06 Dec

Real Estate demand growth driven by rising income levels – HDFC

Update on the Indian Equity Market:

On Monday, markets plunged sharply in continuation to Friday’s fall. After the flat start, weak global cues and updates on the new COVID variant started weighing on the sentiment as the day progressed.

NIFTY ended 1.7% down at 16,912. IT (-2.7%), HEALTHCARE(-1. 9%), and PHARMA (-1.9%) were the top losers and there were no sectoral gainers. The top losers were INDUSINDBK (-3.7%), TATACONSUM (-3.4%), and BAJAJFINSV (-3.3%) while UPL (+0.4%) was the only stock in green.

Real Estate demand growth driven by rising income levels – HDFC

Edited excerpts of an interview with MR. Keki Mistry, Vice-Chairman and Managing Director of Housing Development Finance Corporation (HDFC Ltd) with CNBCTV18 on 3rd December 2021:

  • On new norms on recognition of Non-Performing Assets for Banks and NBFCs issued by RBI: He stated that a few years back NPA were recognized on a 180 days basis that got changed to 90 days. According to the new guidelines published by RBI, once the account is recognized as NPA, Banks won’t be able to upgrade it to standard assets till the whole loan has been repaid. Earlier, an NPA account, after payment of 1-2 installments could be categorized as a standard asset. Temporarily, there will be limited impact on Profit and Loss Account for most of the companies including HDFC but the reported Gross NPAs number will look higher for next 3-4 quarters.
  • The real estate market has steadily picked up after the slowdown in the 1HCY21 due to the COVID-19 pandemic and the resultant lockdowns.
  • Mr. Mistry thinks that the interest rates have been bottomed out but he doesn’t see that having a significant impact on the market.
  • He thinks that the runway for growth is across the country. In the period from CY17-CY20, the demand was largely focused on the tier-II tier-III towns in the outskirts of big cities. In the last one or two years, cities like Delhi, Mumbai, Bangalore, Pune, Hyderabad, and Chennai are reporting strong growth. A pickup in demand in the metro cities has been witnessed recently.
  • Mr. Mistry attributed the rise in demand to
    • Income levels rising in the past few years. He explained that the real estate prices have been stable but the income levels grew on an average by 8% per annum in the last 4 years resulting in cumulative 34-35% growth in income levels.
    • Low-interest rates
    • Feel good factor: He stated that the malls, hospitals, shops, hotels, and restaurants are full as the feel-good effect is driving and keeping people motivated.
    • The myth that there is oversupply in Mumbai and Delhi markets has disappeared, so people are not waiting for property rates to subside anymore.
  • The HDFC chief believes that affordability has increased in the market and it is an opportune time to buy real estate. To supplement this, he said that October-21 saw the highest level of loan disbursements by HDFC. This indicates strong demand and he expects it to sustain for a long time.
  • Mr. Mistry also believes that the lending rates have bottomed out but he does not expect the RBI to start raising rates in a hurry. But throughout the next 6-12 months rate hike is possible. It depends a lot on global factors like inflation, oil prices, and other factors which are not within our control.
  • The yield curve, according to him, has been steep due to excess liquidity in the system. This has been reflected in the demand seen in the high-end market which has seen a pickup after being subdued from CY17 to CY20.

Asset Multiplier Comments

  • Looking at the macro growth drivers, well-diversified loan portfolio, and adequate liquidity on hand our outlook over the long term remains positive on HDFC Ltd.
  • We think the new rule would impact in the near short term but in long term we expect the NPA levels to normalize. Stable collection efficiency and provisions higher than regulatory requirements will help support the company to maintain a healthy Balance Sheet.

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

  • The closing price of HDFC Ltd was ₹ 2,769/- as of 06-December-21. It traded at 4.2x/3.9x/3.5x the consensus BVPS estimate of ₹ 659/705/781 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,251/- implies a PBV multiple of 4.2x on FY24E BVPS of ₹ 781/-.

