Expect impact of high rubber prices in 4QFY21 – Ceat

Update on the Indian Equity Market:
The Indian markets witnessed a volatile monthly expiry day as Nifty opened the day higher but managed to close 57 points lower at 11,673. Within the index, the gainers were led by ASIANPAINT (3.1%), TECHM (2.2%), and ULTRACEMCO (2.0%) whereas LT (-4.9%), TITAN (-3.4%), and ONGC (-2.9%) were the laggards. Among the sectoral indices, only IT (0.5%) closed the day in green while MEDIA (-1.7%), AUTO (-1.1%), and PHARMA (-0.9%) led the laggards.
Excerpts of an interview with Mr. Anant Goenka, Managing Director, Ceat Ltd (Ceat) published on CNBC-TV18 dated 28th October 2020:
The company is witnessing a very large demand in the months of October and November from the Original Equipment Manufacturers (OEM). The demand seems challenging from 4QFY21E onwards.
Raw material prices are inching up for the past few days. The increased rubber prices will start coming into effect around 4Q onwards. This will have a negative impact on margins.
He said that the rural economy has done well for the company. The farm sector has shown 50-60 percent growth in the replacement segment. The revenues are also back to 90 percent of pre-COVID levels. The higher demand is a mix of pent-up demand and a lot of other aspects.
The higher profitability margins during 1HFY21 were led by favorable mix and t is expected to come down in 2nd half of FY21E.
The company has completed a capex of Rs 2,500-3000mn YTD (Year-to-Date) and the figure will be around Rs 5,000mn by the end of FY21E and Rs 6,000 mn for FY22E.
Ban on Chinese tyres has impacted the PCR replacement demand. However, he said that OEMs are allowed to import Chinese tyres.
Consensus Estimate: (Source: market screener website)
The closing price of Ceat was ₹ 1,123/- as of 29-Oct-2020. It traded at 22x/ 16x/ 14x the consensus EPS estimate of ₹ 51/ 72/ 78 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 1,014/- implies a P/E multiple of 13x on FY23E EPS of ₹ 78/-.
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.”

Goal is to reach double-digit growth in enterprise vertical in FY22: Tech Mahindra

Update on the Indian Equity Market:
On Friday, NIFTY closed in green at 11,889 (+1.0%). Top gainers in NIFTY50 were Kotak bank (+11.7%), Nestle (+5.9%), and Asian Paints (+5.7%). The top losers were HDFC (-2.1%), TCS (-2.0%), and ONGC (-1.8%). Top sectoral gainers were PVT BANK (+3.1%), BANK (+2.9%), and FIN SERVICES (+2.2%) and sectoral losers were IT (-1.1%), PSU BANK (-0.9%), and REALTY (-0.7%).

Excerpts of an interview with Mr. Manoj Bhat, CFO , Tech M with CNBC dated 26th October 2020:
• Reaching doubt-digit revenues growth would be their goal.
• They have seen bottoming out of the manufacturing, they have seen BSFI doing fairly well, and the other verticals like retail and healthcare are also doing okay so most of the components are doing well.
• Tech Mahindra’s second-quarter earnings beat estimates with the non-telecom business driving growth this time. The telecom recovery is still muted.
• In the telecom segment, the recovery in their client base is a bit slower so they do anticipate in coming one or two quarters they should start to see that normalise.
• 5G is probably something which will happen in FY22.
• Interestingly the whole ecosystem around 5G in terms of phones, in terms of devices, that is something which has seen a good amount of traction.
• A look at the deal funnel suggests it is almost at all-time high. Within that, what they are seeing is more traction in slightly smaller deals because decision-making by them has started moving at a faster pace.
• Larger ones will probably pan out in the next couple of quarters.

Consensus Estimate: (Source: market screener and investing.com websites)
• The closing price of TECHM was ₹ 828/- as of 27th October 2020. It traded at 17x/ 15x/ 13x the consensus earnings estimate of ₹ 49.2/ 56.0/ 63.6 for FY21E/22E/23E respectively.
• The consensus price target of TECHM is ₹ 942/- which trades at 15x the earnings estimate for FY23E of ₹ 63.6 /-.
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.”

