11 Aug

Pharma needs more government sops to ramp up API production – LUPIN

Update on Indian equity market:

Nifty started the week on a positive note, ending 56 points higher at 11,270. Within NIFTY50, CIPLA (9.5%), M&M (4.9%) and LT (4.8%) were the top gainers while EICHERMOT (-2.2%), ASIANPAINT (-1.2%) and MARUTI (-1.2%) were the top losers. All the sectoral indices closed the day in green led by PHARMA (5.5%), REALTY (2.8%), and IT (1.0%).

Excerpts of an interview with Mr.Nilesh Gupta, Managing Director, Lupin published in Mint dated 10th August 2020:

  • In the April-June quarter, the company was able to show improvement in margins even though the sales were down. Mr Gupta mentioned that margins were a function of the savings that the company was able to make in this quarter and he expects it to be sustainable even as business picks up.
  • The biggest savings came from SG&A (selling, general & administrative expenses). The company has planned to adopt a more digital approach in how they promote to doctors. 
  • In the specialty segment, Solosec (anti-infective) sales were impacted due to pandemic. The company had to cut down the sales force to a third. It has reduced the cash burn significantly. Other specialty products like NaMuscla and biosimilars like Etanercept will not get impacted in the same way and the company is continuing with its plans.
  • In case of APIs, the company was able to pass on input price increases to customers. The move away from China also opened opportunities for companies from other geographies including Lupin. The last two to three years has seen a resurgence of API and it still remains a great opportunity. The industry needs support from the government to ramp up the facilities.
  • The recent order from the US government will affect the revenues of essential medicines. Lupin has manufacturing in the US and can set up plants anywhere in the world. The order is not an individual company issue but has implications for India.

Consensus Estimate: (Source: market screener website)

  • The closing price of LUPIN was ₹ 968/- as of 10-Aug-2020. It traded at 37x/ 25x/ 21x the consensus EPS estimate of ₹ 26.1/ 38.2/ 46.5 for FY21E/ FY22E/ FY23E respectively.
  • The consensus target price of ₹ 865/- implies a PE multiple of 19x on FY23E EPS of ₹ 46.5.

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

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10 Aug

Plan to diversify and de-risk operations using QIP funds- PIIND

Update on the Indian Equity Market:

 

On Friday, Nifty closed almost flat- just 0.1% higher at 11,214. Within NIFTY50, ASIANPAINT (+4.7%), BAJFINANCE (+3.7%), and UPL (+3.5%) were the top gainers, while TITAN (-2.5%), HCLTECH (-2.1%) and INFY (-2.0%) were the top losers. Among the sectoral indices, PSU BANK (+1.0%), PVT BANK (+0.9%), and METAL (+0.9%) gained the most.  IT (-1.0%), PHARMA (-0.6%), and REALTY (-0.3%) made the most losses.

 

Plan to diversify and de-risk operations using QIP funds- PIIND

 

Excerpts of an interview with Mr.Mayank Singhal, MD&CEO, PI Industries (PIIND) aired on CNBC-TV18 dated 7th August 2020:

  • PIIND reported 41% growth in 1QFY21. Looking at 2QFY21, management expects export business to continue to grow as it is backed by a good order book.
  • For the domestic business, 1Q is about pre-placement of products. There has been a good demand with the early onset and higher levels of monsoons. Looking at present scenario, management expects domestic business to be in line with estimated growth.
  • PIIND’s latest acquisition, Isagro, started contributing to the revenues 4QFY20 onward. In 1QFY21, Isagro contributed Rs 1,000 mn to the total revenue, a growth of 13% YoY. Out of that, Rs 300 mn were exports.
  • Management expects Isagro integration to be complete by 3QFY21E. Initiative for Isagro is to make it a horticulture specialist in the distribution segment by offering different value proposition to farmers.
  • PIIND expects to commercialize 4-5 new products in FY21. New products do not have a substantial impact on revenue in the first year of commercialization. These products will do well over next 3-5 years.
  • PIIND recently raised capital via QIP. Management is looking at M&A opportunities in adjacent segments, widening technology portfolio and de-risking operations and plan to create a different organization in next 5 years.
  • PIIND was able to have a very good growth in 1QFY21 as the team anticipated certain challenges that could come arise because of China. They were able to adapt swiftly in terms of supply chain and proper management of plants. PIIND lost 10-15 days of production in the early days but is now operating at full capacity.
  • PIIND has formed 2 new subsidiaries for pharma intermediates. The discussions are in very initial phases now. Management expects to share a more detailed communication in next couple quarters.

