14 May

Will focus more on secured loans, as it looks to diversify loan book says Bandhan Bank’s Chandra Shekhar Ghosh

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the green at 9,383 (+2.0%). Top gainers in NIFTY50 were ZEEL
(+7.7%), Axis Bank (+7.0%) and ULTRACEMCO (+6.4%). The top losers were Nestle (-5.2%), Sun
Pharma (-2.2%) and Bharti Airtel (-1.1%). Sectoral gains were supported by Banks. Top sectoral
gainers were PSU Banks (+6.1%), Bank (+4.1%) and PVT Bank (+3.9%) and sectoral losers were
Pharma (-1.1%) and FMCG (-0.7%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, CEO, Bandhan Bank Ltd with Financial
Express dated 13 th May 2020:

● Bandhan Bank expects around four weeks could be needed for normalisation of its
microfinance collections after the countrywide lock-down is lifted
● For microloan, 100% loan moratorium in value opted for April as they could not meet their
microfinance borrowers for collections due to the lock down.
● Around 79% of their microfinance borrowers have an average deposit balance of around Rs
3,070, which is equivalent to over four weekly instalments.
● Around 87% of their housing loan EMIs had come in April, while 65% (in value) of SME
instalments had come during the month. Around 41% (in value) of NBFC-MFI’s instalments
had been paid.
● They have started operations in microfinance business with opening offices in the green
zones across the country. They have disbursed some microfinance loans, though the amount
is very small.
● They will disburse more loans to micro-credit customers if they need because they know
their credit history for a long time. They have not yet started fresh disbursement in the non-
micro-credit sector (after the lock down is imposed).
● After restarting the operations, customers will look into their cash flow conditions.
Depending on that they will take a call on fresh loans.
● The faster the lock down is lifted, the faster they will get back to the pre-lockdown period in
terms of collections from different sectors. Until that happens there will be requirements for
supports from the RBI and the government. The loan moratorium has helped.
● Going forward, they would like to go for more diversification of their loan book, more
secured loan book than the current book.
● As of now, around 62% of their loan book is micro-credit. They would like to be more focus
on affordable housing and MSME sectors. Also, they would like to go for more geographic
expansion across the country.

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

● The closing price of Bandhan Bank Ltd was ₹ 254/- as of 13-May-2020.  It traded at 2.3x/ 1.9x
the consensus earnings estimate of ₹ 111 /135 for FY21E/22E respectively.
● The consensus price target of Bandhan Bank Ltd is ₹ 316/- which trades at 2.3x the book value of
₹ 135/-

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 advisers to determine the merit, risks, and suitability of the information provided.

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13 May

Maruti Suzuki to resume production with 50% workforce at Manesar plant: RC Bhargava

Update on the Indian Equity Market:

On Tuesday, Nifty ended 0.5% lower at 9,196. The top gainers for Nifty 50 were Vedanta (+12.4%), NTPC (+5.9%) and ITC (+4.5%) while the losing stocks for the day Reliance (-5.7%), GAIL (-3.7%) and Asian Paints (-3.0%). The gaining sectors for the day were Media (+1.7%), Metal (+1.2%) and Realty (+0.8%). The worst performing sectors were Pvt Bank (-0.7%), Pharma (-0.6%) and Bank (-0.5%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki India; dated 12th May 2020 from CNBCTV18:

