Author - Assetmultiplier

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11th June 2021:

  • Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
  • The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
  • Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
  • 95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
  • The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
  • The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
  • Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
  • Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
  • More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

 Asset Multiplier Comments

  • Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
  • The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

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

 The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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.”


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

Update on the Indian Equity Market:


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


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


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

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

Asset Multiplier Comments

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

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

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


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

Budget 2021: Promising but ambitious one!

The Budget 2021, a highly unique one due to the pandemic, provided the confidence to the investors as witnessed by Nifty50, which closed the day 4.7% higher at 14,281. First do no harm or “primum non nocere”, is a doctrine as old as medicine itself. The Finance Minister adopted this approach to capital markets, taxation and the results are there for all to see. Investors were expecting harsh revenue raising measures as epidemic related expenses mounted while revenues shrank. Finance minister presented an expansionary budget without significant increase in taxation.

Following are the key highlights from the budget 2021;

  • The nominal growth rate target has been set at 14.4% for FY22 as against 10% in FY21.
  • The estimated fiscal deficit stands at 9.5% in FY21 vs 3.5% as per the previous estimate. The deficit is expected to be 6.8% for FY22.
  • India FY21 Gross Tax revenue estimate said to be reduced by about Rs 5 lakh crore. The Government is estimating FY22 expenditure at about Rs 35 lakh crore.
  • A sharp increase in capital expenditure on the infrastructure segment- Rs 5.54 lakh crore, 34% higher than the budget estimate of FY21.
  • Announcing its version of a bad bank, the Government will set up an asset reconstruction and management company to take over the bad loans. A bad bank will act as an aggregator of all stressed assets in the system. It is set up to buy the bad loans and other illiquid holdings of another financial institution.
  • Reducing customs duty uniformly to 7.5% on semi, flat and long products of non-alloy, alloy and stainless steel. Exempting duty on steel scrap till March 2022. To provide relief to copper recyclers, reducing duty on copper scrap from 5% to 2.5%.
  • Raising customs duty on some auto parts to 15%, on cotton from 0% to 10%, on raw silk and silk yarn from 10% to 15%.
  • Set aside Rs 15,700 crore for medium and small enterprises in FY22, double of what was budgeted in the FY21.
  • The central government aims to garner Rs 1.75 lakh crore through divestments in FY22. In FY21, the government had budgeted to raise Rs 2.1 lakh crore through divestments but managed to achieve only Rs 50,304 crore. The central government will further incentivize states to divest assets.
  • Provide Rs 20,000 crore in FY22 for re-capitalization of public sector banks.
  • Proposed to increase the permissible limit for Foreign Direct Investment for insurance companies to 74% from 49% along with allowing foreign ownership and control with safeguards.
  • The much-awaited voluntary vehicle scrappage policy is claimed to be bringing Rs 43,000 crore business opportunity by boosting consumption in the auto industry and helping the environment. Vehicles would undergo fitness tests in automated fitness centers after 20 years in case of personal vehicles, and after 15 years in case of commercial vehicles.
  • To further augment road infrastructure, more economic corridors are being planned. 3,500 km of national highway works in Tamil Nadu, investment of Rs 1.03 lakh crore 1,100 km of national highway works in Kerala, investment of Rs 65,000 crore 675 km of highway works in West Bengal, cost of Rs 25,000 crore.
  • The imposition of Agriculture, Infrastructure & Development Cess on the following items after reducing customs duty is expected to fund infrastructure for agriculture.
Items Revised basic customs duty rates
Apple 15%
Alcoholic beverages falling in chapter 22 50%
Crude edible oil (Palm, Soyabean, Sunflower) 15%
Coal, lignite, peat 1%
Specified fertilizers (Urea, MoP, DAP) 0%
Ammonium Nitrate 2.5%
Peas, Kabuli chana, Bengal gram, Lentils 10%
  • Government sets agriculture credit target of Rs 16.5 lakh crore for FY22 to increase provision to a rural infra development fund to Rs 40,000 crore from Rs 30,000 crore. Five major fishing harbours to be developed as hubs for economic activity.
  • Proposed an outlay of Rs 2.23 lakh crore towards the healthcare sector, 137% higher than Rs 94,452 crore projected in FY21. The spending will include a new centrally sponsored scheme, the PM Atmanirbhar Swasth Bharat Yojana, to strengthen the health infrastructure of the country. The government plans to spend Rs 64,180 crore on the scheme spanning over six years.
  • The Government will rationalize customs duty on gold & silver. The gold currently attracts an import duty of 12.5% which has been reduced to 7.5% and Agriculture, Infrastructure & Development Cess of 2.5% is imposed.

