11 May

More price hikes will be required to mitigate input cost pressures- KANSAINER

Update on the Indian Equity Market:

 

On Tuesday, Nifty closed 0.6% lower at 14,851. Within NIFTY50, COALINDIA (+5.9%), NTPC (+4.9%), and IOC (+4.4%) were top gainers, while JSWSTEEL (-3.4%), HINDALCO (-3.0%), and KOTAKBANK (-3.0%) were the top losing stocks. Among the sectoral indices, PSU BANK (+1.1%), MEDIA (+0.8%), and REALTY (+0.3%) were the highest gainers, while FINANCIAL SERVICES (-1.3%), METAL (-0.9%), and PRIVATE BANK (-0.9%) were the top losers.

 

More price hikes will be required to mitigate input cost pressures- KANSAINER

 

Excerpts of an interview with Mr. Anuj Jain, ED, Kansai Nerolac Paints (KANSAINER), aired on CNBC-TV18 on 10th May 2021:

  • 4QFY21 was good for KANSAINER on a YoY basis because of low base of last year.
  • KANSAINER saw sales growth of 34.7% YoY in 4QFY21. For full year FY21, decorative paints segment saw a positive volume growth but a decline on the revenue/value basis.
  • In FY21, KANSAINER gained market share in the industrial paints segment, while growth in the decorative paints was at par with market growth.
  • April 2021started on a good sales momentum but the momentum dropped later due to rising Covid-19 cases in India.
  • KANSAINER’s 80-90% sales offices are closed in May. Factories are running as they fall under continuous process units but demand has taken a hit.
  • KANSAINER took a price hike for the decorative paints segment in March 2021.
  • In the Industrial segment, the company has started talks with its clients for price increases and started implementing price hikes in some places as well. But these price hikes are not enough as the raw material inflation is still raging. Mr. Jain thinks that more price hikes will be required to mitigate the input cost pressure.
  • KANSAINER’s Auto OEM clients are also facing significant pricing pressures. But it is inevitable for KANSAINER to pass on at least some, if not all, component of the input cost pressure.
  • Most Auto OEMs have declared shutdowns, so demand for KANSAINER’s products to the auto space is also expected to be very low till the situation improves.
  • FY22E revenues are difficult to predict at this point as paint industry is closely linked to the GDP growth and dependant on how the current situation evolves.

Asset Multiplier Comments

  • Companies across industries have been talking about significant input cost pressures. This comes at a time when demand is also impacted due to partial lockdowns imposed in several states in India. This is a double whammy situation for companies. On the one hand they are not able to pass on the entire rise in cost in a fragile demand scenario. At the same time, lower sales means that companies face negative operating leverage- contributing to further pressure on the margins.
  • How companies navigate this tough situation remains to be seen and will only get reflected in the 1QFY22E results.

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

  • The closing price of KANSAINER was ₹ 554 as of 11-May-2021. It traded at 50x/ 39x the consensus EPS estimate of ₹ 11.2/14.3 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 612/- implies a PE multiple of 43x on FY23E EPS of ₹14.3/-.

 

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.”

 

By Kansai Nerolac, Paints 0 Comments Read more...
10 May

Expect a demand recovery once restrictions are lifted – Blue Star

 

Update on Indian Equity Market:

On Monday, markets were on the rise, with Nifty increasing 128 points to close at 14,950. COAL INDIA (8.2%), UPL (8.0%), and HINDALCO (6.2%) were the top gainers on the index while SHREECEM (-1.9%), BRITANNIA (-1.28%), and ULTRACEMCO (-1.28%) were the top losers for the day. Among the sectoral indices, Metal (4.7%), PHARMA (2.8%), and MEDIA (+2.5%) led the gainers. There were no sectoral losers for the day.

