20 Apr

Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL)

Update on the Indian Equity Market:

On Friday, NIFTY ended up 273 pts (+3.05%) above 9200 level as Reserve Bank announced a slew of liquidity-boosting measures to support the economy during the coronavirus crisis. The RBI further eased bad-loan rules, froze dividend payments by lenders and pushed banks to lend more by cutting the reverse repo rate by 25 basis points.

Among the sectoral indices, PVTBANK (7.4%), BANK (6.6%) and FIN SERVICE (5.5%) were among the top gainers while FMCG (-1.1%) and PHARMA (-0.5%) were the losers. AXISBANK (13.9%), EICHERMOT (+9.9%) and ICICIBANK (+9.7%) were the top gainers. NESTLEIND (-2.9%), HUL (-2%) and INFRATEL (-1.9%) were the top losers.

Not working on Remdesivir generic; eyeing HCQ opportunity: Mr G V Prasad, Chief Executive Officer (CEO) and Co-Chairman of Dr Reddy’s Labs (DRL) edited excerpts of an interview dated 16th April 2020:

DRL shares have risen over the past few days on speculation about the company being in the early stages of developing a generic version of anti-viral Remdesivir, owned by Gilead. The stock has risen around 32% over the last month and is at a 52-week high. Remdesivir is an experimental anti-viral drug being studied for Ebola, and in some cases, used on a compassionate ground against COVID-19.

DRL had no rights to work on a generic version of Remdesivir as Gilead still owned the patent. Prasad also said his company was not in talks with Gilead for contract manufacturing of Remdesivir, or for any licensing agreement.

DRL was looking at opportunities in other drugs which are being explored for treating COVID-19. Anti-malarial drug hydroxychloroquine or HCQS is one such. DRL is currently selling it in the US through a local partner. So far, DRL had not been selling it in India, but could look at it if there is strong demand. Besides the HCQS the company sells in the US, there is no COVID-19 drug that DRL is associated with.

DRL was facing a shortage of the active pharmaceutical ingredients (APIs) for HCQS, since its supplier is in Europe. But for the industry in general, supply was not an issue.

The other drug which is being explored as a cure for COVID-19 is ivermectin which is currently used for treating head lice. Exploring this drug as a cure for COVID-19 is at early stages with human trials not having commenced.

DRL continued to explore all non-patented drugs. Mr Prasad is of the view that for finding a cure to COVID-19, one needs to reposition existing drugs first, followed by vaccines and try novel drugs only as the last resort.

Drug repositioning is a drug development strategy predicated on the reuse of existing licensed drugs for new medical indications. According to Mr Prasad, repositioning existing drugs already might have a higher chance of success and novel drugs won’t be an immediate solution. The novel drugs being tested for COVID-19 include Gilead’s Remdesivir and Fujifilm’s influenza antiviral drug Avigan.

On manufacturing, DRL US sites and factories were functioning normally, and the staff at the offices were working from home. In India, there were some logistics issues in the initial days of the lockdown, but those have been overcome and the factories are now operating at “good” capacity.

He said the pace of approvals for its US drugs were progressing at a ‘normal’ rate. Similarly, Mr Prasad said too much should not be read into the recent spate of Establishment Inspection Reports received by multiple Indian facilities over the past few days. The EIRs received according to Mr Prasad were for the facilities which had ‘reasonably good’ inspections. For the industry as a whole, the quality of systems and level of compliance have matured resulting in these successful inspections.

On the fundamentals of the business, Mr Prasad said due to the recent disruptions, his company was slightly late in responding to the queries issued by the USFDA on their two key drugs in the US pipeline — contraceptive drug Nuvaring generic and multiple sclerosis drug Copaxone generic. They are in the process of finishing some work in order to reply to the queries on these two drugs within a few weeks. There is a renewed focus on India, Prasad said. This would not be acquisitions alone but through pipeline development and marketing as well.

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

The closing price of Dr Reddy’s was ₹ 3,940/- as of 17-April-20. It traded at 34.4x/ 27x/ 23.2x the consensus EPS estimate of ₹ 112/ 143/ 167 for FY20E/ FY21E/ FY22E respectively.
Consensus target price of ₹ 3442/- implies a PE multiple of 20.6x on FY22E EPS of ₹ 167/-

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

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18 Apr

Learning from Charles Schwab

Charles Schwab built a Fortune 500 company whose value compounded at an average rate of 19% a year since IPO in 1987; twice the growth rate of the S&P500. The customer was at the heart of everything Schwab did. He entered a race that for fear of revenue loss, the large incumbent brokers didn’t want to be involved with, a lucrative niche providing customers with cut-price stock transactions which he exploited and expanded with new technologies. Charles Schwab tells his story in a recent book, ‘Invested – Changing forever the way Americans invest’.

