Tag - volumes

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Update on the Indian Equity Market:
On Tuesday, Bulls continued to dominate as NIFTY ended up 159 pts (+1.4%) at 11,603.
Among the sectoral indices, METAL (-0.7%), FMCG (-0.19%), and PHARMA (-0.1%) were the losers and FINANCIAL SERVICES (+3.15%), REALTY (+ 2.6%) AND PVT BANK (+2.3 %) were the gainers.
Among the stocks, TATAMOTORS (+7.7%), HDFC (+7.6%), and ADANIPORTS (+3.5%) were the top gainers. BRITANNIA (-1.5%), COALINDIA (-1.3%), and WIPRO (-1.3%) were the top losers.

In-home beverage consumption up 25%; sales at pre-COVID levels- Varun Beverages

Edited excerpts of an interview with Mr. Ravi Kant Jaipuria, Chairman, Varun Beverages with CNBC TV18 dated 5th October 2020:

Varun Beverages (VBL) is the second-largest franchisee (outside US) of carbonated soft drinks and non-carbonated beverages sold under trademarks owned by PepsiCo. It produces and distributes brands such as Pepsi, Diet Pepsi, Seven-Up, Mirinda Orange, Mirinda Lemon, Mountain Dew, Seven-Up Nimbooz Masala Soda, Evervess Soda, Duke’s Soda, Sting, Tropicana, Seven-Up Nimbooz, Gatorade and Quaker Oat Milk as well as packaged drinking water under the brand Aquafina.

• Comments on Hotels, Food courts, Restaurants and Bars to operate in Maharashtra from 5th Oct, 2020 at 50% capacity: Maharashtra is an important state but not the biggest state sales wise for Varun Beverages. He further added that UP is the largest contributing state for Varun Beverages. Unlock in any area or region will be helpful for the company to increase the sales and he is happy to know that restaurants, movie theatres are opening up.
• The overall volume sales have reached pre-COVID levels since August, and the numbers for August and September are very close to the numbers logged during the same periods last year.
• When asked about the prospects for the month of October as the restaurants are opening up he stated that September has been better and he is happy with the performance and things are looking good going forward. Opening up of restaurants will definitely help increase the sales but in-home consumption is quite large and on the go consumption has started and they will be back to normal levels soon.
• The supply started in July-20, so July-20 was reasonably good although weaker than July-19 but since August Varun Beverages is doing well and going forward, he doesn’t see any reason why sales should fall or decline unless any major incidence or lockdown happens.
• Whatever fixed cost they could cut down during the lockdown, they have kept it down since then so fundamentally they will be in a good shape as the cost have gone down and volumes are back to normal. So, going forward things are looking pretty good and in shape.
• Unfortunately, they have lost the peak season i.e. April-May-Jun this year but as the go to market keeps on improving and unlock keeps happening things will be back to normal.
• In home beverage consumption has gone up by 25-30% after COVID and on the go consumption is also seeing recovery. If it reaches the normal level he sees huge growth coming in.
• When asked about the revenue contribution, he informed that restaurants and bars contribute less than 5%, in home consumption and on the go consumption are the main business for Varun Beverages.
• When asked whether they are facing any issues at the supply side he replied that they did not had any issue at the supply side and were able to maintain the supply. Production and Supply side was never a challenge for Varun Beverages.

Consensus Estimate: (Source: market screener website)

• The closing price of VBL was ₹ 689/- as of 06-Oct-2020. It traded at 76x/29x/21x the consensus EPS estimate of ₹ 9.2/24.3/33.1 per share for CY20E/CY21E/ CY22E respectively.
• The consensus target price of ₹ 804/- implies a PE multiple of 24x on CY22E EPS of ₹ 33.1/-

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.”

Hospital industry will see normalisation by the end of 2QFY21: Fortis Healthcare

Update on the Indian Equity Market:

On Friday, Nifty ended 1.5% higher at 10,244. The top gainers for Nifty 50 were Bajaj Finserv (+9.2%), Bajaj Finance (+6.6%) and Reliance Ind (+6.5%) while the losing stocks for the IndusInd bank (-2.2%), M&M (-1.3%) and Vedanta (-1.3%). Sectoral gainers for the day were Realty (+6.4%), PSU Bank (+2.2%) and Media (2.0%) while the losers were IT (-0.4%) and Metal (-0.1%).

Edited excerpts of an interview with Dr Ashutosh Raghuvanshi, CEO, Fortis Healthcare Ltd; dated 18th June 2020 from Economic Times:

  • The pandemic has affected the routine work of the hospitals and surgeries in a big way. The impact started somewhere in the month of February 20. Thus, the impact can be seen in 4QFY20 as well as 1QFY21E.
  • Volumes got reduced to the emergency work but a gradual resumption of activities on the side of chronic illnesses. Fortis believes that this is a short term blip but there is going to be a sustained and pent up demand of elective work especially for chronic ailments which are going to last for at least 6 months following the normal resumption of activities.
  • Industry sees an upward swing in COVID cases in cities other than Delhi and Mumbai.
  • Fundamentals for the healthcare industry continue to remain strong in the medium term.
  • In April-20 the occupancy levels were 25% which went up to 35% in May-20. In this month the recovery in the average occupancy levels stands at 48%. With this kind of recovery, 60% occupancy expected in July and then normalcy by the end of 2QFY21.
  • Fortis expects FY21 earnings to take a slight hit but expects 3Q and 4Q FY21 to be at normal levels in terms of both revenues and profits.
  • Initiatives in terms of cost and restructuring for Fortis are on-going. Lockdown gave them the opportunity to focus more on these elements. They are in a comfortable position in terms of cash flows even after the fall in revenues in 4QFY20.
  • Fortis is continuously evaluating its portfolio to see which units need to shape up or not performing well to rationalise the portfolio.
  • Staff cost is being relooked at, especially the senior staff members in order to be aligned with the Company’s interest. So conversations are going on. Establishment cost and advertisement cost are been rationalised. Expenses are needed to be prioritised.
  • Some of the CAPEX are been deferred in FY21, for example, land up-gradation of clinical infrastructure.
  • When asked about the price capping that is happening in this industry which will hurt the private players, he said that the margins are expected to be lower as compared to the current ones but the price capping will boost the volumes for the private players. So going forward, volumes are expected to compensate for the lower margins

Consensus Estimate: (Source: market screener website)

  • The closing price of Fortis Healthcare Ltd was ₹ 122/- as of 19-June-2020. It traded at 27.5x the consensus EPS estimate of ₹ 4.4 for FY22E.
  • The consensus target price of ₹ 165/- implies a PE multiple of 37x on FY22E EPS of ₹ 4.4/-.

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.”

We have a very healthy cash surplus of over Rs 3,800 crores: Dabur

Update on the Indian Equity Market:

On Tuesday, Nifty ended 1.6% higher at 9,979. The top gainers for Nifty 50 were Bajaj Finserv (+9.5%), Zee Entertainment (+9.1%) and Bajaj Finance (+8.2%) while the losing stocks for the day Coal India (-3.3%), Maruti (-1.9%) and BPCL (-1.4%). The gaining sectors for the day were Realty (+4.9%), Media (+3.3%) and Pvt Bank (+3.2%). FMCG (-0.7%) was the only losing sector for the day.

Edited excerpts of an interview with Mr Lalit Malik, CFO, Dabur India Ltd; dated 29th May 2020 from Retail Economic Times:

 

  • Volume growth has seen a decline of 14.6% in 4QFY20 for Dabur which was the lowest growth in 11 quarters. The growth was on track till February and the Company was ahead of other FMCG companies. However, in March, due to the sudden lockdown, there was a supply chain blockage and Dabur was not able to invoice which was due even in case of seasonal goods like juices, glucose etc. This caused a decline of 14.6% in the India FMCG business.
  • For the juice and glucose categories, it was the peak season for the Company, given the summer setting in. If things were normal, Dabur’s growth would have been on track.
  • The healthcare segment of Dabur saw a slow opening in the middle of April. With the launch of the sanitizer during this period, Dabur has gained momentum and things may have been much better.
  • At present, though all manufacturing units are open, Dabur is working at 60-70% capacity. As far as the supply side is concerned with regard to the C&F as well as to the distributors, barring a few areas which are in the red zone and where there are restrictions with regard to supply, other categories including rural have returned to normal.
  • Mr Malik added, E-commerce has been growing at the rate of more than 100%. There are different channels which are giving promising returns in the new normal. However, there are still some pockets which are in the red zone where there are some restrictions and Dabur is waiting for that to get normal so that they will be back to 100%.
  • Dabur has a very healthy cash surplus which is more than Rs 3,800 crores. They don’t see any stress to their balance sheet or liquidity. The Company is being careful with regards to their working capital management as well as its operating cash flow.
  • With 60-70% running capacity, the Company sees no major deviation with regard to their inventory pile-up or shortage because they are monitoring the demand and supply side very carefully. For example, their healthcare category is moving at a faster pace. In the case of Chyawanprash, the growth rate is almost 400%. Thus, Dabur has accelerated production and therefore they are able to meet the increase in demand. There are different pockets where the demand is increasing and therefore they have increased their production and supply.
  • At present, the discretionary item demand is slow and this is where the Company is going slowly with regard to production so that they are able to manage the inventory and there is no loss of sale in case demand comes back.
  • Dabur has extended its village coverage by 52,000 though the target was to reach 65,000 villages because of the lockdown, they were not able to expand.
  • In the current scenario, there are two very important things according to Mr Malik:
  1. It is very important to have healthcare products that they manufacture to be made available to people at large because that is a need in the country right now. Therefore, their focus is to have all their products like Chyawanprash, Tulsi drop, Haldi drop, Giloy etc., made available to the people as these are all immunity boosters.
  2. On the hygiene and sanitiser front, their focus is to reach out. When volumes are affected, there would certainly be pressure on the margins. For that, they have undertaken a cost savings initiative under project Samridhi, where they are focussing on zero-base budgeting and questioning every line item of expenditure and addressing what is essential for them in the new normal scenario.

 

Consensus Estimate: (Source: market screener website)

  • The closing price of Dabur India Ltd was ₹ 461/- as of 02-June-2020. It traded at 51.5x/ 44.8x the consensus EPS estimate of ₹ 8.9/10.3 for FY21E/ FY22E respectively.
  • The consensus target price of ₹ 463/- implies a PE multiple of 45.0x on FY22E EPS of ₹ 10.3/-.

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.”