26 Oct

Difficult to predict festive season sales – Bajaj Auto

Update on the Indian Equity Market:
On Friday, Nifty ended 0.3% higher at 11,930 led by the auto stocks. The top gainers for Nifty 50 were Maruti (+4.3%), M&M (+3.3%), and Tata Steel (+3.3%) while the losing stocks for the day were Ultra Cement (-2.4%), HCL Tech (-1.6%), and HUL (-1.6%). Top gaining sectors were Auto (+2.9%), Media (+0.7%), and IT (+0.5%) while top losing sectors are Realty (-1.1%), Pharma (-0.4%) and Pvt Bank (-0.04%).

Edited excerpts of an interview with Mr Rakesh Sharma, ED, Bajaj Auto Ltd; dated 22nd October 2020 from CNBC TV18:

The geographical mix & the business unit mix have a very big impact on the blended margins of Bajaj Auto. Last year the Company faced many headwinds in maintaining the margins. The Company is optimistic about maintaining the margins reported in 2QFY21 despite raw material cost increases seen.
There has been a marginal improvement in walk-ins, enquiries & sales over the beginning of the festive period last year.

Bajaj Auto is optimistic about maintaining margin despite raw material cost increase and they have streamlined low margin products.

The Company recorded the highest ever sales of Pulsar in 2QFY21. This impacted margins in a positive way during the quarter.

The Company had the highest ever exports in September-20 and October performance will beat September performance according to Mr Sharma. If the Company does not have any supply chain issues and transport interruption, then in November they will beat October exports.

The Company saw a smart recovery in domestic performance. They aim to improve the domestic market share from 18.2% in H1 to 20% in H2. There is a huge scope for expansion in market share but the Company does not want to compromise the margins and profitability for gaining the market shares.

It is very difficult to make predictions about the festive season sales as of now. The industry is seeing a slight improvement in enquiry and sales in this festive season. Post festive where all pent up demand is exhausted, it is interesting to see how the industry and demand responds. This will be the most important thing to be considered.
125cc segment is more profitable than 100cc and thus Bajaj Auto has expanded this market segment.

The ultra-premium segment (KTM/ Dominar) has clocked 10,000-12,000 units run rate per month currently.

The underperforming models/ low margin products of the Company have been stream-lined and prices have been increased during 2QFY21.

Bajaj Auto has passed on cost increases from September-20 onwards in the majority of the International markets. It had been a very difficult exercise for the Company as the Chinese & Japanese brands which has seen a huge revival, the company had to face intense competition.
The Company hopes the three-wheelers will start performing well with support from the Government initiatives.

Consensus Estimate: (Source: market screener website)
The closing price of Bajaj Auto Ltd was ₹ 3,090/- as of 23-October-2020. It traded at 20.7x/ 17.2x/15.0x the consensus book value estimate of ₹ 149/180/206 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 3,088/- implies a PE multiple of 15.0x on FY23E EPS of ₹ 206/-.

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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23 Oct

Demand for casual wear is consistent – Bata India

Update on the Indian Equity Market:
On Thursday Nifty closed 0.35% lower at 11,896. Among the sectoral indices NIFTY Media (+0.7%), Metal (+0.7%), and Realty (+0.4%) closed higher. Pharma (-0.9%), IT (-0.7%), and Private Bank (-0.7%) closed lower. Hero Motocorp (-3.03%), Indusind Bank (-2.99%), and ICICI Bank (-1.62%) closed on a negative note. NTPC (+4.1%), Tata Motor (+3.1%), and Bharti Airtel (+2.9%) were among the top gainers.

Excerpts from an interview of Mr. Sandeep Kataria, CEO, Bata with CNBC-TV18 dated 20th October 2020:

● Speaking about demand, Mr. Kataria said things are much better as compared to the past 3-4 months.

● There is a pick up of demand MoM. The company expects to reach normal levels with the festive season coming in.
● Speaking about stores, he said almost all the stores are opened except a few isolated ones.

● People are getting back to the office. Delhi and Gurugram are the cities where traffic is visible.
● Demand for casual wear is consistent and washable slippers.

● Q1 was weak for the company as well as the industry. He expects that the company will reach pre-covid levels towards the end of the festive season.

● Speaking about stores, the company had negotiations with landlords which was helpful. The push of the franchise store in towns below 5 lakh population is showing a good trend and there are a lot of enquires.

● The biggest cost is rentals for the company and the company is taking measures to reduce it.

