Market Overview Monthly Insight Performance Startup Corner Book Review Prominent Headlines Sector Outlook - Defence Agri Inputs: Set for Ample Lift World Economic Event Calendar Q&A with MD Management Meet Note Mutual Fund Overview Stock Picks Economy Review Technical View insight September 2020 Indigenization

Q&A with MD Mr. Sunil Subramaniam, Sundaram Mutual Fund

Mishra Dhatu Nigam Ltd. | Hawkins Cooker LTD. Phillips Carbon Black Ltd. INSIDE THIS ISSUE Market Economy 1 overview Review 35

Prominent Startup headlines corner prominent August 2020 headlines 4 42

Q&A Agri Inputs: with MD Set for ample lift Mr. Sunil Subramaniam, Managing Director, 6 Sundaram Mutual Fund 43 Stock Mutual Pics fund overview • Mishra Dhatu Nigam Ltd. • Hawkins Cooker Ltd. • Phillips Carbon Black 11 49 Ltd. Monthly Technical insight view Recommendation 20 performance 54

Sector - Book review Defence Masterclass with Super-Investors by Vishal Mittal & 24 58 Saurabh Basrar

Management World Meet Note economic 31 • Ester Industries Ltd. calendar 61 MarketOverview

Markets are at an interesting crossroad where the future journey is uncertain at least as far as the divergent views of different investor class goes.

For the markets to sustain this rally, will always act as a deterrent for earnings need to be supportive The production attracting foreign direct investment as well. Here again, earnings will (FDI) in the manufacturing sector linked incentive (PLI) not grow uniformly but there are and hence these PLI schemes if sector specific triggers for sure. The scheme for mobile adequately provided could make production linked incentive (PLI) manufacturing has competitive. The PLI scheme scheme for mobile manufacturing now been proposed for new sectors would be similar has now been proposed to five to five or six more to the ones announced by the or six more sectors, including air sectors, including Electronics Ministry for development conditioners and TV sets, leather, air conditioners of a mobile manufacturing ecosystem chemicals, furniture, tyres and toys, and TV sets, leather, in the country and another Rs 7,000 in a bid to boost manufacturing in the chemicals, furniture, crore scheme by the Chemicals country. While India made significant tyres and toys, in a bid and Petrochemicals Ministry for progress on World Bank’s ease of to boost manufacturing the pharmaceutical sector for doing business ranks, inability of any in the country. manufacturing bulk drugs and active Govt. to amend land & labour laws pharmaceutical ingredients (APIs).

1 INSIGHT September 2020 The PLI scheme is expected to market has seen equity share sales replace existing Merchandise Exports worth more than $26 billion. Media India Scheme (MEIS), under which articles state that only a portion of For Q1F21 however, liability ballooned from Rs 20,000 this has happened outside the stock corporate India cr in FY15 to Rs 45,000 cr in FY20 for exchange platform, which has got posted better than the Govt. These announcements have reflected in the FII number. However, expected numbers kept the mid & small cap stocks from if one considers, investments in share and it could be these sectors to gain significantly sales, such as qualified institutional argued that the placements, the FII flow tally would higher. Apart from PLI, the Govt. has expectations or also announced to raise import duties look even bigger. or imposing safeguard duties over starting point was FII flows ($ million) a range of products from chemicals that of a washout to optical fibre, to keep investors MTD QTD YTD due to nationwide enthused. In fact, foreign institutional India 5500 6653 4211 lockdown in April investors (FII) have also been net Brazil 542 -1054 -17583 and there after buyers in the domestic markets since Philippines -161 -285 -1610 gradual easing from April while other emerging markets Malaysia -194 -794 -4585 have witnessed outflows. India has May & June. Indonesia -281 -545 -1584 garnered the highest FII flows on the Thailand -447 -770 -7570 month-to-date, quarter-to-date, and markets is now at 50% vs a long- South Africa -855 -1462 -5006 also year-to-date bases with overseas term average of 36%. Hence, going Taiwan -1377 -1108 -19949 investment into the domestic equities ahead, earnings expectations would South Korea -1,421 -696 -22376 markets nearing $1-billion mark for really differentiate between reality Source: Business Standard, Bloomberg the quarter. While few experts have and euphoria. For Q1F21 however, attributed this love of FIIs towards The stance by FIIs is at contrast corporate India posted better than domestic markets as an outcome with overseas ETF and mutual expected numbers and it could be of the proactive steps by Govt., the fund investors who have been busy argued that the expectations or fact that large share sales by top withdrawing from India-focused starting point was that of a washout listed companies particularly in the funds. Data compiled by Morningstar due to nationwide lockdown in financial space have also aided the showed that India-focused offshore April and there after gradual easing inflows. So far this quarter, 12 firms funds saw net outflow of $698 million from May & June. Sales of Nifty 50 have mopped up $9.4 billion, while during June quarter, showing exits companies declined 29% yoy while on a year-to-date basis, the Indian for the 29th consecutive month. EBITDA & PAT declined 6% yoy & Similarly, India-focused offshore 26% yoy. However, what’s important ETFs saw an outflow of $776 million. is that more than half of the Nifty The stance by Media articles stated that the outflow companies have actually produced FIIs is at contrast stood at $450 million in July and better than consensus results, led with overseas ETF provisional data suggests the same majorly by financials & NBFCs due trend continues in August. Himanshu to decline in their moratorium and mutual fund Srivastava, Associate Director and book and standstill on asset quality investors who Manager for Research at Morningstar classification. Excluding financials, have been busy India stated that the flow of funds Nifty revenue declined ~34% yoy withdrawing from “indicates that foreign investors while EBITDA declined 29% yoy & India-focused funds. with long-term investment horizons PAT 44% yoy. This typically shows Data compiled by have been adopting a cautious the pain in the manufacturing sector. stance towards India. Although Morningstar showed Following Q1FY21 performance, Nifty this is worrying, it is not entirely FY21 EPS has been revised upwards that India-focused unexpected, given the country’s by few experts while many still offshore funds saw current economic landscape and remain skeptical. The fact remains net outflow of $698 uncertainty over the impact of the that outperformance of estimates million during June coronavirus pandemic on the global by ~25-26 Nifty 50 companies could quarter, showing as well as domestic economies,” be on account of very depressed Although, global funds continue to exits for the 29th expectations in the first place and the remain overweight India relative to recovery remains weak. consecutive month. other APAC countries, MSCI’s India’s Most importantly, while the growth valuation premium to emerging

September 2020 INSIGHT 2 into the second quarter”. One of the APMC and Essential Commodities silver lining has been the progress Act. However, the yields on 10-year India is still of monsoon which has been 7% Govt. bonds is significantly higher reporting ~65,000 above normal as of August 21. Of than the repo rates, not to mention new cases and testing the 36 meteorological subdivisions the real interest rate is negative, parameters still low in India, monsoon rains have been which will have major implications when compared to either average or above average in on financial savings in FY21. Perhaps, developed nations 32 so far this year. As of August 21, some of which have been diverted the total kharif acreage was 8.6% to equity markets given the record but mortality rate higher than the same period last retail participation (~82% now). While for India is low. year while reservoir levels have also monetary policies don’t work when However, global moved to surplus 7% above long-term food inflation remains high, the RBI liquidity remains average for week ending August 20. has hence announced for yet another surplus and This augurs well for the rural based round of simultaneous purchase and supportivefor equity theme where rural & agri related sale of government securities under market. sectors will continue to do well Open Market Operation (OMO) for since rabi crop is also expected to be an aggregate amount of Rs 20,000 bumper this year. More importantly, crore. The same will be done in two this would tame the food inflation tranches of Rs 10,000 cr wherein it rate in daily new covid-19 cases have which has put monetary policy will buy long-term bonds and sells moderated from last week, India is committee (MPC) members of RBI short-term government securities still reporting ~65,000 new cases in a fix since CPI has been above (G-Secs) simultaneously thus and testing parameters still low the comfort zone of RBI for four lowering long term yields & raising when compared to developed nations months now and a rate reduction in short term ones, although needless but mortality rate for India is low. October policy is now remote. While to say such an impact will not be However, global liquidity remains WPI depicts deflation, CPI neared durable. surplus and supportive for equity 7% in July and the divergence is on market. However, contraction in account of varying weights of food economic activity will likely prolong items in CPI & WPI. Experts have linked high food prices to supply as states have re-imposed stricter It is well known lockdown, said the Annual Report side constraints while others have of the Reserve (RBI). attached to increased demand. It fact that there are High-frequency indicators so far however needs to be remembered market imperfections pointed to a “retrenchment in activity that food inflation has been which pushes retail persistently higher since November that is unprecedented in history”, prices and the Govt.’s the report said, adding, “the upticks 2019 averaging close to 11% (excluding that became visible in May and June April- May 2020) and did not correct recent agri reforms after the lockdown was eased in in line with the RBI’s expectation will address a lot of several parts of the country, appear in the Jan-March 2020 quarter. It issues particularly is well known fact that there are to have lost strength in July and with regards to August, mainly due to re-imposition market imperfections which pushes or stricter imposition of lockdowns, retail prices and the Govt.’s recent APMC and Essential suggesting that contraction in agri reforms will address a lot of Commodities Act. economic activity will likely prolong issues particularly with regards to

Paras Bothra President - Equity Research (Retail) Email - [email protected] Phone: +91 22 6611 1700 Direct: +91 22 6611 1786 Mobile: +91 98203 97061

3 INSIGHT September 2020 f India wants to deliver ndia’s GDP is quality education to its expected to shrink Prominent Ichildren, it needs an Iby at least five per honest conversation on cent. There is a fear that headlines private schools and their we may even reach the august 2020 contribution towards lowest GDP (growth) nation building. it is time since independence, they open up the educa- since 1947 we cannot don’t believe we tion sector. investment make the economy come should read too much would flow in, improving to a halt. Over 140 million into the green shoots I choices and quality… workers have been that you refer to. What Manit Jain, Chairman, affected by this virus. So, we’ve been seeing is just FICCI ARISE the smartness is in defin- a mechanical rebound ing a new normal. This from the depressed base n the days to come, normal should allow our of the lockdown; it will be we have to move economy to grow while misleading to see it as a Iwith confidence as moving on the earth and signal of a durable recov- there is no alternative fighting the virus…NR ery… D Subbarao, to Atmanirhbar Bharat. Narayana Murthy, former RBI chief There is a need to make co-founder our industries more ritical infrastruc- competitive as more ower sector has a ture building competition will result in problem. There is through an improving efficiency of C our industries. I believe a slump in power integrated approach, P that only competition will consumption. The bills right from a number of help…Suresh Prabhu, are not being collected strategic tunnels and former Union Minister by them. PFC and REC bridges to 22 green have been allowed to expressways, is bound to give loans above the 25% place India in the league he total number of working capital limit. This of advanced nations like migrant workers will increase liquidity the US, UK and Australia Tin India exceeds of the state discoms…. in the coming two years… 100 million. One in four workers in India is a Prakash Javadekar, Nitin Gadkari, union migrant. Some migration Union Minister minister is beneficial. However, unless we tackle the e must also igital India has issue of continued realize that reimagined how increase in rural-to-urban howsoever our government migration, India’s growth W D sophisticated a technol- connects with citizens will be hampered… ogy may be, these are and accelerated deploy- Gautam Adani, Adani useless unless they ben- ment of AI and other Group Chairman efit the common man, emerging technologies We must continue to will help further this he policymakers develop applications that objective. In order to should focus on positively impact lives harness its full potential, Tprotecting the of people, contribute to India needs to embrace economy as businesses employment, increase AI innovation and struggle amid the productivity, open regulation with an open, coronavirus pandemic markets, improve skills inclusive…and a collab- instead of being overly and living standards orative mindset… Ravi focused on what ratings of common man… R S Shankar Prasad, agencies think... Raghu- Sharma, TRAI Chairman Minister of Law and Jus- ram Rajan, former tice, Communications, Reserve Bank of India Electronics and IT (RBI) governor

August 2020 INSIGHT 4 leanliness, essential- ndia’s credit provision ity and dominance, can be enhanced by the Care the three param- Ifaster cleanup of banks eters that one should look and NBFC’s. Excess deficit at to invest in a company, companies should reform The #NationalRecruit- firstly, you look for clean their policies for sustain- mentAgency will prove franchises, we want to ability. Improvement in the invest with promoters who business climate and lib- to be a boon for crores of are clean, who are honest, eralizing trade policies will youngsters. Through the and who are not stealing help attract foreign direct money. Secondly, look for investments. For excess Common Eligibility Test, companies who are pro- surplus companies, reforms it will eliminate multiple ducing essential products to encourage investments and services... Thirdly, look should be made. Other tests and save precious for dominant franchises, problems to combat are time as well as resources. look for monopolies.… social safety nets and SAURABH MUKHERJEA, excess savings by house- This will also be a big founder of Marcellus Invest- holds. Gradual liberalization boost to transparency… ment Managers will enhance portfolio flows in India….such support is Narendra Modi, Prime he lockdown has needed… GITA GOPINATH, Minister been a lot more chief economist of the Tprolonged than International Monetary Fund anyone imagined in the (IMF) beginning. So the impact played out slowly — slow ndia needs to look at poison creeping up over ESG (environmental, the organised sector — and Isocial and governmental) salaried people are losing factors to attract major their jobs, and they will investors and get the find it a lot more difficult to sustained foreign direct get them back… Mahesh investment of $100 billion India is the fifth largest Vyas, Managing Director per annum that the country economy in the world. So, of the Centre for Monitoring needs to get back to 8 to 9 Indian Economy (CMIE). percent growth. The invest- if the Indian banking sec- ment pool around the world tor was proportional to the e have to go is estimated to be about back to simple $45 trillion, of this $12 size of its economy, India Weconomics, not trillion comes under ESG… should have been where the economics of some Mukesh Aghi, president academics that have never of US India Strategic and South Korea is, which has worked in our lives, but Partnership Forum (USISPF). six banks in the global top to real economics where people actually produce any FTA countries hundred. But in contrast, things and as a result of do not allow India has only one bank the production of goods or Maccess to Indian the production of services goods, even though they in the global top hundred. prosperity then follows. If are part of FTA protocols. India needs more global the Federal Reserve and India will take “equal and other central banks are proportional measures” to sized banks to help the printing money, the value protect domestic manu- country achieve $5 trillion of money will diminish and facturing if other countries that is not difficult to see… continue imposing restric- economy by 2024-25… K Marc Faber, publisher of tions or barriers on Indian V Subramanian, Chief the Gloom Boom & Doom goods…Piyush Goyal, Economic Adviser Report Commerce and Industry Minister

5 INSIGHT September 2020 TV ads, toll revenues and unemployment levels have dropped to pre-covid levels on business resumption led by higher allocation in MNREGA. In rural regions, kharif sowing have been strong leading to higher fertilizer demand. Positive momentum is also seen in electricity consumption, traffic congestions across metropolitan cities as well as in railway goods earnings. Even looking at the progress of programs announced under Atmanirbar Bharat, for Rs 300 bn additional working funding for farmers, 83% has been disbursed, hence the traction witnessed in rural India while other funding schemes like that of credit guarantee for MSMEs, partial guarantee of NBFCs and liquidity scheme for NBFCs/HFCs/MFIs, all have been disbursed 31%-40%. As disbursal picks up going ahead, so will the economic growth from here on. Together with this transmission of rates have also started to happen with banks lowering MCLR and hence augurs well for V-shaped recovery. Besides, the Govt. has Q&A with MD also stepped up spending and that will add up big way. Now, since we Mr. Sunil Subramaniam - Managing have to live with the Covid-19 until there is a vaccine, it is heartening to Director, Sundaram Mutual Fund note that the trajectory of current growth in virus is lower than peak Could you elaborate on the state of are no cures for coronavirus at and more importantly, the fatality the economy with regards to the present and India is still to reach leading indicators? herd immunity for majority of its population. There are few sectors Even considering After sharp correction in March which have continued to grow there has been a V-shaped recovery GDP projections for while there has been slowdown in on expectations as talked about and IMF, recovery for some sectors. For instance, in auto after pent up demand in months of sector, after a V-shaped recovery CY21 is higher even May & June, there has been some in months of May & June, average across average of all signs of slowdown or flattening of daily vehicle registrations have curve in many sectors in recent emerging economies, flattened out in July end. Mobility weeks. However, this phenomenon hence one needs to in urban areas have been affected is not spread across all sectors but in due to intermittent lockdowns maintain a positive few of them and as economy opens imposed across cities in July. Even outlook for next year up, the number of cases has also for the daily E-way bills shows some increased. This phenomenon was also albeit there has been slowdown in July after tremendous witnessed across western countries a slag in some sectors jump in May & June. However, as well, and particularly USA. One recovery is seen in a lot many in short term. has to keep in mind that so far there indicators like Retail e-transactions,

September 2020 INSIGHT 6 have been the biggest outperformer. structural change in China i.e. a Even from a perspective of next 18 decline in labour supply from 2017 From a 1 year to months, pharma sector is expected onwards which is a fallout of their 18 month view, to generate double digit returns policy of ‘one family one child’. In one can look for and the future is bright, a lot of the comparison, India’s labour supply consumption, jump up or growth has already been for the next 30 years is on a rising discounted by the markets. trend until it makes a top ~2050. pharma/ healthcare Hence, China is going to experience Which are the sectors where there and IT as three labour shortage and India labour is a pending recovery and can surplus. Within the time frame important sectors deliver strong returns? which can give good from 2017-2027, China could lose 21 It depends on the time frame since million people of their working age returns. there will be volatility for the next population, in comparison to India one year due to the US presidential adding 116 million people. However, elections and also a strong recovery this surge in working age population rate has declined. Even considering in Indian economy is reckoned post is a two-way sword and would weigh GDP projections for IMF, recovery for Diwali. So, from a 1 year to 18 month heavily on India’s economic growth CY21 is higher even across average of view, one can look for consumption, if the Govt. is unable to generate jobs all emerging economies, hence one pharma/healthcare and IT as three for these 116 million people and could needs to maintain a positive outlook important sectors which can give very well lead to civil wars in the for next year albeit there has been a good returns. IT sector also very country. Besides, India’s labour costs slag in some sectors in short term. similar to pharma has traction in are also significantly cheaper when their business due to lockdown If you could highlight the sectors compared to China. Moreover, this and the same for telecom too. The which are witnessing recovery at covid-19 has only acted as a catalyst business model for these sectors have great speed as 44% of companies now have an got improved because of the whole intention to move out of China and Stock market itself is a leading crisis resulting in working from home the eagerness to get out early has indicator and rises ahead of earnings and being data dependent. People increased. The total opportunity of and later on earnings catch up. would look at more work to be done exports which will be given up by Comparing the sectoral indices by IT outsourcing companies. From China is between $350-$550 billion between 31st Mat’20 and 7th Aug’20, a 3-5 years investment perspective, and is up for grab. Vietnam is the the most affected sector due to covid- sectors such as auto, capital goods, biggest beneficiary since it is already 19 was the Realty sector followed realty could be important plays. The dealing with China and familiar by Oil & Gas due to falling prices. true story for India is manufacturing with language and manufacturing Banks was the third most affected and that is where wealth creation practices etc. while India is placed sector due to the fear of surge in will happen for next 3-5 years. at the second spot. Govt. now needs NPAs. The least affected was FMCG Construction materials, , , to take steps to attract FDI, and sector due to steady demand for alumimium, copper, all their demand now Govt. has already taken so essentials or basic necessities and will be linked with improvement in many steps like that of education this had a safety element to that in manufacturing. Although, showing policy, improvement in ease of the stock markets. The second least negative trend today, they are the doing business, cut in tax rates and affected sector was healthcare since best bets from a 3-5 year perspective. more importantly tax rate of 17% for this was a medical crisis, and India The Govt. is coming up with new manufacturing set up, which being one of the largest generic bulk PLI scheme to give a fillip to is lowest in the world, at par with drug manufacturing capacities in the manufacturing to cater to domestic world and hence irrespective of the demand as well as exports. How do which country discovers covid-19 you think the scheme will pan out? Stock market itself vaccine, India would play a big part in bulk manufacturing. The last The background for the Govt. is a leading indicator among the least affected sectors coming up with the PLI scheme rests and rises ahead of were consumer discretionary which with the rough patch in Chinese earnings and later on sell small value items. When we talk manufacturing and which started earnings catch up. about recovery, healthcare sector even before covid-19. India is really has generated highest return and benefitted with this fundamental

7 INSIGHT September 2020 Singapore, removal of DDT to attract set ups where land requirement is FDI. On account of those steps, India not very high. One of the biggest has been consistently attracting problems the Govt. has is to bring V-shaped recovery FDI at a run rate of more than $60 changes in labour & land reforms to in the economy bn, however a lot more needs to unlock agriculture land. However, will not be uniform be done for attracting counties to this Govt. is very proactive and these across all sectors relocate as there are other factors reforms will also take place in due like lower land & labour costs, tax course of time. and some sectors are rates, geographical diversification, slowing down and Your advice to retail investors and better infrastructure, lower trade particularly new class of investors this recovery has only war risk, easier access to supply in the context of rally in the mid & been less negative chain etc. From 2018 onwards, small cap space. India’s electronic imports have been than before and there coming down and at the same time Stocks from the mid & small cap is some time before electronic exports have increased as space have jumped up a lot in the it enters positive last three months and a number of a lot of mobile manufactures have territory. started manufacturing here courtesy stocks have multiplied 5x, 6x and ‘” scheme. The PLI even 7x, part of the reason being scheme that Govt. has announced is work from home and the ones who a $6.7 billion plan to boost electronic has lot of time. People in upper manufacturing in India and promises middle class and middle class elections, US markets has corrected to provide 4% to 6% incentive on haven’t lost their jobs and hence they at the run up to the elections and incremental sales for a five-year have participated in markets. For post elections 8 out of 10 times period. The scheme has met with instance, discount brokerages have markets have bounced back after 6 immense success since 22 companies seen new clients getting doubled and months. So, it is an interesting time have filed application including this liquidity rush is having a play to invest and at the same time very Samsung, Rising Star, Apple phone on the stock prices. But a word of volatile for the next 6 months and manufacturers - Foxconn Hon Hai, caution is advised here as and when hence FPIs will be volatile and India Wistron & Pegatron. Hence forth, these companies declare quarterly is the only exception to have received growth in manufacturing is going results, there could be correction. inflows since April while others to happen and jobs are going to be Moreover, the V-shaped recovery have witnessed exit. Any long-term created and the government will now in the economy will not be uniform investments in the form SIPs, STPs extend these PLI scheme to a lot of across all sectors and some sectors will be good in the next 3-5 year time sectors and particularly for those are slowing down and this recovery frame. has only been less negative than How do you see Nifty constituents in before and there is some time before next two-three years? The recent earnings it enters positive territory. In the of the companies are nutshell, these speculative actions The sector which is most likely are risky in nature and any managed to perform is the banking/BFSI hardly looking good fund whether be mutual fund, PMS because the RBI has also given the and this is not the or AIF will add value over long term moratorium so the recognition of time to get carried because the fundamentals today NPA which is most crucial, secondly away by the rally in do not justify the price rise in the the good quality private sector banks stock markets, rather market. The recent earnings of are sitting on a good amount of cash use SIPs over the next the companies are hardly looking but the overhang of expected NPA is good and this is not the time to get hurting. Any recovery in the Indian 12-18 months period carried away by the rally in stock market cannot happen without to access the market markets, rather use SIPs over the participation of banking sector. Net and staying invested next 12-18 months period to access Interest Margin for the players are for 3-5 years will be the market and staying invested going to be stupendous because they the best option for for 3-5 years will be the best option have bought down the cost of funding for retail investors. US Presidential tremendously and even for a housing retail investors. elections could be a big trick up, loan at 7%, they are still making historically every 9 out of 10 US somewhere around 4.5% net interest

September 2020 INSIGHT 8 risk factor of investing into AMC On the Pharma space which industry could be higher being business would be wiser to Hotel and Aviation it is linked very close to India’s invest- the API or the Formulation Industries are economic growth. Secondly, it is business? likely to see a also subjected to regulatory changes I think API/Generic one would be lot of mergers, for e.g. say if regulator links the better since as and when a vaccine or Asset management fees with the consolidation, some cure develops then the demand will outperformance of the schemes. banks might take the be for the API only. Formulation is Though it is not implemented but hit and writeoff for the easier part to process, so I think possess a big risk for the industry coming out of this API would be the better beneficiary. situation because a because for e.g. presently Large Cap funds are not outperforming the Please advise regarding timing the permanent damage benchmark because only Reliance exit from an investment has happened. So or say Infosys is pulling the Index Every investor since the day of his definitely this is one higher and with mandate for AMC investment should write down his sector where investor not able to buy more than 10% in expectation from his/her particular need to follow a a single stock hence all large cap investment either in terms of making cautious approach. funds are underperforming. So, a goal or in terms of meeting a time with changes in policies from the frame or in terms of meeting a value. regulators like reduction in fees if Whatever might be the investment margin. So, in the short run I don’t the fund is underperforming would philosophy, need to define the expect that sector to perform but in automatically affect the Industry. objective or goal. The only time to sell 3-5 years banking could deliver 50% One of the biggest casualties’ post is when the goal is reached. However, kind of return. The focus should be COVID has been the Hospitality and in reality when the goal is reached towards good quality banks because Hotel Industry, please share your investor tends to get greedy because capital adequacy is a big challenge. outlook in that regard and its revival markets are in a boom and forgets So, banks which can access foreign prospect? the original purpose. So, there is capital will be in sweet spot because only one time to sell i.e. when the There needs to be a restructuring, abroad money is even cheaper than goal of that investment is attained. presently there is excess capacity India. The sector will be in news with When your goals are reached, one now in the Hospitality industry. Work regards to bad loans resulting in should exit the stock. One cannot from home, travel will come down investor fear in the sector. So, there predict the market or which stock because of Zoom and other video are chances that the sector can go is going to do well. The reason we communication platform so definitely down in next six-month period but do the diversification is because the the future is a bit uncertain. I one must have the patience to see market does not follow a logic at all expect that there would be loan through this sector. time. No one can sell at the peak and waiver, loan write-offs and massive Average PE of mutual fund holding buy at the bottom, so when your goal restructuring needed for its revival. is around 25-28 but the average PE I would club the Airline industry of AMC industry is 35-40. So how also with similar situation. Both the do you interpret this precarious Any recovery in the Industries are likely to see a lot of situation and the risk factor involved Indian market cannot mergers, consolidation, some banks while investing in AMC industry happen without might take the hit and write-off This could be attached to scarcity for coming out of this situation participation of premium as here are only two because a permanent damage has banking sector. Net companies which are listed. HDFC happened. So definitely this is one Interest Margin for AMC and Nippon AMC are presently sector where investor need to follow the players are going listed while UTI, SBI and others will a cautious approach and wait and to be stupendous eventually get listed. The rise in AMC watch and see how everything pans because they have will be sharper (low incremental fixed out, definitely there would be some brought down the cost and with scale the incremental winners and losers. So, one should cost of funding stay away from this sector from an revenue disproportionately adds tremendously. to the bottom line) and faster while investment perspective.

