06 Jan

JSW Steel expects to be a 50 mn ton company by 2030: Seshagiri Rao Joint MD & Group CFO, JSW Steel

Update on the Indian Equity Market:

On Friday, Sensex fell over 162 pts and Nifty ends below 12,250. Market remained under pressure following US action to kill a top Iranian commander in an airstrike that ratcheted up tensions between the two countries.

Among the sectors, IT and pharma ended higher, while selling seen in the auto, bank, infra, FMCG and metal stocks. Among stocks, Zee Entertainment, Bharti Infratel, Asian Paints, Eicher Motors and Axis Bank were among major losers on the Nifty, while gainers were Sun Pharma, TCS, HCL Technologies, Tech M, GAIL and Infosys.

JSW Steel expects to be a 50 mn ton company by 2030: Seshagiri Rao Joint MD & Group CFO, JSW Steel

Excerpts from an interview with Seshagiri Rao, Joint Managing Director & Group CEO, JSW Steel; dated 2nd January 2020:

  • For the steel industry to be understood, one has to see what is happening globally because it is a globally traded commodity. Almost one-third of the steel is traded globally.
  • The trade dispute between China and the US was the starting point which led to an overall slowdown in the global economy and that has impacted the steel industry.
  • The steel-consuming sectors like construction, infrastructure, real estate, manufacturing and auto have seen slowdown globally and that has an impact. Global developments contributed to a bigger slowdown in India.
  • The slowdown in government expenditure and credit flow to the industry together had a very serious impact in the overall fall in demand and also fall in prices. At the same time, raw material prices have not fallen in the same proportion.
  • The FTA countries like Japan, Korea, and Asian countries continue to export steel into India because it has zero percent duty. It has gone up from around 58% last year to 77%. All these factors led to a fall in steel prices in India.
  • A bit of recovery was seen in Oct-19. So, the Dec-19 quarter ended EPS is going to be better which is heard from other steel companies. They have reduced inventories and their sales were better in the last quarter. This is the trend seen, which is expected to be better in the third quarter compared to the second quarter and 2HFY20 is expected to be better.
  • Steel prices have started going up from November 2019. Otherwise, the domestic prices are at a discount to the landed cost of imports in India. But prices are picking up and that is positive news stemming from the revival in domestic demand.
  • International prices used to be $430 and currently it is close to $520. Rupee depreciation has happened in India. So there is a scope for increase in domestic prices.
  • The international prices have started going up and in line with that, local prices have started increasing. Now, everybody has come back to the market for restocking and that is also one of the reasons why the price increases are seen.
  • JSW Steel increases the price every half year. So, whatever price fall has happened in the first half of the financial year, has been renegotiated for the second half. The prices in the second half for the auto sector were much lower than the current prices. This is one of the reasons why the price increase other than the auto sector will be better in the second half of this year over the last year because nobody is expecting global prices will fall below these levels so in line with that the local prices also will increase.
  • As far as India is concerned, steel demand will be driven by mostly infrastructure construction and real estate. The national infrastructure pipeline which has been announced for an investment of Rs 102 lakh crore in that the roads, energy, and urbanization will contribute close to 60% of the total infrastructure build in India. Out of the 60%, they are mostly steel-consuming industries where steel demand is quite positive for this pipeline of national infrastructure which has been announced.
  • The demand for steel in India is expected to look up from here on. JSW Steel is the only company which has been bringing in new capacity of 5 mn ton in FY21. And at the same time, downstream capacity expansion by 4 mn ton is coming up. This downstream capacity is in high value-added products. The expansions are very well-timed. The 18 mn ton capacity will go to 23 mn ton.
  • JSW Steel is currently running at 15-16% of present installed capacity. Even if it is assumed that current market share is maintained in the overall installed capacity, if 300 million ton is India’s capacity by 2030, JSW steel will be in the range of 45 to 50 mn ton by 2030. Considering the pace of growth in India, if this 300 million ton is expected to be achieved even earlier than 2030, JSW Steel will also grow at the same pace.

