Author - Richa Varu Rathod

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

Technical talks

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

Weekly highlights

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

Things to watch out for next week

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

 

India will be a very important market for Electric Vehicle segment – Ashok Leyland

Update on the Indian Equity Market:

Nifty 50 ended 46 points down at 15,815 (-0.3%) amid Finance Minister Nirmala Sitharaman’s announcement of another stimulus package. Among the sectoral indices, PSU BANK (+2.4%), METAL (+1.3%), and PHARMA (+1.3%) were the top gainers while MEDIA (-0.6%), IT (-0.5%), and FINANCIAL SERVICES (-0.3%) were top losers. Among the stocks, DRREDDY (+1.8%), HINDALCO (+1.74%), and DIVISLAB (+1.7%) were the top gainers. HDFCLIFE (-4.1%), TITAN (-1.32), and SHREECEM (-1.2%) were the top losers.

India will be a very important market for Electric Vehicle segment – Ashok Leyland
Edited excerpts of an interview with Mr. Gopal Mahadevan, Chief Financial Officer at Ashok Leyland with CNBC TV18 on 28th June, 2021:
Ashok Leyland reported revenues of Rs 70,005mn and turned profitable after 4 consecutive quarters of losses in 4QFY21.
• FY22 Outlook: Internally company is budgeting for a growth. The growth will depend on how the economy and country open up after the second wave. It will also depend on the third wave and how the delta virus turns out. Overall, the industry and company are expecting a good growth in FY22.
• Jun-21 performance: Sales of the commercial vehicle happens in the last 2 days of the month and it is early to comment on the revenue growth of the month of Jun-21. But a significant growth is not expected as the opening up of the economy has happened recently.
• Ashok Leyland is preparing for the growth in terms of supply, keeping sufficient inventory, being in touch with dealers, network and financials. At the same time the company is keeping track of costs and keeping itself efficient.
• The company expects growth if there is no third wave and economy is open consistently. The forecast for country’s GDP is 9-9.5% which means there is growth from now to Mar-22.
• For Ashok Leyland, the Light Commercial Vehicles (LCV) business seems very promising. The reason being launch of ‘Bada Dost’ which is a completely new segment where the company has seen growth and increase in market share as well. Company is very positive about the LCV segment and doesn’t see demand getting affected significantly as there is a lot of activity witnessed in cities till now. There is intra city transportation, which this segment caters to. E-commerce is also helping this segment to grow.
• Heavy Commercial Vehicles: Growth is seen in three segments. 1) Intermediate commercial vehicles have seen healthy growth where Ashok Leyland is present. 2) Tippers are growing because of the infrastructure impetus provided by the government. This will continue to grow and also there is positive overweight on real estate which will help the demand of Tippers to grow. 3) Multi-axle Vehicles are used for multiple purposes like interstate transportation. So, once these lockdowns or states open up fully, growth of multi-axle vehicles will be visible where Ashok Leyland is very well positioned.
• Plan of action: 1) Heading for LCV growth, 2) Keeping in touch with dealer and customers for both Tippers and Multi-axle vehicles, and 3) Keeping variants of intermediate vehicles ready to capture the market further when it starts growing.
• Scope of Electric Cars and Buses: Mr. Mahadevan thinks that future will be mixed of both green and electric vehicles. He sees capability being built in internal combustion and expects it to stay for few more years and the company will continue to build capabilities in internal combustion and diesel. Ashok Leyland is also future proofing the company by initiative of Switch where all the Electric Vehicles initiatives of the company going forward will be housed under Switch. Switch is 91.5% owned by Ashok Leyland. Switch will have a subsidiary in India which will take care of the global market and will be the manufacturing hub. Switch will also cater to the Indian market and SAARC markets. He believes that India is going to be a very important market as far as EVs are concerned.
• His comments on margin as steel prices are going up: Margins are a factor of three things: 1) Revenue and growth of revenue, 2) Raw Material, 3) Management of the middle line. Ashok Leyland is working on revenue and market share growth. They are also managing the middle line as efficiently as possible. To tackle the high raw material cost problem, company is running a project to improve the performance of the product and take out cost. So, when the steel prices will cool off in the 2HFY22, it is expected that the company will benefit from all these three initiatives.

