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This Week in a nutshell (Oct 11th to Oct 14th)

This Week in a nutshell (Oct 11th to Oct 14th)

Technical talks

NIFTY opened the week on 11th Oct at 17,895 and closed on 14th Oct at 18,339. During the week, NIFTY gained 2.5 percent and saw a bullish candle formation on the weekly scale. At the current juncture, support for Nifty is placed at 17,881 and 17,685 zone, while resistance can be seen around 18,365 levels.

On the sectoral front, Nifty PSU Bank, Auto and Metal index were the top gainers while Nifty IT was the only loser this week.

Weekly highlights

  • The week started with TCS quarterly numbers. The IT sector was in red as the numbers fell short of analysts’ expectations.
  • An investment worth Rs 75,000 mn by TPG Rise Climate and Abu Dhabi’s ADQ in Tata Motors newly formed subsidiary for the EV business uplifted the market sentiments.
  • On Wednesday:
    • Government released retail inflation data. It declined to 4.35 percent in September, mainly due to lower food prices. Consumer Food Price Inflation (CFPI) for September stood at 0.68 percent in September, compared with 3.11 percent in August.
    • Industrial production grew 11.9 percent in August mainly due to a low-base effect and good performance by manufacturing, mining and power sectors that surpassed the pre-COVID level.
    • IMF retained India’s growth outlook for both the current and the next fiscal. It pegs India’s real GDP growth at 9.5 percent for FY22, 8.5 percent for FY23, and 6.1 percent by FY27.
  • Government removed restrictions on domestic flight capacity and will now be allowed to operate at full capacity from October 18. The decision to ease the norms was taken after reviewing the current air travel demand.
  • RBI kept repo and reverse repo rates unchanged at 4 per cent and 3.35 per cent, respectively. The central bank also retained the GDP growth forecast at 9.5 per cent for the FY22.
  • The RBI Governor said that with the worst of the second wave behind us and substantial pick-up in COVID-19 vaccination giving greater confidence to open up and normalise economic activity, the recovery of the Indian economy is gaining traction. He also cautioned about the elevated global crude oil, other commodity prices, combined with acute shortage of key industrial components and high logistics costs, are adding to input cost pressures.
  • Buying was seen in auto, metal, energy and banking sectors. Strong business preview numbers and favourable credit growth data ahead of 2QFY22 numbers boosted the morale further.
  • US market started the week in red due to worries about surging energy prices, jammed-up supply chains and companies failing to pass on higher costs to consumers. However, better than expected quarterly earnings reports from Wall Street banks and iPhone chipmaker Taiwan Semiconductor Manufacturing Company lifted the mood.
  • The foreign institutional investors (FII) bought equities worth of Rs 10,380 mn, while domestic institutional investors (DIIs) sold equities worth of Rs 32,950 mn.

Things to watch out for next week

  • The quarterly earnings season will gain momentum next week as the domestic market awaits September quarter results. With the expectation of a strong recovery in corporate earnings, banking will be the key sector under focus in the coming days.
  • The US will announce its crude oil inventories, which is likely to impact the global crude supplies and India’s import bill.
  • Also, the initial jobless claims, US goods and services manufacturing purchasing managers’ index (PMI) would be on the radar of market participants, guiding the future course of action.

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.”

Another price hike if gas prices rise further – Somany Ceramics

Update on the Indian Equity Market:

On Wednesday, NIFTY ended higher at 18,162 (+0.9%) as it closed near the intraday high level of 18,198. Among the sectoral indices, AUTO (+3.4%), METAL (+1.5%), and IT (+1.2%) ended higher, whereas REALTY (-0.2%) was the only sector which ended lower. Among the stocks, TATAMOTORS (+21%), M&M (+5.2%), and TATACONSUM (+4.3%) led the gainers while MARUTI (-2.6%), ONGC (-2.2%), and SBILIFE (-1.8%) led the losers.

Excerpts of an interview with Mr. Abhishek Somany, MD, of Somany Ceramics (SOMANYCERA) with CNBC TV18 on 12th October 2021:

  • About 1000 plants that manufacture ceramics and are located in Morbi, Gujarat have decided to increase prices as the gas prices have gone up. There has already been a price increase this week and there will be a further price increase in the next 15-20 days. When this happens, Somany Ceramics will increase prices again.
  • The gas price constitutes 25-28% of the company’s cost. The industry has increased price by ~Rs 2-3 a square foot. The industry passed on a reasonable increase in gas prices. As the gas prices stabilise, the industry will be able to pass on 80+% of the prices to its customers.
  • The company is at 100% capacity utilisation though the prices have gone up. The demand is back, at least for brand new players. It is good news for the industry as the demand for the real estate sector has picked up.
  • Tile is not a very large renovation market. About 18-20% is used in renovation, rest is used in the new application.