Consensus Estimate: (Source: market screener)

  • The closing price of JSW Steel was ₹ 272/- as of 3rd January 2020. It traded at 14x/ 12x/ 10x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 19/23/28 respectively.
  • Consensus target price of ₹ 253/- implies a PE multiple of 9x on FY22E EPS of ₹ 28/-.
By JSW Steel, JSW Steel 1 Comment Read more...
05 Jan

Five Behavioural Resolutions for Investors in 2020

Joe Wiggins wrote this excellent article on his website.

The notion of a New Year’s resolution now seems more associated with lofty aspirations and hasty failures, rather than substantive and prolonged change.  Yet for investors caught in the daily cacophony of market volatility, financial news and perpetual performance assessment; opportunities for genuine reflection are scarce. Most of us spend our time dealing with the noise of the present rather than considering how we might make better long-term investment decisions.

Even if introspection over the New Year period doesn’t result in a dramatic change, any occasion that affords investors even a modicum of space for contemplation away from every day should be grasped readily.  And for those investors in need of resolutions to follow, here is a shortlist of simple (but not easy) goals driven by insights from behavioural science:

Make a set of market / economic predictions for the year ahead: Most of us are aware of our general incompetence at making forecasts and predictions, but most of us engage in it anyway.  In order to disabuse any notions of prescience, simply write down some market forecasts for the year ahead and then review them in 12 months’ time. This will provide a cold dose of reality.  This task should be carried out each year to prevent us from getting carried away if we get lucky with one round of predictions.

Check your portfolio less frequently: The best defence against most of our debilitating behavioural biases is to engage with financial markets less regularly. The more we review short-term performance and pore over every fluctuation in the value of our portfolios, the more likely it is that we will make poor, short-term decisions. The common wisdom that being ‘all over’ our portfolio is some form of advantage is almost certainly one of the most erroneous and damaging beliefs in investment.

Read something/someone you disagree with each week: Confirmation bias is incredibly damaging for investors and its influence appears to have been exacerbated by the rise of social media. We follow those who share our principles and read articles we know we will agree with, whilst haranguing those with contrary views.  This is easy and it makes us feel good.  The problem, however, is that there are things that we currently believe that are wrong, and if we live in an echo chamber we are unlikely to find out what they are.

Keep a decision log: Our memories are incredibly fickle. It is not simply that we forget things, but that we re-write history based on information that we receive after we have made a decision. It is almost impossible to learn from our past judgments unless we have a clear and simple record of what we were thinking (and feeling) at the time we made a decision.

Be comfortable doing nothing: Particularly for professional investors, the pressure to act can be overwhelming. Financial markets are in a perpetual state of flux and uncertainty, and investors are expected to constantly react: “something has changed, what are you doing about it?” Doing nothing can be seen as lazy, negligent or incompetent when in the majority of cases it is the best course of action.  Sticking to your principles and enjoying the long-term benefits of compounding sounds easy, but the behavioural realities of investment mean that this is far from the case.  Doing nothing requires a great deal of effort.

By Uncategorized, Weekend Reading 0 Comments Read more...
03 Jan

2020 will be the best year in terms of recoveries – Rajnish Kumar, SBI

Excerpts from an interview of Mr Rajnish Kumar, Chairman, State Bank of India with live mint dated- 02-01-2019:

Update on the Indian Equity Market:

On Thursday, NIFTY closed +0.8% higher. Among sectoral indices NIFTY Metal (2.7%), NIFTY PSU Bank (+2.0%), NIFTY PVT Bank (+1.2%) closed higher. NIFTY IT closed on marginally negative. The biggest gainers were Tata Motors (+5.1%), Tata Steel (+4.3%) and UltraTech Cement (+4.2%) whereas Eicher Motors (-2.3%), BPCL (-1.0%), and Bajaj Auto (-0.9%) ended with losses.

