04 Sep

Plants running at 100% capacity- M&M

Update on the Indian Equity Market:
On Thursday Nifty closed -0.1% lower at 11,527. Among the sectoral indices Bank (-1.4%), PVT Bank (-1.4%), FIN Services (-1.0%) closed lower. IT (+1.50%), Pharma (+0.9%) and FMCG (+0.8%) closed higher. ICICI Bank (-2.1%), Bharti Airtel (-1.9%) and Axis Bank (-1.9%) closed on a Negative note. Infratel (+10.9%), GRASIM (+7.2%) and Titan (+5.9%) were among the top gainers.
Excerpts from an interview of Mr. Hemant Sikka, President Farm Equipment Sector, M&M with CNBC-TV18 dated 2nd September 2020:
• Tractor sales were up 65% YoY, M&M remains positive because of good harvest and bountiful monsoon.
• The production started from mid-May and now plants are running at 100% capacity.
• The demand is robust throughout the country. The kharif sowing is going well which gives a confidence to farmers.
• The domestic market grew by 69% in August 20.
• On Finance, the availability is better compare to 3-4 months back. Initially finance was an issue as offices were not open, it was difficult for people to reach offices.
• The improvement in financing is seen from middle of June. The collection is also good as farmers have a better cash flow.
• Mr. Sikka said that for the next 3 months the company is expecting a full blast of production.
• The stock is at historic low levels.
• The challenges on supply side had eased out. All suppliers have ramped up their production.
• A good festive season is expected as supply chains are coming back on track and all factories running.
Consensus Estimate: (Source: market screener and Investing.com websites)
• The closing price of M&M was ₹ 642/- as of 03-September-2020. It traded at 25x/ 18x/ 16x the consensus Earnings per share estimate of ₹ 26.1/35.7/41.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus average target price for M&M is ₹ 585/- which implies a PE multiple of 14x on FY23E EPS of ₹41.1/-.
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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03 Sep

Insulin Glargine is $2.2bn opportunity in the insulin segment – Biocon

Update on Indian equity market:
After the steep fall on Monday, markets were in a recovery mode for the second straight day as Nifty50 rose 65 points higher at 11,535. Among the index, ZEEL (+7.5%), M&M (+6.1%) and TATAMOTORS (+5.1%) were the top performing stocks while BAJAJAUTO (-2.4%), HEROMOTOCO (-1.4%) and ASIANPAINT (-1.4%) were the laggards. The negative market reaction to two-wheeler stocks came as a surprise as companies delivered good performance in the monthly volumes. Within the sectoral indices, MEDIA (+3.4%), METALS (+1.8%) and IT (+1.5%) were the top performing sectors whereas PSU BANK (-0.4%) and FIN SERVICES (-0.03%) were the only the sectors closed the day in red.
Excerpts of an interview with Kiran Mazumdar Shaw, Executive Chairperson, Biocon published on CNBC TV18 dated 2nd September 2020:
Biocon and Mylan announced the launch of Semglee (Insulin Glargine injection) in the U.S. to expand access for patients living with Diabetes. Ms Mazumdar Shaw said that the commercialization of insulin glargine in the U.S. represents another milestone achievement for the company in making insulin based therapy globally.
The company is leveraging science and global scale manufacturing expertise to expand affordable access of biosimilar insulins to patients in Japan, Australia, Europe, India and key emerging markets. The U.S. launch of Semglee takes the company closer to realizing its aspirations of reaching ‘one in five’ insulin dependent people with diabetes worldwide.
The company expects Semglee to contribute significantly to the company’s goal of impacting 5 million patients’ lives and achieving $1bn revenues by the end of FY22E.
The company rigorously compared Semglee to the reference insulin glargine in participants with type-1 and 2 diabetes and found similar glycemic results in both groups. As a result, this insulin was approved by the FDA for the same indications as its reference product Lantus, thus expanding access for millions of people within this important patient community.
Semglee has an identical amino acid sequence as Sanofi’s Lantus and is approved for the same indications. This product has now received regulatory approval in more than 45 countries around the world and is the third product approved by FDA through the Mylan- Biocon collaboration.
She mentioned that this product already has a $6bn market opportunity in terms of Lantus sales and the company expects it to be $2.2bn opportunity.
Consensus Estimate: (Source: market screener website)
The closing price of Biocon was ₹ 410/- as of 24-Aug-2020. It traded at 46x/ 31x/ 26x the consensus EPS estimate of ₹ 8.9/ 13.4/ 15.8 for FY21E/ FY22E/ FY23E respectively.
Consensus target price of ₹ 413/- implies a P/E multiple of 26x on FY23E EPS of ₹ 15.8.
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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02 Sep

