Market Overview Mutual Fund Overview Economy Review Technical View Prominent Headlines Stock Picks Startup Corner Commodity Monthly Round up Testimonials Monthly Insight Performance Sector Outlook: Chemical Book Review Q&A with CIO Management Meet Note Q3FY20 Result Analysis World Economic Event Calendar INSIGHT March 2020
Q&A WITH CIO Mr. Saurabh Mukherjea, Founder and Chief Investment Officer - Marcellus Investment Managers
Viral Markets
BRITANNIA INDUSTRIES LTD. | AARTI INDUSTRIES LTD. METROPOLIS HEALTHCARE LTD. INSIDE THIS ISSUE Market Economy 1 overview 34 Review
Prominent Startup headlines corner PROMINENT February 2020 4 39 Testimo- Sector - 6 nials Testimonial 40 Chemical
Q&A with CIO Q3FY20 - Mr. Saurabh Result Analysis Mukherjea, Founder and Chief Investment Officer - Marcellus 7 Investment Managers 46 Mutual Technical 11 fund overview 64 view
Stock picks Commodity monthly round up • Britannia Industries Ltd. • Aarti Industries Ltd. • Metropolis Healthcare Ltd. 15 68 Monthly Book insight review Recommendation Value Investing performance and Behavioral 24 69 Finance by Parag Parekh
Management World meet note economic • Phillips Carbon Black calendar Ltd. 30 72
March 2020 INSIGHT 2 MarketOVERVIEW
The coronavirus code named as COVID-19 has turned out to be a new scare for the world markets and have beaten previous records of notorious SARS though the positive thing is the mortality rate which is around 2% in comparison to earlier epidemic outbreaks.
1 INSIGHT March 2020 s the number of death 2018 alone, 30% of growth in world have estimated that even after ease toll has already crossed GDP is contributed by China. These of lockdown in March, Chinese 2,762 worldwide while the data thus signify that a massive economy could experience largest total number of infected impact on China’s GDP will not spare quarterly drop due to simultaneous peopleA at more than 80,000. What’s the World economic growth. hit on both supply and demand side concerning for the world markets is of the economy. The only problem is, While it is difficult to quantify the the fact that the virus has now spread the virus couldn’t have found a better losses to the Chinese economy and outside of China and in places such time to hit, when the world economic in turn global economy, inferences as Italy & Iran which according to growth itself have been soft. US could be drawn from SARS over WHO doesn’t have any direct links economy has lost steam and have global commodities and economy. with the epicenter, Hubei province been caught in a shallow range while Crude oil prices as well food prices in China. Besides, rate of infecting EU economic growth never really softened during the SARS attack, people in a single day has failed to took off after the global financial even for COVID-19, global commodity come down so far. In comparison, crisis. With recent slowdown in prices have fallen. China’s trade SARS which was reported in January German economy, the concerns have surplus turned negative, albeit only 2003, hogged limelight in March 2003 just been broad-based now. Japan for three months between Jan & and the attack rate declined some 76 is slowly slipping into recession and March 2003, only to recover in April. days after shock. By July 2003, WHO despite these developed economies GDP growth took a hit in Q2CY2003 declared that the SARS outbreak has been provided with easy liquidity (at 9% vs 11% in Q1CY2003), although been contained. Thus, going by the from their central banks, the whole not a massive extent. The limited same, the COVID-19 attack rate is strategy has been redundant. At impact from SARS have been limited expected to decline sometime in early the end of the day, balance sheets as the same got arrested within a April. However, what’s concerning is of these central banks have got small range of time. Thus, while the scale of infections for COVID-19 stretched and making the monetary drawing parallels between SARS and at this rate of infection compared to policies as a tool to prop economic COVID-19, one needs to compare SARS which infected ~8100 people growth have run its course. In such the scale of people infected by and responsible for 774 deaths. The a scenario, a faltering Chinese COVID-19 vs SARS as well the scale only positive aspect has been the economy is the last thing the world of the Chinese economy in 2003 mortality rate which has been at policymakers needed. While COVID- and now. Thus, the adverse impact ~3.4% compared to ~9.5% for SARS, 19 may not last beyond April and thus could be far reaching and certainly although depth, breadth and length a temporary scare, nevertheless, ‘fear beyond Q1CY20. Besides, economists of this new coronavirus remains factor’ among China’s population uncertain as of now. According to is evident and given the export an article in CNN, a U.S.-Canadian and import dependence on China, team at Laval University in Quebec production disruption will have a projects total coronavirus cases severe impact on world’s supply “might reach a cumulative 550,000 chain. cases in Wuhan” alone. Sadly, that China’s share As for the economic impact on is the best-case scenario and in of World GDP India, trade balance is expected to worst-case model projects 4.4 million increased from 4% be negatively impacted since India could be infected by the time the has higher import dependence on epidemic is over. The researchers in 2000 to 16% in China comprising of ~14% of total warn that COVID-19 “almost certainly 2018 and the share imports. At the same time India has cannot be contained and we must of world exports lower export dependency on China prepare for a pandemic.” A 2004 from 2% in 2000 since only 5% of Indian exports go to paper by two economists published China. Now of total imports, ~32% in Asian Economic Papers (MIT to 11% in 2018. In of the same are oil imports and Press) estimated the global economic 2018 alone, 30% of will benefit with lower oil prices. loss to SARS at $40 billion. One growth in world However, the advantage ends over needs to remember that the scale there and economists are of the and dependence on the Chinese GDP is contributed view that for the remaining ~68% of economy has grown at leaps and by China. imports whether it be inputs or raw bounds. China’s share of World GDP materials, it is expected to be priced increased from 4% in 2000 to 16% in higher. More, importantly, out of 2018 and the share of world exports this 68% imports, 14% is accounted from 2% in 2000 to 11% in 2018. In
March 2020 INSIGHT 2 Growing dependence on China Daily new cases 30% 16000
14000
12000
15% 16% 10000 11% 8000
6000 4% 2% 4000
2000 2000 2018 Contribution to GDP growth 0 Share in World GDP 23-Jan 25-Jan 27-Jan 29-Jan 31-Jan
China share in world exports 02-Feb 04-Feb 06-Feb 08-Feb 10-Feb 12-Feb 14-Feb 16-Feb 18-Feb 20-Feb 22-Feb 24-Feb Source: World Bank, Ashika Research Source: www.worldometers.info from china alone and is expected pharmaceuticals, automobiles, middle of March. The next set of to witness higher prices. Thus, mobiles, electronics, textiles etc. quarterly results for India Inc. could considering that the import volumes could be impacted due to prolonged be impacted severely if production are not significantly hampered, impact. Although there are hopes of doesn’t start as early as March. As for trade balance is expected to worsen factories resuming production, 10% Q3FY20 earnings season, results were since the benefits of lower oil & production cut by Hero MotoCorp broadly in line with expectations. related prices will be overshadowed shows the way things can turn in Excluding Tata Motors (due to by inflationary impact on 68% of event of delay in recovery as Indian exceptional loss in Q3FY19), topline imports. Similarly, for inflation, manufacturing industries will growth for Nifty 50 has remained 35% of the CPI basket will be moved exhaust raw material inventory by muted (down 0.2% yoy) while by the global commodity prices, EBITDA grew by 5% driven by margin particularly food articles. In fact, expansion on lower commodity costs international food prices are also on and cost cutting exercise by India an uptrend and global food inflation Inc. Net profit has been higher by stood at 6.99% in Dec 2019, after The Confederation 4.7% yoy, lower tax expenses. While 5.97% clocked in November 2019. of Indian Industry the consumer sector has exceeded Thus, either way the trend will be expectations, automobiles, capital the same. However, categories like (CII) estimates goods and metals have missed Household goods and services & that shipping, expectations, and private banks, Personal care and effects together pharmaceuticals, NBFC and healthcare have met accounting for ~8% weight in CPI automobiles, consensus estimates. All eyes are index would be affected by COVID- now on rural recovery post Rabi 19 induced increase in prices of mobiles, electronics, harvest season to uplift the economic articles. Thus, in a way, core inflation textiles etc. could growth engine as higher crop prices could be impacted more than the be impacted if the and 9.5% increase in Rabi cultivation general price levels as the prices of COVID-19 virus will result in higher incomes. In electronics and consumer durables a global supply disruption, the could increase. scare is prolonged. inward looking sectors will provide necessary support to the ailing The Confederation of Indian Industry economic growth. (CII) estimates that shipping,
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3 INSIGHT March 2020 he economy is ndia Inc.’s most heading towards important investments PROMINENT Ta recovery in the Iin the current decade next fiscal, adding good would be on skilling soft- HEADLINES auto-plays and good ware engineers. “Around FEBRUARY 2020 private sector banks are 72 percent of new jobs a sensible way to play for software engineers it. Would advise people are outside the tech eaching for to leave the high beta industry as the crossover yield is really names from real estate, happened in 2017 and Rstupid, but it’s steel, construction aside, forever it’s going to be very human, People are where there are broader true - SATYA NADELLA, reaching for yield, there’s challenges around Microsoft Corp.’s Chief no question about that. the balance sheet and Executive Officer And that’s stupid and it governance - SAURABH has consequences over MUKHERJEA, founder he impact of time, but it’s very human of Marcellus Investment Coronavirus - WARREN BUFFETT, Managers outbreak will chairman and chief exec- T be felt on global steel utive officer of Berkshire he government industry for at least two Hathaway Inc welcomes e-com- to three years, as China merce companies T is the largest producer to work within the don’t think in the next of the alloy. Indian steel few months, you will framework and laws of companies should hear of any structural the land, promises of a I enhance output, partic- reforms. We have to certain number of people ularly special steel, to realise that the fiscal benefiting from such room available to the companies can’t be at grab larger global market government is not very the expense of suffering share - DHARMENDRA high. It really becomes of many others - PIYUSH PRADHAN, Union very difficult to give eco- GOYAL, Commerce and Minister nomic stimulus - PAWAN Industry Minister GOENKA, Mahindra & he four quarters Mahindra managing espite near-term of 2020 may director challenges, Tbring some Dequities are gradual improvement ndia needs pro-busi- expected to deliver a in company earnings ness, not pro-crony return of 10-12 percent will be based on four Ipolicies to take the CAGR over the next 5-10 reasons—favourable country to the goal years however economic base, directed measure of USD 5 trillion GDP. growth could remain by the government to Pro-business policies muted, impacting topline iron out sector specific are those that enable fair growth of corporate challenges, likelihood competition in the coun- India. But, weaker crude of decent rabi season, try while Pro-crony pol- and continuous inflows and full impact of low icies on the other hand from both domestic and interest cost… NEELESH just help incumbents and foreign investors could SURANA, Mirae Asset that is something that we provide good support to Mutual Fund’s Chief have to stay away from equity markets - SRINI- Investment Officer in enabling the invisible VAS RAO RAVURI, PGIM hands of the market MF - KRISHNAMURTHY SUBRAMANIAN, Chief Economic Adviser
March 2020 INSIGHT 4 SUs as a pack look he markets, on an attractive, dividend overall basis look Pyields of some of Treasonable right these companies are very now. The broader markets attractive. Price-to-book have not done well for Every small business multiples have fallen below the past two years, but it owner has potential in one time, in some cases seems that the markets at 0.5-0.6 times, look very are expanding in terms of India to become Dhirub- attractive from buyers’ stocks that are now doing hai Ambani or Bill Gates; point of view, but there is well as compared to very a bit of fear of the supply few movers in recent years entrepreneurial power at overhang - A BALASUBRA- - SAMIR ARORA, founder grassroots is enormous MANIAN, Aditya Birla SL and fund manager Helios AMC Capital - MUKESH AMBANI CHAIRMAN, Reliance
ndia is quite an expen- e have seen Industries sive market now. In the NBFCs are get- Ipast, people have been Wting funded in a willing to pay a higher cost big way, banks have also because the economy was started to give them credit. simply one of the fastest Hence there is a push growing in the world and for growth which is very that has probably slowed important for the economy. down quite a bit. India So, availability of funds, appears to have one of lower cost of funds are two the strongest prospects prime drivers of why we for earnings growth, but are believing that we are Banks of the future Indian companies tend the cusp for recovery. The would be extremely to disappoint every year only negative point India’s for the last five years - JIM growth rate can go off track different from now, and MCCAFFERTY, joint head if Corona Virus outbreak is regulating the distinct of Asia-Pacific equity sustained for a longer-term research at Nomura - S KRISHNAKUMAR, segments of these Sundaram Mutual Fund’s banks would be a chal- Chief Investment Officer alue is out of fashion lenging task, therefore, right now, deeply an integrated framework Vout of fashion. Even oronavirus out- Warren Buffett is having break in China for resolution of financial a tough time. Earlier you Cprovides a good firms operating in India used to buy cheap. If you opportunity to India to end up buying cheap, expand trade and follow could be expected in the you were guaranteed to an export-driven model - near future as that would make money. That’s not KRISHNAMURTHY SUBRA- the scene now - RAAM- MANIAN, Chief Economic add to the resilience of DEO AGARWAL, MD & Advisor the financial system - Co-founder, Motilal Oswal SHAKTIKANTA DAS, RBI Governor
5 INSIGHT March 2020 TESTIMONIALS
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CHANDRAPRAKASH PADIYAR, Senior Fund Manager, Tata Mutual Fund
Ashika’s monthly Ashika monthly Ashika monthly “INSIGHT” newsletter “INSIGHT” is a great “INSIGHT” magazine is one of the sharpest research publication gives in depth analysis and summaries of financial with lot of insights on reasoning of stocks it is financial market. I always recommending to buy. The industry in India with look forward to it and interviews of various Fund a strong set of industry specifically the stock Manager provide their experts giving their views recommendations in rational of sector and stock along with well thought it is found worthy of selections and broader view through investment investment.… of market. It is a must read recommendations… for all investors… Great work! PARAG MEHTA, RAJENDRA KUMAR MAHESH SINGHI, Director, Edelweiss Alts PARAKH, CFO, Vikram Founder & MD, Singhi Investments Solar Ltd. Advisors
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March 2020 INSIGHT 6 companies. Companies with broken balance sheets are now going to struggle in India, with no lenders willing to support the companies. Once upon a time, these companies secured loans with the help of errant politicians. That era is gone and with little or no likelihood of an economic recovery in the horizon, these companies will have a tough time. Second type of companies which are screwed are the ones which are not industry/market leaders. For instance, for a footwear company with ROCE at 15%, there is very little chance of being able to compete with a Relaxo or Bata whose ROCEs are significantly north of their cost of capital. Similarly, for an adhesive company with ROCE of 13-15%, it has very little chance of competing with Pidilite whose ROCE is close to 40%. Second rung or third rung players are typically SMEs whose ROCEs are not above their cost of capital and such firms are going to struggle and gradually they are going to die over the next 10 years. Either they have to sell themselves to the market leader or they have to become outsourcing suppliers to the market leader. This point also pertains to high street Q&A WITH CIO retail where on the high street, the kirana stores will gradually die out, Mr. Saurabh Mukherjea - Founder the independent restaurants will die out and we will witness the highstreet and Chief Investment Officer - Marcellus being dominated by chains whether Investment Managers they are supermarket chains or restaurant chains.
So, what we are going to witness Q: Do you see any green shoots in a strong financial position, in India over the next 10 years is our economy at present and whether strong balance sheet & strong twin narratives: one of dominance the economy is going to broad base cash flow generation are not and growth and lasting success of from here on? facing significant problems with market leading franchises with strong respect to generating growth. A: There are two different narratives financial strength, balance sheets These companies will continue playing out today and these can and strong cash flows. Alongside that going from strength to strength. play out over the next 10 years. we will have the death or demise and The first narrative is companies The second parallel narrative is that bankruptcy of the poorly run entities which have a strong financial there are two types of companies with weak balance sheets, weak position, strong balance sheets & which are struggling today and could cashflows and subpar ROCEs. These free cashflow generation. These struggle for the next 10 years. The two narratives will play out in parallel companies are growing at a rapid first type are companies with broken and hence at any point of time it will rate and should be able to continue balance sheets, and they could be look as if India is booming and at the doing so eg. Titan, Dr. Pathlabs, steel companies, infrastructure same point of time it would look like Asian paints or HDFC Bank, etc,. companies, NBFCs or manufacturing India is bust. Across sectors, companies with
7 INSIGHT March 2020 In the next 10 years, the country in India. 10 years ago, we had barely or became outsourced suppliers to will end up consolidating in 4-5 million broadband users and Heinz and Heinz ended up on all the the hands of 50 large, well run now we have 100 times that number. supermarket shelves by 1930. Airline traffic grows at 20% per companies while everybody Basically, in a non-networked annum in our country. Road network else will have a struggle. So, economy, every village by itself is has more than doubled in the last 15 the notion of a broad-based a mini economy and thus every years. The number of mobile phone recovery will remain a fantasy. village has a cereal maker or ketchup voice users actually exceeds the These sorts of socialist notions maker or a biscuit maker. However, population. We are thus linking up of broad-based recovery were once the economy is well linked/ what was either to a fragmented applicable upto year 2015. Once, the networked, those local cereal makers, economy and on top of that we have black economy got squeezed out and biscuit makers or ketchup makers now full throttle GST implementation the ability of the second, third grade end up consolidating. In the process by Govt. which clearly needs the tax franchises to borrow money from the of consolidation, the most efficient revenues which GST can bring. When financial system got compromised, company with the best cashflows, you integrate a fragmented economy, broad based recovery became a thing best return on capital ends up you create national giants. In the of the past. We will remember this dominating. We are going through American context, all the famous notion of broad-based recovery like that identical process in India. The FMCG brands that we know about we remember the Ambassador car or story of development in any country in the likes of Heinz, Kellogg’s, Coca Fiat car, as relics of a bygone era. is the rise of around 50 really well- Cola, Wrigley’s, Pillsbury were born in Q: Can you give any kind of run high-quality corporates who pull 1880-1930 era. Till 1880, there were lot anecdotes about the fact that towards themselves the country’s of ketchup makers in U.S., however capitalist countries like U.S. might cashflow into their balance sheets in the next 50 years, Heinz captured have faced something similar to what and then use it to fuel development. the sauce & ketchup industry and we are witnessing at present here in That is the story of economic growth the smaller players either shut India? the world over and we have to live down or sold themselves to Heinz with that regardless of the fact A: We have got in front of us three whether anybody likes it or not. economic transitions from which we can learn from. For U.S., it will Q: Are the moats getting broadened be period between 1880 & 1930s, for companies such as Pidilite, secondly Japan post world war & Britannia or Hindustan Unilever? thirdly Korea post 1970. Basically, The U.S. economy For an investor how do they see that the U.S. economy formalized formalized in the these changes are taking place. in the fifty years between 1880 A: The Govt. has expedited two sets to 1930. The Japanese economy fifty years between 1880 to 1930. The of legal changes, two sets of tax formalized roughly in the forty changes which are allowing dominant years after the second world war. Japanese economy cash generating market leaders to The Korean economy formalized formalized roughly pull away from the rest. First change in the 22-25 years after 1970. All of in the forty years was the announcement back in these formalizations have been very after the second September 2019 of a 15% tax rate if similar, and India have also entered you set up a new subsidiary and a the same journey. Taking the U.S. as world war. The new plant inside the subsidiary. In example, there were no supermarkets Korean economy our country, we have 25 monopolists in America in 1880s at all. By 1930, formalized in the whose return on capital is ~45%. U.S. had 500,000 supermarkets. As a 22-25 years after Assuming that cost of capital is result, the kirana stores were a thing 15% it means that every year these of the past in USA by 1930. 1970. All of these companies are throwing out 30% of How did America formalize between formalizations have capital employed as free cashflow. 1880-1930? First came the railroads, been very similar, This in turn means that every three then came the Telegraph, then came and India have also years, these companies are returning the road network, then came the entered the same to their investors the entire capital motor car. These various things invested in the business. We are networked the U.S. economy and journey. talking about giant companies here created an integrated whole. We are - the likes of Britannia, ITC, Nestle, going through a very similar process Marico, Pidilite. If the same free
March 2020 INSIGHT 8 cashflow is reinvested back into the channels at ~8% with no-recourse created moats for market leading business, every three to five years, to market leader’s balance sheet franchises. The only thing that is the size of the franchise doubles. while the laggard competitor which pending is land law reforms sine the Now, if we consider the Finance doesn’t have the financial strength & 2013 land acquisition Act has resulted Minister’s new tax regime, the market stature can only manage financing of in acquisition of land at four times of leaders which doubles their franchise its dealers at ~12-15% with recourse market price. If the Govt. liberalizes sizes in every three years or more to its balance sheet. Thus, on the the Act, there will be frenzy of land conservatively even five years, will high street there are two types of acquisition by the market leaders. end up paying lower effective tax rate retailers, one that of market leaders This could speed up the formalization as its doubles capacity. However, this with low cost, abundant financing process in India and what America is not possible for competitors who and other one of the laggard with achieved in 50 years (1880-1930) could do not generate enough free cashflow high cost, limited financing. The high arguably be achieved by India in 15 to grow their capacity. And given the street will thus polarize in favour of years. state of the country, banks are not market leader and its products have Q: These businesses with strong going to finance doubling of capacity. better chances of sitting on shelves brands, moats and high return Hence, five years down the line, of supermarket stores due to its of capital, these are consistent market leaders’ effective tax rate will competitive deals which are unlikely businesses which are also not be much lower at 17-18% compared to be provided by laggards. hit hard by recessions, there are to 25% for inefficient competitors. This process of manufacturing however businesses which are This 7% tax rate differential is huge. consolidation and retail consolidation cyclical in nature, like for e.g. metals The laggard competitor will either get is already happening in India and or chemicals or agribusinesses. How sold to the market leader or become at bewildering speed. This process do an investor deal with these kinds an outsourced manufacturer to the will result in economic polarizing in of businesses? market leader or might wind up. the hands of 50 market leading This lower tax rate of 15% for setting A: If we focus on non CCP (consistent franchises who will end up up new manufacturing facilities is a compounders) businesses which becoming giants over the next potent weapon in the hands of market don’t have stable, sustainable, 10 years and the moats around leaders. recurring cashflows, there are two these are also very powerful – types of non-CCP businesses. Most Next is GST, which is also a very one is GST and the other is the of them don’t have the ability to powerful weapon for the market lower corporate tax rate. These generate free cashflow at all whether leading franchises. Based on rough two are the irreversible government it be in an economic boom or bust estimates, ~30 crore Indians – i.e. whether it be steel, real estate, around half of our workforce - work power, infrastructure companies in retail/logistics sector. Most of etc,. If a business has not been able these people haven’t paid tax before to generate free cashflows in last and now they are forced to pay GST, If a business has 12 years, then the value of business which has squeezed their profit is either zero or close to zero. It is margins from 12-14% earlier to not been able highly unlikely that these companies ~3%. Thus, these shops are facing a to generate free which couldn’t generate free cashflow working capital crunch to buy the cashflows in last in last 12 years, will be able to do so in next consignment of manufactured 12 years, then the future. For these non-free cashflow products from the wholesaler. These value of business is companies which makes up 35 of the retailers will also not get easy finance Nifty 50 list, their enterprise value is from high street banks since most either zero or close the value of debt only since value of of them don’t possess three years of to zero. It is highly equity is zero and the banks would financial statements. The easy option unlikely that these own these. Post IBC-NCLT, banks are to get finance earlier was through companies which ending up owning these companies NBFC channel, which is also running and shareholders are irrelevant dry. Thus, the only option left for couldn’t generate logically, financially and practically. the retailers is to get financing from free cashflow in last manufacturers. Here again there 12 years, will be able The second type of non-CCP would be two possibilities, one, where to do so in future. companies which are interesting the market leader given its financial to look at is the auto sector. Six strength and firepower will find it out of ten years, the ROCE of auto easy to convince banks to finance its majors like Maruti, Hero Motocorp
9 INSIGHT March 2020 will be 25% plus, well above the and/or by doing tax evasion, you in better collection of data. So Asian cost of capital and generating free are clearly faced with challenging Paints is a very good example of cashflow. They will re-invest that circumstance and a very weak future. network effects. free cashflow in new plants, new Such franchises will have to probably Similarly, Dr. Lal PathLabs is also models and over 10 years may clock sell their businesses. a very good example of using ~12-13% EPS growth. With these Q: What’s your view on the new information technology and using sorts of companies where there are age businesses which are platform the effect of virtuous cycles to locate genuine moats, there is genuine based and have network effect, low franchises in optimal fashion. So, ability to create free cashflow, but marginal cost of acquiring new what Google and Amazon have done the problem is they can’t do it every customers and there is scale? The globally, our Indian giants are doing single year. They do it in 6-7 years ROEs could be ever expanding for it locally. HDFC Bank’s CASA network out of 10 and 3-4 years they won’t these kinds of businesses and cash has very similar dynamics - the CASA be able to generate free cashflow. generation could be large. network feeds on itself, it creates For these sorts of companies, there network economics and gives HDFC is a style of cyclical investing which A: Asian Paints is actually one such Bank the lowest cost of funds after might work. There is merit in saying business given its dealer network, SBI, thus enabling HDFC Bank to that once an economic downturn has IT system, collection of data. That’s earn NIMs of 4.2-4.3% with almost no progressed for 2-3 years; one should why decade upon decade, Asian NPA cost. So, the theory expounded look at buying best of these sort of Paints’ profit margins and ROCEs is perfect. The skill in successful franchises. Auto companies, Genset keep climbing because they are investing is to see the application of manufacturers, T&D companies using a virtuous cycle of network the theory, not just in America but would fall into this bracket. Note effects to deepen their data moats, back closer home in India in world however, that CCP is barely 1% of the to deepen their collection of market class franchises which have been Indian stock market, and out of the data. Better collection of market data built under our very nose and which remaining 99%, only 1/10th falls into is giving them accurate forecasting are growing like a rocket as India this sort of non-CCP companies (i.e. of demand at the dealer level and formalizes its economy. cyclical companies) and hence are better forecasting of data is giving worth considering. 90% of Indian them lower working capital cycles. Q: Majority of these businesses with stock market falls into the category This is giving them higher ROCEs strong moats, strong financials and of non-CCP, non-free cash flow that is allowing them to be even free cashflow generation looks to be generating franchices (regardless of more competitive which is resulting quite expensive. Are there pockets of the state of the economy) and hence investing avenues which are not that are inherently worthless and to be expensive? avoided at all cost. Unfortunately, the A: The way to understand majority of Indian large cap portfolios whether a company is expensive are made up of such companies Formalization is an or not is to use DCF becuase where there is no underlying free P/E multiple doesn’t take you cashflow generation whatsoever. epic tailwind for very far. Nestle’s P/E multiple Q: Where do you see the real the Indian markets. twenty years ago was identical tailwinds in years to come. Sectors For a company with to what it is today. The stock has or themes worth considering? strong cashflow, given 20% compounded return in the intervening period. Asian A: Formalization is an epic tailwind strong balance Paints’ P/E multiple 20 years ago for the Indian markets. For a sheet and deep was identical to what it is today, the company with strong cashflow, moats, India is a stock has delivered 100 times. HDFC strong balance sheet and deep moats, Bank’s P/B 10 years ago was what it India is a glass half full and there is glass half full and is today, the stock has given 12 times. ocean of opportunities to fill up that there is ocean of There is no link in Indian large cap, glass. If on the other hand, you are opportunities to fill midcap, small cap between P/E and running a weak franchise with weak up that glass. subsequent returns. If people out moats, weak competitive standing there look at P/E and invest, they are and have historically survived by not going to make very much money gettinh PSU banks to provide loans in India.
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
March 2020 INSIGHT 10 Mutual Fund Overview MARCELLUS PMS STRATEGY - CONSISTENT COMPOUNDERS
Consistent Compounders is a PMS strategy launched deepening their competitive moats despite disruptive by Marcellus Investment Managers in December 2018 changes taking place both inside as well as outside the to invest in a concentrated portfolio of heavily moated organization. More often than not, such DNA sustains companies which can drive healthy earnings growth over over the subsequent 5-10 years investment horizon of the long periods of time. filter-based approach.