9 INSIGHT September 2020 is reached you should exit from that loan for all time. There are willful stock. defaulters and defaulters due to economic condition. As the economy Mutual fund invest Recent RBI Policy and the revive, companies will be back on in the fundamentals restructuring along with the AQR track, so by giving this moratorium and NPA issues of banks (FSR says of the company and period to recover, number of NPA will increase from 8% to 12%). the key element reported NPAs is expected to Your view on banking space. decline. In short term there is some of mutual fund I think what RBI done is good, but it pain for banks as they will require is “Information has created a moral hazard as once capital to survive but in longer term Asymmetry” which you have allowed the slippage than things are going to improve. So, 8% helps them to what is the requirement of financial to 12% NPAs for our economy given slippage expectation. But this is a the growth phase is something I generate the alpha once in a lifetime crisis, so it can be think economy can absorb and move return. justified. Secondly, this crisis is going forward. So, for next 6-12 months to increase the number of NPAs, but I am not looking at banking sector, the restructuring of loans is going to as there will be volatility, bad news reduce the number of reported NPAs. for some banks, PSUs banks are in a anything can happen as narrow rally Further, a bad loan today is not a bad mess, restructuring, mergers, among can happen; 2-3 stocks can take index others. For longer term say 3 years, higher while mutual funds believe in all these factors which are reflecting diversification which usually takes In short term there is in the price has made it a good time to generate return. So, any time some pain for banks opportunity for long term investors. frame greater than 5 years, mutual funds will always outperform the as they will require So, for short term there is some concern but for long term it will market as fundamental earnings capital to survive but deliver great values. will replace the technical liquidity in longer term things factors. Further, mutual fund invest Should we invest in equity or are going to improve. in the fundamentals of the company mutual fund SIPs for better return and the key element of mutual fund So, 8% to 12% NPAs in next 5 years? is “Information Asymmetry” which for our economy Over a long period of time mutual helps them to generate the alpha given the growth funds are expected to do better. return. With the help of mutual fund research and information about phase is something Recently mutual funds have underperformed the benchmark due the company, mutual fund is able I think economy can to short term rally which mutual to select companies before anyone absorb and move funds cannot capitalize on. But on else. This makes the mutual fund forward. the longer-term mutual funds had competitive and create values for its outperform benchmark by about stake holders in the long term. 500bps. In short period of time

Disclaimer: Stocks conveyed by Fund manager are just for illustration and these are not recommendations

September 2020 INSIGHT 10 STOCK PICKS

Mishra Dhatu Nigam Ltd.

CMP: Rs 208 Rating: BUY Target: Rs 260 Share holding pattern as on June 2020 (%) Company Information BSE Code 541195 NSE Code MIDHANI Bloomberg Code MIDHANI IN ISIN INE099Z01011 Market Cap (Rs. Cr) 3887 Outstanding shares (Cr) 18.7 52-wk Hi/Lo (Rs.) 278.8 / 110.9 Avg. daily volume (1yr. on NSE) 10,64,563 Promoters, 74.0% FII, 0.8% Face Value (Rs.) 10 DII, 17.1% Others, 8.1% Book Value 51.1

Company overview better workability which are essential 651 crore at the end of FY17 and Rs. Mishra Dhatu Nigam Ltd. (MIDHANI) for special applications in Aerospace, 569 crore at the end of FY18. How- was incorporated on November Power Generation, Nuclear, Defence ever, since March 2018, on the back 20, 1973 is engaged in the business and other General Engineering of receipt of healthy orders from the of manufacturing of special , Industries. Its products are key space segment, Midhani’s order book superalloys and only manufacturers ingredients for strategic sectors increased to Rs. 1660 crore at the of alloys in India. These high in India, which typically cannot be end of FY19 and to Rs. 1687 crore as value products cater to niche sectors imported from other countries due to on April 2020. Currently, it is ~2.4x including defense, space and power. its national security related concerns. FY20 topline, thereby providing Company is Mini Ratna, Category-I healthy revenue visibility (Midhani’s Investment Rationale company since 2009. MIDHANI is FY20 topline was at Rs. 713 crore). Healthy order book to drive one of the few metallurgical plants With regard to the space sector, the growth of its kind in the world, designed to management has highlighted that After registering a flattish trend in manufacture a wide range of special Isro launches could be delayed by a FY17, FY18, Midhani’s order book metals and alloys using integrated few months. While the order placed witnessed a remarkable increase in and highly flexible manufacturing with Midhani will be executed, there FY19 and FY20, auguring well for the systems. These special alloys have is likely to be a minor delay on the company. The order book was at Rs. superior mechanical properties and delivery timeline. On the other hand,

11 INSIGHT September 2020 defence order booking is likely to countries, with the aim to expand its pick up in FY21, as select programmes geographical presence. Midhani’s order book related to missile development and Most advanced and unique air platforms indicate prospective increased to Rs. 1660 facilities ordering for Midhani. Also, HAL’s crore at the end of MIDHANI is the only facility in India order for 83 LCA-MK1A will have FY19 and to Rs. 1687 to carry out vacuum-based melting corresponding requirement for crore as on April and refining through world class titanium castings that will be pro- vacuum melting furnace such as vac- vided by Midhani. Order booking 2020. Currently, it is uum induction melting, vacuum arc during Q1FY21 was at Rs. 150 crore. ~2.4x FY20 topline, remelting, vacuum degassing/ vac- According to the management 70% thereby providing uum oxygen ecarburisation, electro of order booking for FY21 is expected healthy revenue slag remelting and electron- beam to be from the defence sector. Going visibility. melting. It enables the company to forward, strong traction is expected venture new markets with innovative in the company’s order book, which and advanced products. The company will ensure healthy revenue visibility. has successfully produced Hafnium Expansion to drive future growth products. It is also in the process of having vital application in MIDANI plans to put up spring man- upgrading and modernizing its exist- the space sector for the first time ufacturing plant for manufacture and ing manufacturing equipments and in the country using state of the art supply of helical compression springs facilities. All these expansion plans electron beam melting furnace. Also, for supply to the Railways and aero are expected to be completed in the they have manufactured large nickel quality carbon fibers plant along with next 2 years helping the company to -based casting through air tungsten powder and electrode plant achieve robust growth. MIDANI plans induction melting route. Thus, the in Rohtak and Nellore. Of the two to enter into the new markets of oil wide spectrum of advanced melting new plants, the Rohtak plant would and gas, mining, power, railways and facilities enables them with the flexi- be operational first and is likely to chemical and fertilizers. Midhani bility to provide their customers with be fully operational by September has also entered into collaborations high quality products which meet 2020. The company has signed a with Indian & international research their stringent quality requirements. memorandum of understanding institutions to gain capabilities for Nalco-Midhani JV to set up high- for setting up a joint venture with developing advanced technology end aluminium plant NALCO for production of high-end products that will aid import sub- Nalco has entered into a pact with value aluminium alloys products at stitution. The company also plans to Midhani to incorporate a joint ven- Nellore. The manufacturing unit in enter in the export markets particu- ture to set up a high-end aluminium Rohtak will be set up by the company larly countries with less competitive alloy plant. The plant is expected to itself for manufacturing of armour intensity like South East Asian be operational in the next four to five years and is likely to have a capacity Midhani 3Yr. Price Chart of ~60000 tonnes. The blended per 260 tonne realisation is expected to be in 240 the range of ~Rs. 400000 per tonne 220 and is likely to cater to demand from 200 railways, defence, aerospace and 180 auto sector. Currently ~30000-35000 tonnes is imported in this category. 160 By the time the plant gets commis- 140 sioned, overall demand is likely to go 120 up to 130000 tonnes. With regard to 100 funding, the company may get a third 80 party if it agrees to come for a small stake. It is also exploring an option to Jul-18 Jul-19 Jul-20 Jan-19 Jan-20 Oct-18 Oct-19 Apr-18 Apr-19 Apr-20 fund through compulsory convertible debentures (CCD)/normal debt from

September 2020 INSIGHT 12 banks, in which case third party Recent joint venture with NALCO for funding will not be required. setting up high end aluminium alloy MIDHANI has a FY20 performance production plant at Nellore, will be unique business a booster to the performance of the FY20 has been an eventful year model due to its for MIDHANI. Continued focus on company in times to come. The com- revenue enhancement and cost presence in the niche pany has also been spotted in number reduction has yielded results. precision defense of defence expo (DefExpo) displaying MIDHANI has recorded highest ever and space equipment joint efforts of bulletproof jacket they VOP of ~ Rs. 985 Cr. for FY20 when market and its developed together, named Bhabha Kavach in recognition of BARC’s compared to ~ Rs. 815 Cr. for FY19, aggression towards growth of 21%. COVID-19 lockdown contribution. Moreover, the company has affected the final testing, certi- targeting import was reported to have proposed for fication and shipment of materials substitution products nearly 9 MoU’s with different players in the month of March 2020. In spite to increase its market from the defence industry. The com- of this, MIDHANI has sustained flat share. pany has also informed of delivery of Sales Turnover of ~ Rs. 713 Cr. for ultra-high strength steel and cobalt FY20 when compared to ~ 711 Cr. for alloys for ‘Gaganyaan’ for ISRO proj- FY19, while EBITDA margins stood at Key Risks ects. It is believed that the increasing 27.7% as compared to 25.8%. During Changing technology. number of launches by ISRO and the the FY20, MIDHANI has focused Entry of new players leading to government’s focus toward defense more on cost optimization measures increased competition. modernization program through including indigenization of various Any disturbance in raw material make in India is positive for the components, increasing outsourc- supply chain. company. With a strong order book ing efforts and rationalisation of in hand which is providing a visibility manpower as well as best energy Valuation of nearly 8-10 quarters, new product consumption achieved through MIDHANI has a unique business developments and better margins continuous improvement in process model due to its presence in the through cost reduction shown by the and modernization of equipment. The niche precision defense and space company, our conviction in the stock company has incurred highest ever equipment market and its aggression idea has further strengthened. Hence, capital expenditure for moderniza- towards targeting import substitution we recommend our investors to BUY tion and growth of about ~ Rs. 230 products to increase its market share. the scrip for a target of Rs. 260 from Cr. More than 50 IPRs has been filed The company’s focus to diversify its during the year and three patents 12-18 months investment perspective. have been granted to MIDHANI products from current 2-3 sector to Currently, the scrip is valued at P/E during the year. Moreover. more than others sector like railway, oil and gas, multiple of 16.5x on FY22E EPS. 10 new products have been developed automobile, aero- space, etc. will help for Aero Space, Navy and Energy it to minimize the business risk and Sectors. improve the future revenue visibility.

Particulars (in Rs Cr) FY19 FY20 FY21E FY22E Net Sales 710.8 712.9 897.4 1,017.3 Growth (%) 7.4 0.3 25.9 13.4 EBITDA 183.7 197.7 288.6 325.5 EBITDA Margin (%) 25.8 27.7 32.2 32.0 Net profit 130.6 159.7 207.4 235.4 Net Profit Margin (%) 18.4 22.4 23.1 23.1 EPS (Rs) 7.0 8.5 11.1 12.6 Consensus Estimate: Bloomberg

13 INSIGHT September 2020 STOCK PICKS

Hawkins Cooker Ltd.

CMP: Rs 4788 Rating: BUY Target: Rs 5890 Shareholding Pattern as on June 2020 Company Information BSE Code 508486 NSE Code HAWKINCOOK Bloomberg Code HAWK IN ISIN INE979B01015 Market Cap (Rs. Cr) 2532 Outstanding shares (Cr) 0.5 52-wk Hi/Lo (Rs.) 5540 / 2830 Avg. daily volume (1yr. on NSE) 2910 Promoters, 56.0% FIIs, 0.3% Face Value (Rs.) 10 DIIs, 14.9% Others, 28.8% Book Value 276.3

Investment Rationale players going ahead owing to distribution network. Given its Organized sector gaining market reducing price differential, strong strong promoter pedigree and brand share over unorganized players brand positioning and superior patronage, Hawking will continue its Post GST implementation, organized quality of products. Hawkins Cooker growth momentum and will tide over players have been gaining the market Ltd. (HCL), being an established the current pandemic situation better share in the cooker segment at the player in cookware segment will be than smaller peers. benefited from this development. cost of organized players. Currently, Increased penetration of cooking Even in organized market, Hawkins organized market for cooker and gas to drive growth cooker has been outperforming its cookware segment is ~60%, while the Over the years, the pressure cooker peer TTK prestige over the last 6-7 balance is unorganized. It is expected industry has grown at a slower years, in terms of sales growth led that organized players will gain more trajectory (low single digits), on by strong brand, higher ad spends, market share than unorganized account of 90% penetration of LPG new product launches and wide

September 2020 INSIGHT 14 connections in the urban market. frying pan and Roti Tawa which are However, government initiatives versatile and can be used for both With sustained like Pradhan Mantri Ujjwala Yojana gas/induction cooking. Apart from (PMUY) have significantly perked up investments in its flagship brand, ‘Hawkins’, the demand in rural areas. The scheme R&D over the company introduced two sub-brands has been successful with total 11.97 years, Hawkins’ to enrich its portfolio across all crore connections released under core priority price and consumer segments. Its PMUY till June 30, 2020. Cooking brand ‘Futura’ caters to the premium gas (LPG) penetration has increased has always been category while its other brand, ‘Miss to 95% currently from 56% in FY14 product innovation. Mary’ caters to the value segment. mainly due to Pradhan Mantri Ujjwala With more than 45 Over the years, Hawkins’ ad spends Yojana (PMUY) scheme. However, patents as on March increased from 3.6% of sales in FY15 given the increased penetration of 2020, Hawkins has to 5.4% in FY20. It is believed that cooking gas, HCL has witnessed continual product innovation and strong growth in this segment not imported any investment in brand building will during the last six quarters, which technology in recent support revenue growth, going is evident from its revenue growth times. forward. numbers. Since penetration of Healthy financials and return pressure cookers in rural areas is ratios at a nascent stage, it provides an insulate the margins from any kind Low capex requirements and immense opportunity for companies of cost inflation. Thus, it is expected historical capacity that the company like Hawkins (cookers contributed ~ that going forward, Hawkins cooker had set up enables Hawkins to enjoy 80% of FY20 revenue) to further scale will maintain a stable margins amid high asset turnover (3-year average of up its revenue growth. benign raw material price and 2.5x). This coupled with high divi- Benign raw material price to prudent cost measures initiatives. dend payout ratio (more than 70%) cushion margins Modernization and brand build- has helped the company in earning Aluminum is the key raw material ing presages glowing superior return ratios (RoE of ~50%). for manufacturing cooker which With sustained investments in R&D With minimal capex requirements accounts nearly 20% of the revenue. over the years, Hawkins’ core priority going ahead and to better utilize LME Aluminum prices over the past has always been product innova- cash, it is expected that the manage- 1 year remained flat at USD 1726 per tion. With more than 45 patents as ment to maintain the high dividend tonne, thus benefiting the aluminum on March 2020, Hawkins has not payout ratio. Also, RoE is expected user industries like cooker manufac- imported any technology in recent to improve going ahead on the back turers. Further, company has done times. Hawkins continuously launch of improving profitability, high asset periodical price revision in order to new model of cooker, Non-stick turnover and robust dividend payout ratio. Hawkins Cooker 3Yr. Price Chart Key Risks 5500 Any raw material price volatility will have a negative bearing on its 5000 margins.

4500 Steep competition from unor- ganized players could impact the 4000 profitability of the company. 3500 Valuation 3000 Hawkins is the second largest player in the Rs 22,000 crore Kitchen 2500 appliance market in India. Organized market for cooker & cookware mar- ket is ~60% and post GST, organized Feb-20 Feb-19 Feb-18 Aug-19 Aug-18 Aug-17 Nov-19 Nov-18 Nov-17 May-20 May-19 May-18

15 INSIGHT September 2020 players like Hawkins have gained new-found hobby for Indians. And market share owing to reducing price this shift towards home-cooked food Over the years, differential, strong brand positioning has augured well for the company, and superior quality of products. In company has even as most businesses struggle fact, over last 6-7 years, it has grown maintained balance to make ends meet. Over the years, higher than market leader led by a sheet prudence with company has maintained balance strong dealer network coupled with controlled working sheet prudence with controlled new product launches and higher working capital cycle which was advertising & marketing spends capital cycle which maintained even in pandemic. which have allowed the company to was maintained even Besides, non-leverage balance sheet, gain market share in lower-tier/rural in pandemic. healthy RoCE of 55% and history of areas. Pradhan Mantri Ujjwala Yojana healthy high dividend payout are scheme has also acted as a boon for other reasons to remain positive the kitchenware appliance players as on the company. The business has nature of costs. However, company LPG gas penetration has increased defensive qualities as well as growth witnessed increased demand as to 95% from 56% in FY14. Although proposition. Based on these virtues, markets opened up and reached 75% Q1FY21 results were impacted due we remain structurally positive on of average of last years production in to lockdown due to store closures the stock and recommended ‘BUY’ for July. With restaurants shut and food and primarily billing resulting in a target of Rs 5890, valuing at P/E of delivery considered unsafe due to lower volumes while margins were 22.2x FY22 EPS. coronavirus, cooking at home is the also impacted due to fixed cost

Particulars (in Rs Cr) FY19 FY20E FY21E FY22E Net Sales 652.8 673.9 812.3 900.4 Growth (%) 18.1 3.2 20.5 10.8 EBITDA 86.2 103.9 139.5 155.8 EBITDA Margin (%) 13.2 15.4 17.2 17.3 Net profit 54.2 72.5 99.6 114.0 Net Profit Margin (%) 8.3 10.8 12.3 12.7 EPS (Rs) 102.5 137.1 188.3 215.5 Consensus Estimate: Bloomberg

September 2020 INSIGHT 16 STOCK PICKS

Phillips Carbon Black Ltd.

CMP: Rs 115 Rating: BUY Target: Rs 151 Share holding pattern as on June 2020 (%) Company Information BSE Code 506590 NSE Code PHILIPCARB Bloomberg Code PHCB IN ISIN INE602A01023 Market Cap (Rs. Cr) 1991 Outstanding shares(Cr) 17.23 52-wk Hi/Lo (Rs.) 147.4/54.2 Avg. daily volume (1yr. on NSE) 1176830 Promoters, 53.56% FIIs, 10.46% Face Value(Rs.) 2.0 DIIs, 2.70% Others, 33.28% Book Value (Rs) 98.29

Company overview Investment Rationale economic activity. With economic Phillips Carbon Black Ltd (PCBL) Replacement demand remained activity recovering post relaxation of is a part of RPG Group and largest strong nationwide lockdown amid Covid-19 carbon black manufacturers in India Replacement market is main for outbreak, the replacement market by capacity and 7th largest carbon Tyre industry as the industry derives is expected to reach the pre-COVID black company globally.Company around 30% of its demand from the level much faster and will support aims to be 6th largest in the World OEM market and rest 70% from the the overall industry growth and by 2023 after commissioning of its replacement market, which is steady consequently support carbon black upcoming projects (32,000 mtpa of state and recurrent in nature.73% sales. PCBL, being the market leader specialty carbon black and 1,50,000 of carbon black globally is used in in carbon black segment, is going to mtpa of Carbon black). PCBL is the tyres, 20% in other rubber products get the benefit from the trend. As per largest carbon black exporter from and remaining 7% used in specialty management, FY21E volume will be India having presence in 37 countries. carbon black used in non-rubber hit due 1.5 months of shutdown due Currently, export accounts nearly applications such as automotive, to COVID-19 pandemic. In Q1FY21, 30% of revenue and 70% from domes- plastics, inks dyes, pigments etc. company reported only 50% of its tic market. Company is currently The demand for carbon black is sales. However, in July the operation focusing on value added products more dependent on tyre usage and reached to its pre-COVID level (specialty chemical segment) and has that is dependent on movement of andthey are running almost closer 40 grades of product as of date. goods and people as well as general to full capacity. From third quarter

17 INSIGHT September 2020 the business will be at optimal level machine technology, yield Improve- Company is also doing a brown and better than last year considering ment, feedstock efficiency, custom- field expansion of 32,000 tonne in the demand momentum which the ization of grades and new product specialty carbon division in Palej at company is witnessing. development. Currently in specialty Gujarat which is going to commence segment, company has 40 grades of operation from December 2020. The Focusing on Specialty Carbon products. The demand for specialty capex will be funded through internal black segment carbon is high from export market, accruals. Company has total Rs 500 PCBL is focusing on moving up the thus in order to meet the demand crore debt in balance sheet (Long- value chain and producing more company is setting up 2 new lines term+short-term) and there was a value-added products where the which is going to be commercialized fall in working capital by Rs 200 crore margins are comparatively higher in October and December of 2020. on the back of cost saving initiatives. and also to mitigate the competition Currently the installed capacity of This reflected its prudent working from China & Russia. It continues to specialty carbon is 40,000 tonne and capital management and healthy bal- expand its product portfolio of high after expansion of another 32,000 ance sheet which can fund the capex performance high-margin grades tonne, the total capacity in this without taking additional leverage. for both rubber and specialty black segment will reach to 72,000 tonne by PCBL has shown strong performance applications. With the enhanced the end of FY21. over the years by doubling its Fixed demand for packaging material and assets and reducing its borrowings engineered plastic goods, specialty Expansion to drive growth by 50%. The quarterly production black sales volume stood at 3,825 Globally the demand for carbon black capacity for PCBL is at 117000 tonne MT in Q1FY21, representing 7.5% of is growing at 4-5% annually. Globally running at 90% utilization. In 1QFY21, total sales volume. In FY20, company auto is a large-scale industry with company reported sales volume of reported sales volume of 20,000 tone market size of around USD 2 trillion 51,000 tonne and in next 3 quarters which is expected to reach 26,000 dollar and major demand for carbon management expects sales volume to tone in FY21, will grow at slow rate black comes from replacement mar- reach over 1,00,000 tonne quarterly because of 1.5 months of shutdown in ket in comparison to OEM market. and will recover 1st quarter decline. wake of COVID-19 outbreak.In long Replacement market is at steady state Further, prudent cost measures & run, management aim to increase the and recurrent in nature thus was captive power help the company to share of specialty black in total vol- least affected from auto slowdown sustain the margins. Company has umes in order to further strengthen and COVID crisis. In order to cater to captive power capacity of 76 MW its margin. Specialty segment is the domestic demand PGBL need to and it is setting up additional 22 MW high margin business with average expand its capacity. Currently PGBL co-generation power plant, taking EBITDA per tonne of Rs 40,000 has 571,000tonne installed capacity in the total capacity to 88 MW. Of the which is much higher than ordinary Carbon black division and planning total power generated, company carbon black average EBITDA of Rs for greenfield expansions of 150,000 used 40%captive and 60% it sales to 12,000- 15,000. In last 2 years, PCBL mtpa of carbon black plant in other external. In West Bengal it sellspower has been investing in R&D centers parts of country which is expected to its group company CESC.Thus, in intent to improve the process and to be commercialized by 2022-23. once the COVID crisis will be over and everything will start normalizing PCBL 3 year Price Chart the benefit of additional capex will 300 start reflecting on the earnings going ahead. 250 Govt’s effort to reduce import to 200 benefit PGBL In order to safeguard domestic 150 industry, government has imposed anti-dumping duty on import of 100 carbon black from China into India to the tune of USD 393/tonne which will 50 set to revise on November 2020. It is 0 expected that government will extend this anti dumping duty as govern- ment is emphasizing on boosting up Jun-18 Jun-19 Jun-20 Oct-17 Oct-18 Oct-19 Apr-18 Apr-19 Apr-20 Feb-18 Feb-19 Feb-20 Dec-17 Dec-18 Dec-19 Aug-17 Aug-18 Aug-19 domestic manufacturing sector and

September 2020 INSIGHT 18 reducing import dependency and to though any changes in raw material expand its product portfolio of make India self-reliant (Atmanir- prices company used to pass on to high-performance high-margin bhar). The current international price the customers. grades for bothrubber and specialty of Carbon black is USD 900/tonne of black applications. Company identi- Longer than expected economic which USD 400/tonne is duty, thus fies Specialty Carbon the next growth slowdown due to local lockdowns there is no price differential between driver thus expanding its capacity to and weak economic sentiment in domestic and international prices. meet the demand and also to sustain the wake of COVID outbreak could Hence, import of carbon black is no higher margins. PGBL follows a good adversely impact near to medium longer cheaper for domestic tyre price mechanism where any change term demand outlook for tyre both in industry and thus mostly depends on in its costs can pass on to its end OEM and Replacement market. domestic supply. In another develop- users, thus insulating its EBITDA ment, Directorate-General of Foreign Valuation margin from any kind of raw material Trade (DGFT) issued a notification In last 5 years, PGBL has done a price volatility. Further, due to its putting imports of tyres for cars, remarkable job in removing the strong focus & improvement in trucks and heavy vehicles under cyclicality from the business with a process technologies, the Company the restricted list from the free list slew of structural policy changes and has been able toidentify ways to to curb their shipments into India. is reflected in their historical track enhance generation of power by Placing tyre imports under restricted record. PGBL is the 7th largest carbon around 15-20% and is therefore list means that importers will have to black manufacturers in India having adding 22MWof additional generation get each consignment of tyres cleared strong presence both in domestic and capacity and this will meet up its by the DGFT rather than importing export market. In order to insulate captive power requirement at lower them without any cap till now and from domestic slowdown company cost. Government’s increasing focus that will tighten the imports into the has increased its focus on export on domestic manufacturing sector country and will benefit the domestic market and in next 5 years company by reducing import dependency is tyre manufacturers. The move to aims to increase the export share in another positive catalyst for PGBL put import of tyres in the restricted revenue from 30% to 40-45%. Prudent in long run. Thus, we believe PGBL list will benefit a slew of manufac- cost measures and better efficiency will ramp up its business to optimal turing industries starting from tyre helped PGBL to navigate the tough level faster than anticipated and the manufacturers to producers of raw times efficiently starting from the first quarter marks the bottom of materials such as carbon black, beginning of FY21 when the outbreak its earnings and we will see positive synthetic rubber, nylon cord, and of COVID-19 brought the entire world momentum in earnings going ahead steel cord makers and PGBL, being under grinding halt. Post COVID era, which will re-rate the stock. We have the market leader will be benefited PGBL is expected to benefit from a positive view on PGBL, given its from this development. shift towards personal mobility and attractive valuation and recommend pent up demand. Since, May, the our investors to BUY the scrip with Key risks demand in replacement market has target price of Rs 151 from 12 months Company’s business is raw material been good and a well distributed investment perspective. At CMP, the intensive business, thus any volatility monsoon would negate the current scrip is valued at P/E multiple of 5.9x in Carbon black feed stock which headwinds in theautomotive supply on FY22E EPS of Rs 19.9, which is a accounts nearly 80-85% of raw chain caused by the COVID-19 steep discount to its 5 year average material cost could affect its margins, outbreak. Company continues to P/E valuation.

