28 Sep

Major housing demand is coming from first-time buyers – HDFC

Update on Indian Equity Market:

On Tuesday, NIFTY ended at 17,749 (-0.6%) as it closed near its high at 17,533. Among the sectoral indices, OIL & GAS (+1.3%), PSU BANK (+1.24), and METAL (+0.6%) ended higher, whereas REALTY (-3%), IT (-2.2%), and MEDIA (-1.7%) ended lower. Among the stocks POWERGRID (+4.4%), COALINDIA (+4.2%), and NTPC (+3.74%) led the gainers while BHARTIARTL (-3.7%), TECHM (-3.5%), and BAJFINANCE (-3.3%) led the losers.

Excerpts of an interview with Mr. Keki Mistry, Vice-Chairman and Managing Director of HDFC Ltd (HDFC) with CNBC TV18 on 27th September 2021:

  • Between 2017-2020, demand for housing was largely coming from Tier 2, Tier3 towns or outskirts of big cities but not that much in the center of big cities like Mumbai and Bengaluru.
  • In the last year, people in Mumbai, Delhi, and Bengaluru are buying houses because housing has become very affordable compared to what it has been in the last 20 years.
  • From 2017-20, prices in the center of big cities have remained the same or may have marginally come down. This was complemented by rising income levels of individuals. An average income level of 6-7% a year if compounded on a 3-year basis, gives an approximate increase of 25% against a 0% (virtual) increase in property prices.
  • So, the cost of a house as a multiple of the annual income of a typical customer has become a lot lesser.
  • Mistry believes that structural demand for housing will always remain strong since it is a very under-penetrated market. The factor that points towards a sustained growth of housing in the Indian market apart from increased affordability is a Mortgage-GDP ratio of less than 11%. This ratio ranges between 40-60% in Western countries.
  • Unlike people in the West, Indians prefer buying houses in their late 30s. From a demographic standpoint, two-thirds of India’s population falls in the under-35 age category which will eventually need to buy houses in the next 1-10 years. The average of a first-time buyer in Mumbai is between 37-39 years.
  • The pressure that this sector faced, particularly in big cities like Mumbai, has been quashed because bigger developers took over incomplete projects of smaller developers. But this process takes time because approvals from various authorities need to be obtained.
  • Demand in the industry is muted. Only the reputed developers are seeing traction because customers prefer buying an under-construction property from reputed developers rather than buying the same from a less reputed developer. That is because the risk of a project not getting completed is very little in the case of the former.
  • Collection numbers, from a retail standpoint, are back to pre-covid levels but, the distress that people encountered from April to June might not have gone away completely.
  • These problems are temporary as far as individual NPAs are concerned. He does not believe that the housing finance sector will see any severe loan losses because the security cover is huge and the average loan amount is a small component of the value of the property at origination.
  • The loan to value ratio (loan as a percent of the value of the property) for most lenders is less than 70% which means from day one the individual has a 30% equity in the property upfront.
  • Since all loans are paid equally in monthly installments, this ratio will keep declining every passing month as the installments get paid. Therefore, an individual’s equity in the property keeps rising, and the losses on a housing portfolio of any lender, as long as there is prudent lending, would be almost non-existent to very negligible.

Asset Multiplier Comments

  • The demand from homebuyers is picking up due to subdued interest rates and the government’s push towards the affordable housing segment.
  • Due to a higher focus on individual loans vs non-individual, and a greater share of lending to salaried individuals, HDFC’s loan portfolio did not suffer any major setbacks in terms of asset quality. Moreover, HDFC has a provision buffer in place which is higher than the regulatory requirement.
  • Due to increased demand and low interest rates, rising competition among housing finance companies could exert pressure on interest rates.

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

  • The closing price of HDFC was ₹ 2,802 /- as of 27-Sept-2021. It traded at 5x/4x/4x the consensus BVPS estimate of ₹ 651/703/769 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 3,016/- implies a P/BV multiple of 4x on FY24E BVPS of ₹ 769/-

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 Sep

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Update on the Indian Equity Market:

On Monday, NIFTY closed flat at 17,855. The top gainers in NIFTY50 were MARUTI (+6.4%), M&M (+4.3%), and TATAMOTORS (+4.1%). The top losers were HCLTECH (-4.4%), TECHM (-3.3%), and WIPRO(-3.2%).

