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Titan Company Ltd (Titan)- 1QFY20- Rising Gold prices impacting the Jewellery biz, Growth Guidance intact for the long- term.

Dated: 7th August 2019

Quarterly Performance:

Key Highlights:

  1. Net sales for the quarter were Rs 52,082 mn, a growth of 16% YoY. The Jewelry/ Watches/ Eyewear business revenues grew 14%/ 20%/ 13% YoY respectively. Other which includes SKINN (skincare) & Taneira (sarees) grew 53% YoY.
  2. EBITDA stood at Rs 5,734 mn, a growth of 18% YoY. EBITDA margins were 11.1% vs 10.8% in 1QFY19.
  3. As an impact of Ind AS- 116, Titan reported an increase in the depreciation and interest of 86% and 211% YoY respectively.
  4. The impact of Ind AS- 116 in the P&L for Titan for the quarter was an increase in interest cost and depreciation by Rs 200 mn and Rs 330 mn respectively and a reduction in rent by Rs 490 mn, resulting in EBITDA going up by Rs 510 mn and PBT lower by Rs 20 mn.
  5. The net profit was Rs 3,662 mn, an increase of 10% YoY. Tax rate stood at 29%.

Management Commentary:

  1. Management has cut its 22% growth guidance for the jewellery business. They expect the demand for the jewellery to be impacted in 2QFY20 as well due to the rising gold prices. They expect some revival in the demand for the jewellery by September this year.
  2. Management expects a recovery in demand with stabilisation of the gold prices.
  3. Management highlighted wedding jewellery sales have been lower than their expectations due to a smaller number of wedding days in 1st half of wedding season.
  4. The performance from the South region was good whereas West and East India continue to remain most impacted post spike in the gold price
  5. They expect a 20% plus growth in the jewellery business in the 2HFY20E.
  6. They have maintained the SSS (same-store sales) growth guidance of 14-15% YoY.
  7. The watch business has shown a 20% YoY growth in this quarter on the back of the institutional order from TCS of Rs 560 m. Adjusted for this, watch business revenue grew 11% YoY.
  8. There was a one-off expense of Rs 400 mn for the Business Associate Meet which impacted the EBIT margins according to the management. This is a non- recurring expense.
  9. Management expects an improvement in the margins with revenue growth coming in accompanied by the increased demand in the market.

Consensus Estimate (Source: market screener website)

  • The closing price of Titan is Rs 1,036/- on 07-Aug-19. It traded at 52x / 42x/ 35x the consensus EPS for FY 20E / FY 21E/ FY22E EPS of Rs 19.9 / 24.5/ 29.3 respectively.
  • Consensus target price of Rs 1,204/- implies a PE of 49x on FY21E EPS of Rs 24.5.

Laurus Labs 1QFY20 results: Temporary troubles, growth story intact

Dated: 6th August 2019

1QFY20 result update:

  • Consolidated Revenue grew 2% YoY (-% QoQ) to Rs 5,506 mn. API, Synthesis, Ingredients and FD segments contributed to 67%,11%,3% and 19% of revenues  respectively.
  • EBITDA declined 3% YoY (+27% QoQ) to Rs 832 mn. Reported EBITDA margins contracted by 80 bps YoY to 15.1% from 15.9% in 1QFY19.
  • Net Profit fell 9% YoY to Rs 151 mn

Management Commentary:

  • Due to delay in shipment, revenues of Rs 750-100 mn are pushed to 2QFY20.
  • Laurus has incurred capex of Rs 450 mn in 1QFY20 and has guided for Rs 1,500-2000 mn capex in FY20.
  • Laurus is very positive about finished dosage business and expects revenues to reach to Rs 4,200 mn for FY20.
  • Company expects ~10% growth in API business for FY20. Company expects ARV revenues to be in the range if Rs 1,300-1,400 mn in FY20
  • Laurus has completed backward integration and supply issues from China have been mitigated. This has led to an improvement in the gross margin.

Consensus Estimate (Source: marketscreener website)

  • The closing price of Laurus is Rs 317/- as on 6th August 2019. It traded at 18x / 12x the consensus EPS for FY 20E / FY 21E of Rs 17.2 / 26.7 respectively.
  • Consensus target price of Rs 435/- implies a PE of 16x on FY21E EPS of Rs 26.7.

Axis Bank Ltd (AXS)- 1QFY20 Result update- Operating performance drives the earning momentum.