Consensus Estimate: (Source: investing.com website)

  • The closing price of PIIND was ₹ 1,950/- as of 07-Aug-2020. It traded at 43.7x/ 35.6x/ 29.2x the consensus EPS estimate of ₹ 44.6/ 54.7/ 66.7 for FY21E/ FY22E/ FY23E respectively.
  • Consensus target price of ₹ 1,805/- implies a PE multiple of 27.1x on FY23E EPS of ₹ 66.7.

 

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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08 Aug

Think Like a Winner

As an individual investor, what’s the key to success? It’s a question Adam Grossman hears a lot, especially in volatile times like this. The answer, he thinks, is that there isn’t just one key, but rather five. The most successful investors seem to be equal parts optimist, pessimist, analyst, economist and psychologist. Together, he calls these the five minds of the investor. If you can develop and balance all five, that—Grossman believes—is the key to investment success.

  1. Optimist. When Grossman thinks of financial optimists, he immediately thinks of Warren Buffett. Now, you might imagine that it’s easy to be an optimist when you’re a billionaire. But he thinks it’s because Buffett is an optimist that he’s a billionaire. His secret—which really isn’t such a secret—is to bet on the long-term growth of the stock market. When the economy is in a recession, as it is today, with millions out of work, it’s easy to feel dispirited. It is scary, and I don’t want to diminish everything that’s going on. But as Buffett wrote in that 2008 article, “Fears regarding the long-term prosperity of the nation’s many sound companies make no sense. These businesses will indeed suffer earnings hiccups, as they always have. But most major companies will be setting new profit records 5, 10 and 20 years from now.” Of course, you can’t have 100% of your money in stocks. That brings us to the role of the pessimist.
  2. Pessimist. Many people view themselves as either a glass-half-full or glass-half-empty kind of person. But for investment success, he thinks you want to be a little of each. You’ll notice that Buffett referred to the stock market’s long-term potential. That’s an important qualification. As we’ve seen this year, things can—and do—happen that interrupt the market’s growth. That’s why it’s important to pay as much attention to your inner pessimist as to the optimist. What’s the best way to accomplish that? It isn’t complicated: You just want to keep enough of your assets outside of stocks to help you weather these interruptions. That will give you both the financial ability and the mental fortitude to get through tough times.
  3. Analyst. If the optimist believes that stocks will grow over time, and the pessimist knows that they can’t grow all the time, how do you balance the two? That’s where the analyst comes in. The role of the analyst is that of a mediator—to consider the needs of both the optimist and the pessimist. Your inner analyst should be dispassionate, focusing on the facts of your individual situation. This includes your income, expenses, assets, liabilities and goals. In short, the analyst’s job is to strike the right balance between optimism and pessimism to develop an investment strategy that’s the best fit for you.
  4. Economist. Economics isn’t exactly a scientific field and anyone’s ability to forecast the future is necessarily limited. But successful investing does incorporate certain economic concepts. At a high level, these include fiscal policy (the government’s ability to set tax rates and spending levels) and monetary policy (the Central Bank’s ability to set interest rates). And finally, it includes a sense of economic history and financial cycles. None of this means you’ll be able to predict where the economy is going. None of us can. But it does mean you’ll be better equipped to respond to events as they occur.
  5. Psychologist. Colourful commentary and dramatic predictions are all around us. That’s why the fifth, and maybe most important, ingredient for investment success is to channel your inner psychologist. Among other things, this will help you to understand the motivations—both conscious and unconscious—of others, and to see the subtext of what they’re saying and not saying. This will help you to tune them out, as needed, so you can stick to your plan.

Is investing easy? No, he doesn’t think anyone would (truthfully) claim that. But if you successfully balance these five ideas in your mind, Grossman believes you’ll tilt the odds in your favour.

