Winners bet selectively

Ravichand on his blog writes about how winners bet selectively. The Question that investor face – Do you chase many mediocre opportunities in the market and bet frequently or search for a few great opportunities and bet selectively?

In the absence of a crisis, great investing ideas/opportunities are very rare and you generally get one or two of them in a year. Many good ideas can only be a poor substitute for a single great idea. Yet we want some “action” in the market every single day and many times we end up placing bets on even moderately good ideas. Why?

 The possible reasons: Need for “action” or seen doing something;  No one is sure when the next great opportunity will come and/or how big it will be;  Professional fund management compulsions; Sitting on Cash on the sidelines without swinging your bat is nerve-wracking;  Not many have the luxury to sit all day long “reading” (working)

Quoting Buffett is a cliché but many times it’s the most appropriate. If you think that you would need a large number of investing bets because you have a big corpus then spare a minute to have a look at Warren Buffets investments in marketable securities. Around 87% of his USD 173 billion worth investments at the end of 2018 were concentrated in just 15 securities. By betting selectively on a few great ideas, Buffett has made a fortune.

The research study also highlighted this fact that investing only on our high conviction ideas and consciously avoiding mediocre lower conviction ideas will do wonders to our portfolio returns and our investing career.

5 C’s of selective betting

 Competence: The skill required to find great ideas. You cannot become a great Pastry chef if you don’t know how to bake. Similarly, if you are going to bet selectively on great ideas then you should first be competent enough to identify one.

Cash: Adequate Funds to back the great ideas What is the use of a great idea if it cannot be backed by adequate funds. Allocate too little and you cannot really feel the impact. Allocate too much and your portfolio can get wiped off. Always back great ideas with materially significant allocation which is neither too little or too much

Conviction: High confidence in your idea When you bet, place your stakes on an idea on which you have the highest conviction. The one which you believe has the best chance of success backed by research, data and thought. Betting selectively in great ideas only requires a bundle of confidence. Confidence is needed in your investing process, in your investing strategy and most importantly in – YOURSELF

Courage: Courage in times of crisis. Great opportunities come usually when there is a crisis or what you say as “when there is blood on the street”. There could be great opportunities when outstanding companies are going through a temporary problem. Courage to back up your great ideas during a crisis is priceless.

Character: Ability to say “No” Last but certainly the most important “C” is your “character” – your basic nature, trait and mental make-up. Similarly, for an investor, the ability to say “No” is a tremendous advantage. When your friends and colleagues are caught in the market frenzy, maintaining a Zen level of calmness and not biting at every cookie thrown at you requires a great temperament. Sitting on cash without hitting the buy requires character.

UPL eyes ₹5600 mn of synergies from Arysta deal

Update on the Indian Equity Market:On Thursday, Sensex ended higher led by gains in financial services and IT sectors, Sensex gained 170 pts and Nifty ended at 11,872. Retail inflation jumped to 4.62% in October from 3.99% in September. Vodafone Idea fell 20.27% after the department of telecommunications (DoT) asked operators to conduct a self-assessment of pending dues after last month’s Supreme Court verdict that upheld the government’s definition of adjusted gross revenue.
Among sectoral Indices, BSE IT was the biggest gainer with a rise of 1.1% followed by BSE Consumer Durables 0.9% and BSE Finance 0.8%.  BSE Telecom lost the most at 2.8%, BSE Metal was down 2.0% and BSE Capital Goods slipped 0.8%.
Among stocks, ICICI Bank Ltd, Bajaj Finance Ltd, HDFC twins—HDFC Bank Ltd and HDFC Ltd, Axis Bank Ltd, and Yes Bank were the biggest gainers in the financial services sector. In the tech sector, Infosys Ltd, Tata Consultancy Services Ltd, and Tech Mahindra Ltd gained the most.



UPL eyes ₹5600 mn of synergies from Arysta deal
Key takeaways from the interview of Mr Anand Vora, Chief Financial Officer, UPL; dated 11th November 2019:

  • When asked about the Arysta acquisition and synergies, Mr Vora mentioned that UPL has already achieved Rs 3200 mn of synergies and targets ~ Rs 5600 mn of total synergies benefit to reflect in Profit and Loss Account for FY20.
  • Mr Vora said that the EBITDA margins will improve to about 16-20% due to the merger.
  • He commented on the tough external environment factors like the trade war and swine flu, not letting UPL take any price increase to push the volumes.
  • Mr Vora added that the debt increase is due to the seasonality of the business and high working capital which will decrease significantly after December as cash inflows start against the receivables and this has been the trend for the last three years.
  • He stated that the receivables have decreased as compared to last year and UPL is working in that direction. On average the net working capital of Arysta is higher than UPL but they are working on it and expect the working capital to trend closer to that of UPL.  
  • When asked about the pressure on demand globally, he commented that they are in crop protection chemical business and farmers rarely keep their land vacant. In fact, once they have invested in seeds and spent on fertilizers, they are left with no choice but to use the crop protection chemical to protect their crops.