Asset Multiplier Comments
• Healthy medium-term demand prospects along with market share gain possibilities and structural margin-accretive factors will help Ashok Leyland to achieve robust growth.
• We believe post the Covid second wave, the domestic auto industry is expected to continue on the path of recovery and also expect pent up demand post 1QFY22.
Consensus Estimate (Source: tikr. com and market screener websites)

• The closing price of Ashok Leyland was ₹ 125/- as of 28-Jun-21. It traded at 57x/22x the consensus EPS estimate of ₹ 2.2/5.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 140/- implies a PE multiple of 25x on FY23E EPS of ₹ 5.7/-.

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.”

We are clearly looking for sustained profitable growth – ITC

Update on the Indian Equity Market:

Nifty 50 closed with gains of 63 points to 15,746 on Monday. Dalal Street investors defied the global trend to rescue benchmark indices from the negative territory on Monday.

Among the sectoral indices, PSU BANK (+4.11%), REALTY (+2.33%), and BANK (+0.91%) were top gainers while AUTO (-0.41%) and IT (-0.28%) were top losers.

Among the stocks, ADANIPORTS (+5.13%), NTPC (+3.96%), and TITAN (+1.79%) were the top gainers. UPL (-4.38%), WIPRO (-1.16%), and TATAMOTORS (-1.01%) were the top losers.

 

We are clearly looking for sustained profitable growth: ITC

Edited excerpts of an interview with Mr. Sanjay Puri, Chairman and Managing Director at ITC with Business Standard dated 21st June, 2021:

The second wave of the Covid-19 pandemic has hit business sentiment, but ITC chairman and managing director, Sanjiv Puri, says that with vaccination picking up pace, consumers will gain confidence and the economy will recover progressively.

  • He says that certain business segments of the company were impacted by the pandemic last year, but recovered in the second half and revenues from the non-cigarettes FMCG business – created organically and inorganically– grew 16 per cent on a comparable basis in FY21, which is nearly twice that of the industry peer group average.
  • The second wave have impacted sentiments severely, both in rural and urban centers. There has been a surge in cases in rural India this time and therefore rural sentiment has been under some pressure resulting in tendency to conserve.
  • Monsoon is expected to be good and given the fact that manufacturing was not shut during the lockdowns this time, the loss of non-agricultural income could be lower than that of last year. With pace of vaccination increasing, cases reducing, increasing mobility and consumer confidence economy is expected to recover.
  • ITC’s FMCG revenues and margins were higher on YoY basis but lower sequentially in 4QFY21. Mr. Puri commented that ITC is clearly investing for sustained profitable growth. Following a strategic review of the portfolio, the lifestyle retailing business has been shrunk. The food business has been reorganized into clusters to enable sharper focus. In addition, purposeful innovation, multi-channel growth engines, scaling up market reach, and digitalization are enhancing competitiveness. The interventions are evident in FMCG margins, which have gone up by 640 bps in the last four years.
  • He suggested to look at the growth of the business on YoY basis. In 4QFY21 the FMCG margins were up 115 bps YoY except the education and stationery products business, lifestyle retailing business and Sunrise which has been acquired in FY21.
  • ITC will continue to look for value accretive inorganic opportunities. ITC has acquired Sunrise, Savlon and Nimyle in the past few years. These have grown manifold since their acquisition.
  • ITC is exploring an “alternative structure” for hotels. Given the pandemic, this decision will be revisited and final decision will be taken when things normalize.
  • ITC have adopted an asset right strategy for the hotels business, which is making appreciable progress with a healthy generation of leads and pipeline for management contracts.
  • ITC have progressively invested in a number of Integrated consumer goods manufacturing and logistics facilities (ICMLs) in the first phase and any further expansion will be paced out over time. However, investments across segments will continue towards capacity gearing in line with demand, technology upgrades and cost reduction to strengthen competitiveness and accelerate growth.
  • ITC have been trading at 2013 levels when the benchmark indices have gone up sharply. His message to the investors is that ITC is sharply focused on creating long term sustained value for stakeholders. From FY17 to FY20, ITC’s EPS grew by 47%. The Return on segment capital employed have moved up from 61% in FY17 to 72% in FY20. In FY21, some business segments were impacted on account of the pandemic, but they recovered in 2HFY21. A number of structural interventions have been made to sustain higher levels of competitiveness, growth and profitability.
  • The company is building an FMCG business at scale, leveraging unique enterprise strengths, purposeful innovation, investment ibn digitization, among others. In other segments like agriculture and paperboards, ITC continues to strengthen their leadership position and build new levers of growth and competitiveness.
  • In the agri business, ITC is accelerating value added agricultural products, while in paperboards, sustainable and plastic substitute packaging solutions will be a new vector of growth. ITC will continue to explore more opportunities that lie at the inter-section of their unique enterprise strengths, sustainability, and digital.