 

Excerpts of an interview with Mr. B Thyagarajan MD of Blue Star with CNBC- TV 18 dated 7th May 2021:

 

  • Till 15-April-21, secondary sales were growing at a healthy pace. The increased restrictions have resulted in the slow down of Air- Conditioning and Commercial Refrigeration verticals.
  • The company feared a washout as evidenced in Q1FY21 but it actually posted a 20% lower compared to its earnings in Q1FY20. The Company hopes sales could normalize by the end of May and sees recovery in the months of June-July owing to a hot extended summer.
  • Blue Star had already hiked prices as of 1st April. As the Company has significant inventories owing to slow down, it doesn’t expect any more margin pressure and expects it to stabilize around 8%.
  • The company witnessed a stellar growth in the pharma-health care sectors across air-conditioning and commercial refrigeration verticals due to covid-19 developments and vaccine transports.
  • The manufacturing sector in both Electro-Mechanical and Air-Conditioning segments showed good growth in Q4FY21. The 1st financial quarter is seasonally focused on residential air-conditioning sees its growth prospects dampened due to lockdowns. 
  • Capacity expansion will be operational in the Wada plant for Deep Freezers by Q2FY22 and another plant is expected to be operational in H1FY23 for Air conditioning in Sri City.
  • It expects pent-up demand to drive residential air conditioning growth by around 10% for FY22 owing to prolonged work from home exposure and reduced spending on other luxuries.

 

Asset Multiplier Comments:

  • The seasonal nature of the company’s demand may impact the performance in the short term. The improved macro factors, longer summers due to climate change present good growth prospects over the long term.
  • The margins have been beaten down due to various factors, we expect pressure to ease off in the medium term.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Blue Star was ₹ 833/- as of 10-May-2021.  It traded at 44x/ 32x the consensus EPS estimate of ₹ 19/ ₹ 26 for FY22E/23E respectively.
  • The consensus price target is ₹ 790/- which trades at 30x the EPS estimate for FY23E of ₹ 26/-

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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08 May

This Week in a nutshell (May 3rd to May 7th)

This Week in a nutshell (May 3rd to May 7th)
Technical talks
NIFTY opened the week on 3rd May at 14,481 and closed on 7th May at 14,823, a weekly gain of 2%. The index is trading above its 50DMA of 14,730 which might act as a support. The short-term moving average (10 DMA) is turning up which suggests a possible rally going ahead. The RSI (55), and MACD turning upwards also indicates a positive momentum.
Weekly highlights
• The week opened on a positive note as investors cheered a strong dose of positive earnings reports as well as economic data that showed the US economy is growing. But the rally was short lived as coronavirus-induced lockdown worries weighed on investor sentiment on Tuesday.
• Reserve Bank of India (RBI) Governor Shaktikanta Das provided additional liquidity to banks for lending to vaccine makers, hospitals and providers of health services, as well as easing rules for small businesses to restructure loans which led to a rally in Pharma sector.
• The Dow Jones Industrial Average closed at a record high on Thursday, bolstered by an upbeat weekly jobless claims report, while vaccine makers dipped after US President Joe Biden backed plans to waive patents on COVID-19 shots.
• Credit Suisse has sharply lowered its real GDP growth forecast for FY22 to around 8.5-9 percent, citing economic disruptions in the country due to the raging second wave that is likely to shave 100-150 bps growth off the economy.
• April PMI data indicated a marked and unprecedented expansion in business activity across the U.S. service sector. Supporting the upturn in output was the fastest increase in new business on record. Pressure on capacity remained evident, as backlogs of work accumulated at a faster pace and employment rose at the second-sharpest rate on record. Some concerns regarding the sustainability of new order inflows weighed slightly on business confidence, although optimism remained relatively strong.
• FII (Foreign Institutional Investors) selling and DII (Domestic Institutional Investors) buying trend continued this week as well. There was a net outflow of Rs 50,920 mn from the FII kitty while DII invested Rs 21,340 mn.
Things to watch out for next week
• The 4QFY21 result season continues in the next week as well. The Commentary from biggies such as Asian Paints and Tata Power will be critical. Managements’ comments over the business impact of second wave of Covid-19 will be important. Please note that NSE will be closed on Thursday 13th May.

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06 May

Net margins to remain around 14%: L&T Infotech

Update on Indian Equity Markets:

The upward momentum in Indian markets supported by RBI announcements continued on Thursday as Nifty closed the day 107 points higher at 14,725. Within the index, HINDALCO (5.7%), HEROMOTO (4.7%), and WIPRO (4.4%) were the highest gainers while UPL (-1.4%), BAJAJFINSV (-1.0%) and POWERGRID (-1.0%) were few of the losers. Within the sectoral indices, METAL (2.5%), IT (1.8%), and AUTO (1.8%) led the gainers while PSU BANK (-1.2%), PHARMA (-0.2%), and PVT BANK (-0.1%) were the only losers..

