09 Mar

Godrej Consumer confident of ramping up production when required says CEO Gambhir

Update on the Indian Equity Market:

On Friday, NIFTY closed 2.6% lower at 10980 because of the coronavirus scare and the Yes Bank crisis. RBI’s action of seizing control of Yes Bank and the possible consequences on the financial system weakened the market sentiments. The top losers for the day were Yes Bank (-54.9%), Tata Motors (-9.5%) and Zee (-7.3%). The few gaining stocks included Bajaj Auto (1.5%), GAIL (0.8%) and Maruti (0.4%).  All the sectors were in the red. The top losing sectors were Nifty PSU bank (-5.3%), Nifty Media (-4.8%) and Nifty Metal (-4.4%).

Excerpts from an interview of Mr. Vivek Gambhir, Managing Director and CEO, Godrej Consumer Products Ltd published in Live Mint dated 06th March 2020:

  • The surge in demand for hand sanitizers and soaps in the wake of fears of the COVID-19 epidemic will not have any significant impact on earnings for GCPL since it constitutes a small business segment.
  • The rabi harvest has been good and the demand from the rural market is expected to start picking up in the next one or two quarters.
  • The market is seeing a temporary demand in hand soaps, hand sanitizers, small soaps, and handwashes as well. GCPL has enough production capacity and will be ramping up the same to fulfill the demand.
  • According to Mr. Gambhir, the Company will definitely see some temporary spikes in demand mainly in April- May timeframe.
  • GCPL is rolling out some new digital campaigns to educate consumers about the coronavirus and what they can do to protect themselves.
  • The hand sanitizers and Rs 10 soaps are around 30% of the entire soap segment for the company. The company will see an uptick in demand but will not be material enough at this stage.
  • In regard to ramping up the production capacity, Mr. Gambhir said that they have enough production capacity to meet the increased demand and don’t see any challenges in meeting those demands. GCPL is also seeing some request for export orders from other parts of the world but these are relatively small numbers and won’t be material.
  • For the soap business in India, GCPL has seen strong volume growth in Q3 and has continued to gain market share in both their brands Godrej No 1 and Cinthol. There has been some value degrowth in this particular segment but the imbalance between volumes and value is expected to be corrected over the next couple of quarters. GCPL has taken a 5% hike in soap prices given some of the increases in palm oil derivatives. The Company will evaluate if there is a need for further increase in prices. With some price increases, the Company will be able to drive a better balance between volume growth and value growth. At the same time GCPL is intensifying some of its cost reduction programs and is hoping to maintain the margins. However, if it is required to take a dip in the margins for a quarter or two to drive the volumes, they are prepared for it.  Next year, the Company is expecting a better performance from both India and international business and on the margin front, they hope to sustain the levels if not improving.
  • FMCG sector has been experiencing challenges over the last few quarters with regards to a weakening consumer sentiment, sagging rural demand and liquidity pressures in the channel still continue.
  • GCPL expectation is that over the next one-two quarters, the industry will start seeing a recovery in demand particularly led by the rural sector which has been a big cause of concern.
  • The rural sector has been growing at 0.5x the growth rate which was 1.2x or 1.3x a few quarters ago. The deterioration in growth has been significantly fair. Recently there has been some gradual recovery because the rabi crops have been good. The rural inflation also augurs well for rural consumers. It is putting more money in the hands of farmers.

Consensus Estimate: (Source: market screener website)

  • The closing price of Godrej Consumer Product Ltd was ₹ 640/- as of 06-March-2020.  It traded at 41x/ 35x/ 32x the consensus earnings estimate of ₹ 15.6/18.1/20.0 for FY20E/FY21E/FY22E respectively.
  • The consensus target price is ₹ 754/- which implies a PE multiple of 38x on FY22E EPS of ₹ 20.0/-.
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06 Mar

See a gap of 2-3 days without inventory; material shipments arriving by sea- Krishna Chigurupati, Granules India

Update on the Indian Equity Market:

On Thursday, NIFTY closed marginally higher (+0.2%) at 11,269 after a continuous losing streak in the previous days. The top gainers in NIFTY50 were Yes Bank (+26.9%), Eicher Motor (+2.9%) and Kotak Bank (+2.6%), whereas Zeel (-5.6%), Hindalco (-2.9%) and Infratel (-2.6%) were the top losers. Among sectoral indices, PSU Bank (+1.4%), FMCG (+1.1%) and Pharma (+0.7%) were the gainers while Realty (-1.1%), Metal (-0.8%) and Media (-0.7%) closed in red.