The top gaining sectors were AUTO (+3.2%), REALTY (+3.0%), and MEDIA (+1.6%), while the top sectoral losers were IT (-2.9%), HEALTHCARE (-1.3%), and PHARMA (-0.9%).  

Growth of the Indian gaming market to come in the next 4-5 years – Nazara Tech

Edited excerpts of an interview with Mr. Manish Agarwal, Chief Executive Officer, Nazara Technologies (Nazara) with ETNow on 23rd September 2021:

  • Nazara categorizes its consumers based on the age group and all their acquisitions fit in these cohorts. One is 2-12-year-old young kids, 14-25-year-old male sports fans, and then above 25 gamers.
  • Nazara is present in emerging markets like India, South Asia, South Africa, and the Middle East which are seeing a strong tailwind across gaming and adjacencies to gaming.
  • The company’s last acquisition Publishme allows the company to build gaming IPs in the Middle East.
  • Having an on-the-ground understanding of what the consumer needs and how it would pan out in terms of retention engagement, consumer acquisition, and community building are important aspects for the company to succeed.
  • Nazara three years back took a call that gaming is a talent-driven business and that talent is passionate about what they create and you need to work with that talent to grow those companies.
  • Nazara’s telco business which is 15 years old, contributes around 13-14% to the company’s overall portfolio and its acquired IPs are in their growing phase like kiddopia, Nodwins, Sportskeeda, and the World Cricket Championship.
  • The company’s strategy has been to build all the friends of Nazara as a concept and then continue to build value with those founders at subsidiary levels.
  • Gaming as a secular trend was in a very advanced stage even before COVID due to two key reasons i.e launch of Jio and UPI transactions.
  • Pre-pandemic, the company was growing around 48-50% YoY. The combination of acquisition and organic growth helped the company to grow ~87% and continues to see the same momentum of growth in different businesses.
  • India is still 2-4 years old in e-gaming and esports. India’s gaming is still a very small market and is limited to mobile as an access device. The growth of this market is expected to come in the next 3-5 years.
  • It is always important as an industry to look into the markets which are far ahead (seven-eight years ahead) and then work with stakeholders today to ensure creating and evangelising the benefits of gaming.
  • Looking at the risk of gaming, it is predominantly limited to skill-based real money gaming where people are waging their money to win a large part of the money. The non-real money gaming part which is free to play mobile gaming, e-sports, or gamified learning does not fall into this bracket.
  • Clarity regarding the difference between games of chance and games of skill will help to bring clarity to the policy.
  • The company expects National E-sport Championship in the coming time to create a positive perception about gaming. This will take time and can only change through large ticket items like Olympics plus constant engagements with the stakeholders.

Asset Multiplier Comments

  • We believe rising gaming culture, evolving E-sports, improvement in digital payment and tech infrastructure, favorable macro-economic, and demographic drivers in India provide an opportunity for the growth of the company.
  • Nazara has created the entire network through selective acquisitions. This will help to explore the gaming sector boom in India.

 

Consensus Estimate (Source: market screener websites)

  •  The closing price of Nazara Technologies was ₹ 2,280/- as of 27-Sep-21. It traded at 146x/90x/61x the consensus EPS estimate of ₹ 14.7/23.6/35 for FY22E/ FY23E/FY24E respectively.
  • The consensus target price of ₹ 2,060/- implies a PE multiple of 59x on FY24E EPS of ₹ 35/-.

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

 

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25 Sep

This Week in a nutshell (20th Sept to 24th Sept)

Technical talks

NIFTY opened the week on 20th September at 17,444 and closed on 24th September at 17,853. During the week, the index gaining 2.3% and touched a record high of 17,948 during the market hours on 24th September. Nifty is trading at an RSI of 78, with support at 10 DMA of 17565 and resistance at 18,095.