Consensus Estimate (Source: market screener website)

  • The closing price of UPL was ₹ 535/- as of 14-November-19 and traded at 17.5x /11.5x /9.8x the consensus EPS for FY20E / 21E / 22E of Rs 31/47/55 respectively.
  • Consensus target price of ₹ 704/- implies a PE multiple of 12.8x on FY22E EPS ₹ 55/-.

Bank of Baroda: No Further Slippages

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.6% lower. Among sectoral indices, NIFTY media (-4.5%), NIFTY PSU Banks (-3.1%), NIFTY Metal (-2.0%), NIFTY Bank (-1.8%), NIFTY PVT Bank (-1.8%) closed lower. None of the NIFTY sectoral Index ended on a positive note. The biggest losers were Yes bank (-5.7%), GAIL (-4.8%), ZEEL (-4.7%), whereas Britannia (+4.9%), TCS (+3.7%) and Reliance (+2.9%) ended with gains.

Bank of Baroda: No Further Slippages

Excerpts from an interview of Mr Murali Ramaswami, executive director, Bank of Baroda with CNBC-TV18:

  • Speaking about slippages, Mr Ramaswami mentioned that slippages during the last quarter were Rs 6,001 cr and 4 accounts constituted 60%-65% of it.
  • He said there is nothing to worry about as the worst is behind. Bank’s provision coverage ratio is adequate and the operating performance is growing continuously.
  • In total watch list of Rs 14,500 cr, DHFL is having exposure of Rs 1,900 cr.
  • Mr Ramaswami doesn’t expect any further slippages in the corporate book. About BBB accounts he says, that those are from quite some time with the bank and there are no new accounts.
  • Total exposure to NBFC’s is Rs 1.05 trillion and Rs 97,000 Cr is outstanding. One of the groups NBFC have slipped last quarter but as of now none of them are showing any sense of overdue.
  • Out of Rs 97,000cr outstanding, around Rs 10,000 cr is non reputed private sector.
  • Speaking about NPA’s he says, Gross NPA has come down from 10.28% to 10.25% on a quarterly basis. It will be sub-10% by the end of December quarter.
  • Net Interest Margin stood at 2.81%. Retail growth is primarily driven by auto and home loans. The current growth rate for auto and home loan is 16% and the expectation is that it will increase to 20%.
  • Retail loan, which is around ₹1.05 trillion is expected to rise to ₹1.3-1.35 trillion in this quarter. But overall advances are flat.
  • Some NBFCS have paid back and the bank didn’t take any additional exposure because of stress in that sector.
  • He added that HR integrations are complete, and the bank has saved ₹150 crores in amalgamation profits.
  • Speaking about MD, he says, that the bank does miss Mr Jayakumar. The government has given power to the ED’s to manage the business so there is no impact.

Consensus Estimate (Source: market screener website & Investing.com)

  • The closing price of Bank of Baroda was ₹ 93 /- as of 13-November-2019. It traded at a price to Book Multiple (P/B) multiple of 0.59x/0.54x/0.48x of the consensus book value estimates for FY20/21/22E of ₹ 157/172/192 respectively. 
  • Consensus target price of ₹ 128 /- implies a P/B multiple of 0.6x on B/V of ₹ 192 for the year ending Mar-22E.

VIP Industries: Revenue growth target of 5-10% for next quarter as well as for the whole year

Update on the Indian Equity Market:

Markets started the week marginally higher as Nifty closed the day 5 points higher to 11,912. 6 out of 11 sectoral indices closed the day on a positive note with MEDIA (2.8%), PVT BANKS (1.4%) and BANK (1.3%) led the gains while IT (-0.5%), FMCG (-0.5%) and AUTO (-0.2) were the laggards. Among the stocks, ZEEL (6.2%), YESBANK (5.7%) and BPCL (2.8%) led the index higher whereas NESTLEIND (-2.4%), HEROMOTO (-2.1%) and HINDALCO (-2.1%) were the worst-performing stocks.