Excerpts from an interview of Mr. Krishna Prasad Chigurupati, Chairman and MD- Granules India with CNBC-TV18 dated – 3rd March 2020:

  • He said, “We just have to apply to the Directorate General of Foreign Trade (DGFT) for permissions and then they would give us permission to export based on past exports”.
  • In the worst case, maybe some of the shipments from this month may spill over to next month. Otherwise, two quarters put together he doesn’t see any big impact.
  • Most of the intermediates or the raw materials come from China. For example with regards to Paracetamol – the key intermediate comes from China and there has been a disruption or delay for about a week.
  • They have inventory for another 10 days but materials are arriving. So, there could be a gap of about 2-3 days without inventory but the shipments are already on the way and they should be getting them by next week. So, there is no issue on the inventories side.
  • It depends on how quickly the government acts on awarding permission to exports so there could possibly be little spill over into the next quarter. There could be a little fall in 4QFY20 which will be made up in the next quarter.
  • Airlifting of some products is happening. Air freights have gone up, the prices have gone up and there could be an increase in the cost of raw materials.
  • As far as their products are concerned there is absolutely no issue, everything is coming by sea. So, he doesn’t see any impact on margins.
  • They supply APIs to Indian companies, Paracetamol especially, but formulations are all for exports. They never sell any formulations within India. 

Consensus Estimate: (Source: market screener website)

  • The closing price of Granules India was ₹ 178/- as of 05-March-2020.  It traded at 13x/ 11x/ 9x the consensus earnings estimate of ₹ 13.6/ 15.5/ 19.2 for FY20E/FY21E/FY22E respectively.
  • The consensus target price for Granules is ₹ 172/- which implies a PE multiple of 9x on FY22E EPS of ₹ 19.2/-.
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05 Mar

Debt reduction plan on track – Praveer Sinha, Tata Power

Update on the Indian Equity Market:

After a small jump yesterday, NIFTY continued the declining trend on Wednesday by closing 0.4% lower at 11,254. In addition to the global markets’ anxiety, fresh coronavirus cases reported in India led to the selling pressure.  Leading the losses were YESBANK (-6.1%), EICHERMOT (-4.0%) and BAJFINANCE (-3.9%). CIPLA (+4.8%), DRREDDY (+4.1%) and SUNPHARMA (+2.8%) were among the top gainers. Among sectors, NIFTY MEDIA (-2.0%), NIFTY BANK (-1.7%), NIFTY PVT BANK (-1.7%) were the worst hit. NIFTY PHARMA (+2.0%) and NIFTY IT (+1.0%) were the only sectors to close on a positive note.

Debt reduction plan on track – Praveer Sinha, Tata Power

Excerpts from an interview of Mr. Praveer Sinha, Managing Director, and Chief Executive Officer, Tata Power published in Mint dated 4th March 2020

