Price Momentum Fails To Keep Pace As Demand Falters All-India retail cement prices fell marginally by 1% MoM, although they rose 6% YoY, to Rs322/bag in March 2019 (from Rs326/bag in February 2019 and Rs305/bag in March 2018). Prices rose YoY in all regions except eastern region, but the pace was higher in southern region. However, on MoM basis, the prices showed a mixed performance with a decline in southern and western regions by 1%-3% (the upward movement was sharp in February 2019), while prices in central and northern regions rose in March 2019 in the range of 1%-2%. Price weakness continued in eastern region. Our channel check indicated that the upward price movement (~2%) in central region (comprising...
Based on our interaction with industry experts at the Confederation of Indian Industry (CII) conference held recently, we maintain our pessimistic view on the residential real estate segment as first enunciated in our report: Eerie Calm Before The Storm' dated 7 September 2017. The key takeaways are as follows: 1) Stress in the residential segment expected to continue for two to three years. 2) Residential sales are just half of the amount spent on construction in CY2018. 3) NBFC crisis has added to the stress in the residential segment. 4) Major shift on the part of developers towards affordable housing. 5) Consolidation taking place...
The only relevant question for a normal financial investor in this hostile takeover attempt by Larsen & Toubro (L&T;) of Mindtree (MTCL) is whether to buy/hold the stock. We had a Sell rating on MTCL ever since initiation of coverage (Market Is Giving It The Benefit Of Doubt) and we maintain that view. It has been our long-held view that the quality of MTCL's business is nowhere close to that of Tier-1 players like Tata Consultancy Services (TCS) and Infosys and therefore deserves to trade at a much lower P/E multiple. While we hold a cautious view on the entire Indian IT sector because of what we believe is going to be the onset of a cyclical slowdown in 2020, we are extra cautious on mid-sized players vis-a-vis Tier-1 players....
We are changing the target prices on our universe of coverage primarily driven by the rolling forward of the basis of valuation to FY21 EPS rather than September 2020 EPS that we used previously. Our Target P/E multiples do not change. This has led to upward revision of target prices (see Exhibit 1 below). However our ratings on stock remain the same. Wipro's numbers have also been adjusted for the recent bonus issue....
65% in January 2019. Rural wages were stable in November and December 2018, but this provided little respite for discretionary consumption. Motor vehicle sales were down for the third straight month, led by two-wheelers. Survey-based indicators are suggesting a probable uptick in manufacturing, but near-term indicators remain weak. The Nikkei manufacturing PMI stood at 54.3 in February 2019, up from 53.9 earlier. However, manufacturing output indicators slowed across the board, even as overseas demand slowed. Manufacturing output, as measured by the Index of Industrial Production or IIP, slowed to 1.3% YoY in January 2019. Export growth slowed to 2.5% YoY in February 2019, while imports declined 5.4% YoY. Capital...
Hints At Momentum For Double-digit Growth In FY20, But BFSI Is Flatlining SELL We had a meeting with the management of Tata Consultancy Services (TCS) recently. We came away from the meeting a tad bit more positive on its FY20 revenue outlook. While it stated that the current momentum in most verticals would take TCS to double-digit growth in FY20, we still believe it may fall a tad shy off double digit. We understand that about 200bps-250bps of FY19 revenue growth came from major orders that it won in 2HFY18 connected with its insurance platform. We have not seen announcement of similar kind of deals so far in 4QFY19. We therefore expect growth in FY20 to be a tad slower than in FY19. Some of the other key takeaways from the meeting include the following: (1) After a...
We recently met Mr P.R. Seshadri, MD & CEO, Mr. J Natarajan, President and COO and Mr. Shivrama Prasad, CFO, Karur Vysya Bank (KVB) and gleaned incremental insight into the asset quality and other aspects of the bank. We do not have KVB under coverage and therefore, do not have a rating on the stock. We share the management meet takeaways below. N.B. We like Karnataka Bank (KTK) and South Indian Bank (SIB) as regional bank turnaround plays as they have significant valuation comfort. (See KTK 3QFY19 Results Note: Transient Factors At Play. See SIB 3QFY19 Results Note: Barring IL&FS;, Corporate Book Remains Under Control.) Our top mid/smallcap picks are City...
Lemon Tree Hotels (LTHL) has announced the acquisition of a 100% stake in Keys Hotels directly/through its subsidiaries. The company has signed a non-binding term sheet with Berggruen Hotels Private Limited - a company owning and operating Key Hotels under various...
Demand remains robust: Both the company's management and the industry expert in unison expressed the view that headwinds are largely behind for the industry and demand conditions are fairly good. The popular segment tends to witness more volatility as it tends to be slightly more price-elastic and is influenced by trends witnessed in the country liquor market. In case of prestige/deluxe and above segments, demand conditions are fairly robust and we expect the strength to continue considering the innovation agenda and marketing support for the same. Premiumisation strength is also evidenced by the fact that growth in luxury (single malt and scotch blends) is well above the growth witnessed in premium Indian Made Foreign...
