TCS Management on COVID trigger, a multi-year transformation

Update on the Indian Equity Market:
On Friday, NIFTY closed flat at 11,914 (+0.7%). Top gainers in NIFTY50 were Wipro (+4.4%), ICICI bank (+4.1%), and Axis bank (+3.7%). The top losers were Grasim (-2.6%), Hindalco (-2.5%), and UPL (-2.3%). Top sectoral gainers were PSU BANK (+3.1%), BANK (+2.8%), and PVT BANK (+2.6%) and sectoral losers were REALTY (-1.6%), PHARMA (-1.3%), and MEDIA (-0.9%).

Excerpts of an interview with Mr. Rajesh Gopinathan, CEO & MD, and Mr. NG Subramaniam, COO, TCS with ET now dated 8th October 2020:
● They fundamentally believe that technology will be a solution and therefore there will be even more relevance to their services to their customers.
● They were confident about their ability to switch to the new operating model and that was what was underlying the commentary that they had given earlier on that in about six months’ time or the end of Q3, they should be looking at coming back to parity and from a cost structure and margin perspective, by the end of Q4 they should be looking at parity.
● What has changed during the course of the last six months is that they have been able to execute on the operational resiliency program that NGS laid out; second, they have been able to participate significantly in this technology-led transformation that is at the heart of their customer’s response to the COVID crisis.
● First-quarter was about their internal resiliency. The second quarter has been about participating in the customer side. Now they are a lot more confident because both legs have been executed and it is with that confidence that they are giving their comments.
● What they are seeing is an urgency to accelerate the digital transformation on all fronts. Three priorities – the first one is the resiliency of your IT landscape. The second is their own internal employee experience, can they continue to operate remotely and safely and then contribute even more productively? The third being customer experience, how can they continue to be wherever their customers want to do business and how their experience can be touchless, contactless while providing all the accessibility options for different segments if possible.
● If you put these three things together, then the migration to the cloud becomes very important. The intent is to move to a hyper-scale platform with agility, resilience, adaptability, flexibility, and all those things.
● In the current context, they provide significant value and there is clearly an urgency to say that look I am going to move to that kind of an architecture which is much more modern, much more futuristic, which means that when you go an invest in this and it is not going to be a simple hop on and hop off once you move in there.
● It is going to be irreversible and you have to continue with that journey for three to five years where you will pretty much become a native and will embed your businesses into that technology by which you will extend your organizational capabilities with the ecosystem concept and bring in a lot more credibility to the business you do business with your customers. That is the multi-year transformation that they are seeing.
● In a technology, anything more than three to five is very difficult to call out but they are very confident about three years because it is something they have visibility to.
● Within those three to five years, there are going to be a lot more new ways of doing business, of reaching out to customers who are going to emerge.
● COVID has provided a business trigger and they are not sure whether in the absence of COVID, this adoption would have been at the same speed. It is unfortunate that the trigger happened in such a negative way but the trigger for the shift has kicked in. That is the way to understand what is going on.
● In the last three months, they have upped their quotient on delivery guidelines for delivering through secured, borderless workspaces.
● We are seeing that people love the flexibility that they have. While talking to one of the employees the other day, he was saying that this conference room crap has completely gone away and the collaboration meetings are a lot more democratic and they are able to decide and deliver things faster.
● They are able to incrementally innovate, multiple elements, and levers of productivity which is there. They are completely focussed on making sure that it is working superbly and people are able to deliver productivity with a lot of pride.
● Their operating philosophy has been to maintain stable margins. They are very systemic about trying to manage within that range which they think is beneficial to all stakeholders; customers, their employees, and their investors.
● Short-term volatility will have its own impact and it is more of a philosophical thing. There is no right margin to operate at, it is relative competitiveness and the aspiration that you have. It is a fair and achievable and sustainable band and that continues to be their guiding principle.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of TCS was ₹ 2,811/- as of 9th October 2020. It traded at 33x/ 28x/ 25x the consensus earnings estimate of ₹ 85.1/ 101.0/ 113.0 for FY21E/22E/23E respectively.
● The consensus price target of TCS is ₹ 2,802/- which trades at 25x the earnings estimate for FY23E of ₹ 113/-.

