05 Aug

Apcotex 1QFY20: Slowdown evident from revenue growth, positive surprise in margins

Dated: 29th July 2019

Result Update

  • Apcotex reported a YoY decline of 2% in the revenues at Rs 1,467 mn. The Gross Margins (Revenues minus cost of goods sold) were reported at 33.4% for 1QFY20, a YoY improvement of 330 bps from 30.1% in 1QFY19.
  • Despite the sharp jump in gross margins, EBITDA margins improved by a muted 40 bps YoY to 12.3% as compared to 11.9% in 1QFY19. This is due to a sharp increase in other expenses by 16% YoY to Rs 211 mn. The absolute EBITDA for the quarter was reported at Rs 181 mn, a meagre 1% YoY increase from Rs 179 mn in 1QFY19.
  • The PAT for the quarter grew YoY 1% at Rs 114 million as compared to Rs 112 mn in 1QFY19.

Conference Call highlights:

  • Mark to Market (MTM) losses for the quarter have been reported in Other Comprehensive Income (OCI) instead of Operating Income (OI). Total MTM loss for the quarter was reported at Rs 6.9 mn as compared to Rs 0.74 mn in 1QFY19.
  • The company has spent Rs 600 mn of the planned Rs 900 mn of CapEx till 1QFY20. Remaining Rs 300 mn will be spent in the next 3 quarters of FY20E. The company incurs maintenance CapEx of Rs 60-70 mn every year.
  • The auto ancillary business contributed 30% whereas the contribution from construction business for the quarter was in the range of 12-14%. Both the industries are facing slowdown and the company expects the slowdown to remain in the economy in the coming quarters as well.
  • The debottlenecking of Nitrile Butadiene Rubber (NBR) plant is expected to be operational by January 20E. 80% of the work is complete and the company is in the final stages of completion of the debottlenecking plan.
  • The launch of the solar power plant expansion project is further delayed until October 2019. The initial deadline was July 2019. The company is facing some issues regarding civil construction and environmental problems. The management was confident in launching the power plant before the new deadline.

Consensus Estimate (Source: Reuters website)

  • The closing price of Apcotex is Rs 188/- on 29-Jul-19. It traded at 18x / 15x the consensus EPS for FY 20E / FY 21E EPS of Rs 10.6 / 12.8 respectively.
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05 Aug

ICICI Bank 1QFY20 Results: Decent growth in advances, Asset quality intact

Dated: 29th July 2019

Result update:

  • Reported NII grew 27% YoY (+2% QoQ) to Rs 77,374 mn from Rs 61,019 mn. NIMs for 1QFY20 expanded by 42 bps YoY 3.61% compared to 3.19% in 1QFY19.
  • PPOP grew 8% YoY (+1% QoQ) to Rs 62,884 mn from Rs 58,083 mn.
  • Provisions were Rs 34,957 mn, 41% lower YoY.
  • Reported PAT was Rs 19,080 mn in 1QFY20 against loss of Rs 1,196 mn in 1QFY19.
  • GNPA and NNPA improved slightly sequentially at 6.49% and 1.77% respectively for 1QFY20 compared to 6.70% and 2.06% respectively in 4QFY19.
  • Advances grew 15% YoY to Rs 59,24,150 mn. Retail and SME segment showed a solid growth of 22% and 24% YoY respectively.

Management commentary:

  • The bank maintained its guidance that credit costs in FY20 would be significantly lower than 2% levels of FY19. Credit costs would be in the range of 1.2-1.3% in FY20. In 1QFY20, credit cost was 1.5%.
  • While provisioning in FY20 is expected to be lower than FY19, management does not expect slippages to come down significantly in FY20 compared to FY19, as it have already come down substantially in FY19.
  • The bank stated it is not looking at raising the PCR from current levels of 74% as they are now at comfortable levels.
  • The bank reiterated its consolidated RoE target of 15% by June’20.
  • Q1FY20 tax rate of 32% is an estimate for the full year tax rate.

 Consensus Estimate (Source: marketscreener website)

• The stock price was Rs 428/- on 29th July 2019 and traded at 2.2x/1.9x  consensus Book value of Rs 199/222 for FY20E/21E respectively. 
• Consensus target price is Rs 485/- implying PB of 2.2x for FY21E BVPS of Rs. 222/-

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

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05 Aug

4 Currencies of Life

Dated: 27th July 2019

I came across this article written by Jeremy where he talks about that we have four currencies, four things we can use, invest, manage, and exchange. They are our Time, our Money, our Energy, and our Ability. The classical understanding of stewardship also is similar in defining stewardship as the management of our time, talent, and treasures. The balances of these currencies fluctuate with life’s seasons for each of us.

What’s interesting about these currencies is that they don’t exist in a vacuum. They’re interrelated. Each one requires varying degrees of effort to manage, and each one can negatively or positively impact another.

