17 Jan

Hopes high for a moderate or even no tax hike on Cigarettes in the budget: Wadhera

Update on the Indian Equity Market:

On a much volatile session, Nifty see-sawed in both directions to end the day with a gain of 12 points to close at 12,356. The weekly F&O expiry might be the reason behind this volatility. Among the stocks, EICHERMOT (4.3%), NESTLEIND (3.4%) and ZEEL (2.8%) took the index higher whereas NTPC (-2.3%), INFRATEL (-2.0%) and JSWSTEEL (-2.0%) were the laggards. Within the sectoral indices, all but one index, METAL (-1.3%) traded in red while MEDIA (1.4%), REALTY (0.7%) and PHARMA (0.4%) were the biggest gainers.

Excerpts from an interview with Mr Bhisham Wadhera, CEO – Godfrey Philips India. The interview aired on CNBC-TV18 on 15th January 2020.

  • In the first half of FY20, the company witnessed a growth of 15% in Cigarettes business. The outlook for the remaining FY20E and FY21E depends on the outcome of Union Budget which will be presented on 1st February 2020.
  • The government has realized that moderate hike in taxes increases their revenue substantially. He is of the opinion that there will be moderate or no tax increase on Cigarettes in the coming budget.
  • Though the cigarette industry is largely dependent on GST, the government introduced excise again in the last year. The company is not sure about how this will pan out in future.
  • The domestic market share of the company increased from 11.7% in the last year to 12.8% and including Marlboro, it is coming at 13.5% right now. The bulk of this has been on the back of new markets in Andhra Pradesh & Karnataka. He said that the company has been successfully attacking the ITC bastions pretty strongly.
  • The cess on tobacco is a subject of GST whereas the excise is a subject of Union Budget. There is a possibility of increase in the excise component. Last year, it was a nominal ₹ 5 per thousand cigarettes.
  • The company has launched a Marlboro lower-priced version of regular size filter in Delhi two months ago. It is at par with Gold Flake premium of ITC. The early signs show it is doing reasonably well.
  • From March- April, the company plans to expand its footprint in the North. As of now, the company operates through 100 stores. He plans to make a presentation to the board next month on the expansion plans. By the end of February, the expansion plan will be made public.

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

  • The closing price of GODFRYPHLP ₹ 1,397/- as of 16-January-2020. It traded at 20x / 17x the consensus EPS for FY20E / 21E of ₹ 71.4/ 83.3 respectively.
  • Consensus target price of GODFRYPHLP is not available.
By Cigarette 0 Comments Read more...
16 Jan

Improved activity post the extended rains is leading to improvement in repayments.

Update on the Indian Equity Market:

On Wednesday, NIFTY closed -0.2% lower. The NIFTY was dragged down by INDUSINDBK (-5.6%), WIPRO (-3.5%) and SBIN (-1.2%). The top performing NIFTY stocks were YESBANK (+3.5%), HEROMOTOCO (+2.5%) and TATAMOTORS (+ 2.0%). The worst performing sectors were NIFTY PVT BANK (-0.9%), NIFTY BANK (-0.8%) and NIFTY IT (-0.1%). Sectors that performed well included NIFTY REALTY (+1.3%), NIFTY AUTO (+1.2%) and NIFTY MEDIA (+0.8%).

Improved activity post the extended rains is leading to improvement in repayments.

Excerpts from an interview with Mr Umesh Revankar, MD – Shriram Transport Finance Co. The interview aired on CNBC-TV18 on 13th January 2020.

