29 Dec

Disbursement growth is expected to be 38-40% higher than in FY19- Can Fin Homes

Update on the Indian Equity Market:

On Wednesday, the benchmark index NIFTY 50 closed at 17,213 (-0.1%), 20 points lower. Among the sectoral indices, HEALTH CARE (+1.9%), PHARMA (+1.7%) and AUTO (+0.4%) were the gainers and METAL (-1%), MEDIA (-0.9%), PSU BANK (-0.7%) led the losers. Among the NIFTY50 components, EICHERMOT (+3.4%), BAJAJAUTO (+2.9%), and SUNPHARMA (+2.3%) were the top gainers while SBIN (-1.7%), ITC(-1.6%) and COALINDIA (-1.5%) led the laggards.

Excerpts of an interview with Girish Kousgi, MD and CEO of CAN FIN HOMES LIMITED, on CNBC TV18 on 6th December and 27th December 2021:

  • The real estate industry’s sentiment is extremely positive, owing to low property prices, lower mortgage rates, and increased affordability. With economic activity rising up and ample liquidity in the market, the company is optimistic of industry’s overall health and improvement.
  • The management feels the new covid variant, Omicron, is not as dangerous as the preceding variations since the fatality rate is lower. On the demand side, the firm anticipates good results in the 3QFY22E, and the trend is projected to continue.
  • The restructured book expanded by Rs6500 million in 3QFY22E. The firm expects roughly 7% of restructured book to flow into stage 3 in 3QFY22E and 4QFY22E, which is approximately Rs 450 million, and has established a provision of Rs 650 mn against this amount.
  • Aside from the NPA pool, the company expects to recover roughly Rs 550-600 million, thus when looking at NPAs altogether, management believes it would remain very steady.

 

  • The excess provision, which can be utilised to satisfy the RBI’s new NPA rules for NBFCs, has been exhausted. The company will continue to provide provisions based on the quarterly requirement.
  • Because of the RBI’s new policy guidelines, there will be a significant impact on the asset quality and gross NPA levels in the industry as a whole, particularly in the commercial vehicle, MFI, and unsecured pool sectors. Because the EMI begins at the end of the month, the impact on Can fin is likely to be limited. For recovery, an NPA pool has been designed and hence NPAs are expected to remain constant in the next quarters.
  • Almost 75% of loans are extended to salaried class. Even in the affordable housing segment, demand has increased. 3QFY22 is looking extremely well in terms of demand, which will continue in the next quarters notwithstanding the impact of Omicron.
  • For FY22E, disbursement growth is estimated to be 38-40% higher than in FY19; on a steady-state basis, the company intends to expand at a rate of 18-20% on both book and disbursement growth. Because demand is high and growth is robust, sequential growth is estimated to be approximately 4-5 percent.
  • The average loan ticket size stands at Rs 21 lakh, up from Rs 18 lakh a few quarters ago, thanks to the company’s clear focus on the high-value salaried segment, which contributed to the growth in ticket size.
  • The demand is geographically diverse and all the segments are performing well. In terms of profile, self-employed / non-professionals had a slightly lower response for loan demand.
  • The salaried class and the self-employed class used to contribute 70% and 30% to the total loan book respectively. However, the contribution of the salaried class to the total loan book has increased to 74%. It may take another three to four quarters for the self-employment sector to recover to 30% contribution levels. The loan collection efficiency has increased compared to pre-covid levels.

Asset Multiplier Comments

  • 75% of Can Fin’s customers being salaried individuals, and the company being backed by strong brand of Canara Bank, we believe these factors will work favourably for its growth in the near term.
  • We expect disbursements in 2HFY22 to be better than H1, and its margins to remain stable at the current levels.

