10 Dec

Demand has been quite decent: Subbu Subramaniam, Chief Financial Officer, Titan Co. Ltd

Update on the Indian Equity Market:

On Monday, NIFTY50 closed -0.13% higher at 11,936. NIFTY50 gainers includes BPCL (+2.2%), Axis Bank (+2.1%) and Adani Ports (+2.0%). NIFTY50 losers includes TCS (-3.0%), HCL tech (-1.6%) and Cipla (-1.3%). Auto (+0.8%), Metal (+0.5%) and Financial Services (+0.4%) were the top gainers and Realty (-1.6), IT (-0.9%), and Media (-0.8%) were the top losing sectors.

Excerpts from an interview with Mr. Subbu Subramaniam, CFO, Titan Co. The interview was published in Livemint dated 05th December 2019.

  • Titan has embarked on Omni channel in five flagship stores in Bengaluru. They are planning to adopt Omni channel across all their divisions. Their websites are done; their e-commerce platforms are quite robust now.
  • The Omni part has just about started; they are starting with the watch division. They have started it with Bengaluru, but this could get rolled out fairly quickly.
  • Even as they start rolling out for the watch division across the country, they may  start in a couple of months in Tanishq, as well in jewelry division.
  • So, Omni is going to be the way they will all do business. People can look at a product anywhere, whether it is online or offline, and choose to take the goods from anywhere. So, that is the strategy, it is more of an enabler.
  • Jewelry margins depend to a large degree on top-line growth, because that is where economies of scale work and the operating leverage kick in. On a gross margin basis, they are generally in the same ballpark as they have been.
  • As they stand right in the middle of the quarter, he restrained from giving any number at this point in time, but EBIT should generally, be in the ballpark of growth – margins that we have been having in the financial year.
  • Demand has been quite decent. November itself has not been bad. Despite Diwali being a little early, demand has been generally fine. Of course, they also had more promotions, which was required under the circumstances. The wedding season has been quite decent.

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

  • The closing price of Titan Co. was ₹ 1,175/- as of 09-December-19. It trades at 68x/ 49x/ 41x the Consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 18.7/ 23.9/ 29.0 respectively.
  • Consensus target price of ₹ 1,216/- implies a PE multiple of 42x on FY22E EPS of ₹ 29/-

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09 Dec

Ready for the transition to BS-VI; aim to be a global company at every level – Hero MotoCorp’s Dr Pawan Munjal

Update on the Indian Equity Market:

On Friday, NIFTY50 closed -0.8% lower at 11,921. NIFTY50 gainers include Infratel (+5.3%), Kotak Mahindra Bank (+1.6%) and JSW Steel (+0.7%). NIFTY50 losers include Yes Bank (-10.5%), SBI (-5.3%) and Zee Entertainment (-4.6%). PSU Bank (-4.4), Media (-3.4%), and Auto (-1.7%) were the top losing sectors. There were no sectoral gainers in the Friday trade.

Excerpts from an interview with Dr Pawan Munjal, Chairman, MD & CEO, Hero MotoCorp Ltd. The interview was published in CNBCtv18 dated 05th December 2019

·        They are set for a quick transition to BS-VI. The company has already discontinued over 50 BS-IV products.

·       Hero is leading a charge on the BS-VI front, according to Dr Munjal. The first BS-VI motorcycle introduced in India is from Hero and currently, they are working on all the other range of products. They have already started production of various other models. Over the next 1 or 2 months, Hero will be probably transitioning into BS-VI with the entire range.

·        Dr Munjal said there seems to be a slowdown across the globe, especially in oil markets and thus, many of their global markets are oil-dependent markets. Hero has seen market shrinking, they have seen Columbia & Nigeria market shrinking, and Argentina going through hell and similarly, many other markets facing a lot of headwinds.

·        Hero has gone back and looked at their strategies. They had planned to go to 50 markets. However, right now Hero will focus on the big markets and try and increase their market share in these markets.

Recently Hero introduced the X-Pulse and some of the other new bikes in the 200 CC range. They received an excellent response, from the customers. Hero has more such stuff in the pipeline coming in the premium segment. It is not just the products, it is the brand, the marketing and the 360 around the brand that the Company is doing.