The Portfolio construction involves two stage process: 1) Power of compounding: Holding a portfolio of stocks a filter based approach to create an investible universe untouched for 10 years allows the power of compounding of 30-35 stocks; 2) in-depth bottom-up research of to play out, such that the portfolio becomes dominated by such companies in the universe to assess sustainable the winning stocks while losing stocks keep declining to competitive moats to build a portfolio of 10-20 stocks that eventually become inconsequential. deliver healthy compounded earnings growth over long Avoiding the pitfalls of psychology and reducing periods of time. transaction costs: Being patient with a portfolio helps cut Such a portfolio is monitored for sustainability of out ‘noise’ of trying to time entry / exit decisions. With no moats on a continuous basis through extensive primary churn, this filter-based approach also reduces transaction research. Repeating the filters annually helps keep the costs. Consider two data points: (a) In a portfolio with 70% investible universe updated and also such a universe is churn (average churn of large cap mutual funds), 20bps continuously researched for developing or strengthening broking cost and 30bps impact cost, churn reduces the of moats to augment the portfolio. terminal value of the portfolio (after 10 years) by 10% (i.e. a drag of 120bps on the 10-year CAGR); and (b) deferring the Strategy: 10% long term capital gains tax payable on the portfolio The Filter Based Approach creates a list of stocks using a by 10 years enhances the terminal value of the portfolio twin-filter criterion of double-digit YoY revenue growth by 8% (i.e. 100bps increase in the 10-year CAGR) vs a and return on capital being in excess of cost of capital, portfolio where capital gains are paid each year. each year for 10 years in a row. Next a portfolio of such The above deep-dive stock-specific research help stocks each year are created and taken each of these generate outperformance of 4-5% per annum over and annual iterations of portfolios for the subsequent 10 years above these filter-based portfolios which is achieved via 3 (without any churn). factors: Unique DNA of these companies: By “filtering in” 1. Portfolio concentration: companies with a history of very consistent fundamentals 2. Ignorable consistency in historical fundamentals over very long time periods, the portfolio is skewed towards companies with a DNA built around relentlessly 3. Excusable blips in historical fundamentals are forgiven
11 INSIGHT March 2020 Performance: 3. a hybrid model (1% p.a. fixed fees + performance fees of The filter-based portfolio delivers returns of 20-30% 15% profit share above a hurdle of 12%, no catch-up). p.a. and 8-12% outperformance relative to the Sensex. Minimum investment: Rs. 50 lakhs The volatility of returns of such portfolios, for holding periods longer than 3 years, is similar to that of a Government Bond
Returns here (both for our portfolio and for the Sensex) are on a Total Shareholder Return basis i.e. all dividends are included in the returns.
Fee Structure: Marcellus offers Consistent Compounders Portfolio with zero fixed fees
The Consistent Compounders PMS comes with ZERO entry load/exit load and with no lock-in. Clients can choose any of the following fee structures: 1. a fixed fees model (2% p.a. fixed fees + zero performance fees) or Source: Bloomberg. Note: Only the Consistent Compounder Portfolios which have 2. a variable fees model (zero fixed fees + performance finished their 10 year run have been shown. Note: These are total shareholder fees of 20% profit share above a hurdle of 8%, no catch-up) returns.
Ashika Mutual Fund Recommendation Alpha Generation Month of Fund Name Benchmark NAV as on 1 Year 3 Year 5 Year Recom 24.02.2020 Return Return Return (%) (%) (%) Mar-19 Mirae Asset Large Cap Fund NIFTY 200 53.4 12.78 11.41 10.24 Apr-19 SBI Focused Equity Fund S&P BSE 500 160.72 24.95 15.87 11.8 May-19 Invesco India Small Cap Fund S&P BSE 250 SmallCap TRI 12.12 27.41 - - Jun-19 ICICI Prudential Multi Asset Fund Nifty 50 Total Return (70) 268.29 7.17 5.92 6.72 Jul-19 ICICI Prudential Asset Allocator Fund CRISIL Hybrid 50+50 Moderate 58.78 9.54 9.47 8.73 Index Aug-19 Reliance MultiCap Fund S&P BSE 500 98.36 7.94 8.94 5 Sep-19 Canara Robeco Emerging Equities Fund Nifty Large midcap 250 TRI 103.5 18.64 12.44 12.27 Oct-19 LIC MF large & Mid Cap Fund Nifty Large midcap 250 TRI 16.73 21.59 11.72 Nov-19 ITI Multi Cap Fund Nifty 500 TRI 11.13 - - - Dec-19 Parag parikh Long Term Equity Fund Nifty 500 TRI 28.81 16.66 13.69 12.2 Jan-20 DSP Dynamic Asset Allocation Fund CRISIL Hybrid 35+65 Aggressive 16.48 11.41 7.47 7.4 Feb-20 Invesco India Growth opportunities Fund S&P BSE 250 Large Midcap 36.99 16.41 12.65 9.37 65:35 TRI
Note: All data are as on Jan 31, 2020; NAV are as on Feb 24, 2020, Source: Factsheet, Value Research
Large & Mid Cap Fund ALL DATA BELONGS TO 02/24/2020 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) 239.17 2978 6.62 17.96 16.42 10.30 8.97 13.92 0.53 2.2 Invesco - India Growth Opportunities Fund (G) 36.99 2447 3.30 14.38 16.50 12.65 9.37 10.99 0.66 2.04 Kotak - Equity Opportunities Fund (G) 131.75 3188 5.82 17.35 19.47 10.29 9.65 18.11 0.54 2.02 LIC - Large & Mid Cap Fund - Reg (G) 16.74 639 6.44 18.10 21.72 11.72 0.00 10.85 0.51 2.5 Sundaram - Large and Mid Cap Fund (G) 37.57 1110 2.75 16.82 17.66 12.02 10.57 10.73 0.61 2.19
March 2020 INSIGHT 12 Value Fund ALL DATA BELONGS TO 02/24/2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return SBI - Contra Fund Reg (G) 103.12 1367 0.76 9.32 2.11 2.37 2.66 17.06 0.02 2.34 UTI - Value Opportunities Fund (G) 65.71 4634 4.86 16.69 15.44 9.12 5.47 13.70 0.45 1.78 Nippon India - Value Fund (G) 75.51 3114 2.07 12.98 12.16 8.89 7.23 14.70 0.35 2 Kotak - India EQ Contra Fund (G) 55.55 900 2.53 12.36 12.52 11.96 8.60 12.47 0.69 2.32 Invesco - India Contra Fund (G) 50.95 4751 5.57 16.46 14.86 12.20 10.05 13.48 0.56 1.93
Focus Fund Axis - Focused 25 Fund Reg (G) 31.7 9627 5.28 17.84 25.20 15.93 11.89 16.14 0.83 1.85 Mirae - Asset Focused Fund Reg (G) 11.77 2701 1.03 15.28 0.00 0.00 0.00 21.32 - 1.97 SBI - Focused Equity Fund Reg (G) 160.73 7694 6.52 20.56 25.11 15.87 11.80 19.62 0.82 2.03 Motilal Oswal - Focused 25 Reg (G) 24.4 1220 3.55 17.61 22.49 10.38 8.35 13.92 0.49 2.22 Sundaram - Select Focus Reg (G) 194.75 1074 2.50 12.57 18.04 13.21 8.18 18.36 0.76 2.18
ELSS Fund Mirae - Asset Tax Saver Fund Reg (G) 18.98 3293 1.62 13.47 16.61 13.70 0.00 16.65 0.8 2.05 Kotak - Tax Saver Scheme (G) 48 1155 5.06 15.61 18.31 9.93 8.74 11.62 0.53 2.49 Motilal Oswal - Long Term Equity Fund Reg (G) 19.2 1725 5.09 19.41 21.02 10.70 12.96 13.66 0.56 2.12 DSP - Tax Saver Fund Reg Fund (G) 51.59 6381 1.63 12.59 17.68 9.33 9.91 13.34 0.41 1.96 SBI - Long Term Equity Fund Reg (G) 143.69 7582 0.50 11.25 6.89 5.49 4.62 15.20 0.2 1.97
Multi Cap Fund Parag Parikh - Long Term Equity Fund Reg (G) 27.71 2784 5.25 13.61 15.83 12.94 11.51 16.20 0.85 2.02 SBI - M Multicap Fund Reg (G) 51.49 8760 2.09 11.35 14.82 9.33 9.96 12.07 0.5 2.01 Kotak - Standard Multicap Fund (G) 37.57 30546 2.16 12.82 15.82 10.49 9.96 13.30 0.56 1.63 ICICI Pru - Multicap Fund Reg (G) 291.26 5197 (0.39) 8.32 7.09 6.60 7.65 14.19 0.33 2.24 DSP - Equity Fund Reg (G) 45.28 3502 8.35 20.96 27.62 12.90 9.72 12.60 0.54 2.07
Small Cap Fund Invesco - India Smallcap Fund Reg (G) 12.12 522 14.77 31.17 27.58 0.00 0.00 15.00 - 2.54 SBI - Small Cap Fund Reg (G) 57.05 3493 6.10 19.66 19.40 13.30 13.95 18.10 0.54 2.26 Axis - Small Cap Fund Reg (G) 34.97 2084 11.51 24.05 35.07 14.82 12.56 22.21 0.75 2.04 Kotak - Smallcap Fund (G) 79.15 1592 11.31 24.89 22.22 6.42 8.93 14.78 0.23 2.15 ICICI Pru - Smallcap Fund Reg (G) 27.33 1030 9.23 19.50 25.83 5.61 5.61 8.47 0.16 2.43
Thematic/Sectoral Fund Franklin - Build India Fund (G) 40.13 1208 (3.03) 7.01 6.31 4.48 6.82 13.96 0.19 2.51 ICICI Pru - Banking & Financial Services 68.14 3615 0.71 15.00 17.69 11.29 12.49 18.13 0.54 2.12 Fund Reg (G) Kotak - Pioneer Fund (G) 10.41 717 3.55 0.00 0.00 0.00 0.00 11.21 - 2.73 Sundaram - Services Fund (G) 13.5 1304 10.58 27.19 31.65 0.00 0.00 22.28 - 2.37 Aditya Birla SL - Digital India Fund Reg (G) 58.63 440 9.59 10.98 11.13 17.94 9.88 6.95 1.04 2.52
Blance/BAF Fund SBI - Equity Hybrid Fund Reg (G) 148.92 32585 3.87 12.84 18.50 11.78 9.40 15.32 0.71 1.72 Sundaram - Equity Hybrid Fund Reg (G) 98.83 1876 3.77 12.91 15.86 10.58 8.28 12.64 0.61 2.21 ICICI Pru - Balanced Advantage Fund Reg (G) 37.98 28853 1.31 8.95 12.00 8.57 8.42 10.55 0.71 1.75 Kotak - Balanced Advantage Fund Reg (G) 11.29 3719 1.69 8.55 12.77 0.00 0.00 7.79 - 2.15 Aditya Birla SL - Balanced Advantage Fund 55.43 2736 0.69 7.86 10.13 5.94 8.07 9.00 0.25 2.04 (G)
13 INSIGHT March 2020 Equity Savings Fund ALL DATA BELONGS TO 02/24/2020 NAV AUM 3 M 6 M 1 Yr 3 Yr 5 Yr Since Sharpe Exp. (Rs Cr) Inception Ratio Ratio Return HDFC - Equity Savings Fund (G) 37.33 4168 (0.07) 3.90 5.67 5.59 7.58 8.92 0.14 1.97 ICICI Pru - Equity Savings Fund (G) 14.78 1553 1.86 6.79 11.21 7.19 7.59 7.82 0.6 1.39 Kotak - Equity Savings Fund Reg (G) 15.03 1804 1.56 6.27 8.67 7.74 7.39 7.78 0.59 2.1 Axis - Equity Saver Fund Reg (G) 13.65 820 2.25 6.81 10.35 8.68 0.00 7.02 0.51 2.32 SBI - Equity Savings Fund Reg (G) 13.75 1567 1.88 7.82 10.04 6.45 0.00 6.86 0.23 1.7
Arbitrage Fund Aditya Birla SL - Arbitrage Fund Reg (G) 20 5769 1.27 2.73 6.28 5.98 6.27 6.76 0.4 0.85 ICICI Pru - Equity Arbitrage Fund Reg (G) 25.73 13739 1.22 2.59 6.05 5.95 6.30 7.45 0.29 0.93 Kotak - Equity Arbitrage Fund (G) 27.85 17856 1.25 2.68 6.20 6.15 6.39 7.37 0.66 0.98 Nippon India - Arbitrage Fund (G) 19.99 10497 1.23 2.64 6.20 6.23 6.49 7.63 0.69 1.08 SBI - Arbitrage Opp Fund Reg (G) 25.38 5253 1.29 2.60 6.28 6.01 6.18 7.25 0.31 0.91
Index Fund HDFC - Index Fund-NIFTY 50 Plan - (G) 108.03 1064 (0.76) 9.20 10.42 10.73 7.13 14.20 0.58 0.3 ICICI Pru - Nifty Next 50 Index Fund Reg (G) 24.88 618 0.01 10.64 7.67 5.13 7.74 9.83 0.15 0.85 HDFC - Index Fund - Sensex Plan 358.66 722 (0.14) 9.81 13.17 12.57 7.87 14.67 0.71 0.3 SBI - Nifty Index Fund Reg (G) 101.64 514 (0.91) 8.96 9.94 10.29 6.59 14.25 0.55 0.69 ICICI Pru - Nifty Index Fund Reg (G) 114.65 517 (0.77) 9.24 10.30 10.14 6.63 14.61 0.54 0.45
Solutions NAV AUM Mod AMP (IN 3 M 6 M 1 Yr 2 Yr Sharpe Exp. Duration Yrs ) Ratio Ratio (in Yrs) ICICI Pru - Retirement Fund Pure Debt Plan 11.18 370 - 10 3.01 5.07 11.79 0.00 - 2.07 (G) (27/02/2019) Aditya Birla SL - Retirement Fund 30s Plan 10.42 129 - 9.061 1.96 14.33 4.18 0.00 - 2.65 (G) (22/08/2019) HDFC - Retirement Savings Fund Hybrid 17.39 387 0.68 15.736 2.74 9.86 10.72 4.67 0.45 2.73 Equity Reg (G) (26/02/2019) Aditya Birla SL - Bal Bhavishya Yojna Wealth 10.82 230 - 9.45 1.88 13.89 8.20 0.00 - 2.6 Plan (G) (22/08/2019) Axis - Childrens Gift Fund Reg (G) 14.56 470 0.63 12.4304 3.37 12.30 18.08 7.98 0.55 2.44 (25/02/2019)
Dynamic/Multi Assets Invesco - India Dynamic Equity Fund (G) 30.58 870 0.57 27.44 1.97 8.52 11.36 4.39 0.34 2.16 (28/02/2019) ICICI Pru - Asset Allocator Fund (FOF) (G) 58.79 6941 1.47 53.6284 1.23 6.51 9.60 9.46 0.91 1.36 (27/02/2019) DSP - Dynamic Asset Allocation Reg (G) 16.49 1224 1.23 14.813 2.97 9.04 11.48 7.72 0.51 2.41 (28/02/2019) SBI - Dynamic Asset Allocation Fund (G) 13.55 664 0.90 13.0557 (0.67) 3.54 3.44 3.49 0.51 2.02 (22/08/2019)
Disclaimer: Mutual Fund investments are subject to market risks, read all scheme related documents carefully.
March 2020 INSIGHT 14 STOCK PICKS
Britannia Industries Ltd.
Share holding pattern as on Dec 2019 CMP: Rs 2,962 Rating: BUY Target: Rs 3,400 Company Information BSE Code 500825 NSE Code BRITANNIA Bloomberg Code BRIT IN ISIN INE216A01030 Market Cap (Rs. Cr) 71,455 Outstanding shares(Cr) 24.0 52-wk Hi/Lo (Rs.) 3583.75 / 2300 Avg. daily volume (1yr. on NSE) 4,83,971 Face Value(Rs.) 1 Promoters 50.6% FII 15.8% DII 13.6% Others 20.0% Book Value 165.8
Investment Rationale However, the wafers market segment on wholesale channels have benefited New product launches is highly fragmented and largely BIL in last three years. Britan- Britannia Industries Ltd. (BIL) operates in trade promotions, but BIL nia’s direct distribution reach continues to remain committed in has differentiated by giving freebies increased by 2.9x to 21.7 lakh launching new products which are to ensure it creates a Pull brand outlets in last 5 years and total futuristic and highly differentiated than being a Push brand. In bread, distribution reach currently in nature, targeting various markets the company continued its focus stands at 55 lakh outlet increased at the same time. The recent new toward driving profitable growth from 36 lakh outlets 5 years ago. launches (contribute ~3% to overall while dairy business profitability was Hence the gap with market leader has revenue) performed well, finding impacted due to significant upsurge narrowed down to 8 lacs during the strong acceptance in most markets. in milk prices. Several additional quarter. Rural distribution (preferred The company is also focusing on fine investments led growth initiatives dealers) has grown to 21,000 villages tuning the existing brands and then such as investments in the value at end of Dec-2019 compared to scaling its launches. As is evident added dairy segment, Chitpita JV 18,000 in Mar-2019. Company wit- from the cake business which saw a (Greek company) for manufacturing nessed unprecedented gain in market relaunch of bar, veg and tiffin cakes and selling long life filled croissants share in all rural states, especially and introduction of new formats like has been gaining result. Hence some the Hindi belt, as it continues to swiss rolls, layer cakes, brownies and new launches have already started to strengthen its distribution network. muffils. During Q4, the company is yield result (~2.5% of revenue) and for Management targets to cross 6 mn expected to come up with four new some category extension will help the outlets mark over the next three years launches – Treat Burst, Treat Stars, company to increase its market share to expand its distribution network. going ahead. Whole Wheat Marie and Milk Bikis Prudent cost management helps Choco Cream. Further, BIL plans to Distribution reach to drive margin expansion fine tune its products in new cate- growth Britannia has taken various cost gories like Croissants (national roll Britannia Industries is one of the saving measures in the past few out in next 3-4 months), Salty Snacks companies with the lowest depen- years which help the company to (national roll out in 6 months) once dency on the wholesale channel for considerably improve the margin demand pick up is visible. Wafers is its domestic business. Increased from 11.0% in FY15 to 15.9% in 9MFY20. doing well and BIL is already a No. direct reach and lower dependence The margin expansion was primarily 3 brand with a 10% market share.
15 INSIGHT March 2020 attributable to cost efficiencies its base business, with new innova- achieved through management tion and new categories contributing initiatives such as use of renewable 1% each to the topline. Its increased energy, rainwater harvesting and efforts on reducing trade inventory commodity hedging. Recent food Despite the and rising freshness alsohad some inflation shot up cost of raw mate- challenging impact on volumes. The Company rials (mainly dairy up 42% YoY), but has shown increase in its operating company’s contract of raw materials, environment the profits by 11.1% YoY to Rs. 502 cr while strong cost cutting measures and company managed Operating Profit margin increased by waste deduction techniques pro- to continuously 94 bps on YoY basis to 16.8%. Opera- pelled EBITDA margins. Management tional margins surprised positively is also eyeing vertical integration improve its market on back of moderate RM inflation such as in-house sourcing of whey share. Major (due to forward cover on key RMs) for biscuit. Moreover, the company positive for Q3FY20 and enhanced focus on cost saving plans to reduce its dependency on was EBITDA initiatives (partly aided by flat A&P third-party manufacturers and wants spends). PBT stood at Rs. 497 crore, to focus on in-house capacity. Right margin expansion up by 6.8% YoY. Net Profit of the now, the in-house to outsourced in spite of inflation company has increased by 22.9% YoY offerings ratio stands at 55:45, which in key raw materials to Rs. 370 cr while Net Profit margin will be 65:35 by FY20, as envisaged by increased by 181 basis points for the company. Further, the manage- prices. Q3 on YoY basis to 12.4%. Net Profit ment indicated that the focus is going growth aided by corporate tax rate to be on driving revenue growth reduction as tax decline by 23.2% to rather than volume growth and that Rs. 127 cr. it would go for a price hike to offset the inflation in raw material prices. Nepal form current capacity of Key Risks Management expects to implement 600tonnes to 1,200 tonnes with Rising competitive intensity price increases selectively and con- small investment. Overall capex in especially from large organized / tinues to target cost savings at 2.1% Nepal is pegged at ~Rs. 55 cr, which unorganised regional players can of revenue. Company is confident management estimates to yield ~Rs. potentially result in volume pressures 100- 150 cr revenue in three years to expand margins moderately led Rise in the raw material prices on p.a. basis. The company has large by its relentless focus on cost saving like wheat, flour, RPO, milk without part of its international business in initiatives, premiumization drive and commensurate hike in product prices the Middle East, where it has two scale benefits can lead to pressure on the gross overseas manufacturing units in margins. Venture into new geography Dubai and Oman. It is looking to Management has plans to enter one create a hub-and-spoke model to Prolonged slowdown particularly in new geography every year. It entered get into more and more markets like rural areas, will lead to slowing of the Nepal in FY19 and has ~17-18% market Myanmar and the African continent. category growth rates. share. With in-house manufacturing, The company is presently considering management expects Britannia’s entry in tougher market like Bangla- Valuation Nepal business is likely to see margin desh which is characterized by many Britannia is the leader in the biscuit expansion of ~600bps owing to players. category in terms of value. Despite no import duty. The company is the challenging environment the expected to increase capacity in Q3FY20 Result Analysis company managed to continuously Company continued to report decent improve its market share. Major pos- growth in all itive for Q3FY20 was EBITDA margin Britannia Industries Ltd. Price Chart front in Q3FY20. expansion in spite of inflation in key Consolidated raw materials prices. Cover on input 3600 2,000 revenues grew prices and company’s cost saving 1,800 3400 by 3.8% YoY at Rs. initiatives with flat advertisement 1,600 2936 cr marked expenses helped in expansion in 3200 1,400 by volume EBITDA margin. BIL initiatives of new 3000 1,200 growth of 3% YoY 1,000 launches and innovations, distribu- on the back of 2800 800 tion expansion (reducing gap with domestic slump 600 market leader) and judicious pricing 2600 in urban and 400 (to be competitive in the market) will 2400 rural demand. 200 lead to better growth than peers. According to 2200 0 Improving product mix (premium management, growing faster than value category), about half of moderate competitive intensity, Jun-18 Jun-19 Oct-18 Oct-19 Apr-18 Apr-19 Feb-18 Feb-19 Dec-18 Dec-19 Aug-18 Aug-19 growth was modest price hike (to offset raw Total Traded Quantity Britannia contributed by material inflation) and sharp focus
March 2020 INSIGHT 16 on cost optimization (cost savings in the near to medium term. Going are optimistic of bouncing back of target for the current year is 2.1% of forward, it is expected that company’s demand in few quarters time. Hence, revenue) should continue to support thrust on distribution expansion we hold positive view on the scrip operating margin trend. Recovery and category expansion with pre- and recommend BUY with a target in the biscuit category’s growth and miumization to drive growth. While price of Rs. 3400 from 12 - 18 months a scale-up in performances of new judicious pricing and strategic input investment perspective. Currently, products and adjacencies (including buying with cost saving measures will the scrip is valued at P/E multiple of dairy and bakery businesses) would help in better margins. Considering 44x on FY21E Bloomberg consensus help Britannia record better earnings government rural initiatives, we EPS of Rs 67.3. Valuation charts
PE Band PE Ratio SD 5 yr 5000 90
80 4000 70 3000 60
2000 50 40 1000 30 0 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 May-15 May-16 May-17 May-18 May-19 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19 Apr-20 Dec-15 Dec-16 Dec-17 Dec-18 Dec-19 Dec-20 Aug-15 Aug-16 Aug-17 Aug-18 Aug-19 Aug-20 PE Ratio Mean 1 SD+ Price 35x 40x 45x 50x 55x 2 SD+ 1 SD- 2 SD- Source: Bloomberg & ACE Equity Source: Bloomberg & ACE Equity
Revenue, EBITDA & PAT CAGR (%) Revenue, EBITDA & PAT Trend (Rs. Cr.) 35.0 12,000 16% 30.1 30.8 30.0 10,000 15% 25.0 8,000 14% 19.0 20.0 16.5 14.4 13.8 6,000 13% 15.0 12.7 10.5 8.9 4,000 12% 10.0
5.0 2,000 11%
0.0 0 10% 3 year 5 years 10 years FY15 FY16 FY17 FY18 FY19
Revenue CAGR EBITDA CAGR PAT CAGR Revenue EBITDA PAT EBITDA Margin Source: Bloomberg & ACE Equity Source: Bloomberg & ACE Equity
P/E Median
3 Years
5 Years
8 Years
0x 10x 20x 30x 40x 50x 60x Source: Bloomberg & ACE Equity
Particulars (in Rs Cr) FY19 FY20E FY21E FY22E Net Sales 11054.7 11784.3 13045.2 14519.3 Growth (%) 11.5 6.6 10.7 11.3 EBITDA 1733.4 1873.7 2126.4 2424.7 EBITDA Margin (%) 15.7 15.9 16.3 16.7 Net profit 1156.4 1402.3 1617.6 1858.5 Net Profit Margin (%) 10.5 11.9 12.4 12.8 EPS (Rs) 48.2 58.3 67.3 77.3 Consensus Estimate: Bloomberg, Ashika Research
17 INSIGHT March 2020 STOCK PICKS
Aarti Industries Ltd.