 

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

  • The closing price of Can Fin Homes was ₹ 555/- as of 29-December-2021. It traded at 2.7x/2.1x/1.8x the BVPS estimates of ₹ 222/264/308/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 760/- implies a P/B Multiple of 2.8x on FY24E BVPS of ₹ 270/-

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 Dec

CP Gurnani’s plan for Tech Mahindra amid Covid-19 uncertainty

Update on the Indian Equity Market:

On Tuesday, the benchmark index NIFTY 50 closed at 17,233 (+0.9%), 147 points higher. Among the sectoral indices, CONSUMER DURABLES (+1.4%), AUTO (+1.3%), and PSU BANK (+1%) led the gainers and there were no losers today. Among the NIFTY50 components, SUNPHARMA (+3.1%), ASIANPAINT (+2.8%), and M&M (+2.6%) were the top gainers while POWERGRID (-0.34%) and INDUSINDBK (-0.27%) led the laggards.

Excerpts of an interview with Tech Mahindra’s CEO and Managing Director CP Gurnani with Business Standard on 25th December 2021:

  • 50% of revenues for TECHM come from telecom service providers and the telecom ecosystem. The 3 factors that would really help telecom grow are; the first one being network up-gradation to 5G, second- newer platforms that will drive consumption of telecom and the third one which is the most dominant according to Mr. Gurnani is that the more work from home happens the more everyone would appreciate the importance of network service providers.
  • TECHM has not abandoned the ORAN (Open Radio Access Network), it is just that the number of players in this space has increased. Other than Rakuten, Microsoft, VMware, and Mavenir have come up with their own ORAN ecosystems. TECHM is definitely committed but to remain neutral, it was important for them to not be seen as execution partner to one. So, their strategy is to not be a product company but execute with some of the leading players.
  • There is a new way of managing networks which has become a theme for telcos. All the players in the telecom sector are trying to find viable alternate proofs of concept at a certain scale and volume and Mr. Gurnani believes that they are execution partner to every player including Airtel and Jio.
  • Talent is an industry-wide issue at this point as consumption from IT service providers, global technology and start-ups have increased. There is definitely a talent war going on.
  • TECHM anticipated the talent issue and opened offices in Tier 2 cities in Coimbatore, Vizag, Thiruvananthapuram, Indore, Nagpur, Calcutta, and Bhuvneshwar. So, the focus is on people’s preferences to work from their home locations.
  • TECHM has now opened offices in Vietnam, Bangladesh, and in the Eastern European block. As a strategy they are trying to catch young talent, train them and participate in their career development.
  • Work from the office is voluntary at Tech M till December-end due to safety reasons. A survey of TECHM’s employees showed that those below the age of 35 want to come to the office, 35-50 age group is leaning towards a hybrid model and 50 and above prefer working from home. TECHM’s work policy will be formed taking into account their client and employee needs.
  • TECHM will continue to try and be among the top 3 IT services companies in India.

Asset Multiplier Comments

  • We think Healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud will help drive revenues.
  • Higher offshoring, synergies in portfolio companies, automation & operating leverage to help margin expansion going forward.

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

  • The closing price of Tech Mahindra was ₹ 1,806/- as of 28-December-2021. It traded at 28x/25x/22x the EPS estimates of ₹ 64/73/81/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,794/- implies a P/E Multiple of 22 on FY24 EPS estimate of ₹ 81/-

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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27 Dec

Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Update on the Indian Equity Market:

On Monday, Benchmark indices erased previous session losses and ended higher with Nifty closing at 17,086 (+0.49%).

PHARMA (+1.62%), HEALTHCARE (+1.42%) and FINANCIAL SERVICES (+0.91%) were the top gainers and MEDIA (-1.06%), FMCG (-0.08%) and METAL (-0.06%) were top losing sectors.

The top losers were HINDALCO (-3.7%), BRITANNIA (-3.36%), and ONCG (-3.27%) while TECHM (+3.44%), CIPLA (+2.26%) and  DRREDDY (+2.06%) were the top gainers.

