17 Jul

This Week in a nutshell (July 12th to July 16th)

Technical talks

NIFTY opened the week on 12th July at 15,767 and closed on 16th July at 15,923. The index made a gain of 0.9% this week. On the downside, 10DMA of 15,816 might act as a support. Flat RSI (62) suggests a consolidation before making a strong move on either side.

Weekly highlights

  • The market started the week on a positive note but erased intraday gains as key inflation data was released.
  • Consumer Price Index-based inflation (CPI) for the month of June rose 6.3 percent, as food prices hardened further, and transportation costs rose due to higher petrol and diesel prices.
  • Food inflation (CFPI) came in at ~5.2 percent in June, compared with ~5.0 percent in May, as food prices continued to remain inflated, official data by the National Statistical Office showed on July 12.
  • Most of the IT companies reported this week with strong numbers and also increased the revenue guidance for FY22 leading Nifty to hit fresh highs. NIFTY IT was up 2.6% this week followed by NIFTY PHARMA (+1.9%) and NIFTY PRIVATE BANK (+1.8%).
  • Positive global cues, rally in IT stocks, comments from the US Federal Reserve and rally in banks pushed the benchmarks to record high. However, profit booking at all-time high levels pushed benchmark indices lower as they snapped the three-day winning run-on Friday. IT stocks saw intense selling while banks also contributed to the fall.
  • Nasdaq and the S&P 500 were hitting record highs at the beginning of the week as investors awaited the start of the second-quarter earnings season and a batch of economic data to gauge the next leg of the equity market. But the rally was short-lived as the biggest hike in U.S. inflation in 13 years rattled investors who fear rising interest rates could end a stock market rally that has doubled prices from 2020 lows.
  • Federal Reserve Chair Jerome Powell commented that US monetary policy will offer powerful support to the economy until the recovery is complete and the pace of price increases will likely remain elevated in coming months before moderating. The language indicated that he saw no need to rush the shift towards post-pandemic policy. Long-term inflation expectations, remained consistent with the Fed’s 2% inflation target.
  • Post comment the US indices fell as a rally in growth stocks ran out of steam even though US unemployment claims fell to 3,60,000 which is the its lowest level since the pandemic struck last year and strengthened views about a recovery in the labor market.
  • Late Thursday, Treasury Secretary Janet Yellen warned that prices could continue to rise for several more months, expects inflation to reach normal levels in medium term and to keep a careful eye on it.
  • The stock market was falling Friday following Yellen’s comments on inflation and snapped a three-week winning streak. All three major indexes notched weekly losses. The S&P 500 and Dow shed 1% and 0.5%, respectively. The Nasdaq fell 1.9%.
  • The foreign institutional investors (FII) sold Rs 15,350 mn worth of Indian equity shares in the week. Domestic institutional investors (DII) undertook Rs 21,000 mn of net buying during this week.

Things to watch out for next week

  • Next week, investors’ focus will largely be dominated by the quarterly results. As in half of the duration of the June quarter, the economy was in a lockdown, investors will look beyond the earnings print or just the quantitative number and focus on the qualitative commentary provided by management.

 

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15 Jul

Double-Digit revenue growth expected in FY22 – Mindtree

Update on Indian Equity Market:

On Thursday, markets ended higher with Nifty closing 70 points to close at 15,924. HCLTECH (+5.0%), L&T (+3.7%), WIPRO (+3.0%) were the top gainers on the index while ONGC (-3.0%), EICHERMOT (-1.3%) and BHARTIARTL (-0.9%) were the top losers for the day. Among the sectoral indices,  REALTY (+4.2%), IT (+1.3%), and BANK (+0.7%) were top gainers, while AUTO (-0.4%), MEDIA (-0.4%), and PSUBANK (-0.3%) were the losers.