  • India is very dependent on China and Taiwan for sourcing solar panels. India imports 90% of its solar panels from China.  As a result, the renewable energy business in India is getting impacted by the Covid-19 outbreak. Many projects are getting delayed and the delay will last for another 2-3 months.
  • On supply of power to states, Tata Power has been waiting for more than a year for the states to resolve the issues related to tariff hike.  Tata Power will be constrained to close the units around 10th March 2020, if the issues are not resolved quickly. The issues mainly pertain to 5 states- Gujarat, Maharashtra, Punjab, Rajasthan and Haryana.
  • Out of the 5 states, Gujarat is ready to revise the power purchase agreement (PPA) with Tata Power. Maharashtra also seems to have moved forward and the new government is making a decision. Punjab, Haryana, and Rajasthan are yet to take any decision and this is where the delay in signing a revised PPA is coming in.
  • Tata Power has an accumulated loss of Rs 110 bn as of December 2019. Loses have come down drastically due to lower coal prices and better sourcing of coal as well as better blending. But the issues still need to be resolved in order to have continued supply from the Mundra plant, which is one of the lowest cost plants even with revised tariff.
  • Tata Power has concluded a deal for the synergy plant in South Africa and money will come in by March 2020. Management expects discussions for Zambia plant and shipping business to both conclude by 2QFY21E. Management also expects to divest Baramulti Suksessarana Tbk (BSSR) and Antang Gunung Meratus (AGM) by 3QFY21E. In the last 1 year, Tata Power also has been able to get more than $ 100 mn from Arutmin. Everything is on track in terms of the debt reduction plan. It is just a question of getting the right buyer and the right price. Considering all these plans, management expects Rs 60 bn of debt reduction by end of FY21E.
  • Tata Power does incremental capex for their regulated business such as transmission and distribution in Mumbai or Delhi distribution as well as some capex in generation business, especially Flue-gas desulphurization (FGD). These generate RoE of 15.5%. This capex has been helping Tata Power in improving EBITDA. Since last year, the average EBITDA has increased in the range of 22-24%. Whatever Investments the company is doing is generating good cash which is useful for growth.
  • Tata Power is also looking at monetizing some other businesses. They have great opportunities especially in renewables where they can leverage the growth they have. Tata Power already has 2,700 MW of operating renewable assets and another 700 MW is getting commissioned.
  • There is no impact on the shipping of coal. The shipping to China has actually increased as their coal mines are not operating. Tata Power is also getting all their coal shipments as they have firm contracts with all coal companies and shipping companies.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Power Company was ₹ 44.4/- as of 04-March-2020.  It traded at 10.8x/8.2x/ 7.3x the consensus earnings estimate of ₹ 4.1 / 5.4 / 6.1 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Tata Power Company is ₹ 72.3/- which implies a PE multiple of 11.9x on FY22E EPS of ₹ 6.1/-.
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04 Mar

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 479 pts up and Nifty above 11,300 level partly led by Reserve Bank of India (RBI) comment that it was ready to take appropriate actions to ensure orderly functioning of financial markets and preserve financial stability.

NIFTY Metal (+5.6%), NIFTY Pharma (+5.1%) and NIFTY Media (+3.3%) were the top-performing sectors. None of the sectors ended in the negative. Among the stocks, Vedanta (+8.3%), Sun Pharma (+7.2%), and Hindalco (+6.9%) were the top gainers. ITC (-0.6%) and Yes Bank (-0.5%) were the only stocks in the red at market close.

Expect BS-VI transition costs to hit demand; outlook for April-June quarter weak, says Rakesh Sharma, Bajaj Auto

Combination of a weak economic backdrop combined with added costs due to transition to BS-VI from BS-IV makes the outlook for April-June quarter quite weak for domestic business, is the word coming in from Rakesh Sharma, Executive Director, Bajaj Auto.

Edited excerpts of an interview with Mr. Rakesh Sharma, Executive Director, Bajaj Auto; dated 2nd March 2020:

When asked about the outlook for the next 2 months, Mr. Sharma stated that the underlying economic situation remains the same, which is a high single-digit decline in the retail industry and there are issues of transition from BS-IV to BS-VI, which will add costs April onwards. So, the combination of a weak economic backdrop combined with added costs makes the outlook for April-June quarter quite weak for domestic business.
He commented that exports have had an outstanding run. Bajaj Auto had the highest ever quarter in Q3. It had the highest ever sales in January with strong growth of 15% in February. He also informed that there is an Egypt issue, which is going to be finally brought to rest in April because last year it was in April when Egypt went down. So, without Egypt there has been good strong single-digit growth in the commercial vehicle (CV) business.
Speaking about Coronavirus he said that they are watchful about the impact of coronavirus as yet there is no impact in their markets. However, some disruption in Chinese supply chains of motorcycles will definitely be an area of opportunity for a company like Bajaj Auto, who commands 35% market share in Africa. Therefore, he expects the export performance to continue January and February the way it has been doing in Q3.
When asked about the auto component supply disruption due to coronavirus hitting the production of their peers like TVS and Hero Motocorp by 10% he said that they are impacted by less than 5%. They have taken steps of airlifting critical components although slightly expensive.
He informed that electric scooter had some sourcing from Wuhan itself, so that has got affected but other than that it’s a manageable situation for Bajaj Auto. If the trajectory of supply chain improvement continues as it is occurring in China, then he doesn’t see a disruption of production in April-May also.
He commented on BSIV to BSVI evolution and said that BS-IV stocks are under control. In fact, for motorcycles, there is about 20 days of sale taking February as sale and in others like commercial vehicles they are 11-12 days of sales. The company is going through an odd period where the company is running down the BS-IV and not yet being able to fully ramp-up the BS-VI. The ramp-up is expected to start to occur in March.
When asked about the price increase on account of BS-VI he said that the price increase is between Rs 6,000 and Rs 10,000 depending on the model. The 150cc plus model, fuel injection system is used the price increase is up to Rs 10,000. So the cost increase is between 6-10%.
He stated that when there was BS-III to BS-IV transition, the economic backdrop was that of growth. The major difference this time is that the economic backdrop is not very supportive and the demand will get impacted due to the price increase. He expects it will be 10-15% decline in April to August period and hopefully, when festivities kick in, they will serve as a trigger to reverse the down cycle.
When asked about the outlook for FY21E volume, he said that the second half will not be able to compensate for the double-digit decline of the first half and might end up even-stevens or slightly negative for the industry in the whole year.

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

The closing price of Bajaj Auto was ₹ 2,792/- as of 3-March-20. It traded at 16x/ 15x/ 14x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 173/184/205 respectively.
Consensus target price of ₹ 3,280/- implies a PE multiple of 16x on FY22E EPS of ₹ 205/-.

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03 Mar

No effect of coronavirus on supply production – Shashank Srivastava, Maruti Suzuki

Excerpts from an interview of Mr Shashank Srivastava, Executive Director – International Operations, Maruti Suzuki with CNBC-TV18 dated – 2nd March 2020:

Update on the Indian Equity Market:

NIFTY continued its losing streak on Monday, it closed at 11,133 (-0.6%). The top gainers in NIFTY50 were HCL Tech (+2.5%), Eicher Motor (+2.5%) and Nestle (+2.2%). Whereas Yes Bank (-6.7%), SBI (-5.1%) and Tata Steel (-4.7%) were the top losers. All the sectors ended losers except NIFTY IT (+1.4%). The top sectoral losers were Media (-4.6%), PSU (-4.5%) and Metal (-2.2%)

  • Speaking about the coronavirus impact on disrupting the supply chain, Mr. Srivastava says, there is no effect on the international operation as far as supply production is concerned.
  • On the domestic front, he says, as the first half (H1) figures were negative for the industry and also for Maruti Suzuki, somewhere in the range of like 16-17 per cent. The thirds quarter figures were positive for Maruti though the industry was negative.
  • February seems to be negative across the space, except for a couple of manufacturers like Ford and Renault.
  • Speaking about the BS-IV to BS-VI transition he says, the had some transition issue in February which would continue in March as well.
  • About the rural-urban split he says, Rural like last year was around 36 per cent of total sales. This year so far 38.5 -39 per cent is coming from rural areas. There has been an uptick in the second half.
  • The monsoon ending up with a positive 4% has led to the expectation of bumper rabi crop and therefore the sentiments in the rural areas are much better and that is reflected in the sales of the past few months.
  • Speaking about growth expectations, he says, the company is positive for the next year as rural demand sentimentally has been better. However, the consensus growth expectations seem to be in the range of 3-5 per cent for the industry.
  • The company has stopped BS-IV production altogether in January and now they are only producing BS-VI vehicles. The company started this transition almost a year ago.
  • The inventory of BS-IV stock is around 2500 units, which seems to be a half-day stock for the company.