Particulars (in Rs Cr) FY19 FY20 FY21E FY22E Revenue 3,528.6 3,243.5 2,490.0 3,001.8 Growth (%) 37.9% -8.1% -23.2% 20.6% EBITDA 620.7 464.9 401.0 549.6 EBITDA Margin (%) 17.6% 14.3% 16.1% 18.3% Net profit 383.1 277.3 234.8 342.9 Net Profit Margin (%) 10.9% 8.5% 9.4% 11.4% EPS (Rs) 22.2 16.1 13.6 19.9 Source: Ashika Research

19 INSIGHT September 2020 Monthly Insight Recommendation Performance Sheet

Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return

Mishra Dhatu Nigam 01-Sep-20 2404 208 500032 260 25.0% Hawkins Cooker 01-Sep-20 104 4788 497952 5890 23.0% Phillips Carbon Black 01-Sep-20 4348 115 500020 151 31.3% 03-Aug-20 1770 282 499999 325 15.1% Divis Lab 03-Aug-20 190 2644 502371 3050 15.4% 10-Aug-20 3063.3 582027 79656 15.9% 7 827% Fine Organics 03-Aug-20 230 2177 500822 2470 13.4% 24-Aug-20 2470.0 568100 67278 13.4% 21 233% ICICI Securities 01-Jul-20 1050 476 499818 620 30.2% 01-Jul-20 4600 109 501341 130 19.3% 10-Aug-20 126.9 583510 82169 16.4% 40 150% Galaxy Surfactants 01-Jul-20 335 1490 499300 1680 12.7% 04-Aug-20 1684.0 564130 64829 13.0% 34 139% Nestle India 01-Jun-20 28 17571 491987 19500 11.0% 01-Jun-20 925 541 500453 ADD Abbott India 01-Jun-20 30 16979 509375 19464 14.6% 04-May-20 973 508 494138 610 20.1% 20-May-20 606 589784 95646 19.4% 16 442% 04-May-20 102 4934 503304 5800 17.5% Bayer Cropscience 04-May-20 116 4287 497334 5425 26.5% 27-May-20 5281 612584 115251 23.2% 23 368% ITC 01-Apr-20 2950 170.29 502363 ADD 01-Apr-20 184 2719 500320 ADD 29-May-20 3384 622704 122384 24.5% 58 154% TCS 01-Apr-20 274 1827 500508 ADD HDFC Bank 01-Apr-20 586 852 499290 ADD Britannia Industries 02-Mar-20 169 2962 500578 3400 14.8% 29-May-20 3384 571940 71362 14.3% 88 59% Aarti Industries 02-Mar-20 510 990 504747 1177 18.9% 05-May-20 1139 580712 75965 15.1% 64 86% Metropolis Healthcare 02-Mar-20 263 1885.73 495946 2200 16.7% 03-Feb-20 115 4305.89 495178 5000 16.1% Gujarat State Petronet 03-Feb-20 2040 246 501493 300 22.0% 01-Apr-20 169 344168 -157325 -31.4% 58 -197% Granules India 03-Feb-20 3600 140 502632 170 21.8% 07-Feb-20 164 591156 88524 17.6% 4 1607% Concor 01-Jan-20 870 574.99 500239 665 15.7% 01-Jan-20 475 1066 506426 1164 9.2% 23-Jan-20 1162 551950 45524 9.0% 22 149% SIS 01-Jan-20 1020 490 500147 568 15.8% 07-Feb-20 559 570119 69972 14.0% 37 138% HDFC Life 02-Dec-19 875 571 499608 680 19.1% Dr. Reddy’s Lab 02-Dec-19 171 2923 499818 3503 19.8% 07-Apr-20 3554 607713 107896 21.6% 127 62% Just Dial 02-Dec-19 875 570 499170 750 31.5% 01-Apr-20 288 251615 -247555 -49.6% 121 -150% IRCTC 01-Nov-19 561 893 500709 1170 31.1% 30-Jan-20 1158 649638 148929 29.7% 90 121% PI Industries 01-Nov-19 350 1432 501323 1613 12.6% 07-Feb-20 1612 564109 62787 12.5% 98 47% Procter & Gamble Hygiene 01-Nov-19 40 12325 492982 14078 14.2% HDFC Bank 01-Oct-19 405 1235 500212 1395 12.9% Indian Hotels 01-Oct-19 3130 160 500595 179 11.9% 01-Apr-20 74 230525 -270071 -53.9% 183 -108%

September 2020 INSIGHT 20 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return 01-Oct-19 330 1549 511213 1680 8.4% 23-Oct-19 1689 557420 46207 9.0% 22 150% 01-Sep-19 2800 179 501501 200 11.7% 30-Oct-19 200 560000 58499 11.7% 59 72% 01-Sep-19 265 1888 500371 1975 4.6% 20-Sep-19 1957 518507 18136 3.6% 19 70% Divi’s Lab 01-Aug-19 305 1636 498882 1750 7.0% 22-Oct-19 1757 535885 37003 7.4% 82 33% ICICI Bank 01-Aug-19 1175 426 500234 473 11.1% 25-Oct-19 468 550206 49972 10.0% 85 43% 01-Jul-19 2410 208 500935 254 22.2% 16-Jan-20 248 597005 96070 19.2% 199 35% Reliance Nippon Life 01-Jul-19 2250 222 499773 265 19.3% 27-Aug-19 258 579510 79737 16.0% 57 102% India 01-Jul-19 87 5740 499387 6775 18.0% 29-Oct-19 6678 581029 81641 16.3% 120 50% 01-Jun-19 346 1445 499797 1560 8.0% 02-Aug-19 1549 535985 36188 7.2% 62 43% 01-Jun-19 614 812 498614 905 11.4% Honeywell Automation 01-Jun-19 19 26087 495655 30195 15.7% 25-Oct-19 29105 552999 57344 11.6% 146 29% MCX 01-May-19 575 868 499354 1005 15.7% 30-Aug-19 971 558147 58793 11.8% 121 36% TCS 01-May-19 220 2259 496953 2490 10.2% Crompton Greaves Cons. 01-Apr-19 2138 234 501153 256 9.2% 20-Sep-19 251 536681 35528 7.1% 172 15% Equitas Holdings 01-Apr-19 3637 138 500875 191 38.7% 01-Apr-20 42 152499 -348375 -69.6% 366 -69% 01-Apr-19 20 25219 504373 29080 15.3% 14-Aug-19 17525 350506 -153867 -30.5% 135 -82% ITC 01-Mar-19 1800 278 500089 319 14.8% Tech Mahindra 01-Mar-19 605 824 498456 960 16.5% HDFC Bank 01-Feb-19 240 2101 504338 1204 -42.7% 20-May-19 2403 576686 72348 14.3% 108 48% Pfizer 01-Feb-19 163 3066 499703 3490 13.8% 20-Sep-19 3389 552433 52730 10.6% 231 17% Abbott India 01-Jan-19 65 7593 493527 8580 13.0% 11-Jun-19 8566 556790 63263 12.8% 161 29% 01-Jan-19 1850 273 504362 315 15.5% 08-Apr-19 314 581748 77386 15.3% 97 58% 01-Jan-19 800 623 498624 735 17.9% 14-Feb-20 711 568576 69952 14.0% 409 13% 01-Dec-18 1567 319 499873 369 15.7% 29-Aug-19 369 578223 78350 15.7% 271 21% India 01-Dec-18 644 776 499744 889 14.6% 16-Jan-19 889 572516 72772 14.6% 46 116% India 01-Nov-18 1299 385 500115 470 22.1% 20-Sep-19 470 610530 110415 22.1% 323 25% Nestlé India 01-Nov-18 52 9680 503360 11370 17.5% 10-Jan-19 11370 591240 87880 17.5% 70 91% Dr. Lal PathLabs 01-Oct-18 524 954 499896 1125 17.9% 06-Feb-19 1125 589500 89604 17.9% 128 51% Godrej Consumer 01-Oct-18 651 768 499968 910 18.5% 01-Feb-20 688 447888 -52080 -10.4% 488 -8% ABB India 01-Sep-18 378 1322 499716 1510 14.2% 14-Sep-18 1510 570780 71064 14.2% 13 399% 01-Sep-18 752 665 500080 752 13.1% 15-Mar-19 548 412284 -87796 -17.6% 195 -33% Whirlpool of India 01-Sep-18 279 1795 500805 2033 13.3% 09-Oct-19 2033 567207 66402 13.3% 403 12% 01-Aug-18 800 625 500000 715 14.4% 01-Feb-20 452 361600 -138400 -27.7% 549 -18% 01-Aug-18 1425 351 500175 408 16.2% 25-Sep-19 404 575700 75525 15.1% 420 13% Dishman Carbogen 01-Jul-18 1916 261 500076 307 17.6% 03-Sep-18 307 588212 88136 17.6% 64 101% Procter & Gamble Hygiene 01-Jul-18 51 9900 504900 11100 12.1% 17-Jul-18 11100 566100 61200 12.1% 16 277% Bata India 01-Jun-18 654 764 499656 890 16.5% 23-Jul-18 890 582060 82404 16.5% 52 116% CESC 01-Jun-18 624 802 500348 1020 27.2% 01-Feb-20 722 450528 -49820 -10.0% 610 -6% Nestle India 01-Jun-18 53 9519 504507 10900 14.5% 01-Aug-18 10900 577700 73193 14.5% 61 87% ITC 01-May-18 1786 280 500080 324 15.7% 03-Sep-19 323 576789 76709 15.3% 490 11% Tata Chemical 01-May-18 656 762 499872 890 16.8% 01-Feb-20 758 497248 -2624 -0.5% 641 0% 01-Apr-18 806 620 499720 720 16.1% 24-Oct-19 720 580320 80600 16.1% 571 10% Britannia Industries 01-Mar-18 202 2480 500960 2845 14.7% 23-May-18 2845 574690 73730 14.7% 83 65% Infosys 01-Mar-18 876 571 500196 667 16.8% 03-Jul-18 667 584292 84096 16.8% 124 49% Godrej Consumer 01-Feb-18 714 701 500276 804 14.7% 27-Jun-18 804 574056 73780 14.7% 146 37% Power Grid 01-Feb-18 2604 192 499968 223 16.1% 01-Aug-19 216 563115 63147 12.6% 546 8% Maharshtra Seamless 01-Jan-18 990 505 499950 585 15.8% 09-Jan-19 483 478170 -21780 -4.4% 373 -4% Solar Industries 01-Jan-18 423 1182 499986 1480 25.2% 01-Feb-20 1340 566820 66834 13.4% 761 6% 01-Dec-17 5263 95 499985 116 22.1% 30-May-18 76 399988 -99997 -20.0% 180 -41% Petronet LNG 01-Dec-17 1992 251 499992 297 18.3% 23-Sep-19 297 591624 91632 18.3% 661 10%

21 INSIGHT September 2020 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return Indian Hotels Co. 01-Nov-17 4673 107 500011 127 18.7% 04-Jan-18 127 593471 93460 18.7% 64 107% KNR Constructions 01-Nov-17 2008 249 499992 297 19.3% 21-Dec-17 297 596376 96384 19.3% 50 141% CDSL 01-Oct-17 1471 340 500140 424 24.7% 16-Mar-18 302 444242 -55898 -11.2% 166 -25% Karur Vysya 01-Oct-17 4005 125 500053 145 15.8% 17-Aug-18 100 400500 -99553 -19.9% 320 -23% Hindustan Unilever 01-Sep-17 411 1217 500187 1379 13.3% 18-Jan-18 1379 566769 66582 13.3% 139 35% NMDC 01-Sep-17 3968 126 499968 142 12.7% 01-Jan-18 142 563456 63488 12.7% 122 38% Indraprastha Gas 01-Aug-17 2137 234 500058 280 19.7% 11-Sep-17 280 598360 98302 19.7% 41 175% Kaveri Seed 01-Aug-17 732 683 499956 790 15.7% 24-Dec-18 580 424560 -75396 -15.1% 510 -11% Apollo Tyres 01-Jul-17 2083 240 499920 278 15.8% 07-Aug-17 278 579074 79154 15.8% 37 156% Greaves Cotton 01-Jul-17 3145 159 500055 193 21.4% 26-Jun-18 140 440300 -59755 -11.9% 360 -12% Bosch 01-Jun-17 21 23325 489825 27442 17.7% 18-Sep-18 21000 441000 -48825 -10.0% 474 -8% Relaxo Footwears 01-Jun-17 2183 229 499907 286 24.7% 01-Nov-17 286 623247 123340 24.7% 153 59% PI Industries 01-May-17 577 866 499682 1028 18.7% 09-Jan-18 1028 593156 93474 18.7% 253 27% PNC Infratech 01-May-17 3226 155 500030 200 29.0% 26-Oct-17 200 645200 145170 29.0% 178 60% Akzo Nobel 01-Apr-17 269 1862 500878 2135 14.7% 28-Dec-18 1680 451920 -48958 -9.8% 636 -6% Crompton Greaves 01-Apr-17 2370 211 500070 244 15.6% 16-May-17 244 578280 78210 15.6% 45 127% 01-Mar-17 4673 107 500011 124 15.9% 02-Mar-17 124 579452 79441 15.9% 1 5799% Manappuram Finance 01-Mar-17 5263 95 499985 120 26.3% 22-Dec-17 120 631560 131575 26.3% 296 32% CESC 01-Feb-17 855 585 500175 671 14.7% 13-Feb-17 671 573534 73359 14.7% 12 446% Dewan Housing 01-Feb-17 1724 290 499960 341 17.6% 14-Mar-17 341 587884 87924 17.6% 41 157% Persistent Systems 01-Jan-17 812 616 500192 741 20.3% 09-Jan-18 741 601692 101500 20.3% 373 20% Berger Paints 01-Dec-16 2083 240 499920 280 16.7% 25-Oct-17 280 583240 83320 16.7% 328 19% Britannia Industries 01-Dec-16 332 1505 499660 1761 17.0% 26-Apr-17 1761 584652 84992 17.0% 146 43% Dishman Pharma 01-Dec-16 2058 243 500094 300 23.5% 29-Mar-17 300 617400 117306 23.5% 118 73% Max Financial Services 01-Nov-16 909 550 499950 650 18.2% 07-Apr-17 650 590850 90900 18.2% 157 42% Minda Industries 01-Nov-16 4274 117 500058 151 29.1% 21-Apr-17 151 645374 145316 29.1% 171 62% 01-Nov-16 870 575 500250 737 28.2% 06-Feb-17 737 641190 140940 28.2% 97 106% Vindhya Telelinks 01-Nov-16 693 722 500346 900 24.7% 05-Jul-17 900 623700 123354 24.7% 246 37% Credit Analysis 01-Oct-16 381 1314 500634 1543 17.4% 10-Oct-16 1543 587883 87249 17.4% 9 707% Nilkamal 01-Oct-16 374 1336 499664 1700 27.2% 17-Oct-16 1700 635800 136136 27.2% 16 622% IDFC Bank 01-Sep-16 9025 55 499985 70 26.4% 22-Sep-16 70 631750 131765 26.4% 21 458% Kirloskar Ferrous 01-Sep-16 5814 86 500004 113 31.4% 10-Apr-17 113 656982 156978 31.4% 221 52% Mahanagar Gas 01-Sep-16 780 641 499980 748 16.7% 17-Oct-16 748 583440 83460 16.7% 46 132% Mercator 01-Sep-16 9615 52 499980 71 36.5% 05-Jan-18 44 418253 -81728 -16.3% 491 -12% 01-Aug-16 7692 65 499980 78 20.0% 25-Oct-16 78 599976 99996 20.0% 85 86% Indian Oil Corp. 01-Aug-16 3683 136 499967 155 14.2% 05-Oct-16 155 570865 70898 14.2% 65 80% LIC Housing Finance 01-Aug-16 963 519 499797 608 17.1% 19-Oct-16 608 585504 85707 17.1% 79 79% Unichem Lab 01-Aug-16 1754 285 499890 360 26.3% 09-Jan-18 360 631440 131550 26.3% 526 18% Aarti Industries 01-Jul-16 962 520 500240 620 19.2% 30-Aug-16 620 596440 96200 19.2% 60 117% Capital First 01-Jul-16 12478 40 500018 47 16.7% 20-Jul-16 47 583504 83486 16.7% 19 321% Godrej Properties 01-Jul-16 1370 365 500050 415 13.7% 05-Apr-17 415 568550 68500 13.7% 278 18% Steel Strips Wheels 01-Jul-16 1096 456 499776 578 26.8% 25-Aug-16 578 633488 133712 26.8% 55 178% Dabur India 01-Jun-16 1724 290 499960 335 15.5% 01-Nov-17 335 577540 77580 15.5% 518 11% Glenmark Pharma 01-Jun-16 588 851 500388 985 15.7% 01-Nov-16 985 579180 78792 15.7% 153 38% Godrej Consumer 01-Jun-16 1013 494 500084 583 18.2% 22-Feb-17 583 590917 90832 18.2% 266 25% Co 01-Jun-16 6849 73 499977 85 16.4% 17-Feb-17 85 582165 82188 16.4% 261 23% DCM Shriram 01-May-16 3185 157 500045 195 24.2% 27-May-16 195 621075 121030 24.2% 26 340% Mahindra & Mahindra 01-May-16 752 665 500080 775 16.5% 20-Dec-17 775 582800 82720 16.5% 598 10% PI Industries 01-May-16 787 635 499745 760 19.7% 27-Jul-16 760 598120 98375 19.7% 87 83% ACC 01-Apr-16 365 1370 500050 1580 15.3% 27-Jun-16 1580 576700 76650 15.3% 87 64%

September 2020 INSIGHT 22 Script Buying QTY Bought Value Target Target Booked on Booked Value till Profit Return Holding Annu- Date Rate Price Return Price date Days alised Return VA Tech Wabag 01-Apr-16 1931 259 500129 345 33.2% 24-Mar-17 345 666195 166066 33.2% 357 34% Whirlpool India 01-Apr-16 735 680 499800 810 19.1% 07-Jun-16 810 595350 95550 19.1% 67 104% Marico 01-Mar-16 2119 236 500084 280 18.6% 15-Jul-16 280 593320 93236 18.6% 136 50% NTPC 01-Mar-16 4762 105 500010 123 17.5% 03-Jun-16 123 587313 87303 17.5% 94 68% HCL Tech 01-Feb-16 577 866 499682 1020 17.8% 25-Jan-18 1020 588540 88858 17.8% 724 9% HDFC 01-Feb-16 424 1180 500320 1400 18.6% 29-Jul-16 1400 593600 93280 18.6% 179 38% Hero MotoCorp 01-Feb-16 195 2562 499590 2820 10.1% 02-Mar-16 2820 549900 50310 10.1% 30 123% Indraprastha Gas 01-Jan-16 4762 105 500010 125 18.9% 29-Jun-16 125 594298 94288 18.9% 180 38% Pidilite Ind. 01-Jan-16 907 551 499757 656 19.1% 20-May-16 656 594992 95235 19.1% 140 50% SH Kelkar 01-Jan-16 2000 250 500000 310 24.0% 22-Aug-16 310 620000 120000 24.0% 234 37% Texmaco Rail 01-Jan-16 3311 151 499961 183 21.2% 23-Nov-17 110 364210 -135751 -27.2% 692 -14% Garware Wall Ropes 01-Dec-15 1289 388 500132 488 25.8% 09-Aug-16 488 629032 128900 25.8% 252 37% Sanofi India 01-Dec-15 116 4300 498800 5060 17.7% 01-Mar-18 5060 586960 88160 17.7% 821 8% Wabco India 01-Dec-15 80 6280 502400 7200 14.6% 28-Nov-17 7200 576000 73600 14.6% 728 7% GP Petroleums 01-Nov-15 7463 67 500021 156 132.8% 07-Feb-17 95 708985 208964 41.8% 464 33% HCC 01-Nov-15 28652 17 500007 29 65.4% 03-Jan-17 29 826909 326902 65.4% 429 56% Inox Wind 01-Nov-15 1259 397 499823 500 25.9% 19-Oct-16 225 283275 -216548 -43.3% 353 -45% Sterlite Tech 01-Nov-15 6993 72 500000 107 50.1% 20-Oct-16 107 750349 250349 50.1% 354 52% 01-Oct-15 2309 217 499899 255 17.8% 10-Jul-17 195 450255 -49644 -9.9% 648 -6% Syngene Int 01-Oct-15 3115 161 499958 193 19.9% 21-Oct-15 193 599638 99680 19.9% 20 364% Zee Ent. 01-Oct-15 1282 390 499980 464 19.0% 07-Jun-16 464 594848 94868 19.0% 250 28% Berger Paints 01-Sep-15 3365 149 499943 176 18.8% 22-Dec-15 176 593682 93739 18.8% 112 61% Ceat 01-Sep-15 463 1080 500040 1245 15.3% 10-Sep-15 1245 576435 76395 15.3% 9 620% Cummins India 01-Aug-15 520 962 500240 1130 17.5% 06-Aug-15 1130 587600 87360 17.5% 5 1275% Greenply Ind. 01-Aug-15 3281 152 500041 183 20.1% 12-May-16 183 600584 100543 20.1% 285 26% SQS India BFSI 01-Aug-15 735 680 499800 863 26.9% 23-Nov-15 863 634305 134505 26.9% 114 86% TIME Technoplast 01-Aug-15 7576 66 500016 81 22.7% 22-Aug-16 81 613656 113640 22.7% 387 21% Asian Paints 01-Jul-15 658 760 500080 883 16.2% 31-Jul-15 883 581014 80934 16.2% 30 197% Idea Cellular 01-Jul-15 4762 105 500010 122 16.2% 20-Dec-17 60 285720 -214290 -42.9% 903 -17% 01-Jun-15 132 3774 498168 4367 15.7% 04-Aug-15 4367 576444 78276 15.7% 64 90% Whirlpool India 01-Jun-15 658 760 500080 879 15.7% 13-Jul-16 879 578382 78302 15.7% 408 14% 01-May-15 541 925 500425 1220 31.9% 19-Aug-16 790 427390 -73035 -14.6% 476 -11% Tata Global 01-May-15 3546 141 499986 174 23.4% 12-Jul-17 174 617004 117018 23.4% 803 11% 01-May-15 971 515 500065 615 19.4% 20-Jul-16 490 475790 -24275 -4.9% 446 -4% Ultratech 01-May-15 187 2680 501160 3300 23.1% 13-Apr-16 3300 617100 115940 23.1% 348 24% Abbott India 01-Apr-15 124 4020 498480 4680 16.4% 04-Aug-15 4680 580320 81840 16.4% 125 48% Elantas Beck India 01-Apr-15 442 1130 499460 1320 16.8% 29-Jul-15 1320 583440 83980 16.8% 119 52% Strides Arcolab 01-Apr-15 434 1153 500402 1340 16.2% 10-Aug-15 1340 581560 81158 16.2% 131 45% BEML 01-Mar-15 511 978 499758 1200 22.7% 09-Apr-15 1200 613200 113442 22.7% 39 212% MCX 01-Mar-15 425 1177 500225 1552 31.9% 22-May-17 970 412250 -87975 -17.6% 813 -8% Rolta 01-Mar-15 2618 191 500038 250 30.9% 26-Dec-16 61 159698 -340340 -68.1% 666 -37% Amrutanjan Health 01-Feb-15 2227 225 499962 325 44.8% 17-Apr-17 325 723775 223814 44.8% 806 20% HBL Power 01-Feb-15 14327 35 500012 55 57.6% 20-Feb-15 55 787985 287973 57.6% 19 1106% Mangalam Cement 01-Feb-15 1558 321 500118 432 34.6% 16-Jan-18 432 673056 172938 34.6% 1080 12% SML Isuzu 01-Feb-15 511 979 500269 1222 24.8% 10-Mar-15 1222 624442 124173 24.8% 37 245% Dewan Housing 01-Jan-15 2519 199 500022 240 20.9% 15-Jan-15 240 604560 104539 20.9% 14 545% 01-Jan-15 1277 392 499946 462 18.0% 28-Jan-15 462 589974 90029 18.0% 27 243% Torrent Pharm 01-Jan-15 456 1096 499776 1338 22.1% 18-Jun-15 1338 610128 110352 22.1% 168 48%

23 INSIGHT September 2020 SECTOR OUTLOOK

Defence: Start relying on Indigenous production

efence budget for many Asia pacific countries the FDI policies in this sector, attracting foreign investors has been increasing for last few years in the and encouraging local manufacturing, leading to strategic wake of geo political issues emerging on the partnership of private and public domestic players with border areas. India one of the prominent foreign OEMs such as Boeing, Dassault, Airbus, Lockheed Dand important part of Asia Pacific region has increased Martin, Bombardier etc for manufacturing of defence its defence imports to approximately USD 13.9 billion of equipments, aero components as well as Maintenance, its total defence requirements in the last 5 years, thus Repair and Overhaul (MRO) facilities for the civil and making it the 2nd largest importer of defence items military aviation sectors. Further, in order to boost up globally. India’s defence capital outlay has grown at 7% domestic manufacturing sector, government has reduced CAGR in the past five years and the expectation is that this corporate tax rate from 25% to 15% (17% inclusive of momentum will further gain pace with the 15th Finance surcharge and cess) for new manufacturing companies Commission recommendations. Worldwide the Aerospace which are incorporated after 1st October 2019 and start & Defence industry is transforming, leading to evolution production before 31st March 2023. So, these are the of the global supply chain in this industry. New players notable reforms that government has undertaken to from emerging regions like India, Brazil and Mexico are stimulate the domestic defence production. But in 2020 competing with well established players from US, UK, government has gone ahead of all the past reforms and France, Germany, Spain and Italy. Since BJP government announced slew of reforms towards the development of came into the power in 2014 with the thumping victory the sector. With the launch of latest version of Defence in loksabha election, the focus on defence has got the Procurement Procedure (DPP2020) in April, followed by prominence. Government has taken many prudent steps Rs 390 billion DAC approvals in July, the draft Defence toward defense sector in aim to make the sector self Production & Export Promotion Policy (DPEPP) earlier reliant to focus on indigenous production and to reduce in August and recently the announcement of a negative the imports. The Indian government has also liberalized list of products coupled with a separate allocation of