  • The carmaker will resume partial operations at their Manesar plant in Haryana with a 50% workforce. Manpower permission is around 75% with one shift only.
  • The Company is allowed to start operations with one shift now and it will focus on a limited number of models.
  • The Company will be able to assess the demand-side situation only after a few weeks. He added that it is difficult to predict the demand side as it is too early. The dealerships have started functioning, but not all of them are functioning. The level of inquiries is also respectable but at this moment there is some supply-side constraint.
  • The overall volumes are bound to be impacted because of the ongoing restrictions and reduced manpower capacity. Normally the workings hours for the Company are 8 hours in one shift but with the various restrictions, the working hours are expected to come down to 6.5 hours in a shift. This reduces the capacity according to him. At the same time, the Company will be operating in only one shift with all other restrictions impacting the production quantity.
  • For a clear demand side pictures, dealers should at least work for 2-3 weeks.
  • Some of the suppliers for Maruti are in the containment zones. Therefore, the suppliers cannot produce in those areas. Maruti had to look for some alternative supplier for some components. Some models of the Company cannot be produced because those components cannot be found. Thus, the Company has to adjust the production volumes and models in accordance with the supply chain.
  • There is no certainty as to which supplier will remain a supplier and that he will not come under a containment zone in the next 10 days according to Mr Bhargava.
  • The Company may also face issues because the temporary workers at their Manesar plant have gone back to their villages.
  • Maruti has given cash advance against supplies to many of its vendors.
  • Overall, the auto industry could end up with 20-25% less sales compared to last year.
  • The cars are taxed very heavily in India, making the affordability of cars an issue. He expressed hope that the government will keep taxes on cars at a reasonable level.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Maruti Suzuki India Ltd was ₹ 4,955/- as of 12-May-2020. It traded at 24.9x/ 19.0x the consensus EPS estimate of ₹ 199/260 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 6,308/- implies a PE multiple of 24.3x on FY22E EPS of ₹ 260/-.

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 May

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

Update on the Indian Equity Market:

 

On Monday, Nifty closed marginally negative (-0.13%) at 9,239. Within NIFTY50, HEROMOTOCO (+6.1%), TATAMOTORS (+5.9%), and INFRATEL (+5.9%) were the top gainers, while ICICIBANK (-4.6%), BPCL (-3.2%) and DRREDDY (-3.0%) were the top losers. Among the sectoral indices,AUTO (+4.3%), MEDIA (+2.7%) and IT (+1.4%) gained the most. PVT BANK (-2.2%), BANK (-2.1%) and FIN SERVICE (-1.8%) were the top losers.

 

Even in current crisis, insurance penetration has not gone up as per expectations – Mr Tapan Singhel, MD&CEO – Bajaj Allianz General Insurance

 

Excerpts of an interview with Mr.Tapan Singhel, MD&CEO- Bajaj Allianz General Insurance (Part of Bajaj Finserv) published in Business Standard dated 11th May 2020:

  • The staff of Bajaj Allianz General Insurance (BAGIC) was prepared when the lockdown started as they had gone into Work from home (WFH) before the lockdown was announced.
  • During the lockdown, BAGIC has issued around 1.7 mn policies and settled around 900,000 claims.
  • BAGIC has seen that people are more productive in the WFH structure. If that continues, WFH may become the new norm.
  • BAGIC’s growth for FY19 has been 16% vs. industry growth of 9%.
  • Many enquiries are coming up in the retail health segment. Health policies have Covid-19 cover even now. But the spike in health product sales has not been as much as could be expected. This is surprising given the already low penetration levels of health insurance in India.
  • Among other insurance segments, property business has seen positive movement. Motor business is down 40-50% as new car sales have paused.
  • Due to the current crisis, 2 business segments should ideally see a spike that hasn’t happened yet. For the current prices of health insurance products, people should queue to buy cover. But that exponential growth hasn’t panned out as it should in the current scenario. Secondly, cyber insurance cover should also spike given that cyber crimes have moved up 1000%. Even then, there is hardly any sale of individual cyber cover with an annual premium of Rs 700 for a cover of Rs 1 lakh.
  • In the lockdown period, claims on existing health policies have reduced as most hospitals are operating at 30-50% occupancy. Covid-19 claims haven’t moved up significantly either.
  • Mr.  Singhel is of the opinion that there should be a regulator for hospitals to ensure standardization of rates. Insurance companies do their part by negotiating with hospitals to get standardized rates. In the end, the customer has to pay. If claims ratios go up, insurance companies will increase the prices of products. Customers will be burdened by that.

Consensus Estimate: (Source: market screener website)

  • The closing price of BAJAJFINSV was ₹ 4,565/- as of 11thMay 2020. It traded at 2.1x/ 1.8x the consensus BVPS estimate of ₹ 2,173/ 2,583 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 8,305/- implies a PB multiple of 3.2x on FY22E BVPS of ₹ 2,583.