Following are his views on the Stock Market & Investing

“With the stock market, there are no guarantees. You can guarantee service, costs, quality, and certainly integrity. But you can’t guarantee performance; Risk is just part of the deal.”

“I don’t think human nature deals very well with the patience and strong stomach investing requires. We’re wired for fight or flight.”

“I have now seen nine crashes in my life, and it still troubles me that investors react this way [sit on the sidelines], because it always ends the same. The market roars back and leaves too many investors sitting on the sidelines missing out. Sometimes I wish I could just tie them to their chairs to help them ride out the temporary storm. To this day our advice is the same: ‘Panic is not a strategy, stick with your investment plan, and don’t let emotions get the better of you.’ Heeding that advice when you’re in full panic mode is just not easy. People aren’t wired to be good investors.”

“The most natural instinct is to run for the door. To sell. Sell everything,’ I said [in 2008 when reaching out to clients]. ‘You’ve got to fight that emotion because you want to be able to hang on for the recovery. Which has happened every time we have had an experience like this in my career and that goes back now some 40 years … nine different cracks in the market like this. Smart investing is about taking it year by year. It is a little bit of a nightmare, but we handle those by living through them and looking forward to better days.’ Did I get the timing right with my advice? Not exactly. You never do. And that’s exactly the point… Timing the market is impossible. As the saying goes, it’s not timing the market that counts, but time in the market.”

“Successful investing is not easy, that’s the bottom line. It involves so much of your emotions, your sense of self-worth, your ego.”

source: http://mastersinvest.com/

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17 Apr

India will bounce back faster- Mr RC Bhargava

Update on the Indian Equity Market:

On Thursday Nifty closed marginallyhigher at 8,993. Among the sectoral indices NIFTY IT (-1.8%), NIFTY FMCG (-O.59%) closed lower. NIFTY Media (+2.6%), NIFTY Bank (+1.8%) and NIFTY Pharma (+1.8%) closed higher. NTPC (+6.9%), VEDL (+5.2%) and Hindalco (+5.1%) closed on a positive note.HCL Tech (-4.0%), Tech M(-3.8%) and Kotak Bank (-3.3%) were among the top losers.

Excerpts from an interview of Mr.R.C.Bhargava, Chairman, Maruti Suzuki India with ET Now on 15th April 2020:

  • Speaking about the partial lockdown, Mr. Bhargava said starting their own undertaking or factory is not enough as all other components required in cars must be available. That means all the company’s vendors must be functioning anywhere in the country.
  • But as per the current situation, this is not likely to happen because several vendors are in the containment zone and that is one issue.
  • If the company can get all the components by finding alternative sources and get the retail going, then all systems will be in place for starting production.
  • According to him, even if the lockdown is lifted on May 3rd, still the company will have to monitor the situations in red zones.
  • He refrained from giving any guidance as it will depend on the productions and kind of demand that gets developed in the market.
  • Speaking on change in consumer behavior of a car buyer, he said there is one school of thought which says that there is a likelihood of consumers holding back because of the uncertainty about what is happening and not making big-ticket purchases. There is another school of thought which points out what happened in China where after the lockdown was lifted, consumers started to buy more and more personal transport because they are reluctant to use public transport. Now here in India, the situation could be either of the two or something in between.
  • Cost-cutting and becoming more competitive was even earlier a very important thing for India but now, it is something which has become much more important now than it ever was.
  • It is an area where both industry, as well as governments, should pay attention because competitiveness is going to be the key going forward.
  • In his opinion, it will be a challenge for companies which are not cash rich. The promoters and management will have to live a frugal life so that more cash can remain within the company.
  • Speaking about the changes in the way a car is sold, he said the company had experienced a sharp uptick in the number of digital enquiries. People will still come to showrooms and the company will ensure every possible safety measure is taken.
  • India will bounce back much faster because of the demand situation in India and if the measures taken by the government do resolve in making the manufacturing more competitive, then the economy will bounce back faster in India than any other place in the world.
  • Speaking about launching new models he said people are developing new models and they are in different stages of development and there is no particular reason for postponing the introduction of a new model.
  • The lower end vehicles will recover faster. On Job losses he added, 2020-21 may not be very exciting but there will be a lot of opportunities. It is not the time to get rid of people as it is not easy to get people with skills.