·        Hero is working with the global consultants on the visual identity and the insides of their dealership. Hero will be changing a lot of stuff in their outlets soon.

·        Hero is a global company not just in terms of selling the products into global markets but they have gone into other markets with manufacturing in Columbia and Bangladesh. Thus, the Company is trying to become a global company at every level.

In terms of diversity, there is gender, cultural diversity and there is a diversity of different nations, which are becoming part of Hero.

·        Hero is well on its way to the electrification of its products. A team is working on the engineering and research part of the electric product. Hero will be bringing its electric products but no timeframe promised as of now.

·        Tiger Woods is captaining the US team for the President Cup in Melbourne for Hero MotoCorp. The relationship between Tiger Woods and Hero MotoCorp has been of great benefit. Hero is a huge brand in India. Hero was mostly a domestic brand but when they started going out of India into various other markets whether it was Africa, Latin America, Central America, the brand was almost unknown in other markets, other countries. Hero’s association with Tiger gave them that immediate recognition in these markets.

·        When asked about the biggest lesson learnt by the Company from what has happened over the last year from this slowdown, Dr Pawan Munjal said “Life is not always about going north. There will be challenges in life, there will be difficult times in life, sales will go up sometimes, sales will come down sometimes, the economy will go up and the economy will come down sometimes. So, we need to be prepared to face these challenges. When required, we need to buckle up our shoes and tighten our belts and do whatever best we can do for our consumers and customers to be able to give them the right product and the right quality.”

Consensus Estimate (Source: market screener website)

·        The closing price of Hero MotoCorp Ltd was ₹ 2,362/- as of 06-December-19. It traded at 14x/ 13x/ 12x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 174/ 177/ 196 respectively.

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06 Dec

Edelweiss: Market confidence needs to return for corporate earnings revival.

Update on the Indian Equity Market:

On Thursday, RBI maintained status quo on repo rates at 5.15% in its 5th bi-monthly monetary policy meeting. The market was expecting another rate cut after a cumulative 135 bps cut so far in 2019.  RBI has lowered its Real GDP growth forecast for FY20E from 6.1% to 5.0%. NIFTY turned negative after the surprise announcement and closed 0.2% lower. Among NIFTY50 stocks, the top performers were ZEE (6.2%), TCS (+2.0%) and ITC (+1.6%) while the worst performers were JSWSTEEL (-3.5%), COALINDIA (-3.4%) and BHARTIAIRTEL (-2.7%). NIFTY MEDIA (+2.9%), NIFTY IT (1.3%) and NIFTY FMCG (+0.3%) were the top gaining sectors while NIFTY METAL (-2.3%), NIFTY PSU BANK (-1.8%) and NIFTY PHARMA (-0.9%) were the top losing sectors.

Edelweiss: Market confidence needs to return for corporate earnings revival.

Excerpts from of an interview of Mr Rashesh Shah- Chairman and CEO- Edelweiss Financial Services published in Mint dated 5th December 2019.

  • Comment on the Emerging Ideas Conference: The event is mainly for High Net Worth Individuals (HNIs). The mood is starting to change from the sense of gloom that prevailed from last 5-6 months. People are now looking for opportunities to invest looking at 2020 and 2021.
  • Comment on Corporate Earnings recovery: The last 4-5 years have had very low corporate earnings growth rate. Looking at the current environment, there is a lot of liquidity, interest rates are fairly low and corporate tax rates are lowest in India’s economic history. Now the confidence just needs to come back and that will have a snowball effect. Edelweiss economists have estimated about 100–125 bps of India’s GDP growth comes from global growth. If global growth picks up, India’s GDP growth and corporate earnings growth can get some revival. 
  • Comment on Edelweiss and NBFC sector: For NBFCs, the worst seems to be over. Repairing earnings and growth is still 4-5 quarters away. A lot of NBFCs have become stronger, raised capital, managed liquidity and re-evaluated their business approach. NBFCs have been working on a model where they will be in partnership with banks rather than having competition with banks. All this will take 4 quarters where there will not be a lot of growth.
  • On non-NBFC front, Edelweiss is seeing fair amount of activity in asset management and wealth management including ARC.
  • On Edelweiss’s asset quality: In last one year, asset quality was under stress for all banks and NBFCs due to system liquidity stress. Stalled projects that are economically viable need to be completed. Availability of last mile funding will help. With lower interest rates, lower corporate tax rate profitability of housing projects will improve. In next 2-3 quarters many projects will be back on stream. In 1HFY20, Edelweiss took credit cost of Rs 4,460 mn compared to Rs 4,600 mn in FY19 as they took a proactive provisioning approach. Credit cost in FY20E will be double that of FY19E.
  • Comment on Bond ETF: Government of India is sponsoring a bond ETF where Edelweiss is the asset manager. The first ETF is going to be a bond portfolio of highly rated government PSUs. The average retail investor will get a yield of 7% – 7.5% and liquidity as it will be listed in the market.

