21 Apr

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.”

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20 Apr

Guidance of 20%+ EBITDA Margin for FY23E – Mindtree

Update on the Indian Equity Market:

On Wednesday, the Nifty bounced back and closed at 17,137 (+1.5%) with support from recovery in the beaten-down HDFC stocks and the IT sector. AUTO (+2.2%), OIL & GAS (+1.9%), and IT (+1.2%) were the top sectoral gainers. MEDIA (-0.5%), METAL (-0.3%), and PSU BANK (-0.2%) were the top losing sectors.

The top losers were BAJAJFINANCE (-2.9%), BAJAJFINSV (-1.3%), and ICICIBANK (-1.3%) while BPCL(+4.2%), TATAMOTORS (+3.8%), and SHREECEM (+3.7%) were the top gainers.

Edited excerpts of an interview with Mr. Debashis Chatterjee, MD & CEO, Mindtree with CNBC-TV18 on 19th April 2022:

  • When asked about the merger of Mindtree and L&T Infotech, the CEO stated that it is speculation at this point and will not be able to comment on it. There were opportunities where both the companies have worked together in the past on specific deals.
  • If the management change happens, some leverages can be gained by working together. It will be able to extract synergies if the merger happens as the portfolio of both entities is complementary to each other.
  • The demand environment is robust as the need for getting future-ready has never been more than what it is today. To become future-ready, one has to do it with digital transformation.
  • There is a change in deal patterns as the deal cycles tend to be more iterative and of shorter spends. But over some time, it tends to become a large engagement with the particular client.
  • The deals 2 years ago were more of manage services deals which were annuity deals for 3-4 years and would give revenue visibility for a longer period. Currently, some of these deals are getting converted into digital transformation deals which are used by the clients to maximize their revenue stream. These deals are iterative deals that are of shorter period, but over some time when these short deals are added, it does become large.
  • Mindtree has adopted the strategy where it leverages its consulting-led capabilities, creates outcome-based opportunities, and works with clients as their transformation partners for a long period.
  • The CEO commented to look at the Total Contract Value (TCV) on annual basis. TCV for FY22 is up by 17% YoY at USD 1.6 bn and the TCV annual growth is on track.
  • It maintains the EBITDA Margin guidance of 20%+ for FY23E.
  • CEO commented that margin is a factor of many levers and disciplined execution. Two years back, Mindtree had spent a lot of time putting up proper processes to ensure margin management, use the levers consistently, and get a predictable model.
  • The objective of the company is sustainable margins and to re-invest the excess profit into the business.
  • The mantra of the organization is profitable growth for which margins are equally important.
  • Wage hikes are expected from time to time and will impact the margins by 100-200 bps. But, this is already baked in the margin guidance given by the company.

Asset Multiplier Comments

  • With Mindtree’s strong capabilities in all layers of digital i.e. experience, data, and back-end/core systems, it is well-positioned to become a digital transformation partner and participate in Clients’ revenue growth.
  • Looking at the deal wins momentum, focus on garnering multi-year engagements and scaling up top accounts would aid in sales traction moving forward.

 Consensus Estimate (Source: market screener website)

  • The closing price of Mindtree was ₹ 3,668/- as of 20-April-2022. It traded at 32x/27x the consensus EPS estimate of ₹115/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,381/- implies a PE multiple of 33x on the FY24E EPS estimate of ₹ 134/-.

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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20 Apr

Via Negativa-What Should Fund Investors Not Do?

Fund investors spend a great deal of time deliberating the positive steps they can take to achieve better investment results. While this is an important endeavor, there is something easier and more effective that should come first – deciding what they should not be doing.

Nassim Nicholas Taleb highlighted the benefits of eliminating errors in his book ‘Anti-Fragile’ where he describes the theological idea of “via negativa”, which is a means of explaining God by what it is not, rather than what it is. Taleb broadened this concept to contend that it is easier and more beneficial to stop negative activities than to attempt to identify new, and constructive behaviors.

Investors can eliminate the mistakes that they know are damaging and costly far more easily than discovering positive behaviors that might improve their fortunes. The more complex and unpredictable the environment, the more likely this is to be true.

This is an approach that should be adopted by fund investors, who face an immeasurable line-up of choices and decision points. Rather than obsessing over how to define the precise allocation to the right funds at the right time – an incredibly difficult task – it would be more productive to first concentrate on the actions investors should avoid. Prioritize omission over commission.

So, what is it that fund investors should not do?