Excerpts of an interview with Debashis Chatterjee, MD, and CEO of Mindtree on CNBCTV18 dated 14th July 2021:

  • Robust Deal Pipeline and order book growth was seen and more renewals led to an increase in the scope of the value of the deals and the new deal wins have been characterised by multi-year long-term deals and not just project-based deals.
  • The company’s strategy of 4x4x4 across 4 of its major service lines is helping the company cross-sell and upsell a lot of the services in the existing deals in its 4 service lines of Customer Service, Data Analytics, Cloud Management, and Enterprise IT.
  • The company has guided for double-digit revenue growth of around 20% and improved EBIT margins in FY22. It hopes to achieve this as a result of the foundational changes in cost efficiencies it has done over the last 2-3 years.
  • Quarter specific and client specific headwinds may occur on the margins front. With the opening up of client businesses and increase in revenue growth aided discretionary spending, the company expects a topline growth as well.
  • The company is rolling a subsequent wage hike in Q2FY22 to deal with high levels of attrition currently faced by the industry. The company plans to undertake significant outreach programs with its personnel to manage attrition.
  • BFSI is seeing significant revival and the company expects its client base and deal wins to grow over the next few quarters after covid-induced consolidations. As far as the Travel Sector is concerned the effects of the pandemic are still looming. Full recovery may take some quarters, new contactless business models may help the company with new deal wins as the clients reimagine their business models.

Asset Multiplier Comments:

  • All Indian IT companies are enjoying the tailwinds arising out of the pandemic. Mindtree is well poised to grow further due to growth in upcoming technologies.
  • The Company is making efforts to deal with the issue of rising attrition. The rising attrition is a result of a talent war in the Indian IT Industry due to the low supply of skilled professionals.

Consensus Estimates (Source: market screener website): 

  • The closing price of Mindtree was ₹ 2,732/- as of 15-July-2021.  It traded at 33x/30x/25x the EPS estimate of ₹ 84/ ₹ 92/ ₹ 108 for FY22E/23E/24E respectively.
  • The consensus price target is ₹ 2,830/- which trades at 26x the EPS estimate for FY24E of ₹ 108/-

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

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14 Jul

Not very concerned about 3rd wave impact on biz– Dabur India

Update on the Indian Equity Market:

On Wednesday, NIFTY ended marginally higher at 15,809 (+0.3%) as it could not sustain the intraday higher levels. Among the sectoral indices, IT (+3.2%), PHARMA (+0.3%), and MEDIA (+0.2%) ended higher while REALTY (-1%), PSU BANK (-0.5%), and AUTO (-0.3%) led the losers. Among the stocks, WIPRO (+7%), TECHM (+2.6%), and INFY (+2.1%) led the gainers while MARUTI (-1.4%), ADANIPORTS (-1%), and HINDUNILVR (-1%) led the losers. 

Excerpts of an interview with Mr. Mohit Malhotra, CEO of Dabur India (DABUR) published in Business Standard on 14th July 2021:

  • Share of Dabur’s healthcare portfolio went up to 45 percent from 30 percent and essentials like oral did well, while the share of skincare, hair oil, and foods shrank. 
  • Being well aware that the discretionary portfolio may not do well, the company has diversified into areas like edible oil and launched several other products.
  • The inflation has increased the input costs by 5-6 percent as it has hit the entire bucket of the business. 
  • The company has taken a 3 percent price hike and initiated cost optimisation measures. The company has planned to cut down Rs 1000 mn worth of costs in FY22, which won’t be enough. The pressure on operating margin can’t be ruled out till the December quarter.
  • Sales through e-commerce channels have grown to 8 percent from 2 percent before Covid. In FY21, in spite of travel restrictions, Dabur earned 6 percent of the sales through e-commerce.
  • The company has begun construction of their eighth plant, in Madhya Pradesh at an estimated cost of Rs 5,500 mn to meet current and future demand, taking advantage of the incentives provided by the government under its ‘Atmanirbhar Bharat’ program. The plant will help the company meet the demand for the next 10-12 years.
  • Earlier, the company was spending 5-6 percent on advertising through digital media, but now the company is putting 25 percent of its budget into digital. Last year, the company increased its media spending, but now it has cut it down to 8-10 percent of sales as growing costs are a threat.

Asset Multiplier Comments

  • People being eager to go back to offices and as the government has ramped up vaccination, it seems that the impact of the 3rd covid wave may not be as severe on the operations of Dabur as the second wave.
  • The increase in demand for health and wellness products is expected to continue post-Covid. The increase in market penetration of these products bodes well for Dabur.

