07 Apr

Business to focus on the non-covid segment  – Dr Lal PathLab

Update on the Indian Equity Market:

On Thursday, NIFTY settled 170 points lower at 17,639 (-0.9%). ADANIPORTS (-3.5%), TITAN (-3.3%), and HDFC (-2.8%) were the top losers. AXISBANK (+2.3%), DIVISLAB (+1.7%), and HINDUNILVR (+1.3%) were the gainers. Among the sectors, OIL&GAS (-2.2%), CONSUMER DURABLES (-1.7%), and METAL (-1.7%) led the losers HEALTHCARE INDEX (+0.6%), PHARMA (+0.4%), and REALTY (+0.03%) were the only gainers.

Excerpts of an interview with Mr. Om Manchanda, Managing Director, Dr Lal PathLabs. (LALPATHLAB) with CNBC-TV18 on 6th April 2022:

  • COVID cases have declined sharply over the last two months. LALPATHLAB’s business is expected to remain focused on non-COVID. If this is the way things move, the entire industry will have to deal with the COVID base in the previous year’s business.
  • LALPATHLAB is looking at multiple growth triggers, one of which is geographical expansion. They recently acquired a lab in Mumbai and are looking at expanding their footprint in the West zone. They are also expanding their organic footprint in South India.
  • The second growth trigger would be a hypothesis that wellness testing will tend to increase. Once things become stabilized, they will focus on wellness testing
  • Revenue per patient has been highly volatile in the last two years because the test mix has been different on a quarter-on-quarter basis. During the second wave, they saw COVID-alike tests going up so the revenue per patient was very high.
  • Pricing of COVID testing has been falling sharply. Initially, it was about Rs 4,000-4,500 and now it is hovering around an average of Rs 500-600 per test. This has impacted revenue per patient every quarter. LALPATHLAB’s revenue per patient for non-COVID has been around Rs 700 for many years. As they have always been dependent on volume growth more than pricing growth, they expect revenues to stabilize around Rs 700 per patient if there is no covid business further.
  • They had a structured transaction where they were waiting for FY22 to get over. Now that it has ended, LALPATHLAB will get a little more aggressive in Direct-to-Consumer activities in Mumbai as well as the West zone.
  • As of now, the Suburban brand after the acquisition is to be kept separate and LALPATHLAB will continue to focus and leverage the Suburban franchise in Mumbai.
  • Companies in this space have found it difficult to grow organically in non-core markets. So many of the regional players have grown in their core markets for them to grow faster from here on especially on a higher base. One will have to resort to inorganic growth as there is no other option.
  • FY23 will be a crucial year for stabilization as the FY21 and FY22 numbers are not correct representatives of the numbers. The inorganic component of driving growth is expected to continue for large companies.
  • Competitive intensity has gone up in the last two years as many players have entered this space. Earlier there used to be traditional business models but now the market has evolved in multiple directions after the pandemic.
  • There are now aggregators, companies with full-stack offerings where they do pharmacy, diagnostics, and even hospitals have become aggressive on retail pathology. So overall, the competitive intensity has gone up in the last two years and how these companies perform financially remains to be seen since there has been a lot of air cover due to covid in the last two years.
  • How this all pans out in the first six months of FY23 remains to be seen.

Asset Multiplier Comments

  • We expect operating leverage to be one of the synergies created out of the suburban acquisition lab in Mumbai.
  • We expect LALPATHLAB’s established brand identity in organized diagnostics to aid cost efficiencies and economies of scale.
  • We expect multiple growth levers such as the shift from unorganized to organized business, and volume growth in the non-COVID segment through organic and inorganic routes to aid revenue growth and improve margin trajectory.

Consensus Estimate: (Source: market screener websites)

  • The closing price of LALPATHLAB was ₹ 2,835 /- as of 07-April-2022. It traded at 59x/ 50x the consensus earnings estimate of ₹ 48/ 57- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,090 /- implies a P/E Multiple of 54x on the FY24E EPS estimate of ₹ 57/-

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 hshould 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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06 Apr

Revenue growth expected to pick up in FY24-25E  – Hindustan Aeronautics

Update on the Indian Equity Market:

On Wednesday, NIFTY settled 150 points lower at 17,807 (-0.8%). HDFCBANK (-3.6%), HDFC (-3.3%), and HDFCLIFE (-2.4%) were the top losers. COALINDIA (+3.1%), NTPC (2.6%), and TATASTEEL (+1.9%) were the gainers. Among the sectors, IT (-1.6%), FINANCIAL SERVICES(-1.6%), and PRIVATE BANK (-1.3%) led the losers. PSU BANK (+2.0%), METAL (+1.4%), and OIL&GAS (+1.0%) led the gainers.

