2QFY21 | November 2020
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 154 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)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
Investors are advised to refer through important disclosures made at the last page of the Research Report.
24 November 2015
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 Motilal Oswal Financial Services
Contents
Summary
...................................................................................................................................................................................................................................3
Sectors
..............................................................................................................................................................................................................................
9-161
Automobiles ............................................................................................................ 9-21
Amara Raja ...................................................................................................................... 10
Ashok Leyland ................................................................................................................. 10
Bajaj Auto ........................................................................................................................ 11
Bharat Forge.................................................................................................................... 12
CEAT ................................................................................................................................ 12
Eicher Motors .................................................................................................................. 13
Endurance Tech............................................................................................................... 14
Escorts ............................................................................................................................. 15
Hero MotoCorp. .............................................................................................................. 16
Mahindra & Mahindra..................................................................................................... 16
Mahindra CIE ................................................................................................................... 18
Maruti Suzuki .................................................................................................................. 19
Motherson Sumi.............................................................................................................. 20
Tata Motors..................................................................................................................... 20
TVS Motors...................................................................................................................... 21
Capital Goods ........................................................................................................ 22-30
ABB.................................................................................................................................. 23
Blue Star .......................................................................................................................... 24
Crompton Greaves CG ..................................................................................................... 25
Cummins ......................................................................................................................... 26
Havells ............................................................................................................................. 27
KEC International ............................................................................................................ 28
L&T .................................................................................................................................. 28
Voltas .............................................................................................................................. 29
Cement .................................................................................................................. 31-41
Birla Corp ........................................................................................................................ 32
Dalmia Bharat ................................................................................................................. 32
Grasim Inds ..................................................................................................................... 33
India Cements ................................................................................................................. 35
JK Cements ...................................................................................................................... 36
JK Lakshmi Cements ........................................................................................................ 37
Shree Cements ................................................................................................................ 38
Ramco Cement ................................................................................................................ 40
Ultratech Cement ............................................................................................................ 40
Consumer .............................................................................................................. 42-55
Asian Paints ..................................................................................................................... 43
Britannia Inds .................................................................................................................. 44
Dabur India...................................................................................................................... 45
Emami ............................................................................................................................. 46
Godrej Consumer ............................................................................................................ 47
Hindustan Unilever.......................................................................................................... 48
Jyothy Labs ...................................................................................................................... 49
Marico ............................................................................................................................. 50
Page Inds ......................................................................................................................... 51
Pidilite Inds...................................................................................................................... 51
Tata Consumer Products ................................................................................................. 52
United Breweries ............................................................................................................ 54
United Spirits................................................................................................................... 55
Financials- Banks ................................................................................................... 56-68
AU Small Fin. ................................................................................................................... 57
Axis Bank ......................................................................................................................... 58
Bandhan Bank ................................................................................................................. 59
Bank of Baroda ................................................................................................................ 60
DCB Bank ......................................................................................................................... 60
Federal Bank ................................................................................................................... 61
HDFC Bank....................................................................................................................... 62
ICICI Bank ........................................................................................................................ 63
IndusInd Bank.................................................................................................................. 64
Kotak Mahindra Bank ...................................................................................................... 66
RBL Bank ......................................................................................................................... 67
State Bank of India .......................................................................................................... 68
Financials – NBFC ................................................................................................... 69-84
Aditya Birla Capital .......................................................................................................... 70
Bajaj Finance ................................................................................................................... 70
Cholaman.Inv.&Fn ........................................................................................................... 71
Equitas Holdings .............................................................................................................. 72
HDFC Life ......................................................................................................................... 73
ICICI Pru Life .................................................................................................................... 73
ICICI Securities................................................................................................................. 75
IIFL Wealth ...................................................................................................................... 76
L&T Finance ..................................................................................................................... 76
LIC Housing Fin. ............................................................................................................... 77
M&M Financial ................................................................................................................ 78
Manappuram Fin ............................................................................................................. 79
Muthoot Fin .................................................................................................................... 80
PNB Housing.................................................................................................................... 80
SBI Life Ins ....................................................................................................................... 81
Shriram City Union Finance ............................................................................................. 82
Shriram Transport Fin...................................................................................................... 83
Healthcare ............................................................................................................. 85-95
Alembic Pharma .............................................................................................................. 86
