2QFY20 | November 2019
VOICES
VOICES
India Inc on Call
VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earnings calls attended by
our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also
provides links to relevant research updates, and transcripts links of the respective conference calls.
This quarterly report contains
Key takeaways from the post results management commentary for 152 companies, with links to the full earnings call
transcripts
Links to our Results Updates on each of the companies included
Research & Quant Team
(Gautam.Duggad@MotilalOswal.com); Tel: +91 22 6129 1522
Investors are advised to refer through important disclosures made at the last page of the Research Report.
24 November 2015
1
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
 Motilal Oswal Financial Services
Contents
Summary
..................................................................................................................................................................................................................................
3
Sectors
...............................................................................................................................................................................................................................
8-146
Automobiles ......................................................................................................... 8-17
Amara Raja ........................................................................................................................ 9
Ashok Leyland ................................................................................................................... 9
Bajaj Auto ........................................................................................................................ 10
Bharat Forge.................................................................................................................... 10
BOSCH ............................................................................................................................. 11
CEAT ................................................................................................................................ 11
Eicher Motors.................................................................................................................. 12
Endurance Tech............................................................................................................... 12
Escorts............................................................................................................................. 13
Hero MotoCorp. .............................................................................................................. 13
Mahindra CIE................................................................................................................... 14
Mahindra & Mahindra..................................................................................................... 14
Maruti Suzuki .................................................................................................................. 15
Motherson Sumi.............................................................................................................. 16
Tata Motors..................................................................................................................... 16
TVS Motors...................................................................................................................... 17
Capital Goods ..................................................................................................... 18-25
ABB.................................................................................................................................. 19
Crompton Greaves CG ..................................................................................................... 20
Cummins ......................................................................................................................... 21
GE T&D ............................................................................................................................ 22
Havells ............................................................................................................................. 22
L&T .................................................................................................................................. 23
Solar Inds......................................................................................................................... 24
Thermax .......................................................................................................................... 24
Va Tech Wabag................................................................................................................ 25
Cement............................................................................................................... 26-33
ACC.................................................................................................................................. 27
Birla Corp ........................................................................................................................ 27
Dalmia Bharat ................................................................................................................. 28
Grasim Inds ..................................................................................................................... 28
India Cements ................................................................................................................. 29
JK Cements ...................................................................................................................... 29
JK Lakshmi Cements ........................................................................................................ 30
Prism Johnson ................................................................................................................. 31
The Ramco Cement ......................................................................................................... 31
Sanghi Inds ...................................................................................................................... 32
Ultratech Cement ............................................................................................................ 32
Consumer ........................................................................................................... 34-47
Asian Paints ..................................................................................................................... 35
Britannia Inds .................................................................................................................. 36
Dabur India...................................................................................................................... 37
Emami ............................................................................................................................. 39
Godrej Consumer ............................................................................................................ 39
GSK Consumer................................................................................................................. 40
Hindustan Unilever.......................................................................................................... 41
Jyothy Labs ...................................................................................................................... 42
Marico ............................................................................................................................. 43
Page Inds ......................................................................................................................... 44
Pidilite Inds...................................................................................................................... 45
United Breweries ............................................................................................................ 45
United Spirits................................................................................................................... 46
Financials- Banks ................................................................................................ 48-60
AU Small Fin. ................................................................................................................... 49
Axis Bank ......................................................................................................................... 50
Bank of Baroda ................................................................................................................ 51
DCB Bank ......................................................................................................................... 51
Federal Bank ................................................................................................................... 52
HDFC Bank....................................................................................................................... 53
ICICI Bank ........................................................................................................................ 54
IndusInd Bank.................................................................................................................. 55
Kotak Mahindra Bank ...................................................................................................... 56
Punjab National Bank ...................................................................................................... 57
RBL Bank ......................................................................................................................... 57
South Indian Bank ........................................................................................................... 58
State Bank of India .......................................................................................................... 59
Financials – NBFC ................................................................................................ 61-73
Aditya Birla Capital .......................................................................................................... 61
Bajaj Finance ................................................................................................................... 62
Cholamandalam Inv......................................................................................................... 63
Equitas Holdings .............................................................................................................. 64
HDFC Life ......................................................................................................................... 64
ICICI Pru Life .................................................................................................................... 65
Indostar Capital ............................................................................................................... 66
L&T Finance..................................................................................................................... 67
LIC Housing Fin. ............................................................................................................... 68
M&M Financial ................................................................................................................ 69
MAS Financial .................................................................................................................. 69
Muthoot Fin .................................................................................................................... 70
PNB Housing.................................................................................................................... 71
Repco Home Fin .............................................................................................................. 72
Shriram City Union Finance ............................................................................................. 72
Shriram Transport Finance .............................................................................................. 73
Healthcare .......................................................................................................... 74-83
Alembic Pharma .............................................................................................................. 75
Alkem Labs ...................................................................................................................... 76
Aurobindo Pharma .......................................................................................................... 76
Biocon ............................................................................................................................. 77
Cadila Healthcare ............................................................................................................ 77
Cipla ................................................................................................................................ 78
Dr Reddy’s Labs ............................................................................................................... 79
Glenmark Pharma ........................................................................................................... 79
Granules India ................................................................................................................. 80
IPCA Labs ......................................................................................................................... 80
Jubilant Life ..................................................................................................................... 81
Laurus Labs...................................................................................................................... 81
Lupin ............................................................................................................................... 82
Strides Pharma ................................................................................................................ 82
Sun Pharmaceuticals ....................................................................................................... 83
Torrent Pharma ............................................................................................................... 83
Media..................................................................................................................84-92
Jagran Prakashan............................................................................................................. 84
Music Broadcast .............................................................................................................. 86
PVR Ltd ............................................................................................................................ 87
Sun TV Network .............................................................................................................. 89
Zee Entertainment .......................................................................................................... 91
Metals ............................................................................................................... 93-97
Hindalco Inds................................................................................................................... 93
Hindustan Zinc ................................................................................................................ 94
Jindal Steel ...................................................................................................................... 95
JSW Steel ......................................................................................................................... 95
SAIL ................................................................................................................................. 95
Tata Steel ........................................................................................................................ 96
Vedanta........................................................................................................................... 97
Oil & Gas ...........................................................................................................98-100
Reliance Inds ................................................................................................................... 98
Retail .............................................................................................................. 101-109
Aditya Birla Fashions ..................................................................................................... 102
Jubilant Foodworks ....................................................................................................... 104
Shoppers Stop ............................................................................................................... 105
Titan .............................................................................................................................. 106
V-Mart ........................................................................................................................... 107
Technology ...................................................................................................... 110-123
Cyient ............................................................................................................................ 111
HCL Tech ....................................................................................................................... 112
Hexaware Technologies ................................................................................................ 113
Infosys ........................................................................................................................... 114
L&T Infotech .................................................................................................................. 115
Mindtree ....................................................................................................................... 116
Mphasis ......................................................................................................................... 117
NIIT Technologies .......................................................................................................... 118
Persistent Systems ........................................................................................................ 118
TCS ................................................................................................................................ 119
Tech Mahindra .............................................................................................................. 121
Wipro ............................................................................................................................ 121
Zensar Technologies ...................................................................................................... 122
Telecom .......................................................................................................... 124-127
Bharti Infratel ................................................................................................................ 124
Tata Comm .................................................................................................................... 126
Utilities ........................................................................................................... 128-134
JSW Energy .................................................................................................................... 128
NTPC.............................................................................................................................. 129
Tata Power .................................................................................................................... 129
Torrent Power ............................................................................................................... 130
Others ............................................................................................................. 131-146
Allcargo Logistics ........................................................................................................... 131
Brigade Entp. ................................................................................................................. 131
BSE Ltd .......................................................................................................................... 132
Container Corp .............................................................................................................. 133
Coromandel Intl ............................................................................................................ 133
Gateway Distriparks ...................................................................................................... 135
Godrej Agrovet .............................................................................................................. 135
Indian Hotels ................................................................................................................. 136
Info Edge (India) ............................................................................................................ 137
Kaveri Seeds .................................................................................................................. 138
Lemon Tree Hotels ........................................................................................................ 138
MCX............................................................................................................................... 139
Oberoi Realty ................................................................................................................ 140
Phoenix Mills ................................................................................................................. 140
PI Inds............................................................................................................................ 141
Quess Corp .................................................................................................................... 141
SRF Ltd .......................................................................................................................... 142
SH Kelkar ....................................................................................................................... 143
Tata Chemicals .............................................................................................................. 143
Team Lease ................................................................................................................... 144
UPL ................................................................................................................................ 145
Note:
All stock prices and indices are as on 22th November 2019, unless otherwise stated.
 Motilal Oswal Financial Services
2QFY20 | India
| 2QFY20
Voices
Inc. on Call
Voices
BSE Sensex:
40,889
S&P CNX: 12,074
Reverberation of caution in tepid but in-line quarter
In this report, we present detailed takeaways from the 2QFY20 conference calls as
we refine the essence of India Inc ‘Voices’.
The 2QFY20 corporate earnings-report was in line with our expectations for
both the Nifty and the MOFSL Universe. EBITDA/PBT came in line, while PAT
exceeded our estimate driven by the corporate tax cut. Financials drove 90% of
incremental earnings. The Nifty delivered 8% earnings growth for the quarter
versus our estimate of an 8% decline, even as PBT was down by 3%. For FY20,
our Nifty EPS estimate remains stable at INR538, and we now expect 12% profit
growth for the Nifty, singularly led by Financials. Auto and Utilities were the only
sectors exceeding our PBT estimate in the quarter. Corporate commentaries
remain cautious around both consumption demand and investment revival.
In BFSI,
Banks reported a slowdown in corporate loan growth amidst the weak
economic environment. Commentaries broadly reflected caution toward
wholesale lending, but comfort on retail loan growth. The PCR trend has
improved with banks continuing to make healthy provisions in an attempt to
further strengthen balance sheets. However, credit cost is expected to stay
elevated due to banks’ exposure to newly surfaced stressed names. NBFC
commentaries indicated caution too. Vehicle financiers are expecting slowdown
in loan growth, especially in the HCV segment. Flooding has impacted demand
for players in certain geographies. BAF is cautious on some segments like digital
product financing, SMEs and B2C.
Consumer
companies across the board appeared cynical from the near-term
perspective, given the rural scenario. Demand slowdown was led by subdued
consumer sentiment, liquidity crunch in channels, and disruptions in supply
chain due to floods. Management commentary also did not indicate any
material pick-up in demand in 3QFY20.
In
Autos,
OEMs are hoping for a revival in Nov’19 on the back of
strong/extended monsoon. Further, lower commodity prices should continue
benefiting players on the margin front in 2HFY20 too. Most OEMs expect pre-
buying ahead of BS6 launch but volumes to remain low. In fact, the trend is
likely to remain volatile over the next 12 months due to BS6 transition-related
cost inflation.
In IT,
despite uncertain macros, most companies highlighted a robust deal
environment – TCS, INFY and TECHM particularly announced strong deal wins. In
2QFY20, companies were aggressive in headcount addition in anticipation of
demand and to better handle the tight supply situation. Margins remain a
challenge across the industry amidst investments in localization, digital
capabilities and rising attrition rates with talent crunch.
In Capital Goods,
commentary suggests that small- and medium-sized orders
are flowing in, but large-ticket orders are on hold and should see a pick-up in
2HFY20. Room AC companies (except Lloyd’s) performed well due to low
channel inventory post a strong summer season.
In Cement,
managements expect weakness in demand to persist in 3QFY20 as
the liquidity situation still remains tight. Demand recovery is likely to manifest
only by 4QFY20. Companies in north and south have also indicated a price hike
November 2019
3
 Motilal Oswal Financial Services
Voices | 2QFY20
of INR10/bag. Cement players are also hopeful of cost savings in subsequent
quarters as energy prices (oil, petcoke, coal) have been on a downtrend.
Autos
Industry volumes remained weak in 2QFY20 but showed signs of a revival
during the festival season. PVs/2Ws exhibited a pick-up in volumes, while
CV/tractor momentum was weak. OEMs are hoping for a growth revival in
Nov’19 on the back of strong/extended monsoon. Further, lower commodity
prices should continue benefiting players on the margin front in 2HFY20 too.
Most OEMs are expecting pre-buying ahead of BS6 launch but volumes to
remain low. In fact, the trend is likely to remain volatile over the next 12 months
due to BS6 transition related cost inflation. That said, volumes are not likely to
decline materially from the lows of 2QFY20, in our view.
Capital Goods
Execution was weak due to extended rainfall and the slowdown in the economy.
Order inflows also declined, with ordering activity yet to show traction post
elections. Management commentary suggests that small- and medium-sized
orders are flowing in, but large-ticket orders are on hold and should see a pick-
up in 2HFY20. Room AC companies (except Lloyd’s) performed well due to low
channel inventory post a strong summer season.
Cement
Managements expect demand weakness to persist in 3QFY20, as the liquidity
situation still remains tight. Demand recovery thus is likely to manifest only by
4QFY20. Companies in north and south have also indicated a price hike of
INR10/bag. Players are hopeful of cost savings in subsequent quarters as energy
prices (oil, petcoke, coal) have been on a downtrend.
Consumer
Consumer
companies across the board appeared cynical from the near-term
perspective, given the rural scenario. Demand slowdown was led by subdued
consumer sentiment, liquidity crunch in channels, and disruptions in supply
chain due to floods. Managements did not indicate any material pick-up in
demand in 3QFY20, but were hopeful that a combination of a possible good Rabi
crop (due to high reservoir levels following good monsoon) and government
measures to boost consumer sentiment will lead to growth from 4QFY20.
November 2019
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 Motilal Oswal Financial Services
Voices | 2QFY20
Financials
Banks
Banks have reported a slowdown in corporate loan growth, reflecting the weak
economic environment. Both consumption and capex remained weak, while
tight liquidity and higher promoter leverage have resulted in an increase in the
number of defaults. Banks are maintaining a cautious and conservative stance
toward wholesale lending, while retail loan growth remains steady. Deposits
growth has been stable with strong growth in retail term deposits, while the
CASA mix continues moderating (barring KMB). Further, branch expansion
appears to be back in focus, with many banks guiding for an increase their
branch count over the next few years.