Share holding pattern as on Dec 2019 CMP: Rs 980 Rating: BUY Target: Rs 1,177 Company Information BSE Code 524208 NSE Code AARTIIND Bloomberg Code ARTO IN ISIN INE769A01020 Market Cap (Rs. Cr) 17,041 Outstanding shares (Cr) 17.42 52-wk Hi/Lo (Rs.) 1071.0/676.8 Avg. daily volume (1yr. on NSE) 128,260 Face Value (Rs.) 5 Promoters 48.3% DII 16.7% FIIs 7.5% Others 27.6% Book Value (Rs) 169.0
Company profile Investment Rationale to commercialize manufacturing Incorporated in 1984, Aarti Industries Largest benzene derivatives of flouro compounds via Halex chemistry. It has a diversified ltd. is a leading specialty chemicals producer product portfolio with relative low company in Benzene based deriva- Aarti Industries is the largest pro- dependency on individual products. tives with integrated operations and ducer of benzene derivatives in India and leading manufacturer globally. Company’s top 5 products contrib- high level of cost optimization. Aarti Globally, it has strong market share ute nearly 39% of the consolidated operates in two division, specialty with most of its products having revenue, while the top 10 products chemical account 84% of total market share in the range of 25-40%. contribute 58% of revenue. It has also revenue and pharma contributes Further, 75% of its specialty chemical a diversified customer base across 16% of turnover. Company’s pharma products are commanding a position North America, Europe, Japan, China operations include APIs, intermedi- in Top-4 in their respective catego- and RoW and no single company/ ates and Xanthene derivatives. It has ries. Aarti is the third largest player customer accounts for more than 5% 11 plants for specialty chemicals and globally in chlorination, fourth in the of consolidated revenue. Aarti’s top 4 for pharma (2 USFDA and 2 WHO/ world in nitration, globally second 10 customers contribute 27% of consolidated revenue while top GMP). Further, another 2 projects are in ammonolysis, second largest in 20 contribute 38% of revenue. coming at Dahej SEZ and setting up the world in hydrogenation, and Company is also focusing on innova- 4th R&D center at Navi Mumbai. is the first and only player in India tion in order to effectively utilize its
March 2020 INSIGHT 18 by-products and generate additional for a month or so. Thus, most of revenue. Diversified product portfo- the impact will come from March lio and customers help the company onwards. Due to ongoing supply to mitigate the concentration risk disruption from China led by from business model. Aarti industries environmental issues and followed by coronavirus epidemic, global Focus on moving up the value has a integrated innovators and generic companies chain are establishing alternative source Aarti industries has a integrated business model for a steady and assured supply of business model and management and management intermediates. India on the other continued its focus in moving up the continued its focus hand is a known alternative hub value chain yielded positively for the for chemicals and stands to bag a company. Company has presence in in moving up the multi-year exports opportunity. both the chains (Simple & Advance) value chain yielded Against this backdrop, Aarti Indus- and sells 30% commoditized and 70% tries is well-poised to cash out the in the complex. Advanced products positively for the growing opportunities because of its have higher gross margins (USD company. market leadership and strong global 800-1000 per tonne vs USD 400- presence. 600 per tonne) compared to simple products which help the company to Growth backed by strong capex sustain healthy margins. However, in Aarti industries growth story has simple product division the market chemical companies like Aarti indus- been backed by capacity expansions size is much bigger than advanced. tries. For integrated chemical man- and introduction of value-added Aarti has strong market share of ufacturers such as Aarti Industries, products. Company embarked an around 50-70% in complex segment, it could mean new opportunities ambitious capex plan to the tune of while 30-40% market share in simple because of the growing preference Rs 2100-2400 over FY19-21 compared category. First mover advantage and for India as an alternative reliable to Rs 2740 over FY09-18. Company’s scale benefits help the company to be supplier of chemicals. Over the years, capex including investments towards the low cost of producer compared to supply chain disruptions in China long-term multi year deals, capacity standalone players. Aarti’s presence due to operational hazards, environ- expansions in hydrogenation and across the value chain with scale is a mental compliance issues and higher NCB, de-bottlenecking and expan- key moat for the company. cost of operations have made the case sions in various specialty chemicals, API and pharma intermediates and Coronavirus epidemic throws for this likely shift. A 5-10% business setting up new R&D center in Navi opportunity for chemical sector shift to India can actually more than double the opportunity size for many Mumbai. Management have positive The recent outbreak of coronavirus in chemical companies. As per man- visibility of long-term demand China which infected around 77,000 agement, its chemical business is not for their products, as a result they people and death toll of around dependent on imports from China have continued to drive capital 2,500, lockdown the manufacturing as its operation is fully backward expenditure as per plan, spending activities in the mainland. China is integrated. Overall, coronavirus Rs 830 crore in the first 9MFY20 and one of the largest chemical manufac- outbreak in China is a positive for its expects to close FY20 within guided turers globally, shutting down their specialty chemical business as far as range of Rs 1,000-2,000 crore. As plants amid threat of coronavirus demand and prices are concerned. As per management, all its key projects and that benefit the Indian integrated per the management, due to corona- including the expansion of chlorina- virus company’s tion capacity, investments underlying Aarti Industries ltd 3 Year Price Chart market share various long-term contracts, etc. are will improve as it on track and will be commissioned 1100 has been getting as per scheduled timelines. Timely, 1000 more orders commissioning of all the capacities 900 from their will support the long-term growth of 800 existing custom- the company. 700 ers. Management 600 also conveyed 500 Key Risks that more 400 Any unfavorable movement in raw impact would 300 material prices and resultant spike start coming 200 in working capital could adversely 100 in from March impact the margins of the company onwards and Any delay in commissioning company will the new capacities and lower Jun-17 Jun-18 Jun-19 Oct-17 Oct-18 Oct-19 Apr-17 Apr-18 Apr-19 Feb-17 Feb-18 Feb-19 Dec-17 Dec-18 Dec-19 Aug-17 Aug-18 Aug-19 have carry-for- than expected offtake could hurt ward orders
19 INSIGHT March 2020 company’s long-term revenue The coronavirus epidemic in China started to derive higher contribution growth. disrupted the supply chain of global from supplies to regulated markets chemical sector, resulting in shortage and improve the product mix to more Valuation of raw materials. Aarti being an value addition. Also, Pharma capacity Aarti is leading integrated specialty integrated specialty chemical and expansions are continuing which will chemical manufacturer globally with API manufacturer is going to benefit drive deeper penetration in some key strong product pipeline. Manage- from acute supply shortage of key therapies such as antihypertensive, ment’s continuous focus on increas- chemical ingredients on wake of cardiovascular, oncology, corticoste- ing contribution from downstream coronavirus epidemic in China as riods, etc. Overall, we believe, Aarti is products of chemical business and far as demand and prices are con- on right track to achieve humongous scaling presence in non-commod- cerned. Management have positive growth in coming 2 to 3 years. Thus, itized segments at 75% are the most view on the long-term demand for we recommend our investors to BUY encouraging developments from their products, thus will continue to the scrip with target of Rs 1,177 from business perspective. Further, com- drive capex plan which will further 12 months investment perspective. pany’s diversified product portfolio underpin its long-term revenue At current price, the scrip is valued and low dependency on single clients growth visibility. In pharma business, at P/E multiple of 24.5 on Bloomberg mitigate the concentration risks. margins are expanding as company consensus EPS of Rs 39.9.
Valuation charts
PE Band - Aarti Industries Ltd. Revenue, EBITDA & PAT trend 1400.00
1200.00 5,000 4,659 3,759 1000.00 4,000 20% 3,115 2,956 2,908 800.00 3,000 15% 600.00 2,000 10% 963 691 652 566 491 400.00 466 329 315
1,000 256 5% 206 200.00 0 0% 0.00 FY15 FY16 FY17 FY18 FY19 01-Apr-15 01-Apr-16 01-Apr-17 01-Apr-18 01-Apr-19 Revenue (Rs crs) EBITDA (Rs crs)
Price 10x 15x 20x 25x 30x PAT (Rs crs) EBITDA Margins (%) Source: Bloomberg & ACE Equity Source: Bloomberg & ACE Equity
Revenue, EBITDA & PAT CAGR P/E Median 25% 24%
19% 19% 8 Years 17.4x 18% 16% 15% 12% 12% 5 Years 25.0x
3 Years 29.5x 10 Years 5 Years 3 Years
Revenue CAGR (%) EBITDA CAGR PAT CAGR 0.0x 5.0x 10.0x 15.0x 20.0x 25.0x 30.0x 35.0x Source: Bloomberg & ACE Equity Source: Bloomberg & ACE Equity
Particulars (in Rs Cr) FY18 FY19 FY20E FY21E Revenue 3,759.3 4,659.5 4,629.0 5,602.7 Growth (%) 20.7% 23.9% -0.7% 21.0% EBITDA 691.4 963.0 1,016.8 1,243.1 EBITDA Margin (%) 18.4% 20.7% 22.0% 22.2% Net profit 328.6 490.6 561.1 694.4 Net Profit Margin (%) 8.7% 10.5% 12.1% 12.4% EPS (Rs) 20.2 28.3 32.3 39.9
Source: Bloomberg consensus
March 2020 INSIGHT 20 STOCK PICKS
Metropolis Healthcare Ltd.
Share holding pattern as on Dec 2019 CMP: Rs 1,880 Rating: BUY Target: Rs 2,200 Company Information BSE Code 542650 NSE Code METROPOLIS Bloomberg Code METROHL IN ISIN INE112L01020 Market Cap (Rs. Cr) 9,341 Outstanding shares (Cr) 5.02 52-wk Hi/Lo (Rs.) 1950/907 Avg. daily volume (1yr. on NSE) 82,040 Face Value(Rs.) 2 Promoters 57.41% FIIs 16.58% DIIs 5.85% Others 34.98% Book Value (Rs) 97.98
Investment Rationale plenty of room for growth of orga- regional players or standalone labs. nized players since 80% of the market Formalization driven industry Volume driven growth on is catered by un-organized players. growth increased B2C focus Favorable government incentives like The industry is expected to grow at METROHL organic growth strategy tax breaks towards preventive testing 15% p.a. between FY19 & FY22, driven has been driven by consolidating its could further add to volume growth. by population above 60 years old position in its 5 focus cities (Mumbai, Besides, organized players could accounting for majority of healthcare Bengaluru, Chennai, Surat and Pune), easily pass on price hikes of ~0.5% spend. Besides, rising awareness, accounting for 54% of revenue. It p.a to cover medical cost inflation rising income and urbanization is focusing on increasing its sales despite increasing scrutiny from the leads to preference for shifting contribution from the B2C channel trend from unorganized pro- regulators and government. In short, (currently 43%) through increase in viders to organized providers in formalization in the industry will lead its collection centers and lab net- the diagnostics market. There is to market share gains of 5-7 major diagnostic chains at the cost of small works. The B2C contribution in focus
21 INSIGHT March 2020 cities of METROHL has increased Asset-light business model from 43% in FY16 to 55% by 9MFY20 METROHL works on an asset-light and is further targeted to reach model and 90.68% of the centre 65%. The company’s patient service network and 16.8% lab network is network has grown 6.6x between The Company’s asset light. Major addition in the labs FY16 and 9MFY20 and its lab network realizations are at in FY19 and 9MFY20 is through lab on grew at 8.7% CAGR between FY17 and premium compared lease model which is asset light with no capital requirement. It is working 9MFY20. This growth in B2C network to peers due to its has enabled the company to clock on the hub & spoke model and 12.8% CAGR in number of patient vis- evolving mix of expanding its third-party collection its and 9% CAGR in number of tests B2C segment and centers (currently 66% of its collec- between FY17 & FY19. For 9MFY20, higher contribution tion centers are third party). The number of patients has grown at of specialized tests company aims to establish strategic partnerships with 3rd Party Patient 15.5% yoy (after 15.6% yoy growth in (41%) to revenue. FY19) and no. of tests at 19.3% yoy. Service Centers in India, Africa and Earlier, growth for tests as well as Middle East to boost geographic patient visits for METROHL used to reach. Thus, leveraging on the lag peers. The growth in FY19 & FY20 existing infrastructure, METROHL have been after company invested will expand customer base as well as profitability matrix. Being asset-light, heavily in infrastructure together Premium realization compared has helped the company to generate with expansion of test offerings to peers ROCE of more than 45% in last three which is paying off. METROHL’s B2C METROHL’s realizations are at years. segment has thus registered 22% premium compared to peers due to sales CAGR over FY16-19 and the its evolving mix of B2C segment and Key Risks company is focusing on increasing higher contribution of specialized Government putting a cap on prices its B2C contribution further through tests (41%) to revenue. According to of medical tests (a) aggressive network expansion the company, there are few players Intensifying competition in orga- (b) strengthen Metropolis brand (c) in the specialized test segment as nized space building awareness amongst doctors market demands high accuracy and for quality & service differentiators Decline in realizations. quality parameters, thus leading (d) focus on customer experience to lower competition and high Valuation & improvement. Besides, since 79% margins on low volumes. This is in Metropolis Healthcare (METROHL) of the existing Individual patients contrast to semi-specialized tests is a dominant player in West India touch points added during FY2017-19, where there is intense competition. providing extensive coverage of tests it is a young network. According to Revenue per patient has grown at a and quality services. The industry is the company, average retail centre CAGR of 7.3% and revenue per test expected to grow at 15% p.a. between matures in five years thus enabling FY19 & FY22 driven by senior citizens, short and midterm future growth as at a CAGR of 7.9% between FY16 and urbanization, growing awareness the young network matures. FY19, while realization has remained & rising income to bring a shift in flat for peers. preference towards organized play- Government’s Metropolis Healthcare share price chart ers from inorganized players. The intention to industry is highly fragmented thus 2000 lower healthcare leading to bountiful opportunities costs could be a 1800 for growth for organized players and major deterrent thus gain market share. METROHL 1600 for METROHL to has successfully increased its increase reali- presence in B2C channel thus raising 1400 zation further, its contribution in total sales through 1200 however increas- consolidating its presence in focused ing contribution cities. This has resulted in nearly 1000 of international 16% growth in number of patients in FY19 as well as in 9MFY20, against 800 business could 8-9% CAGR earlier. Besides, the support the company earns strong realizations Jul-19 Jul-19 Jan-20 Jun-19 Oct-19 Apr-19 Feb-20 Feb-20 Sep-19 Sep-19 Dec-19 Dec-19 Aug-19 Nov-19 May-19 May-19 cause.
March 2020 INSIGHT 22 compared to peers on account of grew at 8.7% CAGR between FY17 and strong revenue growth. Asset light higher contribution of specialized 9MFY20, however 90.68% of the cen- strategy will enable to earn strong tests (41%) to revenue, where there is tre network and 16.8% lab network is free cashflows and ROCE of more less competition and higher mar- asset light. Thus, strong addition to than 45%. At the CMP, the scrip is gins. The company’s patient service patient service network will lead to trading at P/E of 48.6 based on FY21E network has grown 6.6x between volume driven growth while reali- EPS and investors are advised to BUY. FY16 and 9MFY20 and its lab network zations remains stable, resulting in
Valuation charts
PE Ratio SD 5 yr Revenue, EBITDA & PAT CAGR (%) 100 25.0 20.7 80 18.6 20.0 17.8 18.0 17.7 17.4 60 15.0 15.0 40 8.6 20 10.0 6.2 0 5.0 Jul-19 Jul-19 Jan-20 Jan-20 Jun-19 Oct-19 Apr-19 Feb-20 Sep-19 Sep-19 Dec-19 Aug-19 Nov-19 Nov-19 May-19 May-19 0.0 3 year 5 years 10 years PE Ratio Mean 1 SD+ 2 SD+ 1 SD- 2 SD- Revenue CAGR EBITDA CAGR PAT CAGR Source: Bloomberg & ACE Equity Source: Bloomberg & ACE Equity
Revenue, EBITDA & PAT Trend (Rs. Cr.) 800 29%
700 28% 600 28% 500 27% 400 27% 300 26% 200
100 26%
0 25% FY15 FY16 FY17 FY18 FY19
Revenue EBITDA PAT EBITDA Margin Source: Bloomberg & ACE Equity
Particulars (in Rs Cr) FY18 FY19 FY20E FY21E Revenue 647 761 888 1038 Growth (%) 19% 18% 17% 17% EBITDA 176 200 251 298 EBITDA Margin (%) 27.2% 26.3% 28.2% 28.7% Net profit 112 125 159 195 Net Profit Margin (%) 17.3% 16.4% 17.9% 18.8% EPS (Rs) 22.3 24.9 31.9 38.7
Source: Bloomberg consensus
23 INSIGHT March 2020 Monthly Insight Performance Since Jan-2015... Return @CAGR 21.1%
1,00,00,000 13000 1,60,00,000 Net Profit 92,28,623 Invested Capital 71,298 .1% 12000 1,40,00,000 1,00,10,615 80,00,000 : 21 Booked Profit GR -7,81,983 CA 1,20,00,000 M2M Reco 11000 60,00,000 ght Insi ka 10000 1,00,00,000 Ashi 40,00,000 6% 80,00,000 : 7. 9000 GR CA 20,00,000 ifty 60,00,000 N 8000 40,00,000 0 7000 20,00,000 -20,00,000 6000 0
-20,00,000 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 May-15 May-16 May-17 May-18 May-19 -40,00,000
Net Profit Nifty (RHS) Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19
1,20,00,000 1,60,00,000 1,36,07,205 1,40,00,000 1,00,00,000 1,20,00,000 80,00,000 99,32,126 1,00,00,000 92,28,632 76,30,250 60,00,000 80,00,000 74,58,360 1,00,10,615 94,27,736 94,27,736 60,00,000 56,68,062 56,67,598
40,00,000 83,27,045 46,91,240 79,73,368 77,86,007 40,00,000 70,35,865 20,00,000 15,65,492 32,88,584 20,00,000 10,30,564 71,73,244 72,54,125 76,30,250 78,48,553 87,95,935 89,39,933 92,28,632 0 0 71,298 1,37,380 -487803 -6,61,124 -781983 -6,31,801 -5,31,883 -3,43,118 -20,00,000 -4,78,492 -20,00,000 -22,76,367 -24,32,209 -40,00,000 Jun-18 Jun-19 Oct-19 Feb-20 Dec-17 Dec-18 Dec-19 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Oct-15 Oct-16 Oct-17 Oct-18 Oct-19 Apr-15 Apr-16 Apr-17 Apr-18 Apr-19
Booked Profit M2M Net Profit Invested Capital Net Profit
10,00,000 13000 1,60,00,000 14000 1,36,07,205 3,60,317 1,40,00,000 5,00,000 1,37,380 12000 12000 1,20,00,000 0 -1,62,882 99,32,126 11000 1,00,00,000 92,28,632 10000 -5,00,000 74,58,360 10000 80,00,000 8000 56,68,062 56,67,598 -10,00,000 -7,80,679 -781983 60,00,000 46,91,240 -9,72,137 -10,22,194 9000 6000 -15,00,000 40,00,000 15,65,492 8000 20,00,000 32,88,584 10,30,564 4000 -20,00,000 0 71,298 -25,00,000 7000 -6,61,124 2000 -23,89,498 -20,00,000 -22,76,367 -24,32,209 -30,00,000 6000 -40,00,000 0 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 Sep-15 Sep-16 Sep-17 Sep-18 Sep-19 May-15 May-16 May-17 May-18 May-19 May-15 May-16 May-17 May-18 May-19
M2M Nifty (RHS) Invested Capital Net Profit Nifty (RHS)
* All Figures quoted in Rs. Calculated as on February 25, 2020
Monthly Profit & Loss Fact Sheet (Rs.)
Date Cumm. Purchase Cumm. Sell Invested Capital Booked Profit M2M Net Profit 31-Jan-15 14,99,743 11,94,534 3,05,209 1,94,567 1,687 1,96,254 28-Feb-15 35,00,104 19,82,519 15,17,585 4,82,540 -84,363 3,98,177 31-Mar-15 50,00,125 26,06,961 23,93,164 6,06,713 2,153 6,08,866 30-Apr-15 64,98,467 32,20,161 32,78,306 7,20,155 -305,719 4,14,436 31-May-15 85,00,103 32,20,161 52,79,942 7,20,155 -186,615 5,33,540 30-Jun-15 94,98,351 38,30,289 56,68,062 8,30,507 -522,724 3,07,783 31-Jul-15 1,04,98,441 49,94,743 55,03,698 9,95,421 -264,246 7,31,175 31-Aug-15 1,24,98,538 73,20,667 51,77,871 13,24,055 -773,213 5,50,842 30-Sep-15 1,34,98,520 78,97,102 56,01,418 14,00,450 -780,679 6,19,771
March 2020 INSIGHT 24 Date Cumm. Purchase Cumm. Sell Invested Capital Booked Profit M2M Net Profit 31-Oct-15 1,49,98,356 84,96,740 65,01,617 15,00,130 -672,895 8,27,235 30-Nov-15 1,69,98,207 91,31,045 78,67,162 16,34,635 -459,534 11,75,101 31-Dec-15 1,84,99,539 97,24,727 87,74,812 17,28,374 -162,882 15,65,492 31-Jan-16 2,04,99,267 97,24,727 1,07,74,540 17,28,374 -1,060,517 6,67,857 29-Feb-16 2,19,98,859 97,24,727 1,22,74,132 17,28,374 -2,389,498 -661,124 31-Mar-16 2,29,98,953 1,02,74,627 1,27,24,326 17,78,684 -1,418,637 3,60,047 30-Apr-16 2,44,98,932 1,08,91,727 1,36,07,205 18,94,624 -360,458 15,34,166 31-May-16 2,59,98,802 1,27,08,377 1,32,90,425 22,11,432 -592,098 16,19,334 30-Jun-16 2,79,99,211 1,56,56,886 1,23,42,325 26,60,091 -474,186 21,85,905 31-Jul-16 2,99,99,295 1,90,79,602 1,09,19,693 30,82,495 -320,478 27,62,016 31-Aug-16 3,19,98,929 2,25,99,608 93,99,321 36,01,912 -33,118 35,68,794 30-Sep-16 3,39,98,878 2,32,31,358 1,07,67,520 37,33,677 2,96,354 40,30,030 31-Oct-16 3,49,99,176 2,78,28,450 71,70,726 43,30,924 3,60,317 46,91,240 30-Nov-16 3,69,99,780 2,84,07,630 85,92,150 44,09,716 -485,009 39,24,707 31-Dec-16 3,84,99,454 2,85,67,328 99,32,126 40,69,376 208 40,69,583 31-Jan-17 3,89,99,646 2,93,94,237 96,05,409 43,96,278 2,22,201 46,18,479 28-Feb-17 3,99,99,781 3,24,91,028 75,08,754 49,92,561 4,84,857 54,77,418 31-Mar-17 4,09,99,777 3,49,41,959 60,57,819 54,43,298 -102,933 53,40,366 30-Apr-17 4,20,00,725 3,87,12,142 32,88,584 62,13,798 -456,663 57,57,135 31-May-17 4,30,00,437 3,97,02,672 32,97,766 62,04,033 -804,068 53,99,965 30-Jun-17 4,39,90,169 3,97,02,672 42,87,498 62,04,033 -588,399 56,15,634 31-Jul-17 4,49,90,144 4,13,93,631 35,96,514 63,94,761 -471,432 59,23,329 31-Aug-17 4,59,90,158 4,19,72,705 40,17,454 64,73,915 -790,213 56,83,702 30-Sep-17 4,69,90,313 4,25,71,065 44,19,249 65,72,217 -972,137 56,00,081 31-Oct-17 4,79,90,506 4,37,99,505 41,91,002 68,00,707 -319,186 64,81,522 30-Nov-17 4,89,90,509 4,59,40,501 30,50,008 69,39,476 -346,096 65,93,380 31-Dec-17 4,99,90,486 4,80,36,957 19,53,529 70,35,865 1,37,380 71,73,244 31-Jan-18 5,09,90,422 5,32,66,790 -2,276,367 77,65,987 -307,628 74,58,360 28-Feb-18 5,19,90,666 5,32,66,790 -1,276,123 77,65,987 -573,084 71,92,903 31-Mar-18 5,29,91,822 5,42,97,992 -1,306,169 77,98,249 -840,665 69,57,585 30-Apr-18 5,34,91,542 5,42,97,992 -806,449 77,98,249 -438,957 73,59,293 31-May-18 5,44,91,494 5,52,72,670 -781,175 77,71,982 -476,829 72,95,153 30-Jun-18 5,59,96,005 5,62,87,026 -291,020 77,86,007 -531,883 72,54,125 31-Jul-18 5,70,00,981 5,80,19,478 -1,018,496 80,13,707 -396,585 76,17,122 31-Aug-18 5,80,01,156 5,89,97,678 -996,521 79,87,347 72,061 80,59,409 30-Sep-18 5,95,01,757 6,05,97,670 -1,095,912 80,97,722 -698,678 73,99,045 31-Oct-18 6,05,01,621 6,05,97,670 -96,048 80,97,722 -858,859 72,38,864 30-Nov-18 6,15,05,096 6,05,97,670 9,07,427 80,97,722 -759,361 73,38,362 31-Dec-18 6,25,04,713 6,14,74,150 10,30,564 79,73,368 -343,118 76,30,250 31-Jan-19 6,40,01,227 6,31,16,076 8,85,151 81,12,240 -506,714 76,05,527 28-Feb-19 6,50,05,268 6,37,05,576 12,99,693 82,01,844 -1,022,194 71,79,650 31-Mar-19 6,60,03,813 6,41,17,860 18,85,954 81,14,048 -515,272 75,98,777 30-Apr-19 6,75,10,214 6,46,99,607 28,10,607 81,91,434 -736,603 74,54,831 31-May-19 6,85,06,521 6,52,76,294 32,30,227 82,63,782 -491,967 77,71,815 30-Jun-19 7,00,00,586 6,58,33,084 41,67,503 83,27,045 -478,492 78,48,553 31-Jul-19 7,15,00,682 6,58,33,084 56,67,598 83,27,045 -913,010 74,14,035 31-Aug-19 7,24,99,798 6,89,98,570 35,01,228 84,89,393 -712,510 77,76,883 30-Sep-19 7,35,01,670 7,29,60,834 5,40,836 89,50,068 -479,377 84,70,691 31-Oct-19 7,50,13,690 7,74,45,899 -2,432,209 94,27,736 -631,801 87,95,935 30-Nov-19 7,65,05,895 7,74,45,899 -940,004 94,27,736 -599705 88,28,031 31-Dec-19 7,80,06,806 7,74,45,899 5,60,907 94,27,736 -487803 89,39,933 31-Jan-20 7,95,12,470 7,86,47,487 8,64,983 97,19,381 -540830 91,78,551 25-Feb-20 8,10,12,745 8,09,41,447 71,298 1,00,10,615 -781983 92,28,632 *Booked Profit = Profit booked after target achieved **M2M = Open position marked to market as on date ***Net profit = Booked Profit + M2M P/L ****Invested Capital = Stock investment as recommended (minus) Stock sold on target *****Calculation based on Rs. 5 lac invested on each stock recommended in our monthly insight on release date ******All Figures quoted in Rs. ****** Calculated as on February 25, 2020
25 INSIGHT March 2020 Monthly Insight Recommendation Performance Sheet
Script Buying QTY Bought Value Target Target Booked on Booked Value Profit Return Holding Annu- Date Rate Price Return Price till date Days alised Return
Britannia Industries Ltd. 02-Mar-20 169 2962.0 500578 3400 14.8%
Aarti Industries Ltd. 02-Mar-20 510 980.0 499800 1177 20.1%
Metropolis Healthcare Ltd. 02-Mar-20 266 1880.0 500080 2200 17.0%
Bajaj Finance 03-Feb-20 115 4305.9 495177 5000 16.1%
Gujarat State Petronet 03-Feb-20 2040 245.8 501493 300 22.0%
Granules India 03-Feb-20 3600 139.6 502632 170 21.8% 07-Feb-20 164.21 591156 88524 17.6% 4 1607%
Concor 01-Jan-20 868 575.0 499091 665 15.7%
Mahanagar Gas 01-Jan-20 475 1066.2 506426 1164 9.2% 23-Jan-20 1162 551950 45524 9.0% 22 149%
SIS 01-Jan-20 1020 490.3 500147 568 15.8% 07-Feb-20 559 570119 69972 14.0% 37 138%
HDFC Life 02-Dec-19 875 571.0 499608 680 19.1%
Dr. Reddy’s Lab 02-Dec-19 171 2922.9 499818 3503 19.8%
Just Dial 02-Dec-19 875 570.5 499170 750 31.5%
IRCTC 01-Nov-19 561 892.5 500709 1170 31.1% 30-Jan-20 1158 649638 148929 29.7% 90 121%
PI Industries 01-Nov-19 350 1432.4 501323 1613 12.6% 07-Feb-20 1612 564109 62787 12.5% 98 47%
Procter & Gamble 01-Nov-19 40 12324.6 492982 14078 14.2% Hygiene
HDFC Bank 01-Oct-19 405 1235.1 500212 1395 12.9%
Indian Hotels 01-Oct-19 3130 159.9 500595 179 11.9%
Siemens 01-Oct-19 330 1549 511213 1680 8.4% 23-Oct-19 1689 557420 46207 9.0% 22 150%
Gujarat Gas 01-Sep-19 2800 179 501501 200 11.7% 30-Oct-19 200 560000 58499 11.7% 59 72%
Hindustan Unilever 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%
City Union Bank 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%
Sanofi India 01-Jul-19 87 5740 499387 6775 18.0% 29-Oct-19 6678 581029 81641 16.3% 120 50%
Asian Paints 01-Jun-19 346 1445 499797 1560 8.0% 02-Aug-19 1549 535985 36188 7.2% 62 43%
Axis Bank 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%
March 2020 INSIGHT 26 Script Buying QTY Bought Value Target Target Booked on Booked Value Profit Return Holding Annu- Date Rate Price Return Price till date Days alised Return
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%
Page Industries 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%
Indraprastha Gas 01-Jan-19 1850 273 504362 315 15.5% 08-Apr-19 314 581748 77386 15.3% 97 58%
United Spirits 01-Jan-19 800 623 498624 735 17.9% 14-Feb-20 711 568576 69952 14.0% 409 13%
Berger Paints 01-Dec-18 1567 319 499873 369 15.7% 29-Aug-19 369 578223 78350 15.7% 271 21%
Cummins India 01-Dec-18 644 776 499744 889 14.6% 16-Jan-19 889 572516 72772 14.6% 46 116%
Dabur 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%
ABB India 01-Sep-18 378 1322 499716 1510 14.2% 14-Sep-18 1510 570780 71064 14.2% 13 399%
Bharat Forge 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%
Cipla 01-Aug-18 800 625 500000 715 14.4%
Marico 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 01-Jul-18 51 9900 504900 11100 12.1% 17-Jul-18 11100 566100 61200 12.1% 16 277% Hygiene
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%
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%
Voltas 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%
Hindustan Copper 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%
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%
27 INSIGHT March 2020 Script Buying QTY Bought Value Target Target Booked on Booked Value Profit Return Holding Annu- Date Rate Price Return Price till date Days alised Return
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%
Deepak Nitrite 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%
Natco Pharma 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%
Federal Bank 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%
Tata Power 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%
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%
March 2020 INSIGHT 28 Script Buying QTY Bought Value Target Target Booked on Booked Value Profit Return Holding Annu- Date Rate Price Return Price till date Days alised Return
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%
Castrol India 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%
Maruti Suzuki 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%
Sun pharma 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%
Tata Motors 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%
Emami 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%
29 INSIGHT March 2020 MANAGEMENT MEET NOTE
Phillips Carbon Black Ltd.
