FMCG

Gold should be viewed as an investment – S Subramaniam, Titan

Update on the Indian Equity Market:

On Thursday, the Monetary Policy Committee (MPC) of RBI decided to keep the policy repo rate unchanged and persevere with the accommodative stance as long as necessary to revive growth, while ensuring that inflation remains within the target.

The broad market index, Nifty50 ended the day marginally high. PSU Bank (+2.6%), Media (+1.6%) and Pharma (+1.3%) were the top gainers while FMCG (-0.6%), IT (-0.4%) and Realty (-0.3%) were the sectoral losers for the day. Amongst the stocks, Eicher Motors (5.4%), IndusInd Bank (+4.6%) and Zee Entertainment Enterprises (+3.9%) were the biggest gainers. Tata Motors (-2.9%), Cipla (-2%) and Titan (-1.6%) ended the day in the red.

Gold should be viewed as an investment – S Subramaniam, Titan

Excerpts of an interview with S Subramaniam, CFO, Titan. The interview was published in Livemint on February 6, 2020:

  • Titan recently released the 3QFY20 result. The numbers were largely in line with the street estimates and margins were better than expected.
  • Although the company is definitely gaining market share, it has been a bumpy ride. The months of October and November were pretty good but December was tough, so the market is a little shaky.
  • The CFO is hopeful of doing well in the coming quarter as well, the initial guidance of 11-13 percent growth in the jewelry segment has been maintained.
  • Growth in the jewelry business was guided at 2.5x by 2023, which may be at risk, considering that kind of growth is not happening. People looking at gold as an investment in addition to it being a jewelry item would help achieve that kind of growth.
  • The industry has been in pretty bad shape for a variety of reasons. The month of December saw a surge in the gold prices, which did not help. A lot of the jewelers are undergoing financial crises with a pretty bad liquidity situation. Those with adequate funds can possibly do better. Else this pain will continue industry-wide for some more time.
  • Moving to other business segments, the watch segment, World of Titan has witnessed 11 percent growth in the quarter. Although the growth was phenomenal, opportunity was missed on the trade channel because of stocking and in the e-commerce channel. 10 percent of the revenues come from the e-commerce segment which has been slowing down.
  • Margins would be an area of concern for the watch segment. It is expected to perform better including in the next quarter (Q4).
  • The expectation is that margin-wise, the company performance would be better in FY20 than FY19.
  • Growth has been challenging for the eyewear segment. The profitability challenges continue, which need to be addressed.

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

  • The closing price of Titan was ₹ 1259/- as on 6-February 2020. It traded at 69.6x/ 54.5x/ 45.6x the consensus earnings estimate of ₹ 18.1/ 23.1/ 27.6 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price of ₹ 1204 /- implies a PE multiple of 44x on FY22E EPS of ₹ 27.6 /-

 

‘Hindustan Unilever’s offer to pay tax benefit amount back to the government was unprecedented’

Update on the Indian Equity Market:

On Monday, Nifty closed 0.1% higher at 12,261. Among the stocks, Tata Motors (+4.3%), Eicher Motors (+2.6%) and UPL (+1.8%) were the gainers. Yes Bank (-1.2%), ICICI Bank (-0.9%), and SBI (-0.8%) ended in the red. Auto (+1.5%), Metal (+1.2%) and Media (+0.7%) were the top sectoral gainers. PSU Banks (-1.2%) was the top loser.

Excerpts from an interview with Mr Sudhir Sitapati, Executive Director:Foods & Refreshment, Hindustan Unilever Ltd