 

Asset Multiplier Comments

  • As the demand for real estate is picking up, this will prove as a tailwind for Somany Ceramics in the near to mid-term, as the company’s product (tiles) is used largely in new applications.
  • The company’s margins may improve as the raw material prices stabilise, along with an increased price of company’s products.

Consensus Estimate: (Source: market screener website)

  • The closing price of SOMANYCERA was ₹ 830/- as of 13-Oct-2021.  It traded at 33.7x/23.5x/18.3x the consensus earnings estimate of ₹ 25/35/45 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 810/- implies a PE multiple of 17.9x on FY24E EPS of ₹ 45/-.

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 (Aug 23rd to Aug 27th)

This Week in a nutshell (Aug 23rd to Aug 27th)

Technical talks

NIFTY opened the week on 23rd Aug at 16,450 and closed on 27th Aug at 16,705. This is the highest closing ever for the index. The index made a weekly gain of 2.9%. On the technical front, 16,650 will act as immediate support and if this level is broken, the Nifty may slide to 16,575-16,500 levels. On the upper side, 16,780 will act as a hurdle. Once the level is breached, the Nifty can move to 16,840-16,900 levels.

Weekly highlights

  • Dalal Street rose to record closing highs on Friday, weekly gains were led by IT (+2.9%), Financial Services (+2.1%) and Pharma sector (1.7%).
  • The midcap index logged its best week in two-and-a-half months. However, weakness in auto sector played spoilsport, keeping the upside in check.
  • The US Food and Drug Administration’s full approval to Pfizer and BioNTech’s coronavirus vaccine rekindled hope and optimism about a quicker recovery from a slowdown caused by the pandemic.
  • Renewed tensions between China and the US, the fear of a rise in the number of Covid-19 Delta variant infections, suicide attacks at the Kabul airport in Afghanistan that killed at least 12 US service members and scores of Afghans and the US central bankers’ annual symposium kept investors cautious around the globe.
  • As the trading week ended, Indian market participants and analysts keenly awaited updates from the annual Jackson Hole symposium in Wyoming for more clarity on the US monetary policy going forward.
  • S. Fed Chair Jerome Powell’s wait-and-see approach in a much-anticipated address on Friday gave US investors and market participants some reassurance that the central bank’s extraordinary efforts to prop up the economy were likely to support riskier assets a while longer.
  • US Stocks gained ground after the release of the text of Powell’s speech, with the benchmark S&P 500 index hitting a record high, while the lack of any new hints on when the U.S. central bank is likely to begin paring bond purchases led Treasury bond yields and the U.S. dollar lower.
  • The foreign institutional investors (FII) sold equities worth Rs 68,333 mn, while domestic institutional investors (DIIs) bought equities worth Rs 63,826 crore. So far in August, FIIs have sold equities worth Rs 76,525 mn and DIIs have bought equities worth Rs 80,782 mn.

Things to watch out for next week

  • Indian Markets – Indian investors are likely to react to the statement made by the US Federal Reserve Chairman Jerome Powell in the Jackson Hole symposium in which he has also hinted about tapering by end of CY21. Investors will also eye 1QFY22 GDP print, auto sales numbers and global cues in coming week.
  • US Markets – Markets will keep an eye on a window into how the Delta variant has rippled through the economy, with the release of the U.S. jobs report for the month of Aug-21, following recent weak readings on consumer sentiment and retail sales. The seven-day average of new reported cases reached about 155,000, the highest in about seven months, Reuters data through Thursday showed.

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.”

 

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

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.”

 

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.4% down at 15,748. Top gainers in NIFTY50 were POWERGRID (+2.3%), CIPLA (+1.5%), and NESTLEIND (+1.3%). The top losers were IOC (-2.4%), ONGC (-2.2%), and HINDALCO (-2.1%). The only sectoral gainers were PHARMA (+0.6%) and FMCG (+0.5%) while the top sectoral losers were PSU BANK (-1.5%), METAL (-1.2%), and PRIVATE BANK (-1.0%).