Company Information 2. 20% is used in other rubber products BSE Code 506590 3. Remaining 7% is specialty carbon black used in NSE Code PHILIPCARB non-rubber applications such as automotive, plastics, Bloomberg Code PHCB IN inks dyes, pigments etc. ISIN INE602A01023 Company has 60+ grades of carbon black products in its Market Cap (Rs. Cr) 1,963.8 portfolio.
Sector Carbon Black It operates through 4 manufacturing plants in India and Promoter Holding 53.56% each plant has captive power plant. Outstanding shares (Cr) 17.23 Of the total power generated, company used 40% 52-wk Hi/Lo (Rs.) 184.4/105.8 captive and 60% it sales to external. In West Bengal it sells Avg. daily volume (1yr. on NSE) 854,400 power to its group company CESC. Face Value (Rs.) 2 Power accounts nearly 5% of total turnover, while rest Book Value (Rs) 106.9 95% come from Carbon black segment.
Meeting pointers Profit from power segment is tax exempted, thus PCBL’s total tax rate is lower at 24-25%. Phillips Carbon Black ltd (PCBL) is a part of RPG Group and largest carbon black manufacturers in India by Its power units will enjoy 3 more years of tax holidays. capacity and 7th largest carbon black company globally. Its existing carbon black capacity of 5.71 lakh tone is Company aims to be 6th largest in the World by 2023 running at 85% utilization rate. after commissioning of its upcoming projects (32,000 3 years back company has done debottlenecking their mtpa of specialty carbon black and 1,50,000 mtpa of existing plants, then went for brownfield expansion, and Carbon black). are now planning on greenfield expansion. Revenue mix: Domestic accounts 70% of total revenue In Palej, Gujarat, company has set up 32,000 mtpa and export contributes 30%. specialty carbon black facility which will be commissioned PCBL is the largest carbon black exporter from India on Q2FY21. with presence in 37 countries. PCBL is also planning for greenfield expansions of Industry application 150,000 mtpa of carbon black plant in other parts of coun- 1. 73% of carbon black globally is used in tyres. try which is expected to be commercialized by 2022-23.
March 2020 INSIGHT 30 Existing Installed Expansion (tonne) Date of Total installed capacity capacity (tonne) Commercialization after expansion (tonne) Carbon black 571,000 150,000 2022-23 721,000 Specialty Carbon black 40,000 32,000 2QFY21 72,000
Company will incur a capital outlay of Rs 600 crore for Company is focusing on moving up to the value chain new projects of which Rs 500 crore will be invested in and producing more value-added products where the first 2 years and balance in 3rd year. margins are comparatively higher and also to mitigate the competition from China & Russia. For FY19 total gross debt in balance sheet was Rs 790 crore and for FY20, company will end up with total gross Current carbon black demand in domestic market is debt in range between Rs 500-600 crore. nearly 1.1 million tonne and other players like Himadri Chemicals are adding capacity to meet up the demand. Company has the ability to generate adequate cash flows which help it in keeping gearing ratio at very In domestic market, MRF, JK Tyre, Apollo tyre, Ceat, etc comfort level at 0.3x - 0.4x. are the key clients for PCBL.
In order to insulate from domestic auto slowdown, Globally auto is a large-scale industry with market size company is focusing on export market and increasing its of around USD 2 trillion dollar. Tyre industry demand is market share in existing market. Company’s long-term mainly coming from replacement market which is very plan for geographical revenue mix to be 60% domestic huge. and 40% export (existing 70% domestic and 30% export). Auto manufacturers are now shifting their manufactur- Ongoing auto slowdown impact the overall demand ing facilities to Asian countries and Eastern Europe. of carbon black. The impact is visible from slowdown PCBL is now totally focused on domestic operations and and management is moderating the strategies according as per management, if the opportunity comes company to the situation. Thus, to mitigate the risk company is will do the acquisition abroad. focusing on export market and intent to increase market share in other markets. Roll out of Electric vehicles will not have much impact on Auto sector. In manufacturing of battery for EV there As per management, domestic auto sector is already is a requirement of specialty carbon black as raw mate- bottomed out and not much decline in demand is rials. PCBL is working to produce that grade of specialty expected from current level. Time should be given to carbon black and is partially achieved. economy to stabilize after massive disruption from demonetization and GST roll out. Tata chemicals recently brought the Silica business from Allied Silica for Rs 123 crore. Silica is a versatile Company’s group company Ceat ltd accounts nearly product which find applications in many industries 10-12% of its total production. PCBL maintains arm’s including rubber, oral care, coatings and agrochemicals. length distance with Ceat tyre. Carbon black and Silica has differ- Anti-dumping duty on carbon ent chemical properties & appli- black from China will expire on cations and silica will not replace November 2020. Company will carbon black in their respective approach to the administration for industries. Both Silica and Carbon the extension of anti-dumping duty China coronavirus black uses will grow. so to avoid unfair trade and very impact is big much optimistic that concerned affecting PCBLs China’s Coronavirus department is likely to impose the customers. Wuhan impact on business duty again on imports from China in China has the performance and Russia. China coronavirus impact is big largest carbon As per management, company affecting PCBLs customers. Wuhan doesn’t depend on anti-dumping black capacity. in China has the largest carbon black duty as they need to be efficient so Toyota has the capacity. Toyota has the largest that company can compete with largest facility in facility in Wuhan. other players globally. Wuhan. Hubei in China is the largest prov- Currently the anti-dumping duty is ince for manufacturing companies. USD 400 per tonne. China coronavirus issue is hurting
31 INSIGHT March 2020 the supply of other raw materials required for manufac- On the research centers, PCBL is focusing on improve- turing tyres, thereby indirectly affecting PCBL’s demand. ment of Process and Machine Technology, Yield Improve- ment, Feedstock Efficiency, Customization of Grades and Prolonged plant shutdown in China on wake of New Product Development. coronavirus threat which will disrupt raw mate- rials supply might force tyre makers to undertake A new R&D center is opening up in Vadodara, Gujarat production cut in coming months. Thus, it can with manpower of 25 scientists. turn out to be negative for PCBL’s carbon black 2nd R&D center is coming up in Belgium in next 2 demand. months, with manpower strength of 25 foreign scientists.
Raw materials & Pricing Outlook Carbon black feed stock is the main raw material for Globally, the demand for carbon black is growing at manufacturing carbon black and PCBL imports nearly 4-5% annually. 80-85% of raw material from US. Management is expecting volume CAGR of 7-8% in next In past company used Carbon black oil as raw materials 5 years. and used to import from China when the price was com- mercially viable. Currently the spread between the price Current Gross margin is around 25-30% which is of carbon black oil & carbon black feed stock has widened improving every year. with carbon black feed stock become cheaper. Management is expecting EBITDA per tonne from Rs For tyre manufacturers, carbon black as raw material 12,000 to improve by 15-20% in next 5 years. accounts nearly 13-15% of total raw material costs. As per management, EBITDA margin is not the right On pricing front, company does the formula-based parameter to look into as the margin was never stable due pricing where any raw materials volatility or higher over- to volatility in raw materials, currency fluctuations and head costs are passed on to its end customers. Pricing is overhead costs. done on quarterly basis and any price change is passed to EBITDA performance is depending on below four customer with 1 quarter lag. variables
So, any benefit received from lower crude oil prices • Manufacturing efficiencies (as its raw material is crude derivatives) is passed on to customers with 1 quarter lag. • Input/output ratio
Formula based pricing are based on 4 variables • Widening of product portfolio (60+ grades of product), moving up the value chain and customized products • Raw materials • Labour cost • Operating leverage. • Freight Company has the ability to generate adequate cash • Currency fluctuations flows and company is utilizing the cash flows in reducing the debt or capital expenditure or either paying dividends Management clarified that there is wrong perception to shareholders. that carbon black is a polluted industry, whereas com- pany is not getting any complain from any plant related to Company is generating RoCE of 17-20%. pollution. As per management, there will be no pollution FY20 has not been a good year for the company amid if the plant run efficiently and adhere to the stipulated slowdown in auto sector and weak demand from other environmental norms. industries.
Company is successfully running the plant in Kochi PCBL is increasing its presence in international market which is known to be most sensitive to environmental in order to circumvent the domestic auto slowdown. As pollution. per management, globally the growth potential for carbon Company is using the waste gas produce in the plant black is immense. to generate power, which company use it for captive Company’s current cash conversion cycle is around 100 purpose and rest sell to external. days. Research & Development Of total gross debt, Rs 270 crore is long term debt and In last 2 years company has been investing in R&D cen- rest Rs 330 crore is working capital loan. ters and a new R&D center to be ready in next 6 months.
March 2020 INSIGHT 32 Fiscal Year to 31 March Particulars 201903 201803 201703 201603 201503 201403 Inc / Exp Performance Gross Sales 3,528.6 2,611.3 2,131.3 2,115.5 2,711.4 2,530.5 Total Income 3,550.5 2,590.7 1,964.6 1,932.0 2,484.4 2,300.0 Total Expenditure 2,914.4 2,185.1 1,687.8 1,750.3 2,319.2 2,253.2 PBIDT 636.1 405.6 276.8 181.7 165.2 46.8 PBT 532.9 303.6 164.7 47.4 12.1 (88.0) PAT 382.7 229.6 68.7 15.9 10.4 (86.9) Cash Profit 449.1 290.1 129.3 78.1 68.7 (32.3) Sources of Funds Equity Paid Up 34.5 34.5 34.5 34.5 34.5 34.5 Net Worth 1,649.9 1,377.6 1,130.7 1,044.8 507.2 501.3 Total Debt 793.4 717.3 758.2 1,021.7 1,219.7 1,086.6 Capital Employed 2,443.3 2,094.9 1,888.9 2,066.6 1,726.9 1,587.9 Application of Funds Gross Block 1,742.0 1,575.0 1,505.8 1,478.0 1,325.7 1,306.1 Investments 366.6 320.2 295.3 228.1 85.6 38.2 Cash and Bank balance 115.5 172.6 24.5 51.9 12.9 10.9 Net Current Assets 212.0 (67.2) (183.1) (265.5) (220.2) (142.2) Total Current Liabilities 1,562.8 1,327.0 1,211.5 1,311.9 1,255.1 1,299.2 Total Assets 3,747.2 3,103.4 2,743.5 2,719.9 2,128.7 2,241.6 Cash Flow Cash Flow from Operations 289.9 292.6 346.4 422.0 35.3 (149.5) Cash Flow from Investing activities (277.5) (34.3) (35.9) (121.5) (67.9) (36.3) Cash Flow from Finance activities (70.4) (109.9) (337.1) (261.6) 33.6 122.0 Free Cash flow (4.5) 87.0 198.0 313.0 (98.0) (248.3) Key Ratios Debt to Equity(x) 0.5 0.5 0.7 1.0 2.4 2.2 Current Ratio(x) 1.1 0.9 0.8 0.8 0.8 0.9 ROCE(%) 25.1 17.3 10.9 6.3 6.4 (0.5) RONW(%) 25.3 18.3 6.3 2.1 2.1 (16.0) PBIDTM(%) 18.0 15.5 13.0 8.6 6.1 1.8 PATM(%) 10.8 8.8 3.2 0.8 0.4 (3.4) Market Cues Close Price (Unit Curr.) 176.7 217.5 66.0 19.1 26.2 11.3 Market Capitalization 3,044.4 3,747.7 1,137.4 329.0 451.9 195.3 Adjusted EPS 22.3 13.3 4.0 0.9 0.6 (5.0) CEPS 26.1 16.8 7.5 4.5 4.0 (1.9) Enterprise Value 3,722.3 4,292.4 1,871.1 1,298.9 1,658.8 1,271.0 Valuation Ratios Adjusted PE (x) 7.9 16.4 16.4 20.2 42.4 - PCE(x) 6.8 12.9 8.8 4.2 6.6 (6.0) Price / Book Value(x) 1.8 2.7 1.0 0.3 0.9 0.4 Dividend Yield(%) 2.0 1.1 1.8 2.6 0.8 - EV/Net Sales(x) 1.1 1.7 1.0 0.7 0.7 0.6 EV/EBITDA(x) 5.9 10.6 6.8 7.1 10.0 27.2 M Cap / Sales 0.9 1.5 0.6 0.2 0.2 0.1
Source: ACE Equity
33 INSIGHT March 2020 ECONOMY REVIEW
Economy review The deadly novel coronavirus (COVID-19) epidemic which has claimed more than 2,762 lives and infected more than 80,000 people worldwide has brought key industries globally to a grinding halt.
hina, the epicenter of the outbreak, is a minimal cases of spreading internationally, particularly in major player in the global supply chain Asian region. However, new reports of escalation in num- accounting for ~11% share of glob- ber of cases in South Korea, Italy and Iran are bad news al imports, ~13% in global exports and and more importantly the World Health Organization Caccounting for ~20% of global GDP at purchasing (WHO) is worried with growing number of cases outside power parity. The disruption in global supply chain China without any clear link to the epicentre of the out- is inevitable considering that China accounts for 28% of break in China. Besides, the new cases reported in single global manufacturing output and is currently the top sup- day in China refuses to stay low and keeps cropping up plier of goods for over 100 countries. For the time being despite change in counting methodology. Unless the rate it is widely expected that China’s GDP could decelerate of infections slowdown somewhere within this month, the by 1-1.25 percentage point over 2020 due to halting of slowdown in China could linger for more than one quarter. economic activities in key production centers. In fact, the To support economy, China will have to provide support Chinese authorities have also eased lockdown conditions through both fiscal and monetary policies. People’s Bank of in Wuhan, the epicenter of the virus in China which alone China (PBOC) has already injected through various chan- accounted for 95% of global deaths. However, majority of nels together with lowering interest rates. The economists economists opine that global markets are so far pricing also expect the government to open fiscal taps as well and in a scenario which is rather ‘good’ or which is expected accelerate issuance of local government special bonds, to see a quick stabilization of the situation in China with and the central government fiscal deficit will also widen as
March 2020 INSIGHT 34 needed to ensure the economy gets the Confederation of Indian Industry back on track. This exercise however (CII), submitted to the Centre, China comes at a cost and will raise debt supplies 43% of India’s imports of the ratios of Chinese firms and detrimen- top 20 goods, that India buys from tal to the asset quality for Chinese India has a higher the coronavirus-affected country, in- banks as well. The global economic import dependence cluding mobile handsets ($7.2 billion growth is hampered as well since on China since import from China), computers ($3 China has become a critical driver of 14% of India’s total billion), integrated circuits, and other global economic growth. According to inputs ($7.5 billion), fertilisers ($1.5 Rabobank research, sensitivity of the imports are from billion), APIs ($1.4 billion) and antibi- world economy to China’s growth rate China. Industries otics ($1.1 billion). Industry represen- was 0.17 between the 1980s and 2000, such as Electrical tatives have requested to the finance which has almost tripled to 0.47 in the machinery, minister for reduction in customs last 15 years. As for India is concerned, Organic chemicals, duties if raw materials like active it certainly cannot escape unscathed, pharmaceutical ingredients (APIs) however so far has been largely machinery & were to be airlifted to India. How- immune to the partial shutdown in mechanical ever, Finance minister has assured China. Although, in the event of a pro- appliances, plastics, that measures would be announced longed shutdown it would have signif- optical & surgical “soon”, after consultations with the icant impact on sectors ranging from instruments have Prime Minister’s Office. Question automobiles, pharmaceuticals, chemi- remains as how big an impact would cals, consumer durables, metals, oil & heavy dependence the COVID-19 have on the already gas, solar power and IT sector as well. on Chinese imports. ailing economic growth and on the India has a higher import dependence rising inflation levels in India? The on China since 14% of India’s total Monetary Policy Committee (MPC) imports are from China. Industries of RBI on 6th February 2020 kept the such as Electrical machinery, Organic policy repo rate under the liquidity chemicals, machinery & mechanical adjustment facility (LAF) unchanged appliances, plastics, optical & surgical instruments have at 5.15% and also decided to continue with the accommo- heavy dependence on Chinese imports. At the same time dative stance as long as it is necessary to revive growth, India has lower export dependency on China since only 5% while ensuring that inflation remains within the target. of Indian exports go to China. GDP growth for H1FY21 has been trimmed and expected to be in the range of 5.5-6% from 5.9-6.3% from December Top five imports from China (%) for FY19 2019 policy. Although, the RBI has mentioned of negative implications from tourist arrivals and global trade from Electrical machinery 29% breakout of the coronavirus, nothing adverse has been mentioned in the RBI MPC minutes whether be it to- Machginery & mechanical 19% appliances wards economic growth or inflation. The IMF has however stated its view that the coronavirus poses risks to a fragile Organic chemicals 12% global economic recovery. RBI has mentioned in its MPC minutes that “on the verge of the coronavirus outbreak, Plastics 4% growth in the Economic Cycle Research Institute’s (ECRI’s) 21-Country Long Leading Index, a harbinger of Fertilizers 3% global economic activity, entered a mild cyclical upturn consistent with global growth prospects posting patchy Note: as % of India’s imports from China progress”. This confirms for a nascent recovery in global Source: Department of Commerce industrial growth. RBI further stated that “it is notable that the coronavirus epidemic is not yet tipping global industrial growth into a fresh cyclical downturn. Howev- Krishnamurthy Subramanian, the chief economic adviser er, this has to be monitored closely to gauge the possible of India in an interview has opined that the virus poses impact of the epidemic on global growth”. Dr. Janak Raj, risks to a nascent recovery in India. According to him one of the members of MPC is of the view that rising “There are some green shoots, but I would be cautious- input costs has led to higher output prices, despite limited ly optimistic.” He further added that “There are known pass-through from corporates. However, global com- unknowns and unknown unknowns. It’s hard to model modity prices, especially of crude oil and metals declined unknown unknowns.” The Finance Minister has also con- sharply towards end-January in anticipation of slowdown veyed that steps would be taken to address the shortage in global demand due to the outbreak of coronavirus. This of raw materials for the affected sectors which sources may help mitigate some of the input price pressures wit- raw materials from China. According to an analysis by
35 INSIGHT March 2020 nessed in the recent period, feels Dr. and eventually tapering off to 3.2% by Raj. However, he also feels that if the Q3FY21, within RBI’s comfort level of epidemic prolongs itself and spreads, 4%. Nearly 35% of the CPI basket will there will be ramifications for the be moved by the global commodity global economy and its net impact Overall, RBI expects prices, particularly food articles. In on the Indian economy might be CPI inflation to scale fact, international food prices are negative even if oil and other global ~6.5% in Q4FY20, also on an uptrend and global food commodity prices decline. Thus, in inflation stood at 6.99% in Dec 2019, the interim, India has limited risks 5.4-5% for H1FY21 after 5.97% clocked in November from COVID-19 unless contagion and eventually 2019. Thus, either way the trend will spreads to other Asian nations in the tapering off to 3.2% be the same. However, categories form of global pandemic and unless by Q3FY21, within like Household goods and services rate of infections fails to decline. & Personal care and effects together RBI’s comfort level accounting for ~8% weight in CPI The adverse effect on the Indian index would be affected by COVID-19 economic growth will thus only be of 4%. induced increase in prices of articles. quantifiable if the virus persists at Thus, in a way, core inflation could be this rate of infection for very long. On impacted more than the general price the current account and particularly levels as the prices of electronics and on trade front, the reactions will be consumer durables could increase. mixed. For instance, 14% of India’s exports are mineral fuels, mineral oils and products of their distillation together with another ~5% for iron & Price levels in India 10 steel & related articles and 1.6% for aluminium & related articles. Since commodity prices are down since January 7.6 8 2020 particularly for crude related items and metals - aluminium, zinc, steel etc and hence more than 20% of 6 Indian exports will be impacted. Gold prices are however 4.1 up ~8.6% month on month and will provide some cush- 4 ion to ~12% of Indian exports. Now, for the imports, ~32% of the same are oil imports and will benefit with lower 2 oil prices. However, the advantage ends over there and economists are of the view that for the remaining ~68% 0 of imports whether it be inputs or raw materials, it is ex- Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-14 Jan-15 Jan-16 Jan-17 Jan-18 Jan-19 Jan-20 pected to be priced higher. More, importantly, out of this Jan-14 Core Inflation (%) CPI Inflation (%) 68% imports, 14% is accounted from china alone and is Source: RBI, Ashika Research expected to witness higher prices. Thus, considering that the import volumes are not significantly hampered, trade balance is expected to worsen since the benefits of lower Weights in combined CPI Index (%) oil & related prices will be overshadowed by inflationary Food and beverages 45.86 impact on 68% of imports. Pan, tobacco and intoxicants 2.38 The CPI inflation in India has recently been led by vegeta- ble inflation and more particularly blamed on to onions, Clothing and footwear 6.53 however significant growth can be visible in cereals, puls- Housing 10.07 es, milk, sugar too. While vegetable prices may be cyclical and may come off, the inflation in other non-vegetable Fuel and light 6.84 food items is likely to taper-off with a lag. CPI for January Miscellaneous 28.31 20 stood at 7.6%, impacted by low base and core inflation which also inched higher to 4.1% (due to telecom tariff hike Household goods and services 3.80 and higher prices in personal care). RBI in its MPC howev- Health 5.89 er expects food inflation to soften from the high levels of December 2019 and more pronounced by Q4FY20 as onion Transport and communication 8.59 prices fall rapidly in response to arrivals of late kharif Recreation and amusement 1.68 and rabi harvests. However, expects the recent pick-up in prices of non-vegetable food items, (specifically in milk Education 4.46 due to a rise in input costs, and in pulses due to a short- Personal care and effects 3.89 fall in kharif production), to sustain. Overall, RBI expects Source: MOSPI CPI inflation to scale ~6.5% in Q4FY20, 5.4-5% for H1FY21
March 2020 INSIGHT 36 Year-on-Year global inflation for major groups/sub-groups (%) Dec-18 Jan-19 Feb-19 Mar-19 Apr-19 May-19 Jun-19 Jul-19 Aug-19 Sep-19 Oct-19 Nov-19 Dec-19 Energy -7.0 -13.2 -3.9 -1.2 -2.0 -10.9 -19.6 -18.4 -22.1 -23.0 -26.8 -8.9 5.9 Non-energy -4.1 -6.7 -6.4 -6.0 -7.5 -9.6 -5.7 -1.6 -4.1 -1.8 -2.4 1.4 3.8 Agriculture -2.6 -3.9 -5.5 -7.6 -9.1 -10.5 -4.7 -3.3 -4.8 -2.0 -1.3 4.2 6.0 Beverages -3.6 -3.7 -6.2 -11.9 -11.4 -12.6 -5.1 -1.7 -2.2 1.6 -1.8 3.6 10.0 Food -2.4 -4.0 -5.9 -8.3 -10.5 -12.3 -5.6 -3.6 -4.5 -1.7 -0.1 6.0 7.0 Raw Materials -2.7 -3.7 -4.3 -3.7 -4.1 -4.4 -1.8 -3.3 -6.7 -4.5 -4.4 -0.3 1.5 Fertilizers 20.6 15.1 9.2 7.7 7.8 9.1 11.1 1.6 -3.4 -10.2 -11.8 -19.4 -18.8 Metals & Minerals -9.6 -14.4 -9.6 -4.0 -5.6 -9.4 -9.7 1.6 -2.7 -0.2 -3.7 -1.7 1.8 Precious Metals -2.5 -4.2 -1.7 -2.8 -4.6 -3.1 3.4 11.8 23.0 26.1 22.4 20.1 17.9 Source: Monthly Economic report
While experts are trying to draw references from the An article by economists C.P. Chandrasekhar and Jayati SARS-Coronavirus which lasted from November 2002 Ghosh titled “No Escape from Low Growth” has stressed to July 2003, it would be inadequate since death toll on the fact that the world economy is already trapped of the COVID-19 has exceeded that of SARS and more in a low rate of growth particularly for the developed importantly uncertainty on its containment prevails. By nations. In the European Union, crisis intensified with a the time it had run its course, SARS infected 8,098 people delay, taking the form of a sovereign debt crisis and with and claimed 774 lives in total, a 9.6% mortality rate. In Germany also now on a decelerated path, the sustenance contrast, the coronavirus epidemic isn’t over yet and of an economic revival if at all is questionable. Japan is is expected to have low mortality rate. According to an probably the one developed nation where growth rates article in CNN, a U.S.-Canadian team at Laval University have been dismal and close to ‘zero’ levels, all through in Quebec projects total coronavirus cases “might reach a out after the global financial crisis. After intervention cumulative 550,000 cases in Wuhan” alone. Sadly, that is by the Treasury and the Federal Reserve stimulus the best-case scenario and in worst-case model projects packages, the U.S economy visibly recovered but only 4.4 million could be infected by the time the epidemic to fall back and stuck in a slow lane in the more recent is over. The researchers warn that COVID-19 “almost quarters. And lastly, the global growth concerns have certainly cannot be contained and we must prepare for been compounded after the engines of growth, China and a pandemic.” A 2004 paper by two economists published India failed to deliver miserably. The authors state that in Asian Economic Papers (MIT Press) estimated the “The perception that these economies were decoupled global economic loss to SARS was $40 billion. The from the rest of world and would compensate for poor or article questions if 8,098 SARS infections caused $40 indifferent performance elsewhere, has turned out to be billion in economic losses, how much damage would wrong.” However, it needs to be remembered that China 550,000 – 4.4 million coronavirus planned for it when it announced infections cause? Extrapolating for transition from manufacturing- with the SARS cases, economic driven economy to one that is loss for Coronavirus could be $2.7 services and consumption-led. In trillion. Thus, in all probabilities, the fact, the plans for China have been economic loss could be higher than By the time it had coming off very well. The slowdown ~40 billion and economic impact was thus supposed to be smooth and could be devastating on the Chinese run its course, calculated one, however, in between economy. During SARS, PBOC SARS infected 8,098 the trade war between US & China urged banks to guarantee loans to people and claimed businesses manufacturing and selling 774 lives in total, just made the smooth path uneven. equipment and medicines used in For India, however, brakes on growth a 9.6% mortality rates have been applied with the the fight against the virus. Besides, rate. In contrast, funds were made available to sectors implementation of demonetization, such as aviation, retail and tourism, the coronavirus followed up by GST. Thus, the companies and towards healthcare. epidemic isn’t over formalization of the economy is The PBOC would probably have to yet and is expected bound to pass through low rates of prepare for an even bigger scale. to have low mortality growth. Although, the world is unsure rate. The developed nations in a bid to whether fresh doses of liquidity from prop up growth has relied heavily central banks would be adequate on monetary policy and lowering anymore.