 

Asset Multiplier Comments

  • ITC’s business segments have been performing well on the back of demand growth, aiding topline performance. With margins expected to improve moving forward we believe profitability to grow further.
  • We believe lockdowns are temporary hurdles and expect recovery post 1QFY22E. We believe stable cigarette taxation and FMCG profitability are key positives in near term.

 

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

  •  The closing price of ITC was ₹ 205/- as of 21-Jun-21. It traded at 16x/15x the consensus EPS estimate of ₹ 12.5/14.0 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 250/- implies a PE multiple of 18x on FY23E EPS of ₹ 14.0/-.

 

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

 

This Week in a nutshell (June 7th to June 11th)

Technical talks

NIFTY opened the week on 7th June at 15,725 and closed on 11th June at 15,799. The index closed this week on a flat note. The index is trading at its all-time high levels. Indicators like RSI (14) 70 and downward turning MACD suggest a downward correction is likely. The index may take support of its 10DMA of 15,676 before making a strong move on either side.

Weekly highlights

  • The week opened on a positive note as declining COVID-19 cases and positive global stocks boosted sentiment. Later the market traded lower as profit booking was witnessed in major financial stocks. The week ended on a positive note as NIFTY registered their longest stretch of weekly gains since January as new coronavirus cases slow.
  • The latest World Bank report on global economic recovery post the COVID-19 pandemic predicted India’s GDP growth at 8.3 percent for the FY22. The growth projection was slashed from 10.1 percent predicted in April due to the second wave of the COVID-19 in the country.
  • The US S&P 500 was weak, with investors standing by for news of a global minimum corporate tax rate, lingering inflation fears, and a lack of market-moving economic news. It continued to be weak as US CPI release was awaited.
  • China’s PPI (Producer Price Index) came out. It jumped 9.0% from a year ago in May, accelerating from April’s 6.8% increase according to the National Bureau of Statistics. The result topped the 8.6% increase expected by economists polled by The Wall Street Journal, and marked the fastest YoY rise since Sep-08, when producer prices rose 9.1%. The statistics bureau said that soaring crude-oil, iron-ore and metals prices boosted factory-gate prices last month, and drove China’s imports to the fastest increase in over a decade.
  • The outlook for Indian economic activity is brightening as pandemic restrictions ease and vaccinations increase. Government and central bank stimulus will continue to help. The central bank now holds more than half of the 10-year bond because of its purchases of government debt.
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 17,410 mn. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 8,240 mn.

Things to watch out for next week

  • Next week, investors’ focus will largely be dominated by economic data as the country reports official data on retail and wholesale inflation. A persistent higher print may put more pressure on RBI’s Monetary Policy Committee to start thinking about the policy normalisation.
  • On the global front, investors will keenly look for data on industrial production and retail sales from US and China on June 15 and June 16, respectively, which may set the tone for world equities for the week.

