July 2021 Compendium of conference calls: Q4FY21
Quarterly Quotes
Headwinds galore
On a firm footing to Debt ride the trend woes Challenges ahead Policy push Growth levers in place Demand swing Consolidation Debt to be wave f rolled over Rising ad spends
Costs in control cus
Edelweiss Research Team +91 22 2286 4400 Edelweiss Securities Limited research@edelweissfin.com Q4FY21 conference call highlights
Dear Investor and Corporate,
Quarterly numbers matter; they lend a quantitative as well as qualitative sheen to what has been (Q4FY21 review). But management quotes go far beyond plain-vanilla numbers: they offer deeper insights into what individual companies are doing, how they are thinking and how market participants are perceiving them. That one can benchmark them to industry peers or their previous observations and/or collate them by sector extends their relevance well beyond the results or near-term influences. Management quotes are, hence, far more significant and relevant than mere numbers for the market.
Ongoing management commentaries also entail links and threads to a bigger picture as to what’s happening—not only at individual companies, but also in the sector and markets. Besides, they contain a key element of guidance, helping investors identify winning ideas and shed potential losers. So, more than the numbers, it’s the linkage across numbers that’s of bigger import. We try to tie the threads via links to previous quarters (Q3FY21 and Q2FY21).
Q4FY21 results were known to benefit from a slightly disrupted base. Earnings momentum continued with our coverage universe posting 135% YoY PAT growth (2Y CAGR: 24%)—despite modest top-line growth (17% YoY; 5% on 2Y CAGR). Organised players continue to gain market share. Margins seem to be peaking around decadal highs as input prices are rising and cost rationalisation is largely behind. Meanwhile, credit costs remained broadly stable, and listed players have deleveraged meaningfully. In all, FY21 seems to be a turnaround year for India Inc.—posting 20% profit growth, 250bps margin expansion and significant deleveraging. FY22E Nifty EPS was upgraded 3–4% mainly due to metals and export auto. Edelweiss Nifty FY21/22/23E EPS is INR512/697/816 (Consensus Nifty FY21/22E/23E EPS is INR512/712/831).
For those in a hurry, a round-up of key takeaways, quotes and notables that could be reflective of the issues that matter is included. The compendium captures the essence and nuances of what companies are saying bottom-up.
We do hope you find this product useful and, as always, welcome feedback to make it better and more relevant for you.
Edelweiss Research Team
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Q4FY21 conference call highlights
A round-up of key takeaways
Commodity pressures were visible in Q1FY22; however, vis-à-vis initial expectations, pressures have now extended to Q2FY22 Automobiles
“In these uncertain times, good quality underwriting will be a key differentiator” Banking Mr. Uday Kotak, MD & CEO, Kotak Mahindra Bank
A pickup in consumer sentiment and business remains key to brand strategies and earnings growth given peak cost savings and pent-up Consumer Durables demand are behind
“Mobility is dipping as people confine themselves to homes. This will result in a period of uncertainty…. E-commerce has FMCG become the channel of choice for many consumers”
Sanjiv Mehta, Chairman & MD, HUL
“Although the year started with a lot of economic turbulence, but gradually every quarter it became better and better” Home Decor Sanjay Agarwal, CEO and MD, Century Plyboards
Normalization of labour availability led to a pick-up execution; however, weak Infrastructure order inflows affected revenue visibility
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Q4FY21 conference call highlights
Stage set for an earnings up-cycle with broadening of capex cycle and solid policy initiatives Industrials
“We see this technology shift as the start of a multi- year technology upgradation cycle in which abundance of native capabilities will constantly expand the art of IT the possible, opening up newer opportunities for technology-driven differentiation” Rajesh Gopinathan, CEO & MD, TCS
Debt reduction and capacity expansion to go hand-in-hand in FY22 for steel companies Metals & Mining
Gas muted, oil fares better
Oil & Gas
Strong tailwinds across India business driven by portfolio strength, which is translating into rapid recovery Pharmaceuticals
Strong residential sales reduced the unsold inventory and lifted price realisations in certain geographies and Real Estate projects; meanwhile, weak leasing demand in office and malls led to higher vacancies
“Tariff hike remains critical to revive the sector and ensure that operators make reasonable returns on their massive network and spectrum investments” Telecom Ravinder Takker, CEO, Vodafone Idea
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Q4FY21 conference call highlights
Contents
Abrasives
Carborundum Universal...... 11
Grindwell Norton ...... 14
Agri Inputs
Coromandel International ...... 18
Dhanuka Agritech ...... 20
PI Industries ...... 22
Rallis India ...... 24
Sharda Cropchem ...... 25
UPL ...... 26
Auto & auto components
Ashok Leyland ...... 30
Bajaj Auto ...... 33
CEAT ...... 36
Eicher Motors ...... 39
Hero MotoCorp...... 41
Mahindra and Mahindra ...... 44
Maruti Suzuki ...... 47
Minda Corporatieon ...... 49
Motherson Sumi Systems ...... 51
Suprajit Engineering...... 53
Banks, financial services and insurance
Aavas Financiers ...... 57
Axis Bank ...... 58
Bandhan Bank ...... 60
Bajaj Finserv ...... 62
DCB Bank ...... 64
Federal Bank ...... 66
HDFC Bank ...... 68
HDFC Life Insurance Company ...... 70
ICICI Bank ...... 72
ICICI Lombard General Insurance ...... 74
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ICICI Prudential Life Insurance ...... 76
IndusInd Bank ...... 78
Kotak Mahindra Bank ...... 79
LIC Housing Finance ...... 81
Mahindra Finance ...... 82
Shriram City Union Finance ...... 84
Shriram Transport ...... 85
Bearings
Schaeffler India ...... 87
Cement
India Cements ...... 90
J K Cement ...... 91
UltraTech Cement ...... 95
Construction
Ahluwalia Contracts ...... 99
Ashoka Buildcon ...... 100
Capacit’e Infraprojects...... 102
J Kumar Infraprojects ...... 103
KNR Constructions ...... 104
NBCC ...... 105
PNC Infatech ...... 106
Titagarh Wagons ...... 108
Consumer Durables
Amber Enterprises ...... 110
Bajaj Electricals ...... 112
Crompton Greaves Consumer Electricals ...... 114
Havells India ...... 116
KEI Industries ...... 117
Polycab India ...... 118
Symphony ...... 120
Voltas ...... 122
Credit Ratings
CARE Ratings ...... 126
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Engineering & Capital Goods
ABB ...... 129
AIA Engineering ...... 130
Cummins India ...... 132
Greaves Cotton ...... 133
Kalpataru Power ...... 135
KEC International ...... 137
Larsen & Toubro ...... 139
Thermax ...... 142
FMCG
Asian Paints ...... 145
Bajaj Consumer Care ...... 147
Berger Paints ...... 151
Britannia Industries ...... 153
Colgate Palmolive ...... 155
Dabur ...... 157
Emami ...... 159
Godrej Consumer ...... 161
HUL ...... 163
Marico ...... 166
Pidilite ...... 171
Tata Consumer Products ...... 173
United Spirits ...... 176
Healthcare
Apollo Hospitals ...... 179
Dr Lal PathLabs ...... 181
Healthcare Global ...... 182
Fortis Healthcare ...... 183
Hotels/Hospitality/Aviation
Indian Hotels ...... 185
InterGlobe Aviation ...... 187
Lemon Tree Hotels ...... 188
Mahindra Holidays & Resorts ...... 189
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Home Décor
Century Plyboards ...... 191
Kajaria Ceramics ...... 194
Greenlam Industries ...... 198
Prince Pipes ...... 200
Somany Ceramics...... 202
Supreme Industries ...... 205
IT
Cyient ...... 209
Eclerx ...... 210
HCL Technologies ...... 211
Infosys ...... 212
L&T Infotech ...... 213
L & T Technology Services ...... 214
Mindtree ...... 215
Persistent Systems ...... 216
Tata Consultancy Services ...... 217
Tech Mahindra ...... 218
Wipro ...... 219
Lubricants
Castrol India ...... 221
Gulf Oil Lubricants ...... 223
Media
Inox Leisure ...... 226
PVR ...... 228
Sun TV Network ...... 230
Zee Entertainment Enterprises ...... 231
Metals & Mining
Coal India ...... 234
Hindalco Industries ...... 237
Jindal Stainless ...... 239
Jindal Steel & Power ...... 241
JSW Steel ...... 243
NMDC ...... 246
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Q4FY21 conference call highlights
SAIL ...... 248
Tata Steel ...... 251
Vedanta ...... 254
Oil & Gas, Petrochemicals
Bharat Petroleum Corporation ...... 257
GAIL ...... 258
Gujarat Gas ...... 259
Hindustan Petroleum Corporation ...... 260
Indian Oil Corporation ...... 262
Mahanagar Gas ...... 263
ONGC ...... 264
Petronet LNG ...... 265
Pharmaceuticals
Alkem Laboratories ...... 267
Ajanta Pharma ...... 268
Aurobindo ...... 269
Biocon ...... 271
Cadila Healthcare ...... 273
Cipla ...... 275
Divi’s Laboratories ...... 277
Dr. Reddy’s Laboratories ...... 279
Glenmark Pharmaceuticals ...... 280
Ipca Laboratories ...... 281
Lupin ...... 283
Natco Pharma ...... 285
Sun Pharmaceuticals ...... 286
Torrent Pharmaceuticals ...... 287
Power
Adani Ports and SEZ ...... 290
Gujarat Pipavav Port ...... 295
Indian Energy Exchange ...... 296
India Grid Trust ...... 298
NTPC ...... 300
Tata Power Company...... 302
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Real Estate
Brigade Enterprises ...... 305
DLF ...... 308
Godrej Properties ...... 311
Oberoi Realty ...... 314
Sobha ...... 316
Sunteck Realty ...... 319
Retail
Aditya Birla Fashion and Retail ...... 311
Burger King ...... 324
Jubilant FoodWorks ...... 326
Shoppers Stop ...... 328
Titan Company ...... 330
V-Mart Retail ...... 332
Specialty Chemicals
Aarti Industries ...... 335
Galaxy Surfactants ...... 337
SRF ...... 338
Textiles
Arvind ...... 341
Page Industries ...... 343
TCNS Clothing ...... 345
Welspun India ...... 347
Miscellaneous
Balkrishna Industries ...... 350
Bharat Forge ...... 353
CCL Products ...... 355
EPL ...... 356
Heritage Foods ...... 359
Sheela Foam ...... 361
Solar Industries ...... 363
Supreme Industries ...... 365
VIP Industries ...... 368
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Q4FY21 conference call highlights
Abrasives
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Q4FY21 conference call highlights
Carborundum Universal
Financial Revenue grew 27% YoY (4% above estimate) and 3% QoQ. Sales jumped 41% YoY across abrasives, 15% across EMD and 36% YoY across ceramics for Q4FY21.
FY21 revenue grew 1% YoY led by 4% growth in EMD; revenue was flat in abrasives and ceramics segments.
Gross margin for Q4FY21 dipped 303bps YoY to 66.8%. Operating leverage and portfolio optimisation resulted in EBITDA margin expansion of 369bps YoY. EBITDA grew 55% YoY (33% above estimate).
Robust profitability resulted in APAT growth of 14% YoY to INR1.05bn (38% above estimate).
Capex is targeted at INR1.5-1.7bn for FY22. Management will also look at inorganic opportunities in abrasives and higher resource allocation to capture markets in ceramics.
During the quarter, the company had to divest 2.47% stake in Wendt, an associate, and gained ~INR130mn as a result of the same.
Management anticipates better demand due to PLI schemes and additional thrust in the Union Budget announced by the government with opportunities across the abrasives, ceramics and EMD divisions in automotive and auto components, electronics, pharmaceuticals and alloy steels, among others. However, the PLI schemes are also likely to result in higher competitive intensity for the company. Performance by segment Abrasives (40% of Q4FY21 sales) Abrasives grew 41% YoY on a consolidated basis. This was driven by 17% growth in standalone abrasives segment with strong resurgence in demand from construction, auto and auto ancillaries; CUMI gained market share. Sterling Abrasives continued to post robust performance with good demand from agro- processing and industrials divisions. Overseas subsidiaries also clocked a good performance with large customers gained in the Americas and coated abrasives picking up in Russia.
EBIT margin grew 601bps to 16.8%--highest ever--as product mix was optimised and higher volumes resulted in better coverage of fixed costs, aided by cost control.
Sterling Abrasives (~50% subsidiary) has a strong outlook with its focus on agriculture and industrials; it should continue to do well.
The Russian subsidiary is mostly domestic-focused, which was impacted by the pandemic.
Management is bullish on super-abrasives and is focusing on products which complement each other.
Utilisation at the coated maker has been better than expected. The maker continues to ramp-up and company is supplementing the same with investments in complementary products on the conversion side.
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Q4FY21 conference call highlights
Management anticipates EBIT margin to be sustainable at 15.0-15.5%.
Sanguine outlook for the domestic abrasives market is owing to lower Chinese imports amid geopolitical tensions, stricter implementation of environmental norms in China, shipping delays on low container availability has augured well for domestic players. Tightening of the GST regime has improved the outlook further for domestic players.
Long-term outlook: Management is focusing on expanding distribution and product development (super-abrasives, a clutch of products in coated abrasives) for higher penetration in the user industry. It is venturing into adjacencies, viz. masking tapes, power tools, etc., to secure a bridgehead in major markets such as the US and Europe through technical partnerships. The PLI scheme is key positive with investments coming in as demand for products would improve. Over the long term, management expects coated abrasives to grow at 10–12% and bonded abrasives at 7–8%. Ceramics (25% of Q4FY21 sales) Revenue jumped 36% YoY, while EBIT margin contracted ~371bps YoY to 21.9%; however, volume growth led to 16% YoY EBIT growth. This was attributable to a favourable mix.
During the quarter, domestic demand remained strong in technical ceramics, while wear ceramics gained customers from repairs and maintenance. However, the weakness sustained in project orders. Project orders are due this year.
Technical ceramics had a strong quarter with demand across automotive and clean energy. Management continues to have a robust outlook for the same as high voltage transmission and alternative energy continue to do well. CUMI will continue to invest and create capacities in the same.
CUMI Australia suffered owing to geopolitical tensions and the impact on coal mining. The division is looking at other opportunities in mining across non- ferrous mining along with gold and iron ore.
Metz Cylinder (70% of engineered ceramics): Currently, CUMI is operating at full capacity and increasing production from ~1.7mn units/year to~2.2mn units/year, for which it has already invested INR150mn. Management anticipates delays in commissioning of this line. This new capacity is expected to contribute incremental INR400mn to sales. Further, it commissioned a pilot facility and is currently working with organizations such as ISRO to develop applications for the same. Demand for Metz cylinders improved in Q2FY21, and should continue to pick up in Q3FY21, as it caters to power generation and T&D sectors.
Management expects largest transformation in the ceramics division, with increased usage in aerospace, defence and electronics manufacturing industries, accentuated by newer products in wear ceramics and composites where the company is expanding.
Margins for the division are likely to be sustainable at 20%.
Long-term outlook: Leveraging cross-divisional competencies and domain expertise, the industrial ceramics division in a synergistic collaboration with electrominerals is working on new age technologies in powder processing and characterisation, molding, sintering, machining and other related processes.
CUMI is focusing on product development (thin ceramics – products for tape casting technology, composites) and efficiencies.
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Q4FY21 conference call highlights
Electrominerals (38% of Q4FY21 sales) Consolidated revenue grew 15% YoY as end-user industries picked up. EBIT margin expanded 179bps YoY with focus on cost control. As a result, EBIT grew 31% YoY.
Foskor Zirconia was the only loss-making subsidiary during the year however, turned around towards the end of the quarter.
The Russian subsidiary displayed strong growth during the quarter.
Silicon carbide division saw growth with demand reviving and is expected to be on a stronger footing hereon.
Fused alumina volumes remained strong as demand increased from refractories.
The company is investing in advanced materials like graphene and high performance graphite to ensure readiness for new opportunities.
Long-term outlook: CUMI’s vision is to be a co-creator of things that go into the experience world. Like materials for the batteries that will drive the EV revolution, silicon carbide for electronic applications, high surface area powders for 3D printing, etc—the possibilities are immense as management sees it.
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Q4FY21 conference call highlights
Grindwell Norton
Q4FY21 Revenue grew 39% YoY to INR5.1bn. Abrasives posted a jump of 38% YoY while ceramics & plastics surged ~45% YoY.
EBITDA margin continued to expand with growth of ~572bps YoY to 22.2%, its highest level, with focus on operating leverage. Hence, EBITDA surged 87% YoY, 42% above estimates.
In Q4FY21, EBIT margin expanded sharply in both segments – a jump of 654bps YoY in abrasives and 1,100bps YoY in C&P – driven by operating leverage.
Adjusted PAT shot up 92% YoY, 54% above estimates. FY21 FY21 sales grew 4% YoY on account of improving demand across end-users, primarily in metals, life sciences, automotives and exports. This was led by a gain in volumes and price hike of 2.5%.
By segment, abrasives was flat YoY, while ceramics & plastics recorded a spurt (up ~5.8% YoY) driven by life sciences and steel.
EBITDA jumped ~22.5% YoY with margin expanding ~304bps YoY to highest level of ~19.8% due to operating leverage benefits.
Led by structural improvement in product profile towards solution-based approach, the company expects the historic high margins to sustain.
In the wake of different forms of lockdown, stringent in states wherein the company has a presence, management expects some hit on overall economic activity over the coming quarter.
However management remains bullish over the medium to long-term owing to the growth-supportive budget with a push for infra spends & privatization, K shaped recovery, outperformance to the broad recovery index, and a geo- political shift in end-users towards domestic products. Lead Indicators strengthened over the last few months: record GST collection in April 2021, growing toll collections. Besides, private investments have rebounded with an improved pace of execution in Q1FY21. Higher auto sales with YoY growth since Sep 20 and PMI consolidating at higher level since Oct 20 are further positives.
Overall exports grew 14.1% YoY vs. ~1.2% growth in domestic sales.
Led by GWN’s manufacturing capability in advanced products, the company expects exports to grow structurally and improve presence with global excellence center.
The company generated a strong 270bps RoCE improvement to 23.3% (not adjusted for cash) with cash flow from operations at INR3.31bn versus INR3.18bn.
Cash & cash equivalents stood at INR6.5bn in FY21 versus INR4.3bn in FY20.
As per management, they have a strong opportunity in expanding distribution. They reached out digitally to distributors and supported their dealers and
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Q4FY21 conference call highlights
distributors during the pandemic with their strong cash position. This supported working capital management, which led to nil NPAs from distributors. Abrasives (~61% of sales) Abrasives registered ~1% YoY growth in FY21, post a 5% decline in FY20 and despite a 5% decline in overall markets. This was led by an improving product mix and pricing. Management claims its market share increased to 27% (from 26%) outperforming the market, which de-grew 5–8% across regions.
Currently, abrasives’ market size is INR30bn, and the company expects abrasive usage to grow at a steady rate.
GWN has outperformed the market, having grown at 2.4x versus 1.75x for the overall GDP over FY10–21.
Management is optimistic on abrasives driven by a geo-political shift and focus on Aatmanirbhar Bharat. GWN focuses on delivering cost-competitive and technologically-competitive products and solutions.
Management continues to focus on advanced products, which are being imported with additional investments made to ensure cost and quality competitiveness. Currently, GWN has a market share of 9–10% in these products.
The company generated a 12% EBIT margin for FY21, but a 16% margin in Q4FY21 in abrasives. Led by its solutions-based approach, the company expects EBIT margin to grow to 14–15% sustainably for full year. Ceramics & plastics (~36% of sales) The C&P division reported growth of ~6% YoY in FY21. The growth was led by refractories and plastics, while there was a decline in silicon carbide (SiC) scale.
GWN outperformed the market, having grown at 3.48x versus 1.75x for the overall GDP over FY10-21.
Indian Ceramics is also a priority area for government, with a reduction in steel imports.
The company believes C&P has potential to double in 3–4 years led by growth from exploring current market segments and adding adjacencies.
Management believes plastics and refractories to be high-growth businesses, and is seeing strong growth in the life sciences segment, as offerings are FDA- approved, accelerated by the current pandemic. Management maintains this business would be a priority with focus on growth along with strong operating margins sustaining.
Growth in life sciences is driven by technical products – new molecule with single use systems where GWN supplies silicon and thermoplastic tubings.
The company believes they have a strong right-to-win in refractories, supported by the upcycle in refractories, and new products in metals: oxidation, lining for steel, steel DRI foundries, digitally introducing products in induction furnaces.
According to management, they have the largest share in PPFE bearings in PVs, life sciences and thermoplastic silicon segments within performance plastics.
Management expects strong growth of ~20% p.a. in Performance plastics over the next few years led by auto and life sciences.
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Q4FY21 conference call highlights
Management is working on margins in the refractories business and should see them improve to at least the same levels as abrasives.
Margin expansion in C&P of 834bps to historic high levels of 23.6% was 60% led by life sciences and 40% by ceramics, which the company expects to sustain. Others Capex: In FY21, GWN incurred overall capex of ~INR500mn. If the impact of the second wave tempers, the company is hopeful of incurring its highest capex in last 7–8 years of INR1–1.1bn.
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Q4FY21 conference call highlights
Agri Inputs
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Q4FY21 conference call highlights
Coromandel International
Overall industry to remain buoyant Agri-sector a bright spot, expected to grow 3.5% YoY.
Record foodgrain production expected. Horticultural production expected at 325mn tonnes.
States supportive in rural. Increased agri credit, higher procurement.
INR650bn subsidy backlog clearance aided the industry cash flow.
DAP and complex sales down 10% YoY during Q4FY21. Farm consumption higher 15%. 4.65mn tonnes versus 4.04mn tonnes last year.
Raw material prices: The company plans to counter this somewhat via improved efficiency across plants. Fertilizer: Rise in input cost affected margins Q4FY21 fertiliser volumes were lower due to the annual turnaround taken by the company and also low intensity of the inventory push.
Industry has witnessed a sharp rise in phos-acid price, which are contracted at US$998/mt in Q1FY22 vs US$795/mt in Q4FY21.
DAP prices rose due to the increase in phos acid prices, which are likely to shift to SSP and complex fertilizers
DAP+Complex plant operated at 82% capacity (4.7% growth during FY21) while SSP at 0.67mn mt (17% growth).
Vizag plant-to improve Phos-acid requirements.
SSP capacity-good volume growth (0.67mn mt-0.72mn mt expected for FY22).
Phos-acid price increase is driven by rising agri commodity prices globally. A good season in Brazil, US, China, and India is fuelling demand and thus commodity prices at large are on an upswing. Crop protection margin under pressure on higher input cost Crop protection logged 24% YoY growth in revenue in FY21. However, in Q4FY21, margins were impacted due to rise in input cost.
The ramp-up in Bio pesticide sales continues.
Rising logistical cost and lack of container availability in exports market also pushed up cost.
Domestic formulation: 25% sales from newer products. Overall margins in crop protection at 16.7% were healthy due to better operating leverage as well as product mix.
Crop protection margins are likely to improve. Balance sheet: Significant reduction in working capital Current year, additional allocation of INR650bn subsidy helped the industry to clear its backlog. CRIN’s subsidy reduced to INR5.8bn in FY21 from INR23bn in FY20.
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Q4FY21 conference call highlights
Efficient management of raw material and lower inventory levels also reduced inventory cost and this helped in reducing working capital.
Focus on collections from trade helped reducing debtors to INR5.5bn from INR17.3bn in previous year.
Following a reduction in working capital and improved profitability, CRIN’s balance sheet is debt-free. The company reported net cash of INR7.7bn versus net debt of INR15.5bn in FY20.
Dividend: INR12/share.
Though FY21 marks a jump in net cash in the wake of working capital reduction, management believes a further reduction in FY22 is unlikely as rising raw material prices may push up working capital. However, on the subsidy front, the company remains confident of clearing all the dues.
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Q4FY21 conference call highlights
Dhanuka Agritech
Key highlights: Company has 3 manufacturing facilities, 40 warehouses, 14 branch offices, 6500 distributor and 80k retailers. Reach out to 10mn farmers
Despite lockdown, company running operation smoothly.
Dividend-INR 2/share.
FY21: North-25.84, East-11.1, West-31.75%, South-31.26%
Q4FY21: Insecticides-41.08%,Fungicide-17% Herbicide-29%, Others-12.39%
IMD prediction-Monsoon to remain normal.
Sowing of rice to be on more than 3.9mh hectare (16% growth). Kharif season: Soybean, pulses, oilseeds, rice to remain good crop prices.
Company has good pipeline of 9(3) products. One 9(3) Herbicide to get launched in Q2FY22, another product of 9(3)-Quarter 3.
In-licensed revenues-40% and has improved by 200bps in last 2-3 years. Share to remain in-line in coming years.
Distribution margin-20-25% on branded, 9(3)-margin a relatively higher.
Bio-pesticides-Bio nutrient/bio-fertilizer(marketed by Dhanuka). Bio-control- nascent stage in Indian markets.
Covid-situation in rural markets:-Off-season of agriculture.
Last year sales deferment: INR 100mn.
Fy22 expected to remain normal.
RM cost: Pass on full price hikes.
Soybean-acreage to increase (Dhanuka has good market)-Targa Super-done well- Oilseed, pulses, groundnut and soybean. Govt. plans to increase oilseed and pulses acreage. Company expects good traction.
Fy21: relationship with channel-reach out aggressively. Market share improved over FY21. Hope to perform better in FY22.
Expecting double digit growth over FY22.
There can be a decline in Q1FY22 numbers. But overall, company will grow in double digit due to 1) Good irrigation (monsoon), expansion of canal irrigation. 2) Commodity prices going up and expanding-Oilseeds and Pulses.
Receivable days:-big improvement-momentum maintain(expect similar days over FY22)
Price hikes taken mostly in generic molecules.
FY21: Price hikes 1%. Rest volumetric growth.
Govt. is going all out for supporting farmers. CCI, FCI helping farmers. DBT-cash flow improving for farmer. Opening E-NAM and weekly market benefiting farmers. Commodity prices-help farmers get better liquidity.
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Q4FY21 conference call highlights
Other expense: might see an increase.
Dahej
Dahej plant-Phase-1 to get completed FY22 end and phase II by FY23 end.
Not received any tie-ups with innovators. First setting up asset base.
FY22-23”: Formulation start. FY23-24: Technical production to start
MPP plant for insecticide would be dedicated for synthetic Pyrethroids. Weedicides plant also being planned.
Pyrethroids-molecules captive consumed by company. (40-50% captive consumption). 50% capacity to be used for supplying to other companies.
Capex: Overall for phase 1 and phase 2: INR 3bn
FY21:-22: INR 1.3bn. FY22-23: INR 1.3bn.
Putting technical plant –can cater to export market and will be utilized for captive consumption as well.
Revenue-INR 3.5bn(by FY25), EBITDA margins-12-15%
40-50% manufacture will be consumed in-house from Phase-1.
Q4FY21
Gross Margin-expecting similar margins despite spurt in RM prices. (1) Change in product mix (2) company pass on hikes
EBITDA-maintain margins over FY22
In-licencing molecules- Targa, Sakura, conika, luster, mortar, Caltan 4g, Liquid Cover.
New products
2-9(3), certain in-licensed products as well over FY22
2-9 (3) products to be launched in FY23.
ITI index: 10.5% in FY21. Expect to reach 12% in FY22
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Q4FY21 conference call highlights
PI Industries
Key highlights: Agrochemical demand remains robust with uptick in global agri cycle. Normal monsoon prediction in India also bodes well for the company.
Awkira (wheat herbicide) clocked impressive growth.
Zivagro grew 25% during Q4FY21.
Isagro growth remained at 51% during Q4FY21.
Gross cash flow remained strong at nearly INR 9bn.
Capex spent during FY21: INR 4.4bn.
Total dividend: INR5/share.
MPP plant capitalized (commissioned in H2FY21). INR4bn capex includes capex for it. Growth outlook PI delivered more than targeted guidance of 20% driven by CSM and domestic business.
Product pipeline in R&D and outlook strong across domestic and exports.
Cautious on current covid-19 situation. Serious situation in Gujarat, workers impacted due to covid-19. Plant development side impacted. Lockdown in Rajasthan where R&D center is located impacting the company’s operation.
PI making technological advancements in green chemistry products.
Customer profile: 30+ customers beyond Ag. Chem space.
Inorganic growth: Does not need debt for it. Evaluating selective options for asset base in India (exports-support global customer) . Gross margin Impacted due to changed product mix and reduction in export benefits.
Primarily reduction in gross margin on account of: (1) Product mix-domestic business is seasonal (1.25-1.3%)-Isagro product (low margin business). (2) MEIS- impacted gross margins by ~1.5%. (3) Impact of lower yield from new facility in Jambusar (initial hiccups in plant operation).
New products and issues in Jambusar streamlined, so won’t impact margin much going ahead.
Barring MEIS benefits- gross margins can come back to previous level.
EBITDA margin to remain at similar level as FY21.
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Q4FY21 conference call highlights
Domestic market
Rice production(104.3mn tonnes), cotton and soy to gain in acreage over FY22.
Target of introducing 5 new products. Mainly in horticulture. 3 insecticide, 1new 9(3), 1 bio-fungicide.
30-40% sales to come for products launched over last 3-4 years. CSM 5 new molecules were commissioned. New 4-5 molecules to get commissioned.
New MPP to be added in FY22.
Isagro capacity also to benefit CSM business.
Order book consists of existing as well as products to be launched.
5-7 molecules commercialized doesn’t imply long term contracts for same.
QIP
2nd wave impacted speed of inorganic activity.
At advanced stage : Evaluation part on deals. Expects something concrete to happen early next quarter.
Within the year, QIP money would be deployed.
Given covid-19 situation and challenges, acquiring asset outside India is not a priority.
Opportunity in pharma-sweet spot (in APIs-products which are imported). Differentiated position-manufacturing set up-leading position in space.
Opportunity-de-risk operations from Gujarat. Get near global customers. Capex Last two-three years has seen healthy capex.
Focus now to improve on fixed asset turnover ratio.
Inorganic acquisitions would be biggest capex. Pharma 20%-25% of revenue coming in next 3 years. Long term strategy-scale up at faster space.
Reasonable asset size to meet customer portfolio.
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Q4FY21 conference call highlights
Rallis India
Focused on delivering growth by strengthening product portfolio, augmenting distribution network and strengthening & leveraging brand power.
Consistent product launches -minimum 2 new products in 9(3) category (over coming years). Introduced 6 products in FY20 in house: 3 co-marketing: 3 introduced 4 products in FY21 In house: 3 Co-marketing: 1.
Scaling up / debottlenecking capacities of select key molecules: Doubled manufacturing capacities of Metribuzin, wherein Rallis commands ~20% market share (Global).
Expanded capacities of Hexaconazole (~50% global market share).
Capacity expansion of Pendimethalin (~18% global market share).
Working towards adding one new product during FY22.
Undertaking steps towards improving product mix: Exploring opportunities to register own products in key markets; received registration for Metribuzin in US.
Increase the share of formulation business in the product mix; received registration for Metribuzin formulation in the Brazilian market.
Renewed focus on developing Contract Manufacturing business: Appointed new business head to sharpen focus and scale up the business; creating a separate dedicated team for the business.
Aims to be part of an innovator’s supply chain in the form of exclusive business agreement for any AI or intermediate.
In early stage discussion with potential partners.
Reducing dependency on China: Backward integration of two key AI is to de-risk itself from supply disruptions.
Seed business: Focusing on addressing seasonality.
Focused on addressing seasonality aspect of the current portfolio and production challenges.
•Undertaking steps towards building a comprehensive portfolio by targeting rabi crops and expanding portfolio in vegetable segment. Few products launched in rabi maize (MM-9440, MM-9555).
Mustard building presence with in-licensed product; own product expected in a couple of years.
Vegetable portfolio rejuvenation by partnering with crop segment leaders.
Launched 4 new products during H1/9mFY21.
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Q4FY21 conference call highlights
Sharda Cropchem
Industry MNCs haven’t taken price hikes. Following in the footsteps of MNCs.
Price have remained steady.
Rising input costs tampered down. Availability is there. Price levels are normal and flat. Company highlights Raw material availability: China hasn’t been impacted. No disruption post Q4FY21 expected.
Volumes: 36.4%, forex: 5% , price mix impact: -17%
Growth driven by product mix, getting newer registrations. No adverse impact of lockdown around world.
New registration helped derive better margins.
Europe and Nafta growth engines.
Better sales realization and decline in RM cost helped improved gross margin.
NWC days at 86. Mainly driven by accounts payable (done advance payment).
Latam-political issues-exchange depreciating-payments are not regular.
Investing heavily in registrations. In LATAM laxity in rules and regulations. Margins get subdued in LATAM.
Process of investment in registration-more strict and have lot of uncertainty. Investment in registrations would be INR3bn. Expansion into newer markets remains key focus.
Volume growth
LATAM: (13%YoY growth) -0.57mn tones
EUROPE: 7mn tones during Q4FY21
NAFTA: (48.5% YoY) 6.2mn tones
ROW: (15.5% YoY) 0.9mn tones
Total: 14.61mn versus 10.8mn in Q4FY20
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Q4FY21 conference call highlights
UPL
FY21 results highlights UPL is ranked No.1 across 8 countries. It plans to become the no. 1 player in Chile during FY22.
The company’s focus remains on differentiated products through innovative technologies.
Revenue grew by 8% despite challenging conditions brought by covid-19. The growth was driven by launches, and cross-selling through Arysta platform.
Margins improved despite inflation and currency headwinds. Higher margin was aided by a favourable product mix along with cost synergies and pricing hikes during FY21.
UPL plans to improve and become a complete solutions provider for Rice and Cotton crops across India.
Differentiated product offerings: 29% versus 14% in FY16.
Innovation rate to grow to 22.8%. 80% pipeline towards high-margin differentiated segment.
NWC: 71 days (down by 9 days YoY)
Supply-chain: UPL is well-positioned to limit impact of supply chain disruption with backward integrated model. Supply chain-two ended challenges. Farmers across will over invest to get max. yield. Demand for FY22 to remain strong. RM price hikes to be passed on to farmers not a problem to farmers). Company is gaining market share through its business model. Highest margins in Industry.
R&D Spending:- 2.5% of overall turnover. R&D spending is focussed on Biocontrol and Bio-stimulants products.
Sustainability loan— Replace(500mn USD) acquisition loan. Additional 250mn USD, Total loan replaced: 750mn USD will reduction in interest costs by 30bps. Reduction of carbon footprint through drop in affluent discharge, water usage (additional 5bps reduction in Interest cost) Q4FY21 Q4FY21: Crop prices and spurt in demand. High margin differentiated + synergies helped deliver 30% YoY EBITDA growth.
Soybean-16.4$ per bushel, Corn 4.8$ per bushel. In these situations-farmers use best technology-to capture most value of Hectare. Demand to remain high due to good crop prices. Expect bio-stimulant to deliver good. Good price of commodities to lead to good volumetric growth. Latam Latam: Currency devaluation in Brazil. Gain market share driven by improved product mix in insecticide and fungicide resistance for Soybean in Brazil
Soybean resistant platform in Brazil:-Soybean accounts to 50% of Brazilian markets. UPL formed solution to address pain points of farmers in 2014. Launched Unizeb Gold, patented Unizeb glory, Tridium till FY20. Total Available market has grown from 0.8bn USD in 2014 to 2.2bn USD in 2022. Solutions in this
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Q4FY21 conference call highlights
platform such as Unizeb Glory and Fluarys have IP protection until 2034 and 2033 respectively and more patent applications are pending approval
Spectro- launched in 2017 in Brazil to control sucking pests in soybeans, which became a problem for farmers after the introduction of soybean GMO traits. Total market available 1.1bn USD
Brazil weather: In some regions-30 days without rain. Corn production may get impacted. Higher price of corn (8-9 years). Soybean growers harvested a very good season. Price of 60kg soybean> USD 30. Area to increase by 5%, Wheat and Cotton area to increase by 15-18% North America North America: Supply constraints over Q4FY21 impacted growth.
Dry condition in USA: US-rough weather (Soya prices up), California-dry weather for Soybean (relatively early for season). Europe Portfolio shifted towards new environmentally friendly products.
New products to grow market share. Keep investing to create demand for bio- solutions. Asia China: gaining market share.
Sustainability:- 20 R&D Facilities across globe with more than 2.5% revenue being spent on R&D Global tie-ups with FMC and Meiji FMC: to gain early acess.5bn USD opportunity. UPL to toll manufacture/ supply Chlorantraniliprole to FMC in India. 17 formulation concept in development.
Meiji: UPL exclusive access to Flupyrimin formulations for foliar application on Rice in several countries1 in Southeast Asia. Opportunity Size: USD 2.5bn. UPL will now have a complete portfolio for Rice in Asia and India, while also strengthening our Crop Establishment offering
FMC and Meiji Deal:- Imp. Agreement-Developing formulation for CPR, seed treatment. Develop new differentiated products. Channel Inventory Channel Inventory: India and North America: USA-lot of optimism despite supply chain issues. UPL leading the way with gain of market share.
India: Despite challenges from second wave of covid-19, inventory position in India UPL is nicely placed. Asia(Japan, China and SE Asia):- Best position with low channel inventory Guidance Target for increasing differentiated share to 50%(Rice, Cotton, Soybean) over next 3-4 years.
Net Debt/EBITDA< 2x during FY22
Outperformed peers across growth, EBITDA and PAT.
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Q4FY21 conference call highlights
USD 35mn-prepayment of debts
Revenue growth: 7-10%, EBITDA growth: 12-15%
Capex: USD 300-320mn
Expect Margins once reach differentiated share of 50% to reach 25% in next 3 years
Tax rate: 15-18%
Net debt reduction over FY22: Investment towards capex or inorganic activity. Surplus cash to repay debt/buyback. Net Debt to EBITDA: <2x.
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Q4FY21 conference call highlights
Automobiles
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Q4FY21 conference call highlights
Ashok Leyland
Key highlights EBITDA margin in Q4 was a result of efforts put in over the past few quarters. No one off in it. Gross margin at historic low level due to sharp commodity cost pressure.
Fleet utilisation improved in June 2021.
AL looking to invest in de-bottlenecking of capacities. Not looking for any brown or green field expansion.
In Q4FY21, M&HCV truck volumes grew 57% QoQ (53% industry growth) and 107% YoY. AL’s truck market share has increased to 28.9% in Q4FY21 from 27.6% in Q4FY20 and 28.1% n Q3FY21.
Growth in LCV was driven by demand in e-commerce and rural economy. LCV volume – 17,042 vs 8,067 in Q4, resulting in 112% YoY growth.
Bus volumes still subdued (7,500 units vs ~42,000 normally). As the economy opens up, bus demand should revive.
On a full year basis, LCV has grown by 4% to 46,671 vs 44,912 in FY20. LCV industry declined by 11.5%.
Exports grew 8% QoQ and 40% YoY. In Q3FY21 exports volumes stood at 2,941. On full year basis, exports declined by 10% (8,001 export volume vs 8,920 in FY20).
Commodity price increase was partially negated by price hikes in Q3 and Q4 and cost reduction measures. Pressure expected till H1FY22.
MHCV inventory stood at 1,243.
Capex for FY21 – INR6.21bn vs INR12.92bn in FY20. Investments are done in Phoenix programme and modular business programme.
Investment in FY21 at INR 3.68bn vs INR4.47bn in FY20.
Net debt at INR26.07bn – net gearing of 0.37x vs 0.28 last year and 0.43x last quarter. Outlook: Healthy recovery in H2FY21.
Rural sentiments likely to be subdued after second wave. But, good monsoon coupled with focused government policies likely to support household cash flows and therefor sentiments.
During FY22, expects QoQ recovery. Most segments (buses, MHCV, LCV) continue to report growth YoY.
Lot of government spending on infrastructure, construction should drive demand in the M&HCV segment.
Last mile connectivity demand propelled by e-commerce is likely to support LCV truck volume.
Passenger vehicles were impacted due to shutting of schools, offices, etc.
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Q4FY21 conference call highlights
As markets open, coupled with favourable government initiatives and social distancing as a new norm should drive demand in passenger segment. Commodity Steel, aluminum and copper prices are expected to remain high for a few months before a possible softening in H2FY22.
Monitoring availability of electronic control units and in close touch with suppliers.
Price hikes along with focus on digital initiatives to reduce cost will help negate price increase.
Emerging businesses such as EV and customer solution businesses (CSB) complementing core business. EV and green mobility: Created EV only entity named SWITCH mobility.
It brings together AL’s capabilities from UK and EV division in India.
Combined Indian and British design and technology with frugal engineering aim to create unique products for global customers.
Plan to create another company which will provide mobility as a service to end customers for EVs.
Working on product designs and development on EVs.
AL makes EV buses – already delivered to Ahmedabad, and recently started in Patna. Margin Gross margin at multi-quarter low despite good product mix - mainly due to steep increase in steel prices.
Operating margin – no one-offs in it. It is a result of past 4 quarters’ efforts. Strategy on saving cost is playing out.
Other part of non-M&HCV did very well. LCV, after market, power solution even exports started to recover in Q4.
Continues to increase penetration across markets in M&HCV.
Three pronged strategy to improve margins: 1) focus on improving market share across markets; 2) trying to use alternate parts, looking at alternate designs to reduce cost by changing mix etc; and 3) overhead control. LCV: LCV is now a very critical business.
DOST and BADA DOST helping improve revenues and margins.
BADA DOST has received CV of the year award.
More launches expected in BADA DOST range as there are more slots to fill-in in this category.
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Q4FY21 conference call highlights
Export market In case of LCVs – it is easy to launch a product. As radius of service is less and network can be established easily. Once brand is established then can extend to ICV and M&HCV.
AL is more equipped from international perspective now as it has a good range of right as well as left hand side drive portfolio.
Continues to appoint prominent distributors in Africa and Middle East.
Placed 6 or 7 strategic large distributors in clusters of Africa and Middle East.
Launched GAZAL and FALCON in Middle East on partnered platform; product is doing very well. Continues to strengthen positioning in Middle East.
Distributors are strong big houses from these countries. They are distributors of automobiles or diversified companies. They will have a separate team for AL’s products. Capex: FY22- ~INR7.5bn.
AL looking to invest in de-bottlenecking of capacities. Not looking for any brown or green field expansion.
Subsidiary - INR2.0-2.5bn investment vs INR3.5bn last year depending on situation. Some of this may go for capital adequacy in HFL. Industry discounting: Discounting levels are quite high.
AL is giving other benefits such as extended warranties.
Discounts are higher than a couple of quarters back.
Focus is on earn share not to buy share.
Giving discount is not a sustainable solution. AL’s focus is on delivering value. Hinduja Leyland Finance (HLF) Fleet utilisation is high in June than May.
April collections at 90%.
Net NPA at 2%. INR2bn of provisions in FY21.
Collection efficiency continue to improve in the M&HCV segment.
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Q4FY21 conference call highlights
Bajaj Auto
Key highlights Focus on premiumisation continues to remain key the key pillar of strategy for India as well as exports.
125cc+ motorcycle contribution has increased from 46% in FY20 to 60% in 4QFY21, while share of pulsar 125cc is up from 7% in FY20 to 19% in Q4FY21.
Domestic demand outlook remains hazy. Interesting to note that bottom of the pyramid demand is more affected, while demand for upper end of products is intact.
Exports – expects FY22 to be one of the best years.
Domestic 3W had started to return to normalcy before wave 2 emerged. In March 2021, road traffic was 85% of normal.
Expects introduction of new platform in next 6 months. Also there exists white space in the 125cc segment as Pulsar 125cc cannot capture all the opportunities.
EV 2W – current focus is to develop best capabilities so that it can enter the segment when the time is right. Will sell EV products to the extent it is necessary to develop capabilities. Is working with KTM on high-end motorcycles as well as with Yolo for low powered scooters.
Strategy was to capture demand recovery especially exports. Demand Outlook Domestic motorcycle can reach FY20 levels in FY22. Last 4 years industry has seen some or other disruption – on costs as well as demand. Industry needs some non disruptive time to come back. Underlying drivers have been in place.
Clear focus on premiumisation with the segment as well shift demand from 100- 110cc to 125cc. Similarly, there is clear focus on entering 250cc segment. Encouraged by the strong response to Pulsar 125cc motorcycle.
Domestic 3W - underlying drivers were normalising just before wave 2 emerged.
Exports – expects to have one of the best years.
Rural growth driver in end of June and July in FY21 – otherwise it was across country, except for metros. Towards the end, rural agrarian demand was not doing well, but rural town was doing well. Better monsoon expected – hence demand trend should be similar to last year. Domestic motorcycle mix Share of 125cc+ has risen from 46% in FY20 to 60% in Q4FY21.
Pulsar 125cc market share improved from 7% in FY20 to 19% in Q4FY21.
125cc segment expanded by 4%.
Launched 3 upgrade variants – Platina 110 Ex, electric start options in entry and Pulsar 125NS .
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Q4FY21 conference call highlights
Domestic 3W It has 3 segments – small passenger – large passenger (used in smaller town) and cargo segment.
Bajaj has 85 market share (MS) in small passenger segment. In large passenger MS is 48% in Q4, ahead by 12% against its competitor. In cargo gained 6% MS gain – now 34%. Export business Volumes 200k per month in Q4 with Jan21 saw highest ever sales.
As a result breached 2mn unit sales in FY21.
In exports – Premium and Dominar have moved up from 13% to 16% in FY21.
80% of revenue from market where the company is No 1 or 2. 77% of revenue countries where Bajaj is no 1. This has been a key monitoring factor since 5 years as it indicate pricing power and ability to manage headwinds. Margin trajectory ex of RM here on It can only go up.
CV will recover from Q4.
Depreciating INR.
RODEP will come and bring in some benefits. Commodity cost pressure Between Q4FY21 and Q1FY22 cost increase is 7%.
Price hike in Q4 was 2% and another 1.5% in Q1FY21.
Commodity pressure should peak out soon as it cannot keep on rising. RODEP It will be launched, as per understanding via industry body.
Whether it will offset MEIS completely – not sure KTM Exports been doing well.
Not able to service full demand due to semi-conductor shortage. Falling short by 15%.
KTM profitability
o Steady state profit.
o Q1 it was loss, for full year it is same as FY20. Chetak and EV strategy Aims to touch 1,000 unit of deliveries.
Capacity is restricted by availability of imports.
Pricing – started with 100k and now up almost 40%.
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Q4FY21 conference call highlights
The issue is not charging infra. There are adequate entrepreneurs who will set up the business
Fundamental thing is when will battery cost fall?
BJAUT is aiming to have the capability ready. Cannot wait till battery costs come down. Lot depends on battery cost which depends on supply coming on stream.
Issue is demand-supply mismatch for batteries and its RM. Companies in 4W space globally in place large contracts for future.
Battery cell tech companies do not want to be caught on wrong side due to evolving chemistry and tech.
Demand has to match supply.
It may take 3 to 5 years for inflection point for domestic 2W EV story to reach inflection point as per few experts – not a BJAUT view.
o 3W
o Electric 3W – business case like to like not that strong. If there is regulatory support than matter is different
o Primary objective is to be at the forefront on development side, but not necessarily to sell it all out.
o Wants to be most capable 3W manufacturing; will do business that is need to de develop this skill set.
o Current E3W market is in lead acid battery. It is a substandard solution. It mushroomed due to artificial restriction on ICE 3W (permits) and need for mobility exploded. The product is not necessarily is good. Most of vehicles are imports from China.
o In China entire lead acid battery has gone into doldrums.
Kodak moment for ICE players
o Unlikely to happen as all are educated to understand the risk of myopic view.
o Tesla has also educated
o Start up do not have a biz, hence they have to make noise and take bet
o Old-line guys have a business model and will work on developing capabilities till inflection point is reached. Others Exports – Revenue at INR39.9bn
Spares – INR10.9bn
USD INR: 72.9 in Q4 vs 73.6 in Q3
Spare growth – there was back log – hence there is a catch up. For full year there is a marginal decline.
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Q4FY21 conference call highlights
CEAT
Key highlights
In Q4FY21, volume growth was flat QoQ. OEM share was higher as mix is normalizing. In H1, mix was skewed towards replacement. It started to normalise in Q3 itself and the trend continued
Demand uncertainty has resurfaced due the second covid wave given localised lockdown. Retail shops are not open.
Market share – Stable in 2W and CVs. A 4–5% jump in PCR to 14–15% over the last one year. The mix has also premiumised as it has been supplying higher inch tyres.
Capex – Project capex of INR10bn-plus maintenance capex of INR1.5bn for FY22. Capex in FY21 was INR4.7bn.
IN the quarter, the company supplied to Renault Kiger and Royal Enfield Interceptor 650cc.
Gross and EBITDA margin
Commodity basket up 8-10% QoQ in Q4FY21, leading to 360bps QoQ downtick in gross margin, which percolated to EBITDA margin also.
Took a 3% hike in Q4 in replacement and a slightly higher at the aggregate level.
For OEM, RM inflation is indexed, but works with a quarter’s lag.
Expect another 10% QoQ increase in RM basket – necessitating ~6% increase.
Outlook on margin – difficult to guide.
Market mix has moved towards OEM – expect the trend to continue in the near term.
Need to manage costs better.
If finished goods’ share in inventory is higher, margins will be higher and vice versa – the impact indicated above is business impact, and not accounting impact.
Took a 1% hike in March, but no hike in April.
Staff cost and other expenses increased due to addition of capacity.
Capacity utilisation and addition
Operating at optimum utilisation
Triggered the next phase of expansion at Chennai; now setting up 190TPD TBR or 90K tyres a month – over four years – funded via debt and equity.
o Capacity addition is ~40% of existing. o The TBR segment is ripe for growth given low volumes over the last few years. o CEAT not focusing on trucks in last so many years. Started churning out good quality trucks, which gives confidence.
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Q4FY21 conference call highlights
o Current MS TBR is high single digit. Scope for potential given the overall brand equity. o Focus on replacement. o Exports is also interesting given the global geo political tensions among major countries. Q4 utilization was close to 100% but company is going for expansion. For example, Chennai PCR capacity is 30K a day (20K – phase 1, 10K phase 2). Currently doing 10K – expanding it further by another 10K.
2W also, spare capacity is available.
Peak revenue potential – clocked INR22bn in Q4, so can reach INR90bn. Over and above this , TBR and PCR can generate another INR10bn over next 12 months
Specialty tyres
At full utilisaiton
Industry has done well; CEAT is also doing better
Product review is good
Capacity going up from 33TPD to 45TPD – capex already incurred
Balance 55 TPD expansion to take place over next 12 months
R&D
Filed 100 patents in FY21
IPL expenses
Payment made in advance. Cost apportioned on a per match basis. In case a event is cancelled, the balance amount will be refunded
ESG
The aim is to reduce carbon footprint by 50% over the next few years.
Social – diversity, education, social impact via CSR
Governance – always been a priority
OEM: Replacement ratio in FY22
FY21 skewed towards replacement
Started to normalise from Q3
Mix will be normal in FY22 – ~60% replacement, 10–12% exports
For industry OE share in PCR is 45%, in TBR it is 15%
Working capital
Payable days have jumped to 90 days over two years, expect it to stay so.
When normalcy returns, expect inventory to increase by ~INR1.5bn.
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Q4FY21 conference call highlights
Strategy
No change in strategy – Focus on passenger segments. Expect PV+2W+Speciality tyre to be about 60%.
TBR helps in scale.
Have strong hurdle rates – Worked towards maximizing RoCE in trucks and it will be visible as and when more premium products in TBR gain acceptance.
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Q4FY21 conference call highlights
Eicher Motors
Highlights 1HFY22 is expected to remain soft. June end or July early things should gain momentum. RE has a backlog of demand of 2-3 months across several products. Reiterates its plan to launch 1 model/qtr (some delay due to COVID). Expects to launch highest number of models in RE’s history. There are some very big models coming in. Models are ready, waiting for clear visibility around supply chain. Can make 80k a month if demand bounces back, subject to supply chain issues. Strong order book for Meteor. Export markets are doing well led by demand across geographies and launch of Meteor. VECV gained MS across segments. Achieved 7% MS in HD. This was despite lower discounts and improving margins. Commodity increase (rodium 10x in last one year) has put some pressure on margins. RE has taken price hike of INR12k in FY21 (couple of increase in Jan and March). RE had taken 3-8% price hikes across models in Jan. Another price hike was done in April. Meteor – launched in US, Asia, now in Latam. INR500mn one-off in consolidated accounts, of which INR250mn in standalone. MIY: All 2,000+ stores are now MiY. Large portfolio is now moving to MiY. Penetration of MiY is now at higher than 8%. Added advantage is increase in penetration in accessories market (70% now vs 30-40%). Launched Himalayan as a refreshed version with new colors with a host of upgrades and triple navigation. As well as launched new colors on 650 twins. With the launch of MiY, introduced 9 new colors in Interceptor and Continental. Share of online enquires has increased 2.5x while the share of online bookings have gone over 5x. Production ramp-up/supply challenges RE can easily reach 80k /month once supply issues resolves. Can achieve 100k/month mark in FY22. For Meteor, increased capacity to 15k from 8–10k Three types of supply constraints: i) chip shortages; ii) lockdowns in Pune and Delhi belt affecting supplies; iii) lockdown from TN (some of its vendors are not able to operate. Improved supply chain in last one year : Created alternate sources and brought vulnerable suppliers closer to RE Precious metals Consumption is 30-35pc more than a normal bike. This is due to Rodhium – price is up 10x in a year; expects this trend to continue in Q4. Worked on to reduce rodhium consumption by 66%.
If looked at consumption on per cc basis, today it is global benchmark.
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Q4FY21 conference call highlights
Store expansion Focus is on international expansion now Large store count in India at 1056 (vs 950 a year back) and studio nil to 1,000 now in a short span. Twins Continues to win awards 650cc lower volumes in India in Q4 was due to higher exports to US and EU during winter month. This is due to seasonality in demand. Domestic demand is strong. It is in top 10 models in developed markets. >500cc has grown in India even in terms of %, largely due to RE - 2/3rd market share. Will grow it same way as did with 350cc. VECV VECV has increased MS and margins HD much smaller player but grow well Sales: In Q4 18.2k (trucks and buses) up 56% yoy. For Full year down 15%. Better than industry 30% decline. Gained export market share Gained market share across all segments: in LMD: from 29.8% to 30.6%. in HD from5.9% to 7.9%. in bus segment from 14.9% to 19.9%. Gained market share led by successful introduction of BSVI.
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Q4FY21 conference call highlights
Hero MotoCorp
Gained 140bps market share (MS) in FY21 after a long time driven by scooters where MS has now reached 10%. Held on to MS in urban areas.
Drop in MS in Q4 – it is an aberration. There will be quarterly variation. 125cc segment has seen sequential gain. HMCL has 2 offerings – Super splendor and Glamor. Glamor facing competitive issues. Has received feedback on BS6 Glamor and working on it.
Margin: Has been able to hold on to gross margin due to commodity pressure. This is driven by benefit of LEAP programme as well as price hike. Most of the commodity pressure is behind, unless there is further spike.
Spare part sales have reached up to 10% of sales driven by concise strategy. Aiming for it to reach 12%.
Demand outlook is uncertain due to covid Wave 2. Hoping that demand normalizes from Q2 as underlying drivers like crop output, prediction of normal monsoon, etc., are in place.
EV: Three-pronged strategy–own development, Ather and tie-up with Gogoro. It is exploring fixed charging and swappable battery model.
Looking to launch an EV in CY22.
Exports have reached annualized run rate of 300K. Hoping to scale them up further as has entered Mexico and Nigeria. In Columbia, MS has risen from 4% to 6%.
Spares Revenue of INR10.5bn, Q3 – INR10.3bn, reached 10% of sales; aiming 12% of revenue.
FY21 – INR31bn.
Increase in spares revenue due to strategy devised in specific areas – captive market (dealerships) and after market.
Running a programme NPS16 to raise consumer satisfaction.
Micro distribution of service is also driving spares revenue.
After-market: Three years ago stockist distribution approach; now has gone to micro market level – 100K technician on board – number of technicians who deal with HMCL has doubled.
70% market penetration; 30% still remains.
Dividend INR105/share – INR90 is normal and INR15 is special.
Outlook Covid wave 2 is creating uncertainty.
Outlook remain positive – monsoon, agri GDP, liquidity.
Commodity cost inflation will continue for a couple of quarters.
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Q4FY21 conference call highlights
HMCL will continue to focus on making strides in premium, exports, etc.
Growth drivers are in place and as they take shape should help generate volumes.
Commodity inflation FY21 was 7%, price increase 3%, Leap saving 4%.
Hoping that supply of commodity comes on stream and hence prices start to cool.
Some inflation likely in FY22.
Q4FY21 - Cost impact is 4% on per unit basis after Leap savings of 5%, adjusted for mix – net inflation is 2.0-2.5%.
FY22E - full year impact of 4% as large part has already come – partly through price increase partly thru Leap.
EV strategy Current system is more on fixed charging system.
Gogoro works on swapping; hence the JV with Gogoro should help. It is complementary as can offer customers what they want. From technology perspective Gogoro will enhance the learning curve.
Business model with Gogoro is being worked out; post that details of investment will be finalized.
Focusing on all types of EVs between own development, Ather and Gogoro.
Time line of EV launch is CY22; hoping to launch one before end of FY22. Lot of action on EV front in CY22.
Start up and its impact: When a new category emerges, initially a lot new players will come; it helps the ecosystem to develop; eventually it will lead to consolidation. EV is not just software and app play, but covers the entire eco system.
Harley Davidson Acting as a distributor for Harley’s existing model. It purchases vehicles from HD and sells them to dealers.
The real focus is on middle-weight segment–developing a bike under HD and HMCL name; teams have already started work.
Raw material cost savings Base reset due to BS6 –hence opportunity emerges – if BSIV – not possible to deliver such sharp cost reduction in 1 year.
During the transition, the focus was to ensure product is robust.
Precious metal – rhodium, platinum and palladium – contributed 60-70% of savings.
Developed capabilities to alter the mix based on price movements of each of them. Flexible combination has helped.
Precious metal prices are up 100-150%.
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Q4FY21 conference call highlights
Exports Reaching 300K, extrapolating Q4.
Can be higher as multiple launches planned –Mexico demand is opening. Columbia MS was stuck at 4%; is now at 6%. It is ~0.5mn market.
Demand vs price increase Post BSVI price increase is 20%.
Not correct to combine all.
BSVI price hike is 15% but there is value to customer, which is communicated well.
Better financing solution has also been offered to consumers.
Covid Much more challenging time versus phase 1.
From Q2 expects fundamentals to revive.
Other operating revenue Q421 – INR2.1bn , Q3 – INR1.9bn, Q4FY20 -1.4bn
Capex FY21 – INR6bn, not guiding for FY22 as of now.
Financing
48% in Q4, Hero Fincorp at 40%.
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Q4FY21 conference call highlights
Mahindra and Mahindra
Aiming for 15% to 20% revenue growth over nest 5 years. This is more of a direction rather than guidance. Growth drivers will be auto – low base and international auto and far business. Given the consolidation phase is behind, they will start pursuing growth also.
Robust cash flow, INR35bn is due to working capital release, and unlikely to repeat.
Demand buoyancy continued in the Auto and Tractor segment in Q4FY21.
In automotive business, reduced fixed cost by INR9bn in last three years.
Tractor volumes grew by 58% YoY on the back of a robust rural story. Intuitively, high reservoir levels and strong rural momentum should ensure FY22 demand is stable. Expects Tractor sector to grow 7-8% CAGR over next 3-5 years.
Strong new (including major upgrade) product pipeline by 2026: 1) SUVs – 9; 2) LCVs – 14.
Continue to see strong bookings in SUVs.
o Thar – 5-7k per month – waiting period 10 months.
o XUV300- 6k per month – 48% for petrol.
o Bolero- 10k per month
XUV700 launch – couple of weeks of delay due to lockdown.
Capital allocation decisions are almost complete; so the company will soon be able to turn its focus on driving growth. Clarity shared on the categorisation of key subsidiaries in A, B, and C category in the presentation.
Core capex spend for next three years will be INR120bn (starting FY22) versus INR90bn guided earlier. INR30bn increase is due to spend towards EV. M&M also guided for INR5bn of investments – INR15bn in auto and farm subsidieries and balance in group companies. The funding in group companies will be via dividend and other monitisation of assets. Focus on 18% ROE for investment stays. Subsidiary classification and capital allocation On a consolidated level, losses from international subsidiaries have reduced from INR34,290mn in FY20, to INR23,580mn in FY21 and expects INR3,000mn in FY22. By FY23, these subsidiaries will be profit making and hence move towards growth trajectory.
Category A – have a clear path to 18% RoE (MAgNA, Peugeot Motorcycles, Erkunt).
Category B – no clear path to RoE, but are a clear strategic benefit (Mitsubishi, Sampo Rosenlew, Hisarlar).
Category C – No clear path to 18% RoE and no strategic benefit. So M&M will exit from these (SYMC, GippsAero, GenZe, MFCS).
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Q4FY21 conference call highlights
MANA, Automobili Pininfarina are currently sitting between Category A and B as M&M is still deciding their status. It shall communicate the same in due course.
During Q4FY21, Erkunt and Hisarlal has been categorized.
For all these companies, M&M has set a six-month milestones to regularly monitor their progress. Supply Constraints Affected twice – BSVI and now- mainly due to reliance on single supplier.
Chips 3 types of issue - 1) ECU, which comes in engine; 2) Airbags and 3) ABS.
Affected by engine ECU most.
Have prioritized products due to supply shortages (given preference to Thar, XUV300, etc).
Expects things to improve from July, August.
Many learnings from last year– like picking it up early signal of supply. Putting fundamental processes and systems. Tracking global supply demand trend so that can stock in advance. Capital allocation 3 categorization complete.
International farm and auto business PAT loss will be ~INR3bn in FY22. And expect it to breakeven in FY23.
Key farm subsidiaries – many has broken even, Magna losses have reduced (expect good performance going ahead). Shut down GENZe.
Auto – Pininfarina – Battista (launch in early 2022) will drive performance; MANA turnaround delayed due to Covid Farm equipment K2 platform – 4 geographies, 4 platforms 37 models by 2025.
Farm equipment – looking for in-house manufacturing; saw 45% growth
FES global business – from consolidation to growth.
Capex
Total INR120bn – 1) INR60bn auto; 2) INR30bn for EV, and; balance INR30bn for tractors. And investment of INR50bn over F22-F24.
Earlier had INR150bn for prior 3 years and then it was INR90bn for next 3 years, this is increased by 3k for EV
Investment requirement was never given. It is far lower than what it was in the past
INR50bn Investment - in auto and farm subs – RS15bn – group companies INR35bn (to create USD6bn value)
Investment in group companies will come from dividend and other income stream from group companies.
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Q4FY21 conference call highlights
Tracking ROE and profit growth.
EV – talks around partnership as it is essential.
These are directional numbers, if returns are not there, investment will not happen.
Do not expect negative FCF, may be closer to neutral.
Also the ford JV investment is going into EV.
EV investment is primary to product portfolio.
Planning EV version of XUV700 and XUV300. Tractor outlook for FY22
Low single-digit for industry, aiming to gain MS as lost last year due to supply chain.
Rural is more affected but are seeing change in sentiment in last few days. Tractor buying has started to pick up.
Room for 8% CAGR exists.
Looking at adding capacities in Swaraj. Auto fixed cost (FC) reduction of INR9bn
Driven by 1) manufacturing fixed expenses ~40%; 2) Sales and marketing ~70% and; 3) G&A expenses by ~30%.
Sales and MC – FC are brand spend, travel, conferences etc.
Combination of covid and digital evolution – many will stay.
When product proposition right – no such spend required.
Negligible spend in Thar marketing – did not run a mass media commercial on Thar, though it was ready. Tractor implements
Aim is to deliver strong double digit growth.
Three broad categories: 1) Commodities – for eg Cultivators – where right cost sheet matters; 2) evolved category like Rotavators, Harvestors 3) Pioneering products- rice transplanters. For instance in China where the rice output is less than India, annual size is 100K units, whereas in India annual demand is 3K units.
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Q4FY21 conference call highlights
Maruti Suzuki
Key highlights
Demand momentum continues. Outstanding order book at 200k units and inventory at dealer end is suboptimal at ~85K versus normal inventory of ~135K.
If covid wave 2 extends, it can impact demand in the near term. Locations where lockdowns have been imposed account for 35% of total demand.
There was a rise in need of personal mobility, leading to higher share of first-time buyers.
Commodity cost impact is 300bps QoQ. The pressure of commodity cost is not yet fully reflected.
H1FY22 margin could be volatile.
CNG sales remain strong--up 50% YoY; now account for 12%.
Q4FY21
o Discounts at INR16.6k.
o MTM loss on treasury income led to sharp dip in Q4 other income.
o Commodity impact QoQ 3% and YoY 4% .
Demand and customer mix
Demand outlook is good.
Rural grew 7% FY21. Drivers in place – good rabi season, monsoon outlook is normal.
Q4FY21 – urban demand did see a comeback.
Share of rural was up 2.5% to 41% in FY21.
Share of first-time buyers rose 3.5% to 46.9%.
Additional car buyers’ share also went up.
Replacement customer share dipped 7% to 19.5%.
Salaried class customer share rose to 46%. It is still lower than 47% clocked in FY18. 10 years ago it was 47%.
Business class customer share is down 5% to 28%.
City wise breakdown: Top 10 cities – 34.9%; 10 to 20 – 12.2%; 20-40 – 14.3%.
Market share trends
Overall market share around 50%.
Ex of SUV, market share is at 64%. SUV remains the drag.
In entry SUV, MSIL is leader with Brezza, though not at 50%.
In mid SUV which is 40% of the market, MSIL’s offering S Cross is posting sub- optimal volumes.
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Q4FY21 conference call highlights
Price hikes
Q4 saw effective price increase of ~0.8%.
Took a price hike of ~1.25% in April.
Decision to take price hike is not a perfect science. It’s a function of volumes versus profit optimisation. Also, different segments of the market will have different elasticity to absorb prices.
Supply chain
Operating at full capacity.
No major issue as of now.
Chip shortage is a dynamic situation; managed well till now.
Margin outlook
Outlook volatile for H1FY22.
Depends on volume outlook and operating leverage.
Commodity onslaught has not stopped, still seeing QoQ increase. The impact for MSIL comes with a quarter lag. Q1FY22 will see impact of rise in Q4FY21. Steel, rhodium and palladium are still seeing uptick.
Gujarat plant 3 phase also starting. Hence, utilisation of that plant is also critical.
Electric Vehicles in India
Despite all the efforts by various industry participants, penetration is low.
Fundamentals need to be addressed – localisation of parts is important.
Suzuki is working on a battery plant.
Toyota partnership
Selling around 6k units a month now.
Partnership working well in exports in Africa and some more regions.
Others
Retail market share is slightly less than 50%. If sales to Toyota considered than closer to 51%.
Average discount in Q4: INR16,600 per vehicle
Exports revenue in Q4--INR17,450 mn
Re- entry in diesel segment
o Regulatory roadmap for diesel is tough and uneconomical.
o RDE followed by conformity factors that are becoming more stringent.
o Hence evaluating the situation.
Volume contribution by digital medium was 8%; expects it to rise– irreversible trend.
Retail sales for Q4 – 419K.
