Tag - demand

Short term challenges persist– Minda Industries

Update on the Indian Equity Market:

On Wednesday, Indian benchmarks ended in green with NIFTY closing at 17,166 (1.0%). Among the sectoral indices, PHARMA (-1.6%), HEALTHCARE (-1.9%), and CONSUMERDURABLES (-0.4%) were the only losers. PSU BANK (+2.7%), METAL (+2.3%), and BANK (+1.9%) led the gainers. Among the stocks, INDUSINDBK (+5.8%), JSWSTEEL (+5.0%), and TATAMOTORS (+4.3%) led the gainers, while CIPLA (-4.4%), DIVIS (-2.3%), and ULTRACEMCO (-1.5%) led the laggards.

Short term challenges persist– Minda Industries

Excerpts of an interview with Mr Sunil Bohra, Group CFO, Minda Industries with CNBC-TV18 on 30th  November 2021:

  • There’s a significant impact on volumes in Europe, with the numbers down significantly at ~30% sequentially. The important thing to notice is that the volume numbers are also down year on year indicating the severity of the impact on a low base.
  • The recovery is expected to be volatile as the true impact of the new variant remains to be seen. International travel has also been impacted, it is expected that volumes will continue to be depressed until restrictions are eased.
  • The Industry is currently working to minimise the impact of low volumes through various cost optimisation measures, however, there’s a lack of assurance as to when will the volumes recover whether it will be in Q3 or Q4FY22.
  • However, the Industry expects pent up demand and volume recovery post this crisis to continue and thus keeps its long term outlook of double-digit growth unchanged.
  • Semi-conductor shortage volatility is expected to continue till H1CY22. There is some recovery seen, however, it’ll take another 6-8 months to indicate a semblance of normalcy. Over-stocking of inventory due to the existing shortage crisis is creating a mismatch between actual demand and supply further worsening the situation.
  • EV segment is at a nascent stage, but the company expects demand to grow exponentially once it picks up. The company is focusing on creating a base for this additional supply. The company benefits from having an agnostic product supply- i.e. it is ICE/EV neutral and the company plans to add value-added products to specifically cater to EV segments and has already launched 9 new products.
  • The company’s ICE toolkit currently tickets at Rs 7,000/-, however, the company’s new EV Value-added toolkit tickets at Rs 28,000/- The company will benefit from increased EV volumes and it’ll be margin accretive in the long run.

Asset Multiplier Comments

  • The auto industry has been severely impacted by intermittent lockdowns and supply chain issues, however, the underlying demand for the industry is set to stay and only increase in the medium term.
  • EV segment is a very value and margin accretive segment for the company, the recent shift in demand to EVs will augur well for the company’s profitability in the medium term.

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

The closing price of Minda Industries was ₹ 899/- as of 01-December-21. It traded at 69x/ 41x/ 32x the consensus EPS estimate of ₹ 13/ 22/ 29 for FY22E/ FY23E/FY24E respectively. The consensus target price of ₹ 927/- implies a PE multiple of 33x on FY24E EPS of ₹ 29/-.

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 H2FY22 to be even better- Ashok Leyland

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,000 (-0.6%) near its low of 17,959. Among the sectoral indices, AUTO (+2.5%), IT (+0.5%) were the only gainers. PSU BANK (-2.1%), OIL & GAS (-1.4%) and PHARMA (-1.3%) led the laggards. Among the stocks, MARUTI (+7.3%), M&M (+3.0%), and TATAMOTORS (+2.4%) led the gainers, while SHREECEM (-3.0%), RELIANCE (-3.0%), and HINDALCO (-2.5%) led the laggards.

