This Week in a nutshell (July 19th to July 23rd)

Technical Talks

NIFTY opened the week on 19th July at 15,754 and closed on 23rd July at 15,851, it made a small weekly gain of 0.6%. The index is trading below its upper Bollinger band level of 15,952, which might act as a resistance. On the downside, 20 DMA of 15,788 might act as a support. The index might trade in the range of the above-mentioned levels before making a strong move on either side.

Weekly highlights

  • After two sessions of losses and Wednesday being a holiday, the Market recovered for the last 2 days of the week as Nifty ended below 15,900, led by gains in most of the sectoral indices including Realty, Bank, Pvt bank, etc.
  • Among the sectoral indices, NIFTY Private Bank was the top loser (-2.26%) this week followed by Nifty Auto (-2.18%) and NIFTY IT was the top gainer (+1.68%) as most of the IT companies came up with strong numbers and positive outlook. 
  • The Nifty Private Banks sector was impacted by the result of HDFC Bank where the earnings growth in the June quarter was the lowest seen in many years. The disruption caused by the second wave of COVID-19 impacted profitability as the bank shored up provisions. HDFC Bank was down by 5.2% this week. On monthly basis, the defensive sectors are again at the forefront. Pharma and IT are up by 4.5% and 2.9% respectively.
  • Zomato made a stellar debut on bourses on Friday, listing at Rs 116 apiece on the NSE, garnering a 53 percent premium over its issue price of Rs 76 per share. The valuation of the company soared to Rs 910 bn.
  • India continued to attract strong foreign direct investment inflows in the first two months of FY22.  Gross FDI inflows more than doubled to $18.3 billion in April-May this year compared to $8.5 billion in the same period a year ago, according to RBI data. Nearly a third of the inflows are in the form of acquisition of shares rather than investing in new projects.
  • Oil prices trimmed gains on Friday but were poised to end the week largely steady after rebounding from a sharp drop, underpinned by expectations supply will remain tight as demand recovers. Brent crude futures fell 7 cents, or 0.1%, to $73.72 a barrel at 0147 GMT, after jumping 2.2% on Thursday. For the week, Brent was headed for a 0.1% gain.
  • Foreign Institutional Investors (FIIs) continued to be net sellers in Indian equity of Rs 54,460 mn, and the quantum of outflows increased from the previous week of Rs 15,350 mn. Conversely, Domestic Institutional Investors (DIIs) continued to be net buyers with an increased net outflow of Rs 50,520 mn vs the previous week’s Rs 12,000 mn. 

                                                                       Things to watch out

  • With results season picking up, quarterly numbers are to be watched out.
  • With Covid third wave concerns hovering around, government restrictions & policies regarding full or partial lockdowns are to be watched out for.

Confident of double-digit growth in FY22 – HCL Tech

Update on the Indian Equity Market:

On Thursday, NIFTY ended higher at 15,824 (+1.2%) as it closed near the intraday high level of 15,835. METAL (+3.0%), IT (+1.8%), and REALTY (+1.75%) led the sectoral gainers and there were no sectoral losers. Among the stocks, JSWSTEEL (+5.9%), TECHM (+5.4%), and BAJFINANCE (+4.2%) led the gainers while HINDUNILVR (-2.3%), ASIANPAINT (-1.8%), and BAJAJ-AUTO (-1.2%) led the losers.

Excerpts of an interview with Mr. C Vijayakumar, CEO & MD, and Mr. Prateek Aggarwal, CFO of HCL Technologies (HCLTECH) published with CNBC TV18 on 20th July 2021:

  • The company has seen a second consecutive quarter of revenue miss due to execution capabilities getting hit by the second Covid wave, and the company has a lot of concentration in NCR. As the revenue will recover in Q2FY22, the company is confident of the full year’s double-digit growth performance.
  • Speaking on segments, the products and platform segment has been disappointing for the last two quarters. The company expects a low single-digit growth for this segment, as around 25% of the products are either declining in nature or are being discontinued. IT services had a muted quarter, due to some executions and transitions in Europe that are taking longer than expected.
  • The company is expanding in new markets (geographically) categorized as Focus countries and New Frontier countries. The company has a reasonable presence in the countries under the Focus category and the growth rate will be higher than the company growth rate. New frontier countries are mid to long-term bets. These markets have to be built and are expected to give good outcomes in a couple of years.
  • The deals that the company has won are organic in nature, and a lot of them require to be built by hiring more talent, and onboarding them. The hiring of freshers could be more than the current guidance of 20,000-22,000. Speaking on salary hikes, the salaries are currently the same at entry-level, but the company expects to see a salary hike percentage in the next couple of years to be more than the rest of the company.
  • The company has accomplished a very good quality order book in the last 2 quarters, a lot of it being good long-term programs having annuity revenues, and are good capacity programs for digital transformation.

