11 Jan

Margin improvement expected from 4QFY22 – KEC International

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 18,056 (+0.3%). Among the sectoral indices, IT (+1%), REALTY (+0.5%), and FINANCIAL SERVICES (+0.3%) closed higher while METAL (-1.9%), FMCG (-0.4%) and PSU BANK (-0.2%) closed in the red. HCLTECH (+4.5%), ADANIPORT (+3.5%), and HDFC (+1.8%) were the top gainers. JSWSTEEL (-3.1%), TATASTEEL (-2.9%), and BPCL (-1.7%) were among the top losers.

Excerpts from an interview of Mr. Vimal Kejriwal, MD, and CEO, KEC International with CNBC-TV18 dated 7th January 2022:

  • On 6th January 2022, the cabinet cleared ₹ 120bn plan to set up infrastructure to transmit electricity from renewable energy projects to boost green sources. This will help meet half of the nation’s energy requirement by 2030, and the expected timeline for this project was around 4-5 years.
  • Kejriwal expects the conversion in orders is likely to take place in Q2FY23E or Q3FY23E. The Company will likely get ~15% to 20% business and is expected to generate Rs ~20,000 mn business for KEC.
  • On the margins side, he added it will not be more margin accretive because of the heavy competition with big giants like Power Grid or Adani Transmission, or starlight. Heavy competition from biggies leaves less space for EPC to generate profit and leads to maintaining normal margins.
  • KEC doesn’t see the postponement of tenders on the ground situation and KEC is not looking to the postponement of orders. KEC is the lowest bidder or L1 in another order of ₹ 60,000 Mn and KEC expects that many of them converted during the Q4FY22 so even if the tenders get postponed KEC sees healthy orders coming in the 2HFY22.
  • Improvement in margins will start from 4QFY22 onwards led by softened steel and cement prices and improvement in the availability of steel. New orders are at the current prices and the execution has started kicking in and the company expects from 1QFY23 and 2QFY23 the margins would be near double digits.
  • In the civil segment, KEC performed well in FY21 and did the business of ₹ 10,000 – 11,000 mn, and in FY22 the civil segment is expected to be doubled in terms of business and another 50% increase might be seen in FY23. The civil order book closed at ~₹ 60,000 mn as of today. The civil segment is primarily driven by metros, water projects, and metals and mining, these three areas where KEC seeing significant growth to be continuing.
  • In the railway segment, KEC underperformed because of disturbance in the market due to heavy competition but KEC expects good growth in FY22. KEC has taken a stand of wait and watch in conventional railways but the company seeing significant growth in the metro side rather than conventional in the near term.
  • On the revenues Mr. Kejriwal further added, they expect ~15% to 20% growth in FY22 and, ~50% to 60% order book is still from conventional railways but they seeing changes in revenue breakup and metros will be the focussed area rather than conventional for KEC. The Government has embarked on “Mission Raftar” where KEC is expected to get most of the orders other than that company seeing some slowdown in conventional railways.

Asset Multiplier comments:

  • We think the healthy order book, expansion of business in newer geographies, and diversification in revenue segments will be the key positives for KEC International but the heavy competition by big players in the sector and increased commodity prices pull back the profitability and the margins.
  • Healthy growth opportunity in global and domestic transmission and distribution sector, electrification of railways and rural region and government’s measures towards boost infrastructure driven growth for KEC International.

Consensus Estimate: (Source: Market screener website)

  • The closing price of KEC International was ₹ 497/- as of 11-January-2022.  It traded at 24x/16x/13x the consensus Earnings per share estimate of ₹ 21/32/39/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 520/- which implies a PE multiple of 13x on FY24E EPS of 39/-.

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 Engineering 0 Comments Read more...
10 Jan

Expect loan book growth of 9.5% in FY22E – SBIN

Update on the Indian Equity Market:

On Monday, NIFTY closed in the green at 18,003 (+1.1%). Among the sectoral indices, PSU BANK (+3.2%), MEDIA (+2.6%), and REALTY (+1.2%) closed higher while none closed in the red. Among stocks, UPL (+4.6%), HEROMOTOCO (+3.3%), and TITAN (+3.1%) were the top gainers while WIPRO (-2.3%), NESTLEIND (-1.0%), and DIVISLAB (-0.9%) were among the top losers.