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Q4FY21 conference call highlights
Minda Corporatieon
Won business for I-cube (EV of TVS Motor). Life time order win of INR10bn. Tie up with Israel-based company for ADAS in 2W. Start of production at new Gujarat plant for interior plastic. Adverse raw material indexation affecting performance. Mechatronics in after market division. o Q4FY21 margin at 14.3% due to higher after market and exports. Inter-connected system o Margin at 7.2% due to BS6 and commodity inflation. Scope to improve margin with localisation. WC at 46 days due to higher inventory of imported material and chips. Order wins o Q4FY21 – INR10bn; new business at INR7bn, balance replacement. o FY21 – INR 67bn; new business win INR25bn, balance replacement. Margin and ROCE o Aim is to achieve 12% margin in FY22 and continue to improve after that. o ROCE aim is to ensure 20%+; ROCE in H2FY21 was 24%. Growth drivers o Exports and after market – key area of focus. o Deepen relationship with existing customers . o Looking to add new products. Wire harness margin improvement drivers o Productivity improvement . o Commodity stabilisation – copper is impacting – 200bps impact in Q4; managed by labour productivity improvement ~100bps and other VAVE efforts. o Localisation of content – post BS6 transition – import content has gone up. o Working for back-to-back indexation. Currently the lag is of 3 to 6 months. New generation components – advantage that company has over its peers: o New components are in those space where MCL already has presence. SMIT – Spark Minda Innovation and Training Centre. o Advance electronic – one of its kind – among peers. o 350 engineers focusing on new tech. o Spending 2% on R&D. o If needed spend can stepped up, but as of now 2%. PLI scheme
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Q4FY21 conference call highlights
o MCL qualifies for PLI. o It will help in export generation. o Speaking with JV partners also to localise components. Q1 outlook is challenging as 60-70% of retail outlets are under lockdown. o Most plants are working due to export orders. Security and Safety Systems (locks) – MCL has >35% share. o Opportunity for premiumisation. o Q4FY21 - INR2.4bn up 36%; FY21 – up 2-3%. Aluminium die casting o Grown in past few quarters – fastest growing area. o FY21 revenue at INR4.3bn; domestic will be ~60%. o EBITDA is high, but capital intensive business. o Export die casting will double in 3 years from current level of around INR1.1bn. o Need to select the right business due to high capital intensive nature of business. o Q4FF21 exports at INR420mn vs INR230m YOY . o Focusing on turbocharger and housing . o Utilisation at 92%. Capacity utilisation in Q4 o Die casting – 90% o 2W locks – 70-75% o Wiring harness – 80% o Starter motor – 100% o Challenge is on semi conductor shortages leading to fluctuation in customer requirements. o Utilisation lower by 15-20% due to semiconductor shortages. o Focus is on generate higher revenue from existing space and utilisation. Capex of INR1.2bn – 50% is sustenance. Balance is for brownfield in die casting. JV ROCE o Concern is primarily on VAST – focus is on order booking and cost reduction – invested in paint shop – for outdoor handles, etc. Surplus cash on books o Clear not to invest in manufacturing plant in EU – learning from past. o Can look at tech centre in EU. o In India looking at opportunity. o Realises that surplus cash is depressing ROCE.
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Q4FY21 conference call highlights
Motherson Sumi Systems
Highlights The performance of group is sustainable and growing demand is not an issue, hiccups are from supply side (chip shortages, container issue etc)
Copper is one of the main raw material – prices of it has gone up sharply. PKC is relatively more impacted due to raw material comprises higher share of copper. And, there is lag of 3-6 months for contract re-negotiation.
OEMs has not delayed any orders. Launches from OEMs end are on track. It expects chip shortage issue to resolve in this quarter.
Progress on greenfield plant is good. On track to breakeven on PBT level
Reorganization is expected to complete by sep-oct of this year.
Continuously evaluating inorganic opportunity – but due to travel restrictions not materialized any. Conducting management level meetings with potential targets.
~25% of order book is from EVs.
Order cancellations are rare, company gets huge compensation in case of cancellations.
It expects no major impact on consolidated gross margins in coming quarters due commodity inflation as MSS expects pants to become operationally more efficient. MSS follows “cut cost at any cost” and pass on costs to clients.
Car makers are struggling to produce cars mainly because of supply chain issues (chip shortages, container issue). There is no problem from demand side.
Net debt has come down but relatively interest cost didn’t due to 1) Interest rates were very low (borrowed in EU) and 2) INR has depreciated.
India business impacted less due to commodity price increase owning to better product mix, less content of copper in car vs trucks (PKC) and better renegotiation terms.
Tax rates: effort is to normalize going forward. Expects normalized tax rates to be in the range of 20-25%
EV: Working very closely with OEMs to understand their requirement.
EV contributes now ~25% of order book
Not started production of any EV contract, there is a gap of 1-2 years between signing a contract to start production.
Most of the parts in EVs are same as ICE – but raw material is different so the pricing.
Generally EV require better quality products (eg: stronger and light weight plastic than ICEs)
In EVs launching some camera programs; though small in number
Most of the OEMs are setting targets for 2025 on EV pipeline.
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Q4FY21 conference call highlights
As operational efficiency comes in – margins should also improve
Currently trucks are lagging in EV adoption but MSS believes trucks are better suited for EV adoption as they are smaller in no.
Content will be directionally higher in EVs
o Wiring harness – if the demand is for higher voltage wire, more value add
o Plastics – EV has a higher share of plastics. These will be lighter and stronger than current one.
PKC: Commodity inflation led to margin pressure Working day in Jan to March end very low as most of the countries has extended holidays.
Copper is main commodity for PKC’s products (wire harnessing) – steep price increase caused some margin pressure
Lag would be of 3-6 months between commodity price increase vs renegotiation of contract.
There are supply chain issue as well (eg : container shortages)
PKS is mainly in truck business is doing well, two SPV businesses non-truck (wire harnessing) and rolling stock are also doing well and growing. Customers has given PKC their facility on rolling stock side.
In China it has grown well, added a new plant there to cater increased demand from SAW
It has 3 JVs in China (one is Photon for Daimler and FAW, 2nd with JAC and 3rd is with Dongfeng)
Capex and interest cost- F22 Capex will be muted - expects capex to be ~175m euros.
SMRPBV -not adding any greenfield for existing order book –Waiting for re- organization to complete - Sept-Oct will have more clarity.
Debt has come down
Interest cost has reduced. It may not be visible due to MTM and translation impact
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Q4FY21 conference call highlights
Suprajit Engineering
Highlights:
Mr. James Gerard Ryan (Jim)- has joined as “President – Controls & Cables Global Operations (Except India)”
SEL aims to continuously outpace the automotive industry growth by 5-10%. In FY21 SEL grew by 5% vs Industry de-growth of 14%. Growth levers are combination of new products offerings, acquiring new customers for existing products and pitching new products to its existing customers and in-organic acquisitions.
Expects global automotive industry to decline in FY22 mainly due to chip shortages (36 weeks of waiting period for new orders).
Global chip shortage issue likely to persist this whole year as there is huge supply demand mismatch.
In EU/US markets demand has been good and covid situation is also benign, but, ICU chip shortages and container issues are main concern.
Increase in Commodity prices: In India passed on to some customers, in talks with some others. There is a lag between commodity price increase and passing on prices to customers.
Other expense has gone up due to freight issue - delivered some contracts through air route (earlier sea route) to ensure continuity at customer end
Global OEMs are looking for consolidation in terms of their suppliers – this continuously gives SEL opportunity to acquire players which are good fit in terms of 1) manufacturing capacities; 2) Geographic diversification; 3) new customers…
Closely tracking capacity utilization from next 2-3 years perspective- confident adding capacity won’t be any challenge. There is a lag of 12 months from signing of contract to start of supplies, which should provide cushion.
Oxygen related issues have impacted Phoenix lamps division in Q1. Things have started to normalise
Overall non-automotive seems to be stabilizing – expects margins trend to remain up.
PLI Scheme: details awaited.
WASCON/SENA:
WESCON is turning slowly but steadily
COVID scene in US bit benign now. Mexico is still under orange zone.
Shifted supplies from Mexico to Wichita to avoid any impact on client’s line of production.
Chip shortages that goes into sensors facing some problem.
There has been some delay in new product introductions.
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Q4FY21 conference call highlights
Volumes of some products have come down but quite a few new contracts started production cycle.
Almost all OEMs are facing problems related to chip shortages and had to shut down there plants for 1-2 weeks.
Last year have done some operational efficiency and won some contracts.
SEL is looking for localization of more products – that will be sold in US
Make in India products are of high margin - even after clients re-negotiated prices. This has helped in margin expansion and continue to do so.
Some products like gear shifters – already produced in India and sold in US.
Commodity headwinds/ Container issue:
Steel is main commodity and prices of it has gone up by 30%.
SEL has passed on to some its India clients and in talks with others.
There is a lag between commodity price increase and passing on to customers.
Unfortunately, can’t pass on all prices related to raw material to customers at same time
Next 3-5 years growth levers:
Inorganic Ways: Globally consolidation of vendors will continue to offer opportunity to grow inorganically
Organic Ways: Offer new products to existing customers and acquire new customers with the help of existing products.
Globally SEL is a small player so there is enough room – recently on- boarded Jim, will use his experience and contacts of 30 years in controls and cables space.
Phoenix Lamps Division (Including Trifa & Luxlite)
This quarter faced huge amount of disruption due to shortage of oxygen as it got diverted for medical requirements.. Competitors have also faced same issues. Things have started to normalise
On demand side, continue to face challenges in EU due to : 1) inability to travel and meet customers; 2) sales team working from home
Phoenix lamp division India: both plants continue to support (eg: Boche, Luminade, new customers)
Normalcy has started to come back. Expects situation to improve in next 2-3 months.
Aftermarket continues to do well
Successfully delivered to Chinese OEMs and talking to others as well.
Orders from Osram remains healthy- last year surpassed initial order contract. Continue to deliver to them.
Investments:
Narasapura plant - expansion plan continued but slowed down due to COVID – this plant is primarily for Honda.
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Q4FY21 conference call highlights
Naya Manesar project – upgrade Unit4 completed and showcased to customer.
EU:
Sporadic disturbance in EU automotive industry due to chip shortages and BREXIT
Demand and new launches has been good. But, supply is main concern
Automotive:
Automotive margin come down QoQ mainly due to other expenses have gone up from INR190mn to INR250mn
This is due to extraordinary freight expenses. Had to use air route amidst container shortages
Continue to win awards from its customers
We are trying to enter new customers with existing products. Existing customers into newer products
New Products and EV opportunity:
Suprajit technology center come out with new products: electronic instrument clusters, CBS combi brake systems and Brake shoes. These are well accepted in market place. And, have received some success in EV segment as well.
Brake Shoe is new product – commissioned the plant and started supplying to one OEM. Trying to reach out to other customers. Also, started selling in aftermarket.
Working with some EV players on other products (eg combination breaking system)
New products that we have launched 2-3 years back has started to gain customers attention.
OEM Business:
In March and April there was feeling that dealership stock was high in two wheeler segment
If the stock is 6 to 8 weeks then it is on higher side
This time covid effect is deep rooted hence little bit circumspect as compared to last time on the pace of recovery
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Q4FY21 conference call highlights
Banking
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Q4FY21 conference call highlights
Aavas Financiers
Business performance
Covid second wave has resulted in local lockdowns of varying degrees and has impacted business. However, management is confident of tiding over second wave after navigating the first one successfully last year.
Despite a tough year, continued to grow well with AUM growth of 21%.
Disbursement growth of 17% YoY in Q4FY21; full year disbursements fell 9%.
Contraction in NIM of 45bps YoY to 7.71% in FY21 is also because of rise in salaried customers.
Cost of funds fell further 20bps QoQ to 7.4%.
Well diversified funding mix. Raised borrowings of INR7,290mn in Q4 at a cost of 6.3% for 119 months.
10bps of benefit from funding cost was passed on to customers starting January 1, 2021. A further cut of 15bps will be passed on w.e.f. April 1, 2021.
Conservative on underwriting practises for the time being.
Lower tax rate is due to tax refund for earlier financial years as tax for current year was recomputed.
Maintains adequate liquidity.
Asset quality
Continuous interaction with customers has helped in analytics and understanding customer behaviour.
This has reinforced belief in assets. Delays in payment likely, but eventual losses will be minimal.
As of today, no need for further covid-related provision.
Collection efficiency for Q4FY21 was more than 100%.
Fall in 1+DPD to 6.37%; guidance of below 5% will take a few quarters to reach.
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Q4FY21 conference call highlights
Axis Bank
. It is also helping build a more granular book.
Average ticket size in the mid corporate segment at INR350mn for new to bank customers and INR600-650mn for existing customers.
85% of corporate book is now rated A- and above with 94% of incremental sanctions in FY21 being to corporates rated A- and above.
The share of secured loans in the loan book was 81% with home loans comprising 36% of the retail book.
Other retail loans include gold loans, education loans and loans against FD.
CV/CE portfolio amounts to INR140bn.
ECLGS sanctions totalled INR104bn.
Added 1.8mn liability customers during the quarter, up 10% QoQ. For FY21, 6.7mn liability customers added.
Account balances in new retail accounts up 11% YoY. Asset quality: The bank holds cumulative provisions (standard + additional other than NPA) of INR120.1bn (1.93% of advances). It has neither made nor utilized any covid-19 provisions during the quarter.
On an aggregated basis (specific+ standard+ additional + Covid), our coverage ratio stands at 120% of GNPA at March 31, 2021.
Non-fund based outstanding to GNPAs stood at INR18bn; for FY21 at INR70bn.
Covid-19 restructured loans at INR18.5bn (0.3% of Gross Customer Assets), overall provision coverage of 26%, unsecured retail provided at 100%.
Of the total restructured loans, INR6.2bn has been implemented (0.1% of GCA).
During the quarter, Axis has made additional provision of INR8bn to improve coverage from 53% to 80% in the commercial banking segment.
The bank has fully provided for security receipts.
Retail slippages came at 3.73% (annualized). Majority of unsecured slippages came from the cards book.
Net retail slippages for the quarter at INR13.2bn.
Net SME slippages for the quarter at INR940mn and INR6.9bn for FY21.
Collection efficiency for the quarter at 98%, which is in line with pre-covid scenario.
Cheque bounce rates are slightly worse off currently owing to the second covid- 19 wave in the country.
Write-off for FY21 are roughly split 50-50 between retail and wholesale. On the retail side, it is predominantly from unsecured pool and on wholesale side it is from the legacy book.
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Q4FY21 conference call highlights
The bank follows rule based provisioning on its entire portfolio. Other highlights: Retail and transaction banking forms 83% of fee income (82% in FY20).
Axis has conservatively provided INR2.2bn for social security code, which has increased employee costs during the quarter.
Currently, daily LCR at 100-105%; aims to take this up to 115-125%.
0.2mn cards added through partnerships with flipkart, PhonePe and Google Pay– which was 25% of total cards added during the year.
The bank continues to launch new innovative digital products like Pay Later, Digital Forex Card, Digital Gold and Whatsapp Banking.
Technology spends up 79% over the past 2 years. Strategy: Strengthen the organizational core and quality of balance sheet .
Investment in technology capabilities.
Focus on making Axis digital.
Building granularity across all business segments to drive sustainable growth.
Deliver strong operating performance with improvement in return metrics.
Create significant value among key subsidiaries.
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Q4FY21 conference call highlights
Bandhan Bank
On asset quality:
70% of customers in over 90 dpd are paying over 70% of dues.
11% of group loans transferred to individual loans - CE over 99%
From the NPA pool, 22% of loans are non-paying
Bank is also carrying in Micro banking portfolio additional provision of INR3.88bn on standard advances.
These levels were at approx INR27bn last quarter, the reduction is on account of write offs (INR19.3bn- written off during the quarter, approx 0.4mn customers)
Write offs in Assam to the tune of INR7.72bn and INR6.71bn for West Bengal
Movement of GNPA for the quarter: Opening balance - INR55.15bn, Additions - INR21.97bn, Recoveries- INR230mn, Write offs - INR19.29bn
Movement of GNPA for the FY21: Opening balance - INR9.93bn, Additions - INR68.87bn, Recoveries- INR1bn, Write offs - INR20.38bn
INR6.17bn- restructured in the affordable housing segment (60% are from self- employed category). This forms 0.71% of total loan book.
Collection efficiency in April is lower by 5% as compared to same month last year. This figure is only 3% for West Bengal.
On West Bengal and Assam: 95% Collection efficiency in March in WB, the same was 83% for Assam
The bank would aim to maintain some level of contingency provisions not only during the pandemic but even post that.
NPL in housing book at 3%
On business momentum:
Disbursements at 95% of pre-covid levels.
ECLGS disbursements, done in Q3FY21 of INR18.3bn to 1.72 mn customers under EEB vertical.
Approx 53% of ECLGS disbursement in WB (0.8mn customers), 20% in Assam (0.36mn customers)
Prepayments were higher during the quarter, due to a govt subsidy received in January
Only Approx 2-3% of the portfolio is for ticket size above INR10mn (ex of construction finance account)
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Q4FY21 conference call highlights
On operations:
Other income of INR7.87bn, of which INR3.24bn is PSLC, INR2.97bn is processing fees and INR820mn from third party distribution.
Average cost of SA is 5.15%
Added 0.5mn customers during the quarter and 2.9mn during the year with total customer base at 23mn crore as on March 31, 2021.
Interest reversal of INR5.25bn in Q4FY21 on account of NPA recognition.
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Q4FY21 conference call highlights
Bajaj Finserv
General Insurance business
BAGIC has underperformed industry growth by 400bps in FY21.
In Q4FY21, GWP increased by 5% YoY compared with industry growth of 9% YoY. For the full year, GWP declined by 2%.
Continues to grow in the preferred areas of motor, retail health and fire/property. Due to this, the share of these segments in product mix inched up.
Gained market share in all focused areas in Q4FY21.
CV business is still slow driven by high exposure to the profitable passenger carrying vehicle segment.
Demand for retail health insurance has moderated due to recent price hike by the company and slowdown of pandemic. However, with a strong second wave, expect demand to bounce back in the near term.
Cautious on Government health due to a high loss ratio
Crop has remained stable over the last six years. Underwriting is important here as it is not a float business – depends heavily on reinsurance due to the inherent volatile nature. Expect the rabi season to be good.
The loss ratio increased to 64.3% compared with 62.1% due to higher TP reserves and higher covid claims, partially offset by lower non-covid claims and motor OD claims.
As a result, the combined ratio increased to 96.6% but still remains favorable/profitable.
Solvency remains strong at 345%, well above the threshold of 150%.
Life insurance business
Continue to focus on sustainable and profitable growth by maintaining a balanced product mix and investment in retail growth engines.
Important to also look at ways of growing VNB and not focus only on top-line growth.
Q4 is usually a strong quarter, and the company has delivered industry-beating growth of 63% YoY in Q4. Amongst the top private insurers, it is among the fastest growing.
As a result, market share improved from 4.6% in FY20 to 5.5% in FY21
Achieved highest-ever GWP of INR120.2bn.
Paid a total of 1,335 covid claims, amounting to INR730mn.
Demand for ULIPs had started to improve in Q3 and momentum has sustained in the current quarter. Impact of budget announcements did not change demand materially.
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Q4FY21 conference call highlights
High uncertainty due to the pandemic led to a preference for guaranteed and protection products. However, the increase in rates and slowdown in pandemic in H2 moderated demand for the same.
Confident of structural growth in protection.
Retail Protection business grew by 78% versus Q4 FY20 (low base), contributing 4% of product mix in IRNB terms in Q4FY21.
In Q4, launched a new product focused on retirement needs - Guaranteed Pension Goal, an annuity product. It now makes up 4% of product mix.
Comfortable with current hedging strategy on interest rate risk pertaining to guaranteed products.
Institutional business is in a growth mode with momentum built up in new partnerships such as Axis Bank, IDFC First Bank, RBL Bank and India Post Payments Bank.
Persistency ratio improved partially across cohorts over the year.
The company is well capitalized with solvency at 666% against the minimum solvency requirement of 150%
Since the end of March, 2021, spread of Covid-19 has been seen. This might lead to increased demand for guarantees, protection and retirement products due to risk aversion and resultant market volatility.
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Q4FY21 conference call highlights
DCB Bank
Income statement and growth
Reason for sequential NIM decline? Interest reversal on NPA and restructuring primary reason.
Provisioning norms are more LTV based
Long term vision? Do we have capability to scale up like KMB over time? Currently focussed on how to surpass current challenge, and build momentum. Were ready to ramp up from FY22.
Planning to add 25 odd branches over the next 15 months.
In the near term costs will increase due to headcount growth, salary increase and branch growth. But we know how to cost efficiencies over the medium term though they costs may increase over the short term.
Hurdle rate is 14% ROE across product lines
Exploring opportunities in the co-lending space with a few NBFCs
CUB does more Working capital and DCB does more LAP. Offer other services to customer on the basis of cash flows. Though target market for both is same i.e. self-employed.
DCB employees per branch is double that of CUB. CUB has more branches than DCB. CUB has a more branch based model. Over time DCB should match up to CUB in terms of cost/assets. Loan book and asset quality
Slippage for FY21 is similar to FY20
95% of the total book is secured. Other than MFI and Fintech the book is all secured.
One of the most granular book - 80% of the book is less than Rs 3 Cr
Given the secured and granular nature of the book, customer will not let go of their property. They just need to be given time in such times.
For gold loans the problem is the customers fear and inability to reach the branch.
Gold loan NPA should not be worried about. If customer does not pay, will give them notice of auction of family jewellery and they will come up and pay
Home loans has a risk weight of 35% and business loan is 75%
Collection/ recovery processes are all in house
What led to a slow pick in recovery? Prefer using SARFAESI to add pressure on the customer and he eventually settles. This got disrupted in the last year. It will get positive as things move on – collections team is operating in full swing.
4.5% of the book restructured. Restructuring has been done only for those customers who deserve a chance. Not given to those who do not have cash flows to support.
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Q4FY21 conference call highlights
Liabilities
Main focus is on retail deposits which have grown at 19% yoy – typical size is Rs 1.5-2 lakhs.
No challenge in generating deposits. Consciously chose to not be aggressive on CASA. Other balance sheet factors
Investments like Techfino and exchanges. These are just simple good investments here and there. Nothing much to make of it.
Many home loan customers have taken insurance so incase of mortality, insurance company will pay. Covid-19 impact
Strong capital position to deal with the new challenges
As DCB a largely self-employed book, most of it came back by Jan-Feb.
Difference between second wave and first wave – some collection officers, staff, customers are infected. So the whole chain has taken a hit. Also, time restrictions hamper collections and recovery. Regulatory
Appreciate RBI not declaring moratorium. If morat is granted, it takes time for customers to come out of it. Many complications like what happens to interest; interest on interest.
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Q4FY21 conference call highlights
Federal Bank
Income statement and growth
NII impacted due to higher base (no. of days) and interest on interest refund.
Chose to be prudent in our credit portfolio.
Recruited Venkat as CFO – He was the financial controller earlier.
Ashutosh will manage the portfolio and ESG.
Yields: Retail 9%; Agri 10%, PV 10%.
1.2% exit ROA for FY22. Asset quality, collections, provisioning
SMA-0, -1 and -2 put together is 4.6%. It was less than 5% in the last quarter as well.
Can expect 30–40% slippage on the restructured book.
68–70% of restructuring fully backed by securities/ mortgages. Rest from education loans and personal loans. Since the book is largely secured, expectation of loss is in single digits.
PCR will remain 60–65%. Since the book is largely secured and given the LGDs, saw no reason to build covid provisions. If there are incremental slippages, 60- 65% will be provided against it.
Data from Credit bureaus do not really work in such an environment. Working with Bharat Pay to develop alternate data sources/ algorithms – should be ready within the next six months or so. Want to keep credit quality in line with the large 3–4 players.
NBFC+HFC is 13% of total advances. 85% exposure above AA.
Large infra account of INR3.12bn is still NPA with 25% provision, not reversed yet
Tonnage in gold loan book is growing. 30-40% growth guidance for gold loans.
Will watch out for 1-2 quarters before ramping up the CV book. Also, watching out for MFI opportunities but cautious for another quarter or so. Both portfolios have a chance of growing well over the next 1–2 years. The objective is to enhance margins.
Can’t write off any segment – opportunities will arise. Will build MFI to INR30– 50bn over time.
The bank also has a seasoned unsecured book, which provides the RoA kicker. Looking to grow credit card book similarly.
Credit card business will require a good investment. The cost to income will improve factoring this in.
Fixed yield book proportion is 32% Liability
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Q4FY21 conference call highlights
Aspire to build a granular retail liability franchise.
Cost of deposits will reduce further as renewals come in.
Do not have much wholesale deposits.
Will try to grow CASA beyond 35%, not by paying better but by better service. Other balance sheet factors
See a potential to do a capital-raising in CY22. Regulatory
Application for MD tenure extension still pending before RBI.
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Q4FY21 conference call highlights
HDFC Bank
Asset quality: HDFCB holds floating provisions of INR14.5bn and contingency provisions of INR59bn.
Slippages ratio of 1.66% for the quarter (1.86% last quarter on proforma basis and 1.2% in the previous year).
This quarter, the bank utilised INR36bn provisions created previously on pro- forma NPLs. Total specific loan loss provisions were INR67bn.
Created additional contingency provisions of INR13bn and INR5bn for interest on interest.
Recoveries amounted to 25bps of gross advances versus 24bps in previous quarter.
Write-offs during the quarter amounted to INR35bn.
Additional provisioning buffers will be built as and when required. Technological issues: Focus is on reducing obsolete technology, improve infrastructure framework and security.
Independent audit by RBI is in its final stages.
HDFCB has partnered with tech companies for faster migration.
The bank saw 93% higher volumes during the last 3 days of the financial year compared to last year. HDFCB has sufficient volume capacity.
Loss of customers can be made up in a few quarters. The bank continues to acquire new liability customers--2mn added in the previous quarter.
3/4th of card customers are internal customers and since liability franchisee continues to improve, card portfolio can expand post injunction.
The bank’s spend market share has increased from 29% to 30% YoY. Business momentum: 2mn new liability relationships opened in Q4FY21, 7mn during FY21.
ECLGS sanctions of INR265.3bn.
Automated corporate account opening started for bulk accounts.
Started “Summer treats” offers across e-commerce in segments such as electronics and groceries. Corporate: Wholesale SME grew 10% YoY, mid-corporate 9.2% YoY and large corporate by 3.5-4.0% YoY.
Softer growth in large corporate due to higher base effect, deleveraging by corporates.
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Q4FY21 conference call highlights
Industries such as agri processing, food processing, tiles and ceramics, e- commerce and pharma are clocking strong growth.
Capex demand is coming from PSUs, private players are at 60-65% capacity utilization. HDFCB expects private sector capex to pick up in H2FY22 provided covid situation does not worsen.
CASA from wholesale improved 15% YoY. SME: Cash flows into accounts have been improving from December 2020.
Accounts worth INR5.5bn restructured, of which INR2.2bn were in some form of delinquency.
Early delinquency buckets are at pre-covid levels.
There is 85-86% cover over and above collateral cover. Retail: Cheque bounce rates deteriorated in April compared to March, and will remain a monitorable. There is some pressure from Maharashtra, MP, Telangana and Punjab.
Not expecting salary cuts and job losses like last year this time around.
Bounce resolution (recoveries up to 30dpd) back to pre-covid levels.
Seeing good opportunities in auto, housing, personal loans and business loans. Operations: Average LCR of 138% during the quarter. Excess liquidity impacted NIMs by 10- 15bps.
The bank will make investments as per opportunities. Macro outlook: This quarter saw improvement in high frequency data (PMI, highest GST collections).
Tractor sales, exports, power generation sector showing good growth
Supportive measures by RBI such as TLTRO helping the sector.
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Q4FY21 conference call highlights
HDFC Life Insurance Company
On business performance
Cautiously optimistic on FY22, and will continue to approach situation dynamically.
Continuously strive for new business premium growth and upward trajectory in VNB margin as vaccination drive begins and economic momentum strengthens.
Aspire to maintain NBM margin between the FY19 and FY20 levels.
Confident of beating industry growth and expanding market share.
Health, life and need for annuity are some of the top requirements on customers minds.
Remain focused on improving persistency.
Experienced positive operating variance for the year. However, mortality experience worsened due to covid claims.
Large part of this was absorbed by the covid reserve made at the start of the year.
Have also made a reserve of INR1.65bn for FY22; this will be reviewed as the year progresses.
Also approved a dividend of INR2.02 per share.
In spite of dividend, solvency should be above 190%.
Pension subsidiary continues to be the largest pension fund manager with an AUM of more than INR160bn (+19% growth) and a market share of 34%
Remain committed to enhance customer experience.
Digital is the backbone of growth, and continue to invest in it.
Continue to invest in technology and training of employees, agents; investment in tech helps in cost efficiency and convenience in dealing with customers.
On product structure
The focus remains on maintaining a balanced product mix.
The aim is to build the business brick by brick by taking good quality business.
While protection has near-term dampeners, the structural story remains intact.
Underwriting challenges in tier 2–3 cities remain challenging due to reluctance for medical check-ups.
Individual protection grew 4% for full year; enquiry improved at the end of the year.
Credit protect has started to pick up well on the back of improved disbursements.
Protection growth will be higher than the growth rate for the company.
Don’t expect a price increase by reinsurers in the near term.
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Q4FY21 conference call highlights
Annuity continues to grow at a fast rate (46% in FY21) and now forms 5% of the overall mix in terms of APE and 20% in terms of NBP.
Confident that this will become a bigger product than protection over the medium term.
Huge potential in retirement-related products.
Balance mix to provide natural hedge against mortality and interest rate risk.
ULIP sales are the highest in online channel.
Retain a cautious outlook on persistency ratio of ULIP book.
Distribution mix
Focus remains on having a balanced distribution mix.
Continue to strengthen and enhance distribution mix by constantly adding partners, agents.
All distribution channels are encouraged to sell the entire product suite, and not to focus on a select category only.
Strong growth in banca channel as banks were allowed to function throughout the year.
Adequate focus was also given on training bank staff.
Within banca, HDFC Bank and other newly added banks are contributing well.
Agency channel continues to do well with increase in headcount.
Direct business has slowed in FY21, but has grown 19% over the last two years. This should come back as and when the situation normalizes.
While premium from the direct channel is lower in FY21, it is more profitable with a higher share of annuity.
Targeting new customers through the online channel.
Focus remains on expanding to tier 2/3 cities.
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Q4FY21 conference call highlights
ICICI Bank
Asset quality Gross slippages during the quarter at INR118.2bn: INR55.2bn is for the current quarter and balance are unrecognized slippages of previous quarters.
Slippages (ex-pro-forma) breakdown : Retail INR43.55bn, Corporate and SME: INR11.68bn
Excluding NPAs, total fund based outstanding to all borrowers, including MSME borrowers, was INR39.27bn (0.5% of book)
INR20.12bn was from retail portfolio
INR19.15bn from corporate and SME portfolio
The bank holds INR7.2bn in provisions, which is higher than regulatory requirements.
Expect normalized annual credit costs in the range of 1.2–1.3%. This quarter credit costs are 15bps higher than stipulated range due to covid provisions and change in provisioning policy.
Non-fund based outstanding on NPLs at INR44.05bn.
On a prudent basis, the bank has made additional covid-19 provisioning amounting to INR10bn, taking aggregate covid-19-related provisioning to INR74.8bn.
Total non-specific provisions as a proportion of advances is 1.9%. Business momentum and operations Qualitative details about the portfolio
Growth in the retail portfolio on the back of increasing penetration in existing customer base, digital infra (seamless and pre-approved underwriting) and market share gains.
Corporate rating profile has improved materially, A- and above book now forms 73% of the portfolio compared with 56% in FY17.
Corporate banking focusing on providing a full suite of banking requirements to well-rated corporates.
In addition to the manufacturing sector, the services sector and financial sponsor sectors have been identified as new segments for lending.
Continue to shrink international corporate book, now forming ~5% of portfolio. Strategy Focus is on utilization of current customer database for cross-selling and up- selling for growing the portfolio.
The bank is cautious in underwriting to sectors directly affected by the pandemic.
The strategy for credit cards is to have a mix between chronic and episodic revolvers. The bank will not aggressively push to increase spends until portfolio quality has been tested.
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Q4FY21 conference call highlights
Other highlights The amount disbursed under ECLGS 1.0 scheme is INR127bn and INR15bn under ECLGS 2.0 scheme.
Corporate loan processing fees and third-party fees have declined during the quarter, leading to softer fee income growth.
Disbursements in retail assets are better than pre-covid levels.
Deposits have shown strong traction, CASA growth at 24% YoY and term deposits growth at 18% YoY, taking overall deposits growth to 21% YoY.
Further provisioning will depend on the extent of second covid-19 wave and the vaccination drive in the country.
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Q4FY21 conference call highlights
ICICI Lombard General Insurance
With respect to current environment
Reasonably confident of a higher growth in FY22
Till the second wave started a couple of weeks back, Indian economy was showing strong growth
On Bharti Axa deal, await NCLT approval and final IRDA approval
Investment leverage steady at 4.1x
ICICI Lombard will continue to outperform industry growth and therefore improve market share going forward
Continue to strive for further digital adoption in business operations from sourcing of policies to claim settlement
Significant investment in technology and enhancing people ability will lead to long term benefits
Company is well positioned to navigate through the chaos and remains focused on long term wealth creation for shareholders through prudent risk selection and constant profitability
Continue to strive to deliver 20% RoE on a long term basis
With respect to health business
Health insurance continues to do well due to the pandemic
Headline growth rate looks moderated as benefit of higher growth in indemnity is offset by lower sales of benefit from ICICI Bank
Individual Indemnity business grew 22% for FY21
Benefit business will continue to suffer for two more quarters unless Bank starts selling more of such policies
In order to grow the indemnity business further, focus has been on adding agents and increasing distribution in tier 3 and 4 cities
Agent count has increased to 59,545; Close to 4,000 agents added in Q4FY21
Focus is also on building a complete health insurance product through higher customer engagement from home monitoring to OPD through IL Take Care app; App has seen more than 500,000 downloads till FY21
Loss ratio for overall health book is at 89% compared to 83.6% in PY. For group business, loss ratio is at 93.4% vs 91.1% in PY while loss ratio of indmenity business stands at 81% vs. 73% in PY – Jump is due to higher Covid claims
Average size of covid claim has come down
In the previous year, while covid claims went up, non-covid claims came down drastically. The same may not be true to a large extent this year. However the company is better placed than SAHI players as benefit of lower motor claims will play out if the second wave persists longer
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Q4FY21 conference call highlights
With respect to motor business
Pockets of Motor OD remain highly competitive, especially private cars
Share of new and old vehicles in OD stands at 30:70 in FY21 from 37:63 in previous year
Expect lower frequency of claims in motor OD business due to second Covid wave; However, it will not be like last year
Believe that there is a need for price corrections (hikes) to happen in motor OD
Optimistic that a hike in premium of Motor TP will happen this year as it did not happen last year
Share of CV in motor business is around 16%, much lower than industry which is around 40-45% as company wants to focus on profitable sub-segments of CVs
In the current quarter, lower amount of Motor TP reserve has been released as recent supreme court judgements point to a higher average claim size
With respect to fire/property insurance
In wholesale lines, market share gain is visible in every large segment be it fire, marine; Gain is driven by SME as well as large corporates
Fire/Property insurance has done well due to a combination of better pricing and improved market share
Growth in this segment has normalized as benefit of a lower base is no longer relevant
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Q4FY21 conference call highlights
ICICI Prudential Life Insurance
On business performance
Highest ever monthly sales in terms of APE in March, 2021 with a growth of more than 108% YoY
This was driven by all products and distribution partners
Maintain ambition of doubling VNB (of FY19) by FY23 by focusing on 4P elements of business. This requires a growth of 28% CAGR over next 2 years. Primary driver for this will be premium growth. Since FY19, it lagged industry growth. However with more products and partners, company is confident of achieving this. Q4 growth gives more confidence.
Endeavour to further improve persistency ratio – especially in cohorts which have dipped slightly
Further productivity as operating leverage plays out with growth in premium
Three pronged strategy to broaden customer base through product proposition, distribution build-up and customer retention
VNB margin increased from 21.7% to 25.1% for FY21 due to growth in non-linked savings business and improved share of protection in mix
Contribution of non-linked savings to VNB at 24% vs 9% last year
Pension subsidiary has gained significant traction and size
Significant improvement in persistency ratio in 13M and 61M ratio
13M persistency ratio of non-linked business is 94%
Mortality experience in line with expectations
Total claims due to Covid in FY21 was INR4.6bn (net of reinsurance claims stood at INR2.6bn)
Covid reserve increased to INR3.32bn for potential covid claims as compared to INR1bn at the end of Q3FY2021
Non-par guaranteed book remains low with just 1.1% of liabilities
EV has increased by 26% to INR291bn led by 15% RoEV and positive impact of investment variance as equity markets have recovered from the drastic fall in March, 2020
Aims to be the most admired digitally enabled insurer – Launched several tech initiatives to achieve this. For ex, video verification in vernacular language, more responsive IT infrastructure and personalized video product brochure, to name a few
Continue to invest in people, process and technology
Focus on ESG continues
On Product mix
Well diversified business mix now as share of ULIPs has fallen from 82% in FY18 to 48% in FY21
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Q4FY21 conference call highlights
Premium growth assisted by a wide range of products for both retail and group customers
Continue to capitalize on existing opportunities without compromising on risk
Protection
IPru remains a leader in New Business Sum Assured with a 13% market share
Price increase in protection products due to price hike taken by reinsurers
Retail protection was impacted in FY21 due to reluctance to visit hospitals/clinics for medical checkups
Short term headwinds exist on retail sales . However, expect to maintain the sequential momentum and increase attachment of riders
Individual protection has seen some moderation while group and credit life has seen strong pick up
Margins in protection business are at similar levels as last year
Remains a structural opportunity
Company does not include RoP under protection category unlike peers; They include it in non-par/non-linked savings
Growth of linked products turned positive for Q4FY21 on a year on year basis with a growth of 11%
Endeavour to maintain this growth going forward
Annuity and non-linked savings grew by 120% and 56% respectively
As a result, share of annuity in mix has increased to 17% of NBP in FY21 from 8% in FY20
With respect to distribution:
Focus on expanding partners across all platforms
Bank partnerships have increased to 23 Banks with addition of Banks like IDFC First Bank, Indusind Bank, RBL Bank and AU Bank. With these, branch and customer base has seen a meaningful increase
Sales of ICICI Bank has logged positive growth (YoY) of 50% in March, 2021 after consistent decline during the year
Due to a change in strategy, ICICI Bank is now more focused on selling annuity and protection as key products – products which contribute to more to VNB than top line
Sales of banca partners ex ICICI Bank has increased from INR1.4bn in Q4FY20 to INR4.1bn in Q4FY21 as new partners gain momentum
Most of the channels have recorded growth in sales for the first time in FY21
Close to 600 partners at the end of current year with a focus on both traditional and new age partnerships
Added close to 20,000 agents during FY2021
Protection and non-link savings are being increasingly sold in the direct channel
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Q4FY21 conference call highlights
IndusInd Bank
Business segments Will continue to invest in businesses to drive growth. The Focus will continue to be on vehicle financing, MFI and diamond business. Will focus on other segments if it fulfils risk-reward requirement. Growth will be driven by secured businesses, and will cap unsecured portfolio at 5% of the book. Deposits have grown 7% QoQ despite a 50bps cut in interest rates. Positive outlook for rural India on the back of good monsoon expectations, crop cultivation and high government spending. 95% of incremental corporate lending to A- and above category during the quarter. Card spends higher due to a higher share of premium cards. Revolve rates on cards book is 54–56%. Corporate card spends is INR1–1.5bn. Top three states for MFI are Bihar, Orissa and West Bengal, which collectively amount to 32–33% of total book. 81% of the MFI book has churned during the past one year. Collection efficiency in this book stood at 99%. Asset quality Business-as-usual slippages for the quarter at INR19.3bn. Slippages breakdown: Vehicle finance – INR6.87bn, Other secured retail – INR2.26bn, Unsecured – INR3.83bn, MFI – INR2.98bn, Corporate – INR3.36bn. Collection efficiency of the portfolio at 98%. Secured loans are performing better than unsecured loans. Total restructured pool at approx. INR42.7bn (2% of book). Corporate restructured book at INR6.54bn, INR3bn of this is under OTR and will be resolved in the near future. Some long vintage vehicle customers are opting for restructuring under the MSME scheme due to current stressful conditions. The bank has fully provided for MFI and unsecured loans. Expect 25-40bps recovery for NPAs. MFI slippages of 3% during FY21. Other highlights A fast-tracking synergy program, and will be opening savings accounts for BhaFin customers. Have added 170,000 merchants in FY21, and will continue to add around 30,000 per month going ahead. Will be open to acquire a cards business, which has a salaried customer pool and satisfies all other return requirements.
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Q4FY21 conference call highlights
Kotak Mahindra Bank
Commentary by Mr. Uday Kotak, MD and CEO: In these uncertain times, good quality underwriting will be a key differentiator.
The bank has identified appropriate segments to lend, such as mortgages and select opportunities in corporate and unsecured segments.
It has been systematically reducing unsecured retail lending, which is now at 5.5% of book versus 7.5% in FY20.
Underwriting norms have also been tightened for this segment.
The bank is open to organic and inorganic growth opportunities. Asset quality: For FY21, slippages at INR54bn, write-offs at INR6.25bn.
For H2FY21, slippages at INR44bn, write-offs at INR5.3bn; write-offs were primarily in the unsecured portfolio.
The bank follows an aggressive retail provisioning policy.
It has implemented restructuring of INR4.35bn (0.19% of advances).
SMA-2 figure fell significantly due to slippages recognition during the quarter, now standing at INR1.1bn (0.05% of advances), similar to earlier quarters.
The bank has not created any additional provisioning buffer during the quarter keeping covid-19 provisions at INR12.8bn (0.6% of advances). Business segments: Has taken impact of interest on interest of INR1.1bn during the quarter.
Continued strategy of focusing on home loans; 3x pre-covid monthly disbursements in March 2021.
The bank’s lower cost of funds has made home loans one of the most competitive in the market.
Seen improvement in some MSME sectors such as exports, auto ancillary.
Collection efficiency and bounce rates are back to pre-covid level across all products.
CV/CE:
Sales improved in Q4 compared to previous quarter. On annual basis, sales are down 10% YoY.
Capital utilization levels improving, but regional lockdowns will have some impact.
Government infra spending leading to improved demand for commercial equipment.
MFI:
Collections as well as disbursements during the quarter back to pre-covid levels. However, these trends have been negatively affected during April.
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Q4FY21 conference call highlights
Tractor:
This segment saw better than industry growth rate.
Collections are back to pre-covid level.
Corporate and SME:
The bank was cautious towards this segment during first half of the fiscal.
There is high pricing pressure and a few profitable opportunities are available as per the management.
Good traction in the SME segment; however, utilization levels remain low.
Focus is on getting higher wallet share from existing customers and earning transaction banking and forex fees.
Lending to NBFCs has increased mainly due to lending to high rated HFCs. Management tenure: Mr. Kotak’s term ends December 31, 2023. Management and board are fully prepared to handle the transition post that. Mr Dipak Gupta’s tenure also ends on December 31, 2023.
Mr. Kotak and his family will continue to maintain their shareholding. Other highlights: Customer addition of approx. 0.5mn per month.
Not keen on branch addition for savings account business, but rather for current account and SME businesses.
Savings acquisition impacted due to lower acquisition in first half of FY21 and due to withdrawals from NRI accounts.
Provisions on investments includes mark to market for treasury and provisions on SRs (INR500-600mn).
Operating expenses are lower for the year due to lower business activity. However, expenses increased sequentially.
Employee expenses lower due to retirement expenses.
Has invested to improve front-end customer experience across all products.
Has spent the requirement of 2% for CSR spends with focus on health and livelihood.
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Q4FY21 conference call highlights
LIC Housing Finance
Operational highlights and growth Expects bounce back after second wave to be similar as after first wave. Meaningful pent-up demand in Tier 2 and 3 cities/ affordable segments.
This whole year has seen 18% share from Maharashtra due to stamp duty cut. Similarly in Karnataka too.
Low interest rates and pent-up demand should drive strong growth going forth.
Fee and commission expense has lumped in Q4 on amortization – higher proportion of loans due to pre-closure.
Striving for double-digit AUM growth in FY22 as well. In terms of growth the focus is mostly toward individual home segment.
Loans, asset quality and yields Total provision cover of 42% (including the additional cover).
Has done a revaluation of underlying assets in the context of covid, which led to higher GNPLs and provisioning.
Individual home GNPL: 1.89%; LAP/ others: ~5%; Developer GNPL: 18%.
All OTRs are in Stage 1. They have a separate impairment reserve.
Collection efficiency is 90%+.
Stage 2 provision cover is adequate.
The exact impact was not visible due to SC standstill, part payments coming in from accounts.
INR 14bn under the SWAMIH fund. SWAMIH fund is just last mile funding and does not guarantee upgrade. In 3 projects of the 5 approved, construction has resumed.
PD and LGD for home loans is much lesser than developer accounts.
4-6% seems will be steady Stage 2. Only 10-15% of Stage 2 forms developer portfolio.
Liability and cost of funds INR 250-280bn NCDs came up for redemption in FY21 so that much of the liability franchise got repriced.
Incremental funding: INR 30bn of CPs and rest in terms of NCDs.
NIM 2.66% of NIMs in Q4 and full year NIM at 2.37%.
Capital 45.4mn share to be issued to the promoter.
Has raised INR 18bn over the past few months. Going forth will also look at Tier 2 due to significant headroom here.
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Q4FY21 conference call highlights
Mahindra Finance
On current environment and business
One of the most difficult years in recent history.
Taken aggressive stand on negotiations and closing contracts with customers as well as bad debt provisioning.
Gross NPAs are, therefore, at similar levels as last year.
Return of sentiment has seen normalcy, barring a few affected segments such as tourist vehicles and school bus.
Return of the pandemic, that is, the second wave has definitely worsened recovery in these segments by a few more months.
NPAs sub-4% in line with suggestions from the regulator by making higher provisions - this can always be reversed when things turn around. Also plan to maintain this ratio on an annual basis.
The coverage ratio has therefore moved up, closer to 60%.
Adequately covered for future events.
Rural has also been impacted in the second wave; hence employees also want to remain safe. Therefore, Q1 will be subdued. This is something, which was not seen last year as rural areas were less affected by the pandemic.
Agri flow good, infra contracts strong – pick-up should happen once cases subside.
Strong liquidity to meet any unforeseen circumstances. Don’t expect interest rates to reduce. Might go up a little.
Post-monsoon, growth should return.
Required cleaning, relationship building will lead to a different set of trajectory at FY22-end.
Competitive pressure is rising in tractors and three-wheelers
Lost some share in tractor financing. However, confident of bridging the gap as things improve. Maintained share in other segments.
Disbursement in Q4 was lower due to supply-side issues on OEM side plus urban focus of Thar, where the company does not have a strong presence.
Continue to rationalize cost, and it should eventually settle within 2.4-2.5% of assets over a period of time.
Subsidiaries, both housing and insurance broking, are doing well. AMC decent, though small in size.
On Digital Finance
Digital finance will focus on rural and semi-urban customers to serve their needs for small-ticket loans from time to time.
Believe the company has understood this segment well and can make decent progress over coming years.
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Q4FY21 conference call highlights
Initially will reach out to people with at least 12 months of repayment history and provide them loans only when they need it (local knowledge required).
Provide such loans with comfort and convenience, and not the hassle people have to go through in the current system.
Cost of collection and operating costs need to be in control to boost profitability and hence the focus on the digital mode of business. However, since everyone cannot transact using digital, it will be accompanied by physical presence through tie-ups, if necessary. A phygital model.
Disbursement in three years should cross INR150-200bn.
On Asset Quality
Taken an aggressive stand on negotiations and closing contracts with customers, as well as provisioning for bad debts.
Gross NPA therefore at levels similar to last year.
NPA sub-4% in line with suggestions from regulators by making higher provisions; this can always be reversed when things turn around. Also plan to maintain this on an annual basis.
The coverage ratio has, therefore, moved up, closer to 60%.
With this, think adequately covered for the future.
Collection efficiency at 109% in March.
Asset quality improvement will improve hereon.
Pressure on profit & loss account should be substantially removed.
Taxi, school bus, goods carrying and people carrying are still lagging. Tourism sector vehicle owners are trying to utilize vehicles elsewhere. As things improve, these segments will also come back.
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Q4FY21 conference call highlights
Shriram City Union Finance
Business performance
Disbursements were higher, largely supported by SME loans (up >70% QoQ) and 2W disbursements growing > 30% YoY.
Personal and auto Loans showed an appreciable uptick. The company introduced a new product in the quarter – LAP.
AP and TN contribute larger chunk of South AUM. Kerala – negligible.
SME total 50-55% comes from AP and Telangana.
Given onset of second covid wave, the company has refrained from giving any explicit guidance
Top-up loans are given to customers who have completed 70% of original loans and are not stressed.
Asset quality
Last week of April saw some impact on collection efficiency and the company expects this softness to continue for 2-3 weeks in May post which, it expects this to improve. Thus, the company has not changed stance on credit cost.
Stage-3 delinquencies improved to 6.37%. Substantially lower impairments (down INR1.5bn) led to credit costs of 2.25% for the quarter.
Covid-related provisioning stands at INR7.bn as at FY21.
Borrowing
CoF fell to 9.1%; overall borrowing costs for FY21 8.8% compared to 9.36% in FY20.
After having forayed into Market Linked Debentures in the previous quarter, the company raised INR11.9bn against MLDs in Q4.
Retail Fixed Deposits, at INR55bn, saw strong >37% growth YoY.
Does not want to go aggressive on assignment–will have assignments in the range of 10-15%.
The company carried a liquidity back up of free unencumbered assets worth INR40.3bn, INR9.5bn of SLR investments and undrawn bank lines of INR7bn.
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Q4FY21 conference call highlights
Shriram Transport
With respect to business performance and general environment Just when economic recovery was gathering pace, second wave has derailed it with local lockdowns of different degree imposed by respective state governments. Central government has announced a number of projects to boost infra, but speed of these will suffer due to second wave. Covid has now hit heartlands of India and therefore affected STFC also. April and May will be affected due to this. However, other than areas where strict lockdowns are imposed, transport of goods is taking place at normal levels. See pent-up demand from June. Weakness in case of individual vehicle owners when someone in family is infected. Expects double digit growth in AUM for FY22. Building a strong versatile mobile platform to help customers. Also trying to make load available on the platform. Boost in digital infra will reduce staff count. However, increase in branch count will take it back to 28,000 as the company plans to add 300 branches. Cost/Income ratio may rise to 23%-24% from 22% due to new branches and additional recruitment. On merger, still evaluating all possibilities. Well diversified funding mix. Tapped all sources during the year to raise money. Will keep liquidity at three months of lending till Sept 2021 - as per guidance from the board.
With respect to asset quality
Asset quality has held up better than initial estimates.
Credit cost at 2.2% in Q4FY21 and 2.48% for FY21, lower than initial guidance of 2.7-2.8%.
Regular touch with customers has strengthened relationships. As a result, asset quality is better compared to peers.
Second wave impact will not be as severe as last year because there are no restrictions on movement of goods in areas other than those under strict lockdowns. Highways are free.
Post moratorium, collection efficiency has remained strong with more than 100% for Q4FY21.
Invoked resolution plan on assets worth INR22,670mn of which INR3,096mn were restructured in Q3 and INR2,797mn has been restructured in Q4FY21.
Balance restructuring in the next couple of quarters.
Staff transportation and school buses have primarily taken restructuring.
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Q4FY21 conference call highlights
Bearings
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Q4FY21 conference call highlights
Schaeffler India
Revenue growth and margin Overall net sales grew 42% YoY as the company saw improving demand from automotive and industrial sectors during the quarter. Overall revenue share in Q1CY21 was 80% from mobility and 20% from non-mobility.
Gross margin contracted 382bps YoY/189bps QoQ to 35.9% as a result of commodity price pressure that was mitigated by a price hike taken in the aftermarket.
SCHFL reported EBITDA margin expansion of 138bps YoY to 16.2% as a result of the cost flexing programme and higher localisation. There has been a sustained reduction of ~300bps in other expenses driven by cost flexing programs and reduction in certain costs due to the pandemic. Thus, only part of this reduction is sustainable.
PAT jumped 78% YoY with improved profitability. FCF grew 28% YoY driven by a sharp reduction in working capital.
Capex: SCHFL announced capex of INR2.8bn for CY21, with a cumulative spend of INR12bn over the next three years. This is largely towards expansion across the three plants. Key highlights The mix for Q1CY21 stood at 44% from automotive technologies, 37% from industrials, 8% automotive aftermarket and 11% from exports.
Demand increase from Q3CY20 sustained this quarter as plant-level utilisations normalised to pre-covid levels.
SCHFL has set up two new plants in the past three years and the parent continues to pay attention to the geography considering the huge potential. By segment Automotive (52% of overall sales in Q1CY21) Industry performance – Production of OEMs: The 2W segment grew 26% YoY, while the CV segment grew 13% YoY in Q1CY21. The PV segment grew 31% YoY while tractors reported growth of 67% YoY.
Auto aftermarket: Price hikes were taken in the aftermarket to protect margin erosion with commodity price pressure. The company continued to push TruPower in the aftermarket to drive better performance of its bearings.
SCHFL is negotiating with customers to pass input cost increases to customers as current levels are not sustainable.
SCHFL remains strong in transmission and engine-related parts. The company has a strong presence in PVs and LCVs due to which there was a strong pipeline from transition from BS4 to BS6. This resulted in content per vehicle improving to EUR40 versus EUR37 in CY20. The company is targeting content per vehicle of EUR50.
TruPower: SCHFL launched a new brand during the lockdown called TruPower, which is backed by German technology and targeted as part of the BSVI range. The first product – engine oil – was rolled out in 30 locations and should scale up
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Q4FY21 conference call highlights
to 70 locations. The products will be manufactured in India, and the company plans to leverage the same for exports.
Shift from diesel to gasoline: Stabilisation of the mix (diesel and gasoline) with a shift in production mix in favour of gasoline cars is accretive for the company, as BS VI-compliant gasoline products have higher content. The company has seen content per vehicle rise as part of the same.
While shift to EVs or hybrids from ICEs is distant for Indian markets, SCHFL is well- placed with its parent having a strong presence in the global market. The company has competence, capability and technology to replicate the same for Indian markets as production for EVs or hybrids rises. Industrials (37% of sales in Q1CY21): Industry performance: In QTDFeb-21, Cement and coal production declined 6% YoY and 3% YoY. Steel production saw a marginal uptick of 2% YoY, while electricity generation grew 3% YoY.
The company launched a spate of products in spherical and tapered bearings, targeting the opportunity in railways and wind energy. With increasing localisation, reduced lead times and competitive prices, management aims to gain higher market share.
SCHFL launched linear assembly guides targeting machine tools industry from Quick Centre Maneja, Vadodara. Exports segment (~11% of sales in Q1CY21) Management remains optimistic on the exports opportunity in Asia-Pacific in CY21. Focus on new products and rising localisation lifted exports 48% YoY on an overall basis.
The company has plants in industrial sales for localization. Furthermore, it has competence in cylindrical, large size bearings and chassis within products and 2W within segments. Since SCHFL has been classified as part of Asia Pacific at parent level, it expects exports to increase within Asia Pacific to South East Asian countries such as Japan and Korea.
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Q4FY21 conference call highlights
Cement
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Q4FY21 conference call highlights
India Cements
Industry and company operations All India volumes dipped ~12% in FY21; for South, the dip was higher at ~19%. Even though wave 2 of covid is impacting volumes, expect Q1FY21 volumes to be better YoY. ICEM expects the lockdowns/ restrictions in the wake of wave 2 to come off in June, after which a good demand recovery (including pent-up demand) could be seen. Accordingly, do not expect volumes to be impacted majorly in FY22. Volumes, prices and variable cost Despite low volumes, ICEM posted good results due to: i) the cash-and-carry model for sales; and ii) high cement prices. Cement prices in recent months of April and May have improved and are expected to improve further in June 2021 as well. In FY21, ICEM sold 8.9mn tonnes, including 0.45mn tonnes of clinker. In Q4FY21, it sold ~0.6mn tonnes of cement + clinker in the East India region, which drove up its lead distance. Debt and Capex ICEM repaid debt of ~INR5bn in FY21. Repayment of another INR6bn is due in FY22, and ICEM is confident of meeting that obligation. The company may pursue greenfield capacity expansion in Central India a few quarters from now, depending on external environment and subject to requisite approvals. ICME also intends to install a 10MW Waste Heat Recovery plant at Vishnupuram. It plans to spend INR1bn towards the same in a year from now.
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Q4FY21 conference call highlights
J K Cement
Grey segment
The QoQ drop in realisations is due to: a) increased share of non-trade sales from 34% in Q3FY21 to 36%; and b) high clinker sales (at 2.2 lakh tonnes versus 1.5 lakh tonnes in Q3FY21) which fetch low realisations.
While cement utilisation for the quarter was ~90% overall, for South it was only marginally lower.
White segment
The segment will see a growth of 8-10% under normal circumstances.
JKCE will continue to concentrate on the core business and has introduced value- added products only to retain its dealer network.
Despite the pandemic impact, EBITDA margins in white were impacted only marginally.
ESG initiatives
The share of Green Power will rise from 25% in FY21 to 75% by 2030. This will be on the back of new WHRS plants at Panna and potentially even for its plant in South India. JKCE will also be looking at options to procure power from wind mills as well as solar units.
JKCE is working on a number of initiatives in the ESG phase and will be reporting the same on a regular basis.
UAE update
Sales volumes in Q4FY21 were 1.12 lakh tonnes. While the entity breaks even as the EBITDA level, the performance is being affected by volume impact (owing to covid) and high freight rates.
The total outstanding debt for the UAE subsidiary is INR3.87bn to be repaid over the next three years. The parent entity will have to take care of bulk or part of the repayment since the operations remain subdued.
All the net worth of the UAE subsidiary is already eroded. Further impairment is unlikely as JKCE is working towards a plan to revive the profitability. Yet, uncertainty remains.
Capex update
In FY22, JKCE plans to spend ~INR12.5bn towards capex. Of this, INR9bn will be towards Panna expansion project while INR3.5bn will be towards other projects on hand (like Nimabhera upgradation and pending capex related to the 4.2mtpa expansion).
In FY23, capex is estimated at ~INR14bn, of which INR12bn will be for Panna.
Panna update: The ground breaking ceremony was concluded on May 5, 2021, and work on the boundary wall has been initiated. Orders for all the equipment have been placed. The land for the split grinding unit at Hamirpur (Uttar Pradesh) has been acquired and the boundary work is expected to commence post the monsoon season.
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Q4FY21 conference call highlights
JKCE is exploring possibility of brownfield expansion at existing sites but nothing is finalized yet.
JKCE has been allotted a mining lease in Jaisalmer. However, it has no plans of expansion in that region. The asset is more form a long term security of limestone and also for use of high grade limestone – to be added as a sweetner – for existing assets.
In 2030, the leases related to the Nimbahera expansions are expiring and in case there is no change to the regulation, will come up for re-auction. Given land is in control of the company, JKCE will be at an advantage versus peers. Also, as per the company, ~50% mines of the industry may come up for re-auction in 2030 – implying that it will be an industry wide issue and not specific to JKCE.
Nimbahera upgradation will involve a shutdown of 1-2 months. To avoid volume loss during that period, the company plans to build clinker stocks.
Other updates
Q4FY21 has seen efficiencies from new plants as well as the WHRS which were completed by ~100% clinker utilisation levels. Savings of another INR800mn – INR1bn will accrue in H2FY22 - post the completion of the Nimbahera upgradation in Q2FY22.
Trade sales stood at 63% in Q4FY21 versus 66% in Q3FY21. For FY21, Trade sales were 67%.
JKCE booked incentives of ~INR800mn in FY21 and received ~INR400mn. Total outstanding incentives stood at ~INR700-800mn as at the end of FY21.
Besides INR390mn of impairment booked in Q4FY21, Other Expenses appear high due to normalisation of expense like advertisement, travelling etc. Asset impairment can happen in future as well as and when new plant come on board and the old plants have to be phased out.
JKCE reduced the consumption of pet coke to 35% in the quarter which is very much the bottom. The share is expected to increase in coming quarters.
Lead distance was 459kms in Q4FY21 versus 472kms in Q3FY21. Rail transport was 21%.
JKCE may opt for the new tax regime from FY24 or FY25. Panna expansion project will be in the new regime in any case.
JKCE intends not to go beyond net debt levels of INR25-30bn at any point.
Dividend payout ratio will be in 22-25% range.
Q3FY21 conference call: Key takeaways Operational performance update
Demand is seen picking up across the housing and infrastructure segments.
Current cement prices are broadly flat compared with Q3FY21.
Efficiency gains of INR50–60/t have been visible in Q3FY21, and similar gains are expected to accrue in Q4FY21 as well.
Cost of fuel consumption increased by ~INR1,200/t in Q3FY21 versus Q2FY21.
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Q4FY21 conference call highlights
Trade sales stood at 66% while PPC sales were 62%.
Lead distance stood at 472km versus 469km in Q2FY21. Rail is 20% of their freight mix.
The QoQ increase in Other Expenses is due to an increase in volumes and also due to enhanced expenditure on branding.
White segment update
JKCE is not thinking of entering the Paints business as of now.
The company is prepared for potential competition from Aditya Birla Group given recent plans by Grasim to enter the Paints business leveraging the dealer network of Birla White.
Their endeavour is to ensure white segment continues to grow by double digits.
Capex
JKCE has launched a 4mtpa greenfield project in Central India at a cost of INR29.7bn. The cost of ~USD100/t appears high since it is a greenfield project. The subsequent expansion lines will come at a much lower cost.
The infrastructure development cost for a greenfield project itself is USD30/t which is helpful for brownfield expansions in future. Consultant Holtec carried out the project’s feasibility study.
The greenfield project will be eligible for incentives in both UP and MP. In MP, JKCE will be eligible for a capital subsidy of ~INR1.5bn—to be received over seven years. In UP, it will be eligible for 70% SGST refund for a period of 12 yeas. The SGST refund has a cap of 200% of approved capex for the total incentive period. However, the annual limit is 20% of the approved capex.
The company has spent ~INR3bn so far on the project and will be spending another INR2bn in FY21. The capex outflow going ahead is – INR8bn in FY22; INR13bn in FY23 and the balance in FY24.
JKCE has spent INR1.5bn over 9mFY21 towards the 4.2mtpa expansion project.
In FY21, the total capex cash outflow is expected to be INR7.5–8bn.
The project will be eligible for the new 25% tax rate.
JKCE does not see bunching up of capacities as a challenge from a long-term view. Believes, every region is bound to see some or the other expansion by peers.
The mining lease was executed in Q3FY21 – which is for a period of 50 years. They have one more mining lease that would be operative in two years, and the limestone from that mine can be used for the recently announced expansion as well.
The company has acquired the entire land required for the plant location. It has also procured ~600 acres of mining land, and plans to add 300–400acres till the time the plant gets commissioned.
Environment Clearance for both the plant as well as mines has been obtained.
The expansion will be in a fully controlled subsidiary since the mining lease is in the name of the subsidiary.
The project has 22MW WHRS power plant, but no thermal power capacity. There is no railway siding to the project as nearest railway line is 60km away.
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Q4FY21 conference call highlights
The Nimbahera upgradation project will come on board by Q2FY22 and will help generate savings of ~INR50/t.
UAE operations update
JKCE sold ~100,000 tonnes of white cement and clinker in Q3FY21 and ~282,000 tonnes in 9mFY21. The capacity utilisation of 60–65% is good enough in current covid-19 times. They plan to increase the sales to India from 15% of UAE’s output to 20–25% going ahead.
Debt position
The repayment of gross debt will be as per the plan. There will be no prepayment thereof.
Gross debt stood INR27.9bn for the standalone entity.
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Q4FY21 conference call highlights
UltraTech Cement
Industry demand and UTCL volume
UTCL’s capacity utilisation stood at 93% in Q4FY21 and was a near-full 99% in the month of March 2021. UNCL (erstwhile Binani Cement) operated at 85% while the Century Textiles’ (CTIL) assets operated at ~90% for the quarter.
Of the ~1mn tonnes per day of industry volumes in March 2021, UTCL’s share stood at ~0.3mn tonnes (implying market share of ~30% in peak season).
The company’s capacity utilisation by region stood as follows: East: >100%; a little under 90% in South India; and ~90% in all other regions. UTCL has been gaining market share in all the regions.
UTCL acknowledged that current demand has certainly seen a slowdown but believes the bounce-back will be sharp too – akin to last year. Given the dynamic nature of demand, UTCL is unwilling to share the current run rate and will closely watch the performance of the entire Q1FY22. No volume guidance for industry / company for FY22.
UTCL also pointed that there is no major slowdown from government orders and that payments to contractors are being made on time. UTCL sees the wave 2 of covid-19 as causing a blip in demand; if the situation improves by June 2021, UTCL expects the industry to be back on track thereafter.
UTCL believes that small/ regional players face difficulties in operating plants due to local lockdowns/restrictions while large players can manage it by sourcing materials from other nearby plants. UTCL believes large players will continue to see capacity expansions.
Cost trend – Variable and fixed
The company has shifted it fuel mix In favour of imported coal to mitigate the impact of rising global fuel prices. Pet coke’s share (in overall fuel mix) has come off to <30% while imported coal’s share has risen to >60%. While Q2FY21 may see a further increase in variable cost by ~INR50/t or so, that may well mark the peak. UTCL expects fuel prices to come off in H2FY22. With ramping up of the large refineries in Texas (USA), it also expects pet coke prices to ease off in coming months.
UTCL saved INR5bn in FY21 over FY20 by controlling fixed costs, and has guided FY22 would be on a par with FY20 despite inflation.
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Q4FY21 conference call highlights
Impact of MMDR Amendment Act, 2021:
With the latest amendment in the MMDR Act waiving the mine transfer fee, UTCL will save ~INR60/t on the assets it acquired from JP Associates and Century Textiles w.e.f. from 20th March 2021. Total savings can be ~INR2bn p.a. UTCL is in the process of cleaning up the balance sheet of its 100% subsidiary UNCL (erstwhile Binani Cements) and will look to merge it with the parent sometime in FY23.
UTCL also confirmed that none of its Prospecting Leases has lapsed due to the changes in the MMDR Act.
Expansion update
Capacity expansion of ~19.5mtpa is broadly on track for completion by the end of FY23—despite some recent hiccups due to the second covid wave. UTCL is, however, confident of ramping up the facilities at a fast pace – as it has done in the past.
UTCL has received stage-1 clearance from MOEF for the Dalla-Super clinker expansion of 2.3mtpa, and expects the stage-2 clearance by September 2021. Accordingly, expects the unit to commence operations by end of FY22.
Line 2 of the Bara grinding unit (of 2mtpa) has already got commissioned and is operating at 70–75% utilisation.