September 2020 INSIGHT 24 the defence budget for domestic manufacturers to enter into strategic industry are all the signs that this partnerships with Indian companies. time government is very serious in The recent border Joint foreign investments by private restructuring and developing Indian dispute with and public domestic players and defence sector. The back to back China in Ladakh major global players such as Boeing, policy announcements by Ministry Dassault, Airbus, Lockheed Martin, of Defence, probably makes it one and previously in Bombardier, including forming of the most active ministries in Arunachal Pradesh SPVs for manufacturing of aero present times, contrary to popular led government components as well as building up of perception. The recent border to firm up the Maintenance, Repair and Overhaul dispute with China in Ladakh and (MRO) facilities for the civil and previously in Arunachal Pradeshled country’s defence military aviation sectors can be government to firm up the country’s policy and to boost undertaken with serious intent. defence policy and to boost up up domestic defence Further, India has a substantial cost domestic defence manufacturing advantage over its global peers with capabilities. The recent draft of manufacturing large pool of skilled workforce due DPEPP released by MoD is to provide capabilities. to a labor intensive economy which impetus to self-reliance in defence allow OEMs to use India as a base manufacturing and in line with the for global production and exports. framework outlined in ‘Make in India’ Large global players partner with and ‘Atmanirbhar Bharat Package’ domestic manufacturers or service and to make India among the leading providers to take advantage of lower countries in the world in the aerospace and defence costs. Government’s continuous effort to reduce import sector. Such, thrust towards defence sector will really dependency has positively paid out for India with India’s boost up domestic PSU defence companies and also the import of defence equipments have reduced from USD private enterprises which are actively engaged in defence 3,334 million in FY 15 to USD 1,539 million in FY 19, while production and process. there is a sizeable increase in India’s defence exports from USD 317 million in FY 15 to USD 1,537 million in India currently the 4th largest spender on FY 19 due to higher domestic manufacturing. Defence defence globally industry is predominantly run by PSU entities and India’s defence budget has been rising year on year at private sector contributes around 22% to the Indian an average of ~7-8% in the last five years mainly due to defence manufacturing industry of USD 10.8 billion. favorable policies drafted by the government to boost this Thus, there is a huge potential for an increase in private sector, resulting in India currently being the 4th largest sector participation in this industry which is currently spender on defence globally with a 9.5% market share domination by the public sector.Further, in order to spurt of global defence imports. The defence budget allocated the domestic defence industry, Union Minister of Finance in the Union budget of 2020-21 is USD 62.5 billion, a 5% announced a separate budgetary provision for domestic increase from the previous budget. This new budget defence procurements as part of efforts to promote accounts for 2.4% of the country’s GDP and 15% of the indigenous manufacturing and reduce the defence import federal government’s total expenditure and government bill. So, government is striving to boost the domestic aim to reach 3% of GDP in coming years. Over the past defence manufacturing capabilities and to reach the decade, India has spent over USD 100 billion on military industry to that level so that it becomes a net exporter in modernization and ranks 2nd globally for importing next decade. new weapons and systems and plans to spend USD 130 billion in the next 5-7 years. Government’s Make in India program want to make India self reliant and reduce its India’s Defence Budget (Rs in Billion) dependency on imports, therefore increasing focus on 3,370 3,053 innovation and technological development. Further, 2,793 2,624 government has set a target of increasing the share of 2,491 the manufacturing sector in the GDP from the current level of ~16% to 25% by 2022, as part of its flagship ‘Make in India’ programme to achieve its goal of a USD 5 trillion economy, which is hard to achieve at current pandemic scenario as COVID-19 crisis has dismantled the momentum of the economy. Government has already FY17 FY18 FY19 FY20 FY21 opened up the industry for foreign original equipment Source: Industry report

25 INSIGHT September 2020 Defence Production for domestic manufacturing. Thus, force the defence Private services to place orders with the domestic companies companies, (especially given the proposal for a separate domestic 22% capital procurement budget) and build capabilities with relative timeliness. Government’s flagship program Defence Public Make in India focuses on 25 sectors of which Aviation, PSUs/JV, 7% Sector Defence Manufacturing, Electronic Systems, Space Undertaking, 55% and IT impact the country’s Aerospace industry. This Ordanance initiative was towards the growth and encouraging local Factory manufacturing in the industry. The program, however, board, 16% has not given sizeable results especially in this industry, Source: Industry report as it is technology-intensive and requires substantial transfer of technology. The government’s strong focus on India’s Defence Import vs Export developing the manufacturing sector under the ‘Make in 3,334 3,065 3,021 2,917 India’ initiative and lower costs have attracted attention of major global aerospace & defence manufacturers to India. These foreign companies are looking to partner 1,537 1,539 with domestic manufacturers in form of Joint Ventures 726 (JV) to carry out manufacturing activities in India. Various 317 315 227 Aerospace and Defence Sector Policies encouraging this initiative, liberal Foreign Direct Investment (FDI) rules to FY15 FY16 FY17 FY18 FY19 attract foreign investments and favorable Defence Offset India’s Export of Defence (In USD Mn) Policies will boost the growth in this sector. Further, India’s Import of Defence (In USD Mn) Source: Industry report in aim to provide a fillip, MoD has issued the Defence Procurement Manual (DPP) which regulates the capital

Domestic Manufacturing (USD Bn) defence procurements in India. The Latest version (DPP 26 2020) under review targets to increase India’s private

15% sector participation in military manufacturing support- CAGR ing the ‘Make in India’ initiative. Further, to encourage private investment in both civil and defence aerospace sector, government has allowed FDI up to 74% in the 10.8 defence sector under the automatic route. Government is also developing two Defence industrial corridors at Tamil Nadu and UP, where domestic production of defence equipment by PSUs, private sector and MSME are lining

FY19 FY25E up to enhance the operational capability of the defence Source: Industry report forces. So, all these efforts from government side will definitely have a positive impact on domestic defence Make in India program a big push to industry. domestic defence industry Since the BJP government came into power in 2014, they Announcing an import embargo list a big have been putting emphasize on localizing the defence boost for domestic defence sector procurement and cut down the imports and to boost up One of the major steps proposed in Draft Defence the domestic manufacturing capabilities. Key reforms production and Export Promotion policy (DPEPP) 2020, that government has announced so far since 2014 towards MoD announced an import embargo list of 101 defence defence were ‘Make in India’ for a notified list of weap- items to be progressively implemented between 2020 ons/platforms, indigenization of imported spares and and 2024 to boost indigenization of defence production raising FDI limit to 74% from 49% under the automatic providing a big push to “Atmanirbhar Bharat” and route. In 2014, government launched Make in India and a “Make in India” Initiatives. The decision offers a structured process for defence imports. Recently, govern- great opportunity to the Indian defence industry to ment has launched new proposals on year-wise import manufacture the items in the embargo list by using their ban of certain weapons/platforms, assuring timeliness own design and development capabilities or adopting

September 2020 INSIGHT 26 FDI policy of Government on Defence sector

Source: Industry report

technologies designed & developed by DRDO to meet 3) For the Air Force, it is decided to enlist the light combat the requirements of armed forces in coming years. aircraft LCA MK 1A with an indicative embargo date of Government put 101 items under embargoed items which December 2020. Government has mentioned a clear time- comprises not just simple parts but also some high bound & specific item-wise imports embargo to help the technology weapon systems like artillery guns, assault manufacturers (especially private sector) prepare better rifles, corvettes, sonar systems, transport aircrafts, light and commit more investments across the value chain. combat helicopters (LCHs), radars and many other items The embargo list is in sync to reduce import dependency to fulfill the needs of defence services. With the latest and push for Make in India and Atmanirbhar Bharat embargo on import of 101 items, it is estimated that initiative through design and development or adopting contracts worth almost Rs 4.0 lakh crore will be placed technologies designed and developed by DRDO. It focuses upon the domestic industry within the next five to seven on support to MSMEs, R&D, export promotion, ease of years. Of these, items worth almost doing business etc. The estimated Rs 1.3 lakh crore each are anticipated embargo list to enable Rs 4.0 lakh for the Army and the Air Force while The estimated crore worth of contracts, to be placed items worth almost Rs 1.4 lakh crore embargo list to with the domestic industry over the is anticipated by the Navy over the enable Rs 4.0 lakh next five to seven years. This comes same period. The 101 embargo list crore worth of to average contract of Rs 57,000 crore will create a huge opportunity for to Rs 80,000 crore per annum. This domestic industry in next 5-7 years contracts, to be would provide significant thrust to in key products & platforms like 1) placed with the defence manufacturing companies wheeled armored fighting vehicles domestic industry in scaling up their production (AFVs) with indicative import over the next five capabilities in long term. Though the embargo date of December 2021, to seven years. This embargo list is sentimentally positive, of which the Army is expected to the execution on ground in terms contract almost 200 AFVs worth comes to average of rapid indigenization, pick-up in ~Rs 5,000 crore, 2) Similarly, the contract of Rs 57,000 ordering, which usually takes bit Navy is likely to place demands for crore to Rs 80,000 longer and get delays, allocation of submarines with indicative import crore per annum. funds to defence capital expenditure embargo date of December 2021, of and working capital management which it expects to contract about six would be the key factors to achieve submarines worth ~Rs 42,000 crore, the desired results.

27 INSIGHT September 2020 Defence Sector stocks that will be benefited from recent MoD circular on putting ban on 101 defence products Company Name Name of Platform/ Weapon/ System/ Equipment Comments Artillery systems, missile sub-systems, aerospace, radars, electronic Prime Beneficiary warfare systems, shipbuilding Hindustan Aeronautics Light Combat A aircraft, Light Combat Helicopters, Transport A Prime Beneficiary Ltd (HAL) aircraft (Light), etc. Garden Reach Ship- Survey V easels, Offshore Patrol V easel, Conventional Submarines, Prime Beneficiary builders & Engineers Multi-Purpose V easel, Next G enervation Missile V easelsetc Ltd Survey V easels, Offshore Patrol V easel, Conventional Submarines, Prime Beneficiary Multi-Purpose V easel, Next G enervation Missile V easelsetc BEML Military trucks of 4x4 and above variants, Wheeled A rumored Fighting Prime Beneficiary V vehicle Bharat Dynamic Ltd Artillery systems, missile sub-systems, aerospace, radars, electronic Prime Beneficiary warfare systems, shipbuilding Mishra Dhatu Nigam Bullet Proof Jackets, Ballistic Helmets, Shipborne Close in Weapon Prime Beneficiary ltd. System, etc L&T Artillery systems, missile sub-systems, aerospace, radars, electronic Prime Beneficiary warfare systems, shipbuilding Solar Industries Electronic Fuses for Artillery Ammunitions Indirect Beneficiary Military trucks of 4x4 and above variants: 12x12, 10x10, 8x8, 6x6 Indirect Beneficiary Zen Technologies Tank Simulators (driving, as well as, crew gunnery) Indirect Beneficiary Astra Microwave Designs, develops and manufactures sub-systems for RF and Indirect Beneficiary microwave systems used in defense, space, meteorology and telecommunication. Apollo Micro Systems Supply electronic parts for missiles to submarine Indirect Beneficiary Centum Electronics Manufacturing critical subsystems for major Defense programs Indirect Beneficiary Source: MoD & Ashika Research

Separate budget for defence procurement of GDP. Government has further envisaged to increase a game changer the defence budget at 15% CAGR between 2020-25, which Government announcement of making a separate portion looks a difficult task given the current fiscal challenges of the defence capital budget for domestic procurement that government currently confronting in the wake of will have a more positive impact than the import embargo COVID-19 outbreak. However, even a 10% yoy would list. As widely known, India is one of the largest importers imply a 40% increase over the current budget growth of defence equipment, globally. As a result expenditure on of 7% which registered between FY16-21. Though more imports used to crowd out domestic procurement. This clarity will come post the 15thFinance Commission report used to elongate timelines for order placements, typically by the end of CY20. 4-5 years after field tests, and in the past three years Defence capital budget - FY21BE also led to deterioration in working capital, particularly Defence of DPSU’s (receivables turns increased to around 300 capital days from earlier 100 days). Thus, a separate budget for budget - domestic procurement should first lead to improvement FY21BE, 0% in working capital of companies and then progressively Domestic, lead to timely order placements. In FY21, the government Rs 532 bn has set aside 46% of the capital budget for domestic 46% Imports, Rs procurement vs. 41% in FY20 and as per estimates that 607 bn 54% will result in new orders worth of Rs 600 billion to local companies vs Rs 250-300 billion in FY20 and also improve net working capital cycle of the domestic defence manu- facturers. At the steady pace, government is also increas- ing its defence capital spending which is currently at 0.6% Source: MoD

September 2020 INSIGHT 28 Defence capital budget - FY20 with defence exports have doubled in the past few years and focus is now on achieving Rs 350 billion (USD 5 billion) by FY25 from current Rs 100 billion. To optimize the exports, government has framed few important policies such as PSUs and Ordinance factory (OFB) are mandated Domestic, Rs 447 bn to earn at 25% of their revenue from exports, seamless 41% and time bound export clearance process by the defence Imports, Rs department and opening up a general export license to 653 bn 59% encourage export of selected defence equipment/items. In order to achieve the above ambitious target it is inevitable to open up the industry for private players by increasing their participation. Currently, private players contribute around 22% of total domestic defence size. The increase Source: MoD of private participation can be done through easing of licensing/investment process and mandating PSUs to India’s defence capital outlay (Rs in Billion) outsource from indigenous sources. Hence, going ahead 1200 defence could be the next big theme in Indian economy if 1000 7% CAGR the reforms and other initiatives taken by the government materialize timely. 800

600 Target to achieve Rs 1.75 trillion by FY25

400 350 200

0 100 1400 FY 11 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY21BE

FY20RE 700 Source: Industry report

FY20 FY25 (Targeted) Set an ambitious target of Rs 1.75 trillion Domestic (Rs billion) Exports (Rs billion) defence turnover by FY25 Source: Industry report The defence department has set an ambitious target of Rs 1.75 trillion turnovers in aerospace and defence goods and Size of Industry by FY25 (Rs billion) services by FY25 and for that the defence industry should 1267 grow at the rate of 15% CAGR over the next 5 years from the current Rs 0.80 trillion defence industry. However, with the intent to achieve self-reliance, the larger focus is 630 on enhancing the share of procurement from the domes- 342 tic industry from Rs 700 billion to Rs 1.4 trllion by FY25. In 170 order to achieve the ambitious target, government in the draft DPEPP 2020 has set out specific strategies such as i) distinct budget head for domestic capital procurement, PSU Private ii) enhancing allocation for domestic capital procurement Current business FY25 potential size at the rate of minimum 15% p.a. for the next five years, iii) Source: Industry report focus on cost and efficiency improvement in use of MoD’s resources, iv) mandating productivity improvement, The kind of impetus provided by the government towards quality, cost reduction and timely execution of orders defence sector which is in sync with their flagship for OFB/DPSUs. Defence capex in last decade has grown programs Make in India and Atmanirbhar Bharat could by 7% of which large part still continues to be imported. make the sector the next big theme for investments and Thus, specific impetus towards domestic capital procure- also the next big driver for economic growth if everything ment will channelize the opportunities to Indian PSUs is implemented timely. The developments in defence and private companies which have significantly enhanced could also increase India’s manufacturing contribution their capabilities across the value chain. Government has towards our GDP which is at lower end compared to other also shown its strong intent to make domestic defence emerging countries and government has also been much industry capable of catering the export markets. Gov- focused to increase the share of manufacturing in overall ernment’s continuous focus on exports yielded positively GDP contribution. PSUs are dominant players in this

29 INSIGHT September 2020 industry given the sensitivity and security relating to the highlights the serious intent of the government towards sector. However, now government has been taking neces- developing indigenous defence manufacturing capa- sary steps to increase the private participation in defence bilities. Recent geo political events at border areas also as in order to achieve the 15% annual growth in next 5 increase its importance and urgency. Embargo list of 101 years both PSUs and Private entities should work simul- items and sequential increase in budgetary allocation to taneously. In the past 10 years, reforms in the defence domestic industry should lead to structural changes in sector have had many false starts. However, the granu- the sector going ahead. larity that has gone into recent policy announcements

Some prominent players in Defence Company Name Mcap Revenue EBITDA PAT EBITDA PAT RoCE RoE D/E P/E EV/ Mcap/ P/Bv Order (Rs crs) (Rs crs) (Rs crs) (Rs crs) Margin Margin (%) (%) (x) (x) EBITDA Sales (x) book (%) (%) (x) (x) (Rs crs)

Bharat Electronics 27,411.0 12,967.7 2,754.5 1,823.9 21.2 13.8 30.5 21.5 - 16.7 10.2 2.3 2.8 53,752

Hindustan Aeronautics 39,059.8 21,521.9 4,928.3 2,897.8 22.9 13.4 29.7 22.2 0.4 15.0 9.1 2.0 3.3 52,000 Ltd (HAL)

Garden Reach Ship- 2,403.0 1,433.3 40.4 163.5 2.8 11.4 17.9 10.7 - 16.4 2.6 1.9 2.6 26,544 builders & Engineers

Cochin Shipyard Ltd 4,761.0 3,422.5 706.5 632.0 20.6 18.5 22.3 14.5 0.0 8.2 2.5 1.5 1.2 14,630

BEML 2,971.8 3,028.8 87.3 68.4 2.9 2.3 7.6 2.9 0.2 91.6 34.1 1.1 1.4 10,000

Bharat Dynamic Ltd 7,941.6 3,095.2 727.6 534.9 23.5 17.3 32.3 20.2 - 15.8 9.6 2.8 3.2 7,413

Mishra Dhatu Nigam 4,151.5 712.9 197.7 159.7 27.7 22.4 21.8 16.1 0.1 25.1 16.7 5.7 4.2 1,687 ltd.

L&T 138,746.7 145,452.4 24,370.9 9,549.0 16.8 7.0 12.9 16.9 2.1 16.6 10.4 1.0 2.1 9,666

Solar Industries 10,225.4 2,237.3 434.3 267.4 19.4 12.5 26.2 23.8 0.5 34.5 20.5 4.1 6.7 362

Ashok Leyland 20,490.0 17,467.5 1,173.7 239.5 6.7 1.4 4.8 3.1 0.5 - 46.1 1.5 2.5 5% of revenue

Zen Technologies 692.9 147.0 63.6 60.5 43.3 41.2 14.1 15.1 0.3 15.8 17.5 6.7 3.4 282

Astra Microwave 1,075.8 467.2 82.5 44.0 17.7 9.7 5.0 2.3 0.0 25.1 11.6 2.4 2.1 133

Apollo Micro Systems 261.6 245.9 48.7 14.0 19.8 5.7 12.4 10.8 0.4 19.6 7.1 1.1 0.9 98

Centum Electronics 475.0 883.3 98.0 16.1 11.1 2.0 12.3 14.0 1.7 29.6 7.1 0.6 2.3 NA

Source: ACE Equity & Company reports; All numbers are as of FY20

September 2020 INSIGHT 30 Management meet note

Ester Industries Ltd.

Company Information • Globally, the total capacity for Polyester films is esti- BSE Code 500136 mated at 5 million tonne and global demand is nearly 7% NSE Code ESTER per annum. Bloomberg Code ESTR IN • Globally, the demand is primarily driven by China, India, ISIN INE778B01029 Africa, etc. Market Cap (Rs. Cr) 637.5 • Insights about the business Sector Packaging – Films Company works on three verticals Promoter Holding 60% • Polyester film (the largest vertical) Outstanding shares(Cr) 8.33 52-wk Hi/Lo (Rs.) 76.4/22.6 • Specialty Polymer business (High entry barriers pro- tected by Intellectual Property rights) Face Value(Rs.) 5.0 Book Value (Rs) 48.94 • Engineering Plastics (compounding business) Overview on current Industry dynamics Business vertical Installed capacity (MTPA) • Ester Industries is in the business of polyester, poly- Polyster films 57,000 mer packaging. There has been traction in polyster and Metalized polyester films 13,200 flexible packaging. Specialty Polymer 30,000 • The industry is doing quite well in Covid-19 pandemic. The industry has been growing in the range of 12%-14% Engineering Plastics 13,500 CAGR for last many years. Source: Company • Flexible packaging industry has strong potential to grow Polyester film vertical as it is still underpenetrated as India’s per capita con- • Polyester film finds application in packaging of food sumption of flexible packaging is one-tenth of advanced items, drugs, pharmaceuticals, and medicines etc., it economy. is considered as part of the essential commodities and • During COVID-19 crisis, packaging business was least therefore company’s plant was allowed to operate during impacted as people are more preferring packaged food in lockdown period. order to maintain hygiene and safety. • Total installed capacity of nearly 62,000 mtpa with 100% • Management expects, domestic demand for polyester utilization. Nearly 45,000 mtpa to cater domestic demand packaging to grow in between 12-14% going ahead, which and 17,000-18,000 mtpa for export. could be a phenomenal demand growth. • Demand growth from Consumer Staples for flexible • Market size of Domestic BOPET films ~504000 tpa. packaging is expected to remain strong. • Incremental supply of about 65000 TPA on account • Polyester film business will continue to see huge of commissioning of 2 new production lines in August demand in wake of COVID-19 outbreak as the people & November 2019 already absorbed by the market with prefer more packaged foods in order to maintain high minimal disruption hygiene and health safety.

31 INSIGHT September 2020 • No new capacity is coming till filed in respect of 7. the middle of the next year, thus • However, the business was neg- currently the demand supply for Management has atively impact due to COVID-19 polyester film is favorable. Though de-commoditized outbreak as it affected the export to there could be small hiccups in prices US, the largest consumer of specialty due to COVID crisis, but long term the business by polymer. outlook is quite strong. changing the product • Management has de-commoditized mix. Management is • FY20 turned out to be one of the best years for the Specialty Polymer the business by changing the product targeting to increase mix. Management is targeting to business. After the initial phase increase the share of high margin the share of high of ups and downs, the business products to 30% over the next 1 to 2 margin products to has started to demonstrate the years from present levels of ~ 16%. consistency what management had Commissioning of an offline coater 30% over the next 1 to envisaged. in May 2020 is a concrete step in 2 years from present • For FY20, specialty polymer busi- achieving the targeted proportion of levels of ~ 16%. ness clocked revenue of Rs 73 crore value added and Specialty products. with EBIT margin of 35%, while for • The commission of Off Line Coater Q1FY21, the revenue was Rs 10 crore will enable the company to enhance with EBIT margin of 19.6%. the volume of Value Added & Specialty Films significantly. • Company’s marquee products namely MB-03 and Commercial sales have started from the month of June Innovative PBT have begun enjoying steady and consis- 2020. tent off take. These products had been developed over the • Management has rolled out a expansion plan in film past years after a lot of hard work and R&D efforts and capacity. Company is planning to expand film capacity patience. Further, there has been encouraging progress by 48,000 mtpa with total capital outlay of about Rs 500 in the development of another new product for the carpet crore in the month of March 2020. The work will start industry in the US. from second quarter of 2022 and initially company is coming up with single line expansion. The expansion will Polyester carpet be done through wholly owned subsidiary in order to get • Encouraging progress made in the development the benefit of lower tax rate of 15% for new manufacturing of another new product for carpet industry in USA. unit set up. Commercial sales have already started on a small scale. Polyester carpet is a big business in US. Products Applications • Polyester carpet is very difficult to recycle. In another White Opaque/High Clear Flexible Packaging development, in US, most of the states like California High Barrier/Embossable Barrier Packaging impose huge tax on carpet recycle manufacturers. Thus, Ester industry hasan edge over its peers in US. Heat Saleable/Twist Wrap Embossing • Initially, company is getting trial orders. Supply could be Shrink film/Anti – Static Lidding in the range of 10,000 to 40,000 tonne. Metalized High Barrier/Matte Label & Graphics • In polyester carpet segment, the contribution margin is Source: company’s presentation nearly Rs 100/kg and company could make profit of nearly Rs 100 crore from 10,000 tonne. Specialty Polymer Vertical • Specialty polymer is a technological business and has Master batch for a Cationic Dyeable Yarn long gestation period. The business need investment for and Deep Dyeable Yarn Research and development and once it has done then it • Company filed patent applications in US, European will start generating profit. Union, Korea, Thailand and China for a Master Batch to • Company has invested nearly Rs 90 crore in this produce specialized polyester yarn. This segment is also specialty polymer for last 8-9 years and for first 4-5 years gaining strong potential in China and Taiwan. company has yielded zero return from this business • Company to produce 3,000-4,000 tonne per annum. vertical. The contribution margin for master batch is nearly Rs 85/ kg. • It is a non-commoditized business and non-cyclical. Company has been working in this project for long time. • In PBT (Polybutylene Terephthalate) segment, company It is a high margin business with high entry barrier has signed manufacture and supply agreement with a protected by Intellectual Property rights. Global chemical leader. Supplied nearly 400 tonne per year to the largest Chemical manufacturers globally. • Company has 19 products in this vertical which are at various stages of development of which patents have been

September 2020 INSIGHT 32 Source: Company’s presentation

Engineering Plastics • Given its strong financial & liquidity position, the • Engineering plastics division is not doing well and the Company has decided not to avail the benefits of Reserve overall situation in the near term continues to remain Bank of India’s moratorium scheme with respect to loan challenging. It caters to mainly automobiles, consumer repayment. electronics, consumer appliances etc. It is generally a low margin business. Capex • In Telengana, company is setting up line 1 with capacity • In FY20, Engineering plastic segment reported revenue of 48,000 Mtpa for investment of Rs 500 crore. The of Rs 161 crore with EBIT margin of 5.4%, while in Q1FY21 construction of the project is expected to start from 2nd the division reported revenue of Rs 16 crore with loss quarter of CY 2022. reported on EBIT front. • Company acquired the land to set up 3 lines with • Management is considering improving the business by total investment of nearly Rs 1350 crore. But as of now changing the product mix, customer mix, changing loca- company is only setting up 1 line and not considering of tion, expanding exports & controlling costs to improve putting other 2 lines. margin profile & return ratio. Also working towards increasing share of high margin products in the overall • BOPET Film remains a preferred choice of usage over its mix and cutting down costs. alternatives on the back of its superior technical proper- ties. & cost effectiveness. • Company has a plan to divest the stake in the segment and to bring strategic investors which will result in • Telengana is very investor friendly state and offering roughly Rs 120 crore cash flows to the earnings. very good sops for setting up the manufacturing facility there. • Company has product portfolio of 250+ grades/prod- ucts marketed under the brand • The new capacity addition will be done through a 100% “ESTOPLAST”. wholly owned subsidiary in order to take the benefit lower tax rate of 15% Low leveraged balance Company has for setting up new manufacturing facility. The expansion will further sheet important trigger maintained low • Company has maintained low enhance Ester Industries’ competitive leveraged balance sheet by diligently leveraged balance position in the BOPET film industry. working towards strengthening sheet by diligently Rs 500 crore capex funding balance sheet by repaying debt and working towards improving leverage ratios. break up: • Rs 150 crore equity infusion (Parent • Total interest bearing debt as on strengthening company will infuse Rs 150 crore 30th June 2020 stood at Rs. 98.6 crore balance sheet by equity into new wholly owned comprising of interest bearing Work- repaying debt and subsidiary) ing Capital of Rs. 26 crore and Term Debt amounting to Rs. 73 crores. improving leverage • Rs 350 crore will be funded through term loan (about Rs 200-220 crore • Out of the total scheduled repay- ratios. will be funded through foreign cur- ment of term debt of Rs. 23.83 crores rency loan with 2% interest cost for during FY 2020-21, the Company has tenure of 10 years). The rest Rs 150- already repaid Rs. 14.79 crore till 31st July 2020 including 130 crore will be rupee loan at 9% interest annually. pre-payment of Rs. 9.49 crores. • Company export to 56 countries and continuously • Earlier also, company has done lot of pre-payments and increasing its value-added products and has very low cost they are doing for better prudent leverage. of production amongst the lowest in the industry.

