30 Sep

Premium brands witnessing a growth of 50% – Bajaj Auto

Update on the Indian Equity Market:
On Tuesday, NIFTY closed in minor red at 11,222 (-0.05%). Top gainers in NIFTY50 were Hindalco (+5.3%), ULTRACEMCO (+3.3%) and HERO MOTOCORP (+2.8%). The top losers were UPL (-3.5%), ONGC (-3.5%), and INDUSIND (-3.4%). Top sectoral gainers were METAL (+1.9%), AUTO (+0.3%), and IT (+0.2%) and sectoral losers were PSU BANKS (-2.2%), FMCG (-1.5%), and PVT BANK (-1.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, Managing Director – Bajaj Auto with CNBC -TV18 dated 28th September 2020:
● Bajaj Auto has partnered with KTM, Husqvarna and Triumph. So Bajaj Auto cannot engage with Harley due to these partnerships.
● Harley Davidson has decided to end India operations on account of low sales and a global rewire strategy. The company which sold over 58,000 units in North America in the first six months of this year has sold just over 25,000 units in India in a ten year period.
● Bajaj agreed that Harley could never really take off in India due to the high price point but said that Bajaj Auto’s partnership’s with KTM and Husqvarna show how brands like Harley can succeed in India.
● Bajaj Auto tied up with KTM in 2007 when the latter was selling 65,000 motorcycles a year and struggling and today KTM has surpassed Harley with a sale of three hundred thousand units a year.
● This year they should make close to two hundred thousand KTM’s & Husqvarna’s for global sales including India. These bikes between 125-400 cc are very competitively priced and KTM has distribution all over ASEAN and Latin America which KTM could not do before. This should be the goal of brands like Harley Davidson also.
● Distribution is about demand fulfilment and will not generate demand. If Harley is looking at making a 300-400cc motorcycle then they must get it absolutely right. The Street 750 did not succeed as it was considered a poor man’s Harley.
● Q2 is in line with July projections. Projected 1 mn motorcycle & 3W sales if supply chain supports. They can reach 2.5 mn in October if production supports. 3W sales are moving up too.
● Pulsar sales are expected to be at an all-time high of 2 lakh units in October. Exports have seen an all-time high in September-October.
● Premium segments like KTM, Dominar have seen close to 50% growth. KTM exports in the US, EU & Australia see 30-100% growth.
● They see no obvious evidence of a shift to COVID linked personal mobility pick up.
● They have re-engineered CT and Platina portfolio for a profitable share gain.
● Lockdown has destroyed Tier 1 & 2 suppliers. Tier 1 suppliers facing labour issues.
● Bajaj Auto can see sales of 4 lakh units in the month of September.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of Bajaj Auto was ₹ 2,901/- as of 29th September 2020. It traded at 19x/ 16x/ 14x the consensus earnings estimate of ₹ 149/ 179/203 for FY21E/22E/23E respectively.
● The consensus price target is ₹ 3,010/- which trades at 15x the earnings estimate for FY23E of ₹ 203/-
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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29 Sep

Economy going through a transitory phase, we may witness more changes – SBI

Update on the Indian Equity Market:
On Monday, Nifty ended 1.6% higher at 11,228 on the back of positive global cues and domestic factors like possible stimulus package from the government and capital support to some PSU banks. The top gainers for Nifty 50 were IndusInd bank (+8.0%), Bajaj Finance (+6.4%), and Axis Bank (+5.5%) while the losing stocks for the day Wipro (-0.8%), HUL (-0.5%), and Nestle India (-0.1%). All the sectors were in the green zone. Top gaining sectors were Media (+4.8%), Pvt Bank (+3.6%) and PSU Bank (+3.3%).