Weekly highlights

  • Evergrande, China’s second-biggest property developer, has US$83.5 million in dollar-bond interest payments due on a US$2 billion offshore bond and a US$47.5 million dollar-bond interest payment due next week. Both bonds would default if Evergrande fails to settle the interest within 30 days of the scheduled payment dates. Chinese authorities are asking local governments to prepare for the potential downfall of the debt-ridden China Evergrande Group.
  • Federal Reserve Chairman Jerome Powell said the U.S. central bank could begin scaling back asset purchases in November 2021 and complete the process by mid-2022, after officials revealed a growing inclination to raise interest rates next year.
  • The Organisation for Economic Co-operation and Development (OECD) has marginally lowered India’s growth projection for the ongoing fiscal to 9.7%, a reduction of 20 basis points (bps), and to 7.9% for the next financial year, down 30 bps from its May-21 forecast, citing pandemic risks.
  • India is planning to set up around 14 gigawatt-hour (GWh) grid-scale battery storage system at the world’s largest renewable energy park at Khavda in Gujarat. This is in addition to a plan to invite bids for the largest global tender for setting up a 13GWh grid-scale battery storage system in Ladakh.
  • On 22nd Sept, the Tamil Nadu government signed a Memorandum of Understanding (MoU) for 24 projects worth ₹ 21.2 bn. M K Stalin, chief minister of Tamil Nadu said the government’s goal is to increase the state’s exports to USD 100 bn by 2030.
  • Tata and Airbus have signed a Rs 220 bn deal for the production of 56 C-295 transport aircraft for the air force. Under the deal, 40 of the 56 planes will be manufactured in India by a consortium of the Airbus Defence and Space and Tata Advanced Systems Limited (TASL) within 10 years of signing the contract, officials said.
  • India is considering an overhaul of its electricity transmission planning to give power companies nationwide unconditional access to the network. The government also proposes to allow states to trade their excess transmission capacities with other states, a senior government official said.
  • The foreign institutional investors (FII) net sold equities worth Rs 84 mn, while domestic institutional investors (DIIs) bought equities worth Rs 30,483 mn.

Things to watch out for next week

  • The stock markets around the globe may remain volatile next week as the investors remain worried that Evergrande’s downfall could affect the creditors such as banks in China and abroad.
  • News of the US Federal Reserve starting to withdraw the monetary stimulus by Nov ’21 and a start of rising interest rates could prove to be negative factors for the markets as it will increase the cost of borrowing for the corporates.

 

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 Sep

We will remain as third private telco, not turning into a PSU – Vodafone Idea

Update on Indian Equity Market:

On Thursday, the benchmark Nifty50 made a record high of 17,844 and closed at 17,823 (+1.6%). BAJAJFINSV (+4.6%), HINDALCO (+4.5%), and LT (+3.7%) led the gainers. HDFCLIFE (-1.1%), DRREDDY (-1.0%), and JSWSTEEL (-0.6%) led the laggards. Among the sectoral indices, REALTY (+8.7%), FINANCIAL SERVICES (+2.3%), and BANK (+2.2%) led the gainers. MEDIA (-1.7%) was the only sector that ended in the red.

Excerpts of an interview with Mr. Ravinder Takkar, MD & CEO, Vodafone Idea (IDEA) published in Business Standard on 23rd September 2021:

  • The recent telecom package suggests the government recognizes the importance of the telecom industry. Also, it recognizes that competition in the industry is important and does not want a monopoly or a duopoly.
  • While the company has always stated it wants to be the third player, there have been questions around its survival. With the reforms, there is no reason to believe that Vodafone Idea will go away and the telecom market will have less than three players.
  • The four-year moratorium on the spectrum and AGR (adjusted gross revenue) dues will allow the company to make investments and continue to focus on the network. Their 4G network covers 1bn people currently and there is a potential opportunity to increase by 100-150mn. The company plans to increase its capacity, provide a great experience and introduce new services by deploying cash saved due to the moratorium.
  • The reforms package has addressed investor concerns and Mr. Takkar believes it’s a great opportunity to get external funding. The funding can come from new investors, existing promoters, or a mix of both.
  • The talks of Vodafone Idea being converted into a PSU or the government having a role in running the company are incorrect. The government wants the management of Vodafone Idea to run it efficiently and competitively.
  • The tariff has been one of the biggest challenges in the industry and pricing has been used as a tool to kill competition, gain market share, and create a scenario of stress.
  • To fix the industry, pricing has to improve and that has been the company’s stance for a long time. The reforms have created the right environment for price increases. Price increases will come soon and it will be gradual so that there isn’t a huge shock for the customers.
  • There are two elements in ARPU (average revenue per user per month) – pricing and customer mix. The difference with the competitor’s ARPU is due to the mix of customers. Vodafone Idea has a higher proportion of 2G customers. As migration from 2G to 4G happens, the ARPU is expected to improve. As pricing in the industry goes up, ARPU will go up for everyone.
  • The ARPU in India needs to increase to ₹ 200 as it was five years ago, and eventually increase to ₹ 300 for the industry to be sustainable.