  • HUL has been around for 100 years and there have been major ups and downs. So regardless of what the situation is emerging, every year is different in India. It is not unique to this year or last year. Every year has its challenges, but HUL has always got some trick up its sleeves somewhere to compete in the market.
  • Taxes on a lot of products were reduced with GST but they were not able to implement the price reductions on the day on which the taxes were reduced because they had stocks in the factory, in the warehouse and they, cannot be transporting stocks all over this country.
  • What HUL did was it calculated the tax benefit that it would get that it could not pass on to the consumers and voluntarily Sanjiv Mehta, chairman, offered to pay that amount to the government.
  • It was meant to be passed on to the consumers. As they couldn’t pass it on to the consumers and what they couldn’t pass on doesn’t belong to them is what they thought and it goes back to the government.
  • Through the history of HUL, it has balanced between top-line growth and bottom-line growth depending on the circumstance.
  • HUL is famous for being a marketing powerhouse. What is less known about HUL is that it’s a cost powerhouse. As long as there is cost, it’s their job to go after it. Margins are a consequence of that.
  • The company’s philosophy has been to chase consumer value and to do it in the most efficient manner and they reckon that fixed costs are roughly half the cost and half the costs are variable. So the more you grow volumes the more your margins expand.
  • The fundamental reason for GSK consumer acquisition is different. The real reason is that the HFD category’s penetration is 25% if we take the weighted average penetration of HUL today and it goes back to the question on what the mix of growth for HUL is. Sometimes it has been top line, sometimes it has been bottom-line. If we take categories and their penetration on one side and the growth on the other, the general rule of thumb in consumer goods marketing is that the lower the penetration, the faster the growth.
  • In the ’90s when their personal products were the engine of growth, they were all 25-sub 30% penetration. Now all those categories are 80-90% penetration. So the primary thing that GSK does is it takes down the weighted penetration.
  • It is not about getting extra distribution, it is not about the cost-saving. All that will happen. It is about the fact that the weighted average penetration of HUL will come down with such a large category. That is the real reason for GSK acquisition.
  • HUL has been doing extremely well for the last decade at least and the milestones or the goals that they have continued to remain the same. They continue to grow fast, markets have ups and downs. This is not the first down or up they have seen in the market. So life is normal for them.

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

  • The closing price of HUL was ₹ 1,939 /- as of 30th December 19. It traded at 58x/ 49x/ 42x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.2/39.7/46.0 respectively.
  • Consensus target price of ₹ 2,137/- implies a PE multiple of 46x on FY22E EPS of ₹ 46.0/-.

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/-.

Demand has been quite decent: Subbu Subramaniam, Chief Financial Officer, Titan Co. Ltd

Update on the Indian Equity Market:

On Monday, NIFTY50 closed -0.13% higher at 11,936. NIFTY50 gainers includes BPCL (+2.2%), Axis Bank (+2.1%) and Adani Ports (+2.0%). NIFTY50 losers includes TCS (-3.0%), HCL tech (-1.6%) and Cipla (-1.3%). Auto (+0.8%), Metal (+0.5%) and Financial Services (+0.4%) were the top gainers and Realty (-1.6), IT (-0.9%), and Media (-0.8%) were the top losing sectors.

Excerpts from an interview with Mr. Subbu Subramaniam, CFO, Titan Co. The interview was published in Livemint dated 05th December 2019.

  • Titan has embarked on Omni channel in five flagship stores in Bengaluru. They are planning to adopt Omni channel across all their divisions. Their websites are done; their e-commerce platforms are quite robust now.
  • The Omni part has just about started; they are starting with the watch division. They have started it with Bengaluru, but this could get rolled out fairly quickly.
  • Even as they start rolling out for the watch division across the country, they may  start in a couple of months in Tanishq, as well in jewelry division.
  • So, Omni is going to be the way they will all do business. People can look at a product anywhere, whether it is online or offline, and choose to take the goods from anywhere. So, that is the strategy, it is more of an enabler.
  • Jewelry margins depend to a large degree on top-line growth, because that is where economies of scale work and the operating leverage kick in. On a gross margin basis, they are generally in the same ballpark as they have been.
  • As they stand right in the middle of the quarter, he restrained from giving any number at this point in time, but EBIT should generally, be in the ballpark of growth – margins that we have been having in the financial year.
  • Demand has been quite decent. November itself has not been bad. Despite Diwali being a little early, demand has been generally fine. Of course, they also had more promotions, which was required under the circumstances. The wedding season has been quite decent.

Consensus Estimate (Source: market screener, Investing.com website)

  • The closing price of Titan Co. was ₹ 1,175/- as of 09-December-19. It trades at 68x/ 49x/ 41x the Consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 18.7/ 23.9/ 29.0 respectively.
  • Consensus target price of ₹ 1,216/- implies a PE multiple of 42x on FY22E EPS of ₹ 29/-

VIP Industries: Revenue growth target of 5-10% for next quarter as well as for the whole year

Update on the Indian Equity Market:

Markets started the week marginally higher as Nifty closed the day 5 points higher to 11,912. 6 out of 11 sectoral indices closed the day on a positive note with MEDIA (2.8%), PVT BANKS (1.4%) and BANK (1.3%) led the gains while IT (-0.5%), FMCG (-0.5%) and AUTO (-0.2) were the laggards. Among the stocks, ZEEL (6.2%), YESBANK (5.7%) and BPCL (2.8%) led the index higher whereas NESTLEIND (-2.4%), HEROMOTO (-2.1%) and HINDALCO (-2.1%) were the worst-performing stocks.