We offer research services on the Indian equity market and plan to offer investment advice shortly. For information on our services, please visit our website http://www.assetmultiplier.co.in/

  • Mr Kumar says, there is an issue around credit growth particularly in the corporate sector. This year, estimated growth is around 7-8%.
  • Non-performing assets (NPAs) are alright, atheist the recoveries are happening.
  • Term loans are growing. The year-on-year growth is ₹1.7 trillion. Last year, the bank had seen good disbursements and that helped to achieve high credit growth of 13%.
  • He says the pickup in capacity utilization has not happened as of now. It would have been reflected in working capital utilisation if there was any pickup.
  • Speaking about sector growth, he says, only three sectors have proposals with SBI – roads, solar and city gas projects or oil and gas.
  • Speaking about Jet Airways, he says, it has been left to resolution professional. If the RP decides to go for one more round of bidding, then the bank will make one more attempt.
  • The pace of referrals with National Company Law Tribunal (NCLT) will come down. There are not many cases now that are ₹1,500 crore and above.
  • Speaking about steps expected by government or RBI to revive growth, he says, some sector-specific steps are required, telecom issues need to be sorted out.
  • In terms of recoveries, the coming quarters are going to be the best. 2018 was the best year in terms of NPA provisions and 2020 will be best year in terms of recoveries. 2021 onwards things will be normal unless there is a major shock.

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

  • The closing price of SBIN was ₹ 339/- as of 02-January-20. It traded at 1.3x / 1.2x / 1.0x the consensus Book Value for FY20E / 21E / 22E of ₹ 251/ 281/ 322 respectively.
  • Consensus target price of ₹ 376/- implies a Price to Book multiple of 1.1x on FY22E Book Value of ₹ 322/-.
By Bank, SBI , 0 Comments Read more...
02 Jan

On track to achieve 10% loan growth in FY20: VP Nandakumar, Manappuram Finance

Update on the Indian Equity Market:

The stock market started 2020 on a cautious note as Nifty posted muted gains of 14 points to reach 12,182. Among the stocks, the gainers were led by ADANIPORTS (3.1%), POWERGRID (2.7%) and NTPC (2.1%) whereas TITAN (-2.8%), EICHERMOT (-1.9%) and INDUSINDBK (-1.5%) were the laggards. 6 out of 11 sectoral indices were in the red with MEDIA (-0.6%), AUTO (-0.5%) and REALTY (-0.3%) being the top losers while IT (0.5%), FMCG (0.3%) and FIN SERVICES (0.2%) were the gainers.

Excerpts from an interview with Mr VP Nandakumar, MD & CEO, Manappuram Finance published on ETNOW:

·        Manappuram has achieved net profit CAGR of 40% in the last 10 years. Mr Nandakumar talked about the strategy which helped the company to deliver growth. The company was focusing on reducing the contract period in gold loan from one year to three months with an option to the customer to renew that every quarter by paying full interest plus bringing the LTV to the new level.

·        The company is able to collect the interest almost every month now and the auctions have come down drastically. It used to be around 4-5% of the total disbursals in the past which has come down to less than 0.5% now.

·        He said that the emphasis is now on new customer acquisition and maintaining the customer base through the use of digital gold loan platform. This facility allows customers to store their jewellery for free. He can also use the gold to avail and service the loan 24 hours a day. Even after office hours, the company observes transactions worth millions of rupees taking place through online platform. Even on holidays, sometimes it touches ₹ 1,000 mn.

·        The company has given a guidance of 10% growth in the loan book for FY20. He is confident of achieving the target. As for the geographies, the growth has been seen all over India, other than the Southern states. This is because of the lower competition amongst the organised lenders. The Bimaru states (Bihar-Rajasthan-Madhya Pradesh-Uttar Pradesh) are showing better growth, the reason being low competition in the states. The strategy of expanding into places, where there is a high concentration of unorganised lenders is paying off for the company.

·        In the last few months, gold prices have gone up and the average LTV in the books have come down. It is somewhere near 60% now which indicates that many of the customers are not availing the full LTV. Maybe around 5-10% or maybe at the maximum 15% of the customers may go for the highest LTV. Others borrow on the basis of their need. The contract period is only for three months. The average life of the loan is around 70 days only. At 70 days average duration plus the LTV of around 60% and ticket size of around Rs 35,000, The Company is insulated by price fluctuation.