Edited excerpts of an interview with Mr Dinesh Kumar Khara, MB, State Bank of India Ltd; dated 27th September 2020 from Economic Times:

• There are certain sectors in the economy seeing some positive traction. The way things have emerged in terms of the health and hygiene issues, it has led to a situation where there was a fear psychosis in the mind of everybody and also a buzz where people started conserving cash. But in some of the sectors like FMCG, steel sectors having demand-led growth opportunities, are seeing very good traction.
• In the auto sector, small cars are something which is on the upside as far as demand is concerned.
• People are willing to come out and contribute to the economic activity, but at the same time, they have got some fear psychosis in terms of health and hygiene.
• The credit growth according to him is around 7%. Slicing it further, Consumer credit is actually on the growth cycle. But the corporate credit has a tendency to deleverage. This is because they are in a bit of uncertainty. They are not yet into the investment cycle. But there is some kind of traction when it comes to certain sectors like the road sector where improvement is seen.
• People are looking for the right signals or some bit of positivity and once it is seen, they will go all out to support the economic activity. That is how he reads the situation.
• When the pandemic kicked in, people had not visualised how they would be in a position to carry out their business continuity plans (BCPs) and reinvented their BCPs. In about six months from then, it has come to a situation where the new realities in terms of working from home have come in, leading to a situation where there could be challenges in lease rentals. Thus, he expects some kind of consolidation to happen.
• In terms of the lease rentals for offices, the high-quality buildings are not facing any challenge whereas the ones which were not of as good quality are facing some challenges. The new cost norms are emerging as social distancing will require even more space in the office and that is also a reality.
• Towards the end of this financial year, when things start improving, they will improve at a very fast pace. It is not likely to be a normal secular trend which has been witnessed in the past.
• If the unlock of activities continues and the Country is in a position to address the health and hygiene issues more effectively in terms of living with the pandemic, there is a possibility that India may get to see better performance as compared to what is being seen now. This is because the most important component here is the confidence of the consumers and that is a function of how people are in a position to navigate this particular problem relating to corona.
• RBI is keeping the liquidity in a fairly easy position and that is something which is ensuring that all these instruments which are there should remain liquid and there should not be any setback to the economy.
• SME funding has been envisaged through the GCL kind of a concept wherein the government is giving the guarantee to financiers and is ensuring that there is no unduly strain on the capital of the banks.
• There is a very clear effort on the part of the government to ensure that there is an amicable resolution of the problem related to GST dues.

Consensus Estimate: (Source: market screener website)
• The closing price of State Bank India was ₹ 187/- as of 28-September-2020. It traded at 0.7x/ 0.7x/0.6x the consensus book value estimate of ₹ 258/279/307 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 265/- implies a PB multiple of 0.9x on FY23E Book Value of ₹ 307/-.
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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28 Sep

All three companies- Finance, Life and General Insurance growing well– Bajaj Finserv

Update on the Indian Equity Market:

On Friday, Nifty closed with 2.3% gains at 11,050. Within NIFTY50, BAJAJFINSV (+6.6%), HCLTECH (+5.3%), and CIPLA (+5.1%) were the top gainers, while SBILIFE (-1.1%), BPCL (-0.9%), and UPL (-0.6%) were the only losing stocks. All the sectoral indices ended positive withIT (+3.5%), MEDIA (+3.4%), and AUTO (+3.4%) gaining the most.

All three companies- Finance, Life and General Insurance growing well– Bajaj Finserv

