Author - Neha Kshirsagar

It’s a perfect storm in the consumer goods sector, says Godrej’s Gambhir

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.9% higher at 12,082. NIFTY50 gainers include Tata Steel (+4.6%), Bharti Airtel (+4.5%), Vedanta (+3.4%) and Hindalco (+3.3%). NIFTY50 losers include Sun Pharma (-1.3%), GAIL (-0.9%) and Bajaj Auto (-0.7%). Metal (+2.9), IT (+1.9%) and Media (+1.0%) were the top sectoral gainers. Pharma (-0.3) and Realty (-0.3%) were the only losing sectors.

Excerpts from an interview with Mr Vivek Gambhir, MD & CEO, Godrej Consumer Products Ltd (GCPL). The interview was published in Livemint dated 16th December 2019

  • For packaged consumer goods companies, rural growth slowed to a seven-year low in the September quarter, according to market researcher Nielsen India.
  • A general gloom in consumer sentiment and stagnating wages continue to impact sales of daily goods in India’s hinterland said, Mr Vivek Gambhir.
  • The slowdown has been persistent for the last three or four quarters according to Mr Gambhir. GCPL saw the first signs around October 2018. Over the last few quarters, along with the slowdown in demand, they have seen liquidity pressure in the channels (wherein traders and distributors have limited access to cash or credit from the market). Similarly, over the last three to six months, consumer sentiment has also worsened. So, in some ways, what the Company is seeing currently is a perfect storm in the FMCG sector with the confluence of slowing demand, channel liquidity pressure and weakening consumer sentiment which has been exacerbating the situation.
  • Reasons for the slowdown: Data on real wage growth in the rural sector shows that real wages have been flat or declining over the last one or two years. According to him, what consumers do is, once certain products are within their spending basket, they spend on them for a while. Then they start dipping into their savings. Even savings rates have come down in India recently. But when sentiment becomes sour, then things start affecting the sector.
  • GCPL has seen such a similar kind of situation in its first couple of quarters. They have seen a volume growth of 6-7%, which is not a bad volume growth. Volume growth is not translating into value growth because of consumer incentives and offers. He believes that is the right call to take as the P&L is quite healthy. GCPL is sitting on attractive margins. The need of the hour is to stimulate demand. Ideally, GCPL would like to be at double-digit volume growth and the efforts going forward will be to get back there.
  • In a slowdown, home and personal care get impacted more than food, according to him. The indulgence categories like beauty products and chocolates continue to grow as consumers like some ‘feel-good” factor even in a slowdown. The slowdown has been quite pervasive and has impacted most categories, particularly in rural India. Within the home and personal care, discretionary categories such as skin creams, conditioners, hair oil, hair colour get impacted. But more items are considered as discretionary for rural consumers given their lower income levels.
  • In the last two or three months, both staples and discretionary have been impacted quite a bit; that is consumer sentiment has worsened. People had very high expectations post the elections. Since they did not see any improvements, the mood seems to have worsened.
  • Views on changing goods and services tax (GST) slabs again: At this stage, trying to do too much with GST rates will be a mistake in his opinion. Companies need time to let the GST rates settle. There are a lot of implementation issues that need to be addressed. The Companies need to continue to work with various stakeholders, particularly small businesses and, in GCPL case, channel partners, to help them deal with what has been one of the largest tax reforms in Indian history post-independence. At this stage, trying to do too much with GST rates to drive short-term collections may not be the right strategy. It is important to stay the course, rather than to make rate changes that are currently being discussed.

Consensus Estimate (Source: market screener website)

  • The closing price of Godrej Consumer Products Ltd was ₹ 677/- as of 17-December-19. It traded at 43x/37x/33x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 16.0/18.6 /20.7 respectively.
  • Consensus target price of ₹ 753/- implies a PE multiple of 36.4x on FY22E EPS of ₹ 20.7/-.