 

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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04 Dec

This Week in a nutshell (Nov 29th to Dec 03rd)

Technical talks

NIFTY opened the week on 29th Nov at 17,065 and closed on 03rd Dec at 17,196. During the week, NIFTY lost 1.2 per cent and has formed a Doji candle indicating strong buying and selling pressure from both sides. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average. Going ahead, the level of 17,077 is likely to act as strong support in the near term and the levels of 18,334 and 18,600 will act as immediate resistance levels.

Nifty IT gained 3.6 per cent this week while Nifty Healthcare (-3%) and Nifty Pharma (-2.6%) lost the most.

Weekly highlights

  • Auto sales numbers for Nov-21 were released this week andwere below the street expectations. The dip in sales was mainly due to the ongoing global chip shortage. Tractor demand was affected due to the delayed harvest of Kharif crops due to late monsoon rains this year. Two-wheeler buyers are postponing their purchases amid rising fuel prices, increasing prices, and ownership costs.
  • Indian carmakers are looking to increase prices from January next year to offset the rising input prices.
  • India’s trade deficit broadened in November as compared to October. The trade deficit stood at $23.3 bn as compared to $19.7 bn last month as per preliminary trade data released by the government. Imports were down 3.3% MoM AT $53.5 bn and exports were down by 16.2% MoM at $30 bn.
  • The GST revenue collection in November stood at ₹1,31,526 crores surpassing the October numbers. This is the second-highest collection since the implementation of GST. Improvements in compliance and filing of returns, tax evasions, and enhancement of system capacity are some of the reasons why GST revenue numbers are scaling new highs.
  • The US markets witnessed increased volatility as Federal Reserve Chair Jerome Powell signalled winding up its asset purchases earlier than the decided time frame due to heightened inflation risks that are expected to be around in the next year as well.
  • The US government averted a nationwide session one day ahead of the deadline, passing the resolution by a 69 to 28 vote.
  • On Friday, the US markets saw a sharp sell-off in technology stocks sinking NDX 100 down by 1.7%. This was an exhausting week for traders in the US due to the Fed’s decision to taper stimulus sooner than before, the outbreak of Omicron, and mixed US jobs data.
  • Oil posted its longest stretch of weekly losses since 2018 as investors are worried about the impact of Omicron on demand, while OPEC+ decided to continue its supply to the markets. West Texas Intermediate crude futures fell 2.8% this week.
  • The foreign institutional investors (FII) sold equities worth Rs 1,58,190 mn, while domestic institutional investors (DIIs) bought equities worth Rs 16,45,00 mn.

Things to watch out for next week

  • Markets this week will be driven mostly by updates related to the new coronavirus variant Omicron, rising crude prices and increasing US dollar.
  • The Monetary Policy Committee will disclose its interest rate decision on Wednesday. The street will closely watch how the RBI will react to the current Omicron crisis, economic growth, inflation numbers and hawkish US Fed. Experts largely feel the central bank could hike the reverse repo rate. In this policy, RBI may remain less accommodative citing inflation concern and hawkish US Fed.

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

By #WeekInANutshell , 0 Comments Read more...
02 Dec

Investing Rs 3,500mn for making API, KSM and Intermediates – Aarti Industries

Update on the Indian Equity Market:

On Thursday, Indian benchmarks ended in the green amid weekly F&O expiry, weak global cues, and omicron fears. NIFTY50 ended 218points higher at 17,402 (+1.4%). IT (+2.1%), METAL (+1.6%), and MEDIA (+1.6%) were the top sectoral gainers. There were no sectoral losers for the day. Among the NIFTY50 stocks, ADANIPORTS (+4.5%), POWERGRID (+3.8%), and HDFC (+3.8%) were the top gainers while CIPLA (-0.8%), ICICIBANK (-0.6%), and AXISBANK (-0.5%) were the only losers.

