August 2021 Compendium of conference calls: Q1FY22
Quarterly Quotes
Headwinds galore
On a firm footing to Debt ride the trend woes Challenges ahead Policy push Growth levers in place Demand swing Consolidation Debt to be wave f rolled over Rising ad spends
Costs in control cus
Edelweiss Research Team +91 22 2286 4400 Edelweiss Securities Limited research@edelweissfin.com Q1FY22 conference call highlights
Dear Investor and Corporate,
Quarterly numbers matter; they lend a quantitative as well as qualitative sheen to what has been (Q1FY22 review). But management quotes go far beyond plain-vanilla numbers: they offer deeper insights into what individual companies are doing, how they are thinking and how market participants are perceiving them. That one can benchmark them to industry peers or their previous observations and/or collate them by sector extends their relevance well beyond the results or near-term influences. Management quotes are, hence, far more significant and relevant than mere numbers for the market.
Ongoing management commentaries also entail links and threads to a bigger picture as to what’s happening—not only at individual companies, but also in the sector and markets. Besides, they contain a key element of guidance, helping investors identify winning ideas and shed potential losers. So, more than the numbers, it’s the linkage across numbers that’s of bigger import. We try to tie the threads via links to previous quarters (Q4FY21 and Q3FY21).
Muted Q1FY22 top-line growth – up only 3% on 2Y CAGR – reflects the fallout of the ravaging second wave. Earnings momentum sustained though, with our coverage universe posting 17% PAT on a 2Y CAGR basis (estimate: 22%). Even so, earnings growth is visibly narrow, led by commodities, banks and exporters (>15% 2Y CAGR), while domestic consumption contracted (2Y CAGR basis). Margin pressure is evident across the board as input prices rose and cost rationalisation measures seem to have largely played out. In the banking sector, slippages rose led by MSMEs and retail. For FY22 Nifty EPS, estimates are largely intact (in the wake of upgrades for past three quarters) with cuts in Banks and Consumers countervailed by upgrades in Commodities. Edelweiss Nifty FY21/22/23E EPS is INR523/680/800 (consensus forecast: INR523/710/830).
For those in a hurry, a round-up of key takeaways, quotes and notables that could be reflective of the issues that matter is included. The compendium captures the essence and nuances of what companies are saying bottom-up.
We do hope you find this product useful and, as always, welcome feedback to make it better and more relevant for you.
Edelweiss Research Team
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Q1FY22 conference call highlights
A round-up of key takeaways
Commodity cost pressure to continue in Q2FY22 Automobiles
From these levels of slippages, we should see a significant improvement in the quarters to come, with a caveat that COVID 3.0 is nowhere as intense as COVID 2.0. And subject to that, I am optimistic about a significant improvement in slippages...”. Banking Mr. Uday Kotak, MD & CEO, KMB
Pricing and cost control aiding OPMs; pent-up largely behind Consumer Durables
“May was severely impacted as a large part of the country was under localized lockdown. As restrictions lifted FMCG progressively, June month rebounded to Mar-21 levels.”
— Mr. Sanjiv Mehta, Chairman & Managing Director, HUL
“There is a huge shortage of PVC and this is going to support cash-rich companies of organized brands and players.” Home Decor
— Mr. Sandeep Engineer, MD, Astral Ltd
Impressive ordering & growth commentary; on- Industrials ground execution lags
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We are still just scratching the surface on the headroom or opportunity we have in term of digital adoption across verticals and across segments IT —N. G. Subramaniam, COO, TCS
Looking forward, we see the demand outlook further improving into the second Metals & Mining half and have therefore upgraded our steel consumption forecasts for the year.
Aditya Mittal, ArcelorMittal CEO
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Strong margin show despite the plunge in volumes Oil & Gas
Jubilant Foodworks: Plan to open 150-175 stores for Dominos in FY22. While there may be marginal Retail cannibalization due to split stores, overall it expects the revenue, payback profile to be similar to existing performance.
We want current logistic challenges to continue as despite near term margin pressure, it is helping us gaining more market share globally as other countries are not able meet global Specialty Chemicals requirement.
—Fine Organics
Tariff hike remains critical to revive the sector and pricing structure has to change where Telecom operators have the ability to charge customers for incremental usage”
–Ravinder Takkar, CEO, Vodafone Idea
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Q1FY22 conference call highlights
Contents
Abrasives
Carborundum Universal...... 11
Agri Inputs
Coromandel International ...... 15
Dhanuka Agritech ...... 18
PI Industries ...... 20
Rallis India ...... 22
Sharda Cropchem ...... 24
UPL ...... 26
Auto & auto components
Ashok Leyland ...... 29
Bajaj Auto ...... 33
CEAT ...... 36
Eicher Motors ...... 38
Hero MotoCorp...... 40
Mahindra and Mahindra ...... 43
Maruti Suzuki ...... 46
Minda Corporatieon ...... 50
Motherson Sumi Systems ...... 53
Suprajit Engineering...... 54
Tata Motors ...... 56
Banks, financial services and insurance
Aavas Financiers ...... 61
Axis Bank ...... 62
Bandhan Bank ...... 64
Bajaj Finserv ...... 66
DCB Bank ...... 68
Federal Bank ...... 70
HDFC Bank ...... 72
HDFC Life Insurance Company ...... 75
ICICI Bank ...... 77
ICICI Lombard General Insurance ...... 79
ICICI Prudential Life Insurance ...... 81
IndusInd Bank ...... 84
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Kotak Mahindra Bank ...... 86
LIC Housing Finance ...... 88
Mahindra Finance ...... 90
Shriram City Union Finance ...... 92
Shriram Transport ...... 93
State Bank of India ...... 95
Yes Bank ...... 97
Bearings
Schaeffler India ...... 100
SKF India ...... 103
Cement
Grasim Industries ...... 106
J K Cement ...... 107
UltraTech Cement ...... 109
Construction
Ahluwalia Contracts ...... 111
Ashoka Buildcon ...... 112
Capacit’e Infraprojects...... 114
J Kumar Infraprojects ...... 115
KNR Constructions ...... 116
NBCC ...... 117
PNC Infatech ...... 118
Titagarh Wagons ...... 120
Consumer Durables
Amber Enterprises ...... 122
Bajaj Electricals ...... 125
Crompton Greaves Consumer Electricals ...... 127
Havells India ...... 128
KEI Industries ...... 130
Polycab India ...... 132
Symphony ...... 134
Voltas ...... 136
Engineering & Capital Goods
ABB ...... 141
AIA Engineering ...... 143
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Cummins India ...... 145
Greaves Cotton ...... 148
Kalpataru Power ...... 151
KEC International ...... 154
Larsen & Toubro ...... 157
Thermax ...... 160
FMCG
Asian Paints ...... 163
Bajaj Consumer Care ...... 165
Berger Paints ...... 167
Britannia Industries ...... 169
Dabur ...... 171
Emami ...... 175
HUL ...... 177
Marico ...... 180
Pidilite ...... 184
Tata Consumer Products ...... 186
United Spirits ...... 189
Healthcare
Apollo Hospitals ...... 192
Dr Lal PathLabs ...... 194
Healthcare Global ...... 196
Fortis Healthcare ...... 197
Hotels/Hospitality/Aviation
Indian Hotels ...... 200
InterGlobe Aviation ...... 202
Lemon Tree Hotels ...... 203
Mahindra Holidays & Resorts ...... 205
Home Décor
Century Plyboards ...... 208
Kajaria Ceramics ...... 210
Greenlam Industries ...... 213
Prince Pipes ...... 216
Somany Ceramics...... 219
Supreme Industries ...... 222
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IT
Cyient ...... 227
Eclerx ...... 228
HCL Technologies ...... 229
Infosys ...... 230
L&T Infotech ...... 231
L & T Technology Services ...... 232
Mindtree ...... 233
Persistent Systems ...... 234
Tata Consultancy Services ...... 235
Tech Mahindra ...... 236
Wipro ...... 237
Lubricants
Castrol India ...... 239
Gulf Oil Lubricants ...... 241
Media
Inox Leisure ...... 244
PVR ...... 246
Sun TV Network ...... 248
Zee Entertainment Enterprises ...... 250
Metals & Mining
Coal India ...... 253
Hindalco Industries ...... 255
Jindal Stainless ...... 258
Jindal Steel & Power ...... 260
JSW Steel ...... 262
NMDC ...... 265
SAIL ...... 267
Tata Steel ...... 270
Vedanta ...... 272
Oil & Gas, Petrochemicals
Bharat Petroleum Corporation ...... 275
GAIL ...... 276
Gujarat Gas ...... 277
Hindustan Petroleum Corporation ...... 278
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Indian Oil Corporation ...... 279
Mahanagar Gas ...... 280
ONGC ...... 281
Petronet LNG ...... 282
Pharmaceuticals
Alkem Laboratories ...... 284
Ajanta Pharma ...... 286
Aurobindo ...... 288
Biocon ...... 290
Cadila Healthcare ...... 292
Cipla ...... 294
Divi’s Laboratories ...... 296
Dr. Reddy’s Laboratories ...... 298
Glenmark Pharmaceuticals ...... 299
Ipca Laboratories ...... 301
Lupin ...... 303
Natco Pharma ...... 305
Sun Pharmaceuticals ...... 306
Torrent Pharmaceuticals ...... 307
Power
Adani Ports and SEZ ...... 310
Gujarat Pipavav Port ...... 314
Indian Energy Exchange ...... 316
India Grid Trust ...... 319
NTPC ...... 320
Tata Power Company...... 322
Real Estate
Brigade Enterprises ...... 326
DLF ...... 329
Godrej Properties ...... 332
Oberoi Realty ...... 334
Sobha ...... 336
Sunteck Realty ...... 338
Retail
Aditya Birla Fashion and Retail ...... 341
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Burger King ...... 343
Jubilant FoodWorks ...... 344
Shoppers Stop ...... 346
Titan Company ...... 348
V-Mart Retail ...... 350
Specialty Chemicals
Aarti Industries ...... 353
Galaxy Surfactants ...... 355
SRF ...... 357
Textiles
Arvind ...... 361
Page Industries ...... 363
TCNS Clothing ...... 364
Welspun India ...... 365
Miscellaneous
Balkrishna Industries ...... 368
Bharat Forge ...... 370
CCL Products ...... 372
EPL ...... 373
Heritage Foods ...... 376
Sheela Foam ...... 378
Solar Industries ...... 380
Supreme Industries ...... 382
VIP Industries ...... 386
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Q1FY22 conference call highlights
Abrasives
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Q1FY22 conference call highlights
Carborundum Universal
Financial Revenue grew 58% YoY (24% above estimate) and down mere 6% QoQ. Sales jumped 108% YoY across abrasives, 37% across EMD and 61% YoY across ceramics for Q1FY22. Compared to Q1FY20, sales grew 6% YoY.
Gross margin for Q1FY22 grew 81bps YoY to 67.4%. Operating leverage and portfolio optimisation resulted in EBITDA margin expansion of 695bps YoY to 16.6%. EBITDA grew 172% YoY (17% above estimate).
Robust profitability resulted in APAT growth of 266% YoY to INR1.02bn (21% above estimate).
CUMI incurred INR15-20mn on covid related expenses.
Capex remains on track: Capex is targeted at INR1.3bn for FY22 and incurred INR0.29bn in Q1FY22. Management will also look at inorganic opportunities in abrasives and higher resource allocation to capture markets in ceramics and electrominerals.
Management anticipates better demand due to PLI schemes and additional thrust in the Union Budget announced by the government with opportunities across the abrasives, ceramics and EMD divisions in automotive and auto components, electronics, pharmaceuticals, alloy steels, among others. However, the PLI schemes are also likely to result in higher competitive intensity for the company.
Overall outlook: Management forecasts a double-digit growth across segments as a result of the demand environment. Despite headwinds on commodity prices, management expects to pass bulk of price increases and coupled with cost efficiency and portfolio optimisation looking at stable margins
Management saw inventory build-up during the quarter as there was a restriction on movement of materials from China due to the Chinese New Year and CUMI accumulated raw material inventory. Further, owing to the second wave and localised lockdowns, there was unavailability of sufficient workforce resulting in accumulation of work-in-progress and finished goods inventory.
While 20% of the overall portfolio is specialties, management sees this expand to 30% as share is gained in mass market and precision abrasives. Performance by segment Abrasives (38% of Q1FY22 sales) Abrasives grew 108% YoY on a consolidated basis. This was driven by 122% growth in standalone abrasives segment with strong resurgence in domestic demand from core industries; CUMI gained market share and exports growth in June after being hit by Covid second wave. Some sales were lost owing to the second wave.
Sterling Abrasives continued to post good performance with demand from agro- processing divisions. Overseas subsidiaries also clocked a decent performance.
EBIT reverted to a profit as product mix was optimised and higher volumes resulted in better coverage of fixed costs, aided further by cost control.
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Company remains positive on both bonded abrasives driven by engineering and automotive and ancillary sales and coated abrasives driven by mass market segments like home and building renovations, abrasives for infrastructure segments like roads, mining, and also commercial buildings coming up. As per management tier 2 and 3 segments are also coming back.
Management is bullish on super-abrasives and is focusing on products which complement each other.
June and July have started seeing a strong uptick.
Management is focusing on margin improvement via pass-through of raw material price increase, cost control and optimising the product mix.
Sanguine outlook for the domestic abrasives market is owing to lower Chinese imports amid geopolitical tensions, stricter implementation of environmental norms in China, shipping delays on low container availability has augured well for domestic players. Management sees strong pick up in Q2FY22 on the back of the same.
Within exports, the company is looking for inorganic opportunities as well.
Long-term outlook: Management is focusing on expanding distribution and product development (super-abrasives, a clutch of products in coated abrasives) for higher penetration in the user industry. It is venturing into adjacencies, viz. masking tapes, power tools, etc., to secure a bridgehead in major markets such as the US and Europe through technical partnerships. The PLI scheme is key positive with investments coming in as demand for products would improve. Ceramics (24% of Q1FY22 sales) Revenue jumped 61% YoY, while EBIT margin grew ~778bps YoY to 18.8%. Standalone business contributed to the same with 79% YoY growth and performed well despite delays in exports logistics caused by the pandemic.
Technical ceramics had a strong quarter with demand across automotive and clean energy. Management continues to have a robust outlook for the same as high voltage transmission and alternative energy continue to do well. CUMI will continue to invest and create capacities in the same.
CUMI Australia is seeing better demand outlook driven by increasing capacities across mines.
Metz Cylinder (70% of engineered ceramics): The new line for metz cylinders has stabilised and is currently operating at 40% utilisation, while overall utilisation is 70-75%.
Medium term outlook: Company is confident of higher teens growth for FY22 in Ceramics.
Management is working on the ceramics opportunity in EVs to qualify products in the space and is seeing high traction.
Management expects largest transformation in the ceramics division, with increased usage in aerospace, defence and electronics manufacturing industries, accentuated by newer products in wear ceramics and composites where the company is expanding.
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Q1FY22 conference call highlights
Long-term outlook: Leveraging cross-divisional competencies and domain expertise, the industrial ceramics division in a synergistic collaboration with electrominerals is working on new age technologies in powder processing and characterisation, molding, sintering, machining and other related processes.
CUMI is focusing on product development (thin ceramics – products for tape casting technology, composites) and efficiencies. Electrominerals (40% of Q1FY22 sales) Consolidated revenue grew 37% YoY as end-user industries picked up. Standalone revenues grew 105% YoY with record volumes. EBIT margin expanded 277bps YoY as higher raw material prices were passed on partly. As a result, EBIT grew 72% YoY.
The domestic business focused on generating higher volumes and changed product profile to ones with lower energy offering higher fixed cost coverage and selling higher margin products.
The Russian subsidiary saw good demand; however, some production was lost due to electricity shortage and no working days during Covid. Further while Russian subsidiary recorded marginal drop in revenue on account of rupee depreciation compared to Q1 of last year.
Silicon carbide division saw growth with demand reviving and is expected to be on a stronger footing hereon.
The company is investing in advanced materials like graphene and high performance graphite to ensure readiness for new opportunities.
Long-term outlook: CUMI’s vision is to be a co-creator of things that go into the experience world. Like materials for the batteries that will drive the EV revolution, silicon carbide for electronic applications, high surface area powders for 3D printing, etc—the possibilities are immense as management sees it.
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Q1FY22 conference call highlights
Agri Inputs
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Q1FY22 conference call highlights
Coromandel International
Industry Record food grain production(Wheat 11% YOY), cereals prices stable
South west monsoon-recorded well covering entire nation. Prediction of normal.
Reservoir levels remain above LTPA.
Key agri markets received good rains.
FY22: fertilizer volume-rain delay won’t matter much consumption. Reservoir levels good, channel inventory is low.
DAP and Complex-volume down 14% for Industry.
Phos-acid Q2FY22: 1160 USD/MT. Fertilizer Company faced supply issues due to annual maintenance by vendors leading to constraints on ammonia, Sulphur. Price increase have taken place in MOP.
Coromandel: performance was supported by good monsoons. Last year-govt. put restrictions on manpower while this time.
Nutrient-new product launches-Growshakti, growsmart doing well. Balanced nutrition is provided to farmers as new products.
Sales-0.78mn tonnes. Manufactured DAP-same levels.
The company market share-18.1% versus 16.4%.
SSP-1.86 lakh MT(44% growth)-Market share 14% versus 10%.
73% capacity utilization-Phosphatic plants.
Raw material constraints-things have restored.
Retail stores have been working on.
Phos-acid: backward integration-good output from both the plant. Focus is to promote value added balanced nutrition. SSP doing well-better fertiliser than DAP.
Long term outlook: Agri-investment have come in place. Exports-value added product.
Margins: product mix improvement. Three factors-(1) sourcing strategy-multiple sources. 2) flexibility of plants to process multiple rocks. 3) Running plants at optimum utilization (higher utilization levels). 4) Benefit of opening inventory. Market front: agronomist doing well-market side, launched new product. Transferred –demand pull of brands-SSP-digital marketing. Ammonia prices: 375 USD-535(April-may)-June aberration. Pricing of everything taken while arranging for pricing decisions. 24,000 MT-DAP. Subsidy increase was on P and not on N and K-company has taken pricing actions on NPK grades. Company expects to see EBITDA/ton at INR 4000-4250.
Govt. increased for P. N, k-is not effective. Working with govt. to rationalize subsidy. RM prices go up-flexibility to increase prices. Post kharif season, there
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would be some softening. Ammonia plant-domestic player commissioning. Gradual comeback on raw materials.
Channel inventory is lower driven by two consecutive good monsoons. Low channel inventory, higher input prices-demand for fertiliser to remain good.
Capex: Fertilizer-complex (de-bottlenecking+ backward integration)-liquid fertiliser. SSP-powder into granular products. Crop protection-primarily in enhancing capacity for some of key products. MPP plant. Evaluating purchase of land for technical and formulation. Bio-plant-invested (bio extraction technique help increase production by 50%). Investment in agri start up-focus area of future.
Evaporater converts low acid to high concerntated-Q2FY22 requiring at least a month for stabilization. It helps in converting weak acid-strong acid. Phos-acid: plant operating at full capacity. Conversion to help for some products needing higher concentrated acid.
Phos-acid: good demand for products. Company’s focus remains on maximizing production, backward integration at Kakinada plant. Currently govt. concerned on pricing front. Long term looking at PLI for fertiliser. Like Urea govt. is working for import replacement in NPKS. Crop protection 49% growth-supported by exports and B2B markets.
Last year-covid restrictions. New product development and advance molecules.(4 Insecticide, 1 fungi, 1herbi)
New generation-helping farmer connect
Rich product pipeline.
Plant operated at 75% utilization levels versus 45% last year
Good traction on ongoing kharif season.
Three factors helped company deliver good show: 1) Capacity utilization across facilities (NO restrictions this time-earlier utilization 45%). 2) Export market-good growth. 3) New product:-6 products have been introduced (1-9(3), 3 combination, 2 co-marketing))-launched in middle of June.
Export growth: 50%(America nd other parts), domestic: b2b growth-mancozeb and acephate (50%-mancozeb). Pricing differential in different markets.
High/sharp increase in prices of manczoeb ingredients-pricing action have been taken.
Substantial portion of growth was due to volume growth. Pricing action taken in June.
Bio business-products doing well. Increased capacity in 1.5 times-export will be higher. Phos-acid: max. production—looking alternate rocks.
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Financial highlights Revenue share Subsidy: Non Subsidy - 76:24 (80:20)
EBITDA(q1FY22): R:NS-74:26(79:21)
Subsidy outstanding INR 11.4bn versus INR2.5bn last year
Subsidy outstanding from government: INR 3.6 bn
INR4.9bn subsidy receipts from the government.
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Dhanuka Agritech
Guidance and other highlights Industry growth seen at 10-12% in Q1FY21 and expecting same growth for FY22. However, Dhanuka reported muted growth in Q1FY22 due to high base of last year. For full year, FY22, t is expecting double-digit growth but monsoon has posed uncertainty.
Margin pressure was witnessed in June and July on the back of rising input cost and due to tough competition and inventory in the market, company have not been able to take sufficient price increases. However, as consumption picks up, price increase may follow.
Import of raw materials impacted due to logistics and some issues from China. Receivable situation-turnaround in south India has happened.
Inventory in channel is not higher.
Three initiatives: (1) Branding/marketing /digital-received out aggressively. (2) Aggressive supply chain-primary and secondary (1st week of April- Depot/warehouses/agri commodity-to reach channel aggressively).
In Q1FY22 generic portfolio of weedicides and insecticides have reported higher sales. (2) Targa done well last year. Sempra good response. Largo-corteva- performed well in Q1FY22-horticultural. Monsoon witnessed slow start Overall monsoon was good; however, there has been slow pickup between 15th June and 15th July. Recovery has been seen in July leading to improved prospects for good second half
Impact of 2nd wave of covid-19 was witnessed in rural area with limited shops opening in rural area in month of May. This impacted overall business in the quarter.
Due to slow pick up, herbicide consumption lost during season by 7-10%. This gap can be narrowed with crop shift and good monsoon
In some regions, due to delayed monsoon, Soybean will be replaced by onion/tur. Due to labor shortage-farmer inclination for herbicide is good.
Madhya Pradesh have seen good rains. While dry patches have been in Gujarat, UP, Rajasthan, Haryana. More than 80% region has received decent rains Regional sales Region wise contribution: North-28%, East -10%, West-44%, South-18%
Insecticide-29%, Fungicide-12%, Herbicide-48%, Others-11%
100% dividend-INR 2/share
Given its rising focus on digital marketing, Dhanuka has started digital campaigning for its key products - Sepmra, myko, Targa super.
ITI index has gone down in last three years with 11% in FY21 from 17% in FY19. As new molecules sales have not achieved volumes and in last 1.5 years-new products movement have been restricted Dhanuka has launched two herbicides
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The Company has launched a Co-marketing product under brand name TORNADO containing Quizalofop Ethyl + Imazethapyr to control broad leaf as well as narrow leave weeds in Soybean and other crops.
Dhanuka has also received registration of new 9(3) molecule ONEKIL, which is a combination herbicide for the control of all types of weeds in Onion Crop.
Fungicide market share has been less however with recent entry in grapes- Kirari, Nisodium it expected this segment to strengthen. Green-field project with INR3bn capex on track with some delays Its greenfield capex at Dahej has seen some impact due to covid-19 and availability of labor-issue. However, the project is expected to be completed by March’23 with total capex of INR 3bn.
It plans to spent approx. 800mn in FY22. Raw material Price to remain high as raw material prices has gone up globally.
Prices to remain on upward trend; however, some of the generic products like glyphosate, mancozeb, atrazine etc has seen a peak and may start softening.
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Q1FY22 conference call highlights
PI Industries
Q1FY22 CFO: INR 2.5bn-Q1FY22
Endeavor is to stabilize product pipeline, 1st effort-expertise of PI in ISLL and step up. Revenue growth of ISLL to aid in PI’s diversification in Pharma segment.
Gross margins
170bps-favorable product improvement
Moderation in margin-overhead increase-one-time expenses. Domestic market
Subdued due to high base-delayed monsoon and covid-19 spread
Normal monsoon in Aug and September to benefit kharif
3 new product across cotton, rice and horticultural to be launched
Research facility- marking progress in building couple of products in 1) Fungicide 2) Insecticide.
Investment in R&D-two innovator molecules. Both are in early stage of development. Company will be trying to follow partnership approach for commercialising both of them. PI’s Core competence is in agrochemical.
Q1FY22- high propensity to pre-purchase-low single digit growth (35% growth last year). Expect business to reach back-western part and cotton region- suffering. Optimistic-Q2FY21-3 products to give new opportunities. CSM 31% YoY growth-INR 8bn
Driven by season. Expect to still achieve modest growth in subsequent quarters.
6 new molecules. Commissioning new facilities
Added new customer in spec. chem Ind Swift acquisition Differentiated platform in pharma chain
Expanding new partnership with new cliental base.
Targeting new opportunity in spec. chem chain.
API Industry situated in southern India-advantage for acquisition-criteria -1) Quality of assets 2) product pipeline 3) Regulatory approvals. Found this requirement was met through the option. Additional value and synergies-all can get met.
Current model in generic model-leadership. Relatively small CRAM piece. Idea is to grow it. Exploit more opportunities-ISLL. Longer term idea is to make it more a sizable unit.
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ISLL-150 people are there. PI technological benefits-further strengthen the technology and exploit new opportunities. 27 manufacturing blocks
Extremely high WC, low asset turnover, promoter entity-INR 3bn (receivables). ISLL-PI acquisition-managing business with normal working capital requirement (25% of overall sales)- plans to bring down WC requirement in line with that of PI.
ISLL-lot of unexploited opportunities to many products. Strengthen product portfolio-combining pharma space.
Value, economics, company to be acquired, add value to existing business-> Pharma-different platform-developing new technology, opening up- complementary requirements-PI well versed. It will be moving up in ladder chain. Growth-synergy backed by technological benefits. Acquiring, creating and building IP-focus of PI.
Human talent pool-HR leadership and people on board. Very focused area in pharma-technology remains key growth driver. Developing internal talent- external facilitators-acquiring talent from outside to fill gaps.
18 months ago-assessment of internal talent (300 talents identified). Pi is investing in developing and training their skillset.
Pharma-Re-engineering the business-18 months (new techniques to be done).
Capacity utilization: 70-75% for different production blog.
ROCE: single digit due to highly leverage structure
Guidance
15% plus revenue organic growth maintained
Will evaluate new opportunities for remaining QIP proceeds.
INR 3.5bn-capex for FY22
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Q1FY22 conference call highlights
Rallis India
Q1FY22 Domestic demand growth. No panic buying like Q1FY21. Unlike the first wave, rural impacted this time.
Timing of monsoon: Not uniform across key agri markets.
Prices of commodities such as soybean, cotton, chillies. fruit (apples, grapes) are higher than last year.
International market-steady recovery on the cards. Prices of few AIs remains on the softer side due to weakness in demand.
Limited pass-through in some product portfolio due to high competitive intensity.
Employee cost increased- last year; no increase was taken this year.
Gross margins decline is due to product mix change. Each segment delivered stable margins. Change in product mix impacted overall margins.
Launched a couple of biological products during FY21 from exports perspective. Crop nutrition doing well; launched a product for apple fruit in FY21. Crop care business Fair mix of volume and pricing growth.
Challenges persist on logistics and marketing.
Reached twice the number of farmer than last year through distant approach.
Domestic business
34% growth in flagship brands.
Delivering two new products annually. 9(3), two other in licensed product. Product pipeline remains robust.
No channel filling done by company.
Expect good kharif over FY22.
After the third week of June, agri activities saw a slowdown. Seen revival over the last ten days. Normal monsoon to prevail. Sown area-estimate maize+-1%. Progress of sown area has dipped. However, acreage will be on a par with last year. Favourable commodity prices leading crop shift: soybean and cotton doing well. Pulses doing well. Hybrid paddy has seen favourable response from Northern markets. Fruit and vegetables-green chillies, grapes have favourable prices. Bajra-prices are down (implication for Rallis).
Covid-19: quarter 1 challenging. Things appear bright for Q2FY22.
ITI index: Didn’t get growth-demand impacted due to covid-19. Some products are good differentiated products having better realization.
Pricing pressure in domestic market as well. Increase in raw material prices have been substantial (acetic anhydride);company has not been able to pass on full price hikes.
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Q1FY22 conference call highlights
International business 38% adjusted growth
Metri sales higher but still scope for further improvement.
New registrations
Steady demand seen.
Critical challenges on freight front. Later half of June— little bit of improvement.
Pre-emptive action on raw material front.
CRAMS-Important area; good structure in place for business acquisition. Discussion underway. Synthesis work is also being discussed but on generics only. Put in place a business team. Added resource and scientist. Split team between: Contract and reverse engineering.
MEIS: around INR30mn impact during Q1FY22.
CRAMS- Work happening on multiple chemistries.
Adjusting spillover of last year, witnessed growth in AIs. Metribuzin doing well compared to Q1FY22. Realization hasn’t improved YoY but QoQ somewhat.
Prices of chemicals going up-varying demand supply in each of product. Acephate prices much higher.
Prices of metri improved in Q1FY22 over Q4FY21.
Metri-doubled capacity in comparison to FY20. Softness in demand-no expecting to run at 100% utilization. Callibrating it as per demands. Hexacoznabole-70% capacity increased (utilization level: 85-90%).
Focussed on increasing market share in Metribuzin. Direct registration in US markets-trying to increase customers-looking for newer customer acquisition. Seeds Seeds- higher quantity of paddy (2020): Buffer stock useful for capturing opportunities. Higher level of inventory in seeds.
Cotton-identified as growth areas-new hybrids in place-1st year of launch for 5 products. Not been able to gain. Significant impact due to crop shift to soybean in Eastern Maharashtra. Maize-challenges in rabi production—lesser availability of maize. Growth: Cotton is important. Vegetables-growth area-satisfactory Q1FY22. Rabi maize would be a focus area.
Capex
Dahej plant to start over in FY22.
Planned INR2.5bn capex for FY22.
MPP plant-fungicide, insecticides-work to get completed.
MPP-herbicides-decision to be taken and one on intermediates.
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Q1FY22 conference call highlights
Sharda Cropchem
Industry Revenue grew 60% YoY: Strong volumetric growth across geographies.
Product portfolio-in new product registrations. 2570 total product registrations. 1026 applications globally are at different stage. March-21 registrations: 2543.
Capex: INR640mn versus INR710mn in Q1FY21
Gross margin-product mix impact. Europe, NAFTA and LATAM.
Pricing 8.2%, volume: 48.2%, forex: 3.7%
Process of registrations is unpredictable-have to go through different level.
Logistics increased considerably: 38%YoY. Freight cost as % of sales is small
Non agrochemical business:-pass on more than 50% of price hikes
MNCs still control 75% market.
Freight: gone up 10x from USD1500 to USD15,000.
Pre-buying trend is also supporting growth.
Inventory levels not high in the system.
Positive impact- Molecules going off patent. Sharda Cropchem has an asset-light and flexible business model.
Write off: Don’t foresee any significant write off. Q1FY22 Gross margins: Europe: 39%, North America: 22.8%, LATAM: 17%, Row: 28%
Volumetric growth: Europe-31% (3.69mn tons, NAFTA 73% (2.63mn tons), LATAM 103% (1.6mn tons), de-grew 13% ROW (0.43 tons). Total: 8.4mn Tons. Greater penetration in end markets helping company to grow.
Increase in demand across all the major nations. Demand not impacted adversely due to covid-19.
Wider product mix and longer presence in market and good service.
Raw material- Chinese have started increasing the prices. Dynamic situation- affordable increase. Guidance Total revenue growth: 15–18%.
Tax rate: 30–32%
Gross margins:-31–34% range Registration pipeline Europe-648
NAFTA:137
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Q1FY22 conference call highlights
LATAM: 154
ROW: 87 Current registrations Europe-1343
NAFTA-237
LATAM-748
ROW-238
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Q1FY22 conference call highlights
UPL
Q1FY22 Volume growth 6%, price increase of 2% and currency impact of 1%
EBITDA growth of 9% YoY was supported by favorable product mix and realisations partly offset by cost pressures
UPL announced the launch of ‘nurture.farm’ - a digital platform which fosters resilient farmers, making agriculture simple, profitable and sustainable for generations to come through technology-led solutions
UPL announced the launch of ‘NPP’ – Natural Plant Protection – a new global business unit housing UPL’s comprehensive portfolio of natural and biologically derived agricultural inputs and technologies. NPP will act as a stand-alone brand, consolidating UPL’s existing biosolutions portfolio, network of R&D laboratories and facilities worldwide, which currently accounts for 7% of UPL’s total revenues.
Fitch Ratings and S&P Global Ratings retained the Investment Grade credit rating for UPL; Fitch upgraded its Credit outlook to “Stable’’
Tax rate for FY22: 15-18%
NPP business-350-375 mn USD/annum. Target to grow faster. India Higher volumes and strong realisations in India drove growth despite delayed monsoons and second wave of Covid, market grew by 6-7% during the quarter
Strong vol. growth (~14%) of Glufosinate (Ferio, Sweep Power), coupled with higher price realization (by ~7%)
Gained market share in India
Non-agri business-Specialty chemicals business-pharma intermediates-ancillary to feedstock. Investment to grow
There are some areas in MP-lost soybean. Also, started-groundnut, pomegranate, adoption of farm-acreage-mitigation plan in place. Europe Unfavorable weather conditions shrunk market in key areas
Most of the decline in South European countries:
UK mancozeb based formulations (Manzate® and Nautile®) phased out to Q2
European market share maintained: Working on penetration of bio solutions. Double digit growth anticipated New registrations are likely to give growth traction over FY22 LATAM >40% rev growth in Brazil, while other countries have remained nearly flat versus Q1FY21
Mexico impacted due to severe drought; however, expected to catch up during the year
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Q1FY22 conference call highlights
In Brazil, strong volume growth of Perito® (by ~2x) and Sperto® (by ~1.8x), coupled with higher price realization for Perito® led to overall growth in the region
Delayed price realization due to pre-booked orders North America Higher commodity prices, strong seasonal outlook, coupled with increase (~1- 5%) in acreages of most major row crops
US administration’s decision to maintain the tariff structure for Chinese imports
Overall price realization up, adequately compensating for marginal cost increase Debt Gross debt: INR 251bn
Net debt: INR 214bn
Net Debt/EBITDA expected to reach <2x by March-2022
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Q1FY22 conference call highlights
Automobiles
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Q1FY22 conference call highlights
Ashok Leyland
Key highlights EBITDA margin in Q4 was a result of efforts put in over the past few quarters. No one-offs in it. Gross margin is at a historic low level due to sharp commodity cost pressure.
Fleet utilisation improved in June 2021.
AL looking to invest in de-bottlenecking of capacities. Not looking for any brown- or green-field expansion.
In Q4FY21, M&HCV truck volumes grew 57% QoQ (53% industry growth) and 107% YoY. AL’s truck market share has increased to 28.9% in Q4FY21 from 27.6% in Q4FY20 and 28.1% in Q3FY21.
Growth in LCV was driven by demand in e-commerce and rural economy. LCV volume – 17,042 versus 8,067 in Q4, resulting in 112% YoY growth.
Bus volumes still subdued (7,500 units vs ~42,000 normally). As the economy opens up, bus demand should revive.
On a full-year basis, LCV has grown by 4% to 46,671 vs 44,912 in FY20. LCV industry declined by 11.5%.
Exports grew 8% QoQ and 40% YoY. In Q3FY21 exports volumes stood at 2,941. On full year basis, exports declined by 10% (8,001 export volume vs 8,920 in FY20).
Commodity price increase was partially negated by price hikes in Q3 and Q4 and cost-reduction measures. Pressure expected till H1FY22.
MHCV inventory stood at 1,243.
Capex for FY21 – INR6.21bn vs INR12.92bn in FY20. Investments are done in Phoenix programme and modular business programme.
Investment in FY21 at INR 3.68bn vs INR4.47bn in FY20.
Net debt at INR26.07bn – net gearing of 0.37x vs 0.28 last year and 0.43x last quarter. Key highlights AL saw strong demand for the AVTR range – India’s first modular truck platform, expect as demand improves benefits of modularity will be seen.
Seeing good level of enquires in July and August months. Demand should come back after eight quarters of de-growth.
In the LCV segment, the recently launched Bada Dost has been well accepted by customers and AL is ramping up production to cater to market demand (current LCV production at (9,000 units per month).
Last-mile connectivity demand propelled by e-commerce is likely to continue supporting ICV and LCV truck volumes.
Pickup in economic activities such as infrastructure and real estate should drive demand in the MHCV segment.
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Q1FY22 conference call highlights
With robust LHD portfolio, AL is focussing on its global market expansion strategy, as it continues to focus on achieving its vision of being among the top 10 global CV makers.
Recently AL announced strategic steps to move towards net zero carbon mobility through its subsidiary, Switch Mobility. It has also formed an ESG committee of the Board.
Debt was at INR41.7bn; and no ICDs
Capex: in-line with last two-three years. No major capex plans.
Export markets like Bangladesh, Middle East, Sri Lank are still not completely open. Demand Factors affecting demand: High diesel price, low freight rates and covid-led lockdowns.
On ground enquires are higher than earlier. July has been good, if August manages to escape from 3rd Wave should see strong demand going forward on the back of following reasons:
o Change in axle norm led supply is behind
o M&HCV has seen eight quarters of decline; hence expect a pullback. Preparing for the same. However key risk is 3rd wave
o Pick-up in economic activities like infrastructure and real estate will drive truck demand (M&HCV and ICV) and opening up of schools, office will drive bus segment growth
o LCV : has done well in tough times, AL expects this to perform strongly going forward as well
Have seen good demand in tippers and ICVs:
o ICV contributes 35% of the overall industry in trucks
o Tippers accounts for 28% of industry Margins and commodity inflation Non M&HCV, Defense, spares and engines have helped margin in tough times (in Q1FY22 contributed 48% of business vs ~35% in Q4FY21)
Every item of cost is being looked at closely with the help of value engineering
Raw material cost persisted in Q2.
Warranty rates have come down sharply in BS6 as well as second half of BS4
Product based cost management such as: 1) taking out features not relevant from customer perspective or which can be given as add on 2) using alternative materials 3) benefits of modularity – will be seen when volumes come across – actual parts are lower – inventory and vendor management is better and gives reach portfolio to customer.
o 13 to 15% steel price inflation during Q1FY22.
Taken price hike of 2% each in March and July month.
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Q1FY22 conference call highlights
o In low demand environment, price hikes are difficult.
o To give perspective: AL has raised prices by 12-14% in April 2017 post-BSIV implementation. Post which two years were best years because demand was very strong so price hikes were very well accepted.
o At this point other players are trying to capture volume by giving discounts
o Once demand recovers and steel prices stabilize (expects in H2) Other expenses
o There is one-off INR400-450mn related to R&D, CSR, Foreign currency loan MTM.
o Will see a reduction from next quarter
Market share Market share is a function of two aspects: product mix and regional mix.
If demand in South is low, market share will be down, and vice versa.
Even in wave 1, South was slow to recover, the same thing right now Capex EV - SWITCH and its entity to raise capital themselves. AL not looking to infuse capital.
Including Hosur and Alwar, all plants are complete in themselves; though there is debottlenecking required at some plants
No further greenfield – that phase is done with Pantnagar.
Today the focus is on improving efficiency such as how to reduce interplant transfer, reduce outbound logistics and making the plant self sufficient.
Capex is coming in LCV. Currently production is running in 2 to 2.5 shifts. There is strong demand with Bada Dost in this segment.
In MHCV – capex will be for debottlenecking or new variant will do.
Capex will be in same range as in previous three years. Since 2013, capex is less than INR10bn a year. Leyland Finance Covid wave managed well.
Book size at INR260bn.
Net NPA 2.6%, PCR 48%.
Collection efficiency at 85% in June; improving MoM.
Done adequate provisioning for covid in Mar’20 and June- Sep’20 results.
Lot of repossessed stock was sold in previous year itself when pricing was good.
HLFL do not cross subsidies AL to gain volumes – it is run independently.
It has a diversified loan book of Loan against property, 2W, 3W, off road financing apart from CVs – good portfolio with diff NIMs.
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Q1FY22 conference call highlights
40% book is CV.
Business is growing consistently (book size at INR260bn vs INR130bn in 2013); further capital infusion is not a concern.
In FY22 – if required, INR1.5bn of capital to support growth. Financing in CV space Large fleet operators are getting very good rates.
STO/FTU – bankers are looking at CIBIL – intent to pay is there but ability to pay affected due to Wave 2.
Post Wave 1 these people paid back quickly.
No trucker will walk away after paying 12-24 instalments.
In 2013-14 – two years demand was down 50% due to cycle. In the current cycle, demand is affected due to covid.
Dealer financing: providing support to some and others are doing well.
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Q1FY22 conference call highlights
Bajaj Auto
Key highlights Focus on premiumisation and up-segmentation of customer continues to be the key the key pillar of strategy for India as well as exports.
In domestic market, market share in 125cc+ motorcycle has increased from 22% in 4QFY21 to 25% in 1QFY22. BJAUT is a clear no.2 player now.
Overall gained 1.5% market share in the domestic motorcycle segment, and quality of market share has also improved.
Restoration of demand is faster in MC while slower in 3W segment.
Supply issues related to microchips still persists.
Exports: Key ASEAN countries are facing challenges due to COVID.
Interesting to note that bottom of the pyramid demand is more affected, while demand for upper end of products is intact.
Expects introduction of new platform from September onwards.
EV 2W – Opened up Chetak booking in four more cities.
In 3W- CNG is the preferred choice of customers. It is also supported by government focus to build infra (5000 CNG station by 2025) and better economics. Rule of thumb is for every 100 CNG station being added, demand for 3W should go up by ~10K units Domestic motorcycle mix Share of 125cc+ stood at 60% vs 45% for industry.
Launched 125cc NS in May – contributed to margin in segment
In entry segment – focus on upgrading customers from – Kick-start to Electric Start, 100cc to 110 cc, drum brakes to disc brakes. Domestic 3W It has 3 segments – small passenger, large passenger (used in smaller town), cargo. Now Bajaj has leadership in all three segments. This should help Bajaj in getting higher volume share when the recovery plays our
Retail outlook in June was better than expected. Looking to sell 5k retails actually did 7K Export business Export at INR45bn or USD 580mn. USD/INR for the quarter was 74.5
85% of export revenues are from markets where Bajaj has no1 or no2 position.
During Q1, Some of its high exposure countries like Combodia (Big 3W player), Uganda (~90% market share), Philippines and some countries of Latin America suffered due to COVID-19. Despite this, Q1 was second highest export quarter for Bajaj.
Share of Premium segment is up from 19% to 21% QoQ.
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Q1FY22 conference call highlights
Dominar 250 launched in Argentina, Mexico and Turkey
Price action ahead of Indian and Chinese competitors.
Exports to KTM up 48% QoQ due to demand in developed market.
Market share drop in Nigeria – There has been 4-5% drop from ~50% level pre March20. During Covid challenge in India, Chinese players have gained market share and are now playing the pricing game to retain the same. BJAUT does not want to go that path
Container shortage–
o taking lot of management time and increasing the cost
o E.g.: cost goes up from USD2k to USD10k per container to Columbia. A container would carry around 150 vehicles.
o Use 33K containers throughout year Margins and commodity cost pressure Cost headwinds 3.7% QoQ. Price hikes taken till now covered two-thirds of commodity inflation.
Negative operating leverage lead to ~160bps QoQ margin decline.
Gross margin – Q2 under recovery will increase as compared to Q1
Operating leverage will come back revenue will be 9k as compared to 7k
Margins can be softer in near term
In long term margin not be impact as commodity prices will unwind
Depreciating INR will support margins
Continue to evaluate further price hikes to abate commodity inflation.
Employees cost should also be in the same range as Q1 – provided salary hikes from 1St April. Chetak and EV strategy Aims to touch 1,000 unit of deliveries.
Opened up registration in 4 new locations.
Submitted application to Government for Chetak to get eligible for FAME benefits.
Chetak was excluded from FAME benefits due to some localization of manufacturing processes, which now has been resolved.
It may take 3 to 5 years for inflection poi-nt for domestic 2W. Want to give good experience to user from product to service rather than being first to launch the product.
Product development is already underway – collaborating with KTM , YULU, etc
Formed a subsidiary: Need for better talent and single minded focus – can get missed when being a part of group. Will share more details as plans are formalised
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Q1FY22 conference call highlights
For BJAUT, already R&D cost (largely employee cost) is pass through P&L. Capability build up in form of capacity is not a big challenge
Jury is out in India whether first mover is advantage and disadvantage – as technology is evolving
o Every customer is not digitally savvy - hence need positive word of mouth
o For example, 3W in Africa a lot of damage had been done in the initial phase as every one was in a hurry to sell the product. 3W – EV shift Struggling to establish business case from CNG to EV.
MS in CNG is 85–90%
Diesel or cargo vehicle can shift to EV.
Government drive to add CNG station – every 100 pump addition creates a market of 10K units.
Thin advantage to EV based on cost of power in that city.
3w EV is under testing – hoping for launch end of calendar year. Triumph – strategic alliance without equity Delay due to travel restriction – for evaluating prototype and such other things.
Expect a delay of 6–9 months as compared to initial plans. Expect launch in CY22.
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Q1FY22 conference call highlights
CEAT
Key highlights
Demand is back to H2FY21 level as of now – whether pent up or something else difficult to assess. Truck replacement is slightly weak PCR and 2W is strong. Also, replacement demand is outpacing OEM demand as of now.
In Q1FY22, replacement demand down 20% while OEM was down 30% sequentially.
Cost pressure continued in Q1 – per kg RM was up 12% weigh on margins. To fight against commodity upcycle CEAT has taken price hikes of 4-6% across categories (~4% in Q1 and 1-2% in july). Announced another price hike of 2-3% by end July. It has also taken several cost saving measures.
CEAT expects another RMC pressure in Q2; need to take another 3-4% prices hikes in Aug/Sep to come to normalized level of margins in Q3.
Expects Q2 margins will be around same levels.
Consolidated debt increased due to higher level of capex and higher inventory and decline in payables
Capex – Project capex of INR10bn-plus maintenance capex of INR1.5bn-1.75bn for FY22. Capex in FY21 was INR4.7bn and in Q1FY22 was ~2bn.
Rev Mix- Truck and Buses (35%), PV (~15%), 2W (25%) and balance is others.
Inventory in Q1FY22 was higher by INR. 1.8bn than FY21 due to slow pace of demand in June. Two–thirds of it is finished inventory. In Q2, inventory levels should come back to normal levels.
Gross and EBITDA margin
EBITDA margin decline lower than gross margin led by lower other expenses.
Taken price hikes across categories. Price hikes are 1-2% higher in 2W and PV than the trucks.
There is slower uptick in truck segment because of macros challenges, Monsson season, etc.
Expects normalized EBITDA margins of 10-12% and 40-42% of Gross margins in mid to long term.
Current price hike is steepest in a decade – last time this was seen in GFC
Net increase in realization – 3.8% in Q1– includes mix impact and prie hike
Rubber import is subject to duty of 27.5%.
Replacement demand drivers:
Truck segment: Bounce back of macro-economic indicators, Mining activity, easing COVID cases, etc
Strong focus in on PV as distribution has synergies with 2W; where CEAT has good brand equity presence
Seen increased traction in PV; have gained Market share in this segment
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Q1FY22 conference call highlights
Launching new range of tyres
IPL expenses and Advertising
Payment made in advance. Cost apportioned on a per match basis.
Advertising will increase in Q2.
Will continue to maintain market spend at around 2% of sales
Capex
FY22 Capex of INR10bn will largely go to Chennai Plant and some to de- bottlenecking at Halol Factory etc.
Capex for next two years should be in the range of INR7-8bn per annum. Some of it will be Utilized for capacity addition at Ambernath In Bus and Truck segment.
INR35bn 5 – year capex is coming to an end in FY23 with a left over capex of ~INR7.5bn
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Q1FY22 conference call highlights
Eicher Motors
Key highlights Vinod Dasari is leaving as a CEO; pursuing the not-for-profit hospital project that his wife is actively involved in. Govindrajan will be taking over as a new CEO. He is COO since 2013. He has also looked after RE India operations for three years. Overall demand is not a concern; there is strong order book. RE market share at 28%. There are challenges on supply side, Chips continue to affect; expect supply side to normalize in step wise process RE – growing well in exports, accessories and digitalisation through its MIY program. Q1FY22 was best ever quarter for exports. Volumes up 83% of Q1FY20 (pre-covid levels) On track to achieve non motorcycle revenue to 20% VECV expects challenges to easy out as economy opens up. Launched Eicher Pro 17.5tonn; expands ICV range from 15 to 17.5 ton Commenced local assembly in Columbia; it is 3rd largest in LATAM market and 2nd local assembly after Argentina – started with Himalayan. Total Retail network more than doubled to 2,000 stores Meteor was launch across the globe – won a lot of award VECV VECV – Rev 10.4bn up 156% YoY EBITDA at INR0.18bn vs loss on 0.72bn YoY Expects it to perform well from Q2 onwards Launched one Ambulance; received well in markets Well positioned in CNG Demand is picking up in this segment led by government push and better economics EV EV impact on RE is not immediate but EIM has started to work on this front Capable team – working on consumer, technology and business side Indian market is not ready for EV as price is 2x ICE if one wants to make some margin It will be a few years – before RE comes out RE will come out at right time Product launch Number of launches are not important Quality and precision of getting it with customers is more important
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Q1FY22 conference call highlights
In case of new launches there is enormous demand in early stages and hence should be able to fulfil it. Launch is delayed a one or 2 months, there will be some bunching up Chip shortage The company sees step-by-step improvement in supplies for RE. Activated additional suppliers for different components By end of year – hope is that it will be at right level Pricing action Another hike in July after Q1FY22 – helping to maintain gross margin of last quarter Till now covered for cost inflation. Going ahead impact will be not as much as it was seen in the past – it can be low single digits Exports US supported the growth; UK also doing well In International markets added 19 new multi-branded outlets and 6 exclusive stores. Now, Total RE has presence in 150 multi-branded outlet Reaching out to top dealers is not a concern now vs earlier Transcending from opportunistic exports to global brand Hence focusing on right distribution and right after market support Pre-covid the size of mid sized motorcycle market was 1mn Twins, Himalayan doing well – Meteor is also doing extremely well Brand positioning is helping for making more margins South East Asia and LATAM usage pattern is similar to India – on track to upgrade commuter segment as RE has done in India. Developed markets are also doing well as product is well received Purchasing power is higher in developed markets and USD4K -6K is not a big ask. Meteor was launch across the globe – won a lot of award Others Gross profit per unit – all time high Apparels – MIY has helped. Pretty small in size – average GMA is going up 80% of Meteor, Himalayan and Classic booking are coming by MIY All 2000 stores are now MIY enabled Finance penetration o Post covid it is around 45-47% - it has not dropped Join hands with various financial institutions
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Q1FY22 conference call highlights
Hero MotoCorp
Key highlights
Overall focus remains on premiumization, expanding footprints in export markets and EV.
90% of outlet working normally and retail sales are back to 80% of normalcy.
Launching its EV product in March’22. Expect in the initial phase EV launches will compete with scooters. As HMCL gets 90% of it is volumes from bikes, it is in advantageous position
Export run rate increased to 300k per annum from 200k per annum
Expect strong bounce back in 2H led by upcoming festive season, good Monsson, easing covid situation etc. Industry should report a growth in H2 over last year
Spare parts at 8% of revenues in Q1FY22 vs 13% in Q4FY21, impacted by lockdown. Should come back to normalized levels of ~10% in ensuing quarters.
Demand outlook
Expect a strong bounce-back in 2H led by upcoming festive season, good Monsson, easing covid situation etc.
Witnessing good uptick on festive days like : Rath Yatra in Gujarat (40% volume uptick on particular day), Guru Poornima etc
Demand recovery in urban and rural
o Currently sowing is going on in tier 3 and 4 cities so demand is low
o Sowing is 98% of last year coupled with MSP hike should drive demand from rural region.
o Water levels above 10 year average
o Underlying drivers are in place for demand recovery
EV
Hero expects EV evolution will start with scooters (~10% of volume for Hero).
It will be top line accretive for the company as Hero as under penetrated in scooters
Traditional ICE business is cash cow. 90% of business is motorcycle (MC) – hence lesser cannibalization to EVs
Expects EVs will take another 5-7 years to evolve against current MC given their TCO (high fuel efficiency and resale value) and kind of usage.
Three pronged strategy:
o In-house : launching product in Mar’22 - fast charging product
o Investment in Ather
o Gogoro – will be coming with battery swapping launch (swapping required 1-2 mins); gained success in Taiwan.
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Q1FY22 conference call highlights
Lot of action on EV front in FY23
Ather keeps raising capital as and when required. Till now Hero has participated in capital raising. Invested in Ather for the first time in 2016
EV cash burn
o EV will not be profitable from starting
o There will some cash burn in EV for product development, manufacturing , distribution etc
o For Hero cash burn will lower than the startups as it can utilize its current infrastructure.
TCO in EV VS ICE
o In scooter it will 3 to 5 years to breakeven
o In bikes given greater fuel efficiency It will take longer time
o Hence expect initially it will have impact on scooter
Raw material and gross margins
There is quarter lag between price increase of commodity and impact of it on us.
Taken two price hikes: 1) INR600/ vehicle in Apr’21 and 2) in 1,200/ vehicle in July’21 to offset the ~INR2,000/vehicle commodity inflation. Balanced of commodity inflation is being negated by cost controls and value engineering.
Appears raw material cost is at its peak. Expects softening on prices in ensuing quarters coupled with volumes recovery should drive margins.
Inventory
Last year not able to build inventory for festive season due to covid.
Hero has built inventory this year
Chip shortage is not affecting the company
Premium strategy
Hero is working on premiumisation of each n every segment such as splendor, scooter etc
Aim is to have a full portfolio across CC range and type.
In 150cc+ category - X Pulse is getting strong response. Increasing capacity to cater to demand.
Strategy in Harley tie up – 1) selling Harley bikes in India as distributor (12 dealers 30 touch points as of now) 2) launch a bike in retro segment which is 1/3rd of premium segment and >60% of profit pool – work is going on in full swing
Total cost of ownership
Both in terms of prices of Vehicles going up and fuel
HMCL is placed relatively better both in terms of fuel efficiency and total cost of ownership
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Resale value of vehicle have gone up also. In some case resale price have gone up higher than new vehicle price
Investments
Trajectory is INR7.5-10bn capex per year
In medium term, 50% will go towards EV, rest will go in traditional business.
Exports
Trajectory looking good
Run rate of 300k per annum basis increased from 200k per annum
Have much higher targets
Seeing positive MS movement in 7 out of 8 key markets on low market share
Tied up with distributor in Mexico – retails started
Nigeria – re launched product for taxi segment, trained 6,000 mechanics
Others
Finance penetration was at 41% in Q1. Expect it to move closer to 50% during festive season. Q1 witnessed marriage season led demand – which are more cash purchase driven
Hero Fincorp reported loss in Q1 due to rise in GNPA – expect it to normalize
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Q1FY22 conference call highlights
Mahindra and Mahindra
Key highlights Tractor growth of low-to-mid-single digit. Conservative guidance is driven by a high base. Demand drivers are intact; there is no deterioration thereof.
Auto business continues to see a strong booking pipeline; Market share up sequentially.
FES continued to do well with tractor MS touching 41.8%—highest in last eight quarters as supply bottlenecks have been addressed.
Consolidated Q1FY22 includes MMFSL NPA provisioning of INR25bn; MMFSL GNPA expected to improve during the course of the year. MMFSL: taken provisions as per current situation; expect 80 to 90% reversal in ensuing quarter based on past trends as well ground level feedback. Actual delinquencies are lower.
Margins, price increase
Steep inflation in last 12-15 months.
Taken three price hikes in auto as well as in tractors. Passed on the entire cost inflation in tractors.
July price hike In tractor was ~INR19,000.
Margins got affected due to two factors: lag in price hikes + no mark-up in cost inflation pass-through.
Management expects softening of commodity inflation from Q3 onwards.
Using value engineering to reduce cost. Farm equipment FES posted highest-ever quarter PBT of INR10.8bn.
M&M outpaced industry growth (48% vs 39%), which led to improvement in its market share to 41.8%—highest in last eight quarters.
FES international subsidiaries also continue to do well; 4th quarter in a row with positive PBIT.
Current inventory at ~30 days
Turkey seeing good momentum.
o Did aggressive restructuring. Disposed of non-core part of business. Booked one-time losses. o Tractor industry has shrunk in Turkey from 72k in FY19 to 20K now. Hence the outlook is good.
All FES foreign subsidiaries turned profitable.
Management expects mid-single digit growth in FY22 on of FY21’s high base. Can surpass expectation if festive season goes well.
Factors to watch out for: impact of recent price increase on demand.
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Tractors: Start picking up from June. Regional skew exists. South doing better than UP and eastern market due to delayed monsoon in these regions.
Rainfall has caught up there as well.
Tractor implements:
o Farm Equipment organized industry size is INR50bn- M&M at 10% MS
o Many regional players with no clear leader
o Today industry is highly unorganized
o Globally, the size of this industry is 2x of tractors
o Seeing significant growth in farm machine over the next three years. Automotive Market share improved in UVs
Revenue and volumes impacted due to large number of lockdowns.
Used this time to build inventory. Inventory still at ~80% of optimum level.
Order book of Thar – 39K - waiting 10 months. XUV300 at 10K, Bolero Neo has 5.5k order book (launched in July).
New launches on track with Bolero Neo and Supro Profit Truck launches. XUV700 booking to start in Q2, deliveries in Q3.
Supro profit launch:
o In sub-2 ton o Launched on 7th July offering Mileage and payload guarantee o Received positive feedback
Strong initial response for XUV700
o Don’t expect any impact due to early launch by competition o Will launch in Q2 o Deliveries will start from Q3 o Not impacted due to chip shortage
Commodity inflation and chip shortage continued to be key concerns. Despite challenges managed to be profitable. Expect chips issue to be there for three quarters
23 new product by 2026; includes nine SUVs
On EV 3W
o Sold 30k E3W - 50% MS in this o Strong traction on cargo side o Passenger is yet to pick up
Battista: Launch soon
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Path to 18% RoE Clear path for each subsidiary
M&M closely monitoring each subsidiary
Growth Gems:
o listed companies target is to USD1bn each of them o Logistics seems to be reaching faster than expectation
Tech Mahindra: Continues to do well
o Lot of traction In healthcare, high tech manufacturing , cloud, data science, etc
o Total contract doubled - USD850m
o Margins improving
Mahindra Finance
o Performance affected due to– GNPA moved up from 9 to 15%; but credit loss has been in tight range.
o Provisioning hit hard PL - ~INR24bn of additional provisioning.
o GNPA also went up to 14% during demon- which in 3 quarters came back to 9% and in 6 quarters to 6%
o Confident this time also 80-90% of this can reverse
o Capital adequacy at 24%
o Clear focus on addressing the business model – credit underwriting, cross sells, use of AI and data science, monitoring of cycles and early warning signs and linking it to collections, etc. Others Focusing on ESG globally Defined 10 commitments in ESG CAFÉ regulation: The company is well on track. Employee cost: increased due to one-off effect of COVID. o Offer ex gratia, 5 years salary education funding till grade1, etc – total cost of INR430mn o Can consider as normalized level as wage hikes are effective from August. Capital allocation: INR35bln guidance given o Very much likely that all of it may not be utilized o Visibility of investing 10% as of now o If no clear visibility of ROE, will not invest SsangYong divestment o Court process is underway o Lot of buyers than expected Currently adequately provisioned
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Maruti Suzuki
Highlights
40% of sale comes from non-urban market
Business started to recover from June; rural and urban are participating compared to largely urban in first wave of covid
Enquires are at same level of Q4FY21; bookings at 80-85% of Q4FY21
CNG demand continues to remain strong (90% MS). Q1FY22 retail market share was at 40% as the company was not able to sell CNG vehicles as oxygen was diverted for medical purpose
Profit affected due to lower volumes, commodity inflation and negative operating leverage
Capex for FY22: INR45bn
QoQ 3.5% net impact due to commodity inflation QoQ and 4% negative impact due to operating leverage
Third line of production is operational since Apr’21
SUVs continue to gain market share (MS) from sedan; MS of SUVs should stabilise at 42-43%; FY21 at 32%, Q1FY22 at 38%
Demand
Post second wave, July is witnessing revival of demand, which is better than their initial expectation
Replacement demand has been weak
FY21 - demand segmentation
o First time buyers increased from 43% to 48%.
o Replacement demand last year fell by 8% to 18%
o Addition car buyers increased by 3%
Q1FY22 – demand segmentation
o First time buyers fell a little to 45.4% vs 46.0%
o Replacement car demand is low, but expected to reach normalised level of 25-26%. Once people are confident then replacement car buying should come back to same range
Price hike
Taken 1.3% in Jan’21, 1.6% in Apr’21 and small price increase in July
Needs to calibrate price increase so that demand is not impacted
Commodity inflation and margin
QoQ margins were affected by two reasons:
o Negative operating leverage impacted margin by 4%
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o Commodity inflation 3.5%
o This was offset by efforts to curtail costs
There is scope of margin improvement of 2-4% in ensuing quarters
Correction in commodity prices, price hikes, cost cutting initiatives along with operating leverage will provide lever to margin in future
Steel and precious metals continue to remain high; expects commodity pressure in Q2FY22
Commodity prices have two portions:
o Steel and other precious metals
o Steel is negotiated in each quarter (e.g: negotiating prices for Q2)
o Other commodity with a quarter lag : consider average prices of last quarter
Future technology
EV and hybrid (electric and ICE) will increase over next 5 years
MSIL’s target is to work on to reduce crude oil import, carbon reduction, Hence working on ICE engine improvement and new technologies
Looking at all technologies: like Hybrid electric, Battery Electric, Natural Gas, Bio Fuels etc
Different car segments have different adoption for different types of fuels
ICE will co-exist along with new technologies
Joint venture with Toyota: Going well, working on prototype. Will develop technology that can be used for next 10-15 years
Many cities have picked up in CNG given government focus on adding more CNG stations
Hybrid will be more relevant technology for India over BEVs till charging infra develops
Employee cost
Employee costs were high due to base effect and lower volume
Some covid-related expenses like vaccination, hospitalization etc. One off expenses around INR300mn
There is going to be wage settlement with workers this year. Has provided for that also
Third line of production
Third line has become operational since Apr’21.
Gradually ramping up from 1 shift to 2
Accounting items such as depreciation, fixed cost are included in financials
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Government policies
Center along with states have rolled out incentives for EVs as well as for hybrids
Center policies are more valuable than states
Natural gas: PM has mission to increase usage of CNG from 6.5% to 15%. CNG and LPG are major contributor to this. Actively participating in it.
Responding to Ethanol initiative of Government also
PLI scheme:
o PLI scheme on batteries: is the Suzuki Toyota facility will be eligible for the incentive
o PLI scheme is on Advanced chemistry cells (ACC)
o Companies first phase of plant already is operational
o Discussing details with NITI Aayog and other government authorities
o It should bring some capacities to India
Capex
1mln capacity with capex of INR 170bn: these are long term projections for new location this includes potential capacity of the plant with provision for future increase.
FY22- capex - INR45bn
Chip shortages
So far have been able to manage
Company is doing better than competitors. Because of wide portfolio. Different model require different types of chips
Prioritizing models which does not require chips that are in shortage
The issue of supply of chips can last for a year
SUV segment
Sharp expansion across categories – Entry, mid and large
Market share of SUV has increased from 32% last year to 38% in Q1FY22
Mid and entry SUVs are seeing strong traction - both are almost at same MS
Maruti is doing good in Entry segment with Brezza
In Mid segment - S Cross hasn’t performed as per expectation
Looking at mid SUV segment very closely
In next 3-5 years SUV share to stabilize at 42-43%; like in other countries
Mid SUVs are gaining market share from Sedan mainly
Sedan which was at MS of 23% 5 years back now at 10% in Q1FYY22
This MS shift with hatchback is mainly due price overlap between Premium hatchback and Mid SUVs
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Others
Export revenue- Q1FY22 - INR22.86bn.
Discount at INR 14k in Q1FY22
Inventory: 135-138k, reflecting around 27 days of normalised sales
Order book: as of today at 170k
Royalty: 4% for Q1FY22
Q1 retail sales: 501k for industry and 200k for MSIL.
Retail MS was lower at 40% vs wholesale MS at 46%
o Mismatch of CNG availability (~90% MS in CNG)
o SUVs where MSIL’s MS is lower has went up for overall industry
Low Stock levels In April (30k cars in the network and 2k in factory) Followed by lockdown
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Minda Corporatieon
Summary
Entered into a JV with INFAC for vehicle antenna system – opportunity as connected mobility and autonomous vehicle increases.
EV – order win of 2,739mn in Q1FY22
Added new customers in EV (Ampere, OLA, Polarity, Revolt)
Strategy: More customer per product and more products per product
New business wins exceed replacement business order
Focus is on lower breakeven levels
By looking at July and August, expects 70–75% utilization levels.
It aims to come close to 12% margin by end of year
95% of revenue is engine agnostic
RM under-recovery
o Copper prices up 15% QoQ and up 80% YoY
o Pass-through lag of 3 to 6 months
o Under-recovery in Q1FY22 is INR60mn; it will come in next quarter
EV order wins
Focus on 2W,3W and CV
Order-wins of INR 2,739mn in Q1FY22. Also won an INR2bn new order for smart keys in Q2FY22 from a large OEM – it will be disclosed along with Q2 results
Some products are legacy in nature but for premium models.
Orders are for products such as battery converters, AC DC converter, smart keys, connected clusters, wire harness, battery management system.
Most of the products are designed in-house.
OLA placed an order of INR1.5bn for electronic steering lock and latches.
The content value is INR3,000/unit.
New order win of INR33bn in last 15 months
INR25bn in FY21 and INR8bn in Q1FY22
Production of these orders will start from 6 month to 24 months
INFAC JV
It is for antenna systems used in 4Ws.
Minda has won orders from Hyundai/Kia and MSIL
This will require an investment of INR100mn mainly used for transfer of production line from Korea to India
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Own 51% in this JV.
Minda will pay royalty but not significant, in line with industry best practices
Currently have orders of INR1.35bn, LOI from other customers awaited
Profitability is expected to be higher once localization happens. Initially high import content will cause lower margins. Has to import digital parts; mechanical parts are manufactured locally. Import content will be at 90% to begin with
SOP for localisation only after six months.
Margin
Gross margin – up QoQ
EBIDTA margins will reach 10- 11% range once utilisation levels hit 75%
Lower after market share and higher RMC led to depressed EBITDA margins in Q1FY22
Productivity improvement plans got affected due to reverse migration of employees amidst Covid
Localization in Wiring Harness will led to 1% margin improvement in 12 months and 2% margin improvement in wire harness business in two years.
Wiring harness business was positive PAT despite sub 50% utilisation
Capital allocation
Will not get carried away by having cash on Balance sheet
Defined norms for capital allocation which it will follow strictly
Will be looking at companies in its expertise zone
Not looking at companies in Europe with large manufacturing facilities
More interested in technology support
Gross debt is INR5bn
Die casting
Revenues in Q1FY22 at INR1,200mn vs INR1,500mn in Q4FY21.
Expects this business to grow at 15%
Aluminium content per vehicle should increase. Exploring opportunities in export OEMs and EV space
Capex for this quarter at INR60mn
Interior plastic
Segment is growing well
Won business in India from Toyota
First time business from Maruti Suzuki
Looking at triple our revenue from here though on a small base
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Wire harnessing business
Back to back arrangement with customers
If the copper continue to increase then it will be difficult to maintain margins
Expects Mid to high single digit profitability from next quarte
Others
TLA with Israel company
Filed 6 patents in quarter – 3 for JV
o 2W ADAS partnership – done 10K kilometres testing on road
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Motherson Sumi Systems
The performance of group is sustainable and growing demand is not an issue; hiccups are from supply side (chip shortages, container issue, Hurricane in Texas and Floods in Europe etc).
Copper is one of the main raw material in wiring harness – prices of it continue to remain inflated. PKC is relatively more impacted as share of copper is relatively higher in commercial vehicle as compared to passenger cars. Pass through of costs has a lag of six months.
New orders flow delayed due to current ongoing chip shortage and the hurricane issue
Progress on greenfield plant is good. Heavy lifting has been done largely.
Order book is from EVs is very healthy; policy to share oderbook half yearly only.
Over all capex guidance remains at ~INR20bn
PKC margin pressure and one-off costs: There were delays in product launches and also a demand mismatch at different plants. As a result, there was one-off cost of EUR10mn due to logistics, shifting of employees to Europe, etc. Copper price cost inflation (yet to be passed on was ~EUR5.9mn).
SMR/SMP: Premiumisaton trend leads to higher bought-out components. This has impact on margins but aids RoCE. SMP has many child parts that are bought- out. The child part content increases with premiumisation. SMR is more backward integrated but has bought out components, especially that are IP- protected.
EV: Strong order book in EVs. Will give guidance in the end of 6 months. Huge opportunity for existing products as OEMs are introducing EVs in existing products also.
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Q1FY22 conference call highlights
Suprajit Engineering
Highlights
During Q1FY22, there was lack of traction in domestic markets but exports supported overall business
Faced multiple headwinds such as semiconductor shortage, container shortage (cost has gone up 5-6x), covid-related disruption etc.
Expects Q2 to be better than Q1. Witnessed good recovery in first 45 days of Q2.
Application of cable is not going down – In EVs there are some additional usage coming up
In Europe, new order-wins have not been fully implemented as yet due to uncertainty, else volumes would have been higher by 30 to 40%
SENA/ WESCON
Posted best ever Q1 despite chip, supply chain challenges and container issue.
Witnessing good turnaround in this business; Q2 also looks good as of now
Buying IC at far higher cost than agreed with customer to ensure customer is not affected
Engineering plastic prices have gone off the roof
Expects 14-16% of margins on normalized basis
Gross margin improved QoQ
o Benefit of some low cost inventory
Suprajit Europe and Automotive
Facing same challenges as SENA
Expects recovery from Q2 onwards
Some of new launches did not happen
On the verge of new orders start contributing in Europe.
Luxlite and Trifa
Europe slowly opening up.
Since suprajit acquisition in 2013- this segment has seen severe pricing pressure in Europe; prices are down in the range of 30-50% or more for some products.