Ready for the transition to BS-VI; aim to be a global company at every level – Hero MotoCorp’s Dr Pawan Munjal

Update on the Indian Equity Market:

On Friday, NIFTY50 closed -0.8% lower at 11,921. NIFTY50 gainers include Infratel (+5.3%), Kotak Mahindra Bank (+1.6%) and JSW Steel (+0.7%). NIFTY50 losers include Yes Bank (-10.5%), SBI (-5.3%) and Zee Entertainment (-4.6%). PSU Bank (-4.4), Media (-3.4%), and Auto (-1.7%) were the top losing sectors. There were no sectoral gainers in the Friday trade.

Excerpts from an interview with Dr Pawan Munjal, Chairman, MD & CEO, Hero MotoCorp Ltd. The interview was published in CNBCtv18 dated 05th December 2019

·        They are set for a quick transition to BS-VI. The company has already discontinued over 50 BS-IV products.

·       Hero is leading a charge on the BS-VI front, according to Dr Munjal. The first BS-VI motorcycle introduced in India is from Hero and currently, they are working on all the other range of products. They have already started production of various other models. Over the next 1 or 2 months, Hero will be probably transitioning into BS-VI with the entire range.

·        Dr Munjal said there seems to be a slowdown across the globe, especially in oil markets and thus, many of their global markets are oil-dependent markets. Hero has seen market shrinking, they have seen Columbia & Nigeria market shrinking, and Argentina going through hell and similarly, many other markets facing a lot of headwinds.

·        Hero has gone back and looked at their strategies. They had planned to go to 50 markets. However, right now Hero will focus on the big markets and try and increase their market share in these markets.

Recently Hero introduced the X-Pulse and some of the other new bikes in the 200 CC range. They received an excellent response, from the customers. Hero has more such stuff in the pipeline coming in the premium segment. It is not just the products, it is the brand, the marketing and the 360 around the brand that the Company is doing.

·        Hero is working with the global consultants on the visual identity and the insides of their dealership. Hero will be changing a lot of stuff in their outlets soon.

·        Hero is a global company not just in terms of selling the products into global markets but they have gone into other markets with manufacturing in Columbia and Bangladesh. Thus, the Company is trying to become a global company at every level.

In terms of diversity, there is gender, cultural diversity and there is a diversity of different nations, which are becoming part of Hero.

·        Hero is well on its way to the electrification of its products. A team is working on the engineering and research part of the electric product. Hero will be bringing its electric products but no timeframe promised as of now.

·        Tiger Woods is captaining the US team for the President Cup in Melbourne for Hero MotoCorp. The relationship between Tiger Woods and Hero MotoCorp has been of great benefit. Hero is a huge brand in India. Hero was mostly a domestic brand but when they started going out of India into various other markets whether it was Africa, Latin America, Central America, the brand was almost unknown in other markets, other countries. Hero’s association with Tiger gave them that immediate recognition in these markets.

·        When asked about the biggest lesson learnt by the Company from what has happened over the last year from this slowdown, Dr Pawan Munjal said “Life is not always about going north. There will be challenges in life, there will be difficult times in life, sales will go up sometimes, sales will come down sometimes, the economy will go up and the economy will come down sometimes. So, we need to be prepared to face these challenges. When required, we need to buckle up our shoes and tighten our belts and do whatever best we can do for our consumers and customers to be able to give them the right product and the right quality.”

Consensus Estimate (Source: market screener website)

·        The closing price of Hero MotoCorp Ltd was ₹ 2,362/- as of 06-December-19. It traded at 14x/ 13x/ 12x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 174/ 177/ 196 respectively.

Bata to use multi-channel retail strategy to reach more customers: Sandeep Kataria, CEO, Bata India

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 0.5% higher. NIFTY50 gainers include Yes Bank (+8.3%), Ultratech Cement (+3.1%), and SBI (+2.9%). NIFTY50 losers include Infratel (-3.2%), Cipla (-2.2%), and L&T (-1.7%). Realty (-0.6%) and Media (-0.4%) were the only losing sectors while PSU BANK (+1.8%), Auto (+1.3%), and Metal (+0.9%) were the top gaining sectors.

