25 May

Will offer better interest rates to depositors once loan book starts growing – State Bank of India

Update on the Indian Equity Market:

On Tuesday, NIFTY ended marginally higher at 15208 (+0.1%) as it could not sustain the intraday higher levels. Among the sectoral indices, MEDIA (+3.2%), IT (+1.0%), and AUTO (+0.7%) ended higher while PSU BANK (-1.3%), PRIVATE BANK (-0.9%), and BANK (-0.8%) led the losers. Among the stocks, ASIANPAINT (+3.5%), TITAN (+3.3%), and JSWSTEEL (+3.0%) led the gainers while HDFCBANK (-1.9%), HDFCLIFE (-1.4%), and AXISBANK (-1.2%) led the losers.

Excerpts of an interview with Mr. Dinesh Khara, Chairman, State Bank of India (SBIN) published in The Economic Times on 23rd May 2021:

  • SBIN has been cautious in terms of building a healthy balance sheet. After careful evaluation and ensuring there are enough risk mitigants, they underwrite the risk.
  • There has been a growth in the retail book, and the retail book’s stress is the least possible. The growth in the retail book provides a decent earnings headroom in the future.
  • The corporate credit growth in 4QFY21 looks muted but they have sanctioned limits that have been utilised to the extent of ~30%. They have seen 70% utilisation. There are sanctioned term loans that have not been availed to the extent of 28-30%.
  • They expect strong growth post demand recovery once Covid 2.0 subsidies. He is hopeful of robust credit growth in the corporate segment going forward. The Agriculture segment is going to be in focus in FY22 in addition to retaining the retail advances growth.
  • The resolution framework (RF) 2 announced on May 5 allows the banks to offer the resolution up to Rs 250 mn to individuals. The individuals in the personal loan segment can be offered the resolution or restructuring as needed.
  • SBIN does not expect much of a problem in the cash flow of their retail borrowers. There could be some anxieties but the bank isn’t concerned much.
  • When it comes to raising funds from the market, it is a function of liquidity in the market. Going forward, Mr. Khara believes the corporates will continue to borrow from banks. Depending upon their risk rating, corporates will be looking at borrowing from the markets. Bank borrowing or borrowing from the market, the only difference is the instrument. SBIN is a strong player in the market borrowing and has a treasury book of Rs 13000 bn.
  • In 4QFY21, the credit costs have gone down by more than 100bps but credit costs evolve as it will be a function of the macro and how the book behaves going forward. They would prefer to maintain the credit costs at these levels because going below the current levels would affect the profitability.
  • SBIN would prefer to offer better interest rates to depositors once the loan book starts growing.
  • Khara believes the deposit rates have bottomed out and there would not be any further cutting down of the deposit rate.
  • Economic situation permitting, SBIN would like to build the loan book and he expects to grow at a pace of at least 10%.

Asset Multiplier Comments

  • SBIN has been focusing on improving asset quality with credit cost and slippages reported in 4QFY21 being the lowest in 20 years. Despite Covid-19 induced stress, the retail loan book has done well and is stable.
  • With a gradual recovery in the return ratios, there could be a much better translation of operating profit to net profit in FY22-23E led by lower credit costs.

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

  • The closing price of SBIN was ₹ 414/- as of 25-May-2021. It traded at 1.4x/ 1.2x the consensus book value estimate of ₹ 300/ 339 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 456/- implies a PB multiple of 1.3x on FY23E BV of ₹ 339/-.

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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24 May

Gaining market share due to shift from unorganized to organized sector- HAVELLS

Update on the Indian Equity Market:

 

On Monday, Nifty closed 0.2% higher at 15,198. Within NIFTY50, IOC (+4.9%), BPCL(+2.8%), and SBIN(+2.4%) were top gainers, while SHREECEM (-2.5%),JSWSTEEL(-2.3%), and TATASTEEL (-1.9%) were the top losing stocks. Among the sectoral indices, PSU BANK (+2.1%), REALTY (+1.4%), and MEDIA (+1.2%) were the highest gainers, while METAL (-0.6%) and FMCG (-0.3%) were the only losing sectors.

