10 Jun

May have to give incentives to bring labor back: L&T

Update on the Indian Equity Market:

On Tuesday, NIFTY ended down 120 pts (-1.2%) at 10,047 level amid see-saw trade as traders booked profit in recent gainers like banking shares. Lower opening of European shares also weighed on sentiments.
Among the sectoral indices, PHARMA (+1.8%) and FMCG (+0.8%) were among the gainers while MEDIA (-3.3%), BANK (-2.2%) and PVT BANK (-2.0%) were among the top losers.
Among the stocks, DRREDDY (+3.8%), INDUSINDBK (+2.7%) and SUNPHARMA (+1.9%) were the top gainers. ICICIBANK (-3.7%), WIPRO (-3.69%) and GAIL (-3.68%) were the top losers.

Edited excerpts of an interview with Mr. SN Subrahmanyan, Managing Director, Chief Executive Officer, Larsen & Toubro’s L&T with CNBC TV-18 dated 9th June,2020:

• Construction engineering major Larsen & Toubro’s (L&T) Managing Director and CEO, SN Subrahmanyan, on June 8, said that he did not expect any major private investments in India over the next 1-1.5 years. It is maybe a tough statement to make, but that is the way he looks at it. Existing capital expenditure on projects that are already in play will move on, but he doesn’t see any fresh capital induction.
• The company announced a final dividend of Rs 8 per share of the face value of Rs 2 each.
• Mr Subrahmanyan said that the company had seen normalcy come back to some extent in the last three weeks i.e. from Mid-May-2020.
• He also informed that all the factories are back in operation. On the project size, L&T have currently about 950 odd sites and about 90 percent of the sites have started working.
• He, however, said during COVID they had kept around 1,60,000 laborers in labor camps which went down to 70,000 around the month of May-20 and currently the company has only 1,20,000 laborers compared to the 2,20,000 in the pre-COVID period.
• He stated that to get back to normal working L&T needs about 220 thousand laborers. L&T is working on bringing the laborers back to work and expects in another 15-30 days labor availability should be there and it should get back to some kind of normality.
• Normally the laborers go and come back to work 3-4 times during a year for Holi season, Kharif season, marriage season, and Diwali festival season. But this time the situation is different and might be difficult for L&T to bring back the laborers.
• L&T has an app where it has mapped down the names, addresses, phone number and other details of more than 2 mn laborers and are constantly messaging and trying to get in touch with the laborers to get them back.
• Normally Q2 is monsoon season which is relatively low for L&T but this time L&T has put in systems where it can double up the work to compensate the work lost at least partially.
• Mr Subrahmanyan said that fear psychosis and herd mentality had led to labor exodus and further the psychological pressure may hold the workers back. He further added that L&T might have to give some incentives to bring labor back.
• Talking about the impact of COVID-19 on the business, he further added that some billing has taken place in April-20 and May-20 but not to that extent. He expects some recovery in the month of Jun-20.
• He said that overall L&T have backlog of ₹ 15,000 crs of sales, so in the balance 9-10 months of the year L&T needs to catch that up and see how to make it up.

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

• The closing price of L&T was ₹ 951/- as of 09-Jun-20. It traded at 18.3x/13.5x the consensus EPS estimate of ₹ 52.5/71.3 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 1160/- implies a PE multiple of 16.3x on FY22E EPS of ₹ 71.3/-.

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

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09 Jun

Bank has started collections in non- containment zones-Bandhan Bank

Update on the Indian Equity Market:

On Monday, Nifty closed 0.3%higher at 10,167. Among the sectoral indices, IT(+1.8%), PVT Bank (+1.3%), Bank (+0.7%)closed higher, whereas Media (-1.7%), PHARMA (-1.4%) and PSU Bank (-1.2%) closed lower. Among the stocks GAIL (+7.5%), IndusInd Bank (+7.3%),and BPCL (+7.0%) closed on a positive note.ZEEL (-4.5%), ShreeCement (-3.9%) and Eicher Motor (-3.4%) were among the top losers.

