&M was ₹ 786/- as of 10-August-2021.  It traded at 20x/ 17x/ 15x the consensus earnings estimate of ₹ 39.0/ 45.6/ 51.7 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 948/- which trades at 18x the earnings estimate for FY24E of ₹ 51.7/-

 

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.”

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09 Aug

Expect 50% revenue growth on back of consolidation of new acquisitions – Rossari Biotech

Update on the Indian Equity Market:

On Monday, NIFTY closed up at 16,258 (+0.1%). Top gainers in NIFTY50 were M&M (+2.2%), Tech M (+1.9%), and Axis Bank (+1.9%). The top losers were Tata consumer (-1.9%), Coal India (-1.8%), and Adani Ports (-1.7%). The top sectoral gainers were MEDIA (+1.1%), PVT BANK (+0.7%) and BANK (+0.6%) and sectoral losers were METAL (-1.9%), PSU BANK (-1.6%), and REALTY (-0.7%).
Excerpts of an interview with Mr. Edward Menezes, Executive Chairman, Rossari Biotech (ROSSARI) with CNBC TV18 dated 9th August 2021:

  • The specialty chemicals company reported a strong set of earnings for the June-ended quarter with good growth both on a year-on-year (YoY) and quarter-on-quarter (QoQ) basis.
  • They have done almost three acquisitions in the last two months – Unitop Chemicals, Tristar Intermediates, and Romakk Chemicals.
  • In FY22, they expect 50 percent growth in their revenues over FY21 as they will be able to consolidate the revenues from these acquisitions. In FY23, they expect their revenues will double over FY22 revenues.
  • The coming quarter looks challenging. The price increase pass on is inevitable as the entire pipeline of old raw material stock is almost dry for all the players. The trend continues to be upwards. Therefore, they are focusing more on asset turnover.
  • Their R&D has been working continuously to find alternatives to raw materials to fight a huge raw material price increase.
  • The highest gross margin vertical is animal health and nutrition. The second being the home, personal care, and performance chemicals (HPPC) followed by textile specialty chemicals and it’s their cash cow.
  • Textile specialty is shaping very well due to pent-up demand. They don’t have to make substantial investments in animal nutrition as well, so good growth opportunities there too.
  • The company might have to take more price hikes to ensure stability in margins.
  • He shared that the logistics and freight costs have gone up substantially and the raw material price volatility has been unprecedented as well.
  • He believes that there is a high growth possibility in the animal nutrition business. He also mentioned that the company has plans to enter the aqua and cattle market as well.
  • They have a small business in pet care that has suffered due to pandemic but has a very high growth prospect.

Asset Multiplier comments:

  • The demand environment for specialty chemicals will be favorable, with volume uptick across industries led by rising domestic consumption.
  • The challenge will be to manage raw materials cost-efficiently to protect margins.
  • China +1 strategy will be a beneficial factor to drive growth for these companies as the China+1 strategy is the key catalyst for global firms to turn towards India.

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

  • The closing price of ROSSARI was ₹ 1,371/- as of 9-August-2021. It traded at 70x/ 57x the consensus earnings estimate of ₹ 19.7/ 24.0 for FY22E/23E respectively.
  • The consensus price target is ₹ 1,270/- which trades at 53x the earnings estimate for FY23E of ₹ 24.0/-

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.”

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07 Aug

This week in a nutshell (2nd – 6th Aug)

Technical talks

NIFTY opened the week on 2nd August at 15,875 and closed on 6th August at 16,223. This is the highest closing ever for the index. The index made a weekly gain of 2%. On the upside, the index might be headed to 16,650. Based on Fibonacci levels, 16,150 could be an important level to watch on the downside. The next level of support may be at 20DMA of 15,880.

Weekly highlights

  • Indian benchmark indices hit record highs on Tuesday amid favorable global cues. Positive domestic macroeconomic data and easing of Covid-19 restrictions further boosted investor sentiment.
  • Manufacturing activity in India rebounded to a three-month high in July. The IHS Markit Manufacturing Purchasing Managers’ Index (PMI) rose to 55.3 from 48.1 in June, back into the expansion zone.
  • Oil prices in Asia fell during the week as worries over China’s economy resurfaced. The rising number of Covid-19 cases in the US and China, the top two importers globally clouded the fuel demand outlook. On Thursday, there was an uptick in oil prices supported by tensions in the Middle East. As of Saturday, Crude Oil WTI was trading at USD 67.9/barrel and Brent Oil was trading at USD 70.3/barrel.
  • Auto OEMs reported monthly volume data for the month of July-21. With the gradual easing of lockdown restrictions, there was a pick-up in demand. Demand recovery is expected to accelerate in the coming months due to improving consumer sentiments, faster vaccine rollout, and traction in economic activity. The domestic PV industry volumes increased to 294000 units, representing a 21% CAGR over two years. Domestic 2W volumes were subdued but exports were robust due to healthy demand in geographies such as Africa, and Latin America. The slowdown in monsoon activity in July affected the sowing of Kharif crops led to subdued tractor volumes. Now with the prediction of a normal monsoon and pickup in the pace of sowing, the demand is expected to improve.
  • The RBI Monetary Policy Committee has decided to maintain the status quo and kept the interest rates unchanged with an accommodative stance. The repo rate is 4 percent and the reverse repo rate is 3.35 percent. The MPC has retained its GDP growth projection of 9.5 percent for FY22.
  • The government introduced a bill to amend the Income Tax Act and do away with the retrospective tax demands. Now no retro tax will be applicable for indirect tax transfer of Indian assets made before May 2012. Companies such as Cairn UK, and Vodafone are beneficiaries of this move. This is a step in the right direction to have a predictable tax regime that will attract foreign investors to India.

