Infosys (INFY IN): Constant currency growth rate pick-up in 1QFY20, management ups revenue guidance for FY20

1QFY20 Results

Dated: 15th July 2019

Infosys (INFY) reported 10.6% YoY revenue growth in USD terms; highest in last 10 quarters, to USD 3,131 mn in 1QFY20. The digital business revenues (36% of the total company revenues) increased by 39% YoY to USD 1,119 mn while core business revenues declined by 0.8% YoY to USD 2,012 mn. 
• The revenues in INR terms increased by 14% YoY to Rs 2,15,390 mn. Appreciation of INR v/s USD impacted the revenue growth during the period.
• Depreciation increased by 56% YoY to Rs 6,810 mn (v/s Rs 4,360 mn in 1QFY19) and financial interest stood at Rs 400mn on account of the adoption of IFRS 16-Leases effective April 1, 2019.
• The operating margins declined by ~320 bps YoY to 20.5%. Consolidated PAT grew by 5% YoY to Rs 37,980 mn

Management Commentary

• The management has raised the revenue growth guidance for FY20E from 7.5%-9.5% to 8.5%-10% YoY. It maintained operating margins guidance of 21%-23% for FY20 v/s 22.8% in FY19.
• INFY has till date bought back shares worth Rs 59.34 bn of its previously announced share buyback of Rs 82.60 bn. 
• INFY revised Capital Allocation Policy of the Company after taking into consideration the strategic and operational cash requirements. It increased the pay-out from 70% of Free Cash Flow (FCF) to ~85% of FCF cumulatively for over a 5-year period through a combination of semi-annual dividends/share buyback / special dividends.

Consensus Estimate (Source: market screener website)

• The closing price of INFY was Rs 727/- on 15-Jul-19. It traded at 19.0x / 17.0x the consensus EPS for FY 20E / FY 21E EPS of Rs 38.2 / 42.7 respectively. 
• Consensus target price of Rs 792/- implies a PE of 18.5x on FY21E EPS of Rs 42.7.

IndusInd Bank 1QFY20 Result Update:

Dated: 15th July 2019

Consolidated Quarterly performance highlights:
1) Net Interest Income (NII) for the quarter grew 34% YoY at Rs. 28,440 mn. The Net Interest margins (NIMs) stood at 4.05% as against 3.92% in 1QFY19.
2) Fee income grew 28% YoY at Rs 16,630 mn, led by 47% YoY growth in the loan processing fees.
3) Provision for the quarter was Rs 4,310 mn where the credit cost stood at 3,040 mn and other provisions including the standard provisions stood at Rs1,260 mn.
4) Net profit for the quarter grew by 38% at Rs 14,330 mn.
5) Loan book grew by 28% YoY whereas the deposit growth for the quarter stood at 26% YoY led by CASA growth of 25% YoY. CASA (Current Accounts- Savings Accounts) ratio stands at 43%.
6) GNPA & NNPA for the quarter stood at 2.15% & 1.23% respectively. The provision coverage ratio for the bank stood at 43%.
7) The annualised ROE stood at 18.45% vs 5.46% in 4QFY19. 
8) IndusInd bank standalone performance {excluding Bharat Financial Inclusion Ltd (BFIL)}: NII grew by 14% YoY, Fees income grew 23% YoY, and operating profit growth has shown a 17% YoY growth while the Net Profit stood at Rs 12,200 mn, a growth of 18% YoY. IndusInd standalone loan book grew by 26% YoY for the quarter at Rs 18,99,620 mn.
Key Highlights of the Concall:
a) The IndusInd bank has guided for a loan book growth of mid-20% in the medium term.
b) They expect the credit cost to be in the range of 55-65 bps for FY20E.
c) The bank targets to gain market share in vehicle financing from the NBFCs. They expect the slowdown in the auto industry to continue in 2QFY20E. They see some recovery in the auto sector during the festive season this year.
d) IndusInd Bank has made an adequate provision for IL&FS exposure according to the management. Bank’s funded and non-funded exposure to the group is 1.67% of the loan book net of provisions held. 
e) Liabilities of BFIL have not fully transferred and will take another 6-9 month to get reflected. The IndusInd bank expects the AUMs to grow at 35% YoY. BFIL disbursement has seen a slowdown in Orissa & West Bengal region. This slowdown is expected to continue for a few more months.
Consensus estimates: (source market screener website)
• The stock price is Rs 1,485/- as of close price of 15th July 2019. It trades at 2.8x/ 2.4x/ 2.0x the consensus book value for FY20E/ FY21E/ FY22E of Rs 523/ 626/ 741 respectively.
• The consensus price target is Rs 1,851/- valued at 3.0x FY21E book value of Rs 626/-.