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

  • The closing price of Maruti Suzuki was ₹ 5,148/- as of 16-April-2020.  It traded at 26.4x/ 23.5x/ 18.2x the consensus earnings per share estimate of ₹ 195/219/282 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price for Maruti Suzuki is ₹ 6,830/- which implies a PE multiple of 24.2x on FY22E EPS of ₹282/-.

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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16 Apr

No need for retrenching employees, call on pay cut will be taken soon: Keki Mistry, CEO of HDFC

Update on Indian equity market:

Indian markets opened on Wednesday higher but erased all the gains towards the end as Nifty closed 69 points lower at 9,196. Among the sectoral indices, six out of 11 indices closed in the red led by FIN SERVICES (-2.8%), BANK (-2.2) and PVT BANK (-2.1%) whereas FMCG (4.2%), REALTY (1.8%) and MEDIA (0.9%) were the highest gainers.  Within the index, KOTAKBANK (-5.7%), HEROMOTOCO (-4.7%) and BAJFINANCE (-4.4%) led the index lower while UPL (8.0%), HINDUNILVR (5.4%) and BRITANNIA (5.2%) closed the day higher.

Edited excerpts of an interview with Mr Keki Mistry, CEO, HDFC published on CNBC TV18 on 14th April 2020:

  • Sharing his views on the announcements made by PM Modi on 14th April, Mr Mistry said that there will be calibrated reopening of the economy. Certain industries which are very critical and necessary for the smooth functioning of the economy might be a part of this calibrated reopening starting from 20th
  • According to him, the critical thing at this point is to ensure that there is enough liquidity in the system.
  • He made a request to the Reserve Bank of India (RBI) to provide funding to the National Housing Bank (NHB), which is 100% owned by the government. Through the NHB, the RBI can provide the funding to Housing Finance Companies and something similar could be done for Non-Banking Financial Companies.
  • According to him, certain sectors of the economy like hospitality, hotels, airlines, real estate have been badly hurt by the crisis. They need some sort of a special stimulus.
  • Commenting on the cost-cutting measures, he said that the salary cost is not a major expense for the company as about 1.5% of the total expenditure for HDFC is spent on salaries.
  • The company currently has 3,500 employees and he believes that there will be no need to look at retrenching employees. Pay cuts are being studied on a day to day basis and the company will come out with something in the coming days.
  • He said that retrenchment and pay cuts could be a problem in certain sectors. However, in the financial sector, retrenchment may not be a major concern.

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

  • The closing price of HDFC was Rs 1,594/- as of 15-April-2020. It traded at 3.2x/ 2.9x/ 2.7x the consensus Book Value estimate of Rs 506/ 544/ 598 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of Rs 2,594/- implies a PB multiple of 4.3x on the FY22E BV estimate of Rs 598/-
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15 Apr

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Update on the Indian Equity Market:

On Monday, the Nifty closed 1.3% lower at 8,993 amid reports that the 21-day lockdown to contain the spread of the virus which ends on Tuesday might be extended. Pharma (+2.8%) and Metal (+1.9%) were the only sectoral gainers. Realty (-4.9%), Media (-3.3%), and Financial Services (-3.1%) were the top losing sectors. Among the stocks, the biggest gainers were Larsen & Toubro (+6.4%), Hindalco (+6.0%), and Bharti Airtel (+4.5%). Bajaj Finance (-10.3%), ZEEL (-8.4%), and Bajaj Finserv (-6.9%) led the losers.