Consensus Estimate: (Source: market screener website)

  • The closing price of Maruti Suzuki was ₹ 6,300/- as of 02-March-2020.  It traded at 31x/24.6x/ 20x the consensus earnings estimate of ₹ 202 / 256 / 314 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Maruti is ₹ 7,227/- which implies a PE multiple of 23x on FY22E EPS of ₹ 314/-.

 

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02 Mar

Demand intact amid high gold prices and Coronavirus: Mr S. Subramaniam,Titan

Update on the Indian Equity Market:

Amid rising concerns over Coronavirus becoming a pandemic, major global indices witnessed heavy selling with markets falling in the range of 2.5- 4.5%. India was no exception to this as the Nifty fell 420 points (-3.6%) to close at 11,202. FIIs continued to be net sellers as they sold Rs 30,648mn on Friday. The depth of weakness in Friday’s market was such that 39 out of 50 stocks in the index fell more than 2% with VEDL (-12.8%), TATAMOTORS (-10.9%) and M&M (-8.0%) being the biggest losers. Only two stocks in the index, MARUTI (0.2%) and IOC (0.1%) survived the day on the positive side. All the sectoral indices fell in the range of -2.4% (FMCG) to -7.3% (METAL) with -5.3% (IT) and MEDIA (-4.9%) being the other two biggest losers.

Excerpts from an interview with Mr S. Subramaniam, CFO- Titan, published in CNBC TV-18 on 27th February 2020.

  • Gold prices in India have hit record high levels as investors tried to shift from risky asset classes to safe assets. Mr Subramaniam said that he is not sure if there is any major impact on consumption due to the increase in gold prices and Coronavirus.
  • About Coronavirus, he said that the impact on the business due to the virus is extremely remote or small. Although the company relies on some supplies for watches from China, as of now the stock situation is not deteriorating.
  • The increase in the price of gold has not affected the demand for the company. He cited two possible reasons for this; first, people are now looking at gold as something which will be going up over time and second, there’s wedding season going on in the country.
  • In January, he gave guidance for the revenue growth around 11-13% for the quarter. He reiterated the target again in the interview as he is confident of achieving the target.
  • He talked about the demand situation in the current market. It is quite expensive to buy gold at these elevated prices. At the same time, because of issues like Coronavirus and microeconomic global situation, people may start looking at gold as an investment. As a result, there may be a pick-up in demand on the back of ETF gold coins rather than the jewellery side. Jewellery is still driven by festivals and customary requirements.
  • In the eyewear and watch business, the demand situation was not bad in January. It is still low but not as bad as it was in December. He expects a reasonable quarter for both these segments. He stated that the demand situation is possibly at the bottom and the company might witness improvement in the future.

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

  • The closing price of Titan was ₹ 1,254/- as of 28-February-2020.  It traded at 70x/ 55x/ 46x the consensus earnings estimate of ₹ 18.0/ 23.0/ 27.5 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price for Titan is ₹ 1276/- which implies a PE multiple of 46x on FY22E EPS of ₹ 27.5/- .
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01 Mar

Don’t stress about things that you can’t control

Jonathan Clements reminds us that here’s the least surprising thing you’ll read this week: you can’t control the financial markets. They’re driven by the news — and we simply don’t know what news we’ll get in the weeks and months ahead, whether it’s about the spread of the coronavirus, its impact on the global economy or something else entirely.

But don’t despair. There’s also much that we can control, including how much we save and spend, the amount of investment risk we take, how much we pay in investment costs, our portfolio’s tax efficiency and — most critically at a time like this — our own emotional reaction to market ups and downs.

Recency bias. In 2019, the S&P 500 stocks were up an impressive 28.9%, excluding dividends. This year, they’re down a fairly modest 7.8%. Which number are we focused on? You already know the answer. Instead of celebrating the huge gains enjoyed over the past decade, investors are fretting about the relatively modest losses suffered this year. Our thinking, alas, tends to be heavily influenced by whatever’s happened most recently.

Extrapolation. The S&P 500 has given up 12% over the past six trading days. The temptation is to take the past week’s losses and extrapolate them into the future. But that would be a classic investor mistake: We imagine we can forecast returns simply by looking at past performance.