33 INSIGHT September 2020 • On today’s consumption base almost about 60,000 to • Company’s debtor days are around 60 days and this is 70,000 tons of additional polyester film is required only industry standard. domestically, thus it is absolutely justified to go for the • Company’s current long term & short term loan has expansion. BBB+ rating and management is expecting A- rating in • As per the management, the Rs 500 crore investment quarters to come. can generate additional turnover of about Rs 600 to Rs • Currently, Brickwork is company’s rating agency but 700 crore. company will approach to CRISIL for its credit rating. • Nearly 20 months is required to set up a manufacturing • Company’s 10% promoter’s share is pledged with Banks. unit, thus by FY22 there is no risk on supply side. The pledge was done in May 2018 for Rs 50 crore loans Important meeting pointers taken by the Ester Industries. • Company is insulated from any raw material prices • The gross value add in Polyester film for the June volatility and it will not have any material impact on the quarter was 12 micron plain commodity was Rs. 55/kg and margins because company follows pass through model. for July it was much higher at Rs 77/kg. Any rise or decline in raw material prices are passed to • At current quarter that is Q2, company is producing the end customers. 5,000 tonne per month by running at full capacity. • Currently polyester films has balanced demand/supply • Indorama Corporation/group (owned by M.L. Lohia, and scenario and no additional capacity is coming till next his son, S.P Lohia) based in Singapore is the single largest year May. private shareholder in the company holding nearly 15% of • In polyester film division, domestic sales volume is total shareholding. Promoter stake in the company is 60% around 45,000 tonne per annum which is growing at 14% and there is no institutional holding. annually. • Coming up of excess capacity in polyester film divi- • Ester Industries is in BOPET business not in BOPP and it sion by other players is the biggest concern for Ester manufacture Polyster not PolyPropylene. Industries as this will result in demand supply mismatch. • India has total capacity of 7.53 lakh tonne and the Currently, China is not the threat to the company. demand for polyester film is nearly 5.50 lakh tonne per annum. So, till now the demand supply match is favorable. Sales, Cost & EBITDA per kg • In India the growth rate is very slow in comparison to Sale price per kg Rs 145/kg China. 15 years back the total installed capacity in China was only 50,000 tonne and from there it has reached to 2 Raw material & other Rs 105/kg million tonne capacity as of now. variable expenses per kg • There are about 10 companies in Polyester Film busi- EBITDA per kg Rs 40/kg ness, namely Jindal Poly, SRF, Polyplex, Uflex, Sparsh, Source: Company Vacmet, SML, etc. • Polyester film is a customized product with 3-month Outlook lead time. • Management expects polyester film domestic demand to • As per the management, there is very low possibility of grow 12-14% annually and for that nearly 60,000 to 70,000 imports because it is not easy to import polyester films tons of additional polyester film is required domestically. from overseas markets and it is not really a option. • Specialty Polymer business was negatively impacted • Plastic ban is an impossible situation. Every essential by COVID-19 crisis and it will recover as soon as US will food items are packaged in polyester packaging. There is recover from this pandemic. no alternative for plastic packaging. • Company is expecting to clock EBITDA of nearly Rs 240 • Ester is concentrating on flexible packaging. There is no crore on conservative basis in FY21. concentration on a particular one customer. No customer • In FY20, company reported cash flow of Rs 132 crore, contributes not more than 10% of the revenue, thus it is which they expect to be better in FY21. very widely spread. • Company announced a dividend policy of paying 20% of • All the machineries company use to import from net profit as dividend to shareholders. Germany. Dornier and Bruckner are the two German companies that supply machineries to Ester Industries. • Company is working to become net debt free in coming quarters given its strong cash flows. In FY21, company is Financials expecting to pay interest expense of around Rs 15-16 crore • The working capital cycle for the company is nearly 3 of its outstanding debt. months. Current asset is nearly one fourth of the total assets.

September 2020 INSIGHT 34 economy review

Economy review: Agriculture Reforms

ovid-19 has brought a strategic shift in the build efficient supply chains and ensure better prices mindset of the policymakers as well as for farmers as well as for consumers. The agriculture corporate honchos and to look more towards sector has long been at the mercy of the government rural India and hence rural markets, a rare from determining the cost of agri-inputs to output. Such incidence.C In fact, given the fact that rural economy heavy hand by Govt. has resulted in excessive reliance was mostly unaffected while urban India was hit with on subsidies and eventually low productivity. Although, lockdowns, agriculture & allied activities could be the one must keep in mind that agriculture is dependent on saving grace. Prime Minister Modi the state governments and hence also seized the opportunity to the success of the reforms vests with announce for a financing facility them. Nevertheless, these are the to the tune of Rs 1 trillion (to be The problems first major steps by any government funded by NABARD) to develop plaguing the in a very long time to create agriculture infrastructure (e.g. infrastructure in the agriculture cold storage and post-harvest agriculture sector sector and again remove bottlenecks management) to strengthen the are however nothing which would attract private agriculture value chain as well as new and age old investment. to boost long-term productivity. and could be very The problems plaguing the The Government also announced agriculture sector are however three important agricultural well judged from nothing new and age old and could be reforms (three ordinances) which the abysmally low very well judged from the abysmally relate to amendments in the (a) gross fixed capital low gross fixed capital formation (as Essential Commodities Act (ECA), formation (as % of % of GDP). Farm crisis and farmer (b) agricultural marketing reforms, suicides have led governments to allowing farmers to sell their produce GDP). Farm crisis look for short term solutions either outside the APMC mandis and (b) and farmer suicides to hike minimum support prices encouraging farming contracts have led governments (MSP) or grant loan waivers and more between farmers, processors, to look for short recently income transfers. However, exporters and retailers. These both higher MSPs and as well as loan reforms together with announcement term solutions either waivers have serious shortcomings of the creation of a funds for building to hike minimum with the system. Economists like infrastructure has been hailed by support prices (MSP) Mr. Himanshu, (Associate Professor, economists as well as farmers and or grant loan waivers Centre for Economic Studies and when a person of Dr. Gulati’s repute Planning, School of Social Sciences, hails such reforms, one should and more recently JNU) state that unlike earlier episodes pay notice. According to him, the income transfers. which was generally a product of three reforms have the capacity to

35 INSIGHT September 2020 deficient monsoon, the present crisis in the agri sector per quintal in 2004-05 to Rs. 1,310 per quintal in 2013-14 was more because of decline in the prices of agricultural while that of wheat from Rs. 640 per quintal in 2004-05 produce since August 2014 and neglect towards the sector. to Rs. 1,400 per quintal in 2013-14. While this resulted in Moreover, the acute situation is not only in agriculture higher income in the hands of farmers and hence higher but in non-farm rural employment as well. The non-farm demand. However, this hike in MSP has been proved rural sector which also plays an equally important part to be the major reason for higher food inflation and in the rural economy has been muted from 2004-05 to making monetary policy actions futile. Besides, the UPA 2013-14. Mr. Himanshu states that together with farmers government also generated employment in non-farm (cultivators) whose incomes have declined in real terms, rural sector and hence uplifted non-farm income through the wages of casual workers have also depicted a slow Mahatma Gandhi National Rural Employment Guarantee growth and have even stagnated for the last five years. Act (MNREGA) scheme. Mr. Himanshu states that ‘While Casual workers together with cultivators account for there are no reliable and robust estimates of farmer almost 2/3 of all workers in the rural economy. Hence, incomes, the background paper outlining the strategy decline in real income of 2/3 of workers led to an extreme and action plan for doubling incomes prepared by the episode of demand deflation (i.e. a decline in demand, NITI Aayog, shows a trend of declining farmer incomes as opposed to an increase in inflation). Incidentally, the since 2011-12 (Chand 2017). As against a growth rate of present situation has similarities with the period between farmer incomes at 5.52% per annum between 2004-05 and 1997-2003 when another NDA was in power led by Atal 2011-12, the incomes of all farmers actually declined at Bihari Vajpayee as Prime Minister. The similarities are a 1.36% per annum between 2011-12 and 2015-16. Extending prolonged period of demand deflation led by a collapse of the calculations to 2017-18 and using the methodology agricultural prices and a sharp slowdown in agricultural suggested by the NITI Aayog, it is seen that the trend of a wages. Mr. Himanshu is of the opinion that acute demand deceleration (slow down) in growth of farmer income has deflation led to shift in terms of trade from agriculture continued’ in favour of non-agricultural sector. The terms of trade between two sectors broadly measure the purchasing Agri sector growth in last few years power of the income earned by one sector in order to buy 20,00,000 8% the goods and services of the other sector. 7% 7% 6% 6% 15,00,000 6% Mr. Himanshu further states that agriculture grew at 5% 4% dismal rate of 1.76% every year between 1998-2004, grew 10,00,000 3% 2% at a much higher rate of 3.84% between 2004-05 to 2012-13 2% 1% 1% (growth rates based on old GDP series). The growth 5,00,000 1% was led by increase in credit availability to agriculture, 0% 0% -1% a rise in farm investment and MSP policies that helped - -2% shift the terms of trade in favour of agriculture. The UPA FY13 FY14 FY16 FY17 FY18 FY19 FY15 government between 2004-05 to 2013-14 increased MSPs Agri GVA (Rs cr) GVA Growth (%)-RHS massively. For e.g. for paddy MSP was hiked from Rs. 560 Source: MOSPI Percentage share of Gross Value Added by economic activity (at constant 2011-12 prices) 2011-12 2012-13 2013-14 2014-15 2015-16 2016-17 2017-18 2018-19 Agriculture, forestry and fishing 18.5 17.8 17.8 16.5 15.4 15.2 15.1 14.6 crops 12.1 11.5 11.4 10.3 9.2 9.0 8.8 8.2 livestock 4.0 4.0 4.0 4.0 4.0 4.1 4.1 4.2 forestry and logging 1.5 1.5 1.5 1.4 1.3 1.3 1.3 1.2 fishing and aquaculture 0.8 0.8 0.8 0.8 0.9 0.9 0.9 1.0 Source: MOSPI

Agri Capital formation stagnant Private-public GCF share in Agriculture 3,50,000 19% 100% 3,00,000 18% 18% 80% 2,50,000 17% 60% 85% 86% 82% 2,00,000 17% 87% 88% 1,50,000 16% 40% 16% 1,00,000 15% 20% 50,000 15% 13% 15% 12% 14% 18% 0% 0 14% FY12 FY13 FY14 FY15 FY16 FY12 FY13 FY14 FY15 FY16 FY17 FY18 FY19

GFCF (Rs cr) GFCF % of GVA Public Private Source: MOSPI Source: State of Indian Agriculture, 2017

September 2020 INSIGHT 36 MSP for major crops over the years (Rs per quintal) Commodity FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 FY21 yoy FY14-FY21 change CAGR Jowar Hybrid 1500 1530 1570 1625 1700 2,430 2,550 2,620 2.7% 8.3% Jowar Maldandi 1520 1550 1590 1650 1725 2,450 2,570 2,640 2.7% 8.2% Paddy Common 1310 1360 1410 1470 1550 1,750 1,815 1,868 2.9% 5.2% Paddy Grade A 1345 1400 1450 1510 1590 1,770 1,835 1,888 2.9% 5.0% Wheat 1400 1450 1525 1625 1735 1,840 1,840 N.A - 4.7% Bajra 1250 1250 1275 1330 1425 1,950 2,000 2,150 7.5% 8.1% Ragi 1500 1550 1650 1725 1900 2,897 3,150 3,295 4.6% 11.9% Maize 1310 1310 1325 1365 1425 1,700 1,760 1,850 5.1% 5.1% Tur and tur split 4300 4350 4625 5050 5450 5,675 5,800 6,000 3.4% 4.9% Moong 4500 4600 4850 5225 5575 6,975 7,050 7,196 2.1% 6.9% Urad 4300 4350 4625 5000 5400 5,600 5,700 6,000 5.3% 4.9% Groundnut 4000 4000 4030 4220 4450 4,890 5,090 5,275 3.6% 4.0% Sunflower 3700 3750 3800 3950 4100 5,388 5,650 5,885 4.2% 6.9% Soyabean 2560 2560 2600 2775 3050 3,399 3,710 3,880 4.6% 6.1%

Source: Agricoop, media articles

While it is true that MSPs have been kept suppressed could be gauged from the massive decline in Agri GDP for years FY14 through FY16, the rates were increased in FY15 & FY16 on account of drought in years 2014 & from FY17 onwards and got a significant jump in FY19. 2015 and while agriculture GVA bounced in FY17, the Between FY14-FY21, MSPs of paddy increased by 5.2% share in total GVA has hardly moved. One of the other CAGR while that of wheat between FY14-20 was at 4.7% important aspects has been the flow of credit to the CAGR. In comparison between 2004-05 to 2013-14, paddy agriculture sector and access to credit facilities is one and wheat MSPs increased at 11% and 10% CAGR, much of the key determinants of private capital formation in higher than under the present government. It needs to agriculture. Farmers’ credit needs are met by institutional be remembered that hike in MSPs doesn’t correspond to and non-institutional sources. Non-institutional sources higher retail prices, besides, apart from paddy & wheat of credit comprise of loan taken by the farmers from together with pulses, MSPs hardly money lenders, input dealers, matter to majority of crops since traders, relatives, etc. Institutional procurement by Food Corporation of It needs to be sources consist of commercial India (FCI) doesn’t actively happen. remembered that banks, cooperative banks, regional Besides, procurement by Govt. rural banks (RRBs) and cooperative also varies from states to states. hike in MSPs doesn’t credit societies. A majority of Indian In Punjab and , where the correspond to higher farmers do not have access to the government buys the entire crop, retail prices, besides, institutional credit and hence they price is not the issue while states mostly rely on non-institutional like Madhya Pradesh and Rajasthan apart from paddy & sources who charge very high remains in the thick of news for wheat together with interest rate ranging between 36-60% selling farm produce 10-15% lower pulses, MSPs hardly per annum. Essentially, this is one of than MSPs. Agriculture GDP has the major reasons for farmer suicides hardly got going and rather has been matter to majority in India. Although, agriculture is in erratic on account of pathetic gross of crops since the priority sector and 18% of total capital formation in agriculture. procurement by Food institutional credit flow is targeted However, surprisingly, private sector for it, the bank credit to this sector contribution in GFCF has increased Corporation of India has never reached this level. in recent years or it could be on (FCI) doesn’t actively Access to agricultural credit is account of lower public investments. happen. linked to the holding of land titles. The point that the agriculture sector As a result, small and marginal is heavily dependent on monsoon

37 INSIGHT September 2020 farmers, who account for more than half of the total land those with land holdings of two or more hectares holdings, and may not hold formal land titles, are unable primarily borrow from banks (50% or more). Other major to access institutionalized credit. Farmers may require sources of agricultural credit include shopkeepers, credit for short term uses such as purchasing inputs, relatives or friends, and co-operative societies. Key weeding, harvesting, sorting and transporting, or long issues relating to agricultural credit are lack of access to term uses such as investing in agricultural machinery formal credit owing to unclear land records, skewed ratio and equipment, or irrigation. Farmers with land holdings between short term and long-term agricultural credit, of less than a hectare primarily borrow from informal and inadequate access to crop insurance. sources of credit such as moneylenders (41%), whereas

Number of Holdings (in million) Size Groups 1970-71 1976-77 1980-81 1985-86 1990-91 1995-96 2000-01 2005-06 2010-11 2015-16 Marginal 36 45 50 56 63 71 75 84 93 100 Small 13 15 16 18 20 22 23 24 25 26 Semi-Medium 11 12 12 13 14 14 14 14 14 14 Medium 8 8 8 8 8 7 7 6 6 6 Large 3 2 2 2 2 1 1 1 1 1 All Sizes 71 82 89 97 107 116 120 129 138 146

Source: Agriculture Census 2015-16

Land holdings and sources of agricultural credit (as of 2013) Size of land (hectare) Co-operative Bank Money lender Shopkeeper/ Relatives/ Others society trader friends 0-1 10% 27% 41% 4% 14% 4% 1-2 15% 48% 23% 2% 8% 6% 2-4 16% 50% 24% 1% 6% 4% 4-10 18% 50% 19% 1% 7% 6% 10+ 14% 64% 16% 1% 4% 2%

Source: Report of the Committee on Medium-term Path on Financial Inclusion, Reserve Bank of India; PRS.

Short term credit is generally taken for pre-harvest reversed. In 1990-91, a majority of crop loans taken was and post-harvest activities such as weeding, harvesting, long term credit, whereas short term credit accounted for sorting and transporting. Long term credit is generally only about a quarter of all agricultural loans. As of FY15, taken in order to invest in agricultural machinery and 75% of crop credit was short term, whereas long term equipment, irrigation and other developmental activities, credit had a share of 25%. In addition, small and marginal etc. Over the past few decades, the trend of short term farmers, who account for about 86% of total land holdings, and long-term agricultural credit in the country has take more short-term loans than farmers with medium or large land holdings. This group of farmers also has the highest share of borrowings from informal sources of Share of credit type credit such as moneylenders, family and friends. 100% 19% 29% 22% 22% 25% 80% Recent data shared by NABARD suggests that the government has been disbursing higher than the targeted 60% range and more importantly, share of Small and Marginal 40% 81% 71% 78% 78% 75% Farmers (SF/MF) have remained at ~50% for the last three 20% years available. Hence, it makes sense for the government

0% to stretch the disbursement target and for FY20-21, the FY11 FY12 FY13 FY14 FY15 target has been set at Rs 15 lakh crore. However, for Short Term credit Medium/Long term credit improvement in capital content in agriculture, share of Source: Department of Agriculture, Cooperation & Farmers Welfare long-term credit has to go higher.

September 2020 INSIGHT 38 Year Target (Rs cr) Achievement (Rs cr) % achievement 2016-17 9,00,000 10,65,755.67 118.42 2017-18 10,00,000 11,62,616.98 116.26 2018-19 11,00,000 12,54,762.20* 114.06

Source: PIB, GOI, *provisional

Year Total Disbursed Loan disbursed to SF/MF out %share of SF/ MF in total Amount (Rs cr) of total disbursement (Rs cr) amount disbursed 2016-17 10,65,755.67 5,34,351.43 50.14 2017-18 11,62,616.98 5,80,457.42 49.93 2018-19 12,54,762.20* 6,26,087.53* 49.9

Source: PIB, GOI, *provisional

One of the other issues with the agriculture sector and collected a total premium amount of Rs 7,764 crore, of farmer woes have been with crop insurance. From 1985 which farmers paid Rs 1,317 crore, or 17%. The rest was to 2016, several schemes such as the Comprehensive paid, in almost equal proportions, by state governments Crop Insurance Scheme (1985), the National Agricultural and the central government. PMFBY accounted for 93% of Insurance Scheme-Rabi (1999) and the Modified National the total sum insured in the country. Consequently, the Agriculture Insurance Scheme-Rabi (2010-11), and the scheme also accounts for a bulk of the reported claims Weather Based Crop Insurance (WBCIS -since 2007) at 83%. The article states that delays in payment of crop were operationalized with a limited degree of success. insurance is a regular feature of the flagship PMFBY Based on the learnings from the earlier schemes and the scheme of the government and to address the issue, recommendations of a review committee (May 2014) led the government imposed a penalty interest of 12% on by PK Mishra, a revamped version of the crop insurance insurance companies in 2018 if they delayed settlement scheme was launched as the Pradhan Mantri Fasal Bima of claims beyond the two-month period. However, the Yojana (PMFBY), effective from the 2016 kharif season. Govt. has not implemented the penalty while in other The coverage includes losses on account of prevented matters penalties are also generally not paid by insurance sowing due to deficit rainfall or adverse weather companies. If such is the implementation of the scheme, conditions, yield losses due to non-preventable risks, no matter which insurance scheme Govt. brings in, it will post-harvest losses, localised calamities and specified lead to utter failure and defeats the very purpose. add-on covers. However, despite such innovations, there Of multiple problems, infesting the agriculture, one of the are several shortcomings going by the recent media important ones is with regards to the articles. According to an article by severe imbalance in the use of the Wire and data accessed via RTI, it fertilizers in India. The manufacture, has been learnt that farmers have According to an sale, and distribution of fertilizers been paid only 20% of their reported article by Wire and in the country is regulated by the crop insurance claims for the Rabi Ministry of Chemicals and Fertilizers, season of 2019-20 a month and a half data accessed via under the Essential Commodities after they ought to have been paid. RTI, it has been Act, 1955. There are three major The total reported claims under the learnt that farmers types of nutrients used as fertilizers: two central crop insurance schemes have been paid only Nitrogen (N), Phosphatic (P), and – Pradhan Mantri Fasal Bima Yojana Potassic (K). Of these, the pricing (PMFBY) and the Restructured 20% of their reported of urea (containing N fertilizer) is Weather Based Crop Insurance crop insurance controlled by the government, while Scheme (RWBCIS) – amount to Rs claims for the Rabi P and K fertilizers were decontrolled 3,750 crore. Only Rs 775 crore has in 1992, on the recommendation of been paid as on August 17. The article season of 2019-20 a Joint Parliamentary Committee. further states that in the rabi 19-20 a month and a half It has been observed that urea is season, to which the data pertains, 1.8 after they ought to used more than other fertilizers and crore farmers were enrolled in the this has happened after the central two central crop insurance schemes have been paid. government launched the nutrient and the total sum insured was Rs based subsidy policy (NBS) in 2010 70,000 crore. Insurance companies for P and K fertilizers. The policy was

39 INSIGHT September 2020 formulated with the objective of promoting a balanced imbalanced use of urea may lead to a loss of fertility in the use of N, P and K fertilizers. The policy allowed the soil over a period of time, affecting productivity. Urea (N) manufacturers of P and K fertilizers to fix their maximum is the most produced (86%), consumed (74%) and imported retail prices (MRPs) at reasonable levels. The subsidy (52%) fertilizer in the country. Higher usage of urea has provided would be based on per kilogram of the nutrient. resulted in decline in crop response ratio as stated by Dr. The policy also provided for an additional subsidy to Ashok Gulati & Pritha Banerjee in a research paper. Crop be paid to indigenous manufacturers of fertilizers. Post response ratio was 13 kg grain/kg nutrient in 1970 which implementation of NBS, there was a severe imbalance in saw a continuous decline indicating soil fertility loss. Due the prices of urea (whose priced is fixed at Rs 5360/MT and that of P&K fertilizers, thus resulting in farmers over to the low crop response ratio, yield of major foodgrains using urea. While the recommended ratio of use of the like paddy or wheat in India is much lower than the world NPK fertilizers is 4:2:1, this ratio in India is currently at average, the authors argue. Besides, the over usage of 6.1:2.5:1 (as of FY18). Overuse of urea is especially observed urea results in inflated subsidy bills, which is another in the states of Punjab, Haryana and Uttar Pradesh. An story.