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07 Aug

Tractor demand will continue to remain buoyant – M&M

Update on the Indian Equity Market:
On Thursday, NIFTY ended up 99 pts (+0.89%) at 11,200.
Among the sectoral indices, IT (+1.8%), FMCG (+1.4%) and METAL (+1.4%) were top gainers while PSUBANK (-0.32%) was the only loser.
Among the stocks, TATASTEEL (+3.8%), INFY (+2.9%) and GAIL (+2.6%) were the top gainers. EICHERMOT (-1.3%), SHREECEM (-1.2%) and ADANIPORTS (-0.9%) were the top losers.

Tractor demand will continue to remain buoyant – M&M

Edited excerpts of an interview with Mr. Hemant Sikka, President, Farm Equipment Sector (FES), Mahindra & Mahindra Ltd with Business Standard dated 5th August 2020:

Hemant Sikka commented that the company noticed a turnaround in tractor business in December. Things were going very well.

• Comments on key factors driving sales: This is the peak season for tractors. The strong demand momentum continued, aided by positive sentiments due to good cash flows to farmers, higher kharif sowing, a timely and normal monsoon cumulatively across June and July, and continued higher rural spending by the government. While it is too early to share target figures for the entire year, it is expected that this demand will continue to remain buoyant in the coming months.
• He informed that 75% of the tractor sales are on finance, M&M have aligned finances very well starting in May itself building out further in June and July. In addition to land preparation, tractors provide machine power for performing various farm applications and can be used to pull a variety of farm equipment, while also relieving the burden on farm labor and improving farmer’s livelihood.
• When asked about the supply chain constraints he replied that with tractor capacity at nearly 95%, some localized lockdowns enforced in certain cities are hampering the ramp-up of the supply chain, thus affecting production at OEMs. More than 90% of the dealers have started.
• When asked about the Capex plans, he said that K2 is a large investment, and K2 will be over by the end of FY21, some will be before FY22. (Under K2 project, the company is creating a new platform on which a new range of tractors, developed in collaboration with Mitsubishi of Japan, to further strengthen its position, both in the domestic).
• The company also made engine investments in the recent past. Investment in Swaraj tractor was also made by M&M. He further added that they are not compromising with the products for the future. It’s just that the company is completing a peak of Capex in this Capex cycle.
• While FES has a strong tractor portfolio, M&M is building technology skill sets beyond it and working on introducing a range of farm machinery, with the idea of taking technologies used in large landholding farms around the world and making them affordable and accessible to small landholding farmers. This is based on having established three global technology Centers of Excellence in Japan, Finland & Turkey, through acquisitions made over the last couple of years, from new products will be launched in FY21.
• Simultaneously, M&M is also focusing and developing Farming as a Service vertical (FaaS), which will focus on giving farmers advisory and precision farming technologies to help our farmers increase their productivity and get more output from their efforts.

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

• The closing price of M&M was ₹ 610/- as of 06-Aug-2020. It traded at 24x/18x/16x the consensus earnings estimate of ₹ 25.7/34.0/39.5 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 585/- implies a PE multiple of 15x on FY23E EPS of ₹ 39.5/-

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

By Mahindra & Mahindra 0 Comments Read more...
06 Aug

Covid19 Tests will become a part of company’s portfolio – Dr Lal Path Labs

Update on the Indian Equity Market:

On Wednesday, Nifty closed 0.06% higher at 11,102. Among the sectoral indices Metal (+4.0%), Auto (+1.8%) and Media (+1.1%) closed higher. Pharma (-0.5%), Fin services (-0.2%) and PSU Banks (-0.2%) closed on a negative side. Hindalco (+9.1%), Tata Steel (+6.7%) and Eicher Motor (+4.4%) closed on a positive note. UPL (-1.5%), HDF Life (-1.5%), and Wipro (-1.0%) were among the top losers.