Excerpts of an interview with Mr. Gopal Mahadevan, CFO and Whole Time Director, Ashok Leyland (ASHOKLEY) with CNBC-TV18 on 15th November 2021:

  • Things were expected to improve in April-21 but the second wave of covid impacted Q1FY22 for the entire industry and eventually, Q2FY22 saw a sharp recovery. With the reduction in covid cases, increased levels of vaccination, and reopening of economic activities, things are expected to improve quite swiftly in Q3FY22 and Q4FY22.
  • This will have a positive impact on the commercial vehicle industry. The core industries like infrastructure, commodities, and the manufacturing sectors are already showing good growth which augers well for the CV industry, specifically the truck segment.
  • Ashok Leyland is waiting for public transport to improve which hasn’t happened yet. Although offices are resuming, schools are still shut. The impact of office resumption will be seen on increasing bus volumes.
  • From Ashok Leyland’s standpoint, Light Commercial Vehicles are doing well and their market share stood at 23% in Q2FY22.
  • Ashok Leyland is trying its best to improve volumes and share of customers, consistently.
  • They are going to launch their CNG range of intermediate vehicles by Q4FY22 which would again kind of improve their presence in the ICV segment.
  • Ashok Leyland took a price hike of 2-2.5% approximately in Q1 and Q2FY22. They took a price hike in Q3 as well to set off some part of the raw material price increase, especially steel where the prices have gone through the roof due to consistent price increases.
  • They do expect costs to soften as things begin to rationalize. One thing to watch out for would be the semi-conductor demand because it is quite significant. There are constraints not only for the CV sector but also for passenger cars, 2-wheelers, and electronics. When this eases out, a push from the supply-side towards greater delivery will be seen.
  • Gross margins are expected to improve as demand improves.
  • Three reasons why a fraction of market share was lost:

1) Market share is based on wholesale. However, Ashok Leyland doesn’t intend to pump stocks into dealerships beyond a certain point. It is only focused on maintaining customer accounts and adding new ones.

2) Ashok Leyland is a significant South player but the volume growth there has not been as good as what it was in the rest of the country. South volumes are expected to start catching up in 2HFY22, especially in December and January which will push Ashok Leyland’s market share up.

3) CNG plays an important role in the ICV segment which accounts for a third of the overall MHCV market in terms of trucks. So, with the launch of CNG vehicles in the fourth quarter, market share is expected to go up.

  • At ₹ 3100 crores, its net debt position is comfortable and the D/E ratio is at 0.5. Ashok Leyland will continue to optimize net debt, work on working capital and astutely manage Capex.
  • The chip shortage issue was expected to be solved by September-21 but that hasn’t happened yet. In South-East Asia, capacities are being set up. As per analyst reports, the chip shortage is expected to ease by Q4FY22.
  • Ashok Leyland expects this to ease out and doesn’t see chip shortage as a permanent issue. Once capacities are set up and distribution gets rationalized, the shortage should come off.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • With the gradual reopening of the economy, bus demand is expected to pick up. The reopening of schools will also provide an impetus to the demand for buses.
  • With the launch of CNG vehicles in the fourth quarter and the anticipated festive demand, we expect an improvement in EBITDA margin levels.

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

  • The closing price of ASHOKLEY was ₹ 147/- as of 16-November-21. It traded at 237x/ 28x/ 19x the consensus EPS estimate of ₹ 0.6/ 5.2/ 7.6 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 152/- implies a PE multiple of 20x on FY24E EPS of ₹ 7.6/-.

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

Multi-Year growth potential for all verticals – Infoedge

Update on the Indian Equity Market:

On Tuesday, NIFTY ended higher at 17,822. The top gainers in NIFTY50 were ONGC (+10.8%), INDUSINDBK (+5.0%), and COALINDIA (+4.2%). The top losers were CIPLA (-2.4%), HINDALCO (-2.1%), and SHREECEM (-1.8%). The top gaining sectors were OIL & GAS (+2.8%), IT (+1.2%), and MEDIA (+0.8%), while the top sectoral losers were REALTY (-1.4%), HEALTHCARE (-0.7%), and PHARMA (-0.5%).  