NPK Ratios- All-India and Selected States Year NPK ratio % of total customers % of total customers % of total customers % of total outstanding 2000-01 7.0:2.7:1 73.9:21.3:1 42.5:11.9:1 92.1:30.5:1 2010-11 4.7:2.3:1 20.5:7.1:1 19.1:5.9:1 24.9:11.8:1 2011-12 6.7:3.1:1 27.2:9.8:1 26.8:8.5:1 34.9:15.9:1 2012-13 8.2:3.2:1 61.4:18.7:1 61.7:19.2:1 44.9:16.5:1 2013-14 8.0:2.7:1 60.7:12.7:1 56.8:13.5:1 180.3:54.6:1 2014-15 6.7:2.4:1 28.0:7.0:1 36.0:8.7:1 62.7:21.8:1 2015-16 7.2:2.9:1 52.6:14.8:1 18.6:5.4:1 58.2:24.1:1 2016-17 6.7:2.7:1 23.5:6.8:1 26.8:7.1:1 63.6:21.7:1 2017-18 (P) 6.1:2.5:1 22.7:6.1:1 25.8:5.8:1 34.4:12.6:1

Source: Rejuvenating Indian Fertilizer Sector, Ashok Gulati & Pritha Banerjee

Reponse ratio (kg grain/kg NPK) Yield in different countries (tonne/ha) 13.4

11

8.2 7 5.8 4.9 4.1 3.7

1970 1975 1980 1985 1990 1995 2000 2005 Source: Biswas and Sharma (2008), Department of Fertilizers, GoI Sources: Food and Agriculture Organization of the United Nations; PRS

Allocation of the Subsidy within the Fertilizer Sector (figures in Rs crore) 2016-17 2017-18 2018-19 2019-20 (P) 2020-21 (BE) Urea Subsidy 51,000 49768 46514 54,755 47,805 Nutrient based Subsidy 19,000 20232 24090 26,369 23,504 Total 70,000 70,000 70,604 81,124 71,309

Source: Agricoop, PIB, Media articles

September 2020 INSIGHT 40 Now coming back to the recent announcements by prices at harvest time. He also advocated for an active the Government with regards to infrastructure fund futures market for agri produce like that of China or USA. to create infrastructure, particularly for storage post- NABARD also have to play a more vital role in training harvesting. It is a known fact that a significant quantity FPOS to use negotiable warehouse receipt system and of food is wasted during the harvest and post-harvest navigate the realm of agri-futures to hedge their market processes in the country and most impacted are fruits risks. More importantly, he wants government agencies & vegetables due to its inherent perishable nature. List dabbling in commodity markets — the Food Corporation of agricultural products and their cumulative loss (%): of India (FCI), National Agricultural Cooperative Cereals: 4.65 to 5.99; Pulses: 6.36 to 8.41; Oil seeds: 3.08 to Marketing Federation of India (NAFED), State Trading 9.96; Fruits & Vegetables: 4.58 to 15.88; Milk: 0.92; Meat: Corporation (STC) — should increase their participation 2.71; Poultry meat: 6.74. Rameswar Teli, Minister of State in agri-futures. Of course, government policies need to be for Food Processing Industries, provided this data in friendly. the Lok Sabha, attributing it to the study “Assessment Regarding the Essential commodities Act, he states that of Quantitative Harvest and Post-Harvest Losses of the current one discourages investments in storage Major Crops and Commodities in India” carried out by facilities as it imposes stock limits on any trader, retailer, the Central Institute of Post-Harvest Engineering and exporter etc. which results in adverse price movements. Technology (CIPHET). Perishable products like fruits The amendments to the ECA would hence encourage and vegetables are wasted due to unavailability of cold private participation in building storage facilities and storage and improper transportation facilities. The help farmers realize stable and better prices and reduce bottleneck in the supply chain between farmers and wastages. The changes to the Essential Commodities Act, consumers is keeping the benefits of surplus production 1955, will “deregulate” various agricultural commodities away from farmers and consumers. Dr. Ashok Gulati, like cereals, pulses, oilseeds, edible oils, onion and (chair professor for agriculture at ICRIER) believes that potatoes from stock limits, except in case of natural fund is a major step towards getting agri-markets right. calamities like famine. Overall, this would reduce price Together with the three ordinances. Mr. Gulati believes volatility. On agriculture market reforms wherein, changes in the legal framework are a necessary condition, farmers would be able to sell their produce outside though not a sufficient one, for getting agri-markets APMC mandis would lower mandi fee and cess and right. He believes that the positive impact of the fund will more importantly provide firmest with the option to be evident in due course, depending upon how fast, and sell across state borders and hence realize better prices. how earnestly, the states, Farmer producer Organizations Indian farmers have thus far been forced to sell their (FPOs), and individual entrepreneurs produce to traders registered by implement the reforms initiated state governments, at notified APMC by the Centre. Better and more markets, the government said in its storage facilities will help farmers It is a known fact press statement. Further, it added, to avoid distress selling particularly that a significant barriers exist in the free flow of immediately post-harvest when agriculture produce between several [rives are generally at their lowest, quantity of food is states owing to APMC legislations opined Mr. Gulati. However, he also wasted during the enacted by their governments. believes that small farmers cannot harvest and post- While these are most encouraging hold those stocks for long since harvest processes in announcements for the farmers they would need funds to meet and biggest such reforms in the agri household expenditure. He hence the country and most space, it would however favour large believes that NABARD also needs to impacted are fruits & farmers. Only 10% of the farmers in come up a working capital financing vegetables due to its India are aware of the MSPs and the scheme for FPOs at rates of 4% to 7% inherent perishable same could happen if small farmers similar to crop loans. The FPOs can are unaware of the retail prices at then provide advance to farmers of nature. List of different states to take advantage of ~75-80% of their value of produce at agricultural products this brilliant opportunity. Experts current market prices. Therefore, and their cumulative believe that nationwide E-NAM the value of the storage facilities at loss (%): Cereals: 4.65 (National Agriculture Market), the the FPO level could be enhanced nationwide e-trading portal, needs to by a negotiable warehouse receipt to 5.99; Pulses: 6.36 be upgraded to keep farmers updated system. He says that currently, to 8.41; Oil seeds: about the prices of commodities at FPOs raise working capital loans 3.08 to 9.96; Fruits various locations. Farmers bodies from microfinance organizations & Vegetables: 4.58 have cheered these announcements at rates ranging from 18%-22% p.a. and believes infrastructure fund will Clearly, to justify such high prices, to 15.88; Milk: 0.92; create higher private investments stocking would not be economically Meat: 2.71; Poultry and thus raising share of Agriculture viable unless the off-season prices meat: 6.74. in overall GDP. are substantially higher than the

41 INSIGHT September 2020 Start-up Corner At Ashika Capital, we are extremely passionate about fostering symbiotic relationships that are aimed at building and sustaining high-growth founder led businesses. We strongly believe that financial capital is the first stepping stone to build a scalable, sustainable and impactful business. Therefore, our endeavour is to identify great entrepreneurs in pursuit of building businesses that carry magnanimous investment potential. Here is an INSIGHT into Mr. Mihir Mehta businesses that we have worked/working with – iKure An exciting impact investment opportunity in the affordable healthcare sector in India -iKure is a HealthTech company that provides primary healthcare services to the underserved by using an innovative technology platform, network of on-ground clinics & trained last mile community health workers. Over the years, it has set up 9 hub clinics, ran >150+ interventions & served >1 million patients in rural, semi-urban & urban areas. Over the past 2 months, iKure has been offering telemedicine services using its own technology platform & panel of doctors. iKure’s research partners include the world’s best Academic Institutions like Stanford University, University of Michigan etc. with whom they carry out pioneering paid research in primary healthcare. iKure has been working with the IBM Watson & Microsoft Startups team in AI & Deep tech space and is PAT+ve & its experience in primary healthcare delivery makes it an important stakeholder to deliver the Covid-19 vaccine to India’s last mile. Currently, backed by investors from the investment networks of Intellecap, Mumbai Angels, ARUN (Japan), VilCap(USA), it is looking to raise US$ 5 mn for its next phase of growth where it will play a critical role in developing India’s Primary Healthcare Ecosystem.

Sporjo India’s leading sports-only job portal with proprietary tools and modules to help kick off your sports journey in style. Founded by an extremely passionate and experienced founder, G Srinivvasan, who held the position of Group Head of Marketing and Strategy at Reliance Sports and multiple positions in ESPN, Nike, IPL and ISL. The company aims to create a one- stop solution for hiring in the Sports industry in India which later can be implemented globally. The company will offer the following services to job seekers: • Proprietary Test (Based on Passion, Proficiency and Personality) which will serve as an alternative to resume of the candidates • Sports Newsletters which will include relevant and unique information which are otherwise not readily available • Sports Counselling by renowned personalities who understands the sports industry and will help candidates in choosing the right career path • Online Masterclasses designed to increase proficiency in the area of interests (includes Operations, Sales, Marketing, Data Analytics etc.) • Live Projects with partnered companies to provide real-time experience to the candidates The company has recently launched the first product and have already received an annual paid subscription from more than 50 candidates within the first month of operations and istargeting over 1 Lakh candidates in the next 5 years. They are looking to expand their business in major cities in India in the next 12 months and create a pan India presence through posting various internships and full-time opportunities. Currently, the company is looking to raise fund INR 3.0 Cr (out of which INR 1.5 Cr is already committed by big names in the sports industry).

FinancePeer A one-of-it’s kind FinTech platform, leveraging technology and key partnerships to create an impact on parents as well as educational institutions in the segment of K-12 Fee-Financing. By making no-cost EMI’s and upfront payments available, the business is truly propelling the Indian education revolution. Globally today, almost all Educators, majorly in developing nations, are working on improving the Quality of education via various means like infrastructure expansion, digital & innovative Edtech developments & partnerships, different facilities & faculties, etc. however the challenge that comes up is that with quality, the price point of Education also increases, limiting accessibility. The children at the bottom of the pyramid who constitute the mass of the population in a developing nation, invariably are left out and it is FinancePeer’s firm belief thatbridging this gap is what will create a real impact on education in society. The business provides Zero cost, Zero interest monthly installments facilities to such parents while paying the entire year fees to the institutions upfront. The business is looking to raise INR 5.5 cr. as a part of a larger ongoing round. These are the top three business opportunities that interested stakeholders can pursue from an investment standpoint. If you are interested to know more about these companies from the perspective of business operations, investment thesis, exit opportunities and more, please drop in a line to us at [email protected].

September 2020 INSIGHT 42 Agri Inputs: Set for ample lift

n the current environment of COVID-19 crisis, ease liquidity issues at the farmer level and to help them when most industries are staring at a grim future concentrate on the farming activity. Southwest monsoons of uncertainty, agri input space is better placed covered the entire country 12 days ahead of its normal due to expectation of normal monsoons, which has schedule with certain regions receiving heavy down- boostedI the demand offtake for agri input products, and pours and water levels in key reservoir at a surplus level. also products being categorised under the essential goods Moreover, kharif sowing has increased by 9% to 1,062.93 category resulting in resumption of operations after a lakh hectares. Increased area under sowing as a result of short duration of lockdown. Moreover, certain challenges healthy monsoon is likely to help agri input companies in terms of logistics movement and availability of labours to have a healthy demand offtake for their products existed during the initial few days of the quarter when during the ongoing kharif season. In spite of emerging the nationwide lockdown was in force. Agriculture issues such as the ban on 27 generic agrochemicals and inputs consumption had seen significant growth over supply disruptions from China, agro inputs companies’ the past few months suggesting strong kharif season management sounded confident of logging 15–20% growth despite covid‐19 led challenges. Recent demand surge in FY21. Demand is expected to remain substantially was largely led by timely arrival of monsoon, advance better compared to last year for FY21 due to better rainfall procurement by farmers with some stocking on fears of distribution, higher water storage and government’s limited availability, better purchasing power to consume continued support for agriculture. agriculture inputs with income support from the govern- ment and farmers have very limited options to spend on India’s usage of agrochemicals Others non-essential items due to fears of covid‐19. Companies 5% in the agri input space has done fairly well during Q1FY21 owing to healthy demand offtake for their products in the ongoing kharif season led by prediction of normal Herbicides monsoon. Moreover, the central government has raised 20% the minimum support price (MSP) for 14 kharif crops, wherein farmers are expected to get ~50 to 83% more Insecticides 54% than their cost of produce for 2020-2021 crop year, which Fungicides 21% helped farmers take an informed decision as to opt for which crop. The central government has also extended the time limit for repayments of loans till August 2020 to Source: News Articles

43 INSIGHT September 2020 Crop-wise usage of agrochemicals has also been supported by spill over of sales from Others Q4FY20 along with pre-buying activities. In the domestic 5% segment, all players (ex- insecticide) reported 20% plus growth. Dhanuka Agritech posted healthy 71% YoY

Cotton Rice growth, while PI’s domestic business (Ex: Isagro) reported 17% 30% 46% YoY surge. UPL’s Indian operation sustained growth momentum from Q4FY20 and grew 27% YoY. While domestic formulation business of Rallis clocked an in- Vegetables line performance (up 26% YoY), shift in crop patterns 23% impacted the seed segment (40% of revenue mix) leading Wheat to mere 6% YoY growth. PI’s CSM business maintained 25% 15% YoY growth trajectory driven by strong order book Source: Industry Report (USD1.5bn). Deferment of purchase in regions to LATAM and Europe impacted UPL’s global operation, leading to Agrochemical: Strong performance sales declining 1% YoY. Pressure on margin eased during backed by early sowing the quarter driven by favourable product mix along In Q1FY21, domestic agrochemical companies deliver with moderation in technical prices. However, Bayer robust performance driven by good water levels across Cropscience and PI reported decline in gross margins by reservoirs along with early start to kharif season and 240bps and 276bps YoY, respectively. normal progression of monsoon. The growth momentum

Major agrochemical products used in India Molecule Type Application Crop Companies producing the product Acephate Insecticide Sucking and chewing Chilies, vegetables, fruits, Bayer, Cheminova, UPL, Rallis, insects cereals, tobacco IIL, PI, Excel Cropcare Chlorpyrifos Insecticide Fruit borers, stem borers, Cotton, pulses, oilseeds, Bayer, BASF, DuPont, Syngenta, leaf-eating caterpillars rice UPL, Rallis, Gharda, IIL Dinotefuran Insecticide Brown plant hoppers Rice BASF, DuPont, Mitsui, Indofil, PI Fipronil Insecticide Rice stem borer, diamond Cole crops, sugarcane, Bayer, DuPont, Syngenta, BASF, moth chilies UPL, Rallis, Gharda, Coromandel Flonicamid Insecticide Aphids Apples, peaches, wheat, Syngenta, ISK, UPL potato, vegetables Imidacliprid Insecticide Sucking pests – aphids, Cotton, rice, vegetables Bayer, DuPont, Syngenta, BASF, jassids, whitefly, brown PI, Rallis plant hopper Glyphosate Herbicide Weeds and grasses Several varieties of crops Bayer, DuPont, Syngenta, BASF, Cheminova, PI, UPL, Rallis Quizalofop Herbicide Narrow leaf weeds Broad leaf crops Monsanto, DuPont, Dhanuka, IIL Hexaconazole Fungicide Powdery mildews, rusts, Cereals, oil seeds, horticul- Bayer, Cheminova, Biostadt, leaf spots tural and plantation crops UPL, Coromandel, Rallis Tricyclazole Fungicide Leaf blast, node blast, Rice Dow, Syngenta, Arysta, UPL, neck blast Rallis, Biostadt Source: Department of Agriculture, GoI

Fertiliser: Volume-driven growth minimum inventories due to substantial consumption The fertiliser segment reported a strong pick up in over the past 2‐3 months. Companies have gradually volumes during Q1FY21 driven by pre-buying along with reduced discounts on MRPs over the past two months early start to sowing. Fertiliser sales volumes (urea/DAP/ in order to cover rising costs on rupee depreciation. NPKs/MOP/SSP) saw a substantial jump of 35% YoY to DAP/MOP were selling at about Rs 24,000/17,500 per 17.3 mn tonnes in Q1FY21, despite minor supply‐chain tonne. Favourable product mix with higher share of challenges. Spike in sales was led by advance buying on manufactured phosphatic fertilizer (up 75% YoY) helped fear of limited availability due to covid‐19, expectations deliver 51% YoY top-line of good monsoon and higher purchasing power because growth. Driven by cost control initiatives along with of income support. Many dealers/distributors have very higher share of value-added products, its EBITDA margin expanded 370bps YoY to 12.8%.

September 2020 INSIGHT 44 Production, Imports and Sales of Key Fertilizers (in Lakh Metric Tonnes- LMT) Q1FY20 Q1FY21 YoY Change Q1FY20 Q1FY21 Overall Fertilizers Production 98.4 101.1 -1.1% 2.8% Overall Fertilizers Imports 29.5 30.5 19.4% 3.5% Overall Fertilizers Sales 128.2 173.0 6.6% 35.0% Urea Production 55.7 60.4 -8.1% 8.4% Urea Imports 6.9 11.4 48.9% 64.9% Urea Sales 65.0 75.0 4.0% 15.4% DAP Production 11.7 9.4 45.0% -19.7% DAP Imports 12.5 6.6 25.0% -47.5% DAP Sales 11.2 15.3 26.5% 36.1% MOP Imports 7.8 4.5 15.9% -41.7% MOP Sales 5.8 6.4 21.3% 10.7% SSP Production 10.9 12.3 7.8% 12.7% Source: Department of Fertilizers, GoI

Domestic manufacturers may gain in Exports from India – country-wise split (%) medium term With border tension between India and China escalating and posing a threat to imports of agrochemical raw materials and technicals from China, agro inputs company’s management believe that the government is unlikely to put any immediate ban on imports as 40–50% of raw materials/technicals are imported from China. Besides, there are no alternatives to many in India and any ban thereof can cause agrochemical availability issues. Over the medium term, this challenge is likely to offer manufacturing opportunities for domestic manufacturers such as Rallis India, Insecticides

India, UPL, Gharda Chemicals, and Bharat Rasayan Source: Industry Report to name a few. The government is also likely speed up the registration process to encourage domestic Imports by India manufacturers to build relevant capabilities.

Export share category wise Other 19% 100% 16% 90% 25% 24% 20% 19% 80% Belgium 70% 18% 28% 29% 31% 5% 60% 26% 50% 19% Japan 19% China 40% 22% 24% 20% 5% 53% 30% Germany 20% 38% 34% 7% 28% 27% 31% 10% 0% US FY15 FY16 FY17 FY18 FY19 11%

Insecticides Fungicides Herbicides Others Source: Department of Agriculture, GoI Source: News Articles

Global agrochemical: demand outlook challenges. Given that the agri input industry is related encouraging to food security of nations, all countries have ensured Global agri outlook also remains encouraging as demand smooth logistics of agri inputs and demand from farmers for agri inputs has remained resilient despite COVID-19 has also remained stable. Demand from Latin America

45 INSIGHT September 2020 remains robust with most global players deriving their Pesticides going off-patent; opportunity overall growth from this region. Europe and US have for generics players clocked stable demand growth despite lockdowns According to the report “New Off-Patent/Generic in many regions. All global agrochemical players are Agrochemicals”, there will be 19 agrochemical AIs lose exploring opportunities to minimise their dependence on their patent protection between 2019 and 2026, including China. This provides an opportunity to India’s chemical 8 herbicides, 3 insecticides, 7 fungicides and 1 safener. industry to gain share in specialty chemicals and contract Some well known products, like Chlorantraniliprole, manufacturing. However, given China’s reliance on are in the list as well as some niche products such as the technological progression, India may face a hurdle in eco-friendly fungicide Isotianil used on rice. Bayer holds economizing the cost of production as majority of its the most, 5 products with patents expiring in the coming plants are run on batch mode than automation. years.

Key AIs going off-patent Active ingredient Category Inventor company Metrafenone Fungicide BASF Fluopicolide Fungicide Bayer CropScience Isotianil Fungicide Bayer CropScience Penflufen Fungicide Bayer CropScience Valifenalate Fungicide Isagro Fenpyrazamine Fungicide Sumitomo Chemical Mandipropamid Fungicide Syngenta Saflufenacil Herbicide BASF Topramezone Herbicide BASF Thiencarbazone Herbicide Bayer CropScience Pyroxsulam Herbicide Dow AgroSciences Pyrimsulfan Herbicide Ihara Chemical Industry Pyroxasulfone Herbicide Kumiai Chemical Industry Flucetosulfuron Herbicide LG Chem Investment Pinoxaden Herbicide Syngenta Chlorantraniliprole Insecticide DuPont Flubendiamide Insecticide Nihon Nohyaku Metofluthrin Insecticide Sumitomo Chemical Cyprosulfamide Safener Bayer CropScience Source: Report published by Enigma

Trend in prices of key input raw materials manufacturers and it will also act as a relief for the fiscal India imports the raw materials needed for spending of the government while disbursing the urea manufacturing fertilizers. Natural gas is used as feedstock subsidy, which is already constrained at the moment. for the manufacturing of urea and accounts for 50%-80% of the raw material cost. The fertilizer industry is the Trend in Domestic and International Natural Gas Prices leading consumer of domestic natural gas. Additional (in USD/mmBtu) requirement of natural gas is supplied through imports 4.0 in the form of RLNG. Out of 31 urea plants in India, 3.5 28 are gas based and 3 are naphtha based. As per the New Domestic Gas Policy, the government revises the 3.0 domestic natural gas price every six months i.e. April- 2.5 September and October-March. Currently (H1-FY21) the price for gas produced from local fields has been revised 2.0 to USD 2.39/mmBtu which is the lowest price ever set 1.5 as the New Domestic Gas Policy. It is estimated that Jul-19 Jul-20 Jan-19 Jan-20 Mar-19 Mar-20 Nov-19 Sep-19 with 26% fall in natural gas prices could potentially lead May-19 May-20 to a 12.5% decrease in cost of production of urea, thus International Domestic decreasing the working capital intensity of the fertilizer Source: eia, Department of Agriculture

September 2020 INSIGHT 46 Government reforms the government is not directly providing cash to The government’s continued support (income support, farmers unlike the PM-KISAN SAMMAN Nidhi Yojana, crop insurance, irrigation projects and e‐NAM) for it is expected that the measures are likely to yield agriculture activities is gradually starting to benefit positive results in the medium to long term. farmers. However, concerns persist about postproduction 4. Liquidity support: Apart from creating agri- areas for crops, where farmers struggle to get fair infrastructure through strengthening logistics and realisation due to limited flexibility in selling beyond storage capacity, the government is also providing APMC (Agriculture Produce Market Committee), limited liquidity support to small and marginal farmers. or no storage facilities and limited or no assurance NABARD will extend additional refinance support of getting the right price. The government’s recent of Rs. 300 bn for crop loan requirement of Rural measures under ‘Atma Nirbhar Bharat’ largely addresses Co-op Banks & Regional Rural Banks to meet post- post‐production concerns and are expected to be a game harvest rabi and current kharif requirement. This is changer for the future of farming activities. in addition to Rs. 900 bn to be provided by NABARD 1. Amendment in Essential Commodities Act 1955: through the normal refinance route during this year. The government de‐regulated production, sale, 5. Benefits of PM‐Kisan are spreading wider: PM‐Kisan, and stocking of cereals, edible oils, pulses, onions, an income‐support scheme, was launched in FY19 oilseeds, and potatoes. Limits will be imposed only with an objective to support farmers by crediting Rs under exceptional circumstances. These changes 6,000 per year in three instalments of Rs 2,000. The in regulations should allow food processor or other scheme has started benefiting more farmers since its buyers to hold inventories up to their capacity, which inception– from about 45mn farmers initially to 84mn will bring in investments in cold storage, warehouse, farmers presently (India has about 140mn farmers and processing facilities, and indirectly support in total). Also, PM‐Kisan disbursement amount farmers to get better realisations. supported many farmers in spending on agriculture 2. Agriculture marketing reforms: The government has inputs in the present uncertain covid‐19 scenario. already brought in an ordinance called “The Farmers’ Therefore, continued income support by central Produce Trade and Commerce Ordinance 2020”, and state governments would support farmers and which will bring in freedom of choice for farmers and indirectly lead to better consumption of agriculture trade partners to sell/purchase crop produce at a fair inputs. price. It would also promote efficient, transparent, It is expected that these reforms and various other and barrier‐free inter‐state and intra‐state trade. reforms implemented by the government will improve Therefore, farmers would be in better position to get farm realization over the medium term by eliminating better realisations by selling directly to larger trade inefficiencies in the food supply chain. So, it is expected partners. that improvement in farm realizations would lead to 3. KISAN credit cards: The government is offering increase in trading of Agri inputs. The usage of NPK and credit of Rs. 2 tn to more than 25 mn farmers through other unique fertilizers, along with better-quality seeds KISAN credit cards, which is likely to benefit farmers, and agrochemicals, will increase. especially those affected by closure of mandis. Though

Allocation of the Subsidy within the Fertilizer Sector (in Rs/crore) FY19 (A) FY20 (P) FY21 (BE) YoY Change FY20 (P) FY21 (BE) Urea Subsidy 46,514 54,755 47,805 17.7% -12.7% Nutrient based Subsidy 24,090 26,369 23,504 9.5% -10.9% Total 70,605 81,124 71,309 14.9% -12.1% Source: Budget.nic, Controller General of Accounts

Proposed pesticide ban the spirit of Make In India, Atmanirbhar Bharat and the In a draft gazette notification on May 14, the Agriculture mission of doubling farmers’ income by 20202. These 27 Ministry proposed to ban 27 pesticide formulations, generic pesticides have a total market of Rs 6,000 crore, several of which are highly toxic and have been linked of which Rs 4,000 crore are domestic sales and Rs 2,000 to farmer deaths and have also been banned in other crore exports. The government will permit exports of countries. It listed alternative formulations which could pesticides that are banned for sales in the domestic be used instead. Comments have been solicited for 45 market on a case to case basis. Pesticides industry body days. The proposed ban of these 27 pesticides is against PMFAI opposed the ban saying it will result in business

47 INSIGHT September 2020 loss of worth Rs 6,000 crore and benefit China, besides ban is imposed, the alternatives imported will cost in affecting farmers’ interest as substitutes are four-times the range of Rs. 1,200 to Rs. 2,000 per litre. The bans of costly. The generic pesticide formulations, proposed to pesticide, if imposed, will severely impact the revenues of be banned, cost between Rs. 350 to Rs. 450 per litre, which agrochemical companies. is economic and affordable to most of the farmers. If the

Agri Inputs Q1FY21 Performance (Rs in Cr.) Company Name Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales Profit (%) Profit (%) Fertilizers Coromandel Inter. 3213 51% 12% 412 111% 6% 13% 248 296% 6% 8% Chambal Fertilisers 3219 13% 63% 590 32% 172% 18% 287 80% 31% 9% RCF 1621 -33% -38% 98 23% -73% 6% 19 136% -87% 1% GSFC 1637 -5% -12% 90 -27% -38% 6% 30 -25% -51% 2% Deepak Fertilisers 1382 23% 7% 272 128% 128% 20% 121 1014% 443% 9% Agrochemicals UPL 7833 -1% -30% 1832 40% -4% 23% 658 84% -14% 8% PI Industries 1060 41% 24% 229 50% 23% 22% 141 38% 28% 13% Bayer CropScience 1228 29% 168% 325 61% 459% 26% 252 86% 699% 21% Sumitomo Chemical 648 4% 45% 119 40% 183% 18% 79 49% 247% 12% BASF India 1770 10% -4% 15 -81% -80% 1% -29 PL -172% -2% Rallis India 663 6% 91% 128 35% LP 19% 92 53% LP 14% Dhanuka Agritech 374 71% 64% 65 229% 43% 17% 52 253% 33% 14% Insecticides (India) 410 14% 72% 49 -22% LP 12% 24 LP 429% 6% Source: AceEquity

