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High frequency indicators such as manufacturing PMI and CV sales improved in Sep'18. However, auto sales came under pressure. Depreciating currency, rising oil prices and muted indirect tax collections pose risk to growth and upside risk to inflation. RBI changed its stance to calibrated tightening while keeping rates on hold. Given the FPI outflows, we believe INR and yields will be under pressure and RBI will raise rates by 50bps in the next 6-12 months. Click here for the full report. India Economics: Inflation and IIP...
Consumer Price Index or CPI inflation stood at 3.77% in September 2018, below Bloomberg teresa.john@nirmalbang.com consensus estimate of 4% and our estimate of 4.47%. It inched up only a tad from 3.69% in +91 22 6273 8114 the previous month. Food inflation significantly undershot our estimate primarily on account of lower prices of vegetables, meat, fish and eggs. Overall food and beverage inflation stood at 1.08%YoY against our estimate of 2.40% YoY. Fuel prices increased as expected, but the pass-through to CPI inflation was not complete. Housing inflation was also slightly below our estimate. As a result, core inflation moderated slightly to 5.81%YoY in September 2018, down from 5.87% in the previous month. Meanwhile, the Index of...
lower. Sgx Nifty is trading lower by 0.18%. The U S markets ended higher in a volatile session as stocks bounced back after sharp declines seen in previous sessions. The Dow Jones gained 287...
Markets to focus on global cues and domestic quarterly earnings Asian markets are trading mixed on weak cues from Wall Street overnight amid escalating trade tensions. Nikkei is trading lower by 0.39% while Shanghai is trading lower by 0.86% while Hang Seng is trading higher by...
Change in rating: With recent price correction we upgrade Kolte Patil to BUY from NEUTRAL. Over last 3M, Nifty Realty index has corrected 25%. Reversal of interest rate cycle and tightening of liquidity to NBFCs has hit sentiments. Whilst a large part of our coverage universe is organized, slowing down of NBFC lending may delay pre-sales recovery. Cost of funding for developers may also increase for land acquisitions as NBFC/CPs funds dry up.
Price target change, Top Picks: Post adjusting for higher diesel/bitumen/interest costs we have cut our EPS estimates by 5-26% for coverage universe. We have standardized our valuation methodology from EV/EBIDTA to P/E based to factor in debt/interest volatility. Top Picks: PNC, KNR, NCC. Top Picks Buildings: JMC Projects, Ahluwalia. After a muted 1HFY19 ordering, tendering to pick up from Nov-18: NHAI awarded ~7,400km/Rs 1.2tn of projects in FY18 and we expect Rs 700bn of awards during FY19E with a ~4,350km target. 1HFY19E ordering has been muted after a strong 4QFY18. NHAI tenders worth Rs 660bn are up for tendering during 3QFY19E.
The market is still showing bearish inclination. The elections are coming in next 6-8 months. On the other hand, the depreciating rupee, rising crude oil prices and global trade war tensions are posing major concerns. There is more probability of a further correction. However, it is not possible to time the market and to invest exactly at the lowest point. Therefore, it is advisable to accumulate the suggested stocks in a staggered manner. Preferably the investor can do SIP kind of investment spread over a 12 months period so that the current crisis period can also get migrated. The investment horizon should be 3-5 years. The SIP can be done as a basket investment with 14 to 20 stocks with a periodicity of a month or fortnight....
Oil PSUs are being battered by multiple headwinds on the macro front, further exacerbated as the government enters into election mode armed with populist measures. While Q2FY19 earnings may seem irrelevant for oil PSUs, operating metrics suggest a robust quarter for all companies (except BPCL). Cyclicals are expected to gain from a weak INR and stable GRMs & petrochemical...
In 2QFY19, Inox Leisure and PVR stock prices were down ~16%/~12%, respectively. We believe the weak performance can be largely attributed to: (1) Broader weakness in BSE Small Cap Index which girish.pai@nirmalbang.com was down ~10%. (2) Adverse investor perception of the F&B; controversy. The latter relates to a clutch +91-22-6273 8017 of Public Interest Litigations (PILs) filed in High Courts in various states asking them to favour consumers who want to bring in their own food into cinema halls. Indirectly, the PILs are hinting at expensive pricing of F&B; in multiplexes. F&B; constituted ~27%/~30% and ~23%/26% of PVR's and Inox Leisure's revenues/gross margin in FY18, respectively and the fear amongst investors is that this lucrative revenue stream would be adversely impacted. The atmosphere has been vitiated by populist...
Government cuts excise duty on jet fuel to 11% from 14% Asian markets are trading lower post sharp declines on Wall Street overnight. Nikkei is trading lower by 3.89% while Shanghai is trading lower by 3.03% and Hang Seng is trading lower by...
Key Monitorables: (1) Outlook on BFSI and Retail & CPG verticals, (2) Commentary on demand environment/ deal wins and performance of Digital segment, and (3) Operational performance with increase in onsite investments, large accounts' performance. IT sector (coverage universe) is expected to post an uptick in growth, mitigated by cross-currency impact (-50bps) for the quarter. Revenue growth is expected at 2.1/7.9% QoQ/YoY with Tier-1 IT growth estimated at 1.9/6.7% QoQ/YoY. Midcap IT growth is estimated at 3.4/15.6% QoQ/YoY. Divergent growth trends will continue within the sector with TCS and INFY expected to lead the growth. Within midcaps, LTTS, Zensar, Cyient and Sonata are expected to lead the growth.