Excerpts of an interview with Mr. Sanjay Jalona, CEO, L&T Infotech (LTI) with CNBC -TV18 dated 5th May 2021:

  • The Company will focus on investing for growth and localization in FY22E. The management is confident of achieving growth in the leaders quadrant for FY22E. 
  • The energy sector has been underperforming given the shift to renewable energy. The Company is expected to witness new avenues for growth in the segment. The management also believes that the ability for insurance companies to spend on discretionary has gone down.
  • The Company reported a 320 bps YoY improvement in EBIT margin with the help of cost rationalization efforts. He highlighted that the Company is expected to produce net margins in the narrow band of around 14 percent.
  • The Company gave FY21 wage hikes in January and has advanced the FY22 wage hike cycle to April from earlier norms of July. He said that the war for talent and attrition is going up in the Information Technology space.
  • The Company witnessed lower exit velocity, record hiring, and improved customer sentiment. The attrition rate is going up for the industry and by offering early wage hikes, Company is trying to stay ahead of the industry curve.

Asset Multiplier Comments:

  • The lower attrition rates and earlier wage hikes will help Company to retain the top talent to deliver growth for the Company. Hence the Company is confident of growth in the leaders quadrant for FY22E.
  • Tailwinds of work from home and other cost rationalizations are expected to help the Company to achieve net margins target of around 14%.

Consensus Estimates (Source: market screener website):

  • The closing price of LTI was ₹ 3,814/- as of 6-May-2021.  It traded at 30x/ 26x the consensus EPS estimate of ₹ 126.2/ 144.8 for 22E/23E respectively.
  • The consensus price target is ₹ 3,960/- which trades at 27x the EPS estimate for FY23E of ₹ 144.8/-

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.”

 

By IT, L&T Infotech , , 0 Comments Read more...
05 May

Confident‌ ‌of‌ ‌achieving‌ ‌FY22‌ ‌growth‌ ‌guidance-‌ ‌L&T‌ ‌Technology‌

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 14,618 (+0.8%). Top gainers in NIFTY50 were Sun Pharma (+5.9%), UPL (+4.8%), and IndusInd Bank (+2.5%). The top losers were Adani Ports (-3.6%), Bajaj FInance (-1.8%), and SBI Life (-1.3%). The top sectoral gainers were PHARMA (+4.1%), BANK (+1.6%), and PVT BANK (+1.5%) and the only sectoral loser was REALTY (-1.0%).
Excerpts of an interview with Mr Amit Chadha, MD & CEO, L&T Technology (LTTS) with CNBC -TV18 dated 4th May 2021

  • US & Europe back on track in terms of decision making cycles and budgets.
  • They have been a little worried about the near-term execution challenges in India. Taking that into account and assuming that things will come back sometime in May, they have guided 13-15 percent growth in revenue in FY22. However, they aspire to do more.
  • The company will be able to maintain an EBIT margin of 17 percent. They are back at 16.6 percent EBIT in 4QFY21. As they move forward, the entire focus will be to ensure they continue to grow profitably. 
  • No projects have been cancelled due to the 2nd wave of COVID.
  • There is still some headroom to achieve 80% utilization levels.
  • Attrition at 12 percent is the lowest in the industry. But Mr Chadha is expecting attrition to pick up in 1QFY22 due to seasonality. 
  • The company will be hiring 1,200 freshers in FY22 and has given increments to junior and mid-level employees effective April 1. However, senior employees will be given wage hikes from July 1.
  • Commercial aerospace segment is still weak and will take time to recover. Growth trajectory of transportation is robust; plant engineering grew 10% QoQ.
  • They have been picky on the hi-tech deals given their focus on margin. 

Asset Multiplier comments:

  • As businesses increasingly move their operations to the cloud, the demand for enabling software and services will continue to increase.
  • The ongoing pandemic has pushed many enterprises to implement work-from-home policies for the first time, and this has created a demand for collaborative applications and softwares, which is likely to drive growth for software companies.

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

  • The closing price of LTTS was ₹ 2,569/- as of 05-May-2021.  It traded at 30x/ 26x the consensus earnings estimate of ₹ 85.5/ 99.9 for FY22E/23E respectively.
  • The consensus price target is ₹ 2,486/- which trades at 25x the earnings estimate for FY23E of ₹ 99.9/-

 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.”

