Tag - Coronavirus

Covid-19 impact on demand is yet to be felt in India – Mr. Sharma, Bajaj Auto

Excerpts from an interview of Mr Rakesh Sharma, Executive Director, Bajaj Auto with CNBC -TV18 dated 12th March 2020

Update on the Indian Equity Market:

On Thursday, NIFTY continued its losing streak, closing at 9,590 (-8.3%). The top losers in NIFTY50 were Yes Bank (-13.0%), UPL (-13.0%) and Vedanta (-12.6%). None of the Nifty stocks ended on a positive note. All the sectors ended on a negative note and the top sectoral losers were PSU Banks (-13.2%), Media (-10.3%) and Realty (-9.8%).

  • Speaking on demand Mr. Sharma said that the impact of Covid-19 in India is yet to be felt.
  • The supply chain is improving for Bajaj Auto and the imports from China have resumed.
  • The attendance of the tier-II, tier-III suppliers in China who supply to vendors of Bajaj Auto had dropped to 10% but now the attendance is steadily rising. Now attendance is about 75%.
  • There could be new linkages emerging between Italy, Germany, and China and if that happens the company will have to watch out but at this point, the supply chain situation is improving and the demand situation within the country is not yet seeing much of an impact.
  • Some congestion at ports is causing 6-7 days delay, but it is an insignificant issue for Bajaj Auto.
  • Speaking about the next quarter, he said, the recovery process will be slow as underlying demand was impacted because of the BS-VI shift and the sentiment is now affected because of the coronavirus.
  • Q1FY21 will be a difficult quarter, the virus will act as a negative force and adjustment of people to new cost which requires positive sentiment is difficult in this scenario.
  • Speaking about the current market scenario, he said the cost of money will not be an issue but due to the economic backdrop the logic on lending is becoming severe.
  • About the autos, he said 30-40 percent of sales in March have shifted to BS-VI.

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

  • The closing price of Bajaj Auto was ₹ 2,350/- as of 12-March-2020.  It traded at 13.5x/12.8x/ 11.4x the consensus earnings estimate of ₹ 173/ 183 /205 for FY20E/21E/22E respectively.
  • The consensus target price for Bajaj Auto is ₹ 3,280/- which implies a PE multiple of 16x on FY22E EPS of ₹ 205/-.

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

Update on the Indian Equity Market:

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

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

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

Consensus Estimate: (Source: market screener website)

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

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

Update on the Indian Equity Market:

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

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

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

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

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

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

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

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

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

Update on the Indian Equity Market:

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

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

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

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

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

Consensus Estimate: (Source: market screener website)

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

Coronavirus impact likely from 1QFY21: Dilip Piramal Chairman, VIP Industries

Update on the Indian Equity Market:
On Thursday, Sensex ended up 152 pts lower and Nifty settled 45 pts lower at 12,080 level led by weekly expiry. Metal (+0.8%) and PSU Bank (+1%) were the top-performing sectors. NIFTY FMCG (-0.6%), NIFTY IT (-0.7%) and NIFTY Media (-0.6%) led the declining sectors. Among stocks, Cipla, Asian Paints, HUL and TCS were the top laggards, while gainers were INDUSIND Bank, Zee, SBI and Tata Steel.

Coronavirus impact likely from 1QFY21: Dilip Piramal Chairman, VIP Industries

Edited excerpts of an interview with Mr. Dilip Piramal, Chairman, VIP Industries; dated 19th February 2020:

Mr. Piramal said the Chinese companies’ accounts for 50% of its supplies.
Speaking about Coronavirus he said that this is an unprecedented situation and will have to see how this pans out. This will definitely have an impact on travel and on the general economy as China is a large supplier for most of the products in the world. But India is not so much part of the international economy as yet, so it could have some advantage.
The international travel is going to be affected on the whole as there will be some negative reaction.
China is a large part of VIP’s supply chain as VIP imports from China. The dependence on China is reducing gradually over the last few years.
Coronavirus is going to affect the whole luggage industry as it is dependent on China for finished goods, including the unorganised sector.
The factories in China have started after the Chinese New Year holidays with local workers last Monday, but that is still a small part of the overall employment.
Talking about the Supplies requirement from China, Mr. Piramal informed that 60% of the supplies for the Jun quarter are stocked up and there might be some delay, shortfall and may have to see some decline in revenues.
VIP’s supplies are now about 50% from China and the rest is sourced in India and Bangladesh.
When asked about the pricing scenario, Mr. Piramal commented that he doesn’t expect any price surge in the luggage industry but there will be some amount of firmness and decline in discounts and offers.
Mr. Piramal said that it is too early to comment on the sales growth to be expected in Jun quarter but they have stocked up and hopes that the stock levels go low and they don’t lose any sales.
Because of the downturn and loss of market share, the sales growth for 9MFY20 was less than 5%. The market share as of now stands at ~50%.
Consensus Estimate: (Source: market screener, investing.com website)

The closing price of VIP Industries was ₹ 450/- as of 20th February 2020. It traded at 34x/ 32x/ 26x the consensus EPS for FY20E/ FY21E/ FY22E of ₹ 13.4/14.4/17.7 respectively.
Consensus target price of ₹ 520/- implies a PE multiple of 29x on FY22E EPS of ₹ 17.7/-.