17 Dec

Behavioural Oversight

Anand Sridharan reminds investors that it is unfair to blame a fund manager for something that he/she doesn’t control (i.e. timing & quantum of flows in & out of fund). However, behaviour gap is real and hurts the average equity investor quite badly. Poor returns to the average investor are rooted in the following:

  1. Every investing strategy experiences (cleverly hidden) cycles
  2. Size is enemy of returns
  3. Substantial money tends to pile into a fund/strategy late in an upcycle
  4. Human nature and institutional (mis) behaviour exacerbate the above

Investing strategies witness headwinds & tailwinds –Odds are that valuation will be a headwind over next 15 years. As a corollary, future returns will be worse than past. Only question is by how much. Without experiencing an inevitable downcycle for my approach, I cannot eliminate the possibility that I’m just a lucky idiot with a hot hand. Headwinds and tailwinds are often cleverly hidden and can only be deciphered with hindsight after an entire cycle. This is why the #1 criterion for judging an investor is longevity, not quantum, of outperformance. Decades, not years, are required to separate skill from luck.

Size is gravity for returns– Investing strategies don’t scale well, especially when inflows lead to step jumps in fund-size. Factors such as ability to build positions, liquidity, inefficiency or impact cost are very different at $ 1 billion AUM than at $100 million. The only peer-group at that size (pension & sovereign-wealth funds) has delivered single-digit long-term returns. Headlined time-weighted returns usually mix up big returns with small money followed by small returns with big money.

We’re suckers for extrapolating recency– Predictions of asset or commodity prices are severely biased by recent movements. Naturally, those selling funds for a commission pile onto this ride as it’s easier to palm off whatever’s hot. Everyone, fund managers included, starts believing in permanence of recent success. Topical nonsense (e.g. valuation doesn’t matter, this time is different) is extrapolated as timeless wisdom. Between misplaced expectations, inherent mean-reversion of any hot-hand strategy and size-effect, majority of inflows are set up for disappointment.

System doesn’t help investors’ cause one bit– Self-delusional fund managers on premature victory laps. Intermediaries’ mis-selling products with ridiculous return promises. Investors not learning from history. Media cheerleading instead of cautioning. Disregard for fundamentals/valuations being rationalized as new normal. What a fund manager does when one’s strategy stops working is the acid test of investing.

Anand Sridharan concludes that aforementioned factors aren’t independent and feed on each other in unknown ways. What can a retail investor in institutionally managed funds do? Ideally, stick to systematic investment in passive index funds.

Source: Buggy humans in a messy world by Anand Shridharan

Asset Multiplier comments:

  • It is difficult to distinguish the exact role of luck in successful trades or decisions, especially in the near term. As a result, performance of a stock or fund should be assessed over a longer period of time rather than the quantum of performance.
  • Humans are hardwired to place huge importance on recent occurrences than on earlier events. Just because a fund has a track record of outperformance does not guarantee that it will continue to outperform in the future.
  • When it comes to active funds, the only thing that can support an average investor is a suspicious, buyer-beware attitude.
  • One of the most significant impacts in stock markets is the behaviour gap, which is the difference between the rates of return that investments create when an investor makes rational choices and the rates of return that investors actually get when they make emotional judgments.

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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16 Dec

Goa unit accounts for 24-25% of US turnover– Lupin

Update on the Indian Equity Market:

On Thursday, the benchmark index NIFTY 50 closed at 17,248 (+0.2%), 27 points higher. Among the sectoral indices, IT (+1.2%), CONSUMER DURABLES (+0.4%), and OIL & GAS (+0.3%) led the gainers, while MEDIA (-1.8%), PSU BANK (-1.0%), and PHARMA (-0.9%) led the laggards. Among the NIFTY50 components, BAJFINANCE (+2.9%), INFY (+2.5%), and BPCL (+2%) were the top gainers while HINDALCO (-1.8%), CIPLA (-1.5%), and SUNPHARMA (-1.4%) led the laggards.