Prioritizing growth over margin expansion– Mphasis

Update on the Indian Equity Market:

On Monday, Nifty closed 1.4% lower at 11,768. Within NIFTY50, HDFCLIFE (+3.2%), NSETLEIND (+2.6%), and KOTAKBANK (+2.0%) were the only gainers, while HEROMOTOCO (-6.7%), BAJAJ-AUTO (-6.0%), and HINDALCO (-5.3%) were the top losing stocks. All the sectoral indices closed with losses led by METAL (-3.5%), AUTO (-3.2%), and MEDIA (-2.7%).

Prioritizing growth over margin expansion– Mphasis

Excerpts of an interview with Mr. Nitin Rakesh, MD & CEO, Mphasis, aired on CNBC-TV19 on 23rdOctober 2020:
● Mphasis delivered a strong growth in Direct Core segment in 2QFY21. The growth has been broad based and there are several drivers of this growth:
1. 2QFY21 was the 3rd consecutive quarter of $ 200mn+ net TCV deal wins. 2QFY21had highest ever TCV deal wins of $ 360mn. The momentum of deal wins is translating in good growth for the direct core channel.
2. Mphasis has seen good growth in existing strategic accounts as well as from new clients. Growth from new clients was 30% YoY in 2QFY21.
3. Mphasis has also been enjoying strong growth for the past 6 quarters from their European business. European business revenue growth was ~27%-28% YoY for 2QFY21.
● Mphasis has already crossed the pre-pandemic peak revenue in 2QFY21 itself. Mr Rakesh expects that the current growth trajectory should continue and Mphasis can deliver mid to high single digit revenue growth for FY21E.
● Mphasis’s MRC (Minimum Revenue Commitment) from strategic account of DXC expires in Sep-21. They still have $ 200 mn to be consumed in next 4 quarters. Post that, DXC channel will become like any other client for Mphasis and management is not worried about retaining the clients.
● Mphasis has stuck to their EBIT margin guidance band of 15.5%-16.5%. Management’s philosophy going into FY21 has been to maximize the growth potential in the market considering a lot of Mphasis’ digital capabilities are in high demand. Mphasis has prioritized growth over margin expansion, at the same time held margins steady.
● Mphasis istaking the margin operating efficiencies and re-investing it back into competency building, sales expansion, and investingin ramp up of recent deal wins.

Consensus Estimate (Source: market screener website)
● The closing price of MPHASIS was ₹ 1,356/- as of 26-October-2020. It traded at 20.7x/ 17.9x/ 15.8x the consensus EPS estimate of ₹ 65.6/75.8/85.7 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 1,483/- implies a PE multiple of 17.3x on FY23E EPS of ₹85.7/-.

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.”

Difficult to predict festive season sales – Bajaj Auto

Update on the Indian Equity Market:
On Friday, Nifty ended 0.3% higher at 11,930 led by the auto stocks. The top gainers for Nifty 50 were Maruti (+4.3%), M&M (+3.3%), and Tata Steel (+3.3%) while the losing stocks for the day were Ultra Cement (-2.4%), HCL Tech (-1.6%), and HUL (-1.6%). Top gaining sectors were Auto (+2.9%), Media (+0.7%), and IT (+0.5%) while top losing sectors are Realty (-1.1%), Pharma (-0.4%) and Pvt Bank (-0.04%).

Edited excerpts of an interview with Mr Rakesh Sharma, ED, Bajaj Auto Ltd; dated 22nd October 2020 from CNBC TV18:

The geographical mix & the business unit mix have a very big impact on the blended margins of Bajaj Auto. Last year the Company faced many headwinds in maintaining the margins. The Company is optimistic about maintaining the margins reported in 2QFY21 despite raw material cost increases seen.
There has been a marginal improvement in walk-ins, enquiries & sales over the beginning of the festive period last year.