Edited excerpts of an interview with Mr. Hitesh Oberoi, CEO & MD, Info Edge with CNBCTV18 aired on 04th September 2021:

  • In the last few quarters, the job market, especially for engineers has not been of the type one has seen in maybe the last two decades. It’s a super-hot market with attrition rates for most companies going through the roof, talent is impossible to hire.
  • The company believes it is a rock-solid market, and it is slowly spreading now to the non-IT sectors as well. Starting with the IT market, which has been growing for the last three quarters but now, it’s now beginning to spread to the other sectors as well, as the Indian economy starts to recover.
  • There is a limited pool of talent, every company wants to go digital and companies have brought forward their multi-year plans. Companies that were hoping to get 30-50 percent of their business to come from digital in the next five years are now hoping that 70 percent of their business will be digital in the next two years.
  • The fact that there are remote working opportunities, people are able to get jobs not just in India but even overseas. There is this massive surge right now, one cannot overnight produce a lot of engineers, or overnight upskill them. Unless the demand is hit for some reason, the situation will continue to be like this for the next few quarters as well.
  • The company is a pure-play internet company that runs an online job portal Naukri.com. It has massively benefitted from this uptick in the employment market and has managed to translate that to revenue growth as well.
  • The company is also bullish on the growth prospects of its other website 99acres.com, a real estate classifieds platform due to demand pick-up post lock down impact. According to him, growing prices, demand pick up across the country, cheaper credit availability are all signs of a multi-year growth cycle for real estate.
  • The Wedding cycle is also poised to pick up with more liberal government policies and the pent-up demand due to lockdowns that had brought this industry to a stand -still, the upcoming festive and wedding season bodes well for Matrimony.com.
  • Infoedge continues to be a startup incubator and aggregator with investments across startups like Zomato and Policy Bazaar and the company will continue to be on the lookout for strategic acquisitions in the startup ecosystem which is currently in a valuation bubble.
  • The Company is planning to launch an in-house blue-collar job portal called JobHai which is currently in the test marketing stage and also has made strategic investments in real estate, jobs, and education verticals.
  • The company has significant cash and capital balances to fund more startups and acquisitions to expand its portfolio and will look at listing each of its businesses separately if it believes that will help shareholders unlock more value.

Asset Multiplier Comments

  • The intensity of digital penetration across India has increased over the past few years, however, there is a lot more value to be unlocked for companies like Infoedge by expanding across India.
  • Infoedge has created a value chain through its verticals and strategic acquisitions that range from education to jobs, insurance to real estate, and now food delivery, which will likely consolidate its presence as the undisputed leader of internet-based aggregators in India.

Consensus Estimate (Source: market screener website)

  • The closing price of Infoedge was ₹ 6,493/- as of 05-Oct-21. It traded at 193x/148x/118x the consensus EPS estimate of ₹ 36/47/59 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 6,520/- implies a PE multiple of 111x on FY24E EPS of ₹ 59/-.

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.”

 

 

Major housing demand is coming from first-time buyers – HDFC

Update on Indian Equity Market:

On Tuesday, NIFTY ended at 17,749 (-0.6%) as it closed near its high at 17,533. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.24), and METAL (+0.6%) ended higher, whereas REALTY (-3%), IT (-2.2%), and MEDIA (-1.7%) ended lower. Among the stocks POWERGRID (+4.4%), COALINDIA (+4.2%), and NTPC (+3.74%) led the gainers while BHARTIARTL (-3.7%), TECHM (-3.5%), and BAJFINANCE (-3.3%) led the losers.

Excerpts of an interview with Mr. Keki Mistry, Vice-Chairman and Managing Director of HDFC Ltd (HDFC) with CNBC TV18 on 27th September 2021:

  • Between 2017-2020, demand for housing was largely coming from Tier 2, Tier3 towns or outskirts of big cities but not that much in the center of big cities like Mumbai and Bengaluru.
  • In the last year, people in Mumbai, Delhi, and Bengaluru are buying houses because housing has become very affordable compared to what it has been in the last 20 years.
  • From 2017-20, prices in the center of big cities have remained the same or may have marginally come down. This was complemented by rising income levels of individuals. An average income level of 6-7% a year if compounded on a 3-year basis, gives an approximate increase of 25% against a 0% (virtual) increase in property prices.
  • So, the cost of a house as a multiple of the annual income of a typical customer has become a lot lesser.
  • Mistry believes that structural demand for housing will always remain strong since it is a very under-penetrated market. The factor that points towards a sustained growth of housing in the Indian market apart from increased affordability is a Mortgage-GDP ratio of less than 11%. This ratio ranges between 40-60% in Western countries.
  • Unlike people in the West, Indians prefer buying houses in their late 30s. From a demographic standpoint, two-thirds of India’s population falls in the under-35 age category which will eventually need to buy houses in the next 1-10 years. The average of a first-time buyer in Mumbai is between 37-39 years.
  • The pressure that this sector faced, particularly in big cities like Mumbai, has been quashed because bigger developers took over incomplete projects of smaller developers. But this process takes time because approvals from various authorities need to be obtained.
  • Demand in the industry is muted. Only the reputed developers are seeing traction because customers prefer buying an under-construction property from reputed developers rather than buying the same from a less reputed developer. That is because the risk of a project not getting completed is very little in the case of the former.
  • Collection numbers, from a retail standpoint, are back to pre-covid levels but, the distress that people encountered from April to June might not have gone away completely.
  • These problems are temporary as far as individual NPAs are concerned. He does not believe that the housing finance sector will see any severe loan losses because the security cover is huge and the average loan amount is a small component of the value of the property at origination.
  • The loan to value ratio (loan as a percent of the value of the property) for most lenders is less than 70% which means from day one the individual has a 30% equity in the property upfront.
  • Since all loans are paid equally in monthly installments, this ratio will keep declining every passing month as the installments get paid. Therefore, an individual’s equity in the property keeps rising, and the losses on a housing portfolio of any lender, as long as there is prudent lending, would be almost non-existent to very negligible.

Asset Multiplier Comments

  • The demand from homebuyers is picking up due to subdued interest rates and the government’s push towards the affordable housing segment.
  • Due to a higher focus on individual loans vs non-individual, and a greater share of lending to salaried individuals, HDFC’s loan portfolio did not suffer any major setbacks in terms of asset quality. Moreover, HDFC has a provision buffer in place which is higher than the regulatory requirement.
  • Due to increased demand and low interest rates, rising competition among housing finance companies could exert pressure on interest rates.

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

  • The closing price of HDFC was ₹ 2,802 /- as of 27-Sept-2021. It traded at 5x/4x/4x the consensus BVPS estimate of ₹ 651/703/769 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,016/- implies a P/BV multiple of 4x on FY24E BVPS of ₹ 769/-

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.”

 

 

Expects double-digit growth in India foods biz – Tata Consumer

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.2% up at 16,295. Top gainers in NIFTY50 were BHARTIARTL (+3.9%), EICHERMOT (+3.5%), and ITC (+3.1%). The top losers were SBIN (-3.3%), INDUSINDBK (-2.3%), and ICICIBANK (-1.8%). The top gaining sectors were METAL (+1.3%), IT (+0.8%), and FMCG (+0.6%) while the top sectoral losers were PSU BANK (-2.2%), MEDIA (-1.6%), and REALTY (-1.1%).

 

Expects double-digit growth in India foods biz – Tata Consumer

Edited Excerpts of an interview with Mr. Sunil D’Souza, Managing Director and Chief Executive Officer, Tata Consumer Products with CNBCTV18 on 4th Aug, 2021:

  • Tata Consumer delivered a decent 1QFY22 results led by strong domestic business performance. The gross margins were primarily affected due to high tea prices.
  • Even though the tea prices are high, management is comfortable going forward as the spike in tea prices is once in 5-10 years phenomena.
  • In 2QFY21 the prices were at peak and thereafter the prices have started to normalize. This gets reflected in margins of India Tea Business as it has improved from 19% in 2QFY21 to 26% in 1QFY22 and will continue the uptrend for couple of quarters.
  • The combination of price hike taken and tea prices going down will keep the company in good shape. The basic building blocks put in place and execution parameters lead the company to greater confidence.
  • Working capital is down by 2 days, free cash flow is 101% of EBITDA (excluding one offs), company has 8,20,000 direct outlets and plans to take the number to 1 mn by Sep-21.
  • The advertisement and promotion expenses are up 41% YoY as company plans to focus and strengthen the India brand building.
  • Expects strong double-digit growth for India food business on the back of Salt and “Sampann” portfolio.
  • The market share of Salt is 33-34% as compared to other players still at low single digit. The premium portfolio grew by 34% YoY and the mass category is expected to grow in South market where it is underpenetrated.
  • On margin front, India beverages business is under pressure because of high tea prices. With tea prices normalizing and price increases taken, company expects the margins to improve significantly sequentially.
  • Company is confident of coming out much stronger on the back of stronger share, stronger premium portfolio and better systems on execution in the market.
  • Tata Consumer was formed to fulfill the aspirations of Tata group in the FMCG space. Last 12-15 months have been focused on putting the systems together, building execution systems and getting distribution panel in order.
  • Company plans to expand the portfolio both organically and inorganically. Tata Consumer had acquired NourishCo which has performed well even during lockdowns. Integration of Soulfull has been completed in 1QFY22. The Company is in a strong position with net cash of Rs 21bn available for integration/acquisitions.
  • The contribution of E-commerce to total sales have increased from 2% to 7% currently in 15-18 months’ time. Company expects it to touch double digit soon.
  • Tata Consumer added 45-50 Starbuck stores in FY21 and has an ambitious target for FY22E as well.

 

Asset Multiplier Comments

  • Store expansion, acquisitions & premiumization strategy in salt & tea in India market is expected to drive sales & margins.
  • We believe the company is taking a step in the right direction by increasing the distribution reach, especially to rural areas. Increased distribution coupled with product launches will act as key growth drivers.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Tata Consumer was ₹ 768/- as of 5-Aug-21. It traded at 61x/ 50x/ 42x the consensus EPS estimate of ₹ 12.3/15.1/18.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 743/- implies a PE multiple of 41x on FY24E EPS of ₹ 18.1/-.

 

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.”

 

Semiconductor shortage to resolve in 3-4 months: Eicher Motors

Update on Indian Equity Market:

An alarming increase in the number of Covid-19 cases resulted in a bloodbath in India’s Equity Markets, with Nifty slipping 258 points to 14,359. Adani Ports (-4.8%), Power Grid (-4.1%), ONGC (-4.0%) were the top losers on the index while Dr Reddy’s (+1.4%), Britannia (+0.9%), and Cipla (+0.9%) were the top gainers for the day. Among the sectoral indices, PSU Bank (-4.3%), Realty (-4.1%), and AUTO (-2.8%) led the losers while Pharma (+0.2%) was the only index to end in the green.

 

Excerpts of Interview with Mr. Vinod Dasari, Whole-time Director, Eicher Motors and CEO, Royal Enfield with CNBC-TV18 dated 16th  April 2021:

 

  • Demand has picked up strongly owing to backlogs from last year. The industry is facing some problems due to fresh restrictions owing to the rising COVID-19 cases. 
  • Learning from the past lockdowns, the industry is better equipped to deal with the short-term uncertainties and continue to keep up with the demand in the short term.
  • Royal Enfield expects supply-chain constraints in the first couple of months of FY22 and expects the recovery to be along the lines of FY21.
  • Metals inflation is putting pressure on margins, and the import restrictions on steel have resulted in an increase of 20% in prices which is unfathomable.
  • Optimistic about the semi-conductor and Anti-lock braking system (ABS) shortages, in the short run, there’s a notable pressure however recovery is expected within the next 2-3 months as all the stakeholders are coordinating to mitigate the issue.

 

Asset Multiplier Comments:

  • Demand is poised to recover in the FY22, however, Q1FY22 may see muted growth due to lockdowns and supply-side issues.
  •  As witnessed in Q4FY21, the demand is robust irrespective of the ongoing pandemic, the outlook for the auto industry is favourable for FY22 subject to supply-chain improvements.