Excerpts of an interview with Mr. Ramesh Swaminathan, ED & Global CFO (LUPIN) with CNBC-TV18 on 15th December 2021:

  • The Establishment Inspection Report (EIR) that comes with Voluntary Action Indicated (VAI) means that the warning letter issued in 2017 on Lupin’s Goa plant has been lifted. LUPIN has about 109 products that are yet to be approved by the FDA and 24-25 out of these are from the Goa unit.
  • LUPIN expects a lot more approvals to come through from this unit over the next few weeks.
  • There has been a lag in LUPIN’s top line because approvals were not coming and the company was not able to leverage on the pipeline. LUPIN will launch new products as approvals start coming in from the Goa unit.
  • This unit is important to LUPIN because 24-25% of the US turnover comes from it and more approvals coming through would help elevate LUPIN’s revenues.
  • LUPIN’s other 3 facilities in India at Mandideep, Tarapur, Pithampur-II, and Somerset in the US also received warning letters which have affected their top line. It expects these units to get inspected over the next quarters and eventually contribute to the top line.
  • LUPIN has a rich pipeline but they are also focusing on more complex products in terms of innovations like complex injectables and biosimilars.
  • They already got approval for Albuterol which indicates the progress they have had in inhalation products. They also introduced Brovana and Spiriva is on the anvil and a lot many to come in the inhalation segment.
  • LUPIN’s facilities have been under the radar for the last 3-4 years and they have been constantly working on it. LUPIN believes they are in a state of readiness when it comes to India and they expect satisfactory solutions as and when the authorities inspect these facilities.
  • LUPIN has been working on the common thread that exists between all of its facilities with its team of consultants and is confident in this regard.
  • LUPIN is confident and prepared to launch Spiriva in the second half of FY23.
  • As far as diagnostics are concerned, LUPIN is thinking big in that direction but it’s not going to be the most important for them. A huge chunk of this segment is fragmented and only 20% of it belongs to the organized sector so that leaves vast scope for it to become organized.
  • LUPIN plans to follow a doctor-led scientific proposition with an ABL certificate.

Asset Multiplier Comments

  • Due to travel restrictions imposed by the COVID-19 virus outbreak, the entire pharma industry has been experiencing a delay in its facilities getting inspected. As the travel restrictions have been lifted, the inspections are expected to pick up the pace.
  • Many of the pharma companies have incurred Capex for new facilities or undertaken remediation of the FDA’s observations. As these facilities are yet to be inspected, there has been a lag in terms of contribution to revenues. Once the approvals start coming through, we expect the top line of companies like LUPIN to report good growth.
  • LUPIN has been impacted by the price erosion in its generic segment in the USA. The impact of this is expected to be mitigated as the specialized products are launched.

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

  • The closing price of LUPIN was ₹ 904/- as of 16-December-2021.  It traded at 23x/ 17x the EPS estimates of ₹ 40/ 52/- for FY23E/FY24E respectively.
  • The consensus target price of ₹ 985 implies a P/E Multiple of 20x on FY24 EPS estimate of ₹ 52/-.

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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15 Dec

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Update on the Indian Equity Market:

On Wednesday, markets continued to decline for a third straight session on the back of unsupportive global cues. The Nifty index ended lower by 0.6% at 17,226 levels. REALTY (-1.9%) PSU BANK (-1.4%) and MEDIA (-1.4%) were the top losers while AUTO (+0.5%) was the only gaining sector today. BAJAJFINANCE (-2.9%), BAJAJFINSV (-2.5%), and ADANIPORTS (-2.4%) were the top losers while SUNPHARMA (+2.8%) KOTAKBANK (+1.5%), and MARUTI (+0.9%) were the top gainers.

Chip Shortage impacting Light Commercial Vehicle sales – Ashok Leyland

Edited excerpts of an interview with Mr. Sanjay Saraswat, head of Medium and Heavy Commercial vehicle (M&HCV) at Ashok Leyland with CNBC-TV18 on 14th December 2021:

  • Ashok Leyland saw a pick-up in sales in the month of November-21, the overall numbers were above street expectations.
  • The M&HCV sales improved 10% YoY, but Light Commercial Vehicles sales continued to remain under pressure.
  • The Internal Combustion Engine (ICE) Trucks are performing well and growing faster than other segments.
  • Although MCVs performance is not satisfactory, it is expected to perform well from 4QFY22E.
  • According to the truck financers, the demand for Tipper Segment is improving on the back of increasing infrastructure and mining activities. Mr. Saraswat commented that the Tipper segment is growing equal to the industry growth. The company has improved its market share in the last 2 months and is continuing to improve further on an MoM basis. The company has a wide range of Tippers available as it has recently launched Avatar Brand under Tipper Segment which is doing phenomenally well.
  • From FY22E, Company has decided to keep the wholesale and retail volumes equal. In the month of Nov-21, the retail and wholesale sales volumes were almost the same.
  • According to the Federation of Automobiles Dealers, although the demand is back in Commercial Vehicles it is still away from pre-pandemic levels. Mr. Saraswat commented that FY18/FY19 was the best period in terms of sales and currently the numbers are far away from that period. But every month and quarter things are improving and moving in that direction.
  • The company is experiencing chip shortage issues for some of the models which are impacting the sales. The company is not able to fulfill the demand for vehicles especially LCVs due to the shortage.
  • Year till date FY22E, industry sales have doubled on a YoY basis. The base of FY21 was low due to pandemic and BSIV to BSVI transition, especially 1HFY21. For 2HFY22E the growth rate is expected to decline as the base improved gradually. For FY22E, Mr. Saraswat expects the volume growth to be in the range of 30-35% YoY.

 

Asset Multiplier Comments

  • We expect sales to pick up gradually in 2HFY22E on the back of seasonality, improvement in core economic indicators, increase in replacement demand, and easing restrictions.
  • We believe, Ashok Leyland is well-positioned to benefit from a strong recovery in the CV cycle on account of new product launches and a well-diversified product portfolio. It will also benefit from the cyclical recovery, especially in buses and higher tonnage trucks where it has a higher market share.

 

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

  • The closing price of Ashok Leyland Ltd was ₹ 126/- as of 15-December-21. It traded at 26x/17x the consensus EPS estimate of ₹ 5.0/7.6 for FY23E/FY24E respectively.
  • The consensus target price of ₹ 158/- implies a PE multiple of 21x on FY24E EPS of ₹ 7.6/-.

 

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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14 Dec

Multiple growth drivers for the Indian tyre industry – Apollo Tyres

Update on the Indian Equity Market:

The benchmark index NIFTY 50 declined for the 3rd straight session on Tuesday and closed at 17,325 (-0.3%). Investors’ will focus on the Fed policy decision due Wednesday which could induce volatility, amid concerns over elevated inflation and a delay in the economic recovery due to omicron strain.

Among the sectoral indices, MEDIA (+1.6%), PHARMA (+1.1%), and METAL (+0.4%) led the gainers, while FINANCIAL SERVICES 25/50 (-0.8%), AUTO (-0.7%), and REALTY (-0.6%) led the laggards. Among the NIFTY50 components, POWERGRID (+3.9%), DIVISLAB (+2.5%), and AXISBANK (+1.4%) were the top gainers while ITC (-2.7%), BAJFINANCE (-2.0%), and TATACONSUM (-1.9%) led the laggards.

Excerpts of an interview with Mr. Onkar Kanwar, Chairman, Apollo Tyres (APOLLOTYRE) published in Business Standard on 14th December 2021:

  • There are multiple growth triggers for the Indian tyre industry, apart from the ones arising due to import curbs on China. The National Infrastructure (NIP) for FY19-25 for which the government has allocated ₹ 111 tn is expected to have a multiplier effect. He believes there is enough research that indicates the multiplier effect due to the creation of road infrastructure in a country. The significant increase in the movement of goods and people via road is beneficial for the tyre industry.
  • There has been a revival in the truck side original equipment manufacturers (OEMs), which will result in repeat demand in the replacement segment as well. The growth in the replacement segment is a mixed bag, some months witness growth in bias-ply tyres demand while some others witness growth in radials.
  • The Company is hoping that the push on infrastructure development and increased consumer spending will further drive demand in the CV segment.
  • The only challenge facing the company now is the relentless inflation which has been and is expected to be a pain point in the near future as well. The price hikes taken lag the raw material inflation, which adversely impacts the margins.
  • The company has decided to specialise in the Enschede plant in the Netherlands to be cost-competitive in the European manufacturing operations. It has shuffled the manufacturing mix such that loss-making units (due to high costs of manufacturing in the Netherlands) were shifted to Hungary and India. With the successful execution of Dutch plant specialisation, there has been a significant improvement in the European operations’ performance.
  • The share of high margins passenger car sales mix has increased to over 30 percent and is expected to rise to 40% in the next 2-3 years.
  • The current focus is on ramping the facility in Andhra Pradesh. This unit along with Chennai and Hungary units services the demands of all geographies. Hence, the company is not looking at any acquisitions.