Consensus Estimate (Source: market screener)

  • The closing price of Edelweiss was ₹ 113/- as of 05-December-2019. It traded at 1.3/ 1.2x/ 1.1x the consensus BV for FY 20E/ FY 21E/ FY 22E of ₹ 87/ 94/ 105 respectively.
  • Consensus target price of ₹ 145/- implies a PB multiple of 1.4x on FY22E BV of ₹ 105/-.


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05 Dec

Yes Bank’s priority is to create a greater degree of comfort for depositors, clients, regulators

Update on the Indian Equity Market:

On Wednesday, Sensex gained 175 pts and Nifty ended at 12,043. The market was volatile due to mixed global and domestic cues. There was positive news flow on the trade tariff front from the US.

Among the sectors, except Infrastructure and Reality, all other sectors closed in the green. Among stocks, Tata Motors closed with gains of 7%, followed by metals stocks such as Tata Steel, and Hindalco which closed with gains of over 2 % each.

Yes Bank’s priority is to create a greater degree of comfort for depositors, clients, regulators

 Key takeaways from the interview of Mr Ravneet Gill, Chief Executive Officer, Yes Bank; dated 3rd December 2019:

·        When asked about raising the target of capital raising from USD $1.2 bn to 2 bn Mr Gill said that the opportunities for private sector Banks have become much broader and would like to monetize this big opportunity that lies ahead of them. He also stated that it was important for them to convey the message to the stakeholders that Bank is on a stronger and more stable footing.

·        According to Mr Gill, more capital is better than less, and quicker than later. The first priority for the bank should be to be able to create a very high degree of comfort, whether it is depositors, clients or regulators.

·        When asked about the valuation, he shared that the fundamental reason why Yes Bank is trading below book value is that there is a belief that the bank is not fully capitalized. He thinks the fundamental fix to this problem is capital.

·        According to him, once the capital comes in the bank, we will be able to see  that the bank will start to trade at a better multiple.

·        When asked about expecting any dispensation from SEBI on pricing formula, he replied that he won’t be asking for it as he doesn’t think there is a need to do so. The investors who have come in understand that they will need to come in at whatever is the pricing formula and the guidelines around pricing and he thinks they are happy to go with it.

·        He said that the final allotment will be done in the board meeting to be held on 10Th December 2019.

·        He mentioned that they are in discussions with the investors about creating a framework, creating a roadmap, which will facilitate the application to the RBI and for the RBI to take a view. He also clarified that he would not like to prejudge RBI’s views and they haven’t had a conversation with RBI yet.

Consensus Estimate (Source: market screener website)

  • The closing price of Yes Bank was ₹ 63/- as of 04-December-19. The Consensus estimate for Book Value of Yes Bank is not available. 

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04 Dec

Bajaj Auto- Exports saved the day for Bajaj Auto in November.

Excerpts from an interview of Mr Rakesh Sharma- ED- Bajaj Auto with CNBC- TV18

Update on the Indian Equity Market:

On Tuesday, NIFTY closed 0.5% lower. Among sectoral indices NIFTY PSU Bank (-2.9%), NIFTY Metal (-2.6%), and NIFTY Media (-2.4%) closed lower. While NIFTY Realty (+1.3%) and NIFTY IT (+0.5%) closed on a positive note. The biggest losers were Yes Bank (-7.6%), Bharti Infratel (-5.8%), Tata steel (-5.2%), whereas Bajaj Auto (+3.1%), Bajaj FinServ (+1.7%) and TCS (+1.6%) ended with gains.