The integration of CTIL’s assets is broadly on track with ~75% integration already completed. The company plans to retain the CTIL brand in the state of Chhattisgarh while brand integration in Bihar is expected soon. CTIL currently makes an EBITDA/t of ~INR800, which would soon touch INR1,000/t or on a par with UTCL’s company average. The performance will improve by ~INR60/t given the latest MMDR Amendment, which stipulates a waiver of the mine transfer fee.
Waste Heat Recovery System capacity is on track to expand from 125MW currently to 304MW by mid-2024. Investment of INR18bn is earmarked towards the same. Post-completion, WHRS will meet ~25% of the company’s power requirement (1,200MW) at a cost of INR0.25/unit versus UTCL intends to incur capex of INR40–50bn in FY22 and ~INR30bn in FY23. Other business updates UTCL RMC network increased from 109 plants in December 2020 to 132 plants at end-March 2021. UTCL sees RMC business as a harbinger for growth in India and fetches an EBITDA margin of 4–5% over and above what it gets by selling cement – at an arm’s length - to this business segment. The RMC business has a very high RoCE of >25%. UTCL also hinted about its big plans in the Building Materials Distribution business. Further details thereof will be shared at an appropriate time once the plans are firmed up. Balance Sheet update UTCL has stepped up dividend payment in FY21, which is ~20% of FY21 PAT. Going ahead too, shareholders can expect a 15–20% pay out—in line with the company’s dividend policy. With leverage reducing, UTCL intends to keep liquid cash of ~INR10bn on its books as a war chest for any inorganic expansion opportunities. There is no plan for an international acquisition though, and any excess cash would be returned to shareholders. 96 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The company currently generates an RoE of ~15%, and expects it to improve by 200– 300bps by FY25. Other updates Trade mix in Q4FY21 stood at 67% versus 69% for FY21. Lead distance in the quarter stood at 440km. Premium Cement stood at ~10% of overall volumes, and UTCL intends to ramp it up to 15% with various new value-added products. UNCL EBITDA/t stood at ~INR1,500 in FY21 In the UAE, UTCL claims to be among the best performer with a market share of >25%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Construction 98 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ahluwalia Contracts 1. Covid-19 impact: Labour availability had fallen to ~70% during the second wave and still has not recovered to 100% levels. 2. Management indicated that 80% of the contracts in the order book have some sort of an escalation clause; this will provide some cushion against rising commodity prices. 3. EBITDA margin: ACIL made a provision of INR340n towards receivables during the quarter (~INR530mn in FY21). Most of this provision was w.r.t. Commonwealth Games dues. Management indicated that bulk of the provisioning has been completed by end-FY21. 4. Capex: ~INR160mn in Q4FY21 (~INR350mn in FY21); this was higher than initial estimates due to paucity of labour which compelled the company to invest in machinery. Capex is likely to be INR250–300mn in FY22. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ashoka Buildcon Guidance 5. Order inflow: INR40–50bn in balance FY22. 6. Revenue growth: 20-25% YoY depending on order intake. 7. EBITDA margin: 12.0–12.5%. 8. Capex: INR500–600mn in FY22 (INR280mn in FY21). Order book visibility: ABL ended the quarter with order book of about INR82bn; its order book-to-bill stood at ~2.1x at end-FY21. Q4FY21 revenue breakdown: INR10.3bn from roads, INR1.6bn from railways, INR730mn from power T&D, INR10mn from the CGD business and ~INR670mn from others. FY21 revenue breakdown: INR28.8bn from roads, INR3.7bn from railways, INR2.2bn from power T&D, INR400mn from the CGD business and ~INR1.8bn from others. Q4FY21 order book (OB) breakdown: Road EPC (33%), road HAM (43%), railways (7%), power T&D (17%) and CGD (1%). Margin: EBITDA margin during the quarter were aided by reversal of ECL provisions, reversal of covid-19 related provisions etc. The company expects financial closure and appointed date for the two HAM projects by Q3/Q4FY22. Tumkur Pkg III has ~90% land available, but for Tumkur Pkg IV, land availability is only ~61%; so it will take some time for work to start there. Debt: Debt at consolidated level is INR61.6bn (up ~INR1.8bn QoQ). Standalone debt is ~INR3.6bn (INR3.5bn at end-Q3FY21), which comprises ~INR1.6bn of equipment loans and ~INR2bn of working capital loans. Standalone net debt:equity stands at 0.1x. Debt on BOT/HAM/annuity projects stands at ~INR56.4bn (INR54.8bn at end- Q3FY21). Working capital cycle: Net working capital cycle inched up to 137 days (108 days at end-Q2FY21). Management mentioned that payments from projects in Uttar Pradesh and Jharkhand are an issue but from other states and NHAI are timely. Equity infusion: 1. Equity infused: INR400mn in Q4FY21 and ~INR1.3bn in FY21. 2. Equity commitment: ~INR1.8bn in FY22 and INR1.6bn in FY23 for HAM projects; for the CGD business, pending equity requirement is INR1.6bn after 1.5-2 years. Asset monetisation: Management mentioned that it is talking to various potential investors; it expects the process to get completed soon. Some of the buyers are looking at buying individual assets. The conclusion of this deal will be a major monitorable, in our view. 100 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The total equity invested so far in the HAM and annuity projects is INR8.4bn (INR7bn for ACL projects and INR1.4bn for annuity projects under ABL). Pending equity commitment is INR3.2bn. Overall equity invested in the ACL portfolio is INR31bn – INR23bn by ABL and balance by SBI-Macquarie. Solar EPC contract: The sharp rise in solar module prices can impact margins of the project, in our view. Management expects prices to decline and will order modules thereafter. Loss funding in FY22: ABL believes that the Sambalpur project will need support of INR350mn annually. CGD business: The company has achieved financial closure for the CGD business with debt of INR5.4bn and equity of INR2.9bn. Bhandara project: The company has entered into a ‘Share Purchase Agreement’ (SPA) with ‘India Infrastructure Fund (IIF)’ for purchase of 49% stake in the Bhandara project for an aggregate consideration of ~INR340mn. Post completion of this transaction, ABL will hold 100% stake in the project. Toll collection: Toll collection had picked up in H2FY21 and surpassed pre-covid levels; it has now been impacted adversely by the second wave of the pandemic. Management is now seeing gradual recovery and expects toll collection to grow in double digits in FY22 due to low base. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Capacit’e Infraprojects Labour situation: There was an adverse impact of INR250-300mn on revenue in March 2021 due to the second covid wave. April had witnessed 25% shortage in labour, which had increased to 40% during May. There has been influx of ~1,800 labourers in the last week and management expects to reach the levels seen in March 2021 by June end. CIDCO project: Work on all the sites has commenced. On the project, Capacit’e booked INR430mn revenue during Q4FY21 (~INR1.4bn in FY21). Management expects monthly execution on the project to touch INR300mn in Q2FY22, INR500mn in Q3FY22 and INR700mn in Q4FY22. BDD Chawls project: Revised designs have been approved and IOD/CC has been granted. The company expects to start work with new designs from next week. Capex: Total capex on CIDCO project is expected to be INR800-900mn spread over two years. Margin: Almost the entire order book has price escalation clause; hence, the company does not anticipate any negative impact of hike in commodity prices. Banking limits: The company has INR2.4bn of fund based limits and INR15bn of non-fund based limits. 102 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights J Kumar Infraprojects Guidance for FY22 Order intake: INR40–50bn Revenues: INR30–35bn EBITDA margin: 14-16% Capex: INR0.8–1bn Debt: Flat YoY Order book: INR120bn Order inflow improves The company won an INR9.4bn order for underground metro work for the Surat Metro project during the quarter. It has also emerged L1 in an ~INR13bn order for elevated metro rail project for the Mumbai Metro Line 2B. Management indicated that it will target metro rail tenders in Mumbai and Delhi to shore up its order book. It is also looking at orders in the High Speed Rail segment and urban transport projects in NCR and MMR. Order book remains robust The company ended FY21 with an order book of ~INR109bn. With a book-to-bill of 4.3x, the current order book implies revenue visibility for the next couple of years. Metro rail projects account for more than half of the company’s order book. Margins slip in Q4FY21 With the company losing out on ~INR1bn worth of revenues in Q4FY21 due to labour issues in March, EBITDA margin declined 360bps QoQ to 10.5%; margins, were flat YoY. Net debt falls Gross debt decreased from INR5.7bn at end-Q3FY21 to INR5.3bn at end-Q4FY21. With cash levels rising from ~INR4.3bn at end-Q3FY21 to ~INR6bn at end-Q4FY21, the company became net debt free. It had a net cash position of ~INR0.7bn (net debt of ~INR1.4bn at end-Q3FY21). Net debt to equity stands at a comfortable negative 0.04x (0.08x) Working capital cycle improved from 166 days in Q3FY21 to 126 days in Q4FY21. Management expects working capital cycle to remain at similar levels going ahead. Other highlights Mumbai Metro Line 3: Tunneling work on the project has been completed. Mobilisation advance: The outstanding mobilisation advance is INR4.5bn; of this, ~INR1bn is interest-bearing (mainly from the NHAI for the Dwarka Expressway project) while the balance is interest-free advance from various metro rail bodies. The company expects to receive another INR3.3bn in mobilisation advance going ahead. Banking limits: JKIL has utilised 68% of fund-based limits and 81% of non-fund based limits. Coastal Road project from CIDCO: Forest clearance for the INR4.1bn project is pending. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights KNR Constructions Revenue breakdown: During Q4FY21, irrigation projects contributed ~20% to revenue while HAM projects contributed 51%. EPC road projects made up the rest of revenues. For FY21, irrigation projects contributed ~23% to revenue while HAM projects contributed 51%. EPC road projects made up the rest of revenues. HAM project portfolio: KNR has an overall portfolio of seven HAM projects: six from NHAI and one from K-SHIP (Karnataka). Work on five HAM projects is underway. The company expects to receive PCOD for three HAM projects over the next quarter. Completion status of HAM projects: Chitoor–Mallavaram: 81.8% (72.1% at end- Q3FY21); Ramsanpalle-Mangloor: 80.2% (64.2%); Trichy-Kallagam: 65.9% (58.9%), Oddanchatram-Madathukulam: 26.5% (14%) and K-SHIP project: 28.9% (22.4%). Equity contribution: The total equity required for the initial five HAM projects is about INR6.2bn. The company has already invested ~INR3.6bn in equity and needs to invest an additional ~INR2bn in FY22 and the rest in FY23. For the two HAM projects won recently, the total equity needed is INR4.3bn of which ~50% equity will be required upfront. In case work on these two projects commences in the current fiscal, the total equity requirement in FY22 will be ~INR4.2bn. There have been no payment issues as far as Tamil Nadu state government projects are concerned. 104 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights NBCC Order book guidance: Management expects to win orders of ~INR80bn, and award work of INR100-120bn in FY22. Revenue guidance for FY22: ~INR70bn at standalone level and ~INR100bn at consolidated level. Amrapali projects’ status: The company booked INR10.7bn of revenues in FY21 and is targeting ~INR20bn of execution in FY22 on these projects. Jaypee acquisition: The company has lost the bid to acquire Jaypee Infra to Suraksha Realty. Delhi colonies’ redevelopment: Execution on all the three colonies - Nauroji Nagar, Sarojini Nagar and Netaji Nagar has commenced. Total realty sales to date achieved at Nauroji Nagar is INR35bn, of which ~INR16bn was achieved during FY21. While the sales have been very slow in the past, the company has now started aggressive marketing to boost sales here and is targeting INR16-20bn of realty sales in FY22. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights PNC Infatech Ghaziabad-Aligarh project: PNC has entered into a share purchase agreement (SPA) for the sale of its 35% stake in the project. The consummation of proposed transaction is subject to receipt of applicable regulatory and other approvals and complying with the conditions precedent, more specifically laid down in the SPA. Total fund infused by the company in the projects (including equity, loans etc) stand at INR4.1bn. Asset monetisation: The company expects to complete monetisation of HAM and other BOT projects this year. Interest rate: Management expects interest rate on all operational projects to decline to 7.25-7.5%. HAM projects: The company received the ‘appointed date’ (AD) for the Meerut – Nazibabad, Jagdishpur-Faizabad and Aligarh-Kanpur HAM projects in March 2021 and the Unnao-Lalganj HAM project in May 2021. Vadodara EPC projects: The company received AD for the two projects during April-May 2021. Equity for HAM projects: Total equity required for all HAM projects is about INR8.6bn. Of this, INR3.5bn/INR3.2bn/1.9bn is estimated to be infused in FY22/23/24, respectively. Internal accruals should be sufficient to fund balance equity, per management. Labour availability: There has been no major impact of the second wave on labour availability. Impact of recent rise in input prices: All projects have escalation clauses, hence, there will not be any major impact on margins due to the recent rise in commodity prices. Water supply / irrigation projects: Work has already commenced of the ~INR10bn irrigation project in Andhra Pradesh. Similarly work on one water supply project viz., Construction of Haraulipur Group of Villages Water Supply Scheme worth INR2.9bn has commenced. DPR preparation for two more water supply projects worth ~INR34bn is underway and the company expects to receive the AD over the next two–three months. Margins in irrigation and water supply segment are similar to that of roads. For water projects in Uttar Pradesh (UP), the funding is 50:50 from Centre and State. In some states, Centre is funding 90% of projects. The execution period for these projects is about two years. Our view on water projects: Over the past year, the government has made its intention clear about targeting the water supply segment in a big way. It has already launched the Jal Jeevan Mission, envisioned to provide safe and adequate drinking water through individual household tap connections by 2024 to all households in rural India. In the budget, outlay for water supply catapulted 253% YoY to INR600bn; within this, the outlay for JJM (Rural) component, in fact, surged 4.4x YoY. 106 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The budget also indicated that the JJM (Urban) will now be launched. It will aim for universal water supply in all 4,378 Urban Local Bodies with ~29mn household tap connections as well as liquid waste management in 500 AMRUT cities. It will be implemented over five years with an outlay of ~INR2.87tn. We believe PNC can be a significant beneficiary of the uptick in awarding in the water segment. Margins: EBITDA margin stood at 14.1% (+60bps YoY and QoQ), while PAT margin at 7.9% improved 130bps YoY and 10bps QoQ, led by lower interest costs and higher other income. At the consolidated level, debt is ~INR41.9bn, net worth is ~INR30.5bn while net debt:equity is 1.37x. Toll collections: Toll collections grew 21–36% YoY across projects in Q4FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Titagarh Wagons Covid-19 impact: The Indian operations are expected to commence next week. Consolidated order book breakdown: Around INR50bn (end-FY21), out of which ~INR26.8bn-worth of orders are in India, and the balance at Firema, Italy. Out of the INR26.8bn India order book, INR11.3bn pertains to wagons, ~INR10.2bn to metro rail/propulsion systems, and the remaining INR5.4bn to bridges, foundries, etc. Wagon dispatch: While there were negligible dispatches in Q1FY21, the company dispatched ~1,000 wagons each in Q2FY21 and Q3FY21, and ~800 in Q4FY21, taking the total wagons dispatched to around 2,800 in FY21. Wagon demand outlook: Demand for private sector wagons had declined during the pandemic; however, it has now picked up. Management expects wagon orders for the Dedicated Freight Corridor (DFC) to commence by end-FY22. Pune Metro order: TWL along with Firema had won the INR11.4bn tender floated by Maharashtra Metro Rail Corporation (Maha-Metro) for the design, manufacture and supply of 102 metro coaches for Pune Metro Rail. Production of the prototype has been completed and it is currently under testing. Production in India has already commenced. Firema: For FY21, Firema reported an EBITDA loss of INR210mn due to the covid- related disruptions in Italy. However, the situation has stabilised now, and with majority of legacy contracts getting over, management expects Firema to be EBITDA-positive in FY22. Impact of increase in steel prices: Increase of steel prices is a concern for the entire industry. Although IR orders have price variation clauses built in, they are based on wholesale prices, which move with a lag of six–eight weeks. Private orders are usually at fixed price, with no price variation clause. Hence, there will be some impact on margins. Management indicated that 75–80% of their contracts have price variation clauses. Capex guidance: Cumulative capex over FY21 and FY22 will be about INR1bn. New design centre: TWL has set up a new design centre in Hyderabad for railway and metro rolling stock in India (this work was earlier done in Italy). Debt: The company has become net debt-free at the India level. Firema has debt of ~EUR75mn. Propulsion system: The company will supply the prototype to Indian Railways in FY22. Bid pipeline: TWL has participated in bids for EUR500–600mn worth of projects in Italy and INR10bn in India. 108 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Consumer Durables Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Amber Enterprises Overall highlights The CD industry made a strong comeback in H2FY21. Overall recovery in business was better than expected. Channel inventory as of March 2021 stood at normal level and better compared to last year. Second wave will impact performance as uncertainty continues. Signed 6 new customers for refrigerant filling solutions post ban on import. Expects to convert these from only gas filling solutions to full manufacturing. 86% of imports impacted where Amber gained major share. RAC contributed 60% to revenue, while components contributed 40% in Q4FY21. For FY21, RAC contributed 55% and components 45%. FY21 RAC volumes of 2.1mn for Amber whereas industry at 5.8mn units. Industry grew ~19-20% in the last quarter. Receivables are in line with growth in sales. Some delay in Sidwal, but have been recovered in April. R&D teams are working on VRV/VRF segment and expect good growth from the segment. Since it’s a software product, Amber will be looking to partner with a solutions provider. Price hikes taken due to rise in input costs have been passed on to customers. Due to the cost plus basis model, GMs at a per unit level have been maintained. Price increase of ~10-12% on complete product compared to a year ago. Approvals to export to UAE have been received and expects to start exporting in FY22. Exports to the US to start in the next financial year. RAC factory working at 40-45% level right now. Competitive pressure has increased, but Amber is placed well in the market to gain advantages due to size as well high entry barriers. PLI PLI to help create component infrastructure in India which will take domestic value addition from 25% currently to 75%. Confident of applying in the low value intermediate PLI package, but more details awaited from fine-tuned version of the scheme as far as high value (RAC) segment. Sidwal Revenue/EBITDA at INR800mn/214mn for Q4FY21, while INR2010mn/480mn for FY21. Well placed to capture opportunities arising from construction of metro rail. Bagged a big order and is in discussions for another big size project. 110 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Expects a strong order book of around INR3.5bn. Offering solutions to almost all major coach builders in the country. PICL Revenue/EBITDA/EBITDA margin at INR710mn/60mn/9.1% for Q4FY21, while for FY21 INR1310mn/66.4mn/5.1%. Expects to double revenue in the next 2-3 years based on advantages from PLI. Illjin Revenue/EBITDA at INR1180mn/46.7mn for Q4FY21, while for FY21 INR3070mn/146.5mn. Ever Revenue/EBITDA at INR590mn/37mn for Q4FY21, while for FY21 INR1540mn/73.4mn. Capex Earmarked INR2.9bn for 2 greenfield manufacturing facilities. Land already acquired for Supa plant and construction has commenced. Shortlisted land in South India (2nd plant) and will complete the transaction in the coming months and expects to begin construction post that. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Bajaj Electricals Opening remarks and business outlook: Satisfied with 30% yoy ECD growth, management re-iterated focus on profitability and balance sheet. With 6-8% (Jan-21) and 3-4%(May-21) price hikes taken, management mentioned recent hike need to be seen in a post lockdown scenario. General economic consumer sentiment is slightly weaker vs last year and pent up demand is unlikely. Management stocked up higher in March-21 quarter (fans, coolers, appliances etc) for better preparedness before the lockdown. Consumer: EPC will sustain 75:25% revenue mix going ahead. Retail expansion is largely done for BJE and incremental focus in to mine that better (sales/retail point). Guidance: April 21 is better yoy given full lockdown last year. Rural trend had gone up in June qtr last year, this year clearly rural is suffering higher. BJEs sales from urban is still 2/3rd of consumer business as this stage and hence will benefit if urban fares better. Management expects a double digit consumer growth assuming demand normalised beyond June-21. On margins at 9.6%(FY21), management is targeting to cautiously improve OPMs(no specific guidance) but a lot will depend on our investment for growth in key product categories. Debt increase of INR 30 debt qoq despite reduction in receivables: BJE had INR 50 cr of OCF in Q4, which largely went to capex, inter-company loans etc and not for EPC. Post lockdown expectations: Management expects to liquidate inventory which has gone up in Q4 as markets open up more broadly. Logistics tie up: Positive impact if any is likely from Q4FY22 with full benefit (150-200 bps) reflecting over 2-3 years. Starlight, Nirlep, Hindlamp strategy: These entities were always part of Bajaj ecosystem, incrementally, we plan to optimise on these capacities. Starlight is a key water heater supplier, incrementally it will do mixer grinder and other products. Historically, BJE had been extending guarantees to its loans etc (INR 2.4 bn loans guarantees), BJE now wants to simplify this and targets to bring these in BJE. In the short term, BJEs B/S will consolidate as it takes the debt in its books, but it will also bring down the overall cost of debt given better rating for BJE. EPC Receivables: As of March-20 receivables were 19.7 bn to INR 14.5 bn in FY21. UP at 8.4 bn INR is now 5.6 bn, Bihar has come down from 5.2 to 4.0 bn yoy. Hence, overall 400 cr is collected in FY21 only in the EPC-Power distribution business largely during 9MFY21 period. Category-wise growth in Q4 growth for Appliances up 37%,+36% for Fans, Morphy +30%, lighting is down 4% yoy. Management indicated share gains in Fans, Morphy Richards, while in lighting BJE might not be better verus the top 2-3 players. Introduced 170 SKUs in FY21 across segments. Category growth for FY21 growth: Appliances +11, Morphy Richards +13%, Fans +5%, lighting is -5%. Bajaj acknowledge that is has a weak LED portfolio vs larger peers and would target to improve it over 2-3 years. Higher other income: BJE had cancelled some lease agreements (INR 50 mn) and has sold some properties (INR 170 mn). 112 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Reason for Consumer margin gap qoq: Water heater (Q3 season) is high share/high margin vs Fans, where BJE is not a premium player (Q4 season). Regional share and growth strategy: BJE is high in East/West at 37/30% revenue share while South/North 17/16% is lower. Incremental focus in to expand to southern market which is not an easy market. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Crompton Greaves Consumer Electricals Opening remarks: Crompton has vaccinated 80% of its 45 years plus employee base till date for covid-19 and is promoting WFH for most employees. Expects H2 to bounce back assuming lockdowns normalise from June . Pricing: Crompton took two price hikes last year; however, commodity impact was far sharper. Versus Q4FY21 at 12%, commodity inflation was at 8% for Q1FY22 till date. Cash and working capital: Has done better on cash flow versus large peers given high resilience and robust WC focus. Segment-wise performance: ECD: +15% QoQ growth. Fans +59% led by premium range (72%/76% in premium/super premium range). Pumps: +61% with 64%/53% in resi/agri pumps. Appliances at +71%(74/91/86% YoY growth for coolers/mixer grinders/iron). Lighting: +15% yoy; B2C within grew better at 31% in value terms, B2G was down sharply (slow EESL, GoI order pick up). Importantly, lighting has now stabilised on pricing (B2C especially). Go to market: Crompton has expanded dealer touch points further in March with a 300 bps increase overall. Rural channels aided 117% Q4 growth led by high Jan- Feb growth. Despite covid disruptions, Crompton continues to expand its product portfolio which has helped the company clock industry-leading growth. Infection spread in rural India has raised fresh concerns even as the number of cases overall has peaked for the country. Cost saving (Unnati programme) will help compensate the impact of sharp input cost inflation. Crompton will target to optimise its OPMs by a combination of cost initiatives and higher growth in select categories going ahead. Detailed Q&A session: Q. Price increase range across products? A: In two rounds (Jan-Feb & May) of pricing, roughly Crompton has taken 8-10% overall. During first round, demand was robust; however, currently the impact of pricing on demand remains uncertain given lockdown. Q. Guidance for ASP over the next two years? A: Once demand levels normalise, we expect the ASP to also scale up. Q. Share gains in fans? A: Basis third party retail audit data, in the past 12 months (till March), Crompton has gained 100bps in market share led by gains from organised-small players. Management believes, this is the highest share gain amongst all large fans players for the year. Q. Growth vs profitability approach? A: We will not offset growth for margins, and will target growth at better cost performance. 114 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Q. New product launch pipeline? A: We have made significant progress in geyser share this year with robust product pipeline including mixer and grinders. We are still very low on small kitchen appliances share and this will remain a near term growth driver. Q. H2FY21 share gains vs unorganised, is it sustainable given sharp input cost dynamics? A: Management believes this phenomenon of share shift will continue given quicker ability to have a vertical start up vs competition. Commodity inflation generally is favourable for robust players like us given investment capability, strong balance sheet prowess. Q. Current distribution strength pan-India and cash usage? A: We improved our fans distribution by 300bps (available now at 55% of total country outlets), in water heathers (reach up 60% in 18M), in lighting our reach is still low at 30% which should improve incrementally. On cash/balance sheet, Crompton is still able to convert 100% plus of sales as cash even at current disruptions. Crompton is not keen to keep high cash and will look actively to pursue inorganic opportunities to support growth. In case we are not able to close any M&A, the company will target to pay stakeholders back. Q. Scale up in heaters, air coolers and mixer grinders etc? A: In water heaters, we moved from lower to now No.2 rank; in air coolers we are behind vs heaters and are now focusing on range (tower coolers etc). In mixer grinder, we have doubled our revenue (from low single digit share) in past year, but large room to grow still. We expect all three categories to grow significantly over coming years given large market and low share. Q. Tax benefits from carry forward losses? A: Crompton will get the benefit for one more full year on account of carried forward losses. Q. Channel inventory and restocking status? A: This year March was good versus last year, which was significantly low on demand. Channel inventory currently is not very high and was higher last year due to low demand. Post lockdown, demand will play a key role in how channel inventory pans out. Q. Pricing outlook versus cost? A: B2C price erosion is largely behind for industry as a whole with significant challenges. Crompton believes OPMs structurally will stay in double digits for the company. Q. Target saving this year? As: We have ~INR 1.7 bn plus of total cost saving target, however, will have to re- evaluate basis ongoing lockdown. Q. Market share data across key products? A: Fans/residential pump is 26-27%, 8-10% is B2C lighting share. In water heater we have 15%, while air cooler/mixer grinder is mid-single digit. Q. Product portfolio: Urban vs rural for Crompton? A: We do not see any major difference in product demand from semi-urban and rural markets. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Havells India Management guidance: Hopeful of B2B/infra led demand which improved from Jan- 21. Management believes trends like better growth for organised in consumer segments to sustain. Tier I markets will recover quicker vs Tier II/rural in second wave even as general dealer inventory (fans, appliances, RAC, etc) remains high at this stage. Havells distribution connect: More than 10,000 billing points with total retail connects at more than 1.3 lakhs. Rural for Havells is at 2,400 towns vs 3,000 total available cities with more than 50,000 population. Comments on cash flow: There is no significant change in accounting policy impacting cash flows or gross margins. Demand environment: April started well for first two weeks; however, lockdown led by second wave impacted overall sales. Categories like B2B/project sales, fans, appliances etc., did well before lockdown period. Tier I vs II/rural recovery: Management believes Tier I towns could come back faster, while Tier II/rural could take more time given covid disruptions. Havells has around 4-5% of its electrical sales coming from rural towns at this stage. Market share for Havells: Management claims to have gained significant market share in FY21 versus some loss in FY20 in the Lloyd AC portfolio. There has been some delay in passing on the cost hike for the industry in general. New product launches & journey for Lloyd: On Lloyd, new range for washing machines has been launched, which couple with refrigerators should help Lloyd grow better. The company will look to expand market share (currently low single digit) in washing machines with focus on brand and expanding distribution reach. Pricing action: Havells was able to pass on the entire cost hike led by copper, PVC etc., before lockdown and is confident of passing any further change post the lockdown gets over. Copper wires prices from last year would have gone up by 45%, 10% for fans/switchgears etc., on April to April basis. Range of pricing in switchgears/fans was in 12-15%/8-12% range, most of which happened in Q3/Q4. Online business: Still a small part of Havells sales, there are 1,000-1,200 online linked dealers for Havells. Industrial/infra segment commentary: Havells saw revival in these categories from Jan-21, which remains a key positive. Capex guidance: Targeting INR5bn capex for FY22E for capacity addition, but will have to review the same in light of potential lockdown and disruptions. Seasonal disruption will force the company to review the PLI led capacity plans. Ad spent: is generally 3% of consumer/residential business and the same is expected to sustain. 116 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights KEI Industries Opening remarks and guidance: With around 36% of sales (versus 25.5%) coming from dealer network (1,655 in FY21, flat YoY), we sustain our improving momentum on retail sales consistently. We expect domestic institutional sales growth of 25% for FY22E, while expecting higher 35% growth for retail sales given sharper focus. WC of INR1.50bn is expected to be released during FY22 from EPC retentions. Higher ordering activity expected across railway, T&D(U/G cables for metro cities) and solar segment. Targeting debt reduction further in FY22 from current INR4.3bn to INR3.5bn. Retail sales outlook: 100+ new headcount added for retail sales ramp-up in FY21, which should help in expanding dealer-led sales growth of 35% year over year. The company also targets to add 20% new dealers this year. Margins in retail house wires has fared better for the industry at large (larger players), including KEI. Balance sheet and cash flow: Despite receivables/inventory normalisation vis-à-vis last year, cash flow was mostly used for creditors (interest-bearing), which led to a lower translation to CFO. Next 2Y, receivables will be at 2.25–2.5 month level given rising share of retail and retention recovery from EPC. Capex outlook: INR6–7bn of capex over 3-4 years to drive a 16-17% CAGR in sales versus long-cycle average of ~15%. Identified three locations in Gujarat, which was disrupted due to covid impact. Management is now targeting finalisations in June. The overall timeline is 16–18 months for HT/LT/EHV cables capacity ramp-up. Silvaasa House wire is sufficient for next 2Y and could add 89–90% in new revenue. Comment on unallocated expenses and employee cost: KEI has included all HO level expenses across segments, which has impacted cable margins largely. There is no adverse impact on business-level margins on Cables. Lower employee cost for KEI is sustainable, and the company has already adjusted the same in line with EPC down- scaling. Lower interest charge at 1.4% of sales (FY21) vs 2.6%: Working capital and LC charges led to sharper reduction in overall interest/bank charges. It was INR 40 mn vs INR 140 mn(FY20) on term loans, INR 245 mn vs INR 580 mn(FY20) is working capital interest. LC charges is INR 96 mn versus INR 257 mn and BG charges INR 96 mn versus INR 130 mn. EPC and EHV commentary: Domestic traction is getting better across railways, solar, T&D (underground city projects in metro cities). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Polycab India Opening remarks FY21 has been an extraordinary year in spite of which revenue was up 43% YoY and 9% QoQ with healthy underlying growth across business segments and improving share of B2C business. EBITDA grew 43% YoY with 13.9% margin helped by pricing actions, leverage benefits and cost saving initiatives. Revenue was higher than last year led by strong performance in H2 of the year, offsetting severe impact of covid-19. Sales contribution from B2C product portfolio, on standalone basis, grew from 32.6% in FY20 to 40.2% in FY21. EBITDA grew 3% YoY with 30bps YoY improvement in margin despite adverse operating leverage seen in first half. Infra and construction activity picked up well along with domestic and government spending. This year’s ad spends were an aberration and should return to normal levels going forward Dealer count grew 17% YoY to more than 4,100 dealers & distributors. ~3,000 FMEG dealers & distributors and overall 165,000+ retail outlets. FMEG plus wires is at 40% of total sales, this implies INR26bn FY21 wire revenues for Polycab at ~29% of revenue. Cables & Wires Wires and Cables business grew by 35% YoY led by healthy pickup in infra and industrial project activities, improving consumer sentiment, and higher sales realisation. Business performance was broadly consistent across distribution channel as well as institutional business. Institutional business saw a decent recovery. Exports declined 7% YoY due to stalling of few large orders due to the pandemic. Gained 200bps market share in FY21. Margins supported by pricing action. Pricing action on a weighted average basis were around low teens. US contributes almost 50% to exports top line and remains top priority. FMEG Growth led by strong execution, healthy consumer demand, distribution with all categories witnessing strong growth. FMEG contribution to overall sales increased 290bps YoY to 11.4 %. Growth was strong across categories and regions. Market share gains were prominent across the board. 118 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Fans posted healthy growth despite stiff competition and cost push. Lighting products business nearly doubled led better demand supply alignment. Switches and switchgears grew 2.5x while other categories also witnessed strong offtake. Improved product mix, calibrated pricing actions and design optimisation initiatives led to healthy improvement in profitability during the quarter. Revenue mix in FMEG: 35-40% - Fans, 25-30% - Lighting, 15% - Switches and switchgear, Piping around double digits. Continues to take steps on the home automation front and launch products based on IoT. Capex INR3bn this fiscal, 35% for FMEG, balance for backward integration as well as capacity for special cables for exports. EPC Total income was down 45% on a YoY basis. However, it increased by 25% QoQ with unlocking of markets and pickup in infra-activities. On a full year basis, total income as well as EBIT nearly halved due to severe impact of pandemic and higher base of last year. Annual sustainable operating margin in this business is expected to be in high single digit over mid to long term. Project Leap Commencement of five year vision focused on brand positioning and governance and a target to reach INR200bn in revenue by FY26. B2B – Plan to recalibrate business model and refine value proposition through micro market analysis and business development. Target of 1.5x growth in core segments and 2x in emerging segments with >10% contribution from exports. B2C – Digital first led execution with a target of 1.5x of market growth in retail wires, 2x of market growth in FMEG with >12% EBITDA margin in FMEG as well as ~10% contribution from online for specific categories. Expect B2C to overpower B2B with exports also contributing significantly to the vision. Project Udaan Cost optimisation project translating to 80-100bps increase in margin, is in the process of execution and should benefit going forward. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Symphony General Smart recovery in the quarter in terms of top-line growth. One of the highest quarterly consolidated revenues in the company’s history (surpassed previous high by 17%). SA and subsidiaries clocked sharp growth. Sharp increase in cost, which led to reduction in margin. Freight as well as logistics cost have jumped. Cost increase difficult to pass on immediately; should do that overtime and margin should come back to historical level. Rest of the world business which includes Symphony exports registered a modest growth of 4% YoY. For the first time, rest of the world has contributed more than 50% to the top line. Growth aided by launch of new models. Gross margin at 45% versus 47% in the previous year. Gross margin for the quarter fell due to input cost headwinds. Consolidated gross margin at 60% due to robust performance by subsidiaries in spite of tepid SA margin. PAT impacted due to additional INR80mn of advertisement expense for the summer season. The company has announced final dividend of INR4 per share. SYML remains asset light. Capital employed INR500mn for FY21 for the core air coolers business. The market remains dominated by the unorganized segment. 70% of total volume comes from unorganized market. Market share has remained fairly steady and market share gains have only happened through organized players. Market share remains at ~50%. Organized sector growth is faster. 8mn units unit market size and about INR40bn value wise. The company has witnessed market share expansion at the expense of other organized players in the last quarter which has aided growth. Premium pricing and superior margins due to the brand as well as cost efficient manufacturing practices. Inventory with the company and channel is at normal summer season levels. E-commerce registered more than 100% growth YoY in the quarter. Climate Technologies had a decent quarter and grew 21% YoY and has been a turnaround quarter. Air coolers worth ~INR210mn sales in US due to Climate Technologies. The order is from Home Depot. 120 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Subsidiaries Series of initiatives taken in the CT Australia subsidiary and the quarter has been a turnaround quarter. Full year figures impacted due to increase in issues to import components from China as well as increase in freight cost. Good amount of Climate Technologies business will be outsourced from India which shall aid profitability. IMPCO Mexico sales impacted due to covid, but improved margin due to various initiatives. Doubtful debts of INR72mn which has impacted PAT. GSK China sales impacted due to covid and other reasons, but uptrend has been seen in the quarter. Succeeded in maintaining GM and contribution margins. Outlook Recovery was delayed, but medium to long term expects sustainable performance. Conservative payout policy to conserve cash and future plans of share buyback (subject to regulatory approvals). The company has registered excellent sales in early April, now, there is uncertainty due to covid spike in the country. The company remains hopeful for a good May and June to have a decent Q1 and assure of a better performance than Q1 last year as the lockdown is not as stringent as compared to last year. Sitting on decent pending orders. If situation settles down in the next 2-3 weeks, Q1FY22 could be close to Q1FY20. Price hikes to happen gradually. Partly taken now and partly in the months to come. Going ahead GMs to normalize at 50-52% for the SA entity. Recently launched models specifically for e-commerce and expect to continue innovating on the product front. Debt repayment starts post June 2022. There is a chance of prepayment on the working capital loan. Entire acquisition loan cannot be paid in the next 2-3 years and shall take longer. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Voltas Opening remarks Towards the end of Q3 and more so in the early parts of Q4, the Indian economy was able to evidence certain green shoots and signs of revival, coinciding with the easing of covid-related lockdowns. The extended lockdown situation during the earlier part of year resulted in scarcity of resources, and trade related issues led to a surge in commodity and freight charges. Prices of copper, aluminium, steel and plastic surged 60-80% compared to previous year levels, and ocean freight charges increased multi-fold. The resultant increase in input cost, specially for consumer durable items, was unavoidable, and the industry in general had to take multiple price hikes to try and sustain margins. Q4 witnessed a healthy upswing in growth of business. Not only have sales across all the 3 segments improved significantly compared to the corresponding quarter of the previous year, but also the impact of the significant decline on account of covid-related restrictions in the beginning of the year (high season for AC sales) was dramatically reduced. Balance sheet continues to remain healthy with minimal borrowings, which are required mostly for overseas operations. While operational cash flow during the first-half of the year had been relatively weak given the lockdown, revival of the economy thereafter combined with several cost control measures helped generate surplus cash on balance sheet. Cash and cash equivalents stand at INR24.65bn vs INR19.39bn in FY20. Unitary cooling products Against full year industry decline estimated by external agencies at around 29%, Voltas was able to exit the year with a much lower dip of ~15%. The bottom line also accelerated due to better product mix, cost efficiencies, coupled with lower holding cost of carry forward inventories and subdued marketing spends. EBIT margin expanded 90bps to 15.8% in Q4. For the full year, margin improved 160bps from 12.6% last year to 14.2%. Changes in custom duty rates, enhanced input and supply chain costs took a toll on margin. Timely price increases and smart customer schemes helped improve EBIT margin. Appropriate focus on the inverter sub-category with competitive pricing and larger number of SKUs has yielded a favourable outcome – inverter sales growth was 22%, well ahead of the previous year and now contributes over 77% of all split ACs sold. Overall, in the AC segment, Voltas continues to retain undisputed leadership with a YTD Feb market share of 25.6% at multi-brand outlets. Channel expansion across categories together with a healthier model mix from B2B accounts helped the Commercial Refrigeration vertical deliver a strong 122 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights performance of 17% volume growth in Q4. In case of Air Coolers also, increased number of new variants and SKUs, and rise in direct billing points boosted the growth to 37% in the current quarter. Sales have been impacted due to the current scenario. The company is hoping to bounce back in the balance quarters. Price hikes will have to be taken in the future to negate the rising input cost. 3- 5% price hikes taken. Going ahead, margins will be under pressure. 30-35 days inventory at the end of the quarter whereas now it has gone up. 75-80% of permanent retail points are under lockdown. Replacement market is growing due to energy efficient products. WFH has aided demand. 20% of total sales goes through channel finance. Electro-Mechanical projects and services Revenue for the quarter increased owing to domestic and international operations. Better bid margins across new projects combined with a good pace of execution also resulted in positive growth across the bottom line. Fresh investment given the general liquidity stress and conscious internal need to remain risk mitigated translated into subdued order booking during the year. Order book at INR66.35bn as on 31st March 2021. The carry forward order book for domestic projects at INR42bn contained a bouquet of orders across Water, HVAC, Rural Electrification, Solar and Urban infra activities. International order book of INRR24.35bn represents MEP work, mainly across UAE (including the prestigious Sh. Zayed Museum), Qatar and Oman. Engineering products and services The Mozambique operation (Vale) continued to contribute handsomely to the performance of the mining and construction vertical. The push by the Government of India on infra projects has re-energized demand for crushing and screening equipment. Ban on imports from China, plus competitive price of cotton coupled with renewed government focus on textiles improved forward sentiments, reviving capital equipment demand. Voltas Beko Post covid-related relaxations, production at Sanand factory has been optimised at ~50,000 units a month. Despite the lockdown, Direct Cool refrigerators were sold in excess of 0.3mn units during the year. The quarter also witnessed significant demand for washing machines, microwaves and dishwashers. As per a recent study by a global research company, Voltas Beko dishwasher tops the category in India, despite the disadvantage of being a relatively late entrant with an estimated market share of 30%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Market share in the highly competitive segment of refrigerators and washing machines has also improved to 3.0% and 2.5% YTD. Billing points have been scaled up to exceed 1,000. Accelerated introduction of exclusive outlets & experience zones along with cost effective digital marketing should help in increasing reach and brand awareness. Targeting market share of 10% by 2024-25. INR4.1bn investment in the JV. 124 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Credit Ratings Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights CARE Ratings Financials In Q4FY21, CARE’s consolidated top line grew 21% YoY, 31% above our estimate. Over FY21, revenues grew 2% YoY. Ratings revenue in Q4FY21 grew 19% YoY. Ratings revenue for FY21 grew 1% YoY led by soft bank credit (5.6% versus 6.1% in FY20) and lower CP issuances (down 21%), though long-term bond issuances were up 12% for the industry led by the RBI’s TLTRO operations. Industry: For the industry, long-term bond issuances grew 12% YoY during FY21. Majority of this debt was raised by the financial sector (68%), out of which banks/term lending was 37%, financial services/investment was 17% and housing finance was 14%. Roads and highways, power generation and supply, oil exploration and refining, real estate and telecom comprised ~7%, 5%, 3%, 3% and 3% of total corporate bond issuances, respectively. CP and wholesale credit down in FY21: CP issuances were down 21% in FY21 to INR17.41tn. Furthermore, bank credit growth was up 5.6% (versus 6.1% in FY20). This is led by industry credit at 0.4% YoY and services credit at 1.4% YoY. EBITDA beats estimates: EBITDA grew 2x YoY to INR305mn (40% above estimates). This is on account of a sharp reduction in other expenses (at 39% YoY). PAT grew 71% YoY in Q4FY21, owing to a 70% YoY increase in taxes and 24% lower other income. Net cash position as of end-FY21 was INR4.9bn. Operations and macroeconomic outlook For Q4FY21, all the four subsidiaries of CARE were PAT positive while 3 of the four subsidiaries were PAT positive for FY21. CARE appointed Mr. Jinesh Shah as CFO (erstwhile Head – Finance, and Accounts at India Ratings and Research), and Ms. Nehal Shah as the Company Secretary. Earlier it appointed Sachin Gupta as Chief Ratings Officer in March 2021 (earlier at CRISIL where he was a Senior Director and managed the Corporate and Infra Ratings.) CARE is strong in BFSI and infrastructure lending with 50-60% of ratings business depending on these industries. With the new management team in place, the team’s focus is four-fold: 1) accentuating the group concept with ratings being the mainstay and accelerating growth from CART and CRSPL. 2) Increase use of technology to cut costs and enhance offerings, ease workflow systems and increase data focus. 3) Enhance HR as people remain the key resource, with emphasis on training. And 4) Rebrand CARE name to ensure it is associated with quality. Management is working on building share in the capital markets business as well, and it remains a key focus area with emphasis on profitable products like securitisation, along with REITs, InvITs, etc. Management remains focused on increasing market share in the ratings business. 126 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The focus for FY21 was on building core business applications on the new technology framework, which would integrate various applications within the organization and data sourcing tools from the market. This initiative will automate various manual processes with the help of AI / ML based models. CARE Ratings has signed a Memorandum of Understanding with US based Tresata Inc., a global leader in AI & predictive analytics software, on the 8th of August, 2020 to join forces to launch predictive intelligence business solutions in India. Tresata’s Analytics Operating System will power their core ratings applications which will help to revolutionize intelligence about businesses in India. In turn, this will assist in making data driven decisions - data collected and validated both from issuers and also from a variety of broader market sources over the years. With this System, the rating analysts will leverage the latest artificial intelligence & machine learning techniques to analyze client data when evaluating risk – both current and emerging. There is a new CEO in place at CART (advisory business) – Mr Sudip Sural, an infrastructure and credit risk specialist with more than 25 years of experience in credit ratings, infrastructure finance and corporate financial risk assessment. Management has identified 2-3 revenue streams. CRSPL (Risk Solutions business) has seen significant opportunity to be scaled up with products for BFSI sector and CFOs and technological expertise is being built with focus on new products. EBITDA from the new business is likely to be lower than mainstay ratings business. However, management expects to scale up EBITDA margins of CRSPL to 30-35% over 5 years. Improving quality of ratings is of paramount importance and management has ensured the ratings process is independent and integrity of the process is retained. Earlier, CARE was paying its people, especially at the junior level below market rates and there was not a CEO for a large part of FY20. As a result, employee expenses in FY21 rose 10% YoY. While management will look to be leaner, employee remuneration should continue at a similar trajectory. FY22 is likely to be better than FY21, however, slightly slower than earlier anticipated, as CARE estimates GDP growth 8.8-8.9% from 11-11.2%. The modified credit ratio (MCR) at the end of Q4FY21 remained at 0.99, and remained moderate in FY21. There has been a sequential improvement in the ratio over H2FY21. The MCR is the credit quality of rated entities, as measured by CARE Ratings. CARE Ratings has taken the lead to incorporate an “Association of Indian Rating Agencies” to build confidence across all stakeholders. Formulation of Association of Indian Rating Agencies is awaiting some board approvals for some of the companies before they can join and should build communication channels with the regulators and remains a work-in-progress at present. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Engineering & Capital Goods 128 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights ABB Opening remarks: With focus on cost/cash, ABB was able to bag innovation-led orders in renewables, electronics, pharma-agrochem, water, etc. Sector-wise outlook: Most sectors are doing well on growth, including data centres, F&B, renewables, water, rail and auto while many segments that are performing moderate-to-low include steel, cement, oil & gas, building infra and chemicals. Trend for efficiency products: The need to buy best-quality, high efficiency/productivity solutions is gaining traction in the domestic market. Most large manufacturers prefer productivity/efficiency-led products and solutions. Book-keeping: A forex gain of INR220 mn and some provisions that are no more required helped improve OPMs in Q1, not to mention lower costs. This, overall, helped pare other opex for ABB. IT and other expenses: Hitachi PG is still getting support from ABB’s side till they are able to operate on their own (another 2–2.5 years). Recovery from them comes as a part of service income for ABB. If one exclude allocation for Hitachi ABB, IT and other cost is largely at 1.5-2% of sales. Unallocated item: ABB has accounted for a full CSR spend of INR100mn and INR180mn for interest on IT refund (PY). If one adjusts for these one-offs, the run rate works out to INR700mn, on a par with the earlier trend. Data centre exposure for ABB: LV products inside and MV products outside the data centre with HVAC scope etc is what ABB caters to. Many large players are working with ABB as they are scaling up. Energy consumption for these players is going up with expansion, thereby exponentially driving up the scope for ABB. Focused ESG strategy: ABB has a three-phase programme, green campuses, green processes and phase three in green products as per its global and local agenda. Global CEO commentary on EV portfolio: Carve-out of e-mobility portfolio globally is geared towards sharpening the focus on high-growth areas. ABB India does not fully manufacture in this segment at this stage, and its future course of action will depend on how the upcoming global EV entity decides on India footprint. Margin outlook vis-a-vis parent: ABB’s target is to go to double-digit PBIT level and eventually double-digit at the PAT level. However, the domestic market is highly competitive and will take some time. Robotics and DA: Prospects have improved over the past four–five months. ABB’s recent expansion augurs well given rising demand. Many new large factory set-ups have a greater automation component, which is driving up order prospects for robotics and DA segment. The full impact of the OLA order is yet to take place given that it is in stages. Electrification (Mr CP Vyas): The opportunity pipeline stays strong despite the second wave and should come back once the situation stabilises. Margins for this segments will stabilise going forward. Motion (Sanjiv Arora): Number of segments witnessing traction are getting broad-based now with several core sectors like metals, chemicals, building infra etc getting active. Process automation (Balaji): Given a longer cycle nature, process automation is expect to pick up in H2 this year. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights AIA Engineering Financials Revenue remained flat YoY at INR8.6bn, 11% ahead of estimate. Volumes, at 79,505MT, were down 3% YoY with mining volumes down 10% YoY, whereas cement volumes grew 10% YoY on the back of pent-up demand. For FY21 sales volumes stood at 266,302MT, flat YoY. Management refrained from giving volume guidance for FY22 due to challenges in terms of inability of engineers to travel for procuring new business, along with concerns on CBSA tariffs. Production slipped 18% YoY, as management utilised inventories built up in previous quarters. Realisation (per kg) rose 6% YoY, to INR106. Realisations are a function of raw material costs, product mix and cross-currency translation. Management anticipates realisations to rise as higher commodity prices are passed on to customers. For Q4FY21, gross margin contracted 312bps YoY, 1283bps QoQ due to a sharp impact of commodity prices and restocking of inventories in Q3FY21. EBITDA margin dipped 189bps YoY, 498bps QoQ to ~19.7%, owing to higher shipping rates with EBITDA per MT down 5% YoY to INR21,319. MEIS benefits expired at the end of August, and RoDTEP benefits are to be applicable from 1st January. Management anticipates incremental announcements on the same. Working capital days decreased slightly as AIAE reduced raw material and finished goods inventory with inventory days at 105 days versus 133 days at the end of Q3FY21. Order book, as on 1 April, 2021, stands at INR6.32bn. Net cash stood at INR20.4bn at the end of FY21 (vs INR14.6bn at the end of FY20). Capex incurred for FY21 stood at INR1.2bn, owing to a delay in commissioning of the mill linings capacity to Q3FY22. Capex for FY22 is anticipated to be INR2bn. Operations An investigation was initiated by the Canada Border Service Agency on alleged dumping and subisidising of certain grinding media from India. This matter is being reviewed and remains sub judice. Since the additional duty is a cost for customers, there could be a volume loss of 24,000MT. The agency has imposed an interim duty of 32.2%; the final assessment is expected by July-August. Management recouped some volumes from Brazil during Q4FY21 (~4,000MT). New customer acquisition continues to be slow with inability of AIAE teams to travel and lower number of engineers at customer sites. While ongoing trials continue, management remains cautious on incremental growth. The company continues its engagement activities virtually with the key focus being cross-selling and branding as a comprehensive solutions provider. 130 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Others Mill liners – Expect 80% utilisation in next four years: Management guided for capex worth INR2.5bn to increase liner capacity by 50,000MTPA, which will be commissioned by Nov-Dec ‘2021. The mill liners are under trial with various miners; however, management is awaiting commissioning of the facility to take firm orders. Management aims to achieve 80% utilisations in mill liners in four years (market size of 300kt at present). Volumes from the same are expected from FY23. With the introduction of mill liners, AIAE has become a comprehensive consumables solutions provider, helping miners achieve lower costs, better throughput and higher yields. Grinding media capex: The company has deferred grinding media capex to FY22 owing to a delay at the mould supplier and changes in design. Management has enough capacity to defer the project by six–nine months. More updates are expected at the end of Q4FY21 on the 50,000MT expansion timeline. The project is going to incur a capex of INR2.5bn. AIAE has maintained its estimates for grinding media market at 2.5mt over the past few years, owing to conversion of several customers from forged to high chrome. Of the forged media market, 50% is with iron ore miners, while balance is with gold and copper customers. Management believes there is significant head room to grow in the same. Management is extremely bullish on the commodity upcycle in gold as a safe haven commodity and cooper owing to its fundamentals. Amidst the same, miners are debating on expansions, since mining capex has been lower over the last couple of years. However, management will continue to focus on the replacement of forged to chrome media. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Cummins India Opening remarks: Export sales: With December being the peak quarter given global OEM demand, export sales in March are generally lower. Local supply chain, semiconductors etc., were key reasons that demand could not be met. Outlook: Sales: Management expects gradual demand recovery in coming months; however, second wave impact is uncertain and hence it did not provide FY22 guidance. Commodity price increase and strategy: a) Continue to focus on cost reduction that is internally in cost structure. b) Pass on commodity price hikes to customers (for commodity price linked customers it is an automatic pass through and for the rest the price hike will be with a quarter’s lag). Utilization was 50% (people, supply chain) in April (70% during ramp-up stage). Competitive intensity: KKC expects competitive intensity to remain same in the near future, but expects to change favourably given the expected technology. Domestic: CPCB IV norms delayed significantly given Paris agreement etc. KKC expects implementation of the norm soon, which could lead to some pre-buying. New range of products: KKC is keen to introduce new technology in segments like natural gas based products if there is a strong demand in local market. Exports: Order trends from global clients are gradually improving. Latin America/Africa were lower, Middle East was flat, US was healthy, while EUR was lower. In FY22, China continues to be strong, North America coming back faster versus Europe, Latam/ME lagging. Others: Margin/cost: KKC takes instant price hikes in contracts with PVC, while in others there is a general one quarter delay. Meanwhile, cost programmes are on track to take care of input cost impact. Note that KKC has passed on input cost entirely till Q4FY21. Other income higher led by dividend from subsidiaries/JVs. Peak capex is behind and FY22/23 range will be lower and focused on growth (new product upgrades/maintenance). MEIS (Merchandise Exports from India Scheme) impact was there in FY21 (INR300-400mn loss). ROTDEP (Remission of Duties and Taxes on Export Products) is still pending and did not impact in Q4. 132 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Greaves Cotton Financial comments One-time expenses: The E-mobility segment includes INR42m of one-time expenses. Staff cost includes one-time expense of INR70mn. Capital expenditure and R&D expenditure will be fully funded through internal accruals. Cash balance of INR 2.7bn will be utilized for expansion opportunity and WC requirements. During FY21, the company incurred capital expenditure of INR400m. Outlook Q1FY21 operational performance is likely to be impacted due to the ongoing lockdown in India. 3W sales are largely impacted while 2W and non-auto segments are less impacted. 2W segment: Amid increasing competition in the 2W segment, management has planned to focus on competitive advantage though higher technological adoptions. According to management, electric 2W segment is currently less than 152k units and is expected to grow to 5m units over the next five years. Non-auto: Market size of non-auto segment is steadily evolving led by a shift away from manual labour to mechanized labour and adoption of high-quality domestic engines (versus lower cost Chinese engines). Slow-speed scooters are expected to outgrow high-speed scooters in tier-2 and -3 cities. Margins in various segments are expected to expand from increasing localization and measures undertaken to increase operational efficiency. Localization of sourcing: Currently sourcing of components for high-speed scooters is largely being done from the domestic market while lithium ion cells are being imported. Capex plan for next 2–3 years: Will continue to spend INR400–500m per annum over the next 2–3 years. E-mobility segment: The expansion plan for 1 million units will require INR7bn (capex and WC) over the next ten years. Commentary by segment Ampere: Greaves E-mobility segment has seen higher growth momentum, with Ampere gaining popularity due to the rise in demand for its electric two-wheelers (electric scooters) and electric three-wheelers (electric rickshaws). New businesses: (E-Mobility and Non-Auto Business) Continues to grow; it contributes 30% to the company’s overall business. Non-Auto auxiliary market share has increased due to opening of economy and new product launches. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ampere Ampere will target mass market over coming years driven by product and market expansion. Dealerships: Ampere has expanded from a 70-dealer network in Tamil Nadu to over 358 exclusive dealers across India (260-plus cities). Overall, almost 500-plus dealer points are currently active (defined by regular purchases). Supply chain control: Management is focusing on localisation as opposed to imports earlier. Customers: Focused on both B2C and B2B (50 partners now) customer profiles. Products: Increased Ampere to 3W side following last year’s acquisition. Ampere: High-speed portfolio is ~40% of total portfolio. Region-wise split- Ampere has expanded from Tamil Nadu to the whole of south India and also to western parts of the country. 134 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Kalpataru Power Operational highlights Labour availability: The labour availability issue is not as high as last year with 90% of required labour available on sites. Currently, majority of sites are operational, but state-wide restrictions are impacting execution. Railway and O&G business (heavy labour requirement projects) declined during the year due to labour shortage. Consolidated EBITDA margin was impacted due to commodity price increase and slowdown in execution. Standalone margin in Q4FY21 was higher due to closure of multiple projects. Commodity cost: In Q4FY21, KPP made provisions of INR1.5bn at consolidated level (INR1.04bn at standalone level) for impact from increase in commodity prices. Order book: Fixed cost and variable cost proportion: KPTL’s order book comprises 50% of fixed cost projects and 50% variable cost projects. In JMC projects, 90% are of variable cost (or raw material supply provided by client). International projects are more of EPC with minimal impact from steel price hike as not more than 25% of steel requirement in unhedged. Note that most of the aluminium requirement is hedged, while steel is not hedged at KPTL (steel will be large impact in KPTL). Customer advances reduced by INR4bn and are now at INR9bn, of which 50% are from domestic (with 10-12% interest charges). Working capital is expected to come back to 70-80 days by FY22. Outlook: Execution: During FY22, the tra segment is expected to grow 10-12% YoY, of which TLD (domestic) at 5-7% and TLI (international) at 12%. Railways & O&G segments are expected to grow at 20% YoY. With current order book, consolidated revenue is expected to grow 20% every year for the next two years. KPTL’s growth won’t be higher over the next two years due to biding restrictions – expect 10-15% YoY growth. Margin segment wise: EBIT margin in O&G segment is expected to be 10-12%; railway margin at 5-6% (due to low execution). Subham: EBIT margin is expected to register double digit growth yoy. JMC margin is expected to be 10.0-10.5%. Interest rate: Expects overall interest rate to decrease by 100bps in FY22. Tax rate: varies internationally and is 2-3% higher than India. Going forward, it will be ~30%. Promoter pledge reduction: Expects to reduce to 40% by this year from 50% now. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Indore project: Of the total 129units, 46 units have been sold as on date. Most of this will be sold by 12-18 months. Debt target FY22 and 23: At consolidated level debt to reduce to INR 8bn aided by sale of KMPL, road assets and balance sheet optimization. Standalone debt is likely to close to zero. JMC debt will be at same level and post restructuring cash requirement from JMC to road assets will become zero in the next five years. Asset monetization: Considered restructuring of road assets. Vindyachal road asset is likely to be sold by FY22, for which non-binding offer is likely to be signed in next 60-90 days. Subham: Has appointed advisor and will likely progress by June. Kohima transmission assets sale is likely to close by June’21. Kurukshetra road asset is likely to be sold by June 2021. 136 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights KEC International Outlook: Order inflow: T&D prospects in international market remain high. Middle East (Oman, Saudi) and Africa offer large opportunities in the near future. Competitive intensity: has increased significantly in India (due to Atma Nirbhar, bank guarantee relaxation). For example, transmission projects entail 25 bidders. Pipeline: Immediate impact of budget has not materialised yet. Overall tender pipeline is strong in railway, metro, T&D from state and TBCB assets. Non-T&D portfolio: Over coming years, management plans capex of INR2bn per annum, which will largely be utilized to develop railway and civil portfolio. Revenue: is expected to grow in double digits based on current order book position. Commodity prices: To tackle pressure due to higher steel prices, management is looking at some different measures of execution such as optimization, etc. Order book with fixed cost exposure: Around 35% to 40% is exposed to fixed cost projects of which metal exposure is of 10%. Note that, ~100k tonnes is the budgeted usage this year, of which some are hedged through variable clause etc. EBITDA margin: Margin is expected to be in double digit in FY22. The impact of commodity prices haven’t peaked yet. As of now, the company has used raw material procured earlier and the headwinds will continue in Q2 for T&D. As far as aluminium price hike impact is concerned, the company has enough stock and are or hedged. Non-T&D (railways and civil) is now 49%. Most of the prices are pass through or materials are provided by clients. So mix of non-T&D and T&D will move margin. Management is choosy on civil projects so it will protect margin. So primary target is margin of 10% to 12%. Debt: is expected to be INR 25bn in FY22E. Interest cost: Won’t be focused on foreign debt as INR debt is also available at fair cost now. Interest cost might improve 10-15bps FY22E. Brazil: During the quarter, Brazil business incurred PBT loss of more than INR1bn due to restrictions and commodity cost. Steel prices cost, labour expenses, equipment’s mobilization cost and time over runs impacted margin further. 3 new projects: All gave been won at current prices of commodities. Note that, annual reset of prices in Brazil helps tackling commodity price hike. This IPCA adjustments gets triggered every April that adjusts for cost escalation. Execution: Will focus on execution cautiously as labour and equipment shortage persists. Old orders outstanding value is less than INR1bn and the pressure from commodity price hike will be resolved after Q2. EBITDA target: Management targets to break even or marginal loss in FY22E. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Order Inflow Order intake in railways segment during the year were lower due to covid issues, and government regulations. Hence, many projects in H1 were called back which resulted in bulked up profile in H2 when small players with lower order book went aggressive resulting in low conversion. Others ESG target: Will have a finalized plan soon and detailed report on ESG will be out in FY21. 138 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Larsen & Toubro Outlook and guidance: Order inflow & revenue: Low to mid teen given the current restrictions being imposed in India. Margins: Maintain FY21 margin level. NWC around similar level of FY21 – 22.3%. RoE target: 18% (to be aided by monetization of the low performing assets like, power, metro and infra concession assets). Order inflow: Order inflow during Q4FY21 was impacted due to tender deferments. Order inflow pipeline: has grown by 8.5% YoY to INR 9.6tn in FY22 (vs INR 8.35tn in FY21) of which domestic opportunities stands at INR 6.65tn and international opportunities stands at INR 2.25tn. This is composed of 77% of Infrastructure prospects and 16% of hydrocarbon prospects). Order bidding preference: State, PSU and central government projects will be pecking order. Domestic order inflow prospects Infrastructure to be dominant at 77% of pipeline and is 10% to 12% higher than last year. Expects INR8tn to INR 9tn infra spend in India with L&T’s share at 15-20% across projects. Key areas include – Water, Power T&D, Urban, Green etc. Opportunities around data centres and IT is also there driving (Buildings & Factories) B&F segment. International market: Some economies coming back in growth mode – Middle East further aided by oil price hike. Africa: Base Infrastructure like Water (production, transportation, storage, desalination), Power T&D. Big ticket projects: L&T will focus on medium scale projects. High Speed ticket size was one off and the government will also be focusing on average size ticket projects going ahead. Order book composition: Order book (OB) of INR 3.3tn comprises 83% government projects of which around 31% of OB is Multi-laterally funded. Among Domestic OB- 9% is central, 31% state, 44% PSU and 16% is private. Private players – Private composition is 18%, flat YoY. With Inflation at steady pace, monetary policy favorable private investments will remain higher and private OB can increase from 18% to 25%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Segment performance: Infrastructure: Prospects: INR 6.97tn in FY22 vs INR 6.3tn in FY21. Margin increased due to completion of some transportation profile jobs. Hydrocarbon: Pipeline prospects: at INR 1.4tn – INR600bn domestic and INR 800bn of international prospects. Development projects: Hyderabad Metro: Looking at loans refinancing and state government soft loans aid and monetization of assets. ESG: ESG framework: A 5 year target will be ready soon and disclosed in our upcoming integrated report. Supply chain Pace of migration: As on Mar’21 around 2.3 lac people were at sites (vs requirement of 2.7lakh labour based on new order book). The deterioration is expected to be lower as compared to wave 1 given the deteriorating scenario in rural areas and the workers feeling safer at our sites given robust medical and other assistance. Margin: Infrastructure Segment Margin: No one offs in Q4 and improved margin due to productivity measures undertaken. Margins in infra business target: Looking at 8% to 10%. Of which, domestic margins are around 9% and international around 7% (due to mandatory local supply requirement). Margin in FY22: Overall cost efficiency will offset commodity price hike and aid in stable margin. Note that, 60% of the projects has pass through clause. Other highlights: Covid compensation: Time extension for all the projects have been received from client. Customer collections were good led by government borrowing. During FY21, L&T has collected INR1.26tn at consolidated level, INR 760bn at standalone level. Realty – Maharashtra aided by stamp duty reduction. Bangalore has hot spot locations and can aid more. L&T has enough projects in hand for next few years. Power development business: Will monetize – no intention to operate and make further investments. Shipyard: Location is very good given the water front near a metropolitan area. Will be using it for fabrication facilities etc. given its strategic location. 140 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Cash allocation: Services business do not need allocation from parent. E&C is generally working capital intensive with larger requirement given current scenario. Financial services- Invested INR 25bn around recent rights issue, no incremental need for investment at this stage. Hyderabad made INR 10bn last year & earmarked INR 20bn for FY22/23E towards equity. Need to refinance the debt. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Thermax Opening remarks: Execution: All plants are operational, but with reduced capacity. Migrant labour availability is better compared to wave 1. Order inflow: Past 6 months didn’t have big projects in FGD and O&G. But aided by pent-up demand in small projects. Cash flow improved to INR7.7bn (INR 3.3bn in FY20) due to improvement in margin and WC cycle. Outlook: Order booking: Order booking across segments has exceeded pre-covid level. However, outlook seems clouded due to the second wave. Demand recovery pattern is uncertain––O&G, FGD orders are in the pipeline now. Major orders- Q2 to Q3 some will be finalized; O&G and coal activities are picking up, so can add in coming quarter. Looking at short orders to offset the uncertainty. Q4 ordering from distributors has dipped– Tier 2 and 3 markets such as foods, agriculture and textiles were down given that ordering in May has decreased and June will be likely impacted too – recovery will depend on covid recovery. Execution: Relapse of covid-19 cases in India and South-East Asia posing risks. Project completions to be delayed due the lockdown in some regions and may impact new investments. Post the impact of the pandemic, US, UK and Europe markets are expected to grow in coming quarters. In FY22, sales will depend on ability to deliver projects on time and will be impacted by covid. So, overall execution would take more than a quarter to reach optimality. Supply chain: Commodity costs are on the rise (steel and chemicals). Commodity prices during Q4FY21 had impact of INR100mn due to increase in steel, aluminium and chemicals cost. Q1FY22 would also have the impact. Others Order booking less driven by large projects, unlike in the past. Cement sector has changed from building a plant along with captive power plant to alternate way such as brownfield expansion etc. Order inflow is also thus changing. 