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.”

Portfolio Turnover is the Price of Progress

Portfolio Turnover – Investopedia describes portfolio turnover as a measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by taking either the total amount of new securities purchased or the number of securities sold (whichever is less) over a particular period, divided by the total net asset value (NAV) of the fund. The measurement is usually reported for a 12-month time period.

Ian Cassel writes that he believes there is an over-glorification of buy and hold investing among active managers. With the rise of private equity and venture capital, everyone is trying to invest in public markets with the same permanent capital mantra. The lower the turnover, the more cerebral and thoughtful you appear to be with initial investment decisions. Nothing looks better than being right from the very beginning. More often than not, low turnover is shown as a badge of honour. Many investors feel great pride and joy being a loyal shareholder of a company. It feels good to say you’ve held a company for 5-10-20 years. But in reality, what really matters is performance.

A big part of what made many investors great was spotting when they were wrong quicker. Successful stock picking isn’t just picking winners. It also means picking out the losers in your portfolio. The greatest advantage in public markets is “You can sell”. But you have to know when to sell.

We normally sell a position for three main reasons: Sell when the story changes for the worse; Sell when we find something better; Sell when a company gets very overvalued.

Investors aren’t going to be right all the time. Acknowledging this fact isn’t a justification for not doing upfront due diligence. What we do acknowledge is that we are willing to accept a degree of uncertainty for the sake of speed – getting in early. Often, an opportunity is an opportunity because the conditions aren’t perfect yet. The price of certainty can be expensive as it relates to discovery and valuation. When we find a business that aligns with what we like – speed is more important than certainty.

Our initial due diligence might get us into a position, but it is our maintenance due diligence that will keep us invested and/or save us from big losses. Our future returns are based on our ability to course correct and adapt to new information. We are going to have turnover because turnover is the price of progress.

Sometimes when you sell you have gained and sometimes you have losses. Cassel says he learned a long time ago to not let small losses bother him. A big part of being a successful investor is your ability to admit when you are wrong on a company while not letting it crush your confidence and slow you down.

Tanishq sees better recovery in demand in smaller towns- TITAN

Update on the Indian Equity Market:
On Thursday, Nifty ended 0.8% higher at 11,834 led by IT and Pharma stocks. The top gainers for Nifty 50 were Wipro (+7.3%), Cipla (+5.0%), and TCS (+3.0%) while the losing stocks for the day GAIL (-3.1%), ONGC (-2.8%), and ITC (-1.4%). Top gaining sectors were IT (+3.2%), Pharma (+2.5%), and Bank (+1.0%) while losing sectors were Media (-0.5%) and FMCG (-0.1%).

Edited excerpts of an interview with Mr Arun Narayan, Vice President, Category, Marketing & Retail, Tanishq at Titan Company Limited.; dated 07th October 2020 from Retail Economic Times:

Almost all Tanishq stores are open across the country and the Company has seen a really encouraging response from consumers. There has been positivity because of the festivals from August onwards. The Company believes that as they head into Dussehra and Diwali, the sentiment should only improve.

In towns, where malls contribute to a larger part of their business, the recovery has been even slower but there has been a steady improvement month on month and that gives them the confidence as they head into Dussehra and Diwali. Consumers are waiting to bring in positivity into their lives after months of being restrained and locked down and that is going to play out over the next two months i.e., in October and November.

The Company saw a greater improvement in plain gold and studded jewellery. In August, there was a period when the Company saw more investment buyers and increased demand for gold coins. That was the time when gold rates were going up significantly for maybe two weeks. But now that gold rates have cooled down, they found that recovery is pretty much even across both plain gold as well as studded jewellery.

The management is fairly optimistic about this season for many reasons; one is deferred demand from wedding shoppers. Weddings have got deferred from quarter one of this year to November, December and some of them also to quarter four and they believe that those who have weddings in their families will be back to shop for jewellery. Second, many consumers buy every year during this auspicious period and the Company knows they will be back.
Consumers seem to have accepted that gold rates may remain range-bound or fluctuate, but there is a belief that at least till this festive season, they may not see a significant uptick.

