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25 Jan

Double-digit growth to continue in 4QFY21 – Asian Paints

Update on Indian Equity Market:

Markets started the fresh week on a selling spree as Nifty closed the day 133 points lower at 14,239. Within the index, the gainers were led by GRASIM (5.9%), UPL (4.0%) and CIPLA (3.8%) while RELIANCE (-5.9%), INDUSINDBK (-5.5%) and HCLTECH (-3.8%) led the losing pack. Within the sectoral indices, PHARMA (1.7%), METAL (0.2%) and BANK (0.1%) were the only gainers while IT (-1.8%), AUTO (-0.8%) and REALTY (-0.8%) were the highest losers.

Excerpts of an interview with Mr Amit Syngle, MD & CEO- Asian Paints (ASIANPAINT) with CNBC TV18 dated 22nd January 2021:

  • 3QFY21 has been phenomenal as the company witnessed a YoY growth of more than 30%. The growth was achieved on the back of the Indian decorative segment which grew 32% YoY in volume terms and 26% in terms of value. 
  • All three months during 3QFY21 reported double-digit YoY volume growth. October grew fastest in terms of volumes. The company gained market share in the organized as well as the unorganized market. Metros, Tier-I and Tier-II contributed to a sizable chunk of growth.
  • He said that industrial and international segments picked up strongly from 2QFY21. The growth was seen across verticals.
  • The consumer sentiment continued to improve. The company expects to continue double-digit YoY volume growth in 4QFY21.
  • The industry is witnessing some pent demand which is difficult to quantify. The construction and real estate sector is also picking up which will add to the growth during the quarter.
  • He said that 4QFY21 may see an impact in terms of raw material inflation. The company is still expected to maintain the current level of margins in the quarter.

Consensus Estimate: (Source: market screener website)
• The closing price of ASIANPAINT was ₹ 2,521/- as of 25-January-2021. It traded at 80x/ 65x/ 56x the consensus earnings estimate of ₹ 31.5/ 38.7/ 45.3 for FY21E/FY22E/23E respectively.
• The Consensus price target of ASIANPAINT  was ₹ 2,525/- as of 25th January 2021 which is 56x of FY23E EPS estimate of ₹45.3/-.

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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29 Jun

Cement prices have managed to hold up – Heidelberg Cement

Update on the Indian Equity Market:

On Friday Nifty closed 0.9% higher at 10,383. Among the sectoral indices, IT (+4.1%), PSU Bank (+1.0%), Metal (+0.6%) closed higher. FMCG (-1.2%), Realty (-0.9%) and Pharma (-0.5%) closed lower. Infosys (+6.6%), BPCL (+6.5%) and TCS (+4.9%) closed on a positive note. Bajaj Finance (-3.1%), ITC (-3.1%) and Bharti Infratel (-2.8%) were among the top losers.

Excerpts from an interview of Mr Jamshed N Cooper, MD, Heidelberg Cement with ET Now 25th June 2020:

  • Cement prices have managed to hold up even when the construction activity has halted. Mr. Cooper said it is a different mix and varies from state to state.
  • Government spending is higher in many of the projects, the company is trying to complete before monsoon sets in.
  • The labor availability is better in central India and South is weak as the market depends on migrant labor.
  • Capacity utilization will be between 55% and 60%. Many of the cement companies have a very high breakeven. Most of the companies have high debt and to serve high debt with lower volume is a task. The cement companies have a pressure to keep price up as they have to maintain margins with lower volumes.
  • The construction industry is not going to be hit so badly except for the monsoon period. Building industry, construction industry is one of the largest employers of the labor workforce, with their employment the infrastructure industry will come in picture.
  • Either the government will provide employment or somehow employment is going to get generated in the building industry because there is a huge demand for housing. He added that it is the best time for the government to use this work force to start building rural houses for the poor so that this cycle can continue.
  • About lockdown effect he said a mistake was made by keeping cement plant shut during lockdown. The cement was not getting in market place and labor force was ideal which had a cascading effect.
  • A little bit of slowdown is expected in the construction industry and hence in the demand for cement. Going forward the labor will start returning after the monsoons sowing happens.
  • It is expected that at least 60% of the labor is likely to return after Diwali. Once workforce gets back to their workplace’s things should be moving perfectly well.
  • On housing infrastructure push led by the government, he said whole push has to be from the housing sector because 60% of the cement is used in the housing sector and in this at least another 5-7% will come from the government.
  • The pricing is here to stay as companies cannot breakeven with lower volumes and if they don’t breakeven the companies will get in trouble.

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

  • The closing price of Heidelberg cement was ₹ 182/- as of 26-June-2020.  It traded at 19.5x/ 12.2x the consensus Earnings per share estimate of ₹ 9.3/14.8 for FY21E/ FY22E respectively.
  • The consensus average target price for Heidelberg is ₹ 197/- which implies a PE multiple of 13.3x on FY22E EPS of ₹14.8/-.

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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