VIP Industries:  Revenue growth target of 5-10% for next quarter as well as for the whole year

Key takeaways from the interview of Mr Dilip Piramal, Chairman, VIP Industries dated 11th November 2019 published in LiveMint:

  • Mr Piramal started the interview with his remarks on the 2QFY20 performance of VIP Industries. He mentioned that though revenues were lower, EBITDA was higher due to two reasons. First, due to the implementation of IND-AS 116, the EBITDA went up by 6 basis points. Second, the company also witnessed improvement in gross margins which contributed to the EBITDA growth.
  • The company reported YoY growth of 3% in revenues. He said that he was not surprised by the lower growth in revenues as it aligns with the general trend in the economy.
  • About the revenue growth in the future, he said that things are slightly better than before. The company is looking to achieve between 5-10% growth in this quarter and for the whole year. This is lower as compared to the historical growth rate of around 25%.
  • On being asked about whether the customers are up-trading, he said that there is not much of a change. In fact, the lower end is increasing faster for about nearly one year.
  • He mentioned that there is no increase in competition for the company. The industry is very small with two bigger players and one quite small player who is very competitive in the lower end. It is more like a segment-wise competition. The competitive pressure is the same.
  • After the implementation of Goods and Service Tax (GST), the market share has moved from unorganised players to the organized players. The company achieved a growth of 25% in FY18 largely on the back of implementation of GST.

Consensus Estimate (Source: market screener website)

  • The closing price of VIP Industries was ₹ 437/- as of 11-November-19. It traded at 37x/ 30x the consensus EPS for FY 20E/ FY 21E of ₹ 11.8/ 14.6 respectively.
  • Consensus target price of ₹ 509/- implies a PE multiple of 35x on FY22E EPS of ₹ 14.6/-.

“Titan’s market share gain story intact”- S. Subramaniam, chief financial officer, Titan Co. Ltd.

Update on the Indian Equity Market:

On Thursday, NIFTY closed 0.42% higher at 12,016. Infratel (+3.5%), Sun pharma (+3.4%) and IndusInd Bank (+2.8%) were the top NIFTY50 gainers. UPL (-7.8%), Yes Bank (-3.6%) and GAIL (-3.5%) were the top NIFTY50 losers. Among the sectors, NIFTY METAL (+1.1%), NIFTY REALTY (0.9%) were the sectoral indices that closed positive. NIFTY PSU banks (-1.5%) and NIFTY AUTO (-0.2%) were the worst performing sectors.

Excerpts from an interview with S. Subramaniam, chief financial officer, Titan Co. Ltd broadcasted on CNBC on 7th November 2019.

  • June onwards it has been really tight and the entire industry has been in turmoil. As far as are we are concerned, our market share gains story is intact but it is unfortunately in a very declining jewellery market.
  • Even from Dussehra to Diwali, which is the festive season, for 33 days they have grown 10%.
  • They are in tough times. Gold prices have been high but, importantly, consumer sentiment has not been encouraging. consumers are trying to save money. They don’t want to invest too much.
  • Gold coins sales being little higher, which means that people who are investing in the category also are looking at it more from the savings perspective rather than actually spending money on jewellery as adornment.
  • They are now looking at 11-13% growth in second half. They also have a higher base but 10% in the festive season was not bad at all under the circumstances.
  • Typically when gold prices do go up there is pent up demand when it comes to the wedding part of the segment, people do have to finally end up investing. So, to some extent we could see a shift on a month-on-month or quarter-on-quarter basis.
  • Even the millennials when they get married, they have exactly the set of jewellery that otherwise would have been bought and if anything the design quotient is much higher these days.
  • They have seen east do quite well, they have seen south do relatively quite well, but the region that gets impacted the most has been west.
  • FY20 is expected to be a fairly bad year. They are not going to meet their 20% target and they have given that guidance also now. Their goal for the next six months is 11-13%.
  • One of the biggest drivers in the last three years has been the gold exchange programme. Today it accounts for almost 40% of the revenues. They need more growth drivers like that.
  • They do not want to have any quarter where they have less than 10% margin. They are well within their own internal plans as far as the margin for the watch business is concerned.
  • They are trying to even it out better than having 18% in the first half and then going down to 7-8% in the second half. So, in FY20, we should look at second half to be more than 10%. So, it is a conscious decision and, therefore, it is not really a fall.