Excerpts of an interview with Mr. Rashesh Gogri, Vice Chairman and MD, Aarti Industries (AARTIIND) with CNBC-TV18 on 1st December 2021:

  • AARTIIND has qualified for Pharma companies PLI scheme under Group C, which will get a PLI (Production linked incentive) of Rs 17.5bn over 6 years and a minimum investment of Rs 500mn.
  • AARTIIND has qualified under the manufacturing of API, KSM and Drug Intermediates (Category II). It will be investing Rs 3500mn in a new large complex for manufacturing these products. Capex will start in FY22.
  • The funding for the Capex will be a mix of debt and equity. Most of the funding for Capex will be through the QIP proceeds and internal accruals.
  • AARTIIND had announced plans to split the company-into pharma and specialty chemical companies.
  • It expects the pharma business to report 25% topline growth in FY22. The company expects the pharma business to maintain 20-25% topline growth going forward as well.
  • 3QFY22 has seen commodity price volatility. The commodity prices have peaked out now and going down. This volatility impacts the company’s ability to pass on the raw material price inflation.
  • High levels of commodity prices did not remain for more than 1 quarter, so there could be some margin pressure for overall industry.
  • The shutdown in China on certain products, and policy issues has benefitted AARTIIND. Some of their products are doing well.
  • On demand trends, he said that in the specialty chemical segment, agro chemicals and polymers are doing well. Pent up demand was missing in polymer sector. Now the company is witnessing good demand in both these sectors.
  • Consumer centric sectors like dyes, intermediates are not doing well.
  • As the company operates on a cost plus model, it passes on the cost increase/reduction to customers. It tries to maintain its margin on a per kg basis.

Asset Multiplier Comments

  • In speciality chemical segment, pass through of raw materials hike for domestic customers is on a monthly basis while for exports on a quarterly basis. In Pharma, the increased raw material costs will take time to be passed on to end customers which may keep margins under pressure for the next one or two quarters. This may limit the share price increase/upside in the 2HFY22.
  • Two of the company’s long term contracts are expected to be commissioned by 3QFY22, and 1QFY23 respectively. This will help in increasing the topline, and is in-line with management’s revenue guidance of Rs 90,000 mn by FY24E.
  • We expect the company to benefit from its operating leverage in the quarters to come, which will help it in sustaining its operating margins.

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

  • The closing price of Aarti Industries was ₹ 977/- as of 02-December-21. It traded at 39x/ 35x/ 29x the consensus EPS estimate of ₹ 25/ 28/ 34 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 964/- implies a PE multiple of 28x on FY24E EPS of ₹ 34/-.

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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02 Dec

A walk in the park

The legendary US-based investor, Bill Miller, provided a list of worries in his latest 2021 third-quarter letter: “Today’s worries include, but are not limited to, China’s regulatory actions, high and rising fuel and food prices, labor shortages, inflation or stagflation, the effect of Federal Reserve tapering, disrupted supply chains, potential default due the debt limit standoff and the ongoing dis-function and polarization in Washington.”

What should investors be worrying about now?

A walk in the park :  There was once a lady who liked to walk her young dog each morning using a very long leash. Her dog was always easily excitable. It would dart all over the place. You could never guess where the dog would be from one minute to the next. But over the course of the two hour stroll, you can be certain that the dog is heading east at five kilometers per hour. What’s interesting here is that almost nobody is watching the lady. Instead, their eyes are fixed on the dog. If you missed the analogy, the dog represents stock prices while the lady represents the stocks’ underlying businesses.

Optimism: There are 7.9 billion people in the world today who will wake up every morning wanting to improve the world and our own lot in life – this is ultimately what fuels the global economy and financial markets. This is the lady, walking steadfastly ahead, holding her dog on a long leash. And this is ultimately what investors should be watching.