Asset quality trends have been mixed amidst the challenging macro
environment – large corporate banks such as SBIN and ICICIBC reported better-
than-estimated slippages, while YES and RBK reported an increase in watch list
size/stressed assets. Overall, the PCR ratio has improved as banks continued
making healthy provisions to further strengthen their balance sheet. However,
credit cost is likely to stay elevated due to banks’ exposure to newly surfaced
stressed names. Recoveries from NCLT-related cases have been delayed;
however, the recent Supreme Court order should revive the resolution process
and drive an improvement in overall asset quality.
NBFC
Commentary across most companies remains cautious. Vehicle financiers are
expecting a slowdown in loan growth, especially in the HCV segment. Flooding
has impacted demand for players in certain geographies. BAF is cautious on
some segments like digital product financing, SMEs and B2C. LTFH targets to
run-down its de-focused book over the next two years. Commentary from
housing finance players has been divergent – while HDFC and LICHF are positive
on retail loan growth, PNBHF is more cautious given high leverage. Repco
targets a 3% GNPL ratio by end-FY20.
Healthcare
After robust growth in the domestic formulation market in 2QFY20, companies
remain optimistic about outperforming the industry over the medium term, led
by new launches, better traction in existing brands and extended seasonality.
While price erosion has been limited to single-digits for most companies in US
generics, enhanced-level efforts are being undertaken to resolve regulatory
issues and/or remain compliant. Simultaneously, companies are looking at cost-
reduction initiatives and the product pipeline from the profitability perspective.
Also, there have been foundation-building exercises like forming JVs and setting
up capex plans to increase traction in the China pharma market, based on ease
in the regulatory approval scenario for formulation. Environment-led supply
disruption and/or regulatory issues for peers continue providing a good
platform to grow the API business for companies under our coverage.
Media
In 2QFY20, ad revenues were hit across the sector due to the lack of spending by
corporates on account of the short-term dip in the consumption outlook.
Growth in subscription revenues has, however, supported revenue for
broadcasters. PVR continued with strong screen adds and movie revenues.
Radio companies were hit by a drop in ad revenues and print companies
witnessed an improvement in the EBITDA margin (though absolute EBITDA
declined) on moderation in newsprint prices (expected to decline further by
INR1-2/kg).
November 2019
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 Motilal Oswal Financial Services
Voices | 2QFY20
Metals
Steel companies expect demand conditions to improve in 2H with a recovery in
construction activity. An extended and heavy monsoon impacted demand this
quarter, leading to increased inventories for steel producers. Companies expect
dealer re-stocking to start by Dec’19. Players believe that domestic prices have
bottomed out, given prices are near anti-dumping levels and shown signs of
improvement in Nov’19. However, realizations should come down QoQ in 3Q
given the low exit price in 2Q. Moreover, auto-contract prices being negotiated
for 2H should also be re-priced lower due to the decline in prices over the past
six months. On the costs front, industry expects the reduction in coking coal
prices to provide some support to margins.
Oil & Gas
Refining margin outlook for FY20 is likely to remain weak owing to higher global
capacity additions and lower-than-expected boost in diesel yields. OMCs expect
healthy marketing margins to continue. RIL’s refining margin is set to improve
with the enhancement of delayed coker and petrochemical cracks, which are
expected to improve with feedstock flexibility on strong growth in the retail
business. MAHGL foresees higher opex challenges, which would normalize its
EBITDA margins. IGL expects volume growth of ~12% from its high-growth Gas,
supported by government regulations. PLNG expects strong volume off-take at
Dahej (on expanded capacity) from the Power and CGD sector and plans to ramp
up utilization at Kochi terminal post completion of the Kochi-Mangalore pipeline
(Feb-Mar’19).
Retail
The increase in footfall and sales in the festive season was early indication of
demand revival. At the same time, weak SSSG in 2QFY20 warrants caution, and
from that standpoint, the performance over the next few months will be
important. Nevertheless, managements of most retailers have maintained
aggressive pace of store adds, despite weak consumer sentiment in 2QFY20.
Technology
Overall, the quarter saw a slight moderation in tier 1 revenue growth rate (on a
sequential basis) with some pockets of weakness in two large verticals – BFSI
and Retail. Margins improved sequentially due to seasonality but shrank on an
annual basis due to structural changes in the industry. However, despite
uncertain macros, most companies highlighted a robust deal environment – TCS,
INFY and TECHM particularly announced strong deal wins. In 2QFY20,
companies were aggressive in headcount addition in anticipation of demand and
to better handle the tight supply situation. Margins remain a challenge across
the industry amidst investments in localization, digital capabilities and rising
attrition rates with talent crunch.
Telecom
Both Bharti and VIL’s managements welcomed the tariff increase taken by RJio
and announced a tariff hike from Dec’19. Bharti’s management is looking to
expand capacity utilization by re-farming 2100mhz and 900mhz spectrum
through massive MIMO and addition of 4
th
and 5
th
sector site. Over the past 12
months, VIL witnessed strong 4G subscriber addition in September and October
and managements have hinted about government’s ability to provide relief
despite SC ruling on AGR. Bharti Infratel’s management has shown confidence
November 2019
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 Motilal Oswal Financial Services
Voices | 2QFY20
that the energy margins would be in the range of 0%-3% for FY20. TCOM’s
management is optimistic about future prospects due to its growth/innovation
services.
Utilities
Power Grid noted that some of the right of way (RoW) issues related to its
Raigarh-Pugalur project have been resolved and it expects Phase 1 of the project
(INR90b) to be completed in Feb’20 with subsequent commissioning in Mar’20.
From a longer-term perspective, PWGR believes that India’s vision to reach
450GW of RE capacity by 2030 (from est. 175GW in 2022) would necessitate
incremental investments of INR2.8t within transmission. NTPC noted that it has
booked late payment surcharge income of INR6.5b in 2QFY20, and
correspondingly, its interest cost was impacted by INR3.3b given higher
borrowings. The company cited that post implementation of its LC mechanism,
it has received timely payments for its billed revenue.
November 2019
7
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Key takeaways from management commentary
AUTOMOBILES
Industry volumes remained weak in 2QFY20 but showed signs of a revival during the festival season. PVs/2Ws
exhibited a pick-up in volumes, while CV/tractor momentum was weak. OEMs are hoping for a growth revival
in Nov’19 on the back of strong/extended monsoon. Further, lower commodity prices should continue
benefiting players on the margin front in 2HFY20 too. Most OEMs are expecting pre-buying ahead of BS6
launch but volumes to remain low. In fact, the trend is likely to remain volatile over the next 12 months due
to BS6 transition related cost inflation. That said, volumes are not likely to decline materially from the lows of
2QFY20, in our view.
Corporate Tax Rate & Festival Season
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
Ashok Leyland
Production cuts have led to significant system inventory
decline (stood at 13.2k units in Oct’19)
Domestic CV demand remains weak as recovery of
underlying businesses is uncertain
Has maintained cost savings target of ~INR5b for FY20,
of this, INR2-2.3b was achieved in 1HFY20
FY20 capex guidance at ~INR18b (v/s earlier ~INR23b);
looking to further reduce it by ~INR2-2.5b
Demand decline has bottomed out and sales should
now pick up
Robust product pipeline for domestic 2Ws over the next
18 months; launches should accelerate post BS6.
Chetak (e-scooter) to be launched in Jan’20 in Pune and
then in Bangalore.
Inventory is at <3 weeks (including company level
inventory). There is waiting period in many markets
As at Oct’19, company had over 1,430 dealer outlets, of
this, ~500 are RE Studios. Company will further add
250-300 RE Studios by Mar’20
Sales pick-up was prominent in rural markets, but not in
urban markets
Inventory days declined to ~30 days in Oct’19
Financing penetration at 46% in 2QFY20 (v/s 44% in
2QFY19 v/s 37% in 1QFY20)
2HFY20 PV industry outlook – UVs should grow 12-13%,
cars should decline 8-10%, overall PVs should decline 5-
6% while Tractors should decline 7-8%
Inventory for Autos is 5-6k units short of target;
Tractors are at targeted level but would further reduce
by 1-1.5k in 3QFY20
In 1HFY20, the volume decline in urban areas was
higher than in rural areas
Dealer inventory is at 30-32 days currently. Factory
inventory is at 50k units
Expect some benefit of commodity prices in 2HFY20
JLR volumes picked up in China and are expected to
sustain
Has maintained cost-cutting target of GBP0.85m for
FY20 (implies 2HFY20 ask rate of GBP500m), through
savings in material (GBP300m), men (GBP250m) and
overheads (GBP300m)
Expect 2HFY20 to be lower than 1H due to weakness in
India, US and EU.
US Class 8 trucks should decline 20-25% in CY20 while
EU trucks should decline 8-10%
Current utilization at ~50%
Sales during festival season remained weak YoY
Company continued with the old tax regime
Bajaj Auto
Inventory normal for the festive season at over 60
days (same YoY)
Sales remained flat during Navratras, however,
Diwali saw a sharp pick-up resulting in ~28%
growth for overall festive retails
Company has shifted to the new tax regime
Festive season sales grew in double digits, with
the North and West doing better than other
markets
Company has shifted to the new tax rate
Festive season is showing good build-up with
positive low single-digit growth in retails.
Company expects sustained recovery to take some
time
Company has adopted the new tax regime
MM’s festive season retail sales for Tractors
declined 4%, while it grew 23% for Auto segment
The festive season saw high discounts, but this
reduce Nov’19 onwards
Company has shifted to the new tax regime
Retails during Navratras grew in low single-digits,
but the momentum continued post Navratras as
well
Company has shifted to the new tax regime
India CV business showing initial green-shoots in
demand drivers through
- Freight availability post monsoons,
- Freight rates firming up slightly, and
- Inquiries from fleet operators ahead of BS6
transition
Company has shifted to the new tax regime
Eicher Motors
Hero MotoCorp
M&M
Maruti
Tata Motors
Bharat Forge
November 2019
8
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Motherson
Sumi
Hungary plant ramp-up is as expected and break-even
should happen soon
Alabama focus is to support Daimler on its on-going
launches, post which it would focus on improving
efficiencies and profitability. It doesn’t expect material
scope of further increase in losses hereon.
SMRPBV’s order book stood at EUR18.4b (v/s EUR18.2b
as of Mar’19)
Company has shifted to the new tax regime
Amara Raja Batteries
Current Price INR 743
Click below for
Results Update
Buy
Auto OEM volumes declined ~30% for 4Ws and 20-22% for 2Ws;
Aftermarket volumes grew 10-11% for 4Ws and 17-18% for 2Ws;
Exports of 4W batteries grew 20-25% led by ramp-up in existing S.E Asian
markets. With exit of Johnson Control, it doesn’t have any geographical
restriction in exports. Telecom segment volumes declined 9-10%
Except for ~5% reduction in 2W aftermarket prices taken in Jul’19, there is no
pricing action in aftermarket
Capex guidance maintained at INR4-4.5b for on-going capacity expansion in 2W
batteries (by 3m units to 17m units), 4W batteries (by ~2m units to 14.5m) and
implementation of punch-grid technology.
Ashok Leyland
Current Price INR 81
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand environment uncertain/some pre-buying expected:
The demand
environment is likely to remain weak due to the slowdown in the underlying
business, but do expect some pre-buying ahead of BS6 launch.
Strict inventory management and production cuts:
Inventory levels have come
down to at 13,200 units in Oct’19 v/s 18,200 in Sep’19 (v/s ~27,500 units in
Jun’19). This resulted in a loss of market share to ~30.5%.
Cost control happening as planned:
Cost saving of INR2-2.3b achieved in 1H,
out of the planned target of INR5b for FY20.
Realization improvement expected:
With inventory levels for the industry
bottoming out, the company expects realizations to improve going forward
Exports revival (South Asia and UAE markets):
Exports markets have started
recovering with a further improvement seen by Apr’20. Project sales to Africa
are expected to pick up over the near term.
BS6 modular platform:
All current models to upgrade to BS6 variant with
planned launch timelines. No major segment mix seen after the transition.
Planned capex reduced to INR18b for FY20:
Planned capex was reduced to
INR18b (v/s INR 23b planned earlier) for BS6, Project Phoenix, Modular project
and EVs. It is looking to further reduce capex by INR2-2.3b.
CEO appointment:
New CEO to be appointed before end-FY20.
November 2019
9
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Bajaj Auto
Current Price INR 3,153
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Demand decline seems to have bottomed out; festive-to-festive has been flat
(Navratras).
Inventory normal for festive season at over 60 days (same YoY).
Robust product pipeline for domestic 2Ws over the next 18 months, with
launches accelerating post BS6.
3W retail sales in Egypt have settled at 3k/month from high of 8k/month. BJAUT
has not exported to Egypt in the last six months, which will now commence,
though at a lower level.
Finance penetration for Bajaj’s motorcycles is at ~70% in India (v/s 65% in
1QFY20), with Bajaj Finance having ~60% share.
Chetak (E-scooter) will be launched in Jan’20 in Pune and then in Bengaluru.
E-3Ws will be launched in 6-9 months. TCO for E-3Ws is substantially favorable
over diesel 3Ws, but not materially over CNG 3Ws.
BS6 transition will happen with BS4 inventory phase-out starting in Nov’19 and
subsequent launch of BS6 vehicles in a phased manner.
At segmental level, it doesn’t expect material decline in margins from current
level, though mix will play its part in blended margins.
‘Husqvarna’ exports will start from end-CY19 and launch in domestic market will
commence in 1QCY20.
Cash & cash equivalent has increased to ~INR159.9b (v/s ~INR171.3b in
1QFY20).
Bharat Forge
Current Price INR 451
Buy
Click below for
Detailed Concall Transcript &
Results Update
Domestic revenues declined ~36% YoY and exports declined ~18% YoY due to
weakness in the Oil & Gas segment.
