23 Jun

Expect profit in all quarters of FY21–PNB

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,323. Within NIFTY50, BAJAJAUTO (+7.1%), BAJFINANCE (+5.9%), and BAJAJFINSV (+4.8%) were the top gainers, while WIPRO (-1.7%), GAIL (-1.2%) and ONGC (-1.1%) were the top losers. Among the sectoral indices, PSU BANK (+3.9%), METAL (+2.6%), and PHARMA (+2.2%) gained the most.  IT (-0.3%) was the only sector to end in the red.

 

Expect profit in all quarters of FY21–PNB

 

Excerpts of an interview with Mr.S S Mallikarjuna Rao, MD&CEO–Punjab National Bank (PNB)published in Business Standard dated 22ndJune 2020:

  • Management expects credit growth of 6% in FY21E from the earlier estimate of 12%.
  • The credit recovery in MSMEs and retail segments is expected to be faster than other bigger segments. Growth in bigger segments will probably come from January 2021.
  • PNB management expects robust comeback in certain sectors of MSMEs in October. Hospitality and travel segments will be slower to recover but less labor-intensive sectors and highly technology-oriented industries will come back faster.
  • PNB does not see any pain in the hospitality portion of the loan book at the moment. Pain may come from the telecom sector which is in stress. But even in telecom, PNB has non-funded exposure, i.e. bank guarantees are given in favor of government. In PNB’s loan book, they do not see any incremental pain in any sectors apart from those already identified.
  • Mr Rao expects profit in every quarter of FY21. In 1HFY20, PNB might earn Rs 18,000 mn from treasury due to yield advantage. In 1QFY21 itself, PNB has booked Rs 11,000 mn treasury gains compared to normal quarterly run rate of Rs 4,000- 5,000 mn. Provisioning burden will impact the profit, but the backlog of provisions would not continue after September.In 2HFY21E, earning will accrue from lending as operating profit stabilizes.
  • PNB has a high stake of government at 85%. The Government stake has to be brought down in 2 years as the threshold for minimum public shareholding is 25%. So incremental fund raising will be via QIP/ public issue/ LIC/ tier-1 or tier-2 capital.
  • Post amalgamation of PNB with Oriental Bank of Commerce, and United Bank of India, there are a lot of non-core asset in the form of properties that PNB will look to sell. Rs 3,000 – 4,000 mn can be generated through this route in FY21E. PNB does not plan to divest interest in joint ventures and associates, including stake in PNB Housing, as they want to hold onto the brand name and see the entities grow.
  • Post the amalgamation, IRDAI has given exemption to PNB to hold stake in 2 insurance companies. There is no sunset clause for this exemption and PNB will continue to hold share in both the companies.
  • On the progress in amalgamation process, organizational restructuring will be complete from 1st July 2020. Technology integration of surrounding applications and ATMs will be complete by September. Core banking integration for one bank will be done by December 2020, and for the other bank by March 2021.
  • For the amalgamated entity, 500,000 customers are eligible under the emergency credit guarantee scheme and Rs 150 – 160 bn can be disbursed. PNB has already sanctioned loans worth Rs 30 bn to 120,000 customers and the remaining gap can be filled in by first week of July.

Consensus Estimate: (Source: market screenerand investing.com websites)

  • The closing price of PNB was ₹ 35.8/- as of 22-June-2020. It traded at 0.7x/ 0.4x the consensus BVPS estimate of ₹ 53.6/ 86.6for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 52.7/- implies a PBmultiple of 0.6x on FY22E BVPS of ₹ 86.6.

 

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 Jun

Hospital industry will see normalisation by the end of 2QFY21: Fortis Healthcare

Update on the Indian Equity Market:

On Friday, Nifty ended 1.5% higher at 10,244. The top gainers for Nifty 50 were Bajaj Finserv (+9.2%), Bajaj Finance (+6.6%) and Reliance Ind (+6.5%) while the losing stocks for the IndusInd bank (-2.2%), M&M (-1.3%) and Vedanta (-1.3%). Sectoral gainers for the day were Realty (+6.4%), PSU Bank (+2.2%) and Media (2.0%) while the losers were IT (-0.4%) and Metal (-0.1%).

