19 November 2020
Market snapshot
Equities - India
Sensex
Nifty-50
Nifty-M 100
Equities-Global
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10 Yrs G-Sec
10 Yrs AAA Corp
Flows (USD b)
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Volumes (INRb)
Cash
F&O
Note: *Average
Close
44,180
12,938
18,924
Close
3,568
11,802
6,385
13,202
10,640
25,728
Close
43
1,872
7,070
1,985
Close
74.2
1.2
103.8
Close
5.9
6.6
18-Nov
0.41
-0.38
18-Nov
723
26,351
Chg .%
0.5
0.5
1.5
Chg .%
-1.2
-0.8
0.3
0.5
0.9
-1.1
Chg .%
0.9
-0.4
0.3
1.2
Chg .%
-0.4
-0.1
-0.4
1MChg
0.00
0.00
MTD
2.92
-2.54
MTD*
630
24,109
CYTD.%
7.1
6.3
10.7
CYTD.%
10.4
31.5
-15.3
-0.4
-4.7
8.8
CYTD.%
-34.9
23.4
15.0
11.4
CYTD.%
3.9
5.7
-4.4
CYTDchg
-0.7
-1.0
CYTD
6.66
6.81
CYTD*
554
17,837
Today’s top research idea
Wipro: Operational restructuring to fund investments
The key focus of Wipro’s Analyst Day was on operational changes and steps
undertaken to accelerate revenue growth. The company expects the shift to four
Strategic Market Units and two Global Business Lines to help streamline
operations and increase its focus outside of the US.
Creation of a global account executive (GAE) role would help WPRO better
address long-standing issue in client mining and retention.
We are less sure of the utility of delineating clients by region (unlike by industry
at peers) as this could impact its ability to tap into global accounts and
seamlessly utilize sectoral strength across regions.
With the new strategy operationalizing from Jan’21, any near-term impact would
be closely monitored and could impact the stock’s valuation.
Research covered
Cos/Sector
Wipro
SBI Life
Gujarat State
Petronet
Textile
Key Highlights
Operational restructuring to fund investments
Protection trends remain robust; cost leadership continues
A decade old – A decade new: a huge opportunity
Earnings visibility improves across players
Chart of the Day: Wipro (Operational restructuring to fund investments)
Simplified operating model of the company
Source: Company, MOFSL
Research Team (Gautam.Duggad@MotilalOswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
 Motilal Oswal Financial Services
In the news today
Kindly click on textbox for the detailed news link
1
Pfizer says vaccine shot is
95% effective in final trials
Pfizer says that more interim
results from its ongoing
coronavirus vaccine study
suggest the shots are 95%
effective and that the vaccine
protects older people most at
risk of dying from covid-19…
2
Direct tax settlement scheme
fetches ₹72,480 cr so far to
exchequer
Businesses, including state-owned
firms, have so far paid ₹72,480
crore to the government under the Vivad Se Vishwas scheme, which
allows them to settle direct tax disputes by paying the disputed
arrears at concessional terms and avoid prosecution. The total
amount of public sector tax disputes being settled under the scheme
alone is a massive ₹1,00,195 crore, a government official said on
condition of anonymity…
3
Domestic air passenger
volume falls 57 pc to 52.71
lakh in October
Domestic air passenger volume
fell 57.21 per cent to 52.71 lakh in
October over the year ago period,
as airlines continued to operate at
a much lower capacity, the
Directorate General of Civil
Aviation's (DGCA) data showed on
Wednesday…
4
Need to reverse trend of
steel import for meeting
domestic demand: Pradhan
There is a need to reverse the
trend of meeting domestic steel
demand with imports according
to Union Steel Minister
Dharmendra Pradhan…
5
Anil Agarwal-led Vedanta Group
said on Wednesday that it has
submitted an expression of
interest (EoI) for buying 52.98 per
cent government stake in Bharat
Petroleum Corporation (BPCL)….