Jeremy’s point is that as humans in general, and investors specifically, we’ve got a whole lot more to manage than just our Money. And it is an ongoing management plan – things change, sometimes really quickly.

If you find yourself getting stuck, it’s super helpful to step back and look at the currencies of your life and see which, if any, are running low. And then think about ways you can try and bring it back up, even if it means dipping into another currency’s present excess.

The easiest currency to focus on is Money. Money is, arguably, the most renewable of the four. It’s also the most flexible – it can be used to buy more time, gain more energy, and build more Abilities. And that increase in Time, Energy, and Ability can then be used to acquire more Money if we’d like them to.

Jeremy thinks a reason why we talk and focus so much on money is that it’s the most concrete, and it’s the easiest one to measure. And it’s a good starting point, but don’t stop there.

If we want to live a life that manifests our true values – our true goals and intentions – we need to pay attention to all the currencies and manage them wisely.

Source: https://calibratingcapital.com/

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05 Aug

Asian Paints 1QFY20 result highlights: Performance beyond street estimates, uncertain about sustainability.

Dated: 25th July 2019

1QFY20 result:

  • Consolidated Revenue was Rs 51,306 mn, 17% higher YoY.
  • EBITDA was Rs 11,563 mn, 24% higher YoY. EBITDA margin reported at 22.5%, an improvement from 21.1% in 1QFY19.
  • Net Profit was Rs 6,721 mn, 18% higher YoY.

Management Commentary:

  • Asian Paints saw double-digit volume growth across segments. Lower value products like distemper and putty continue to grow faster than premium products. In 1QFY20, decorative paints segment in the Indian market grew in high double digits.
  • Asian Paints undertook aggressive channel push in 1QFY20 contributing to the higher revenue growth.
  • Growth in smaller towns has been much higher than metros.
  • EBITDA margin improvement came from benign raw material prices and a decrease in freight cost from the new plants in Vizag and Mysore.
  •  Employee costs in 1QFY20 fully reflect the incremental costs from new plants. Other expenses will grow as production ramps up.
  • Advertisement costs are generally lower in the 1st quarter. Some of the ad costs shifted from 1QFY20 to 4QFY19 due to IPL season.
  • Management is cautious about the growth going forward. Economic conditions remain challenging and may result in a negative impact on the coatings business. Uncertainty also exists in the International business due to developments in the Middle East.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 1,496/- on 25-Jul-19. It traded at 55x / 48x the consensus EPS for FY 20E / FY 21E EPS of Rs 27.3 / 30.9 respectively.
  • Consensus target price of Rs 1,516/- implies a PE of 49x on FY21E EPS of Rs 30.9.
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05 Aug

Can Fin Homes (CANF): 1QFY20 Strong growth outside Metros

Dated: 24th July 2019

Result:

  • Reported NII grew 17% YoY (+7% QoQ) for 1QFY20 to Rs 1,479 mn. Reported NIMs were at 3.18% showing an increase of 40 bps QoQ.
  • In 1QFY20, PPOP grew by 15% YoY (+12% QoQ) to Rs 1,316 mn. Reported PAT grew 8% YoY (+21% QoQ) at Rs 810 mn.
  • Loan book grew 17% YoY on the back of disbursements growth of 10% YoY.
  • Asset quality deteriorated sequentially in 1QFY20. GNPAs and NNPAs were at 0.73% and 0.52% respectively in 1QFY20 compared to 0.62% and 0.43% respectively in 4QFY19.

Management commentary:

  • The company expects to bring NPAs down to March 19 levels by 2QFY20.
  • During the quarter, the company made NPA provisions of Rs 67.5 mn and standard asset provisions of Rs 19.1 mn.
  • In Karnataka, AUM growth was 7%, while ex-Karnataka AUM growth was 22%. Overall, southern region grew 15% and non-south regions reported 20% growth.
  • Growth in Metro cities is ~11% while non-metro growth is ~30%.
  • The company expects to benefit from the new affordable housing projects coming up on the outskirts of Bangalore. Can Fin will be focusing on tier 2-3 cities.
  • Management is hopeful of achieving loan book of Rs 23,000 mn by end of FY20

Consensus Estimate (Source: Market screener website)

  • The stock price was Rs 390/- as of close price of 24th July 2019 and traded at 2.5x/ 2.1x the consensus book value for FY20E / 21E of Rs 158 / 186 respectively. 
  • Consensus target price is Rs 431/- implying P/B of 2.3x for FY21E book value of Rs 186.