Edited excerpts of an interview with Dr Ashutosh Raghuvanshi, CEO, Fortis Healthcare Ltd; dated 18th June 2020 from Economic Times:

  • The pandemic has affected the routine work of the hospitals and surgeries in a big way. The impact started somewhere in the month of February 20. Thus, the impact can be seen in 4QFY20 as well as 1QFY21E.
  • Volumes got reduced to the emergency work but a gradual resumption of activities on the side of chronic illnesses. Fortis believes that this is a short term blip but there is going to be a sustained and pent up demand of elective work especially for chronic ailments which are going to last for at least 6 months following the normal resumption of activities.
  • Industry sees an upward swing in COVID cases in cities other than Delhi and Mumbai.
  • Fundamentals for the healthcare industry continue to remain strong in the medium term.
  • In April-20 the occupancy levels were 25% which went up to 35% in May-20. In this month the recovery in the average occupancy levels stands at 48%. With this kind of recovery, 60% occupancy expected in July and then normalcy by the end of 2QFY21.
  • Fortis expects FY21 earnings to take a slight hit but expects 3Q and 4Q FY21 to be at normal levels in terms of both revenues and profits.
  • Initiatives in terms of cost and restructuring for Fortis are on-going. Lockdown gave them the opportunity to focus more on these elements. They are in a comfortable position in terms of cash flows even after the fall in revenues in 4QFY20.
  • Fortis is continuously evaluating its portfolio to see which units need to shape up or not performing well to rationalise the portfolio.
  • Staff cost is being relooked at, especially the senior staff members in order to be aligned with the Company’s interest. So conversations are going on. Establishment cost and advertisement cost are been rationalised. Expenses are needed to be prioritised.
  • Some of the CAPEX are been deferred in FY21, for example, land up-gradation of clinical infrastructure.
  • When asked about the price capping that is happening in this industry which will hurt the private players, he said that the margins are expected to be lower as compared to the current ones but the price capping will boost the volumes for the private players. So going forward, volumes are expected to compensate for the lower margins

Consensus Estimate: (Source: market screener website)

  • The closing price of Fortis Healthcare Ltd was ₹ 122/- as of 19-June-2020. It traded at 27.5x the consensus EPS estimate of ₹ 4.4 for FY22E.
  • The consensus target price of ₹ 165/- implies a PE multiple of 37x on FY22E EPS of ₹ 4.4/-.

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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21 Jun

Some Things about the Markets That Will Never Change

Ben Carlson accepts that this is the craziest market he has ever seen. The pandemic somehow turned a bunch of people into day traders. At first, in the US, they were buying beaten-down airline and cruise stocks. Now they’ve moved on to buying shares of companies that have filed for bankruptcy. Many companies that have filed for bankruptcy recently but have seen massive price swings over the past week. It’s easy to “tsk, tsk” these types of speculative moves in the markets but this type of behaviour is nothing new.

This year is unlike anything we’ve ever seen before in terms of market and economic dynamics but there is plenty of investor behaviour that has been around since the dawn of markets. Here are some things that will never change about the markets:

Lottery ticket stocks will always find a buyer. Our brains are wired such that expecting to make money feels even better than the act of making money itself. It’s the anticipation that puts your brain on high alert. This is why investors and gamblers alike are rarely satisfied with a single win. Your brain always needs another shot of dopamine to get that high again. It’s not enough for speculators to simply accept the market’s return during a massive recovery from a bear market. This is why we’ve seen a move from sector ETFs to beaten-down companies to bankrupt companies. And the temptation to speculate increases when we watch others around us getting rich.

People with no skill or knowledge about the markets can still make money. Some of the smartest, most sophisticated investors on the planet have been caught off guard by the market surge in recent months. Not only have these titans of the investment industry watched as the market has passed them by, but the biggest beneficiaries of the rise seem to be tiny retail traders. The market doesn’t discriminate between professional and amateur and there’s no IQ test required to buy a share of stock. The market cashes checks from anyone who plays, regardless of where they have an account or how much capital they have at stake. This is not to say this will continue indefinitely but to paraphrase Keynes, “The market can keep the irrational investor solvent as long as you remain bearish.”