Excerpts from an interview of Mr. Om Manchanda, MD, Dr Lal Path Labs with ET Now on 3rd August 2020:

  • The business was impacted in the months of April and May due to lockdown restrictions. It restricted the movement of samples to various cities.
  • The movement of patients was also impacted due to lockdown. There was a steep fall in walk-in customers.
  • The company also witness a sharp fall in OPD.
  • Recovery started in late part of May as lockdown restrictions started to get lifted.
  • They witnessed a sharp recovery in June but the trends are early as there may be pent up demand coming up.
  • The company witnessed some gains as competitors were not able to serve some markets.
  • On impact of covid on diagnostic space, Mr. Manchanda said the government has built capacity in the recent past and 60% of business is coming from the government side. The company will be working in a supporting role to the governments.
  • Tests for Covid-19 will become a part of company’s portfolio, but the trend line is not yet clear.
  • Q1 was a bad quarter for the company, non covid business had shown recovery in June. Company expects that the growth will come back in later part of the year by Q3FY21E.
  • Business related to covid is a new business for the company.
  • Historically the company had grown organically. The model is urban based.
  • The company picks up a geography and tries to cater all diagnostic needs in that area.
  • Mr Manchanda said the company is neither a wellness company nor a diagnostic company but a full-service model.
  • There are close to 215 labs as of now.

Consensus Estimate: (Source: market screener website)

  • The closing price of Dr Lal Path Labs was ₹ 1,850/- as of 5-August-2020.  It traded at 71x/50x/44X the consensus earnings per share estimate of ₹ 25.9/37/42 for FY21E/FY22E/FY23E respectively.
  • The consensus average target price for Dr Lal Path Labs is ₹ 1,769/- which implies a PE multiple of 42x on FY23E EPS of ₹ 42/-.

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

 

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05 Aug

Auto demand picking up as the festive season nears – Maruti Suzuki

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.9%, higher than the previous close at 11,095. The top gainers for Nifty 50 were Reliance (+7.4%), Zee (+6.4%), and HDFC Bank (+3.8%) while the losing stocks were Tech M (-2.8%), BPCL (-2.5%), and IndusInd Bank (-2.0%). The sectoral gainers for the day were Media (+3.8%), Financial Service (+2.3%) and Pvt Bank (+2.0%) while the losers were IT (-0.9%) and PSU Bank (-0.02%).

Edited excerpts of an interview with Mr RC Bhargava, Chairman, Maruti Suzuki; dated 04th August 2020 from CNBC TV18:

  • Auto sales in the month of July have seen a substantial improvement as compared to June and the demand is seen picking up ahead of the festive
  • Demand is beginning to pick up as the festival season is coming up. Maruti is gradually ramping up production but there are still problems as the factories are working at anywhere near 100% capacities. Safety regulations limit the capacity utilization. So with all of that, Maruti is trying to meet the demand and get up to last year without any forecast or guarantees of what is going to happen.
  • He highlighted that the number of enquiries was large and bookings were going along quite normally, compared to last year.
  • There is the pent-up demand from last year as there is some requirement of people to have mobility as the economy is opening up. However, he expects the situation for six months down to remain uncertain because of negative factors such as lower income levels of people caused by the shutdown in business activities.
  • Hospitality and travel businesses have closed down which were users of vehicles.
  • In terms of the cost of a vehicle in relation to per capita income, he believes that has gone up probably a little faster because of new regulations on safety and emissions.
  • The steel prices have never been on a straight line. There has been a period when steel prices have gone up sharply than they have flattened out and come down and then the cycle reverses. In the last two years, there were periods when steel prices were declining and they are benefited from that. Thus, he is not so worried about the increase in steel prices.
  • Talking on the personal mobility issue he said that the percentage of buying cars which are the smaller entry-level hatchbacks has gone up. The increase in the percentage of people wanting to buy small hatchbacks is an indicator that there is a requirement of people to have a small car for doing all kinds of things, going to school, going shopping and other forms of transport. So he thinks that there is some section of the consumers that needs to have personal transport instead of using shared transport or some other form of transport.

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

  • The closing price of Maruti Suzuki India Ltd was ₹ 6,361/- as of 04-August-2020. It traded at 45x/27x the consensus EPS estimates of ₹ 141/239 for FY21E/FY22E respectively.
  • The consensus target price of ₹ 5,698/- implies a PE multiple of 24x on FY22E EPS of ₹ 239/-.

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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04 Aug

Regional lockdowns creating choppiness in operations – Mahindra Logistics

Update on the Indian Equity Market:

On Monday, NIFTY closed in red at 10,899 (-1.6%). Top gainers in NIFTY50 were Tata Motors (+6.9%), Titan (+3.6%), and Tata Steel (+1.6%). The top losers were UPL (-5.4%), IndusInd Bank (-3.7%), and HDFC Life (-3.7%). The top sectoral gainers were PSU BANK (+0.5%) and METAL (+0.3%) and sectoral losers were PVT BANK (-2.9%), BANK (-2.3%), and FIN SERVICES (-2.2%).