Bajaj Auto is optimistic about maintaining margin despite raw material cost increase and they have streamlined low margin products.

The Company recorded the highest ever sales of Pulsar in 2QFY21. This impacted margins in a positive way during the quarter.

The Company had the highest ever exports in September-20 and October performance will beat September performance according to Mr Sharma. If the Company does not have any supply chain issues and transport interruption, then in November they will beat October exports.

The Company saw a smart recovery in domestic performance. They aim to improve the domestic market share from 18.2% in H1 to 20% in H2. There is a huge scope for expansion in market share but the Company does not want to compromise the margins and profitability for gaining the market shares.

It is very difficult to make predictions about the festive season sales as of now. The industry is seeing a slight improvement in enquiry and sales in this festive season. Post festive where all pent up demand is exhausted, it is interesting to see how the industry and demand responds. This will be the most important thing to be considered.
125cc segment is more profitable than 100cc and thus Bajaj Auto has expanded this market segment.

The ultra-premium segment (KTM/ Dominar) has clocked 10,000-12,000 units run rate per month currently.

The underperforming models/ low margin products of the Company have been stream-lined and prices have been increased during 2QFY21.

Bajaj Auto has passed on cost increases from September-20 onwards in the majority of the International markets. It had been a very difficult exercise for the Company as the Chinese & Japanese brands which has seen a huge revival, the company had to face intense competition.
The Company hopes the three-wheelers will start performing well with support from the Government initiatives.

Consensus Estimate: (Source: market screener website)
The closing price of Bajaj Auto Ltd was ₹ 3,090/- as of 23-October-2020. It traded at 20.7x/ 17.2x/15.0x the consensus book value estimate of ₹ 149/180/206 for FY21E/ FY22E/ FY23E respectively.

The consensus target price of ₹ 3,088/- implies a PE multiple of 15.0x on FY23E EPS of ₹ 206/-.

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 for casual wear is consistent – Bata India

Update on the Indian Equity Market:
On Thursday Nifty closed 0.35% lower at 11,896. Among the sectoral indices NIFTY Media (+0.7%), Metal (+0.7%), and Realty (+0.4%) closed higher. Pharma (-0.9%), IT (-0.7%), and Private Bank (-0.7%) closed lower. Hero Motocorp (-3.03%), Indusind Bank (-2.99%), and ICICI Bank (-1.62%) closed on a negative note. NTPC (+4.1%), Tata Motor (+3.1%), and Bharti Airtel (+2.9%) were among the top gainers.

Excerpts from an interview of Mr. Sandeep Kataria, CEO, Bata with CNBC-TV18 dated 20th October 2020:

● Speaking about demand, Mr. Kataria said things are much better as compared to the past 3-4 months.

● There is a pick up of demand MoM. The company expects to reach normal levels with the festive season coming in.
● Speaking about stores, he said almost all the stores are opened except a few isolated ones.

● People are getting back to the office. Delhi and Gurugram are the cities where traffic is visible.
● Demand for casual wear is consistent and washable slippers.

● Q1 was weak for the company as well as the industry. He expects that the company will reach pre-covid levels towards the end of the festive season.

● Speaking about stores, the company had negotiations with landlords which was helpful. The push of the franchise store in towns below 5 lakh population is showing a good trend and there are a lot of enquires.

● The biggest cost is rentals for the company and the company is taking measures to reduce it.

● The administration and travel costs are also looked closely.

● The company has a strong balance sheet and remain cash positive, there is no worry on that front.

● On post- covid scenario, he said the company is already working on E-commerce and the focus will continue.

● He said tier 2,3 towns are showing a quick bounce back as compared to urban.

Consensus Estimate: (Source: market screener and Investing.com websites)
● The closing price of Bata was ₹ 1,362 as of 22-October-2020. It traded at 182x/ 46x/ 38x the consensus Earnings per share estimate of ₹ 7.5/29.8/35.9 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Bata is ₹ 1293/- which implies a PE multiple of 36x on FY23E EPS of ₹35.9/-.

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.”

