02 Mar

Biocon Biologics to launch an IPO by FY24E – BIOCON

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 16,605 (-1.1%). Among the sectoral indices, AUTO (-3.0%), PRIVATE BANK (-2.4%), and BANK (-2.3%) closed lower while METALS (+4.1%), MEDIA (+1.9%), OIL & GAS (+1.2%) closed higher. Among the stocks, COALINDIA (+8.5%), HDFCLIFE (+7.0%), and SBILIFE (+5.7%) were the top gainers while MARUTI (-6.0%), DR REDDY (-5.2%), and BAJAJ AUTO (-4.6%) were among the top losers.

Excerpts from an interview of Mrs. Kiran Mazumdar Shaw, Chairperson (BIOCON) with Economic Times dated 1st March 2022:

  • Acquiring Viatris’s Biosimilar business accelerates the company’s presence in the commercial space in the developed markets. The business will be transferred to Biocon Biologics, the biosimilar arm of the company.
  • The company has 7 molecules launched in the global markets and another 14 molecules are under development.
  • The advantage that the company has in the Biologics segment over its competition is that they are fully integrated end-to-end play- manufacturing and R&D. The management believes that with manufacturing, R&D, and the increased scale due to the acquisition of Viatris, they have higher negotiating power to sign bigger deals.
  • Biosimilars is a very complex business and comparatively young segment, hence early movers have an advantage.
  • The deal will be financed using a mix of debt and equity, also the company has hinted at a possibility of an IPO in the future.
  • The management expects the new venture to generate a lot of cash which would help the company with the payback.

Asset Multiplier comments:

  • While the acquisition of Viatris biosimilar gives the company access to a well-established front end in the developed market, it has a significant impact on the company’s near-term financials.
  • We believe the firm is well-positioned for growth, particularly in the biosimilars category, due to the ramp-up of interchangeable Semglee and new launches such as Bevacizumab, Aspart, and Adalimumab in both established and emerging countries.

Consensus Estimate: (Source: Market screener website)

  • The closing price of BIOCON was ₹ 345 as of 2-March-2022. It traded at 57x/34x/23x the consensus earnings per share estimate of ₹ 6/ 10/ 15/ for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 407 /- which implies a PE per share multiple of 27x on FY24E EPS 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 Feb

Tea prices not going up further – Tata Consumer Products

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 16,794 (+0.8%) near the intraday high of 16,816. METAL (+4.9%), OIL & GAS (+2.6%) and IT (+1.1%) were the sectoral gainers, while AUTO (-0.7%), BANK (-0.6%), and FINANCIAL SERVICES (-0.5%) were the sectoral losers for the day. Among the NIFTY 50 stocks, HINDALCO (+7.2%), TATASTEEL (+6.3%), and POWERGRID (+5.6%) were the top gainers and HDFCLIFE (-3%), DRREDDY (-2.7%), and AXISBANK (-2.2%) were the top losers for the day.

Edited excerpts of an interview with Mr. Sunil D’Souza, MD and CEO, Tata Consumer Products (TCPL), with ET NOW on 25th February 2022:

  • 3QFY22 was a decent quarter for the company. Despite a high base of 3QFY21 TCPL delivered ~6%/28%/22% YoY growth in revenue/ EBITDA/ net profit respectively. The cash generation was up by ~30% and the working capital also improved by 14 days.
  • TCPL has seen good volume growth in India as well as market share gains across the beverage and food segment. The company increased its number of outlets and continues to focus on brand building. The advertising and promotional spending has increased. Strong growth in the food volumes was due to its focus on expanding Sampann which is the company’s foray into the pantry of Indian consumers.
  • The company is seeing a little bit of pressure on demand due to inflation but the company has different businesses and they are playing out differently. The company also tackled the demand situation in various ways, but the stress on the semi-urban and rural consumers dragged the demand under pressure.
  • The company seeing demand pressure on brands that cater to the mass markets, but the mass premium brands are performing well. Lower volume SKUs are doing better than higher volume SKUs.
  • TCPL continues to focus on the medium to longer-term to build a large food and beverage and FMCG business as well as company focusing on geographical expansion.
  • In the beverage segment, TCPL has good opportunities to gain market share and premiumise their portfolio and this is primarily driven by distribution, innovation, and brand building process. in the food business, TCPL launched lots of new products to cater to the market and Sampann will the big growth lever in the food business. The NourishCo which operates in ready to drink segment also growing more than ~100%.
  • Starbucks also performed well in 3QFY22 and delivered positive EBITDA from the last several quarters and in 3QFY22 posted positive EBIT and PAT. PBT reached breakeven levels. As the omicron wave subsides, the company expects Starbucks will grow at a good pace.
  • Despite all disruptions, volatility, and inflationary pressures the company delivered volume growth of 5% in tea.
  • Over the last 18-24 months company saw huge volatility in the tea prices, the prices were up by ~70%. The tea prices came down but it’s still higher by ~15%-20% from the pre-covid levels due to the droughts in Assam in May and November-20.
  • The company doesn’t expect the tea prices to go up further. After the 1st half of the year, one can expect to see softening in prices as the entire crop comes in. The company expects to be in a stable environment.
  • As the situation gets back to normal, the company expects good volume growth visibility and it has a clear focus on market share gaining and premiumization and aims of outperformance.
  • The international business delivered good margins in 3QFY22 despite the inflationary pressure of tea and coffee prices. To maintain its margins the company alters the prices as per the input costs trends accordingly.
  • Extended monsoons are impacting the salt drying process that leading to pushing up the prices. Oil-related inflation is affecting the food business but the company took price hikes of ~15% between August to November. As the volumes are starting to come back to normalcy company expects that they will maintain margins over there.
  • The company is in a comfortable space as they don’t expect any huge deviation in tea prices and is well placed in a good position on packaging, freight, and oil front.

Asset Multiplier Comments

  • We think the new products launches including premium and mass premium products will strengthen the product portfolio of the company. It is expected to drive the demand and open newer markets and growth opportunities for the company. TCPL is expected to maintain its leadership position in the salt business and focusing on strong selling and distribution channel will be the key positive for the company.
  • We belives that the company’s focus on Tata Sampann will strengthen its position in the underpenetrated Indian branded food industry and lead to gaining market share.
  • We think the commodity cost will continue to be an area of concern for the company because the Agri commodities such as tea, coffee, spices, and pulses have huge exposure to natural disasters, seasonality and market cyclicality and the unavailability of the raw material also might be a threat for the company.
  • The current Russian-Ukraine crisis affects the Indian tea exporters as Russia is the largest buyer of tea from India. The imposition of sanctions on Russia, depreciation of the Russian ruble, and increasing fuel cost badly affect the Indian tea planters and exporters.

Consensus Estimate (Source: market screener website)

  • The closing price of Tata Consumer Products was ₹ 716/- as of 28-February-2022. It traded at 62x/50x/42x the consensus EPS estimates of ₹ 11.5/14.4/16.9 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 843/- implies a P/E Multiple of 50x on the FY24E EPS estimate of ₹ 16.9/-.

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 Consumer, Tata Consumer 0 Comments Read more...
27 Feb

This Week in a nutshell (Feb 21st to Feb 25th)

Technical talks

NIFTY opened the week on 21st Feb at 17,192 and closed on 25th Feb at 16,658. During the week, NIFTY was down 3.58%. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI is at 45. Going ahead, For the bulls, 16,800-17,065 would be the immediate hurdle and the recovery may continue as long as 16,550 is held decisively.

Nifty Media (-7.7%), PSU Banks (-5.7%) and Auto (-4.6%) were the top losers and there were no gainers.