1) Don’t buy into a fund after an extremely positive performance: Abnormally strong performance on the upside is highly unlikely to persist, investing after a spell of stellar returns is an asymmetric bet.

2) Don’t be concentrated by the fund, manager, style, or asset manager: Concentration is the surest path to severe losses, it implies investors know far more about the future than they do.

3) Don’t predict short-term market movements: Investors cannot predict the short-term behavior of markets or funds that invest in them. Hence, they should avoid basing their decisions on expected short-term market movements.

4) Don’t check short-term fund performance: Short-term fund performance is typically nothing more than random noise, checking it frequently encourages poor decisions.

5) Don’t use performance screens: Using performance screens will highlight the funds which have done well historically. As fund performance tends to mean revert, the Author cannot think of a worse idea than to filter funds based on historic returns.

6) Don’t keep selling underperforming funds to buy outperforming funds: This is a common behavioral trait that makes investors feel good at the time of doing it, but compounds into a detrimental tax.

7) Don’t buy thematic funds based on strong back-tests: If a fund is being launched based on an in-vogue theme with a stellar back-test the chances are investors are already too late.

8) Don’t invest in active managers if one cannot bear long spells of poor performance: Even skillful active managers will underperform for long periods, if that is unappealing, invest in index funds.

9) Don’t invest in funds if one does not understand how they make money: Investing in things investors don’t understand is a recipe for disaster.

10) Don’t persist with active managers when they start doing something different: The circle of competence for active managers is usually incredibly narrow, if they are venturing outside of that, investors should avoid them.

Source: www. behaviouralinvestment.com by Joe Wiggins

Asset Multiplier Comments:

  • Each of these prohibitions attempts to establish a simple investing process that can be effective during highly uncertain environments which especially creates a lot of unnecessary noise.
  • Putting a stop to hasty decisions is as important as embracing positive investing actions. These will ensure that investors’ capital is protected and the process of wealth creation does not get hampered.

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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19 Apr

Confident of doubling FY19 VNB in FY23 – ICICI Prudential Life Insurance

Update on the Indian Equity Market:

On Tuesday, Indian equity markets ended in the red for the fifth day in a volatile session. The benchmark index NIFTY50 settled at 16,959 (-1.3%), dragged by HDFC (-6.3%), HDFCLIFE (-6.3%), and SBILIFE (-4.5%). APOLLOHOSP (+5.3%), COALINDIA (+3.3%), and RELIANCE (+3.2%) were the top gainers. Among the sectoral indices, OIL & GAS (+0.8%) was the only one to end in green. IT (-3.0%), FMCG (-2.8%), and REALTY (-2.5%) were the top sectoral losers.

Excerpts from an interview of Mr. NS Kannan, MD & CEO of ICICI Prudential Life Insurance Company (IPRULIFE) with CNBC-TV 18 on 19th April 2022:

  • IPRULIFE announced 4QFY22 and FY22 earnings. APE (Annual Premium Equivalent) grew 20% YoY in FY22, driven by multi-product, multi-channel architecture. VNB (Value of New Business) grew 33% YoY in FY22. In addition to topline growth, the VNB margin grew from 25.1% in FY21 to 28% in FY22.
  • The margin growth can be attributed to the increase in the sale of protection products and a diversified product profile.
  • The Company has an objective of doubling the absolute VNB of FY19 by FY23. IPRULIFE requires 22% growth in FY23 to achieve the target. The growth in VNB will be led by topline growth and margin expansion levers.
  • As the company recovers from the pandemic, it hopes for a much clearer route for growth.
  • Fulfillment was impacted due to the pandemic, the company could not get the medical examination of customers done. Given the awareness of insurance, the demand remains high.
  • VNB has grown from Rs 12,860mn in FY18 to Rs 21,630mn in FY22. The driver for this has been the partnerships established. ICICI bank accounts for ~25% of the topline. The Company has tied up with several banks (7 in FY22), which contribute ~15% of the topline. Direct business is ~13% of the topline. Agency channel contributes ~25% of the business. The well-diversified channel mix has resulted in topline growth despite the challenges posed by the pandemic.
  • The growth driver for VNB margin is product mix. ULIP’s contribution has reduced from ~80% to ~48% of total revenue in FY22. The protection business has also scaled up significantly.
  • The savings business is expected to grow at the nominal GDP growth rate in India. The protection business which is an underpenetrated one is a significant opportunity.
  • The life insurance sector has benefitted from liberalization. Insurance penetration can be measured as a percentage of the sum assured. Based on that metric, IPRULIFE has a 13.5% market share.

