10 Nov

Demand recovery expected to continue – Bata India

Update on the Indian Equity Market:

On Wednesday, Indian benchmarks declined for the second consecutive session with NIFTY closing at 18,017 (-0.2%). Among the sectoral indices, OIL & GAS (+0.8%), AUTO (+0.5%), and PHARMA (+0.2%) were the only gainers. PSU BANK (-2.4%), METAL (-1.8%), and REALTY (-1.4%) led the laggards. Among the stocks, UPL (+3.4%), BHARTIARTL (+3.3%), and M&M (+3.0%) led the gainers, while HINDALCO (-3.4%), INDUSINDBK (-3.3%), and TATASTEEL (-2.9%) led the laggards.

Excerpts of an interview with Mr. Gunjan Shah, CEO, Bata India (Bata) with CNBC-TV18 on 8th  November 2021:

  • Bata had a tough time the last 18 months due to the 2 lockdowns. With things opening up, the company is seeing some recovery.
  • In 2QFY22, the company has seen a MoM recovery. He believes that with more stores opening up, recovery is sustainable in the medium term in terms of consumer demand perspective.
  • The immediate priority is getting the company back to pre-pandemic performance levels. Going forward, the portfolio is in line with consumer demand, towards casuals and sneakers. The company is seeing initial progress in this direction but there is a long way to go in that segment.
  • To leverage the Bata brand equity, it is looking for a franchise model in tier 3-5 towns or through multi-brand outlets. The distribution expansion is one of the big areas they are working on.
  • They are also focusing on the digital footprint. The current omnichannel strategy contributed in teens to the revenue in 2QFY22 and the company wants to increase it.
  • The company has taken significant steps towards cost reduction during the pandemic. Some of these are expected to sustain. With business coming back to normal, the quantum of cost savings may not be similar as seen during the pandemic months.
  • Sneakers are used not just for sports but also for other occasions. There is a longer-term trend that consumers will prefer to the extent the comfortable footwear usage once lockdowns are lifted.
  • Casual ranges such as Power, North Star are seeing 40% growth in demand, and the company wants to improve that further. Bata has expanded its merchandise, in casual footwear and launched open footwear.
  • It is ensuring customers connect with the Bata merchandise. For this, they have piloted a big initiative, Sneaker Studio which ensures the entire sneaker range is displayed in a cohesive form in the stores. While this initiative is currently rolled out in major metros, the Company is expanding it in the next 12 months.
  • To conserve cash, Bata had reduced its ad spend during the pandemic period. With the demand recovery, it has started investing in ad campaigns.
  • The company will witness the highest ever addition in franchise stores in FY22. It sees strong penetration potential in Tier 3-5 towns, championed through the franchise model.
  • The next stage of expansion is planned through multi-brand outlets. The company’s coverage has increased from 450 towns to over 900 towns in the last 2 years. It plans to add another 500 towns in FY23 and expects a 20% contribution to the topline from multi-brand outlets.
  • Raw material inflation is witnessed especially in synthetics and plastics. About 25-30% of the portfolio has a significant amount of synthetics and plastics which go into it, where there is significant pricing pressure.
  • It is also focusing on the premiumization story, where realizations are better.

 

Asset Multiplier Comments

  • With Bata’s revenue recovery rate reaching 85% of pre-Covid levels in 2QFY22, we are confident of the company’s performance. We think Bata’s new strategies and focus on cost reduction, omni channel, change in product mix (higher proportion of casual footwear) and calibrated expansion of retail network through asset light franchisee route would aid in providing thrust to revenue growth.
  • We expect the company to benefit from market share gains on account of store expansion in lower-tier cities where the unorganized segment is dominant and who would face pressure on passing on RM inflation through price hikes.
  • We believe a strong balance sheet with healthy cash on books and efficient working capital should support Bata through these testing times.

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

  •  The closing price of Bata India was ₹ 2,182/- as of 10-November-21. It traded at 182x/ 61x/ 50x the consensus EPS estimate of ₹ 12/ 36/ 44 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,808/- implies a PE multiple of 41x on FY24E EPS of ₹ 44/-.

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 Nov

Expect 9-10% credit growth by end of FY22 – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 18,044 (+0.1%). AUTO (+1%), OIL and GAS (+0.8%), and PSU BANK (+0.8%) led the sectorial gainers. FINANCIAL SERVICES (-0.7%), FINANCIAL SERVICES 25/50 (-0.6%), and FMCG (-0.3%) were sectoral losers. The top gainers in NIFTY50 were M&M (+5.2%), TATAMOTORS (+2.0%), and HEROMOTOCO (+1.0%). The top losers were BRITANNIA (-3%), HDFC BANK (-2%), and HDFC (-1%).