Dated: 31st July 2019

Key financial performance:
1) Loan book grew of 13% YoY in this quarter led by domestic loan book growth of 19% YoY. The international loan book declined 34% YoY. Retail loan book continued to be the key growth driver- growing at 22% YoY. 
2) Deposit grew 21% YoY in this quarter. The CASA ratio stood at 60%. The deposit growth was led by 37% YoY growth from the term deposits while CASA grew 3% YoY.
3) Net Interest Income (NII) grew 13% YoY at Rs 58,437 mn with Net Interest margin (NIM) of 3.5%. NII for 1QFY19, there was a one-time positive impact of Rs 2,490 mn due to the recovery of a large IBC case. Adjusting this one-off, NII has seen a growth of 19% YoY.
4) Non-interest income for 1QFY20 grew 32% YoY to Rs 38,690 mn driven by fee income that grew 26% YoY to Rs 26,630 mn. Trading profit stood at Rs 8,320 mn driven by G-Sec gains. Miscellaneous income for 1Q stood at Rs 3,730 mn, primarily dividend from subsidiaries and recovery in written-off accounts.
5) PPOP grew 35% YoY, with contribution from all revenue and cost line items. 
6) Provisions for the quarter stood at Rs 38,146 mn, a 14% increase from a year-ago period.
7) Net profit for the year grew 95% YoY at Rs 13,701 mn on the back of an improved performance at the operating level & efficient management of the costs.
8) NPA ratios for the Bank remained stable during the quarter. GNPA ratio stood at 5.25% and the NNPA ratio stood at 2.04% which was slightly lower than the previous quarter. (GNPA at 5.26%, NNPA at 2.06% in 4QFY19)
Management Commentary:
1) Loan Book:
a) The Bank’s strategy on retail assets continues to be centred around existing customers of the Bank. 83% of retail assets originations in 1Q was from existing customers. 98% of the Bank’s credit card and 93% of personal loan originations in the quarter were from existing customers of the bank.
b) The Bank’s Auto Loans business: Auto loans portfolio has grown by 36% YoY. The growth is evenly spread across the country. Auto loan disbursements have grown by 19% YOY in 1QFY20. 
c) SME lending growth was tepid at 8% YoY. Term loans and working capital loans grew by 3% and 9% YoY, respectively.
d) In the Corporate Bank, domestic loan growth stood at 16%, and the international book de-grew 39% YoY.
2) The management expects the domestic loan book of the Bank to grow 5-7% faster than industry.
3) For FY20, AXS expects NIM to remain broadly flat YoY, with an upward bias. They expect NIMs to settle in the range of 3.5-3.8% over the medium term.
4) Cost to the asset to stabilise at the current level of 2.08% in the near term before trending down to 2% level in the medium term.
5) AXS increased provisioning on certain non-banking assets held on their books. This was an additional provision of Rs 5,350 mn during this quarter. This quarter, they made specific provisions for all Non-Fund Based exposures that they have to borrowers that are either already NPA or are in the BB & Below pool. As they transitioned to this new regime, the bank made an additional provision of Rs 4,590 mn during the quarter.
6) The Bank’s Provision Coverage on Non-Performing Assets stands at 78%, compared to 69% in 1QFY19 and 77% in 4QFY19.
Consensus Estimate (Source: market screener website)
• The stock price was Rs 669/- on 31st July 2019 and traded at 2.2x/1.9x/1.6x consensus Book value of Rs 306/346/ 415 for FY20E/21E/22E respectively. 
• Consensus target price is Rs 847.5/- implying PB of 2.4x for FY21E BVPS of Rs 415/-

Note:
NII- Net interest income
NIM- Net interest margins
PPOP- pre-provision profits
NPA- Non-performing assets

ICICI Bank 1QFY20 Results: Decent growth in advances, Asset quality intact

Dated: 29th July 2019

Result update:

  • Reported NII grew 27% YoY (+2% QoQ) to Rs 77,374 mn from Rs 61,019 mn. NIMs for 1QFY20 expanded by 42 bps YoY 3.61% compared to 3.19% in 1QFY19.
  • PPOP grew 8% YoY (+1% QoQ) to Rs 62,884 mn from Rs 58,083 mn.
  • Provisions were Rs 34,957 mn, 41% lower YoY.
  • Reported PAT was Rs 19,080 mn in 1QFY20 against loss of Rs 1,196 mn in 1QFY19.
  • GNPA and NNPA improved slightly sequentially at 6.49% and 1.77% respectively for 1QFY20 compared to 6.70% and 2.06% respectively in 4QFY19.
  • Advances grew 15% YoY to Rs 59,24,150 mn. Retail and SME segment showed a solid growth of 22% and 24% YoY respectively.

Management commentary:

  • The bank maintained its guidance that credit costs in FY20 would be significantly lower than 2% levels of FY19. Credit costs would be in the range of 1.2-1.3% in FY20. In 1QFY20, credit cost was 1.5%.
  • While provisioning in FY20 is expected to be lower than FY19, management does not expect slippages to come down significantly in FY20 compared to FY19, as it have already come down substantially in FY19.
  • The bank stated it is not looking at raising the PCR from current levels of 74% as they are now at comfortable levels.
  • The bank reiterated its consolidated RoE target of 15% by June’20.
  • Q1FY20 tax rate of 32% is an estimate for the full year tax rate.