Weekly highlights

  • US stock index futures tumbled on Monday after Russian President Vladimir Putin recognized two breakaway regions in eastern Ukraine, increasing concerns about a major war. It continued to be in red as Ukraine declared a state of emergency and the US State Department said a Russian invasion of Ukraine remains potentially imminent.
  • After weeks of warnings from Western leaders, Russia unleashed a three-pronged invasion of Ukraine from the north, east and south on Thursday, in the biggest attack on a European state since World War Two that threatened to upend the post-Cold War order on the continent.
  • However, US stocks recovered sharply reversal as US President Joe Biden unveiled harsh new sanctions against Russia after Moscow began an all-out invasion of Ukraine. Sanctions announced on Thursday targeted Russia’s banks but left its energy sector largely untouched.
  • The Dow on Friday registered its biggest daily percentage gain since Nov-20 with the market rebounding for a second day from the sharp selloff leading up to Russia’s invasion of Ukraine.
  • Oil prices fell below USD 100 a barrel, easing some concerns about higher energy costs, and all 11 of the major S&P 500 sectors ended up on Friday.
  • Coming to Indian markets, NIFTY tumbled more than 3 percent and extended the losing streak in the third straight week ended February 25 amid escalation of geopolitical tensions between Russia and Ukraine. The market witnessed extreme volatility in the last week amid uncertainty over war-like situation and registered the biggest single day fall on Thursday after Russia invaded Ukraine, however, witnessed a smart pull back on Friday after the US and UK imposed new sanction on Russia.
  • Foreign institutional investors (FIIs) sold equities worth of Rs 1,98,435 mn, and domestic institutional investors (DIIs) bought equities worth of Rs 2,15,118 mn.

 Things to watch out for next week

  • Volatility to remain high in the coming days as events in Ukraine will dictate the market moves, but that focus eventually will turn back to the Federal Reserve and the outlook for interest rates.
  • The Russia’s invasion of Ukraine might have a long-term effect on global growth and inflation as it will push up the commodity prices. With higher commodity and oil prices, companies will have to pass on the higher input prices to the consumers and if not, then margins are going to get hit and will bring down the earnings.

 

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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24 Feb

Plan to open 18-20 hotels in a year – Indian Hotels

Update on the Indian Equity Market:

On Thursday, Nifty closed at 16,248 (-4.8%) near the intraday low of 16,203. All the sectoral indices were losers led by PSU BANK (-8.3%), REALTY (-7.2%), and MEDIA (-7.0%). Among the NIFTY 50 stocks, all the stocks were losers led by TATAMOTORS (-10.7%), INDUSINDBK (-8.5%), and UPL (-8.3%).

Edited excerpts of an interview with Mr. Puneet Chhatwal, MD and CEO, Indian Hotels, with CNBC TV18 on 23rd February 2022:

  • The company is seeing a very strong pickup in occupancies on the domestic front from February 2022. Everything is currently dependent on the domestic business as the international traffic is still shut. Business in cities like Mumbai, Delhi, and Bangalore will be benefitted as air travel opens up.
  • Leisure business has been performing better than pre-covid times. The company is seeing performance between 120%-150% of its pre-covid levels in this segment.
  • The business coming from corporate travel is lagging behind the pre-covid levels. The occupancy on the corporate and typical business destinations is reaching near the pre-covid levels. The occupancy is near 90%.
  • The rates, though lagging has increased due to a low base effect, and are double the rates of August-September 2021. If the rates increase by another 30-40%, the company will cross the pre-covid high of 2019-2020, in terms of corporate rates.
  • The geopolitical factors like the Russia-Ukraine war might cause volatility in the industry and might delay the bounce-back of the industry, but won’t derail it.
  • The Revenue per available room (RevPAR), which is a multiplicator of the average rate and occupancy is getting close to 90 percent on the domestic front.
  • Regarding costs, Mr. Chhatwal has mentioned the following factors- i) the industry had once in a 100-year opportunity to adjust its cost base. ii) the company had the 2nd best Q3 quarter in the last 10 years due to the adjustment of the cost base. iii) the company is keeping a tab on the costs increase caused by inflation.
  • The thought of ‘less is more’ helps the company with reducing its costs as people have begun expecting fewer amenities post covid. The company is also catering to a new segment of car drive-in to the destination which has developed post covid.
  • The company has restructured its capital to support its traditional and new businesses which include HomeStay of Ama, Home delivery and QSR of Qmin, and reimagined Ginger. The company is planning to open at least 1.5 hotels a month which takes it to 18-20 openings projected for this year across all of its brands.