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

  • The closing price of Titan was ₹ 1,166/- as of 7th November 2019. It traded at 63x/ 48x/ 39x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 18.6/ 24.4/ 29.7 respectively.
  • Consensus target price of ₹ 1,246/- implies a PE multiple of 42x on FY22E EPS of ₹ 29.7/-.

Godrej Consumer Products: On track for a gradual recovery in volume growth

Update on the Indian Equity Market

On Thursday, NIFTY closed 79 points lower to 11,234 reversing Wednesday gains. Result season began today with TCS and IndusInd bank. Market movements will be influenced by quarterly financial performances. Amongst the NSE 50, top gainers were BHARTIARTL (+4.4%), GRASIM (+3.7%), RELIANCE (+2.7%) while INDUSINDBK (-6.0%), YESBANK (-5.4%) dragged index down. In the sectoral indices, Pharma remained stable; while all others saw a decline. Banks (-2.7%), Realty (-2.1%), Financial Services (-1.9%) were the biggest losers.

Godrej Consumer Products: On track for a gradual recovery in volume growth

Key takeaways from the interview of Mr Vivek Gambhir, MD & CEO, Godrej Consumer Products Limited (GODREJCP); dated 9th October 2019 with CNBC TV18:

  • GODREJCP expects to deliver higher single-digit volume growth in 2HFY20 if the recovery sustains. There is a Month on Month (MoM) volume growth since July 2019.  The demand in 2QFY20 was stable Quarter on Quarter (QoQ).
  • GODREJCP has been launching new products in the insecticides segment. It expects to turnaround this segment on the back of new innovations. 
  • In the soaps segment; GODREJCP has maintained the price levels in the competitive pricing environment.
  • Margins are volume-driven. The company is positive on maintaining margins as long as the volume growth sustains.
  • GODREJCP enjoys a strong market position of the ‘Ezee’ and ‘Genteel’ brands in the liquid detergents segment. It intends to capitalize on the market leadership and scale up the presence in the liquid detergents and specialist laundry solutions over the next few years.

Consensus Estimate (Source: market screener website)

  • The closing price of GODREJCP was ₹ 680/- as of 10-October-19. It traded at 43x/ 36x/ 33x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 16.0/ 18.7/ 20.9 respectively.
  • Consensus target price of ₹ 688/- implies a PE multiple of 33x on FY22E EPS of ₹ 20.9/-

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.

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)/Tech M expanding its collaboration with telecommunication giant AT&T

Update on Indian market: On Monday, Nifty ended above 11,000 mark led by a rally in the heavyweight financial stocks. Yes Bank, Maruti Suzuki, L&T were among the biggest gainers in Sensex, surging up to 4.2%. HCL Tech, Infosys, Tech Mahindra emerged among the biggest losers, shedding up to 1.5%

Varun Beverages raise Rs 9,000 mn via Qualified Institutional Placement (QIP)

VBL completed its QIP of Rs 9,000 mn on 4th Sept 2019. VBL approved the allotment of 1,47,05,882 equity shares of Face Value Rs 10/- each to the eligible qualified institutional buyers at issue price of Rs 612 per equity share aggregating to ~ Rs 9,000 mn pursuant to the Issue. Total Borrowings as on Jun-19 was Rs 32,533 mn and after this issuance, the debt will reduce to Rs 23,533 mn. VBL plans to use the QIP proceeds to repay the debts, this will reduce the interest cost and may help PAT margins to expand.

Tech M expanding its collaboration with telecommunication giant AT&T

Tech Mahindra Ltd., a leadingprovider of digital transformation, consulting and business reengineering services and solutions, announced expansion of its strategic collaboration with AT&T to accelerate AT&T’s IT network application, shared systems modernization and movement to the cloud. Tech Mahindra will assume management of many of the applications which support AT&T’s network and shared systems.

Tech M’s deal with AT&T is a multi-year agreement which will enable AT&T to focus on core objectives, including having the most advanced software-defined 5G network, and migrate the majority of its non-network workloads to the public cloud by 2024. This comprehensive program will help drive sustainable operational improvement across the network and software development domains.