  • Shriram Transport (SRTRANSFIN) has raised $ 500 mn through an overseas bond issue. The issue was oversubscribed with a demand of $ 2.2 bn.
  • The issue happened at a coupon of 5.10%. The company’s first US $ bond in April 2019 was at a coupon of 5.92% and the subsequent issue was at a coupon of 5.32%. Over the period, the cost of borrowing is coming down. The all-in, post hedging cost of the current issue is a little less than 10%.
  • The rationale behind borrowing in the offshore market is the diversification of sources of funds. The all-in cost of domestic funds currently is around 9.25% to 9.50%. Offshore cost is 50-60 bps higher as of now.  As STF goes ahead, the cost of borrowing offshore is coming down. The company’s bonds are trading lower than 5% in the market.
  • Mr Revankar believes there will be some revival in demand, especially after the steep drop in MHCV. LCV segment is doing well. Even though there is a YoY drop, last year was the peak for LCVs, against that 15% drop is still good.
  • The inventory levels with manufacturers is coming down. As inventories come down, discounts will come down. In an increasing discount scenario, people tend to wait for further discounts. CVs are earning assets. Customers look at a resale price as it is not personal consumption. When discounts start to come down, there will be more comfort in buying as the value to the asset will be established. Because of these reasons, Mr Revankar expects pre-buying to happen before the BS-VI transition.
  • Shriram Transport is expected to have AUM growth of 8-9% for FY20. Earlier, the management was aiming for double-digit growth. However, 1HFY20 was conservative in terms of lending. The company reduced LTV, controlled lending, focused on only used vehicles, and did not lend much for new vehicles. Mr. Revankar expects that confidence should come back in 2HFY20 and FY20 should see AUM growth.
  • After the extended rainfall, mining and infra activities have finally started. That’s why cement and steel prices are also moving upward. Infra and mining will give some activity for transportation and general business. There is a definite improvement in repayments.
  • On the asset quality front, Shriram Transport disruption in 2QFY20 caused by extended rains. The impact has been arrested in 3QFY20. The asset quality should definitely improve from 4QFY20.
  • Shriram Transport’s lending is to individual operators and their cash flows are not very steady. The company is very patient with customers so there will be some asset quality movement. But the management is not much alarmed by such moves.

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

  • The closing price of SRTRANSFIN was ₹ 1,097/- as of 15-January-2020. It traded at 1.4x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 807/ 933/ 1075 respectively.
  • Consensus target price of ₹ 1,316/- implies a Price to Book multiple of 1.2x on FY22E Book Value of ₹ 1075/-.
By NBFC, Shriram Transport Finance 0 Comments Read more...
15 Jan

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Update on the Indian Equity Market:

On Tuesday, Sensex ended up 92 pts higher and ended at 41,952 level and Nifty settled 30 pts higher at 12,362 level. Among the sectors, Nifty Media (+2.1%) and FMCG (+1.4%) were the top-performing indices while Nifty Private Banks closed 0.5% lower. Among stocks, Yes Bank, Indusind Bank, UPL, Reliance and Kotak Mahindra Bank were among major losers on the Nifty, while gainers were Vedanta, Britannia, Hero Motocorp, Zee Entertainment, MnM and ITC.

Huge concern among buyers to invest in under-construction projects, says Rajnish Kumar, chairman, State Bank of India (SBI)

Edited excerpts of an interview with Rajnish Kumar, Chairman, SBI; dated 13th January 2020:

  • SBI is coming up with a product where the bank backs up a builder to whom the bank has given loan and the buyer who buys homes from that builder will be guaranteed his principal no matter what happens to the builder. This is a product is for all Bank’s home loan buyers.
  • The purpose of this product is that there is a huge concern among the home buyers whenever they want to invest in under-construction projects and SBI finances them anyway, so the bank is taking project risk whenever they are giving a home loan for buying any flat in any project.
  • The level of due diligence which will be done in this case on the builder will be much higher. There is a clear advantage because SBI’s commitment on a particular project whether it is the guarantee of funding to the builder or the home loans on that particular project, they would be within the defined limit.
  • This product is SBI’s brainchild and builders are taken by pleasant surprise by this kind of thinking by the bank.
  • SBI has signed up with Sunteck. An MoU has been signed for three projects and for all these three projects due diligence will be done before approving the amount and the projects.
  • SBI is getting huge interest and a huge number of queries regarding this product.
  • The cost of the loan is same as far as borrower is concerned. As far as guarantee fees are concerned that will be charged to the builder. The financing cost for the builder is fairly high in today’s market, so there is arbitrage available and through this, there is a win-win situation for all the three — the homebuyers, the builder and the bank.
  • Home loan still continues to be one of the most profitable product for the bank.
  • SBI loan the portfolio consists of the salaried class which is a major segment for the bank. Among the non-salaried class, SBI is not as active. Among the salaried class, the defence employees, the central government, the state government, the state-owned undertaking employees are the major contributors to this segment making SBI’s market segment different. This is the reason why the percentage of NPA is very low and comparable to the best in the industry.
  • Any major economic slowdown will naturally impact SBI. However, the loan to value ratio is very low, the average is 60%. So in such a scenario where the loan to value ratio is very low and the stability of income is better, SBI is very hopeful of growing their home loan portfolio and at the same time maintaining its quality.
  • In the case of Bhushan Power, as soon as the legal stay by NCLT gets vacated, SBI expects the transaction to be closed within the next couple of days.

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

  • The closing price of SBI was ₹ 328/- as of 13th January 2020. It traded at 1.3x/ 1.2x/ 1.0x the consensus Book Value per Share estimate for FY20E/ FY21E/ FY22E of ₹ 251/282/324 respectively.
  • Consensus target price of ₹ 377/- implies a PBV multiple of 1.2x on FY22E BVPS of ₹ 324/-.
By SBI, Uncategorized 0 Comments Read more...
14 Jan

We have targeted 10-15% growth in gold loan -V.P. Nandakumar, Manappuram Finance

Excerpts from an interview of Mr V.P. Nandakumar, MD, and CEO, Manappuram Finance with Live Mint dated 13-01-2020:

Update on the Indian Equity Market:

On Monday, NIFTY closed +0.6% higher. Among sectoral indices NIFTY Realty (+2.1%), NIFTY IT (+1.7%), NIFTY Metal (+1.2%) closed higher. None of the sectoral indices closed on a negative note. The biggest gainers were Infosys (+4.7%), IndusInd Bank (+3.7%) and Coal India (+3.1%) whereas Yes Bank (-5.8%), Bharti Infratel (-1.2%), and UPL (-1.2%) ended with losses.

  • Mr Nandakumar says, the all-inclusive cost is expected to be around 11%. on January 13, 2020, the company will finalize the hedging portion.
  • The coupon rate is 5.9%. The hedging rate is yet to be finalized.
  • Mr Nandakumar says they want to diversity liability and this is a new addition.
  • The incremental cost is 9.2%, this is costly, but diversification of liability is needed as there are liquidity challenges in the non-banking financial companies (NBFCs) sector and the company is a little more cautious about that.
  • So far, the company has not been affected.
  • Speaking about the slowdown in vehicle financing, Mr Nandakumar says, they do not lend to fleet owners.
  • Primarily the thrust area is lending to the operators who have one-two trucks, this segment remains stable.
  • Recoveries remain the same. The company will be achieving around 30-35% growth in the commercial vehicle (CV) finance this year.
  • The company has targeted 10-15% growth in gold loan and they are confident to achieve it.

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

  • The closing price of Manappuram Finance was ₹ 177/- as of 13-January-20. It traded at 2.6x / 2.1x / 1.8x the consensus Book Value for FY20E / 21E / 22E of ₹ 65.7/81.3/97.6 respectively.
  • Consensus target price of ₹ 177/- implies a Price to Book multiple of 1.8x on FY22E Book Value of ₹ 97.6.
By Gold loan NBFC, Manappuram Finance, Uncategorized 0 Comments Read more...
13 Jan

Tata Motors shifts focus to cars on weak demand for CVs

Update on the Indian Equity Market:

On Friday, NIFTY closed at 12,257 (+0.3% higher than the previous close). Among the stocks, Coal India (+3.3%), Infosys (+1.7%) and Ultratech Cement (+1.6%) were the gainers. Yes Bank (-5.0%), Zee Entertainment (-3.5%), and Indusind Bank (-1.2%) were the top losing stocks. Nifty Realty (+1.8%), Nifty Metal (+1.2%) and Nifty Auto (+0.8%) were the top sectoral gainers while Nifty Pvt Bank (-0.1%) was the only sectoral loser.