The inseparable pair of skills

Dated: 14th July 2019

Morgan Housel reminds us that Investing skills are important, but they have to be paired with personal finance skills to be sustainable.

Housel is surprised how many good investors he knows with terrible personal finance habits. Maybe he shouldn’t – they are completely different skills. The ability to uncover an undervalued investment is not associated with your propensity to avoid lifestyle bloat. The irony is that people who will move mountains to gain a few basis points of return bleed ten times that amount on personal spending that all science says adds little to their net life happiness.

But investing and personal finance rely on each other because few industries are as cyclical as investing and as Charlie Munger says, “The first rule of compounding is to never interrupt it unnecessarily.” Compounding works only to the extent that your lifestyle doesn’t force you to sell investments at inopportune times to fund your lifestyle. Someone earning average but uninterrupted returns may be better off than someone outperforming by 50 basis points a year yet forced to liquidate a portion during every bear market to pay off lenders.

Investment returns have a lot of potentials to make you rich and achieve your goals. But whether a strategy will work, and how long it will work for, and whether markets will cooperate, is always a question. Personal savings and frugality – finance’s conservation and efficiency – are parts of the money equation that are largely in your control and have a 100% chance at being as effective in the future as they are today. So which should you pay more attention to?

This is not about living like a monk, hampered by frugality. It holds true at every level of wealth and spending. Housel concludes that the idea that reducing your needs has the same impact as increasing your income – but the former is more certain and in your control than the latter, so it has a higher expected value – is as true for someone spending Rs15,000 a year as it is someone spending Rs15 lakhs per year.

Mahindra & Mahindra Ltd: “Improvement in market sentiment & government stimulus are crucial for the auto sector to revive”

Dated: 12th July 2019

Interview by Dr Pawan Goenka, Managing Director of M&M Ltd.
Key highlights:
1) According to him, the budget was good for the long-term vision for the government but expected short- term stimuli that the auto sector needed for the next 3-4 months were missing.
2) He said that it is hard to predict what will happen in the next 2-3 months in the auto sector. The sector has seen its worst quarter this year for passenger vehicles since 2001. The closest fall was in 3QFY09 which recovered at a faster pace.
3) The industry has the resilience to recover quickly from a sharp drop that has happened and they have proven the same 2-3 times.
4) Mahindra has performed better than the industry average performance for the 1QFY20. In the month of June M&M was the only company that had positive growth in the passenger vehicle segment. The fact remains that the quarter performance was not as per the Company’s expectation.
5) According to him, new launches in the coming quarters will cause a demand a spurt.
6) With the slowdown in the industry, the commodity prices have been showing a downward trend which will help the industry to revive. The industry is not expected to increase model pricing. Thus, this will help to create a demand for the new launches by giving customer incentives or reduce the model price.
7) 1QFY20 will have a high base effect as the same period last year had delivered the highest growth.
8) The safety norms that are coming in on 1st October 2019 & the BS-VI norms will lead to a significant increase in the prices of the vehicles. That will have a downward pressure on demand again.
9) In June M&M had a 20% shutdown where they worked for 25 days in that month to manage the inventory level. The Company was trying to correct down dealer inventory which had happened successfully. M&M expects that July will not be as bad but still have a couple of days of shutdown in July.
10) August- & September’19 are the festive seasons where he expects the plants to run at full capacity.
11) For the tractor segment growth, he has slightly lowered the growth estimate from the initial growth expectations of 5%. He would revise the downward estimates after July considering the monsoon conditions. He also said that in the same period last year there was a growth of 28% YoY which will add to the downward pressure on the growth.

Consensus estimates (Source: Marketscreener website):
M&M Ltd with a closing price (as on 10-04-2019) of Rs 668/- per share trades at a P.E of 12.6x/ 12.9x/ 13.3x its earnings per share estimates of Rs 50.1/ 49.0/ 47.4 for FY20E/ FY21E/ FY22E. The consensus price target is at Rs 791/- over the next 12 months.

Incentives for EVs: Push in the right direction by Government. Excerpts of an interview with Mr Rajiv Bajaj, MD, Bajaj Auto published on 11th July on the CNBC website.