·        About the non-gold segment, the asset quality remains the same without any vitiation like in microfinance and the collection remains around 99%. The strategy is to focus on quality. It also enjoys the highest credit rating from CRISIL– AA minus and because of that, the liquidity comfort for the company remains good. For other businesses like vehicle finance, our GNPA was around 2.9% in the last quarter. That has been maintained at the same level whereas the industry GNPA remains higher.

·        In the home finance segment, NPAs are brought down consistently. This quarter, the company plans to bring it to around 4% and towards the end of this year, the company is trying to further bring it down to around 3%. The asset quality in non-gold segments will be improved at the cost of business, still, these businesses like microfinance may grow at around 30%, vehicle finance also may grow around 30%, as would CV financing.

Consensus Estimate: (Source: market screener website)

·        The closing price of Manappuram Finance was ₹ 177/- as of 01-January-20. It traded at 2.7x/ 2.2x / 1.8x the consensus Book Value estimate for FY20E/ FY21E/ FY22E of ₹ 65.7/ 81.3/ 97.6 respectively.

·        Consensus target price of ₹ 177/- implies a PB multiple of 1.8x on FY22E BV of ₹ 97.6/-.

By NBFC , 0 Comments Read more...
01 Jan

Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

Update on the Indian Equity Market:

On Tuesday, Sensex fell over 307 pts and Nifty ends below 12,200. Markets witnessed profit booking ahead of the press conference from the FM.

Among the sectors, NIFTY AUTO was down by 0.9%, NIFTY IT by 0.8% and NIFTY Bank by 0.6%. Among stocks, NTPC, Sun Pharma and ONGC were the major gainers in the Sensex pack, while Tech Mahindra, Bajaj Auto and Reliance Industries were the major laggards in the trade today.

Butylphenol to be Vinati Organics’ growth driver for the next 2-3 years: Vinati Saraf Mutreja MD & CEO, Vinati Organics

Excerpts from an interview with Vinati Saraf Mutreja, Managing Director & CEO, Vinati Organics; dated 30th December 2019:

  • In 2006, Vinati Organics (Vinati) was a single product company. 2007-08 was a turning point for Vinati as growth of ATBS (Acrylamido tertiary-butyl sulfonic acid), star product for Vinati, suddenly picked up and Vinati started exporting IDB (Iminodibenzyl)
  • In 2010, Vinati started manufacturing IB, which is a raw material for ATBS. Backward integration helped in gaining economies of scale. Presently, Vinati is one of the largest manufacturers of IB with ~60-70% market share.
  • Vinati has a philosophy of generating wealth from waste or value-added products from waste which not only reduces the effluents but also reduces operating costs. These have been some of the key factors that have led to the growth of Vinati over the last decade.
  • Vinati is setting up a plant for manufacturing Butylphenol. These products go into fragrances, plastics, resins and they are at present imported from Korea, Singapore, etc. That is going to be the growth driver for the next two to three years.
  • ATBS, IBB are growing at 10% to 15% year on year. Similarly, talking about innovation, Vinati has about seven to eight products in the R&D pipeline and even if one or two see the light at the end of the day, they are expected to result in significant revenue. Vinati is looking at doubling revenues in the next three to four years.
  • The industry segment is quite diversified and they go from pharma to water treatment, to agro, to oil and gas. Vinati does see a bit of a slowdown coming from the oil and gas industry. The only way to make up for that is to keep adding new products into a portfolio and to keep diversifying.
  • In ATBS, Vinati competes with China and because of the new tariffs in the US, ATBS has become more competitive in the US but at the same time, the Chinese have started dumping the product in the rest of the world, especially Europe. So in the end, it is a zero-sum game and also because Vinati is into niche products. For other products, Vinati does not face much competition from China. In fact, it is a market for both, IBB and ATBS are exported to China and because of the environment crackdown, especially on Ibuprofen front, Vinati has seen a bit of a slowdown in the IBB segment this year from China.
  • ATBS margins went up essentially over the last one and a half to two years, because Lubrizol exited the industry and suddenly there was a shortage of the product and prices shot up. But now, with the new expansions coming in place and the slowdown in oil and gas, there is no more demand-supply imbalance. Some of those prices are due for a correction. Margins are expected to come down slightly, going forward to a more sustainable level.
  • IBB or ibuprofen is a consolidated market and over the last couple of years, new players have entered into the ibuprofen market because ibuprofen itself grows at 4-5% annually. Vinati will start supplying IBB to North America and expect to make up for IBB in fiscal year or calendar year 2020. Overall, one can expect IBB growth for the next two to three years to be 10-15% year-on-year.
  • The butylphenol plant should be ready in January next year and the total revenue potential from butylphenol is about Rs 4,000-4,500 mn. One can expect Rs 500-600 mn of revenues just in Q4FY20 and then in FY21, one can expect around Rs 2,500 mn. The sentiment from the customers has been positive and they are keen to start the plant as soon as possible because till now, they have been importing this product. They are really looking forward to having a local supplier.
  • The new brownfield ATBS plant has been slightly delayed. It is expected to start in Feb-20 and revenues out of that plant from Apr-21 onwards. Since the existing line for ATBS is running at close to full capacity, the 10-15% annual growth for ATBS will be serviced by a new line for the next three to four years.