Excerpts from an interview of Mr.Chandra Shekhar Ghosh, CEO, Bandhan Bankwith Mint dated  8thJune 2020:

  • The pandemic has brought in a whole new set of risks for banks which are both internal and external.
  • The bank is asking its customers to use more digital modes of transaction in the changed scenario.
  • Branches were operational throughout the lockdown by observing government and administration rules.For Bandhan Bank, there were not many people working remotely.
  • He said some things can be done virtually. Earlier all regional managers were mandated to come to the head office for meetings but now the bank is doing it virtually and it is working.These efforts are saving expenses on travel.
  • Every sector cannot work from home and in banking some jobs might be possible but not all.
  • For Bandhan Bank, there is not a greater degree of acceptability to work – from- home.There are a lot of security issues related to bankers working remotely and that includes possible violations of agreements with customers, bound by data-security clauses.
  • The bank will have to take a deeper look into how these risks could be mitigated and only then banks will be able to move towards a work-from-home model.
  • On recoveries, he saidcollections have just started and at the ground level, the borrowers, especially in micro-credit involved in livelihood projects and agriculture, are continuing their businesses. Due to lockdown the bank is not being able to reach them.
  • The bank has started collections in the non-containment zone. However, the problem is that collection executives are facing difficulties in collecting loans from villages, as local residents are not allowing outsiders to access those places, citing covid-19 risks.
  • Speaking about post covid-19 opportunities, he said secured credit is the area where there are big opportunities.
  • There are customers who have been regularly paying all equated monthly installments (EMIs) and are eligible for more funds. These are small businesses which are running despite the lockdown.
  • When the rural demand recovers, pick-up in two-wheelers and other vehicles popularly used in these areas will see demand, and so will bank loans in these segments. Demand for gold loans is also coming quite strong.

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

  • The closing price of Bandhan Bankwas ₹ 264/- as of 8-June-2020.  It traded at 2.4x/ 2.0x theconsensus book value estimate of ₹ 107/127for FY21E/ FY22E respectively.
  • The consensus average target price for Bandhan Bank is ₹284/- which implies a PB multiple of 2.2x on FY22E BV of ₹127/-.

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.”

By Bandhan Bank, Bank, Uncategorized 0 Comments Read more...
08 Jun

Built-up social capital helped in working in remote areas during the crisis: Infosys

Update on the Indian Equity Market:

Markets shrugged Thursday’s losses as Nifty closed the day 1.1% higher at 10,142. The top gainers for Nifty 50 were Tata Motors (+13.7%), SBIN (+8.7%) and INFRATEL (+8.3%) while the losing stocks for the day TCS (-1.8%), HINDUNILVR (-1.6%) and BAJAJAUTO (-1.4%). The gaining sectors for the day were PSU BANK (+6.9%), MEDIA (+5.3%) and NIFTY BANK (+3.2%). FMCG (-0.7%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Salil Parekh, CEO, Infosys Ltd; dated 4th June 2020 from Economic Times:

  • Over the past few years, Infosys has invested in technology infrastructure, remote access and telecommunications. As a result, the Company was able to scale up work from home with ease and security. They currently employ 240,000 people of which 90% have migrated and are working from home.
  • The infrastructure for working from remote places was already in place for Infosys. The Company simply had to scale it up and make it effective.
  • About the future of the work environment, he mentioned that people are underestimating the value of building social capital by working together. He explained that remote working has worked for the Company because of the social capital that they built over the years of working together. His sense is that working from home shall continue till we achieve medical milestones in therapeutics and vaccines post which we should look at rebuilding and expanding social capital because that is the glue which has helped to put all of this together.
  • The Company has not yet finalized on the target model for working culture. There are tremendous benefits to work from home or remote working. It creates a lot of flexibility for many employees. The way is to build a model once we are out of this crisis.
  • The IT industry will look at the most effective ways of cutting costs like travel expenses, and onsite expenses. There will be some efficiencies in adopting this model but it is too early to quantify how much per cent will be saved on a permanent basis.
  • He emphasized on the fact that hiring is still an important part of the IT industry. The industry is witnessing technology demand in the digital cloud areas.

Consensus Estimate: (Source: market screener website)

  • The closing price of Infosys Ltd was ₹ 707/- as of 05-June-2020. It traded at 18.9x/ 16.7x/ 15.2x the consensus EPS estimate of ₹3/ 42.3/ 46.3 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 725/- implies a PE multiple of 17x on FY22E EPS of ₹3/-.

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.”