Vedanta Group submits EOI
to buy government's entire
stake in BPCL
6
Digital gold sees new demand
from smaller cities
The ongoing pandemic and rise
in gold prices have prompted
consumers to look at the
relatively new digital gold
category with a fresh lens. With
digital payment firms lapping on
to the opportunity, new shoots
of demand are coming from
smaller towns and cities…
7
Hero MotoCorp retails 14
lakh units in festive sales
Hero MotoCorp on Wednesday
said it retailed more than 14 lakh
units of motorcycles and
scooters during the just
concluded festive season…
19 November 2020
2
 Motilal Oswal Financial Services
18 November 2020
Company Update | Sector: Technology
Wipro
BSE SENSEX
44,180
S&P CNX
12,938
CMP: INR345
TP: INR385 (+12%)
Neutral
Operational restructuring to fund investments
We attended Wipro (WPRO)’s Analyst Day, wherein the management shared its plan for
operational transformation and steps to improve growth. Here are the key highlights
from the meet:
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
WPRO IN
5,693
1972.8 / 26.9
382 / 160
-9/42/29
2899
Financials Snapshot (INR b)
Y/E Mar
2020 2021E 2022E
613
624
676
Sales
17.1 18.4 18.5
EBIT Margin (%)
98
101
110
PAT
16.6 17.6 19.1
EPS (INR)
8.5
5.9
8.6
EPS Gr. (%)
97.9 100.3 107.8
BV/Sh. (INR)
Ratios
17.3 17.8 18.4
RoE (%)
12.8 13.3 13.7
RoCE (%)
133.6 93.0 61.1
Payout (%)
Valuations
20.8 19.6 18.1
P/E (x)
3.5
3.4
3.2
P/BV (x)
13.6 11.9 10.6
EV/EBITDA (x)
5.5
4.1
2.9
Div Yield (%)
Shareholding pattern (%)
As On
Sep-20 Jun-20 Sep-19
Promoter
74.0
74.0
74.0
DII
6.5
7.6
7.0
FII
8.8
8.2
8.8
Others
10.7
10.1
10.2
FII Includes depository receipts
Stock Performance (1-year)
Wipro
Sensex - Rebased
390
330
270
210
150
The key focus of Wipro’s Analyst Day was on operational changes and the
steps undertaken to accelerate revenue growth. The company expects the
shift to four Strategic Market Units (SMUs; focused on sales) and two Global
Business Lines (GBLs; focused on delivery) to help streamline operations and
increase its focus outside of the US. It is also de-prioritizing some sectors
(Hospitality, Airlines, Public Sector, etc.) and regions (Asia, Africa, and South
America – 2-3% of revenues) to increase the focus on high-growth businesses.
In our view, streamlining P&L to four SMUs (v/s 20 P&Ls earlier) should free
up internal resources to invest in growth initiatives, which is positive. In
addition, the creation of the global account executive (GAE) role would help
WPRO better address the long-standing issue in client mining and retention.
We are less sure of the utility of delineating clients by region (unlike by
industry at peers) as this could impact its ability to tap into global accounts
and seamlessly utilize sectoral strength across regions.
With the new strategy operationalizing from Jan’21, any near-term impact
would be closely monitored and could impact the stock’s valuation.
WPRO is undertaking the drastic restructuring of its business, reducing the
layers, and splitting the business by region. It expects this to result in a much
more agile and nimble organization, which will accelerate growth.
It will drive this through prioritizing high-growth sectors and markets, large
deals, and strategic partnerships. To achieve this, WPRO has also created the
position of Chief Growth Officer.
While prioritized efforts in targeted markets would ease the operating model
to a certain extent, execution around the verticals within the geographical
markets still seems to be an overhang.
WPRO believes the recent structural changes in the organizations would give
it a boost in the value chain, thereby increasing its pricing power.
This, coupled with the operational efficiencies involving offshore mix,
utilization, automation, etc. would help sustain current margins.
In the past few years, WPRO has underperformed Tier-I companies on growth,
partly due to its high exposure to challenged verticals (e.g., Healthcare and
ENU). Changes at the company level have further constrained growth.
However, its recent 2QFY21 result and management outlook are encouraging.
Successful restructuring the key monitorable
New operating model to help sustain margins
Valuation and view
19 November 2020
3
 Motilal Oswal Financial Services
The stock is currently trading at 18x FY22E EPS. We value WPRO at 20x FY22E
EPS (30% discount to TCS). We maintain our Neutral rating as we await further
evidence of execution of WPRO’s refreshed strategy and a successful
turnaround from its growth struggles over the last decade, before turning
constructive on the stock.
Trends playing out post the pandemic
Technology has now become key to survival and is driving resilience for
businesses across the globe. It is now necessary at the front end as well as the
backend for companies to improve efficiency and optimize costs.
This accelerated transformation has turned out to be a big opportunity for the IT
industry, which is structural and here to stay. WPRO is well-placed to leverage
these transformation journeys.
Currently, less than 3% of WPRO’s workforce operates from the office. The
company has on-boarded 18,000 employees virtually in the last seven months.
The management believes this hybrid model will become the new reality and
companies would not have 100% of their workforce working from an office in
the long run.
Keeping these trends in focus, Mr Rishad Premji highlighted WPRO’s obsession
for growth with a much stronger external market orientation and to form an
agile and nimble organizational structure, which will help improve its response
time.
Evolving technology market dynamics
Technology is enabling business and operating model transformation, and 85%
of incremental spends will be in Digital. Cloud has become a priority for over
46% of organizations.
The shift to the new is very pronounced. Companies are moving from traditional
IT to next generation technologies, which are expected to lead the industry in
the coming time.
Digital, Cloud, Data Engineering and Cyber Security are key areas for
incremental tech spend. Digital technologies are set to grow by 15–20% over the
next five years. 5G, AI, Robotics, and Blockchain are also expected to witness
explosive growth in the near future.
While the Americas will continue to be large, Europe and APMEA will contribute
58% to incremental revenue, whereas verticals such as BFSI, Retail & Consumer,
Energy & Utilities, and Manufacturing are expected to contribute 56% to
incremental growth.
Wipro’s refreshed strategy
Management set five key strategic priorities
To accelerate growth
To strengthen clients and partnerships
To lead with business solutions
To build talent at scale
To create a simplified operating model
19 November 2020
4
 Motilal Oswal Financial Services
The company has prioritized specific sectors in markets to drive growth. Efforts
and investments would be focused on these targeted markets to build or sustain
market leadership.
