23 Nov

No Plans to Sell Stake – Escorts

Update on the Indian Equity Market:

On Tuesday, NIFTY closed in the green at 17,503 (+0.5%). The top gainers in NIFTY50 were BHARTIARTL (+4.0%), JSWSTEEL (+4.0%), and ASIANPAINT (+4.0%). The top losers were BAJFINANCE (-2.6%), BAJAJFINSV (-2.6%), and TATAMOTORS (-1.8%). Sectoral gainers were METAL (3.3%), REALTY (2.4%), and MEDIA (2.3%). There were no sectoral losers for the day.

Excerpts of an interview with Mr. Nikhil Nanda, Chairman and Managing Director, Escorts with Economic Times dated 19th November 2021:

  • Escorts has announced the onboarding of Japanese tractor maker Kubota as a joint promoter of the company along with the Nanda family. Kubota will infuse over Rs 94 bn into Escorts, including an open offer to its shareholders, to increase its stake to 53.8% becoming the majority shareholder of the company.
  • This deal was the best partnership for the company, with the kind of ability and strength that Kubota already has as a global brand it is possible to bring the best in the world to India and use Escorts’ platform to serve the needs of the farming community globally.
  • There’s no change in the stake of the promoter family, it’ll continue to stay the same, Mr. Nanda categorically denied media reports that claimed the Promoter family was selling its stake in Escorts. The family is absolutely honoured to have a chance to partner with Kubota and It looks forward to building this partnership between Kubota and Escorts.
  • The focus of the promoter family was to create an institutionalised company that can survive the fluctuations many family-held companies go through over generational shifts. The company aspires to be a market leader but to achieve that growth trajectory institutionalising was the need of the hour.
  • The partnership with Kubota is not a new one, the relationship started in 2018 with the announcement of a JV. This is just the next step of the partnership after the tremendous success that the company has witnessed over the past 3 years.
  • With the common philosophy and the alignment of interest that the promoter family shares with Kubota, The Promoter family will become joint Promoters with Kubota and as a testament to the respect and mutual admiration, the promoter family will not hold a golden share in the company.

Asset Multiplier Comments

  • Kubota is a Japanese tractor manufacturer which is one of the largest in the world, this partnership will help Escorts leverage the technological prowess of Kubota to provide best in class products.
  • With Kubota’s global presence, India can become a launch pad of Escorts’ Tractors as it aims to aggressively expand its exports portfolio.

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

  • The closing price of Escorts was ₹ 1,803/- as of 23-November-2021.  It traded at 22x/20x/16x the consensus earnings estimate of ₹ 81/89/111 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,766/- which trades at 16x the earnings estimate for FY23E of ₹ 111/-

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 Nov

Passive investing reaps richer rewards

Most mutual funds are run by people picking stocks or other investments that they think will earn above-average returns. Index funds, however, are passively managed. That is, they seek only to match (rather than beat) the performance of a given index. The goal of most actively managed funds is to earn a return greater than that of their respective indexes. Interestingly, most investors actually would be better off in index funds. Why? Due to the high costs of active management, the majority of actively managed funds fail to outperform their respective indexes.

Picking funds based on superior past performance was usually unsuccessful and proved to be only slightly better than picking randomly. If you’re looking to pick a future top performer, picking a low-cost fund is your best bet. And looking for low-cost funds naturally leads to the selection of index funds as likely top-performers.

Why Index Funds Win:  Because all the fund has to do is buy all of the stocks (or other investments) that are included in the index. When you compare such a strategy to the strategies followed by actively managed funds (which generally require an assortment of ongoing research and analysis, in order to try to buy and sell the right investments at the right times) index funds tend to have considerably lower costs than actively managed funds. It’s counterintuitive to think that by not attempting to outperform the market, an investor can actually come out above average.

A strategy for picking funds would be as follows:

  1. Determine your ideal overall asset allocation (that is, how much of your overall portfolio you want invested in Indian stocks, how much in international stocks, and how much in bonds).
  2. Determine which of your fund options could be used for each piece of your asset allocation.
  3. Among those funds, choose the ones with the lowest expense ratios and the lowest portfolio turnover.