 

 

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

 

Confident of double-digit growth in FY22 on pent-up demand – Emami

Update on the Indian Equity Market:

Domestic markets started cautiously positive and witnessed a strong rebound as it gained momentum from expectations of another set of relief measures. The new stimulus package is expected to focus on boosting the worst-hit sectors like tourism, aviation and hospitality along with MSMEs. Nifty ended above 15,300 as value buying was seen in the IT sector while Metals stocks remained in the correction phase due to muted international commodity prices.
Among the sectoral indices, REALTY (+2.8%), MEDIA (+1.9%), and IT (+1.8%) were top gainers while METAL (-1.9%), and PSU BANK(-0.3%) were among the top losers. Among the stocks, BAJAJFINSV (+4.6%), BAJFINANCE (+2.7%), and INFY (+2.5%) were the top gainers. POWERGRID (-3.0%), HINDALCO (-2.5%), and JSWSTEEL (-2.4%) were the top losers.

Edited excerpts of an interview with Mr. Mohan Goenka, Director, Emami with CNBC TV18 dated 26th May, 2021:

• Emami reported good Q4 earnings on a favourable base with 39% volume growth in domestic business. Director, Mohan Goenka says he’s confident of double-digit growth in FY22 on pent-up demand. He added their promoter pledge is at 30% & they will reduce it to 15% in the next 1 year.
• Revenue was over Rs 9000 mn in 3QFY21 v/s ~Rs 7300 mn in 4QFY21. But these numbers are not comparable on QoQ basis due seasonality in business. Emami has shown a decent growth in 2 years horizon and when compared to 4QFY19 the growth is robust.
• All categories like Zandu Balm, Kesh King, Men’s grooming products and Menthoplus has grown much better in 4QFY21 over 3QFY21.
• 40-45% of the sales comes from the winter portfolio.
• Emami started with a good note and first two weeks of April saw a very good demand. Emami has seasonal products and has healthy summer products like Navratna Tel and cool talc, however the demand tapered this season. But it is also seen that the demand really bounces back as soon as cases comes down and this time when market opens up, the company is confident of delivering a double-digit volume growth as the pent-up demand comes through.
• Seeing the input price inflation, Emami has taken 4% price hike which will take care of the input cost pressure leading to a stable Gross Margin.
• Rural demand has been impacted across geographies in second wave. The Company expects demand to pick up quickly as soon as lockdowns are lifted.
• Having the healthcare range in the portfolio, Emami was able to sell products even in the month of April and May. The demand for these products was seen to be robust.
• In the last 2 years contribution of E-commerce has reached ~4% of domestic business from 0.5%. It is expected to reach at least 6% in next 2-3 years.
• Cost reduction was seen in employee cost, other expenses and advertisement, EBITDA margin was at all time high at 30% level and target is to sustain margins going ahead.
• No need to add capacity as of now as the capacity utilization is ~60%.

Asset Multiplier Comments
• We believe that competition in Emami’s key product categories such as skin, and hair oil, will continue to remain high. Nevertheless, we remain optimistic about the favourable base, and robust demand and growth in health and hygiene market, especially in rural markets.

Consensus Estimate (Source: investing. com and market screener websites)
The closing price of Emami was ₹ 504/- as of 26-May-20. It traded at 42.5x/32.1x the consensus EPS estimate of ₹ 11.8/15.6 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 564/- implies a PE multiple of 36x on FY23E EPS of ₹ 15.6/-.

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

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Update on the Indian Equity Market:

Market started the week on strong note, bulls took center stage today as the vaccination drive is expected to pick up momentum. Nifty was up ~245 points (1.7%) at 14923. Among the sectoral indices, BANK (+4.0%), PSU BANK (+3.8%), and PVT BANK (+3.0%) were top gainers while MEDIA (-0.5%) and PHARMA (-0.2%) were among the top losers. Among the stocks, INDUSINDBK (+7.5%), SBIN (+6.7%), and ICICIBANK (+4.5%) were the top gainers. CIPLA (-2.3%), BHARTIARTL (-2.3%), and LT (-1.9%) were the losers.