 Consensus Estimate (Source: marketscreener website)

• The stock price was Rs 428/- on 29th July 2019 and traded at 2.2x/1.9x  consensus Book value of Rs 199/222 for FY20E/21E respectively. 
• Consensus target price is Rs 485/- implying PB of 2.2x for FY21E BVPS of Rs. 222/-

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

Can Fin Homes (CANF): 1QFY20 Strong growth outside Metros

Dated: 24th July 2019

Result:

  • Reported NII grew 17% YoY (+7% QoQ) for 1QFY20 to Rs 1,479 mn. Reported NIMs were at 3.18% showing an increase of 40 bps QoQ.
  • In 1QFY20, PPOP grew by 15% YoY (+12% QoQ) to Rs 1,316 mn. Reported PAT grew 8% YoY (+21% QoQ) at Rs 810 mn.
  • Loan book grew 17% YoY on the back of disbursements growth of 10% YoY.
  • Asset quality deteriorated sequentially in 1QFY20. GNPAs and NNPAs were at 0.73% and 0.52% respectively in 1QFY20 compared to 0.62% and 0.43% respectively in 4QFY19.

Management commentary:

  • The company expects to bring NPAs down to March 19 levels by 2QFY20.
  • During the quarter, the company made NPA provisions of Rs 67.5 mn and standard asset provisions of Rs 19.1 mn.
  • In Karnataka, AUM growth was 7%, while ex-Karnataka AUM growth was 22%. Overall, southern region grew 15% and non-south regions reported 20% growth.
  • Growth in Metro cities is ~11% while non-metro growth is ~30%.
  • The company expects to benefit from the new affordable housing projects coming up on the outskirts of Bangalore. Can Fin will be focusing on tier 2-3 cities.
  • Management is hopeful of achieving loan book of Rs 23,000 mn by end of FY20

Consensus Estimate (Source: Market screener website)

  • The stock price was Rs 390/- as of close price of 24th July 2019 and traded at 2.5x/ 2.1x the consensus book value for FY20E / 21E of Rs 158 / 186 respectively. 
  • Consensus target price is Rs 431/- implying P/B of 2.3x for FY21E book value of Rs 186.

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

Indian markets especially small and mid-cap stocks have fared poorly in the last 12 months. Decline gathered pace in the past two weeks making investors jittery. Here is a collection of thoughts on weak markets from prominent investors.

Dated: 21st July 2019

“A down market lets you buy more shares in great companies at favourable prices. If you know what you are doing, you’ll make most of your money from these periods. You just won’t realise it till much later.” Shelby Davis
“Christopher Davis’s grandfather used to say that you make the most money out of a bear market financial panic – you just don’t know it at the time. It’s always the case.” Li Lu
“We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.” Peter Lynch

“Bear markets are great times to load up on stocks.” Ralph Wanger
“It’s not during up years that great investment track records are made!” Charles De Vaulx
“Down cycles are not fun. But they form the basis for enormous future profitability.” Steve Schwarzman
“Most investors take comfort from calm, steadily rising markets: roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focussing on risk. When one feels in the pit of one’s stomach the fear that accompanies plunging market prices, risk-taking becomes considerably less risky, because the risk is often priced into an asset’s lower valuation.” Seth Klarman
“Ironically, most of the risk to long-term investors in equities comes from panicking in the short-term and closing out positions at temporary low points.” Jeremy Grantham 
“Invest in time of chaos, harvest in times of prosperity.” Jonathon Sokoloff
“The best bargains are always found in frightening environments.” Howard Marks

Source: www.masterinvest.com

Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.

Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

Dated: 10th July 2019

Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

1QFY20 Results
• TCS revenues in Rs terms reported 9% YoY growth to Rs 3,81,720 mn and to Rs 5,484 mn in $ terms. BFSI grew 11% YoY and Digital revenue reported strong growth of 44% YoY.
• Reported EBIT grew 7% YoY to Rs 92,200 mn. EBIT margins declined by 80 bps YoY to 24.2% due to higher depreciation and other expenses. 
• Reported PAT grew 11% YoY to Rs 81,530 mn.

Management Commentary
• TCS remains confident about medium-to-long term demand.
• Double-digit revenue growth in FY20 will depend on how 2Q pans out. 
• From now on, the focus will remain on maintaining margins. That will remain priority rather than margin expansion.
• Volatility in currency shall remain a factor to keep track of. 
• Sub-contracting costs have been on an upward trajectory for some time. This is a reflection of TCS’ decision to participate aggressively and capturing Digital demand, despite the supply situation.
• Issued joining letters to 30k+ in 1Q. 40% have on-boarded in 1Q and the remainder in 2Q.