There will be continued focus on American/UK markets. However, the
management has renewed its ambition of building a strong growth in Europe,
the Middle East, and Asia. Within verticals, BFSI, Life Sciences, Heavy Industries,
and Consumer will be the focus.
Currently, 70% of revenue comes from WPRO’s large customers. The focus is to
accelerate growth by assigning a GAE who will represent and present the best of
the company to the account.
The company is also building a specialized large deal team to help in large deal
creation, solutions, structuring, and finally winning to aid its growth objective.
WPRO has an ambitious program to hire deep subject matter experts and go-to-
market leaders over the next three years, and localize the talent pool.
Lastly, the company has simplified its operating model into four SMUs and two
GBLs. This is to ensure adequate sector and domain focus.
Accelerated growth; sustained margins
Investments in 1) Go-to-market, 2) Business solutions, 3) M&A, and 4)
Partnerships are key priorities for accelerating growth. These investments would
be commensurate to WPRO’s growth ambition.
WPRO has enough levers at play to sustain its operating margin: 1) Structural,
which involves the prioritization of markets and sectors; 2) Pricing power, which
is expected to improve as the company goes up the value chain; 3) Operational
excellence in terms of automation, offshore mix, and utilizations; and 4)
Situational, which includes spends such as travel and discretionary costs, which
will reverse as the situation normalizes, but not at pre-COVID levels.
The management does not intend to compromise on either growth or margins
going forward. The focus will also be on keeping the Balance Sheet risk-free and
healthy.
WPRO continues its capital allocation policy of returning at least 45–50% of net
income to shareholders.
19 November 2020
5
 Motilal Oswal Financial Services
SBI Life Insurance
BSE SENSEX
44,180
S&P CNX
12,938
18 November 2020
Company Update | Sector: Financials
CMP: INR858
TP: INR1,050 (+22%)
Buy
Protection trends remain robust; cost leadership continues
Growth steadily revives after seeing trough levels; valuations reasonable
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
SBILIFE IN
1,000
857.7 / 11.6
1020 / 520
-3/-24/-24
1693
39.3
Financial snapshot (INRb)
Y/E MARCH
FY20 FY21E FY22E
Net Premiums
403
469
553
Surplus / Deficit
19.0
30.3
36.0
Sh.PAT
14.2
16.6
18.3
NBP gr- unwtd (%)
20.3
7.0
18.0
NBP gr- APE (%)
10.2
6.2
14.3
Premium gr (%)
23.2
16.0
18.2
VNB margin (%)
18.7
20.5
21.1
RoE (%)
17.4
17.6
16.9
RoEV (%)
17.4
17.2
17.2
Total AUMs (INRt)
1.6
1.9
2.3
VNB
20.1
22.9
26.9
EV per share
263
308
361
Valuations
P/EV (x)
3.2
2.8
2.4
P/EPS (x)
59.8
51.3
46.4
SBILIFE posted a rebound in business premium with individual APE growing
at 14%
YoY in Oct’20 after reporting a consecutive decline for the past many months.
During 2QFY21, the ULIP business declined 13% YoY but grew 166% QoQ from the
troughs seen earlier. Protection growth remains robust both in individual and
group segments and is expected it to remain strong. The revival in credit growth,
with parent SBIN indicating that the retail disbursement run-rate is now higher
than pre-COVID levels, further augurs well for SBILIFE.
The company reported an improvement in persistency rate across cohorts, with
the highest improvement seen in the 61st month (up
340bp YoY to ~61% in
1HFY21). Persistency in the Protection business remains strong. The ULIP business
is showing signs of a recovery on improved capital market performance.
SBILIFE is also looking to optimize its product mix in the Protection/Annuity
business. This should help VNB margin to further expand
to ~22% by FY23E, which
should drive 19% CAGR in VNB over FY20-23E. We expect operating RoEV to
remain steady ~18%,
while EV clocks
17%
CAGR over FY20-23E. Maintain Buy with
TP of INR1,050/share (2.7x Sep’22E EV).
APE growth showing improving trends; Renewal growth remains robust
Total APE declined ~3% YoY (grew 113% QoQ) during 2QFY21 as business trends
continue to march towards normalcy. ULIP business declined 13% YoY, but
improved 166% QoQ from the troughs witnessed during 1QFY21, while
Protection trends remains strong. During Oct’20, SBILIFE posted 14% YoY growth
in individual APE, while overall APE grew 13% YoY. The company continues to
post strong Renewal growth at 29% YoY (way ahead of its peers). SBILIFE’s
distinct competitive advantage owing to its parent SBIN provides it a long-term
Shareholding pattern (%)
As On
Sep-20 Jun-20 Sep-19
structural growth story. With retail disbursements moving towards normalcy, we
Promoter
60.7
60.7
62.8
expect business volumes to revive further in coming months.