Asset Multiplier Comments

  • The government’s relief package provides 4 years of moratorium on AGR and spectrum dues which are expected to reduce the payment burden for Vodafone Idea significantly. With the option to convert deferred dues into equity, the worst-case scenario is the company would be owned by the Government, which ensures survival.
  • Though the government’s relief package has provided a much-needed breather for the Company, it has to accelerate capex in 4G to recoup some of the lost market share. Additionally, increasing ARPU would help in strong cash generation.

Consensus Estimate: (Source: market screener website)

  • The closing price of IDEA was ₹ 10.6/- as of 23-Sept-2021. The consensus estimates of loss per share for FY22E/FY23E/FY24E are ₹ 9.2/ 6.8/ 6.0 /-.
  • The consensus target price is ₹ 6.5/-.

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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22 Sep

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Update on the Indian Equity Market:

On Wednesday, NIFTY closed 0.1% lower at 17,547. Top gainers in NIFTY50 were COALINDIA (+3.6%), TECHM (+3.6%), and HINDALCO (+2.7%). The top losers were NESTLEIND (-1.5%), HDFC (-1.4%), and ICICIBANK (-1.2 %). The top gaining sectors were MEDIA (+13.6%), REALTY (+8.5%), and METAL (+1.5%) while the top sectoral losers were FINANCIAL SERVICES (-0.9%), BANK (-0.8%), and PRIVATE BANK (-0.7%).

Will continue to take contingent provisions for Vodafone-Idea – IndusInd bank

Excerpts of an interview with Mr. Sumant Kathpalia, MD & CEO – IndusInd bank (INDUSINDBK), aired on CNBC TV18 on 21st September 2021:

  • INDUSINDBK has planned a credit cost of 160-190 bps for FY22E with an additional 60-70 bps contingent provisions for Vodafone-Idea exposure. Will continue to take extra provision. There have been structural positive developments in case of the industry, but INDUSINDBK will wait for any further action from the Vodafone-Idea promoters before revising/lowering their planned provisions.
  • Collection efficiency in vehicle finance has been improving every month from the June-21 levels. In August, net collection was 97.5%. The bus segment and 3-wheeler segment are impacted due and require restructuring.
  • In the micro finance (MFI) segment, collections have to be looked at state wise. The overall portfolio efficiency is 94% barring states of Kerala, West Bengal, and Orissa that have accessibility issues. MFI will bounce back much stronger in 2HFY22 when covid-19 concerns reduce further.
  • In the vehicle finance book, seeing robust growth in car loans- especially used cars and scooters (90-95% of pre-covid), tractors (140% of pre-covid), construction equipment, LCVs (90-95% of pre-covid), and HCV (70%). Vehicle finance disbursements are almost coming to pre-covid levels (95-97%).
  • INDUSINDBK has been cautious with growth in MFI segment- specifically in Kerala, West Bengal, and Orissa and overall disbursement is at 70-80% of pre-covid levels.
  • On the non-vehicle side the bank is seeing growth coming back in loan against property LAP, MSME, commercial banking, and working capital.
  • In 1QFY22 loan book declined QoQ, whereas, management expects 2QFY22E to have some growth, but real growth will come in 2HFY22E.
  • FY22E exit growth in advances should be in double digits.
  • Within the corporate book, large corporates are seeing public sector spending but private sector capex has not taken off as expected, while working capital growth is robust. On the commercial side, there is deleveraging happening, while MSME is showing robust growth.
  • FY22E NIMs should be in the range of 4.15% to 4.25%. NIMs in 1QFY22 were 4.06% due to excess liquidity, and that will continue in 2QFY22E.
  • INDUSIND’s PPOP (Pre-provisioning Operating Profit) will continue to be be 5%+.
  • GNPA should remain within range of 2.6%-2.7% GNPA, and begin to reduce gradually, NPA should remain in range of 0.75%-0.84%
  • Restructuring book will increase in 2QFY22E as some vehicle finance segments need an extension in repayment.