Top picks: Sun Pharma, Lupin, Alkem, Dishman This will be the fifth straight quarter with a positive sequential top line growth for our coverage companies. With ~9% fall in rupee and stabilizing US base business, coverage EBITDA margin is likely to increase 130bps QoQ (20.2%) in 2QFY19. On YoY comparison, the universe growth would remain subdued at 6.7% and margin to decline on a high base of 2QFY18 (affected by GST restocking). With US regulatory issues getting resolved, consolidation at manufacturer level continues in the US, and withdrawal of non-profitable products by key US generic companies, we believe Indian companies should start reporting substantial improvement in their operational performance from 3QFY19.
Lower Margins To Restrict PAT Growth On YoY basis; CV Segment To Outperform We expect the companies in our coverage universe to report a decline in 2QFY19 earnings on YoY basis because of lower margins. We expect the earnings to fall 5% YoY and rise by 4% QoQ. However, on the sales front we expect a low double-digit YoY increase because of single-digit volume growth for most companies and product mix improvement following price hikes. Commercial vehicle (CV) segment and two-wheeler segment have done well in 2QFY19, while passenger vehicles and tractors witnessed subdued despatches. Also, this year the festive season is delayed which will result in an adverse base for companies on YoY basis. As regards margins, we expect our coverage universe to report ~200bps YoY...
Liquidity, Ageing Provisions And Bond Yields To Weigh This note needs to be read with our report on liquidity issues in Indian financial markets, in which we highlight that (1) concerns with regard to business outlook for NBFCs are overdone since (a) we see only a moderate and transient impact on NBFC loan growth and (b) a material but, ultimately, waning impact on NBFC margins (2) Banks, (a) in general, are far less impacted than NBFCs due to systemic liquidity tightening and (b) while some Banks have greater dependence on wholesale funding, loan book retailisation will protect margins for some of these names. (3) Credit costs for specified Banks with would remain relatively elevated due to NPA ageing but slippage ratio would be lower than recent historical run...
Peeping Into FY20 The Key Focus As FY19 Priced In Nifty IT index outperformed Nifty - for the fifth successive quarter- by a massive 1120bps in the September 2018 quarter (see Exhibit 10). The outperformance in first four quarters was predominantly driven by: (1) Expectation of revenue growth pick-up in FY19 boosted by US tax reforms. (2) Large underweight institutional positioning in the sector which seemed poised for revenue acceleration. (3) Near-term negative news flow - rising interest rates and asset quality problems - on financials', a large overweight sector for institutions. (4) Better relative valuation. In the September 2018 quarter, we believe the outperformance was additionally driven by a very large INR depreciation (4.3% QoQ) versus USD and...
After several months of softening, Brent Crude oil price surged 7.8% MoM to US$78.9/bbl on the back of tight supply scenario. OPEC production remained flattish in Sept'18 at 32.8mbpd owing to higher production from Libya and Saudi Arabia which was offset by lower volume from Venezuela and Iran. Production loss from Iran post economic sanctions from US would be a key thing to watch which may have a significant impact on crude oil price. Further, Non-OPEC production also remained flattish for the second consecutive month at 59.2mbpd in Aug'18. US Crude oil inventory declined 2.8% MoM in 398mn bbls Sept'18 reflecting strong demand scenario. US refinery utilization declined 3.9% MoM in Sept'18 to 93.5%. Also, Singapore Gross refining margin (GRM) declined by 12% MoM to US$6.0/bbl in Sep'18 on the back of lower crack spreads of Gasoline and Jet Kero, partially offset by higher crack spread of Naphtha, Gasoil and FO. We expect crude oil price and GRM to remain robust in near term as winter season is around the corner when we see spurt in demand. On Natural Gas space, LNG prices have moved higher 8% MoM to US$11.2/mmbtu led by incremental growth from China and Japan. We expect Spot LNG prices to remain tight...
The 2QFY19 quarter is likely to witness moderate revenue growth for capital goods and chirag.muchhala@nirmalbang.com consumer electricals sectors. The revenues of companies in our coverage universe are +91-22-6273 8092 likely to rise 11.8% YoY in 2QFY19. While the capital goods sector is undergoing a pick-up in execution largely driven by urban infrastructure projects, the consumer electricals sector is witnessing selective demand uptick. Factors like a 10% cut in GST rates on home appliances (refrigerator and washing machine) as well as expectation of a healthy festive demand are likely to drive demand, but certain companies are likely to be adversely impacted owing to floods in Kerala. However, margins are likely to be...
Margin Pressure Continues On Limited Cost Inflation Pass-through We expect the cement companies in our coverage universe to report a listless performance for the September 2018 quarter, with average EBITDA margin at 15.1% versus ~19.3% in the quarter ended September 2017. Our coverage companies' continued focus is on aggressive dispatches and we expect the volume growth at 13.5% YoY in 2QFY19 (14.8% in 1QFY19). The pace of volume growth from the infrastructure segment fueled by government spending has tapered, although this segment continues to be key driver of current demand. Effectively, the performance in the September 2018 quarter was weak YoY because of healthy prices in the base quarter (2QFY17) supported by limited cost inflation. The...
