Tag - recovery

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

Update on the Indian Equity Market:

 

On Monday, Nifty plunged 3.5% at 14,310 due to rising COVID-19 cases, vaccine supply issues and the possibility of a lockdown in various parts of the country. Within NIFTY50, DRREDDY’S (+7.1%), CIPLA (+2.7%), and DIVISLAB (+1.1%) were top gainers, while TATAMOTORS (-9.7%), ADANIPORT (-8.9%), and INDUSINDBK (-8.6%) were the top losing stocks. Among the sectoral indices, PSU BANK (-9.3%), MEDIA (-8.1%) and REALTY (-7.5%) were the highest losers, and there were no gainers.

 

Marginal impact of localized lockdown; essentials & hygiene to see uptick: Godrej Consumer

 

Excerpts of an interview with Mr. Sunil Kataria, CEO, India and South Asian Association of Regional Cooperation (SAARC) at Godrej Consumer Products (GODREJCP), aired on CNBC-TV18 dated on 9th April 2021:

  • All the SAARC countries have continued to do well and growth has been robust for Godrej Consumer. Exports faced challenges in the 1HFY21 primarily because of lockdown, but it bounced back strongly in 2HFY21.
  • Thumb rule for FMCGs is whenever FMCG grows well, the Indian rural growth lead by 1.5x of urban growth. Pre covid, rural growth had gone down to 0.8x of urban, but the good news is now it has regained to 1.5x-1.7x of urban growth.
  • Mr Kataria expects
    • Good monsoon and with strong rural investment done, rural story will continue to hold very strong.
    • In this Budget, there is a lot of investment gone behind infrastructure sector which will stimulate demand and growth in core sectors. This will lead to good urban growth.
  • The top 3 important areas for Godrej Consumer are:
    • Household insecticides: Godrej Consumer is the category leader in this segment and have done most of the innovations here. India’s outlook towards health and hygiene has changed permanently, a strong momentum in this category is seen by Godrej Consumer this year and expects to continue to hold this momentum
    • Health and Hygiene: Godrej Consumer have done a lot of investment will continue to invest in this segment. It has moved beyond personal wash into being personal and home hygiene portfolio.
    • Go-To-Market Strategy: Sharp investments done in building a next level of GTM, this will be a big enabler in future.
  • Godrej Consumer Products posted a strong Q4FY21 update. The company said it has clocked in broad-based sales across all key categories and sees India sales growth around 30 percent this quarter.
  • This time, the COVID upsurge will see more of localized lockdowns rather than very far-ranging, wide impacting lockdowns. Therefore, a localized geography-based limited impact will happen on demand, which could impact certain discretionary categories.
  • People have started taking hygiene categories more casually and some stabilizing of demand is happening. Essentials and hygiene categories are expected to see an uptick again.
  • The whole consumption demand has looked up well across most of the segments and Mr. Kataria is pleasantly surprised with the kind of recovery in the demand that has happened even after the festive season.
  • Growth has been broad-based across all segments and that gives a lot of confidence and it talks about the quality of company’ growth across all the 3 segments – soap, hair color and household insecticides.
  • The company has taken calibrated price hikes across the portfolio and it is going to keep a close watch on price and demand of the products. More price increases are expected going forward if inflation continues, but not at the cost of volume growth. Therefore, some short-term pressure on gross margins is expected to be seen.

Asset Multiplier Comments

  • Post the virus outbreak, FMCG companies have stepped up supply chain agility and increased the GTM approach to ensure adequate stock. Teams have been put on “hyper-alert” to ensure that supply chains are uninterrupted in the case of disruptions due to localised lockdowns and curfews.
  • Overall, FMCG companies might get impacted due to regional lockdowns but this time it would be milder than last time lockdowns.

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

  • The closing price of GODREJCP was ₹ 715 as of 12-April-2021. It traded at 40x/ 35x the consensus EPS estimate of ₹ 18.5/20.9 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 814/- implies a PE multiple of 39x on FY23E EPS of ₹20.9/-.

 

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.”