Excerpts of an interview with Mr. Sanjiv Bajaj, Chairman and MD, Bajaj Finserv (BAJAJFINSV), published on ETBFSI website dated 23rdSeptember 2020:
• Seven or eight years ago, the life insurance company (BALIC) and general insurance company (BAGIC) contributed to around 75-80% of Bajaj Finserv’s consolidated profits. BALIC contributed the largest, followed byBAGIC, and the least contribution came from Bajaj Finance.
• This has changed significantly since then. Today, Bajaj Finance is the largest contributor to consolidated profitability, followed by BAGIC and BALIC respectively.
• Bajaj Finserv owns 74% of the two insurance companies and a little under 52% of the finance company. So the proportion of the profit pick up ends up being different.
• All three engines are growing well so the shareholders get a diversified mix of profits from these companies.
• Companies under the Bajaj Finserv umbrella have become even more digital than before. Management has plans for the businesses to come out stronger, better and to provide a set of solutions for customers keeping in mind lessons learnt in this crisis is what the customers need.
1. Bajaj Allianz Life Insurance (BALIC)
• Life insurance is a peculiar business in the sense that when it is growing fast, the business burns more cash upfront in the form of commissions and expenses. But the company earns premium over a period of time and makes profits in later years. On the other hand, through slow growth years, the opposite happens and the profit goes up.
• Post the difficult lockdown phase, BALIC’s premium collections have come back to 80-85% of pre-COVID levels.
• The two insurance businesses are distributed very well through the country. As a result the recovery is quite good because recovery outside of the top 10, 20 cities has been very strong.
2. Bajaj Allianz General Insurance (BAGIC)
• Bajaj’s market share within general insurance companies is between 6.5% and 7%. Bajaj runs a diversified set of business lines, and most of these lines have market shares which are more or less around the 6.5%-7%`range.
• The market share also varies year on year based on changing competition and market opportunities.
• Bajaj may not be the cheapest policy issuer but is quick, fair, and transparent not only in policy issuances but also in claim handling.
• In the case of crop insurance, it is about 6.5-7% of Bajaj’s mix of the overall industry’s share. There are two main seasons -kharif and rabi –and the share of this business line in Bajaj’s business depends on what the dynamic is in that season. But it normally evens out over a year.
• In terms of uptick in motor insurance, the picture is still not very clear. There is growth due to pent-up demand and further growth is expected due to the upcoming festive season. But what will happen post that towards end of FY21E is unclear.
• The demand is still interwoven with the impact of the pandemic on local lives. Bajaj saw good growth in June. But July and part of August were terrible because of local lockdowns.
3. Bajaj Finance
• Due to the local lockdowns in the last few months, the business in top 20 cities got severely impacted.
• Bajaj Finance got impacted more compared to BAGIC and BALIC as it has a large percentage of business coming from the top 20 cities. But things have been getting better from August.
• Over two-thirds of the borrowers, who took the moratorium, had never bounced with Bajaj Finance earlier. That means they were conserving liquidity.
• Almost 30% of the book took a moratorium in the first couple of months. It came down to the low teens in the last two months. As people got more confident and as the cities and businesses started opening up, they started paying as well and that is a very good sign.
• Even though things are moving in the right direction, the situation is still unpredictable. Bajaj Finance continues to be extra conservative, has stocked up on liquidity and continues to make additional provisions.
• Bajaj Finance also remains conservative in incremental lending and will go back to growth when things start to improve.

Consensus Estimate (Source: market screener and investing.com websites)
• The closing price of BAJAJFINSV was ₹ 5,784/- as of 25-September-2020. It traded at 2.6x/ 2.3x/ 2.0x the consensus BVPS estimate of ₹ 2,188/2,478/ 2,873 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E BVPS of ₹ 2,873/-.

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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25 Sep

We have increased market share, exceeded pre-Covid levels – Tata Motors

Update on the Indian Equity Market:
On Thursday, NIFTY was down 326 pts (-2.9%) at 10,806.
Among the sectoral indices, METAL (-4.2%), IT (-4.2%), and PSU BANK (-3.9%) were the top losers and there were no gainers.
Among the stocks, INFRATEL (+2.9%), ZEEL (+0.9%), and HUL (+0.3%) were the top gainers. INDUSINDBK (-7.5%), TATAMOTORS (-6.6%), and BAJFINANCE (-6.6%) were the top losers.

We have increased market share, exceeded pre-Covid levels – Tata Motors

Edited excerpts of an interview with Mr. Vivek Srivatsa, Head, Marketing – Passenger Cars, Tata Motors with The Hindu dated 12th September 2020:

‘Onam has performed very well overall for the industry and particularly for us at Tata Motors.’
We had pretty robust growth both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns, says Mr. Vivek Srivatsa, Tata Motors.