Business at 85-90% of pre-COVID levels – Amber Enterprise

Update on Indian equity market:
Indian markets were slightly higher today with Nifty closing the day 57 points higher at 11,954. Within the index, the gainers were led by POWERGRID (4.2%), BHARTIARTL (3.5%) and TATASTEEL (3.1%) whereas BRITANNIA (-4.3%), TCS (-2.3%) and SBILIFE (-1.9%) were the laggards. Among the sectoral indices, REALTY (4.7%) METAL (2.4%) and BANK (1.6%) led the index higher whereas FMCG (-0.9%), MEDIA (-0.5%) and IT (-0.4%) led the laggards.
Excerpts of an interview with Mr. Jasbir Singh, Chairman & CEO, Amber Enterprise Ltd (Amber) published on CNBC-TV18 dated 19th October 2020:
The recent notification by the central government to ban the import of ACs with refrigerants would increase local manufacturing. 30% of ACs worth Rs 40,000 mn were imported in India in FY20. 75% of this had refrigerants. The company is eyeing the majority share from this opportunity.
The decision of the government will shift the complete manufacturing of all the imported goods to India and the company will benefit as they have the capacities in place.
India currently produces 7mn RACs (Refrigeration & Air Conditioning) whereas China produces 110 mn RACs.
The business is back on track and the industry is back to 85-90% of pre-COVID levels on a month on month basis.
The company has won some orders from Metro and Railways which are moving normally. The company expects some more orders in the recent future.
He said that pent demand during the months of lockdown resulted in increased manufacturing orders by OEMs (Original Equipment Manufacturers)
The company recently bought the remaining 20% stake in Sidwal Refrigeration Industries. Accordingly, Sidwal is now a wholly-owned subsidiary of Amber. The company expects a 15% growth from Sidwal acquisition in FY21E.
Consensus Estimate: (Source: market screener website)
The closing price of Amber was ₹ 2,307/- as of 21-Oct-2020. It traded at 96x/ 35x/ 26x the consensus EPS estimate of ₹ 24/ 66/ 90 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 2,050/- implies a P/E multiple of 23x on FY23E EPS of ₹ 90.
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.”

4QFY21 Revenue run rate to be same as 4QFY20 – LT Technology Services

Update on the Indian Equity market:
On Tuesday, Nifty 50 ended 0.2% higher at 11,897. The gainers were led by HCLTECH (+4.3%), TECHM (+3.2%), and ASIANPAINT (+2.9%), while BRITANNIA (-5.8%), ONGC (-2.6%), and GAIL (-2.3%) led the losers. Among the sectoral indices, REALTY (+3.9%), MEDIA (+2.0%), and IT (+1.4%) led the gainers. PSU BANK (-1.4%), FMCG (-0.4%), and METAL (-0.2%) were the only losers.

LTTS recently released its earnings for 2QFY21. Mr. Keshab Panda, MD, and CEO of L&T Technology Services (LTTS) discussed the result and outlook for FY21 with CNBC TV-18 on 20th October 2020:

• At the beginning of the outbreak of Covid-19, the company took some measures: investment required in new technology, the business model required for each segment, and different geography. These have helped achieve sequential growth in each segment.
• All 5 segments will grow sequentially going forward. The company will offer the new technology demanded by customers quickly in the post-Covid era.
• There are two reasons for ~160 bps improvement in margins sequentially. First, revenue increased 4.1% QoQ and there has been a 4.5% increase in utilization in Q2. There is some room for improvement in the coming quarters as well.
• LTTS has learned that solution selling. To give an example, their medical devices segment which is doing well, they are thinking of taking it to the pharmaceutical and provider space.
• There are multiple levels- operational lever, solution offering lever, and business mix for margin growth going ahead.
• Margin growth depends on the business mix. Some of the segments they have are highly profitable and some segments are not as profitable. Telecom, industrial, and plant engineering have higher segmental margins compared to hi-tech, and part of the transportation subsegment.
• Another parameter is the offsite-onshore ratio. LTTS did well in Q2 and moving forward if customers believe the work can be done from home, the work will be done from India. Higher engineering offshoring will also add to margin improvement going ahead.
• Revenue and margins are expected to be better in Q3 and Q4. The management has guided for a revenue decline of ~7-8% for FY21.
• They intend is to come back to growth as soon as possible. Q1 suffered a drop in revenue and cash flow issue and realigning will take some time.
• Goal is that the 4QFY21 revenue run rate should be the same as 4QFY20.
• The impact of furlough coming in 3Q for LTTS is not clear yet. The positive side is the pipeline and orders in hand and how soon the proposals are accepted by customers.
• Sizeable deals got pushed to Q3 as the decision-making circle is a little longer today than in pre-Covid. Some analysis which was not done by customers in pre-covid is been done today. Cost-saving, analysis of cash flow, business model, credentials -all these are analyzed extensively post Covid.
Consensus Estimate: (Source: market screener website)
• The closing price of LTTS was ₹ 1748/- as of 20-October-2020. It traded at 27.7x/ 21.9x/ 18.8x the consensus earnings estimate of ₹ 63.2/ 79.7/ 93.0 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 1537 implies a PE multiple of 16x on FY23E EPS of ₹ 93.0/-.
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.”

HCL Tech to roll out salary hikes for all employees in phases

Update on the Indian Equity Market:
On Monday, NIFTY closed flat at 11,873 (+0.9%). Top gainers in NIFTY50 were ICICI bank (+5.1%), Nestle (+4.5%), and GAIL (+4.2%). The top losers were Divi’s Lab (-3.6%), Eicher Motor (-3.1%), and Hero Motocorp (-2.9%). Top sectoral gainers were PSU BANK (+4.2%), BANK (+3.1%), and PVT BANK (+3.2%) and the sectoral losers were PHARMA (-1.7%), MEDIA (-1.6%), and AUTO (-1.1%).

Excerpts of an interview with Mr. C VIjaykumar, CEO and Mr. Prateek Aggarwal, CFO, HCL Technologies (HCLT) with ET Now dated 16th October 2020:

• They signed 15 transformational deals. The momentum in the market for modernisation and digital transformation services has been great.
• The life sciences and healthcare and retail CPG verticals grew 8% plus sequentially which is a very impressive performance. All verticals, all geographies, all service lines, and all modes had a sequential growth. So it is a very good all-round performance.
• Some amount of recovery is due to the dip that they had in the first quarter but a lot of transition of deals that were done in the previous quarter got done extremely well which helped in ramping up revenues.
• A lot of existing customers continue to demonstrate their faith by giving them more projects and some incremental work which all got built. The digital foundation, which is their erstwhile infrastructure services, is very strong.
• In the second half also they have projected an overall margin growth. They have upgraded the guidance. Now 20%-21% is the full-year EBIT guidance. So in the second half, they will continue to see a good margin performance.
• The salary increases that they are giving will create a certain impact as they get into the second half of the year. That is why overall margins in H1 were ~21% but for the full year, they are guiding it to be 20% to 21%.
• Mode 1 has got a lot of digital foundation services that has also grown impressively. Mode 2, of course, has grown almost 7% sequentially and almost 15% plus from a year-on-year perspective.
• This is all the new technologies including cloud solutions, application modernisation, analytics, internet of things and cybersecurity. This is good for the margin profile apart from the cost controls that are automatically in place. Due to some of the higher value services increasing as a ratio is also good from a margin perspective.
• The Board has decided to double the dividend that they have been paying on a per quarter basis. So far they were paying Rs 2 per share per quarter and now in this quarter, the board has doubled the Rs 2 per share per quarter to now Rs 4 per share per quarter.
• The important thing is this is not a one-time kind of a thing. It is something that they intend to continue for the quarters going forward and that is the important thing.
• The overall pipeline is at an all-time high. Their pipeline has increased by almost 35% compared to what it was. Their booking increased by 35% compared to what it was in the last quarter. The pipeline has increased by almost 20% and it is at an all-time high.
• However, conversion of these deals and that converting into revenue is normally a 3-6-months cycle. They have done good bookings in the last two quarters.