37 INSIGHT March 2020 interest rates down to near zero and in some cases even US Quarterly GDP growth (% yoy) negative levels. In addition, developed country central banks opted for “quantitative easing” or large and regular bond purchases that infused liquidity into the economy. The authors argue that surge in easy money and cheap credit would spur debt-financed investment and consumption and raise the rate of growth, although not sustainable for long. That is the case broadly now, as the global growth rates were already weakening before the onset of COVID-19. If the assumptions of researchers come true, then world’s policy makers are in for a monumental challenge. However, reliance on monetary policy has run its course due to mammoth central bank balance sheets and thus revise their policy stance and Source: tradingeconomics.com think out of the blue.
EU GDP growth (% yoy) Quarterly GDP growth (% yoy) 0.9% 10 0.8% 9 0.7% 0.6% 8 0.5% 7 0.4% 6 0.3% 0.2% 5 0.1% 4 0.0% Jul-14 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-14 Nov-14 Nov-15 Nov-16 Nov-17 Nov-18 Jul-15 Jul-16 Jul-17 Jul-18 Jul-19 Jul-14 Mar-15 Mar-16 Mar-17 Mar-18 Mar-19 Mar-14 Nov-15 Nov-16 Nov-17 Nov-18 Nov-19
Nov-14 China India Source: tradingeconomics.com Source: Bloomberg
March 2020 INSIGHT 38 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 first stepping stone to build a scalable, sustainable and impactful business. Therefore, our endeavour is to identify great entrepreneurs in pursuit of Mr. Mihir Mehta building businesses that carry magnanimous investment potential. Here is an INSIGHT into businesses that we have worked/working with –
Akiva is currently looking to raise Knox innovations is currently looking USD 1.5 Mn (of which $1Mn is already to raise INR 2.0 Crores for its next committed) for its next phase of phase of expansion expansion
Akiva Conceptualized as an innovative habit forming alternative to Watershots traditional healthy food, this award- A pioneer and category creative winning business, has created a in the disruptive technology for robust omni-channel play, being businesses space, the brand has online-first with presence across Knox Innovations launched the first ever automatic Retail as well as B2B. A holistic, IoT & Hardware Solutions Pani Puri model and have a vision to Akiva currently hones 27 SKU’s provider, Knox Innovations has elevate the experience of consuming across 7 superfood categories specialized in the hospitality and and preparing fast foods by means addressing an INR 3,500 Cr+ market F&B space - and are now working of technology. With a multi-channel with its product portfolio ranging with a leading cloud kitchen revenue model, the business across Ready to drink Health shots, company & also a sizeable tea-cafe currently has 19 outlets across Surat, Jaggery Cubes, Organic Honey, chain to provide retro-fittable, Ahmedabad, Bangalore and Jamnagar A2 Ghee and Superfood Powders, process-automation devices. They and follows a zero wastage model. among others. have also more recently partnered Having served almost 30 lakh puris to with a leading bar-equipment The business has grown robustly with date, the business is now launching manufacturer. an 8x growth in Net Revenue over QSR outlets with close to 40+ SKUs the last 18 months and has to date Knox Innovations currently in store with the aim to reach 300 sold 1mn+ shots to diverse customers hones three products including outlets across 20 cities in the next 5 across the globe. Led by Shalabh Tilt 45 (Smart Nozzle for Liquor years. Gupta and a stellar team as well as Management), Ki-Fryer (Automated The business is currently looking to backed early on by Alkemi Ventures, Fryer for Cloud Kitchens) and Ki- raise INR 3 cr. for its next phase of this category creator business aspires Aid (Alcohol Interlock Device for expansion to become India’s most exciting Vehicles) addressing a US$4.5 bn health food brand. market in India.
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].
39 INSIGHT March 2020 SECTOR OUTLOOK
Chemical TIME TO GAIN MARKET SHARE ON ACCOUNT OF CORONAVIRUS EPIDEMIC IN CHINA
The coronavirus outbreak in China took a toll on Chinese economy as well as Global economy. The deadly virus surfaced from a fish market of Wuhan city of Hubei province and spread across China and outside the country.
Around 77,000 people are infected with death toll of alternative reliable supplier of chemicals. Over the years, around 2500 people which outpaced total people died in supply chain disruptions in China due to operational China from the SARS virus in 2003. With this escalating hazards, environmental compliance issues and higher infections, city shutdowns and nationwide transporta- cost of operations have made the case for this likely shift. tion halts, the coronavirus epidemic is starting to strain Around 5-10% business shift to India can actually China’s chemical industry. In 2003, China accounted for more than double the opportunity size for many less than 10% of the global chemical market while in 2018, chemical companies. Currently, India’s share in the share was 36%. Thus, anything happening in China`s global chemical trade is still around 3%, which chemical industry will have a much bigger impact on is about one fourth the share of China in global trade. global customers and suppliers of Chinese producers of The impact of the coronavirus epidemic in China on the chemicals. The ongoing shutdowns of chemical plants in chemicals sector could be far reaching, depending on the China, could be an opportunity for Indian chemical play- extent of epidemic reach, the period of plant shutdown in ers, because of the growing preferences for India as an China and restrictions on shipments/logistics.
March 2020 INSIGHT 40 Coronavirus outbreak could dampen the Scenarios that might emerge on account of sentiment of global growth but could act Coronavirus outbreak as blessing for Indian chemical industry In a first scenario, the epidemic being reasonably The recent outbreak of the Coronavirus has infected more restricted to cities, allowing manufacturing sites located than 2500 people. The outbreak is centered on Wuhan, outside densely populated centers to continue produc- the largest city in Hubei province and 15 cities in Hubei tion. Such a scenario, though it will curtail consumption province have been put under lock-down with people not in China, may still keep the production of manufactured allowed to travel outside city. Hubei province, which is at goods steady. This may mean higher exportable surplus the center of this outbreak, has a reasonable concentra- than usual, raising the probability of higher dumping of tion of chemical plants, specifically in dye and dye-inter- goods into other countries, thus could put pressure on the mediate production. The increasing cases of coronavirus prices. has already restricted the movements and curb Chinese dye and dye intermediate production. From various In second scenario, which is more likely given the sources it has been seen that the chemical prices have pre-emptive measures taken by Chinese government and still not started increasing but they are likely to increase. reports on the spread of the virus, resulting in China’s In 2016, when China’s top dyestuff maker Hubei Chuyuan manufacturing economy is also going to be reasonably (which is one of the largest dyestuff manufacturers in curtailed for some time. In chemicals, the impact would China) was shut down on environment grounds, dyestuff be felt across the value chain – from key basic chemicals prices had rallied. On the backdrop of higher dyestuff to various value-added chemicals having applications for a prices, Indian listed dyestuff manufacturers witnessed large number of end-markets. healthy earnings growth which eventually reflected in their stock prices. The growth of Coronavirus could China’s share of world production capacity by product (in %) impact production of chemicals in China and therefore, 100% demand-supply would favor Indian chemical companies. With lower crude oil prices and favorable supply demand 50% scenario, it is expected that Indian organic chemical
0%
companies’ margin should improve. PTA PVC VCM MTBE Toluene Chlorine Benzene Ethylene Soda Ash Methanol Propylene PET Resins Para-Xylene Caustic Soda Ethybenzene Polyethylene Mixed Xylenes Travel restrictions affect nearly 60 million Polypropylene Polyester Fibres Ethylene Glycols people Rest of the World China Source: news article 15 cities with transport and travel restriction China’s share in total imports to India
Organic chemicals 37%
Inorganic chemicals 13%
Medicinal & Pharma products 36%
Dyes 28%
Source: news article Net Surplus/deficit of chemicals availabil- Source: news article ity in India
Chemical Plants in Hubei Net Surplus/deficit of chemicals availability in India
Source: news article Source: FICCI & Tata strategic management group
41 INSIGHT March 2020 Below are the few chemical value chains Carbon black which are likely to be impacted by the Carbon black which is used as black pigment and rein- Coronavirus epidemic forcer for tyres, paints and plastics, imports from China Dyes and pigments constitute about 10% of domestic demand. Two Indian companies like Himadri Speciality and Phillips Carbon The dyes and pigments manufacturers in the last few have been undergoing capacity expansion in order to years have been benefitting from the China opportunity as cater to the undersupplied domestic market. However, increased compliance norms had led to closure of various the recent slowdown in the automobile end market has chemical manufacturing facilities in China. The current weighed on volumes sold and realizations. Thus, lower coronavirus problem is likely to have more pronounced imports from China could provide much needed fillip to effect than the situation few years back when due to domestic carbon black manufacturers. environment compliance large players such as Hubei Chuyuan had to shut down facilities. Prices of key dye Graphite electrodes intermediates H-Acid and Vinyl Sulphone have already Graphite electrode, particularly non-Ultra High-Power increased in the range of 35-50% from average price in grade, supply from China has been a big concern for Q3FY20. The epicenter of the epidemic Hubei province Indian electrode companies in FY20. This had led to along with adjacent Henan province contribute 90% of an adverse supply-demand situation for the domestic China’s production of Vinyl Sulphone. Most of the plants industry. China is on course towards a significant ramp up in these provinces including that of Hubei Chuyuan are in steel production through the EAF (Electric Arc Furnace) already closed. Since globally, India and China are the route. To facilitate this, China is reportedly expanding major suppliers of dye intermediates, some demand may its graphite electrode capacity to 1.5 million tonnes by shift from China to India. Most of the Indian dye inter- 2020 compared to 0.9 million tonnes in 2017. The current mediate players such as Bodal Chemicals, Shree Pushkar, epidemic in China is likely to lower the dumping of Bhageria Industries, Kiri Industries, can benefit from the electrodes in India, thus benefiting the domestic graphite situation on both the volume and pricing fronts. However, electrode manufacturers like HEG & Graphite India. Indian dye manufacturers might not run their capacity at China accounts nearly 50% of total global steel production 100% due to shortage of raw materials. About 20-30% of and exports nearly 10% of its production. Production halt raw materials are sourced from China at the industry level for steel plants in China will result in higher production in and recent coronavirus epidemic make the prices of key other countries which means higher throughput through raw materials such as sulphur, aniline, caustic soda and EAF route, thereby creating incremental demand for naphthalene volatile, thus posing a sourcing challenge for graphite electrode. However, persistence weakness in manufacturers. Indian dye manufacturers which are not global economy due to epidemic in China could result in backward integrated would find it difficult to survive due lower demand for steel as well as graphite electrodes. to a spike in dye intermediate prices. In India, smaller dye Surfactants intermediate manufacturers which depend on supply of Surfactants companies are relatively immune to imports raw materials from China are likely to close down in case from China on raw material front. China is the second of extended shutdown in China. largest palm oil importing nation in the world importing Rubber chemicals over 70 lakh tonnes annually. A sudden drop in demand of China accounts nearly 70% of the global rubber chemical palm oil has pulled down its prices, which translates into production, while it only consumes about 33-35% of total lower prices for palm oil derivative such as lauryl alcohol, produce and rest it exports. Hence, which is utilized by the surfactant exports are likely to increase as the industry as a key raw material that epidemic curbs consumption in makes up 50% of the input cost. This China. Higher imports from China, could be a positive catalyst for Galaxy particularly after discontinuation of Surfactants. antidumping duty on rubber chemi- Amines cals in July 2019 along with the weak Prices of key dye For amine manufacturers like Balaji domestic end market (Autos, Tyres) intermediates Amines and Alkyl Amines, the in India, impacted both product price H-Acid and Vinyl China situation can pose a daunting realization and volume growth in challenge as both the players have a recent quarters for domestic rubber Sulphone have significant exposure to end markets chemical companies. NOCIL is a already increased in like APIs and agri-chemicals, which company which can be impacted the range of 35-50% are in middle of significant supply due to coronavirus epidemic. In a from average price chain disruption. Any extension of scenario of lower imports of rubber production shutdown in China to chemicals from China in future, in Q3FY20. March and beyond may spell trouble can help NOCIL to ramp up its for the availability of matching ingre- production. dients required for the production of
March 2020 INSIGHT 42 respective pharma drug and agri-chemicals. inputs for adhesives, is mainly imported from China. Thus, companies like Pidilite Industries & Astral Poly are Some of the chemicals where India’s dependence on also exposed to raw material price volatility on backdrop China is higher are titanium di-oxide, acetic acid, citric of supply disruption in China due to coronavirus out- acid, aniline and calcium carbide. Chemicals where total break. Though, most of the Indian chemical companies imports are quite substantial compared to domestic have their raw materials inventory requirements covered production are caustic soda, acetone, phenol, aniline, till April 2020, any shutdown beyond that time could sig- isopropanol, PVC and nylon. nificantly push up the raw material costs of the company. Raw materials like Vinyl Acetate Monomer, which is key
Dependence on China for select chemicals
Chemicals Installed Domestic Total net Import Import from Total imports as capacity production imports from China as a % share a % of domestic (mt) (mt) (mt) China (mt) in net imports production Caustic Soda 333,594 274,231 261,668 42,357 16% 95% Calcium Carbide 112,000 87,300 55,187 20,838 38% 63% Carbon Black 640,000 530,360 63,937 62,465 98% 12% Titanium di oxide 82,500 57,820 4,141 5,632 136% 7% Acetic Acid 159,620 157,070 872,295 360,214 41% 555% Acetone 47,140 32,870 141,824 21,775 15% 431% Phenol 76,750 53,450 283,822 33,742 12% 531% Citric Acid NA NA 81,869 83,936 103% NA Male ic Anhydride NA NA 52,394 4,950 9% NA Aniline 54,100 41,880 65,254 48,917 75% 156% Vinyl Acetate Monomer 30,000 - 163,703 30,379 19% NA Isopropanol 70,000 71,830 99,460 19,320 19% 138% Polyol 141,630 79,430 195,114 55,190 28% 246% Nylon-6 28,200 20,560 154,592 15,972 10% 752% PVC 1,493,000 1,466,080 1,839,634 231,315 13% 125% Source: news article
Capacity difference between India & Raw material sourcing could be a concern China India depends on China for chemicals across the value chain with import dependency on China in the range Capacity (mt) India China Times between 10-40%. Due to China lockdown on account of Phenol 76,750 2,423,000 32 coronavirus outbreak, supply chains are drying up which Styrene - 8,265,000 NA could have an impact in the next few months. A wide vari- ety of raw material is imported from China and it is not TDI 14,000 870,000 62 possible to quickly switch around for alternative sources. Methanol 260,490 76,740,000 295 On cost front, China is also one of the most cost competi- Acetic Acid 159,620 8,310,000 52 tive, thus there are possibilities of escalating costs. India’s Benzene 1,318,030 16,980,000 13 share in global chemical trade by value is 3%. Chemicals form a significant part of the overall trade flow in India Cumene 260,000 2,933,000 11 and ranks fourth in imports, after mineral fuels and oils, Vinyl acetate monomer - 3,040,000 NA precious stones and metals, and electrical machinery. MDI - 2,970,000 NA India imports key raw materials from China for manufac- turing chemicals like deystuff, petrochemical intermedi- Ethylene oxide 291,300 8,030,000 28 aries (Intermediaries like ethylene oxide, propylene oxide, Propylene oxide 36,000 3,042,000 85 polyols, phenol, acrylic acid, and styrene), etc. Falling Source: news article shortage of raw materials for manufacturing specialty
43 INSIGHT March 2020 chemicals could adversely impact the pharma companies is being consid- production of the plants. However, ered by the government. Recently, this supply shortage could act as an Niti Aayog Chief executive Amitabh opportunity to boost manufacturing Kant chaired a meeting with the and increase prices. Many integrated The government representatives of top drug makers chemical players have already started is contemplating where the point of discussion was to witness increased demand from ways to encourage to find the ways to reduce imports users and simultaneously sharp dependence on China for bulk jump in product prices. Government domestic drugs or intermediates. The idea has also assured to provide all type manufacturing of is to build API production capacity of supports to boost the domestic APIs to counter a for 58 APIs, for which India is sig- manufacturing output in order to potential shortage nificantly dependent on China. The overcome the challenges on raw list of drugs which were compiled material supply front. of bulk drugs and by the drug regulatory authority intermediates are antibiotics like azithromycin, Government interven- amid coronavirus amoxicillin, ofloxacin, metronidazole, tion to deal with supply outbreak. vitamins such as B12, B1, B6 and E, shortage female hormone progesterone and The lockdown in parts of China in anti-cardiac arrest drug atorvastatin, the wake of the coronavirus outbreak among others. As per the industry has disrupted the supply of Active experts, it is a good development that Pharmaceutical Ingredients (APIs) government is willing to support the for most pharma companies and that is an alarming for API industry. Indian API industry was ahead of China in domestic drugs manufacturers. Indian pharmaceutical the 1990s, but the advantages of free land, low cost utilities companies import almost 70% of pharmaceutical ingre- such as water, steam, power and negligible financing costs dients from China. Domestic pharma industry may still in China changed the dynamics, resulting in China is now be able to manoeuvre around the supply chain issues if way ahead of India. However, domestic APIs manufac- the situation turns more acute. Given the importance of turers are benefiting from supply chain disruption with the sector for the society, the government is also expected higher demand and increased prices. Domestic API play- to provide all kind of support. The government is con- ers like Granules India, Shilpa Medicare, IOL Chemicals templating ways to encourage domestic manufacturing & Pharmaceuticals ltd. and Lasa Supergenerics seen their of APIs to counter a potential shortage of bulk drugs and stock prices rallied on the expectation of higher demand intermediates amid coronavirus outbreak. A suitable owing to coronavirus triggered lockdown in China. ecosystem with focus on fiscal and procedural support to
Various Chemical Prices movement
Chemicals Region Metric CMP* 1 Month 3 Month 1 Year Acetic Acid Kandla Rs/Kg 30 -11% -16% -17% Acetone China $/MT 615 3% 21% 40% Acetone Kandla Rs/Kg 59 17% 52% 39% Acetonitrile Mumbai Rs/Kg 290 -6% -6% 100% Acrylic Acid USA USD/MT 1,433 -6% -3% -12% Acrylonitrile SE Asia $/MT 1,435 -2% -7% -7% Acrylonitrile Mumbai Rs/Kg 112 7% -7% -7% Acrylonitrile Butadiene Styrene (ABS) USA cents/Lb 91 0% -4% -1% Ammonia India USD/MT 300 3% 5% -11% Benzene China $/MT 745 1% 12% 30% Benzene Vizag Rs/Kg 53 2% 35% 22% Bromine China Yuan/MT 30,444 0% 0% -12% Butadiene (C4H6) SE Asia USD/MT 925 3% -23% -19% Caprolactam China USD/MT 11,350 4% -9% -16% Caustic Soda India INR/50 Kgs 1,600 -11% 7% -22%
March 2020 INSIGHT 44 Chemicals Region Metric CMP* 1 Month 3 Month 1 Year Caustic Soda Flake Mumbai Rs/Kg 31 -3% -18% -30% Caustic Soda Lye SE Asia $/MT 300 -4% -5% -9% Caustic Soda Lye Mumbai Rs/Kg 22 -45% -44% -47% Chlorine USA USD/MT 231 0% -5% -1% Chloroform Delhi Rs/Kg 34 -3% -17% -26% Cumene USA USD/MT 772 0% 1% -16% DMF (Dimethyleformamide) Mumbai Rs/Kg 62 0% -5% -17% EDC (Ethylene Dichloride) SE Asia USD/MT 330 10% 16% -24% Ethanol Mumbai Rs/Kg 54 0% 0% 2% Ethylene (C2H4) Korea USD/MT 805 11% 1% -24% Ferro Silicon China USD/MT 1,095 2% 2% -9% Fluorspar China INR/MT 29,692 -1% -2% -14% High-Density Polyethylene (HDPE) India USD/MT 880 10% -10% -22% Low-Density Polyethylene (LDPE) India USD/MT 945 4% -1% -11% MDI USA USD/MT 4,343 -3% -1% -5% MEG (Mono Ethyl Glycol) China $/MT 590 3% 9% -5% MEG (Mono Ethyl Glycol) Mumbai Rs/Kg 47 4% 4% -16% Methanol China $/MT 254 16% 11% -13% Methanol Kandla Rs/Kg 22 17% 26% -15% MMA (Methyl Methacrylate) Kandla Rs/Kg 111 -3% -2% -31% MTBE (methyl tertiary butyl ether) USA Cents/ 199 -20% 12% 31% Gallon PET (Polyethylene Terephtalate) China Yuan/MT 6,800 4% -5% -21% Phenol China $/MT 895 10% -1% -14% Phenol Kandla Rs/Kg 74 0% 6% -24% Polypropylene (PP) India USD/MT 1,010 3% -8% -11% Polystyrene India USD/MT 1,210 5% 0% -15% Propylene (C3H6) China USD/MT 890 10% -9% -11% PTA (Purified Teraphthalic Acid) Mumbai Rs/Kg 60 -2% 0% -10% PVC China Yuan/MT 6,825 -1% 2% 7% Soda Ash Mumbai INR/50 Kgs 1,140 -1% -4% -8% Styrene India USD/MT 885 1% -10% -15% Styrene-Butadiene Rubber (SBR) China Yuan/MT 11,440 0% 3% -6% TDI China Yuan/MT 11,700 4% -9% -21% Toluene China $/MT 650 -4% 0% 4% Toluene Kandla Rs/Kg 58 -6% 7% 9% Source: Industry reports; Note: CMP as on end of January 2020
It is believed that India could stand to benefit over the lon- destinations. Thus, it is expected that a 5-10% business ger term due to the spreading of coronavirus across the shift to India can actually more than double the oppor- world, faltering the global economy, as foreign companies tunity size for many chemical companies. Further, as are looking to set up alternative manufacturing base from per Indian Chemical Council (ICC), domestic chemical China to India. However, in short-term, there could be industry is expected to double its turnover from the cur- some supply-chain disruptions which the government is rent USD 150 billion to USD 300 billion by 2025, provided expected to provide full support. Over the years, supply the government extends its support to the proposed chain disruptions in China due to operational hazards, infrastructure and policy changes. Thus, the domestic environmental compliance issues and higher cost of chemical companies have immense growth prospects in operations forced many multinational companies to future to amplify its earnings. think about shifting their manufacturing base or sourcing
45 INSIGHT March 2020 RESULT ANALYSIS
Result Q3FY20 Analysis
Q3FY20 turned out to be a moderate quarter for India Inc. on the operational front even as tax cuts aided profit growth. India Inc. earnings have witnessed headwinds given the domestic economic slowdown, liquidity tightness, weak consumer sentiment, slowdown in government spending and lukewarm volume growth across the sectors.