Agri Inputs Peers Comparison Company Name Mkt. Cap. Revenue EBITDA Net EBITDA PAT ROE D/E Forward Forward Forward (Rs. Cr.) (Rs. Cr.) (Rs. Cr.) Profit Margin (%) Margin (%) (x) P/E (x) EV/EBITDA P/B (x) (Rs. Cr.) (%) (x) Fertilizers Coromandel Inter. 23331 13137 1731 1065 13.2 8.1 27.7 0.4 17.5 12.1 3.9 Chambal Fertilisers 6514 12205 1918 1226 15.7 10.0 38.2 2.9 5.3 7.0 1.2 GNFC 3394 5162 542 508 10.5 9.8 9.8 0.0 5.5 4.2 0.5 FACT 3245 1955 9 163 0.5 8.3 N/A -1.6 N/A N/A N/A RCF 2811 9698 584 207 6.0 2.1 6.7 1.1 N/A N/A N/A GSFC 2680 7798 317 110 4.1 1.4 1.5 0.1 9.4 6.8 0.4 1862 13135 860 -181 6.5 -1.4 -8.8 2.9 N/A N/A N/A Deepak Fertilisers 1616 4685 464 89 9.9 1.9 4.2 1.5 14.6 6.4 0.7 Agrochemicals UPL 38006 35478 6773 1776 19.1 5.0 10.4 1.9 10.6 7.0 1.6 PI Industries 31289 3367 718 457 21.3 13.6 18.6 0.0 36.6 26.2 5.6 Bayer CropScience 26906 3519 728 475 20.7 13.5 19.7 0.0 32.0 24.4 9.1 Sumitomo 14510 2425 335 205 13.8 8.4 21.8 0.0 38.7 N/A 9.8 Chemical BASF India 7049 7529 327 19 4.3 0.2 1.3 0.5 44.5 19.8 5.0 Rallis India 5868 2252 259 185 11.5 8.2 13.7 0.0 22.1 14.8 3.5 Bharat Rasayan 4147 1215 246 158 20.2 13.0 32.4 0.6 N/A N/A N/A Dhanuka Agritech 4085 1109 173 141 15.6 12.7 20.9 0.0 20.7 15.8 4.5 Excel Industries 1158 702 129 96 18.4 13.7 13.7 0.0 N/A N/A N/A Insecticides (India) 1096 1363 156 87 11.4 6.4 12.5 0.3 8.3 5.7 1.3 Source: Bloomberg, AceEquity

September 2020 INSIGHT 48 Mutual Fund Overview Sundaram Services Fund

Investment Objective Construction of the portfolio To seek capital appreciation by investing in equity / equity Fund offers a large-cap bias, provides 25% allocation to related instruments of companies who drive a majority small-cap companies and an 18% allocation in midcap of their income from business predominantly in the companies. The fund manager deploys over 50% assets in Services sector of the economy. however, there can be no retailing, finance, banking and hospitality sectors. assurance that the investment objective of the Scheme Important Information will be realized. Services sector includes healthcare, Fitness, tourism & hospitality, transportation & Logistics, NAV (G) (Rs.) 11.84 education, Staffing, Wealth management, media, Retail, NAV (D) (Rs.) 10.83 aviation, Legal, architecture, Design services etc. Inception Date Sept 21, 2018

Why Sectoral/Thematic Fund? Fund size(Rs.Cr.) 1116 The Fund will select stocks from within the investment universe based on its internal analysis based on the Fund Manager Mr. Rahul Baijal, Mr. Rohit following criteria: Seksaria, Mr. S Krishnakumar Indian economy is driven by services. The growth Entry load Nil narrative has shifted from agriculture to services. As Exit Load For units in excess of 25% of the per data, services account for more than 53% of the GDP. investment, 1% for redemption However, from the investor point of view, only 35% of the within 365 days total market cap of India is accounted for by “services”. Hence, there is room for market cap expansion to match Benchmark S&P BSE 200 TRI the GDP contribution. Min Investment (Rs.) 100

Services growth in India is led by rising purchasing Min SIP Investment 250 power, fast growth in social mobility and increasing (Rs.) urbanisation trends. Outsourcing by foreign companies in the business services, BPO and IT services segment have given Services Key Ratios a significant boost. Beta (x) - Investment Process Standard deviation (%) - Sharpe Ratio -

Alpha (%) -

R Squared -

Expense ratio (%) 2.33

Portfolio Turnover ratio (%) 23.0

Avg Market cap (Rs. Cr.) 6,21,547

Note: All data are as on July 31, 2020; NAV are as on Aug 24, 2020

Source: Factsheet, Value Research

49 INSIGHT September 2020 Portfolio as on July 31, 2020 % SECTOR ALLOCATION Stocks % of Net assets Transportation 3.8 9.5 ICICI Bank 7.9 Software 3.9 Bharti Airtel 7.7 Services 3.9 HDFC Bank 7.5 Healthcare 6.2 HDFC 5.0 4.4 Hotels & Resorts 6.6 SBI Life Insurance 3.4 Telecom 7.7 Westlife Development 2.7 Retailing 9.1 Thyrocare Technologies 2.6 ICICI Lombard General 2.5 Petroleum Prod. 9.5 Banks 16.6 Asset Allocation Equity Cash Finance 17.7 93.9% 6.1% Note: All data are as on July 31, 2020; NAV are as on Aug 24, 2020 Source: Factsheet, Value Research

Performance of the Fund alongwith Benchmark (as on Aug 24, 2020) 1 month 3 months 6 months 1 year Since Inception Fund (%) 5.04 24.93 -12.22 11.58 9.19 Benchmark (%) 4.73 28.90 -1.57 9.51

Ashika Mutual Fund Recommendation Alpha Generation Month of Fund Name Benchmark NAV as on 1 Year 3 Year 5 Year Recom 24.08.2020 Return Return Return (%) (%) (%) Aug-19 Nippon India - Multi Cap Fund (G) S&P BSE 500 TRI 84.3 -2.7 -0.1 3.4 Sep-19 Can Robeco - Emerging equities Reg (G) NSE - NIFTY Large Midcap 100.5 18.8 5.6 11.7 250 TRI Oct-19 LIC - Large & Mid Cap Fund - Reg (G) NSE - NIFTY Large Midcap 15.4 8.9 4.0 9.9 250 TRI Nov-19 ITI - Multi Cap Fund (G) NSE - Nifty 500 TRI 9.7 -1.5 0.0 0.0 Dec-19 Parag Parikh - Long Term Equity Fund NSE - Nifty 500 TRI 31.1 27.5 13.6 14.1 Reg (G) Jan-20 DSP - Dynamic Asset Allocation Reg (G) CRISIL Hybrid 35+65 Aggres- 16.8 10.8 5.9 7.7 sive Index Feb-20 Invesco - India Growth Opportunities S&P BSE 250 Large Midcap 35.1 8.6 5.7 9.4 Fund (G) TRI Apr-20 DSP - Top 100 Equity Reg Fund (G) S&P BSE 100 TRI 202.2 6.2 1.4 6.2 May-20 Axis - Focused 25 Fund Reg (G) NSE - Nifty 50 TRI 29.7 10.6 7.4 11.9 Jun-20 Nippon India - Tax Saver (G) S&P BSE 100 TRI 46.4 0.2 -8.2 1.8 Jul-20 SBI - Small Cap Fund Reg (G) S&P BSE Small Cap TRI 58.9 23.6 8.7 14.1 Aug-20 Aditya Birla SL - Focused Equity Fund NSE - Nifty 50 TRI 60.6 9.2 3.0 8.2 Reg (G)

Note: All data are as on July 31, 2020; NAV are as on Aug 24, 2020 Source: Factsheet, Value Research

September 2020 INSIGHT 50 Large & Mid Cap Fund All Data Belongs to August 24, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return SBI - Large & Midcap Fund Reg (G) 220.9 2746 26.9 (7.6) 9.0 3.7 8.1 13.3 (0.1) 2.2 Mirae - Asset Emerging Bluechip Fund 58.7 10596 31.0 (0.1) 16.4 8.3 14.9 18.8 0.1 1.8 Reg (G) ICICI Pru - Large & Mid Cap Fund Reg (G) 320.9 2378 28.4 (2.4) 7.4 1.6 8.3 17.0 (0.2) 2.2 LIC - Large & Mid Cap Fund - Reg (G) 15.4 706 23.4 (7.8) 8.9 4.0 9.9 8.2 (0.1) 2.5 Sundaram - Large and Mid Cap Fund (G) 34.2 1196 27.6 (8.9) 6.5 5.1 9.3 9.6 (0.0) 2.2

Value Fund SBI - Contra Fund Reg (G) 107.1 1257 35.2 3.9 13.6 (0.0) 5.0 16.8 (0.3) 2.3 IDFC - Sterling Value Fund Reg (G) 45.1 2403 41.6 (7.4) 4.0 (3.9) 5.7 12.7 (0.3) 2.1 Nippon India - Value Fund (G) 73.2 2799 31.5 (3.0) 9.5 3.7 7.2 14.0 (0.1) 2.1 Kotak - India EQ Contra Fund (G) 52.9 811 26.4 (4.8) 6.9 5.4 9.6 11.7 0.1 2.4 Invesco - India Contra Fund (G) 50.5 4952 26.8 (0.9) 15.4 7.9 11.3 12.9 0.1 2.0

Focus Fund Axis - Focused 25 Fund Reg (G) 29.7 11043 22.8 (6.2) 10.6 7.4 11.9 14.2 0.1 2.0 Mirae - Asset Focused Fund Reg (G) 11.9 3203 34.5 1.5 17.0 0.0 0.0 14.2 - 1.9 SBI - Focused Equity Fund Reg (G) 150.6 9506 22.6 (6.3) 13.0 8.9 11.1 18.5 0.1 1.9 DSP - Focus Fund Reg Fund (G) 23.6 1771 26.8 (6.9) 9.6 2.8 6.8 8.7 (0.1) 2.2 Sundaram - Select Focus Reg (G) 183.9 1036 20.8 (5.6) 6.3 5.7 8.8 17.4 0.0 2.4

ELSS Fund Mirae - Asset Tax Saver Fund Reg (G) 19.0 3858 32.8 0.3 13.8 8.1 0.0 14.8 0.1 1.8 Kotak - Tax Saver Scheme (G) 45.0 1203 24.9 (6.2) 8.4 4.1 8.5 10.7 (0.1) 2.4 Invesco - India Tax Plan (G) 53.5 1075 25.3 (4.2) 12.9 6.5 9.3 13.1 0.1 2.4 Axis - Long Term Equity Fund (G) 47.4 21051 20.1 (6.8) 9.9 7.7 9.4 15.7 0.1 1.7 SBI - Long Term Equity Fund Reg (G) 144.4 7239 27.0 0.5 11.8 2.0 5.9 14.9 (0.2) 1.9

Multi Cap Fund Parag Parikh - Long Term Equity Fund Reg 31.1 4014 28.6 12.2 27.5 13.6 14.1 16.8 0.4 2.0 (G) SBI - M Multicap Fund Reg (G) 48.0 8722 24.8 (6.9) 3.7 2.8 8.9 11.1 (0.1) 2.1 Kotak - Standard Multicap Fund (G) 35.4 29361 24.8 (5.8) 6.3 4.0 9.6 12.1 (0.0) 1.7 Motilal Oswal - Multicap 35 Reg (G) 25.7 11279 26.2 (5.4) 5.6 (0.1) 8.6 16.1 (0.2) 1.9 ITI - Multi Cap Fund (G) 9.7 132 16.4 (12.8) (1.5) 0.0 0.0 (2.2) - 2.6

51 INSIGHT September 2020 Small Cap Fund All Data Belongs to August 24, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return Invesco - India Smallcap Fund Reg (G) 11.4 564 32.4 (6.4) 22.8 0.0 7.0 - 25 2.4 SBI - Small Cap Fund Reg (G) 58.9 4270 38.5 3.3 23.6 8.7 14.1 17.6 0.1 2.2 Axis - Small Cap Fund Reg (G) 33.2 2472 31.4 (5.2) 17.7 9.7 12.1 19.5 0.1 2.1 HDFC - Small Cap Fund (G) 38.6 7851 42.0 (1.8) 5.0 1.5 9.1 11.5 (0.2) 1.9 ICICI Pru - Smallcap Fund Reg (G) 26.0 1199 46.6 (5.0) 13.6 (0.2) 6.3 7.7 (0.2) 2.3

Thematic/Sectoral Fund Franklin - Build India Fund (G) 35.6 889 24.2 (11.3) (5.1) (2.6) 5.1 12.1 (0.3) 2.4 ICICI Pru - Banking & Financial Services 51.9 2633 35.0 (23.8) (12.4) (4.3) 8.0 14.7 (0.2) 2.2 Fund Reg (G) Nippon India - Pharma Fund (G) 223.0 3496 21.0 38.5 62.0 21.6 9.0 21.1 0.6 2.7 Sundaram - Rural and Consumption Fund 41.5 1502 23.5 (6.6) 10.1 0.7 10.7 10.6 (0.2) 2.3 Reg (G) Aditya Birla SL - Digital India Fund Reg (G) 67.2 490 36.0 14.6 27.2 23.0 14.4 7.5 0.7 2.6

Balance/BAF Fund SBI - Equity Hybrid Fund Reg (G) 142.7 31434 17.5 (4.1) 8.2 6.8 8.9 14.5 0.1 1.6 Sundaram - Equity Hybrid Fund Reg (G) 93.8 1594 16.5 (5.1) 7.2 6.0 8.9 12.0 0.0 2.2 ICICI Pru - Balanced Advantage Fund Reg 38.4 26139 19.3 1.0 10.1 6.5 8.7 10.2 0.1 1.7 (G) Kotak - Balanced Advantage Fund Reg (G) 11.7 4040 20.2 3.5 12.3 0.0 0.0 7.6 - 2.0 Aditya Birla SL - Balanced Advantage 56.7 2379 20.1 2.2 10.3 4.5 9.3 8.9 (0.1) 2.1 Fund (G)

Equity Savings Fund Aditya Birla SL - Equity Savings Fund Reg 14.1 528 11.7 (1.7) 8.5 3.0 6.4 6.1 (0.3) 2.5 (G) DSP - Equity Saving Fund Reg (G) 13.0 427 12.2 (2.1) 5.7 2.7 0.0 6.0 (0.2) 2.4 Kotak - Equity Savings Fund Reg (G) 15.3 1386 11.0 2.0 8.4 6.1 7.4 7.5 0.1 2.2 Nippon India - Equity Savings Fund Reg (G) 10.2 432 9.8 (10.5) (14.7) (5.6) 0.4 0.4 (0.9) 2.6 SBI - Equity Savings Fund Reg (G) 13.8 1353 12.6 0.1 7.9 4.4 6.7 6.2 (0.1) 1.7

Arbitrage Fund Aditya Birla SL - Arbitrage Fund Reg (G) 20.4 4152 0.4 1.9 4.7 5.7 5.8 6.6 0.5 0.9 ICICI Pru - Equity Arbitrage Fund Reg (G) 26.2 10358 0.3 1.9 4.5 5.7 5.9 7.3 0.5 1.0 Kotak - Equity Arbitrage Fund (G) 28.4 15364 0.5 2.0 4.7 5.8 6.0 7.3 0.7 1.0 Nippon India - Arbitrage Fund (G) 20.4 7576 0.5 2.0 4.7 5.9 6.0 7.4 0.8 1.0 SBI - Arbitrage Opp Fund Reg (G) 25.7 4225 0.1 1.3 3.9 5.5 5.6 7.1 0.4 0.9

September 2020 INSIGHT 52 Index Fund All Data Belongs to August 24, 2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return HDFC - Index Fund-NIFTY 50 Plan - (G) 104.8 1746 27.2 (3.0) 5.9 5.9 8.7 13.6 0.0 0.3 ICICI Pru - Nifty Next 50 Index Fund Reg 24.5 768 20.5 (1.4) 9.1 0.0 7.8 9.2 (0.2) 0.9 (G) HDFC - Index Fund - Sensex Plan 346.1 1433 27.1 (3.5) 6.0 7.7 9.4 14.0 0.1 0.3 Motilal Oswal - Nasdaq 100 FOF (G) 18.2 868 22.4 30.1 55.0 0.0 0.0 39.9 - 0.5 Motilal Oswal - S&P 500 Index Fund Reg (G) 11.4 334 11.9 0.0 0.0 0.0 0.0 44.0 - 1.2

Solutions NAV AUM Mod AMP (IN Yrs ) 3 M 6 M 1 Yr 2 Yr Sharpe Exp. Dura- Ratio Ratio tion (in Yrs) ICICI Pru - Retirement Fund Pure 11.6 446 - 10.6373 2.0 3.9 9.2 0.0 - 2.1 Debt Plan (G) (29/08/2019) Aditya Birla SL - Retirement Fund 30s 10.3 142 - 7.07 23.3 (1.3) 12.8 0.0 - 2.7 Plan (G) (23/03/2020) HDFC - Retirement Savings Fund 17.3 415 (0.1) 12.743 21.8 (0.6) 9.2 2.6 (0.1) 2.4 Hybrid Equity Reg (G) (23/03/2020) Aditya Birla SL - Bal Bhavishya Yojna 10.7 261 - 7.38 22.8 (1.4) 12.3 0.0 - 2.6 Wealth Plan (G) (23/03/2020) ICICI Pru - Child Care Gift Plan Reg 138.5 617 (0.1) 103.1 17.2 (5.8) 3.5 (0.4) (0.1) 2.6 (23/03/2020)

Dynamic/Multi Assets Invesco - India Dynamic Equity Fund 29.9 756 (0.1) 22.68 13.9 (2.4) 6.0 1.0 (0.1) 2.4 (G) (23/03/2020) ICICI Pru - Asset Allocator Fund (FOF) 60.1 7782 0.1 43.7926 16.9 2.2 8.9 7.0 0.1 1.2 (G) (23/03/2020) ICICI Pru - Multi Asset Fund (G) 276.1 10707 (0.1) 196.1272 18.3 2.9 8.2 3.3 (0.1) 1.8 (23/03/2020) SBI - Dynamic Asset Allocation Fund 13.5 593 (0.3) 11.0136 14.6 (0.3) 3.3 0.6 (0.2) 2.0 (G) (23/03/2020) DSP - Dynamic Asset Allocation Reg 16.8 1418 0.0 13.409 14.3 1.6 10.8 7.3 0.0 2.2 (G) (23/03/2020)

Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.

53 INSIGHT September 2020 Technical view

Key takeaways from August 2020 India’s foreign exchange reserves have now swelled to Consumer price inflation stood at 6.93% and remains at $535.252 billion. an upper end of MPCs tolerance band. Monsoon rains in India are expected to be 104% of a India’s wholesale price index (WPI) contracted by 0.58 long-term average in August and September, indicating percent in July. In June the WPI stood at -1.81 percent, bumper harvests. while as in May it stood at -3.37. It seems that the current situation has mostly factored in Index of Industrial Production (IIP) contracted by 16.6 the prevailing uncertainty with virus cases continuing to per cent in June compared to 33.8 per cent in May and a rise domestically and globally. Markets continue to hit new record 57.6 per cent slide in April. high and traders waiting for an opportunity to enter have now been left high and dry. On the global front, global Infrastructure output, which comprises eight sectors Indices outperformed compared to domestic indices including coal, crude oil and electricity and accounts with DJIA and Nasdaq witnessing a gain of 7.1% and 5.9% for nearly 40 percent of industrial output, contracted respectively in the month, while the European Indices 24.6 percent in the three months through June - the first FTSE 100 and CAC 40 gained by 1.9% and 4.7% respectively quarter of the fiscal year - from a year earlier. whereas DAX rose by 6.1%. Its Asian counterparts RBI approved a transfer of Rs 57,128 crore to the Shanghai Index gained by 2.3% while Hang Seng Index government for the accounting year 2019-20. The witnessed a gain by 3.9% and Japans Nikkei Index gained transfer, while lower than last year, is by 5.9%. On the domestic front Sensex in line with what the government had rose by 3.2% while Nifty gained by budgeted for. On the domestic 3.5%. During the month the Small- India posted a trade deficit of front Sensex rose Cap index jumped by 14.1% while $4.83 billion in goods in July, after by 3.2% while Nifty Mid-Cap soared by 9.2%. On the reporting its first trade surplus in sectoral front Metal index gained over 18 years in the previous month. gained by 3.5%. by 17.2% followed by indices such as India’s fiscal deficit touched a During the month Industrials, Power, Capital Goods and record $88.5 billion in the April-June the Small-Cap index Realty increasing by 13.5%, 13.3%, 12.1 and 11.0%, respectively. The FMCG & quarter, 83.2% of the target for the jumped by 14.1% whole of the current fiscal year. Finance index underperformed the while Mid-Cap benchmark gained by 2.6% & 1.7% India will stop importing 101 items respectively while Teck witnessed a of military equipment in an effort to soared by 9.2%. degrowth of 0.5%. boost domestic defence production.

September 2020 INSIGHT 54 FIIs and DIIs investment patterns On the oscillator front, momentum oscillators like RSI 80000 and Stochastic have formed negative divergence on the 60000 daily charts. This Set up indicates that, though Nifty 40000 20000 managed to form higher top on price chart at 11794, 0 oscillators signaled weakening of the bullish momentum, -20000 while on the weekly time frame RSI has exited the neutral -40000 territory. Its sustainable move above this area could mean -60000 a further strengthening of upside momentum in the -80000 market. Daily MACD Indicator has been fluttering above Jul-20 Oct-19 Apr-20 Jan-20 Jun-20 Mar-20 Feb-20 Nov-19 Dec-19 Aug-19 Sep-19 Aug-20 May-20 its zero line. Daily DMI Indicator has been contracting FII (Rs. Cr.) DII (Rs. Cr.) after the positive move, which indicates the weakness in Source: Ashika Research the short term trend. However weekly indicators hint of a structural improvement hence any meaningful decline Sectoral index price performance needs to be capitalised on to accumulate quality stocks.

20 18 17.2 14.1 13.5 13.3 16 .0 12.1

14 11

12 9.2 8.7 8.2

10 6.8 5.3 5.3 8 5.2

6 3.2 2.6 1.7 4 1.5 2 0.0 0 -2

-0.5 IT CD eck Auto

T PSU Utility Metal Banks Power Realty FMCG Midcap Oil/Gas Finance Sensex Industrial SmallCap Healthcare Capital Goods Source: Ashika Research

During the month market breadth remained clearly in favour of advances with A/D ratio of 1.3:1. Despite some lackluster trading for the past few trading days Nifty midcap and small cap rose 9.2% and 14.1%. Looking at the Nifty resumed its uptrend after much volatility, one thing worth noting is that the Index has been staging recovery trading data, FII were net buyers to the tune of Rs. 15395cr at lower levels ending to form lower hairline formation while DII were net sellers to the tune of Rs.9180cr. Present for consecutive number of days. The bulls last month have price structure in Nifty indicates declines are being been able to defend the rising 20dma which is positive. bought in but follow up buying momentum is missing at Hence going by the present structure only a closing below higher zones. It has been respecting to its rising support the 20dma would possibly give strength to the bears. Key trend line by connecting all the recent swing low of 7511, observation during the month being the improved market 9004, 9544, 9845, 10250, 10300 and holding above its 20 breadth currently, ~67% constituents of the Nifty midcap, SMA. Now it needs to hold above 11250 zones to surpass small cap indices are sustaining above their long term 200 the resistance of 11700 then higher zones of 12000 while on days SMA compared to last month’s reading of 45%, which the downside supports are seen at 11000 then 10900 levels. signifies broadening of participation that augurs well for

55 INSIGHT September 2020 durability. The relative ratio of midcap, small cap indices wave ’B’ of the flat as theoretically projects 78.6-80% of and the Nifty has found support from the cyclical low of wave ’A’ comes around 11450-11500. On the downside the 1.4 and 0.4, and now inching upward with a reading of 1.5 level of 10500 identified by the rising trendline in weekly and 0.5, signifying rejuvenation of upward momentum chart and the 61.8% of the entire decline since Jan’20 that bodes well from medium term perspective. Hence would be crucial and would confirm the existence of Flat one can expect the benchmark Index to hold the wave ‘B’. Wave C following Wave B would virtually be very immediate support level of 112500 followed by 10900 and sharp and would likely last for an average 12 months and trade with a positive bias amid stock specific activity. may result in a fall between 40% and 60% from the level where the wave began. Another observation worth mentioning is that Nifty has surpassed the 78.6% retracement of the entire fall Other correlated markets (High:12430; Low: 7511) and distant away from its 100% Other correlated markets like in Bullion counter, retracement. Though in very short span if Nifty is able Gold recovered after dipping below the key $1,900 to sustain below csychological level of 11000, it would be level registering its worst fall in seven years as bleak advisable to keep a cautious approach in the market at economic data underscored concerns over a pandemic- every rallies and not to initiate overly leveraged position led slowdown. Federal Reserve’s July meeting showed as a small ‘Rising Wedge’ and ‘Bearish Wolfe Wave’ policymakers concerned that an economic recovery faced pattern is underway. A decisive close below 11000 would a highly uncertain path, the Trump administration also confirm a near term reversal and might undergo some declined to acknowledge any plans to meet with China price correction in coming days. over the Phase 1 trade deal. This sent the dollar index and benchmark 10-year Treasury yields lower, making gold an attractive investment for holders of other currencies. Large stimulus measures tend to support gold, which is often considered a hedge against inflation and currency debasement, prompting 27% gains in gold for the year.

OPEC+ delay in addressing daily oversupply of more than 2 million barrels, and with unexpected rise in the number of U.S. unemployment benefit claims had been signalling a slow economic recovery hence Oil prices though continued to remain rangebound but selling pressure can be seen at higher levels.

Indian rupee strengthened closed at a one-month high against the US dollar tracking firm domestic equities. Weak US currency and sustained foreign fund inflows supported the rupee, while concerns over rising covid-19 In Elliott wave analysis currently, Nifty is in wave B of cases weighed on investor sentiment. ‘Flat’ with an upward unfolding. The upside target for Crystal gazing the derivative data Option data indicates the Nifty could trade in a wider range of 10900 to 11600 levels. Maximum Call open interest was at 11500 then 11600 strike while maximum Put open interest was at 11000 then 11400 strike. Call writing was seen at 11800 and 116000 strike while Put writing was seen at 11400 and then at to 11500 strikes. The Nifty VIX came down to 19% and is expected to remain volatile. PCR OI closed at 1.62 down as compared to 1.74 last month which indicates put unwinding. In coming few sessions, 10900-11000 level should act as a crucial support for the market and if market slides below this level then the next highest concentration is on put side is placed at 9500. It is expected that market might continue its upward bias in the month of Sept. as well. Traders should remain more focus on stock specific moves.