By Infosys, IT 0 Comments Read more...
05 Jun

Not looking at a huge change in distribution : Britannia

Update on the Indian Equity Market:

On Thursday, the indices ended lower after a six-day gaining streak. The Nifty ended slightly lower at 10,029. Among the sectors, Media (+4.1%), Pharma (+2.2%), and IT (+1.9%) were the top gainers. Private Bank (-3.1%), Financial Services (-2.6%), Bank (-2.6%) led the losers. VEDL (+7.7%), BHARTIARTL (+5.7%), and ZEEL (+5.5%) led the gainers while ASIANPAINT (-4.6%), BAJFINANCE (-4.0%), and HDFC (-4.0%) ended in the red.

Britannia recently declared its fourth-quarter results. In a post-result interview, Britannia Industries MD, Mr. Varun Berry discussed distribution network, market share, and margins. Here are the edited excerpts of his interview with ET Retail on 4th June 2020:

  • Britannia has a reach of about 5.5 million outlets. During the lockdown period, e-commerce has witnessed a massive 300% growth, which is about a percentage of their total sales. In the time to go, it is expected to grow from 1% to 2% to 5%.
  • Though e-commerce is growing exponentially, there is a huge base of the supply chain pyramid which has to be kept serving. Hence, he does not believe that distribution strategies are going to change in a hurry.
  • It will remain to be a situation where you will have to service kirana stores because they are so entrepreneurial in their way, they operate that they service their own markets wherever they are in a way e-commerce would do in a large city. As long as they have the infrastructure, kirana stores will be serviced by companies like Britannia.
  • There are some strong brands where they will prefer taking a pull strategy, rather than a push strategy. A couple of years back, they had adopted a modified pull strategy which has a disastrous impact.
  • Since they are not looking at adopting the strategy in a hurry, they will continue to have direct distribution to 2.5 million-odd retailers. The strategy of servicing the wholesalers will continue. There will be a disproportionate focus and nurturing of modern trade, e-commerce, and alternate channels, but the base strategy will not change.
  • A lot of freebies have been cut out due to the lack of availability. A lot of costs from the sales and marketing system have been cut down. They will continue doing that going forward.
  • Ad spends have been cut till now. Once a normal stocking of brands starts, normal ad spends will resume. This month itself, they will get back to advertising for some of the brands once they have enough product, which will be a temporary phenomenon.
  • They will continue to nurture and build brands for the future. Since it seems everyone is sitting at home and watching television, Mr. Berry is of the opinion that it is the right time to advertise and they will start doing that.
  • Investments will be made in creating new brands and launching new products. But there is the labor shortage issue. Since migrant workers have gone back, Britannia is operating at a lower capacity in every factory. Due to this, prioritization has become important and thus they are staying away from innovations. As soon as there are sufficient workers, they will start unleashing some of the innovative products.
  • Britannia is at the operating leverage cusp and has witnessed a disproportionate jump in margins in the last quarter results. However, its sustainability after a period of time will have to be looked at. The focus will be on unearthing opportunities and making the business efficient going forward.
  • From a 4% margin seven-eight years ago to around 15% now, operating margins have certainly improved. There will certainly be progress on the margin but in a slow and steady fashion.

Consensus Estimate: (Source: market screener website)

  • The closing price of Britannia was ₹ 3,458/- as of 4-June-2020. It traded at 51x/ 45x the consensus earnings estimate of ₹ 68.0/76.8 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 3,540/- implies a PE multiple of 46x on FY22E EPS of ₹ 76.8/-.

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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04 Jun

It is time to really transform the agriculture sector – ITC

Update on the Indian Equity Market:

On Wednesday, NIFTY closed above 10,000 at 10,061 (-0.83%). Top gainers in NIFTY50 were M&M (+5.4%), Bajaj Finance (+3.2%) and Kotak Bank (+3.1%). The top losers were Zee (-2%), NTPC (-1.9%) and Infratel (-1.9%). Top sectoral gainer was PSU BANK (+5.2%), REALTY (+3.1%) and BANK (+2.0%) and sectoral losers were IT (-0.4%), and METAL (-0.2%).