PV business grew ~21% YoY (+25% QoQ).
Company expects 2HFY20 to be weaker than 1HFY20 based on the prevailing
environment in India and the slowdown in North America and Europe.
Focus is to cut costs more than anticipated earlier, which should bear results
once the demand environment stabilizes. It is looking to improve productivity
intensely across facilities with more thrust on new product development and
R&D.
Over the next 2-3 quarters, it would also focus on strengthening the balance
sheet, FCF generation and opportunistic inorganic growth avenues.
Company expects US Class 8 truck volumes to decline 20-25% in CY20 (over
~345k in FY19), whereas EU truck volumes are expected to decline 8-10%. As a
result, OEMs started cutting production schedules to reduce inventory from
current elevated levels.
40k M&HCV stock of BS4 vehicles needs to be liquidated.
In PVs, company has procured significant orders from North America. BHFC is
putting up an Aluminum forging capacity, which is expected to start in Jun’21 to
cater to these orders. The full capacity of 1st phase is already sold out and on
full ramp-up, there is potential for revenues of USD75m. Company is currently
working with five OEMs (and multiple platforms); it would make fully machined
parts and enjoy much better margins.
It is currently operating at ~50% utilization.
10
November 2019
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Capex: FY20 S/A is at ~INR6b for ongoing CLWT plant. There is no new capex
commitment since 1QFY20. Overseas subs FY20 capex is at ~INR2b. For FY21,
India would see significant reduction in capex to INR1.5-2b.
New Light Weighting Tech plant has been transferred to wholly-owned
subsidiary for availing corporate tax benefit of 15%. This plant will start
operations by Dec’19. Company expects revenues of ~INR2b in the first phase
and expects capacity to get fully booked in the next one year.
Bosch
Current Price INR 16,336
Click below for
Results Update
Neutral
Powertrain solutions’ division revenues declined ~38.5% YoY due to sharp drop
in the CVs/PVs business.
2W business grew 31% YoY on a low base.
Company has provided ~INR2.1b in 1HFY20 for restructuring, reskilling and
redeployment of resources due to structural changes in the mobility business
and expects further provisions in the future.
It has contributed substantially to Bajaj Chetak e-scooter. Its USP is to offer
affordable holistic localized solutions rather than just a component.
It is seeing good growth in the gasoline business for both 4Ws and 2Ws (for
BS6).
CEAT
Current Price INR 943
Buy
Click below for
Detailed Concall Transcript &
Results Update
CEAT is likely to see good growth in PCR and TBR, with 2Ws to grow in line with
the market. TBB would continue declining.
Pricing environment for the industry was fairly stable in 2Q.
CEAT had seen reasonable growth in 2Ws and PVs driven by new model wins. It
has recently launched X3 series of tyres for trucks, which would help it to grow
further in the TBR segment.
It is expecting another 1-2pp RM cost savings in 2H over 1HFY20.
It is evaluating merits of the new corporate tax regime, but is yet to take a final
decision as it does not offer MAT credit.
It continues improving its working capital cycle with a reduction of ~INR1.8b in
2Q (over ~INR1.1b reduction in 1Q).
Consol. capex guidance of INR12-13f.5b (lowered by ~INR0.5b in OTR segment
from 1Q guidance).
The company expects FCF to be negative in FY20/21.
Current capacity utilization is ~70% on rated capacity.
Blended RM cost was down 2.4pp QoQ to ~INR123.7/kg v/s INR126.5 in 2QFY19
v/s INR126.8 in 1QFY20.
November 2019
11
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Eicher Motors
Current Price INR 22,786
Click below for
Results Update
Buy
Royal Enfield
Festive season sales grew in double digits, with India’s north and west regions
performing better than other markets. Also, Tier 2/3 cities did well due to RE
Studio.
Inventory is at < 3 weeks (including company level inventory). There is waiting
period in many markets.
Focus is on three areas; these include (a) Product (more options to customers),
(b) Reach (RE Studio), and (c) Rides (making it more impactful).
As of Oct’19, company has over 1,430 dealer outlets, of which ~500 are RE
Studios. It plans to further add 250-300 RE Studios by Mar’20.
Company is 100% ready for BS6; it can start commercial production soon, but is
yet to finalize pricing strategy. It won’t allow build-up of BS4 inventory.
ASP has increased due to mix in favor of exports and higher cc models.
Financing: At 59% v/s usual 52-53% in run-up to the festive season.
Bullet X: This lower price variant has got good response in traditionally strong
markets like Kerala, Punjab and Haryana.
650cc Twins ramp-up has been good and capacity is not a constraint, with
additional capacity for 650cc Twins expected to come next year.
Service market share (paid service) has increased for RE, benefiting dealers’
profitability.
Spares and accessories are growing in double-digits.
Endurance Technologies
Current Price INR 1,089
Buy
India business
Click below for
Detailed Concall Transcript &
Results Update
New business wins of INR3,435m per annum in 1HFY20 (~INR1.9b in 1QFY20)
from HMSI, Kia, HMCL, RE, TVSL, TTMT. This includes new product platforms and
replacement business as well. Further, it has RFQs worth of ~INR12.3b on hand
(excluding new business from BJAUT).
In 1HFY20, aftermarket business grew 10% to ~INR1,339m from ~INR1,217m
New plants update
2W suspension plant at Gujarat for HMCL started in Sep’18. Currently, supplying
2,700 sets/day to HMCL (meeting 100% requirement of HMCL); there are plans
to ramp up to 6,200 sets/day by FY21 as per the LoI.
Karnataka plant for HMSI for front fork and shock absorbers started in Sep’19
and is expected to reach 3,500 sets/ day by Feb’20, including replacement of
scooter shock absorber to Front Fork.
Valam aluminum die-casting plant should start by end of next month. This is for
Kia, Hyundai and RE and business of INR350m is expected in 4QFY20.
ABS: Samples are being tested by OEMs and clearance is expected in 4QFY20.
For Bajaj Chetak, it has got orders for castings, suspension and braking. Content
in e-scooter would be lower since no clutch/CVT would be required.
From TVSL, in addition to the 2W disc brake assembly, it has won orders for 2W
front fork and 3W brake assemblies.
From HMSI, it has got LoI for disc brakes for supplies starting from Apr’20.
EBITDA margins YoY improvement is due to reduction in RM costs (also due to
cost savings and higher prop tech contribution) and employee costs.
12
November 2019
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Proprietary business is 52-53% of India business while casting constitutes 38%
(v/s 41-42% of revenues last year).
Castings business margins have improved YoY due to higher share of machined
products, improvement in efficiency and other factors.
EU Business
EU business has won EUR18.26m new business from VW, Fiat and Maserati.
2QFY20 EU auto volumes grew 2.3% YoY. While EU business revenues declined
0.2% in EUR terms, excluding the aluminum price pass through, revenues grew
~3.1%.
Sharp improvement in gross margins is due to consolidation of its recently
acquired foundry business, Fonpresmetal. Foundry product is reflected in gross
margins but machining cost (since outsourced) is reflected in other expenses.
In 1HFY20, revenues from VW grew 52%. Revenues from FCA declined 33% due
to diesel volume drop of ~40%. Daimler revenues declined ~18% since it was
supplying to Mercedes’ US plant, which was impacted due to on-going trade war
tensions.
Escorts
Current Price INR 648
Neutral
Click below for
Results Update
Industry volumes declined 10% YoY. ESC’s strong markets declined by ~2% and
opportunity markets (east, south and west) by ~18%.
Dealer inventory was at <4 weeks as of Oct’19 (below normal), whereas
inventory with company stood at 2 weeks.
FY20 industry volumes are likely to decline in single digit (implied flat volumes
for 2H). A full-fledged recovery might be seen from Mar'20 or May-Jun'20.
The recovery was good in the festive season (Navratras to Diwali), though lower
on a YoY basis. Industry de-grew by 15% in Apr-Aug and 5% in Sep-Oct.
Momentum is expected to continue in Nov’19.
It added 45 new dealers (to over 950 dealers) in 2Q.
Rail order book stood at ~INR5b, which will get executed over the next 12-15
months.
Margins in 2H are likely to be better than 1H with inventory correction now
behind.
Hero Motocorp
Current Price INR 2,440
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Festive season is building up well with low single- digit growth in retails (after a
12% decline in the preceding six months). Even after Dussehra, there is no let-up
but a build-up in momentum. However, it expects a sustained recovery to take
some time.
Pick-up is prominent in rural and not in urban markets.
First indication of a rural recovery to be visible from the third week of
November when Rabi sowing starts.
Inventory target at the end of the festive season is 30 days, especially
considering impending BS6 transition.
Financing penetration at 46% in 2QFY20 (v/s 44% in 2QFY19 v/s 37% in 1QFY20).
Total sales volumes declined ~21% YoY (-8.2% QoQ) to 1.69m units.
November 2019
13
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Realizations increased by 5.1% YoY (+2.7% QoQ) to INR44.75k/unit (est. of
INR43.7k), driven by price increase of ~INR200/unit in Jul’19. Also, higher
contribution from spare sales improved QoQ realizations.
Consequently, revenue declined ~17% YoY (-6% QoQ) to INR75.7b (in-line).
Gross margin came in at 32.3% (+160bp YoY/190bp QoQ), higher than our
estimate of 31% due to cost saving initiatives, lower commodity prices and
higher contribution of spares.
EBITDA declined ~20% YoY (-5% QoQ) to ~INR11b (est. of INR9.9b). EBITDA
margins stood at 14.5% (est. of 13.4%), down 60bp YoY (flat QoQ).
Margin beat was driven by lower commodity cost, cost savings and lower-than
estimated variable market spend.
Mahindra CIE
Current Price INR 148
Click below for
Detailed Concall Transcript &
Results Update
Buy
Green shoots of demand recovery are visible in India, but the situation will get
clear only in 4QCY19. However, MACA does not see India volumes recovering
over the next two quarters due to BS6 transition.
It has orders on hand from Kia, Ford and also shifting of products of Stokes to
India, which will contribute over the next 2-3 quarters.
AEL is working on exploring the GDC opportunity in EU and launching a new
plant for nominated business in exports.
For India/EU CV forging biz, it is focused on cost reduction, in-sourcing, re-
alignment of manned capacity to the current sales outlook, and productivity
improvement.
MACA would play an important role in CIE attaining its 2020 targets of doubling
profits and RoNA of 20-25%. India is one of the fastest growing markets in CIE’s
global operations. This, coupled with significant headroom to grow from existing
capacities in India, would drive strong profit growth and drive an improvement
in capital efficiencies.
Mahindra & Mahindra
Current Price INR 546
Buy
Click below for
Detailed Concall Transcript &
Results Update
M&M’s festive season retail sales
for Tractors declined 4%, while it grew 23%
for the Auto segment. Since the company had witnessed sudden drop in retails
(except tractors) during the last festive season, the growth is good for Autos. It
estimates PV industry volume growth at 14-15% during the festive season.
Inventory
for Auto segment is 5-6k lower than normal and is the lowest in five
years. For Tractors, it is at normal level; it would further reduce by 1-1.5k in
3QFY20.
PV industry 2HFY20 outlook:
UVs should grow 12-13% (due to new products),
cars should decline 8-10% and overall, PVs should decline 5-6%.
Tractor industry FY20 guidance
is of 7-8% decline (v/s earlier guidance of up to
5% decline) as company expects Nov’19 to be satisfactory, Dec’19-Jan’20 should
be slow, but Feb-Mar 2020 is expected to be strong.
CV industry volumes are expected to remain weak as availability of freight is
weak.
November 2019
14
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
New product launches:
It plans to launch three new UVs in FY21, along with e-
KUV (4QFY20), e-XUV300 (1QFY22) and EV for last mile connectivity (3QFY21).
Discounts:
While the general discount in the auto industry during the festive
season was much higher, M&M had increased its discounts only by ~INR1,500
per vehicle on a YoY basis (INR3-4k QoQ increase). It has lowered discounts post
the festive season.
EVs:
Expect continued growth in retail of 600 Treo and 1,300 e-Alpha. Delhi,
Lucknow, Patna and Kolkata are key markets for these e-3Ws.
SCV/LCVs
will see substantial cost increase for BS6 diesel. M&M is also working
on other fuels like CNG and Petrol.
3Ws: It expects 3W electrification to
happen over the next 2-3 years. It sold ~600 Treo 3Ws and ~1300 e-Alphas in
2QFY20.
Jawa:
It has ramped up production to ~5k/month. Production ramp-up is
happening after some hiccups on the supply chain side. It has delayed launch of
Jawa Perak, which is now being launched on 15th Nov’19.
Ssangyong Motors:
It is impacted by the significant sudden drop in performance
in 1HFY20 due to adverse development in key export markets as well as
slowdown in the Korean market. This has resulted in variable marketing
expenses going up and impacting profitability. Going forward, focus would be on
material cost reduction and exploring new markets for exports. These initiatives
would start bearing fruit from CY20. SYMC’s break-even – EBITDA level at ~140k
annual volumes and PBT at ~155k annual volumes.
Maruti Suzuki
Current Price INR 7,058
Click below for
Detailed Concall Transcript &
Results Update
Buy
Retails declined 22% YoY in 2Q. However, Navratras retails grew in low-single
digit. Retails picking up from avg. 100k in Jul/Aug’19 to 116k in Sep’19 and
further building up in Oct’19. Retails momentum continued post Navratras as
well. Will have to wait for a couple of months to see if the recovery sustains post
festive season as currently promos are very high.
Rural decline of 18% in 1H was lower than urban decline.
Discounts at INR25,761 (+160bp QoQ, +100bp YoY). Discounts are higher in Oct-
19 v/s 2Q average.
Dealer inventory at 30-32 days, with equal split between BS4:BS6 50:50 incl.
diesel. BS4 Petrol (where BS6 option available) hardly any inventory left post
festive, as 70% of volumes are from BS6-compliant models. Factory inventory is
at 50k.