September 2020 INSIGHT 56 Call -Put Options Open Interests Distributions for Aug’20 Contract 1800000 Call Put 1600000

1400000 1647375 176675 1 122825 1 1200000 1525950 1464075 1364775 1000000 919200 788025 800000 619875 590625 690300

600000 503850 386400 364275 317175 306750

400000 287925 274650 247575 216900 193875 522900 163650 10850 122175 120675 1 107175 129075

200000 79800 54675 51750 43725 374250 381375 14925 6975 4875 4575 362475 345675 0 9300 9400 9500 9600 9700 9800 9900 1000 1200 11 100 1 1 10000 10100 10200 10300 10400 10500 10600 10700 10800 10900

Summing it up: downside immediate support is seen averages are trending upward All in all going by the simple trend around 11250 and a close below this indicating the intermediate trend to analysis and Dow theory, the Index is could take the Index towards the remains positive. 11000-11050 levels. clearly in an uptrend making higher Nifty Auto high and higher lows. The trend is Other indices to watch for: Auto Index has risen for the fifth likely to remain intact as long as the consecutive month in a row and is Nifty Metal sequence of higher tops and bottom in a firm intermediate uptrend with The Index had been approaching the is in place. It would be wiser rather 20-day SMA providing excellent downward sloping trendline which than anticipating the resistance or support. However, the index is now might cap the upside for the Index top, it is advisable to remain bullish trading near a downward sloping with oscillators approaching over- with trailing stoploss strategy in the trendline, that is likely to cap upsides. bought region, a short-term correc- Index as well in the stocks. Global The 14-day RSI too has made a lower tion is likely if support level of 2470 market technical setup is bullish and top, indicating a negative divergence. is broken. However, trend followers Indian markets too are in continu- A short-term correction is likely once would define continuation of uptrend ation of an uptrend. At present, the the immediate support of 7840 is at the breach of 2580-2620, all short bearish gap of 12000 seems to be broken. term and medium-term moving an immediate hurdle while on the

57 INSIGHT September 2020 book review

Masterclass Vishal Mittal with Super-Investors Saurabh Basrar

This book is a real treat to go back in history and read some of the successful investors and their journey in making wealth from the Indian stock market.

he book explores various Key takeaways from Ramesh reports. Also, he meets management facets of investing- how they Damani: when the investment is young and started, how their investment His style of investing is more of a now experience and wisdom helps framework evolved over the value-oriented bottom up approach to navigate in his judgement making Tyears, their methods of idea generation process more than meetings. Though and he starts his analysis by looking at and portfolio construction etc. The the market capitalization or Enterprise he finds management being less bullish common facets of their investment value of the business and then see if as than him in their own company itself. styles are – integrity, independent a businessman whether he is willing to His style of investing is a blend of thinking, long term mindset, and buy the whole business at that mcap both buy and hold and capitalizing prudent risk-taking ability. or EV. How cheap is the company in at the peak. Some of the stocks he is This book covers some of most relation to the size of the opportunity holding since ages. Normally he tends prominent investors and also the or where it could be after 10 years? to sell his investments when the bull lesser known investors who have And the idea generation filters from market is over. There are behavioral been enormously successful in their his voracious habit of reading. The and valuation aspect to identify a bull endeavors. gold standard is reading annual and a bear market and it is more of

September 2020 INSIGHT 58 an experience to identify it. He never QGLP and there is no deviation and strategy in investing. His significant tries to sell a stock just because it negotiation on that. QGLP: it starts learning also has been to average has moved up significantly and buy with quality of business, then Quality up. Secondly, he focuses on where it back again when it falls back. His of Management, Growth, Longevity tailwind is, without which it is difficult experience tells that this style is rarely of Growth and finally a reasonable to become big. Once that has been done successfully by any investors per valuation in sequence. To simply put it learnt than focus on companies and se. He generally tends to buy midcap this way, he is looking for predictable management to bet in it. and small cap. His mantra is to double business, secular growth, good the money in 3 years, and he has been quality businesses run by good quality Key takeaways from successful in doing that over last 3 managements, which are a 10-15 Rajshekhar Iyer: decades across bull and bear market. years story. For quality he says that He believes in pyramiding and won’t it has two parts: quality of business invest in a falling stock price. As an Key takeaways from and quality of management. Three approach he prefers to put stop loss to Raamdeo Agrawal: types of businesses – Great, Good and his investments at cost or average price He is an ardent follower of Warren Gruesome (Berkshire Annual Report and this insulates him from risking Buffet and they have tried to inculcate 2007). For the quality of management, permanent capital loss. In deciding the teaching from Buffet in their it requires attributes of competencies, risk, he looks at stock on both favorable portfolio, in wealth creation studies, passion for growth and unquestionable and unfavorable circumstances. If equity research & corporate strategy integrity. He tends to look at stocks potential drawdown is 35% in worst design. which has the potential to double in case scenario, then look at individual three years. I.e., a 25% CAGR. stocks which is causing maximum His approach and also MOSL AMC drawdowns and manage it at stock approach and philosophy has been He believes in focused portfolio level. Overall drawdown is limited to 10% to 15%. He believes that in position sizing, loss potential is a very important aspect in deciding the position sizing. And this needs to be expressed as percentage of portfolio. If he is willing to lose 1% of his portfolio than he would buy 1% or else, he can buy 2% and put a 50% stop loss. Now if the best idea should get 15% allocation, but if he is willing to lose only 1% of his overall portfolio than the stop loss needs to be at 6% to 7% drawdowns. Also, for stop loss on individual stocks he looks at the weekly chart and the volatility in it. His style of selling is to exit the stock once the downtrend is established. Downtrend has to be taken in context of what is happening in the company and also from a valuation standpoint. Valuation, growth slowing down could be some of the reasons. He doesn’t like to pay 15 times earnings i.e., 6% to 7% earning yield. Two factors for multibaggers- strong earnings growth after you buy stock & low P/E that turns into high P/E after you buy. When you buy expensive stocks one source of return (rerating) is often not there. Also risk of derating of valuation over a period of time shrinks the return profile. Finally, the most important thing in strategy is defining what you will not do. Another important thing to emphasis is value with growth is better than value with no growth. This

59 INSIGHT September 2020 encompasses an important concept of can keep compounding and achieve an and even if the P/E multiple is high, it quality mentioned in Common stock absolute scale that is much bigger than means the business is not earning too and Uncommon Profits, from Philip what you see now, then what you pay in much. Here than one needs to look Fisher. terms of P/E or EV/EBIDTA today has in details capital efficiency in terms no meaning. of sales and what part of the cycle the Key takeaways from Anil company is in evaluating the case. Goel: His Philosophy is GARP. He wants to buy businesses that the market is He looks for multibagger ideas, five Key takeaways from Shyam willing to give disproportionate value to ten times over the next few years. Shekhar: in the future. So, P/E expansion can Most invests in midcaps, out of favor His philosophy is deeply ingrained be a major part of the return. In his companies. He believes in buying low in conservative accounting, sound risk management, the basic premise P/E stocks and the P/E re-rating over management, solid franchises and is earnings growth and justifiable the years itself is potentially trigger exceptional capital allocation. Approach valuations. Quality of the business for the stock to become multibagger. which is more oriented to Philip Fisher. and good management team leads to To put in context, a stock with growth He believes that balance sheet reflects a potential rerating of P/E in future. in earnings and P/E re-rating is 80% of the management decision and This is how identified Bajaj Finance way a potential mutlibagger idea. His 20% is in P&L. ahead of everyone. investment philosophy is KCPLTD- He is willing to invest in a company Knowledge, Conviction, Patience, Luck He believes that growth and quality which funds its growth through & Timely Deployment. His approach has worked always in India. When internal accruals rather than debt. It is to understand the business deeply growth is not broad based, quality reflects the quality of growth. Similar and that becomes handy in identifying outperforms. When growth is broad- companies with same RoEs, on one earning explosion early. For cyclical based, value will start outperforming. funding growth with debt and other business more than the asset value, With institutionalization of markets, with cashflows. Even if the later has a he emphasizes more on the earning for a thematic or sectoral play, you tad lower growth he would prefer to go revival and business cycle turning up should just buy the best and the largest with the second. in order to time the market. Otherwise company, where the fastest money will based on asset value it could be a value be made on a risk adjusted basis. Grahamian investing really hurts trap. is that it is 80% P&L (low P/E) and Key takeaways from Kenneth 20% Balance sheet (Book Value). But Key takeaways from Govind Andrade: in Fishers style of investing you are Parikh: His style of investing is focused more seeing growth from a balance sheet He has made many successful on protecting the downside more than perspective. He believes that if you multibagger investments primarily in catching the upside. Bent of mind is focus on P&L instead of B/S, you will south based companies. His mantra more value driven than anything else. always need to pay a premium. By is to invest in top quality businesses, Finding capital efficiency at the trough the time it gets reflected in P&L, the backed by credible management, at of the cycle. If the down cycle extends valuation would have already gone low market cap, and hold them for long it’s a tough challenge. Buying market up. But in B/S you have to live through periods of time. He generally prefers leader at a good price is the mantra and the waiting period. He prefers to look to buy small ticket and closely watch keep doing the same thing repeatedly. cashflow and is willing to pay five years the company and slowly build up his If the risk-free return is x, they try to cash flow. For cyclicals the approach is position in a decided price range. Big work for a number double of that for on the replacement value/asset value money can be made during extreme returns. and margin of safety. phase of panic and euphoria. For capital efficiency there are two Idea generation is mostly theme based. His advice is to simply follow parts: Profit as the numerator and He doesn’t meet any management investment with quality companies capital employed as the denominator. and relies of information in public and target CAGR of 20% to 25% and The former is function of the industry domain and is used to working with if any market crashes happens, then environment, while later is the function such minimal information. Though he than you get the opportunity of a 20% of the management. At the peak of the does his in-depth analysis to validate CAGR becoming 80% CAGR for a brief cycle, capital deployed is always the his thesis before investing and keep period of time. This how wealth could highest. So, one parameter to look at is reinforcing it thereafter. He follows be accumulated over the years. the addition to gross block at the peak trend in earnings and believes that a of the cycle to judge the misallocation transformation clearly is a progression Key takeaways from Hiren and if so wealth destruction. and it will show up as a trend. Ved: From a valuation standpoint Portfolio allocation is 70% in about 7 He looks at valuation from many structurally if a company can deliver to 10 stocks and the balance 30% is different perspectives: growth over our money back in five years, then we an exploratory portfolio which has 15 the next three to five years, RoCE, and will pay five-time EV/EBIDTA. That is to 20 stocks. Leverage is not beyond valuations. First, what is the headroom the thumb rule. His basic argument is 5% to 10%. He gradually scales up an for growth? If you believe the business that if EV/Sales or MCap/Sales is one, investment position.

September 2020 INSIGHT 60 4 11 25 18 Friday :Industrial Production MoM :Industrial Production :Markit/CIPS UK Construction PMI :Markit/CIPS :CPI MoM :Change in Nonfarm Payrolls in Nonfarm :Change Rate :Unemployment Payrolls in Manufact. :Change :Industrial YoY Production :PPI YoY YoY Orders :Machine Tool :Durable Goods Orders US :Durable Air Ex Nondef US :Cap Goods Orders JN :PPI Services YoY :Durable Goods Orders US :Durable Air Ex Nondef US :Cap Goods Orders JN :PPI Services YoY IN US JN UK JN :BoP Current Account Balance Account Current IN :BoP US US UK US 3 17 24 10 Thursday loomberg Consumer Comfort Consumer loomberg :Initial Jobless Claims US :Initial Jobless Sales Home US :New Claims US :Continuing US : B MoM Sales Home US :New ank Rate B ank of England UK : B ank Claims US :Initial Jobless EC :CPI YoY Starts US :Housing B usiness Outlook Fed US :Philadelphia :Initial Jobless Claims US :Initial Jobless Rate Refinancing EC :ECB Main MoM Orders Machine JN :Core US :PPI Final Demand MoM MoM Inventories US :Wholesale :Markit India PMI Services PMI India IN :Markit Claims US :Initial Jobless US :Trade B alance US :ISM Services Index PMI Services CH :Caixin China 2 9 16 23 30 Wednesday A Mortgage Applications A Mortgage A Mortgage Applications A Mortgage A Mortgage Applications A Mortgage US :M B PMI Mfg Japan B ank JN :Jibun PMI Manufacturing Eurozone EC :Markit PMI US Manufacturing US :Markit MoM Index Activity JN :All Industry :FOMC Rate Decision (Upper B ound) Rate Decision (Upper US :FOMC UK :CPI YoY MoM Advance US :Retail Sales MoM NSA UK :PPI Output JN :Trade B alance CH :CPI YoY US :M B CH :PPI YoY YoY Orders JN :Machine Tool Credit US :Consumer :Eight Infrastructure Industries Infrastructure IN :Eight MoM JN :Industrial Production QoQ UK :GDP Annualized US :GDP QoQ EC :CPI MoM :Durable Goods Orders US :Durable US :M B Change Employment US :ADP Orders US :Factory EC :PPI YoY 1 8 15 22 29 Tuesday :Existing Home Sales Home US :Existing Confidence EC :Consumer Index Manufact. US :Richmond Fed Finances (PSNCR)UK :Public :Exports YoY IN :Exports Claims Change UK :Jobless MoM US :Industrial Production CH :Industrial YoY Production Manufacturing US :Empire :GDP SA QoQ SA JN :GDP QoQ SA EC :GDP B asis JN :Trade B alance oP US :NFI B Small usiness Optimism YoY Spending JN :Household :Conf. Board Consumer Confidence Consumer US :Conf. Board YoY Food CPI Ex-Fresh JN :Tokyo Approvals UK :Mortgage MoM Inventories US :Wholesale Confidence EC :Consumer :Markit India PMI Mfg PMI India IN :Markit Rate JN :Jobless US :ISM Manufacturing PMI Mfg CH :Caixin China PMI Mfg Japan B ank JN :Jibun 7 21 14 28 Monday orld economic calendar economic calendar orld , US: United States, EC: European Union, UK: United Kingdom, CH: China, JN: Japan Kingdom, UK: United Union, States, EC: European , US: United :Chicago Fed Nat Activity Index Activity Nat Fed US :Chicago Prices MoM House UK :Rightmove :CPI YoY IN :CPI Prices YoY IN :Wholesale MoM JN :Industrial Production MoM Index Industry JN :Tertiary MoM SA EC :Industrial Production CH :Trade B alance :Nationwide House PX MoM PX House UK :Nationwide Activity Manf. Fed US :Dallas YoY CH :Industrial Profits IN: India W 2020 September

61 INSIGHT September 2020 Services at Ashika Stock Broking Limited Products Products Contact

• TradeX (Mobile App & Web • EKYC For Business Opportunity please base) • it now takes just 30 mins to open an contact • Online Equity, Derivative, Account. Currency and Commodity • ReKYC Mr. Amit Jain (CEO – Retail) Trading Facility • hassle-free & paperless modification Mobile: +91 90070 66000 E-mail: amitjain@ashikagroup. • InvestX (Mobile App & without stepping out. com Web base) • Research Services • A One Stop Solution to all • A galaxy of potential research team Mr. Niraj Sarawgi (CEO - PCG) your Mutual Funds needs to provide the best equity research Mobile: +91 91676 16989 online. reports, ideas, solving queries and Email: [email protected] • Back Office Reports on many more. WhatsApp. Ashika BOT on • Online Fund Transfer Facility For Services please contact Whatsapp / Telegram. • Securities Lending and Borrowing (SLB) • Ask ACIRA - • Provide securities lending and Mr. Ashwini Kumar Gautam (COO) • Online Customer service borrowing at a market competitive Mobile: +91 90070 66097 for clients on our website. rates Email: ashwinikumar@ashika- group.com • Margin Trading Facility • Depository Services (CDSL/NSDL) (MTF) • Provide one roof solution wherein • With this MTF facility seamless trading could be ensured client can trade inspite of through DP maintained with Ashika debits beyond T+7. For institution business please contact Mr. Dilip Minny (Co-founder- Institution); Mobile: +91 90070 66096; Email: [email protected]

Services at Ashika Capital Limited Capital Markets Fund Raising Advisory Contact

• Issue Management • Private Equity • M &A For Debt Fund Raising / • IPO / FPO • Venture / • Merger / Acquisition / Mergers & Acquisition / • Right Issue Growth Capital Disposal Business Opportunity please • Qualified • Pipe • Management Buy-outs / contact Institutional Buy-ins Placement • Leveraged Buy-outs Mr. Mihir Mehta • Debt Syndication • Joint Ventures Contact: +91 22 6611 1770 • Project Finance • Strategic Partnership Email: [email protected] • Open Offer • Team Loan • Spin-Offs • Takeover • Working Capital • Divestment Mr. Yogesh Shetye • Buyback Loan Contact: + 91 22 6611 1770 • Delisting • Corporate restructuring • Acquisition E-mail: yogeshs@ashika- • Capital Restructuring Funding group.com • Overseaslisting • Finance Restructuring • Construction Finance • Business Valuation • Underwriting • ESOP Valuation • Fairness Opinion

For start-up investing please contact Mr. Chirag Jain (CEO); Contact: +91 22 66111700; E-mail: [email protected]

September 2020 INSIGHT 62 Services at Ashika Wealth Advisory Private Limited

Contact

Ashika Wealth Advisors is a boutique Wealth management firm offering For Wealth Advisory please contact personalized investment management solutions to high net-worth indi- viduals, families, businesses, trusts, private foundations, and non-profit Mr. Amit Jain (Co-Founder & CEO) organizations. Our aim is to grow Wealth by selecting the right balance of Mobile: +91 93134 89991 asset classes and product categories with timely switches and periodical Email: [email protected] rebalancing.

Ashika Global Securities Pvt. Ltd.

Ashika Global Securities Pvt. Ltd is the holding company of Ashika Group, an RBI-registered non-deposit taking NBFC engaged in providing long term and short term loans & advances to individual & body corporate and Invest- ment in shares and securities. It has 6 wholly owned subsidiaries including Ashika Stock Broking Ltd.

Ashika Credit Capital Ltd.

It is the Flagship company of the group and incorporated in the year 1994. A RBI registered Non-Banking Financial Company carrying on NBFI Activities i.e. investment in shares an securities and providing Loan to Individuals, corporates HNI etc. The company floated its shares to public in 2000 and got listed with CSE. Thereafter, in 2011 , the shares were traded on BSE under permitted category and in 2014 got listed with MSEI. It has a registered FII as one of its investor.

Ashika Investment Managers Pvt. Ltd.

Registered under ROC, Mumbai on 13 WJuly 2017. It is a wholly owned subsidiary of Ashika Global Securities Pvt Ltd. The company has created a trust named Ashika Alternative Investment and has applied to SEBI for registration under Category 3, AIF.

63 INSIGHT September 2020 AWARDS

NSDL Stock Performer Awards CDSL Excellent Performer in BTVI Emerging Company BTVI Young Business Leader of the Year 2019 Depository Services of the Year 2019 of the Year 2019

Helping Clients Reach for Better Via SIP – National NSDL STAR PERFORMANCE AWARD 2018 from Franklin Templeton Investments, 2018

NSE Market Achievers Award 2018 NSE Market Achievers Award 2017 REGEIONAL RETAIL MEMBER OF THE YEAR 2018 - REGEIONAL RETAIL MEMBER OF THE YEAR 2017 - EASTERN INDIA EASTERN INDIA

September 2020 INSIGHT 64 Ashika Stock Broking Ltd.

Ashika Stock Broking Limited (“ASBL”) Analysts (including their relatives) Research analysts (forming part of started its journey in the year 1994 and may have financial interest in the Research Desk) have not received any is presently offering a wide bouquet of subject company(ies). And, the said compensation or other benefits from services to its valued clients including financial interest is not limited to the subject companies or third parties broking services, depository services having an open stock market position in connection with the research and distributorship of financial prod- in /acting as advisor to /having a loan report/ research recommendation. ucts (Mutual funds, IPO & Bonds). It transaction with the subject com- Moreover, Research Analysts have not became a “Research Entity” under pany(ies) apart from registration as received any compensation from the SEBI (Research Analyst) Regulations clients. companies mentioned in the research 2014 in the year of 2015 (Reg No. report/ recommendation in the past 2) ASBL or its Research Analysts INH000000206). twelve months. (including their relatives) do not have ASBL is a wholly owned subsidiary of any actual / beneficial ownership of 5) The subject companies in the Ashika Global Securities (P) Ltd., a RBI 1% or more of securities of the subject research report/ recommendation registered non-deposit taking NBFC company(ies) at the end of the month may be a client of or may have been Company. ASHIKA GROUP (details immediately preceding the date of a client of ASBL during the twelve enumerated on our website www. publication of the source research months preceding the date of con- ashikagroup.com) is an integrated report or date of the concerned cerned public appearance for invest- financial service provider inter alia public appearance. However, ASBL’s ment banking/ merchant banking / engaged in the business of Investment associates may have actual / beneficial brokerage services. Banking, Corporate Lending, Com- ownership of 1% or more of securities 6) ASBL or their Research Analysts modity Broking, Debt Syndication & of the subject company(ies). have not managed or co–managed Other Advisory Services. 3) ASBL or its Research Analysts public offering of securities for the There were no significant and mate- (including their relatives) do not subject company(ies) in the past rial disciplinary actions against ASBL have any other material conflict of twelve months. However, ASBL’s taken by any regulatory authority interest at the time of publication of associates may have managed or co– during last three years except routine the source research report or date managed public offering of securities matters. of the concerned public appearance. for the subject company(ies) in the However, ASBL’s associates might past twelve months. DISCLOSURE have an actual / potential conflict of Research reports are being prepared 7) Research Analysts have not served interest (other than ownership). and distributed by ASBL in the sole as an officer, director or employee capacity of being a Research Analyst 4) ASBL or its associates may have of the companies mentioned in the under SEBI (Research Analyst) Regu- received compensation for investment report/ recommendation. lations 2014. The following disclosures banking, merchant banking, broker- 8) Neither ASBL nor its Research and disclaimer are an essential part age services and for other products Analysts have been engaged in of any Research Report so being and services from the subject compa- market making activity for the distributed. nies during the preceding 12 months. companies mentioned in the report / However, ASBL or its associates or its 1) ASBL or its associates, its Research recommendation.

DISCLAIMER The research recommendations and information are solely for the personal information of the authorized recipient and does not con- strue to be an offer document or any investment, legal or taxation advice or solicitation of any action based upon it. This report is not for public distribution or use by any person or entity, where such distribution, publication, availability or use would be contrary to law, regulation or subject to any registration or licensing requirement. We will not treat recipients as customer by virtue of their receiving this report. The report is based upon the information obtained from public sources that we consider reliable, but we do not guarantee its accuracy or completeness. ASBL shall not be in anyways responsible for any loss or damage that may arise to any such person from any inadvertent error in the information contained in this report. The recipients of this report should rely on their own investigations.

65 INSIGHT September 2020 Gyanada e-learning initiative launching soon! Ashika Group supports charitable foundation to fuel the aspirations of young girls in India. With our vision to develop essential 21st century capacities, computational thinking and working with computer-based systems, we will be launching our e-learning module by September,2020. It has been designed as two sub-initiatives: Every Child Can Code (ECCC) and Makers in the making (MIM).

Binary Story Python workshop We’re excited to announce that we have launched our E-Learning initiative, which will be active from the month of September. The first workshop we are introducing is on Python. Our team has designed our own coherent curriculum which is fit for beginners. It is developed in a manner to spark curiosity in kids with topics gauging from flowcharts and algorithms to functions and looping. Turtle module is a graphic component of our curriculum to drive creativity in kids. We intend to help kids translate conceptual understanding to their applications with a wide variety of projects. Our approach involves projects like Rock-paper-scissor, interactive chatbots, designing greeting cards and posters and many more. With our vision to make technology affordable for all, we’ll soon be launching workshops on many other interesting software. Anybody who is interested to join our workshop, can sign up on the google form: https://forms.gle/AAknt5BxsWkwyWz5A. Our social media posts have more details on our ongoing and upcoming workshops. Follow us on social media to stay updated with the happenings in Gyanada Foundation.

Our fellows, our strength! Kushal Acharya has been a fellow with Gyanada Foundation over the past one and half year. He is working with an MNC currently but his dedication towards teaching and contributing has made us realise that with the right intention and a generous heart, we can always find time for the things we wish to do. Kushal shared his experience with Gyanada Foundation as…

Gyanada Foundation has given me an opportunity to assist young minds by providing them with the knowledge to shape a better future for themselves. Binary Story is an excellent programme that helps develop and incorporate critical skills such as logical thinking, collaboration and creativity to solve challenges faced on a day-to- day basis. The constant guidance and support from Rinsa has been a huge help in the success of this initiative.This has been one of the most humbling experiences and I am grateful to be a part of it.

We, at Gyanada Foundation, engage students in practical learning. For this we provide kids with Gyanada Lab Kits. To help us fund these kits, visit: https://gyanada.org/donate.html. You can also write to us at [email protected] or connect with us at 9819044922. Our bank details are: GYANADA FOUNDATION HDFC Bank, Stephen House Branch, Current A/c No. 50200002885400 IFSC CODE: HDFC0000008 MICR CODE: 700240002

September 2020 INSIGHT 66 Group Companies

Ashika Stock Broking Ltd. Ashika Capital Ltd. (Member : NSE, BSE, MSE, MCX, ICEX Depository participant (SEBI Authorised Merchant Banker) of CDSL / NSDL, AMFI Mutual Fund Advisor, Research Analyst) CIN No. U30009WB2000PLC091674 CIN No. U65921WB1994PL217071 SEBI Registration No : INZ000169130 SEBI Regsitration No : INH00000006 (RA) Ashika Wealth Advisors Pvt Ltd. CIN number – U65999WB2018PTC227019 Ashika Credit Capital Ltd. SEBI Registered Investment Adviser (RBI Registered NBFC) SEBI Registration number – INA300013759 CIN No. L67120WB1994PLC062159

Ashika Global Securities Pvt. Ltd. Ashika Investment Managers Pvt. Ltd. (RBI Registered NBFC) CIN number – U65929MH2017PTC297291 CIN No. U65929WB1995PTC069046

Registered Office Corporate Office Trinity 1008, Raheja Centre, 226/1, A.J.C. Bose Road 214, Nariman Point, 10th Floor 7th Floor, Kolkata-700020 Mumbai-400021 Phone: 033-4010 2500 Phone: 022-6611 1700 Fax No: 033-4010 2543 Fax No: 022-6611 1710

Toll Free No.: 1800 212 2525 For any research related query: [email protected]

www.ashikagroup.com A Product | [email protected] | A Product

67 INSIGHT September 2020