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director and Chief Executive Officer, Asian Paints with Economic Times dated 14th May, 2021:
• Performance in Q3FY21 was good with 20% volume growth. Q4FY21 further accelerated on that in terms of demand — not only from the retail business, but also from the projects business which had been a bit down in previous 2 quarters. Big corporate institutions, builders, cooperative societies — everyone went for painting and maintenance in Q4. Another big thing seen was with respect to market structures, with T1 and T2 cities contributing in a very big way in Q4 as compared to Q3. In Q2-Q3 these cities were depressed because of a larger number of cases and the paranoia in the market. A third area was the luxury and premium products which kind of took off, propelling overall growth. There was a little bit of a pent-up demand, but largely a lot of new demand came in. So, that is basically how Q4 differed from Q3.
• Home décor business did quite well. Asian Paints now has ~18 stores across the country that offer all home décor solutions under one roof. It has got amazing response from the market in terms of offers for the consumer and company is quite pleased with it.
• When asked about the impact so far of the second wave of the pandemic and how does he see things playing out Q1 of FY22 he commented that things have been good thus far. There have been disruptions with localised lockdowns affecting some of their backend processes. But he thinks April-21 has still been largely good in terms of business. May is looking a little tough as most of the country is in a lockdown-like situation. They are finding very few markets to offer service at the moment. Picture will be clearer once vaccinations catch up and some bit of normalcy returns.
• When asked about the kind of rise in costs in Q4 because of crude and other prices and his outlook on operating margins going ahead he said that Gross margins in Q4 were lower a little bit both QoQ as well as YoY. This was largely due to the high inflationary pressures that built up starting the last week of December 2020. Material inflation has been to the tune of 7% to 8% in terms of crude derivatives as well as critical raw materials like Titanium dioxide and monomers that go into the paste. Management puts to use all sourcing efficiencies and formulation efficiencies, and sought to control overheads in a very strong manner which limited the damage to some extent in Q4. Asian Paints didn’t affect any increase in prices because they felt demand might not be very good given the widespread paranoia. Company took a 2.8% increase in prices on May 1 as the management is pretty confident that some of the inflationary pressures would come down going ahead, after which the company can look at more price increases to kind of do justice to the overall margins.
• There is definitely customer sensitivity to price hikes. It is observed that 2% to 4% hikes don’t really impact the purchasing of the customer very strongly, because it’s an addition of just Rs 400-500 in a work worth Rs 15,000. From a point of view of projects though, the price sensitivity is higher because the additional cost becomes higher. The company is confident that if prices are raised in a measured manner, it won’t hurt margins much.
• When asked about the expenditure on distribution, brand building, marketing earmarked for the financial year he informed that overall, they are integrating the whole area with paint. A typical home store would have large amounts of paint as well as home décor stuff. Any promotion done for a home store also accelerates the paint category as well. Asian Paints is looking at offering very strong value to the consumer, so it would bring down the stress on margins. It will depend on which way the market possibly goes, but the plan is to move into a strategic area that has been set and move strongly from the share of surface to the share of space within homes in a big way.

Asset Multiplier Comments
• The growth for most of the FMCG companies in 4QFY21 has been good. Even after commodity cost going up, they seem to have retained their pricing power. But we think, due to stricter lockdowns, the outlook for 1QFY21 seems to be bleak. In 1QFY21, we believe most of these FMCG stocks will moderate.
• Asian Paints’ underlying volume growth was quite robust. Seeing a similar kind of volume growth trajectory going forward seems difficult due to recent lockdowns. We might have to see price hikes, cost push and margin pressures in short term which will lead to correction in the subsequent quarter. But being the market leader, the long-term story remains intact.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Asian Paints was ₹ 2,782/- as of 17-May-20. It traded at 72.4x/60.7x the consensus EPS estimate of ₹ 38.3/45.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 2,678/- implies a PE multiple of 58.5x on FY23E EPS of ₹ 45.7/-.

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.”

