Tag - Demand pick-up

Uptick in demand to continue for the next 1-2 quarters – SAIL

Update on the Indian Equity Market:

On Thursday, the Indian equities ended with gains despite the weekly options expiry led volatility. The Nifty50 ended at 14,874 (+0.4%) lower than the day’s high of 14,984. METAL (+3.9%), IT (+1.2%), and REALTY (+0.8%) led the sectoral gainers while PSU BANK (-0.9%), PRIVATE BANK (-0.6%), and BANK (-0.6%) led the losers. JSWSTEEL (+9.6%), TATASTEEL (+5.4%), and SHREECEM (+4.8%) were the top gainers among Nifty50 components. SUNPHARMA (-1.1%), INDUSINDBK (-1.1%), and SBILIFE (-1.0%) led the laggards.

Excerpts of an interview with Ms. Soma Mondal, Chairman, Steel Authority of India Ltd (SAIL) published in The Economic Times on 7th April 2021:

  • There are three reasons why steel prices are among the highest in a decade. One, there have been supply-side constraints, even in the second and third phase of Covid, which has impacted the ramping up of capacities in certain parts of the world. Second, China is expected to close down some inefficient units as they have a target for reducing carbon footprint. Last, being raw material supply constraints have led to a rise in iron ore prices. These factors are driving steel prices up and the demand has picked up.
  • The uptick in demand is likely to continue for the next 1-2 quarters. As prices go up, many closed capacities expected to open up, supply constraints will be eased. The increased supplies are expected to put downward pressure on prices.
  • As the vaccination drive in on, the Covid situation is expected to come under control. This will lead to some pick-up in production, which is currently hampered due to increasing Covid cases.
  • The Company is focusing on reducing its borrowing. In April-20, the debt was Rs 520 bn, which was reduced to ~ Rs 350bn by March-21. They would like to bring the debt level even more because they want to start the next phase of expansion.
  • A total focus on the balance sheet, increased volume thrust on increasing efficiencies, reducing cost, and techno economic improvement will help improve the balance sheet and leverage position.
  • The conversion costs are high for SAIL because of wages and salaries. At higher volumes, this would go down. They are reducing their manpower, hence they are not recruiting as much. With a balanced approach to recruitment and increasing their volumes, the cost of production and conversion costs will be reduced.
  • Their primary aim is to meet the domestic demand and having a strategic presence in the export market.
  • With major capacities not coming up anywhere other than in India, she expects the demand and prices to remain strong. With a lower leveraged position, SAIL would plan the next phase of expansion.

Asset Multiplier Comments

  • The demand from the auto, construction, and white goods sector and infrastructure focus by the Indian government has led to the creation of demand for steel.
  • The strong demand and rising prices since the easing of lockdown restrictions are expected to continue driving the profitability of Indian steel manufacturers.

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

  • The closing price of SAIL was ₹ 96/- as of 08-April-2021. It traded at 7x/ 6x the consensus earnings estimate of ₹ 14.6/ 15.8 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 82 implies a PE multiple of 5x on FY23E EPS of ₹ 15.8/-.

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

Lighting category is 2x that of fans category, see significant growth potential – Orient Electric

Update on the Indian Equity Market:

Nifty continued its losing streak, ending in the red for the fourth straight day ahead of the US Fed reserve policy statement on Wednesday. Nifty closed at 14721 (-1.3%), dragged by the PSU BANK (-3.8%), MEDIA (-3.0%), and REALTY (-3.0%) indices. None of the sectoral indices ended with gains. Among the stocks, only ITC (+1.5%), and INFY (+0.2%) closed in the green while BPCL (-5.0%), ONGC (-4.7%), TATAMOTORS (-4.5%) led the laggards.

Excerpts of an interview with Mr. Rakesh Khanna, MD, and CEO, Orient Electric with CNBC TV-18 on 16th March 2021:

  • The sales in 3QFY21 were good for the entire industry, due to pent-up demand, and staying at home has increased interest in home appliances.
  • The strong demand is continuing in 4QFY21, it is partly pent-up demand and partly due to change in behavior.
  • The management expects the EBITDA margin in 4QFY21 to be better than 3QFY21. This is due to operational leverage which comes with increased revenues with costs remaining stable, some good opportunities to help improve efficiencies. This efficiency improvement has largely been due to cost-cutting.
  • With raw material costs increasing, there could be some pressure on the margins in the time to come.
  • Recently, the company has diversified into lighting, switchgear, air coolers, and water heaters.
  • Lighting as a category is nearly twice in terms of size compared to the fans category, and the management expects significant growth in that segment.
  • Coolers are gaining traction as people are worried about getting fresh air. Water heaters adoption is going up due to change in consumer behavior.
  • The kitchen appliances are doing very well. Mr. Khanna is of the opinion the new categories the company has diversified into have a lot of potential.
  • To get a better brand recall in these new categories, the Ad spend could increase for the new categories.
  • They are operating at full capacity and the surge in demand has enabled the company to improve efficiencies at existing production facilities.
  • The company has been improving its EBITDA margin on a YoY basis for the last couple of years. As the company continues scaling up, they are confident of achieving operational efficiency to achieve better EBITDA margins.