E-Presso bookings at ~16,500 units.
Commodity cost benefits: No major benefit of commodity in 2Q; expects some
benefit in 2HFY20 as prices for all key commodities (except palladium) are
down.
Financing: 10-20bp reduction in interest rates for vehicle loans, but not in line
with repo rate decline. Some of the banks (6-7 banks) are now offering 100%
LTV of on-road prices. Finance penetration stable at 80%.
Depreciation: Some element of accelerated depreciation for diesel engine plant,
impact of which is INR1.6b.
Tax rate: New regime will reduce ETR by 5pp from 28% to 23%.
Capex guidance of FY20 at INR40b (no change).
November 2019
15
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Motherson Sumi
Current Price INR 127
Click below for
Detailed Concall Transcript &
Results Update
Buy
Focus is on ramping up new plants; the Hungary plant ramp-up is as expected
and break-even should happen soon.
Alabama plant has been ramped to ~1,000 cars/ day (from 700-800 cars/ day in
1QFY20). Currently, focus is to support Daimler on its on-going launches. Once
major launches are done by Mar’20, it would focus on improving efficiencies
and profitability. It doesn’t expect material scope of any further increase in
losses hereon.
Improvement in SMP margin improvement (Ex SMRC and green-field plants) is
driven by erstwhile green-field plants getting more mature and driving
efficiencies.
In India, it expects double-digit increase in BS6 content for diesel PVs and
M&HCVs.
PKC performance is driven by ramp-up in China and rolling stock business, which
helped to off-set impact of weak EU M&HCV volumes. Company is expanding
the plant at Serbia and is putting up a new plant at Ras-Al-Khaimah.
MSS needs to master the US market as it is very important and key for future
growth for the company. SMP’s experience at Alabama should also help the
group to get better understanding of the US market.
Maintains FY20 capex guidance of ~INR20b (1HFY20 at ~INR10.1b).
Tata Motors
Current Price INR 162
Click below for
Results Update
Buy
China’s KPIs continuing improving, which is translating into improved sales. In
2QFY20, JLR’s retails (+24.3%) outperformed the premium segment (flat YoY).
JLR is likely to deliver an improvement in volumes and transacting prices, as
three key models transit to new model year, viz., Evoque (Aug’19), XE (Dec’19)
and Discovery Sport.
2QFY20 witnessed a decline in VME (7.2% in 2Q v/s 9% in 1QFY20 and 6.1% in
2QFY19) and warranty cost (4% in 2Q v/s 6% in 1Q). VME should sustain at 6-
7%, whereas warranty cost would trend toward the lower end of the 4-6%
range.
The company maintained the cost-cutting target of GBP0.85b for FY20, implying
savings of GBP500m in 2H through material (~GBP300m), men (~GBP250m) and
overheads (~GBP300m). Material cost benefit would largely reflect in 2H as its
vendor negotiations would get over in 3QFY20.
Given impending Brexit, it is targeting to increase Fx hedges by 15pp of
exposure for three years (to ~50%), four years (to ~30%) and five years (to
~25%).
It has planned shutdown of a week in November for Brexit, implying production
loss of ~12k units.
Investments in FY20 to be closer to GBP3.7b (v/s guidance of GBP3.8b).
November 2019
16
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
TVS Motors
Current Price INR 443
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Heavy rains during Navratras in the central/east region and Maharashtra
resulted in much lower retails. However, retails have started picking up since
the last few days due to receding rains. Expecting good Diwali retails for TVSL.
Rural economy will improve either in 4QFY20 or 1QFY21. Sentiment is turning
positive. The company sees challenges in 3Q but expects an improvement from
4Q.
Inventory stable at five weeks.
Strong focus on cost reduction has driven a continuous improvement in margins.
Gross margins improvement QoQ can be attributed to commodity cost decline
(~20bp), cost reduction initiatives (~120bp) and product mix (~40bp). It expects
this to sustain. TVSL started cost-reduction initiatives eight quarters back.
Commodity cost has been softening and the benefit is likely to come in the
coming quarters.
Staff cost reduction due to cost-reduction initiatives.
For 1HFY20, capex stood at ~INR3.3b and investments in subs at ~INR2.35b.
FY20 capex pegged at ~INR6b.
EV launch will happen in 2HFY20.
BS6 supplies will start gradually from Nov’19.
November 2019
17
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
CAPITAL GOODS
Domestic execution slows down, weak order inflows amid capex push from government:
Execution was weak due to extended rainfall and the slowdown in the economy. Order inflows also
declined, with ordering activity yet to show traction post elections. Management commentary suggests that
small- and medium-sized orders are flowing in, but large-ticket orders are on hold and should see a pick-up
in 2HFY20. Room AC companies (except Lloyd’s) performed well due to low channel inventory post a strong
summer season.
Domestic Capex Cycle
Corporate Tax Rate
Slowdown in the Industrial
automation business is largely due to
Company has re-measured its
the muted auto sector
deferred tax assets and will
ABB is leveraging opex-related
adopt the new tax rates hereon
spending, since capex from the private
sector is still muted
Near-term challenges exist such as the
economic slowdown and liquidity
crunch
Company has availed new tax
Export market continues to face
rates in 2QFY20
roadblocks, not just due to currency,
but also due to muted demand
Capex related demand has been
muted. Confidence is low due to
economic slowdown
In Lloyd, distribution rationalization
change has happened. Some of the
large dealers in key states were
replaced by multiple new dealers
Outlook remains robust over the
medium term; however, the current
liquidity crunch has led to higher
working capital for the company
Strong order inflow mainly came in
through international orders, with
slight YoY decline in domestic inflows
Company has opted for the new
tax rate and will wait and watch
to decide on how to utilize the
its gains
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
Electrification products,
Robotics and Motion continue
to perform well
ABB
Exports as an opportunity can
be huge in case global economy
picks up
KKC has cut its FY20 guidance
for the domestic business to 3-
5% YoY from earlier 8-10%.
Cummins
Guidance for exports has been
cut to 20% decline v/s earlier
12-15% decline
Consumption slowdown and
liquidity crunch in the real
estate segment has impacted
Havells
the business, but expects
consumption to pick up in
2HFY20
Lloyd business was impacted
due to sharp fall in LED TV sales
Larsen and
Toubro
FY20 order inflow guidance is at
10-12%, revenue guidance is at
12-15% and EBITDA margin
guidance for the core E&C
business is at 10.5%
Company has availed new tax
rates in 2QFY20
Voltas
AC continued to perform well
for the company. With strong
secondary sales (+42% YoY in
2QFY20), inventory levels in the
channel stood depleted.
Channel refilling and favorable
base of 2HFY19 (bad summer) is
expected to lead healthy growth
in 2HFY20.
EMPS segment received orders across
infrastructure, water, metro and rural
electrification segments from the
Company has availed the new
domestic market. Company also
tax rates in 2QFY20.
bagged a large-sized order from Qatar
in the international market.
November 2019
18
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
ABB
Current Price INR 1,413
Neutral
Click below for
Results Update
Macro
Central PSU capex likely at INR500b for 4QCY19.
Corporate tax rate cuts to boost manufacturing. India has a good strategic
advantage – domestic demand, labour availability and now tax rates. As global
companies start their budgeting, they will definitely evaluate the option – but
may take some quarters to filter through.
ABB export opportunities – in case there is global growth, then probably one
can look at India for incremental demand. The second option may be that in
case of slowdown, the factories may be closed at another location, and demand
shifted to India entity.
Business update
ABB has a diversified order book with multiple end-markets.
Resilient, diversified order book and inflows are not dependent on vagaries of
capex cycle.
Bangladesh market will be served by ABB India.
Strong growth in services and exports business. YTD, services revenue at
INR9.5b v/s INR8.3b last year. Exports at INR10b v/s INR5.2b last year.
Services business at 18% of revenue now. Installed base getting serviced better.
Order wins up 5% for the quarter, 11% for 9M. No large order in the quarter.
Entire growth is base order growth. Order backlog at INR43.7b.
OB breakup – EP = INR14.4b, MO = 16.8b; Robotics = INR1.7b; IA= INR13b
OI breakup – EP = INR6.35b, MO = INR6.03b; Robotics = INR470mn; IA= INR3.4b
Cash balance at INR13.5b
Tax rate – at 30.1% as DTA re-measured according to the new corporate tax
rate.
Installed base penetration rate for ABB India at 32-33% currently. Globally, ABB
is at 65-70% installed base penetration rate.
Industrial Automation
Core sector in the economy is muted. Trying to leverage on opex-related
spending.
Gaining foothold as electrical and automation partner in pharma.
Best of demand is yet to come for this portfolio.
Margins lower on account of mix issue.
Expect IA ordering to improve as economy picks up. Currently, the segment
growth is led by backlog.
Robotics & Motion
Some slowdown due to slowdown in auto sector.
Looking to expand to non-auto sectors.
Lot of strength in this segment, will look to leverage the same.
Electrification Products
Growth led by data center, power, metro projects etc.
Power Grid
Current order book at INR55b.
November 2019
19
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Crompton Greaves Consumer Elec
Current Price INR 254
Click below for
Detailed Concall Transcript &
Results Update
Buy
Lighting
Ex-EESL, Lighting segment declined 4%. EESL revenues in 2QFY20 stood at
INR190m v/s INR490m in 2QFY19.
EESL order book stood at INR1b. The current order book is more skewed toward
Street lights rather than bulbs. Street light projects have longer gestation
period.
Receivables from EESL remain elevated; however, those aren’t a concern for
Crompton since EESL is a strong financial franchise.
LED Panel and Battens grew 35% YoY in volume terms; however, value growth
did not come through due to price erosion.
Market share in LED lamps increased by 108bp YoY.
The B2B business, which forms balance 50% of the Lighting business sales saw
pick-up in execution, which led to 9% YoY growth after subdued performance in
1QFY20.
Lighting margins were mainly impacted due to price erosion. According to
management, earlier price erosion was due to product cost rationalization.
However, the current price erosion is more due to intense competitiveness.
In the near term, management intends to focus on market share gain and
revenue growth and will work toward preserving gross margins. The company
will continue making investments in this segment and hence is unable to guide
for a specific timeline to achieve double-digit margins.
Electronic Consumer Durables
Market share further improved by 80bp YoY in the fans segment. This is after
the company improved its market share by 100bp YoY in 1QFY20.
Management believes that Crompton and Orient are the only brands to have
gained market share in 2QFY20.
ECD margins were partly supported by ~2% price hikes taken in fans.
Appliances business was driven by strong performance in the water heater
segment, which grew 38% YoY. The company has been able to address most of
the supply chain issues, which were largely prevalent in 2QFY19.
Agro pump also witnessed robust growth of 17%. Residential pumps witnessed
lower growth on account of floods in the eastern parts of India.
Other key points
Advertisement spends stood at INR230m in 2QFY20, higher as compared to
INR90m in 2QFY19.
Management intends to keep the ad-spends at 3% of the revenue. This is also
because management is cognizant of the fact that cut in ad-spends has
impacted revenue growth previously.
ESOP charges stood at INR600m, same as 1QFY20.
November 2019
20
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Cummins India
Current Price INR 566
Click below for
Detailed Concall Transcript &
Results Update
Buy
Macro outlook
The company is confident on medium- to long-term growth in the domestic
business, led by the infra segment. In the very near term, there are challenges
with respect to economic slowdown and liquidity crunch.
Exports market continues facing challenges.
Domestic revenue guidance cut to 3-5% v/s 8-10% earlier for the full year.
Exports revenue guidance at a decline of 20% v/s earlier guidance of a decline of
12-15% for the full year.
Domestic market update
Power Generation
Revenue at INR3.9b (-4% YoY). HHP = INR1.7b, MHP = INR1.2b, LHP = INR1.1b.
There was some growth in LHP segment this quarter.
Infra and manufacturing impacted negatively.
Demand from data centers continues doing well; the outlook appears good too.
Data center revenue is INR750-800m annually and is growing at 10-15%. Overall,
data center market size is INR1.0-1.3b in India.
Industrial
Revenue at INR2.1b (-10% YoY).
Construction = INR550m, Compressors = INR250m, Mining = INR130m, Rail =
INR1.1b, Marine = INR100m, Others = INR100m.
Distribution
Revenue at INR3. (-5% YoY).
Decline reflective of slowdown, as the requirement for spares was less due to
lower utilization of equipment.
Exports update
HHP = INR2.1b (-12% YoY).
LHP = INR1.1b (-41% YoY).
Middle East and Africa down more than 50% YoY. ME and Africa form 35% of
exports. Other markets also witnessed decline – Brazil down 40%, China down
20%, Europe down 25%, UK was down 20%.
Mexico saw marginal growth.
Can’t attribute decline to just currency issues, there is decline in demand in
these markets.
Won’t be able to say that worst is over in exports. 4Q is generally when global
customers re-look at their budgets. So, 4Q may also see pressure.
Margins
Looking to cut costs to essentials only – reduce travel, maintenance costs,
reduce head count etc. – to curtail overhead expenses.
Gross margins shrank due to adverse mix and forex impact – Higher growth in
lower-margin LHP in domestic market and decline in overall exports.
No significant pricing power in such a sluggish environment.
EBITDA margins likely to be at current level unless exports improve. Exports may
bottom out in the next two quarters.
30-50bp improvement sequentially on account of commodity price decline may
happen over the coming quarters.
November 2019
21
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Others
Tax rate to be 25.2% on going concern.
Lower this quarter as one-time benefit on deferred taxes and reversal of 1st
quarter.
Capacity utilization for Cummins India currently at 50-60%.
GE T&D India
Current Price INR 170
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Many projects in the market were impacted due to liquidity.
Impairment of assets impacted profitability – INR400m for a manufacturing
facility, INR70m for ILFS provision, and INR400m for LD provision.
Management expects to be debt free going into FY21.
INR2b of slow moving orders is entirely attributed to the Essel project, with
receivables of INR657m being due.