Source: Oblivious Investor

AM Comments-

  • Passive investing is polar opposite of active investing, which is a more aggressive strategy offering possibility of larger short-term gains, but also accompanied by higher risk and volatility.
  • Passive investing may be laissez-faire. It’s a well-thought, long standing philosophy which believes that even though the stock market does experience ups and downs, it inevitably rises over the long periods.
  • The concept underlying passive investing is that the longer-term outlook on markets is bullish, which will result in financial gains along the course. As a result, it is better suited to investors with a longer time horizon, such as retirement planning.
  • One of the primary reasons for the success of passive funds is their low cost. Fees for index funds in India are normally in the range of 0.1-0.2 percent of AUM, while fees for actively managed funds can range from 1-1.5 percent of AUM.

Passive investing is gaining traction in India as a result of greater mutual fund penetration and accessibility, which is no longer a barrier thanks to the availability of various online platforms.

 

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22 Nov

Increasing prices of products a last resort – ITC

Update on the Indian Equity Market:

On Monday, NIFTY closed in the red at 17,417 (-2.0%). The top gainers in NIFTY50 were BHARTIARTL (+3.8%), JSWSTEEL (+1.6%), and ASIANPAINT (+1.0%). The top losers were BAJFINANCE (-5.6%), BAJAJFINSV (-4.8%), and TATAMOTORS (-4.6%). Sectoral losers were PSU BANK (-4.5%), REALTY (-4.2%), and MEDIA (-3.9%). There were no sectoral gainers for the day.

Excerpts of an interview with Mr. B Sumant, Executive Director, ITC with Business Standard dated 22nd November 2021:

  • Responding speedily to some of the emerging trends, ITC launched 120 products in FY21 and many of them were first to market products. These included sanitization products, such as Savlon disinfectant spray and for ease of cooking, the ITC Master Chef frozen snacks, pastes, and gravies were launched.
  • Innovations of ITC are crafted based on long-term consumer trends. ITC expects the demand for smart cooking solutions to be sustainable in the longer term and health and nutrition products gain strength with increasing awareness among people.
  • To enhance accessibility from the lower end of the market, ITC come up with low-unit-price products across segments like deodorants, ghee, and hygiene.
  • The demand for top-end innovative products as well as low-unit-price products from top-end people continued as they have money in their hand, they are looking for avenues to spend.
  • Raw material inflation affected the entire industry in 2QFY22. ITC did not pass the effect of raw material price hikes to consumers, as increasing the prices of the products is the last option. Rather than price hikes, ITC is focusing on effective cost management, premiumization, favourable business mix to mitigate costs and enhance efficiency.
  • The urban demand recovered faster after the 2nd Covid wave; it has moved from -5% to 14% for the industry as well as rural demand also increased from 1% growth to 17% growth over the FY21.
  • For ITC, the rural percentage has gone up even further, the share of rural sales has increased from 28% to 29%, while the urban share is around 71%. ITC has a steady focus on driving distribution penetration into rural India by various strategies.
  • Out of total sales, 7% of sales comes from E-Commerce. The modern sales also seeing a resurgence after the 2nd Covid wave because all outlets are opened. all other channels are higher than pre-Covid levels, but the wholesale which was impacted by the restrictions in inter-state movement during the pandemic.
  • ITC is witnessing encouraging results in supply chain optimization and cost efficiency due to the digitalization and use of technology. ITC leveraged digital technology across every node of supply chain.
  • ITC E-Store has been an effective platform to gain consumer insights and ITC reconstruct their entire strategy for E-Commerce.

 Asset Multiplier Comments

  • Hygiene products such as sanitisers and disinfectant sprays gained prominence during CY20 when the spread of the virus was rampant. Now, as the economy is returning to normalcy, demand for these products has reduced.
  • Rising commodity costs, freight rates and logistical challenges are the headwinds facing the industry and company.

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

  • The closing price of ITC was ₹ 231/- as of 22-November-2021.  It traded at 19x/17x/15x the consensus earnings estimate of ₹ 12.2/13.8/15 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 270/- which trades at 20x the earnings estimate for FY23E of ₹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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21 Nov

This Week in a Nutshell (15th – 18th November)

Technical talks

NIFTY opened the week on 15th November at 18,141 and ended the truncated week on 18th November at 17,765. The index made a weekly loss of 2.1%. On the upside, 17,993 could act as resistance while 100DMA of 17,020 could act as a support. RSI (14) of 44 indicates the index is nearing the oversold zone.

Among the indices, AUTO was the only sector that ended the week with gains of 0.4%. METAL (-5.3%), PSU BANK (-3.4%), and REALTY (-3.3%) led the laggards.