Asset Multiplier Comments

  • During the lockdown period, consumer appliances and electrical sales were impacted. The pent-up demand and banning of certain items from China have helped the domestic electrical appliances companies. As a result, these companies are diversifying from their legacy categories to other categories.
  • Orient Electric already enjoys strong recall in the minds of consumers, being present in India for over six decades. Such a company will enjoy customer loyalty when it enters into new product categories.

Consensus Estimate: (Source: market screener website)

  • The closing price of Orient Electric was ₹ 313/- as of 17-March-2021. It traded at 61x/ 48x/ 39x the consensus earnings estimate of ₹ 5.1/ 6.5/ 8.0 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 310 implies a PE multiple of 39x on FY23E EPS of ₹ 8.0/-.

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.”

Demand recovering despite product prices at historic highs – Indian Oil Corp.

Update on the Indian Equity Market:

On Friday, Nifty50 ended 1.5% lower at 14,372 dragged by the metal and banking stocks. AUTO (+1.4%), and IT (+0.2%) were the only sectoral indices to end the day with gains. METAL (-3.9%), BANK (-3.2%), and PRIVATE BANK (-3.2%) led the sectoral losers. Auto stocks led the gainers with BAJAJ AUTO (+11.2%), HEROMOTOCO (+4.0%), and EICHERMOT (+1.8%) leading the pack. AXISBANK (-4.5%), ASIANPAINT (-4.3%), and JSWSTEEL (-4.0%) were the top losers.

Excerpts of an interview with Mr. Shrikant Vaidya, Chairman, Indian Oil Corporation (IOC) published in Business Standard on 21st January 2021:

  • Crude oil prices are rising does not impact IOC’s margins as refining margins are influenced by product cracks. Product cracks are yet to recover fully. The increase in crude oil prices is likely to boost margins through inventory gains, provided prices stabilise at these levels.
  • India is set to drive global oil demand over the long term. Vaccine rollout suggests a more certain recovery in the oil market in 2021, but demand uncertainty still looms. Saudi Arabia’s decision to reduce crude oil production by 1 mn barrels a day in February and March has provided support to the market but demand concerns remain.
  • We may have to wait for fiscal conditions to improve before a significant reduction in excise duty rates are announced.
  • With the upcoming Budget, he reiterated the petroleum industry’s demand to move petrol, diesel, aviation turbine fuel, natural gas, and crude oil under GST. Exclusion of these products which account for ~60 percent of refined product volumes, with crude oil and natural gas has resulted in stranded taxes in the hands of oil & gas companies.
  • Oil consumption posted a month-on-month increase for the fourth straight month in December 2020. The easing of restrictions has revived demand from transportation.
  • IOC is sticking to the investment plans as those are based on long term demand potential in the country. Though they have faced temporary issues due to pandemic restrictions, IOC is on track to achieve its capex target of Rs 260 bn in FY21.
  • Since the easing of lockdown, IOC has commenced work on 2800 projects at an anticipated cost totaling Rs 2 trillion.

Consensus Estimate: (Source: market screener website)

  • The closing price of IOC was ₹ 96/- as of 22-January-2021. It traded at 8x/ 7x/ 6x the consensus earnings estimate of ₹ 12.8/ 14.2/ 17.3 per share for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 115 implies a PE multiple of 7x on FY23E EPS of ₹ 17.3/-.

 

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.”

Company growing better than the industry average – Berger Paints

Update on the Indian Equity Market:
On Monday Nifty closed 1.6% higher at 12,461. Among the sectoral indices, Bank (+2.7%), Pvt Bank (+3.3%), and Fin services (+1.9%) closed higher. Media (-0.01%) closed lower. Cipla (-2.9%), Adani ports (-1.1%), and Maruti (-0.6%), closed on a negative note. Divis labs (+5.4%), Bharti Airtel (+5.1%), and IndusInd Bank (+4.9%) were among the top gainers.

Excerpts from an interview of Mr. Abhijit Roy MD & CEO, Berger paints with CNBC-TV18 dated 6th November 2020:

● The months of August and September saw a good pickup in demand.

● On volume growth, Mr. Roy said there was a 17% growth in the decorative business and overall all volume growth was around 16%.

● Speaking about growth sustainability, he said October was better and November 20 to date is good. On the back of this, the company expects 3QFY21 to be better than 2QFY21.

● In Q2FY21, the performance of Berger was better than the industry.

● On the Expense front, he said there are savings in fixed expenses and some of these expenses like traveling and rent will be lower than normal in the near term. There is also some amount of savings on the raw material front.

● On the demand trend, he said most of the demand is coming from Tier 2, 3, and 4 towns. The demand is also picking up in urban centers.

● On products, he said earlier the lower and economic products were seeing a higher demand but since October month there is a revival in premium and luxury category as well.

● The company plans to expand its capacity. The current capacity utilization was around 93%.