Note:

NII- Net interest income

NIM- Net interest margins

PPOP- Pre-provision profits

NPA- Non-performing assets

AUM- Assets under management

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05 Aug

HDFC Bank (HDFCBANK IN): Stable performance but higher provisions are worrisome

Dated: 22nd July 2019

1QFY20 Results

  • Net Interest Income (NII) increased 23% YoY to Rs 1,32,943 mn. The NII margins improved by 21 bps YoY to 4.4%.
  • Operating Profit before Provisions and Contingencies (PPOP) increased by 29% YoY to Rs 1,11,472 mn. The provisions other than tax increased 60% YoY to Rs 26,137 mn which included specific loan loss provisions of Rs 24,135 mn (+69% YoY).
  • Reported PAT grew by 21% YoY to Rs 55,682 mn.
  • The advances grew by 17% YoY to Rs 82,97,298 mn driven by 20% YoY growth in the corporate & other loans to Rs 38,16,757 mn. The retail loans increased by 15% YoY to Rs 44,80,541 mn. The domestic loan mix between retail: wholesale stood at 54:46.
  • The asset quality as of 30th June 2019 deteriorated with GNPAs at 1.4% (v/s 1.36% as of 31st March 2019) and NNPAs at 0.43% (v/s 0.39% as of 31st March 2019).
  • HDFC Bank reported 18% YoY growth in deposits with 13% YoY growth in CASA to Rs 37,90,010 mn and 23% YoY growth in term deposits to Rs 57,55,530 mn.

Management Commentary

  • The Capital Adequacy ratio as of 30th June 2019 stood at ~16.9%; as against the regulatory requirement of ~11%.
  • Total provisions (comprising specific provisions, general provisions and floating provisions) were ~115% of the gross NPAs as of 30th June 2019 v/s 117% as of 31st March 2019. The Bank held floating provisions of Rs 14,510 mn as of 30th June 2019.
  • GNPAs ex-Agri stood at 1.17% as of 30th June 2019 v/s 1.09% as of 30th June 2018.
  • The Board of Directors has declared a special interim dividend of Rs 5 per equity share of Rs 2 to commemorate 25 years of the Bank’s operations.

Consensus Estimate (Source: market screener website)

  • The closing price of HDFC Bank is Rs 2,303/- on 22-Jul-19. It traded at 3.5x / 3.1x the consensus book value for FY20E /21E of Rs 650/ 751 respectively.
  • Consensus target price of Rs 2,717/- implies a P/B of 3.6 x on the FY21E book value of Rs 751/-.
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05 Aug

Indian markets especially small and mid-cap stocks have fared poorly in the last 12 months. Decline gathered pace in the past two weeks making investors jittery. Here is a collection of thoughts on weak markets from prominent investors.

Dated: 21st July 2019

“A down market lets you buy more shares in great companies at favourable prices. If you know what you are doing, you’ll make most of your money from these periods. You just won’t realise it till much later.” Shelby Davis
“Christopher Davis’s grandfather used to say that you make the most money out of a bear market financial panic – you just don’t know it at the time. It’s always the case.” Li Lu
“We see the latest correction not as a disaster, but as an opportunity to acquire more shares at low prices. This is how great fortunes are made over time.” Peter Lynch

“Bear markets are great times to load up on stocks.” Ralph Wanger
“It’s not during up years that great investment track records are made!” Charles De Vaulx
“Down cycles are not fun. But they form the basis for enormous future profitability.” Steve Schwarzman
“Most investors take comfort from calm, steadily rising markets: roiling markets can drive investor panic. But these conventional reactions are inverted. When all feels calm and prices surge, the markets may feel safe; but, in fact, they are dangerous because few investors are focussing on risk. When one feels in the pit of one’s stomach the fear that accompanies plunging market prices, risk-taking becomes considerably less risky, because the risk is often priced into an asset’s lower valuation.” Seth Klarman
“Ironically, most of the risk to long-term investors in equities comes from panicking in the short-term and closing out positions at temporary low points.” Jeremy Grantham 
“Invest in time of chaos, harvest in times of prosperity.” Jonathon Sokoloff
“The best bargains are always found in frightening environments.” Howard Marks

Source: www.masterinvest.com

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05 Aug

Rallis: Revamped channel policies and improved price realisation drives performance

Dated: 19th July 2019

1QFY20 Results

  • Rallis reported a 9% YoY increase in consolidated revenues at Rs 6,232 mn. The Standalone revenues of Rs 3,631 mn (+3% YoY) were driven by 12% YoY growth in exports. The seeds business (Metahelix subsidiary) revenues grew by 18% YoY to Rs 2,601 mn.
  • EBITDA margins improved by 70bps YoY to 15.2%. Increase in raw material costs was offset by savings in other expenses. EBITDA was up 14% YoY to Rs 948 mn.
  • The Effective tax rate for 1QFY20 was lower at 22% v/s 28% in 1QFY19. The Consolidated PAT grew by 24% YoY to Rs 678 mn v/s Rs 547 mn in 1QFY19.  