Asset Multiplier Comments

  • As the country recovers from execution capability-related issues caused by the second covid wave, the revenues can be expected to recover in FY22.
  • A strong order book that contributes to annuity revenues will position the company better in the mid to long term.

Consensus Estimate: (Source: market screener website)

  • The closing price of HCLTECH was ₹ 979/- as of 22-July-2021. It traded at 20x/17x/16x the consensus earnings estimate of ₹ 50/57/62 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 975/- implies a PE multiple of 16x on FY24E EPS of ₹ 62/-.

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.”

Focus on Technology aided Market Share Growth – SBI

Update on Indian Equity Market:
On Tuesday, markets ended lower with Nifty closing 120 points down at 15,632. ASIANPAINT (+5.4%), ULTRACEMCO (+1.8%), HINDUNILVR (+1.0%) were the top gainers on the index while HINDALCO (-3.7%), INDUSINDBK (-3.2%) and TATASTEEL (-2.7%) were the top losers for the day. Among the sectoral indices, FMCG (+0.1%) was the sole gainer, while MEDIA (-2.6%), REALTY (-2.5%) and METAL (-2.3%) were top losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman of SBI with ET NOW on 16th July 2021:

  • SBI’s growth is directly linked with India’s growth story. The Bank expects its loan book to grow across both working capital and term loan segments at 8% if the Indian economy grows around the same rate.
    The 2nd wave impact has been reduced now. The activities are recovering to March-21 i.e pre- 2nd wave levels due to a dip in cases and increased vaccination exposure, the commodity cycle and consumer demand are now back to March-21 levels.
  • The Bank was not caught off guard during the 2nd wave as it was during the first wave. It was well prepared and did not face headwinds during the second wave.
  • RBI’s timely intervention to address resolutions of NPAs has helped the bank manage its asset quality with regards to exposure to the MSME sector and has provided much-needed relief for the sector.
    SBI is a proxy for the Indian economy.
  • The NPA cycle, both net and gross, has reached a 5 year low, so the growth in the Indian Economy in the longer term and the bank’s capabilities to manage its loan book indicate a similar trajectory going ahead.
  • Listing of SBI MF is on the cards, the discussion is ongoing with the JV Partner. They are awaiting a unanimous decision and expect some movement in the upcoming quarters.
  • Fintech Space dominated by Paytm is demonstrating attractiveness to premium valuations, however, the Bank wants to focus its fintech segment SBI YONO to create long-term value for its stakeholders and doesn’t plan to list it for an IPO.
  • Fintech players operate in a niche segment, who don’t offer full-scale banking operations, so it’s an excellent opportunity for the bank to collaborate with such players to expand its growth drivers.
  • The Flight to Safety approach in uncertain times has helped large banks grow their liabilities and by extension, their loan book during the pandemic, the bank expects further consolidation of market share among top players.
  • The Capex and Credit Cycle recovery is evidential in the Cement, Iron and Steel, and the FMCG sectors with some capacity expansion on the cards.

Asset Multiplier Comments:

  • SBI, India’s largest bank is a proxy to India’s growth story. The bank is well-positioned to take benefit of all the disruptions and growth possibilities offered by the pandemic.
  • SBI has separated itself from other PSU banks that are riddled with operational inefficiencies and rigid cost structures, making it an attractive proposition in the banking sector.

Consensus Estimates (Source: market screener website):

  • The closing price of SBI was ₹ 421/- as of 20-July-2021. It traded at 1.4x/1.2x/1x the Book Value per Share (BVPS) estimate of ₹ 309/ ₹ 354/ ₹ 397 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 515/- which trades at 1.3x the BVPS estimate for FY24E of ₹ 397/-

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.”