Dated: 11th July 2019

• Views on incentives for promoting electric vehicles (EVs): One must be cautious as incentives that come today can go just as easily tomorrow. Manufacturers or entrepreneurs must be fixated on delivering a sustainable solution. EVs are becoming an attractive option considering the urban pollution and in that sense, the government’s push in the direction is a good idea.
• Incentives provided in the budget for EVs are significant. GST at 5% for EVs compared to 28% for IC engines, Faster Adoption and Manufacturing of Electric Vehicles (FAME) benefit of Rs 10,000 per kw and some of the reductions in the import duties will help. The government has put its best foot forward in offering a very significant package to those who are interested in putting out good quality electric vehicles. FAME benefit will be for those who are going to make EVs that meet certain quality standards, certain minimum standards in terms of various performance parameters.
• The positive side of the equation is the Government has been generous with the incentives and now it is up to the manufacturers to respond by leveraging this to put products into the market place. The negative is the draft notification that suggests that all three-wheelers and most two-wheeler should become electric by banning internal combustion (IC) engine scooters, motorcycles and three-wheelers. These two things should not be coupled in this manner that in order to encourage or promote one thing you have to artificially bury another thing which is world-class.
• Every member of the Society of Indian Automobile Manufacturers (SIAM) is developing EVs and everyone will be in the market with their own EVs in the very near future, in the next 12 months or less.
• It should be a phased transition to EVs as making 25 million two-wheelers and three-wheelers is not a switch that can be switched on or off overnight. The Government might be overestimating what can be done in the immediate term and underestimating what can be done in a medium-term future like 10-years.
• Bajaj Auto is working toward launching EVs (both 2-wheelers and 3-wheelers) just before implementation of BS-VI norms in April 2020. It would be a good time for EVs to make their way to market because people will be very sensitive to the subject of the environment at that time and current vehicles will get much more expensive because of BS-VI norms.
• Bajaj Auto is part of an industry that is experiencing great difficulty in terms of demand. Nobody knows exactly why the demand is low, nobody knows how this can be resolved or by when things will settle. Everybody is also concerned with what will happen when the next step of BS-VI comes into place and prices go up even further. These are very volatile, very uncertain, very difficult times where one has to just stay the course and wait it out.

Consensus Estimate (Source:
• The stock price of Bajaj Auto is Rs 2,740/- as of close price of 11th July 2019 and trades at 15x / 13x the consensus EPS for FY 20E/21E EPS of Rs 186/214 respectively. 
• Consensus target price is Rs 2,831/- valued at 13x FY21E EPS of Rs 214.

Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

Dated: 10th July 2019

Tata Consultancy Services Limited: Softer 1Q, Company still eyeing for double-digit sales growth in FY20

1QFY20 Results
• TCS revenues in Rs terms reported 9% YoY growth to Rs 3,81,720 mn and to Rs 5,484 mn in $ terms. BFSI grew 11% YoY and Digital revenue reported strong growth of 44% YoY.
• Reported EBIT grew 7% YoY to Rs 92,200 mn. EBIT margins declined by 80 bps YoY to 24.2% due to higher depreciation and other expenses. 
• Reported PAT grew 11% YoY to Rs 81,530 mn.

Management Commentary
• TCS remains confident about medium-to-long term demand.
• Double-digit revenue growth in FY20 will depend on how 2Q pans out. 
• From now on, the focus will remain on maintaining margins. That will remain priority rather than margin expansion.
• Volatility in currency shall remain a factor to keep track of. 
• Sub-contracting costs have been on an upward trajectory for some time. This is a reflection of TCS’ decision to participate aggressively and capturing Digital demand, despite the supply situation.
• Issued joining letters to 30k+ in 1Q. 40% have on-boarded in 1Q and the remainder in 2Q.

Consensus Estimate (Source:
• The stock price is Rs 2,105/- as of close price of 10th July 2019 and trades at 23x / 21x the consensus EPS for FY 20E / 21E EPS of Rs 90.1 / 101.0 respectively. 
• Consensus target price is Rs 2,165/- valued at 21x FY21E EPS of Rs 101.0.

