05 May

Q1 festive sales indicating a bumper quarter  – Titan

Update on the Indian Equity Market:

The Indian indices closed flat. NIFTY ended at 16,683 led by TECHM (4.2%), HEROMOTOCO (4.1%), and INFY (3.3%). INDUSINDBK (-4.1%), BRITANNIA (-3.4%), and SUNPHARMA (-3.1%) were top losers.

Among the sectoral indices, IT (+2.1%), METAL (+0.6%), and AUTO (+0.4%) were the top gainers. REALTY (-1.6%), HEALTHCARE (-0.8%), and PHARMA (-0.8%) led the sectoral laggards.

Excerpts of an interview with Mr. CV Venkatraman, MD, Titan with ETNow on 04th May 2022: 

  • 4QFY22 was a challenging quarter because of Covid 3.0, because of the global crisis in March which put the price of gold in a spin, rising a lot and also being very volatile. Naturally, consumer sentiment in the jewelry market was dampened and thus Company was not surprised by a decline in sales in Q4.
  • The management looks at annual performance as opposed to every quarter. For FY22 as a whole, the management was exceedingly satisfied despite Q4 pressures FY22 ended well.
  • The company’s sales growth for FY22 is upwards of 35% on a pretty normal base. The jewelry business in FY21 itself had recovered to the FY20 level. The profit grew almost 100% over FY21, indicating sustained momentum and growth.
  • The management gives a lot more weightage to the company’s competitive position in the industry which is tracked in real-time. The management is very confident that it is rising demonstrating one more step towards its ability to continue to compete much better in the future.
  • Titan has begun April on a very good note. Management is very confident about how April and early May are showing signs that the issues which clouded Q4, particularly Covid on one hand and the intense global crisis which was in its early stages in March. Both the threats look watered down and therefore the environment is very conducive to growth and it expects Bumper Akshay Tritiya sales.
  • The Bharat story is very strong for Titan across all formats and it’s seeing that playing out month after month and particularly in the April-June quarter, there will be a lot of semi-urban, and rural weddings which will certainly benefit through. The company has been penetrating deeper and deeper into small towns with around 50% tier-3 cities where large format Tanishq stores are being opened.
  • The Watch segment is a 30-year plus business and in the WFH situation, the demand for new watches and different kinds of watches is low. So it is the most challenged category out of all the categories.
  • The Titan EyePlus brand is well positioned and therefore the management is unmoved about one quarter’s EBIT margin dilution as it is looking at a two-three-year window for the category and a similar two-three-year window for a category like Analog Watches which are intrinsically an accessory that has been under some kind of pressure.
  • The jewelry category is a Rs 300,000 crore plus category; Titan accounts for less than Rs 30,000 crore. There is no brand like Tanshiq in this country that has multiple dimensions and therefore the management believes the runway of growth for Tanishq is very long as the majority of the market is unorganised.

Asset Multiplier Comments:

  • Titan Company has suffered over the last 2 years due to Covid-19 waves washing out traditionally bumper quarters for the company. The under penetration of organised players, strong brand image, and an inherent uptick in jewelry demand make it one of the best-placed players in the segment and has significant tailwinds for growth.
  • Titan’s other segments such as Eyewear, and Apparel (Taniera) are also dominated by local small-scale players. The Titan brand, increasing consumer preference towards branded goods, and rising per capita income are key levers for the company’s growth in these segments.

 

Consensus Estimate: (Source: Marketscreener website)

 

  • The closing price of Titan was ₹ 2,262/- as of 05-May-2022.  It traded at 69x/ 54x the consensus earnings estimate of ₹ 33/42 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,720/- implies a P/E Multiple of 65x on the FY24E EPS estimate of ₹ 42/-

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.”

 

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04 May

20% growth in disbursements expected for the next 3-4 years – Can Fin Homes

Update on the Indian Equity Market:

On Wednesday, NIFTY ended 2.3% lower at 16,667 after RBI announced a 40bps repo rate hike. The decision of the MPC was announced as investors await US Federal Reserve’s rate decision.

Among the NIFTY stocks, APOLLOHOSP (-6.6%), and ADANIPORTS (-5%) and HINDALCO (-4.8%) were top losers while ONGC (+3.8%), BRITANNIA (+3.3%), and POWERGRID (2.5%) were the top gainers. Among the sectoral indices, CONSUMER DURABLES (-3.6%), REALTY (-3.3%), and METAl (-3.2%) were the top losers and there were no sectoral gainers in the session.

