Goa Plant 1 Regulatory Update - Post warning letter by the USFDA Indoco Remedies limited (IRL) has received a warning letter for their oral solid manufacturing plant (Unit 1- Goa) . The warning letter primarily pertains to compliance issues observed in past inspections done by UKMHRA and USFDA. The key issues being 1) Deficiency / Inappropriate Manufacturing process 2) Out of Specification Investigation 3) Data integrity issues (Some tests were repeated and incidents were not filed). Warning letter is a follow up to the recent form 483 issued by the USFDA (January 2019): The...

Colgate-Palmolive (India) or CLGT reported a topline growth of 4% YoY in 1QFY20, led by a 4% YoY growth in volume, which was fairly in line with our expectation. Although topline grew on a YoY basis, rural demand remains distressed which is evident in the sharp decline in topline from the previous quarter. We anticipate demand headwinds to persist in the short to medium term with the expectation that rural demand may start reviving from 2HFY20 onwards on the back of improvement in farm income post monsoon. EBITDA grew by 6.5% YoY , which was slightly ahead of our estimate, on account of lower COGS, advertising costs being lower than expectation and lower other income from implementation of AS116. EBITDA margin witnessed...

Yes Bank (YBL) reported 1QFY20 results with the key pointers being (1) All net slippages from corporate book amounting to Rs 45.54bn emerged from the sub-investment grade book but ~Rs 21bn emerged from outside the pre-designated watchlist (2) Core margin stood at ~3.2-3.3% but interest reversals and non-interest earning bad loans dragged reported NIM down to 2.8%, down 30 bps QoQ (3) Fee income fell -51% YoY to Rs 6.08bn on the back of very weak corporate banking fees (4) Advances growth was 10.1% driven by core retail growth of 43.3% YoY. (See comprehensive conference call takeaways on page 2 for significant incremental colour.). Per se, on the key P&L; items, YBL posted NII growth of 3% YoY at Rs22,809mn, PPOP decline of 20% YoY at Rs19,591mn and PAT decline of 91% YoY at Rs1,138mn. We have revised our estimates for FY20/FY21 and retained Buy...

Wipro IT Services delivered QoQ decline of 0.7% in 1QFY20 in constant currency (CC) - at the lower end of its guided range (-1% to 1% QoQ growth). While 1Q has typically been weak, FY20 started out weaker than internal expectations due to both macro headwinds and Wipro specific client related issues. It was indicated that European BFSI, European manufacturing and US healthcare (especially HPS) remain spots of concern. There have been issues surrounding (1) Deferrals of deals (2) Slow decision making (3) Slow execution of already signed deals and (4) Having to share with clients productivity benefits gained from automation. In quite a few verticals there was discussion around large programs coming to an end and they not getting replenished in...

Poor margin defense; Growth uncertainty to persist near term We have had a significantly negative away-from-consensus view on Mindtree (MTCL) through our reports (Market Is Giving It The Benefit Of Doubt) and the 4QFY19 update (Deceleration In FY20 Not Factored In). We reiterate our view that L&T; has overpaid for the Mindtree acquisition. Our concerns on MTCL keep playing out from time to time and did so in 1QFY20. While the revenue softness (1.1% CC QoQ growth against ~2.5% guidance at beginning of 1Q), can be partly explained by customer uncertainty surrounding L&T;'s takeover of Mindtree, we are surprised by the 650bps EBIT margin collapse (QoQ). EBIT margin decline (excluding one-off...

The key takeaways for the sector are: 1) Increase in growth rate of sales volume, 2) Increase in launches, 3) In 1HCY19, average sale prices have seen a fall of 3%-4% YoY in some major markets and have shown low growth in other markets except Hyderabad and 4) Reduction in the Project Life Cycle days for developers and 5) Stabilization of new regulations aiding demand and supply growth. We note that growth in launches is higher than sales volume. Launches grew by 21% YoY in 1HCY19...

Higher retail slippages not a structural issue Federal Bank (FBL) reported 1QFY20 results with the key takeaways being: (1) Overall slippages increased to Rs 4.15bn for the quarter compared with Rs 2.56bn for 4QFY19 mainly due to higher retail slippages but we do not see this as a structural problem (2) NIM remained broadly flat, declining 2 bps to 3.15% QoQ supported by favourable business mix and loan re-pricing (3) Core fee income rose 25% YoY. Management had previously indicated that fee income traction would be a key RoA expansion driver going forward and (4) Digital strategy continued to display encouraging outcomes and augurs well for opex control (See detailed conference call takeaways on page 2 for significant incremental colour). Per se, on the key P&L; items, FBL posted a net interest...