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 May

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 53 pts (+0.57%) at 9251 level.

Among the sectoral indices, PHARMA (2.13%), FMCG (1.9%) and IT (0.83%) were among the top gainers while PSU BANK (-1.9%), AUTO (-1.29%) and PVT BANK (-0.7%) were the losers. HINDUNILVR (4.3%), SUNPHARMA (+3.9%) and DRREDDY (+3.7%) were the top gainers. NTPC (-3.7%), M&M (-3.7%) and AXISBANK (-3.6%) were the top losers.

 

Covid-19 will push a lot more customers to look at outsourcing: C Vijayakumar, HCL Technologies Chief Executive Officer (CEO)

 

Edited excerpts of an interview with Mr C Vijayakumar, Chief Executive Officer (CEO) of HCL Technologies:

 

  • Digital transformations at global companies, expected over the next two to three years, will now hasten in crisis-mode due to the Covid-19 pandemic. Mr Vijayakumar said sectors or companies that were not looking at outsourcing will do so now to save costs.

 

  • When asked between the United States and Europe, where does he expect growth to pick up, he said that the US and Europe are not going to be very different, because in Europe, some geographies are already opening up. Around 23 states in the US have also already relaxed some guidelines and there is some hope that things will stabilize quickly, but customer behavior may not change immediately.
  • His views on traditional and digital services in coming fiscal years: Traditional services also have some very strong propositions, like digital workplace, engineering services. Some of the demand is intact and it is only getting accelerated. So, barring the short-term challenge, HCL Technologies will have good growth momentum. Mr. Vijaykumar thinks there could be a hit in the first quarter for sure. Industrial, auto, and aero have been impacted significantly, and non-grocery retail is also quite seriously impacted. But, almost 12% of revenue comes from Life Sciences and close to 20% of revenue comes from tech services. Both are strong verticals.
  • When asked about the kind of projects and wins expected after the recovery, he replied that Digital spends will (only) accelerate. Whatever transformation was expected to happen over the next two to three years, it’s almost going to get done in crisis mode, because for all the businesses, digital is the most viable channel to engage. He sees acceleration in cloud adoption, digital transformation, spend on digital workplace and cybersecurity. He believes the hospitals of the future will only have operation theatres and ICUs, everything else will be done through telemedicine.
  • He further informed that since work from home has been implemented, the productivity is much higher. They have tools to track productivity of every individual. Currently, there is a lockdown so obviously everybody is glued on to work, but how a large-scale work from home stacks up in a non-lockdown scenario needs to be seen in future.
  • He stated that HCL Technologies is very open to look into the opportunities to acquire companies, products, platforms or capabilities if there are attractive assets available. They have not only been acquisitive, but have made the acquisitions work.

 

Consensus Estimate: (Source: market screener)

  • The closing price of HCL Technologies was ₹ 519/- as of 8–May-20. It traded at 13x/ 11.5x the consensus EPS estimate of ₹ 40.2/45.1 for FY20E/ FY21E respectively.
  • Consensus target price of ₹ 580/- implies a PE multiple of 13x on FY21E EPS of ₹ 45.1/-

 

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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09 May

Playing the odds

Jonathan Clements writes on his blog that today’s economic problems won’t lead to nuclear war. But many folks seem to fear the economic equivalent: that we’ll suffer a downward GDP death spiral that sends us back to the Stone Age. Let’s face it: If the economy ceases to function, it won’t matter what you own. What if the economy recovers, which everybody—except your crazy uncle—expects will happen eventually? Stocks will go up.

In other words, owning stocks is an asymmetrical bet. As with bonds and cash investments, the most we can lose in the stock market is 100% of our investment. But with stocks, your potential gain is far larger. In fact, it’s infinite. To be sure, we haven’t yet reached infinity but we’ve been doing pretty well.