Alkem Labs ...................................................................................................................... 86
Aurobindo Pharma .......................................................................................................... 87
Biocon ............................................................................................................................. 87
Cadila Healthcare ............................................................................................................ 88
Cipla ................................................................................................................................ 88
Divis Lab .......................................................................................................................... 89
Dr Reddy’s Labs ............................................................................................................... 89
Glenmark ........................................................................................................................ 90
Granules India ................................................................................................................. 90
IPCA Labs ........................................................................................................................ 91
Jubilant Life ..................................................................................................................... 91
Laurus Labs ..................................................................................................................... 92
Lupin ............................................................................................................................... 93
Strides Pharma ................................................................................................................ 93
Sun Pharmaceuticals ....................................................................................................... 94
Torrent Pharma............................................................................................................... 94
Media .................................................................................................................. 96-100
PVR ................................................................................................................................. 96
Sun TV Network .............................................................................................................. 98
Zee Entertainment .......................................................................................................... 99
Metals ............................................................................................................... 101-110
Hindustan Zinc .............................................................................................................. 102
Hindalco Inds ................................................................................................................ 102
Jindal Steel .................................................................................................................... 104
JSW Steel ...................................................................................................................... 105
NMDC ........................................................................................................................... 107
SAIL ............................................................................................................................... 107
Tata Steel ...................................................................................................................... 108
Vedanta ........................................................................................................................ 109
Oil & Gas ............................................................................................................ 111-113
BPCL .............................................................................................................................. 112
Reliance Inds ................................................................................................................. 112
Retail ................................................................................................................. 114-119
Aditya Birla Fashions ..................................................................................................... 115
Jubilant Foodworks ....................................................................................................... 115
Shoppers Stop ............................................................................................................... 116
Titan .............................................................................................................................. 117
V-Mart .......................................................................................................................... 118
Technology ........................................................................................................ 120-128
Cyient ............................................................................................................................ 121
HCL Technologies .......................................................................................................... 121
Infosys........................................................................................................................... 122
L&T Infotech ................................................................................................................. 123
Mindtree ....................................................................................................................... 123
Mphasis ........................................................................................................................ 124
Coforge ......................................................................................................................... 124
Persistent Systems ........................................................................................................ 125
TCS ................................................................................................................................ 125
Tech Mahindra .............................................................................................................. 126
Wipro ............................................................................................................................ 126
Zensar Technologies ..................................................................................................... 127
Telecom ............................................................................................................. 129-134
Bharti Airtel................................................................................................................... 129
Bharti Infratel................................................................................................................ 131
Tata Comm.................................................................................................................... 132
Vodafone Idea............................................................................................................... 133
Utilities .............................................................................................................. 135-138
Indian Energy Exchange ................................................................................................ 135
JSW Energy ................................................................................................................... 136
NTPC ............................................................................................................................. 136
Power Grid Corp ........................................................................................................... 137
Tata Power .................................................................................................................... 137
Torrent Power ............................................................................................................... 138
Others ................................................................................................................ 139-161
Brigade Entp. ................................................................................................................ 139
BSE Ltd .......................................................................................................................... 139
Container Corp .............................................................................................................. 140
Coromandel Intl ............................................................................................................ 141
EPL Ltd .......................................................................................................................... 142
Godrej Agrovet ............................................................................................................. 144
Indiamart Intermesh ..................................................................................................... 146
Indian Hotels ................................................................................................................. 146
Info Edge (India) ............................................................................................................ 148
Kaveri Seeds .................................................................................................................. 148
KNR Constructions ........................................................................................................ 150
Lemon Tree Hotels ........................................................................................................ 151
MCX .............................................................................................................................. 152
Oberoi Realty ................................................................................................................ 153
Phoenix Mills................................................................................................................. 153
Piramal Entp ................................................................................................................. 154
PI Inds ........................................................................................................................... 154
Quess Corp.................................................................................................................... 155
SH Kelkar ....................................................................................................................... 156
SRF Ltd .......................................................................................................................... 157
Tata Chemicals .............................................................................................................. 158
Team Lease ................................................................................................................... 160
UPL................................................................................................................................ 160
Note:
All stock prices and indices are as on 20th November 2020, unless otherwise stated.
