08 Jun

Expect retail stress to reduce by September; MSME stress by Q3 or Q4– Punjab National Bank

Update on the Indian Equity Market:

On Tuesday, NIFTY ended at 15740 (-0.1%) as it could not sustain the intraday highs. Among the sectoral indices, IT (+1.2%), PHARMA, REALTY and MEDIA (+0.9%), ended higher while PSU BANK (-1.5%), METAL (-1.1%), and BANK (-1.0%) led the losers. Among the stocks, TATAMOTORS (+3.2%), TECHM (+2.3%), and BHARTIARTL (+2.1%) led the gainers while HINDALCO (-1.8%), TATASTEEL (-1.7%), and JSWSTEEL (-1.3%) led the losers.   

Excerpts of an interview with Mr. Mallikarjuna Rao, MD, and CEO, Punjab National Bank (PNB) with CNBC TV18 on 7th June 2021:

  • On an outstanding basis, the gross NPA and net NPA are flat, but the credit outstanding for the quarter ended March 2021 is down by 3%, which is why the gross NPA numbers seem elevated at 14%.
  • Due to the covid-19 second wave, the proforma NPA has become worse across the banking industry, including PNB. The NPA composition consists of retail and MSME clients, whereas there are no corporates.
  • As collections from clients are improving, the stress of retail clients would be adjusted to a great extent by September, and of MSMEs by Q3 or Q4 of FY22. The collections were at 91% in May 2021, and around 84% in April 2021.
  • The net NPA has gone from 4% to 5.7% in Q4FY21 on a QoQ basis. Write-offs in Q4FY21 are at Rs 72280mn, whereas the recovery and upgrades are at Rs 69990 mn respectively in Q4FY21 on a QoQ basis.
  • During FY21, the credit cost was at 2.5%. During FY22, the profit is expected to not be less than Rs 60,000 mn and the credit cost is expected to be at 1.5%.
  • PNB is expecting a recovery of Rs 6,000 mn from DHFL, with no specific date of recovery mentioned.
  • PNB is well capitalized, having a capital adequacy ratio of 14.2%

Asset Multiplier comments:

  • With the various states throughout the country unlocking and recovering from the impact of the covid- 19-second wave, the collections will improve in 1HFY22 and will become better in the second half. Improving asset quality and lower credit costs will be a feature of many Indian banks in FY22E. 

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

  • The closing price of PNB was ₹ 42/- as of 8-June-2021.  It traded at 0.51x/ 0.48x the consensus book value estimate of ₹ 80.8/86.4 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 39/- implies a PB multiple of 0.45x on FY23E BVPS of 86.4/-.

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 Jun

Optimistic about a sequential pick-up in supply chain stability- Cummins India

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 15,752 (+0.5%). Top gainers in NIFTY50 were Adani Ports (+5.3%), Power Grid (+5.0%), and NTPC (+4.2%). The top losers were Bajaj Finance (-4.5%), Bajaj Finserv (-2.9%), and HDFC (-1.2%). The top sectoral gainers were MEDIA (+1.2%), IT (+1.1%), and PVT BANK (+0.9%) and sectoral losers were METAL (-0.4%), REALTY (-0.3%), and FIN SERVICES (-0.2%).
Excerpts of an interview with Mr. Ajay Patil, CFO, Cummins India (CUMMINSIND) with CNBC TV18 dated 7th June 2021

  • It has been a good quarter for Cummins with double-digit revenue growth and also margin expansion.
  • Pent-up demand and a pick-up in execution aided growth for Cummins India in the March quarter.
  • From the early part of July onwards, they are optimistic about a sequential pick up in the supply chain stability, as the pace of vaccination is picking up along with shutdown getting relaxed progressively.
  • The impact of the second wave of COVID-19 has been widespread. Even before the second wave, the supply chain was impacted as a result of disruption on the logistics side and supply chain constraints on electronics and semiconductor parts.
  • Their portfolio is also shifting to electronic engines and the use of semiconductor components is increasing on the engine side.
  • End-markets do have a substantial need for semiconductors and electronics.
  • There is a bit of cyclicality to their exports, and Q4 has been about the rebalancing of inventory levels. There is a supply constraint that is impacting the business more than demand, for both domestic as well as export markets.
  • Export outlook for the sector is improving with vaccination increasing & infections decreasing.
  • There will be an impact on margins of increasing input costs. They are trying to optimize their costs in the best possible manner.

