Customer activity levels improving; asset quality guidance retained Our interaction with Dr. N. Kamakodi, MD/CEO of City Union Bank (CUB) reinforces our confidence in the bank's ability to handle the anticipated surge in NPAs in the near term and that it remains better positioned than peers in the regional banking space. Our positive bias on the stock stems from the fact that the management seems to have a high degree of clarity in terms of incoming stress, historical trackrecord and relatively stronger earnings profile over the forecast period. In our 1QFY21 result update, we had assessed that the management commentary on expected stress/NPA post the moratorium and restructuring indicated a firm grip and visibility on overall stress levels. Based on our interaction, the management's asset quality outlook/guidance 3-3.5% slippage, 4-5% restructuring remains...
Introduction of FY23 estimates and Rollover of Target Prices With this note we roll forward valuation of our entire coverage universe by 6 months (stocks where such changes were not made earlier) and it is now based on September 2022 EPS/BV/EBITDA numbers against March 2022 numbers earlier. In the process we have also introduced FY23 estimates. In some cases, we have tweaked our FY21 and FY22 estimates too and the operational assumptions. Inside this note find...
Near term appreciation bias does not belie long term depreciation trend Teresa John, CFA We had highlighted in the past Why the INR will be more volatile? that post the taper Research Analyst (Economist) tantrum of 2013, the sensitivity of the INR to portfolio flows has increased. We had also teresa.john@nirmalbang.com highlighted in our report Who moved my liquidity? that India is among the emerging +91 22 6273 8114 markets (EMs) likely to benefit from flows on account of the unprecedented expansion of balance sheets undertaken by the G3 central banks in the wake of the COVID crisis. FPI flows into Indian equities picked up between May and July and hit near record high of US$6.3bn on a monthly basis in August. This in our view has been a major factor behind...
Indraprastha Gas (IGL) management expects gas demand outlook to revive from 2HFY21 and is planning massive investments in CGD network expansion in existing areas across NCT/NCR in Delhi as well as the new GA licenses which the company won in the 9th and 10th rounds of bidding conducted by the PNGRB. The company's capex target for FY21 is Rs13.7bn, which the management hopes to achieve despite the delays suffered in 1QFY21 due to the lockdown forced by the Covid-19 outbreak. Key initiatives to develop new gas markets include converting DG sets to gas, domestic appliances running on gas, H-CNG (hydrogen-CNG mix), LNG retailing and EV charging services....
Lockdown affects execution; Strong order inflow a savior Power Mech Projects (PMP) posted 1QFY21 consolidated revenue of Rs2.8bn, down 44% YoY, as lockdown and migrant labour unavailability affected execution. ETC/Civil segment sales fell by 66%/45% YoY to Rs598mn/Rs740mn while O&M; revenue fell by 15% YoY to Rs1.2bn. International projects formed 19% of total sales (vs. 16% YoY). Lower revenue and additional Rs50mn expenses towards COVID-19 (safety & travel) led to EBITDA loss of Rs139mn and net loss of Rs326mn. Execution in railways, irrigation and Dangote (Nigeria) project continued, albeit with lot of constraints. The level of work at sites in 1QFY21 was at...
In the first fortnight of September, economic recovery continued to strive ahead even as the pace of increase in active virus cases accelerated. The silver lining was the fact that despite the increase in number of deaths from the previous fortnight, there are signs of the number of deaths peaking. New Delhi's traffic congestion moderated from the previous fortnight but remained around pre-covid levels. Google mobility indicators also suggest that movement for essential services is back to pre-covid levels. Movement for retail and recreation is improving, but it is still far below pre-covid levels. Meanwhile, use of public transport and movement for work is seeing some leveling off in recovery at much below pre-covid levels, which probably suggests some behavioural shift towards the use of private transport and preference for work from home. After witnessing...
Solar Industries India (SIIL) reported consolidated revenue of Rs4.9bn in 1QFY21, down 21% YoY. Though sales were affected due to severe lockdowns in April and May 2020, June sales were better on YoY basis. Sales to Coal India fell 10% YoY to Rs985mn due to 12% YoY decline in coal production as mining and construction activities were muted. Housing & Infrastructure segment sales fell 49% YoY to Rs1.1bn due to labour unavailability. Sales of domestic explosives fell 30% YoY to Rs2.4bn due to 24% YoY dip in volume (at 70,287MT) and 7% YoY fall in realisation (at Rs34,238/MT). Exports & Overseas markets grew 6% YoY to Rs2.1bn, led by better sales in Ghana. Gross margin grew 250bps YoY to 45.1% owing to lower raw materials...
Dr. Reddy announce settlement of Revlimid Litigation with Bristol Myers Dr. Reddy has announced that they have settled the ongoing Revlimid (lenalidomide) Litigation with Bristol Myers. The settlement gives DRL a license to sell limited volumes of gRevlimid from an undisclosed date which is post March 2022 ( post settlement date with Natco Pharma). The details on volume and exact timelines are not disclosed. There are now 3 players Natco Pharma, Dr. Reddy and Alvogen which have entered into a settlement agreement with the innovator. Will Bristol Myers also settle with other Litigants and potential timelines: Other generic players...
Saffola franchise and cost savings to support earnings growth We recently interacted with Mr. Pawan Agarwal, CFO, Marico Ltd. (MRCO) in order to get an update on the overall operating environment and demand trends being witnessed on ground. After witnessing YoY volume growth in May-June'20, company's domestic business has seen growth in July'20 and August'20 as well. It has been primarily led by the Saffola franchise (Edible Oils and Foods), partially by coconut oil and new launches made in the health & hygiene space. On the international front, Bangladesh has managed to remain on a firm footing. Copra...