Combined proposition with CAPCO is a game changer – WIPRO

Update on the Indian Equity Market:

On Monday, NIFTY closed 1.1% down at 15,752. Top gainers in NIFTY50 were NTPC (+2.0%), BPCL(+1.6%), and DIVISLAB (+1.0%). The top losers were HDFCBANK (-3.3%), INDUSINDBK (-2.8%), and HDFCLIFE (-2.7%). The only sectors to gain wereREALTY (+0.4%), and PHARMA (+0.2%) while the top sectoral losers were PRIVATE BANK(-2.0%), FINANCIAL SERVICES (-1.9%), and BANK (-1.9%).

Combined proposition with CAPCO is a game changer – WIPRO

Excerpts of an interview with the Management (CEO, CFO, and Chief Human Resources Officer) of Wipro, aired on CNBC TV18 dated 16th July 2021:

  • WIPRO has guided to an annual revenue run rate of US$ 10 bn.
  • Management said they will focus on driving consistent progression for growth and take a quarterly view. For 2QFY22, management has guided to a sequential growth of 5%-7%.
  • WIPRO has taken some steps in the last 12 months in terms of a simpler operating model, greater focus on growth, more focused strategy, focus on talent acquisition and development. The company has executed on these streams and customers and partner ecosystems have started responding to these improvements.
  • Management has created a buzz by saying that they would make a significant announcement in relation to their Cloud business over the next few weeks. Without giving any further details, the management has only said that the announcement would set their ambition in the cloud space more clearly.
  • WIPRO saw margin pressure in 1QFY22. Management has reiterated that capturing the growth momentum remains their priority, so they will continue to undertake investments.
  • Management had earlier guided for the margins to be in the band of 17% to 17.5%. 1QFY22 margins were well ahead of that at 18.8%.
  • 2QFY22 will also have some margin headwinds as the company will continue making investments to recapture demand, focus on talent retention by way of salary increase, and full quarter integration impact of CAPCO deal. However, the management remains optimistic regarding the quality of operating leverage that company can create in the growth phase going ahead.
  • WIPRO’s attrition in 1QFY22 was higher than industry levels. The management is confident that the supply chain processes have been finetuned to ensure demand servicing so they won’t face any issues.
  • Management is tackling the high attrition issue by focusing on fresher intake, salary hikes, quality of work, rescaling, and engagement. As a result of all these interventions, attrition will come to a much more manageable number moving forward.
  • As an update on the CAPCOdeal, management said that while these are still early days of the integration, the partnership is moving in the right direction. The way the two teams are connecting and complementing each other is good. Management has identified severalclients where they are offering the combined proposition. The level of response from clients is also very good and the teams have had several deal wins together.

 

Asset Multiplier comments:

  • Companies across the IT industry have been facing a talent supply crunch. While this is a good sign as the supply is chasing the higher demand, it is not without its drawbacks.
  • Lower talent availability leads to higher demand, better opportunities, and hence higher attrition. Attrition beyond control may put a roadblock in deal ramp-ups as there is a time lag that goes into new hire training. In addition, talent retention begins to cost more, thus limiting the operating margins.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of WIPRO was ₹ 575/- as of 18-July-2021.  It traded at 26x/ 23x/ 21x the consensus earnings estimate of ₹ 22.0/ 24.5/ 27.2for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 545/- which trades at 20x the earnings estimate for FY24E of ₹ 27.2/-

 

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.”

 

This Week in a nutshell (July 12th to July 16th)

Technical talks

NIFTY opened the week on 12th July at 15,767 and closed on 16th July at 15,923. The index made a gain of 0.9% this week. On the downside, 10DMA of 15,816 might act as a support. Flat RSI (62) suggests a consolidation before making a strong move on either side.