DII
7.1
7.0
FII
25.8
26.2
Others
6.5
6.1
FII Includes depository receipts
Stock Performance (1-year)
SBI Life Insuran
1,175
950
725
500
Sensex - Rebased
6.9
23.7
6.6
NBP (un-weighted) growth trends for SBILIFE better v/s peers
Growth in new business premium (un-weighted) outperformed the industry and
peers, which SBILIFE grew ~15% YoY over FY21 YTD (v/s 3.1% for the industry
and 12.4% for HDFCLIFE and 10.5% decline for IPRU).Also, Sum assured growth
trends remains robust for both IPRU and SBILIFE, which suggests improving
trends in the Protection segment.
Protection business trends remain strong; individual protection mix increasing
Protection growth remained strong (70% YoY) in 2QFY21, led by both individual
and group protection. The share of Protection business improved to 12.5% (v/s
7.1% in 2QFY20 and 8.9% in FY20). The management said growth in individual
protection was volume driven, while the ticket size broadly remains the same.
The share of individual protection in total APE improved to ~7% (v/s 4.7% in
FY20). Group protection trends remain steady despite flat trends in credit life.
The pick -up in home loan and other retail disbursements for parent SBIN will
allow higher cross-sell of credit life business and support VNB margin.
19 November 2020
6
 Motilal Oswal Financial Services
Cost leadership strengthens further; TER improves to 8.6% in 1HFY21
SBILIFE has one of the lowest cost structures among its peers. It has a lower banca
commission rates (v/s peers), which allows it to maintain strong control on cost
ratios. The company has steadily reduced its total expense as a percentage of gross
written premium (GWP) to 8.6% in 1HFY21 from 9.9% in FY20 and 15.9% in FY13.
The management indicated it will continue to invest in growing its agency channel,
cost-intensive Protection business and digital initiatives. We expect SBILIFE to
maintain its cost leadership, with GWP at 9.8% over FY23E.
Persistency rate inches towards pre-COVID levels; Renewal growth leads peers
The company reported an improvement in persistency rate across cohorts (barring
the 49
th
month), with the highest improvement seen in the 61st month (up 340bp
YoY to 60.9% in 1HFY21), which aided growth in the Renewal business (up 29% YoY
vs 7% for IPRU and 22% for HDFCLIFE). Among segments, persistency in the
Protection segment remains strong, while the same for ULIP is reviving gradually on
a buoyant capital market performance. However, persistency based on regular
premium declined for the 13
th
month by 80bp to 83.2%, but improved for the 61
st
month by 140bp YoY to 50%.
VNB margin remains resilient,
estimate margin to expand to ~22%
VNB margin improved to 20.2%, led by an increase in Retail Protection during
2QFY21, though it lagged re-pricing of Protection products. Change in operating and
economic assumptions dragged margin. We expect VNB margin to expand in the
medium term as SBILIFE further optimizes its product mix with a focus on the
Protection/Annuity business, re-bound in premium growth from FY22E onwards and
re-pricing of Protection products. We expect VNB margin expansion to touch ~22%
and deliver 19% VNB CAGR over FY20-23E.
Valuation and view
SBILIFE continues to report steady growth in the Protection business, while the ULIP
business is expected to see a gradual recovery. We expect growth to revive
meaningfully from FY22E. The company has reported a sharp improvement in the
persistency rate. The improvement in cost ratios has also been commendable. We
estimate the VNB margin to touch ~22% by FY23E and deliver 19% VNB CAGR over
FY20-23E. We expect operating RoEV to sustain ~18% by FY23E. Maintain Buy with a
TP of INR1,050/share (2.7x Sep’22E EV).
One-year forward P/EV chart for various insurers
7.0
5.0
3.0
1.0
IPRU IN
HDFCLIFE IN
SBILIFE IN
4.8
2.5
2.1
Source: MOFSL, Company
19 November 2020
7
 Motilal Oswal Financial Services
Gujarat State Petronet
BSE SENSEX
44,180
S&P CNX
12,938
18 November 2020
Company Update | Sector: Oil & Gas
CMP: INR192
TP: INR300 (+57)
A decade old – A decade new: a huge opportunity
Buy
Stock Info
Bloomberg
Equity Shares (m)
M.Cap.(INRb)/(USDb)
52-Week Range (INR)
1, 6, 12 Rel. Per (%)
12M Avg Val (INR M)
Free float (%)
GUJS IN
564
108 / 1.5
263 / 146
-8/-41/-23
163
62.4
Financials Snapshot (INR b)
Y/E March
2020 2021E 2022E
Sales
19.4 18.9 20.5
EBITDA
15.7 15.1 16.0
PAT
11.1
9.5 10.0
EPS (INR)
19.7 16.8 17.8
EPS Gr. (%)
39.5 -14.4
5.8
BV/Sh.(INR)
119.2 133.6 149.0
Ratios
Net D:E
-0.6
-0.6
-0.7
RoE (%)
17.8 13.3 12.6
RoCE (%)
17.5 13.3 12.6
Payout (%)
12.2 14.3 13.5
Valuations
P/E (x)
9.7 11.4 10.7
P/BV (x)
1.6
1.4
1.3
EV/EBITDA (x)
7.1
7.0
6.1
Div. Yield (%)
1.0
1.0
1.0
FCF Yield (%)
13.5
8.0
7.8
Shareholding pattern (%)
As On
Sep-20 Jun-20 Sep-19
Promoter
37.6
37.6
37.6
DII
30.9
33.6
33.9
FII
15.6
15.5
15.5
Others
15.9
13.2
12.9
FII Includes depository receipts
Stock Performance (1-year)
Guj.St.Petronet
Sensex - Rebased
310
250
190
130
Gujarat State Petronet (GUJS) reported volumes of ~40mmscmd in 2QFY21, taking
the company to near full capacity levels of ~42mmscmd.