Excerpts of an interview with Mr. Dinesh Kumar Khara, Chairman, State Bank of India (SBIN) with CNBC-TV18 on 08th November 2021:

  • In two to three broad components the credit growth is seen. One is retail credit, which has grown more than 15% on a YOY basis. Muted growth was seen in corporate credit.
  • SBIN got unavailed limits, both in working capital as well as undisbursed term loans, and both of them aggregate to about Rs 4,500,000 mn. SBI also got the pipeline for the proposals which are being processed of Rs 1,150,000 mn.
  • SBIN expects as capacity utilisation improves, there will be a good credit growth in corporate sector in near term. The numbers are quite good in the month of October for the corporate credit and the bank expects there should be a decent growth will be seen in corporate credit in 2HFY22.
  • SBIN registered a credit growth of more than 6% on YoY. The company’s Retail and International book both performed well, international book growing more than 16% on YoY. But the corporate side is the only one which was pulling down the growth.
  • SBIN expects credit growth to be in the range of 9% to 10% at the end of FY22.
  • SBIN is processing loans of commodity, infrastructure, and FMCG sectors. The commodity sector is expected to reach its full capacity utilization and they are expanding and also the demand was back on track in FMCG sector. As a result of this, SBIN expects good credit growth from these sectors.
  • On NPAs, SBIN does not see any challenges as far as corporate credit is concerned. As far as retail is concerned the quality of retail is quite good. SBIN expects to operate in a range of 3.1% to 3.25% in Net Interest Margins.
  • SBIN witnessed some challenges in end of 1QFY22, but the collection machinery was improved significantly. They started pre-collection calls which means they informing customers well in advance for their EMI due. The customer centricity helped in reducing stress asserts in the retail sector.
  • SBIN has a restructured book of Rs 3,00,000 mn. History suggests about 30% of restructured book has a probability of becoming NPA. The current restructuring has happened essentially on account of the disruption in cash flow due to Covid-19. SBIN has seen an improvement in cash flows.
  • SBIN made the Covid related provisions of Rs 62,000 mn. They have provided well for the potential risk which might emanate from this.
  • SBIN collaborated with many fintech companies when it comes to offering their digital solutions. The Bank is actively engaged in terms of looking at what value addition fintech bring.

Asset Multiplier Comments

  • SBIN has reported a robust performance and has fought off the COVID-19 impact and displayed resilience in asset quality performance. The bank has been reporting continued traction in earnings, led by controlled provisions.
  • The improved credit growth prospects, stable NIMs and improving asset quality with adequate provisioning coverage will help SBIN to achieve its target of delivering 15% ROE through various cycles.

Consensus Estimate (Source: Market screener and TIKR Websites)

 

  • The closing price of SBIN was ₹ 529/- as of 09-November-21. It traded at 2x/1.5x/1x the book value per share estimates of ₹ 302/343/388 for FY22E/ FY23E/ FY24E respectively.
  • The consensus target price of ₹ 620/- implies a price/book value multiple of 2x on FY23E BPS of ₹ 343/-

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 Nov

Expect Revenues to go up due to easing travel restrictions – VIP Industries

Update on the Indian Equity Market:

On Monday, NIFTY closed at 18,068 (+0.9%) led by PSU BANK (+2.2%), CONSUMER DURABLES (+2.1%), and OIL&GAS (+1.8%). Those in red were PRIVATE BANK (-1.0%), PHARMA (-0.7%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were TITAN (+4.5%), IOC (+4.5%), and BAJAJFINS (+4.2%). The top losers were INDUSIND BANK (-10.5%), DIVIS LAB (-5.2%), and M&M (-1.4%).

Excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP Industries with CNBC-TV18 on 02nd November 2021:

  • The company had a sales budget of Rs 5000 mn in the 1QFY22. However, 1QFY22 performed poorly due to the second wave of the covid-19 pandemic but things improved in September due to the opening up of restrictions.
  • During the first 15 months of the pandemic, there were hardly any sales, hence the company did not import from China. In 1QFY21 company had more inventory than what they sold in FY20.
  • Supply has been disrupted very badly, till pre covid levels the company was dependant on China heavily. The Chinese supply has become very uncertain and expensive and hence the company is facing a lot of issues concerning supply in the market. It intends to reduce its dependence on China for raw materials.
  • There is a lot of turbulence in the market from the supply side due to higher freight costs and inflation, problems with imports of, both, raw materials and finished goods from China.
  • Freight costs have gone up, which affects the company significantly as luggage being a voluminous product, freight is a considerable cost.
  • Usually, the 3rd quarter is the best quarter for the company with the wedding and travel season in full swing. With the gradual opening up of economies and travel, the company expects good revenues going forward.
  • The company is positive and expects 3QFY22E will be better than the 3QFY21. The company expects revenue to be in the range of -10% to +10% from the 3QFY19 levels which is Rs 4,300mn.
  • The company hasn’t taken any price hikes as of now but they would be looking at taking price hikes very shortly. Revenues on an MoM basis should be better than in earlier months.
  • All the manufacturing of the hard luggage which accounts for 47% of the 2QFY22 revenue is done in India. Not too much manufacturing in India for soft luggage.
  • Mass and premium segment bags were affected since a majority of sales occurred in the malls and malls were badly affected in the pandemic.

Asset Multiplier Comments

  • The Ministry of Civil Aviation removed restrictions on domestic flight capacity and allowed to operate flights at full capacity. Luggage being the proxy to the travel and tourism industry we think VIP Industries is well placed to meet the increasing demand.
  • Looking at the capex plans of expanding the capacity of Bangladesh and Nashik plants, price hikes, margins delivery, and product launches we expect VIP Industries to perform well going ahead.

Consensus Estimate (Source: market screener website)  

  • The closing price of VIP Industries was ₹ 634/- as of 08-November-21. It traded at 111x/50x/37x the eps estimate of ₹ 5.7/12.6/17.1 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 646/- implies a Price/earnings multiple of 33x on FY24E EPS of ₹ 19.6/-.

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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07 Nov

This week in a nutshell (1st – 3rd November)

Technical talks

NIFTY opened the week on 1st November at 17,783 and closed on 3rdNovember at 17,829. It made a weekly gain of ~0.25%. Nifty is trading at an RSI of 51 with support at 17,613 and resistance at 17,846.

Among the sectoral indices, REALTY (+9.9%), PSU BANK (+4.5%), and MEDIA (+4.0%) led the gainers. There were no sectoral losers this week.

Weekly highlights

  • US markets continued their upward trend S&P 500 rose ~1.8% and Nasdaq also gained ~2.8% this week.
  • The US Labor market got back on track in October to beat the estimates and broad-based payroll gains show greater progress filling millions of vacancies as the effect of declining in delta variant.
  • Reserve Bank of India announced a revised prompt corrective actions framework for banks which will be effective from 1st of Jan 2022. Capital adequacy, asset quality, and leverage will be important parameters for the monitoring banks under the new frameworks.
  • The government of India reduced the Central Excise Duty on Petrol and Diesel by Rs 5 and Rs 10respectively. The Government said the reduction in excise duty will help boost consumption and keep inflation low.
  • US Democrats passed USD 1 trillion infrastructure bill. Administration oversees the biggest upgradation of America’s roads, railways, and other transportation infrastructure.
  • NITI Aayog and World Bank are working together to facilitate a program for faster and easier financing of electric vehicles. The interest rates on Electric Two Wheelers and Electric Three Wheelers is expected to come down to 10% to 12%. According to experts there is afaster adoption of EVs amid a rise in fuel prices and consumers also choosing cleaner and greener mobility.
  • The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 3,580 mn. Domestic institutional investors (DIIs) became buyers this week and bought equities worth Rs 3,060 mn.

Things to watch out for next week

  • Results season continues in India with companies such as Britannia, MRF, M&M, ZEE, Coal India, and ONGC are set to announce earnings.
  • Trade data and more 3Q company earnings will show whether supply chain glitches are decreased or not.
  • Investors’ optimism might be seen next week on the back of the government’s move to cut Excise duty on Petrol and Diesel.

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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03 Nov

Death by Cigarettes

 

Nick Maggiulli writes on his blog that there are two kinds of risks in investing and in life—fast risk and slow risk. Fast risk is the stuff that makes headlines. It’s the things that we are warned about every day. The reason for this is simple—the consequences of fast risk are immediate and usually devastating. But then there’s slow risk. Slow risk is the accumulation of bad decisions that eventually leads to an unwanted outcome.