Excerpts from an interview with Mr Sandeep Kataria, CEO, Bata India, published in the Economic Times dated 27th November 2019:

  • Bata will continue its growth journey in India with the multi-retail channel approach along with the e-commerce platform to reach out to as many customers as it can.
  • The company has a retail network in 450 towns and wishes to further expand by adding new stores in smaller towns through the franchise route.
  • Bata has been using three engines – a) their own stores, b) franchise partner store, which is a big drive for them in tier III & IV, and c) multi-brand outlets.
  • To add to all this is their E-commerce channel, whether through their own website or through other marketplaces, that helps them to get as many customers as they can.
  • The Company will strengthen its presence by adding 500 stores in the next five years, focusing mainly on small markets as it has identified tier II, III and IV cities where it has plans to broaden its sales network through the franchise model.
  • India is much bigger and Bata’s brand image is also bigger. So, they have decided to expand their reach to as many Indians and take advantage of their equities.
  • Online channels are providing opportunities in multiple ways to reach consumers. Bata can use digital channels to increase the productivity of their stores and enhance the satisfaction of their consumers.
  • Bata is working hard to reconnect with the country’s millennials. Bata India has a whole battery of brands in Bata as North Star, Bata Red Label, Marie Claire and Footin which talk to millennials. The Company does not have to rely on Bata as the main brand.
  • When asked whether Bata has any plans to introduce new brands from its global fold, Mr Kataria said the Company is not very keen to do that as there is a huge opportunity for them to play with the brands which they have here. The Company has a license for the manufacture and sale of several global brands as Hush Puppies and Naturalizer. Bata has introduced outdoor brand shoes from Caterpillar in its top selected outlets this season.

Consensus Estimate (Source: market screener website)

  • The closing price of Bata India Ltd was ₹ 1,615/- as of 27-November-19. It traded at 52x/ 44x/ 36x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 30.8/ 36.9/ 44.3 respectively.

Essar Steel Judgement Discussion by panel

Update on the Indian Equity Market: 

On Monday, NIFTY50 ended marginally negative at 11,884 (-10 bps). Bharti Airtel (+4.6%), Tata Steel (+4.4%) and UPL (+3.7%) were the top NIFTY50 gainers while Yes Bank (-4.3%), Bajaj Auto (-2.0%) and Britannia (-1.7%) were the worst-performing NIFTY50 stocks. NIFTY Metal (+1.8%), NIFTY PSU Bank (+1.4%) and NIFTY Pharma (+1.2%) were among the gainers. NIFTY AUTO (-0.4%), NIFTY FMCG (-0.4%) and NIFTY Financial services (-0.1%) were the top losing sectoral indices.

Essar Steel Judgement Discussion by the panel
Excerpts from the interview of Mr Rashesh Shah, Chairman and CEO, Edelweiss Financial Services; Mr Arijit Basu, MD, State Bank of India; Mr Bahram Vakil, founding partner, AZB & Partners; and Mr Shardul Shroff, executive chairman Shardul Amarchand Mangaldas & Co and dated 18th November 2019. Source: Livemint

The Supreme Court’s judgment awarding Essar Steel Ltd to Arcelor Mittal has strengthened the Insolvency and Bankruptcy Code, empowered the committee of creditors and set a precedent for other similar cases, participants at a panel discussion said. 

Mr Rashesh Shah, Chairman, and CEO, Edelweiss Financial Services: Edelweiss Asset Reconstruction Company (ARC) has over ₹ 7,000-8,000 crs of exposure in Essar Steel Ltd.