The “dumb” retail money will occasionally beat the “smart” professional money. Legendary investors like Druckenmiller, Tepper and Buffett have all admitted to being positioned too defensively during this rally. This doesn’t make these legends idiots just like it doesn’t make day trading investors geniuses. This is just the way things work sometimes. No one bats a thousand.

No one is right all the time. Renaissance Technologies, likely the greatest hedge fund machine ever created, has claimed to be right on just 51% of their trades. No one is going to nail every top and bottom, especially in a market environment like this where things are happening at ludicrous speed.

Cycles tend to feel like they will never end. When stocks were getting thrashed on a regular basis in March it felt like the selling pressure would never let up. Lately, it’s felt as if stock gains happen every day. Markets are always and forever cyclical and no trend lasts forever.

Hindsight capital remains undefeated. It’s easy to look back at what’s transpired this year and come up with perfectly logical reasons for the market’s manic behaviour. And there are plenty of logical reasons for a market crash that immediately turned into a roaring bull market in the span of 3-4 months. But there are no counterfactuals. Things didn’t have to happen this way. Markets have shown this year how they can be equal parts resilient and fragile.

Certain investors will always worry more about being right than making money. Markets would be a whole lot easier if hard work translated into better results; if intelligence guaranteed alpha; if fundamentals always carried the day; and if the markets always made sense. Unfortunately, that’s not the case.

Carlson concludes that simplicity often beats complexity. Temperament matters more than intelligence. And sometimes markets just don’t make sense.

By Weekend Reading 0 Comments Read more...
19 Jun

Debt continues to be an issue – Tata Communications

Update on the Indian Equity Market:

On Thursday Nifty closed2.1% higher at 10,091. Among the sectoral indices Bank (+3.8%), Fin services(+3.7%), and PVT Bank (+3.6%) closed higher. Nifty Pharma (-0.02%) was the only sector that closed lower. Bajaj Finserv (+8.2%), Coal India (+6.3%) and Bajaj Finance (+5.5%) closed on a positive note. TCS (-0.6%), HUL (-0.5%) and Bharti airtel (-0.4%) were among the top losers.

Excerpts from an interview of Mr Amur SLakshminarayanan,Tata Communications with ET Now dated 15th June 20:

  • In his first interaction with the media since taking over as CEO,MrLakshminarayanan said Covid-19 has impacted the deal pipeline, delaying conversions and the company is hopeful that the second half of FY2021 will be better than the first.
  • Debt continues to be an issue and the company is looking at various options to bring it down, including infusing equity, paring investments and selling its land parcels.
  • Speaking about changes after his joining, he said the company is looking to enable borderless growth. The focusis to serve B2B manufacturing world where people are shifting from pure manufacturing products to services.
  • There is a continuing focus on efficiency and productivity through automation and manage risks.
  • From customer perspective, he said the shift that the company is planning to make is to be more solution oriented rather than a product company.
  • About challenges, he said the pipeline conversion would be too slow because what has been in the pipeline or ready to close has been sort of closed.In many places even if they were to award a contract it will be highly difficult for the company to go and install the equipment and connect.
  • Teams did a phenomenal job of helping thousands of users and more than 150 enterprise customers to work from home.
  • Speaking about verticals, he said IT, IT services, cloud and OTT providers are very large, and possibly banking and manufacturing are top verticals.
  • Serving an enterprise customer is different because it needs to be a lot more robust, secure and scalable, so in that sense the company is engineered to serve them.
  • About FY21, he said things will improve in the second half. People would want to look at more innovative ways of reaching out to their consumers and collaboration would get stronger.
  • 98% people are working from home and that when it shifts back to normal, it will shift back to around 50-60% still working from home.
  • On legal tussle with DoT, he said the case is not taken up to the SC and it is not a relevant judgment of late last year. There has been demand from DoT but that does not take into account accessible charges which should be deducted. They have given certificates and proof for paid basis, DoT has to deduct that and give a revised demand which the company has not received.