Aspirational middle class buying from Tier 3,4,5 cities will drive growth- Blue Star

Excerpts of an interview with Mr. B Thiagarajan, MD, Blue Star (BLUESTARCO), aired on CNBC TV18 dated 29thJune 2021:

  • Markets started reopening in first week of June 2021. Since then, demand has been much better than anticipated. The loss of summer sales will still keep the numbers lower than 1QFY20 by almost 25-30%. However, sales in 1QFY22 will be much better than 1QFY21.
  • In January 2021, BLUESTARCO took a price hike of 5-8% due to cost inflation. Despite that, BLUESTARCO had record sales in 4QFY21with 37% YoY growth.
  • BLUESTARCO took a second price hike in April 2021 to the tune of 3-5%. As the company cannot absorb the exorbitant input cost inflation, it plans to take a third price hike in mid-August 2021.
  • Naturally, consumers have migrated to lower end products and may continue to do that due to the several price hikes.
  • Mr.Thiagarajan maintains the guidance of 8-8.5% margins in the cooling products. BLUESTARCO does not want to sacrifice margins to gain volume.
  • Government’s Production linked incentive (PLI)scheme will have a positive impact in coming months.
  • Embracing the technology of aluminium heat exchangers will reduce the costs and increase energy efficiency for AC industry. Auto industry has shifted to this technology while the AC industry has not done so yet.
  • The next energy level change is scheduled for 1st January 2022 which will push up prices by another 7%. For demand to continue to grow at least at 10% CAGR, these cost rationalizationmeasures will have to be taken.
  • For room ACs, delivering 8% EBITDA margin is possible in 1HFY22. 8.5% is the upper target band which may not be possible in the short term.
  • Demand in Tier 1 cities has been worst affected. For BLUESTARCO, Tier 3,4,5 cities form 65% of revenue. This aspirational middleclass segment in Tiers 3,4,5 cities is what will drive the growth going ahead so BLUESTARCO has repositioned itself in line with this expectation.

 

Asset Multiplier comments:

  • Industries across the board have been facing input cost pressures and are trying to pass on the costs through price hikes.
  • However, passing on the entire cost inflation is proving to be difficult in an already sensitive demand scenario.
  • Consumer discretionary items are sensitive to pricing, so companies will have to calibrate pricing based on competitive scenario. Consumers will shift to a lower priced product if the price difference is large.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of BLUESTARCO was ₹ 815/- as of 29-June-2021.  It traded at 44x/ 31x the consensus earnings estimate of ₹ 18.5/ 26.7 for FY22E/23E respectively.
  • The consensus price target is ₹ 819/- which trades at 31x the earnings estimate for FY23E of ₹ 26.7/-

 

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.”

 

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Update on the Indian Equity Market:

Nifty 50 index settled above 15,800 for the first time ever, at 15,812 on Monday. Benchmark indices recovered from the intraday lows and ended marginally higher in the volatile session. Among the sectoral indices, PSU BANK (+0.6%), IT (+0.3%), and FMCG (+0.04%) were the top gainers while REALTY (-1.5%), METAL (-0.7%), and MEDIA (-0.6%) were top losers. Among the stocks, DIVISLAB (+1.5%), TATAMOTORS (+1.5%), and RELIANCE (+1.4%) were the top gainers while ADANIPORTS (-9.3%), COALINDIA (-2.1%), and KOTAKBANK (-1.5%) were the top losers.

Looking at capex of Rs 7000 mn over next 2 years – Century Plyboards

Edited excerpts of an interview with Mr Keshav Bhajanka, Executive Director at Century Plyboards with CNBC TV18 dated 11th June 2021:

  • Demand wise first 10 days of April had shown some revival but the second half of April was difficult and May was weak. It is too early to comment on future demand but it is expected to bounce like last year and 2QFY21E to be back to normal.
  • The raw material pressure has been passed on to the market successfully and is not going to have any meaningful impact but operating leverage will have its effect in 1QFY21. Going forward he doesn’t expect any problem.
  • Margins are expected to be back to earlier levels from the next quarter, provided volumes are back on track.
  • 95 per cent of the sales go through the distribution network. Small and large projects are routed through the distribution channel i.e., distributors, dealers which are located in pan India. It also manages the credit risk as large projects normally have a far higher credit period as compared to retail. ~ 70 per cent in retail and less than 30 per cent in projects.
  • The company supplies materials to Ikea, Godrej, and other companies. They are customers, not competitors, and going forward, will be very valued customers.
  • The company is in expansion mode. Gabon unit was difficult to commission in the past few months but it started commercial operations on February 21. Expansion of Hoshiarpur might be late by a month or two because of the covid second wave which made it difficult to mobilize resources in Punjab. So, Hoshiarpur is expected to commission by 1QFY22E rather than 4QFY21E.
  • Expansion in Andhra Pradesh is delayed due to covid cases. The government is putting a lot of efforts to fight covid and the movement is slower than it was three months ago when everything was moving at a rapid pace. The target was to establish this unit prior to H2FY23E but now it might slightly be delayed.
  • Looking for capex of ~Rs 7,000 mn over the course of next two years and a majority of the expansion to come from internal accruals and rest from borrowings.
  • More than 70-75% of the demand comes from new buildings but not from the builders and the rest of the demand comes from a renovation. As the builder’s hand over unfinished houses to the house owners, demand primarily comes from end customers. Most of the material goes to new homes as opposed to renovation.

 Asset Multiplier Comments

  • Looking at the strong set of annual numbers and robust growth across segments, aided by demand recovery we believe that Century Plyboards has good potential going forward. Strong demand is arising in the MDF segment due to higher acceptance, lower imports with improved demand in respective geographies and higher shipping costs.
  • The medium-term growth outlook remains positive with capacity expansion in place to capitalise on the opportunity.

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

 The closing price of Century Plyboards was ₹ 414/- as of 14-Jun-21. It traded at 30x/26x the consensus EPS estimate of ₹ 13.6/15.7 for FY22E/ FY23E respectively. The consensus target price of ₹ 366/- implies a PE multiple of 23x on FY23E EPS of ₹ 15.7/-.

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.”

 

How to Think About Investing Cash on the Side lines…

With markets reaching new highs, investors are wondering how to invest their cash. When it comes to deploying cash on the sidelines, there are no easy answers. Charlie Bilello wrote these pointers based on his study of US markets. These may be true for other markets as well.

Investing is just a game of odds and the historical probabilities up until now suggest the following: If you sit in cash over a 1-year period, you have a 30% chance of outperforming the market. If you sit in cash for 10 years those odds fall to 16%. Over 25-year periods, cash has yet to beat the US stock market.

Sitting in cash has an opportunity cost on average, and that opportunity cost increases with time (8% over 1-year periods, 1,297% over 25-year periods). If you are waiting for lower prices to get in, chances are you will get them (74% of the time), but you also have to be prepared to wait forever (26% of the time there’s no lower low). If you are waiting for a bear market (-20%) or more to get in at lower prices, you may never get that chance (only happens 21% of the time).

Slowly wading into the market via dollar-cost averaging has beaten a lump-sum only 32% of the time over 1-year periods and 27% of the time over 3-year periods. The longer the time period you spread that initial investment over, the lower your odds are of outperforming a lump sum today.

Timing the market based on valuation is not an easy task, and you have to be prepared to sit in cash for many years or even decades depending on your methodology. Had such a strategy been applied historically, it would have lagged buy-and-hold because equities with high valuations can still have positive (and cash-beating) returns over time.

Timing the market based on interest rates is not a strategy supported by the data which shows almost no correlation between the two variables. The notion that rising rates are “bad” for equities is a myth.

Does that mean everyone should just close their eyes and invest all their cash on the sidelines today in a lump sum? Bilello concludes most certainly not. Successful investing is about psychology more than anything else and if putting everything in today via a lump sum causes you to lose sleep at night, you will not be able to stick with that portfolio for a week, never mind next 20+ years. The portfolio with the highest expected return is completely irrelevant if you can’t handle its higher level of risk. Far better to be in a portfolio with lower returns that you can compound over 20+ years than one with a higher return that you are likely to abandon at the first sign of trouble. The goal for all investors should be to remain invested long enough to reap the enormous benefits of long-term compounding. That starts with finding a portfolio and a plan that is best suited to you.