 Asset Multiplier Comments

  • The CV industry was one of the most ravaged by the pandemic. With a turnaround expected in the CV cycle in India, and pent-up demand in passenger vehicles, the entire tyre industry is likely to be a beneficiary.
  • The Indian business of APOLLOTYRE is expected to benefit from operating leverage and an increasing share of the Andhra plant. The European operations are likely set for a turnaround led by strategic initiatives at the front end (product side) and restructuring in the Netherlands.

Consensus Estimate: (Source: market screener website)

  • The closing price of APOLLOTYRE was ₹ 217/- as of 14-December-2021.  It traded at 18x/ 13x/ 11x the EPS estimates of ₹ 12/ 17/ 20/- for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 258 implies a P/E Multiple of 13x on FY24 EPS estimate of ₹ 20/-.

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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13 Dec

Expect 15+ USFDA approval in CY22- Alembic Pharma

Update on the Indian Equity Market:

On Monday, NIFTY ended at 17,368 (-0.8%) 143 points lower. Among the sectoral indices, only IT (+0.3%) ended higher, whereas MEDIA (-1.8%), OIL&GAS (-1.4%) and REALTY (-1.4%) led the losers. Among the stocks, AXISBANK (+2.4%), TECHM (+2.2%), and SBILIFE (+1.5%) led the gainers while BAJAJFINANCE (-3.0%), BAJAJFINSERV (-2.1%), and RELIANCE (-1.9%) led the losers.

Pharmaceuticals

Expect 15+ USFDA approval in CY22- Alembic Pharma

Excerpts of an interview with Mr. RK Baheti, CFO of Alembic Pharma with CNBC TV18 on 9th December 2021:

  • Alembic Pharma has received tentative approval from USFDA for Selexipag tablets, a drug used to treat for pulmonary arterial hypertension with a market size of $460 Mn. There are 4 existing players in the market.
  • The company can only bring the drug to the market post its patent expiry so there’s an expected delay before the drug can be formally launched post final approval which will happen in CY23.
  • The company has first mover advantage in terms of launching the product on Day 1 of Patent Expiry, however the situation remains dynamic and other companies may receive approval for the same.
  • The company has an annual run rate of 15+ approvals and the company expects to launch 15 new products in the US in CY22, with 3 Products being first to file by the company.
  • Indian companies are facing intense pricing pressure in the US Generics business, due to heightened competition. Company’s degrowth is drawn by high base effect of last year’s exceptional performance and also drawn by company benefitting from scarcity and aggressive pricing over the past 2-3 years.
  • The growth ahead is expected to be driven by new launches and first to file opportunities as the pricing degrowth will continue by 10% on an annualized basis, the company has plans to stock up inventories in anticipation of shortages to take advantage of aggressive pricing as and when the opportunities arise

 

Asset Multiplier Comments

  • The company along with its peers is facing stiff competitive pricing pressure in the US Generics business, which was a key growth driver for the company in the past few years.
  • The revenue opportunity of new launches, existing competition and cost controls are going to be key drivers of profitability for the company.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Alembic Pharma was ₹ 797/- as on 13-Dec-2021.  It trades at 23x/19x/17x the EPS estimates of ₹ 35/42/47 for FY22E/FY23E/FY24E respectively.
  • The consensus target price is ₹ 860 implying a P/E Multiple of 18x on FY24 EPS Estimate of ₹ 47

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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13 Dec

This Week in a nutshell (Dec 6th to Dec 10th)

Technical talks

NIFTY opened the week on 6th Dec at 17,209 and closed on 10th Dec at 17,511. Going ahead, the level of 17,350 is likely to act as strong support in the near term and the levels of 17,615 will act as immediate resistance levels.

Top gainers during the week were Nifty Media (+9.3%), Nifty PSU (+6.2%) and Nifty Realty (+4.6%) while no indices ended in the red.