Consensus Estimate: (Source: market screener website)

  • The closing price of DABUR was ₹ 586/- as of 14-July-2021.  It traded at 56x/ 49x the consensus earnings estimate of ₹ 10.5/ 12.1 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 590/- implies a PE multiple of 49x on FY23E Earnings of ₹ 12.1/-.

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.”

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13 Jul

Confident of delivering 16-18% CC revenue growth in FY22 – Vaibhav Global

Update on the Indian Equity Market:

On Tuesday, NIFTY closed up at 15,805 (+0.7%). Top gainers in NIFTY50 were ICICI Bank (+2.7%), HDFC (+2.6%), and Grasim (+2.6%). The top losers were Adani Ports (-2.0%), Dr Reddy (-1.1%), and HCLT (-0.9%). The top sectoral gainers were FIN SERVICES (+1.4%), PVT BANK (+1.3%) and BANK (+1.2%) and sectoral losers were MEDIA (-0.6%), IT (-0.3%) and FMCG (-0.2%).

Excerpts of an interview with Mr Vineet Ganeriwala, Group CFO, Vaibhav Global (VAIBHAVGBL) with ET Now dated 12th July 2021

  • In FY21, they grew their unique customer base by about 39% and reached the half-million mark. A part of it was induced by the pandemic. A lot of people were at home and there was high TV viewership and heightened web traffic throughout last year.
  • Their business model is such that it works in all kinds of economic cycles. They have been working on it, expanding their product portfolios, and are getting good traction by retaining old customers and getting new customers on board.
  • When the economies open up, some softening might be seen in certain periods but they are pretty confident of delivering their guidance to the market which is 16% to 18% constant currency revenue growth for FY22.
  • They are an omnichannel player. They sell via TV as well as the web. They are present in marketplaces like Amazon, eBay, etc. They use all kinds of social platforms — Facebook, Instagram, etc. This unique positioning gives a fantastic shopping experience to their customers, a high recall value, and the value positioning which they command.
  • Talking about the TV viewership, he said pay-TV may see a decline in the next few years. The decline in TV viewership of their customer demographics (above 45-50 years) is very low.
  • While the pay-TV decline is seen in the US, at the same time, over the air (OTA) moves are growing. From 13 million homes, maybe seven years back now the OTA which is free-to-air homes in the US has already crossed 20 million. They are constantly increasing their presence there.
  • In the new age stream of OTT, they are consciously investing and are increasing their presence there as well. They recently revamped their Roku app and tied it up with YouTube. They are present in almost all prominent digital, OTT, and streaming devices.
  • While they gave guidance of 16-18% constant currency growth in FY22, they gave guidance of 15-17% for the medium and long term as well.
  • While they will keep working on increasing their market share in the US and the UK, the B2C revenue has been growing at a CAGR of 16% for the last six years. Still, they have a market share of about 2.5-3%. Even in these two geographies, they are pretty confident of increasing the market share there.
  • They announced their German company in January this year. Their team is physically there in Germany already. Their website is already launched in Germany. TV is already live in their partner studio. Their studio which is under construction will be live in a few days. They are pretty excited about the German venture.
  • Part of the growth will come from the US and the UK; part of the growth will come from newer geographies like Germany. Once they stabilize and operationalize the German operation, they would look into other geographies like Japan.
  • They will keep the cash on the balance sheet. They want to build a kitty for the future, both organic and inorganic opportunities. They plan to invest about US$2 million of capex in rolling out the German business this year and similar other organic opportunities for plans as well. Otherwise, they will look at any inorganic opportunities which come their way.
  • Their inventory in terms of holding number days has been going down in the last 2-3 years. in March-20, they had about $60 million of inventory. In terms of the number of days of sales gone down by about 20% year-on-year. While the absolute number might have increased slightly, the sales growth has been much faster.
  • Being a regional supply chain player, in case of any transit delays, they are able to procure material from other countries and even procure locally from the US and the UK. To that extent, their operations are very smooth and they do not see any challenge on that front.
  • As a result of a delay some transient inventory would shoot up in the 2QFY22 but that would be a timing difference. As soon as the shipment situation improves, they will bring that down like they did last year.

Asset Multiplier comments:

  • We believe that the company has good growth prospects due to its presence in different geographies. Also, presence in both B2B and B2C will drive the growth faster.
  • consumer attention is constantly shifting. So, their omnichannel presence strengthens their positioning in the industry.