  • They do not expect the sales in the month of December to hit      4 lakhs because it is a seasonally weak month.
  • Exports will continue to grow. But 3 wheelers and the domestic market will see a pullback when the model year changes.
  • The company is holding steady margins and there is no sacrifice of margins.
  • There is no need to shore up the sales in an unnatural way as November and December follow a high season period.
  •  The mix is holding steady for the company, 3-wheeler are improving and there is a gentle tailwind on the exchange rate side. So, the margins are not going to see any shift
  •  Speaking about international markets and exports, the international performance is steady and solid and the key driver for this has been the African continent where the economies are doing well.
  • Bajaj has a competitive position in the African continent, with every 3 bikes sold one is of Bajaj.
  •  Bangladesh and the Philippines are acting as bright stars and are an important market for Bajaj.
  • These markets are doing better than industry and are in top-10 markets for the company.
  •  Speaking about price hikes post BS-VI transition, Bajaj will have to look internally and externally but certainly, the prices will increase.
  • Given the situation of the economy any kind of price increase will have a dampening effect on the demand.

Consensus Estimate (Source: market screener)

·        The closing price of Bajaj Auto Ltd was ₹ 3261/- as of 03-December-2019. It traded at 18.5x/ 17.3x/ 16.8x the consensus EPS for FY 20E/ FY 21E/ FY 22E of ₹ 176/ 188/ 194 respectively.

·        Consensus target price of ₹ 3,069/- implies a PE multiple of 15.8x on FY22E EPS of ₹ 194/-.

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03 Dec

Yes Bank: $2 billion funding to be key driver when improving economy creates opportunities

Update on the Indian Equity Market:

Following the weak macro data released on Friday, the markets started the week on a negative note with Nifty falling 7.8 points to close at 12,048. Among the sectoral indices, all but one index, METALS (0.3%) traded higher whereas IT (-0.9%), AUTO (-0.9%) and PSU BANK (-0.9%) led the decline. Within the index stocks, BHARTIARITL (4.1%), JSWSTEEL (2.5%) and RELIANCE (2.3%) topped the chart whereas YESBANK (-6.6%), EICHERMOT (-5.2%) and INFRATEL (-3.2%) took the index lower.

Yes Bank:  $2 billion funding to be a key driver when improving economy creates opportunities

Yes Bank on Friday informed exchanges about raising $ 2 billion by selling new shares to a clutch of institutional investors and wealth managers. Key takeaways from the interview of Mr Ravneet Gill, MD & CEO, Yes Bank  dated 2nd December 2019 published in CNBC TV18:

·        On being asked why the bank is raising $ 2 bn instead of an earlier target of $ 1.2 bn, Mr Gill mentioned that given the increase in the authorised share capital which was approved in the board meeting of August, at the current market price, enables the bank to raise a lot more capital.

·        The market is worried about whether the Reserve Bank of India (RBI) will approve the names of investors. He said that the capital raising is taking place on a preferential allotment basis. There are strict guidelines in terms of qualification of investors.

·        According to the norms, any fund that has sold the Yes bank stock in the last six months is not allowed to participate. The one year lock-in period of the offer makes the domestic mutual fund ineligible. As a result, the bank had to work with limited planned universe. According to him, two things were important before finalizing names of investors; size and partners who were in alignment with the strategy of the banks and who could remain long-term partners for the bank.

·        About the investment offer made by Erwin Singh Braich for $1.2 bn, he said that the bank has done enough due diligence about this transaction. The big question is about whether the investor has the wherewithal to be able to bring in investment of that size. According to him, the investor will be able to satisfy the market on that very shortly.

·        He mentioned that although this is a binding offer, there is no bank guarantee attached to it. But the investors have gone to great length to show their resources of funding and whether they can meet the requirement or not.

·        About the voting rights post-dilution; he said that the investors have no desire for controlling the operations of the bank. The investors have invested based on the thesis that they see private banks in India as a very strong investment opportunity. As a result, even if the voting rights of these investors are curtailed by the RBI, it would not matter much to the investors.

·        The investors have asked for board representation. He defended this demand of investors by saying, “if you are making an investment of that size, then board representation makes sense.” He also added that they are not looking for management rights or control functions.