Asset Multiplier comments:

  • The insurance sector in India is a multi-decadal opportunity aided by rising disposable income, young population, and awareness. The pandemic has increased the awareness of insurance and digitization initiatives by companies have helped meet the demand.
  • IPRULIFE is likely to see a growth in the Banca channel sales, aided by new partnerships forged in the previous years and a turnaround in sales from its parent, ICICI Bank. With a focus on scaling up the agency and direct channels through recruitment and training of new agents, we expect the topline growth will help it achieve its target of 2x VNB of FY19 by FY23E.

Consensus Estimate: (Source: Market screener website)

  • The closing price of ICIC was ₹ 512/- on 19-April-2022. It traded at 55x/ 48x the consensus EPS estimate of ₹ 9.3/ 10.6/- for FY23E/FY24E respectively.
  • The consensus average target price is ₹ 678/- which implies a PE multiple of 64x on FY24E EPS of ₹ 10.6/-.
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

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 ICICI Prudential, Insurance , 0 Comments Read more...
18 Apr

To launch its first EV model by 2025 – Maruti Suzuki

Update on the Indian Equity Market:

On Monday, NIFTY ended 290 points in the red and closed at 17,173. FMCG (+0.6%), AUTO (+0.4%), and METAL (+0.3%) were the gainers, whereas, IT (-4.6%), PSU BANK (-2.5%), and FINANCIAL SERVICES (-2.2%) were the losers. Among the stocks, NTPC (+6.4%), SBILIFE (+2%), and HDFCLIFE (+1.7%) were the gainers and INFY (-7.2%), HDFC (-4.8%), and HDFCBANK (-4.6%) were the top losers.

Excerpts of an interview with Mr. Hisashi Takeuchi, MD & CEO, Maruti Suzuki published in Business Standard on the 18th April 2022:

  • The shortage of necessary electronic components and semiconductors has resulted in a backlog of 270,000 units – the equivalent of nearly two and a half months of the company’s domestic sales.
  • For sourcing the semiconductor chips, the company is working with the parent, Suzuki Motor Corporation as well as placing bulk orders directly with chipmakers.
  • The market share of the company has come down to 43.4% from 47.7% two years back. Despite clocking a 13% YoY sales growth in FY22, the loss in domestic market share was due to the total industry growing at a similar pace.
  • The company deals predominantly in the small car market and has lagged in the SUV segment. It has strategies to make a comeback by introducing multiple models in the SUV space.
  • With Suzuki announcing investment in Gujarat to manufacture electric vehicles, the company is targeting localisation which will help in end-product cost reduction.
  • To manufacture electric vehicles and batteries by setting up greenfield projects takes around two to three years. The company thinks, a launch in 2025 is achievable.

Asset Multiplier Comments:

  • We believe, the company will continue to face competition from other existing as well as new players. The company’s goal of regaining its lost market share is a big challenge for the new CEO.
  • The semiconductor shortage is likely to persist at least for a few months which will create a hindrance for most automobile companies. The players who can rationalize the short supply by prioritizing selling the premium category models will turn out to be better performers.

Consensus Estimate: (Source: Tikr website)

  • The closing price of MARUTI was ₹ 7,579 /- as of 18-Apr-2022. It traded at 35x/22x the consensus earnings estimate of ₹ 219/343 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 9,150/- implies a P/E Multiple of 27x on the FY24E EPS estimate of ₹ 343/-

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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17 Apr

This week in a nutshell (11th – 13th April)

Technical talks

NIFTY opened the truncated week at 17,741 on 11th April. The index closed 1.5% lower at 17,476 on 13th April. RSI (14) of 53 is trending downwards and MACD is trending upwards. On the upside, 18,191 could act as resistance while 20DMA of 17,296 could act as support.

FMCG (+1.7%), and Metal (+0.1%) were the only sectoral indices to close the week with gains. IT (-3.0%), Realty (-2.1%), and Auto (-1.1%) led the laggards.