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

  • The closing price of Tata Communications was ₹ 593/- as of 18-June-2020.  It traded at 32.4x/ 24.6x the consensus Earnings per share estimate of ₹ 18.3/24.1forFY21E/ FY22E respectively.
  • The consensus average target price for Tata Communicationsis ₹ 550/- which implies a PE multiple of 22.8x on FY22E EPS of ₹ 24.1/-

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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18 Jun

A slew of health and wellness products to be rolled out soon: ITC

Update on the Indian Equity Market:

On Wednesday, NIFTY ended down 33 pts (-0.3%) at 9,881 as investors remained cautious amid geo-political tensions between India and China at the Ladakh border. Further, a steady rise in Covid-19 cases, both in India and globally, also dented investor sentiment.
Among the sectoral indices, MEDIA (+1.7%), AUTO (+0.8%) and REALTY (+0.8%) were among the gainers while FIN SERVICE (-0.8%), METAL (-0.8%) and FMCG (-0.5%) were among the top losers.
Among the stocks, MARUTI (+4.1%), BHARTIARTL (+3.4%) and WIPRO (+2.5%) were the top gainers. INFRATEL (-4.5%), KOTAKBANK (-2.3%) and ITC (-2.2%) were the top losers.

Mr B Sumant, Executive director of ITC, in an interview said the company has always been ‘vocal for local’, and has introduced products designed in India, sourced in India and made in India. Here are the excerpts of the interview with Business Standard dated 17th June,2020:

• On capacity utilization rate, he said ITC is meeting market demand for its products. The way they design their factories – the ‘Make in India’ Integrated Consumer Goods Manufacturing and Logistics (ICML) facilities that are spread across the country, it is for the long term. So, they always keep enough extra reserve capacity in all plants.
• There were many challenges when they started the operations, but now they have adapted with agility to the new ways of working which includes adhering to all social distancing and hygiene norms. ITC had to realign all its operations adjusting to the new normal.
• Food sales have seen a gradual evolution during the pandemic. The first phase of the lockdown was all about consumers stocking essential products, including staples and spices. Then, people realized that this was going to continue for a while and products like biscuits and noodles started selling. Then over time, consumers also went on to buy discretionary food products like snacks and chocolates. Now, people realise that the current situation is here to stay for a while so normal consumption is progressively being resumed. A lot of do it-yourself products are getting preference as people are trying to recreate the experience of a restaurant at home.
• ITC has launched a range of innovative products in the health and hygiene space during lockdown:
o They witnessed demand for surface cleaning and came up with the Savlon disinfectant spray, which was created in a record time.
o Nimwash, a fruit and vegetable cleaning product.
o Savlon Wipes, another product suiting the times and designed for convenience.
o 50 paise Savlon sachet, taking the sanitizer to the masses.
o B Natural + in association with Amway, where a natural immunity building ingredient was included.
• ITC is also working on a range of products where clinical trials are going on. There is a pipeline of health and wellness products that will be rolled out going forward.
• When asked about any thought regarding change in rural strategy with the changing landmark, he replied that ITC’S multi-pronged presence and engagement with rural areas is quite extensive and an area that receives significant strategic consideration. Given that the recent reforms can give new wings to the critical food processing sector, ITC’S continuing farmer engagements, agri-linkages, distribution reach and initiatives are well poised to respond to the emerging demand impulses. ITC has been focusing on expanding our presence in the rural markets even before the pandemic.
• When asked how sunrise would add value to Ashirvad, he said that Spices is a local business — every locality, every state and every province have their own taste and flavor preferences. Sunrise is very popular in the east — it has got a wide range of products.
• ITC has always been vocal for local. Over the years, they have invested extensively in developing a vibrant portfolio of world class Indian brands which support millions of farmers and creates largescale livelihoods in the country. A bouquet of 25 Indian vibrant brands have been created from scratch. As a relatively late entrant into FMCG, they were up against all the global giants. But ITC went extra lengths to bring in differentiated products and are proudly Indian because all their world-class products are designed in India, sourced in India and made in India with Indian R&D capabilities.
• As a part of their “Nation First” philosophy, ITC focus on domestic procurements, unless circumstances compel to do otherwise. For Fabelle, for example, the chocolate comes from Madagascar because India is not a chocolate growing country. The ingredient is grown only in certain parts of the world. A majority of ITC’S brands anchor domestic agri value chains and create largescale livelihoods. B Natural, ITC’S fruit juices and beverage brand sources fruits directly from Indian farmers instead of importing concentrates. Also, its notebook brand Classmate sources pulp through largescale forestry programmes. Similarly, ITC’S Mangaldeep brand of agarbattis supports indigenous bamboo value chains, instead of importing raw agarbattis.