The Company has more than 13,000 customers who bought jewellery through video calls.
One can buy jewellery from the comfort of their homes, sitting with their family, through video calls and can make a remote contactless payment. All the documentation and invoices can be emailed to the customers and they can get the latest catalogues on their phone or device. One can buy jewellery from their nearest Tanishq store from the comfort of their homes. It is a whole new experience for the Company & the consumers as well with the virtual try-on and video calling. The way consumers have adopted that across metros and smaller towns has been really fantastic.

Consensus Estimate: (Source: market screener website)
The closing price of Titan Company Ltd was ₹ 1,254/- as of 08-October-2020. It traded at 127.1x/ 60.0x/48.8x the consensus EPS estimate of ₹ 9.9/20.9/25.7 for FY21E/ FY22E/ FY23E respectively.
The consensus target price of ₹ 1,068/- implies a PE multiple of 41.5x on FY23E EPS of ₹ 25.7/-.

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.”

Expect double-digit growth in 3QFY21E– LIC Housing Finance

Update on the Indian Equity Market:

On Wednesday, Nifty closed with 0.7% gains at 11,739. Within NIFTY50, TITAN (+4.5%), BAJAJ-AUTO (+3.6%), and HEROMOTOCO (+2.9%) were the top gainers, while BAJFINANCE (-4.1%), BPCL (-2.8%), and HINDALCO (-2.7%) were the top losing stocks. Among the sectoral indices, AUTO (+1.4%), IT (+0.6%), and PVT BANK (+0.6%) were the top gainers while MEDIA (-2.5%), REALTY (-1.9%), and METAL (-1.5%) were the top losing sectors.

Expect double-digit growth in 3QFY21E– LIC Housing Finance

Excerpts of an interview with Mr. Siddhartha Mohanty, MD & CEO, LIC Housing Finance (LICHSGFIN), that aired on CNBCTV18 on 6th October 2020:
● Post the highly impacted months of April and May, LICHSGFIN experienced good growth in disbursements June onward. This growth has been particularly in the affordable segments. However, off late, Mr. Mohanty has also observed some uptick in demand in above mid-segment, as well as premium segment disbursements picked up since June.
● LICHSGFIN has almost reached pre-COVID levels in terms of disbursements owing to good traction in the month of September.
● Despite the inauspicious periods of ‘shraadh’ and ‘adhik maas’ in September, the 2QFY21 has been very good.
● Management expects the positive trend to continue and expect double-digit growth in 3QFY21E. Several factors are into play to motivate home buyers to purchase now. Government has given several incentives including the extension of PMAY CLSS scheme till March 2021, and reduction in stamp duty to 2% up to December 2020 by Maharashtra government. Apart from that, some developers are also giving concessions to attract customers.
● LICHSGFIN has also introduced innovative products to attract customers such as 6 EMI waivers for borrowers who are undertaking immediate purchase/ moving of the house.
● For LICHSGFIN, developer loan book is less than 7% of the total book. Considering sales velocity, within the developer segment, LICHSGFIN focuses more on affordable housing. Even now, LICHSGFIN has been lending to developers but on a very limited basis.
● LICHSGFIN has also seen better than expected collections. A substantial portion of borrowers who were under moratorium have also started paying in September.
● Despite increased competition in home loans, LICHSGFIN has managed to sustain its market share and maintain stable margins.
Consensus Estimate (Source: market screener and investing.com websites)
● The closing price of LICHSGFIN was ₹ 283/- as of 07-October-2020. It traded at 0.7x/ 0.7x/ 0.6x the consensus Book Value per Share estimate of ₹ 386/428/472 for FY21E/ FY22E/ FY23E respectively.
● The consensus target price of ₹ 331/- implies a PB multiple of 0.7x on FY23E BVPS of ₹ 472/-.

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.”

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

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.”