Asset Multiplier comments:

  • Vehicle segments of buses and 3 wheelers have been impacted due to lower demand as schools, colleges and many offices are still shut. 3-wheeler drivers depend on the daily income and hence find it difficult to service loans when the requirement of 3-wheelere is lesser. Lending institutions across board are seeing asset quality issues in the vehicle finance space.
  • Corporate growth trends remain to be seen as there has been an increased focus on balance sheet strengthening across industries. Higher deleveraging and investing from internal cash flows could lead to lower corporate loan book growth for lenders.

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

  • The closing price of INDUSINDBK was ₹ 1,143/- as of 22-September-2021.  It traded at 1.9x/1.6x/1.4x the consensus BVPS estimate of ₹ 615/693/804 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 1,139/- which trades at 1.4x the BVPS estimate for FY24E of ₹ 804/-

 

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 Sep

Focusing on expanding ‘ready to eat’ product portfolio- Tata Consumer Products

Update on Indian Equity Market:

On Tuesday, the benchmark Nifty 50 index ended at a record closing of 17,562 (+0.9%). The top gainers on the index were JSWSTEEL (+6.0%), ONGC (+5.2%), and BAJAJFINANCE (+5.1%). The laggards were led by MARUTI (-2.5%), BPCL (-1.47%), and HEROMOTOCO (-1.2%). Among the sectoral indices, REALTY (+3.6%), METAL (+2.6%), and IT (+1.9%) led the gainers while AUTO (-0.5%), CONSUMER DURABLES (-0.2%), and PSU (-0.1%), led the losers.

Excerpts of an interview with Mr. Sunil D’Souza, MD & CEO, Tata Consumer Products on 20 September 2021 with Economic Times:

  • Tata Consumer is seeing a month-over-month recovery in its packaged and out-of-home businesses on the back of higher consumer confidence and people venturing out. Packaged and out-of-home businesses are expected to recover to pre-pandemic levels.
  • Tata Consumer translates about 75% of their costs into the price. As the curve on cost starts coming down, margins will improve. The improvement will be visible on a quarter-on-quarter basis which is already visible in Q1FY22 vs Q4FY21.
  • The company is committed to delivering double-digit growth through portfolio growth, brand strengthening, and cost synergies. The company will maintain a tight focus on costs. This strong top-line growth will be driven by portfolio mix, pricing power, market share, cost reduction which then will translate into the bottom line.
  • Tea prices in September-20 were roughly 70% – 80% higher than September-19 during the disruption. As things settled down tea prices declined. The second spike in tea prices was observed in June-21.
  • Tea is a big part of the business; the company expects a gradual shift from unbranded to branded tea on the back of rising consumer income. In India, over 30-40% of the tea is unbranded. They aim to double their direct reach in 12 months and indirect reach in 36 months. They are on track to deliver of doubling their reach in 12 months. By end of September 2021, the company will be north of a million outlets covering directly.
  • The company has increased focus on brand strengthening by increasing ad & promotion expenditure by 50% YOY in 1QFY21 creating consumer pull towards the brands.
  • The company has initiated a series of launches with the most recent being Chakra Care and Gold care.
  • Tata Sampann products offer quality nutrition for which they are priced at a premium, providing a good price-value equation to the consumer.
  • Currently, the share of ‘ready to eat products’ is 5% of the revenue. As Convenience is a huge factor, Tata Consumer is looking forward to expanding their ‘ready to eat’ product portfolio by launching differentiated products in the organic and inorganic categories.
  • Tata consumer bought Soulfull as there is a huge opportunity to expand it. Soullfull has a great brand built and they have mastered how to treat millets and make great products out of millets. After the acquisition, the number of outlets that they used to service has increased to 50,000 from 10,000 outlets.
  • E-commerce sales were 2.5% of the total revenue pre-pandemic which grew to 5% in Mar-21 and 7% in June-21.
  • The company has launched its flagship stores in Mumbai and Delhi. They are trying to perfect the whole mix. Once they perfect it they’ll launch it across India.
  • In FY21 Starbucks added equal number of outlets as in FY20 and expects to continue the momentum. They were severely impacted by both the waves during the pandemic. However, the last 2 months were better and the company is already starting to see growth beyond pre-pandemic.