  • According to him, it will take a couple of weeks for the recovery to come through.
  • Edelweiss ARC will receive 25% of the payment while the balance will go to the respective banks.
  • According to him, the important thing is not only Essar Steel judgement, but there are at least another 8-10 cases which are also hinging upon the same principles which were raised on the Essar Steel case and those will also quickly get released.
  • He thinks between now to March 2020, there is a fair amount of liquidity that will get released in a lot of these NCLT cases because of the clarity of the judgement and the clarity on the grounds on which how all these NCLT cases will be resolved.
  • Edelweiss is expected to receive the money in two-three weeks’ time. This will require some paperwork, to make sure that due process is followed in allocation to avoid any kind of missteps in execution. This account is a large one with payment of almost US$6 billion.

Mr Arijit Basu, Managing Director SBI: State Bank of India (SBI) was to get around ₹ 12,000 crore

  • Mr Basu said, “We are working on the process, we would like things to move very fast now that everything has been now cleared by the Supreme Court. Let us see how it goes, I think the expectation is that things should move very fast.”
  • According to him, it is not just about Essar Steel but he feels that this judgement will bring in finality to the entire NCLT and the IBC process as was set up in 2016.
  • Various NCLT and NCLAT courts were giving diverse judgments and were leading to a lot of confusion.
  • The previous ruling of the Supreme Court: the amendments brought by the government in the IBC code itself now and this final judgment will lay down not only the rules for Essar Steel but will also give a very clear idea as to how everyone has to move forward including the committee of creditors.
  • Mr Basu thinks that an assessment has to be made which SBI is trying to work out of course regarding how much of more such cases are exclusively dependent on clarity coming in the NCLT process and how much of it is due to other delays which are happening because of the resolution process itself. So, maybe in a couple of days, SBI will be able to frame that.

Bahram Vakil, founding partner, AZB & Partners:

  • He said, “23rd October 2018 was when National Company Law Tribunal (NCLT) Ahmedabad approved it. So it is not a small amount of time, I have not done the internal rate of return (IRR) calculation, but we have lost from October 23 till November 15, so just over a year if they had accepted it then.”
  • Recovery rates have been doubled from 25% to 46%, this judgement will probably take it to 48-49%, but the best in class worldwide is in the 80%.

Mr Shardul Shroff, executive chairman, Shardul Amarchand Mangaldas & Co.:

  • The NCLAT has to go both by letter of the law and the spirit of the law. It is unequivocally clear that the Supreme Court has reiterated the fact that the decision of the Committee of Creditors (CoC) is final, they have the primacy and there is no authority in law for the NCLAT to substitute the judgement of the CoC by their own judgement.
  • According to him, now the question which will survive if at all is that if the CoC has made a decision which is contrary to the IBC, therefore for example if they have miscalculated the liquidation value or if they have not followed the requirement of ensuring that the operational creditors get the first bite at the cherry, those kinds of things if they are wrongly done by the CoC, those are the issues which will go by remand.

Consensus Estimate (Source: market screener website) 

  • The closing price of Edelweiss Financial Services Ltd was ₹ 129/- as of 18-November-19 and traded at 1.5x /1.3x /1.3x the consensus BVPS for FY20E / 21E / 22E of ₹ 85.7/95.7/102.0 respectively. Consensus target price of ₹ 157/- implies a PB multiple of 1.5x on FY22E BVPS of ₹ 102/-.
  • The closing price of State Bank of India Ltd was ₹ 325/- as of 18-November-19 and traded at 1.3x /1.2x /1.0x the consensus BVPS for FY20E / 21E / 22E of ₹ 251/280/319 respectively. 

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

Update on the Indian Equity Market:

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

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

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

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

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

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

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

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

It is a golden opportunity for the global business community to partner with India in its journey: PM Narendra Modi

Update on the Indian Market:

On Thursday, Nifty bounced back after Wednesday’s fall and ended the September F&O series above 11,550 level. Nifty was up 131 points at 11,571.20. All sectoral indices, except IT, traded in the green on NSE, led by Nifty Metal (4.32%), Nifty Media (2.29%) and Nifty Auto (2.43%). Yes Bank, Indiabulls Housing Finance and Infosys were among the biggest losers. Vedanta, M&M and Coal India were the gainers.