Excerpts of an interview with Mr Sanjeev Puri, chairman & MD-ITC Ltd with Livemint dated 2nd June 2020:

  • We need to really accelerate the economic growth in areas that create large livelihoods. There is no other sector in India, like agriculture, where nearly 50% of the livelihoods are engaged in. India needs to really transform the agriculture sector.
  • Government has moved to amend the nearly six-decade-old Essential Commodities Act to bring better price realization for farmers and to attract investments into the farm sector.
  • The government has laid the foundation for some transformative reforms, by providing alternative market access to farmers and the modification to the Essential Commodities Act.
  • These are powerful tools, which over time, will bring the buyers and sellers of agri-produce close and enable a lot of collaboration.
  • More competitive value chains in the farm sector and investments in food processing will ensure enormous job opportunities.
  • He believes that India needs to go the whole hog on value addition there, need to improve the productivity of the agriculture value chains, we need to create a strong ‘phygital’ (a physical and digital) system to empower the farmers and connect them to markets.
  • By creating a very competitive value chain, with a lot of focus on value addition, India will be able to take a bigger share of the global trade in food processing and agriculture.
  • Agriculture is nearly half of India’s workforce. However, the quality of earnings there is definitely on the lower side. They actually need to improve the quality of earnings by improvement in productivity, in the quality of produce, get into pesticide-free production, get into organics, get into horticulture, which raises the incomes. They need to move forward as far as processing is concerned and add a lot of value to agri produce.
  • The central/state governments and the industry need to work together to bring the migrant labourers back from their villages.
  • Corporates themselves are under pressure during this time of the pandemic, because of the stalling of economic activities. This is the time when they have to show enormous amounts of compassion.

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

  • The closing price of ITC Ltd was ₹ 197/- as of 3rd June 2020.  It traded at 16x/ 14x the consensus earnings estimate of ₹ 12.1/ 13.8 for FY21E/22E respectively.
  • The consensus price target of ITC Ltd is ₹ 237/- which trades at 17x the earnings estimate for FY22E of ₹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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03 Jun

We have a very healthy cash surplus of over Rs 3,800 crores: Dabur

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.6% higher at 9,979. The top gainers for Nifty 50 were Bajaj Finserv (+9.5%), Zee Entertainment (+9.1%) and Bajaj Finance (+8.2%) while the losing stocks for the day Coal India (-3.3%), Maruti (-1.9%) and BPCL (-1.4%). The gaining sectors for the day were Realty (+4.9%), Media (+3.3%) and Pvt Bank (+3.2%). FMCG (-0.7%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Lalit Malik, CFO, Dabur India Ltd; dated 29th May 2020 from Retail Economic Times:

 

  • Volume growth has seen a decline of 14.6% in 4QFY20 for Dabur which was the lowest growth in 11 quarters. The growth was on track till February and the Company was ahead of other FMCG companies. However, in March, due to the sudden lockdown, there was a supply chain blockage and Dabur was not able to invoice which was due even in case of seasonal goods like juices, glucose etc. This caused a decline of 14.6% in the India FMCG business.
  • For the juice and glucose categories, it was the peak season for the Company, given the summer setting in. If things were normal, Dabur’s growth would have been on track.
  • The healthcare segment of Dabur saw a slow opening in the middle of April. With the launch of the sanitizer during this period, Dabur has gained momentum and things may have been much better.
  • At present, though all manufacturing units are open, Dabur is working at 60-70% capacity. As far as the supply side is concerned with regard to the C&F as well as to the distributors, barring a few areas which are in the red zone and where there are restrictions with regard to supply, other categories including rural have returned to normal.
  • Mr Malik added, E-commerce has been growing at the rate of more than 100%. There are different channels which are giving promising returns in the new normal. However, there are still some pockets which are in the red zone where there are some restrictions and Dabur is waiting for that to get normal so that they will be back to 100%.
  • Dabur has a very healthy cash surplus which is more than Rs 3,800 crores. They don’t see any stress to their balance sheet or liquidity. The Company is being careful with regards to their working capital management as well as its operating cash flow.
  • With 60-70% running capacity, the Company sees no major deviation with regard to their inventory pile-up or shortage because they are monitoring the demand and supply side very carefully. For example, their healthcare category is moving at a faster pace. In the case of Chyawanprash, the growth rate is almost 400%. Thus, Dabur has accelerated production and therefore they are able to meet the increase in demand. There are different pockets where the demand is increasing and therefore they have increased their production and supply.
  • At present, the discretionary item demand is slow and this is where the Company is going slowly with regard to production so that they are able to manage the inventory and there is no loss of sale in case demand comes back.
  • Dabur has extended its village coverage by 52,000 though the target was to reach 65,000 villages because of the lockdown, they were not able to expand.
  • In the current scenario, there are two very important things according to Mr Malik:
  1. It is very important to have healthcare products that they manufacture to be made available to people at large because that is a need in the country right now. Therefore, their focus is to have all their products like Chyawanprash, Tulsi drop, Haldi drop, Giloy etc., made available to the people as these are all immunity boosters.
  2. On the hygiene and sanitiser front, their focus is to reach out. When volumes are affected, there would certainly be pressure on the margins. For that, they have undertaken a cost savings initiative under project Samridhi, where they are focussing on zero-base budgeting and questioning every line item of expenditure and addressing what is essential for them in the new normal scenario.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Dabur India Ltd was ₹ 461/- as of 02-June-2020. It traded at 51.5x/ 44.8x the consensus EPS estimate of ₹ 8.9/10.3 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 463/- implies a PE multiple of 45.0x on FY22E EPS of ₹ 10.3/-.

