Budget 2021 will aim for a booster dose for growth We expect Budget 2021 to provide a booster dose for growth by focusing on government spending on infrastructure, rural and healthcare. The thrust on rural spending is expected to prevail, as full-fledged urban recovery will be tied to the end of the pandemic, which is most likely to occur only in 2HFY22. Urban infrastructure and housing will receive due thrust to support urban job creation. The micro, small and medium enterprises (MSME) sector has been hard hit by the pandemic. Therefore, we expect further incentives to ease the stress and boost credit flow. Incentives to support the real estate and hospitality sectors are also likely. The...
Release of fresh big budget Hindi films key; will F&B; foray create value? PVR reported revenue of Rs330mn in 3QFY21 (down 96% YoY). EBITDA loss (pre IndAS 116) was Rs1.38bn and net loss was Rs1.35bn (pre IndAS 116). The losses were lower than our estimates as cost increase post opening up has not been as high as we had anticipated. During the quarter, the central government permitted cinemas to reopen starting 15th October at a capacity level of 50%. Since then, state governments have allowed opening up based on their own assessment of the pandemic situation. That has meant a phased opening up. Because of this and due to lack of any exciting fresh content and customer caution, footfalls...
HDFC Bank reported healthy growth in net earnings (+18.1% YoY, +16.6% QoQ), driven by aboveindustry loan book growth, steady margins and better cost ratios. Overall, the result was ahead of our estimate with 10% beat on the PAT. Advances grew by 15.6% YoY and 4.2% QoQ. Wholesale advances were up 25.5% YoY. While retail asset growth was subdued, the incremental growth trends, especially on the secured portfolio, are highly encouraging. Deposits growth remained strong, up 19.1% YoY and 3.4% QoQ. CASA growth was higher at 29.6% YoY, resulting in better CASA ratios and a favourable funding mix. NII grew by 15.1% YoY and 3.4% QoQ while NIM (reported) was at 4.2%, up 10bps QoQ (flat YoY). Treasury profit was healthy (at >Rs11bn) for the third consecutive quarter, in line with the bank's ALCO strategy to monetise gains. Overall opex growth was slower at 8.6% YoY and 6.5% QoQ....
Tepid 4Q guidance not different from that of Infosys'; Products look up HCL Technologies (HCLT) delivered above-guidance revenue growth and margins for 3QFY21. Revenue grew by 3.5% CC QoQ (guidance was 1.5-2.5%) and EBIT margin came in at 22.9%, which was an outsized beat versus our estimate of 21%. The 1-month run-up of ~16% in the stock price was likely factoring in a bigger beat, especially after superlative 3Q of TCS and Infosys. The 2-3% QoQ guidance of 4Q (including 1% from DWS acquisition) was a tad disappointing in the context of high expectations, but in line with the 0-2% implied guidance of Infosys. TCV growth of 13% (all of it net new) is in line with that of TCS (total TCV), but tepid compared to scorching 10x growth...
LNG Japan/Korea Market 1 M future (USD/mmbtu) CGD companies may see some pressure on demand form non preferential segments like industrial and commercial consumers if gas prices remain above what these users can absorb or pass on. This is ~15% of volume for IGL and MGL. Watch out for...
Indigo Paints Ltd. IPO analyst meet takeaways We attended the virtual Brokers & Analyst Meet of Indigo Paints Ltd. (Indigo) for its forthcoming Initial Public Offering (IPO). The management, represented by Mr. Hemant Jalan, Managing Director & Chief Executive Officer, Mr. Chetan Humane, Chief Financial Officer and Mr. Suresh Babu, Chief Operating Officer spoke about the journey of Indigo Paints till date and also shared details about the IPO. The following are the key takeaways: Background: From a humble start in FY00, when it set up a cement paint manufacturing unit in Jodhpur, Indigo has become the fifth largest decorative paint manufacturer in India. The company has three manufacturing facilities...