Excerpts from an interview with Mr Guenter Butschek, MD & CEO, Tata Motors Ltd published in Livemint on 10th January 2020:

  • Tata Motors Ltd (TML) is betting big on passenger vehicles (PVs) to lead its turnaround plans as it transitions to Bharat Stage-VI emission norms. The move to BS-VI will give the company ‘a much more powerful play’ in the domestic market during the next fiscal.
  • With the new range of products, including upgrades for BS-VI, Mr Butschek is confident that March 2020 would be the turning point. If this gets support from the tailwinds, TML will get back to the previous growth path.
  • Referring to TML’s new product pipeline, including the company’s ambitious electric vehicle plans, Mr Butschek said the company plans to unveil 26 products at next month’s Delhi Auto Expo in February, including the 14 new commercial and 12 new passenger vehicles. This would be the biggest display of new vehicles. TML also plan global unveils of four new vehicles.
  • Mr Butschek termed the transition to BS-VI as ‘the single biggest engineering and investment effort ever’ put in by TML. He said a team of 3,500 engineers worked on BS-VI projects, upgrading over 20 engine platforms, 100 lead vehicle models and 1,000 variants. TML invested more than ₹ 1,200 crore in FY19 and hired 500 additional engineers for the process.
  • According to him, TML’s turnaround story in PVs and CVs is inspiring in terms of cost reduction. The Company has been able to reduce their breakeven point during tough times which is clear proof that they have done their homework. They are done with their investments and now they need is the volumes.
  • One key step was to bring down product development costs in its common vehicle architecture, which would form the base for several upcoming models.
  • In PVs, it has developed flexible vehicle platforms, code-named Alpha and Omega, which would power up to 12-14 new nameplates in the near- to mid-term. The new premium hatchback Altroz is going to be the first model from its Alpha architecture. The two modular platforms will also power the range of electric cars planned by the Company.
  • Mr Butschek said that TML would remain cautiously optimistic while estimating that the market would recover by 2HFY21, once the BS-VI transition is behind.
  • TML is seeing marginal improvement in retails. While the market sales volumes were flat YoY in December, TML’s sees improvement in its performance comparing the previous months.
  • For CVs, revenue from which was over four times the revenue of PVs, Mr Butschek said absorption of excess freight-carrying capacity could take up to five years, thereby hampering demand from the truck fleet owners across the country. Introduced in July-August 2018, the new axle load norms raised the permissible gross vehicle weight (GVW) of over 16-ton heavy trucks by about 12-25%, thereby creating excess carrying capacity for fleet operators.
  • A good vehicle scrappage policy could help reviving the demand for CVs in the near term, said Butschek.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Motors was ₹ 196/- as on 10-January-20. It traded at 25x/ 12x/ 8x the consensus EPS of ₹ 7.5 / 15.6 / 22.9 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 187.5/- which implies a PE multiple of 8x on FY22E EPS of ₹ 23/-
By Tata Motors , , , , , 0 Comments Read more...
12 Jan

Risk – what is it really?

Jeremy Walter writes that perhaps one of the most confusing word we use in finance – and perhaps in life in general – is risk. We are reminded of the different types of risk that investments are subject to market risk, strategy risk, small company risk, turnover risk, limited market risk, concentration risk, interest rate risk. We have risks in life that we commonly insure against. Our homes burning down. Our vehicles being totalled. Our physical ability to earn income. Us or loved ones dying earlier than expected. Healthcare and medical expenses. We have risks that we don’t think about as frequently. Inflation risk. Longevity risk. Income stability risk. Legal liability risk. And these are just the financial types of risk in our lives.