Excerpts of an interview with Mr Rampraveen Swaminathan, MD & CEO, Mahindra Logistics with ET now dated 3rd August 2020:

  • They had expected Q1FY21 to be a very difficult quarter as they saw the full impact of the national lockdown in April and a continuing impact in May and June as well, based on lockdowns in different parts and different states.
  • As a B2B business, they have seen very significant cessation of operations for many of their customers both in terms of services and manufacturing.
  • Despite that, there were a lot of positives as well for one of their efforts on cost reduction and cost management actually showed a lot of positive results. They were able to get a marginal profit (EBITDA) for the quarter.
  • A lot of work on cash flow management and receivables management resulted in strong positive cash flow operations in the quarter.
  • It has been three very different months and June was a much stronger month. In fact, June from a revenue and earnings perspective was better than April and May together.
  • They ended the quarter with some good momentum and it is something which they are hoping to leverage on in coming quarters.
  • The pandemic had two broad sets of challenges for them, the first one was on the supply side with shortage of trucks, drivers and with reverse migration of labour.
  • Towards the end of the quarter, they started seeing a very strong recovery at least in their operations but today, they have got 65% plus of their partner fleets back in operations and maybe 80% of their warehouses are now operating.
  • There are no significant challenges there but from a demand side which is the other set of challenges, some end markets have been obviously impacted more than others.
  • Over the next few months, they are expecting two-three things to rework positively for them. First they have seen a good trajectory or traction in order intake on the segments which are growing – e-commerce, FMCG, pharma and so on. They are hoping to gain some leverage from that.
  • The second thing is that they expect the farm sector to be doing better and to continue in the near term. That will play out positively for them.
  • The third thing is that they expect volumes in their existing operations to start coming back as customers start creeping up on operations, an automotives and discrete
  • There are a series of regional lockdowns which create choppiness in operations and demand and that is something which they have to work.
  • Local lockdowns definitely have a very large impact on enterprise mobility business because they are providing services to IT and IT enabled companies and large facilities on providing employee mobility.
  • On the transportation side of their business, a large part consists of line-haul which is really movement between states and that got impacted very significantly in the national lockdown. But in local lockdowns, that is not impacted so much.
  • The warehousing and value added services especially in terms of the work which they do for the e-commerce company or consumer company where they are providing distribution solutions, they see daily impact of volumes moving up and down because of local lockdowns.
  • Through the quarter they have paid all they employees fully as they have paid their third party associates as well through the entire lockdown but they did control a lot of other controllable discretionary expenses and those things at sites and otherwise allowed them to both offset the operating cost increases because of Covid and actually even more because they were able to create the headroom to preserve overall gross margins at a percentage level despite the stop in volumes.
  • He expects that some part of those benefits will continue through the rest of this year. There will be some impact as they try to scale up operations and as they launch new sites, but some of the learning and cost reductions will be more perennial and through the rest of this year as well.
  • They will have to infuse more working capital. As an asset light company they work closely with the partners and they will obviously have some rise in working capital but they hope to be able to manage and maintain the cash flow management initiatives they have launched in the last quarter.

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

  • The closing price of Mahindra Logistics was ₹ 299/- as of 3-August-2020.  It traded at 53x/ 25x/20x the consensus earnings estimate of ₹ 5.6/ 12.2/ 14.8 for FY21E/22E/23E respectively.
  • The consensus price target is ₹ 316/- which trades at 21x the earnings estimate for FY23E of ₹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 Mahindra Logistics 0 Comments Read more...
03 Aug

It’s business as Usual – Dabur India

Update on the Indian Equity Market:

On Friday, disappointing US GDP data led to weakness in the broader Asian markets. Nifty50 ended 0.3% lower at 11,074. PHARMA (+3.6%), PSU BANK (+1.4%), and REALTY (+1.4%) led the sectoral gainers while MEDIA (-0.9%), FINANCIAL SERVICES (-0.6%), and PRIVATE BANK (-0.3%) led the laggards. Among the stocks, SUNPHARMA (+5.5%), CIPLA (+5.1%), and GRASIM (+5.0%) were the top gainers while EICHERMOT (-2.7%), RELIANCE (-1.8%), and HDFCBANK (-1.7%) led the losers.