Slow risk doesn’t make headlines. Every time a hedge fund blows up you will probably hear about it. But you never hear about the person who sat in cash for 20 years because they were too afraid to get invested. Both are equally devastating, but one seems less spectacular than the other.

The simplest analogy to differentiate between fast risk and slow risk is heroin vs. cigarettes. Heroin is fast risk. Cigarettes are slow risk. Heroin tends to kill people quickly (especially in the event of an overdose), while cigarettes tend to kill people slowly.

Unfortunately, most of the time when people talk about risk, they are talking about fast risk. For example, stocks have lots of fast risk, but little slow risk. The S&P 500 could drop 20% tomorrow, but 30 years from now it’s likely to be much higher than it is today. On the other hand, cash has lots of slow risk, but little fast risk. Next year your dollar should be worth about the same as it is worth today. But 30 years from now? Not so much.

As your time horizon increases the risk of losing money in stocks decreases and the risk of losing money in cash increases. As Peter L. Bernstein noted in Against the Gods: Risk and time are opposite sides of the same coin, for if there were no tomorrow there would be no risk. This is why cash isn’t really a risk-free asset but more of a fast risk-free asset. Cash still has plenty of risk, but it is of the slow variety.

Source: dollarsanddata

Asset Multiplier Comments:

  • Even little amounts, if correctly invested, may build up to a lot of money over a young investor’s time horizon. In financial markets, consistency is essential, and never underestimate the power of compounding.
  • Every asset, whether debt, equities, hard cash, or art, carries a different degree of risk, but then so are the returns! Diversifying your portfolio will give you the required edge over the broader market while reducing the total risk of your portfolio.
  • The risk in a portfolio of diverse individual stocks and assets will be less than the risk in holding any one of the individual stock or an asset, given that the risks of the various assets are not directly related. A portfolio that contains both assets will pay off most of the times, regardless of market conditions. Adding one risky asset to another can reduce the overall risk of an all-weather portfolio. It’s all about choosing the right combination of stocks among which to distribute one’s nest egg.
  • Calculated investments, even in risky assets, may be better than haphazardly investing in debt funds.

 

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 Nov

Collection efficiency improved by 16% in 2QFY22 – Bandhan Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY closed flat at 17,890 (-0.2%) led by REALTY (+4.0%), PSU BANK (+2.4%), and MEDIA (+1.0%). Those in red were METAL (-2%), OIL & GAS (-0.8%) and HEALTHCARE (-0.6%). Top gainers in NIFTY50 were MARUTI (+2.2%), NTPC (+2%), and TITAN (+2%). The top losers were TATASTEEL (-3.4%), GRASIM (-2.2%), and JSWSTEEL (-2%).

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD & CEO, Bandhan Bank with CNBC-TV18 on 01st November 2021:

  • Asset quality is improving since the last quarter. In Q1, they faced a severe effect of the second wave of COVID-19, but from September it improved in a way that gives comfort to the bank and its future growth is coming
  • From Q1 to Q2, collection efficiency has improved by 16% and the Special Mention Account-0 (SMA-0) has become half, SMA-1 has come 25 percent down and SMA-2 is flat because they made higher provisions in this quarter.
  • Restructured book amount is ₹ 83.3 bn.
  • The second wave was severe than the first wave and the second wave entered the Eastern region which is Bandhan Bank’s core area in May. Hence, the May-June months were affected by that and the impact was seen in Q1FY22.
  • Eventually, August witnessed some improvement and September is when the bank saw a pick-up.
  • The Assam government has informed customers that if they don’t pay their respective dues, their credit history will be affected and they will not get credit in the future.
  • Ground-level customers are returning back and hence collection efficiency improved by 33% from June to September particularly in Assam.
  • Small borrowers are asking for time which is duly provided and it is seen that 66% of these borrowers are paying to the bank and NPA customers are also paying 65% to them
  • As a result, all of these customers don’t belong to the NPA bucket, they belong to the regular bucket.
  • Every day, 14,000 of Bandhan Bank’s customers are closing their loans which means they are coming to the regular category from the restructured and NPA one.
  • If this continues, the bank expects this to normalize in the next couple of months.

Asset Multiplier Comments

  • Bandhan Bank declared 2QFY22 earnings recently and reported a loss, impacted by significantly higher provisions. The Bank has provided for NPA to protect its balance sheet from the potential impact of a 3rd Covid wave.
  • With economic activity picking up ahead of the festive season, we believe credit growth will pick up. The bank is likely to be a beneficiary of this.