But what is the risk? Oftentimes people define it as the loss of something – which is true but perhaps doesn’t capture all dimensions of it. Walter thinks the risk is simply the chance that something doesn’t go according to plan. And if we accept that, then we need to accept the fact that our plans – financial and non-financial – need to be flexible and need to be able to adapt. In addition, the more complex the situation, the more different, independent risks and variables are involved.

We just acknowledge that risk is the price of admission to anything worthwhile. There are some types of risk that you can insure against. There are other types that you can diversify against. And there are other types you simply can’t do anything about. It’s virtually impossible to eliminate all risk. And that’s ok. As long as we’re aware of it, and we recognize the importance of flexibility. So again – the risk is three things. Risk is (1) a part of life that (2) accounts for things not going according to plan, but (3) is the price of admission for achieving anything worthwhile.

And once we realize it, maybe the risk isn’t as scary – nor as difficult to define – as we think.

By Weekend Reading 0 Comments Read more...
10 Jan

‘Biocon optimistic about hitting $1 billion in revenue by FY22 on back of new launches’ – Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon

Update on the Indian Equity Market:

On Wednesday, NIFTY closed at 12,025 (-0.2%). Among the stocks, Bharti Airtel (+3.1%), Yes Bank (+2.2%) and TCS (+2.15%) were the gainers. Eicher Motors (-4.3%), Coal India (-2.5%), and LT (-2.2%) were the top losing stocks. IT (+0.4%) and FMCG (+0.1%) were the sectoral gainers. All the sectors ended in the red.

‘Biocon optimistic about hitting $1 billion in revenue by FY22 on back of new launches’ – Kiran Mazumdar Shaw, Chairperson and Managing Director, Biocon

Excerpts from an interview with Kiran Mazumdar Shaw, Chairperson and Managing Director- Biocon published in Livemint on 08th January 2020:

  • They would get a benchmark valuation through some private equity investment before they take it to the market for an initial public offering (IPO) and according to her this is the first step where True North has invested in Biocon’s Biologics and they set a base level benchmark valuation.
  • They might raise little more private equity prior to the IPO. This gives them an idea of where they believe they can unlock the value in terms of Biocon Biologics in the next few years.
  • They have been in discussion with several private equity forums and of course True North has been first of the block and they will be socializing and entertaining other investment opportunities from other private equity firms.
  • In 2020, hopefully they will see private equity funding complete before they go for an IPO. The plan is obviously to invite private equity and use it for many of their current funding needs.
  • They have set up a very expensive biologics facility. So private equity funding will actually come in very handy instead of raising extra loans, debt finance.
  • They plan to extend the private equity funding to $200-300 million or more levels and True North is expected to take up additional stake along with others.
  • The opportunities are very well marked out, and she feels optimistic about hitting the target of $1 billion of revenue in biologics by FY22.
  • They are now in the US market with both Trastuzumab and Pegfilgrastim. Both have had pretty strong entries.
  • They have also got Glargine and Bevacizumab that will make an entry into the market by FY22 and we also expect insulin Aspart to be in the US market by that time.
  • There are many launches that are planned by FY22 and she believes that they have worked out a fairly conservative kind of metrics to get them to that FY22 billion dollar target. So that is why they remain quite confident that they will be able to hit that target.
  • She believes that they have a very robust pipeline; they have 28 molecules, either in the market or under development. They have just commissioned first expansion of their very large biologics facility in Bengaluru.
  • Biocon has to be viewed as a balanced portfolio with small molecules, biologics and research services and those who want a pure play investment opportunity in either biologics or research services can opt for either Syngene or Biocon Biologics. She thinks they have made it into an interesting investment opportunity by structuring it this way.
  • Biocon will continue to be a very strong performer considering the fact that it intends to have majority stake in both Syngene and Biologics.
  • As capex needs of biologics business are very high both in terms of manufacturing capacity as well as R&D investment, they will use the funding across the board.