Unstable risk tolerance. Will those big investment bets involve stashing more in stocks or bailing out? Which way folks jump will likely depend, in part, on how recent market action has affected their tolerance for risk. In theory, we’re supposed to figure out how much risk we can stomach and then build a portfolio that reflects that. In practice, our appetite for risk tends to rise and fall with the financial markets — and right now a lot of investors are likely discovering they aren’t nearly as brave as they imagined.

The illusion of control. Faced with danger, often our instinct is to act. That can make us feel more in control of our destiny — but it may not be good for our financial future. Most of us hold a portfolio built to help us pay for retirement and other goals in the decades ahead.

Clements concludes by asking should we mess with that investment mix simply because of a few rough days in the market? To ask the question is to answer it.

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28 Feb

Volumes impacted due to Coronavirus: V. Kalyana Rama, CONCOR

Update on the Indian Equity Market:

On Thursday, investors continued rushing to safer assets on fears that the coronavirus outbreak is fast developing into a pandemic.

The broad market index, NIFTY50 ended the day marginally lower at 11,633. The two sectoral gainers were Pharma (+0.6%), and FMCG (+0.1%). Realty (-2.4%), Media (-2.4%), and PSU Bank (-2.3%) were the top losing sectors. The top gaining stocks were Sun Pharma (+3.6%), Britannia (+1.9%), and Titan (+1.9%) while Wipro (-3.5%), ONCG (-3.0%), and JSW Steel (-3.0%) led the losers.

Volumes impacted due to Corona Virus: V. Kalyana Rama, CONCOR

Excerpts from an interview with Mr V. Kalyana Rama, Chairman and MD, CONCOR published in Mint on 26th February 2020:

  • The last quarter witnessed a drop in the volumes of the company as the demand did not pick up. Even now the business is subdued; the volumes are impacted because of the coronavirus.
  • They have guided for a flat FY20 in the last quarter looking at the volumes. If the impact of coronavirus is worse than already considered, there might be a negative side.
  • There has been a provision for the Services Export from India Scheme (SEIS) income close to ₹ 861 crores, which was disallowed by the Directorate General of Foreign Trade (DGFT). CONCOR is contesting the disallowance of those claims. Disallowance leads to the formation of committee of secretaries and approvals from the government. The process is a work-in-progress and they are waiting for the outcome.
  • The government had announced it is willing to divest CONCOR with management control, transferring 30.8% share.
  • Despite the government announcement, business is going on as usual on 41 terminals on lease from the railways. There is absolutely no disruption on the business.
  • CONCOR is continuing with rail freight price policy announced in April 2019, for the current financial year. Any price change will be only in effect from FY21 and the market will be duly notified of it. As per the previous three-quarter numbers, there was a positive effect on the top line and the bottom line.
  • The coastal shipping business made some losses in the first nine months but they are not too worried about it. They are keeping a timeframe of three years to stabilize and turnover this business.

Consensus Estimate: (Source: market screener website)

  • The closing price of CONCOR was ₹ 510/- as of 27-February-2020.  The consensus earnings estimates are not available.
  • The company declared earnings of ₹ 2.9 per share for the quarter ending December 31 2019, versus ₹ 4.5 declared for the quarter ending December 31, 2018. It declared earnings of ₹ 19.95 per share for the year ended March 31, 2019.
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27 Feb

Expect to address FDA observations in time to launch Glargine: Christiane Hamacher, Biocon Biologics

Update on the Indian Equity Market:

On Wednesday, NIFTY closed lower at 11,678 (-1.0%). The worst sectoral performers were Auto (-2.1%), Realty (-1.7%) and IT (-1.4%). There were no sectoral gainers. The top gaining stocks for NIFTY50 were YESBANK (+4.9%), SBIN (+0.4%) and HCLT (+0.2%) while the losers were GAIL (-5.1%), SUNPHARMA (-3.8%) and TATAMOTORS (-3.6%).