 

By IT, LTTS 0 Comments Read more...
04 May

Cautious on MSME Portfolio – Indusind Bank

Update on the Indian Equity Market:

On Tuesday, Nifty closed in the red at 14,497 (-0.9%). Among the sectoral indices, PSU Bank (+3.4%) was the only gainer. Pharma (-2.0%), Auto (-0.9%), and Financial Services (-0.8%) closed in the red. SBI Life (+2.7%), BPCL (+1.6%), and ONGC (+1.4%) were the top gainers. Tata Consumer (-4.3%), CIPLA (-3.1%), and Dr Reddy (-2.1%) were among the top losers.

Excerpts from an interview of Mr. Sumant Kathpalia, MD & CEO, Indusind Bank with CNBC-TV18 dated 03rd May 2021:

  • Speaking on the retail slippages, Mr Kathpalia said the increases in slippages were led by the commercial vehicle segment.
  • The collections in the month of April were 1% lower than the expected collections.
  • Speaking about MSME portfolio, he said the portfolio is worth Rs 110bn. These are loans given to small entrepreneurs for working capital requirements.
  • The loans given to entrepreneurs are secured in nature. The slippages in Q4FY21 were 3.5-4% and provisions are made.
  • The bank has given Rs 14bn into ECLGS scheme of SME portfolio. The commercial vehicle side of the book is doing well for the bank.
  • Transportation segment portfolio on the retail side is still lagging.
  • Speaking about vehicle finance, he said the disbursements had a growth of 30% YoY and in Commercial vehicles, the growth was 40% YoY.
  • The bank has a 12-14% market share in these segments and the bank will continue to maintain its high market share.
  • Speaking about the current environment, he said there is demand from large corporates and mid corporates. Going ahead the bank will stay cautious on its MSME portfolio.
  • In 4QFY21, the bank reported flat Net Interest Income (NII). Mr. Kathpalia said it was an outcome of low loan growth (3% YoY reported).

 

Asset Multiplier comments:

  • Several banks have a cautious stance on the MSME segment as lockdowns due to the 2nd wave of Covid-19 might impact small businesses.
  • In 4QFY21, Indusind Bank reported 30% YoY and 8% QoQ growth in vehicle disbursements. Certain state specific lockdowns might lead to decline in monthly auto sales which may impact the vehicle finance segment in 1HFY22E.

 

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

  • The closing price of Indusind Bank was ₹ 912 as of 04-May-2021.  It traded at 1.4x/1.3 x the consensus BV per share estimate of ₹ 614/691 for FY22E/FY23E respectively.
  • The consensus average target price is ₹ 1,046/- which implies a PB multiple of 1.5x on FY23E BVPS of 691/-.

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 Bank, IndusInd Bank 0 Comments Read more...
03 May

Plan to cross USD 1bn revenue by FY23 – Laurus Labs

Update on the Indian Equity Market:

The Nifty50 made a comeback in the last hour to end the day a little changed at 14,634. Among the index components, SBILIFE (+5.4%), BHARTIARTL (+4.5%), and ADANIPORTS (+4.5%) ended the day with gains. TITAN (-4.6%), INDUSINDBK (-2.3%), and RELIANCE (-1.9%) ended in the red. METAL (+2.2%), FMCG (+1.1%), and PHARMA (+0.3%) were the top sectoral gainers while MEDIA (-1.4%), PRIVATE BANK (-1.1%), and BANK (-1.0%) led the sectoral losers.

Excerpts of an interview with Mr. Satyanarayana Chava, Founder & CEO, Laurus Labs aired on CNBC TV-18 on 30th April 2021:

  • Laurus Labs recently declared 4QFY21 results, wherein Active Pharmaceutical Ingredient (API) revenue is up 88 percent and formulations are up 61 percent YoY. EBITDA margins reported were 33.4%.
  • They have the capacities, products to be made, and customer demand and expect reasonable growth in FY22.
  • The 30% + EBITDA margin is a benchmark. They will aim to achieve these margins to maintain healthy growth.
  • They continue to invest in infrastructure, investing Rs 7,000mn in FY21. They have earmarked Rs 15,000-17,000 mn for FY22 and FY23 for capex to augment their capacities in all 3 divisions.
  • The growth in API business has nothing to do with manufacturing Covid-19 drugs. The growth came primarily from antiretroviral, oncology and contract manufacturing for other generic companies. So far, there hasn’t been any disruption in the supply chain and no impact is expected from the 2nd Covid wave. There was an increase in logistic cost though.
  • The internal target is to cross USD 1bn in revenues by FY23E. With the capex incurred in FY21 and planned in FY22-23E, there will be a growth in revenues in FY22-23E.
  • The raw material price increase in products such as Paracetamol and Azithromycin was due to higher demand. In the products Laurus labs is manufacturing, the demand has not shot up as it has for the 2 products.
  • They are not passing on any of the incremental costs to customers. Due to covid-19, there was an incremental expense of USD 10mn, which was not passed onto customers.
  • Rather than investing in a one-time product, they are investing in the longer term. There is significant investment being made in the CRAMS business as they foresee sizeable growth in that division.