Excerpts of an interview with Mr. R Madhavan, Chairman, and Managing Director, Hindustan Aeronautics (HAL) with CNBC-TV18 on 5th April 2022:

  • The company recorded peak revenues of Rs 240,000 mn in FY22.
  • The projects currently undertaken will fructify only in FY24E and FY25E. Hence the company expects moderate growth of 6-7% for FY23E mostly through the repairs and overhauling (ROH) route. Beyond that the company expects revenue growth to be 9%, and 12% for FY24E and FY25E respectively because of new projects coming in place.
  • All the projects which include Light Combat Aircraft (LCA) Tejas, helicopters (Light Utility Helicopters (LUH) and Light Combat Helicopters (LCH)), and the Hindustan Turbo Trainer-40 (HTT-40) are indigenous. The IP (Integrity pact) for helicopters lies with the company (HAL) while the IP for LCAs lies with the DRDO.
  • The company received two new orders from the Ministry of Defense for a consideration of Rs 38,870 mn.
  •  The company is looking at various options for fundraising, as it wants to move away from the current product profile that they have. It is looking at Boeing, Civil MRO (maintenance), and Passenger to Freight conversion business. The company is also looking at partnerships for the design and development of engines for helicopters.
  • Safran Aircraft’s partnership is for the engines. The company expects to secure a financial partnership with a private player for their 10-12 tonne helicopters for the design, development, and manufacture of helicopters.
  • HAL expects the order book by the end of FY22 to be more than Rs 1,000 bn. Helicopter orders expected by the company are for 200 LUH, 140 LCH, and an order for 70 HTT-40 turbo trainers for approximately Rs. 70,000 to 80,000 mn.

Asset Multiplier Comments

  • HAL’s marquee projects, such as the LCA Tejas and LCA and LUH helicopters, are slated to play a key part in India’s transition to Atma Nirbhar Bharat for defense. The company also intends to make significant strides in the International market with LCA Tejas and their other products.
  • We believe that their order book of Rs 792,290 mn as of 3QFY22 and the expected order book visibility as stated by the company reiterates the revenue expansion story. Moreover, HAL’s focus on indigenization of components, systems, and accessories is expected to result in cost savings supporting the margins and profit.

Consensus Estimate: (Source: investing and tickr websites)

  • The closing price of HAL was ₹ 1,550/- as of 6-April-2022. It traded at 14x/ 12x the consensus earnings estimate of ₹ 109/ 126/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,824/- implies a P/E Multiple of 15x on the FY24E EPS estimate of ₹ 126/-

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 hshould 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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05 Apr

A Merger of Equals: HDFC

Update on the Indian Equity Market:

On Tuesday, the Nifty closed lower at 17,957 (-0.5%) as indices were trading on a weak note amid profit-taking in HDFC twins following a sharp rise in the last session. CONSUMER DURABLES (+2.4%), FMCG (+1.3%), and AUTO (+1.2%) were the top sectoral gainers. FINANCIAL SERVICES (-1.6%), PRIVATE BANK (-1.5%), and BANK (-1.5%) were top losing sectors. The top losers were HDFCBANK (-3.1%), BAJAJFINSV (-2.4%) and HDFC (-2.2%), while ADANIPORTS (+3.1%), NTPC (+2.8%) and TATAMOTORS (+2.4%) were the top gainers.