 

Consensus Estimates (Source: market screener website):

 

  • The closing price of EICHER MOTORS was ₹ 2,377/- as of 19-April-2021.  It traded at 27x/ 21x the consensus EPS estimate of ₹ 87/ ₹ 115 for FY22E/23E respectively.
  • The consensus price target is ₹ 3,105/- which trades at 27x the EPS estimate for FY23E of ₹ 115/-

 

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 to take another price hike from April – Bluestar

 Update on the Indian Equity Market:

On Wednesday, Nifty closed in the green at 15,175. Among the sectoral indices, Metal (+1.9%), IT (+1.7%), and Pharma (+1.8%) closed higher. PSU Bank (-0.2%) was the only sector that closed in the red. Eicher Motors (+3.1%), JSW Steel (+3.0%), and Hindalco (+2.3%) closed on a positive note. SBI Life (-3.5%), ONGC (-1.8%), and HDFC Life (-1.5%) were among the top losers.

Excerpts from an interview of Mr. B Thiagarajan, MD, Bluestar with CNBC-TV18 dated 09th March 2021:

  • The demand for cooling products has picked up since the festival season. 20% sales growth is expected in Q4FY21E.
  • The Indian Meteorological Department (IMD) has indicated for hotter than usual summer season in 2021.
  • Thiagarajan expects 25% sales growth in the summer season for Bluestar.
  • The demand recovery is primarily due to people spending more time at home.
  • The disposable income is expected to be higher in the hands of people as there is saving due to no summer vacations and less travel.
  • The company has taken a price increase by 3-5% since Jan-21 on its products. The second price hike has not yet been taken by the company.
  • The second price hike might come from April 1. The rise in raw materials, transportation charges, and ABS plastic costs are not coming down.
  • The dealers are stocking up ahead of the season.
  • Room AC market share for the Bluestar was ~12.8% last year and currently it is 13%. The company targets to maintain a 15% market share by FY23E.
  • Food delivery and the pharma sector are driving the growth of commercial refrigeration.
  • In the Electromechanical projects segment, growth is coming from the manufacturing sector.
  • Thiagarajan says Room air conditioners are poised for growth in coming years led by positive announcements under the PLI scheme.

 

Asset Multiplier comments:

  • The coming summer season will be crucial for Air cooling products as last summer season was a washout led by lockdowns.
  • Industry players are bullish on the upcoming summer season as early sales indicate an uptrend.
  • On the commodity cost front, inflationary pressure is witnessed by the industry. Most AC players have resorted to taking price hikes.
  • Increased demand due to rise in temperature bodes well for the industry but an increase in commodity cost might hurt operating margins in the coming next 2 quarters.

 

Consensus Estimate: (Source: Market screener website)

  • The closing price of Bluestar was ₹ 932 as of 10-March-2021.  It traded at 94x/47x/36x the consensus Earnings per share estimate of ₹ 9.87/19.9/26.1 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price is ₹ 761/- which implies a PE multiple of 29x on FY23E EPS of 26.1/-.

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.”

Actively looking for acquisitions – Happiest Minds

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,315. Among the sectoral indices, Bank (+3.3%), Private Bank (+3.3%), and Financial Services (+2.9%) closed higher. Metal (-0.5%), IT (-0.4%) and Pharma (-0.3%) closed in the red. Axis Bank (+6.2%), ICICI Bank (+4.2%), and SBI (+4.0%) closed on a positive note. SBI Life (-2.3%), HDFC Life (-2.1%), and DR Reddy (-1.8%) were among the top losers.

Excerpts from an interview of Mr. Joseph Anantharaju, Executive Vice Chairman & CEO of Product Engineering Services, and Venkatraman Narayanan, MD and CFO, Happiest Minds with CNBC-TV18 dated 12th February 2021:

  • The company guided for a 20% revenue growth rate. The demand has panned out well.
  • The company won 6 new deal wins in 3QFY21.
  • Speaking about verticals, Mr. Joseph said edutech was doing well. The company received new requests and projects.
  • The industrial, B2B, and logistical space seem to be having new initiatives, which are leading to higher demand.
  • On operating margins, he said for the last 3 quarters the company is delivering margins in the range of 21-23%.
  • The company has guided for a profit margin of 22%-24% in FY22E.
  • On revenue growth, the company will maintain long term growth at 20%.
  • The company witnessed some efficiencies in the past 3 quarters, the plan is to retain some of those going forward.
  • The company recently completed an acquisition of PGS for 8.25 mn$. The company is actively looking for acquisitions.
  • On dividend, the company has not yet declared but the board will look after it.