Dramatic recovery in advertising revenues – Sun TV

Update on the Indian Equity Market:
On Monday Nifty closed 0.1% higher at 13,568. Among the sectoral indices, Media (+1.8%), Auto (+0.6%), and Metal (+0.8%) closed higher. Nifty PSU Bank (-1.5%), FMCG (-1.3%), and Pharma (-0.2%) closed lower. Bajaj Finance (+5.1%), Bajaj Finserv (+4.2%), and Eicher Motors (+3.1%) closed on a positive note. HUL (-2.1%), Nestle (-2.1%), and BPCL (-1.8%) were among the top losers.

Excerpts from an interview of Mr. SL Narayanan CFO, Sun Group with CNBC-TV18 dated 14th December 2020:

● Mr. Narayanan said the company has dramatic recovery in advertising revenues.
● The recovery on QoQ basis is better but the kind of set back company witnessed in the 1st half of the year the recovery is not that sharp to recover all the deficits.
● He said the subscription will become the mainstay of media companies like Sun Tv.
● 9 years back, the subscription revenues were averaging around Rs 85 crore a quarter which was Rs 340 crore run rate annually. That number has now touched Rs 2,000cr.
● Speaking on infrastructure, he said the company has prepared in the last 3-4 years for streaming.
● The company is investing in more forms of content.
● He said the telecom companies are sourcing content from media companies.
● The company is looking to spend Rs 400 cr on original content and in addition to this, the company will be producing movies.
● The company will also Rs 200 cr for exclusive content on Sun Next.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Sun TV was ₹ 500 as of 14-December-2020. It traded at 14x/ 13x/ 12x the consensus Earnings per share estimate of ₹ 35.5/39.1/41.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Sun TV is ₹ 523/- which implies a PE multiple of 12x on FY23E EPS of 41.9/-.
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.”

Operations back to pre-Covid levels – JSW Steel

Update on the Indian Equity market:
Amid weak global cues from spiking Covid-19 cases worldwide and uncertainty over the US presidential election, Nifty 50 ended 1.3% lower at 11,730 on Wednesday. Among the stocks, BHARTIARTL (3.4%), UPL (+2.8%), and M&M (+1.2%) led the gainers while HDFC (-3.5%), INDUSINDBK (-3.2%), ICICIBANK (-3.2%) led the losers. None of the sectoral indices ended the day in the green. FINANCIAL SERVICES (-2.3%), PRIVATE BANK (-2.2%), FINANCIAL SERVICES 25/50 (-2.1%) led the losers.

Excerpts of an interview of Mr. Seshagiri Rao, Joint MD, and CFO, JSW Steel with Financial Express on 27th October 2020:
• JSW Steel reported strong numbers for the September quarter with improvement in revenues and margins. Volumes were significantly better, both on a YoY and MoM basis. There has been a strong recovery in business activity as compared to 1QFY21. Although there are certain seasonal factors that impact demand in 2Q the overall environment is upbeat and expects the second half to see strong growth momentum.
• There is a very good improvement with regards to offtake by the auto sector. The revival in the auto sector was unexpected and sales to the auto industry went up 33% YoY.
• Although the commercial sector is still lagging, tractors, two-wheelers, and passenger vehicles are doing reasonably well. The demand is not expected to weaken in 2HFY21, on account of the festive season and the government’s attention to give fiscal stimulus. Demand will definitely see an MoM improvement, though YoY improvement will still take some time.
• There is good traction in the coated steel products, appliances, packaging, solar and government-aided projects. Rural demand is resilient and good monsoon and government initiatives will improve demand further.
• Long product demand was impacted by the monsoon and remained low. Construction activity has gained pace now and both 3Q and 4Q are expected to see good demand. Packaging and color-coated areas saw good offtake, which is expected to continue the rest of the year.
• Operations are back to pre-Covid levels and achieved average capacity utilization of around 86% in the quarter, versus 85% in 2QFY20. There were some disruptions due to the unavailability of iron ore and due to the increase in exports, evacuation of iron ore from other mines remained a challenge. The company is hopeful of the situation normalizing in the next quarter.
• In the second quarter, the steel prices have gone up by 11% and international prices have gone up by 16%. There has been an improvement in sales realizations, though realizations in India are increasing at a slower pace compared to that globally.
• The costs during the quarter were lower on account of the natural gas price which has come down. The power cost is lower because thermal coal prices have come down. Iron ore prices have gone up due to supply constraints. They will be able to reduce the cost of transporting iron ore from the mine to the railway siding, to an extent. They are also working on reducing the mining costs and want to set up a slurry pipeline to bring iron ore from the mine to the port. Though that will take time, once construction is completed, logistics costs will reduce drastically.
• The share of value-added and special products has now increased substantially to 51% of sales volume. There is substantial demand for color-coated products is on the rise from steel-using industries. There are plans to expand capacities at the Vasind, Tarapur, and Kalmeshwar plants by the end of this financial year.
• Once the high margin business like Asian color coated started coming in, margins will also get a lift.
• The NCLT has given approval for the plan to acquire the Asian Colour Coated Company. They are awaiting the final order to see if there are any modifications.
• They expect the Bhushan Power and Steel resolution to be settled by December 2021.

