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.
Service credit growth, which had slowed sharply to 4.8% YoY in Nov-19, increased to 8.8% YoY. Growth in personal loans remained healthy at 16.9% YoY. Overall FYTD growth was just 3.1%. However, a significant portion of credit growth tends to occur in 4Q. After declining for 2 consecutive months, YoY growth in non-food credit increased to 8.5% in Jan-20. This trend was broad-based. Agri-credit growth showed a modest improvement (6.5% YoY vs. 5.3% YoY in Dec-19). Industry credit growth improved slightly (2.5% YoY vs. 1.6% YoY in Dec-19) but remained weak and continued to drag overall credit growth.
Introducing a new rating system Through this report we are also introducing a new rating system wherein we moving our covered stocks to a new 4 point rating scale of Buy, Add, Reduce, Sell vs. the older 3 point rating scale of Buy, Hold, Sell to better reflect relative stock picking and conviction across coverage universe Worst of domestic economic woes are behind. However economic healing is likely to be protracted and FY21e growth of 6% will still be lower vs. potential growth. Govt & RBI are likely to maintain accommodative stance but headroom for counter cyclical measures is smaller now. While overall market valuations are still above long term averages, we believe investors should position their portfolios in favor of GARP, turnaround and select value plays instead of hiding in very expensive quality names.
Cement prices have increased QoQ in 4QFY20, aided by demand recovery. Further, as fuel prices continue to fall and diesel price remains stable, margin tailwinds appear sustainable for the industry. In our view, cement companies with large sales exposure to north/central/Gujarat markets should gain the most. In this report, we deep dive into operating performance of 19 listed cement companies to compile industry trends. These companies comprise ~75% of the Indian cement industry and hence largely reflect the industry trend. Our analysis suggests that despite subdued demand in the past three qtrs, industrys operating margin has scaled up to decade high. This is driven by strong pricing in the north/central/Gujarat markets, steady fall in pet-coke prices and low diesel prices.
Attractive valuations underpin our stance our BUY rating with a TP of Rs 112 (1.3x FY22E ABV). The continuation of the incumbent CEO is a monitorable. At FBs recent analyst day, like with most banks, the focus was on technology, growth (in high yielding segments) and the way for RoAA improvement. Certain aspects of the strategy and guidance presented appear achievable. We too continue to expect an improvement in return ratios at the bank (albeit slower vs. guidance).
3QFY20 does little to change our thesis on CIFC and it remains our top pick in the NBFC space. CIFC has benefited from the polarisation in the space, due to its diversification across products and geographies and its ability to access funds. While GS-III assets have seen a sustained uptick (due to extrinsic factors) and opex growth has been elevated, CIFC's performance on these fronts is within acceptable bounds. 3QFY20 saw AUM growth slow, NIMs improve and asset quality deteriorate slightly. Pre-tax earnings were in line with estimates while tax expense was lower. Maintain BUY (TP of Rs 412 (3.2xFY22 E ABV of Rs 128)).
We believe with the enhanced focus on domestic business (implementation of one India strategy), specialty initiatives in the US, margin improvement (better mix, cost optimization), the ROCE should improve to 13.5% over the next two years. The stock is trading at reasonable valuation of 20x/17x FY21/22 EPS (~15% discount to its 5 year historical average). gAdvair Ph III data read out in March 20, will be the key catalyst in the near term. Maintain Buy. TP of Rs495/sh. Cipla received warning letter at Goa plant from the US FDA. The plant was classified as OAI (Official action Indicated) in Jan 20, and as such we did not factor any product approvals in our estimates. As per the company, no limited launches are impacted and the guidance of one niche launch per quarter remains on track. Goa plant accounts for 2.5% of FY19 revenues (single sourced products) and ~6% of revenues (including products with alternate source). The resolution timeline remains uncertain and will be based on Ciplas response to US FDA (mid March), completion of remediation activities and a successful re-inspection.
Our view: This contract not only shows the trust on NFIL's capability and expertise in complex fluorine chemistry but also could be a precursor to acquire more such deals. Also, the existing contract may be extended further. NFIL's customized and exclusive agreement not only enhances its longterm earnings visibility but also accelerates earnings growth. The management hinted that more products will be added in this new vertical, which we believe will fetch higher margins, thereby boosting NFIL's operational and financial efficiency. It is carving its own niche in fluoro chemicals worthy of a premium multiple over its peer SRF (24.3/19.8x FY21/22x). This compels us to ascribe a higher valuation multiple of 25x vs 20x earlier. Upgrade to NEU with a TP of Rs. 1,479. Navin Fluorine signed a 7 year exclusive supply contract with a global company for High Performance Product (HPP) having a total revenue potential of Rs 29bn starting Q4FY22. The product will be manufactured at the recently announced greenfield plant at Dahej.