• When asked about the targets for festive season he informed that fortunately ever since the unlock has begun around the middle of June, there has been a consistent increase in demand for passenger cars and it has sustained pretty well through the last four months. The first indicator of festival season is how Onam performs. It has traditionally been the first festival across the country and this year Onam has performed very well overall for the industry and particularly for Tata Motors.
• Tata Motors had sustained demand across all five products. It launched a completely new range of five BS-VI ready products in January and fortunately have demand for all five so much so that most of the production is being lapped up. Considering the farmers community has been blessed with a good monsoon, agricultural production seems to be going really strong, the harvest season is performing well. Now on the back of these factors, he is expecting a fairly good festival season.
• His comments on current dealer inventory levels in the channel and timely delivery: For Tata Motors, dealership inventory is a shade below what the company would like it to be at an ideal level. Company is trying to ramp up production and take care of their bookings. As a result, customers are having to wait a little longer than they would like. All three plants are accelerating the factory forward kind of transportation to the dealers as much as possible, getting into daily work management to produce and dispatch the cars as early as possible.
• Tata Motors is ramping up processes and operations to ensure that customers get the deliveries on their favored time in terms of auspicious days or in terms of specific days they would like to get it. Tata Motors have a pretty good mechanism of informing the expected date of delivery at our dealerships. Customers are informed well in advance of when they can expect their cars.
• When asked which are the key geographies they are focusing on and demand scenario from metros, tier I, tier II and rural areas he replied that traction seems to be pretty consistent across both tier I, tier II and smaller markets. The good indicator would be Kerala with Onam as a base case. Pretty robust growth was seen both in terms of first-time car buyers from smaller towns but also upgraders and probably people getting their second car into the household in the bigger towns. Tata Motors have a fairly spread product range right from hatchback which traditionally is called the entry hatch and Tiago going up to a mid-SUV of the Harrier, a pretty wide price band. It would not be an accurate parameter to gouge where the demand is coming from. But looking at the flow of bookings, demand is fairly uniform across the different town classes.
• However, in terms of offers, company have made a slight differentiation between a bigger town and a smaller town. It was seen that post the pandemic, there has been a huge demand uptick for personal transportation owing to the safety that is involved and by and large people are looking at ease of entry into car ownership and hence marketing has largely revolved around two areas. One is to assure the customers that it is very safe to actually visit showrooms and experience test drives. Second, in terms of ownership, company’s focus has been largely on making ownership accessible and very aggressive EMI offers, finance options, ease of finance availability have been the focus.
• When asked about sales reaching pre covid levels he stated that overall, industry is on par with pre-Covid levels but specifically for Tata Motors, they are happy that they have exceeded pre-Covid levels. This is quite visible by company’s market share increase. Tata Motors have grown their market share substantially compared to pre-Covid levels. Demand is continuing to be strong and it is to some extent, exceeding supply in the ensuing period. In terms of customer behavior, there’s quite a lot of change. There is increased focus on safety. Most of cars are four star or five stars rated in the global end cap rating scale. Customers have really shown preference for their range right from Tiago, Tigor, compact SUV the Nexon as well as latest premium hatch the Altroz.
• He said that the other area of difference being that he sees a lot of family involvement in car purchase now and hence the design appeal is becoming stronger. It is more of a unified purchase decision today than it was earlier and inputs from women are higher than ever and hence we see a strong orientation towards appealing design and also comfort features are coming very strongly to the fore. Premium Altroz is hugely lagged because of the 90-degree opening doors that it provides and the flat floor. These are features that customers are quite fascinated by. So, there is a slight change in customer behaviour with far more orientation towards safety and design.

Consensus Estimate: (Source: market screener website)

• The closing price of TATAMOTORS was ₹ 123/- as of 24-Sep-2020. It traded at 14x/7x the consensus EPS estimate of ₹ 9.4/18.4 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 129/- implies a PE multiple of 7x on FY23E EPS of ₹ 18.4/-

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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24 Sep

Not faced a lot of Covid-19 claims- HDFC Life

Update on the Indian Equity Market:
On Wednesday Nifty closed 0.2% lower at 11,132. Among the sectoral indices Media (-2.4%), Pharma (-1.6%), and PSU Bank (-1.5%) closed lower. Realty (+0.79%), PVT Bank (+0.2%), and Bank (+0.2%) closed higher. Infratel (-8.3%), Bharti Airtel (-8.2%), and Tata Steel (-3.5%) closed on a negative note. Axis Bank (+2.4%), Coal India (+2.4%), and GAIL (+1.7%) were among the top gainers.