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.”

By Dabur, FMCG , , , , , 0 Comments Read more...
02 Jun

India’s intrinsic growth story intact–Siemens India

Update on the Indian Equity Market:

On Monday, Nifty closed higher (+2.6%) at 9,826. Within NIFTY50, BAJFINANCE (+10.5%), BAJAJFINSV(+7.8%), and TITAN (+7.7%) were the top gainers, while DRREDDY (-2.9%), INFRATEL (-2.5%) and ULTRACEMCO (-2.2%) were the top losers. All the sectoral indices gained in the session led byPSU BANK (+7.6%), METAL (+3.9%) and FIN SERVICE (+3.6%).

Excerpts of an interview with Mr.Sunil Mathur, MD & CEO –Siemens India published in Business Standard dated 1st June 2020:

  • The process of resuming operations has been complicated. Social distancing has to be carried out without upsetting the machinery process in a factory.
  • There are various concerns related to supply chains, capacity utilization, logistics, and labor-related concerns.
  • There are different conversations happening with customers. Some customers want to wait for normalcy to return before taking delivery of materials as projects have halted. Some customers who had already ordered materials now have a different view of the business and might have to rethink or defer their capex plans.
  • Siemens is still receiving orders as their business is varied and they are heavy on digitization. But the ordering in general has become sluggish as companies are not in offices to provide physical signatures to book an order.
  • Some customers are talking about delaying payments. Siemens on its part has not yet delayed payments to their suppliers. But it’s a fine balance as if customers are not paying, Siemens will have to rethink about payments to their suppliers.
  • Currently, no customer will agree to an increase in prices and no supplier will agree to a reduction in cost. Siemens will have to manage both and still be profitable. The strategy of the last seven years, of focusing on profitable growth, continues for Siemens.
  • The Covid crisis is a hiccup, but India’s intrinsic growth story has not changed. India needs to ramp up green energy, power transmission and distribution, Metro rail, and railways. Siemens expects orders across segments.
  • Of the Rs 20 tn stimulus package, Rs 900bn package for distribution companies is a step in the right direction. Support for agriculture is also a good measure. But Mr. Mathur believes the government needs to step up infra spends to fuel the economy. It was mentioned in the package, but the conversion to actual tendering on ground remains to be seen.

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

  • The closing price ofSIEMENS was ₹ 1,125/- as of 1-June-2020. It traded at 51.1x/ 34.8x/ 30.7x the consensus EPS estimate of ₹ 22.0/ 32.3/ 36.7 for FY20E/ FY21E/ FY22E respectively. (Siemens’s fiscal year is on a September ending basis)
  • Consensus target price of ₹ 1,173/- implies a PE multiple of 32.0x on FY22E EPS of ₹ 36.7.

 

 

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

 

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01 Jun

Tough for industry to crank up quickly: TVS Motor Company

Update on the Indian Equity Market:

On Friday, NIFTY ended up 90 pts (+0.9%) at 9580 levels ahead of the release of GDP data for the January-March quarter of 2019-20 (Q4FY20). Among the sectoral indices, REALTY (4.3%), PHARMA (3.2%) and FMCG (3.0%) were among the top gainers while IT (-0.1%) and MEDIA (-0.04%) were the losers.
IOC (+7.5%), WIPRO (+6.3%) and ONGC (+5.1%) were the top gainers. AXISBANK (-2.3%), BHARTIARTL (-2.3%) and ADANIPORTS (-1.5%) were the top losers.