True, there have been periods—like today—when you would have been better off avoiding stocks and instead of going long cash, hand sanitizer and toilet paper. But these periods typically don’t last more than a year. Indeed, to profit from a stock market downturn, you need to be right not only about the direction of share prices but also in your timing.

History tells us that almost nobody is consistently smart enough or lucky enough to succeed with such bearish bets. That leaves the rest of us to do the sensible thing, which is to play the lopsided odds offered by the stock market’s asymmetrical bet. Over time, we should allocate as much as we prudently can to stocks, knowing that we’ll suffer occasional rough patches, but also knowing that the stock market’s long-term direction is up. That doesn’t mean we should stash everything in stocks. If we have money in our portfolio that we’ll need to spend soon, that should be in conservative investments, so our spending plans aren’t derailed by plunging share prices. Similarly, if we’re nervous investors, we might keep more in bonds, so our portfolio’s short-term performance is less erratic.

Clements doesn’t know which stocks will fare best in the months and years ahead. Some companies—both privately held and publicly traded—will never recover from today’s economic shock. Indeed, with any single individual stock, we could end up on the wrong side of the asymmetrical bet and lose 100% of our investment. Even entire national stock markets (hint: Japan) can struggle for decades. But those who bet on the global stock market for the long haul have never lost 100%. For these investors, the asymmetrical bet has always been a winner. After every stock market decline, share prices globally have recouped their bear market losses and then headed higher. Every single time. Want this upward trend to be your friend? The formula is very simple: Buy stocks. Diversify broadly. Wait patiently.

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08 May

Company sticks to its debt reduction initiative- Mr Naveen Jindal

Excerpts from an interview of Mr.Naveen Jindal, Chairman, Jindal Steel & Power Limited (JSPL) with ET Now on 5th May 2020:

Update on the Indian Equity Market:

On Thursday Nifty closed -0.8% lower at 9,199. Among the sectoral indices FIN Services (-1.6%), FMCG (-1.4%) and Bank (-1.0%) closed lower. NIFTY PSU Bank (+0.1%), NIFTY Media (+0.1%) closed on a positive side. Bharti Infratel (7.1%), Indusind Bank (6.6%) and Adani ports (4.4%) closed on a positive note. NTPC (-4.3%), BPCL (-4.2%) and ONGC (-4.2%) were among the top losers.

  • Jindal Steel & Power (JSPL) is looking for a strategic partner to offload part of its stake in its subsidiary in Oman, marking a significant shift from its earlier plan for an IPO as the Covid-19 pandemic impacts industries.
  • The company plans to stick to its debt reduction initiative by reducing overall debt to Rs. 25,000 crore in two years.
  • The pandemic has impacted functioning and production of steel industry, JSPL’s plants at Raigarh and Angul are fully operational since the start of the lockdown.
  • As domestic demand is impacted, the company is looking for exports. The company is exporting 80% of production these days.
  • The company is exporting steel to China, Malaysia, Europe, the USA, export order of rail blooms from France. In the domestic market the company had received supply orders from Rail Vikas Nigam for Kolkata Metro.
  • Domestic steel demand has seen a major fall post-March, due to complete lockdown. Demand will pick up up before the monsoon season, post lockdown, as infrastructure projects and construction activities will resume.
  • A stimulus is necessary and the government should frontload its $250 billion spending plan under the National Infrastructure Pipeline. The government should also announce a sizeable package to compensate loss of income suffered by Indian industry.
  • JSPL is looking to raise money but not considering equity.
  • On overseas front plants and mines are doing well for the company.
  • The company had applied for a moratorium, like many other corporate.

 

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

  • The closing price of JSPL was ₹ 90/- as of 7-May-2020.  It traded at -20.5x/-20.3x/11.7x the consensus earnings per share estimate of ₹ -4.39/-4.43/7.65 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price for JSPL is ₹179/- which implies a PE multiple of 23.3x on FY22E EPS of ₹7.65/-.