Weekly highlights

  • India’s airlines and airports are expected to lose Rs 19,5640 mn and Rs 5,1160 mn, respectively, in FY21 owing to significant disruption caused by the COVID-19 epidemic, according to the Minister of State for Civil Aviation V K Singh.
  • Job openings in the United States increased in October, while hiring fell, indicating a deepening labour shortage. This might impede employment growth and the entire economy. On the last day of October, job postings grew by 431,000 to 11.0 million, indicating a rise in labour demand.
  • New applications for US unemployment benefits fell dramatically last week, reaching levels not seen since 1969.
  • Japan’s wholesale inflation touched a record 9.0 % in November, owing to pricing pressures caused by supply constraints and rising raw material costs.
  • RBI Governor Shaktikanta Das announced that the MPC has opted to keep the inflation forecast at 5.3 per cent in FY21-FY22. The central bank maintained its cautious stance on growth, and with no major changes in headline inflation, it confirms the perception that it is watchful, rather than paranoid, about inflation.
  • Dow futures rose about 3% as investors were less concerned over the new Covid omicron type.
  • The foreign institutional investors (FII) sold equities worth Rs 92,020 mn, while domestic institutional investors (DIIs) bought equities worth Rs 72,136 mn.

Things to watch out for next week

  • This week’s market action will be dominated by the US Federal Reserve’s meeting on December 15th, data on the novel covid variant omicron, and November inflation data.
  • All eyes will be on the Federal Open Market Committee meeting. This committee is expected to consider stopping the bond-buying programme and raising interest rates, according to consensus. The interest rate decisions of the European Central Bank, the Bank of England, the Swiss National Bank, and the Bank of Japan will also be widely observed.

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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09 Dec

Back on construction targets, to complete 50 restaurants this year – Burger King India

Update on the Indian Equity Market:

On Thursday, NIFTY ended at 17,517 (+0.3%) as it closed near the opening level of 17,524. Among the sectoral indices, MEDIA (+3.7%), FMCG (+1.4%), and OIL&GAS (+1.0%) ended higher, whereas BANK (-0.5%), FINANCIAL SERVICES (-0.5%), and PRIVATE BANK (-0.4%) led the losers. Among the stocks, ITC (+4.9%), L&T (+3.0%), and ASIANPAINT (+2.2%) led the gainers while HDFCBANK (-1.8%), TITAN (-1.4%), and NESTLEIND (-1.1%) led the losers.

Excerpts of an interview with Mr. Rajeev Varman, CEO of Burger King India (BURGERKING) with CNBC TV18 on 7th December 2021:

  • The company is back on its construction targets with over 20 restaurants under construction, and 38 restaurants in the pipe line. The company plans to complete the construction of around 50 restaurants this year. Its target is to build 70 restaurants in next year, and keep on building in the similar manner in upcoming years.
  • Company’s target is to build 700 restaurants which it will complete by December 2027.
  • Burger King India (BKI) has launched its café in 4 of its restaurants, 10 cafés in construction, and plans to build more cafés along with building new restaurants. The company plans to build 75 cafés by the end of 2022.
  • The Company is going to launch new products specifically for its cafés. It plans to serve opportunities that it will receive at lunch and dinner peak time, and the time in between. It calls its coffee products as ‘Coffee Uncomplicated’, and provides a product named coffee shots for which it has received good reviews.
  • In the 2QFY22, the company reported 65% growth over its pre-covid numbers through delivery. The company has recovered 65% of it’s dine-in orders in 2QFY22.
  • The company has over 1.5 million app downloads which it believes will gradually grow. It has made available its stunner menu on the app, which it considers as entry level point for its consumers and is available only through app.
  • The CEO feels that BKI’s upcoming acquisition of BK Indonesia will bring synergies as BKI will add 200 restaurants in 1 day. The company will also experience synergies in terms of Capex, as it plans to build 35 new restaurants every year in Indonesia after completing the acquisition.

 

Asset Multiplier Comments

  • The company is likely to remain non-profitable for few more quarters as it is currently undergoing organic and inorganic expansion.
  • Currently within the QSR companies, Westlife Development and Jubilant Foodworks have a higher scale of operations, and have started generating positive free cash flow in the last 2 years.
  • As the world is concerned with fear of Omicron Covid-19 variant spread, it may lead to stricter sanitation rules within the country, and may also result in lockdowns if the conditions worsen. This may delay the planned execution of building new restaurants.