Testing times with zero revenue and major fixed costs – Sandeep Kataria, Bata India

Excerpts of an interview with Mr. Sandeep Kataria, CEO, Bata India published in Mint on 13th April 2020:

  • As per the Union and State government guidelines, Bata India has closed both, the retail and online stores and factories. As a result, they are looking at a zero-revenue situation for the entirety of the lockdown period.
  • In the short-term, the revenues will be impacted but will recuperate slowly once the markets are allowed to open. Should the lockdown continue, it would be a difficult time for the company as there are major fixed costs to be paid. A government stimulus is needed soon, else managing the costs without revenues would become very difficult.
  • They have refrained from layoffs and are ensuring timely payment of salaries. This cannot continue for a long time. Landlords and mall owners have their own problems too. Hence, Bata is requesting the government to allow a moratorium on its debts in the short term. This might help the landlords pass some relief to the company as well.
  • Second, they request a wage subsidy from the government. The leather and footwear industry employs approximately 4.5 million people and Bata wants to make sure that there is no job loss as a result of the crisis. Hence, they are seeking a job support subsidy at 50 percent of the minimum wages from the government for at least four months.
  • Additionally, the industry has sought relaxation of statutory payments such as the goods and service tax (GST), provident fund and income tax.
  • Bata India has started production of masks and face shields at their Batanagar factory in Kolkata and donates these to the local hospitals, Police authorities, and communities. Additionally, the washable shoe range can help essential services staff stay safe.
  • They request the policymakers to classify footwear in the essential category of items and allow them to operate e-commerce delivery, and stores for limited hours to begin with.
  • Bata employs more than 10,000 people and salary cuts and layoffs are something they are looking to avoid. They need government support to ensure it does not come to that.

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

  • The closing price of Bata India was ₹ 1,198/- as of 13-April-2020.  It traded at 40x/ 34x/ 29x the consensus EPS estimate of ₹ 30.1/ 35.4/ 40.7 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price of ₹ 1,767/- implies a PE multiple of 43x on FY22E EPS of ₹ 40.7/-

 

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13 Apr

Expect more pressure on power demand if lockdown persists- AK Singh, CMD, NHPC and Rajeev Sharma, CMD, Power Finance Corporation

Update on the Indian Equity Market:
On Thursday, NIFTY closed in green at 9,112 (+4.2%). Top gainers in NIFTY50 were M&M (+17.5%),
Maruti (+13.9%) and Cipla (+13.1%). The top losers were HUL (-3.3%), Dr Reddy’s (-2.2%) and Tech M
(-2.1%). Top sectoral gainers were Auto (+10.5%), Financial services (+5.8%) and Pvt Bank (+5.1%).
There were no sectoral losers.

Excerpts of an interview with Mr AK Singh, CMD of NHPC and Mr Rajeev Sharma, CMD, Power
Finance Corporation (PFC) with CNBC -TV18 dated 9 th April 2020:

  • The power ministry is working on a liquidity package for the sector and it has also issued a host of clarifications on relaxations for the distribution companies (DISCOMS).
  • After this scheme of 90-days moratorium, they have finalised their scheme for moratorium and the board has approved this and some DISCOMs are paying, some are not but as the situation unfolds, he is expecting the payments, said Mr Sharma (PFC).
  • He further added that they have prepared an action plan also for these three months to mobilise funds because they need to make repayments for their borrowings but they don’t see any problem. There is enough liquidity in the market.
  • Detailing the liquidity package which the government is pondering over, he added it is under advanced stage of discussion with the ministry of power.
  • They are requesting for a robust payment security mechanism as they extend further loans to DISCOMs, they are asking for a state government guarantee along with a provision in their annual budget for their repayments.
  • Very soon, this liquidity infusion scheme will be out and REC and PFC will be helping the state DISCOMs to pay the receivables.
  • “Just 21-day lockdown is not going to create much problem for us and it is not going to last more also. We are planning to restart the project which is on hold right now. So, I don’t think there is going to be much difference on this account for a company like us,” Mr. Singh added.
  • Power demand has declined 25-30 per cent. If the lockdown continues, this will put further pressure on DISCOMs and there will be more stress on balance-sheets.
  • As of now, he doesn’t see any problem of liquidity in the market. Enough money is available. Long-term Repo Operations (LTRO) has been declared by Reserve Bank of India (RBI), they are in consultation with State Bank of India (SBI).
  • It is cheaper money and banks can lend it over and above their exposure limits. In LTRO, that limit won’t be applied, so they are in consultation with SBI for that and with other banks also for commercial papers and other taxable bonds also, Mr Sharma explained.