Source: The Good Investors

Asset Multiplier Comments: –

As minority shareholders, we participate without any control or influence on the operations of a company. We trust the management to adjust the business depending on the headwinds or tailwinds that they face. What we need to focus on is on identifying businesses which have great products or services, guarantee longevity of profits and sustainable growth, and have the ability to withstand shocks and cyclical downturns. Stocks prices may be volatile for any number of reasons. Investors should tune this noise out and focus on movement of the business as seen in quarterly results. Performance of the business will eventually be the driver of share price.

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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01 Dec

Short term challenges persist– Minda Industries

Update on the Indian Equity Market:

On Wednesday, Indian benchmarks ended in green with NIFTY closing at 17,166 (1.0%). Among the sectoral indices, PHARMA (-1.6%), HEALTHCARE (-1.9%), and CONSUMERDURABLES (-0.4%) were the only losers. PSU BANK (+2.7%), METAL (+2.3%), and BANK (+1.9%) led the gainers. Among the stocks, INDUSINDBK (+5.8%), JSWSTEEL (+5.0%), and TATAMOTORS (+4.3%) led the gainers, while CIPLA (-4.4%), DIVIS (-2.3%), and ULTRACEMCO (-1.5%) led the laggards.

Short term challenges persist– Minda Industries

Excerpts of an interview with Mr Sunil Bohra, Group CFO, Minda Industries with CNBC-TV18 on 30th  November 2021:

  • There’s a significant impact on volumes in Europe, with the numbers down significantly at ~30% sequentially. The important thing to notice is that the volume numbers are also down year on year indicating the severity of the impact on a low base.
  • The recovery is expected to be volatile as the true impact of the new variant remains to be seen. International travel has also been impacted, it is expected that volumes will continue to be depressed until restrictions are eased.
  • The Industry is currently working to minimise the impact of low volumes through various cost optimisation measures, however, there’s a lack of assurance as to when will the volumes recover whether it will be in Q3 or Q4FY22.
  • However, the Industry expects pent up demand and volume recovery post this crisis to continue and thus keeps its long term outlook of double-digit growth unchanged.
  • Semi-conductor shortage volatility is expected to continue till H1CY22. There is some recovery seen, however, it’ll take another 6-8 months to indicate a semblance of normalcy. Over-stocking of inventory due to the existing shortage crisis is creating a mismatch between actual demand and supply further worsening the situation.
  • EV segment is at a nascent stage, but the company expects demand to grow exponentially once it picks up. The company is focusing on creating a base for this additional supply. The company benefits from having an agnostic product supply- i.e. it is ICE/EV neutral and the company plans to add value-added products to specifically cater to EV segments and has already launched 9 new products.
  • The company’s ICE toolkit currently tickets at Rs 7,000/-, however, the company’s new EV Value-added toolkit tickets at Rs 28,000/- The company will benefit from increased EV volumes and it’ll be margin accretive in the long run.

Asset Multiplier Comments

  • The auto industry has been severely impacted by intermittent lockdowns and supply chain issues, however, the underlying demand for the industry is set to stay and only increase in the medium term.
  • EV segment is a very value and margin accretive segment for the company, the recent shift in demand to EVs will augur well for the company’s profitability in the medium term.

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

The closing price of Minda Industries was ₹ 899/- as of 01-December-21. It traded at 69x/ 41x/ 32x the consensus EPS estimate of ₹ 13/ 22/ 29 for FY22E/ FY23E/FY24E respectively. The consensus target price of ₹ 927/- implies a PE multiple of 33x on FY24E EPS of ₹ 29/-.

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

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30 Nov

Increased rubber prices not sustainable – CEAT

Update on the Indian Equity Market:

On Tuesday, NIFTY ended lower at 16,983 (-0.4%). Among the sectoral indices, CONSUMER DURABLES (+2.2%), REALTY (+0.6%), and IT (+0.5%) ended higher, whereas METAL (-1.9%), AUTO (-0.9%), and PRIVATE BANK (-0.7%) led the losers. Among the stocks, POWERGRID (+3.1%), SHREECEM (+3.0%), and BAJAJFINSV (+2.0%) led the gainers while TATASTEEL (-4.0%), KOTAKBANK (-3.1%), and JSWSTEEL (-2.7%) led the losers.