VIP Industries:  Revenue growth target of 5-10% for next quarter as well as for the whole year

Key takeaways from the interview of Mr Dilip Piramal, Chairman, VIP Industries dated 11th November 2019 published in LiveMint:

  • Mr Piramal started the interview with his remarks on the 2QFY20 performance of VIP Industries. He mentioned that though revenues were lower, EBITDA was higher due to two reasons. First, due to the implementation of IND-AS 116, the EBITDA went up by 6 basis points. Second, the company also witnessed improvement in gross margins which contributed to the EBITDA growth.
  • The company reported YoY growth of 3% in revenues. He said that he was not surprised by the lower growth in revenues as it aligns with the general trend in the economy.
  • About the revenue growth in the future, he said that things are slightly better than before. The company is looking to achieve between 5-10% growth in this quarter and for the whole year. This is lower as compared to the historical growth rate of around 25%.
  • On being asked about whether the customers are up-trading, he said that there is not much of a change. In fact, the lower end is increasing faster for about nearly one year.
  • He mentioned that there is no increase in competition for the company. The industry is very small with two bigger players and one quite small player who is very competitive in the lower end. It is more like a segment-wise competition. The competitive pressure is the same.
  • After the implementation of Goods and Service Tax (GST), the market share has moved from unorganised players to the organized players. The company achieved a growth of 25% in FY18 largely on the back of implementation of GST.

Consensus Estimate (Source: market screener website)

  • The closing price of VIP Industries was ₹ 437/- as of 11-November-19. It traded at 37x/ 30x the consensus EPS for FY 20E/ FY 21E of ₹ 11.8/ 14.6 respectively.
  • Consensus target price of ₹ 509/- implies a PE multiple of 35x on FY22E EPS of ₹ 14.6/-.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Update on the Indian Equity Market:

On Friday, NIFTY closed ~104 points lower at 11,908 points. International rating agency Moody’s Investors Service downgraded India’s outlook to negative from stable on concerns that the country’s economic growth will remain materially lower than in the past. The negative sentiment led to a selloff in the stock market. Amongst the NIFTY 50 Stocks, YESBANK (+4.8%), INDUSINDBK (+2.9%), ICICIBANK (+2.4%) were the largest gainers; while INFRATEL (-4.9%), SUNPHARMA (-4.3%) and GAIL (-3.9%) were the top losers. The government’s announcement to set up an Alternative Investment Fund (AIF) in aid of the stalled housing projects kept the sentiment positive for the NIFTY REALTY index which closed higher by 1.7%. PRIVATE BANK was the only other sector in the NIFTY sector indices, to close in the green. NIFTY Pharma (-2.2%), PSU BANK (-1.9%), FMCG (-1.8%) were amongst the top losers for the day.

Indiabulls Housing Finance: Maintains healthy cash balance on the balance sheet

Key takeaways from the interview of Mr Gagan Banga, MD Indiabulls Housing Finance; dated 8th November 2019 on CNBC TV-18:

  • Indiabulls Housing Finance (IBHFL) maintains 20% of the balance sheet in cash; covering around the next 12 months liabilities. The cash balance is monitored on a daily basis. IBHFL continues to carry cash at similar levels as Sept-2019 less the amount of buyback done in October and early November 2019.
  • Mr Banga mentioned that in the last 13-14 months, the Housing Finance Companies (HFC) suffered because of the liquidity crisis. The market lost confidence in HFC. IBHFL’s suffering got exaggerated because of the various allegations and the attempt to merge with Lakshmi Vilas Bank.
  • IBHFL’s stakeholders are confident about the solvency with 20% of the balance sheet as cash and a capital adequacy ratio of 29%. Risky perception of the book is due to wholesale lending. However, for the last 10 years; IBHFL’s business has been in line with what the HFC charter permits.
  • In the event of various allegations, IBHFL has subjected itself to diligence. Multiple regulators and agencies have looked at the transactions in question and the overall book of IBHFL.
  • Talking about the governments’ announcement to set up an Alternative Investment Fund (AIF) to help complete the stalled housing projects, Mr Banga mentioned that it is a positive development in the right direction. It may take a couple of months for implementation with the setting up of the fund and the money to start flowing. The lenders and developers are content to see the government thinking of de-clogging the real estate sector.

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

  • The closing price of IBHFL was ₹ 242/- as of 8-November-19. It traded at 0.6x / 0.5x / 0.5x the consensus Book Value for FY20E / 21E / 22E of ₹ 437 / 487 / 475 respectively.
  • Consensus target price of ₹ 467/- implies a Price to Book multiple of 1x on FY22E Book Value of ₹ 475/-.