We discussed volume growth avenues – both immediate and for the future – with
the management. The following are key insights from the same:
GUJS has installed an additional compressor, which facilitated pipeline capacity
expansion by ~10%, thus taking total pipeline capacity to ~46mmscmd.
While GUJGA stated during its recent earnings that volumes are higher than its
2QFY21 average, the benefits have also accrued to GUJS, which is currently
operating ~44mmscmd (further supported by strong LNG demand).
Although, the company believes that volumes would settle down a bit, as festive
demand is behind us, it could still average ~42mmscmd in 3QFY21.
Also, GUJS is in advance stage of renting an additional compressor to install at
the pipeline connecting the Mundra LNG terminal, further expanding pipeline
capacity by ~0.5mmtpa (~1.8mmscmd).
In addition to the ongoing capex on various other pipelines, the new expanded
capacity of 47-48mmscmd provides opportunity for another 20% volume growth
on its last reported numbers. On similar lines, GUJS expects to fulfill its targeted
volumes growth of 10% per annum.
Over the last five years, EBITDA grew
~11% CAGR, in line with volumes CAGR of ~10%
(to ~38msmcmd in FY20
from 23mmscmd in FY15) despite average implied tariff of
~INR1,215 lower than ~INR1,240
in 2QFY21.
Available LNG regas capacity is expected to jump by
54% to 40mmtpa over the next
2-3 years in Gujarat
from the current 24mmtpa, presenting
a huge volume growth
opportunity for GUJS.
At a 25% holding company discount, the 54% stake in GUJGA provides
a valuation of
INR152/share for GUJS (i.e. ~80% of CMP), thus implying a mere 2x Sep’22E P/E for
the standalone business.
The value of GUJS standalone business is the lowest in its stock price history (refer
Exhibit 5), despite record high volumes, thus presenting an excellent investment
opportunity. Reiterate Buy.
We value GUJS at 8x Sep’22E standalone EPS to arrive at our target price of INR300.
Petchem/refining and fertilizer demand – the roadrunner
India imported ~22.2mmtpa of LNG in 1HFY21, primarily driven by demand
from petchem/refining (up 8% YoY) and fertilizer (up 6% YoY); while power was
flat YoY and CGD was down 33% YoY. Gujarat is assumed to have received
~90% of India’s total LNG imports (GUJS have established pipelines at all three
LNG terminals).
As per power data (by CEA), total electricity demand in the country is down
7% YoY in FY21 YTD, while gas-based power production is up 13% during
the same period.
Fertilizer demand is expected to see a huge volume boost (~11-
12mmscmd) in FY22 as three fertilizer plants get commissioned along the
Jagdishpur-Haldia-Bokaro-Dhamra pipeline (JHBDPL), along with
connectivity to refiners on the Urja-Ganga pipeline.
19 November 2020
8
 Motilal Oswal Financial Services
Asian spot LNG prices have cooled off to ~USD6-6.5/mmbtu after touching a
high of over USD7.5/mmbtu in the previous month. We believe that spot LNG
prices would further normalize as US gas storage volumes touched fresh highs
last week, while a second wave of COVID in Europe results in lower imports.
The company has already started laying a pipeline to Swan Energy’s LNG
terminal in Jafrabad.
At the start of 2021, GUJS commissioned the Pipavav-Gundala pipeline, which is
transporting gas from Hazira/Dahej to various industries and CGDs (Surat,
Ahmedabad, Gandhinagar, Bhavnagar, Mehsana, Rajkot, Morbi, etc).
NGT has classified five industrial clusters in Gujarat (few of the above mentioned
names) as severely/critically polluted. A strict action like Morbi could increase
transmission volumes for GUJS at these GAs as well.
GSPL India Gasnet (GUJS holds ~52%) is executing partial stretches of Mehsana-
Bhatinda (340km) and Mallavaram-Bhilwara (364km) pipelines. Both have a
capacity of 76-77mmscmd and would eventually enable evacuation of gas from
upcoming LNG terminals on GUJS’ gas grid.
The company plans to spend ~INR22b over the next 3-4 years as capacity
increases from upcoming terminals. This is against net fixed assets (NFA) of
INR43b for the HP pipeline when its tariff was decided in 2018.