Weekly highlights

  • The market started the week on a positive note but erased intraday gains as key inflation data was released.
  • Consumer Price Index-based inflation (CPI) for the month of June rose 6.3 percent, as food prices hardened further, and transportation costs rose due to higher petrol and diesel prices.
  • Food inflation (CFPI) came in at ~5.2 percent in June, compared with ~5.0 percent in May, as food prices continued to remain inflated, official data by the National Statistical Office showed on July 12.
  • Most of the IT companies reported this week with strong numbers and also increased the revenue guidance for FY22 leading Nifty to hit fresh highs. NIFTY IT was up 2.6% this week followed by NIFTY PHARMA (+1.9%) and NIFTY PRIVATE BANK (+1.8%).
  • Positive global cues, rally in IT stocks, comments from the US Federal Reserve and rally in banks pushed the benchmarks to record high. However, profit booking at all-time high levels pushed benchmark indices lower as they snapped the three-day winning run-on Friday. IT stocks saw intense selling while banks also contributed to the fall.
  • Nasdaq and the S&P 500 were hitting record highs at the beginning of the week as investors awaited the start of the second-quarter earnings season and a batch of economic data to gauge the next leg of the equity market. But the rally was short-lived as the biggest hike in U.S. inflation in 13 years rattled investors who fear rising interest rates could end a stock market rally that has doubled prices from 2020 lows.
  • Federal Reserve Chair Jerome Powell commented that US monetary policy will offer powerful support to the economy until the recovery is complete and the pace of price increases will likely remain elevated in coming months before moderating. The language indicated that he saw no need to rush the shift towards post-pandemic policy. Long-term inflation expectations, remained consistent with the Fed’s 2% inflation target.
  • Post comment the US indices fell as a rally in growth stocks ran out of steam even though US unemployment claims fell to 3,60,000 which is the its lowest level since the pandemic struck last year and strengthened views about a recovery in the labor market.
  • Late Thursday, Treasury Secretary Janet Yellen warned that prices could continue to rise for several more months, expects inflation to reach normal levels in medium term and to keep a careful eye on it.
  • The stock market was falling Friday following Yellen’s comments on inflation and snapped a three-week winning streak. All three major indexes notched weekly losses. The S&P 500 and Dow shed 1% and 0.5%, respectively. The Nasdaq fell 1.9%.
  • The foreign institutional investors (FII) sold Rs 15,350 mn worth of Indian equity shares in the week. Domestic institutional investors (DII) undertook Rs 21,000 mn of net buying during this week.

Things to watch out for next week

  • Next week, investors’ focus will largely be dominated by the quarterly results. As in half of the duration of the June quarter, the economy was in a lockdown, investors will look beyond the earnings print or just the quantitative number and focus on the qualitative commentary provided by management.

 

Double-Digit revenue growth expected in FY22 – Mindtree

Update on Indian Equity Market:

On Thursday, markets ended higher with Nifty closing 70 points to close at 15,924. HCLTECH (+5.0%), L&T (+3.7%), WIPRO (+3.0%) were the top gainers on the index while ONGC (-3.0%), EICHERMOT (-1.3%) and BHARTIARTL (-0.9%) were the top losers for the day. Among the sectoral indices,  REALTY (+4.2%), IT (+1.3%), and BANK (+0.7%) were top gainers, while AUTO (-0.4%), MEDIA (-0.4%), and PSUBANK (-0.3%) were the losers.

Excerpts of an interview with Debashis Chatterjee, MD, and CEO of Mindtree on CNBCTV18 dated 14th July 2021:

  • Robust Deal Pipeline and order book growth was seen and more renewals led to an increase in the scope of the value of the deals and the new deal wins have been characterised by multi-year long-term deals and not just project-based deals.
  • The company’s strategy of 4x4x4 across 4 of its major service lines is helping the company cross-sell and upsell a lot of the services in the existing deals in its 4 service lines of Customer Service, Data Analytics, Cloud Management, and Enterprise IT.
  • The company has guided for double-digit revenue growth of around 20% and improved EBIT margins in FY22. It hopes to achieve this as a result of the foundational changes in cost efficiencies it has done over the last 2-3 years.
  • Quarter specific and client specific headwinds may occur on the margins front. With the opening up of client businesses and increase in revenue growth aided discretionary spending, the company expects a topline growth as well.
  • The company is rolling a subsequent wage hike in Q2FY22 to deal with high levels of attrition currently faced by the industry. The company plans to undertake significant outreach programs with its personnel to manage attrition.
  • BFSI is seeing significant revival and the company expects its client base and deal wins to grow over the next few quarters after covid-induced consolidations. As far as the Travel Sector is concerned the effects of the pandemic are still looming. Full recovery may take some quarters, new contactless business models may help the company with new deal wins as the clients reimagine their business models.