Competition is coming from Chinese and other players
Looking for options to turnaround
Have shut down one warehouse
Need one warehouse and some front end
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India Lamps
August 15 will launch trade schemes to fill the shelves, every year cycle
o Have invested in Oxygen plants. Built two plants one in Chennai and another one in Noida. Chennai plant is commissioned and Noida will commissioned soon.
Could not produce for 2 to 3 weeks due to oxygen shortage
Capacity expansion
~2% of annual sales for on-going maintenance
If anything more – will update
For new product lines established capacities from normal capex, if new big order comes up then will have to setup facility.
EV supplies
Supplying different parts to diff customers including brake shoe to one customer
New products
These are new areas where company is trying to diversify
Products such as Brake shoe, Digital Instrument clusters, gear box.
It has received some business in these products. Initial order execution has started.
Brake shoe are getting good traction in after market segment
Launching three platforms in digital speedometer
o Supra 1.0 (launched) - for entry level bikes
o Supra 2.0 (about to launch) - for medium levels bikes with additional features
o Supra 2.5 for premium segment
Company has only 2 customers in speedometer segment; aim is to grow in digital speedometer segment (~10% of industry using digital speedometers)
Company has won some business in this segment
In international markets winning orders in non- cable segment
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Tata Motors
Highlights Net automotive debt is up to INR613bn in Q1FY22 from INR409bn in Q4FY21 mainly due to WC unwinding of INR 165bn; expects WC to recover in H2 as production ramps up
Company expects to turn EBIT and cash flow positive in H2, as operating leverage kicks in.
JLR expected volume in Q2 now at 65k units (up vs 60k units of earlier guidance)
Capex to Inch up in H2 as New MLA based RR will be launched
In PVs: Overall Market share reached to 10% (vs 8.2% in FY21), first time in 9 years
JLR Execution of re-imagine and refocus is well on track: continue to bring cost efficiencies. Current adversity has further emphasised on the two strategies
Retail sales vs Wholesales:
o Retails sales were better than wholesales in Q1
o Order book stood at 110k units; Defender continue to do well ( June end 29k order book)
o Expect retail sales to come down from Q2
Semiconductor shortage:
o In Q2 , wholesales may be down 50% to 65k units (vs 60k earlier)
o Chip supplies improving MoM
o Expects QoQ recovery post Q2
o However, structural capacity issues will resolve in 12-18 months when new capacities come online
o Company has prioritized name plates (high margin products) especially for incremental orders. Existing order book has to be fulfilled.
o Looking to do away with lower derivative options across model till there is demand supply mismatch due to chip shortages.
o If consumer accept the strategy, breakeven levels will be lower than Q1 level of 90K units
o Company is engaging with semiconductor suppliers aggressively
o Optimising semiconductor usage to reduce dependency
o Focusing on securing future semiconductors supplies including long term contracts and take or pay arrangement
RR and RRs continue to do well despite 7/8 year old
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No delay in launch of new models. New RR to launched in nine months and new RRS to follow 6 months after RR
Refocus strategy
o 6 pillars in this strategy
o Pillar 5&6 – saved ~EUR 150mn led by lower VME, improved mix, digital initiatives and right product at right time
o Pillar 3: Targeting 10% cost saving per car
Adverse FX as sterling appreciated partially offset by hedges
There is no change in FY24 and FY26 guidance
Optimal inventory will be around GBP3bn (Vs GBP4.4bn 2 years back)
China Sales
o China Breakeven was at 70k units now targeting 65k units
o Inventory at dealer level has come down.
o Discounts also come down from 30% to 26%
o Also, refreshing two models (Evoque – long wheel base and XF)
o China Breakeven was at 70k units now targeting 65k units
o Inventory at dealer level has come down.
o Discounts also come down from 30% to 26%
o Also, refreshing two models (Evoque – long wheel base and XF)
PV Overall Marker share reached to 10% (vs 8.2% in FY21)
Strong retail order book : 53.8K units in Q1FY22
Gained 800bps Market share in mid-sized SUVs led by strong response received for Nexon, Harrier and Safari
Network is key to drive growth; expanding network to targeted micro markets
Focused marketing to capitalize on the festive season
Branding in IPL to make products visible
Inventory and Semiconductor
o To cater to demand company has built some common parts inventory and some finished goods inventory (10% of monthly volumes)
o Adopted various strategies to fight with semi-conductor shortage: creating alternate sources, buying from spot market, reducing usage of semiconductors where-ever possible, working closely with vendors and tracking semiconductor situation very closely
Focus is on profitability by way of
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o Strict cost control
o Taking price hikes to mitigate the commodity inflation
. Took two price hikes of 1.8% In May
. Another price hike is due in Q2
Capacity utilization
o Company has plant at three locations
o Pune plant is working at 65-70% of capacity utilization which will go up further as new launches come in ensuing months.
EVs and regulatory compliance
o Planning to launch 10 EVs by 2025
o Plan is to launch models in gradual manner
o Seeing strong traction in EV category
o EV is now 3% of sales; highest ever quarterly sales at 1,715 units
o Infrastructure building is key to adoption of EVs in India
o MS improved t0 77% in Q1FY22 vs 61.7% in Q1FY21
o EV order book at 14-16 weeks. Shot up in last 1-2 months CV Market share is matrix to look at
o Overall MS at 40.5% vs 42.4% in FY21
o MHCV and ILCV continue to do better; both gained MS QoQ.
o While SCV and Bus segment remain laggards
o Company continue to focus on both SCV and Bus segment
o It expects bus volumes to improve with further opening up of economy (Schools, colleges, offices, public transport). However, Bus volumes supported by demand in Ambulance.
Wholesales and retails are almost same in CVs
Commodity inflation and price increase
o Steep rise in steel and precious metals necessitates price increase
o Company has taken two price hike of ~2.5% in April and July.
o Continue to work on value engineering to reduce steel usage
Demand
o During Q1- demand fell to 75% in May (50-50% drop in April and May) compared to Mar’21. As lockdown eased In June demand came back to April levels.
o Rising freight rates, increasing Diesel consumption and improving Eway bill data shows early signs of pickup in CV volumes
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o Transporter profitability remains a key concern; however it expect to improve going ahead
CNG penetration
o Increasing as infrastructure is building up
o Further supported by increasing diesel prices
o Sales of CNG variants witnessing good traction.
Company has built up some finished goods and common parts inventory and is better placed in Q2 to cater to demand
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Banking
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Aavas Financiers
Operational performance and strategy
More prudent policy on interest recognition. Do not book income on GS3 assets hence no question of interest reversal.
Yields have declined due to a) decline in base rate by 15 bps b) normal level of business.
Strategy of entering Orissa? State-district-taluka level. No. of houses in that region, etc. Setup a branch only if it can be operational for the next 10-15 years.
In Karnataka, the branch is very close to Maharashtra.
Asset quality and collections
Sharp deterioration in 1+DPD: Only 3000 customers have not paid the June instalment. In June, 97% customers paid their EMI. In Apr-May, 12.5% did not pay their EMI, out of which only 2.5% did not pay the June EMI. Do not believe there is much stress (covid second wave not as severe as the first). If there is no 3rd wave and the economy begins to look up then this will improve even further.
Collection efficiency is at 98-99% in June.
No top ups to non-housing loans. Not even 1% of disbursements.
On restructured accounts – prudently provided 14% on those assets.
ECL provision of 85 bps. Stage 3 provision is 18% as per ECL calculations.
Most provisions are technical – if 3rd wave does not happen, actual scenario will be much better.
INR 310mn buffer provision made for Covid.
Overall restructured book is INR 1.14bn
75% of the restructured book is more than 2 years vintage
ECLGS outstanding of INR 1.46bn.
If someone wants to take an additional loan for 1st floor then HL – if for business then top up.
Liability and cost of funds
Long term credit rating continues to be AA-
Zero exposure to CPs.
Assignment/ securitization – similar trend as last year shall be maintained.
Raised money at 4.62% this quarter. NHB funding is based on their internal scores and accordingly give different products to different institutions.
23% from NHB – 15 yrs, 22% from assignment – 16-17 yrs, term loans from bank – 10 yrs, NCD – 5-10 yrs.
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Q1FY22 conference call highlights
Axis Bank
Asset quality Gross slippages during the quarter were INR65bn (> 4%), with larger chunk coming from retail segment. While retail slippages were high this quarter, but bank expect things to be transitory and significant improvement to play through in ensuing quarters. Given the current scheme of things bank expects the slippages to show early improvement in H2FY22 ( assuming things doesn’t deteriorate materially following covid wave 3)
o Gross slippages in retail is INR54bn - 84% of the overall slippages. Of the net slippages - retail slippages are INR37.4bn forming 93-95% of net slippages during the quarter.
o 22% of Q1FY22 slippages downgraded and upgraded in same quarter. 55% of net slippages comes from secured segment.
o 7.5% of slippages represent linked accounts which continued to remain standard asset
o The retail assets are written-off in the next quarter when retail assets is 100% provided for. There is no discretion on write-offs, the current quarter is impacted by CBG write-offs, which was following the policy change in last quarter.
The standard restructured loans stood at INR22bn – sub 40bps of loans - bank carries a provision of ~23% on restructured loans. The bank carries INR1.55bn, towards restructured accounts approved but not implemented in Q1FY22. The overall restructured provisions stood at INR7.03bn (versus regulatory requirement of INR2.4bn).
o ~ 100% of restructured corporate book classified as BB & below
o Linked but not restructured non fund based INR9.92bn
The bank has not utilised any COVID provisions during the quarter – The bank holds COVID provisions of INR50bn – 80bps of loans. The bank will not be in a hurry to utilize this pool.
Overall ECLGS book at – INR121bn - only granted to existing customer (28k customers availed this)– 99% of them were under ECLGS 1& 2 , in value term 97% was in ECLGS 1& 2 and nothing in ECLGS 4.0.
o Don’t see material impact on ECLGS given the full assessment taking place.
o The true litmus for MSME book & ECLGS scheme will be in Q3FY22 (post completion of 1 year of ECLG 1.0 implementation).
Business momentum
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The advances grew 12% YoY with retail loans grew 14% YoY (accounted for 54% of the net loans). The share of secured loans was ~ 80%, with home loans comprising 37% of the retail book. Disbursements in retail segment were up around 3.3x YoY.
SME loan book grew 18% YoY - 96% of the SME book is secured with predominantly working capital financing, and is well diversified across geographies and sectors.
Corporate loan book grew by 8% YoY - 85% of corporate book is now rated A- and above with 94% of incremental sanctions in Q1FY22 being to corporates rated A- and above
Strong deposits growth continued – 11% YoY/ 7% QoQ. On quarterly average basis - savings grew 19% YoY / 7% QoQ, current deposits grew 17% YoY; and retail term deposits grew 11% YoY/2% QoQ.
Bigger impact on the NIMs is the product mix change, change in CRR (regulatory impact) and interest income reversal.
o Excess SLR for the quarter was INR740bn.
Employee cost – YoY growth was on account of deferred increment ( Q3 versus Q1), while Q1FY22 carries increments for both this year and last year. Added 5k employees into the system that impacted staff cost. The bank did take social security code provisions which bank has topped up, broadly this has increased on YoY basis.
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Q1FY22 conference call highlights
Bandhan Bank
Asset quality
EEB GNPLs movement Slippages – INR10.4bn , recovery/upgrades – INR5.1bn; For overall book : Slippages – INR16.8bn ; recovery/upgrades – INR9.9bn. There were no write-offs during the quarter.
With NPLs : Fully paying is 8% ., part paying is 66% and non-paying is 26% ; Within restructured book – fully paying is 4%; Part paying is 80% and non-paying is 16%
During Q1FY21-22, restructured EEB Portfolio worth of INR40.6bn and Housing portfolio worth of INR6.0bn totalling to INR46.6bn.
o Within EEB restructuring Assam contributed 29% ; WB – 36% and balance rest of India.
o Largely part payment customers and some customers in geographies which were under covid restrictions for the full quarter were considered for restructuring
o After coming out of restructuring period, the performance of these customers are in line with regular customers
o 82% of restructured customers have paid in the last quarter and will regularize as situation improves
o In restructured housing portfolio of INR6.2bn at the end of Q4FY21, moratorium is over for accounts worth INR2.6bn. 96% of these customers have started paying post moratorium
Of Assam portfolio of INR63.5bn – INR35.8bn is eligible for government resolution plan – of the remaining non-eligible portfolio of – INR27.7bn – INR18.5bn is not eligible given disbursements post December, INR8.2bn is not eligible given debt of borrower exceeded the limit (INR1.25lk) and INR1bn given Bandhan was 4th lender.
o The bank has already had INR8bn of write-offs and INR8bn of provisions on Assam. So cumulative INR16bn will be available, as and when government scheme gets implemented.
Accelerated provision on NPA accounts of INR7.5bn resulting in PCR of 62% as against 50% in Q4FY21. In addition to this Bank also carrying additional standard assets provision amounting to INR3.23bn and provision on restructured assets amounting to INR5.29bn
Collection efficiency for EEB portfolio is 98%. Intention of majority of customer book is to pay and hence remain confident of improving collections as business of customers normalize
o Collections continues to improve with covid restrictions getting relaxed
Bank has availed CGFMU guarantee (CGFMU different from ECLGS) - A central government guarantee given to lenders against payment of guarantee premium – generally 0.5% or 1% range.
o First 3% of the loss of the pool where the guarantee is availed has to be borne by the lender
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o Incremental loss above 3%, 75% of it will be borne by the guarantee provider and 25% has to be borne by the lender
Negligible top up and nil ECLGS in Q1FY22
Bandhan MFI total : 1-30dpd – 8.5% ; 30-60 dpd : 10.1% ; 60-90 dpd – 2.4% ; 90plus dpd – 9.3% Total overdue book closer to 30% . The restricted book of ~8% which has moratorium (till March 2022) is under standstill.
Business mix
Second wave also impacted rural and semi urban areas
However July onwards, lockdown has been lifted in various parts and vaccination drive has gathered momentum and therefore we are optimistic about the future
In spite of challenging environment due to covid second wave, we have delivered the best ever quarter in terms of operational performances
Several rating agencies have predicted a high single digit growth rate in FY21-22 despite a severe second wave
Business has done well despite these channels. Added 0.5mn customers during the quarter with total customer base reaching to 23.5mn
Hired senior managers to drive business growth. Aim to grow commercial book and individual business lines therein.
Focus on maintaining a balance between secured and unsecured book
Advances saw a growth of 8% YoY to INR804bn.
Happy with the way CASA has grown; CASA ratio at 43%
Total deposits saw a growth 28% YoY to INR773bn
Cost to income ratio improved to 29.3% from 32%, a year ago
Operating profit has increased 18% YoY 18.7bn in Q1FY22
82-85% of MFI book generated last year
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Q1FY22 conference call highlights
Bajaj Finserv
General insurance business
Aspire to build a profitable & diversified portfolio of products & solutions with emphasis on multi-channel distribution, strong underwriting with stress on combined ratio and prudent financial management.
Top line/revenue: GWP saw an increase of 9% in Q1FY22 compared with industry growth of 11%.
Continues to grow in preferred areas of private cars, 2-wheelers, commercial lines and retail health.
Growth in these segments has been higher than the market.
Remain cautious on group health.
Despite rate hike effect since Q4FY21, commercial lines (fire, engineering and liability) continue to do well.
Top line was also affected by zero crop business in Q1FY22. However, growth will come back in Q2 as the season starts.
As a company, want to be active in all lines of insurance.
Business mix continues to remain steady.
Share of direct channel picked up in Q1FY22 at the expense of corporate agents (non-banks).
Combined ratio deteriorated to 103.4% from 97.6% , a year ago primarily due to higher covid claims
Frequency of covid claims increased as 82% of total covid claims of FY21 are already booked during Q1 FY22.
Benefit from lower Motor OD claims much lower in Q1FY22 compared with Q1FY21 when there was a stringent national lockdown.
Courts not operating at full capacity has also led to delay in settlement of TP claims and may cause interest cost on such claims to rise.
Continue to augment distribution capabilities by adding new age partnerships and increase in agency headcount.
Strive to be the best claims paying general and health insurer.
Life insurance business
Continued focus on sustainable and profitable growth by maintaining balanced product mix and investment in retail growth engines.
Aim to increase new business value while gaining market share in retail space.
Strong growth of 49% in individual business in Q1FY22 despite local lockdowns for two-thirds of the quarter.
Business has picked up as restrictions are now getting lifted.
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Q1FY22 conference call highlights
Deterioration in mortality during the quarter in line with industry trends and a damaging second wave.
Both group and retail protection saw maximum pain in April and May. However, as vaccination picks up, the same has started subsiding.
On retail, settled more than 1,600 claims amounting to INR1.2bn (on a gross basis)
The company has also boosted reserve to INR3bn from INR1bn at the end of Q4FY21.
In terms of products, pensions and ULIPs have done fairly well.
Demand for ULIPs have improved on the back of strong equity markets.
Protection has seen moderation due near-term challenges.
Protection will continue to be an important part of strategy.
Guaranteed products continue to do well on back of customer preference.
Annuity product launched in Q4FY21 has been well received.
Comfortable with current hedging strategy on interest rate risk pertaining to guaranteed products.
Persistency saw a significant improvement across all key cohorts.
Growth in NBV from INR(1.4bn) in Q1FY21 to INR2.5bn in Q1FY22 on the back of better product mix and growth in APE.
Diversifying distribution mix, reducing over reliance on agency channel and scaling up alternate channels has helped.
Investment in digital initiatives and tools continue.
Institutional business is in a growth mode with momentum built up in new partnerships such as Axis Bank, IDFC First Bank, RBL Bank and India Post Payments Bank.
Consistently reported industry-beating individual rated premium growth.
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Q1FY22 conference call highlights
DCB Bank
Business performance
Q1FY22 has been a very difficult quarter with challenges all around.
Initially targeted mid-teen growth of 15-16%. However Q1 was soft due to covid.
Sustained growth in gold loan portfolio
Tied up (Co-lending) with a reputed company
Saving deposit and customer base continues to grow
Top 20 depositors share has been brought down to 7%. Should be below 5% in a year.
Opportunity for new loans was limited. Despite this, loans AUM is flat.
Capital adequacy remains strong.
Core fee income was much better in Q1FY22 compared to Q1FY21 as learnings of first wave helped.
Employee cost is higher due to increase in salary/bonus payouts. Also added headcount as growth opportunities will evolve as covid settles down.
July momentum in disbursements and recovery/collection is encouraging.
Home loans can be 30% of book in two years.
Cost of funds should reduce as deposit rates have been lowered. As NPA situation improves, interest reversal will also be lower and NIMs will start showing an improvement.
Asset quality
Unlike other banks, we don’t rely on unsecured lending/MFI and therefore asset is secured largely.
All NPAs up to March-20 are well provided. Following a product-specific approach while making provisions with more than 90% in MFI/personal book.
LTV for a large part of the gold loan portfolio is 75%. For select, it is 85%. Therefore stress in this portfolio is well managed with successful e-auctions.
Coverage is strong now and 2% of Standard assets are covered.
Increase in corporate NPA due to 2 accounts and 1 small account; these should resolve in next 3 months.
In second wave, restructuring requests have gone up as customers faced difficulties in payment.
Mortgages, SME and CV portfolios asking for higher restructuring.
DCB is selective in approving these requests.
Some customers also avoid restructuring, once they are made aware of revised instalment details (to be paid after deferment/restructuring gap).
Average LTV in restructured assets of 52% and in NPA of 40%.
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In CV, NPA is a direct functioning of underlying vehicle’s operating status. July recovery is better than June and hence confident of a sustained recovery, barring a large third wave.
Karnataka and Tamil Nadu worst affected regions from a portfolio perspective. North India has held up well.
Provision cost breakdown – INR1,030mn towards NPA, loss of INR50mn on sale to ARC, floating provisions of INR30mn and provisions for standard assets at INR170mn
Slippage on retail for most banks is in the range of 1.4% to 2.1%. DCB is also in this range. Slippages in current quarter should not be a run rate as Q1 was affected by a large second wave.
Additional 1–2 months needed to confirm that the worst is over.
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Q1FY22 conference call highlights
Federal Bank
Operational highlights Good activity on the bond market side (RBI re-purchases as well as market activity) helped create provision buffers.
INR20bn loan book which was digitally originated is holding up really well.
INR650mn interest income reversal in Q1.
Between 6-8 weeks credit cards will be able to shift to Visa.
Bank is interested in growing credit card and retail verticals. Even gold loans are picking up again in Q1. Asset quality and collections Collection efforts have been doubled.
Only a small part of gold loan book has a 93% LTV.
INR 2.5 bn was the restructuring in 60%:40% for HL:LAP. Done a combination of moratorium and tenor extension (upto 2 years) for as a part of restructuring.
On restructured standard assets, have made a 15% provision.
In the corporate book only one account is in the restructured pool.
Stretched book to Total assets has gone above 3% on account of restructuring. The restructured book should start reducing over the next 12 months. This is a largely secured book – LAP, HL, etc. July’21 signs are very encouraging.
SMA 0-1-2 book is flat as compared to Q4FY21. Has improved in July.
History has taught that exiting gold business will have a backlash later and hard to re-build. Liability franchise Expect current account momentum to be moderate and will be harder work than the past to build this.
At the bottom of the overall cost of funds, don’t expect it to go any lower from here. Guidance The digital foray can give a bank like Federal a great reach; also offers plenty of cross sell opportunities.
Just an enabling approval for fund raise, no immediate plans.
FY20 and FY21 slippages were around INR 18bn. FY22 should be around this +/- 10%.
Expect NIMs to be around 3.2% on bottoming cost of funds.
NII growth will be faster than AUM growth.
Right now the digital foray is focussing on customer acquisition and cross sell will be ramped up later.
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Q1FY22 conference call highlights
Haven’t looked at any microfinance players in the last 2 months – waiting to see how that portfolio plays out. Doesn’t make sense to buy an asset and add to current problems.
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Q1FY22 conference call highlights
HDFC Bank
Macro outlook
Rural was also impacted in the second wave unlike the first wave.
April and May saw curtailed economic activity. However, June saw a meaningful pickup as lockdown restrictions were eased.
Recovery has further improved in July, and the trend remains encouraging.
RBI to support growth and maintain its dovish stance.
Google Mobility Index tanked in April and May, but good recovery in June. July is almost normal.
E-Way bills suggest a mixed signal - increased trends but still below March level.
PMI – has lagged expectations and improvement hasn’t happened.
Asset quality
Covid wave 2 has been significantly affected bank activities for two-thirds of the quarter.
Collection efficiency was affected during the quarter due to lockdown restrictions and concerns on health by staff.
As wave 2 is behind us mostly, expect buoyancy going forward.
Created contingency provisions of INR6.1bn.
Core specific loan loss provisions INR42bn.
Core credit cost ratio of 1.46% for Q1FY22.
Total credit cost including contingent provisions was 1.67% for Q1.
Recoveries amount to 14bps of gross advances.
Core annual slippages ratio of 2.54%; Ex of agriculture ratio of 2.2% for the quarter.
Higher slippages in agriculture portfolio.
INR6bn includes recovery from written off accounts.
INR18bn loans sold to ARC .
Peak bounce rates in Q1 lower than first wave - HDFC Bank has 50% better bounce ratio in NACH data, and continues to be above peers.
Restructuring – some window left – expect large part of restructuring before Q2. Minimal benefit of this in Q1 but expect a major benefit in Q2.
Will not restructure if the viability is in doubt.
Business momentum
As business activities remained curtailed for two-thirds of the quarter, it led to a decrease in retail loan originations, sale of third-party products, card spends and efficiency in collection efforts.
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Q1FY22 conference call highlights
This led to lower revenues and enhanced levels of provisioning.
The tele-sales channel did well in Q1 due to lockdown in first two months of the quarter
Continue to focus on digital operations.
ESG: Aim to become carbon-neutral by 2031–32. Also set strict goals on social aspects .
An amount of INR1bn has been committed to covid relief measures.
Association in CSCs has been helping the bank. As of June 1.71lk of which 1.2lk are business facilitators.
UPI transactions have sequentially grown by 5% in volume and 11% in value.
P2P market share is 10% and P2M market share is at 14%.
Deposit growth of 13% with strong momentum from retail.
Liquidity remains strong along with comfortable adequacy ratios.
NII was impacted by 3% due to higher interest reversals, higher cash requirements, business mix and lower revolver balances.
Cost to income should revert to 38–39%. The goal remains to bring it down over the medium term.
Higher penetration in higher credit score borrowers. Do a lot more than what credit bureaus do while assessing borrower quality.
New book is building up well and looking forward to a growth phase as economy turns up.
Industries such as agri processing, food processing, tiles and ceramics, ecommerce and pharma sector are showing strong growth.
Capex demand is coming from PSUs, private players are at 60-65% capacity utilization. The Bank expects private sector capex to pick up in H2FY22 provided the covid situation does not worsen.
Card contribution to fee income in the range of 25–33% depending on performance of individual products
Retail
Despite restrictions, customer needs were addressed well.
Focus on need-based selling – AI introduced based on customer behavior – initial trend encouraging (6x probability of selling products versus traditional methods earlier). Retail asset portfolio grew at 8% compared with the corresponding quarter and small sequential growth compared with the March quarter.
Demand for retail loans in June was 80% of Q4FY21 at a system level.
Auto loans saw a 30% QoQ dip in 4w, 2W dip of 40%, but significant gains for HDFC Bank.
Leadership position will be attained in new and used cars.
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Q1FY22 conference call highlights
In PL and BL, the bank has leadership positions and wants to capitalize on this further.
HL/LAP origination is higher than previous years.
Plans for the FY22 (despite covid wave 2) remain on track and will close the year with solid growth.
Sharp bounce in demand for retail products offered by HDFC Bank.
In July, disbursements seem to be back to pre-covid level.
Not expecting salary cuts and job losses like last year this time around.
Seeing good opportunities in Auto, Housing, Personal loans and business loans.
Commercial & Rural Banking.
Business broke out of historical low QOQ growth, on average basis growth is over 6%-plus. Growth outlook is even better.
The credit offtake is across broad sectors, including existing and NTB growth. Aim to reach 100 cities by end of years. Demand from various industries coming through.
OD utilization stands at 70%.
Rural banking at 19% YoY/ -2 % QoQ (this is normal trend but lower than past).
SME portfolio and corporate portfolio.
The second wave has impacted customers very hard – that said, the portfolio has held up well.
Delinquency in various buckets has improved QoQ – which is surprising – the average utilization remained in 70–75% , thus the drawdown is not to fund losses and this has remained steady for a very long time now.
Extremely granular – all segments under 5% (ex agri, which is 10% of SME business).
Incremental slippages have been lower this quarter sequentially as GNPLs remained very range-bound.
Behavioral score (based on several attributes for non NPL customers) did take some sort of dip in April / May, but has started to recover.
GECL – market leaders, not much in 2.0-3.0 - Not even 10% of this book in stress.
Corporate book is steady. However, growth in corporate is not as strong as previous quarter and policy for quality remains same.
The book remains strong with a rating of 4.2–4.4.
The unsecured wholesale rated portfolio is 3.5.
AAA/AA rated portfolio is 80% of the book.
No big slippages to report and no major deviation from expectations.
Opened 45 branches during the quarter.
Close to 150 branches ready to open as situation improves.
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Q1FY22 conference call highlights
HDFC Life Insurance Company
General environment and business performance
With signs of the second wave receding, witnessed a gradual pickup in economic activity across parts of the country, starting June.
Health impact was a lot more devastating in the second wave vis-à-vis its economic impact.
Witnessed a steep rise in death claims with peak claims in wave 2 amounting to 3–4 times of peak claim volumes in the wake of the first wave.
Over 70,000 death claims were settled in Q1 with gross and net outflows of INR16bn INR9.6bn, respectively.
Cautiously optimistic on FY22 and will continue to approach the situation dynamically.
Claims on individual business seem to have peaked out – at the peak daily death claims of 300+ were being intimated.
Excess mortality reserve of INR7bn has been provided for deaths that have happened in the second wave.
Reasonably confident that this amount should take care of all the claims from the second wave.
Group claims take a little more time from an intimation perspective and therefore have been cautious in creating the excess reserve.
Trajectory of death claims is similar to the country with high claims from Maharashtra.
Persistency has improved across cohorts.
Solvency at 203% remains well above regulatory threshold.
Confident about beating industry growth and expanding market share
Health, life and need for annuity are some of the top requirements on customers’ mind.
Remain committed to enhance customer experience.
Digital is the backbone of growth, and continues to invest in it.
Continue to invest in technology and training of employees, agents; Investment in tech helps in cost efficiency and convenience in dealing with customers.
Product structure
Focus remains on maintaining a balanced product mix.
Aim to build the business brick by brick by taking good-quality business.
While protection has near-term dampeners, structural story remains intact.
Underwriting challenges in tier 2–3 cities remain due to reluctance for medical check-ups.
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Q1FY22 conference call highlights
Individual protection saw a drop of 4% due to reluctance for check-ups and a conservative stance adopted by the company.
Demand for protection has far exceeded the willingness to underwrite this product and therefore remain confident of medium-term opportunity.
Credit protect has started to pick up well on the back of improved disbursements.
If there is a price hike by reinsurers, it will be passed on to customers. However, there are sufficient levers available for the company to get around the price hike.
Annuity continues to grow at a fast rate (61%).
Confident that this will become a bigger product than protection over the medium term.
Huge potential in retirement-related products.
Balance mix to provide natural hedge against mortality and interest rate risk.
Distribution mix
Focus remains on having a balanced distribution mix with an emphasis on proprietary channels.
Proprietary channels allow more control on product/customer
Continue to strengthen and enhance distribution mix by constantly adding partners, agents
All distribution channels are encouraged to sell the entire product suite and not focus on a select category only
Added new partnerships with ICICI Sec and TVS Credit, among others.
Agency has done better compared to Banca on a low base; Also as agent headcount has continued to improve
Within banca, despite adding new bank partners, mix of HDFC bank and others should not change dramatically.
Targeting new customers through online channel.
Focus remains on expanding to tier 2/3 cities.
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Q1FY22 conference call highlights
ICICI Bank
Impact of second wave Most branches were open in Apr-May while containment measures were applicable.
80% of the bank’s employees have received at least 1 dose of the vaccine.
E-Way bills, power demand, traffic activity normalised meaningfully in June. Operational performance Core PPoP increased by 22%.
PAT grew by 77%.
Retail disbursements took a hit in Apr-May but picked up in June-July. Credit card spends reverted to March level in June.
Business banking portfolio grew by 6% sequentially.
Retail portfolio grew 20% yoy. CC portfolio grew 13% yoy. Business banking portfolio grew 53% yoy. Corporate portfolio grew 15% yoy.
Treasury gain of INR 2.9 bn in Q1.
Offering instant settlement in P2M. Merchant payments business is exploding and ICICI bank has a very decent market share. Smaller merchants should see a strong proposition of working with ICICI Bank. Asset quality and collections PCR was 78%. Very conscious about maintaining a high ratio and a strong balance sheet.
Wrote back ~INR10bn of provisions
Carrying ~INR 64bn of covid provisions
GNPA addition INR 72.31bn in Q1.
Other than three accounts, one each in construction, power and telecom sectors, the maximum single borrower outstanding in the BB and below portfolio was less than INR 6 billion at June 30, 2021
Last year bulk of the NPA addition happened in Q4FY21 on an actual basis. Expected recoveries to be high. Had thought of even higher recoveries than actually recovered. Expect to see better recoveries in the second half of the year.
Angle of consumer behaviour here – People begin to hoard cash for emergency. Also, saw withdrawals from ATMS. Confidence began to revive from June.
On the mortgage side, LTVs are well controlled. Large chunk is SORP. Did not even need to sell in 2008 to recover. More than adequate provisions in the mortgage book.
Though SME is a riskier book than business banking, it’s balanced between margin, growth, and risk. Asset quality seems to be in check here. Liability franchise and cost of funds
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Q1FY22 conference call highlights
LCR is at 130%.
Cost of deposits are one of the lowest in the system. Digital and guidance I-mobile app seeing significant traction.
Value of UPI have double yoy and grown 30% qoq.
Nothing technically what a fintech does that a bank cannot do. First gap is the focus on the problem solving for the fintech – small customer base can execute fast. Banks have a much larger customer base. Fintechs are not regulated (more agile), banks are regulated. However, though fintechs are more agile they have a tough time getting into adjacencies. Bank branding is wider so can cross sell which fintechs cannot do. Whoever is agile and focuses on customer problem solving will win this market.
Profit pool and value is not so much in only payments. Need to use that as a base for underwriting.
As far as private sector is considered, not much capex seen. Dominant demand coming from working capital loans.
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Q1FY22 conference call highlights
ICICI Lombard General Insurance
Current environment
In the current quarter, faced headwinds in the form of heightened covid claims and no hike in motor TP tariff
Over 10% of employees got infected and lost 16 employees due to covid
Second wave impacted affluent class more who have a higher penetration and coverage
In the second wave, moderate and critical cases have increased and led to increase in average claim size
The tail of reporting has also been extended with a higher share of reimbursements in total claims compared to first wave
Conservative provisioning done keeping in view longer reporting tail
It is not possible to provide for third wave as nature/extent of it is impossible to predict
An IBNR of INR2.18bn for covid was created. This takes into account delay in intimation for claims that would have happened in Q1
Continue to remain optimistic about long term growth including retail health
IL take care app has surpassed 7mn downloads. Endeavour to make it a unique platform to service all healthcare related needs of customers
Undertook a number of measures to help society during the second wave
Continue to strive for further digital adoption in business operations from sourcing of policies to claim settlement
Significant investment in technology and enhancing people ability will lead to long term benefits
Over 97% of policies issued in paperless form
Company is well positioned to navigate through the chaos and remains focused on long term wealth creation for shareholders through prudent risk selection and constant profitability
Continue to strive to deliver 20% RoE on a long term basis
Health business
Demand for health insurance for the industry was strong, driven by awareness due to pandemic
Headline growth rate looks moderated as benefit of higher growth in indemnity is offset by lower sales of benefit from ICICI Bank
Focus is on building a complete health insurance product through higher customer engagement from home monitoring to OPD through IL Take Care app; App has seen more than 700,000 downloads so far. 200,000 downloads in Q1FY22
Focus on retail health will continue and should be the fastest growing segment
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Q1FY22 conference call highlights
To cater to rising demand and long term opportunity, plan to add 1000 employees/ front line distribution staff
Typically on-boarding and training takes 6-9 months and therefore these employees will start contributing from FY22
Increased premium in group insurance to the tune of 15 to 20% based on consultations with distributors, clients and past claim experience
In India, a total of 12mn covid cases were recorded in FY21. In Q1FY22, 18mn fresh infections happened. Out of 12mn, industry saw 986,000 claims. In Q1, industry saw 1051,000 claims.
For ICICI Lombard, 46,136 claims were received in Q1FY22 compared to 1,370 claims in Q1FY21. For FY21, 49,266 claims were received.
Percentage of reimbursement cases are higher. Therefore the company created IBNR. While computing this, actuary takes into account data insufficiency and also builds a cushion in terms of amount of reserve
Some increase in average size of claims due to higher treatment cost due to increase in use of consumables and extra tests done for safety
Expect some increase in loss ratios in health book structurally, irrespective of covid
Non-covid health claims at 90% of usual run-rate and therefore no significant benefit of lower claims in Q1FY22 compared to last year when people delayed operations where possible
Motor business
Market share in motor was muted. As a company, have a higher share in new sales. As new sales were lower in Q1FY22, growth slowed down.
Also lower new sales in Q1FY21 led to lower renewals in Q1FY22
However, not very worried about loss of market share as it is temporary and will bounce back once things normalise
Continue to grow in preferred areas of two wheelers and four wheelers
Pockets of Motor OD remain highly competitive, especially private cars and expect pricing to improve in such segments
Lower frequency of claims in motor OD business in Q1FY22 not as significant as Q1FY21
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Q1FY22 conference call highlights
ICICI Prudential Life Insurance
Business performance
Released ESG report for FY21 and added several improvements to its practices.
Continuously engaging with stakeholders to further improve ESG practices. Committed to progress on ESG framework; believe it is an ongoing performance.
Launched 2 riders related to covid during the quarter.
Strategy of focusing on 4P to guide towards aspiration of doubling VNB by FY23.
Strong growth in premium (on APE and NBP) and market share improved to 7.7% from 7.2% on RWRP.
Market share in NB sum assured increased to 14.7% from 12.5% for FY21 – market-leadership position.
Improvement in 13M and 49M persistency ratio while others remain steady.
While cost to TWRP rose, absolute cost increase is in line with growth in new business.
Significantly cut down expenses in Q1 and deferred to, increased advst to strong growth, strong growth has increased due to acquisition
Continue to leverage tech to improve this further.
Maintain ambition of doubling VNB (of FY19) by FY23 by focusing on 4P elements of business. This requires a 28% CAGR over the next 2 years. Primary driver for this will be premium growth. With a strong start to the year, reasonably confident of achieving this.
VNB growth of 78% and margin improvement to 29.4% - primarily on account of shift in business mix.
VNB margin is a function of product mix; not targeting a specific margin. Idea is to approach customers with all products and address needs with a focus on growing VNB.
Fist LI company to offer UPI payment facility for recurring payments, which further bosst persistency.
Pension subsidiary has gained significant traction and size.
Aims to be the most admired digitally-enabled insurer – Launched several tech initiatives to achieve this. For example, video verification in vernacular language, more responsive IT infrastructure and personalized video product brochure.
Continue to invest in people, process and technology.
Aspire to settle genuine claims as fast as possible to help the family of insured.
Covid death claims are significantly higher compared to the beginning of the year. In this wave, age group below 45 was more affected, and IPru Life has a higher share in that segment.
Net covid claims of 2.5x in Q1FY22 compared to FY21.
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Q1FY22 conference call highlights
Gross claims on account of covid at INR11.2bn, net of reinsurance expense at INR5bn.
Hold reserves of INR4.98bn towards covid claims at the end of June 2021.
In this reserve, all notified cases, IBNR specifically for deaths due to covid and provision for future possibility of death claims have been provided
P&L impact of this is INR7bn – expense of INR5bn in Q1FY22 plus increase in reserve to INR5bn from INR3.3bn at the end of March, 2021
This has affected profit for quarter and led to a loss of INR1.9bn for Q1FY22.
This provision is sufficient as long as covid claims don’t cross INR10bn (5 times net claim of FY21)
Daily deaths in July are coming down. As a result, claim intimations received by the company are also coming down.
As vaccination improves, activity should recover.
Other than covid, mortality experience is in line with assumptions.
Product mix
Well diversified business mix now as share of ULIPs has fallen from 82% in FY18 to 44% in Q1FY22.
Share of ULIPs should stabilize hereon in terms of %.
Strong growth outlook for both ULIP and traditional products.
Premium growth assisted by a wide range of products for both retail and group customers.
Continue to capitalize on existing opportunities without compromising on risk.
Protection
IPru remains a leader in New Business Sum Assured with a 15% market share.
Continue to see challenges in retails sales from a short-term supply-side perspective.
Due to this, APE for individual protection saw a decline in Q1FY22.
Demand for group term continues to be high as corporates are focused on getting cover for their employees instead of price.
Usually these large corporates have high level of vaccination rates for employees and therefore seem as a great business opportunity.
Group term is a mix of old relationships plus new relationships being acquired.
A hike in price was taken two months back on group term in line with increase in price by reinsurers.
Credit life is back to pre-covid levels.
Protection remains a structural opportunity.
Focus on annuity products has led to strong growth of 159% in Q1FY22 (on a low base).
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Pension fund AUM grew over 65% YoY at the end of Q1FY22.
Distribution mix
Focus on expanding partners across platforms.
Acquisition of new partners and investment in existing partners added more power to distribution machinery.
Bank partnerships increased to 23 with addition of IDFC First Bank, IndusInd Bank, RBL Bank and AU Bank, among others, in the last few quarters. These banks have started to contribute to sales now.
Aim to increase overall pie with new banks added in recent years with a focus on white space in terms of geography or product. This helps to grow overall business. Market share in sales of those banks has improved sequentially.
Don’t see a challenge with focus of ICICI Bank on selling annuity and protection as key products – products which contribute more to VNB than top line.
Annuity from ICICI Bank grew more than 195%.
ICICI Bank has started growing back and forms 28% of overall APE sales.
Close to 700 partners at the end of Q1FY22 with focus on both traditional and new-age partnerships.
Addition in agency headcount continues with 4,518 agents added during the quarter.
Direct channel being used for upselling (through analytics) and finding new customers; protection and annuity mix in this channel remains high at 21%.
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Q1FY22 conference call highlights
IndusInd Bank
Second covid wave impact Impact of portfolio much lower than first wave.
Carrying surplus contingent buffer of INR20.5bn Outlook Remain focussed on growing affluent and HNI customer base.
Just an enabling provision for fund raise. Adequate capital for now.
Banking is becoming more and more frictionless. Need to move away from being product & client centric.
Committed to grow at 16-18% for the next two years.
Given the credit costs, expecting ROAs of 1.6%.
Fee growth should always exceed loan growth.
Should see substantial recoveries over next 2-3 quarters.
Next year should be a very good year for the CV industry. Want to grow the LCV business and increase market share.
In microfinance, the goal is to acquire the merchant side of the business. Have a 13% market share.
Diamond side of the business is a cyclical and a working capital turnover business. Have a 25% market share here.
Ambition in credit cards is to be an INR 100 bn business only. Do not want to grow the unsecured business too aggressively. Credit card business will grow to support the other bigger businesses of the bank. Operational performance Already seeing uptick in retail and microfinance.
Reduced costs QoQ by 1%.
Corporate book doing better than the market. Asset quality and collections Collections have improved in June. Collections rebounded to 97% in June.
SMA 2 at 47 bps. Content with overall asset quality. However, will keep a relentless focus on collections.
Slippages during the quarter were 2.6% of the portfolio due to reachability issues. Slippages net of upgrades were 0.9%.
Total restructured book is INR 55.6bn (at 2.7%). Only 0.4% from new requests. Restructuring done only for good customers hence do not expect much delinquency from this book. Not expecting any subsequent losses in the restructured book. Fresh restructuring request of only INR 6.5 bn vs INR 24.5 bn in the first wave. Requests mainly from 3W and CVs.
ECLGS 3 and 4 is negligible.
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CV book was affected the most while PVs did relatively well. Dealerships opened in June and are seeing pick-up in demand. Volumes are picking up. MHCV disbursements should come back by the festive season.
The worst for the CV book is over unless there is a 3rd wave.
Long haul PVs have virtually not seen any movement over the last 12 months. That portfolio forms 5% of the overall portfolio that has been restructured. However, those customers are still paying as they have deep pockets.
Corporate book has started growing again.
Now comfortable selectively picking up SME loans
Gems & Jewellery – no NPAs in the book and a 4% sequential growth. Buoyant demand from US and China. Global credit demand in this segment is now half of what it was 10 years back. IIB focuses on financing working capital.
Fully provided for the unsecured microfinance loans.
Write off of ~INR 9.4bn out of which VF is ~INR 3.8bn, ~INR 1bn is MF, ~INR 1.9bn are corporate write-offs.
Unsecured book in MSME: not advisable to do. Secured business is doing well.
Telecom exposure still under discussion. Need provision only against the funded exposure of INR 20.5bn. Well provided to take care of the Vodafone exposure. Liability Growth in deposits very strong driven by retail deposits.
Cost of deposits have fallen below 5% for the first time in history.
33% YoY growth in CASA.
LCR has grown at 10% QoQ at 143%
Reduced rates in deposits and becoming competitive as liability growth>asset growth.
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Q1FY22 conference call highlights
Kotak Mahindra Bank
Covid second wave impact May’21 was hugely impacted.
30-60 days of the quarter were lost in the mayhem.
Believes the bank is better prepared for Covid 3.0. Growth What happened in Q1 – started going out in the open (to lend and grow) – but a sudden cloudburst (Covid second wave) pulled the bank back in.
But prepared for growth with investments in technology subject to a not very extreme wave three. Operational performance Distribution fee saw growth of 50% YoY.
Mortgages continue to be the key focus. Scaling home loans and growing market share, especially salaried segment.
Made significant investments in unsecured lending and risk processes.
Any business or sector which has access to capital is comfortably riding this through.
PSU banks are achieving growth by lending at 4%. Riding a tiger (loan growth) at poor RoE.
Income growth is higher than asset growth. Corporate lending should be seen from an RoE perspective and not just loan growth. Corporate NCDs are often better products. Asset quality and collections Restructuring will come in Q2 as well as deadline is till Sep’21.
Slippages at INR 15bn mainly on account of secured assets. Balance sheet on the unsecured retail side is very small.
Approach to restructuring is very measured.
Does not believe in a philosophy of selling down to ARC or of ‘flexi-loans’.
Collections slowed in Apr-May. Picked up in June-July.
Continues to carry covid provisions of INR12.75bn.
In Q1, bounce rates were largely under check though efficiency was under pressure.
CV/ tractor segment customers pay in cash which got seriously hampered due to lockdowns.
Many customers who had the money postponed payments as they chose to build cash for medical emergencies.
Corporate book is quite pristine and even SME book holding up.
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Saw a bit of impact on mortgage, but the bulk came in from tractors, CVs and CEs.
If PSL is actually a cost, should rather do corporate bonds then PSL loans. Liability franchise Cost of SA at 3.73%.
Despite higher savings deposit rate than peers, reasonable improvement in cost of funds.
Average LCR at 160% during Q1. Digital Range of options to cater to all kinds of customers.
Designed a super app – a one page banking experience.
Launching a stock trading platform.
Used APIs to integrate e-com, travel, and entertainment merchants.
Digital at the core of acquiring customers through 811. Subsidiaries Kotak Life saw a huge surge of claims in mid-June. Abnormal increase in death claims. Was first on the block to raise the issue. Mortality claims were significantly higher than expected.
Irrespective of actual numbers, the death claims were significantly higher. Expected a loss of INR 2.75 bn, reported a loss of INR 2.4bn.
Kotak life - 2/3rd of customer queries are solved by the bot. Use data analytics for risk assessment and cross sells.
Kotak AMC - Equity AUM market share increased by 40bps to 5.3%. Total AUM across assets has grown at 33% YoY.
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Q1FY22 conference call highlights
LIC Housing Finance
Operational performance Wage revision once in 4 years. So arrear payment since 2017 making employee expenses appear elevated. This is a onetime expense.
ECLGS retail sanctions of INR 0.6bn in Q1 and disbursals of INR 0.08bn in Q1. Total ECLGS disbursed of INR 1.4bn. Total outstanding under ECLGS is INR 4.5bn
Interest income impacted by lower yields and interest reversals.
Jun’21 was very good in terms of demand – one of the best months in terms of demand. For Q2 looking at disbursement levels done in Q4FY21.
Asset quality Stage 3 is 5.93%. Total provisioning of 2%.
Resolution in NCLT resulted in recovery of INR 1bn – LAP corporate.
Closely focussed on collections, which is back to 98% for standard accounts.
Under OTR have to create reserve which is reflected in the ECL provisioning (under IRAC norms) – cannot be used to service dividends. Done total of INR 50bn of restructuring. Provisioning of 10% under RBI norms and difference goes as reserve. When it becomes an NPA, provisioning has to be increased to 15%.
In most restructurings have given a principal moratorium and interest has to be serviced.
NPL core retail: 2.6% which was 1.9% in Q4, NPL in non-housing commercial: 18.91%, NPL in LAP: 10.99%; Overall retail: 4.6%
INR 0.4bn of individual loans slipped in Q1. Not eligible for restructuring.
In HL segment, have done cumulative write off of INR 3bn over 44 years. Just need time to manage the assets.
Regular accounts CE is >98%. NPL customers of 15% are regularised. Going forward will be more than 30-35%.
~30% of NPA customers by number are making some kind of payment. Not adequate to be upgraded to standard hence still NPAs.
Stage 2 to Stage 3 movement of 1.5-2%. Marginal improvement in Stage 1.
No write-offs in this quarter.
OTR 2 is INR 0.5bn.
No further downside in asset quality.
Project NPL is 24.9% - amount being INR 38.9bn
LRD book is INR 90bn.
Stage 2 in developer book is INR24bn.
Top 10 developers are around INR20bn
Liability and cost of funds
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Incremental cost of funds at 5.03%.
Incremental spreads at 250bps – one of the highest levels.
Digital Project RED progressing rapidly. Video KYC etc rolled out.
Capital Cannot comment on the matter as it’ under discussion. In touch with the exchanges.
Exchanges have asked to withhold voting results. No appeal filed with SAT.
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Q1FY22 conference call highlights
Mahindra Finance
Covid second wave impact Rural India went through its worst time ever during second wave. Hardly 20 operational days. Normalcy returning now.
Saw around 3,000 people from the team whose lives were impacted and lost around 60-70 people.
Dealerships, mandis shut.
However, harvest was good but could not sell it as mandis were shut.
Many customers had the money but could not come to pay or the company could not go to collect.
Also, many customers chose to store money for medical emergencies.
Outlook
OEMs are very positive on the back of good monsoons and govt supporting infra.
Expect things to normalise by September. Infra expected to pick up post monsoon.
Post September should see absolute disbursement growth.
In rural, downturn is very fast so is the uptick.
Fine on the margin front. Do not see AUM growth in Q2. However, Q3 onwards disbursements will pick up.
Endeavour of NNPLs to be 4% by the end of the year. Hopefully, GNPLs come lower and do not have to provide more.
Still 3-4 months away from pre-covid levels given no third wave.
Operational highlights
Why is MMFS not growing in tractor when industry is growing? Mining, coal excavation, sand digging not happening. MMFS lost volumes from this business. Agri tractors was always hyper competitive due to PSBs and private banks who want PSL. Believe that as contracting segment picks up post monsoon, MMFS should be direct beneficiary.
Interest reversal of INR 2bn in Q1.
All players under pressure, however degree of pressures differ depending on product portfolios.
From a market perspective no competitive pressure to drop rates any further.
Asset quality
Many customers did not want to commit themselves to long term restructurings due to confidence to bounce back. They would have preferred a moratorium like wave one.
Taxi aggregators, tourist cars & bus service providers opted for restructuring.
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Expect substantial reversal of NPA contracts over the next 9 months. Anyway, H2 is the better half of the year.
Strong believe that the NPAs are reversible NPAs and what has been built till June’21 is purely temporary.
Only in order to remain prudent, maintain PCRs of 50%.
LGDs are in mid-30s.
Expect a significant part of the overlay to be reversed.
Write offs of INR 3bn in Q1.
Engaged a consulting firm to go deeper into NPLs – why they are happening and how it can be rectified.
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Q1FY22 conference call highlights
Shriram City Union Finance
Second wave impact As a unit the company was severely impacted. Lost 50 colleagues to the pandemic. 2,500 colleagues hospitalised. Local closure resulted in major uncertainty. Operational performance Infused INR20bn in Shriram Housing, stake now at 80%+. Plan to infuse another INR3bn. INR0.9bn disbursement so far under ECLGS. In housing – looking to grow and dominate the current 6 states before looking at other geographies. Asset quality In spite of the covid related problems, many customers turned up to pay their EMIs – the company was pleasantly surprised by this. Collections had dipped to 86% during the lockdown, now back to 93% in June. GS3 improved on a YoY basis and company is dedicated to pull back this number by end of the year, given no third wave. Asset quality has worsened in the 31-60 bucket. INR2.3bn of write offs in this quarter. But these are not significant increases QoQ. These write offs approximate to 0.7-0.8% of AUM. Stage 2 assets were at 11.68% in Q1FY22 vs 7.83% in Q4FY21. Another INR 0.7-0.8bn of restructuring expected till closure of window. 80% of customers have CIBIL scores of more than 700. Largely self-employed customers. Average Ticket size of INR 15L. Average LTV are typically 55-60%. Only 7-8% customers are new to credit. No top up on 2W loans. However, 2W loans have not picked up speed as compared to the 4W industry. 30% of 2Ws are scooters where customers are better payers than motorbikes. Also, Hero & Honda have more value than Bajaj. 2W is not a disbursement business but a collection business. 2W Stage 2 is 11% and ~7% in last quarter. Housing book – portfolio quality is stellar. Stage 2 for housing is 4.36% in Q1FY22 vs 3.2% in Q4FY21. Stage 3 for housing is 2.08% in Q1FY22 vs 1.36% in Q4FY21. Digital Putting up no contact digital loans on the website. Gold loans will go live by November. Personal loans will be available only to existing customers but not to market. Will be pre-dominantly a cross sell product to 2W customers. Doing INR 25bn of FDs online. KYC done online before loan is sanctioned – just a 5-7 minute procedure.
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Q1FY22 conference call highlights
Shriram Transport
Second wave impact
Impact less severe than first wave.
Tourism/ travel was impacted the most, however manufacturing activities were open.
Most customers do not have insurance coverage, so they conserve cash when there is a medical crises.
Now, collections have improved meaningfully.
Operational performance
Total disbursement of INR12.7bn done in Q1. Completed disbursements toward prior sanctions hence the numbers looked good (pipeline was very robust). New proposals slowed down in the lockdown.
Small loans/ Private car requirement is higher by 25%.
Expect disbursements to pick up meaningfully in Q2. Confident of double digit demand on the back of pent up demand – Aug-Sep to be strong growth months.
Marginal reduction in employee count.
Cost/income has come down to 19% as employee & royalty payments are lower.
Funding the customer through RFP model as well. Have more than 5,000 RFPs across India. This is for small ticket size of INR 0.2-0.3mn – these are higher IRR products.
Assignment income of INR1bn in this quarter. Expect more of securitisation going forth.
Asset quality
Write offs of INR 3.6bn in Q1.
The company has restructured loans of INR 34bn till now.
Restructuring II is INR 17bn of which INR 3bn has been implemented and another INR3bn expected.
No ECLGS done this quarter.
Overall passenger book is 19% of which private is 10%; public is 9%. Tourism portfolio will be 3% of overall book.
Long term average of credit cost of 2% should be achieved by Q4.
Prefer customers to be in stage2/stage3 rather than rush them into restructuring. Customers do not want to extend tenors and hence do not want to be restructured.
Additional INR2.5bn of covid provisioning done in Q1. This has been done for PVs – appears that it is good to have higher coverage for this portfolio.
INR 1.12bn of exposure to staff transportation business was classified as stage 3 last quarter, was written off this quarter.
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Many large fleet operators had challenges as drivers went back to their home towns. That was a challenge, shortage of load was not a challenge. That was also in the month of May, things were normal by June. Fuel price increases have been passed on.
Stage 3 and Stage 2 will come down going forth.
Liability and cost of funds
Continue to carry high liquidity of INR 171bn, up to 5-6 months of repayments. This has been suggested by the bankers on the board as pre-emptive measure in case there is a Wave 3 or Wave 4.
If this is brought down to 3 months, there will be a benefit of 10bps to cost of funds.
Deposits now form 17% of liabilities. Will be reducing interest rate by another 50-70bps from 1 Aug.
Digital
Want to be part of entire trucking ecosystem for synergistic advantages.
Looking to empower small truck drivers similar to how fleet owners are. Connect owner, drivers, customers, etc – facilitate integration.
Plugging in an e-com app for purchase of tyres, fuel, fastag loading, battery.
Looking at getting in micro ATMs at fuel bunks as most payments made in cash – this is a long term plan.
Capital and merger
Demand for QIP was 6x the INR 20bn size.
Promoters have invested INR2.5bn.
Restarted work on merger as covid related uncertainty coming down. Most SME would have vehicles for captive or transport use. The ecosystem will develop where both financing needs are fulfilled by Shriram group. Merger will move forward in a couple of quarters.
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Q1FY22 conference call highlights
State Bank of India
Second wave of Covid Quite a challenging quarter Operational performance INR8bn of interest reversals.
Yields have dropped due to a) interest reversal; b) recognition of NPA; c) reduction of CD ratio; d) corporates are not availing limits – corporates underutilisation is as high as 40%, SMEs’ also high as 25%.
Will be able to provide trajectory of C/I in another quarter or two.
A bit premature to share any monetization plans. Asset quality and collections The bank book has undergone two stress tests – wave 1 and 2 – and has been resilient.
Carrying INR430bn of NPAs.
Bank does provision over and above that mandated by RBI.
Home loan NPA at 1.39%, after pullback, 1.14%.
Personal loan slippages is INR50.7bn in Q1 including HL. HL slippages are ~INR30bn.
Witnessing pullback across segments – HL, SME and PL dominantly. Jul-21 has seen recovery of ~INR 40bn.
Collection efficiency has improved from 92% to 93.5% (including NPLs).
ECLGS sanctioned: INR300bn, disbursed about INR270bn, outstanding is INR220bn.
SME book: Visualise repair in their balance sheets as fast as the damage.
Corporate book: De-growth in the book due to deleveraging; pipeline has underutilised limits of INR3tn and proposals of INR1.3tn. Proposals are largely from iron&steel and infra (both pvt and public). Telecom situation is larger in dimension – engaging with other stakeholders to insulate risk to balance sheet.
YONO loans are unsecured: PAPL outstanding is INR 250bn. All analytics driven and offered to corporate salaried customers. Avg ticket size is INR0.3mn
Express credit: July has seen growth of 24% - that should be the run rate for FY22. 0.7% is the credit cost. High quality portfolio. Yields @11%.
Gold loans: Have seen a decent pullback in July.
Home loans: 1.39% has already improved to 1.14%.
Total restructured book at ~INR200bn (INR90bn of retail PL, INR30bn of SME, INR80bn of corporate). Only INR20bn of proposals pending for restructuring.
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Q1FY22 conference call highlights
As per the RBI, required to keep 5% of MSME and 10% of general as provision for restructured book. The company has prudently chosen to provide 15% on total restructured book.
NARCL exposure the same at INR 220bn. Progress is good and expect implementation soon. Digital 41mn registered users of YONO
Want to be as good as the best in C/I irrespective of ownership using the digital thrust.
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Q1FY22 conference call highlights
Yes Bank
Business performance
New Business Generation continues for Q1FY22 with gross disbursements of more than INR50bn
Close to 80% employees vaccinated during free vaccination drives across the country.
Implemented Work from Anywhere which provides employees improved flexibility and support
Offered home loans for employees at discounted rates
Continued Leadership in Technology: UPI: #1 in P2M transactions, ~46% vol. market share, IMPS: #1 Remitter Bank
Continued innovation in payment and several other digital initiatives
Improvement in performance across key indicators continues, despite severe pandemic headwinds
NII & NIMs weighed down by excess liquidity
Resilience in fee income performance despite severe pandemic headwinds on the back of Continued traction within Transaction Banking & granular Retail Banking Fees
Lowest provision expense of INR6.4bn in Q1FY22 since Dec’19
PAT of INR2.07bn in Q1FY22 – highest since Dec;19.
Will consider raising capital for growth opportunities. No such plans as of now.
Sustained Reduction in cost of deposits while continuing to garner liabilities
New card issuances should start in 90 days
Shifted to new corporate house in Santa Cruz, Mumbai
Launched a new sonic identity & musical logo (MOGO) – versatile tool to connect with clients across geographies
Ranked as one of the top 2 banks to work in India
On track to achieve guidance stated for FY22:
Advances growth - 20% in retail and 10% in corporate sector.
Deposits growth faster than advances, which will bring CD ratio below 100%.
CASA ratio over 30%.
NIM 2.75 – 2.8
For medium term, guidance of
CASA ratio over 40%
Retail and SME proportion in assets over 50%
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RoA: 1.0-1.5%
RoA: 1% in FY23
Asset quality
GNPA at 15.6% vs 15.4% in Q4FY21, lower by INR1bn QoQ while NNPA is at 5.78%, lower by INR3.5bn QoQ
Overdue book (in 61-90 days) has reduced by INR12.5bn QoQ
Sustained momentum in recoveries with INR6.0bn of cash recoveries in Q1FY22 – This includes recovery from written off accounts INR2.5bn
Total GNPA pool trending lower after peaking out in December 2020 with improving Provision Coverage trends
Notable achievements in corporate book with recoveries far greater than slippages and almost entirely offset by total slippages
Believe Dec’20 was the peak in terms of pain in corporate book and Restructuring/slippages should move down
Fresh slippages lower at INR23.3bn v/s. INR118.7bn in previous quarter
Real estate dominates quarter’s corporate slippages along with hospitality
Gross restructured pool has increased by INR37bn QoQ – 80% of this comes from m implementation of Covid related restructuring in compliance with RBI / Kamath committee Recommendations and 14% on account of change in management
Retail collection efficiency is back to pre-covid levels; In Q1FY22, it was 93%
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Q1FY22 conference call highlights
Bearings
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Q1FY22 conference call highlights
Schaeffler India
Key highlights Overall net sales grew 181% YoY in Q2CY21 and dipped merely 6% QoQ, 15% ahead of estimates, with a strong showing in automotive tech sales, outperformance in all segments and improved exports. The base quarter (Q2CY20) had a shutdown of 40–45 days owing to the first wave and lockdown, leading to a 61% YoY decline. However, even compared to a normalised quarter (Q2CY19), revenues grew 10% YoY. Overall revenue share in Q2CY21 was 78% from mobility and 22% from non-mobility.
Overall sales surged 181% YoY with strong end-market recovery across mobility up 185% YoY and others up 148%YoY. It was led by improvement across the automotive technologies (up 287% YoY), auto aftermarket (up 161% YoY). Overall there was a dip of 9% QoQ in the mobility segment for SCHFL. However, on a sequential basis, all four segments for the industry reported a decline with PV, 2W, CV and tractors falling 27%, 38%, 50% and 15% respectively.
SCHFL gained key wins in the CV and tractor segments for clutch and transmission solutions, respectively.
Others (non-mobility) was up 148% YoY and 2% QoQ owing to improving production across end-users, particularly wind and railways. This also seems to have outperformed the broad IIP and core industries.
Overall for May-21, IIP grew by 29% YoY, but contracted 20% QoQ. Furthermore, the Index of core industries grew by 17% YoY, but contracted by 16% QoQ.
Gross margin surprised positively, expanding 116bps YoY/254bps QoQ to 38.5% as a result of an improved mix of exports and partial pass-through of commodity price hike despite raw material (steel) price hikes.
SCHFL reported EBIDTA dip of mere 3% QoQ and EBITDA margin expansion of 63bps QoQ to 16.8%, as a result of the cost flexing programme and higher localisation. Management continues to focus on increasing variable nature of fixed costs, which has resulted in margin improvement. The company had delivered an EBITDA loss in Q2CY20.
PAT dipped 8% QoQ with improved profitability, while compared to Q2CY19, PAT grew 55%.
FCF, however, was negative at INR1.5bn due to a timing difference. This was also impacted by a normalised working capital cycle as inventories rose.
Capex: SCHFL incurred INR460mn in capex in Q2CY21 and INR889mn in H1CY21. However, it maintained INR2.5bn for the full year CY21. Further it maintained cumulative spend of INR10bn over the next three years. This is largely towards expansion across the three plants.
The mix for Q2CY21 stood at 39% from automotive technologies, 39% from industrials, 8% automotive aftermarket and 14% from exports.
The quarter saw a higher trading sales, however, that is merely due to a timing difference from Q1CY21.
During the quarter, all plants performed at a normal capacity level.
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Management is hopeful of a faster growth trajectory as the lockdowns post second wave ease and the situation normalizes.
Localisation currently stands at 72% and management envisages it to grow further.
H1CY21
For H1CY21 sales stood at INR 25.49bn, higher by 86.5% YoY.
PBT (before exceptional items) stood at INR 3.5bn, 567.3% higher YoY. PBT margin for the six months stood at 14%, against 3.9% during the corresponding period of 2020.
Net profit for the period stood at INR 2.68 bn and the Net profit margin at 10.5%. By segment Automotives Industry performance – Production of OEMs: YTDCY21, the PV segment grew 91% YoY, 2W segment grew 60% YoY, CV segment grew 71% YoY and tractors grew 95%.
Automotive Technologies: The focus remains on reliability and emission reduction. The company saw key wins in CV and tractor segments for clutch transmission systems and nomination for clutch release system, a key in the PV segment. There remain continued long-term business wins in chassis and engine for key relevant products.
Auto aftermarket: The company continued to push TruPower in the aftermarket to drive better performance of its bearings. Management also expanded the product range with launch of FAG Universal Joint Cross and new range of push type clutch for CVs.
Shift from diesel to gasoline: Stabilisation of the mix (diesel and gasoline) with a shift in production mix in favour of gasoline cars is accretive for the company, as BS VI-compliant gasoline products have higher content. The company has seen content per vehicle rise as part of the same. The company saw strategic wins across gasoline engines with participation increasing to 70% from 60% in CY20, while the market is at 80% currently.
While shift to EVs or hybrids from ICEs is distant for Indian markets, SCHFL is well- placed with its parent having a strong presence in the global market. The company has competence, capability and technology to replicate the same for Indian markets as production for EVs or hybrids rises.
SCHFL remains strong in transmission and engine-related parts. The company has a strong presence in PVs and LCVs due to which there was a strong pipeline from transition from BS4 to BS6.
TruPower: SCHFL’s lubricant aftermarket brand TruPower continues to gain traction and management continues to drive growth in the same. Industrials Industry performance: YTDMay21, Steel production and cement production jumped 44% YoY and 30% YoY respectively, driven by partial shutdowns in Apr- May 20 due to the first wave lockdowns. Further coal production and electricity generation grew 1% YoY and 15% YoY respectively.
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The company installed the largest split spherical roller bearings in a steel plant and remotely installed one of the largest TRBs for wind application. There was also a breakthrough order for multiple products in mining equipment manufacturer.
Industrial aftermarket also witnessed growth of 8% QoQ as distribution remained a key focus.
Management saw demand from wind and railways, and growth in the sectors was aided by higher localisation and strong demand from metros in railways. The demand Exports segment (14% of sales in Q2CY21) Management focus on the exports opportunity in Asia-Pacific began to yield results as exports grew 148% YoY, 13% QoQ on an overall basis led by new products and rising localisation.
The company has seen heightened demand along with geographic expansion to key countries like Indonesia, Malaysia, China and US.
The strategy for exports remains twofold – costs and product competence. SCHFL has cost competence across several products and also remains a key supplier to the parent for cylindrical and large sized roller bearings globally. They have competence as well as critical mass in cylindrical bearings and others they have cost advantage that helps in gaining share in exports.
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Q1FY22 conference call highlights
SKF India
Overall highlights SKF’s Q1FY22 revenue grew 130% YoY but dipped 18% QoQ to INR6.9bn. This was led by robust growth across both automotive and industrials as the base quarter remained weak. During Q1FY22, auto, industrials, exports stood at 38%, 53% and 9% of the mix, versus 33%, 60% and 8% of the mix in Q1FY21 respectively.
Gross margin expanded ~645bps YoY, and also up 434bps QoQ to 45%, despite increase in metal prices. Further manufactured industrial improved strong leading to profitable mix.
While the inflationary pressure remains, management is working to minimise the impact and remains in discussions with customers for price hikes on the same. Productivity improvement has also aided the same as SKF has focused on fixed- cost reduction structurally.
While the company reported a loss at EBITDA level in Q1FY21, it was profitable in Q1FY22 at INR1.1bn with EBITDA margin of 16.4% down mere 109bps QoQ.
PAT was reported at INR791mn, against a loss in the base quarter.
On the industrials side, SKF has seen pick up across segments, barring wind and railways.
The focus of the company remains on offerings in rotation equipment performance to offer a comprehensive solutions. This is margin accretive versus the overall bearings portfolio. The REP value proposition is a commercial relationship where SKF provides the customer with functionality at a fixed recurring fee, leveraging the full SKF portfolio: bearings, seals, lubrication systems, remanufacturing, oil regeneration and many other engineering services
Further they were optimistic on Condition monitoring which helps in gauging equipment downtime. The global condition monitoring market is projected to grow at a CAGR of 9.4% between 2021- 2026 to USD 5346.8 million.
In the year under review, SKF India signed a five year ‘pay-per ton’ performance contract with a leading steel customer, to increase the plant utilization level. Management believes such performance based contracts will start yielding well over 3-4 years.
Within industrials, SKF produces small and medium-sized bearings while larger bearings are bought from the other group entity.
Management aims to grow at 1.5 times the GDP in overall sales and outperform the market.
Capex of INR1.5-1.7bn should continue, despite the pace slowing down due to the second wave. Automotive (~38% of sales) In the interim, management remains optimistic on 2W, PV. Management remains optimistic on electrification across auto, particularly in 2W and 4W in PVs, and in commercial public transport. However, demand from CVs is likely to falter as structural weakness persists.
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Q1FY22 conference call highlights
SKF is currently working with 8-9 manufacturers and ~25 component manufacturers on electrification.
With EVs, while overall content per vehicle is expected to fall, the contribution of the same should be higher on value basis.
SKF became the strategic partner with tier-1 suppliers of a leading 2W company to integrate the product line, increasing the share of business by 3x. Industrials (~53% of sales) Infra linked industrial equipment segments like cement steel and consumer- linked segments like food & beverages and textiles remained on a stronger footing.
While the segment has seen growth, there has been some slowdown in railways and wind portfolios. Other segments continue to remain strong.
Wind segment has seen a slow catch up as number of players had put their plans on hold, however, companies exports continue strong.
While passenger side on railways has been weak in the lockdown, even in the aftermarket due to poor utilisation, orders remain strong from freight trains. Class K should see additional traction post the complete launch of the DFC (which has got delayed) by mid-2022. SKF has been strong in locomotives and gathering steam in metros across small and large cities.
With launch of the e-marketplace, management aims to increase reach across customers and reduce counterfeiting at customers’ ends.
Growth in the aftermarket has been good and should gain traction with increasing distribution reach.
Localisation for industrials has been 35% and management aims to grow it to 65- 70% over 3-4 years.
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Q1FY22 conference call highlights
Cement
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Grasim
On Impact of the removal of Anti-dumping Duty (ADD) from October 2021: Domestic/local VSF prices are very competitive to global prices. They have been lower than global prices (on landed parity basis) for the past few quarters. Hence, ADD’s removal will have no major impact. With cotton prices at an all-time high and VSF demand firm, margins outlook remains positive over the medium term. Only 400ktpa of fresh capacity addition is expected in VSF over the next 18 months, which bodes well for the global demand-supply balance. Sale of Fertiliser business: The deal is likely to close in Q2FY22. The company has already received ~INR10bn towards outstanding subsidy. Post the closure, it expects cash proceeds of ~INR10-15bn – which will make its Balance Sheet nearly debt-free. Paints business: The company has identified land to set up manufacturing facilities in various states and is currently in the process of acquiring land. It expects the acquisition to complete in 4-5 months, after which they will apply for environment clearance. Further details regarding the capex and timelines were not shared.