Growth not constrained by availability of either capital, geography or liquidity – Federal Bank

Update on the Indian Equity Market:
On Tuesday, Nifty50 ended 0.7% higher at 11,470 after the Supreme Court ordered telecom companies to pay their pending Adjusted Gross Revenue (AGR) dues to the Department of Telecommunications (DoT) over 10 years. Among the Nifty50 stocks, BHARTIARTL (+7.1%), JSWSTEEL (+6.5%), and HINDALCO (+5.3%) led the gainers. INFRATEL (-4.6%), ONGC (-2.9%), and AXISBANK (-2.0%) led the losers. METAL (+3.2%), PHARMA (+2.3%), and MEDIA (+1.4%) led the sectoral gainers. IT (-0.6%), PSU BANK (-0.2%), and PRIVATE BANK (-0.1%) were the only sectoral losers.

Excerpts of an interview with Mr. Shyam Srinivasan, MD & CEO, The Federal Bank with ET Now on 31st August 2020:
• Since the moratorium ended on August 31, 2020, no material changes are expected in September and the real picture would become clearer as they go into 3QFY21.
• The net moratorium at the end of 1QFY21 was 24%. Despite banks calculating moratorium in different ways, the Federal bank has been very strict with defining moratorium. If three or more payments were received, those borrowings were out of moratorium. All indications so far suggest the impact of the moratorium end would be as per planned and provided for by the bank.
• The gold loan performance is quite well. 1Q saw 9.5% growth in this segment and that growth is going to be very strong in the year. Gold being anti-cyclical and people resort to gold borrowing when there are any challenges in the economy.
• Businesses like auto loans in select geographies Karnataka, Kerala seem to have picked up in terms of monthly volumes while parts of Maharashtra are not doing as well.
• Typically, the NIMs (Net Interest Margin) are influenced by the margin of businesses, and reversals and low-cost funds. Strong growth in low-cost funds coupled with no material slippages helped, good growth in gold loan helped achieve good NIMs.
• The slippages in September are predictable. The NIMs for 2Q would be around the same levels as 1Q. 3Q and 4Q would depend on the slippages. The guidance for the full year remains at ~3.1%.
• They have an enabling provision for Rs 10bn of equity raise. Right now, they are not looking at raising any money and capital adequacy is looking reasonably good.
• It would be wise to see how 3Q pans out before plunging into any M&A and portfolio expansion opportunities. The growth is not constrained by the availability of either capital, geography, or liquidity, all of which are in abundance with the bank.
• Mr. Srinivasan’s term as the bank’s CEO & MD ends in September 21. With a well-thought-out succession planning in place, there is not a lack of continuity or lack of candidate and by April 21, there will be clarity on his successor.
• There is a high CASA flow from Dubai and the Middle East where oil prices have moved and job losses have happened. Whenever there is any kind of dislocation in these geographies, the bank has been a net beneficiary due to physical presence, large diaspora base, and the client base are not great shoppers and must send money home. It is not a singularly large destructive area. In the last 10 years, they have been able to diversify their business across geographies and product streams.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of The Federal Bank was ₹55/- as of 01-September-2020. It traded at 0.7x/ 0.7x/ 0.6x the consensus book value estimate of ₹ 77.4/83.8/90.4 for FY21E/ FY22E/FY23E respectively.
• The consensus target price of ₹ 66/- implies a PB multiple of 0.7x on FY23E BV of ₹ 90.4/-.