March 2020 INSIGHT 46 eakness was seen season. Operating income of nearly in auto, metals half of the Nifty 50 constituents & energy sector, met estimates and around a third whereas sectors like surpassed analyst expectations, data Wfinancials, information technology, compiled by Bloomberg showed. Most Nifty 50 pharmaceuticals and select consumer companies either Only 12 companies missed the companies reported healthy met or surpassed consensus forecast. (Yes Bank Ltd. performance. At the aggregate level, estimates in the put off its third-quarter earnings large caps continued to outperform till March 14) Metals, industrials and midcap and small caps in these October-December oil marketing companies performed challenging times. Despite tax rate earnings season. the worst in Q3FY20 while Sectors benefits, profitability was still muted Operating income such as agrochemicals, fast-moving in the midcap and small cap space. of nearly half of the consumer goods, retail, information For the listed universe (~3,000 Nifty 50 constituents technology and pharmaceuticals companies), topline de-grew 2.4% met estimates and beat estimates. Among the Nifty YoY while bottomline climbed 36.2% around a third 50 companies (Ex Tata Motors) the YoY. However, the expectations aggregate revenue decline by 5% continues for a strong revival in surpassed analyst while EBITDA shows a growth of FY21 given rising farm incomes expectations. 5% and net profit grew by 4.7%, but and lower commodity prices, but ex BFSI and Tata Motors net profit headline inflation and uneven shows a degrowth of 5.4%. Corporate growth in industrial output remain tax rate cuts continued supporting a challenge to economic expansion. machinery and 65-70% API’s and 90% earnings growth. The blended tax In the long term, the government’s of mobile components. CII estimates rate for Nifty50 was 27.4% compared focus to maintain fiscal prudence that shipping, with 30.1% in the year-ago quarter. (and thereby attract foreign capital pharmaceuticals, to at least partially fund the huge automobiles, Nifty 50 Companies – Beat or Miss 30 infrastructure development projects) mobiles, is commendable and would likely electronics, 25 result in better times for industrials textiles etc. could 20 and building material companies. be impacted if This would have a positive spill-over the virus impact 15 effect on the economy and corporate is prolonged. 10 sector. Further, Q1FY21 is expected to Most Nifty 50 see impact of Corona Virus on Indian 5 companies either companies. Indian economy will have 0 met or surpassed far reaching implications of Corona estimates in virus as China is India’s largest the October- Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 import partner and accounts for 45% December of electronics, 40% chemicals, 33% Beat Estimate In Line With Estimate Missed Estimate earnings Source: Bloomberg
Q3 Earnings Heat Map Nifty 50 Companies Bajaj Auto Bajaj Bharti Dr. GAIL HCL Tech Hero Tech UPL Vedanta Finance Airtel Reddy's MotoCorp Mahindra Asian Axis Bank Bajaj BPCL Bharti Britannia Cipla Coal India Eicher HDFC Paints Finserv Infratel Motors Bank HUL HDFC ITC ICICI Indian Oil IndusInd Infosys Nestle NTPC Ltd. ONGC Bank Bank Power SBI Sun TCS Titan UltraTech Wipro Adani Grasim Hindalco Grid Pharma Cement Ports JSW Steel Kotak L&T M&M Maruti RIL Tata Tata Steel Zee Ent. Yes Bank Bank Suzuki Motors Beat Estimate In Line With Estimate Missed Estimate Source: Bloomberg
47 INSIGHT March 2020 On the sectoral front, in the auto subdued. In the FMCG space, volume environment and healthy deal space, lower volumes, weak consumer growth came in lower at ~5-6% pipelines. In metal & mining space, sentiment and negative operating YoY due to weak rural demand, operational performance was marked leverage impacted margins for the most input costs have witnessed by subdued realisations both in sector. In the banking space, the escalation, which kept margins under ferrous and non-ferrous sector operating performance was healthy pressure. In IT space companies driven by lower prices amid global amid improving asset quality and reported better than expected uncertainty. In the pharma space, recovery of stressed loan accounts. results, indicating an improving companies demonstrated consistent In the cement space, profitability was demand environment. Q3FY20 performance in the US, double-digit supported by a rise in realisations and performance and management growth in the domestic market, lower costs (power & fuel, freight) commentaries by IT companies improving margins and continual even as volume growth remained indicate signs of improving demand balance sheet improvement
CNX 500 (Excluding Banks, NBFC & Oil Companies) (In Rs. Cr.) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Net Sales 848420 923903 962631 1018531 1032889 1072642 1023416 1033537 1033770 Growth (YoY) 5% 7% 17% 23% 22% 16% 6% 1% 0% Growth (QoQ) 3% 9% 4% 6% 1% 4% -5% 1% 0% Operating Expenses 692614 757217 785069 836252 846495 879409 831111 856789 849616 Growth (YoY) 3% 5% 14% 23% 22% 16% 6% 2% 0% Growth (QoQ) 2% 9% 4% 7% 1% 4% -5% 3% -1% % of Sales 82% 82% 82% 82% 82% 82% 81% 83% 82% Operating Profit 155806 166686 177562 182278 186395 193232 192305 176748 184154 Growth (YoY) 14% 14% 31% 24% 20% 16% 8% -3% -1% Growth (QoQ) 6% 7% 7% 3% 2% 4% 0% -8% 4% OPM 18% 18% 18% 18% 18% 18% 19% 17% 18% Depreciation 16747 22204 17441 21502 20539 26002 20651 23427 20507 Growth (YoY) -6% 5% -9% 11% 23% 17% 18% 9% 0% Growth (QoQ) -14% 33% -21% 23% -4% 27% -21% 13% -12% Interest 34299 35701 37883 39321 40913 43331 46817 48904 50296 Growth (YoY) 8% 3% 19% 19% 19% 21% 24% 24% 23% Growth (QoQ) 4% 4% 6% 4% 4% 6% 8% 4% 3% Other Income 28859 31059 33708 35555 36315 38014 40277 40690 41035 Growth (YoY) 4% 13% 21% 20% 26% 22% 19% 14% 13% Growth (QoQ) -2% 8% 9% 5% 2% 5% 6% 1% 1% Adj Profit 79613 79297 88893 87317 91288 89959 86942 96873 82795 Growth (YoY) 13% 12% 38% 15% 15% 13% -2% 11% -9% Growth (QoQ) 5% 0% 12% -2% 5% -1% -3% 11% -15% NPM 9% 9% 9% 9% 9% 8% 8% 9% 8% Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Sectoral performance demand offtake amid continued lead, crude derivatives) provided review weakness in consumer sentiment as relief to gross margins in most cases, Auto & Auto ancillary Sector structural and cyclical factors hurting although negative operating leverage As expected, Q3FY20 was a hard the industry volume growth across pinched. Management commentary quarter for automobile companies automotive categories (2W, PV and clearly highlighted the benefit of with decline in performance on CV) due to weak retail demand and low commodity prices during the all front. October festive period high channel inventory along with quarter; however, the benefits of resulting in healthy retail sales and slowing economic growth. While lower costs couldn’t be translated consequent destocking at dealer companies across the board suffered into a bottom-line improvement due end but November and December, revenue declines, softer raw material to operating deleverage. Q3FY20 total however, saw the return of poor prices (lagged pass through of steel, industry volumes at 65.9 lakh units
March 2020 INSIGHT 48 represented a yearly and sequential with an uncertain BS-VI pricing decline of 9.2% and 4.5%, respectively, environment. Most automotive OEM’s dragged by the domestic space which (except Tata Motors) have not felt the is down 12.6% YoY to 53.7 lakh units impact of the fallout of coronavirus while exports performance was Eicher Motors, in China on their production so far. better with growth of 9.5% YoY to 12.2 M&M and OEM’s have inventory for about a lakh units. Domestic PV volumes in month and have stated that they need Q3FY20 were flattish YoY at 7.8 lakh Bajaj Auto were to monitor the situation in China for units, amid UV segment growth of positive surprises the next 10-15 days. If production 27.9% counteracting 8.5% and 41.3% declaring strong in China is impacted beyond the decline in passenger cars and vans next two weeks, the production of respectively. The 2-Ws declined performances at automotive companies in India could 14.9% YoY domestically to 42.2 lakh operating level. also be impacted. Tata Motors which units with motorcycles down 14.6%, has manufacturing presence in China scooters down 14.3% & mopeds down has stated that JLR volumes would be 13.8%. Domestic CV segment was impacted in Q4FY20. Hero Motocorp down 21.4% YoY to 1.98 lakh units also get warning signal. (M&HCV came off by 39.0%, LCV while JLR volumes rose 2.7% YoY. Trend in Volumes (Units) declined by 10.0%). 3-W segment Escorts posted sales dip as tractor improve marginally by 2% YoY volumes down 2.5% to 25,109 units Q3FY20 YoY QoQ (%) (%) domestically. with margins at a multi-year high. Market leader in 2-W segment, Hero Hero 1,540,868 -14.3% -8.9% In the OEM space, Eicher Motors, MotoCorp M&M and Bajaj Auto were positive MotoCorp, total volumes fell 14.3% Bajaj Auto 1,202,486 -4.6% 2.5% surprises declaring strong YoY to 15.4 lakh units, with limited TVS Motors 821,521 -17.0% -7.3% performances at operating level. PV topline decline, healthy margins while market leader Maruti’s net sales were PAT was aided by low tax outgo. Bajaj Maruti 437,361 2.0% 29.3% up 5.3% YoY amid 2% volume increase Auto’s volumes were down 4.6% YoY Suzuki to 4.4 lakh units and EBITDA margins to 12 lakh units, with net sales and Mahindra & 216,816 -7.3% 13.3% disappointed. M&M reported 5.5% margins improvement due to savings Mahindra YoY standalone revenue decline (auto realised in other expenses and flowed Eicher 182,791 -6.0% 9.7% volumes down 7.6%, tractor volumes into PAT performance. Motors down 7%) with margins up 80 bps Going forward, Q4FY20 is expected Tata Motors 141,222 -2% 10% QoQ & consolidated PAT hurt by to witness continuance of soft ( JLR) write downs in subsidiary SsangYong demand prospects due to weak Tata Motors 129,381 -24.7% 23.4% Motor. Tata Motors’ results were economic growth and transition (S/A) muted driven by disappointment on to BS6 emission norms w.e.f. April Ashok 31,200 -28.7% 7.8% the JLR margins front. Consolidated 1, 2020. Industry margin profiles Leyland sales were impacted by dip in ASPs are seen remaining under strain Escorts 25,109 -2.5% 27.1% and high marketplace discounts owing to limited operating leverage, Source: Company, Ashika Research amid 24.6% fall in standalone volume firming up of commodity prices along
Aggregate EBITDA Margin (%) Segment-wise Margin (%) 16 16
15 14 14 12 13 10 12 8 11 6 10 9 4 8 2
0 2W PVs CVs Q3FY16 Q4FY16 Q1FY17 Q2FY17 Q3FY17 Q4FY17 Q1FY18 Q2FY18 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Aggregate (excl JLR) Aggregate (incl JLR) Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Source: Company, Industry Report Source: Company, Industry Report
49 INSIGHT March 2020 Auto & Auto ancillary Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Tata Motors Ltd. 71676 -7% 10% 7197 21% 2% 10% 1955 107% LP 3% Mahindra & Mahindra Ltd. 25020 -4% 5% 3405 -8% 3% 14% -170 PL PL -1% Maruti Suzuki India Ltd. 20722 5% 22% 2105 9% 31% 10% 1569 5% 16% 8% Motherson Sumi Systems Ltd. 15661 -5% -2% 1148 -11% -7% 7% 319 -39% -27% 2% Bajaj Auto Ltd. 7640 3% -1% 1367 13% 7% 18% 1262 15% -10% 17% Hero MotoCorp Ltd. 7075 -11% -8% 1058 -5% -8% 15% 880 16% 1% 12% Ashok Leyland Ltd. 5189 -31% 32% 752 -34% 229% 14% 57 -87% 46% 1% TVS Motor Company Ltd. 4766 -7% -4% 613 7% 6% 13% 158 -20% -39% 3% Apollo Tyres Ltd. 4400 -7% 10% 534 1% 24% 12% 174 -12% 109% 4% MRF Ltd. 4076 0% 2% 622 9% 12% 15% 241 -17% 5% 6% Exide Industries Ltd. 3554 8% -6% 294 -13% -29% 8% 118 -17% -52% 3% Bosch Ltd. 2537 -16% 10% 320 -22% -5% 13% 190 -43% -22% 8% Eicher Motors Ltd. 2371 1% 8% 592 -13% 9% 25% 482 -2% -15% 20% Bharat Forge Ltd. 1831 -26% -15% 222 -47% -33% 12% 49 -78% -77% 3% Amara Raja Batteries Ltd. 1748 3% 3% 284 12% -3% 16% 164 25% -25% 9% Cummins India Ltd. 1456 -4% 10% 216 -5% 41% 15% 170 0% 14% 12% Balkrishna Industries Ltd. 1156 -4% 7% 346 27% 27% 30% 224 48% -24% 19% Total 180875 -6% 7% 21074 2% 7% 12% 7841 LP 15% 4%
Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Banking Sector degrow at ~1% YoY as corporate earnings were aided by recoveries During Q3FY20, improved operating book saw flattish to negative growth, from few large NCLT accounts, performance of corporate-focused whereas retail continued to do well. which resulted in strong operating banks and healthy growth trends in Corporate-focused private banks’ performance while retail banks retail loan growth were key positives. reported stable profitability. Most Banks operating performance was PSU banks (PSBs) reported modest stable in spite of slower NII growth operating performance helped by on higher other-income partially recoveries from few large NCLT accounts but weak capitalisation from recoveries and better opex Corporate-focused control. Higher provisions on either and muted loan growth outlook fresh NPAs or downgrades continue private banks’ (partly due to impending mergers) to adversely impact bottom-line. earnings were are dampeners for most PSBs., On Banks continue to provide writeoffs aided by recoveries the asset quality front, headline to maintain asset quality, though asset quality has improved although from few large it balanced from higher slippages PCR has been maintained on NCLT accounts, higher provisioning. Focus on from corporate book (mainly a HFC), term deposits, especially retail which resulted in retail and Agri, while witnessing term deposits continues to prevail. strong operating higher recoveries in the quarter Banks loan growth came in at 3.6% performance from a few account mainly from large Steel companies. Going ahead, YoY but certain private banks like while retail banks HDFC bank/ICICI bank/Axis bank banks are expecting lower corporate (supported by retail) saw stable reported stable slippages and smaller recoveries. growth, although Kotak Mahindra profitability. On liabilities & funding cost, retail Bank maintained a cautious stance term deposits accretion continues with loan growth slowing to low but CASA growth was slightly better double digit. PSBs continue to for industry which pushed the cost of
March 2020 INSIGHT 50 funds a little lower. Flow of deposits recoveries in interest income. MCLR downgrades and slippages though has increased liquidity enabling rates reduced across all buckets no new or unexpected hits to asset banks to cut deposit rates, however consistently and banks have smartly quality is expected. Overall, banks lower loan growth has more or less managed loan mix towards better remained cautious and expect credit neutralised the impact resulting in yielding products improving NIMs for cost to remain elevated while asset flattish to small increase in NIMS. Pvts banks. Sensitivity from sectors quality/growth trends are likely to Overall NII growth slowed as private under stress like Telecom, Power, improve from FY21. banks growth cooled off on slowing NBFC, Real Estate has remained, loan growth despite some one-off leading to higher provisions,
Trend in deposit growth (% YoY) Trend in advances growth (% YoY) 45% 25% 40% 35% 20% 30% 25% 15% 20% 10% 15% 10% 5% 5% 0% 0%
-5% Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20
PSBs Private Overall PSBs Private Overall Source: Company. AceEquity, News Article, Industry Report Source: Company. AceEquity, News Article, Industry Report
Trend in Gross NPA ratio (%) Trend in NIM (%) 16.0% 4.0% 3.8% 14.0% 3.6% 12.0% 3.4% 10.0% 3.2% 3.0% 8.0% 2.8% 6.0% 2.6% 2.4% 4.0% 2.2% 2.0% 2.0% Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20
GNPA% PSBs GNPA% Private GNPA% PSBs Private Overall Source: Company. AceEquity, News Article, Industry Report Source: Company. AceEquity, News Article, Industry Report
51 INSIGHT March 2020 Banks Company (Rs Cr) NII YoY QoQ Net YoY QoQ NIM GNPA NNPA CAR Profit (%) (%) (%) (%) State Bank Of India 27779 22% 13% 5583 41% 85% 3.6 6.9 2.7 13.7 HDFC Bank Ltd. 14173 13% 5% 7416 33% 17% 4.2 1.4 0.5 18.5 ICICI Bank Ltd. 8545 24% 6% 4146 158% 533% 3.8 6.4 1.6 16.5 Bank Of Baroda 7129 50% 1% -1407 PL PL 2.9 10.4 4.1 13.5 Axis Bank Ltd. 6453 15% 6% 1757 5% LP 3.6 5.0 2.1 18.2 Punjab National Bank 4355 2% 2% -492 PL PL 2.4 16.3 7.2 14.0 Bank Of India 4118 24% 7% 106 LP -60% 3.5 16.3 6.0 14.2 Canara Bank 3435 -10% 10% 330 4% -10% 2.4 8.4 5.1 13.9 Kotak Mahindra Bank Ltd. 3430 17% 2% 1596 24% -7% 4.7 2.5 0.9 18.2 Union Bank Of India 3135 26% 8% 575 275% LP 2.6 14.9 7.0 14.7 IndusInd Bank Ltd. 3074 34% 6% 1300 32% -6% 4.2 2.2 1.1 13.9 Central Bank Of India 2022 11% 7% 155 LP 16% 2.9 20.0 9.3 12.8 Syndicate Bank 1871 16% 8% 435 303% 73% 2.9 11.3 5.9 14.4 Bandhan Bank Ltd. 1540 37% 1% 731 121% -25% 7.9 1.9 0.8 24.7 IDFC First Bank Ltd. 1534 34% 13% -1639 Loss Loss 3.9 2.8 1.2 13.3 IDBI Bank Ltd. 1532 13% -6% -5763 Loss Loss 2.3 28.7 5.3 12.6 Corporation Bank 1375 6% 3% 421 595% 224% 3.0 14.8 5.3 13.8 Allahabad Bank 1338 -4% 5% -1986 Loss Loss 2.5 18.9 5.1 8.7 Oriental Bank Of Commerce 1322 -7% -9% 202 39% 60% 2.4 12.6 6.0 13.7 Indian Overseas Bank 1279 -8% 6% -6075 Loss Loss 1.9 17.1 5.8 5.5 UCO Bank 1237 50% -2% -960 Loss Loss 2.6 19.5 6.3 10.3 Bank Of Maharashtra 1186 36% 11% 135 LP 18% 2.9 16.8 5.5 11.2 The Federal Bank Ltd. 1155 7% 3% 441 32% 6% 3.0 3.0 1.6 13.6 RBL Bank Ltd. 923 41% 6% 70 -69% 29% 4.6 3.3 2.1 15.7 United Bank of India 819 116% 6% 114 LP -8% 3.0 15.5 8.6 14.6 AU Small Finance Bank Ltd. 507 46% 12% 190 100% 11% 5.4 1.9 1.0 19.3 City Union Bank Ltd. 427 2% 4% 192 8% -1% 4.0 3.5 2.0 15.4 Ujjivan Small Finance Bank Ltd. 427 52% 10% 90 98% -3% 10.9 1.0 0.4 28.4 DCB Bank Ltd. 323 10% 3% 97 12% 6% 3.7 2.2 1.0 15.8 Total 106443 19% 7% 7758 LP 8% Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Cement Sector west regions. Prices in south were The cement industry witnessed down ~3% QoQ due to a decline of muted growth in Q3FY20 amid 9% in AP/Telangana and 1-2% in continued weakness in economic Volumes for cement other southern states. Demand in activity. Volumes for cement cos. remained flat YoY AP/Telangana remains weak – both companies remained flat YoY in in Q3FY20 as demand regions attempted hikes of INR50- Q3FY20 as demand was impacted was impacted by 70/bag in Sep and Nov’19, which by construction ban in North and construction ban in failed to sustain. Prices in west were cancellation of various projects in North and cancellation down 5% QoQ in the quarter, led by South. While the eastern region of various projects Maharashtra (down ~6% QoQ due to showed signs of improvement, in South, the eastern weak demand amidst state election) demand was impacted in West led region showed signs of and Gujarat (down 3% QoQ). North by elections in Maharashtra. The improvement, demand and central regions appear relatively demand however, showed signs of was impacted in West well placed with prices down by only improvement from December 2019. led by elections in 1% QoQ (up ~10% YoY). Demand in All-India cement prices declined Maharashtra. north has been marginally better (up ~3% QoQ in Q3FY20, led by east and ~3-4% YoY), which along with strong
March 2020 INSIGHT 52 production discipline, has helped beat while ACC came inline. Among which was followed by festive season sustain prices. Government data midcaps JK Cement, JK Lakshmi, Birla on the back of recent measures suggests volume growth remained Corp and Orient Cement reported announced by government to boost sluggish during the quarter with EBITDA beat while India Cement, liquidity, increase infrastructure cement production remaining Ramco Cement and Dalmia Bharat spend. All-India demand growth is broadly flat YoY in Q3FY20 at 83.9 MT. came lower than estimates. Most expected to be restricted to 2-3% companies saw EBITDA/T decline for FY20E. Although marginal, Despite volume weakness, cement QoQ owing to decline in realizations companies have started to increase companies saw significant growth and negative operating leverage on prices post the festive season in their operating profit on the back lower volumes. however, sustainability of the same of a favourable pricing scenario, will have to be monitored. Industry, higher realisations and softening of Commentaries from most companies however, is likely to benefit from two major costs – power & fuel and highlight an expectation of pickup lower fuel and logistics costs, as freight. Among large Caps, Ultratech in Q4FY20 as construction season energy prices (oil/pet coke/coal) have and Shree cement reported EBITDA begins after a prolonged monsoon been on a downtrend.
Operating parameters
Company Volume (mn ton) Realization (Rs. /ton) EBITDA (Rs. /ton)
Q3FY20 YoY (%) QoQ (%) Q3FY20 YoY (Rs.) QoQ Q3FY20 YoY (Rs.) QoQ (Rs.) (Rs.)
UltraTech 20.9 16.8% 17.6% 4954 -15.1% -8.5% 944 6.0% -12.5%
ACC 7.8 4.0% 21.1% 5089 0.8% -5.4% 694 6.6% -19.8%
Ambuja Cement 6.5 6.7% 24.3% 10897 -0.7% -5.7% 1708 15.3% -10.0%
Shree Cement 6.2 4.6% 8.8% 4594 -2.0% -6.5% 1370 14.4% -7.5%
Dalmia Bharat 5.1 14.1% 14.1% 4741 -2.1% -5.2% 896 5.4% -15.6%
Birla Corp 3.4 13.3% 6.3% 5044 -2.8% -0.8% 866 25.5% -11.2%
Ramco Cement 2.8 3.3% 4.3% 4482 2.1% -4.8% 714 -8.2% -34.1%
India Cement 2.7 -8.7% 0.0% 4412 -0.9% -4.4% 477 4.5% -12.6%
J K Cements 2.6 21.5% 36.8% 5401 -8.1% -18.2% 1068 8.6% -20.1%
JK Lakshmi Cem. 2.3 -2.1% 11.7% 4369 9.8% -3.8% 660 58.0% -8.5%
Prism Cement 1.4 -7.7% 8.9% 4455 1.5% -1.0% 753 7.1% 22.6%
Orient Cement 1.4 -6.7% 12.9% 4032 6.0% -2.9% 393 55.4% -9.2%
Source: Company, News Article, Ashika Research
Aggregate Volume Realisation & EBITDA per Ton 75 25 6000 20.3 70 20 5000 15.7 65 13.3 13.9 5235 15 4000 5206 4932
11.2 4846 4813 4788 4751 4678 10.1 4669 60 10 3000 55 4.3 2000
5 1,260 983 920
50 898 866
0.1 832 765 745 -1.1 731 1000 45 0 55 63 61 55 61 70 63 56 64 0 40 -5 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Aggregate Vol (Mn Ton) Volume growth (%) Realisation (Rs. / Ton) Aggregate EBITDA (Rs. / Ton) Source: Company, Ashika Research Source: Company, Ashika Research
53 INSIGHT March 2020 Cement Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Ultratech Cement Ltd. 10354 -1% 8% 1973 24% 3% 19% 711 90% 23% 7% Ambuja Cements Ltd. 7126 6% 17% 1117 23% 12% 16% 722 -47% 37% 10% ACC Ltd. 4060 4% 15% 541 11% -3% 13% 268 -63% -10% 7% Shree Cement Ltd. 3146 0% 5% 880 15% 0% 28% 312 -5% 0% 10% Dalmia Bharat Ltd. 2418 12% 8% 455 7% -3% 19% 26 -16% -28% 1% JK Cement Ltd. 1472 11% 12% 290 39% 13% 20% 124 218% 56% 8% The Ramco Cements Ltd. 1282 6% -3% 205 -4% -32% 16% 95 -5% -44% 7% The India Cements Ltd. 1244 -8% -2% 130 -4% -13% 10% -9 Loss PL -1% JK Lakshmi Cement Ltd. 1078 4% 6% 177 67% -1% 16% 51 1479% 2% 5% Orient Cement Ltd. 564 -1% 10% 55 45% 2% 10% -6 Loss Loss -1% Heidelberg Cement India Ltd. 548 -3% 5% 120 -2% -2% 22% 65 10% 11% 12% Star Cement Ltd. 451 8% 18% 94 -23% 46% 21% 71 -15% 57% 16% Sagar Cements Ltd. 262 -18% -1% 20 -34% -53% 8% -9 Loss PL -3% Ramco Industries Ltd. 199 -7% -10% 19 -9% -17% 9% 4 -30% -86% 2% Total 34206 2% 9% 6075 17% 1% 18% 2426 -22% 11% 7%
Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
FMCG Sector growth, while companies having pressure. Milk, palm oil, wheat and The festive season didn’t bring presence in South East Asian sugar prices have been on a rising much cheer for consumer goods countries did well during the quarter. trend, which impacted operating companies as volume growth of most Most input costs have witnessed margins. However, a softening in companies remained under pressure escalation, which kept margins under crude led derivatives provide cushion in Q3FY20. The industry’s growth to companies. Wheat and Barley which was stable at high single-digits prices are up by 9.3% and 10.7% YoY in Q2FY20, moderated to low single respectively. SMP prices are up 47% digits in Q3FY20. Consumer staples’ YoY while Palm oil prices are up 35% volume growth dented in Q3FY20 YoY (31.6% QoQ). Mentha prices are on account of overall consumption Most input costs soft and are down 23.4% YoY. Gold slowdown (average volume growth have witnessed prices are higher by 21.9% YoY and 4.4% QoQ. However crude based down to 1.4% YoY from 4.7% YoY in escalation, which Q2FY20). Rural growth continues inputs like VAM, Packaging, LLP, to lag urban growth, staying at kept margins under LAB, Pigments etc. have been moving 0.5x urban growth however bigger pressure. Milk, palm up steadily. companies continue to do well on the oil, wheat and sugar During Q3FY20, sales performance back of their distribution strength. prices have been on of majority of the FMCG companies One classic sign of slowdown is a rising trend, which was broadly in line with expectations. number of new launches going down impacted operating Within consumer companies, Asian which is playing out in the current Paints and Nestle were one of the margins. However, environment. Additionally, liquidity better performers in a challenging crisis continues to dent liquidity with a softening in crude environment, primarily in terms wholesalers and retailers, thereby led derivatives of volume growth. HUL positively exerting pressure on the trade provide cushion to surprised with a consistent 5% pipeline. On the international front, companies. volume growth. ITC continued to companies having large presence record modest volume growth (2% in geographies such as Africa and YoY). Marico, GCPL, Emami, Kansai, Middle East have witnessed lower Jyothy Labs, Bajaj Consumer Care
March 2020 INSIGHT 54 continue to deliver muted to negative sentiment and liquidity issues in the stable, it expects a limited stress growth primarily due to demand slow trade channel. on gross margins in the near term. down, delayed winters and liquidity However, higher milk & milk product Managements of consumer goods issues in the channel. Majority prices would put stress on the companies are building hopes on of the companies, primarily HPC profitability of food companies in demand revival in another two to (home and personal care) and paint the near term. Although rural sales three quarters banking on some of based companies witnessed gross growth has been tepid over the last the initiatives undertaken by the margin expansion due to benign year, companies would witness a government to improve the liquidity raw material cost. Food & Beverages strong volume led growth in Q1FY21 environment in domestic markets companies like Nestle however driven by companies’ increased and better rabi crop production. witnessed pressure on margins as focus on increasing direct reach Further, the timely on-set of milk and its derivatives saw sharp (thereby reducing dependency on summers will fuel the demand for increase in prices. Consumer wholesalers), favourable base and summer products in Q4FY20. With companies indicated continued government’s greater thrust on prices of crude oil and other key demand moderation particularly in improving rural income levels. inputs such as palm oil remaining the rural markets due to unfavorable
FMCG Players Quarterly Volume Growth (%) Companies Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Asian Paints 7.5 10.5 12.0 11.0 24.0 10.0 20.0 16.0 11.0 Bajaj Consumer 5.2 5.9 8.7 0.1 7.0 5.5 4.7 1.3 (8.6) Berger Paints 8.0 13.0 15.0 15.0 19.0 10.5 12.0 13.0 10.0 Big Bazaar 13.1 11.0 10.1 9.4 10.1 13.6 8.1 4.6 2.1 Britannia 13.0 13.0 13.0 12.0 7.0 7.0 3.0 3.0 3.0 Colgate 12.0 4.0 3.0 5.5 7.0 5.0 6.0 4.0 2.3 Dabur 13.0 7.7 21.0 8.1 12.4 4.3 9.6 4.8 5.6 Emami (Domestic) 6.0 9.0 18.0 (4.0) 3.5 2.0 0.1 1.0 (2.0) FRL 10.4 6.0 3.6 5.9 5.9 11.2 8.3 4.6 2.1 Godrej Consumer (Domestic) 18.0 6.0 14.0 5.0 1.0 1.0 5.0 7.0 7.0 GSK Consumer 17.0 8.0 12.8 13.7 9.6 6.5 5.4 3.6 (1.0) Hindustan Unilever 11.0 11.0 12.0 10.0 10.0 7.0 5.0 5.0 5.0 ITC (Cigarettes) (5.0) (2.5) 1.5 6.0 7.5 7.5 3.0 2.5 2.0 Jubilant (Dominos) 17.8 26.5 26.5 20.5 14.6 6.0 4.1 4.9 5.9 Jyothy Labs 11.5 11.4 18.5 4.4 6.1 6.0 5.6 8.3 (5.6) Kansai Nerolac 14.5 14.5 15.0 9.0 15.0 4.0 10.0 1.0 (2.5) Marico - Domestic 9.4 1.0 12.4 6.0 5.0 8.0 6.0 1.0 (1.0) Marico - Parachute 15.0 (5.0) 9.0 8.0 9.0 6.0 9.0 (1.0) (2.0) Marico - Saffola 0.1 (1.0) 10.0 5.0 2.0 18.0 3.0 1.0 11.0 Marico - Value added hair oils 8.0 11.0 15.0 5.0 7.0 1.0 7.0 0.0 (7.0) Nestle India 18.0 6.9 11.5 15.3 11.5 9.3 12.3 9.0 5.5 Pidilite 23.0 14.0 20.2 11.0 13.0 4.0 6.3 0.6 3.0 Titan: Tanishq 6.0 6.0 (3.0) 24.0 34.0 15.0 6.0 (14.0) (5.0) United breweries 12.0 24.0 12.0 17.0 16.0 7.5 5.0 6.0 (7.0) United Spirits - P&A (3.0) 15.0 13.0 15.0 12.1 7.0 8.4 3.0 2.0 United Spirits - volume growth (14.2) (1.4) 1.1 - 3.8 1.0 6.0 1.0 (1.8)
Source: Company, News Article, Industry Report
55 INSIGHT March 2020 FMCG Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % ITC Ltd. 13308 6% 3% 4977 8% 3% 37% 4048 29% -3% 30% Hindustan Unilever Ltd. 10103 3% 0% 2529 21% 1% 25% 1631 13% -10% 16% United Spirits Ltd. 7812 0% 7% 426 19% 4% 5% 233 15% 47% 3% United Breweries Ltd. 3254 2% -9% 222 -11% 15% 7% 107 -2% -7% 3% Nestle India Ltd. 3149 9% -2% 678 23% -10% 22% 473 38% -21% 15% Britannia Industries Ltd. 2983 5% -2% 502 11% 2% 17% 370 23% -8% 12% Godrej Consumer Products Ltd. 2778 2% 6% 631 4% 10% 23% 445 5% 8% 16% Godrej Industries Ltd. 2696 12% 3% 159 125% 5% 6% 78 LP -74% 3% Dabur India Ltd. 2353 7% 6% 493 11% 1% 21% 399 9% -1% 17% Radico Khaitan Ltd. 2012 -2% -20% 103 7% 18% 5% 56 7% -29% 3% Tata Consumer Products Ltd. 1962 3% 7% 240 22% 2% 12% 140 16% -2% 7% Marico Ltd. 1824 -2% 0% 373 4% 6% 20% 276 10% 10% 15% Godrej Agrovet Ltd. 1783 23% -4% 101 0% -16% 6% 45 0% -56% 3% KRBL Ltd. 1329 42% 49% 239 17% 44% 18% 159 48% 40% 12% Glaxosmithkline Consumer 1159 4% -14% 272 14% -31% 23% 277 25% -20% 24% Healthcare Ltd. Colgate-Palmolive (India) Ltd. 1147 4% -6% 316 1% -2% 28% 199 4% -18% 17% Jubilant FoodWorks Ltd. 1071 14% 7% 254 51% 9% 24% 102 10% 39% 10% Avanti Feeds Ltd. 923 10% -13% 63 -42% -51% 7% 59 -31% -53% 6% Procter & Gamble Hygiene & 859 5% 1% 187 -2% 2% 22% 136 10% -1% 16% Health Care Ltd. Emami Ltd. 813 0% 23% 264 0% 37% 32% 146 6% 50% 18% Godfrey Phillips India Ltd. 797 14% 6% 167 38% 18% 21% 114 39% 0% 14% Gillette India Ltd. 459 -3% -1% 100 2% 2% 22% 71 32% 15% 15% Jyothy Labs Ltd. 421 -6% -11% 66 -8% -16% 16% 45 -12% -16% 11% VST Industries Ltd. 368 17% 14% 108 24% 12% 29% 81 47% 7% 22% Zydus Wellness Ltd. 333 129% 2% 33 -13% 60% 10% 4 -90% LP 1% Total 68746 5% 1% 13961 12% 2% 20% 9943 21% -7% 14% Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Information Technology growth of 0.4-4.3% QoQ. Amongst On the margins front, impact of Sector tier one players Infosys/TCS/Wipro/ furloughs mildly offset a benign 3QFY20 IT companies reported HCL reported constant currency forex environment, leading to mixed performance on revenue front revenue growth of 1.0/0.3/1.8/2.1% margin expansion for most top five (Infosys was better than expected, respectively. The lower growth can players except TechM (owing to Wipro was in-line and TCS was tad mainly be attributed to the pressure rampups in large deal wins). Tier-1 below expectations). Top tier IT in legacy business, though growth in IT companies witnessed an average companies reported average growth digital business (~40% of revenue) margin expansion of 40 bps QoQ of mere 1.1% sequentially compared to partially countered this decline. mainly led by 100 bps QoQ expansion average 1.8% QoQ growth in the third TCS discontinued giving a break-up in TCS. The primary factor in driving quarter of the last four years. The between digital and non-digital margin expansion in TCS was cost top five IT players reported revenue segments citing blurring lines optimisation and currency benefit. growth of 1.0-5.1% QoQ in USD terms, between the two parts of businesses. While higher utilisation, stabilisation with tech mahindra reporting the This may hint at other companies of subcontracting expenses and highest growth driven by robust following in the same footsteps. currency tailwinds helped companies growth in the communications Among mid-tier companies, L&T to report better margin performance, vertical. Infosys, Wipro and HCL Infotech and Tata Elxsi surprised transition of large deals impacted the Tech reported broadly in-line results, positively with strong revenue margin performance of Tech M. Total while TCS missed estimates. Tier-I IT growth, led by recovery in top TCVs of large deals remained slightly pack delivered reported CC revenue accounts and broad-based growth weak in a seasonally soft quarter, across many verticals. with the exception of Tech M which
March 2020 INSIGHT 56 signed strong deal TCVs of USD 1.23 savings to outpace incremental billion (2x YoY), which is also higher investments in 2020. Though the than its usual quarterly run-rate. recent coronavirus impact is still not Despite headwinds in select verticals, accessed in its entirety. deal wins continue to be strong as Revenue growth In terms of verticals, most evidenced by order bookings of managements continued to provide USD 6.0bn by TCS and USD 1.8bn by could remain cautious commentary on retail Infosys. Digital deals continued to healthy in coming segment and banking & financial form a major part of companies’ deal quarters. Further, services (specifically capital markets pipeline and strong growth in digital and European banking), though some business aided the overall growth margins could companies witnessed a revival in the rate of companies. witness expansion latter segment on the back of up-tick Improvement in US BFS revenue led by pyramid in spending by a few banking clients environment and stable commentary rationalisation, and vendor consolidation. Q3 being on IT spends may provide a although a quarter with high furloughs, there sustainable setup for Indian IT were some delays in deal closure. companies in CY20. US banks investments in Hence, few companies witnessed commentary seemed more optimistic deals and pricing quarterly volatility in deal TCV as compared to last 3 quarters. US pressure could keep (Total Contract Value) this quarter. banks had a good quarter & are more However, the outlook on this front optimistic on revenue environment near term margins remained positive. Hence, revenue due to improvement of US-China in check. growth could remain healthy in trade discussions & uptick in coming quarters. Further, margins consumer spending. Commentary could witness expansion led by of major banks like Citi, JP Morgan, pyramid rationalisation, although BoA and Wells Fargo on technology investments in deals and pricing spending remained stable. JP Morgan outlook on technology spending & pressure could keep near term and Goldman Sachs provided healthy Citi indicated higher productivity margins in check.