Excerpts from an interview of Mr. Ashwani Bhatia, MD, State Bank of India (SBIN) with CNBC-TV18 dated 7th January 2022:

  • The management stated that a big part of the stress in the banking system, which mostly consists of the corporate sector, has been reduced and that they are not witnessing any further tension.
  • RBI in their financial stability report talked about some stress buildup on account of COVID, looking at the trajectory of the virus at the moment. But as an industry, the management thinks that things are pretty much in place for decent growth.
  • Management is optimistic about the growth pipeline, the majority of which is expected to result from increased government activity. The national monetization strategy has already taken off, and InvITs are receiving favorable coverage. According to management, more economic activity would benefit the industry. Management expects the loan book to grow at 9.5 percent in FY22E and 7-9 percent in the next 5 years.
  • Mr. Bhatia stated that the retail sector was never a concern. The retail book is generally small ticket, and the housing sector is by far the most important for all banks. In general, delinquencies in the housing industry are quite low. On the personal loan side, some evaluation is done at the backend because the clients are primarily salaried persons or government employees; hence, management anticipates this stress to be managed under 0.5 percent for FY22E.
  • Despite the fact that the RBI has emphasized the stress that the MSME sector is under, as well as the significance of closely monitoring these problematic loans, SBI management, in particular, feels that things cannot get much worse. Today, all public sector banks are well-capitalized, and their high net worth is sufficient to handle loan expansion in the next few years. The bank’s NPA levels are quite constant, and the operating profit and provisions are also adequate.
  • Reliance Industries raised about $400 mn, the biggest issue by any Indian business done overseas, with one of the main reasons being the cheaper cost of financing as opposed to borrowing from a bank. On the subject of whether the trend may lead to a loss of market share for banks, management stated that it is a very beneficial development since it helps local institutions de-risk. Well-managed businesses are gaining access to international funding. After factoring in the hedging cost, the LIBOR, and the spread, the resulting rate would be close to the domestic rate. However, many of the enterprises do not need to hedge since they have a large export book. As a result, the cost of funding is significantly reduced.

Asset Multiplier comments:

  • The asset quality forecast appears to be positive since the worst phase of the corporate cycle appears to be behind the industry. Despite the tough circumstances, it reported good FY21 results. We anticipate that robust loan and deposit growth, as well as continuing recovery, will maintain the earnings momentum.
  • We believe the bank is well-positioned to deliver strong advances and PAT growth on the back of strong retail franchise and recovery in the asset quality, particularly the corporate book. We expect the bank to benefit from economic recovery and recovery of the benign corporate credit cycle.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of SBI was ₹ 504 as of 10-January-2022. It traded at 1.6x/1.4x/1.3x the consensus Book Value per share estimate of ₹ 300/ 340 / 388 / for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 625 /- which implies a PB per share multiple of 1.6x on FY24E BVPS of ₹ 388/-.

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 SBI , 0 Comments Read more...
08 Jan

This week in a nutshell (3-7th Jan)

Technical talks

NIFTY opened the week on Monday at  17,387 and closed on Friday at 17,813. The index made a weekly gain of 2.5%. On the upside, 17,945 could act as resistance while the 50DMA of 17,477 could act as a support. RSI (14) of 61 indicates the index is in an overbought zone.

Among the indices, BANK (+6.4%), PRIVATE BANK (+5.9%), and PSU BANK (+5.7%) led the weekly gainers while PHARMA (-2.6%), and IT (-1.5%) were the only losers.

Weekly highlights

  • The S&P 500 had one of the worst starts to the year since 2016 amid pressure from tech stocks as Treasury yields continued to rally on rate hike expectations despite mixed monthly jobs data. The S&P 500 made a weekly loss of 1.9% while the NASDAQ lost 4.5%.
  • Auto companies reported monthly volume data for December-21. The CV segment continued its uptrend aided by improvement in fleet utilization levels and improvement in fleet operators’ profitability. The demand recovery might come under pressure due to rising cases of the Omicron variant of the virus. Other segments such as Passenger Vehicles (PV), 2-Wheelers (2W), and tractors witnessed muted volumes, due to supply issues, a high base of Dec-20, and heavy rainfall in certain geographies.
  • The yield on the 10-year Government of India bond rose to a 2-year high of 6.52% on Tuesday. This was the biggest one-day rise in bond yields in the last 4 months as India’s fiscal deficit is increasing and high inflation persists. The bond yield has been on an upward trend for many months due to a rise in bank credit-to-deposit ratio, higher inflation, and a rise in bond yields in the US. Higher yields are also likely to translate into higher interest rates on corporate borrowing and retail loans that could impact the economic recovery.
  • The global benchmark, Brent crude jumped to USD 80 a barrel, as OPEC+ decided to raise its output target by 400,000 barrels per day from next month. The coalition believes the Omicron variant would have only a mild impact on demand. In a volatile week, Brent closed at USD 81.8 per barrel while the West Texas Intermediate settled at USD 78.9 a barrel on Friday.
  • The US Labor Department released data that indicates over 4.5mn people left their jobs voluntarily in November-21. This number was 4.2mn in October-21 and was the most in two decades. The data indicates a persistent churn in the US labor market.
  • The minutes from the US Fed’s Dec. 14-15 policy meeting offered insight into the central bank’s shift towards a tighter monetary policy to curb inflation. A very tight job market and unabated inflation showed Fed officials uniformly concerned about the pace of price increases along with global supply bottlenecks in 2022. The global markets took this stance as hawkish and led to a massive sell-off.
  • With the new Omicron variant of coronavirus spreading in the country, ICRA Ltd expects that India’s GDP growth for 4QFY22 would be 40 basis points (bps) below its earlier projection of 5-5.5%.
  • Foreign institutional investors (FII) turned buyers this week and bought shares worth Rs 10,828mn. Domestic Institutional Investors (DII) continued to be buyers and bought shares worth Rs 32,933mn.