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Q1FY22 conference call highlights
J K Cement
Grey segment
Grey cement volumes at 2.76mn tonnes dipped 21% QoQ (impact of covid wave 2) but were up 73% YoY owing to a very low base.
The flay YoY realisations is due to: i) a decreased share of non-trade sales from 36% in Q4FY21 to 32% in Q1FY22; and ii) lower clinker sales (at 0.76 lakh tonnes versus 2.2 lakh tonnes in Q4FY21.
While cement utilisation for the quarter was ~71% overall, for South it was lower.
White segment
The segment will clock growth of 10–12% under normal circumstances.
JKCE will continue to concentrate on the core business and has introduced value- added products only to retain its dealer network.
Despite the pandemic impact, EBITDA margins in white were impacted only marginally.
UAE update
Sales volumes in Q1FY22 were 0.12 lakh tonnes. UAE business was impacted in Q1 due to covid led restrictions with minimal demand.
Capex update
Nimbahera line no.3 upgradation is on track as 75% of the erection work is already been done and it is progressing as per the timelines.
In FY22, JKCE plans to spend ~INR12bn towards capex. Of this, INR9bn will be towards Panna expansion project while INR3bn will be towards other projects (like Nimabhera upgradation and pending capex related to the 4.2mtpa expansion).
In FY23, capex is estimated at ~INR14-15bn, of which INR12bn will be for Panna.
Panna update
Greenfield expansion at Panna with Hamirpur GU is going well. Civil & Mechanical Contracts have been finalized and placed orders for main equipment.
ESG initiatives
The share of Green Power will rise from 25% in FY21 to 75% by 2030. This will be on the back of new WHRS plants at Panna and potentially even for its plant in South India. JKCE will also be looking at options to procure power from wind mills as well as solar units.
JKCE is working on a number of initiatives in the ESG phase and will be reporting the same on a regular basis.
Other updates
JKCE has won a mining auction in Jaisalmer. However, it has no plans of expansion in that region. The asset is more from long-term security of limestone and also for use of high-grade limestone – to be added as a sweetener – for existing assets.
Trade sales stood at 68% in Q1FY22 versus 63% in Q4FY21.
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Its blended cement ratio increased by 4% QoQ.
JKCE reduced the consumption of pet coke to 40% in the quarter which is low. Rest is the imported fuel and the domestically available substitution fuels.
Lead distance was 450kms in Q1FY22 versus 459kms in Q4FY21.
Their cash goes to INR14bn from INR17bn earlier and its gross debt broadly remains the same at INR28bn.
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Q1FY22 conference call highlights
UltraTech Cement
Industry demand and UTCL volume
UTCL’s capacity utilisation stood at 73% in Q1FY22 and nearly 74% in June. July utilization would be subdued due to monsoon.
The company’s capacity utilisation by region stood as follows: East: ~90%; 50% in South India; and ~70-75% in all other regions.
UTCL acknowledged that current demand has certainly seen a slowdown due to covid-led lockdowns, but believes demand will be back once the covid dust settles.
The second wave of covid-19 impacted domestic cement consumption in rural/urban areas alike.
With lockdowns being gradually relaxed since Jun-21, construction activities are treading back to normalcy.
Rural Housing is seeing a gradual recovery supported by higher MSP for kharif crop, increased procurement by government agencies and improved food grain production in rabi harvest.
White cement and RMC business
White cement volume stood at 0.28mmt (up 49% YoY) and revenue shot up by 47% to INR3.62bn. RMC revenue surged 291% YoY to INR5.09bn.
Cost trend – Variable and fixed
The company has shifted it fuel mix In favour of coal (imported and domestic) to mitigate the impact of rising global fuel prices. Pet coke’s share (in overall fuel mix) has come off to ~17-18%. UTCL expects fuel prices to come off in H2FY22. With ramping up of the large refineries in Texas (USA), it also expects pet coke prices to ease off in coming months.
Expansion update
Capacity expansion of ~19.5mtpa is broadly on track for completion by the end of mid-2023. UTCL is, however, confident of ramping up the facilities at a fast pace – as it has done in the past.
UTCL has received stage-1 clearance from MOEF for the Dalla-Super clinker expansion of 2.3mtpa, and expects the stage-2 clearance by Sep-21. Accordingly, the company expects the unit to commence operations by the end of FY22.
Other business updates
UTCL’s RMC network increased from 132 plants in Mar-21 to 136 plants at end-June. UTCL sees RMC business as a harbinger for growth in India and fetches an EBITDA margin of 4–5% over and above what it gets by selling cement – at an arm’s length - to this business segment. The RMC business has a very high RoCE of >25%.
Other updates
Trade mix in Q1FY22 stood at 70% versus 67% for Q4FY21. Lead distance in the quarter stood at ~430kms.
Premium Cement stood at ~10% of overall volumes, and UTCL intends to ramp it up to 15% with various new value-added products.
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Construction
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Ahluwalia Contracts
Guidance 1. Order inflow: INR25bn.
2. Revenue growth: 15-20% YoY
3. EBITDA margin: 11–12%. Order book remains robust ACIL ended Q1FY22 with an order book of ~INR71bn. With a book-to-bill of 3.1x, the current order book implies revenue visibility for the next couple of years.
Public sector projects make up 81% of ACIL’s order book; the balance comes from the private sector. Most private sector orders pertain to commercial realty and institutional segments, wherein payments have not been a major issue.
The northern region makes up close to half of the company’s order book; East India accounts for one-third.
Gross debt rose QoQ to ~INR220mn (INR160mn in Q4FY21); net cash declined to INR(2.0)bn from INR(4.0)bn in Q4FY21.
Leverage remains comfortable with net debt to equity at negative 0.2x.
Major reason for the increase in net debt is deterioration in working capital cycle, which rose to 72 days from 40 at end-Q4FY21. Q1FY22 conference call highlights 1. EBITDA margin: Management mentioned that over the medium term, margins can go back to ~13% levels.
2. Capex: ~INR70mn in Q1FY22 (~INR350mn in FY21). Capex is likely to be INR300mn in FY22.
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Ashoka Buildcon
Guidance
3. Order inflow: INR40–50bn during the rest of the fiscal.
4. Revenue growth: 25% YoY
5. EBITDA margin: 12–13%.
6. Capex: INR250–300mn in FY22 (INR280mn in FY21).
Order book visibility: ABL ended the quarter with order book of about INR95bn; it has won ~INR10.4bn orders recently taking its order book to ~INR105bn (book-to-bill of 2.5x).
Q1FY22 revenue breakdown: INR8.2bn from roads, INR1.0bn from railways, INR380mn from power T&D, INR60mn from the CGD business and ~INR140mn from others.
Q1FY22 order book (OB) breakdown: Road EPC (32%), road HAM (33%), railways (8%), power T&D (14%), buildings (12%) and CGD (1%).
Margin: EBITDA margin during the previous quarters were aided by reversal of ECL provisions, reversal of covid-19 related provisions etc. there were no such benefits this quarter, leading to margins declining 240bps YoY and 270bp QoQ.
The company has achieved financial closure for one HAM project and expects to achieve it on another HAM project soon. Tumkur Pkg III has ~93% land available, but for Tumkur Pkg IV, land availability is only ~65%; so it will take a couple of months for work to start there.
Debt: Debt at consolidated level is INR62.4bn (up ~INR0.8bn QoQ). Standalone debt is ~INR5.3bn (INR3.6bn at end-Q4FY21), which comprises ~INR1.4bn of equipment loans and ~INR3.9bn of working capital loans. Standalone net debt:equity stands at 0.2x.
Debt has gone up QoQ as the company used working capital facilities to repay INR1.5bn NCDs; it has now issued INR2.5bn NCDs and hence the debt levels have declined in Q2FY22.
Debt on BOT/HAM/annuity projects stands at ~INR57.2bn (INR56.4bn at end- Q4FY21).
Working capital cycle: Net working capital cycle inched up to 144 days (137 days at end-Q4FY21). Management mentioned that payments from projects in Uttar Pradesh and Jharkhand are an issue but from other states and NHAI are timely.
Equity infusion:
1. Equity infused: INR110mn in Q1FY22
2. Equity commitment: ~INR1.8bn in FY22 and INR1.4bn in FY23 for HAM projects; for the CGD business, pending equity requirement is INR1.6bn after 1.5-2 years.
Asset monetisation: Management mentioned that it is talking to various potential investors; it expects the process to get completed this fiscal.
Watch out for the conclusion of this deal.
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Total equity infused in Ashoka Concessions (ACL) is INR19bn (INR8bn by SBI- Macquarie, balance by Ashoka); in addition, the company has also given ~INR11bn loans to ACL. Over and above this, it has invested ~INR6.5bn equity in HAM projects.
Loss funding in FY22: ABL believes that the Sambalpur project will need support of INR400mn annually.
Toll collection: Toll collection had picked up in H2FY21 and surpassed pre-covid levels; it was impacted adversely by the second wave of the pandemic. Management is now seeing a gradual recovery.
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Q1FY22 conference call highlights
Capacit’e Infraprojects
Guidance: Revenues of INR15bn with EBITDA margins of 17.5% (including other income) during the rest of the fiscal.
Labour situation: April had witnessed 25% shortage in labour, which had increased to 40% during May. However, the company has 10,400 labourers at its sites currently which is at all-time high.
Capex: INR100mn on the CIDCO project in Q1FY22 with FY22 capex likely to be ~INR750-800mn.
CIDCO project: Work on all the sites has commenced. On the project, Capacit’e booked INR370mn revenue during Q1FY22 (~INR430mn in Q4FY21). Management expects monthly execution on the project to touch INR400mn in Q3FY22 and INR700mn in Q4FY22.
BDD Chawls project: Work on the project started a couple of weeks ago. The size of the project is INR117.4bn excluding escalations and GST. The company’s share of work stands at ~INR43.6bn.
Management expects work on ~INR40bn portion to commence in FY22 and execution at the SPV level to be INR3bn in FY22, INR7bn in FY23 and INR10bn in FY24; Capacit’e’s share will be 35% of this.
During the quarter, the promoters sold 3.5mn shares worth INR706mn. They used the funds to repay some loans at personal level; they also gave ~INR500mn loans to the company at SBI PLR and repaid expensive bank debt. Consequently, interest cost for the quarter was down ~INR30mn QoQ.
Management expects INR1bn recovery of debtors by Q3/Q4FY22.
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J Kumar Infraprojects
Guidance for FY22 Order intake: INR30–35bn during rest of FY22
Revenues: INR30–35bn
EBITDA margin: 14-16%
Capex: ~INR1bn
Debt: Will remain at the same level as Q1FY22 Order inflow improves The company won an order worth ~INR13bn in an elevated metro rail project on the Mumbai Metro Line 2B.
Management indicated that it will target metro rail tenders in Mumbai, Delhi, Chennai, Nagpur, Kanpur, Agra and Navi Mumbai to shore up its order book. It is also looking at orders in the High Speed Rail segment, urban transport projects in NCR and MMR, and water projects in Maharashtra. Order book remains robust The company ended Q1FY22 with an order book of ~INR116bn. With a book-to-bill of 3.9x, the current order book implies revenue visibility for the next couple of years.
Metro rail projects account for ~59% of the company’s order book.
Margins improve in Q1FY22 Despite the company losing out on ~20% of revenue in Q1FY22 due to labour issues during the second wave, EBITDA margin rose 440bps YoY /380bps QoQ to 14.3%. Net debt rises Gross debt increased from INR5.3bn at end-Q4FY21 to INR5.5bn at end-Q1FY22. With cash levels falling from ~INR6bn at end-Q4FY21 to ~INR4.5bn at end-Q1FY22, the company’s net debt rose to ~INR1bn (~INR0.7bn net cash position in Q4FY21). Net debt to equity stands at a comfortable 0.05x (negative 0.04x)
Working capital cycle deteriorated from 126 days in Q4FY21 to 135 days in Q1FY22.. Other highlights Mumbai Metro Line 3: Tunneling work on the project has been completed. Management expects to complete work on the project by end-CY22
Mobilisation advance: The outstanding mobilisation advance is INR4.5bn; the company is eligible to receive another INR4bn in mobilisation advance going ahead.
Coastal Road project from CIDCO: Forest clearance for the project is pending.
Labour strength has now ramped up to pre-covid levels of 11000-12000
In the water segment, the company is not looking at Jal Jeevan Mission (JJM) projects but at water treatment plants, tunnels etc
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KNR Constructions
Revenue breakdown: During Q1FY22, irrigation projects contributed ~28% to revenue while HAM projects contributed 52%. EPC road projects made up the rest of revenues.
HAM project portfolio: KNR has an overall portfolio of eight HAM projects: seven from NHAI and one from K-SHIP (Karnataka). Work on five HAM projects is underway.
During the quarter, the Chittoor-Mallavaram HAM project achieved PCOD (on May 10, 2021), 142 days ahead of schedule (Including 90 days extension of Time) and is eligible for bonus.
The company expects to receive PCOD for two more HAM projects over the next couple of quarters. It has already applied for PCOD for the Trichy project (for 27 km length) and expects to receive it in 1-2 months.
Completion status of HAM projects: Chitoor–Mallavaram: 91.8% (81.8% at end- Q4FY21); Ramsanpalle-Mangloor: 89.1% (80.2%); Trichy-Kallagam: 72.7% (65.9%), Oddanchatram-Madathukulam: 28.6% (26.5%) and K-SHIP project: 39.1% (28.9%).
Equity contribution: The total equity required for the initial five HAM projects is about INR6.2bn. The company has already invested ~INR4.2bn in equity and needs to invest an additional ~INR1.4bn in FY22 and the rest in FY23.
For the three HAM projects won recently, the total equity needed is INR5.3bn of which ~50% equity will be required upfront.
In case work on two Kerala HAM projects commences in the current fiscal, the total equity requirement in FY22 will be ~INR3.4bn.
Management expects work on the Bangalore-Mangalore project to start after two months and that on the Kerala projects after 5-6 months.
The company expects to receive funds from Cube Highways regarding sale of the Tirumala project by end-FY22. By Q1/Q2 FY23, it expects to close the deal for the other two projects also.
Of the ~INR30bn irrigation order book, work on ~INR7bn project hasn’t commenced.
Management expects to receive payments of INR2.7bn bills raised to the Telangana government over the next few months.
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NBCC
Order intake: The company has won ~INR15bn orders in Q1FY22.
Tendering: The company has awarded ~INR16bn tenders to date in FY22 and expects to award another ~INR50bn orders during the year.
Revenue guidance for FY22: ~INR70bn at standalone level and ~INR95bn at consolidated level.
Amrapali projects’ status: The company is in process of selecting channel partners to sell 5000 units here. it has arranged ~INR6.5bn funds from the SWAMIH fund for six projects and is in talks with various banks to fund the balance projects. The company has already handed over 200 flats to customers with 1500 more flats being ready for handover.
The company has ~40000 labourers at sites currently and expects to reach a level of ~60000 labourers by end-Q2FY22.
The company has invested ~INR11bn as seed money in various projects. It gets interest income @ 12% on this seed money. As of now, the income is on accrual basis with cash receipt later likely.
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Q1FY22 conference call highlights
PNC Infatech
Ghaziabad-Aligarh project: PNC has entered into a share purchase agreement (SPA) for the sale of its 35% stake in the project. The consummation of proposed transaction is subject to receipt of applicable regulatory and other approvals and complying with the conditions precedent, more specifically laid down in the SPA. Management expects to conclude the deal by end-Q2FY22 and that it wont have to make any provisions for a potential loss while selling the project.
Asset monetisation: The company expects to complete monetisation of HAM and other BOT projects this year.
HAM projects: The company received the ‘appointed date’ (AD) for the Unnao- Lalganj HAM project in May 2021.
Vadodara EPC projects: The company received AD for the two projects during April-May 2021.
Equity for HAM projects: Total equity required for all HAM projects is about INR8.5bn. Of this, INR3.5bn/INR3.2bn/1.9bn is estimated to be infused in FY22/23/24, respectively. Internal accruals should be sufficient to fund balance equity, per management.
Labour availability: There was no major impact of the second wave on labour availability and it is now back to pre-covid levels.
Water supply / irrigation projects: Work has already commenced of the ~INR10bn irrigation project in Andhra Pradesh.
DPR for 900 villages for the Jal Jeevan Mission projects in Uttar Pradesh has been prepared. DPRs for all the ~3400 villages is expected to be approved by FY22 end. Management expects work on ~INR6-8bn projects to commence from Sep-2021.
Margins in irrigation and water supply segment are similar to that of roads.
For water projects in Uttar Pradesh (UP), the funding is 50:50 from Centre and State. In some states, Centre is funding 90% of projects. The execution period for these projects is about two years from the date of handing over of the land.
Our view on water projects: Over the past year, the government has made its intention clear about targeting the water supply segment in a big way. It has already launched the Jal Jeevan Mission, envisioned to provide safe and adequate drinking water through individual household tap connections by 2024 to all households in rural India.
In the budget, outlay for water supply catapulted 253% YoY to INR600bn; within this, the outlay for JJM (Rural) component, in fact, surged 4.4x YoY.
The budget also indicated that the JJM (Urban) will now be launched. It will aim for universal water supply in all 4,378 Urban Local Bodies with ~29mn household tap connections as well as liquid waste management in 500 AMRUT cities. It will be implemented over five years with an outlay of ~INR2.87tn.
PNC management indicated that it will first like to consolidate its orders in hand before bidding for new projects. We believe PNC can be a significant beneficiary of the uptick in awarding in the water segment.
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Margins: EBITDA margin stood at 14% (+80bps YoY and down 10bps QoQ), while PAT margin at 7.5% improved 90bps YoY (down 40bps QoQ), led by lower interest costs.
At the consolidated level, debt is ~INR43.4bn, net worth is ~INR31.7bn while net debt:equity is 1.37x.
Toll collections: Toll collections grew 22–82% YoY across projects in Q1FY22.
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Q1FY22 conference call highlights
Titagarh Wagons
Other highlights
Consolidated order book breakdown: Around INR48bn, out of which ~INR23.3bn-worth of orders are in India, and the balance at Firema, Italy. Out of the INR23.3bn India order book, INR8.4bn pertains to wagons, ~INR10bn to metro rail/propulsion systems, and the remaining INR4.8bn to bridges, foundries, etc.
Wagon demand outlook: Management expects wagon orders for the Dedicated Freight Corridor (DFC) to commence by end-FY22 or early FY23.
Pune Metro order: TWL along with Firema had won the INR11.4bn tender floated by Maharashtra Metro Rail Corporation (Maha-Metro) for the design, manufacture and supply of 102 metro coaches for Pune Metro Rail. Execution is on track and the first train was flagged off on 30th July from the company’s Italian plant.
Firema: For Q1FY22, Firema reported an income of INR2.1bn (~INR2bn in Q4FY21) and an EBITDA of INR60mn (EBITDA loss of INR10mn in Q4FY21). Management expects Firema to be EBITDA-positive in FY22.
New design centre: TWL has set up a new design centre in Hyderabad for railway and metro rolling stock in India (this work was earlier done in Italy).
Propulsion system: The company will supply the prototype to Indian Railways in Q4FY22.
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Q1FY22 conference call highlights
Consumer Durables
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Q1FY22 conference call highlights
Amber Enterprises
Opening remarks The consumer durables industry saw a soft quarter with sakes taking a hit due to the second wave though the impact was lesser compared to last year.
Demand recovery across the sector faster than expected.
Channel inventory not very high due to reduced severity of the lockdown compared to last year. Currently, channel inventory at comfortable levels.
PLI to help strengthen foothold in the domestic and export markets.
Ban on import of refrigerant filled ACs has been beneficial and have signed 6 new customers since the announcement.
In discussion with large brands for exports to Middle East (already started) and USA. Approval process on track for the US market and expect to come by next financial year.
RAC contribution at 64% and balance from the components and mobility application segment.
Sidwal – Revenue/EBITDA/Margin at INR500mn/120mn/24.6%. Continue to maintain healthy order book and develop new products. Order book stands at above INR4250mn.
PICL – Revenue/EBITDA/Margin at INR360mn/30mn/9%.
Il Jin – Revenue/EBITDA/Margin at INR430mn/-17mn/-4%. Added 5 new customers and few more in the process of approval
Ever – Revenue/EBITDA/Margin at INR180mn/1.5mn/0.8%.
Q&A session Q. What level of industry growth can we expect this year? A. Last year volumes at 5.2mn vs 7mn in FY20. Industry to end up around 6-6.2mn units this year. July was very positive for the industry. Q. How are the new energy efficiency norms going to impact the segment? A. New norms to come in to effect from January 1, 2022 and Amber is ready to implement them. Will lead to some price hikes. INR800-1,200 increase depending on the model. Q. How did you manage the GMs? A. Have a lag effect in taking price hikes. Every quarter price changes and now all price hikes have been passed on. Some lag in Il Jin and Ever due to new customers added in September which shall also be passed on soon. Q. PLI and capex plan? A. New greenfield capacity announced last year is now covered under the PLI. Applying through Amber as well as subsidiaries in the high category as well as the lower segment. Overall INR3.5-4bn worth of application to go from Amber. INR1bn to be invested in the motor division in the next 5 years. 10 components covered under the PLI out of which Amber will be applying for 6 categories. Confident to meet the ceiling requirement under the scheme.
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Q1FY22 conference call highlights
Q. Capex guidance? A. INR3.5bn at the consolidated level for FY22. For FY23, remaining INR1bn for the greenfield capacity will be invested. Q. PCB subsidiaries have not been performing well. Your thoughts on the same? A. Started this year with an expectation of 35-40% growth in the PCB segment but that was impacted due to the second wave. Since last November there has been shortage of chip components, raw material inflation, freight cost increase which impacted the performance. Coming out of being only consumer durables PCB makers by entering in to newer areas such as speakers, wearables, etc. and once that happens, expect the PCB business to perform better. Q. RAC volumes this quarter? A. 4,78,000 units this quarter. Q. Business opportunity coming out of the import ban? A. Seeing positive data of imports going down. Almost 85% of import reduction seen. 15-20% still continues to be imported and out of the balance being imported, almost 50% has come to Amber. Some brands have started their new facilities and will supply components to them. Q. What is annual TAM for Sidwal? A. Currently it is volatile. Previously 30% of new coaches were air conditioned now that has improved to 50% coupled with newer metro lines to aid the TAM. Earlier which was INR6-7bn should double going forward. Q. As brands are carrying higher inventory, would that lead to lower offtake in the coming months from Amber? A. Majority of the brands not listed and most of the foreign brands not sitting on high level of inventory. July was a good month which must have reduced inventory further, hence expect the inventory levels to normalize by September. Q. Based on the volumes done, realizations have gone up, so what has led to that? A. Mostly led by product mix which moves as per the market. High value/premium products sold more coupled with the raw material costs as well. Q. Views on the Commercial AC business this year? A. Started with 2 products and now that product line up is expanding, expect INR400- 500mn from Commercial AC business this year. Q. We have started exporting RACs to Middle East so how has that business done? A. Components going since last 2 years but for RAC did the first shipment. 2,000units done which includes Bahrain and Dubai. For the full year expect 8,000-10,000 units. Expect 30-40% growth from the middle east market. Q. What is the share of outsourced manufacturing currently out of the total industry? A. 45% of the industry now outsourced (compared to 34% when Amber got listed) out of which 50% business with Amber. Upward trajectory of the outsourcing share to go up as asset light strategies are becoming popular with brands. Q. Incremental volume that we can generate from the new customers? A. 800-1,000 units additional due to the new customer addition. Q. Opportunity for Amber in the US market?
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Q1FY22 conference call highlights
A. US imports 19-20mn units annually majorly from China and Thailand. Currently trying to tap in to that space. Expect exports to contribute decently in the coming years. Q. Current market share? A. Market share maintained at 24% which is slightly better than 22% previously. New capacities coming in the OEM space and thus are not competing currently. Amber continues to take ODM jobs only. Almost 97% contribution from ODM business. Q. Post new plant what will the capacity be for RACs? A. Earlier capacity at 4.5mn and now with new facilities should reach 6.5mn by FY23.
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Q1FY22 conference call highlights
Bajaj Electricals
Opening remarks Has been a tough quarter with covid and commodity cost inflation.
Confident of bouncing back in the coming quarters and for the financial year as a whole.
Consumer durables EBIT net off many one off items which are:
7. Incremental allocation of common overheads of INR120mn from EPC to consumer segment.
8. Increased publicity spend INR290mn this year vs INR140mn last year (4.7% of consumer sales for the quarter) continue to spend on this front to improve the brand image and maintain at 4-4.5%.
9. Delayed transition due to covid on the logistics front led to incremental cost of INR50mn in the quarter (double rents).
10. Employee incentives incremental payout of INR30mn, should normalize next quarter onwards.
11. Commodity cost inflation led to 3.2% margin impact of INR190mn.
12. INR20mn for VRS.
There are short term challenges but to face them will not shy away from spends such as R&D, etc.
EPC losses coming down. Illumination business saw a turnaround in the quarter and should positively contribute at the EBIT level. Focus to turnaround the other 2 parts of the EPC business. Power transmission should bounce back as the capex cycle improves. Power transmission business profitable at the project level. INR1-1.5bn of incremental order book should help it become positive.
OCF at INR390mn, one of the few companies to generate positive cash flow.
Net debt INR4,250mn. INR2150mn addition due to Starlite lighting. 7th August net debt at INR4,340mn, more than INR2,000mn reduction in 37days.
Q&A session Q. Incremental cost allocation from EPC to consumer on an annual basis and change in guidance? A. 1% increase in margin every year leading to 9% for FY22. Internal target 10% for the full year. INR120mn for only this quarter in spite of which margin guidance stays intact. EPC losses include impact of INR100mn pertaining to receivables provisions, thus losses look higher. Q. Is business back to normal? Segment-wise growth? A. Demand is fairly healthy and that trend has continued in July. Seeing buoyant demand 45 days in Q2. Appliance growth at 75%, Fans - 49%, Lighting - 12%, Lighting (b2c+b2b) - 86%, Morphy richard - 85%. Have been flattish previously on Morphy Richards and now seeing growth. Confident of driving that growth forward and deliver better performance.
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Q1FY22 conference call highlights
Q. Any other one offs in the other expense item? A. Major increase due to ASP spend, EPC write off of INR100mn. Beyond this, other increases are in line. Q. How do you see gross margins shaping up? Price hikes taken? A. GMs impacted due to commodity cost impact and lag in passing on the price hike. 3.2% cost increase not being able to pass on. Taken price hike of May-June of 3%, taken another hike in July of 3% (some categories), other categories hikes around 15th -16th August. By September should be back to normal gross margins. 15% price hike taken till date out of which 9-12% passed on. Q. Change in credit terms for the consumer durables segment? A. Credit period now normalized and in line with industry, should lead to better working capital. Q. FY22 EPC still to make a loss? A. Full year should have positive trajectory but not necessarily a profit which should lead to breakeven in FY23. Q. View on EPC provision? A. Made due to prudent view. Not accepting it as a hit and continue to fighting with the customer. Q. How much will we commit on investments in Hindlamp and Starlite? A. Starlite just a transfer from being a JV to now a subsidiary. Starlite debt now financed at a lower rate. Allowing to improve efficiency and delivered best ever output in July. On Hindlamps is where the VRS was spent. Factory has shut down and not sure if it will restart. Land value and tax assets on Hindlamp and Starlite balance sheet which shall also benefit. Q. Is the VRS completely done or will there be more expenses in the coming quarter? A. Q2 will have impact of VRS in Ranjangaon factory. Q. New launches? A. Total 13 new launches, of which 4 in premium fans category. Lighting to see new launches in Q2. Q. Market share gains? A. Top 3-4 players have had aggregate market share gain relative to the other players. Q. Segment level margin in the EPC business? A. Power distribution/transmission to be mid to low single digit margin. Illumination over 2-3 years should go to double digit margin, focus to improve market share. Over 100% growth in illumination alone and improved rank from number 4 to 2 now. Q. Supply disruptions in the quarter? Change in outsourcing strategy? A. Higher inventory has helped tackle supply-related issues. Now getting back to normal level of inventory thus production/procurement picking up. In-house vs outsourced mix to remain at 15-20% in house and balance outsourced, though the mix of products in that ratio would differ. New head to look after in-house manufacturing should improve efficiency and margins.
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Q1FY22 conference call highlights
Crompton Greaves Consumer Electricals
Opening remarks: Crompton expects recovery post-second lockdown much faster than last year’s recovery. Besides, recovery will be a bit smoother than sharper pent up demand last year. Outlook: Crompton incurred higher ASPs, rural/e-commerce/new business development and R&D during the quarter given market optimism. Distribution has improved by 4.7% points for Q1. Rural growth is up 191% YoY (Rural up + 160bps as a % of total sales). Within B2B, B2G part was significantly impacted, while B2B (private) will see a gradual recovery. Book keeping: Premium Fans share rose to 16% vs 11% (YoY) of Fans this year, adding to healthy GMs. Capex will be INR300-500mn this year. Reach: Rural and e-commerce share is lower than country average for Crompton. 9% of sales is e-commerce + rural (+350bps YoY). Market share: Fans stand around 26–27% (24% 2Y ago), on Pumps (residential is 17- 18% versus 24% 2Y ago), on appliances (geysers of 20%, number three now), coolers have single digit share (share doubled in 3-4Y), lighting 10% share (3-4Y was 4–5%). It took 3-4Y in heaters to move from 3-4% to 13% share. ECD: Premium Fans growth better-Premium up 122%, super premium volume (+258% YoY). Introduced premium fans range, appliance, pumps, lighting (indoor commercial range). Invested INR210mn in ASP (vs INR10mn YoY). Overall fans up 63% (premium, premium decorative and super premium fans) which reflect 100 bps market share gain. Overall Pumps up 17% YoY (residential +26% YoY), even as eastern/south market remained slow. Appliances up 99% YoY (Geyser up 205% YoY, air coolers +90% YoY, iron +75% YoY). Lighting: Lighting +39% YoY (B2C volume led), B 2C LEV up 48% YoY. B2B will revive gradually and remain key to lighting growth going ahead. Structural lighting GMs are now stable and Crompton is confident of a double digit EBIT margin for lighting. B2B and B2G is largely 50:50 in revenues. Price hike: Took hike in April and May, pickup in June indicate pricing will be accepted by consumers. Crompton built up higher inventory levels to secure consistent RM as markets open up. Advance contracts will ensure RMs at lower prices. On M&A: Management mentioned they are looking at adding new revenue streams by H2 of this year.
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Q1FY22 conference call highlights
Havells India
Opening remarks Growth across segments with organized sector doing well. Expect demand momentum to pick up in case of no further disruptions, in spite of no pent-up demand as of now in this financial year. Operational highlights Switchgear margins up YoY and QoQ due to better demand than last year in Q1FY21 as well as some sales from exports.
C&W margins up due to pricing coupled with old cheaper inventory. Going forward, margins in both the segments should normalise.
Ad spends at 1.7% of revenue in the quarter would increase based on how the unlock happens.
Price hikes taken across products and should show up in coming quarters. No further action as commodity costs have stabilized.
Cash flow from operations is negative due to timely payment to vendors, lower purchases during the quarter and higher-than-expected inventory for ACs and fans.
Sales build-up is different from last year. Last year, there was pent-up consumer demand but tepid institutional business. This year, due to staggered unlocking, there is no pent-up consumer demand.
Secular growth across urban/rural areas. Projects and institutional business did well during the quarter unlike last year. The industrials and infrastructure segments contributed 27% to revenue during the quarter.
Shift of market share from unorganized to organized has continued and further company actions helped gain overall industry market share as well.
Lloyd inventory levels are high as (company level) inventory had built up due to lockdowns in April and May. Inventory levels in the trade are not as high. Revamp of washing machine and refrigerator categories should bode well going forward. Next year onwards expect to see good pickup in margins as well. Target is to improve market share for Lloyd which shall help translate in to better margins and higher top line contribution. Currently following the ODM model and as volumes increase, will plan to bring manufacturing in-house. Large part of washing machines is already being manufactured in-house.
ECD margins expected to improve going forward as operating leverage and price hikes taken show up. Continuous product launches happening with focus on technology and innovation.
Seeing traction in the real estate sector, which augurs well for the company.
C&W 30-35% increase in revenue attributable to pricing implying decent volume growth as well. Drop in commodity prices will also be passed on to consumers.
Switchgear continues to be the key product for exports as Havells is in the top 10 in the world in the segment. ACs as a segment has good export potential but still in its early days.
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Q1FY22 conference call highlights
Ex-C&W, price hikes in other categories have been 10-15% taking in to account market demand/competition scenario.
E-commerce and rural channels continue to do well and, going forward, should contribute a meaningful share to overall revenues.
Distribution reach currently 14,500 distributors pan-India across product categories with 1,85,000 retailers, out of which 25,000 outlets are in rural areas. Have identified 3,000 towns with population below 50,000 and are planning to target these towns.
Demand from South and East regions was tepid during the quarter, whereas North did well. North saw good traction in ACs owing to the heatwave.
Capex guidance of INR5bn for the year and INR10bn for the next year maintained currently.
Havells ready with product range compliant with new BEE norms.
On an annualized basis, margins should start coming back to normalised levels.
Currently, do not feel the need for inorganic growth, but are open for any correct opportunities at the right price.
As the PLI scheme is based on components and not finished products, expansion of the factory in South will be dependent on market demand.
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Q1FY22 conference call highlights
KEI Industries
Opening remarks EHV sale declined because of INR750mn of material could not be dispatched due to lockdowns in June. It has been dispatched in July and will reflect in this quarter.
Export fell due to sale to Dangote in Q1FY21 of INR960mn leading to high base effect.
Price increase of 40-45% reflecting in sales of this quarter.
Focus remains on improving dealer network and retail sales with dealer count at 1,650. Inducted 150 sales people across sales branches to further strengthen its dealer network.
EHV EPC sale INR270mn versus INR160mn in Q1FY21.
Pending order book as on July 28, 2021, stands at INR30.22bn.
Large EPC order received of INR4bn.
Outlook WC of INR1,500mn expected to be released during the year through EPC debtor’s retention money to be used for increased sale of cable and capex requirement. Will have sufficient cash flow to fund operations and capex requirement.
Engaged consultants to strengthen the retail network and improve it by 35% YoY.
Capacity utilization 66% - cables and 100% in SS wire for the quarter.
18-20% growth target for this financial year.
INR6-7bn capex outlay for the next four years.
Substantial growth in tunnelling and ventilation projects, underground metro rail projects, transmission and distribution lines, announcement of new airports. Solar power projects to be the key in bringing sales. Expansion of various industrial projects (cement, oil & gas, steel, etc.)
Q&A session Q. Value and volume breakup of growth in House wire segment? Further price hikes taken in July? A. Value terms growth 20%. No price hikes taken in July as copper is stable. Q. Update on the greenfield facility? A. Land has been identified and currently in due diligence phase; should come through soon. Q. Understanding on which side of cables & wires is seeing demand growth? A. Wires driven by house wire (sold to real estate) also the wires sold to various building projects (hospitals, hotels, etc.). Demand proportionately growing for all segments. Q. Change in ad spends and marketing strategy?
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Q1FY22 conference call highlights
A. Marketing strategy is to improve connect with influencers. Ad spends to be around INR250mn for the whole year. Q. Target debt reduction for this year? A. Every quarter reducing debt. By next year except for channel financing there will not be any debt. Channel financing to continue. Wires growth target of 2x of previous year and next 2-3 years house wires business to grow 50-60% YoY. Q. What shall be the EHV run rate? A. Capacity around INR4,750mn and will continue to do turnover around that number. FY22 EHV sales to be around INR4,500mn. Q. Guidance on margin range? A. 11%+ margin guidance for this financial year. Next financial year onwards there is further room for expansion as the top line also increases (operating leverage). Q. Are we looking at exporting to developed countries? A. Looking at developed countries as well. Received approval to export to the US and in process to receive license for other countries as well. Q. What are we doing to improve our export opportunity? A. Predominant markets are Australia, Middle East and Africa. Most countries in Africa under lockdowns, thus lower opportunities. Middle East strong prospects from oil & gas projects. Australia, strong demand in solar projects. SAARC countries around India, this year the opportunities are limited due to financial slowdown in these countries. Q. B2C contribution to the business? A. B2C to be around 50% and exports to be 12-13%; balance to come from institutional sale. Q. Outlook on the copper prices? A. Copper prices increased by 60-65% in the last year. Not expecting any further increase in copper prices. Q. Pricing difference between peers still holds in spite price hikes? A. Price hikes in the same proportion as peers have taken; thus, the difference in price will prevail. Q. How different is the cable requirement for solar projects vs thermal projects? A. Cable requirement is very high for solar projects (3-4x) of thermal project requirements. Q. Reason for re-statement in the financial statements? A. Changed inventory valuation methodology from FIFO to Weighted average which has resulted in the change. No material impact historically.
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Q1FY22 conference call highlights
Polycab India
Operational highlights Strategic growth agenda on track and are optimistic on the demand cycle. Project/industrial activity is faring better post-lockdown.
Consumer sentiment remained positive, and expect to see some pent-up demand going ahead.
July seems to be panning out better; expect the second half to be better than the first half assuming the third wave does not cause further disruptions.
Digital campaigns helping to improve brand image and creating a better brand recall.
Increase in working capital days mainly attributable to the higher inventory pile- up due to the pandemic. Lower receivables days not sustainable and should normalise. Inventory remains key focus area on the working capital front. No case of inventory write off.
On a blended basis, commodity prices increased around early-teens while price hikes taken were just touching double-digits leading to a negative contribution delta.
All regions except south recorded growth across product categories.
Largest consumer of copper in India enabling better price control.
Channel financing 65–70% for C&W and 25–30% for FMEG. Hoping to further penetrate through channel financing in FMEG.
85% of business coming from distribution channel.
Margins on an annualised basis to remain stable while they may differ QoQ.
Cables & Wires Cables & Wires revenue doubled YoY despite challenges posed by the second wave.
In domestic business, Cables outperformed Wires in Q1, partly on account of a relatively favourable base. Distribution as well as Institutional business was >2x of last year.
Sharp correction in copper prices impacted trade sentiment as channel was reluctant to build inventory in anticipation of price cuts.
Exports business grew 12% YoY. Its contribution to overall revenue improved sequentially to 6% in Q1FY22 vs 4.5% in Q4FY21. The growth was driven by Asia, Australia, the UK and Africa.
Logistical challenges continued.
Expect to clock INR200bn over the next five years for the segment.
Accepted projects on the optical fibre front and remain positive on the growth potential through this segment.
No significant change in cable and wires composition, similar to previous quarter.
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Q1FY22 conference call highlights
Institutional business has picked up with pick-up in smaller projects, larger project orders yet to pick up.
EPC business not the focus and expect to maintain current trajectory with high single-digit to low double-digit margins.
FMEG Distribution expansion continued with greater thrust on digital marketing campaigns. Innovation-driven product development remains a key focus area.
Fans grew at a healthy double-digit; however lockdowns in April and May, which are key summer stocking periods, hurt the momentum. Premiumization trend continued.
Lights business grew with higher emphasis on augmenting the portfolio across price points.
Switchgears saw strong growth; however switches remained subdued. Solar and Conduit pipes saw healthy traction.
Adverse operating leverage affected profitability.
EBIT loss due to negative operating leverage as well as increment given to employees (not given last year), ad spends attributable to the segment (base quarter ad spends almost negligible).
Industry size INR600bn, implying a 1.5% market share for Polycab on a blended basis.
Focus on improving distribution reach and product offerings through innovation (Silvan acquisition).
Expect to reach high single-digit EBIT margins over the next two financial years.
Premium fans’ contribution around high teens currently with most of it being manufactured in-house.
Among the top 6-7 in the fans category with positive EBIT, especially in fans.
Capex INR3bn for the current financial year with INR800mn incurred during the first quarter.
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Q1FY22 conference call highlights
Symphony
Operational highlights Q1FY22 performance impacted due to covid 19 as lockdowns were imposed in the peak season.
Very robust demand and sentiment until the middle of April-21. Complete focus on maximising production.
Most of the advertisement and sales expenses were incurred in April-21, considering high demand. Hence, that impacted EBITDA margin.
New client addition on the industrial segment include Big Basket, Delhivery, Rexroth, Pharmez, Welspun flooring, Welspun India, Hawkins, Eveline International, Vardhman, Wipe Hotwire, etc.
D2C (direct sales to consumer) through their website has gained good traction.
Domestic sales INR860mn and rest of world at INR1,440mn.
Treasury to be used for payment of dividends/share buybacks. Can be used for acquisitions if the right opportunity arises.
Do not anticipate major reduction in debt taken for acquisitions till March-22. Debt to ensure cash flow discipline at the subsidiary level.
Inventory levels in some parts of northern India back to normal levels due to the heatwave. International subsidiaries also witnessing the same because of the heat wave in different parts of the world.
Overall inventory levels (India) are still high but lower than the level witnessed in June 2020.
Advertisement expenses shall be muted for the next two quarters due to it being an off-season, though they shall pick up in Q4FY22.
Growth in sales through e-commerce channel more than 100%.
Price hikes taken to come in to effect in this quarter as the channel has accepted the price July onwards.
Commercial air cooling market hardly has any substantial organised players. Estimated size at INR80bn. Started local manufacturing of centralised air cooling systems while before they were imported from Mexico/China subsidiaries.
Outlook Expect better performance in FY22 compared with FY21 due to various measures taken such as:
New launches
Focus on enhancing dealer & distribution network with focus on rural and semi urban
Focus on e-commerce sales
Cost rationalisation measures taken
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Q1FY22 conference call highlights
GP margin in FY22 on domestic sales (standalone) should be back to normal margin of 50%. Consol margins to be similar/slightly better than last year.
Price hikes taken to offset the input cost inflation.
Expecting huge jump in exports and should be in excess of INR1bn
Climate Technologies turned around in Mar-21 and that shall continue and accelerate in this financial year and should post strong performance in the Mar- 22 quarter.
If no further disruptions, FY22 can be in line with FY20.
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Q1FY22 conference call highlights
Voltas
Opening remarks Second wave impacted the momentum seen in Q4FY21.
Commodity cost inflation, rise in freight cost further added to the pain.
Regional lockdowns had mixed impact on demand and supply of consumer durables.
UCP Limited operational hours/days imposed as part of regional lockdowns by various States and Local Authorities throughout the quarter took its toll on the consumer durables industry as a whole, especially for cooling products market, during the period that has traditionally been the peak season for sales.
Strong 22,000 touch points across the country aided growth for the segment.
Patchy summers in South and East regions continued to be a challenge, but robust sales in North and Central regions helped balance the performance.
Focus on the Inverter sub-category with competitive pricing and larger number of SKUs yielded a favorable outcome – Inverter sales growth was 18%, well ahead of the previous year.
In the AC segment Voltas continues to retain undisputed leadership with an exit June market share of 26.7% at multi-brand outlets.
Continued leverage with trade & distribution, contribution from exports, healthier model mix from B2B accounts helped a stellar growth in the Commercial Refrigeration vertical.
Launch of new SKUs, increased number of touch points and acceptance of products resulted in higher growth for air coolers.
Better product mix, coupled with planned procurement of inventories helped to partially mitigate the increased cost of commodity prices and higher logistics costs.
Certain customer centric sales promotional expenses were incurred during the quarter, leading to higher selling & distribution expenses.
Commercial air conditioning now a part of the UCP business (earlier part of the projects business) includes sales of VRF systems, Chillers, Ducted units, Vapor Absorption Machines, etc. and Customer care and retrofit business. Performance from this vertical also improved during the quarter.
Electro Mechanical Projects & Services Construction activities were allowed in the current quarter.
Weakened sentiments of delay in announcement of Capex plans by potential clients across the operational geographies coupled with diligent choice of orders has translated into subdued but high-quality order booking during the quarter.
Total carry forward order book at INR61.49bn as on 30th June 2021.
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Q1FY22 conference call highlights
The carry forward order book for Domestic projects at INR37.02bn contained a mix of orders across Water, HVAC, Rural Electrification, Solar and Urban infra- activities. The International order book of INR24.47bn represented MEP work, mainly in UAE and Qatar.
Engineering Products & Services Both Mozambique and India operations have contributed to the performance backed by renewal of the contracts as well as strong order book of Crushing & Screening equipment’s.
After Sales support and renewed demand for Capital machinery both in spinning and post-spinning has contributed significantly to the bottom line for this vertical.
Voltas Beko Production at the Sanand factory surpassed milestone of 0.5mn units since its opening and cumulative sales since inception crossed 1 million units.
Voltbek’s market share in Refrigerators and Washing Machines has improved to 3.1% and 2.7% YTD respectively.
Billing points have been scaled up to exceed 1200 numbers.
Accelerated opening of exclusive brand shops & Experience zones along with cost effective digital marketing should help in increasing reach and augmenting brand visibility.
Distribution and other synergies with Voltas continue to be aggressively leveraged to achieve the overall objective of break-even and targeted market share.
Outlook Although Q2 is a lean period for Cooling products, the start of festival period may witness a spurt in demand.
Continue to sharpen focus on working capital management and conservation of cash while remaining cautiously optimistic.
Q&A session Q. What is the revenue and profitability of the Commercial air cooling business that got restated for this quarter? A. Would not like to give specific numbers but revenue contribution marginal. On the profitability it is slightly lower. When merged, CAC business would contribute 10-12% of the total revenues. The rationale behind the restatement is due to the foray in to products under the CAC business which is more aligned to the UCP business. Q. What were ad spends in the current quarter? A. In Q1FY21 due to the lockdowns, advertising expenses did not happen. This quarter due to a staggered lockdown and other digital advertisements during the quarter, the other expenses were higher. Q. Price hikes taken? A. Price hikes are an ongoing, dynamic process and are taken based on market scenario. Around 8-10% hike taken across the portfolio.
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Q. What is the inventory levels in the channel as well as on balance sheet? A. Voltas’s inventory is similar to Q1FY21. From the channel partner perspective, better working capital management compared to last year. Q. Price increase to be taken due to the change in energy efficiency norms? A. Presentation has been made to the ministry to further delay the implementation of these rating changes and expect it to be approved. If it gets implemented, cost increase to be around 3-4%. Q. View on RAC volumes for FY22? A. Industry witnessed de-growth in FY21 to the tune of 30%. This financial year also not expecting industry growth and to achieve FY20 levels would be difficult, though growth can be achieved on FY21 levels. Q. Other expenses higher sequentially as well, what could be the reason? A. Sequentially higher due to branding activities. Since volumes are growing, variable cost directly related to that also witnessed an increase. Going forward some of these expenses will be there but slightly moderated compared to the season period. Q. How long it might take to liquidate the increased inventory? How has the market share moved for large players? A. Most inventory in the form of raw material which also beneficial in this inflationary environment. Pent up demand unlikely compared to what the industry witnessed last year. Expect a harsh second summer (August-October). Assuming no growth over last year, inventory liquidation to happen by October/November and if growth is expected over last year, liquidation to be faster. Samsung has slowed down in market share gains and would have lost marginal 100-200bps. Q. How do you see the execution trajectory for the projects business on the domestic and exports side? A. This quarter construction activity was allowed thus better performance compared to last year. Orders to be subdued due to pandemic but execution stays on track. Q. Sustainable ASP spends for the year as a whole? A. In a normal year, brand promotion expenses are 3-3.5% of revenue. Still premature to say for FY22 as most of the spend comes in Q1. Some spends might be there due to IPL, festive season but for a full year should remain lower than the 3- 3.5% for a normal year. Q. As most of the margin impact is due to the promotional expenses, is it that the commodity cost increase has been passed on completely? A. There is a lag in passing on the price hike and 100% is not yet reflected. Margins going forward should improve as the price hikes come in to effect. Q. Volume growth for the industry? A. Data not yet collated. On a like to like comparison 1-2% growth over last year. North region has done better compared to the last year owing to the heat wave. Q. Are you witnessing fast paced liquidation of inventory by competition? A. Saw aggressive liquidation by brands in Q1 due to inventory pile up.
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Q. Customer reaction on demand due to price hikes taken because of multiple reasons? A. Demand is driven by the need of the product and thus the demand to sustain in spite of increased prices. Consumer centric offers also helping (increase in EMIs, etc.). Due to lower penetration levels of the product, demand to continue to be there. Q. Losses in VoltBek have gone up in spite of increase in market share? A. Revenue growth much higher due to low base. Volumes are good but spends on the brand building activity have led to losses.
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Engineering & Capital Goods
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ABB
Opening remarks by the CEO: Despite the covid impact, 18 divisions of ABB have delivered a robust performance. Expect H2 to see decent recovery, and there are multiple segments at play. Meanwhile, cash-cost continues to be the core value focus.
Positive highlights and segments: Data centres, F&B, renewable, auto, electronic and power distribution, and pharma.
Some concerns/weaker segments: Steel, oil & gas, metals weak while B&F, rail, water, cement, paper and pulp are in moderate growth range.
Services and Exports commentary: Services has picked up after many quarters. ~19% of H1 and sales is from services versus H1 last year. 16% of orders in Q2 is from exports, 12% of export sales.
Covid focus areas – Vaccination is the strategy. 80% vaccinated (including contract workers). 10% infected by covid-19. By September, 100% will be done.
Segmental
RDA (Subrata Karmakar): Higher volume of orders sustained, revenue is growing at a robust pace.
Electrification: ABB has secured good orders and is ready to cater to MV demand levels. Order inflow of INR5.8bn and order book at INR13.7bn in Q2CY21.
Motion (Sanjeev Arora): Strategy of reaching customers in Tier 2-3 working both for MO/EL segments. Services added to higher OPMs here. Order inflow was INR7.3bn in Q2CY21.
Process Automation: After provisions last year, share of PA profitability has increased now. Higher services share here as well. Order inflow was INR3.6bn and order book of INR14.1bn in Q2CY21.
Guidance and booking keeping: Unallocated expense was high in Q1, which has come down in Q2. Low CSR allocation/actuarial-based loss helped in reduction of unallocable expenses.
Q&A session
Q1: Strategy on expansion in India given the global mandate? A: We do have a green signal from the global team to look into organic/inorganic expansion. Each business head has developed their strategies to cater to upcoming growth. Given the geopolitics situation, it will only accelerate in India. Q2: Response to ABB e-mart? A: ABB is a leader in many products, e-mart platform has helped our inquiry levels grow significantly (reached tier 2, 3 cities and also districts). The only challenge is if we are increasing our reach, we need to be better placed to cater to the response. Q3: Current orders run rate; how should we see this over 1–2Y, can ABB touch INR100bn intake annually? A: ABB has made significant portfolio change (grid and solar carved out), we now have a portfolio which is 70% product, 7% projects and balance exports/services. Now we have a very high elasticity to industry demand change, which will help ABB
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across 18 market segment to run the business in a steadier manner than the past. Energy efficiency, ESG, etc will keep ABB growing on a selective basis. Without committing to the timeline, ABB will look forward to reach the INR100bn intake mark in coming years. Q4: How is our power train (mining, coal ,etc) strategy given that ABB group have a global range here? A: ABB will look to develop these products locally should the case arise (local demand basis). As of today, ABB India does not have any local portfolio, but is in serious discussions with local OEMs. ABB globally has products in the off-road (heavy vehicles, cranes, excavators) segment. Q5: ABBs recent Spanish acquisition in mobile robotics, read across for India? A: Warehouse automation/conveyer-less, touch-less applications are gaining significant traction even in India. Parent is working on new segments in (Robotics and Automation) RDA and India will keep benefiting from the same and might come out with new segments. Q6: Impact on India stake holders on sale of mechanical power transmission division and EV chargers IPO? A: Mechanical power transmission business is a very US centric portfolio and it has been more of a trading business with low-value addition. In India, EV is still at a nascent stage, ABB is supporting some big OEMs but no manufacturing of chargers in India. Q7: Process Automation OPMs in India given legacy projects are out? A: In line with parent’s tag-line that PA is back, India also should see improvement going ahead. Q8: Metal/Oil n Gas capex outlook; why is ABB still ‘moderate’ on metal capex outlook? A: ABB is closely tracking these segments and is yet to see any meaningful business. Q9: ABB’s 27 manufacturing plant and utilisations? A: Currently at 80–85% across plants. Expansions: Nashik MV plant will help us cater to demand uptick in medium voltage segment. Last year, ABB expanded RDA capacity in line with increased demand. Q10: Growth across segments for ABB and pricing power? A: Growth rates at 14–18% range across segments: Water (10%), F&B (14%), Datacentre (>18%), with stable growth in base business (steel, cement, paper, etc). Segments with high market share are wherein ABB has high pricing power (datacentre, F&B, Power distribution), segments such as rail (tender based) have low pricing power. Intensity of competition was high in water/waste water, given availability/reliability equation is building up (reliability efficiency); however competition is getting weaker here given increasing focus on quality.
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AIA Engineering
Financials Revenue rose 28% YoY at INR7.4bn, 8% ahead of estimate led by higher realisation of 15% YoY. However, volumes disappointed in mining. Overall volumes stood at 60,318MT, were up 13% YoY with mining volumes down 10% YoY, due to withdrawal of volumes from Canada, whereas cement and utilities volumes grew 93% YoY on the back of strong demand.
Production jumped 30% YoY, as the base quarter was impacted by the lockdown.
Realisation (per kg) rose 15% YoY, 13% QoQ to INR121. Realisations should continue to trend higher largely due to commodity prices increases pass-through to customers. Management also attributed part of the increase to mix changes.
For Q1FY22, gross margin expanded 251bps YoY, 876bps QoQ due to higher realisations. EBITDA margin rose 199bps YoY, 359bps QoQ to ~23.3%, with EBITDA per MT rose 23% YoY to INR28,544.
MEIS benefits expired at the end of August, and RoDTEP benefits are to be applicable from 1st January. Management anticipates incremental announcements on the same.
Order book, as on 1 July, 2021, stands at INR6.82bn.
Net cash stood at INR20.4bn at the end of Q1FY22 (vs INR17.5bn at the end of Q1FY21).
Capex incurred for Q1FY22 stood at INR0.55bn. Capex for FY22 is anticipated to be INR2bn including INR0.3bn for wind turbines and INR1.1bn for mill linings capacity. Operations An investigation was initiated by the Canada Border Service Agency on alleged dumping and subisidising of certain grinding media from India in FY21. This matter is being reviewed and remains sub judice. There has been a volume loss from Canada as a result of the same. The agency had imposed an interim duty of 32.2%; and a final duty of 22% to be applicable from Aug-21.
Management recouped some volumes from Brazil during Q4FY21 (~1,200MT).
New customer acquisition continues to be slow with inability of AIAE teams to travel and lower number of engineers at customer sites. While ongoing trials continue, management remains cautious on incremental growth.
The company continues its engagement activities virtually with the key focus being cross-selling and branding as a comprehensive solutions provider.
Shipping costs have been a significant headwind owing to container unavailability.
Management endeavours to ensure volumes remain flat YoY for FY22, however, refrained from giving a formal guidance.
Management is not concerned due to the protectionist measures imposed by Canada and Brazil and continue to see a large market which can be catered to from India.
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Others Mill liners: Management guided for capex worth INR2.5bn to increase liner capacity by 50,000MTPA. This stands delayed and will be commissioned over H2FY22 if travel restrictions are lifted. Mill liners are under trial with various miners; however, management is awaiting commissioning of the facility to undertake trials from the new facility. With the introduction of mill liners, AIAE has become a comprehensive consumables solutions provider, helping miners achieve lower costs, better throughput and higher yields.
Furthermore, the company has paused its last phase of grinding media expansion of 50,000MT.
Outlook for mining continues to be bright, however travel restrictions are leading to entry barriers in procuring volumes. Management is seeing incremental capex announcements from cement customers.
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Cummins India
Opening remarks
KKC launched seven products in rail, marine, pumps and constructions, three in DBU and many products across the PG segment. Hopeful of QoQ recovery led by vaccine rate increase. Supply chain has been improving every passing week. Visibility to full market recovery is not there; hence no guidance for FY22E.
Segment breakdown PG: INR3.5bn (-1% QoQ), IBU: INR1.9bn (down 29% QoQ), DBU: INR3bn (-11% QoQ).
Exports: High HP at INR1.7bn (+26% QoQ), LHP at INR1.2bn (+22% QoQ).
Industrial BU break up: INR1.9bn: compressor at INR300mn, construction INR490mn, mining INR160mn, rail INR470mn, marine INR180mn, others INR190mn.
Domestic PG break up of INR3.5bn: LHP INR260mn, Mid-range 1.1bn, heavy duty at 460mn, High HP at INR1.7bn. Q&A session: Excerpts Q1: Comments at AGM on global demand from construction OEMs? A: Cannot share specifics, but every single global OEM is focusing on India manufacturing for exports market. We are already witnessing demand for India on this front. Q2: Domestic construction demand? A: Road construction dropped from 40km-plus to 20–25 km/day, amount allocated and ambition (100km/day) remains high, which will help in robust demand. Q3: Exports QoQ healthy growth; some colour please? A: Pretty much every region for us has recovered both QoQ/YoY. FY22E should be steady on exports for KKC. Asia Pacific led by China was strongest for us, followed by LatAM, ME, etc. Asia was INR900mn (INR340mn QoQ), LatAM INR680mn, Europe INR470mn as key export regions. Q4: QSK 60 launched in AGM was manufactured by CTIL, some clarity please? A: Some parts of supply chain handled by KKC and some by CTIL, product is completed by KKC. CIL stands at an advantage with localisation of this product. Q5: Margin colour given at AGM? A: KKC targeting four areas: better product (better pricing, differentiate), better utilisation (supply chain), cost reduction (material cost) and overhaul product portfolio. This will help us improve OPMs, which is an intent and not a guidance. Q6: High teens to low 20s growth targets? A: I would agree on this. Q7: Clean energy outlook? A: Most of this is happening in 2/3W, bus, etc. We believe 7-8Y will see significant momentum. Globally, parent is investing heavily in hydrogen economy (electrolysers etc). Even in India, production of hydrogen needs to increase in 5-10 years. We are looking at all tenders floated by the GoI and are looking at strategic alliances. There
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are much focused set of activities (2-5Y time to gain traction) like rail etc. Cummins Inc is looking at China-Europe w.r.t. their big focus. Q8: New range at KKC? A: We are generating more power in a much smaller product, move to electronic means they are cleaner/ready for CPCB IV cycle. Q9: What is your view on exports given USD1tn infra stimulus? A: KKC does not only export finished products, but also ships engines and parts, North America should see improvement and CIL has a great advantage that it is Cummins Inc’s lowest-cost base globally. Cannot quantify but bullish. Q10: Global supply chain, is this a pretext to a potential merger of unlisted with the listed arm? A: All options are being evaluated. As parent invest in new areas, conventional investments will keep going down. KKC sees opportunity from parent’s new initiatives on supply-chain side. Q11: Exports run rate, can we see previous peak qtr rate? A: Global exports market is improving QoQ, I expect the demand to only get better. Q12: CPCB IV timelines? A: Notification is yet to come, but we expect this to come by latter half of FY22E. There is a lot of pressure from GOI from global agencies. Q13: Price hikes taken? A: Most of hikes taken to offset RM inflation largely, but overall NSR/forex has 0.5% impact on RM margin. Q14: QoQ margins vs 12.6% levels delivered: A: We should do better in Q2 given stable supply chain and Q1 had lockdown impact. We took more pricing action in Q1 that will fully reflect in Q2. Q15: Royalty has come down as per FY21 AR, is it sustainable? A: A lot of this depend on product mix, but 0.6-1% range is sustainable over long run. Q16: Recent QSK 60 G23 product in data centre range? A: KKC manufactures quite a few components for this range, over next few years, we will see more localisation. Today when KKC delivers (not fully make it) this in India it imports components from the UK, hence, this will aid OPMs and market share both. Export mandate for this product stays with CTIL. QSK 60 line is set up in CTIPL: KKCs value addition includes components, connecting rods, heads, blocks, etc. When KKC sells it in domestic market, it makes the mark-up, which is significantly higher. Q17: Some colour on new ranges? A: 6.7lts/3.8ltr engines in mining where we are 20-25% better vs competition. In 1000-2000 kva, we are introducing products for exports. Largely, it is a catch up of last many years that we are currently witnessing. New range should add significantly to our revenue base. Q18: Market share gains? A: KKC has not gained share but has maintained. New range will help us take it up further.
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Q19: Impact of global supply chain in machine building OEM segment on KKCs exports? A: North America will move from 5% to 10-15% due to consolidation of supply chain opportunities. KKCs share in global pie should improve. Q20: DBU growth potential? A: Nature of support that customers want (full service) especially for new range (electronic), DBU should generally do better vs past. Q21: Issues/bottleneck in IBU growth? A: Unlike past, more global OEMs are using India as a base, conventional choice of preferring other regions(esp US/EUR etc) will change. India is becoming more attractive even vs China today in many products. Q22: India vs China vs US as global hubs? A: In on high way, scale of China is significantly more vs India. In some segments India is better. Cummins Inc globally leverages on individual cost advantage. KKC will get more business in special/custom build new range, which is not high scale. Q23: Container port impact for China? A: KKC has built strategic inventory but beyond 6-8 weeks this will impact if it does not improve.
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Greaves Cotton
Opening remarks Restructured business internally to focus on each business for efficiency. Now 3 businesses and additional two lines: i) Core – Auto plus Non-Auto into one management team; ii) Retails solutions – aftermarket care; iii) Greaves e-mobility (Ampere) and in addition two new business; iv) Greaves Finance & Fintech; and v) Greaves Technology. Finance and technology arm are additional enablers to the EV industry.
Diversification is paying off with new business contribution at 30%. Focused on channel expansion, multi-brand service etc a whole value chain support.
Ampere: Fast growing. Over the last few days, 2W and e-rickshaw reached 100k EV customers over 400 towns in country. The government incentives is beneficial. Passed on benefits to consumers. Ranipat plant- Will be launched in FY22. Looking at a multi brand e mobility side. Talent added in new areas – e mobility, finance, etc. E-mobility had plant shut down for 8 weeks while July is good though.
Market: New range of products such as the marine segment (engines) seeing additional traction, and construction equipment has also been picking up. July saw increased traction in non-auto and mobility. Questions and Answers Q1) Greaves Fintech and Greaves Technology. What is the reason behind this when we already have other large opportunities?
A. Core is engine fundamentals and looking for more efficiency in this as Auto plus Non-Auto throughput increases with efficiency. The aftermarket increased from 3,000 retailers to 7,000 now. There are 12k mechanics now. E-mobility continued to gain traction and is a major focus. Graves Finance is just an enabler (last few months, banks were not that involved and are now gradually doing it). Technology: Engineering arm is focusing on technological moat. So it comprises three core businesses and two enablers. The fundamental is the same and these are a new way of looking at it.
Q2) Volume in Ampere during July.
A. 2w/3w- 4k sales (vs March 3800) this was after eight weeks of shutdown at the Coimbatore plant. It is a wholesale volume and the retail is also strong. Own financing is less than 5% of total.
Q3) E-2W – FAME 2 subsidy made it more affordable. The premium vehicle markets pick up also. What is the focus in the long term such as in the mid to high range market segments?
A. Always play in the belly of the market. Mid-30ks to 80k market. The central and state governments’ incentives are seeing traction in the belly of the market. First- time buyers are also coming directly in this market. The fundamental thesis is focused on this. We are going up the chain in technology – speed, efficiency, traction, etc. The thrust will be always in the affordable segment. The average price realization is also trending up given the technological upgrade and savings in input cost. The choice is based on customer sentiments, and we will be focused on that.
Q4) Land sale money and passing it on to shareholders?
A. New money is going to fund growth and into new investments.
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Q5) Fintech and Technology – captive or 3rd party also?
A. Fintech – Is just an enabler in Ampere and our other products. Technology is in early stages and the primary focus is on developing Ampere products and may be other OEMs. Our technologists are already working with global OEMs.
Q6) Enquires on the EV side?
A. There are much higher than the Q4 March levels. Fame II and government subsidies and higher petrol prices aided. Supply is the constraint, and we are beefing up this. Order backlog is very healthy. Dealership interest is also very high. Ampere sold more than 100k units in 400 cities.
Q7) Cost impact – Lithium etc?
A. It has increased across metals, Lithium. Focused on localization to benefit volumes and scale up. Expect to continue this and pass the benefits to customers to increase the market. There is pressure on Li prices but supply side overall increased and there is not much impact on batteries.
Q8) Appointed 180 dealers after Q4. What is the long-term focus in this?
A. The network is 400-plus dealerships pan-India. While penetration is not high in some places, we will focus on this. Will focus on new digital showrooms, not just retail showrooms.
Q9) Market share of 14–15% in 2W. Any new players and given the increasing offerings from competitors. What is the target on market share and profitability in this scenarios?
A. The bottleneck is consumer awareness, not the tech or prices. We are moving to an inflection point as new players are coming in. There is enough room for everyone to co-exist. Flagship products would be our focus. Focus on dealership penetration. Focus on technology-based enablers such as controller, DMS, battery pack, etc. This business is in a growth phase now. Making us ready for the inflection point. Balance between growth and profitability at least in the couple of years as new investment is needed.
Q10) Ampere – Inventory levels and trend?
A. Following a ratio of 1 month sale. Look at 30–40 days of inventory. This increased due to lockdown in Q1 and is INR150mn as on June.
Q11) Agri products – status?
Combined Genset, Agri and non-auto business in one arm. Agri is also a focus area. Have a plant in Aurangabad and that is being optimized. Automotive, Non- Automotive, Agri and Genset all combines into Greaves’ core.
Q12) Aftermarkets and showrooms?
Greaves aftermarket and solutions: Post-sales (spares) take place via dealers. Spares, services, multi-brand retails all come under retail and has lot of potential.
Q13) Market share in 2W?
A. June factory close impacted market share. In steady state it will be 18 to 20%.
Q14) Supply chains – ramp-up and constraints?
A. Chip shortage is a challenge. In 2W we are protected for the next few months. Immediate impact is not there but the situation is volatile. Current capacity –
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Coimbatore- 5k 2W per month. Ranipet- will be much higher. 3W has not much capacity constraints. For 3W, launched a cargo variant of the vehicles. Shift from Lead to Li-ion based 3W is however slower.
Q15) New tender from EESL?
A. This tender in E3W. It is an interesting area. Looking at expanding in greaves retail side. There are incentives in GST rates, state incentives already in place. The tenders gives boost to the industry and help pace up. We will be present across all solution (cost effective etc).
Q16) Ranipet status?
A. Will be ready by FY22 and running ahead of schedule. 1st phase 100k. Plan to increase it to 250k, 500k and 1mn as it pans out.
Q17) E2W- Industry level had constraints in financing and supply chain ecosystem. How is it now?
A. Yes they are improving in all manner. Ranipet is being done to meet the demand rise. The environment has seen major changes in the last 3 years. As the industry moves to high speed products, financing increases. In E-rickshaw it is almost 100%. In supply side, major developments happened with increase in quality products. More and more established players are entering the component industry.
Q18) Intent on backward integration?
A. Today working with strategic partners for component solutions. As volume picks up and gets viable will look into backward integration. Electronics, Li-ion, software, etc.
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Kalpataru Power
Outlook Consolidated revenue to grow 15% YoY in FY22.
Consolidated Margin to remain in double digits.
Focus on cash, WC and return.
Order inflow target remains. – INR160bn on consolidated level; INR90bn at Standalone (Railway & O&G at INR20bn each; balance in T&D of which is TLI- USD400mn plus); INR75bn to INR80bn in JMC.
Net cash level (KPTL standalone) – Target of negligible debt by end of FY22.
Opportunity size: T&D domestic side- INR100bn plus in BOT. In International it will be much higher (USD500mn to USD600mn in H2). In Oil & Gas- Gail, IOCL etc coming up. Railways – Electrification, widening and metro projects- competition is higher but will achieve the target of INR20bn. Overall INR400bn to INR450bn of basket.
For JMC- INR500bn plus in every sector, Water, Urban Infra etc.
No capital commitments for any subsidiaries even for Subham.
Linjemontage- Lot of renewables in Nordic markets provide opportunities in T&D etc. 15% to 20% growth in this market.
Promoter’s pledge has come down in past 3 quarters and is 45% as on date. Commitment to reduce by 40% in Dec and will be in normal level by year end. Asset monetization/restructuring Kurukshetra and Wainganga road assets to be sold by end of Q2 and Vindhyachal by Q3FY22.
WEPL & KEPL – moving ahead. Infusion of money is w.r.t to cut off date (year old). Reversal of investment (INR230mn) when deal is done. Toll came down to INR4mn per day (vs INR6mn before). As the process is completed some more infusion maybe required based on toll decline. KPCL is seeing lockdown in last 6 to 7 months that’s one of the reason for low collection.
Kohima Transmission- Deal closure expected in H2FY22. Major approval in place and is operating at 100%; Few approvals at Banks and regulatory level is pending. Last few months, the employees in those organization were not working hence the delay. Committed to close the deal with CLP (all approval in place).
Divestment of Subham- Appointed advisors for strategic partnership. It won’t be very soon. But in operational front it going good and no equity commitment is required. Consolidated margin EBITDA margin marginally lower due to commodity pressure, supply issues.
Significant impact in Q4 and some reversal has come up. Hence there is provision is in the book.
FY22 target: Double-digit margin target at consolidated level.
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Brazil's Fasttel Engenharia: EBITDA margin was 4% and current OB gives 4-5% visibility. Focus is to integrate fully. Plan is to integrate this year and gain synergy. Standalone Revenue: T&D– 12% YoY; Oil & Gas- 21% YoY and Railways – 23% YoY.
EBITDA Margin in Q1FY22 – 10.2%.
Other expenses- Freight cost of USD3mn on international delivery- For FY22 USD6mn impact overall.
Net debt increase due to lower collections. Debt already reduced at the end of July from better collections.
WC increase- Delay in collections (which is typical trend in Q1) as this is the quarter where bill collection is pushed up. The increase is largely due to vendor support. In FY22 it will be negligible debt at Standalone level and JMC at INR5bn.
Collections of Indore project to improve WC (INR1.5bn plus to come from Indore project. Expect large sales in FY22 and has seen good sales in July already).