Consensus Estimate: (Source: market screener website)

  • The closing price of BURGERKING was ₹ 162/- as on 9-Dec-2021.  Its consensus earnings estimates are -2.0/0.01/0.94 for FY22E/FY23E/FY24E respectively. As the earnings are close to zero, we don’t arrive at a meaningful PE multiple.
  • The consensus target price is ₹ 198/-.

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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09 Dec

The Truth about Investing 101

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

Superior results don’t come from buying high quality assets, but from buying assets – regardless of quality – for less than they’re worth.

Benjamin Graham emphasized that margin of safety means never paying too much for a stock. The margin of safety would act as a buffer for unanticipated negative occurrences impacting the investment choice. This is the fundamental premise of value investing; with margin of safety, investors may reduce downside risk, insulate themselves from mistakes, and earn remarkable returns. A thorough examination of the financial accounts can aid in the identification of alpha opportunities.

Investors would be wise to accept that they can’t see the macro future and restrict themselves to doing things that are within their power.

The macro future consists of market cycles; hence markets are bound to correct in the current scenario. People do not miss their financial goals as a result of market corrections but due to their own reaction to the market correction. What we can do as rational investors is invest in stocks of a company with a viable business model by learning about their businesses, industries, and the business, as well as the elements that influence the business. Controlling emotions can benefit in financial decisions; nevertheless, this is easier said than done. Fear of loss can induce investors to act impulsively, making poor investing selections.

One of the main reasons for the sultry predictions is the enormous influence of randomness.

The economy is a broad network of interrelated production and consumption activities that help determine how finite resources are allocated. It is difficult to foresee each and every interconnected action with certainty. The one thing we can be assured of is that the future is unpredictable. Most investors cannot predict the macroeconomic future better than anyone else. In an unpredictable market, time-tested investing tactics may fail, causing investors to lose money.

Once in a while someone receives widespread attention for having made a startlingly accurate forecast. It usually turns out to have been luck and thus can’t be repeated.

Analysts and major brokerages often forecast an index’s climb to historic highs, particularly during bull runs. However, such forecasts are usually attention grabbers that drive more traffic to the blog or website. Usually, it turns out to be a lucky coincidence. Investors must strive to distinguish between market noise and market information about their stock. A methodical, calculated approach to building a balanced portfolio that meets your goals is far superior to putting everything on the line for one call. Investing decisions should never be made only on the basis of a single source or perspective. Coffee-can investing is a tried-and-true approach that never fails: buy low, sell high.

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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08 Dec

Private CAPEX visible as demand came back post 2nd wave – Axis Bank

Update on the Indian Equity Market:

On Wednesday, Nifty ended higher at 17,470 (+1.7%). PSU BANK (+2.6%), MEDIA (+2.5%), and AUTO (2.3%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, BAJFINANCE (+3.6%), MARUTI (+3.2%), and HINDALCO (+3.1%) were the top gainers while HDFCLIFE (-1.2%), KOTAKBANK (-0.8%), and POWERGRID (-0.3%) were the top losers.

Edited excerpts of an interview with Mr. Amitabh Chaudhry, MD and CEO of Axis Bank with CNBCTV18 on 7th December 2021:

  • After the 2nd wave of COVID-19, the credit demand came back, government spending increased, the festive season also went well, and the reinvestment coming back. RBI data shows corporate growth in October-2021 after the consistent decline in the previous 12 months.
  • The government spending increased across all sectors, especially in Infrastructure and Defence. Mr. Chaudhry said private capex is visible in refineries, renewable energy, data storage, warehousing, logistics, and commodities. He expects in the next 9 to 12 months real capex will resume but it’s dependent on the virus situation.
  • Chaudhry said the bank’s growth is in line and similar to its peers in sectors in which Axis Bank wants to grow.
  • The Bank did not see any growth in the large corporate segment due to the pricing. It sees the rates in this segment are not similar to the one it wants to lend at. As the private capex and risk premium come back then it will start lending again to the large corporates.
  • Overall Axis Bank’s unsecured loan is under control within the risk guidelines. It sees some scope of growth in the credit card segment, as the AUM in the credit card declined post-Covid and is now recovering.
  • On the unsecured personal loan side, Axis Bank sees decent growth and expects that to pick up as the market for personal loans is huge. On the credit card side, it has seen good acquisition momentum, and Axis Bank continues to sign up new alliances and that should reflect on the credit card segment growth.
  • Chaudhry said the granularity of their deposit franchise suffered over the last 5 to 7 years and Axis has been gradually building it back. From 2020 onwards every quarter their CASA deposits growth has been catching up with industry leaders and the transformation that they are undertaking on their liability side will continue to add that growth going forward.
  • Chaudhry further said that the kind of deposits they have, the outflow percentage as decided by RBI are higher and they have a higher proportion of their assets and investments which carry lower interest margins.

