Tag - Covid-19

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Update on the Indian Equity Market:

The market ended higher for the second day on expectations of a fresh stimulus package from the government to reduce the damage caused by the ongoing pandemic. IT (4.4%), Private Bank (+3.2%), and Banks (+2.9%) were the top gainers while the losers were FMCG (-1.4%) and PSU Bank (-0.4%). The gainers were led by Kotak Bank (+8.3%), TCS (+5.5%), and Infy (5.2%) while the top losers were Titan (-3.7%), Hindustan Unilever (-2.7%), and Power Grid (-2.5%).

Continued government and RBI intervention till cure or vaccine available: Sanjiv Bajaj, Bajaj Finserv

Excerpts of an interview with Sanjiv Bajaj, Chairman and Managing Director, Bajaj Finserv published in Business Standard on 22nd April 2020:

  • The timely lockdown to control the spread of the covid-19 pandemic helped prepare medical capacity. To kick-start investments, the gradual opening of economic activities in the non-hotspots needs to be done.
  • The lockdown situation has resulted in both, the demand and supply being stopped, which we have never experienced. It is vital for the government and RBI to instill confidence, especially with small businesses, migrant workers, and individual consumers.
  • The measures announced to provide food and some money to the poor section of the society are commendable. Now, working capital and term loans to restart enterprises are needed to kick-start the economy.
  • Banks, though flush with liquidity are playing too safe by not lending funds to NBFCs, HFCs, and micro-finance institutions to avoid credit risk. It could help if the government covered initial losses.
  • With a large domestic consumption base, our economy can restart faster than many other countries, provided the necessary help is provided. We will need to balance opening up the economy with the spread of the virus and any new information about its fatality. Hence, the government and RBI support will be required until a cure or vaccine is available.
  • The measures announced by RBI are welcome though Mr. Bajaj would like to see a direct liquidity line extended by the RBI for larger NBFCs with assets over ₹ 10,000 crores.
  • Public sector banks are not yet extending back-to-back moratorium to smaller NBFCs that are offering moratorium to their customers. Such anomalies, which will prevent the economy from recovering fast must be quickly removed.
  • Smaller NBFCs must shore up their capital requirement, keep additional liquidity, and maintain conservatism in lending practices, to survive the lockdown.
  • The finance and insurance companies of the group have adapted quickly and reasonably efficiently to the work-from-home regime. Productivity is understandably lower, which impacts response times.
  • A reasonable amount of new insurance business is done, completely digitally. A number of processes will be reoriented to work from home even after the lockdown ends.
  • Bajaj Finserv will be ready to offer the different kinds of loans customers might need, once the economy restarts. The loans and insurance products take care of a large number of essential requirements- loans to buy groceries, for medical procedures, to insuring car, factory, shop, and life.
  • Due to the global economy being under stress, there could be some short-term reallocation of global capital towards developed markets. India, which has a large domestic consumption base and a young population, will end up growing faster and eventually attract global capital.
  • In the past few years, our domestic capital has moved from being invest in non-productive assets to financial assets, which is expected to continue and provide an important and dependable source of money.
  • India can emerge as a strong alternative to China and it is important to leverage this once-in-a-lifetime opportunity.

Consensus Estimate: (Source: market screener website)

  • The closing price of Bajaj Finserv was ₹ 4,717/- as of 23-April-2020. It traded at 2.2x/ 2.2x/ 1.8x the consensus book value estimate of ₹ 2,111/ 2,173 / 2,583 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price is ₹ 8,304/- which implies a PB multiple of 3.2x on FY22E BV of ₹ 2,583/-.

Disclaimer: “The views expressed are for information purposes only. The information provided herein should not be considered as investment advice or research recommendation. The users should rely on their own research and analysis and should consult their own investment advisors to determine the merit, risks, and suitability of the information provided.”

 

Merged entity will help face the lockdown better- Rajkiran Rao, Union Bank

Update on the Indian Equity Market:
On Monday, NIFTY closed around 4.4% lower to end at 8,281 as coronavirus cases rose to over a thousand in India, which has raised concerns about the impact to businesses and growth. Pharma (+1.4%) and FMCG (+0.7%) were the only gainers amongst the sectoral indices. Realty (-7.8%), Financial Services (-7.4%), and Private Bank (-6.2%) led the losers. Cipla (+6.7%), Tech M (+4.7%), and Nestle India (+3.8%) were the top gaining stocks whereas Bajaj Finance (-11.9%), HDFC (-10.8%), and Kotak Bank (-8.4%) led the losers.

The merged entity will help face the lockdown better- Rajkiran Rao, Union Bank

Union Bank of India will become the fifth-largest state-run bank after Andhra Bank and Corporation Bank merge with it on April 1.