The proximity advantage
GAs classified as severely/critically
polluted by NGT
Various consumers along the Mehsana-Bhatinda pipeline route
Sector/Industry/Consumer
Cement plants
Fertilizer plants
Refinery/Petchem units
Gas-based IIPs
Textile mills
Bulk industrial consumers
Industrial and CGD projects along the pipeline route
Jaipur | Udaipur | Jodhpur | Ajmer | Chittorgarh | Alwar | Bhiwadi
Bhiwani | Rohtak | Sirsa
Bhatinda | Patiala | Ambala
Chandigarh
Location
Gujarat
Gujarat
Gujarat
Gujarat
Rajasthan
Haryana
Punjab
Chandigarh
Source: PNGRB, MOFSL
Spot prices climb to ~USD6/mmbtu, implying a slope of ~15%,
which we believe should normalize…
Platts LNG JKM (US$/mmBtu)
Slope (% of Brent)
…thus facilitating power consumers as well as other industrial
users
Gas based
YoY growth
Electricity generation
Total
45
30
15
0
-15
-30
Source: Meti, MOFSL
Source: CEA, MOFSL
19 November 2020
9
 Motilal Oswal Financial Services
Sector Update | 18 November 2020
Textiles
Revenue/profitability of Home
Textile companies surges on
increased demand from US
retailers
Aggregate
Home Textile
companies
Revenue
EBITDA
Margin
Adj. PAT
Change Change
YoY
QoQ
4%
-3%
-127
-23%
87%
182%
616
NA
Earnings visibility improves across players
In this note we have tried to analyze the performance of key textile players in
2QFY21 and highlighted the key trends in the sector as mentioned in the
conference call. Here are the key insights:
Near-term demand drivers in place
Source: Company, MOFSL
Dry pipeline providing demand tailwind:
The Home Textile industry witnessed a
strong demand revival during 2QFY21 on high demand from big retailers (selling
essentials), who saw their inventory pipeline running dry due to a demand
recovery, lower channel inventory, and precautionary buying by big retailers
during the COVID-19 pandemic.
COVID-19 induced higher consumption of Home Textile products:
Imposition of
a lockdown across countries has led to higher consumption of Home Textile
products (in the last eight months) – Bedsheets and Towels – as people are
spending more time at home, with higher emphasis on hygiene. Increased usage
has also led to slight shrinking of the replacement of Bedsheets and Towels.
‘China+1’:
Increasing geopolitical tensions between the US and China and global
companies intending to establish an alternate sourcing destination are likely to
benefit Indian textile players going forward.
Apparel/Fabric/Yarn players tail-ride on an industry revival:
These players are
next in line to benefit from a paradigm shift in demand to India, huge build-up of
pent-up demand and benign raw material prices. Expansion of capacity across
domestic players points towards higher inquiries from global players.
Weak INR is supporting Indian exporters:
The USD:INR is depreciating at a
faster pace than the USD:RMB, which has made Indian exporters competitive
v/s the Chinese. From Jan-Oct’20, the USD:INR depreciated by 4% to
74.11/USD). On the contrary, the USD:RMB appreciated by 3% to 6.69/USD.
Against the backdrop of the pandemic and the growing preference for India as a
potential supplier, domestic textile players are seeing significant market share
gains from China. From Jan-Sep’20, market share (as a % of imports to the US) of
China in Terry Towels/Bedsheets reduced by 350bp/510bp to 21%/15%,
respectively. Whereas, India’s market share in Terry Towels/Bedsheets
increased by 360bp/90bp to 43%/50% over the same period.
In 2QFY21, major Home Textile companies (WLSI, ICNT, TRID and HSS) reported
cumulative revenue growth of 4%/87% over 2QFY20/1QFY21. Indo Count (ICNT)
led the pack with 27%/2.2x revenue growth in 2QFY21 over 2QFY20/1QFY21. All
players reported strong growth on a sequential basis, led by a revival in demand
from end-customers.
KPR Mill (KPR) reported a revenue growth of 17%/74% over 2QFY20/1QFY21
while Vardhman Textiles’ (VTEX) revenue declined 2% YoY but grew 99% QoQ.
In the backdrop of increased demand, Indian manufacturers are increasing
capacities and focusing on increasing utilization levels. ICNT, which is currently
operating at 85% utilization levels, plans to carry out greenfield expansion in the
next 1-2 years. Welspun India (WLSI) plans to de-bottleneck its existing
operations, post which its Towels/Bedsheets capacity is expected to increase by
20%/22% to 108,000MT/110m meter. For Trident (TRID) capacity utilization in
Towel and Bedsheets stood at 61% (v/s 56% last year) and 90% (v/s 62% last
year), respectively.
Among Home Textile players, ICNT outperforms
19 November 2020
10
 Motilal Oswal Financial Services
Himatsingka Seide (HSS), which currently operates four manufacturing facilities
and 12 brands, completed its three-year capex plan and expanded its Terry
Towel/Bedsheet capacity to 25,000MT/61m meter, respectively. Going forward,
HSS plans to ramp-up its operations of the newly built Terry Towel unit and
focus on improving overall utilization levels. Manufacturing operations, which
were previously constrained, led to lower manufacturing throughput, reduced
gross margin and lower EBITDA. With operations returning to normalcy, gross
and operating margins are expected to return to pre-COVID levels by 2HFY21.
Home Textile players (aggregate) reported slight margin contraction (130bp YoY)
in 2QFY21. On a sequential basis, margin expanded 620bp QoQ to 18%. ICNT
outperformed other players, with EBITDA margin expanding 360bp YoY to
17.7%.
Aggregate Home Textiles players reported a 3% YoY decline in EBITDA, whereas
on sequential basis it grew 2.8x.