Mr. Mohit Malhotra, CEO, Dabur India discussed the company’s 1QFY21 performance with CNBC TV-18 on 31st July 2020. Here are the edited excerpts:

  • In oral care, the toothpaste category declined 18.8% in volume terms. In terms of primary sales, grew 2.6% with Dabur Red growing ~8%. They gained market share of 63bps to reach an all-time high of 16.1% market share in toothpaste. In the markets of Orissa, Andhra Pradesh, and Chennai, Dabur is the number 1 brand in the toothpaste category.
  • Sequentially, the business has only improved. Witnessed a decline of 40% in April, in May saw growth of 2%. In June, growth is back to pre-covid levels of 6-7%, as the pipeline filling is happening.
  • July also saw a similar trend, though pipeline filling has happened. This is because DIL’s portfolio has clear tailwinds due to the focus on the healthcare portfolio.
  • Although there are certain categories and certain geographical areas that are still not performing well, overall, DIL is back to pre-covid levels.
  • Healthcare, immunity, and hygiene categories are definitely seeing a tailwind. Despite the healthcare business going down by ~40% in April has shown a growth of 30% plus.
  • The Health & Personal care and Food categories are dragging the performance. Items such as hair oils, skincare, and home care which are more discretionary in nature are not performing as well. The out-of-home consumption is majorly impacted since people are not going out, consumption of 200ml juices has declined.
  • The modern trade channel has declined by almost 25% during the quarter and continues to remain under pressure. Department stores such as Big Bazaar and DMart continue to operate below the normal levels. The open format outlets which offer home delivery to consumers are doing better. E-commerce channel has seen significant growth.
  • Other channels not performing include Horeca, institutional and enterprise business.
  • Barring localized lockdowns, all states seem to be doing well. The highest growth trajectory is seen in the Southern parts of India.
  • The rural markets have always performed very well for Dabur and there is a 1000bps difference in the rural performance vs urban performance.
  • The company is on the growth path now and looking at low to mid-single-digit growth in 2QFY20, with the tailwinds for the healthcare products and new products. Mr Malhotra is of the opinion these tailwinds are here to stay. With the penetration of products like Chyawanprash increasing, habits are formed and these habits will last even if Covid disappears.
  • The HPC category has seen benign raw material and packaging material costs. In healthcare, the surge in demand has caused a 3% inflation in the price of the herbs, which has been offset to a certain extent by an increase in prices. Overall, there will be margin improvement as the healthcare category which is margin accretive grows.
  • DIL is looking to do a capex of Rs 3000-3500 mn in line with business requirements.

Consensus Estimate: (Source: market screener website)

  • The closing price of Dabur India was ₹ 513/- as of 31-July-2020. It traded at 55x/ 48x the consensus earnings estimate of ₹ 9.3/10.7 per share for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 507/- implies a PE multiple of 47x on FY22E EPS of ₹ 10.7/-.

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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31 Jul

RBI should allow one-time restructuring rather than extending moratorium – Bajaj Finserv

Update on the Indian Equity Market:

On Thursday, Nifty ended 0.9%, lower than the previous close at 11,254. The top gainers for Nifty 50 were Dr Reddy (+4.6%), Sun Pharma (+3.7%), and Wipro (+2.5%) while the losing stocks were BPCL (-7.9%), IndusInd Bank (-5.4%), and IOC (-4.0%). The sectoral gainers for the day were Pharma (+3.1%) and IT (+0.7%) while the losers were Media (-2.3%), Pvt Bank (-2.0%) and PSU Bank (-1.9%).

