Author - Rujuta Tamhankar

Week in a nutshell (27June-1July)

Technical talks

NIFTY opened the week on 27th June at 15,926 and closed at 15,752 on 1st July. The lower Bollinger Band level of 15,370 might act as a support, while, on the upside, the 16,250 level might act as a resistance.

Among the sectoral indices, FMCG (+2.8%), REALTY (+1.6%), and HEALTHCARE (+1.1%) were the gainers during the week. OIL&GAS (-4.2%) was the only loser.

Weekly highlights

  • All of the major US indices ended the week on a volatile note as oil prices rose and fell throughout the week. S&P 500 closed the week marginally higher at 3,825 and Nasdaq at 11,129.
  • WTI crude oil and Brent crude closed flat at -0.3% after fears that the US economy would enter a recession, resulting in lower oil demand.
  • Accenture reported 3QFY22 earnings, with revenues exceeding expectations at US$16.2 billion. According to the leadership, cost optimization, along with growth, is now the focus area for clients. However, it lowered its fiscal forecast due to a negative foreign exchange impact and rising inflation.
  • According to official data released on June 30th, output in India’s eight core infrastructure sectors increased by 18.1% in May, compared to 16.4% the previous year. This suggests that the economy is gradually returning to normalcy.
  • Japan’s factory activity growth slowed in June, with the PMI falling from 53 to 52, as supply disruptions, exacerbated in part by China’s strict COVID-19 curbs, hurt manufacturers, keeping the economy underpowered and with few catalysts to spur a robust recovery in the short run.
  • US consumer spending data was released on June 30th, showing that US consumer spending rose less than expected in May as motor vehicles remained scarce and higher prices forced cutbacks on purchases of other goods, indicating that the early recovery in economic growth was a losings steam.
  • On June 29, India’s Cabinet approved a plan that would allow local crude producers to sell oil to private companies, boosting revenue for state-run producers such as ONGC and Oil India. The decision will take effect on Oct. 1, and existing conditions for selling crude oil to government-run companies will be waived, according to a government statement, adding that exports will be prohibited. Reliance Industries’ share price tanked more than 7% Friday after the government levied an additional tax on crude oil.
  • FII (Foreign Institutional Investors) net sold ₹ 68,350 mn and DII (Domestic Institutional Investors) were net buyers this week. DIIs bought shares worth ₹ 59,250 mn.

Things to watch out for the next week

  • On Monday the labor markets will be in the spotlight next week, with the June nonfarm payrolls report due on Friday.
  • The 1QFY23 result season kicks off with IT major TCS reporting earnings on Friday.
  • The International PMI surveys, which track business sentiment in the United Kingdom and the eurozone, will be released on Tuesday, while the meeting minutes from the FOMC’s most recent policy meeting, held in mid-June, will be available on Wednesday.

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 helicopter orders worth Rs 600 bn – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,342 (-0.5%). BHRATIARTL (-3.9%), ITC (-2.2%), and RELIANCE (-1.8%) led the losers while TATASTEEL (+1.7%), SBIN (-1.6%), and TITAN (-1.4%) led the gainers. Among the sectoral indices, REALTY (+2%), MEDIA (+1.4%), and PSU BANK (+0.7%) led the gainers, while OIL &GAS (-1.1%), FMCG (-1.0%), and CONSUMER DURABLES (-0.6%) were the only losers.

Excerpts of an interview with Mr. R Madhavan, Chairman and Managing Director at Hindustan Aeronautics (HAL) with BQ Prime on 8th June 2022: 

