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/-

Varun Beverages Ltd. 2QCY19 – Hot summer boosts beverage sales

Dated: 2nd August 2019

Varun Beverages Ltd. (VBL) reported consolidated revenue growth of 36.5% YoY to Rs 28,105 mn in 2QCY19.
• Consolidation of South and West regions from 1St May 2019, extended summers, penetration into existing geographies and good growth from international geographies led to volume growth of 44% YoY. Out of total volume sales of 192 mn cases, 172 mn were sold in India and 24 mn cases in international markets (Sri Lanka, Morocco and Zimbabwe).
• Organic volume growth in India was 18.5% whereas it was 34.2% in international geographies. 
• Realisation per case declined by ~5% due to change in product mix in India post-acquisition of South and West sub-territories, the introduction of packages water in Morocco and lower sales realisation in Zimbabwe to avoid forex fluctuations. 
• Gross Margins declined by 70 bps as sugar prices increased by ~3%. Management expects raw material prices to be stable for CY19.
• Net debt stood at Rs. 37,295 mn as on June 30, 2019, as against Rs. 26,715 mn as on 31st December 2018. Debt: Equity ratio stood at 1.49x as on 30th June 2019 and Debt: EBITDA ratio stood at 2.95x for the trailing twelve months EBITDA. 
Management Commentary
• Company will start selling beverages in Zimbabwe in local currency now instead of USD. Hence, revenues may move up in the coming quarters, but there is a possibility of providing for higher currency depreciation. 
• Production of Tropicana Juices at its Pathankot plant has commenced from 1st Jul’19.
• The company plans to enter the dairy products market under its own brands in the coming quarters. It will be required to pay 1% royalty to Pepsi for selling these dairy brands.
• Capex for CY19 and CY20 is expected to remain less than depreciation cost.
• Company is running at ~60% capacity utilisation levels after the newly acquired regions.
• EBITDAM are expected to be in the range of 21-22% for consolidated business.
• Management expects ROCE levels to improve by 200-250 bps every year.

Consensus Estimate (Source: market screener website)
The closing price of VBL was Rs 623/- as of 02-August-19. It traded at 43x/ 34x the consensus EPS for CY 20E / CY 21E EPS of Rs 14.6/18.6 respectively· Consensus target price of Rs 713/- implies a PE of 38x on CY21E EPS of Rs 18.6

Granules 1QFY20 results: Finished dosage sales to drive margins higher

Dated: 2nd August 2019

1QFY20 result update:

  • Consolidated revenue grew 31% YoY (-3% QoQ) to Rs 5,953 mn. API, PFI and FD segments contributed to 36%,16% and 48% of revenues respectively.
  • EBITDA grew 63% YoY (+22% QoQ) to Rs 1,186 mn. Reported EBITDA margins expanded by 390 bps YoY to 19.9% from 16.0% in 1QFY19.
  • Net Profit without JV grew 55% to Rs 578 mn and net profit with the share of JV grew 61% YoY to Rs 832 mn.

Management Commentary:

  • Management has reiterated 20% CAGR growth in revenues and 25% CAGR growth in profits for the next 3 years.
  • Management has said that raw material costs risks have been mitigated so going forward raw material costs will be stable.
  • Good growth in FD sales and increased utilization of few idle capacities has led to an improvement in gross margins
  • Management has guided for ~19% EBITDA margins for FY20E.
  • Granules have guided for 8-12 filings and 3-5 approvals in FY20E.
  • Capex guidance for FY20E remains constant Rs 1500 mn.
  • Management has mentioned that they will be reducing promoter pledging which is 43% as of now to 33% in a few days and will be fully removed by FY21E.

Consensus Estimate (Source: market screener website)

  • The closing price of Granules is Rs 92/- as on 2nd August 2019. It traded at 8x / 7x the consensus EPS for FY 20E / FY 21E of Rs 11.6 / 13.6 respectively.
  • Consensus target price of Rs 142/- implies a PE of 10x on FY21E EPS of Rs 13.8.

The Value of Cash

With indices touching new highs every day, many investors start thinking that they should be 100% invested in equity markets. No one wants to hold cash as there is high opportunity cost. Instead of holding cash in the portfolio, investors want to own a stock, any stock. This is perhaps the best time to remind ourselves of the value of cash. Let us remind ourselves of how successful investors look at it.

“I think it’s [cash] actually an aggressive strategic asset because it’s one of the few things that rises in value as the market plunges. Its value is inversely proportional to how challenging the environment is” Ken Shubin Stein

“Holding cash is uncomfortable, but not as uncomfortable as doing something stupid” Warren Buffett

“I have found it wise, in fact, to periodically turn into cash most of my holdings and virtually retire from the market. No general keeps his troops fighting all the time, nor does he go into battle without some of his forces held back in reserve” Bernard Baruch

“Naysayers argue that holding a large amount of cas

stimate (Source: marketscreener website)

Kotak Mahindra Bank (KMB standalone) 1QFY20

Kotak Mahindra Bank (KMB standalone) 1QFY20: Moderation in Advances growth, stable asset quality

  • KMB reported advances at Rs 2,080 bn, 18% higher YoY.
  • NII at Rs 31,730 mn was 23% higher YoY.
  • NIM for 1QFY20 was 4.49% compared to 4.28% in 1QFY19.
  • Provisions were Rs 3,168 mn, 33% lower YoY.
  • PAT at Rs 13,602 mn was 33% higher YoY
  • GNPA and NNPA were relatively flat at 2.19% and 0.73% respectively for 1QFY20 compared to 2.14% and 0.75% respectively in 4QFY19.

Management commentary:

  • Advances growth in corporate and business banking segments has been low. Consumer and commercial advances have reported strong growth of 20%+ in FY20.
  • Management expects to continue around 20% growth in advances.
  • NIM expansion is likely due to pricing power and lower cost of funds.
  • Interest rate on Savings accounts below Rs 1 lac is reduced to 4% from 5% earlier. Benefit of the rate reduction will reflect in 2QFY20.
  • Provision for retirement benefit has been significantly higher YoY due to lower interest rates.

Consensus Estimate (Source: marketscreener website)
• The stock price was Rs 1,494/- on 23rd July 2019 and traded at 5.8x/3.7x  the consensus Book value for FY20E/21E of Rs 258/404  respectively. 
• Consensus target price is Rs 1,499/- implying PB of 3.7x for FY21E BVPS of Rs. 404/-