Weekly highlights

  • Raring agency Fitch Ratings affirmed India’s long-term foreign currency Issuer Default Rating (IDR) at ‘BBB’- with a negative outlook. The negative outlook reflects lingering uncertainty around the debt trajectory. The Agency has suggested wider fiscal deficits and government plans for only a gradual narrowing of the deficit, putting a greater onus on India’s ability to return to high levels of economic growth over the medium term to stabilize and bring down the debt ratio.
  • S&P Global Ratings has predicted that the Indian economy will likely grow at 11 percent in FY22 but flagged the ‘substantial’ impact of broader lockdowns on the economy. S&P said the control of Covid-19 remains a key risk for the economy.
  • The Nasdaq Composite Index closed above 16,000 points for the first time, while the Dow Jones Industrial Average had a second successive weekly loss (-1.4%). The S&P 500 ended higher following strong retail earnings and positive signs for holiday shopping.
  • Over 4.4mn Americans left their jobs in September-21, according to the Labor Department’s Job Openings and Labor Turnover Survey. Incentivized by wage gains and other attractive terms offered by employers desperate for talent, several Americans are leaving their jobs. This has made it challenging for employers to fill positions while driving up compensation and inflation.
  • Crude oil prices fell to a six-week low following news of Australia’s lockdowns and surging Covid-19 cases in Europe threatened to slow down the economic recovery. Investors weighed a potential release of crude oil reserves by major economies for a fall in prices. Crude Oil futures settled at USD 75.7 a barrel while Brent Oil futures closed at USD 78.5 a barrel.
  • India’s wholesale price inflation (WPI) jumped to a five-month high at 12.5% in October. This month’s WPI broke the 5-month downward trend as prices of manufactured items and fuel have increased. High petrol, diesel, and cooking prices drove fuel inflation to 37.2%. high prices of basic metals, textiles, plastics, and edible oil drove inflation for manufactured items to 12%.
  • Prime Minister Narendra Modi announced that the three farm acts would be repealed in the upcoming session of the Parliament. The Prime Minister said a committee would be set up to make the minimum support price mechanism more transparent and effective.
  • Foreign Institutional Investors (FII) continued to be net sellers this week, selling shares worth Rs 44,109 mn. Domestic Institutional Investors (DII) continued to be buyers and invested Rs 39,265mn in Indian equities this week.

Things to watch out for next week

  • US markets are waiting for President Biden to nominate who will head the central bank after Jerome Powell’s term finishes in February-2022. The US markets have a truncated week next week as markets will remain shut on Thursday and Friday on account of Thanksgiving.
  • The Indian equity market is likely to see more selling pressure next week amid the rising US dollar, and the beginning of the Fed Reserve’s bond-buying program. Results for September-21 have been announced by most companies. Action is likely to be stock-specific till the end of December.

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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17 Nov

Aluminum Prices continue to increase impacting margins in 2QFY22  – Endurance Technologies

Update on the Indian Equity Market:

On Wednesday, NIFTY closed in the red at 17,898 (-0.05%). Top gainers in NIFTY50 were ASIANPAINT (+2.4%), MARUTI (+2.4%), and SBILIFE (+2.4%). The top losers were UPL (-3.2%), RELIANCE (-2.2%), and CIPLA (-2.1%). Top sectoral gainers were AUTO (+0.7%), MEDIA (+0.4%), and HEALTHCARE (+0.3%) and sectoral losers were REALTY (-1.6%), OIL & GAS (-1.5%), and PHARMA (-1.3%).

Excerpts of an interview with Mr Ramesh Gehaney, Director and COO– Endurance Technologies with CNBC -TV18 dated 16th November 2021:

  • On the European side, the semi-conductor shortage continues to hit production. The company anticipates that 3QFY22E will be stronger due to a perceived improvement in the semi-conductor chip situation.
  • However, there are further obstacles, such as a greater shift from traditional petrol and diesel cars to EVs and hybrid vehicles, which will need the use of more semi-conductors. The number of new automobile registrations in Europe and the United Kingdom is down by 22 to 23 per cent.
  • In terms of Malaysian chip production, the company believes that the allocation of semiconductor chips to the sector has grown, albeit the situation may not improve until the end of FY22.
  • The firm is actively engaging with OEMs and EV players and has obtained orders from Ather and Bajaj Auto, as well as being in active discussions with all of them. In Europe, they secured orders of Rs 110 mn on electric vehicle platforms and hybrid goods, accounting for 50% of 2QFY22 sales.
  • The current impact on margins is primarily due to a rise in commodity prices. Aluminium can price up to 50 Rs per kg, a 42 per cent increase over the current price. Steel prices were similarly high, but they are gradually levelling off. However, the company anticipates that the raw material situation will improve from present levels as steel prices stabilise.
  • Going Forward, margins numerically would be under pressure. But the company’s profit has increased by 55%.
  • Assuming the aluminium prices remain elevated, the impact on margins would be around 3.7% in FY22 and FY23. If the impact of higher material prices is removed, Endurance has maintained its EBITDA margin of 17%.

Asset Multiplier Comments–

  • 2QFY22 performance was impacted by raw material cost inflation and semi-conductor shortage.
  • We expect the share of EV/Hybrid technology to increase in the near future as the demand in Europe shifts towards less polluting vehicles to reduce carbon footprint as they have bagged a brake system order of RS 500 mn from Ather.

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

  • The closing price of Endurance Tech was ₹ 1,759/- as of 17-November-2021.  It traded at 39x/ 27x/ 23x the consensus earnings estimate of ₹ 45/ 65/76 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 1,893/- which trades at 28x the earnings estimate for FY23E of ₹ 61/-

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 Nov

Expect H2FY22 to be even better- Ashok Leyland

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,000 (-0.6%) near its low of 17,959. Among the sectoral indices, AUTO (+2.5%), IT (+0.5%) were the only gainers. PSU BANK (-2.1%), OIL & GAS (-1.4%) and PHARMA (-1.3%) led the laggards. Among the stocks, MARUTI (+7.3%), M&M (+3.0%), and TATAMOTORS (+2.4%) led the gainers, while SHREECEM (-3.0%), RELIANCE (-3.0%), and HINDALCO (-2.5%) led the laggards.

Excerpts of an interview with Mr. Gopal Mahadevan, CFO and Whole Time Director, Ashok Leyland (ASHOKLEY) with CNBC-TV18 on 15th November 2021:

  • Things were expected to improve in April-21 but the second wave of covid impacted Q1FY22 for the entire industry and eventually, Q2FY22 saw a sharp recovery. With the reduction in covid cases, increased levels of vaccination, and reopening of economic activities, things are expected to improve quite swiftly in Q3FY22 and Q4FY22.
  • This will have a positive impact on the commercial vehicle industry. The core industries like infrastructure, commodities, and the manufacturing sectors are already showing good growth which augers well for the CV industry, specifically the truck segment.
  • Ashok Leyland is waiting for public transport to improve which hasn’t happened yet. Although offices are resuming, schools are still shut. The impact of office resumption will be seen on increasing bus volumes.
  • From Ashok Leyland’s standpoint, Light Commercial Vehicles are doing well and their market share stood at 23% in Q2FY22.
  • Ashok Leyland is trying its best to improve volumes and share of customers, consistently.
  • They are going to launch their CNG range of intermediate vehicles by Q4FY22 which would again kind of improve their presence in the ICV segment.
  • Ashok Leyland took a price hike of 2-2.5% approximately in Q1 and Q2FY22. They took a price hike in Q3 as well to set off some part of the raw material price increase, especially steel where the prices have gone through the roof due to consistent price increases.
  • They do expect costs to soften as things begin to rationalize. One thing to watch out for would be the semi-conductor demand because it is quite significant. There are constraints not only for the CV sector but also for passenger cars, 2-wheelers, and electronics. When this eases out, a push from the supply-side towards greater delivery will be seen.
  • Gross margins are expected to improve as demand improves.
  • Three reasons why a fraction of market share was lost:

1) Market share is based on wholesale. However, Ashok Leyland doesn’t intend to pump stocks into dealerships beyond a certain point. It is only focused on maintaining customer accounts and adding new ones.

2) Ashok Leyland is a significant South player but the volume growth there has not been as good as what it was in the rest of the country. South volumes are expected to start catching up in 2HFY22, especially in December and January which will push Ashok Leyland’s market share up.

3) CNG plays an important role in the ICV segment which accounts for a third of the overall MHCV market in terms of trucks. So, with the launch of CNG vehicles in the fourth quarter, market share is expected to go up.

