The turnaround time to normalcy may be quick in case of EPC players like L&T, as large part of the migrant labor force is still at site and reliance on global supply chain is limited. KEC and Kalpataru Power have large overseas presence with 40/45% ex-India order book. Dependence on India supply chain may impact overseas execution as 80-90% supply chain resides within India. Leading global capital goods manufacturers have partially shut factories amidst Covid-19 led lockdown and weakening demand. Global supply chains are also getting impacted. Our coverage universe of L&T;, Siemens and ABB have strong balance sheets and are well placed to endure these tough times. The immediate focus is on (1) Safeguarding employee safety and health (2) Business continuity & (3) Strong focus on cash conservation.
Our key picks include: Infosys, Bharti, ICICI Bank, Axis Bank, ITC, UNSP, UTCEM, IGL, CDSL, CIFC. While the CoVid-19 situation remains fluid, we believe that Nifty correction of ~30% already factors in the impact of ~1 month lockdown and return to business normalcy by Q1 end. However, if the lockdown is more severe and the business impact extends well into 2Q, we see further downsides. Recent sharp correction presents attractive opportunity for long term investing into high quality names. While government and RBI have announced stimulus packages, we expect further measures to tide over the crisis. The extent of lockdown, pace of return to normalcy and further fiscal responses remain key monitorables.
The interaction covered large Road players, Building EPC players and T&D players. Large part of the halt is (1) Due to Central/State Govt directive on lock down and work from home (2) Few clients have told Contractors for closure till 31st March 2020 & (3) Goodwill towards employees'/laborers' safety. Whilst our last week survey was more encouraging with our coverage universe execution largely on track, the call for Janta Curfew has resulted in project sites staring at closure. We interacted with 15 large Indian Infra companies to gauge on the ground impact of COVID-19 on execution.
We will be reviewing our numbers and recommendations once we have a better understanding of the Covid-19 situation. ICICIGI: GDPI (ex-crop) increased 13.3% YoY to Rs 10.4bn. Growth momentum (ex crop) improved from -2.0/12% YoY seen in Dec-19/Jan-20. Health and Motor OD business reported growth (ahead of industry) of 12.4% and 12.7% respectively. FY20TD GDPI for ICICIGI stands at Rs 125.7bn (-7.5% YoY), with ex-crop GDPI is healthy at Rs 121.7bn (+13.9% YoY). We have a SELL on ICICIGI with a TP of Rs 1,170 (Mar-22E P/E of 26.0x and a P/ABV of 5.7x). ICICIGI is currently trading at a FY21/22E P/E of 26.6/22.3x and P/ABV of 4.9/4.0x. NIACL: GDPI grew to Rs 19.3bn, +24.2% YoY (ex. crop at Rs 18.6bn, +26.0% YoY) led by growth primarily in health business. Growth in retail business segments such as motor TP/health improved moderately to 20.7/30.3% YoY. FY20TD GDPI for NIACL stands at Rs 246.9bn (+15.6% YoY), ex-crop GDPI at Rs 219.1bn (+12.7% YoY). We have a SELL on NIACL with a TP of Rs 130 (0.65x Mar-22E ABV (less 5% discount for expected 10.4% supply). NIACL is currently trading at a FY21/22E P/E of 7.4/6.2x and P/ABV of 0.4/0.4x. Bajaj Allianz General Insurance (BAGIC): GDPI slipped by 1.4% YoY in Feb-20 to Rs 7.0bn, (ex-crop GDPI at Rs 6.6bn +1.6% YoY) led by sharp decline in crop business (-32.2% YoY). Motor OD GDPI declined 8.6% YoY vs. industry decline of 2.7% YoY. FY20TD GDPI for BAGIC stands at Rs 120.5bn (+20.1% YoY), while GDPI (ex-crop) is Rs 89.4bn...
Owing to recent correction we upgrade ORL from ADD to BUY. We have cut FY21/22E EPS by 12.1/21.8%. Reduce our NAV based TP to Rs 543/sh. Risks (1) Prolonged COVID impact (2) Sharp correction in property prices. We interacted with the management of Oberoi Realty Ltd (ORL) to assess the impact of COVID. Some obvious concerns viz (1) Residential demand (2) Site labour availability (3) Capex on ongoing real estate assets (4) Impact of Mall closure & (5) Status of new launches are addressed in this note.
Our checks with IT companies suggest 1) Moderate acceleration in deal pipeline, 2) 5-20% increase in ACV of digital deals, 3) Growth in digital driven largely by existing logos (increasing stickiness), 4) Continuity in vendor consolidation, 5) Limited impact on service delivery from COVID-19 (but pipeline conversion uncertainty), 6) Deal sourcing strategy evolving with increase in non-RFP/higher POC conversion & more joint GTM with partners, and 7) Re-skilling & training reducing the demand-supply gap in new technologies, despite the supply shortage. IT sector is built to last and will navigate through the near-term economic shocks. We have observed improving structural trends in (1) Key demand drivers (performance and outlook of large enterprise clients for sector & company-specific), (2) Technology supply-chain (trends from leading global products & platform), and (3) Supply metrics (H-1B trends on wages, count & geo diversification).
Any recovery in sales though will be dependent on several factors including extent of pass through of crude prices, BS-VI related price hikes, etc. Post the Coronavirus outbreak, the correction in the auto index is now closer to that witnessed during the 2008 Global Financial Crisis (GFC) period. The index is down 47% currently vs. 55% in 2008. Valuations of select two-wheeler and CV stocks are approaching levels that were witnessed during the GFC.
We rate GICRE a BUY with a TP of Rs 270. We recently met with the management of GICRE and are hopeful that the steps taken- increase in insurance rates for property, and expected lower crop insurance in FY21E, will reduce combined ratios.
The success of the scheme is contingent on various factors. Its failure may result in SBIN absorbing YES. We maintain our BUY on SBIN with a TP of Rs 421. Putting an end to much of the conjecture on the way ahead for YES and SBINs involvement in the same, the RBI notified the draft Yes Bank Ltd. Reconstruction Scheme, 2020. The scheme, acknowledging the urgency of the situation, proposed for the recapitalisation of YES, in which SBIN would initially contribute ~Rs 24.5bn for a 49% stake. In accordance with the scheme of reconstruction, SBIN may be required to contribute at most ~Rs 93bn more at Rs 10 a share. This is certainly a more desirable outcome than a merger, for the shareholders of SBIN as the downside risks will be capped.
UltraTech and JK Cement remain our top-picks in the sector. In our view, the recent surge in op margins for north/central/Gujarat (NCG) based cement companies is sustainable on structural tailwinds. Capacity consolidation these regions is further firming up and utilisation is also expected to hold above 80%. These should support strong pricing in the region to sustain, bolstering profitability outlook. Hence, we remain bullish on the companies with large exposure to these markets. The benefits of subdued petcoke and diesel prices should accrue to the whole industry.
