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We also have a BUY rating on Maruti Suzuki due to the sustained demand for PVs, given the shift towards personal mobility. After the initial outperformance by the auto stocks, the sector returns are converging with those of the broader market due to moderating domestic growth trends across 2Ws and commodity-based inflation. OEMs expect an impact of ~300bps due to the rising base metal prices, which will limit the extent of margin expansion from improving leverage (as demand normalises over FY22-23E). Amidst this backdrop, we prefer stocks that have a diversified revenue model such as Tata Motors, Bharat Forge, and Bajaj Auto.
While we expect margins for even pipes companies to marginally compress QoQ, it should remain strong YoY. We maintain our BUY on Kajaria Ceramics (TP INR 1,010) and ADD ratings on Astral Poly Technik (TP INR 1,660) and Supreme Industries (TP INR 2,045). We expect tiles and plastic pipes companies to deliver strong performance YoY, aided by both base effect (COVID-lockdown had impacted 4QFY20 volume and profits) and healthy overall demand across both the segments. Tiles companies could affect some price hikes to moderate the impact of surge in gas prices on EBITDA margin QoQ. However, we expect EBITDA margin to remain strong YoY. Similarly, for pipes companies, plumbing demand has remained healthy during the quarter while rising PVC prices have impacted the price-sensitive agri demand
We have a BUY rating on Crompton, and ADD rating on Havells, Voltas, TTK Prestige, V-Guard and Symphony. Pent-up demand and pre-buying driving recovery: Our coverage universe is expected to post 39/67% revenue/EBITDA growth in 4QFY21 (-13/-13% in 4QFY20 and +31/+57% 3QFY21). Ease in lockdown has driven recovery across categories. B-C demand continued to be the key driver of growth, and companies are focusing on new product launches and improving distribution reach. The early onset of summer, pent-up demand and pre-buying aided growth for cooling products. Housing activity sustained the growth for core appliance categories in 4QFY21
We continue to recommend UTIAM as our top BUY with an increased TP of INR680 (19.8x FY23E NOPLAT + cash + investments) as we roll our earnings forward to Mar'23. AMCs - buoyant capital markets to drive treasury profits: Despite net outflows of INR676bn during FY21, 4QFY21 witnessed inflows to the tune of INR109bn. Nifty-50/Nifty-200 are up just 5.1/6.1% in 4QFY21, which has driven industry equity AUM higher by 6.5% QoQ. Debt schemes witnessed outflows of INR430bn in 4QFY21 vs. inflow of INR1,451bn during the prior quarter as institutions redeem funds towards the year end. Sequentially higher equity prices are expected to boost treasury profits. We continue to monitor trends around sustained reversal in equity flows, management commentary around flows and market share.
We believe companies with higher revenue mix from rural will continue to benefit, although urban recovery will also play a key part in driving growth. Despite the recovery in MT, E-comm and GT have sustained their growth momentum. Companies with a strong presence in E-comm and diversified offerings are expected to outperform. FMCG sector has underperformed Nifty by ~35% in last 1 year, and we see a balanced risk-reward for the FMCG sector for FY22/FY23 with earnings led stock returns. Rich valuations and modest earnings growth profile leaves limited scope for PE re-rating. Aggregate revenue/EBITDA to grow by 19/26% YoY helped by base: Our FMCG coverage universe is expected to deliver growth of 19/28% YoY in revenue/ EBITDA (ex-GSK, 16/23%) in 4QFY21 (vs. -6/-9% in 4QFY20 and 10/5% in 3QFY21) with a QoQ growth of -3/+2%. Recovery in demand continued across segments. Increased mobility of consumers drove the demand for discretionary categories like discretionary PC, QSRs and beauty soaps, while health and hygiene categories saw growth moderation. Demand from metro cities and urban areas continued to improve and is likely to be a key monitorable over the next few months in wake of new partial lockdowns. Urban channels like MT saw gradual recovery. Rural and e-commerce demand continued to drive overall growth
Recommendations and stock picks: From a near to mid-term perspective, the government would drive ordering, and private Capex/opex will be late-cycle recovery. Hence, recovery plays with high government exposure will remain in focus. In capital goods, LT and Cummins India is our top pick. In the mid-cap space, KPTL, KNR, PNC, HG Infra, NCC, Ashoka Buildcon and Capacite are our top picks. Ordering tailwinds in place: Unexpectedly, FY21E was a year of all-time high ordering by NHAI and other state/Central government agencies. The road ministry awarded close to Rs 1.4trn (vs. Rs 0.5trn in FY20) of new highways projects and media reports suggest FY22E roads awarding target at INR 2.2trn. Some of the mega projects awarded during FY21E include high speed rail and barmer refinery. Besides these, water projects under rural water were awarded to the tune of INR 450bn in UP alone. With the central election coming up in 1QFY25E, we expect strong ordering ahead of the elections in FY22/23E. The next two years may see robust ordering for the sector.