Excerpts from an interview of Mrs. Vibha Padalkar, MD and CEO, HDFC Life with ET dated 21th September 2020:

● Speaking about the coronavirus pandemic, she said the life insurance in India has grown in a particular way led by savings-based products.
● The pandemic is a penny drop movement for life insurance, especially for term products.
● The Chinese insurers have over 50% share of term protection while for India on a weighted premium basis it is in single digits. This could change with the pandemic and definitely a pull can be seen.
● The market segment is largely the middle class. The target is to focus on all. In a job loss and salary cut scenario, the company is suggesting that people get some cover.
● The average ticket size has fallen to 75% than pre-pandemic, there is a definite pull towards getting insured.
● People are spending less on discretionary and as more people gain awareness on having life insurance, the penetration will also improve.
● The endowment plan gives topline, and other products contribute to the bottom line. Protection, if done sensibly, is a highly profitable business.
● Three protection policies need to be sold to match the premium that a single endowment product brings. Therefore, the company has to balance the mix.
● Products like riders and annuity are also good to have for building strong bottom lines.
● HDFC life has not faced a lot of COVID-19 claims. The company has settled 235 claims since March with the sum at risk at about 22 crore and very much in line actuarial funds.
● Some studies have shown that the overall deaths, in general, have gone down. This could be because of reduced accidents which to an extent has had a neutralizing effect on the impact of coronavirus.
● Last year, the company launched a guarantee backed product that caught customer’s attention. Over 60% of the business in that quarter was through that product. However, now the company has brought it down to 25%. There is constant monitoring of the segment and the reprising of new policies according to interest rates. Then there is asset backing as well where the company writes against long-dated government paper which provides the hedge.
● On LIC listing, she said, the biggest impact is that it would bring transparency. When listed companies make disclosures it’s not just on accounting profits but also on long term profit emergence and value creation.
● The listing of LIC is of utmost importance as it’s the largest financial institution in the country.
● On the demand for Investment-linked products, she said there is a balanced product mix and the company likes Unit Linked Investment Products (ULIPs) to be at 25% of the mix. The company is able to sell enough to maintain it but for companies having a 60-70% mix could struggle.
● Speaking on the effects of automation on agents, she says, it goes hand in hand. There is an India, and, there is a Bharat. There are young people adept at doing their own research to purchase online while there are older people who like assistance and hand-holding.
Banca partners are targeting branch walk-ins, the financial advisors are getting savvy with digital to push digital through existing channels.

Consensus Estimate: (Source: market screener website)
● The closing price of HDFC Life was ₹ 580/- as of 23-September-2020. It traded at 81x/ 73x/ 71x the consensus Earnings per share estimate of ₹ 7.10/7.94/8.14 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for HDFC Life is ₹ 615/- which implies a PE multiple of 75x on FY23E EPS of ₹8.14/-.
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 Sep