“Titan’s market share gain story intact”- S. Subramaniam, chief financial officer, Titan Co. Ltd.

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.42% higher at 12,016. Infratel (+3.5%), Sun pharma (+3.4%) and IndusInd Bank (+2.8%) were the top NIFTY50 gainers. UPL (-7.8%), Yes Bank (-3.6%) and GAIL (-3.5%) were the top NIFTY50 losers. Among the sectors, NIFTY METAL (+1.1%), NIFTY REALTY (0.9%) were the sectoral indices that closed positive. NIFTY PSU banks (-1.5%) and NIFTY AUTO (-0.2%) were the worst performing sectors.

Excerpts from an interview with S. Subramaniam, chief financial officer, Titan Co. Ltd broadcasted on CNBC on 7th November 2019.

  • June onwards it has been really tight and the entire industry has been in turmoil. As far as are we are concerned, our market share gains story is intact but it is unfortunately in a very declining jewellery market.
  • Even from Dussehra to Diwali, which is the festive season, for 33 days they have grown 10%.
  • They are in tough times. Gold prices have been high but, importantly, consumer sentiment has not been encouraging. consumers are trying to save money. They don’t want to invest too much.
  • Gold coins sales being little higher, which means that people who are investing in the category also are looking at it more from the savings perspective rather than actually spending money on jewellery as adornment.
  • They are now looking at 11-13% growth in second half. They also have a higher base but 10% in the festive season was not bad at all under the circumstances.
  • Typically when gold prices do go up there is pent up demand when it comes to the wedding part of the segment, people do have to finally end up investing. So, to some extent we could see a shift on a month-on-month or quarter-on-quarter basis.
  • Even the millennials when they get married, they have exactly the set of jewellery that otherwise would have been bought and if anything the design quotient is much higher these days.
  • They have seen east do quite well, they have seen south do relatively quite well, but the region that gets impacted the most has been west.
  • FY20 is expected to be a fairly bad year. They are not going to meet their 20% target and they have given that guidance also now. Their goal for the next six months is 11-13%.
  • One of the biggest drivers in the last three years has been the gold exchange programme. Today it accounts for almost 40% of the revenues. They need more growth drivers like that.
  • They do not want to have any quarter where they have less than 10% margin. They are well within their own internal plans as far as the margin for the watch business is concerned.
  • They are trying to even it out better than having 18% in the first half and then going down to 7-8% in the second half. So, in FY20, we should look at second half to be more than 10%. So, it is a conscious decision and, therefore, it is not really a fall.

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

  • The closing price of Titan was ₹ 1,166/- as of 7th November 2019. It traded at 63x/ 48x/ 39x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 18.6/ 24.4/ 29.7 respectively.
  • Consensus target price of ₹ 1,246/- implies a PE multiple of 42x on FY22E EPS of ₹ 29.7/-.

“HDFC Life always at the forefront of product innovation,” says HDFC Life Insurance MD & CEO.

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.4% higher than the previous close. Cipla (+3.0%), ICICI Bank (+2.5%) and Infosys (+2.4%) were the top NIFTY50 gainers. Titan (-10.1%), Bharti Airtel (-3.4%) and ONGC (-1.3%) were the top NIFTY50 losers. NIFTY Realty (+2.3%), Nifty Pvt Bank (+1.4%) and Nifty Bank (+1.2%) were the top sectors that closed positive. NIFTY PSU Bank (-0.9%), NIFTY Media (-0.5%) and NIFTY Auto (-0.2%) were the worst-performing sectors.

“HDFC Life always at the forefront of product innovation,” says HDFC Life Insurance MD & CEO.

Excerpts from an interview with Mrs. Vibha Padalkar, Managing Director & CEO, HDFC Life Insurance broadcasted on CNBC- TV18 on 6th November 2019:

  • HDFC Life insurance continues to gain market share & remain number one in the private sector space. The Company has gained market share by 220 bps in 1HFY20.
  • The Company has reported a growth of 38% on Effective Premium Income in the first half of FY20. Thus, there was a 65% YoY growth in the 1QFY20 on the back of their product called ‘Sanchay Plus’. In 2Q the Company reported a growth of 19% which according to her is not moderate by any means.
  • HDFC Life has a balance in its product mix as well as in the distribution. In a particular quarter, one might have something that is topical like a product launch or some focus because of the overall sentiment in the markets. However, on a full-year basis, the Company will come back to the balance and that is exactly what HDFC life has started demonstrating.
  • The non-par savings product contributed about 68% in 1QFY20 which came down sharply in 2Q at an exit rate of 41%. The Company expects to end the year between 30% to 35% contribution from non-par saving products.
  • HDFC Life is confident of delivering growth of 25-27% in the value of new business for the next two years on the back of:

a) Tying up with new partners and expanding a new ecosystem partner,

b) Product innovation. HDFC Life has always been at the forefront of product innovation, according to the MD.

c) Operational savings by reducing the fixed costs as a percentage of new business.