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

  • The closing price of Vinati Organics was ₹ 1,983/- as of 31st December 19. It traded at 27x/ 24x/ 18x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 71.3/79.7/105 respectively.
  • Consensus target price of ₹ 2,327/- implies a PE multiple of 22x on FY22E EPS of ₹ 105/-.
By Vinati organics 0 Comments Read more...
31 Dec

‘Hindustan Unilever’s offer to pay tax benefit amount back to the government was unprecedented’

Update on the Indian Equity Market:

On Monday, Nifty closed 0.1% higher at 12,261. Among the stocks, Tata Motors (+4.3%), Eicher Motors (+2.6%) and UPL (+1.8%) were the gainers. Yes Bank (-1.2%), ICICI Bank (-0.9%), and SBI (-0.8%) ended in the red. Auto (+1.5%), Metal (+1.2%) and Media (+0.7%) were the top sectoral gainers. PSU Banks (-1.2%) was the top loser.

Excerpts from an interview with Mr Sudhir Sitapati, Executive Director:Foods & Refreshment, Hindustan Unilever Ltd

  • HUL has been around for 100 years and there have been major ups and downs. So regardless of what the situation is emerging, every year is different in India. It is not unique to this year or last year. Every year has its challenges, but HUL has always got some trick up its sleeves somewhere to compete in the market.
  • Taxes on a lot of products were reduced with GST but they were not able to implement the price reductions on the day on which the taxes were reduced because they had stocks in the factory, in the warehouse and they, cannot be transporting stocks all over this country.
  • What HUL did was it calculated the tax benefit that it would get that it could not pass on to the consumers and voluntarily Sanjiv Mehta, chairman, offered to pay that amount to the government.
  • It was meant to be passed on to the consumers. As they couldn’t pass it on to the consumers and what they couldn’t pass on doesn’t belong to them is what they thought and it goes back to the government.
  • Through the history of HUL, it has balanced between top-line growth and bottom-line growth depending on the circumstance.
  • HUL is famous for being a marketing powerhouse. What is less known about HUL is that it’s a cost powerhouse. As long as there is cost, it’s their job to go after it. Margins are a consequence of that.
  • The company’s philosophy has been to chase consumer value and to do it in the most efficient manner and they reckon that fixed costs are roughly half the cost and half the costs are variable. So the more you grow volumes the more your margins expand.
  • The fundamental reason for GSK consumer acquisition is different. The real reason is that the HFD category’s penetration is 25% if we take the weighted average penetration of HUL today and it goes back to the question on what the mix of growth for HUL is. Sometimes it has been top line, sometimes it has been bottom-line. If we take categories and their penetration on one side and the growth on the other, the general rule of thumb in consumer goods marketing is that the lower the penetration, the faster the growth.
  • In the ’90s when their personal products were the engine of growth, they were all 25-sub 30% penetration. Now all those categories are 80-90% penetration. So the primary thing that GSK does is it takes down the weighted penetration.
  • It is not about getting extra distribution, it is not about the cost-saving. All that will happen. It is about the fact that the weighted average penetration of HUL will come down with such a large category. That is the real reason for GSK acquisition.
  • HUL has been doing extremely well for the last decade at least and the milestones or the goals that they have continued to remain the same. They continue to grow fast, markets have ups and downs. This is not the first down or up they have seen in the market. So life is normal for them.