 Motilal Oswal Financial Services
2QFY21 | India
| 2QFY21
Voices
Inc. on Call
BSE Sensex: 43,882
S&P CNX: 12,859
Voices
A blockbuster quarter; Outlook becomes brighter!
In this report, we present detailed takeaways from the 2QFY21 conference calls as
we refine the essence of India Inc. - 'Voices'.
The 2QFY21 corporate earnings season was a blockbuster one, with big earnings
beats and upgrades for both Nifty and the MOFSL Universe. 63% of the
companies in our MOFSL Coverage Universe beat estimates, while 18% reported
below-est. results. Nifty sales declined 7% YoY (v/s est. decline of 5%), while
EBITDA/PBT/PAT reported growth of 8%/14%/17% YoY. With an upgrade (>5%)
to downgrade ratio (<-5%) of 4:1, this has by far been the best earnings season
in many years. Our FY21/FY22E Nifty EPS estimates have been revised up 9%/4%
to INR497/INR677 (prior: INR456/INR651). We now expect FY21 Nifty EPS to
grow 7% YoY. Corporate commentaries across sectors suggest continued
demand recovery in 3QFY21, underpinned by a healthy start to the festive
season.
Commentaries of banks suggest there was an improvement in growth and asset
quality. The asset quality outlook is much better than initially feared as
collection efficiency picked up sharply in 2QFY21. Collection efficiency in the Top
4 private banks was above 95% and for SBI it was 97%, excluding the Agri
segment. NII growth too showed an uptick, aided by lower cost of funds and
improvement in retail disbursements. Commentaries of NBFCs too suggested an
improvement in disbursements across segments: Housing Finance (90%+ of YoY
levels), Vehicle Finance (50-75% of YoY levels), and Gold Finance. More
importantly, collection efficiency improved sequentially and is now only 500-
800bps lower than run-rate levels. In terms of restructuring, most financiers
would offer the same on a case-to-case basis and do not expect a meaningful
impact on asset quality going forward.
For the Consumer sector, rural demand continues to outperform urban demand.
Some of the cost-saving measures implemented by companies during the
lockdown are likely to sustain going forward. However, A&P spends are
expected to return to normal in the near future. Most companies have also
guided for topline improvement in 3QFY21, and few companies have announced
significant capex plans, indicating management confidence regarding medium-
term demand.
In Auto, a preference for personal mobility, pent-up demand, and normalization
of the supply chain have led to demand recovery. However, most companies
mentioned being cautious due to uncertainty regarding demand sustainability
post the festive season. Companies expect some margin pressure due to
commodity cost inflation; however, they are confident of retaining a large
portion of the decline in other expenses. CV OEMs are optimistic about demand
recovery over the next two quarters.
In IT, management commentaries indicated the pandemic has acted as a
tailwind for the sector - as enterprises are undertaking cloud adoption at a
faster pace and digital transformation at the workplace has accelerated.
Companies have seen the deal pipeline improve further (v/s 1QFY21), with the
pipeline now at pre-COVID levels. The pandemic has become a material catalyst
in driving the adoption of hyper-scale cloud platforms by enterprises globally.
The managements of cement companies have informed that cement prices have
firmed up across regions in Oct'20 and were up by INR10/bag over Sep'20 on
average - despite the quarter being a seasonally weak one. Demand recovery
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Voices | 2QFY21
has been strong in East/North India, while it remains tepid in South and West
India due to the prolonged impact of COVID-19 and the monsoons. Moreover,
fixed cost reduction achieved in 1HFY21 may not sustain in 2HFY21 as part of
fixed costs such as admin expenses, repairs, and ad spends are likely to increase
with an increase in operations.