Things to watch out for next week

  • The bond market is likely to set the course for the week ahead as rising interest rates gave stocks a choppy start to the new year.
  • The US markets will be influenced by key inflation. The next week marks the start of fourth-quarter earnings with banks such as JPMorgan Chase, Citigroup, and Wells Fargo reporting earnings.
  • In India, as people revert to Work from Home due to rising omicron cases, and expectations of lockdown restrictions will be on investors’ minds. The third-quarter earnings season starts next week with IT biggies such as TCS, Infosys and Wipro set to announce earnings on January 12th.

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 #WeekInANutshell 0 Comments Read more...
06 Jan

Seeing demand uptick for second-hand CVs- Shriram Transport Finance

Update on the Indian Equity Market:

On Thursday, NIFTY closed in the red at 17,746 (-1%) near its high of 17,795. Among the sectoral indices, MEDIA (+0.9%), AUTO (+0.5%), and CONSUMER DURABLES (+0.5%) closed higher while IT (-1.5%), REALTY (-1.5%), and FINANCIAL SERVICES (-0.9%) closed in the red. Among stocks, UPL (+2.2%), INDUSINDBK (+1.8%), and BAJAJ-AUTO (+1.7%) were the top gainers while JSWSTEEL (-3%), ULTRACEMCO (-2.7%), and SHREECEM (-2.6%) were among the top losers.

Excerpts from an interview of Mr. Umesh Revankar, Vice Chairman & Managing Director, Shriram Transport Finance Corporation (SRTRANSFIN) with CNBC-TV18 dated 5th January 2022:

  • The demand for CV is increasing but not at the expected levels as the economy is not recovering as much as it was expected to. As a result, new CV (commercial vehicles) sales are lower than expectations.
  • Light Commercial Vehicles (LCVs) are showing good demand but it’s not as expected for heavy vehicles. However, demand for used vehicles is good.
  • The resale values have gone up significantly by 15-20% over the year and this reflects that people prefer to buy used vehicles in the current market situation rather than choosing a new vehicle. This eventually works for SRTRANSFIN and they are confident that as the market heats up, as the resale value goes up beyond 20%, eventually demand will come back.
  • The Omicron spread has increased in the last one week but they are not seeing any impact as such even though the city traffic has slowed down a bit. SRTRANSFIN hasn’t seen any downfall in Commercial Vehicle transportation even though mobility had come down in December. Overall, the long-distance movement has increased and hence the CV transportation has not seen any challenge as compared to what was seen in wave 2.
  • Revankar doesn’t expect many challenges as the covid variant is not supposed to be as strong and more people are getting vaccinated.
  • Marginal growth in disbursement can be expected on a QoQ basis and the AUM will be around 10% for FY22E. Larger growth in AUM is expected in FY23E because economic activities will reopen and demand for infrastructure will lead to a huge demand for heavy commercial vehicles and construction equipment.
  • As far as freight rates are concerned, margins for customers have improved because there was some decrease in the excise duties and the fuel prices had come down. Hence there were temporarily higher margins for customers. However, freight rates got corrected as they are linked to fuel prices and are a contractual obligation. But overall margins for truckers have remained strong.
  • Collections have been more than 100% in December. Hence, this shows that business is viable.
  • Revankar doesn’t look at GNPAs of 8% as a problem since the kind of customers they are lending to are individual operators who have to earn and pay. Hence there will be some delay in their collection. Individuals depend on corporates or entities for timely payments.
  • Credit cost for the long term is 2% on average and they are comfortable as long as it stays around 2%. So the GNPA is not an indicator for stress levels in their portfolio.
  • In terms of Net Interest Margin (NIM), SRTRANSFIN has always been eyeing a rate of 7% which has come down to 6.45% due to the higher liquidity they are carrying on their balance sheet due to the ongoing uncertainty in the market. Margins will move towards 7% once there is more certainty in the market.
  • Credit costs have been hovering around 2.5% due to the higher provisioning done in the last year. By March FY22, SRTRANSFIN hopes to bring down credit costs from last year’s mark of 2.48%