·        The bank has also received interest from the family office of Citax holdings Ltd. & Citax holding group for an investment of $500 mn. This will need the approval of RBI given the fact that the investment is for above 5% stake. The bank plans to take these bids to the regulator for approval.

·        He agreed that the current investments are done on below book value which is not a good idea for the existing shareholder. But the very reason why the bank is trading at a discount is that the market’s view is that it needs more capital. And the moment that capital comes, the market will see the pickup in valuations as well.

·        On the growth opportunities for the bank, he said that the country has hit the bottom in terms of economic macros and from hereon, there will be a pickup. This will create a lot of opportunities for the bank. The dislocation in the whole NBFC space and public sector banks expanded the addressable market for the bank. With the capital that is coming, the bank could grow at a very robust pace.

Consensus Estimate (Source: market screener website)

  • The closing price of Yes Bank was ₹ 64/- as of 02-December-19. The Consensus estimate for Book Value of Yes Bank is not available. 
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02 Dec

ZEEL: ZEE5 targets to reach ~15mn daily active users in 6 months

Update on the Indian Equity Market: 

On Friday, NIFTY closed in the red at ~12,056 points (-0.8%) reversing the previous day gains. In the sector-wise performances, REALTY (+1.0%) was the best performing sector while Media (-2.5%) and Metal (-1.2%) was the worst-performing sector. Amongst the NIFTY 50 Stocks, INFRATEL (+6.7%), ADANI PORTS (+2.3%) were the top gainers while ZEEL (-7.9%) HINDUNILVR (-2.6%) were the worst performers.

ZEEL: ZEE5 targets to reach ~15mn daily active users in 6 months

Key takeaways from the interview of Mr Tarun Katial, CEO of Zee5, the online video streaming Over The Top (OTT) platform of Zee Entertainment Enterprises Ltd (ZEEL); dated 28th November 2019 on CNBC-TV18:

  • ZEE5 reached out to ~8.9 million daily active users, and over 80 million monthly actives and huge watch time. It targets to reach out to ~15 million daily active users in about ~6 months.
  • ZEE5 is offering 12 Indian languages today and five foreign languages. The company is looking to expand in Assamese, Malayalam, Kannada in the next six months.
  • It has a 3V strategy – Vernacular, Video and Voice. The User Interface (UI) and User Experience (UX) supports 12 languages. When the user opens the app, the first thing it asks is the language preference which reaches out to those many languages, both in display and content. ZEE5 gets the content through the web of Zee language channels. But building the UI in those many languages and navigating consumers in so many languages was critical. Indian keypads don’t support so many languages. A voice search is an important tool to let consumers discover the content quickly and easily.
  • ZEE5 also built a robust Advertising Video-on-Demand (AVoD) and Subscription Video-on-Demand (SVoD) strategy. The company made some very big investments on the AVoD side in building the ad suite. Ad tech (advertising technology) is run by big tech companies in India – Google Facebook and Twitter – and to compete in the ad space, ZEE5 needs to build its own ad suite.
  • ZEE5 is also building the self-serve bidding model where advertisers can book their own advertising slots, bid for advertising slots, the pricing is on a bidding model and optimises the advertisement themselves on an optimisation engine.
  • To reach out to more and more audience; ZEE5 needs to get hyper-personalised. It launched a new recommendation engine which between auto-curation and hyper-personalisation enabling it to offer a differentiated yet personalised service.
  • ZEE5 is investing in automation. It piloted with the tool from Microsoft Azure for self-editing.
  • Most of the app is fully curated through artificial intelligence and machine learning. ZEEL doesn’t do any manual curation anymore. ZEE5 is also evaluating a mobile-only plan, much like Netflix.
  • There is a significant growth month-on-month, both on the AVoD and SVoD side. ZEE5 is expected to break even within 5 years. 
  • According to Mr Katial, outside of (Amazon) Prime, Zee5 possibly has the largest subscription base in the country. ZEE5 is also looking to tie up with talks with other OTT platforms as well as good production houses.
  • ZEE5 is looking to capitalise on the content created by ZEEL over 27 years.
  • Brands are extremely important today in the day and age of social transparency. Mr Katial mentioned that ZEE5 has enough checks and balances to be able to deal with consumer complaints. It has a panel of people who look at all the complaints, a customer service team who gives feedback, who holds up the content team and make changes themselves.