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

  • The closing price of HUL was ₹ 1,939 /- as of 30th December 19. It traded at 58x/ 49x/ 42x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.2/39.7/46.0 respectively.
  • Consensus target price of ₹ 2,137/- implies a PE multiple of 46x on FY22E EPS of ₹ 46.0/-.

By Consumer, FMCG, HUL 0 Comments Read more...
30 Dec

Mr Rajendra Gogri on why Aarti Industries will continue to be a multi-bagger.

Update on the Indian Equity Market:

On Friday, Nifty closed 1% higher at 12,245. Among the stocks, Coal India (+3.5%), Axis Bank (+3.3%) and BPCL (+2.7%) were the gainers. Yes Bank (-1.4%), Wipro (-1.0%), and Infratel (-0.8%) ended in the red. Nifty PSU Bank (+2.9%), Nifty Realty (+1.6%) and Nifty Bank (+1.3%) were the top sectoral gainers. All the sectors ended in the green. 

Excerpts from an interview of Mr Rajendra Gogri, CMD, Aarti Industries Ltd (Aarti Ind) with ET NOW on 24th December 2019

  • Aarti Industries is a specialty chemical manufacturer with B2B sales to major global companies for a variety of end-use – polymer, agrochemicals, dyes, and pigments. The company has a value-added product chain. Because of this business model and multi-customer relations, Aarti Ind has been able to grow the business sizably. In the last few years, the overall competitiveness of India against China has increased, which has expanded margins for the chemical industry and also for Aarti Ind as well. That is a major reason for both volume growth as well as bottom-line growth.
  • According to him, India is in a very sweet spot as far as the specialty chemical industry is concerned because the cost-wise, now Chinese labour cost is double that of India and because of the trade war issue also, there is a big appetite for India. Now the buzz word is that the company is getting extra benefits in the global supply chain because they do not import anything from China for their specialty chemical business. They are totally backward integrated.
  • According to Mr Gogri, the key in the chemical industry will continue to be backing businesses with relatively better chemistry skills, operating in molecules, markets with oligopoly. With more chemistry skill and with a strong customer base, Aarti Ind is able to have a substantial market share in their line of products.
  • Two factors have impacted the growth this year:
  1. climate impact on US agrochemical market is specifically restricted this year.
  2. the global automobile sector slowdown was led by a slowdown in China, for some of the products which are going in the auto sectors, there is some demand pressure.
  • Aarti Ind is well spread in the product line as well as geography and is expected to grow.
  • There is a sizable scope for an import substitution with about $1 billion worth of chemicals within Aarti Ind chain being imported. The Company has identified quite a few products now which are virtually not made in India. The entire chlorotoluene chain which they have identified is not made in India and some of the downstream products are also not manufactured in India. They have also considered import substitution. That is one of the major criteria for identifying the products in addition to the direct demand for global markets.
  • Aarti Ind has signed 2-3 major contracts. Out of this, the first two contracts will be commissioning in 4QFY20 and that has the potential to give a substantial boost to their top line going forward. A first contract is a 10-year contract. It is a high value-added product and EBITDA is almost expected to be about 40%. Topline growth will be relatively less from that project but EBITDA growth will be substantially more.