  • At ₹ 3100 crores, its net debt position is comfortable and the D/E ratio is at 0.5. Ashok Leyland will continue to optimize net debt, work on working capital and astutely manage Capex.
  • The chip shortage issue was expected to be solved by September-21 but that hasn’t happened yet. In South-East Asia, capacities are being set up. As per analyst reports, the chip shortage is expected to ease by Q4FY22.
  • Ashok Leyland expects this to ease out and doesn’t see chip shortage as a permanent issue. Once capacities are set up and distribution gets rationalized, the shortage should come off.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • With the gradual reopening of the economy, bus demand is expected to pick up. The reopening of schools will also provide an impetus to the demand for buses.
  • With the launch of CNG vehicles in the fourth quarter and the anticipated festive demand, we expect an improvement in EBITDA margin levels.

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

  • The closing price of ASHOKLEY was ₹ 147/- as of 16-November-21. It traded at 237x/ 28x/ 19x the consensus EPS estimate of ₹ 0.6/ 5.2/ 7.6 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 152/- implies a PE multiple of 20x 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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15 Nov

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Update on the Indian Equity Market:

On Monday, NIFTY ended flat amid volatility at 18,109 (+0.04%). HEALTHCARE (+2.13%), PHARMA (+1.45%) and FMCG (+0.94%) were the top gaining sectors. METAL (-1.82%), PSU BANK (-1.43%) and FINANCIAL SERVICES (-0.34%) were top losers.

Top gainers in NIFTY50 were POWERGRID (+3.13%), ONGC (+2.46%) and ITC (+2.25%). The top losers were COALINDIA (-4.34%), TATASTEEL (-3.32%), and HINDALCO (-2.68%).

 

Capex of Rs 2,500 mn expected to be on stream by Dec-22 –  Vinati Organics

Edited Excerpts of an interview with Vinati Saraf Mutreja, Managing Director, Vinati Organics with ETNOW on 11th Nov, 2021:

  • The revenue for 2QFY22 was flat sequentially and grew by 70% YoY. The margins for 1HFY22 are at the levels of 26-27%, lower than earlier guidance of 30% for FY22E.
  • The revenue growth guidance for FY22E remains unchanged. Company expects to cross Rs 15,000 mn in FY22E which will result in 50% YoY revenue growth. EBITDA Margins are expected to be at 30% level for FY22E.
  • The margins of 2QFY22 were impacted due to heavy floods in Mahad Factory in the month of Jun-21. It resulted in loss of profits which is insured and claimed for.
  • The revenue growth guidance of ~ 50% for FY22E is a result of price hike due to raw material cost going up.
  • Management is confident of delivering EBITDA margin of 30% as absolute EBITDA per tonne is intact.
  • Raw material prices are still high, freight costs have softened a bit. Most of the Freight cost is absorbed by customers and are able to pass it through.
  • Acrylamide Tertiary Butyl Sulphonic (ATBS) (high margin product) has been a star product for Vinati Organics. FY21 was a slow year for ATBS but comparing current volumes to pre-COVID levels it has grown by ~50-60% on volume basis.
  • Butyl Phenol has seen good offtake in the market, sales have increased by 70% YoY. However, the margins are under pressure as company is a new entrant, it is cutting price to gain market share. Raw materials are exceptionally high over the last 6 months which the company is not able to pass through completely. However, the demand outlook for Butyl Phenol is strong.
  • The niche and specialty products are performing well.
  • Iso Butyl Benzene (IBB) is performing a bit slow. It accounts for less than 10% of the total revenue. A lot of IBB Customers are seeing high inventory levels of IB and IBB as they had stocked up the product in FY21.
  • Vinati Organics is planning a capex of Rs 2,500 mn. It will account for 4-5 new niche and specialty products. It will cater to various segments like agro chem, fragrance chemicals and plastic additives. The products are expected to be on stream by 3QFY23E.
  • The power crunch in China doesn’t impact the company’s supply chain as none of the important raw material is imported from China. China is competitor of Vinati Organics as far as ATBS is concerned. This could be one of the reasons of customers shifting their focus from China to Vinati for ATBS products. China is also market for IBB and ATBS products. Vinati is able to export the products to China.