Consensus Estimate (Source: market screener websites)

  • The closing price of Bandhan Bank was ₹ 309/- as of 02-November-21. It traded at 3x/2x/2.1x the book value estimate of ₹ 102/130/150 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 310/- implies a Price/book multiple of 2.1x on the FY24E book value of ₹ 150/-.

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 Nov

Choosing volume over short-term margins – Marico

Update on the Indian Equity Market:

On Monday, market witnessed some swift recovery. NIFTY closed at 17,930 (+1.5%) led by REALTY (+4.0%), METAL (+3.1%), and MEDIA (+2.6%). There were no sectors in red. Top gainers in NIFTY50 were INDUSINDBK (+7.5%), HINDALCO (+4.5%), and BHARTIARTL (+4.2%). The top losers were UPL (-2.6%), BAJAJFINSV (-1.6%), and M&M (-0.4%).

Choosing volume over short-term margins – Marico

Edited Excerpts of an interview with Mr. Saugata Gupta, Chief Executive Officer and Managing Director, Marico with ETNOW on 29th Oct, 2021:

  • There was a pipeline filling as the opening up happened last year and this year. Slight moderation of growth in rural areas was witnessed. Exponential growth was witnessed in e-commerce earlier. As things have opened up, modern trade is recovering as some of the demand is getting transferred to organised modern trade.
  • Inflation is a cause of concern because of two factors:
    • It leads to price increases and impacts the total share of wallet for an FMCG.
    • It affects demand. There has been a slight moderation in demand which was seen towards the second half of 2QFY22.
  • The company has already experienced significant inflation in FY21 as a large portion of input cost was copra led. Now that has moderated.
  • Marico had significant pressure even in the 1QFY22 but now from 2QFY22 onwards, gross margins are improving QoQ.
  • Company will continue to see gross margins improving in 2HFY22E. Marico is expecting moderation from both vegetable oils and crude based raw materials which is more likely to happen in 4QFY22E.
  • Once the input costs normalize, EBITDA margins are expected to start improving from 4QFY22E.
  • Company should be able to get back to medium term aspirations from 1QFY23E.
  • Considering continued inflation and price increases, company will choose volume over short-term margins. Continued inflation could have some impact on the consumption situation. But some moderation is expected to start happening in the 4QFY22E.
  • In India business, 24% value growth and 8% volume growth was seen in 2QFY22. So, 16% was inflation. Company is in wait and watch mode. The biggest uncertainty for the company is crude as crude impacts raw material and packaging costs. The only reason there could be further price hikes could be because of crude.
  • In the immediate term, company has taken some price increases. So, another round of price increases is not expected at least in 3QFY22E. 15% price increase has already been taken in Saffola because of the significant increase in vegetable oil prices.
  • In 2QFY22 rural growth was slightly higher than urban but currently company is witnessing moderation of rural growth. It could be because of inflation or pent-up demand of other non FMCG categories as the economy is now opened up.
  • Marico is looking for organic and inorganic growth both. Beardo is expected to touch Rs 1000 mn by Dec-21. If Just Herbs continued its momentum of growth, it will be a potential Rs 1,000 mn core brand. Company aims to grow more from organic stable.
  • Marico is a supportive and strong strategic partner in the growth of these brands in terms of supporting capabilities and other things. But it still will continue to look at inorganic opportunities in this sector.

Asset Multiplier Comments

  • We think the new engines of growth i.e. food portfolio and digital first brands are tracking well. As the prices of copra is normalizing, we expect margins improvement going forward.
  • Management’s guidance of double-digit topline growth and improvement in gross margins going forward will help company to earn good returns.

 

Consensus Estimate (Source: market screener websites)

 

  • The closing price of Marico was ₹ 574/- as of 01-Nov-21. It traded at 56.5x/47.9x/42.1x the consensus EPS estimate of ₹ 10.1/11.9/13.5 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 601/- implies a PE multiple of 44.5x on FY24E EPS of ₹ 13.5/-.

 

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

 

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30 Oct

This Week in a nutshell (25th Oct to 29th Oct)

Technical talks

NIFTY opened the week on 25th October at 18,299 and closed on 29th October at 17671 during the week, the index lost 2.5%. Nifty is trading at an RSI of 43, with support at 17,565 and resistance at 18,158.