Titan Company Limited: Increased gold prices impacted consumer demand for jewellery

Dated: 9th July 2019

Titan has published its press release giving an update for the 1QFY20 sales performance of the company:

Key highlights are as follows:
1) 1QFY20 witnessed a tough macro- environment with consumption being hit.
2) Jewellery Segment: Titan reported lower than expected revenue growth in this quarter. The management expected growth of 20% YoY for FY20 and the actual growth is ~13% in 1QFY20. This was driven by a sharp increase in gold prices that dented consumer demand significantly in the month of June. Wedding jewellery & studded group witnessed decent growth in the quarter. Sales on the auspicious occasion of ‘Akshaya Tritiya’ were robust.
Tanishq launched Swayahm collection of both plain and studded Jewellery. Mia launched ‘Birthstone Pendant’, ‘Facets’ and ‘Florets’ collections, which have all got a good response according to the Company.
3) Watches Segment: The segment grew 19% YoY in 1QFY20, partly led by the execution of a large institutional order from Tata Consultancy Services (TCS). The tech-enabled wearable has been the new driver for the division. In channels, E-Commerce, Trade and LFS (Large Format Stores) channel remain the growth drivers for Watches division for June quarter. Under the ‘Titan Raga’ brand for women, ‘Raga Cocktails’ collection with Swarovski crystals was launched at the premium end and ‘Raga Viva III’ at affordable prices. ‘Light Leathers — II’ collection, contemporary classic wear watches for men and ‘Purple PoP’ collection for the fun-loving millennial was also launched during the quarter. Fastrack has the exclusive rights in India to produce watches inspired by Game of Thrones and has launched the ‘Game of Thrones’ collection.

4) Eyewear Segment: The division witnessed revenue growth of 13%, aided by the activation i.e., a greater number of buyers enrolling for memberships, schemes/ offers, loyalty programmes, etc during the quarter. Trade channel grew faster than the overall division growth. The division added 27 stores during the quarter and also closed 9 stores ending up with a net increase of about 12,000 sq. feet of retail space. Fastrack Sunglasses launched a lightweight collection called ‘Floatables’.

Consensus estimates (Source: Marketscreener website):
Titan with a closing price, (as on 09-07-2019) of Rs 1,096/- per share trades at a P.E of 51.5x/ 42.3x/ 35.0x its earnings per share estimates of Rs 21.3/ 25.9/ 31.3 for FY20E/ FY21E/ FY22E. The consensus price target is at Rs 1,256/- over the next 12 months.

Expect double-digit volume growth in FY20- Atul auto Ltd

Dated: 8th July 2019

Following are the excerpts from the interview given by Mr Jitendra Adhia, President of Finance, Atul Auto Ltd. on CNBC TV18.
· The volumes are improving month on month. The Pressure is on exports as few contracts have been postponed. He expects that to be normalised in the next few months.
· Domestically, the volumes grew by 6% on a quarterly basis. The first quarter remained lean and particularly for the first two months of April & May due to external factors like liquidity crunch, elections, etc. The company has given guidance of double-digit growth for FY20E.
· The new Ahmedabad plant is likely to be commercialised by the end of CY19. Currently, the company is having a capacity of 60,000 units per annum. The company is operating close to 80% capacity utilisation. The capex will be completed in 2 phases out of which phase 1 will be commercialised by 2019 end with the capacity strength of 30,000 units per annum. Phase 2 of CAPEX will be ramped up once phase 1 will be stabilised. The company aims to target 80% of the capacity utilisation before phase 2 is commercialised
· The company has spent Rs 1,300 mn on CAPEX. This was fully funded through internal accruals and the company still maintains the debt-free status. The company requires another Rs1,000 mn for completion of CAPEX as well as product development expenses. The company expects to fund this additional funding requirement through internal accruals.
Consensus Estimate (Source: market screener website)
· The closing price of Atul auto was Rs 272/- as of 8th July 2019. It trades at a price to earnings (P/E) multiple of 10x/9x the consensus EPS estimates for FY20/21E of Rs 28.2/ 29.7 respectively. 
· Consensus target price of Rs 419/- implies a P/E of 14x on EPS of Rs 29.7 for the year ending Mar-21E.

Budget 2019-20 highlights that matter for individual investors

Dated: 5th July 2019

Impacting individuals:

· Income tax slab rate unchanged

· Additional deduction of Rs 1.5 lac on interest payment on the loan is taken for purchasing electric vehicles.

· Additional deduction of Rs 1.5 lac on interest payment on home loan under the affordable housing category. This deduction is applicable for loans taken before 31st March 2020.