 Company confident of delivering 60-70% CAGR over next 3 years: Dixon Tech

Edited Excerpts of an interview with Atul Lall, Managing Director, Dixon Tech with CNBCTV18 on 24th Dec, 2021:

  • According to broker report the company is expected to deliver 60-70% sales CAGR over the next 3 years. Mr Lall stated that the company is confident of delivering these numbers.
  • The company has grown from Rs 44 bn in FY20 to Rs 64 bn in revenues in FY21. The company is targeting to reach Rs 110 bn in FY22E even after Jun-21 quarter being weak due to Covid-19. It expects revenue to be in the range of Rs 170 bn in FY23E. He is confident of this aggressive growth and to be in the lead position in its sector.
  • On the margin front, FY22E has been extremely difficult year for Dixon, particularly for Original Design Manufacturing business. Softening of commodity prices has been seen both in polymer and metal side over the past few weeks. A decline in the freight cost is also been witnessed recently and is relatively stable at present.
  • In B2B (Business to Business) there is a lag in passing off the cost increases to the customers. Company expects to pass on the price increases by next (Mar-22E) quarter but in the Dec-21 quarter the margins are expected to be under pressure.
  • The chip shortage situation has improved slightly but the situation is not fully under control. Most of the companies including Dixon have aligned their forecasting, have started building more inventories and are well aware of the longer lead times. The production situation is much better but the chip shortage problem has not been resolved yet.
  • There was a Directorate of Revenue Intelligence (DRI) survey in Tirupati plant and corporate office pertaining to Television vertical. The issues raised by DRI were interpretational in nature. The company extended all the possible support to the officers and the company is committed to defend its stand in front of DRI.
  • Focus of FY22E – Dixon has got into Mobile vertical and it is expected to be the growth driver going forward and to contribute significantly to the total revenue of the company.
  • Dixon has got into a Joint Venture with Bharti and have got the approval under the telecom verdict to manufacture consumer premises devices. It is expected to start manufacturing from Mar-22E quarter for Airtel. In FY23E a huge ramp up is expected by the company from Mobile vertical.
  • Dixon have tied up with some major customers for manufacturing IT products, a ramp up in its production is expected.
  • Dixon have launched fully automatic top loading machines which is expected to contribute to the growth from FY23E.
  • Dixon is also rolling out Refrigerator products, the production of the same is expected to start from 4QFY22E. A reasonably good growth is expected to be seen from the existing verticals.
  • Under the PLI scheme: The company have started production and investment on IT hardware side, telecom Side and white boards. Backward integration for lighting products under PLI scheme is under process. Company expects to start the production of components of lighting products from 1QFY23E.

 

Asset Multiplier Comments

  • We think Dixon is one of the largest beneficiaries of the government’s PLI scheme and new segments such as electronics/IT products, telecom products and LED lights & AC component will help the company to achieve its target of 60% CAGR for over next 3 years.
  • Domestic mobile production is set to grow under PLI scheme. We believe Dixon is one of the main beneficiaries which will drive future revenue for Dixon.

 

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

 

  • The closing price of Dixon Tech Ltd was ₹ 5,617/- as of 27-Dec-21. It traded at 127x/72x/52x the consensus EPS estimate of ₹ 44.2/77.7/108 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 5,079/- implies a PE multiple of 47x on FY24E EPS of ₹ 108/-.

 

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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27 Dec

#Truth about investing 102-Efficiency and behavior

This is taken from a presentation by Howard Marks Co-Founder of Oaktree Capital. This is the second in the series of articles. Mr Marks makes concise and incisive comments about the art of investing that can help amateur and professional investors alike.                                                      

Most investors behave pro-cyclically, to their own detriment.

In a rising market, even fundamentally weak companies look great technically. Fear of Missing Out (FOMO) kicks in, making people more optimistic and causing them to purchase at market highs. When the inverse is true, their pessimism grows, encouraging them to sell at cyclical lows. As a result, the retail investor is left with equities with high purchase prices but poor fundamentals.