Asset Multiplier comments:

  • The power electronics market holds substantial growth potential for companies that are able to leverage the opportunities offered by the electric vehicle sector.
  • Increasing commodity prices have been impacting the margins for this industry so the overall outlook remains uncertain.

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

  • The closing price of CUMMINDIND was ₹ 813/- as of 7th June 2021.  It traded at 32x/ 28x the consensus earnings estimate of ₹ 25.6/ 29.5 for FY22E/23E respectively.
  • The consensus price target is ₹ 753/- which trades at 26x the earnings estimate for FY23E of ₹ 29.5/-

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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05 Jun

This week in a nutshell (31st May – 4th June)

Technical talks

NIFTY opened the week on 31st May at 15,438 and closed on 4th June at 15,670. It made a weekly gain of 2%. The index is trading at its all-time high level. Indicators like RSI (14) 70 and downward turning MACD suggest a downward correction. The index might take support of its 10DMA of 15,458 before making a strong move on either side.

Weekly highlights

  • The Ministry of Defence (MoD) announced a list of 108 items of defence equipment that must be compulsorily procured from indigenous sources. The list includes items that will be banned for import in a staggered manner from December 2021 to December 2025. There is a special focus on weapons/systems which are currently under development/trials (in India). This embargo is expected to benefit Bharat Electronics Ltd, Solar Industries India Ltd, and other PSU which have a presence in the defence sector.
  • Automobile companies reported the monthly sales volume for May-21. The lockdowns in states such as Maharashtra, Haryana, Karnataka, and Tamil Nadu (key automotive hubs) forced carmakers to halt production. The impact of lockdowns was visible with companies reporting high double-digit month-on-month (MoM) decline across segments (Source- Business Standard). While a pickup in vaccination is expected to be a positive development for the sector, the semiconductor shortage remains a key issue to meeting the pent-up demand.
  • The Monetary Policy Committee (MPC) of RBI decided to keep the repo rate unchanged at 4 percent. The stance remains accommodative for as long as necessary to revive and sustain growth on a durable basis. The Committee lowered the GDP projection for FY22 from 10.5% (April-21) to 9.5%. The RBI also announced government securities acquisition programme worth Rs 1.2 tn in second quarter. The 10-year bond yield closed at 6.03% vs 5.99% on Friday.
  • The RBI has announced a Rs. 150 bn package for contact intensive sectors like hotels, restaurants, tourism, aviation, and ancillary services. These industries which have been hit hard due to the virus outbreak, have been provided a much-needed liquidity dose.
  • Foreign Institutional Investors (FII) continued to be net buyers of Indian equities of Rs 54,618mn, an increase from the previous week’s Rs 20,400mn purchase. Domestic Institutional Investors (DII) continued their selling spree, with a net outflow of Rs 2,442 mn which is lower compared to last week’s selling of Rs 3,240 mn.

Things to watch out for next week

  • With the result season almost over, companies have started publishing annual reports. Management commentary on the future outlook and strategy to mitigate the impact of 2nd wave is something to watch for. Vaccination progress and unlock process across India may be the catalysts for the market movement.
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03 Jun

Margin pressure in the next couple of months- Siemens

Update on the Indian Equity Market:
On Wednesday, NIFTY closed at 15,690 (+0.7%). Top gainers in NIFTY50 were Titan (+6.8%), ONGC (+5.0%), and Eicher Motors (+3.4%). The top losers were IndusInd Bank (-3.1%), Wipro (-0.7%), and Dr Reddy (-0.6%). The top sectoral gainers were REALTY (+3.8%), MEDIA (+1.6%), and FIN SERVICES(+0.9%), and the only sectoral loser was PHARMA (-0.3%).

Excerpts of an interview with Mr Sunil Mathur, CEO, Siemens (SIEMENS) with ET Now dated 3 rd June 2021