Quarterly Revenue of Tier-1 Companies (USD Mn.) Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Infosys 2,755.0 2,805.0 2,831.0 2,921.0 2,987.0 3,060.0 3,131.0 3,210.0 3,243.0 QoQ (%) 1.0 1.8 0.9 3.2 2.3 2.4 2.3 2.5 1.0 TCS 4,787.0 4,972.0 5,051.0 5,215.0 5,250.0 5,397.0 5,485.0 5,517.0 5,586.0 QoQ (%) 1.0 3.9 1.6 3.2 0.7 2.8 1.6 0.6 1.3 Wipro 2,013.0 2,062.0 2,026.5 2,041.2 2,046.5 2,075.5 2,038.8 2,048.9 2,094.8 QoQ (%) - 2.4 -1.7 0.7 0.3 1.4 -1.8 0.5 2.2 HCL Tech 1,987.5 2,038.0 2,054.5 2,098.6 2,201.5 2,277.8 2,363.6 2,485.6 2,543.4 QoQ (%) 3.1 2.5 0.8 2.1 4.9 3.5 3.8 5.2 2.3 Tech M 1,209.1 1,244.3 1,224.1 1,218.2 1,260.8 1,267.5 1,247.1 1,287.2 1,353.0 QoQ (%) 2.5 2.9 -1.6 -0.5 3.5 0.5 -1.6 3.2 5.1 Total 12,751.6 13,121.3 13,187.1 13,494.0 13,745.8 14,077.8 14,265.5 14,548.7 14,820.2 QoQ (%) 1.3 2.9 0.5 2.3 1.9 2.4 1.3 2.0 1.9 Source: Company, News Article, Industry Report
Digital revenue (as a % of total revenue) Company Q3FY18 Q4FY18 Q1FY19 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 Infosys 26.1 26.8 28.4 31.0 31.5 33.8 35.7 38.3 40.6 TCS 22.1 23.8 25.0 28.1 30.1 31.0 32.2 33.2 NA Wipro 25.1 26.7 28.0 31.3 33.2 35.0 37.4 39.6 39.8 HCL Tech NA NA 26.6 27.9 29.0 29.5 29.7 33.0 34.0 Tech M NA 27.0 27.0 31.0 33.0 34.1 36.0 39.0 41.0 L&T Infotech 33.0 33.0 34.0 37.0 37.0 38.0 38.9 40.3 41.0 Source: Company, News Article, Industry Report
57 INSIGHT March 2020 Deal Wins (USD Mn.)
Company Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20 TCS 5,100 6,200 5,700 6400.0 6000.0 Infosys 1,570 1,568 2,714 2847.0 1813.0 Tech M 440 408 475 1490.0 1230.0 Source: Company, News Article, Industry Report
Revenue Growth (%) Net Addition &Attrition Rates 6.0 8,000 25% 20.0% 5.0 6,000 17.6% 20% 5.1 16.8% 4,000 15.7% 4.0 4.1 2,000 12.2% 15%
3.0 6,968 5,865 2,050 0 10% 2.0 2.2 2.1 2.3 -2,000 1.8 -683 -4,063 5% 1.0 -4,000 1.0 1.0 0.3 0.6 0.0 -6,000 0% TCS TCS Wipro Wipro Tech M Infosys Tech M Infosys HCL Tech HCL Tech CC QoQ (%) $ revenue QoQ (%) Net Addition (LHS) Attrition (RHS) Source: Company, Industry Report, Ashika Research Source: Company, Industry Report, Ashika Research
Information Technology Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Tata Consultancy Services Ltd. 39854 7% 2% 10871 8% 6% 27% 8143 0% 1% 20% Infosys Ltd. 23092 8% 2% 5801 17% 3% 25% 4466 24% 11% 19% HCL Technologies Ltd. 18135 16% 3% 4629 27% 9% 26% 2944 13% 9% 16% Wipro Ltd. 15471 3% 2% 3180 -3% 3% 21% 2460 -3% -4% 16% Tech Mahindra Ltd. 9655 8% 6% 1563 -9% 4% 16% 1110 -9% 0% 11% Larsen & Toubro Infotech Ltd. 2811 14% 9% 528 4% 13% 19% 377 0% 5% 13% Mphasis Ltd. 2277 16% 5% 427 29% 5% 19% 294 6% 7% 13% Mindtree Ltd. 1965 10% 3% 306 8% 23% 16% 197 3% 46% 10% Hexaware Technologies Ltd. 1529 22% 3% 240 44% 1% 16% 168 36% -9% 11% L&T Technology Services Ltd. 1423 8% 1% 286 18% 1% 20% 206 11% 0% 14% Sonata Software Ltd. 1237 47% 76% 110 10% 21% 9% 76 19% 5% 6% Oracle Financial Services 1160 -2% 0% 526 5% 2% 45% 457 49% 27% 39% Software Ltd. Cyient Ltd. 1106 -7% -5% 152 9% -5% 14% 110 19% 13% 10% NIIT Technologies Ltd. 1073 10% 3% 195 7% 2% 18% 129 22% 3% 12% Firstsource Solutions Ltd. 1053 7% 7% 167 22% 26% 16% 90 -9% 33% 8% Zensar Technologies Ltd. 1021 -1% -5% 70 -26% -54% 7% 41 -27% -50% 4% Persistent Systems Ltd. 923 7% 4% 124 -16% 2% 13% 88 -4% 2% 10% Birlasoft Ltd. 833 48% 8% 107 65% 26% 13% 73 12% 78% 9% Tata Elxsi Ltd. 423 4% 10% 94 3% 34% 22% 75 14% 51% 18% Just Dial Ltd. 235 4% -3% 67 21% 0% 28% 62 8% -19% 26% InfibeamAvenues Ltd. 158 -51% -6% 41 -30% 2% 26% 13 -58% 8% 8% Total 125435 8% 3% 29484 10% 5% 24% 21576 6% 4% 17% Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Metal & Mining Sector The subdued offtake from key user QoQ led by sharply higher exports to Overall for Q3FY20, the metal sector’s industries were driven by global get rid of high-cost inventory, which operational performance was marked uncertainty and weak demand in impacted margins. All companies by subdued realisations both in India. Steel volumes were strong in reported higher steel volumes in ferrous and non-ferrous sector. the quarter, rising 19% YoY and 19% the quarter. Extended monsoon,
March 2020 INSIGHT 58 liquidity issues and the weakness earning came in below estimates. in the automobile sector impacted EBITDA/t came in at Rs. 115, down domestic steel demand registering a 92% QoQ/98% YoY. In non-ferrous flat growth in Q3FY20 compared to space, Hindalco reported aluminium demand growth of 3.8% in Q2FY20 Slowdown in and copper volumes were at 3.28 lakh thereby impacting realisations. This tonnes & 86,000 tonnes, respectively. led EBITDA/tonne of domestic steel Chinese economic Its subsidiary - Novelis delivered companies to slide to multi-quarter growth due to the strong quarter with EBITDA margin lows. Blended steel realizations corona virus and at US$430/t and flat volumes declined sequentially impacted by impacted by temporary destocking. weaker steel prices, re-set of half domestic liquidity Awaiting approval from European yearly automotive contracts at lower concerns remain an Commission to divest Aleris’s levels and higher export volumes. overhang on metal automotive asset in Duffel (Belgium) Spreads in the domestic operations to Liberty House, a precondition for of major steel players declined prices. European asset acquisition. NMDC sequentially for all companies partly reported steady Q3FY20 numbers. offset by lower input costs and Iron ore volumes at 8.4 MT were lower other expenditure. Amid weak down 3% YoY & 45% QoQ. Hindustan demand and lower global commodity Zinc’s earnings were below estimates prices, margins for steel companies Tata Steel reported a subdued due to lower than expected Lead/ were lower QoQ. Tata Steel, JSW performance, with European Silver volumes. Steel, Jindal Steel and SAIL reported realisations (down £75/tonne QoQ) Q4FY20 is expected to be better ~Rs. 500-1,200/t contraction in a particular disappointment. Sales for ferrous as spreads have moved margins in 3QFY20, with SAIL volumes for standalone business, sharply up following 9.4% QoQ uptick reporting the highest contraction. Bhushan Steel and Europe business in domestic HRC prices and much EBITDA/t at Tata Steel Europe was were at 3.4 MT, 1.26 MT and 2.35 MT, better export realisations. On the dismal with a loss of USD 57/t due to respectively. JSW Steel earnings mining front as well, an improvement a fall in steel spreads, weak demand below estimates due to weaker can be seen led by higher iron ore and purchase of carbon credits. margins in domestic operations and prices and shipments. However, disappointing earnings in overseas Most non-ferrous prices remained performance of non-ferrous stocks ops. Domestic unitary EBITDA/ subdued during Q2FY20 with the is expected to stay subdued owing tonne fell at Rs. 5,998, down 7.3% QoQ average price of zinc at US$2387/ to LME prices remaining under (down 51% YoY). JSPL reported lower tonne, down 9.2% YoY & up 1.4% pressure. Spreads are expected to margins in domestic steel operations QoQ. Average price of copper was recover with a recovery in steel made up by higher earnings in Jindal at US$5891/tonne, down 3.7% YoY, prices and lower coking coal costs Power (JPL) and Shadeed. Maintained up 1.4% QoQ. Average aluminium partly offset by higher iron ore costs quarterly run-rate of 3% debt prices were at US$1765/tonne, down for non-integrated steel players. reduction. EBITDA/t came tad below 10.7% YoY, 0.5% QoQ. Lead was an Slowdown in Chinese economic at Rs. 7,914, down 9.8% QoQ/32.7% exception in metals as it reported growth due to the corona virus YoY, due to higher than expected average prices at US$2042/tonne, a and domestic liquidity concerns fall in realisation. Impacted by weak increase of 0.6% QoQ and 3.9% YoY. remain an overhang on metal prices realisations and higher costs, SAIL’s rendering us neutral on the sector.
Volume trend Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % Tata Steel 3.4 3.0 15.4% 3.1 11.0% Tata Steel BSL 1.3 0.9 36.3% 1.0 20.3% JSPL 1.6 1.2 34.2% 1.3 21.1% JSW Steel 4.0 3.7 9.5% 3.6 11.9% SAIL 4.1 3.2 26.4% 3.1 29.9% Jindal Stainless (kt) 239.3 204.1 17.2% 233.3 2.6% Coal India 142.0 154.0 -8.1% 122.0 15.6% NMDC 8.5 8.7 -2.8% 5.8 45.6%
Source: Company, News Article, Industry Report, Ashika Research
59 INSIGHT March 2020 EBITDA/ton trend Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % Tata Steel- standalone 9,638 15,318 -37.1% 11,264 -14.4% Tata Steel BSL 2,194 10,954 -80.0% 4,988 -56.0% JSPL- (Steel only) 7,914 11,754 -32.7% 8,769 -9.8% JSW Steel- standalone 5,998 12,220 -50.9% 6,472 -7.3% SAIL 115 7,965 -98.6% 1,374 -91.6% Jindal Stainless 12,640 11,149 13.4% 13,590 -7.0%
Source: Company, News Article, Industry Report, Ashika Research
Base metal price movement on LME (USD/tonne) Q3FY20 Q3FY19 YoY % Q2FY20 QoQ % Zinc 2,387 2,630 -9.2% 2,353 1.4% Lead 2,042 1,966 3.9% 2,029 0.6% Alum. 1,756 1,966 -10.7% 1,765 -0.5% Copper 5,891 6,120 -3.7% 5,808 1.4%
Source: Company, News Article, Industry Report, Ashika Research
Metal & Mining Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Tata Steel Ltd. 35520 -9% 3% 3620 -46% -5% 10% -1249 PL -138% -4% Hindalco Industries Ltd. 29197 -12% -2% 3364 -12% -7% 12% 1060 -24% 9% 4% Coal India Ltd. 23190 -7% 14% 4968 -27% 38% 21% 3921 -14% 11% 17% Vedanta Ltd. 21360 -10% -3% 6514 15% 47% 30% 2665 14% -2% 12% JSW Steel Ltd. 18055 -11% 3% 2451 -46% -10% 14% 214 -87% -92% 1% Steel Authority Of India Ltd. 16542 4% 17% 1006 -61% -14% 6% -442 PL Loss -3% Jindal Steel & Power Ltd. 9300 -3% 4% 1820 -12% 11% 20% -219 Loss Loss -2% Hindustan Zinc Ltd. 4672 -16% 4% 2289 -19% 8% 49% 1620 -27% -22% 35% NMDC Ltd. 3006 -18% 34% 1590 -26% 50% 53% 1375 -13% 96% 46% Welspun Corp Ltd. 2888 20% 28% 367 93% 26% 13% 186 261% 80% 6% APL Apollo Tubes Ltd. 2116 25% 28% 161 171% 123% 8% 83 547% 39% 4% National Aluminium Company 2088 -23% -12% 34 -93% 7% 2% -34 PL Loss -2% Ltd. Ratnamani Metals & Tubes Ltd. 756 4% 24% 108 7% -7% 14% 101 61% 32% 13% MOIL Ltd. 256 -23% 1% 55 -64% -34% 22% 55 -54% -37% 22% Hindustan Copper Ltd. 93 -80% -68% -41 PL PL -44% -96 PL PL NM Total 169041 -8% 5% 28305 -26% 14% 17% 9240 -44% -40% 5%
Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
Pharmaceuticals Sector driven by a consistent performance margins and continual balance Indian Pharma reported one of in the US, double-digit growth in sheet improvement. After an in-line its best quarters in recent years the domestic market, improving 1H, Q3FY20 further lent a degree
March 2020 INSIGHT 60 of stability as results were largely have knock on effect on the cost in-line on the revenue front and of goods produced globally. It is margins were ahead of expectations expected that over a longer term for most companies. Decent growth the Indian API industry would stand in the domestic formulations (up US market has to benefit as regulators encourage 9.2% YoY) was partially offset by broadly stabilized investments and incentivise the muted US growth, flat YoY / up 3% in terms of API industry to reduce dependence QoQ. Domestic business was strong on China. Also, the cost arbitrage for both acute and chronic therapies price erosions, has narrowed between Indian and mainly due to seasonality benefit and compliance Chinese manufacturers given stricter price hikes across portfolios while issues and a lack environmental and compliance US business was also stable as the of meaningful regulations. benefit from lower price erosion and Despite a visibly strong FY20, stable-to-increasing market share launches should especially in the domestic space, was set off by disappointing new moderate overall there is likely to be a bit of launch performance. Price erosion growth. uncertainty in the near-term. While in the US market has stabilized in the AIOCD data on MAT basis shows the mid-single digits. API segment a balanced growth, companies have reported sequential strong growth indicated that there are challenges mainly due to product related from Jan-Aushadi programme of the opportunities. Most of the other previous 2-3 quarters. govt. that is likely to impact volume geographies have reported decent The outbreak of Corona Virus in uptake. In addition, though the US growth on the back of volume gains China had resulted in a lockdown of market has broadly stabilized in and new launches. The U.S. business industrial activity. This has raised terms of price erosions, compliance of pharma companies is expected to concerns in terms of sourcing of issues and a lack of meaningful be under pressure, attributable to input materials for pharma industry, launches should moderate overall sustained regulatory hurdles from as China is the largest source of growth. In addition, given increased the USFDA as increased inspections intermediates and APIs. In the event focus on specialty portfolio, are ending up with a number of of extended shutdown, the industry companies are inching up R&D observations/warning letters being faces risk of supply disruption and spend in the forthcoming quarters. issued. Moreover, rise in Official increased input cost. Most companies In contrary to this, domestic markets Action Initiated (OAI) status has been have inventory of 3-4 months have reported healthy growth and observed, which could further delay and are closely monitoring the the same is expected to sustain the approval process. Pressures are situation. It is difficult to ascertain going ahead, thus partially offsetting likely to be elevated as the average specific impact at this stage but a the impact of weakness in the U.S. approvals for U.S. markets have prolonged shutdown will impact business. declined to around 30 per quarter the entire supply chain which could from around 65 per quarter over the
Domestic Formulation Business Growth (%) US Business Growth (%) 25.0 25 20.0 20 15.0 15 10.0 22.0 18.0
10 18.0 15.2 16.0 9.0 7.6 4.3 5.0 12.6 13.3 12.0
5 7.9 0.0 0 -5.0 -5 -10.0 -2.9 -4.4 -15.0 -10 -13.4 -20.0 -15 -25.9 -22.2 -25.0 -20
-30.0 -25
Ipca Cipla Cipla Lupin Lupin Cadila Cadila Biocon Torrent Torrent Glenmark Glenmark Aurobindo Dr Reddy's Dr Reddy's Sun Pharma Sun Pharma Source: Company, Ashika Research Source: Company, Ashika Research
61 INSIGHT March 2020 ANDA Approved/Pending Company-wise revenue break-up (Rs. Bn.) 180 90 160 80 140 154 152 70 120 60 14 100 50 103 80 96 40 25 15 60 30 0 2 3 3 40 63 20 13 8 52 49 18 42 25 30 20 32 24 22 20 17 14 15 7 10 16 9 14
0 0
Cipla Cipla Lupin Lupin Cadila Torrent Glenmark Aurobindo Aurobindo Dr Reddy's Dr Reddy's Sun Pharma Sun Pharma ANDA Approval in CY19 Pending ANDA approval US India Europe ROW API + Others Source: Company, Industry Report Source: Company, Industry Report, Ashika Research
Pharmaceuticals Companies Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Sun Pharmaceutical Industries Ltd. 8155 5% 0% 1760 -9% -2% 22% 1024 -30% -12% 13% Aurobindo Pharma Ltd. 5895 12% 5% 1208 11% 6% 20% 706 -1% 10% 12% Dr. Reddys Laboratories Ltd. 4397 14% -9% -289 PL PL -7% -556 PL PL -13% Cipla Ltd. 4371 9% -1% 758 7% -17% 17% 354 9% -26% 8% Piramal Enterprises Ltd. 3806 9% 6% 2296 13% 2% 60% 598 12% 31% 16% Lupin Ltd. 3769 -5% -14% 429 -37% -41% 11% -841 Loss Loss -22% Cadila Healthcare Ltd. 3638 2% 8% 693 -17% 11% 19% 364 -29% 340% 10% Glenmark Pharmaceuticals Ltd. 2736 7% -3% 440 1% -2% 16% 191 64% -25% 7% Alkem Laboratories Ltd. 2182 13% -4% 453 45% 0% 21% 390 90% 2% 18% Torrent Pharmaceuticals Ltd. 1966 -4% -2% 540 -4% 0% 27% 251 2% 3% 13% Biocon Ltd. 1748 13% 11% 444 17% 10% 25% 234 1% -11% 13% Divis Laboratories Ltd. 1396 3% -3% 494 -7% 1% 35% 359 -8% 1% 26% Ipca Laboratories Ltd. 1213 21% -6% 274 17% 3% 23% 200 25% 3% 16% Alembic Pharmaceuticals Ltd. 1209 19% -3% 325 34% -6% 27% 228 33% -9% 19% Abbott India Ltd. 1078 14% 2% 240 64% 17% 22% 187 59% 5% 17% Glaxosmithkline Pharmaceuticals Ltd. 779 -6% -12% 124 -9% -36% 16% -661 PL PL -85% Laurus Labs Ltd. 730 38% 2% 148 69% 8% 20% 73 312% 30% 10% Granules India Ltd. 704 11% 1% 163 44% 14% 23% 64 10% -33% 9% Ajanta Pharma Ltd. 651 34% 1% 186 73% 5% 29% 108 61% -8% 17% Pfizer Ltd. 538 5% -5% 133 -14% -19% 25% 139 5% -10% 26% Natco Pharma Ltd. 482 -13% -1% 129 -38% -4% 27% 104 -34% -11% 22% Eris Lifesciences Ltd. 266 6% -6% 77 -18% -30% 29% 63 -21% -32% 24% Procter & Gamble Health Ltd. 237 16% 5% 49 219% -2% 21% 38 -95% 7% 16% Astrazeneca Pharma India Ltd. 224 4% 7% 37 -10% 10% 16% 27 -8% 85% 12% Total 52170 8% -1% 11112 -6% -13% 21% 3643 -47% -49% 7%
Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
March 2020 INSIGHT 62 Telecom Sector at 1.5 crore while ARPU remain flat at After facing a blow from the Rs. 128 QoQ. The mobile broadband Supreme Court’s unfavorable ruling addition continues to remain strong on AGR liability in Oct’19 and the for RJIO and Bharti Airtel, while TRAI’s consultation process on Telecom operators Vodafone Idea still lags behind due to IUC charge, telecom operators had witnessed improved the ongoing network integration and undertaken tariff hike in December sequential the lag with respect to 4G capacity addition and expansion vis-à-vis 2019. Telecom operators witnessed performance in improved sequential performance peers. Q3FY20 as some in Q3FY20 as some benefits of tariff Going ahead, the investors are keenly hike flowed through in terms of benefits of tariff awaiting the outcome of the adjusted ARPU increase. Even on subscriber hike flowed through gross revenue (AGR) liabilities saga. base, pressure was largely seen in in terms of ARPU The Supreme Court dismissed telcos’ Vodafone Idea while new operators increase. modification petition with respect continued to lead the pack. Vodafone to the AGR liabilities while asking Idea continued to lose subscriber them to pay before the next hearing with net loss of 4 crore customers on March 17. It is expected that this during the quarter and resultant makes duopoly almost certain in the overall subscriber base at 33.3 crore absence of government intervention. while ARPU at Rs. 109 up 1.9% QoQ. Chances of government intervention Bharti Airtel subscriber base was of the company now stands at 32.7 are slim, but it cannot be ruled out largely stable with net addition of 13 crore with ARPU of Rs. 135, up 5.5% considering the judgment’s potential lakh subscribers and subscriber base QoQ. Jio’s subscriber base was at 37.0 impact on PSUs with AGR liabilities. crore and net subscriber addition was
Total subscribers (crore) Jun-19 Market Sep-19 Market Dec-19 Market Share (%) Share (%) Share (%) Bharti 32.0 27.5 32.6 27.7 32.7 28.4 Vodafone Idea 38.3 32.9 37.3 31.7 33.3 28.9 RJIO 33.1 28.4 35.5 30.3 37.0 32.1 Industry 116.5 117.4 115.1
Source: TRAI
Operator-wise ARPU (Rs.) 140
130
120
110
100
90
80 Q2FY19 Q3FY19 Q4FY19 Q1FY20 Q2FY20 Q3FY20
Bharti Airtel Vodafone Idea Reliance Jio Source: Company, News Article, Industry Report
Telecom Companies
Company (Rs Cr) Net YoY QoQ Operating YoY QoQ OPM Net YoY QoQ NPM Sales % % Profit % % % Profit % % % Bharti Airtel Ltd. 21947 8% 4% 9246 51% 5% 42% -617 PL Loss -3% Vodafone Idea Ltd. 11089 -6% 2% 3421 194% 2% 31% -6539 Loss Loss -59% Total 33037 3% 3% 12666 74% 4% 38% -7156 -54% 90% -22%
Source: AceEquity, PL-Profit to Loss and LP=Loss to Profit
63 INSIGHT March 2020 Technical view
Key takeaways from February 2020 IHS Markit India Manufacturing Purchasing Managers’ Coronavirus virus sweeps the globe, with cases in at Index (PMI) jumped from 52.7 in December to 55.3 in least 48 countries. January
China cut the benchmark lending rate, the one-year Wholesale Price Index (WPI)-based inflation continued loan prime rate (LPR) by 10 basis points to 4.05% from to accelerate higher to 3.1% in January 2020 4.15% and the five-year rate from 4.80% to 4.75%. CPI inched upwards to 7.59% during January against India became the world’s fifth largest economy last 7.35% in December. year, according to IMF’s October World Economic SIAM announced the sales figures for January 2020 Outlook where domestic passenger vehicle sales declined 6.2%, Ratings agency Moody’s has slashed its 2020 growth total two-wheeler sales fell 16.06% and commercial projection for India to 5.4% from 6.6% vehicles sales were down 14.04% YoY. RBI maintained status quo in its latest policy announce- Nifty vulnerable at higher levels ment and kept the repo rate unchanged at 5.15% Volatility ruled the market in the month of February 2020 Supreme Court refused relief and asked telecom opera- with a ‘V’ shaped recovery came post the Budget however tors to pay adjusted gross revenue (AGR) dues by 17 March was unable to sustain higher levels and soon entered negative territory. During the month Nifty ended with a Arvind Kejriwal-led Aam Aadmi Party (AAP) registered decline of 3.34%. The Mid-cap Index was up by 4.18% and thumping victory in Delhi polls by winning 62 seats out of Small-Cap was down by 5.05%. Nifty midcap and small cap 70 seats. indices have retraced 61.8%. Faster pace of retracement India’s trade deficit rose 0.9% to $15.17 billion in January signifies negative structural buildup. The market breadth 2020 from $14.73 billion in January 2019. stayed negative with A/D ratio of 1:3.1. Barring Telecom and Consumer Durables, all other indices ended in the Index of industrial production (IIP) shrank 0.3% in red weighed by Realty, Auto, Infra and Capital Goods. December from a 1.8% expansion a month ago. The Telecom sector rose by 3.60% followed by Consumer
March 2020 INSIGHT 64 Durable registering a growth of 2.94%. On the contrary Nifty witnessed selling pressure from its crucial hurdle Realty declined by 12% followed by Auto, Infra and Capital of a Rising Trendline on monthly chart, it also witnessed Goods registered degrowth of more than 9.5%. Trading break-down from the Broadening Formation on daily data for FIIs and DIIs showed that during the month FIIs scale. However, the rising channel formation since last 5 were net sellers to the tune of Rs.11255 Cr and DIIs were years still remains in place and lower end of the channel net buyers to the tune of Rs. 9311 Cr. at 11150-11200 would curb downside potential for Nifty.