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

  • The closing price of NHPC Ltd was ₹ 22/- as of 9th April 2020.  It traded at 8x/ 7x/ 7x the consensus earnings estimate of ₹ 2.8/ 2.9 /3.3 for FY20E/21E/22E respectively and the closing price of PFC Ltd was ₹ 90/- as of 9th April 2020.  It traded at 4x/ 3x/ 3x the consensus earnings estimate of ₹ 24.4/ 29.6 /34.8 for FY20E/21E/22E respectively
  • Consensus target price for NHPC Ltd. is ₹ 27/- which implies a PE multiple of 8x on FY22E EPS of ₹ 3.3/- and Consensus target price for PFC Ltd. is ₹ 136/- which implies a PE multiple of 4x on FY22E EPS of ₹ 34.8/-.

 

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11 Apr

Should I wait for the bottom?

Howard Marks, a renowned investor answers the important question, “Should I wait for the bottom?” In short, the answer is no. Since bottoms are only found out after the fact, buying on the downswing offers more opportunities than the alternative — waiting for some “all clear” signal.

Jon reminds us on his website that the old saying goes, “The perfect is the enemy of the good.” Likewise, waiting for the bottom can keep investors from making good purchases. The investor’s goal should be to make a large number of good buys, not just a few perfect ones. Think about your normal behaviour. Before every purchase, do you insist on being sure the thing in question will never be available lower? That is, that you’re buying at the bottom? I doubt it. You probably buy because you think you’re getting a good asset at an attractive price. Isn’t that enough? And I trust you sell because you think the selling price is adequate or more, not because you’re convinced the price can never go higher. To insist on buying only at bottoms and selling only at tops would be paralyzing…

The bottom line for Jon is that he is not at all troubled saying (a) markets may be considerably lower sometime in the coming months and (b) we’re buying today when we find good value. He doesn’t find these statements inconsistent.

With as fast as the market’ moved in the past two weeks, the question might be updated to: “Did I miss the bottom?” Arguments can be made for both yes and no. The correct answer is it’s impossible to know today. Besides, not holding tight to opinions on this is more important than having one. Jan –March quarter earnings, over the next few weeks, will offer some insight into the impact. But April –June quarter numbers will tell the tale. The best-case scenario is we won’t find out the real hit to companies — revenues, earnings, etc. — until sometime in July, at the earliest. Duration is still the biggest unanswered question right now. How long will it last? How will the market react to companies that report no revenues for a month? Two months? A quarter?

Investing is about understanding potential risks, placing bets based on those possibilities, but also being prepared for alternative outcomes. That’s why investing is a tradeoff. Finding the perfect balance between attack and defend in your portfolio is never easy. But if you go all-in thinking the market bottomed in an attempt to not miss the recovery, and you’re wrong, then you lose.  But if you’re all-out and wrong, you miss out on gains and also lose. Investment survival is a necessity. So finding a good enough balance, that you’re comfortable with, is key.

Jon concludes that the only guarantee is that when all this blows over, everyone will wish they had more cash to invest, that they bought more stocks, and at a better time. That’s the painful lesson with risk — not all risks are realized but we still need to prepare for it just in case.

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09 Apr

Hospitality industry will see strong recovery after crisis ends: Indian Hotels

Update on the Indian Equity Market:

On Wednesday, Nifty closed -0.5% lower at 8,749.  The top gainers for Nifty 50 were Vedanta (+3.7), Sun Pharma (+4.8%) and Cipla (+4.6%) while the losing stocks for the day were Shree Cement (-3.8%), TCS (-3.8%) and Titan (-3.7%). The sectoral gainers were NIFTY Pharma (+3.5%), NIFTY Auto (+1.9%) and NIFTY Media (+1.8%). The losing sectors were NIFTY Realty (-1.4%), NIFTY IT (-0.8%) and NIFTY Bank (-0.6%).

Edited excerpts of an interview with Mr Puneet Chhatwal, MD and CEO of The Indian Hotels Company Ltd.; dated 7th April 2020. The interview aired on CNBC-TV18.