Consensus Estimate: (Source: market screener website)

  • The closing price of Biocon Ltd was ₹ 282/- as on 08th January-20. It traded at 37x/ 28x/ 21x the consensus earnings estimate of ₹ 7.5/ 10.1/ 13.2 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 294/- which implies a PE multiple of 22x on FY22E EPS of ₹ 13.2/-
By Biocon, Pharmaceuticals , , , 0 Comments Read more...
10 Jan

‘Pricing is not an issue because we have hit rock bottom and it can only get better from here. It cannot get worse than this’ – Ravi Vishwanath, CFO, Teamlease

Update on the Indian Equity Market:

There was optimism in the global markets after US President Donald Trump’s comments on the Iran conflict eased worries. On Thursday, Nifty50 ended 1.6% higher at 12,216. Nifty Realty (+2.7%), Nifty Auto (+2.7%) and Nifty PSU Bank (+2.4%) were the top gainers among sectoral indices. Nifty IT (-0.2%) was the only sector that ended the day in the red. Among the stocks, JSW Steel (+5.9%), Infratel (5.4%) and Tata Motors (+5.4%) were the biggest gainers while TCS (-1.6%), Coal India (-1.1%) and HCL Tech (-0.8%) ended in the red.

‘Pricing is not an issue because we have hit rock bottom and it can only get better from here. It cannot get worse than this’ – Ravi Vishwanath, CFO, Teamlease

Excerpts from an interview with Ravi Vishwanath, CFO, Teamlease with ETNOW on January 8, 2020:

  • Talking about the outlook on the staffing business, he says they expected a better offtake in the general staffing business but some amount of slowness has percolated into Q4 from Q3.
  • The pipeline continues to be strong and they are hopeful on the deals they are pursuing.
  • There is still nervousness in the market. Temporary staffing is still okay as people expect things will be getting back to normal sooner rather than later.
  • On the productivity front, they are working on multiple projects on the tech backend. Their focus is on these backend IT projects, which are expected to contribute to productivity soon.
  • Some one-time charges had impacted the company’s margins in H1. They do not expect those charges in H2, so margins will be on similar lines as seen in the past.
  • When asked how has the acquisition of IMSI, a company focussed on infrastructure management, he said that they basically complete the portfolio of services that Team Lease has to offer in the IT staffing space. With the acquisition complete, they are now focussed on integrating all the services under a common leadership at the backend.
  • They have exited 75-80% of the margin dilutive projects they entered into last year and are hopeful of exiting from the others before 31st March. Then, they expect telecom margins to be back to 4-5% like what they were in the past.
  • There is some interest with companies for telecom staffing, which is a good sign for the telecom staffing business.
  • Since there are no entry barriers in the highly fragmented industry, there has been a lot of new entrants. However, there are huge barriers to scale in this industry. That is why there aren’t many companies with more than a 50,000 headcount. TeamLease operates with all organised players and there aren’t many smaller companies that have been able to reach that scale.
  • Since they work with recognised names, pricing does not seem to be an issue and he is hopeful that it can only get better from here.