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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01 Sep

Lost 60 days of sales which is 50-60% of the business during summer – Voltas

Update on the Indian Equity Market:
On Monday, NIFTY closed in the red at 11,387 (-2.2%). The top gainers in NIFTY50 were ONGC (+1.6%) and TCS (+0.6%). The top losers were Sun Pharma (-7.3%), SBI (-5.9%), and Cipla (-5.5%). The top sectoral losers were MEDIA (-5.8%), PSU BANKS (-4.7%), and PHARMA (-4.6%) and there were no sectoral gainers.

Excerpts of an interview with Mr Pradeep Bakshi, MD and CEO of the Tata Group AC Company, with CNBC TV18 dated 28th August 2020:
● Generally summer months starting from March till June accounts for more than 50% of the sales in the compressor products like the air-conditioner products. Unfortunately, due to the lockdown, right from March 20 onwards until May 20, they lost out nearly 60 days of sales.
● Out of three and a half months, they lost out two months that is somewhere around 50-60% of the business was lost for the industry during these summers because of the lockdown.
● Voltas has done better than the industry while highlighting that most brands haven’t registered growth.
● During this period, the industry has been able to sell the products but most of the brands have not registered growth. However, Voltas’ business, they have done decent numbers during this period.
● In terms of volume, revenue and profitability they are way ahead of the competition and the industry.
● The industry as a whole has not been able to do a great job during Q1. Until July, August also, they have been doing sales, some numbers are clicking but there is a large pile-up of inventory in the industry.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of Voltas was ₹ 635/- as of 31-August-2020. It traded at 48x/ 30x/ 27x the consensus earnings estimate of ₹ 13.2/ 20.9/ 23.9 for FY21E/22E/FY23E respectively.
● The consensus price target is ₹ 659/- which trades at 28x the earnings estimate for FY23E of ₹ 23.9/-
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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31 Aug

Your financial portfolio and Japanese principles

Writing in Fortune, Sandeep Das leverages principles from Japanese culture to build an effective financial portfolio. Japanese culture is leveraged upon sustainability, longevity, humility, and quality—exactly what most working professionals crave for today.
Don’t be ashamed of wealth creation: Buddhism, one of the major religions in Japan, advocates that individuals need not be ashamed of or feel guilty about wealth creation. It is not morally inappropriate to try to create immense wealth. The only folly individuals should be careful about is not to be enslaved by that desire or to lead a life with the single-minded focus on wealth creation or excessive flaunting.

Imbibe financial minimalism: A derivative of the above principle is Japanese minimalism—or having things that are absolutely necessary and removing all forms of clutter from one’s life. A direct analogy to financial portfolio management involves avoiding having too many investments in each asset class. In case of investing in a debt asset class, one or two low-risk debt instruments should suffice rather than a dozen of them. Similarly, with equities, one or two mutual funds should suffice for domestic and international markets. This also applies to other financial habits, implying that having one or two credit cards and one or two bank accounts only.

Wabi-sabi, leading a perfectly imperfect life: The principle of wabi-sabi (wabi implying rustic simplicity and sabi implying taking pleasure in the imperfect) corresponds to accepting imperfections in life, making the most out of them, and moving on. Bad investments are commonplace for almost all individuals and it is essential to embrace these mistakes and move on. Rarely does anyone get all their investment decisions correct. It is detrimental to perennially live with a deep sense of financial regret. However, over a period, the proportion of risky investments (including equity) should be consciously brought down and relative safety of the portfolio should be consciously increased.

Avoiding karoshi, death caused by overwork: In financial parlance, it translates to being excessively obsessed on the financial returns leading to hourly portfolio tracking. It is highly advisable to avoid reading too many hot tips or opinion pieces and following the hyperactive journalists screaming all day on television promising you financial nirvana. Too much churn or regular tracking only adds to daily misery. It is suggested to track your portfolio once a year, at best, and avoid making too many transactions.

Follow your Ikigai: Ikigai translates to living your purpose every day is one of the biggest exports of Japanese culture. At the end of the day, pursuing money can rarely be someone’s Ikigai as it leads to a very shallow and meaningless life. Ideally, money should be treated as an effective enabler while the individual follows his Ikigai—an intersection of what someone is good at, what he enjoys, what the world is ready to pay for, and what the world needs, ruthlessly.