KPTL- can bid for World Bank project from October.
International TLI- 15% growth for FY22.
T&D domestic- Landscape.
HVDC lines of 2 to 3 projects coming in next few months (INR60bn to INR70bn of which equipment will be 20%).
TBCB (including HVDC)- 12 projects up for bidding in next 3 months of ~INR100bn to INR150bn and it will also be there in annualized basis.
State level projects- Southern States and North East states are active. INR50bn to INR100bn opportunities only in these 5 to 6 states. Therefore, India project of INR200bn to INR250bn overall is no difficulty.
Bangladesh – INR30bn to INR50bn in annualized basis- Overall T&D of INR250bn to INR300bn is not a challenge.
JMC
EBITDA margin impacted due to execution mix, commodity price increase.
Commodity pass through in JMC– There is a lag to 4 to 5 months- About to 10- 15% is not compensated. But when the cycle reverses it will benefit. There is incremental loss now but 90% to 95% is covered under escalation increase.
Margin difference in Domestic and International in JMC- International is 2.5% to 3% higher than domestic. Incrementally there will be wide variation.
EBITDA margin will remain on double digit margin for FY22. Current quarter impact was price increase and job mix. It will reverse in Q3 as 90% of cost is pass through.
JMC net debt to be in the level of INR5bn by end of FY22.
JMC surpassing KTPL in revenue and profitability- JMCs growth (20% plus) will be higher than KPTL (10-12%).
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JMC and KPTL won’t participate in US market. Focusing on acquiring assets but nothing in the radar yet.
L1- mainly in Water and International B&F projects.
Oil & Gas
Increasing competition in Oil & Gas – It is regular phenomenon. But the bids are not that aggressive. The impact is not much in T&D International, Domestic and Oil & Gas. In railways it is aggressive but it will come down and the focus will be on not compromising in margin meanwhile
International Oi & gas- Missed one order by 0.5% difference. In current year will get few orders.
Railways
KPTL Railways International – Utilizing existing footprints in International market across all segments. Have short listed in few African countries and Indian neighbours. At least one order in International railways.
Railways is more of expansion of lines in the order book. The coming years will see modernization, electrification will remain strong. Next 2 to 3 years International will help grow the order book.
In electrification projects of worth less than INR2bn almost 15 players bid and few have been aggressive. In more than INR5bn project there are 5 to 6 players.
B&F:
Residential, commercial and factories opportunities are there. But will focus more on commercial (including Data Centre) going forward.
Road assets
Toll collection in Kurukshetra impacted due to farmer’s impact.
INR530mn of investment made in Q1 – INR9.3bn till date in the four road assets.
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Q1FY22 conference call highlights
KEC International
Execution Revenues of INR25.4bn against INR22.1bn aided by non-T&D businesses such as Civil, Railways and Cable.
Outlook: Except for Brazil whose uncertainty is expected to continue other businesses are looking stronger. Margin Margin was impacted by the adverse raw material prices and the continued challenging environment in Brazil.
Amid higher RM prices, KEC regulated supply of power and conductors and recently seeing some softening in steel prices. Recently, steel exposure reduced by 25% though power reduction.
Margin – Freight is not a concern in International market. Rates has gone up by twice but the availability is not a major concern. There is only a marginal impact in margin due to higher freight rate.
Strategy to mitigate RM impact
100kt steel was available in March (30% is used in this Quarter). As compared to March, steel prices have dipped. Now as oxygen supply is available secondary market of steel has normalized while other material prices are fluctuating. Have room of another 2 quarters for aluminium and can wait till the prices come down. Copper is however fully hedged.
Speaking with clients in fixed cost projects (seeing some success). In new orders increasingly looking at variable price contracts and in new fixed price contracts looking at high margins which can mitigate the decrease in margin in existing projects.
Overall margin for FY22 can be lower than FY21 but has room to recover. Railways: margin would be double digit. In civil- close to 2 digit by FY22 end as execution picks up. Order inflow Pipeline: INR700bn of tenders to quoted in the quarter. Of which INR450bn are from T&D in India and International, INR110 to 120bn in Railways.
Expect INR80bn of intake in Railways and Civil (got INR20bn already). In railways OHE such operation RAFTA (increase railway speed across lines) are coming back. In metro got orders for ballast less tracks etc are increasing the contribution. In civil, metro and water are driving the growth while buildings is not that high. In Industries steel and cement plans drives the growth.
T&D pipeline is strong in international market.
Civil Infrastructure bidding: In new orders – 5% to 6% of difference in L1 to L2 and very few it is minor difference. Last part of cost is Steel and Cement whose base rate is given by client which is 70% of quoted cost. The balance cost decides winning rate and hence the minor difference in L1 and L2.
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Q1FY22 conference call highlights
WC level Some delay in payments from Railways initially but it has nearly normalized now. Within the quarter DSO days increased by 4 days to 260days. In Non-T&D business it has increased except railways. In T&D it is same of last year (some issues in International market) but will improve in coming quarters.
No plans to raise Equity given the stretched WC.
WC is improving – a) same borrowing rate despite increase in execution b) civil share going up thus getting better c) In last 5 years – all ratios looked by rating agencies is improving.
The acceptances gone up by design. The NWC days is 135, flat YoY. IC gone down by 40bps. Have a large room to take foreign debt and reduce the WC days. Ultimately, IC is looked at while raising WC.
Net debt of INR25.33bn; IC is 2.6%, down 40bps YoY. SAE – Brazil Loss of INR750mn to INR800mn in SAE Brazil.
Brazil continues to be impacted by covid-19. Anticipated turn around by Q1 but is not fading yet. This has resulted in delay of execution, increase in cost and margin was impacted. Will complete 4 legacy with a delay.
Labours are India supplied so have to maintain them in the sites and can’t send back. So the cost is like a fixed cost. RM cost is not much of an impact as the fixed cost contract is lower.
Outlook: Next quarter will losses will be lower given some project progress in Q2. Of the two problematic projects, one will be completed by October and another by Dec’21. One project has 10 to15% left and other has 20% left. (Vs INR8bn to INR9bn of the original value). Overall, Q3 the loss should be marginal and Q4 will be turnaround.
Cash funding for SAE – INR4bn in last 3 to 4 years and has replaced the high cost loan given a fully leveraged buyout. It was going to 6.5% in foreign loan and reduced by prepaying the loan. In last year, invested some amount for loss funding. In the coming quarters, some loss funding will be provided given the expected loss. Segmental Domestic T&D – Double digit growth in Q1, International - negative change due to covid restriction in sending supplies to Middle East etc.
Solar EPC- Not looking at significantly in this profile at least in the near future particularly for engineering work. Module players have the advantage in the Solar EPC (70% of cost).
Cables: Not major traction in LT side (due to covid, RM costs). We will see HV, EHV side pickup and might look at capacity expansion in this. In solar cables, the aggressive bidding is likely to impact our profit share. Also, project postponement makes it less attractive.
Oil & gas pipeline- Opened separate HQ for this. Have bided for few projects as KEC is bullish in this segment.
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Q1FY22 conference call highlights
Data centres: Has ability to do entire system work in data centre except for technology part (hardware and software).
Smart city: Have bid for few projects. Given the covid, state government diverted the funds to different areas. Few projects bided for has not yet been awarded and will continue to be lower in the coming near future.
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Q1FY22 conference call highlights
Larsen & Toubro
Opening remarks Impact of covid-19 in coming quarters will be insignificant.
Order inflow at INR 266bn, growth of 13% (includes international orders contribution of 34%). Momentum of order inflow (ex-services) impacted by subdued tendering and awarding. Tender/Awards were down 40%/60% QoQ and down 20%/25% YoY.
Order book at INR 3.23trn, provides 27 months execution visibility. International is 20% of which 60% is Middle East and 40% from Africa and South East Asia. Segment wise 80% is of Infra and Hydrocarbon (73% and 9% respectively). Domestic order book is 80% of total order book of which Central projects are 9%, State are 31%, PSU are 43% and Private are 16%. Prospects pipeline is INR 8.96trn vs INR 9.06trn in FY21 beginning.
FY22E Guidance retained: Order inflow at Low to Mid-teens. Maintain core margin for FY22 at FY21 level based on variable cost projects mix, projects that are expected to reach margin recognized, enhanced efficiency, negotiation with key vendors for alternate inputs should aid in margin. NWC sales ratio target level at Mar21 level (22.3%).
NWC – improved from 26.8% in Q1FY21 to 22.9% due to revenue moving higher. Collections have improved. Group level collection was INR 276bn vs INR 252bn in Q1FY21. NWC sequentially worsened due to release if supply chain payments.
Group level gross debt and net debt to equity improved due to divestment proceeds. TTM ROE – 17.2% vs 12.7% in Q1FY21. TTM ROE of Q1FY22 includes gain on divestment of E&A.
Divestment- Power development- Nabha and Uttaranchal looking are up for divestment. IDPL- remaining 51% stake would be sold to 3rd party investors. Discussions are on but early. Hyderabad- for new equity, discussion with state for support. Looking at refinancing by FY22E.
Segmental details
Infrastructure: Order inflow of INR 110bn spread about across sub segments. It witnessed delays in awarding. Pipeline is strong at INR 6.4trn, up by 33% YoY vs June 20. Margin improved from overhead improvements despite commodity price increase.
Power- FGD order boosted the Order book. Margin improvement due to increase in execution.
Heavy Engineering- multiple refinery order wins. Margin improved due to execution.
Defense – Government announcement will drive order inflow. Margin increased due to cost savings and contingency releases. Does not manufacture any weaponized systems.
Hydrocarbon- Order inflow was subdued due to elevated level of competition. Pipeline has significantly improved. Pipeline is INR 1.82trn vs INR 668bn in Q1FY21. Margin improved due to cost savings.
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Q1FY22 conference call highlights
Dev projects- Revenue increase due to power plants. Nabha was 91% PLF. Metro was partially operational but with restrictive conditions- traffic was 55k per day vs zero in Q1FY22. July improved to 120k/day. Nabha- we have impaired the investments so don’t consolidate at margin level. Interest cost was INR 3.7bn incurred for Hyderabad metro. Questions and Answers Q. Order inflow and Revenue growth guidance
A. Factored in last time guidance also for the on-going events. Looked at government spending. Revenue projected with near normalcy in Q2 (maintain the revenue guidance). Margins done at 10.3% given the execution pick up after factoring into the commodity price.
Q. Middle –East recovery, Order inflow in power and Hydrocarbon.
A. Order prospects of INR 8.9trn – share of hydro is INR 1.84trn of which 74% is outside India. Power T&D is INR 0.17trn of which almost 60% is outside is India (largely in MEA and some in Africa)
Q. Hyderabad Metro- Divestment any tangible improvement? Or Re-financing after new investors comes in?
A. All measures are parallely being done. Discussion with state government is very positive for financial support. Discussion to bring in equity supports (new investors). Trying to monetize 18mn sqft of TOD also. Trying to refinance the loan with higher payment period also so the IC will be lower. By Mar’22 will be in better place to answer. Have set aside INR 20bn for next 4 years and gave INR 5bn of support in Q1FY22. With easing of covid, should see higher ridership and near visibility of close by FY22.
Q. INR 18bn of exposure to stuck AP project and what is the status?
A. Exposure of INR 12bn now. Discussion is going on. INR 6bn partially recovered and some provisioned.
Q. Covid impact will be insignificant – Domestic and International
A. In Q1FY22, April and May had 170k workforce – impacted partially due to covid (30 to 40K) vs 210k needed. In June 230k to 240k are there (vs requirement of 250k). Only a shortfall of 10k and not of a challenge. Revenue and operational momentum decided on business not impacted by restrictions much. Near normalcy should become normal if no 3rd wave is. International execution is near normal as compared to pre-covid. Intermittent supply chain in import is the only impact but is not material also.
Q. HSR status and revenue recognition.
A. Work commenced in Feb’21. Deadline starts with Jan’21 with 48 months completion time. Meaningful increase in top line will happen in FY23 only. Some of the important work like concreting, etc have started and enablements are done and progress is going on.
Q. Debt breakup – Development projects down due to?
A. In power plant reduced by INR 12.5bn, there was favourable settlement in a dispute. Balance INR 6bn reduction in Hyderabad metro was 3rd party loan and came from L&T cash support.
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Q. Coastal road project- status
A. Has done almost 32% and margin recognized after 25%.
Q. One time impact in Hydrocarbon?
A. One time claim of INR 900mn in Hydrocarbon segment.
Q. Nabha – timeline of divestment.
A. Talks are on with prospective investors – should see developments going on.
Q. Infra margin is higher. Any comments?
A. Current quarter was 7.1% vs 6.3% largely due to improved execution despite impact on RM cost. Some are variable cost linked so that will partially support the hike. When execution stabilizes then it will enable to recover major overhead.
Q. Submarine orders – where are placed in this? And what is the timeline?
A. Defense advisory council has cleared it. RFP was issued on 20th July. Supposed to submit the response in four months. The technology partnership is needed and it’s not a problem for L&T.
Q. NWC of core.
A. Core was INR 210bn as of June and it increased by INR 10bn to INR 220bn. At group level it was INR 270bn to INR 295bn due to current liability (vendor payment increased by INR 30bn). And higher invoice in Q1 will get into collection mode in the coming quarters. Normally, enhancement in Q4 will happen- improves maximum in Q4 and slowly improves. Core NWC to sales is 25% and ROE (ex E&A) 11.2%.
A. Hyderabad – Total debt is INR 136bn; equity INR 25.4bn; L&T’s exposure is INR 50bn. Have infused INR 10bn till Mar’21 and done INR 5bn in Q1fy22 out of INR 20bn allocated.
Other segment: Realty revenue is INR3.3bn; PAT would be INR1bn.
Q. Labour force – can we go back to sales in Q2FY20?
A. Guidance on revenue of low to mid teen factored subdued Q1FY22, not much restrictions coming in Q2 onwards (no 3rd wave impact). By the end of Q2 we will be able to add numbers.
Q. Variable price contract proportion.
A. Roughly 40% is fixed and 60% is variable price contract.
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Q1FY22 conference call highlights
Thermax
Opening remarks by CEO Operations impacted due to a) 3 to 4 weeks of slowdown in operations (people were not on site. For e.g. 150 people at a site where 500 500 odd people needed) b) lower productivity, commodity prices increase (if prices are steady can pass it on to). c) International shipments constraints from higher freight prices, and container unavailability (INR200mn plus of high margin products couldn’t be shipped).
New order was reasonably good even excluding the large export job which indicates broad based recovery. Focus remains on new business and new technologies.
Business outlook: Thermax has bid for large number of Petchem/refinery orders and that is what is reflecting in some of the recent wins. Cement WHR is getting broad based with more plants coming up. Book-keeping New orders: Packaged boilers and other base orders sustaining INR12bn mark plus (recurring) for 3rd quarter now. This time May affected tier ii,iii cities as well, July was a recovery month.
Revenues: FGD revenues has started picking up but OPMs reflect competitive margins. Management expects pick up in revenue recognition which should reflect better OPMs.
WC/Cash levels: Q1 is net positive on OCF which is reflecting in higher cash balance by 47% YoY (also up INR2bn qoq). But with higher retentions in FGD, cash flow might not be as strong as in Q1 end.
Other operating expenses was high given higher travel expenses, higher covid testing as compared to last year which is now normalised. Also, ECL provision had a reversal last year.
Products/services: 50% of revenues now coming from product/services which is higher vs conventional range. Q&A session Q1: WC levels in FGD higher? Execution timelines A: TMX expects the cash flow (strong in Q1) to see some moderation given high retention in FGD orders, but it will not change the cash/WC dramatically. TMX will execute 50% by FY22 end, balance by FY23 on execution (vs 10% currently). Q2: Cement WHR TAM vs past? A: 150-300 MW is the annual opportunity for Cement WHR opportunity. This is based on a similar assumption of 4MW to 5MW/MT of cement output and the 60 to 65mt of capacity expansion plan likely to come up. Q3. Base order run rate & sustainability? Your views on international market. A: This is now the 3rd quarter that Thermax is able to sustain the run rate. Enquiry levels rising but closure is unclear at this stage. Oil and gas had SE Asia, Africa, LatAM projects which Thermax targeted and won 2 orders. India in oil & gas is going well including Europe/US in other segments (chemicals/cooling segment). Thermax is investing in people/capability in US/Europe.
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Q4. Focus on OB, revenues, OPMs etc? A: Will be focused on everything. Have prepared the ecosystem better with more than 95% employees vaccinated. In terms of shipping constraints, it will improve in the next 3 months. Commodity pricing is the external challenge and will be looking at managing this more. In order flow focus will be on margins. Focus on growing at good margin is the long term focus. Thermax has let go contracts where PSU clients asked to take 20% price cuts. Industry overall is looking at managing the cost. However, overall the capacity build up was high in the 5 years and the utilization is low. So some competitors may down the margin but Thermax will focus on margin. Q5. Overseas subsidiary performance? A: Danstoker had marginal profits (turned around now), Indonesia is still in red (delay in execution, low new orders as well). Indonesia should improve in coming quarters. Q6. Why was other opex higher? A: Other expenses includes site expenses/contract labour also. Q1FY22 this was slightly higher which led to higher opex. Q7. New area focus and traction this far? A: a) Waste to energy: Focused on municipal solid waste management and have localized the technology. Earlier were importing from china. So now as the price dynamics supports, this segment will improve b) On Solar EPC: Thermax attained BEP last year after several years, but how do we grow remains unclear at this stage. C) Fuel cells: to be driven by mix of Thermax’s own capability and partnership. Q8. Packaged solutions business growth? A: This is part of products business and will only increase in our focus with higher modularisation across standard heating/cooling, water and environment etc. Q.9 Chemicals business outlook and execution? A: Revenue is going in the right direction now. Last quarter bagged INR1.4bn of orders and next quarter will focus on improving this. In terms of capacity utilization (Raisins capacity can be expanded from 1600 level to 2000 level as compared to current utilization of 1200 level). Logistics had been an issue, so went slow but the direction is now going positive, which is getting better month by month. Q10. Impairment taken for subsidiary? A: Taken in FY21, impairment is for a) Closure of a boiler works services at Danstoker and b) at Indonesia given higher than expected adverse impact and overall potential available. Q11. Green orders and new business segments A: Most of the applications even in refining are in WHR area. The sulphur recovery order is entirely green. Won the first order for electric boiler recently, good example of bringing the capabilities together. IOCL, HPCL, BPCL has multiple expansion plans, not green as such and are delayed at this stage, but Thermax is not chasing orders at the cost of OPMs/cash flow. Q12. EBITDA margin (excluding other income) had average margin of 11% but now has come down. What is the direction? A. Depend on the revenue mix. The current mix with FGD in place is the reason for low margin. Going ahead with products mix in place (chemicals etc.), the stability in margin will come through. Target to get close to 10% as soon as possible.
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Q1FY22 conference call highlights
Consumer Goods
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Q1FY22 conference call highlights
Asian Paints
Overall The company recorded 106% YoY growth in volume. Q1FY22 volume growth showed CAGR of 15.4% since Q1FY19 and 12.7% since Q1FY20.
Sales led by the economy and luxury segments, while mid premium segment saw slow growth.
Growth this time was led by tier-1 and -2 cities unlike last year when tier-3 and - 4 did well. Large and metro cities contributed 25–30% to the business this time.
Big cities bounced back faster from the second wave’s impact while smaller towns still languish.
Exterior paints did better than interior as consumers were weary of letting painters enter.
‘Safe painting’ service and ‘San Assure’ service were the key differentiators during the second wave.
Southern market was severely impacted relative to northern market.
Project and large institution sales showed robust growth for the quarter.
Smartcare waterproofing business sustained its growth trajectory.
The adhesive business has started to do well.
New products launched include products in the wood furnishing segment, fire retardant paint and Royale Glitz- Teflon.
The company entered into the designer tiles segment with 3D tiles, anti-stain, anti-skid tiles and sheen level variant in tiles. The company is focused on improving reach for this product among premium retailers.
APL has added many retailers with tinting machines. The company added six new Colour Idea stores and 18 ‘New Beautiful’ homes stores. Another 15 ‘Beautiful Homes’ stores are in the pipeline.
Capacity utilisation of 70–75% during Q1FY22.
A new alignment was made with the Pure brand, which is yielding good results.
‘Beautiful Home services’ is seeing good traction; about 100 sites were booked in Q1FY22.
The Kitchen and Bath business saw lower losses at PBT level compared with last year. But run rates were lower QoQ due to the second covid wave’s impact.
Research investments and patent development are around creating unique technology, new processes and clubbing existing technology. The industrial segment sees a lot of patent generation.
The company measures effectiveness of Research team based on a value matrix that looks at sourcing and combination efficiencies created, and benefits from new products.
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Q1FY22 conference call highlights
Over 3 to 4 year period, the contribution from home décor business is expected to be in single digits as coatings business has a large base and whole would continue to see strong growth of around 15% overall in normal year.
Unorganised sector players maintained business well in their respective local areas.
The company has positive outlook on demand, and believes there will be a strong bounce back once the second wave settles. But it is critical to avoid the third wave or any further waves to retain full normalcy.
The good monsoon forecast would further help in demand recovery, particularly as rural incomes improve.
The longer Diwali season this year from September to October would help drive demand.
International business International business logged 50%-plus revenue growth led by Asia and the Middle East.
Africa business saw severe impact due to inflation and local challenges.
The company focused on waterproofing and luxury products in international markets.
Strong inflation impact seen across markets despite price hikes of up to 10%.
Only Asia and south Pacific have seen positive bottom line.
Institutional business PPG-AP revenue growth showed strong increase due to extremely low base. Refinish Business faced challenges with body shops under timing restrictions.
AP-PPG business did well, led by industrial liquid paints. The company also saw strong project orders in protective coatings here.
Both these businesses also saw gross margin impact due to material inflation.
Margins Steep material inflation since Q3FY21, the company saw 13–15% inflation in Q1FY22.
Prices were raised by 3% in Q1FY22 to mitigate this. Hike more than this would not have been received well by customers.
Inflation in raw materials had severe impact on gross margins of 678bps despite the price hikes. The company saw lesser EBITDA margin impact of 66bps due to cost optimisation.
APL aims to keep PBIT margin in a range of 19–21%.
Some key raw materials have shown early signs of softening, this along with further staggered price hikes should help recoup margins.
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Q1FY22 conference call highlights
Bajaj Consumer Care
Overall Sales was impacted in April and May due to Covid-19 related lockdown
Ad spends have gone up YoY basis but fell on QoQ basis
AAHO value sales recovering well after easing of lockdown, continues its growth momentum in July
Market share progression on AAHO has been steady in spite of Lockdown in Key Geographies of Rajasthan, UP and MP which impacted Van sales in Rural markets. Presently Bajaj amla market share is 2.6%
ADHO has been promising with growths driven on the back of large packs
Company’s products got listed with new retailers both in Modern Trade and Ecommerce, as well increased assortment in existing retailers
Company has launched Bajaj pure coconut oil
The company YTD share in Hair oil segment is up by 120 BPS YoY vs YTD Like Year and share is at all-time high of 10.7 on a MAT basis, Share growth has been driven by both ADHO and AAHO
ADHO YTD share is up by 110 BPS YoY vs YTD Like Year
Rural markets in hair oil segment have outperformed urban for fourth consecutive quarter
Management believes the coconut oil category is more generic and company will be able to exist with the big players and take share from unorganised sector initially
Overall volume growth was around 24.3% YoY
ADHO contributes around 90% of revenue this quarter
Company may look into premium range of pure anti-hair fall oil category. Presently anti-hair fall is one of the value proposition of ADHO
LLP and RMO prices have not seen any major softening
Pure coconut has been launched in West, South and Bihar
Distribution Most of the Modern Trade stores got closed/partially opened in April and May. While most stores resumed normal operations in June, though Mumbai, Bangalore & Chennai remained partially impacted Outlook for Q2FY22 remains positive
General trade and organised trade grew 6.2% YoY and 39.6% YoY respectively. Urban has shown signs of recovery clocking a good growth in Q1 with retail being the growth driver, large wholesale markets were closed for majority of the quarter thereby dragging down the growth in urban. There is around 5% difference between Rural and Urban contribution with rural ahead
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Q1FY22 conference call highlights
Retail initiative in focussed markets yielded success resulting in over 40% growth in retail Van operations have got back to pre-lockdown levels and going into Q2FY22, it will be further scaled up to beyond Q4FY21 levels
International business International business grew 58.6% YoY
Nepal & Bangladesh: Strict lockdowns were in place in both geographies throughout Q1FY22. Progressive upward trend in sales during the quarter
GCC and Africa: Travel restrictions continued in most parts of GCC leading to slower sales. Secondary Sales in GCC cluster at 10% growth over Like Year
Rest of the World Exports: Robust growth of 102%YoY across key geographies over low base last year. Key countries like US and Canada were out of 2nd wave in Q1
E-commerce E-commerce first brand and SKU launches will be made in Q2FY22. Company has made specific hiring for ecommerce
Company is focused on building an ecommerce portfolio post which it will explore organic and acquisition routes for D2C
Raw material and margins Gross margin was at 59.3% impacted due to commodity price inflation and change in product mix Commodity prices still remain inflationary LLP prices showed upward trend due to supply issues in input RM base oil and rise in crude oil prices & dollar rate Q1FY22 prices are about 9% above Q4FY21 levels In line with increasing prices of other edible oils due to tightness in overall supplies, RMO has also been going up Q1FY22 prices about 15% above Q4FY21 Total price hike is around 2.5% this quarter Company will aim to be EBITDA positive for newer products in next 2 years INR50-60mn cost benefit will be received from cost initiatives About 20 projects being undertaken as cost saving initiatives under the following heads to optimize material costs
Value engineering initiative: Reduction of height and thickness of laminates, Optimization of specifications of cartons Cost optimization initiative: Increased production at Vadodara to cater to West/Central and South, Localization of Packing Material supplies Alternate vendors/transportation initiative: Alternate vendor development for glass bottles/caps, Use of rail to transport LLP and glass bottles
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Q1FY22 conference call highlights
Berger Paints
Overall Decorative business showed strong growth over corresponding quarter last year aided by a low base, even though impacted by the second wave of COVID in May.
General industrial and automotive business also maintained its growth trend supported by a low base.
Protective and Infrastructure coatings business also had a healthy growth even under restrictive business environment over corresponding period last year.
The company saw stronger bounce back in tier 1 cities towards the end of quarter.
Effective tax rate has dropped for the quarter due to sharp recovery from subsidiary.
There has been some structure change in the shareholding of Nippon JV, but beneficial ownership remains same.
FY22 additions of tinting machines and distributors should be similar to FY21 addition, which was a 12% YoY increase.
Company will be focused on improving reach in tier 2 and tier 3 cities
Company plans to have strong advertising this year as well.
Waterproofing and Admixture portfolio is wide and will be able to tackle competition.
Exterior painting has seen better demand than interior.
Gross margin contraction is less compared to last year due to change in mix.
Construction business margins are slightly lower than decorative business margins in general.
Company is focused on driving premium emulsion and construction chemicals going ahead.
Management confirmed there is no plan to enter other segments of home improvement any time soon.
Management conformed that the plant in UP is on track with its construction plan.
Management believes that media ad spends will come back for the whole year.
The company will continue its investment in manpower.
Subsidiaries BJN Nepal had another strong quarter of topline and profitability growth as the lockdown situation eased.
The company’s wholly owned Polish subsidiary Bolix S.A continued to grow with higher profitability aided by improved UK operations and price increases taken.
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Q1FY22 conference call highlights
SB Specialty Coatings and STP also had a good quarter of topline and profitability growth.
The company’s JVs Berger Nippon Paints Automotive Coatings Ltd. and Berger Becker Coatings Ltd. showed improved performances in this quarter.
Bolix S.A has made significant foray onto UK and France, going forward as restrictions reduce, there will be a boost to performance.
Margins and costs Raw material consumption as a percentage of sales went up mainly on account of higher raw material prices marginally set off by product price increases effected during the quarter.
Raw materials continue to be inflationary.
Overheads for the quarter were impacted by some one time application expenses on account of supply apply projects.
Value increase is 4.5% higher than volume roughly.
Price hikes have been taken in May and June. More hikes will be needed particularly in Industrial business to counter inflation.
Wood-coatings segment margins need to be built up.
Inflation has been across all inputs for decorative. Present price hike of almost 5% will not be enough to cover this.
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Q1FY22 conference call highlights
Britannia Industries
Overall Rural segment saw strong negative impact due covid 2nd wave.
Company relaunched Goodday Chocochips with a surprise campaign and launched 50-50 Potazos in the North East.
As on June 2021 end company had direct reach of 20.8 mn outlets.
The number of rural preferred dealers as on June 2021 end was 23000.
Focus states saw 1.33x growth compared to rest of the country.
Growth across channels was at 1.12x of FY20 levels.
Company continued to gain market share in the quarter.
Distribution and marketing ground operations saw some impact due to second covid wave.
On-air marketing campaigns were on track.
The company reduced inventory at distributors by 25% with better inventory management system.
July month has seen some resurgence in sales as people move towards more trusted brands.
No major cutback on Milkbikis ad campaigns, company continues to be focused on this brand including Milkbikis Atta.
Operation on ground are coming back on track gradually.
Supply chain and factories continued to perform normally.
Some of the upcoming products include Wafer sticks, Milkbikis classic (already rolled out now) and variants in Nutrichoice. These products are mostly in premium range.
The Ranjangaon plant has 8 lines fully operational, company is putting up few more lines. 110 percent of investment here is available for tax benefit.
Dairy facility will be added to the Ranjangaon, it will be ready by Q2FY23.
The Ranjangaon plant took an investment of INR6.5bn and produces revenue of INR12bn, once all lines are fully utilized around 15-16bn turnover.
Company has planned a new plant in Tamil Nadu and in Uttar Pradesh, apart from Ranjangaon expansion, totalling to about INR1.3bn capex.
The company saw an overall volume growth of 1% YoY.
Company aims to increase ecommerce contribution to 5% from present 2% level.
Company has applied for incentive under PLI, it is difficult to estimate extent of benefit now.
Company has commercialized partnership in Egypt and Uganda who will start manufacturing soon.
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Modern trade should gradually return to normal levels.
ICDs were at INR4.7bn down from INR7.9bn.
The adjacencies business is about INR25bn, Dairy business is about 5% of overall revenue.
International business Lack of container availability impacted export growth.
Company has revamped its distribution system in Middle East.
Company saw around 25%YoY revenue growth in Nepal despite covid impact.
Adjacency business In-home category did well, but on-the-go category was impacted.
Flat wafers and rolls plant will be operational in Q2FY22.
Milk collection has been ramped up to 2x of last year to gear up for backend.
Raw material and margins Flour and sugar saw a 5% and 2% deflation respectively.
Milk and RPO saw 13% and 49% inflation respectively.
Overall basket of commodities saw steep inflation of around 7-8%.
Company has started to take calibrated price increase.
Company has been aggressive on cost efficiencies.
Crude and palm oil prices saw continued inflation.
The price hikes taken have already been negated by inflation presently.
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Q1FY22 conference call highlights
Dabur
Overall
Dabur's India FMCG Business grew by 35.4%YoY, with an underlying Volume Growth of 34.4%YoY in Q1FY22
Our Operating Margin reported a 32.5%YoY growth during the quarter, which marked a 10 bps YoY gain despite high inflationary pressures.
Dabur continued to post strong growth and market share gains across all key verticals like Health Care, Home Care, Personal Care and Foods in Q1FY22
E-Commerce reported an over 100%YoY growth and today contributes to 8.2% of the India FMG business.
The company has expanded rural coverage by 16%, from 60,000 villages at the end of FY21 to 69,000 villages in Q1FY22
The company plans to further expand it by 33% to 80,000 villages over the next 2 years
Healthcare business reported a strong 30%YoY growth, with the Ayurvedic OTC business growing by over 52%YoY, Ayurvedic Ethicals business reporting a growth of nearly 51%YoY and the Health Supplements category ending the quarter with a 24.5%YoY growth, driven by strong growth in Honitus, Lal Tail and Shilajit portfolio and due to aggressive initiatives
Dabur Chyawanprash recorded strong double-digit growth. Market share in Chyawanprash category increased by ~70 bps YoY.
Dabur Honey and Dabur Glucose also posted double-digit growth. Market share in Honey category increased by ~330 bps YoY.
Dabur's International Business continued to move ahead on the growth trajectory with an over 34% jump in Constant Currency terms.
Honey has grown 54% YoY in ecommerce and significantly in modern trade channel also
The MENA business grew by nearly 49%, while the Egypt business was up 43%, Namaste by over 40% and the SAARC business posted a growth of 41% during the quarter
Hajmola and Pudin Hara portfolio posted double-digit growth in Q1 FY22
New launches in healthcare include Kovirakshak Kit, Ayush 64Tablets, Caldab Tablet, Anu Tail, Honey tasties, Ayushkwath drops and Pudina Hara drops
Company has streamlined supply chain which has given cost savings
New facility in Indore has been set up
Management believes company can do a double digit growth rate for whole year if there is no third covid wave
Incrementally, company plans to premiumise drinks portfolio.
The company is also planning to launch health juices which are at a higher margin.
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The company isn’t focusing on CSD for drinks portfolio.
Total MS 16.6% in oral care. By the year end company should be number 2 oral brand in the country.
This quarter more money has gone behind promotion than advertisement.
Company wants to inch up advertisement as % of sales to about 9%.
Company has initiatives for southern India and South India should grow ahead of other regions.
Company is launching multiple format of Chyawanprash to grow the category.
Company has taken MS from regional players and leading multinational players as well.
Naturals could become 50% of oral care market. Company has about 50% share of the naturals oral care market.
Coils are margin dilutive and hence company won’t get into it. Company is considering other HI formats seriously.
In Bangladesh, covid cases has spiked.
Full year 1bn benefit from Samriddhi.
Toothpowder contribution is 10% of the franchise and is growing at 20%.
Dabur Amla is brand which is leveraging a versatile ingredient in Amla.
Company should grow at high single digit volume with some pricing growth for the rest of the year.
Rolling Apple Cider Vinegar to modern trade.
Most of the lateral hires is for company’s capability building.
HPC The revival in discretionary spending continued during the quarter, which helped the Home & Personal Care business grow by over 26.1%YoY.
The Haircare category was up nearly 39%YoY, while the Home Care business grew by over 30% and the Oral Care business by over 21%.
The Skin Care and Salon business (excluding Sanitisers) reported a 66% growth during the quarter.
The segment contributed 45.1% of revenues in Q1FY22 down from 48.4% in Q1FY21
Red Toothpaste continued to see robust momentum. Meswak and Babool Franchise reported double-digit growth
Toothpaste market share improved by ~100 bps YoY.
Haircare witnessed a smart recovery with double digit growths across brands. Market share improved by ~160 bps YoY.
Market share in shampoo category increased by ~60 bps YoY.
Newly launched Vatika Ayurvedic shampoo saw a good response
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Odonil reported robust double-digit growth and saw its MS improve by ~230 bps YoY.
Odomos recorded double-digit growth and MS increased ~330 bps YoY.
Excluding Sanitize range, the Skin and Salon portfolio posted 66% growth. Fem and Oxy saw triple digit growths
New launches include Dabur gold coconut oil rolled out in southern market, Dabur Anmol gold coconut oil rolled out in eastern
In perfumed hair oil segment company’s amla hair oil grew by 26%YoY roughly
Company presently has 6% market share in coconut oil segment
The sanitizers portfolio is being liquidated since sales have slowed down
Company is a fringe player in coconut oil and hence isn’t facing any issues in procuring it. The price of copra is up and hence is impacting profitability.
Company is expanding its beverage distribution.
Foods The segment grew at 80.4%YoY overall, with beverages growing at 85%YoY and foods at 17.8% YoY
It contributed 19.2% of revenue in Q1FY22 up from 14.4% in Q1FY21
Beverage business witnessed a smart recovery during Q1 despite HORECA still not at pre-Covid levels
In-home and out-of-home beverage portfolios registered strong growths
Market share of Real increased by 20 bps YoY
Recent launches of Real Drinks, Real Frappe and Real Apple Mini continue to show good traction
Homemade brand continued to perform well driven by increasing in-home cooking
Recent launches in food portfolio like chutneys & pickles have received good consumer feedback
New launches here include Real Fizzin, new flavours in real brand, Red Chilli Pickle, Dabur Sharbat-e-Azam Rose and Dabur Cold Pressed Sesame Oil
1 liter tetrapack grew in high double digits and gained some market share.
Company’s Real mini which are sold at INR10-20 price points did well in rural areas.
Company has 3 products in carbonated drinks segment which are doing well
Company aims at 1000mn this year and 5000mn in 4 years for its Homemade portfolio
Today 1 litre packs give roughly 70% of the portfolio’s revenue
Drinks contribute roughly 10% of portfolio
Milkshake portfolio has 1% market share
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Margins and raw materials Company saw roughly INR200mn cost saving from samrudhi project
Company has taken 3% hike on MRP
Company rationalised some promotions during the quarter
There may be some compression on gross margin in Q2FY22 due to inflation
Inflation accounts for 85% of QoQ dip in gross margins and remaining is due to mix increase of food and beverages
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Q1FY22 conference call highlights
Emami
Overall Domestic Business grew by 42% YoY, it grew by 5% over two year basis despite the raging impact of 2nd wave.
Staff cost was up 8.2% YoY and Other expenditure was up 22.1% YoY.
Modern trade grew by 63%YoY
Healthcare and Pain management grew by 59%YoY and 70%YoY respectively. Both categories grew by 95% on 2 year basis
Navratna range grew by only 21%YoY and fell 29% on two year basis
Kesh king grew by 53%YoY and 2% on 2 year basis
Institutional business grew by 34%YoY and fell 17% on 2 year business
Initial weeks of April saw sustained growth, but May which was peak of summer season saw severe impact
Rural market was also saw severe impact. Even immunity and health product demand saw muted demand compared to first wave period
During the quarter, the company also increased its stake in Helios Lifestyle (The Man Company)
New launches contributed to 3% of domestic revenues
Largely protected margin with judicial price increases across portfolio
Kesh king has seen good growth during July, the brand has taken some share from Indulekha
Cash Profits at INR1610mn also grew by 41%YoY and Cash Profit Margins at 24.3% grew by 50 bps YoY. Over two years, Cash Profits grew by 31% and Cash Profit margins also grew by 540 bps.
There no major inflationary pressures presently
Pain management category has added around 3.5-3.7mn consumers in pain balm and the company has added new markets in north. The segment has grown roughly 4 times in northern market
Company has signed Actor Sonu Sood to endorse its pain balms
Amortization will be over 7 years instead of 10 years, roughly INR600mn will be amortised till Q1FY23
In last one month, 1300 sub stockist were added.
The company’s distribution drive aims to reach 8000 villages in next 1 year and in 3 years 32000 villages
5% pledge with Nuvoco will be released soon
Ad spends will be in the range of 17-18% of net sales going ahead, due to new launches and aggressive campaigns
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Company introduced Navratna therapy brand during the quarter on ecommerce
E commerce Ecommerce business increased its contribution by 300 bps to ~5% of domestic revenues (~1% from own portal)
Ecommerce continued its robust run growing by 3.7x YoY
The company’s own ecommerce portal has crossed 10 mn traffic in 9 months’ time
Company aims to improve contribution to 7.5% in a year
Company has launched larger SKUs for ecommerce channel across categories
International business International business grew by 17%YoY on a base of -18% and roughly -9% on a two year basis
Barring middle eastern geographies, all other regions posted strong growth during the quarter. Creme 21, was also extended to Premium skin soaps in select International markets.
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HUL
Overall Second half of April and May suffered a severe disruption die to the second wave, but June saw a sequential recovery in volumes.
Mobility was severely impacted in May, mobility index was down to 37% from 78% in Feb-21, It is now recovering sharply; the index is back to 75%.
The overall coverage is 90% of pre-covid levels, and the assortment range is at 80% of pre-covid levels.
The company has added another 5,000 stores under the Shikar app, thereby bringing the total stores thereof to 0.5mn.
Shikhar app’s contribution has grown 6 times from Q1FY21, which is a sign of improving stickiness towards the app.
The company presently operates its direct-to-consumer platform ‘Ushop’ in Delhi and Mumbai, it will soon look at expanding it to other locations.
E-commerce contribution has doubled since Q1FY21.
80% of the business is gaining relevant penetration in comparison with FY20.
The company recorded 12% YoY growth in domestic consumers.
Management has a cautiously optimistic outlook since mobility is improving, but a potential surge in infection rates may cause uncertainty in demand.
Rural continues to be resilient; the monsoon and crop sowing are the key metrics to watch out for. Rural segment has led the recovery to Mar-21 consumption levels.
Premium portfolio has grown at twice the speed of the rest of portfolio.
There has been no significant downtrading unlike the first wave.
More than 10% of total sales and demand capture has been digitized.
Effective tax rate is 26%
Drop in other income is due to variation in the treasury yield.
Discretionary & OOH segments were less impacted compared with the first covid-19 wave.
Company ensured that market development activities were not disrupted in a major way.
The backend supply chain was not severely impacted as seen in the first wave, but last-mile delivery saw some challenges.
Homecare The segment saw sales growth of 12% YoY and contributed 33% to overall revenues. EBIT margin were at 17%.
The segment saw high teens growth on a strong base, led by Vim. Premiumisation continues to yield strong results.
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Fabric wash saw double-digit growth led by strong performance in the premium portfolio.
The company launched ‘Surf Excel 3 in 1 Smart Shots’.
The company saw significant input cost inflation; calibrated pricing actions to continue in this area.
Purifiers continues to improve sequentially led by acceleration in e-commerce.
Beauty and personal care The segment saw sales growth of 13% YoY and contributed to 39% of overall revenues. EBIT margins were at 28%.
Growth was led by hair and skin segments.
Soaps delivered another strong quarter of growth; premium portfolio performed well and grew sequentially.
Hand hygiene declined on an exceptionally high base.
VWash continued its strong momentum.
The segment also saw strong inflation pressure, the company continues calibrated pricing action here.
The company launched ‘Pepsodent’ Coronavirus fighting mouthwash.
Hair care saw strong double-digit growth.
Skin Care saw high double-digit growth as mobility improved vs Q1FY21.
A steady performance in Glow & Lovely with sequential penetration gains.
Colour cosmetics also posted a strong sequential recovery due to improved mobility.
Food and refreshments The segment saw sales growth of 12% YoY and contributed to 28% of overall revenues. EBIT margins were at 18%, growth was led by in-home portfolio
Soups and ketchups sustained their strong momentum.
Tea continues to gain share, growing at a high double-digit on a very strong base. Coffee had a soft quarter on the back of high teens growth in the base.
HFD grew volumes in mid-single digit. It is gaining penetration sequentially.
Ice Cream, Food Solutions & Vending saw YoY growth on a weak base, performance in the quarter adversely impacted due to limited mobility
Company has also looked at tie ups with Zomato and Swiggy to improve reach
The company launched ‘Kwality Wall’s Cadbury Crackle’ Tub.
50% GTM integration completed in nutrition segment. Company will complete 80–90% of integration by September.
Part of cost synergies from the GSK business once integrated will also be used to drive penetration and growth
1.4x increase in coverage in nutrition segment.
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Both INR2 and INR5 packets will play an important role in improving penetration going ahead.
Costs and Margins Inflation pressure continues, with palm oil, tea and crude prices at 1.7x, 1.6x and 1,3x the FY20-end price levels.
The company saw a one-time benefit in employee cost.
Around 3% pricing action has been taken across commodity-based segments.
Presently, commodities remain volatile and elevated, the company is focused on judicious pricing actions coupled with cost agility and savings programmes
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Q1FY22 conference call highlights
Marico
Overall The core portfolios in the India business continued to log market share gains on a MAT basis, on the back of their market leadership position and strengthening equity.
Traditional trade continued its healthy run with both urban and rural growing by 17% YoY in volume terms. E-Commerce grew 61% YoY, sustaining its strong momentum. Modern Trade and CSD grew 10% YoY and 56% YoY, respectively.
The quarter started on a strong note but as covid hit at the end of April, mobility was impacted. Rural demand was impacted this time around which wasn’t the case in wave one.
More than 90% of the portfolio gained MS on MAT basis.
Company expects to deliver 8-10% volume growth for the remaining 3 quarters of the year and double digit constant currency growth in the international business.
4-5 brands will help company achieve its aspiration of INR4.5-5bn topline by FY24 from digital-first brand portfolio. Beardo and Just herbs are examples of such brands.
As deflation starts in edible oil, company will manage margins and volume.
Digital brands operate like startups. Company has learned a lot of in terms of digital capability.
The company wouldn’t like to take Beardo to GT at the moment. A combination of ecommerce, D2C and MT will be preferred.
Beardo’s distribution is evenly spread between Marketplace and D2C.
60% of increase in Saffola’s incremental is due to new consumers while 40% is from existing consumers increasing their consumption.
Company will be happy with base case of high single digit growth in Saffola.
Company is focused on driving growth in Saffola Gold and Saffola Total.
Focus on personal care brands for building Digital businesses.
Some personal brands can move to salon channel and hence can be scaled up.
There is difference between copra prices in India and international business.
Inventory management, SKU management and WFH will save costs.
Company might add a category in foods but the existing categories have huge room for growth.
Aspiration is grow Livon and Set Wet at 20% plus levels. There is a need to drive penetration.
Company is highly rated in terms of ESG. Company will have a strong program in terms of lowering plastic usage.
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Q1FY22 conference call highlights
In India, company has done a lot of effort to increase the addressable market in Saffola. In Bangladesh, Parachute Advanced has increased its addressable market.
Company has been able to move masala oats from breakfast to in between meals category.
Parachute Parachute Rigids grew by 12% YoY in volumes in Q1FY22, albeit on a low base. While the brand strengthened its presence in both core and non-core markets, the extended lockdowns in the core markets of South and West regions affected growth during the quarter.
The brand maintained its stronghold in the branded coconut oil market with the rigid packs gaining volume market share of 80 bps (MAT Jun’21).
General Trade & E-Com led the growth, while CSD also recovered. The brand is well poised to sustain its good run over the medium term with focused distribution drives and improving salience in both core & non-core markets.
VAHO Value Added Hair Oils grew 34% YoY in volume terms in Q1FY22, on a weak base, which was due to billing constraints in April last year.
All key brands in the franchise posted high double-digit volume growth.
The Company gained ~70 bps in volume market share in overall hair oils category on a MAT basis (MAT Jun’21).
The company aims to sustain a double-digit growth trajectory over the medium term on the back of continued aggressive participation at the bottom of the pyramid, driving growth in mid segment through right pricing & brand renovation, and lastly, market share gains in the premium segment through innovation.
Saffola The Saffola franchise, comprising Refined Edible Oils and Foods, had a robust quarter. The portfolio delivered 24% YoY volume growth and 60% YoY growth in value terms.
Saffola refined edible oils delivered low double-digit volume growth for the seventh consecutive quarter on the back of increased household penetration and growing relevance of healthy cooking. The brand gained 450 bps in volume market share to ~82% in the Super Premium Refined Edible Oils category (MAT Jun’ 21).
Saffola Foods grew by more than 100% YoY in value terms in Q1FY22 on a year- on-year basis. The Oats franchise continued to ride on the increasing consciousness towards healthy eating and posted a value growth of 59% YoY in Q1FY22. The value market share of Saffola Masala Oats strengthened by ~650 bps to ~94% in the flavored oats category (MAT Jun’21).
Most of the new launches in the Foods portfolio continued to gain traction. Saffola Honey has been gaining salience across channels. Its market share in key Modern Trade chains has hit double-digits and consolidated above 25% in the E- Commerce channel. The brand continues to grow sequentially in GT as well. The company has launched a 100gm trial pack to expand distribution and aid trials.
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Saffola Mealmaker Soya Chunks has gained healthy traction since launch. After tasting success in West Bengal in GT, the brand was extended to the rest of East and select regions in the North during the quarter. The brand has a presence across India through MT and E-commerce channels and has already garnered ~14% share in MT since launch in Q3FY21.
Saffola Arogyam Chyawan Amrut has not scaled up as expected. The company is revamping the mix and expect to make some headway over the course of this year.
Saffola Oodles has been witnessing an encouraging response on all channels. The brand is scaling up well in GT & MT, and is among the top 5 Bestsellers in the Pasta and Noodles category on Amazon. The brand will continue to drive awareness through TVC & digital campaigns, drive distribution in GT and further consolidate its position in alternate channels.
Male grooming and premium hair care The Premium Personal Care portfolio, comprising Premium Hair Nourishment and Male Grooming, recovered smartly on a YoY basis.
Livon Serums continued to witness positive traction and seems to have shaken of COVID blues. Male Grooming also came back strongly on a weak base, but still below pre-COVID levels.
As discretionary consumption recovers over the course of time, the company expects these portfolios to be growth engines of the future, given the leadership position of our brands and low penetration of these categories.
The Beardo franchise has been gradually regaining traction after the initial COVID-induced headwinds.
The brand is tracking in line of internal aspirations and on course to exit the year at a run rate of INR1bn. The company will continue to invest behind strengthening the equity of the brand over the medium term.
International Business Bangladesh The Bangladesh business clocked 9% constant currency growth on a YoY basis.
Parachute Coconut Oil grew 4% in constant currency terms, while the non- Coconut oil portfolio grew by 20% in constant currency terms, led by Value Added Hair Oils. The newer ranges of Just for Baby (baby care) and Naturale shampoos are trending well.
Rise in covid case can impact Bangladesh in the near term.
South East Asia The South East Asia (SEA) business grew 16% YoY in constant currency terms on a low base.
The Home and Personal Care (HPC) category in Vietnam witnessed recovery on a year-on-year basis, while the foods business continued its positive momentum from the previous quarters. In June, the company launched a hair and body wash range called X-Men Clean and Fresh, made with powerful natural ingredients such as Himalayan Salt and Korean Aloe Vera.
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Middle East and North Africa (MENA) The MENA business rebounded to 74% growth YoY in constant currency terms on a weak base.
While the company remains cautiously optimistic about the growth outlook, it will drive aggressive cost management to enable it to tide over the challenging macros. South Africa The South Africa business grew 52% YoY in constant currency terms on a low base, driven by the Health Care portfolio.
Raw material and margins Copra price were down 13% sequentially in Q1 due to seasonal arrivals of coconuts and lower demand.
With supply outlook improving, prices are expected to remain range bound in the near term. COVID-19 led disruptions and major weather anomalies in key growing regions led to sustained inflation in global vegetable oil prices.
As a result, Rice Bran oil was up 68% YoY and 28% sequentially in line with global trends. The company expects prices to be volatile in the short term, with a medium term downward bias in line with global markets, which expect a recovery in oil seed production. Crude derivatives such as Liquid Paraffin (LLP) and HDPE were also up 50% and 44% YoY respectively. Both are expected to remain firm in the near term.
Gross margin will improve QoQ and should settle down in H2FY22.
Expect Copra prices to remain flat to marginally higher for the full year.
Edible prices have increased a bit in last the last 2 weeks. The prices are expected to stay volatile with a downward bias.
Company is looking to achieve threshold 19% operating margins.
Don’t see any pricing action in Parachute.
As soon as company sees a downward trajectory in edible oils, the company will start reversing price hikes.
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Q1FY22 conference call highlights
Pidilite
Overall The second wave of Covid 19 disrupted business continuity from second half of April with gradual closure across the country for May and part of June.
However sustained demand recovery was seen from mid-June onwards across towns and cities.
Strong broad-based sales as well as earnings growth across businesses and geographies on previous year’s lower base.
Consumer and Bazaar businesses has witnessed recovery led by adhesive, construction chemicals and DIY portfolio, recovery in B2B is on account of resurgence in industrial activity.
On consolidated basis, Material cost to net sales percentage is higher by 437 bps YoY and 182 bps QoQ
Overseas subsidiaries continued its positive momentum and reported high double-digit constant currency revenue growth as well as strong earnings growth.
Domestic subsidiaries suffered as a consequence of the lockdown in May, we have seen a sustained recovery in demand from June onwards.
Adhesives contributed to 54.2% of standalone revenue, crafts segment contributed 7.1%, Industrial resins con tribute 6.4% and construction chemicals contributed 19.9% of standalone revenue
Final dividend of INR8.5 Per share approved by shareholders at the AGM held on 11 August
Domestic subsidiaries suffered as a consequence of the lockdown in May.
Overseas subsidiaries continued its positive momentum and reported high double-digit constant currency revenue growth as well as strong earnings growth.
Asia clocked highest growth with 129%YoY growth followed by MENA which grew at 84.2%YoY
Pidilite adhesives sales was at INR717mn and EBITDA at INR223mn
There is some clearance of inventory in real estate but it is still difficult to predict recovery given environment
D-klog is seeing good traction in ecommerce
Rural and small town sales should see fast recovery for the company as normalcy returns
Premiumisation is seeing traction in Metros
Company has in the last 15 months developed its rural infrastructure significantly which will help in bounce back
Company is experimenting with a partnership with HUL Shakti amma program
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Company spends 4-6% of turnover on capex in general, but company may invest a bit more now to improve resilience 12 new projects in the country in both brown and green field
Company is also looking at new production unit in Kenya
Company is open for acquisition in case good opportunity comes by
Company believes Brite has significant runway for growth
There are no major manufacturer for base silicon in India as of now, so this is imported by all players
Tile joineries have suffered far more due to second wave. Smaller carpenters have bounced back faster
Arts and crafts business saw significant impact due educational institution not operating
Margins Gross Margins have contracted on account of sharp escalation in input costs partially mitigated by judicious pricing
Input costs remains a significant challenge, management believes prices are peaking in the next quarter and then gradually softening over the second half of the year
Company has taken 4-6% price hike covering 75% of inflation
The margins of PAPL is dependent on fewer inputs
Company will not need any further price hike if inflation continues to moderate
VAM prices have started correcting as expected from peak of 2100USD to present 1400-1500USD
Company expects VAM to moderate to 1000-1200USD levels
Gross margins should be back to acceptable levels by Q4FY22, given no further disruption
The brand gets 15-20% premium in general over competition and management doesn’t want to go beyond that range
Waterproofing business Waterproofing penetration is still at 40%, there is large headroom for growth and company will not be losing share to new players
Waterproofing remains fastest growing segment for the company
Waterproofing has 3 segments organised real estate, individual housing, repair and renovation. Most paint companies operate in repair segment
In new constructions paint companies are not major competition in waterproofing
In India repair waterproofing is the largest segment
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Q1FY22 conference call highlights
Tata Consumer Products
Overall Consolidated revenue grew roughly 11% YoY
A&P spends increased during the quarter. This along with low cost tea inventory in base impacted margins
Company will be improving A&P spends going ahead
North India tea prices saw an uptick sequentially, due to drought and second wave scare however June saw some tapering off
Tea business has gained 170bps YoY in market share
Company has taken some hike in Tea to combat tea price inflation
Company should see a conversion of 101% of EBITDA into cash this year
Nourishco revenue grew roughly by 91%YoY, bringing the 2-year CAGR to 12%, despite the severe adverse impact of COVID on OOH consumption
Himalayan brand led the growth in Nourishco
The growth was broad based with all products growing strongly, with Tata Water Plus delivering yet another exceptional quarter.
Quarter saw roll-out of Himalayan in Ecommerce and MT channels is seeing good traction. Geography and capacity expansion on track.
Himalayan continued to add key institutional accounts despite the second wave of COVID
In terms of synergies, company is already ahead of 1000mn run rate target with significant synergies from cost rather than revenue
Company is on track to 1 million outlets under direct coverage by company, which should be achieved by September
Company tripled number of feet on street in rural segment and have added distributors 3000 distributors here
Tata coffee revenue for the quarter grew 5%YoY led by the extractions business, which helped offset the decline in coffee plantations
The quarter saw value growth in Tea (better realization) while Coffee revenue declined YoY, due to a high base.
Overall extraction business grew 21%YoY, with growth seen in both Vietnam and domestic business, which was impacted by nationwide lockdown last year
Vietnam business recorded highest ever EBIT driven by higher volumes and a higher proportion of premium blends.
ICRA has upgraded Tata Coffee’s long- term rating to AA+ (stable), on company’s fund-based bank facilities.
While revenue of Tata Starbucks for the quarter grew 371%YoY on a depressed base of last year, it was still 61% indexed to Q1FY20 (baseline).
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Q1FY22 conference call highlights
April and May performance was impacted by localized lockdowns, June saw a V- shaped recovery with the gradual easing of restrictions on store operations.
Tata Starbucks delivery contribution increased to 27%, driven by several focused initiatives, to offset the decline in dine-in.
84% of Tata Starbucks have reopened and it has a total of 219 stores in 18 cities
New launches include Tata salt super lite, Tata chakra gold care, Eight O clock premium coffee flavour variants and Tata sampan dal tadka masala
Company has initiated ted set up of enterprise data platform
Company has begun setting up centralised database and is in process of setting up analytics to improve decision making and customer engagement
Company aims to get high single digit share in instant coffee going ahead using innovative launches
Ecommerce channel improved 15%YoY and now contributes 7.3% of India business sales excluding Nourishco
Company is working with BigBasket, acquired by Tata group, to drive synergies
India foods business India beverage business revenue grew at 28%YoY and volume at 3%YoY
India foods business revenue grew at 20%YoY and volume at 17%YoY
Salt revenue grew 20%YoY during the quarter, despite a high base
Tata Sampann portfolio grew 12%YoY, due to pantry loading in the base quarter, bringing the 2-year CAGR to ~30%YoY
Company continued to drive premiumization with Premium Salts portfolio growing 34% during the quarter.
Tata salt gained 240bps YoY in market share
Tata Sampann Spices recorded strong growth in the ecommerce channel.
Salt growth was led by volumes, premium salt saw good value gains
Tata sampan pulses, poha and spices are showing good growth
Quarter saw launch of Tata Salt SuperLite, with 30% Less Sodium.
Market specific sales strategy across regions have been developed, company aims to place itself in all relevant outlets
International
International Beverages business growth rates were impacted owing to pantry loading in the base quarter last year.
US coffee business saw fall of 15%YoY in constant currency terms and 16%YoY fall in volumes
International tea revenue saw fall of 10%YoY in constant currency and 9%YoY fall in volumes
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Q1FY22 conference call highlights
Revenue from UK business for the quarter declined 11% (constant currency) owing to pantry up-stocking that led to 12%YoY growth in the base quarter last year.
Tetley continued to grow share in Fruit & Herbal segment with the new Herbals range.
Company integrated Teapigs with the mainline sales system to sell a 3-brand portfolio. Specialty OOH channel is seeing fast recovery
Good Earth tea continues to attract younger consumers and Good Earth kombucha is seeing good traction in OOH and Specialty Grocery channels.
Good Earth launched Good Energy, an organic natural energy drink
Company is setting up a dedicated e-commerce team for UK and Europe and an integrated back end i.e., fulfillment centers for all tea brands
Teapigs continued to see strong growth, driven by fast recovery in Specialty OOH and Grocery channels.
Premium mineral water Himalayan was launched online & on Amazon; retail expansion is underway.
Revenue of USA business for the quarter declined 15% YoY (constant currency), due to pantry loading that led to 26%YoY growth in the base quarter last year.
Retail coffee category saw a decline during the quarter, lapping an elevated base of last year, however showing signs of rebound in June.
Tea (excluding Empirical): Revenue for the quarter declined 8%YoY (constant currency), on an elevated base that saw 25%YoY growth in the base quarter.
Company launched Tetley Irish Breakfast with ShopRite with an aim to expand presence in other retailers.
Tetley outperformed the black hot tea category while Good Earth Sensorial blends & Teapigs continued their momentum in the Specialty tea segment.
32-count K-Cups and Café Arriba innovations continued to perform well with distribution build.
America reopens, with increased footfall in stores, café’s – taking share away from eCommerce and Retail
Company has 4.5% market share in coffee bags in US market
Revenue from Canada business for the quarter declined 25% (constant currency), due to pantry loading that led to 32% growth in the base quarter last year.
Tetley has gained market share, both in regular and specialty tea. There was a 26%YoY fall in speciality tea revenue.
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Q1FY22 conference call highlights
United Spirits
Overall The second Covid-19 wave induced localised lockdowns impacted the sequential recovery momentum seen over the prior quarters.
Off-trade remained resilient despite restrictions.
Prestige & Above segment net sales grew 58% YoY.
Popular segment net sales grew 60% YoY within which the priority states grew 50% YoY.
Exceptional item includes a one-off provision towards an additional demand in relation to a historical customer dispute with roots before acquisition
The months of May June were impacted due to state restrictions arising from covid second wave.
The restrictions on premise establishments and consumer behavioural shifts impacted the balance between the on- and off-premise occasion in most markets.
Underlying price/mix for the quarter was adverse 4.2%, mainly due to impacted momentum in Scotch performance and adverse Brand / State mix. Management believes this to be a one-off
North markets saw more severe impact due to second wave.
Management is looking at revitalizing the gin and vodka category.
Management has also foregone some part of variable bonus considering the top line impact of second wave.
Management believes the home delivery model is not differentiated enough, but the company is looking at evolving models in this area.
Off trade operations are back on track as the quarter ended, on trade remains subdued.
Net Sales of Prestige & Above segment increased 58% YoY while net sales of Popular segment increased 60% YoY.
The company continues to work with West Bengal government regarding policy
Future strategies
The company continues to engage with state governments on market access and other restrictions.
Based on past experience management is confident that no market will remain permanently closed.
The company is conduction a strategic review of the popular segment.
The company aims will be coming out with the results and details of the review once conclusions are reached.
Management is focused on driving premiumisation across brands as millennial population matures and they have more affordability now.
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Q1FY22 conference call highlights
The company has ventured into the craft whiskey segment which management believes will help aid to drive premiumisation.
The company is looking for good strategic partnerships, with an aim to keep similar level of capital intensity going forward.
Margins Gross margin was 44.6%, up 296bps, driven by stable input costs for the quarter and continued management focus on productivity and cost efficiencies.
Management aims to keep operating profit margins at mid to high teens.
Raw material prices were mostly stable, but glass has seen some inflation for which some pricing action has been taken.
For spirits, the company is waiting for the policy announcement which will take place in October or November.
A&P spends was at 5.2% of sales, considering the impact of covid second wave on top-line and environment uncertainty.
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Q1FY22 conference call highlights
Healthcare
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Q1FY22 conference call highlights
Apollo Hospitals
Financials and outlook
About 26% of IP volumes were from covid and covid accounted for 26% of healthcare services revenues.
Covid treatment and RTPCR revenues were at INR4.9bn.
PAT adjusted for FV gain on Apollo Multispecialty was INR 1.95bn
Dedicated 2300 beds for covid which were scaled up to 5000 at peak. Set up 1200 ICU which tapered by the end of June.
Expect margin to improve on account of better case mix and cost control. Margin were subdued because of vaccines (15% margin) and 1% covid incentives. Expect healthcare services margin to block 21% on blended basis- mature cenetrs- 23%+ and new centers- 20%.
Increase in net debt of INR4-5bn is attributed towards working capital increase. INR1.6bn was advances towards vaccines. Also, in pharmacy inventory was required both at back and front end store of about INR3.4bn. Of this, INR2bn will be released in next 3 months. Hospitals were allowed to acquire INR2bn at a cost of 4.5% as per govt. About INR4bn will be reduced in next 3-4 months.
Drivers of growth- 1) Better asset utilisation. 2) Recovery in non-covid (covid ARPOBs are at INR21,700 vs normal ARPOBs INR44,000+). ALOS should also improve and volumes should increase. 3) Improvement in specialty mix - Oncology, cardiac, neuro, transplant and emergency. 4) Ramp up of tier-2 centers and believe it is sustainable. Expecting pent up demand . 5) Revenues from international patients.
Expansion plans- 1200 capacity beds can be operationalised at lower cost. Will follow calibrated growth path. Not looking at greenfield.
Cash flow post Apollo Healthco will be used in consolidating its position in North. Looking for acquisition in North and East one in tier 1 and 1 in tier 2. About INR5bn invested in mutual funds and is adequately funded.
In AHLL, while Specialty care revenue was in line, EBITDA was significantly lower. This was on account of fixed doctor payouts. EBITDA margin were lower in cradle. Also, in Spectra, lower margin was on account of vaccination revenues which accounted for 20%. Core Spectra revenues were down from INR620 mn to INR 500 mn.
Operationalised 90 beds in Vizag, Trichy and Navi Mumbai.
Sales from private label - 13.83% (from 9% earlier). Introducing new category included generics and the percentage of private label should not go down and continue to grow. Generics for now is not significant i.e. about INR900mn. It should become 10% of revenues in few years’ time. FMCG contribution 30%+. Expect Pharmacy to grow at 18-20%. Hospital procurement is part of healthcare services only.
By end of the year, pledged shares should be down by 50%. Currently 24% of shares are pledged.
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Q1FY22 conference call highlights
24/7
24/7 – Expect to clock USD50-60mn in FY22. Bulk of this will come from pharmacy.
Doing 3000-5000 teleconsultations per day. During covid, even managed to do 20,000. Average value of per consultation is INR600-700. These are Apollo consultants mainly.
Done about 30,000 deliveries a day in June including both in-store and hub stores.
5% of pharmacy revenues from online (as against 2-3% in Q4FY21). Acquired 4.7mn new customers in Q1FY22 with zero acquisition cost. Average bill amount at store is INR400 which goes up to INR1,200 in case of online for regular customers. For chronic patients, the amount is even higher.
Apollo HealthCo- looking for combination of strategic and financial partner.
Vaccines
Clocked INR1.9bn from vaccines and included ~INR570mn in AHLL. On this clocked 15% margin. Including Delhi, the revenue was about INR 2.23bn.
Completed 3.86mn covid vaccination till date.
Inoculation rate of 100,000 per day has come down to 25,000 per day because of increased gap in 2 doses. Also seeing some hesitancy in taking vaccines. Eagerness has also come down as covid cases has reduced.
Believes that adult vaccination is here to stay. This is going to become an ongoing income. Only 40-50% of Q1FY22 volumes are expected this quarter because second doses will be given by end of Sep.
Apollo has done about 30% of all private vaccination in the country.
AHLL- INR550 mn revenue from vaccine.
Diagnostics
6,60,000 RTPCR tests done (as against 2,00,000 in Q4FY21). Covid revenues INR450mn.
Aims to reach INR5bn revenue in FY23 primarily driven by organic growth. May have some component of inorganic but at the right valuations and in new markets. Of the INR5bn targeted revenues, it will be skewed towards South and East. Making entry in other markets as well but still early days and their contribution will not be more than 20% of the revenues.
Diagnostic standalone margins are nearer to 20%. Expecting to go up to 25% in a year’s time. Ample of opportunity to get to INR10bn.
Ramping up home collection capability. Added 350 phlebotomists in 7-8 target cities. Looking to open 200-300 collection centres per quarter. Expect to reach 2000 collection centres in less than 2 years’ time from 847 right now.
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Q1FY22 conference call highlights
Dr Lal PathLabs
Covid Covid contribution 36% vs 23% last quarter.
1.14mn RT-PCR tests conducted in Q1FY22. As on date, 19 labs doing RT-PCR and 50 doing IL-6 and D-Dimer.
Home collection accounted for 13% of revenues, half of which came from covid and allied testing. Do not think there will be increase in cost of collection.
No. of patients Non-covid 5.91 mn; covid 2.34mn; may not add to total given some overlap.
Do not think realisation of RT-PCR is going to stay there. Core pathology It was subdued in Q1FY22. It could have been higher had it been a normal quarter. May month has never been lower than April.
Started satellite labs in 6 cities in South (inc. Madurai, Karimnagar, Kakinada) and 2 in Mumbai (Borivali and Vashi).
Both organic and inorganic growth will continue in South and West.
Revenue/patient is still not stabilised due to higher test prescribed per patient
Revenue should move to pre-covid levels. Should be able to maintain 25-26% EBITDA margin.
Swasthfit realisation is 20% higher than the normal business. This is growing faster than the overall portfolio and expect to grow in similar lines on increased awareness of health.
Seeing higher growth rate in rest of India.
Not a significant portion of revenues coming from aggregators. But going forward will continue to partner with them. Business environment Travel related testing is still there. Illness related testing is low.
Patient behaviour undergoing change from completely offline to offline-online collaboration.
Industry becoming tech-enabled. DLPL has invested in these areas in the past and continue to do so. Dr. Lal has launched its own app. Fully equipped to take on challenges from increased competition.
60% of customers are from age of 40-45 who may not be app friendly.
M&A- given the volatility in sales, there is mismatch between expectations. But M&A will continue to make sense, especially in those areas where their presence is weaker.
The current scenario is likely to accelerate penetration of diagnostics and shift from unorganised to organised.
Competition of quality manpower will go up, not only phlebotomists but also management.
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Q1FY22 conference call highlights
Others Cash utilisation- invest in technology including in the area of medical, infrastructure, inorganic and continue to pay dividend.
Technology- Consumer side- new apps, how to combine physical experience; also on medical side. Work happening on logistics. Investment may take 400-500mn+
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Q1FY22 conference call highlights
Healthcare Global
Quarter highlights
ARPOB- Beginning of the quarter took price increase. Impact of 2-3%. INR35,000 ARPOB is sustainable. Also, international patients are down by 60%.
Going forward, technology mix should also result in increase in ARPOB. Change from traditional to advanced technologies such as IMRT, SBRT, genomic therapy. Also, expect more footfall as cancer patients are living longer.
Mumbai has broken even. Nagpur already. Kolkata and Jaipur yet to breakeven. Breakeven expected in Q4FY22/Q1FY23.
Reassessed lease liabilities which resulted in reduction of capital lease.
No center to come up in FY22. No committed center for Milann.
In oncology moving towards day care. ALOS is coming down.
In Genomic therapy, there is synergy between Strands and HCG. Bioinformatics genetic interpretation is given by Strands and HCG decides which patient require it.
Strands-38% shareholding. Lab part is managed by HCG. Another investor is financial investor
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Q1FY22 conference call highlights
Fortis Healthcare
Financials and others
Litigation- Hearings have been concluded. Courts reopened in the month of July after summer break and the order is expected before the end of the month.
Maintenance capex INR1.5bn. Growth capex INR2bn every year. Maintenance capex is slightly higher as company was not able to invest in last few years.
Total revenue from vaccines was INR450mn. Demand has come down and should not be a significant number going forward.
Net debt to EBITDA was at 0.90x versus 1.04x in Q4 FY21.
No major Ind AS 116 impact on EBITDA because of DDRC.