Excerpts of an interview with Mr. Girish Kousgi, MD & CEO, Can Fin Homes (CAN FIN) with CNBC-TV18 on 2nd May 2022: 

  • CAN FIN had given a growth guidance of about 18-20% both on book and disbursements. Disbursements and book growth have been at an all-time high sequentially in Q4FY22.
  • In terms of NIMs, pre-covid levels were at 3.9%, but this number was dropped to retain customers and take on the competition during the covid time. The demand came back after October 2020. Competition eased out in Q4FY21 and from there on the CANFIN’s performance improved.
  • NIM (net interest margin) is not expected to sustain 4.15% levels as they also included a benefit of LCR (Liquidity Coverage Ratio) investment, but they are expected to be between 3.7% to 3.75% for the next few quarters.
  • CANFIN’s spreads are expected to be around 2.5%.
  • In terms of growth, economic activities have picked up, and real estate has revived and is going strong. In Q4FY22, they saw a slight increase in interest rates and are expecting any further rise to be manageable enough for the company.
  • Historically, CAN FIN has managed to build its book at higher yields and expects this to continue in the future.
  • Growth is expected to be intact at 20% for the next 3-4 years on book and disbursements.
  • With the onset of covid, the provisions stood at Rs 870 mn and these were used in the subsequent quarters writing it back. CAN FIN has started building on the provisions by providing Rs 150 mn additional provisions.
  • Kousgi intends to continue as MD and CEO of the company till September 2024.
  • Every year, CAN FIN has a Regulator NHB audit and nothing came out of the same this year.

Asset Multiplier Comments:

  • With the pick-up in economic activities, we expect CAN FIN to continue its underwriting practices and loan growth trajectory. Over the next three years, the LAP (Loan against Property) book is expected to grow at a faster pace than home loans. The company plans to increase the proportion of LAP loans from 5% to 10% over the next three years.
  • We believe its better credit ratings to be positive in achieving a lower cost of funds. India’s demographics and the retail business are expected to work in favor of CAN FIN.
  • In the current rising interest rate environment, we expect some margin compression over the next few quarters.

Consensus Estimate: (Source: Marketscreener and investing.com websites)

  • The closing price of Can Fin Homes was ₹ 604 /- as of 04-May-2022. It traded at 2.2x/ 1.8x the consensus book value per share estimate of ₹ 273/319 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 755/- implies a P/BVPS multiple of 2.3x on the FY24E BVPS estimate of ₹ 226/-

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.”

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02 May

The commuter segment has seen a slowdown over the past 3 years  – Bajaj Auto

 

 

Update on the Indian Equity Market:

The Indian indices opened the week in the red. NIFTY ended 0.2% lower at 17,069 led by INDUSINDBK (3.9%), COALINDIA (2.6%), and POWERGRID (2.1%). EICHERMOT (-3.4%), APOLLOHOSP (-3.4%), and TITAN (-2.9%) were top losers.

Among the sectoral indices, METAL (+0.6%), PRIVATE BANK (+0.5%) and MEDIA (+0.4%) were the top gainers. CONSUMER DURABLES (-2.0%), IT (-1.5%), and AUTO (-1.4%) led the sectoral laggards.

Excerpts of an interview with Mr. Rakesh Sharma, ED, Bajaj Auto with CNBC-TV18 on 28th April 2022: 

  • EV transition provides the company with a huge opportunity in the scooter segment. The company is currently not present in the ICE scooter segment, ASEAN Markets are heavily skewed towards the non-motorcycle segment, so EV Scooters provide Bajaj Auto with a global opportunity.
  • The company launched has launched Chetak EV Scooter 2 years ago and will launch soon launch a new version in June-2022. The recent EV Fire incidents will impact buyer behavior in terms of safety concerns and brand preference but the transition to EV is inevitable.
  • The Mass Market segment (~100cc) has lost over 15% volume over the last 3 years due to economic slowdown in the rural parts of the country and decreased purchasing power of low-income groups due to COVID-19 and inflation.
  • The commuter segment contributes about 50% of 2 wheeler industry’s volumes, so the company is on the lookout for how the monsoon performs as it expects a revival in demand if a robust monsoon leads to a rise in disposable incomes which will be critical for the 2 wheeler industry’s turnaround.
  • The export segment has performed steadily with the company reporting the highest-ever volumes from the export segment. The company is a market leader or the runner-up in key export markets of Latin America, Africa, and ASEAN.
  • Demand will be buoyant during Q1, due to pent-up demand and marriage season in rural India, however, that cannot ve extrapolated to the outlook for FY23. Q2FY23 will be crucial to determine whether the 2 Wheeler industry is set for a turnaround after reaching a decadal low due to structural problems of inflation and unemployment across rural India.

