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This Week in a nutshell (May 2nd to May 6th)

                                                                                       Technical talks

NIFTY opened the week on 2nd May at 16,924 and closed on 6th May at 16,411. During the week, NIFTY was down 1.63%. The index has breached the 50-week moving average on the weekly chart with RSI at 42. Immediate support for the index stands at 16,269 and resistance at 16,763.

Nifty Realty (-8.0%), Nifty Media (-6.0%), and Auto (-5.0%) were the top losers and there were no sectoral gainers during the week.

                                                                                     Weekly highlights

  • Wall Street had a very volatile week. At the start of the week, the stocks were trading higher on the back of news that the European Union is working on new sanctions against Russia for waging war on Ukraine that will target Moscow’s oil industry.
  • The rally continued after the Federal Reserve delivered a widely expected interest-rate hike of half a percentage point with another half-percentage-point rate hike expected at the upcoming policy meetings in June and July.
  • Bureau of Labor Statistics released data revealing a tight labor market that has emboldened millions of Americans to seek better-paying jobs, while also contributing to the biggest inflation surge in four decades.
  • Later in the week, US stocks ended sharply lower amid a broad sell-off, as investor sentiment cratered in the face of concerns that the Federal Reserve’s interest rate hike would not be enough to tame surging inflation. All three main Wall Street benchmarks erased gains made in the earlier rally.
  • The downward journey continued as stronger-than-expected jobs data amplified investor concerns over bigger interest rate hikes by the U.S. Federal Reserve to tame surging prices.
  • Indian markets also followed the lead and were no less volatile. Entirely unexpected – the Reserve Bank of India (RBI) on May 4 increased the repo rate by 40 basis points to 4.4 percent for the first time in almost two years since the start of the pandemic in 2020. This comes when inflation has been rising to an 18-month high amidst a rebound in domestic economic activity.
  • RBI Governor stated that India’s foreign exchange reserves are “sizeable” and the outlook for the country’s overall external sector is bright. Potential market opportunities have opened up due to geopolitical conditions and the recent trade agreements.
  • LIC launched its IPO on 4th May 2022. Through this IPO, the government of India will be liquidating its 3.5 percent stake in the corporation. The offer has garnered bids of 223.4 mn equity shares against the offered size of 162 mn shares, subscribing 1.38 times on Friday.
  • International Monetary Fund released data saying India’s GDP to hit USD 5 tn in FY29E and the Rupee at 94 a Dollar.
  • Oil prices dipped as worries about an economic downturn that could dampen demand for crude vied with concerns over new sanctions from the European Union against Russia, including an embargo on crude oil.
  • Larsen and Toubro Infotech (LTI) board approved amalgamation with Mindtree, creating a USD 3.5 bn IT service provider named LTIMindtree.
  • Axis AMC suspended two fund managers pending investigation of potential irregularities after conducting a suo moto investigation over the last two months and used reputed external advisors to aid the investigation.
  • Foreign institutional investors (FIIs) continued to be sellers, selling equities worth Rs 1,27,335 mn. Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 85,333 mn.

                                                                       Things to watch out for next week

  • The 4QFY22 earnings season so far has not succeeded to uplift the market sentiments. The commentary so far from companies on rising pressure on their margins and muted demand environment has tempered the enthusiasm of investors.
  • We expect volatility to remain high in the coming days as surging global inflation is forcing investors to reconsider their assumptions of strong earnings growth. Fear of further up move in the US 10-year bond yield, geopolitical concerns, fluctuations in oil prices, and earnings season will keep the investors on their toes.

 

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.”

 

Mutual fund to contribute 75% of the revenues in coming years – Nippon AMC

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,245 (+1.2%) as it closed above the day’s opening level of 17,190. Among the sectoral indices, FMCG (+2.2%), OIL&GAS (+1.2%), and Bank (+1.1%) led the gainers, whereas MEDIA (-3.2%) was the only loser. Among the stocks, HDFCLIFE (+4.3%), HINDUNILVR (+4.3%), and SBILIFE (+3.7%) led the gainers, while BAJAJ-AUTO (-2.0%), BHARTIARTL (-0.9%), and HINDALCO (-0.8%) led the losers.