Asset Multiplier Comments

  • The Russia-Ukraine war might impact the hotel and the travel industry in the short to mid-term. Demand for rooms at the Indian hotels might remain impacted as travel-related fear among people may stay for a while.
  • Given the strong brand value of Indian Hotels, revenue generation from new segments, and its new businesses, the long-term growth story of the company remains intact.

Consensus Estimate (Source: market screener website)

  • The closing price of Indian Hotels was ₹ 194 /- as of 24-February-2022. It traded at 69x/ 40x the consensus EPS estimates of ₹ 3/₹ 5 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 237 /- implies a P/E Multiple of 47x on FY24E EPS estimate of ₹ 5/-.

 

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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24 Feb

Ignoring the risks of Macro Events


The Russian army’s invasion of Ukraine is the latest macro event that has investors concerned about equity markets. It is also the latest macro event that most investors would do well to ignore.  We worry about specific, prominent issues because we want to protect against the losses that may occur if our worst fears are realised. The irony is the most sure-fire way for investors to make consistent and substantial losses is by jumping from one high profile risk to the next, making consistently poor decisions along the way.

We have all seen the charts depicting the benefits of taking a long-term approach to equity investing.  They show how markets have produced strong returns in-spite of wars, recessions, and pandemics. They are a great illustration of the benefits of a long-term approach, but they don’t tell us everything. What they fail to show is all those critical issues that worried investors but never came to pass. We are always wondering about the next great risk to markets; the key to successful investing is finding ways of drowning out this noise.

Even though we can be certain that there are some events that will cause dramatic (short-term) losses for risky assets; ignoring them is absolutely the best course of action for most long-term investors. This is for a host of reasons:

We cannot predict future events: Pre-emptively acting to deal with prominent risks that pose a threat to our portfolios requires us to make accurate forecasts about the future. Something that humans are notoriously terrible at.

We don’t know how markets will respond: We don’t only need to forecast a particular event; we also need to understand how markets will react to it. What is in the price? How will investors in aggregate react? Even if we get lucky on point one, there is no guarantee we will accurately anticipate the financial market consequences. It is worth pausing to reflect on these first two reasons. Forecasting events and their impact on markets is an unfathomably complex problem to solve. We are incredibly unlikely to succeed in it.

We are poor at assessing high profile risks: We tend to judge risks not by how likely they are to come to pass, but how salient they are. This a real problem for macro events because the attention they receive makes them inescapable, so we greatly overweight their importance in our thinking and decision making..

We need to be consistently right: Even if we strike lucky and are correct in adjusting our portfolio for a particular event, that’s not enough – we need to keep being right. Over the long-run being right about any individual prominent macro event is probably more dangerous than being wrong, because it will urge us to do it again.

If we find ourselves consistently worried about the next major risk that threatens markets, there are four steps we should take:

1) Reset our expectations: Investing in risky assets means that we will experience periods of severe losses. These are not something we can avoid. They are the reason why the returns of higher risk assets should be superior over time. We cannot have the long-term rewards without bearing the short-term costs.

2) Check we are holding the right investments: The caveat to ignoring the risks of major macro events is that we are sensibly invested in a manner that is consistent with our long-term objectives

3) Engage less with financial markets and news: There is no better way to insulate ourselves from short-term market noise and become a better long-term investor than to stay away from financial markets. Stop checking our portfolio so frequently and switch off the financial news.

4) Educate ourselves about behaviour, not macro and markets: What really matters to investors is not the latest macro event or recent markets moves, but the quality of our behaviour and decision making.

Source: Most Investors Should Ignore the Risk of Major Macro Events By Joe Wiggins

Asset Multiplier Comments:

  • Macro Events are a recurring feature of the markets, trying to anticipate when they will occur, rather than accepting them as an expected feature of long-term investing, will inevitably lead to worse outcomes.
  • Provided we are appropriately diversified, the real investment risk stemming from major macro events is not the issue itself but our behavioural response to it – the hasty decisions we are likely to make because of the fears we hold.
  • Long Term Investors are better off not being bothered by macro events and it’d serve them well to not check their Portfolio Performance daily to avoid unwise decisions.