Management Commentary

  • Despite the delayed monsoon and impacted sowings; the revamped channel policies and improved price realisation led to a satisfactory performance both the agrochemicals and seeds segment in the domestic market.
  • International Crop Protection chemical business at Rs 1,416 mn grew by 12% YoY and contributed 39% of the standalone revenues.
  • The effective tax rate was lower during the quarter due to the classification of a part of the business as agriculture income for taxation purpose.
  • Other expenses declined due to the pushover of the product launch expenses into 2QFY20.
  • The Capex plans for FY20E stand at ~Rs 2,000 mn including backward integration for 2 of the molecules.
  • The Board of Directors of the Company had approved the Scheme of Amalgamation of Metahelix life Sciences Limited (a wholly-owned subsidiary) with the Company.

Consensus Estimate (Source: market screener website)

  • The closing price of Rallis is Rs 154/- on 19-Jul-19. It traded at 16x / 13x the consensus EPS for FY 20E / FY 21E EPS of Rs 9.6 / 11.5 respectively.
  • Consensus target price of Rs 180/- implies a PE of 16x on FY21E EPS of Rs 11.5.
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05 Aug

Yes Bank 1QFY20 result highlights: Return to Profitability, Asset Quality worsens.

Dated: 18th July 2019

• Yes Bank reported a 10% YoY growth in Advances. Advances declined by 2% sequentially over 4QFY19. Share of retail advances increased to 18% in 1QFY20 from 14% in 1QFY19.
• NII was reported at Rs 22,809 mn, 3% higher YoY and 9% lower QoQ. NII was lower by Rs 2,230 mn on account of interest reversals on slippages.
• Pre-provision operating profits were 20% lower YoY but improved by 48% QoQ. The sequential improvement was due to lower operating cost-to-income ratio and Rs 6,561 mn of treasury gains. 
• Yes Bank made provisions of Rs 17,841 mn in 1QFY19. Provisions included Rs 11,100 mn of MTM provisions on investments due to ratings downgrade. 
• Yes Bank returned to profitability with Net Profit of Rs 1,138 after a loss of 15,066 mn in 4QFY19. 
• Asset Quality worsened sequentially to GNPAs and NNPAs of 5.01% and 2.91% respectively in 1QFY19 from 3.22% and 1.86% respectively in 4QFY19. The share of sub-investment (BB and below) grade book in total advances increased to 9.4% from 7.1% in 4QFY19 due to exposure to 2 large financial players.

Conference Call highlights:
• Management expects to raise capital in 2QFY20. 
• Management maintained their Credit Cost guidance for FY20 at 125 bps. This is excluding MTM provisions on investments that may be required. 
• Yes Bank’s CET1 (Common Equity Tier 1) ratio has depleted to 8.0% by the end of 1QFY19 from 8.5% in the previous quarter. The CET1 ratio of 8% is the minimum regulatory requirement to be maintained by 31st March 2020. 
• Management said the sub-investment grade book has bottomed out and they expect material reductions in the book due to resolutions.
• According to the management, this was a quarter of consolidation and they expect to regain momentum from this point.

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05 Aug

Axis Bank: Banks aren’t out of the woods yet, but closer to the tail

Dated: 17th July 2019

Interview with Mr Pralay Mondal (the head of retail banking at Axis Bank from ET NOW dated 17th July 2019)

Interview highlights:
 The banking industry is in a perennial clean-up cycle and we are in the midst of an NBFC and real estate crisis. The NBFC model does not work; they cannot compete with banks on pricing. Banks are coming out of a very poor NPA cycle, but according to him, it is not out of the woods yet 
 The good news is that the clean-up is visible, we know what the issues are, it can get worse, but you have a fair understanding of the situation. The bad news is that globally, there are a lot of challenges — the US is not looking very well, we are caught amid trade wars and India is not immune to this. 
 The auto consumption is down, auto dealers are in shambles. There is clear demand destruction happening there. The consumption economy is not doing so well, there is a clear impact on mortgages. 
 The discretionary part, which is the personal loans, credit cards and unsecured loans where we don’t have a full understanding of the end-use, which is growing at a very rapid pace. 
 One segment says that the credit-GDP penetration is very low, so we have big opportunities at the bottom of the pyramid segment. If you look at companies like Titan, HUL, ITC, Hero Honda, consumption is not taking off, so we need to understand that bank is a surrogate of all of this. 
 If the quality of NBFC portfolios being sold is good then the good portfolio is moving. Some of that will play out eventually, but it may not hit the banks hard.

Consensus estimates: (source market screener website)
 The stock price is Rs 754/- as of close price of 17th July 2019. It trades at 2.5x/ 2.2x/ 1.8x the consensus book value for FY20E/ FY21E/ FY22E of Rs 303/ 346/ 419 respectively.
 The consensus price target is Rs 851/- valued at 2.5x FY21E book value of Rs 346/-.

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