Tag - exports

Exports will be the focus area after the acquisition – Motherson sumi

Update on the Indian Equity Market:

On Tuesday , NIFTY ended higher at 17,991 (+0.26%). All the sectoral indices were gainers, led by PSU Banks (+3.1%), Media (+1.5%), and FMCG (+1.2%). IT was the lone loser, down by (-0.9%). Among the stocks, Titan (+6.1%), Bajaj Auto (+3.3%), and Bajaj Finserv (+3.0%) led the gainers while HCL Tech (-3.7%), HDFC Life (-1.9%), and Coal India (-1.7%) led the losers.

Excerpts of an interview with Mr. Vivek Chaand Sehgal, Chairman , of Motherson Sumi (MS) with ET NOW on 11th October 2021:

  • Acquisition of CIM Tools in aerospace segment will be beneficial for MS. CIM Tools have an order book of more than $200 million and the company will do very well in coming time.
  • Exports will be the focus area because MS set up bases in the different countries with CIM Tools and there will be a rise in exports because of the customers are abroad.
  • CIM Tools is a profit-making company and idea would be to improve it and add to the top line. MS has a clear thinking. They get 40% return on capital employed.
  • MS is acquiring existing profit-making joint venture in China. It is very important because MS is more into in passenger vehicles and this one is all about commercial vehicles .
  • MS has a huge presence in China and company have a huge market that they can then generate in China itself.
  • Opportunity wise in two to three years company will be all over in China. Company is learning about commercial vehicles. It is a wonderful area to get into it because MS is very strong with commercial vehicles globally.
  • Comparing global and domestic business is very difficult. The kinds of cars that are produced outside and the cars in India are very different in terms of value. Every car that produced there has a buyer for it. That means customers are at very good situation. Companies have the orders but they have some supply constraints.
  • The chip shortage and all other things combated with customers in a very strong way. The demand is huge and the situation is also getting better.

Asset Multiplier Comments

  • Auto production cuts and raw material price increase due to inflation might affect company’s performance in the near term.
  • Company is expanding its business in different segments. This will be the growth driver.

 Consensus Estimate: (Source: market screener website)

  • The closing price of Motherson Sumi Systems Limited was ₹ 245/- as of 12-Oct-2021. It traded at 35x/23x/20x the consensus earnings per share estimate of ₹6.89/10.8/12.4 for FY22E/FY23E/FY24E respectively.
  • The consensus target price of ₹ 254/- implies a PE multiple of 20x on FY24E EPS of ₹12.4/-.

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.”

 

 

Steel prices to be under pressure in the short term – Jindal Steel and Power

Update on Indian Equity Market:

On Wednesday, markets ended higher with Nifty closing 61 points higher at 15,879. TATASTEEL (+5.0%), JSWSTEEL (+2.7%), HINDALCO (+2.1%) were the top gainers on the index while TITAN (-2.0%), ONGC (-1.2%), and MARUTI (-0.9%) were the top losers for the day. Among the sectoral indices,  METAL (+2.2%),  REALTY (+2.0%), and FINANCIAL SERVICES (+0.6%) were the top gainers, MEDIA (-0.2%), and AUTO (-0.1%) were the only losers.

 

Excerpts of an interview with Mr. V R Sharma, MD, and CEO of Jindal Steel and Power on CNBCTV18 dated 5th July 2021:

 

  • Short-term pressure on Steel Prices is seen in International and European Spot Markets, with the prices hovering around USD 1,100 and 1,200 per tonne. This due to lower exports to Europe due to tariff and quota fears.
  • There is a value difference of around USD 200-250 per tonne between export and Indian domestic markets. There is a scope of reducing the delta to around USD 150 per tonne.
  • There is pressure on the demand for hot-rolled coils which forms part of the company’s exports which are 35-40% of the company’s total sales. This has resulted in the prices reducing to USD 1,020 per tonne.
  • The prices of other products are stable. 
  • There is a softening of about Rs 1,000-1,200 per tonne across all the products, which is normal because international prices play a vital role in today’s markets.
  • In terms of domestic demand, steel plates have shown a good demand and hot-rolled coils have shown moderate demand. The demand is very sluggish in the structural steel, construction steel, and rebar segments.
  • The company has produced 2.03 million metric tonnes of steel in 1QFY22 and is on track to manufacture 8.3 million metric tonnes for FY22. The exports for 1QFY22 were 0.6 million metric tonnes with full-year exports expected to be around 2.8 million metric tonnes.
  • The Company has Rs 165bn of debt as of 1QFY22 which the company is planning to reduce below Rs 100bn over FY22.

 

Asset Multiplier Comments:

  • Due to the Covid-19 pandemic, the demand for steel across domestic and international markets has been impacted. With the economic recovery,  there’s optimism for the sector.
  • The Company is taking efforts to deleverage its balance sheet in order to improve its performance across key operating metrics which will help the company grow further.

 

Consensus Estimates (Source: market screener website): 

  • The closing price of Jindal Steel and Power was ₹ 400/- as of 7-July-2021.  It traded at 5x/ 8x the EPS estimate of ₹ 75/ ₹ 51 for FY22E/23E respectively.
  • The consensus price target is ₹ 513/- which trades at 10x the EPS estimate for FY23E of ₹ 51/-

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.”