Asset Multiplier Comments:

  • We expect margins to improve in the near-term on the back of an improvement in its product mix which is expected to change in favour of retail segments, granular liability franchise, and a reduction in the mix of Rural Infrastructure Development Fund (RIDF) bonds.
  • Stable asset quality, higher recoveries and healthy provision coverage ratio of ~70% coupled with additional provision buffer is likely to support bank’s balance sheet from any potential stress.

 Consensus Estimate (Source: market screener and TIKR websites)

  • The closing price of AXISBANK was ₹ 696/- as of 08-December-21. It traded at 2x/1.6x/1.5x the consensus BVPS estimate of ₹ 369/417/475 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 948/- implies a PB multiple of 2.3x on FY23E BVPS of ₹ 417/-.

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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07 Dec

Acquired biz segment seeing steep growth – Tech Mahindra

Update on the Indian Equity Market:

On Tuesday, Nifty ended in the green amid weak global cues. It ended at 17,176 (+1.6%) after making a high of 17,251. METAL (+3.1%), PRIVATE BANK (+2.5%), and BANK (+2.5%) were the top sectoral gainers and there were no sectoral losers. Among the NIFTY50 stocks, HINDALCO (+5.1%), TATASTEEL (+4.0%), and AXISBANK (+3.6%) were the top gainers while BRITANNIA (-0.6%), CIPLA (-0.6%), and DIVISLAB (-0.4%) were the top losers.

Edited excerpts of an interview with Mr. Vivek Agarwal, President-BFSI and Corporate Development at Tech Mahindra (TECHM) with CNBCTV18 on 6th December 2021:

  • The last couple of years have opened a new segment of WFH, this acquisition helps TECHM service their customers with a new channel and takes. It takes away a lot of dependency on physical infrastructure and helps provide services from anywhere.
  • The entire WFH segment has been witnessing explosive growth over the last couple of years. From a long-term perspective, 55% of customer experience workers are expected to work from home or from anywhere by 2024. This represents huge a addressable market space for TECHM.
  • From a synergies viewpoint, the company will be taking these capabilities to their existing customers and Activus Connect has its customer base as well which represents a significant cross-sell opportunity for TECHM.
  • TECHM expects this explosive growth to continue over the next 3-4 years.
  • The acquired company has industry-standard margins and on the growth front, the business’ organic growth is been exceptional. From a long-term perspective of its core business, TECHM expects to generate 30-40% additional revenues through synergies and take these capabilities to the existing customers.
  • The acquired company has a unique technology platform that lets one apply all the good practices around data, security, and performance management for remote workers.
  • TECHM expects the business to have industry-leading growth on its own and is excited about the synergies that will be created out of this acquisition in the knowledge segment space.
  • The margins of this company are expected to be at par with what TECHM does which is their objective in every acquisition they do.
  • While certain capabilities are specific to particular sectors, the offering per se is sector agnostic.
  • Return to the office for TECHM employees is largely voluntary. Some of them are returning in hybrid mode and this work model is expected to continue. However, 15-20% of their workforce has started coming to the office which mainly comprises of the top management of the company.

Asset Multiplier Comments

  • TECHM has grown organically & inorganically (dollar revenue CAGR FY17-21 of 4%). The company will continue to acquire for scale, synergies, cross-sell benefits, and upselling.
  • We expect healthy deal wins, traction in the communication segment led by legacy modernization, 5G, customer care, automation, network, and cloud to drive revenues.
  • Higher offshoring, synergies in portfolio companies, automation, & operating leverage is expected to help margin expansion.

Consensus Estimate (Source: market screener and Tikr websites)

  • The closing price of TECHM was ₹ 1,575/- as of 07-December-21. It traded at 25x/22x/19x the consensus EPS estimate of ₹ 64/73/81 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,783/- implies a PE multiple of 22x on FY24E EPS 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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