 

Gaining market share due to shift from unorganized to organized sector- HAVELLS

 

Excerpts of an interview with Mr. Anil Rai Gupta, CMD, Havells India (HAVELLS), aired on CNBC-TV18 on 21stMay 2021:

  • HAVELLS reported a strong performance in 4QFY21. Even 1QFY22E started off well with continued growth momentum but has been hampered as the covid-19 second wave progressed. Mr. Gupta believes that things should start looking up fromJune 2021.
  • HAVELLS margins contracted 80 bps in 4QFY21. Any movement in raw material costs is passed on with a bit of lag. Due to the sharp increase in raw material costs in 2HFY21, the lag has been longer which led to margin contraction in some categories. As raw material prices start stabilizing, Mr. Gupta expects the margins to normalize by 2QFY22E.
  • HAVELLS made foray into rural India only a couple years back. They have expanded distribution that resulted in 100% growth for the segment in FY21. Rural sales now form 4-5% of overall sales. Rural India is in stress right now but Mr. Gupta still expects it to be an area of big growth potential for HAVELLS.
  • Post the 1QFY21 lockdown, consumer products (contributes to 75% of total revenues)saw good growth in 2QFY21 and 3QFY21. Industrial products segment reported revenue decline in the same period and only started growing in 4QFY21. Mr. Gupta believes that the industrial and infra segment should come back to normalized levels post the current lockdown.
  • Within the consumer products segment, the growth in FY21 largely came from electrical products such as fans, domestic appliances, and personal grooming appliances. As housing sales started improving from 3QFY21, installation products like switches and sockets also started growing.
  • Covid-19 led disruption has been an opportunity for HAVELLS to gain market share from unorganized sector. Mr. Gupta expects to see more benefits on market share post the 2nd
  • HAVELLS sawa lot of restructuring on operating costs and improvement on the technology side in FY21. As some cost savings are sustainable, going ahead Mr. Gupta expects there will be margin expansion compared to FY20.

Asset Multiplier Comments

  • Raw material cost inflation has affected the entire spectrum of sectors and thus companies have taken a hit on their margins. Many companies have taken a cautious approach in taking price hikes as the demand scenario is a little sensitive currently.
  • As companies start taking the required price hikes gradually, margin profiles are expected to improve.
  • Post the lockdowns in FY21, there was a big spike in consumer spending as there was pent up demand in the market. Whether that phenomenon repeats and if it does, will it be to the same extent remains to be seen.

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

  • The closing price of HAVELLSwas ₹ 1,016as of 24-May-2021. It traded at 55x/ 46x the consensus EPS estimate of ₹ 18.5/22.1 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 1,071/- implies a PE multiple of 49x on FY23E EPS of ₹22.1/-.

 

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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23 May

10 Things You Shouldn’t Care About as an Investor

Ben Carlson writes that it is more important than ever to filter out the stuff you shouldn’t care about as an investor. Here are 10 things that fit the bill:

  1. How rich other people are getting. John Pierpont Morgan is attributed with the quote, “Nothing so undermines your financial judgement as of the sight of your neighbour getting rich.” There will always be people with more success, prestige, money and accolades than you. Easier said than done but not worrying about how much money other people are making can save you a lot of unnecessary stress and angst.
  2. What you paid for an investment. Picking stocks is harder than you think. Buy and hold is a terrific strategy for some stocks. For others, it’s the equivalent of an investor death sentence. I’ll just wait until I break even is a tough place to be as an investor because some stocks don’t come back…ever. There’s a fine line between being disciplined and being stubborn when it comes to investing.
  3. The amount of time and effort you put into your investments. In many areas of life, trying harder leads to better results. That’s not the case when it comes to investing. In fact, trying harder and paying more attention to your investments will often lead to worse results. There are no extra points for the degree of difficulty when it comes to the markets. Most investors would be better served doing less, not more.
  4. One year performance numbers. One year (or any shorter time frame for that matter) returns don’t tell you anything about yourself as an investor. Every investor will have good years and bad years. Diversification often looks silly over the short term. Risk management can seem useless. Luck can trump skill. You’re probably not as good or as bad as your short-term performance numbers suggest. Long-term returns are the only ones that matter.
  5. Your IQ. EQ matters more than IQ when investing. Yes, some level of intelligence is required but once you have ordinary intelligence, what you need is the temperament to control the urges that get other people into trouble in investing. There are plenty of intelligent people involved with the markets but not nearly as many who have control over their reactions. Intelligence alone does not guarantee success in the markets.
  6. Financial advice from billionaires. Ultra-successful people typically offer some of the worst financial advice. They’re simply too out of touch with normal people to provide useful advice. It’s also important to remember these people say stuff all the time that they don’t actually act on. You have to watch what they do, not what they say. And billionaires have the ability to make huge mistakes with their wealth and they’ll still be fine. If you make a huge mistake it’s going to hurt a lot more.
  7. How much you could have made if you would have only put $10k into… I hate these comparisons. These fantasies serve no purpose unless you know how to spot them ahead of time.
  8. Success in other areas of your life. Your biggest risk as an investor depends a lot on your personality, emotional make-up and station in life. The worst investors are often those who assume success in their career automatically translates to success investing in the markets. It doesn’t work like that.
  9. Timing the market perfectly. Investors waste far too much time trying to find the perfect entry point for their investments. That perfect entry point is only known with the benefit of hindsight. You’re far better off putting your money to work when you have some money to put to work and letting compound interest make up for any ill-timed purchases. It’s fun to look at returns from the tops and bottoms for certain markets or stocks but no one actually invests consistently at the peaks or troughs.
  10. Producing alpha in your portfolio. No one on their death bed has ever regretted the fact that they didn’t have a better Sharpe ratio (risk-adjusted returns). The whole point of investing in the first place is achieving your financial goals, not beating the market.
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22 May

This week in a nutshell (May 17th to May 21st)

Technical Talks

NIFTY opened the week on 17th May at 14,756 and closed on 21st May at 15,175. It made a weekly gain of 3%. The index is trading above its 10DMA of 14,913 which might act as a support. RSI 14 (60) and MACD turning upwards suggests a possible rally going ahead.

Weekly highlights

  • India on Thursday cut sugar export subsidies by 31.4% for the current season which ends on Sept 30th Higher sugar exports from India, also the world’s biggest consumer of the sweetener, will cut back large inventories at home and prop up domestic prices, which will help the country’s money-losing mills.
  • New investment projects announced by private sector during the previous financial year fell by 68% on account of the Covid-19 pandemic. The announced projects, which represent an intention to invest, amounted to Rs 5,180 bn in FY21, the lowest since 2004-05 and down from the Rs 16,280 bn announced in FY20.
  • India Inc’s investment abroad in the April-21 jumped by more than two times YoY to $2.51 billion, data from the Reserve Bank showed.
  • The US Labor Department reported initial jobless claims fell to 444,000 in the week ended May 15. That was lower than the prior week’s 478,000 claims and economists’ forecasts for 460,000 new filings. This led the Wall Street higher.
  • Gold is at the highest price in more than four months. Its claimed virtual rival, Bitcoin, steadied after a volatile cryptocurrency slump this week.
  • Foreign Institutional Investors (FIIs) were net sellers in Indian equity of Rs 17,540 mn, against net selling of Rs 36,199 mn in the previous week. Domestic Institutional Investors (DIIs) were net buyers of Rs 13,180 mn, against last week’s selling of Rs 18,170 mn.

                                                                       Things to watch out

  • India reported 2.59 lakh new COVID-19 cases on Friday, the lowest daily count in one month. Declining covid cases and hope of lockdown being lifted by June/July in metro cities might lead the Indian market sentiment going forward.
  • As the 4QFY21 result season is going on, companies’ results will be the key thing to watch out for.

 

 

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20 May

Good Momentum seen in Asset and Wealth Management segments- IIFL Wealth

Update on Indian Equity Market:

On Thursday, markets were in the red, with Nifty declining 124 points to close at 14,906. CIPLA (2.4%), M&M (2.3%), and BPCL (2.1%) were the top gainers on the index while TATA STEEL (-5.1%), HINDALCO (-4.2%), and COALINDIA (-3.4%) were the top losers for the day. Among the sectoral indices, REALTY (1.0%), and PSU BANK (+0.4%) were the only gainers, while METAL (-3.2%), BANK (-1.0%), and PRIVATE BANK (-1.0%) lead the losers.