Impact of the budget announcement on the sectors

  • The formation of the bad bank will help the banks to liquidate its non-performing loans in a comparatively easier way. The banking industry is expected to benefit out of it.
  • The Government is expected to provide higher recapitalisation to the Public Sector Undertaking (PSU) banks. This will aid in providing relief from capital erosion due to the COVID impact.
  • The vehicle scrappage policy, although a voluntary one, is expected to provide tailwinds in the auto industry, especially the Commercial Vehicles segment. The tractor and two-wheeler makers expect increased allocation towards the rural economy.
  • The increased spending on the healthcare sector is expected to provide opportunities for the growth of the industry. The healthcare infrastructure is expected to improve as a result of increasing spending towards the sector.

 Investment Strategy

  • With the Government’s approach to have an expansionary budget, investors will be focusing more on winners like cyclical players instead of focusing on safety net stocks like those belonging to Pharma and Consumer sectors.
  • We believe that the mid-cap stocks will be a late-cycle story with the focus on the expansionary budget. We have already recommended quality mid-caps in the past and we will continue to spot opportunities in the mid-caps space as and when they arise.

We will be watching the execution of the budget very closely as any deviation from the expected performance, especially the receipts side, which can affect the interest rates meaningfully.

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 479 pts up and Nifty above 11,300 level partly led by Reserve Bank of India (RBI) comment that it was ready to take appropriate actions to ensure orderly functioning of financial markets and preserve financial stability.

NIFTY Metal (+5.6%), NIFTY Pharma (+5.1%) and NIFTY Media (+3.3%) were the top-performing sectors. None of the sectors ended in the negative. Among the stocks, Vedanta (+8.3%), Sun Pharma (+7.2%), and Hindalco (+6.9%) were the top gainers. ITC (-0.6%) and Yes Bank (-0.5%) were the only stocks in the red at market close.

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Combination of a weak economic backdrop combined with added costs due to transition to BS-VI from BS-IV makes the outlook for April-June quarter quite weak for domestic business, is the word coming in from Rakesh Sharma, Executive Director, Bajaj Auto.

Edited excerpts of an interview with Mr. Rakesh Sharma, Executive Director, Bajaj Auto; dated 2nd March 2020:

When asked about the outlook for the next 2 months, Mr. Sharma stated that the underlying economic situation remains the same, which is a high single-digit decline in the retail industry and there are issues of transition from BS-IV to BS-VI, which will add costs April onwards. So, the combination of a weak economic backdrop combined with added costs makes the outlook for April-June quarter quite weak for domestic business.
He commented that exports have had an outstanding run. Bajaj Auto had the highest ever quarter in Q3. It had the highest ever sales in January with strong growth of 15% in February. He also informed that there is an Egypt issue, which is going to be finally brought to rest in April because last year it was in April when Egypt went down. So, without Egypt there has been good strong single-digit growth in the commercial vehicle (CV) business.
Speaking about Coronavirus he said that they are watchful about the impact of coronavirus as yet there is no impact in their markets. However, some disruption in Chinese supply chains of motorcycles will definitely be an area of opportunity for a company like Bajaj Auto, who commands 35% market share in Africa. Therefore, he expects the export performance to continue January and February the way it has been doing in Q3.
When asked about the auto component supply disruption due to coronavirus hitting the production of their peers like TVS and Hero Motocorp by 10% he said that they are impacted by less than 5%. They have taken steps of airlifting critical components although slightly expensive.
He informed that electric scooter had some sourcing from Wuhan itself, so that has got affected but other than that it’s a manageable situation for Bajaj Auto. If the trajectory of supply chain improvement continues as it is occurring in China, then he doesn’t see a disruption of production in April-May also.
He commented on BSIV to BSVI evolution and said that BS-IV stocks are under control. In fact, for motorcycles, there is about 20 days of sale taking February as sale and in others like commercial vehicles they are 11-12 days of sales. The company is going through an odd period where the company is running down the BS-IV and not yet being able to fully ramp-up the BS-VI. The ramp-up is expected to start to occur in March.
When asked about the price increase on account of BS-VI he said that the price increase is between Rs 6,000 and Rs 10,000 depending on the model. The 150cc plus model, fuel injection system is used the price increase is up to Rs 10,000. So the cost increase is between 6-10%.
He stated that when there was BS-III to BS-IV transition, the economic backdrop was that of growth. The major difference this time is that the economic backdrop is not very supportive and the demand will get impacted due to the price increase. He expects it will be 10-15% decline in April to August period and hopefully, when festivities kick in, they will serve as a trigger to reverse the down cycle.
When asked about the outlook for FY21E volume, he said that the second half will not be able to compensate for the double-digit decline of the first half and might end up even-stevens or slightly negative for the industry in the whole year.