Things to watch out for next week

  • The quarterly result season continues with companies such as MRF, CAMS, Lupin, and Ashok Leyland reporting earnings next week.
  • Investors will get information about the pace of inflation in the US with the release of consumer price index reading and producer price index reading next week. A strong jobs report could put the Federal Reserve on track to announce a tapering of the bond-buying program as early as September.
  • The cues from Wall street tend to influence the sentiment on Dalal Street.
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05 Aug

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

 

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4th Aug, 2021:

  • Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
  • Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
  • In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
  • The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
  • Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
  • The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
  • Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
  • The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
  • On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
  • Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
  • Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
  • Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
  • The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
  • Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

 

Asset Multiplier Comments

  • Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
  • We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

 

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.”

 

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04 Aug

Aim to grow across the value chain– Deepak Nitrite

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.8% up at 16,259. Top gainers in NIFTY50 were HDFC(+4.6%), KOTAKBANK (+3.9%), and ICICIBANK (+3.1%). The top losers were GRASIM (-2.5%), TITAN (-2.1%), and TATAMOTORS (-1.8%). The TOP gaining sectorswere FINANCIAL SERVICES (+2.6%),BANK (+2.3%), and PRIVATE BANK (+1.9%) while the top sectoral losers were REALTY (-1.7%), MEDIA (-1.2%), AUTO(-0.9%), and FMCG (-0.9%).

Aim to grow across the value chain– Deepak Nitrite

Excerpts of an interview with the Mr. Deepak Mehta, Chairman and MD of Deepak Nitrite, published on ET Now dated 3rd August 2021:

  • The growth plan for Deepak Nitrite is to be present across the value chain from building blocks to final specialty chemicals. This will give the company a competitive edge over global peers.
  • Deepak Nitrite continues to look for opportunities to complement existing business. Earlier the company was only into nitration chemistry. Then the company went on to add hydrogenation. As both these are catalytic chemistries, the company then looked into what can be done in catalysis.
  • Deepak Nitrite has also recently committed to add fluorination to its capabilities.
  • On specialty chemicals side, Deepak Nitrite will keep adding complementary businesses to provide a wide basket of capabilities to clients.
  • Even on the commodity chemicals side, Deepak Nitrite is trying to offer a broader spectrum.
  • Several American and European end user clients have shown willingness to look at India in their China +1 strategy. But long-term commitments towards India or any country have been slow because of the demand uncertainties in the covid-19 pandemic era.
  • As a strategy, every three or four years, Deepak Nitrite will go back to looking at major investmentsfor the next stage of growth.

Asset Multiplier comments:

  • Indian Specialty chemical companies have come in the spotlight in the last few months due to several tailwinds in the sector. Higher demand expectation from end user segments, supply chain diversification from China dependence, import substitution have all been tailwinds for the sector.
  • Companies with niche capabilities are benefitting due to their expertise in respective areas.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of Deepak Nitrite was ₹ 2,067/- as of 4-August-2021.  It traded at 30x/ 27x/ 25x the consensus earnings estimate of ₹ 67.9/ 76.9/ 81.4 for FY22E/23E/24E respectively.
  • The consensus price target is ₹2,037/- which trades at 25x the earnings estimate for FY24E of ₹ 81.4/-

 

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.”

 

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03 Aug

Volume recovery on cards, Margins to improve in H2FY22: Marico

Update on Indian Equity Market:

On Tuesday, markets ended higher with Nifty closing 246 points to close at 16,130. TITAN (+4.0%), HDFC (+3.8%), and INDUSINDBK (+3.5%) were the top gainers on the index while JSWSTEEL (-0.8%), SHREECEM (-0.3%), and BAJAJ-AUTO (-0.3%) were the top losers for the day. Among the sectoral indices,  FMCG (1.7%), FINANCIAL SERVICES (1.7%), and AUTO (1.6%) were the top gainers, while MEDIA (-0.8%), METAL (-0.1%) were the only losers.

Excerpts of an interview with Mr. Saugata Gupta, MD & CEO, Marico on CNBCTV18 dated 2nd August 2021:

  • 1QFY22 began with the momentum that was handed over from the last quarter of FY21. May sales were affected due to the 2nd wave of lockdown. Recovery was seen in June, and supply-side issues are slowly improving.
  • Growth rates are improving drastically in the South, which is the company’s stronghold. Barring major disruptions, the company expects to deliver 8-10% volume growth.
  • Gross margins declined both sequentially and YoY. This was due to raw material costs pressure, both in copra and vegetable oil-based products. The company took price hikes which resulted in less pressure on margins.
  • The company expects Copra prices to come down and some deflationary easing on margins and hopes to record 19%+ margins for the rest of the year. 
  • The company makes lower gross margins in the food business and expects margins to improve with scale. The company expects volumes to grow in soya, honey and oodles, and add around 100 crores to the top line.
  • The company’s focus is to add volume growth and expects margins to grow with scale. However, the company expects more product diversification over the next 4-5 years.

 

Asset Multiplier Comments:

  • The food and FMCG Industry has adapted to the pandemic imposed changes. Despite the pandemic, the volumes have improved and may recover sharply soon with further unlocking. With expanding product portfolio, the growth rates may be significantly higher.
  • Marico has an established portfolio and brand awareness with consumers which it can leverage to expand volumes to grow further and deliver value to shareholders.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Marico was ₹544/- as of 03-August-2021.  It traded at 54x/45x the EPS estimate of ₹10/₹ 12 for FY22E/23E.
  • The consensus price target is ₹ 560/- which trades at 47x the EPS estimate for FY23E of ₹ 12/-

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.”

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