Edited excerpts of an interview with Mr. Rajkiran Rao, CEO, Union Bank published in the Economic Times on 30th March 2020:

  • Six banks are being merged with larger peers to get economies of scale. Postponing the merger after having completed the legal process would not have been a good thing. Stalling it in March, once the share swap ratios were announced was not advisable.
  • As a merged entity, the bank is better capitalized and take-off wouldn’t be an issue. A combined entity is better positioned to handle this unprecedented event because of its larger capital base, branch network and better teams to handle.
  • Changes due to the merger will happen gradually. Thus, there is no difference for the frontline staff or for the customers. The extent of damage caused by the Covid-19 breakout will be done only after it is over. Capital raising from the market will also be assessed only after the outbreak is over.
  • More than 700 branches have been identified, which can be rationalized. In cities, there are branches next to each other or in the same building. This will take three years. In the first year, more than 300 branches will be rationalized. Fresh branches will also be opened. Regional offices in new centers like Amritsar, Bhagalpur, and Mau will be opened.
  • The acquisition will make Union Bank one of the strongest banks in Southern India, with more than 30 percent market share in Andhra Pradesh and Telangana. There will be more than 2,000 branches in these two states, thus enabling them to leverage their presence in the South which complements their strengths in the North and West India.
  • Post the merger, they are looking to strengthen their gold loan business, which is something they have not done before. There will be an addition to the MSME portfolio in the South with a better underwriting process. They are looking to deepen corporate relationships because of the stronger capital base and larger size. Places to open mid-corporate branches have already been identified.
  • Mr. Rao is of the opinion that branch rationalization will not lead to job cuts. Their recruitment is on track and every year, they are recruiting new people to replace the ones retiring. The total strength post-merger will be 75,000 compared to Union Bank’s 38,000. The rationalization of administrative offices and branches will give some manpower to be redeployed in other verticals.
  • Talking about the impact of the merger on the customers, he said they have normalized the interest rates across the three banks. On the advances side, new borrowers of Andhra and Corporation Bank will get a 20bps lower rate in some slabs. RBI’s rate cut announcement on 27th March will further bring down the rates from April 1. Customers will gradually migrate to Union Bank’s centralized platform which will help in faster turnaround time.
  • To fully integrate the IT systems of Corporation Bank, which has the same Finacle 10 platform as Union Bank, but with a slightly older version, it will take six to nine months. For Andhra Bank, which is on the Finacle 7, it will take nine to twelve months. There will be no change in the account numbers after the platforms merge, and credit and debit cards will be issued by Union Bank only after they expire.

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

  • The closing price of Union Bank of India was ₹ 29/- as of 30-March-2020. It traded at 0.3x / 0.3x/ 0.2x the consensus book value estimate of ₹ 110/ 115/ 127 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of ₹ 67/- implies a PB multiple of 0.5x on the FY22E book value of ₹ 127/-.

COVID-19 impact: Have requested RBI that moratorium sought by consumers should be given, says M&M Fin Services

Update on the Indian Equity Market:

On Thursday, NIFTY continued gains for the 3rd day and ended at 8,641 (+3.9%). Among the sectoral indices, Pvt Bank gained the most while no sector index ended negatively. Pvt bank (+8.3%), Realty (+7.3%) and BANK (+6.4%) were the top gainers. Out of the NIFTY50 stocks, IndusInd bank (+46.0%), L&T (+10.0%) and Bajaj Finance (+9.3%) rallied the most, while GAIL (-3.3%), HCL Tech (-2.6%) and Sun Pharma (-2.5%) were the worst performers for the day.

Edited excerpts of an interview with Mr Ramesh Iyer, Vice Chairman & Managing Director of Mahindra & Mahindra Financial Services Ltd; dated 25th March 2020. The interview aired on CNBC-TV18.

  • Original equipment manufacturers (OEMs) have shut down production due to COVID-19, which obviously have an impact on vehicle financiers.
  • For OEMs at the beginning of 4Q FY20, the volumes started to shrink because everybody was preparing for BS-VI transition and therefore the inventory levels started to come down. Now with the COVID-19 scare – even the little possible sales that were likely to happen have come to an end, according to him.
  • He added the month of January-February was average; March has been absolute no-number kind of a month, so he thinks that it would be a low single-digit growth in loan book or for some it may not even be that.
  • The Company has told the RBI about consumers asking them for a moratorium and has requested RBI to provide the same.
  • They have also told RBI that these are the times where maybe the non-performing assets (NPAs) norms itself will have to be rewritten to say it is not 90-days delinquent but 180-days kind of a delinquent and it is more to protect the good customers who have been paying so far.
  • There is uncertainty about tomorrow. So people had started becoming cautious but even more important is that the overall activities have started to reduce and therefore people’s earnings will start to reduce but these are times where instead of worrying about what is going to happen to the growth and things like that – the Company will be looking at ‘how do they help out the consumers’.
  • The current situation is still not as impactful in the rural market as seen in urban according to him. People will have to figure out after things get normal. They will start relooking at what else to do, how else to do. So the real impact will be known only three months down the line.
  • If consumers need some kind of temporary short-term loan after things get to some normal then the Company will look at what could be that short-term small-ticket loans to the existing consumers whom they may want to support and partner them to come out of this situation as things start to improve.