WLSI
– i) With increased demand from US retailers, the management aims to
debottleneck its existing operations. Post this, Towel capacity is expected to
increase by 20% (from 90,000MT at present) and Bedsheet capacity by 22%
(from the current level of 90m meter). WLSI plans to undertake brownfield
expansion of its Rugs capacity and plans to double it to 20m square meter by
FY22. ii) Going forward, cotton prices are expected to stabilize at INR38,000 per
candy. Lower cotton prices are expected to improve gross margins of Indian
textile players.
ICNT’s
order book and volume guidance are backed by strong demand from big
box retailers compared to smaller ones as inventory from the former have dried-
up.
The company is operating at 85% utilization levels. Backed by strong demand
from the Home Textile segment, the management is planning to undertake
brownfield and greenfield expansion.
TRID
– On a full-year basis, the company is aiming to achieve an EBITDA margin
of 18-20% on a sustainable basis.
It recorded its highest-ever capacity utilization in the Home Textile segment
(45% in Towel in 1HFY21 v/s 56% YoY and in Bedsheet 64% in 1HFY21 v/s 54%
YoY). Revenue growth of 48% YoY was recorded in the Bed Linen segment.
HSS
– Retail segment, which suffered a significant burn in 1HFY21 (due to the
lockdown), is returning to normalcy, with major retail chains opening stores
across North America and Europe. Higher demand is due to strong demand pull
from customers and inventory stocking demand from large retailers.
VTEX
– In the spinning business, the company is able to compete with China in
terms of cost and operational efficiency. Growth in the spinning business will be
driven by increasing share of value-added products as capacity is already near
peak utilization.
Yarn and cotton prices are reaching pre-COVID levels and are expected to
benefit the company as demand has seen a sharp revival.
KPR
– The company is expanding its garments segment with new garment
capacity of 42m-meter (capacity to increase by 40% to 147m meter) at a capex
of INR2.5b. Post expansion, new capacity is expected to add INR5-6b to total
revenue.
Key commentary from the conference call
19 November 2020
11
 Motilal Oswal Financial Services
Valuation and view
ICNT reported a healthy performance amid a challenging environment on strong
demand from the Home Textile segment. It also added new clients during
2QFY21 and registered increased demand from existing clients as well. New
brand launch ‘Wholistic - Whole Health Sleep Better’, which features
innovations associated with cleaner living, is expected to gain traction in the
near term.
WLSI recorded Bath Linen volume growth of 13% YoY and 51% QoQ. Bedsheet
volumes grew 13% YoY and 2.4x QoQ, which was highest ever achieved in any
quarter.
Additional capacities will be freed up post de-bottlenecking across all three
segments. With higher sweating of assets, revenue growth is expected to
continue.
HSS has the highest share of Branded sales as compared to its other Home
Textile peers. Demand witnessed a strong revival with the opening of markets in
North America and Europe, testimony to this is the 3.6x growth in revenue on a
sequential basis. With the commencement of a new unit, robust demand and a
strong order book, the Home Textile business is expected to post strong growth
in the medium-to-near term.
With demand returning to pre-COVID levels, VTEX’s operations have gained
pace and its spinning/fabric business is operating at 97%/65% utilization levels.
KPR’s order book increased as the pipeline of retailers dried up on higher usage
of casual wear as work from home (WFH) led to higher time spent at home.
WFH in majority of the big cities across the world has also contributed to the
revival in demand with people spending more on home improvement products
as the same has become their primary workplace. The upcoming festival season
in the US and Europe is also expected to see strong demand in coming quarters.
Outlook for the Home Textile business continues to remain positive, with Indian
textile players best placed to utilize this opportunity. The same for Yarn and
Garments players looks positive, which is due to higher demand for Apparels
from the US and Europe and beginning of the festive season.