142 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Wastage opportunities in steel and cement. Cement: Wastage treatment plant has been installed in almost every existing plants and only new plants need the wastage system. Geographically, most of the existing major plants have this in India and not much in SE Asia and Africa. Steel industry has some way to go in installing wastage treatment facilities. Adoption is not as much as cement plants both in India and abroad. Performance of subsidiaries: Two of the international subsidiaries in Denmark and Indonesia are WIP. During Q4 execution was back on track. In Denmark, during March and April, there was recovery, but still in early stage to comment. FGD execution: Revenue booked during FY21 was INR1bn (backlog of INR9bn in 2 orders). Chillers: Has added more than 100 new chillers during FY21 and is part of remote monitoring. Currently, penetration is more than 80%. As of now, no E&C is being done in chillers, but would like to be a part of it. M&As in chemicals: Looking at partnerships, alliances, tech M&As for enhancements for current portfolio. As of now, not found a right fit. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Consumer Goods 144 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Asian Paints Overall Total consolidated revenue increased by 43% YoY and EBITDA by 52% YoY with an EBITDA margin expansion of 120bps YoY in Q4FY21. Consolidated PAT surged by 81% YoY in Q4FY21. Management mentioned that the repair cycles in their view have reduced from 6–7 years three years back to 4–5 years today. Management saw sticky demand in the repair and renovation space, and a lot of the demand was deferred to later part of Q3FY21 and Q4FY21. Construction demand, which forms a major part of revenue, is dependent on an uptick in real estate and is being watched closely by management. Management believes that possible money constraints due to restrictions coming up to combat the second wave might affect demand and the government might have to step in to stimulate demand. Domestic decorative business saw 48% YoY volume growth and 46% YoY value growth in Q4FY21. Tier 1 and 2 cities saw a pick-up in demand Q3-end onwards. Tier 3 and other areas continued their strong momentum from previous quarter. The quarter saw good volume growth each month and continuous improvement in luxury product performance. The company has paid dividends of INR17.85 per share giving a dividend payout ratio of 56.1%. Metro cities and tier 1 and 2 cities saw an uptick in performance, and the change in product mix bought the volume and value growth gap to 2% for Q4FY21. The company saw a 5% difference in value and volume growth for the whole year FY21. Going ahead, management predicts the gap to hover within 3–5% in the near term. The company has gained most market share from the organised sector, and the top 4 players during the first 9 months of the year FY21 The company also gained some share from the unorganised sector, which faced supply chain issues due to the pandemic during the year. Management believes future volume growth will be driven by upgrading consumer to emulsions, improved penetration in tier 3 and lower-tier regions, gains from increased demand for undercoating and primers due to a general decrease in construction quality. International business Asia, the Middle East and Africa businesses saw a robust performance. All units posted a double-digit increase in revenue on a YoY basis. Asia and Africa region saw dip of 51% YoY and 40% YoY, respectively, in PBT in Q4FY21. Ethiopia, Bahrain, Indonesia and South Pacific were the only exceptions. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Waterproofing and luxury emulsions did well in these markets. The company introduced its Safe Painting service across markets, which gained traction. Institutional business The auto sector showed some momentum in Q4FY21. PPG-AP and AP-PPG saw 39% YoY growth and 63% YoY growth in revenues in Q4FY21 Growth was led by Industrial liquid paints and powder segments. Both PPG-AP and AP-PPG businesses took a hit on margins due to adverse material prices. Home improvement Both components and full kitchens showed strong growth in Q4FY21, yielding revenue growth of 84% YoY in the kitchen business for Q4FY21. The projects segment uptick continued to Q4FY21. Bath business saw revenue growth of 84% YoY in Q4FY21 led by a pick-up in demand across segments. Both kitchen (INR210mn loss in FY21 vs INR410mn loss in FY20) and bath business (INR70mn loss in FY21 vs INR290mn loss in FY20) saw lesser PBT loss levels for the overall year due to cost optimization and improving scale. The company is focusing on improving volumes and developing the kitchen and bath business to complement its home décor business in the short run and to gradually improve profitability over medium term. Margins No price increase taken in Q4 so that the demand momentum is not affected, despite raw material price pressure. There has been an uptrend in raw material prices since December 2020-end. The company took a price hike of 2.8% effective May 1st. More pricing action will be taken if inflation pressure continues. Future pricing will be based not only on raw material price pressure, but also demand situation and competitors. Management is keen on developing better sourcing efficiencies, leveraging technology and reducing overheads to protect margins. 146 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Bajaj Consumer Care Overall The full impact of inflation will be seen in the upcoming quarter. Last 10-year average dividend payout has been INR8–9. Dividend payout depends on the company’s investment plan. The company will like to retain cash for M&A opportunities. Investments will be made in manufacturing facilities as well, which will require capital. Brands also will require cash. Two–thirds the profit has been paid out as dividend. Future dividends should be somewhere in this range. Total outlets as per Nielsen have scaled up to 4.3mn against 4mn last year. Sanitiser write-off was ~1%. Hair oil market continued to stabilise in Jan-Feb-21 with value growth at 1% YoY and volume growth at 3% YoY. Volume growth continues to outpace value growth as cheaper brands, especially, the Amla category has rebounded the fastest. All sub-segments in the category have started growing in Q4FY21. Bajaj Hair Oil’s market share touched all time high of 11.1% in Jan–Feb’21. On a YTD basis, both Almond Drops and Amla have gained share with Almond Drops’ market share gain of 18bps versus last year and Amla’s market share gain of 14bps vs last year. Q4FY21 posted an uptick of 40% YoY, thereby general trade for the full year ended up 9.2% YoY. ADHO continued to do well across geographies on the back of good growth in large packs, as well as launch of new SKUs. The new variant of Amla, Bajaj Amla Aloe Vera has been relaunched across key markets. Urban is showing signs of recovery clocking a growth of 23% YoY in Q4FY21 after witnessing a 7% growth in Q3FY21. Rural markets continue to be robust with a growth of 61% YoY in Q4FY21, supported by strong van sales operations. International business grew by 10.2% in FY21. The company will continue to dial up into digital initiatives. Bajaj is also looking at changing its organisational structure to make it future- ready with the help of a consultant. MAT market share in March 2020 for ADHO was 60.8%. The ADHO MS in Jan-Feb MS was 63.7%. MAT Feb 2021 MS is at 62.1% ADHO growth was 40% each for value and volume. ADHO value and volume growth 6% for FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights International business is an opportunity. Once the India business is fully strengthened, the company will focus on the international business. Limited focus in International business is what can be expected from next year. Sales started well in April; now there is a sporadic disruption in various parts of the country. Initially, the plan was to grow in double digit. Now the company will have to re-evaluate. In Q4FY21, secondary sales growth is similar to primary; so there isn’t much of inventory build-up. Most rural markets are still doing well. Don’t see the impact in rural India right now, but the company will have to wait and watch. The company’s premium pricing in ADHO has been going up. ADHO’s premium pricing will not be dialled down. The company has revamped a couple of products in Nomarks. No takers right now for divestment. For FY21, value growth is 9.8% and volume growth is 15%. Amla and Sanitiser contributed to higher volumes. Amla will contribute a significant portion to revenue. The company will phase out communication depending on the covid situation. Amla is an approximately INR22bn market; so a 5% market share will give the company about INR1bn of revenue, which is achievable considering the distribution overlap. The company’s larger packs are doing well. Marketing team is focused on targeting next-gen consumers. The company doesn’t want to change ADHO packaging as there is large customer base for it. 10% of the business comes from Van. Some cannibalisation must have happened. Direct distribution is about 0.8–0.85mn. This year’s focus is on urban direct distribution. MAT tax rate will continue for another 4–5 years. The company plans to double revenue rather than market share at present. Amla hair oil Amla is an INR22bn category (MAT Feb-21), growing faster than Total Hair Oil market (6% YoY growth for Amla versus 1% YoY for THO in Q4). Value market share in the Amla category was 2.5% in Q4 versus 2.2% in Q3 and 1.6% in Q2. Distribution increased to 388,000 outlets in Feb-21 versus 255,000 in Feb-20. Bajaj Amla Aloe Vera launched in Feb-21. Formulation and packaging upgraded to modernise the brand. New hero ingredient of Aloe Vera. Aloe Vera stands for softness and moisturization in consumer’s mind. 148 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights No other brand offers an Aloe Vera variant at this price range. Bajaj Zero Grey Bajaj Zero Grey is gaining traction on social media. Modern trade Q4FY21 saw continued recovery in the modern trade business with good traction during the Republic Day and Holi. Consumer promotions to drive sales of larger SKUs with special visibility for brands. Trade promotion with B2B and B2C chains in South to build a pipeline to increase brand availability. Enhanced the range at various national chains with brands – Zero Grey, Cool Almond Drops, Brahmi Amla, etc to gain better shelf space and provide a larger assortment to consumers. Institutional business including CSD and CPC Regular flow of orders from CSD in this quarter for all our brands. After getting CAD activated, we have multiple brands such as ADHO, BAHO and CAD active in CSD. Institutional business remained steady with our products being offered as part of combos by other pharma/FMCG organisations. E-commerce The e-commerce business grew by ~4x during Q4FY21. Focused digital marketing investments driving brand relevance and content optimization on e-commerce platforms. Aggressive participation in Consumer Events during January on Amazon, Flipkart, Grofers, etc. Optimisation of online brand, response to consumer queries, optimisation of digital marketing spend being done actively with the help of external consultants. Omni-channel retailers (Jio, DMart Ready, etc) with home delivery showing growth in business. E-commerce is about 3% of the company’s revenue. The next target is 5%. Raw material and margins To mitigate the impact of inflation, we have taken price increases in Feb-21 and Mar-21 to the extent of 2.5%. Price hike will only partially cover inflation. The full impact of inflation will be seen in the upcoming quarter. If inflation doesn’t stabilise, the company will take further price hikes and optimise sales promotion. There might be some dilution in gross margin as newer products such as Amla don’t have as high a gross margin in ADHO. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights As the company diversifies, gross margin will come down. The company has among the highest gross margins in the FMCG space. Most of the correction in employee cost has been done. Going forward, employee cost growth should be lower than sales growth. Target EBITDA margin at 25–28%. Light Liquid Paraffin (LLP) Upward trend due to supply issues in input RM base oil due to refinery shutdowns and rise in crude oil prices. Q4 prices about 23% above Q3. Refined Mustard oil (RMO) In line with increasing prices of edible oils due to supply issues, RMO has also been going up. Q4 prices about 9% higher than Q3. 150 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Berger Paints Overall Standalone total income grew by 53% YoY for the quarter, other income dropped sharply. PBDIT excluding other income 58.6% YoY, PBT grew 79.7% YoY for quarter and PAT grew 91.2% YoY. Consolidated PBDIT grew 61% YoY. Construction business benefited due to some towns opening up. Other income was low due to low dividends this year from subsidiaries. Tax rate is higher due to one-time effect of deferred tax. With demand from Metros recovering to some extent, the value-volume gap has reduced on a like to like basis. However, Industrial business will not be impacted by metros opening up. Most of pent-up demand has already played out in FY21 according to management. Management mentioned there will be no change in capex plans. The company is looking at upwards of INR 8bn, most of which will be incurred in FY22. The capex is for largely decorative segment products, and includes emulsions and protective coatings. There will be a significant GST benefit due to capex, and will help tap into strong demand from the UP market due to proximity. The company grew its distribution network little more than 10–12%. Industrial segment saw a good uptick in demand. No major change in tinting machine sales strategy and no incentive schemes like some other players will be offered now, but will evolve strategy with environment. Waterproofing saw good growth similar to paints segment. The company delayed some ad spends initially but major part of it came back in advertisements in Q4. Subsidiaries performance The Poland Bolix subsidiary has improved structurally and is now operating in UK, France and Switzerland, it was best performer among subsidiaries. UK and Poland are driving growth for the unit. The subsidiary has been more successful in price increases than the Indian and other counterparts. The company’s JVs Berger Nippon Paints Automotive Coatings has grown market share and broken into Japanese manufacturer markets and is doing well. The company has also begun supplying non plastic component paints, and is going after ancillary and Indian manufacturers. Cost and margins Raw material consumption as a percentage of sales improved over corresponding quarter last year on account of special discount and strategic purchases negotiated during lockdown period, which impacted inventory and Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights consumption in Q4, and a pick-up in supply apply projects in the quarter. However, raw materials prices have firmed up during the quarter. Management believes another price increase is needed along with other efforts, and this will likely be taken in a couple months. No price hikes were taken in FY21, barring some products in Industrial segment, in May 2021 the company took price hikes between 2.2-2.5% across products. Gross margins expanded by percentage point, the raw material prices were managed due to negotiations and previous inventory. Apart from this, Supply & Apply contract were entered into with institutional customers, which reduced the need for raw material inventory and helped boost gross margin. Monomers and other important RM saw inflation during Q4FY21. Overheads are largely under control, but overall expense is high due to the Supply & Apply contract. 152 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Britannia Industries Overall Strong growth in rural distribution and direct reach Focus states have grown 25% more compared to rest of India E-commerce business 4.1x FY19 level in FY21 The company continues to sustain operational efficiencies, factory productivity 8% more than pre-covid levels; direct dispatch to distributors at 50 % more than pre-covid level. Wastages have reduced 20% and depot space 10% compared to pre-covid level Milk Bikis 100% atta relaunched with aim to make Milk Bikis pan-India brand Currently, Milk Bikis has 26% share in milk biscuits category, but focus is on improving market share in the Milk + Glucose category where it holds 4% share The Milk Bikis atta packaging has hindi labelling on cover with words “Doodh Roti ki Shaakti’’ and the company has also roped in actor Pankaj Tripathi with the aim to make inroads into the hindi belt. The pricing point for Milk Bikis atta biscuit is similar to Parle G, but grams are lower. Gross margin for atta brand is expected to be 2.5x the glucose one. The company believes that the atta brand pricing is at a sufficient premium to other brands and will remain so. The aim is to keep the Milk Bikis brand as one of the most profitable brands overall Britannia has undertaken a large visibility drive covering 1.4mn square feet of visibility in 8 key states--one of the largest deployments by a biscuit company in India Apart from Milk Bikis the company also ran marketing campaigns for JimJam, 5050, MarieGold and NutriChoice brands. The company has done many brand activations including Tiger crunch involving the actor Sonu Sood Overall marketing expense in FY21 is lower by 1.5% compared to FY20; marketing expenses had normalised from Q3FY21 and was slightly above normal in Q4FY21 Britannia could see a dip in distribution as it has withheld from sending sales personnel into market and is focusing currently on product availability and efficiency of distribution A new digital platform has been launched with 3 functionalities covering 500+ vendors (vendor management), 2.4mn outlets (Arteria), 60+ depots and 80+ factories (core ERP). The new platform will improve efficiencies and will provide advantage over competitors, reduce filling time with distributors. It will take a couple of quarters to see benefits convert into top line or bottom line The company is operating at more than 90% capacity Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Currently, third party manufacturing contribution is at 35% and the company has capability to increase the level quickly if the need arises Capex for the year was about INR2bn The company plans to put up factories in Uttar Pradesh and Tamil Nadu by 2022 International business Britannia has planned 2 factories-- Uganda and Egypt Both factories have been acquired on contract manufacturing basis and are not owned assets The factories will service the respective nation and surrounding markets. The Uganda factory alone is capable of USD11mn turnover Adjacency business Rusk under Toastea brand and Winkin’ cow saw some resurgence The company undertook high decibel TV campaigns for Toastea, wafer products and Winking cow Britannia has tied up with Grofers to kick start e-commerce journey for wafer products Raw material and margins The company has raised debt ahead of its commodity buying months lasting from April to June Milk and edible oil saw inflation. Milk has seen inflation for 3 quarters in a row now The company experienced a 3% (roughly INR1bn) inflation on materials consumed led by dairy, edible oil, packaging and fuel. Britannia has started pricing action to pass on inflation in a small way already and expects to pass on most of the inflation by end of next quarter It aims to keep margins above the FY20 level. 154 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Colgate Palmolive The company saw double-digit growth across key brands and SKUs. Rural growth sustained in FY21, and urban demand is recovering and rural continues to outpace urban growth. The company posted strong profitability metrics with gross margin at 67.5%, up 300+bps YoY, and EBITDA margin up +840bps YoY. One penetrated brand at 88%, strengthening top-of-mind metric, highest in five years. The company has come up with strong marketing campaign based on value of optimism, strong teeth for nutrition, and tackling trolling among youth. The core brands constituted the top three out of five SKUs demanded by distributors. Colgate Visible White digital campaigns bore fruit with 80bps YoY growth in modern trade channel share and 120bps YoY growth in e-commerce channel share. Colgate Vedashakti advertisements came in the 6th place in brand equity top ads, Market share was up 60bps for the brand and the company saw sustained increase in loyalty for this brand. Colgate Vedashakti mouth spray was launched during the year, the product saw 30% repeat consumer, and is already available in more than 100,000 stores. The company conducted increased digital marketing involving big celebrities. For Colgate Diabetes, the company has struck a strategic partnership with 1mg for online sales and Apollo for offline sales. Apart from, this to improve credibility, the company has tied up with the Indian Diabetes Association and dentists. The Colgate Diabetes brand has a 20% repeat sales rate; it is now available at 25% urban pharmacies. The company launched Slimsoft toothbrush in FY21 on e-commerce platforms and will bring the product to offline channels going forward Colgate Magik- augmented the brush business. The company’s e-commerce sales have grown 26 times since FY16. The Modern Trade gained +170bps YoY. Colgate has made significant gains in its rural network with the Muskaan program. The company has rolled out a recyclable tube in the Colgate Salt brand. The naturals including salt and other ingredient-based products form 38% of the category; equally, the family segment forms roughly another 35% of the category. The company is seeing the freshness segment pick up in recent quarters. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Increased shift to premium products in modern trade and e-commerce channels, and in metro cities. Management also believes that modern trade and e- commerce penetration is driving premiumisation. The company saw significant gross margin gains driven by a price hike in Q4FY21, shift of mix towards toothpastes, more premium brands and to larger SKUs. The company is focused on driving volume growth and penetration in the near term. The company’s events and programs have now shifted online, and this has helped to reach customers as a whole family unit rather than individually. The company has declared a dividend of INR38 per share. The company’s chemist channels is under-indexed, but steps have been taken in the right direction with partnerships. Management is confident that it will grow the chemist channel now that the company has specific brands and SKU bundles that fit well with the channel, along with the strength of dentist recommendations. 156 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Dabur Overall Final dividend is INR3 per share, taking total dividend for the year to INR4.75 per share. The company has implemented Continuous Replenishment System (CRS), which removes the need for pre-season loading, thereby impacting inventory by 5–6 days. Juices, glucose products, hair oil and Pudin Hara will be see highest impact from this initiative. The company has planned INR5.5bn capex in a greenfield project at Indore. The company has already set aside 50 acres of land. This will be for Healthcare and Personal care products. The company expects consolidated tax rate to be 21% for FY22. The company expects some stock out in coconut water, Amla and certain medicine products. But all the power brands will face no problems and the company has learnt from last year to tackle any emergencies for them. Standalone business revenue grew by 30.3% on the back of 25.4% YoY volume growth. International business reported a growth of 19.4% YoY with constant currency growth of 21%. It contributed to 28.2% to total sales. Consolidated PAT reported an increase of 34.4% YoY with PAT margin touching 16.2%. Consolidated Operating Profit grew 25.6% YoY with a margin of 18.9% E-commerce contributes 5-6% of total revenue. The company introduced products in the Vatika select brand, which has done well. The company has mentioned that it expects some disruption in discretionary category due to the second covid wave, but growth in healthcare would make up for it. Primary and secondary sales gap is closing down. It would now be around INR750mn. Margins and raw materials There was overall 5% inflation across materials. The company took a 3% price hike and there will be a second round of hike to cover the remaining inflation impact. Margins are expected to be under pressure for Q1FY22, but material prices are expected to cool down in the second half of the year. The company has made around INR500mn in cost savings through the Samridhi initiative this year, and plans to save INR1000mn over the coming year. Committed to continuing the current level of A&P spends, but would cut down if inflation pressure persists, as a last resort. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Healthcare Overall Health supplements segment recorded 17.7% YoY and digestives recorded 20% YoY revenue growth. Dabur Chyawanprash recorded strong growth despite its off-season. Market share in Chyawanprash category increased by ~170bps and market share in Honey category increased by ~230bps. Pudin Hara portfolio posted double-digit YoY growth in Q4FY21. Hajmola portfolio saw strong recovery in Q4FY21 on the back of improvement in mobility and out-of-home consumption. OTC segment turned in 34% YoY growth driven by the Lal Tail and Shilajit portfolios. NPDs such as Dabur Health Drops, Health Juices and other immunity boosting products added to the portfolio’s momentum. Ethicals revenues grew 39.1% YoY on the back of distribution expansion, visibility initiatives and activation. HPC The oral care segment recorded 42.1% YoY and hair oils recorded 24.6% YoY revenue growth. Red Toothpaste continued to see good demand momentum. Meswak and Babool franchise also reported robust double-digit growth each. Overall toothpaste market share improved by ~120bps. The shampoos portfolio registered strong revenue growth of 33.4% YoY. Market share in shampoo category increased by ~70bps and Bottle saliency continues to see improvement. Home care reported strong growth of 24.3% YoY, although Air freshener category continued to be impacted being more discretionary in nature. Odonil’s market share improved by ~90bps while Odomos witnessed recovery and MS increased by ~130bps. Driven by strong growth across brands, skin & salon segment saw 37.9% revenue growth YoY. Gulabari and Fem saw sequential improvement as mobility and outdoor activity increased. Foods Foods revenues improved by 36.1% YoY led by increased home consumption. Beverage business witnessed a smart recovery during Q4 with revenue growth of 27.1% YoY, despite HORECA business remaining under pressure. Market share of Real in JNSD (Juices, Nectar and Still Drinks) increased by 80bps. In-home, and out-of-home portfolios registered strong double-digit growth. Recent launches of Real Mango Drink in PET, Real Frappe and Real Apple Mini showed good traction. The company expects to breach INR1000mn mark for Homemade brand next year, and has a target of INR5,000mn by FY25. The company has introduced its juice products at INR10 and INR20 to have more reach and take advantage of its distribution network. Previously prices have been at INR100 and above, and the products were distributed mostly in northern states. 158 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Emami Overall Consolidated net sales jumped 37.2% YoY and 15% on two-year basis. Gross margin plunged 250bps YoY due to inflationary pressure. The company has taken a price hike of roughly 4% in FY21. It took some price hikes after March 31 in the pain management category. Going ahead, management has estimated gross margin of 66.5-67.0% with sufficient price hikes, if the current conditions continue in FY22. Emami has made some professional hires across the organisation, which has resulted in increased aggression and performance. Management estimates an effective tax rate of around 20% for FY22 and FY23. In the MSO segment, toilet cleaner and dish wash have shown promise, but they still form a very small part of total domestic revenue. For future plans and capex Emami has mentioned 4 major areas of focus: 1) Developing e-commerce channel. 2) Growing standalone modern trade channel (in both these areas new hires have been made). 3) Developing chemist channel, where the company plans to on-board around 20,000 outlets. 4) Improve rural penetration, for which it has selected 13 states; Emami has started executing the plan in 4 states currently. Capex plans for FY21 were delayed due to pandemic, but will be carried out nevertheless in FY22. There was a one-off of INR 220mn in other income due to investment gains. The company has written-back provisions of INR60mn for its Dubai subsidiary. Promoter pledge is at 30% now; there was some reduction in Q4FY21 mostly led by increase in share price. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Innovation The company has launched Zandu chyawanprash with jaggery and no added sugar. It has made e-commerce-specific launches of Kesh king Ayurvedic onion oil & shampoo range and Navratna gold Ayurvedic cool oil. Overall there have been 40+ new launches in FY21. New products contributed 4% total domestic business revenue in FY21. E commerce Management is focused on developing footfalls in its Zandu portal in the near term before making products available on other portals. E-commerce has contributed 3.7% to domestic sales for FY21. The channel has grown 3x in Q4FY21. International business MNEP, SAARC and Africa regions revenue grew by 53%, 14% and 32% YoY, respectively. Creme 21 became the largest brand for International Business, growing strongly in FY21. 7 Oils in One continued to deliver good growth on back of ongoing media campaign in Bangladesh & launch of new variants in key markets. Strategy of tapping opportunities in non-focus markets with high hair oil usage, with focus brands like Kesh King & 7 Oils in One has been paying off well. International business profitability is lower than domestic, though it has similar gross margins. International business forms 17% of revenue today and management estimates it to be around 19% in FY22. 160 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Godrej Consumer Overall Third consecutive quarter of strong double-digit sales growth; double-digit sales growth of 11% for FY21 as a whole. Value For Money products delivers 27% YoY growth. Consolidated EBITDA margin at 21.2%, a decrease of 110bps YoY driven by drop in India and Latin America & SAARC margins. Sales growth of 35% YoY; strong momentum in all months of the quarter. Reduced net debt considerably; net debt now down to INR1,7680mn as of 31 March 2021 versus INR3,5180mn as on 31 March 2020. The company will continue to pare debt and bring the net debt to equity ratio down to around 0.07% in the short term. Management expects the new CEO Mr. Sudhir Sitapati to drive growth in core categories and benefit the company with his vast experience in category management. Direct reach is about 1.3mn outlets at present; the company will continue to improve it gradually. Overall rural revenue growth is 1.4 times urban’s. Household Insecticides Household Insecticides delivers 34% YoY growth in India, 28% YoY globally. Encouraging response to newly launched Goodknight Power Shots aerosol in Lagos, Nigeria. Forayed into the burning format in Indonesia with the launch of HIT Expert Piramida, 4-hour revolutionary paper-based mosquito repellent. Implementing learnings from the first wave; better prepared to navigate any supply chain disruptions. Production ramped up across manufacturing facilities; operating with optimal levels of inventory across the supply chain. Broad-based growth across premium formats (aerosols, electrics and non- mosquito portfolio) and burning formats. Driving premiumisation and innovation-led growth with the launch of Goodknight Gold Flash, Goodknight Smart Spray and Goodknight Natural Neem products. The company sees the next leg of growth from improving penetration in non- mosquitos and aerosol categories, which have only 5% and less than 8% penetration approximately, respectively. The company already has a market share of about 50% in burning mosquito repellents. Hygiene & Soaps Strong growth momentum continues in Hygiene (including soaps) of 38% YoY. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Third consecutive quarter of double-digit sales growth of 41% YoY in soaps; steady sales growth of 15% in FY21. Continue to gain market share driven by micro-marketing initiatives. New launches in Health are scaling up well. Salience of hygiene is around 4%, and there is more room for growth. The company took a 6–7% price hike in soaps in Q4; more calibrated price hikes will be taken to pass through raw material inflation. Hair colour Sales growth of 25% YoY driven by overall category growth; full-year growth of 3%. Continue to gain market share. Godrej Expert Rich Crème continues to perform well driven by a strong marketing campaign. Godrej Expert Easy 5 Minute Shampoo Hair Colour is scaling up well. Indonesia Delivered sales growth of 4% (constant currency); 2- year constant currency CAGR of 5%. Recovery impacted by adverse macroeconomic factors. Growth in the current quarter driven by a steady performance in Household Insecticides and a meaningful scale up in Hygiene. A gradual recovery in Air Fresheners and strategically addressing high competitive intensity in wet wipes. EBITDA margin at 35.4%, up 230bps YoY driven by cost-saving initiatives. GAUM Third consecutive quarter of double-digit sales growth; 36% YoY (constant currency) EBITDA margin increased by 710bps YoY driven by scale leverage and cost-saving initiatives. Encouraging response to Goodknight Power Shots aerosol in Lagos, Nigeria, and the Darling range of hair extensions in the USA with Walmart. Margins EBITDA margins in India at 22.6%, a decrease of 500bps YoY driven by gross margins drop of ~300bps (due to the lag between the increase in input cost and pass through, and provision of slow-moving inventory on a conservative basis), one-time variable manpower remuneration reversal in Q4FY20 impacting ~400 bps, and upfront marketing investments with impact of about 70bps. EBITDA margins in International business at 18.9%, an increase of 230bps YoY driven by scale leverage in the Africa, USA and Middle East cluster and cost- saving initiatives in Indonesia. Full-year consolidated EBITDA margins increases by 50bps YoY to 22.3%. 162 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights HUL Overall 87% of the portfolio gaining penetration. Agile & Resilient Supply Chain - 1.3X capacity Vs pre COVID. Company is focusing on rapid digitization with 0.5 mn Shikhar outlets. Added 350,000 outlets. Focus on ecommerce, GT & Rural. 150 SKUs launched in FY21. Big brands saw 5X Growth rates vs FY20. Market Development & Premiumisation – These categories grew 2x vs core; WiMI led opportunities. Domestic consumer growth came in at 21% YoY with 16% YoY uvg. COVID surge unprecedented; demand outlook difficult to predict. However company’s agility and responsiveness across the value chain significantly better than pre COVID. Health, Hygiene & nutrition about 80% grew in double digits 82% of company’s business is gaining volume share as per kantar panel. Increased portfolio by introducing Immunity boosting under Horlicks and high sciences products. Nutrition business at 31.8% EBITDA margin expanded 370bps, ahead of expectations. Company is positioned well to tackle challenges arising out of covid-19. Company has rejigged employees into different roles as the pandemic has led to decrease in demand in some categories necessitating fewer employees. Retailers were able to place orders through Shikhar app when sales person couldn’t visit. Revenue from shikhar stores at 6x in Q4FY21 vs Q4FY20. Ecommerce contribution has doubled. Company has setup a specific premium beauty team in its beauty and personal care segment. Company has digitised factories and is automating warehouses. Company has increased grammage in INR5 packets of Horlicks. The company is committed to increasing penetration in HFD category. Company’s focus is on Consumer centric innovations, market development and digital transformation ‘Re-imagining HUL’. Company’s focus in on winning in high growth channels of E-commerce and General Trade. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Company is focused on delivering volume led competitive growth INR 5 is for two cups of Horlicks and INR 2 is for one cup. The company will continue to drive jars but LUP will increase penetration. High sciences is also a focus area. Because of micro containment zones, Impact on supply chain is limited First fortnight of April, demand momentum was strong, second half of April demand impacted to some extent, however not as bad as last year. Elevated presence in chemist after GSK acquisition helps. Strengthened market leadership in Lifebuoy. Nature protect for its proposition should do well. Benefits of Neem are well known. Backend for fulfilment via Shikhar is completely different. Company is fulfilling orders the next day after the order is placed. In terms of GSK portfolio, company is still grappling with what to do with biscuits portfolio. HFD penetration is about 25%. Company’s business in HFD is in east and south India. Company is expanding geographically. GSK sales integration still happening. Customers who use premium products remain somewhat insulated from the vagaries that normal consumer do. So essentially if the supply is available, the consumption continues. Domex has a strong proposition of killing germs and viruses and hence products around disinfection makes sense. Rural has grown double digits in Q4FY21. Low to mid-single digits growth in urban. Ecommerce contribution is 5-6%. Ecommerce is more profitable than MT and MT is more profitable than GT. Home Care Household Care: Continues to perform well. Strong double-digit growth led by Vim. Fabric Wash: Strong sequential growth aided by increased mobility; Performance competitive. Liquids and premium portfolio growing ahead of the category Purifiers: Improving sequentially led by acceleration in E-commerce. Beauty & Personal Care Skin Cleansing: Robust performance led by high double-digit growth in Lifebuoy. Premium Skin Cleansing continues to do well, Lux stable. VWash momentum accelerates. Inflationary pressures remain elevated; calibrated pricing actions to continue. 164 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Oral Care: Growth momentum sustained, Closeup continues to deliver strong results. Hair Care: High double-digit growth & broad-based across brands. Contextual communications and focussed innovations drive performance. Skin Care: Strong performance in winter portfolio led by Vaseline. Face Cleansing & Talc segments continue to do well. GAL sequential momentum picking up coupled with penetration gains. Color Cosmetics: Demand continues to improve sequentially; category well positioned. Foods & Refreshment Foods: Soups and Ketchups grow in high double-digits. With increased mobility we saw softening of ‘In-home consumption’ trend in the quarter. Beverages: Tea share gain momentum continues. High double-digit growths across brands. Stable performance in Coffee. Nutrition: Focus on volume led growth continues to yield strong results; volumes grow in teens, penetration gains continue. Horlicks and Boost INR 2 sachets launched to unlock penetration. ERP integration completed in current quarter; Sales systems go live in Q2FY22. Volume growth - High teens. Underlying sales growth lower than that but still double digit. There was some disruption in terms of sub distributors, company will be addressing it in the coming quarter. Ice Cream, Food Solutions & Vending: Strong recovery in Ice cream. Innovation intensity dialled up with launch of Cornetto Chokissimo, Trixy Cup and premium Kulfis. Costs and margins Company has ambitious Savings Agenda (>8%). Company has taken 2% Sequential step-up in consumer prices. Elevated inflationary pressure in select large categories. Company has taken Judicious pricing actions coupled with cost agility and savings programmes to counteract this. In terms of skin cleansing, palm oil is up 40-50% YoY and also up QoQ. 10-13% price hike required to just cover this cost. By the end of April company has taken 7-8% price hike. Will take more if demand holds up. Company is not shy of leading pricing action In Tea, company has taken pricing action in small lots to manage inflation. In home care, company has reversed some pricing cut as crude continues to be inflationary. Other expenditure tends to be 13% of revenue. Considering the inflation, the focus is to maintain margin in a healthy range. INR300 mn benefit in tax. ETR guidance - 25.9-26% Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Marico Overall Revenue from operations grew 34% YoY with robust underlying domestic volume growth of 25% YoY and constant currency growth of 23% YoY in the international business. As macroeconomic indicators signaled some positivity for most of the quarter, the company witnessed strong momentum in each of the core portfolios. However, a part of the optical growth was also due to a lockdown-affected base. The core portfolios in the India business continued to log market share gains on a MAT basis. Rural grew 42% in volume terms leading to rural contribution to revenue reaching 33% for the whole year. During Q4, day-to-day operations were back to normal as lockdown norms across the country were relaxed. With markets opened up, direct distribution improved; it is now ahead of pre-COVID levels in both urban and rural areas. However, there could be some disruptions going ahead, given the mounting restrictions during the ongoing second COVID wave. Within the quarter, the company witnessed sequential hardening of input prices in March, which has necessitated further pricing action in Q1FY22 in select core brands. Project SARAL – In order to ensure that Marico is the partner of choice for channel partners across the country, the company took initiatives to improve engagement, collect feedback and ensure grievance resolution. The Company has also been working towards creating tech-enabled and simplified processes/solutions for issue and grievance resolution of channel partners. The company holds its medium-term aspiration of delivering 8–10% domestic volume growth and 13–15% revenue growth. While the key portfolios of both the India and International businesses have rebounded strongly as the first COVID wave subsided, the near-term impact of the ongoing wave is difficult to foresee. Parachute Parachute Rigids grew 29% YoY in volumes, albeit on a low base, undeterred by price hikes and pullback of consumer offers to counter part of the input cost push. The brand firmly held its ground, despite a pullback of consumer offers and MRP increase of 4% during the quarter, in response to the sharp inflation in copra prices. The brand maintained its stronghold with the rigid packs gaining market share of ~120bps during the quarter and 20bps on a MAT basis, despite a 9% cumulative increase in effective price. Given the market construct and strengthening brand equity, the company expects to grow volumes in the range of 5-7% over the medium term. 166 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights VAHO Value Added Hair Oils grew 22% in volumes with all of the key brands clocking double-digit growth, biggest gain in four years. The company estimates steady market share gains in the overall hair oils category. General Trade led the growth with rural outperforming urban. E-commerce and CSD also contributed positively. After a sharp decline in Apr-20 due to lockdown, the hair oils portfolio has turned around with 11% volume growth in the 11 months ended Mar-21. The company gained ~200bps in volume market share in the overall hair oils category on a MAT basis (MAT Mar-21). Nihar Shanti Amla continued its strong momentum across its stronghold and non-core markets. The company expects double-digit growth for the coming quarter. In the Amla category, the company has a volume share of 44%. Nihar Naturals Almond, a premium offering at an affordable price launched in Q2, has received a positive response. Parachute Advansed Jasmine and Nihar Naturals Perfumed Coconut Hair Oil posted healthy double-digit volume growth. Hair & Care was re-staged with the new proposition of ‘Damage Repair’, supported by the addition of Aloe Vera to enhance its nourishment credentials. Parachute Advansed Aloe Vera continued to gained salience in its key South and West markets. To the grow in this category, the company has adopted a three-pronged strategy: a) Continue to aggressively participate at the bottom of the pyramid on the back of its leadership position as consumers are increasingly value conscious in their purchasing behavior and are exhibiting a heightened preference for trusted brands; b) Accelerate growth in the mid segment through pricing & brand renovation; and c) Aim to gain market share in the premium segments, where the Company is relatively under-represented, through brand building and innovations offering higher order sensorial and functional benefits. The company aims to capitalize on its leadership position and sustain a double- digit growth trajectory over the medium term. Saffola Saffola Edible Oils extended its stellar run with 17% volume growth, delivering double digits for six quarters in row, despite a particularly strong base (25% volume growth in Q4FY20) on the back of investment in new markets and increasing household penetration. The company hiked prices by about 50% for the Saffola brand to capture inflation in raw materials but the company remains confident that given its customer profile the price is competitive, since most of its competitors follow a cost-plus pricing method. Saffola Honey has been scaling up fast; it has exited FY21 just short of a double- digit market share in key modern trade chains and has garnered 25%+ market share in e-commerce. The brand is on course to touch revenues of INR100cr in the coming year. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The Foods portfolio grew 134% YoY in Q4FY21 and crossed the INR300cr milestone in FY21. The Oats franchise continued to ride the health tailwind and posted value growth of 84% YoY in Q4FY21. The thematic communication “Shaam Waali Laalach” stayed on air. The value market share of Saffola Masala Oats strengthened by more than 800bps to ~94% in the flavored oats category (Mar-21 MAT). Saffola Mealmaker Soya Chunks has gained traction in its launch markets in GT. Saffola Arogyam Chyawan Amrut has had a moderate start since its launch. The brand launched a TVC campaign in Q4 The company launched Saffola Oodles. It does not contain maida or artificial preservatives and is in line with its aim to strengthen its health foods portfolio. The company says that initial response to the launch has been very encouraging. As the base catches up, the company expects to deliver high single digit volume growth over the medium term in the Saffola edible oil franchise. The company expects the foods portfolio to reach INR4,500–5,000mn by FY24. Male grooming and premium hair care The Premium Personal Care portfolio posted a modest YoY decline in Q4. Livon Serums has continued to witness positive traction with double-digit growth in Q4. Skin Care had a muted quarter, while Male Grooming remained below par. The Beardo franchise has been gradually regaining traction after the initial COVID-induced headwinds. But the company remains cautious of the impact of the second covid wave. 30% of Beardo sales came from the direct-to-consumer channel. International Business The Bangladesh business clocked 20% YoY constant currency growth in Q4FY21. Bangladesh Parachute Coconut Oil grew 14% YoY in constant currency terms, while the non-Coconut oil portfolio grew by 29% YoY in constant currency terms. Beliphool, ExtraCare and Aloe Vera continued to lead growth in Value Added Hair Oils. The newer ranges of Just for Baby (baby care), Skinpure (skin care) and Naturale shampoos have taken off well. The revenue share of the non-Coconut Oil portfolio in Bangladesh moved closer to 40% in FY21 from sub-20% in FY17. The company is determined to continue to leverage its strong distribution network and learnings from the Indian market to quickly scale up future engines of growth in Bangladesh. The South East Asia (SEA) business grew 13% YoY in Q4FY21 in constant currency terms, after missing the double-digit mark for the last eight quarters. But given the much slower start to the year, the SEA business dipped 3% in FY21. 168 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The Home and Personal Care (HPC) category in Vietnam witnessed recovery on a year-on-year basis, while the foods business continued its positive momentum from the previous quarters. The MENA business rebounded to 62% growth YoY in constant currency terms on a weak base. The overall business ended at 1% cc growth in FY21. The pace of recovery in the Middle East was faster than in Egypt. Though outlook in the near term seems muted, the company is confident of its cost-reduction measures. In the Middle East, the company will work towards strengthening the Coconut Oils and Hair Oils play. The South Africa business grew 48% YoY in cc terms in Q4FY21. The business has grown 9% in cc terms in FY21, driven by the Health Care portfolio. New country development business grew by 18% YoY in constant currency terms during the quarter Raw material and margins In Q4, market prices of copra were higher by 25% YoY, mainly due to leaner supplies and lower coconut to copra conversions. Copra prices have already reached the expected price levels in April. The company expects prices to cool off from Q1FY22 as the peak season sets in. There will be a rise again in June – July months, as it happens every year. In FY22, the company expects copra prices to be marginally higher on an annualized basis owing to a definitive healthy crop outlook. There was inflation in Rice Bran oil with Q4 prices up 39% YoY. While rice bran oil was also sequentially up 8% in Q4FY21 despite seasoned arrivals, the company expects prices to be range-bound as the off-season approaches. Crude derivative such as Liquid Paraffin (LLP) and HDPE were also up 29% YoY and 31% YoY in Q4, respectively. The company expects there will be improvement in margin in coming two quarters and by second half of FY22, the company expects margins to be back to normal levels. During the year, the company generated INR1,500mn in cost savings in the domestic business and INR600mn in the international business. Majority of the edible oil inflation has been captured in the pricing change for Saffola. Employee cost was up 39% YoY due to: i) higher incentive payout owing to better performance during the quarter; ii) integration of Beardo (not in the base quarter); and iii) higher share-based payout. Other expenses (includes certain items variable in nature) were up 12% YoY. Other expenses are likely to remain in the range of 11–13% of turnover in the medium term. The company expects EBITDA margin to be between 18–19% by the end of FY22. The company has mentioned that pricing decision will be taken not to upset the momentum in volume growth despite a small hit to margins Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Distribution During Q4, day-to-day operations were back to normal as lockdown norms across the country were relaxed. But the second covid wave does not bode well In FY20, the company expanded its rural stockist network by 25%. While they took a pause in FY21 due to COVID disruptions, they have re-started the task of further expanding our rural network by another 25% over the next two years. The company has also made significant improvement in digitalisation of its rural network, thereby improving efficiency of rural spends. In Q4, traditional trade continued to gain heft with urban and rural growing by 23% YoY and 42% YoY in volume terms, respectively. It came back strongly after the decline in Q1 to end the year at 9% growth in volume terms. Modern Trade dipped by 17% on the high base owing to pantry loading prior to the lockdown in March last year. E-Commerce registered accelerated growth of 81% YoY, partly buoyed by the social distancing tailwind. CSD grew 59% YoY on a low base but CSD (6% of sales) was down 13% for the whole year. Overall, for the whole year, rural contributed to 33% of domestic sales in FY21. and Modern Trade and E-commerce contributed to 14% and 8% of the India business, respectively. While social distancing norms led to a 12% decline in Modern Trade, it spurred a stellar 60% growth in E-Commerce for the whole year The company expects 12% contribution from E-commerce by FY24. The company believes it now has a portfolio that requires focus on developing chemist channel moving ahead, not just as a covid measure but as an overall strategy. Balance sheet, capex, etc The estimated capital expenditure in FY22 is likely to be INR1,250–1,500 mn (USD17–20mn). The company continues to rationalize SKU and streamline process to keep low inventory, resulting in low inventory days. The inflation in the raw material prices also contributed to lower inventory days. 170 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Pidilite Overall The company saw strong inflation in VAM and other inputs. VAM prices went up from roughly USD935 levels to USD2,000 levels, thereby bringing the average for the quarter to about USD1,200 for the quarter from USD925 in the same quarter last year and USD875 last quarter. Material cost as a percentage of sales increased 388bps YoY and 318bps QoQ. Overall EBITDA grew 41%, excluding PAPL (new acquisition) and 3% for the whole year. Management said it will manage margins within 20–24% on a yearly basis for the foreseeable future, and will take necessary hikes or enhance efficiencies to achieve it. Inflation is due to supply disruptions and not demand issues, and this should correct as global manufacturing recovers. Newly acquired business posted double-digit growth and better performance as a return to normalcy is expected. Despite pricing action and cost reduction, management expects margin pressure to persist. Pricing actions taken so far cover 75% of inflation. Regional and small players have lost market share – due to inflation – to bigger players. Aggressively expanded in rural and small town, 7,000 new villages and 700 new stockists in rural India, and modern trade is also making a comeback. Construction activity has dulled due to the second wave, and management expects it to remain so in the near future. Management believes that ICA business among its domestic subsidiaries will perform well in the near term due to premiumisation of product range and domestic manufacturing. Debtor days have come down over the past two years, and overdues are at all- time low; inventory days have also improved. The company is moving away from commodity products such as construction chemicals, and focusing more on value-added products. International business Middle Eastern region was also impacted by the covid supply chain disruptions. Other regions have shown improvement. Waterproofing business Waterproofing was the first business to start recovering last year, and management expects the same this year. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The proportion of waterproofing in paints is still low in India: only four out of ten in India go for proper waterproofing. Hence, there is huge room for growth. There is no major unorganised sector in waterproofing, but the problem is lack of awareness and habit thereof. Being a high-end contract waterproofing business, Nina Percept was impacted by the lockdown—labour absenteeism and fall in construction activity. That said, management is confident about the structural strength of the business. Institutional waterproofing and most B2B business took a major hit last year and is still recovering. But B2B has done better than other arms during the second wave so far. The company is maintaining market share in the fast-growing waterproofing industry. Management is not worried about new players and paint companies entering the space as they are confident of the experience they have gained in the space. Management believes it has enough experience to fend off paint companies in the waterproofing space in the as paint companies had started entering the space five–six years ago. 172 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tata Consumer Products Overall During Q4FY21, India business top line accelerated while international business was soft due to pantry loading in the base quarter. Consolidated EBITDA growth for the quarter was impacted by tea inflation in India and increased A&P investments, which more than offset the strong EBITDA growth in India food and international businesses. During FY21, consolidated revenue grew 20% with group net profit growth of 102%. The company added INR20,000mn to top line this year. Overall, India business grew 29% YoY with robust volume growth across India beverages (+12% YoY) & India foods (+11% YoY). International business (ex foodservice) grew 12%, with an underlying (constant currency) growth of 5%. Consolidated EBITDA for the year is up 20% YoY, with strong margin expansion in international & India foods. India beverages business faced margin pressure due to unprecedented inflation in raw tea prices. Three year CAGR for India beverages volume comes to 7.1% and for India foods volume it comes to 3.4% Strong free cash flow conversion – FCF to EBITDA ratio for FY21 was 101%, up from 81% in FY20. Modern trade grew 31% YoY. E-commerce contributed 5.2% to sales in FY21 as against 2.5% in FY20. Overall extraction business grew 12% in FY21, led by Vietnam, which more than offset the decline in domestic extractions business. India foods business Salt revenue grew 26% during the quarter, bringing FY21 growth to 17%. Continued to drive premiumization with value added & niche salt portfolio growing 75% during the year. Market share gains in salt were from smaller and regional players. Drove further working capital (WC) efficiencies - negative WC as of Mar’21. Tata Sampann portfolio grew 2% during the quarter, impacted by volatility in pulses market. The portfolio grew 26% during FY21. EBIT for the segment grew 45% in FY21, with a margin expansion of 288bps. Distribution of tea and salt increased by 15% YoY and 11% YoY, respectively. Market share for tea was up 190bps YoY and salt 160bps YoY. Nourish co. recorded strong growth momentum in Q4 with revenue growth of 86%. Revenue for the year grew 4%, impacted by covid-induced lockdowns and reduced OOH consumption. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tata Water Plus (TWP) & Tata Gluco Plus (TGP) both delivered exceptional growth during the quarter. TWP achieved highest ever volume during the year, growing 60% in volumes in FY21. Fit for purpose GTM & strong cost optimization in Himalayan yielded results – 76% YoY expansion in retail footprint. Himalayan saw addition of new marquee accounts and increase in retail footprint during the year. Fruski, the fruit-based NPD, was relaunched in Hyderabad & Vizag with great initial response. Packaged beverages revenue for the quarter grew 53% YoY, with 23% YoY volume growth, marginally benefitting from a low base effect. EBIT margin for FY21 was 11% vs 15% in FY20, owing to unprecedented inflation in tea prices during this period. The company believes tea prices though down sequentially are far above Q4FY20 levels and that it will take gradual price hikes going ahead if the upcoming tea crop doesn’t reduce prices but focus is on volumes and market share gain now. The company carries about 60-90 days inventory in tea at any point in time so it would also see a lag in the falling tea prices to be reflected in the margins. It expects prices to start stabilizing from second half of the year, but it will keep a close watch on it and accordingly react and ensure margins don’t fall. Tata Coffee’s (incl Vietnam) revenue for the quarter grew 30% YoY led by both the plantations & the extractions business. Revenue for the year grew 14% YoY with EBIT growth of 69% YoY. Management mentioned there has been fair amount of hedging in coffee to tackle any inflation. In plantation business, robust value growth in tea was driven by higher realization while coffee plantations revenue grew on the back of higher crop in FY21. It has launched Tata coffee Sonnet and 1868 by Tata tea in the direct to consumer channel this quarter . International The company rationalized international business –exited coffee business in Australia (MAP) and foodservice business in the US (empirical). UK business revenue for the quarter declined 10% owing to pantry up-stocking in base quarter. Revenue for the year grew 2% (constant currency) YoY with substantial growth in EBIT, partly benefitting from increased in-home consumption of tea due to the pandemic. Tetley grew share in the rapidly growing segments of Decaf, F&H and Green tea during the year. Recorded more than 18% Teapigs revenue growth Pureplay online revenue more than doubled during FY21, with Tetley outpacing online tea category growth. 174 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights In the US business, coffee revenue for the quarter grew 3% (constant currency) YoY, due to pantry loading in base quarter. Tea on the other hand saw a robust 16% growth The Canada business saw a 15% revenue growth for the year ended and 6% (constant currency) YoY growth overall and more than 35% YoY growth in speciality tea business Tata Starbucks Revenue growth of 14% in Q4, albeit on a low base that was impacted by covid- 19 in March’20. Revenue for the year declined 33% YoY, driven by the adverse impact of covid on OOH consumption. Business saw sequential recovery till February, but localized lockdowns & curfews have begun to impact store operating hours in several cities. 94% stores have re-opened as of March 21 end. Added 39 new stores & entered 7 new cities during the year, giving a total of 221 stores Significant savings achieved during the year through rental renegotiations & overhead optimization. Digital initiative Continued digitization initiatives including S4 Hana, Sales force automation, and Distributor management system. Integration complete for all critical workstreams; common ways of working being matured. India ERP integration and migration to S4HANA complete. Synergy identification completed and realization started from Q3 FY21. Distribution channel partner consolidation done; on track to double direct reach by Sep’21. Channel partner digitization completed for urban distributors; initiated for rural distributors. Pan India CFA consolidation completed. Integrated Business Planning including Demand planning & Supply planning is live. Ensured billing through TCPL within ~45 days of deal closure (April ’21). On track for process integration across 10 functions within 90 days of deal closure (May ‘21). The digital initiatives will improve fill rates, reduce working capital needs and help manage inventory better. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights United Spirits Overall The company welcomed Ms. Hina Natarajan as the new CEO to take office from July 1 2021. She has previously headed the Africa operations of Diageo. Management noted that there has been no major down trading in brand category rather people have reduced quantity sticking to their brands. Maharashtra and West Bengal home delivery has been doing well, other states are also improving. In talks with other states, but states concerned about retailers and competition they would face from e-commerce. Net sales increased 11.6% driven by continued off-trade momentum and weaker comparatives, offset by contraction of owned business in AP and softer footfalls in on-trade channel. Underlying net sales, excluding the prior year one-off sale of bulk scotch, increased 16.1%. FY21 net sales fell 13.2%, Prestige & Above segment net sales declined 7.2%. Popular segment net sales declined 17.7%, within which the priority states contracted 15.9%. This was driven by organic decline due to a debilitating impact of covid-19 pandemic led lockdowns in Q1 of the Financial Year and the high covid-led taxes impacting consumption in select geographies. Prestige & Above segment’s net sales grew 25.8% benefitting from a strong scotch demand and weak comparatives. Popular segment net sales declined 3.1% led by decline of 4.3% in priority states. West Bengal sales saw a steep decline due to high taxes imposed. Reported EBITDA margin was 18.5%, up 491bps, driven by gross margin enhancement; lower advertising and promotional spends during the quarter and on-going cost optimisation measures. The interest coverage ratio has also reduced almost 40% on YoY basis due to debt reduction with absolute saving of INR250mn in FY21 Franchise income has been stable ex-South region for the quarter. USL’s net working capital is roughly 26% of net sales for FY21; management believes in normal year it would be at 30%. There has been a dip in Delhi prices, bringing them closer to Haryana’s level. There has been some price rationalizations in UP. West Bengal excise duty has impacted popular segment by roughly INR 1.5bn for FY21, while AP market access issues have created roughly INR 3.3bn impact in FY21. Management has not been able to reach a conclusion on pricing with Karnataka. ROCE is at 16.9% for FY21. Management believes there will be short term impact going forward due to second covid wave, but is confident on the long-term structural story of the industry and believes bounce back will be fast. 176 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights It views alcohol as a semi-essential category. Management believes in home consumption, scotch and large SKUs will see strong growth in the near future and growth in whiskey sales at the expense of beer . Ethanol blending policy cannot be predicted now due to frequent changes. There is possibility of ENA prices going up which is being mitigated by increasing in house distillation and production. Margin Management expects some inflation in commodities in the near future. Overheads remained at same levels due to AP market unwinding costs. Overhead efficiency is around 5-6% in normal year, it will be a bit higher in FY21. Gross margin was 43.9%, up 178bps versus last year, driven by benign commodities, superior mix, and continued management focus on productivity. There will be mid to high teens operating margin in normal years . Scotch Scotch has seen the fastest growth on YoY and QoQ basis this quarter and within scotch segment, BIO has grown faster than BII, due to regulatory unlocks in pricing recently. To drive growth in scotch segment, company has promoted DIY drinks through digital media, targeted duty free stores and came up with festive packs to improve offline and store visibility. Marketing campaigns The management has mentioned marketing spends will return back to normal levels in near future. The company conducted Johny Walker activation campaign “Walkin with Johnny” featuring films, digital campaigns and a glass striding man installation made of empty bottles given by customers. USL conducted activations for Black & White under ‘’made for sharing’’ campaign and for Black Dog under ‘’Savour the pause’’ featuring the comedian Vir Das. It has come out with new packaging for all its major brands and has also launched McDowells in can format. During the weeks when bars were open, the company ran a scaled up campaign to welcome back consumers across states . The company has also undertaken on ground renovations to improve appeal. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Healthcare 178 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Apollo Hospitals Financials and outlook Covid patient discharges stood at 5,450 in Q4FY21 against 14,616 in Q3FY21. Covid occupancy stood at 426 beds against 1,173 beds in Q3FY21. Surgical discharges continued to gain momentum and grew at 32% QoQ. Non covid patient discharges registered 21% QoQ growth. IP volumes growth was 9% QoQ with mature hospitals at 12%. Pharmacy: Q4FY20 included INR1bn of extra sales. Like-to-like growth was 10.5%. o Continue to add 300-350 stores annually and might speed it up. Promise to grow pharmacy business at 18-20%. Over this has put a digital layer. Was serving 700,000 people a day during the pandemic and was able to supply 90% of medicines. 24/7 expenses were capitalised in Q2 and Q3FY21 and were in single digit crores. But expenses were higher in Q4 due to higher marketing spends. Gleneagles to be consolidated from Q1FY22. FY22 outlook: Good Q1; occupancy at 68%. It was 71% in May. Learnt to repurpose beds--treating covid as well as non-covid patients. Capex: INR2.5-3bn routine capex for hospitals. Open for acquisitions. Additionally, Apollo HealthCo would entail INR1.5bn in near term. Apollo HealthCo Apollo HealthCo’s revenue potential is USD2.5bn in year 5. Revenue model- commission and facilitation fees charged on every transaction which will be at arm’s length level. Number of users: 10mn in past 500 days which includes customers from Apollo system. Targeting to reach 80-100mn by FY25. Anybody who has been to any Apollo asset would be assigned UHID and the patient will be able to keep track of their records. Apollo HealthCo in Year 4-5 will have EBITDA which would be much higher than just a standalone pharmacy or standalone consult. Customer acquisition cost has been very low so far. Will remain at 30-40% of the competition. But Apollo will be spending. INR2bn investments done so far. Would do another INR1.5bn in the near term. o Investments were largely made towards technology infrastructure and technology partners. Platform is in-house. Taken help from external vendors. o People from IIT or those returned from silicon valley have been employed. CRM is on Microsoft, rest of it is on Google. The platform has also been validated by international experts. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Currently has 7% market share in pharmacy retail. Expects to take it to 30% in next 5 years. Would look for partnerships in diagnostics as well pharmacy in the pin codes where it is not present but with the service guarantee from service providers. Stores are doing 30% more because they are now online. Going forward, it might cluster pin codes and may not require that number of stores as and when go through connected device. Restructuring Fully protects the economic interest of all shareholders of AHEL and would attract new investors. No other player has such length and breadth of such physical assets with the brand. Necessary in this digital world. It is present in every point of care of customers. Choice and access was lacking. Indicated valuations: 30x FY23 EBITDA on top of that digital. Valuation is quite a good one. Expects to get money i.e. INR1.21bn in next 3-6 months. Vaccines 2mn vaccines administered in last couple of months. Aims to inoculate another 8mn people in next 2-3 months. 1.5mn vaccinated in June. Charging based on govt capping. Not added any additional fixed costs for vaccination. Apollo has done more than 45% of all private vaccination in the country. AHLL- Q4- no significant income from vaccine. Diagnostics Minimal capex is required. Open to acquisitions provided available at right valuations. Organic growth is underway. Hoping to reach INR3bn in FY22 and 5bn in FY23. Ramping up home collection capability. Not significant Lab capacity is required. Ramping up hospital lab management contracts. Proton beds: Target is to achieve INR500mn EBITDA in FY22 and INR1bn EBITDA by FY23. Plan is to build oncology as a whole with INR20bn revenue with 30% margin. 180 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Dr Lal PathLabs Covid 0.45mn RT-PCR tests conducted in Q4FY21. During lockdowns, routine tests that are usually discretionary dip. Hence, realization/patient better during lockdowns. Past few quarters have seen higher contribution from specialized tests. 4-5 covid allied tests, especially inflammatory markers, were seen in Wave 2. Centralized clinics saw large patient walk-ins. 14 centres doing RT-PCR and 50-70 centres doing IL-6 and D-Dimer. At peak, did 25,000 RT-PCR samples/day. Expects covid allied tests to follow same trajectory as RT-PCR. Business environment Higher preference for online interactions and home collection. In such times, national chains better equipped to handle changes in environment. Hygiene, quality, processes better. Home collection 2-2.5x of normal. Lab expansion and collection centre growth as per plan. Will not see company withering on expansion. Wants to improve the ratio between lab and PSCs. Pick- up points added due to market forces. Core pathology Corporates likely to encourage employees to undergo tests. Impact of 2nd lockdown on non-covid business not as severe as last year. Regional Ex-NCR contribution ~64%. NCR margins healthy; revenue growth returned in Q4. There are markets and micro clusters that are yet to be tapped. South and West: +340bps YoY and +140bps on non-covid business. Others New regional reference labs – 1 each at Mumbai and Bengaluru. Genomics continues to grow well. Vaccination: Does not have enough space and infrastructure. Operationally looks challenging. If authorities want DLPL to do it, then it could evaluate. Has tied up with e-pharmacies and offers its bouquet of tests on the website. Financials Q4FY21: Ex-covid is INR715/patient. Tests/patient have also risen. 48-50% cost structure fixed. Covid tests along with rest of business helps in operating leverage Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Healthcare Global Quarter highlights Impacted by covid-19, impairment was taken on Milann, being IVF business which is elective and delay in Gurugram WIP project. This was taken on conservative basis. Renegotiated rental arrangements, which resulted in reduction of lease liabilities by INR1.23bn. Key strategy: a) focus on consolidation; b) driving revenue growth led by better execution in go-to-markets, digital performance marketing and more brand awareness ; and c) general operational efficiency. Beds requirement has dipped because of more of day care procedures being carried out. Currently, occupancy is calculated on 2,000 capacity beds. Operational beds would be lower by 10-15%. Mumbai and Kolkata ARPOBs likely to scale up. Difficult to take in Tier 2/3 cities. Expects ARPOBs to reach INR45,000 from current INR33,000, but may not reach COE levels. Second covid wave impact on South and West India - Nasik and Nagpur doing well. Mumbai was impacted, but seeing recovery in Q1FY22. The current quarter is seeing good revenue momentum. Once international patients and radiation business are back, further uptick is expected. All costs were back in Q4. EBITDA was lower on account of one-time investment in marketing and business development expenses in Q4. Debt to EBITDA (pre-Ind AS) goal : 2:1. 182 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Fortis Healthcare Q4FY21 earnings call highlights Litigation- Hearings have been concluded. Order stands reserved with Supreme Court. SRL exit option has been classified as long term on account of extension of agreement with PE investors. Voluntary salary cuts were rolled back in the beginning of Q3 and other costs are being looked at closely. Procurement will also play an important part in cost optimisation. Cost optimisation rather than cost saving will be an important aspect. On-boarded eminent clinicians in areas of cardiac, pulmonology and GI & Hepatobiliary sciences. Added 498 new collection centres in FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Hotels/Hospitality/Aviation 184 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Indian Hotels Q4FY21/FY21: INR700mn came in FY21 from asset sale. Chambers posted revenue of INR260mn in FY21 (FY20: INR330mn). From July derivatives contracts have expired and exceptional gains/losses will stop. 3 hotels opened, which helped redeploy certain man power. Q4 management fees were INR390mn in consolidated operations. The split between base fees and expenses is 2:1. So approximately the flow through to EBITDA is similar i.e. nearly all fees flow through margin. Before the second wave, IHCL had already reached 70% of pre-covid revenues level Second wave: There have been a lot of cancellations. However, performance is relatively better than last year when it was a complete lockdown. Delhi, Mumbai and Bengaluru remain the highest impacted markets. Leisure travel has seen a marginal slowdown. Costs: Having a clear brand differentiation has helped create a segregated business model. This will also help drive employee to room ratio. Sea Rock: At present, total amount on balance sheet is INR12.5bn. The company will only incrementally be putting INR1.8bn at the end of this year and nothing more than that . It is looking at a partnership model . Other: Target to get 20-30% business in Taj Sats from non-aviation business. Construction of Ginger Santacruz is already in basement stage. International properties: Took 100% ownership of Taj Cape Town in FY21. US properties are expected to open in May. Lower severance pay helped reduce employee expenses. Occupancy in Maldives and Dubai has been in the 70-80% range. New York and SF are at 25% occupancy. New York will be opening restaurants with 70% capacity. Debt increased also due to consolidation of the company. Subsidiaries performance o US loss was INR1.6bn; it should come down to less than INR1bn this year. o UK loss was GBP2mn. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights New initiatives: Qmin has already expanded to 14 cities and in 9 months the business posted revenue of INR260mn. Margin in Qmin is north of 50%. All Ama are vicinity of hotels, which helps the GM to oversee the management of the property. Ama, Ginger and Qmin will be key focus initiatives in the next 3-4 years. Target is to take count of Ginger and Ama stays to more than 100. Capex: There are 3 parts: 1) Continue to spend on Taj Mansingh 2) Ginger Santacruz 3) Complete the chambers renovation in UK and banquet in US. In total the company will have an outflow of INR2.5bn . Guidance/future initiatives: High margin growth will come from new business. Market share and LTL growth will come from existing business. Target is for 20-25% contribution to EBITDA in the long term. Evaluation of capital structure is not an if, but a question of when. Long term target for debt: equity remains at 0.4x. With the cost initiatives the company believes it can achieve FY20 EBITDA at 80% of occupancy/revenue of FY20. 