Weekly highlights

  • IT heavyweights TCS, and Infosys released 4QFY22 and FY22 earnings this week. While the numbers were largely in line with the street estimates, attrition continues to be a problem. While demand continues to be robust, there are headwinds of hiring, salary increments, and return of travel spending.
  • US markets ended the week in the red on Thursday. Bond rates spiked as investors worried about the prospect of aggressive policy tightening in the United States. Oher central banks around the world have started increasing interest rates. Following the release of US economic data for retail sales and jobless claims, the benchmark US government yield increased.
  • Fuel costs rose during the first full month of the Russia-Ukraine war, causing inflation in the United States to reach a 40-year high. While prices began to rise last year as the economy recovered from the Covid-19 outbreak, the most recent monthly report showed expenses for numerous items reaching record highs. According to the report, the increase may be leveling out.
  • The European Central Bank confirmed its asset purchase program will end in the third quarter. Once the bond-buying program is completed, the ECB is expected to begin interest rate hikes, following the Bank of England and the US Federal Reserve.
  • A substantial rise in automobile output in March bolstered US industrial activity for the third straight month, possibly indicating that the worst of the industry’s production woes from 2021 were passed.
  • Oil prices retreated after the release of a larger-than-expected build in the US oil stocks. Brent oil closed at USD 111/barrel while Crude oil WTI closed at USD 107/barrel on Thursday.
  • FII (Foreign Institutional Investors) continued to be sellers this week and sold shares worth Rs 63,342mn while DII (Domestic Institutional Investors) continued to be buyers and bought shares worth Rs 27,674 mn.

Things to watch out for next week

  • The markets are likely to take cues from corporate earnings, and geopolitical tensions between Russia and Ukraine amid rising inflation globally.
  • The Indian markets would react to earnings from IT companies such as Mindtree, Larsen & Toubro Infotech (LTI), and HCL Technologies. While the market leaders have alluded to higher attrition, amidst a robust demand environment, the impact of attrition on smaller companies would be something to watch for.

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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13 Apr

Loss Aversion…

It is a human tendency to avoid a loss as much as possible. A loss of Rs. 1000 gives much more pain than the amount of joy derived after gaining Rs.1000. Humans have a bias against loss and this has been proved in many behavioral studies. Loss aversion must be inbuilt in humans as in ancient times, being careless in hunting or an injury or getting excluded from the group could lead a human to die as the world was harsh. Therefore people who were cautious survived and investors today are their descendants. So evolution has made them such that they fear loss more than they like to gain.

Few day-to-day examples – People are hesitant to sell a favorite old car or a piano even if it is not of much use to them now. If they are forced to sell it, they ask for a high price as they feel they are giving away something valuable and cannot bear to see it go.

Doesn’t everyone get tempted by offers such as ‘Buy 2, Get 1 Free’ even though they might not need three! People want to take up the offer as they do not want to lose the one that is given free. Everyone is apprehensive about taking up a new role in the company that they work in or changing a job as they are in a comfortable place and do not want to risk it. Caution is good but being so cautious that investors don’t take up any risks or challenges will not help them achieve their goals or ambitions.

How does Loss Aversion affect personal finance?

  1. Many investors do not sell loss-making investments hoping against hope that someday they might be profitable. This delay leads to further loss due to the erosion of the capital value.
  2. On the other hand, investors tend to sell off stocks whose prices are rising. investors feel that if they do not sell them, prices might fall and they will end up making losses.
  3. Many investors stay away from falling markets as they cannot digest losses. When the markets come back to their true valuations, high-quality stocks & Mutual Funds would bounce back. People would have lost the chance to buy attractive stocks at low prices.
  4. People invest maximum amount in safe, low-interest investment products that provide no great returns nor are able to beat inflation.

Source: www.tflguide.com by Hemant Beniwal

Asset Multiplier Comments:

  • Holding on to loss-making investments hoping that they will turn around or averaging an investment with shaky fundamentals is a definitive way that results in capital erosion.
  • Even the most seasoned investors demonstrate loss-averse behavior, the only way to avoid the trap is to cut our losses as early as possible and ensure our capital is preserved.

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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12 Apr

Aspiring for double-digit revenue growth in FY23 – TCS

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 17,530 (-0.8 %) as it closed near the day’s opening level of 17,585. Among the sectoral indices, PRIVATE BANK (+0.5%), and BANK (+0.4%) were the gainers, whereas REALTY (-2.8%), METAL (-2.7%), and OIL&GAS (-2.4%) led the losers. Among the stocks, AXISBANK (+1.6%), KOTAKBANK (+1.2%), and POWERGRID (+0.8%) led the gainers, while HINDALCO (-5.8%), COALINDIA (-5.0%), and GRASIM (-3.7%) led the losers.