Targeting Sputnik V import by June; to be priced at $10 – Dr Reddy’s Lab

Update on the Indian Equity Market:

On Thursday, the Nifty index ended with gains of 0.8% at 14,406 levels led by Metals and Financials. Within NIFTY50, WIPRO (+3.5%), ICICIBANK (+3.45%), and TATASTEEL (+3.2%) were the top gainers, while SHREECEM (-2.8%), TITAN(-2.7%), and TATACONSUM (-1.9%) were the top losing stocks. Among the sectoral indices, FMCG (-0.7%), PHARMA (-0.4%) and IT (-0.2%) were the losers, and BANK (+2.2%), FINSERVICE (+2.1%) AND MEDIA (+1.9%) were the top gainers.

Targeting May end or early June for Sputnik V import; vaccine to be priced at $10, says Dr Reddy’s Lab

Excerpts of an interview with Mr. G V Prasad, Co Chairman and Managing Director, Dr Reddy’s Laboratories (DRL), aired on CNBC-TV18 dated on 20th April 2021:

  • V Prasad, Co-Chairman and MD at Dr Reddy’s Laboratories (DRL), on Tuesday, said that the target for the import of Sputnik V vaccine, against COVID-19, is May end or early June.
  • DRL is doing its best to accelerate the import and expects to get products launched in Q1FY22E. The cold chain and logistics are in place as they talk to the Russian Direct Investment Fund (RDIF) to accelerate the shipments.
  • He also mentioned that the launch of the India-made Sputnik V vaccine is likely to be in the Q2FY22E. Each manufacturer is in a different stage of the manufacturing process. But he hopes that in Q2 India will have Indian manufactured vaccine available at least from one-two players. So, overall Q2 should see the launch of the Indian vaccine.
  • Prasad clarified the pricing on the vaccine and said it would be uniform across the globe. He added that starting with the imported vaccine, the Russian organization has a uniform price of US $10 across the world. So, when it comes in, it will be priced at the same price that this product is offered anywhere else in the world.
  • The Pharma companies manufacturing the vaccines along with the government will have to come up with a price, which he hopes to be less than the imported price. He assured that the companies will not make profit out of this vaccine and expects the vaccine price not to be higher than US$10. 2 doses of vaccines are required and Mr. Prasad doesn’t think price would be an issue and people are willing to pay this price and don’t need to be subsidized.
  • Meanwhile, he welcomed the government’s announcement of liberalized and accelerated Phase 3 strategy of COVID-19 vaccination from May 1. The government said that anyone above 18 years of age will be eligible for vaccination from May 1. This announcement was a very major move by the government which will improve availability, by decentralizing the whole process, the logistics will be much better and it will be market-driven. So, he is optimistic about the way forward.
  • He believed that the private sector can now fully participate in the vaccine drive now and India will see a rise in availability. A rise in private organizations setting up vaccination centers will be seen and the imported vaccine will immediately relieve some pressure. People will also have the choice to get vaccinated with their choice of vaccines.
  • Last, he noted that there will not be any shortage of Remdesivir in the coming weeks. He said that Favipiravir is still available as it is not in much demand. He thinks there has been a significant overuse of Remdesivir. There is a gap in the market as the shortage was sudden and DRL is doing its best to improve the supply of Remdesivir and from next week onwards, they will have a good number of supplies for this product.
  • On April 5, the RDIF and drug firm Panacea Biotec had said that they had agreed to produce 100 million doses per year of Sputnik V COVID-19 vaccine in India.
  • The efficacy of Sputnik V is 91.6 percent as confirmed by the data published in the leading medical journal, Lancet. It has been registered in 59 countries globally, the statement said. The price of Sputnik V is US $10 per shot, it added.

Asset Multiplier Comments

  • Although DRL denied to comment on the profit margins expected from the vaccine and said they are not here to make profits out of this situation we feel that Pharma sector as a whole will see a high single digit or low double-digit growth in FY22E led by covid’s second wave related opportunities.
  • The increasing cases and lockdowns in major states in India will impact the market sentiment. The investors will rush back to the defensives and Pharma sector being one of them is likely to benefit.

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

  • The closing price of DRREDDY was ₹ 5,200 as of 22-April-2021. It traded at 26x/ 22x the consensus EPS estimate of ₹ 196/233 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 5,491/- implies a PE multiple of 23x on FY23E EPS of ₹233/-.