  • Regarding exposures of insurance companies to the non-banking financial companies (NBFCs) sector, the Company had one which is the IL&FS which has been written down fully. There is no other NBFC exposure.

“The worst is behind us” says Ashok Leyland Chairman.

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.2% lower. Bajaj Finance (+3.3%), Bharti Infratel (+3.3%) and Yes Bank (+3.2%) were the top NIFTY50 gainers. Zee (-3.7%), Indusind Bank (-2.3%) and Ultratech Cement (-2.2%) were the top NIFTY50 losers. Among the sectors, NIFTY FMCG (+0.3%) was the only sectoral index that closed positive. NIFTY MEDIA (-1.4%), NIFTY PHARMA (-1.1%), NIFTY METAL (-0.9%) were the worst-performing sectors.

 “The worst is behind us” says Ashok Leyland Chairman.

Excerpts from an interview with Mr. Dheeraj Hinduja, Chairman, Ashok Leyland broadcasted on CNBC on 5th November 2019.

  • Demand slowdown has been caused by multiple issues including issues faced by financing companies and the availability of liquidity in the market.
  • Last financial quarter is traditionally a strong quarter for Commercial Vehicle (CV) OEMs. 4QFY20 will be a strong quarter followed by a slow 1QFY21 due to the technology transition from BS-IV to BS-VI.
  • Management is looking forward to FY21. Historically, the year of transition is a strong year.
  • The transition from BS-IV directly to BS-VI in a 3 year period is one of the shortest transition times globally. Other countries have taken 7-10 years in which period the cost absorption has been done in a phased manner. There will be a significant cost-push on account of the transition.
  • Even post the cost-push due to BS-VI, management says Ashok Leyland will be cost-competitive as ever. The customers will see real value in products launched.
  • Looking forward, there are some good signs such as many initiatives that the government is taking and the revival of financing. Most of the OEMs have now corrected the state of their inventories that had built up. The next few months look to be quite positive.
  • The market is not going to recover overnight, but the worst is behind for Ashok Leyland.
  •  It’s been a year since the previous CEO, Mr. Vinod Dasari quit.  Search for the CEO is on. FY20 is a year of important changes with respect to BS-VI, their new modular platform and the introduction of a whole line up of LCV products. The Board had taken a decision that they did not want a major disruption in the Management at this important juncture.  But a new CEO is required and the Board will be announcing a successor in the next few months.

Growth at Bajaj Auto has outperformed industry

Update on the Indian Equity Market:

On Monday, Sensex ended at record closing high of 40,302, up 137 pts; Nifty ended at 11,943; IT index was the biggest sectoral gainer, while auto stocks bled the most. Infosys share price closed 3% higher at Rs 709 after the firm said it has not received any prima facie evidence so far to corroborate any of the allegations made by the anonymous whistle-blower. Infosys, VEDL, Tata Steel, HDFC, ONGC were among the biggest gainers, jumping up to 3%. On the other hand, Maruti Suzuki, Hero MotoCorp, IndusInd Bank, Tata Motors were among the biggest losers, shedding up to 2.5%. Among sectoral indices, NIFTY IT (+0.8%) NIFTY Metal (+2.8%) closed higher while NIFTY Auto (-1.4%), NIFTY media (-3.3%) ended on a negative note.