Escorts- one of the case is still on litigation. Income tax matter- not resolved yet. Department has gone for appeal. Deposit is paid by Escorts.
Hospitals
Non-covid ARPOB growing at 8.5% to INR19.7mn from last quarter. Ex-covid expect ARPOB to be at INR19mn.
Occupancy July- 61% because of decline in covid. This will go up further as non covid work returns. Stabilise at 65% this month. Targeting 75% as optimal occupancy level in next 3 quarters.
Currently have 3800 beds. Chalked out plan for 1300 beds to be added 2-4 years. All these are in adjusting premises and majority in Delhi NCR region which are running at 70% occupancy. FMRI - 50 beds to be added; Noida 160 beds; Mulund 80 beds ; Anandpur Calcutta 90 beds. Mumbai and Kolkata- Completing construction of building. In Raheja, there is no space but modifying infrastructure and making deluxe rooms.
Malar underperforming for some time. Taking necessary steps to improve. Open for considering other alternatives. Jaipur has done well and seeing turnaround.
Investments in equipment mainly on onco specialty. Adding newer technology within this year. Looking to develop FMRI as a destination oncology center. To add cellular therapies and advanced radiation therapies.
Profitability has not grown as 28% business came from covid. This is expected to improve going forward to 16-18% on account of better payor mix and specialty mix. Scheme patients to be between 15-17%. Also working on supply chain initiatives that will bring some things on saving side.
SRL
On a firm footing. No plan for divestment.
Covid contribution to come down to 14-15% of revenues. Sustainable margin should be 22-24%. Next couple of years would be reaching 25-30%.
DDRC gross revenues was INR690mn. 40% revenues from covid.
INR300mn revenues from home collection in Q1FY22. Providing home collection services across 140 cities.
Genomics- Opened Advanced centre in Mumbai Reference Laboratory.
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Q1FY22 conference call highlights
Launched 3 labs and added 108 new collection centres to its network in Q1 FY22.
Partnered for diagnostic services for Tokyo and Paris Olympics Association. Partnered with companies in travel and entertainment sector for their safe return to offices.
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Q1FY22 conference call highlights
Hotels/Hospitality/Aviation
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Q1FY22 conference call highlights
Indian Hotels
Q1FY22
Last year entire Q1 was a washout in domestic and international markets.
June is seeing a lot more leisure versus business or corporate. Staycations business in Metros/City hotels has driven the recovery there. Corporate travel is visible in the Mid-market segment.
Almost all of the leisure destinations are exceeding pre covid levels. F&B is still muted though.
OCF loss of INR1.9bn and capex, dividend and interest was another INR1.5bn. In addition, there was a derivate payment of INR1.5 which corroborates with the increase in net debt.
Employee costs went up due to reversal of payroll cuts. This year company has not implemented payroll cuts and also a reduction in subsidies in UK has contributed to the increase. Majority of the reduction in costs was driven by a reduction in variable costs.
Industry
Once ECLGS and moratorium expire, only then will the position on closures, industry supply will become clear.
Company
IHCL has been gaining market share in key cities
More Than 40% of hotels in IHCL’s system did better than pre covid ARR/RevPar
International properties
London was shut for large part of Q1 and so was Cape Town. SF and BY opened, they performed better than expectations, occupancy more than 40% at a very good ARR. Same of higher than pre covid and demand for Suites is strong
Recovery in international operations will be driven by US, UK and Dubai
Banqueting will still remain closed in Pierre. Peak revenues are USD80mn of which USD30mn is banqueting. Company expects USD30-35mn for US
UK run rate is GBP1mn per month which should improve. Targeting GBP20mn for this year
Other
Ginger achieved 60% of pre-covid revenues. Company has also started F&B in- house with Ginger.
Company sold and leased backed Ginger in Mysore
Derivative contracts have been closed so no losses related to that will come further
Fund Raise
Company has in-principle agreed on a capital raise.
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Guidance/future initiatives
In Q2FY22, company expects to be cash break-even
July has seen significant growth. Similar trend is visible August in first eight days. Maybe long weekend. Business travel seems to be picking
Company is trending in August ahead of July.
Company is confident of maintaining its staff: Room ratio at the adjusted levels once business normalizes
Company expects asset monetization to start again given the revival in prices.
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Q1FY22 conference call highlights
InterGlobe Aviation
High fuel cost impacted bottom line
Indigo reported net loss of INR31.7bn in Q1FY22 versus net loss of INR28.4bn YoY. However, excluding the impact of forex (INR 2.9bn) and lower finance income (INR1.5bn), losses remain largely flat YoY. Besides, doubling of fuel price YoY remained a large drag on earnings. Fuel cost impacted the bottom line to the extent of INR5.4bn.
July revenue is likely to increase to April levels
The company reported revenue of INR15.4bn in Apr-21, followed by INR6.7bn in May-21 and INR9.6bn in Jun-21. Management mentioned that July revenue is likely to reach April levels. Fleet operated during the quarter reduced on low demand During the quarter, the company operated 277 aircraft including 85/122/41/29 of A320 CEOs/A320 NEOs/A321 NEOs/ATRs. Operating capacity reduced on account of 2nd wave of covid During the quarter, Indigo operated at 45% of pre-covid capacity, which declined from 75% of pre-covid capacity in Q4FY21. Management expects capacity to start operating at 100% of pre-covid domestic level by Q4FY22. Currently, Indigo is restricted to operate at 65% capacity. Operations at international capacity still remains blurry. Cash burn increased on account of prevailing lockdown during the quarter During the quarter, cash burn increased from INR190m/day in Q4FY21 to INR334m/day in Q1FY22. Total cash reduced to INR171bn in Q1FY22 from INR186bn sequentially.
Corporate travel is likely to increase once covid impact subsides The company witnessed a down turn of corporate travel in Q1FY22 from recovery of 50% seen in Q4FY21. However, once the covid impact subsides, corporate travel is likely to recover gradually.
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Q1FY22 conference call highlights
Lemon Tree Hotels
Industry
LT expects a lot of distress/NPA’s to show up in the sector in the next 6-9 months
Branded hotel demand has grown at 12% CAGR over the last decade
From October next year company expects a sharp surge in rates
Q1FY22
In Q1FY21, out of 1,500 rooms, 90% was non-traditional business which were at a higher rate at much lower operating costs and lower labour requirement also
This year in Q1FY22, there was neither traditional nor non-traditional business. The demand was rate sensitized retail travellers.
Overall business was extremely low from Mid-April to Mid-June. However, by Mid of June the nature of the business has completely changed
Q1FY22 played out in two parts 1) First 15 days of April and last 15 days of June 2) the rest of the quarter
The increase in other expenses were primarily driven by travel agent commissions
The demand seen post mid-June is via various segments - traditional segments have seen a significant jump - SME demand is improving while large corporates demand is showing green shoots
Closing cash was INR2.0bn and net debt increased by INR0.6bn
Current Trends:
Currently LT is seeing a healthy ramp-up on a week on week basis. It is currently doing revenues of INR10mn/ day and is witnessing a very sharp V shaped recovery.
As per the company, Q2FY22 performance will be similar to Q4FY21. It expects that by Q3FY22, revenues will be 70-75% of Pre Covid
Q1FY22 to Q2FY22, ARR has increased by 20% with occupancy at 70%
40% of demand is retail which can be very high price or low price. Traditionally retail is 1.2x of average ADR
MICE business is coming back. Corporate travel is 15-20% of pre covid. Travel may start by September-October
Pre Covid Company was doing INR25mn/day. On a PBT break even basis, LT requires INR15mn /day
Trends by city / hotel
Bangalore and Gurgaon had the maximum increase in supply and are largest dependent on IT, due to which these markets are weak. While other sectors are recovering, IT remains weak.
As per the company, Bangalore and Gurgaon will recover at last.
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Aurika Udaipur on a fully sable basis will do ADR of INR18,000-20,000 and occupancy of 75%.
For Mumbai Aurika, LT expects an ADR of INR11,000 at 80% occupancy
Capex
On MIAL: LT expects to complete all 10 floors by June next year which will require INR800mn of spends. Remaining capex of INR5bn will be done starting Q2FY23/
Others
Company will look at managing distressed assets, rather than buying them. It is in discussions with certain distressed funds (USD100-200mn investments) to partner-up for such a venture.
Guidance
Company expects Q2FY22 revenues to touch Q4FY21 revenues
Staff: Room ratio pre covid was 1x. Staff: room ratio will be longer term 0.75x
Expects longer term EBITDA margin to expand by 10% points
Lot of expenses have been converted from being fixed in nature to variable. From 75% earlier, today fixed costs are ~50% of total expenses.
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Q1FY22 conference call highlights
Mahindra Holidays & Resorts
Industry Recovery which started in June, is expected to continue into July and August
Trend of staycation has been increasing
Q1FY22 On the increase in right to use assets - some of the long term leases were renewed. There are 2 big resorts which were on pay per use and have become long-term leases.
Membership Slowdown in discretionary spends and limitation on travel, meetings impacted member addition
There are lot of enquiries for membership driven by the recent surge in leisure travel demand
Company has seen an increase in traction in CMH 25
While referral is cost efficient, digital lead generation is expensive
Since Covid, Go Zest and Bliss become more popular. Every succeeding quarter CMH 25 was increasing. This time similar trend was coming but focus was on CMH 25. Value of membership sold was more than double of last year despite the contraction in absolute member addition.
Initial signs of conversion of Go Zest to CMH25 has already begun
Holiday Club Operations started just before the start of the main season
Domestic leisure travel is very strong in both Finland and Sweden
Company is confident of the prospects of HCRO once the business normalizes
Rooms Business was doing extremely well till Mid-April before restrictions started. From Mid-June, business picked up again.
60% of inventory is own and 40% is leased
Room addition
o Asanaro: 57, Ashtamudi: 33. This will be complete in FY22
o Ganpatiphule: 150
o Kandaghat (Shimla): 160
o Puducherry: 60 rooms. Still contemplating
Total capex plan of the above initiatives is around INR5bn. INR10bn capex plan over the next four years.
Company is also creating an adventure park in collaboration with the company it acquired
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Others
Buyback and dividend is not allowed at present
Outlook
Company has successfully reduced costs in lead generation and operations. There are enough structural levers which are in place for the current margins to become structural.
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Q1FY22 conference call highlights
Home Decor
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Q1FY22 conference call highlights
Century Plyboards
MDF MDF Hoshiarpur delayed by a quarter – H1FY23
Supply from other region cannot be that much high
EBITDA Margins will be around 26-28%.
Most of the machineries are finalised but order is not yet placed with suppliers; don’t see significant cost escalations in MDF greenfield project
Margins for South plant when it comes up will be lower & with increase in utilisations margins can increase
CVD is in process & in next 10-15 days decision will come from government
It is not that much hurting to Century Plyboards in North region & also not going to hurt the industry that much given imports are currently very low due to higher freight cost and container availability issues
Logistics cost is also high & if it’s not coming down in near term so levying CVD or anti-dumping will not make a difference
MDF raw material pricing depends on the market situation & reaction. Pricing is thus pass through for the market and as and when market price goes up then century will try to pass it on to the consumer
No one will be ready to supply to Century if its plants are running at full capacity. The company does not see much shortage of supply in South as Rushil is also having lot of spare capacity and by that time that will reach optimum level, Century will be ready with its new capacity
70-75% of current MDF sales is from North while rest is from South, East & west
MDF had annual consumption of ~1.3mn CBM while there were negligible imports during the year
Highest gross margins in MDF and this kind of margins is sustainable in future & if margin can touch to 30% if Century works on 100% capacity utilization
Century can work around 26-28% margin at sustainable level
At industry level, prices can definitely go down given demand will not equal to supply as new plant will produce 600-800 CBM per day Demand Seen recovery in June & July is much better than previous months Raw material and prices Century ply has taken price hike & passed on the increase in raw material prices to the end consumer
Inflation is impacting unorganised sector and with tremendous pressure on the unorganised structure
Price hikes across the segments: MDF- 4%-6% (2 Thickness having price hike of 16%); average 6%; Plywood - 2%; Laminate- 3%; and Particle Board- 3%
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Till last quarter the company has passed on all price increase Capex Very positive on the plywood. Going to increase the capacity in Plywood, particle board & MDF
By next quarter, century will have a road map for next three years to move ahead
Outlook
Real estate scenario is much better – with only 18% QoQ drop
Working on the market strategy- it will take time around 2-3 years.
Century is the leader who will change this industry
Consultant (BCG) hired for cost optimisation and can offer 2x annual return from next year Plywood segment For commercial veneer – focus is on procurement for inhouse manufacturing than selling it in open market
Myanmar is not doing well; and thus the company started procuring face veer from Gabon (Okume) which is the reason for pricing and average realisations have gone down Working capital days Working capital days increased to 108 days because of increase in inventory; receivable days still under strict control Laminates Launched TVC for laminates yesterday
Sustainable margins for laminates business is at 15-17%
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Q1FY22 conference call highlights
Kajaria Ceramics
Demand and current scenario May was impacted due to lockdown; June was better than May and July touched 100% of targeted sales
Apart from Kerala, most states have come to normal. Demand is coming from across the segments; 75% of KJC’s sales is retail and company continue to get lot of demand from residential segment especially after work from home Outlook If current scenario is maintained, 15-16% of volume growth and 20% sales revenue growth in FY22 is possible. Beyond FY22, the company is looking at 15%+ growth for next three years Channel inventory Dealers have less stock because of pandemic as they are being cautious
Dealers are paying faster but maintaining less inventory WC days Working capital days have gone up due to lower sales and higher production Employee cost No salary increments were given in FY20. In-fact the company took salary cuts in 1st six months of FY21
For more than 15% growth for next three years, the company will not look at increase in head count Ad spend Last year KJC spent INR460mn on ad spend which with increase as the economy picks up
Kajaria does not calculate any ROI on Ad spend as its done to leave footprint in the mind of people Margins and gas cost Gas prices have gone through the roof. Last year gas price was INR28 per SCM which this year is INR35 per SCM
KJC has taken small price hike of 2-3% in tiles segment. Actual indication of annual margins will be given by the company by end of the Q2FY21 Inventory level In July the company operated at 95% of capacity utilisation while sales was 100% indicating inventory has come down and will come down further
Generally 20-22% of overall cost of production is gas cost
Gailpur and Sikarandabad were having INR31.5-32 per SCM gas cost in Q1FY22 (which has again gone up to INR35 from 1st July). In Q4 the same was INR28.5 per SCM
From 15th March 2021, the cost of boxes increased substantially (partially reversed from July, 2021)
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Q1FY22 conference call highlights
Gas prices for Morbi has not changed for last 3 months and stands at INR35 per scm (this can go up any day). GAIL is the biggest player; GSPC – buys 50% from GAIL (so if GAIL increases prices, GSPC has to increase) Bath-ware price increase Increased prices by 5% in Dec and another 10% from 1st March in Faucets division given the sharp increase in gas prices (~50%)
In sanitaryware division too KJC has taken 7% price increase in last 6 months Capex and asset turns The company is looking at INR2.5bn capex for all brownfield capacity expansion plans which can give revenues of INR5bn Cash flows During the last quarter, the company has revised its dividend policy up from 15- 20% to 40-50%. In FY21 also, the company had more than 50% dividend-payout
Going ahead too, most of the money will go in dividend pay-out Industry size and growth rates Total tile industry size is INR300bn as on FY21 of which INR200bn was domestic market (INR210bn in FY20) and INR100bn exports (INR77bn in FY20)
Domestic industry size is likely to go decline to INR180bn in FY22 as demand is very sluggish on ground. At the same time, exports is likely to increase to INR120bn from INR100bn in FY21
While exports will grow at 10% plus in FY22, domestic market will see a decline
Going ahead, domestic industry should grow at 10% each year FY23 onwards while exports should grow at 20%+ Exports Exports have increased substantially and Morbi is operating at more than 80-85% of capacity utilisation
600 units in Morbi, of which ~60 exclusive to exports
Morbi is the second most competitive country in the world in terms of tiles production. Freight rate differential adding exports to bright spot
Despite ADD, lot of exports going from India to Saudi Arabia
Freight rate from India to Saudi Arabia is USD1100 versus USD4000 from China to Saudi Arabia. Similarly, freight rate from India to the US is USD4000 and from China to the US is USD6000 Plywood In FY21, Plywood segment had sales of IN390mnwhich is likely to increase to INR800mn by FY22 given the company has also launched laminates segment from July 2021 which will support segment’s growth
In FY21, the segment made INR110mn loss and this year loss should be INR50mn. Beyond FY22, KJC does not foresee losses in this segment
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Q1FY22 conference call highlights
Sanitaryware In FY21, the segment had sales of INR2.5bn which is likely to cross INR3.5bn in FY22. The segment is currently making profits and is likely to stay profitable going ahead Realisations Ceramics realisations have gone up slightly; others have maintained due to change in product mix
The company has taken 1-1.5% price hike from April and ~3% from July Unorganised versus organised Before GST – the tax structure was 28-31% versus 18% under GST. Net income of GST is thus 13% and gap between unoragnised and organised players have minimised
Dealers are making bigger showrooms and are gaining market share from small dealers Market share KJC is having 12% market share in organised market which it plans to take it to 15% market share in next three years which should be possible with 15% CAGR
KJC at only 12%; Asian paints at more than 40% market share; that gives confidence to KJC for immense scope of market share gains Industry Total industry capacity stood at 1100 MSM. Morbi is 70% of total capacity in India while rest is contributed by Himatnagar and rest of the regions
All capacity additions in Morbi are delayed by 6 months due to container availability issues and higher freight rates Exports and Kajaria Morbi is doing an excellent job in exports and can achieve more than INR120bn targeted sales in FY22
Kajaria is a premium brand in India and has an edge over other players in domestic market with respect to its reach, distribution and brand premium
KJC is looking at exports (converted 1 Cosa line to exports); however, exports will be less than 5% of sales Solar plant Installed solar rooftop capacity today is 6 MW spread across Sikandrad, Uttar Pradesh, Gailpur, Rajasthan, Malutana, Rajasthan
The current investment is not a rooftop plant; need to have 26% Equity, which will be recovered in the next 14 months
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Q1FY22 conference call highlights
Greenlam Industries
Laminates volumes and realisations Net sales jumped 110% YoY to INR3.36bn (down 19% QoQ) as faster-than- estimated growth in laminates division (up 113% YoY, down 15% QoQ) was offset by weak growth in decorative veneer division (up 80% YoY, down 47% QoQ).
Strong laminates’ performance was led by volume growth in exports market (up 4% QoQ) which was partially offset by fall in domestic volumes by 35% QoQ.
INR300mn goods produced were not converted into sales in domestic as well as exports markets. Domestic market was impacted as market opened late, whereas exports growth was impacted due to container availability issues and higher freight costs. Had the issues not ben there, the company would have done exports sales higher by USD3mn (INR200-250mn).
Container availability is still an issue. Had these challenges not been there, the company’s performance could have been better.
The strong recovery in domestic as well as exports markets continues to be led by market share gains in both the markets as smaller players face challenges with respect to availability of raw material and sharp increase in cost.
While domestic market saw consolidation benefits while company continues to gain share in exports market led by low cost manufacturing (includes low manufacturing set up by more than 25-30%, lower labour cost and lower overheads and large volumes absorbing costs).
While company had taken price increase to offset higher raw material cost both in exports and domestic market, realisations were down 3% YoY due to increasing share of commodity grade laminates (introduction of 0.7 and 0.8mm laminates in FY21). Laminates margins Due to lower volume, sharp increase in raw material cost, rising share of commodity grade (0.7-0.8mm laminates) and higher exports mix (this quarter had slightly lower margins compared to domestic market), laminates EBITDA margin was down 460bps QoQ to 13.3%.
While inflammatory raw material cost trend continues, the company has taken price increase in domestic as well as exports market. Since the increase in price in exports market is recent, it will reflect in margins in Q2FY22.
The entire increase in laminates freight rates is passed on from Jan 2021.
The company has thus more or less been able to pass on the cost increase both in domestic and international markets. Raw material costs and margins Generally margins in domestic and exports market are similar depending on currency, raw material cost and product mix.
In Q1FY22, margin in exports market was slightly lower as certain costs were passed on in domestic market but were yet to be passed on in exports market.
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Q1FY22 conference call highlights
The raw material constitutes - 1/3rd craft paper which is up by 3.5-4% (certain segments can be up 30-40%); 1/3rd deco paper and 1/3rd Chemicals (some are even 2x).
Overall raw material cost is up ~15% YoY while even sea freight rate increase has also been substantial.
While all freight rate increase till Jan is passed on, another 2.0-2.5% price increase is communicated starting July /Sept 2021.
With value improvement and increase in prices the company will be able to cover up the entire cost increase.
Margin dip in Q1FY22 was due to production mix change, unabsorbed overheads due to lower volumes and higher raw material costs (the company is having visibility of 3-4 months). Inventory and debt Total inventory days jumped from 83 days in Q4FY21 to 122 days in Q4FY22 due to increase in inventory of finished goods as well as raw material.
Finished goods inventory increased as the markets opened late in domestic market and since exports market continued to face container availability issues because of which many orders could not be serviced. The management thus expects inventory levels to get normalised in the current quarter itself with raw material inventory also should normalising in the current quarter.
Due to increased inventory, the debt level of the company has gone up by INR900mn Outlook The company sees strong growth opportunity ahead led by solid brand build over the years, deep and wide presence in domestic as well as exports market leading to strong growth.
While the demand pick-up is good in certain areas, it is taking some time to pick- up in other areas.
Management expects normalised 10-12% volume growth in domestic as well as exports markets that will drive growth of the company. Growth for FY22 could be higher on low base of last year.
Value growth could be further higher as the company improves its product mix and as it passes on any increase in raw material cost (this year having impact of 10-12%).
Further, the growth will be supported by shift from unorganised to or organised players as regional players continue to see pressure.
With existing laminates facility, the company can do volumes just under 18mn sheets. Capex In FY22, apart from routine capex of INR250-300mn , the company is likely to go ahead with greenfield South India capex.
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The company is in final stages of getting approval and expects to take ~12 months for commissioning the plant from start day of construction and is likely to tentatively start by Q3FY23.
The company is looking at total INR1.75bn capex for adding 1.5mn sheets greenfield plant which includes INR1.25bn on all infra including INR500mn on land. Increment brownfield capex is likely to be lower at INR350-400mn for 2mn sheets plant.
While the company does not need any capex in decorative veneer and allied businesses, it is looking to add some adjacent category which can be in Andhra Pradesh. Digital interface Working with e-commerce furniture companies which are supplying ready furniture to consumers. Exports Exports are quite well spread and it is planning to not get into more countries but to increase the depth in each of these businesses.
Supply side disruptions faced by other large exporting countries and high cost manufacturing is leading to market share gain for India.
Competitive scenario for Indian companies has improved recently. GRLM’s focus is to not the cheapest, but to create value worldwide.
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Q1FY22 conference call highlights
Prince Pipes
Q1FY22 performance/ current demand Results impacted due to three reasons: i) March high sales – inventory filled with dealers, muted agri pipes sales and as lockdown impacted both urban and rural performance; however plumbing and SWR continued to deliver
June was better than May; July much better than June. Strong growth in real estate also augers well. Demand has improved (visible in performance as well as commentary of builders) Ultratech tie-up Ultratech synergy is likely to help expand footprint with vast network of 2000 dealers and Prince can now use this network and expand visibility in Tier2/3 towns. Product launches During the quarter, the company launched OneFit with Corzan® CPVC Technology. The product is used for industrial and sprinkler applications.
Globally, industrial, sprinkler and plumbing have all have similar share in terms of CPVC sales. In India, it’s completely different with 95% of the CPVC sales are from plumbing.
India is typically late in terms of accepting products. In 2017, Prince had an early mover advantage in terms of bringing DWC – that will be able to change sanitation across the country.
Introduction of Prince One-Fit is likely to replace mild steel pipes. This Lubrizol product is preferred product across the world.
The product has favourable pipes to fittings /valves ratio and is used in sectors like Chemicals, power generation, water treatment products, metal treatment, paper and pulp, etc
The industry has high barriers to industry.
The company also has some ready channel as PPR is partially sold in industrial applications.
Gross margins for the product is very favourable compared to existing products. Thus while it may not be huge in terms of contribution to topline but will add to margins. Why is consolidation happening in industry? Tightening of BIS norms
Supply of PVC resins globally continues to be tight
Prince Pipe does not expect smaller players will come back anytime soon Focus areas Reduce the recourse option- received partial recourse terms (INR550 mn). 15- 20% of distributors are on channel finance (only for selected and do not want to expand)
Reduce borrowings cost
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Product mix 65% Building material, 30% Agri, 5% Infra
60-65% PVC, 18-20% CPVC, remaining –other polymers Market share Not lost any market share – YoY or QoQ will not be comparable Cash flow FD should have been part of investing activities but was earlier put in operating cash flow that was revised later to investing cash flow PVC prices Prices have started moving up as demand is going up
June quarter INR50mn inventory loss
The management does not see major reason for much higher losses as PVC prices are hardening now Demand Optimistic on plumbing and SWR
Agri – need to see from Nov onwards how demand picks-up
Usually in Q1 agri is 38-40% , which in this quarter was 30% Projects It will take a few quarters to build that base. Tanks Natural extension to product portfolio
Don’t think this will be major share of revenues
Trying to establish presence and cross sell tanks with pipes Nal se Jal/Govt projects Key thing is credit and receivables cycle is disciplined
Margins may not be favourable; but higher volumes takes care of cot absorption
Dec quarter had good contribution from govt projects while this quarter was subdued Outlook Likely to outpace industry growth by 2-4%
Margins likely to remain in 13-15% range Margins Last year margins were strong led by inventory gain, operating leverage and product mix. This quarter, sales was muted, inventory losses
Huge scope for margin expansion – new product also will drive growth
Decline in employee cost on a QoQ basis is because in Q4 there are generally some incentives – there have been no layoffs or salary cuts
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The company aims to maintain 2-3% of brand spend CPVC pricing CPVC price hike will be industry wide
Smaller players were facing difficulty in getting raw material after ADD; now even larger players are struggling
Any price hike will be industry wide as dynamics are the same. Peers have captive compounding but that will not change the dynamics
Change in industry dynamics has led to increase in cost Inventory Increase in both raw material and finished inventory. Inventory is not yet normalised; as demand picks up it will normalise Pricing Discount to market leader has reduced (0ver time from double digit) to 3-4% in some market and in some market prince pipes are at par as well
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Q1FY22 conference call highlights
Somany Ceramics
Demand Lot of learnings from last year, which were put to use.
Till Mid-June, demand was super slow
From last 15 days of June things started coming back
July has been positive – at 100% of what July has been
Somany would have done sale of INR4.7-4.8bn sales if there was no pandemic
Seeing real Estate segment coming back to life
Tier3/4/5 cities getting good demand
This and next year will be abbreviation
Industry will definitely grow and Somany is likely to grow faster than the industry growth Outlook Predicted growth of 20% at beginning of the year, but still looking at high teens growth (anywhere between 15-20%)
12-13% margin guidance maintained for FY22; from FY23 the company can look at 14-15% margins
Gas prices reaching peak; don’t see it going up further Expansion All expansion plans are progressing in line with expectation with some delays and SOMC is expecting commissioning by Jan – Feb 2022
Turnover from new expansion can be INR2.5-3bn and should lead to margin expansion of ~200 bps Product mix Ceramic – 39% (down from 42%), PVT – 35% (34%), GVT 26% (27%) Bathware segment Sanitary ware sales segment was decent; will still manage 35-40% growth
Out of the total bath ware segment, Sanitary ware sales stood at INR180 mn while Faucets sales was at INR110mn Working capital days 49 days debtor level; inventory gone up from 31 days to 42 days, trade payable down to 37 days
Debt equity has further improved
Collection were very strong during the quarter; July too has been very good Gas cost, prices and margins In South pant, gas price is INR45 per SCM, in North plant its INR39.5 per SCM (in Q1FY21 it was INR36) and in West (Morbi) its INR33 per SCM
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The prices in Morbi are passed on with a time lag and can increase at any point of time
Taken price increase in tiles by 1-1.5% in April and 2.5-% in July
Industry leader and Somany have been able to increase prices
Brand spend was low at 2% due to pandemic; but will stay between 2.5-3% annually
Apart from Gas cost increase, power cost and packaging cot have also increased
April price increase by Somany was due to higher power cost
Price increase is good enough to take care of margins Bathware industry size and exports Faucets industry size is INR85bn and Sanitaryware industry size is INR50-55bn
Both the segments have many none branded players
In Faucets segment, Jaguar is the leader
In Sanitaryware segment, there are three main companies - Parryware, Roca and Cera Sanitaryware
Somany is not worried about import issues due to container availability and higher freight rates as they very little volumes for them comes from China Exports Tiles, sanitaryware and faucets – all three categories have huge exports but only done by smaller players. Reason is there are many fragmented players in these industries, it’s a highly commoditised product with no R&D involved and most of these players are OEMs for global players and thus branded players will not get the brand premium that they enjoy in domestic market
Further, branded players have issues with price and open credit or cash on delivery terms in exports market
This year Somany should be close to 1bn of exports (where realisations will be maintained at India level)
Exports still at level playing field as freight rates have gone from all the key countries including India and China
China industry size is 3.5bn sq meters versus Indi at mere 1bn sq meters giving enough room for growth Sales mix Earlier private builders contributed 15-17% to overall sales which has come down to 5-6%
Focus of Somany is on retail and max corporate; Private builder are given least priority
The company is doing business with only that builders where they have good comfort
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Industry capacity additions Capacity addition in Morbi started from in June, July 2021 and are likely to continue till Nov, 2021
Industry leader and Somany are also adding capacity to cater to North, South and then West markets
Between May 2021 to Nov 2021 – 50-60 new brand new GVT plant were likely to come up mainly for exports (each plant is having ~12000 Sq meter per day production *340 days) Inventory level Inventory is stable in the system both at dealer and company level Price differential between peers 30% price difference between SOMC and very small players
25% cost is gas, in Morbi this has not gone up
SOMC has been still able to take price increase in North because Morbi has limited presence here
Price differential between Somany and Kajaria Ceramics is 10%, bridged it to 8%
On a blended basis it appears to be 15% because of better product mix, better value added mix and brand premium enjoyed by Kajaria over Somany
Other brands will also be 15% lower than Somany Transportation strike From 28th and 29th July 2021, no dispatches have taken place in Morbi
It’s an entire Morbi transportation strike and applicable to all segments not only double charge
Somany also has an issue, its production is lying there at Morbi Fuel prices Only couple of plants have Propane or LPG Cylinders
Somany does not have any plant with Propane or LPG Cylinders and thus can’t switch to any other fuel Employee cost This is the steady state cost
The company has in fact taken increment after two years.
The cost is lower QoQ as contract labour is missing.
Gross margin calculation includes material, power and fuel and increase/decrease in inventory
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Q1FY22 conference call highlights
Supreme Industries
Q1FY22: Volume disappoints; margins surpass our expectations Revenue increased by 27% YoY (36% QoQ fall) vs our estimate of 52% YoY growth. The disappointment was on account of a 22% YoY fall in volumes (vs our estimate of 7% YoY growth) mainly as the plastic pipes segment reported a 36% YoY fall (37% QoQ) in volumes. Other segments such as the Industrial division reported a ~100% YoY uptick in volumes (31% QoQ fall), the consumer division reported 40% YoY increase (64% QoQ fall), the packaging division reported 13% YoY volume growth (26% QoQ fall).
Furthermore, margins have shown improvement of 540bps YoY to 16.5%; however they were down 790bps QoQ, mainly on account of weak volumes along with inventory losses.
The Pipes segment reported operating margins of 20.7% (up 890bps YoY but down 720bps QoQ), Industrial (up 930bps YoY and down 500bps QoQ to 10.6%) and Packaging (down 340bps YoY and 390bps QoQ to 12%).
EBITDA for Q1FY22 increased by 90% YoY but declined 56% QoQ to INR2.2bn, below our and consensus forecasts of INR2.5bn and INR2.65bn, respectively. Plastic pipes In Q1FY22, the business was severely disrupted due to the second wave as the infection was quite widespread in rural areas.
Out of 24,000 tonnes lost in this business, 20,000 will be only in agri pipes.
April and May are the peak season for PVC pipe systems for agricultural application. Thus overall agri business declined 60% YoY, whereas CPVC business was up 40% YoY on last year’s low base as April was completely shut while May and June were also severely impacted.
While CPVC pipes or plumbing altogether is seeing growth in July; Agri business due to seasonality is likely to be back from September-end or October.
As the rural market was badly affected by the pandemic, the Agricultural demand took a big hit, resulting in a huge volume loss of business in the Piping segment (36% YoY and 37% QoQ).
The company was thus required to carry forward the pipe inventory, which was kept ready to meet large seasonal demand of agricultural pipes (which will also result in a higher inventory losses in Q2FY21). Plastic pipes Inventory loss and margins The company reported some inventory loss in Q1FY22, but expects a much higher loss in Q2FY22. However, for the full year, the company is not factoring in a major inventory loss.
Despite inventory loss, margin for the plastic pipes division was healthy led by less sale of agri pipes (down 60% YoY), higher sale of CPVC pipes (up 42% YoY) and sale of other value-added products such as valves and plastic tanks.
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Q1FY22 conference call highlights
Packaging – Cross-laminated film products The second wave of the pandemic and the resultant localized lockdown adversely affected demand during the first quarter, which is the peak period for tarpaulins. Sales of Cross Limited Film products were thus down by 12.5% YoY.
The production has also taken a hit during Q1 due to scarcity of labour on account of large infection in rural area. The silver lining is that the exports have gone up by around 50% YoY.
With the waning of second wave, the labourers are back and the production is running at full capacity. The good run in exports is continuing. Packaging – Protective packaging Protective Packaging Business has shown good improvement YoY.
New products for export market have been well received.
Its retail division for fitness products is also picking up well. Division is focusing on customized solutions and value addition to its OE customers. Packaging margins Packaging margins took a hit due to lower production in April and June and as company consumed high cost imported raw material. Thus margins reduced significantly in cross laminated products.
The company however remains optimistic of restoring margins. This will also be supported by addition of new value added products in protective packaging Consumer The furniture business has shown a volume growth of 40 % YoY.
The value added products sales have gone up to INR232.6mn compared to INR134.1mn in Q1FY21. This division is working on Digital campaign on several media sites such as Facebook, you tube, Instagram for brand promotion. The business expects to have a decent growth in this year over previous year. Value-added product The overall turnover of value added products increase to INR5.16bn during the current quarter achieving growth of 3 7%. Balance sheet The Company’s cash surplus funds reduced to INR3.81bn as on 30th June, 2021 as against cash surplus funds of INR7.59bn as on 31st March, 2021 mainly due to increase in inventory. Outlook Company expects that Q1 loss in volume in Piping System not only will be recovered but will show a growth in full year with double digit growth for CPVC pipes likely to continue.
"Nal-se-Jal" Scheme is expected to be the strong growth driver as all states are actively working on this scheme and its likely to drive demand for HDPE, PVC, CPVC pipes and fittings.
In July so far, demand is better YoY.
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Q1FY22 conference call highlights
Channel inventory is lowest at this time, which should aid volume growth ahead. Valves Valves will qualify as value added product and company has started to build up in this segment and will continue to grow.
Valves is a big market. While plastic valves size is unknown, metal valves worldwide is a USD60bn market. Capex Total capex planned for the year has now increased to INR5.21bn from earlier INR4bn including carried forward commitments of previous year.
Of this capx, INR2bn will be on greenfield project while rest will be on brownfield projects. This capex can generate revenues of INR9bn
The earlier INR4bn projection did not include new Orissa complex and Tamil Nadu plant
The upcoming unit to make Plastic Pipe system at Guwahati will be operational by October 2021.
The Company has taken in hand to put the plastic product complex in Orissa with an outlay of INR1.2bn in FY22. The same may be operational by Q4FY22. PVC prices PVC prices have started going up now (INR2 per kg in Q2FY22), after a drop of INR19 per kg since April 2021 (on an average down by INR9-10 per kg in Q1FY22). The demand in Construction segment has now opened up.
The prices are likely to remain range-bound in near term New products Compression Moulded Olefin fittings have gone into commercial production at Jadcherla since June to cater to the growing demand in "Nal-se-Jal" Scheme.
The company is also looking to launch Pex piping systems used in housing. Supreme Petrochem The company is expanding capacity by 90,000 tonnes in Poly-Styrene and by 30,000 in ABS. The company should complete all expansion by Dec 2021/March 2022 with total capex of INR2.6bn.
Poly-Styrene will be sold both in domestic as well exports market Composite cylinders In the Composite LPG Cylinder division, repeated orders from existing as well as new customers are continuing.
Domestic oil marketing companies IOCL and BPCL have also floated enquiries for purchases, which augurs well for the long-awaited introduction of composite cylinders in the Indian market.
Overall business scenario looks encouraging.
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Q1FY22 conference call highlights
These cylinders are definitely expensive compared with metal cylinders, but come with great advantages, and thus consumers are ready to pay higher deposits. Material Handling Products Material handling products being intermediary to supply of essential products have done good business both in terms of value and volume. The company is getting good business even from Ecommerce players.
The division is working to introduce various new products/applications from Injection Moulding and Roto Moulding process.
Expansion of capacities at its plant at Lalru (Punjab) and Gadegaon (Maharashtra) is nearing completion and shall be operational by July-August 2021. Industrial components Business scenario remains bullish in Industrial Component Business barring the initial disruption during first quarter.
The division is working with its existing customers for new business apart from developing new customers. The company is putting need-based capital expenditure to meet increased business requirements.
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Q1FY22 conference call highlights
IT
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Q1FY22 conference call highlights
Cyient
Cyient reported revenue of USD143.5mn, decline 4.2% QoQ, up 9.9% YoY. In Constant currency revenue was up by 4.3% QoQ.
Service Revenue of USD119.3mn, decline of 0.3% QoQ and up 6.3% YoY. On CC, revenue decline by 0.4% QoQ.
DLM revenue at USD24.2mn, decline of 20% QoQ and up by 31.7% YoY.
EBIT margin of 13.1% up by 797 bps YoY and 48 bps QoQ; Highest ever in the last six years. Cyient has aspiration of 15% margin in services. There is scope of improvement in DLM. 2/3rd of the wage hike impact came in Q1FY22.
EBIT margin of 14.6% for services business compared to 13.6% in Q4FY21.
Won 4 large deals with total contract potential of USD46 million (3 from services and 1 from DLM). Order intake is up by 20%.
Highest ever offshore mix of 47.3% in the last 5 years
John Deere given us partner level, this is company’s highest supplier rating.
In terms of Tax, there is marginal increase in Q1FY22 but its in-line with annual estimates.
Cash conversion rate of about 50% for services, it is on track to delivery 65-70% of cash conversion.
Transport witnessed a growth of 0.5% QoQ and decline of 3.6% YoY. Rail will see growth. Domestic travel come back at 65-75% with International travel at 40%, it is expected to recover in next 4-6 quarters.
Aerospace continue to be impacted, it grew 2% on QoQ and -11.5% YoY.
Rail transportation decline 2.5% on QoQ and grew 17.2% YoY.
Communications delivered a growth of 2% for the sequential quarter, on the top of the 2.2% growth in the previous quarter.
Utilities delivered a growth of 4.4% for the sequential quarter, on the top of the 3.9% growth from previous quarter.
DLM Revenue for Q1 FY22 stood at USD24.2 and witnessed a decline of 20% QoQ. The drop in the Q1 FY22 revenue was seasonal and it is expected to grow 20% YoY for the full year.
Portfolio of Services decline by 5% QoQ and grew 9.6% YoY.
Outlook
1) Cyient expects to grow double digit in FY22 in Services with growth coming back from Q2 while DLM will also grow about 20% in FY22.
2) For FY22 margins are expected to improve by at least by 200 bps. Margins in DLM for the full year expected to improve by 200 bps. 2
3) ETR is estimated to be 25- 26% for FY22.
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Q1FY22 conference call highlights
Eclerx
Operating revenue was up USD64.7mn which is up 1.4% QoQ in USD terms and 1.2% in CC. Revenue in INR terms was INR4,944mn which is up 3.7% QoQ and up 42% YoY.
Operating margin declined by 30bps QoQ and increased by 110bps YoY due to inclusion of Personiv and impact of second wave of COVID. Sequential decline in profitability was due to wage hikes and strong hiring.
Revenue contribution by Geo: North America contributed 70% of revenue, Europe 23% of revenue while ROW 7% of revenue.
Client Count: USD500k-1mn client count was 21; USD1mn-3mn client count was 18; USD3mn+ client count was ten.
Headcount stood at 12,842, net addition of 918 employees. Offshore voluntary attrition stood at 31.7% in Q1FY22 (Includes Personiv) compared with 34.8% in Q4FY21.
Capex during Q1FY22 is INR171mn vs INR72mn in Q4FY21.
Total cash & cash equivalents of INR7,268mn for Q1FY22 versus INR6,572mn for Q4FY21.
Net operating cash flow in Q1FY22 is INR744mn vs INR1,224mn in Q4FY21. EBITDA conversion at 47.6% for Q1FY22 vs 77.0% in Q4FY21.
Board has recommended a buyback of INR3,030mn at a maximum price of INR3,200, which represents buyback of 2.8% of total shares outstanding.
Outlook: Revenue expected to grow 15–18% in CC. Operating margins expected to be in range of 11.8–12.3%.
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Q1FY22 conference call highlights
HCL Technologies
Reported revenue of USD2,720mn, up 0.9% QoQ and 15.5% YoY. Revenue was impacted by USD7mn, which is 20-25bps impact on growth due to Covid.
Mode 1 revenue grew 0.8% in CC; Mode 2 revenue grew 2.3% in CC, led by Cloud and Digital transformation services; Mode 3 revenue declined 2.0% in CC.
IT and business services delivered 0.3% QoQ revenue growth in CC. Digital business led the growth in this segment, which is one of the highest among peer group.
Engineering and R&D Services delivered 4.3% growth QoQ in CC. Outlook for ER&D looks strong in upcoming quarters.
Product and platform declined 1.0% QoQ in CC. Some of the ERS business are grouped under this segment from now on. HCL exited some of the IP partnerships.
EBIT margins were at 19.6%, down 80bps QoQ. There was a FX gain of 19–20bps and 60bps benefit from lower amortization compared to the last quarter while 90bps headwind came from pandemic including on revenue, on leave cost which was over and above the entitlement and on covid support cost of 45bps. Additionally, hiring and retention cost impacted by 35bps and investment in new market & investment in R&D impacted by 30bps.
ETR at 21.7% and normalized was at 23.5%, it was low due to conclusion of previous tax provision.
Q1FY22 TCV of New Deal wins at USD1,664mn, registering 37% YoY growth, enabled by 12 large wins, including eight Large Services deal-wins and 4 significant product wins.
HCL won 8 large services deals and 4 significant product deals across the industry verticals of oil and gas, financial services and technology.
In terms of geography: Americas grew 2.6% QoQ and 13.5% YoY in CC; Europe decline 3.9% QoQ and 5.1% YoY in CC. HCL is investing in capability and sales onsite, more so in Europe as medium term strategy. It expects to deliver handsome growth in coming quarters; ROW grew 2.4% QoQ in CC.
In terms of verticals: Lifesciences & Healthcare grew 5.4% QoQ in CC, followed by Financial Services at 2.9% QoQ in CC and Technology and Services at 1.6% QoQ in CC and 17% YoY while Public Services declined the most at 3.4% QoQ in CC followed by Manufacturing (-2.2%), Telecommunications, Media, Publishing & Entertainment (-1.9%) and Retail & CPG (-0.1) QoQ in CC.
Momentous announcement has been that Shiv Nadar has handed over the MD position to CVK, and Roshni Nadar to continue as Chairperson.
LTM diluted EPS was INR49, up 13% YoY and cash EPS at INR60, up 5.1% YoY.
Maintained Guidance: Revenue expected to grow in double digits in constant currency for FY22. EBIT margin expected to be between 19.0% and 21.0% for FY22.
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Q1FY22 conference call highlights
Infosys
The company will launch compensation review in a phased manner from July 2021. It has increased FY22 revenue guidance by 200bps to 14-16% in cc and margin guidance unchanged at 22-24%.
Digital revenue grew at 42.1% YoY (in cc) and now accounts for 53.9% of revenue. Large deal wins were at USD2.6bn for the quarter. Net new contribution was at 30% in Q4FY21.
Financial services/ Retail/ Lifesciences/Manufacturing/Hi-tech/Energy, Utilities, Resources & Services/Others /Communication grew 22.6%/22.2%/21.2%/18.5%/14,8%/10.5%/10.2%/ 4.6% YoY (in cc).
Similarly by geography, North America/Europe/Rest of World/India posted YoY growth of 21.1%/12.2%/4.9%/20.7% (in cc).
Cash and investments stood at USD5.1bn. Utilization (ex-trainees) in Q1 improved by 80bps on QoQ basis to 88.5%, mainly on account of improvement in offshore utilization.
Sub-contractor cost rose 120bps due to growth accelerating, high utilization and strong demand for niche skills.
Onshore effort mix reduced further to a new low of 24.1%. RoE stood at 23.9% due to robust capital allocation policy.
Financial service segment saw continued steady momentum led by banking mortgage and wealth side. Significant improvement in payments sector likely to be seen.
Infosys won 22 large deals in Q1, of which nine were in Financial Services, four in CRL and Energy, Utilities, Resources & Services, two deals in Manufacturing and one in others. Region wise, 14 were from Americas and five were from Europe, two from Rest of World and One from India. Share of new deals was 30% in Q1FY22.
Client metrics remain robust with 100mn plus client count increasing to 34 clients in last quarter. Net employee addition during the quarter was 8,344 to fulfil extremely strong demand. Voluntary attrition in IT services increased to 13.9% as demand for talent increased. It expect the attrition remain elevated due to strong demand.
The company is seeing very strong demand from clients, good traction in AI, cloud, cyber security, among others. It is seeing that large enterprises are applying automation to their core and achieving efficiencies. It expects the trend to sustain.
Management is confident of achieving operating margin guidance despite wage hikes, higher attrition and more hiring.
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Q1FY22 conference call highlights
L&T Infotech
Constant currency revenue grew 4.8% QoQ and 17.8% YoY. In USD terms, revenue came in at USD470.2mn, up 5.1% QoQ and 20.4% YoY.
The Board of Directors has declared a special dividend of INR10 per equity share (face value of INR1) to commemorate completion of five years of listing on stock exchanges in India.
Management has pumped in talent significantly and utilisation has jumped due to increased demand.
Despite headwinds due to two wage hikes, LTI delivered good PAT margin.
LTI acquired Cuelogic Technologies, a Digital Engineering and Outsourced Product Development company.
Operating margin fell 300bp YoY to 16.4%. Net income margin was at 14.3%. Voluntary attrition in IT services stood at 15.2%. Utilisation was at 83.7%, including trainees.
During Q1, LTI added 2,307 employees on net basis. At end of Q1, headcount was 38,298. DSO stood at 60 days.
Among verticals, BFS grew 9.6% QoQ; insurance grew 5.3% QoQ; Manufacturing grew -6.6% QoQ; Energy & Utilities declined 4.7% QoQ; CPG, Retail & Pharma grew 4.4% QoQ; Hi-tech, Media & Entertainment grew 13.1% QoQ; and Others grew 0.5% QoQ.
By geography, North America contributed 67%, Europe 16.6%, India 9.6% and RoW 6.7% to revenue.
The revenue breakdown by service offerings stood as follows--ADM and Testing 34%; Enterprise Solutions 30.7%; Cloud infrastructure & Services 14.9%; Analytics, AI & Cognitive 11.7%; and Enterprise Integration & Mobility 8.7%.
Operating cash flow was INR943mn, which was 91% of net income for Q1FY22, due to increase in DSO and annual incentive pay out.
Outlook: PAT margin guidance of 14-15% for FY22.
Three important factors for lower cash flow: 1) annual incentive pay out; 2) pass through revenue to vendors; and 3) increase in DSO.
LTI has been recognized as the Global Innovation Partner of the Year by Snowflake, a Data Cloud company.
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Q1FY22 conference call highlights
L&T Technology Services
Constant currency revenue grew 4.3% QoQ and 18.6% YoY. In USD terms, revenue came in at USD205.7mn, up 4.2% QoQ and 20.3% YoY.
EBIT margin 17.3%, up 70bps QoQ and 520bps YoY. 70bps improvement was led by portfolio shift to digital, operation efficiency measure, cost optimization, fx benefit.
Other income was higher on QoQ basis due higher treasure income and fx gain. It is moving to new tax regime, ETR for FY22 is expected to be range of 26.5% and 27%.
It won 11 deals across segments, with 6 deal wins of TCV of USD10mn plus which includes 2 deals with TCV of USD25 million plus.
Revenues from digital and leading edge technologies stood at 54% (compared to 52% in last quarter) during the quarter.
Revenue growth vertical wise (%, QoQ) – 1) Transportation (4.3%). 2) Industrial Products (7.8%). 3) Telecom & Hi-tech (3.8%). 4) Plant Engineering (4.1%). 5) Medical Devices (-0.9%).
Revenue growth geography wise (%, QoQ) – North America (5.5%), Europe (4.8%), India (2.9%) and ROW (-4.7%).
Segmental margin improved across the segments with 19.3% EBITDA margin in Transportation.
DSO were 85 days compared to 75 days in Q4FY21. DSO including unbilled stood at 112 days. DSO were higher due to first phase of system integration which led to delayed invoicing. Higher DSO in Q1FY22 is temporary situation, it will improve in coming quarters.
Free cash flow generation was INR687mn, drop was due in higher DSO, which is expected to normalize.
Offshore and Onsite revenue mix stood at 58.1% and 41.9%, respectively.
Total headcount stood at 16,972, net addition of 520 employees. Voluntary attrition on LTM basis stood at 14.5% compared to 12.2% in Q4FY21. Utilization including trainee stood at 79.2% compared to 78.9% in Q4FY21.
Outlook: The growth will continue to be broad-based. Demand outlook continue to be strong in US and Europe, while in India and Japan the outlook is improving. USD revenue growth guidance for FY22 increased to 15-17% (13-15% earlier). Margins in Q2FY22 will face headwind of residual wage hike for mid to senior management, it will offset it using cost levers like employee pyramid and productivity. Growth and quality of revenue are also major lever for margins.
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Q1FY22 conference call highlights
Mindtree
MTCL reported revenue of USD 310.5mn, up 7.7% QoQ and 22.6% YoY. Constant currency revenue was up 7.6% QoQ. EBITDA margin stood at 20.3% compared to 21.9% in Q4FY21.
Contribution from geographies: North America (76.6%), Continental Europe (8.6%), UK and Ireland (7.6%) and APAC and Middle East (7.2%). Investments in continental Europe, UK and Ireland helped deliver growth of 11.2% QoQ.
Contribution from industry: BFSI grew 6.4% QoQ (18.2%), Communications, Media & Technology grew 6.9% QoQ (45.4%), Retail, CPG & Manufacturing grew 7.7% QoQ (22.1%), Travel, Transportation & Hospitality grew 13.1% QoQ (13.3%) and HealthCare (1.0%).
Revenue contribution from services lines: Customer Success (40.0%), Data & Intelligence (15.0%), Cloud (19.9%) and Enterprise IT (25.1%).
Total TCV stood at USD504mn (up 34.2% QoQ) which was the highest ever in the company’s history compared to USD391mn in Q1FY21 and USD375mn in Q4FY21.
Net headcount addition of 3,442 (highest ever in a quarter) taking total headcount to 27,256. Attrition was 13.7% on LTM basis, whereas utilisation stood at 83.2% compared to 84.3% in Q4FY21.
Offshore to onsite mix effort improved further with offshore contribution increased to 83.5% compared to 82.9% in previous quarter.
Client contribution: Top client (27.4%), Top 5 clients (38.5%), Top 10 clients (47.5%), Top 20 clients (60.2%).
MTCL added seven new clients; total client count at 260 compared to 270 in previous quarter. Clients above USD100mn and USD50mn remain at one, while above USD20mn increased by 1 to 8, above USD10mn increased by 5 to 25, above USD5mn increased by 3 to 47 and above USD1mn increased by 2 to 120.
It recently completed acquisition of L&T NXT business which will strengthen MTCL’s ability to reimagine and drive industry 4.0 vision, leveraging IOT, digital and cloud seamlessly.
Over the past two years, MTCL has rationalized 150 long tail accounts. It will continue to rationalize the long tail as and when it sees the opportunity.
There is 330bps shift in offshoring during the last one year due to focus on large transformation programme, long-term annuity and WFA model. It expects offshoring to settle at 85%.
Cash flow: Free cash flow was INR973mn compared to INR5,986mn in Q1FY21.
Cash and cash equivalent stood at INR29,025mn compared to INR18,665mn in Q1FY21.
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Q1FY22 conference call highlights
Persistent Systems
Revenue stood at INR12,299mn, up 10.5% QoQ and 24.1% YoY. EBIT margin stood at 13.5%, up 30bps QoQ. PAT for the quarter was INR1,512mn, up 9.8% QoQ.
TCV stood at USD244.8mn compared to USD246.5 in last quarter, whereas new business TCV was USD147.7mn compared to USD137.7mn in last quarter. Total ACV for the quarter was USD188.8mn compared to USD200.7mn, whereas new ACV for the quarter was USD93.5mn compared to USD96.9mn in last quarter.
Total headcount stood at 14,904 with net headcount addition of 1,224. Attrition stood at 16.6% on TTM basis. While blended utilisation was at 80.1%, utilisation for Global Delivery Centers and India stood at 88.5% and 79%, respectively.
Regular salary hike cycle is July for the company and it has already given letter for hike.
Acquisition of Capiot is progressing well and will continue to see QoQ growth. Persistent continues to scout for potential M&A and currently evaluating 3-4 companies for acquisition.
Sequential revenue by business offering: Services was up 11.5% QoQ and IP-led declined by 4% QoQ.
Sequential revenue by segment: BFSI was up 11.8%, Healthcare & Life Sciences up 15.5% and Software, Hi-Tech & Emerging Industries up 5.2%, mainly due to its core strength in digital engineering.
Top-10 clients’ contribution remained flat at 46.7%. Large client (above USD5mn revenue) count increased by four to 21 compared to last quarter, while medium size client (between USD1mn and USD5mn revenue) rose by ten to 76.
Announced dividend of INR6.0 per share.
Cash & cash equivalents at INR19,955mn compared to INR19,831mn in previous quarter. DSO for the quarter was 54 compared to 55 in the previous quarter.
It continues to strengthen its leadership--appointed new Chief Delivery Officer Mr. Suresh Prabhu. He has over 30 years of experience in digital transformational projects: new product engineering, product modernization and enterprise solutions delivery.
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Q1FY22 conference call highlights
Tata Consultancy Services
TCS reported revenue growth of 2.4% in cc. Revenue growth stood at 4.1%, excluding regional markets, which were down mainly due to a 14.1% decline in the India business. TCS grew 2.7% in USD and 3.9% in INR in Q1FY22.
Margin came in at 25.5%, decline of 130bps QoQ, which was mainly due to a 170bps headwind from a wage increase, which was partially offset by a 30bps currency benefit.
Revenue growth in cc by vertical: BFSI (3.1%), Retail & CPG (4.4%), Life Sciences & Healthcare (7.3%), Manufacturing (4.8%), Technology & Services (5%), Communication & Media (1.7%) and Regional Markets & Others (-5%)
Revenue growth in CC geography wise (%, QoQ): Within Americas, North America grew 4.1% and Latin America grew 4%; Within Europe, UK grew by 3.6% and Continental Europe grew by 1.5%; Asia Pacific grew 2.4%, India declined by 14.1%, whereas MEA grew by 4.2%.
In terms of order book, TCS is witnessing strong demand. In Q1FY22, total TCV stood at USD8.1bn, up 17.3% YoY. It was a heterogeneous mix of deals of all sizes and distributed across geographies and verticals. By vertical, deal wins were at USD2.2bn in BFSI and it again achieved all-time high deal signing of USD1.5bn in retail, and order book in North America stood at USD4.0bn.
Clients count in USD100M+ was up by 2; USD50M+ was up by 5; USD20M+ was up by 11; USD10M+ was up by 23; USD5M+ was up by 22 and USD1M+ was up by 52 on YoY basis.
Total headcount stood at 509,058 with net addition of 20,409, which was highest ever quarterly net headcount addition. LTM Attrition in IT services stood at 8.6%, still lowest in the industry though it is inching up. Over 70% of workforce vaccinated till date; all TCSers and families to be covered by Sep 2021.
Dividend for the quarter was INR7.0 per share.
Cash flow from operations for the quarter was at INR103bn, which was 114.3% of net profit.
On Sustainability front, TCS is helping customers to move their operations on Hyperscalers, which provides more efficient data centres and facilitates running data centres on renewable energy, which helps customers pare carbon footprint. TCS is committed to reduce its own carbon footprint by 70% by 2030 vis-à-vis 2016.
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Q1FY22 conference call highlights
Tech Mahindra
TECHM had a revenue of USD1.38bn, up 4.1% QoQ and up 14.6% YoY. Constant currency grew by 3.9% QoQ.
EBITDA margin contracted 160 basis points QoQ to 18.4%, Net income margin at 13.3%. Voluntary attrition was at 17%.
Amongst the industry, Communications, Media & Entertainment grew by 3.2% QoQ, Manufacturing 4.5%, Technology 8.1%, Banking, Financial services & Insurance 3.7%, Retail, transport & Logistics by 3.2% QoQ and Others by 4.8%.
Amongst the geographies, Americas grew 6.8% QoQ, Europe 6.6% and ROW - 2.7% QoQ.
Management guided for overall double digit revenue growth with margins higher than 15% in FY22.
Free cash flow was at USD172mn, Free cash flow to PAT conversion now stands at 94.1% for the quarter. DSO was at 93 days, lower by 1 day1 QoQ and 14 days YoY. Cash and cash equivalents stood at USD1.8bn
Management highlighted that there is good solid demand and conversations going for both devices and software side in 5G integration. It is one of the transformation story and continue to be least capital intensive.
Two key challenges are supple side talent situation and costs coming back once travel resume.
Management is focused on key metrics like no. of USD50mn accounts, volume of large deals and revenue per account.
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Q1FY22 conference call highlights
Wipro
IT services revenue growth in Q1FY22 was well ahead of the top-end of the guided range both organic and with Capco. It was highest organic sequential revenue growth in the past 38 quarters (in cc), growing 12% QoQ and 21.3% YoY and stood at USD2.41bn.
Guidance for Q2FY22: Revenue for IT services business is expected to be in the range of USD2,535mn to USD2,583mn, which translates into sequential growth of 5-7%.
It closed eight large deals, resulting in TCV of over USD715mn.
EPS grew 41% YoY to INR5.92 per share.
Wipro gained traction across markets. In Americas 1, it grew 5.4% QoQ on cc basis with most of the sectors clocking strong growth. In Americas 2, it grew by 16.4% QoQ on cc basis led by surge in volume and Capco. In Europe, revenue grew 19.0% QoQ on cc basis riding several large deals it won during the year. APMEA grew 1.3% QoQ and saw improved environment in Australia and South- East Asia.
iDeals business line grew by 18.3% QoQ on cc basis led by sub-practices. Announced cloud related projects across geographies. Icore grew 3.7% QoQ in cc; all three services offering which includes Cloud Infrastructure, Digital Operations, Risk & Enterprise Cyber Security Services grew well during the quarter.
By segment, Technology and Consumer segments reported strong growth of 2.7% and 14.1%, respectively, Banking, Financial Services and Insurance (+22.4%), Energy, Natural Resources and Utilities (+11.1%) while other segment declined during the quarter with Communications (12.8%), Manufacturing (- 1.1%) and Health (+2.6%).
Customer count in USD100mn plus account moved from 11 to 13 and USD50mn plus account moved from 40 to 42 in Q1FY22.
Net workforce increased by over 12,150. Attrition inched up 340bps QoQ to 15.5%. Gross utilization increased 100bps QoQ to 77.7% due to improved productivity.
Cloud is at the centre of the customer conversation, be it Cloud migration, cloud native application or multi hybrid (public + hybrid) cloud. The deal-wins are more integrated and transformational in nature now.
Operating cash flow stood at INR33.5bn, at 103.7% of net income, and free cash flow grew 155.9% QoQ to INR29bn, at 89.6% of net income.
Issued first ever bond offering in the international markets of USD750mn with a 5-year tenor.
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Q1FY22 conference call highlights
Lubricants
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Q1FY22 conference call highlights
Castrol India
Financial highlights Revenue grew 66% YoY as volumes jumped 58% YoY (15% QoQ) to 60mn litres. Pricing action taken in Jan-21, Apr-21 and Jun-21 resulted in realisation growth of 4% QoQ (17% YoY).
In Q2CY21, management spent INR350-400mn on ads spends. Packaging costs have also increased owing to steep input costs.
Gross margins contracted 132bps YoY (386bps QoQ) with an increase in base oil prices, partly offset by the company’s corrective pricing action. However, EBITDA margin grew 278bps YoY in Q2CY21 as operating profit rose 107% YoY to INR43,389/KL.
Efforts on cost efficiency and judicious working capital management resulted in robust cash flow accretion of INR2.7bn in Q2CY21.
Capex for CY21 is estimated at INR1 to 1.2bn. Operational highlights The corrective pricing action taken in the CV oils space continued to yield volume growth in Q2CY21. It resulted in market share in bazaar increasing to 18%.
Personal mobility formed 40% of the mix, while 40-45% was from CV oils and the balance was from industrials. The industrials business was hit in the second wave and subsequent lockdowns and is recovering now.
Management undertook a third price increase in Jun-21 across products to combat the impact of higher base oil prices (after the increases in Jan-21 and Apr-21).
Management sees higher market share in synthetic oils vis-à-vis Castrol’s market share and continues to see strong gains in the same.
As per Nielsen, Castrol’s market share in the bazaar segment stands at 22-23%, while the second closest player stands at 7%. In 2W, 4Ws and CVs, Castrol had 26-27%, ~35% and ~18% market share respectively.
Management has outlined volumes and absolute gross margins as key strategic priorities, with personal mobility forming an integral part of growth. Thus, management will continue to drive investment in distribution and brands, including ad spends as required.
The company paused its pilot with 3M in light of the pandemic and is making certain changes across its portfolio on the basis of the same. The pilot should resume in Sep-21 and launch over a few more cities from the six originally launched in the pilot.
Strategic partnership with Jio-BP: The company entered into a strategic partnership in Q2CY20 with Jio-BP as the sole supplier of lubricants and access to 1,350 retail sites, which it plans to expand to 5,500. This should result in additional touch points for customers and fresh visibility for Castrol. Castrol launched oil changing stations Castrol Express Oil at two sites with plans of expansion and believe the same should aid in market share growth.
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Q1FY22 conference call highlights
Castrol has also been focused on ESG, with the parents’ Path 360 Programme, which focuses on reducing carbon, waste and improving people’s lives by providing better products. Management is looking at plastics reduction, and renewables as key measures to start with. In order to lower energy consumption, Castrol is looking at blending at lower temperatures.
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Q1FY22 conference call highlights
Gulf Oil Lubricants
Financials Revenue grew 73% YoY as volume growth was at 57% YoY versus Castrol’s 55% YoY growth.
Volumes grew 57% YoY in Q1FY22 to 27,500KL as end-user markets were impacted by localised lockdowns in lieu of the second wave which caused lower B2C sales. The impact, however, was lower than Q1FY21 which was impacted by the first wave and the nationalised lockdown. Thus, manufacturing and infrastructure activities continued in Q1FY22 resulting in volumes in B2B segment.
Realisation grew 3% QoQ, 10% YoY, and should continue to rise as lower priced pipeline inventory is exhausted and price increase across categories come into effect.
Gross profit margin dipped 523bps YoY, 244bps QoQ on higher base oil prices. Consequently, gross profit per KL contracted 2% YoY to INR61,610 in Q1FY22.
EBITDA margin contracted mere 45bps YoY to 10.1%, on a weak base and EBITDA rose 66% YoY (21% below estimates). EBITDA per KL thus rose 5% YoY to INR15,319.
Finance cost owing to MTM losses on forex loans. Operational performance and markets During Q1FY22, April and May were hit by shutdown of retail markets by 40-50% owing to the partial lockdowns. However, there was a recovery in June and markets are rebounding with 95% of GOLI’s business operational.
OEM factory fill in CVs is yet to pick up in Q2FY22.
The B2C:B2B mix in Q1FY22 was 50:50 broadly.
Q1FY21 end user break up was at: 49% from diesel engine oils and personal mobility; 15% from industrial oils; and 36% from others (brake fluids, greases, etc).
The broad contribution from 2W is ~18% of overall sales, of which ~5% is from scooters and mopeds, and negligible volumes to 3W.
With rural markets impacted in Q1FY22, agri had a slightly weak quarter, however, it has picked up since lockdowns eased.
B2B OEM prices have also been reset and should aid in margin expansion.
With base oil prices have been on the increase, management anticipates a dip in margins until prices are passed on. GOLI has taken price hikes across segments which should be fully effective as channel inventory at lower prices is sold. However, base oil prices have peaked and should augur well for the company.
Costs continue to rise on account of higher diesel prices, packaging costs and freight.
Brand investments continue with various campaigns during the quarter.
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Q1FY22 conference call highlights
The company has amended its ‘Objects Clause’ of the Memorandum of Association to explore and pursue business opportunities in multiple areas of e- mobility and EV value-chain including inter-alia EV batteries, EV chargers and charging related infrastructure, electric vehicles, SaaS & MaaS in and around EVs. Other highlights GOLI has a range of BSVI products, with higher realisations as they require better technology to comply with low ash and low sulphur norms. The BSVI oils are compatible with BSIV vehicles and improve performance of the BSIV engine.
The parent has a range of oils for EVs and hybrids, and management plans to leverage the technology and experience in the domestic market. Management also plans to grow presence in the segment with investment in Indra, as requirement of oils in EVs remains lower.
GOLI announced an investment of GBP1.5mn in Indra Technologies for a 7.85% stake. Indra Technologies is a start-up focused on EV charging stations with a 5% market share in UK. The company is primarily focused on home charging stations and Vehicle to Grid technology. GOLI plans to leverage this partnership as EV demand picks up as the company believes that home charging will be a primary usage for consumers.
Management anticipates stable growth for the next 10-15 years in lubricants owing to large new vehicle sales.
Management is looking to localise manufacturing of 2W batteries in the future and plans to grow it further. However, imports shall continue in the near term.
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Q1FY22 conference call highlights
Media
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Q1FY22 conference call highlights
Inox Leisure
Overall Operations lasted only for initial weeks of April, screens have been shut for rest of the quarter due to restrictions and lack of content
The company saw footfalls of 0.8mn during the quarter. Occupancy during the quarter overall was at 12%
With cinemas allowed to operate in 13 States and 1 Union Territory, 113 INOX multiplexes with 459 screens will be resuming operations in the coming days in a staggered manner
With 1 new property, with 5 screens and 694 seats, inaugurated in SBR Horizon Mall, Bengaluru, in April 2021, the Company now operates 153 multiplexes with 648 screens in 69 cities across the country.
INOX has successfully raised INR3000mn via QIP in Jun 2021. As on 31st July 2021, Gross Debt is INR1170mn
Properties worth INR3500mn are available for sale and lease back
The company will ensure stringent norms to win customer confidence along with incentives to bring back customers
Company has opened 201 screens for operations as on 2 August 2021
Coming quarters should be sequentially better
Management believes erstwhile movie windows would be preserved
Company has been able to get good reduction in minimum guarantee and some contracts have been converted to revenue sharing model
For 65% of the portfolio, rent and CAM negotiations have been settled
The company has around INR4000mn in liquidity, including undrawn bank credit lines of INR1200mn
Management believes there is strong pent up demand and major films will see good footfall
Content Producers seems to be ready to release the movies irrespective of Maharashtra opening up fully
Producers keen to go ahead with releases despite 50% cap restriction
OTT releases are only a pandemic driven trend, there is no structural shift in the industry
There should be no delay on Bell Bottom movie release
The management believes there will be no major delays for the movies who have announced their dates
Capex
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19 screens are a carried-forward from FY20 pipeline. 90% of the work is completed on these screens, additional capex of INR80-100mn will be needed for this
Opening of the remaining 25 screens will be decided once the situation normalizes, and this would require a CAPEX of roughly INR650mn
Beyond FY22 company has signed more 133 properties and 926 more screens
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Q1FY22 conference call highlights
PVR
Overall As on date, 12 states and 2 UTs where PVR is present in India and Colombo (Sri Lanka), have allowed cinemas to reopen with varying norms relating to social distancing. These account for 526 screens across 111 properties (63% of portfolio).
PVR expects to reopen its screen portfolio on staggered basis starting July 30.
The second wave of covid impacted Q1FY22 operations significantly; the quarter was marked by staggered shutdowns in April.
The company has kept its focus on keeping fixed costs low to reduce the cash burn and preserve liquidity. It availed additional liquidity of INR2000mn under the ECLGS 3.0 scheme during the current financial year.
As on June 30, 2021, the company had total liquidity of ~INR8,500mn, including unutilized sanctioned credit lines.
States will remove restrictions in a calibrated manner as the festival season comes closer, provided the number of covid cases show decreasing trend.
PVR believes OTT releases and simultaneous releases are only a temporary trend and not a structural shift.
Management believes producers and talents also find that simultaneous OTT releases affects overall film revenue apart from the snob value associated with theatre release.
Delivery business Beta trial opening will coincide with opening of theaters. Around 90 locations will be delivering food. PVR has tied up with Zomato for the same.
There will be some minor fluctuations in revenue sharing with distributors for the next 3-4 months, but it will be back to normal by end of FY22.
Movie windows are based on agreements made film to film, but windows will be back to normal levels by end of FY22.
Content Akshay Kumar starred “Bell bottom” will be the first upcoming major movie to be released on August 19.
Producers of Hindi films are ready to release movies even with restriction of 50% cap on theaters, provided major markets like Maharashtra, Delhi and Uttar Pradesh open up.
Telugu films will see fast release as producers are keen to put out content.
PVR expects big films to start releasing from end-September.
There has been no major disruption recently to shooting of content.
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Rent & CAM The company has restarted its engagement with landlords to seek waivers / discounts for Rent & CAM payments.
Pending outcome of discussions with landlords, company has followed prudent accounting policy and made full provision for CAM expense.