Excerpts from an interview with Dr. Christiane Hamacher, MD and CEO of Biocon Biologics aired on CNBC18 TV on 24nd February 2020:

  • They have received three observations from US FDA under form 483 and they are procedural in nature. They largely aim at process improvements.
  • They don’t have any repeat observations and they will be submitting an action plan very soon to address these observations.
  • They are expecting to address all the observations well in time to meet the target action date for their biosimilar Glargine in June 2020 and they expect to be in a position to launch in 2nd half of this calendar year in the US by their partner Mylan.
  • So, there is no delay when it comes to launching in the second half of 2020.
  • As a transition from New Drug Application (NDA) to Biologics License Application (BLA) for certain biologics will not actually affect their submission for biosimilar Glargine.
  • That was submitted another pathway and they are very clear that they expect their biosimilar will continue to be reviewed under the same pathway. So, they don’t foresee any delay when it comes to this review process.
  • Biosimilar Glargine together with their biosimilar Trastuzumab, and their biosimilar Pegfilgratim in the US, in the near future will be a very important component to achieve the revenue guidance of USD 1 billion that they have given for FY22.
  • They see much less competition compared to other areas like oncology and they have a huge portfolio. Along with their partner Mylan, they are very well positioned to be a leading player in the insulin biosimilar space.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon was ₹ 298/- as of 26-February-2020.  It traded at 40x/ 30x/ 23x the consensus earnings estimate of ₹ 7.5/ 10.1/ 13.1 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 313/- which implies a PE multiple of 24x on FY22E EPS of ₹ 13.1/-
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26 Feb

Ashok Leyland bets big on modular platform, says it will reduce the cost of ownership for customers

Update on the Indian Equity Market:

On Tuesday, NIFTY closed marginally lower at 11,813. The top sectoral gainers were Realty (+1.0%), IT (+0.8%) and Metal (+0.2%). The worst sectoral performers were Pharma (-2.2%), Auto (-0.7%) and Media (-0.6%). The top gaining stocks for Nifty50 were TCS (+2.3%), JSW Steel (+1.6%) and Tata Steel (1.5%) while the losers were Dr Reddy (-2.7%), Sun Pharma (-2.6%) and Hindalco (-2.6%).

Excerpts from an interview with Mr Anuj Kathuria, Chief Operating Officer (COO) – Ashok Leyland aired on CNBC18 TV on 22nd February 2020:

  • After unveiling tractor-trailer in 46-tonne category range, Hinduja Group flagship Ashok Leyland COO said modular platform range will reduce the cost of ownership for customers and the company is offering few vehicles to select customers.
  • Mr Kathuria said that the modular platform is going to have an entire range of vehicles starting from the 16-tonne right up to the 55-tonne. The platform allows the customers to configure the vehicles as per their applications and business requirements. It naturally would help them get a superior total cost of ownership and total cost of operations. It reduces the number of parts that are required to build vehicles. It inherently ensures better aftermarket support.
  • He added that the modular platform vehicles are BS-VI compliant. The technology used on BS-VI is mid-NOx technology that ensures the operating cost or the fuel efficiency or the fluid efficiency is best-in-class.
  • About the transition from BS-IV to BS-VI, he said that the offerings that Ashok Leyland can make to the customer are many more. They increase multi-fold but definitely there will be certain sweet spots in the configurations. However, if tomorrow a customer comes up with a new application and new requirement, it can be configured very quickly, most of the configurations are being homologated, so the time to market would be significantly different on this platform.
  • According to him, the Medium and Heavy Commercial Vehicle (M&HCV) growth is linked to the economic growth of the country.
  • The decline in demand for M&HCVs has been up to 45%. From his point of view, this decline is a combination of the cyclicality as well as certain structural changes that happened. Thus, the CV (Commercial Vehicle) industry will have to wait and watch the axle load norms that brought in excess capacity overnight of almost 20-25%. This would take some more time to be absorbed by the industry.

Consensus Estimate: (Source: market screener website)

The closing price of Ashok Leyland Ltd. was ₹ 81/- as of 25-February-2020.  It traded at 43x/27x/17x the consensus earnings estimate of ₹ 2.0/ 3.2/ 5.0 for FY20E/ FY21E/ FY22E respectively.

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