Asset Multiplier Comments

  • The ramp-up in formulations business is expected to continue over FY20-23E. The execution in the US and EU are crucial to drive the next leg of formulations growth.
  • With a renewed focus on the synthesis segment, with R&D, increase in the number of customers, and addition of capabilities positions Laurus to evolve its business mix over the next 3-5 years.

Consensus Estimate: (Source: market screener website)

  • The closing price of LAURUSLABS was ₹ 478/- as of 03-May-2021. It traded at 22x/ 20x the consensus earnings estimate of ₹ 21.3/ 23.9 per share for FY22E/FY23E respectively.
  • The consensus target price of ₹ 414/- implies a PE multiple of 17x on FY23E EPS of ₹ 23.9/-.

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.”

By Laurus labs , 0 Comments Read more...
01 May

This week in a nutshell (April 26th to April 30th)

Technical talks

NIFTY opened the week on 26th April at 14,449 and closed on 30th April at 14,631. It made a weekly gain of 1%. The index is trading above its 20DMA of 14,618 which might act as a support. On the upside 50DMA of 14,783 might act as a resistance. The RSI (50), and MACD turning downwards suggests a further possible decline.

Weekly highlights

  • The Reserve Bank of India (RBI) capped the tenure of MDs and CEOs of private banks at 15years. Promoters can hold this post for a maximum of 12 years but the RBI can choose to give them a 3-year extension under extraordinary circumstances. These rules apply to private banks, small finance banks, and wholly-owned subsidiaries of foreign banks. These new rules will apply once the tenure of existing MDs/CEOs for which approvals have been taken is completed. This will impact banks such as Kotak Mahindra Bank, where Mr. Uday Kotak has been the head of the institution for 17 years and there could be a change in the management once his term is completed in 2024.
  • The Securities and Exchange Board of India (SEBI) has directed the mutual fund (MF) industry that a fifth of the salary of top executives is to be paid in the form of mutual fund schemes they oversee. The allotment of MF units will be done every month and will be subject to a 3-year lock-in. The industry welcomed the move as it increases accountability and would ensure a better selection of securities.
  • Several automobile manufacturing companies have announced plans to shut down plants for up to a fortnight from May 1. The surge in Covid-19 cases and scattered lockdowns across states and cities are the reasons attributed to the temporary shutdown. This will impact production and sales in the June-21 quarter.
  • FII (Foreign Institutional Investors) selling and DII (Domestic Institutional Investors) buying trend continued this week as well. There was a net outflow of Rs 44571mn from the FII kitty while DII invested Rs 52833 mn.

Things to watch out for next week

  • The Automobile companies will report monthly volume data for April-21. The data will be important to ascertain the impact of the second Covid-19 wave and lockdowns on the demand.
  • The 4QFY21 result season continues in the next week as well. The Commentary from biggies such as Hero MotoCorp and HDFC will be critical.
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29 Apr

Rural demand is still strong, vehicle availability an issue – M&MFIN

Update on the Indian Equity Market:

 

On Thursday, Nifty closed 0.2% higher at 14,895. Within NIFTY50, JSWSTEEL (+9.6%), TATASTEEL(+6.6%), and BAJAJFINSV(+6.5%) were top gainers, while HEROMOTOCO (-2.4%),EICHERMOT(-2.3%), and BAJAJ-AUTO(-1.8%) were the top losing stocks. Among the sectoral indices, METAL (+4.5%), PHARMA (+0.3%), and FINANCIAL SERVICES 25/50 (+0.2%) were the highest gainers, while PSU BANK (-1.1%), AUTO (-1.0%), and FMCG (-0.4%) were the top losers.