Reduced pandemic impact, cyclical upswing, strong brand and BUY locational advantage to drive growth This is supported by the anticipated sustained cost reduction, which is expected to drive EBITDA from Rs(2.5)bn in FY21E to Rs4.7bn in FY23E. This would imply EBITDA margin expansion to 24.5% by FY23E vs. EBITDA margin of 18.2% in FY20. We expect the cost reduction to be driven by (1) Reduction in employee cost due to reduction in...
Blockbuster TCV and net new likely to drive mid-teen FY22 growth While there are many aspects of Infosys' 3QFY21 performance that seem superlative, none is greater than the highest ever large deal TCV number of US$7.1bn, of which 73% was net new. This includes the largest ever deal in the history of Indian IT Services industry (Daimler deal worth ~US$3.2bn spread over 8 years, according to media). TTM net new TCV is up 2.8x YoY and should drive mid-teen growth in FY22, which should support the elevated valuation. 3QFY21 QoQ revenue growth in CC terms came at an 8-year high of 5.3% (against our estimate of 2.5%) with the Vanguard deal kicking in. Margin held up (against expectation of a decline)...
Margin surprises yet again; Revenue execution is key Superlative revenue growth surprises delivered in 3QFY21 by both TCS (4.1% QoQ in CC terms on its large base) and Infosys (5.3%) make the 3.4% growth by Wipro look staid. However, this is the best it has delivered in 36 quarters and that too in the second quarter under the new CEO. What's more, it beat ours and consensus expectation (~2.5%). This combined with a very sharp 240bps pick-up in EBIT margin QoQ in IT Services (a big surprise) could induce upgrades in street EPS estimates. The stock price run-up (31% up in 1 month, >100% in 6 months) already prices in a pickup. CEO, Thierry Delaporte, talked about an obsession with growth' while maintaining respectable margins at its recent analyst meet (Meet). Without giving out specific numerical targets Thierry...
Consumer Price Index or CPI inflation moderated to 4.59% in Dec'20 from 6.93% in Nov'20 on a high base. It was below our expectation of 4.89% and Bloomberg consensus estimate of 5%. The surprise was mainly on account of lower food & beverage inflation, which stood at 3.89% against our expectation of 4.61% on account of a 15.77% MoM decline in vegetable prices. Core inflation stood at 5.69% - in line with our expectation. The moderation in inflation should normally have opened the room for a rate cut by the RBI, but the rise in industrial commodity prices has thrown a spanner in the works. We thus believe that the room for a rate cut has narrowed significantly although the...
Recently Cadila Healthcare (Cadila) received a USFDA fast track designation for its Phase 2 NCE drug - Saroglitazar for treatment of Primary Biliary cholangiits (PBC). The fast track designation was based on Phase II trial data in PBC patients who are refractory or have inadequate response to 1st line treatment - Ursodeoxycholic acid (UDCA). Apart from Saroglitazar, a couple of other pipeline drugs for PBC have been granted by the USFDA a fast track / breakthrough designation. We try to assess the market opportunity for Saroglitazar considering the expected competition and Saroglitazar relative clinical profile. The key takeaways from our assessment being...
In a continuous endeavor to get deeper insights into the industry from key players, including manufacturers, vendors and distributors, we recently interacted with Mr. Tushar Bhandari, Wholetime Director of Associated Alcohols & Breweries Ltd (AABL). The company is present across the value chain of the alcohol industry wherein operations are divided into key business verticals of sale of Extra Neutral Alcohol (ENA), Indian Made Indian Liquor (IMIL) business, Indian Made Foreign Liquor (IMFL) business (proprietary brands), Franchisee business [with Diageo/United Spirits Ltd. (USL)] and Job-work/contract...
The market is anticipating a seasonal cement price hike in January after consistent Research Analyst declines witnessed over the past few months. Cement stocks have seen a sharp uptick mangesh.bhadang@nirmalbang.com wherein many stocks have gone up by more than 10% over the past week on anticipation +91-22-6273 8068 of price hikes. We spoke to dealers during our channel check to verify whether pricing hikes are on the cards, however, majority of dealer feedback suggests otherwise. Many dealers even suggested that they will be happy if current prices sustain given the sharp declines seen in recent months. Given the factors such as the ongoing CCI investigation and lower than expected demand, we believe that price hikes could be delayed and may...