● The administration and travel costs are also looked closely.

● The company has a strong balance sheet and remain cash positive, there is no worry on that front.

● On post- covid scenario, he said the company is already working on E-commerce and the focus will continue.

● He said tier 2,3 towns are showing a quick bounce back as compared to urban.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Bata was ₹ 1,362 as of 22-October-2020. It traded at 182x/ 46x/ 38x the consensus Earnings per share estimate of ₹ 7.5/29.8/35.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Bata is ₹ 1293/- which implies a PE multiple of 36x on FY23E 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.”

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22 Oct

Business at 85-90% of pre-COVID levels – Amber Enterprise

Update on Indian equity market:
Indian markets were slightly higher today with Nifty closing the day 57 points higher at 11,954. Within the index, the gainers were led by POWERGRID (4.2%), BHARTIARTL (3.5%) and TATASTEEL (3.1%) whereas BRITANNIA (-4.3%), TCS (-2.3%) and SBILIFE (-1.9%) were the laggards. Among the sectoral indices, REALTY (4.7%) METAL (2.4%) and BANK (1.6%) led the index higher whereas FMCG (-0.9%), MEDIA (-0.5%) and IT (-0.4%) led the laggards.
Excerpts of an interview with Mr. Jasbir Singh, Chairman & CEO, Amber Enterprise Ltd (Amber) published on CNBC-TV18 dated 19th October 2020:
The recent notification by the central government to ban the import of ACs with refrigerants would increase local manufacturing. 30% of ACs worth Rs 40,000 mn were imported in India in FY20. 75% of this had refrigerants. The company is eyeing the majority share from this opportunity.
The decision of the government will shift the complete manufacturing of all the imported goods to India and the company will benefit as they have the capacities in place.
India currently produces 7mn RACs (Refrigeration & Air Conditioning) whereas China produces 110 mn RACs.
The business is back on track and the industry is back to 85-90% of pre-COVID levels on a month on month basis.
The company has won some orders from Metro and Railways which are moving normally. The company expects some more orders in the recent future.
He said that pent demand during the months of lockdown resulted in increased manufacturing orders by OEMs (Original Equipment Manufacturers)
The company recently bought the remaining 20% stake in Sidwal Refrigeration Industries. Accordingly, Sidwal is now a wholly-owned subsidiary of Amber. The company expects a 15% growth from Sidwal acquisition in FY21E.
Consensus Estimate: (Source: market screener website)
The closing price of Amber was ₹ 2,307/- as of 21-Oct-2020. It traded at 96x/ 35x/ 26x the consensus EPS estimate of ₹ 24/ 66/ 90 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 2,050/- implies a P/E multiple of 23x on FY23E EPS of ₹ 90.
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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21 Oct

4QFY21 Revenue run rate to be same as 4QFY20 – LT Technology Services

Update on the Indian Equity market:
On Tuesday, Nifty 50 ended 0.2% higher at 11,897. The gainers were led by HCLTECH (+4.3%), TECHM (+3.2%), and ASIANPAINT (+2.9%), while BRITANNIA (-5.8%), ONGC (-2.6%), and GAIL (-2.3%) led the losers. Among the sectoral indices, REALTY (+3.9%), MEDIA (+2.0%), and IT (+1.4%) led the gainers. PSU BANK (-1.4%), FMCG (-0.4%), and METAL (-0.2%) were the only losers.

LTTS recently released its earnings for 2QFY21. Mr. Keshab Panda, MD, and CEO of L&T Technology Services (LTTS) discussed the result and outlook for FY21 with CNBC TV-18 on 20th October 2020:

• At the beginning of the outbreak of Covid-19, the company took some measures: investment required in new technology, the business model required for each segment, and different geography. These have helped achieve sequential growth in each segment.
• All 5 segments will grow sequentially going forward. The company will offer the new technology demanded by customers quickly in the post-Covid era.
• There are two reasons for ~160 bps improvement in margins sequentially. First, revenue increased 4.1% QoQ and there has been a 4.5% increase in utilization in Q2. There is some room for improvement in the coming quarters as well.
• LTTS has learned that solution selling. To give an example, their medical devices segment which is doing well, they are thinking of taking it to the pharmaceutical and provider space.
• There are multiple levels- operational lever, solution offering lever, and business mix for margin growth going ahead.
• Margin growth depends on the business mix. Some of the segments they have are highly profitable and some segments are not as profitable. Telecom, industrial, and plant engineering have higher segmental margins compared to hi-tech, and part of the transportation subsegment.
• Another parameter is the offsite-onshore ratio. LTTS did well in Q2 and moving forward if customers believe the work can be done from home, the work will be done from India. Higher engineering offshoring will also add to margin improvement going ahead.
• Revenue and margins are expected to be better in Q3 and Q4. The management has guided for a revenue decline of ~7-8% for FY21.
• They intend is to come back to growth as soon as possible. Q1 suffered a drop in revenue and cash flow issue and realigning will take some time.
• Goal is that the 4QFY21 revenue run rate should be the same as 4QFY20.
• The impact of furlough coming in 3Q for LTTS is not clear yet. The positive side is the pipeline and orders in hand and how soon the proposals are accepted by customers.
• Sizeable deals got pushed to Q3 as the decision-making circle is a little longer today than in pre-Covid. Some analysis which was not done by customers in pre-covid is been done today. Cost-saving, analysis of cash flow, business model, credentials -all these are analyzed extensively post Covid.
Consensus Estimate: (Source: market screener website)
• The closing price of LTTS was ₹ 1748/- as of 20-October-2020. It traded at 27.7x/ 21.9x/ 18.8x the consensus earnings estimate of ₹ 63.2/ 79.7/ 93.0 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1537 implies a PE multiple of 16x on FY23E EPS of ₹ 93.0/-.
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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20 Oct

HCL Tech to roll out salary hikes for all employees in phases

Update on the Indian Equity Market:
On Monday, NIFTY closed flat at 11,873 (+0.9%). Top gainers in NIFTY50 were ICICI bank (+5.1%), Nestle (+4.5%), and GAIL (+4.2%). The top losers were Divi’s Lab (-3.6%), Eicher Motor (-3.1%), and Hero Motocorp (-2.9%). Top sectoral gainers were PSU BANK (+4.2%), BANK (+3.1%), and PVT BANK (+3.2%) and the sectoral losers were PHARMA (-1.7%), MEDIA (-1.6%), and AUTO (-1.1%).

Excerpts of an interview with Mr. C VIjaykumar, CEO and Mr. Prateek Aggarwal, CFO, HCL Technologies (HCLT) with ET Now dated 16th October 2020:

• They signed 15 transformational deals. The momentum in the market for modernisation and digital transformation services has been great.
• The life sciences and healthcare and retail CPG verticals grew 8% plus sequentially which is a very impressive performance. All verticals, all geographies, all service lines, and all modes had a sequential growth. So it is a very good all-round performance.
• Some amount of recovery is due to the dip that they had in the first quarter but a lot of transition of deals that were done in the previous quarter got done extremely well which helped in ramping up revenues.
• A lot of existing customers continue to demonstrate their faith by giving them more projects and some incremental work which all got built. The digital foundation, which is their erstwhile infrastructure services, is very strong.
• In the second half also they have projected an overall margin growth. They have upgraded the guidance. Now 20%-21% is the full-year EBIT guidance. So in the second half, they will continue to see a good margin performance.
• The salary increases that they are giving will create a certain impact as they get into the second half of the year. That is why overall margins in H1 were ~21% but for the full year, they are guiding it to be 20% to 21%.
• Mode 1 has got a lot of digital foundation services that has also grown impressively. Mode 2, of course, has grown almost 7% sequentially and almost 15% plus from a year-on-year perspective.
• This is all the new technologies including cloud solutions, application modernisation, analytics, internet of things and cybersecurity. This is good for the margin profile apart from the cost controls that are automatically in place. Due to some of the higher value services increasing as a ratio is also good from a margin perspective.
• The Board has decided to double the dividend that they have been paying on a per quarter basis. So far they were paying Rs 2 per share per quarter and now in this quarter, the board has doubled the Rs 2 per share per quarter to now Rs 4 per share per quarter.
• The important thing is this is not a one-time kind of a thing. It is something that they intend to continue for the quarters going forward and that is the important thing.
• The overall pipeline is at an all-time high. Their pipeline has increased by almost 35% compared to what it was. Their booking increased by 35% compared to what it was in the last quarter. The pipeline has increased by almost 20% and it is at an all-time high.
• However, conversion of these deals and that converting into revenue is normally a 3-6-months cycle. They have done good bookings in the last two quarters.