Asset Multiplier comments:

  • The company delivered good results in the impacted part of 1HFY22.
  • CV demand is gaining momentum and the company is the largest player in this space.
  • Appropriate provisioning, improving asset quality and strong growth strategy may contribute to the SRTRANSFIN’s topline.

Consensus Estimate: (Source: Market screener website and Tikr)

  • The closing price of Shriram Transport Finance Corporation was ₹ 1,216 as of 5-January-2022. It traded at 1.3x/1.1x/0.9x the consensus Book Value per share estimate of ₹ 968/ 1,087/ 1,219/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 1,660/- which implies a PB multiple of 1.4x on FY24E BVPS of ₹ 1,219/-.

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 NBFC, Shriram Transport Finance , , 0 Comments Read more...
05 Jan

Mise en Place

This culinary French term translates to everything in its place. Cooking and investing are process-driven activities where greater outcomes can be attained by preparing ahead of time. Growing a Data Base of Companies is Mise en place. Before taking a position in a company, the individual has time to prepare, is relatively stress-free and there is no pressure to act.

Mise en Place and Investing a.k.a Why Process Matters

Failing to prepare when allocating capital can lead to less than satisfactory results and frantic decision-making. Having a well-defined process can take a great deal of the stress out of decision-making. The process of investing boils down to:

  1. Understand what type of investor you want to be: Whether it is outstripping an index, achieving optimized performance, compounding whilst avoiding capital loss, or trade for residual income.
  2. Understand how you want to manifest that investor type: How concentrated the position should be? What investing style best suits your personality? What portfolio turnover are you comfortable with?
  3. Define what opportunities you seek: look for market leaders with a low likelihood of moat erosion, future market leaders with competitive advantages.
  4. Write it down: investment policy statement can be invaluable during times of volatility or uncertainty.
  5. When you have that down, you can more readily identify companies that fit within your investing universe. At this stage, the cooking process has still not begun.

Flow State and how does one achieve a flow state in investing?

A flow state is a state of deep focus, devoid of distraction when an individual is carrying out a task. The decision-making process can become a great deal more frictionless when the investor knows what they intend to do under certain circumstances. After establishing your process for investing, and deciding how you wish to undertake the construction of a portfolio, the next step is to discover the companies that will populate it. Assuming you have discovered a company, and it fits your criteria, it’s important to understand what you might do if things don’t go your way, ahead of time. Extracting the emotion from the investment equation is hard. Outlining a list of reasons that would allow you to sell a position can benefit you as it allows you to remember why you are invested, and why you would sell, and when those events happen, the activity doesn’t require extensive pondering over what to do. Whether that means selling once a certain IRR has been achieved or when there are signs of managerial deterioration, accounting irregularities, thesis creep, or some other red flag factor in the business, you are acting on a pre-defined catalog of responses.

Conviction

The best antidote is simply knowing what you own, knowing why you own it, and knowing what would have to occur to make you lose conviction. Preparation, when pressure is low, is a critical ingredient to ensuring that an investor can more readily focus on the task at hand when the act of investing becomes live. Flow states are impeded by distraction. The contemplation of appropriate response is a distraction best remedied by proactively establishing your catalog of responses, ahead of time. As Ramsay suggests, “time spent getting yourself ready is never wasted”.

Source: – Everything in it’s place by Conor MacNeil

Asset Multiplier Comments

  • It’s all about doing the job ahead of time rather than catching up as needed.
  • This is all about preparation before investing, which includes building company data bases. Maintaining data bases allows you to track the ongoing performance of your company. Based on the information acquired, the performances being tracked serve to indicate where a firm is presently and where the business will be in the future. Understanding what you have results in conviction. It’s a  cycle in which everything boils down to planning.
  • The advantages of planning ahead of time are self-evident. Faster decision-making processes, as a result of preparation, can save us a significant amount of time when making decisions.
  • An investment policy statement serves as a guide for portfolio building and proper monitoring. Assist to enhance focus on the investment objective and preventing mistakes caused by changing market conditions, which is a vital component in investing.

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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05 Jan

Clocked 100% collection efficiency in December-21 – M&M Financial Services

Update on the Indian Equity Market:

On Wednesday, the domestic market witnessed a recovery following a mild dip. Increasing covid cases leading to stricter restrictions pressurized market volatility. NIFTY closed at 17,925 (+0.7%).