· TDS of 2% on cash withdrawal exceeding Rs 1 crore in a year from a bank account.

· Surcharge for individuals earning Rs 2-5 crore a year and individuals earning more than Rs 5 crore will increase by around 3% and 7% respectively.

· Pension benefit to be extended to around Rs 3 crore retail traders and shopkeepers with an annual turnover less than Rs 1.5 crore under Pradhan Mantri Karam Yogi Man Dhan Scheme.

Impacting Banking, NBFC and HFC sectors:

· Rs 70,000 cr will be provided to Public sector Banks to boost capital and increase credit.

· Regulating authority over housing finance companies to be returned from NHB to RBI

· Government will provide one-time 6-month partial credit guarantee for the purchase of high rated pooled assets of financially sound NBFCs up to Rs 1 lac cr in FY20. This measure is in response to the funding issues faced by the NBFC sector.

Impacting Capital markets:

· Asked SEBI to consider raising the threshold of public shareholding in listed companies from 25% to 35%. If the change is made, listed companies will have to issue fresh equity or undertake stake sale to comply with the new rules.

Other highlights:

· Special Additional Excise duty and Road and infrastructure cess raised by Re 1/litre each on petrol and diesel.

· Import duty to be hiked on gold and precious metals to 12.5%, from the current level of 10%.

· Corporate tax rate of 25% for companies with an annual turnover below Rs 400 cr. The previous threshold was Rs 250 cr.

· Proposed GST rate cut for Electric Vehicles from 12% to 5%.

What the market did not like:

· No relief on the Long term capital gains tax.

· Corporate tax reduction is proposed for companies below Rs 400 cr turnover. Larger corporates get no benefit.

· Special Additional Excise duty and Road and Infrastructure Cess each by one rupee a litre on petrol and diesel. This might have negative implications for the already weak auto demand.

Eicher Motors (EICHERMOT IN): 1QFY20 Volume decline increases the margin pressure

Dated: 1st August 2019

1QFY20 Results
• Eicher Motors (EICHER) reported a ~7% YoY decline in revenues in 1QFY20 at Rs 23,819 mn (v/s Rs 25,478 mn in 1QFY19). The volumes declined by 18% YoY to 1,83,589 units. The effective realisation increased by 14% YoY from Rs 1,12,455 per unit in 1QFY19 to Rs 1,28,616 per unit.
• EBITDA declined by 24% YoY to Rs 6,145 mn and EBITDA margin declined by ~600 bps YoY to 25.8%. The margins were impacted by the increase in costs related to the ABS (Anti-Lock Braking System) conversion. 
• The effective tax rate was lower by ~290 bps YoY to 33% for 1QFY20. The consolidated PAT stood at Rs 4,518 mn, lower by 22% YoY. 
• The Volvo Eicher JV performance: The volumes in 1QFY20 were lower by ~18% YoY. The revenues reported a lower decline of 14% YoY to Rs 22,550 mn due to the realisation growth by ~5% YoY. The EBITDA margins declined by ~360 bps YoY to 5.6%. The JV reported lower profits of Rs 383 mn in 1QFY20 v/s Rs 1,182 mn in 1QFY19. EICHER’s share in JV profits stood at Rs 209 mn, a decline by ~68% YoY.

Management Commentary

• EICHER increased the dealer network by 13 dealers to 928 from 915 in 4QFY19. EICHER management is keen on focussing on increasing reach in rural areas by adding more touchpoints. Eicher also intends to expand its international presence by increasing the exclusive international store count from 48 now to 80 over the next 18 – 24 months.
• Management maintained the CAPEX plans of ~Rs 7,000 mn for FY20 for Phase-2 of Vallam Vadagal plant, construction of the Technology Centre, development of new products and to expand RE’s portfolio for global markets. The production will start in 1-1.5 months.
• Management maintained the production guidance for FY20E is 9,50,000 units. EICHER mentioned that the festive season sales will be key monitorable and the industry may also benefit from the pre-buying before the BS-VI implementation in April 2020.

Consensus Estimate (Source: market screener website)

• The closing price of Eicher was Rs 16,570/- as of 01-Aug-2019. It traded at 19x / 18x / 17x the consensus EPS for 20E /21E /22E EPS of Rs 852/ 943 / 991 respectively. 
• Consensus target price of Rs 19,441/- implies a PE of 20x on FY22E EPS of Rs 991/-