Excerpts of an interview with Mr. Kumar Subbiah, CFO at CEAT LTD. with CNBC TV18 on 26th November 2021:

  • The rubber industry is currently struggling with a big demand-supply mismatch and this will impact tyre manufacturers. Approximately 60% of India’s rubber requirement is sourced locally.
  • Availability of natural rubber from local suppliers has been difficult in the last couple of weeks. The quantity of rubber was coming into the market was lower because of heavy rains in Kerala therefore tapping was slightly lower. Another reason was the inventory levels of the traders was also on the lower side.
  • The demand-supply mismatch is a short-term problem, the availability is a major challenge right now. Shortage of 30% to 40% is on a short-term basis.
  • As of now, it doesn’t affect CEAT’s production because they have inventory in the pipeline. But if adequate quantities of rubber are not supplied from the local markets, then the option is to import the natural rubber. If the Government facilitates in terms of concession in import duty, it will help the manufacturers.
  • An import of natural rubber needs to be planned because in the current situation it takes a little longer time for vessels to come from Southeast Asian markets.
  • The rubber prices in the local market as well as in the international market have gone up. It moved up from Rs 170 per kg to Rs 180 per kg due to the demand-supply gap in the local market. The increase in rubber prices will have a negative impact on margins.
  • The company expects the rubber prices will come down shortly and the current prices are not sustainable. The prices will come down closer to import parity levels soon.
  • Demand continuesto be similar to the previous quarter, there are different categories and they performed differently. The company expects some weakness in Truck, Bus and farm tyres to continue. The company expects weakness particularly in two-wheelers and passenger cars segments due to the shortage of chips.
  • In the export segment, CEAT is facing the issue of availability of containers, vessels, and increase in freight costs. It has seen some softness in material prices, but the vessels movement, container availability, continue to be a challenge. Post covid the company saw a positive response from the international markets.

Asset Multiplier Comments

  • The Global lockdowns, higher freight cost and issues of container availability and vessels might be impacting CEAT’s revenue, as out of total sales ~20% of sales come from Exports.
  • Increase in rubber prices are likely to continue in 2HFY22, and this higher input cost may affect margins in short term. The recovery in local rubber market will drive the company’s margin recovery in near term.

Consensus Estimate: (Source: market screener website)

  • The closing price of CEAT LTD. was ₹ 1,165/- as on 30-Nov-2021. It traded at 18x/13x/12x the consensus earnings estimate of ₹ 65/88/98 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,334/- implies a PE multiple of 14x on FY24E EPS of ₹ 98/-.

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

By Auto, Auto Ancillary, CEAT 0 Comments Read more...
29 Nov

Betting on a healthy orderbook – Dixon Tech

Update on the Indian Equity Market:

On Monday, NIFTY ended flat at 17,054 (-0.01%) as it closed near the opening level of 17,056. Among the sectoral indices, IT (+0.8%), CONSUMER DURABLES (+0.2%), and FINANCIAL SERVICES (+0.1%) ended higher, whereas MEDIA (-2.2%), PSU BANK (-2.0%) and REALTY (-1.7%) led the losers. Among the stocks, KOTAKBANK (+2.4%), HCLTECH (+2.2%), and HDFCLIFE (+1.7%) led the gainers while BPCL (-2.6%), SUNPHARMA (-2.3%), and ADANIPORTS (-2.1%) led the losers.