Asset Multiplier Comments:

  • Bajaj Auto like other mass-market producers has borne the brunt of rural slowdowns and decline in demand, increasing commodity costs, and supply chain constraints but the issues seem to have bottomed out and the industry as a whole is set for a turnaround in FY23.
  • High export exposure and a robust portfolio of premium brands like Dominar, Pulsar, and KTM-Husqvarna have insulated Bajaj Auto from the slowdown in the commuter segment and made it better placed amongst the all the players in the 2 wheeler industry.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of Bajaj Auto was ₹ 3,623/- as of 02-May-2022. It traded at 19x/ 16x the consensus earnings estimate of ₹ 194/226 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,120/- implies a P/E Multiple of 18x on the FY24E EPS estimate of ₹ 226/-

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.”

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01 May

This week in a nutshell (25th – 29th April)

Technical talks

NIFTY opened the week at 17,006 on 25th April. The index closed 0.8% lower at 17,102 on 29th April. RSI (14) of 49 and MACD are trending downwards. On the upside, the 20DMA weekly of 17,273 could act as resistance while 16,379 could act as support.

FMCG (+1.3%), Auto (+0.5%), and Private Bank (0.2%) were the sectoral gainers in the week. Media (-6%), PSE (-4.4%), and IT (-2.5%) led the laggards.

Weekly highlights

  • The US indices closed the week lower as the market priced in weak earnings from tech giants, inflation worries, and aggressive monetary policy tightening by the Federal Reserve. S&P 500 was down 3.6%, Nasdaq 100 4.5%, and Dow Jones was down 2.8%.
  • With the Q4 earnings season going in full swing, Indian indices are driven by rising input prices, margin pressures, and weak future expectations by companies.
  • Life Insurance Corporation of India, India’s largest life insurer, is set to launch its IPO on May 4. The IPO, according to its red herring prospectus, will comprise an offer for sale of 220 mn equity shares at Rs 902-949 apiece. How the IPO performs amidst uncertainties caused due to geopolitical tensions and foreign sell-offs remains to be seen.
  • The RBI is expected to raise policy rates among major central banks in Asia to tackle the surged inflation. Traders have been pricing a potential 25bps hike in repo rates in June. This has resulted in increased volatility in recent trading sessions.
  • For April 2021-February 2022, the Index of Industrial Production in India averaged 129.97 against 130.1 in the corresponding pre-pandemic period of FY20. Shortage of key raw materials, rising pricing pressures, and global geopolitical risks are some of the challenges faced by the manufacturing sector. Sectors such as chemicals, machinery, and electrical equipment logged an annual contraction in industrial output in February.
  • In light of the recent battery-related fires inside electric two-wheelers, the Union government has asked all-electric two-wheeler brands to refrain from launching new products in the market. The makers are free to sell current models in the market. This is expected to give the government more time to set up an authority for taking a closer look at the cause behind these fires.
  • Traders in the US are pricing a 50 bps interest rate hike when the Fed meets next on May 3rd. Traders are expecting a potential 75bps hike in June, following the meeting next week.
  • A mixed set of earnings from US tech giants has left investors feeling anxious. Investors expected healthy earnings to hold the markets up after a vicious sell-off caused due to an increasingly hawkish Fed and geopolitical tensions stemming from the Russia-Ukraine crisis.
  • FII (Foreign Institutional Investors) continued to be sellers this week and sold shares worth Rs 1,14,450 mn while DII (Domestic Institutional Investors) continued to be buyers and bought shares worth Rs 97,000 mn.

Things to watch out for next week

  • Continuing with the Q4 results season, management commentary about near-term economic recovery, rising cost inflation, and margin pressures are expected to drive the markets.
  • Rising Covid-19 cases in Shanghai, China, and subsequent lockdowns will continue to impact oil prices and equity markets globally. The supply chain disruption for key inputs coming from China is expected to continue to hurt investor sentiments.