● They opened the factory and offices cautiously. But that was just for a short period of about two months time, and then the second wave really came in.
● The second wave has been much more intense compared to the last year. It did have an impact on operations initially, but that started somewhere toward the mid part of March and went well into April and May as well.
● They had sporadic cases of COVID in factories, but the management of the factory was able to juggle those capacities. Though the health and safety of the employees come first, they were able to keep the manufacturing activities running.
● There has been very little impact on their manufacturing and their employees have gotten used to working from home. That really helped in keeping the business moving in the January-March quarter.
● They saw pent-up demand getting released from July-20 onwards and that went on until December. But they were very pleasantly surprised by the speed of the turnaround.
● Post-December, the January to March quarter was very good with both private, as well as government capex, kicking off. That got a lot of interest in digital projects and automation.
● There has been a slowdown in long-term projects; primarily infrastructure projects in their transmission generation and distribution side.
● Some of the old capex has not really panned out and they are waiting for that to happen before they start ordering fresh. So, things in the states and with government spending actually did slow down.
● There was a lot of concern from international customers about whether they would be able to meet their export commitments. The last few months have really helped and export demand continues there.
● They are hopeful about the increase in demand and the recent announcements of stimulus made by the US and a couple of other countries as well. So, they do believe this is the right time to focus on exports as well.
● Commodity prices have gone up and transport costs have gone up substantially, between 20% to 40%. It is very difficult to offset those prices or cost increases with other cost-saving measures. Some foreign exchange gains helped offset that, but to a large extent, commodity prices are continuing to be high.
● The shortage of semiconductors has caused a major increase in material costs and Mr Mathur believes the shortage may go on for a longer period. That is impacting both the demand side with both, the automotive and FMCG companies being hit.
● He thinks that there will be margin pressure in general in the next couple of months. They will have to wait and see how long the commodity prices continue to be at the level at which they currently are.

Asset Multiplier comments:

● The number of infrastructural projects related to commercial and residential buildings is increasing in India, owing to factors such as population growth and support from government bodies. That will be the main growth driver for this industry.
● Significant investments in the distribution sector by the government will drive the demand for transmission and distribution equipment, which will drive the electrical equipment market growth.

Consensus Estimate: (Source: market screener and investing.com websites)
● The closing price of SIEMENS was ₹ 2,143/- as of 3-June-2021. It traded at 55x/ 48x the consensus earnings estimate of ₹ 39.0/ 44.8 for FY22E/23E respectively.
● The consensus price target is ₹ 1,799/- which trades at 40x the earnings estimate for FY23E of ₹ 44.8/-

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

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02 Jun

Will benefit from larger home cooking trend – Borosil

Update on the Indian Equity Market:

The market ended flat for the second straight day on Wednesday. The last hour buying helped reduce the losses made through the day. At close, the Nifty was up 1.30 points, or 0.01%, at 15,576.
Among the sectoral indices, PSU BANK (+3.0%), METAL (+2.2%), and AUTO (+1.8%) were top gainers while IT (-0.8%), FMCG (-0.5%), and FINANCIAL SERVICEs (-0.2%) were losers. Among the stocks, UPL (+2.8%), TATASTEEL (+2.6%), and HINDALCO (+1.9%) were the top gainers. ITC (-2.9%), TECHM (-1.2%), and AXISBANK (-1.0%) were the top losers.

Will benefit from larger home cooking trend – Borosil
Edited excerpts of an interview with Mr. Shreevar Kheruka, Managing Director & Chief Executive Officer, Borosil with CNBC TV18 dated 31st May, 2021:
• Borosil saw a 30% YoY revenue growth in 4QFY21. There was a good bounce back in 4QFY21 after dull 1HFY21 and ended the year much stronger than anticipated.
• First 10-15 days of April-21 were following the same trajectory as 4QFY21 did, but due to second wave coming in, business got impacted as shops and outlets were shut.
• As the cases wane in the second (COVID-19) wave, a stronger bounce back is expected again. In short term some pain is expected on the consumer side of the business but demand seems to be strong in the long run.
• On the scientific side, Borosil makes vials and ampoules and that has seen strong demand because of COVID as well as non-COVID related injectable demand. This business has headed up even in 1QFY22 and strong demand is expected to continue for the rest of the year.
• It’s a wait and watch situation on the consumer side, but the company is bullish on the opportunity in the next year as well as for the future.
• Consumer business contributed ~60-65% of total revenue in FY21 and rest is scientific segment.
• The consumer business has been stagnant and things are rapidly growing on the scientific side. Mid-teens growth is anticipated for scientific segment in FY22E, vials are expected to grow ~25-30% for FY22E.
• E-Commerce has been the fastest and strongly growing channel for Borosil.
• Capex is planned for vials and ampoules as well as for new products in the segment. Not large Capex allocated for scientific laboratory equipment.
• Borosil is looking for inorganic expansions going forward in scientific segment and has a net cash of ~250 crores in company’s books.

Asset Multiplier Comments
• Looking at the performance and growth in 2HFY21 we believe that Borosil has good potential going forward. Diversified product portfolio, gain in appliances and E-Commerce channel and sale of COVID-related products such as Remdesivir and vaccine vials gives us confidence on growth of the company.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Borosil was ₹ 220/- as of 02-Jun-21. It traded at 70x/60x the consensus EPS estimate of ₹ 3.1/3.7 for FY22E/ FY23E respectively.
• The consensus target price for Borosil is not available.