Excerpts of an interview with Mr. Atul Lall, MD of Dixon Tech India (DIXON) with CNBC TV18 on 26th November 2021:

  • DIXON is a beneficiary of PLI scheme for IT hardware and it has tied up with Acer, a Taiwanese IT hardware firm for manufacturing laptops. The company has already started manufacturing laptops in its in-house facility for Acer.
  • From the laptop segment, the company expects to achieve a minimum targeted revenue of Rs 500 mn in the 1st year of manufacturing. From 2nd year onward, the company expects to achieve a PLI scheme upward revenue ceiling of Rs 6bn, Rs 16bn, and Rs 24bn respectively.
  • DIXON’s laptop segment being a prescriptive business (DIXON work based on Acer’s laptop designs), the operating margins will be in around of 4%.
  • The company’s capex for FY22 is expected to be Rs 4,500 mn, out of which the capex for laptop segment will be Rs 200 mn. In FY23, the capex is expected to increase to Rs 2500 mn.
  • Speaking of its segments, the company has a healthy order book for mobiles. It is also planning to enter in a JV with Bharti Airtel to provide telecom related products, IoT (Internet of Things) devices. The company is also launching LED monitors in the 4QFY22. The company’s revenue target for FY23E is around Rs 170 – Rs 175 bn.
  • Company’s ODM (old design machines) business is facing commodity price increase pressure and there’s a lag in passing on the price increase to its customers. The company is seeing some softening in prices. It expects margin pressures to remain in the short term, but later it will be able to pass it on to the customers.
  • 90% of the company’s own design revenues come from the lighting segment. Due to its large scale in this segment, the company is able to benefit from operating leverage. The margin pressure easing is happening in the segment.

 

Asset Multiplier Comments

  • The laptop segment revenue estimates seem to increase exponentially. As it’s a prescriptive business, with low operating margins, it may take several quarters for the company to meaningfully benefit for the segment.
  • The markets for laptops, mobiles, and IoT devices are quite competitive. Therefore, we may have to see how company’s plans for its new segments pan out.
  • 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 affect the manufacturing and planned executions of new product launches of DIXON.

Consensus Estimate: (Source: market screener website)

  • The closing price of DIXON was ₹ 5,005/- as on 29-Nov-2021. It traded at 114x/65x/47x the consensus earnings estimate of ₹ 45/78/108 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 4986/- implies a PE multiple of 46x 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.”

By Dixon technologies, IT 0 Comments Read more...
28 Nov

This Week in a nutshell (Nov 22nd to Nov 26th)

This Week in a nutshell (Nov 22nd to Nov 26th)

Technical talks

NIFTY opened the week on 22nd Nov at 17,796 and closed on 26th Nov at 17,026. During the week, NIFTY lost more than 4 percent and has formed a bearish candle with its opening and closing being near the highest as well as the lowest point of the week, respectively. At the current juncture, on the weekly chart, the index has breached the 20-weekly moving average while the RSI marked a fresh 14-week low.

Going ahead, the level of 16,700 is likely to act as strong support in the near term and the levels of 17,300 and 17,480 will act as immediate resistance levels. Nifty Pharma gained 2.3 percent this week while Nifty Auto (-8.4%) and Nifty PSU Bank (-6.5%) lost the most.

Weekly highlights

  • The week started in red amid concerns over the government’s reform measures after farm laws repeal announcement and weak listing of the country’s largest fintech firm Paytm.
  • However, on Thursday optimism over near-term growth prospects boosted sentiment after credit rating agency Moody’s said it expects India’s economic growth to rebound strongly in the next financial years.
  • The party was short-lived as on Friday the new variant of Coronavirus certainly spooked the market participants across the globe. NIFTY was down by 2.9 percent and also, marked a fresh swing low on Friday by slipping below the 17,000 mark.
  • As per UK officials, the new Coronavirus variant has a spike protein that is dramatically different from the one, which vaccines are based, raising fears it could evade the immune response reported by early reports from the media.
  • Wall Street retreated from record highs on Monday, and shares of lenders rallied as two-year US Treasury yields rose after President Joe Biden tapped Jerome Powell to continue as Federal Reserve chair. However, rising Treasury yields prompted investors to sell Tesla and other Big Tech names and buy stocks with lower valuations.
  • On Friday, S&P500 was down by 2.27% due to worries about a new strain of the virus, named Omicron. The Dow Jones Industrial Average fell by 2.5%, its biggest one-day percentage drop since oct-20. The new strain might complicate the outlook for how aggressively the Federal Reserve normalizes monetary policy to fight inflation.
  • S. officials said Friday they would impose travel restrictions on eight southern African countries in response to the new variant found in South Africa. It has also been reported in Israel and Belgium.
  • The foreign institutional investors (FII) sold equities worth Rs 21,125 mn, while domestic institutional investors (DIIs) bought equities worth Rs 10,934 mn.