Excerpts of an interview with Mr. Karan Bhagat, CEO of IIFL Wealth aired on CNBC TV-18 on 19th  May 2021 :

  • The revenue recognition on a trailing basis instead of upfront basis has seen a strong cyclical recovery over the past 8 quarters. The Wealth Management business is poised to grow from here on.  
  • The Asset Management business has seen a stellar recovery over the past year with an increase in both listed and unlisted equity segments. 
  • NBFC business is seeing a difficult recovery due to the pandemic. The Loan against Shares segment is fairly collateralized and thus the company hasn’t seen any rise in impairment costs. The stable Net Interest margins and lower operating costs are good tailwinds going ahead.  
  • AUM growth is expected in the low teens with organic growth and around 20% on a Mark to Market basis.
  • The company has improved its revenue mix to Annual recurring revenue contributing to around 70-80% as opposed to the brokerage-centric business model over the last 2 years. The management expects this to stabilize at these levels going forward.

Asset Multiplier Comments:

  • India is in the midst of a transformation in its savings and investing habits, going forward Asset and Wealth Management are going to see manifold growth as market penetration increases.
  • The company is well poised to reap the rewards of compartmentalization and operating efficiencies going ahead in both the Asset and the Wealth Management business.

Consensus Estimates (Source: market screener website): 

  • The closing price of IIFL Wealth was ₹1,100/- as of 20-May-2021.  It traded at 23x/ 19x the consensus EPS estimate of ₹ 48/ ₹ 59 for FY22E/23E respectively.
  • The consensus price target is ₹ 1360/- which trades at 23x the EPS estimate for FY23E of ₹ 59/-. 

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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19 May

Remdesivir production ramped up, seeing a global shortage of Tocilizumab – Cipla

Update on Indian Equity Markets:

After two days of an upswing, markets reflected weakness on Wednesday as Nifty closed the day 0.5% lower at 15,030. Within the index, COALINDIA (3.4%), CIPLA (2.1%), and SUNPHARMA (1.9%) were the highest gainers while TATAMOTORS (-5.5%), BAJAJFINSV (-1.8%), and M&M (-1.8%) were few of the losers. Within the sectoral indices, REALTY (2.2%), MEDIA (2.0%), and PHARMA (1.2%) led the gainers while FIN SERVICE (-0.9%), PVT BANK (-0.8%), and AUTO (-0.7%) were the losers. 

Excerpts of an interview with Mr. Umang Vohra, MD and Global CEO, Cipla Ltd (CIPLA) with CNBC -TV18 dated 18th May 2021:

  • CIPLA has maintained its growth guidance for FY22E as the momentum is intact in the business trajectory with the upcoming launches in the US and India.
  • The rise in input price will abate when the demand for COVID-19 drugs abate, dependent on the trend in cases. 
  • The company has ramped up its Remdesivir production by five times. The company believes that the supply is not short beyond a week’s demand or so because many other manufacturers have also increased production. Along with that, the company is also selling a lot of other vitamins and minerals related to COVID-19. 
  • During 4QFY21, company made 3% of sales from COVID-19 drug as compared to 5% in the earlier quarters.
  • There is a global shortage of Tocilizumab but the company has been able to serve for the same at its highest. Government importing Tocilizumab drug has helped alleviate demand pressure. 
  • The company is also willing to partner with global majors to import vaccines. The company can re-purpose factories for fill and finish of vaccines if required.  

Asset Multiplier Comments:

  • The next 1-2 quarters might see a spurt in revenues from Remdesivir, Tocilizumab, and other COVID-19 related drugs due to the second wave of the pandemic. 
  • With the share of COVID-19 related drugs declining as a percentage of revenues, the focus will be on core business with new launches and new markets for revenue growth. 