Edited excerpts of an interview with Mr. Venu Srinivasan, Chairman, TVS Motor Company:

TVS Motor Company Chairman speaks of the challenges ahead while easing the lockdown. Mr. Srinivasan believes the devastation caused by the pandemic is not going to disappear in a hurry

• His comments on COVID-19: It is going to be a very painful period in our economic history. He thinks we have to hunker down and go through it because there is definitely no stop to this infection. The truth is that Covid-19 is likely to stay around for a long, long time to come. Being a fast mutating virus, a vaccine may not be found very quickly either. Yet, the good part at least for now is that it is not so fatal, which means we will learn to get on with our lives and live with it. As he explains, this is information based on over five months of the virus being studied internationally which, in turn, could have played a key role in prompting many countries to ease up their lockdowns.
• During this time, there have been more updates coming in about Covid-19 and many Indian States have decided to open up factories in recent weeks. However, the recovery process will take time, especially when you have clogged all the wheels of the industry with grease which has caked and stuck. Add some rust to this and it is obvious that you cannot just switch it on and expect it to run.
• Srinivasan said that the top priority is to protect factories from accidents and make sure that all safety norms are in place. Right from furnaces to chemical reactors and heat exchangers, everything needs to be reset. Across the country, you have to evaluate the status of the plant and make sure that it is done in a systematic process.
• There are other challenges to contend with as the industry slowly limps back to a state of normalcy. Companies need to cope with the reality that lots of people, including the younger lot, are not turning up for work.
• For those living in containment zones, he advised them to stay there and not come to work since others will be put to risk in the process. However, there are people who are not in the containment zone but are still refusing to come to work because there is pressure from parents, spouses, children, and peers. There is a lot of fear but people are slowly coming in and we will have enough at work in TVS added Mr. Srinivasan.
• The situation is a lot more complex for ancillary suppliers, especially the small ones, categorized as Tier 2/3 vendors. These entities employ a lot of migrant labor who are clearly in no mood to return to the cities in a hurry.
• He also stated that migrants who have gone back with great difficulty to their villages while paying large sums of money. Some have even entirely lost their savings and they are not going to come back just because you say jobs are open from tomorrow.
• In this backdrop, he believes that it will take four to twelve weeks for “this wheel to start up and get running”. It is not as if everybody is going to come to work because factories are open, especially when it involves units which are further down the automotive supply chain. These encompass smaller ancillary suppliers with low value-added manual jobs and the impact will be even more significant for them. In and around Chennai, continues Srinivasan, there is a large migrant population in these small and medium auto ancillary units. Likewise, the construction industry is also “largely migrant-driven” and a major provider of employment.
• Given the situation, whatever we do, the industry cannot crank up that quickly. And once we crank up, he is not sure if demand is going to come back that quickly either said Mr Srinivasan.
• In other words, it is not just a question of production but also of demand which will take a few quarters coming through the system.
• He said that it is anybody’s guess if it will be two or three quarters even while pessimists are talking of six quarters. We have to see it day by day.
• No wonder he describes this as “an unprecedented situation” where the whole world has been compelled to opt for a lockdown. India was no exception to the rule either.
• He also added that when Covid first struck, there was nothing known about it and we had to take drastic action to protect our society. A few months have gone by and serious studies have shown that there is going to be no quick breakthrough in a vaccine.
• The good news for India is that the fatality rate is very, very low, unlike North America or Europe which have seen huge losses of lives. The next step, according to Srinivasan, is to evaluate the cost of livelihoods lost versus lives lost and the right thing to do now is to gradually and selectively open up the economy.
• However, this has to be done with care, especially if there is a big spread and hence the need for a phased/gradual manner he said. It is also clear now that it is better to quarantine the vulnerable part of the population rather than the whole country.