Things to watch out for next week

  • Post 2QFY22 quarterly earnings season, markets this week will be driven mostly by updates related to the new coronavirus variant that sent equities tumbling globally on Friday, macroeconomic data announcements, and auto sales numbers.
  • US: Investors will be watching Fed Chair Jerome Powell and U.S. Treasury Secretary Janet Yellen’s appearance before Congress to discuss the government’s COVID response on 30th Nov as well as U.S. employment numbers, due out next Friday.

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

 

By #WeekInANutshell 0 Comments Read more...
25 Nov

Expect double digit growth in the wind-energy business– Timken India

Update on the Indian Equity Market:

On Thursday, NIFTY closed higher at 17,536 (+0.7%) led by REALTY (+2.0%), OIL & GAS (+1.9%), and HEALTHCARE (+1.6%), while AUTO (-0.5%), PSU BANK (-0.5%), and FINANCIAL SERVICES (-0.2%) ended lower. Among the Nifty50 components, RELIANCE (+6.4%), DIVISLAB (+2.4%), and ITC (+1.8%) ended higher, while MARUTI (-1.3%), BRITANNIA (-1.2%), and IOC (-1.1%) ended lower.

Excerpts of an interview with Mr. Sanjay Koul, MD, Timken India with CNBC TV-18 on 24th November 2021:

  • The business is continuing to recover, and they have seen strong 2QFY22 results, albeit on a low base.
  • Looking ahead, end user market demand in commercial vehicles or off highway raw materials is picking up, and the Indian government is going ahead with the infra push, and railways are back on track, all of which are very good signs for the company.
  • The export market is improving as a result of China’s current problems, and there is a strong demand for freight. Manufacturing plants are completely occupied.
  • The export market is picking up as problems in China are helping the business, good demand is seen on freight. Manufacturing plants are fully loaded.
  • There is strong demand across all categories. Commodity price inflation is an issue and the firm is in discussions with their B2B clients.
  • Commodity price hikes have been passed on to customers by the corporation. Revenue of Rs 20,000 mn is expected in FY22E. EBITDA margins will remain stable at 20-22 percent.
  • On a year-over-year basis, the company’s revenue in the wind-energy industry has been around Rs 1,000 mn. The company anticipates a double-digit growth rate in the business.
  • There are gear box manufacturers in India’s wind business. The gearbox market is rather healthy, and India has been looking for export potential. China’s wind market is down, and geo-political tensions with China provide India an advantage.
  • The company is in discussions with one of the top Indian companies intending to enter the wind-energy business.
  • Rail exports to Europe and North America are developing quite well, and they have begun to trickle into Russia, where they should gain traction in the future. During the epidemic, Indian passenger rails were shut down, but as the situation improves, more rail bearings are utilized. Rail exports have increased, although the global rail market remains subdued.
  • Orderbook contribution are around 22% rail, 22% heavy truck, 20% distribution, 35% exports, and the remainder is auto.
  • The company has been investing heavily in Barooch and Jamshedpur facilities in last 18 months. They have started making certain parts which used to be imported earlier.