Consensus Estimate: (Source: market screener, website)

The closing price of Bajaj Auto was ₹ 2,792/- as of 3-March-20. It traded at 16x/ 15x/ 14x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 173/184/205 respectively.
Consensus target price of ₹ 3,280/- implies a PE multiple of 16x on FY22E EPS of ₹ 205/-.

Bandhan Bank: Assets Under Management in North-East is low

Update on the Indian Equity Market:

The markets ended the weak on a negative note as NIFTY settled 54 points lower at 11,914. Among the sectoral indices, METALS (2.1%), MEDIA (2.0%) and AUTO (0.4%) topped the chart whereas IT (-1.9%), BANK (-0.8%) and PVT BANK (-0.7%) pared the gains. Within the index stocks, TATASTEEL (4.2%), EICHERMOT (4.1%) and ZEEL (3.1%) led the index higher whereas INFRATEL (-4.1%), INFY (-2.9%) and TCS (-2.4%) were the laggards.

Bandhan Bank:  Assets Under Management in North-East is low

Key takeaways from the interview of Mr Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank  dated 22nd November 2019 published in LiveMint:

  • Mr Ghosh started the interview with his remarks on the current situation in Assam. He said that the bank is operating in Assam for the last 13 years. Two out of 30 districts in the state are being protested by some women, backed by political groups for certain demands. 2-3% of the total loan book of the bank is from those districts.
  • He stated that the protests started two weeks ago. They are demanding three things. First, to lower interest rate. The micro-finance industry is totally regulated by the Reserve Bank of India (RBI). The Apex banks cap the interest rates. The interest rate charged by Bandhan is 17.95%. This is low as compared to the cap provided by RBI.
  • The second demand is to have an agreement on loan applications in the local language. On this issue, Bandhan is specific in using language for all applications.
  • Third, they want the government to monitor these types of activities. He mentioned that it is a good step and is manageable.
  • The micro-credit portfolio in Assam is 18% of the total loan book. The bank has experienced such kind of issues in some corners of states. He is confident that everything becomes normal in a few weeks’ time.
  • Bandhan measures its growth based on the number of new customers, not on the basis of AUM. The bank has added 20% new customers compared to last year. He is confident to be able to sustain that growth.
  • On being asked about diversifying in new areas, he said that the bank is already diversified. Bandhan is present in 34 states and union territories (UT) as a bank. By micro-credit, it is present in 29 states and UT.
  • About GRUH merger, he said that currently, GRUH operates through 195 branches that were opened earlier. From day one, 106 out of 1,009 Bandhan branches have opened GRUH housing loan desk. In a similar way, Bank is driving the affordable housing loan to citizens in West Bengal, Bihar, Jharkhand and Assam. This will help the Bank to diversify its portfolio.

Consensus Estimate (Source: market screener website)

  • The closing price of Bandhan Bank was ₹ 526/- as of 22-November-19. It traded at 5.3x/ 4.2 x/ 3.5x the consensus BV estimate for FY20E/ FY21E/ FY22E of ₹ 97.7/ 124.0/ 152.0 respectively.
  • Consensus target price of ₹ 636/- implies a PB multiple of 4.2x on FY22E BV of ₹ 152.0/-.

Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economical

Dated 20th September 2019
Update on the market:

After the Aramco drone attack, the market sentiment still seems to be negative. Nifty closed 1.3% lower at Rs 10,704. Tata Motors (+2.0%), Coal India (+0.7%), HDFC bank (0.6%) were among the biggest gainers. Indiabulls housing (-4.6%), Zeel (-7.8%), Yes bank (-15.6%) were the losers. Among sectoral indices Pvt Bank (-1.8%), PSU bank (-2.35%), media (-4.4) closed lower while there were no gainers.