Expect 90% collection efficiency in September – Shriram Transport Finance

Update on Indian equity market:
Markets continued to fall further on Tuesday after a sharp selloff on Monday as Nifty closed 99 points lower at 11,152. Among the stocks, HCLTECH (+2.3%), TCS (+2.2%) and GRASIM (+1.8%) were the top-performing stocks while ZEEL (-6.6%), ADANIPORTS (-4.8%), and GAIL (-4.5%) were the laggards. Within the sectoral indices, only IT (+1.2%) and PHARMA (+1.0%) were able to close the day in green whereas MEDIA (-2.4%), AUTO (-1.8%), and REALTY (-1.5%) were the sectors that bled the most.
Excerpts of an interview with Mr. Umesh Revankar, Managing Director & CEO, Shriram Transport Finance (Shriram) aired on CNBC TV18 dated 21st September 2020:
September is the first month without a loan moratorium. Since there is no moratorium, the collection has to be really good. In addition, most of the locations under lockdown have been opened up. The containment zones are the problem areas.
In May, 51% of the company’s borrowers made partial or full payment, up from 24% in the month of April. It increased to 71% in June while it remained flat in the months of July and August. About 73% of clients made payments in August. The company is expecting a 90% collection efficiency in the month of September. He said that the company is able to meet customers physically and they are willing to pay. They have observed delays in payments by very few customers.
He said that the disbursements are also picking up. The disbursements in the month of August were 50% of last year’s levels which has increased to 75% in September. The company expects to reach 90-100% of the monthly run rate in October- November period.
The business has been picked up in the second half of August in semi-urban and rural areas. He said that urban areas are mostly seeing e-commerce activity leading to some demand.
The company expects the business to be normal and to pre-lockdown levels by December as their customer segment is mostly owner-operator of the vehicle and less dependent on outside driver/ helper.
The festival period in October- November is likely to be good for the business. Some sectors like travel & tourism will take a little more time to recover. He said that the demand in the rural market has been really good and the NBFC should be able to improve business there with better penetration.
Consensus Estimate: (Source: market screener & investing India website)
The closing price of Shriram was ₹ 642/- as of 22-Sept-2020. It traded at 0.8x/ 0.7x/ 0.6x the consensus BV estimate of ₹ 837/ 932/ 1,036 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 884/- implies a P/BV multiple of 0.9x on FY23E BV of ₹ 1,036/-.
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 Sep

Investment in digital transformation paying off now – Titan

Update on the Indian Equity Market:
On Monday, Nifty ended 2.5% lower at 11,222 mirroring sell-off in global markets due to rising coronavirus cases across the globe. Domestic investors remained cautious due to the passage of a farm bill as well. Among the Nifty50, TCS (+0.8%), INFY (+0.5%), and KOTAKBANK (+0.3%) were the only stock gainers. INDUSINDBK (-8.6%), TATAMOTORS (-7.8%), and HINDALCO (-7.2%) were the top losers. None of the sectoral indices ended the day in the green, and REALTY (-6.0%), METAL (-5.6%), and MEDIA (-4.8%) were the top sectoral indices to end with losses.

Edited excerpts of an interview with Mr. S Subramaniam, CFO, Titan Company with CNBC-TV18 on 18th September 2020:
• As of now, plain gold jewelry, wedding jewelry, and gold coins are still very much in demand. The recovery from an overall revenue perspective has been fine. The month of September will not see high sales due to the extended inauspicious period.
• In terms of revenues, the company is at about a 90% level on a year-on-year basis. Around 85-90 percent of stores are open but for shorter timings due to localized lockdowns.
• As far as diamond jewelry is concerned, the ratio will remain low this year as discretionary expenses are not taking off as expected. The company hopes to return to normalcy by 4QFY21.
• The industry is facing some serious challenges due to Covid-19, especially the smaller jewelers. Titan is witnessing higher market share, due to a strong balance sheet and strong brands.
• The high investments in digital transformation over the past years are now paying off. Videoconferencing has become a big way of attracting and connecting with customers. Some of the customers may visit the store to complete the sale but a lot of sales are happening digitally. These are the big competitive advantages of Titan.
• The studded jewelry caters to people who are unlikely to face job losses due to the pandemic. Discretionary spending doesn’t depend just on the income levels but also on the general mood and sentiment. In the current situation, most people are avoiding going out. They are waiting for better times when they can feel safe going out to buy jewelry.
• The recovery has been good, slightly better than what the company had anticipated. There are some worrying signs such as the unpredictable timing of normalcy returning, the vaccine is available for all, vaccine doses, which are slightly dampening.
• The cost-cutting measures have been implemented since December 2019, before the outbreak of the virus. The companywide initiative been doing very well. The measures start from discounts to customers, to franchisee pay-outs and every aspect is being looked at. Similarly, every element of fixed cost is also being looked at, including employee cost. The savings from the measures are coming in and assuming next year to be a normal year, will see a bump up in margins.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of Titan Company was ₹ 1,117/- as of 21-September-2020. It traded at 111x/ 54x/ 45x the consensus earnings estimate of ₹ 10.1/ 20.7/ 24.9 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1,062/- implies a PE multiple of 43x on FY23E EPS of ₹ 24.9/-.
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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21 Sep