Consensus Estimate (Source: www.marketscreener.com
• The stock price is Rs 2,105/- as of close price of 10th July 2019 and trades at 23x / 21x the consensus EPS for FY 20E / 21E EPS of Rs 90.1 / 101.0 respectively. 
• Consensus target price is Rs 2,165/- valued at 21x FY21E EPS of Rs 101.0.

Titan Company Limited: Increased gold prices impacted consumer demand for jewellery

Dated: 9th July 2019

Titan has published its press release giving an update for the 1QFY20 sales performance of the company:

Key highlights are as follows:
1) 1QFY20 witnessed a tough macro- environment with consumption being hit.
2) Jewellery Segment: Titan reported lower than expected revenue growth in this quarter. The management expected growth of 20% YoY for FY20 and the actual growth is ~13% in 1QFY20. This was driven by a sharp increase in gold prices that dented consumer demand significantly in the month of June. Wedding jewellery & studded group witnessed decent growth in the quarter. Sales on the auspicious occasion of ‘Akshaya Tritiya’ were robust.
Tanishq launched Swayahm collection of both plain and studded Jewellery. Mia launched ‘Birthstone Pendant’, ‘Facets’ and ‘Florets’ collections, which have all got a good response according to the Company.
3) Watches Segment: The segment grew 19% YoY in 1QFY20, partly led by the execution of a large institutional order from Tata Consultancy Services (TCS). The tech-enabled wearable has been the new driver for the division. In channels, E-Commerce, Trade and LFS (Large Format Stores) channel remain the growth drivers for Watches division for June quarter. Under the ‘Titan Raga’ brand for women, ‘Raga Cocktails’ collection with Swarovski crystals was launched at the premium end and ‘Raga Viva III’ at affordable prices. ‘Light Leathers — II’ collection, contemporary classic wear watches for men and ‘Purple PoP’ collection for the fun-loving millennial was also launched during the quarter. Fastrack has the exclusive rights in India to produce watches inspired by Game of Thrones and has launched the ‘Game of Thrones’ collection.

4) Eyewear Segment: The division witnessed revenue growth of 13%, aided by the activation i.e., a greater number of buyers enrolling for memberships, schemes/ offers, loyalty programmes, etc during the quarter. Trade channel grew faster than the overall division growth. The division added 27 stores during the quarter and also closed 9 stores ending up with a net increase of about 12,000 sq. feet of retail space. Fastrack Sunglasses launched a lightweight collection called ‘Floatables’.

Consensus estimates (Source: Marketscreener website):
Titan with a closing price, (as on 09-07-2019) of Rs 1,096/- per share trades at a P.E of 51.5x/ 42.3x/ 35.0x its earnings per share estimates of Rs 21.3/ 25.9/ 31.3 for FY20E/ FY21E/ FY22E. The consensus price target is at Rs 1,256/- over the next 12 months.

Granules 1QFY20 results: Finished dosage sales to drive margins higher

Dated: 2nd August 2019

1QFY20 result update:

  • Consolidated revenue grew 31% YoY (-3% QoQ) to Rs 5,953 mn. API, PFI and FD segments contributed to 36%,16% and 48% of revenues respectively.
  • EBITDA grew 63% YoY (+22% QoQ) to Rs 1,186 mn. Reported EBITDA margins expanded by 390 bps YoY to 19.9% from 16.0% in 1QFY19.
  • Net Profit without JV grew 55% to Rs 578 mn and net profit with the share of JV grew 61% YoY to Rs 832 mn.

Management Commentary:

  • Management has reiterated 20% CAGR growth in revenues and 25% CAGR growth in profits for the next 3 years.
  • Management has said that raw material costs risks have been mitigated so going forward raw material costs will be stable.
  • Good growth in FD sales and increased utilization of few idle capacities has led to an improvement in gross margins
  • Management has guided for ~19% EBITDA margins for FY20E.
  • Granules have guided for 8-12 filings and 3-5 approvals in FY20E.
  • Capex guidance for FY20E remains constant Rs 1500 mn.
  • Management has mentioned that they will be reducing promoter pledging which is 43% as of now to 33% in a few days and will be fully removed by FY21E.

Consensus Estimate (Source: market screener website)

  • The closing price of Granules is Rs 92/- as on 2nd August 2019. It traded at 8x / 7x the consensus EPS for FY 20E / FY 21E of Rs 11.6 / 13.6 respectively.
  • Consensus target price of Rs 142/- implies a PE of 10x on FY21E EPS of Rs 13.8.