 A Merger of Equals: HDFC

Edited excerpts of an interview with Deepak Parekh, Chairman, HDFC with ET on 5th April 2022:

  • The merger between HDFC and HDFC Bank is a merger of equals and comes at the right time as the latest Reserve Bank of India (RBI) regulations have narrowed the operational arbitrage for non-bank lenders.
  • Both the institutions have been evaluating the pros and cons of a possible merger for mutual benefit.
  • Over the past two years, there have been regulatory changes for Banks and Non-Banking Financial Companies (NBFCs), considerably reducing the barriers for a potential merger.
  • A host of guidelines issued by the RBI in the last three years on harmonizing regulations between banks and NBFCs include guidelines requiring large NBFCs to conversion into commercial banks, particularly those with more than Rs 500 bn of asset bases.
  • Non-Performing Assets (NPA) classification has been harmonized, NBFCs are now required to provide liquidity coverage ratio, and scale-based regulation has been introduced where the upper layer of NBFCs will have a much stricter regulatory watch.  These measures have considerably reduced the risk arbitrage that was there between a Bank and an NBFC.
  • The Liquidity Coverage Ratio (LCR) requirements are a big drain on NBFCs same as Cash Reserve Ratio (CRR) & Statutory Liquidity Ratio (SLR).
  • NBFCs need to keep their maturities in the next 30 days in a separate bank account. It needs to take all loan repayments, bond repayments, deposit repayments, and estimated disbursements in one account and transfer it to a liquid fund accruing a 2% return.
  • The strategic rationale for the proposed merger includes SLR and CRR for banks, which was 27% and has now been reduced to 22% (18% for SLR and 4% for CRR).
  • Interest rates are more favorable at present. Banks have an option to invest in priority sector lending (PSL) certificates, to meet the PSL requirements.
  • The merger makes the combined entity strong enough, countering competition and making the mortgage offering more competitive. The funding challenges both in quantum and cost will be minimized by the combined entity.
  • The bank has requested a phased-in approach in respect of SLR and CRR, priority sector lending as well as grandfathering of certain assets and liabilities and in respect of some of its subsidiaries. These requests are under consideration by RBI in terms of a letter received on April 1.
  • In a letter to RBI, HDFC has also asked for time, to be compliant on existing assets of HDFC, a specific period of 2-3 years, with new loans complying with SLR and CRR regulations.
  • The bank is aware that Developer finance, apart from earning a higher rate of interest, gets retail loans. When a builder launches a product and a construction finance is being offered, HDFC captures the first few days’ business, which emanates into large mortgage loans. However, loans given for the purchase of land will have to stop.
  • Chairman believes that the HDFC brand is not disappearing, and the brand will live through HDFC Life, HDFC MF, and HDFC Bank.
  • The time for a merger has come because of regulatory changes. NBFCs are being regulated like a bank but don’t enjoy the advantages of a bank like an overdraft, and lower cost of funds.

Asset Multiplier Comments

  • Benefits like an increase in product coverage, cross-selling opportunities to HDFC’s customers, the ability to raise funds at competitive rates, and loan book expansion will boost the performance of the Bank in long term.
  • We think the merger will be able to extract synergy benefits and will aid the competitive positioning of the combined entity as it will have the same cost structure as other banks.

Consensus Estimate (Source: market screener website)

  •  The closing price of HDFC was ₹ 2,623/- as of 05-April-2022. It traded at 3.7x/3.4x the consensus book value per share estimate of ₹ 716/ 785/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,200/- implies a PBV Multiple of 4x on the FY24E BVPS estimate of ₹ 785/-.

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 Apr

CitiBank acquisition provides access to an affluent client base: Axis Bank

Update on the Indian Equity Market:

On Monday, NIFTY crossed the 18,000 mark to settle at 18,053 (+2.2%) aided by the surge in HDFC twins post the announcement of the merger of HDFC Ltd into HDFC Bank. HDFCBANK (+9.8%), HDFC (+9.1%), and ADANIPORTS (+4.1%) led the stock gainers. INFY (-1.1%), TATACONSUM (-0.4%), and TITAN (-0.2%) led the laggards. Among the sectoral indices, FINANCIAL SERVICES (+4.6%), BANK (+4%), and PRIVATE BANK (+3.9%) led the gainers and there were no sectoral losers.

Excerpts of an interview with Mr. Amitabh Chaudhary, MD & CEO, Axis Bank published in Economic Times on 1st April 2022:

  • Axis bank acquired Enam Financials, which was renamed Axis Capital. It is the number one player in the equity capital markets in India and is expanding business in the brokerage and M&A segments. Axis Capital will also benefit from the One Axis strategy.
  • Axis bank was distributing Max Financials’ products for over 10 years, so its acquisition provided an opportunity to sign up for a long-term deal and strengthened the partnership with Max.
  • Citi bank’s retail portfolio acquisition was in line with Axis bank’s strategy of granularizing retail business and premiumisation of the portfolio. The acquisition will create opportunities and synergies that will accelerate the journey to creating a franchise across the country.
  • The acquisition provides access to one of the best affluent consumer franchises in India and Axis bank will get access to salary accounts, 1600 plus corporate accounts, and Suvidha corporates. Axis bank will also gain 3,600 Citibank employees. There are a lot of interesting parts which will strengthen Axis Bank’s franchise.
  • The CEO believes they have structured a transaction where the Bank is protected from customer attrition.
  • The price paid for the transaction was approved by the Board. The transaction took slightly longer because it was a complex one. As it was a purchase of a portfolio, he believes it was better that some of the complications were discovered upfront rather than during the transition process.
  • It will take about nine to twelve months to get all the regulatory approvals. It will take time to get customer consent, which depends on the agreement customers have with Citibank. From there, it will take 18 months to transition every Citi customer to Axis’ platform.
  • Right now, wholesale banking has been muted due to muted credit growth. Axis bank wants to be careful about giving loans at prices where the NIMs doesn’t make any sense. Overall, he believes there is a lot of work that can be done on the wholesale banking franchise.
  • Axis bank’s balance sheet gives it the flexibility to fund Citi India’s consumer purchase through balance sheet liquidity, external capital, or a combination of both. The impact will be 230bps on the CET ratio. Though the resultant CT-1 ratio will be above regulatory requirements, the Bank may consider raising capital in the future.
  • A very important part of any merger of this size is how to execute that merger. The integration management committee has already been formed and some of the important considerations in that plan would be around customer attrition, staff attrition, technology transition, and also getting benefits in terms of ensuring that Axis bank can cross-sell more to the Citibank customers.

 Asset Multiplier Comments

  • We believe the deal will add to Axis Banks’ competitive positioning across the credit cards and wealth management segments.
  • The value accretion from Citibank’s portfolio in the long term depends on Axis Bank’s ability to retain and continually add customers as well as employees and its ability to up-sell and cross-sell. The deal is fairly small compared to the size of Axis Bank’s balance sheet.

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

  • The closing price of Axis Bank was ₹ 784/- as of 04-April-2022. It traded at 1.9x/ 1.7x the consensus book value per share estimate of ₹ 417/ 474/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 943/- implies a P/BV Multiple of 2x on the FY24E book value per share estimate of ₹ 474/-.

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 Apr

This week in a nutshell (28th March- 1st April)

Technical talks

NIFTY opened the week on 28th March at 17,182 and closed on 1st April at 17,670. It made a gain of 2.8% during the week. The index is trading below the upper Bollinger Band level of 17,937 which might act as a resistance. On the downside, the 17,324 level might act as a support. The RSI (63), and MACD turning upward suggests a further possible upside.

Among the sectoral indices, REALTY (+5.7%), FINANCIAL SERVICES (+5.1%), and BANK (+4.9%) led the gainers during the week. PHARMA (-0.2%) was the week’s only loser. 

Weekly highlights

  • The US indices closed the week with marginal gains as concerns regarding the continuing conflict between Russia and Ukraine persisted with its inflationary effect on prices. S&P 500 was up by 0.1%, Nasdaq 100 by 0.7%, and Dow Jones was down by 0.1%.
  • The US president Joe Biden has announced that the U.S. will release 1 million barrels of oil per day from its strategic reserves. The announcement came as the White House looked forward to combat a spike in energy prices caused by Russia’s invasion of Ukraine. 
  • Russia has offered crude oil to India at a discount of USD 35 per barrel on pre-war prices. Russia has offered Rupee-Ruble-denominated payments using Russia’s messaging system SPFS (System for Transfer of Financial Messages). The direct purchase is expected to involve Russia’s Rosneft PJSC and the Asian nation’s biggest processor Indian Oil Corp., which have an optional term contract. A final decision is yet to be made.
  • Axis Bank has bought Citigroup’s consumer banking business in India for up to Rs 123 bn and it expects the transaction to get completed in 9-12 months. Around 3,600 Citi employees will be transferred to Axis Bank, and Citi expects the release of about USD $800 mn of allocated tangible common equity after the deal.
  • The board of directors of PVR Limited (PVR) and INOX Leisure Limited (INOX) on Sunday approved an all-stock amalgamation of INOX with PVR at their respective meetings. Post-merger, PVR’s Promoters will have a 10.6% stake while INOX’s Promoters will have a 16.7% stake in the combined entity. Inox shareholders will receive three shares in PVR for 10 shares of Inox.
  • Emami on Friday said it has acquired the ‘Dermicool’ brand from Reckitt Benckiser (India) Ltd for a total consideration of Rs 4,320 mn. It is a brand popular for providing respite from prickly heat caused during the summer season. The acquisition is funded through internal accruals.
  • Adani Total Gas has forayed into electric mobility by launching its first electric vehicle charging station (EVCS) in Ahmedabad. The company aims to expand its network by setting up 1,500 EVCS across the country and has kept an expansion plan ready once the demand for EV ecosystem picks up in India. 
  • FII (Foreign Institutional Investors) and DII (Domestic Institutional Investors) were net buyers this week. There was a net inflow of Rs 55900 mn from the FII while DII invested Rs 50525 mn.