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

  • The closing price of ZEE was ₹ 286/- as of 29-November-19. It traded at 15x/13x/12x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 19.7 / 22.3 / 24.3 respectively.
  • Consensus target price of ₹ 351/- implies a PE multiple of 14x on FY22E EPS of ₹ 24.3/- 
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29 Nov

TeamLease Services Ltd- Telecom should be back in 4-6% profit range from Q1FY20

On Thursday, NIFTY50 closed 0.44% higher. NIFTY50 gainers includes Infratel (+14.2%), UPL (+5.5%) and JSW Steel (+4.2%). NIFTY50 losers includes Zeel (-2.5%), Hero Motocorp (-2.1%) and HDFC (-1.2%). NIFTY Auto (-0.3%) was the only losing sector while NIFTY PSU BANK (+3.4%), NIFTY Metal (+1.9%) and NIFTY Realty (+1.1%) were the top gaining sectors.

Excerpts from an interview with Mr. Ravi Vishwanath, the Chief Financial Officer of TeamLease Services. The interview was published in Livemint dated 27th November 2019.

  • According to Mr Vishwanath, things are looking better. While they expected the previous quarter to come in at the same 20% range as the usual growth is, they came in a tad short at 16%.
  • He believes that between Q3 and Q4 they should be able to get to their targets. They will also try and see if they can claw back some of the deficit that they had in H1.
  • The current pipeline is looking pretty strong and they have no reason to believe that Q3 should be a soft quarter. In fact, Q3 should be a reasonably strong quarter and so should Q4.
  • In the IT sector, they deal with service companies, product companies, and captives.
  • As they provide staff to all these three different kinds of IT companies, their growth in product and captives, though small in percentage terms, is reasonably good for the first half of the year.
  • They got slightly impacted in the service sector on account of higher absorption by these companies of their staff onto their payroll, something that has never happened before.
  • He believes that the growth in Q3 and Q4 should come back, and more than Q3 it will come back for them in IT in Q4.
  • Telecom has been a little soft for the whole of last year and for the first two quarters of the current year as well. It is primarily on account of certain projects that they undertook in Q1 of FY19, which continue to linger. They hope to come out of it by Q4 and telecom should be back in the 4-6% profit range from Q1 of next year.
  • They believe that their associate growth in telecom for next year would certainly be 10-15% which would translate to 15-20% growth year-on-year.
  • Outside IT and telecom, the sectors that they have been seeing hiring pickup is BFSI, fin-tech, e-commerce, logistics, and warehousing.
  • The other sectors are warming up to it because from the existing clients, their growth is coming back, which is all the other sectors put together.

Consensus Estimate (Source: market screener website)

  • The closing price of TeamLease Services Ltd was ₹ 2,515/- as of 28-November-19. It traded at 45x/ 30x/ 22x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 56.3/ 85.2/ 116.0 respectively.
  • Consensus target price of ₹ 2,983/- implies a PE multiple of 26x on FY22E EPS of ₹ 116/-

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28 Nov

Bata to use multi-channel retail strategy to reach more customers: Sandeep Kataria, CEO, Bata India

Update on the Indian Equity Market:

On Wednesday, NIFTY50 closed 0.5% higher. NIFTY50 gainers include Yes Bank (+8.3%), Ultratech Cement (+3.1%), and SBI (+2.9%). NIFTY50 losers include Infratel (-3.2%), Cipla (-2.2%), and L&T (-1.7%). Realty (-0.6%) and Media (-0.4%) were the only losing sectors while PSU BANK (+1.8%), Auto (+1.3%), and Metal (+0.9%) were the top gaining sectors.