Excerpts of an interview with Mr. Prateek Jain, CFO of Nippon Life India Asset Management (NAM-INDIA) with The Economic Times on 27th April 2022:

  • The company’s mutual fund AUM market share has gone up from 7.1% in FY21 to ~7.4% in FY22, with a growth of 26 bps.
  • Its 8-10 equity schemes are in the top quartiles and 10-14 fixed income schemes are in the top two quartiles. The management expects higher growth to come from these schemes in the upcoming quarters.
  • In FY22, the company saw the addition of almost 32 mn folio in the industry. The company added around 7 mn folios.
  • Jain believes that the company has created a moat in terms of its physical and digital presence which attracts retail clients. Due to this, he believes that one in every three people invest with Nippon India Mutual Fund.
  • People have started investing through mutual funds once they started going back to work, post lockdown. This is happening as more people are opting for direct investment.
  • With increased digital penetration and investors systematically investing in mutual funds, new investors will get added and equity assets through retail participation will keep increasing.
  • In the last 10 years, the industry has grown from AUM Rs 6,600 bn in 2012 to around Rs 38,000 bn. Mr. Jain believes that the industry is still underpenetrated with AUM to GDP ratio of 18%, whereas in matured markets, AUM to GDP ratio is around 80. He believes that the industry may see 5 times AUM growth in the coming decade.
  • Considering SIP as one of the measurement scales for the industry growth, the SIP was about Rs 70,000 mn 2 years ago during the covid lockdown. It has increased to Rs 120,000 mn today.
  • The company expects the alternatives, ETF, and other advisory opportunity businesses together to contribute to 25% of the revenue. Rest 75% of revenue will come from the mutual fund business.
  • The company saw 58% of its purchases happening digitally and it has well-placed digital assets and has partnered with all the key aggregators and market players.

 

Asset Multiplier Comments

  • Nippon AMC has been steadily gaining market share on the back of expansion of ETF and SIP segments, its penetration in B-30 Cities gives it an edge over its competitors as major expansion is expected to be driven from non-Metro cities.
  • The SIP segment is sticky, because the inflows are impacted the least and major outflows don’t happen due to the discipline of investors, rising share of SIP AUM bodes well for the company as it insulates the company from sudden market corrections and shocks.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nippon AMC was ₹ 321/- as of 28-Apr-2022. It traded at 23x/22x the consensus earnings estimate of ₹ 14/15 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 427/- implies a P/E Multiple of 28x on the FY24E EPS estimate 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.”

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.”

This week in a nutshell (20th-24th December)

Technical talks

NIFTY opened the week on 20th December at 16,824 and closed on 24th December at 17,004. It gained  1.1% during the week. The index is trading below its 10DMA of 17,057 which might act as a resistance. On the downside, the 16,971 level might act as a support. The RSI (44), and MACD turning downward suggests a possible decline.

Weekly highlights

  • The US indices closed the week in green as investors speculated that the spreading Covid Omicron variant may not adversely affect human health, businesses and lockdown-like situations might not arise, and hence the stock buying picked up. S&P 500 was up by 2.3%, Nasdaq 100 by 3.2%, and Dow Jones by 1.7%.
  • The Turkish currency lira tumbled to a record low after its President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to the Islamic ban of high-interest rates as a basis of his policy. The president feels that Turkey can free itself from reliance on foreign capital flows by abandoning policies that prioritized higher interest rates and strong inflows.
  • The Indian government reduced the import tax on refined palm oil to 12.5%, from earlier 17.5%, in an effort to cool near-record high vegetable oil prices. This would make refined palm oil more attractive than crude palm oil for Indian buyers.
  • Sebi suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives. This has not only led to a fall in prices of these commodities, but also to scaling back of inventories by traders, who say the flow of imports will slow down since they do not have a hedging platform.
  • Zee Entertainment Enterprises (Zee) and Sony Pictures Networks India (SPNI) signed a definitive agreement that will let the two merge their networks, digital assets, production operations and programme libraries. The merged entity will have a 27% market share of the general entertainment space. After the completion of the deal, Sony Sony Pictures Entertainment will hold a 50.86% stake in the combined entity, the promoters of Zee will hold a 3.99% stake and the remaining shareholders of Zee will hold a 45.15% in the merged entity.
  • Tata Motors has incorporated Tata Passenger Electric Mobility Limited (TPEML), a wholly-owned subsidiary that is involved in the manufacturing of electric motor vehicles, with an initial capital of Rs 7000 mn.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 65890 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 69156 mn this week.

 

Things to watch out for next week

  • As investors around the world seem to be cautious about the Fed’s announcement of three 25 bps increase in interest rates in CY 2022, we may see a further sell-off in Indian stocks next week by the FIIs.We may see a reduction in the level of activity as most investors in the US and Europe are away on holidays. 