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website 

Maruti Suzuki India Ltd (MSIL): Youngsters today find shared mobility economical

Excerpts from the interview by R.C. Bhargava, chairman, Maruti Suzuki India Ltd

  • Indian automakers are now on par with Europe and America in terms of quality but the purchasing power of domestic buyers has not grown enough to afford the increased product prices
  • The per capita income in India is almost around $2,200 (per annum) and in Europe, it is approximately $40,000. In terms of all the standards which add to the cost of the product, there is no difference between Europe and India
  • In India, the Goods and Services Tax (GST), road tax and others, are much higher than in Europe or even China for that matter. We can’t expect a country with such a low per capita income to have enough customers to have the capacity to pay this kind of money for a car and grow at 10-15% every year (in terms of vehicle sales).
  • As automobiles are 50% of the manufacturing GDP, then the sector has to grow by 15-16% per year to propel manufacturing sector to reach 25% of GDP.
  • If youngsters buy a car at the beginning of the career then they have to pay the monthly instalments. So, they have to choose what they want to do with the limited amount of money that they get because for buying a car, they may get a loan but have to provide 10% to 20% initial deposit and also pay the EMI.
  • Today, a youngster wants to buy a nice smartphone and wants to meet his friends at a restaurant and have a good time. If he buys a car, then he probably can’t do these things. So, he postpones his car-buying by four or five years or whatever time it takes him to reach a stage where he is comfortable owning a car.
  • Today, a youngster can still get his mobility through a car from Ola and Uber which is much more economical. So, what the finance minister said is 100% correct. That is what the millennial generation is thinking.
  • Regarding Gujarat plant, Company needed the capacity and earlier, they were short of capacity and there were cars on the waiting list all the time. The problem starts with people not buying and doesn’t start with production.
  • Each company has its own strategy. At the moment, Maruti hasn’t invested in any of the sharing platforms. They sell a lot of cars to Uber and Ola. They have no stake in them but they do buy their cars.

Consensus Estimate (Source: market screener website)

  • The closing price of MSIL Ltd was ₹ 5,988/- as of 19-September-19. It traded at 27x / 22x / 19x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 223 / 273 / 314 respectively.
  • Consensus target price of ₹ 6,095/- implies a PE multiple of 19x on FY22E EPS of ₹ 314/-

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.”

Excerpts from an interview of P.S.Jayakumar, CEO Bank of Baroda with CNBC-TV18

Update on the market: On Thursday, Nifty ended 5 days streak by closing -0.5% at 10,980. Yes Bank, Maruti Suzuki, Tata motors were among the biggest losers. Indiabulls Housing finance ltd, Asian paints, Axis bank were the gainers. Among sectoral indices Auto (-1.81%), Realty (-0.69%), IT(-0.68%), FMCG(-0.71%) closed lower while PSU banks (0.18%),Pharma (0.18%), Financial services (0.24%) ended on a positive note.

Excerpts from an interview of P.S.Jayakumar, CEO Bank of Baroda with  CNBC-TV18

  • While having a discussion on amalgamation Mr Jayakumar says 3 things stand out of his mind, one is how do they define new business proposition, the second thing is around the people integration and the third which is equally important is the technology integration.
  • Mr Jayakumar says, one of the biggest challenge while integrating is to articulate new business model post the merger or amalgamation.
  • In BOB’s case it is about the synergies, the cost structures, cost savings and the revenue pickups that are coming in.
  • Customers are getting the benefit of a larger overseas and product platform.
  • Mr Jayakumar says, getting the technology integration is the more difficult task because it takes much effort and energy to get in line with core banking systems.
  • Speaking about Products link to repo rate, Mr Jayakumar says that there could be some challenges with respect to margins, because pricing depends on external benchmark.
  • From earnings perspective, if the dilution that happens because of NPA’s is managed than then there is a pick up that is coming.
  • Further adding on margins, he says the consensus view seems to be further decline of 50 basis points (bps) in repo rate.
  • From a short-term perspective if the treasury portfolio is improved and some resolutions that the bank is expecting are passed than the bank will be in position to handle the net interest margins (NIM)
  • From a long- term perspective, he believes that the monetary transmission takes place and will not affect the margins of the bank.
  • Taking about NPA’s Mr Jayakumar says, there are two elements one is slippage number and other is recovery number. He says, that the recovery number would start moving up in Q3 and Q4 as the insolvency and bankruptcy code (IBC) process and the changes then on resolves itself.
  • Speaking with respect to BOB’s portfolio, the bank expects the net NPA as of March to be lower than the prior period or prior March and going towards the 3% or sub-3 % percent level.

Consensus Estimate (Source: market screener website)

  • The closing price of Bank of Baroda was Rs 96 /- as of 12th September 2019. It traded at a price to Book Multiple (P/B) multiple of 0.6x/0.5x the consensus Book value estimates for FY20/21E of Rs 165/ 179 respectively.
  • Consensus target price of Rs 132/- implies a P/B multiple of 0.7x on B/V of Rs 179 for the year ending Mar-21E.