Consensus Estimates: (Source: market screener website)

  • The closing price of CIPLA was ₹ 898/- as of 19-May-2021.  It traded at 27x/ 23x the consensus EPS estimate of ₹ 33.6/ 39.8 for 22E/23E respectively.
  • The consensus price target is ₹ 993/- which trades at 25x the EPS estimate for FY23E of ₹ 39.8/-

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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18 May

Impossible to pass on 100% price increase – Escorts

 Update on the Indian Equity Market:

On Tuesday, Nifty closed in the green at 15,108 (+1.2%). Among the sectoral indices, Auto (+3.2%), Media (+1.7%), and Metal (+1.7%) closed higher. PSU Bank (-1.3%), Pharma (-0.2%), and FMCG (-0.2%) closed in the red. M&M (+5.8%), Bajaj Auto (+5.2%), and Titan (+5.0%) were the top gainers. Bharti Airtel (-2.3%), ITC (-1.1%), and Coal India (-0.9%) were among the top losers.

Excerpts of an interview of Mr. Bharat Madan, Group CFO, Escorts Ltd with CNBC-TV18 dated 17th May 2021:

  • Speaking about the impact on demand, Mr. Bharat Madan said the impact of the 2nd wave is serious.
  • On the rural side, things are better as compared to urban. The rural segment is expected to do well led by pent-up demand.
  • Sowing starts from mid of May and goes on till July, farmers don’t require tractors for sowing. He said even if the situation normalizes in June then demand would be back for tractors.
  • The channels have opened, but rising infection level is impacting the demand.
  • For FY22E, the situation is dynamic and depends on how the month of June shapes up.
  • Speaking about commodity prices, he said the raw material prices witnessed steep inflation of ~7-8%. The company passed 2 price increases of about ~4-5%.
  • There is further pressure in 1QFY22E, and passing 100% price hikes is not possible considering the current demand situation.
  • The company will take another price hike in Q1FY22E.
  • Speaking on exports, he said the JV has started producing tractors (Kubota tractors). The JV will start producing tractors with the Escorts brand from 2QFY22E.
  • The new JV will add a capacity of 30,000 units.
  • The exports have shown 30% volume growth in the last few weeks. The exports will a focus area going ahead.

 

Asset Multiplier comments:

  • We believe rising raw material prices will impact EBITDA margins in the near term, and it will be difficult to pass on the entire cost to the customers.
  • We also believe rural India is less affected as compared to urban areas and a good monsoon along will government measures might bring back the demand for tractors if the situation normalizes by May end.

 

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

  • The closing price of Escorts Ltd was ₹ 1,178 as of 18-May 2021.  It traded at 15x/12x the consensus Earnings per share estimate of ₹ 81.2/94.9 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,452/- which implies a PE multiple of 15x on FY23E EPS of 94.9/-.

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

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17 May

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Update on the Indian Equity Market:

Market started the week on strong note, bulls took center stage today as the vaccination drive is expected to pick up momentum. Nifty was up ~245 points (1.7%) at 14923. Among the sectoral indices, BANK (+4.0%), PSU BANK (+3.8%), and PVT BANK (+3.0%) were top gainers while MEDIA (-0.5%) and PHARMA (-0.2%) were among the top losers. Among the stocks, INDUSINDBK (+7.5%), SBIN (+6.7%), and ICICIBANK (+4.5%) were the top gainers. CIPLA (-2.3%), BHARTIARTL (-2.3%), and LT (-1.9%) were the losers.