Cyclical ups and downs don’t go on forever. But at the extremes, most investors act as if they will.

At market extremes, emotions- fear and greed are at their highest levels. People buy at market highs and sell at market lows. When people start believing in trends rather than market cycles, that’s when behavioral mistakes occur. It is usually best to ignore the current market and stick to the fundamentals at sky high emotions.

It’s important to practice “contrarian” behavior and do the opposite of what others do at the extremes.

Market does not trade at extreme ends for a long time. When there is a widespread notion that there is no risk, investors believe it is safe to engage in dangerous behaviour. Acting contrary to the market during phases of soaring emotions might provide us with optimum entry and exit points. As a result, we must sell when others are greedy and purchase when they are fearful.

While not all markets are efficient – and none are 100% efficient – the concept of market efficiency must not be ignored. In the search for market inefficiencies, it helps to get to a market early, before it becomes understood, popular and respectable.

Humans are predisposed to identify patterns and exploit them; however, these patterns and trends are already priced in by the markets. Higher the efficiency of the market the faster are the patterns and trends priced in. In established markets, however, efficiency diminishes the frequency and scale of opportunities to overcome the consensus and identify mispricing or inefficiencies. The sooner you invest in an inefficient market, the easier it is to profit as markets become more efficient. If the other investors are few, inexperienced, or prejudiced, you will have the first mover advantage; as Warren Buffet correctly stated, “First comes the inventor, then the imitator, and last the fool.”

Source: Howard Marks- Truth About 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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25 Dec

This week in a nutshell (20th-24th December)

Technical talks

NIFTY opened the week on 20th December at 16,824 and closed on 24th December at 17,004. It gained  1.1% during the week. The index is trading below its 10DMA of 17,057 which might act as a resistance. On the downside, the 16,971 level might act as a support. The RSI (44), and MACD turning downward suggests a possible decline.

Weekly highlights

  • The US indices closed the week in green as investors speculated that the spreading Covid Omicron variant may not adversely affect human health, businesses and lockdown-like situations might not arise, and hence the stock buying picked up. S&P 500 was up by 2.3%, Nasdaq 100 by 3.2%, and Dow Jones by 1.7%.
  • The Turkish currency lira tumbled to a record low after its President Recep Tayyip Erdogan pledged to continue cutting interest rates, referring to the Islamic ban of high-interest rates as a basis of his policy. The president feels that Turkey can free itself from reliance on foreign capital flows by abandoning policies that prioritized higher interest rates and strong inflows.
  • The Indian government reduced the import tax on refined palm oil to 12.5%, from earlier 17.5%, in an effort to cool near-record high vegetable oil prices. This would make refined palm oil more attractive than crude palm oil for Indian buyers.
  • Sebi suspended futures and options trading for one year in chana, mustard seed, crude palm oil, moong, paddy (basmati), wheat and soybean and its derivatives. This has not only led to a fall in prices of these commodities, but also to scaling back of inventories by traders, who say the flow of imports will slow down since they do not have a hedging platform.
  • Zee Entertainment Enterprises (Zee) and Sony Pictures Networks India (SPNI) signed a definitive agreement that will let the two merge their networks, digital assets, production operations and programme libraries. The merged entity will have a 27% market share of the general entertainment space. After the completion of the deal, Sony Sony Pictures Entertainment will hold a 50.86% stake in the combined entity, the promoters of Zee will hold a 3.99% stake and the remaining shareholders of Zee will hold a 45.15% in the merged entity.
  • Tata Motors has incorporated Tata Passenger Electric Mobility Limited (TPEML), a wholly-owned subsidiary that is involved in the manufacturing of electric motor vehicles, with an initial capital of Rs 7000 mn.
  • FII (Foreign Institutional Investors) were net sellers of shares worth Rs 65890 mn and DII (Domestic Institutional Investors) were net buyers of shares worth Rs 69156 mn this week.