BANK (+2.3%), PRIVATE BANK(+2.1%), and FINANCIAL SERVICES (+2.0%) were the top gainers and IT (-1.9%), MEDIA (-0.4%), and HEALTHCARE (-0.3%) were the top losing sectors.

The top losers were TECHM (-2.8%), INFY (-2.7%), and HCLTECH (-1.7%) while BAJAJFINSV (+5.0%), BAJFINANCE (+4.4%), and KOTAKBANK (+3.5%) were the top gainers.

 Edited excerpts of an interview with Mr. Ramesh Iyer, Managing Director, M&M Financial Services with ET on 4th January 2021:

  • A turnaround was seen in rural India in terms of vehicles and tractors. Growth across all categories was witnessed by the company and that has registered the growth in disbursements.
  • Rural demand continues to be buoyant. The yields have been good because of the good monsoon. Therefore the sentiments are continuing to remain positive across the country.
  • Good growth momentum was seen by the company and the recoveries have been good for the company.
  • In tractors, volume growth and gain in market share were witnessed by the company. M&M Financial Services have gone deeper and has covered more dealerships. It has put people across various dealerships which have aided the volume growth in tractors.
  • Productwise Performance:
    • M&M Financial Services has gained market share in tractors and Mahindra auto products.
    • Cars are witnessing volume growth.
    • Pre-owned vehicles have been a very buoyant segment.
  • There had been temporary pressure since 1QFY22 because of the market conditions. As the consumers come back to the market and start earning, a rollback is expected which was witnessed in 2QFY22. The company continues to see recovery in 3QFY22 and is confident that this momentum will continue going forward. It has clocked 100% collection efficiency in the month of Dec-21 and is improving on a month-on-month basis.
  • The NPAs are steadily reducing from 1QFY22 and the company is confident of bringing it below 4% levels by end of FY22E. The second half is always good for the rural market and the post-harvest quarter is always the best.
  • The company is seeing a turnaround in economic activity. Tourism has picked up substantially which is contributing to people earning better and being able to repay well.
  • Collections from every segment and every geography have been witnessed by the company. It seems to be the trend going forward and therefore M&M Financial Services is confident to bring net NPA to below 4% by Mar-22E.
  • On the latest norms by RBI on asset quality, Mr. Iyer commented that regulatory requirements are under the IRAC norms and not under the Ind-AS norms. Therefore, as far as the P&L is concerned, a major impact on the P&L might not be seen. However, under the IRAC norms, one would see an increase in NPA due to the approach that would now have to be adopted going forward. But the ground reality is that these consumers earn and pay and therefore adhering to a particular due date is difficult for them and there will be a little pressure point for the retail industry. This will cause a little increase in NPAs so far as IRAC norms are concerned.
  • The company doesn’t see any substantial change in the loan mix as far as AUM is concerned. AUM growth for FY22E is expected to remain range-bound because it is difficult to catch up with the business lost in one quarter. But the sentiments are positive and growth is expected from FY23E.

 

Asset Multiplier Comments

  • We think strong buoyancy in demand, particularly in rural centers, driven by healthy farm cash flows and a pickup in Infrastructure spending by the Center and state governments will help aid revenue growth.
  • With a recovery in collections, M&M Financial Services seems to be well-positioned to accelerate its disbursements and gain market share.

 

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

  • The closing price of M&M Financial Services was ₹ 154/- as of 05-Jan-22. It traded at 1.22x/1.12x/1.00 x the consensus BVPS estimate of ₹ 125/136/154 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 202/- implies a PBVPS multiple of 1.31x on FY24E EPS of ₹ 154/-.

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 M&M Financial Services 0 Comments Read more...
04 Jan

Production levels improving gradually – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, the benchmark index NIFTY 50 closed at 17,805 (+1.0%), 180 points higher. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.2%), and FINANCIAL SERVICES (+1.2%) led the gainers while HEALTHCARE (-0.8%), PHARMA (-0.8%), and REALTY (-0.5%) led the losers. Among the NIFTY50 components, NTPC (+5.2%), ONGC (+3.7%), and SBIN (+2.8%) were the top gainers while TATAMOTORS (-1.7%), COALINDIA (-1.7%) and TATACONSUM (-1.2%) led the laggards.