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

The closing price of HCLT was ₹ 846/- as of 19th October 2020. It traded at 19x/ 17x/ 15x the consensus earnings estimate of ₹ 45.3/ 50.3/ 55.7 for FY21E/22E/23E respectively.
The consensus price target of HCLT is ₹ 937/- which trades at 17x the earnings estimate for FY23E of ₹ 55.7/-.
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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19 Oct

Auto component makers see MoM improvement in demand

Update on the Indian Equity Market:
On Friday, Nifty ended 0.7% higher at 11,762. The top gainers for Nifty 50 were JSW Steel (+6.7%), Tata Steel (+5.4%), and BPCL (+4.4%) while the losing stocks for the day UPL (-7.7%), HCL Tech (-3.5%), and M&M (-1.8%). Top gaining sectors were Metal (+4.0%), Realty (+2.6%) and Pvt Bank (+2.1%) while losing sectors were IT (-0.1%) and Media (-0.4%).

Edited excerpts of an interview with Mr Sunil Bohra, ED & Group CFO, Minda Industries, and Mr Jayant Davar, Co-Chairman and Managing Director, Sandhar Technologies; dated 15th October 2020 from Economic Times:

According to Mr Bohra, the auto component industry has been witnessing a month-on-month improvement in demand, and going forward, the sustenance of the demand hinges on how the scenario plays out during and after the festive season.

Mr Bohra added that October 2020 auto volumes are expected to be better than September 2020. OEMs are positive on medium-term demand forecasts. Personal mobility is driving the auto demand in the last few months.
Mr Bohra said that it is difficult to predict how demand would play out over the next two to three quarters.

Mr Davar, on the other hand, gave an optimistic commentary, stating that he is confident of a sustained recovery in demand. According to him, the demand will stay for a longer time. There is a sense of apprehension but all the indicators point towards a sustained recovery.

According to Mr Davar, October 2020 could potentially be a historic month of the industry. Although at the same time, he did admit that it will take some time for Covid-led damage during 1Q to be wiped out. FY22E will see an improvement in margins for the industry considering the market sustains and the demand sees a rise.

Mr Bohra commented that the cash position of the auto ancillary players is stable. There is no cash crunch witnessed. Minda Industries is in a very comfortable position in terms of the balance sheet.

Mr Bohra and Mr Davar offered slightly differing stances on how the demand trajectory could shape up in the future, both seemed to share a similar view on the localisation of components. The companies have been focusing on and investing in localisation of products for 3 decades. Companies are working on reducing the dependence on China for different parts/ materials. The Companies are trying to diversify their supply chain geographically and be prepared for the worst going ahead.

When asked about the government’s push on AtmaNirbhar Bharat and sourcing locally, the management of Minda, as well as Sandhar, welcomed the step, lauding the coming together of OEMs, suppliers and policymakers for the first time.
Mr Bohra also reiterated that the component maker has been consistently working towards increasing localisation and they are on a constant lookout for alternate (local) sourcing strategies, with strong support from the OEM clients as an added boost.

Mr Davar also brought to light the limitations of the industry in terms of the economies of scale and the fact that substitution of import would require the entire system to pay more.

Consensus Estimate: (Source: market screener website)
The closing price of Minda Industries Ltd was ₹ 327/- as of 16-October-2020. It traded at 97.6x/ 29.7x/20.2x the consensus EPS estimate of ₹ 3.4/11.0/16.2 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 361/- implies a PE multiple of 22.3x on FY23E EPS of ₹ 16.2/-.

The closing price of Sandhar Technologies Ltd was ₹ 240/- as of 16-October-2020. It traded at 47.1x/22.4x/16.1x the consensus EPS estimate of ₹ 5.1/10.7/14.9 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 279.5/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 14.9/-.

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.”