In Healthcare, despite the COVID-led impact on the Domestic Formulation (DF)
segment, the intensity of YoY decline is gradually reducing in Acute therapies
with an increase in patient-doctor-MR connect. Operational cost-saving benefits
are expected to continue over the medium term due to 1) structural reasons
such as the enhanced use of digital tools and 2)
travelling/marketing/promotional expenses remaining at reduced levels. The API
business has seen a mixed response, with sustained growth in some cases and
increased inventory buildup by formulators in the remaining cases.
Autos
Gradual unlocking and the normalization of supply chain issues for most OEMs
led to volume recovery to meet underlying demand and inventory refilling.
However, most companies mentioned being cautious due to uncertainty in
demand sustainability post the festive season. Companies expect some margin
pressure due to commodity cost inflation; they are confident of retaining a large
portion of the decline in other expenses. Post the sharp increase in debt in
1QFY21 for some companies, we are seeing the reversal of these adverse factors
viz an improvement in operating performance and the normalization of working
capital. Most companies have postponed capex except for ongoing, strategically
important projects. CV OEMs are optimistic about demand recovery over the
next two quarters.
Capital Goods
With the pace of recovery gradually picking up, managements across the board
attributed to recovery in the Products business being faster v/s the Projects
business. Most companies continue to focus on working capital over execution
(with execution being slowed on purpose in some cases). ABB’s management
indicated continuous engagement with clients via the digital medium has
demonstrated the benefits of digitalization at a lower cost. Cummins’
management was cautious on demand recovery, mainly in exports, as a second
lockdown across Europe poses a risk to ongoing recovery. Havells and
Crompton’s managements indicated market share gains across most categories
– at the expense of unorganized players and smaller organized companies. For
ACs, Voltas’ management alluded to higher-than-normal inventory with the
company; however, it expects the same to get normalized before end-2020.
Cement
Managements informed that cement volumes saw recovery, led by strong
demand in East and North. On the other hand, demand remained tepid in West
and South due to the prolonged impact of COVID-19 and the monsoons.
Demand recovery was attributable to strong rural and semi-urban demand and
a pickup in government infra and road projects from September, while the Real
Estate sector continues to suffer due to muted demand. Demand in October
remained strong, and a pickup in construction activity post the festive season
would further drive demand. Shree Cement’s management guided for the
strong volume growth seen in 2QFY21 to sustain in 2HFY21. Managements
informed that cement prices have firmed up across regions in Oct’20 and are up
by INR10/bag over Sep’20, on average. Due to sharp hikes in petcoke prices,
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Voices | 2QFY21
companies have increased the use of imported coal. UltraTech guided for a
~10% YoY inflation in power and fuel cost in 3QFY21. Moreover, the fixed cost
reduction achieved in 1HFY21 may not sustain in 2HFY21 as part of fixed costs –
such as admin expenses, repairs, and ad spends – are likely to increase with an
increase in operations.
Consumer
Rural demand continued to outperform urban in 2QFY21, enabling sequential
recovery for most companies in the sector. Margin improvement was seen in
the quarter as companies sharply cut unwanted costs. Some of these cost
savings are likely to sustain going forward as well. Furthermore, largely benign
raw material costs aided savings, and there has been no material change in their
outlook going forward. While cuts in ad spends have also helped, most
companies expect these costs to gradually return to normal levels in 2HFY21.
Most companies have utilized the COVID opportunity to accelerate new
launches, which are also seeing a higher contribution to the overall company
topline. Better channel pipeline efficiency further underpins the confidence for
topline recovery/growth in subsequent quarters. Secondary sales surpassed
primary sales in 2Q as most companies pruned dealer inventory levels, thereby
boosting channel ROIs. The e-commerce channel grew robustly in the quarter,
leading to higher salience in the channel mix across companies. Most companies
have guided for further topline improvement in 3QFY21, with many
discretionary product companies guiding for near-normal levels by 4QFY21 as:
(a) rural performance is likely to strengthen further in 2HFY21, (b) continued
sequential recovery is expected in discretionary consumption, (c) demand would
return in large urban clusters, and (d) there are early signs of a good winter
season and festive demand. Additionally, some companies announcing
significant capex plans indicates management confidence regarding medium-
term prospects.