PVR expects the rental waiver / discount discussions to get concluded in Q2FY21 as cinemas are permitted to reopen.
Negotiations are underway for with landlords for a short term reset on minimum guarantee till the 50% cap restrictions last.
New properties will be onboarded on contracts leaning towards a revenue sharing model.
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Q1FY22 conference call highlights
Sun TV Network
SUN TV has changed the method of movie useful life estimation. It is now amortised over four years (30% in first two and 20% in last two years).
The change in method of estimation is in line with global standards.
Truncated IPL season created impact of roughly INR400mn in PBT.
The company has other income in base amounting INR350mn which was a one- time gain.
The second wave has impacted retail advertisements significantly and may take time to recover.
Advertisement income was INR2440mn, broadcasting income was INR20mn.
International revenue was INR250mn.
Pay channel and digital revenue was INR2010mn and DTH revenue was INR2140 and IPL revenue was INR1240mn.
The company believes there will be no major impact from NTO 2.0 presently.
Presently uncertain on subscription growth for FY22 as more clarity on NTO order is needed.
The company is planning to launch a Rajinikanth starrer movie on November 4th.
Working on five major movies which should see release one after another after November 4th, if the environment is favourable.
Management believes around 50% of earlier guided capex on movies might be actually invested, but the guidance stands over a two year basis.
Present focus is on movie production, OTT originals will ramped immediately after by management, once some normalcy returns.
The OTT platform has 23.5mn subscribers, however majority of these are from tie-ups with telecom players.
Has a strong line-up of big-ticket non-fiction shows.
Launched the show MasterChef in Tamil and will launch it in Telugu. The company is also launching KBC in Telugu.
The company also has a strong line up in Malayalam and Bangla languages.
Announced a dividend of INR3.75 with payout ratio of 75%.
Aim to keep payout ratio at usual levels of 45-75% going forward.
The deals with the telecom companies for OTT gives only limited access to library.
Company aims to reach 11mn households over few years for their OTT platform.
Company is looking to bring to market some well-known international format non-fiction shows.
MasterChef show also invoked good response on the OTT platform.
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Digital ad market still in earlier stage.
Fiction shows will ride on the traction of new non-fiction shows.
The company has gained market share this quarter.
There are at least 5 to 6 new shows launching in prime time in Telegu language.
Amortization is lower by INR700mn due to the change in policy.
Major focus remains linear TV, however OTT investments and content will be built gradually.
There are no major acquisition plans presently.
The accounting policy will apply to all satellite rights; however production cost will be expensed.
The company estimates that 1500mn should be amortized for the whole year.
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Q1FY22 conference call highlights
Zee Entertainment Enterprises
Overall Company saw 127.9%YoY domestic ad growth and 2%YoY subscription revenue growth
Domestic ad revenues fell 22.7% from Q1FY20 levels, most of this is because of yield
Fall in ad revenue was lesser than first wave
The all India network share dropped by 190bps QoQ to 17% this quarter
Drop in viewership share was led by lockdown disruption which affected fiction shows that could not be produced due to restrictions and soft performance in some markets
Company is seeing pickup in viewership share as they enter Q2FY22
TV reach and impressions overall grew by 7% and 9% QoQ respectively
Bengali, Telugu, Kannada and Hindi movies continue strong performance
Zee TV, Zee Marathi and Zee Tamil performance was soft during the quarter
Company will revamp Hindi, Marathi and Tamil programming line-up in Q2FY22
Strong slate of movies across Hindi, Tamil, Telugu, Marathi and Punjabi languages are being planned for releases starting H2FY22
Domestic ad revenues for both Q1FY22 and Q1FY21 were impacted by lockdowns. However, the impact this year was much lower, reflected in 127.9% YoY growth.
Embargo on pricing change due to NTO 2.0 litigation continued to hurt domestic television pay revenue growth. The 2% growth over Q1FY21 is driven primarily by digital business.
The drop in other revenue is on account of a large movie syndication deal in the previous year
Company remains positive about strong ad revenue bounce back
Company will launch 30+ new shows in Q2FY22 alone
Cash and cash equivalents as on Q1FY22 end is INR17.4bn
Hindi, Marathi and Tamil GEC will be the focus of the company going ahead
Zee comedy show launched in July 2022
40% conversion of Daily users is on the back of new annual price
Margins for the whole year will be lesser than earlier guided 25%
Company has started work on 20 films but all may not release in FY22 as theaters situation is still evolving
Paying digital customer base in India is between 40-50mn and in next 5 years it is set to reach 180-220mn, company target is around 20-25% market share
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Dish TV outstanding is around INR3.7bn and complete outstanding will be recovered by FY22
Margins Programming cost increased YoY as original content production largely continued across the states during the lockdown at alternate locations
Increase in marketing cost on a YoY basis is on account of release of Radhe and continued investments in ZEE5
Marketing costs in Q1FY21 was lower on account of much lower original content production
Additional expenditure of INR270mn for shifting production was incurred
Zee5 Zee5 reached 80.2mn global MAUs, 7.1mn global DAUs in June 2021
Zee5 saw 190 minutes average watch time per viewer per month in Q1FY22
Q1FY22 Revenue and EBITDA stood at INR1,117mn and INR(2,033mn)
11 original shows and movies released during the quarter on Zee5
Radhe and Friends gave strong push to traffic.
Company has strong line up for Zee5 and is focused on user growth
Zee5 has entered the US market this quarter
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Q1FY22 conference call highlights
Metals & Mining
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Q1FY22 conference call highlights
Coal India
In focus FY22 sales and production volume expected at 705-710mt and 650mt respectively.
Receivable down by INR29bn compared to Q4FY21 levels to INR171bn as on Jul- 21 end
Expect wage hike in FY22 to be lower compared to FY17
Do not rule out a price hike inline with international coal price movement and upward pressure on CIL’s cost
E-auction premium in August is at 50% to FSA realisation
Expect to sustain EBITDA margin between 28-30%
Expect strip ratio at 2.5:1 in order to maintain the proper mine geometry
Comfortable with FY22-end inventory level of 70-80mt
Capex target left unchanged at INR170bn of which core capex expected to be INR130bn
Expect dividend payout to be higher compared to FY21 E-auction E-auction premium reduced in Q1FY22 owing to dispatches booked in H2FY21 being sold in the Q1FY22. E-auction volumes are currently being booked at INR1,700-1,800/t and management expects premiums to rise in H2FY22.
E-auction volumes are likely to be maintained at 20-25% of overall volumes.
CIL had given a time extension to traders to pick up coal till July. Post expiration of the same, management has seen e-auction premiums rise.
Production/sales target is anticipated 640-650mt/710-720mt. Other operational FSA price increases are being worked upon aggressively and management should take decisions soon as costs have increased.
Demand remains strong for coal, and management does not anticipate a similar situation as FY21 where production was regulated.
Management sees evacuation to be a major constraint and has earmarked INR1.5bn for expansion of rail lines.
Completion of Angul-Balrampur line will result in evacuation increase of 100kt per day, and construction has started on Sardega-Jharsuguda line (40-50kt per day) and doubling of Tori-Shivpuri line.
Management has currently contracted 130% of planned production target of 650mt to ensure production target is met.
Management is comfortable with inventory of 70-80mt and inventory above 100mt is alarming. During the quarter, inventory was reduced by ~37mt.
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Management is working on multiple projects for first mile connectivity, which are likely to be completed towards the end of FY23.
CIL has got an order of 100MW solar capacity in Gujarat and management is working on 250MW solar capacity for own operations.
To reduce carbon footprint, management is focusing on solar power and identified 250MW for operations and also plan to take up solar power projects. Management is also focusing on railway connectivity and increased afforestation target to 1,300 h.a. for FY22.
Management has not planned for further expansion of washeries as washed coal does not have demand from power plants. Financial highlights Employee costs included provisioning for post-retirement medical benefits of INR6bn, resulting in higher-than-planned employee costs. Management estimates employee costs to revert to average of INR97bn per quarter.
Wage cost revisions provisioning is not expected to be materially significant and not included in wage cost estimates.
Receivables for CIL have reduced to INR186bn by the end of Q1FY22 and further reduced to ~INR171bn by the end of Q1FY22.
The company is targeting a capex of INR170bn on a consolidated basis, including investments in the two subsidiaries – HURL and TFL. INR130-140bn is earmarked for coal capacity and evacuation expansion.
Management anticipates a neutral impact from OBR during the year, however, OBR is targeted at 1400-1500mn cubic metres during this year.
Management plans to maintain EBITDA margin at 28-29% and thus, should maintain dividends.
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Q1FY22 conference call highlights
Hindalco Industries
In focus Soft domestic market for both Aluminium and Copper in Q1FY22
Will stick with the strategy of downstream instead of upstream expansion
Board has approved 170kt of FRP capacity at Hirakud and Aditya at INR300bn investment. Project is expected to be commissioned by FY25. IRR expected at 15%.
50% of 170kt from new FRP project will be exported. Higher end of products: Can body stock, Hard alloy for defense etc.
Evaluating cleaner source of energy for adding pots in Aditya smelter. Can add an additional 50ktpa through debottlenecking.
Net debt increased sequentially owing to higher working capital requirement at Copper division. However, it is funded by buyers’ credit at sub-3% interest rate.
Copper TC/RC margin dropped to USc10/lb in Q1FY22. Currently, it is at USc14/t owing to Chinese smelters producing copper through blister route.
Q1FY22 CoP/t at domestic Al division was up 4%QoQ. It is likely to go up further 5%QoQ in Q2FY22 mainly on higher coal and CT pitch cost.
Hedging levels remain unchanged. For FY22- 32% at USD1,913/t and for FY23- 23% at an average of USD2,229/t
Al sales lower in Q1FY22 as 10kt stuck at port.
Coal mix in Q1FY22- 69% from linkage, 22% from e-auction and 5% from captive mines. Going ahead, captive sourcing will increase by 5%.
Ongoing DGTR cases- Can body from ASEAN countries, WR from Malaysia and FRP from China
FY22 standalone capex likely at INR27bn at standalone operations. Sustainability Focus on water positivity. All sites targeted to be net zero on water discharge by 2025.
Waste recycling is a key focus and HNDL reduced freshwater usage to 82.7% compared to 2015 baseline.
246MW of potential solar capacity has been identified on existing land, of which 101MW targeted for FY22. 49MW has been implemented, and 52MW is on track for commissioning during the year. 32MW has been identified so far for FY23.
Management is exploring a pumped hydro project with storage for Aditya, with a timeframe of 2 years. Additional capacity of 50ktpa can be added post the same via debottlenecking.
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Q1FY22 conference call highlights
Macros Global Al production grew by 6% YoY in H1CY21 led by rise in production in China by 9%, while rest of the world (RoW) saw only a modest increase of 3%. Global Al consumption rose 14% YoY driven a sharp increase of 18% YoY in RoW while China saw an increase of 12%. Consequently, global market balance slipped to a deficit of 0.1mt in H1CY21.
Q1FY22 domestic Al demand was up 54%YoY to 884kt due to base effect. However, it was down 18% sequentially. Imports dipped both for scrap and other forms, with scrap down 11% YoY and others down 27% YoY.
Indian FRP demand is estimated to have dipped sequentially due to lockdowns on account of the second wave. Pharma and food packaging are expected to grow whereas consumer durables, automotive and B&C will face some challenges. Demand is expected to recover in Q2FY22.
Global copper consumption grew by 9% to 11.7mt in H1CY21. Cu consumption grew by 9% YoY each in China and RoW. However, Cu supply is seeing major disruptions on the mining front with covid-19 outbreak continuing and community issues in both Peru and Chile, together accounting for 45% of global supply.
Domestic market grew 30% YoY in Q1FY22 (down 27% QoQ) due to the second wave. Imports grew 10% YoY (5% QoQ) over the same period.
There has been an improvement in spot Tc/Rcs on the back of Chinese smelting copper through blister route. Spot Tc/Rcs are further expected to increase on commissioning of new mines.
The Indian government is currently evaluating trade dumping in three products: 1) wire rods from Malaysia; 2) foil stock from ASEAN; and 3) FRP from China. Aluminium Q1FY22 shipment was lower by 10kt as volumes were stuck on ports.
With the Utkal expansion complete, commercial production has commenced in August-21. The incremental volume would replace expensive alumina in the HNDL value chain and also be sold externally. The company is already selling Alumina to one of the domestic users.
While management looks at debottlenecking of capacity, the focus of capital allocation will be towards the downstream business as source and cost of power remain an issue.
Board approved INR300bn investment for 170ktpa high-end FRP capacity at Hirakud and Aditya. This is primarily hard alloys for defence and industrials, ACPs for B&C, can body stock and foil stock. The Phase 2 project will take 2-3 years to execute and will leave 180ktpa of hot mill capacity at Hirakud for the Phase 3 project. 50% of the volumes from the line are expected to be exported.
Expansion at Silvassa is also underway for higher extrusion capacity.
HNDL has bid for Burapahar coal block and with Chakala (5mtpa) would aid in increasing coal security and reducing costs.
Management has hedged 32% of LME Al at USD1,913/t for FY22 and 23% of LME Al at USD2,229/t for FY23- including an additional 5% hedged at USD2,500/t in Q1FY22.
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Cost of production was up 4% sequentially in Q1FY22, and is expected to increase 5% QoQ in Q2FY22 owing to 8% rise in coal prices and 25% increase in CT Coal pitch.
Coal sourcing for Q1FY22 stood at: Linkage: 69%; e-auction: 22% and own mines: 5%. Offtake from own mines should increase to 10% as new mines are ramped up. Copper Management plans to add further downstream capacity in Cu, beginning with 100kt expansion of wire rods via the scrap route.
The smelter-3 was under the shutdown in Q1FY22 and has ramped up now. Debt and Capex Capex of INR27bn is planned in the domestic operations.
Gross and net debt stood at INR678bn and INR519bn at the end of Q1FY22 from INR842bn and INR623bn at the end of Q1FY21, respectively, post-acquisition of Aleris. Net debt to EBITDA for the consolidated entity was 2.26x (versus 2.59x at FY21 end).
There was a rise in gross and net debt sequentially owing to higher working capital in Cu business secured at buyers credit at sub-3% interest rate.
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Q1FY22 conference call highlights
Jindal Stainless
In focus EBITDA guidance revised up to INR18,000-20,000/t from INR15,000-17,000/t.
Merger process is ongoing. First motion application pending before NCLT.
Cumulative capex over next three years at INR24bn for the merged entity.
Imports have gone up to 34% in Q1FY22 compared to 24% in Q4F21 owing to removal of protectionist measures by the government.
Product mix in Q1F22: 200, 300, 400 series at 17%, 53% and 30% respectively.
SMS capacity at Jajpur plant to go up from 1.1mtpa to 2.1mtpa at the cost of INR5.3bn. Full ramp up by FY25.
Payback period for new HRAP/CRAP capacity at less than 3 years
Scrap sourcing is increasingly being shifted from US/Europe to domestic/Middle East and South East Asia
Plan to commence mining in JV with Tata Steel by Q4FY21. Will usher cost benefits for ferrochrome. There is no additional premium except royalty
Credit rating upgraded to A+
Scheduled debt repayment for FY22 is INR350mn.
Merged entity will have 823.4mn shares Expansion of capacity JSL is doubling capacity at Jajpur from 1.1mtpa to 2.1mtpa of SMS and downstream and upstream facilities at a cost of INR21.5bn at one-third of greenfield capex cost.
The SMS is being expanded at a cost of INR5.3bn, while HRAP and CRAP capacity are being expanded to 1.25mtpa and 0.75mtpa at a cost of INR1.25bn. The steelmaking facilities should be completed by H2FY23.
Backward integration through ferrochrome augmentation is at an estimated capex of INR3.15bn with capacity increasing to 350ktpa. The estimated completion is Q3FY24.
Balance capex is expected to be paid for a quality lab and other balancing activities estimated at INR0.55bn.
The capacities should be ramped-up by FY25.
Payback period at an EBITDA/t lesser than the guidance should be ~3 years. Merger with JSHL The stock and SEBI approvals were received and management applied for first motion before NCLT on March 17, 2021 and are awaiting hearing on the same.
Net debt on a pro-forma basis stood at INR27.39bn with prepayment of INR20bn as new debt to equity stood at 0.4x, while net debt to EBITDA was below 1x. Interest rate is ~6% depending on utilisation of working capital lines.
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Consolidated capex for expansion across the two entities stood at INR26bn, with estimated capex of INR11bn across FY22-23E. Maintenance capex stands at INR2.5-3bn per year.
The merger process is expected to be completed by H2FY22 and management anticipates the merged entity to have 823.4mn shares. Operations and profitability Management increased guidance of EBITDA/t to INR18,000-20,000 from INR15,000-17,000/t.
Exports stood at 20% of the mix, due to restrictions and localised lockdowns to key high-realisation markets in Europe and US.
Domestic market remains impacted by low-value add imports from China and Indonesia where JSL does not have major presence.
While the focus of the company remains the domestic market, but exports balance is increased depending on pricing and mix.
In order to reduce raw material costs and improve scrap availability, management is planning to setup yards in international markets and increase domestic sourcing of metals and setup value-in-use yards on premises with scrap suppliers. This should minimise impact of logistics issues.
Product mix during the quarter stood at: 200:300:400 series: 17%:53%:30%. Key highlights of operations at JSHL Management is increasing value-added products capacity at JSHL at a cost of INR4.5bn, which includes capacity expansion of precision strips and blade steel at a cost of INR2.5bn and INR2bn respectively.
JSL Lifestyle has seen higher demand by Whirlpool and two new OEMs – Havells and Tata Motors. Management is aggressive on the same with thrust on automation and stepping up on marketing and branding activities. The Chennai plant is expected to incur a capex of INR250-300mn for the same.
Product mix during the quarter stood at: 200:300:400 series: 37%:46%:18%. Subsidiaries Steelway is catering to small customers and impacted during the lockdown.
Indonesian subsidiaries is facing challenges with respect to logistics and management is renegotiating with customers.
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Q1FY22 conference call highlights
Jindal Steel & Power
In focus Realisation has gone up (INR10,000/t QoQ) more than underlying domestic prices due to higher exports, superior mix, pellet prices
CoP/t is also higher mainly due to iron ore cost. Iron ore price increased to INR11,000/t from INR6,000/t QoQ
Benefits of low cost iron ore fines from Sarda exhausted in April-21. Expect iron ore cost to be higher in QoQ. However, long term contract with OMC and discounts by merchant miners should mitigate it partially
Overseas coal assets provide 45% coal security currently. Likely to help in insulating the company from high spot prices of coking coal
Likely to start Australian coking coal mine soon. Looking to ramp it up to 1.5mtpa by CY22 and 2mtpa by CY23. Not averse to divest the asset
Net debt reduction (like to like basis) limited to INR0.8-1bn owing to working capital build-up of INR30bn.
Expect net debt to reduce to INR100bn by FY22-end, taking into account the divestment of JPL
FY22 capex likely at INR20-25bn. Q1FY22 capex at INR2.6bn
Cost of DRI based steel is much lower than 100% coal fired plants as the company utilizes syn gas and coke oven gas.
Trying injecting hydrogen in blast furnace to reduce the carbon footprint further
Might look at RINL and NINL, if the price is right Steel operations In Q1FY22, JSPL saw an increase of INR10,000/t in realisations, however, costs increased by INR7,500/t, restricting EBITDA/t increase to INR2,500/t.
JSPL has exhausted the SMPL iron ore stock during the quarter, however, management does not foresee any dearth of iron ore in the state as the Odisha and Chhattisgarh governments have been giving preference to local steel mills. That said, there is likely to be cost escalation QoQ.
Management exported pellets along with semis and finished steel during Q1FY22 as share of exports stood at 34% vis-à-vis 27% in Q4FY21. However, there was an inventory build-up at ports owing to lack of vessels and containers.
Management is confident of achieving cost efficiencies by utilising coal from its own mines in Mozambique and South Africa. Captive coal is about 45% of the total requirement.
The company has booked coking coal at attractive rates upto Sep-21 prior to the recent price hike in the international coking coal prices
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Q1FY22 conference call highlights
Expansion plans Management is working on expansion plans in Angul and does not foresee any issues with government clearances for the 6mtpa expansion at Angul.
Management plans to add significant value-added downstream capacity with a range of end-products like CRC, galvanized coil, Galvalum, color coated sheets and pipes and tubes.
Management may also foray in electrical steels post the installation of the CRM. Overseas subsidiaries While operations and Mozambique and Australia remain profitable, management anticipates receiving clearances for operations in Australia soon. Management plans to mine 1 to 1.5mt of coking coal in CY22 followed by a ramp- up to 2mt in CY23.
JSPL remains open to sale of assets at the right price and will not make distress sales.
Cost of operations (FOB) in Australia is USD110/t. Financials Management focus on deleveraging has resulted in reduction of net debt to INR152.3bn excluding JPL. However, on a sequential basis, debt reduction has not been significant due to working capital build-up of INR20-30bn owing to inventory build-up of finished goods along with coking coal.
Management targets net debt of INR80bn and capex of INR20-25bn in FY22.
Cash tax rate should continue to remain muted owing to residual unabsorbed tax losses. Further, JSPL has moved to the new tax regime, resulting in current rate of 25%.
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Q1FY22 conference call highlights
JSW Steel
In focus Confident on domestic steel consumption reviving. FY22 consumption expected at 110mt.
Production/sales volume guidance for FY22 left unchanged.
Lead times in US/Europe are reasonably high. Optimistic on prices remaining elevated.
Subdued domestic demand led to higher exports volume: 35% of overall.
Finished products inventory at port at 0.12mt owing to congestion and logistical bottlenecks.
Coking coal cost at USD128/t in Q1FY22. Expected to go up by USD30–35/t in Q2FY22. Iron ore cost is not expected to increase beyond Q2FY22.
Auto contracts for Apr–June: HRC, CRC- +INR7,500-9,000/t; Longs- +INR6,000/t.
Debt increased owing to working capital build-up of INR62bn primarily for raw material stocking for Dolvi commissioning.
Italian operations were in loss mainly due to delay of a large order from Italian railways.
Outlook for overseas subsidiaries is bright owing to high realisation.
Acceptances: Revenue- USD955mn; Capital- USD565mn
Find NINL and NMDC’s Nagarnar steel plant interesting from an inorganic perspective
Investments in related entities- INR4.4bn in SPVs with JSW Energy for renewable power of 958MW and INR7.5bn in JSW Paints for 6.88% stake. Don’t rule out further investments in SPVs for renewable power with JSW Energy.
Expansion projects on track. Dolvi-II commissioning expected in September-21
Reports of company surrendering iron ore mines in Odisha speculative. Macros Steel prices in India reflect weak demand in Q1FY22 as manufacturing was impacted and inventories built up. Management expects the situation to stabilise post July-21 aided by sustained exports by major mills and normalising domestic inventory.
With Chinese and East Asian prices increasing, landed price of imports to India is at a discount of 15-20%.
Prices globally are being supported by possible imposition of export duty by China, export taxes by Russia and safeguard measures in Europe.
Lead times across Europe and US remain stretched as demand has outpaced supply restarts and ramp-up.
At current prices of iron ore and coking coal, mothballed capacities may not restart as there is no economic sense in most geographies barring US and Europe.
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Q1FY22 conference call highlights
Management believes that the recently announced production linked incentive (PLI) scheme by the government it will create opportunities for expansion, with substitution of imports and leverage a stronger base for exports in specialty steels. Domestic steel operations Steel inventory for the company stood at 1.06mt, as domestic demand was muted. As all the major mills resorted to exports, ports were congested. As a result, almost 0.12mt is stuck at ports to be shipped in Q2FY22.
Management has consciously built-up inventory in the pipeline to enable better servicing and satisfy higher demand in H2FY22.
Cost of production for steel increased by ~10% QoQ, driven by a 52% increase in iron ore prices and higher coking coal prices. Management anticipates increase in costs from coking coal, while spot prices for iron ore might have peaked out and the impact of high cost inventory would be visible in Q2FY22.
With exports quota expired in Europe, management is focused on developing alternate markets and increasing supplies to Latin America and Mexico, besides South East Asia and the Middle East. Value-added products’ exports are increasing.
Auto contracts in Q1FY22 recorded an increase of INR7,500-9,500/t in flats and INR6,000/t in longs. Increases in Q2FY22 will be dependent on pricing in Q1FY22 and discussions are in progress. Iron ore mining Captive iron ore accounted for 42% of total requirement in Q1FY22.
Management is working on beneficiation, digitalisation and logistics in mining operations to improve quality and costs.
With the Odisha government announcing auction of additional 10 new iron ore mines, management is confident of supply constraints easing out, and the company will participate in the same. Subsidiaries In Q1FY22, overseas subsidiaries recorded cumulative EBITDA of INR2.8bn while domestic subsidiaries posted EBITDA of INR11.5bn. Thus, subsidiaries made an overall EBITDA contribution of INR7.8bn to the consolidated EBITDA.
The US subsidiaries reported an EBITDA of USD44mn across Ohio and the Plate and Pipe Mill. Volumes continue to ramp-up and management anticipates further improvement.
Italian operations posted operating loss EUR4.8mn loss in Q1FY22 as a railway order was delayed. Due to the recent order wins in rails, the mill should run at better capacity in the coming quarters. Italian government has also announced rail requirements for the next 5 years and management anticipates an improving scenario. Breakeven is expected over H2FY22. Investments and expansions JSTL announced an investment of INR4.5bn in a SPV with JSW Energy for 958MW of renewable power procurement, in line with reducing thermal power and GHG emissions. This also aids in reducing RPO obligations for the company and thus
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Q1FY22 conference call highlights
should be more cost-efficient. The power plant is expected to be commissioned over the next 18 months.
The Board approved an investment in JSW Paints of INR7.5bn, with the first tranche of INR3bn due in Q2FY22 for 6.88% stake, with the balance in tranches by FY25. JSW Paints is a strategic supplier to the coated business and management envisages higher support with declining industrial paints business by major paint companies. This is the maximum that has been committed and management does not anticipate any further investment in the same.
Dolvi is expects to be commissioned by Q2FY22 with work pending only on the blast furnace and steel melt shop.
For the 5mpta brownfield expansion at Vijayanagar, management has ordered long-lead time items and remains on track to complete the project by FY24.
The second CRM line and the color coated line at Vijayanagar should be commissioned by Q2FY22. Financials Net debt increased by INR23.7bn in Q1FY22 driven by INR62bn of working capital requirement for Dolvi operations. Working capital is not expected to increase further.
Capex during Q1FY22 stood at INR26bn.
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Q1FY22 conference call highlights
NMDC
In focus FY22 sales volume to be at least 44mt
Drawing up capex plan to go up to 100mtpa capacity in next 4-5 years
Expect to commence coal mining Rohne coal block from Q3FY22
Additional premium Royalty in Q1FY22 applicable only on about 4.6mt of sales volume (total 9.45mt).
Expect sustainable EBITDA between 40-50%, when full impact of royalty is there
Steel plant likely to be commissioned by early Q4FY22. Byproduct plant is nearing completion.
Revised steel capex at INR219bn of which INR187bn is already spent.
Would be able to file the draft demerger scheme to the exchanges/SEBI by 20 August.
FY22 capex likely at INR37.5bn of which INR21.5bn would be towards the steel plant.
Slurry pipeline capex for FY22 expected at INR2.5-3bn
Coking coal sourcing for steel plant to be done through JPC mechanism
1.2mtpa Pellet plant has stabilized now. With the second filter press expected to be installed in Oct-21, pellet plant should contribute to bottom line Mining operations During the quarter, inventory destocking by 5.1mt resulted in lower additional premium.
The slurry pipeline is expected to be commissioned by end CY23, and management has awarded the contract to L&T.
Management is targeting at least 44mt of sales volume in FY22 due to: 1) 7mt of additional volume YoY due to resumption of Donimalai operations; and 2) an additional 2-3mt from existing mines.
The new screening plant at Kirandul should increase production by 2-3mt in FY22.
Management is planning to increase iron ore EC limit and has applied for extension of Kumaraswamy from 7mt to 10mt, along with several more planned in the Chhattisgarh block. However, the process should take 6 to 18 months.
Management has been actively working on new leases in Chhattisgarh and Jharkhand.
The pellet plant has stabilised and contributed positively. With the second press filter in Oct-21 the press filter should be ramped-up to full utilisation towards the end of FY22.
Coal mining is expected to commence from Q3FY22, however, commercial production will take some time.
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Q1FY22 conference call highlights
Steel plant commissioning and demerger The steel plant is likely to be commissioned in H2FY22 as management is awaiting the completion of the by-product plant.
Management aims to file for demerger scheme with SEBI and the exchanges by 20th August.
Capex incurred on the steel plant stands at INR187bn of the total estimated cost of INR217bn.
The plant will procure iron ore from NMDC at an arm’s length basis, while coking coal will be imported. Financials FY22 capex is planned at INR37.5bn, of which INR21.5bn is expected to be spent towards the steel plant.
INR2.5-3bn is expected to be spent for the slurry pipeline and INR2bn for the third screening plant.
Management expects FY22 EBITDA margin to sustain at 40-50%, considering the full impact of additional premium.
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Q1FY22 conference call highlights
SAIL
In focus Q1FY22 sales volume decreased to 3.33mt, down 13% QoQ. FY22 sales guidance at 16–16.5mt.
Q1FY22 sales/production volume impacted by covid-19 crisis and BF maintenance at IISCO plant.
Exports constituted 11% of sales in Q1FY22. Finished products inventory at 0.92mt.
Demand was dull in June-21 and is seasonally down in Q2FY22. However, the company expects pick-up from September-21. Targeting export market in the interim.
Next phase of capex announced. Planning to increase crude steel capacity by 10- 15mt (~13mtpa) through brownfield expansion at three plants: Rourkela, Burnpur and Bokaro.
Initial days for new capex. Land mapping is in process. It will take 15-18 months to issue the tenders. Meaningful capex likely only post FY24E
FY22 capex likely at INR60bn against the enhanced target given by the government of INR80bn. Q1FY22 capex at INR7.2bn.
Wage negotiations are ongoing. Have provided INR14bn until now.
Q1FY22 iron ore sales: 0.86mt fetching revenue of INR4.5bn.
NSR: Q1FY22- INR59,569/t (flats) and INR50,120 (longs); Q4FY21- INR50,419 (flats) and INR46,730/t (longs). Spot realization in August-21: INR61,844 (flats) and INR49,201/t (longs)
Blended coal cost at INR11,243/t in Q1FY22. For Q2FY22, cost is expected to go up. However, the company has coking coal and PCI inventory of 30 days and 100 days. Company is expecting to control cost through increased PCI injection and better coal blend.
Reduced debt by INR50.6bn in Q1FY22. Have reduced it by a further INR20bn in July-21. Gross debt at June-end was INR326bn. Plan to reduce it to INR200bn by FY22-end.
Receivable static at INR71bn QoQ. Cash balance at INR15bn as at June-end. Operations Crude steel production in Q1FY22 dipped 13% QoQ, owing to a severe second wave in Bhilai and repair of the blast furnace in ISP impacting 28 days of production. However, this also resulted in semis forming a mere 21% of saleable steel.
Coal cost constitutes ~30% of total costs and average coal cost stood at INR11,243/t. Coking coal prices have doubled in Q2FY22. Management plans to combat the same by changing the blend of coal and increasing the use of PCI injection which can be increased to 110-120kg/tcs. Current coking coal and PCI inventory stands at 30 days and 100 days respectively.
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Q1FY22 conference call highlights
SAIL has had a higher coke rate compared to peers owing to smaller, older blast furnaces still in-use. Coke rate is expected to increase as volumes ramp-up however, a major impact on the same will be when smaller furnaces are replaced in the next phase of modernisation.
Wage negotiation talks are ongoing since Nov-20, however management has provided for INR14.4bn of the wage hike. SAIL will only be paying for revision from Apr-20. Management may decide to remunerate employees later for FY17 to FY20, based on profitability and sustainability considerations.
Repairs at CRM-3 in Bokaro are complete, however, the caster in Bhilai and sintering plant in Bokaro are expected to take 18 months to resolve.
NSR in Q1FY22 stood at INR55,451/t on an overall basis. NSR for longs and flats in Q1FY22 stood at INR50,120/t and INR59,659/t respectively and in August is anticipated at INR49,201/t and INR61,844/t respectively.
Iron ore sales of 1.12mt were booked in Q1FY22 and SAIL dispatched 0.86mt and recorded sales of INR4.36bn from the same.
Prices for longs have seen a dip due to the monsoons and management expects demand to pick up post September. Capacity expansion Overall target for SAIL is to expand to 50mtpa which will be completed in two phases.
Management is planning for the first phase of capacity expansion of 10-15mt at three plants – Bokaro, Rourkela and Burnpur. Land mapping is complete in Bokaro and Burnpur and underway in Rourkela, post which planning for the capacity and product mix is set to take place, contracts for which have been awarded to consultants. Management anticipates the tenders to be awarded in 15-18 months for the project.
Expansion at Bhilai and Durgapur will be undertaken in the next phase of expansion.
Bokaro and Rourkela have smaller blast furnaces which are expected to be replaced in this phase of expansion, with 3 smaller furnaces replaced with 1 big furnace.
Management is planning to sequence the projects in order to avoid bunching of payments and ensuring debt remains at manageable levels.
Commissioning of hot strip mill at Rourkela and head hardened rails at Bhilai have been delayed as the suppliers returned to their countries at the beginning of the second wave in the country and have not returned since.
Management plans to expand capacity at its Rowghat, Gua and other mines in line with the modernisation capex.
Management also plans to set up a 4mtpa beneficiation plant and a 5mtpa pellet plant in Goa.
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Q1FY22 conference call highlights
Financials Other expenses on a per tonne basis recorded an increase of 27% QoQ and 14% YoY owing to higher royalty of INR2.7bn in the Jharkhand group of mines pursuant to the revision in the MMDR Act.
Receivables stood at INR71bn at the end of Q1FY22.
Management anticipates capex of INR60bn in FY22 against earmarked INR80bn. SAIL spent INR7.5bn in Q1FY22.
Gross debt was reduced to INR302.9bn by the end of Q1FY22 with another INR20bn reduced in July, bringing debt to INR282bn. Management is planning to reduce debt to below INR200bn and debt to EBITDA to below 1x by the end of FY22. Over the medium term, SAIL is planning to be long-term debt free and only have working capital lines before embarking on the next phase of capex.
Cash balance at the end of Q1FY22 stood at INR15bn.
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Q1FY22 conference call highlights
Tata Steel
In focus Structurally seeing a different kind of global market with profitability getting decoupled to China.
West prices remain robust. Cost of raw materials has moved up.
Chinese mills are less likely to reduce prices owing to higher coal cost.
Looking to add 1mt volume in India in FY22
Pellet plant and CRM likely to be commissioned in H1CY22.
Domestic prices softened in July, but started moving up in August. Domestic prices are at more than a 20% discount to imports.
Europe activities are recovering. Product mix improved in the quarter. Spreads have improved.
Q2 raw material price impact in Europe: Coking coal up USD30/t and Iron ore up USD10/t.
Prepaid GBP0.5bn debt in Europe. Interest cost is slightly up due to associated cost of extinguishing the debt.
TSE realisation expected to be up EUR200–250/t QoQ as contracts are progressively renegotiated. Many contracts were renegotiated in July. Hence, the impact is likely to be seen in ensuing quarters.
India realisation in Q2FY22 is likely to be higher by INR3000/t. Export prices are better and auto contracts at higher prices would show up.
20% exports from India in Q2.
Auto and packaging are longer tenure in Europe wherein TSE is present. About 60–70% of contracts are of six months or above.
At TSE, lagging a bit compared with peers on realisation, but would cover up in Q2.
15 Indian auto contract prices are still lower than spot prices. So not too worried about lower demand from auto.
Standalone FCF at INR27bn.
One-off cost in TSE: GBP 14mn on account of CO2 emissions purchase.
Paid INR11bn of interest cost and INR9.6bn of tax.
Of working capital increase, INR40bn in Europe and INR20bn in India. Will be unwound partially in this quarter. India business Average selling price in India likely to increase by INR3,000/t QoQ due to improved auto contracts and higher export prices. This is primarily in HRC, and longs have been on a weaker footing.
Demand in India is improving as more sectors come back on stream.
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Q1FY22 conference call highlights
Management is not very concerned about lower demand from automotive contracts as their pricing is lower than spot prices.
The company is working on product mix enhancement as part of its capacity expansion, with higher grades to capture better realisations.
The pellet plant and CRM complex is likely to be commissioned in H1CY22. Europe business During the quarter, TSE incurred a one-time cost of GBP14mn on account of purchase of carbon credits.
During Q1FY22, maintenance costs rose owing to a maintenance shutdown undertaken in April-21. No major shutdowns are planned for the rest of the year.
Coking coal purchase prices and consumption costs are expected to rise by USD20/t QoQ and USD30/t QoQ respectively. Iron ore prices should rise USD10/t QoQ.
Realisations in Europe should improve by EUR200-250/t as the mix improves. Management anticipates the trend to continue for the balance of the year as contracts get re-priced.
Auto and packaging contracts form 50–60% of overall volumes, while 60–70% of volumes are contracted on 6 months or longer tenured contracts.
The carbon surcharge has been accepted by customers and will be replaced once carbon border adjustment mechanism is brought about which has been floated recently. A carbon trading scheme has been launched in UK as well. Financials Management prepaid GBP0.5bn of debt in Europe and incurred a one-time cost, resulting in a slight increase in interest cost. Thus, management ascertained that for FY22, finance costs are expected to be materially lower.
During Q1FY22, TSL incurred a capex of INR20bn, with capex incurred on KPO-II expansion.
The working capital build-up of INR82.7bn was largely on account of a rise in inventory, which formed a bulk of it - INR40bn was due to European adjustment while INR20–25bn was due to Indian adjustment.
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Q1FY22 conference call highlights
Vedanta
In focus Strategic focus: World class ESG parameters, augmenting R&R, Operational excellence, cost leadership, strong balance sheet, robust capital structure and value added products
Aluminium in focus: Highest EBITDA generating division. Further cost reduction possible by operationalizing captive coal mines and increasing Lanjigarh refinery capacity
BALCO expansion of 414ktpa at INR66bn. IRR- 20-25% and Payback period of 4- 4.5years
Doubling the capacity at ESL to 3mtpa at capex of USD230mn. Expanding DI pipe capacity to 400ktpa from current 200ktpa
Zinc International: Gamsberg on course to achieve guidance of 190-210ktpa for the year with crusher throughput, mill throughput and MIC production being scaled up
Expect USD350mn capex in Oil & Gas for FY22. Exit rate in June-21 at 170koepd
Expect total capex for FY22 between USD 1.8bn-2bn
Last hearing with respect to HZL disinvestment is pending
Net debt at VRL is at USD12.5bn. Payment of dividend from Vedanta limited is likely to result in deleveraging at parent
Will target net debt/EBITDA threshold of 1x at Vedanta limited level and 2-2.5x at VRL level.
Have tax shield until Oct-21 end to pass on the dividend received from HZL during last fiscal
Pilot project for green products in Aluminium, Zinc and Steel. Looking to expand it inline with the overall ESG strategy of the group. Financials Deleveraging, growth capex and returns to shareholders remain key priorities for the management. With increasing cash flows as volumes expand, deleveraging should accelerate.
Capex is budgeted at USD1.8-2bn across growth projects and sustenance capex.
At the parent, net debt of USD12.5bn is expected to be paid down by dividends from VEDL which will be via free cash flows or borrowings.
Net debt to EBITDA has remained in the range of 0.7 to 0.75x, as current levels of 0.6x are not sustainable. However, the level should not exceed 1x. Oil & Gas Oil & Gas (O&G) EBITDA was impacted by increased share of government to 50- 60% from 40-50%. The quarter, the profit petroleum share was higher as investment was lower. Management expects profitability of improve as investment multiple is recalibrated post higher capex during the year.
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Q1FY22 conference call highlights
INR990mn was written off as of the 4 OALP wells drilled, three were dry and are written off as per standard practice. Aluminium VEDL was the successful bidder of the Kuraloi (A) North Coal block. The management is working on operationalisation of coal blocks and estimates INR30bn for the same. Currently management is working on MDO model and other permissions.
Management announced capex of INR66bn for 414kt expansion at BALCO. The project will have an IRR of 20-25% and a payback period of 4 to 4.5 years. No additional power or water infrastructure is required at the site as the company would seek approvals to convert BALCO’s IPP to CPP.
The project is expected to be complete in 18 to 24 months.
Expansion at Lanjigarh will cater to alumina requirements of BALCO as well. Management anticipates cost benefit of USD50-60/t from the same, which could go upto USD100/t on increasing local bauxite sourcing from Odisha. ESL Management is targeting VAP to form 90% of the mix in FY22.
Plans are underway to double current capacity of 1.5mtpa to 3mtpa at a cost of USD230mn. Management is augmenting existing DI pipe capacity of 400ktpa by 200ktpa.
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Q1FY22 conference call highlights
Oil & Gas Petrochemicals
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Q1FY22 conference call highlights
Bharat Petroleum Corporation
Favourable macro factors aided demand growth
BPCL domestic volumes increased 28% YoY to 9.6MMT in Q1FY22 vs.7.5MMT YoY as demand continued to remain strong. We expect H2CY21 likely to remain better on account of pent up demand and lifting up of regional lockdown in several parts of the country.
Refinery utilization remained at optimum level of 100%
Management highlighted that refinery rate have recovered to 100% YoY in Jul-Aug (~99% in Q1FY22). However, with regional lockdown in several parts of the country, refinery run rate would not be as strong as pre covid times.
July-2021 marketing volumes have increased from July-2020 levels
Gasoline (MS) and Diesel (HSD) sales have increased by 22% and 12% YoY respectively in July-2021. However, over July-19 levels, MS grew by 5% but HSD de- grew by 8%.
Modest GRMs across OMCs but reported highest throughput growth YoY
We note that, amongst peers, BPCL reported GRM of USD4.2/bbl better than HPCL of USD3.3/bbl but lower than GRM of USD6.6/bbl at IOCL. However, BPCL’s refining throughput growth remained highest amongst peers registering 33% growth YoY versus HPCL’s of -36.8% and IOCL’s growth of 29% YoY.
Mozambique operations to commence in CY24
Management mentioned that Mozambique operations is likely to produce first gas in 2HCY21. Company anticipates 1MT from Mozambique operations from CY26 onwards. Company has infused INR 6.5bn in BPRL essentially linked to Mozambique operations.
Bina refinery- They have reported a GRM of USD5.2/ bbl and reported a loss of INR0.64bn.
Privatization status
As per the latest update, process is going as per the timeliness and would be finished within the stated deadlines
Petchem project to ramp up in H2FY22
Management mentioned that 2 units of petchem projects have been commissioned during Q4FY21 (in stabilizing process) and 1 units is likely to be commissioned in H2CY21. Production is likely to ramp in during H2FY22 and is likely to contribute of GRM of USD1/bbl annually.
Modest capex guidance
Company has planned FY22 capex outlay of INR 100bn of which INR 26bn is likely to be incurred on refinery projects, INR 33bn on marketing, INR 9.5bn on petchem business and remaining on equity investments and other projects. As company seeks potential buyers for stake sale, capex will then be budgeted by new owner.
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Q1FY22 conference call highlights
GAIL
Several projects are scheduled for completion during CY22/23 The pipeline in Dehradun-Rishikesh will likely be completed by Sep-21. Pipelines Dhamra, Bokaro-Angul and Gorakhpur-Barauni are expected to be completed by Dec-21. Besides, the Jagdishpur-Haldia and Bokaro-Dhamra pipelines are likely to be completed by Nov-22.
Fertilizer plants to drive 8-10mmscmd volumes on Urja-Ganga pipeline Section 2/3 of the Urja Ganga pipeline is likely to be completed by Dec’21 and the rest would be completed by Dec-21. Management anticipates 8-10mmscmd volumes rise post setup of fertilizer plant on Urja-Ganga pipeline.
HURL-Gorakhpur plant has also begun The company mentioned that gas in the HURL Gorakhpur plant has been started and pre-commissioning activities are still in progress. It anticipates gas supply to go up to 0.5mmscmd by Jul-21; the supply is likely to double by Dec-21.
Dhobi-Durgapur pipeline has been completed The company has completed the Dhobi-Durgapur pipeline and has dedicated this project to the nation, which is also likely to support CNG and PNG supplies in ten adjoining districts and would spur volumes once demand is back.
Volumes are likely to improve with additional pipelines Additional pipelines that are likely to be commissioned over FY22/23 will further add 10–11mmscmd by Dec-21. Another 30–33mmscmd would be added over the next three–four years.
CSR expenses remain more than 2% of Profits Management highlighted that company is incurring more than 2% of profits in the area of CSR activities.
Robust network on PNG and CNG connections Currently, GAIL has more than 675,000 PNG connections and over 253 CNG stations, out of which 130,000 PNG connections and 80 CNG station comes from fixed Gas. Altogether, these contribute 5mmscmd in volumes.
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Q1FY22 conference call highlights
Gujarat Gas
Volumes plunged QoQ on low demand during the quarter Total volumes were 10mmscmd (down 18% QoQ) with PNG volumes at 8.5mmscmd (down 19% QoQ), CNG at 1.5mmscmd (down 9% QoQ on low base). Volumes are likely to grow in the range of 10% pa over the next 3 years. Management highlighted that volumes are returning back to 12mmscmd which is good sign. CNG is doing better than Q4FY21 where volumes had peaked.
Morbi demand remains strong During the quarter, 5.6mmscmd volumes came from Morbi, 2.1mmscmd from Non- Morbi areas and others from CNG. Management highlighted, Morbi volumes are likely to remain strong and guided for run rate of around ~8mmscmd volumes for Morbi areas.
Rising LNG prices to weigh on margins Company took sharp price increase in Dec-20 and Feb-21 that helped sustain margins. However with increasing LNG prices, margins are likely to remain under pressure. Management highlighted that Q2FY22 is likely to remain weak. Capex guidance stays intact Management has guided for capex of INR9bn in FY22 of which INR2.1bn is incurred in Q1FY22. Company is likely to add 150 CNG stations in FY22 (added 11 in Q1FY22).
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Q1FY22 conference call highlights
Hindustan Petroleum Corporation
Lower refinery runs on planned shutdown and fire breakout at Vizag unit
HPCL’s refinery utilisation plunged significantly to 64% in Q1 (114% in Q4FY21) as Mumbai refinery remained shut due to planned expansion. Besides, fire broke out at a crude unit at VIzag refinery (70,000bpd capacity) in May end which led to its shutdown in entire June 2021. This resulted in throughput decline of 43% QoQ.
Vizag refinery expansion programme due in FY22
The fire-hit Vizag unit will restart operations in the next 10 days and Mumbai refinery (expanding to 0.19 mbpd) will fully ramp up by Oct-21 (currently at >30%). Besides, Vizag refinery will also be expanded to 0.3mbpd by Mar-22. Bottom upgradation of Vizag refinery will be completed by end of CY22. This is likely to deliver double digit GRM post completion.
Rajasthan refinery will be completed by FY23/24. Mumbai and Vizag refineries will operate at 9MT and 13MT capacities, respectively, by FY22. Vizag refinery’s distillate yield is likely to improve to 90% post bottom upgradation.
Margin plunges sequentially, but high YoY
While the company’s GRM of USD3.3/bbl declined 59% sequentially, it increased exponentially YoY (USD0.04/bbl YoY) given huge inventory losses in Q1FY21.
Increasing global demand improved product cracks
With demand pick up in US, Europe and a few Asian countries, petrol crack has improved to USD8/bbl & diesel crack improved from USD3.18/bbl YoY to USD5/bbl in Q1FY22.
Sales volumes plunge sequentially due to outbreak of second covid wave
Volumes declined 14% sequentially impacted by covid led restrictions. However, it increased 17% YoY as restrictions were less severe this quarter. HSD (diesel) & MS (gasoline) sales plunged by 11% and 14%, respectively, in Q1FY22. HPCL has done highest ethanol blending in Q1FY22. The company has CGD (city gas distribution) in 20 geographical areas.
Continued expansion of retail outlets; solarised a few outlets
During the quarter, HPCL added 142 new retail outlets, taking the total to 18,776 as of June 2021. It added CNG facilities in 50 retail outlets, taking the total number to 724 as of June 2021. Besides, the company solarised 110 more outlets during the quarter (now 25% retail outlets runs on solar power).It added EV charging facilities at 84 retail outlets and recently partnered with Tata Power to set up EV stations.
Capex likely to be around FY21 level
Capex stood at INR140bn during FY21, where in INR57bn was incurred each on refining and marketing activities and INR23bn on JVs. The company has already spent INR150bn on Vizag refinery expansion, which includes bottom upgradation capex of INR90bn. Management has guided for capex of INR145bn in FY22 (INR30bn already incurred as of June 2021).
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Q1FY22 conference call highlights
Indian Oil Corporation
Steady refinery utilsation: Refinery utilisation stood at 96% in Q1FY22 (lower sequentially) given modest demand for petroleum products QoQ, as second wave from Mar’21 has impacted demand. Throughput during the quarter was 16.7MT with distillate yield of 79% and fuel & losses at 9.6%.
Modest refining margin: Company reported GRM of USD6.6/barrel in Q1 and core GRM stood at USD2.2/barrel. Margins remained strong given good crack spreads for gasoline & gasoil. MS/ HSD cracks are at decent levels now of USD7/4/bbl.
Enhanced marketing operations: Modest refining margins during the quarter were enhanced by steady marketing margins. The company reported petroleum product sales of 18.8MT in Q1FY22. Preference for personal mobility has led to higher consumption of gasoline. Gasoline/ gasoil demand in Q1 remains modest, though ATF took the brunt of muted demand given travel restrictions on domestic as well as international routes.
Petrochemical margins on the rise: EBITDA margins improved on high operating leverage and improved margins (high petrochemical spreads) during the quarter, though sales remains modest.
Pipeline business tracks reviving retail and refining volumes: Resumption of economic activity post uplifting of lockdown will lead to increased demand during 2HCY21, but still it will take another couple of months for demand to get back. Capacity utilization plunged to 97.2% in Q1FY22 from 106.2% in Q4FY21.
Launched HT100 & aviation gas: During Mar-Apr’21, IOCL launched various HT 100 fuels which are now being produced in all refineries and available in 26 states. The company is likely to expand network further. IOCL also launched aviation gas which was earlier imported.
Bio-CNG: Management mentioned that IOCL is the only company in CBG operation and is currently retailing from 15 outlets. Company is likely to set up CBG plant in Gorakhpur.
Capex guidance: Capex (including JVs) guidance for FY22 stood at ~INR285bn including (Refinery/ pipelines for INR50bn each, Marketing at INR66bn, petchem at INR26bn). It has acquired licences of 40 CGDs (23 in JVs), which is a very long gestation business.
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Q1FY22 conference call highlights
Mahanagar Gas
Volumes declined on account of 2nd covid-wave, except for domestic PNG... MGL’s total volumes declined 17% sequentially to INR2.398mmscmd in Q1FY22 led by 22% QoQ decline in CNG volumes, offset by domestic PNG volumes used for cooking household. Management targets to add at least 20 CNG stations and upgrade 25-30 CNG stations in FY22. It also aims to add 0.3mn PNG customers in FY22.
…however, margin improved sequentially on higher realisation MGL’s EBITDA margin improved 14% QoQ to INR13.9/scm in Q1FY22 on higher realization, offset by lower volumes. Management highlighted that CNG volumes are picking up faster and currently at pre-covid levels.
Ramping up construction of LNG stations The company is planning to add two new LNG stations, one is already under construction at Khalapur district and is likely to be commissioned by H2CY21. The other LNG station will likely be constructed on the Mumbai-Nashik highway, land approvals for which have already been received.
Operational highlights of Q1FY22 During the quarter, MGL’s operational reach increased to 1.63mn households. The company added five new CNG stations (274 overall with total dispensing capacity of 3.5mn kg/day) and 40 I&C customers (4,196 overall) during Q1FY22. Current CNG stations are operating at less than 50% utilization given lower demand.
Commendable performance in Raigad GA During the quarter, MGL’s connections increased to ~44k domestic households and 19 CNG network. It laid down 7.94km of pipeline during the quarter, taking the total to 268.81km in Raigad.
Completed projects in Belapur, Ulwe (sector-19) The company has successfully completed directional drilling projects for JNPT in Belapur, Ulwe (sector-19), during the quarter, but proper commissioning and full utilization would take time as it has been deferred due to the second covid wave. Capex on track MGL incurred INR3.1bn in capex in FY21, but refrained from giving guidance. Management has guided for INR8bn capex if lockdown is restricted from August.
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ONGC
Production in KG-98 likely to ramp up in CY22 Management mentioned that production has already started in cluster 2, but has been delayed due to the covid impact. However, it is likely to ramp up to 2.5- 3mmscmd in CY22. It expects production to be in the 3-3.5mmscmd range in FY23 and peak at 8.5mmscmd in FY24. Oil production will be about 36,000 bbl/day.
Margin improved on higher realisation offset by flat volumes ONGC EBITDAX increased 20% QoQ to INR122bn (up 59% YoY) as crude prices surged 13% QoQ to USD66/bbl (up 2.3x YoY). While gas prices remained flat QoQ at USD2.2/mmbtu, it plunged 15% YoY. Oil and gas sales volumes however remained flat QoQ amid the second covid wave during Q1.
OVL oil production surged QoQ but gas production declined QoQ ONGC Videsh Limited (OVL) oil production increased 2% QoQ to 2.08MMT, but its gas production fell 5% QoQ to 1.07bcm in Q1FY22. Reported PAT declined 10% QoQ to INR9bn.
OPaL continues to improve in 2nd successive quarter The OPaL project operated at 90% utilisation in FY21. Majority of the cost incurred in this project is funded through debt (overall cost INR300bn). For the second successive quarter, it has reported good results (positive PAT). In Q1FY22, it reported PAT of INR0.7bn and utilization remained strong at 87%. It reported Q1FY22 EBITDA of INR10bn (margin of 27%) versus INR12bn in Q4FY21 (margin of 32%).
Formation of gas subsidiary The Board has approved creation of a new wholly owned subsidiary for focusing on gas & LNG business value chain, subject to necessary approvals. The company is being formed with the objective of sourcing, marketing and trading of natural gas, LNG business, hydrogen-enriched CNG (HCNG), gas to power business, bioenergy/bio-gas/bio methane/other bio fuels business. Besides, it has acquired a 5% equity in IGX as part of strategic investment.
Mindful of renewables mix in energy consumption Management mentioned that the company is likely to increase renewables mix to 10GW in the overall business profile.
Conservative on capex guidance Management has guided for capital expenditure of about INR32.5bn for FY22. If covid-related issues are sorted out, then capex might increase further. A marginal allocation is made for the renewables business too.
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Q1FY22 conference call highlights
Petronet LNG
Throughput at Dahej increased 7% YoY, but declined 5% QoQ PLNG’s overall throughput remained at 194TBTU, declined 5% QoQ. Capacity utilisation declined to 85.5% in Q1FY22 vs. 90% in Q4FY21 on lower demand given high spot LNG prices. However, management expects volumes to recover in upcoming quarters as LNG spot prices soften.
High profitability on high regasification charges The company’s overall profitability (profit before tax) increased 22% YoY to INR8.5bn. This was largely attributed to high regasification charges, inventory gain and trading margin on spot volume transaction.
Certain costs deferment kept operating cost under check
Management mentioned that operating cost remained modest in Q1FY22 as it has deferred certain costs such as repairs & maintenance costs amid covid tough times. Besides, power cost remained low on low Dahej volumes.
Volumes to ramp up with addition of new pipelines
Volumes are likely to recover once LNG spot prices soften in the near term. Besides, addition of the Kochi-Mangalore pipeline will spur additional demand. With ~11 CGDs underway, Kochi terminal’s utilisation is likely to ramp up to 30-35% delivering 5mmscmd volumes in CY21. With another pipeline (Kochi-Bangalore) coming in to operation in the medium term, overall utilisation will increase to ~60%.
Dahej expansion to be complete in CY24
Management mentioned that first phase of Dahej expansion (to 20MTPA) is likely to take around 36-40 months for commissioning.
LNG station underway
The company has tied up with Gujarat Gas to set up 5 LNG stations between Mumbai and Delhi highways. Besides, it has set up 4 LNG stations with IOC and 1 each with IGL and Sabarmati station.
Capex outlook
PLNG has incurred INR10bn in FY22. It is looking to install 1,000 LNG stations in the next five years, which would incur capex of INR80bn. This will not only increase its LNG demand, but also overall utilisation .
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Q1FY22 conference call highlights
Pharmaceuticals
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Q1FY22 conference call highlights
Alkem Laboratories
Financials and guidance Gross margin impacted due one-off provision of nearing expiry inventory (1.5% impact; INR380mn).
Net cash of INR9.8bn; generated INR4.5bn FCF in Q1FY22.
Gross margin guidance 60-61% despite new product launches which come at high margin. Impact of raw material costs also there.
EBITDA margin guidance increased by 50-100bps from earlier guided (19.5-20%).
Staff costs- few one offs- 1) gratuity and leave encashment provisioning of INR290mn (increased basic from 37% to 42% of CTC); 2) paid incentives. % as well as quantum increased. Should be in the range of INR4.8bn.
Other expenses- marketing expenses normalized only to the tune of 85% only. To be in the range of 18-20% on a normalized basis.
API prices saw upward trend from March end to May. After that started softening but still not normalized. Expect it to gradually normalize. This quarter had limited impact. Once sale happens it will impact gross margin which would be visible in Q2. But this is manageable.
Not too keen on M&A.
Tax rate- 13-15% FY22. FY23- 14-16%. Sikkim Tax breaks to end in 2026-27. No cash outflow beyond 21%. MAT credit utilisation for SEZ facility. Domestic Expect high teens growth in balance year.
Don’t have any covid portfolio expect vitamins – AtoZ.
PCPM evolved anti-infective segment INR800,000-10,000,000, Chronic segment INR350,000-400,000; new business 150,000-200,000.
Addition of MRs already done. Total 11,000 MRs.
Vitamins benefitted from covid. Should continue to outpace industry growth. Q1FY23- some pressure due to high base.
Critical care portfolio- mainly into hospitals injectable such as anti-biotic meropenem. Do not have CVS portfolio. As hospitals opening up, should see traction in this portfolio.
Chronic and trade generics grew 50%+. Acute portfolio grew despite high base.
Gross margin in chronic portfolio is higher than acute.
Trade generic is tough business. Despite competition should see strong double digit growth. US YoY decline on account of strong base Q1FY21 which saw forward buying by customers, price deflation and loss in market share.
Saw high single digit price erosion.
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Broad guidance of 15-16% remain unchanged.
gDuexis- launch is at risk.
gPradaxa (Dabigatran)- first to launch in market; 180 day shared exclusivity.
Indore- awaiting PAI inspection.
Submitted responses on 2 observations for St. Louis plant Biosimilars 12-14% of R&D on Biotech.
Total Investments INR6.5bn.
Bone health side- good connect with doctors. Onco- still to catch up.
Enzene (Biosimilar) - Received marketing authorizations for 2 more products in India.
Outlicensing value -USD10mn for Mab to Europe partner; and for recombinant peptide USD2.5bn to Korean partner.
Mabs product- Phase 1 to initiate in couple of months. Launch is 4-5 years away
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Q1FY22 conference call highlights
Ajanta Pharma
Financials Gross margin sustained on account of better product mix geared towards India.
Tax rate guidance- 21-22%
Other income includes INR250mn fx gain.
R&D should be maintained at 6% of sales
Depreciation expense high 10% YoY on account of new opthal block in Guwahati plant. Invested INR4.5bn in Guwahati and asset turnover should be about 1.5-2.
Staff cost is normalized. It includes increments and base was also low.
Do not see any opportunity of cost reduction from hereon.
Believe that the company has enough catalysts in each markets to continue growth momentum
Capex incurred in Q1FY22- INR270mn against full year projection of INR2bn.
Capex going forward should be restricted to maintenance. Sufficient Capacity to take care of growth in the next 3 years. Utilisation levels are at 68-70%
Currently, 25% of manufacturing is outsourced to third party manufacturers, expect to settle at 20%.
Increased hedging from 50% to 75%.
India Cardiac market growth of 15% was largely driven by anti-coagulants. Excluding this the growth would have been much less than 15%. Hence, Ajanta’s 14% growth is better than the market.
5 launches in India including 1 First-To-Market launch.
32% India growth was on subdued base. Confident of surpassing industry growth for the full year. Key driver is customer connect initiatives and new launches.
IPM should grow at 11-13% on normalised basis.
Inorganic deals- continuously looking for it. But want to be value picker.
Planning to launch 4-5 products in next 2-3 quarter. Launched 20 products last year and those products need to be marketed this year.
US QoQ decline was not of worry. Price erosion along the expected lines.
Expect only 3-4 product launches in FY22. Launched 1 quarter in Q1FY22. Last year ANDA filings were lower which should now pick up.
Awaiting USFDA approval of Chantix. The product is in the shortage.
Need to be selective with products based on limited customers and pricing scenario as cost of filing is high.
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EMs Majority of field force is operative. Logistic issues were not that significant in the second wave.
Price erosion not too significant
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Q1FY22 conference call highlights
Aurobindo
Segment Inventory levels are high in the channel which is resulting in more than normal price erosion. The company has seen high single digit price erosion vs 5% budgeted. This is transitory and the phase should pass once the inventory is offloaded. YoY growth will depend on quantum of stock liquidation. 65% of company’s portfolio are ranked in top 3. Negative impact of this can be offset by volumes. Targeting 30+ launches in the US. Biosimilars- Approval cycle in US is 12-18 months. Expect to file 2 products before March’22 and 2 products in FY23. In Europe and UK, first product will be filed in next month. Approval cycle is 7 months. 1 more product will be files in fy23. Every year 1-2 products will be added. Global injectable sales for the quarter- USD102mn. Achieved USD395mn in FY21. Target of injectable of achieving 600-700mn remain intact. Try to complete Eugia transaction by 31st August. Regulatory- Unit-1 completed USFDA inspection yesterday. USFDA issued form 483 with 7 procedural observations. Inspector was foreigner based out Delhi office. PLI- has sought clarification from govt regarding inclusion of certain products. The financial outlay may start in FY22 depending on the clarification. R&D- not expecting to go up. Have guided to maintain 6% of sales. Working to optimise R&D spends. Acquisitions Acquired 9 OTC brands which are currently marketed and expect to clock USD30-35mn in first year. Got this in the middle of quarter. Not much contribution during the quarter. Also acquired 6 ANDAs. Some are ready for marketing, few marketed and 1 more will be launched in due course. Expect to clock USD30mn annually. Cronus – Company founded in 2015-16. Also has one entity in India Cronus LLC. The company subsidiarised the company as on 1 July 2021. Combined entity revenues were more than USD12mn last year. The company has already achieved USD6.3mn in the first half. o Of the 67 total products, 40 are injectable. 6 approved products. 32+ filing completed. o Primary infusion of money and ARBP will have management control. Money will be used to reduce debt (INR1.65bn) and to pay filing fees of remaining product. o It has a 10acre unit situated in Hyderabad SEZ. They are into multiple business segments - orals and injectables cephs. The company has already invested USD50mn in plant. Expect entire manufacturing to start contributing from April 2023. The company also have R&D facility. o The company has dealt with the promoter in the past. But promoter has never been part of Aurobindo. o Expecting inspection by the end of this year or early next year. Was earlier expecting in Mar’20 but could not happen due to lockdown.
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o ARBP supply some APIs also. Lot of synergies expected. Plans to make it another company like Natrol in next 4-5 years. Vaccines Opportunity in contract manufacturing based on Taiwan approval which is expect in next 1-2 months. Already placed orders for 30mn doses Vaccine yet to start phase 2/3. Should initiate in next few weeks.
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Q1FY22 conference call highlights
Biocon
Biosimilars
Branded formulations has grown at 50% YoY. This implies base biologics have declined QoQ despite market share gain. However, if adjusted for revenue that flowed to Q4, biosimilar biz was flat QoQ.
Insulin Glargine share 2.6% (+20bps MoM). Profit share to flow later.
Pegfilgrastim – Steady market share 8.5–9%. Onpro’s market share moved up during covid because of its convenience. Seeing onpro market share declining now, which creates an opportunity for Fulfila.
Trastuzumab- Reduction in overall diagnosis/ screening. Market moved from 150mg to 420mg too. Post Covid, see footfalls returning back and expect to hold a pole position in 150mg.
EU launch of bevacizumab by Viatris in Germany, Austria and Poland expected in Q2FY22.
Awaiting timeline for plant inspection for bevacizumab. No technical issues with respect to bevacizumab biosimilar approval. Bevacizumab market has grown at 5% YoY in US itself.
Insulin interchangeability – TAD end July. This will aid in formulary negotiations. Assurance to prescribers and when it will available at pharmacies as substitute. However, formulary contracts need to be entered.
Insulin aspart has been filed as an interchangeable product under 351(k) pathway.
bAspart plant- PAI inspection date in Malaysia – Q3CY21. No clinical or technical query pending. Agency plans to inspect are on track despite Covid wave in Malaysia.
Expected to grow in excess of 25% in Row markets. RoW markets contribution for the quarter 60%. Expect it to be 55% for the full year.
Revenue exposure 340B hospitals lower compared to competitors.
3-year deadline for Medicare Part B pricing pass through coming up. See prices to stabilise. Rate of price decline lower.
Itolizumab used extensively in India as promising therapy for covid 19. Second brand of Itolizumab has been licensed to Sun Pharma.
Generics
Responded to USFDA on Copaxone CRL
API business is fermentation was impacted due to oxygen shortage.
Expect API production to ramp up to previous quarters. No growth in API because no new facility coming up in next quarter.
US facing pressure despite launches like Tacrolimus. Losing business in statins.
Formulations- TAD of 2 big products moved from Q1CY21 to Q3CY21 and Q4CY21.
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Expect business to remain versus last year.
Bicara
Out of USD40mn funding, USD15mn left. This which will now go through P&L.
Bicara- It also has Portfolio of molecules in pre-clinical. Company will continue to support until they get external funding.
Funding is dependent on phase1 clinical trial read out, which is expected at the end of CY21.
Financial Highlights
Continue to maintain R&D guidance of 12–14% ex-Syngene revenues.
Capex FY22 USD200 annually for next three years.
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Q1FY22 conference call highlights
Cadila Healthcare
Financials and guidance
Lot of cost optimization measures drove margin improvement despite cost inflation. Cost optimization would drive 80-100bps margin expansion over 12 months.
Minority interest elevated because of wellness business.
US
Low single digit growth in FY22. Next 3-4 quarters low single digit growth (protecting the base).
Decline is on account of price erosion (seeing high single digit) and limited one- time opportunities as least supply issues in last one year. Prescription volumes down because of lower activity. Seeing increased competition in established products.
In July, received approval of Fulvestrant - first complex approval from Biologic manufacturing facility- approved in less than 10 months and in the first cycle.
On track to achieve 50+ approvals and 30+ launches annually.
US injectable business- Aim to build USD250mn in next 3-4 years from current USD35mn. Critical sites are Liva, New Biologic site, Alidac site (Liposomal Doxil); JV site- also does CMO work (onco filing). Complex injectable – partnered in product from Europe. Some launches from in-licensed portfolio as well.
Mesalamine- pipeline of 3 more products and plan to launch soon i.e. in FY22.
Asacol HD prescription stable QoQ. YoY have come down because of covid and signalling pressures. 1 filer in public domain. Budgeted for 1-2 competitors in the market.
Transdermals –Moraiya facility resolution key. 2 products from non-Moraiya facility. Rest from this.
Moraiya - submitted CAPA plan and accepted by FDA. FDA will schedule the inspection. Hopeful of FY22 inspection and clearance.
India
Ex- remdesivir growth was 35%+. Gained market share in anti-diabetic, anti- infective and nutraceuticals therapeutic areas on a Y-o-Y basis
Low base, Covid and base business grew in-line with the market. Expect demand to normalize due to increased footfalls in doctor clinics.
Looking for 30-35 launches annually in India. Healthy pipeline of 35 products which are limited competition or FTM/first generics launches which will be launches overtime.
Several digital initiatives undertaken. Platform technology to connect entire value chain. Looked at a lot of direct and indirect spends.
Wellness- Glucon-D and Nycil couldn’t realize its full potential during second wave. Digital initiatives to get visibility across channel, AI-based demand and higher RoI on trade channels
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Q1FY22 conference call highlights
Covid/Specialty/ Vaccines
Covid-19 vaccine ZyCov-D: Also submitted dossier to DCGI for 3mg dose study, which is a 2 visit vaccine.
o Submitted EUA for adolescent population. 1000 subjects were enrolled from adolescent age group in large trials.
o Capable to produce 10-15 mn vaccine doses monthly. Largely India focussed.
o Current facility already started stock piling. New facility- activities to start this week.
o 3 dose vs 2 dose- amount of vaccine is same between the two arms. Better immunogenicity response in 2 dose. No safety concerns in 2 dose also. 3 visit dose trial was on 28000 volunteers and 2 visit was on 800-1000 population.
Biologics- Virafin- looking to export to other countries. Export of remdesivir is not very large.
Biosimilars- driven out of India- INR3.5bn annually. Hope to reach INR5bn. Launches in EMs from next fiscal. EM strategy is licensing- focus markets- LATAM, Russia (already have approval), Mexico, Columbia, Venezuela and Asia- Philippines, Thailand, Indonesia, Sri Lanka, Myanmar. Middle East largely Saudi Arabia.
505b2- 6 licensing deals in Q1FY22. 5 of which should contribute from FY23. 2 products have 180 day exclusivity. Some of them fall into complex injectable category and other in orals. Manufacturing is done from the third party.
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Q1FY22 conference call highlights
Cipla
Financials and guidance Contribution from covid is high single digit.
Gross margin declined YoY due to contribution of low-margin covid portfolio.
EBITDA margin- 22–23% guidance. Q4 is seasonally weak. Confident of doing better than previous quarters in core business (20–21%).
SG&A spends- part of the increase is towards variable cost, which should normalize. Large part of field force activity continued during the quarter. Able to retain some efficiency, which was realized last year.
Employee cost includes covid-linked compassionate salary to employees.
Absolute R&D spends should be between FY20 levels and Q1FY22 levels depending on the trials. In the process of initiating clinical trials for 2 products indicated last quarter.