Asset Multiplier Comments

  • Tata consumer has been expanding into different FMCG segments with differentiated premium products giving it an advantage over its competitors.
  • A strong digital presence and product customization to meet the demands of diverse geographies will fuel future revenue development in the coming years.

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

  • The closing price of Tata Consumer Products was ₹ 860/- as of 21-Sept-2021. It traded at 72x/61x/48x the consensus EPS estimate of ₹ 12/14/18 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 779/- implies a PE multiple of 43x on FY23E EPS of ₹18/-

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

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20 Sep

Expect attrition rate to get a little worse before improving – Happiest Minds Technologies

Update on Indian Equity Market:

On Monday, NIFTY ended at 17,397 (-1.07%). Among the sectoral indices, FMCG (+0.9%) was the only sector that ended higher, whereas Metal (-6.6%), PSU Bank (-4.2%), and Realty (-2.10%) ended lower. Among the stocks HUL (+2.9%), Bajaj Finserv (+1.1%), and ITC (+0.8%) led the gainers while Tata Steel (-10%), JSW Steel (-7.7%), and Hindalco (-6.1%) led the losers.

Excerpts of an interview with Mr. Venkatraman Narayanan (MD & CFO) and Mr. Joseph Anantharaju (Executive VC) with CNBC TV18 on 17th September 2021:

  • The demand scenario has only got better from where they are at the end of the first quarter. Things are looking very well for customer additions and the growth of existing customers. So, demand is looking good.
  • On the supply side they said, the supply situation is not as good, but they are managing to hold on with employee net additions of about 300 in the first quarter. They are trying to keep similar numbers for the next three to four quarters.
  • Most verticals that they are operating in seem to be showing strong demand growth with customers initiating or implementing digital transformation initiatives. A few of them should be a little ahead or having spent more, like edutech which continues to be strong for them. In high tech and retail they are seeing a good spend with the whole e-commerce move. They are seeing some initiatives in digital media as well.
  • They further said, in terms of technologies, the cloud is almost a done deal now. Most of their clients are operating on the cloud, and a lot of work is happening around leveraging artificial intelligence and analytics.
  • One thing they have noticed in the last few months is that more clients are looking at more automation. They have seen a strong uptick in automation as well, from a technology angle.
  • On attrition, they said things are going to get a little bit worse and then start improving. As there is always a slow build-up when it comes to attrition. People move out looking for new opportunities but the company keeps adding and backfilling the opened positions.
  • So demand was increasing but along with supply-side affected due to high attrition rate that’s why it is likely to get worse. The attrition rate was 15% in last quarter it will increase and then they will stabilise it over some time.
  • On margins, they said the sustainable margins should be in the range of about 22% to 24%.

 

Asset Multiplier Comments

  • The IT sector is witnessing a high attrition and there is a talent war among the competitors, which might affect the margins. The companies are trying to decrease the attrition rates which might help in margin expansion in the medium term.
  • Happiest Minds is seeing healthy demand and is targeting industry leading growth in the medium to long term.
  • The company also has a strong demand growth in verticals that they are operating.

Consensus Estimate: (Source: market screener website)

  • The closing price of Happiest Minds was ₹ 1,491/- as on 20-Sept-2021. It traded at 113x/ 90x/ 78x the consensus EPS estimate of ₹ 13.2/ ₹16.5/ ₹19.1 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 1,155/- implies a PE multiple of 60x on FY24E EPS of ₹19.1/-

 

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 Happiest minds, IT 0 Comments Read more...
19 Sep

This Week in a nutshell (Sep 13th to Sep 17th)

This Week in a nutshell (Sep 13th to Sep 17th)

Technical talks

NIFTY opened the week on 13th Sep at 17,365 and closed on 17th Sep at 17,585. During the week, the index hit record highs, gaining 1.2 percent and saw a bullish candle formation on the weekly scale. At the current juncture, support for Nifty is placed at 17,430 and 17,250 zone, while resistance can be seen around 18,111 levels.