Luxury and Premium products propelled growth in 4QFY21 – Asian Paints

Edited excerpts of an interview with Mr. Amit Syngle, Managing Director and Chief Executive Officer, Asian Paints with Economic Times dated 14th May, 2021:
• Performance in Q3FY21 was good with 20% volume growth. Q4FY21 further accelerated on that in terms of demand — not only from the retail business, but also from the projects business which had been a bit down in previous 2 quarters. Big corporate institutions, builders, cooperative societies — everyone went for painting and maintenance in Q4. Another big thing seen was with respect to market structures, with T1 and T2 cities contributing in a very big way in Q4 as compared to Q3. In Q2-Q3 these cities were depressed because of a larger number of cases and the paranoia in the market. A third area was the luxury and premium products which kind of took off, propelling overall growth. There was a little bit of a pent-up demand, but largely a lot of new demand came in. So, that is basically how Q4 differed from Q3.
• Home décor business did quite well. Asian Paints now has ~18 stores across the country that offer all home décor solutions under one roof. It has got amazing response from the market in terms of offers for the consumer and company is quite pleased with it.
• When asked about the impact so far of the second wave of the pandemic and how does he see things playing out Q1 of FY22 he commented that things have been good thus far. There have been disruptions with localised lockdowns affecting some of their backend processes. But he thinks April-21 has still been largely good in terms of business. May is looking a little tough as most of the country is in a lockdown-like situation. They are finding very few markets to offer service at the moment. Picture will be clearer once vaccinations catch up and some bit of normalcy returns.
• When asked about the kind of rise in costs in Q4 because of crude and other prices and his outlook on operating margins going ahead he said that Gross margins in Q4 were lower a little bit both QoQ as well as YoY. This was largely due to the high inflationary pressures that built up starting the last week of December 2020. Material inflation has been to the tune of 7% to 8% in terms of crude derivatives as well as critical raw materials like Titanium dioxide and monomers that go into the paste. Management puts to use all sourcing efficiencies and formulation efficiencies, and sought to control overheads in a very strong manner which limited the damage to some extent in Q4. Asian Paints didn’t affect any increase in prices because they felt demand might not be very good given the widespread paranoia. Company took a 2.8% increase in prices on May 1 as the management is pretty confident that some of the inflationary pressures would come down going ahead, after which the company can look at more price increases to kind of do justice to the overall margins.
• There is definitely customer sensitivity to price hikes. It is observed that 2% to 4% hikes don’t really impact the purchasing of the customer very strongly, because it’s an addition of just Rs 400-500 in a work worth Rs 15,000. From a point of view of projects though, the price sensitivity is higher because the additional cost becomes higher. The company is confident that if prices are raised in a measured manner, it won’t hurt margins much.
• When asked about the expenditure on distribution, brand building, marketing earmarked for the financial year he informed that overall, they are integrating the whole area with paint. A typical home store would have large amounts of paint as well as home décor stuff. Any promotion done for a home store also accelerates the paint category as well. Asian Paints is looking at offering very strong value to the consumer, so it would bring down the stress on margins. It will depend on which way the market possibly goes, but the plan is to move into a strategic area that has been set and move strongly from the share of surface to the share of space within homes in a big way.

Asset Multiplier Comments
• The growth for most of the FMCG companies in 4QFY21 has been good. Even after commodity cost going up, they seem to have retained their pricing power. But we think, due to stricter lockdowns, the outlook for 1QFY21 seems to be bleak. In 1QFY21, we believe most of these FMCG stocks will moderate.
• Asian Paints’ underlying volume growth was quite robust. Seeing a similar kind of volume growth trajectory going forward seems difficult due to recent lockdowns. We might have to see price hikes, cost push and margin pressures in short term which will lead to correction in the subsequent quarter. But being the market leader, the long-term story remains intact.

Consensus Estimate (Source: investing. com and market screener websites)
• The closing price of Asian Paints was ₹ 2,782/- as of 17-May-20. It traded at 72.4x/60.7x the consensus EPS estimate of ₹ 38.3/45.7 for FY22E/ FY23E respectively.
• The consensus target price of ₹ 2,678/- implies a PE multiple of 58.5x on FY23E EPS of ₹ 45.7/-.

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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15 May

This week in a nutshell (May 10th to May 14th)

                                                                              Technical Talks

NIFTY opened the week on 10th May at 14,928 and closed on 14th May at 14,678. It made a weekly loss of 2%. The index is trading above its 100DMA of 14,576 which might act as a support. On the upside 50DMA of 14,724 might act as a resistance. The index might trade range-bound before making a strong move on either side.                                                 