 

Rural demand is still strong, vehicle availability an issue – M&MFIN

 

Excerpts of an interview with Mr. Ramesh Iyer, MD&Vice Chairman, M&M Financial (M&MFIN), aired on CNBC-TV18 on 26th April 2021:

  • M&MFIN represents the rural and semi-urban vehicle markets. Non-availability of vehicles has led to a lower growth in disbursements for M&MFIN.
  • MHCVswere a growth story for M&MFIN earlier and this segment has also been under pressure leading to lower growth.
  • Collections are good while disbursements are slower, again contributing to a slower growth on the balance sheet.
  • Iyer expects 2HFY22E to be strong once the availability of vehicles is smoothened. The demand in rural India is still strong.
  • Iyer thinks that they have sufficient provisioning for current book. As the 2nd Covid-19 wave is spreading to the rural areas unlike the 1st wave, M&MFIN will take a very cautious approach in 1HFY22E.
  • M&MFIN had GNPA of about 9% in 4QFY21. The seasonality of agriculture means that there is a tendency for GNPAs to go up in the 1st half of the financial year, even without Covid disruption. So 1HFY22E will be the correct period to watch out for in terms of asset quality trends.
  • Iyer is positive on the agri cash flow on back of good monsoon forecast. Infra projects were ready to start which have again faced disruption due to the second wave of covid-19. But as those projects also start post monsoon, the asset growth should be back in 2HFY22E.
  • Industry players are seeing customers wanting smaller EMIs and extended period- i.e. restructuring, which again seems necessary from customer perspective. Regulators’ decision on the same remains to be seen.

Asset Multiplier Comments

  • Several states have imposed lockdowns or restrictions to curb the rising Covid-19 cases. Vehicle demand could see further slowdown due to restricted public mobility, leading to slower disbursements for vehicle financiers.
  • Several banks as well as NBFCs that have reported 4QFY21 results have commented that current provisioning seems adequate. But the situation is still developing and any stress in the loan book will only be visible by the end of 1QFY22E.

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

  • The closing price of M&MFIN was ₹ 165 as of 29-April-2021. It traded at 1.3x/ 1.1x the consensus BVPS estimate of ₹ 131/145 for FY22E/ FY23E respectively.
  • The consensus target price of ₹ 186/- implies a PE multiple of 1.3x on FY23E BVPS of ₹145/-.

 

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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28 Apr

Preference for Margins over Volume Growth: HDFC Life

Update on Indian Equity Market:

Markets were on the rise today, with Nifty increasing 212 points to 14,865. Bajaj Finance (8.0%), Indusind Bank (4.9%), and Eicher Motors (4.8%) were the top gainers on the index while Britannia (-2.0%), Hindalco (-1.0%), and Nestle (-1.0%) were the top losers for the day. Among the sectoral indices, Bank (3.0%), Private Bank (3.0%), and Financial Services (2.9%), led the gainers while Realty (-0.6%), Pharma (-0.3%), and Metal (-0.3%) ended in the red.

 

Excerpts of an interview with Ms. Vibha Padalkar, CEO of HDFC Life with Bloomberg Quint dated 28th April 2021:

 

  • HDFC Life expects to record profit margins upwards of 70% irrespective of the covid-19 impact. 
  • Company prefers to protect high profit margins and to grow moderately than chase topline growth, especially in the protection segment due to uncertainty and higher risk due to covid-19.
  • Company aims to expand into the annuity segment which is a highly lucrative and retiral segment which is showing good potential going forward.
  • The risk associated with price hike as a result of covid-19 cannot be ruled out entirely. The company ensures that the price hike will be passed over to customers in a phased manner.
  • In order to reduce risk, the company wants to diversify its product portfolio to improve contributions from annuity and protection segments

 

Asset Multiplier Comments:

  •  The Company has identified key areas, in order to sustain growth by focusing on margins cover and sustainable growth, which provides a long term positive outlook for the company.
  • These efforts will help the company grow beyond FY22 and with the expansion of the Insurance industry is poised for stellar growth.

 

Consensus Estimates (Source: market screener website):

  • The closing price of HDFC Life was ₹ 673/- as of 28-April-2021.  It traded at75x/ 67x the consensus EPS estimate of ₹ 9/ ₹ 10 for FY22E/23E respectively.
  • The consensus price target is ₹ 758/- which trades at 76x the EPS estimate for FY23E of ₹ 10/-
  • In the case of life insurance companies, the embedded value per share is the correct multiple for valuing the company. The consensus estimate of this metric is not available on any of the websites.

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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