 

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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07 May

Less than 15% customers applied for moratorium: Siddhartha Mohanty, LIC Housing

Update on Indian equity market:
Indian markets continued to remain volatile as the Nifty opened lower but managed to close 65 points higher at 9,270. The index traded in a wide range of 9,116-9,346 during market hours. Among the stocks, BAJFINANCE (5.5%), M&M (5.4%) and GAIL (3.9%) led the index higher while INFRATEL (-5.5%), ITC (-5.2%) and COALINDIA (-2.9%) were the laggards. Within the sector indices, FIN SERVICES (2.6%), PVT BANK (2.5%) and BANK (2.2%) were the highest gainers whereas FMCG (-1.9%) and PSU BANK (-0.9%) closed the day lower

Excerpts from an interview with Mr Siddhartha Mohanty, MD & CEO, LIC Housing aired on CNBC
TV18 on 5th May 2020
● He said that RBI has been very supportive as far as liquidity is concerned. The Apex bank has infused sufficient liquidity through TLRTO (Targeted Long Term Repo Operations). The company is in discussion with banks to get that fund at a cheaper rate. This will help the sector as a whole.
● The customer composition of the company is such that regular income group forms more than 76% of the total loan book. Very few people from this segment have applied for a moratorium period.
● The company has received less than 15% of the total clients application for moratorium. Many of them have asked for cancellation of moratorium when they understood that interest payment will have to be made during the moratorium period. It will not affect the cash flow of the company in a big way.
● Cost of Fund for the company is going down. It is difficult to predict the asset quality situation as the moratorium period is currently playing out. The company has launched a new product for those with CIBIL score greater than 800, offering home loans at 7.5%.
● Developer loans consist less than 7% of the total loan book. The book is currently under stress and some developers have asked for a moratorium. This period will help them to equip with the situation and develop some fund flow to repay the loans.
● He expects pick-up in affordable housing sales as the crisis settles down. The demand for luxurious houses will be under pressure for the next few quarters.
Consensus Estimate: (Source: market screener, investing websites) ● The closing price of LIC Housing was Rs 263/- as of 06-May-2020. It traded at 0.7x/ 0.6x the
consensus Book Value estimate of Rs 402/ 454 for FY21E/ FY22E respectively. ● The consensus target price of Rs 395/- implies a PB multiple of 0.9x on the FY22E BV estimate of Rs 454/-
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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06 May

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Update on the Indian Equity Market:

For the second consecutive day, the Nifty closed lower at 9,206 on Tuesday amid reports of stress among lenders when millions of borrowers are facing pandemic induced income loss. As a result, there were no sectoral gainers. PSU Bank (-3.3%), Realty (-2.9%), and Bank (-2.4%) were the top losing sectors. Among the stocks, the biggest gainers were Infratel (+3.6%), M&M (3.2%), and Powergrid (+2.9%). SBIN (-4.2%), Bajaj Finance (-3.8%), and Britannia (-3.6%) led the losers.

Entry into service industry for sanitization for the long haul: Amit Syngle, Asian Paints

Excerpts of an interview with Mr. Amit Syngle, MD & CEO, Asian Paints which aired on CNBC TV18 on 4th May 2020:

  • For the last 3-4 weeks, Asian Paints were under a complete lockdown. The lockdown 3.0 has offered some relaxation.
  • Some of the plants and warehouses have opened as shops for non-essential goods have been allowed to open. Most of their plants have opened but work at slightly reduced capacity.
  • Asian Paints has given buyers 45 days of credit and asked vendors for an extension as well. Talking about the liquidity position, he said stringent cost-cutting measures are being undertaken to preserve cash. There is comfortable liquidity going ahead and they do not foresee any problems in the coming period.
  • Asian Paints had announced their foray into the hand and surface sanitizer with the Viroprotek range of products. Talking about the development of this range, he said they have worked on the range in the last 10-15 days at the behest of the government and the Ministry of Health, and Ministry of Chemicals.
  • As a responsible and caring brand, they wanted to help the government and community and the shortage in the market was the motivation for entering this segment. They already have the Royal Health Shield, a range of antibacterial paint that ensures hygiene and bacteria control. So entry into the sanitizer range aligned with their objective.
  • They have been in the Health and Hygiene space for some time and have products in that range. In the near future, Viroprotek will be a part of the overall range.
  • To ensure reach to the right outlets and ensure adequate supply, their distribution segments will be activated.
  • Though initially entire production will be directed to the Government and NGO initiatives, sanitizers & surface cleaners will be part of Asian Paint’s portfolio in the future. They are looking to enter the service industry for sanitization in a very big way.
  • On the business plans going forward, he said they are watching and devising scenarios as to what will happen in these exceptional circumstances. There is no clarity in terms of how the situation envelops, and what is going to happen. Thus, depending on how the situation clears up and the market opens, plans will be made accordingly. It is difficult to give concrete plans as the entire environment is uncertain.
  • Talking about the top line, no action will be seen in 1QFY21. As per indications coming in, it will be a wipe off quarter. It is difficult to say how revenues will come in for the entire year.