Excerpts of an interview with Mr. Rajesh Gopinathan, MD & CEO, Mr. Samir Seksaria, CFO, and Mr. N Ganapathy Subramaniam, COO & ED of Tata Consultancy Services (TCS) with CNBC TV18 on the 12th April 2022:

  • The company’s deal wins of USD 11.3 bn comprise large deals and even spread deals of all sizes. The regular pipeline is strong, with the third-largest deal worth around USD 250mn. The management is focused to keep on moving up the median level of the deals.
  • The company’s average quarterly deal wins used to be in the range of USD 6-7 bn, and are now between the USD 8-9 bn range. The management feels that this number will keep on increasing due to the demand visibility that it can see.
  • The company believes that its employee cost is stabilizing. The attrition rate is reaching a higher level and in the next 6-8 months it will stabilize. In the last 2.5 years, the company has invested heavily in building its talent pool and upskilling it. The management believes that it will help the company in improving its operational performance to the 26-28% margins range.
  • The management believes that the pricing and realization will be key levers for improving the company’s margins. The better realization will be achieved by 3 things- 1) Incremental pricing for renewals and new deals, 2) Better realization through a better portfolio mix, and 3) Improving realization per FTE (full-time equivalent employee) basis.
  • The company aspires to grow its revenues with a double-digit growth rate in FY23. The management believes that the industry is still far away from the peak of the digital investment cycle. They believe that they are still in the early to mid-stage of their clients’ migration to hyper scaler space and the leveraging of native technologies.
  • Speaking of its big-size deal wins, the company is looking toward cloud transformation deals as the biggest opportunity in almost every industry. The company used technologies like metaverse and augmented reality features for one of its telecom retail clients in North America so that its customers could feel the retail stores and products. All of this comes at a decent price point for the company due to the technologies that it employs

Asset Multiplier Comments

  • TCS’ size and capabilities have positioned it well to benefit from the technological upcycle, cloud migration, and digital transformation that the IT industry has entered into.
  • We also believe that the continued strong deal wins with a suitable portfolio mix will help the management retain its double-digit revenue growth even in FY23.

Consensus Estimate: (Source: market screener website)

  • The closing price of TCS was ₹ 3,686/- as of 12-Apr-2022. It traded at 31x/28x the consensus earnings estimate of ₹ 118/134 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 4,041/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 134/-

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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11 Apr

Entertainment first company that contains learning: Nazara Technologies

Update on the Indian Equity Market:

On Monday, NIFTY settled 109 points lower at 17,675 (-0.6%). HCLTECH (-2.7%), LT (-2.6%), and INFY (-2.5%) were the top losers. GRASIM (+2.6%), ADANIPORTS (+1.8%), and CIPLA (+1.5%) were the gainers. Among the sectors, IT (-1.1%), FINANCIAL SERVICES (-0.56%) and FINANCIAL SERVICES 25/50  (-0.53%) led the losers OIL&GAS (+1.9%), MEDIA (+1.4%), and REALTY (+1.1%) were the gainers.

Excerpts of an interview with Mr. Manish Agarwal, CEO, Nazara Technologies (NAZARA) published in Business Standard on 9th April 2022:

  • The journey from a telco value-added services provider in 2017 to a diversified e-sports company gives the belief that the company had volume, velocity, leadership, IPs, and also the predictability and visibility of revenues.
  • The telco subscription business segment currently contributes less than 10% of total business and the business that the company was not operating in the last five years, is now dominating the portfolio.
  • Skill-based real money gaming contributes only 4% of the company’s business while its market share in the gaming industry is almost 80%.
  • But the company is not aggressively expanding its offerings in the real money gaming business segment as it doesn’t have more clarity. With more clarity on taxation of skill-based real money gaming, the offerings will be expanded.
  • NAZARA is an entertainment-first company that also contains learning, NAZARA is not a learning-first company like Byju’s or Unacadamy. NAZARA has an aim that the child should get entertained and along with entertainment children can get a certain amount of learning.
  • The Company’s product portfolio has varied offerings for different age groups. For the age group of 2-7 years the company has the subscription-based product which is Kiddopia and for the age group of 7-12 years company has games like Roblox where kids have a social community and they can create their games.
  • To expand its business the company is making investments to acquire more IP’s, distribution capabilities, and advertising tech stacks for better monetization. After expanding in India, the company plans to expand its business in the Middle East and Africa.
  • NAZARA’s positioning as a gaming company from India has a halo effect and other benefits that will result in the coming years but it’s tough to explain the company’s diversified portfolio and gaming business model.

Asset Multiplier Comments

  • We expect that the increased penetration of skill-based real money gaming and which contributes ~80% to the gaming market to create new opportunities for the company where the company doesn’t have a strong presence.
  • We believe that the reopening of schools and colleges may impact the number of users as students are now busy with offline schools and examinations. However, 1QFY23 might be a strong quarter for the company due to school vacations. Its diversified product offering is a key positive for the company.