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

  • The closing price of VAIBHAVGBL was ₹ 813/- as of 13-July-2021. It is trading at 54x FY21 EPS of Rs 15.
  • Consensus estimates are not available for VAIBHAVGBL.

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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12 Jul

Witnessed 70% QoQ revenue growth in July 21 – Lemon Tree Hotels

 Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,789 (+0.02%). Among the sectoral indices, Realty (+3.2%), PVT Bank (+0.4%), and Bank (+0.4%) closed higher. IT (-0.5%), Metal (-0.2%), and Media (-0.2%) closed in the red. Ultra tech (+2.5%), Grasim (+2.3%), and Shree cement (+1.9%) were the top gainers. Adani Ports (-1.5%), BPCL (-1.4%), and Bharti Airtel (-1.2%) were among the top losers.

Excerpts of an interview of Mr Patanjali Keswani, Chairman and MD, Lemon Tree Hotels with CNBC-TV18 dated 7th July 2021:

  • On the current situation, Mr Keswani said the demand started picking up from 4QFY21.
  • The hotels were earning up to 50% of pre-Covid levels on a month-on-month basis.
  • The occupancy witnessed a decline in the month of April 21 and by the month of May, witnessed the lowest occupancy level for the sector as well. This was led by localized lockdowns and fear of travelling.
  • In June, there was a pickup in demand. For the Company, the occupancy was higher than 50%. Lemon tree hotels witnessed a 70% revenue growth in July 21 on an MoM basis.
  • Speaking about business hotels, which is 80% of the total inventory for Lemon Tree. They are doing well.
  • On newly opened, Aurika which is a deluxe hotel in Udaipur, he said the occupancy is 80-90%.
  • He said 3QFY22E looks promising led by the inquiries that are coming. 4QFY22E is expected to be a normal quarter.
  • He said the debt is at comfort levels. The earning capacity of additional rooms has not been utilized, once things normalize the additional rooms will start contributing.

Asset Multiplier comments:

  • We believe postponed weddings in 1QFY22 might lead to higher demand in 2QFY22E. This might further increase the occupancy rate of hotels.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Lemon Tree Hotels Ltd was ₹ 43 as of 07-July 2021.  It traded at 143x the consensus earnings per share estimate of ₹ 0.3/- for FY23E. The Company is expected to report a loss of ₹ 1/- per share.
  • The consensus average target price is ₹ 45/- which implies a PE multiple of 150x on FY23E EPS of 0.3/-.

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 Jul

This week in a nutshell (5th – 9th July)

Technical talks

NIFTY opened the week on 5th July at 15,793 and closed on 9th July at 15,690. The index made a loss of 0.6% this week. On the upside, 20DMA of 15766 might act as a resistance and on the downside, 50DMA of 15,416 might act as a support. RSI (51) trending downwards suggests a further downside hereon.

Weekly highlights

  • The government’s GST collection for the month of June was Rs 928bn, below the Rs 1000bn for the first time in eight months as the Covid-19 second wave stalled the economic activities. With most of the country under partial/full lockdowns in May, a fewer number of e-way bills were generated. The GST data for June pertains to business transactions made in May. With the easing of restrictions, there could be an improvement in the GST collections for the month of July.
  • Post the Union Cabinet reshuffle on Wednesday, the new Health Minister, Mansukh Mandaviya announced a ₹ 231bn financial package for improving the health infrastructure in the country. Under the new package, the Centre would provide ₹ 150bn and the states ₹ 80bn. The plan would be implemented jointly by them to improve medical infrastructure at primary and district health centers. The plan aims to accelerate health system preparedness for immediate responsiveness for early prevention, detection, and management of Covid-19 with a focus on infrastructure development.
  • The Organization of the Petroleum Exporting Countries (OPEC) producers canceled a meeting when major players were unable to come to an agreement to increase supply. The producers abandoned talks after negotiations failed to close the division between Saudi Arabia, and United Arab Emirates. This news pushed Brent Oil and West Texas Intermediate oil prices to levels not seen since 2018 and 2014 respectively. After a volatile week, Brent Oil futures settled at US$ 75.6 per barrel and WTI futures settled at US$ 74.6 per barrel (As on 10-07-21).
  • The monthly life insurance premium data was released by the IRDAI. There was a pickup in the business acquisition in Jun-21 with the easing of lockdowns. The new business premium (NBP) which indicates premium acquired from new policies in a particular year rose ~4% YoY. Private insurers have led the growth in NBP, reporting ~34% growth YoY. The insurance companies have adapted to the changing needs of customers and improved their digital infrastructure which is a positive.
  • Though the foreign institutional investors’ (FII) selling continued this week, the quantum was much lower at Rs 20,277mn vs Rs 54,168mn last week. Domestic institutional investors (DII) buying reduced to Rs 896mn from the Rs 64,174 mn in the previous week.