Will benefit from larger home cooking trend – Borosil

Update on the Indian Equity Market:

The market ended flat for the second straight day on Wednesday. The last hour buying helped reduce the losses made through the day. At close, the Nifty was up 1.30 points, or 0.01%, at 15,576.
Among the sectoral indices, PSU BANK (+3.0%), METAL (+2.2%), and AUTO (+1.8%) were top gainers while IT (-0.8%), FMCG (-0.5%), and FINANCIAL SERVICEs (-0.2%) were losers. Among the stocks, UPL (+2.8%), TATASTEEL (+2.6%), and HINDALCO (+1.9%) were the top gainers. ITC (-2.9%), TECHM (-1.2%), and AXISBANK (-1.0%) were the top losers.

Will benefit from larger home cooking trend – Borosil
Edited excerpts of an interview with Mr. Shreevar Kheruka, Managing Director & Chief Executive Officer, Borosil with CNBC TV18 dated 31st May, 2021:
• Borosil saw a 30% YoY revenue growth in 4QFY21. There was a good bounce back in 4QFY21 after dull 1HFY21 and ended the year much stronger than anticipated.
• First 10-15 days of April-21 were following the same trajectory as 4QFY21 did, but due to second wave coming in, business got impacted as shops and outlets were shut.
• As the cases wane in the second (COVID-19) wave, a stronger bounce back is expected again. In short term some pain is expected on the consumer side of the business but demand seems to be strong in the long run.
• On the scientific side, Borosil makes vials and ampoules and that has seen strong demand because of COVID as well as non-COVID related injectable demand. This business has headed up even in 1QFY22 and strong demand is expected to continue for the rest of the year.
• It’s a wait and watch situation on the consumer side, but the company is bullish on the opportunity in the next year as well as for the future.
• Consumer business contributed ~60-65% of total revenue in FY21 and rest is scientific segment.
• The consumer business has been stagnant and things are rapidly growing on the scientific side. Mid-teens growth is anticipated for scientific segment in FY22E, vials are expected to grow ~25-30% for FY22E.
• E-Commerce has been the fastest and strongly growing channel for Borosil.
• Capex is planned for vials and ampoules as well as for new products in the segment. Not large Capex allocated for scientific laboratory equipment.
• Borosil is looking for inorganic expansions going forward in scientific segment and has a net cash of ~250 crores in company’s books.

Asset Multiplier Comments
• Looking at the performance and growth in 2HFY21 we believe that Borosil has good potential going forward. Diversified product portfolio, gain in appliances and E-Commerce channel and sale of COVID-related products such as Remdesivir and vaccine vials gives us confidence on growth of the company.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Borosil was ₹ 220/- as of 02-Jun-21. It traded at 70x/60x the consensus EPS estimate of ₹ 3.1/3.7 for FY22E/ FY23E respectively.
• The consensus target price for Borosil is not available.

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.”

This week in a nutshell (April 19th to April 23rd)

Technical talks

NIFTY opened the week on 19thApril at 14,307and closed on 23rd April at 14,341, a marginal increase of 0.2%.NIFTY has been hovering around the 100 DMA of 14,374 throughout the week. This remains the crucial level to watch out for before moving in either direction.

Weekly highlights

  • FIIs continued their selling spree with a net outflow of Rs 49,870 mn during the week. DIIs continued to be net buyers as they pumped in Rs 62,250 mn in the week.
  • The daily rise in covid-19 cases in India reached a record on 22ndApril when the number crossed 0.33 mn. This is the highest number of new cases recorded in a single day in the world. Several Indian states have imposed stricter restrictions or lockdowns in response. The worsening conditions have led to volatility in the equity markets.
  • Government of India announced the next phase of Covid-19 vaccination drive will start from 1st May 2021. Everyone above the age of 18 will be eligible to get vaccinated. Amidst concerns over shortage of vaccines, producers have been asked to ramp up production. This is a developing scenario as there are also concerns regarding raw material procurement from the US.
  • US Equity indices came off from their record highs oflast week. The indices ended the week on a lower note as reports indicated that President Biden will propose to significantly increase capital gains tax for wealthy individuals.
  • Insurance Regulatory and Development Authority of India (IRDAI) reported March monthly business figures for life insurers. The industry New Business Premium (NBP) grew by 71% YoY. Mar-20 was a low base due to Covid-19 led disruption. For the quarter 4QFY21, the NBP growth was 35% YoY.

Things to watch out for next week

  • The ongoing 4QFY21 result season will gain traction next week as several big companies across sectors start to report quarterly numbers. Managements’ comments over the business impact of second wave of Covid-19 will be important.