70% rise in footfalls in Q2 – Muthoot Finance

Update on the Indian Equity Market:
On Monday Nifty closed 0.8% higher at 11,503. Among the sectoral indices IT (+3.5%), Metal (+2.6%), and Pharma(+1.7%) closed higher. Fin Services (-0.2%), Media (-0.2%), and PSU Bank (-0.1%) closed lower. Bajaj Finserv (-2.79%), Shree Cement (-2.8%), and Bharti Airtel (-2.0%) closed on a negative note. TCS (+7.6%), Wipro (+7.0%), and Tata Steel (+4.9%) were among the top gainers.
70% rise in footfalls in Q2 – Muthoot Finance
Excerpts from an interview of Mr.George Alexander Muthoot, MD, Muthoot Finance with CNBC-TV18 dated 1st October 2020:
● There is an increase in average daily footfall. The increase is by 70% as compared to Q1.
● Q2 is much better as more customers are coming to the branch as lockdown is lifted and travel is becoming possible.
● Customer transactions are also increasing. There is a 40% increase in customer transactions.
● There is a 10% increase in online transactions. Q1 also saw a rise in online transactions. The company did 3mn transactions in Q1.
● Muthoot Finance has started a new loan scheme with a free COVID-19 insurance policy.
● This scheme was started late in Q2 and in the southern branches. The company offered 46k COVID-19 policies to customers free of cost.
● The customers have a small ticket size. The average loan size is Rs 50,000.
● The company expects Q2 to be much better as there is a new loan disbursal as well.
● The company continues to maintain the guidance of 15% growth in the gold loans.
● On the home loans business, he said there was no new lending in Q1 and Q2. The company will start new lending going ahead. The recovery is 85-90% in the home loan business.
● People who took moratorium earlier have not utilized it fully and already paid installments.
● The customers are coming back for payments but the company will start lending in Q3 and Q4.
● On the change in LTV for banks, he said there is always a high competition in the gold loan sector. There is no decrease in business for the company.
Consensus Estimate: (Source: market screener website)
● The closing price of Muthoot Finance was ₹ 1,164/- as of 04-October-2020. It traded at 3.2x/ 2.6x/ 2.3x the consensus Book value per share estimate of ₹ 363/445/510 for FY21E/ FY22E/ FY23E respectively.
● The consensus average target price for Muthoot Finance is ₹ 1,300/- which implies a Pb multiple of 2.4 times on FY23E BVPS of ₹ 510/-.
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.”

95% of stores have resumed operations – Bata India

Update on Indian equity market:
The optimism in markets continued as Nifty closed the holiday-shortened week at 11,415 (+1.5%). Among the index, INDUSINDBK (12.3%), BAJFINANCE (5.0%), and BAJAJAUTO (4.1%) were the top-performing stocks while DRREDDY (-1.4%), ITC (-0.5%) and ONGC (-0.5%) were the laggards. The optimism was such that all the sectors traded in the green zone on a weekly expiry day with PVT BANK (4.1%), BANK (3.6%), and MEDIA (3.1%) leading the rally.
Excerpts of an interview with Mr. Sandeep Kataria, CEO, Bata India (Bata) published on ETNOW dated 25th September 2020:
Mr. Kataria said the sales trends are changing after COVID-19. The Work-From-Home norm has affected the demand trends as the demand is moving towards comfort wear.
Footfalls are gradually increasing in the stores as the unlock is happening. 95% of the Bata stores have resumed operations.
Small towns with 1-3 lakh population are the fastest to return to pre-COVID levels. The company has seen demand from smaller towns as they choose to shop from local stores instead of traveling to cities. Stores near residencies are doing better.
The company has identified new avenues of growth in the post-pandemic era as the country gradually learns to cope with the virus. Sales via distribution channels are witnessing growth.
He said that sales via digital retail have seen dramatic growth in India during the lockdown. The company has even sold products via video calls and WhatsApp.
The company was growing between 7% and 11% for the last five years before the pandemic struck. Its revenue fell 9% in the quarter ended in March 2020. He expects FY21 to be subdued due to disruptions caused by the virus and confident of attaining growth in the following years.
Consensus Estimate: (Source: marketscreener & investing India website)
The closing price of Bata was ₹ 1,345/- as of 01-Oct-2020. It traded at 179x/ 45x/ 37x the consensus EPS estimate of ₹ 7.5/ 29.8/ 35.9 for FY21E/ FY22E/ FY23E respectively.
Consensus target price of ₹ 1,290/- implies a P/E multiple of 36x on FY23E EPS of ₹ 35.9/-.
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.”