Consensus Estimate: (Source: market screener website)

  • The closing price of Asian Paints Ltd was ₹ 1,618/- as of 05-May-2020.  It traded at 49.5x/ 41.6x the consensus EPS estimate of ₹ 32.7/ 38.9 for FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,822/- implies a PE multiple of 46.8x on FY22E EPS of ₹ 38.9/-

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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05 May

Will resume operations at plants only when dealerships open up – Rajiv Bajaj, Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in red at 9,292 (-5.7%). Top gainers in NIFTY50 were Cipla (+3.7%), Bharti Airtel (+3.3%) and Sun Pharma (+0.3%). The top losers were Hindalco (-10.7%), ICICI Bank (-10.6%) and VEDL (-10.4%). Top sectoral gainer was PHARMA (+0.4%) and sectoral losers were PVT BANKS -8.6%), FIN SERVICES (-8.4%) and BANKS (-8.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, managing director – Bajaj Auto with CNBC -TV18 dated 29th April 2020:

  • He expects the two-wheeler manufacturer to operate at about 50 percent capacity next month.
  • Prime Minister Narendra Modi on Monday told states that India has to work on restarting the economy as well as continue the fight against COVID-19. Several states are keen to extend the lockdown in hotspots.
  • In the last one week itself they have seen some positive developments, specifically their Pantnagar plant has been given approval progressively to operate at full capacity, which they cannot till their dealerships open up.
  • They have that approval on the supply side. Progressively they are getting the same approval for their Aurangabad plant.
  • The Chakan plant outside Pune has not received a nod for production, which is unfortunate as that is the company’s main export plant. On 28th April, they received permission to shift goods from there.
  • He said, “In the month of April, fortunately because we do export, we will see sales of something like 30,000-35,000 numbers. In May, we are looking at operating at about 50 percent of capacity across all our plants put together which points to about 200,000 vehicles. Again the majority would be for exports.
  • In June, we are hoping – subject to how things are unlocked – to record something in excess of 250,000 vehicles, which means we are about our two-third capacity. So from this point of view, it is not so bad for us but that is again because half of what we make is exported,”he added.
  • They have already implemented almost all of the cost cutting measures. It will save them somewhere between Rs 150 crore and Rs 200 crore this year.
  • What they have continued to clearly communicate to people is that there are no plans to cut jobs and they are not going to cut jobs at this stage.
  • He said, “I would make only one recommendation which is we cannot save ourselves out of this crisis. We have to sail ourselves out of this crisis. If the government cannot reduce goods and services tax (GST), there are other suggestions I had made with respect to the insurance, with respect to the absurd safety norms that were brought in last year. If those things are corrected at the front end and there is some liquidity brought in the NBFCs etc, the demand side will be fine.”

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

  • The closing price of Bajaj Auto Ltd was ₹ 2,433/- as of 4-May-2020.  It traded at 14x/ 15x/ 13x the consensus earnings estimate of ₹ 169/ 163 / 185 for FY20E/21E/22E respectively.
  • The consensus price target of Bajaj Auto Ltd is ₹ 2,998/- which trades at 16x the earning estimate for FY22E of ₹ 185/-.