Consensus Estimate: (Source: market screener website)

  • The closing price of Nazara Technologies was ₹ 1,675/- as of 11-April-2022. It traded at 81/ 54x the consensus EPS estimate of ₹ 21/31/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,428/- implies a P/E Multiple of 78x on the FY24E EPS estimate of ₹ 31/-.

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 IT, Nazara Tech 0 Comments Read more...
09 Apr

This Week in a Nutshell (4-8th April)

Technical talks

NIFTY opened the week on 4th April at 17,809 and closed on 8th April at 17,784. After moving in the range of 500 points, it finally made a Doji candle which suggests indecisiveness in the market. The index is trading below the upper Bollinger Band level of 18,175 which might act as a resistance. On the downside, the 16,370 level might act as a support. The RSI (57) and MACD turning upward suggests a further although limited possible upside.

Among the sectoral indices, FMCG (+4.4%), METAL (+4.3%), and PSU BANK (+3.9%) were the gainers during the week. IT (-2.6%), MEDIA (-0.3%) were the week’s losers.

Weekly highlights

  • The US indices closed the week with the tech-heavy Nasdaq index falling 3.9%, S&P 500 fell by 1.3%, and Dow Jones was down by 0.3%.
  • The inflation in the US is at a 40-year high on the back of higher fuel and commodity prices. The minutes of the Federal Open Market Committee meeting in March revealed that several members had called for an aggressive 50 bps hike in interest rates. Still, the FED Chair, Jerome Powell chose to go for a 25 bps hike due to concerns over Russia’s invasion of Ukraine and its effects on the economy.
  • Closer home, the Reserve Bank of India also has the same worry about inflation. On Friday, the monetary policy committee concluded its bi-monthly meeting by keeping the repo rate unchanged at 4%. The rate at which RBI borrows money from banks to suck excess liquidity now stands at 3.75%.
  • A big, breaking newsworthy event occurred with HDFC Ltd., the housing finance giant and HDFC Bank, the largest private sector bank (by market cap) announcing their merger on Monday. An HDFC Ltd. shareholder with 25 shares will get 42 shares of HDFC bank. A lot is going on here from changing fundamentals to a rejig in mutual fund portfolio weights. The merger is expected to be over in the next 18 months subject to multiple regulatory approvals. There will be no dearth of updates and announcements. Worry not, we will be covering everything for you.
  • The long-awaited and recurringly delayed IPO of The Life Insurance Corporation of India is likely to conclude by May 12. A delay beyond that will require the government to issue a fresh filing with the market regulator. During the roadshows, the Centre has declared that it would not look for further equity dilution to prevent any downward pressure on the stock price.
  • The mutual fund industry AUM clocked in a 19.5% year on year growth and the average AUM stands at ₹38.4 trillion during the March 2022 quarter. The inflows through systematic investment plans (SIP) stood at nearly ₹230 bn for January and February 2022. SIPs inflows are largely driven by retail investors. Among the top 10 fund houses, five managed to clock industry-beating growth.
  • GST collections hit an all-time high in March at ₹1.42 trillion. The revenues for March 2022 are 15% higher than the GST revenues in the same month last year. The collections have stayed above the ₹ 1.10 trillion mark since July last year.
  • Since this was a week full of FY22 annual data points, an interesting piece of information is that the draft red herring prospectus (DRHP) filed with SEBI jumped nearly fivefold to 145 in FY22 compared to just 30 in the last financial year. FY22 saw the highest filings since 2007-08. Companies from new-age sectors such as fintech, online e-commerce and food delivery tapped the market for the first time. The year saw companies from several unique sectors as well as traditional businesses file their offer documents. A large number of filings was on account of the push from private equity and venture capital (PE/VC) investors looking to exit their investments.
  • FII (Foreign Institutional Investors) net sold ₹ 63,375 mn, and DII (Domestic Institutional Investors) were net buyers this week. DIIs bought shares worth ₹ 41,615 mn.

Things to watch out for next week

  • The 4QFY22 earnings season kicks off from Monday with IT giants TCS and Infosys publishing their quarterly and full year FY22 earnings. Management commentary on attrition, FY23 outlook and guidance will be key variables for the IT industry.
  • A quarter largely impacted by the Russia-Ukraine war, barring IT companies, which escaped from the brunt of the war, market will keenly look for those that got beaten up and others which have shown enough resilience this quarter.

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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