  • The travel, tourism and hospitality sector has been hit hard across the world in early March.
  • In India, occupancy levels at hotels are close to zero due to the nationwide lockdown. Indian Hotels reveals that the average occupancy rate at the group’s hotels has fallen by 90%. Hotels are more or less empty, with some islands of excellence in extended stays at Indian Hotel apartments in Mumbai, which are always occupied.
  • The Indian hospitality and tourism business has another equally important component and that is the food and beverage business. With all the restaurants, bars, gym, salon and spas shut, the revenue drop is significant for the industry, according to Mr Chhatwal.
  • According to Mr Chhatwal, the international business would recover completely only by January 2021. If Indian Hotels get recovery, the recovery could be very strong especially on the domestic front. The international front will take a long time, but the Indian market is very much influenced by the domestic side of the business and that is the key at least in FY21E.
  • According to him, it is too early to calculate the economic damage due to this crisis. The hospitality business slowed down 10 days prior to the imposition of the restrictions. Within a week or 10 days, the industry will have clear visibility about the damage.
  • Mr Chhatwal says Indian Hotels would not reduce tariffs to attract customers to post the crisis ends. The reduction in prices or tariff is not a long term strategy but is a tactic to survive maybe for a few months. Ultimately if pricing is a strategy, then in Indian Hotel, it is the beginning of the end, according to him. So, at the moment their key priority will be the safety and security of their guests, and medical staff that is staying with them in different properties in Mumbai.

Consensus Estimate: (Source: market screener website)

  • The closing price of The Indian Hotels Company Ltd was ₹ 75/- as of 8-April-2020. It traded at 26.8x/ 23.4x/ 16.7x the consensus EPS estimate of ₹ 2.8/ 3.2/ 4.2 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 154/- implies a PE multiple of 34.2x on FY22E EPS of ₹ 13.
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08 Apr

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Update on the Indian Equity Market:

On Tuesday, Nifty closed 8.8% higher at 8,792, taking cues from global markets.  All components of NIFTY50 ended with gains led by INDUSINDBK (+25.0%), AXISBANK (+20.1%) and GRASIM (+15.0%). All sectoral indices also ended with gains. NIFTY PVT BANK (+11.1%), NIFTY PHARMA (+10.4%) and NIFTY BANK (+10.4%) gained the most.

Biosimilars will have a huge impact on global healthcare – Kiran Mazumdar Shaw, CMD, Biocon

Edited excerpts of an interview with Kiran Mazumdar Shaw, Chairperson and Managing Director of Biocon Ltd.; dated 1st April 2020. The interview aired on CNBC-TV18.

  • Biocon received an Establishment Inspection Report (EIR) with Voluntary Action Indicated for it’s Malaysian unit in respect of production of glargine. Insulin glargine is a long-acting, manmade version of human insulin.
  • This is an important EIR for Biocon and with that, the management is confident that the approval will come in sooner than later. Inspection went well but in terms of launch, management needs to keep track of current crisis as US is going through a very bad phase.
  • Post the crisis, there will be a huge effort to bring down healthcare costs. Biosimilars will be extremely important in this effort. Insulin therapies are also going to play a very important role in cost cutting and biosimilar glargine, insulins and others are going to be extremely important.
  • In terms of opportunity, biosimilars business is a USD 7 bn business globally and USD 4 bn business in the US. With biosimilars, the access to insulin glargine is much larger. Biocon has a very important role to play in providing affordable access to glargine.
  • Including the private labs in testing for the current crisis has been a good move on part of the government. The issue regarding less number of approved kits is resolved and more kits are now being produced. The challenge now is that state governments are now restricting private labs from testing. Maharashtra, Telangana, Gujarat, West Bengal have put heavy restrictions on private labs. If private labs are restricted from conducting tests in large numbers, the purpose of including them in the testing arena is defeated.
  • Biocon has a turnover target of USD 1 bn in Biologics by FY22E. There is a lull created by the logistics issues currently. However, the target is still 2 years away and management hopes that the crisis will pass soon. This is a time when biosimilars will have a huge impact on global healthcare and that’s why Biocon will have a very big role to play.
  • The private sector is in close cooperation with government on various fronts including research, private testing, vaccine development, therapy developments and antibody based serological testing. This crisis has shown that we have to focus on these areas and our public health system has to be improved and there is a lot of opportunity for us to build a very robust healthcare ecosystem.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon was ₹ 319/- as of 7–April–2020. It traded at 42.5x/ 31.9x/ 24.5x the consensus EPS estimate of ₹ 7.5/ 10.0/ 13.0 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 311/- implies a PE multiple of 23.9x on FY22E EPS of ₹ 13.
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07 Apr

IT industry adopting new methods to tackle the crisis: C P Gurnani Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

Update on the Indian Equity Market:

On Friday, NIFTY ended up 170 pts down (-2.06%) at below 8,100 level as ratings downgrade for the banking sector, due to the impact of the crisis and ensuing stressed asset concerns, impacted the financial stocks.