 

Things to watch out for next week

  • As investors around the world seem to be cautious about the Fed’s announcement of three 25 bps increase in interest rates in CY 2022, we may see a further sell-off in Indian stocks next week by the FIIs.We may see a reduction in the level of activity as most investors in the US and Europe are away on holidays. 

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 Dec

Focus and future is on digital platform: Zee Entertainment and Sony Group

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,072 (+0.7%), 117 points higher. Among the sectoral indices, REALTY (+2.3%), PSU BANK (+1.6%), and FMCG (+1.3%) led the gainers. MEDIA (-1.1%) and METAL (-0.2%) were among the losers. Among the NIFTY50 components, POWERGRID (+3.7%), IOC (+3.0%), and ONGC (+2.7%) were the top gainers while DIVISLAB (-1.8%), JSWSTEEL (-1.7%), and BHARTIARTL (-0.8%) led the laggards.

Excerpts of an interview with Mr. Puneet Goenka, CEO and MD, Zee Entertainment (ZEEL), Mr. Ravi Ahuja, Chairman of Global television and corporate development, Sony Pictures Entertainment and Mr. N P Singh, MD and CEO of Sony Pictures Networks India with Business Standard on 22nd December 2021:

  • The deal ensued when Sony saw an opportunity in the high growth Indian media Industry when they bought Ten sports from Zee Entertainment in FY18.
  • Zee Entertainment and Sony both have a foothold in the digital OTT market with Zee5 and Sonyliv, respectively. As the firm has not received any regulatory clearances from the Competition Commission of India, the management does not have any precise operational plans, yet.
  • Invesco had reservations as the existing ZEEL promoters were given an option to increase stake in the merged company to 20%. Management has clarified the promoters will have to buy from the open market and there will not be any preferential allotment. As the matter between ZEEL and Invesco is still sub-judice the management has not shared further details.
  • Management is considering market share, growth possibilities, and profitability to provide strong value to shareholders and customers. The management anticipates the merged business to be in a position of leadership and powerful enough to compete with global competitors by FY25E.
  • The merged entity will be an Indian asset on the portfolio of Sony Pictures Entertainment, and given the size of the Indian market, the entity will be a significant revenue contributor to the multinational media company.
  • Even though digital and OTT platforms are experiencing increase in viewership and broadcasting is under immense pressure, the management believes that it still has a role to play in the dynamic entertainment business. The digital business needs scale. The merged company will have a capital of $ 15.7 mn. This arrangement gives the company advantages which the individual companies would not have.
  • Linear TV will continue for the foreseeable future. The future focus is on the digital as both old and new subscriber base is increasing. The company would invest in content, technology and distribution in this direction.

Asset Multiplier Comments

  • The merger plan would need shareholder approval as well as clearance from regulatory bodies such as SEBI and the Competition Commission of India (CCI). The merger approval is awaited, as is information on the status of the EGM sought by Invesco. If the approvals are not received, the merger will be scrapped.
  • The merger is projected to be beneficial in terms of market consolidation and revenue synergy. As the market leader, the merged company would have pricing power in terms of earning ad revenues. The resolution of channel overlap and OTT platforms would be key areas to monitor.

Consensus Estimate: (Source: market screener website)

  • The closing price of Zee Entertainment was ₹ 338/- as of 23-December-2021. It traded at 25x/21x/17x the EPS estimates of ₹ 13.5/16.5/19.1/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 366/- implies a P/E Multiple of 21 on FY23 EPS estimate of ₹ 17.4/-.

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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22 Dec

Demand is robust but supply-side constraints due to new variant – Sonata Software

Update on the Indian Equity Market:

On Wednesday, the benchmark index NIFTY 50 closed at 16,955 (+1.1%), 185 points higher. Among the sectoral indices, REALTY (+3.0%), PHARMA (+2.0%), and METAL (+1.8%) led the gainers. None of the sectoral indices ended with losses. Among the NIFTY50 components, HINDALCO (+4%), TATAMOTORS (+3.7%), and DIVISLAB (+3.5%) were the top gainers while SBILIFE (-1%), WIPRO (-0.7%), and GRASIM (-0.4%) led the laggards.