186 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights InterGlobe Aviation Capacity update: During the quarter, Indigo operated at 70-72% utilisation. The company is likely to operate at 50% capacity at domestic levels from Jul y 2021 and 50% capacity at international level from March 2022. It will slowly ramp up to 100% capacity in international operations by end CY22. Seasonally weak Q4FY21: Management mentioned that demand remained relatively weak during Q4, though Feb’21 remained the strongest month in FY21. Operating cash flow: Operating cash flow has been improving steadily. The company’s cash burn rate has reduced from INR400mn/day during Q4FY20 to INR190mn/day during Q4FY21. It expects employee cost to be 30% lower than pre- covid level (previous guidance maintained). Fleet update: During the quarter, the company operated 285 aircraft including 100/120/39/26 of A320 CEOs/A320 NEOs/A321 NEOs/ATRs. Increase in the number of cargo fleets during the quarter is always a new wave which is looking for now. Non-metro cities perform better: Management highlighted that non-metro cities are doing better in comparison with metro cities. Cities such as Chandigarh and Patna are operating above pre-covid-19 levels. Liquidity: The company reported free cash flow of INR70bn in Q4FY21 (INR90bn YoY). Cash burn rate has reduced to INR190mn /day during the quarter (INR400mn/day in Q4FY20). Indigo is likely to incur additional INR250mn/day Q1FY22, given weak fourth quarter. Fuel efficient fleet: Net fleet add should be flat in FY22, but ~15% fuel and lease- efficient NEOs will continue replacing CEOs. Cash burn rose 27% QoQ to INR190mn/day and will rise to INR250mn in Q1FY22 due to lower RPKM. Cash raising to enhance balance sheet: Liquidity is a not an issue, as cash accruals/ credit lines would increase their cash by INR45bn and INR30bn by private placements in Q1FY22. International traffic is more constrained than domestic travel Although foreign business travellers and OCI holders are once again permitted to enter the country, India remains closed to leisure visitors, VFR travellers (unless they are NRIs or hold OCIs) and medical tourists. Only 60% of the pre-covid-19 traffic is actually allowed to enter the country from a border control perspective. Of which the majority is expected to defer travel given the risks and inconvenience associated with international travel currently. In the case of outbound travel, discretionary business and leisure travel account for an estimated 56% of total departures and these segments are likely to see limited activity. VFR, employment and education accounts for around 44% of traffic and may be slightly less impacted. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Lemon Tree Hotels Cost structure The onset of second wave was sudden due to which cost correction could not take place in time, but will flow into the next quarter. There will be significant reduction in the cost structure compared to pre-covid level, which would expand EBIDTA margin considerably. Occupancy and rates Occupancies will continue to recover for the next 6 months and ADR recovery will lag that by 3 months. The company will wait for the industry to raise rates; as of now no increase in rates. Aurika and Keys Aurika brand posted occupancy of 45% in Q4FY21 which is the industry average. LT is opening an Aurika in Coorg in the next few months and plans to open many more in the distressed space but it has been delayed because of covid. But management is confident it will get a large number of brands under Aurika in the next 2-3 years. Keys in Kerala has been worst affected as there was sharp fall in demand in the state. Liquidity LT currently has healthy cash balance and liquidity. The company has a cash balance of INR1.4bn which the management believes is sufficient. Also, it has access to INR5bn more should it want. Interest rate for debt is at 8.3%. Demand scenario LT expects retail to support further growth as whatever revenue is reduced by corporate travel will be covered up by retail/leisure. Only 20% of the total demand comes from large corporate which according to the management will see permanent reduction by 2-3%. Others Capex is still at INR50mn/ month. May was the worst affected month, April was also bad but June is showing an uptick in performance. The growth of the hotel sector is expected at two times that of the rate of GDP growth. 188 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Mahindra Holidays & Resorts Industry: Expects a strong pick up in domestic leisure travel once the vaccination drive is completed. Q4FY21: Total impact of INR203mn due to cancellation of non-paying members. The amount is much lower due to the higher provisioning the company takes. Membership: AUR in Q4FY21 was 0.29mn (Q3FY21: 0.26mn, Q2FY21: 0.16mn). Most members cancelled are small business owners from T1/T2 cities. Holiday Club Third wave is coming to an end and the company is confident of getting back into business by mid-June (peak season). Received EUR1.5mn as incentives from the government. Some more expected in the next 12 months. Debt position of EUR26mn with liquidity of EUR12mn. Rooms: Added 9 resorts in FY21. The company has plans to increase room count to 5,500 plus in the next four years. Room pipeline o Asanora (second phase): 57 rooms. o Ashtamudi: 33 rooms. o Very close to get approval for Ganpatiphule: 150 rooms. o Kandaghat, Shimla: 160 rooms. Focus is on adding a lot of drivable distance resorts. Split between leased: owned is 60:40. Outlook: MHRL expects the situation in India to normalize by mid-June. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Home Decor 190 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Century Plyboards Opening remarks FY21 started with turbulence, but with every passing quarter, the performance became better and Q4FY21 was the best in history - laminates too has shown a very strong performance. Cost control initiatives have borne results. MDF expansion is in progress. Sales force, Viro kill, Vector, Fire tech – lot of initiatives taken during the year have started to show results. Many inputs given by BCG – like throughput enhancement, logistics savings, procurement efficiency, power savings, focus on particular markets/buyers, etc. these initiatives can bring in INR300mn of annual savings that will help the company in times to come. Seeing their contribution, further engaging BCG for one more year in laminates to bring in further improvement. Covid-19 second wave impact Q1FY22 affected badly as most states went in lockdown. May was the worst as most states were shut down. Will enter Q2FY22 with better energy and very positive on robust rebound like in case of last year. Capex and capacity additions Capex: Total capex in next two years will be around INR7bn, of which INR500- 550mn will be spent on plywood considering both Greenfield and balancing equipment, INR4.5-5bn on MDF greenfield expansion Plywood: The company has been able to ramp up capacity utilisation to 100% quickly. Now the company is adding balancing equipment’s in number of plants with limited capex of INR40-50mn that will take total capacity higher by 25%. Furthermore, the company plans to expand greenfield capacity at Punjab at total capex of INR500mn. Laminates: Collaborating with BCG is likely to bring in more efficiencies and will help unlock more capacity from existing lines (15-20%). Further, to drive growth, the company will add greenfield capacity, which will be operational in Q3/Q4FY23. MDF: Given sustained strong growth in MDF, management has finalised brownfield capex at Hoshiarpur (Punjab) to increase its capacity from 600cbm per day to 1000cbm per day at the cost of INR2bn and it is already underway. Due to second wave of covid, the capacity is now likely to commercialise by Q1FY23 compared with Q4FY22 guided earlier. While this brownfield capex will commercialise by Q1FY23; management is also actively working on greenfield capacity expansion in South, which will be finalised soon and is likely to commercialise by H2FY23. The south plant will be mainly for catering to domestic market. Particle board: The company is increasing capacity by adding balancing equipment at its existing plant. Q2FY22 unlocking of new capacity will be seen Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Plywood – Sainik Currently, in terms of revenues, Sainik contributes 30% to overall sales. The company expects much stronger growth for Sainik that will benefit the maximum from shift from unorganised to organised players. In Sainik brand too, Sainik 710 (water proof category manufactured in-house), is seeing higher acceptability and is likely to be strongly advertised by the company even in the coming year. Margins in Sainik is less than the Century brand, the growth is much faster. Margins To compensate for increasing raw material cost, the company has taken price hikes across segments. Price hikes since April 1, 2021: 2-3% in plywood and 3-4% in laminates and similar % in MDF and particle board. Laminates: The segment benefitted from low-cost inventory and sustainable margins should be 15-18%. Plywood: Long term sustainable margins can be easily 14–15%, in the near term, the company is looking at 13.5-14% margins. Particle board: The Q4FY21 margins for the segment were impacted by higher raw material cost, mainly melamine’s. Going ahead, margins are expected to improve as the company has already taken price hike. Laminates Exports contributed 25% to overall sales in FY21, which should move closer to 20% as the company is likely to see faster recovery in domestic market. Working capital days Going forward, will be looking at ~70 days working capital cycle. Vision The company continues to work towards its aspiration of INR10mn profits each day; which looks fairly close. Growth outlook Plywood: Due to covid-19, the recovery is taking a hit. Confident of growing at 12–15%. Considering expansion plans and outsourcing mix, the company can do INR5bn quarterly sales in plywood Laminates: The company is looking at 15%-plus growth in this segment with improvement in margins as BCG will bring in more efficiencies. MDF: MDF will soon become the second-largest segment for the company and its revenues can be 2.75x post-capacity expansions over the next 3–5 years. Shift towards organised players is supporting growth in plywood as well as laminates. Where smaller players are facing challenges with respect to raw material procurement and working capital issues. On the other hand, increasing consumption of readymade furniture and expanding usages is driving growth for MDF. Pre-lam MDF is likely to stay ~20% of overall MDF sales. 192 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights BCG is bringing in efficiencies such as savings in logistics, procurement, waste reduction (in laminates by 3%). Thus, most of these savings are sustainable. MDF Dynamics Imports is fairly limited at this point in time. ADD on MDF imports will be further positive. Despite increase in raw material cost, margins should remain healthy given favourable demand supply scenario. The company also does not expect much changes with realisations as not many new capacities are coming in with easy absorption of capacity addition of Rushil Décor in near term and capacity addition by Century in the long run. Further, the company remains confident of a faster ramp-up of capacity in the MDF division. Face veneer/ Commercial Veneer The company is seeing disruptions in supply from Myanmar; however; is well stocked up for a couple of months. Even beyond this, there will be good supplies of Okume veneer. Earlier Commercial veneer used to be lucrative and was also the focus area for the company. Now the focus is on internal consumption and only lower grades are sold in the market. Thus, revenue for the segment is down from INR1.84bn in FY17 to INR240mn in FY21 Unallocable expenses The expenses are higher during the quarter as the company has included some year expenses in Q4FY21 (INR180mn includes INR100mn expenses belonging to first three quarters. Given the uncertainty related to covid-19, all these expenses were booked in Q4FY21. These expenses include CSR, Commissions to directors, etc. Excluding these expenses, profits would have been higher by INR100m. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Kajaria Ceramics Demand Tile industry witnessed good growth both from smaller towns as well as Tier 1 and tier 2 cities During Covid-19 wave 1, Tier3/4/5 supported us; then metros supported demand from October This year, April – sales was 75% on projected terms, May was literally closed – 95% of dealers were closed, despite that the company achieved 35% of targeted sales Karnataka – started from today; AP, Maharashtra, West Bengal are slowly opening up; Tamil Nadu is still closed June things have started looking up and company is planning to achieve 75% of targeted sales and by July the company expects business near normal levels The company is confident of growing above competition As unlock happens – things will get back to normal Construction is still on; projects is still on which is a positive this time As per the management, Tier 2/3/4 will still do better, there is lot of work getting done there Outlook The company had earlier given 20-25% volume growth guidance; but given April onwards there was again a lockdown; the company has not given any guidance both on top-line as well as margin front The company is still positive on achieving top-line if situation permits and is confident that FY22 will be better than FY21 With work from home people are spending more time at home and getting things done Lot of money is being spent on home improvement Gas prices and cost increase Gas cost is up 20% YoY; Gas prices still at higher side The company has already increased tiles realisation by 2.5-3% There is always a time lag of 45 days between gas prices and realisations pass on. It’s a complete pass on if you look at it from annual basis Paper prices have also gone up Average prices of gas for its North plant was INR28.46 compared to INR32 current quarter Morbi prices too are at INR32 per scmd Plywood INR39 Cr – FY21 194 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The company is targeting INR 80-90 Cr sales is FY22E also led by addition of laminates segment Laminates is a better gross margin product compared to plywood and thus will also add to bottom-line growth Laminates is a INR60bn market of which INR45bn is domestic market and INR15bn is exports In FY21, the company had a loss of INR100mn in this segment and in FY22 the company is expecting loss of INR50-55mn with break-even or marginal profits in FY23 Ad spends FY20 – INR900mn FY21 – INR460mn FY22 - INR700mn Others The company does not have any channel financing Working capital Currently the working capital is 50 days down from 73 days in same quarter last year The working capital will vary between 50-55 days going ahead Cost reductions With 15-25% top line growth in FY22; manpower count will not go up, manpower cost will go up but not to the extent of top line Ad spend will be INR700mn only Travelling cost which came down drastically in FY21 will not go back to normal in FY22 Expansion The company is super positive on the growth aspects and is thus doing expansion The company would be adding 4.20 msm of floor tiles capacity at its Gailpur, Rajasthan with total cost of INR600mn. The same is expected to be completed by March 2022 and is having potential turnover of INR1.35-1.4bn The company’s subsidiary KTPL, Andhra Pradesh is also adding a capacity of 3.80 msm of value added tiles at a cost of INR1.10bn. This expansion is expected to be completed by Dec. 2021. The capex with respect to this plant is more as company will be only going for value added products and thus revenue potential is also higher at INR2bn KJC is also expanding capacity by 4.40 MSM at its JAXX plant for an approximate cost of INR800mn. This expansion is expected to be completed by Jan. 2022 and is having potential turnover of INR1.6-1.75bn All these are brownfield expansions and the total capex will be INR2.5b with target completion for all plants in FY22 itself. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Capex for each plant is different as products manufactured in each plant will be different The company has not finalised capex beyond FY22 Bathware division The company closed the year with INR2.10bn revenues in FY21 KJC is targeting INR5bn revenues in next three years Right now the capacity is there to expand but if things go as plans, the company will add more capacity Faucets plant with capacity of 1 mn pieces per month is currently running at ~100% for two quarters. The company can expand this capacity to 3mn pieces in existing land with marginal capex of INR100-150mn With increase in capacity, rise in turnover, cost optimisation and increasing operating leverage margins of this business are likely to go up Further, due to increasing brass prices, KJC has taken ~10% price increase from 1st May, 2021 Exports In FY21, the exports for the industry increased from INR90bn to INR110bn in FY21 The exports are further likely to increase to INR130-150bn by FY22 Proximity to ports, Competitiveness of India, Established markets are the key reasons for strong exports Kajaria is having only 3% of sales is coming from exports sales. The company is dedicating one line of its JV plant Cosa only for exports Capacity expansions in Morbi All expansions in Morbi are delayed by 6 months Exports will continue to grow As markets come back to normal, these capacity additions will be absorbed in domestic as well as exports market Distribution Kajaria is having total of 1700 dealers of which 1500 are active dealers Further, of these 1500 active dealers, 300-350 are exclusive dealers The company plans to take these total number of exclusive dealers to 600-650 in the next three years Covid-19 is delaying the vision, but the company still continues to target having dealers at each of the 542 constituencies of which 150 constituencies are still left out Despite covid-19, in FY21 the company added 200 dealers Once covid-19 is over, we the company will work towards adding more exclusive distribution 196 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Price hikes As gas prices went up by 15-20% in Jan The company started with price hikes in PVT and ceramics segment by 3% and then also increased prices of GVT by 2.5% In Faucets, the company increased prices from 1st Jan by 6% and by another 10% from 1st may In Sanitaryware too, the company increased prices by 6% Revenue mix 40% - Wall tiles 32%- PVT 28% - GVT Mix is same and will remain stable In GVT, adding more large tiles where sales realisations will be much higher Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Greenlam Industries Laminates volumes and realisations Net sales increased 28% YoY to INR4.1bn led by increase in revenues of laminates division and decorative veneer division increased by 29% and 23% YoY respectively. Laminates’ revenue increased 29% YoY led by strong volume growth in domestic as well as exports market by 55% and 14% YoY, respectively led by market share gains in both the markets as smaller players face challenges with respect to availability of raw material and sharp increase in cost. While domestic market saw consolidation benefits, the company continues to gain share in exports market led by low cost manufacturing. The company had taken price increase to offset higher raw material cost both in exports and domestic market, but realisations were flat due to increasing share of commodity grade laminates (introduction of 0.7 and 0.8mm laminates in FY21). Exports growth was healthy despite container availability issues in exports and higher freight costs. Container availability is still an issue. Had these challenges not been there, the company’s performance could have been better. Laminates margins Despite a sharp increase in raw material cost, laminates EBITDA margin was up 220bps YoY to 16.1% as the company was able to pass on the complete price increase in domestic market and a partial increase in exports market along with benefits of operating leverage. Certain chemical prices have increased 2x. In the domestic market, the company has passed on all cost increase – 12-14% price hike since Nov 2020 spread across 3 increases. In Exports, some part is still remaining to be passed on In exports market – increase in freight cost, shipping cost is passed on, its some raw material cost that’s yet to be passed on Margins in domestic and exports market are similar and depend on currency, raw material cost and product mix from time to time Inventory Due to stricter credit terms of the company, the inventory in the system remained low and thus pick-up in sales as retail level (also led by pent-up demand) will lead to higher sales for the company Outlook The company sees strong growth opportunity ahead led by solid brand build over the years, deep and wide presence in domestic as well as exports market leading to strong growth While the company is not competing with China in exports market, it still sees huge scope of growth as lot of work is done by the company in last 15-17 years, which can reap benefits. Thus, the company is also looking at large capacity expansion. 198 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Although the impact of second wave is being felt on domestic business since 2nd/3rd week of April, the company sees meaning full growth in the coming year as exports are not impacted, OEMs are still working in domestic market and company still has scope to increase utilisation rate Capex In FY22, apart from routine capex of INR250-300mn , the company is likely to go ahead with greenfield south India capex The company is in final stages of getting approval and expects to take 12-15 months for commissioning the plant from start day of construction. Industry The industry size of domestic laminates industry is between INR50-60bn whereas for Indian exports is INR20bn The global industry size is $7bn offering huge opportunities. The company is present across categories – 0.7,0.8 and 1 MM and is thus having huge scope to gain market share. Doors The company ends up competing with wooden doors and carpenter made customised doors, engineered doors produced by some competition. The company is also making fire rated doors, non –fire rated doors, specialty doors. Flooring The company is competing against laminated flooring and imports. Laminates flooring is localized. The revival in both doors and flooring will depend upon the market scenario which has been challenging for quite sometime. Inorganic expansion The manufacturing set-up of small units are not aligned to company’s set up and will not match the quality standards of the company. Thus the company will look at own expansion even if it takes more time. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Prince Pipes Demand In Q4FY21, the company reported strong volume growth of 26% YoY led by robust demand from the plumbing segment while there was growth in agri pipes too. In FY21, while the PVC consumption in India went down by ~15%, volumes for PPFL increased by 4%. In past 2-3 quarters, the company has outpaced industry growth significantly led by the Lubrizol tie-up, aggressive distribution network drive, and structural up- take in demand also led by real estate rebound. The company anticipates impact on demand in Q1FY22 due to the second wave; however this time at least its plants are functioning versus completely no movement last year. This year, even the DWC business has registered strong double digit growth. Capex During FY21, the commercial production at Telangana commenced production ahead of schedule with capacity of 4,000 tonnes. The plant is expected to have total installed capacity of approximately 50,000 tons per annum and capacity would be ramped up in a phased manner over the next 2–3 years. The unit will serve Southern and Eastern markets, which would bring down the freight cost (anywhere between 4-6% and can be bought down to 2-3% by local supply). Initially this will be passed on in the market to gain market share while later it will add to EBITDA margin expansion. Going ahead, INR400–500mn will be spent on maintenance capex along with significant portion of capex on the Telangana plant. The company is also having some milestones/roadmap, and is in a discussion phase to put up capacity in Central or Eastern India. Distribution The company added ~50 distributors in Q4FY21 taking the total to more than 1500 distributors at the end of FY21. The company continues to focus on quality of distributors and not number of distributor addition. East along with part of Central and South India are focus area for the company as North and West continue to be strong home markets. Ad spend In anticipation of strong Q4FY21 led by inventory gains, the company ramped up branding initiatives from the start of the quarter to ~4.5% of sales (from generally 2.5-3% of sales) Margins The company benefitted from product mix change (higher share of plumbing pipes including CPVC), inventory gains of INR300-350mn, better pricing power due to market consolidation and operating leverage. 200 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights While management is conservative on margins (13-14%), PPFL has many margin levers in place: i) product mix improvement; ii) rising pricing power; iii) reducing freight cost post Telangana plant; and iv) operating leverage benefits. Balance sheet During the year, the company repaid more than INR1.6bn in debt, and it is net cash positive as on 31st March 2021. One of the major reasons for improvement in working capital days in this year has been inventory liquidation, focus on receivable days. Anywhere between 45- 50 days working capital is sustainable. PVC Prices PVC prices have already seen correction by INR4 per kg effective 13th March. The correction in raw material prices is due to weak domestic demand as globally prices are still at elevated levels. Focus areas B2B is an improvement area for the company. The company is also committed to adding products across applications. CPVC Flowguard PPFL is not only gaining traction in B2B but also share from existing retail outlets for its CPVC. The company also started working with top developers, without compromising on receivables. Prices of CPVC should remain firm given the major raw material is PVC. Gross margins have definitely not improved post the tie-up with Lubrizol. But with market share less than 10%, there is still is still significant scope to gain market share. With Lubrizol investing significantly in India and its plant likely to come up in India, PPFL is likely to benefit immensely. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Somany Ceramics Opening remarks After Oct-Nov, the company’s plants ran at 100%. The company is happy with the amount of bounce back in the economy. Q3 was better; Q4 March had some impact of pandemic. Improvements/corrections done Sales spread across the month now; sales are not skewed towards month ends. Reduced exposure to builders; now 80% + sales are retail. Cash discount sales used to 20% for over 5-7 years; now at 50%. Expanding distribution - 75% revenues from Tier 3/4/5 towns. Debt dipped further. Pushing value-added sales; that will further expand. Cost cutting some of which will sustain in long run. ICDs all cleared; bloated ICDs all back in the books Made provisions for SREI investments; although interest is still regularly serviced, still does not want any surprises at later stage; being extra conscious and thus made provision. Gas prices Gas prices were muted last year and SOMC reaped benefit last year. This year gas prices are up. Average gas price is INR30-33 versus INR25 last year. Level playing field with Morbi based players. The company is buying on spot for South based players, for North plant prices are based on 3 months average prices of oil, gas and dollar and in West prices are based on GSPC. Q4FY21 – average was INR26.5 per SCM. Gas price at Kassar plant was INR29 per SCM, INR33 for Morbi and similar for its South plant. Margin Q3FY21 numbers are sustainable. Expansion plan Machinery ordered and plan is on track; the new plant should be up and running by Q4FY22 West is greenfield, South and North are brownfield. Exports Hardly 3-4% of revenues comes from exports which this is ~5%. 202 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Morbi’s exports have moved from 20-25% of overall volumes to 40% this year. This can further go to 50%. Distribution Net dealer addition this year were 400 and company virtually has not lost any dealer during the year. Ad spend The company dint shy from ad spends–3-3.5% ad spends continue. Brand spend were INR600mn in FY20 which came down to INR400m in FY21. Outlook Looking at an aggressive growth going ahead. In FY22, management is targeting high teens volume growth. In FY22, margins can be in the range of 12-13% considering weaker impact of Q1FY22 and its impact on margins. FY23 margin could be higher given a normalised year and benefit of value added products. Covid-19 second wave impact 85% of targeted sales achieved in April. 30-32% of targeted sales achieved in May. 70% of targeted sales achieved in June. Overall should be able to close 65-70% on envisaged performance. Employee expenses In Q3FY21, employee expenses were inflated by INR90mn since the company rolled back salaries of Q1FY21 and Q2FY21. Q4FY21 was a normalised quarter. Prices GSPC would be increasing gas prices on the back of which even Somany would increase prices. All players at level playing field now with respect to power and fuel cost. Morbi Most of the capacity expansion is up and ready here. Total capacity expansion in Morbi will be 170 MSM including their own expansion out of the total capacity in Morbi of 1200 MSM The sector is facing last moment delays. The capacities were expected to start coming from May spreading to July but now will start from July to Dec Capex The total capex is likely to be INR1.6-1.7bn for FY22 for both greenfield expansion at West(INR900 mn) as well as brownfield expansion at South (INR750mn JV) and North (INR400mn) Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The total capacity can go up by 12 MSM from total 51-52 MSM. Then outsourcing will remain at 8-10 MSM Product mix FY21 – 26% GVT (up from 23% in FY20) FY21 – 39 % Ceramics (down from 40% in FY20) FY21 – 35% PVT (down from 37% in FY20) GVT mix from 26% can go to 27-27.5% from current volumes. With new plants, this can go to 30% plus share Ceramic will continue to grow; while PVT can be at 30-33% share What will the management not compromise on? Never pledged single share. Will not have treasury operations – a big learning lesson. Will continue to focus in cash flow focus and not going to let go of controlled receivables cycle (it is okay if company does not have growth in a particular quarter/year) but it will not compromise on working capital. Looking at cost more closely now Does not want to enter any allied product segment The company will also work on ESG Price gap reduced between unorganised and organised players As Morbi players have stopped giving extra credit and tax evasion is gone away with given the switch to gas Gap can further narrow with stricter compliance of GST and Eway bill GST coming at 5% if possible could be further beneficial Broker and employee default Legal battle is on and company is not leaving any stone unturned Out of the total INR150mn employees default, its property of INR70 mn is seized Rest is also up in court and the company is fighting criminal case Debt The company is having one term loan of INR500mn that too low interest rate Bathware Looking at 35-40% growth this year Excited about this business Focus getting on bathware Sanitaryware and bath fittings 4QFY21: Sanitaryware was at INR350mn and faucets was at INR230mn FY21: Sanitaryware was at INR1.01bn and faucets was at INR650mn 204 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Supreme Industries Q4FY21: Volumes and margins surpass our expectations Revenue jumped 46% YoY vs our estimate of 50% growth led by increase in volumes 8% YoY. Volumes increased across segments, except pipes, which reported 2% YoY decline. Industrial division reported 45% YoY increase in volumes, consumer division reported 12% YoY increase in volumes and packaging division’s volumes jumped 40% YoY. Further, margins have shown significant improvement of 530bps YoY to 24.5% led by pipes segment with improvement in margins by 650bps YoY to 27.1%. Industrial (up 250 bps YoY to 16.6%) and consumers (up 110 bps YoY to 25.2%). On the other hand, packaging division reported 530 bps YoY dip in margins to 16%. Overall EBITDA for Q4FY21 thus increased 86% YoY to ~INR5.1bn. Supreme Petrochem Demand from consumer appliance segment is robust in domestic and exports markets, which is driving growth in this segment. Current capacity is fully sold out and thus the company is expanding capacity by 90,000 tonnes in Poly-Styrene and by 30,000 in ABS. The company should complete all expansion by Dec 2021/March 2022 with total capex of INR2.6bn. World market is willing to pay premium on its products and thus management expects good delta to continue for some more time. PVC Anticipates PVC prices to start dipping gradually. Demand scenario Till 20th March demand was strong. Volumes for pipes division were weak as agri pipes demand was weak in Jan and Feb with sharp increase in prices. April onwards demand for agri pipes is picking up again as people are getting used to higher prices. In April, demand is generally lower compared to March; nevertheless, April 2021 is far better than last year’s April. Localised lockdowns impacting demand, but situation is not as worst as last year. Cash flow utilisation The company continues to seek opportunities only in plastic products. Apart from pay-out increase (already done), capex will be spent on adding 3 new locations. Plastic pipes and market share gains While PVC resins consumption in India is down by 15.7% YoY in FY21 (~70% consumption in plastic pipes), PVC consumption for SIL is down by mere 3.7% leading to significant market share gains. Apart from PVC pipes, the company has gained market share even in CPVC segment (3.7% volume decline versus 11.6% industry decline). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Shift is likely to continue and market will grow higher than GDP growth. Agri demand seeing signs of picking up. May is generally the peak month for agri; however, the company’s main demand driver is housing. Industrial The company saw better demand from consumer appliance segment during the quarter. Currently business conditions are not clear due to huge surge in covid cases in the country, necessitating to put across stringent curbs by various state governments. However, the company believes business scenario remains bullish in the medium and long term. Inventory gain Total inventory gain stood at INR2bn in FY21, of which large portion was seen in Q3 and Q4FY21 (INR0.8bn in Q3FY21 and INR0.8-1bn in Q4FY21). April has seen marginal increase in PVC prices. Q4FY21 operating margin Pipes - 27.8 % Packaging – 15.8% Industrial – 15.6% Consumer – 25.6% Margins are likely to sustain at ~17%. 3% margin improvement in current quarter was led by inventory gains. Rest was contributed by reduction in expenses and increase in value added products. Capex In FY21, the company did INR 3.14bn capex and plans to do INR4bn capex in FY22 including INR1.98bn carry forward capex of FY21. The total capacity addition would be ~40,000 tonnes. The company has also embarked on putting up three new greenfield plants in Assam, Orissa and Tamilnadu during the current year (ex of this capex). Growth drivers Governments at the Centre and states have put the priority focus on Jal Jeevan Mission, Swatch Bharat Abhiyan, Sanitation and affordable houses to all and development of 100 smart cities on all India basis. NITI Aayog has declared following as growth drivers across the country: 9. Government infrastructure spending 10. Increasing construction 11. Increasing Industrial production 12. Rising demand from irrigation sector 13. Replacement of aging Pipes 14. Providing affordable house to all 206 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 15. Heavy investment by Government in irrigation, housing and sanitization Almost all the above growth drivers will boost the business of Plastic Piping System Division. Cross laminated films Cross laminated film products demand will boost in the coming year as weather forecast by SKYMET the monsoon in India is predicted to be normal with no La Nina scare. The thrust in coming year in exports will be mainly on developing newer applications, entering new markets and targeting chain stores and super markets for sale through their online portals. The company is also increasing its capacity from present 27,000 MT P.A. to 30,000 MT P.A. and expects the exports to grow further in the coming year apart from increasing the sale of made up products. Consumers Its e-commerce business grew by 100 % during the year and consumer behaviour during the year showed a major shift towards online shopping. Material handling SIL plans to introduce new models in Pallets, Crates and Ice boxes in Roto Moulding and is well poised for growth in the current year. Composite cylinders The largest Indian oil marketing company, Indian Oil Corporation, purchased small quantity of Composite Cylinders in March 2021 for marketing trials in 4 cities of India. This augurs well for the long awaited introduction of Composite Cylinders in Indian market. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights IT 208 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Cyient Earnings Call: Key highlights Revenue at USD149.9mn was up 6.0% QoQ and 0.4% YoY. In cc terms, revenue was up 4.7% QoQ and down 3.5% YoY. Normalized operating margin expanded 421bps YoY and 148bps QoQ to 12.6%. FCF to EBITDA conversion stood at 101.3%. DSO stood at 81 days compared to 101 days in Q4FY20. Cash and cash equivalents stood at INR14.6bn. Order intake in Q4FY21 was at USD238mn, up 22.4% QoQ. The company won eight large deals with total contract potential of USD91mn. Six large deals were in services worth USD71mn and two large deals were in DLM worth USD20mn. Headcount stood at 12,032, net decline of 155. Attrition increased to 21.2% compared to 13.2% in Q3FY21 and 18.9% in Q4FY20. Utilization for the quarter was 83.7% compared to 80.9% in Q3FY21 and 74.5% in Q4FY20. In A&D, it continues to face challenges. It expects aviation to be back by the end of FY22. In communication, continued to see strong momentum and expects it to sustain in FY22 as well. Growth was broad based including in network technologies, fibre, digital opportunities and 5G rollout. In E&U, it was challenging in the last 12 months and it believes that segment has hit bottom in the current quarter. Utilities too witnessed a strong quarter and robust deal pipeline provides good growth visibility for FY22. In transportation, growth in Q4 was driven by recovery in key accounts and ramp up of new engagements initiated in 2020. Overall, it is witnessing strong growth in new accounts which is expected to drive strong growth in FY22. In MTH, growth was impacted due to the covid-19 related challenges. Global supply chain disruption continues to remain concern. It expects growth to start in the later part of H1FY21 and it will definitely grow in H2FY22. In portfolio, on the geospatial side, it witnessed a softening in top 3 geospatial customers which are still impacted by covid-19. For FY22, the automotive industry is expected to gain positive traction. Growth in SIA segment continues to be muted and may see slight upside in H2FY22. In DLM, it expects the current momentum to continue in FY22. Revenue growth would higher in the H2FY22. New performance linked ESOP scheme was launched for employees in which shares would be purchased by the trust. The company sees an impact of 50bps due to this. 80-100 senior associates to be eligible for this programme. Announced a few board level changes, Mr. B.V.R Mohan Reddy will step down as Executive Chairman; he will continue as Non-executive director. He will be replaced by Mr. Murugappan as "Non-executive Chairman". There are two new board appointment as well, appointment of Mr Ajay Aggarwal (President and CFO) as Executive Director and CFO, and Mr. Karthik Natarajan (President and COO) as Executive Director and COO. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Eclerx Earnings Call: Key highlights Revenue stood at USD63.8mn, up 19.7% QoQ. Constant currency revenue was up 19.3% (organic growth was 6.3%) QoQ, up 31.8% YoY (organic growth was 16.2%). Core revenue was higher due to higher offshore revenue (including Personiv) and lower roll-offs. Strategic (Top 10%) grew 22.8% YoY in Q4FY21. Operating margin expanded 300 basis points QoQ to 28.3%, Net income margin stood at 20.7%. G&A was higher due to Personiv while S&D cost increase due to Personiv largely offset by moderation in variable pay. Additionally, one-time professional fee of INR8.5mn in Q4 and INR52mn for FY21 was incurred for acquisition. The company has revised wages effective from 1st April, 2021. DSO stood at 75 days, decreased by 3 days QoQ while Cash and cash equivalents stood at INR6.6bn at the end of Q4FY21. EBITDA to net cash conversion was at 75.6%. At end of Q4, total headcount stood at 11,924, added 440 people of which majorly were in offshore delivery centres. Offshore Voluntary attrition was at 35.8% (31.3% in Q4FY20), includes Personiv as well. Staff Utilization was at 83.8% (75.1% in Q4FY20). Offshore Employee cost was higher due to inclusion of Personiv, whereas, onshore Employee cost was higher majorly due to recovery in onshore business. Personiv crossed USD30mn run rate in annualised revenue and reported PAT margins in double-digits. Geography wise: North America revenue stood at 70% (68% in Q4FY20), Europe contributed 23% (26% in Q4FY20) and Rest of the World (ROW) contributed 7% (6% in Q4FY20). Client in USD500k-1mn category stood at 19 (17 in Q3FY21), in USD1mn-3mn category stood at 20 (16 in Q3FY21) and in USD3mn++ category stood at 13 (12 in Q3FY21). Capex during FY21 was INR351mn compared to INR274mn in FY20. The board of director of the company has proposed dividend of INR1 for FY21. In terms of CSR activity, the company spent INR52.5mn in the areas of Health, Education, and Skills development in FY21. 210 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights HCL Technologies Earnings call: Highlights For Q4FY21, revenue was USD2,696mn, up 3.0% QoQ and 6.0% YoY. Constant currency revenue was up 2.5% QoQ and 2.6% YoY. IT and business services delivered 4.4% QoQ revenue growth (in cc) with USD25mn coming from the DWS acquisition. Engineering and R&D services reported 0.7% growth QoQ, it is witnessing traction and the company remains positive on prospects in subsequent quarters. Engineering and R&D services was impacted largely due to exposure to asset heavy industries; HCLT expects good uptick in the coming period. Product and platform grew 3.3% YoY. Net income margin was at 12.3%. EBITDA margin stood at 26.1%, down 215bps QoQ due to headwind from wage hike (60bps), seasonal decline in revenue (73bps), large number of fresher hiring & other investment (61bps) and forex impact (21 bps). Operating cash flow was at USD2,602mn and free cash flow stood at USD2,340mn, up 49% and 58%, respectively, on full year basis. Gross cash and investments stood at USD2.8bn and USD2.3bn, respectively, on net cash basis. HCLT won 19 new large deals in Q4FY21 across industry verticals, including financial services, life sciences and healthcare, consumer goods and manufacturing. New deal TCV hit an all-time high this quarter of USD3.1bn, up 49% YoY. New deal TCV in FY21 stood at USD7.3bn, up 18% YoY. DSO edged up by 1 sequentially to 62 days. The company has declared an interim dividend of INR6/share and a special dividend of INR10/share, taking total dividend during the year to INR26/share. Total headcount stood at 168,977 with net addition of 9,295 during the quarter. It plans to hire 15,000 entry level employees across geographies. LTM voluntary attrition was at 9.9%, implying a decrease of 640bps YoY. Tax expense was higher due to change in goodwill depreciation related tax provision. Tax rate in FY22 is expected to be in the range of 24-25%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Infosys Earnings call: Highlights Volume growth in Q4FY21 was 4.6% QoQ, reflecting accelerated momentum in the business. Revenue grew 2% QoQ (in cc) impacted by higher offshore mix and lower contribution from third-party deals and typical seasonality. Infosys continues to gain market share. The growth was broad based as several businesses are posting double digit YoY growth due to the company’s market leading capability in cloud, digit, security and data analytics. The company will launch compensation review in a phased manner from July 2021. It has provided FY22 revenue guidance of 12-14% in cc and margin guidance of 22-24%. Digital revenue grew at 34.4% YoY in constant currency and now accounts for 51.5% of revenue. Large deal wins were at USD2.1bn for the quarter and USD14.1bn (57% YoY) for FY21. Net new contribution was at 66% in Q4FY21. Cash and investments stood at USD5.3bn. Utilization (ex-trainees) in Q4 improved by 140bps to 87.7% on QoQ basis, mainly on account of improvement in offshore utilization. Sub-contractor cost rose 50bps due to growth accelerating and high utilization. Infosys won 23 large deals in Q4, of which six each were in Financial Services and Retail, three in Life Sciences and two deals each in Communication, Energy Utilities Resources & Services, Manufacturing and Hi-Tech segments. Region wise, 16 were from Americas and six were from Europe and one from Rest of World. Share of new deals was 52% in Q4FY21. FY21 deal wins crossed USD14bn with new deals contributing USD9.4bn. Final dividend INR15/share in Q4FY21 and INR27/share in FY21. Buyback of INR92bn was announced through open market route after the approval by shareholders. Buyback and dividend combined will represent total payoff of 83% of FCF in FY21, which is close to its policy of 85% return of FCF. Client metrics remain robust with 100mn plus client count increasing to 32 clients in last quarter. Net employee addition during the quarter was 10,300. Voluntary attrition in IT services increased to 15.2% as demand for talent increased. The company is seeing very strong demand from client, good traction on AI, cloud, cyber security, among other. It is also seeing that large enterprises are applying automation to their core and achieving efficiencies. It expects the trend to sustain. 212 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights L&T Infotech Earnings call: Key highlights Constant currency revenue grew 4.4% QoQ and 7.1% YoY. In USD terms, revenue came in at USD447.4mn, up 4.6% QoQ and 9.1% YoY. Operating margin reduced 120bp YoY to 19.4%. Net income margin was at 16.7%. Voluntary attrition in IT services stood at 12.3%. Utilisation was at 80.8%, including trainees. During Q4, LTI added 2,008 employees on net basis. At end of Q4, headcount was 35,991. DSO stood at 61 days. Among verticals, BFS grew 5.0% QoQ; insurance grew 0.8% QoQ; Manufacturing grew 5.0% QoQ; Energy & Utilities declined 4.8% QoQ; CPG, Retail & Pharma grew 3.5% QoQ; Hi-tech, Media & Entertainment grew 16% QoQ; and Others grew 8.2% QoQ. By geography, North America contributed 66.2%, Europe 16.5%, India 8.9% and RoW 8.4% to revenue. The revenue breakdown by service offerings stood as follows--ADM and Testing 33.3%; Enterprise Solutions 32.3%; Cloud infrastructure & Services 15.1%; Analytics, AI & Cognitive 11.1%; and Enterprise Integration & Mobility 8.2%. Outlook: PAT margin guidance of 14-15% in FY22. SG&A as percentage of revenue to be around 12% in FY22. LTI has advanced the employee review cycle, which will roll out salary hikes from April 1 compared to regular cycle of July. LTI appointed Mr. Anil Rander as its Chief Financial Officer. He is a seasoned finance leader with over 27 years of multi-faceted experience in driving business performance and growth. He joins LTI from Tech Mahindra, where he was Global Head of Finance for BPS. Also, as Senior Vice President - Finance and Legal, he led the Finance, Legal, Facilities & Risk Management functions of Tech Mahindra Business Services. The Board of Directors has recommended a final dividend of INR25 per equity share (FV of INR1) for the financial year 2020-21. Total dividend for FY21 is INR40 per equity share, including interim dividend of INR15 per equity share declared in October 2020. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights L & T Technology Services Earnings call: Key highlights Reported revenue of INR14.4bn, up 2.8% QoQ, decline by 0.4% YoY. Revenue in constant currency grew 3.8% QoQ and decline by 0.6% YoY. Reported PAT of INR1,945mn, up 4.5% QoQ, decline by 5.0% YoY. EBIT margin was 16.6%, up 140bps QoQ. The improvement was driven by higher utilization, higher offshore revenue mix and improvement in operational efficiencies partly offset by rupee appreciation against dollar. In Q4, LTTS won six deals with TCV of USD10mn plus, which includes two USD25mn plus deals. The pipeline is strong across all segments as customers are turning more optimistic about investing in new technology, which gives us the confidence of broad based growth. Revenue growth vertical wise (%, QoQ) – Transportation grew 6.5%; Industrial Products grew 1.5%, with all three sub segments, Electrical, Machinery and Building automation grew positively and expect growth to inch up in this segment from Q1FY22. Telecom & Hi-tech grew 0.2%. Plant Engineering grew 9.9%. Medical Devices grew 0.8%, it was a bit soft due to delay in decision making especially in diagnosis device side, however, it expects growth to bounce back from Q2FY22. Revenue growth geography wise – North America (+4.4% QoQ), Europe (+7.5% QoQ), India (-2.3% QoQ) and ROW (+3.1% QoQ). Digital stood at 52% compared to 49% in Q3FY21 Outlook: Dollar revenue growth in FY22 of 13-15%. The company is witnessing strong demand in the US, and in Europe, there are pockets of opportunities, and in Japan and India, growth is delayed due to resurgence of Covid. DSO was 75 days compared to 73 days in Q3. DSO including unbilled stood at 93 days. The full year free cash flow generation was at a record high of USD12.5bn. Offshore and Onsite revenue mix stood at 57.9% and 42.1%, respectively. Total headcount stood at 16,452. Attrition stood at 12.2% and Utilization stood at 78.9%. Dividend for the quarter was INR14.5 per share while for full year it stood INR22 per share. In terms of delivery risk, 98-98.5% of LTTS employee are working from home. 214 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Mindtree Earnings call: Key highlights The company has defined a clear path for profitable growth and it continues to execute of 4*4*4 vision focusing on building deeper strategic relationships with its clients, seamless & secure delivery, robust partner ecosystem, strategic investment in capabilities and constantly future ready talent. In Q4FY21, MTCL delivered 5.2% growth, making it second quarter of >5% revenue growth. After proving wage hike from January 2021, EBITDA stood at 21.9%. Deal wins in Q4FY21 stood at USD375mn, up 20.2% QoQ. Revenue contribution from services lines: Customer Success (38.6%), Data & Intelligence (16.0%), Cloud (19.4%) and Enterprise IT (26%). Contribution from Geographies: North America (76.6%), Continental Europe (7.1%), UK and Ireland (8.6%) and APAC and Middle East (7.7%). The company had net addition of 1,619; total headcount stood at 23,814. Hiring has been a mixture of lateral hires and freshers. Attrition was 12.1% on LTM basis, whereas, utilisation stood at 84.3%. The Board has recommended a final dividend of INR17.5 per share, taking total to INR25 per share for FY21 compared to INR13 per share in FY20. Regarding BFSI, the company was expecting to close some deals this quarter which didn’t happen. It is very close to signing a few deals in this segment. Free cash flow was USD3,168mn compared to USD147mn in Q4FY20. Cash and cash equivalent stood at USD28.1bn compared to USD13.6bn in Q4FY20. The overall journey of client rationalization is ongoing. It had slowed down due to the pandemic. MTCL has rationalized 70 clients this year. Despite TTH being the most impacted vertical, the company did not lose a single client and it continues to have solid domain expertise in this vertical. Growth has been robust and utilization has increased further. However, utilization is expected to decline in coming quarters. There has been no decision on wage hikes for the upcoming year as yet. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Persistent Systems Earning Call: Key Highlights Revenue stood at INR11,134mn, up 3.5% QoQ and 20.2% YoY. EBIT margin stood at 13.2%, up 50bps QoQ. PAT for the quarter was INR1,378mn, up 13.9% QoQ. TCV stood at USD246.5mn compared to USD302.0 in last quarter, whereas, new business TCV was USD137.7mn compared to USD175.5mn. Total ACV for the quarter was USD200.7mn compared to USD256.0mn, whereas new ACV for the quarter was USD96.9mn compared to USD140.1mn. Total headcount stood at 13,680 with net headcount addition of 1,242, of which 1,037 were lateral hires. Attrition stood at 11.7%. While blended utilisation was at 79.1%, utilisation for Global Delivery Centers and India stood at 83.5% and 78.5%, respectively. The company had announced pay hike in Nov 2020, so two months’ salary increase impact came in this quarter. Regular salary hike cycle is July for the company and it will go ahead with that in July 2021. It announced 100% bonus for employees this quarter as one-time bonus in the current difficult times. Acquisition of Capiot is progressing well. Persistent continues to scout for potential M&A and it will give further update in 3-6 months. Sequential revenue by business offering: Services was up 8.6% QoQ and IP-led declined by 13.8% QoQ. Sequential revenue by segment: BFSI was up 6.9%, Healthcare & Life Sciences up 6.1% and Software, Hi-Tech & Emerging Industries up 2.7%, mainly due to seasonality in IP-led business. Sequential revenue by business unit: Technology Services at USD120.7mn, up 8.2% QoQ. Alliance reported revenue of USD32.2mn, down 7.1%. QoQ; decline was due to seasonality. Top-10 clients’ contribution declined further to 46.3%. Large client (above USD5mn revenue) count remained constant at 17 compared to last quarter, while medium size client (between USD1mn and USD5mn revenue) inched up by one to 66. Announced final dividend of INR6.0 per share. With this, total dividend for FY21 is INR20.0 per share. It is in the process of appointing an ESG consultant to create roadmap for the company. Cash and cash equivalents at INR19,831mn compared to INR19,037mn in previous quarter. DSO for the quarter was 55 compared to 57 during previous quarter. It continues to strengthen its leadership--appointed new Head of Sales Force business globally who will be based out of Europe, Head of Europe business (based out of London and Head of delivery for BFSI globally. 216 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tata Consultancy Services Earnings call: Key highlights Continued strength in demand for core transformation services, market share gains and large deal ramp up power strong sequential and YoY growth. All verticals posted strong sequential growth. BFSI was driven by large deals, expanding into new business and core transformation. Retail cluster clocked good growth despite continued weakness in the sub-sector. Life science and healthcare over the past decade has overall outperformed. Constant currency revenue was up 4.2% QoQ and 5.9% YoY. In Q4, TCS had 48 clients in the USD100mn+ range, 101 clients in USD50mn+, 228 clients in USD20mn+, 387 clients in USD10mn+, 569 clients in the USD5mn+ bucket and 1,096 clients in the USD1mn+ band. Net CFO was INR92.5bn, which was 100% of net income; free cash flow was INR80.9bn vs INR80.7bn in Q4FY20.The board has recommended a final dividend of INR15 per share, taking total to INR37 for the full year. Employees have spent a total of 43mn learning hours in FY21. LTM attrition was 7.2% (all time low) and it is expected to increase with growth inching up. In the medium to long term, the technology journey which customers are embarking on will drive revenue growth for the next three-five years. Net addition of 19,388; total headcount stood at 488,649. All markets showed good sequential growth, with North America growing 3.9%, UK 3.4% and Continental Europe 8.5%. Emerging Markets also grew well, with India growing 2.8%, MEA 4.2%, Latin America 2.5% and Asia Pacific 1.0%. The company was earlier bagging smaller deals; now the USD9.2bn order book has a good mix of large versus small deal. Its largest deal is USD500-600bn vs USD2bn last year, so this time it is quite spread out. Pricing remains stable on overall portfolio level. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tech Mahindra Earnings Call: Key highlights TECHM clocked revenue of USD1.3bn, up 1.6% QoQ and up 2.7% YoY. Constant currency grew by 0.7% QoQ. Announced the acquisition of Eventus Solutions Group in a bid to bolster consulting capabilities in the consumer management space. Operating margin expanded 60 basis points QoQ to 16.5%; this is the highest quarterly margin in the last six years. Margin increased on the back of operating efficiencies, delivery transformation, more offshoring, higher utilization, automation and lower depreciation due to lower capex in previous periods, partially offset by increase in SG&A, which also increased due to hiring. Net income margin at 11.1%. Utilization for the quarter stood at 87%, whereas voluntary attrition came in at 13% compared to 12% in last quarter. Free cash flow of USD187mn. Free cash flow to PAT conversion stood at 126.6% for the quarter. Amongst the industry, Communications grew by 1.4% QoQ, Manufacturing 1.9%, Technology, Media & Entertainment 0.5%, Banking, Financial services & Insurance 4.9%, and Retail, transport & Logistics by -3.2% QoQ and others by 1.7% QoQ. By geography, Americas declined 1.3% QoQ, Europe grew 2% QoQ and ROW grew 6.2% QoQ. Other Income was lower in this quarter due to unrealized forex loss. New deal-wins for the quarter stood at USD1.04bn, divided equally between enterprise and communication, and also spread across US and EU. The company has already rolled out salary hikes from April 2021, it is confident on maintaining this margin trend despite wage hike by dint of margin levers, including operational efficiency. The board has recommended a dividend of INR30 per share (including special dividend of INR15 per share). This dividend is highest in the history of the company and is an indication about its dividend distribution policy going forward. Management guided for overall double digit revenue growth with margins higher than 15% in FY22. 218 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Wipro Earnings call: Highlights Revenue growth for Q4FY21 was in the top quartile of the revenue guidance. Demand environment is robust; this is the best growth in first quarter of calendar year the company has ever reported, and this was due to lower base in the 4QFY20 as well as higher volume growth in the current quarter. Over the last couple of quarters, the company has announced acquisitions across markets, including the US, Europe, Latin America, Australia and India. It also announced its largest-ever acquisition—of Capco. This acquisition will strengthen its position in the global financial services market. Wipro saw traction across the market. In Americas 1, it grew 3.5% QoQ on cc basis with most of the sectors showing strong growth. In America 2, it grew by 4% QoQ on a cc basis, led by a surge in volume. In Europe, revenue grew 3.7% QoQ on a cc basis, on the back of several large deals it won during the year. iDeals business line grew by 2.1% QoQ on a cc basis, led by greater demand for services offerings in data, digital and engineering services. In Icore, all three services offerings, which include Cloud Infrastructure, Digital Operations, and risk and Enterprise Cyber Security Services, grew well this quarter. Cloud is at the centre of the customer conversation, be it Cloud migration, cloud native application or multi hybrid (public + hybrid) cloud. The deal-wins are more integrated and transformational in nature now. Technology and Consumer segments reported strong growth of 9.9% and 6.9%, respectively, followed by Banking, Financial Services and Insurance (+2.7%), Energy, Natural Resources and Utilities (+2.7%). Other segment declined during the quarter: Communications (-0.4%), Manufacturing (-1.1%) and Health (-2.9%). All markets showed good sequential growth, with North America growing (+3.9%), UK (+3.4%), and Continental Europe (+8.5%). Emerging markets also grew well, with India growing (+2.8%), MEA (+4.2%), Latin America (+2.5%) and Asia Pacific (+1%). In Q4FY21, Customer count in >USD100mn account increased from ten to 11, >USD75mn increased from 24 to 27 and > USD50mn account increased from 38 to 40. The company added 52 new customers during the last quarter, taking the total active customer count to 1,120. In FY21, operating cash flow stood at INR147.6bn, which is 136.7% of Net income and free cash flow stood at INR128.7mn, which is 119.3% of net income. Cash flow declined in the last quarter, mainly due to an increase in DSO, which is part of the normal business cycle. However, the DSO improved by eight days compared with Q4FY20. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Lubricants 220 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Castrol India Financial highlights Revenue grew 66% YoY as volumes jumped 58% YoY (15% QoQ) to 60mn litres. Pricing action taken in Jan-21 resulted in realisation growth of 6% QoQ (5% YoY). Volume growth was a result of the company’s efforts in H2CY20 with regards to higher marketing & advertising expenses, new product introductions and corrective pricing action in the CV portfolio, not to mention pent-up demand. Gross margins contracted 320bps YoY (554bps QoQ) with an increase in base oil prices. However, EBITDA margin grew 472bps YoY in Q1CY21 as operating profit rose 25% YoY to INR56,683/KL. Employee costs recovered to normalised levels post an increase of INR168mn in Q4CY20 owing to Organisational Restructuring expenses. Efforts on cost efficiency and judicious working capital management resulted in robust cash flow accretion of INR2.7bn in Q1CY21. Operational highlights With the second wave of coronavirus impacting the country, management has three priorities: 1) Safety and well-being of employees. 2) To continue to support communities that Castrol operates in. 3) Protecting the financial health of the business. Channel inventory is likely to have been maintained at similar levels as last quarter. The corrective pricing action taken in the CV oils space continued to yield volume growth in Q1CY21. Castrol launched two products during the quarter: 1) Castrol GTA SUV for SUVs; and 2) Castrol POWER1 ULTIMATE at the premium-end for motorcycle. Volume growth was largely led by automotive, which formed 85% of the mix, while the balance was industrials. Within automotive, 40% of the volumes came from personal mobility and the balance from CV and other lubricants. Demand remained strong in most segments as result of positive sentiment; however, management remains cautious on Q2CY20 owing to the second wave of the pandemic. Management undertook a second price increase in Apr-21 across products to combat the impact of higher base oil prices (after the 4% increase in Jan-21). While synthetic oils were 10% of the portfolio, management sees room for growth thereof, in line with global growth. Management has outlined volumes and absolute gross margins as key strategic priorities, with personal mobility forming an integral part of growth. Thus, management will continue to drive investment in distribution and brands, including ad spends as required. While Castrol and markets are currently in a recovery mode, the long-term growth target of 5–7% could be re-looked at in light of the pandemic, according to management. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The company paused its pilot with 3M in light of the pandemic and is making certain changes across its portfolio on the basis of the same. The pilot should resume over the next couple of months. Strategic partnership with Jio-BP: The company entered into a strategic partnership in Q2CY20 with Jio-BP as the sole supplier of lubricants and access to 1,350 retail sites, which it plans to expand to 5,500. This should result in additional touch points for customers and fresh visibility for Castrol. Management believes Internal Combustion Engine-based oils will remain in vogue in the country for the next 20–30 years as current car ownership penetration is weak. However, Castrol has also entered into agreements for EV fluids with OEMs in India, including MG Motors and Tata Motors, and remains a pioneer thereof with the aid from its global parent. Castrol will look at all fluids utilised in EVs, including coolants and transmission fluids, and leverage parentco’s presence across EVs. 222 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Gulf Oil Lubricants Financials Revenue grew 44% YoY as volume growth rebounded to 39% YoY versus Castrol’s 66% YoY growth. Volumes grew 39% YoY in Q4FY21 to 35,000KL as end-user markets improved further. This was on account of a pick up across markets with growth across segments, boosted by better economic and industrial activities. B2B related and industrial businesses saw strong growth and record sales in this quarter. Realisation grew 1% QoQ, 3% YoY, as the company increased prices across certain categories to mitigate the base oil price increase. (B2C: 60% versus 65% in Q3FY21). Gross profit margin dipped 671bps YoY, 495bps QoQ on higher base oil prices. Consequently, gross profit per KL contracted 10% YoY to INR63,619 in Q4FY21. However EBITDA margin contracted mere 31bps YoY to 15.1%, and EBITDA rose 41% YoY (2% below estimates), owing to tighter cost control (staff costs down 0.5%) and operating leverage benefits. EBITDA per KL rose 1% YoY to INR22,313. Going forward, company has taken three price hikes in bazaar segment since December to combat raw material increase and expects the benefit to accrue from Q2FY22 as inventory in channel is cleared. Over long term, company maintained its EBIDTA margin guidance at ~16-18%. Operational performance and markets Management saw strong traction in the quarter due to increased overall lubricant consumption with pick up in economic and industrial activities. While PCMO volumes picked up, management believes personal mobility was still not at pre-covid levels. GOLI’s cost optimisation measures aided in EBITDA growth – especially on travel costs and other savings. However, with spends in Q4FY21, A&P costs are now at 4% of revenues. Management is focused on improving market share along with higher-than- market growth across segments. Q4FY21 end user break up was similar to Q3FY21, which was at: 37% from diesel engine oils; 24% from personal mobility; 15% from industrial oils; and 24% from others (greases, etc). With base oil prices have been on the increase, management anticipates a dip in margins until prices are passed on. GOLI has taken price hikes across segments which should be fully effective by Q2FY22 as channel inventory at lower prices is sold. Distribution remains a key focus for the company where management has increased number of touch points to 70,000, and should continue to increase with easing of lockdowns. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Other highlights With improved collections and reduction in working capital cycle, GOLI has a net cash position of INR5bn. GOLI has a range of BSVI products, with higher realisations as they require better technology to comply with low ash and low sulphur norms. The BSVI oils are compatible with BSIV vehicles and improve performance of the BSIV engine. Synthetics (presently 4-5% of overall market) and single digit contributor for GOLI remains a key focus for the company. The company sees incremental market share growth in the segment. The parent has a range of oils for EVs and hybrids, and management plans to leverage the technology and experience in the domestic market. Management also plans to grow presence in the segment with investment in Indra, as requirement of oils in EVs remains lower. GOLI announced an investment of GBP1.5mn in Indra Technologies for a 7.85% stake. Indra Technologies is a start-up focused on EV charging stations with a 5% market share in UK. The company is primarily focused on home charging stations and Vehicle to Grid technology. GOLI plans to leverage this partnership as EV demand picks up as the company believes that home charging will be a primary usage for consumers. Two-wheeler battery: GOLI has seen strong volume growth from the segment and remain optimistic on the long-term growth trajectory. Management is on the lookout to localize production and expects INR700-800mn in case of a greenfield setup, however, have not finalized the plans as of now. Since GOLI’s current capacity stands at 1,40,000KL, which is sufficient for 1–2 years, it plans to increase capacity via debottlenecking at first. 224 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Media Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Inox Leisure Q4FY21 earnings call: Key takeaways Overview INOX posted 3.8mn footfalls from October 8, 2020 to March 31, 2021. Net box office collection fell 78%YoY, Food and Beverages fell 74% YoY and advertisement revenue fell 94%YoY during Q4FY21. The company reported ATP of INR170 for FY21 against INR200 in FY20 (down 15%). Spends per head at INR77 for FY21 slightly lower than INR80 in FY20. Occupancy for Q4FY21 was at 10% compared to 24% in Q4FY20. INOX is operating only 23 properties with 108 screens presently. The company has voluntarily closed 33 properties with 116 screens due to low footfalls; the remaining have been closed due to state government orders. INOX has a strong balance sheet with negligible debt-equity ratio of 0.05 (as on 25-April-2021) and freshly raised equity The company has passed an enabling resolution to raise INR3,000mn The management has stated that properties worth INR3,500mn are available for sale and lease back. The company has clarified that none of the funding source has any priority now and when need for fund arises, source will be decided based on circumstances. Apart from capex requirements, management did not comment particularly on other fixed costs it would incur. The company has, however, stated that if the covid situation continues for the full year, it sees an average cash burn of INR250mn to INR300mn. Rentals The company has no disputes or arrears remaining for FY21. INOX has entered into negotiations with developers and owners for rents in the comping quarter given the continuing tepid footfalls, second covid-19 wave and occupancy caps by state governments. It has chalked out an entirely revamped F&B road map including tie-ups with online food ordering platforms. Stringent cost control procedures continue to be implemented, Constant constructive engagement going with all stakeholders, including producers & studios, mall developers, government authorities, media and consumers. Content Management mentioned that 24 Hindi movies and 19 English movies are in the line up. 226 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights It stated that there might be delays due to covid-19, but is confident that footfalls will be quick to return once normalcy returns. Advertisers are likely to return only after there is significant improvement in footfalls. INOX has noticed that consumers were ready to pay prices close to pre-covid levels for new content during the quarter which is a positive trend going forward. Capex The company has added 17 screens since Oct 8, 2020. INOX is adding 19 screens which are already 90% completed and for which it will incur additional INR80mn to INR100mn. The company is also ready to open another 25 screens in FY22, provided footfalls and overall demand improve. But no capex commitments have been made on them till now. The company has mentioned that it plans to be 10-15% leaner compared to pre- covid levels once normalcy returns. INOX is determined that its learnings from the past year will help keep maintenance and other capex that may arise when properties are reopened to a minimum. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights PVR Overall PVR has opened 13 new screens during FY21; an additional 19 screens are completed and ready to commence operations, giving us a total 842 screens for FY21 The company delivered reduction of 63%YoY in fixed cost for FY 21, with 79% YoY reduction in rent and 57% YoY reduction in fixed costs. Management keeps continued focus on keeping fixed costs low given the resurgence of 2nd wave of Covid 19 Amendments were introduced in the Income Tax Act, 1961, excluding Goodwill from depreciation eligibility. Due to this amendment company can no longer claim benefit of depreciation on goodwill in its tax books w.e.f April 1,2020. In accordance with this, the Group has recognised an one time deferred tax expense of INR 1129.9 mn Advertising revenue will recover with footfall, but there will be no discount in rates, will follow industry rates for advertisement Management believes roughly 10% of single screens may not reopen in FY22. There will be further consolidation as smaller players will not have resources to grow after pandemic impact and would want to consolidate with larger players. Some single screen operators are using real estate space to earn rent rather than single screen revenue and some have reduced seats. But it is unlikely that single will convert to multiplex The company has raised INR 11bn equity and around INR 4bn debt to shore up liquidity in FY21. The company has a liquidity more than INR 7.5bn as of FY21 All Fixed costs, barring occupancy costs will see a permanent reduction of 10- 15% going ahead. Unlisted multiplexes and single screens would be hard hit The company follows the old tax regime at effective rate of 35% now, new tax regime of 25% rate will be adapted after 2-3 years after exhausting MAT credit The company will repay INR 2-3bn per year over next 4-5 years to reduce long term debt Under ECSGS scheme, the companies with more than INR 5bn can get upto INR 2bn funding from banking partners. This is the only Covid relief available to the company Capex programs will recommence once footfalls come back and more clarity on figures will be given Southern market contributes around 35% of revenue today and the company has seen a market share increase in Q4FY21 Content 24 Bollywood films, 16 regional films and 16 Hollywood films are in the pipeline as of now 228 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Indian movie release windows will not be impacted as severely as some foreign market due to heterogeneous market arising from presence of Regional, Hindi markets apart from Hollywood releases Management is positive on quick bounce back strong, after quick recovery in cinema industry seen in International economies that are opening up. Globally there are many examples of strong pent up demand like US, China International markets opening bodes well for Bollywood, but significant improvement will depend on local recovery from pandemic impact OTT launch is only an aberration, management does not see this as a threat to multiplex pipeline and management believes big screen launch is still preferred. “Radhe” OTT launch was more of an experiment. Operations A total of 16 screens were shut during the year As on date, no cinemas are operational due to lockdowns implemented by state governments Cinemas were permitted to restart operations, with 50% capacity restrictions, in Q3 FY 21 in staggered manner. Content flow was led by regional movies in Q4, while Bollywood and Hollywood content remained tepid The last 15 days of the quarter however, were marked by a resurgence of Covid in Maharashtra, Gujarat, and Madhya Pradesh resulting in restrictions being put on operations in these markets. All the screens are shut down as of date on account of COVID 2.0 wave. Rent and CAM Negotiations for FY 21 has been completed with most of the developers The company received rental waivers for the lockdown period and significantly reduced rentals for the post lockdown period till 31st March 2021. Overall rent expense is lower by 79% as compared to FY 20 and Q4, FY21 lower by 49% as against Q4, FY20 Given the ongoing 2nd wave, company again reached out to landlords for extension of waivers / discounts till business normalises. But there is no specific visibility on monthly cash burn now For FY 21 CAM expense are lower by 42% as compared to FY 20 and Q4, FY21 lower by 23% as against Q4, FY20 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sun TV Network Consolidated Revenues for the quarter were up by 9.2 % YoY ]to INR7819.9mn. Consolidated EBITDA for the quarter ended March 2021 was up 9.4% at INR5467.9 mn Profit after taxes for the current quarter stood higher by 80% to INR4498.8mn Contingent liability of INR 9510mn with the Income tax department was settled at INR2500mn and resulted in a deferred tax asset of INR3387.5mn. The company has a total cash balance of INR38bn. Dividend for the year is INR5 per share, implying a pay-out of 13%. Management has mentioned that it was the board decision to keep cash with the company and not to release dividends. This has not been viewed positively by analysts. Furthermore, there has been no cut in commissions paid to top management. This has also not been viewed positively. Management has mentioned that information regarding the same will be put out only after board’s resolution and consideration. Increase in interest charge is due to tax provision change and is a one-time item. The company has improved viewership share from around 37% to 42% in prime time slots. The company has allotted INR12bn for movie productions. Four movies are in the pipeline presently, one is near completion, while two others are 40–50% complete. The production of the fourth movie is yet to begin in a major way. Management believes not all of the investment for movie production may happen in FY22 and some may spill over to FY23, depending on changing environment. The company has lined up non-fictional shows for Telugu and Malayalam languages and estimates INR200–250mn investment for the same. Bigger value shows require outdoor shooting. Hence, content production for the same is suspended for now. Production of shows that require indoor shooting is happening normally. Management mentioned the OTT platform has seen good MAU growth. The OTT platform presently depends on Sun TV’s library. No major investment has gone into production of originals and content for OTT separately. Management believes it is better to develop own capability for OTT content over time and not invest large resources in bidding wars for big-ticket content, if it cannot reap a good profit from it. 230 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Zee Entertainment Enterprises Investment in Sugarbox will be scaled down for FY22 due to pandemic and delays by operator. The company will inform investors well in advance of any investment plans in this business. Around INR2bn of arrears of Dish TV have been collected and by FY22 end Dish TV terms will be similar to other operators. No fresh outstanding from Siti Networks as cash and carry basis continues . Cash and treasury at INR18.6bn as on Q4FY21 (INR10bn in Q4FY20, INR14bn in Q2FY21). The company remains focussed on ramping up its movie production business as the management believes it will act as a feeder to the other businesses and the movies can be monetized across various media. It will also help avoid bidding wars for movie rights. However, in FY22, due to wave 2 of pandemic, it will be lower than initial plans. 