It is a golden opportunity for the global business community to partner with India in its journey: PM Narendra Modi

The key takeaways from the interview by PM of India Mr. Narendra Modi at Bloomberg Global Business Forum in New York:

  • Prime Minister Narendra Modi urged global businesses to “come to India” as the current government has set a roadmap to build a $5 trillion economy by 2025.
  • PM Modi has met the energy company CEOs in Houston and has planned to meet more than 40 companies at the forum hosted by Michael R. Bloomberg, the founder and majority owner of Bloomberg LP, the parent company of Bloomberg News.
  • The recent move of the corporate tax cut in India is called as a revolutionary movement by PM Modi.
  • The cut in corporate tax will not only help India compete for investments with other destinations in Asia but also help boost private investments and lift economic growth in Asia’s third-largest economy.
  • Attracting investments is key to revive the economic growth and put the nation on the path to becoming a $5-trillion economy by 2025, According to him.
  • Inviting foreign investments in sectors such as infrastructure, start-ups, defense and real estate, the prime minister said his administration has decided to invest $1.3 trillion in modern infrastructure.
  • He added that the Government would be taking necessary modifications on a regular basis on tax-related laws and bring tax on equity investments on a par with global tax regime. This could be referred to as the abolition of term capital tax and dividend distribution tax.

Titan Company Ltd: Retains its growth expectation of 20% YoY for 2HFY20E.

Update on the market:

Market opened weak following the drone attack of the Saudi oil giant ‘Aramco’. This led to a sharp increase in the prices of crude oil which shot up as high as 20%. This is crucial for India as 80% of crude oil requirement is procured through imports and Saudi is responsible for 10% of India’s crude requirement. Nifty closed 72 points lower at 11,003. BPCL, M&M, SBI were among the biggest losers. Titan, Britannia, Tech M were the gainers. Among sectoral indices PSU Bank (-1.4%), Realty (-1.4%), Financial Services (-1.0%), Bank (-1.0%) closed lower while Pharma (0.4%), FMCG (0.4%), Media (0.2%) ended on a positive note.

Titan Company Ltd: Retains its growth expectation of 20% YoY for 2HFY20E.

Key take away from the interview given by the CFO of the Company Mr S Subramaniam

1)      Titan expects a growth of 20% for the 2HFY20E on the back of the improving scenario for the industry.

2)      The CFO said there has been some improvement from August for the overall industry.

3)      Titan has shown a decent performance in the month of August according to him.

4)      Titan has suffered sales wise in the month of June & July led by the sharp increase in the gold prices.

5)      As per him, whenever there are fluctuations in the gold price, people tend to wait and buy when they have no other option but to buy. As the wedding & festival season has started, Titan is seeing people coming back and buying gold.

6)      The Company also expects investors to come back to the asset class with prices going up during this festive season.

7)      On the business front, Titan focus is more on getting the top line and also gaining the market share for which they have been already working.

8)      At the same time, he also mentioned that the second quarter of FY20E will show a decline in sales since July was impacted due to the rising gold price. They expect a 12-13% YoY growth in 2QFY20E for the jewellery business.

9)      Speaking about millennials, the CFO said, “Jewellery is clearly not something which they buy the way their mothers bought. However, having said that, we also see them buying more of products at lower purchase point, more in the nature of accessories.”

Consensus Estimate (Source: market screener website)

·        The closing price of Titan Company Ltd was ₹1,147/- as of 16-September-19. It traded at 58x / 47x / 39x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 19.6 / 24.2 / 29.5 respectively.

·        Consensus target price of Rs 1,170/- implies a PE multiple of 40x on FY22E EPS of ₹ 29.5.

Thyrocare Technologies Ltd – A shift to organised sector to increase in the next 20 years.