On the sectoral front, Nifty Media index outperformed other indices with a gain of over 13 percent and PSU Bank index rose 5 percent. On the other hand, Nifty Metal and Realty indices fell 1 percent each.

Weekly highlights

  • The week started with economic data:
    • Consumer Price Index-based Inflation (CPI) for Aug-21 came in at 5.3 percent, compared with 5.6 percent in July-21.
    • Food prices cooled further, especially in the case of vegetable inflation; data released by the National Statistical Office (NSO) showed.
    • Consumer Food Price Inflation (CFPI) for Aug-21 stood at 3.1 percent compared to 3.9 percent in Jul-21. However, concerns remained with high edible oil prices, which registered an increase of 33 percent YoY.
    • The wholesale price-based inflation rose marginally to 11.4 percent in Aug-21, mainly due to higher prices of manufactured goods, even as prices of food articles softened.
    • India’s exports rose by ~45.8 percent YoY to $33.3 bn in August and imports increased by 51.7 percent YoY to $47.1 bn, according to commerce ministry data released on Tuesday.
  • An inter-ministerial task force comprising representatives from the Commerce, Railways and Shipping ministries looked to initiate several short-term actions to make more containers available to exporters and cushion prices that have gone up by 200-300 percent YoY.
  • With low number of cases and increasing vaccination drives, the economic activities normalised. Domestic air passenger traffic surged 33.8 percent MoM in Aug-21, more than doubled when compared to the same month in the past year, the aviation sector regulator said.
  • Finance Minister Nirmala Sitharaman on Thursday announced that the Cabinet has cleared the formation of a ‘bad bank’. The government will guarantee up to Rs 306 bn for security receipts issued by the National Asset Reconstruction Company (NARCL).
  • Inflation in India is likely to ease only gradually, Reserve Bank of India Deputy Governor Michael Patra said on Thursday, adding that the outlook on growth and inflation will help determine the future course of monetary policy.
  • Positive economic data and government reforms in telecom, banking and automobile sectors helped boost market sentiments. The banking sector, which underperformed till now, came into its own during the week.
  • Wall street on the other hand started strongly but lost ground later as economic uncertainties and the increasing likelihood of a corporate tax rate hike dampened investor sentiment and prompted a broad sell-off despite signs of easing inflation.
  • US consumer prices rose a lower-than-expected 0.3 percent in Aug-21, the smallest increase in seven months and a hopeful sign that inflation pressures may be cooling.
  • Oil prices steadied at the end of the week as the threat to US Gulf crude production from Hurricane Nicholas receded.
  • The foreign institutional investors (FII) bought equities worth of Rs 65,455 mn, while domestic institutional investors (DIIs) sold equities worth of Rs 22,925 mn.

Things to watch out for next week

  • Nervousness would be seen in the market next week ahead of Federal Reserve and ECB meeting, which could provide some indications on when the central banks will start withdrawing their monetary stimulus and start raising interest rates eventually.
  • With weak US job data and inflation increasing at a slower pace, Fed is not expected to hint on taper plans in the upcoming meeting.
  • The weak global cues on account of worry over slower economic growth and rising Delta variant cases globally would keep market oscillating between greed and fear.

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 Sep

Semiconductor shortage to persist – Motherson Sumi

Update on Indian Equity Market:
On Thursday, markets ended on a high with Nifty closing 110 points higher to close at 17,630. INDUSINDBK (+7.3%), ITC (+6.6%), and SBI (+4.5%) were the top gainers on the index while GRASIM (-1.8%), BHARTIARTL (-1.3%), and TCS (-1.3%) were the top losers for the day. Among the sectoral indices PSU BANK (+5.4%), PRIVATE BANK (+2.7%), and BANK (+2.2%) were the top gainers, while MEDIA (-1.7%), METALS (-0.6%), and IT (-0.6%) were laggards.

