Tag - infrastructure

Infra development imperative to revive economic activity – L&T

Update on the Indian Equity Market:
On Tuesday, NIFTY was up by 82 pts (+0.7%) at 11,521.
Among the sectoral indices, REALTY (-0.7%), MEDIA (-0.42%), and FMCG (-0.2%) were the top losers and PHARMA (+1.9%), PVT BANK (+1.9%), and BANK (+1.7%) were the top gainers.
Among the stocks, INDUSINDBNK (+4.7%), CIPLA (+2.9%), and UPL (+2.8%) were the top gainers. TITAN (-1.4%), MARUTI (-1.1%), and HDFCLIFE (-0.9%) were the top losers.

Infra development imperative to revive economic activity – L&T

Edited excerpts of an interview with Mr. S.N. Subrahmanyan, Chief Executive Officer and Managing Director of Larsen & Toubro Ltd with The Hindu dated 12th September 2020:

Engineering conglomerate Larsen & Toubro Ltd. (L&T) recently completed divestment of its electrical and automation (E&A) business to Schneider Electric for ₹14,000 Crs. The company is also planning to divest or dilute certain concession businesses as part of the strategic review of its business portfolio, said CEO and MD S.N. Subrahmanyan.

• When asked about the next move after divesting in E&A he informed that they keep conducting a strategic review of our business portfolio from time to time and take a call on the basis of consistent, long-term planning process. As per this, they may divest or dilute certain concession businesses such as L&T Metro Rail (Hyderabad) and Nabha Power Ltd.
• When asked about the plans for E&A sale proceeds, he stated that they are in middle of an unprecedented pandemic which has caused considerable uncertainty to business during the past five months. In such times, it is necessary to strengthen the balance sheet and stay adequately liquid. Accordingly, the sale proceeds will be utilised partly for deleveraging the consolidated debt and also to strengthen the liquidity buffer warranted by the current economic environment. As business conditions improve post-COVID-19, some of the equity unlocked by the divestment will also be invested for growing the business at the group level. A certain part will also be used to reward the stakeholders.
• His comments on business operations coming back to normal: As the country unlocks, means of transport open, supply chains resume and labor returns, operations at about 90% of project sites and all manufacturing facilities have resumed and are gradually moving into normality. They remain positive.
• When asked about the workers coming back to work, he commented that Pre-pandemic, they had around 2.7 lakh labourers on rolls. This came down to 70,000 by end-May when the lockdown was lifted. Most of the labourers and workers went back to their villages and towns. But, L&T have all the reasons to be positive now as about 2.2 lakh are back on rolls and most of the sites are back to more or less normality. The amount of steel and cement L&T is purchasing is going up and that indicates better progress.
• His comments on getting new business: Infrastructure development is imperative to revive economic activity, create employment and infuse more liquidity into the system. Additionally, funded projects by the World Bank, Japan International Cooperation Agency and Asian Development Bank, among others, should start moving faster. L&T, therefore, is optimistic that sectors such as hospitals, power transmission and distribution, water, railways, roads, renewable energy and defence will start showing greater traction.
• When asked how is L&T readying for the fourth industrial revolution i.e. Digital, he said that over the last few years, L&T has deliberately and slowly enhanced its technology footprint and is charting a course in recent years that will see its technology portfolio increase its contribution vis-a-vis its traditional businesses. In FY15, the world was seeing a tectonic shift with digital technologies. These emerging technologies were creating new processes, new business models and entirely new businesses. Digitalisation and digital transformation were sweeping the business world. L&T was seeing and experiencing this first-hand from the clients of IT services companies.
• He further added that L&T saw the opportunity of digital as twofold. First, to digitally transform its own operations and use these new technologies to get better at what it was already doing well; and second, to look at digital as a new business opportunity that could shape its future portfolio. L&T started doing both and it acted swiftly with determination.

Consensus Estimate: (Source: market screener website)

• The closing price of L&T was ₹ 915/- as of 15-Sep-2020. It traded at 28x/24x/21x the consensus EPS estimate of ₹ 95.8/111/127 per share for FY21E/ FY22E/ FY23E respectively.
• The consensus target price of ₹ 2467/- implies a PE multiple of 19.4x on FY23E EPS of ₹ 127/-

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 consumption up in sectors linked to rural economy – Tata Steel

Update on the Indian Equity Market:

On Wednesday, Nifty ended 1.2% higher at 10,430. The top gainers for Nifty 50 were Axis Bank (+6.3%), UPL (+5.3%), and Bajaj Finserv (+5.2%) while the losing stocks were NTPC (-2.1%), Nestle (-2.1%) and LT (-2.0%). Sectoral gainers for the day were PSU Bank (+3.6%), Bank (+2.8%) and Financial Services (+2.7%) while the losers were Pharma (-1.0%), Realty (-0.7%) and IT (-0.2%).

Edited excerpts of an interview with Mr TV Narendran, CEO & MD, Tata Steel Ltd; dated 30th June 2020 from Economic Times:

  • The Company had tough six-seven months of the financial year starting from April last year till maybe October or November. Things started looking up after November. The demand started picking up. January to June is a peak season for steel consumption in India. So the steel demand was picking up. Apart from the auto industry, other industries were looking better and the steel prices were moving up. The Company started sensing things were going wrong because of the pandemic. It impacted them in Europe in February and they knew it was going to come to India as well. Tata Steel started taking some precautions by the end of February in India.
  • Prices in India were static because there were no sales but the fact that inventories were building up meant that all Indian producers were trying to export. So the export markets were crowded with Indian suppliers towards the end of March and early April.
  • By the end of April, China started pulling in quite strongly so a lot of steel exports started going to China. The Company saw a recovery of the international markets starting in April.
  • Between April, May, and June, steel prices have gone up by about $50 a tonne. The fact that Indian steel producers could export and had an export option, kept the domestic prices quite stable.
  • There was some pricing pressure because the prices have been trending upwards till March. There were some price corrections in May when the transaction started but the international prices were quite strong.
  • Consumption growth was seen in sectors which are linked to the rural economy.
  • In the automotive business, the tractors business has been reasonably strong. Motorcycles have been stronger than scooters because they are both dependent on the rural economy.
  • Rural infrastructure spending by the government has been positive. Tata Steel sells a lot of steel i.e., about 20% of their revenues, to the rural economy. The roofing sheets and reinforcing steel for the individual house builders segments are panning out strong.
  • The non-tractor and non-motorcycle automotive commercial vehicle, passenger vehicles are still quite a weak sector. There is some sign of improvement. Any improvement is only going to get them back to where they were last year and not where they were a year before last. So, it is a long haul back for them, according to Mr Narendran.
  • Tata Steel saw an EBITDA improvement in Kalinganagar and Jamshedpur of about Rs 2,000-2,500 a tonne Quarter on Quarter (QoQ) which was on the back of cost takeout and price hikes. Tata Steel would have sold at least half a billion tonnes more had there been no lockdown. This would have helped them in cost as well as realisations. They have lost half a billion tonne of March sales which was at the highest price.

Consensus Estimate: (Source: market screener website)

  • The closing price of Tata Steel Ltd was ₹ 324/- as of 01-July-2020. It traded at 6.8x the consensus EPS estimate of ₹ 47.8 for FY22E.
  • The consensus target price of ₹ 376/- implies a PE multiple of 7.9x on FY22E EPS of ₹ 47.8/-.

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.”