Things to watch out for next week

  • The 1QFY22 result season has already started with TCS being the first company that reported earnings this week. The result season continues next week with Mindtree, Infosys, and Wipro set to announce their earnings.
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10 Jul

2021 : Returns in the first half

Jon writes on his blog that for the most part, markets in 2021 have shown continued improvement on last year. In fact, the worst place to have money so far this year is cash. The U.S. and the broader international and emerging market indexes are positive year to date.

Investing in a world where everything seems to be working out — except “safe” bonds and cash — it can be tempting to tweak your portfolio. Why not move that money earning nothing into something much better? After the last six months, and the six months prior to that, Jon bets a lot of people are thinking exactly that. When thoughts like that pop into your head it’s always worth asking yourself a few questions.

First, am I taking enough risk to meet my goals? Building a portfolio is not an exact science. Uncertainty around the future makes that impossible. But it’s certainly plausible that some investors are taking less risk than they can handle. If you have less money in stocks than you’re comfortable with, can handle more risk and volatility, then maybe a change is warranted.

However, the alternative should also be considered. If you have more money in stocks than you’re comfortable with, reducing your exposure might be warranted. Successful investing has never been about getting the highest return this year. It’s about getting the best long-term return at risk you’re comfortable taking.

Second, am I making changes because I feel like I’m missing out? FOMO (Fear Of Missing Out) sucks. It gets a lot of investors into trouble. Frankly, the returns other people and/or asset classes are earning in the market are irrelevant to what you’re trying to accomplish. If your portfolio is sound and doing what it’s set out to do, whatever is going on outside of that is a distraction. Ignore it. Far too many investors shoot themselves in the foot trying to chase returns.

Finally, it’s always good to ask what if I’m wrong? The correct answer is you lose money. Are you comfortable with that potential outcome? A sound portfolio is built with this question in mind. It also happens to be the last question anyone asks when markets are rising and everyone’s optimistic and appears to be making money. Much like today!

The heightened speculation that emerged in 2020, spilt into this year, and is ongoing. There are a lot of “brilliant” investors around more than willing to show off their quarterly gains. It’ll be interesting to see how long that lasts.

Jon concludes that when everyone’s optimistic and few think they can lose money, getting rich quick becomes the strategy du jour. Many will eventually figure out it has one tremendous downside. You lose everything. Until then hopes and dreams are driving pockets of the market for now.

 

For Indian Investors, it is perhaps time to look beyond the local market

Asset Class % Total returns Q1 Q2 1H 2021
India 5.18 7.01 12.55
S&P 500 US 6.17 8.55 15.25
US IT sector 1.97 11.56 13.76
US Financials 15.99 8.36 25.69
US Healthcare 3.18 8.4 11.85

 

Based on MSCI Index Dollar returns

Source: https://novelinvestor.com/

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08 Jul

Decline in palm oil prices is a positive–Godrej Consumer Products

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 1% down at 15,728. Top gainers in NIFTY50 were TECHM(+1.4%), SBILIFE (+0.9%), and EICHERMOT (+0.8%). The top losers were TATAMOTORS (-3.5%), JSWSTEEL (-3.1%), and HINDALCO (-2.7%). The only sector to gain was IT (+0.1%) while the top sectoral losers were METAL (-2.2%), PSU BANK (-2.0%), and BANK (-1.4%).