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

• The closing price of ITC was ₹ 181/- as of 17-Jun-20. It traded at 15.8x/13.9x the consensus EPS estimate of ₹ 11.9/13.5 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 235/- implies a PE multiple of 17.4x on FY22E EPS of ₹ 13.5/-.

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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17 Jun

Need to raise money for lending activities – Shriram Transport Finance

Update on the Indian Equity Market:

Markets witnessed a volatile day as Nifty touched intra-day low of 9,728 before closing the day 1.1% higher at 9,914. The top gainers for Nifty 50 were HDFCBANK (+4.4%), HDFC (+3.9%) and ICICIBANK (+3.4%) while the losing stocks for the day TATAMOTORS (-5.9%), INFRATEL (-2.9%) and INDUSINDBANK (-2.8%). The gaining sectors for the day were FIN SERVICES (+2.8%), BANK (+1.9%) and PVT BANK (+1.9%) whereas PSU BANK (-0.9%), REALTY (-0.8%) and PHARMA (-0.6%) were the losing sectors for the day.

Edited excerpts of an interview with Mr. Umesh Revankar, MD & CEO, Shriram Transport Finance; dated 11th  June 2020 from Economic Times:

  • Since the lockdown has been relaxed, the Company is getting a better understanding of the ground reality. The calculation is that the Company’s customers who have taken moratorium are likely to keep paying but with a delay. Looking at the past behavior, customers may ask for some kind of discount or rebate. The Company has taken care of these things during the March quarter results.
  • The Company has given moratorium to all eligible customers. Approximately 24% of the customers have made part payment in April. Another 52% of the customers have made part payment in May. Whatever customers pay will be treated as prepayment into their account. 
  • The Company keeps three months of liability in the balance sheet. This kind of buffer is present at all times. They continue to keep sufficient buffers to manage future liability as well. Whatever collection is coming is used to build that buffer further as lending is not done in an active manner.
  • They are focusing on lending to customers for working capital requirements. The RTO offices are now open and hence the Company expects lending activity to pick up from next month. 
  • The Company has raised some money through TLTRO and some through term loan- both from public sector banks in May and June. The management has not yet discussed any equity raising plans.
  • Credit cost of the Company has gone up from 2% to 2.42% during the March quarter. They are confident of maintaining the credit cost at around 3% by September and maybe till
    December.

Consensus Estimate: (Source: market screener, Investing websites)

  • The closing price of Shriram Transport Finance Ltd was ₹ 652/- as of 16-June-2020. It traded at 0.8x/ 0.7x the consensus BV estimate of ₹ 859/ 963 for FY21E/ FY22E/ respectively.
  • The consensus target price of ₹ 935/- implies a PB multiple of 0.9x on FY22E BV of ₹ 963/-.

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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16 Jun

Stake sale in SBI Life done only to meet minimum public shareholding requirements- SBI

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 9,814 (-1.6%). Top gainers in NIFTY50 were GAIL (+3.7%), Wipro (+2.6) and HCLT (+2.5%). The top losers were IndusInd Bank (-7.2%), Axis bank (-4.5%) and Tata Motors (-4.4%). The three sectoral gainers were PSU Banks (+1.4%), Media (+0.9%), and Pharma (+0.1%). The sectoral losers were Pvt bank (-3.8%), Bank (-3.6%) and Realty (-3.0%).