Recommendations and stock picks: Whilst the sector may see near-term headwinds, the long-term story remains intact. We continue to believe that Tier 1 developers will gain market share, given buying preference for reputed developers in under construction projects. There would be some resurgence in select Tier 2 developers who have strengthened their balance sheets during FY21E, taking benefit of ready to move in inventory sales. We remain positively biased towards the sector. Top picks: DLF, Oberoi Realty, Phoenix Mills and Mahindra Lifespaces. Second wave of COVID-19 to prolong recovery: As all was going well, the emergence of stronger/infectious COVID-19 second wave may postpone the recovery in real estate to 2HFY22E. Our channel checks with brokers suggest that festive season launches have been postponed to second half as various key cities see increase in COVID-19 cases and respective governments are taking the partial lockdown route to break the infection chain which resulted in slowdown in site visits and footfall. Buying decisions may get postponed until the situation improves. Whilst pandemic fears persist, the macro environment still remains robust with supply shrinkage, stable demand, low interest rates, pent-up demand, economic easing, and strong IT/ITES sector. New launches may help sustain the momentum as pent-up demand fades out.
We also initiate on Sagar Cements (BUY, TP: INR 1,082) enthused by its prudent growth, diversification beyond south market and healthy Opex controls. Post the sharp run-ups in stock prices, we downgrade Shree Cement and Ramco Cements to REDUCE (from ADD rating earlier). Top picks: Ambuja, Dalmia in large-caps; Birla Corp, JK Lakshmi and Sagar Cements in mid-caps. In this report, we highlight long-term trends that are likely to drive the cement industry over the next few years - (1) brighter demand outlook, (2) continued consolidation - as bigger players accelerate capacity additions, (3) industrys continued efforts towards reducing its clinker factor and increasing productivity of WHRS, (4) business agility in the form of exploring multiple fuel sources to optimize cost and the industrys ability to manage its fixed costs. In our view, these will support the industry to maintain its multi-year high margins, and support its valuation re-rating. We expect robust 4QFY21E performance by the industry (aggregate EBITDA to rise 12/35% QoQ/YoY).
CPI inflation came in at 5.52% in March'21, largely in line with our estimate of 5.54%. But, it was marginally Research Analyst (Economist) higher than Bloomberg consensus estimate of 5.40%. Food & beverage inflation stood at 5.24%, marginally teresa.john@nirmalbang.com higher than our estimate of 5.18%. Core inflation stood at 5.96% in March'21, marginally up from 5.88% in +91 22 6273 8114 Feb'21, but below our estimate of 6.1%. Core inflation rose less than anticipated on account of a sharper than expected decline in the personal care & effects category amid a decline in gold and silver prices. In addition, inflation in key categories such as household goods & services and healthcare rose only modestly. Despite the increase in inflation on a low base, headwinds from rising commodity prices and the prospects of supply-chain bottlenecks (on account of localised lockdowns), we expect rates to remain...