There will never be a threat of hostile takeover in Happiest Minds: Happiest Minds

Update on the Indian Equity Market:
On Friday, NIFTY closed in minor red at 11,505 (-0.1%). The top gainers in NIFTY50 were Dr Reddy (+9.9%), Cipla (+7.1%) and Adani Ports (+3.7%). The top losers were HDFC Bank (-2.3%), Shree Cement (-2.0%), and Bajaj FInserv (-1.8%). The top sectoral gainers were PHARMA (+4.9%), REALTY (+1.9%) and AUTO (+0.4%) and Top sectoral losers were PSU BANK (-1.6%), BANK (-1.3%), and FIN SERVICES (-1.2%)

Excerpts of an interview with Mr Ashok Soota, Chairman & Director, Happiest Minds with ET now dated 18th September 2020:
● He wanted to make a distinction between what is a broader IT services market and the digital part of the IT services market.
● They are born digital, born agile, 97% of their business comes from digital and the traditional IT market is growing much smaller and that is why they are able to grow at a faster rate — a compound of 20% plus as compared to about 8% to 10% for the larger IT players today.
● IT services business is growing, it is the entire market typically and slowdowns and recessions and more so in this one where everything is becoming virtual, IT will definitely grow faster within that. The transformation towards digital will also get accelerated.
● Their largest and fastest-growing vertical is edutech. How that is going to benefit from this environment because everything is becoming virtual.
● The other vertical in which they have got a very strong presence is the rest of the high tech world. Again because it is a core competence at Happiest Minds, two of them account for 76% of their business which has been only marginally or not impacted by the COVID crisis.
● The other 24% has been affected but fortunately, they have got a very marginal presence in travel and hospitality which is the worst impacted vertical and therefore they have to continue to build on the strengths that they have.
● When they began Happiest Minds, they were in what was called a SMACK pack which included analytics and cloud after that they have added over the years the internet of things, machine learning, virtual and augmented reality and so on.
● Going forward, I do not want to speculate on whether my shares will go up or go down if they raise more equity obviously, but there are no immediate plans to do so.
● Whatever happens, they will keep one thing in mind that there will never be a threat in the sense of ownership which could create a hostile acquisition situation.

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

● The closing price of Happiest Minds was ₹ 358/- as of 18-September-2020.
● Equity shares of Happiest Minds Technologies Ltd are listed effective from September 17, 2020. So we don’t have any consensus estimates.

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 Sep

Are you still playing by the old rules?

Jonathan Clements explains that there are many investors, and indeed financial advisers, who are still playing by the old rules. Are you one of them? Do you know those timeless financial principles? Sometimes they don’t age so well. Indeed, if you’re still hewing to the financial wisdom of the 1980s, you’re likely hurting yourself today. Here are three examples:

Goodbye, Star fund Manager: Many investors continued to hunt for the next superstar fund manager. Investors would scour past mutual fund performance, confident that it would be a reliable guide to future results. Today, that confidence has largely evaporated — with good reason: Most fund managers lag behind the market and, among those who don’t, there’s no surefire way to identify the winners ahead of time or distinguish the truly skilful from the merely lucky. Indeed, the proliferation of index funds over the past two decades hasn’t just offered investors an alternative to actively managed funds. It’s also given folks a measuring stick against which to compare those active managers—and, year after year, the managers keep coming up short. What’s amazing isn’t that investors have lost confidence in past performance and their belief in exceptional money managers. Rather, what’s amazing is that it took so long.