When should I use a financial advisor?

Michael Batnik writes to debunk something that is probably common in a lot of people’s minds. An advisor cannot beat the market any more than you can. If you find an advisor who happens to deliver higher returns once adjusting for risk, then consider yourself lucky. But if that’s your expectation going into a new relationship, then sooner or later you’re going to be disappointed. So if you can’t beat the market and neither can an advisor, then why even bother? Because an advisor can tell you the most important thing. Am I going to be okay? Can I live the type of life I want to live? That’s it. That’s the job.

If you’re not sure you’re ready to have this question answered, below is an incomplete list of ways to know when the time is right.

When You Made A Big Mistake: You know you need to take your hand off the steering wheel when you can no longer be trusted to get to your destination. Past behaviour is the best indicator of future behaviour. We can learn from mistakes, but you pretty much are who you are. If you panicked last time and convinced yourself you’re going to be fine next time, you’re probably not being honest with yourself.

When you’re worried about your spouse: If you handle the finances in your household and are worried that your spouse would be unprepared to deal them in your absence, it’s probably a good idea to find an advisor. Even if you’re not ready to relinquish control, it makes sense to find somebody that your spouse can turn to in the event of your death.

When you’re tired of it: If you trade stocks long enough, you’ll realize at some point that despite the time, energy, and anxiety of it all, you would have done just as well if not better in an index fund. And if you’re sick and tired of checking prices during the day, of reading headlines at night, and of wondering what the election might mean for your portfolio, then you’re probably ready to hand over the keys.

When you don’t have the time for it: If you work long hours and come home to a family that needs your time and attention, the last thing you want to be doing is stressing out about which fund to buy. Or when is the best time to rebalance? When your life is being pulled in a million different directions, then it might make sense to reach out to a financial advisor.

When the stakes have gotten real: If you’re a young person with an Rs5,000 portfolio, a mistake like panicking in a bear market is something that you can recover from. If you’re older with more money and less time to replenish that lost money, it’s harder to come back from that.

When you feel paralyzed: If you’ve been meaning to sell your underperforming stocks but just can’t pull the trigger, or you’ve been waiting for the right time to put the cash to work, you could probably stand to consult with somebody. If nothing else, taking the emotions out of the equation will force you to finally take action.

When you want to get specific about your goals: If you want to buy a second home in ten years and retire in 20, an advisor can tell you whether or not this is possible. Of course, nobody has a crystal ball, but an advisor’s job is to let you know if it’s possible, or break it to you that you’re not even close.

The pandemic has led to a behavioral change toward Health and Wellbeing – Tata Chemicals

Update on the Indian Equity Market:
On Wednesday, the consolidation in the equity markets continued with the Nifty ending marginally higher at 11,227 (0.2%). Among the stocks, GRASIM (+3.0%), TECHM (+2.8%), and TITAN (+2.6%) led the gainers while BPCL (-9.0%), BHARTIARTL (-3.7%), and TATASTEEL (-3.1%) led the laggards. FMCG (+1.3%), PHARMA (+0.5%), and IT (+0.4%), the three sectors considered defensive led the index gainers. METAL (-2.1%), PSU BANK (-1.1%), and REALTY (-0.8%) led the sectoral losers.

Edited excerpts of an interview with Mr. Rahul Gupta, Business Head, Nutritional Sciences, Tata Chemicals with ETHealthworld on 29th September 2020:
• One of the consequences of the pandemic has been a paradigm shift in the health consciousness and food preferences of consumers.
• Following a healthy lifestyle has increased the significance to increase gut health and immunity by following a healthier diet which includes consuming more fortified products. This increased inclination towards nutritional products and supplements coupled with the increasing disposable income is now changing the consumer’s purchasing pattern which has provided an impetus to the wellness sector.
• The F&B, pharma, and nutrition companies are forced to present well-researched and innovative products to suit the changing needs of the customers. The desire to build a stronger immunity and lead a healthier lifestyle will only evolve consumer behavior patterns towards the nutraceuticals industry.
• Tata Chemicals is witnessing 100% growth driven by a focus on health and immunity. The virus outbreak will reset the baseline for health and nutrition companies which will help reshape the market by offering products backed by strong science.
• Tata NQ, the nutritional solutions arm of Tata Chemicals has invested in researching new age products with the help of machine learning and big data at the R&D centers over the past years.
• The work on building one of the biggest global knowledge bases on the gut microbiome, mapping subjects across geographies, age groups, genders, sedentary habits, and other parameters is underway.
• The new trend in consumers’ food patterns is the inclusion of more immunity building nutrients in the daily diet to strengthen health and protect from the virus. There is a huge demand for preventive nutraceutical products and natural products in the market, across all age groups.