Among sectors top losers were Nifty Private bank (-3.6%), BANK (-3.0%), and IT (-2.8%). PSU Bank (+0.1%) was the only sectoral gainer in the week.

Weekly highlights

  • This week was a tumultuous one for stock prices as they reacted to this week’s results.
  • China’s Evergrande Group has stated plans to prioritise the expansion of its electric car sector over the main real estate businesses. Evergrande chairman Hui Ka Yan stated that the company’s new electric car initiative will be its major business, rather than real estate, during the next ten years.
  • The third-quarter earnings season resumed with results from US IT behemoths Apple, Tesla, Amazon, Facebook, Microsoft, and Google. Companies are indicating increased labor costs and operational disruptions impacting earnings.
  • The US budget deficit for 2021 totaled USD 2.77 trillion, the second biggest on record but a decrease from the all-time high of USD 3.13 trillion in 2020. Both years’ deficits represent trillions of dollars in government expenditure to mitigate the terrible effects of a worldwide epidemic.
  • Profits at China’s industrial firms rose at a faster pace in September even as surging raw material prices and supply bottlenecks squeezed margins and weighed on factory activity.
  • According to a CRISIL Ratings analysis of India’s top three PV original equipment makers (OEMs or vehicle makers) with a combined market share of 71%, a global shortage of semiconductors will moderate India’s passenger vehicle (PV) sales to 11-13 percent this fiscal, around 400-600 basis points (bps) lower than what could have been without the scarcity.
  • Last week, the number of Americans asking for unemployment benefits fell to a pandemic low of 281,000, indicating that the labour market and economy are still recovering from last year’s coronavirus slump.
  • Indian equities were downgraded this week by major foreign brokerages- Morgan Stanley, UBS, Nomura.
  • The foreign institutional investors (FII) continued selling Indian equities and sold shares worth Rs 1,57,023 mn. Domestic institutional investors (DIIs) turned buyers this week and bought equities worth of Rs 94,272mn.

 

Things to watch out for next week:

  • US Fed tapering expected, with an increase in interest rates. The central bank is largely anticipated to declare that it will begin unwinding its $120 bn monthly bond purchases, with the scheme expected to end entirely by the middle of FY23.
  • Several earnings reports are expected next week  including those from pharmaceutical giants such as Pfizer and Moderna in the US. In India, companies such as HDFC, Tata Motors, and Sun Pharma are set to announce earnings.
  • The next week will be a truncated one for Indian equity markets due to Diwali. 

 

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

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28 Oct

People are getting more comfortable with shopping online- Titan

Update on the Indian Equity Market:

On Thursday, the Indian equity benchmarks declined the most in six months amid broad-based selling in the market. The Nifty50 ended the day at 17,857, down 1.9%. Among the Nifty50 components, ADANIPORTS (-7.4%), ITC (-5.6%), and ONGC (-4.4%) were the top losers. INDUSINDBK (+2.6%), LT (+1.8%), and ULTRACEMCO (+1.2%) were among the few stocks that ended in the green. Among the sectoral indices, PSU BANK (-5.2%), REALTY (-3.8%), and METAL (-3.4%) led the losers. There were no sectoral gainers.

Mr. Ajoy Chawla, CEO of Titan’s jewelry division highlighted the impact of the pandemic and the way forward in an interview with Business Today on 26th October 2021:

  • Titan’s jewelry division witnessed a strong recovery in demand after the second wave of COVID-19 pandemic across its brands and posted a 78 percent growth year-on-year in 2QFY22.
  • Titan’s jewelry arm comprises 4 brands- Zoya, Tanishq, CaratLane, and Mia. Tanishq is their most known brand, with over 350 stores in 200 cities. Zoya is their luxury brand while CaratLane is an omnichannel brand. Mia offers contemporary, workwear jewelry.
  • The pandemic impacted their operations. Zoya only had three boutiques, two in Mumbai and one in Delhi. Since Mumbai and Delhi form the bulk of the customer base, the impact was severe during the lockdown. A boutique in Bengaluru was opened just after the first lockdown.
  • Zoya bounced back strong, on the back of multiple initiatives, and reported 15% retail growth in FY21 over FY20. The Bengaluru boutique has taken off, and six Zoya galleries have been added in some Tanishq stores in metros. As a result of digital and remote shopping initiatives, the recovery was quick.
  • While people are comfortable buying jewelry online, not all of the purchase is online. A part of the journey- shortlisting aspect happens online and then the final part takes place offline. The offline could be at the person’s home or at the store.
  • In the case of Tanishq, revenue per pure online transaction has jumped from ₹ 14,000-15,000 to 30,000-35,000. This indicates more customers are willing to buy slightly higher ticket prices purely online without any offline element.
  • Zoya’s HNI customer base was pretty scared of the pandemic and did not want to venture to the stores. All engagement had to move online or through personal interactions over a video call. The company is curating experiences for its customers at home, such as serving them a Starbucks coffee or getting a special meal delivered from a Taj hotel in case of special occasions.
  • In the case of the combination of online and offline- phygital, the ticket sizes are comparable to what the company gets purely offline.
  • With travel restrictions and few celebrations, customers have not spent money on many other things. All that saved money is being spent and the jewelry category is up there in terms of wallet share.
  • The company currently has four boutiques and six galleries across seven towns for Zoya. They plan to have two-three more boutiques in FY23. The company plans to have 8-10 boutiques and 15-20 galleries in the next 18-24 months.