• WFH positives: From TVS Motor’s point of view, the entire exercise of working from home (WFH) has had some interesting positives. He observed a lot of staff functions that are not needed any more. Similarly, area and regional offices are not needed either since many of the people can work from home elaborated Srinivasan.
• Likewise, travel can reduce by up to 50 per cent on an average, especially air travel, which will come down dramatically. As he puts it, there is so much time lost going to the airport, being screened amid tight security before flying out and then spending time on the road all over again before reaching the final destination. We now realise that any time we went to meet someone for an hour, we ended up travelling seven hours from Chennai to either Mumbai or Delhi. Now, with digital taking over in the Covid-19 world, many meetings can be done comfortably online. Yet, it is not as if the physical part will be taken over completely since we also need to see people in board meetings and their body language, especially if someone is objecting to a certain proposal.
• He further added that there is the limitation of video conferences, where one only sees the person who is speaking. All meetings cannot happen online.
• According to Srinivasan, it is also difficult to predict all the changes that will happen in a post-Covid world. One school of thought subscribes to the belief that everyone will be hesitant to travel by public transport and private ownership of cars and two-wheelers will grow.
• From Srinivasan’s point of view, the positives will be better hygiene standards at least till the fear lingers and some paranoia persists. Likewise, he adds, personal space/distancing will grow with hugging and physical displays of affection taking the backseat.
• On the business side, digital buying of vehicles will increase and customers will be happier to check out road tests, spec comparisons and reviews online before zeroing in on a certain car or two-wheeler. This will save needless trips to dealerships.
• There has been a lot of debate on the excessive dependence on China as a single supply point for sourcing components especially during the pandemic. More recently, geopolitical tensions have peaked with the US, Australia and some European nations clearly livid with China for, what they feel, its alleged role in unleashing Covid-19 on the world.
• According to Srinivasan, long supply chains are going to be suspect going forward and manufacturers will have to produce some significant quantity in the free trade region where they will be selling products. For instance, this does not have to be the US, but Canada or Mexico.
• He cites the example of TVS Motor which, two years ago, decided to go in for a de-risk strategy in sourcing from China. There was no Covid-19 in sight then but many of its Chinese suppliers relocated to India following a carefully thought out plan.
• He said that they felt that there were a dozen parts which came largely from China. Even if the value was merely 10-12 per cent, it just meant that a bike could not be produced without them. They took a decision that they had to be made here and it really helped them.
• While the lockdown pretty much ensured that the wheels of industry came to a grinding halt, the fact remained that the China shutdown was no threat to our production at all. This was not true for other automakers, who felt the pinch when supplies from China were cut off.
• With Covid-19, the need to produce closer to home has also become more pronounced. From the industry’s point of view, the pandemic has posed a huge risk in terms of wreaking havoc across the supply chain. Shutting down borders, logistics, transport and so on have only made the situation more complex in India.
• The good part is that the lockdown has seen cleaner air and rivers, which only reinforces the need to keep this going even after economic activity resumes optimally in the coming weeks. Srinivasan thinks this is also a good opportunity for the Centre to spend more on the Swachh Bharat Mission where 20 cities, for instance, can be earmarked for a zero pollution drive.
• He stated that we need rigid enforcement of laws in sewage treatment. Small industries were releasing untested sewage and this is a wakeup call for the country to take Swachh Bharat seriously in terms of recycling, cleaning and reuse.
• For the auto sector which has made big investments in Bharat Stage-VI emission standards, the key is to continue the effort towards cleaner mobility. He informed that there was some degree of over-enthusiasm to go all electric in two years, which is just not feasible.
• It is his view that the world will take a couple of years to get back to normal in an L-shaped, and not V-shaped, recovery curve. He sees this situation as an opportunity to reset use of people, buildings, energy, travel and everything in life. How much less can we live with in terms of eating out, having simpler food, not buying as many clothes or having as many haircuts!!