Edited excerpts of an interview with Mr Dinesh Kumar Khara, MD, SBI with Economic times dated 12th June 2020:

  • Stake sale in SBI Life has not been done just with the intention of shoring up capital with the bank. It is more from the point of view of meeting the minimum public shareholding (MPS) requirement. They are under commitment to offload another 2.1% by the end of September.
  • The current shareholding is 60% and post divestment of another 2.10% will be at 55.50%.
  • As far as the core parameters are concerned, SBI Life Insurance is doing very well. They are focusing on the protection part and that is also doing very well.
  • There is no plan as of now to offload anything more than this in SBI Life for the time being.
  • The insurance sector is still under-penetrated and there is a huge opportunity for a group like SBI to offer the insurance products for a large population across the length and breadth of the country. So they have a huge opportunity.
  • In the ULIP space, for the last couple of years, they have started building up a sharper focus for the protection products and that is doing very well.
  • For the past many years when the ULIP was getting sold since they had a larger component of ULIP on the debt side, they did not have any challenges on the debt side of the ULIP.

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

  • The closing price of SBI Ltd was ₹ 174/- as of 15-June-2020.  It traded at 0.7x/ 0.6x the consensus book value of ₹ 255 /280 for FY21E/22E respectively.
  • The consensus price target of SBI Ltd is ₹ 272/- which trades at 1.0x the FY22E book value of ₹ 280/-

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 Jun

Insurance sector at an inflection point: HDFC Life

Update on the Indian Equity Market:

The equity index, Nifty recovered from day’s low to end higher at 9,973 (+0.7%). Among the sectoral indices, Auto (+2.9%), Realty (+1.2%), and PSU Bank (+0.8%) led the gainers while IT (-1.5%), and Media (-0.9%) were the only losers. M&M (+7.6%), INFRATEL (+6.5%), and SHREECEM (+5.8%) were the highest gainers while ZEEL (-4.5%), ONGC (-3.4%), and TECHM (-3.1%) led the laggards.

Excerpts of an interview with Ms. Vibha Padalkar, Managing Director (MD) and Chief Executive Officer (CEO), HDFC Life published in Economic Times on 9th June 2020:

  • People are adjusting to the new normal and becoming more resilient and the need for life insurance is becoming more and more apparent, from just one metric.
  • HDFC Life has written more than one lakh policies in the first two months of FY21. Having settled over 500 death claim settlements, over 10,000 maturity claims, and close to a lakh annuity payout, the roadmap to customer servicing in the new normal is being laid.
  • The life insurance sector piggybacks 2-2.5x GDP. If some recovery is seen toward the end of H1FY21, then the insurance sector could show low single-digit growth. In her opinion, the recovery could more likely be W shaped.
  • There is certainly risk-averse sentiment in the market.
  • The online distribution channel has shown growth in YTD May against overall decline for the company and the sector. The Bancassurance channel in May has done significantly better versus April. As banks open their branches, and they adjust to the new norm of digital-based selling, this channel will also see growth.
  • As protection continues to do well, double-digit growth is being observed in that part of the business. The turbulence in the markets has led to reduced demand for unit-linked products for now.
  • Risk-based products are doing very well and the other end of the spectrum like the non-participating products are not doing so well.
  • It is extremely difficult to predict the growth estimates for FY21 and they are taking it on a rolling quarter basis. They have already witnessed a 100 bps increase in the market share and are number one in terms of new business growth in the private sector. They will continue to retain and grow the market share, but it will be a function of overall market pickup as well.
  • The medium-term outlook for the sector is positive since insurance will become more relevant. This is the inflection point for the insurance sector and will start seeing an uptick more than pre-Covid.

Consensus Estimate: (Source: market screener website)

  • The closing price of HDFC Life was ₹ 503/- as of 12-June-2020. It traded at 76x/ 57x the consensus EPS estimate of ₹ 6.6/ 8.8 for FY21E/FY22E respectively.
  • The consensus average target price of ₹ 544/- implies a PE multiple of 62x of FY22E EPS of ₹ 8.8/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

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

 

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12 Jun

We are committed to reaching normalcy by 4QFY21: Titan MD

Update on the Indian Equity Market:

On Thursday, Nifty ended 2.1% lower at 9,902. The top gainers for Nifty 50 were IndusInd bank (+4.3%), Hero Motocorp (+0.8%) and Nestle India (+0.8%) while the losing stocks for the Infratel (-8.9%), ZEEL (-6.7%) and SBI (-5.6%). All the sectors ended in the red zone. The top losing sectors were PSU Bank (-3.9%), Metal (-2.8%) and Bank (-2.7%).