Cash buildup is likely. Open to acquisitions- India branded, consumer health, South Africa branded, Niche capacity in the US.
Avenue- evaluation is still going on.
One-time API profit share and impairment on Avenue should offset.
Capex- INR7-9bn on normalized basis. This includes digitalization. Automation program is being deployed across manufacturing facilities. Work on new products capacity in API and formulation is still going on.
US Grew 5% on high Q1FY21 base which included albuterol.
Meaningful room to grow in albuterol from current base.
Overall portfolio has done well. Launches should continue the momentum. FY23 will be big year of launches.
PAI inspection possible virtually.
gBrovana launch looks extremely well. Market share is higher than reported due to lag. Will be a meaningful product.
Advair: responding to USFDA; completion expected this month.
Abraxane- not surprised if the first filer gets some exclusivity in the market.
Goa observations- working with FDA
Entered into top 10 generics companies by prescription.
Three Peptides in portfolio. Implemented in-licensing strategy where working with peptide API player.
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Q1FY22 conference call highlights
India Ex-covid growth - 47% YoY. This includes benefit from covid-induced benefit on core portfolio.
All business have grown in healthy percentage.
Market should grow at 10-12% adjusted for covid. Cipla will continue to outpace the market growth.
Continue to witness growth in core therapies which is expected to continue in coming quarters as well.
Anti-body cocktail- both vaccinated and unvaccinated people with covid outside India are getting this. In India too seeing good results and expected to have longer tail.
Moderna vaccine—it was just to facilitate donated vaccines.
Others Europe and emerging markets impacted by timing deferral. Issue will be resolved in this quarter.
API grew 69% YoY in USD terms. This includes profit share for commercial supply of API to partners.
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Q1FY22 conference call highlights
Divi’s Laboratories
Quarter performance and guidance The constant currency growth for the quarter was 21% YoY.
10–15% growth is definitive and is expected to be better in longer term.
Exports contribution – 89%. US and Europe contributed 71%. Generics contributed 50% to revenue and custom synthesis contributed 50%.
For the quarter, Carotenoids revenue came in at ~INR1,380mn.
The company has INR20.6bn cash, inventory of INR23.83bn and receivables of INR18.97bn.
Six growth engines –
o generic molecules with 70% market share to grow at 10% YoY;
o increasing capacity for molecules where Divis has 20-30% market share; expected to reach 60-70% share over the next few years; large part already invested.
o sartans- one of the very few companies where FDA has no issues with NDMA impurity. The company is in unique position and thus is venturing into all sartans;
o contrast media doing well. Entered into other segments and signing contract with big companies. Should see good results in 2-3 year time; Investments part of CWIP
o two custom synthesis apart from fast track. These are long term contract;
o New generic molecules expiring in 2023- 2025. These are large volume niche molecules requiring specific technology. Investment is happening now.
o Kakinada is outside this six growth engine.
Rising crude oil prices resulted in increase in solvent prices. Logistics concerns continue to increase in terms of availability of containers. Freight cost is at 5-7x of pre-covid levels and this is expected to increase further.
Slight hiccups in procurement of supply chain but were able to overcome due to backward integration.
Molnupiravir API- Stream 1 and 2 commercialised for exports to innovator. In Unit-1 created one more stream to supply to partners in India. Divis is authorised manufacturer of MSD’s Monupiravir API and allowed to supply to MSD’s partners.
Custom synthesis exc. Molnupiravir- did not see slowdown in this.
The company is confident of maintaining the margins given technology enhancements, backward integration, continuous process improvement.
Tax rate to come down to less than 25%.
27% of sales- other fixed costs.
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Capex and others
The company capitalised about INR2.68bn in Q1FY22. The company has INR5.79bn in CWIP mainly related to new generic molecules. Their validation is progressing well.
Need to spend INR3bn as immediate capex.
Validation and qualification of DCV SEZ and DCV is complete. 20% of sales commercialised during the quarter. Should see growth in coming quarters.
Kakinada- To start activity next month. Expect to receive land papers this month. Initially budgeted INR6bn but need to revisit the project cost.
Expect to invest about INR10bn incremental capex in 1-2 years majorly towards Kakinada and Krishnapatnam Port.
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Q1FY22 conference call highlights
Dr. Reddy’s Laboratories
Financials Current gross margin (GM) at lower end. Expects inventory to normalise in coming quarters. Launches in the US should push up GM and launches in branded markets should provide leverage.
EBITDA margin to be in line with previous quarters from Q2. This quarter impacted by softer US & PSAI, higher marketing activity and high inventory provision. EBITDA margin drivers will be realisation of products launched, scale up of API division, new launches.
Investing in new brands, OTC business such as Celevida in nutrition space and also investing in rural areas and digital investment. Not shying away from investment in India and Russia.
PSAI GM lower on account of lower sales as several overheads are fixed.
In Russia, timing issue with tenders.
Increase in receivables on account of discontinuation of factoring in the US. Due to narrowing of the interest rate differential, arbitrage was not making sense.
Expected ETR 25-26%.
Increased R&D spends due to biosimilar trial- 4 products going in trial this year including Rituximab. US Price erosion similar to years ago. Expects to continue in future as well. Nothing unusual about that.
Expects growth to continue in coming quarters on account of continued launch momentum, ramp up in recent launches and market share gains.
Subpoena: Needs to submit different information as per guidance. Going through investigation. Too early to assess the outcome. Process will take time.
Top 5 products contribute about 30%. Sputnik V Expects product coming from Indian suppliers in Sep-Nov.
Delay in roll out, but can be a viable opportunity in second wave of vaccination.
Sputnik Light: At this stage will submit data from trials coming out of Russia. DCGI may ask for more data.
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Q1FY22 conference call highlights
Glenmark Pharmaceuticals
Q1FY22 conference call: Key takeaways Guidance
Expect 10-15% revenue growth in FY22. India Ex- fabiflu sales to grow at 10-12%. US to grow at 10% in FY22.
Expect to sustain EBITDA margin performance at similar levels of FY21. EBITDA margin 19-20%.
Expect to incur INR 6.5-7bn capex in FY22 and INR 6.5bn for another 2 years. This includes GLS capex.
R&D to trend between 10-11% of sales.
Plan to reduce INR16bn debt. Of this INR4bn will be paid from operating cash flow and balance INR12bn from IPO.
Target to close 1-2 deal in FY22 in Ichnos.
Financials
Fx loss for the quarter INR389mn.
Gross debt stood at INR46.36bn as against INR46.87bn in March.
Net debt was lower by INR1.05bn in the quarter at INR34.44bn as on 30 June 2021. This is after adjusting for INR400mn investment in ABCD technologies and USD7.5mn prepayment of FCCB.
Total asset addition during the quarter was INR1.65bn of which tangible addition was INR1.05bn.
R&D at INR 2.84bn which account for 9.57% of sales. Receivables stood at INR26.01bn as against INR25.72bn in March. Payables at INR23.54bn versus INR22.38bn in March.
Lower gross margin is on account of fabiflu sales.
Other expenses to be close to 26% of sales. First quarter marketing expenses are relatively lower.
India
India - The company clocked INR3.5bn sales from fabiflu. Ex fabiflu growth was about 12-13%. Growth driven by volume and new product introduction.
Ongoing launch activity on couple products in non-covid across all therapeutic areas.
Nasal spray for covid- Expect launch in October- December. Initially device will be sourced but later make it on its own. Trials going on 250-300 patients in India.
North America
Clocked 8.5% constant currency growth. On track to file 18-20 ANDAs in FY22 with 4-5 from Monroe.
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Brovana- launched in June end. Not a big impact in Q1. The current market share is 28%. This includes quantity which are contracted and not yet sold. Market share will take time to reflect.
CRL on Ryaltris in US relates to Baddi manufacturing facility. Transitioned onto US manufacturing location and re-filed. Product has beaten all expectations in markets launched such as South Africa, Australia, Ukraine. Feedback is very positive. Looking for launch in Europe in Q3FY22.
Tiotropium product was licensed from European manufacturer.
Others
Europe- expect 1 more Spiriva generic in next 6 months. Europe. Not Indian player. 6-9 months to commercialise in all market.
Ichnos – 1) Some deal traction in ISB 880 and ISB830. 2) readout on 1342 expected in next 6 months. 3) IND filing and start of phase 1 in 1442.
LATAM lost out heavily because of respiratory. Starting Q2 should be good for many geographies.
Covid products are negligible in RoW.
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Ipca Laboratories
Financials and guidance Overall revenue growth for FY22 8-10% including HCQS in base. May look to revise upwards next quarter. EBITDA margin guidance FY22-25%; tracking well. May revise up guidance in next quarter. EBITDA margin- 27.1% despite impact of of 2% due to lower currency realisations, higher material costs, higher shipping cost and increasing petroleum product prices and one time provision of INR160mn on diminution of investments. Most costs already included in the quarter. Promotional activities are back. Energy costs has moved by 50% this quarter. Shipping cost has also gone up significantly. Also made higher provision for incentive payment, the payout will depend on performance in coming quarters. Excluding HCQs sales of INR2.59bn in Q1FY21, recorded 23% YoY growth. Cost of raw material and logistics costs, container hiring cost going up- still disturbing market for basic chemicals and intermediates. Expect gross margin levels should improve as product mix improves. HCQs business in Q1FY21 happened at much higher margin. Tax rate- FY22 and FY23 – remain on MAT i.e. 17-18%; Will shift to lower tax rate regime of 25% post that. Capex: INR4bn for next 2-3 years. May need capacity even for domestic as second plant is running at full capacity. Domestic Earlier guided for 16-18% growth. May need to revise later. Seeing good trends Q2 is heavy quarter for Ipca. July and August looking good. Average price hike 6% (as against normal 4% increase) which should offset increasing raw material pricing. Added people in CNS, ophthal and derma segment. These costs have already come in the quarter. Do not see any challenges in growing its established brands. o Zerodol grew 18% in FY21 (14% volume growth). Q1FY22 grew by 36% (30% volume growth). Confident of taking this brand to newer level. Still have enough potential. o Aceclofenac- Taking market share from others and Ipca is driving that. o Hypertension brand CTD- expanding offerings in terms of combination. Long way to go to make it big. o In Rheumatology, Ipca has more than 40% market share. Recently launched one product in Nov 20 and doing really well. Disease prevalence is very high. Challenge is only on anti-material side, which roughly accounts for 4% of sales. Anti-bacterial grew from INR180mn in Q1FY21 to INR 500mn in Q1FY22. Derma (4% business): Last year facing problems; recovered sharply; grew of INR130mn to INR250mn. Anti-malarial recorded strong growth of 98% YoY; accounts for 6% of sales (For whole of the year it is 4%). Grew from INR200mn to INR390mn in Q1FY22.
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Cough and cold- sharp recovery – Grown by 83%; contributes 3% of overall business. Exports Branded- Revised down guidance from 14% to 12% growth in FY22. CIS market – impact of currency; Myanmar market is disturbed. Africa, Franco Africa regions are doing well. UK grew 15% YoY in Q1FY22. Started marketing generics in own trade name. Should continue to grow at 10-12% for next 3-4 years. UK is highly competitive. Europe should grow higher than UK. Generics business- Para prices moved up; Generic Europe business may have impact on that. API Exports- 10% YoY growth in FY22. Exporting to regions like Iran which are facing issues and shipments not happening. Domestic API should do better. The company was expecting significant decline in domestic API. Current trend also looking good. Declining sartans prices - While revenue has gone gown, company has taken higher market share in terms of volumes. API business should grow at 10% YoY. Subsidiary Pisgah- will remain loss making in FY22; won 2 CRAMs projects which takes time. Ramdev- changing product portfolio. It was in intermediate side. Now focussing on API side. The validation and stability work is going on. Currently in losses, should turnaround in FY23. Trophic Wellness dealing with nutraceutical products. Direct selling to customers. Doing very good- Revenue INR1bn in FY21 with INR200mn profit. Facility Dewas plant delayed; created 250bedded hospital. 3 months gap in project implementation. The plant was expected to operationalise in the end of Q3 but will be delayed to Q4FY22. Not available for commercial production in FY22. N-1 intermediates will be transferred to Ratlam till the time plant is commercialised. Dewas is API site for exports and captive consumption. Ratlam plant also got delayed; should become operational at the end of Q3FY22. These plants should contribute meaningfully from next fiscal. Overall API capacity should go up by 20%. Overall API volumes moving up.
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Lupin
Financial
Revenue: double-digit growth in India as well as overall business.
EBITDA – See meaningful uplift in H2FY22. 17-18% margins in H2 (lower than earlier guidance of 19-20%). Q2 will also be soft.
R&D : 9.7% of sales. Intention is to hold on to absolute R&D number. If revenue scales up then will hold on to 9% of sales. Employee exp: Intend to maintain tight control.
USD20mn impact on EBITDA from specialty and biosimilar. Each product is USD20-25mn, totalling USD65mn.
Fostair- manufactured at Coral Springs. FY22 target is to maximise UK market. Rest of Europe launch will be from next fiscal.
Biosimilar capex: Will add some capacity on microbial side. Well placed on mammalian side
bEnbrel in EU: mid-single digit market share and still launching
US
Reasons for QoQ decline on top down basis- 1) decline in albuterol 2) Penalty to failure to supply 3) famotidine competition – lost market share and price erosion. 4) competition in base line products such as metformin and levothyroxine.
Hoping to reach USD200mn in Q3FY22. Major contribution from albuterol, Brovana AG and increase in share of in-line products which LPC has taken back.
Albuterol- on track to achieve 18-20% market share of overall albuterol market with major pickup in Q3. Currently at 12-13% market share. Strategically moved away from one-time contracts and entered into long term contracts which is phased out. Long term contracts are high volumes, lower pricing but very high margin. Not seeing any additional competition in next 18-20 months. Haven’t heard anything of Perrigo.
Brovana AG to contribute meaningfully in Q2FY22. Allowed to enter market earlier. Margin are EBITDA accretive.
Price erosion- 4-5% YoY. Reasons- 1) A buyer broke out of consortium. GPO. Opened their whole portfolio bit. 2) Lower approvals as a result of delayed inspection. More competition on existing products. 3) New wave companies such as Alkem, Alembic and others getting aggressive at pretty low pricing.
gSpiriva: CRL response in September. Will launch in next fiscal (FY23). Tracking well on litigation front.
Dulera – CRL pending. Strong communication going on with agency. Expect to respond to CRL later this fiscal year. No IP hurdle.
Pegfilgrastim: Filing accepted by FDA. Depending on FDA inspection, looking for FY23 launch. Also developing On-body and is progressing well. Filing expected in FY23.
Ranibizumab- in phase 3 study. Recruitment slowed down because of covid but progressing. Denosumab and Eylea to come later.
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Biosimilar going to be future of generics. Time to market and cost of manufacturing will be key. Price pressure is eminent. First wave companies to benefit.
Solosec: successfully launched for trichomoniasis few weeks back. Looking for uptick in scrips in August and September.
Revlimid- staggered launch should enable more rational market place. Should be a strong product for all generic competitors.
Expect to file 4 products in FY22. 2 peptides in FY22. Depo injectable - Risperdal consta is in clinicals to run over the next year and then file. Paliperidone should follow. Liposomal- partner making good progress.
Lupin Oncology- efforts to loop in third party investors; in 12-18 months looking to raise additional capital. 5 pipeline programs.
Material products for FY23- Spiriva, Suprep, Lenalidomide.
On net basis partner products are EBITDA accretive. US high gross market.
Penalty for failure to supply netted off from sales.
FDA inspection status remain same.
India
India revenue in FY22: High teens growth
IPM 39.2% incl. Covid and 32% excl. Covid
Chronic: Lupin 22.6% vs. 19% (excl. Covid)
Acute: Lupin 45% vs. acute market 43% (excl. Covid)
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Natco Pharma
Financials & others Agrochem inventory- patent goes out in August’ 22. No inventory write off. In case not able to sell this year, will carry inventory in next year.
3 big things to watch out – Agrochem product, Molnupiravir and lenalidomide.
Looking at quite a few transactions for front-end in the US and in domestic markets. US valuations are far more reasonable than domestic. Also looking for generic diversification.
Morgantown shutdown- Mylan has alternate side for copaxone and shutdown has no impact.
Cash burn of INR150-200mn annually from agrochem. Capex of IN1.5-2.0bn, which is depreciated.
Domestic Good percentage of growth has come from covid. August seeing slow increase in sales.
Created a new division called Natco reach with 200 representatives. This division will focus on covid products and diabetes for GP. Earlier had 300 representatives.
Molnupiravir- filed all the data with DCGI.
Agro- Appealed the HC decision. Hearing in Sep last week. Hopeful of their legal position.
Agro- launched 1 pheromone for cotton. The company has a portfolio of products that will start picking up in 2022-23. Primarily driven by domestic in the near term.
International Actual launch of new product approvals (everolimus) happened in current quarter.
Exports will get better. Q2 and Q3 will be steady and Q4 will have a big product. Everolimus should do well. Targeting to file 2-3 FTF products before March.
Dramatic drop in doxorubicin share.
Non-US ex-lenalidomide- all their subs are profitable and doing well. 13-14% of their top line and leading to diversification of revenues. Satisfied with the progress and looking to expand in other markets.
Near term launch- FY23- Lenalidomide in major market and US launch in Mar’22.
gRevlimid- Kept 2 plants- primary plant in Hyderabad, and second in Vishakhapatnam. Both the sites are approved. Secured raw material supply as well.
Profit share for Imbruvica is 50% and plus the cost of API
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Sun Pharmaceuticals
Global Specialty USD148mn across all markets (USD81mn in Q1FY21). Recorded growth despite subsequent reduction in Absorica sales. Still facing issue with reopening of clinics. Absorica AG included in US generics.
Ilumya sales grew both YoY and QoQ. Cequa grew QoQ. Expect to clock double digit growth in FY22
Japan- in process of getting entry into hospitals. Offtake is little slower. Australia- continue to grow product QoQ.
Ilumya market share is 8%. IL-23 is driving market.
Ilumya- commercial segment is bigger than medicare.
Specialty R&D accounted for 26% of total R&D.
R&D molecules- Ilumya – Phase 3 clinical psoriatic arthritis- currently recruiting patients. SCD 044 undergoing Phase 2 trial for atopic dermatitis and moderate to severe plaque psoriasis. MM-II undergoing phase 2 trials for knee osteoarthritis. GLP-1 agonist phase 1 trial for diabetes.
Gaining market share in Cequa. This is the second full quarter of DTC.
Expect to be EBITDA positive in FY23.
Winlevi- Several investments have to be made to familiarize doctors with the product. Very limited option for acne with the doctors. There is always play for new mechanism of action.
Levulan sales have normalized but not there where it should be in non-covid scenario. Financials Other expenses were higher on account of higher marketing and R&D. Current quarter expenses are restrained.
Expect expenses to increase as markets open up completely.
R&D –guidance 7-8% of sales. India 8-10% of sales for the quarter pertain to covid.
Base business grew in double digits.
Chronic portfolio is growing well. Semi-chronic has done exceptionally well. Acute is in-line.
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Torrent Pharmaceuticals
Financials Other expenses- marketing expenses were lower due to second wave. Do not expect too much of increase in marketing spend from this number. EBITDA margin can increase by 1pp every year if not for Covid
Gross Margin lower despite higher India contribution on account of skewness towards acute portfolio this quarter and lower export incentives (0.25% impact). Should come back in the next quarter.
Effective tax rate including deferred tax would be 30-31%; because of MAT credit utilisation from Balance Sheet coming to P&L. This should remain same for the next 4-5 years. Company has MAT credit of INR9.75bn.
Cash tax rate will remain at 17%.
US impact on growth is 7% this quarter. From Q3, this should not be there. Hence, company would be able to grow in double digit provided other geographies perform well.
In Q4FY21 there was about INR70-80mn reversal of provision
R&D - Common products across geography. Onco products are expensive. Hence, investing in facility outside Ahmedabad where they will be developing for multiple geographies.
In US, company will work on complex products; only low single digit plain vanilla. Looking for 10-12 ANDAs (earlier 20). Eg - Dapsone received TA in April 2021.
India Trade generics- complementary portfolio focussing on sub-chronic and acute; While it will make organic launches but also look for shifting prescription brands to trade generics having great potential and high consumer recall.
Margin profile lower than prescription business. Channel margin is significantly higher.
Launched trade generics with initial portfolio having 50-60 SKUs. It should become meaningful post 4 quarters of launch. Looking to reach 3-4% of India business sales.
Initial investment – opted for distributor route and does not have large field force (only 20-25 reps for retailer route). This should sustain for 1-2 years. Products are mostly contract manufactured.
Growth drivers as per AIOCD- Overall 24% growth; 14% volume; 6% price; 4% New products. Sub-chronic and acute much higher growth on account of low base and significant higher demand from covid prescriptions.
India- expect double digit growth going forward. 10% growth is doable going forward.
New product introductions- CNS brivaracetam; Perampanel (anti-epileptic); 4 new products in Q1FY22. Looking to launch nutrition extensions in coming quarters.
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Benefitted from new launches and price increase allowed by govt on competitive products.
US US- decline due to pricing pressure; TRP has relatively mature portfolio. Company seeing high single digit erosion annually. US will not go below USD35- 36mn quarterly rate.
Levittown launches delayed by couple of months. Will start selling in October but it will not be material enough to move the needle atleast in few months post launch.
Sartans- Launched 2 sartans; third one expected in Q2FY22. Margin profile not same as it used to be. TRP will get its fair share and to flow in top-line from Q2 onwards.
Currently have three 505B2 products. Looking to add 1-2 every year. Will invest in promotional activity also. It will be through partnership.
Other geography Germany- OTC sales were impacted by covid. Internal issues have been resolved. Expect growth rates to revert to high single digit and market growth to revert to 3-4% post covid.
Brazil- Typically Q4 sales have been higher historically as distributors speculate on price increase.
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Power & Ports
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Adani Ports and SEZ
Opening remarks 83% Growth in cargo volume to 76MMT compared to 33% growth by all India ports resulting in market share gains. Containers handled - 2.08mn TEUs, growth of 69% YoY.
Cargo market share increased by 310bps to 28.6% and Container market share increased by 163bps to 43%
Two new service added at Mundra and Hazira with a potential of 1,25,000 TEUs p.a.
Port EBITDA margins improved to 71%.
Maturity profile of debt increased from 6 years to over 7 years.
Acquired balance 25% stake in Krishnapatnam port for INR28bn, making it a 100% subsidiary.
To develop a container terminal at Colombo Port with a capacity of 3.5mn TEUs. Construction expected to start in Dec‘21
Acquired 31.5% stake in Gangavaram Port from Warburg Pincus at INR120 per share.
Consideration for 58.1% stake from DVS Raju & Family agreed at INR120 per share & process for acquisition of balance 10.4% from Government of Andhra Pradesh is at an advance stage (expected to be concluded by 15th August). First option is to merge Gangavaram port and APSEZ. If merger goes through, DVS Raju and family to be paid in APSEZ shares.
Cargo volume increased due to growth in all types of cargo - Dry bulk grew by 104%, Container by 69%, and liquid cargo (including crude) by 57%.
First Indian infra company to issue dual tranche of 10.5-year and 20-year unsecured bonds.
Added LPG and LNG cargo to the portfolio. 3,50,000T volume handled.
Gangavaram expected to handle 39MMT in FY22 with revenue of INR14.08bn.
6% cost savings in Port operations.
Tax lower due to lower profit from APSEZ standalone entity.
On target to achieve 500MMT volume and expect to reach the target before the guided FY25.
Seeing robust growth in container segment at Mundra, Hazira and other western ports. Dry bulk on the eastern coast.
Mundra Continues to be the largest commercial and container handling port in India. 1.61mn TEUs handled.
Growth in volume is led by container growth of 65% and crude which grew by 59%.
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Higher growth in containers is due to the strategy to add new capacity and partner with top ship liners through their JVs.
One new container service added (annual potential 1 lac TEUs) and two new commodities in dry (annual potential 0.1 MMT).
EBITDA and margin improved due to operating efficiency, savings in cost and operating leverage.
Krishnapatnam Added new customers / commodities having annual volume potential of 0.75 MMT. Cargo grew by 39% to 12.7MMT.
Port EBIDTA margin improved by 250 bps to 73%, this is led by improvement in cargo mix, elimination of bottle necks and savings in cost.
30% growth in volumes expected.
Dhamra Cargo growth of 33% is led by higher growth in coking coal by 42% in spite of cyclone.
Revenue growth is impacted due to change in cargo mix.
Hazira Growth in cargo lead by 109% growth in dry bulk, 50% in liquid cargo and 32% in container
One new container service operated by Hapag and ONE added with a potential of 25k TEUs p.a.
Growth in revenue and EBITDA is lower on account of higher fixed revenue for liquid cargo in previous year
EBITDA margin is lower on account of one time donation and provisioning cost of INR60mn.
Dahej Added a new commodity, Sulphur in the cargo basket handled 1.6 lac tonnes during the quarter.
Revenue and EBITDA growth in line with cargo growth.
EBITDA margin improved substantially on account of capacity utilization.
Kattupalli Container volume at Chennai cluster has recovered and registered growth. Kattupalli container volume grew by 16%.
Added a new product to the cargo basket, handled 40k tonnes of Dolomite.
Revenue and EBITDA lower in-spite of cargo growth due to change in cargo mix.
EBITDA margin declined on account of under absorption of overheads.
With improvement in coming quarters EBITDA and EBITDA margin will improve to historical levels.
Moved 2 shipping lines to Ennore.
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Logistics Number of rakes increased from 61 to 66 which is expected to reach around 75 by end of the year.
Rail volume and terminal volume increased by 10% and 13% respectively.
10% YoY growth in volumes handled.
Received approval for Panipat and expect construction to begin this year.
Witnessing strong demand in warehousing. Begun construction in Mumbai (5,38,00sqft for Flipkart). Ahmedabad, 1400acres of land to be developed for warehousing. To take 5 years to complete development at these land parcels. Acquired these land parcels at lower than the prevailing market prices.
Five bulk rakes added under GPWIS.
Acquired 8 strategic assets in the DFC. Agreement to construct ICDs in these 8 stations. Capex of INR500mn for development of each such station.
Myanmar Company believes not in violation of any sanctions.
Applied to OFAC for a general license.
FY22 outlook Volume: Cargo volume guidance revised to 350 - 360MMT, a growth of 45%. This includes 10MMT of incremental volume from existing ports and 39MMT of Gangavaram port which will be consolidated from April‘21.
Revenue: Consolidated revenue - INR180-188bn (includes INR14.08bn for GPL and INR5bn for SRCPL), a growth 50%. Logistics revenue - INR10-12bn, growth of 25%. Reduction in Logistics guidance due to shut down at Kila Raipur. INR8-10bn revenue expected from port development. No more transactions expected on the SEZ front. 2-3 projects in the pipeline which are expected to materialise next year.
EBITDA: Consolidated EBITDA expected - INR115-120bn (includes INR9.79bn for GPL and INR4.30bn for SRCPL), a growth of 49%. Port EBITDA margin to reach 71%.
Capex to be around INR31-35bn (including maintenance Capex of around INR5bn).
FCF to be around INR71-76bn.
Rising freight charges not a worry.
Other comments Balance sheet – net debt/EBITDA at 3x and should remain at this level. Still room for acquisitions without hampering the credit rating. Should easily be able to acquire Container Corp by raising funds.
Major Ports Authority Bill does not help in acquisition of market share.
Market share can go up to 40% from current 25-26% levels. Conscious effort to stay away from major ports due to the risk of handling only 1 major commodity.
Looking at large scale development in Mundra and Krishnapatnam.
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Not seen any volume loss on a short term basis due to shortage of containers. Manufacturing of containers in India to help.
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Gujarat Pipavav Port
Opening remarks Operations impacted due to the cyclone in May despite efforts to reduce its impact. Infrastructure was fairly intact, warehouses/buildings were impacted through the roofing. Never seen anything of this magnitude before.
Operations normalized from 1st of June. Rail connectivity was not impacted.
Recovered some business in June and currently working with the insurance company to assess the coverage.
Lost two weeks of revenue and had to incur extra expenses on top of that.
Before the cyclone hit, two new services were added.
Signed up COSCO and working on signing additional international services.
Outlook: Continue to see turmoil in the container business. Strong bulk volumes to continue (fertilizers, minerals, etc.) as there is a clear pipeline of vessels to come.
Maintain estimates for this financial year, and expect operations to pick up August onwards.
Q&A session Q. Do we expect container freight rates to come down and will that impact volumes? A. Rates are high because of multiple reasons such as covid (travel restrictions), congestion at ports, especially wherein trans-shipments are taking place, delays are leading to congestion at warehouses as well. Expect this impact to last through FY22. DFC is the way forward for India to become competitive internationally. Q. Are we looking at RNEL acquisition? A. Too small to qualify as a resolution applicant. Parent company, APM Terminals qualifies. Do expect synergies from the deal, but still monitoring. Will partner with anyone who acquires the asset. Q. Financial impact due to the cyclone? A. Expense around USD11mn. Re-building stronger now in order to lower the impact of any such future event. Accounted for INR109mn for the repairs. Every quarter amount incurred under repairs to be accounted as exceptional. Insurance policy covers all the damages that have happened and the claim amount will be recorded in the quarter in which the settlement happens. EBITDA margin likely to come back to 60% levels going forward. Not facing claims from clients due to this. Q. Has the 5–6% tariff adjustment started reflecting now? A. Taken increase from 1st of May so some part reflecting in the current quarter and then majorly in the next quarter. Bulk realizations at INR450-550/MT and Container at INR6,500-6,900/TEU. Container tariff currently competitive but further room to improve that. Taking small increases on a regular basis without pushback from customers. Pricing 8-10% lower than competition.
Q. Any one off expenditure in the EBITDA for this quarter?
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A. No expense on account of the cyclone adjusted in the EBITDA. Impact on margins due to the lower volumes and cargo mix. Q. Has there been in a loss in customers due to the cyclone? A. No there has not been any customer loss. Other ports were also affected by the cyclone and thus no loss on that front. Q. Current status and view on DFC? A. Now able to take electric engines from Pipavav up to the north. This should ramp up steadily. Getting to the end of the road in terms of construction of the DFC. Sales people working hard with customers to make them adjust to this new system. Q. How do we expect volumes to scale up from these 2 new services? A. Saw first volumes coming from those services in July. For the rest of the year expect to add 50,000TEUs. Want to hit 1mn TEUs mark and can then work on yard expansions and further improving operational capabilities. Q. Do we foresee our insurance cost to rise going ahead? A. Currently under the global insurance umbrella. Expect good chunk of the expense for the cyclone to be recovered from insurance. Do not expect any material increase on that front.
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Indian Energy Exchange
Initial comments The new products (Cross Border, RTM & GTAM) are doing very well and the traction is likely to continue as the market depth increases.
Capacity market, Integrated DAM market, Ancillary market are the new policy initiatives being undertaken and could be new opportunity for the company. In light of negative feedback from Discoms on MBED, IEX doesn’t expect its implementation any time soon.
Launch of LDC is expected in Q4FY22 and GDAM should be in Aug/Sep21. Extremely difficult to quantify the overall opportunity from the launch of new products but very confident that they will be able to garner a significant market share through the technological edge.
The industrial customers mix has been going down due to very high open access charges.
Higher cash/investment to be returned to shareholders in form of higher dividends (50% increase YoY in FY21). New products 1) Cross Border: The company expects 8–10BU volumes over the next 3–5Y depending on the transmission capacity among countries. The payment mechanism is INR terms. Currently, the trading is on only with Nepal, but cross- border trade shall shortly begin between Bangladesh and Bhutan. Nepal has already done 178MU in last 3M. Bhutan will be seller whereas Nepal & Bhutan will be buyers. IEX’s fees remains the same.
2) LDC: There is still some delay in start of this product but it is a matter of one hearing in SC. This matter has not been heard as the SC is dealing with urgent hearings. Volumes to start only in Q4FY22. They have already developed margin mechanism on rolling basis which is yet to be approved by the regulator. Management indicated that 40bU is the addressable size.
3) RTM: Management mentioned for the first time that the RTM market is just not restricted to the DSM market – it can be much larger than that. From an initial estimate of 8-10BUs volume, they are currently doing an quarterly run rate of 4–5BUs (18BUs annually). The users are moving very close to real time trading, and this is one of the big reasons for significant growth. There was no option available for discoms to trade real time earlier. Currently, the DSM rate is the average rate of DAM and hence there is no incentive for the discoms to withdraw from Grid (penalty only above a certain limit) and buy in RTM. Regulators are reviewing this. There is a possibility of bilateral market moving to RTM. Currently, open access customers forms just 5–10% of overall volumes.
4) GTAM/GDAM: Green TAM witnessing significant participation from investors. The company will be very soon launching the green DAM (end of August) as well. In GTAM market, there are different sets of buyers, which are not looking for RPO obligations. Hence, very limited cannibalization from REC to GTAM/GDAM. Trading of GDAM/GTAM will become cost-savvy. Overall, while there is a very low capacity of renewable merchant capacity currently, growth potential is significant. On the policy advocacy side, management is trying to convey to the GoI to introduce more products for the Green market. It could
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provide a very big opportunity for IEX. Shift to renewable is for real and the company is trying to create new products. Also, because of the transition to renewables, the coal capacity is relative idle, which has led to reduction in the discovered prices and leading to benefits overall.
5) Escerts : Energy trading certificates are traded once in three years and it will be traded this year in Aug-Sep. The overall market size is likely to be 3.5BUs (3.5mn certificates) and IEX can take lion’s share in this one. Like REC, brokerage is lower than the other products in Escerts as well.
6) REC: Order likely to come in September if at all. Management reiterated that if REC trading doesn’t resume, then RPO obligation will carry forward. Some are being met from GTAM but there majorly only new buyers not the fully old players who used to buy. New concepts – From various CERC papers 1) The concept of Integrated DAM: Currently in DAM, price discovery process takes place and in TAM price matching takes place. Customers are more comfortable with the DAM due to it being more transparent. The Green generator should have the choice to sell the power through DAM and not TAM because it provides more flexibility. The integrated market consist of the option of selling Green Power in the GTAM/GDAM and if they are not able to sell then it can transfer the volume to the normal DAM market. This will ensure optimization and also the buyer will get RPO benefits.
2) Capacity markets: Capacity markets are mandatory markets in which states will contract capacity for the next five years either through exchanges or through the bidding route for the incremental capacity .The idea of the capacity markets is to ensure that electricity supplies continue to meet the demand as more volatile renewable generation comes on stream. This is critical from peak demand perspective. For this, transmission network must be available. This is still under works.
3) Ancillary services to Exchanges: Ancillary services through exchanges could provide them a 3–4GW opportunity. Currently, ancillary services (especially in DSM) like Frequency measure, Voltage compensation, Operational Management etc. is catered by the System operator. The regulator is looking to outsource this services to Exchanges especially for DSM (30mins-60mins period). Clearly the brokerage will be much lower than the regular INR4paisa/unit both ways. It could be 1-2paisa.
4) Gas Exchange: The volume traction has started but not at the level that can be considered material. Three enablers currently underway are: Gas under GST, Rationalization of Gas Pipeline tariff and incorporation of Independent system operator. Once this is done, volume traction could start meaningfully.
Industrial volumes mix continues to decline: In FY21, industrial volumes was at 20% (Q1FY22-15%) and the share of the industry is going down due to various new charges created by the state government. Other key points Concerns on MBED: Discoms are concerned that the flexibility of taking away the right to reschedule the power goes away. MBED should be implemented only when all other things are in place – like capacity market and ensure each state has adequate capacity to meet up demand.
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Q1FY22 conference call highlights
Demand remains high throughout the day. The company expects 215GW of peak demand by September.
4-5GW capacity could come on merchant capacity over next 12M – All these capacities have exhausted more than 25Y of their PPA life
The states that have contracted more than the required Green Power are the ones selling power – they will do it for the next 4–5 months.
On the PTC exchange, management remains unperturbed. IEX’s job is to create value for participants through new products, technology platforms and they have been doing it successfully.
On the policy front, The Electricity Amendment Act, 2020 proposes to implement multiple distributor in the licensed area and this is likely to promote competition, which could usher in improved efficiencies.
New subsidiary for Software development, Analytics – It can be used for monetization but as of now IEX is busy with in-house products and sees no necessity for it for the next two years. IEX performs analytics and is selling it free of cost with the aim of knowledge transfer and marketing. In the future, it might start charging for the same.
Technology adoption: Will leverage data analytics, introduce new mobile app, etc.
NSM trading product- In discussion with the Bureau of Energy – in discussion.
SECI tenders- Up to 15% of power is kept for the market; looking at the clearing price there are generators that are willing to keep some in the open market.
The bilateral market declined by 25% market in Q1 vs 40%-plus growth in Exchange market.
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Q1FY22 conference call highlights
India Grid Trust
On the Regulatory front: There were couple of developments: 1) Reduction of trading lot is a welcome move and it should deepen the liquidity in the stock. The company will be approaching stock exchanges (10-15 days once the formal approval comes) soon to reduce the trading lot to one. 2) IRDAI has allowed Insurance companies to invest in debt securities of InvITs. 3) PFRDA enabled NPS backed pension funds to invest in debt securities of InvITs Both these developments are really positive as it increases the depth of the InvIT debt investors and allows faster turnaround time in raising debt.
On the Working capital side: Cash collection (69%) was impacted on account of second COVID wave. However, this is recovering faster and July collections have been restored to 96%. There was a negative working capital of INR1.17bn which is more seasonal in nature. The outstanding receivable days is 60 days and QoQ increase in working capital is also do with the fact that Q4 collections were at 126% which implies that some of customers have paid in advance. This is the first quarter where the CTU is working as an independent operator now (PGCIL earlier).
On debt and cost of debt: The Trust raised INR34bn debt in Q1FY22 at a blended rate of 7.57% for a duration of 10 years. The company is able to diversify the pool of debt investors - Retail investors and Insurance investors (INR4bn). Enough headroom available for new class of investors post the PF investors have been allowed to invest in the debt securities of InvIT. The incremental cost of debt is likely to get better as the scope of the debt market has improved meaningfully by allowing new set of investors. Management doesn’t expect any major monetary policy changes.
Smoothen the repayment profile. The trust is now targeting FY23 repayment to be refinanced much ahead of the time.
On Business Outlook: Management expect INR950bn worth of interstate/intra state projects to be bid over the next 3-4 years which will provide a big pool of asset for acquisitions for IndiGrid. The pipeline also looks very healthy on the renewable projects side with SECI/GUVNL as the counter-parties. Management is extremely happy with the portfolio, asset financing, industry shape etc.
On future acquisitions: The Trust sees growth in 3 buckets – Renewable Energy, predictable acquisitions through KTL, Sterlite Power and other owner’s assets and lastly the new bids in which the trust is looking to partner with someone either as a consortium or in form of ROFO or through Equity commitment. The trust is open to acquire intra state transmission assets but depends on the size of risks and type of the counterparties.
Headroom for growth: Current Net debt to AUM is 58% and with the cap of 70%, there is headroom of another INR50-60bn worth of acquisitions.
How the factoring of receivables is determined: The factoring arrangement is determined by 1) Cash required for operations, 2) DPU guidance, 3) Collections from Discoms. This is basically a tool which will be used whenever there is liquidity crunch and is basically an exception rather than a norm.
To participate in PGCIL assets: Management believes that the monetisation of the balance assets of PGINVIT should see at a transparent bidding mechanism and should that happen IndiGrid will also participate.
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Q1FY22 conference call highlights
NTPC
Opening remarks from CMD Power demand: Power demand has been increasing rapidly with peak demand crossing 200GW. With Make in India and industrial capex, there is likely to be higher demand in future and this bodes well for NTPC. Thermal plants are expected to play significant role in meeting power demand and availability of coal is very important. ECR (Energy charge) has gone down by INR13/kWh (INR50bn savings for Discoms).
Renewables: Going forward, while NTPC’s growth is predominantly going to come from renewable and its allied activities, that doesn’t mean thermal is dud.
Recent PPA exit: Not at all concerned on the recent regulation allowing Discoms to exit from PPAs after 25Y as most of NTPC’s plants post 25Y are generating power at sub-2/kWh.
RE capacity: The 60GW RE capacity target by 2032 will be a very big transition and it will 50% of total generation capacity. The company is confident of 15GW RE capacity by FY24, 20GW of RE capacity by FY26. It is very much focused on floating solar and selling on merchant basis. All approvals for India’s biggest solar park of 4750MW UMREPP at Khavda, Gujarat, have been received. Signed MoU with ONGC to develop off shore wind installations. Management doesn’t believe that its bidding is too aggressive and has followed all due diligence and complied with internal regulations. The company follows a rigorous assessment framework before putting any bid. Not all capacities might go to the new entity and some of the bidding may be through in SA. There are 12GW of bids in the offing currently.
Green Hydrogen: Green Hydrogen is one of the key focus area and its pilot project in Vindhachal (Cost of Green Hydrogen is less than USD3/kg for NTPC) is shaping up nicely. It also plans creating Green Ethanol at USD50/litre. The idea is to capture the carbon emissions and then Greening it via Green sources. Realizing the dream of Integrated Energy Company through the transition and it will be a circular economy. The company stands a very big chance in this technology and it believes there’s no one even closer to the company. The company 5 years down the line could be called as a Transport company or a chemical company as well as it has some really big plans.
Bidding for distribution circle: NTPC intends to participate in bidding for privatization of circles. Chandigarh bidding will open soon where NTPC has also participated.
Bio mass: Strongly believes that palletization and torification (improve the quality of bio mass to 4Kcal) will come a long way for converting coal-based energy to bio mass energy and it will be in a position to convert bio massed based firing which will completely replace coal. This will also create downstream value addition. It currently has 44MT stock of bio mass for firing. Currently, 5-10% firing is done through bio mass in some plants and there will be some design changes required for boiler for 100% firing.
ESG: Working tirelessly to enhance communication on ESG level and the company is optimistic about its upgradation by a level led by its recent integrated reporting framework.
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Q1FY22 conference call highlights
Separate listing of RE and trading business: The process of listing of RE capacity has already started and expect to get listed in 18 months. It also plans to list the trading company (NVVNL) as NTPC is looking to create more trading just not from of power but from Green Hydrogen.
Dividend: Dividend to be distributed as per DIPAM guidelines.
FGD: All plants broadly on track for the FGD installation (ordering done for 60GW plants) and once completed almost every plant will feature in MOD. It plans 3GW installation by FY22, 10GW by FY23, 28GW by FY24 and 64GW by FY25.
Realizing dream of an integrated power company: The company doesn’t want to be just a regulated generating company but it is in the process of transitioning as the overall sector transitions. It intends to become preferred choice of supplier by integrated its initiatives on Green Hydrogen, distribution, renewables, battery storage, bio mass.
Blending with coal and RE: It’s one of the best integration and no other company has such a massive advantage of blending coal with RE. Coal prices/freight are unlikely to fall. The company can go with RE plants even without PPAs with Discoms at some point in time (it could be merchant capacity, long term contracts with C&I). The opportunity could be 15-20GW capacity over here.
CWIP ratio and growth in regulated equity: The CWIP ratio is likely to go down further to 24% by FY24 from current 31% which should push up the company’s RoE. The regulated equity is likely to post 15% CAGR and touch INR950bn plus over the next 3 years with a CAGR of 15%.
Captive power plants: On captive power plants in its own premises, management expects that there will be less captive power plants in times to come as the grid has become very robust.
NTPC’s preparedness for new type of RE bids: The company is adequately prepared for new type of upcoming bids for Hybrid tenders /RTC/ storage. Other key highlights The company has started taking action to retire old plants – Badarpur , Talcher
Bangladesh JV project to be commissioned in FY22.
Current Kd at~6%.
MBED (its more on the ECR and not on the capacity charges) for NTPC’s power plant. It will be beneficial for Discoms as well for NTPC as it will increase the availability.
2 tonnes per day of Green Hydrogen is awarded and expect the completion by FY22, NTPC is one of producer and supplier of Green Hydrogen. Also, 20tonnes per day of Co2 awarding is already done and expect the completion by FY22.
The company is evaluating cost and time optimization on solar EPC. It may do some part of the job in-house.
On coal mining, Production to commence from Chatti bariathu soon. Also, Production ramp up from Dulanga very soon.
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Q1FY22 conference call highlights
Tata Power Company
Opening remarks Consolidated revenue INR98bn, up 47% mainly due to acquisition of Odisha Discoms and higher sales/execution in solar EPC businesses.
Consolidated PAT before exceptional Items stood at INR4.7bn, up 74% YoY driven by a good performance across businesses, reduction in finance cost and higher execution of EPC projects (solar EPC, rooftop, solar pumps business).
Sub debt prepayment: INR15bn of perpetual debenture (had option to prepay in the clause, which was the reason for prepayment) was pre-paid. The cost of debt was 11.4%. The average debt profile is around 7% for the debt used. So an equivalent amount has been moved from equity to debt.
Kd: 6.95% vs 7.99% in Q1FY21.
Net debt/EBITDA: 4.1x. (capex in renewable projects increased net debt).
Cash – INR30bn increased from Odisha DISCOM cash, collections for past dues etc. Restructuring/monetization CGPL amalgamation: Last hearing by NCLT is in progress and expect to complete the process soon. Will look at regulatory and shareholders’ approval after this and would be done in few months.
Renewables monetization structure: Work in progress on deciding the approach. Have decided not to merge the solar EPC in the standalone though. Have 12 to 15 months to look at it. There is no time pressure given the low pressure in cash requirement.
Continue to look at monetization of Zambia asset, Georgia asset and the coal assets. Expect to close it by this year. Solar EPC Solar EPC order book of INR72.6bn (OI of INR7.4bn which includes INR6.3bn from NTPC).
EPC margin: Old orders where module purchase was needed impacted it. New orders are benchmarked to new prices and hence the margin will increase.
Large clients award only EPC (as they want to outsource end to end responsibility including, procurement and O&M).
Increase in debt due to high activity and it will be liquidated in coming 2 quarters (3 to 6months for EPC receivables liquidation). Rooftop solar OB of INR10bn plus (also got 84 MW Rooftop Solar Project worth INR4bn from Kerala State Electricity Board).
The execution timeline will depend on the size of orders ranging from 1 to 6 months. TPWR expect these orders to be executed in FY22. The Q1 revenue was INR1.47bn.
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Q1FY22 conference call highlights
Solar pumps Sold 7,419 solar Pumps, highest ever in a quarter.
Order book of INR1.75bn; Revenue: 140cr; EESL tenders: Court case is going on in Delhi court and the hearing is expected by 12th August. Meanwhile, MNRE and EESL are proposing for new bids with state governments to meet 3lakh pumps target.
Margin is similar to solar EPC business.
Module manufacturing: Doubled to 500MW from 250MW last year. Will enhance the capacity of Module and cells manufacturing based on this space panning out. DISCOM New DISCOM: Completed acquisition of 51% equity shares in NESCO and commenced operations. Overall customer base now 12.1mn
Mumbai DISCOM: 10,000 smart meters installed till date.
Odisha DISCOMs: AT&C losses in Odisha DISCOMs increased due to lockdown, cyclone. Collections reduced due to this and will be recovered soon. Will reach target ATC losses before the target date. The impact in P&L was INR200mn. In balance sheet debtors increased by INR10bn to the next quarter.
Billing dipped in DISCOM, renewables and generation businesses.
DISCOM bidding: Now waiting for Electricity amendment act to unwind which will increase the scope as we have multi city plan. CGPL Loss of INR1.5bn after adjusting for one time income from APTEL order.
International coal prices increased and hence reduced the supply. In CGPL, if coal prices remain the same the PAT loss will be marginally higher given the DMO obligations. However, the generation will be adjusted accordingly and the impact won’t be significant. The contract outlines 80% availability.
DMO applicable at 70 dollars (it has to meet the domestic requirement also).
Indonesian mine – Renewal of contract will be in soon (there was similar contract signed in recent past). Royalty, corporate, new VAT, total area of mining has changed. However, net net it is not a significant change.
PPA renegotiation: In Gujarat there was cases related to other operators after the initial proposal. The regulators new suggestions are not agreeable and is thus in stand still. Other highlights Maithon: Regulated equity increase in Maithon due to railway commissioning.
FGD - Work in progress across all plants. This has to be completed by 2024. Jamgeshpur should be done in 2022 and it will be done as WIP.
Transmission projects: Re-entry into the development of Greenfield Transmission Projects with partnership with T&D EPC player, Tata Projects. The business was deferred before due to tough/aggressive competition before in last 5 to 10years. Now the industry has consolidated a lot and have become level playing field and thus have entered again.
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Q1FY22 conference call highlights
Renewable portfolio: Aim to scale up our renewable portfolio from the current 4GW to 15GW by 2025 and to 25GW by 2030 thereby achieving 80% clean generation capacity, up from the current 31%.
EV Charging – Tied partnership with retail businesses. There are 3 types of models – Home chargers (OEM will ask to install whenever asked for at one time revenue), PCS (owners of land or government will approve to put in capex model) and 3rd is fleet owner or buses (2 models in this – subscription model and capex model).
New tax regime impact will be reversed in the next quarter.
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Q1FY22 conference call highlights
Real Estate
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Q1FY22 conference call highlights
Brigade Enterprises
Key highlights 1. Commentary on covid-19: Management’s commentary on the impact of the pandemic on its various business lines:
Real estate: While the lockdown impacted bookings during the quarter, site visits have revived sharply post-lockdown. BEL had raised prices by 2–3% during Q1FY22 and in July 2021 as well considering the robust demand and to mitigate commodity price hike pressure.
Leasing business: Enquiries/site visits/RfP releases have started gaining traction post-second wave though decision-making remains slow as physical occupancy in offices is less than 10%.
Leasing pipeline stands at ~1.5msf, of which 0.8msf is in BTG, 0.5msf in WTC Chennai, 0.1msf in GIFT City and rest in other projects.
Rent collection in the office segment was 99% in Q1FY22.
Retail business: The mall business had recovered with consumption reaching ~90% of pre-covid level in Q4FY21, while footfalls had touched ~70%. While the retail business was impacted due to the lockdown during the second wave, footfalls have recovered to 60% levels now with higher conversion rates; management expects full recovery by Q3FY22.
Around 14% of the total mall leasable area has been freshly leased out and is under fit-outs. Occupancy in the malls stands at 85% despite the pandemic.
Management has given rent relaxations to retailers, similar to the ones given in FY21.
Retail rentals, which were ~INR1.2bn in FY20, declined by ~50% in FY21. Management expects FY22 rentals to be 65% of pre-covid levels.
Lease renewals in malls are happening at 30% higher rents; rates are higher by 23% for churn in space.
Hospitality: Hotels continue to be impacted because of the international travel restrictions and subdued domestic travel. The second wave had adversely impacted operations though occupancy improved in July 2021. ARRs in hotels were under stress in Q1FY22. They were at 60% of pre-covid levels in Q4FY21.
BEL is on a cost control drive to minimise losses. Seven out of the eight hotels generated positive operating cash flows in July 2021.
2. Financial performance: Revenue for the quarter came in at INR3.8bn (up 88% YoY, down 52% QoQ), while EBITDA margin rose to 29.1% (up 575bps YoY and 520bps QoQ). Interest costs rose (up 27% YoY, 26% QoQ) due to capitalisation of the WTC Chennai project. The company reported an adjusted net loss of INR192mn during the quarter (against a profit of INR759mn in Q1FY21 and a loss of INR527mn in Q1FY21).
3. Project launches: The company launched two projects spanning ~1.4msf in Q1FY22, one each in Bengaluru and Chennai (in FY21, it had launched eleven
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Q1FY22 conference call highlights
projects spanning ~6msf). Projects launched during the last six months contributed 38–40% of pre-sales during Q1FY22.
Launch pipeline stands at 3.8msf comprising 1.9msf residential projects and the balance being commercial projects. BEL’s share stands at 2.1msf comprising 1.1msf residential projects and balance being commercial.
4. Sales: Of the ~0.8msf space sold in Q1FY22, residential projects contributed 98% to sales; balance from commercial (sale) projects.
Share of Bengaluru in overall sales, which earlier used to be about 80%, has now declined to 60% as Chennai and Hyderabad operations have ramped up.
5. Leasing segment performance: Lease rentals came in at INR1.1bn during the quarter (INR1.2bn in Q4FY21; ~INR0.8bn in Q1FY21). BTG contributes rentals of ~INR160mn per quarter.
Management expects overall rentals to be ~INR4.5bn in FY22 - ~INR4bn from existing leases and the balance from new leases. Rental rates from existing leases have gone up by 4.7%. BEL hasn’t witnessed any renegotiations in rents.
6. Rental assets: Total leasable area is ~8.6msf; out of this, ~5.3msf has been already leased. This is further sub-divided into:
Office assets: Total leasable area is ~7.3msf; out of this, ~4.1msf has been already leased while an additional ~0.6msf are hard options.
Retail assets: Total leasable area is ~1.3msf; out of this, ~1.1msf has been already leased.
7. Leasing: Marginal leasing of 0.02msf space in Brigade Tech Garden (BTG) during the quarter. WTC Kochi and the GIFT City projects also witnessed some space take-up during the quarter.
Leasing velocity is strong in the GIFT City project. The occupancy in the project was at 28% in Q1FY22; it should touch 50% soon (post a deal closure) and management is hopeful of getting it up to 70% by end-FY22.
8. Details of key commercial projects are as follows:
Brigade Tech Garden (BTG): Around 1.07msf space has been already leased out in addition to 0.3msf hard options. Management expects the project to be fully leased out over the next four quarters.
WTC Chennai: BEL is yet to lease 0.31msf in the 2msf project; it expects the project to be fully leased out by end-FY22. Rents have commenced for the project; the project contributed ~INR150-200mn rentals in Q1FY22 with full year rentals likely to be ~INR750mn.
Brigade Southfield: Construction on the project is complete and rentals will commence shortly.
9. Hospitality business: Losses at the PBT level in the hospitality segment expanded sequentially to INR338mn (INR129mn during Q4FY21, INR436mn in Q1FY21).
Operational performance: All the hotels are operational. The segment reported a negative GOP of INR19mn during the quarter (positive GOP of INR73mn in Q4FY21). There was a 14% GOP loss in Q1FY22 vs 22% GOP profit in Q4FY21.
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Q1FY22 conference call highlights
Average occupancy rate for the segment was 23% in Q1FY22 (43% in Q4FY21, 11% in Q1FY21).
10. Collections: Collections for the quarter came in at INR7.2bn, 91% YoY but down 36% QoQ.
11. Cash flows: Cash flow from operating activity during Q1FY22 came in at INR1.6bn, up 90% YoY but down 61% QoQ.
Capex spend during Q1FY22 was ~INR650mn (~INR1.5bn in Q4FY21); net cash flow (operating less investment cash flow) came in at ~INR0.7bn (~INR1.1bn in Q4FY21).
12. Debt: As a result of the ~INR5bn QIP issue, net debt (BEL’s share) declined to INR21.2bn (INR26.5bn at end-Q4FY21). The net debt to equity ratio stood at 0.86x (1.15x in Q4FY21).
The cost of borrowings for the company declined to 8.14% (8.4% in Q4FY21); the current cost of debt is at an all-time low (down 143bps since March 2020).
The increase in leverage is primarily on account of ongoing capex in the leasing segment.
13. Management expects to utilise bulk of the QIP proceeds to buy land parcels, chiefly for the residential business.
14. Revenue breakdown: Real estate business (residential and commercial sales) contributed 66% to Q1FY22 revenue, the hospitality segment 5% and the balance came from the lease rental business.
The real estate segment constitutes bulk of the company’s revenue; however, as far as margin is concerned, this vertical generally has the lowest profitability with the leasing business churning out the highest margin. However, in Q1FY22, the hospitality segment had an EBITDA loss of INR28mn.
The real estate segment generally has the highest contribution to profit before depreciation and tax (after interest), followed by the leasing and hospitality businesses. In Q1FY22, the hospitality segment recorded a PBDT loss of INR163mn.
15. Land bank: BEL’s land bank reflects the company’s focus on diversification, both from a segmental and geographical point of view. While the residential segment occupies a pride of place, the leasing segment has a fair representation in the company’s land bank.
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Q1FY22 conference call highlights
DLF
Key highlights We summarise management’s thought process regarding various facets of business:
1. Liquidity: The company is well placed on the liquidity front. Its debt repayment (ex-DCCDL) over the next year is likely to be ~INR9.6bn while it has a cash balance of INR12.9bn.
2. Office portfolio: Collections against billings stood at 99%. Due to the second wave, occupiers have deferred leasing decisions even. However, enquiries are now picking up. Management expects the leasing momentum to improve in H2FY22 as vaccination progresses. It believes it is near the peak as far as vacancy levels are concerned; from here on, vacancies can at worse go only marginally up.
The company achieved 13% contractual escalation on 1msf during the quarter; it expects 14% escalations on 6 msf during rest of the fiscal.
The company has engaged advisors for REIT for DCCDL and expects to be REIT- ready by end-FY22.
3. Retail portfolio: Footfall at malls at end-Q1FY22 were at 50% levels (81% at end- Q4FY21). All the malls are open currently, albeit with some restrictions.
Overall retail rentals declined to INR0.4bn in Q1FY22, down 67% QoQ due to lockdown and rental waivers.
4. Housing business: Management indicated that demand has revived across price points (mid-income, luxury, super premium) and geographies. It has taken price hikes in independent floors. It had launched independent floors in DLF Phase III at INR11,000/sft in Q3FY21; prices here had reached INR12,500/sft by Feb 2021. It launched independent floors in DLF Phase I in March 2021 at INR15,000/sft.
It has also reduced discounts in Camellias by 4-5%
5. Higher revenues lead to profit growth: Top line rose to INR11.4bn during the quarter (up 108% YoY, down 34% QoQ).
6. EBITDA margin, at 34.7%, surged ~3440bps YoY and 820bps QoQ. Finance charges slid 26% YoY. Adjusted PAT came in at INR3.4bn (down 30% QoQ).
7. Development business: In its development business, DLF issued possession letters for 344 units spanning 0.9msf in Q1FY22.
8. Q1FY22 sales: During the quarter, DLF posted net sales of INR10.1bn (INR10.6bn in Q4FY21).
9. Unsold inventory: Overall unsold inventory declined sequentially to ~INR53bn (~INR60bn in Q4FY21). Of this, ~INR36.7bn is in Phase V (almost entirely in Camellias) compared with ~INR40bn in Q4FY21, about INR1.3bn in New Gurugram (~INR1.4bn), INR1bn in new products (INR3.8bn) and ~INR13.9bn (~INR14.9bn) in National Devco. The potential EBITDA from this unsold inventory is about INR30.4bn (INR33.8bn).
10. Projects in DLF: The company is planning to develop ~35msf of projects, which are expected to generate INR360–400bn in revenue over the medium to long term. The status of these projects is discussed below.
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Q1FY22 conference call highlights
Midtown project, Delhi (8msf): DLF expects to receive RERA approval by Sep-Oct 2021 and to launch the first phase (2.1msf) of this project in Q3FY22.
Hines JV project (3msf-plus): The master planning has been finished and excavation has begun. Management expects to place final construction contracts by next quarter and construction to be completed in 3-3.5 years.
Mid-income housing projects in Gurugram, Chennai and Chandigarh: These projects spanning 9msf are planned to be launched in phases, commencing H2FY22.
Commercial projects: These projects (in Delhi/new Gurugram/DLF Phase V) are planned to be launched in phases, commencing H1FY22.
Premium housing project: The 10msf projects are planned to be launched in phases starting H1FY22.
11. DLF has ~INR33.6bn of receivables from sales already done.
12. Cash flow: The company generated net cash flow of INR1.4bn during the quarter (INR2.2bn in Q4FY21). While collections were lower QoQ, so were operating expenses, capex and interest expenses.
13. Camellias: In Camellias, 1.2msf space is still left to be sold, out of total 3.6msf area.
14. DCCDL: DCCDL’s operational portfolio is 34.2msf with occupancy at 87% (89% in Q4FY21). It has 4.9msf assets under construction, of which 1.6msf has been already pre-leased.
15. DCCDL performance: DCCDL posted sales of INR10.4bn (INR12.9bn in Q4FY21); PAT stood at INR2.0bn (INR3.3bn). Gross leasing stood at ~1msf (~1.5msf) while net cancellations stood at 0.6msf (net leasing of 0.2msf).
16. Rental income: Rental income in DCCDL stood at INR7.7bn (INR8.4bn in Q4FY21) while that in DLF (ex-DCCDL) stood at INR120mn (INR640mn).
Office rentals rose to INR7.3bn (INR7.1bn) while retail rentals declined to INR0.4bn (INR1.3bn in Q4FY21). Management expects retail rentals to be INR4.6- 4.8bn in FY22.
Retail rentals on a normalised basis (assuming escalations) should be ~INR7.3- 7.5bn.
17. Vacancies in DCCDL rose by ~200bps QoQ in Q1FY22 to 13%. Vacancy in the office portfolio is 14% while that in the retail portfolio is at 4%.
18. Status of various projects in DCCDL:
Chennai IT SEZ: Construction work on the ~0.3msf Block 12 is complete; the company has already leased 0.3msf space in this block.
DLF Downtown, Gurugram: Structure work has already been completed on Phase I near Cyber City; currently, façade/MEP work is underway. The company has pre-leased 0.5msf space in the project.
DLF Downtown, Chennai: The work is underway on Phase I (~3msf). In the third tower (1msf), the company has pre-leased 0.77msf space to Standard Chartered Bank.
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Q1FY22 conference call highlights
19. Debt: Net debt for the DLF Group (ex-DCCDL) declined to INR47.5bn (INR49bn at end-Q4FY21). Net debt in DCCDL declined to ~INR191bn (~INR192bn).
Management has guided that debt reduction will continue going ahead.
20. Interest rate reduction: DLF has achieved a ~150bps reduction in interest cost since Q4FY20 to 8.2%. It targets to reduce borrowing cost by additional 20– 30bps. The latest round of funding has been at ~8%.
Similarly, DCCDL has achieved a 148bps reduction in interest cost since Q4FY20 to 7.42%. The latest round of funding has been at 7.0-7.2%.
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Q1FY22 conference call highlights
Godrej Properties
Key highlights 1. Impact of the second wave of the pandemic: Management indicated that impact of the second wave of covid-19 on execution was lower than last year as labour availability (131% at end-Q1FY22) was much better than last year. Demand has already picked up in June-July 2021; while sales during April and May were at INR880mn and INR800mn respectively, they climbed to ~INR3.3bn in June and just under INR5bn in July 2021. Management remains confident about medium-term growth prospects. 2. Housing price rise: Management indicated that it is still premature to give a guidance on price rise. However, demand has started to improve; if demand momentum continues, then price rise is a possibility after a couple of months. 3. New sales: New sales during Q1FY22 stood at ~INR5bn (down 68% YoY, 81% QoQ); all of it came from existing inventory with no new launches during the quarter. The commercial segment contributed just INR30mn to sales with the balance coming from residential projects. In volume terms, bookings during Q1FY22 came in at ~0.8msf, down 69% YoY, 82% QoQ. 4. Diversified operations: By value, NCR contributed 32% while MMR and Pune each contributed 23–24% to sales during the quarter; Bengaluru contributed 15% to sales. 5. Project launches: The company did not launch any projects during the quarter as the statutory approvals were delayed due to the lockdown. In FY21, the company launched 11 projects spanning 6.9msf (17 projects spanning 10.9msf in FY20). 6. Launch pipeline: The company’s launch pipeline for FY22 initially included 19 projects/phases spanning ~12.3msf. However, GPL is now planning to launch 21 projects with an area of ~13.3msf in FY22. It has already launched a project in Bengaluru and Pune each and plans to launch two projects in NCR soon. 7. Project addition: GPL has bought a 20% stake in a company to develop a commercial project with Godrej Fund Management under its commercial platform. The project offers 1.05msf of leasable area It has exited the Ambernath project due to non-receipt of certain approvals within the expected timeline from the JV partner and regulatory authorities. No capital had been paid to the JV partner. Management expects the pace of new project addition to rise significantly; it believes the land market will tighten after a couple of years and hence wants to take benefit of the attractive deals that are available now. During FY21, the company added four residential projects (two each in MMR and Bengaluru) with an aggregate saleable area of ~5.9msf (ten projects spanning ~19msf in FY20). The transformative effect of RERA imposition and the industry’s changing dynamics (consolidation) are evident from the pace of GPL’s portfolio expansion—project addition has moved in to a different orbit altogether when one looks at the past few years.
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Q1FY22 conference call highlights
Another aspect worth a mention is that the company has managed to avoid concentration (over the past decade) as far as project addition is concerned. GPL has been able to ensure that various markets it is present in account for a fair share in the overall development pipeline. Consequently, the five major regions (Ahmedabad, Mumbai, Pune, Bengaluru and NCR) account for a 13—26% of the development pipeline. This is likely to ensure that GPL grows at a steady pace even if it has to face a slowdown in any individual market. Consequently, it is insulated from any geographical concentration risk; this sets it apart from most peers, which derive the bulk of their sales from individual home markets. 8. Project delivery: The company delivered ~0.5msf in a project in Pune in Q1FY22 (2.3msf across three projects in two cities in Q4FY21). It had delivered 6.5msf in FY21 (5.3msf in FY20). 9. The company leased over 0.1msf of office space in Godrej 2 during the quarter with rentals at INR160/sft plus. 10. Operating cash flows deteriorate: Collections during the quarter were impacted by the pandemic; they declined to ~INR12bn (~INR20bn in Q4FY21). Construction spends rose QoQ to INR13.7bn (INR12.2bn). Consequently, the company posted negative operating cash flows of INR950mn during the quarter (INR7.9bn of positive operating cash flow in Q4FY21). Capex outflow during the quarter moderated to INR3.9bn (INR4.8bn); consequently, net cash outflow came in at INR3.4bn (INR380mn in Q4FY21 adjusted for QIP proceeds). 11. Leverage: The company ended Q1FY22 with a net cash position of INR2.4bn (INR5.8bn in Q4FY21). Its net debt to equity rose QoQ to negative 0.03x (negative 0.07x at Q4FY21-end). 12. Borrowing costs: GPL’s average borrowing cost declined to 6.65% (6.75% at end-Q4FY21). 13. Financial performance: Q1FY22 revenues came in at INR0.9bn (up 19% YoY, down 80% QoQ). EBITDA loss stood at INR0.6bn (against loss of INR1.5bn in Q4FY21 and INR0.5bn in Q1FY21). Interest costs reduced ~16% YoY but increased ~2% QoQ. Other income grew 43% YoY and 23% QoQ to INR1.8bn resulting in net profit of INR0.2bn (against loss of INR1.9bn in Q4FY21 and INR0.2bn in Q1FY21). 14. NGT order against Godrej Reflections: On July 30, 2021, the National Green Tribunal quashed the environmental clearance (EC) granted to ‘Godrej Reflections’, a project being developed by GPL and directed its immediate demolition. The green panel also imposed a penalty of INR310mn on the project proponent. The company has sold 532 units in the project worth ~INR5.7bn and has collected ~INR1.5bn from customers. Construction is at an initial stage with only the basement having been constructed. The project was under an investment platform where GPL’s stake is 20%. Management indicated that it strongly disagrees with the order and is in the process of challenging it. It said that the order has not taken into consideration the complete assertions and arguments provided by the company while disregarding the findings of the Joint Committees that were set up under NGT’s own directions. GPL remains confident of its merits and compliances in the case.
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Q1FY22 conference call highlights
Oberoi Realty
Key highlights 1. Top line declined sequentially: Q1FY22 revenue at INR2.8bn jumped 141% YoY, but fell 64% QoQ.
Q1FY22 revenue by project (not exhaustive):
Sky City: INR1bn (~INR2.8bn in Q4FY21 and INR276mn in Q1FY21).
Mulund projects: INR562bn (INR1bn in Q4FY21 and INR137mn in Q1FY21).
Goregaon projects: INR416mn (INR2.4bn in Q4FY21 and INR165mn in Q1FY21).
2. New sales improve: Total new sales in Q1FY22 were 39 units (421 units in Q4FY20 and 5 units in Q1FY21), aggregating ~92k sft (down 92% QoQ, up 7.5x YoY,) and worth INR1.7bn (down 91% QoQ, up ~7x YoY).
The decline on QoQ basis was across most projects - Sequentially, sales were lower in Goregaon (down ~94% QoQ), Mulund (down ~86% QoQ) and Borivali (down ~88% QoQ). There were no sales in the Worli project this quarter.
3. New launches: OBER had launched one tower in the Elysian project in Goregaon and the sixth tower in Borivali during Q4FY21. It plans to launch another tower in Goregaon Phase III and in Borivali apart from the Thane project around the festive season later this year.
4. The company is exploring the possibility of diversifying outside Mumbai.
5. Redevelopment projects: This is a big focus area for the company, which is in talks with multiple societies. It is looking at redevelopment projects, which can generate a minimum of INR5-7bn sales.
6. Three Sixty West project: There were no sales in the project during the quarter. Management expects OC for the project shortly (post which profit recognition will happen). It indicated that it had made a conscious decision to sell only after OC and expects sales to revive now.
Interior work on the Ritz Carlton is underway; management is targeting its launch by end-CY22.
7. Mulund projects: These are around 65% complete; management expects to complete them in the next year (within RERA timelines) and believes sales will improve post completion.
8. Borivali project: The superstructure of the mall should get ready in the next four months. There will be a hotel on the top; management expects to sign a contract with a leading hotel management firm soon.
The company has also acquired a slum rehab space in Borivali where it intends to develop some commercial space. It expects the site to get vacated in the next 36 months, post-which work can start.
9. New Worli projects: Apart from the existing 360 West Project in Worli, the company intends to develop two additional projects in Worli. These include:
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Q1FY22 conference call highlights
Erstwhile Worli mall (Glaxo): OBER is looking at converting the proposed mall/office project at the Glaxo land parcel in Worli into a residential one. It is currently in planning stage.
Redevelopment of Shiv Shahi Society in Worli: The Shiv Shahi Society in Worli has appointed OBER for its redevelopment. Media reports indicate that the society has terminated its earlier development agreement with HBS Realtors who has approached the court against the society’s decision. Management indicated that it is working with the society to resolve the legal issues.
10. Collections: Collection during Q1FY22 stood at ~INR6.5bn, up 7.6x YoY and 1% QoQ.
11. Rental assets witness sequential decline due to second wave: Occupancy declined QoQ in Oberoi Mall in Q1FY22 (at 92.6% versus 93.5% in Q4FY21); operating revenue came in at ~INR32mn (~INR15mn in Q1FY21 and INR302mn in Q4FY21).