Edited excerpts of an interview with Mr Sanjiv Bajaj, MD, Bajaj Finserv; dated 29th July 2020 from CNBC TV18:

  • Mr Bajaj extended support to HDFC chief Mr Deepak Parekh’s view that the Reserve Bank of India should not extend the loan moratorium.
  • Bajaj Finserv has a total of 6 months available for moratorium by September, and as the economy has started picking up from last month at varying speeds because of local lockdowns creating issues. But it is picking up other than a few key sectors like hospitality, travel, entertainment which are facing very high challenges. But most others have started at least doing okay. So, at a time like this, Mr. Bajaj believes that it doesn’t make sense to extend a blanket moratorium.
  • Moratorium numbers have come down significantly in the month of June as compared to April and May-20 for many banks & NBFCs.
  • RBI should allow one-time restructuring rather than extending the moratorium. According to him, let lenders decide on the basis of each one’s own underlying cash flows, because eventually, it should be kept in mind that there is a cost to doing all this and somebody has bear that cost. A 6-month moratorium is long enough, beyond that will start creating a moral hazard that even reasonable quality borrowers will lose the habit of paying.
  • Bajaj Finserv sees Rs 6,300 crores of credit cost for FY21E.
  • The Company was fortunate enough to raise capital for Bajaj Finance last year. They are adequately capitalised with the Rs 8,500 crore raised last year. As the two insurance companies do not need it, Bajaj Finserv has a significant capital on the books from profits of earlier years.
  • The tier-I ratio is 23-24% which he thinks is a comfortable one.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv Ltd was ₹ 6,175/- as of 30-July-2020. It traded at 2.8x/2.5x/2.1x the consensus book value estimate of ₹ 2,188/2,478/2,873 for FY21E/FY22E/FY23E respectively.
  • The consensus target price of ₹ 7,248/- implies a PB multiple of 2.5x on FY23E EPS of ₹ 2,873/-.

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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30 Jul

Gold loan is currently the easiest access to credit- IIFL Finance

Update on the Indian Equity Market:

 

On Wednesday, Nifty closed 0.9% lower at 11,203. Within NIFTY50, DRREDDY (+6.3%), TATASTEEL (+4.0%), and INDUSINDBK (+3.1%) were the top gainers, while RELIANCE (-3.9%), M&M (-2.7%) and HCLTECH (-2.5%) were the top losers. Among the sectoral indices, PHARMA (+3.1%), PSU BANK (+1.5%), andMETAL (+0.9%) gained the most.  AUTO (-1.2%), IT (-0.9%), and FIN SERVICE (-0.6%)made the most losses.

 

Gold loan is currently the easiest access to credit- IIFL Finance

 

Excerpts of an interview with Mr.Saurabh Kumar,Head- Gold Loans, IIFL Finance (IIFL)published on the Economic Times website dated 29thJuly2020:

  • In the last 1 year, gold prices have risen 50%. This is a big benefit for borrowers as they are able to borrow 50% more compared to what they could last year against the same amount of gold.
  • In the past month, there has been a 25-30% growth in gold loan business.
  • IIFL is now at pre-covid levels in terms of gold loan disbursements.
  • There is a lot of demand for gold loans from farmers and SMEs. There is a pickup in agricultural activities leading to capital requirement for farmers. As businesses try to unlock, they are also trying to bridge working capital gaps.
  • There is approximately 24,000 tonnes of gold in India and gold is saved for a rainy day. Out of the entire gold, only 5-6% is leveraged against gold loans. The current situation brought on by covid-19 is the kind of rainy day when people need to leverage gold to survive, or take control of opportunities in the current context. Thus the opportunity for gold loans is huge.
  • Primary customers of gold loans are farmers and SMEs across sectors. All of them need working capital at this point in time. Gold is the easiest access to credit currently. It requires minimal paperwork. A person can walk into an NBFC branch like IIFL and pledge theirjewelry and walk out with a loan in 30 minutes.
  • Gold loan is typically for a tenure of about six to nine months. Farmers and SME customers get flexibility to repay unlike overdraft products or a term loan where there is a fixed duration and there are prepayment charges, penalties etc.
  • Borrowers usually repay a gold loan by making a payment once in two/three months or the moment they have cash inflows. During March to May, IIFL had given moratorium to the customers which led to slower repayments. As businesses are unlocking, a lot of repayments are happening. Borrowers are opting out of moratorium and making payments. As the businesses start operating, IIFL Finance expects to see near normal levels in July and August.

Consensus Estimate: (Source: investing.com website)

  • The reported BVPS as of 1QFY21 was Rs 126.8/-
  • The closing price of IIFL was₹ 71.2 /- as of 29-July-2020 and was trading at 0.6x the 1QFY21 BVPS.
  • Consensus estimates are not available for IIFL.

 

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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