 

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.”

 

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

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

Infra development imperative to revive economic activity – L&T

Update on the Indian Equity Market:
On Tuesday, NIFTY was up by 82 pts (+0.7%) at 11,521.
Among the sectoral indices, REALTY (-0.7%), MEDIA (-0.42%), and FMCG (-0.2%) were the top losers and PHARMA (+1.9%), PVT BANK (+1.9%), and BANK (+1.7%) were the top gainers.
Among the stocks, INDUSINDBNK (+4.7%), CIPLA (+2.9%), and UPL (+2.8%) were the top gainers. TITAN (-1.4%), MARUTI (-1.1%), and HDFCLIFE (-0.9%) were the top losers.

Infra development imperative to revive economic activity – L&T

Edited excerpts of an interview with Mr. S.N. Subrahmanyan, Chief Executive Officer and Managing Director of Larsen & Toubro Ltd with The Hindu dated 12th September 2020:

Engineering conglomerate Larsen & Toubro Ltd. (L&T) recently completed divestment of its electrical and automation (E&A) business to Schneider Electric for ₹14,000 Crs. The company is also planning to divest or dilute certain concession businesses as part of the strategic review of its business portfolio, said CEO and MD S.N. Subrahmanyan.

• When asked about the next move after divesting in E&A he informed that they keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of consistent, long-term planning process. As per this, they may divest or dilute certain concession businesses such as L&T Metro Rail (Hyderabad) and Nabha Power Ltd.
• When asked about the plans for E&A sale proceeds, he stated that they are in middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past five months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid. Accordingly, the sale proceeds will be utilised partly for deleveraging the consolidated debt and also to strengthen the liquidity buffer warranted by the current economic environment. As business conditions improve post-COVID-19, some of the equity unlocked by the divestment will also be invested for growing the business at the group level. A certain part will also be used to reward the stakeholders.
• His comments on business operations coming back to normal: As the country unlocks, means of transport open, supply chains resume and labor returns, operations at about 90% of project sites and all manufacturing facilities have resumed and are gradually moving into normality. They remain positive.
• When asked about the workers coming back to work, he commented that Pre-pandemic, they had around 2.7 lakh labourers on rolls. This came down to 70,000 by end-May when the lockdown was lifted. Most of the labourers and workers went back to their villages and towns. But, L&T have all the reasons to be positive now as about 2.2 lakh are back on rolls and most of the sites are back to more or less normality. The amount of steel and cement L&T is purchasing is going up and that indicates better progress.
• His comments on getting new business: Infrastructure development is imperative to revive economic activity, create employment and infuse more liquidity into the system. Additionally, funded projects by the World Bank, Japan International Cooperation Agency and Asian Development Bank, among others, should start moving faster. L&T, therefore, is optimistic that sectors such as hospitals, power transmission and distribution, water, railways, roads, renewable energy and defence will start showing greater traction.
• When asked how is L&T readying for the fourth industrial revolution i.e. Digital, he said that over the last few years, L&T has deliberately and slowly enhanced its technology footprint and is charting a course in recent years that will see its technology portfolio increase its contribution vis-a-vis its traditional businesses. In FY15, the world was seeing a tectonic shift with digital technologies. These emerging technologies were creating new processes, new business models and entirely new businesses. Digitalisation and digital transformation were sweeping the business world. L&T was seeing and experiencing this first-hand from the clients of IT services companies.
• He further added that L&T saw the opportunity of digital as twofold. First, to digitally transform its own operations and use these new technologies to get better at what it was already doing well; and second, to look at digital as a new business opportunity that could shape its future portfolio. L&T started doing both and it acted swiftly with determination.

Consensus Estimate: (Source: market screener website)

• The closing price of L&T was ₹ 915/- as of 15-Sep-2020. It traded at 28x/24x/21x the consensus EPS estimate of ₹ 95.8/111/127 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 2467/- implies a PE multiple of 19.4x on FY23E EPS of ₹ 127/-

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.”