Consensus Estimate: (Source: market screener website)
• The closing price of JSW Steel was ₹ 306/- as of 28-October-2020. It traded at 18x/ 12x/ 10x the consensus earnings estimate of ₹ 17.3/ 26.3/ 30.4 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 303 implies a PE multiple of 10x on FY23E EPS of ₹ 30.4/-.

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.”

SBI: FY20 expected to be the big year of recoveries for the banking sector

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally higher at ~11,940 points (+0.5%). In the sector-wise performances, PSU BANK (+3.9%) was the best performing sector while METAL (-0.9%) was the worst-performing sector. Amongst the NIFTY 50 Stocks, INFRATEL (+11.0%), BHARTIARTL (+8.7%), AXISBANK (+3.7%) and RELIANCE (+3.6%) were the top gainers while YESBANK (-2.5%), M&M (-2.1%), ZEEL (-2.1%) and TCS (-2.0%) were the worst performers.

SBI: FY20 expected to be the big year of recoveries for the banking sector

Key takeaways from the interview of Mr Rajnish Kumar, Chairman of State Bank of India (SBI); dated 19th November 2019 on CNBC-TV18:

  • The Supreme Court recently set aside the July 4 order of the National Company Law Appellate Tribunal (NCLAT) approving ArcelorMittal’s Rs 42,000-crore bid for acquiring debt-laden Essar Steel. The bench clarified that financial creditors enjoy primacy and the adjudicating authority cannot interfere with the decision approved by the committee of creditors.
  • Talking about the Supreme Court (SC) decision, Mr Kumar said that it was a big positive and he expects the Essar deal to conclude by the end of November 2019.
  • He is of the opinion that this was a landmark judgement, upholding the validity of the rules, laws, as per the Insolvency and Bankruptcy Code (IBC) Act and the recent amendments carried out by the Government of India (GoI) almost in entirety. SC made only one change; it removed the mandatory 330-day period. In case of unusual circumstances, National Company Law Tribunal (NCLT) can relax or allow the time for a resolution plan to be implemented even beyond 330 days. 
  • Mr Kumar expects FY20 to be the year of recoveries for the banking sector with Essar Steel (~₹ 42,000 cr) judgement and the likes of Bhushan Power and Steel (~₹ 20,000 cr), Ruchi Soya and others (where the banking system’s exposure to each is ~ ₹ 5,000-8,000 cr) being lined up for under IBC.
  • The government introduced rules to resolve cases involving finance companies under section 227 of the IBC.  The Reserve Bank of India (RBI) has been vested with the power and, in consultation with the concerned ministry in the government, they can notify which company to be taken to the NCLT.
  • No financial creditor can take any Non-Banking Financial Company (NBFC), Housing Finance Company (HFC) to NCLT. The power vests with the regulator (the RBI, in this case) to identify in consultation with the central government. It will take the matter u/s 227 to the NCLT and appoint an administrator. Once the NCLT has admitted the case, then the committee of creditors’ concept will come in. The rules also talk of an advisory committee. There will be clarity on this when a case is actually taken up.
  • Coming back to the Essar judgement, Mr Kumar mentioned that SBI has fully provided for the outstanding amount. Thus, any recovery will directly be recorded in the quarters’ profit and loss statement.

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

  • The closing price of SBIN was ₹ 327/- as of 19-November-19. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 280/ 319 respectively.
  • Consensus target price of ₹ 366/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 319/-.