Excerpts of the Interview with Mr VC Sehgal, Chairman of Motherson Sumi with CNBCTV18, dated 15th September 2021:

A lot of struggling semiconductors manufacturers are coming back on stream. However, with the uncertainty and guidance from manufacturers, the company expects this issue to persist beyond Q2CY22.
The sophistication required and the manufacturing processes of these semiconductor chips are extremely complex, the current structural barriers faced by these manufacturers can’t be removed overnight.
Demand has picked up for the entire sector, however, there’s a rise in inventory for OEMs as manufacturers wait for semiconductors to be supplied to complete the production and deliver the automobiles.
OEMs like Motherson Sumi are agnostic towards the engine that is fitted into the automobile, whether EV or ICE. However, the shift towards EV is value accretive for the company.
PLI scheme is more focused on technology transfer and development than actual production, however, these schemes coupled with the EV push by the government will result in robust demand for OEMs.
Raw Material price hikes and other margin pressures are a function of cycles and thus the company is not planning to take any aggressive steps to counter it. Right now the focus is only on delivering on the pent-up demand as fast as possible.

Asset Multiplier Comments:
Semiconductor shortage is an issue that’s going to persist for the upcoming quarters and is universal. The Auto and Ancillary Sector has to bear the brunt until things get better.
Motherson Sumi by the virtue of its product portfolio is indifferent to the ICE/EV competition, thus it is better placed for robust growth ahead once the supply side issues subside.

Consensus Estimates (Source: market screener website):
The closing price of Motherson Sumi was ₹224/- as of 16-September-2021. It traded at 32x/20x/17x the EPS estimate of ₹ 7/₹ 11/₹ 13 for FY22E/23E/24E
The consensus price target is ₹ 256/- which trades at 19x the EPS estimate for FY24E of ₹13/-
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 Sep

Expects volumes to beat industry growth by 10% – JK CEMENT

Update on Indian Equity Market:

On Wednesday, NIFTY ended at 17,519 (+0.8%) as it closed near its high at 17,533. Among the sectoral indices, PSU BANK (+2.8%), CONSUMER DURABLES (+1.0%), and AUTO (+0.9%) ended higher, whereas MEDIA (-1.6%) ended lower. Among the stocks NTPC (+7.5%), BHARTIARTL (+4.8%), and COALINDIA (+4.0%) led the gainers while TATACONSUM (-1.0%), NESTLEIND (-0.6%), and GRASIM (-0.5%) led the losers.

Excerpts of an interview with Mr. Rajneesh Kapoor, Chief Operating Officer, JK Cement (JKCEMENT) with CNBC TV18 on 12th September 2021:

  • JKCEMENT saw an average price decline of 3-4% across all regions in India excluding the East. Traditionally, August is a time where prices drop as a result of peak monsoons. JKCEMENT expects this sentiment to continue in the month of September as well.
  • However, this year’s August was slightly different as the company saw the highest volumes in terms of market demand in FY22 and Kapoor expects this trend to continue hereafter.
  • Volumes in Q3FY22 and Q4FY22 are going to be really good as a result of an increase in capacity utilization hence, there could be an uptick in prices in October and November as the monsoon starts receding. September could see a price uptick of 1.2%.
  • Demand has been healthy across all regions in the country amounting to 40-50% on a year-to-date basis. However, the prices at this point of time are marginally below on a Y-o-Y basis as compared to last year.
  • The real challenge that the industry faces today is in terms of cost. US Petcoke which used to be imported at a rate of 74$ to 78$ per ton is currently trading at 190$ per ton. This problem gets complemented by the scarcity of coal not only in India but also in international markets. China has stopped coal production for safety reasons and Indonesia, also a big supplier has peak monsoons which is why coal supplies have gone down. As a result, fuel cost has increased close to 100%.
  • Going forward, the price increase is going to be a necessity and this could take place post-monsoon.
  • In terms of volumes, JKCEMENT expects good growth because of capacity growth in FY20. Mr. Kapoor expects JKCEMENT to be 10 percent ahead of the market.
  • Capacity addition highlights: Capacity expansion at Panna, Madhya Pradesh is progressing as per the schedule and is expected to be commissioned by Mar-23.

Asset Multiplier Comments

  • The construction business is expected to resume its pace after the monsoon recedes and hence the demand for cement could go up.
  • JKCEMENT has decided to do several capacity expansions and up-gradation of its existing kilns.
  • These could contribute in increasing JKCEMENT’s market share and revenues.

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

  • The closing price of JKCEMENT was ₹ 3395 /- as on 15-Sept-2021. It traded at 28x/25x the consensus EPS estimate of ₹ 123/138 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 3,429/- implies a PE multiple of 25x on FY23E EPS of ₹138/-

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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