  • HAL anticipates revenue to increase by 6-7% in FY23. Revenue is expected to increase by double digits in FY24 and will continue to grow in FY25.
  • The company’s order book stands at Rs 820 bn, of which Rs 200 bn is for a repair and spare parts order and Rs 615 bn is for production for Light Combat Helicopters (LCH) to be delivered in 2024.
  • HAL is expecting orders worth Rs 600 bn for helicopters and basic trainers. These orders, coupled with other engine orders, will increase the company’s book-to-bill ratio from three to five times.
  • Due to the longer cycle time for the ministry’s order placing, the company must begin production or the helicopter manufacturing facilities would be underutilized. The company hopes to have a capacity of more than 90 to 100 helicopters every year. The order book is also required to be in that range so that the capacities that they have established are adequately utilized.
  • Management thinks that India should take advantage of the current geopolitical environment since countries are not favoring China and Russia for their respective source and support systems and platforms. Management sees this as an opportunity as India is capable of supporting Russia’s systems. Furthermore, Indian equipment is easier and less expensive to maintain than western competitors.
  • HAL is hoping to increase export orders as the Indian Ocean Commission area and West Asia gains traction.
  • The Tumkur facility will be inaugurated in July 2022, with an initial capacity of 30 helicopters, in addition to the present capacity of 30 helicopters. In phase 2, this capacity would be increased to 60-70 helicopters.
  • There is excess capacity for fixed-wing aircraft, with the Hindustan Turbo Trainer (HTT-40) trainer aircraft, as well as the Light Combat Aircraft (LCA) Mark-1A and LCA Mark-2, scheduled for production.
  • There hasn’t been much movement from large corporates in India’s defense industry, but the MSME sector has forayed into defense manufacturing, particularly in the avionics and accessories segment.
  • The Company anticipates some push from larger corporates, which is currently lacking, towards indigenous development of platforms and equipment.

Asset Multiplier Comments

  • Due to outstanding helicopter orders, HAL’s order book is likely to reach Rs 1,000 bn in CY22E/ FY23E, and the book-to-bill ratio is expected to rise from 3x to 5x.
  • We anticipate HAL will be able to meet its double-digit revenue growth projections starting in FY25E, as key projects like the LCA Tejas Mark-1A and LCH helicopter orders are scheduled to be completed in 2024.
  • As military threats have grown across the world, the demand for defense equipment has increased. HAL’s addressable market is likely to grow as the firm seeks to diversify its activities by increasing its foreign exposure.

Consensus Estimates: (Source: tikr website)

  • The closing price of Hindustan Aeronautics Ltd was ₹ 1,842/- as of 08-June-2022.  It traded at 15x/ 14x the consensus earnings estimate of ₹ 124.1 / 134.5/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,025/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 134.5/-.

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.”

 

Royalty payments to accrue over the next 5 years – UNSP

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the green at 16,628 (0.6%), led by RELIANCE (+3.6%), BAJAJFINSV (+3.4%), and SUNPHARMA (+2.7%). APOLLOHOSP (-5.0%), HEROMOTOCO (-3.5%), and EICHERMOT (-1.7%) were few of the laggards. Among the sectoral indices, OIL & GAS (+2.3%), IT (+1.8%), and METAL (+1.1%) led the gainers, and AUTO (-0.6%) and FINANCIAL SERVICES (-0.3%) led the losers.

Excerpts of an interview with Ms. Hina Nagarajan, MD & CEO, Diageo India with CNBC-TV18 on  30th May 2022:

  • UNSP has sold 32 popular brands which include Haywards and White Mischief for Rs 820 crores to Inbrew. The deal is expected to close in 3-4 months by 30th September 2022. The surplus will be invested prudently in the short term. The deal is ROCE accretive. This accelerates UNSP’s journey towards dividend distribution.
  • Ideally, the company would have liked to do a full slump sale in one go and take the money upfront. As part of the contract, the company has signed a 5-year franchise deal with Inbrew limited for Rs 12,930 mn, company has paid all the underlying interest. Royalty payments will accrue over the next 5 years and they will be higher in later years.
  • UNSP to focus on premium brands.
  • The company has reiterated guidance of sustained double-digit revenue growth with mid to high teen margins. The company has also cautioned about EBITDA margin pressures due to inflation and other short-term supply pressures which would be mitigated by productivity initiatives and product mix by including premium brands in the mix thus improving the pricing mix.
  • The company has stepped up advocacy with states on price increases. Assam which contributes about 7-8% of the business, MP, and Rajasthan have given some price increases.
  • UK- India FTA is being negotiated concerning the customs duty reduction on scotch imports. The company is optimistic that the deal will come through. However, it’s uncertain how much benefit the company will get, as the quantum and the timing are not known. If the import duty were to come down depending on the quantum, the range of momentum the brands could get would be between 7-15% and consumer prices would be reduced, thus increasing volumes.