Financials
Banks
Commentaries of banks suggest business trends are gradually picking up MoM
and have reached pre-COVID levels. Thus, expect loan growth to improve over
2HFY21. Moreover, the gradual deployment of excess liquidity and improved
cost of funds would continue to aid margin expansion. Furthermore, fee income
trends are expected to improve, with the Retail business likely to be the key
driver in the near term. On the asset quality front, banks reported better
collection trends and indicated restructuring would remain in the low single
digits. However, banks would continue to strengthen provision coverage and
build additional COVID-related provisions to further strengthen the balance
sheet. This addresses the key concerns around the business outlook and asset
quality of the banks. Although slippages would increase over 2HFY21 post the SC
order, expect normalizing trends from FY22.
NBFC
Commentaries of NBFCs suggest improving macros across most business
segments and the end of the moratorium have led to increased optimism for
collection efficiency (CE) as well as growth across product segments. In terms of
restructuring, most financiers would offer the same on a case-to-case basis and
do not expect a meaningful impact on asset quality going forward. Improving
liquidity and a higher risk appetite (on account of a better collection
performance) have given companies the confidence to lift disbursements (albeit
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Voices | 2QFY21
at lower levels than pre-COVID levels). Most financiers have rolled out new
initiatives on the digital front and expect such operational innovations to sustain
going forward.
Healthcare
In the Domestic Formulation (DF) segment, the intensity of YoY decline is
gradually reducing in Acute therapies with an increase in patient–doctor–MR
connect. Operational cost-saving benefits are expected to continue over the
medium term due to 1) structural reasons such as the enhanced use of digital
tools and 2) travelling/marketing/promotional expenses remaining at reduced
levels. Healthy momentum in the pace of ANDA filings / new approvals is
expected to continue over the medium term. While remediation measures by
companies on the sites under regulatory issues are complete, feedback from the
USFDA is still awaited due to restrictions on international travel. The API
business has seen a mixed response, with sustained growth in some cases and
increased inventory buildup by formulators in the remaining cases.
Media
The gradual unlock process and a rise in consumer spending have led to an
increase in advertisement spends by corporates – leading to sequential
improvement in the ad revenues of broadcasters. The upcoming festive season
has also seen a healthy recovery in ad volumes and ad rates. Subscription
revenue is likely to remain steadily on track, and the threat from NTO 2.0
regulations is being pushed due to delays in court proceedings. SUNTV has
guided that ad revenues have recovered to ~80% YoY, and subscription revenue
is expected to grow in the double digits over the next 12 months. Z has guided
for ad revenue recovery by 4QFY21. PVR’s recovery would be slow and opex
would be curtailed by a ~50% reduction in rentals and other expenses.
Metals
Companies have highlighted that domestic steel demand has improved
significantly in 3QFY21. With strong domestic demand, exports are likely to
remain lower. While initial recovery has been seen in flats, long steel demand is
also guided to pick up post-Diwali. Management has guided for volume growth
in 2HFY21 on the back of higher utilization. Management informed that price
hikes over Oct–Nov have been well absorbed by the market. Tata Steel has
guided for improvement in realization by INR4,000–5,000/t in 3QFY21 on the
back of repeated price hikes and an improved product mix. The benefit of lower
coking coal prices is likely to continue in 3QFY21 as well; however, an increase in
iron ore prices during the quarter may partly offset an increase in prices.