Consensus Estimate: (Source: market screener website)
• The closing price of Tata Chemicals was ₹ 300/- as of 30-September-2020. It traded at 13x/ 8x/ 7x the consensus earnings estimate of ₹ 23.5/ 35.9/ 41.3 per share for FY21E/FY22E/FY23E respectively.
• The consensus target price of ₹ 327 implies a PE multiple of 8x on FY23E EPS of ₹ 41.3/-.
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.”

Premium brands witnessing a growth of 50% – Bajaj Auto

Update on the Indian Equity Market:
On Tuesday, NIFTY closed in minor red at 11,222 (-0.05%). Top gainers in NIFTY50 were Hindalco (+5.3%), ULTRACEMCO (+3.3%) and HERO MOTOCORP (+2.8%). The top losers were UPL (-3.5%), ONGC (-3.5%), and INDUSIND (-3.4%). Top sectoral gainers were METAL (+1.9%), AUTO (+0.3%), and IT (+0.2%) and sectoral losers were PSU BANKS (-2.2%), FMCG (-1.5%), and PVT BANK (-1.3%).

Excerpts of an interview with Mr. Rajiv Bajaj, Managing Director – Bajaj Auto with CNBC -TV18 dated 28th September 2020:
● Bajaj Auto has partnered with KTM, Husqvarna and Triumph. So Bajaj Auto cannot engage with Harley due to these partnerships.
● Harley Davidson has decided to end India operations on account of low sales and a global rewire strategy. The company which sold over 58,000 units in North America in the first six months of this year has sold just over 25,000 units in India in a ten year period.
● Bajaj agreed that Harley could never really take off in India due to the high price point but said that Bajaj Auto’s partnership’s with KTM and Husqvarna show how brands like Harley can succeed in India.
● Bajaj Auto tied up with KTM in 2007 when the latter was selling 65,000 motorcycles a year and struggling and today KTM has surpassed Harley with a sale of three hundred thousand units a year.
● This year they should make close to two hundred thousand KTM’s & Husqvarna’s for global sales including India. These bikes between 125-400 cc are very competitively priced and KTM has distribution all over ASEAN and Latin America which KTM could not do before. This should be the goal of brands like Harley Davidson also.
● Distribution is about demand fulfilment and will not generate demand. If Harley is looking at making a 300-400cc motorcycle then they must get it absolutely right. The Street 750 did not succeed as it was considered a poor man’s Harley.
● Q2 is in line with July projections. Projected 1 mn motorcycle & 3W sales if supply chain supports. They can reach 2.5 mn in October if production supports. 3W sales are moving up too.
● Pulsar sales are expected to be at an all-time high of 2 lakh units in October. Exports have seen an all-time high in September-October.
● Premium segments like KTM, Dominar have seen close to 50% growth. KTM exports in the US, EU & Australia see 30-100% growth.
● They see no obvious evidence of a shift to COVID linked personal mobility pick up.
● They have re-engineered CT and Platina portfolio for a profitable share gain.
● Lockdown has destroyed Tier 1 & 2 suppliers. Tier 1 suppliers facing labour issues.
● Bajaj Auto can see sales of 4 lakh units in the month of September.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of Bajaj Auto was ₹ 2,901/- as of 29th September 2020. It traded at 19x/ 16x/ 14x the consensus earnings estimate of ₹ 149/ 179/203 for FY21E/22E/23E respectively.
● The consensus price target is ₹ 3,010/- which trades at 15x the earnings estimate for FY23E of ₹ 203/-
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.”