7% increase in TV universe reaffirms its status as the biggest reach media in the country. Underlying demand for advertisement is strong, advertisers waiting for some normalcy. Zee network’s share grew by 70bps QoQ led by FTA and two channels in South markets, to reach 18.9%, ZEE continues to be India’s #2 TV entertainment network. Bengali, Telugu and Kannada channels improved shares during the year. Performance in Tamil and Marathi lagging expectations. In first full year of operations, ZEE’s new regional channels have established strong positions in their respective markets. The company will invest on improving and increasing broadcast and digital content. Subscription price hike embargo resulted in 5% impact on FY21 EBITDA margin. Management has stated as an industry they are working towards an amicable solution for TRAI NTO issue, though nothing can be commented on the likely solution now. Prices of movie rights for OTT platform have been rising. ZEE Music saw 50%+ YoY growth in YouTube video views, showing strong consumer affinity for its music library and the business added ~4mn subscribers on YouTube; with 72.8mn subscribers it is the second most subscribed Indian music channel on YouTube. Domestic advertising revenue for the quarter grew by 8.9% YoY driven by the continued recovery in macro advertising environment; FY21 domestic advertising revenue declined by 19.7% due to impact of pandemic in H1. Like-to-like growth (excluding reclassification of music subscription revenue) of 5.6% and 5.8% for the quarter and year, respectively, was primarily driven by ZEE5. International: Advertising revenue of INR 526mn, subscription revenue of INR 553mn, Other Sales & Services of INR 154mn. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The company has shifted original content production for Hindi and Marathi films due to state restriction based on contingency plans made earlier. There will be no disruption in content for these languages. Regional language content might be impacted as south states and Bengal have imposed restrictions and there is no feasible nearby area where production can be done. Original contents for them will last till May 25. Margins The investment period will be for 2 years and due to the uncertainty on the TRAI NTO issue still looming the management has guided that the company will not be able to clock margin of 30%, but it will be maintained at around 25%. Free cash flow conversion for the period will be around 50% of PAT. There will be some increase in production cost as the company has to ensure safety of staff. Apart from this company also sees inflation in manpower cost led by recruitment drive for ZEE5. Programming cost (excluding one-time inventory write-off of INR2,598mn in Q4FY20) declined by 19.2% during the quarter, primarily due to lower accelerated inventory amortisation this quarter. Adjusted programming cost for the year declined by 8.2% due to lower original programming during first quarter. ZEE5 The company aims to improve position of ZEE5 going ahead using combination of content improvement and competitive pricing. ZEE5 reached 72.6mn global MAUs, 6.1mn global DAUs in March 21 and It has the biggest library of Indian content. The average watch time per viewer per month in Q4FY21 was 156 minutes . Q4 revenue and EBITDA stood at INR1,075mn and INR(1,625)mn. The annual pricing was revised to INR499 to enable increased adoption of yearly subscription pack. Management has confirmed that the pricing was selected after considering all content as a bundle and acquisition of big movies like ‘Radhe’ for its library will not affect profitability for ZEE5 at this price point and the management is confident of making money from it. ZEE5 will continue to premier movies going ahead apart from originals. The company is also working on improving the technology base for ZEE5. ZEE5 is gaining traction in international markets gradually. 232 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Metals & Mining Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Coal India In focus FY22 production/sales target at 670mt/740mt. Current run-rate suggests offtake of 660mt. FY22 e-auction volume target at 130-140mt. Management expressed confidence that an incremental increase of 45-50mtpa in offtake will take care of investment and dividend requirement. Management hinted a possible price increase prior to wage hike implementation. Receivables expected to go down to INR120–130bn by March-22. Current receivables are INR170bn down from INR190bn in March-21. FY21 capex was at INR130bn including INR20-30bn investment in HURL/TFL. FY22 capex likely at INR170bn including investment in HURL and TFL. Capex mainly in land and machinery at INR300bn each p.a. OBR ratio likely to get back to 2.3x. OB removal likely at 1,538cum in FY22 based on current targeted production. Provision for wage increase is expected to be made from Q2FY22. On a like-to- like basis, wage cost is expected to go down by 3% mainly due to natural attrition- 5% p.a. Don’t expect cash outgo on account of contingent liabilities. Deposited INR140bn against pending income tax-related cases. Hence, while management is confident of judgment coming in their favour, any adverse ruling will not result in cash outflow. Mine closure: Identified 23 mines for closure in FY21, of which 13 are already closed and another four would be closed in due course. Of the remainder, some miners are being merged and at others productivity is being enhanced. In addition, 17 more mines might be closed down, for which consultation process is yet to start. Production and Sales In FY21, 75% of overall sales were made to power customers. Management booked 124mt across e-auctions in FY21, of which 65-66mt was lifted and the balance should be lifted during this year. Management is targeting 130-140mt for FY22. Management has targeted production and sales of 670mt and 740mt respectively, without taking impact of the second wave of covid-19. However, the same will be re-calibrated depending on current run-rate and if there is an impact of a third wave. On the basis of the current run-rate for Q1FY22, management ascertains offtake to be at 660mt. Subsidiary-wise production targets for the company pre-revision for second wave stand at ECL: 52mt, WCL: 50mt, CCL: 74mt, BCCL: 32mt, NCL: 119mt, SECL: 172mt and MCL: 163mt. 234 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Subsidiary-wise dispatch targets for the company pre-revision for second wave stand at ECL: 56mt, WCL: 67mt, CCL: 80mt, BCCL: 32mt, NCL: 126mt, SECL: 196mt and MCL: 182mt. Other operational commentary Management is exploring the possibility of increasing realisations. OB removal in FY21 increased by 17% YoY to 1,152mm3 and management is targeting 1,538 mm3 on production target of 670mt for FY22E. Management identified 23 mines for closure in FY21, of which 13 have been closed and 4 are expected to be closed in FY22. Management is working on the balance mines to enhance productivity/merger to reduce cost. Management has indicated additional 17 mines maybe closed in FY22, however, consultations and discussions are pending on the same. CIL is shifting to MDO model for certain mines and has awarded contracts for 2 mines which should reduce costs on labour and machinery for the company and also increase efficiency. With better efficiency at large mines, management may look at closing smaller inefficient mines. Management aims to increase transparency with reduction in number of auction windows. It should increase premiums for the company. While stripping ratio has been lower in F21, it should revert to 2.25 to 2.3 in FY22. Cash management Management anticipates no requirement of additional debt during the year, as receivables are expected to be trimmed to INR120-130bn by the end of FY22 (currently at INR170bn). Also, higher sales volume would facilitate cash accretion. Wage negotiations should begin in July ’21. Ex-wage hike (on like to like basis), management expects a reduction in manpower costs by 3-4% due to natural reduction of employees at 5% p.a.. Wage costs increased in FY21 owing to an increase in gratuity by INR10bn however, adjusting for the same, manpower costs dipped 2% for FY21. Management mentioned that 40-50mt p.a. increase in dispatches would ensure adequate cash generation for both capex and dividend. Contingent liabilities are not expected to cause further dent on cash balance. The contingent liabilities are related to: 1) land. These fall largely in CCL. The company believes that they have a strong case as acquisition was made as per the existing regulations; 2) violation of environmental norms (in Chhattisgarh). Management believes that they are relevant for iron ore mining and not coal; 3) income tax disputes. Against the demand of INR400bn, management has already deposited INR140bn.Though management believes they are likely to win the cases, even in an unlikely adverse ruling, there would not be incremental cash outflow. Capex Management is targeting INR170bn of capex in FY22 compared to INR130bn in FY21. This includes the capex incurred by JVs as well and is off-balance sheet for CIL. The company will incur capex largely on land acquisition and evacuation. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights While management aims to replace old machinery and capex is allocated for the same, the shift to MDO at large mines will reduce these costs. During FY21, CIL incurred a capex of INR20-30bn at HURL and TFL, included in CIL’s overall capex outlay. Capex has been higher in the last few years as management prepares to scale higher production levels and prepares mines and equipment for the same. 236 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Hindalco Industries In focus Bullish macro view on Aluminium due to production being capped at max 45mtpa in China. Not going to over-hedge yet. Q1-28% at USD1861/t; incremental 5% at USD 2,344/t. For FY23, have hedged another 5% at USD2500/t. Q4FY21 CoP/t for Al division- only 1% QoQ increase. Expecting an increase 4%QoQ in CoP/t in Q1FY22 Coal mix in Q4- Linkage coal-93%. FY22 guidance- Linkage 74%, e-auction-15% and own mines- rest Capex guidance (domestic)- INR27bn for FY22 (FY21: INR16bn) Next 5 years: Focus on margin accretive growth projects rather than greenfield Al plant 50% of volume from Utkal expansion will replace the high cost Alumina from Renukoot while the rest will be sold to third parties Subdued domestic copper demand in Q1FY22 due to COVID-19 related disruptions and high working capital requirement at the consumers’ end. Endeavor to continuously improve on ESG parameters. Targeting emission level of 12t/CO2 by 2035. No plan to acquire copper assets in near term or future Macros Global Al production expanded by 6% YoY in Q1CY21 led by rise in production in China by 9%, while RoW saw an increase of 1%. Global Al consumption rose 16% YoY driven a sharp increase of 27% YoY in China while RoW saw a jump of 5%. Consequently, global markets saw a surplus of 0.6mt in Q1CY21. Domestic demand is likely to have recorded the highest ever quarterly consumption, up 21% YoY to 1.07mt. However, incidence of imports rose, with scrap up 20% YoY and others up 44% YoY. Indian FRP demand is estimated to have surpassed pre-covid levels in Q4FY21 driven by consumer durables, pharma and food packaging. Global copper consumption grew by 14% to 5.5mt in Q1CY21. Refined Cu consumption grew by 37% in China while RoW sustained impact of covid-19 resulting in decline of 2% YoY. Continued recovery in copper demand coupled with higher disruptions in production across mines compared to smelters is driving LME prices higher. Domestic market reached 85% of pre-covid levels in Q4FY21 (down 6% YoY). Imports declined 24% YoY during the same period. Expansion and overall strategy Management continues to focus on downstream capacity expansion, with a focus on import substitution as demand remains robust. Next focus area will be expansion on alumina depending on market conditions followed by smelter. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights While management is not keen on a smelter Greenfield expansion owing to ESG commitments, expansion cannot be determined based on short-term price trends. Management is awaiting RoDTEP scheme, which has been notified from 1st January; it should benefit the company. The industry has asked for a 5% benefit. Aluminium division Al CoP/t was up mere 1% QoQ in Q4FY21. Management expects CoP to increase 3-4% in Q1FY22 on account of a price increase in input commodities. Lower value coal was used over Q4FY21 and hence management anticipates higher costs hereon, as costs pick up. Capacity expansion on Utkal is expected to be commissioned by Jun-21. This will replace 50% alumina from Renukoot; while balance will be sold in the open market. The company is looking at linking up its boilers to gas as well as coal, with the pipeline being laid down in Jharsuguda. The cost of gas will be comparable to coal at USD5/mmbtu (costs during the FY21 have been at USD8-9mmbtu); however the gas will be imported, which makes it difficult. Copper division Management has planned for a shutdown at Smelter-3 in Q1FY22 due to which production will be lower, however the balance nine months should see smooth operations post shutdown. Management is planning for downstream expansion in Copper tubes as part of its expansion. This will help HNDL garner higher market share in companies setting up production as part of the PLI scheme under air conditioners. Financials Due to rising LME Al and Cu, management anticipates higher working capital requirement. Gross and net debt stood at INR660bn and INR474bn at the end of FY21 from INR842bn and INR623bn at the end of Q1FY21, respectively, post-acquisition of Aleris. Net debt to EBITDA for the consolidated entity was 2.59x (versus 3.09x at Q3FY21 end). Fungibility of cash between Novelis and Hindalco has been established and is unlikely to have a major tax impact. 238 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Jindal Stainless In focus EBITDA/t guidance revised up to INR15-17k/t from INR14-16K/t (earlier). Expect FY22 sales volume (pro forma basis) at 1.7mt (up 20%YoY) Current Net debt/EBITDA (pro forma basis) is 1.3x (below the target of 1.5x). The endeavour to bring it further down. Brownfield capacity (along with matching hot rolling/cold rolling capacity) of 0.8mtpa to be commissioned by September-23. Expect FY22 capex at INR11-12bn for the brownfield expansion project. The bulk of it is likely to be met through internal accruals. Not impacted too much by revocation of ADD/CVD by the government. Only 8% of sales volume is in the hollowware segment (200 series), which impacted this measure. Liquid oxygen supply for COVID-19 relief measures is unlikely to impact the operations too much. Subsidiaries are doing well now, with Indonesian subsidiary staging a turnaround in FY21. Imports and measures to be taken Focus for both companies, JSL and JSHL, continues to be on segments where imports are lower, particularly where approvals are required. The companies’ focus is on industrials, auto and railways. Incidence of imports is higher in 200 series across hollowware and kitchen applications, where the presence of the combined entity is restricted to 8-10%. Merger with JSHL The merger has received approvals from the exchanges and SEBI ahead of the timeline and the company has filed before the NCLT. The appointed date for the merger remains April 1, 2020. The merger is expected to complete by H2FY22. On a pro forma basis, revenue and EBITDA of the combined entity for the last nine months of FY21 increased 17% YoY and 52% YoY, respectively. Net debt for the combined entity stands at INR24bn, with net debt to EBITDA at 1.3x, well below the target of 1.5x. The merger scheme has been drafted to maximise synergies on the balance sheet with crossing out of ICDs and cross holdings. Post the merger, JSL will be amongst the top 10 largest stainless steel companies globally. Operations JSL and JSHL have a combined market share of 50-55% of overall market. Management has guided for EBITDA/t of INR15,000-17,000 for FY22. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights JSL and JSHL have ramped up liquid oxygen supply during the second wave, which has impacted production slightly. Management is targeting volume growth of 20%, with exports between 15-20% for FY22 for the combined entity. Management manages nickel inventory at 6-6.5kt to ensure nickel availability. Disruptions in logistics has impacted the company, which is offset by higher realisations on account of robust demand. Capex Management has targeted for capex of INR30bn for the next 2 years to increase capacity of JSL to 1.9mt from 1.1mt (combined entity capacity increase to 2.8mt). The project is likely to be commissioned by Sep-22 with ramp-up anticipated by Mar-23. Additionally, maintenance capex will be at INR2.5-3bn per year. Subsidiaries The Indonesian subsidiary has seen a strong turnaround with overall cost structure allied to lower production. Management has changed the sourcing to local raw material from Indian metal, and the product range has been improved to high-end products. Consequently, the business delivered a positive EBITDA in FY21 versus FY20 where it was loss-making at the EBITDA level. The JSL Lifestyle saw a subdued FY21 on account of low demand from railways. However, management anticipates FY22 to be better as Whirlpool, one of the largest customers, has doubled its requirement. The company has also been added as OEM supplier to Havells and Tata Motors. Management is looking to get approved with Ashok Leyland and Eicher Motors as well. 240 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Jindal Steel & Power In focus Will achieve 15-15-50 (INR150bn EBITDA, INR150bn net debt and INR500bn revenue) in FY22. Divestment of JPL will be a game changer. Bring entire focus to primary steel business. Near-term production expected to be impacted by 9-10% owing to oxygen supply being diverted for covid-19 relief measures. Still confident of achieving 8mt in production in FY22. Domestic sales at USD250/t lower than export markets. Proportion of exports might go up to 35% in the near term. No shortage of iron ore. Debt reduction in excess of guidance. Further prepayment of INR24.6bn in May 2021. No plan of loan against shares by promotors. Share pledging expected to reduce in FY22. Internal accruals to be utilised to fund capex to maximum extent possible. Not going for downstream products at Angul 2.0. Capex to be cost optimal as infrastructure is already built. Steel operations: The focus is on ESG, debt reduction and domestic steel. During FY21, JSPL posted revenue of USD1.3bn as it supplied steel at higher prices with exports at 27% of the mix versus 21% in Q3FY21. JSPL is aiming to achieve more than 8mtpa with minimal capex in FY22. Of the total guidance, management expects to maintain exports at 30-35% of the mix in FY22. While JSPL has been using Sarda iron ore fines, iron ore is available around the plants in Odisha and JSPL has been purchasing from the market via NMDC, OMC and other private players. Management does not anticipate an iron ore shortage in the country. JSPL has been selling in the domestic market at ~USD200/t lower than exports market to support domestic customers. Focus has been on supplying oxygen as per government guidelines which could impact capacity by 9-10% in the near term. However, management believes JSPL should be able to achieve the guidance of more than 8mtpa. During the year, the board has appointed a committee on sustainability. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Expansion plans: The company announced an INR180bn plan for volume and margin expansion. JSPL will double capacity at Angul to 12mtpa from 6mtpa taking its overall steel making capacity to 15.9mypa by setting up a 4.25mtpa blast furnace, 2.7mtpa DRI plant and 6.3mtpa SMS. Management anticipates 30 months to commission the blast furnace with commissioning expected in Dec-23 (FY24) followed by the DRI in Feb-25 (FY25). These projects along with related capacity expansions will account for nearly 2/3rd of the earmarked capital. JSPL also intends to construct a slurry pipeline between Barbil and Angul in conjunction with a 12mtpa pellet plant at Angul in two phases of 6mpta each, which would reduce logistics cost and fetch additional pellet sales. The pellet plant will get commissioned in Sep-22 (FY23) and Sep-23 (FY24). The company is also planning to construct a 5.5mtpa hot strip mill to increase the flat steel capacity from 2.2mtpa to 7.7mtpa. The projects will be funded via internal accruals with JSPL’s technical expertise ensuring lower costs. Divestment of power assets: JSPL will receive INR30.15bn from the all cash transaction for the sale of the power business. The debt structure between the two entities remain with both the ICD and CRP intact. JPL had given a 7 years ICD to JSPL at 9.75% rate, payable in equal tranches in the 5th, 6th and 7th year. On the CRPS given by JSPL to JPL, if any two successive coupon payments are missed, then JSPL will get 80% of the voting rights of the JPL assets. Financials: During FY21, JSPL incurred mainly maintenance capex of INR4.6bn of which INR1.6bn was incurred in Q4FY21. Post repayment of INR24.6bn in Q1FY22, JSPL has one of the strongest balance sheets amongst Indian steel players. Promoters remain intent on reducing pledges to the maximum extent possible. 242 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights JSW Steel In focus Record quarter for domestic operations- EBITDA/t at INR19,756. Other Indian subsidiaries’ Q4FY21 EBITDA up 3.5x YoY at INR8.2bn Expect domestic steel demand to grow by 16mt YoY at 110mt for CY21 (WSA estimate at 106mt) Production guidance- 18.5mt in India: 17mt (existing operations) and 1.5mt (Dolvi Phase 2) Sales guidance- 17.4mt in India: 16mt (existing operations) and 1.4mt (Dolvi Phase 2) Dolvi expansion delayed by 6 months owing to COVID-19 breakout. Expected commissioning in October now Expect margins to structurally improve owing to downstream and cost efficiency projects. All ongoing downstream projects mostly complete expect at Vasind and Tarapur Embarking on new capex of INR251bn of which: INR150bn is for Vijayanagar 5mtpa expansion, INR35bn is from Mining and INR66bn is sustenance capex Additional projects in the ongoing capex: 1.5mtpa coke oven expansion at Vijayangar (INR8bn) and 1mtpa crude steel capacity expansion at Vijayanagar (INR3.8bn). Capex for FY22-25: FY22- INR182bn; FY23: INR174bn, FY24- INR12bn Further optionality: Vijayanagar can go up to 19.7mtpa from 18mtpa; BPSL from 2.8mtpa to 3.7mtpa and then up to 10mtpa in steps; Monnet can go up from 0.63mtpa to 1.2mtpa Net/EBITDA threshold reduced to 2.75x from 3.75x given the cashflows available Mining capex in Odisha to put up grinding and washing facilities. Does not include slurry pipeline as yet. Payback period is 4 years. Net debt at INR521bn- down INR8.6bn despite capex of INR150bn including acquisitions Revenue and Capital Acceptances at USD987mn and USD558mn respectively Prepayment of INR18bn of debt at BPSL from the accumulated cash Dividend at 15-20% of consolidated profit. Macros: As a result of monetary and fiscal stimulus, CY21 global GDP growth is expected at 6% versus 5.5% earlier with recovery influenced by the effective pace of vaccination. Management sees a global demand-supply gap of 40-45mt with 30-35mt left by China via restricting imports. Consequently, export markets should continue to remain attractive in case of a decline in domestic demand. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Steel demand in Q4FY21 rose by 20% YoY, while production increased 10% YoY. Imports increased 21% YoY to 1.62mt largely in finished steels, while exports rose 45% YoY to 3.56mt, with sharp increase in pricing in export markets. Domestic steel operations: Q4FY21 saw exports rise to 25% of the mix versus 12% of the mix in Q3FY21. With lower demand in the domestic market in April and May, management has ramped up exports to mitigate the impact of the same. Management will look at calibrated price increases based on market demand in order to pass on higher iron ore prices. Currently, domestic prices are at a 15% and 20% discount to landed import prices without duty and with duty respectively. Management aims to augment capacity to 30mt by FY24-25. Iron ore mining operations: All mines of JSTL have been commissioned. While management plans to construct a slurry pipeline, in the absence of the same, the dependence on railways will continue. Pending litigation in Supreme Court pertaining to auction process in Karnataka and pricing in the state should ease supplies. Management has applied for an increase in EC for expansion of iron ore production across several mines. Performance of subsidiaries: Overseas subsidiaries reported a loss of INR1.6bn during the quarter. While, operations at Baytown and Mingo junction were loss-making, they restarted in March-21, and ended the month with positive EBITDA. Indian subsidiaries recorded a positive EBITDA contribution of INR8.2bn. Asian Color Coated Ispat had a revenue of INR11.2bn, while EBITDA stood at INR1.3bn, up 8% YoY. On JSW Ispat (erstwhile Monnet Ispat), operations have been turned around and the company reported an EBITDA of INR2.0bn and a profit of ~INR930mn during the quarter. Management plans to consolidate the entity over the medium to long-term Management has capex of INR7bn due for modernisation of plate mill which will be decided on during the year. The acquisition of BPSL was completed during the quarter. The cash accumulated at the operations is being utilised for two purposes – repayment of INR18bn of debt and capex of INR15.5bn to reduce costs and increase capacity to 3.5mt. Payments for the acquisition of Welspun’s Plate and Coil Mill Division are ongoing and should be completed in the current quarter. Expansion projects and capex: Management announced additional capex of INR251bn in addition to pending capex of INR223bn, cumulating to INR475bn. 244 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights INR150bn of this capex will be spent towards augmenting capacity at Vijayanagar plant by 5mpta, with the expansion expected to be complete by FY24. This will leverage existing facilities like the 8mtpa pellet plant, sinter and coke oven plant. Management announced INR34.5bn capex to enhance mining capabilities and efficiencies. The projects will be undertaken over two years to enhance mining infrastructure to reduce reliance on outsourced mining. Management will enhance grinding and washing facilities to improve the quality of ore, aiding higher productivity and steel operations. Management also announced INR1bn capex to be spent for a color coated line in J&K. Management plans to spend INR182.4bn of the intended capex in FY22. The expansion at Dolvi has been delayed by a quarter owing to covid related disruption. The coke oven plant, pellet plant and HSM have commenced production. Pellet production and one of the two CRM lines commenced production at Vijayanagar. The second CRM line and color coating line is expected to be commissioned by Q2FY22. The coke oven battery is going to be commissioned in phases from Q3FY22, with further capacity enhancement of 1.5mtpa to support the announced brownfield capacity. The second phase will commence from Q3FY23. The PPGL line at Kalmeshwar commenced production. The GI/GL line and CAL at Vasind, second tinplate line at Tarapur are yet to be commissioned. Financials: The company saw a slight increase in net debt by INR8.2bn to INR526bn in FY21. As of Mar-21, revenue and capital acceptances stood at USD987mn and USD558mn respectively. Management is targeting net debt to EBITDA of 2.75-2.71x. Guidance: JSW Steel has guided for production of 22.94mt including non-consolidated subsidiaries – JSW Ispat and BPSL, with production of 17mt from standalone operations and 1.5mt from Dolvi phase-2. JSW Steel has guided for sales of 21.63mt including non-consolidated subsidiaries – JSW Ispat and BPSL, with sales of 16mt from standalone operations and 1.4mt from Dolvi phase-2. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights NMDC In focus: FY22 sales volume target at 44mt Not much headroom to increase the prices from the current levels Current EC limit is 51.8mt. Long term expansion plan is 83mt Steel plant commissioning and demerger expected in Q3FY21. Ramp-up expected to take about 6 months. Draft demerger approval for steel plant by the board expected by July 31, 2021, post which 100-150 days are required for completing the project. Steel plant capex at INR213bn of which INR186bn is already spent Total government levies including premium would be ~41% FY22 capex expected at INR37bn of which steel plant capex is expected at INR15bn Doubling of KK line is almost 70% complete Pellet plant’s production in Q4FY21 was at 4kt (36% capacity utilization). No commitment pending on exports. LTA with Far East players for FY22 Core operations The pellet plant operated at 7-8% annualised utilisation and should gradually ramp-up hereon as NMDC has replaced the pressure filter in the beneficiation plant which had some problems. With the non-renewal of long-term agreements, exports from NMDC thus, will have the higher export duty of 30%, making them less remunerative. Furthermore, the company does not have any commitments on this front. Management sees sufficient demand in the domestic market to absorb the 3mtpa of exports quota, however, will evaluate export opportunities in medium term if they see domestic demand falter. Management is targeting 44mt of production in FY22, with 13mt from Karnataka and 31mt from Chhattisgarh. No additional approvals are required for the same. The Karnataka mines have EC limit of 14mt with additional 3mt available in Kumaraswamy, taking EC approval to 17mt. Chhattisgarh mines have EC limit of 37.5mt. Management plans to increase production to 100mt over the long-term, however, medium-term target is to increase the EC limit to 83mt from 51.5mt currently. Management is under discussion with various state governments on mines which have not commenced production post auctioning. Doubling of KK line is ~70% complete with some patches left, however, NMDC is able to utilise the line to a large extent. 246 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Management is in advanced stages of discussion on allocation of Deposit 4 to the company, however, decision on Deposit 13 has not been taken by the state government at present. Changes in MMDR Act NMDC paid additional premium of 22.5% on 3 days of production from Chhattisgarh (INR1.01bn) and entire production of 0.4mt from Donimalai (INR480mn). While sales from Donimalai, Kirandul and Bacheli will attract an additional 22.5% premium, the same will be levied on Kumaraswamy when the lease is renewed in mid-FY22. As per management, any EC/FC enhancement will be applicable for entire economic life of the mine. The revised statutory levies will be ~41% compared to 19.5% earlier. Steel plant commissioning and demerger Management has incurred a capex of INR185.6bn on the steel plant so far, of the total outlay of INR213bn. Management does not foresee any challenges on procurement of raw materials, however, iron ore will be sold from NMDC’s existing mines on an arm’s length basis. Management anticipates that integrated commissioning of the steel plant to take place by Q3FY22. The draft demerger plan is likely to be approved by the Board by end-July 21. Post the board approval, management anticipates 100-150 days for obtaining the necessary clearances. Both demerger and commissioning activities are being planned concurrently. Others FY21 capex was at ~INR20bn, while FY22 target is INR37bn of which INR15bn is likely to be incurred on the steel plant and the balance on slurry pipelines, screening plant and pellet plant. Management raised ~INR20bn of which INR14.5bn has been drawn for working capital requirements. The company has had long-term FDs at attractive rates. Hence, differential rate works in their favour. The balance INR5.5bn is the NCD raised for the steel plant. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights SAIL In focus FY22 saleable steel production guidance: 18.35mt FY22 iron ore sales volume guidance: 13.5mt Operations in April and May impacted due to COVID-19. Pick-up seen in June-21. Seasonal slowdown in Q2 might not happen owing to lockdowns getting lifted. Realisation: Longs- INR50,400/t in June compared to INR45,000/t in March and Flats- INR63,750/t in June compared to INR48,355/t in March. Debt reduction still the key focus- Target to reach INR250bn by FY22 end. Don’t see any further payment on account of entry dispute as the company has a very strong case in the remaining ones. Inventory level is very comfortable at 0.6mt as on March-21 end. Receivables from Railways at INR45bn as at end-March-21. Do not expect material reduction from this level. Wage cost in FY22 expected at INR105bn. Iron ore cost expected to be higher Q1FY21 onwards as Jharkhand mines will attract additional premium of 22.5%. Capex target for FY22 at INR80bn. However, the actual disbursal might be lower owing to tenders still not awarded. Operations Average net sales realisation (NSR) for Q4 stood at INR46,500/t for SAIL overall, while NSR for FY21 stood at INR40,595/t. Average NSR for longs in March was INR45,000/t while it is presently at INR50,500/t after a slight reduction due to lacklustre demand. Management does not expect demand to wane in monsoons as has been the norm. Average NSR for flats in March was at INR48355/t, versus INR63750/t at present. Average coal cost for FY21 stood at INR11,200/t, a reduction of ~INR3,000/t from FY20. While coal prices have increased by USD50/t, management expects prices to revert to previous levels as geo-political concerns remain intact. Management has had a few issues in the CRM-3 at Bokaro and sintering and casters at Bhilai, which should be resolved by the end of Q1FY22. Production and sales Production at various sites was impacted due the severe impact of the second wave of the pandemic. Consequently, management conducted repairs during the quarter, which are expected to be completed by Q1FY22 end. Normal production levels to be achieved by Q2FY22. Management maintains targets of 19.6mt of crude steel production and 18.35mt of saleable steel production for FY22. 248 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sales to government agencies (excl. PSUs) like defence and railways ministries is 10–11% of volumes. Exports have been good in March to May, with semis being sold to South East Asia and Nepal. However, SAIL’s focus remains on the domestic market with several long-term tie-ups. SAIL has 40% of its domestic sales (7-8mt) tied up via MoUs or long-term contracts. Finished goods inventories at the end of FY21 stood at 0.68mt, including inventory at stockyards. Iron ore sales SAIL clocked iron ore sales of 3.2mt for INR12.03bn. Management has targeted 13.5mt for FY22, including fresh fines and tailings. Sales of iron ore stood at 0.432mt in the first two months of FY22 due to royalty- related issues in Odisha. These disputes have been settled. Management expects to meet the FY22 iron ore sales volume target provided the Jharkhand government grants clearances. . Royalty rates of sales are likely to increase due to the revisions in the MMDR Act. The company would endeavour to pass on the increased cost through higher realisation. Cash management and deleveraging In FY21, the company reduced debt by nearly INR200bn to INR354bn. The company has changed the mix of its loans with higher reduction in long-term debt. Consequently, net debt to EBITDA at the end of FY21 stood at 2.54x. Prudent restructuring and deleveraging resulted in reduction of average interest cost to 6.34% for FY21 versus 7.76% for FY20. Outstanding receivables from railways stood at INR38bn at the end of March as a result of collections in March. Currently, Receivable is at ~INR45bn, which is in accordance with general practice- 3 months of billing and pending claims against provisional billing. FY22 capex is targeted at INR80bn following government directive. However, management expects the disbursal to be lower as incremental tendering is yet to start. That said, management expects FY22 capex to be higher than INR40bn. Maintenance capex as part of the initial outlay was at INR20bn, while INR20bn was earmarked to settle payments of old Modernisation plan for plants which have been commissioned. Management targets reduction of debt to INR250bn by the end of FY22, with free cash flow being utilised entirely for debt reduction. Others SAIL made a provision for salary & wage revision to the tune of INR11.6bn in Q4FY21. Wage cost for FY22 is expected to be at INR105bn. Wage bill is also impacted by higher discounting factor for actuarial valuation. As a result of the VRS scheme, SAIL had an exceptional charge of INR1bn Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Pursuant to the Amnesty scheme of the West Bengal government, management chose to pay INR1.6bn pertaining to entry tax dispute. Management has reached the full and final settlement with INR1.3bn of accrued interest completely waived off. Balance of the entry tax cases remain disputed and management continues to believe they have a strong case particularly in Bhilai where there is a large amount due to a disparate entry tax across the state. 250 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tata Steel In focus: See structural shift in steel industry with production curtailments and export tax rebates annulment in China. A trend to reduce carbon footprint is making steel industry increasingly more regional. Given the strength of steel industry, growth aspirations and deleveraging can go hand in hand. Deleveraging and KPO to be a priority. Will reduce by atleast USD1bn p.a. regardless of the cycle. TSE’s EBITDA impacted by GBP47mn expense towards purchase of carbon credits. An additional GBP20-22mn will be incurred every quarter. GBP12/t of carbon surcharge is being recovered from customers. Expects FY22 steel volume to grow by 1mt to 18.3mt mainly through debottlenecking. Q1FY22 outlook: Domestic realisation up INR6,000-7,000/t; cost up INR2,000- 2,500/t. European spreads up GBP48/t in UK and EUR70 in Netherlands. Consolidated capex in FY22 expected to be INR110bn including INR75bn in India. Capex to be centered around pellet plant, CRM and 5mtpa brownfield expansion at KPO. Full impact of cost efficiencies from pellet plant and CRM to be visible in FY23, while production from 5mtpa project to be back-ended in FY24. Not much of incremental advantage of accumulated tax losses from TS-BSL. As of now, not looking to divest SEA operations. Offers received were lower than expected. Brownfield optionality across the operations: Jamshedpur from 11mt to 14mt; Angul from 5mt to 10mt and KPO from 8mt to 16mt. Not interested in any greenfield plant at the moment. Will endeavour to keep longs and flats separate. Does not rule out inorganic growth opportunity in longs at right valuation. Approaching carbon reduction in a different way compared to peers. Focusing on carbon capture and storage in Netherland. Exploring other opportunities in UK. Steel demand and second wave: TSL is working to supply more oxygen to various states in the country and is currently supplying 1ktpd, having supplied 14ktpd since April 2021. Global steel prices have soared as a result of demand recovery outstripping supply ramp-up and growth. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Prices have been supported by reduction of steel export rebates by China and production cuts announcements as the country focuses on emissions, with higher cost structures in China led by geo-political tensions. With significant investment in infrastructure, steel demand is likely to remain robust globally, and there has been no push back from buyers despite prices increasing. Regional markets should remain strong with exports receding from China and Japan. Domestic prices have lagged global prices and are currently are the cheapest in the world. Domestic demand has not been impacted by lack of oxygen at the moment. However, a few downstream units, especially in fabrication, have been impacted. International markets continue to remain attractive and the company has contracts that would potentially insulate any possible demand slip in the domestic market. India business: Tata Steel remains positive on the India growth story with KPO-II expansion to 8mtpa underway. The company has options to increase flats capacity available across all three sites. Flats and longs would be kept separate except at Jamshedpur where optionality increase capacity from 11mtpa to 14mtpa is available. Pellet plant and CRM expansion is underway, with benefits of lower costs and higher realisations respectively anticipated by FY23E. KPO-II is expected to be commissioned by H2FY24. A large part of the equipment ordering and ground work has been completed. The blast furnace has been ordered. SMS and HSM only require balancing equipment. Of the original capex of INR230bn, INR70-80bn has been spent, while the balance is expected to be incurred over the next five years. Merger of Tata Steel BSL received shareholder approval and the company filed the joint scheme petition w.e.f. April 1, 2019. Incremental advantage of accumulated tax losses at TS-BSL is likely to be limited. The company is expanding iron ore capacity from current 30-32mt to 50mt to fulfil captive needs. Management has iron ore fines available at various mines and exploring options to utilise the same. European operations: Management sees EBITDA expand further as higher spreads get progressively reflected in ‘felt spreads’. Carbon credits have seen a declining trajectory, and the company had to buy credits as operations at Netherlands ramped-up. With Brexit, TSL will not have the option of setting off carbon credits across the two plants, and free allowances will be lower. There is a carbon surcharge of GBP12/t which is being recovered from customers and is a part of overall price increase in Europe. 252 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights While competitors are focusing on carbon-free steel, TSL is focusing on carbon capture and storage at the Ijmiuden plant in-line with government focus. Plans are underway to cut emissions at the same. Management plans to operate Ijmuiden at capacity while utilisations will be optimised at UK operations depending on spreads. SEA operations: The operations were re-classified as continuing as management received bids with value lower than expected. The business has always been cash neutral and monetising the assets was a strategic move to reduce debt. Management will look at evaluating opportunities to monetise the assets only at reasonable valuations. Financials: Combined EBITDA of other domestic subsidiaries in Q4FY21 was INR4.1bn, up 38% QoQ. TSL incurred capex of INR27.5bn in Q4FY21, with cumulative capex of ~INR70bn in FY21. The company has targeted capex of INR110bn in FY22, including INR75bn for Indian operations. The company generated free cash flow of INR88bn in Q4FY21 and INR237.5bn in FY21. The higher free cash was utilised towards deleveraging and hence net debt declined by INR107bn in Q4FY21, and INR294bn over FY21. The company continues to prioritise deleveraging with planned debt reduction of at least USD1bn annually. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Vedanta In focus Alumina refinery expansion to 5mtpa (from 2mtpa) is expected to be commissioned by Q1FY23. Total pending capex at INR35-40bn. To reduce cost by USD100/t on imported bauxite. Several improvements initiated at the Zinc-International division with a production uptick expected in FY22 and high-grade magnetite capacity of 0.6mtpa. Oil & Gas division –Exit rate in March-21 at 173koepd mainly due to polymer injection at Bhagyam and Aishwarya. Expect an exit run-rate of 195koepd in FY22. Natural decline being restricted at 6-7% due to enhancement of liquid handling capacity at Mangala from 900mn to 1.3mn barrels. Debt repayment obligation of Vedanta Resources at USD1.5bn for FY22. Growth capex target for FY22 at USD1.1bn, primarily for the Oil & Gas division. Strategic growth projects and financials During FY21, VEDL took a provision of INR2.1bn against the advances made to KCM, after provisioning of INR2bn in FY20. Outstanding balance net of provision stands at INR2.1bn, which is not expected to be provided for as the company is an operational creditor. The parent has a net debt of USD10.5bn, and a repayment of USD1.5bn due during FY22. This repayment is expected to be partly repaid and partly refinanced. Management has set a capex target of USD1.1bn for FY22, of which maximum spends are earmarked for oil & gas at USD400mn, followed by Al business at USD300mn and USD100mn each in Zinc businesses and other projects with an optionality of USD200mn. Zinc International Management has set up a pilot plant of 0.6mtpa capacity for high-grade magnetite. Gamsberg should achieve designed output of 240ktpa in FY22 (exit) with volumes of 190-210kt expected during FY22 due to enhanced focus on mining and concentrator. Gamsberg has an R&R of 550mtpa, and management sees an opportunity to increase production of concentrate to 1mtpa and have an easy opportunity to double the concentrator plant to 500ktpa. Oil & Gas The production at the division has been impacted by the natural decline of 10– 20%, with various projects undertaken to arrest declines and increase R&R and outputs. 254 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Several products such as tight oil, tight gas, polymer infill and MPD upgradation have been delayed owing to covid-19. New projects should add 20–40kboepd of volumes. Management anticipates the guidance of 175–185kboped to be met from current wells. Additional opportunities exist via exploration. Aluminium Management has planned for expansion the Lanjigarh refinery to 5mtpa from 2mtpa at a cost of INR35-40bn. The groundwork has started and packages are being awarded. Management anticipates commissioning of the expansion by Q1FY23E. Management expects to achieve cost savings of USD100/t even when using imported bauxite. If domestic bauxite is used, additional cost saving of USD50–70/t can be achieved. Of required 14mtpa bauxite, 9–10mt is tied via long-term contracts from local and overseas suppliers. Management aims to fully integrate and ramp-up smelters by Q1FY23 with captive Alumina. Radhikapur West block MoU was signed with the government, and operationalisation of Radhikapur West and Jamkhani remains a key target for FY22 in order to reduce costs further. Management is contemplating using one of the Jharsuguda IPP as a CPP for the Al business as production ramps up post-Lanjigarh expansion. Iron ore & Steel business Management plan to double hot metal capacity at ESL to 3mtpa along with a new horizontal coke oven with 0.5mtpa capacity. Management is also installing a new pellet plant of 2.2mtpa as part of cost-saving endeavours. Management is endeavouring to increase furnace production by 10% at FACOR by optimising production and better process control and capacity enhancement to 100ktpa of ferrochrome through debottlenecking of chrome ore mines and beneficiation plant. Management aims to reduce costs by 20% in the near term. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Oil & Gas Petrochemicals 256 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Bharat Petroleum Corporation Q4FY21 conference call: Key highlights Favourable macro factors aided demand growth BPCL domestic volumes increased 1% QoQ to 11.2MMT in Q4FY21 vs.11.1MMT YoY. As demand continued to remain strong. However, Q1FY22 is likely to remain subdued on account of regional lockdown in several parts of the country. Retail expansion underway; rapidly expanding CNG network During the quarter company added 752 retail outlets taking the total sum to 18,637 as on 31st march 2021. Besides, company also added 629 CNG stations at existing outlets and aim to commission 800 CNG outlets further. Refinery utilization remain well above 100%; plunged in May 2021 Management highlighted that refinery rate increased substantially by 1600bps sequentially to 112% in Q4FY21 (96% in Q3FY21). However, with regional lockdown in several parts of the country, refinery run rate plunged to around 96% in May 2021. Lowest GRMs across OMCs but reported highest throughput growth We note that, amongst peers, BPCL reported lowest GRM versus HPCL GRM of USD8.1/bbl & IOCL GRM of USD10.6/bbl. However, BPCL’s refining throughput growth remained highest amongst peers registering 15% growth QoQ versus HPCL’s growth of 10% and IOCL’s growth of -2% QoQ. Besides, BPCL’s core GRM of USD 2.46/bbl also stands lowest amongst peers. (IOCL at USD 2.51/bbl & HPCL at USD 3.5/bbl). Mozambique operations to commence in CY24 Management mentioned that Mozambique operations is likely to produce first gas in 2HCY21. Company anticipates 1MT from Mozambique operations from CY26 onwards. Company has infused INR 6.5bn in BPRL essentially linked to Mozambique operations. Improving product cracks Management highlighted that product cracks remained highest during this Q4FY21. MS cracks have improved from USD 2.79/bbl in Q3FY21 to USD 5.66/bbl in Q4FY21 and HSD crack has improved from USD 3.34/bbl in 3QFY21 to USD 5.6.bbl in Q4FY21. Besides, Product cracks have improved in further Q1FY22 over Q4FY21. Petchem project to ramp up in H2FY22 Management mentioned that 2 units of petchem projects have been commissioned during Q4FY21 (in stabilizing process) and 1 units is likely to be commissioned by next quarter. Production is likely to ramp in during H2FY22 and is likely to contribute of GRM of USD1/bbl annually. Modest capex guidance Company has planned FY22 capex outlay of INR 120bn of which INR 30bn is likely to be incurred on refinery projects, INR 40bn on marketing, INR 10bn on petchem business and remaining on equity investments and other projects. As company seeks potential buyers for stake sale, capex will then be budgeted by new owner. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights GAIL Q4FY21 conference call: Key highlights Several projects are scheduled for completion during CY22/23 The Vijaypur pipeline is expected to be commissioned by Jun-21. The pipeline in Dehradun-Rishikesh will likely be completed by Sep-21. Pipelines Dhamra, Bokaro- Angul and Gorakhpur-Barauni are expected to be completed by Dec-21. Besides, the Jagdishpur-Haldia and Bokaro-Dhamra pipelines are likely to be completed by Nov- 22. Urja Ganga pipeline- section 2/3 of the Urja Ganga pipeline is likely to be completed by Dec’21. The rest would be completed by Dec-21. Gas transmission volumes improved sequentially Overall gas transmission volumes remains flat YoY/ QoQ to 110mmscmd. It operated at capacity utilization of 60% during Q4FY21. HURL-Gorakhpur plant has also begun The company mentioned that gas in the HURL Gorakhpur plant has been started and pre-commissioning activities are still in progress. It anticipates gas supply to go up to 0.5mmscmd by Jul-21; the supply is likely to double by Dec-21. Plants are operating at optimum utilization capacity During the quarter performance improved across segments. All plants have attained normalcy and operated at optimum utilization capacity. Petchem plants are currently operating at more than 100% capacity. Dhobi-Durgapur pipeline has been completed The company has completed the Dhobi-Durgapur pipeline and has dedicated this project to the nation, which is also likely to support CNG and PNG supplies in ten adjoining districts and would spur volumes once demand is back. Volumes are likely to improve with additional pipelines Additional pipelines that are likely to be commissioned over FY22/23 will further add 10–11mmscmd by Dec-21. Another 30–33mmscmd would be added over the next three–four years. 258 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Gujarat Gas Q4FY21: Management call takeaways Registered significant volume growth on robust industrial demand Total volumes were 12.1mmscmd (up 22% YoY) with PNG volumes at 10.4mmscmd (up 23% YoY), CNG at 1.7mmscmd (up 16% YoY). Volumes are likely to grow in the range of 10-12% pa over the next 3 years. Morbi demand continue to remain strong PNG volumes for industrial and commercial segment continue to remain strong, attributed largely demand improvement in Morbi. Volumes in Morbi improved to 7.5mmscmd in Q4FY21 with the ramp up in ceramic production. Currently, it is hovering at ~5mmscmd. Dynamic pricing decision Company has taken a price hike of INR 4.96 in Feb-21 (~15% hike). Currently, prevailing price in Morbi for ceramic users stands at INR 33, and INR 1.8 premium in Non-Morbi areas. Competing product, propane is available at INR 3 premium and is likely to reach INR 40 in the near term, and hence GGL’s gas remains significantly more competitive. CGD additions on track Company has added 167 CGD channels in FY21 taking the overall network to 559 as on Mar’21. They have guided for 150 new stations to be added each yr for the next 3 yrs. Margin trend EBITDA margin may be squeezed during 4QFY21 to ~US$5.1/SCM, as spot LNG accounts for two-thirds of GGL’s gas sourcing, which has risen by 163%+ YoY. Operational leverage from higher volumes and judicious cost cutting measures are keep margins healthy though. GGL believes that in the longer-term margins of US$ 5/SCM are comfortable vs US$ 4.5/SCM in the past. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Hindustan Petroleum Corporation Q4FY21 conference call: Key highlights Higher refinery run rates vs. industry During the quarter, refinery utilization remained high at 114% (down 500bpsYoY), while industry average refinery run rate stood at 90%. Management highlighted refinery run rates in Q4FY20 stood high at 119%, despite the lockdown. This resulted in 3% YoY decline in refinery throughput. Refining margins gained on high inventory gains Reported GRM in Q4FY21 of USD 8.1/bbl (vs. USD -1.2/bbl YoY) was largely driven by higher inventory gains during the quarter. Core GRM stood at USD 3.5/bbl in 4QFY21 (down 63% YoY) and USD 1.87/bbl in FY21. Management highlighted inventory gain during the quarter was INR40.5bn, of which 1/4th is attributable to refining and 3/4th is attributable to marketing segment. Increasing global demand improved product cracks With demand pick up in US, Europe and few Asian countries, petrol & diesel crack improved from USd2-3/bbl to USD 8/bbl currently. This has improved Singapore from USD -0.93/bbl in 1QFY21 to around USD 1.78/bbl in Q4Fy21 with average of USD 0.53/bbl for the whole year. Sales volumes rose YoY but plunged sequentially While volumes decreased 3% sequentially as festive season kept demand higher QoQ, it increased 6% YoY on low base. Both HSD & MS sales increased meaningfully by 6% & 10% YoY during the quarter respectively. While industry de-grew by 9% in FY21, HPCL faired marginally better with de-growth of 6.6%. Besides, management highlighted that marketing margins were better than last year. Current demand remain subdued on localized lockdown Management mentioned demand has contracted in May 2021 owing to regional lockdown announced in several parts of the country. While petrol & diesel demand is up by 20% & 6% respectively when compared with May-20 volumes, it has however declined by 30% each from May-2019 levels. Continued expansion of retail outlets During the year, HPCL added 2,158 new retail outlets taking the total count to 18,634 in FY21. Further it plans to add around 2,000 outlets in FY22. In addition, it also added 102 new LPG distributorship and CNG dispensing facilities at 203 new outlets (total 744 outlets). It added EV charging facilities at 84 retail outlets. It introduced 387 dispenser to deliver diesel at doorstep of select customers. Refinery expansion program is running on time Company anticipates Mumbai refinery expansion to complete in 1QFY22 and start commissioning during 2QFY22, taking overall volumes to 9.5 MMT from 7.5MMT. While Vizag refinery expansion is scheduled to be completed during FY22, its bottom upgradation is likely to be completed by end of CY22. This is likely to deliver double digit GRM post completion. Rajasthan refinery will be completed by FY23/24. Capex likely to be in the range of FY21 levels Capex stood at INR 140bn during FY21, where in INR57bn were incurred each on refining and marketing activities and INR23bn on JVs. Management has guided for 260 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights capex of INR 145bn in FY22. During the year company added infrastructure facilities, to aid further LPG bottling capacity to the extent of 270k metric ton/annum. Anticipate positive outlook While capex cycle is largely behind, improving GRMs should augur well with company’s growth Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Indian Oil Corporation Q4FY21 conference call: Key highlights Steady refinery utilsation: Refinery utilisation stood at 102% in Q4FY21 (higher sequentially) given modest demand for petroleum products QoQ, though second wave from Mar’21 has impacted demand. Throughput during the quarter was 17.86MT with distillate yield of 79.9% and fuel & losses at 9.2%. Modest refining margin: The company reported GRM of USD10.6/barrel in Q4 and core GRM stood at USD2.5/barrel in line with our estimates. Margins remained strong given good crack spreads for gasoline & gasoil. However, recently MS/HSD cracks are nearing USD3/USD4.5 per barrel signifying smart recovery in margins. Average crude oil price during the quarter stood at USD60.45/barrel. Enhanced marketing operations: Strong refining margins during the quarter were enhanced by steady marketing margins. The company reported petroleum product sales of 20.8MT in Q4FY21 (74.7MT in FY21). Preference for personal mobility has led to higher consumption of gasoline. Gasoline/ gasoil demand in Q4 remains strong, though ATF took the brunt of muted demand given travel restrictions on domestic as well as international routes. Management expects prices to soften in H1FY22 given the post-elections effect. Petrochemical margins on the rise: EBITDA margins improved on high operating leverage and improved margins (high petrochemical spreads) during the quarter, though sales remains modest. Retail outlets: Added 3,000 new retail outlets, taking total retail outlets to 32,060. 310 CNG stations were already on stream and is looking to expand them further. Pipeline business tracks reviving retail and refining volumes: Resumption of economic activity post uplifting of lockdown has led to increased demand during the quarter, but still it will take another couple of months for demand to get back. As a result, capacity utilization improved from 92.2% in Q3FY21 to 106.2% in Q4FY21. Launched HT100 & aviation gas: During the FY21, IOCL launched various HT 100 fuels which are now being produced in all refineries and available in 26 states. The company is likely to expand network further. IOCL also launched aviation gas which was earlier imported. Bio-CNG: Management mentioned that IOCL is the only company in CBG operation and is currently retailing from 15 outlets. Company is likely to set up CBG plant in Gorakhpur. It has been guaranteed INR 46/kg for sourcing, which seems viable to the company. Capex guidance: Capex (including JVs) guidance for FY21 stood at ~INR260bn. FY22E guidance is at ~INR290bn (Refinery/ pipelines for INR50bn each, Marketing at INR65bn). It has acquired licences of 40 CGDs (23 in JVs), which is a very long gestation business. 262 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Mahanagar Gas Q4FY21 conference call: Key highlights Volume recovery across segments... MGL’s volumes jumped 2.7% YoY to 2.89mmscmd in Q4FY21. CNG/ PNG volumes increased 1.1%/ 6.7% YoY to 2.0/ 0.9 mmscmd. Currently (Apr-May21), overall volumes are 25-30% down vis-à-vis Mar-21. …thereby improving margin on high operating leverage MGL’s EBITDA margin improved 26% YoY to INR12.1/scm, largely due to high operating leverage. With successful negotiation with OMCs over the trade discount issue, margins are likely to improve further in the near term. Besides, as volumes normalise going forward (FY22/23), per unit operating cost is likely to dip, thereby improving margins further. Operational highlights of Q4FY21 During the quarter, MGL’s operational reach increased to 1.6mn households. In Q4FY21, it added six new CNG stations (271 overall) and 99 I&C customers (4,192 overall). Commendable performance in Raigad GA During the quarter, MGL’s connections increased to ~40k domestic households and 19 CNG network. The company supplied 52,000kg/day CNG during Q4FY21. It has further received permission for 8,000km steel pipeline, which is likely to cater to demand from the I&C segment in adjoining areas. Completed projects in Belapur, Ulwe (sector-19) The company has successfully completed directional drilling projects for JNPT in Belapur, Ulwe (sector-19) during the quarter but proper commissioning and full utilization would take time as it has been deferred due to the second covid wave. Capex guidance MGL incurred INR3.1bn in capex in FY21 but refrained from giving guidance. Should the lockdown restrictions come off soon, they could incur INR5bn in FY22 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights ONGC Q4FY21 conference call: Key highlights Production in KG-98 likely to ramp up by Dec’21 Management mentioned that production has already started in cluster 2, but has been delayed due to covid impact. However, it is likely to ramp up to 2.5- 3.0mmscmd from Dec’21. It expects production to be in the 3.0-3.5mmscmd range in FY23 and peak to 8.5mmscmd in FY24. Losses reduced significantly at OPaL project OPaL project has been operating at 90% utilisation in FY21. Majority of the cost incurred in this project is funded through debt (overall cost INR300bn). Margin declined on low operating leverage ONGC’s net profit surged primarily due to higher sales revenue given higher crude oil prices and higher realisations. OVL production declined YoY, but improved QoQ OVL’s oil/gas production declined 13%/12% YoY and 5.4%/0.4% sequentially. This resulted in a decline in sales value in Q4FY21. Formation of gas subsidiary The Board has approved creation of a new wholly owned subsidiary company for focusing on gas & LNG business value chain subject to necessary approvals. The company is being formed with the objective of sourcing, marketing and trading of natural gas, LNG business, hydrogen enriched CNG (HCNG), gas to power business, bioenergy/bio-gas/bio methane/other bio fuels business. Besides, it has also acquired 5% equity in IGX as part of strategic investment. Declared interim dividend of 35% on face value ONGC has declared interim dividend of INR1.8.5 on face value of INR5 (37%) in Q4FY21. Conservative on capex guidance ONGC refrained from giving specific capex number due to fluid situation of covid, but it did mention that capex cycle will be back from CY22. 264 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Petronet LNG Q4FY21 management call: Key highlights Throughput at Dahej remained flat YoY, but declined QoQ PLNG’s overall throughput remained flat YoY at 204TBTU, but declined 8% QoQ. Capacity utilisation declined to 90% in Q4FY21 vs. 106% YoY on lower demand given high spot LNG prices. However, management expects volumes to recover in upcoming quarters as LNG spot prices soften. High profitability on high regasification charges The company’s overall profitability (profit before tax) increased 76% YoY to INR8.5bn. This was largely attributed to high regasification charges, inventory gain and trading margin on spot volume transaction. Hence, EBITDA/mmbtu also increased 56% YoY in Q4FY21. Certain costs deferment kept operating cost under check Management mentioned that operating cost remained lower in Q4FY21 as it has deferred certain costs such as repairs & maintenance costs amid covid tough times. Besides, power cost remained low on low Dahej volumes. Volumes to ramp up with addition of new pipelines Volumes are likely to recover once LNG spot prices soften in the near term. Besides, addition of the Kochi-Mangalore pipeline will spur additional demand. With ~11 CGDs underway, Kochi terminal’s utilisation is likely to ramp up to 30-35% delivering 5mmscmd volumes in CY21. With another pipeline (Kochi-Bangalore) coming in to operation in the medium term, overall utilisation will increase to ~60%. Dahej expansion to be complete in CY24 Management mentioned that first phase of Dahej expansion (to 20MTPA) is likely to take around 36-40 months for commissioning. PLNG has allocated INR4-5bn for the same. LNG station underway The company has tied up with Gujarat Gas to set up 5 LNG stations between Mumbai and Delhi highways. Besides, it has set up 4 LNG stations with IOC and 1 each with IGL and Sabarmati station. Capex outlook PLNG has incurred INR0.7bn in FY21. It is looking to install 1,000 LNG stations in the next five years, which would incur capex of INR80bn. This will not only increase its LNG demand, but also overall utilisation . Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Pharmaceuticals 266 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Alkem Laboratories Financials and guidance Gross margin – impact of extraordinary item of INR800mn largely due to inventory provision on ibuprofen. Expect 100-150bps impact on gross margin despite the mix changing as API and packaging material prices have gone up. EBITDA margin guidance remains intact, i.e. 200bps improvement from FY20 (close to 20%). Other expenses were higher as in Q4, intentionally took some increase in marketing activities to prepare for Q1FY22. April month was normal; however, in May slight sluggishness seen in marketing activities. With cases receding, expect spends to be normal from June or July onwards. Biosimilar- Product is a peptide, which is launched. Not move the needle this year. India and US are the primary growth drivers for the next 3–5 years. Tax rate- Next 3 years- 13–14%; Domestic Mid-teens growth expected in FY22. Trade generics were close to 20% of domestic revenues in Q4. Expect to grow in double-digit in FY22 in-line with overall domestic business guidance. Chronic therapies-– growth driven by gaining market share and new launches mainly in cardiac and diabetes. Expect to double this in next 3-4 years. Working on building >INR1bn brands over next two years. Cases of Secondary infection of pneumonia seen in the current wave. Saw an increase in antibiotic sales compared to the first covid wave. Expect this to continue for at least 2–3 months. The OPD increase is likely to offset any decline from hospital surgeries. Some pressure in antibiotic injection which should be offset by other therapies. Expect industry to grow at normal rate of 9.5–10% in last nine months of FY22. MR- 12000- Acute +600 in FY21 (Clavam and PAN)- focus on expanding reach. Chronic- focus on improving productivity. US Reasons for YoY decline: 1) Decline in overall acute portfolio due to covid. 2) Loss of market share in some products. 3) Tail-ending launch of some products. QoQ decline resulted from weak seasonality. Launched 12 products during the year. Received 19 final approvals during the year – Less than 50% launched. Inventory write off led to negative EBITDA margin. Adjusted for this, margin is at a reasonable double digit level, but below company levels. Duexis- Still in litigation. Have tentative approval. Not first filer. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ajanta Pharma India 21 launches made in FY21, of which five were first-time launches (two in Cardio including vildagliptin sustained release, two in ophthalmology and one in pain). Pain: Lot of first time products in rheumatology. INR500mn brand growing in low teens. Ophthalmology: Should improve as outpatient improves through the year. Productivity on a par with the best competitor. Cardiac: Productivity of two teams is ~INR0.5–0.6mn/month. Two other teams are picking up. Field activities gone down from mid-March. Institutional sales ~INR210mn. Asia and Africa Some disruption seen in Asia and Africa. Will be resolved soon. Also high base effect of Q4FY20. Africa: INR97cr, Asia down ~16% YoY. No lockdown in Asia and Africa. Enough room to grow in existing markets. US ANDA filings will pick up and would be 10–12. Annual launches should be also around that range. US pricing pressure has stabilized. Financials Gross margins: Product recall in Q4FY20 impacted gross margin. Going forward, API cost increase will impact margins. Expect ~75%. Net cash of INR3.75bn. Capex: INR2–2.5bn for FY22, of which corporate office capex will be INR0.6– 0.8bn. Gross block INR17.65bn. 34% EBITDA margin not sustainable. Margins would normalise next year. 268 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Aurobindo Segments US- Budgeted for mid-single digit erosion. ARV growth is not covid related. The growth was driven by change in regime and high growth is on dropped sales. Expect to maintain the current business or small growth for next 1-2 years. Europe- affected due to lower patient footfalls and loss of elective surgeries. Vaccination progressing well. Overall outlook is slight optimistic than previous quarter since overall footfalls have improved but not to pre-covid levels. Europe- moving to higher margin product opportunity. Levers- 1) Switching products to lower cost base such as in India. Volumes sourced from India increased by 36% in FY21. 2) Eugia oncology has 55 products of which 5 already launched in last 1 year, 2 more in this quarter. 3) Ertapenem yet to be launched. Penem block is being expanded. 4) Vizag injectable plant where the company is developing 250 products to capture the hospital market. 5) Biosimilar opportunity. Now have 60% of products in Europe sourced from India. External API sales - 60% is antibiotic sales. Vaccines Viral facility equipment validation to complete by June end. Process validation to start in July and post that commercialisation will start. 480mn doses can be manufactured. UB-612- most of the queries have been answered and expect approval from DGCA. Expect to start trial in India post that. Expect to sell by the end of CY21 or early CY22. o Trials going in Taiwan and expect data in July. 25mn doses initially for Taiwan and other markets. o Covaxx vaccine can be manufactured even in bacterial or general injectable facility. As volume grows it can be shifted to new facility. Exploring contract manufacturing opportunities. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Injectables and others Global injectable sales USD395mn for the year. Injectable facility for Europe and RoW markets to be ready by 12-14 months. US injectable facility - currently exhibit batches are being run. Targeting high value and low volume products. Complex injectable- 15-20 products in the pipeline. Filing to happen at the end of FY22. Injectable restructuring- Taken Unit-16 to Eugia. Unit-4 – still evaluating and will be taken up in next Board meeting. Biosimilars- First two products will be filed 2HFY22 for Europe. US will be later. Next 2 are for global markets including Europe and US. These are onco-based biosimilars. E-commerce- Currently, it is limited to OTC product. Initiated some discussion with Amazon. Envisage USD10-15mn sales from this channel in next few months. Margin- happy to maintain the current margin. Covid vaccine can potentially add ~30% to FY23/24E EPS ARBP’s COVAXX vaccine UB-612, if successful, and collaborations for multiple vaccines for covid-19 have potential to add ~30% to FY23/24E EPS and INR55 to fair value that we have not modelled in. The company has entered into an exclusive licence agreement with COVAXX, a US-based company to develop, commercialize and manufacture UB-612 for COVID-19 in the India market and United Nations Children's Fund (UNICEF). Phase 2 trial read-out is expected in July. ARBP is looking to jack up the capacity from current 220 million doses to 480 million doses by June 2021. The vaccine can be manufactured even in bacterial or general injectable facility. As volume grows it can be shifted to new facility. 270 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Biocon Biosimilars QoQ revenue decline of 14% and PBT decline of 22% despite stable market share. Core EBITDA margin of 33% in Q4FY21 and 36% in FY21. It was lower due to higher costs and the dip is a one-off. This excludes severance pay and exceptional item. Reported EBITDA margin of 25%. There has been some price erosion but costs have gone up including R&D. Viatris exploring various options to increase market share. However, there could be higher price erosion and so have to balance it. Few more quarters before giving concrete guidance. USD1bn revenue guidance was unrealistic given the existing scenario. The company has at least three programmes that would enter respective clinical stages. R&D spends in FY20- INR1.78bn and in FY21 to be INR2.84bn. FY22 R&D is likely to be even higher due to spending on three molecules. Itolizumab: Awaiting clinical data for all indications in CY21. Current demand exceeding supply in second wave; expect to catch up with demand in mid-June. Seeing strong demand in EMs despite covid disruptions and re-evaluation of healthcare budget. Awaiting timeline for plant inspection for bevacizumab. Expect to garner a good market share, however, likely to take time. No technical issues with respect to bevacizumab biosimilar approval. Despite increasing competition, biosimilars offer good opportunities for vertically integrated players. Generics Received USFDA approval for Everolimus (Afinitor), and expected to launch in FY22. Expecting mid-to-high teens growth in formulations in FY22, and low single digit to flattish in API. Unless Hyderabad and Vizag facility get commercialised, do not expect the API business to grow meaningfully. Split is 80% API and 20% formulations. Expect three launches in FY22 on already approved products. Two are vertically integrated products. Greenfield construction of immunosuppressant plant commenced. Could be operational in CY22 but there could be disruptions due to the second Covid wave. Expansion of generics biz outside US remains core focus. Brazil is a focus market. Business continues to be in investment mode. Will deploy capital for capacity and product development Financial highlights FX loss of INR90mn in FY21 vs. FX gain of INR650mn in FY20. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights No tax impact on gain of INR1.6bn on the Bicara transaction. About INR700mn R&D from Bicara not included in consolidated expenses. In FY21, it was INR1.8bn. Going forward, it will be reported as a loss from associates. Current stake in Bicara is 87%. Loss from associates in FY22- INR2bn R&D guidance- 12-15% ex-Syngene revenue. Generics- 8% of sales in FY21 and expect 11% in FY22. Biologics 10% in FY21 and seem to be trending upward depending on progress on molecules. Gross debt- INR45bn, net debt INR7bn. Capex- USD125mn in FY21 and USD100mn in FY22. In Generics, INR2.5bn in FY21. 272 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Cadila Healthcare US QoQ decline is on account of lower offtake in Asacol HD, weak flu season, and price erosion. 30+ launches every year should offset price erosion. Asacol HD market share is stable but offtake is slow because of covid and signalling pressures. Expect this trend to continue in this quarter as well, however, Q2 should see normal activity. Expect to launch 1 complex injectable soon. 13 new products launched in the US during the quarter and received 4 new product approvals. So far in-licensed 20 complex products of which 2 have exclusive FTF and are subject to 180 days exclusivity upon launch. Transdermals –Moraiya facility resolution key. Post resolution (end-FY22), looking for 4 critical launches. India Branded generics grew by 16% YoY. The growth was largely volume-led. No major contribution from covid related portfolio in Q4FY21. However, likely to be significant in Q1FY22. 60:40 mix specialty: mass. Specialty cluster grew faster than mass. Acquisition of Heinz has been integrated well and is on grown path. Digital ecosystem – 3-5 year journey not likely to result in any cost savings. Target is higher productivity, wider reach and distribution of more scientific data and end goal is disease management and compliance to patients. Animal Health- expect transaction to complete within 90 days. Specialty/ Vaccines Covid-19 vaccine ZyCov-D: Undergoing phase 3 trials in 28000 volunteers across 60 sites. This is a 3 dose vaccine trial. Filing can be done in next 2 weeks. o The trial included patients above age of 60, 18-60 with or without co- morbidities and also 12-18 years of age. o Submitted data of phase 1 trials which will be published soon in peer reviewed journal. o Plant for Zycov-D to start operations by end of June 2022. Capable to produce 10 mn vaccine doses in first month and gradually ramp up to 25-30 million doses in next 3-6 months o In case of global vaccination or annual vaccination, pricing is an important factor. o Also doing trials on 2 dose. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Biologics- Virafin- received approval in Apr’21. It is part of Karnataka state treatment protocol and 4 other states are also considering it. Also, seeking approval globally. o Looking to scale it up to 4x in June. o All biosimilars are different and other players have to prove their efficacy which Cadila has already done. Saroglitazar- for PBC- seeking approval from USFDA to conduct Phase2b/3 trials. Expect to conduct it in August 2021 after receiving necessary approvals. Final NDA submission expected in 2023 or early 2024 and launch expected in FY25. Financials and guidance India and US will remain strong markets in next 5-7 years. India likely to be driven by critical drugs, specialty products, biosimilars and vaccines. In US focus remains on managing the base business, launching injectable franchise, Orphan drugs and Saroglitozar in PBC. Also, 2 biosimilar opportunities for developed market which are beyond 2025. R&D- 8% of sales Digital unlikely to show cost savings in next 1-2 years. Hope to see higher productivity Net debt at INR35bn vs. INR70bn in FY19 274 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Cipla US Albuterol: One time shelf stock adjustment due to the entry of a competitor. See some more scope for market expansion. FY22: ‘Reasonable launch year’ will help sustain growth. FY23 will be ‘big launch year’. IV tramadol: Whether Cipla closes the transaction depends on what it hears from the FDA. gAdvair: Received CRL, and in the process of replying shortly. Don’t need to generate additional clinical data. Respiratory: Partner has completed clinical trials and would be in the process of filing. Profitability close to company level 2 partnered peptide injectable filings during in FY21; includes 1 new drug application. For products where IP isn’t there, could take 24 months. One of gFosrenol and gAbraxane to be launched over the next few months and one in 2HFY23. India Noticing strong tailwinds for the India portfolio, especially on remdesivir and antibody cocktails (once launched). Budesonide is now part of the treatment protocol. Remdesivir output almost 5x of last peak. See Covid as a longer-term business. Business split: Covid is 4–5% of total company sales (mainly India and small part to EMs); Trade Gx <20% of India sales. Other businesses Australia: 4 biosimilars South Africa: Ranked 3 in private market with a 7% market share EU: Market share expansion in flagship respiratory products Financials Gross margin impact ~200bps on inventory adjustments and some overheads SG&A: Exceeded savings estimate in FY21 EBITDA margin will sustain and improve thereon (from 22% levels) We forecast INR20.5bn in Covid drug sales or incremental ~INR 12.2bn in FY22, of which ~INR16bn is from remdesivir, wherein Cipla has ramped up capacity ~5x from the previous peak. The rest of sales are likely to come from Casirivimab + Imdevimab antibody cocktail and increased use of budesonide. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Albuterol (USD 1bn market) – Cipla ramp-up impressive A weak winter season and residual impact from Covid that resulted in overall volume declines in the March quarter translated to a volume decline for the albuterol market. While Jan-21 and Feb-21 witnessed 12% and 16% declines, respectively, March-21 contraction was 35% on account of the spike in volumes last year when albuterol was perceived as a treatment option for covid-19. Cipla’s uptake in albuterol remains impressive. Cipla market share touched 13.6% in the week of 9th April while Lupin’s share stagnated around 3.4%, in fact slightly declined from its peak share of 4.6% achieved last quarter. Lupin had indicated on Q2 earnings call of production issues and longer lead times with device vendor and expected strong supply from Q4FY21. Cipla’s ramp-up has been faster than Lupin’s. 32 weeks after launch, Lupin has a 3.4% market share while Cipla had 10.6%. This is despite Cipla’s RLD having a much smaller market and Lupin’s launch coincided with Perrigo’s withdrawal. The interchangeability among brands that we had seen earlier has become more evident after the Perrigo’s withdrawal. Teva has been the biggest beneficiary of Perrigo’s withdrawal (same RLD – ProAir) followed by Cipla (Proventil RLD) Prasco (AG of Ventolin) and ProAir brand has lost share. In the last 12 months (post Cipla’s launch), Ventolin and its generics have lost around 800bps in market share (from 44% to 36%) while Proventil has gained 800bps (from 7.6% to 15.3%); ProAir and generics have remained flat at around 48%. The main reason is that Ventolin had only 1 AG in the market and no other generic while ProAir and ProVentil had both AG as well as another generic. Moreover, Cipla’s share gain in the albuterol market has expanded the overall Proventil category, indicating product interchangeability. Overall albuterol TRx in this quarter is down ~15% YoY (steady-state basis, excluding the Covid spike in Mar’20). 276 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Divi’s Laboratories Quarter performance and guidance Constant currency growth for the quarter was 31% and for FY21 it was 24%. US and Europe contributed 71%. Generics contributed 60% to revenue and custom synthesis contributed 40%. FX gain of INR40mn for the quarter and FX loss of INR40mn for FY21. Exports for the quarter accounted to 90% and for the FY21 88%. For the quarter, Carotenoids revenue came in at ~INR1,560mn. FY21- INR5.95bn. Seeing good opportunity in Nutraceuticals. Molnupiravir API- Divis is authorised manufacturer of MSD’s Monupiravir API and allowed supply to MSD’s partners. MSD has retained its rights in the US, EU and other regulated markets. o Created two streams for exports to innovator. In Unit-1 created one more stream to supply to partners in India. Commercial production to begin from mid-June The company has INR21.5bn in cash, inventory of INR21.45bn. The company paid 1 month salary as incentive to employees amounting to INR340mn. Contrast media is growing at 15-25%, and the company is not even 10% of the current demand. There are very few players in the world given iodine dependency and viability. Diversified supplier base and backward integration helped in solving challenges with respect to raw materials. The company is confident of maintaining the margins given technology enhancements, backward integration, continuous process improvement. Newer custom synthesis project likely to give higher margin than generics. Capex and others The company capitalised about INR11.9bn in FY21 and INR1.73bn in Q4FY21. While investments have been done, some capex is still to go in production. Of the INR25bn capex, INR18bn is already done. Operating at 86% of production capacity. INR7.1bn of custom synthesis and generic APIs projects are still under process. New generic molecules with current dosage potential of USD12bn dollar, technology developed are under validation and regulatory submission progress. Patents are expected to expire between 2023 and 2025. Capacity increase was taken in Levodopa, pregabalin, mesalamine and carbidopa. These products are stable and are growing. In the existing products, minor approvals may need to be taken but no major physical inspection is required. De-bottlenecking activities and backward integration program during last 2 years have fully become operational and reduced dependence of KSMs besides increasing productivity. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights A part of the custom synthesis project has been completed and became operational and the rest of the capex will be completed during early part of the next financial year. Additional contrast media projects are under validation. The company’s old molecules such as ibuprofen, naproxen are still growing. Immediate investment Kakinada- received final favourable judgement from the court. 278 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Dr. Reddy’s Laboratories US Q4FY21: USD237mn revenue; YoY decline due to inventory stocking in Q4FY20. 6 new launches in Q4 and 28 in FY21. Expects the launch momentum to susain. Price erosion: Does not expect it to be as high as before. gVascepa: Launch within next couple of months. Held up due to API issues. gKuvan 500mg powder. Launch in H2FY22. gCopaxone and gNuvaring are unlikely to be FY22 launches. Covid drugs Sputnik-V: In discussion with additional engagements in India for other countries. Between now and August, primary supplies from Russia; Indian suppliers from August. India Adjusted for Wockhardt business, growth was 8% for FY21 and 2% for Q4. Continued investments in India, especially on the digital front. Other businesses Europe: Growth due to new product launches as well as volume expansion. 14 launches in FY21. Out-licensed celecoxib solution. EM: QoQ decline in Q4 due to market slowdown. PSAI: Reasonable headroom for growth. Financial Higher investments in digitization. Normal effective tax rate for FY22E 25-26%. FCF was INR7.9bn in Q4 and INR24bn in FY21. Capex: Could be slightly higher than FY21. Forex hedges: USD 675mn @74.6-77.6. RUB 7200mn @0.99 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Glenmark Pharmaceuticals Financials and guidance Revenue 10-12% growth in FY22. EBITDA margin: 19-20% FY22. Confident of sustaining it going forward as well. Capex: INR6.5-7.0bn in FY22. Expects FCF generation of INR4bn+ in FY22. GLS IPO likely to further delever to the extent money flowing to GPL. R&D spends to remain same as FY21 on absolute basis. Expects to trend 10-11% of sales. Tax: 29-30%. US: Price erosion is mid-single digit. Expects to grow 10% YoY and is on track in the first quarter. First generic in Titropium (USD450mn market size). The company is preparing for commercialisation. Expects 8-10 launches in FY22. Net debt was lower by INR920mn in the quarter at INR35.49bn as on March 31, 2021. Tangible asset addition for the quarter was INR1.16bn and INR2.01bn in FY21. Ichnos: Discussions ongoing for fund raising both at company and molecule levels. Expects to out-license atleast one deal in FY22. Spends in Ichnos should range from USD90-100mn, but net of licensing fees will be lower. ISB 830 and ISB880 are key molecules. Forex loss for the quarter INR580mn. Other expenses were higher as the company put more inventory to build business across markets leading to increase in freight costs by INR300mn. CSR spends were higher by INR100-150mn due to change in regulations. Historically, Q4 expenses have been on higher side. Guiding for 27% of sales. Europe: Spiriva margins should be at company level. It’s the first generic. 280 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ipca Laboratories Covid Overall INR3.65bn (form: INR 1.85 and API: INR 1.8bn) extra business Domestic included HCQs in Q4FY20 of INR 370mn while only INR 200mn in Q4FY21 Domestic HCQs Q4FY20 INR 370mn. Impacted ~4% Lower formulation biz in last 10 days of March – could be lower stocking and lower incentives to field staff that pushed business to next year FY21 growth by therapy: Pain: 14% (incl. HCQs), CVS: 6%, CNS: 11%, Neuro: 7%, Derma: 23%, Opththal: 61%, Nutra: 43%. Anti-malarial, anti-bacterial and Cough&Cold declined in Q4 as well as FY. Zerodol brand grew 18% in FY21 Adding reps in Neuro, ophthal and derma. Overall increase will not be >200 Q1FY22 will still see growth API API underlying business strong Sartan prices down Others Captive formulations business at 60% of overall formulation vs. 56% in FY20 Plants Dewas and Ratlam capacity addition will be 10-15% of current Dewas delayed due to Covid by 3-4 months; will go for installation in 3rd or 4th quarter. Contractors had labour problems (rumours of Covid) Capacity utilization: Formulations have plenty of capacity; will put a few packing lines only. Constraints on API size – 90% utilization, keep debottlenecking from time to time. New capacity will only be available in Dewas at end-Q3FY22 or Q4 but real business will start only 12 months later. Ratlam API plant will give some more capacity by end-Q2 FY22 Import alert: FDA unable to inspect due to Covid. Ipca keeps auditing the plants from 3rd parties Financial Gross margin: Superior product mix and better procurement. Inspite of API price rise, company will not be impacted due to better procurement Sales and marketing exp: INR 4.1bn in FY20 and on this base saved INR 0.9bn Higher repair cost (INR 90-100mn in Q4) and INR 130mn impairment. Overall other exp ~INR 2.75-3bn FY21 Adj. EBITDA margin ~24-24.5% margin Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights FY22 Revenue Guidance: Overall 9-10% growth. Domestic formulations 16-18%; export branded: 13-15%. Domestic API will decline ~28% due to additional business done in FY21; insti business +5%; Generics: 5%. API export 10% growth; overall API biz to grow ~2% FY22 EBITDA: 25-25.5% Capex: Dewas ~INR 2.5-3bn and INR 3bn more (~INR 1.5-2bn maintenance + some at Ratlam) Raw material/API pricing API: Some raw material prices up strongly likely paracetamol (INR 350/kg to almost INR 900/kg) Intermediates: Srtemisinin moved up significantly; Not a big impact on Ipca since it had entered into long-term contracts. Lumafentrine: Limited impact – some new contracts and some older contracts Furosemide, chloroquine: last qtr saw 15-18% increase Solvents: 18-30% kind of price rise for some solvents. Not much impact on overall cost Packing materials: Price rise due to commodity. Aluminium 15-30%; Paper: 17- 18% (mainly recycled and craft paper); plastic 12-30%. Glass price also increased due to oxygen Freight cost significantly Associates/Subs Bayshore: Will start meaningful contribution once US business restarts Onyx: ~INR 300mn of PAT on INR 96mn biz. ~30% EBITDA margin Ramdeo: Capacity utilization lower as lot of changes happening. Discontinued products ~INR 300mn. INR 80mn loss Tropic Wellness: Nutraceutical marketing company. Increased stake to 40%. INR 850mn to INR 1.03bn; PAT from INR 150mn to INR 220mn Krebs: Still loss making. Hope losses come down significantly in current year Generic business breakdown US/Canada: INR 0.78bn to INR 1.28bn (incl. INR 0.21bn from US) CIS: INR 1.67bn to INR 1.64bn EU: INR 3.19bn to INR 4.19bn Aus/NZ: INR 1.56bn to INR 1.87bn South Africa: INR 1.11bn to INR 0.8bn Ipca’s top brands growing faster than the market Cardio and pain therapies account for 70% of domestic formulation sales of which pain is growing at 18-20% while cardiac and derma are growing in double-digits. Ipca’s top brands such as Zerodol SP, Folitrax, CTD-T, Zerodol TH are growing faster than the market, maintains significant market share and has retained its leadership position in the category. 282 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Lupin US Q4: FY21 weak flu season impacted sales. Q4FY20 saw forward buying from customers. Posconazole helped. FY22: Double-digit growth; loss in famotidine will be compensated for by albuterol, gBrovana and gPerformist. Over the next two years, expect USD1bn+ in sales. Albuterol: ~8% level as per IQVIA. Will continue to ramp up over next few quarters; supplies have increased and market share will be seen eventually. No shift in market dynamics with Sandoz being the Authorized Generic. gBrovana: Material product for CY21/FY22 gSpiriva: Litigation going slow. Will launch in next fiscal (FY23). Levothyroxine: Market share ~19% in generics market vs. 12% at the beginning of the year. Metformin: gGlumetza re-launched; gFortamet in the process of re-launching. Pegfilgrastim: Have filed pegfilgrastim but filing not accepted by the FDA yet. Facility not inspected yet. Preparing to launch in 15–18 months. gRevlimid: Looking to ‘bring it in’ sooner rather than later. Solosec: Strategy was to conserve costs during pandemic. Looking for trichomoniasis. India Q4: As per IQVIA, Lupin 3.9% vs. market 4.3%; however, in chronic therapies, Lupin has 10.2% vs. market 8.4%. FY22: Double-digit growth Other products/biz API: Lower antibiotic sales. Overall API margin around company levels. Fostair: Expect approval in the UK soon (next few months). Financials Gross margin: Improvement over the year due to better US mix and API sales. Employee expenses: One-time savings in Q4 due to lower sales incentives (as sales were lower). Expect it to be sub-18%. Other opex: Lower selling and promotional costs in Q4. EBITDA: 20bps QoQ improvement on a normalized basis. FY22 margins 19%+; for FY23, would try hard to raise it to 21–22%. Tax: Looking to continuously improve ETR. Several subsidiaries turned profitable. ETR in FY22 to be at similar levels (~26.5%). FY22 capex ~INR10bn. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Regulatory The FDA hasn’t yet communicated on remote inspection. The company is ready to be inspected at Pithampur (unit-2) and Goa. Others Promoters extremely committed to the business. 284 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Natco Pharma Financial Inventory rose due to: 1) build-up of pandemic portfolio inventory; 2) In agro need to build inventory before March for launch in June or July. Q1FY22 will be better than Q4FY20 driven by uptick in domestic business in second covid wave. Gaps to address from acquisitions: 1) No front-end in the US. All good products have been partnered out. But for products coming late, plan to have front-end in the US. 2) Not diversified in terms of therapy. Brazil operationally losing money, but making money at EBITDA level. Canada has done reasonably well. Domestic As vaccine inoculation improves, base business is expected to do better than last year. Q1FY22 to benefit from barecitinib launch in India. Also included anti-fungal drugs, anti-coagulants in its portfolio. Working on drugs like Molnupiravir- trial ongoing. In agro has two interesting products: 1) Pheromone (cotton) – first time launch in India; treats pink ballworm- mostly in kharif season. Natco needs to build the market. Going in phased manner -4 major states AP, Telangana, MP and Gujarat. 2) CTPR- Court judgement is reserved and expecting judgement in July. Kharif is stronger, but there is reasonable business in rabi as well. 75% business from kharif. CTPR- prepared large inventory for this product. If the judgement is unfavourable, reassessment need to be made. International gRevlimid- launch in March 2022. No other challenges. For the strengths where Natco does not have final approval, other players can launch before Natco. Profit share- 1/3. gRevlimid ex- US- Canada and Australia are decent sized. Does not have good position in Europe. gCopaxone- steady income. Lanthanum- steady. gDoxil- slight dip in profitability; Zydus new competitor. gTamiflu has impacted the base business badly. Everolimus- Zortress (immunosuppressant)- lesser competition, Afinitor (onco) – large size. Both are good approvals. Remains bullish for FY22. Profit share for Kyprolis and Imbruvica is 50%. Expects 7-8 filings. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sun Pharmaceuticals Financials Other expenses were higher QoQ on account of increased SG&A spends across markets. Repaid debt of USD 580mn in FY21 and USD490mn in 9mFY21, implying USD90mn repayment in Q4FY21. Net debt ex-Taro as on 31 March 21 stood at USD179mn (USD250mn as on 31 Dec 20). Expect to wind down debt by Mar-22. Travel, branding and promotion expenses are higher in Q4 as compared to 9mFY21. R&D spends will go up and % of innovative R&D also will go up. Marketing spends which reduced substantially is likely to go up in all market but not to previous levels. Capex: FY22- USD200mn India (31% of sales) Chronic portfolio is growing well Sub-chronic portfolio witnessed recovery while acute portfolio is still facing some pressure on account of a lower incidence of infectious diseases and fewer patient footfall. Launched 31 new products in Q4FY21. No. of field force 10,000+ people which includes Managers and MRs. Added 1000 last year, hence, PCPM is flat compared to FY20. US (32% of sales) US Specialty grew over last quarter led by Ilumya, Cequa and Absorica LD. Ex-Taro generics grew YoY on account of new launches, better supply chain management, and shortages of competing products. Evaluating development of some biosimilars which can be classified among third wave by targeting products with late patent expiry. Dermatology is facing pressure on account of lower patient footfall. Halol: Awaiting response from the agency. Global Specialty Ilumya sales for FY21 USD143mn +52% YoY Specialty R&D accounted for 23% of total R&D. Cequa will continue to grow. Doctors have accepted the product. Do not have any visibility of generic entry in Cequa. Levulan sales are yet to recover fully; however, they have improved over previous quarters. Phase 3 of Ilumya for psoriasis arthritis is going on. However, uncertainty pertains with respect to completion of enrollment on account of lower patient footfall. No decision taken for trial for gastro indication. Do not expect market to expand with generic entry for Absorica. 286 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Torrent Pharmaceuticals Domestic MR productivity: Achieved INR850,000 PCPM against INR810,000 in Q3FY21. Target to reach INR1mn and post that will look for expansion. TRP has cut number of MRs from 3,800 in Q3 to 3,600 in Q4. Q1 and Q2FY22: 15% growth expected on normalised base. Pricing growth is expected to be around 6-7%. Still would be well within the competitors’ price range. All India field force working from home. Physical activity and travelling spends not likely in Q1FY22. Covid portfolio: To manufacture barecitinib. Exploring other avenues and should announce in a few weeks’ time. IPM growth ~21% adjusted for base in April. Will taper, but Q1 and Q2 could be ~15%. US No response from the USFDA yet. Started transferring a couple of products to CMO, but it is a time-consuming process. Relaunch of sartan portfolio should help. Court case going on Dapsone, which is expected to be important product for this year. Expects to relaunch products from Levittown in June 2021. To reach USD8-10mn revenue overtime. Germany & Brazil Germany: Market share reached prior level and stands at 7.1%. Achieved peak share of 7.2% in Sep 2019. Germany: Product issues have been resolved. Market has suffered drastically and declined 3% against 3-4% growth in normal times. As German market normalizes, high-digit growth seems achievable. Expects some normalization from Q3CY22. Brazil: 100% discontinuing tender business from October. 90% should be from branded generics. Brazil: Price hikes are usually in the 4-5% range. Financials & guidance FCF for FY21- INR17.5-18bn. Repaid debt of INR9bn in FY21. Expects similar number for next year. Other expenses: India- started going up, but not in a major way. Additional activities happening at Germany where TRP has taken additional outsourced manpower. Share of branded products rose by ~5%, leading to margin accretion. Gross margin- 73% can be normalized margin going ahead. R&D- FY22 and FY23 should be around 6-6.5%. Tax rate- FY22-22-25% . Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Contract manufacturing: INR250mn lower this quarter. INR850-900mn per quarter going ahead. Working capital should start normalizing this year i.e. 90-100 days of inventory. Capex: FY21- incurred INR3bn. Expects to incur INR2.5-3.0bn in FY22. 288 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Power & Ports Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Adani Ports and SEZ Opening remarks FY21 was a year of transformation year for the company. Shift from fix to variable cost, re-deploying manpower and machine led to EBITDA margin expansion and should further increase by 200-250bps due to increase in volumes. Expanded footprint through strategic acquisitions. Operational highlights Cargo volume of 247MMT in FY21. Overhauled cost structure towards variable cost and focus on capacity utilization to demonstrate increase in port EBIDTA margin by 1%, from 69% to 70%. Focused capital allocation resulted in curtailing discretionary capex; rigorous financial management improved working capital position leading to increase in free cash flow by 47% and improved liquidity. Strategy to have partnership with leading ship liners resulted in highest ever container volume of 7.2mn TEUs (16% growth) & achieved market share of 41%, up 5%. Mundra port--the largest commercial port in India--also became the largest container handling port in FY21 surpassing JNPT & clocked market share of 32%, a up 5%. First full year of gas business at APSEZ resulted in handling of 2.5MMT LPG and LNG. Cargo volume increased by 11% due to growth in all types of cargo. Container grew by 16%, dry bulk by 9%, and liquid cargo (including crude) by 2%. Cargo volume is higher compared to all India due to higher growth in container (16%) and dry bulk cargo (9%), enhanced capacity and higher cargo on East coast. Cargo mix continues to be balanced - Dry 44%, Container 43% and Liquid cargo at 13%. Mundra port continues to be the largest commercial port, 23% ahead of the second-largest port. 10 new container services added across Mundra, Hazira and Kattupalli will add 800,000 TEUs annually. APSEZ outperformed all India ports and gained 4% market share. Growth in container is on account of strategy to partner with top ship liners of the world through JVs. Improving East coast-West coast parity in terms of cargo handling in line with all India East coast share. Won a three year maintenance contract worth INR3.5bn. Gross debt increased on account of new issuance of USD750mn bond (coupon of 4.2% and 7 year bullet maturity) for KPCL acquisition and INR bonds for capex programme. 290 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Average maturity of debt improved from 5.2 years to ~6 years on account of refinancing of USD500mn bond (coupon of 3.1% and 10 year bullet maturity) of one year ahead of time. Average cost of borrowing dipped from 6.9% to 6.7% due to new issuances and refinancing with lower coupons. In FY21, net debt to EBITDA was 3.3x and was within the guided range of 3.0-3.5x compared to 3.4x in Sep 2020. This is due to addition of KPCL EBITDA post consolidation. Free cash flow from operations after adjusting for working capital changes, capex and net interest cost increased by 47% from INR39bn in FY20 to INR58bn in FY21 and in the process improved the free cash conversion to 72% compared to 52% in FY20. Tariff hike of 2.5-3% on a per tonne basis. Mundra Mundra the largest commercial port surpassed JNPT to become the largest container handling port in India. Handled 5.6mn TEUs nearly a 1mnTEUs more than JNPT. Growth in cargo is mainly on account of growth in container volume which was driven by 36% increase JV volumes. Revenue and EBITDA declined due to higher cargo handled at JV terminals, as their financials are not consolidated. EBITDA margin increase on account of higher royalty cargo. Four new container service added (to add 400,000 TEUs p.a.) Three new container service added - New India Africa, CCG and EPIC 3 (to add 156,000 TEUs p.a.) Growth in revenue not in line with cargo volume growth due to higher volume handled by JVs (up by 55%). Growth in EBITDA & EBITDA margin is on account of JV cargo which is a high margin business and lower donation in Q4. Krishnapatnam Fully integrated--operationally as well as financially. Benchmarked to APSEZ standards which led to increase in EBITDA from 55% to 71%. 20mn t of cargo handled in H2FY21. Dhamra Growth in volume was on account of 7% growth in dry cargo. Revenue and EBITDA growth lower than cargo volume growth due to increase in STS cargo. EBITDA margin increased by 65bps due to better cargo mix and lower overhead expenses in FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Signed seven new contracts at Dhamra Port to handle various cargo including gypsum, iron ore and manganese ore resulting in incremental volume of 11MMT. Revenue and EBITDA growth in line with cargo growth. EBITDA margin increased by 28bps due to operational efficiencies and lower overhead cost. Two new contracts finalized to handle import of manganese ore for Shyam Energy and lime stone for Bengal Energy. Hazira Growth in container of 8% compensated for 5% decline in dry bulk resulting in 1% overall cargo growth. Revenue and EBITDA growth in line with cargo volume growth, EBITDA margin improved due to : Growth in handling of better margin products like container Operational efficiencies, strict control over cost and lower maintenance cost Growth in Liquid cargo of 16%, and Container of 25% resulted in 12% overall cargo growth. Revenue growth in line with cargo volume growth, realization improved due to higher share of container and liquid cargo. EBITDA and EBITDA margin improved due to : Growth in handling of better margin products like container and liquid, operational efficiencies, strict control over cost and lower maintenance dredging and higher apportionment of overheads Katupalli Cargo volume was lower due to continued impact of COVID-19 on container volume in Chennai cluster. Decline in revenue and EBITDA was lower than decline in cargo due to handling of higher liquid cargo. EBITDA margin declined on account of higher R&M cost & lower absorption of overhead expenses. Cargo volume was lower by 10% due to continued impact of covid in the Chennai cluster. However, cargo volume recovered by 3% QoQ. Decline in revenue was not in line with cargo due to change in cargo composition. EBITDA and EBITDA margin declined on account of higher operating expenses which includes scheduled maintenance cost during the period. One new service added namely CI5 Far East with a potential of 75,000 TEUs p.a. Going ahead margins to be above 60%. Dahej Decline in revenue is in line with decline in cargo. EBITDA has not declined in line with revenue due to change in cargo mix. 292 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights EBITDA margin improved on account of lower maintenance dredging and savings in operating expenses mainly due to lower R&M expenses. Cargo volume declined due to lower handling of coal. Decline in revenue was lower than decline in cargo due to better composition of dry cargo like rock phosphate and steel which are higher realization products. EBITDA has not declined in line with revenue due to lower maintenance dredging and R&M expenses during the period. EBITDA margin improved on account of operational efficiency and better realization. Logistics In logistics business, diversified portfolio by scaling up railway rolling stock through GPWIS, ventured into warehousing business by partnering with Flipkart, developing state of the art MMLPs and consolidation of railway Track assets with annuity type income. Currently operates 61 rakes on the Indian railway network. Two logistics parks under development. Decrease in logistics revenue and EBITDA on account of lower rail and terminal volumes. Decline in EBITDA is due to setup expenses for inland waterways and grossed up accounting of lease revenue for AALL. Outlook for FY22 India GDP at 11% and trade at 9-10% for the next year. Volumes expected in the range of 310 MMT - 320 MMT (includes 10 MMT of Gangavaram port from Q4FY22, 1.4MMT from Myanmar) a growth of 29%. Consolidated revenue expected to be around INR160-168bn, a growth of 34%. Port revenue to be around INR130-140bn, up 30%. Logistics revenue to be around INR14-15bn, up 57%. SEZ and port led development revenue to be around INR6bn. Consolidated EBITDA expected to be around INR102-107bn, up 33%. Port EBITDA margin to be around 71-71.5%., an improvement of 150bps. Capex to be around INR31-35bn (port INR23-25bn, logistics INR8bn-10bn, and incl. maintenance capex of around INR5bn). Increased capex due to capacities which had been kept on hold. Update on acquisitions In April ’21, APSEZ signed an agreement to acquire balance 25% stake in Krishnapatnam Port. The acquisition is expected to be completed in Q1 FY22. In March ’21, APSEZ also announced the acquisition of 100% stake in Gangavaram Port. The acquisition is expected to be completed in Q3 FY22. All Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights options open for a cash/stock deal. Depends on what government of AP decides to do with its stake. Acquired Dighi port through IBC. Has a capacity of 8mn t. Expected volumes of 3- 4mn next year and 6-7mn the year after that. EBITDA margins at 60-70%. Myanmar Entered in to land lease agreement which was fully disclosed, due to the current scenario, there is uncertainty. No transactions post sanctions and no further transactions to be done. In a scenario wherein Myanmar is classified as a sanctioned country under the OFAC, total investment of USD127mn (as of date) will be written off and will not have a material impact on the financial statements. (1.3% of total assets). Management is confident that it will not face any sanctions Sri Lanka Total cost of 3.5mn TEU project is USD300-350mn where APSEZ has 51% stake. The project will be done in two phases with first phase of 1.5mn TEU’s expected to be commissioned over next 24months. Management believes that Colombo Port will be complimentary to Vizhinjam port as it can have control over the pricing at the both the ports and there will not be any pricing war. Currently only Maersk, MSC, CMA CGM and Cosco are operating in Colombo and as such APSEZ can add new services at Vizhinjam. 294 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Gujarat Pipavav Port Comments on the impact of the cyclone Contingency plan was activated due to the recent cyclone, which also led to power cuts. No loss of life or equipment. Enforcing force majeure on a contract basis. Expect to be back in operation by 1st of June. Losses due to not being operational for two weeks coupled with damages. No losses from refrigerated or frozen cargo. Operational highlights Revenue growth driven by dry bulk, which is up 150%. Liquid volumes down 16%, seeing strong support from non LPG volume which is helping set off lower LPG volume. RORO up 79% to 4,858 units. 117,000 TEUs ICD volume out of total TEUs handled. Fertilizer volume dropped 62% mainly due to seasonality and higher prices in the international market. Employee cost lower QoQ due to bonus given to employees in the previous quarter. INR48mn maintenance dredging in Q3FY21 vs INR20mn in Q4. Tax impact for FY21 due to reversal of deferred tax from earlier years. Total dividend for FY21 at INR4.5 per share including a final dividend of INR2.4 per share. Bulk business for coal and cement to pick up for the year due to opening up of path from Pipavav port and Ultratech cement plant. Bulk cargo mix – Coal 467,000MT fertilizer 213,000MT others (minerals) for Q4FY21. PRCL profitability impacted due to significant increase in allocated cost from Indian railways. Realizations – Container INR6200-6600, Bulk at INR400-500, Liquid at INR475- 500. Price hike taken from 1st of May of around ~5-6%. Will continue to take such small price hikes periodically. Added two new coastal services in FY21 which helped aid coastal volumes. Added two more services from May which includes one to the Far East. These services could add 50–60K TEUs per annum. DFC to be a game changer for the company as well as the industry as a whole. Trying to push container volumes to 1mn TEUs, likely to be achieved before 2023, after additional capex would be planned. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Indian Energy Exchange India’s power market Electricity consumption increased at a robust 8.9% YoY while peak demand too jumped 7.4% YoY in Q4FY21. Overall, during FY21, peak demand grew 4% YoY to 189GW in Feb-21, whereas electricity consumption was flat YoY. IEX share: IEX contributed by facilitating trade of 6% of total power consumed in India in FY21. Power market regulations/proposals DISCOM Reform: The power ministry introduced the Electricity (Amendment) Bill 2020 proposing amendments to the Electricity Act, 2003 by introducing distribution reforms through delicensing the market, thereby facilitating competition and consumer choice. Draft National Electricity Policy, 2021: The Ministry of Power issued the draft policy underlining the most pertinent issues for the power sector and further increasing the role of power markets – aiming at market to represent a 25% share by 2023–24. Introduction of a proposal enabling the distribution utilities to exit the Power Purchase Agreement after completion of the term of the agreement and notification of Electricity (Rights of Consumers) Rules, 2020. Power Market Regulations 2020, which allow introduction of electricity contracts beyond 11 days. Procedure for Cross Border Trade of Electricity, which allows exchanges to facilitate trading of electricity with neighbouring countries such as Nepal, Bhutan and Bangladesh. Products Derivatives contract: IEX signed a licensing agreement with MCX for electricity derivatives. The final commencement is subject to regulatory approval. Cross-border: Started trading from 17th Apr’21. Nepal is the first country to participate, and IEX expects Bhutan and Bangladesh to participate soon. Volume: Traded 5% of DAM volume in the first 15 days and this is expected to increase further. REC trading: APTEL’s last hearing was on 28 April 2021. The next hearing is scheduled for 13th July. Management expects to begin trading in Q3FY22. Escerts is expected to be traded during Q2/Q3FY22. LDC status and timing: LDC filed with CERC and settlement is done by CERC and SEBI. They are yet to withdraw the case in the Supreme Court, after which it will start trading after 3 months from case withdrawal. Management expects to begin trading in Q3FY22. Market volume size is 25BUs to 30BUs for LDC and will draw good volume capture from this. 296 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights GDAM - Applied with CERC last month. The paper was issued and the deadline is June 30th. Post approval, will launch it sometime in Q3FY22. RTM volume - Q4 volume was good (17.5% contributed in total volume). Apr-21 shows the same volume trend, and IEX can clock 20% to 25% in upcoming quarters too. GTAM: Over the coming five months, it should be very higher given the expected upcoming solar and wind generation growth. Other highlights: Guidance: Maintain double digit volume growth achieved over the last 5 years. IGX: IEX sold 46% stake as on date and is likely to sell 4% to 5% stake soon to 1 strategic investor. Post which, the balance 25% stake sale (to reach overall allowed stake of 25%) is expected to be sold at a premium. Dividend pay-out policy: 50% of profit to be distributed. Haven’t declared because of covid uncertainties. Will declare it during the AGM meeting. GTAM momentum increase. Southern state utilities using this a lot. Their demand went down. So they started to sell more resulting in more volume. New power exchange: CERC approved the registrations of Pranurja Solutions. Now Pranurja have to share business process and technology with CERC. It might launch operations by Dec’21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights India Grid Trust Opening remarks Project management: India grid is transitioning into in-house Project Management/ Asset Management and thus Sterlite won’t be involved in project management from FY22. Moving Investment manager from Sterlite to internal asset would not provide tangible benefits but rather provide intangible benefits such as better management etc. Cash collections stood at 126% in Q4 FY21 vs 111% QoQ and 112% YoY. Thus, DSO days at 41 as of Mar’21 vs 52 days as of Mar’20. Cash reserve of INR 270m in FY21 to offset cash flow disruptions if any. NAV at 146.26 at end of Q4 FY21 (Rs132.18 post NER-II consideration and rights issues). Interest coverage ratio: 1.5x during FY21. FY23 debt repayment of INR26bn- Any earlier repayment will be done only in Q4FY22 (as the clause has high breaking cost) but proactively working with bank for arranging longer facility advance. Since it has lock in and is of higher interest cost, will repay it using bank facility at lower rate. Meanwhile, will refinance INR 2bn to 2.5bn in the next quarter. Outlook: FY22 Distribution Guidance Raised to INR 12.75 per unit (up by 3% from current annual run-rate of INR 12.4) New assets: Focus on completion of acquisition of FRV solar assets and framework asset (KTL). KTL – is 100% asset. 60% revenue generating as of now; completion uncertain due to covid-19 but as per contract it is extended upto Dec’22. Operational: Focus on maintaining > 99.5% availability across portfolio and maximize incentives Utilization of cash balance of INR 9.65bn: INR 2.65bn has held for distribution announced this quarter. INR 3bn for statutory holdings for interest etc; INR 1.7bn as cash reserve; and the balance INR 2.3bn of excess cash for upcoming opportunities (maybe for upcoming acquisition or for refinancing) Net debt to AUM: 55% net Debt to AUM after rights issues (after the acquisitions it would be around 60%). Other highlights: Strategy of picking up assets: Look at homogenous assets (95% is interstate, similar tech, cash flows etc). Quality of work and execution (2% difference it can make). Solar however is different with varying risks – so look at it very keenly. 298 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Safe man-hours: 100% safe man-hours achieved in Q4 FY21, however 1 fatality was reported due to honey bite. One time impact for change in law income – Accounted in P&L: INR 420mn as income and INR 680m as expense to Sterlite power. PGInvIT: Expect it to acquire it from the sponsor only than going into open market. There is already competition and this InvIT is less likely to intensify the competition. Dividend composition in DPU going forward: Going forward, ~INR50-60 paisa/unit is expected to pay in form of dividend from the total DPU. This on account of acquisition of PKTCL, since the money is received in form of dividend. Near term DPU growth is not dependent on asset acquisitions. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights NTPC Renewables Renewable energy capacity target increased to 60GW by 2032 from earlier 30GW by 2030. The company targets addition of 13GW renewable capacity over the next three years. Cumulative capacity is likely to be 3GW by FY22, 8GW by FY23 and 15GW by FY24. As on March 2021, 1,340MW is operational, 3,019MW is under implementation and 3,292MW is under various stages of tendering. NTPC also has signed a JV with NIIF for development of renewable projects. The company is mulling hiving off its renewable subsidiary for a separate listing. Competitive intensity in solar bidding from PSUs has not increased as such. The renewable subsidiary enjoys similar rate of interest as at the SA level. While the O&M will happen in house, some procurement may happen by NTPC in renewable capacities in the future (EPC to be outsourced). Timelines on 5GW tender under CPSU scheme is postponed currently to June end and the company is looking to participate in 5GW of upcoming tenders shortly. Commercialisation FY22 commercialisation target of 6GW (1GW-renewable) at the consolidated level and 2.4GW at SA level. FY22 target is 2,370MW at standalone level and 1,860MW in JV’s & Subs which includes NGPC Unit 2 in July’21, Tanda in June’21, Barauni unit 9 is July, Darlippalli Unit by July’21, Barh unit 1 by Sep’21. FY23 target is 4.1GW of thermal. ESG FGD: Commissioned 1,340MW, under-implementation 58.9GW and under- tendering 4.1GW. NOx installed at 16 units for 16GW already done and 14GW under implementation. Financial highlights Consolidated generation: 91.7BU in Q4FY21 vs 76BU in Q4FY20 and 314BU in FY21 vs 290 BU in FY20. Under recovery for FY21 stood at INR 6bn vs INR 2.5bn in FY20 (Q4FY21 under recovery of INR0.3bn). New units like Darlipalli and Lara had some boiler and turbines issues due to which there was under-recovery and in Kahalgaon there was pond breach issue. Going forward under recovery is expected to be much lower. Adjusted profit for FY21 is INR 141bn versus INR 122bn in FY20 and for Q4FY21 INR38bn versus INR 29.35bn in Q4FY20. Regulated equity at standalone level stood at INR663bn at end FY21. 300 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Total capex in FY21 INR203bn at standalone level and INR340bn at group level. Total capex target in FY22 - INR237bn at standalone level. CWIP (including advances) at standalone level stood at INR806bn as against INR778bn in FY20. Other financial highlights: Average cost of debt (Kd) was 6.24% vs 6.81% in FY20. Gird restriction loss: NTPC incurred 94bn unit’s loss due to gird restrictions in FY21. Materialization of coal against ACQ was 86% in FY21. Total captive coal production of 11MT in FY21 (flat YoY). Cumulative expenditure of INR80bn incurred on coal mines. On dividend policy, 30% of PAT or 5% of net worth whichever is high (DIPAM guidelines) will be followed. Borrowing limit increased by 13% to INR2.25tn for the M&A of Nabinagar & other subsidiaries. Realization: Realized more than 100% of billing and average debtor days 50. Dividend from subsidiaries: Accounted for INR12.8bn in FY21 versus INR2.5bn in FY20. Q4FY21 highlights: Other income is high on account of accounting of LPS (Standalone at INR23bn in FY21 and Q4FY21 at INR 6.5bn vs INR 3.9bn in Q4FY20) and dividend from subsidiaries and JV. Dip in employee cost on account of employee retirement and high base effect in FY20 on actuarial valuations. Lower interest cost on account of JPY loan depreciation but a corresponding entry is also there in the regulatory movement account. Total receivables at the end of March 2021 INR127bn (INR140bn in March 2020) and overdue receivables (more than 6 months) were INR65bn (INR95bn in March 2020). Other highlights On MBED, management doesn’t expect any issue in implementation of the MBED guidelines as such but note sure about the implementation timelines. Expansion of thermal units at Talcher, Singrauli and Lara: Talcher is in final discussion with Odisha Government and the Lara and Singrauli is under MOEF clearance stage. The company is more focused on the renewable side but they are awaiting the final CEA 2030 report. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Tata Power Company Discoms Odisha DISCOM (North) was taken over in Apr’21 and thus the customer base increased from 2.6m to 12m customers. WESCO and SOUTHCO siscoms of Odisha has been taken over from 1st January 2021. Renewables The Renewables segment’s Q4FY21 PAT grew 20% YoY to INR4.4bn. During FY21, PAT grew by 16% to INR14.2bn. Increase in PAT by renewables was aided by solar EPC, Rooftop businesses, etc. Solar EPC: Total TPSSL (Tata Power Solar) EPC order book stands at INR 87bn. Solar EPC: Execution period is 12 to 18 months. As per management, 600MW of captive capacity will be commissioned in H1FY22 (from 900MW of captive order book). Solar pipeline – Expect 10k MW of ordering in next 6 months aided by RPO obligations, which will also kick in once covid subsides. Rooftop solar: Installed 79MW worth INR3.1bn of rooftop solar in Q4FY21 as against 50MW worth INR1.6bn in Q4FY20. Rooftop solar: Announced its partnership with SIDBI (Small Industries Development Bank of India) to offer easy and affordable financing scheme for MSME customers in the rooftop solar segment. Solar pumps: Sold 6,432 solar pumps in Q4FY21, taking total sales in FY21 to 12,928 solar pumps (only under KUSUM/State sponsored scheme). Solar pumps – GOI has a huge plan under KUSUM scheme, which targets 3.8mn pumps by 2024 (vs 0.3mn installed as on date). Consolidated revenue: for Q4FY21 was up by 49% at INR 102bn compared with INR69bn in Q4FY20, mainly driven by Odisha discoms acquisition and higher execution of solar EPC projects. Net External Debt reduced by INR76bn with further improvement expected from sale of non-core assets and other initiatives. The debt to equity is down to 1.4x and is expected to go down further. Average interest cost at 7.4% versus 8.3%. Prayagraj: Long-term has been pre-paid from collection of receivables. Prayagraj debtors of INR 21bn liquidated through PFC/REC disbursals. EV charging stations: 175 new charging stations were installed in Q4FY21. Other highlights Capex for FY22 is estimated to be INR80bn, of which 50% will be utilised for renewables and INR10bn for discoms. 302 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Capex to be utilised in Odisha discom, Transmission assets in Mumbai, New DISCOMs’ acquisition. Of the INR 95bn capex target for discoms, INR1.3bn has been incurred in Odisha and INR9bn in rest of discoms. Merger of CGPL and Tata Power parent: The NCLT approval is in place and hearings would resume once the courts concerned resume functioning. CGPL and Coal: Coal prices have increased over the last three months, and the impact will lag by a quarter. Thus, impact of increase in coal prices would show up in H2FY21. Receivables improved significantly from all discoms, except AP wherein there is litigation. Asset monetization FY22 monetization target at INR13bn of divestments. Monetization of Renewables asset: Working on that and looking at a much bigger deal/value than what was initially planned with InvIT. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Real Estate 304 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Brigade Enterprises Management call: Key highlights 1. Commentary on covid-19: Management’s commentary on the impact of the pandemic on its various business lines: Real estate: The residential business has recovered strongly. Customers are looking for completed/near completed inventory and larger-size homes. Demand is concentrated towards projects from organised developers. While Q1FY22 operations will be muted due to the lockdown, management expects a revival in H2FY22, akin to H2FY21. Leasing business: Enquiries/site visits/RfP releases had started gaining traction prior to the lockdown, but have slowed currently. Leasing pipeline stands at ~1msf, of which 75% is for the BTG project. Rent collection in the office segment was 99% in Q4FY21. Retail business: The mall business had recovered with consumption reaching ~90% of pre-covid level in Q4FY21, while footfalls had touched ~70%. However, the recent lockdown has again dampened activity levels. Management is in talks with retailers to conclude rent relaxations negotiations, similar to the ones given in FY21. Retail rentals, which were ~INR1.2bn in FY20, declined by ~50% in FY21. Hospitality: Hotels continue to be impacted because of the international travel restrictions and subdued domestic travel. That said, occupancy improved QoQ in the hotel segment. The second wave has adversely impacted operations and BEL is on a cost control drive to minimise losses. 2. Financial performance: Revenue for the quarter came in at INR7.9bn (up 24% YoY, 23% QoQ), while EBITDA margin rose to 23.9% (up 260bps YoY and 90bps QoQ). The company reported a profit of INR759mn (up 227% YoY). 3. Project launches: The company launched seven spanning ~3msf in Q4FY21; of these, four were in Bengaluru, two in Hyderabad and one in Chennai. In FY21, it launched eleven projects spanning ~6msf. Launch pipeline stands at 3.3msf comprising 1.4msf residential projects and the balance being commercial projects. BEL’s share stands at 1.9msf comprising 0.9msf residential projects and balance being commercial. 4. Sales: Of the ~1.7msf space sold in Q4FY21, residential projects contributed 98% to sales; balance from commercial (sale) projects. FY21 pre-sales came in at INR27.7bn, up 16% YoY despite Q1FY21 being a virtual washout. FY21 sales volumes at 4.6msf were up 8% YoY. According to management, major reasons behind good pre-sales are: (a) low interest rates; (b) right product in the right market and at the right price; (c) a good sales and marketing strategy; (d) industry consolidation; and (e) customers preferring tier-1 developers. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 5. Leasing segment performance: Lease rentals came in at INR1.2bn during the quarter (INR845mn in Q2FY21; ~INR1bn in Q4FY20). BTG contributes rentals of ~INR65mn per month. 6. Rental assets: Total leasable area is ~8.6msf; out of this, ~5.1msf has been already leased. This is further sub-divided into: Office assets: Total leasable area is ~7.3msf; out of this, ~4msf has been already leased while an additional ~0.6msf are hard options. Retail assets: Total leasable area is ~1.3msf; out of this, ~1.1msf has been already leased. 7. Leasing: Marginal leasing of 0.05msf space in Brigade Tech Garden (BTG) during the quarter. Some space was vacated at the WTC Kochi. 8. Details of key commercial projects are as follows: Brigade Tech Garden (BTG): Around 1.05msf space has been already leased out in addition to 0.3msf hard options. Management expects leasing activity to pick up by Q3FY21. WTC Chennai: BEL is yet to lease 0.31msf in the 2msf project. Rents are expected to commence from Q2FY22. 9. Hospitality business: Losses at the PBT level in the hospitality segment narrowed to INR129mn (INR317mn during Q3FY21, INR383mn in Q2FY21). Operational performance: All the hotels are operational. The segment reported a GOP of INR73mn during the quarter; GOP margin stood at 22% vis-à-vis 16% last quarter. Average occupancy rate for the segment was 43% in Q4FY21 (27% in Q3FY21, 15% in Q2FY21, 11% in Q1FY21). 10. Collections: Collections for the quarter catapulted to INR11.2bn, up 56% YoY and 64% QoQ. FY21 collections at INR 27.1 bn were up 7% YoY. 11. Cash flows: Cash flow from operating activity during Q4FY21 grew to INR4bn, up 93% YoY and 61% QoQ. Operating cash flow during FY21 surged to INR9.2bn, up 83% YoY. Capex spend during Q4FY21 rose to ~INR1.5bn (~INR1.3bn in Q3FY21); despite this, net cash flow (operating less investment cash flow) came in at ~INR1.1bn (~INR1.0bn). Capex spend during FY21 was at ~INR7.1bn (~INR7.9bn in FY20); consequently, net cash outflow (operating less investment cash flow) declined to ~INR0.5bn (INR2.8bn in FY20). 12. Debt: As a result of cash flows being positive, net debt (BEL’s share) declined to INR26.5bn (INR29.5bn at end-Q3FY21). The net debt to equity ratio stood at 1.15x (1.27x in Q3FY21). The cost of borrowings for the company declined to 8.4% (9% in Q3FY21); the current cost of debt is at an all-time low (down 117bps since March 2020). The increase in leverage is primarily on account of ongoing capex in the leasing segment. 306 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 13. Revenue breakdown: Real estate business (residential and commercial sales) contributed 76% to FY21 revenue, the hospitality segment 6% and the balance 18% came from the lease rental business. The real estate segment constitutes bulk of the company’s revenue; however, as far as margin is concerned, this vertical generally has the lowest profitability with the leasing business churning out the highest margin. However, in FY21, the hospitality segment had an EBITDA profit of INR56mn. The real estate segment generally has the highest contribution to profit before depreciation and tax (after interest), followed by the leasing and hospitality businesses. In FY21, the hospitality segment recorded a PBDT loss of INR470mn. Land bank: BEL’s land bank reflects the company’s focus on diversification, both from a segmental and geographical point of view. While the residential segment occupies a pride of place, the leasing segment has a fair representation in the company’s land bank. As far as geographical presence is concerned, Bengaluru has the highest share followed by Chennai and Thiruvananthapuram. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights DLF Management call highlights We summarise management’s thought process regarding various facets of business: 1. Liquidity: The company is well placed on the liquidity front. Its debt repayment (ex-DCCDL) over the next year is likely to be ~INR11.7bn while it has a cash balance of INR16.3bn. 2. Office portfolio: Collections against billings stood at 100%. Leasing momentum, which had begun to pick up in Feb–Mar 2021 has again dampened in the wake of the second wave of covid-19. Management now expects the leasing momentum to improve as vaccination progresses and business travel starts. Nevertheless, they believe the 12% vacancies in DCCL’s office portfolio may rise by 100–200bps by end-FY22. The usual contractual rent escalation of 4–5% did not happen in FY21; on the contrary, there was marginal rationalisation of rents in certain projects. Meanwhile, the company re-leased 1.9msf in FY21 (1.3msf in FY20) with 37% (38%) MTM gains on rents. Around 1.6msf space is expected to come up for re-leasing in FY22, out of which renewals are expected to be 75–85%. The company has engaged advisors for REIT for DCCDL and expects to be REIT- ready in three–four quarters. 3. Retail portfolio: Collections against billings stood at 100%. Footfall at malls by end-FY21 was 81% of pre-lockdown levels with consumption at ~90% levels (owing to higher spend per footfall). Overall retail rentals declined to INR2.8bn in FY21, down 46% YoY due to lockdown and rental waivers. Management expects it to touch INR3.8–7bn in FY22. 4. Housing business: Management indicated that demand has revived across price points (mid-income, luxury, super premium) and geographies. It has taken price hikes in independent floors and reduced discounts in Camellias. 5. Higher revenues lead to profit growth: With revenue recognition commencing on the Camellias project, top line rose to INR17.1bn during the quarter (up 1% YoY, 11% QoQ). 6. EBITDA margin, at 26.5%, surged ~780bps YoY, but declined 580bps QoQ. Finance charges slid 19% YoY. Adjusted PAT came in at INR4.8bn (up 7% QoQ). 7. Cost control: DLF managed to reduce overheads by 41% YoY to INR4.6bn in FY21. This was achieved through a significant cut in discretionary spends and tight control on cash flows. It carried out a zero-based budgeting exercise for the first time. 8. Development business: In its development business, DLF issued possession letters for 514 units spanning 1.29msf in Q4FY21 (2,169 units aggregrating 5.12msf in FY21). 9. Q4FY21 sales: During the quarter, DLF posted net sales of INR10.6bn (INR10.2bn in Q2FY21). FY21 sales stood at INR30.9bn (INR24.9bn in FY20). 308 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 10. Major contributors to sales Camellias contributed INR3bn to pre-sales during the quarter (12 units sold). For FY21, the contribution stood at INR9.3bn (36 units sold). New products (independent floors/plots) worth INR4.6bn sold in Q4FY21 (INR9.1bn sold in FY21) National Devco clocked sales of INR2.5bn in Q4FY21 (INR6.4bn in FY21). 11. Unsold inventory: Overall unsold inventory remained flat sequentially at ~INR60bn. Of this, ~INR40bn is in Phase V (almost entirely in Camellias) compared with ~INR41.5bn in Q3FY21, about INR1.4bn in New Gurugram (flat QoQ), INR3.8bn in new products and ~INR14.9bn (~INR17.4bn) in National Devco. The potential EBITDA from this unsold inventory is about INR33.8bn (INR34.9bn). 12. Projects in DLF: The company is planning to develop ~35msf of projects, which are expected to generate INR360–400bn in revenue over the medium to long term. The status of these projects is discussed below. Midtown project, Delhi (8msf): The company expects to launch the first phase (2msf) of this project in H2FY22. Hines JV project (3msf-plus): The master planning has been finished and excavation has begun. Mid-income housing projects in Gurugram, Chennai and Chandigarh: These projects spanning 9msf are planned to be launched in phases, commencing H2FY22. Commercial projects: These projects (in Delhi/new Gurugram/DLF Phase V) are planned to be launched in phases, commencing H1FY22. Premium housing project: The 10msf projects are planned to be launched in phases starting H1FY22. 13. DLF has ~INR18.3bn of receivables (net of construction outflows of INR12.5bn). 14. Cash flow: The company generated net cash flow of INR2.2bn during the quarter (INR1.2bn in Q3FY21). This was due to higher collections and rentals, which compensated for higher construction and capex/land charges. 15. Camellias: In Camellias, 1.3msf space is still left to be sold, out of total 3.6msf area. In terms of units, 12 units were sold in Q4FY21 while 152 units are pending. 16. DCCDL: DCCDL’s operational portfolio is 34.2msf with occupancy at 89% (91% in Q3FY21). It has 4.9msf assets under construction, of which 1.6msf has been already pre-leased. 17. DCCDL performance: DCCDL posted sales of INR12.9bn (INR11.2bn in Q3FY21); PAT stood at INR3.3bn (INR2.5bn). Gross leasing stood at ~1.5msf (~1.7msf) while net leasing stood at 0.2msf (0.4msf). DCCDL posted sales of INR43.9bn in FY21 (INR50.8bn in FY20); PAT stood at INR9.1bn (INR13.2bn). Gross leasing stood at ~4.3msf (~4.6msf) while net cancellations stood at 0.3msf in FY21 (net leasing of 1.2msf in FY20). 18. Rental income: Rental income in DCCDL stood at INR8.4bn (INR8.2bn in Q3FY21) while that in DLF (ex-DCCDL) stood at INR640mn (INR480mn). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Office rentals declined to INR7.1bn (INR7.2bn) while retail rentals improved to INR1.3bn (~INR0.94bn in Q3FY21). Rental income in DCCDL during FY21 stood at INR30.3bn (INR30.1bn in FY20) while that in DLF (ex-DCCDL) stood at ~INR2bn (INR2.5bn). Office rentals rose to INR27.5bn in FY21 (INR24.9bn) while retail rentals plunged to INR2.8bn (~INR5.1bn). 19. Vacancies in DCCDL rose by ~200bps QoQ in Q4FY21. 20. Status of various projects in DCCDL: Chennai IT SEZ: Rentals for Block 11 commenced w.e.f. August 2020. The ~0.3msf Block 12 is at an advanced stage of construction; the company has already leased 0.2msf space in this block. DLF Downtown, Gurugram: The work has already started on Phase I near Cyber City. Of the total cost of INR6bn, ~INR3.8bn has been incurred till date. The company has pre-leased 0.5msf space in the project. DLF Downtown, Chennai: The work is underway on Phase I (two towers comprising 2msf space). Of the ~INR8bn cost, INR2.8bn has been incurred till date. This phase is expected to be completed by Q2/Q3 CY22. In the third tower (1msf), the company has pre-leased 0.77msf space to Standard Chartered Bank. It will be completed a year after Phase I. 21. Debt: Net debt for the DLF Group (ex-DCCDL) declined to INR49bn (INR51bn at end-Q3FY21). Net debt in DCCDL rose to ~INR192bn (~INR181bn). 22. Interest rate reduction: DLF has achieved a 143bps reduction in interest cost since Q4FY20 to 8.4%. It targets to reduce borrowing cost by additional 30– 40bps. This has resulted in annual interest savings of ~INR0.8bn. 23. Similarly, DCCDL has achieved a 145bps reduction in interest cost since Q4FY20 to 7.45%. This has resulted in annual interest savings of INR2.7–2.8bn. 24. iii) **FY19 net worth has negative impact of INR54bn due to Ind AS 115 adoption. 310 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Godrej Properties Management call: Key highlights 1. Impact of the second wave of the pandemic: Management believes that impact of the second wave of covid-19 on execution will be lower than last year as no nation-wide lockdown has been imposed and labour availability (currently at 75%) is much better than last year. It expects some adverse impact on demand in the near term, but remains confident about medium-term growth prospects. 2. New sales: New sales during Q4FY21 stood at ~INR26.3bn (up 10% YoY, 77% QoQ); around 42% of this came from sales from existing inventory while the balance came from the seven projects/phases launched during the quarter. The commercial segment contributed just INR280mn to sales with the balance coming from residential projects. In volume terms, bookings during Q4FY21 came in at ~4.2msf, up 16% YoY, 74% QoQ. FY21 sales at ~INR67.3bn were up 14% YoY; in terms of volumes, sales during FY21 shot up 23% to at 10.8msf. A third of the sales in FY21 came from launches; the balance came from existing inventory. Sales from existing inventory grew 46% YoY in FY21. 3. Diversified operations: By value, NCR contributed 34% while MMR and Pune each contributed 20–21% to sales during the quarter; Bengaluru contributed 16% to sales. 4. Project launches: The company launched seven projects spanning ~4msf during the quarter – three in Pune, two in MMR and one each in NCR and Bengaluru; their contribution to sales value and volumes is summarized below: Godrej Woods, NCR: Total bookings of 0.49msf worth about INR5.1bn. Godrej Green Vistas, Pune: Total bookings of 0.49msf worth about INR3.0bn. Godrej Woodland, Bengaluru: Total bookings of 0.75msf worth about INR2.6bn Godrej Upavan, MMR: : Total bookings of 0.26msf worth about INR1.7bn Godrej Wood Park, Pune: : Total bookings of 0.27msf worth about INR1.4bn Godrej Urban Park, MMR: : Total bookings of 0.06msf worth about INR930mn Godrej Parkridge, Pune: : Total bookings of 0.11msf worth about INR590mn In FY21, the company launched 11 projects spanning 6.9msf (17 projects spanning 10.9msf in FY20). 5. Contribution of project launches to sales: The seven projects launched during the quarter contributed ~2.4msf/INR15.3bn to pre-sales during Q4FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 6. Launch pipeline: The company’s launch pipeline for FY21 initially included 23 projects/phases spanning ~15.8msf; of these, 11 projects spanning ~6.9msf have been launched while 12 projects spread across ~8.9msf have been delayed, largely due to delays in receiving statutory approvals. GPL is now planning to launch 19 projects with an area of ~12.3msf in FY22. Some projects that were originally scheduled for launches in FY21 but got deferred may now be launched in FY22, subject to statutory approvals. 7. Project addition: The company added one new residential project in Sanpada, Navi Mumbai, spanning 0.4msf during the quarter. It will be built on an 1.5 acre land parcel acquired from CIDCO and will be a fully owned project of GPL. During FY21, the company added four residential projects (two each in MMR and Bengaluru) with an aggregate saleable area of ~5.9msf (ten projects spanning ~19msf in FY20). The transformative effect of RERA imposition and the industry’s changing dynamics (consolidation) are evident from the pace of GPL’s portfolio expansion—project addition has moved in to a different orbit altogether when one looks at the past few years. Another aspect worth a mention is that the company has managed to avoid concentration (over the past decade) as far as project addition is concerned. GPL has been able to ensure that various markets it is present in account for a fair share in the overall development pipeline. Consequently, the five major regions (Ahmedabad, Mumbai, Pune, Bengaluru and NCR) account for a 13—27% of the development pipeline. This is likely to ensure that GPL grows at a steady pace even if it has to face a slowdown in any individual market. Consequently, it is insulated from any geographical concentration risk; this sets it apart from most peers, which derive the bulk of their sales from individual home markets. 8. Project delivery: The company delivered ~2.3msf across three projects in two cities in Q4FY21 (~1.3msf across two cities in Q3FY21). It delivered 6.5msf in FY21 (5.3msf in FY20). 9. Operating cash flows improve: Collections, which had been impacted by the pandemic, continued to recover during the quarter; they rose to ~INR20bn (INR12.6bn in Q3FY21, INR6.8bn in Q2FY21 and INR4.2bn in Q1FY21). With construction gathering traction, construction spends rose QoQ to INR12.2bn (INR8.1bn in Q3FY21). Consequently, the company posted positive operating cash flows of INR7.9bn during the quarter (INR4.5bn in Q3FY21). Collections improved to INR43.7bn in FY21 (INR42.8bn in FY20) while operating cash flows rose to INR8.9bn (INR7.9bn in FY20). Capex outflow during the quarter moderated to INR4.8bn (~INR5.2bn in Q3FY21); consequently, net cash outflow (adjusted for QIP proceeds) declined to INR380mn (INR3.4bn). Land capex in FY21 stood at INR20.8bn (INR20.2bn in FY20) while net outflow (excluding fund-raising) came in at INR19.6bn (INR10.8bn). 10. Leverage: The company ended FY21 with a net cash position of INR5.8bn (net debt of INR30.8bn at Q3FY21 end). Its net debt to equity declined QoQ to negative 0.07x (0.64x at Q3FY21-end). 312 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 11. Borrowing costs: GPL’s average borrowing cost declined to 6.75% (7.25% at end-Q3FY21). 12. Financial performance: Q4FY21 revenue came in at INR4.3bn (down 63% YoY, up 154% QoQ). EBITDA loss stood at INR1.5bn (versus profit of INR1.5bn in Q4FY20). Other income grew 15% YoY and interest costs reduced 29% YoY. The company posted a loss of INR1.9bn during the quarter (versus profit of INR1.0bn during Q4FY20). Profitability during the quarter was impacted by the follwoing: The company has decided to adopt the new tax rate under Section 115BAA of the Income Tax Act, 1961 and recognized the provision for income tax on the basis of the prescribed rate and re-measured its deferred tax assets/liabilities accordingly for FY21. Tax expenses includes impact of one-time re-measurement of deferred tax assets (INR810mn for Q4 FY21) to the new tax rate The company has created provision under Employee Benefit Expenses for its 5 year Long Term Incentive Scheme (INR1.2bn), which is payable to certain employees in FY23 and FY24, on prudence basis based upon reasonable likelihood of certain specific parameters being met. Furthermore, the company has taken an inventory write-down of ~INR760mn for legacy projects (Godrej Prakriti, Godrej Palm Grove, Godrej Alpine, Godrej Azure, Godrej Genesis). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Oberoi Realty Management call: Key highlights 1. Top line declined sequentially: Q4FY21 revenue at INR7.9bn jumped 28% YoY, but fell 5% QoQ. Overall revenue for FY21 came at INR20.5bn, down 8% YoY. Q4FY21 revenue by project (not exhaustive): Sky City: INR2.8bn (~INR2.3bn in Q3FY21 and ~IN1.5bn in Q4FY20). Mulund projects: INR1bn (INR1.9bn in Q3FY21 and INR2.8bn in Q4FY20). Goregaon projects: INR2.4bn (~INR2.7bn in Q3FY21 and INR391mn in Q4FY20). 2. New sales improve: Total new sales in Q4FY21 were 421 units (59 units in Q3FY20 and 234 units in Q3FY21), aggregating ~1.06msf (up 8.3x YoY, 2.1x QoQ) and worth INR19.6bn (up ~8.5x YoY, ~2x QoQ). The improvement on YoY basis was across most projects - sales rose ~3.3x in Exquisite and Esquire projects (Goregaon), ~4.2x in Mulund projects and around 6x in Borivali. Worli project witnessed sale of one unit worth ~INR484mn during the quarter (three units sold in Q3FY21 worth INR1.2bn). FY21 sales bookings for the company at INR32.8bn jumped 161% YoY despite Q1FY21 being a virtual wash-out. In volume terms, the company clocked 1.7msf sales in FY21, up 159% YoY. 3. Realisations: Realisations were up QoQ across all projects - Goregaon, Borivali, Worli and Mulund. Management indicated that this was largely due to units getting sold on higher floors. 4. New launches: OBER launched one tower in the Elysian project in Goregaon and the sixth tower in Borivali during the quarter. It plans to launch another tower in Goregaon Phase III and the Thane project around the festive season later this year. 5. New Worli projects: Apart from the existing 360 West Project in Worli, the company intends to develop two additional projects in Worli. These include: Erstwhile Worli mall (Glaxo): OBER is looking at converting the proposed mall/office project at the Glaxo land parcel in Worli into a residential one. It expects sales potential of INR80bn against costs of INR20bn from the project. Redevelopment of Shiv Shahi Society in Worli: The Shiv Shahi Society in Worli has appointed OBER for its redevelopment. The society building is currently under construction, while work on the free sale component hasn’t even started. OBER will develop the rehab component for the society and will also pay rent to society and some corpus. In return, the company will get the entire free sale component of ~0.8msf carpet area. 6. Collections: Collection during Q4FY21 stood at ~INR6.4bn, up 60% YoY but down 13% QoQ. For FY21, collection stood at ~INR16.4bn, down 21% YoY. 314 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 7. Rental assets witness sequential recovery post covid-19 hit: Occupancy was broadly flat QoQ in Oberoi Mall in Q4FY21 (at 93% versus 95% in Q4FY20); despite this, operating revenue declined to ~INR302mn (INR398mn in Q4FY20 and INR500mn in Q3FY21). The company had not recognises revenue for Oberoi Mall in Q1FY21 due to ongoing uncertainty regarding mall operations. OBER has now started recognising revenue for Q1/Q2/Q3/Q4 FY21 basis the quarter in which arrangements are finalised with retailers and hence the figures are not comparable across periods. Occupancy in Commerz I came in at 45.6% (25.6% in Q4FY20 and 41.6% in Q3FY21). Occupancy at Commerz II was 97.4% (100% in Q4FY21, flat QoQ). Management expects to complete the under construction annuity assets as per the following timelines: Borivali mall – Launch around Diwali 2022 Commerz III – In a staggered manner over 2022 – 2023 8. Westin Goregaon: Occupancy during Q4FY21 rose to 44% (62% in Q4FY20 and 37% in Q3FY21); consequently, RevPAR declined ~64% YoY to INR2,285 though it was up 17% sequentially. 9. Cash flows: The company’s operating cash flow surged QoQ. This, coupled with decline in investing cash outflow, meant that net business cash flow (operating less investing cash flow) was positive. 10. Leverage: The company’s gross debt to equity was down QoQ at 0.16x (0.19x in Q3FY21); the net debt to equity declined to 0.13x (0.17x at end-Q3FY21 and 0.15x at end-FY20). Note: Financials prior to FY16 are as per IGAAP, FY16-18 are as per Ind AS 18 while post FY18 are as per Ind AS 115 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sobha Management call: Key highlights Segmental performance: 1. Real estate: Q4Y21 revenue came in at INR2.9bn (down 33% YoY, 38% QoQ). FY21 revenues came in at INR13.1bn, down 43% YoY. 2. Manufacturing/contracting business: The division’s Q4FY21 revenue stood at INR2.6bn (down 45% YoY, up 20% QoQ). FY21 revenues came in at INR8bn, down 46% YoY. Project launches: Due to muted sentiments and some approval-related hurdles, Sobha had launched projects spanning just ~0.15msf during 9mFY21. However, the company launched ~3.1msf projects during Q4FY21 - three housing projects spanning 2.77msf and 0.27msf of commercial space. Launches during FY21 stood at ~3.2msf compared with 1.6msf during FY20. Launch outlook: Sobha is targeting 16 residential project launches (aggregating 13.4msf) in Bengaluru, Chennai, Delhi, GIFT City, Gurugram, Hosur, Hyderabad, Thrissur and Trivandrum over the next three–four quarters. In the commercial segment, it plans to launch one project each in Bengaluru and Thrissur with a leasable area of 0.32msf. In addition, it has about 7msf of unsold area in new phases (to be launched) of ongoing projects. Management indicated that it is looking to launch ~7msf of projects in H2CY21. Entering new markets: Bengaluru will continue to dominate Sobha’s sales; at the same time, the company plans to enter markets such as Delhi, Hyderabad and Trivandrum to diversify its geographical presence. Sales: During Q4FY21, the company reported new sales of 1.3msf (up 48% YoY, 18% QoQ). Sobha’s new sales in value terms (its share) stood at INR8.7bn (up 58% YoY, 29% QoQ). For FY21, the company reported sales volumes of 4msf, down just 1% YoY despite the lockdown during Q1FY21. The company’s share of sales value at INR24.8bn rose 4% YoY in FY21 Diversification: Share of Bengaluru came down to 67% of overall sales during Q4FY21, from 70–75% witnessed over the past few years. Gurugram contributed 12% to sales, followed by 9% from Cochin. In FY21, Bengaluru contributed ~67% to FY21 sales volumes while Cochin and Gurugram contributed 10% and 9% respectively; except Bengaluru, total contribution of other regions to sales during FY21 was the highest ever. Mixed trend in ticket size: During Q4FY21, the INR10–20mn category made up 47% of sales, while the INR20–30mn and INR30mn-plus categories accounted for 21% and 12%, respectively. There had been significant increase in the share of houses in the 316 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Realisation: Average realisation in Q4FY21 was INR8,014/sft (up 5% YoY and 2% QoQ). Realisations improved for third consecutive quarter and were the best ever in the past 8 quarters. Realisations during FY21 were up ~10% YoY. Management indicated that pricing has started moving up in the wake of rising housing demand. As far as Sobha is concerned, higher share of sales from cities such as Gurugram and Kochi (which have better realisations than Bengaluru) is also boosting blended ASPs. Inventory: Unsold completed inventory declined QoQ to 0.29msf (0.33msf in Q3FY21) worth INR1.0bn (~INR1.3bn)—among the lowest in the real estate industry. Unsold area: Overall unsold area stands at 15.95msf (14.7msf at end-Q3FY21). Net cash flows from ongoing projects rose to INR53.4bn during the quarter. The balance receivables from sold ongoing project inventory and completed projects stands at ~INR34.8bn, which covers 79% of the balance project cost to be spent on completing the projects. Presence in commercial space: The company has currently ~0.4msf of completed rental assets (its share of leasable area); it has another ~0.3msf commercial projects in the pipeline. Collections: Collections in Q4FY21 stood at ~INR9.8bn (~INR8.7bn in Q3FY21), up 3% YoY and 13% QoQ. For FY21, collections at INR30.8bn were down 16% YoY. Cash flows: At the net OCF level (after meeting interest and tax commitments), net cash inflow stood at INR1.5bn during the quarter (INR947mn in Q3FY21). The figure for FY21 stood at INR3.6bn of inflows compared with INR1.1bn of outflows in FY20. Capital outflow (on account of land and capex) at INR216mn is down significantly YoY. The company generated net cash flow of INR1.2bn during the quarter compared with INR752mn during Q3FY21. For FY21, the company generated net cash inflows of INR2.3bn compared with outflows of INR5.9bn in FY20. Land payments: Going ahead, the pace of land payment will remain contained at INR0.75-0.80bn annually as the company is focussing on monetising its existing land bank; for projects to be done through JDA, most payments have been made and, hence, internal accruals should be sufficient to take care of most of the land-related capex. Order book: Contractual order book stood at INR20.7bn at end-FY21 (INR21.3bn in Q3FY21). Net debt declined sequentially: Net gearing (as per Ind AS 115) fell to 1.17x (1.23x at Q2FY21-end). Management expects debt to dip by INR1.5-2.0bn in FY22. Borrowing cost: The company’s borrowing costs declined to 9.04% (9.17% in Q2FY21). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Buyer profile (12 months rolling): ~49% demand came from professionals belonging to IT/ITES industry, followed by 16% from other professionals. Demand from businessmen/entrepreneurs constituted only 7% of total sales. NRIs have contributed ~11% of sales. Other highlights Unlike the phase one of covid-19, labour availability hasn’t been a major issue during the second wave. EBITDA margins going ahead should be 20%-plus despite commodity prices going up. Management refrained from giving any guidance for pre-sales for FY22 considering the uncertain environment; however, it will try to match FY21 figure. Share of channel partners in sales used to be 50-55% earlier; it dropped to 25% in FY21 318 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sunteck Realty Management call: Key highlights 1. Q4FY21 performance: Q4FY21 revenue at INR1.9bn is up 120% YoY but down 12% QoQ. EBITDA margins at 20.4% were up ~1630bps YoY but down ~190 bps QoQ. Net profit at INR105mn was up 220% YoY but down 55% QoQ. 2. FY21 performance: Revenues at INR6.1bn were up 10% YoY. EBITDA margins at 22.3% were down 770bps YoY while PAT at INR419mn was down 43% YoY. 3. New sales performance: Aided by healthy offtake in the BKC and ODC projects, SRL posted Q4FY21 new sales of INR3.7bn (up 6% QoQ, down 39% YoY). Sales were down YoY largely due to higher base; Q4FY20 sales had been boosted by launch of Naigaon Ph 2 project which had contributed ~INR6.5bn of sales. 