Reorganization of verticals will help the company reduce costs: Minda Industries

Update on Indian Equity Market:

Markets continued to feel the pressure of rising bond yields as Nifty fell 163 points to 14,558.  Within the index, ITC (4.0%), BAJAJAUTO (2.9%) and HINDALCO (1.9%) were few of the gainers while HCL TECH (-3.5%), INFY (-3.3%) and DIVISLAB (-3.0%) led the losers. Among the sectoral indices, only FMCG (0.1%), and METAL (0.04%) managed to close in green while IT (-3.1%), PHARMA (-2.3%) and PSU BANK (-2.0%) led the losers.

Excerpts of an interview with Mr. Sunil Bohra, ED & Group CFO, Minda Industries (MINDAIND) with CNBC -TV18 dated 17th March 2021:

  • Minda Industries has re-aligned its business verticals as the auto ancillary company is focusing on the centralization of operations of the company. The centralization theme will help cross-sale of products in the export market.
  • The company plans to have an increased focus on exports. Towards that goal, the company has set up a dedicated marketing office in Japan.
  • The objective of this move was to keep the fixed costs at the same level while increasing the sales. The company wanted to get synergies of scale to improve margins. The second objective was, some of the functions like marketing, commercial, were not reaping benefits of scale due to de-centralization.
  • The company now will have the ability to negotiate better prices with vendors. The company is confident of positive operating leverage at play in the medium term. This along with improved revenues will yield benefits for the company.

Asset Multiplier Comments:

  • The aim for the restructuring of an organization is a long-term process. If executed as per expectation, the company may see increased growth rates in revenues over a few years.
  • The objective of centralization is to keep fixed costs at similar levels to benefit from positive operating leverage. The company may witness improvement in profitability margins as a result of this move. 

Consensus Estimates (Source: market screener):

  • The closing price of MINDAIND was ₹ 551/- as of 18-March-2021.  It traded at 95x/ 41x/ 29x the consensus EPS estimate of 5.8/ 13.5/ 18.9 for FY21E/22E/23E respectively.
  • The consensus price target is 535/- which trades at 28x the EPS estimate for FY23E of 18.9/-

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.”

Most of the auto slowdown is the industry’s making

Dated: 23rd August 2019

Updates on the Indian market:

On Friday, markets closed in the green with BSE Sensex up 0.6% and NSE 50 up 0.8%. This was a reaction to the news that Finance Minister Nirmala Sitharaman was planning to hold a press conference after market hours.  The market expects a government intervention to revive the economy. The top gainers among NIFTY 50 stocks were Zee (+6.5%), UPL (+6.2%), Vedanta (+5.7%). Indusind Bank (-1.8%), ITC (-1.5%), Eicher Motors (-0.9%) were among the top NIFTY 50 losers. Among the sectoral indices, Media (+4.2%) and Metal (+3.4%) were the best performers while FMCG (-0.4%) and Private banks (-0.4%) were the worst performers.

Excerpts from an interview with Mr. Rajiv Bajaj- MD, Bajaj Auto published in mint dated 23rd August 2019: Most of the auto slowdown is the industry’s making

·       For the motorcycle industry, the YoY decline in sales is only 5-7%. This cannot be called a crisis. It is part of a normal industry cycle and a check for the robustness of a business model.

·       There are 4 areas where the auto industry has to improve before talking about government stimulus:

o   Industry’s domestic focus: Barring Bajaj Auto (40% revenue from exports) and TVS Motors (20% revenue from exports), other players have a negligible share of exports.  If companies had invested in global markets over the last 10-15 years and increased their exports, a 5-7% decline in one market would not have hurt them as much as it is hurting now.

o   Mediocre products: A lot of auto players are not able to export because their products are mediocre by world-class standards.

o   Innovation in the domestic market

o   Cost structure: Some manufacturers are guilty in terms of imposing very high fixed costs on their dealerships.  This works in good times but becomes a big burden in bad times.

·       Inventories have piled up since September 2018 when the industry was anticipating an extraordinary festive season. The situation is correcting now as nobody can hold BSIV stock for long. Therefore, there is a mismatch between wholesale (OEM to dealers) and retail (dealer to the customer) sales. The mismatch makes it look as if the industry is down by 15%-20% when in reality it is down by 5-7%. A 5%-7% retail decline is not enough for the industry to cry for help.

·       The industry has said there is a need for intervention in dealer/customer financing. Inventory financing should not be a big issue for large companies most of whom are cash-rich. In case of retail consumer financing, for a long time companies using their captive financing arms have shoved products in the hands of customers who didn’t really want to buy. This led to higher bad debts.  So pulling back of credit by some NBFCs is for a good reason.

Consensus Estimate (Source: www.marketscreener.com)

·       The stock price of Bajaj Auto is Rs 2,750/- as on 23rd August 2019 and trades at 17.2x/ 15.8x the consensus EPS for FY 20E/21E EPS of Rs 160/ Rs 173 respectively.

·       Consensus target price is Rs 2,686/- valued at 15.5x FY21E EPS of Rs 173.