Asset Multiplier Comments:

  • All Indian IT companies are enjoying the tailwinds arising out of the pandemic. Mindtree is well poised to grow further due to growth in upcoming technologies.
  • The Company is making efforts to deal with the issue of rising attrition. The rising attrition is a result of a talent war in the Indian IT Industry due to the low supply of skilled professionals.

Consensus Estimates (Source: market screener website): 

  • The closing price of Mindtree was ₹ 2,732/- as of 15-July-2021.  It traded at 33x/30x/25x the EPS estimate of ₹ 84/ ₹ 92/ ₹ 108 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 2,830/- which trades at 26x the EPS estimate for FY24E of ₹ 108/-

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.”

Not very concerned about 3rd wave impact on biz– Dabur India

Update on the Indian Equity Market:

On Wednesday, NIFTY ended marginally higher at 15,809 (+0.3%) as it could not sustain the intraday higher levels. Among the sectoral indices, IT (+3.2%), PHARMA (+0.3%), and MEDIA (+0.2%) ended higher while REALTY (-1%), PSU BANK (-0.5%), and AUTO (-0.3%) led the losers. Among the stocks, WIPRO (+7%), TECHM (+2.6%), and INFY (+2.1%) led the gainers while MARUTI (-1.4%), ADANIPORTS (-1%), and HINDUNILVR (-1%) led the losers. 

Excerpts of an interview with Mr. Mohit Malhotra, CEO of Dabur India (DABUR) published in Business Standard on 14th July 2021:

  • Share of Dabur’s healthcare portfolio went up to 45 percent from 30 percent and essentials like oral did well, while the share of skincare, hair oil, and foods shrank. 
  • Being well aware that the discretionary portfolio may not do well, the company has diversified into areas like edible oil and launched several other products.
  • The inflation has increased the input costs by 5-6 percent as it has hit the entire bucket of the business. 
  • The company has taken a 3 percent price hike and initiated cost optimisation measures. The company has planned to cut down Rs 1000 mn worth of costs in FY22, which won’t be enough. The pressure on operating margin can’t be ruled out till the December quarter.
  • Sales through e-commerce channels have grown to 8 percent from 2 percent before Covid. In FY21, in spite of travel restrictions, Dabur earned 6 percent of the sales through e-commerce.
  • The company has begun construction of their eighth plant, in Madhya Pradesh at an estimated cost of Rs 5,500 mn to meet current and future demand, taking advantage of the incentives provided by the government under its ‘Atmanirbhar Bharat’ program. The plant will help the company meet the demand for the next 10-12 years.
  • Earlier, the company was spending 5-6 percent on advertising through digital media, but now the company is putting 25 percent of its budget into digital. Last year, the company increased its media spending, but now it has cut it down to 8-10 percent of sales as growing costs are a threat.

Asset Multiplier Comments

  • People being eager to go back to offices and as the government has ramped up vaccination, it seems that the impact of the 3rd covid wave may not be as severe on the operations of Dabur as the second wave.
  • The increase in demand for health and wellness products is expected to continue post-Covid. The increase in market penetration of these products bodes well for Dabur.

Consensus Estimate: (Source: market screener website)

  • The closing price of DABUR was ₹ 586/- as of 14-July-2021.  It traded at 56x/ 49x the consensus earnings estimate of ₹ 10.5/ 12.1 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 590/- implies a PE multiple of 49x on FY23E Earnings of ₹ 12.1/-.

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.”

Confident of delivering 16-18% CC revenue growth in FY22 – Vaibhav Global

Update on the Indian Equity Market:

On Tuesday, NIFTY closed up at 15,805 (+0.7%). Top gainers in NIFTY50 were ICICI Bank (+2.7%), HDFC (+2.6%), and Grasim (+2.6%). The top losers were Adani Ports (-2.0%), Dr Reddy (-1.1%), and HCLT (-0.9%). The top sectoral gainers were FIN SERVICES (+1.4%), PVT BANK (+1.3%) and BANK (+1.2%) and sectoral losers were MEDIA (-0.6%), IT (-0.3%) and FMCG (-0.2%).