Asset Multiplier Comments

  • This deal is a step forward to the UNSP’s premiumization strategy as the company sees potential in the premium/luxury segment. This will help the company to focus on the Prestige and Above segment where the core competencies of the company lie.
  • We remain positive on the premiumization trend in the liquor industry, however, state-wise pricing actions and portfolio reshuffle benefits will remain the key monitorable in the near term.

Consensus Estimates: (Source: market screener website)

  • The closing price of UNSP was ₹ 801/- as of 02-June-2022.  It traded at 53x/ 45x the consensus earnings estimate of ₹ 15/ 18 – for FY23E/FY24E respectively.
  • The consensus target price of ₹ 918 /- implies a P/E Multiple of 51x on the FY24E EPS estimate of ₹ 18/-.

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.”

 

Capex of 2.6 bn pounds to be utilized for electrification operations – TATAMOTORS

Update on the Indian Equity Market:

On Wednesday, NIFTY settled lower at 16,204 (-0.1%). POWERGRID (-4.5%), BPCL (-3.2%), and TECHM (-2.2%) were the top losers. TATACONSUM (+3.1%), HINDUNILVR (2.1%), and ULTRACEMCO (+2.0%) were the gainers. Among the sectors, REALTY (-1.8%), PSU BANK (-1.6%), and CONSUMER DURABLES (-0.5%) led the losers. FMCG (+1.3%), PHARMA (+1.1%), and HEALTHCARE (+0.6%) led the gainers.

Excerpts of an interview with Mr. P.B Balaji, Group CFO, Tata Motors with Economic times on 17th May 2022:

  • In terms of capex plans, the company intends to spend Rs 60bn on Tata Motors and 2.6 bn pounds on JLR, which will be utilised for innovations and to prepare the company for the future as the industry transitions from IC engines to an industry of net-zero commitments. Capex will be used by the company for both traditional and electrification-related operations.
  • Capex will be funded by internal accruals, and the firm will generate free cash flows of over a billion pounds after spending 2.6 bn pounds on capex. The commercial vehicle business of Tata Motors is cash positive, whereas the passenger car division is cash neutral. The TPG transaction was executed to ensure investments in electrification are made on time.
  •  The failure to meet market demand due to the semiconductor shortage is affecting revenues, both at JLR and Tata Motors is expected to result in a loss of contribution, profitability, and operational leverage.
  • As far as China lockdowns are concerned, they have impacted the April numbers for all OEMs that were released on 16th May 2022.
  • The Company’s supply chain has not been directly harmed by the Russia-Ukraine war. They have two vendors in the regions that are being diverted.
  • Interest rate rises will undoubtedly weaken demand in the future as a result of inflation in fuel, commodities, and food. However, from the standpoint of JLR and Tata Motors, the premium market is not facing that challenge.
  • Domestically, the firm hasn’t seen any impact on demand, but it will be watching this closely for the next three to six months to see how the demand plays out.
  • Due to commodities, oil, and the resulting fuel price increase, management has begun to identify a risk of greater inflationary expectations, which might harm the premium sector as well as demand in India.
  • Due to the commodity cost rise, the company has roughly 200 basis points of unrecovered margins, compared to about 540 basis points previously.
  • The company anticipates commodity prices to stay steady at current levels. In April, the company raised its prices. If commodity prices continue to climb, the company will increase prices to protect our margins.
  • Lithium costs have risen as demand for electric cars has grown. The company has taken price hikes which are absorbed by the market.  There is a very attractive equation in terms of the running cost of an electric vehicle vis-à-vis a diesel or a petrol car.

Asset Multiplier Comments

  • As supply-side concerns ease and commodity headwinds settle, Indian business, which was severely impacted by the second Covid wave, could witness some supply-side recovery. The renewed product range in its PV business is expected to lead to market share gains, and it is projected to achieve FCF breakeven by FY23E due to macroeconomic recovery.
  • JLR’s profitability is likely to improve as a result of cost-cutting activities in both variable and fixed costs, improved mix, increased operational leverage, and cost savings from its modular platform.

Consensus Estimate: (Source: market screener)

  • The closing price of TATAMOTORS was ₹ 415/- as of 18-May-2022. It traded at 24x/ 11x the consensus earnings estimate of ₹ 17.0/ 36.4/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 529 /- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 36.4/-

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.”