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.”

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28 Apr

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.”

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28 Apr

A few basic questions…: Part I

The following article is taken from “A few basic questions’ by Mr. Anand Sridharan who is an investor at Nalanda Capital.

In stormy seas, it’s good to revalidate what ones true North is. Investors can do this by asking themselves basic questions about how they think about investing & what that implies for how they should act now.

Each investor has an investment process that hopefully (a) gels with who they are, and (b) works over the long run. Revisiting principles of that process can help clear the mind in murky times and strengthen conviction to act on the implications of that process.

The author has listed some basic questions and what they mean to him to illustrate his process. Below are some of the questions whose answers would be different as each investor operates under different contexts, constraints, and preferences. What matters across everyone’s answers isn’t correctness but internal consistency.

What is one trying to do? The author intends to indefinitely own safe and good businesses purchased at reasonable valuations. To further elaborate on this, Safe means avoiding things that resemble bad people or bad neighborhoods or things investors can’t figure out. It is better to avoid than price big risks.  Good is partly quantitative. The author’s primary metric is the return on capital. Over 20% for over five years is his rough bar. Investors should incline toward a business that has strengthened its competitive position within its industry. The qualitative part involves a construct where goodness is likely to sustain.

If the author is correct about safe and good, his consideration set is confined to enterprises that are above average. Purchasing goods at near-par or slightly above-par prices appears sensible. A relevant reference point for determining what is par is that the average business has historically been valued at a mid to high teens multiple of earnings over time. Valuation discipline is to avoid disastrous outcomes when investors are wrong or something unexpected happens.

What should one try not to do? Within what’s safe and good, the investors should not: 1. Pay any price just because they really like a business. 2. Wait for an unreasonably cheap price either.

Where does the current environment leave one on what to do and not do?

Everything’s fallen in price but a lot of it isn’t actionable. Bad businesses getting beaten down doesn’t help (e.g., bad bank below book). On the opposite end, 80 PE falling to 50 PE for a ‘great’ business doesn’t help one either. Valuations for the author’s consideration set are mostly ‘less outrageous but too high for his comfort’. In the middle, a (small) sweet spot of safe enough, good enough, reasonable enough is emerging.

Source: A Few Basic Questions from www.buggyhuman.substack.com By Anand Sridharan.

Asset Multiplier comments:

  • Abiding by one’s own investment process in a disciplined way is the simplest way of wealth creation over time. Staying undaunted amidst noise and chaos is the key to remaining invested over the long term.
  • Investors should be willing to pay a price that finds a balance between losing money and missing out on a good deal.

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.”

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27 Apr

Citec acquisition helps to eliminate some cyclicality from the market – Cyient

Update on the Indian Equity Market:

On Wednsday, NIFTY settled 162 points lower at 17,038 (-0.9%). BAJFINANCE (-7.2%), BAJAJFINSV (-3.8%), and TATACONSUM (-2.8%) were the top losers. HEROMOTOCO (+3.9%), TATASTEEL (+1.3%), and ASIANPAINT (+0.6%) were the gainers. Among the sectorial indices, MEDIA (+0.07%) only were the gainer while FINANCIAL SERVICES (-1.5%),  FINANCIAL SERVICES 25/50 (-1.4%) and CONSUMER DURABLES (-1.1%) led the losers

Cyient announced the acquisition of Citec on 25th April 2022 for EUR 94mn. Citec is a plant and product engineering services company that serves customers in the energy and mining industry.

Excerpts of an interview with Mr. Krishna Bodanapu, MD & CEO, Cyient  on CNBC-TV18 on 25th April 2022:

  • The idea behind Citec acquisition is to expand Cyient’s footprint into plant engineering space where Citec is well-positioned. This is a good opportunity for the company to diversify the risk which exists in its current product portfolio and this acquisition helps to eliminate some cyclicality from the markets where the company operates.
  • Citec primarily operates in plant design and plant engineering. All the new plants are coming that especially focus on diversifying from some of the traditional sources of energy and focusing on renewables such as hydrogen, LNG, etc. These are the unique capabilities that Cyient is getting with this acquisition.
  • Margins of Citec are approximately similar to what Cyient generates. Citec has a good global mix and has strong capabilities in Europe, especially in the Nordic countries. Citec has a large team in India and it has built a good balance of domain expertise and cost.
  • Bodanapu said they see similar growth potential in the Citec business as that of Cyient. The growth of Citec will converge more towards the Cyient growth including the guidance that management provided of 13% to 15% in the next one or two years because the company has to leverage some of the synergies and harmonize some of the operations. The company expects double-digit growth in the immediate term and then converges into Cyient’s growth.
  • From the revenue side company expects good synergies because Citec primarily operates in three areas such as plant engineering, digital plant engineering, and product engineering where the capabilities of Cyient align very well with the Citec capabilities.
  • In terms of the transport business the growth in this segment will be a little bit lower but the company seeing the recovery in the transport business as the defense business continues to do well, the engineering work started to happen and the maintenance, repair, and operations continue to come up steeply. The company expects the transport growth will be lower but other sectors will deliver good growth.
  • Bodanapu said, the company is going to add a significant batch of freshers over the next few months. The supply crunch coupled with significant wage inflation and a rise in the other expenses is likely to cause inflation in the mid-single digits. The company expects there are going to be headwinds, especially with the cost inflation but also the company seeing good tailwinds where the company broke the linearity of adding people to add revenue.

Asset Multiplier Comments:

  • We believe that this acquisition helps Cyient to diversify its product portfolio and services because it is heavily concentrated in aerospace, rail transportation, and communication. Post this acquisition the company can expand its presence in Energy, Industrial, and Plant Engineering which currently contributes ~2% of total revenues.
  • Citec will provide access to multiple European-based global companies and this will also provide a cross-selling opportunity for Cyient.
  • We think that this acquisition enables Cyient to expand its presence in the Europe region, especially in the Nordic countries with the help of the strong brand value of Citec where Cyient has a relatively smaller presence.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of CYIENT was ₹ 899/- as of 27-Apr-2022. It traded at 17x/ 15x the consensus earnings estimate of ₹ 53/ 61 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,140/- implies a P/E Multiple of 19x on the FY24E EPS estimate of ₹ 61/-

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.”

By Cyient, IT 0 Comments Read more...
26 Apr

Transport and Plant Engineering to drive growth going ahead – L&T Technology Services

 

Update on the Indian Equity Market:

On Tuesday, the Nifty 50 closed 247 points higher (+1.5%) at 17,200. The move was led by ADANIPORTS (+6.1%), BAJAJ-AUTO (+6%), and HEROMOTOCO (+4.9%). However, ONGC (-2%), APOLLOHOSP (-1%) and AXISBANK (-0.7%) were the top losers.

Within the sectoral indices, REALTY (+3.6%), AUTO (+2.8%) and PSU BANK (+2.3%) were the top gainers and no index closed in the red.

Excerpts of an interview with Mr. Amit Chadha, MD & CEO, L&T Technology Services (LTTS) on CNBC-TV18 taken on 24th April 2022:

  • The company had to face a minor slowdown in its telecom and Hi-tech business due to dropping a low-margin project from one of its top 30 clients. These two segments contribute around 20% to the revenue.
  • It had the highest quarterly deal wins and the deal pipeline is at a record level. The company got its 2nd USD 100mn deal in the last two years. The effect of these will reflect in the coming quarters.
  • FY23 growth will be driven by transportation and plant engineering segments. It bagged a large deal in the electric vehicle space.
  • To achieve and support this growth, the company is planning to employ 2,500 freshers in FY23. It employed 3,000 freshers last year. It is not seeing any respite in attrition levels for at least two quarters.
  • Despite the hiring, proposed wage increments, and travel costs coming back, the company has given guidance of an 18% EBIT margin for FY23. It has set its target to achieve a USD 1.5 bn revenue by FY25.
  • It has launched a new vertical within its Hi-tech segment for metaverse that will predominantly focus on experience through devices, platforms, and software. This vertical is expected to be much more profitable than the rest of the Hi-tech business.
  • Along with that, the company is making investments in 5G labs in Munich and transportation labs in the United States. The company has filed 98 new patents this year as compared to 28 filed last year.
  • The company is also looking to acquire a USD 50-100mn revenue company, as it has been acquiring companies every 18-24 months. A company within medtech space in the US and an automotive company in Europe are on the radar.