Consensus Estimate: (Source: market screener website)

  • The closing price of Aarti Industries Ltd was ₹ 833 /- as of 27-December-19. It traded at 25x/ 20x/17x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 33.0/40.9/48.2 respectively.
  • Consensus target price of ₹ 925/- implies a PE multiple of 19x on FY22E EPS of ₹ 48.2/-.
By Aarti Ind, Chemicals , , , , , 0 Comments Read more...
27 Dec

Focus on vertical strengthening of product portfolio, market momentum expected in Q4: Sunil Bothra, Minda Industries

Update on the Indian Equity Market:

On Thursday, Nifty closed 0.7% lower at 12,126. Among the stocks, ONGC(+2.5%), Vedanta (+1.9%) and JSW Steel (+1.0%) were the gainers. Yes Bank (-4.4%), Bharti Airtel (-2.0%), and Reliance (-1.9%) ended in the red. Nifty Media (+0.1%) and Nifty Metal (+0.6%) were the only sectors which ended in the positive. Nifty PSU Bank (-1.5%), Nifty Pharma (-0.9%) and Nifty Bank (-0.9%) were the worst-performing sectors.

Focus on vertical strengthening of product portfolio, market momentum expected in Q4: Sunil Bothra, Minda Industries

Excerpts from an interview with Mr Sunil Bothra, Executive Director and Group Chief Financial Officer, Minda Industries:

  • The existing sensor business is more than 5 years old and as part of their strategy, they are in a long-term partnership with Sensata Technologies.
  • Sensata, which was previously Texas Instruments have many businesses which are into defence and other technologies.
  • Minda Industries has entered into an agreement with Sensata to acquire the wheel speed sensor business. The agreement will help to acquire the customer base in India and South Korea and will also make global opportunities available.
  • Although the acquisition cost only ₹ 45 crore, it is expected to generate an additional revenue of ₹100-120 crore in the next four years. With this acquisition, the fresh investment in the sensor business will reach ₹ 145 crore and it is expected to generate revenue of ₹ 500-600 crore in the next 4-5 years.
  • The company has been focussing on vertically strengthening the product portfolio, which they have done by undertaking small acquisitions. Now that they have more than 30 businesses or products, the focus is on strengthening their technological capability and offering to the OEs.
  • The recently concluded acquisition of Delvis will help strengthen their technology position in 4-wheeler lamps, thereby strengthening the sensor business.
  • Talking about the demand, he said the company has seen some green shoots in October, which led to a little increase in volume in a few original equipment manufacturers in November.
  • Since December is generally a lean period, Q3 is not very bullish as compared to Q2.
  • Some market momentum is expected in Q4. But they will have to wait and see how the market pans out post the BS-VI launch from April 1, since there will be price impact of 10-12%.
  • If they are able to increase their kit value per car or 2-wheeler or OE in Q4, they are hopeful of continuing the overperformance in the near future.      

Consensus Estimate: (Source: market screener website)

  • The closing price of Minda Industries was ₹ 348 /- as of 26-December-19. It traded at 32.8 x/ 23.4x / 18.5x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 10.6/14.9 /18.8 respectively.
  • Consensus target price of ₹ 383/- implies a PE multiple of 20.4x on FY22E EPS of ₹ 18.8/-.
By Auto Ancillary , , , 0 Comments Read more...
26 Dec

IndiaMART: Collection growth expected to decelerate

Update on the Indian Equity Market:

On Tuesday, NIFTY ended 0.4% lower at 12,212 level. BPCL (-2.7%), HCLTECH (-1.7%) and RELIANCE (-1.7%) dragged NIFTY down. YESBANK (+3.0%), CIPLA (+2.0%) and INDUSINDBK (+1.3%) were the top NIFTY gainers. NIFTY IT (-0.5%), NIFTY MEDIA (-0.5%) and NIFTY AUTO (-0.4%) were the worst performing sectors while NIFTY METAL (+0.5%), NIFTY REALTY (+0.5%) and NIFTY PHARMA (+0.1%) were the best performing sectors.

IndiaMART: Collection growth expected to decelerate

Excerpts of an interview with Mr Dinesh Agarwal- Founder and CEO, IndiaMART InterMESH Ltd. The interview was broadcasted on CNBC-TV18 dated 24th December 2019.