 

Week in a nutshell (9th May to 13th May)

Technical talks

NIFTY opened the week on 9th May at 16,227 and closed on 13th May at 15,782. During the week, NIFTY was down 3.8%. The index has breached the 50-week moving average on the weekly chart with RSI at 37. The immediate support for the index stands at 15,515 and resistance at 16,230.

PSU Bank (-8.8%), Realty (-5.8%), and Infrastructure (-5.3%) were the top losers and there were no sectoral gainers during the week.

Weekly highlights

  • The Life Insurance Corporation of India (LIC) public issue got bids for Rs 439,335 mn on the final day of bidding on May 9, more than double the issue size. According to subscription data available on markets, the offer was subscribed 2.95 times, with investors bidding for 478.2 mn equity shares versus an IPO size of 162 mn shares. Policyholder participation remained strong, with bids totalling 6.12 times the authorised quota and the value of shares subscribed was Rs 120,340 mn. Retail investors put in Rs 124,560 mn in the IPO, the most among investors from May 4 to 9. Employees’ reserved portion was subscribed 4.4 times.
  • Oil prices surged more than 5% on 11th May as Russian gas deliveries to Europe decreased and Russia sanctioned certain European gas businesses, adding to global energy market turmoil. On 13th May, Crude oil closed 4% higher at usd 110 and Brent crude oil closed 3.8% higher at usd 112.
  • According to the official data released on 11th May by the Labor Department of the US, the annual growth in the consumer price index (CPI) peaked in March at 8.5% but decreased in April to 8.3% due to lower energy expenses. After a 1.2% gain in March, the CPI rose only 0.3% in April, but excluding volatile food and energy commodities, the index increased 0.6%, double the rate in March, according to the study.
  • According to the data released on May 12, inflation for April in India was 7.77%, higher than the 7.5% consensus forecast driven by fuel items, with the CPI index for the ‘fuel and light’ group climbing 3.15% MoM in April. Higher-than-expected retail inflation in April has raised expectations of another repo rate hike at the Reserve Bank of India’s (RBI) Monetary Policy Committee meeting on June 6-8.
  • According to data released on May 12 by the Ministry of Statistics and Programme Implementation, India’s industrial growth, as per the Index of Industrial Production (IIP) increased to 1.9% in March from 1.5% in February.
  • America’s employers’ added 428,000 jobs in April, extending a streak of solid hiring that has defied punishing inflation, chronic supply shortages, the Russian war against Ukraine, and much higher borrowing costs. The unemployment rate was at 3.6%, just above the lowest level in a half-century. The economy’s hiring has been remarkably consistent in the face of the worst inflation in four decades. Employers have added at least 400,000 jobs for 12 straight months.
  • Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 163,583 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 182,020 mn.

Things to watch out for next week

  • Volatility is expected to remain high as rising global inflation forces investors to reconsider their expectations for strong earnings growth. Fears of a further rise in the US 10-year bond yield, geopolitical concerns, and oil price volatility will keep investors on edge.
  • With the inflation data released, investors are looking forward to Fed’s intended 50 bps interest rate hike in the next meeting. The United States housing market updates for April are expected on the 18th of May. Consumer Price Index (CPI) inflation for the Eurozone, the United Kingdom, and Canada will be released this week, indicating whether global inflation rates have peaked. We can also anticipate the release of the United States Census Bureau’s report on retail sales for April, as well as earnings from some major retailers, such as Walmart and Target.

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.”

 

 

Remain optimistic on business prospects but cautious in the near-term – UPL

Update on the Indian Equity Market:

On Thursday, NIFTY ended lower at 15,808 (-2.2%). All the sectoral indices ended in the red led by PSUBANK (-5.4%), METAL (-3.7%), and PRIVATEBANK (-3.5%). Among the stocks, WIPRO (+0.8%), EICHERMOT (+0.2%), and HCLTECH (+0.1%) led the gainers, while ADANIPORTS (-5.8%), INDUSINDBK (-5.7%), and TATAMOTORS (-4.2%) led the losers.