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

  • The closing price of M&M Financial Services Ltd was Rs 169/- as of 26-March-2020. It traded at 0.9x / 0.8x/ 0.7x the consensus book value estimate of Rs 190/ 211/ 238 for FY20E/ FY21E/ FY22E respectively.
  • The consensus target price of Rs 394/- implies a PB multiple of 1.7x on the FY22E book value of Rs 238/-

Hydroxychloroquine drug useful in clinical trials for Covid-19 infection: Cadila Chairman

Update on the Indian Equity Market:

After hitting the lower circuit in the first half of the day Nifty closed 13% lower at 7,610. Among the sectoral indices, NIFTY PVT Bank (-17.4%), NIFTY Bank (-16.2%), NIFTY Fin Services (-15.5%) closed lower. None of the sectors closed on a positive note. AXIS Bank (-27.6%), Bajaj Finserv (-27.5%), IndusInd Bank (-23.9%) closed lower. None of the NIFTY stocks closed on a positive note.

Excerpts from an interview of Mr Pankaj Patel, Chairman, Zydus Cadila with CNBC-TV18:

  • Anti-malaria drug Hydroxychloroquine has found to be useful in clinical trials of some patients with Covid-19 infection and Cadila is in a position to increase the production.
  • On Janta curfew, Mr Patel said that it is a unique idea and it will prepare everyone for a lockdown situation if any.
  • He said it is a positive step and with respect to clinical research being done, there are more than 10 drugs being tried out as a treatment for coronavirus infection.
  • A recent report by France researchers showed that hydroxychloroquine has found to be effective. So there is a possibility of use of it in the treatment of infection.
  • The company is closely watching this situation and is in a position to produce more as and when needed.
  • The manufacturing is dependent on local raw materials and there is no dependence on imported inputs so the company can supply this drug in sufficient quantity.
  • Speaking about Covid-19 impact on the company, Mr Patel said, the company does not see a challenge as the US supply will continue unless restrictions are imposed by the government. So there should not be any problem supplying drugs to the US and other markets.
  • As far as approvals are concerned, the process in on, not that for every drug approval there is an inspection necessary.
  • He added there will be some slowdown in the approval process as there is a slowdown and in the US people are working from home. However, it is not a major challenge.

Consensus Estimate: (Source: market screener website)

  • The closing price of Cadila was ₹ 281/- as of 23-March-2020.  It traded at 21.6x/ 17.5x/ 15.7x the consensus EPS estimate of ₹ 13/16/17.8 for FY20E/ FY21E/ FY22E respectively.
  • The consensus average target price for Cadila is ₹ 300/- which implies a PE multiple of 16.8x on FY22E EPS of ₹ 15.7/-.

 

Margins to improve due to crash in crude prices – Mr Surana, BPCL

Update on the Indian Equity Market:

On Monday, NIFTY50 closed 7.6% lower at 9,199, erasing the gains of Friday. All sectoral indices closed in the red with METAL (-8.9%), PVT BANK (-8.8%) and BANK (-8.3%) being impacted the most. Of the NIFTY50 components, INDUSINDBK (-18.4%), JSWSTEEL (-14.8%) and VEDL (-10.9%) were the worst performers. YESBANK was the only index component to close in the green with a 45% gain.

Margins to improve due to crash in crude prices – Mr Surana, BPCL

Excerpts from an interview with Mr M K Surana, Chairman and MD, Hindustan Petroleum Corporation Ltd. (HPCL) with CNBC -TV18 dated 9th March 2020:

  • The crash in crude prices is governed by factors different than those which are normally seen. The crash is abnormal, sharp and not guided by purely demand-side factors.
  • Mr Surana expects that in the near term, there will be softness in most Middle East crudes. This may lead to better margins on refining side in the near term. Brent Dubai differential may increase slightly, making Middle East crude slightly more favourable from refining point of view.
  • The lower crude price is good for refiners and means better margins in the near future. But the choppiness will not be correcting.
  • The gross refining margins (GRMs) and the cracks were low in the recent past. But in this particular event, the Saudi crude has reduced OSP by almost USD 6 per barrel in all markets and not just Asian markets. That should improve the cracks in the near future. In fact, the 6th March vs 9th March futures/forwards are already seeing a little jump of cracks.
  • The BPCL divestment impact on industry dynamics depends on how the divestment proceeds. Assuming private players are involved, there may be certain changes in the way businesses are picked up.
  • Sudden fall in crude causes inventory losses. However, there are still 20 days in March (at the time of the interview). After such a sudden fall, a pick up if it happens is also sharp. So, we may see days of gains also in March so the inventory will depend on the net price. However, on the margins, they are expected to be better in nearer months.
  • On the demand in India, February was better than earlier months for both diesel and petrol. Mr Surana was of the view that it is difficult to identify where the demand is coming from as many factors are working in contradictory directions.
  • As far as the Coronavirus impact is concerned, there was no impact in India in February. It is only now that concerns are being raised.

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

  • The closing price of BPCL was ₹ 365/- as of 16-March-2020.  It traded at 10.9x/8.6x/8.2x the consensus earnings estimate of ₹ 33.4/ 42.4 /44.5 for FY20E/21E/22E respectively.
  • The consensus target price for BPCL is ₹ 506/- which implies a PE multiple of 11.4x on FY22E EPS of ₹ 44.5/-.

Covid-19 advisories may impact footfall, but could be 30-60 day phenomenon: Ajay Bijli, PVR

Update on the Indian Equity Market:

On Monday, Indian shares followed a slide in global peers as fears over the spread of the Covid-19 outbreak intensified and oil prices plunged. The Nifty hit its lowest since February 2019 and the sell-off triggered by the economic fallout of the virus outbreak worsened by the turmoil at Yes Bank.

Among the Nifty 50 stocks, Yes Bank (+32.2%), BPCL (+5.5%), Infratel (+2.9%) and Eicher Motors (0.7%) were the only stocks which ended the day in the green. ONGC (-16.0%), Vedanta (-15.3%), and Reliance (-13.1%) were the top losers of the day. All the sectoral indices too ended in the red. Metal (-7.7%), Media (-6.7%), and PSU Bank (-6.1%) were the top losers.

Covid-19 advisories may impact footfall but could be 30-60 day phenomenon: Ajay Bijli, PVR

Excerpts from an interview with Mr. Ajay Bijli, Chairman and Managing Director, PVR Cinemas published in Mint dated 06th March 2020:

  • The release of the latest Bond film has been postponed. Talking about the US movie collections, he said that China, Japan, and South Korea are the big markets. India is a significant market, but not as big as these markets. So, he believes that the Indian film industry will not get impacted. Baaghi 3, which is a big franchise released on Friday. The advances are good so no delay in release was announced.
  • The Covid-19 advisory can impact footfall but it is an aberration because nobody has experienced anything like it. The safety, health, and security of the patrons are more important than the business. It is difficult to pinpoint if there has been an impact on the footfall because the content was not good in the past two weeks or is it the Covid-19. Mr. Bijli believes that this is a tide that will go away and the fundamentals of the business are very strong.
  • When asked about the pre-emptive action to combat the virus, he said that they have put sanitizers and disinfectants everywhere. PVR employees are wearing marks everywhere. They are ensuring the box office, and the seats are disinfected and cleaned thoroughly.
  • In terms of consumer spending outside the virus impact, PVR’s business has not been impacted. Before the virus issue, movies were releasing and people were coming out and watching movies, eating more.
  • Even the Q3 results were comparable to last year’s Q3. During recessionary times, people eliminate a lot of things from their discretionary spending. Since watching a movie is a small ticket item, and the content has been good, people are going out to watch a movie. Smaller films or sleeper hits as they are called, have done very well. He believes, it is a lifestyle need gap to go out and entertain oneself in India.
  • Studies show a positive correlation between OTT and cinema-going. He calls what is happening on Netflix and Amazon- long-form storytelling which is like Narcos -13 episodes, The Crown-26 episodes. The same people who consume long-form storytelling are going out and watching movies. People are consuming a lot of content but short-form storytelling is more experiential.

Consensus Estimate: (Source: market screener website)

  • The closing price of PVR Ltd was ₹ 1574/- as of 09-March-2020. It traded at 43x/ 31x/ 23x the consensus earnings estimate of ₹ 36.9/ 51.4/ 68.1 for FY20E/FY21E/FY22E respectively.
  • The consensus target price is ₹ 2060 /- which implies a PE multiple of 30x on FY22E EPS of ₹ 68.1/-.