Excerpts from an interview with Mr Ajith Rai, chairman and managing director of Suprajit Engineering published in Livemint dated 5th September 2019

Update on Indian market: On Friday, Nifty gained (+0.91%) to 10,946. Within NIFTY stocks, top performers were Maruti (+3.9%), Tech M (+3.8%) and Tata Steel (+3.4%) and worst performers were Indiabulls Housing (-4.6%) and Yes bank (-1.9%). Among the sectoral indices, best performers were Auto (+2.6%) and Media (+1.9%) and Pvt banks (+1.4%). Worst performing sectors were Realty (-0.6%) and FMCG (-0.2).  

Excerpts from an interview with Mr Ajith Rai, chairman and managing director of Suprajit Engineering published in Livemint dated 5th September 2019.

  • The auto ancillaries are probably weathering the storm slightly better. In Suprajit’s case, quite a few of these OEMs have reduced their shares of the business because of their business slow down by 10-20%.
  • Companies such as Suprajit have diverse exposure, not only customer wise, across the segment from two-wheelers to LCV, HCV and automotive. They also have multi-sector exposure.
  • They are in two-wheelers, they are in the aftermarkets, they are in exports and they are in non-automotive business. So, fortunately, for Suprajit, though the Indian OEM business is an insignificant part for them, from the overall perspective they have not been that badly affected.
  • From an overall point of view, this slowdown is certainly affecting all of the auto ancillary companies but it is a question of how badly or how least affected one is. Suprajit is one of the least affected ones in this business.
  • Suprajit has 17 plants across with capacity utilization of around 75% at this moment plus or minus 5% depending upon the plant and the units.
  • They are improving their operational efficiencies. They are able to deal with the slowdown more efficiently.
  • They get regular schedules from OEMs. At the end of the month, they get the schedule for the next month but during the month also, there is a lot of fluctuation that happens with the OEMs because they also go by what their distributors and the end-users want. So there is a change during the month itself.
  • Mr Rai said that “Over the 35 years of my life as an auto ancillary, there have been at least four slowdowns or cyclical downturns and these downturns typically last anywhere from 12 months to 24 months. We are through for about 12 months. It started somewhere in last September. So we are already one year into it and probably at least another six months to 12 months is still pending.”
  • There are multiple reasons for the slowdown or the cyclical downturn. Right now it could be the EV threat, it could be the additional cost or it could be the BS-VI issues or the GST. 
  • They all are basically waiting for whether the GST comes down or not, whether the GST effect is there or not, whenever that happens, somebody has to take a hit. 
  • However, the real story is that the demand itself has to pick up. He thinks it will have to go through the whole cycle to get back to normalcy.

Consensus Estimate (Source: marketscreener website)

  • The closing price of Suprajit engineering was Rs 160/- as on 6th September 2019. It traded at 17x / 14x the consensus EPS for FY 20E / FY 21E of Rs 9.4 / 11.1 respectively. 
  • Consensus target price of Rs 182/- implies a PE of 16x on FY21E EPS of Rs 11.1.

HDFC Life – Robust FY20 strategy to drive growth

Dated: 29th August 2019
Market update:

With no big catalyst today, the markets continued to fall for third straight day as Nifty dropped -0.9% to 10,948. Today was also the monthly F&O (Futures and Options) expiry day which led to volatile trading session. It is important to note that the FIIs have continued to sell their positions in spite of rollback of additional surcharge. This highlights that the focus is on the economy and corporate earnings growth.

Among the sectoral indices, Pharma was an outlier with the index rising 2.3%. 7 out of 11 major indices were in the red zone with Financial services (-1.9%) and Banks (-1.8%) led the drop. Within the stocks, Sun pharma (+5.2%) bharti infratel (+3.5%), JSW steel (+3.0%) were the best performers while SBI (-3.7%), Yes bank (-3.5%) and HDFC (-2.68%) were the worst performers.