Asset Multiplier Comments

  • Demand for ATBS continues to remain strong with increased demand from the oil and gas industry, which forms 25-30% of its global demand.
  • We think new product launches, strong demand for products like ATBS which are high margin products and backward and forward integration will help company to achieve its target of ~50% revenue growth and EBITDAM at the level of 30% in FY22.
  • Vinati’s proposed merger with Veeral Additives Private Limited (VAPL) aligns well with their growth strategy through synergy. The global market demand for Antioxidants (AOs) is robust and the total capacity (post-merger) positions Vinati to drive growth.

 

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

 The closing price of Vinati Organics was ₹ 1,998/- as of 15-Nov-21. It traded at 64x/44x/35x the consensus EPS estimate of ₹ 31.6/45.5/57.8 for FY22E/ FY23E/FY24E respectively.

  • The consensus target price of ₹ 1,893/- implies a PE multiple of 33x on FY24E EPS of ₹ 57.8/-.

 

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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13 Nov

This week in a nutshell (November 8th to November 12th)

Technical talks

NIFTY opened the week on 8th November at 18,040 and closed on 12th November at 18,103. It made a weekly gain of 0.3%. The index is trading above its 20DMA of 18,080 which might act as a support. On the upside 50DMA of 18,211 might act as a resistance. The RSI (56), and MACD turning downward suggests a further possible decline. 

Among the sectoral indices, IT (+2.1%), REALTY (+1.7%), and ENERGY (+1.3%) led the gainers. MEDIA(-0.1%) and PSU BANK(-0.1%) were the only sectoral losers.

Weekly highlights

  • Three public sector oil firms will install 22,000 electric vehicle (EV) charging stations over the next 3-5 years to support the nation’s target to reduce its carbon intensity and reach net zero emissions by 2070. Indian Oil Corporation (IOC) will set up EV charging facilities at 10,000 fuel outlets over the next three years, Bharat Petroleum Corporation Ltd (BPCL) will set up 7,000 stations over the next five years while Hindustan Petroleum Corporation Ltd (HPCL) plans to setup 5,000 stations.
  • Zomato plans to invest $1 bn over the next two years, with a large portion of it to be invested in for quick-commerce. The company plans to invest $50 mn in CureFit, plans to acquire 8% stake in logistics tech firm Shiprocket for about $75 mn, and a 16% stake in Magicpin for $50 mn.
  • The Reserve Bank of India (RBI) announced the launch of its first global hackathon ‘HARBINGER 2021 – Innovation for Transformation’ with the theme ‘Smarter Digital Payments’. The hackathon will invite participants to identify and develop solutions that have the potential to make digital payments accessible to the under-served, enhance the ease of payments and user experience, and strengthen the security of digital payments and promote customer protection, RBI said in a statement.
  • Indian indices declined due to the risk of rising US inflation. The US inflation data showed that the Consumer Price Index (CPI) had risen to a 6.2%  annual rate in October, the highest since 1990. 
  • Vodafone Idea (VI) is working on a restructuring plan under which Kumar Mangalam Birla will make an investment and the Indian Banks will restructure the company’s loans. With the freed-up capital for the next four years due to the moratorium, the company will participate in the auction of the 5G spectrum.
  • FII (Foreign Institutional Investors) were net sellers and DII (Domestic Institutional Investors) were net buyers this week. There was a net outflow of Rs 49,024 mn from the FII while DII invested Rs 53,932 mn.

Things to watch out for next week

  • As investors around the world seem to be cautious about the rising inflation and a possible earlier-than-estimated rise in interest rates by Fed, we may see a further sell-off in Indian stocks next week by the FIIs.

 

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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11 Nov

Investments in EV Business a priority – Mahindra and Mahindra

Update on the Indian Equity Market:

 

On Thursday, Indian benchmarks declined for the third consecutive session with NIFTY closing at 17,874 (-0.8%). Among the sectoral indices, METAL (+0.4%),  CONSUMER DURABLES (+0.3%) were the only gainers. REALTY (-2.3%), PSU BANK (-1.8%), PHARMA (-1.4%) led the laggards. Among the stocks, TITAN (+1.7%), HINDALCO (+1.1%), and JSWSTEEL (+0.6%) led the gainers, while SBIN (-2.8%), ONGC (-2.6%), and SBILIFE (-2.5%) led the laggards.