                                                                                Weekly highlights

  • Moody’s Investor services reduced its FY22E economic growth forecast for India to 9.3% from 13.7% estimated earlier. Investment banks like credit Suisse have also lowered India’s real GDP forecast as mentioned in the previous note.
  • US drugmaker Eli Lilly and Co has issued royalty-free, non-exclusive voluntary licenses to produce its Baricitnib drug to Cipla, Lupin, and Sun Pharma. The drug is used with a combination of Remdesivir for the treatment of Covid-19. This will ensure improvement in the local treatment options available to the infected patients in India.
  • The Federation of Automobile Dealers Association (FADA) expects sales to return to their peak levels of March 2019 only by FY23E. FADA said registrations of new vehicles, including cars, SUVs, motorbikes, and trucks, for April 21 were 28% lower than March 21.
  • During this week, Oil prices were lifted by fears of a gasoline (petrol) shortage after a cyber-attack caused an outage at the largest US fuel pipeline system. The fuel pipeline in the U.S. restarted now, but it will take several days for the supply chain to return to normal.
  • The foreign institutional investors (FII) Sold Rs 36,199 mn worth Indian equity shares last week. Domestic institutional investors (DII) were also net sellers during this week with Rs 1,817mn of outflow.

                                                             Things to watch out for this week

  • The 4QFY21 result season will continue in the next week as well. The commentary from companies’ management will be key to access the medium/long-term outlook on markets. The current situation is dynamic and changing very rapidly.

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 May

Localised lockdowns impacting collection efficiency – Bandhan Bank

Update on the Indian Equity Market:

The Indian benchmark indices closed in the red for the second day, due to concerns over the impact of faster inflation on dollar flows into emerging markets. The Nifty50 ended the day at 14,697 (-1.0%), dragged by TATASTEEL (-4.8%), HINDALCO (-3.5%), and JSWSTEEL (-3.5%). The top gainers in the index were TATAMOTORS (+3.2%), TITAN (+1.6%), and MARUTI (+1.3%). The sectoral gainers were PSU BANK (+3.2%), MEDIA (+0.7%), and AUTO (+0.2%), while METAL (-3.0%), PRIVATE BANK (-1.6%), and BANK (-1.3%) led the sectoral losers.

Excerpts of an interview with Mr. Chandra Shekhar Ghosh, MD and CEO, Bandhan Bank (BANDHANBNK) published in Mint on 12th May 2021:

  • The complete impact of the second wave is yet to be felt, but Mr. Ghosh expects business to bounce back by June-21.
  • The impact of the second wave of the virus has been localised lockdowns. The advantage of localised lockdowns is businesses are still functional. There was a lack of access to villages and smaller localities last year, affecting collection efficiency.
  • Following localised lockdowns, collection efficiency has dropped 300-400bps from March-21. The drop has been due to complete lockdowns in certain areas and with branches in such areas, executives cannot go out for collections. This impact has been felt in April-21, he expects the efficiency to bounce back by June-21.
  • The microfinance part of their business is better off without moratoriums. In their case, borrowers repay if they can come to the bank’s offices or where the collection executives can reach. Wherever it is not permitted, the executives are not venturing out. Mr. Ghosh believes this is better than a moratorium, as nobody would want to repay under a blanket benefit.
  • The bank is providing loan restructuring if customers request it. The customers who are able to pay 50% or 75% in instalments are paying. The customers take it upon themselves to repay so that credit score isn’t impacted. About 78% of NPA (Non-performing Asset) customers have repaid in March-21.
  • He expects similar growth in credit growth in FY22 as last year (~20%).

Asset Multiplier Comments

  • As the bank has a higher exposure to rural and semiurban areas, there was a lower impact on its operations in 4QFY21. With lockdown restrictions imposed in rural areas as well due to the second wave, the bank may face issues with collection.
  • In the recently released 4QFY21 results, the Bank has recognised higher provisions for weaker borrowers adequately. While the impact of the second wave cannot be measured so soon, the bank is likely to maintain its conservative stance and maintain higher provisioning buffers going forward.

Consensus Estimate: (Source: market screener website)

  • The closing price of BANDHANBNK was ₹ 288/- as of 12-May-2021. It traded at 2.3x/ 1.9x the consensus book value estimate of ₹ 126/ 155 for FY22E/FY23E respectively.
  • The consensus target price of ₹ 384/- implies a PB multiple of 2.5x on FY23E BV of ₹ 155/-.

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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