Sector Updates

Brigade Enterprises has been beefing up its land reserves so far in YTDFY24 with three large land acquisitions (one each in Hyderabad, Chennai and Bengaluru) having a cumulative estimated GDV of INR53bn.

Channel checks have yet again assumed huge importance given the surprise price surge in East India (announcement of INR 70/bag since the start of Sept’23). Our interaction with several sector experts and intermediaries across regions, over the past few days, point towards an improving cement price scenario.

We have analysed various auto ancillary businesses based on valuation multiples, likely earnings growth, RoE and several business risks. We believe there are some outliers in the list, on either side, in terms of valuation vs business fundamentals/risk led by fears of EV-led business disruption or EV-led opportunity driving higher growth.

We expect US real GDP to grow above 4% QoQsaar in Q3CY23, inducing a further 25bp hike in the Fed Funds rate at the FOMC’s meeting on 1st Nov’23. At this week’s meeting, the FOMC’s median projections suggested a Goldilocks economy in CY23, with real GDP growing 2.1% (vs the projection of 1% in Jun’23) while core PCE inflation was projected to end CY23 at 3.7% (vs 3.9% previously).

Glenmark Pharma (GNP) is divesting 75% stake in its API arm Glenmark Lifesciences (GLS) for INR 56.5bn (INR 615 per share) to Nirma Limited valuing GLS at 11.7x FY25E EPS and 6.4x EV/EBITDA. GNP, though, will still hold nearly 7.8% stake in Glenmark
Lifesciences.

Paint industry has likely grown in low-mid-single digits in volume terms in July-Aug’23 and dealers are expecting strong Sept-Oct’23 due to favourable base and delayed Diwali in CY23 - that's the insight from our conversations with paint dealers in Mumbai. They told us: (1) There are still no price cuts. Paint companies are permitting trade to generate higher profitability. However, some dealers are partially passing on the excess benefits to consumers.

1) SRF: R-22 prices dipped to INR 321/kg (down 8.3% QoQ) in Q2FY24-TD, volumes were down 18.4% YoY to 770te. In packaging films segment, spreads have improved from lower levels in BOPET and BOPP. 2) Gujarat Fluorochemicals: PTFE prices rose 2.3% QoQ / 8.8% YoY to INR 1,052 while volumes dipped 41.5% YoY to 694te. Other fluoropolymer prices rose 1.7% QoQ and volumes dipped 10.6% YoY to 286te.

Key takeaways from our interaction with the Chairman of Panasonic Life Solutions & SA (Mr. Manish Sharma): (1) Domestic electronic manufacturing industry is becoming cost competitive vs global peers and may expand rapidly on conducive policies, (2) white goods and durables segment size is likely to cross USD 11bn by FY25 (CAGR 11% over FY21-25), (3) domestic sourcing in RAC industry has increased multi-fold post PLI-based announcements.

We believe, EBIT margin improvement is a low hanging fruit for TechM’s new CEO Mr. Mohit Joshi; however, top line revival may take some time. That said, Mr Joshi’s opening gambit (appointment of COO Mr. Atul Soneja and an internal reshuffle) bolsters our conviction for a successful turnaround.

The latest Energy Information Administration (EIA) report on crude and product inventories shows that the bullish trend of crude prices may potentially march on. Crude and gasoline inventory declines over the past few weeks have managed to skirt estimates, even with distillate inventories staying healthy.