FII 40000 30000 20000 10000 0 -10000 -20000 -30000 -40000 Jun-18 Jun-19 Oct-18 Oct-19 Apr-18 Apr-19 Feb-18 Feb-19 Feb-20 Dec-18 Dec-19 Aug-18 Aug-19
Sector & Industry 6.00% 4.00% In Elliott wave analysis currently, Nifty has been sliding to 2.00% its IV wave. Price are falling in wave (i) of wave “(c)” of IV wave. In short term perspective 11100-11200 should pro-
0.00% vide strong support as it further coincides with the 50% Oil
-2.00% eck Infra T retracement and the 100WMA. Hence as per the present Metal lecom Realty
-4.00% Energy Utilities Midcap
Finance setup any rally towards 11800-11900 will provide a good Te -6.00% LargeCap Healthcare shorting opportunity for a downside target of 11100-11200. -8.00% -10.00% -12.00% -14.00%
Nifty formed a bearish ‘Marubozu’ candle in weekly time frame, such pattern has a bearish implication as it paired most of the gains post the budget day. Marubozu Pattern means that bears have completely reverse the gains hence more bearish movement is still. Volume too were stron- ger to term that the downtrend has began.
On the Oscillator front MACD histogram is in the negative zone on a weekly chart and oversold territory on a daily chart, indicating a possible positive move if Index is able to clear the resistance zone of 12270-12300. Daily 13 period ADX also indicates of a further trended downmove in Nifty as ADX is placed at 14 levels, the weekly stochastic oscillator has found support at key support area of its intermediate correction around the 40 mark. Hence, there is a higher possibility of a resumption of sharp trended movement in the market soon.
65 INSIGHT March 2020 from growing coronavirus outbreak outweighing the efforts by OPEC to stabilize prices. Until the fear of the contagion virus diminishes downtrend in oil is unlikely to be reversed. The domestic currency USDINR continues its losing streak after the outbreak of coronavirus. RBI too in its recently held credit policy meet extended the decision to keep interest rates unchanged as surging inflation kept policy makers from easing again to support economic growth, Indian rupee reacted negative and is likely to have bearish outlook.
Brent Crude (USD per Barrel) 95
Other correlated asset classes like Gold is on the higher 85 path as a mounting coronavirus death toll supported 75 safe-haven buying in yellow metal amidst PBoC’s injec- tion of 1.7 trillion Yuan ($242.74 billion) via reverse repos 65 in an efforts to support the jolted economy from the 55 outbreak that is expected to have a devastating impact on its first quarter growth. Not only are the Chinese factories 45 affected by lockdowns and quarantines, production sites 35 in other countries are also running low due to supply disruption. While oil prices may remain on weaker path 25 as energy demand globally would take long-term hit Jul-18 Jul-19 Jul-17 Jan-17 Jan-18 Jan-19 Jan-20 Oct-18 Oct-19 Apr-18 Apr-19 Oct-17 Apr-17 USD-INR 76 74 Crystal Gazing the Derivative Data 72 Call -Put Options Open Interests Distributions 70 for Mar’20 Contract 3000000 68 Call Put 2500000 2395350 66 1895325 2000000 1874475 1618200
64 1500000 1287375 1856550 1070175 1655925 976875 881925
1000000 1039200 801075 1330050 764325 764025 62 762000 714825 683475 150500 645375 641250 1 549675 543225 490275 445950 438750 484425 60 500000 354075 165450 123375 123675 63300 50025 36750 33600 25425 9225 9075 5175 0 170175 1000 1200 1300 1400 1500 1600 1700 1800 1900 11 100 1 1 1 1 1 1 1 1 1 10700 10800 10900 12000 12100 12200 12300 12400 12500 12600 Jul-17 Jul-18 Jul-19 Jan-17 Jan-18 Jan-19 Jan-20 Oct-17 Oct-18 Oct-19 Apr-17 Apr-18 Apr-19
Nifty rollovers on expiry day stood at 77% on provisional Gold USD per Oz 1700 basis, higher than the February series figure of 66% while market wide rollover stood at 85% v/s 88% in the previous 1600 month. Short positions created by FIIs during the series 1500 have been rolled over to the next month and fresh short positions have been added in the new series. India VIX — 1400 which measures market’s perception of risk in near-term, 1300 moved up by 5.7% in the February series. Put writers are 1200 holding positions which indicates that there is possibility of a bounce-back to 11,750, but it will remain a ‘sell on 1100 rise’ situation. The 11800 strike holds the highest open 1000 interest among Nifty put options, followed by the 11700 strike. The 12000 strike holds the highest number of open positions among Nifty call options expiring March 26. Jul-18 Jul-19 Jul-17 Jan-17 Jan-18 Jan-19 Jan-20 Oct-18 Oct-19 Apr-18 Apr-19 Oct-17 Apr-17
March 2020 INSIGHT 66 Summing it up volume projects an upside target developing from the In the month of February Index started on a positive ‘Flag’ formation at 15100 and beyond. note gained sharply at the beginning but failed to sustain above crucial resistance zone 12250-12300, consolidated for a brief period and then registered downtrend. The sharp surge or the ‘V’ shaped recovery traditionally leads to a consolidation for a certain period before the sharp downtrend started. However in the present scenario bias would remain corrective as long as index maintains lower high-low formation. Hence, to pause the ongoing correc- tive decline, index need to decisively close above previous swing high of 12250-12300. Strong support for Nifty exist in the range of 11100 11300- as s it is confluence of 61.8% retracement of last major up move (10637-12430) at 11322, Long term upward sloping trend line at 11000. Hence structurally, over past six weeks index has corrected by over 7% that hauled weekly stochastic oscillator to cool off Activity in broader Space the overbought condition (currently placed at 45). Hence, NSE 500 Stocks at 52 Week High we believe that the ongoing secondary corrective decline Sl No. Stocks Close Price in a major up move will make market healthy with stock specific action and pave way to challenge the upper band 1 Biocon 314.3 of consolidation at 12300 and beyond. 2 CDSL 289.3 Other Indices to watch for 3 Essel Propack 190.7 Nifty Media: The down trend in the sector since 2018 4 FDC 256.6 onward seems to be reversing with of the sector since 5 GMR Infrastructure 25.5 2015 onward seems to have been reversing with positive divergence in oscillator and breach of downward sloping 6 Indian Energy Exchange 193.6 trendline. Prices sustaining above the recent congestion 7 JK Cement 1494.1 zone of 1920-1930 can be earmarked as a clear emergence of uptrend and projects price target from 23.6% retrace- 8 Shilpa Medicare 489.5 ment at 2070-2130. 9 Tasty Bite Eatables 12605.1
10 Tube Investments of India 544.5
NSE 500 Stocks with highest delivery position Sl No. Stocks Close Price 1 UltraTech Cement 4395.0 2 Zee Entertainment 249.1 3 Bata India 1759.4 4 NIIT Technologies 1838.8 5 Adani Gas 164.7 6 Can Fin Homes 510.4 Nifty MNC: The sector has been making a sequence of 7 Berger Paints India 568.3 higher high and higher low since August 2018 onward. Historically a bullish Flag formation was also initiated, 8 Divi's Laboratories 2160.5 and target is still awaited. The sector has been facing 9 Grasim Industries 724.9 resistance around 14400-14420 for multiple number of time. Sustaining decisively above the said resistance with 10 Swan Energy 136.8
67 INSIGHT March 2020 Commodity monthly round-up
GOLD Speculative Positions at COMEX in Gold Monthly Gain/ Quarterly Gain/ Yearly Gain/Loss Loss Loss 5.15% 10.14% 10.14% Important News: Large speculators sharply hiked their bullish position- ing in gold futures by 22% during the most recent report- ing week Source: investing.com, CFTC The price of gold jumped by near Rs 2000/10 in single day at the end of February Technical Analysis More upside in gold can be seen if the fear of pandemic Monthly Support/Resistance spreads R3 R2 R1 Pivot S1 S2 S3 International gold prices rose more than 2 percent to their $1841 $1770 $1710 $1628 $1572 $1490 $1415 highest in more than seven years, as a spike in coronavi- rus cases beyond China pushed investors to take refuge in After breaking out from $1550 level, gold gained maximum the safe-haven metal, said a Reuters report. strength and now poised to touch the next resistance of Analysts attributed this to both ongoing safe-haven $1786 level. Currently gold is trading at $1651, the support buying due to fears of the coronavirus impacting the is at $1530. Only breaks below $1530 can jeopardy the cur- global economy, as well as expectations that the Federal rent uptrend. 20 weekly Simple Moving Average is exactly Reserve remains dovish. The CFTC’s “disaggregated” at the support of $1530 which is giving more weightage to report showed that money managers hiked their net-long the $1530 support level. Weekly RSI is above 70 which is position to 238,546 futures contracts as of Feb. 18 from overbought territory but history shows still it has much 195,671 the week before. This was due to fresh buying, room to move up, so this is also supporting the bullish as the number of total longs soared by 46,787 lots. This prediction of the market. overwhelmed the fresh selling. Moreover due to rising Indian gold future may appreciate more compare to its demand, holdings in the worlds largest gold backed Dollar counterpart as Indian Rupees weakness against US ETF, SPDR Gold Trust ETF rose to the highest level since Dollar may help the metal. November 2016 to 940.09 tonnes on February 25, 2020.
Weekly Chart: GOLD Spot
March 2020 INSIGHT 68 BOOK REVIEW
Value Investing and Behavioral Finance by Parag Parekh
his month the book review importantly, unwillingness to delay nature of human being to seek the chosen is Value Investing gratification and the inherent fastest and the easiest way to get the and Behavioral Finance by things they want and want it right Parag Parikh. This book now. The pull of the expediency Ttalks about value investing and the factor is so strong that the long- behavioral traits required to be term consequences are highly successful in equity markets. He compromised. Hence the “law of the touches upon the mental strength The basic farm” which says that you cannot sow and models required for being a characteristics of a seed today and reap tomorrow is successful investor and to ward of the human nature of ignored. It takes time for the seed to basic instinct of greed and fear which grow into a tree. It has to go through leads to sub-par decision making in laziness, greedy, different seasons. Self-discipline in investing. What an investor requires ambition, self- a sense is overlooked and processes in terms of the emotional quotient interest, ignorance and hard work is compromised (EQ) and the intelligent quotient (IQ) and vanity are a because of the heuristic biases. and the importance of EQ over IQ is In the second chapter he talks about very well laid out. deterrent in taking sound decision the market returns and the actual The first chapter discussed is about returns based on fundamentals and the reasons for success and failure of making and clouds the speculative returns built into an investor. The basic characteristics our rational mind the price is gauged to understand of human nature of laziness, greedy, to look through how much fundamental is factored ambition, self-interest, ignorance a given situation into the markets and how much is and vanity are a deterrent in taking speculative in nature. sound decision making and clouds with clarity. The table below is reflective of his our rational mind to look through way of thinking of various factors a given situation with clarity. More embedded in the market returns.
69 INSIGHT March 2020 Normal Total Fundamental Return Specula- Dvd. Yld. Date Sensex PE Ratio Return Return EPS Return tive Return Dec-10 20509 20.4 17.4% 18.9% 993.6 38.6% -20.9% 1.2% Dec-11 15455 14.8 -24.6% -18.8% 1083.5 9.1% -29.7% 1.8% Dec-12 19427 16.7 25.7% 23.7% 1163.4 7.4% 14.7% 1.6% Dec-13 21171 16.7 9.0% 8.5% 1247.3 7.2% -0.3% 1.6% Dec-14 27499 19.4 29.9% 32.4% 1409.0 13.0% 17.9% 1.5% Dec-15 26118 19.3 -5.0% -5.1% 1321.3 -6.2% -0.5% 1.6% Dec-16 26626 19.9 1.9% 3.6% 1307.2 -1.1% 3.0% 1.7% Dec-17 34057 23.3 27.9% 31.6% 1459.9 11.7% 18.6% 1.3% Dec-18 36068 26.9 5.9% 7.4% 1336.3 -8.5% 14.4% 1.5% Dec-19 41254 25.0 14.4% 12.2% 1594.7 19.3% -8.5% 1.4%
Total Return = Fundamental Return + Speculative Return + Dividend Fundamental Return = % change in EPS YoY Speculative Return = EPS * Change in PE ratio/Price Paid
He talks about PE contractions Then he talks about different style of crucial role. and expansion and the long-term investing and the distinction between Value investing: When one buys a fundamental returns is equal to the value investing and growth investing. stock, one is buying a business. It growth in earnings whereas the The three integral sources of value is necessary to understand that the PE contraction and expansion in are assets, earnings and growth. business is good and sustainable. Its the short term leads to speculative Also, the role of process versus earnings stream is also predictable. returns built into the price because of outcome, as process is important The price the investor pays for various forces coming to play along in defining the success in the long this business is important. A value with the fundamentals. Hence the run. Chance plays a crucial role in investor will buy this business oscillation of Mr. Market between determination of an outcome in a at a much lower value than the greed and fear. singular event. But in a sequence of fundamentals justify. One major Also, corporate performance and event, the role of chance diminishes, distinction on value one should bear shareholders performance can and it is the process that plays the in mind is between “value in use” and be diagonally opposite. It is the “value in exchange”. Water has good behavioral traits of the investor in value in use and gold has good value particular and the crowd behavior in exchange. of the markets in general which He talks about behavioral obstacles makes equity investing appear a for pursuing value strategies, risky proposition. Real discipline When one buys like error of judgement, well-run and courage is: you buy when you companies= good companies, emotionally do not feel like buying, a stock, one is instant gratification, loss aversion and sell when your heart says no but buying a business. and valuation heuristics as an the mind and the logic say yes. It is necessary impediment for it. Interesting in it In this book he exhaustively talks to understand is the loss aversion where people about behavioral finance which that the business generally tend to take more risks is a subject that combines the is good and simply to avoid acknowledging a understanding of behavioral and sustainable. Its certain loss and avoid taking extra cognitive psychology with financial earnings stream is risk even if it entails a higher profit decision-making processes. As potential. Also, with regards to Warren Buffet says, “It is only when also predictable. valuation heuristics (Heuristics are you combine sound intellect with the short cut the brain takes when emotional discipline that you get processing information. It does not rational behavior.” process full information. This leads
March 2020 INSIGHT 70 to cognitive biases) or the rules of the regards to various factors leads thumb in valuing companies which to intense speculative activity and becomes the innovations of the the thrill of momentum investing valuation game and hence become in the stock. Whereas in the long the distorted benchmark for the A company’s run, it is the net cash generated industry so as to do a swift valuation value is a function by the business that determines for earning quick bucks. Some of the the returns for the shareholders valuation heuristics are P/E, P/B, P/ of market and needs to look in perspective Sales etc. expectations for of how competent the business is its growth rate in generating free cash flow in the For growth investing he sums up long-term. Commodity cycle plays well by saying that for any stock to and its economic a key role and replacement value be a growth stock it has first to be return (i.e., and its discount and premium to it a value stock. Value and growth are return of capital is the key to spot any opportunity inseparable. The concept of growth higher than its in it. More importantly when a rise stock is a product of a bull market. cost of capital in the price of a commodity occurs, It dies when the bear market sets in. there will ordinarily be a larger Bear market create values. consistently). advance, percentage-wise, in the Behavioral traits pursing growth shares of high-cost producers than strategies which one needs to be in the share of low-cost producers, vigilant of are availability heuristics, effect, confirmation trap and also contrary to the general perception. follow the herd, chasing fads and organizational constraints. Hence high-cost producers are more fancies, novelty over familiarity, logical commitments that those of In the fifth chapter he talks about instant gratification, rationalization low-cost producers when the buyer growth traps and real behavioral trap and expectation investing. is convinced that a rise in the price of biases for it are availability heuristic, a commodity is imminent. Important to highlight is that growth go with the herd, overconfidence of a company doesn’t translates to bias, bystander effect, peer pressure Then he goes on to talk about PSU return of stocks. A company’s value effect, information cascades and halo sector and Sector investing. In is a function of market expectations effects. Also, the earlier talked about sector investing top-down approach, for its growth rate and its economic growth investing and its behavioral high-growth sector is looked at and return (i.e., return of capital higher traits also to be looked at in contrast. the behavioral traits in it are the than its cost of capital consistently). representativeness bias, availability, Investment opportunities don’t herd mentality, anchoring, winner’s In the fourth chapter he talks about come daily. However, the noise curse ad confirmation bias. Contrarian Investor as the one who of the markets offers mispriced Companies in out-of-favor sectors attempts to profit by betting against securities from time to time. All can result in healthy investor returns. conventional wisdom, but only information on companies is always when consensual opinion appears readily available. This can never be For IPOs the author has a firm to be wrong. What really differs a an edge in investing. Being in control belief that IPO’s generally are richly contrarian investor is his emphasis of one’s impulses and keeping the priced because of the behavioral on looking for opportunities where urges in control will help one to spot biases of the promoters, merchant the sensual opinion has led to mispriced opportunities and avoid bankers, venture capitalist, private mispricing. And the difficulties the growth trap. equity investors and the likes. IPO following a contrarian investing is during bear phase is the one to be For commodities the valuation in psychological constraints, group closely looked at, because of the low the short term is dependent on thinking, false consensus effect, expectation and less aggressiveness r/m prices, product price change, buyers remorse, ambiguity effect, in pricing the IPO in bad markets for debt level, low cost producers etc. illusion of control, herd mentality, fear of undersubscription. Volatility in the short term with myopic loss aversion, recency
71 INSIGHT March 2020 6 13 27 20 Friday U. of Mich. Sentiment U. MoM Price Index Import Change in Nonfarm Payrolls in Nonfarm Change Rate Unemployment Trade Balance Wholesale Inventories MoM Inventories Wholesale Tokyo CPI Ex-Fresh Food YoY Food CPI Ex-Fresh Tokyo Tertiary Industry Index MoM Index Industry Tertiary Leading Index CI Index Leading U. of Mich. Sentiment US: U. JN: Income US: Personal Spending US: Personal MoM Deflator US: PCE Core Existing Home Sales Home US: Existing Groups Banking UK: PSNB ex US: JN: US: US: US: US: US: JN: 5 12 19 26 Thursday Wholesale Inventories MoM Inventories Wholesale All Industry Activity Index MoM Index Activity All Industry Bank of England Bank Rate Bank of England UK: Bank Claims US: Initial Jobless Annualized US: GDP QoQ US: Fuel MoM Auto Inc UK: Retail Sales Initial Jobless Claims US: Initial Jobless JN: Natl CPI YoY JN: Index US: Leading Business Outlook Fed US: Philadelphia IN: Industrial YoY Production IN: Exports YoY YoY IN: CPI Claims US: Initial Jobless Rate Refinancing EC: ECB Main Initial Jobless Claims US: Initial Jobless Goods Orders US: Durable Orders US: Factory Comfort Consumer US: Bloomberg Air Ex Nondef US: Cap Goods Orders 4 11 25 18 Wednesday Trade Balance GBP/Mn ADP Employment Change Employment ADP Trade Balance UK: CPI YoY Goods Orders US: Durable MoM NSA UK: PPI Output MoM Price Index House US: FHFA UK: RPI MoM FOMC Rate Decision (Upper Bound) Rate Decision (Upper US: FOMC EC: CPI YoY Starts US: Housing JN: Permits US: Building US: CPI MoM Applications US: MBA Mortgage MoM UK: Industrial Production Statement Budget US: Monthly UK: Markit India PMI Composite PMI India IN: Markit Services PMI India IN: Markit US: Index US: ISM Non-Manufacturing PMI Composite CH: Caixin China 3 17 31 24 10 Tuesday Eight Infrastructure Industries Infrastructure IN: Eight MoM JN: Industrial Production Rate JN: Jobless QoQ UK: GDP EC: CPI MoM New Home Sales Home US: New PMI Mfg Japan Bank JN: Jibun PMI Manufacturing Eurozone EC: Markit Index Manufact. US: Richmond Fed YoY Orders JN: Machine Tool Industrial Production MoM JN: Industrial Production Claims Change UK: Jobless MoM Advance US: Retail Sales Rate 3Mths UK: ILO Unemployment MoM US: Industrial Production Manpower Survey IN: Manpower CH: CPI YoY QoQ SA EC: GDP CH: PPI YoY YoY Orders JN: Machine Tool EC: CPI MoM UK Construction PMI UK: Markit/CIPS Rate EC: Unemployment EC: PPI YoY 2 9 16 23 30 Monday , US: United States, EC: European Union, UK: United Kingdom, CH: China, JN: Japan Kingdom, UK: United Union, States, EC: European , US: United Trade Balance Wholesale Prices YoY Wholesale Trade Balance BoP Basis Trade Balance BoP Nationwide House PX MoM PX House UK: Nationwide Approvals UK: Mortgage MoM Sales Home US: Pending Confidence EC: Consumer Activity Manf. Fed US: Dallas Consumer Confidence EC: Consumer Index Activity Nat Fed US: Chicago IN: Core Machine Orders MoM Orders Machine JN: Core Manufacturing US: Empire CH: Industrial YTD YoY Production Prices MoM House UK: Rightmove CH: QoQ SA JN: GDP JN: Markit India PMI Mfg PMI India IN: Markit Industries Infrastructure IN: Eight US: ISM Manufacturing PMI Mfg CH: Caixin China PMI Mfg Japan Bank JN: Jibun IN: India World economic calendar economic calendar World 2020 March
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73 INSIGHT March 2020 Services at Ashika Wealth Advisory Private Limited
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March 2020 INSIGHT 74 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
75 INSIGHT March 2020 Ashika Stock Broking Ltd.
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March 2020 INSIGHT 76 Gyanada Foundation Ashika Group supports charitable foundation to fuel the aspirations of young girls in India. The new year has brought in new aspirations for Gyanada Foundation. With goals set and a lot of events lined up for the coming year, we’ve started strong in the month of January. Here are a couple of highlights of our head start.
FELLOWSHIP WITH GYANADA FOUNDATION We’re happy to share that our fellowship enrolment will soon open by the first week of March. Fellowship with Gyanada Foundation is a two-year program for students or IT professionals, designed at and deployed in under-resourced schools to introduce school children to Computer Programming (CS) and Physical Computing. It is a wonderful opportunity for fellows to design the learning content of the classes they lead. By teaching children of grade 7th to 9th, they have the chance to shape an alternative way of learning and education. In this process, our fellows in turn become life long learners. To know more about our fellowships, visit: https://www.gyanada.org/fellowship.html
CEL HACKATHON The CEL Hackathon, a national level event, was held on the 9th of February with preparations having begun since January. It was a platform of wide exposure, were children had their unique takes on the four major sustainable development goals- (i) zero hunger, (ii) good heath and well being, (iii) quality education and (iv) peace justice and strong institution. They had to understand these goals and relate them with their surroundings and use Scratch to code projects which would spread awareness about them and help people take action to progress towards the goal. The planned journey of the hackathon began with the school communicating the problem statement to kids one week before Hackathon week i.e. on 27 January 2020. Students then took time to understand the problem statement and discussed various solutions with their partner. They had feedbacks from their teacher and prepared on the project that they wish to create on the Hackathon day. On Hackathon Day, each pair got 90 minutes to create the project on Scratch and another 30 minutes to make a concept note and 3 mins to present the project in front of other kids and guests. The event was a great success to bring forward the kids’ creativity, understanding and their ability to express their idea. The links for these innovative projects can be found on our website: www.gyanada.org
FUNDRAISING FOR GYANADA LABS Affordable Gyanada labs have been our way to provide kids with hands on experience with technology. With Raspberry pi and Arduino, we have been able to establish low cost labs. We wish to open up new ones to further expand their reach to children. For this, we’ll soon be hosting a crowd funding campaign for fundraising for eight new Gyanada Labs we wish to establish across Mumbai.
Donate here: https://rzp.io/i/eqMEM6I Gyanada Foundation Details 12A:M.No.DIT(E)/8E/472/2013-14/14-15/T-94/1672-74 80G: No.DIT (E)/8E/472/2013-14/14-15/G-187/1675-77 PAN: AABTG9774G Trust Registration No: IV 06246 of 2013 Facebook: @gyanadafoundation, Twitter: @Gyanada_Fdn, Instagram: gyanada_fdn, Website: gyanada.org
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