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 Feb

On a strong recovery path with new variant launches – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, Nifty closed lower at 17,063 (-0.2%). Among the sectoral indices REALTY (+3.2%), PSU BANK (+1.0%), and CONSUMER DURABLES (+0.9%) led the gainers while FINANCIAL SERVICES 25/50 (-0.2%), AUTO (-0.2%), and FINANCIAL SERVICES (-0.2%) led the losers.

Among the NIFTY components, the top losers were ONGC (-2.4%), HEROMOTOCO (-2.2%), and NTPC (-1.5%) while KOTAKBANK (+2.2%), TITAN (+1.8%), and INDUSINDBK (+1%) were the top gainers.

On a strong recovery path with new variant launches – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjeev Kumar, Head of M&HCV, Ashok Leyland, with Livemint on 15th February 2022:

  • The Company plans to steadily expand its CNG range. It is targeting to bring in up to 40% of Intermediate commercial vehicle (ICV) sales from this fuel variant. It has been delaying its CNG vehicles launch despite this variant being the biggest volume generator in the commercial vehicle space.
  • Its electric mobility arm, Switch Mobility aims to raise funding of around USD 200-300 million. Under this arm, Ashok Leyland continues to develop its electric vehicle (EV) and E-Mobility-as-a-service (E-MaaS) portfolio. The E-MaaS service is soon to be started in India.
  • The competition was quick in providing CNG vehicles as they provided existing bus engines. Ashok Leyland developed CNG engines specifically for trucks. This new engine has the highest horsepower and torque in this segment.
  • The company has announced the launch of 14-tonne and 16-tonne CNG trucks. Further, they plan to extend this range to 11-tonne trucks in the next two months and eventually also to multi-axle vehicles.
  • The launch is timed at an opportune situation where after a three-year slump the commercial vehicle market is seeing a rebound. Positive signals from E-commerce, steel, cement, coal, iron ore will be the main growth drivers for a rise in demand for commercial vehicles.
  • The lower running cost of CNG vehicles as well as the rapidly increasing number of CNG fueling stations are making fleet operators of intermediate and light commercial vehicles prefer CNG over diesel variants.
  • In the intermediate commercial vehicles (ICV) market, 35%-40% of the existing vehicles are already CNG powered. Also, the shortage of trucks with the fleet operators is resulting in a spur in demand.
  • Further, Ashok Leyland is also developing alternate fuel technologies such as liquified natural gas (LNG) as a possible substitute for diesel-run M&HCVs.

Asset Multiplier Comments

  • An uptick in commercial vehicle demand will be strong on the back of the recovery in E-commerce, logistics, building equipment like steel, iron, and cement.
  • Ashok Leyland is well-positioned to service the demand for better and fuel-efficient CNG commercial vehicles.

Consensus Estimate (Source: market screener & TIKR websites)

  • The closing price of Ashok Leyland was ₹ 124 /- as of 23-February-2022. It traded at 29x/ 17x the consensus EPS estimates of ₹ 4.2/ 7.1 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 143 /- implies a P/E Multiple of 20x on FY24E EPS estimate of ₹ 7.1/-.

 

 

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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22 Feb

Mutual Fund arm to be listed at a favorable time – SBI

Update on the Indian Equity Market:

On Tuesday, Nifty closed lower at 17,092 (-0.7%) all sectoral indices ended in the red. The top losers were  MEDIA (-3.3%), REALTY (-2.9%), and PSU BANK (-1.5%).

Among the NIFTY components, the top losers were TATASTEEL (-4.1%), BPCL (-3.7%), and TCS (-3.5%) while M&M (+1.7%), BAJAJFINSV (+1.2%), and HEROMOTOCO (+1.2%) were the top gainers.