Asset Multiplier Comments:

  • High attrition has become an industry-wide phenomenon and hasn’t left any IT company unaffected. We think on the similar lines of most managements that attrition is unlikely to come down for at least a few quarters.
  • Attrition along with increased travel and wage hike is likely to be the headwinds in the near term. The company plans to offset these headwinds with growth, better quality revenues, and operational efficiency gains.
  • Given LTTS’s experience in the Engineering-R&D domain and the 6 new deal wins in 4QFY22, including one 100 million+ transaction, we believe the firm is on track to achieve its revenue target of USD 1.5 bn by FY25 and retain its EBIT margin projection of 18% or above.

Consensus Estimate: (Source: Marketscreener and TIKR websites)

  • The closing price of LTTS was ₹ 4,049/- as of 26-Apr-2022. It traded at 37x/ 31x the consensus earnings estimate of ₹ 108/129 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,621/- implies a P/E Multiple of 36x on the FY24E EPS estimate of ₹ 129/-

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.”

 

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25 Apr

Optimistic about the motor segment in the future – ICICI Lombard

Update on the Indian Equity Market:

The Indian indices opened the week in the red, reflecting global market weakness. Investors are concerned about the high inflation, which might accelerate the rate hikes. NIFTY ended 1.3% lower at 16,954 dragged by COALINDIA (-6.5%), BPCL (-6.0%), and TATASTEEL (-4.3%). BAJAJ-AUTO (+2.0%), HDFCBANK (+1.1%), and ICICIBANK (+1.0%) were some of the gainers.

Among the sectoral indices, BANK (+0.1%), and PRIVATE BANK (+0.1%) were the only gainers. REALTY (-3.8%), METAL (-2.9%), and OIL & GAS (-2.4%) led the sectoral laggards.

Excerpts of an interview with Mr. Bhargav Dasgupta, MD & CEO, ICICI Lombard (ICICIGI) published in The Economic Times on 22nd April 2022: 

  • ICICIGI announced 4Q and FY22 earnings, which include Bharti Axa business earnings. Considering the standalone numbers coupled with Bharti Axa, the profit growth for FY22 was ~5%.
  • Considering the 4QFY22 quarterly profits, the growth was much better. The Company has outgrown the market.
  • The combined ratio has increased, due to 2-3 factors. Looking at the integrated company suggests Bharti Axa’s combined ratio has always been high. ICICIGI expects to bring it under control in subsequent years. (The combined ratio is indirectly proportional to the profitability of general insurance companies).
  • The profitability of ICICIGI was impacted due to three Covid-19 losses, which were ~ Rs 270mn in 4Q and ~Rs 5,500 mn for FY22. Another impact was due to the accounting methodology for insurance policies. The entire cost has to be accounted for upfront while the revenue (premium earned) is accounted for throughout the policy. In the case of a 12-month policy with a majority of the business undertaken in March, the full cost is accounted for in March while the topline is earned over the next 12 months.
  • The CEO believes a long-term shift is on the way and health consumption behavior is going to change. The change he believes is not just due to the pandemic and digitisation but it has been a global trend for some time now. Health consumption is expected to be very personal, self-driven, and digitised in the long term.
  • Traditionally health insurance in India has focussed on just the hospitalisation costs. But healthcare is about the continuum of preventive care, wellness, fitness, hygiene, and outpatient care. ICICIGI’s approach is providing the entire continuum of care including a pure insurance policy for OPD costs and wellness (preventive, advisory, and fitness).
  • People are willing to consume health in a digital mode. Telehealth, video-based consulting, and increasingly home-based care if the ailment is not severe – there are the components ICICIGI has built on in the last 2 years and is now investing to scale up distribution.
  • With the Bharti Axa acquisition, ICICIGI has inherited some of the crop insurance business. There, most of the commitments are for a longer time so ICICIGI will stay invested in that business for that period.
  • In the previous year, the motor insurance sector has been tepid. The biggest shift that happened in FY22 was health insurance has become number one for the general insurance industry. Traditionally, the motor has been the biggest segment, but in FY22 the new vehicle sales were muted.
  • ICICIGI expects growth momentum once the chip shortage issues are sorted in the next five-six months. It expects a pickup in rural demand for two-wheelers and is optimistic about the motor segment growth in the medium term.
  • Health insurance is expected to continue to grow as it is a very underpenetrated sector.
  • The company has taken small price hikes in motor insurance. On the health side, ICICIGI is not thinking of a price increase for its retail customers as it has profits of ~Rs 40-50 bn despite paying Rs 250bn Covid-19 claims.
  • The Company is not planning an immediate price hike on the retail health portfolio as it believes there are one-off episodes that are unlikely to sustain. Healthcare inflation is a worry and ICICIGI believes there is a need for more discipline in terms of pricing. Should the healthcare providers inflate the cost of healthcare, the Company may have to increase its prices.