Growth at Bajaj Auto has outperformed industry

Key takeaways from the interview of Mr Rakesh Sharma, Executive Director, Bajaj Auto; dated 4th November 2019:

  • Mr Sharma stated that the company reported the highest ever retails of all business in its history by a wide margin. The motorcycle business turned in a retail sales performance of 400,000 units plus, which is ~50% growth YoY. It grew by 28% over the festive period of last year. Small commercial vehicle (CV) business reported retail sales of 43,000 plus and KTM business doubled reporting the highest ever retail performance. So, it was a wonderful month for Bajaj Auto and the company is happy that almost half of the growth in domestic motorcycle by newly launched products (in the last six months) which have done exceedingly well and brought down the inventory levels.
  • Mr Sharma said that they had proactive engagements with the channel where it was informed that come October Bajaj Auto will be easing the burden.
  • Mr Sharma added that he has not seen such low channel inventory in the last 18 months and suspects that the company should have moved the market share needle as well.
  • When asked about the future performance he said that the economy is entering a naturally lower part of the quarter now. Post the festive seasons, the sales do drop so there is obviously a combination of postponement that has occurred from July-August and a bit of advancement that would have occurred from November. All of these combine to give the surge during the festive season. So, there is a natural down cycle that we will now hit and added on this will be the uncertainty in the minds of a lot of people about the BSIV-BSVI transition.
  • He refrained from commenting that Bajaj Auto would see similar kind of numbers, but he confirmed that this festival season has served as a very good trigger to bottom out what the Indian industry was experiencing.
  • Mr Sharma said that the company still needs to navigate the turbulent change that is impending, which is BS-IV to BS-VI, and will have to see how the consumer behaviour will occur during this change.
  • Mr Sharma informed that Bajaj Auto has always been outpacing the market by 5-8% points and thinks that Bajaj Auto outpaced the industry growth by at least 15% points on the back of new products. Therefore, he is confident of market share expansion.
  • When asked about the price cuts and margins he commented that the company’s strategy of uplifting the consumer step by step has helped the realisation per vehicle to move upwards. The stocks are now in a very manageable zone.
  • Mr Sharma said that softer raw material costs, steady foreign exchange rate (45% of revenues come from overseas sources), improved portfolio and favourable business mix is contributing to margin expansion but would not like to further comment on margin as they are in an ambiguous situation in November-December-January.

Consensus Estimate (Source: market screener website)

  • The closing price of Bajaj Auto was ₹ 3,212/- as of 04-November-19 and traded at 18.4x /17.2x /16.7x the consensus EPS for FY20E / 21E / 22E of Rs 176/188/194 respectively.
  • Consensus target price of ₹ 3,049/- implies a PE multiple of 15.7x on FY22E EPS ₹ 194/-.

Shriram Transport Finance Co: Rural market to see demand in December

Update on the Indian Equity Market:

On Friday, NIFTY closed 0.2% higher. Among sectoral indices, NIFTY media (+7.6%), NIFTY Metal (+2.3%), NIFTY PSU Banks (+1.4%) closed higher while NIFTY Auto (-0.7%), NIFTY IT (-0.5%) ended on a negative note. The biggest gainers were ZEEL (+18.5%), Bharti Infratel (+6.8%) and IndusInd Bank (+5.0%) whereas Yes Bank (-6.1%), Indian Oil Corporation (-2.8%) and TCS (-2.8%) ended with high losses.

Shriram Transport Finance Co: Rural market to see demand in December  

Excerpts from an interview of Mr Umesh Revankar, MD Shriram Transport Finance Co with CNBC-tv18:  

  • Speaking about ongoing talks on the merger of Shriram Transport Finance Co. (STFC) and Shriram City Union Finance, Mr Revankar said, it is still in the idea stage and yet to be discussed at the board level.
  • The merger will bring synergy in businesses. It will also give an opportunity for cross-selling and upselling some of the product across customer bases.
  • The customer base of Shriram Transport Union and STFC put together is about one crore.
  • Once the company will be in a position to offer multi-products, the cost of funds will also come down.
  • Speaking about employees, he mentioned that they won’t resist as the business is quite decentralized and operational freedom is given at ground level.
  • Speaking about the shift from BS-IV to BS-VI he mentioned, that as the cost of the vehicle will increase, the price of resale will also go up. He adds that the transactions will keep happening and the used vehicle market will also grow.
  • The company has penetrated 30% market so enough space is still left to penetrate.
  • Mr Revankar said, the demand is yet to be very positive but on the rural side the demand would come back as crop sowing got delayed by the extended monsoon. November and December may see a big demand in the rural market.
  • The urban market will take some time to grow. Growth of heavy vehicles depend on infrastructure and real estate so unless real estate and infrastructure activity pick up, it will take time.
  • Government is taking steps to restart infrastructure contracts, engineering, construction contracts it will help to get things to normal by December.

Consensus Estimate (Source: market screener website)

  • The closing price of SRTRANSFIN was ₹ 1,144/- as of 1-November-19. It traded at 1.4x /1.2x /1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 805/932/1078 respectively.
  • Consensus target price of ₹ 1289/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 1089/-.