Edited excerpts of an interview with Mr CK Venkataraman, MD, Titan Company Ltd; dated 10th June 2020 from Retail Economic Times:

  • Titan stores have started opening from the first week of May and as of 9th June 2020 nearly 80% of their stores have opened and some of them had seen a four-week run. Titan is trying to get a sense of the trend and it seems that the trend is currently varying across different formats perhaps because there are underlying reasons for people to buy those products.
  • The company had started on a cost erosion programme at the end of CY19, without any idea that COVID is going to come the way and therefore it was a very good thing that Titan had reached a certain momentum and some of that showed up in quarter four of FY20 performance and that momentum will continue to carry that effort into FY21 as well.
  • The sales levels of FY21E are very uncertain. At the moment, Titan is not seeing any major impact on the gross margins of the various product categories despite pressures. The operating margin or the profit margin for the business will be determined by the final sale level the Company will reach for the year which is very difficult to determine.
  • Titan needs to work on creating a desire for products in the customers’ mind even when they are sitting at home. It would involve either getting them to come to the stores or enabling them to buy from home.
  • Marriages are now going to be less grand and the families are going to have more money in their hands which they have not spent on five-star hotels or catering for 2,000 people at lunch and dinner and so on. The industry as well Titan can influence them to flow into jewellery purchase. Thus, Titan bets there to be a higher demand for jewellery.
  • Demand is going to be sluggish but the basic need of people to socialise is not going to go. He is sure that in three-four months from now, people will start doing that and their products will become part of that socialising.
  • Innovation will help the Company in CY2021E.

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

  • The closing price of Titan Company Ltd was ₹ 951/- as of 11-June-2020. It traded at 74.9x/ 44.0x the consensus EPS estimate of ₹ 12.7/21.6 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 1036/- implies a PE multiple of 48.0x on FY22E EPS of ₹ 21.6/-.

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

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11 Jun

Expect supply shortage in June-July– Maruti Suzuki

Update on the Indian Equity Market:

 

On Monday, Nifty closed higher (+0.7%) at 10,116. Within NIFTY50, INDUSINDBK (+10.0%), HINDALCO (+3.1%), and AXISBANK (+2.8%) were the top gainers, while HEROMOTOCO (-3.5%), GAIL (-2.9%) and COALINDIA (-2.4%) were the top losers. Among the sectoral indices, PSU BANK (+3.5%), PVT BANK (+2.1%), and Realty (+1.9%) gained the most.  The losing sectors were AUTO (-1.1%), METAL (-0.6%), and MEDIA (-0.3%).

 

Expect supply shortage in June-July– Maruti Suzuki

 

Excerpts of an interview with Mr.R C Bhargava, Chairman–Maruti Suzuki published in Business Standard dated 10th June 2020:

  • Maruti will not be able to assemble more than 30-40 % of normal levels of production in June. So there will be no issue in selling what is produced as he expects demand will be higher than supply in June and July.
  • Maruti depends on 370-380 vendors and tier 2 and tier 3 suppliers in order to assemble cars. The supply chain is impacted if the vendors are facing issues in terms of labor, logistics, or are still in restricted zones. If the suppliers cannot produce the required components, Maruti cannot assemble cars.
  • Due to this supply issue and demand being higher than supply, Mr. Bhargava does not expect that Maruti will have to sell its cars at a discount.
  • However, Mr. Bhargava is not certain of the trend post-July and if the current demand scenario is only due to some pent-up demand from the lockdown period.
  • As per the Society of Indian Automobile Manufacturers (SIAM) data for the month of May, the volumes saw an 88% decline. Mr. Bhargava believes that the sales will go up gradually.

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

  • The closing price of MARUTIwas ₹ 5,686/- as of 10-June-2020. It traded at 38.4x/ 24.6x the consensus EPS estimate of ₹ 148/ 231 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 5,564/- implies a PE multiple of 24.1x on FY22E EPS of ₹ 231.

 

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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