CRAMS business, which constituted ~20% of Navin Fluorine International's (NFIL) FY20 revenue is the fastest growing segment for the company. The stock has delivered a whopping ~150% returns over the last one year and a large part of the rerating is attributed to greater visibility in the CRAMS segment. While consensus revenue estimates for CRAMS are more or less similar (~30-35% revenue CAGR over FY20-23E), key variable is the valuation multiple. We are addressing the valuation point wherein we have done detailed comparisons with global CROs/CDMOs in order to justify the valuation. We have come up with some interesting observations (mentioned below), which give us the confidence that CRAMS is a multi-year story &...
The asset quality improvement seen in 1HFY21 should be viewed in light of the regulatory dispensation provided by the RBI. The underlying factors indicate general deterioration in asset quality in the ensuing quarters. Large advances in SMA-0 category have registered a substantial jump. Under the baseline scenario, the GNPA ratio is expected to deteriorate to 13.5% by Sept'21. Given the expected increase in GNPAs, the capital positions are also expected to deteriorate. Though banks are well placed from a regulatory capital standpoint on aggregate basis, few individual banks could see capital falling below minimum levels under a severe stress scenario. In light of this, the RBI has continued to push banks to raise capital and strengthen their balance sheets. Despite the recent recovery, the RBI sees downside risks to growth, particularly emanating from...
In 2021, a low base will support recovery, but recovery is likely to be prolonged. While the teresa.john@nirmalbang.com theme to play would be the opening up' trade post pandemic, we believe the recovery will see +91 22 6273 8114 some stops and starts'. Intermittent containment measures cannot be ruled out even as vaccines are being rolled out. Growth supportive policies from global policy makers will continue to rule in 2021 and it will be another year when liquidity will drive global markets. Emerging Markets (EM), including India will benefit from easy liquidity. Global liquidity and difficulty in ramping up production after shutdowns may keep commodity prices elevated. However, we believe that the global central banks are unlikely to view inflation as a big threat...
Pricey but growth surprises possible near term TCS' 3QFY21 delivered a 9-year best, broad-based and better-than-expected 4.1% QoQ constant currency (CC) revenue growth in a seasonally weak quarter, significantly better than our estimate of 1.5% and that of consensus (~3%). Margin expansion of 40bps QoQ was a surprise (against expectation of a decline) after absorbing a 160bps hit from salary hike. YoY CC revenue growth turned positive one quarter ahead of guidance. TCS indicated double-digit growth for FY22, something that was already priced in. The question is whether it can deliver mid-teen or higher growth. A significant shift to cloud, faster conversion to revenue of deals won and market share...
We expect 3QFY21 to reveal QoQ revival in demand for oil products and natural gas even as the broad trend is down YoY. Among the OMCs, we see PAT growth of 35.9%/27.4% YoY in HPCL and IOC while BPCL will see its earnings dip a tad. Gas stocks will see PAT growth, except MGL, which will see 16.5% YoY decline in PAT. We have made changes to our estimates for the OMCs. We have also rolled over our target prices to FY23E for the 8 stocks in our coverage universe and kept our ratings unchanged. We have cut multiples - PE for HPCL from 6.5x to 6x and EV/E for IOC's refining and marketing from 4.5x to 4x on concerns about potential pressure on retail margins on auto fuels amid rising oil prices. We have raised the target PE for BPCL by 10% to 8.5x to build in the potential upside from stake sale....
Improving momentum is expected to continue in 3QFY21 for the sector Vishal Punmiya In 3QFY21, Consumer Staples will continue to show an improving trend on the growth front. Non-essential FMCG categories, which were adversely impacted, are recovering sequentially while some categories (biscuits, hygiene products etc.), which benefitted strongly during 1HFY21 have seen their growth taper down. In our FMCG universe, we expect GILL, MRCO, NEST and Emami to deliver relatively strong YoY growth for the quarter. Within the Consumer Discretionary space, it seems that the demand recovery seen by domestic decorative business of the paint companies in 2QFY21 has sustained post the festive season and will continue to be...