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17 Oct

Wise Words from Edwin Lefevre

Edwin Lefevre is most well-known for his classic book “Reminiscences of Stock Operator”. His talent was turning Wall Street stories and anecdotes he collected over the years into lessons on human nature. He pointed out the errors that plagued investors throughout the market cycle. He covered market history, uncertainty, probability, and he even dabbled in a little value investing. It turns out, Lefevre had a way with words. Below is a collection of his wit and wisdom.
1. All booms are alike. The stage setting varies, but fundamentally they are as drops of water. Customs, like costumes, change from the force of environment and economic conditions, but human nature remains the same.
2. The stock ticker knows more than everybody. It deals with results. It satisfies your cravings for action. It makes life worth living. And when it says that you are an ass, it convinces even you of it.
3. A man who has bought a stock against the advice of a conservative broker, and has doubled his money in a fortnight, finds his suspicions turned into convictions by that impartial judge, the stock ticker.
4. Knowledge, indeed, is the enemy of a speculator during a boom.
5. It is one of the maximums of speculation that stocks never go up, but must be put up.
6. After many years of studying Wall Street’s victors and victims, I must conclude that the American public still insists on losing its savings every time the old hook is baited with the immortal easy-money worm. After every smash, the blame is laid on the hook and not the hunger. In reality, the fault is seldom with the machinery of speculation and is usually with the psychology of speculators.
7. The higher the price goes, the less desirable the investment becomes as an investment.
8. Buying stocks of prosperous concerns may be good business — but only at a certain price. But if you will make sure you know what you are getting for your money, you will be doing what nobody does in a bull market.
9. You know that nine out of ten people who talk about the market talk about their profits. They crave applause for their cleverness.
10. From hardship to comfort, the gap is a million miles wide. From comfort to luxury, the step is only four inches long. Ask any man who has made easy money.
11. It is not the certainty of disaster ahead but the uncertainty of better days to come that keeps the investor from buying.
12. It is only fair to admit that the commonest and most expensive blunder that all exceptionally brilliant businessmen make is being right too soon.
13. Within obvious bounds, the average investor’s most valuable adviser is fear; not the panic variety but the kind you call caution or conservatism, for, after all, prudence is a wise and desirable fear if it smothers greed.
14. Consider investments of every period in history and you will find that a great adverse factor has always been the change, which is something nobody can prevent.
15. “Easy money” means only one thing when it means money that has come easy: It means the money goes even more easily than it came.

Source: www.novelinvestor.com

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16 Oct

5 focus areas to reinvigorate the company – Wipro

Update on the Indian Equity Market:

On Thursday, Nifty closed 2.4% lower at 11,680. Within NIFTY50, ASIANPAINT (+0.4%), JSWSTEEL (+0.2%), and COALINDIA (+0.1%) were the only gainers, while BAJFINANCE (-5.0%), TECHM (-4.4%), and ICICIBANK (-4.1%) were the top losing stocks. All the sectoral indices closed with losses led by BANK (-3.4%), PVT BANK (-3.3%), and FINANCIAL SERVICES (-2.9%).

5 focus areas to reinvigorate the company – Wipro

Excerpts of an interview with Mr. Thierry Delaporte, MD & CEO, Wipro, published in the Business Standard on 14th October 2020:
● Out of the impacted sectors, Wipro is now seeing a good volume of deals in the BFSI, retail, and consumer sectors. The manufacturing sector is still impacted by the pandemic. However, the need for transformation will lead to growth coming back in the next couple of quarters. The aerospace and automobile sectors are still under pressure.
● Clients have intent on reducing expenses. But in reality, spending on technology actually increases. Spending on technology is a business requirement now. Not just the CIO but also the chief marketing officer, chief of the supply chain, chief digital officer are all asking for technology. The reduction will be in terms of spending on legacy processes.
● Wipro is focusing on five main areas. They are-
1. Focus on large clients and large deals as opposed to going after new clients
2. Focus on more markets and sectors where Wipro can claim leadership
3. Refine offerings by creating more vertical differentiation
4. Invest in talent to acquire the best domain and technology expertise
5. Refine the operating model to drive simplicity and nimbleness
● In order to chase and win large deals, Wipro plans to enhance and reinforce the global client partners’ power so they can have a bigger impact on clients.
● Due to the pandemic, Wipro has now learned that employees can work from home productively. On the other hand, they also need to connect with the rest of the organization for the culture and sense of belonging. Mr. Delaporte is of the view that going forward there will be a hybrid model where employees will have more flexibility without any judgment on where they choose to work from.
Consensus Estimate (Source: market screener website)
● The closing price of WIPRO was ₹ 342/- as of 15-October-2020. It traded at 20.3x/ 19.0x/ 17.9x the consensus EPS estimate of ₹ 16.8/18.0/19.1 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 283/- implies a PE multiple of 14.8x on FY23E EPS of ₹19.1/-.