 

Asset Multiplier comments:

  • The improvement in new deals signed and increased focus on IT budgets by clients has been mentioned by most of the IT Companies during the December quarter earnings call.
  • In 3QFY21, most of the IT companies have significantly expanded their operating margins, which was a result of continuing control on costs and improved sales.
  • It would be interesting to watch the performance of IT companies in the next couple of quarters, as companies have guided for lower margins but if cost control continues (led by on-off shore mix, WFH) then the margins might sustain these high levels.

 

Consensus Estimate: (Source: TIKR website)

  • The closing price of Happiest Minds was ₹ 401 as of 15-February-2021.  It traded at 36x/35.8x the consensus Earnings per share estimate of ₹ 11/11.2 for FY21E/FY22E/ respectively.
  • The consensus average target price is ₹ 385/- which implies a PE multiple of 34x on FY22E EPS of 11.2/-.

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 reasonable revenue growth for the industry in FY21– M&M

Update on the Indian Equity Market:
On Wednesday, Nifty ended flat at 14,565 while PSU banks outperformed. The top gainers for Nifty 50 were M&M (+5.7%), SBI (+4.6%), and Adani Ports (+4.4%) while the losing stocks for the day were Bajaj Finance (-2.9%), Shree Cement (-2.8%), and HDFC (-2.8%). Top gaining sectors were PSU bank (+3.3%), Auto (+0.9%), and Bank (+0.7%) while Pharma (-0.9%), Financial Service (-0.6%), and Realty (-0.3%) were the losing sectors.

Edited excerpts of an interview with Mr Pawan Goenka, MD & CEO, Mahindra & Mahindra (M&M); dated 12th January 2021 from Economic times:

The demand is now no longer a pent-up demand, it is a structural demand that is coming back.

With the new product launches, all companies have plans for 2021. Many of the companies had held back on product launches and that is certainly going to spur demand now. On top of that, if the government comes in with some kind of stimulus to grow the auto demand, then the demand will really take off and will lead to a great year.
The Heavy Commercial Vehicle (HCV) industry which was lagging for the last several months has started showing signs of revival. There was good growth in November and December. Once HCV is also on the growth path, the auto industry overall should look pretty good in FY22E.

Mr Goenka said GST rate cuts may not be possible because of the need for tax revenues in these difficult times, but GST rates should be simplified. There are eight or nine different GST rates. He hopes that the government will just keep two rates – 28% and 43% and not have all of these different rates. Right now, a rate reduction is not expected. When the economy is fully back on track, the government could reconsider rate reduction.
The massive cost cuts in 1Q & 2Q for the Company is not cost cutting but removing the fat. That is where a lot of the cost reduction has happened in terms of travel. Use of digital media for meetings has resulted in a significant reduction in cost in 1Q & 2Q FY21 and this will never come back. Maybe travel will go up somewhat but probably 75-80% will continue. The reductions have happened in events, inventory costs and communication costs. These will not come back to earlier levels, according to Mr Goenka. He said that more than half of the reduction is for good and continue to aid in the Company’s bottom line.

In the auto industry, this year there has not been any significant price cut or increased incentives given to propel demand.

Compliance with BS-VI emission norms has led to prices going up, therefore per unit revenue has gone up which will lead to a top-line increase for the Company. Given that volumes are also going up and the Company does not expect 2021 to be any worse than 2020 there will be a revenue growth for most companies. There are some companies that will do better, some will not and competition will continue. But overall for the industry, he sees reasonable revenue growth in 2021E.

Many companies have not passed on the full BS-VI cost increase yet and as the companies become more comfortable with the continued volume or continued demand, the gap in the BS-VI cost increase will get passed on during this year.

The big thing looming ahead of the industry is the commodity price increase, which will also lead to a price increase. That is not desirable if the auto industry were to pass on all the cost increases, then there could be a significant increase in prices. So commodity price increases are a matter of concern right now for the auto industry.