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.”

Focus and future is on digital platform: Zee Entertainment and Sony Group

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,072 (+0.7%), 117 points higher. Among the sectoral indices, REALTY (+2.3%), PSU BANK (+1.6%), and FMCG (+1.3%) led the gainers. MEDIA (-1.1%) and METAL (-0.2%) were among the losers. Among the NIFTY50 components, POWERGRID (+3.7%), IOC (+3.0%), and ONGC (+2.7%) were the top gainers while DIVISLAB (-1.8%), JSWSTEEL (-1.7%), and BHARTIARTL (-0.8%) led the laggards.

Excerpts of an interview with Mr. Puneet Goenka, CEO and MD, Zee Entertainment (ZEEL), Mr. Ravi Ahuja, Chairman of Global television and corporate development, Sony Pictures Entertainment and Mr. N P Singh, MD and CEO of Sony Pictures Networks India with Business Standard on 22nd December 2021:

  • The deal ensued when Sony saw an opportunity in the high growth Indian media Industry when they bought Ten sports from Zee Entertainment in FY18.
  • Zee Entertainment and Sony both have a foothold in the digital OTT market with Zee5 and Sonyliv, respectively. As the firm has not received any regulatory clearances from the Competition Commission of India, the management does not have any precise operational plans, yet.
  • Invesco had reservations as the existing ZEEL promoters were given an option to increase stake in the merged company to 20%. Management has clarified the promoters will have to buy from the open market and there will not be any preferential allotment. As the matter between ZEEL and Invesco is still sub-judice the management has not shared further details.
  • Management is considering market share, growth possibilities, and profitability to provide strong value to shareholders and customers. The management anticipates the merged business to be in a position of leadership and powerful enough to compete with global competitors by FY25E.
  • The merged entity will be an Indian asset on the portfolio of Sony Pictures Entertainment, and given the size of the Indian market, the entity will be a significant revenue contributor to the multinational media company.
  • Even though digital and OTT platforms are experiencing increase in viewership and broadcasting is under immense pressure, the management believes that it still has a role to play in the dynamic entertainment business. The digital business needs scale. The merged company will have a capital of $ 15.7 mn. This arrangement gives the company advantages which the individual companies would not have.
  • Linear TV will continue for the foreseeable future. The future focus is on the digital as both old and new subscriber base is increasing. The company would invest in content, technology and distribution in this direction.

Asset Multiplier Comments

  • The merger plan would need shareholder approval as well as clearance from regulatory bodies such as SEBI and the Competition Commission of India (CCI). The merger approval is awaited, as is information on the status of the EGM sought by Invesco. If the approvals are not received, the merger will be scrapped.
  • The merger is projected to be beneficial in terms of market consolidation and revenue synergy. As the market leader, the merged company would have pricing power in terms of earning ad revenues. The resolution of channel overlap and OTT platforms would be key areas to monitor.

Consensus Estimate: (Source: market screener website)

  • The closing price of Zee Entertainment was ₹ 338/- as of 23-December-2021. It traded at 25x/21x/17x the EPS estimates of ₹ 13.5/16.5/19.1/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 366/- implies a P/E Multiple of 21 on FY23 EPS estimate of ₹ 17.4/-.

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.”

 

 

Back on construction targets, to complete 50 restaurants this year – Burger King India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,517 (+0.3%) as it closed near the opening level of 17,524. Among the sectoral indices, MEDIA (+3.7%), FMCG (+1.4%), and OIL&GAS (+1.0%) ended higher, whereas BANK (-0.5%), FINANCIAL SERVICES (-0.5%), and PRIVATE BANK (-0.4%) led the losers. Among the stocks, ITC (+4.9%), L&T (+3.0%), and ASIANPAINT (+2.2%) led the gainers while HDFCBANK (-1.8%), TITAN (-1.4%), and NESTLEIND (-1.1%) led the losers.