Excerpts of an interview with Mr. Jagannathan Chakravarthi, CFO of Sonata Software with CNBC-TV18 on 20th December 2021:

  • Chakravarthi said they did not see any impact on demand due to the omicron variant and they also don’t expect any impact. Due to omicron, they expect there will be some supply-side constraints but the company has taken initiatives to mitigate the risk like diversified delivery centers in various locations globally. The pipeline is very strong and company expects the demand continues for the next 8 to 12 quarters.
  • On working from the office Mr. Chakravarthi said, they are not very clear about working from the office. The large players have started the process but Sonata exploring and evaluating possibilities of how much workforce will work from home for now and they said the company is not going back to an earlier stage of 100% work from home. The industry is in the wait and watch kind of situation and the company will decide after some clarity comes on omicron and its impact.
  • In the shorter term, there will be some cost pressure. The salary increases, retention bonus, and salary increment cycle are likely to put pressure on cost. 3QFY22 is expected to be a little moderate in terms of attrition for the overall industry but the company will look at how 4QFY22 and 1QFY23E are coming out in terms of attrition and cost pressure. The impact of cost increases is expected for one or two quarters and margins will not substantially be affected because of that.
  • On client addition, he said there is no pressure on new client addition. Company qualifying the clients according to their qualifying mechanism and prioritizing the clients because the demand is huge. The company is at high levels of utilization and it has to match up with supply-side also.
  • Sonata Software is at EBITDA levels of 27% to 28% which is an industry-leading margin. The company expects if the changes happen in the business for the medium term they will continue to maintain a 23% to 25% EBITDA level for a longer run.
  • The company expects demand to continue to be robust and the company will be at an industry-leading growth rate. It’s hiring has been strong for the last 2 quarters and the company is now well prepared for omicron compared to the delta variant.

Asset Multiplier Comments

  • We think Sonata Software will be able to add more clients as they have strong hiring plans and are investing in senior talent to meet the strong demand momentum. This is likely to drive the growth of the company in the longer run. The hiring also controls the attrition rate and utilization levels.
  • Share of digital revenue has been continuously improving from the last few quarters in International IT Services (IITS). We think a higher share from digital revenue drives the higher margins in IITS. Healthy traction in Retail, Commodity and travel segment we expect strong revenue growth in going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of Sonata software was ₹ 814/- as of 22-December-2021. It traded at 25x/20x/18x the EPS estimates of ₹ 32.4/41.5/46.5/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 964/- implies a P/E Multiple of 23x on FY23 EPS estimate of ₹ 41.5/-.

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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21 Dec

Product Development for Next-Gen EVs under Focus – Sona Comstar

Update on the Indian Equity Market:

After Monday’s freefall, Indian equities recovered on Tueday as the NIFTY 50 closed at 16,771 (+0.9%). None of the sectoral indices ended with losses. METAL (+2.9%), MEDIA (+2.5%), and CONSUMER DURABLES (+2.0%) were the best performers of the day.

Among the NIFTY 50 components, HCLTECH (+4.3%), WIPRO (+3.8%), and UPL (+3.6%) were the gainers. POWERGRID (-1.7%), AXISBANK (-1.1%), and BAJFINANCE (-0.7%) led the laggards.