Asset Multiplier Comments

  • Timken’s customers come from the defence, mining, aerospace, agricultural, rail, energy, and automotive industries. The company’s sales performance will improve as the Indian economy recovers.
  • The government’s Atmanirbhar Bharat initiative, which focuses on indigenous infrastructure development, has benefited industries ranging from defence to automotive, which includes some of Timken’s clients.

 

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

  • The closing price of TIMKEN was ₹ 1,925/- as of 25-November-2021.  It traded at 53x/ 41x/ 33x the consensus earnings estimate of ₹ 36.3/ 46.9/ 58.3 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,757/- which implies a PE multiple of 31x the earnings estimate for FY24E of ₹ 56.8/-

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

 

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24 Nov

Expect to acquire orders worth Rs 150-200bn in FY22 – Bharat Electronics

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 17,415 (-0.5%). Among the sectoral indices, MEDIA (+2.0%), PRIVATE BANK (+0.5%), and BANK (+0.5%) ended higher while IT (-1.5%), AUTO (-1.3%), and FMCG (-1.0%) ended lower. Among the Nifty50 components, ONGC (+4.3%), ADANIPORTS (+3.9%), and COALINDIA (+1.7%) ended higher, while EICHERMOT (-2.8%), TATACONSUM (-2.8%), and MARUTI (-2.8%) ended lower.

Bharat Electronics Ltd (BEL) received its biggest-ever export order from Airbus. Ms. Anandi Ramalingam, CMD, Bharat Electronics discussed the contours of this order and the order pipeline with CNBC TV-18 on 23rd November 2021:

  • The export order with Airbus under the C295 aircraft program of the Indian government is for the manufacture and supply of the Radar Warning Receiver and Missile Approach Warning System. The order value is USD 90mn.
  • The entire system is designed, developed, and manufactured indigenously. It is designed by DRDO and will be manufactured by BEL. It will get integrated with a countermeasure dispensing system which will get supplied by Bharat Dynamics Ltd.
  • BEL’s order book stands at Rs 560bn. The Company anticipates order acquisitions worth Rs 150-200 bn in FY22.
  • With the products being indigenously designed and developed, the margins would not be strained.
  • The company expects to receive export orders worth 25mn Euro from part of the consortium supplying Rafale aircraft to the Indian air force.
  • The major part of the radar, the transmit-receive modules (TRMs) are being manufactured by BEL. They had supplied 1,700 modules in FY21. BEL has a pipeline of 8,000 units, of which 4,000 units are likely to be supplied in the near term for 25mn Euros.
  • The Domestic order pipeline is very strong. They have orders for electronic warfare systems for the air force amounting to Rs 40bn. The electronic warfare systems for the army amount to Rs 35 bn. It is targeting naval systems orders worth Rs30 bn. They have orders for Akash Prime (Akash army) for which BDL is the lead integrator. But a lot of ground systems and radars will be supplied by BEL, worth Rs 40bn. These orders will be done in the next 6-8 months.
  • In addition, many big missile programs are in the pipeline. In the years to come, BEL should be able to acquire orders worth Rs 150-200bn yearly.

Asset Multiplier Comments

  • The Government’s Atmanirbhar Bharat plan to focus on infrastructure development indigenously has benefitted companies like Bharat Electronics. The Company got an opportunity to manufacture items that were banned from the Import List by the Government in CY20. In CY21, BEL has expressed interest in 69 items under the Make-II list. Of these 30 are under various stages of development.
  • We think a healthy order book, strong order inflows, increasing revenue from exports, and capex of Rs 18 bn over the next 3 years to meet manufacturing needs and R&D would aid long-term revenue and profit growth.

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

  • The closing price of BEL was ₹ 207/- as of 24-November-2021.  It traded at 21x/ 18x/ 16x the consensus earnings estimate of ₹ 10/ 11.4/ 12.9 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 242/- which implies a PE multiple of 19x the earnings estimate for FY24E 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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