HDFC Life – Robust FY20 strategy to drive growth

Key highlights from interview with Mrs. VIbha Padalkar (CEO- HDFC Life) that appeared in Economic Times – 29th August 2019

  • The market realises a couple of things. One is that insurance companies have a much longer horizon in terms of everything and fundamentals of Indian macros are pretty strong and worldwide it is seen as very strong emerging market.
  • The understanding of what insurance products can offer which are different from investment related insurance products as it was known earlier, is becoming more and more apparent.
  • Protection is something that insurance companies are beginning to focus on and HFDC Life has been the market leaders in that space.
  • They expect the industry to grow from strength to strength despite all the macro level volatility that they are seeing.
  • HDFC Life has always believed in the principles of strong growth and profitability. Market share is an outcome. It will continue to beat overall industry growth but not necessarily be the first in terms of profitability as well as market share.
  • 1Q margins were very robust, just shy of 30% and this was on the back of a lot of focus on  non-par product which is Sanchay Plus. However, on a full year basis, this will stabilize somewhat. It will certainly be higher than where it ended last year but nevertheless rationalise.
  • She believes in a balanced product mix. HDFC life might be exiting the year with a non-par portfolio in the range of about 35 odd per cent.
  • HDFC Life continues to be interested in evaluating inorganic growth opportunities that come its way. They have a currency and a strong balance sheet but they want to do this in a sensible manner. As regards Max Life, nothing is on the table right now but they continue to remain interested.

Strategy for FY20:

  1. In Q1, agency channel grew 121%, bancassurance grew upwards of 45%, broker channel grew three times, online channel almost doubled. In FY20, they want to continue to forge ahead through all its channels. They want to be firing on all the channels.
  2. They want to continue to be known as product innovator and they have a few in the pipeline and they are hoping that by the end of 3Q, they can take some more blockbuster products to market which will be first of its kind.
  3. They are known as a technology-focussed life insurer. On that part as well, they have mentioned in the past that they have tied up with Ivy Camp and they are looking under their Futurance umbrella at a whole host of start-ups that can work with them.
  4. Be it in the pension space or the life insurance space, they are looking at it as an end-to-end platform.
  5. Forging ahead in the ecosystem such as the recent tie up with Airtel. They are having more conversations that are happening with the new ecosystem partners who at present have a very huge customer base who have not really thought that they could sell financial services products through their own channels.

Consensus estimates (Marketscreener website):

  • The stock price was Rs 541/- as of close price of 29th August 2019 and trades at P/E multiple of 72x / 62x / 56x the consensus EPS of Rs 7.5/ 8.8 /9.6 for FY20E /21E / 22E respectively. 
  • Consensus target price is Rs 529/- implying P/E of 55x for FY22E EPS of Rs 9.6.

Is it the best time to buy cars?

Dated : 27th August 2019

Update on Indian Market:

Indian markets moved up on Tuesday. Nifty closed 0.43% higher. Among the sectoral Nifty indices, Bank (0.63%), Auto (1.85%), Metal (2.09%) closed higher, whereas Pharma (-0.16%), IT (-1.35%), Media (-0.18%) closed lower.

Is it the best time to buy cars?

Excerpts from an interview of Mr Nikunj Sanghi, Director Federation of Automobile Dealers Associations (FADA) given to ETNOW – dated 19 August 2019

  • Large amounts of discounts are given by OEM’s, dealers to tackle the pressure to push inventory out, as BS-VI transition is just around the corner.
  • Speaking about the discounts Mr Sanghi says, the discount on diesel vehicles are the highest because in smaller vehicles, diesel as a fuel is taking a hit and the customer is shifting towards petrol.
  • Most manufacturers have said that they will not produce diesel variant of small cars, because the cost of small car becoming a BS-VI is higher as a proportion to total cost.
  • Mr Sanghi don’t expect further increase in discounts because they are already on peak, also the monsoon has done reasonably and a lot of shortfall of the monsoon has been covered.
  • The festive season is also on its way and both dealers and manufacturers are looking at a much better festival season than the past five, six months that they have already seen.
  • Mr Sanghi believes that major correction took place in passenger vehicle segment, but inventory continues to be a concern for two-wheeler and Commercial vehicles dealers and manufacturers.
  • A relief is expected from the guarantee scheme for the NBFC’s that the government of India has floated, which will help in inventory funding. When money comes in system, it creates a better environment for dealers.
  •  Corrections have also taken place in terms of man power a lot of OEM’s are now cutting down production and hiving off staff, he believes the pain is likely to continue for some period of time.
  • Mr Sanghi says, that the level of inventory in the pipeline is sufficient for the festival season and don’t expect a build up in inventory as it normally happens.

Our views – In our view, the festive season is expected to be robust because of the heavy discounts offered by auto manufacturers. The other factor is that most of the companies are expected to roll out the BS-VI compliant vehicles as early as this December. This is expected to increase price of vehicles. Hence this might be a strong festive season for companies