Things to watch out for next week

  • We expect the next week to remain less volatile. Market will await the results for the quarter ending March-22. News flow from Ukraine is the only potential source of volatility in the global markets. 
  • The release of data from the US Purchasing Managers’ Index (PMI) and Fed Reserve’s minutes will give investors additional insights into current economic conditions. 

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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31 Mar

Travel returning to pre-pandemic levels – VIP Industries


Update on the Indian Equity Market:

On Thursday, NIFTY settled at 17,465 (-0.2%) near the day’s high of 17,334. FMCG (+1.2%), MEDIA (+0.8%), and PRIVATE BANK (+0.3%) were the top sectoral gainers. HEALTHCARE (-1.3%), PHARMA (-1.2%), and PSU BANK (-0.8%) led the sectoral losers. Among the NIFTY50 components, JSWSTEEL         (+2.2%), M&M (+2.1%), and BRITANNIA (+2.0%) led the gainers. HINDALCO (-4.8%), DIVISLAB (-2.5%), and APOLLOHOSP (-2.0%) led the losers.

Travel returning to pre-pandemic levels – VIP Industries

Excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP INDUSTRIES (VIP) with CNBC-TV18 on 29th March 2022:

  • Demand has been good since Q3FY22, but it was still 8% lower than pre-pandemic levels. The company expects a significant bounce back in Q1FY23 owing to the lifting of COVID-19 induced international travel restrictions ending. There are signs of pent-up demand and revenge travel.
  • Marriages have been subdued due to COVID-19 which is now getting into full swing ahead of the wedding season. Another driver for volume growth for the company is that educational institutions have been opening up after almost 2 years, which has boded well for the backpacks segment.
  • 60% of the previous raw material supplies of the company earlier used to come from China, which has now come down to around 10%. The company is increasingly sourcing key raw materials for soft luggage from Bangladesh fulfilling about 50% of the requirement.
  • The demand for hard luggage is picking up and the company has enough in-house capacity in Sinnar, to provide for the increasing demand, it expects Q1FY23 to be a bumper quarter owing to seasonality. However, the company is wary about supply-side issues that are prevalent currently.
  • Margins have been topsy-turvy over the past year. Raw material cost escalation from China, as it is the largest supplier of the key raw materials to VIP’s suppliers, freight and logistics costs are at an all-time high, so it’s difficult for the management to give EBITDA margin guidance. However, it is targeting the margins to be in the mid-teens.
  • The company has taken a price hike in Q4FY22 of 5% over Q3FY22, following a price hike in October-21. As the input cost inflation persists due to extreme fluctuations in the pricing it’s difficult to take calibrated price hikes.
  • The company has currently a market share of 47%, the company has an aspirational target of crossing Rs. 20 bn in sales with mid-teen EBITDA Margins and increasing the market share to 50%.

Asset Multiplier Comments

  • Luggage being a proxy play to the travel & tourism industry was among the worst impacted sectors owing to pandemic in FY21, FY22. With school and offices re opening, travel resuming and wedding season around the corner we see demand visible. VIP Industries is well positioned to tap this opportunity due to increased movement of leisure and business tourist both domestically and internationally..
  • Strong manufacturing capabilities in Bangladesh (for soft luggage) gives VIP an edge over its peers. By reducing dependence on China and sourcing from Bangladesh, we expect VIP to be able to manage margin pressures effectively.