Edited excerpts of an interview with Mr. Ashwani Bhatia, MD of SBI with ETNow on 22nd February 2022:

  • Globally inflation is becoming a worry. The world has not seen those kinds of inflation rates in the US. They were last seen in the 70s and the early part of the 80s. The Indian economy is slightly different, and SBI plans to wait and watch.
  • The process has started for the listing of SBI Mutual Fund and all the paperwork has begun. The public will be hearing something from the company rather soon. There is no urgency for the bank to go to the market. When it believes that the timing is good, the markets are favorable and the valuations are lucrative, it will go to the market.
  • SBI does not need capital at the moment and the Bank’s capital position right now is quite comfortable. The Asset Management business (SBI MF) is doing extremely well. It has grown more than the market and it continues to gain market share. It has gained customers and right now it is running an NFO where it is garnering a decent response as well.
  • The bank just rejigged some rates in some buckets based on its ALCO requirements. It raised rates in the one to two years bucket a little earlier because that forms the bulk of its deposit base on the fixed deposit side. Recently, it did the same for longer tenure fixed deposits.
  • The Bank is adopting a wait and watch approach, but for the moment, there is no movement on the advances side. But it expects a natural progression on rate hikes on the assets side.
  • The bank believes it is going to be a very gradual way in which RBI will start reversing the policy rates. Starting with changing the stance, then moving on to the reverse repo and repo rates so on and so forth.
  • Currently, there is no thinking on when the bank will do the YONO IPO. Right now, it remains part of the bank’s digital offering and packaging. It understands the potential of value unlocking to shareholders, however, there are no immediate plans for a separate listing of YONO.
  • SBI spends a significant amount both on the opex and capex as far as IT goes and is in line with whatever is happening outside. It started with the YONO quite a few years back but at the same time, it has tried to keep pace with all the new developments that have come in be it UPI or BharatPe or all the other instruments that have been started by the government or by NPCI and others.
  • Going forward, SBI believes the way we are going to transact, the way we are going to get loans is going to become much simpler because there is going to be a digital trail and with CIBIL, with scores, with all the kind of enablement that digital provides, things will become much better as far as lending and banking is concerned.

 Asset Multiplier Comments

  • As India’s largest bank and lender, SBI has managed to leverage its vast branch distribution network for its AMC business to transform SBI MF into one of the country’s largest Asset Management Companies. Its separate listing will provide for a significant value unlocking for all the shareholders.
  • SBI is often considered as a proxy for the Indian Economy, SBI’s plans for digital transformation-driven growth and increased penetration across rural India provide an excellent opportunity for the bank to be one of the best in the country.

 Consensus Estimate (Source: market screener website)

  •  The closing price of SBI was ₹ 498 /- as of 22-February-2022. It traded at 1.5x/1.3x/ 1.2x the consensus BVPS estimates of ₹ 333/ 380/ 426 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 650 /- implies a BV Multiple of 1.6x on FY24E BVPS estimate of ₹ 426/-.

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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21 Feb

Price hikes not sufficient to protect the margins – Blue Star

Update on the Indian Equity Market:

On Monday, Nifty closed in the red at 17,207 (-0.4%) dragged by MEDIA (-2.7%), METAL (-2.1%), and OIL & GAS (-2%) were the top losers while PRIVATE BANK (+0.3%), BANK (+0.2%), and FINANCIAL SERVICES (+0.03%) were the top gainers for the day. Among the Nifty50 constitutents, the top losers were HINDALCO (-3.4%), UPL (-2.8%), and DIVISLAB (-2.3%) while WIPRO (+1.7%), INFY (+1.3%), and SHREECEM (+1.3%) were the top gainers.