Excerpts from an interview with Mr Sandeep Kataria, CEO, Bata India, published in the Economic Times dated 27th November 2019:

  • Bata will continue its growth journey in India with the multi-retail channel approach along with the e-commerce platform to reach out to as many customers as it can.
  • The company has a retail network in 450 towns and wishes to further expand by adding new stores in smaller towns through the franchise route.
  • Bata has been using three engines – a) their own stores, b) franchise partner store, which is a big drive for them in tier III & IV, and c) multi-brand outlets.
  • To add to all this is their E-commerce channel, whether through their own website or through other marketplaces, that helps them to get as many customers as they can.
  • The Company will strengthen its presence by adding 500 stores in the next five years, focusing mainly on small markets as it has identified tier II, III and IV cities where it has plans to broaden its sales network through the franchise model.
  • India is much bigger and Bata’s brand image is also bigger. So, they have decided to expand their reach to as many Indians and take advantage of their equities.
  • Online channels are providing opportunities in multiple ways to reach consumers. Bata can use digital channels to increase the productivity of their stores and enhance the satisfaction of their consumers.
  • Bata is working hard to reconnect with the country’s millennials. Bata India has a whole battery of brands in Bata as North Star, Bata Red Label, Marie Claire and Footin which talk to millennials. The Company does not have to rely on Bata as the main brand.
  • When asked whether Bata has any plans to introduce new brands from its global fold, Mr Kataria said the Company is not very keen to do that as there is a huge opportunity for them to play with the brands which they have here. The Company has a license for the manufacture and sale of several global brands as Hush Puppies and Naturalizer. Bata has introduced outdoor brand shoes from Caterpillar in its top selected outlets this season.

Consensus Estimate (Source: market screener website)

  • The closing price of Bata India Ltd was ₹ 1,615/- as of 27-November-19. It traded at 52x/ 44x/ 36x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 30.8/ 36.9/ 44.3 respectively.
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27 Nov

Quess Corp: Expect EBITDA growth of 30% in FY20E.

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.3% lower. The decline was led by Zee (-7.3%), Bharti Infratel (-6.5%) and Grasim (-4.4%). NIFTY50 gainers included ICICI bank (+3.1%), GAIL (+2.5%) and Dr. Reddy (+1.9%). MEDIA (-3.6%), IT (-1.2%) and REALTY (-0.9%) were the top losing sectors while PVT BANK (+0.6%), BANK (+0.5%) and FIN SERV (+0.4%) were the only sectors that gained.

Quess Corp: Expect EBITDA growth of 30% in FY20E.

Excerpts from an interview with Mr Ajit Isaac, Chairman and MD, Quess Corp. The interview was published in Mint dated 26th November 2019.

  • In 1HFY20, Quess Corp has hired about 59,000 people to their workforce against 56,000 people hired in the whole of FY19. The size of the workforce as of November 2019 is 380,000.
  • Second half is usually a period of lesser headcount addition as large part of addition is for the festive season that ends towards October-November. December-January is a slow period and then February onwards there is a pick-up again.
  • Fourth quarter tends to have a better EBITDA growth as certain activities peak in that period such as collections in banks, academics, consumption of food, etc.
  • Quess Corp will likely end FY20E with close to 400,000 headcount. Addition in the 2HFY20 will be about 20,000-25,000 people.
  • Quess Corp is benefiting from a few sources. Firstly it is gaining market share from competition. Second is the benefit from movement of employment from the informal sector to the formal sector. Quess Corp is able to benefit from this transition due to its nationwide presence.  Thirdly, companies are preferring players that are more compliant and have no regulatory issues. As a result, Quess Corp workforce size is expanding.
  • Quess Corp will see 30% growth in EBITDA in FY20E.
  • Employment trend is better in non-IT than in the IT sector.
  • IT sector can be broken down in parts. It includes the Indian IT services companies, product companies, captives such as JP Morgan, Goldman Sachs which set up large campuses here to service their international requirements, and lastly, e-commerce and related ventures. Out of the above four segments, IT services has seen least growth in employment. Largest growth is in captives followed by e-commerce.
  • In the non-IT sectors, Quess Corp has added a lot of people in Banking and financial services sector and consumer sector. Consumer sector is doing well as companies want to shift to variable costs in the economic slowdown.

Consensus Estimate (Source: market screener website)

  • The closing price of Quess Corp was ₹ 532/- as of 26-November-19. It traded at 26x/ 19x/ 15x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 20.3/ 27.6/ 35.8 respectively.
  • Consensus target price of ₹ 714/- implies a PE multiple of 20x on FY22E EPS of ₹ 35.8/-.
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