Consensus Estimate: (Source: market screener website)

  • The closing price of VIP was ₹ 745/- as of 31-March-2022. It traded at 57x/ 41x the consensus earnings estimate of ₹ 13/ 18/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 705/- implies a P/E Multiple of 39x on the FY24E EPS estimate of ₹ 18/-

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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31 Mar

Discipline and Investing!


Discipline and Investing!

An investment philosophy contains the core beliefs that guide an investor’s actions and decisions.  How many times have people heard people say “Meditation has changed my life” or “Running has changed my life”.

Is it true that meditation, running, cycling, or going to a gym can change a person’s life? Well, it is the whole process that helps – not just the act itself. Let us say someone starts meditating 3 times a day for 10 minutes each. Once at 7 am, once at 1 pm, and once at 7 pm. Breakfast, lunch, and dinner? In the first week, they do 4 days and miss 3 days. Next week they do 5, then 6 and in 3 months they are meditating for 15 minutes at each session. Now, this ensures that they go to bed at say 11 pm at least – so that they can get up at 6 am and do their meditation at 7. This means no late-night parties – no drinking binges, etc.

So the activity of meditation has brought a lot of discipline to their life. That helps as much as the meditation itself! Ditto for running, cycling – the process helps. After 6 months or 1 year, they go around saying “meditation helps”. True, but partially.

When it comes to investing, again the first step is discipline – to start saving money. That is the toughest part. Once a person learns to save, doing a SIP is not so tough. The discipline of saving says 20% of a person’s salary is a good target to start with. Doing a SIP in an index fund is ideally recommended till one starts learning about investing.

So doing a SIP is about the discipline of taking money away from an investor as soon as it comes. It is one of the best ways of investing for a young person just starting to invest. It works just as well for a seasoned investor who does not want the need to think every day about where and what to invest.

Like meditating, once someone decides to think of saving and tell themselves that Rs. 10,000 per month should be the SIP amount – it can happen. Investors need not fret over missing one or two installments as it takes time to build in the discipline.

Creating wealth is a long-term, multi-year, multi-decade, multi-generational process. Somebody needs to make a start. The ideal age of course is 22, but it is even better if an investor’s father or grandfather had started the process. If they have not, anyone could. We hear such stories very often. Of SIPs started in 1999, 2008, …and continuing. The amount of wealth created is amazing.

On the other hand, we regularly read about celebrities who earned Millions of Dollars going bankrupt. Being driven to suicide. Yes, discipline is boring – especially when investors are young. However, at a later date, the same discipline gives you Financial freedom. Ironic is it not? Discipline leads to freedom!

Source: subramoney by P V Subramanyam

Asset Multiplier Comments:

  • Investing has very little to do with finance and a lot to do with human behaviour. Sticking to an investment strategy in a disciplined manner ignoring other temptations is the easiest way to build wealth over time.
  • Disciplined investing also gives the added benefit of staying invested over the long term ignoring the short-term fluctuations and volatility in the market. Acting during volatility is one of the most prominent reasons for wealth erosion for investors.

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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30 Mar

Developing new residential properties beyond top tier cities – Godrej Properties

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 17,498 (+1%). MEDIA (+2.3%), FINANCIAL SERVICES 25/50 (+2%) and FINANCIAL SERVICES (+2%) were the top gainers, whereas, METAL (-2.2%), OIL & GAS (-0.4%) and PHARMA (-0.2%) were the top losers. Within Nifty 50, HDFCLIFE (+3.5%), BAJAJFINSV (+3.3%) and TATACONSUM (+3%) were the top gainers and ONGC (-5.4%), HINDALCO (-4.9%) and JSWSTEEL (-4.6%) were the top losers.

Excerpts of an interview with Mr. Mohit Malhotra, MD & CEO, Godrej Properties (GODREJPROP), with The Economic Times on 28th March 2022:

  • Godrej Properties is developing a new residential property in Bangalore. It is a 30-acre plus project with a revenue potential of almost ₹ 10 bn.
  • After a period of an eight-year downcycle in the residential property market, the company is witnessing extremely strong consumer demand with affordability being at an all-time high.
  • The ongoing Russia-Ukraine war has resulted in a 30-40% jump in prices of key commodities like steel and aluminum.
  • Keeping the inflation factor in mind, the company has taken 4-8% price hikes across projects at the beginning of 4QFY22. Despite these price hikes, the company has not seen any major demand pushback from the customers.
  • The company is among the top players in the top four cities of Mumbai, NCR, Bangalore, and Pune. But the market share is between 3-4% and the strategy is to first increase this market share and then enter into new cities closer to these locations.
  • Intending to enter new cities in India, the company plans to do a plotted development in a recently acquired 50-acre land in Sonipat, Haryana. The project has a revenue potential of ₹ 7500-10000 mn.
  • Being very positive about the outlook of the market, for these expansion plans, the company is looking to invest close to USD 1 billion over the next few years.