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 May

We are dipping our toes into the health and hygiene segment: Marico CEO

Update on the Indian Equity Market:

On Thursday, Nifty ended April higher at 9,860 (+3.2%). The top gainers for Nifty 50 were Tata Motors (+19.9%), UPL (+14.5%) and ONGC (+13.1%) while the losing stocks for the day were Sun Pharma (-2.4%), HUL (-1.2%) and Cipla (-1.0%). Sectoral gainers were Metal (+7.9%), Auto (+6.4%) and IT (+5.1%). The worst performing sectors were Pharma (-0.6%) and Media (-0.5%).

Edited excerpts of an interview with Mr Saugata Gupta, MD & CEO of Marico Ltd.; dated 28th April 2020. The interview was published in Retail ET.com.

 

  • Significant changes in terms of shopping and consumption habits expected in next financial year according to Mr Saugata Gupta.
  • He said things have started improving. With a lot of permissions, advisories and clarifications from the Central Government and Ministry of Home Affairs, things have started to streamline.
  • Most of the factories are operational for the Company but with the reduction in labour force, the supply chain is still to be settled.
  • In sum of the parts (SOTP) breakdown, there is enough demand for the food part as per the Company but there are supply-chain issues.
  • The premium category of the portfolio, which is discretionary in nature, forms a significantly smaller part of Marico’s portfolio which hardly makes a difference to the Company in terms of demand and supply.
  • The Company has started to explore opportunities in the health and hygiene products. Recently the Company has launched sanitizers in this category. They might also look for opportunities in some new areas in foods as well.
  • In a post Crisis world, Mr Gupta sees a significant change in the consumption basket. A certain part of the Company’s portfolio will be challenged; at the same time there are opportunities to be tapped in some other part of the portfolio.
  • Post crisis, there will be a significant movement into staples, health and hygiene, immunity and items of daily consumption. There will also be a shift to safety into known brands. Therefore leader brands will have to take pole position and gain market share, especially those with strong distribution and equity.
  • There will be a significant shift from out-of-home consumption to in-home consumption. Therefore, even things like ready-to-eat, ready-to-cook products are likely to be consumed far more. One of the things that happened during the crisis outbreak was that people with comorbidities or conditions like diabetes were more affected by the infection. So, people are likely to take health and hygiene far more seriously, as per Mr. Gupta.
  • Consumption is likely to get impacted in sectors like eating out, entertainment, travel, home improvement and autos as people will spend less on them.
  • There will be a significant opportunity at the bottom of the pyramid and down trading will be more prevalent as people could have less disposable income in the immediate quarters post the crisis. So, pricing and providing value to the consumer will be extremely important for the Companies.
  • Marico have been extremely aggressive in terms of cutting extra cost like travel. Company has cut down on out-of-home advertising and some part of A&P. The Company has enough opportunities for cost rationalisation. There will be no loss of jobs and will support the third party ecosystem in terms of payment on time to protect their cash situation and working capital.
  • To get back into a 100% business, it will take some time after the lockdown gets relaxed. So, the ramp up will be gradual because it is not just raw material, it is a question of supply chain trucks as well. Raw materials and logistics availability both go hand in hand. In any case, the Company will continue to maintain social distancing and strict controls in their factory and therefore will have to work with a lower percentage of people and rotating those people as and when things open up fully.
  • FMCG is the category which is based on economic growth. It is based on increasing penetration and there could be some short term hiccups. But he doesn’t think there is anything to concern in this industry. Market leaders with distribution networks, strong brands and who have shown fragility and resilience in these times will emerge stronger.
  • The fringe players who have immediate working capital concerns, weaker brand equity, inability to invest in automation and digital and new ways of doing work, might suffer in the short term.
  • There are huge opportunities and therefore in a lot of categories, one will see a V-shape recovery.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Marico Ltd was ₹ 287/- as of 30-April-2020. It traded at 35.0x/ 32.3x/ 28.8x the consensus EPS estimate of ₹ 8.2/ 8.9/ 9.9 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 342/- implies a PE multiple of 34.3x on FY22E EPS of ₹ 9.9/-.

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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