Sharp surge in QoQ performance of TRID
(INRm)
Revenue
EBITDA
Margin
Adj. PAT
2QFY20
13,219
2,527
19.1%
1,345
1QFY21
7,079
1,181
16.7%
101
2QFY21
11,714
2,247
19.2%
1,002
Change YoY
-11%
-11%
7
-25%
Change QoQ
65%
90%
250
892%
Source: Company, MOFSL
Exports boost WLSI’s performance in 2QFY21
(INRm)
Revenue
EBITDA
Margin
Adj. PAT
2QFY20
18,249
3,913
21.4%
1,985
1QFY21
12,018
2,239
18.6%
491
2QFY21
19,737
3,859
19.6%
1,797
Change YoY
8%
-1%
-189
-9%
Change QoQ
64%
72%
92
266%
Source: Company, MOFSL
19 November 2020
12
 Motilal Oswal Financial Services
In conversation
Escorts: Looking at a good revenue growth for the next 6
months; Bharat Madan, Group CFO
Will increase capacity from 1.32 lakh to 1.80 lakh units and ultimately take it to
2 lakh units p.a
Will invest Rs. 100cr in H2FY21. 1.80 lakh units capacity will be in place by next
September-October
Kubota JV will start production in June next year. It will add capacity of 30,000
units/month
Expect tractor industry to grow in low double digits. Rabi season is expected to
be good this time so industry can see good volumes in Q4
Retails have been very strong recently. November-December will be used for
inventory filling so wholesale numbers will be good
Construction segment picking up. Railways still slow
Confident to gain market share with supply chain normalizing
Consumer demand during festive season
Croma: Ritesh Ghosal, CMO
Saw a 17% growth YoY in festive season. Growth would have been approx 25%,
if there would not have been short supplies in premium products which led to
loss in sales
I-phones seeing good demand. People upgrading in phones & laptops. Larger
size refrigerators in demand
YtD basis just down 7% even after Q1 being a washout
Online channel will be 10-12% currently which was less than 3% pre covid
Financing has increased significantly led by cards and then NBFCs. Approx 45%
of sales are on financing
Bajaj Electricals: Anuj Poddar, ED
Saw double digit growth, supplies were short but it’s improving. Labor shortage
in few pockets of the supply chain causing delays
Kitchen appliances seeing strong growth
Expect to cross last year sales in the 10months of the year barring 2months of
lockdown
Urban demand is back in Q3
Online channel growing at 50%. Retail chains coming up faster
Raw material prices have shot up significantly
Phoenix Mills: Expect to close FY21 at around 50% of last year
levels; Shishir Shrivastava, MD
Footfalls have reached at 55% & Consumption at ~104%, of last year levels
Foootfalls should reach 80% of last year levels by end of FY21
Expect to close FY21 around 50% of last year levels & FY22 to be at FY20 levels
Newly opened mall at Lucknow is doing well
We are continuing with expansion plans
Most of the debt shall be repaid in Q3. Cash is at Rs. 1,850 cr
19 November 2020
13
 Motilal Oswal Financial Services
From the think tank
JOE BIDEN’S WORLD ORDER
Many hope that, when President-elect Joe Biden takes over, liberal international
arrangements can be salvaged, and even renewed. That would certainly be
desirable. Unfortunately, it is an unrealistic hope. A post-Trump order appears to
be more about a return to the inter-bloc competition of 1945 than to post-Cold
War liberal euphoria. For starters, the Biden administration will be consumed by
the daunting tasks of healing the domestic wounds that Trump has inflicted and
correcting America’s critical weaknesses, laid bare by the pandemic. The US’
recovery from the most divisive presidency in its history will be neither quick nor
painless. Reforming America is a prerequisite to restoring its capacity for global
leadership.
The world seems to be returning to a Westphalian order, in which sovereignty
prevails over international rules. Trump’s “America First” stance fits neatly within
such an order. And while China touts international cooperation in some realms,
multilateralism is a fundamentally alien concept to it. It would oppose the revival
of a world order based on liberal precepts. Other big nationalist powers (such as
Brazil, India, Russia, and Turkey) and smaller ones in Eastern Europe (Hungary and
Poland) move broadly within the same illiberal realm.
The Biden administration should aspire to lead the world’s democracies in their
competition with a rising authoritarian bloc, while upholding the multilateral
institutions and structures most essential to peace. To this end, it should
immediately abandon its predecessor’s connivance with Turkish President Recep
Tayyip
Erdoğan, and replace his bellicose strategy toward Iran with an effort to
reach a revised, durable nuclear agreement. Fortunately, it appears set to do
both. At the same time, the Biden administration will need to treat America’s
alliances more as collective enterprises, which the US ideally leads without
dominating. From the allies’ side, this shift has already begun, with European
leaders, especially French President Emmanuel Macron, increasingly recognizing
the need to take Europe’s security into their own hands. The US should work with
an empowered European Union to contain Russia’s revisionism on NATO’s
borders and end its hybrid war on Western democracies.
Similarly, to manage its ongoing strategic confrontation with China, the US will
need to work with its Asian allies, such as a rearmed Japan and South Korea. With
China having all but abandoned its “peaceful rise” strategy, avoiding violent
conflict will be a delicate balancing act. More broadly, the US will need to
galvanize the world’s liberal democracies to forge a bloc capable of standing up to
the world’s authoritarians. This should include efforts to counter the forces of
disintegration within the EU and, potentially, to transform NATO into a broader
security alliance of democracies. Crucially, the two blocs would also need to
cooperate effectively in key areas of shared interest, such as trade, non-
proliferation, climate change, and global health. This will require diplomatic skills
that Trump could scarcely imagine, much less muster.
19 November 2020
14
 Motilal Oswal Financial Services
NOTES
19 November 2020
15
 Motilal Oswal Financial Services
Explanation of Investment Rating
Investment Rating
BUY
SELL
NEUTRAL
UNDER REVIEW
NOT RATED
Expected return (over 12-month)
>=15%
< - 10%
> - 10 % to 15%
Rating may undergo a change
We have forward looking estimates for the stock but we refrain from assigning recommendation
*In
case the recommendation given by the Research Analyst is inconsistent with the investment rating legend for a continuous period of 30 days, the Research Analyst shall within following 30 days take appropriate measures to make the recommendation
consistent with the investment rating legend.
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CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.Registration Nos.: Motilal Oswal Financial Services Limited
(MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset
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Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in securities market is subject to market risk, read all the related documents carefully before
investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.* MOFSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated
July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Ben
Disclosure of Interest Statement
Analyst ownership of the stock
Companies where there is interest
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