Bangladesh HVDC order is on hold since
the Government is evaluating the decision with respect to AC/DC supply. The
Leh-Ladakh HVDC order is also pending clearance from the government, which is
expected in the next 3-5 months.
Various projects won by Adani, Sterlite and Power Grid are under discussion for
awarding. Power Grid goes for back-to-back tie up. Currently, GE T&D has tie up
with Power Grid where it has won bids.
Though the Bangladesh order is floated by the local arm of GE, all transfer
pricing is done at arm’s length.
GE T&D expects softer order intake and lower revenues in FY20 v/s FY19.
Currently, no HVDC order is in the backlog, apart from a component of Champa
project worth INR1b, which is pending.
Company will target INR9-10b worth of execution in the coming quarters.
Exports account for 12-13% of the overall revenues.
Margin pressure exists in current orders, which management aims to mitigate
by focusing on product improvement and driving efficiency.
Of the order book,
50% comes from Central Utility and State Utility and balance 50% from Private
Utility.
Havells India
Current Price INR 639
Click below for
Detailed Concall Transcript
& Results Update
Neutral
Overall demand outlook
Demand remains sluggish mainly in real estate and industrial segment. This is
reflected in muted growth in switchgears and even in cables segment.
Consumer demand is slow, but Havells has done well in ECD business led by
market share gain.
Lloyd business: AC sales flattish YoY for the quarter. Major disruption in LED
panel. Price correction in the industry is ~25% YoY. LED may have some
overhang in the third quarter. However, mainstay business is ACs and washing
machines.
Havells core portfolio
Slowdown kicked in from last Nov. Cash has dried up for small traders, dealers.
De-stocking at dealer end happening due to slowdown in purchases.
Capex related demand has been muted. Confidence is low due to economic
slowdown.
Capacity expansion plans: Will expand fan capacity in FY21.
Cables segment – Didn’t see any one-time gain – sometimes there is a time lag
between market price pass on/hike and the margins are reflective of the same.
22
November 2019
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
HAVL has set up distribution channel for expansion in rural areas, Rio brand
doing good, expanding product category in rural brands.
Domestic switchgear business has witnessed mkt. share, Industrial Switchgear
business is seeing a bit of slowdown; Hyundai is continuing its development of
Industrial SW and growing.
Kitchen appliances – now meaningful and relevant. Just like fans, do not operate
only in low cost but across range.
Lloyd business update
Seeing challenges in short term.
Distribution change has happened. Some of the large dealers in key states were
replaced by multiple new dealers.
Distribution change has mostly happened. Have increased presence in MBOs
and retail.
With new plant coming in, believe there will be strong control on working
capital and planning.
Management is confident on strategy on Lloyd over medium to long term.
Havells won’t be disclosing Lloyd EBITDA margin separately.
There was unabsorbed cost due to new plant at INR100m for 2Q20.
Not looking to exit LED. Mainstay is AC business though.
AC launch expected in 1QFY21 v/s 4QFY20 expected earlier. Refrigerator will be
in outsourcing to begin with, not much investment required into distribution
because it will be same as that of AC.
Longer term – ACs will be 50% of sales as WM and Refri portfolio expands.
Other takeaways
Focus will be on reduction of non-essential cost. It should be visible in 4Q.
Entering top 3 position in various categories through market share gains.
Tax rate cut update – Will wait and watch how to utilize the benefits. FY21
capex = INR3b.
Larsen & Toubro
Current Price INR 1,379
Buy
Click below for
Results Update
Strong order inflow led by international market: LT recorded INR483b of order
inflows (+20% YoY), supported by ordering from the international market.
Domestic order inflow declined by 2% YoY, whereas international ordering grew
111% YoY to INR167b.
FY20 guidance maintained: The company maintained its guidance for FY20 –
revenue growth of 12-15%, order inflow growth of 10-12% and core E&C margin
of 10.5%.
INR5.2t of prospective order pipeline for 2HFY20: Total prospects (domestic +
overseas) stand at INR5.2t. Segment wise: Infrastructure forms INR4.5t, power
at INR0.2t, hydrocarbon at INR0.4t, and metals and material handling and
defence put together at INR0.2t.
Consol. revenue grew at 15% YoY. This was led largely by domestic business as
international revenue growth was muted at 1% YoY.
Consol. margin shrank 10bp YoY to 11.4%.
Core E&C revenue grew at 8%. Domestic E&C business grew at 14% YoY, driven
by 13% growth in domestic infra segment and 46% growth in domestic
hydrocarbon segment.
Adj. core E&C margin remained flat at 8.0%: Core E&C EBITDA margin was flat
YoY at 8%, resulting in the operating performance in the core business below
our expectation.
Hyderabad metro contributed INR3.6b of revenue, EBITDA of INR1.5b. However,
at the PAT level, it made loss of INR800m.
November 2019
23
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Working capital deteriorates to 23% of sales: Working capital as a percentage of
sales deteriorated to 23% from 20% in 1HFY19 (FY19: 18%). This is largely
attributable to the liquidity crunch for the industry and as L&T had to support its
suppliers. The company has not witnessed any deterioration in receivables. Also,
there is seasonality in the working capital cycle as it tends to rise in the first half
of the fiscal year.
Other highlights:
MindTree got consolidated from 2Q. Excl. the same, PBT growth was muted at
1.5%.
E&A division has been shown under discontinued operations. The segment
delivered PAT growth of 59%.
Defence segment continues see slow ordering.
Slow moving orders worth INR160b: ~INR160b of orders pertaining to Andhra
Pradesh and Mumbai coastal road project are slow moving currently and have
led to the revenue miss on the core E&C business.
Solar Industries
Current Price INR 1,034
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Company has invested INR175m in Skyroute, a start-up, which is in the business
of Satellite. SOIL plans to invest in the company for a period of 2 years. The area
of interest for SOIL in this investment will be development of propulsion system.
SOIL has received an order for propulsion system from ISRO.
Due to lower tax rate, estimated tax savings for FY20 amounts to ~INR300m, for
which the consequent impact has been considered in 2QFY20.
SOIL has begun its trading business in Tanzania, and plans to start
manufacturing after certain approvals are in place.
Export business in Turkey was affected due to economic slowdown, while it got
affected in Zambia due to Vedanta moving out.
SOIL has started construction in Ghana and Australia and expects to begin
production by end-FY21.
Due to muted exports and overseas revenue in 2QFY20, management has
shifted its guidance of INR10b revenue to FY21 from FY20 earlier.
Ammonia prices have reduced drastically, which has led to drop in Ammonium
Nitrate prices too. The impact on prices is expected to reflect in the upcoming
quarters.
Recent contract from CIL is for 2 years.
Capex for FY20 is at ~INR2.5b.
Net working capital currently stands at 95 days as against 90 days in 4QFY19.
The increase is mainly on account of reduction in payable days.
Thermax
Current Price INR 1,007
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Management has guided to meet its FY19 revenues in FY20. TMX is focused on
revenue growth, but won’t do it at the cost of margins or at the risk of working
capital deterioration.
Margin improvement in current market condition looks difficult, more so in the
project business since competition is very aggressive.
Danstoker subsidiary operationally turned positive this quarter, but post
severance pay reported a loss.
Company is targeting one more large order in FY20 and one in FY21.
November 2019
24
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
In the Chemical business, TMX manufactures two kinds of chemicals. The global
market today stands at USD1b. Faster growth markets are Europe and America.
The commodity chemical market is growing at 3%, whereas the specialty
chemical market is growing fast and is attractive. Currently, specialty business
constitutes 20% of the total Chemical business for the company.
Thermax has sold its Chinese subsidiary assets (land and building). The company
will continue to have skeletal ops to take care of warranties. Impact for closure
of subsidiary was INR10m in 2QFY20.
Va Tech Wabag
Current Price INR 162
Click below for
Results Update
Neutral
Management is confident of raising funds at a premium to the current market
price, since it is of the view that business outlook of the company is not factored
into its CMP.
Projects:
Dangote project in Nigeria is 70% complete, with the project set to be
commissioned by end-FY20.
The Koyambedu project in Sri Lanka, which converts sewage water into
industrial usable water, is in an advanced stage of commissioning and will be
inaugurated this week.
The Jubail project in Saudi Arabia has 50% of its engineering work done and 60%
of model review over. VATW has placed order for long lead items and has also
collected customer advance in the last week.
For the Qatar project (FIFA 22; Doha), demolition work is complete and 45% of
the concreting work is over.
With regards to the upcoming order for 400MD desalination plant in Chennai,
management has said that VATW is fully capable to execute such a large scale
order. While bidding for this order, competition is expected to be less since very
few companies have the capability to execute such large orders.
Management is confident of achieving the new guidance numbers and expects
2HFY20 to be much better than 1HFY20, given the order book visibility and
ongoing pace of execution.
VATW is in talks with banks to convert some of its high cost debt into low cost.
Finance cost in 2HFY20 is expected to be lower than 1HFY20 since most of the
bank guarantee charges are already reflecting in 1HFY20.
Management expects to received project advances and some receivables due in
2HFY20, which will ease its working capital requirement.
INR13.2b in other current assets is mostly unbilled revenues.
Management is of the view that the current order book is sufficient and gives
the company revenue visibility for the next three years. Aim is now to focus on
execution, cash flow and working capital.
VATW does not have any further exposure to Andhra Pradesh for its order book.
.
November 2019
25
 Motilal Oswal Financial Services
CEMENT | Voices
CEMENT
Managements expect demand weakness to persist in 3QFY20, as the liquidity situation still remains tight.
Demand recovery thus is likely to manifest only by 4QFY20. Companies in north and south have also
indicated a price hike of INR10/bag. Players are hopeful of cost savings in subsequent quarters as energy
prices (oil, petcoke, coal) have been on a downtrend.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook FY20
Volume Growth
Corporate Tax Rate
Cement demand remained subdued during
the quarter due to floods, liquidity issues
Dalmia Bharat
and decline in India’s GDP. Industry is
estimated to have declined 2-4% in 1HFY20
Despite a challenging
Company expects demand recovery post
environment, Dalmia
the festive season. Therefore, FY20 is
Bharat can achieve
Company is evaluating options
expected to witness demand growth of 3-
robust volume growth of
and will communicate its decision
4%
8% YoY in 2QFY20 led by
on the same in 3QFY20
Capacity expansion in East India is on track.
increased sales of
By Mar’20, company plans to add clinker
premium products
capacity of 3.1mt at Rajganjpur in Odisha
and grinding unit of 3.5mt capacity at
Bokaro and Mednipur.
A clinker unit of 8,000tpd at Mangrol and a
1mt cement grinding unit at Nimbahera
JK Cement
have been commissioned
The 1mt grinding unit at Nimbahera is
Grey cement volumes
expected to get commissioned in 3QFY20
(incl. clinker) increased
Work on the 1.5mt grinding unit at Aligarh
2% YoY to 1.9mt (in-line)
Company is evaluating the tax
and the 0.7mt grinding unit at Balasinor is
while white cement
options
in progress and should be completed by
volumes were up 13%
Dec’19 and Mar’20, respectively
YoY to 0.33mt in 2QFY20
Total amount spent on expansion till 30
th
Sep’19 is INR1.2b. JKCE will spend INR5b
for the remaining part of 2HFY20 and
balance INR2-3b will be spent over FY21
All-India demand reduced
by 2-2.5% YoY in 2QFY20,
led by 3-4% decline in the
South and the East. The
Company is evaluating two
Ultratech
Company has planned capex of INR20b for
North registered a
options from the cash flow
Cement
FY20 toward installation of WHRS,
growth of 4-5%.
perspective for tax rate, such as
Bicharpur coal block, white cement putty
Consolidated volumes
(a) switching to 25.17% with no
plant and the Bara cement plant
(including white cement)
MAT and no tax incentives, or (b)
Cement industry should see capacity
declined 1% YoY to
availing 17.47% MAT rate with
addition of 15mt in FY20
18.7mt
existing tax rate of 34.94%
Company has stabilized
operations at UNCL,
which operated at 60%
utilization in Sep’19
November 2019
26
 Motilal Oswal Financial Services
CEMENT | Voices
ACC
Current Price INR 1,470
Buy
Click below for
Results Update
Cement volumes declined 1.5% YoY.
Premium product volumes were up 89% YoY.
RMX volume increased 11%; value-added solutions (VAS) volume too grew
significantly.
ACC has been working on improvement in supply chain efficiencies and product
portfolio optimization.
Alternative fuels consumption improved.
Increase in power & fuel cost was partly mitigated by fuel source mix
optimization.
Freight cost/t increased due to higher handling and warehouse cost.
Fixed cost and sales & general administration cost were lower than the previous
year.
The company achieved reduction in packing material on account of
renegotiation and PP granule price reduction.
Birla Corp
Current Price INR 637
Buy
Click below for
Results Update
Premium cement accounted for 41 % of sales through the trade channel, as
against 37% in the same period last year.
The share of blended cement in total sales scaled up to 93% from 87% in
2QFY19.
Sales of the company's flagship brand Perfect Plus (premium brand) in Bihar
surged 26% YoY. All brands combined, sales in Bihar jumped 20% in the quarter.
Perfect Plus launched in the northern markets earlier this year has been well
received. Around 13% of the trade segment output of the company's Chanderia
unit comprises premium products. The product mix has substantially boosted
the unit's profitability.
The results of test marketing of wall putty and other value-added construction
chemicals under the Perfect Plus brand have been encouraging and the
company is in the process of expanding into markets in central and northern
India.
BCORP is engaging with a global consultancy, which specializes in logistics, to
streamline systems and processes for both inbound and outbound logistics.
In 2QFY20, the company commissioned Waste Heat Recovery System (WHRS) at
its Maihar unit with capacity to produce up to 11 MW of power when ramped
up to peak capacity. Also, during the quarter, the company's railway siding
facility at its Kundanganj unit became operational. Savings from both these
projects are expected to kick in fully in the second half of the current fiscal.