Dated: 30th August 2019

Update on Indian market: The week ended on a positive note. The Nifty gained 0.68% on Friday to close at 11,023. Indian equity benchmarks ended higher in anticipation of another set of measures from the government to support a slowing economy. Finance Minister Nirmala Sitharaman announced a mega public sector bank merger where 10 banks will be amalgamated into 4 entities. India’s growth rate for April-June 2019 slipped to 5% compared to 8% a year ago, as per the latest data from the Central Statistics Office (CSO) released on Friday. The growth slowest in 25 quarters is being attributed to a sharp deceleration in the manufacturing sector and sluggish agriculture output.

Among the sectoral indices, Pharma was an outlier with the index rising 2.02%. Within the stocks, Yes Bank (+5.23%), Sun Pharma (+4.03%) and Zeel (+3.69%) were the best performers while Bharti Infratel (-3.23%), Coal India (-2.28%) and Eicher Motors (-1.68%) were the worst performers.

Thyrocare Technologies Ltd – A shift to organised sector to increase in the next 20 years.

Key highlights of the interview given by Mr A. Velumani, Promoter, Chairman, MD & CEO of Thyrocare Technologies Ltd on Economic Times:

1.      Shift from the unorganised sector to organised sector in healthcare space is happening for the last 10 years. This shift is happening with people becoming aware of brands. According to him, the brands are communicating and hence they are visible. So, the move from unorganised to organised has been happening. But the move is very slow. He sees the contribution of the organised sector to reach 20% in the time horizon of 20 years. Currently, the organised market contributes around 5-7% of the total market.

2.      He has seen unorganised players operating recklessly having no control on quality. There are instances where they pay no tax at all. So, the entry of such players is much faster than the growth of the industry.

3.      The preventive care segment is the key reason for the shift in organised space which contributes 10% of the total turnover of the industry. The preventive care segment is growing because of the increased awareness amongst the people. Increase in the per capita income and also the rates of the preventive care which is competitive are supporting the balance sheet of all organised listed players. 

4.      According to him, B2C (Business-to-Consumer) players are comfortable as they do not have true competition on a large scale. The price competition is not sensed in the B2C segment because common man does not know what test costs how much. This is not the case with the B2B (Business-to-Business) players. B2B players like Thyrocare has to deal with another businessman who knows what is the cost and what is the pricing. 80% of the business of Thyrocare is B2B. 

5.      Thyrocare has been facing some challenges in growth but is confident of gaining the growth back on track and believe that the current EBITDA level is sustainable for five more years.

Consensus estimates (Marketscreener website):

·        The stock price was Rs 463/- as of close price of 30th August 2019 and trades at P/E multiple of 25x / 22x / 19x the consensus EPS of Rs 18.6/ 20.8/23.8 for FY20E /21E / 22E respectively. 

·        Consensus target price is Rs 530.4/- implying P/E of 22x for FY22E EPS of Rs 23.8/-

IPCA Laboratories Ltd (IPCA): 1QFY20 API business driving the business growth

Dated: 19th August 2019

Quarterly Performance:

  1. Net Sales for the quarter stood at Rs 10,110 mn a growth of 18% YoY. The growth was driven by API (Active Pharmaceutical Ingredient) revenue growth of 37% YoY. The Domestic API grew by 9% while exports grew by 47% YoY. The Sartans (used in hypertension treatment) sales helped in the growth for the APIs. India finished dosage business for the quarter grew 13% YoY while the International finished dosage business grew 12% YoY.
  2. The EBITDA for the quarter stood at Rs 1,950 mn, a growth of 40% YoY. The growth at the operating level includes a reduction in the remediation cost in the quarter compared to last year and a reduction in the R&D cost. The remediation cost for the quarter stood at Rs 60 mn while the R&D cost was close to 2.5% of the total sales.
  3. The EBITDA margins for the quarter were at 19.3% as against 16.3% in 1QFY19.
  4. The PAT for the quarter was at Rs 1,320 mn showing a growth of 101% YoY.