● The new plant is expected to be operational by December 21.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Berger Paints was ₹ 650 as of 09-November-2020. It traded at 104x/ 74x/ 62x the consensus Earnings per share estimate of ₹ 6.27/8.78/10.5 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Berger Paints is ₹ 489/- which implies a PE multiple of 47x on FY23E EPS of ₹10.5/-.
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.”

Expect demand to pick up strongly by festive season: Vinod Dasari

Update on the Indian Equity Market:

On Tuesday, Nifty closed 3% lower at 8,981 after crude futures prices fell into the negative territory for the first time. The top gainers for Nifty 50 were Dr Reddy (+4.4%), Infratel (+2.9%) and Bharti Airtel (+2.2%) while the losing stocks for the day were IndusInd Bank (-12.3%), Bajaj Finance (-9.1%) and ICICI Bank (-8.7%). Pharma (+2.5%) was the only gainer among the sectoral indices for the day. The worst performing sectors were Pvt Bank (-5.9%), Bank (-5.4%) and Auto (-5.3%).

Edited excerpts of an interview with Mr Vinod Dasari, CEO of Royal Enfield.; dated 16th April 2020. The interview was published in The Economic Times.

  • Starting OEM factories are much easier. But there will be some deal of confusion as to which industries can start. Now there are companies in which they might have two or three plants but sometimes the plants are interrelated. So if one area cannot start but the other area is allowed to start, it could be a concern. For example, Tamil Nadu opens up but Maharashtra does not open up, the company will face supply issue which is from Pune.
  • There would be a little bit of a stuttered start but think within 10-15-day time, this will come to normal once the lockdowns are lifted.
  • According to him, the demand side will actually come back stronger for two reasons – Pent up demand and a likelihood that people will not want to travel in public transport increasing demand for cars and motorcycles.
  • April is a washout for the auto industry, May could see a good recovery month but at a slow pace. This quarter will have some impact because of the lockdown but after that, the recovery will be sharper than what people are saying.
  • For dealers, all the money that the company had with them as advance, has been returned by the company. The company has given all the warranty claims, keeping very little stocks with the dealers. Dealers carry less than 10 days’ worth of stock.
  • The company is not doing any retrenchment and pay cuts whether it is the temporary or permanent workforce. Thus, company is paying 100%.
  • The company has more than doubled its network in the last year to reach outside urban areas. This has given them good results. Thus, a combination of both the accessibility of the product and network as well as the aspirational aspect of Royal Enfield bikes will bode well for them.
  • Even in a downturn last year in their category, the company actually gained market share. For overall motorcycle, they still retained their market share despite a 15-20% downturn in the overall motorcycle market.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Eicher Motors Ltd was ₹ 13,502/- as of 21-April-2020. It traded at 18.1x/ 18.4x/ 14.8x the consensus EPS estimate of ₹ 745/ 735/ 914 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 18,679/- implies a PE multiple of 20.4x on FY22E EPS of ₹ 914/-.

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.”

Bajaj Auto – Is the demand recovery around the corner?

Update on the Indian Equity market:

On Thursday, NIFTY closed 0.4% lower. Among sectoral indices NIFTY Metal (-3.0%), NIFTY Financial services (-1.2%), NIFTY BANK (-1.1%) closed lower while NIFTY Media (+2.5%), NIFTY PSU Banks (+0.2%) NIFTY Auto (+0.2%) ended on a positive note. The biggest gainers were Yes Bank (+33.6%), Bharat Petroleum (+7.5%), Zeel (+6.5%) whereas Vedanta (-4.7%), Hindalco (-4.0%), Coal India (-3.5%) ended with high losses.

Bajaj Auto – Is the demand recovery around the corner?

Excerpts from an interview with Rakesh Sharma – Executive Director, Bajaj Auto

  • Mr Sharma says that in the current situation retail numbers are the most important ones to look at. It was very difficult to manage the supply chain and putting it in line with demand fluctuations in the past few months.   
  • He says retail demand is showing signs of a pickup.
  • Speaking about the September month specifically, he says, retails in the second half of September have started to look up.
  • Though the company volumes are marginally lower as compared to last year, it is a good improvement in the prevailing scenario.
  • Speaking about exports he says that the global picture is pretty much stable. Africa is doing very well. The company gets 40%-45% of its business from Africa. Latin America continues to show muted growth caused mainly by the slowdown in Argentina and Mexico.
  • The Philippines is a market which the company is looking for.
  • Mr Sharma says, after a bit of a decline in 1Q FY20 the current quarter is looking much better.
  • He says the uptrend is visible in 125cc segment, mainly because of the anti-lock braking system (ABS) which increased the prices of 150cc plus segments.
  • Before the launch of Pulsar125, Bajaj Auto had a 1% market share. After its launch, it is in the range of 10%-12%.
  • Speaking about further discounts he says, they are not going to add much because the company had already announced festive schemes.

Consensus Estimate (Source: market screener website)

  • The closing price of Bajaj Auto was ₹ 2910 /- as of 03-October-19. It traded at 16.3x /15.0x the consensus EPS for FY20E/ FY21E of ₹ 178/193 respectively.
  • Consensus target price of ₹ 2832/- implies a PE multiple of 14.6x on FY21 EPS of ₹193/-