The company is setting up solar power units in three of its plants at Chanderia,
Satna and Maihar. The one in Satna with capacity of 3 MW has already been
commissioned; others are expected to become operational in 2HFY20. Together,
they will generate close to 12MW of power.
November 2019
27
 Motilal Oswal Financial Services
CEMENT | Voices
Dalmia Bharat
Current Price INR 867
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand
Cement demand remained subdued during the quarter due to floods, liquidity
issues and decline in India’s GDP. The industry is estimated to have declined by
2-4% in 1HFY20.
Company expects demand recovery post the festive season; therefore FY20 is
expected to witness demand growth of 3-4%.
Despite a challenging environment, Dalmia Bharat can achieve robust volume
growth of 8% YoY in 2QFY20 led by increased sales of premium products.
Costs
Slag prices for the quarter stood at INR1,095/t v/s INR 1,180/t in 1QFY20 and
INR1,385/t in 2QFY19.
Petcoke prices stood at USD84/t during 2QFY20 v/s USD87/t in 1QFY20 and
USD106/t in 2QFY19. Petcoke constituted ~75% of the fuel mix.
Power consumption was at 70KwH/t in 2QFY20.
Diesel prices were unchanged in 2QFY20 (INR65/liter in 1QFY20); in 2QFY19,
diesel price was at INR70/liter.
Leverage
Company repaid gross debt of INR2.18b in 2QFY20 and INR6.2b in 1HFY20.
Gross debt currently stands at INR53b while net debt is INR34b.
Incentives
Incentives received during the quarter were INR770m and INR1.98b in 1HFY20.
Company booked incentives of INR350m in 2QFY20.
Total incentive amount receivable is INR8b.
Capacity expansion
The capacity expansion in East India is on track. By Mar’20, company plans to
add clinker capacity of 3.1mt at Rajganjpur in Odisha, and grinding unit of 3.5mt
capacity at Bokaro and Mednipur.
Grasim Industries
Current Price INR 793
Neutral
VSF
Click below for
Detailed Concall Transcript &
Results Update
Global prices of VSF softened further on account of capacity overhang and
continuing US-China trade war.
Sharp dip in fabric consumption in China and high inventory level in the value
chain is a key concern.
Domestic VSF demand is getting impacted by rising yarn imports.
Share of domestic sales in total sales increased to 88% (up 4% YoY).
Pulp prices are down 22% YTD; it eased below USD650 in Oct’19.
VSF profitability was impacted YoY due to decline in domestic realization.
The impact of weakening input costs (pulp prices) should get reflected in
subsequent quarters.
VFY profitability was impacted due to increase in imports from China.
Chemicals
Global Caustic Soda prices were sluggish due to weak demand in China/Asia.
Caustic Soda prices in India witnessed a steep decline due to demand slowdown
and ramp-up of new domestic capacities.
November 2019
28
 Motilal Oswal Financial Services
CEMENT | Voices
Chlorine realization in India turned negative for two consecutive quarters led by
excess supply from new capacities.
Caustic soda sales were impacted by slowdown in major application segments
like metals and textiles and increasing imports.
Demand for the Chlorine derivatives improved YoY. Chlorine consumption in
Value Added Products (VAPs) stood at 28%.
Zero Liquid Discharge plant at Rehla and Ganjam are in advanced stages of
commissioning.
Cement business
UltraTech completed the acquisition of Century’s cement business; with this
acquisition, its manufacturing capacity now stands augmented to 117.4mtpa
(including overseas capacity).
Net debt shrunk by INR15b to INR206b.
Aditya Birla Capital
NBFC lending book grew 4% YoY to INR604b. Revenue stood at INR40b, while
net profit after minority interest stood at INR2.6b (+37%YoY).
Other:
The merger of Grasim Premium Fabric Private Limited with the company is
under process.
India Cement
Current Price INR 79
Neutral
Click below for
Results Update
The steep demand decline in Andhra Pradesh and Telangana accounted for a
major portion of the demand shortfall in the South. Many major projects in
these states should get revived after a government review in the near term.
India Cement lost ~0.3mt during 2QFY20 due to demand weakness in the South.
However, while other players in the South were chasing volumes at the cost of
pricing, India Cement took a decision to not compromise on prices.
Term debt for the Company has reduced by INR1.5b to INR25.6b during 1HFY20.
However, working capital loan has increased from INR2.7b in Mar’19 to
INR5.31b in Sep’19. Company expects to bring this down subsequently.
Lead distance for the company is 325km.
Petcoke constitutes 45% of the fuel mix. Company has realized some benefits of
the reduced fuel prices this quarter and expects it to improve further in 2HFY20.
Company plans to set up capacity in Damoh, Madhya Pradesh, where it has got
a mining lease.
JK Cement
Current Price INR 1,158
Click below for
Detailed Concall Transcript &
Results Update
Buy
A clinker unit of 8000tpd at Mangrol and a 1mt cement grinding unit at
Nimbahera have been commissioned.
The 1mt of grinding unit in Nimbahera is expected to get commissioned in
3QFY20. Work on the 1.5mt grinding unit at Aligarh and 0.7mt grinding unit at
Balasinor is in progress and should be completed by Dec’19 and Mar’20,
respectively.
Total amount spent on expansion till 30th Jun’19 is INR1.2b. JKCE will spend
INR5b for the remaining 1HFY20 and balance INR2-3b will be spent over FY21.
Net debt for the company stands at INR16b.
The company has witnessed some pricing improvement in south in November
and expects some improvement in north too.
November 2019
29
 Motilal Oswal Financial Services
CEMENT | Voices
JKCE has undertaken a rebranding exercise for both grey and white cement.
The company has a mining lease in Panna in Madhya Pradesh. It has spent
INR800m on acquiring project land till now and expects to spend another
INR400-500m during the remaining year.
Trade sales stood at 73% for 2QFY20.
The company is undertaking a debottlenecking exercise at its kiln in Nimbahera,
which is likely to result in some power & fuel savings.
The company is expanding its putty capacity by 0.2-0.3mt by Jun’20 at a capex of
INR250-300m.
JK Lakshmi Cement
Current Price INR 277
Click below for
Detailed Concall Transcript &
Results Update
Buy
Total sales stood at 2.06mt (-3% YoY). Cement sales were up 3% YoY to 1.92mt,
while clinker sales declined 49% YoY to 0.13mt. Clinker was majorly sold in north
and in some quantity in east.
Realization improved sequentially as the company took price hikes.
The company's 0.80 MMTPA grinding unit at Cuttack has been commissioned.
Total capacity for the company increased from 10.9mt to 11.7mt. Capacity with
Udaipur Cement Works stands at 13.3mt.
RMC revenue in 2QFY20: INR390m (flat YoY).
Trade is 65% in east. Total trade for the company is 57-58%.
Demand in north and east declined 4-5% in the quarter. Government-led
infrastructure has been impacted severely. Real estate remains subdued. Private
consumption is doing well.
The Thermal Power Plant commissioned in 1QFY20 has stabilized. However,
with the ban on petcoke, coal is now being used. As a result, the company is not
able to realize the savings envisaged. Savings should come once linkage is
available.
Consol. gross debt stands at INR21b and net debt at INR17.5b.
The company would announce 2.5-3mt brownfield capacity in the next six
months, cost of which would be USD 85-95/t.
Cost differential between north and east is ~INR100-120/t.
Kiln fuel mix: 90% petcoke in north , 65% in east.
Trade/ non trade price difference is INR 30-40/bag in north. It is INR20-25/bag in
east.
The Company would continue with its old tax rate as it is availing MAT.
JKLC plans to incur capex of INR 750-800m in FY20 and repay INR2b debt during
the year.
November 2019
30
 Motilal Oswal Financial Services
CEMENT | Voices
Prism Johnson
Current Price INR 66
Click below for
Results Update
Buy
Cement
Overall cost increased, mainly due to raw material and other costs; better
realizations led to improvement in EBITDA.
During 1HFY20, 7.5MW of solar power was commissioned. It also plans to
commission a total of 25MW during the year.
Work for 22.5MWWHRS is on schedule; commissioning is expected by Jun’20.
H & R Johnson (Tiles)
During the quarter, tiles volume grew 1% YoY. Net working capital management
continues to remain under control.
Division continues to invest in marketing and distribution activities. Total of 13
Experience Centers are in operations.
To simplify the corporate structure, the Board has decided to undertake
composite scheme of arrangement and amalgamation amongst the Company,
H. & R. Johnson (India) TBK Ltd (HRJTBK), Milano Bathroom Fittings Pvt Ltd, Silica
Ceramica Pvt Ltd being 100% subsidiaries and TBK Rangoli Tile Bath Kitchen Pvt
Ltd, TBK Venkataramiah Tile Bath Kitchen Pvt Ltd, TBK Samiyaz Tile Bath Kitchen
Pvt Ltd being wholly-owned subsidiaries of HRJ TBK, subject to necessary
approvals. Balance capacity and additional 10MW solar capacity will be
commissioned during the year.
Consolidated HRJ EBITDA margins were at ~4.2% v/s ~1.8%, reflecting EBITDA
growth of ~151%. Consolidated HRJ revenues increased ~8% YoY, led by sanitary
ware and faucets revenues increasing ~14%.
Ready-mix Concrete
Ready-mix concrete business’ performance was impacted due to heavy
monsoons and tight liquidity.
Focus continues on improving utilization levels and increase in value-added
products in the Individual Housing Segment.
The Ramco Cement
Current Price INR 792
Neutral
Click below for
Results Update
Exports for the Company grew 39%YoY in 2QFY20
The Company commenced commercial production from unit 2 of grinding unit in
Kolaghat from 26th Sept 2019. With this the installed grinding capacity in
Kolaghat increased from 1mtpa to 2mtpa.
The remaining on-going capacity expansion programme is progressing as per
schedule but for the delays due to extended monsoon.
The company has so far incurred INR 14.3bn for the capacity expansion
programme.
Revenue from wind division stood at INR305.9m (-22%YoY).
The company's borrowings as on Sept’19 were INR24.4b (including current
maturities of INR2.87b). Of that, INR11.45b from banks and soft/interest free
loans of INR3.45b are long-term in nature.
Average cost of interest bearing borrowing is at 7.55%.
November 2019
31
 Motilal Oswal Financial Services
CEMENT | Voices
Sanghi Inds.
Current Price INR 37
Click below for
Results Update
Buy
Demand in Gujarat was impacted severely due to heavy rains and cyclone during
2QFY20. Most of the region was flooded, which led to construction activities
coming to a standstill for almost two months. Overall Gujarat market declined
16% during the quarter.
Company also faced issues on the operational front as higher power
consumption was required to handle wet materials.
Company sold 36% in trade; 63% of total volumes sold were OPC.
Average prices in Gujarat stood at INR298/bag in 2QFY20 (+16%YoY); prices
have seen a correction of INR5-10/bag currently.
Freight cost per ton declined 3% YoY due to lower diesel prices and benefits of
axle load norms.
Lignite constituted 35% of the fuel mix as compared to 25% in 1QFY20.
However, lignite consumption in actual terms remained fairly stable. The
proportion seems to be higher this quarter due to lower volumes.
Company’s expansion program is on track. The Kutch grinding unit and clinker
unit are expected to be commissioned by Mar’20. Company has deferred its
plans for setting up a grinding unit is Surat due to poor demand; it will review
the plan in 4QFY20.
Company plans to incur INR8b capex toward expansion in FY20.
Ultratech Cement
Current Price INR 4,078
Buy
Click below for
Detailed Concall Transcript
& Results Update
Demand and price trend
All-India demand reduced by 2-2.5% YoY in 2QFY20, led by 3-4% decline in the
South/East. The North registered a growth of 4-5%.
The cement industry should see capacity addition of 15mt in FY20.
UNCL operations
UNCL operated at 60% utilization.
Capex for 10.5MW of WHRS has been initiated for UNCL.
Assets generated free cash flow of ~INR1b in 1HFY20.
Company is looking at options to liquidate non-core assets.
Cost trend
Average cost of petcoke during 2QFY20 was USD91/t v/s USD95/t in 1QFY20 .
Diesel prices remained steady QoQ. However, the company availed benefit due
to exemption of busy season surcharge during 2QFY20.
On Century Cement’s assets merger
Scheme effective from 1st Oct’19 following the completion of mines transfer,
thus, increasing its India cement capacity to 109.4mtpa.
The NCLT approved the Scheme with Appointed Date of 20th May’18;
UltraTech’s results have been restated for the previous period from the
Appointed Date.
Took over borrowings of INR30b as on 20th May’18.
Allotted 13.96m shares (5% dilution) to the shareholders of Century Textiles.
Century Textiles & Industries’ (CTIL) assets ran at a utilization of 48% in 2QFY20
and generated EBITDA/t of INR60/t (incl. other income). Utilization for 2QFY19
stood at 64% with EBITDA/t of INR500/t. The reduction in utilization was due to
maintenance shutdown for plants in 2QFY20.
November 2019
32
 Motilal Oswal Financial Services
CEMENT | Voices
The company targets to operate CTIL at 60-65% utilization with expected EBITDA
margin of INR500/t.
Rebranding of 12.6mt (out of the total 14.6mt capacity) of Century’s assets
should be completed by Dec’19; balance 2mt Baikunth plant is old and would
need to be upgraded, in order to be rebranded as UltraTech.
On new tax rate
Effective tax rate for FY19 was 31%. However, company paid MAT of 21%.
In the new regime, tax cash outflow will be at 17.5% due to lower MAT, resulting
in ~4% savings of the cashflow.
Company is evaluating two options from the cash flow perspective for tax rate,
such as (a) switching to 25.17% with No MAT and No tax incentives, or (b)
availing MAT rate of 17.47% with existing tax rate of 34.94%. We believe thatthe
company is likely to stay with the older tax system as currently its tax outgo is
lower.
Others
Net debt for the company reduced by INR15b over Mar-Sep’19.
Company has planned capex of INR20b for FY20 toward installation of WHRS,
Bicharpur coal block, white cement putty plant and the Bara cement plant.