We looked at IRDA data for monthly new business figures and note that (1) HDFC Life Individual New Business APE growth for June19 was the fastest in the life insurance industry at 87% YoY (2) Among listed life insurers, SBI Life's growth for the same metric was the second fastest at a healthy 25% YoY. SBI Life was able to achieve this at an industry-leading market share of 12.5% (3) Growth for Max Life at 20% YoY was also reasonably robust and (4) Growth for ICICI...

DCB Bank (DBL) reported 1QFY20 results with the key pointers being: (1) NIM shrunk 11 bps QoQ to 3.67% on the back of certain non-structural factors (2) Core fee income de-grew -9% YoY on the back of slower growth and ATM fees issue. Opex control, however, continued to be admirable with total opex rising just 4.9% YoY (3) Fresh slippages, at Rs 1.45bn, were elevated compared with FY19 quarterly average of Rs 1.04bn but, by and large, asset quality is not a major concern and (4) Loan growth at 13% YoY was significantly lower than recent trend growth mainly on account of slower corporate lending. (See detailed conference call takeaways on page 2 for significant incremental colour). Per se, on the key P&L; items, DBL posted NII growth of 12% YoY to Rs3,048mn, PPOP growth of 18% YoY to Rs1,665 and PAT growth of 17%...

We are witnessing an increasing trend of oral solid drug shortages, primarily driven by constraints in supplies from foreign origin generic companies. Historically, injectables dominated the shortage list, but as per the latest report (ASHP), 61% of new drugs under shortage reported in the current year are oral. We see these shortages emanating primarily as an outcome of foreign generic players tapering volumes. Indian players are benefitting in volumes from such shortages as evident from prescription trends. These shortages certainly help companies defend prices but should also allow price hikes over time. Carbidopa-Levodopa: Sun Pharma has consistently gained market share in the last three years...

Karnataka Bank (KBL) reported 4QFY19 results with the key pointers being: (1) Stock of GNPAs was contained; improving NPAs guidance retained with only 2 accounts majorly concerning (2) Multiple levers on the income front improving yields, traction in TPP tie-ups and liability franchise build-up could drive growth (3) Cost reduction measures, opening low-cost branches and digitalization are likely to support profitability from a cost perspective. (See comprehensive conference call takeaways on page 2 for significant incremental colour.) Per se, on the key P&L; items, KBL posted 5.6% NII growth YoY at Rs4,946mn, PPOP decline of 5.1% YoY at Rs3,500mn and PAT growth of 7.5% YoY at Rs1,754mn. We have revised our estimates for FY20/FY21 and retained Buy rating on KBL, revising our target price on it to Rs118 (from Rs119 earlier)...

IndusInd Bank (IBL) reported its 1QFY20 results with the key takeaways being: (1) NIM expanded 46 bps QoQ to 4.05%, of which 35 bps was due to BFIN consolidation. Further NIM expansion is expected (2) Earmarked stressed book moved from 1.9% in 4QFY19 to 1.67% in 1QFY20. Full year credit cost guidance has been retained at 60 bps (3) Even excluding the impact of BFIN merger, loan growth was reasonably strong at 26% YoY. (See comprehensive conference call takeaways on page 2 for significant incremental colour.) Per se, on the key P&L; items, IBL delivered NII growth of 34% at Rs 28,440mn, PPOP growth of 36% at Rs 25,910mn and PAT growth of 38% YoY to Rs14,325mn, respectively. We have revised our estimates for FY20/FY21 and retained Buy...