 

Excerpts of an interview with Mr. Manoj Bhat, CFO, Mahindra and Mahindra (M&M) with CNBC-TV18 on 10th  November 2021:

  • Raw Material Inflation has been a key headwind for the industry due the commodity cycle turning, However the company is taking a calibrated approach to passing on the costs to consumers through price hikes as the commodity cycles are transient in nature.
  • The company already has taken 3 price hikes in the farm segment and 2 in the auto segment, and there’s still robust demand and thus the company plans to adopt a wait and watch policy.
  • The entire auto industry has seen margins getting contracted severely and the company thinks that the margins have bottomed out at these levels. However the impact was seen in this quarter due to volume loss as a result of semiconductor issue and new product launches which are margin dilutive in the first few quarters.
  • The Company expects margins to improve over 2HFY22 due to scale benefit from volume recovery as the semiconductor situation improves, and calibrated price hikes if necessary.
  • The semi-conductor issue is a global one and it peaked in Q2FY22, but there’s signs of improvement across the world with improving visibility and the company expects normalcy in 1HFY23.
  • Tractor volumes were impacted due to erratic monsoons, however even on an inflated base of FY21, the company expects high single digit growth in FY22. The demand fluctuation is short term the company expects demand to stabilise in 4QFY22 led by market share gain by the company.
  • EV Three Wheelers segment has shown tremendous growth of 317% YoY in Q2FY22 with a 63% market share. The company expects 20% of current 3 wheeler segment to shift to EV by FY25, and the company has plans to invest Rs 30 bn over FY23-25 to expand its dominant position.

Asset Multiplier Comments

  • We expect the raw material inflation to impact the bottom line in the medium term.
  • Notwithstanding the semiconductor shortage, it has received a positive response for its new launches such as Thar, XUV 300, and Bolero Neo. The company has indicated its loyal customers are willing to wait as long as 9-12 months to get the new cars. We like the customer loyalty and expect the company’s top line to benefit in the medium to long term.
  • While its revamping its SUV portfolio, the company has ambitious plans to launch electric varients in its UV and 3W portfolio. This may help improve the product penetration.

 

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

  • The closing price of M&M was ₹ 925/- as of 11-November-21. It traded at 24x/ 20x/ 17x the consensus EPS estimate of ₹ 39/ 46/ 54 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,050/- implies a PE multiple of 19x on FY24E EPS of ₹ 54/-.

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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10 Nov

Must ignore the siren song to enjoy the Melody

 

Joe Wiggins stresses on correct behavioral commitments for long term investors by citing example of Homer’s Odyssey. Ulysses and his crew must navigate their ship past the sirens. The sirens produce a beguiling and irresistible song, which if heard would lead the men to their deaths. Ulysses applies some behavioral science. He instructs his crew to fill their ears with wax to avoid temptation and has himself tied to the mast to avoid action.

Most of us have long-term objectives best facilitated by doing less, yet the constant noise and narratives of markets are there to lure us into frequent injudicious decisions.

Being a long-term, low action investor is the easiest approach to adopt in theory, but the hardest in practice.

 

How do we make a commitment like Ulysses to protect us from our future investing selves? Plugging our ears means ignoring the chaotic vacillations of markets and the unpredictable path of the economy. Rarely checking our valuations, cutting off our subscriptions to financial news. Cancelling the brokerage account, losing the password for our portfolios, or adding elements of friction to slow an investment decision-making process. Avoiding anything that will entice us away from our plan.

Commitment devices do not have to be entirely restrictive. We might commit to acting only when certain extreme valuation levels are reached. This approach is obviously imperfect compared to an avoidance pact. Setting a high threshold for action, however, at least protects from the worst ravages of noise and overtrading.

A critical part of managing our behavior is understanding the challenges we will face and planning in advance how we will mitigate them. Good investment is primarily about making sensible decisions at the start and avoiding bad decisions on the journey. The problem is that the compulsion to veer off course is likely to be overwhelming.
Most of us want to be long-term investors, but unless we make the right behavioral commitments at the outset the siren song of financial markets will make that an impossible aspiration.

 

Source: Behavioral Investment by Joe Wiggins

Asset multiplier comments-

  • Obsession with short-term market fluctuations makes sense only for day traders who earn money by accumulating minor gains and limiting losses in as many securities as possible.
  • For investors with a long-term perspective, it is meaningless to analyze each and every event and its implications on your portfolio.
  • Investors should understand clearly that volatility and risk are two different things. Reacting to volatility created by market news will only yield bad decisions i.e., buying at a higher price or selling too low.

 

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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