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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15 Oct

Replacement Market has played well- CEAT

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.3% higher at 11,917. Among the sectoral indices, Fin Services (+2.0%), Bank (+1.6%), and Private Bank (+1.5%) closed higher. IT (-1.3%), Pharma (-0.7%), and Auto (-0.3%) closed lower. Wipro (-7.1%), NTPC (-4.1%), and ONGC (-3.1%) closed on a negative note. Bajaj Finserv (+4.1%), SBILIFE (+3.4%), and Bajaj Finance (+2.8%) were among the top gainers.

Excerpts from an interview of Mr. Anant Goenka, MD & CEO, CEAT Ltd with ET NOW dated 12th October 2020:

● The demand for tyres has picked up faster than expectations.
● They operate in 3 markets- Replacement, Auto players, and Export.
● The replacement market has played very well and it leads the way, OEM’s has recently seen a pick up from August and September and reached pre-covid levels. The Export segment has also seen gradual growth.
● Amongst vehicle categories, the two-wheeler and tractor industry is showing the strongest demand followed by the passenger car segment.
● The Commercial Vehicle OEM segment has yet to show growth. The demand is slow over there.
● The rural sector has also shown a very strong demand for the company.
● The company is very well positioned at this point in time and had set up a fair amount of capacity.
● The company’s capacity is well utilized.
● The company had set a new facility in Nagpur for 2 Wheelers and the PV car facility in Chennai, and Truck facility in Halol is now ramping up. The company has invested around Rs 3,000 crore.
● The last six months were about managing supplies.
● Things are much clear for the company up to December, January onwards will have to see how things will pan out.
● The company is planning to reduce its cost by Rs 1000 mn.
● Speaking on the manufacturing front, he said India is in a strong position in the Auto Space. Within Type space, the industry is capable of manufacturing all kinds of tyres.
● On Export opportunities, he said the market has shown a linear growth. It is one big area where the Industry can take advantage of the current situation.
● The company is planning to de-risk the exposure towards China by focusing to have at least one domestic supplier for key raw materials.
Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of CEAT was ₹ 1,004/- as of 14-October-2020. It traded at 22x/ 15x/ 13x the consensus Earnings per share estimate of ₹ 46.6/65.5/79.0 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for CEAT is ₹ 967/- which implies a PE multiple of 12x on FY23E EPS of ₹79.0/-.
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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14 Oct

Enough liquidity in the system, but credit flow weak – Edelweiss

Update on Indian equity market:
Indian markets were muted today with Nifty closing the day 4 points higher at 11,935. Within the index, the gainers were led by IT biggies like HCLTECH (+4.1%), INFY (+2.5%) and KOTAKBANK (+2.2%) whereas CIPLA (-3.6%), TITAN (-2.6%) and ADANIPORTS (-2.5%) were the laggards. Among the sectoral indices, only IT (+1.3%) and METAL (+0.4%) closed in green whereas PHARMA (-1.8%), PSU BANK (-1.5%), and PVT BANK (-0.9%) led the laggards.
Excerpts of an interview with Mr. Rashesh Shah, CEO, Edelweiss Financial Services Ltd. (Edelweiss) published on CNBC-TV18 dated 12th October 2020:
50% of the loan book was under moratorium when it was announced by the Government. The same number has been under 20% by the end of September. 80% of customers are paying regularly. He said that the company has exposure to only semi-formal and formal sectors. The current Non-Performing Assets (NPA) is at 2-3%.
Commenting on the impact of the pandemic on the company’s books, he said that 2% should be the impact of credit cost purely because of COVID-19. He said that growth and profitability are the two challenges for the Non-Banking Financial Companies (NBFC) sector.
Liquidity in the system has improved in the last four-five months through various measures like TLTRO, partial credit guarantee schemes taken by the RBI. He said that liquidity is ample but the market is currently lacking the credit flow.
The bond market needs to get stabilized, long term credit flow needs to get started again for risk-taking, and the investment cycle to start again. The bond markets are currently dislocated and not yet back to 60-70% of the pre-ILFS levels.
The company has recently raised Rs 20,000 mn through the stake sale in the wealth management business, which is more than 5% of the company’s book size.
He said that the capital adequacy ratio for the housing finance business is at 25%, retail NBFC at 28%, and ECL finance at 21%.
Consensus Estimate: (Source: market screener & investing.com websites)
The closing price of Edelweiss was ₹ 60/- as of 13-Oct-2020. It traded at 0.9x/ 0.8x/ 0.8x the consensus Book Value estimate of ₹ 66/ 70/ 77 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 87/- implies a P/BV multiple of 1.1x on FY23E BV of ₹ 77.
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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