Oil & Gas
OMCs stated that with the lifting of lockdown restrictions worldwide, demand is
once again seeing an uptick. This should lower built up inventories and support
poor GRM margins. OMCs reiterated that GRM trends and marketing margins
over the long term would stand at normalized levels only. RIL further plans to
streamline its O2C Integration business and focus on expanding its Fuel
Marketing business. The company’s strong growth path remains in its digital and
retail businesses. IGL and MAHGL stated total volumes have recovered to ~90%
of pre-COVID levels, while GUJGA’s total volumes currently stand above pre-
COVID levels. PLNG has guided for an increase in LNG imports as demand from
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Voices | 2QFY21
CGDs and other segments normalizes over 3Q–4QFY21. Post the completion of
the Kochi-Mangalore pipeline (by end-Nov’20), PLNG expects utilization to
increase to ~40% over the next 5–6 months. GAIL stated that gas transmission
and petchem operations are back at pre-COVID levels. Growth guidance
continues on the back of incremental volumes of 8–12mmscmd from the
commencement of fertilizer plants, which should lower the risk on its US
contracts.
Retail
The Retail sector saw a gradual recovery in sales as economic activity continued
to pick up, with 75–95% of retail stores operational in 2QFY21. Although footfall
has been lower, conversion rates and bill sizes have improved. Retailers expect
sales to be 70–80% in 3QFY21, driven by strong festive shopping. Retailers
would continue to focus and invest in online channels and logistics for stronger
sales and customer traction via the online medium. ABFRL/V-Mart/SHOP have
guided for muted capex / store adds in FY21 until normalcy returns. Pantaloons
has guided to add 25 stores in FY21, V-Mart opened 7 new stores in Oct’20,
while SHOP has guided to shutdown 3–4 of its non-profitable stores in FY21.
Technology
Supply-side issues were largely contained in 1QFY21, and demand normalization
was seen across segments in 2QFY21. In terms of verticals, BFSI, Retail,
Healthcare, Technology, and Telecom have seen good recovery. Energy and
Utilities, Manufacturing (Aero and Defense), and Travel and Hospitality are
expected to take longer to recover. Companies have seen the deal pipeline
improve further (v/s 1QFY21), with the pipeline now at pre-COVID levels. The
pandemic has become a material catalyst in driving the adoption of hyper-scale
cloud platforms by enterprises globally. It has accelerated cloud adoption
significantly, which was otherwise expected to be a three- to five-year cycle.
Cloud migration, cyber-security, and IoT are coming up more frequently in client
discussions. However, this opportunity is not limited to just ‘cloud migration’,
but would also be extended to the ‘use of cloud applications’ – making the IT
industry a key beneficiary in the long run. Expect 3QFY21 to be positive in terms
of revenues and margins.
Telecom
Telcos have reiterated their stance that ARPUs should reach INR200 in the near
term and INR300 in the long term for the industry to be sustainable. Capex has
remained higher this quarter on account of network upgrades owing to high
data demand during the lockdown. However, capex would be lower in 2HFY21
as data demand is expected to normalize as the economy opens up. Bharti
Infratel’s management mentioned the energy margin would be in the range of
0–3%. However, the company is engaging with telecom operators to bring back
customers to the fixed energy model that is expected to bring back margins to
previous levels. TCOM is in the process of executing large international deals
and expects high revenue / EBITDA revenue growth in the coming years.
Furthermore, it seeks to monetize its land parcels and other assets.
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 Motilal Oswal Financial Services
Voices | 2QFY21
Utilities
PWGR noted it has been able to complete Pole-I of its Raigarh Pugalur project
during the quarter, and another INR100b of works related to the project are yet
to be commissioned. PWGR has maintained its FY21 capex and capitalization
targets of INR105b and INR200–250b, respectively. NTPC expects 5.5GW of
capacities to be commercialized in FY21. It expects its plants – Lara U-2,
Gadarwara U-2, and Meja U-2 – to be commercialized by Dec’20. In terms of
receivables, NTPC is hopeful of lowering its overall receivables to INR160–170b
at end-FY21. However, the company has noted that this would depend on
multiple factors, including bill discounting. NTPC has thus far realized INR67b
from the PFC-REC led ‘Atmanirbhar’ scheme and hopes that further money from
the scheme would help reduce the stretch in receivables.