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31 Aug

It will be a long road to recovery from Covid-19 – Axis Bank

Update on the Indian Equity Market:
On Friday, Nifty ended 0.8%, higher than the previous close at 11,655. The top gainers for Nifty 50 were Indusind Bank (+12.1%), Axis Bank (+7.9%), and UPL (+4.7%) while the losing stocks were JSW Steel (-3.0%), Hero MotoCorp (-2.6%) and Dr Reddy (-1.6%). The sectoral gainers for the day were PSU Bank (+5.2%), PVT Bank (+4.7%), and Bank (+4.2%) while the losers were Auto (-0.8%), Metal (-0.4%), and FMCG (-0.2%).

Edited excerpts of an interview with Mr Amitabh Chaudhry, MD, Axis Bank; dated 26th August 2020 from Economic Times:

The macro situation has improved quite a bit, but the economy is nowhere out of the woods.
The economy today is operating at 70-75% levels. The recovery remains uneven with a faster rise in supply than demand. The RBI annual report published also suggests that they remain extremely worried about consumer demand and that it would take some time to recover.

India is in a long haul before the economy recovers to pre-COVID levels partly driven by the fact that consumption patterns have been debilitated in many ways. People are conserving cash, and localised lockdowns continue. All this hurts demand and the notion that things are coming back to normal.
Increasingly corporates are saying that things should get better by the third quarter. But, he thinks that the improvement is spotty where recovery is visible in some sectors while some other sectors continue to get hurt quite badly.

Once the customer is assured that they are the fag end of the crisis, things will change dramatically and the economy should revive much faster.

The RBI Governor has been warning banks to be careful with their money, and to raise capital.
The banks have learnt their lesson after the last crisis, they are not going to be out there lending in a hurry. This applies to public sector banks as well.

Government has indicated that once the unlock process continues, they will come back with more support for the economy. The government has to play a very important role.

To revive and support the economy, the Government has categorised into 3 buckets. For the people who need it they are doing the cash hand-outs, the second is supporting MSMEs for incremental lending, and the third category is about long-term reforms. These long-term reforms include working with the RBI to towards refinance schemes, moratorium, and restructuring to support the other sectors of the economy.

Axis Bank will continue to adopt a conservative approach; they will do an intense credit screening before allowing any restructuring and will be much more prudent in provisioning for such loans.

There is a disproportionate restructuring share coming from sectors which are severely impacted due to COVID like airlines, tourism, and real estate. But, there is no sector that would be able to escape this severe economic shock and the vulnerable ones in every sector will need help.
For restructuring in Axis Bank portfolio, one will find loans from practically every sector because there will be some corporates who were in vulnerable state and COVID pushed them into a state where they may need restructuring help.

Lose of job & salary cut will have a bigger impact on the retail portfolio, followed by MSMEs and then wholesale.
Axis Bank is planning several schemes for the festive season and working with various manufacturers to see what they can offer to customers so that they start consuming again.
Max Life deal will add a lot of value on both sides.

Consensus Estimate: (Source: market screener & investing.com websites)
The closing price of Axis Bank Ltd was ₹ 510/- as of 28-August-2020. It traded at 1.6x/1.4x/1.3x the consensus Book Value estimates of ₹ 325/359/408 for FY21E/FY22E/23E respectively.

The consensus target price of ₹ 541/- implies a PB multiple of 1.3x on FY23E Book Value of ₹ 408/-.

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 Aug

COVID has created both opportunities and challenges for Pharma companies- Lupin

Update on the Indian Equity Market:

On Tuesday, Nifty closed flattish with just 0.1% gains at 11,559. Within NIFTY50, INDUSINDBK (+6.5%), M&M (+4.2%), and TATAMOTORS (+4.1%) were the top gainers, while ONGC (-1.4%), RELIANCE (-1.4%) and BAJAJAUTO (-1.3%) were the top losers. Among the sectoral indices, REALTY (+6.4%), PSU BANK (+1.1%), and AUTO (+1.0%) gained the most. FMCG (-0.3%) and IT (-0.1%) ended with losses.