The board has approved 3.4mt capacity expansion in the East through two
brownfield expansion (Patliputra in Bihar and Dankuni in West Bengal) and one
greenfield grinding unit in Odisha.
November 2019
33
 Motilal Oswal Financial Services
CONSUMER | Voices
CONSUMER
Consumer companies across the board appeared cynical from the near-term perspective, given the rural
scenario. Demand slowdown was led by subdued consumer sentiment, liquidity crunch in channels, and
disruptions in supply chain due to floods. Managements did not indicate any material pick-up in demand in
3QFY20, but were hopeful that a combination of a possible good Rabi crop (due to high reservoir levels
following good monsoon) and government measures to boost consumer sentiment will lead to growth from
4QFY20.
Corporate Tax Rate
KEY HIGHLIGHTS FROM CONFERENCE CALL
Comment on demand scenario
Prolonged monsoons up to Diwali
season is an unprecedented event in
Asian Paints
APNT’s history. Economy range of
products grew at a much faster rate
Demand in the North has been better
than the rest of the country, possibly
due to lower flooding in that region
Metro and Tier-1 cities are growing at a
much slower rate than the past. Tier-2
to Tier-4 cities are performing much
better and have contributed more to
incremental sales than rural, which is
also doing well
Rural markets are growing ahead of
urban (similar trend in the last 10 years)
Britannia
NA
Outlook FY20
Continued monsoon is not good for
demand and the base for 3QFY20 is
also high because of the festive
season mismatch YoY
Mix is likely to improve relative to
2QFY20 due to absence of festive
season demand impact
Capex – INR7b for FY20. Out of this,
INR2b has been spent in 1HFY20.
Maintenance capex of INR3b for
FY21
1HFY20 depreciation as well as raw
material cost is a good
representation for full-year FY20
Base is favorable going forward.
However, economic growth needs
to revive for growth to return to
earlier levels
Inflation continues to be modest.
3% inflation may go up to 4-4.5%.
Will take price increase if required.
In fact, have started to take price
increases selectively
Spent INR1.7-1.8b in 1HFY20. Will
spend a similar amount in 2HFY20
Industry growth of less than 5% YoY
Premiumization remains very strong.
Consumers are reducing offtake in the
lower-end but not for top-end products
Seeing pain on the wholesale channel
across the country
NA
Dabur
Domestic business is facing heavy
headwinds in the form of sustained
demand slowdown and aggravated
liquidity crunch in the market
The long and protracted slowdown in
the rural market is on account of (a)
liquidity crunch, (b) income with
consumers that has declined, (c) impact
due to demonetization and GST
implementation, and (d) lack of new
investments
Company is facing liquidity crunch in the
market; it is selectively extending credit
to distributors
Tax rate – 17.5% for
FY20/FY21 standalone
basis); consol. tax rate to
be lower than 20%
Maintaining guidance of mid-high
single-digit volume growth for the
domestic business.
GCC market is showing signs of
renewed growth
Hindustan
Unilever
Rural growth slowed further and was at
0.5x urban for the sector in 2QFY20.
Near-term demand outlook remains
challenging. The RBI’s repo rate cuts,
slew of government measures and
direct benefit transfer should lead to
some improvement over the near term
ETR will be 27% in FY20
and 26% FY21 onwards
due to some DTA on the
books
May not invest in new
facilities as of now
While income tax benefits
from Assam go away, GST
benefits remain
Need to see how income is passed
on to customers, particularly rural
customers
Adequate to above average rainfall
in most regions could potentially
lead to improved demand
November 2019
34
 Motilal Oswal Financial Services
CONSUMER | Voices
Marico
There has been a slight slowdown in
some pockets on upgradation from the
unorganized to the organized sector;
also, there has been down-trading in
some pockets in the organized sector
due to a weak operating environment
Immediate consumer sentiment
remains weak
NA
New Foods, Kaya Youth, Parachute
Advanced Aloe Vera oil and Dry
Fruit Oil are likely to attain critical
mass by the year-end. Saffola
continues to be an issue. Parachute
volumes are likely to return toward
its medium-term guidance (5-7%)
in 3QFY20
Debtor days are likely to increase
steadily because of higher salience
of alternate channels. Company
aims to mitigate the impact
through higher creditor days using
innovating channel-financing
schemes
Maintain margin increase guidance
for FY20
Consumer & Bazaar – Unclear on
recovery over the next two
quarters but expect FY21 demand
to be better
Company is more circumspect on
the recovery of Nina and Percept. It
is gradually diversifying
dependence away from real estate
to industrial and commercial use
VAM costs – USD890 current cost
v/s USD901 consumption cost in
2QFY20.
Pidilite
Challenging market, floods and liquidity
crunch affected sales for the quarter
Adhesives market also slowed,
especially for construction and interior
work related activities
There was no marked improvement or
deterioration on demand toward the
latter part of the quarter. Therefore,
slowdown was similar across three
months
On C&B, growth rate in small towns is
growing in double-digits on value sales,
even in the current weak environment
Deferred tax liability
reversal of INR280m
during the quarter
Asian Paints
Current Price INR 1,682
Click below for
Detailed Concall Transcript
& Results Update
Sell
Operating environment
Prolonged monsoons up to Diwali season is an unprecedented event in APNT’s
history.
Economy range of products grew at a much faster rate. Putties also grew much
faster, leading to mix deterioration.
Demand in the North has been better than the rest of the country, possibly due
to lower flooding in that region.
Shift from unorganized to lower-end paints is helping APNT.
Metro and Tier-1 cities are growing at a much slower rate than the past.
Tier-2 to Tier-4 cities are performing much better and have contributed more to
incremental sales than rural, which is also doing well.
Continued monsoon is not good for demand, base being faced in 3QFY20 is also
high because of festive season mismatch YoY.
Inventory at retailer level is not higher than usual.
Reasons for mix deterioration
18-28% GST reduction in paints last year led to higher sales of premium
products in the base.
Diwali came earlier this year, which is usually a period of mix deterioration.
Off-take in Tier-2 to Tier-4 cities, where demand is growing, witnesses less
premium segment sales v/s metros where premium segment sales are higher.
Real estate slowdown has led to slower sales of premium exterior paint sales.
Bottom of pyramid efforts by the company.
November 2019
35
 Motilal Oswal Financial Services
CONSUMER | Voices
Mix likely to improve relative to 2QFY20 due to absence of festive season
demand impact.
Price decrease
Two rounds of price reduction led to 0.4% decline in overall realization in
2QFY20, in addition to 0.4% reduction in 1QFY20 as well.
Launches at premium end continue despite mix deterioration
Have launched various luxury and super-luxury products in the current year.
Market for putties and distemper
Putties’ industry size – INR50b-60b. Distemper industry size – INR120-150b.
Other businesses
Despite real estate slowdown, Sleek and Ess Ess grew due to store expansion
and broader range.
Continue to do very well in the waterproofing business.
Clarification on financials
During the quarter, deferred tax liability was written off, which led to lower tax
rate.
Capex – INR7b for FY20. Out of this, INR2b has been spent in 1HFY20.
Maintenance capex of INR3b for FY21.
Other income higher because of investment gains booked during the quarter.
1HFY20 depreciation as well as raw material cost is a good representation for
full-year FY20.
Others
Rural markets are growing ahead of urban (similar trend in last 10 years).
Higher promotions/discounting in 2QFY20 also had some impact on volume
value mix.
Ex-Putty volume growth was maintained in double-digits.
Management change
Mr. K B S Anand, Managing Director & CEO, will retire from the company on 31st
Mar’20; Mr. Amit Syngle, Chief Operating Officer, will succeed him.
Mr. Jayesh Merchant, CFO & Company Secretary, President - Industrial JVs of
the company will retire on 26th Nov’19 and Mr. R J Jeyamurugan, Vice President
– Finance, will succeed him.
Britannia Inds
Current Price INR 3,023
Click below for
Detailed Concall Transcript
& Results Update
Neutral
Outlook
Base is favorable going forward. However, economic growth needs to revive for
growth to go back to earlier levels.
Market leadership widening further
Domestic volume growth was 3% YoY for the quarter. Domestic sales growth
was 7% YoY v/s industry growth of less than 5% YoY.
Market share gap v/s second largest player continues expanding in YTDFY20.
Material cost basket benign, premiumization
Overall moderate RM inflation of 3% YoY. The 14% increase in wheat and the
37% in milk are offset by 13% deflation in refined palm oil and only 1% inflation
in sugar.
Inflation continues to be modest. 3% inflation may go to 4-4.5%. Will take price
increase if required. Have in fact started to take price increases selectively.
November 2019
36
 Motilal Oswal Financial Services
CONSUMER | Voices
Premiumization remains very strong. Consumers are reducing offtake in the
lower-end and not the top-end products.
Opportunistic buying of RM led to a sharp increase in overall inventory levels.
Launches in Core
Launched Treat Burst and Treat Stars, re-launched cream crackers and trying to
make Milk Bikis a more national brand; met with some initial success.
Launched Limited edition launch of Treat Tiramisu and Treat red velvet. This is
for the first time in the biscuit industry.
Test launched Little Hearts Strawberry in Western India with a good response.
Recent launches in new categories
Cream wafers: Seeing good traction- No 3 brand with double digit market share.
Salty Snacks under the ‘Time Pass’ brand were initially launched in south India
earlier this year and now launched in the west – both have met with good early
response. Both Bidadi and Ranjangaon plants make salty snacks now. Reach
100,000 outlets in south India so far in salty snacks.
20% plus market share in ‘Winkin Cow’ milk shakes within a year of launch.
Launched Croissants in West Bengal and Tamil Nadu and in modern trade. Will
observe for 3-4 months before wider launch. Will cross market leader ‘Bauli’ in
terms of distribution in a month’s time. They are advertising in the regional
channels. Priced at INR15 as they want the product to be filling.
Delay in Croissants was because they were initially not able to find the right kind
of wheat and imported products lost their gluten potency by the time the
import arrived to India. Have now been able to work out local sourcing of the
required variety.
Huge pipeline of launch in FY20 has been lightened in view of the slowdown.
Distribution expansion on track
Direct reach now 2.1m outlets. 2,000 RPDs (Rural Preferred Dealers) added YTD
to 20000 at the end of 2QFY20. Have doubled this in the last 2.5 years.
Wholesale contribution is 33% of sales. Seeing pain on this channel across the
country.
Capex
Spent INR1.7-1.8b in 1HFY20. Will spend a similar amount in 2HFY20.
Dabur
Current Price INR 463
Neutral
Click below for
Detailed Concall Transcript
& Results Update
Domestic business is facing heavy headwinds in the form of sustained slowdown
in demand and aggravated liquidity crunch in the market.
The long and protracted slowdown in the rural market is on account of (a)
liquidity crunch, (b) income with consumers that has declined, (c) impact due to
demonetization and GST implementation, and (d) lack of new investments.
Company is facing a liquidity crunch in the market; it is selectively extending
credit to distributors (credit days extended from 6 days to 15-20 days).
Maintaining guidance of mid-high single-digit volume growth for domestic
business.
Gift packs have done well.
Tax rate – 17.5% for FY20/FY21 (standalone basis); consol. tax rate to be lower
than 20%.
Channel details
Urban direct reach is currently 1.2m outlets.
Rural reach ~51,000 villages.
37
November 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
E- Commerce is 2.2% of sales.
Rural is growing at 6% while urban is growing at 3%.
E-commerce grew 65%; MT grew 8%, GT (urban) had flat to 1.5% growth while
rural trended at 6%.
Oral care
Gained 66bp market share in Oral care.
Red toothpaste continues to grow at ~9% (on high base) while oral care
category is declined at 3%.
Babool portfolio to be revamped.
Customizing communications for Meswak.
Competitive intensity has gone up in oral care.
10% growth in Herbal, Ayurveda and Naturals market (30% of oral care).
Dabur has stepped up on A&P.
Red gel has not been received well in the market; Re-launch on the cards.
Patanjali headwinds have abated – Growth is down from high double-digits to
high single-digits.
Juices
In Fruit Juice business, company is sitting at all-time high market share. Market
is seeing growth in carbonated segment due to weak consumer sentiment.
Consumer is downtrading to drinks and carbonated beverages, leading to slower
growth in juices.
Drinks category is estimated to be INR60b.
80% juice business is urban for Dabur.
Supply chain impacted due to shutdown in J&K and floods in other parts of the
country.
Launching multiple premium variants, launching premium packaging and
working on GTM to revive growth in juices.
Hair oil
Gained 30bp in market share. Company’s aggression and strategy in hair oil
segment remains intact. Perfume oil, almond oil did well.
Hair oil saw some impact of floods as well.
Dabur Amla growth was flat, but gained market share.
Coconut hair oil – Copra prices correction - windfall to competitor - passed on
gains to the consumers - competitive intensity increased.
International
GCC market is showing signs of renewed growth, clocking 9% CC growth in this
quarter.
Pakistan business grew 20% CC – gaining shares.
Nepal declined 35% on VCTS implementation (similar to e-way bill) - 1-1.5
months of business standstill.
Nepal saw good sales in Oct’19 and should recover soon (70% business in Nepal
is Juice business). Excl. Nepal, growth in international business was 8.5%.
International business – Current growth rate of mid-to-high-single-digit is
sustainable – GCC, Nigeria, Pakistan, and Egypt are bright spots.
Launches
Real Juices in UAE, Japan and Bahrain.
Vatika Hair Wax.
ORS Olive Oil Fix-It Range.
Vatika Hair Food.
Real ORS and Real Koolerz Mango were rolled out nationally.
November 2019
38
 Motilal Oswal Financial Services
CONSUMER | Voices
Emami
Current Price INR 313
Click below for
Detailed Concall Transcript
& Results Update
Buy
Demand environment
No clear evidence of demand bounce-back in the industry.
Both urban and rural are growing at the same pace for Emami.
Slowdown in discretionary consumption has led to sales decline in male
grooming by 32% and for Kesh King by 11%.
Will look to maintain Kesh King’s sales YoY in the near term.