4. Q4FY21 sales breakdown by project BKC projects – INR0.9bn sales during the quarter. Sunteck City, Goregaon – ~INR2bn; this included ~INR1bn from sale of retail space to D-Mart in ODC 2 Annexe. Naigaon – INR750mn Gilbird Hill – INR50mn 5. FY21 new sales came in at INR10.2bn (down 16% YoY). The company achieved its highest-ever pre-sales in the mid-income segment, driven by the ODC project where bookings surged 77% YoY during the year. 6. During the year, 69% of the pre-sales emanated from mid-income (ODC) and affordable (Naigaon) projects. 7. The ready-to-move-inventory (BKC, Signia High, Borivali, Signia Waterfront, Airoli and Gilbird Hill, Andheri projects) contributed ~INR3bn to the total presales in FY21. 8. FY21 sales breakdown by project BKC projects – INR0.9bn sales during the year. Sunteck City, Goregaon – ~INR4.8bn Signia High, Borivali – INR1.3bn Signia Waterfront, Airoli – INR0.4bn Naigaon – INR2.2bn Gilbird Hill – INR0.55bn Apart from the Naigaon project, BKC and ODC projects have historically contributed a lion’s share to the company’s sales. 9. Collections: Collections in Q4FY21 totalled INR3.2bn (up 83% YoY, 27% QoQ). They were the best ever for the company in any quarter, eclipsing the previous high of Q3FY21. FY21 collections at INR7.8bn were up 9% YoY and were also the best ever for any fiscal. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Collections to sales ratio improved from 59% in FY20 to 76% in FY21 The mid-income and affordable housing projects together contributed 65% of the collections during the year. 10. ODC project: ODC 1 has already obtained OC while ODC 2 is expected to be completed in the next 3-6 months. 11. BKC residential projects: Unsold inventory stands at 38 units worth ~INR17.1bn Management indicated that enquiries have picked up, and expects to liquidate this inventory over the next couple of years. 12. Commercial projects in BKC: Management expects work on Sunteck Icon and Sunteck BKC 51 projects to be completed over the next 12–18 months. 13. Inventory liquidation: Overall finished inventory stands at ~INR18bn. 14. Ongoing projects: Management expects an operating surplus of ~INR32bn from ongoing residential and commercial projects. 15. Business development: FY21 was a good year on the business development front with the company adding three projects spanning ~8msf. The projects include: Vasind project: Refer to Sunteck Realty - Vasind project addition boosts portfolio Vasai project: Refer to Sunteck Realty - Vasai project addition adds cheer Borivali West project: Refer to Sunteck Realty - Borivali project addition boosts value. Management indicated even in the post-covid-19 world, it is evaluating various business development opportunities in line with its asset-light strategy. 16. Launch pipeline: In FY22, management is looking at launching a new phase in ODC project apart from at least two out of the three projects added in FY21 (Vasai, Vasind and Borivali West). It expects operating surplus of ~INR62bn from these projects. 17. Long term growth engines: Over the long term, the company intends to launch projects in Mumbai, Jaipur and Dubai. It expects operating surplus of ~INR30bn from these projects. 18. Cash flow: The Company’s operating cash came in at INR2.9bn in FY21. It repaid loans worth ~INR2.3bn during the year. 19. Debt: SRL ended FY21 with gross debt of ~INR5.9bn (~INR7.6bn at end-Q3FY21 and ~INR8.3bn at end-FY20). Net debt to equity stands at 0.21x (0.27x at end- Q3FY21). In January 2021, the Maharashtra cabinet approved a 50% reduction in the premium fees paid by developers for ongoing and new projects between August 1 and December 31, 2021. To take advantage of this, Sunteck will be pre-paying premiums to the tune of ~INR2.5bn between October and December 2021. 320 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Retail Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Aditya Birla Fashion and Retail Industry trends Initial demand came from casual wear, followed by festive wear. Also, kids demand continued through the year. Wedding wear (even in Madura) has seen strong traction even during the pandemic. Men’s and Kids wear has seen better growth than expected Q4FY21 Reduced cost base by INR12bn in FY21 Ethnic subsidiary includes S&N, Jaypore and one month of Sabyasachi. Ethnic losses are in the range of INR170-180mn. There is a one-time loss of INR50mn related to one-off transaction cost Close to 15% of network is operational. Company expects further relaxation in the coming days. Most of the network that is open, has also happened recently Store expansion High street has done better malls and rural cities have done better than metro cities For a lot of rental agreement, company is in discussion to make it variable to sales Madura/LB Lifestyle brands casual share increased to 55% in FY21 (FY19: 50%) Company plans to expand reach to wholesale channel later. For now it remains cautious. Allen Solly Prime has been piloted across various market Innerwear/Other segments The segment has reached 28,000 MBO outlets now and 47 EBO’s. ABFRL has seen good traction in the top A&B category MBO outlets. Pantaloons Lower discounting and excellent inventory management helped drive margin Close to 200 stores are Omni enabled. More than half of pantaloons ecommerce sales are being serviced from own stores Looking at opening 50-60 stores in FY22 Ecommerce Fulfillment from company stores is mainly for own ecommerce. For 3rd party it is very small. 322 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Ecommerce with partners is more or less at same margin as the overall offline network. Margins on orders serviced through own website are slightly lower due to higher customer acquisition costs. Debt Net debt stands at INR6.5bn. INR2.5bn net debt estimate was excluding ethnic investment Outlook Expect normalcy by end of Q2FY22 FY22 will see inventory level normalize Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Burger King Q4FY21 Dine-in recovery lagged delivery. Dine-in was also impacted by the ~55% stores being located in malls and with no footfalls coming from multiplexes. Towards the end of March, the second wave impact was visible, which limited the QoQ recovery in Dine-in. SSSG Delivery contribution was already in base versus peers which saw a spurt from Q4FY20 55% of stores are located in malls. Also, winter in Delhi, farmer protests impacted performance also. Stores 50% of restaurants are less than 21 months old. Going forward, the mix of stores will change away from malls. BKI has the flexibility of lowering the size of stores, if required. Pre Covid ADS was INR1,10,000. For stores that opened in 2016/2017 ADS is 40% higher. Store mix: o Malls: 55% o high street: 30% o Drive through: 5% o Others: 10% New initiatives & marketing FY18 SSSG growth (12%) came from growth of value menu (BKI terms it Menu 1.0) FY19, half the growth came from value launched in year earlier and the other half came from delivery launch with aggregator. The company is launching value 2.0. This along with the company’s own app is expected to drive SSSG growth. Working on building Whopper as a sub-brand of Burger King. Digital By June, the company should have a million downloads. App speed is faster by 40%. The company has seen a significant increase in MAU. Long-run delivery could reach a share of 30–35% (27–30% pre-covid). The company is plans to introduce various add-ons to the Burger King app. 324 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Margins Cluster-based approach is helping drive margins. Strong buying strategy is also helping. A large part of the increase in margin guidance is driven by efficiencies. Guidance The company has upped the gross margin number. The SSSG guidance could be split 50:50 between price hikes and traffic growth. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Jubilant FoodWorks Q4FY21: Food cost increased due to higher cheese prices and partially edible oil. This was mitigated by reduction in wastage. In FY21, JFL opened a total of 134 stores against initial plan of 100. Delivery/app: Delivery growth was stronger than third-party apps. Growth in rural towns was better than cities. Habit of delivery has been consistently growing even in smaller towns and this could remain sticky. During the quarter, the company launched the machine learning experience to improve order time. In addition, JFL is working on further initiatives to reduce order timing. There was no major impact in terms of app deletions or delivery due to the recent data leakage. Drivers of higher app usage/downloads: o Step-up in marketing spends. o Most attractive offers are on own app. o For medium or high frequency app users, the turnaround time is much lower Currently, there is no focus on a super app. Focus will be on creating independent assets for each of the brands. Dominos: Majority of JFL’s employee base is on the company’s payroll. The company has seen an increase in number of orders versus Q4FY20. The company’s share in the pizza market remains at 70%. Growth has been driven by higher number of orders/new customers. There has been very little pricing driven growth. JFL plans to keep its pricing competitive w.r.t. competition, especially in the post covid era. JFL believes it has a pricing lever in place which it plans to exercise in case raw material price inflation sustains. As an example of its store addition potential, JFL highlighted that three years ago the company had less than 100 stores in Bangalore. Today it has more than 150+ stores. Ekdum! and Hong’s Kitchen: Both new stores opened were delivery + carry out format stores. For the new business units, margin profile in the long term will be similar to Dominos. 326 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights International operations: Sri Lanka and Bangladesh were EBITDA positive. Opened one new store in Bangladesh. Opened three stores in Sri Lanka which took the total count to 26, equal to the earlier high. DP Eurasia is a category leader in Turkey and strong contender in Russia. Popeyes: Chicken is more than an INR40bn QSR category. There is still a significant opportunity to expand the market. Chicken travels well in delivery. There are certain commitments to store openings, but JFL’s internal target is much higher than that. Organization structure and supply chain: Focus remains on creating management bandwidth. As a part of this, JFL has created new role of Chief Business Officer for Dominos India. Mr. Rajdeep Kohli, erstwhile Chief Operating Officer (COO), has moved into this role. Mr. Rajdeep’s replacement of COO has also been found. Mr. Gaurav Pandey has been appointed new business head for Popeye’s. In future, focus will be on having independent teams driving each of the brands. The new brands will be commissary driven. The company has been able to create SOPs to improve standardization across these brands. Guidance: Q1FY22: Despite the reduction in operating hours and restrictions, the recovery in April/May was strong. JFL expects the recovery to be better in June. For FY22 target is to open at least as many stores as the company opened in FY21. It does not expect any major impact on margins in the year ahead. JFL believes once business re-opens, dine-in revenues will be an add-on rather than cannibalize any of the other channels. Data in the past also shows the same. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Shoppers Stop Q4FY21 Footfall has significantly improved in non-metro stores. East has done much better than other regions. SSSG was -10.7% for Q4FY21. Q4 was a combination of EOSS in January and some part of February. Post that was launch of SS’21. Consumer & Industry trends Observed better sales in various categories. Saw moderate growth in formal wear too. Cost target In FY21, the company achieved cost savings of INR4.3bn (target: INR4.5bn). One-third of it came from lease rental and the remainder from other costs. FY22 cost savings may continue in employee cost, lease rental and operating expenses. The company expects INR2bn in cost savings to be sustainable. Some of the cost saving will be ploughed back, mainly in: i) omni channel initiatives; and ii) marketing initiatives. Omni channel Contribution has increased to 6%. Launched exclusive new brands for Omni channel. First Citizen contribution is 40%. The company has more than 100+ brands (private label and non-private label), which are available only online. Average order values are much higher than online, potentially given the trust factor. For higher value products, customers prefer SSL. The company expects catalogue to reach 90%-plus (80% at present). Most of the categories are available. Amazon tie-up The tie-up is progressing well, it is at 50 stores with Amazon. Consistent level, 20% comes from that channel. SSL does not plan to add multiple stores in the same cities. All in-store options have been listed on Amazon. Beauty Sales performance via market place on Amazon has been consistent. E-commerce sales were up. First Citizen First Citizen contributed 72% of revenues (76% last year). The company had new enrollments of 106,000 customers. 328 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Enrolments in Black Card is up nearly 3x. Store managers are exclusively assigned to black card members. Personal Shoppers: Contributed 15% to revenue. Private Brands Sales grew 11.5% YoY with volumes up 38% YoY. The company has simplified the price matrix. First Citizen Contribution to private brands is same as overall business. Growth in fresh merchandise has been strong, driven by the sharp price points the company launched. SSL has tied up with a UK-based design house, which is helping sharpen collection in womenswear. Some other initiatives are still work-in-progress, which the company will share over coming days. 60% sales were repeat purchases from First Citizen customers. Inventory More than 70% of inventory is on a returnable basis. So provisioning against those is not required. The company is targeting to work with lower inventory/store. It has brought down inventory/store by 25–30%. Outlook The company expects covid impact to continue till H1FY22. Targeting to open 20 stores across all formats. Plan to start opening stores from Q2FY22. SSL is confident of achieving this target as majority of stores are in various stages. Quite a lot of the new stores will be in new cities. SSL will look at closing 2–3 stores during the next quarter. Capex will be INR0.8–1bn. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Titan Company Q4FY21 A much higher share of jewellery impacted gross margin for the year and the quarter. Within segments too, gross margins were lower due to mix. There was a very large order of gold coins to the TN government, which impacted Jewellery. Similarly, the mix in watches was adverse. In addition, there were two other one-time charges that hurt performance: in Q4FY20, there was a one-time gain, whereas FY21 was a loss. Trends by region Growth in T2/T3 cities continues to outpace metro cities. The pecking order of growth is: East, followed by South, then North and West thereafter. Mumbai and Delhi continue to be sluggish. The company expects eventually every market to be impacted by the second covid wave. Jewellery Despite the loss of 15 days in March, the company reported a strong performance. The company believes it has improved its market position this year. Overall buyer growth was 39% YoY (~25% adjusted for weak base). The company has seen a lot of grammage buying in anticipation of increasing prices. Competitive intensity has gone up on all fronts and aggression has increased, especially from large players. Titan has compromised margins to gain market share. It has not held back any advertising spends. Some unorganized players may have lost share. Overall market has been good. There was a lot of pent up demand related to weddings in Q3 and Q4. This has continued in April (pre-wave 2) and the company was extremely bullish on the wedding season. In Mid-march, it launched the Rivaah campaign. Reported strong growth till the third week of April. However, post-closures, the impact has been there. Overall, in Apr-21, the company will clock positive growth over Apr-19. As of yesterday, 50% of stores were shut and 50% were open. Production is still on. There are no manufacturing constraints unlike the last lockdown. However, there is an impact on productivity given the protocols in place. Recruitment of customers has been phenomenal. Online + Omni has seen a 4x increase as a share of business. Gold on lease has been central to growth of the jewellery system since 2001. Caratlane: The growth of the business lies in an omnichannel approach. Wedding Jewellery share was 24% last year, reported share this year was 25%. 330 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights INR0.2–1mn opportunity in high-value studded is richer for the company. Above INR1mn, the opportunity is difficult Golden Harvest Scheme: Sales through golden harvest has been robust at 21% of total sales (FY20: 21%). Contribution has come down to 15% as enrollments in Q1 were not there with the impact coming now. However, Q3/Q4 and April, until shutdown, enrolments have been good. Golden Harvest can now be completely done online. There were challenges related to KYC, which have been sorted. Key initiatives taken in Tamil Nadu to increase market share: Appointed a local brand ambassador Network expansion: Organic addition plus conversion of certain formats to Tanishq Customers in Tamil Nadu are extremely price sensitive and have special requirements on exchange policies. Hence the company is re-aligning policies to match those expectations. It worked on regionalization on daily wear and regular wear products. Work on wedding is yet to kick in. The company is also applying the template to other markets such as WB, Bihar and certain parts of Maharashtra. Studded share: Bombay and Delhi, which have a high studded share, has seen an impact on performance. Customer growth in studded has been higher than plain gold. However, higher gold prices have impacted value growth. Margin There will be a marginal impact on margins in Q1FY22 related to custom duty. Jewellery business has lowest fixed cost among all segments. It also has the lowest margin. Gold on Lease: As per the company, it is the best way to buy gold and volatility in margin is also the lowest. It also helps minimize working capital and helps generate cash. Watches Majority of the growth is driven by quantity, unlike Q2/Q3, there was a large increase in ASP, which has evened out in Q4. Unlike Jewellery, watches end up losing sales due to store closure. Other Management of cash and balance sheet has become well institutionalized. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights V-Mart Retail Q4FY21 Earnings Call: Key Takeaways Current Trends: April and May has seen a near complete shutdown, with marginal store openings expected in June At present, 20-30% of stores would be open Even Feb-March were not times that people were comfortable stepping out with the entire family. This reflects in the footfall trends also Q4FY21: Good upswing led by fresh inventory and pent up demand Company reported like for like growth even in March Q4FY21 was towards path of recovery. There was buoyancy in demand before the wave two of Covid impacted Margins improved driven by stronger full price sales Overall shrinkage climbed to 2% of sales for full year. New season launches (From 15th February) along with upcoming marriage season (and harvest incomes) were expected to drive a strong performance. VMart is going back to landlords get some waivers on rental. But company does not expect that there would be significant saving in rentals. Increase in Kirana share: Company has increased kirana offerings in certain stores and also certain impulse buying categories, which get classified as Kirana, have seen growth Region wise trends: There was strong pent up demand during the quarter and UP, Bengal, Bihar and Jharkhand saw a very good recovery Early restrictions due to lockdown came in the last week of March which mainly affected the sales of Rajasthan , Gujarat and Jammu Kashmir Inventory/Working Capital: Huge inflationary pressure on raw material especially yarn, therefore the company is stocking up of inventory and keeping the discounts low. At present the company is maintaining healthy inventory at a store level. Omni/e-commerce: Target to get online share to 5% Company is seeing good traffic but conversion remains lower The Company has taken up digital transformation aggressively including developing the app to improve the consumer experiences 332 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Formats: More than 70% of towns the company is present is in, has a national competitor present Capex: Capex was INR400mn for FY21 Capex for warehouse will be INR1bn in total. First phase will be completed by end of FY22. Outlook: As of now company remains on a normal trajectory for store openings for FY22. Target remains 40+ stores. This includes all format. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Specialty Chemicals 334 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Aarti Industries Industry scenario remain favourable Sustained revenue growth driven by volume expansion and 75% contribution from value-added products Gross margins returned to normalized levels Demand for discretionary products has majorly returned to pre-covid levels Pharma segment revenues at record levels, profitability sustained as the product basket remains focused on value addition Speciality chemicals - annual shutdown impacts volume growth Annual maintenance shutdown at the Acid Division at Vapi and asset revamp linked maintenance shutdown at Jhagadia – both taken in Q4FY21, impacted volumes and resulted in higher costs by about INR120mn Return of demand from established markets driving improved margins Depreciation and Fixed Costs in Q4FY21 higher due to commissioning of new units Includes income recognition of about USD 5 million per quarter and USD 20 million for FY21 towards the shortfall fees in respect of the first long-term contract Pharma business remains on solid ground Pharma business revenue grew by 15% YoY during FY21 – topline at highest ever levels historically. Pharma Ebit grew by 50% during FY21 – EBIT at highest ever levels historically. Sustainability initiative linked shutdown taken at Pharma units in Q4FY21, impacting the operations partly. Continued throughput from regulated markets, value-added products and growing pipeline of new intermediates. Margins seeing structural improvement based on operating initiatives. Revenue growth is expected to sustain as additional capacities for API’s and intermediates are getting operationalized in coming quarters Large capex commissioning by FY22-23 to drive revenue growth AIL has invested heavily of INR25bn in last two years in various projects. Which includes some of the key projects - Operationalized Phase 1 Unit at Dahej SEZ for agrochemical intermediates & Speciality Chemical Operationalized Phase 2 Unit at Dahej SEZ for agrochemical intermediates USFDA Capacities Expansion underway: API unit at Tarapur, & Intermediates unit at Vapi Unit for 2nd Long Term Contract at Dahej SEZ Unit for 3rd Long Term Contract at Jhagadia NCB Capacity Expansion at Vapi Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Expansion cum Asset Upgradation for Acid Unit at Vapi Medium term guidance to double revenues and PAT which 25-35% growth expected in current year Company is likely to further invest INR15bn in FY22-23 in these projects. Cumulative capex of INR40 bn is likely to double revenues from INR50bn in FY21 to INR100bn by FY24 and simultaneously doubling EBITDA and PAT. In FY22, management is expecting revenues to grow by 25-35% on back of commercialisation of capex. Shared long term vision 4xPAT by FY27 Adding new chemistries and value added products. 40+ products for Chemical and 50+ products for Pharma Plan to add revenue by INR30-40bn with EBIDTA margin ~ 25% - 30% Capex of about INR 25-30bn for chemical and INR3.5-5bn for Pharma. Will drive the growth from FY25 and beyond Site development work to commence on 100+ acre land at Jhagadia. Also acquired over 120 acres land at Atali, Gujarat. Environmental Clearances obtained / in process. Construction from FY22 – FY24. This long term growth plan will be supported by – Introducing Chloro Toulenes Value Chain: (Range of products) Newer range of Value Added products & Other Speciality Chemicals Custom Manufacturing Opportunities Setting up Universal Multipurpose Plants (UMPP) Manufacturing Outsourcing / Strategic Alliances Expansion & Introduction of new range of Pharma APIs & Intermediates Terminated contract with Bayer to fetch windfall gain in FY22 As per the contractual terms of terminated contract with Bayer, AIL has largely received dues for FY21with US$15mn already received out of total US$20mn. In FY22, company is likely to receive another US$20mn during the year and balance US480mn at the end of the year. AIL is looking opportunities for selling this intermediate in open market and is confident about achieving 70-80% plant utilisation by FY23. 336 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Galaxy Surfactants Speciality chemicals drive 10% growth while increased prices drive surfactant revenues In Q4FY21, overall volume growth of 8% YoY was led by 7% YoY growth in surfactant while specialty chemicals posted 20% YoY volume growth. Realisation increased sharply by 16% in surfactant as fatty alcohol prices continued to harden. Fatty alcohol prices increased to USD2,073/mt in Q4FY21 from USD1,270/mt in Q4FY21. As fatty alcohol prices continue to rise, the company is confident of passing on higher input cost to end customers. Egypt picked up driving overall AMET markets by 13% Sustained recovery in Egypt led to AMET region growth of 13% in volume terms. However, India and ROW markets continue to remain impacted with growth of only 6% YoY and 4% YoY, respectively. One-off expense hits EBITDA In Q4FY21 EBITDA was lower on account of lower export incentives under the MEIS scheme received in current quarter vis-a-vis Q4FY20 in India and also included a one- time ex gratia payment provision and higher variable pay to employees. Cumulative adverse impact on EBITDA INR150mn. Subsidiaries – Egypt and Tri-K performed strongly in current year In FY21, performance of both the subsidiaries, Egypt and Tri-K were strong. As the Egypt market has picked up sharply posting strong volume growth, higher speciality chemicals volume, mainly in H2FY21 boosted Tri-K performance. Capex continues to be impacted due to covid-19 GSL commissioned capex last year, and has been hit adversely by covid-19-related challenges. Though management expects capex of INR1.5bn every year for the next 2–3 years mainly in specialty chemicals, it has been pushed back further by six months for now due to the delay caused by the second wave. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights SRF Specialty chemical segment’s performance remained robust Strong demand from overseas markets. Enhanced volumes of certain key high-margin batch products. Optimal utilisation of existing facilities and additional capacities going on-stream notably aided overall performance. Emphasis on keeping the product funnel full, SRF continues to make prudent investments by capacity expansion for future growth. Focus on downstream products and pharma molecules. The Board has approved capex of INR3.75bn for the setting up of the 4th Multi- Purpose Plant (MPP) at Dahej to augment existing MPPs and capitalize on emerging business opportunities in the future. Existing capital expenditure plans on track. In Q4FY 21, SRF commissioned 2 new dedicated plants catering to agro chemical products. Market trends remain supportive of growth in speciality chemicals Global agrochemical market is expected to post moderate growth. India continues to be viewed as a promising alternate destination to China for sourcing specialty intermediates in agro and pharma segments. Cocid-19 pandemic continues to disrupt supply chains. Ramp up in fluoro chemicals utilisation Significant sales volumes in the refrigerants segment – R32, R125 & blends from both domestic and export markets. Higher contribution from the chloromethanes segment. Enhanced domestic market share of R-134a Pharma grade gas under Dymel® brand and initiated exports to new markets. Market dynamics remain favourable for growth of refrigerant gases Auto sales and AC segment revived in H2FY21. Price increase in certain raw materials witnessed . Mini-lockdowns by a few states impacting production volumes and secondary market. Packaging film business continues to boost earnings Sustained focus on end customer engagement to drive volume growth / product mix. Enhanced contribution from value-added products. Significant volume expansion from Thailand and Hungary facilities. All plants were fully operational in Q4FY21, leading to ~100% utilization levels. BOPET margins witnessing negative trend, while BOPP margins remain strong. Preference towards global suppliers with multi-locational facilities. 338 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Technical textiles benefitted from sharp demand recovery Quick recovery of the tyre industry. Healthy contribution from the belting fabrics segment. Continued focus on enhancing operational performance. All tyre cord majors are operating at healthy capacity utilizations post reopening of the economy. Shift in buyers' preference towards domestic supplies resulting in imports substitution. Increased demand for personal mobility solutions leading to robust demand. Capex and growth guidance SRF maintained its capex guidance of INR16-19bn in FY22 and the Board has approved a capex of INR3.75bn for setting up of the 4th Multi-Purpose Plant (MPP) at Dahej to augment the existing MPPs and capitalize on emerging business opportunities in the future. Management guided for 10-15% growth in specialty chemicals business, which grew 42% YoY in FY21 with revenue contribution of INR23.5bn. We model for higher growth than management guidance Though management remained confident about multiple growth drivers and favourable industry scenario including: 1) healthy growth in global agrochemicals; 2) India continues to be viewed as a promising alternate destination to China for sourcing specialty intermediates in agro and pharma segments; and 3) Make in India driving domestic souring replacing imports, its guidance remains modest factoring higher base and strong growth witnessed in the segment over the past three years (60% CAGR in FY18-21). We have modelled for overall 22% growth in chemical business supported by 20% growth in speciality chemicals (management guidance of 10-15%) and 25% growth in fluoro speciality and refrigerant gases as we expect recent capacity addition in refrigerant gases and solid demand to drive growth in this segment. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Textiles 340 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Arvind Q4FY21 Input cost pressures persist. Absorbed some RM hikes via efficiencies. The company managed to take a price increase in denim and woven. Price hike has been 3-4%. Product mix change has also helped in absorbing margin pressure. Impact of non-recognition of benefits (RoDTEP) is INR120mn. Exports made up 54% of Q4FY21 revenue. In addition, 10% would be deemed exports. A lot of profits of other business got booked this quarter. Company Saved 15% of fixed costs i.e. INR1bn in H2FY21. Sustainable cost saving is INR1.5–1.6bn/year. Yarn integration: 60% on a company level. Denim: 80%, Woven: 45% Debt and land sale The company is expecting INR1.5bn from sale of land. It is trying to sell two types of land parcels. One is outright, which will add INR0.8-0.9bn to cash flows. Another parcel of land has been given to Arvind Smartspaces and that is about INR3.5bn of collections over a period of time. Around INR0.5bn came in last year, another INR0.5bn could come this year. The total for these two land parcels comes to INR1.5bn. In addition, INR1bn/year for two years would be received from development projects with Arvind Smart Spaces. Debt for Q1 will be higher. Denim & Woven On a normalized basis ex-covid, the company was expecting the following volumes: denim: 90mn, woven: 128mn. Woven demand is fairly strong. One of the highest demand the company is seeing is in the woven segment. On an industry level, there is very strong export demand for fabrics. On garments, capacity is limited, and policy is limiting sizeable market share gain. Garment Certain delays in shipments, particularly in March. Budgeted 4-5% higher sales, but shipments were not possible. Ex-covid, the company was targeting volume of 48–50mn pieces for the full year. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Majority of China’s market share loss has been taken up by Bangladesh and Vietnam. AM The company expects this business to clock 25% p.a. growth over long term. The company has a core set of customers from which it has been getting higher repeat business. Other The company expects the PLI Scheme to be introduced this quarter. Outlook Expect the export market to remain buoyant. Retail pipeline remains empty, which should drive demand further. The company expects the pressure on costs to persist. It has enough capacity to grow business at 8–10% without capex over the next 12–18 months. The tax rate will be 32–33% on provision on books. In terms of cash outflow, it will be 17–18%. Possible for the company to reach INR80bn in revenues in FY23E. The company expects EBITDA margin to be 11.8–12% for textiles. 342 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Page Industries Q4FY21/FY21 Volumes grew 54% YoY. For Q4FY21, price hike was 4-5%. Secondary sales were higher than reported sales. In Q4FY21, 90% of the MBO channel was active. Given the confidence in operations, there were higher spends in advertising and other overhead costs were normalised. Segment Volume growth has only been seen in athleisure segment and e-commerce channel. Men’s innerwear and women’s inner wear have seen value growth, but volume growth has been flat to negative. Men’s innerwear remains the largest segment of the business. Growth in this business will be driven by distribution and new products. The company is waiting to launch a collection very soon. Athleisure has seen strong growth and given the trials, the company is confident of growth sustaining. Raw material: Page voluntarily stopped production as a precaution. Manufacturing is shut till June 7. Impact of raw material inflation in Q4FY21 is 1-2%. Going forward it could be 5- 7%. Channel: Contribution of top-6 cities had fallen in first two quarters. From Q3/Q4 the revival in metro cities along with store expansion helped drive growth. Contribution of e-commerce increased to 8% in FY21 (~4% in FY20). This channel increased by more than 80%. E-commerce business margins are better by ~2% points. Going forward, most stores will be exclusive men’s/women’s store. Page believes it can increase distribution by 8-10% p.a. over the next decade. ARS ARS implementation had reached close to 100%. However, the company had to stop the ARS as bigger distributors were getting orders, but smaller distributors were not getting orders. Starting April, the company has restarted ARS and coverage is more than 90%. Distributors are happy with the implementation of ARS. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Rural: Page has no separate product for rural. It’s part of existing collection. Distributors in rural areas are stocking other brands but not conflicting brands. Jockey Kids: Kids business continues to remain key focus. Jockey’s Juniors is already at 38 exclusive stores. Kids business grew 75-80% YoY. Guidance: Outlook remains bullish as ever. Long-term margin outlook is around 20-21%. Prime focus is to capture market share. 344 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights TCNS Clothing Industry: Last year there was a big lag in Tier I cities and rural recovery. This year the divergence is much smaller. The trend is dependent on unlocking trends. Q4FY21 Offline sales started off well. However, due to lockdown, quarter was impacted in the last 15 days. Lot of T2/T3 markets recovered more than last year. TCNS restarted primarily sales to MBO channel in February. Cost savings were ahead of targets for Q4FY21 and FY21. Q4 is typically a lower margin business period. Recovery was impacted due to higher closure of stores. Gross margins were impacted due to: a) lower full price sales as the second half of the quarter has a higher share of the same (launch of SS’21 from Feb); and b) channel mix skewed towards e-commerce. Rental base to start FY22 will be INR1.3-1.4bn. Last year the company had saved 45% of this cost. ~10% of the stock is more than three seasons old. Brand wise: Aurelia usually does well with value format retailers, whereas W is more with department stores. Also, W saw higher store closures which impacted performance . Channel and stores: TCNS believes there is a limited window to lock in attractive rentals. It is therefore looking at getting aggressive in store openings. The company has signed up 30 EBOs in Q4FY21 which should open by H1FY22. TCNS has also launched Project Bharat - Entering into T3 and T4 via franchises. Online should continue to clock robust growth. B2C-online share grew 7x on a small base. Contributes 1/3rd to online sales. Supply chain: Phase 1 automated inventory management has been rolled out across EBOs and MBOs. There could be a 10-15% reduction in inventory levels post implementation of the new software modules. TCNS expects Warehouse integration to happen by November. Original target was August. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Also, the company is equipped via its new warehouses to directly serve B2C e- commerce orders. SS’22 will be on new system at least for W. For Aurelia it will take one more season. Working capital & cash: Debtor days can dip by around 10-15 days on a steady state basis. Target is to bring down WC days from 120 to 105 and to double digit in the long term. Capex: 60 stores (part of franchise): INR2.5-3mn/store. Warehouse: Total capex will be INR80-100mn . Inventory management software: INR50-100mn. Guidance: Online should remain the highest growth channel. EBO/LFS will grow hand in hand. MBOs will see initial spurt, post which will normalize. Expects recovery by end Q2FY22 and onset of the festive season. On FY20 base, TCNS expects 10-15% saving in overheads. It is difficult to comment on rentals as negotiations have started. Store addition: o TCNS is targeting opening 60 new stores in FY22 with a similar number in FY23. Elleven will add 15 stores this fiscal. o LFSL 200-250 store addition. 346 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Welspun India Industry: Outlook on US economy and household expenditure remains robust. China’s share in the US market continues to remain under pressure. WLSI expects the push to the Home Economy will continue even post covid. Department stores have been challenged, but Big Box retailers have continued to do well. Also, e-commerce channel has been clocking strong growth. Incentives: o The company expects RoDTEP rates to be 2-4%. Until December it was 6%. o The PLI scheme is not relevant to the company as RoDTEP may have to be foregone. Q4FY21: Anjar and Vapi plants operated at more than 100% capacity. WLSI reported highest-ever sales volume in bath linen, bed linen and rugs & carpets. RoDTEP incentives were accounted this quarter. Increase in other expenses was mainly due to volume increase and spike in freight costs. WLSI has already started discussions on price increases. Average USD realization was INR76.14 (Q4FY20: INR74.08). Interest cost: This quarter had one-off item of INR120-130mn related to writing-off of incentive. Total one-off items were around INR280mn. Also, flooring business does not get capitalized any more, which gets added to interest. Raw material: Cotton prices have spiked and WLSI has requested for price hikes. Cotton prices are up due to higher MSP and import duty. Flooring: Momentum is robust, especially in hard flooring. The company has received trial orders from various regions. On soft flooring, business enquires have started. WLSI added 128 dealers and ended at 572 dealers. WLSI is confident of EBITDA break-even in second half of FY22 and full break- even in FY23. EBITDA was INR1bn in FY21. Targeting top line of INR8bn in FY22. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights The company is also targeting to set-up own showrooms in the flooring business. Licensed brands: Targeting USD100mn revenue from licensed brands by FY24. Martha Stewart clocked USD14mn in revenues. It could have been USD27mn, but for certain logistic issues. Scott Living will be another 12-15mn. D2C brands are also contributing strongly. WLSI is also considering more licensing opportunities. Branded business has 10-15% higher gross margins. Domestic: Target to reach INR10bn revenue by FY25. Advanced material: Business did a revenue of INR3.1bn. By September, new spun less line at Telangana should come up. Targeting INR4bn+ in FY22. Last year had tailwinds to margins, this year it should come back . Capex: WLSI spent INR4.5bn in FY21. Capex in FY22 will be INR6bn. This includes - o Spun less capacity expansion in Advanced Material division o Home Textile expansion Guidance: Ecom channel is on track to exceed USD100mn by FY23E Outflow of cash for dividend and buyback will be INR2.7bn Expects net debt to be INR24bn at the end of FY22. This is excluding total due from Telangana government of INR2bn. FY25 revenue target: INR12.5bn, CAGR of 14% FY22/FY21-25 CAGR: o Home Textile : 10%/10% o ATM: 50%/25% o Flooring: 125%/50% FY22 targeting 15% growth Annual EBITDA margin of 17-18% depending on the RoDTEP rates. WLSI has considered RoDTEP at 2%. 348 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Miscellaneous Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Balkrishna Industries Financials BKT's Q4FY21 revenue rose 26% YoY (12% ahead of estimate) to INR17.5bn. Volume jumped 17% YoY to 68,002MT. Volumes grew across geographies with increase of 7%, 26% and 56% in Europe, Americas and India, respectively. Overall realisation (INR/kg) was up 7% YoY due to the price hike of 2-3% taken by the company in January. The company has taken another price hike in April of 2%. Strong Q4F21 volumes led to full year FY21 volume growth of 13% YoY at 227,000MT ahead of guided upper range of 220,000MT by management. The company has seen an impact of 2-3% due to rise in commodity prices with a 5-6% impact anticipated in Q1FY22. Management has undertaken a price increase of 2% in April to counteract this. Gross margin expanded 232bps YoY to 58.8% despite higher raw material prices. Headwinds remain on gross margin as rubber prices have increased sharply in Q4FY21. EBITDA margin increased 202bps YoY led by higher gross margins and operating leverage. As a result, EBITDA grew 34% YoY to INR5.5bn. Other expenses rose 30% YoY impacted by logistics cost which is 3-4% higher. Logistics are expected to ease up towards H2FY22. PAT rose 46% YoY (29% ahead of estimate) owing to higher forex gains for the company during the quarter. BKT has cash and cash equivalents of INR15bn on its balance sheet at end- FY21. The board approved final dividend of INR5/share, taking dividend for FY21 to INR17/share. Demand outlook and other highlights Demand remains strong from agriculture, with high commodity prices boosting demand from the OTR segment. For FY22, BKT guided sales volume between 250,000-265,000 MT (10-17% growth). Management strongly believe that this demand trend is likely to continue in FY22 and years to come; however, there may be covid 19 related softness in demand leading us to give a wider range for annual guidance. As per management, the demand continues to be robust in Agriculture segment across Geographies. In the other segments, demand has seen an uptick on back of increased commodity prices, infrastructure creation and pick-up in economic activity. This commentary is in line with Titan International which expects 2021 to 2022 to be a good year. Led by price increases to combat raw material inflation, modernisation capex and captive carbon black and better hedge rates BKT expects to EBITDA margin guidance stands at 28-30% over medium term versus 31% in FY21. The US markets remain a key growth driver for the company as visible in increasing contribution from the geography of 15% from 12% in FY22 from FY21. BKT has developed special products and is focusing on brand building. 350 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Management aims to achieve a ~10% market share globally while they are currently at 5-6%. BKT tyres are sold at a 20% discount to competitors and management aims to reduce this to 12-15%. Hedge rate for Q4FY21 was at EUR87.42, while hedge rate for FY22 stands at EUR89. Sales mix in 9mFY21 was as follows: o By channel – Replacement : OEM : Offtake is 71 : 25 : 4. o By end-use – Agriculture : OTR : Others is 64 : 33 : 3. o By geography – Europe : US : India : RoW is 49 : 15 : 23 : 13. The focus on various branding activities in India via IPL, radio and across inter- state buses yielded results as revenues rose 56%. Capex On the ongoing capex, final testing is on for 51”and 57” ultra large all steel giant radial plant at Bhuj. The lead time from the plant would be 6-9 months. Greenfield replacement tyre plant at Waluj for 30,000MTPA is likely to commence by Q2FY22. Management announced additional capex of INR19bn in Q4FY21 to be funded via internal accruals and debt, if required. This is to be spread across three projects: 20. Brownfield tyre project for INR8bn: Debottlenecking and brownfield expansion at Bhuj, to add 50,000MTPA capacity, likely to be completed by H2FY23. Post completion, the achievable capacity stands at 335,000MTPA. This will be ramped to full utilisation over six months. This should give a payback over four years. 21. Carbon black and captive power plant for INR6.5bn: With current achievable capacity of 115,000MTPA, management plans to increase achievable capacity of 200,000MTPA, including 30,000MTPA of high value advanced carbon material and power plant of 20MW. The company will save 115,000-120,000MT for captive use, while the balance of 170,000MT will be used for external sales and will have margins of 15-16% on external sales. The additional capacity will take 1 quarter to be ramped up. The 30,000MTPA capacity will be used by print ink grade and high quality plastic grade, and will have higher realisations. This is likely to be completed by H1FY23 with a payback of 5-6 years. 22. Modernisation, automation and technology upgradation for INR4.5bn: Certain existing equipment at Rajasthan and Bhuj require upgradation which will lead to improvement in quality and efficiency. This will result in savings in manpower costs and higher efficiency across machinery. Focus also remains on radialisation and bigger tyres. This is to be completed by H1FY23 with a payback of five years. This should result in margin expansion and yield savings of INR0.8-0.9bn per year. Post expansionary capex, there will be some land bank available at Bhuj for additional capacity expansion. Further announcements may be made at a later date post completion of expansion. For FY22, the company has budgeted INR8-8.5bn post ~INR9.1bn in FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Global Peer Titan International Q1CY21 financials and commentary: Net sales for the first quarter of 2021 were USD403.5 million, compared to net sales of USD341.5 million for the first quarter of 2020, representing a USD62.0 million, or 18.2 percent, increase. On a constant currency basis, net sales for the first quarter 2021 would have been USD409.3 million. As per management, the first quarter of 2021 was the strongest quarter since the first half of 2018. The results are on the high side of their Q1 outlook. The strong recovery they began to see in their global Ag markets in the fourth quarter has now accelerated and includes additional demand within earthmoving and construction (EMC) businesses beyond their initial expectation at this point in the year. During the first quarter of 2021, Ag and EMC experienced volume increases over 15 percent and 19 percent respectively. These market dynamics, as well as continued cost discipline emphasized over the last year, led to a gross margin percentage of 13.2% representing a 450 basis point improvement from last year's first quarter. Based on a number of positive factors in the agricultural sector, including higher crop prices, low inventory levels for new and used equipment, strong farmer income, and the age of existing equipment, they believe that the current market trends experienced in Q1 will continue, and in some cases even improve throughout 2021 into 2022. They are taking the necessary steps in managing the workflow and operational levels at all of the production facilities to meet existing demand. 352 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Bharat Forge Outlook: All segments, including oil and gas, are recovering. Exports are increasingly getting stronger including oil and gas (expect to reach 50% of peak level soon). Domestic business to return to normalcy from Q2FY22. India truck: H2FY22 to be strong, while H2FY22 to be weak (with Q2FY22 to recover). New acquisition (Sanghvi Forgings) will expand BHFC’s offerings in energy, especially renewable (wind, hydro etc), as the company treads through a tough Q1FY22. Management expects sustained demand with higher orders in auto exports, including Class 8. OEM outlook for large trucks in the US is 300k for CY21 versus 210 in CY20. Expect the revenue rate for FY22 to sustain INR20bn/ quarter. Return ratios are expected to improve as utilization picks up from current level. Cost optimization initiative: Around 70-80% of the programme has been completed; balance to be completed in 6-9 months. Supply chain impact: Increase in cost, including raw materials and logistics (up 3-4x), has impacted margin. CVs in Europe and US impacted by chip shortage. BHFC builds until the chip part then inserts chips whenever available. Management believes the current semiconductor shortage will improve over the coming two months. Capex and investments: INR3.0/2.5bn in FY22/23E organic capex at this stage planned including commitment for the Khed facility near Pune for e- mobility/defence. Construct for ROCE improvement to 20%: Revenue growth, margins and recalibrating WCs. This will be aided by already acquired assets / high capex made in previous years. Global OEMs: Giving electrification targets – What’s next 5 year outlook? Expects gradual reduction in IC engines demand. Management has a plan to mitigate this downturn and consolidate in other areas. One of the new areas of focus is going into EV market. Defence: Acquisition of Kalyani (KSSL) is currently pending approval from Ministry of Home Affairs. The deal will be completed by Q2FY22. KSSL has several JVs and subsidiaries (Analog, Missles, Other work in programs). KSSL’s acquisition has been done to meet eligibility criteria for biding upcoming projects. Defence segment: Building 2 mega sites for mobility and planning to buy 70 hectares in Khed Industrial park at a cost of up to INR2.4bn. It is close to the existing facility where land is not available and hence the plan to acquire land. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Other highlights: Oversees operation: Improvement QoQ (EBITDA has improved from 5% to 10%). Will start to look at customer addition and then capacity addition. New orders from government are in non-automotive and quite new. Currently, building new model and will disclose when done. Q4 highlights: Q4 utilization: was 85% with certain areas lower and certain higher. Inventory days were higher during the quarter / year due to inflationary impact. O&G revenue was USD 3-4 million for the quarter. 354 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights CCL Products Branded business: Momentum sustains CCL’s Continental brand has seen a strong pickup in demand during FY21. The company’s overall turnover in the Branded business (including Institutional sales) increased to INR 1.5bn (up 60% YoY) during FY21. The company now reaches a distributor base of 95,000. The branded business alone yielded an overall revenue of INR 1bn while institutional business reported turnover of INR 500mn. Company expects to reach to total sales of INR 2.5bn in next three years. Current market share of company is 5% in INR 20bn domestic coffee market. Company has incurred a loss of INR 80mn in segment and expects to reach breakeven in FY22. Overall, advertisement spend accounts to INR 120mn. Vietnam unit: CCL has done substantially well in Vietnam. Company’s utilization levels has reached to nearly 92%. Going forward, company will be adding 3500 tons additional capacity by H1FY22. Given an improved demand scenario and with visibility of good growth, management anticipates to double the existing capacity over coming year. Vietnam total sales for FY21 accounts to INR 3.75bn, with EBITDA of INR 880mn. Freeze dry: CCL Freeze dry units were impacted most due to initial wave of covid-19 during April and May last year. Some of products were deferred by Russian clients. However, demand improved in H2FY21 as things started getting back to normalcy. Overall, Freeze dry units operated at overall utilization levels of 61%. MEIS benefits remains a key concern Govt. is still to come up with new MEIS schemes for units located across SEZ.. Company has accrued an overall MEIS benefit accounting to INR270mn for FY21. It will be realized over FY22. Agglomeration and Packaging unit Covid-19 has delayed the commissioning of small packaging and agglomeration unit. Currently, company has a total packaging capacity of 5,000 tons. By FY22 end, company plans to increase it to 12,000 tons. The small packs provide an additional benefit of USD 1.5/kg. Geographical revenue mix US accounts to 15% of company’s sales. Company is gaining orders and is shifting from bulk business to value added one. Tie-ups with organization to start using small packs. Bulk is competitive. Going towards brand building. Europe accounts to 20- 25% of overall sales. Russia accounts to 25% of turnover. Rest is spread across LATAM, Asia, etc. Guidance Company anticipates to deliver 10-15% volume growth in FY22. EBITDA margin target: 25-27% in next 3-4 years. Company plans to increase its overall capacity to 55,000 tons by FY24 with EBITDA/kg to improve to INR 130-135. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights EPL Q4FY21 revenue grew 18% YoY led by 28%, 37%, 6% and 2% growth in AMESA, EAP, Europe and Americas regions, respectively. Due to cost headwinds across polymers and foils, gross margin contracted 172bps YoY and 325bps QoQ to 56.9%. Gross margin is expected to see some normalisation with price increases taken by EPL over the short term. Overall EBITDA margin dipped ~282bps YoY to 17.3%, subsequent to which EBITDA growth as flat YoY. This was on account of 26% YoY increase in employee costs with higher overtime and covid-related expenses. There was a 27% YoY increase in other expenses. Management has identified three broad levers to ensure EBITDA growth: 1) Judicious price increases, including contractual pass-through in long-term contracts with a 3-month lag. 2) Cost productivity initiatives – Project Phoenix Phase II – including improving manufacturing efficiency via automation currently in pilot phase in Americas; increased in-house manufacturing of caps and closures; scrap and wastage reduction; and rationalisation of energy consumption. 3) Mix improvement – focus on higher-profit segments and value- added offerings. EPL completed the acquisition of Creative, effective on 1st February 2021. Creative is a plastic and lami-tubes manufacturer founded in 2012, with annual production of ~200mm tubes and FY20 revenues and EBITDA of INR1bn and INR305mn, respectively. The deal is at an EV of INR2.54bn, with 72.5% stake purchase via cash and the balance via issuance of EPL shares to the founders (~2.34mn shares). The business is revenue growth and margin accretive with FY18-20 revenue CAGR of 8.3% (versus EPL’s 6.2%) and EBITDA margin of 29.6% (versus EPL’s 20.3%) in FY20. The merger should provide operational synergies of INR35mn and boost personal care revenues (~47% from ~45% in FY20). The capacity is in Himachal Pradesh, and adds plastic tube capacity in North India, a strategic location for the company. During Q1FY21, the company launched a new category of hand sanitizers. It had launched hand washes in Q2FY21 and plans to expand to hand creams. This is a strong opportunity for the company to increase wallet share in existing categories. Management believes health and hygiene to be a new category for the company, and remain enthused on the growth prospects. Management has extended product innovation to launch hand washes in tubes and envisions to become a larger player in hand wash category. All the 20 plants were operational during the quarter with best hygiene practices to ensure employee safety and continued operations. Net debt by the end of FY21 increased by INR1.2bn to INR3.8bn from INR2.5bn at the end of FY20. Capex incurred over FY21 stood at INR1.76bn, with INR1.67bn spent on acquisition of Creative. Four levers of growth 1. Accelerated growth in Personal Care: Personal Care has been a major driver in the last few years, growing at 16% over the last ten years. It accounted for 46% of overall revenue compared with 45% in FY20. The company saw growth across geographies in personal care with the addition of categories, 356 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights as also customer wins with sharp increase witnessed in EAP driven by beauty & cosmetics and pharma. 2. Continued leadership in oral Care: EPL strengthened its leadership in oral care. The year saw wallet share gains from marquee customers in Europe and Americas with a global major added in Europe and market share gains from regional players in China. For FY21, revenues increased 10% YoY. 3. Growth in Europe: With 15% YoY growth in personal care and 9% YoY growth in oral care, revenue increased 14% YoY during FY21. In the wake of key customer wins in Europe, EPL now serves all major oral care players in the region. EBITDA grew 31% YoY while margin expanded ~200bps YoY on the back of operating leverage. Management optimised operations further with closure of a manufacturing facility in Russia. 4. Industry leadership in eco-friendly solutions: EPL is an industry leader in providing eco-friendly solutions. It received approvals from major regulators – APR, RecyClass and Cyclos. Sustainable products are gaining traction across several customers with a portfolio of solutions. AMESA For Q4FY21, revenue jumped 28% YoY and EBIT margin contracted 307bps YoY to 8%. For FY21, revenues grew 6% YoY, while EBIT dipped 59bps YoY. Personal Care contribution declined to 49% in FY21 (from 50% in FY20), due to sluggish demand in B&C. B&C has recovered in H2FY21. This was offset partly by timely launch of hygiene products. EAP Revenue jumped 37% YoY, while EBIT margin grew 68bps YoY to 11.7% in Q4FY21. For FY21, revenues grew 26% YoY, while EBIT spiked 44% YoY. Personal Care contribution increased to 40.4% in FY21 (versus 34.5% in FY20) with growth driven by B&C and pharma segments. The business pipeline remains robust and focus remains on fast-growing regional players. Americas Revenue rose 2% YoY, while EBIT margin contracted 576bps YoY to 11.5% in Q4FY21. In FY21, revenues grew 5% YoY, while EBIT dipped 20% YoY due to higher employee expenses as covid-related expenses exacerbated raw material escalation. Personal Care contribution is maintained at 25.0% in FY21.The company saw customer wins across categories in personal care and traction in bottle-to-tube product conversions. Cross-selling Personal Care products to existing Oral care customers remains a key focus for the company. Europe Revenue grew 6% YoY, while EBIT margin grew 231bps YoY to 9.4%, the highest ever. In FY21, revenues grew 13% YoY, while EBIT rose 64% YoY. This was led by strengthening of front-end organisation and an improved pipeline development process. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights EPL informed that it has gained wallet share with marquee global consumer companies in Europe in the oral care business and now serves all players in the region. Personal Care contribution rose to 65% in FY21 (versus 64% in FY20) as revenues expanded 14.7%. This was driven by strong customer wins across Personal Care categories. Europe region continues to have a robust business development pipeline. 358 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Heritage Foods Operating and Financial: Revenue declined 5% YoY primarily led by volume decline of 9% YoY to 1.0 MLPD compared to 1.1 MLPD in Q4FY2020, partly mitigated by a 5% YoY increase in realisations. Sales however improved 2.4% QoQ. This came optically lower versus peers as HTFL preserved fat stocks in March anticipating better summer. Milk procurement contracted 9%YoY and 3% QoQ in Q4FY21 to 1.2 million litre per day (MLPD) compared to 1.3 MLPD in Q4FY2020. VADP sales lower: VADP de-grew mere ~3% YoY and up 18% QoQ (versus 23% decline in 9MFY21) as out-of-home consumption started showing signs of revival in end of Q3FY21. VADP contribution stands at ~26.6% in Q4FY21 (Q3FY21: 22.5% of sales). With procurement prices declining 3% YoY but up 7%QoQ to INR37.2/liter, gross margin declined 503bps QoQ to 23% versus 29% in last 2 quarters. EBITDA margin improved 352bps YoY (though down 514bps QoQ) to 7.7%. As a result spreads narrowed to INR9/liter versus average of INR12 in 9MFY21. The company continues with its efforts of enhancing value-added product portfolio and launched Mozzarella and processed cheese, fresh cream, cool café drink, and further expanded its ice cream portfolio. The company recorded a fair value loss on its FRL stake at INR0.45mn versus INR204mn in Q3FY21. FY21 For full year FY21 procurement dipped 14% YoY in FY21. Sales declined 9%YoY in FY21 to INR 24.7bn. Post Q1FY22, as lockdown opens up we expect sales to pick up. For FY21, EBIDTA registered 100% growth to INR 2.7bn, with margin improving 600 bps to 11%. Over medium term, company believes 8.5% EBIDTA margin to be sustainable. While procurement prices have seen tightening, company is sitting on SMP inventory, which should help in summer season. HFTL has taken price cut in market of Tamil Nadu (~10% of sales), however company believes it can be rolled back as lockdown opens up. Ecommerce growth been very positive for the company with 55% YoY growth through the segment. Modern trade has grown 15% YoY for the company. Going forward in FY22, company expects to spend 0.3-1% of sales mainly through new age digital initiatives versus 0.3% in FY21. Heritage Nutrivet subsidiary reported 17% YoY growth in sales for FY21. Further EBIT grew 4.1x to INR112mn. Further company has appointed Mr. Viney Vatal as Chief Executive Officer (CEO) of Heritage Nutrivet Limited, Wholly Owned Subsidiary Company of the Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Company. During the last 15 years (Since Nov 2005) he was associated with M/s. Godrej Agrovet Limited in animal nutrition as 'P&L Head’. Others Capex: The company believes capex in FY22 should halve to INR500mn versus INR0.9bn in FY21 as it has already created infrastructure. New Infrastructure created in FY21 includes: 1 lc liter milk capacity on greenfield basis in Mumbai on Mumbai Surat road which has milk, curd, buttermilk capacity as well. Further it added 50,000 kgs per day curd capacity in Hyderabad and 50,000 kgs per day curd capacity in Vishaka. For the JV with the French player Novandie company has incurred capex of INR340mn. Further company believes they can double capacity from 10MT per day to 20MT per day with minor equipment addition and add more products to the already planned product portfolio of fermented drinks and Yoghurt. Further they will be adding more products like Desserts from JV Partner’s portfolio. As a result of improved profitability for FY2021, Heritage Foods has managed to reduce its debt significantly. Further total proceeds from sale of Future Retail (INR 1,360 million) was utilized to repay debt adding to the overall Balance Sheet strength and further strengthening the Company’s debt-equity profile. Gross Long-Term Debt stood at INR 469 mn. This has been reduced from INR1.72bn in FY20. Net Long-Term Debt stands at INR 251 mn as on March 31, 2021 Debt-Equity at 0.10:1 & Cash and Cash Equivalents at INR 218 mn in FY21. Led by the current covid struggle management believes the INR60bn overall sales target may be attainable in FY26 versus FY25 earlier. Capacity stands currently at 2.1mn litres of milk chilling capacity, 2.37mn litres of processing capacity and 1.7mn litres of packing capacity and 742ktpd curd packaging capacity. HFL expects to cross 3.0–3.5mn litres over the next five years, which will be funded. Company has strong relationships with +0.3 million dairy farmers for milk procurement. HTFL exited its stake in FRL of 17.8mn shares, for a value of INR1.36bn. The same was used to retire debt. 360 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Sheela Foam Q4FY21 Other expenses – Deliberate attempt to reduce advertising, selling and travelling expenses to compensate for the fall in gross margin. Current situation remains challenging. Till 15th April most stores except Maharashtra and Chhattisgarh were open. At present, only 20% of stores are open. Ecommerce business grew 70% YoY in FY21. In India operations, share of ecommerce would be 3-3.5%. Margins in this channel are not higher due to lower pricing. Working Capital Inventory has gone up due to hike in RM prices. Receivables have gone up by INR370mn and this is a one-time phenomenon due to higher revenues in month of march, as SFL reported revenues of INR2.0bn this year, previous March INR1.4bn. Raw Material Company expects RM to fall till June/July Mattress segment Generally company looks at price increases twice a year – March/April and October/November around festive season. Store reach: EBO: 4,800, MBO: 6,000 Starlite and Feather foam grew 40% in the MBO channel Other Segments IT venture Stacko is doing well Technical foam has done very well, especially in the Auto segment. Also, China factor is helping from an export opportunity perspective. Within a month of the lockdown opening, company plans to launch the pilot of its furniture business. International subsidiaries Both places there are regular price hike taken. Australia, there is a rise and fall in prices, based on the movement in RM In Spain, SFL has been taking price hikes. However, it is more erratic compared to Australia. Spanish export opportunity is still in assessment and WIP. Import into US is a USD1.5bn market size Capex Company has an expansion in India (Jabalpur), Australia (New line) and Spain lined up. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Jabalpur – Construction should start in 1st week of October and will be operational by middle of next year. Total capex will be around INR1bn. India - Jabalpur: INR700mn, Export: INR300mn, Maintenance: INR450mn Spain: EUR2-3mn Guidance Given the uncertainty, company has decided not to pay Dividend Advertising expenses: 5% in normal times vs 4% in FY22, Selling Expenses: 12% in normal times vs. 11% in FY22 362 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Solar Industries Q4FY21 conference call highlights Driven by favorable macroeconomy, sales increased for coal, Singreni. Upside in exports: Maintaining momentum. Targeting 30% growth over FY22- in all operating sectors. (Domestic: volume and prices to extent of 30%, exports also to deliver 30% plus growth). Defence turnover will double: (Domestic-25% growth)-Exports(30%)-defense-to double. Dividend INR6/share. Capacity addition in India: New asset turnover to improve to 2.5x. Expansion plans:-Last two months pandemic issues, not yet taken. Location is yet to get finalized. Currency translation losses: INR340mn for Q4FY21. FY21: INR 1.25bn. Margins to go up as defense sales increase. Expect CAGR of 20% on top-line over the next three years. Expect more than 30% growth in bottom-line. Initiating system- Q4-sales have increased nearly due to low base. Operations in six countries. Tanzania plant to come up during Q2FY22. Six new countries to be added by FY23. The company is entering Australia (USD2bn). Other countries are also similar. FY22: EBITDA margin contract (21-22%). Competitive intensity finding difficulty-WC cycle increased due to delayed payment from end-customers. Debt –Equity ratio: Don’t want to make company overleveraged. ROE-From 25% in the past to 22% (FY21). If projected sales growth takes place, RoCE might reach 27% and 28%. Domestic Realization increased by 26%YoY because of the rise in commodity prices. Contracts linked to prices. Expansion to overseas territories also helped. Coal India-18% versus 19% during Q4FY20. Housing and Infra demand picked up. Coal ton-INR1bn production by FY24. Market share of SOIL (25%) in CIL. FY21: Down by 2% YoY because of poor offtake. Govt. new allocations of mines. SOIL-CIL and other mining-market share 25% Non-Mining: housing and infra-28-27% To increase market share-southern and new plant in northern part capex EBITDA margin (contracts led to raw material)-21-22%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Inventory lead gains- Inventory is not huge due to supply disruption. Exports South Africa: Covid issues, restrictions in turkey during Qq4FY21-normlacy coming in. South Africa-restrictions continue. Entire progress has slowed down. Rest countries: Normal. Situation is improving and would be seeing in coming quarter. Margins-Australia and SA Losses:-Compared to FY20, Despite challenges, sales in Australia (530% YoY) and SA (68% YoY). Order are there, due to lockdown hurdles supply is not happening. Defence Covid-19 delays in new orders Production clearance received for MMHG Margins better. Order book:-INR 6.8(MMHG-INR 4.5bn). Products create will replace imports. Upcoming FP-Pinaka (floated-participated), RFP-ammunition (SOLAR will participate), BMCS (participating). Exports-received from southeast Asian countries-similar opportunity will come. It has a supply advantage. RFP in pipeline. Only company qualified for doing Pinaka missile in private sector. Raw material Changes in account of commodity prices Other expenses-efficiency improved Financial overview Capex: INR3.15bn (Capex for FY21: INR2.5bn). Asset turnover: 2.5. WC days 108 days 364 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Supreme Industries Q4FY21: Volumes and margins surpass our expectations Revenue jumped 46% YoY vs our estimate of 50% growth led by increase in volumes 8% YoY. Volumes increased across segments, except pipes, which reported 2% YoY decline. Industrial division reported 45% YoY increase in volumes, consumer division reported 12% YoY increase in volumes and packaging division’s volumes jumped 40% YoY. Further, margins have shown significant improvement of 530bps YoY to 24.5% led by pipes segment with improvement in margins by 650bps YoY to 27.1%. Industrial (up 250 bps YoY to 16.6%) and consumers (up 110 bps YoY to 25.2%). On the other hand, packaging division reported 530 bps YoY dip in margins to 16%. Overall EBITDA for Q4FY21 thus increased 86% YoY to ~INR5.1bn. Supreme Petrochem Demand from consumer appliance segment is robust in domestic and exports markets, which is driving growth in this segment. Current capacity is fully sold out and thus the company is expanding capacity by 90,000 tonnes in Poly-Styrene and by 30,000 in ABS. The company should complete all expansion by Dec 2021/March 2022 with total capex of INR2.6bn. World market is willing to pay premium on its products and thus management expects good delta to continue for some more time. PVC Anticipates PVC prices to start dipping gradually. Demand scenario Till 20th March demand was strong. Volumes for pipes division were weak as agri pipes demand was weak in Jan and Feb with sharp increase in prices. April onwards demand for agri pipes is picking up again as people are getting used to higher prices. In April, demand is generally lower compared to March; nevertheless, April 2021 is far better than last year’s April. Localised lockdowns impacting demand, but situation is not as worst as last year. Cash flow utilisation The company continues to seek opportunities only in plastic products. Apart from pay-out increase (already done), capex will be spent on adding 3 new locations. Plastic pipes and market share gains While PVC resins consumption in India is down by 15.7% YoY in FY21 (~70% consumption in plastic pipes), PVC consumption for SIL is down by mere 3.7% leading to significant market share gains. Apart from PVC pipes, the company has gained market share even in CPVC segment (3.7% volume decline versus 11.6% industry decline). Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights Shift is likely to continue and market will grow higher than GDP growth. Agri demand seeing signs of picking up. May is generally the peak month for agri; however, the company’s main demand driver is housing. Industrial The company saw better demand from consumer appliance segment during the quarter. Currently business conditions are not clear due to huge surge in covid cases in the country, necessitating to put across stringent curbs by various state governments. However, the company believes business scenario remains bullish in the medium and long term. Inventory gain Total inventory gain stood at INR2bn in FY21, of which large portion was seen in Q3 and Q4FY21 (INR0.8bn in Q3FY21 and INR0.8-1bn in Q4FY21). April has seen marginal increase in PVC prices. Q4FY21 operating margin Pipes - 27.8 % Packaging – 15.8% Industrial – 15.6% Consumer – 25.6% Margins are likely to sustain at ~17%. 3% margin improvement in current quarter was led by inventory gains. Rest was contributed by reduction in expenses and increase in value added products. Capex In FY21, the company did INR 3.14bn capex and plans to do INR4bn capex in FY22 including INR1.98bn carry forward capex of FY21. The total capacity addition would be ~40,000 tonnes. The company has also embarked on putting up three new greenfield plants in Assam, Orissa and Tamilnadu during the current year (ex of this capex). Growth drivers Governments at the Centre and states have put the priority focus on Jal Jeevan Mission, Swatch Bharat Abhiyan, Sanitation and affordable houses to all and development of 100 smart cities on all India basis. NITI Aayog has declared following as growth drivers across the country: 23. Government infrastructure spending 24. Increasing construction 25. Increasing Industrial production 26. Rising demand from irrigation sector 27. Replacement of aging Pipes 28. Providing affordable house to all 366 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights 29. Heavy investment by Government in irrigation, housing and sanitization Almost all the above growth drivers will boost the business of Plastic Piping System Division. Cross laminated films Cross laminated film products demand will boost in the coming year as weather forecast by SKYMET the monsoon in India is predicted to be normal with no La Nina scare. The thrust in coming year in exports will be mainly on developing newer applications, entering new markets and targeting chain stores and super markets for sale through their online portals. The company is also increasing its capacity from present 27,000 MT P.A. to 30,000 MT P.A. and expects the exports to grow further in the coming year apart from increasing the sale of made up products. Consumers Its e-commerce business grew by 100 % during the year and consumer behaviour during the year showed a major shift towards online shopping. Material handling SIL plans to introduce new models in Pallets, Crates and Ice boxes in Roto Moulding and is well poised for growth in the current year. Composite cylinders The largest Indian oil marketing company, Indian Oil Corporation, purchased small quantity of Composite Cylinders in March 2021 for marketing trials in 4 cities of India. This augurs well for the long awaited introduction of Composite Cylinders in Indian market. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q4FY21 conference call highlights VIP Industries Financials Revenue growth: Revenue declined ~22% YoY (up 5% QoQ) in Q4FY21 as demand improved driven by a pick-up in air travel, weddings and gifting. Gross margin: Gross margin plunged 1,383bps YoY to 43.76%, mainly due to higher discounts and sale of lower-margin products and liquidation of old stocks. However, gross margin improved 534bps QoQ as production from Bangladesh scaled up. Though sales improved sequentially, EBITDA dipped 90% YoY, and 65% QoQ, on higher gross margin. The sequential decline is attributable to higher employee and other expenses. Overall expense decreased from INR6.1bn in Q4FY20 to INR3.2bn in Q4FY21 Savings in Q4FY21 were lower as the business reopened and certain costs returned. Management ascertains INR1bn of fixed cost reduction is sustainable: INR0.6bn reduction in other expenses and INR0.4bn cut in employee costs. Other income jumped 2.96x YoY to INR162mn owing to impact of ~INR57mn due to rental concession from the practical expedient granted in Ind AS 116. VIP also gained INR88mn during Q4FY21 from disposal of immovable property with transfer of capacity from Haridwar to Nashik. Management plans to repay an INR500mn by H1FY22 end. VIP expects clarity on settlement of insurance claim in H1FY22. Operations and Outlook Q1FY22 and beyond: While demand was robust in the first three weeks of April, the second wave impacted the business significantly in a seasonally strong period. However, management expects recovery to be speedier this time around. Management remains optimistic over the long-term. With an increase in raw material prices, VIP has undertaken two price hikes across select ranges in March and April. Demand for value products rose vis-à-vis higher-end VIP and Skybags. Management believes sustained demand revival would aid in increase of demand across the portfolio. VIP has significantly increased its presence across e-commerce with the advent of the pandemic. The company has seen sales from e-commerce channel contributing ~17% of its aggregate sales in FY21. Management shut 100 EBOs during H1FY21, which are not expected to return. Management will look at scaling up exports as demand rebounds; however, priority remains to strengthen positioning in domestic market and recouping market share. According to management, lower labour costs and import duties make Bangladesh favourable in cost structure vis-a-vis sourcing from China (15% import duty) or even India. 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