COVID has created both opportunities and challenges for Pharma companies- Lupin

Excerpts of an interview with Mr. Ramesh Swaminathan, Executive Director- CFO and Head- Corporate Affairs, Lupin, published on Economic times website dated 26th August 2020:
• Lupin has the approval to manufacture generic version of ProAir- albuterol sulphate. This is a very important market for LUPIN in the inhalation space. The overall market for Ventolin, Proventil and ProAir combined is $ 1.1 bn with volume share of 44%, 9% and 47% respectively.
• The Albuterol Sulphate is a complex product and the competition expected is less. The price erosion could also be potentially lower due to lower competition.
• Lupin has been working on 12 to 15 products in the respiratory segment for the past several quarters. A large chunk of Lupin’s R&D spends is for complex generics including the inhalations portfolio, biosimilars, and complex injectables. The drugs device combination in the inhalation space makes it particularly interesting and challenging, though the mechanical trials associated with it are daunting and expensive.
• Generic ProAir is a very profitable product and Lupin will try to maximize on that considering their market share record. Even though the device itself and API will be imported, given the price stickiness, the gross margins are expected to be good.
• Apart from ProAir, Lupin has plans for several other products in the Respiratory space. Some known products include Fostair in the EU market, first to file in terms of Spiriva which could be in FY23, Dulera in FY22 and a host of other products.
• Generic market in the US has been witnessing a decline. What was potentially a $67 bn market 3-4 years ago has come down to $ 57-58 bn levels. Companies which were at the top have come down in terms of market share whereas Indian companies have been ramping up. But there is a lot of potential in other emerging markets. The good thing about any generic portfolio is that it can be levered across various markets.
• Lupin’s US revenue of $ 155-158 mn in 1QFY21 was an aberration and they expect to bounce back from those levels 2QFY21E onward. Lupin had a stroke of bad luck with metformin and that would also be back by the end of 2QFY21. Products like Albuterol lined up will help Lupinto be back into the revenue levels seen over the last several quarters.
• Covid has brought in opportunities for Pharma companies but also posed a lot of challenges to the supply chain. One of the opportunities is the Albuterol market itself which is growing at 13%. But in general, the topline has been impacted across markets.
• In case of India, after virtually no growth in 1QFY21, July was okay, and in August Lupin reached the same levels as last year and expect things to pick up September onwards.
• Both acute and chronic in the US have declined and markets like Philippines or Latin America, Mexico in particular, have been significantly impacted.
• Sales promotion and travel expenses have certainly come down. Lupin is also exploring newer ways of promoting their products with doctors in India as well as overseas.

Consensus Estimate (Source: market screenerwebsite)
• The closing price of LUPIN was ₹ 983/- as of 27-Aug-2020. It traded at 44.6x/ 35.2x/ 28.7x the consensus EPS estimate of ₹ 25.7/ 37.6/ 47.1 for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 882/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 47.1/-.

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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27 Aug

Pandemic has impacted all layers of FMCG – Nestlé

Update on the Indian Equity Market:
On Wednesday, NIFTY ended up 77 pts (+0.7%) at 11,550.
Among the sectoral indices, MEDIA (+2.5%), AUTO (+1.5%) and PVT BANK (+1.8%) were the top gainers while FMCG (-0.2%) and PHARMA (-0.1%) were the losers.
Among the stocks, TATAMOTORS (+8.8%), HEROMOTOCO (+6.4%), and INDUSINDBK (+6.0%) were the top gainers. BHARTIARTL (-2.9%), ULTRACEMCO (-2.2%), and ASIANPAINT (-1.4%) were the top losers.

Pandemic has impacted all layers of FMCG – Nestlé

Edited excerpts of an interview with Mr. Suresh Narayanan, MD & CEO of Nestle with Mint dated 25th August 2020:

• Food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time, Nestlé boss Suresh Narayanan said.
• His comments on consumer sentiment and mobility:
o Covid-19 is not just a health challenge, it is also a humanitarian call to redefine the way humans live, engage and work innovatively.
o Companies that are better placed to react to the new normal will naturally be preferred more by consumers.
o Food companies need to leverage their in-depth knowledge of food habits, nutrition, quality and safety in order to innovate and renovate, and adapt to this new normal.
o They need to respond to new demands, reset defining relationships with consumers and reconsider their product portfolio in the post-covid era to make products healthier, while allowing consumers to make an indulgent choice.
• His outlook for the Indian economy in the short and medium term: India’s economy is showing signs of recovery after withstanding the impact of covid-19. Some sectors were impacted more than others. With easing of restrictions on economic activities, businesses are slowly getting back on track. The government announced several measures to ensure business continuity and sectoral revival.
• When asked what other measures government should take to drive demand, he replied that the government has taken measures to increase liquidity and is hopeful that it will help the economic climate and push up demand. MGNREGA inputs have maintained an income source for a large number of people in rural areas and helped maintain demand. A good monsoon also helps. While we do see a push up in rural demand, as the economy starts opening up, it should create jobs and help build up urban demand as well. A strong focus on infrastructure development will revive the job sector as well as demand.
• Nestlé has witnessed better growth in Tier 2, 3 and 4 cities, semi-urban areas than urban areas during the lockdown. Rural consumption continues to be stronger than urban demand.
• Strong performance was delivered in the e-commerce channel. The demand in all out-of-home consumption channels experienced a sharp decline due to the lockdown. However, Nestlé brands enjoy trust, credibility and strength as far as in-home consumption is concerned. This boosted sales of dairy whitener, milk and coffee, all of which performed well. Maggi witnessed solid growth towards the end of the quarter after initial supply constraints.
• When asked whether consumer preferences will change when things will go normal, he stated that Covid-19 has had a profound impact on the pace, channel, texture and frequency of consumption, across a variety of segments in FMCG. There is a redefinition of out-of-home consumption in favor of brands and formats that are more in-home.
• Channel contexts have undergone sharp changes with a surge in e-commerce. Nestlé witnessed contribution of e-commerce going up significantly, while out-of home has not done well. If you look at e-commerce channels in the US, what took eight years in terms of penetration was achieved in eight weeks. Clearly the e-commerce journey is here to stay and there will be recalibration of channels.
• Quality, safety, nutrition and trust have undergone sharper re-definition and consumers tend to favor tried-and-tested brands and relationships formed herein. A new word has been added to the lexicon of consumer needs, which is “immunity” for self and the family. Categories that are in favor have changed and, together with the economic pandemic that followed Covid-19, a recalibration of the consumer wallets is taking place where essentials are taking precedence over luxuries, however affordable they are.
• When asked how Nestle has prepared to adapt to this change, he commented that their entire innovation funnel is undergoing a change. Every business is recalibrating in the context of newly relevant consumer behaviors that are coming in, that is, what innovations we should go with, what innovation should be left out.
• He is a great believer that in a crisis, one should engage, not disengage. If we disengage, then the consumer has other choices. Going forward, consumers are going to be more digitally active than they were earlier, and food companies with a strong digital-first capability are the ones that are going to hold consumers’ interest for a long time. Overall, Nestlé have accelerated digital engagements across key parts of our portfolio and put out innovative digital campaigns to engage with consumers.

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

• The closing price of Nestle India was ₹ 16,202/- as of 26-Aug-2020. It traded at 71x/51x/62x the consensus EPS estimate of ₹ 228/269/311 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 16,758/- implies a PE multiple of 54x on FY23E EPS of ₹ 311/-

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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26 Aug

Revenues badly affected as theatres are closed – PVR

Update on the Indian Equity Market:
On Tuesday Nifty closed 0.05% higher at 11472. Among the sectoral indices, PSU Bank (+1.3%), Bank (+1.1%), and Financial Services (+0.9%) closed higher. Realty (-2.1%), Metal (-0.7%), and Pharma (-0.6%) sectors closed lower. Tata Motors (+5.3%), Bajaj Finance (+4.8%), and SBI (+3.4%) closed on a positive note. GAIL (-1.7%), NTPC (-1.5%), and Sun Pharma (-1.4%) were among the top losers.

Excerpts from an interview of Mr. Ajay Bijli, CMD, PVR with ET Now dated 24th August 2020:
• Revenues are badly affected as theatres are closed. Theatres were asked first to close down and now it will be one of the last few activities to be allowed to resume.