Asset Multiplier Comments:

  • We expect a recovery in the motor segment as new car registrations are expected to recover with the improvement in supply chain and semiconductor availability.
  • With an increase in hiring across sectors, the growth in group health premiums is expected to continue. the pandemic has boosted the demand for such policies.
  • Headwinds due to loss of market share in the individual health insurance segment, and aggression by new-age large players are expected to hurt the profitability in the short term.

Consensus Estimate: (Source: Marketscreener website)

  • The closing price of ICICIGI was ₹ 1,315/- as of 25-Apr-2022. It traded at 35x/ 28x the consensus earnings estimate of ₹ 38/47 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,556/- implies a P/E Multiple of 33x on the FY24E EPS estimate of ₹ 47/-

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.”

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23 Apr

This week in a nutshell (18th – 22th April)

Technical talks
NIFTY opened the week at 17,183 on 18th April. The index closed 1.7% lower at 17,172 on 22nd April. RSI (14) of 47 and MACD are trending upwards. On the upside, the 17,465 could act as resistance while 16,965 could act as support.

Auto (+3.1%) was the only sectoral gainer in the week. IT (-5.6%), Financial Services (-4.3%), and Media (-4.2%) led the laggards.

Weekly highlights

  • The US indices closed the week lower as the market priced in persistent inflation and US Fed’s imminent 50 bps interest rate hike. S&P 500 was down by 2.6%, Nasdaq 100 by 3.7%, and Dow Jones was down by 1.7%.
  • Q4 result season continues to be in the fray as various Nifty 50 companies reported results, increasing input costs, supply, and logistical challenges and margin pressures continue to be a persistent challenge across the board.
  • Data from the National Bureau of Statistics showed on Monday that China’s economy slowed in March as consumption, real estate, and exports were hit hard, taking the shine off faster-than-expected first-quarter growth numbers and worsening an outlook already weakened by COVID-19 curbs and the Ukraine war. Gross domestic product (GDP) expanded by 4.8 percent in the first quarter from a year earlier.
  • The International Monetary Fund (IMF) has cut its growth forecast for India for FY23 by 80 basis points to 8.2 percent, warning that Russia’s invasion of Ukraine would hurt consumption and hence, growth, by way of higher prices reflecting in part weaker domestic demand – as higher oil prices are expected to weigh on private consumption and investment – and drag from lower net exports.
  • The blockades by groups in Southern and Eastern Libya citing political demands have caused National Oil Corporation to declare force majeure on output from several major fields and ports in recent days. Libya is currently losing more than 550,000 barrels per day in oil production from blockades on major fields and export terminals, creating supply challenges in an already affected market due to the Russia-Ukraine conflict.
  • The number of Americans filing new claims for unemployment benefits fell moderately last week, still suggesting that April was another month of strong job growth. The report from the Labor Department on Thursday also showed unemployment rolls shrinking to the lowest level in 52 years in the first week of April, reinforcing the tightening labor market conditions. An acute shortage of workers is keeping layoffs low, helping to fuel inflation, and forcing the Federal Reserve to adopt a restrictive monetary policy stance.
  • Federal Reserve Chair Jerome Powell stated that a 50 bps interest rate hike is imminent when the Fed meets next on May 3rd. The Fed is expected to be aggressive in its actions going ahead as inflation in the US is running roughly three times the Fed’s 2% target.
  • Wholesale inflation in India – measured by the Wholesale Price Index (WPI) — worsened to 14.55 percent in March from 13.11 percent in the previous month, data released on Monday showed. WPI for March was the highest in four months indicating worsening inflationary challenges.
  • FII (Foreign Institutional Investors) continued to be sellers this week and sold shares worth Rs 1,84,433 mn while DII (Domestic Institutional Investors) continued to be buyers and bought shares worth Rs 1,43,943

Things to watch out for next week

  • Continuing with the Q4 results season, management commentary about demand slowdown, and cost inflation would be key things investors would be concerned with.
  • Rising Covid-19 Cases in Shanghai, China, and subsequent lockdowns will be on investors’ minds as fears of a Chinese slowdown have been impacting the securities markets over the past 2 weeks.

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.”

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