Asset Multiplier Comments:

  • Industry-wide price hikes are inevitable as inflation is here to stay and the industry is already at very low profitability. However moderate price hikes are less likely to impact demand.
  • Godrej Properties being a near-zero debt company and looking to invest close to USD 1 billion, is gauging rising demand in metros as well as tier 2 cities. Near-term supply-side issues may not create a hindrance to the long-term demand trajectory.

Consensus Estimate: (Source: market screener & TIKR website)

  • The closing price of GODREJPROP was ₹1,662/- as of 30-March-2022. It traded at 87x/64x the consensus earnings estimate of ₹ 19/26 per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,584/- implies a P/E Multiple of 61x on the FY24E EPS estimate of ₹ 26/-.

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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29 Mar

Antiretroviral API sales expected to normalize from 1QFY23 – Laurus Labs

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 17,325 (+0.6%) near the day’s high of 17,344. PHARMA (+1.5%), HEALTHCARE (+1.3%), and CONSUMER DURABLES (+1%) were the top sectoral gainers. MEDIA (-1.2%), PSU BANK (-0.8%), and OIL & GAS (-0.2%) led the sectoral losers. Among the NIFTY50 components, EICHERMOT (+4.5%), HDFC (+3.3%), and DIVISLAB (+3.2%) led the gainers. HEROMOTOCO (-6.7%), ONGC (-3%), and COALINDIA (-2.7%) led the losers.

Laurus Labs has been granted a license to manufacture Molnupiravir and Paxlovid, the COVID drugs from the Medicines Patent Pool (MPP).

Excerpts of an interview with Dr. Satyanarayana Chava, founder, and CEO, Laurus Labs (LAURUSLABS), with CNBC-TV18 on 28th March 2022:

  • To treat the COVID virus Paxlovid is a more effective drug compared to Molnupiravir. As the number of cases in Asia except in China and Africa is declining significantly.
  • On opportunity, Mr. Chava said, as an API or formulation for Paxlovid company didn’t see a great opportunity in the emerging markets. As the company got the license, they are preparing themselves to grab the opportunity available to them.
  • Mr. Chava added it will take 3 to 4 months for the company to file for regulatory approval after that it will see a clear picture of the opportunity for the company. It’s too early to comment on the opportunity and currently, the company doesn’t see any visibility.
  • Logistics challenges from China and higher prices of petrol-driven solvents are impacting margins but due to the company’s scale, it can manage the impact better than its peers. The company has the challenge of passing higher input costs to customers.
  • On the margins front, the Company can maintain its EBITDA margin of ~30% and the company expects despite the input cost challenges company will be able to manage its margins.
  • The company has 11 final approvals and several tentative approvals for antiretroviral to sell in low and middle-income country (LMIC) markets. The company expects two more final approvals lined up in the coming months.
  • In FY22 company has a challenge in antiretroviral API sales but the company expects 4QFY22 will be a better quarter. From 1QFY23 onwards company expects normalcy in API sales. It also got new approvals in the formulation and it expanded its geographies for formulations and custom synthesis business also performing well.
  • The company expects growth in all divisions in FY23 and is targeting revenue of USD 1bn by FY23.
  • LAURUSLAB received an order from a Global Life Science company in February 2022. The company has started its supplies and is preparing to produce larger quantities in the coming quarters and also the company is well-positioned to deliver its order.

Asset Multiplier Comments

  • We believe that the recent approvals to LAURUSLAB for Molnupiravir and Paxlovid are not likely to add any major incremental revenues as covid cases subside and peers of LAURUSLABS also got the approval for the same drug and this might not add any competitive advantage for the LAURUSLAB.
  • We expect that the issues in antiretroviral API sales to be normalized from 1QFY23 with continuous improvement but lockdowns in China and geopolitical tensions are leading to higher input costs that can put pressure on margins in the shorter term.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 592/- as of 28-March-2022. It traded at 28x/22x the consensus earnings estimate of ₹ 21/ 27/- per share for FY23E/FY24E respectively.
  • The consensus target price of ₹ 575/- implies a P/E Multiple of 21x on the FY24E EPS estimate of ₹ 27/-.