Management Commentary:

  1. IPCA management expects the domestic business to remain stable and deliver revenue growth of 13-14% in FY20E.
  2. The API business was led by an increase in the sales of Sartans. The Company has seen strong demand for Valsartan and Losartan in the export markets.
  3. The Institutional business declined 28% YoY in this quarter because of the slow offtake of the Global Fund business. The Company has received an order of Rs 280 mn in this quarter. They expect the order for the full year of FY20E to be around Rs 900 mn. The Institutional business revenues are expected to be in the range of Rs 2,250-2,500 mn for the full year FY20E which includes Global Fund order.
  4. The USFDA issue for the 3 plants (Pitampura, Piparia & Ratlam) remains unchanged as IPCA expects FDA to visit these plants.
  5. The remediation cost for the full year of FY20E is expected to be less than Rs 100 mn.
  6. The Capex for the quarter was around Rs 600 mn and is expected to be Rs 2,200-2,300 mn for FY20E. the CAPEX would majorly include debottlenecking of the capacities.
  7. The tax rate for the whole year is expected to be 20% as it is a MAT (Minimum Alternate Tax) company.

Consensus Estimate (Source: market screener website)

  • The closing price of IPCA Labs Ltd was Rs 951/- as of 19-August-19. It trades at 22x/17x/ 16x the consensus EPS for FY20E /21E/FY22E of Rs 43.9/ 54.7/ 60.0 respectively.

Consensus target price of Rs 1,021/- implies a P/E of 19x on March-FY21E year ended.

IndusInd Bank 1QFY20 Result Update:

Dated: 15th July 2019

Consolidated Quarterly performance highlights:
1) Net Interest Income (NII) for the quarter grew 34% YoY at Rs. 28,440 mn. The Net Interest margins (NIMs) stood at 4.05% as against 3.92% in 1QFY19.
2) Fee income grew 28% YoY at Rs 16,630 mn, led by 47% YoY growth in the loan processing fees.
3) Provision for the quarter was Rs 4,310 mn where the credit cost stood at 3,040 mn and other provisions including the standard provisions stood at Rs1,260 mn.
4) Net profit for the quarter grew by 38% at Rs 14,330 mn.
5) Loan book grew by 28% YoY whereas the deposit growth for the quarter stood at 26% YoY led by CASA growth of 25% YoY. CASA (Current Accounts- Savings Accounts) ratio stands at 43%.
6) GNPA & NNPA for the quarter stood at 2.15% & 1.23% respectively. The provision coverage ratio for the bank stood at 43%.
7) The annualised ROE stood at 18.45% vs 5.46% in 4QFY19. 
8) IndusInd bank standalone performance {excluding Bharat Financial Inclusion Ltd (BFIL)}: NII grew by 14% YoY, Fees income grew 23% YoY, and operating profit growth has shown a 17% YoY growth while the Net Profit stood at Rs 12,200 mn, a growth of 18% YoY. IndusInd standalone loan book grew by 26% YoY for the quarter at Rs 18,99,620 mn.
Key Highlights of the Concall:
a) The IndusInd bank has guided for a loan book growth of mid-20% in the medium term.
b) They expect the credit cost to be in the range of 55-65 bps for FY20E.
c) The bank targets to gain market share in vehicle financing from the NBFCs. They expect the slowdown in the auto industry to continue in 2QFY20E. They see some recovery in the auto sector during the festive season this year.
d) IndusInd Bank has made an adequate provision for IL&FS exposure according to the management. Bank’s funded and non-funded exposure to the group is 1.67% of the loan book net of provisions held. 
e) Liabilities of BFIL have not fully transferred and will take another 6-9 month to get reflected. The IndusInd bank expects the AUMs to grow at 35% YoY. BFIL disbursement has seen a slowdown in Orissa & West Bengal region. This slowdown is expected to continue for a few more months.
Consensus estimates: (source market screener website)
• The stock price is Rs 1,485/- as of close price of 15th July 2019. It trades at 2.8x/ 2.4x/ 2.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 523/ 626/ 741 respectively.
• The consensus price target is Rs 1,851/- valued at 3.0x FY21E book value of Rs 626/-.