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 Jun

Domestic demand to recover post lockdown- KEI Industries

Update on Indian Equity Market:

On Tuesday, Nifty closing down 8 points at 15,575.  Adani Ports (3.7%), ONGC (3.5%), and Bajaj Finance (2.8%) were the top gainers on the index while JSW Steel (-2.3%), TATA STEEL(-2.2%), ICICI BANK (-1.9%) were the top losers for the day. Among the sectoral indices,  Private Bank (-0.9%) and Metal (-0.8%), and Realty (-0.52%) lead the losers, while Media (0.32%) and IT (0.11%) lead the gainers.

Excerpts of an interview with Anil Gupta, CMD of KEI Industries aired on CNBC TV 18 on 31st May 2021:

  • Pent-up demand is strong and the management is confident that the sales will pick up post lockdown restrictions end.
  • The Company posted a 17% YoY growth in EBITDA margin and  47% YoY growth in the bottom line. The results are indicative of the long-term growth prospects of the company.
  • The company is currently working at full capacity and is expected to stock up inventory in order to be ready when the demand picks up.  
  • Retail sales are currently under pressure due to lockdown but the company is showing good order book growth.
  • KEI Industries currently has an order book of Rs 26000 mn with steady growth however labor shortage and site closures have impacted the execution rate.

Asset Multiplier Comments:

  • Like many consumer durable companies, KEI industries has suffered the adverse effects of lockdown but there are better days ahead.
  • The company has is well poised to reap the benefits of cost rationalisation and volume expansion growing ahead.

Consensus Estimates (Source: market screener website): 

  • The closing price of KEI Industries was ₹622/- as of 31-May-2021.  It traded at 17x/ 14x the consensus EPS estimate of ₹ 36/ ₹ 43  for FY22E/23E respectively.
  • The consensus price target is ₹ 664/- which trades at 15x the EPS estimate for FY23E of ₹ 43/-

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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31 May

Expect the margins to expand in FY22E – Solar Industries

Update on the Indian Equity Market:

On Monday, Nifty closed in the green at 15,583 (+1.0%). Among the sectoral indices, Metal (+2.1%), Realty (+1.4%), and Bank (+1.1%) closed higher. Media (-1.4%), PSU Bank (-0.7%), and Auto (-0.2%) closed in the red. JSW steel (+3.3%), ICICI Bank (+3.0%), and Reliance (+2.8%) were the top gainers. M&M (-4.3%), Adani port (-0.9%), and HDFC Life (-0.6%) were among the top losers.

Excerpts of an interview of Mr. Manish Nuwal, CEO, Solar Industries with CNBC-TV18 dated 28th May 2021:

  • Speaking about Q4FY21 performance, Mr. Nuwal said, the numbers had grown on a low base of Q4FY20. Compared on a normal base, the volume has grown ~24%.
  • In Q4FY21, sales had a growth of ~45% YoY, this was led by volume growth of ~13% and a price increase of 25%. On the international side, the business is performing as per expectations.
  • The company expects a 30% revenue growth in FY22E.
  • Speaking about defence business, he said the business was impacted due to the Covid crisis. Currently, the order book is Rs 6,800mn, and the company recently received an order of multimode hand grenades. The production has already started for multimode hand grenades. The numbers will reflect in FY22E.
  • The target is to receive Rs 3,000mn revenue from defense in FY22E.
  • In terms of incremental defence order, he said the company will participate in the coming RFPs (request for proposal) to grow the order book.
  • Speaking about EBITDA margins, he said going forward the company expects the margins to expand in FY22E. EBITDA margins stood at 21% in Q4FY21.
  • In FY22E, the company plans to spend Rs 3,150mn on Capex.
  • The working capital cycle days have also improved from 113 days to 108 days in FY21. The target is to bring it down to 100days.
  • The debt levels are comfortable and the company is planning for aggressive Capex in the next 2 years. The company announced the setting up of 2 new plants. 1 in south India and the other in North India.
  • The plants are expected to get commissioned within 2 years.

 

Asset Multiplier comments:

  • We believe order book in the defense segment will aid revenue growth in FY22E which in turn might lead to EBITDA margin expansion.
  • The target to lower working capital days will improve the cash conversion cycle and lead to effective utilization of cash.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Solar Ltd was ₹ 1,550 as of 31-May 2021.  It traded at 38x/32x the consensus Earnings per share estimate of ₹ 40.9/49 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,463/- which implies a PE multiple of 30x on FY23E EPS of 49/-.