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

The closing price of HCLT was ₹ 846/- as of 19th October 2020. It traded at 19x/ 17x/ 15x the consensus earnings estimate of ₹ 45.3/ 50.3/ 55.7 for FY21E/22E/23E respectively.
The consensus price target of HCLT is ₹ 937/- which trades at 17x the earnings estimate for FY23E of ₹ 55.7/-.
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.”

Auto component makers see MoM improvement in demand

Update on the Indian Equity Market:
On Friday, Nifty ended 0.7% higher at 11,762. The top gainers for Nifty 50 were JSW Steel (+6.7%), Tata Steel (+5.4%), and BPCL (+4.4%) while the losing stocks for the day UPL (-7.7%), HCL Tech (-3.5%), and M&M (-1.8%). Top gaining sectors were Metal (+4.0%), Realty (+2.6%) and Pvt Bank (+2.1%) while losing sectors were IT (-0.1%) and Media (-0.4%).

Edited excerpts of an interview with Mr Sunil Bohra, ED & Group CFO, Minda Industries, and Mr Jayant Davar, Co-Chairman and Managing Director, Sandhar Technologies; dated 15th October 2020 from Economic Times:

According to Mr Bohra, the auto component industry has been witnessing a month-on-month improvement in demand, and going forward, the sustenance of the demand hinges on how the scenario plays out during and after the festive season.

Mr Bohra added that October 2020 auto volumes are expected to be better than September 2020. OEMs are positive on medium-term demand forecasts. Personal mobility is driving the auto demand in the last few months.
Mr Bohra said that it is difficult to predict how demand would play out over the next two to three quarters.

Mr Davar, on the other hand, gave an optimistic commentary, stating that he is confident of a sustained recovery in demand. According to him, the demand will stay for a longer time. There is a sense of apprehension but all the indicators point towards a sustained recovery.

According to Mr Davar, October 2020 could potentially be a historic month of the industry. Although at the same time, he did admit that it will take some time for Covid-led damage during 1Q to be wiped out. FY22E will see an improvement in margins for the industry considering the market sustains and the demand sees a rise.

Mr Bohra commented that the cash position of the auto ancillary players is stable. There is no cash crunch witnessed. Minda Industries is in a very comfortable position in terms of the balance sheet.

Mr Bohra and Mr Davar offered slightly differing stances on how the demand trajectory could shape up in the future, both seemed to share a similar view on the localisation of components. The companies have been focusing on and investing in localisation of products for 3 decades. Companies are working on reducing the dependence on China for different parts/ materials. The Companies are trying to diversify their supply chain geographically and be prepared for the worst going ahead.

When asked about the government’s push on AtmaNirbhar Bharat and sourcing locally, the management of Minda, as well as Sandhar, welcomed the step, lauding the coming together of OEMs, suppliers and policymakers for the first time.
Mr Bohra also reiterated that the component maker has been consistently working towards increasing localisation and they are on a constant lookout for alternate (local) sourcing strategies, with strong support from the OEM clients as an added boost.

Mr Davar also brought to light the limitations of the industry in terms of the economies of scale and the fact that substitution of import would require the entire system to pay more.

Consensus Estimate: (Source: market screener website)
The closing price of Minda Industries Ltd was ₹ 327/- as of 16-October-2020. It traded at 97.6x/ 29.7x/20.2x the consensus EPS estimate of ₹ 3.4/11.0/16.2 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 361/- implies a PE multiple of 22.3x on FY23E EPS of ₹ 16.2/-.

The closing price of Sandhar Technologies Ltd was ₹ 240/- as of 16-October-2020. It traded at 47.1x/22.4x/16.1x the consensus EPS estimate of ₹ 5.1/10.7/14.9 for FY21E/ FY22E/ FY23E respectively. The consensus target price of ₹ 279.5/- implies a PE multiple of 18.7x on FY23E EPS of ₹ 14.9/-.

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