November 2020
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Key takeaways from management commentary
AUTOMOBILES
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY21
Gradual unlocking and the normalization of supply chain issues for most OEMs led to volume recovery to
meet underlying demand and inventory refilling. However, most companies mentioned being cautious
due to uncertainty in demand sustainability post the festive season. Companies expect some margin
pressure due to commodity cost inflation; they are confident of retaining a large portion of the decline in
other expenses. Post the sharp increase in debt in 1QFY21 for some companies, we are seeing the reversal
of these adverse factors viz an improvement in operating performance and the normalization of working
capital. Most companies have postponed capex except for ongoing, strategically important projects. CV
OEMs are optimistic about demand recovery over the next two quarters.
AL’s new launches (in M&HCV, ICV, and LCV) are seeing
positive traction. The modular platform is well-placed to
cater to future industry requirements.
Net debt decreased to INR30.8b (v/s INR42.8b in 1QFY21),
driven by FCF generation (post investment in subs) of
INR12.1b. ICD is down INR1b to INR3b.
Hinduja Leyland Finance: 1HFY21 revenue stood at INR14.7b
(flat YoY); PAT was INR1.45b. CV financing stood at 40–45%
of AUM and NPA at 2.3%.
Capex target –INR7.5b(INR2.7b already spent up to Sep)
2QFY21 was driven by a) premiumization of super-premium
brands, b) success of Pulsar 125, and c) fair performance
from exports.
Domestic margins were at 15- to 16-quarter highs, with
higher Pulsar brand sales as well as the correcting prices and
margins of the entry-level portfolio.
Domestic 3W is seeing QoQ recovery; there is no clarity on
when normalcy would be restored.
Exports – It has increased market share in 30 of its 70
markets.
RE is seeing ramp-up in production every month as supply
chain issues have been resolved. By the end of 2QFY21
production had recovered to pre-COVID levels – to capacity
of ~1m units. By debottlenecking, production can be
increased to ~1.2m units.
Meteor could attract customers from other OEM brands and
also be an entry-level cruiser in the global market.
Make it Yours (MIY): Over 90% of bookings are on MIY. All
future launches have been planned on MIY.
Production is normal and at record high levels of ~30k
units/day (~750k/month).
Inventory is on track for the festival season. The plan is to
end the festival with four weeks of inventory. Discounts are
lower YoY.
Harley Davidson Alliance enhances HMCL’s premium
segment strategy. Distribution and licensing agreements
have been signed.
Capital allocation: It announced an exit for the Airplane
business (Gippsaero), which incurred a loss of ~INR3–4b in
FY20. It would continue with the Servicing business for
outstanding obligations. SsangYong sale discussions are
underway with a potential investor.
FES had a negative WC for the first time. The Tractor industry
would grow by the low double digits in FY21.
Utilization was at 85–90%; Nov’20 will have fewer working
days (4–5 days less) due to Diwali.
CNG models’ share in total volumes increased to 11.2% in
2QFY21 (v/s 7.2% in 2QFY20).
Demand in Festive Season
Ashok Leyland
M&HCV demand and inquiries are slowly
recovering as operators have started paying
EMIs post moratorium, leading to the ease of
financing.
Replacement demand would take some time.
Bajaj Auto
Domestic: First five days of Navratras were at
similar levels on YoY basis (adj. for month-end
boost last year).
Exports: Good recovery was seen in most
markets (except ASEAN) at 90% of normal levels
and 3W at 75–80%. Expect a monthly run-rate of
200k over Oct–Nov’20.
Eicher Motors
It has an order backlog of 125k units (incl. 8k+
Meteor bookings) with an average one-month
waiting period.
Hero MotoCorp
Retail during 32 days of festive season is down
2% YoY.
M&M
Due to supply-side issues, it would focus on
normalizing inventory post the festive season in
both Auto and Tractors.
Thar has recd. a good response, with over 20k
bookings. Over 55% of Thar customers are first-
timers.
Based on good Navratras and Dussehra demand,
Diwali and Nov–Dec’20 are expected to be good.