Second wave pushes back return to normalcy; 2HFY22 key With India in the grip of a second wave of the Covid-19 virus, we believe that the expectations from the investing community of 1QFY22 being the start of return to normal business conditions have been dashed. With Maharashtra, a key geography for the Film Exhibition industry, being shut for film exhibition for the entire April 2021, with potential for further extensions, we are now faced with shortterm uncertainty - around cost structures, screen openings, film release dates, movies going straight to OTT, etc. Pararellely, we also have the vaccination program underway, which is going on in fits and starts, but which will hopefully gain significant traction in 1QFY22. With all of these, we believe that 1QFY22 is likely to be only as good as 4QFY21 or potentially slightly worse. We think that expectations...
Market Outlook April'21 Q4 results are likely to show substantial growth on account of lower base, high commodity prices and continuation of demand growth of Q3 into Q4 QoQ may see some moderation in EBITDA margin though absolute EBITDA to increase by 8% Management commentary for near term will be cautious due to second wave. May see some downgrades by analysts for FY22 EPS Small cap is at all time high but near term cautious outlook can have higher impact on price. In small cap market see near term results Valuation running at all-time high, leaving little scope for rerating China has recovered and is changing the track to deleveraging Whereas US's full recovery may still be away by 1-2 quarters FII flow has slowed down and may remain lower in near term May see some more correction in Near term however same can be used to buy quality stocks for long term.
The rise in inflation was primarily driven by food items like meat and fish, oils and fats pulses and non-alcoholic beverages. In non-food items, almost all items witnessed a marginal rise in data print except...
Our FY22/23E estimates for our coverage remain relatively unchanged, despite the rapidly strengthening second wave of COVID-19 cases in India. This reflects our belief that our current estimates around credit growth and asset quality already factor in potential speed bumps on the path to recovery. Further, sustained fiscal and monetary policy support and the unexpectedly sharp (at the time) recovery in economic activity over 9MFY21 suggest that the potential fallout of slowing real economic activity on the financial system is unlikely to be material. We expect our coverage universe to clock a sequential PPOP growth of ~10% on the back of improving business traction. With the SC-imposed standstill on NPL recognition lifted, lenders should report a significant rise in slippages and GNPAs. We expect incremental provisions to moderate sequentially across our coverage universe, with lenders having built significant provision buffers during 9MFY21. We expect sequential improvement in business traction in line with rising economic activity.
In Q4FY21, base metal prices improved both QoQ as well as YoY. During the quarter, average zinc prices on the LME were at US$2749/tonne, up 29% YoY & 5% YoY while average lead prices were at US$2011/tonne, up 9% YoY, 6% QoQ. Similarly, during the quarter, average aluminium prices on LME were at US$2096/tonne, up 24% YoY, 9% QoQ while average copper prices on the LME were at US$8501/tonne, up 51% YoY, 18% QoQ....
FY21 to end on a strong note supported by demand revival & low base 4QFY21 saw the economy continue to revive with decline in COVID cases and improvement in mobility. Further, the sector will see an optically strong revenue growth across most companies on account of a low base, which was affected by the onset of the pandemic. We expect overall sales of our consumer coverage universe to grow by 20.4% YoY in 4QFY21 on account of robust performance by FMCG and Paint companies. Within FMCG, discretionary & out-of-home categories have seen QoQ pick-up whereas essential categories (biscuits, health & hygiene products etc.) have seen some normalization during 4QFY21. Paint sector is expected to continue...
We expect healthy earnings for NBIE Chemical companies for 4QFY21, aided by healthy soil moisture and high water storage levels in key reservoirs, which augur well for Rabi crop prospects and CPC/fertilizer demand. The positive view on CPC is based on the growth in area sown in this period that augurs well for CPC demand. The sharp increase in global crop prices (including soyabean) to record highs and healthy agri product demand (especially for corn and soya from China) are reported to have lifted farm incomes globally and in India this is likely to boost exports for our CPC universe. Tata Chemicals (TTCH) is likely to see improved chemical volume, especially in India. Overseas sales could see some pressure due to the resurgence of COVID cases. PI Industries and Sumitomo lead the pack...