Excerpts of an interview with Mr. Jaidev Shroff, Global CEO, UPL with CNBC-TV18 on 9th May 2022:

  • The company remains optimistic about business prospects although cautious in the near term due to the global supply chain and shipping disruptions.
  • The company is quite comfortable committing to conservative guidance of 10% revenue growth in FY23E due to global uncertainties.
  • Europe had a challenging quarter in Q4FY22 with low single-digit growth. Europe has continued to ban certain traditional products which also impacts the portfolio. Europe is expected to be the slowest growing region in FY23E. The company expects a 7-8% YOY growth in the Europe business in FY23E.
  • In 4QFY22 Indian business grew by 63% on a YoY basis. The company anticipates the India business to continue this growth momentum for FY23E on the back of new launches in 4QFY22, strong commodity prices for farm products, and investments in sustainable technologies.
  • The company is investing in sustainable solutions that will provide considerable value to farmers, making agriculture more sustainable.
  • There is a global need for sustainable agriculture techniques and technologies. A slew of new technologies is being introduced by the company under the Natural Plant Protection (NPP) vertical. The company is reorganizing to focus on this business vertical which is expected to grow faster than the traditional businesses.
  • In FY22, the company incurred a debt of Rs 182,500 mn. The company’s goal is to reduce the debt to equity ratio to 2, or Rs 30,000 mn in absolute terms, by FY23E.

Asset Multiplier Comments

  • For FY23E, the management has guided growth across revenue and EBITDA at 10% and 12-15% YoY, supported by strong commodity prices, increased demand for biofuels fueled by high cost, and reduced availability of fertilizers.
  • Strengthening the supply chain through a reduction in imports and diversifying the raw material sourcing mix ensures a reliable supply base.
  • Reorganizing the firm’s focus towards the high margin and sustainable solutions business positions the company favorably to reach the company’s long-term growth objective of 7-10% from FY23-FY27E.

Consensus Estimates: (Source: Market screener website)

  • The closing price of UPL was ₹ 510/- as of 12-May-2022.  It traded at 8/7x the consensus earnings estimate of ₹ 62.1/72.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 974/- implies a P/E Multiple of 13.4x on the FY24E EPS estimate of ₹ 72.6/-

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.”

Time to reimagine supply chain strategies to be future-ready– Tata Motors

Update on the Indian Equity Market:

On Thursday, NIFTY ended 256 points in the green and closed at 17,392. AUTO (+2.2%), FINANCIAL SERVICES (+1.5%), and PRIVATE BANK (+1.5%) were the gainers, whereas, MEDIA (-0.1) was the only loser. Among the stocks, EICHERMOT (+4.4%), COALINDIA (+4%), and M&M (+3.2%) were the top gainers, and CIPLA (-1.2%), HINDALCO (-0.8%), and ONGC (-0.6%) were the top losers.

Excerpts of an interview with Mr. Rajesh Khatri, Vice President-PV Operations, Tata Motors with CNBC TV-18 on the 18th of April 2022:

  • Covid-19 has affected global supply networks all across the world, particularly in the auto industry, which is currently recovering from a supply chain shock. The worldwide chip scarcity is still wreaking havoc on the automotive industry in particular. Lockdowns in Shanghai hampered supply, and consignments are now lying at airports. Geopolitical threats, on the other hand, have yet to be felt on the ground. The effects of the war on the automobile industry are yet unknown.
  • The company feels it is time to reconsider its strategic goals. Previously, supply chains were centered on cost optimization, with the goal of sourcing items at the lowest feasible price as quickly as possible. To be future-ready, the company believes that it needs a more agile, productive, robust, digital, and sustainable supply chain.
  • The company believes that adopting a digitally integrated value chain in conjunction with a collaborative approach will be more effective, whereas proactive risk management will prepare organizations for any uncertainties that demand a total supply chain transformation.
  • The company is attempting to increase visibility across the entire value chain to identify any potential risks. As a result, the firm has mapped all of its suppliers and locations to build a Supplier Grid, which is monitored to better analyze risk and take preventative steps.
  • In addition, the firm is diversifying its supplier risks rather than depending on a single supplier, which will assist the company to gain flexibility, dependability, and reliability within the supply chain.
  • To address the chip availability issue, the company is designing electronic components with catalog chips and developing alternate architecture with next-generation chips.
  • The company is utilizing AI (Artificial Intelligence) to create a digital control tower for simulating supply scenarios to predict supply chain risks.
  • No big investments are needed for the supply chain measures.