KEI works with 1,500 plus institutional clients and operates through a network of 1,600 plus dealers and distributors. KEI has a robust client base and supplies to sectors such as power, oil & gas, real estate, construction, cement,...
Demand and pricing slide further in September Based on our channel checks, cement demand and prices remained weak during September'20 owing to seasonality, excessive monsoon, labour shortages in various regions and overall low spending by the public and private sector. All-India cement prices have declined by ~3% over the last one month, primarily driven by East and North regions where the pricing decline was the highest at 7% and 3%, respectively. Pricing decline was lower in Central India at ~1% despite reduction in demand. The fall in trade prices was higher compared to non-trade prices as the latter were already depressed. Cement demand in...
Exceptional cost management to alleviate debt pressures ACCUMULATE While key quarterly numbers were broadly along expected lines, PVR has been able to significantly reduce its fixed cost structure from the levels it guided for at the beginning of the lockdown. With cinemas non-operational for 6 months, that has helped PVR, which has been more financially levered compared to its immediate peer, Inox Leisure. PVR had guided towards an operating expense of Rs400-450mn per month at the beginning of the lockdown. However, it fared much better in 1Q with a monthly run rate at Rs320mn. PVR has guided for an even lower number of Rs220-250mn in 2Q. This significant reduction in costs a part of which is structural - and infusion of equity capital has...
The key takeaway from our analysis of loss absorption capacity estimates, moratorium data and historical track record of operating earnings delivery and capital raise is that large cap banks remain best placed in the current environment. Most banks (under our coverage) have raised or are in the process of raising fresh capital, which should strengthen their balance sheet to guard against the anticipated surge in NPAs 6-9 months down the line (by 1QFY22). As per our estimates, most balance sheets, except that of HDFC Bank and Kotak Mahindra Bank (Kotak) would be seemingly fragile without a dose of fresh capital, given the anticipated surge in NPAs. Against a similar backdrop for regional private banks, the inherent balance sheet strength is expected to be relatively low with City Union Bank (CUB) being the strongest in terms of loss absorption capacity (3.2% of current loans). In case of Federal Bank and DCB Bank,...
Consumer Price Index or CPI inflation came in at 6.69% in August '20, marginally lower than teresa.john@nirmalbang.com 6.73% in July'20 (revised down from 6.93%). The reading was below our estimate of 6.80% and +91 22 6273 8114 Bloomberg consensus estimate of 6.90%. Food & Beverage inflation was below our estimate at 8.29% on account of decline in prices of cereals and meat & fish. However, the increase in prices of fruits, vegetables, sugar and oils & fats was slightly higher than our estimates. Core CPI inflation stood at 5.77% in Aug'20, marginally higher than 5.66% in July'20 (revised down from 5.87%) and above our estimate of 5.55%. The upside surprise in core CPI inflation was on account a sharp sequential increase in inflation in the transport & communication and personal...
Realty conference takeaways - high stress in residential segment persists Based on our recent interaction with real estate experts at the recently concluded 12th Edition of CII JLL Realty Infrastructure Conclave, we maintain our pessimistic view on the residential real estate segment, which was first enunciated in our report Eerie calm before the storm dated Sept 7, 2017. The key takeaways of the interaction are as follows: (1) Stress in the residential real estate segment to continue for 1-2 years (2) Resolution of stressed cases is slow moving (3) Despite the recent improvement demand continues to be low (4) Unwillingness of developers to take haircut (5) High risk profile implies low equity commitment from investors (4) Shift in developers' strategy from margin play...
IIP declines 10.4% YoY; GDP contraction in 2Q may narrow significantly IIP declined by 10.4% YoY in July'20, marginally better than our estimate of a 12.1% decline and Bloomberg consensus estimate of a 12% decline. The reading for the previous month was revised up to -15.8% from -16.6% earlier. The recovery in July'20 was led by the manufacturing sector which declined by 11.1% YoY after a 16% decline in the previous month. Mining sector output registered improvement in July'20 but was still down 13% YoY. Electricity production registered significant improvement in July'20 and was down by only 2.5% YoY. However, 21 of 23 manufacturing sectors were still in the negative territory, barring pharmaceuticals and tobacco...
Weak execution & higher than expected loss amid lockdown SELL Bharat Heavy Electricals (BHEL) posted 56% YoY decline in 1QFY21 revenue at Rs19.9bn, 5% above our estimate, but 21% below consensus estimate. Power segment revenue declined 68% YoY to Rs11.2bn (59% of total sales) while Industry segment revenue fell 15% YoY to Rs7.8bn (41% of total sales). Gross margin fell to 34.1% (vs. 42.5% YoY). Lower revenue led to negative EBITDA of Rs10.6bn (vs. negative Rs2.7bn YoY). The loss was higher than our/consensus estimate loss of Rs7.2bn/Rs6.8bn. PBT was negative Rs11.9bn. With deferred tax write-back of Rs3bn, net loss stood at Rs8.9bn (vs. loss of Rs2.2bn YoY). Net loss was...
We see the recent 10% fall in crude oil price amid the increase in OPEC+ supplies by 1.9mbpd on tapering output cut from 9.6mn bpd to 7.7mn bpd - as a near term tailwind for Indian OMCs as it is likely to boost their retail margins. The uncertain outlook for oil demand growth is likely to persist as we see a second wave of COVID 19 across the US, Europe and emerging economies, with China alone showing a revival. This is likely to sustain the pressure on GRMs for some time, but the prospects for inventory gains (specific to each refiner) could offer some respite to OMCs in refining earnings. Further, with retail margins likely to remain healthy under subdued oil prices (US$40-45/bbl), the risk-reward in OMCs is set to improve. We also see positive trends in gas demand from bulk segments, including power, which is leading the pack. This is positive for...