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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29 May

This Week in a Nutshell (May 24 to May 28th)

Technical Talks

NIFTY opened the week on 24th May at 15,211 and closed on 28th May at 15,453 just shy of the record high of 15,469. It made a weekly gain of 1.6%. The index is trading above all DMAs of 14,913 which might act as a support. RSI (14) 66 indicates the index may face resistance going ahead from these levels.

Weekly highlights

  • Indian equity bourses ended with strong gains as encouraging quarterly earnings and positive global cues boosted investors’ sentiment. The moderation in daily new COVID-19 cases in India also improved risk sentiments. The Nifty index settled at a record-closing high. Broader markets underperformed key benchmarks during the week.
  • Domestic rating agency ICRA on Monday, 24 May 2021, forecasted a 2% GDP growth in the fourth quarter of 2020-21, and a 7.3% contraction for the full fiscal year. According to the agency, the 2% projected GDP growth will help the economy avoid a double-dip recession as indicated by the National Statistical Office (NSO) for the fourth quarter. 
  • The Commerce and Industry Ministry said that Foreign Direct Investments (FDI) in India grew 19% to $59.64 billion during 2020-21 on account of measures taken by the government on the fronts of policy reforms, investment facilitation and ease of doing business. The total FDI, including equity, reinvested earnings and capital, rose 10% to the “highest ever” of $81.72 billion during 2020-21 as against $74.39 billion in 2019-20.
  • The balance sheet size of RBI increased by ~7% for the year ended 31 March 2021, mainly reflecting its liquidity and foreign exchange operations. From this year onwards, RBI has changed the accounting year to April – March from July-June earlier. RBI transferred Rs 99,122 crore as surplus to the central government for the nine months ended March 31.
  • A gauge for U.S. manufacturing activity that surged to a record high this month along with the number of Americans filing new claims for unemployment benefits dropped more than expected last week as layoffs subsided. Initial claims for state unemployment benefits fell 38,000 to a seasonally adjusted 406,000 for the week lowest since March 2020.
  • Foreign Institutional Investors (FIIs) were net buyers of Indian equities of Rs. 20,400 mn, against net selling of Rs 17,540 mn in the previous week. Domestic Institutional Investors (DIIs) were net sellers of Rs 3,240 mn, as compared to last week’s selling of Rs. 13,180 mn.

  Things to watch out

  • India Reported its 45 day low of daily covid cases at 1.73 Lakh, Reduction in cases and hope of lockdown ease pushed the market to record highs this week. It will be interesting to see if this momentum drives the indices upward or if any correction is imminent.
  • The monthly volume data for Auto companies will be released next week. This will be critical to gauge the impact of lockdowns imposed in certain states in India.    
By #WeekInANutshell, Weekly Markets highlights, Weekly update , 0 Comments Read more...
27 May

Aim to double the number of direct outlets in 1 year – Tata Consumer Products

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,338 (+0.2%). Among the sectoral indices, PSU Bank (+2.9%), Bank (+1.2%), and IT (+1.1%) closed higher. Realty (-1.2%), Pharma (-0.2%), and FMCG (-0.01%) closed in the red. Shree Cement (+4.1%), SBIN (+3.1%), and Bajaj Auto (+2.2%) were the top gainers. HDFC (-2.7%), ONGC (-1.5%), and IOC (-1.4%) were among the top losers.

Excerpts of an interview of Mr. Sunil D’souza, MD & CEO, Tata Consumer Products with CNBC-TV18 dated 27th May 2021:

  • Speaking about ROCE, Mr. Sunil D’souza said the aim is to achieve double-digit ROCE by end of FY22E.
  • On tea prices, he said the drought-like conditions have kept the prices up. The tea prices are up ~60% YoY. The estimates suggest the prices will start coming down in 30-60days.
  • The company will resort to gradual price hikes if tea prices do not correct. The aim will be to achieve a 33-35% EBITDA margin on Indian beverages by 2nd half of FY22E.
  • On logistical issues, he said the base tea and salt businesses are growth levers for the company. The Sampann and Soulfull brands are growing in the pantry space. The plan is to increase overall distribution. The target is to double the number of direct outlets in 1 year. The company will achieve 1mn outlets by Sept-Oct 21.
  • On Starbucks, he said it witnessed a 14% revenue growth in Q4FY21 despite operations with 50% seating.
  • Take away and delivery compensated for the affected dine-in capacity.
  • The competitors are under pressure which will benefit Starbucks. The company has added 40 additional stores in FY21 despite the pandemic. There is an expansion in cities and different formats.
  • Speaking about ad spends, he said currently it is ~6% of sales but it will increase to double-digit in the short to medium term. In the FMCG space advertising is important to build brand equity.
  • On the rural segment, he said the 2nd wave has impacted the rural segment as well. For the company it is acting as an opportunity as the share of rural for the company was smaller as compared to competitors. The target is to increase rural distribution to ~9,000 distributors from the current 2,000 distributors in FY22E.