When asked about the deal Mr. Jon Summers, CIO of AT&T Communications stated that their agreement with Tech Mahindra is another step forward in delivering greater flexibility across their IT operations. This includes optimizing core operations and modernizing internal network applications to accelerate innovation as AT&T march forward to their goal of a nationwide 5G network by the first half of 2020. He also mentioned that this collaboration with Tech Mahindra will ultimately help accelerate its network operations and overall technology leadership.

MD & CEO of Tech M, Mr. C P Gurnani mentioned that this deal is a step towards elevating Tech Mahindra’s long-standing strategic relationship with AT&T to help make the vision of a 5G-enabled future, a reality. As part of TechMNxt charter, Tech Mahindra is betting big on 5G — the network of the future and is focused on technology-led innovation to enable digital transformation for their customers globally.

According to the management, Tech M and AT&T aim to improve the agility in rolling out and supporting networks of the future, while improving returns on investment through technology-led transformation AT&T and Tech Mahindra will integrate several world-class technologies and platforms in areas like artificial intelligence, DevOps, data analytics and 5G.

Consensus Estimate (Source: marketscreener website)

The closing price of VBL was Rs 623/- as of 09-September-19. It traded at 43x/33x/25x the consensus EPS for CY 19E/CY 20E /CY 21E EPS of Rs 14.7/19.0/25.7 respectively· Consensus target price of Rs 720/- implies a PE of 28x on CY21E EPS of Rs 25.7 

The closing price of Tech M was Rs 720/- as of 09-September-19. It traded 15.2x/13.6x/12.3x the consensus EPS for FY20E/FY21E/FY22E EPS of Rs 47.5/53.1/58.7 respectively. Consensus target price of Rs 754/- implies a PE of 14.1x on FY21E EPS of Rs 53.1

VIP Industries Ltd – Weak Yuan positive for VIP

Dated : 4th Sept 2019

Update on Indian market:

Domestic equity indices BSE Sensex and NSE Nifty fell over 2 percent on Tuesday. NSE Nifty ended at 10,798, down 225 points or 2.04 %. Market sentiment got impacted due to subdued auto numbers and a set of macroeconomic data like GDP data showing the country’s growth rate slumped for the fifth straight quarter to hit an over six-year low of 5 %. Growth of eight core industries dropped to 2.1 percent in July, mainly due to a contraction in coal, crude oil, and natural gas production. PMI data showed the country’s manufacturing sector activity declined to its 15-month low in August. The IHS Markit India Manufacturing Purchasing Managers’ Index (PMI) declined to 51.4 in August, its lowest mark since May 2018, from 52.5 in July. The Indian Rupee fell by 64 paise to reach 72 mark against the US dollar and sustained outflows by foreign portfolio investors (FPI). Gainers among Nifty50 stocks were Tech M (1.4%) and HCL Tech (0.5%) while the losers were Tata Steel (-4.5%), Ultratech and ICICI Bank(-4.4%).  

 
VIP Industries Ltd – Weak Yuan positive for VIP

Key highlights of the Interview by Mr. Dilip G Piramal, Chairman of VIP Industries on CNBC TV18

VIP Industries is into manufacturing of luggage and travel accessories and imports less than 50% of the raw material from China. The Chairman of the company in the recent interview stated that a weakening yuan helps.

He also mentioned that:

1.    August and September traditionally weakest months of the year.

2.    Luggage is a narrow segment with limited players, so they don’t see contract manufacturing or single-brand retail having a significant impact on competition.

3.    Weakening of Rupee will benefit as VIP is also getting into exports gradually.

4.      Demand has not picked up yet, VIP Ind is in wait & watch mode. No plans for price cuts to propel demand.

5.      Due to China-US trade war Chinese manufacturers have become more dependent on India which benefits the company to get better schemes and offers from them.

6.      100% Foreign Direct Investment in contract manufacturing will improve the Indian economy gradually and in 5-10 years a lot of the low-end manufacturing from China will move to India because India is a country with a very large population. A lot of the manufacturing is moving already from China to Vietnam, Cambodia but these countries do not have so much of the population. There are so many large industries at the lower-end, readymade garments being the largest and all other consumer goods industries like shoes, toys, everything else will move out of China gradually.

Consensus estimates (Marketscreener website):

·       The stock price was Rs 422/- as of close price of 3rd September 2019 and trades at P/E multiple of 36x / 29x the consensus EPS of Rs 12.2/ 15.0 for FY20E /21E respectively. 

·       Consensus target price is Rs 500/- implying P/E of 33x for FY21E EPS of Rs 15.0/-