Asset Multiplier Comments:

  • The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. We believe, the company’s supply-side issues and commodity headwinds stabilize gradually. The company continues to address the supply chain bottlenecks via a strategic approach which will augur well for the company in the future.
  • We expect the company to benefit from the improving consumer demand for Passenger vehicles and Electric vehicles with the receding Omicron effect, the launch of new products.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of TATAMOTORS was ₹ 440 /- as of 21-Apr-2022. It traded at 20x/11x the consensus earnings estimate of ₹ 22/41 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 547 /- implies a P/E Multiple of 13x on the FY24E EPS estimate of ₹ 41/-

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.”

Revenue growth expected to pick up in FY24-25E  – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY settled 150 points lower at 17,807 (-0.8%). HDFCBANK (-3.6%), HDFC (-3.3%), and HDFCLIFE (-2.4%) were the top losers. COALINDIA (+3.1%), NTPC (2.6%), and TATASTEEL (+1.9%) were the gainers. Among the sectors, IT (-1.6%), FINANCIAL SERVICES(-1.6%), and PRIVATE BANK (-1.3%) led the losers. PSU BANK (+2.0%), METAL (+1.4%), and OIL&GAS (+1.0%) led the gainers.

Excerpts of an interview with Mr. R Madhavan, Chairman, and Managing Director, Hindustan Aeronautics (HAL) with CNBC-TV18 on 5th April 2022:

  • The company recorded peak revenues of Rs 240,000 mn in FY22.
  • The projects currently undertaken will fructify only in FY24E and FY25E. Hence the company expects moderate growth of 6-7% for FY23E mostly through the repairs and overhauling (ROH) route. Beyond that the company expects revenue growth to be 9%, and 12% for FY24E and FY25E respectively because of new projects coming in place.
  • All the projects which include Light Combat Aircraft (LCA) Tejas, helicopters (Light Utility Helicopters (LUH) and Light Combat Helicopters (LCH)), and the Hindustan Turbo Trainer-40 (HTT-40) are indigenous. The IP (Integrity pact) for helicopters lies with the company (HAL) while the IP for LCAs lies with the DRDO.
  • The company received two new orders from the Ministry of Defense for a consideration of Rs 38,870 mn.
  •  The company is looking at various options for fundraising, as it wants to move away from the current product profile that they have. It is looking at Boeing, Civil MRO (maintenance), and Passenger to Freight conversion business. The company is also looking at partnerships for the design and development of engines for helicopters.
  • Safran Aircraft’s partnership is for the engines. The company expects to secure a financial partnership with a private player for their 10-12 tonne helicopters for the design, development, and manufacture of helicopters.
  • HAL expects the order book by the end of FY22 to be more than Rs 1,000 bn. Helicopter orders expected by the company are for 200 LUH, 140 LCH, and an order for 70 HTT-40 turbo trainers for approximately Rs. 70,000 to 80,000 mn.

Asset Multiplier Comments

  • HAL’s marquee projects, such as the LCA Tejas and LCA and LUH helicopters, are slated to play a key part in India’s transition to Atma Nirbhar Bharat for defense. The company also intends to make significant strides in the International market with LCA Tejas and their other products.
  • We believe that their order book of Rs 792,290 mn as of 3QFY22 and the expected order book visibility as stated by the company reiterates the revenue expansion story. Moreover, HAL’s focus on indigenization of components, systems, and accessories is expected to result in cost savings supporting the margins and profit.

Consensus Estimate: (Source: investing and tickr websites)

  • The closing price of HAL was ₹ 1,550/- as of 6-April-2022. It traded at 14x/ 12x the consensus earnings estimate of ₹ 109/ 126/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,824/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 126/-

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 hshould 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 (7th-11th March)

Technical talks

NIFTY opened the week on 7th March at 15,867 and ended at 16,630 on 11th March. NIFTY regained 2.4% throughout the week. The next support and resistance levels for the index would be 16,800 and 16,400 respectively.

All the sectoral indices gained this week, with Media  (+6.7%), Pharma (+6.3%), and IT (+3.4%) being the gainers.