  • IndiaMART is India’s largest online B2B market place. The stock price has rallied 120% since listing in July 2019.
  • IndiaMART’s revenue growth for the last couple of years has been robust. Revenue growth in 1HFY20 was strong at 29% but the growth is expected to decelerate going forward due to overall economic slowdown.
  • IndiaMART collects money in advance and has Rs 6,290 mn deferred revenue pool. The deferred revenue flows into the revenue eventually.
  • The incremental growth in the deferred revenue has slowed down considerably over the last 2 quarters. The impact on revenue will show up over the next couple of quarters if the economic conditions do not improve substantially quickly. Growth will be lower than the 25% growth guidance given earlier.
  • IndiaMART has 137,000 paying subscribers. The subscribers have been growing 15% YoY. The net customer addition is about 5,000 per quarter. The slowing economy has impacted the net additions. In 2QFY20 IndiaMART added only 4,000 customers because of pressure on sales and revenue.
  • Management believes they will grow at 15% on the customer side and about 5% on the average revenue per customer.
  • Mr Agarwal said that collection growth has come down to 15%-16% in the last two quarters from 30% earlier. IndiaMART has successfully reduced business in MSME space. IndiaMART is well diversified in terms of industries and geography coverage.  They already have more than 140,000 product categories and about 60 mn products. They deal into 1,000 plus small towns, cities and tier-III villages. Management believes their core business will continue to remain robust.
  • Management has taken additional bets in SaaS [software as a service] and fintech opportunities for SMEs. They have invested in mobile accounting software for micro SMEs called Vyapar.
  • IndiaMART’s cost base has been growing at 16%-18%. As long as revenue base continues to grow faster, margins will expand. Being a technology company, the product has already been built so the margins should continue to improve.
  • In 2QFY20, EBITDA margin jumped YoY from 18%-19% to 23%. This level of margin is sustainable and can further improve QoQ if the economic condition is not very bad.

Consensus Estimate (Source: market screener website)

  • The closing price of IndiaMART was ₹ 2,074/- as of 24-December-19. It traded at 54x/32x/27x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 38.2/63.8 /76.3 respectively.
  • Consensus target price of ₹ 2,202/- implies a PE multiple of 29x on FY22E EPS of ₹ 76.3/-.
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24 Dec

December is a big month for PVs: Ashish Kale, President, FADA

Update on the Indian Equity Market:

On Monday, NIFTY closed -0.1% lower. Among sectoral indices NIFTY PSU Bank (-1.3%), NIFTY Realty (-0.4%), and NIFTY FMCG (-0.5%) closed lower. while NIFTY Media (+0.9%) NIFTY Auto (+0.6%) Nifty Fin Services (+0.2%) closed on a positive note. The biggest losers were Yes Bank (-3.8%), Nestle (-2.4%), Reliance (-1.8%) whereas Zeel (+3.6%), Vedanta (+2.4%), Maruti (+1.6%) ended with gains.

Excerpts from an interview of Mr. Ashish Harsharaj Kale, President of Federation of Automobile Dealers Associations (FADA) with CNBC-TV18: 

  • Mr Kale said not just the companies, but even the dealers are currently at an inventory of 30-40 days.
  • The availability of fuel is now clear that it is going to be available only from April 1, pan India so most of the manufacturers have planned 100 percent production shift only by end of February or first week of March. So, dealers will continue to buy BS-IV vehicles and it will give a very short window of a month to liquidate the entire inventory.
  • Speaking about companies with larger inventories he said the Society of Indian Automobile Manufacturers (SIAM) would be better placed to talk about the inventory. About dealer inventory, the passenger vehicle (PV) inventory is at 30 days and both two-wheeler and commercial vehicle (CV) is at 40 days.
  • The demand situation in December is good but conversions have just started.
  • December is a big month for PV because of the year-end combined discounts that come in.
  • For two-wheelers and CVs enquires are coming.
  • Speaking about price hikes due to BS-VI transition, he says, few vehicles have already launched and the cost difference is between 10% to 13%.
  • In case of CVs the price change is anticipated to be in between 12% to 14%, although none of the manufacturers have come up with a BS-VI pricing.

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