Excerpts of an interview with Mr. Sunjay Kapur, Chairman of Sona Comstar with CNBC-TV18 on 20th December 2021:

  • Sona Comstar has inaugurated a new state of art research and innovation center in Chennai. This facility is dedicated solely to electric vehicles with an aim to foster the development of advanced products for next-generation electrified vehicles.
  • The semi-conductor shortage situation has not improved much over the past few weeks, as the number of chips required per vehicle are increasing as OEMs shift focus towards more digitally integrated systems in vehicles.
  • This is a trend across other industries as well, where the demand for more complex and efficient chips is increasing, adding to the supply issues. Currently, the Auto industry consumes 7% of semiconductor supply, which is slated to go up to 20% in the next 5 years.
  • There’s no immediate relief in sight as there’s no anticipation of a slowdown in demand, so until the supply catches up this issue will persist in the medium term.
  • Logistics, CIF, and Raw Material Inflation are near-term headwinds for the company, the demand persists the challenge lies in solving the supply-side issues in the medium term.
  • The company has set up a state-of-the-art Testing and R&D Facility in Chennai to develop 30-50 Kw Motors and Controllers for EVs. The company is in talks with global OEMs to gauge the demand arising from a shift towards EVs.
  • Conversion from ICE to EVs in terms of the 2 Wheeler market provides a once-in-a-lifetime opportunity for all auto-ancillary companies. The company believes that in a market of this size, competition can co-exist with significant market share

Asset Multiplier Comments

  • The shift to EVs provides a massive growth opportunity for all auto and auto ancillary companies and Sona Comstar is perfectly placed to take advantage of its unique R&D-led product portfolio.
  • The Auto Industry is reeling from the semi-conductor shortage crisis and with no respite in sight, we believe the company will be under pressure in the medium term until the supply side issues are sorted out.

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

  • The closing price of Sona Comstar was ₹ 709/- as of 21-December-2021.  It traded at 118x/ 75x the EPS estimates of ₹ 6.0/ 9.5/- for FY22E/FY23E respectively.
  • The consensus target price of ₹ 708/- implies a P/E Multiple of 75x on FY23 EPS estimate of ₹ 9.5/-.

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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20 Dec

Airborne Electronic systems to HAL to be delivered during FY23-FY28 – Bharat Electronics

Update on the Indian Equity Market:

Following weak global market cues, Indian equities tumbled on Monday as the NIFTY 50 closed at 16,614 (-2.2%). None of the sectoral indices ended with gains. REALTY (-4.9%), PSU BANK (-4.5%), and MEDIA (-3.9%) were the worst performers of the day.

Among the NIFTY 50 components, CIPLA (+3.7%), HINDUNILVR (+1.8%), and DRREDDY (+1.0%) were the only gainers.  BPCL (-6.5%), TATAMOTORS (-5.2%), and TATASTEEL (-5.2%) led the laggards.

Excerpts of an interview with Ms. Anandi Ramalingam, CMD of Bharat Electronics Ltd (BEL) with CNBC-TV18 on 17th December 2021:

  • BEL received an order worth Rs 24bn from Hindustan Aeronautics Ltd (HAL) for the manufacture and supply of 20 types of airborne electronic systems to be fitted on the fighter aircraft, Tejas. This is the largest avionics order for BEL.
  • The order will be executed during FY23-28. The order acquisition in FY22 to date stands at Rs 100bn.
  • Margins will not be strained due to receipt of the new order. The company maintains its guidance of EBITDA margin of 22-24% for FY22 and FY23E.
  • There could be some revenue from the new order in FY22, but a majority of it will accrue from FY23.
  • Order acquisition guidance for FY22 stands at Rs 150-170 bn. There could be a change of order acquisition being higher than the guidance.
  • The non-defence business contributed ~10% to total revenues, which the company intends to increase to 20-25%. The CMD expects non-defence revenue to be 8-10% of total revenues in FY22. She is hopeful of non-defence contribution increasing to 20-25% by FY24E.
  • BEL plans to diversify into metro, rail, and airport authorities businesses. From Delhi metro, BEL has received a trial order. As soon as the trial order is completed, BEL can start booking for a larger share of the orders.
  • The newer civilian businesses require a bit of customisation, for which development work is ongoing.