Expect double digit growth over the next 5 years – Kansai Nerolac

Update on the Indian Equity Market:
On Friday, NIFTY was down 194pts (-1.7%) at 11,334. Among the sectoral indices, METAL (-3.0%), PSUBANK (-2.7%), and REALTY(-2.3%) were the top losers and there were no gainers. Among the stocks, MARUTI (+1.8%) was the only gainer. TATASTEEL (-3.9%), AXISBANK(-3.8%), and ADANIPORTS (-3.6%) were the top losers.

Edited excerpts of an interview with Mr. HM Bharuka, Vice Chairman and Managing Director of Kansai Nerolac with ETNOW dated 3rd September 2020:

• His comments on completing 100 years: Feels proud to complete 100 years, there are few companies in India who have thrived and survived 100 years. Surviving through various crises in the past 100 years and going through Covid indicates the strength of the company.
• His views on the next 3-5 years and visibility for the business: Paint industry since 1991 is having double-digit growth. He thinks the penetration level is still low, per capita income is rising, and expects double-digit growth for the next 20-25 years. Looking at various parameters like consumer, demography, infrastructure, auto industry gives confidence that these sectors will grow from hereon and sees good prospects for the paint industry for the next 20-25 years.
• When asked about his views on auto sales numbers picking up in the month of Aug-20 he commented that it is slowly picking up, because of the pandemic and financial crisis, the auto industry was facing problems. But every 3-5 years, the auto industry does see a dip and then recovers back. It was about to recover but due to the pandemic it got postponed and now we can see month on month improvement, but he thinks still there is a long way to go. Commercial vehicles are still in problem and for 2 wheelers, some companies have done well and the others have not. Overall, he thinks it will take time for the auto industry to recover but positive signs are beginning to show up. In fact, he thinks pandemic would accelerate if we are able to sort out financial issues, because of the social distancing norm and people avoiding public transport, everyone would now like to own their own private vehicle. India should focus on the auto industry as it an important core industry and can become an export hub for auto and auto components and is optimistic about the auto sector.
• When asked about the demand scenario and whether he sees continuing volume growth for the rest of the year he stated that despite there being problems like non-availability of painters and people fearing to interact with each other still, Nerolac saw growth from May-20 onwards, which is a positive sign. Posting double-digit growth in 1FY21 indicates the strong nature of the paint industry and is confident about the architecture industry and is also positive on auto, infrastructure, and white goods segment.
• When asked about the possibility of market share shifting from urban to rural areas, he informed that the penetration level of this industry is low in rural areas, so in any case, Nerolac is supposed to do better in rural areas as compared to the urban market. Due to this pandemic, the rural economy is doing well and expects rural demand to continue to grow faster than urban going forward. He is counting more on the rural market to do well for double-digit growth for the company.
• When asked whether Indian companies are complete “aatmanirbhar”, he said that India has only one manufacturer of TiO2, an important raw material for paints, and that too is government-controlled. More than 2/3rd of India’s TiO2 consumption is currently being imported. He believes there is a big opportunity to make TiO2, Monomers, and other pigments used for specialty paints in India.
• His comments on strategy for the next 5 years: This is the industry is a defensive and growing industry which is reflected in PE multiple ranging from 40-60x. For the next 5 years, Nerolac expects to continue to grow in double digits if growth continues there are few players as entry barriers are high and hence expect margins to expand. Of course, global consolidation will take place, but despite that, all major players are in India and it is expected that current players will expand its topline and bottom line. He expects 12% compounded growth for the company and stock return to be higher than 12%. He sees a golden period for investors and shareholders. Commenting on dividend payout, he said that this industry has positive cash flow, and when there are no other investment opportunities there is no point keeping the cash as ROCE goes down. So, certainly, cash should be given back if no other investment opportunities are found.

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

• The closing price of Kansai Nerolac was ₹ 486/- as of 04-Sep-2020. It traded at 59x/43x/36x the consensus EPS estimate of ₹ 8.27/11.5/13.7 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 426/- implies a PE multiple of 31x on FY23E EPS of ₹ 13.7/-

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.”