Most companies are coming back to their core where they have a right to win and have strength in India and globally and this is automatically leading to capital allocation which is going more towards the core.
The Company is going to be working on multiple platforms for personal mobility.

The overall positive sentiment in the rural area, in the agriculture area, somewhat tempered because of the farm agitation right now but that will be soon resolved. Mr Goenka remains very bullish on the Agri sector and on the overall rural demand coming from the income of the Agri sector for durables that are sold in rural areas.
M&M is one of those who had very robust demand this year. As a result, a marginal increase in prices is possible and usually in January every year, prices have increased. So M&M has announced a 2% price increase. It should not be a dampener on demand.

A partial increase is very much doable for most companies. Companies will have to do it because nobody can absorb the kind of commodity price increases that we are seeing and one will have to simply get used to it. Not only auto but the effect of commodity price rise will also be felt by users of almost all sort of durable goods.

The auto industry overall has gone through some very difficult times because of the investments in BS-VI which led to increasing in costs, most of which could not be passed on. The cost reduction that happened during Covid outbreak has come to the rescue and therefore most companies have managed to maintain their profit margin.

On an average, before Covid, in the passenger vehicle segment, a 30-35 days’ inventory was considered to be good. Now, most companies are saying 30-35 days is too high and they need to learn to work with 20-25 days of inventories.

If all companies bring down the inventory level to 20-25 days and also do very good inventory control in their plants and to the suppliers, the auto industry could take out as much as Rs 50,000 crore from the working capital. This is a learning from Covid that will help the industry reduce working capital and improve the balance sheet of almost all the companies.

Consensus Estimate: (Source: market screener website)
The closing price of M&M was Rs 838/- as of 13-January-2021. It traded at 31x/ 22x/ 20x the consensus EPS estimate of Rs 27.3/37.4/42.0 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of Rs 762/- implies a PE multiple of 18x on FY23E EPS of Rs 42.0/-.

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 strong ahead of festive and wedding season – Asian Paints

Update on the Indian Equity Market:
On Tuesday, Nifty ended 1.2% higher at 11,813 led by the financial & metal stocks. The top gainers for Nifty 50 were ICICI Bank (+6.7%), Hindalco (+5.1%) and SBI (+4.3%) while the losing stocks for the day UPL (-6.6%), NTPC (-3.8%) and Reliance (-1.3%). Top gaining sectors were Bank (+3.2%), Financial Services (+3.1%) and Pvt Bank (+3.1%) while the losing sectors for the day were Realty (-2.3%), and Media (-0.3%).

Edited excerpts of an interview with Mr Amit Syngle, MD & CEO, Asian Paints; dated 02nd November 2020 from CNBCTV18:

Demand has been buoyant in the festive season, according to Mr Syngle. He further added that staying at home has made people desire home improvement.

The Company is seeing a very strong growth trend because of the festivals coming in with the wedding season which is also around. So both these factors are giving very strong flavour to the market and that is the trend they are seeing in October as well.

Mr Syngle said that demand in tier-II, III and IV cities has been exceptional. The luxury segment in rural areas was picking up too.

The company sees demand from metros close to about 85% of the pre-COVID levels. For Tier-III and tier-IV, it sees a strong jump in terms of demand even better than pre-COVID times.

Mr Syngle added that the home décor business was growing much faster on a low base.

According to him, Asian Paints is not about just owning the walls, but space between the walls. The Company sees that trend coming in strongly and he sees a definite pick up in September in terms of people embellishing their homes not only with respect to walls but even with respect to the other areas which fill up space in the home.
Asian Paints is open to acquisitions that will bring in synergistic benefits.

Talking about the quarterly result he said, 3Q margins may be better than 2Q on stable inputs. The Company has lately witnessed input costs moving up due to demand.

Consensus Estimate: (Source: market screener website)

The closing price of Asian Paints Ltd was ₹ 2,158/- as of 03-November-2020. It traded at 74x/ 52x/51x the consensus book value estimate of ₹ 29.2/36.4/42.4 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 2,086/- implies a PE multiple of 49x on FY23E EPS of ₹ 42.4/-.

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.”