Tag - slowdown

Higher but manageable inventory levels – MrAnil Kumar Chaudhary, Chairman, SAIL

Update on the Indian Equity Market:


On Wednesday, NIFTY50 closed positive (+1.8%) at 9,553. Within NIFTY50, HINDALCO (+7.0%), ADANIPORTS (+6.6%) and HDFC (+6.5%) were the top gainers, while AXISBANK (-3.6%), ASIANPAINT (-2.7%) and HINDUNILVR (-2.4%) were the top losers. Among the sectoral indices,METAL (+3.7%), FINANCIAL SERVICES (+3.4%) and MEDIA (+2.7%) gained the most. FMCG(-0.4%) andPHARMA (-0.01%) closed in the negative.


Higher but manageable inventory levels – MrAnil Kumar Chaudhary, Chairman, SAIL


Excerpts of an interview with Mr. Anil Kumar Chaudhary, Chairman,SAIL broadcasted on CNBC TV18on 24th April 2020:

  • As with most industries, steel industry is also facing issues in running facilities. Steel is a continuous process industry and has to continue to run albeit at a lower level.
  • Domestic orders have dried up. SAIL is dependent on export orders for now. As a result of continuous production and lower sales, there is a buildup of inventory.
  • Chaudhary believes that the current inventory level is high but manageable. Higher inventory is not unprecedented for steel industry. Current inventory for SAIL is close to 2 mn ton.
  • Inventory level was also high during the slowdown in July- October 2019. 31st October 2019 also had high inventory like current levels. But as of 31st Jan 2020, the inventory levels reduced to 1st April 2019 level.Mr. Chaudhary expects that similar performance will repeat if everything goes well and lockdown lifts on 3rd May 2020.
  • Chaudhary is confident that after lifting of lockdown there will be substantial demand from construction and infrastructure sectors. That should take care of SAIL’s high inventory levels. Other sectors such as automobiles or engineering may take time to revive.
  • For SAIL specifically, they have not seen issues in logistics. In lockdown, railways have become more efficient and even portsare able to handle exports.
  • Cash flow is a bit strained due to lower sales and continued fixed costs. Quite a few debtors have been due for repayments and SAIL has been getting those payments.
  • After lockdown, road transport has to be restored. Government is also really concerned about current state of affairs and they also want to ensure that the supply chains are restored as fast as possible.
  • SAIL has close to 70,000 employees.SAIL has to be able to ramp up production in time to bring down per ton cost of production. SAIL continues to incur fixed costs of about Rs 15,000 mnper month, major expense due to employee cost.
  • Chaudhary is confident that some government measures are going to help such as waiver of certain charges from power companies in some states. Interest cost in % terms has also come down.

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

  • The closing price ofSAIL was ₹ 30.1/- as of 29-April-2020. It traded at 8.4x/ 4.1x the consensus EPS estimate of ₹ 3.6/ 7.3 for FY21E/ FY22E respectively.
  • Consensus target price of ₹ 35.1/- implies a PE multiple of 4.8x on FY22E EPS of ₹ 7.3/-.

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.”

It’s a perfect storm in the consumer goods sector, says Godrej’s Gambhir

Update on the Indian Equity Market:

On Tuesday, NIFTY50 closed 0.9% higher at 12,082. NIFTY50 gainers include Tata Steel (+4.6%), Bharti Airtel (+4.5%), Vedanta (+3.4%) and Hindalco (+3.3%). NIFTY50 losers include Sun Pharma (-1.3%), GAIL (-0.9%) and Bajaj Auto (-0.7%). Metal (+2.9), IT (+1.9%) and Media (+1.0%) were the top sectoral gainers. Pharma (-0.3) and Realty (-0.3%) were the only losing sectors.

Excerpts from an interview with Mr Vivek Gambhir, MD & CEO, Godrej Consumer Products Ltd (GCPL). The interview was published in Livemint dated 16th December 2019

  • For packaged consumer goods companies, rural growth slowed to a seven-year low in the September quarter, according to market researcher Nielsen India.
  • A general gloom in consumer sentiment and stagnating wages continue to impact sales of daily goods in India’s hinterland said, Mr Vivek Gambhir.
  • The slowdown has been persistent for the last three or four quarters according to Mr Gambhir. GCPL saw the first signs around October 2018. Over the last few quarters, along with the slowdown in demand, they have seen liquidity pressure in the channels (wherein traders and distributors have limited access to cash or credit from the market). Similarly, over the last three to six months, consumer sentiment has also worsened. So, in some ways, what the Company is seeing currently is a perfect storm in the FMCG sector with the confluence of slowing demand, channel liquidity pressure and weakening consumer sentiment which has been exacerbating the situation.
  • Reasons for the slowdown: Data on real wage growth in the rural sector shows that real wages have been flat or declining over the last one or two years. According to him, what consumers do is, once certain products are within their spending basket, they spend on them for a while. Then they start dipping into their savings. Even savings rates have come down in India recently. But when sentiment becomes sour, then things start affecting the sector.
  • GCPL has seen such a similar kind of situation in its first couple of quarters. They have seen a volume growth of 6-7%, which is not a bad volume growth. Volume growth is not translating into value growth because of consumer incentives and offers. He believes that is the right call to take as the P&L is quite healthy. GCPL is sitting on attractive margins. The need of the hour is to stimulate demand. Ideally, GCPL would like to be at double-digit volume growth and the efforts going forward will be to get back there.
  • In a slowdown, home and personal care get impacted more than food, according to him. The indulgence categories like beauty products and chocolates continue to grow as consumers like some ‘feel-good” factor even in a slowdown. The slowdown has been quite pervasive and has impacted most categories, particularly in rural India. Within the home and personal care, discretionary categories such as skin creams, conditioners, hair oil, hair colour get impacted. But more items are considered as discretionary for rural consumers given their lower income levels.
  • In the last two or three months, both staples and discretionary have been impacted quite a bit; that is consumer sentiment has worsened. People had very high expectations post the elections. Since they did not see any improvements, the mood seems to have worsened.
  • Views on changing goods and services tax (GST) slabs again: At this stage, trying to do too much with GST rates will be a mistake in his opinion. Companies need time to let the GST rates settle. There are a lot of implementation issues that need to be addressed. The Companies need to continue to work with various stakeholders, particularly small businesses and, in GCPL case, channel partners, to help them deal with what has been one of the largest tax reforms in Indian history post-independence. At this stage, trying to do too much with GST rates to drive short-term collections may not be the right strategy. It is important to stay the course, rather than to make rate changes that are currently being discussed.

Consensus Estimate (Source: market screener website)

  • The closing price of Godrej Consumer Products Ltd was ₹ 677/- as of 17-December-19. It traded at 43x/37x/33x the consensus EPS estimate for FY20E/ FY21E/ FY22E of ₹ 16.0/18.6 /20.7 respectively.
  • Consensus target price of ₹ 753/- implies a PE multiple of 36.4x on FY22E EPS of ₹ 20.7/-.