Edited excerpts of an interview with Mr. B Thiagarajan, MD of Blue Star with ET Now on 17th February 2022:

  • Redesigning of product portfolio and correction of distribution penetration in northern regions led to improved market share. The company improved its market share from ~13% to ~13.25%, and its growth beat market expectations despite the muted festival season.
  • Redesigning of product portfolio happened because of the inflated commodity prices. Due to commodity price increase in FY21, the margins were under pressure but the company expects 4QFY22 to be a good quarter.
  • The company did the price hikes in Apr-21, Jul-21 as well as in Oct-21. Despite the price hikes company couldn’t able to protect margins. ~1.5% margin erosion was there.
  • If the commodity prices continue to go upward, the company will raise the prices and the call on price hikes will be taken in Apr-22 or May-22. The Company will be watching how the summer season is going to be.
  • On the debt front, the company doing well as well as cash flows are maintained strongly, with no concern over there.
  • Despite the CAPEX in Wada for the deep freezer plant which is going to be commissioned in March or April and another investment in Sri city for a new room air conditioner plant under the PLI scheme, the cash flow will remain strong.
  • The margins for 4QFY22 of Segment – I should be around 5.5% to 6% and for Segment – II it should be around 7%. For FY22, it should be ~6% to 6.25% as the summer season of FY22 wasn’t good for the company. The company expects its ROC to be the industry benchmark.
  • Order book as of 31st December 2021, was Rs 33,010mn vs Rs 31,570mn on 31st December 2020. The company expected that the office segment will not perform well but the demand came from that segment also which beat expectations.
  • Office consumption is going up but the growth was driven by manufacturing-related electromechanical products and for that segment, the outlook is very strong in the coming year. Big orders are expected to be finalized, whether it’s metro, railway, airport, or water-related MEP projects.
  • The company continues its expansion plan despite the hit in two consecutive summers because the outlook for the room air conditioner and commercial refrigeration business is very strong. The penetration of room air conditioner business is below 7% and the company expects that for the next five years it will continue to grow more than 15% and might be touch 20%.
  • For deep freezers, the company is setting up a new 2.5 lakh unit plant. In phase one of Sri city plant company targeting of ~4 lakh units and this plant expected to be commissioned in Oct-22 or Nov-22.

Asset Multiplier Comments

  • We expect increased penetration in newer geographies and segments will improve the company’s market share going forward. The company’s ongoing expansion plans, strong cash flow generation and healthy growth in order book will contribute to the company’s growth trajectory.
  • We believe that the increased pace of economic recovery, increased investments by both private as well as public sectors, and revival in consumer expenditure are expected to boost revenue and the summer season which is a demand driver for the company will bring more clarity on the demand scenario post covid
  • We expect the increased commodity prices to put margins under pressure in the subsequent quarters.

Consensus Estimate (Source: market screener website)

  • The closing price of Blue Star was ₹ 1,063/- as of 21-February-2022. It traded at 61x/39x/31x the consensus EPS estimates of ₹ 17.4/27.5/34.8 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,102/- implies a P/E Multiple of 32x on the FY24E EPS estimate of ₹ 34.8/-.

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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21 Feb

This Week in a Nutshell (14-18 Feb)

Technical talks

NIFTY opened the week on 14 th February at 17,076 and ended at 17,276 on 18 th February. NIFTY gained 1.2% throughout the week after a gap-down opening. The next support and resistance levels for the index would be 17,185 and 17,315 respectively.
Except for IT (+0.3%), all the sectoral indices fell this week, with PSUBANK (-4.7%), REALTY (-2.8%), and MEDIA (-2.6%) being the biggest losers.