Consumer Price Index or CPI inflation in India stood at 2.57% in February 2019, up from a teresa.john@nirmalbang.com revised 1.97% in the previous month. It was above consensus estimate of 2.4% and our +91 22 6273 8114 estimate of 2.43%. The uptick in inflation mainly came from a low base and bottoming out of food inflation. Notably, prices of vegetables declined less than we had anticipated on a sequential basis. Core inflation softened a tad to 5.30%YoY from 5.36% earlier. The Index of Industrial Production or IIP growth slowed to 1.7% YoY in January 2019, down from 2.6% in the previous month. It was slightly above our estimate of 1.5%, but below consensus estimate of 2%. IIP growth was led by the mining sector which grew 3.9%YoY...
We had a meeting with the management of V-Mart Retail (VRL) recently to get its thoughts on the way forward after what has been a weaker-than-expected FY19. The expectation at the beginning of FY19 was of high single-digit same-store sales growth (SSG), but in YTDFY19 it has been just 3.7%. VRL is of the view that such SSG is not likely to be the new normal and expects the situation to improve going forward. According to VRL, rural incomes have been impacted adversely (likely because of adverse pricing of farm produce) and that had an impact on demand. Demand in March 2019, driven by the festival of Holi', will determine VRL's performance in 4QFY19 which has otherwise been weaker than expected. VRL...
We, recently, met Mr Raj Ahuja, CFO and Senior Group President, Mr Niranjan Banodkar, Senior President, Financial and Investor Strategy and Mr Sunny Desa, Senior VP, Financial and Investor Strategy, Yes Bank (YBL) and gleaned incremental insight into future prospects for the bank. The most key takeaway from our conversation with management was that the likelihood of Divergence with RBI in asset quality assessment in the future is low. We detail our takeaways below. We have also revised our estimates for FY20/FY21 and retained Buy rating on YBL, revising our target price to Rs329 (from...
up from 2.05% in the previous month. Food and beverage prices continue to remain soft, +91 22 6273 8114 although they are likely to inch up on a lower base. Food and beverage inflation is expected to decline 0.46% YoY, after a 1.3% fall in the previous month. Core inflation (excluding food and fuel, but including petrol and diesel) is expected to remain steady at 5.40%, compared with 5.38% in the previous month. Wholesale Price Index or WPI inflation is also likely to remain...
We had a meeting with the management of Bata India (BIL) recently to understand its various strategic initiatives to drive revenue and profit growth over the next few years. We feel the Sector: Retail following initiatives will drive revenue growth: (1) Increased advertisement spending (from 0.7% in CY13 to likely 3% in FY20) will lead to a pick-up in footfalls into its stores. (2) Technology initiative CMP: Rs1,344 to drive conversion of these footfalls. This primarily has to do with having the right pair of footwear that the consumer is looking for. Currently in pilot stage, a successful scale-up could Target Price: Rs1,479 change the medium-term growth trajectory of BIL. (3) Pick-up in the wholesale part of the business - 10%-12% of revenues - has been modestly declining over the past several quarters Upside: 10%...
We had an interaction with the senior management of Britannia Industries (BRIT) last week. Following are some of the important takeaways from our interaction: Higher contribution from product innovation and renovation: According to the management, BRIT has witnessed a fair degree of success with its innovative and renovated product launches in FY19. Chocolush biscuits, Winkin Cow thick shakes and new cake formats (Swiss Roll, Layer Cake and Brownie) are among the products where the initial market response has been fairly high. It is now looking to accelerate the innovation and renovation momentum further and is aspiring for a 100bps higher contribution (i.e. 5%-5.5%) from new product development in FY20-FY21. Entry into croissant...
Sun Pharmaceutical Industries (SPIL) is India's largest and the world's fifth-largest generic pharmaceutical company. We initiate coverage on SPIL with a Buy rating and a target price of Rs581 (20x FY21E EPS) and estimated revenue and EPS CAGR of 12% and 47%, respectively. We expect US$600mn in incremental sales from new product launches in the specialty pharmaceutical space, primarily driven by Cequa and Ilumya. Subsidiary Taro Pharmaceuticals' earnings are expected to decline by 9% CAGR driven by rising competitive intensity. Rest of the US business for SPIL (excluding Taro Pharmaceuticals and Dusa Pharmaceuticals) should start growing as 123 ANDAs...
stood at 6.3%, a tad above our estimate of 6.2%, but below consensus estimate of 6.5%. Growth in the agricultural segment at 2.7% YoY in 3QFY19 was below our estimate of 3.8%. Industry (excluding construction) grew 6.1%YoY, same as in the previous quarter, but below our estimate of 7.1%. Growth in mining and manufacturing segments surprised on the downside, acting as a drag on industrial growth. However, growth in the services sector including construction grew 7.6% YoY which was better than our estimate of 6.6%, and stable when compared to the previous quarter. Growth in the services sector was supported by the construction segment which grew 9.6% YoY and public administration & defence services which grew 7.6% YoY. The second advance estimate for FY19 has...
Price Rise In Most Regions, But Demand Fails To Keep Pace All-India retail cement prices rose 6%/5%MoM/YoY, respectively, to Rs326/bag in February 2019 (from Rs307/bag in January 2019 and Rs311/bag in February 2018). Prices rose YoY in most regions, but the pace was higher in southern region in February 2019. While the price rise in the country had a certain pattern with a sharp move in southern region followed by western region, while central and northern regions witnessed small bouts of price hikes and the eastern region remains resilient. Our channel checks indicated that prices in southern region jumped ~13% YoY (~19% MoM). Effectively, cement despatches flowing from southern region to parts of Vidharbha...