Excerpts of an interview with Mr. Shashank Srivastava, ED-Marketing & Sales of Maruti Suzuki (MSIL) with CNBC-TV18 on 03rd January 2022:

  • In December, MSIL could produce almost 90% of its planned production which was an improvement over the previous months. In September, the company did only about 40% of the production. In October it was about 60%. In November it was about 83-84% and it was close to 90% in December.
  • There seems to have been a progressive improvement on the supply side as well because of the improved situation on the semiconductor front. Going forward, the situation is still not expected to be normal and it is very difficult to pinpoint exactly at what time it will become normal. The company doesn’t believe January-22 will be normal.
  • 100% Normal Utilisation levels is a dynamic that involves the global supply chain and is a very complex issue involving not just Maruti Suzuki and India, but all the OEMs across the globe.
  • On the demand side, the momentum seems to be still pretty strong and it is across all segments. The company saw a good improvement in booking numbers as well as the overall inquiry level even in December.
  • The demand seems to be strong but in the last few months there was a supply disruption because of the semiconductor issue and that has led to the building up of waiting periods and the pending payments had gone up. Currently, MSIL has 2.3 lakh pending bookings. The demand for CNG seems to continue growing. The waiting periods for CNG models are much longer than that for the Petrol/Diesel models.
  • MSIL is very bullish about the Indian market in the long term and the company is planning to strengthen the portfolio in one of the areas where it is a little weaker as far as product portfolio is concerned. The Company plans to launch many new models in the mid SUV segment.
  • The company has no plans to launch an EV before 2025 because it believes the ecosystem which is required for sustainable large-scale, large-volume build-up in the industry is still not there. With regards to the product and investments in the product, Maruti Suzuki has been a very strong presence and along with its parent organization Suzuki Motor Corporation, the company plans to make robust investments in the e-product portfolio.
  • Commodity prices are pretty strong and there is no real relief on the cards. As a result, the company has announced a price hike. Most of the OEMs have announced a price hike in January-22 and the company plans to announce a price hike in line with that.

Asset Multiplier Comments

  • Auto Industry is undergoing a lot of turmoil due to high pent-up demand, increasing fuel prices, supply chain issues, and commodity inflation. As India’s largest carmaker- MSIL is at an inflection point as it navigates through these critical issues while maintaining its market share.
  • The migration to EV has already been started by MSIL’s peers, however, with the company delaying EV Launch to 2025, it remains to be seen how it reacts to aggressive expansion by its competitors in this segment.

Consensus Estimate: (Source: market screener and Tikr website)

  • The closing price of Maruti Suzuki was ₹ 7,630/- as of 04-January-2022. It traded at 56x/30x/25x the EPS estimates of ₹ 136/251/304/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 8,172/- implies a P/E Multiple of 27x on FY24 EPS estimate of ₹ 304/-

 

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 Maruti Suzuki , , 0 Comments Read more...
03 Jan

Double-digit decline to continue in 4QFY22E as well – Bajaj Auto

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,625 (+1.6%). Among the sectoral indices, PRIVATE BANK (+2.7%), BANK (+2.7%), and FINANCIAL SERVICES (+2.5%) closed higher while PHARMA (-0.5%) and HEALTHCARE (0.4%) closed in the red. COAL INDIA (+6.4%), EICHERMOT (+4.6%), and BAJFINANCE (+3.6%) were the top gainers. CIPLA (-1.3%), DR REDDY (-1.0%), and M&M (-0.8%) were among the top losers.

Excerpts from an interview of Mr. Rakesh Sharma, Executive Director, Bajaj Auto with CNBC-TV18 dated 3rd January 2022:

  • On the demand environment, the company expects volume cutbacks in a variety of categories, including retail, rural, and urban.
  • The industry still facing a double-digit decline. Retail sales have dropped by 15%-17%, which is a big drop. The company does not see any bottom in sight. The management does expect the double-digit decline in volumes to continue, especially in the mass market group, in 4QFY22E as well.
  • The majority of the company’s 2-wheeler demand comes from the lower-income segment of the economy. Since the 2-wheeler industry has been affected during FY20 – FY22, and the economic recovery has not yet trickled down to this sector, the management does not see demand picking up. The COVID issue has receded and the decline in demand is driven by the economic performance.
  • Despite this, the firm has increased its market share by 3% in the previous three quarters. The business anticipates a 20% market share in the motorcycle industry by FY22E.
  • Within the EV space, the company is preparing to shift from ICE to electric with a positive outlook. The company had invested Rs 3,000 million for a capacity of 5,00,000 in their new electric vehicle plant. Their first EV will be rolled out in June-2022 from the company’s Akurdi production site.
  • The company said that the key constraint is related to the supply of EV-specific components. Supply is volatile and uncertain which makes it difficult to boldly plan bigger volumes in the immediate terms.
  • India’s two-wheeler market is still under-penetrated. The country’s demographic division, as well as the pace of urbanization and road penetration, have a direct influence on demand for two-wheelers. When compared to Southeast Asia, India lags in terms of these fundamental characteristics that influence demand. So, the demand components are in place, but there is a problem with purchasing power or the amount of money in the hands of the people. This has an impact on the ultimate demand.
  • Retail financing, which is performing significantly better than cash sales, indicates that individuals do not have enough cash in their pockets. However, as retail lending spreads into rural regions, this will be critical in fuelling demand growth.