Decline in palm oil prices is a positive–Godrej Consumer Products

Excerpts of an interview with Mr. Sameer Shah, Head- Finance & Investor Relations, Godrej Consumer Products (GODREJCP), aired on CNBC TV18 dated 6th July 2021:

  • GODREJCP released their 1QFY22 business update where they have seen high teens growth in the India business. The growth has been broad-based. There was not much gap between volume and value growth.
  • GODREJCP saw marginal price-led growth due to the Personal wash and Hygiene segment. This segment forms around 40% of India business. GODREJCP is the No. 2 player in the bar soaps category. The market share gain trend in this category has played out in the last few years. There is still some opportunity left to gain more share in the next many years as well.
  • New age formats in Hygiene segments such as handwash, and sanitizers are doing well. There will be some change in consumer habits and there will be a reset in the category size going ahead. GODREJCP has innovative products at attractive price points in this category.
  • As a result of these factors, Personal wash and Hygiene will be an important growth segment for GODREJCP.
  • Household Insecticides form 40% of India business for GODREJCP where the company is a dominant market leader. This segment had double-digit YoY growth in 1QFY22 on a very high base. Management expects the strong momentum to continue in this segment.
  • International business forms 45% of GODREJCP’s overall revenue. In 1QFY22, the performance was mixed across regions. Revenue was flattish in Indonesia due to the 2nd wave of Covid-19. Management remains bullish on gradual recovery through the rest of FY22. The regions of the Middle East, Africa & the USA have shown robust performance for the past 4-5 quarters with a double-digit 2-year CAGR. Regions of LATAM and SAARC which form a smaller 4-5% share also have strong double-digit growth.
  • There is a significant opportunity to increase penetration and market share in rural India. GODREJCP plans to increase its presence in rural India not just through improving distribution but also through affordable products having superior utility.
  • In addition, GODREJCP plans to increase urban reach, increase productivity, and focus on growing currently smaller channels like E-commerce, B2C, and B2B.
  • For inorganic opportunities, GODREJCP will be open to the wider household & personal care space in India, and existing or adjacent to existing categories in Indonesia.
  • Management expects India business to have a 2-year CAGR of low double-digit going ahead.
  • Palm oil prices have declined around 20%+ from the peak. If the trend continues, GODREJCP will not take further price increase which will favorably impact consumption.
  • On the margins front, 1QFY22 India margins could be impacted due to higher palm oil prices during the quarter and lag of passing on costs. However, the margin pressure will be offset by export performance. Going ahead, with palm oil price coming down, operating leverage, and a favorable category mix, management remains optimistic of margin maintenance and possible expansion.

 

Asset Multiplier comments:

  • Several consumer companies have plans to focus and expand their reach in rural India. There is increasing demand from the aspirational middle class in non-metro cities and towns.
  • Reduction in palm oil prices will be a big relief to GODREJCP as their gross margins were affected in the last few quarters due to input cost inflation.
  • A silver lining of the input cost pressure was that GODREJCP managed to gain market share from the smaller unorganized players as they stayed away in the high inflationary environment.

 

Consensus Estimate: (Source: market screener website)

 

  • The closing price of GODREJCP was ₹ 963/- as of 8-July-2021.  It traded at 52x/ 45x the consensus earnings estimate of ₹ 18.7/ 21.4 for FY22E/23E respectively.
  • The consensus price target is ₹ 946/- which trades at 44x the earnings estimate for FY23E of ₹ 21.4/-

 

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 Jul

Steel prices to be under pressure in the short term – Jindal Steel and Power

Update on Indian Equity Market:

On Wednesday, markets ended higher with Nifty closing 61 points higher at 15,879. TATASTEEL (+5.0%), JSWSTEEL (+2.7%), HINDALCO (+2.1%) were the top gainers on the index while TITAN (-2.0%), ONGC (-1.2%), and MARUTI (-0.9%) were the top losers for the day. Among the sectoral indices,  METAL (+2.2%),  REALTY (+2.0%), and FINANCIAL SERVICES (+0.6%) were the top gainers, MEDIA (-0.2%), and AUTO (-0.1%) were the only losers.