Excerpts of an interview with Mr Vineet Ganeriwala, Group CFO, Vaibhav Global (VAIBHAVGBL) with ET Now dated 12th July 2021

  • In FY21, they grew their unique customer base by about 39% and reached the half-million mark. A part of it was induced by the pandemic. A lot of people were at home and there was high TV viewership and heightened web traffic throughout last year.
  • Their business model is such that it works in all kinds of economic cycles. They have been working on it, expanding their product portfolios, and are getting good traction by retaining old customers and getting new customers on board.
  • When the economies open up, some softening might be seen in certain periods but they are pretty confident of delivering their guidance to the market which is 16% to 18% constant currency revenue growth for FY22.
  • They are an omnichannel player. They sell via TV as well as the web. They are present in marketplaces like Amazon, eBay, etc. They use all kinds of social platforms — Facebook, Instagram, etc. This unique positioning gives a fantastic shopping experience to their customers, a high recall value, and the value positioning which they command.
  • Talking about the TV viewership, he said pay-TV may see a decline in the next few years. The decline in TV viewership of their customer demographics (above 45-50 years) is very low.
  • While the pay-TV decline is seen in the US, at the same time, over the air (OTA) moves are growing. From 13 million homes, maybe seven years back now the OTA which is free-to-air homes in the US has already crossed 20 million. They are constantly increasing their presence there.
  • In the new age stream of OTT, they are consciously investing and are increasing their presence there as well. They recently revamped their Roku app and tied it up with YouTube. They are present in almost all prominent digital, OTT, and streaming devices.
  • While they gave guidance of 16-18% constant currency growth in FY22, they gave guidance of 15-17% for the medium and long term as well.
  • While they will keep working on increasing their market share in the US and the UK, the B2C revenue has been growing at a CAGR of 16% for the last six years. Still, they have a market share of about 2.5-3%. Even in these two geographies, they are pretty confident of increasing the market share there.
  • They announced their German company in January this year. Their team is physically there in Germany already. Their website is already launched in Germany. TV is already live in their partner studio. Their studio which is under construction will be live in a few days. They are pretty excited about the German venture.
  • Part of the growth will come from the US and the UK; part of the growth will come from newer geographies like Germany. Once they stabilize and operationalize the German operation, they would look into other geographies like Japan.
  • They will keep the cash on the balance sheet. They want to build a kitty for the future, both organic and inorganic opportunities. They plan to invest about US$2 million of capex in rolling out the German business this year and similar other organic opportunities for plans as well. Otherwise, they will look at any inorganic opportunities which come their way.
  • Their inventory in terms of holding number days has been going down in the last 2-3 years. in March-20, they had about $60 million of inventory. In terms of the number of days of sales gone down by about 20% year-on-year. While the absolute number might have increased slightly, the sales growth has been much faster.
  • Being a regional supply chain player, in case of any transit delays, they are able to procure material from other countries and even procure locally from the US and the UK. To that extent, their operations are very smooth and they do not see any challenge on that front.
  • As a result of a delay some transient inventory would shoot up in the 2QFY22 but that would be a timing difference. As soon as the shipment situation improves, they will bring that down like they did last year.

Asset Multiplier comments:

  • We believe that the company has good growth prospects due to its presence in different geographies. Also, presence in both B2B and B2C will drive the growth faster.
  • consumer attention is constantly shifting. So, their omnichannel presence strengthens their positioning in the industry.

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

  • The closing price of VAIBHAVGBL was ₹ 813/- as of 13-July-2021. It is trading at 54x FY21 EPS of Rs 15.
  • Consensus estimates are not available for VAIBHAVGBL.

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.”

Witnessed 70% QoQ revenue growth in July 21 – Lemon Tree Hotels

 Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,789 (+0.02%). Among the sectoral indices, Realty (+3.2%), PVT Bank (+0.4%), and Bank (+0.4%) closed higher. IT (-0.5%), Metal (-0.2%), and Media (-0.2%) closed in the red. Ultra tech (+2.5%), Grasim (+2.3%), and Shree cement (+1.9%) were the top gainers. Adani Ports (-1.5%), BPCL (-1.4%), and Bharti Airtel (-1.2%) were among the top losers.