Consensus Estimate (Source: market screener website)

  • The closing price of TeamLease Services was ₹ 2,590/- as on 09-January-20. It traded at 45x/ 31x/ 24x the consensus EPS of ₹ 57.8 / 83.3 / 110 for FY20E/ FY21E/ FY22E respectively.
  • Consensus target price is ₹ 2,900/- which implies a PE multiple of 26x on FY22E EPS of ₹ 110/-
By TeamLease , 0 Comments Read more...
08 Jan

In India, commercial vehicles unlikely to do well in 2020: Timken India CMD

Update on the Indian Equity Market:

On Tuesday, NIFTY closed at 12,052 (0.5% higher). Among the stocks, Vedanta(+3.7%), Zee (+2.4%) and Ultratech Cement (+2.0%) were the gainers. Infratel (-1.8%), BPCL (-1.5%), and Infosys (-1.3%) were the top losing stocks. Nifty Realty (+1.9%), Nifty Media (+1.0%) and Nifty Financial Services (+0.8%) were the top sectoral gainers. All the sectors ended in the green.

Excerpts from an interview with Mr Sanjay Koul, CMD, Timken India published in Economic Times on 06th January 2020:

  • Every time the emission norms change, there is a dip in the market. The commercial vehicles market dipped before the emission norms came into effect. This time because of the axle load change and the rest of the liquidity issues played a role and demand dipped.
  • According to him, the rebound is also going to be a little bit early because of the fact that the inventory corrections have taken place in the market, liquidity is going to be sorted out and is sure that the man on the road is going to be able to borrow the traditional LFOs and small truck owners will be able to go and borrow money.
  • While the inventory correction has taken place, there is going to be a little bit of pre-buying. So, January-February should be okay. After that, as the liquidity eases out and freight movement takes place, there might be a pleasant surprise of the markets coming back a little bit early.
  • Timken serves fragmented markets. Anything which has wheels or anything which is moving on stationary equipment needs a bearing. Timken has the strategy of serving the diverse fragmented markets – be it on-road, off-road, off-highway, rails, trains, power, coal, mining.
  • A large part of Timken’s business comes from the power transmission space. Timken sees a very strong offtake in terms of the wind market. Wind power has taken off, not only for domestic consumption but also a lot of gearbox manufacturers are exporting gearboxes out of India to other markets, including China.
  • According to Mr Koul, in 2020, in India commercial vehicles would not do well, but they would start coming up slowly and steadily. Rail in India would be pretty much good which is divided into locomotives, freight, and passenger. In passenger, there is a further division into mass rapid transportation, which is the Metro rail. In India, the rail system including metros is being modernized and they are being made high speed and highly safe. This market would be pretty okay. As the infrastructure push from the government takes place, the off-highway market should be okay and this is seen in December which was a decent month as far as the excavators and backhoes are concerned in India. Power coming out of thermal should not be great but at the same time, the wind would be pretty much good. On the whole, 2020 would be a mixed bag for Timken. The commercial vehicles which have huge traction as it consumes a lot of small bearings might not be great. The other areas which consume large value bearings would be okay.
  • Exports have been an important part of the Company’s strategy. For many years, they have been exporting both in terms of heavy trucks of highways and railway systems. Timken will continue exporting these to different markets around the globe. Timken currently serves Chinese, African, American, European and Russian markets. If one market is down, another market would be up. The Company has been able to serve these different export markets. But when the global markets are struggling themselves, it is a challenge for emerging markets as the supply chains have not really changed a lot in the last decade or so. But still, exports are okay for Timken, if not great.
  • For margin expansion, there are two aspects according to him. One is the cost and the other is pricing. Cost is the aspect which will act as a catalyst for Timken going forward. Timken is working on cutting waste. The Company makes sure that they do not waste a downturn. The Company continuously works on the cost front so that they optimize and generate less and less waste. Whereas on the price front, there is going to be stagnant pricing.
  • Timken’s endeavour is to make sure that they keep on generating as much value as possible as they are the leader in supply chaining the bearing pieces. Thus, Mr Koul is not unduly worried about the margin front.

Consensus Estimate: (Source: market screener website)

The closing price of Timken India Ltd was ₹ 900/- as of 07th January-20. It traded at 33x/30x/25x the consensus earnings estimate for FY20E/ FY21E/ FY22E of ₹ 27.6/30.7/36.7 respectively.