Among the sectoral indices, PHARMA (4.8%), and FMCG (0.7%) were the only gainers while PVT BANK (-5.5%), BANK (-5.3%) and FIN SERVICE (-4.3%) were the top losers. SUNPHARMA (+9.6%), CIPLA (+8.3%) and ITC (+6.7%) were the top gainers. AXISBANK (-8.9%), INDUSINDBANK (-8.3%) and ICICIBANK (-7.4%) were the top losers.

IT industry adopting new methods to tackle the crisis: C P Gurnani

Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra

India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent said Mr Gurnani.

The world is heading towards a ‘new normal’ due to the current crisis, by almost forcing businesses to work from home, the IT industry has learnt a lot from this event.

Edited excerpts of an interview C P Gurnani, Chief Executive Officer (CEO) and Managing Director (MD) of Tech Mahindra; dated 31st March 2020:

His views on the current crisis and its impact on IT industry – He is of the opinion that India has been very lucky. Even today, only ~ 1,100 cases though it’s true that India’s testing infrastructure is not as strong as the US. Everyone is also praying that with rising temperature, the propagation of the virus will be reduced. So, he is not expecting further lockdown but probably a new normal will be kicked in. The new normal is, people will keep safe distance and they will be a lot more hygienic than ever before.

When asked what the industry as a whole has learnt, he divided this into three chapters. The first one is the period ‘before the crisis’, second is ‘during the crisis’ and third is ‘after the crisis’. He said that everyone knew that they have to become healthy, but had been ignoring it. Everyone knew that they have to reduce pollution. During the pandemic, many things have become reality. It was an opportunity for Tech Mahindra and others to take those decisions, which were never taken before. Tech M have now introduced many collaborative tools and launched workstation as a service, remote diagnostics networks, content delivery platforms and omni-channel retail experiences and so on. Many of these platforms were ready but were not launched yet, but now it is becoming a reality.

When asked about the challenges in the ‘post crisis’ environment he stated that the reality is the government agencies have now officially declared recession. India has spent only 0.3 per cent (of the GDP) and the World Bank has suggested the countries to spend up to 6-7 per cent. He thinks there is headroom to kick-start the economy. Consumers’ confidence comes back very fast. Infrastructure spending will increase the cash flow. Though the B2B businesses will take little longer (to come back to shape), he thinks the doomsayers are being very negative. It is less than a year cycle of recovery.

His comments on hospitality, travel and aviation sector: Hospitality sector is not a big one for Tech M as it contributes less than 3 per cent of the total revenue. Travel and hospitality have also seen these challenges in the past. Besides, this sector has always been the first one to get impacted. But the sector also bounces back.

When asked about the benefit to Tech M from the Telecom Vertical as the company has a good exposure to this sector, he said that he is not denying it but everyone is in crisis. Keeping the human capital intact and lights on are important themes.

He was asked about the sales team performance, whether they are still chasing for deals on ground or stopped. He replied that everyone is talking to everybody. No conversation has stopped. In fact, the number has increased. However, we need to remember that the sales team are not talking to organizations, but only to individuals. Clients are not having their board meetings or committee meeting now. Everyone is on a fire-fighting mode. Overall, he is proud of the associates for the way they have rallied. Offices in the Philippines and India are not working, but none of Tech M’s customers has been impacted.

He also added that almost 90 per cent or their employees are working from home. The remaining go to office because of the data security norms. So, the density is less than 6 per cent in the offices. Work from home has actually helped in enhancing the overall productivity. They are using various tools to measure the productivity.

His views on laying off staff to withstand the business losses in IT industry: Each company has its own strategy. What Tech M have conveyed to their people is that the company would rather offer advances to their employees who earn less than ₹ 35,000 per month. They will offer this to temporary or even sub-contract workers, as Tech M understands they require their support a lot more.

With regards to buy back, he said that looking at the current scenario he feels it will be unfair at this point to take advantage and he won’t recommend it to the board.

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

The closing price of Tech M was ₹ 524/- as of 3-April-20. It traded at 10.4x/ 9.6x/ 8.6x the consensus EPS estimate of ₹ 49/ 53/ 59 for FY20E/ FY21E/ FY22E respectively.

Consensus target price of ₹ 793/- implies a PE multiple of 13.4x on FY22E EPS of ₹ 59/-

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