Broken Yardsticks: Starting in the 1990s, stock market valuations broke out of their historical range and climbed skyward. Old-timers warned that valuations would soon come crashing back to earth. They’re still waiting. To be sure, rising price-earnings ratios and declining dividend yields can be partly explained by falling interest rates, which have made stocks more attractive relative to the main alternative — bonds. But it seems some enduring financial trends are also driving the rise in stock valuations, including falling investment costs, ever more capital available to invest, a rising appetite for risk, corporations’ growing preference for stock buybacks over dividends, and the move to spend less on plant and equipment and more on research and development. This last change has resulted in lower reported earnings and hence higher price-earnings multiples. The upshot: Today’s stock market valuations are undoubtedly rich by historical standards. But it’s hard to know what to do with that information or whether we should even worry—because it doesn’t tell us anything about short-term returns and it may not be that important to long-run results.

Today’s tiny bond yields: The biggest impact is on retirees. Indeed, the core strategy for many retirees — buying bonds and then paying the household bills with the interest — simply doesn’t work anymore. After all, how many retirees are rich enough to live off a portfolio of high-quality bonds, which today would likely kick off less than 6% in India? It’s time to stop thinking about bonds as a standalone investment. Instead, their sole remaining role is as a complement to stocks. They can provide offsetting gains when the stock market nosedives, a rebalancing partner for stocks, and a way to raise cash if it’s a bad time to sell shares. Clements’ advice for retirees: Forget investing for yield and instead aim to earn a healthy total return by allocating at least half your portfolio to stocks. In buoyant years for the stock market, look to harvest gains. In rough years, get your spending money by selling bonds and cash investments.

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18 Sep

Expects ALTBalaji to break even in Q4 – Balaji Telefilms

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.7%, lower than the previous close at 11,519. The top gainers for Nifty 50 were Dr Reddy (+4.2%), HCL Tech (+2.3%), and Zee (+2.3%) while the losing stocks were Hindalco (-4.3%), Tata Motors (-2.5%), and Shree Cement (-2.4%). The sectoral gainers for the day were Pharma (+0.4%), Media (+0.4%), and IT (+0.2%) while the losers were Realty (-1.7%), Metal (-1.4%), and PSU Bank (-1.2%).

Edited excerpts of an interview with Mr Nachiket Pantvaidya, Group Chief Operating Officer at Balaji Telefilms and CEO ALTBalaji; dated 16th September 2020 from CNBC TV18:

• Proactive cost control measures implemented by Balaji Telefilms helped them stem their losses in the lockdown quarter. Their OTT platform, ALTBalaji remains one of the top 5 paid apps in the country.
• Pre COVID, the company was expecting ALTBalaji’s breakeven to happen in October, November and December this year, but as the production schedules were delayed because of the pandemic impact, now it is looking to breakeven in January, February and March in 2021.
• 1Q has been challenging for the Company as all content production activity came to stop.
• In terms of growth, the same quarter last financial year the Company had a direct revenue stream of 6.7 crores that has grown to 12 crores in this quarter so ALTBalaji is doubling its direct subscription.
• The Company is seeing a very good trajectory for ALTBalaji especially because tier II and tier III markets have opened up during the pandemic and that has got them a whole lot of new subscribers without having to spend a lot of marketing money to acquire.
• The acquisition pace will be very high because now the markets have opened up, according to Mr Pantvaidya.
• He added that the real question is that can the Company retain the acquired subscribers, will they churn out and the reason why he is putting that out-front is that if the Company has to produce new shows for these subscribers to be on the platform. Therefore the race is on for the Company to produce more and more shows.
• The Company is confident that it will launch close to 25 shows in the remaining part of the year starting this month itself which is probably 50% more than a usual clip.

Consensus Estimate: (Source: market screener website & investing.com)
• The closing price of Balaji Telefilms Ltd was ₹ 77/- as of 17-September-2020. The company reported a loss of Rs 5.8/- per share for FY20.
• The consensus target price of ₹ 100/-. The consensus earnings estimate are not available.

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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