The US$2.7bn large deal total contract value (not comparable with TCS's US$5.7bn 1QFY20 number, 55% new) is the key positive takeaway from 1QFY20 of Infosys and outweighs our nitpicks which include (1) organic revenue growth (ex Stater acquisition) at 2.2% in constant currency (CC) terms QoQ being a tad weak (especially in the context of 2x growth in large deal TCV in FY19 and 3.4x growth in new) against our estimate of 2.7%, (2) BFSI revenue (ex Stater) growth being negative QoQ, (3) inorganic component in the FY20 new revenue growth guidance of 8.5%-10% being ~180bps (10/6 months of Stater/Fluido), (4) margins better than expected because of postponement of salary increase for some part of the workforce that was earlier planned in 1Q. Against estimated...

up from 3.05% in May'19. The higher than anticipated reading was mainly on account of food inflation. Prices of vegetables, fruits, pulses, sugar, meat and fish rose more than our estimates. Food & Beverage inflation stood at 2.37%, up from 2.03% last month. Core inflation on the other hand surprised on the downside and moderated to 4.09% in June'19 from 4.26% in May'19. Housing inflation declined 0.5% MoM. The sequential increase in core services inflation was also relatively muted, suggesting relatively weak demand conditions. The Index of Industrial production (IIP) rose by 3.1% YoY in May'19, above Bloomberg consensus estimate of 2.9%, but slightly below our estimate of 3.4%. However,...

CCL Products Ltd is one of the leading private label manufacturers of coffee globally. The company has 35,000 MT capacity across three manufacturing facilities and a newly commissioned SEZ plant in India with 5,000 MT capacity. It exports its products to 82 countries and has an addressable market size of 250300k MT. CCL sells its own branded product in the domestic market through a wholly owned subsidiary and the company is investing in promotion and brand building activities to generate visibility for the brand. The company aims to scale...

Focus On Idiosyncratic Trends Rather Than Bucketing Into Groups In 1QFY20, the Indian Banking and Financials sector is expected to witness the following key themes playing out from a results perspective: (1) Banks: (a) Asset quality: Slippages, in general, would continue to be on a declining trend since (i) Slippages from the corporate book, which had entered a lower run rate for corporate-focused banks, would generally remain at lower levels (ii) Slippages from the MSME book, which had been elevated for certain banks till 3QFY19, would also stay at lower levels and (iii) Credit costs, though generally on the lower side, would vary depending on the degree of overall provision cover requirements, NPA ageing and, in some cases, due to contingent...

Lemon Tree Hotels Limited (LTHL) has acquired 100% stake in Berggruen Hotel Private Limited (Keys Hotels) for an enterprise value of Rs6.05bn with cash consideration of Rs4.7bn and debt of Rs1.34bn. The acquisition is made through a 58% subsidiary company Fleur Hotels Private Limited. The acquisition is made at a FY19 EV/EBDITA multiple of 29x. Keys Hotels operates 21 hotels, 1,911 rooms in 19 cities through 3 brands (Refer Exhibit 1). Acquisition benefits highlighted by management: 1) Acquisition of management contracts, which earlier would not qualify according to Lemon Tree's standards, 2) LTHL expects to capture outbound guests traffic from presence in 11 new cities through Keys Hotels, 3) The acquisition is economically lucrative and...

Consequently, we have reduced our valuation multiple from 26x FY21E EV/EBITDA to 23x FY21E EV/EBITDA and recommend Accumulate with a revised target price (TP) of Rs72 (earlier Rs97). Increase in total number of rooms; Estimated room strength in FY22E is 8,686 rooms: Out of the total increase of 3,275 rooms during FY20E - FY22E, 1,240 rooms are owned / leased and 2,035 rooms are under management contracts. The company is aiming for an asset light model of business, and accordingly the owned rooms are being added at a three year CAGR of 16% (FY19 FY22E) and the management contracts are being added at three year CAGR of 45% (FY19 FY22E). In FY22E, number of owned rooms is expected to be 4,810 rooms and number of managed rooms is expected to be 3,876 rooms. Room revenue is expected...

Consumer Price Index (CPI) inflation for June'19 is likely to come in at 3.0% YoY, broadly teresa.john@nirmalbang.com unchanged from 3.05% in May'19. Food & Beverage inflation is expected to come in at +91 22 6273 8114 1.84%, slightly lower than 2.0% in May'19. Core inflation is also expected to remain steady at 4.28%, broadly unchanged from 4.26% in May'19. Petrol and diesel prices have moderated, but the seasonal increase in educational services and the surge in gold prices over the past month are likely to keep core inflation steady. Wholesale Price Index (WPI) inflation is likely to moderate to 1.85% in June'19 from 2.45% in May'19 on a high base. Prices of industrial commodities have softened, while demand has moderated...