The company had not recognised revenue for Oberoi Mall in Q1FY21 due to ongoing uncertainty regarding mall operations. OBER later started recognising revenue for Q1/Q2/Q3/Q4 FY21 basis the quarter in which arrangements are finalised with retailers and hence the figures are not comparable across periods.
Occupancy in Commerz I came in at 53.5% (33.6% in Q1FY21 and 45.6% in Q4FY21). Occupancy at Commerz II was 97.4% (100% in Q1FY21, flat QoQ).
Westin Goregaon: Occupancy during Q1FY22 came in at 39% (7% in Q1FY21 and 44% in Q4FY21); consequently, RevPAR declined ~23% QoQ to INR1,764 though it was up 3.8x YoY.
12. Cash flows: The company’s operating cash flow rose 35% QoQ to INR5405mn. However, an increase in investing cash outflow (due to FSI purchase for Commerz III and construction spend in Borivali mall and Commerz III) meant that net business cash flow (operating less investing cash flow) was negative.
13. Leverage: The company’s gross debt to equity was up QoQ at 0.17x (0.16x in Q4FY21); the net debt to equity declined to 0.12x (0.13x at end-FY21).
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Q1FY22 conference call highlights
Sobha
Key highlights Segmental performance
1. Real estate: Q1FY22 revenue came in at INR5.1bn (up 46% YoY, down 7% QoQ).
2. Manufacturing/contracting business: The division’s Q1FY22 revenue stood at INR1.5bn (down 46% YoY, up 6% QoQ).
Note: Financials prior to FY16 are as per IGAAP, FY16–18 are as per Ind AS 18 while those for FY19 are as per Ind AS 115.
Project launches: Due to the pandemic-induced lockdown, Sobha did not formally launch any project during the quarter. Launches during FY21 stood at ~3.2msf (~1.6msf during FY20).
Launch outlook: Sobha is targeting 15 residential project launches (aggregating 12.24msf) in Bengaluru, Chennai, GIFT City, Gurugram, Hosur, Hyderabad, Thrissur and Trivandrum over the next three–four quarters. In the commercial segment, it plans to launch one project each in Bengaluru and Thrissur with a leasable area of 0.32msf. Thus, total launch pipeline stands at 17 projects spanning over 12.56msf.
In addition, it has about 7.3msf of unsold area in new phases (to be launched) of ongoing projects.
Entering new markets: Bengaluru will continue to dominate Sobha’s sales; at the same time, the company plans to enter markets such as Hyderabad and Trivandrum to diversify its geographical presence.
Sales: During Q1FY22, the company reported new sales of 0.9msf (up 38% YoY, down 33% QoQ). Sobha’s new sales in value terms (its share) stood at INR5.7bn (up 45% YoY, down 35% QoQ).
Diversification: Share of Bengaluru increased to 74% of overall sales during Q1FY22 (67% in Q4FY21). Gurugram contributed 8% to sales, followed by 6% from Cochin.
Mixed trend in ticket size: During Q1FY22, the INR10–20mn category made up 60% of sales, while the INR20–30mn and INR30mn-plus categories accounted for 12% and 6%, respectively.
There had been significant increase in the share of houses in the Realisation: Average realisation in Q1FY22 was INR7,626/sft which was up 2% YoY but down 5% QoQ. Realisations during Q4FY21 had been the best ever in the past 8 quarters. Management indicated that pricing has started moving up in the wake of rising housing demand. The company has raised prices in the Dream Acres project in Bengaluru by 2-3% this month. 336 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Inventory: Unsold completed inventory increased QoQ to 0.47msf (0.29msf in Q4FY21) worth INR4.03bn (~INR1.0bn)—among the lowest in the real estate industry. Unsold area: Overall unsold area however reduced QoQ to 15.16msf (15.95msf at end-Q4FY21). Unsold area = Area in projects completed but not sold + unsold area in ongoing projects offered for sale + area in projects not yet launched Net cash flows from ongoing projects decreased to INR47.6bn during the quarter. The balance receivables from sold ongoing project inventory and completed projects stands at ~INR42.8bn, which covers 89% of the balance project cost to be spent on completing the projects. Presence in commercial space: The company has currently ~0.4msf of completed rental assets (its share of leasable area); it has another ~0.3msf commercial projects in the pipeline. Collections: Collections in Q1FY22 stood at ~INR7.2bn (~INR9.8bn in Q4FY21), up 31% YoY but down 27% QoQ. Cash flows: At the net OCF level (after meeting interest and tax commitments), net cash inflow stood at INR516mn during the quarter (INR1.5bn in Q4FY21). Capital outflow (on account of land and capex) was negative INR7mn (i.e. there was a capital inflow) in Q1FY22. The company generated net cash flow of INR356mn during the quarter compared with INR1.2bn during Q4FY21. Land payments: Going ahead, the pace of land payment will remain constrained at INR0.75-0.80bn annually as the company is focussing on monetising its existing land bank; for projects to be done through JDA, most payments have been made and, hence, internal accruals should be sufficient to take care of most of the land-related capex. Order book: Contractual order book stood at INR20.5bn at the end of Q1FY22 (INR20.7bn at end-FY21). Net debt declines sequentially: Net gearing (as per Ind AS 115) fell to 1.15x (1.17x at FY21-end). Management is targeting to bring this down further to 1.0- 1.1x. Borrowing cost: The company’s borrowing costs declined to 8.98% (9.04% in Q4FY21). Buyer profile (12 months rolling): ~51% demand came from professionals belonging to IT/ITES industry, followed by 16% from other professionals. Demand from businessmen/entrepreneurs constituted only 7% of total sales. NRIs have contributed ~12% of sales. Other highlights Management has guided Q2FY21 will be better both YoY and QoQ in terms of performance. Provided there are no incremental covid related disruptions, Sobha can deliver double digit YoY growth in FY22. Also, on the cash flow front, FY22 will be better than FY21. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Sunteck Realty Key highlights 3. Q1FY22 performance: Q1FY22 revenues at INR0.9bn were up 74% YoY but down 52% QoQ). EBITDA margins at 22.2% were down ~200bps YoY, but up ~180bps QoQ. Net profit at INR30mn was up 197% YoY but down 71% QoQ. 4. Q1FY22 sales breakdown by project Sunteck City, Goregaon – ~INR760mn Naigaon – INR650mn Sunteck Crest – INR350mn There were no sales in the BKC project during the quarter. Apart from the Naigaon project, BKC and ODC projects have historically contributed a lion’s share to the company’s sales. 5. Collections: Collections in Q1FY22 totalled INR1.7bn. Collections to pre-sales ratio has been strong at >50% over the previous years. In Q1FY22, the ratio was strong at ~98%. The mid-income and affordable housing projects together contributed 85% of the collections during the quarter. 6. Naigaon project: Management expects OC for the Naigaon Phase I project next quarter. 7. BKC residential projects: Unsold inventory stands at 39 units worth ~INR17bn Management indicated that enquiries have picked up, and expects to liquidate this inventory over the next couple of years. 8. Commercial projects in BKC: Management expects work on Sunteck Icon and Sunteck BKC 51 projects to be completed over the next 15–18 months. 9. Inventory liquidation: Overall finished inventory stands at ~INR17.7bn. SRL has managed to liquidate ~INR3bn of finished through Q1 FY22 since end-FY20. Management is targeting to liquidate finished inventory and to ensure that no new finished inventory gets created. 10. Ongoing projects: Management expects sales potential of ~INR13.3bn from ongoing residential and commercial projects. 11. e receivables from sales already done (worth ~INR14bn) are sufficient to take care of construction cost of all under construction projects, indicating the robust cash flow potential going ahead. 12. Business development: FY21 was a good year on the business development front with the company adding three projects spanning ~8msf. The projects include: Vasind project: Refer to Sunteck Realty - Vasind project addition boosts portfolio Vasai project: Refer to Sunteck Realty - Vasai project addition adds cheer 338 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Borivali West project: Refer to Sunteck Realty - Borivali project addition boosts value. Management indicated even in the post-covid-19 world, it is evaluating various business development opportunities in line with its asset-light strategy. It is at an advanced stage of discussion regarding a couple of deals. 13. Launch pipeline: In FY22, management is looking at launching a new phase in ODC and Naigaon projects apart from at least two out of the three projects added in FY21 (Vasai, Vasind and Borivali West). It expects to launch one out of Vasai or Vasind project over the next quarter and the Borivali project in Q4FY22/Q1FY23. It expects a revenue potential of ~INR130bn from these projects. 14. Cash flow: The Company’s operating cash came in at INR320mn in Q1FY22. 15. Debt: SRL ended Q1FY22 with gross debt of ~INR5.6bn (~IN5.9bn at end-Q4FY21 and ~INR8.3bn at end-FY20). Net debt to equity stands at 0.2x (0.21x at end- Q4FY21). 16. In January 2021, the Maharashtra cabinet approved a 50% reduction in the premium fees paid by developers for ongoing and new projects between August 1 and December 31, 2021. To take advantage of this, Sunteck will be pre-paying premiums to the tune of ~INR2.5bn between October and December 2021. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Retail 340 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Aditya Birla Fashion and Retail Industry Trends There is a large growth in western wear at the bottom end of the market. In case of ethnic wear, the market is shifting to the higher end of the market. Q1FY22 Increase in other expenses due to one-time ECL of INR120mn and higher advertising expenses This quarter doesn’t have too much mark down. Lower absorption of manufacturing costs saw lower QoQ gross margins Discounting is much lower across businesses Madura/Lifestyle Casual wear portfolio has grown to 59% More than 85% of the network is open and revenue trajectory at 85% of pre covid. Losses in Q1FY22: Lifestyle brands run a large manufacturing base. There was a one time impact of 40-45 days of under absorption of factory overheads. Also, there is higher advertising ~INR200mn, majority of which is attributed to Madura. Of the 400 stores addition planned in Lifestyle brands, 150 will be PE Red and 50 of the new Allen Solly format Lag between wholesale and retail recovery is around one month Pantaloons Pantaloons clocked a lower recovery given the higher share of mall based stores As per ABFRL, this is a landmark year for Pantaloons as it is embarking on a new journey. 20 stores are ready to launched in the next 30 days. Company is launching own app and website Pantaloons business is at 70% recovery currently Pantaloons business has a good ROCE so franchising does not make sense ABFRL is replacing lower throughput, lower profitability external brands to make space for the new collections it is launching Innerwear/Other segments ABFRL is looking to double the store count Trade outlets in innerwear: There is no reduction in the innerwear reach. Company has rounded up common touch points due to which the store count has fallen from 28,000 to 23,000. Of the 23,000, women’s innerwear reaches 5,000 outlets. If things were normal company would have touched INR5bn in revenues. Targeting INR10bn in revenues in the next two years. Ecommerce ABFRL is planning to launch a multi brand app by Q4FY22 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights There is a lot of data gathered. The company expects to start making use of this in the next6-12 months. Ethnic ABFRL is planning two new launches: a) a premium men’s ethnic wear brand targeted at occasions b) a premium women’s ethnic brand targeted at regular wear. Premium men’s ethnic wear o This brand will be in partnership with Tarun Tahiliani and will be launched in October. o ABFRL is planning to launch 6 to 10 stores this year. o 150 stores over next 3-4 years (affordable premium) o ABFRL is targeting double digit margin in 3 years from now. This business is less susceptible to fashion and obsolesce is lower Premium women’s ethnic wear line. o It will start in Pantaloons (40-50 stores) and will test out 10-15 stores independent. o This is more daily wear and will be priced in the mid premium to premium (INR1500-3000). o For this brand, ABFRL will initially target to build the brand inside pantaloons which will drive GM for Pantaloons. As it goes out, retail expansion will be managed based on the profitability of the brand. Total capital committed in ethnic wear is INR0.7bn Both these formats are very franchisable Jaypore continues to do well online. Will open 10 stores during the year. Japore and the men’s wear brand will take a year to break-even. Outlook Net debt increased to INR12bn due to losses in Q1 and rise in working capital requirement. NWC was up by INR2bn Net Debt: EBITDA target range will be 1-2x Real boost to demand will happen during the festive period (closer to October than December). If there is no 3rd wave Q2 will have a reasonable recovery. Effective interest on actual debt is 7.75% Others Rental is INR11bn in rent per annum. Majority of it is fixed. 342 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Burger King Q1FY22 The discrepancy is regional recovery is primarily driven by base effect 80-90% of restaurants were open to delivery. Majority of the restaurants were not open to Dine or had restrictions around it. Recovery Recovery till mid- August is 95% plus Malls/Multiplexes opening up will drive faster recovery for BKI given its higher share of mall based stores Stores 13 stores are already in construction phase BK Café Company has advanced the launch timelines of Café from Q4FY22 to Q3YFY22 Addition of Café, will drive breakfast and also increase footfalls between breakfast and dinner Industry average is it contributes between 15-20% of sales All restaurants incrementally will be having BK Café Company plans to have 3 kind of Café formats – Big stores, mall etc. Restaurant sizes including Café will be between 1,800-2,400 Sq.ft Café capex has a 3-6 months payback Company has appointed an award winning Barista to curate the coffee menu Digital/Delivery Company will be doing own BKI deliveries via e-bikes. Pilot has started in Hyderabad and Delhi NCR Target is to take 1/3rd of the delivery business on its own app. New initiatives/Menu Company keeps launching a new burger every 60 days 20% of Whopper revenues are coming from Premium Whopper category Menu layers: o Value: up to INR50, Value Plus: INR51-100, Premium: INR100+ Not seen any down trending due to the stunner menu Guidance The guidance on ADS is on a portfolio level Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Jubilant FoodWorks Industry Shift from unorganized to organized food outlets and shift to omni-channel ordering is helping the sector reach an inflection point. Q1FY22 Easing of operating hours will help drive a sequential improvement in performance. Store addition was impacted due to the second wave. Delivery/App/Food tech JFL re-introduced telephone ordering. JFL is building a data science team and investing in its multi-level marketing and artificial intelligence capabilities. Seen much faster growth on its own app during covid. The company does not rule out a super app, but it is a little premature to consider it now. Domino’s NPS scores high on value-for-money. Target for JFL is to deliver value for money along with healthy gross margins. The company took a small pricing action in delivery charges towards the end of June to take care of the fuel inflation. It has been increased from INR32 to INR35. There has been a marginal increase in promotions and discounts post-unlock. Introduced Lava Cake and stuffed garlic bread in Q1FY22. Both these launches have seen encouraging response. AOV has moved up significantly. Delivery orders are higher but overall orders are down due to lower dine-in orders. Ekdum! and Hong’s Kitchen Performance has been encouraging, especially for Hong’s Kitchen. Hong’s stores are a combination of full standalone stores and certain delivery/carry-out stores, shared with the other formats. Dunkin was a more dine-in brand and has seen a higher impact due to the pandemic. The company does not want to explore dark kitchen stores for these formats. International operations Sri Lanka and Bangladesh registered strong growth. Opened two stores each in both geographies. Popeyes 344 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights JFL is targeting to launch the brand before the end of this year. Supply chain Making two significant investments in supply chain to expand capacity in Bangalore and Mumbai. These are investments in expanding commissaries. Creating room to add other outlets also in the future. Guidance Plan to open 150–175 stores for Domino’s in FY22. While there may be marginal cannibalization due to split stores, overall it expects revenue, payback profile to be similar to existing performance. Full-service stores will be opened in smaller towns. Fair share of delivery growth will be incremental as T2/T3 cities have adopted to this channel. Dine-in will be driven by a new cohort of customers and thus revival will not be cannibalizing but additive to JFL’s business. Rentals – There are higher options available given the closures not just in the food space but in various other outlets too. As a result, the company does not expect rental inflation. Similarly, even on employee costs, the company expects the current system of flexi employment to continue. On margins, JFL remains conservative given RM inflation, increased competitive intensity and investment in digital assets. This could negate any efficiencies. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Shoppers Stop Consumer & Industry trends The company achieved 70% recovery in July for its existing stores. 70 of the company’s 85 stores are operational. Maharashtra, Orissa and Kerala stores remain closed. Better recovery this quarter versus last year has been partially driven by buying related to marriages (much higher than Q1FY21). Also, men’s formal wear has seen a better performance than last year. Recovery has been much wider than last year. Women’s Indian wear has been weak given limited mobility. In the womenswear category, SSL has a small collection of wedding wear, which has seen good traction as per them. May was completely shut and June stores started opening. Both stores and opening hours increased. In July, the company has been operating with restrictions. The company engaged with customers via an omni channel initiative. SSL is trying to launch monthly collections so that every time a customer walks in, there is a fresh collection for customers. Cost target The company expects rental concessions to continue into Q2FY22. Company continues to negotiate. Omni Channel: AOV was higher by 23% versus FY20. In online, Men’s casual wear, denim has seen traction. Sun glasses and women’s Indian wear remain slow. SSL has appointed a new head of omni channel. His previous experience was with Matahari in Indonesia. 75% of sales came from Shoppers Stop’s own website The company expects 20–25% of total sales in the long term. Beauty Online sales for beauty was 20%. Moved to a beauty hub concept in new stores where the each beauty brand is well displayed. SSL has many launches lined up in Arcelia. This does not have any impact on existing relationships with Mac and Estee Lauder. 346 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights First Citizen AOV of First Citizen is 20% higher than FY20. The company has also extended usage of accumulated points. Contribution to omni channel is greater than 40%. Private brands In private labels, the focus is not on being the cheapest but offering the greatest value. SSL expects this to touch 25–30% of business over the next two–three years. Debt SSL has sufficient liquidity, including an undrawn line of INR1bn. Stores Closed two unprofitable stores in July. Don’t expect any further store closures this year. Of the guidance of 20 stores, 10–12 will be departmental stores and the rest beauty ones. For stores in smaller town, SSL plans to optimize store size. These stores would be 20–30,000 Sq.ft. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Titan Company Jewellery Golden Harvest Scheme: Pickup in enrolments in June and July has been good. Since Q1FY21 was impacted, opening base of GHV was low. Studded share: Studded mix in retail has been 25% versus 21% in Q1FY21 (Q1FY20: 28%) Competitive intensity continues to be high. Franchises have survived during covid. The company has not had to take on any incremental costs to help them. Share of old gold exchange has been subdued. 24% share Caratlane: Has a presence in 44 towns with extensive presence in only 16 towns. Demand trends o Growing traction on account of milestones-related buying. Also people are advancing purchases because of uncertainty of wave three. o Done a lot of localized activity in Bharat market. TN continues to do well. o This quarter, Metro cities have done relatively well versus last year. Most markets are firing up, barring a few states that are still impacted. Margin o The company was expecting a major part of the custom duty impact to be provisioned this quarter, but lower sales impacted. FIFO gains helped net- off this impact. There will be a marginal carryforward to Q2FY22, but it will not be material. o The company believes it will go back to pre-covid margins once the situation normalizes. Hallmarking: o This is a minor supply-chain disruption due to hallmarking certification. o Jewelry associations are lobbying for deferment/delay. o The company was anticipating lot of competitive discounting to finish up the stock, but there has been no incremental activity. o As the festive season approaches, the unorganized channel could face supply-chain issues, which could benefit Titan. o While Hallmarking will bring competition down to designs, it will also drive up making charges for unorganized jewelers. Outlook o Wedding demand will be strong in the second half. Also people are advancing purchases. 348 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights o July first half was good driven by certain wedding-related purchases. Advanced studded activation in North market due to the momentum and uncertainty related to wave three. o Targeting Tanishq 34-35 stores in FY22. Most will be under the L2 format. Watches The faster recovery could be driven by limited fear in the backdrop of vaccine availability. Wearables share is less than 5%. Other The company will hedge inventory itself instead of cash flow arising out of sale. All contracts from July 01, will be under fair value method. US subsidiary: o In 2006, tried targeting mainstream US customers with Tanishq. Walk-ins appreciated the product proposition. Biggest challenge that the company did not consider was the investments to acquire customers. In the backdrop of GFC, the company decided to close down US operations. o This year, the company is targeting a NRI/PIO market. This could be a USD3- 4bn target market. Titan Commodity is a registered broker with MCX. Earlier the company was working with certain entities, where it lost money in counterparty transactions. It also helps save money on brokerages, BD charges, etc. Titan has very aggressive for Taneira. Network in eyewear could exceed 1,000 in coming two years. Versus Lenskart, there was gap in the lower end of the price point. Outlook Confident of the remaining part of the year Store operational days for July: o Jewellery: 80–90%, o Watches: 75–80% o Caratlane: 88% Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights V-Mart Retail Industry There was limited migration of labour due to which T3/T4 cities did not have as much crowd as last year. VMart is hoping local restrictions will be relaxed soon. It remains hopeful of the situation normalizing post mid-August. Overall agri incomes look better, but inflation and limited hikes remain a concern on disposable incomes. Q1FY22 Consumption was impacted both due to income and mobility restrictions. Regulations in UP and Bihar remain extensive and impacted recovery. Tier I and II cities have done better than Tier III/IV, unlike last year. Q1 generally gives 25% of revenue/33% of PAT as this is a higher full price sales quarter with launch of spring summer. April was good till mid of month, but May was a washout. Stores opened from June with openings being sporadic. VMart has done a capex of INR360mn and invested in land for the new warehouse (around Gurgaon). It will be up and running in 9-12 months. Recovery/Key trends July has started well and August is looking good. Lockdowns still remain restrictive - complete lockdown on weekends in UP and alternate days lockdown in Bihar. As per VMart, if there are no restriction they expect sales per sq ft to go back to revenue to pre covid levels immediately. This year the increase in ASP is also mix driven as last year they were down trading to athleisure. Good demand from kids and casual wear. Wedding wear has seen good growth but not too much. VMart is planning to a near normal festive season and ordering for AW remains healthy. Loyalty has been a saviour for the company. Lot of analytics to drive better growth. Given that marketing budgets were limited, targeted initiatives have helped. Recovery has partially been helped by some weddings in July. Q3 is expected to see significant amount of weddings. There could be 25 days of relevant dates which will drive growth. The footfall rates have gone up significantly in July. Online 350 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Operations continue to do better. Key ingredients will be hyperlocal delivery and will use stores to do last mile delivery which will help keep costs under control. VMart is targeting a 5% share in next 2-3 years. As per the company, the demand for omni channel in its key markets is purely need based. Company is getting orders from Mumbai and Hyderabad too. Average transaction size online is INR550. RM and Price hikes Cotton and logistics cost are very high. Price hikes have been taken on a gradual level since March. Price hike is around 5-6%. As per the company, the entire market has taken has a price hike. Costs VMart does not expect any major change in employee costs. On rental, it is expecting only marginal relief from landlords. Keeping in mind the expected recovery, VMart was not keen on implementing employee cost cuts. Other: Not targeting any reduction in Inventory but planning to order closer to an event/demand. The company has brought down the lead time by 20%. Guidance Company expects sales per sq.ft to be back to pre covid levels by Q3FY21. Total spend on new warehouse is INR1-1.2bn in phase one of which INR0.4bn has been incurred and INR0.4bn will be incurred in FY22. Targeting 40-45 new stores in FY22 on which company will spend around INR0.4bn. Unlimited: Targeting a closing date of 30th August and handover from September. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Specialty Chemicals 352 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Aarti Industries Revenue front There has been sharp increase in raw material prices. Company following a pass through mechanism has taken pricing hikes. Increased utilization+ Value addition helped company deliver strong growth during qtr. Company has taken a 20% realization led growth QoQ basis, while volumetric growth is 9-10% QoQ. Company has reached pre-covid levels in most of the segments. Logistic challenges led to lag in dispatches to product going to US and LATAM. Company remains more confident in terms of pass on of input hikes in specialty chemical segment. Operated at 80% utilization levels Update on long term contract Contract with Bayer: Cash received-since termination-FY21: USD 20mn received. Expect settlement to happen over march’2022. Glyphosate price hikes: Dicamba-some revival in demand. No regulatory challenge in USA. Supposed to put a manufacturing plant in USA-Bayer. They earlier had plan to purchased Dicamba from India+China. Company is selling Dicamba intermediate in open market while operating at 15- 20% utilization levels. Major volumes expect over FY23 Utilization and Volumes Nitro-toluene:3340 MT(Excluding –downstream products), NCB-18155 MT PDA:570 tons/month Margins Company has seen a sharp increase in input prices. Pass through mechanism has helped company deliver stable margins YoY. Higher utilization with better sales volume has helped company deliver EBITDA margin improvement of 400bps YoY during Q1FY22. Debt & other key highlights Net debt (March’22): INR 16bn New projects asset turnover-FY21-24: 1.7x-2x tones. Revenue from Long term contract will start reflecting in FY23 (2nd contract in FY22-not significant) Pharma Additional capacities to come online during H2FY22. Margin are lower due to higher inventory of final product, which could not be shipped due to logistics issue. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Business visibility in Pharma is based on higher volume from regulated markets, value‐added products and new introduction of intermediate Domestic customer: lag of price pass through. 50 plus molecules are in pipeline. Toluene capex Aarti has spent INR 2bn invested overall in toluene facilities. FY21: 13000 tons of nitro-toluene is being produced on annualized basis. (500 ton/month) Guidance intact for FY22 growth 2nd and 3rd contract-significant during guidance. Not have a major impact on FY22 revenues. Company expects to maintain 25-35% growth guidance for FY22. Capex Q1FY22: INR 2.9bn, FY22: INR 15bn Planning to launch 40 plus molecules in new products in specialty business. 354 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Galaxy Surfactants Demand outlook remains robust amid near-term challenges Demand outlook remains robust amid supply chain disrupting with covid-19 and logistical issues. Rising freight costs compounded the supply disruption. Unavailability of key raw material further impacted. Logistical issues, though getting addressed, may persist in the near term. Delay in new capacity commissioning for specialty chemicals also affected sales of speciality chemicals. 15.4% volume growth driven mainly by strong growth across specialty segment. The company aims to grow higher than market growth. New products and solutions driven by trends of customer needs. Performance ingredients- headroom available for growth in the future. Export incentives: was supposed to start from 1st Jan. Govt. has not withdrawn the scheme but moved from MEIS to Rodtep. E-commerce-bright spot for surfactant industry. New players emerging. Will take nearly 20 years to grow to sizable share in reaching 1/3rd market share. Customer split: MNCs’ still hold a major chunk Galaxy enjoys 62-65% from Tier I&II customer. Balance revenues are obtained from Tier 3 and 4. Ecommerce player constitutes 8-10% of tier-3 and tier-4 mix. Overall, 4-5% of overall market size. Global market share -53%(Tier 1), 7%(Tier 2), 40%(Tier 3&Tier 4). Specialty Chemicals: New facility to drive momentum Opening of developed economies helped drive good volume growth Africa demand robust but logistic issues impacting Specialty chemicals plant to commission by Q2FY22. Certain constraints in raw material availability. New product share-4.5%, will remain similar for FY22. Africa: Supply disruption impacting growth Clear situation where company couldn’t serve-feedstock issues in Egypt. Plant in Egypt-couldn’t run up. Situation has eased off. Turkey, Egypt-incoming is delayed, outgoing from Egypt to US, Europe-also impacted. Margins: Logistical challenges denting margins Gross profit/kg-highest during qtr. Momentum to maintain as long as company is able to service its customers. US operations-wasn’t impacted in terms of demand. US specialty oriented business addressed from US subsidiary. Egypt-progressive improvement in product mix India (standalone)-extra cost in getting import, freight costs, volatile rm costs. R&D and new product launch Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Innovation centered around-Nontoxic preservatives, GLI-21 emanated out from green products. Home care brand-new launched-Galaxy HARP- it is based on plant-based surfactants. 356 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights SRF Specialty Chemicals Business Segment registered healthy performance over CPLY owing to: Higher sales from exports and domestic markets Strong focus on adding new products to strengthen the overall product range Increase in raw material prices and export freight rates impacted Q1, seems to be a short-term phenomenon Focus on expanding Pharma product profile o SRF continues to make investments in capacity expansion to maintain the growth momentum Two new plants commissioned at Dahej Successfully completed the campaigns for two key products Existing expansion plans are on track Growth outlook on speciality chemicals remains solid Growth momentum in Agrochemicals is expected to continue across key markets Visible traction in specialty chemical space The second wave of COVID-19 induced lockdowns resulted in disruption of supply chains, leading to an overall increase in raw material prices and export freight across geographies Fluorochemicals Business Segment delivered a robust performance on account of: Higher sales volumes in the refrigerants and the blends segment, especially from the export markets Uptick in Auto sales led to higher offtake in R-134a revenues • Healthy contribution from the chloromethanes segment Domestic market in Q1 witnessed lower offtake induced by localized lockdowns o Base effect positive witnessed in Q1FY22 due to nationwide lockdown in Q1 FY 21 Capex plan The Board approved projects at Dahej to be implemented in next 24 months: Integrated expansion of the Fluorocarbon based Refrigerant capacity at an investment of ~INR5.5bn Installation of 200 KV grid at a projected cost of INR1.35bn ensuring availability of stable power for future readiness Growth outlook remain strong Production of passenger vehicles in India significantly higher when compared with CPLY Demand and production volumes in the AC market also witnessed a spike Pharma segment continued to do well in Q1 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Packaging Films Business Segment continues to perform well, despite impact of COVID-19 second wave on domestic markets, owing to: New capacities that came on-stream in Hungary and Thailand Growing product portfolio with two new products and increasing contribution from value-added products Surge in export freight rates impacted adversely o Bolstered the segment mantra of ‘Easy to Do Business With’: Expanded market footprint to more than 100 countries Continuous improvement in quality and delivery. Wider and deeper penetration with multinational customers o Sustainability initiatives remains one of the key focus areas for the business In Q1 FY22, demand for BOPET films was subdued, while demand for BOPP films remained healthy Globally, several new lines are scheduled to commence in BOPET and BOPP – to impact industry margins in the future Preference towards Global suppliers with multi-locational facilities Exports freight costs across geographies witnessing an upward trend Growth outlook and near term concerns Pressure on margins expected due to the start-up of new lines leading to price corrections Re-emergence of COVID-19 in ASEAN region could affect Thailand performance Unrest in South Africa in July will impact Q2 performance of the business Focus on sales mix of both Thailand and Hungary BOPET facilities, vertical start up of recently commissioned BOPP film line in Thailand New BOPP film line in India on track Focus on increasing pace of R&D efforts, sustainability initiatives, efficient cost structures, enhanced capabilities and value-added products Technical Textiles Business Segment reported a significantly improved performance on account of: Improved demand in the Nylon Tyre Cord, Belting Fabrics and Polyester Industrial Yarn segments Re-structuring of margin profile with long-term customers o Continued focus on enhancing operational performance across all plants Faced certain manpower availability issues due to COVID-19 second wave, leading to marginally lower capacity utilizations o TTB facilities in Gummidipoondi, Manali and Gwalior have earned a 100% vendor rating from its marquee clients 358 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Domestic tyre industry has gained significant momentum: Strong demand is observed across all TCF segments Farm tyres segment witnessed robust demand due to normal monsoon forecast Continual strong demand is observed in two / three-wheeler segment due to rise in personal mobility With the reopening of the mining sector, the belting fabric industry witnessed strong demand Growth outlook and near term concerns International capacities being rebalanced due to certain capacity closures, providing positive NTCF trends Higher operating leverage and cost optimization by capacity rationalization across various plants Other sub-segments of Technical Textiles Business expected to make a significant contribution to the overall performance Coated Fabrics Demand for Truck Tarpaulins and awnings was adversely affected due to second wave of Covid-19 New products being introduced in the market such as fish tank pond liners and emergency shelter / protection Laminated Fabrics SRF maintained its volume and price leadership Demand for signages and hoardings was adversely affected owing to the second wave of COVID-19 pandemic Anti-dumping duty on Chinese PVC flex film extended till January 31, 2022 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Textiles 360 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Arvind Industry Most brands and retailers did not have much inventory, which helped the business see significant increase in demand. Some customers are contemplating rebalancing their purchases. As per the company, many players in India in garmenting have their order books full. Q1FY22 Garment factories in South India were closed. Factories open in Ahmedabad faced significant absenteeism. April and May were subdued in the domestic market. This drove higher inventory and working capital. All RM prices including freight remained elevated. Bounce back in June was encouraging and July sustained the robust momentum. Secured price increases in most segments. Input prices continued to spike, especially cotton, which has jumped to INR56,000/candy. Of the total revenue, 54% is exports – 2/3rd US, 20% Europe and balance RoW. Margins/cost spike Cost reduction has been limited QoQ as unlike the earlier period, Arvind has not cut fixed costs. Costs were volatile as business did not run regularly. Going forward there is a very sharp increase. 7-8% price increase on average has been taken across the portfolio. It will take a few months for margins to go back to Q4FY21 level on per unit contribution basis. Unit terms margin will stabilize in September. However, on percentage terms, margin will take even longer. Debt and land sale The company has started realizing part of the INR1.5bn. Garment For 45 days in factories were shut in Bangalore. Ethiopia was marginally profitable (on EBITDA) in Q1FY22. It has turned profitable from H2FY21. Management expects the garment business to break-even this year driven by higher volumes. Garment is a by-product business for Arvind as its main business is fabric. With the current RoSCTL rate, margins in garmenting is around 8-9%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights AM Targeting INR10bn revenue in FY22. Outlook Denim/woven volumes are expected to be 24mn/30mn mtrs in Q2FY22. Garmenting volumes are expected to improve to 9mn pieces. The company can reach a run-rate of 12mn pieces per quarter in H2FY22. Debt will fall to end of FY21 level by September 30. Capex will be INR1bn. Can grow at 8-10% for the next 12 to 18 months without any major capex. Advanced Material remains the biggest growth driver for Arvind. 362 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Page Industries Volume was down 45% QoQ/up 72% YoY at 25.28mn pieces o Volume split (mn pieces) – April: 12, May: 4, June: 9 Almost half of Q1FY22 was lost due to covid Manufacturing and warehousing have returned to normalcy Sales have been on an increasing trend and company continues to be bullish. In April, company did 19% EBITDA margin with July also similar to April. In all months, excluding the lockdown months, company clocked a 21% margin. Raw Material and manufacturing RM is holding at 44-46% of revenues. Company saw a 2.8% increase in RM costs in Q1FY22. As per Page, it is expecting a 5-7% increase in RM costs To mitigate the RM price hike, Page has taken the usual 4% hike. Despite RM going up, company took a lot of cost control measures which also helped better absorb the inflation. Company is watching the RM prices and based on that it will take the call on price hikes Page lost 48 days of manufacturing in Q1FY22. It had inventory, plus outsourcing (1/3rd of products) which helped in meeting sales. Even now Page is holding RM stock Company is still working at 50-55% of labour capacity in 2 shifts Channel Ecommerce continues to be robust. In FY21, contribution of ecommerce was 7.6% (up 76% YoY) In Q1FY21 contribution of ecommerce was 19% , growth of 2.5x Overall, ecom channel does not have an adverse impact on the company’s margins Rural segment 50% of stores opened last year were in T2/T3 cities and Rural. Also the throughput in these cities is encouraging. Tier II and below cities contributes 50% of revenues. Metro and Tier I contributes the remaining. Rural classification is a population of 50,000 and below Jockey Kids: Page currently has 39 exclusive Jockey EBO’. 200 strong sales force Appointed Jockey Junior specific channel sales partners Other: There is a strategic build-up of inventory Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights TCNS Clothing Q1FY22 Growth was well spread out this quarter This quarter had 48% operational days with a recovery of 44%. Inventory dormancy and channel mix impacted gross margin. Current trends At present, most of the network is operational. Started EOSS started in 3rd week of July (19th July) and in operational stores recovery is close to 70% (similar level was achieved in October last year). Never seen such a high proportion of full priced sales, in a discount season. Channel and stores Some traction is possible in the MBO channel during Festive. The company expects this channel to come back to 4-5% contribution, and not the 10% it was in earlier times. D2C contributed more than 50% of ecommerce revenues. TCNS is launching an online only collection – It will be two pieces and certain basic collections to make it easier to choose. Pricing will be in the 10% range of the existing collections. Supply chain Omni channel fulfillment is fully live. Omni initiatives in close to 100 stores. Others As per the company, Elleven brand has a potential for 30-40 stores every year. Competition is heating up more in the value segment and not in the segment the company operates in. Have been able to mitigate risk of rising RM prices in Monsoon Fest. For Spring Summer, company is still to place orders but is looking at alternate options, including changing the mix of material it uses. Guidance Looking at add 60+ stores. Already signed 40+ stores in coming months. o Project Rise for Flagship stores - ~30 stores. o Project Bharat is entry into T2/T3 cities – The other 30 stores. 30-35% of the network is franchised at present. Ahead too. If post festive momentum continues, then the company expects to touch pre- covid revenues by end of this year. 364 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Welspun India Industry In light of current Xinjiang issue, there is a global initiative to better comply with ESG norms China plus one is not just playing out in USA but Europe also. In Europe, company has a strong presence in towels Q1FY22 Plants operated at near peak capacity during the quarter Logistics was a big issue both via international shipping and via trucking in US Shipping rates are 2.5-3x, which along with congestion saw inventory getting stuck, leading to demurrage charges. These one-time costs had an impact of 2.2%. Going forward company does not see this easing. In Q1FY22 company has booked INR2.0bn of RoSCTL benefits of which INR1.05bn relates to Q4FY21. There was a 6.4% benefit due to RoSCTL rates. Realization (INR/USD): 75.77 in Q1FY22 vs. 72.66 in Q1FY21 This quarter has seen a 22% growth in Europe Raw material International demand for Indian cotton and higher MSP will see high prices continue. There is inflation across all key RM. Cotton prices touched a peak of INR53,000/candy. However, company expects prices to correct as season starts. Also, cotton yarn spreads have seen a very sharp spike Flooring Domestic flooring was a wash-out due to lockdowns Targeting EBITDA break-even by end of the year Despite limited marketing, company has been able to clock decent utilization Domestic distribution: 400+ active POS. Company has more than 75 distributors. Peak revenues are INR22-25bn. It could take 3-5 years to achieve this revenue. Domestic Expect demand to pick-up in H2FY22 as business opens up and offices begin Advanced Material Advanced material is seeing correction in demand due to over stocking Muted demand in AM is expected to continue in Q2FY22 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Other Continues to hedge 65% of receivables Company has extinguished the shares bought back Guidance Ecommerce channel is on track to reach USD100mn revenue soon Company has sought price increase and this will take 3-4 months to reflect. Capex guidance of INR6bn of which INR1.8bn has already been spent in Q1FY22 Targeting EBITDA margin of 20-21% in FY22. Company is expecting to achieve this despite the RM inflation driven by price hikes. Going forward the benefit of RoSCTL will be 4% Company is evaluating a few opportunities in Renewable energy Beyond immediate variation, over a longer time span, company is able to pass prices which has seen the company deliver 20% EBITDA margin. 366 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Miscellaneous Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Balkrishna Industries Financials BKT's Q1FY22 revenue rose 93% YoY (16% ahead of estimate) to INR18.1bn. Volume jumped 80% YoY to 68,603MT. Volumes grew across geographies with increase of 73%, 142% and 37% in Europe, Americas and India, respectively. RoW recorded robust growth of 175% YoY. Overall realisation (INR/kg) was up 7% YoY due to the price hike of 2-3% taken by the company in April. The company took another price hike in July of 2-3%. The company expects the commodity prices to have peaked out and likely to sustain at current levels. However, management has undertaken a price increase of 2-3% in July to counteract the freight cost increase. Gross margin contracted 423bps YoY to 56.9% owing to higher raw material prices. EBITDA margin increased 161bps YoY due to operating leverage and EBITDA grew 104% YoY. However, sequentially EBITDA margin dipped 292bps due to higher freight costs and EBITDA dipped 6% QoQ owing to the same. PAT rose 171% YoY (15% ahead of estimate) despite higher previous period tax assessment of INR357mn in Q1FY22. BKT has cash and cash equivalents of INR15.6bn on its balance sheet at end- Q1FY22. The board approved an interim dividend of INR4/share. Inventories at dealers are normally maintained at 40-45 days and had declined to 20-25 days in the pandemic. Management has normalised inventories at the channel during the quarter to 35-40 days. Demand outlook and other highlights Demand remains strong from agriculture, with high commodity prices boosting demand from the OTR segment. During Q1FY22, sales in India dipped 13% sequentially owing to localised lockdowns, however, underlying demand remains robust and has increased as restrictions have eased. Post Q1FY22, BKT upheld sales volume between 250,000-265,000 MT (10-17% growth) for FY22 and will re-look at the guidance post Q2FY22 owing to the volatile operating environment. However, management anticipates this demand trend is likely to continue in years to come. As per management, the demand continues to be robust in Agriculture segment across Geographies. In the other segments, demand has seen an uptick on back of increased commodity prices, infrastructure creation and pick-up in economic activity. BKT maintained EBITDA margin guidance at 28-30% owing to raw material headwinds and higher freight costs partly offset by price increases, modernisation capex and captive carbon black and better hedge rates. BKT tyres are sold at a 15-18% discount to competitors and management aims to reduce this to 12%. 368 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Management is working on new products for EVs and will make announcements in due course. Hedge rate for EUR in Q1FY22 was at INR87.53, while hedge rate for FY22 stands at INR90. Sales mix in Q1FY22 was as follows: o By channel – Replacement : OEM : Offtake is 71.9 : 25.6 : 2.6. o By end-use – Agriculture : OTR : Others is 65.9 : 30.9 : 3.2. o By geography – Europe : US : India : RoW is 52.7 : 16.1 : 19.0 : 12.2. Management plans to spend INR1.2bn on branding activities at an aggregate level and has seen results from the same with increasing sales from RoW and US. Carbon black is sourced in-house with ~20% of volumes sold in the open market. These sales account for ~3% of the top line. Capex Greenfield replacement tyre plant at Waluj for 30,000MTPA is likely to commence by end of Q2FY22. Management remains on track for the announced additional capex of INR19bn in Q4FY21 to be funded via internal accruals and debt, if required. This is to be spread across three projects: brownfield tyre project at Bhuj, carbon black and captive power plant and modernisation capex. Post expansionary capex, there will be some land bank available at Bhuj for additional capacity expansion. Further announcements may be made at a later date post completion of expansion. For FY22, the company has budgeted INR9-10bn and management has spent INR3.6bn in Q1FY22. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Bharat Forge Opening remarks Performance: Better performance in standalone level. Exports saw QoQ growth while domestic declined QoQ. India especially southern states saw lockdowns in June also. O&G revenue came in at INR1.6bn vs INR450mn. Outlook: Q2FY22 would continue to witness sustained growth given the recovery in demand. However, EBITDA in coming quarter will be marginally lower in standalone due to higher RM. Pune unit VRS given to everyone and all have retired. Sanghvi acquisition has been completed. It was an under-performing asset before given cash crunch of the earlier management. This will be consolidated in Q2 and will break even in Q2FY22 itself. This acquisition also help in renewables and wind energy segments. Sustainability: More than 30% energy sourced from renewables. Questions and Answers Q. Global CV business – Truck production not picking up in good way. What is the order inflow and outlook? Winning business in CV and several products are in place to tap this. Have to look at backlog which is equivalent to 10months of production. Production lots for next year is also sold out. The current issue is semiconductors. Other than that no weakness. The US stimulus will be stronger in the coming months which will aid CV growth. Q. What is the thought process in EV? We have a comprehensive EV strategy – Technology side focus and Product category focus- 2W, 3W, LCV, Bus etc. Have EV products for Chassis, Axle and driveline. Q. Drivers of growth in Q2. A. Q2 would witness growth in all sectors. CV, Industrials in both India and Exports. Additionally some pent up demand in India and certain markets would aid this. Q. Aluminium forging business? A. Have capacity in place for 3 to 4 years and revenue would double every year for the next 2 to 4 years. Have business already in hand. I.e. Orders more than capacity. Also the capex will not be that high like before since we have already commissioned new lines in US. All major OEMs are covered in this business– for EVs, traditional auto OEMs in US, Europe including Japanese OEMs. Q. Trajectory in O&G segment? A. O&G is getting dynamic as oil prices are fluctuating. Q. E-mobility seeing any order inflow? A. Received orders across sectors. E-mobility will become very large going forward with first focus in India and then in other geography. Q. Export outlook? A. European subsidiaries are at peak utilisation – Non Aluminium operating at higher level given higher demand from passenger car. Aluminium forgings has grown to pre-covid levels. Also, received orders for Hybrid segment in Germany. Q. India Industrial segment trend? 370 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Construction segment in India is the major driver and expect to remain in strong trajectory. Construction equipment, prime movers, tractors etc. have seen traction. Also entered into new industrial products. Q. New plant’s in India and North Carolina revenue trend? A. FY22 revenue for NC will be small at around 8 to 10m USD. FY23 will see steep ramp up. India (Nellore plant) will also see ram up in FY23. Q. Sanghvi’s qualification and potential revenue? A. Sanghvi is a good plant and is well setup. We will leverage our own technology, knowledge to turn around that facility. Q. Margin sustainability as we start utilizing new plants? A. Company is doing R&D. Margin of 28% to 30% is very good. Will focus on capacity utilization, growth and cash generation. Q. US business to reach peak in FY24. A. Based on current orders it will increase from USD50mn to USD85mn. It continues to receive orders more than capacity. Planning on brownfield expansion to support this but won’t be that high as before. Q. Aerospace trend? Aerospace new orders received and is well positioned. Will increase revenue from 5m to 20m (already received orders for high value products for jet engines). Q. Reason for increase in inventory? Exports are growing so inventory is increasing. Next Q it will normalize. Q. Steel price levels and impact on us? A. Have pass through agreement for both import and exports and is benchmarked to indices. Positive is steel availability being better than competitors. In overseas lead time for steel procurement is high for competitors and is a great advantage for us. Steel price pass through was INR340mn in Q1 for Bharat forge India. Q. US class 8 production expectation in FY22? A. 290 to 300k. Q. Margin in Q2 given steel pass through? A. Only at subsidiaries it will reduce the margins as steel price increases more. Q. Capex plan? INR2bn to INR2.5bn for India in FY22e. Consolidated has been done with about USS78m USD in US. Q. E2W progress and launch? A. Will do it in November. Q. Gross profit shot up and what is the sustainability? A. Goal to maintain at this level plus or minus 5%. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights CCL Products Key highlights Effective tax rate is likely to be 20% with tax holiday in Vietnam. Capacity utilization: o India: 70% utilization (FD); Vietnam: 80% utilization; Spray dry-65–70%. Vietnam tax rate: Zero for lifetime. Prices along similar lines. Guidance: 12–15% volume growth maintained. Brazil coffee: Arabica 70% and Robusta 30%. Maximum area impacted in Brazil is the Arabica growing region. Majorly impacted by frost. Robusta prices have not gone up like Arabica. Logistic issues are there-freight rates are higher. Still managing to push through. 3–6 months on order execution. Price increase won’t impact profitability. Higher realization from Q4FY21. Gross margin-variation in product mix driven by value-added products. MEIS: No addition of new scheme. Received INR60mn out of INR280mn. Haven’t realized them till now. New introduction doing well-volumes are growing there. Lot of interest in other countries. Opportunity to grow further volumes-20–25% in the US market alone. The company is supplying 95% bulk coffee while 5% is being supplied in small packs. Long-term plan for increasing small packs. CCL has received pre-booking from several customers post crop losses in Brazil. With prices being up by more than 35% YoY, many customers have already booked orders for the full year. Climatic change-new areas developed for coffee cultivation-in Brazil; demand for coffee is growing 3–5% annually in developed markets. In developing countries, coffee growing in logging double digit growth. US market-Instant-80,000 tons. India’s contribution (CCL will be largest contributor)-7,500 tons. CCL share-5,000–6,000 tons for FY22. Planning to add new customers in the US. Capex Small pack-commercial production to start from Aug-21 . Vietnam capex: Doubling of capacity; expansion to be completed by Q2FY23. Capex involved in that-17-20mn USD(INR 150mn for next two years). Branded business 48% growth during Q1FY22( despite being a lean quarter) led to overall turnover of INR300mn 25–30% growth expected on annualized basis. Turnover of INR1.5bn incurred in FY21. 372 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights EPL Q1FY22 revenue grew 8% YoY led by 29%, 2% and 9% growth in AMESA, EAP and Americas regions, respectively, partly offset by 10% growth in Europe. However, on a pro-forma basis revenues grew 12.8% after adjusting for the impact of shutdown of Russia manufacturing operations and Hand Sanitizer pipeline in Q1FY21. Management estimates H2FY22 to be strong driven by robust pipeline. Q1FY22 saw growth impacted by: 1) plant shutdown in Colombia in May’21; 2) weak India market with a plant shutdown due to the second wave; and 3) unavailability of containers to lift material from China. Ex-of these challenges, management ascertains growth to be in high teens. Management claims to have exited the June quarter on key parameters than Q1FY22. Cost headwinds were mitigated with pricing action as gross margin saw a 15bps YoY and 96bps QoQ improvement. Gross margin is expected to see further gains driven by mix improvement. Overall EBITDA margin dipped ~164bps YoY to 18.1%, subsequent to which EBITDA growth was -1% YoY. This was on account of 5% YoY increase in employee costs and a 22% YoY increase in other expenses owing to higher freight expenses. However, sequentially, EBITDA margin rose 88bps QoQ, and EBITDA rose 4% QoQ driven by price hikes and Project Phoenix-II. On the levers to ensure margin improvement: 1) Management is ahead of track on price increases, with 90% of the portfolio having taken hikes. 2) Management is also ahead of track on cost productivity initiatives – Project Phoenix Phase II – including improving manufacturing efficiency via automation currently in pilot phase in Americas; increased in-house manufacturing of caps and closures; scrap and wastage reduction; and rationalisation of energy consumption. Benefits of the same should flow through in H2FY22. 3) Impacted by stuffing of hand sanitizers in the pipeline in Q1FY21, mix improvement was not visible, however, armed with a strong pipeline in Q1FY22, mix improvement should drive margin gains. Q1FY22 was the first quarter of operations of Creative, acquisition of which was effective on 1st February 2021. Growth of the acquired portfolio remains superior across revenue, EBITDA and margins. Net debt by the end of Q1FY22 declined by INR692mn to INR2.46bn from INR3.15bn at the end of FY21. This was a resultant of prudent capex of INR531mn. Four levers of growth 1. Accelerated growth in Personal Care: Personal Care has been a major driver in the last few years, growing at 16% over the last ten years. It accounted for 46% of overall revenue in Q1FY22 broadly flat from FY21. The company saw muted growth across Americas and Europe geographies while growth remained strong in AMESA and EAP. Personal Care revenues continue to be driven by strong pipeline. 2. Continued leadership in oral Care: EPL strengthened its leadership in oral care. For Q1FY22, revenues increased 17% YoY. In FY21, EPL added a global major in Europe and continues to see wallet share gains and recovery across travel tubes leading to growth in Americas. The category reported strong growth in India with strong performance of a major. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights 3. Growth in Europe: Adjusted for plant shutdown in Russia, revenues in Europe were flat YoY, with 7% YoY dip in personal care in the quarter, mitigated by 18% growth in oral care led by acquisition of a global major. The personal care business was also impacted by tapering off of hand sanitizer, however, business development pipeline remains strong. With dip in personal care, EBITDA margin dipped to 13.1% (down 173bps), which should change as the mix improves. 4. Industry leadership in eco-friendly solutions: EPL is an industry leader in providing eco-friendly solutions. It has received approvals from major regulators – APR, RecyClass and Cyclos. Sustainable products are gaining traction across several customers with a portfolio of solutions. EPL partnered with Hela, a European brand, to create more sustainable packaging and EPL was able to leverage Platina Pro 250, achieving a technical breakthrough. AMESA For Q1FY22, revenue jumped 29% YoY and EBIT margin expanded 375bps YoY to 11%. AMESA should continue to deliver strong growth with focus on sustainability, wallet share gains and development with new emerging brands. Personal Care contribution rose to 56.6% in Q1FY22 (from 46% in Q1FY21) as revenues grew 75.3% YoY, ex-hand sanitizer pipeline. This was a resultant of continued focus on customer engagement, increased wallet share and new product development. EAP Revenue grew 2% YoY, while EBIT margin contracted 492bps YoY to 16.7% in Q1FY22. This was due to declining contribution from personal care as demand from hand sanitizers tapered off. Personal Care contribution decreased to 38.3% in Q1FY22 (versus 44.9% in Q1FY21). Despite demand for hand sanitizers tapering off in the pharma category, demand in B&C remained strong and the pipeline remains healthy. Increasing focus on fast-growing regional players will drive robust growth in FY22. Americas Revenue rose 9% YoY, while EBIT margin contracted 299bps YoY to 7.3% in Q1FY22 due to higher employee expenses as covid-related expenses exacerbated raw material escalation and supply chain disruptions. Revenues should gain traction with pick up in US, driven by strong macros in the balance of the year. Personal Care contribution decreased to 21.5% in Q1FY22 (versus 29.4% Q1FY21). Growth impacted due to lower offtake in personal care category, month-long strike in Colombia and one key customer moving production from Colombia to Asia. New customer wins, cross-selling Personal Care products to existing Oral care customers remains a key focus for the company. 374 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Europe Revenue de-grew 10% YoY, while EBIT margin dipped 350bps YoY to 5.5%. This was owing to a shutdown in operations in Russia, for margin optimisation. Personal Care contribution dipped to 61.2% in Q1FY22 (versus 70% in Q1FY21) as demand for sanitizer tubes tapered off and operations in Russia were shutdown. However, Europe region continues to have a robust business development pipeline. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Heritage Foods Operating and Financial: Revenue rose 1% YoY as the cattle feed business saw a decline of 30% YoY, largely offset by the 3% YoY gain in the dairy business. Dairy sales improved 5% QoQ. Milk procurement contracted 17%YoY in Q1FY22 to 1.2 million litre per day (MLPD) as management had stepped up procurement of skimmed milk in the base quarter owing to the lockdowns. At present, there is no major inventory of SMP left. Average milk sales were up 3% YoY during Q1 FY22 was 0.95 MLPD as compared to 0.92 MLPD in Q1 FY21. VADP sales higher: VADP grew ~11% YoY (on a 34% decline in the base quarter) owing to higher curd sales. Curd volumes were up 15% during Q1 FY22 at 291.7 metric tonnes per day (MTPD) as compared to 253.4 MTPD in Q1 FY21. VADP contribution stands at ~26.9% in Q1FY22 (Q1FY21: 24.6% of sales). Despite procurement prices rising 3% YoY to INR34.49/litre, gross margin grew 36bps YoY to 22.8%. EBITDA margin however dipped 84bps YoY to 8.2% led by higher other expenses led by freight costs. As a result spreads narrowed to INR10.4/litre, down 9% YoY. Heritage Nutrivet reported a 30% dip in revenues, while EBIT de-grew 64% YoY, and margin declined 659bps to 7% owing to high soya prices. Margins should normalise in H2FY22 with new crops. Management is focused on product portfolio & geographic expansion. It is enriching VADP portfolio and has made several launches in recent past in its JV with French major Novandie. Under the brand Mamie Yova, the company has launched a range of stirred and drinkable yogurt products. The JV with the French player Novandie seems to be progressing well, as management launched the 8SKUs in Hyderabad, post the launch of the yogurt and YoPop in Maharashtra in February. The opportunity remains attractive and is a natural extension of its curd portfolio. Further it entered Ready to Eat segment with Heritage Tikka Paneer. Volumes of the RTE Tikka Paneer launched should be 25-30t per month as estimated by the management. It also entered new segments like Mozzarella and processed cheese, fresh cream, cool café drink, spiced butter and cupped curd. Management is planning for launches of Shrikhand and Amarkhand in the current quarter. The focus remains on deepening penetration in existing geographies. Moving on the direction to be a formidable player in dairy & dairy value-added products, HTFL appointed Mr. Srideep Nair Kesavan as its CEO w.e.f 28th July 2021. Mr. Kesavan has over 20 years of experience in business leadership roles with 14 years at Coca Cola (in value added dairy and juices division) and 6 years at Olam International. Management aims to grow the revenues at 20% CAGR, with contribution from value-added products at 45-50% of the mix with a consumer-centric focus. 376 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Others Current milk cycle has been impacted by climate change, global price trends, diplomatic decisions and fiscal policies. The volatility was aggravated by the pandemic last year as artificial insemination reduced due to travel restrictions. Management has seen core markets normalise post the second wave led localised lockdowns, however performance should revert to previous years once people return to urban centres, where HTFL is strongest. Gross long-term debt stood at INR480mn. Net long-term debt stands at INR364mn as on June 30, 2021. Debt-Equity at 0.04:1 & Cash and Cash Equivalents at INR700mn as on Q1FY22 end. HTFL added curd capacity of 125MT in FY21 and does not see need for additional capacity expansion at present. On an annualised basis, the mix between cow milk and buffalo milk was 60:40% of the mix. However, the same fluctuates quarter-to-quarter owing to seasonality. Capacity stands currently at 2.1mn litres of milk chilling capacity, 2.37mn litres of processing capacity and 1.7mn litres of packing capacity and 742ktpd curd packaging capacity. HFL expects to cross 3.0–3.5mn litres over the next five years, which will be funded. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Sheela Foam Raw material (RM) RM has seen wild fluctuations. RM position has changed in the 45 days post quarter closing. Management knows RM issue is not going to go away any time soon. The normalization of RM prices will be a gradual progress. Company had never seen this kind of fluctuations in Polyol. Ballpark, TDI prices are 2x of Polyol. However, polyol has crossed TDI prices this quarter. Global transportation of one of the hazardous RM of Polyol (Propylene Di oxide) is also contributing to the surge in polyol prices. While there is enough capacity of polyol, it is just availability which is causing this disruption Current prices: Polyol: INR220/Kg, TDI: INR185/Kg. Company maintains 15-20 days of inventory within its plant. Of the total RM cost, TDI+ Polyol would be 50%. As per the company, the fluctuations in shipping costs will take 4-5 months post covid to normalize Mattress segment Sleepwell mattress price range: INR5000 to 1,00,000. Starlite starts from INR4,000 to INR8,000. Featherfoam range is INR4,000- 20,000. Pre 2019, i.e. before the fluctuations in raw material, pricing was reviewed twice a year – on 1st April and 1st October. Ecommerce channel revenues were 3x YoY. Revenues were around INR120- 140mn. Company has aggressive plans for ecommerce channel, both via marketplace and own website. Other segments Stako is progressing well in Indian and export market. Most of the Indian orders are related to government projects. Export opportunity Company expects ramp-up in orders starting August. Company expects the contribution to turn sizeable by December end Exports has started from Spain and India. IN Q1FY22, exports were INR150- 170mn. The export opportunity has surfaced after the US China trade issues. As per the company, the business will not stretch working capital. As per the company, India is marginally more expensive than Vietnam. Factoring the anti-dumping duty on Chinese imports in USA, Indian manufacturers have better competitiveness. American customers are looking at alternate channels and they are ready to grow marginally higher. 378 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights International subsidiaries Australia business has been stable. It did not see a lockdown in Q1FY22. However, at present, Australia is under lockdown. Spain has been working well and growing. As per management, the country has learnt to live with Covid. Company had to spend on marketing in Spain to clock the revenues it did in this quarter. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Solar Industries Key highlights Best quarterly results despite covid-19 challenges. Strong policy support by government toward infrastructure, housing and mining augurs well for the company. Other expenses declined-some part is change in product mix and operating leverage benefits. Guidance:- While Q1FY22 results are spectacular, the company is keeping guidance intact of 30% YoY growth over FY22 primarily on account of uncertainty due to the anticipated third wave. Expanding footprint in India and export markets- No plan for entering ammonium nitrate. Sourcing of ammonium nitrate-Domestic 80%-Deepak fertilizer, GLFC and RCF versus import 20% (Russia, Ukraine). Pricing of Ammonium nitrate-flexibility in fixing prices-(Spot+ long term contracts). Market share of Solar: CIL-28–30% Institutional business: 28–29% and housing- infra: 28–29%. Capital allocation-major capex over. Capacity addition and new products as well increasing geographical expansion remains key focus area. Don’t witness weakness in demand-Q2 is lean season. Net debt: INR 6.5bn Working on enhancing initiation capacities, adding two new plants in India. Defence Volumes increased 45%, realization up 20%. MMHG: Has started contributing to revenue. FY21: INR1.7bn-FY22: INR3bn plus, FY23: INR6bn Capital investment-INR5-6bn, RoCE:-will improve. RoCE improved to above : 25% INR6.4bn, CIL+ Singreni-INR10bn Working on various programs with DRDO-lot of products are already developed. Moving on commercializing of some products. Exports Scope to improve margins further. Raw material sourcing-manufacturing explosives-country to country depend on logistic costs. No significant improvement on commodity price hikes-rising prices will come with a lag. 380 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Maturity of business-Turkish markets doing well. 2) Ghana-reached good levels. 3) Tanzania-operational and doing well. INR 3bn run rate to continue in subsequent quarters. Tanzania facility to start from next month. Australia will take time due to covid- 19 impact. Domestic Overall phenomenon: Dynamic challenges, weaker players will go out. Mix from CIL and non CIL: Lot of private mining-growth potential to come from there. Infra push-river linking. Helps improve reach and volumes through CIL, Singreni. Tender through CIL: Escalation cause exists. Non CIL: Escalation clause is there too. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Supreme Industries Volume disappoints; margins surpass our expectations Revenue increased by 27% YoY (36% QoQ fall) vs our estimate of 52% YoY growth. The disappointment was on account of a 22% YoY fall in volumes (vs our estimate of 7% YoY growth) mainly as the plastic pipes segment reported a 36% YoY fall (37% QoQ) in volumes. Other segments such as the Industrial division reported a ~100% YoY uptick in volumes (31% QoQ fall), the consumer division reported 40% YoY increase (64% QoQ fall), the packaging division reported 13% YoY volume growth (26% QoQ fall). Furthermore, margins have shown improvement of 540bps YoY to 16.5%; however they were down 790bps QoQ, mainly on account of weak volumes along with inventory losses. The Pipes segment reported operating margins of 20.7% (up 890bps YoY but down 720bps QoQ), Industrial (up 930bps YoY and down 500bps QoQ to 10.6%) and Packaging (down 340bps YoY and 390bps QoQ to 12%). EBITDA for Q1FY22 increased by 90% YoY but declined 56% QoQ to INR2.2bn, below our and consensus forecasts of INR2.5bn and INR2.65bn, respectively. Plastic pipes In Q1FY22, the business was severely disrupted due to the second wave as the infection was quite widespread in rural areas. Out of 24,000 tonnes lost in this business, 20,000 will be only in agri pipes. April and May are the peak season for PVC pipe systems for agricultural application. Thus overall agri business declined 60% YoY, whereas CPVC business was up 40% YoY on last year’s low base as April was completely shut while May and June were also severely impacted. While CPVC pipes or plumbing altogether is seeing growth in July; Agri business due to seasonality is likely to be back from September-end or October. As the rural market was badly affected by the pandemic, the Agricultural demand took a big hit, resulting in a huge volume loss of business in the Piping segment (36% YoY and 37% QoQ). The company was thus required to carry forward the pipe inventory, which was kept ready to meet large seasonal demand of agricultural pipes (which will also result in a higher inventory losses in Q2FY21). Plastic pipes Inventory loss and margins The company reported some inventory loss in Q1FY22, but expects a much higher loss in Q2FY22. However, for the full year, the company is not factoring in a major inventory loss. Despite inventory loss, margin for the plastic pipes division was healthy led by less sale of agri pipes (down 60% YoY), higher sale of CPVC pipes (up 42% YoY) and sale of other value-added products such as valves and plastic tanks. 382 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Packaging – Cross-laminated film products The second wave of the pandemic and the resultant localized lockdown adversely affected demand during the first quarter, which is the peak period for tarpaulins. Sales of Cross Limited Film products were thus down by 12.5% YoY. The production has also taken a hit during Q1 due to scarcity of labour on account of large infection in rural area. The silver lining is that the exports have gone up by around 50% YoY. With the waning of second wave, the labourers are back and the production is running at full capacity. The good run in exports is continuing. Packaging – Protective packaging Protective Packaging Business has shown good improvement YoY. New products for export market have been well received. Its retail division for fitness products is also picking up well. Division is focusing on customized solutions and value addition to its OE customers. Packaging margins Packaging margins took a hit due to lower production in April and June and as company consumed high cost imported raw material. Thus margins reduced significantly in cross laminated products. The company however remains optimistic of restoring margins. This will also be supported by addition of new value added products in protective packaging Consumer The furniture business has shown a volume growth of 40 % YoY. The value added products sales have gone up to INR232.6mn compared to INR134.1mn in Q1FY21. This division is working on Digital campaign on several media sites such as Facebook, you tube, Instagram for brand promotion. The business expects to have a decent growth in this year over previous year. Value-added product The overall turnover of value added products increase to INR5.16bn during the current quarter achieving growth of 3 7%. Balance sheet The Company’s cash surplus funds reduced to INR3.81bn as on 30th June, 2021 as against cash surplus funds of INR7.59bn as on 31st March, 2021 mainly due to increase in inventory. Outlook Company expects that Q1 loss in volume in Piping System not only will be recovered but will show a growth in full year with double digit growth for CPVC pipes likely to continue. "Nal-se-Jal" Scheme is expected to be the strong growth driver as all states are actively working on this scheme and its likely to drive demand for HDPE, PVC, CPVC pipes and fittings. In July so far, demand is better YoY. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Channel inventory is lowest at this time, which should aid volume growth ahead. Valves Valves will qualify as value added product and company has started to build up in this segment and will continue to grow. Valves is a big market. While plastic valves size is unknown, metal valves worldwide is a USD60bn market. Capex Total capex planned for the year has now increased to INR5.21bn from earlier INR4bn including carried forward commitments of previous year. Of this capx, INR2bn will be on greenfield project while rest will be on brownfield projects. This capex can generate revenues of INR9bn The earlier INR4bn projection did not include new Orissa complex and Tamil Nadu plant The upcoming unit to make Plastic Pipe system at Guwahati will be operational by October 2021. The Company has taken in hand to put the plastic product complex in Orissa with an outlay of INR1.2bn in FY22. The same may be operational by Q4FY22. PVC prices PVC prices have started going up now (INR2 per kg in Q2FY22), after a drop of INR19 per kg since April 2021 (on an average down by INR9-10 per kg in Q1FY22). The demand in Construction segment has now opened up. The prices are likely to remain range-bound in near term New products Compression Moulded Olefin fittings have gone into commercial production at Jadcherla since June to cater to the growing demand in "Nal-se-Jal" Scheme. The company is also looking to launch Pex piping systems used in housing. Supreme Petrochem The company is expanding capacity by 90,000 tonnes in Poly-Styrene and by 30,000 in ABS. The company should complete all expansion by Dec 2021/March 2022 with total capex of INR2.6bn. Poly-Styrene will be sold both in domestic as well exports market Composite cylinders In the Composite LPG Cylinder division, repeated orders from existing as well as new customers are continuing. Domestic oil marketing companies IOCL and BPCL have also floated enquiries for purchases, which augurs well for the long-awaited introduction of composite cylinders in the Indian market. Overall business scenario looks encouraging. 384 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights These cylinders are definitely expensive compared with metal cylinders, but come with great advantages, and thus consumers are ready to pay higher deposits. Material Handling Products Material handling products being intermediary to supply of essential products have done good business both in terms of value and volume. The company is getting good business even from Ecommerce players. The division is working to introduce various new products/applications from Injection Moulding and Roto Moulding process. Expansion of capacities at its plant at Lalru (Punjab) and Gadegaon (Maharashtra) is nearing completion and shall be operational by July-August 2021. Industrial components Business scenario remains bullish in Industrial Component Business barring the initial disruption during first quarter. The division is working with its existing customers for new business apart from developing new customers. The company is putting need-based capital expenditure to meet increased business requirements. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights VIP Industries Financials Revenue growth: Revenue increased 411% YoY in Q1FY22 inline with domestic travel, though at mere 37% of pre covid levels (hit by second wave), but down mere 15% QoQ. As per management the supply chain was able to meet demand better than the past. Gross margin: Gross margin was up 866bps YoY and 718bps QoQ to 50.94% mainly due to lower discounts and better mix in favor of higher margin products and price increase. Further shift in sourcing from China to low-cost Bangladesh and India is leading to improved margins. Hence company expects these gross margins to sustain as it looks at 90% of production from India (Nasik) and Bangladesh (15% sourcing cost advantage versus China). EBIDTA was upto INR129mn (50% above estimates) versus INR578mn loss in base quarter and up 303% QoQ. EBIDTA margin jumped to 6% after 4 quarters of weak margins. Management ascertains INR0.9bn of fixed cost reduction is sustainable out of overall INR1.8bn cost reduction in FY21: INR0.6bn reduction in other expenses and INR0.3-0.4bn in employee costs. Last year other income had higher element of INR88mn from disposal of immovable property with transfer of capacity from Haridwar to Nashik. However other income was down mere 20% YoY at INR144mn with INR60mn savings on rent reduction and balance yield on cash. Company has taken adequate provision and a charge of INR30mn for the loss of Future retail sales. Company has repaid INR1000mn of debt. Operations and Outlook Q1FY22 and beyond: While demand was robust in the first three weeks of April, the second wave impacted the business significantly in a seasonally strong period. However, company expects strong revival in demand led by vaccination and recovery to be faster than first wave. We expect strong sales pick up over FY22-23. Company is working on host of new launches: (~20-25) and increased digital marketing. Further they are working on operational efficiencies across supply chains and huge development across channels. This should help them manage the demand recovery better and even wave three if it comes. Sustained cost reduction measures will structurally improve profits ahead. Demand for value products rose vis-à-vis higher-end VIP and Skybags. Management believes sustained demand revival would aid in increase of demand across the portfolio. VIP has significantly increased its presence across e-commerce with the advent of the pandemic. The company has seen sales from e-commerce channel contributing ~17% of its aggregate sales in FY21. 386 Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL Q1FY22 conference call highlights Management remains focused on domestic demand and will look at scaling up exports later. Edelweiss Research is also available on www.edelresearch.com, Bloomberg EDEL DISCLAIMER Edelweiss Securities Limited (“ESL” or “Research Entity”) is regulated by the Securities and Exchange Board of India (“SEBI”) and is licensed to carry on the business of broking, Investment Adviser, Research Analyst and related activities. 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