Asset Multiplier Comments

  • In FY21, 79% of the total turnover was from indigenous products. 21% of the revenues were generated from products manufactured through Transfer of Technology from foreign OEMs.
  • Defence, being the mainstay of BEL, has contributed 78% of Sales revenue in FY21 as against 82% in FY20, with the balance 22% coming from the non-defence segment.
  • Non defense segments’ contribution to the total revenue has increased from 15% in FY81 to 22% in FY21.
  • The company expects an order inflow of Rs 520-650 bn for the next 3 years. Healthy order book, strong order inflows expected, diversification into non-defence segments like healthcare, metro, Electric Vehicles, and Electronic Warfare gives us the confidence of BEL achieving healthy revenue growth.

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

  • The closing price of BEL was ₹ 195/- as of 20-December-2021.  It traded at 20x/ 17x/ 15x the EPS estimates of ₹ 9.9/ 11.3/ 12.9/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 218/- implies a P/E Multiple of 17x on FY24 EPS estimate of ₹ 12.9/-.

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.”

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19 Dec

This week in a nutshell (13-17 Dec)

Technical talks

NIFTY opened the week on 13thDecember at 17,619 and ended the week on 17thDecember at16,985. The index made a weekly loss of 3.6%. On the upside, 17,125 could act a resistance while 16,807 could act as a support. RSI (14) of 39 indicates the index is nearing the oversold zone.

Among the indices, IT was the only sector which ended the week with gains of 2%. REALTY (-8.4%), MEDIA (-8%), and PSU BANK (-7.8%) led the laggards.

Weekly highlights

  • The US indices closed the week in the red, dragged by the hawkish stance of the Federal Reserve, and increasing worries of the Omicron variant of the COVID-19 virus. These factors combined with continued FII selling led the Indian markets lower, as Indian equities wiped out previous week’s gains and the Nifty50 ended ~4% lower.
  • Federal Reserve officials have indicated they favor raising interest rates in 2022 at a rate faster than expected. The Fed chair, Jerome Powell announced the doubling in the pace of monthly bond purchases. The Federal will be buying USD 60bn of bonds each month from Jan-22, half the level prior to the Nov-21 taper, and USD 30bn less than it purchased in Dec-21.Fed presented aschedule of rate hikes, there will be three rate hikes in 2022, two in 2023 and two more in 2024.
  • Union Cabinet approved Rs 760bn incentive plan for semiconductor and display board production in the country, the investment of will be spend over the next 5 to 6 years period. PLI scheme boost India’s semiconductor and display manufacturing ecosystem.
  • Wholesale price inflation rose to a record high of 14.2% in Nov-21 due to the increased manufacturing and food prices, inflation in fuel prices and global supply chain issues.
  • The Bank of England increased its interest rates for the first time since the starting of COVID-19pandemic. BOE increased its main interest rates from a historic low of 0.1% to 0.25% as the inflation pressure rises. In November-21,the Consumer Price Index hit a 10-year high and was above the central bank’s target. Bank expects that in April-2022 inflation will be around 6%.
  • Fears over the impact of Omicron variant of the COVID-19 virus led a fall in the oil prices on Friday.With the number of cases doubling, several countries have announced restrictions. The OPEC+ said in their last meeting held in early December that they could meet ahead of their scheduled meeting on 4th Jan 2022, if the oil demand is impacted severely due to the Omicron variant.
  • Foreign Institutional Investors (FII) continued to be net sellers this week, selling shares worth Rs 104,620 mn. Domestic Institutional Investors (DII) continued to be buyers, and invested Rs 67,400 mn in Indian equities this week.

 

Things to watch out for next week

  • In the next week investors will be watching US Consumer confidence numbers to understand if purchasers are switchingtheir habits due to theconcernsof Omicron variant and high inflation. The US markets have a truncated next week as markets will remain shut on Friday on account of Christmas Day.
  • The Indian equity market is likely to see more selling pressure next week amid US dollar appreciation and the concern over the spread of omicron variant. Action is likely to be stock specific till end of December-21.

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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