Asset Multiplier comments:

  • Commodity inflation and a chip scarcity may continue to have an impact on margins and demand fulfillment in 2HFY22E and FY23E.
  • Strong brand image, product innovation, and expanding market share will eventually fuel Bajaj Auto’s future sales. We anticipate that the firm will benefit from the premiumization trend and export potential. Moreover, the company has the opportunity to build its EV 2-wheeler scooter market.

Consensus Estimate: (Source: Market screener website and Investing.com)

  • The closing price of Bajaj Auto was ₹ 3,274 as of 3-January-2022.  It traded at 18x/15x/13x the consensus Earnings per share estimate of ₹ 177/ 211/ 242/- for FY22E/FY23E/FY24E respectively.
  • The consensus average target price is ₹ 3,976/- which implies a PE multiple of 15x on FY24E EPS of 242/-.

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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03 Jan

This Week in a Nutshell (27-31 Dec)

Technical talks

NIFTY opened the week on 27th December at 17,004 and ended the week on 31st December at 17,354. The index made a weekly gain of 2.1%. On the upside, 17,400 could act as resistance while 17,166 could act as a support. RSI (14) of 53 and a positive divergence on MACD (26,12) indicates further upside in the index.

Among the indices, MEDIA was the only sector that ended the week with a loss of -1.0%. HEALTHCARE (5.5%), PHARMA (5.4%), and CONSUMER DURABLES (4.4%) led the gainers.

Weekly highlights

  • The US indices closed the curtailed week in the red, affected by low volumes due to the festive season and increasing worries of the Omicron variant of the COVID-19 virus. These factors combined with muted institutional activity and retail buying led the Indian markets higher, as Indian equities bounced back from last week’s losses Nifty50 ended ~2% higher.
  • The Central Government earned Rs 1.29 tn in gross Goods and Services Tax (GST) revenue for December. The Ministry of Finance said the average monthly gross GST collection for the third quarter of the ongoing fiscal was higher than the average monthly collection of Rs 1.10 lakh crore and Rs 1.15 lakh crore, recorded in the first and second quarters respectively.
  • India’s current account slipped into a deficit of $9.6 billion, or 1.3 percent of the gross domestic product (GDP) in the second quarter of the ongoing fiscal, the Reserve Bank of India reported. For the reporting quarter, the deficit was mainly due to the widening of the trade deficit to $44.4 billion from $30.7 billion in the preceding quarter, and an increase in net outgo of investment income.
  • The Central Board of Indirect Taxes and Customs (CBIC) stated that the GST rate on any worth of clothes will be 12% beginning next year. Currently, a 5% tax on sales up to Rs 1000 per piece is charged. Further, the GST rates on some synthetic fibres and yarn have been reduced from 18 to 12%, putting rates in line with the rest of the textiles sector, this was done to address anomalies caused by an inverted duty structure, which occurs when the tax rate on inputs is greater than the tax on the finished product.
  • Reserve Bank of India’s (RBI) financial stability report suggests stress for banks would rise in 2022, especially in the retail and MSME segment, but banks most are well-capitalized to deal with it. The report showed while bad loans may rise, they won’t hit double digits by September 2022. In the worst-case scenario, gross NPAs may rise to 9.5 percent due to all the benefits of moratoriums expiring, we might see short-term stress in the provisioning.
  • Fears over the impact of the Omicron variant of the COVID-19 virus resulted in Oil remaining volatile throughout the week. With the number of cases doubling, several countries have announced restrictions, there’s an anticipation of demand reduction and Brent Crude ended the week lower at $77.8 per barrel.
  • Foreign Institutional Investors (FII) continued to be net sellers this week, selling shares worth Rs 35,070 mn. Domestic Institutional Investors (DII) continued to be buyers and invested Rs 31,300 mn in Indian equities this week. The month of December ended with net FII outflows of Rs 4,55,790 Mn and net DII Inflows of Rs 4,02,490 Mn.