Weekly highlights

  • Indian equity markets remained volatile throughout the week due to rising inflation worries, the anticipation of Interest Rate hikes, and Geopolitical tensions between Ukraine and Russia.
  • The uncertainty around the Russia-Ukraine situation at the start of the week was enough to deal another blow to global markets that were already skittish about high inflation and the prospect of aggressive U.S. Federal Reserve interest rate hikes to tame it. Markets have been rattled by a rates outlook that could hold as many as seven Federal Reserve increases in the year ahead. St. Louis Fed president James Bullard on Thursday reiterated his call for the Fed funds rate to be raised to 1 percent by July to combat stubbornly high inflation.
  • Oil prices remained majorly volatile throughout the week as oil reached a 7 year high of $95/Barrel due to rising concerns over Russian oil supply on the back of impending invasion of Ukraine but cooled off as Russia actions were not considered as threatening during the start of the week, Oil was also dragged down by a possibility of an Iran Nuclear Deal, that could add Iranian Oil supply to the world.
  • The Life Insurance Corporation of India filed its IPO papers with the SEBI on Sunday. As per the DRHP, LIC's offer is entirely an offer for sale of 316,249,885 by the shareholder valued at $8 Billion, by the Government of India. This means the government would sell a 5 percent stake via the IPO. The much-awaited IPO of LIC is India’s biggest share sale of all time.
  • Retail inflation rose to 6.01 percent in January on an annual basis and breached the RBI’s upper tolerance level, mainly due to higher prices of certain food items, as per government data released on Monday. The Consumer Price Index (CPI) based retail inflation was 5.66 percent in December 2021 and 4.06 percent in January 2021.
  • IT services giant Tata Consultancy Services (TCS) on Sunday said the members of the company have approved the buyback of shares worth up to ₹18,000 crores by passing a special resolution through postal ballot.
  • The foreign institutional investors (FII) continued to be sellers and sold equities worth Rs  10,885 mn while Domestic institutional investors (DIIs) continued to be buyers and bought equities worth Rs 10,163 mn.

Things to watch out for next week

  • Investors will be busy with increased volatility amidst Russia-Ukraine Standoff and the geopolitical tensions as a result of that.
  • US Markets will be jittery as the end date of the US Fed’s Asset Purchase scheme in March draws near, persistent inflation and any indication regarding rate hikes will be closely monitored.
  • Equity markets in India are likely to see decreased volumes due to increased volatility and decreased participation in anticipation of Insurance Behemoth LIC’s $8 Billion IPO next month.

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 Feb

Expect Demand to reach 100% of the pre-covid level in FY23E – VIP Industries

Update on the Indian Equity Market:

On Thursday, Nifty closed lower at 17,304 (-0.1%) led by PSU BANK (-1.2%), PRIVATE BANK (-1.2%), and BANK (-1.1%) which were the top losers while the only gainers were OIL & GAS (+0.8%) and FMCG (+0.3%).

Among the Nifty50 constitutents, the top losers were ICICIBANK (-2.2%), AXISBANK (-2.0%), and ULTRACEMO (-1.9%) while TATACONSUM (+2.7%), HDFC (+1.9%), and ONGC (+1.7%) were the top gainers.

 Edited excerpts of an interview with Mr. Dilip Piramal, Chairman of VIP Industries with Economic Times on 16th February 2022:

  • The Company took a staggered 5% price hike in FY21 and is planning to take another 5% price hike in Mar/Apr 22.
  • Hard luggage is the fastest-growing sector because it is slightly cheaper than the upper end of soft luggage.
  • In hard luggage, there are two types – the polypropylene molded luggage and the Poly-Carbonate Acrylonitrile Butadiene Styrene and polypropylene is cheaper which is selling extremely well.
  • In soft luggage, backpacks are one category that had the least growth because schools have not opened up fully. The school segment is very big for backpacks and hence the sales are low. However, uprises and full trolleys and the rest are doing comparatively well.
  • 1st quarter of the year is usually the best for the company; however, they have missed these in the last 2 years in FY21 and FY20 due to the pandemic. The company is hopeful that 1QFY23E will be in full swing and the company should be back to the pre-Covid level.

Asset Multiplier Comments

  • We believe that the 3QFY22 earnings were a decent performance despite omicron restrictions from VIP Industries. We expect a demand revival from 1QFY23E due to the pent-up travel demand, reopening old schools and colleges, reduction in COVID-19 restrictions for international travel.
  • With demand green shoots visible, we expect VIP Industries to be a key beneficiary of the increased movement of leisure and business tourists both domestically and internationally. We are positive about the stock.

Consensus Estimate (Source: market screener website)

  • The closing price of VIP Industries was ₹ 657 /- as of 17-February-2022. It traded at 109X/51x/ 37x the consensus EPS estimates of ₹ 6/ 13/ 18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 766 /- implies a P/E Multiple of 43x on 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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