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 Mar

Merged entity plans to open 200 screens per year- PVR & Inox Leisure


Update on the Indian Equity Market:

On Monday, NIFTY settled at 17,222 (+0.4%) near the day’s high of 17,232. PSU BANK (+1.2%), OIL & GAS (+0.9%), and BANK (+0.8%) were the top sectoral gainers. CONSUMER DURABLES (-0.9%), HEALTHCARE INDEX (-0.5%), and IT (-0.4%) led the sectoral losers. Among the NIFTY50 components, BHARTIARTL (+4%), COALINDIA (+2.7%), and AXISBANK (+2%) led the gainers. UPL (-2%), SBILIFE (-2%), and NESTLEIND (-1.8%) led the losers.

Film exhibitors Inox Leisure and PVR have approved a plan of merger. the combined entity will be called PVR Inox. Mr. Ajay Bijli, CMD, PVR Ltd (PVR), and Mr. Siddharth Jain, Director, Inox Leisure Ltd (INOX) explained the merger rationale in an interview with Business Standard on 28th March 2022. here are the excerpts:

  • For regulatory approvals, they have to go through the whole process- the stock exchange, Securities and Exchange Board of India (SEBI), and National Company Law Tribunal (NCLAT). The companies have been told by councils that they don’t need a Competition Commission of India (CCI) approval.
  • India has 9,500 screens and is still growing. New players are coming in and old ones are expanding. PVR and INOX will have 1,500 combined screens. From a macro angle, content is getting consumed everywhere and not just in theatres as consumer behaviors have changed. INOX and PVR are only a subset of the whole revenue pie that gets created.
  • INOX and PVR have a symbiotic relationship with their film, producers, and distributors. They require more films because, as a result of the pandemic, the majority of them have moved to OTT platforms. INOX and PVR are looking at the overall pie of the gross box office collections of India that got severely impacted.
  • They expect the revenue pie to increase if they have more screens and the full support of their stakeholders. The film fraternity is an important stakeholder for PVR and INOX and they expect to play more cinemas in theatres. They don’t intend to spoil this equation by coming together and using their pricing power.
  • In the pre-pandemic era, both companies were adding about 60-80 screens per year. They plan to increase this number to 200 per year going forward.
  • India has 9,500 screens compared to 70,000 in China. As a country, India has been adding 400 screens a year as compared to 6,000-7,000 per year in China which shows how underpenetrated the market is in our country.
  • This partnership is expected to encourage the cinema exhibition industry to continue its investments. Content creators would get encouraged as the size of the industry grows.
  • The merger process is expected to take six to nine months.
  • Smaller towns have smaller malls and shopping centers coming in. A lot of single screens are converting into two and three plexes. INOX and PVR are not against growing in any format but they would be interested to seek any opportunity that comes up organically.

Asset Multiplier Comments

  • The film exhibition sector has been one of the worst impacted sectors due to the pandemic. This has led to a majority of the films getting released on OTT platforms. The sector is expected to go back to its pre-pandemic levels on the back of new film releases and the reopening of theatres.
  • We expect revenue and cost synergies to be created out of this merger. We believe the merged entity would have improved bargaining powers in terms of rentals and advertising rates charged due to an increase in market share.
  • We expect the merged entity to ramp up screen openings over the next few years and take advantage of the underpenetrated film exhibition market in India.

Consensus Estimate: (Source: market screener website)

  • The closing price of INOX was ₹ 525/- as of 28-March-2022. It traded at 40x/ 29x the consensus earnings estimate of ₹ 13/ 18/- per share for FY23E/FY24E respectively. The consensus target price of ₹ 500/- implies a P/E Multiple of 28x on the FY24E EPS estimate of ₹ 18/-
  • The closing price of PVR was ₹ 1,883/- as of 28-March-2022. It traded at 54x/ 30x the consensus earnings estimate of ₹ 35/ 63/- per share for FY23E/FY24E respectively. The consensus target price of ₹ 1,886/- implies a P/E Multiple of 30x on the FY24E EPS estimate of ₹ 63/-

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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