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

• The closing price of TVS Motors was ₹ 337/- as of 28-May-20. It traded at 33.1x/21.6x the consensus EPS estimate of ₹ 10.1/15.4 for FY21E/ FY22E respectively.
• The consensus target price of ₹ 355/- implies a PE multiple of 23x on FY22E EPS of ₹ 15.4/-.

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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29 May

Cash flow will be a challenge for the hospitality industry – Prestige Group

Update on the Indian Equity Market:

On Friday Nifty closed 1.9%higher at 9,490. Among the sectoral indices Auto (+3.7%), Media (+3.6%), and PVT Bank (+2.79%) closed higher. PSU Bank (-0.4%) was the only sector that closed lower.ZEEL (+9.6%), Eicher Motor (+7.3%) and L&T (+5.8%) closed on a positive note. Wipro (-0.9%), ITC (-0.6%) and CIPLA (-0.5%) were among the top losers.

Excerpts from an interview of MrZaid Sadiq,Executive Director, Prestigegroupwith ET Now:

  • Before the crisis hit, the Indian hospitality industry along with tourism was one of the key segments driving the growth of the services sector in the Indian economy.
  • The pandemic and lockdown has brought things to a standstill and the hospitality industry is taking stock and reinventing them to successfully revive the sector in the post Covid world.
  • Speaking about the long term effect of Covid-19 on the industry he saidgiven the dynamic and the unprecedented nature of this global crisis, it is expected to witness the ripple effects of Covid-19 across socio-economic sectors for at least another year.
  • There is a hope to begin the journey towards recovery by June 2020 – provided India manages to flatten the corona virus curve.
  • Speaking about the post covid-19 strategy to garner business, he added thatthe pandemic is changing the world, and businesses that are able to come up with innovative solutions to offer the right customer experience will be in a position to seize the opportunity and accelerate the recovery journey.
  • The company is working closely with domestic partners and collaboration will be the key strategy. It will focus on the home-grown business; the ideal revenue stream will be Food & Beverage, including catering.
  • The focus on room business will be back after the economy stabilizes.
  • Speaking about the government, he saidthe Indian government has done a remarkable job of combating the global outbreak, the exact trajectory of which is still unknown.
  • The government should consider extending the option of delaying of loan repayment / EMIs to business entities and slashing GST rates as cash flow will be a challenge for hospitality industry.
  • The Covid-19 pandemic has taught us the importance of business agility, disaster preparedness, collaboration and compassion. The company is finding innovative ways to cut costs, manage unknown risks and work with fewer resources.

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

  • The closing price of Prestige Estate Projects was ₹ 145/- as of 28-May-2020.  It traded at 12.3x/ 10.75x the consensus Earnings per share estimate of ₹ 11.7/13.5 forFY21E/ FY22E respectively.
  • The consensus average target price for Prestige Estate Projects is ₹ 318/- which implies a PE multiple of 23.5x 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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28 May

Need more clarity on the extension of the moratorium: Sanjiv Bajaj, Bajaj Finserv

Update on Indian equity market:

Ahead of the monthly F&O expiry session, the Nifty rallied 3.2% (286 points) largely on the back of banking stocks to close at 9,312.  Within the index, only eight stocks closed lower with SUNPHARMA (-2.0%), ULTRACEMCO (-1.5%) and ZEEL (-1.0%) being the biggest losers. Among the winners, AXISBANK (14.2%), ICICIBANK (8.9%) and WIPRO (7.1%) were the highest gainers. Within the sector indices, PVT BANK (7.5%),  BANK (7.3%) and FIN SERVICES (5.9%) were the highest gainers whereas PHARMA (-0.2%) and MEDIA (-0.1%) were the only sectors that closed in the red.

Excerpts from an interview with Mr Sanjiv Bajaj, MD & CEO, Bajaj Finserv aired on  ET NOW on 27th May 2020:

 

  • This pandemic has put the entire economy in a coma because both the demand as well as the supply side has stopped working. He further mentioned that the country needs to get out of lockdown as soon as possible. 
  • Reserve Bank of India (RBI) has taken significant steps and has been quite proactive in the last few months. There is a need to stimulate the demand side as well to balance the equation. People need to be given the confidence to start spending and buy things sensibly. This is how the economy will get back to its feet.
  • According to him, the extension of moratorium was not necessary. For the first three months, the moratorium was understandable as the economy was frozen. The second three-month moratorium needs to be better calibrated. There are still clarifications that a number of companies including Bajaj Finance (a subsidiary of Bajaj Finserv) are pursuing. He would prefer allowing a one-time restructuring which gives the option to the lender to decide which truly deserve extension rather than a blanket moratorium.

 

  • He sought two more clarifications from the RBI. Is the second three-month moratorium applicable only to pre-Covid loans or is it available to new loans today? If somebody takes a new loan today, does he not have to pay for three months? He said that if the above two conditions are allowed, this creates a disadvantage for the lenders.
  • Speaking about the borrowing profile, he mentioned that the sources of borrowing for Bajaj Finance have been well-distributed. The Company does not have over-dependence on Banks. Second, the Company sources 20% of borrowings from fixed deposits. Third, the company keeps 4-7% of borrowings into liquid assets where returns are 4-5% instead of a 20% RoE. This is to ensure that the book stays solid. 
  • He further mentioned that Bajaj Finance at a consolidated level has liquidity of Rs 210,000 mn. It probably takes away Rs 3,000-4,000 mn of profits every year but it creates a stronger franchise in many ways mimicking what a bank does. 

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

  • The closing price of Bajaj Finserv was Rs 4,249/- as of 27-May-2020. It traded at 1.9x/ 1.7x the consensus Book Value estimate of Rs 2,157/ 2,495 for FY21E/ FY22E respectively.
  • The consensus target price of Rs 6,054/- implies a PB multiple of 2.4x on the FY22E BV estimate of Rs 2,495/- 

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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