By Timken India , , , , , 0 Comments Read more...
07 Jan

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Update on the Indian Equity Market:

On Monday, NIFTY took a hit and declined 1.9% due to escalation in US-Iran tensions. India is highly dependent on crude oil imports and the market is worried about a rise in crude oil prices and the resultant rise in inflation. Among the sectoral indices, the worst hit were NIFTY PSU BANKS (-4.3%), NIFTY METAL (-2.9%) and NIFTY BANK (-2.6%). No sector closed in the green. Among NIFTY50 stocks, SBIN (-4.6%), BAJFINANCE (-4.5%) and VEDL (-4.5%) were the worst hit. TITAN (+1.5%), WIPRO (+0.3%) and DRREDDY (0.04%) were among the very few gainers.

Disbursement growth is not a priority in current market conditions- MD, Sundaram Finance.

Excerpts from an interview with Mr TT Srinivasaraghavan – MD, Sundaram Finance. The interview aired on CNBC TV18 on 2nd January 2020.

  • Being a vehicle finance lender, Sundaram Finance has been impacted due to the demand slowdown across the auto sector.
  • Mr Srinivasaraghavan says there is no underlying reason for the demand situation to change as far as CVs, especially MHCVs, are concerned. He does not see any green shoots as of now. Some green shoots might be visible 3QFY21 onwards.
  • There is little bit of replacement demand for buses by municipalities and state governments. Not so much improvement on the Infrastructure front.
  • Infrastructure was the engine that drove the economy for the last 5 years and everyone had hoped that would continue. Expected action on the infrastructure front by the government hasn’t happened. If the FM’s recent announcement of Rs 102 tn infrastructure projects kicks off, then there could be some serious projects coming up that would trigger buying.
  • Sundaram Finance’s disbursements in 1HFY20 were 1.5% lower YoY compared to 15.5% growth YoY in 1HFY19.  Mr Srinivasaraghavan says that disbursement growth is not in the top 3 priorities in current conditions. With PVs down 18% YoY, MHCVs down 52% YoY and overall CVs down 22% YoY, now is not the time to chase growth. Maintaining robust portfolio quality and maintaining healthy margins are the priorities. These are turbulent times and one must fasten their seatbelts and hang on.
  • Sundaram Finance has seen a significant lowering in the cost of funds compared to a year-ago period.  Their market share has also improved, partly due to liquidity issues faced by some players. But even though the market share has improved, the market size itself has shrunk.
  • Sundaram Finance’s asset quality has deteriorated from GNPAs of 1.3% at the end of 4QFY19 to 2.2% as of the end of 2QFY20. Mr Srinivasaraghavan does not think the asset quality will improve dramatically in the near term although it will go back to more reasonable levels eventually.
  • NPA is a fair reflection of the stress the customers are facing. Transport operators are facing enormous stress due to a combination of overall economic factors such as projects not happening, terrible freight rates, state government pulling the plug on already running or awarded projects.  The operators will need 6-9 months for them to get out of this pressure on cash flows. The best that the company can do is to nurse the customers through this difficult period even if the asset quality is what it is.
  • Sundaram Finance has seen a small element of pre-buying from some larger customers in the last weeks of December. Mr Srinivasaraghavan’s suspicion is that they are coming up for replacement in the next 3-6 months and that’s why they are buying now when they can better negotiate the BS-IV prices. Also perhaps there are specific sectors where customers are seeing some green shoot. But green shoots all around is not the case yet.

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

  • The closing price of SUNDARMFIN was ₹ 1,611/- as of 06-January-2020. It traded at 3.1x / 2.8x / 2.6x the consensus Book Value for FY20E / 21E / 22E of ₹ 514/ 582/ 623 respectively.
  • Consensus target price of ₹ 1,826/- implies a Price to Book multiple of 2.9x on FY22E Book Value of ₹ 623/-.
By NBFC, Sundaram Finance 0 Comments Read more...