Excerpts of an interview with Mr. Rajeev Varman, CEO of Burger King India (BURGERKING) with CNBC TV18 on 7th December 2021:

  • The company is back on its construction targets with over 20 restaurants under construction, and 38 restaurants in the pipe line. The company plans to complete the construction of around 50 restaurants this year. Its target is to build 70 restaurants in next year, and keep on building in the similar manner in upcoming years.
  • Company’s target is to build 700 restaurants which it will complete by December 2027.
  • Burger King India (BKI) has launched its café in 4 of its restaurants, 10 cafés in construction, and plans to build more cafés along with building new restaurants. The company plans to build 75 cafés by the end of 2022.
  • The Company is going to launch new products specifically for its cafés. It plans to serve opportunities that it will receive at lunch and dinner peak time, and the time in between. It calls its coffee products as ‘Coffee Uncomplicated’, and provides a product named coffee shots for which it has received good reviews.
  • In the 2QFY22, the company reported 65% growth over its pre-covid numbers through delivery. The company has recovered 65% of it’s dine-in orders in 2QFY22.
  • The company has over 1.5 million app downloads which it believes will gradually grow. It has made available its stunner menu on the app, which it considers as entry level point for its consumers and is available only through app.
  • The CEO feels that BKI’s upcoming acquisition of BK Indonesia will bring synergies as BKI will add 200 restaurants in 1 day. The company will also experience synergies in terms of Capex, as it plans to build 35 new restaurants every year in Indonesia after completing the acquisition.

 

Asset Multiplier Comments

  • The company is likely to remain non-profitable for few more quarters as it is currently undergoing organic and inorganic expansion.
  • Currently within the QSR companies, Westlife Development and Jubilant Foodworks have a higher scale of operations, and have started generating positive free cash flow in the last 2 years.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may delay the planned execution of building new restaurants.

Consensus Estimate: (Source: market screener website)

  • The closing price of BURGERKING was ₹ 162/- as on 9-Dec-2021.  Its consensus earnings estimates are -2.0/0.01/0.94 for FY22E/FY23E/FY24E respectively. As the earnings are close to zero, we don’t arrive at a meaningful PE multiple.
  • The consensus target price is ₹ 198/-.

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 (25th Oct to 29th Oct)

Technical talks

NIFTY opened the week on 25th October at 18,299 and closed on 29th October at 17671 during the week, the index lost 2.5%. Nifty is trading at an RSI of 43, with support at 17,565 and resistance at 18,158.

Among sectors top losers were Nifty Private bank (-3.6%), BANK (-3.0%), and IT (-2.8%). PSU Bank (+0.1%) was the only sectoral gainer in the week.

Weekly highlights

  • This week was a tumultuous one for stock prices as they reacted to this week’s results.
  • China’s Evergrande Group has stated plans to prioritise the expansion of its electric car sector over the main real estate businesses. Evergrande chairman Hui Ka Yan stated that the company’s new electric car initiative will be its major business, rather than real estate, during the next ten years.
  • The third-quarter earnings season resumed with results from US IT behemoths Apple, Tesla, Amazon, Facebook, Microsoft, and Google. Companies are indicating increased labor costs and operational disruptions impacting earnings.
  • The US budget deficit for 2021 totaled USD 2.77 trillion, the second biggest on record but a decrease from the all-time high of USD 3.13 trillion in 2020. Both years’ deficits represent trillions of dollars in government expenditure to mitigate the terrible effects of a worldwide epidemic.
  • Profits at China’s industrial firms rose at a faster pace in September even as surging raw material prices and supply bottlenecks squeezed margins and weighed on factory activity.
  • According to a CRISIL Ratings analysis of India’s top three PV original equipment makers (OEMs or vehicle makers) with a combined market share of 71%, a global shortage of semiconductors will moderate India’s passenger vehicle (PV) sales to 11-13 percent this fiscal, around 400-600 basis points (bps) lower than what could have been without the scarcity.
  • Last week, the number of Americans asking for unemployment benefits fell to a pandemic low of 281,000, indicating that the labour market and economy are still recovering from last year’s coronavirus slump.
  • Indian equities were downgraded this week by major foreign brokerages- Morgan Stanley, UBS, Nomura.
  • The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 1,57,023 mn. Domestic institutional investors (DIIs) turned buyers this week and bought equities worth of Rs 94,272mn.

 

Things to watch out for next week:

  • US Fed tapering expected, with an increase in interest rates. The central bank is largely anticipated to declare that it will begin unwinding its $120 bn monthly bond purchases, with the scheme expected to end entirely by the middle of FY23.
  • Several earnings reports are expected next week  including those from pharmaceutical giants such as Pfizer and Moderna in the US. In India, companies such as HDFC, Tata Motors, and Sun Pharma are set to announce earnings.
  • The next week will be a truncated one for Indian equity markets due to Diwali. 

 

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.”