• Cinemas have closed down all over the world, but a lot of help was also given by the governments in various countries. But here in India the sector didn’t get any support.

• PVR is ready to resume its operations. The people of India have always loved to go out and watch films.

• Mr Bijli thinks five to six months of being deprived will not change people old habit of decade.

• In some malls of Delhi, footfall is already back to 90% of pre-covid level during weekends despite no cinema.
• OTT platform is a concern for PVR but in a country like India with 1500 films releasing, if 10-20 movies have gone in shutdown, it is fine.

• The company will focus on 3 buckets – rescue, revival and reinvention.

• As a rescue plan, PVR did rights issue. The company will focus on cost cutting and manage developer related issues. Revival will happen when the government gives permission to open and with new SOPs being ready comes reinvention mode.

• Survey suggest that youngsters are eager to come back.

• The company will continue with expansion. If there was no shut down, PVR would have done 100 screens last fiscal, but finished with 88 the company got licenses for the rest of the 12. Once the restrictions are lifted there will be opening of 15-20 new screens.

• The Mumbai drive in theater was on cards from a long period of time, the core business is cinemas and drive in model is yet to be tested.

Consensus Estimate: (Source: market screener website)
• The closing price of PVR was ₹ 1,324/- as of 25-August-2020. It traded at NM/ 38x/28x the consensus Earnings per share estimate of ₹ -80.9/35.3/47.5 for FY21E/ FY22E/FY23E respectively. (NM- Not Meaningful)
• The consensus average target price for PVR is ₹ 1,314/- which implies a PE multiple of 28x on FY23E EPS of ₹ 47.5/-
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 Aug

Housing Finance book is expected to grow five times in next five years – Bandhan Bank

Update on the Indian Equity Market:
Markets started the week on a positive note with Nifty50 rising 95 points higher at 11,466. Among the index, ZEEL (4.8%), KOTAKBANK (3.5%) and INDUSIND (3.3%) were the top performing stocks while POWERGRID (-2.0%), M&M (-1.2%) and ADANIPORTS (-1.1%) were the laggards. Within the sectoral indices, PVT BANK (2.4%), BANK (2.4%) and FIN SERVICE (2.1%) were the top performing sectors whereas REALTY (-1.0%), PHARMA (-0.4%) and IT (-0.3%) were the only the sectors closed the day in red.
Excerpts of an interview with Mr.Chandra Shekhar Ghosh, Managing Director & CEO, Bandhan Bank (Bandhan) published in Economic Times dated 23rd August 2020:
It is good that failure on large exposures happened very early into Bandhan Bank’s journey, which helped limit the losses and affirmed that it will never lend to the large segment again.
He said that there is a huge opportunity in the rural affordable housing segment. The focus is on housing finance space and the target is to grow the loan book by five times in the next five years to Rs 1 lakh crore. This, he expects will occupy nearly a third of the Rs 3.5 lakh crore lending book that the bank has targeted.
The business has had cycles of good growth, which gets followed with some impact due to changes in the overall environment beyond the bank’s control, and specifically mentioned demonetisation and the current COVID-19 pandemic which led to a full wipeout in collections.
When asked about setbacks like repayments impact due to the anti-CAA protests over the last year, he said till date, not a single rupee of loan has been written off in Assam and the reverses it faced because of the protests are a part of business.
After becoming a bank, its rate of lending has reduced to 17.95 per cent from 22.4 percent earlier and will reduce further as the share of the low-cost deposits will grow, he said, admitting that in the beginning, getting people to deposit was a challenge because the whole system had been tuned as a model focusing on lending and not liabilities.
Small borrowers prefer paying because they understand the importance of a commitment to repay and do not mind sharing the benefits of a growing business with the financier who helped make it possible. He also said more than the rate of interest, a borrower is more concerned with delivery of simple and timely credit for all.
Consensus Estimate: (Source: marketscreener website)
The closing price of Bandhan Bank was ₹ 295/- as of 24-Aug-2020. It traded at 2.7x/ 2.3x/ 1.9x the consensus Book Value estimate of ₹ 108/ 129/ 159 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 372/- implies a BV multiple of 2.3x on FY23E Book Value of ₹ 159.
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