 

Excerpts of an interview with Mr. V R Sharma, MD, and CEO of Jindal Steel and Power on CNBCTV18 dated 5th July 2021:

 

  • Short-term pressure on Steel Prices is seen in International and European Spot Markets, with the prices hovering around USD 1,100 and 1,200 per tonne. This due to lower exports to Europe due to tariff and quota fears.
  • There is a value difference of around USD 200-250 per tonne between export and Indian domestic markets. There is a scope of reducing the delta to around USD 150 per tonne.
  • There is pressure on the demand for hot-rolled coils which forms part of the company’s exports which are 35-40% of the company’s total sales. This has resulted in the prices reducing to USD 1,020 per tonne.
  • The prices of other products are stable. 
  • There is a softening of about Rs 1,000-1,200 per tonne across all the products, which is normal because international prices play a vital role in today’s markets.
  • In terms of domestic demand, steel plates have shown a good demand and hot-rolled coils have shown moderate demand. The demand is very sluggish in the structural steel, construction steel, and rebar segments.
  • The company has produced 2.03 million metric tonnes of steel in 1QFY22 and is on track to manufacture 8.3 million metric tonnes for FY22. The exports for 1QFY22 were 0.6 million metric tonnes with full-year exports expected to be around 2.8 million metric tonnes.
  • The Company has Rs 165bn of debt as of 1QFY22 which the company is planning to reduce below Rs 100bn over FY22.

 

Asset Multiplier Comments:

  • Due to the Covid-19 pandemic, the demand for steel across domestic and international markets has been impacted. With the economic recovery,  there’s optimism for the sector.
  • The Company is taking efforts to deleverage its balance sheet in order to improve its performance across key operating metrics which will help the company grow further.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 400/- as of 7-July-2021.  It traded at 5x/ 8x the EPS estimate of ₹ 75/ ₹ 51 for FY22E/23E respectively.
  • The consensus price target is ₹ 513/- which trades at 10x the EPS estimate for FY23E of ₹ 51/-

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 Jindal Steel & Power Limited, JSW Steel , , , 0 Comments Read more...
06 Jul

Expect better traction July onwards– Eicher Motors

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally lower at 15818 (-0.1%) as it could not sustain the higher level from previous day close. Among the sectoral indices, BANK (+1.0%), FINANCIAL SERVICES (+1.0%), and PRIVATE BANK (+0.9%) ended higher while AUTO (-1.7%), PSU BANK (-1.3%), and IT (-1%) led the losers. Among the stocks, ULTRACEMCO (+3.2%), SHREECEM (+3.0%), and HDFCBANK (+2.4%) led the gainers while TATAMOTORS (-8.5%), TECHM (-2.3%), and COALINDIA (-1.5%) led the losers.

Excerpts of an interview with Mr. Vinod Aggarwal, MD and CEO-VECV of Eicher Motors (EICHERMOT) published with CNBC TV18 on 5th July 2021:

  • CV sales of Eicher Motors in June ’21 were 2,438 units, which were 99% more than the CV sales in May ’21 of 1,223 units. Yet, the sales were much lesser than the average pre-pandemic levels of 5,500 to 6,000 units.
  • The steel prices have fallen by 7% in the 1st week of July and there has been some softening of prices due to an increase in production of steel in China. Yet, Eicher Motors hasn’t experienced any decrease in the raw material prices as there is a lot of pressure from steel mills to increase prices.
  • Though the freight rates have gone up, the prices are required to increase further so as to reduce the pressure on margins caused due to an increase in fuel prices.
  • Speaking on demand, Eicher Motors is facing an issue in South India due to a severe lockdown. East is also not doing so well, but the demand in North and West has returned to normal. As the construction sector is doing well, more demand can be seen coming from the infrastructure/construction trucks.
  • The margin pressure has also been due to an increase in price related to BS-VI norm, steel price, tyre prices. Eicher Motors has better margins in FY21 due to better cost and price management, and it will be required to do the same in FY22 so as maintain or improve margins further.

Asset Multiplier Comments

  • With the prices in steel falling in the 1st week of July, we expect a reduction in the cost of raw materials for the auto manufacturers like Eicher Motors.
  • As the oil prices rise further with the talks of OPEC+ nations being called off, we look forward to oil price related global cues to understand its effect of the auto industry. High petrol prices will likely reduce the demand for 2 wheelers.

Consensus Estimate: (Source: market screener website)

  • The closing price of EICHERMOT was ₹ 2,713/- as on 06-July-2021. It traded at 33x/ 26x the consensus earnings estimate of ₹ 81/105 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 2,702/- implies a PE multiple of 26x on FY23E EPS of ₹ 105/-.

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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