 

Asset Multiplier comments:

  • We believe rising tea prices and increased spends in advertising might put pressure on EBITDA margins in the near term.
  • An increase in the number of direct dealers might lead to better product availability and visibility. It will also help to manage the competition.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Consumer Products Ltd was ₹ 650 as of 27-May 2021.  It traded at 53x/44x the consensus Earnings per share estimate of ₹ 12.1/14.7 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 675/- which implies a PE multiple of 15x on FY23E EPS of 14.7/-.

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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26 May

Confident of double-digit growth in FY22 on pent-up demand – Emami

Update on the Indian Equity Market:

Domestic markets started cautiously positive and witnessed a strong rebound as it gained momentum from expectations of another set of relief measures. The new stimulus package is expected to focus on boosting the worst-hit sectors like tourism, aviation and hospitality along with MSMEs. Nifty ended above 15,300 as value buying was seen in the IT sector while Metals stocks remained in the correction phase due to muted international commodity prices.
Among the sectoral indices, REALTY (+2.8%), MEDIA (+1.9%), and IT (+1.8%) were top gainers while METAL (-1.9%), and PSU BANK(-0.3%) were among the top losers. Among the stocks, BAJAJFINSV (+4.6%), BAJFINANCE (+2.7%), and INFY (+2.5%) were the top gainers. POWERGRID (-3.0%), HINDALCO (-2.5%), and JSWSTEEL (-2.4%) were the top losers.

Edited excerpts of an interview with Mr. Mohan Goenka, Director, Emami with CNBC TV18 dated 26th May, 2021:

• Emami reported good Q4 earnings on a favourable base with 39% volume growth in domestic business. Director, Mohan Goenka says he’s confident of double-digit growth in FY22 on pent-up demand. He added their promoter pledge is at 30% & they will reduce it to 15% in the next 1 year.
• Revenue was over Rs 9000 mn in 3QFY21 v/s ~Rs 7300 mn in 4QFY21. But these numbers are not comparable on QoQ basis due seasonality in business. Emami has shown a decent growth in 2 years horizon and when compared to 4QFY19 the growth is robust.
• All categories like Zandu Balm, Kesh King, Men’s grooming products and Menthoplus has grown much better in 4QFY21 over 3QFY21.
• 40-45% of the sales comes from the winter portfolio.
• Emami started with a good note and first two weeks of April saw a very good demand. Emami has seasonal products and has healthy summer products like Navratna Tel and cool talc, however the demand tapered this season. But it is also seen that the demand really bounces back as soon as cases comes down and this time when market opens up, the company is confident of delivering a double-digit volume growth as the pent-up demand comes through.
• Seeing the input price inflation, Emami has taken 4% price hike which will take care of the input cost pressure leading to a stable Gross Margin.
• Rural demand has been impacted across geographies in second wave. The Company expects demand to pick up quickly as soon as lockdowns are lifted.
• Having the healthcare range in the portfolio, Emami was able to sell products even in the month of April and May. The demand for these products was seen to be robust.
• In the last 2 years contribution of E-commerce has reached ~4% of domestic business from 0.5%. It is expected to reach at least 6% in next 2-3 years.
• Cost reduction was seen in employee cost, other expenses and advertisement, EBITDA margin was at all time high at 30% level and target is to sustain margins going ahead.
• No need to add capacity as of now as the capacity utilization is ~60%.

Asset Multiplier Comments
• We believe that competition in Emami’s key product categories such as skin, and hair oil, will continue to remain high. Nevertheless, we remain optimistic about the favourable base, and robust demand and growth in health and hygiene market, especially in rural markets.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Emami was ₹ 504/- as of 26-May-20. It traded at 42.5x/32.1x the consensus EPS estimate of ₹ 11.8/15.6 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 564/- implies a PE multiple of 36x on FY23E EPS of ₹ 15.6/-.

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