Things to watch out for next week

  • Rising cases of the Omicron variant of COVID-19 will be on investors’ minds this week. It’ll be interesting to see how India and other Emerging Markets respond to the anticipation of lockdown-like restrictions.
  • The U.S. Jobs non-farms payrolls report comes out Friday. Expectations are for growth of 400,000 jobs, vs. 210K last month and an average of 494K jobs added in the last six months. The key thing to watch out for would be the commentary of voluntary unemployment as the labour participation rate continues to fall post-pandemic.
  • The Organization of the Petroleum Exporting Countries (OPEC) meets on 04th At their previous meeting, OPEC reaffirmed their decision to increase oil production in 2022 and said that they expected a low impact from Omicron on demand for oil. With various industries reporting inflationary headwinds due to oil prices increasing, a lot of eyes will be waiting to see how OPEC responds to demands of output increase amid Omicron fears.
  • The Indian equity market is likely to see more selling pressure next week amid the concern over the spread of omicron variant and FIIs returning after a week of muted action due to the holiday season. Action is likely to be broad index specific until Q3FY22 result season beginning 12th

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 Dec

The cost structure is not impacted only because of an increase in fuel prices. – TCI

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,204 (-0.06%), 10 points lower. Among the sectoral indices, IT (+1%), HEALTHCARE (+0.46%) and PHARMA (+0.44%) were the gainers and OIL & GAS (-1.4%), METAL (-1.2%), REALTY (-1%) led the losers. Among the NIFTY50 components, NTPC (+2.7%), INDUSINDBK (+2%), and HCLTECH (+1.9%) were the top gainers while BAJAJ-AUTO (-1.9%), RELIANCE (-1.6%) and JSWSTEEL (-1.58%) led the laggards.

Excerpts of an interview with Mr. Vineet Agarwal, MD of Transport Corporation of India (TCI), with ET Now on 28th December 2021:

  • TCI is very conservative about their growth because of the fear of how the third wave of covid or new omicron variant impact supply chain or consumer demand but in 1HFY22 TCI performed above their targets. TCI guided for 15% to 20% growth in the top line and 30% to 40% growth in the bottom line for FY22.
  • Cost structure was not only impacted because of fuel prices but rising lubricant prices, tyre prices, driver wages and toll charges. Not only road sector but rail and coastal shipping side were also impacted due to higher input cost. TCI does not see any margin pressure as the company passes on higher input cost to end customers.
  • Due to the changes in the industries and economy, the logistic sector is at the point of change. Customers demand also change and demand comes from all kind of areas. The big change from a demand perspective led to a huge amount of demand for organized players like TCI in the logistic sector.
  • Customers are outsourcing more and more logistics, not only road or warehousing but multi-mode logistics also. TCI offers a combination of multi-modal services which will be the growth driver in the future.
  • Improvement in infrastructure like buildings new expressways, new ports directly impacting positively on improvement and efficiency of logistics industry which drive more business for organized players. TCI expects logistic looking attractive in several sectors and regions in the coming years.
  • A good initiative like PM Gati Shakti Programme, creates a platform where products can move smoothly across the country irrespective of the mode of transport. In India more than 60% of cargo moves by road, 20% to 25% by rail. India has to shift aggressively towards a cheaper mode of transport like railways and coastal shipping.
  • TCI seeing Increased use of IoT and things like drones, the evolution of introducing other new products going to be a game-changer for the logistic sector.
  • TCI planned to spend about Rs 5000 mn for the next three years for buying trucks or ships, railway rakes, and construction of warehouses. TCI growing faster than the market and this will lead to market share gains for TCI.
  • Many companies in the logistic sector looking at green logistics. TCI looking at less carbon emission and moving from road to rail to sea and reducing the amount of carbon footprint. The company expects many companies in the logistics sector to think about moving towards multimodal for green logistics.
  • Customers want green logistics and TCI has to evolve. TCI is offering different solutions to customers from road to rail to sea and a combination of them. TCI has their own services for road, seaways business and TCI has a JV with Concor to run rail logistics that gives TCI a little bit of edge while offering services.

Asset Multiplier Comments

  • We think TCI’s diversified range of services via a single window leads to capturing higher wallet share of its customer. Consistently growing E-Commerce industry drives the growth for TCI. Well-diversified range of services helps TCI in volatile times.
  • As the economic activities started ramping up, supply chain issues have started to resolve and normalization of input cost is happening. We think TCI may perform very well in the logistic sector.

Consensus Estimate: (Source: TIKR website)

  • The closing price of TCI was ₹ 760/- as of 30-December-2021. It traded at 25x/23x/17x the EPS estimates of ₹ 30.4/33.5/45.4/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 734/- implies a P/E Multiple of 16x on FY24E EPS of ₹ 45.4/-

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

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