Weekly highlights

  • Early in the week, Wall Street indices plummeted as oil prices soared to their highest levels since 2008, above $130 per barrel, owing to the ongoing conflict between Russia and Ukraine. Asian stocks followed the lead of their Wall Street counterparts.
  • The threat of a US and European ban on Russian products, as well as a delay in Iranian talks, triggered a massive stagflationary shock for international markets on Monday, sending oil prices soaring by more than 10%.
  • Global oil prices fell on Wednesday by the most in nearly two years after OPEC member the United Arab Emirates said it supported pumping more oil into a market roiled by supply disruptions due to sanctions on Russia. Brent and Crude WTI closed at USD 112.67 /barrel, USD 109.33/barrel respectively.
  • Indian Insurance monthly data for February 2022 was released during the week, the industry’s new business premium rose 27% over the previous month to Rs 27,465 crore in February 2022, 22% higher on a YoY basis.
  • The International Monetary Fund indicated that the war in Ukraine has sent a wave of more than 1 mn refugees to neighboring countries while triggering unprecedented sanctions on Russia. The US banned Russian oil imports while Britain would slowly phase out the imports.
  • The domestic market also witnessed a heavy sell-off early in the week however, the mood was reversed as the results of the state election turned positive for the market, and oil prices started cooling off.
  • US consumer prices surged in February 2022, culminating in the largest annual increase in 40 years, and inflation is poised to accelerate further in the months ahead as Russia’s war against Ukraine drives up the costs of crude oil and other commodities.
  • Japanese household spending rose for the first time in six months in January on a year-on-year basis, largely because of weakness in the prior year, even as the fast spread of the COVID-19 Omicron variant likely weighed on consumption later in the month.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs 246,884 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 177,291 mn.

Things to watch out for next week

  • The markets will react to the FOMC meeting and the interest rate decision slated to come during this week.
  • By March 15th, companies are expected to file their advance tax that would signal the expected earnings of the listed companies in upcoming quarters.
  • The market will focus on the reduction of commodity prices and diplomatic development between Russia & Ukraine.
  • The market will also focus on inflation data to be released in India & the US, and the US Fed meeting is scheduled for next 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.”

 

Biocon Biologics to launch an IPO by FY24E – BIOCON

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,605 (-1.1%). Among the sectoral indices, AUTO (-3.0%), PRIVATE BANK (-2.4%), and BANK (-2.3%) closed lower while METALS (+4.1%), MEDIA (+1.9%), OIL & GAS (+1.2%) closed higher. Among the stocks, COALINDIA (+8.5%), HDFCLIFE (+7.0%), and SBILIFE (+5.7%) were the top gainers while MARUTI (-6.0%), DR REDDY (-5.2%), and BAJAJ AUTO (-4.6%) were among the top losers.

Excerpts from an interview of Mrs. Kiran Mazumdar Shaw, Chairperson (BIOCON) with Economic Times dated 1st March 2022:

  • Acquiring Viatris’s Biosimilar business accelerates the company’s presence in the commercial space in the developed markets. The business will be transferred to Biocon Biologics, the biosimilar arm of the company.
  • The company has 7 molecules launched in the global markets and another 14 molecules are under development.
  • The advantage that the company has in the Biologics segment over its competition is that they are fully integrated end-to-end play- manufacturing and R&D. The management believes that with manufacturing, R&D, and the increased scale due to the acquisition of Viatris, they have higher negotiating power to sign bigger deals.
  • Biosimilars is a very complex business and comparatively young segment, hence early movers have an advantage.
  • The deal will be financed using a mix of debt and equity, also the company has hinted at a possibility of an IPO in the future.
  • The management expects the new venture to generate a lot of cash which would help the company with the payback.

Asset Multiplier comments:

  • While the acquisition of Viatris biosimilar gives the company access to a well-established front end in the developed market, it has a significant impact on the company’s near-term financials.
  • We believe the firm is well-positioned for growth, particularly in the biosimilars category, due to the ramp-up of interchangeable Semglee and new launches such as Bevacizumab, Aspart, and Adalimumab in both established and emerging countries.

Consensus Estimate: (Source: Market screener website)

  • The closing price of BIOCON was ₹ 345 as of 2-March-2022. It traded at 57x/34x/23x the consensus earnings per share estimate of ₹ 6/ 10/ 15/ for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 407 /- which implies a PE per share multiple of 27x on FY24E EPS of ₹ 15/-.

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.”