Material costs and EBITDA margin
Material cost softness is likely to remain. Overall EBITDA margins are also likely
to increase as company does not plan to invest disproportionately in ad-spends.
Also, company’s cost saving efforts should bear fruit.
BoroPlus also has better margins, therefore mix has also improved.
International
Excluding Crème 21 acquisition, international business growth was just 7%; of
this, Bangladesh grew 30%, Middle East declined 3%, CIS declined 10% and
Africa grew 10%.
Other highlights on domestic business
Sharp growth in BoroPlus was due to channel filling ahead of the winter season
demand. This was earlier than usual because of a spate of holidays in Oct’19.
Company has launched a new campaign on Pancharisht (60% of healthcare
portfolio) as the old campaign did not work.
May launch a few new products in 4QFY20.
Direct reach is at 950,000 currently and should remain at the same level as
company does not intend to expand it.
Modern trade is around 9% of sales for the company.
Other points
Other expenses included INR55m provision for disputed liabilities. INR50-60m
fees were paid to AT Kearney for cost savings and another INR50-60m fees were
paid to BCG for revival of two brands, but these are likely to recur for a few
quarters more.
Extended credit period by 7 days to load winter products.
Effective tax rate at 19% for FY20 and would be at 19-20% on consolidated basis.
Pledge
Pledge has reduced from 68-69% at 1QFY20-end to ~63-64% as on date.
Likely to see further reduction in pledge in the next two quarters.
Maintained commitment to eventually bring pledge down to zero.
Godrej Consumer
Current Price INR 712
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Domestic highlights
Mixed quarter with broad-based volume growth.
Household Insecticides (HI) recovered in 2QFY20. Price offs in LVs have been
driving growth.
Illegal incense stick growth has plateaued.
Own incense stick product is available in the 6-8 key states where illegal incense
sticks have been a threat.
November 2019
39
 Motilal Oswal Financial Services
CONSUMER | Voices
However absolute sales value was lower due to passing on of material cost
benefits.
Hair color growth was lower than expected.
‘Others’ slowed down relative to recent quarters because of sluggish demand on
car air fresheners.
International highlights
Indonesia did well in top line and bottom line.
Profitability improvement in Africa has started.
Africa sales however were slower than expected.
Africa - scale up on wet hair has taken longer than expected but things are in
place now.
Needed to work on non-braids in Africa as well which they have done.
Outlook
Expect a gradual improvement in urban and rural demand in India.
It has come up with a slew of product launches, including God Knight Gold Flash
(biggest innovation in LVs in the last 10 years; provides an initial blast and is
more effective; pricing is similar to the regular LV), incense stick variants, refresh
of Crème and ‘Hit’ anti mosquito racquet.
Indonesia – hoping to sustain top- and bottom-line growth.
Africa looking to grow faster.
International margins likely to expand further, but domestic margins may be
sacrificed if required for top-line growth.
Other points
Tax rate expectations: 20-22% in FY20.
GSK Consumer
Current Price INR 8,740
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Volume, Market share, and distribution
Domestic volume grew 3.6% for the quarter.
Last price increase was in Jan’19 – effectively 1.5-2%.
Over the last three months, Horlicks has gained over 1% each in volume/value
share, while Boost has gained 1% volume/0.5% value share during the same
period.
13% YoY increase in distribution; company has reached 2.05m outlets now.
Segmental highlights
Sachets growing 22% YoY and now contribute 12% to sales.
Business Auxiliary income grew 13% for the quarter.
Active Horlicks (for adults) and Protein Plus are both growing in double-digits.
Active Horlicks has 1.5%/0.8% market share in the North/East. While there is
some cannibalization, the company eventually hopes to broaden usage, and
therefore, have started advertising it more. Active Horlicks has been around for
30 years but was not a focus earlier.
4.4% market share in Protein Plus, sales have crossed INR500m recently.
Boost RTD sales have crossed INR45m in the South; it is still a nascent category.
The Middle East and Bangladesh slowdown has led to decline in export sales.
Core markets of the South/East grew 7%, while the North and West together
grew ~9% YoY.
Raw material outlook
Had cover on SMP/barley; as a result, margin impact was not high in 2QFY20.
40
November 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Will, however, see impact of double-digit SMP cost inflation and high barley
costs.
Other highlights
Ongoing tax rate will be around 25%. There will be some DTA impact in FY20.
Other income had a one-off in 2QFY19 and hence there was a decline YoY.
FSSAI guidelines- Transparency and predictability has improved. Partnership
with participants has increased. FSSAI is making progress in aligning themselves
with global and more scientific methods and is thus changing standards. On high
sugar-labeling, they have adopted a more scientific approach in consultations
with industry participants.
Hindustan Unilever
Current Price INR 2,024
Click below for
Detailed Concall Transcript &
Results Update
Buy
Macro
Rural growth slowed down further in 2QFY20. Rural growth was 0.5x urban for
the sector in 2QFY20.
Near-term demand outlook remains challenging.
The RBI’s repo rates cuts, the government’s slew of measures and direct benefit
transfer will lead to some improvement over the near term.
Need to see how transmission of incomes to customers, particularly rural
customers, happens.
Adequate to above average rainfall in most regions could however potentially
lead to improved demand.
Category highlights
Ninth consecutive quarter of double-digit growth in home care. Fabric wash
doing very well as are other parts of home care.
Personal wash: Taken a series of actions in mass part recently to boost growth.
Personal wash price reduction: Prices were reduced by 4-6% in mass end
personal wash products in 2QFY20, and a similar reduction is likely to be taken
in premium products like Dove and Pears in 3QFY20. On a net basis, ~3%
effective price reduction is likely in 2Q and 3Q across soap brands.
Deodorants outlook challenging while oral care did well for the quarter. While
the company is content with the oral care performance, it would hesitate to call
out sustained good performance.
Foods did well with 8% growth in 2QFY20. Good performance across sub
segments with WIMI strategy contributing significantly to growth.
Margins and tax rate
Comparable EBITDA margins: Reported margins up 310bp (up 210bp adjusted
for lease effect; up150bp adjusted for government grants).
Margin expansion was despite ad spend increase YoY/QoQ. New launches
continue at a healthy pace. Launched premium detergent brand ‘Love and Care’
in 2QFY20.
Tax rate: ETR was 30.5% before corporate tax cuts. ETR will be 27% in FY20 and
26% for FY21 onward because there is some DTA on books.
Still looking at various options to utilize the corporate tax rate cuts. May not
invest in new facilities as of now.
While income tax benefits from Assam go away, GST benefits remain.
November 2019
41
 Motilal Oswal Financial Services
CONSUMER | Voices
Other points
GSK merger approvals: NCLT Mumbai approval for HUVR will likely be received
in two weeks, while NCLT Chandigarh (for GSK) hearing is getting a bit delayed.
The expected merger dateline of December 2019 may be extended by a couple
of months.
Naturals growing at 1.5x base business.
Sustainability
By 2025, it will be fully independent of single use plastics.
Will collect and then process more packaging than use by this year.
Jyothy Labs
Current Price INR 180
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Guidance
Company has guided for ~10-12% topline growth for FY20, but is watchful given
the demand environment.
JYL has deferred its original ad-spend guidance (to spend entire INR1.5b for
FY20) given the market condition, ad spends will be in line with 1Q and 2QFY20.
EBITDA margin guidance has been maintained at ~16%.
Effective tax rate to be 17% for FY20 due to deferred tax adjustments, but will
be 19% from FY21.
Outlook
Consumer sentiments improving ahead of the festive season.
With good monsoons, rural off-take is expected to pick up.
Macros
Demand environment has been impacted by overall slowdown in the economy.
However, main categories – detergents and dishwashing – will continue to grow
led by innovation.
Increased competitive pressure – visible in promotional intensity, especially in
Modern Trade (MT).
Company has not taken any steps in terms of liquidity support to retailers.
Raw material and margins
Benign input cost environment is aiding gross margin retention.
In 2QFY20, GM was impacted due to increase in promotional intensity and mix
effect. Company does not expect significant GM improvement in 2HFY20.
Result
Overall volume growth of 8.3% and Non-HI volume growth of 9.1%.
Category highlights
Fabric care (Ujala FW, Henko, Mr White, Ujala Crisp & Shine) sales were up
13.1% YoY in 2QFY20.
Ujala fabric whitener - Strong Investment behind the brand and strong
activations at trade and consumer level to drive growth (gained market share).
Ujala Crisp & Shine - New market launch planned in Karnataka in 2HFY20.
Henko – Good performance and new initiatives in e-commerce (with focus on
premium products).
Dishwashing (Exo, Pril) revenues were up 8.6% YoY for the quarter.
In Exo, Low unit packs (LUPs) grew at 10% - helping drive category conversion
among non-users.
Pril Tamarind now contributes 10% to the brand on relevant SKUs.
November 2019
42
 Motilal Oswal Financial Services
CONSUMER | Voices
In 2QFY20, company launched Pril Tamarind INR20 Pouch (liquid growing 1.5x
bars, Pouches growing 2x liquids).
Dishwashing – 1HFY20 growth stood at 5%; sharp deceleration was due to some
impact in 1QFY20. However in 2QFY20, segment grew in high single-digit. Expect
double-digit growth to continue in 2HFY20.
Household Insecticides 10% of business (Maxo) - sales were down 1.2% YoY.
Household Insecticides (HI) - Delayed season in key contributing states led the
decline in Coil sales.
HI business (70% business is coils) – major part of the portfolio is in UP and
eastern regions, which were impacted by delayed monsoons. Company is,
however, seeing some recovery and the same is likely to continue on the back of
innovation (Maxo Genuis Combi).
Personal care (Margo, Neem) revenue is up 6.9% (growth balanced across
states).
Geographical extension of Margo Glycerine – launched in Kerala.
Competition has reduced prices in the mid-range segment, prices of Margo
remain unchanged (no price cuts taken as product is highly differentiated).
Company does not see Hamam as a big threat.
‘Others’ (Maya, T shine) sales were up 0.9% YoY. T-shine (liquid toilet cleaner) –
product re-launched in Oct’19.
Others
Ex-HI – seeing early signs of market demand improving.
No divergence in primary and secondary growth.
Rural contributes 40% to overall sales – no major change in the mix, not seeing
any major slowdown in rural (ex-coils).
Marico
Current Price INR 358
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Operating environment
There has been a slight slowdown in some pockets on upgradation from the
unorganized to the organized sector; also, there has been down-trading in some
pockets in the organized sector due to a weak operating environment.
The company gained market share sharply in all three segments despite flattish
volume growth for Parachute, VAHO and Saffola.
There was in-line growth with medium-term guidance in Jul’19. But Aug’19 was
impacted by floods and witnessed decline in sales. As South India and
Maharashtra are key markets, Marico was affected more. There was slight
recovery in Sep’19 and again in Oct’19.
Immediate consumer sentiment continues to be weak.
Segments
New Foods (FitTify and Coco Soul), Kaya Youth, Parachute Advanced Aloe Vera
oil and Dry Fruit Oil are likely to attain critical mass by the year-end. Saffola
continues to be an issue, although it reported 5% value growth in 2QFY20 and
6% growth in 1HFY20. The company is sorting out assortment and focusing on 1
liter packs to get back customers.
VAHO has a rural skew as well due to high exposure to the North/East regions
where rural slowdown has been sharper. Have not lost market share in this
category despite past two years of moderate growth. Took a price decrease of
5% in Jun’19 in the category.
43
November 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Parachute volumes are likely to be back toward the medium-term guidance (5-
7%) in 3QFY20 itself.
Working capital
Debtor days are likely to increase steadily because of higher salience of
alternate channels. The company aims to mitigate the impact through higher
creditor days using innovating channel-financing schemes.
At the same time while rural is struggling, for now the company is also building
its rural GT business, especially in the North/East where they are relatively
under-indexed on rural. They have added 1,500 stockiest on a YTD basis in this
region. Rural sales are targeted at 40% from early-30% level.
Margin guidance
No indication of inflation of Copra at least for the next six months.
Maintain margin increase guidance for the full year despite possible price
interventions at Parachute. So far, there has been no price action. Higher
promotions and weak mix (higher sales of LUPs) led to decline in realizations
YoY for 2QFY20.
Page Inds
Current Price INR 21,827
Click below for
Results Update
Neutral
Factors affecting 2QFY20
Volume growth was 9% for 2QFY20.
Expansion of product range and distribution as well as investments in sales and
IT personnel have pushed up sales in 2QFY20.
Festive season footfalls also aided sales growth.
Company is increasingly focused on the Athleisure business due to higher
growth potential.
Have received good customer response for kids’ innerwear. Have a separate
vertical and sales team (nearly 100 people now) working on the strategy for this
business. To start with, working on top-50 cities for kids’ innerwear.
There was an impact of 0.6% of sales in 2QFY20 on account of one-time sales
conference and few distributor incentives.
Outlook
Company did not clarify on demand momentum sustaining.
Liquidity issues in the channel remains; footfalls have also not recovered.
Long-term outlook for 21% EBITDA margins (including other income) was
maintained.
Will look to maintain 30% outsourcing.
Management was evasive on increasing working capital YoY.
Other points
Plan to double capacity over the next 4-5 years from 260m pieces is on track.
Automatic Replenishment System (ARS) is bringing down inventory levels at
distributor level. 22% of the business (3,000 distributors in total) is being
covered by ARS now; it should be fully implemented by the end of next year.
Stock levels for these distributors have declined by 5-10 days as a result of ARS.
3-5% price increase every year continues.
The Board of Directors has declared two interim dividends amounting to INR103
per share (51% payout excluding DDT in 1HFY20). The first interim dividend was
of INR51 per share (8th Aug’19) and the second interim dividend was of INR52
per share (14th Nov’19).
44
November 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Pidilite Industries
Current Price INR 1,298
Neutral
Factors affecting 2QFY20
Click below for
Detailed Concall Transcript
& Results Update
Challenging market, floods and liquidity crunch affected sales for the quarter.