Asset Multiplier Comments

  • Titan has managed to come out of the pandemic with a strong consolidated position in urban markets due to its unique customer experience-centric approach and brand trust it has garnered throughout the years.
  • Titan is one of the foremost adopters of BIS Jewellery Hallmarking. It has managed to increase its market share from the unorganized players who are unable to offer the same level of assurance for purity that is commonly associated with jewelry purchases.
  • Segment-wise brands, expansion across geographies, phygital and omnichannel strategies are the drivers for the long-term growth of the company.

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

  • The closing price of Titan was ₹ 2,392/- as of 28-October-21. It traded at 101x/ 79x/ 65x the consensus EPS estimate of ₹ 23.7/ 30.4/ 36.6 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,072/- implies a PE multiple of 57x on FY24E EPS of ₹ 36.6/-.

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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27 Oct

Best Demand Environment in a Decade – Tech Mahindra

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 18,211 (-0.3%) dragged by MEDIA (-2.0%), METAL (-1.5%) and PRIVATEBANK (-1.4%). PSU BANK (+2.1%), IT (+1.0%) and PHARMA (+0.9%) were the gaining sectors. The top gainers in NIFTY50 were ASIANPAINT (+4.1%), UPL (+3.8%), and DIVISLAB (+2.3%). The top losers were AXISBANK (-6.5%), BAJFINANCE (-4.8%), and ONGC (-3.5%).

Edited excerpts of an interview with Mr. C P Gurnani, MD, and CEO of Tech Mahindra with CNBCTV18 on 26th Oct 2021:

  • The company is committed to the high growth trajectory over the full year of FY22, which resulted in its highest ever sequential growth in a decade. Every business segment has reported sequential growth in Q2FY22.
  • The Company has a best-in-class geographic mix with North America contributing less than 50%, Europe contributing 25%, and the Rest of the World Contributing 25%, with a geographical presence in 90 Countries. The company is well diversified in terms of geography.
  • The Company increased its guidance of around 500-600 Mn USD in Deal wins to 750 Mn to 1 Bn USD over the next few quarters, on the back of a robust deal pipeline and sustained growth in the demand environment.
  • The Company plans to improve its margins by keeping control on sub-contracting costs which are at historically high levels. Utilisation has reduced due to fresher intake in the last quarter, which the company expects to improve over time.
  • Cloud Migration and 5G are the biggest drivers of growth in new deal wins. There’s a huge movement in the legacy to digital business which is expected to continue over the next few quarters.
  • The company made two acquisitions during the quarter- Loadstone and WeMake website. Loadstone has revenue of about 35 Mn USD and is EPS accretive, the other acquisition was IP Driven and is insignificant to the topline.
  • Current levels of attrition are hurting the demand fulfillment of the company and the company plans to reduce attrition by shifting to tier-2 cities and new HR Policies.

 Asset Multiplier Comments

  • The management commentary of continued strength in end demand aided by significant deal wins, and healthy deal pipelines driven by 5G and cloud will help the company sustain its revenue growth guidance.
  • Attrition and supply-side issues are the biggest headwinds for IT Companies. The company’s bottom-line can only see sustained growth if these challenges are dealt with in the upcoming quarters.

Consensus Estimate (Source: market screener website)

  • The closing price of Tech Mahindra was ₹ 1,568/- as of 26-October-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 ₹ 1,703/- implies a PE multiple of 21x 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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