Excerpts of an interview of Mr Patanjali Keswani, Chairman and MD, Lemon Tree Hotels with CNBC-TV18 dated 7th July 2021:

  • On the current situation, Mr Keswani said the demand started picking up from 4QFY21.
  • The hotels were earning up to 50% of pre-Covid levels on a month-on-month basis.
  • The occupancy witnessed a decline in the month of April 21 and by the month of May, witnessed the lowest occupancy level for the sector as well. This was led by localized lockdowns and fear of travelling.
  • In June, there was a pickup in demand. For the Company, the occupancy was higher than 50%. Lemon tree hotels witnessed a 70% revenue growth in July 21 on an MoM basis.
  • Speaking about business hotels, which is 80% of the total inventory for Lemon Tree. They are doing well.
  • On newly opened, Aurika which is a deluxe hotel in Udaipur, he said the occupancy is 80-90%.
  • He said 3QFY22E looks promising led by the inquiries that are coming. 4QFY22E is expected to be a normal quarter.
  • He said the debt is at comfort levels. The earning capacity of additional rooms has not been utilized, once things normalize the additional rooms will start contributing.

Asset Multiplier comments:

  • We believe postponed weddings in 1QFY22 might lead to higher demand in 2QFY22E. This might further increase the occupancy rate of hotels.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Lemon Tree Hotels Ltd was ₹ 43 as of 07-July 2021.  It traded at 143x the consensus earnings per share estimate of ₹ 0.3/- for FY23E. The Company is expected to report a loss of ₹ 1/- per share.
  • The consensus average target price is ₹ 45/- which implies a PE multiple of 150x on FY23E EPS of 0.3/-.

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

This week in a nutshell (5th – 9th July)

Technical talks

NIFTY opened the week on 5th July at 15,793 and closed on 9th July at 15,690. The index made a loss of 0.6% this week. On the upside, 20DMA of 15766 might act as a resistance and on the downside, 50DMA of 15,416 might act as a support. RSI (51) trending downwards suggests a further downside hereon.

Weekly highlights

  • The government’s GST collection for the month of June was Rs 928bn, below the Rs 1000bn for the first time in eight months as the Covid-19 second wave stalled the economic activities. With most of the country under partial/full lockdowns in May, a fewer number of e-way bills were generated. The GST data for June pertains to business transactions made in May. With the easing of restrictions, there could be an improvement in the GST collections for the month of July.
  • Post the Union Cabinet reshuffle on Wednesday, the new Health Minister, Mansukh Mandaviya announced a ₹ 231bn financial package for improving the health infrastructure in the country. Under the new package, the Centre would provide ₹ 150bn and the states ₹ 80bn. The plan would be implemented jointly by them to improve medical infrastructure at primary and district health centers. The plan aims to accelerate health system preparedness for immediate responsiveness for early prevention, detection, and management of Covid-19 with a focus on infrastructure development.
  • The Organization of the Petroleum Exporting Countries (OPEC) producers canceled a meeting when major players were unable to come to an agreement to increase supply. The producers abandoned talks after negotiations failed to close the division between Saudi Arabia, and United Arab Emirates. This news pushed Brent Oil and West Texas Intermediate oil prices to levels not seen since 2018 and 2014 respectively. After a volatile week, Brent Oil futures settled at US$ 75.6 per barrel and WTI futures settled at US$ 74.6 per barrel (As on 10-07-21).
  • The monthly life insurance premium data was released by the IRDAI. There was a pickup in the business acquisition in Jun-21 with the easing of lockdowns. The new business premium (NBP) which indicates premium acquired from new policies in a particular year rose ~4% YoY. Private insurers have led the growth in NBP, reporting ~34% growth YoY. The insurance companies have adapted to the changing needs of customers and improved their digital infrastructure which is a positive.
  • Though the foreign institutional investors’ (FII) selling continued this week, the quantum was much lower at Rs 20,277mn vs Rs 54,168mn last week. Domestic institutional investors (DII) buying reduced to Rs 896mn from the Rs 64,174 mn in the previous week.

Things to watch out for next week

  • The 1QFY22 result season has already started with TCS being the first company that reported earnings this week. The result season continues next week with Mindtree, Infosys, and Wipro set to announce their earnings.