First 10 days of the festival saw 27% growth in
deliveries to 96.7k units and bookings of 85k.
Maruti
November 2020
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 Motilal Oswal Financial Services
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Tata Motors
TVS Motors
Pre-owned car demand was very high and inquiries were up
40%, but supply was inadequate.
Diesel vehicle share was at 17.8% in 1HFY21 and 17% in 2Q,
while competition (India ex-MSIL) had 34% share of diesel
models.
In 2QFY21, a cost-savings program delivered savings of
GBP0.3b at JLR and INR2.8b in standalone.
TTMT has turned FCF positive in 2QFY21, led by the
normalization of working capital, with JLRs at GBP463m
(GBP528m working cap release) and S/A at INR23b (INR30.8b
work. cap release).
JLR’s dealer inventory is down to ideal levels at 54 days (v/s
90 days in Jun’20).
Cost-cutting measures initiated two years ago are yielding
results. Focus is on material cost and marketing cost
(through digitization).
Capex target is increased to INR5b for FY21 (v/s INR3b
earlier).
It will invest an additional INR0.9–1b in TVS Credit (~INR0.5b)
and Norton. This is over and above INR1.5b invested in
subsidiaries in 1HFY21.
Defender 110 is doing well and Defender 90 is
now on sale. Despite an increase in production,
the Defender order book has increased.
CV demand is gradually emerging in select
segments; hopeful of end-FY21 recovery.
Retail sales grew marginally during Navratri and
Dussehra, predominantly in premium products.
With urban market retail reaching pre-COVID
levels and rural positive, it is expecting good
Diwali sales.
Amara Raja Batteries
Current Price INR 858
Neutral
Click below for
Results Update
Aftermarket saw strong pent-up demand; Industrial saw demand from the
Telecom and Commercial UPS market segments on the back of enhanced
priorities for keeping data network uptimes to near 100%. Home Inverter
benefitted from pent-up demand as well as the benefit of ‘work from home’.
Exports saw an upsurge across geographies; however, capacity constraints led to
slower growth at 3–4%.
Other expenses – Provision of ~INR85m reversed as BSNL cleared its dues
(provided for in 1QFY21).
Employee cost – This was higher by 19% YoY (39% QoQ) as variable pay and
increments, which were withheld in 1Q, were provided in 2Q for the entire 1H.
Capex – This was at INR4.5–5b for FY21 (v/s earlier guidance of INR4b) as the
company expanded 4W (2m units) and 2W (2–3m units) capacities.
Ashok Leyland
Current Price INR 91
Buy
Click below for
Results Update
Demand outlook:
M&HCV demand and inquiries have slowly started returning
as operators have started paying EMIs post moratorium, eventually leading to
the ease of financing. Replacement demand recovery would take some time and
would increase utilization levels. AL’s market share could grow in the remaining
year owing to an expected increase in demand in the south region, which
typically rises over Dec–Feb.
The Avatar range
in M&HCV, Boss series in ICV, and Bada Dost in LCV are seeing
a positive response. AL’s modular platform would get more traction in the
future as the industry moves toward vehicles customized as per utilization
needs. The Bus segment is yet to pick up as schools and corporates are yet to
open.
Growth strategy:
1) M&HCV – This segment offers best-in-class, total cost of
ownership with the best fluid efficiency and customized solutions. 2) ICV and
LCV – More products are being launched in these segments to fill in the gaps.
10
November 2020
 Motilal Oswal Financial Services
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Hinduja Leyland Finance
– 1HFY21 revenue stood at INR14.7b (flat YoY) and PAT
at INR1.45b (v/s INR1.41b). CV financing constituted 40–45% of the lending
portfolio, and NPA was at 2–3%.
AL may invest INR1–1.2b in the financing arm as growth capital.
Debt:
Net debt decreased to INR30.8b (v/s INR42.8b in 1QFY21), driven by FCF
generation (post invest. in subs) of INR12.1b. ICD is down by INR1b to INR3b.
Digital initiatives:
The Leykart app, which sells spare parts online, saw a good
surge in usage during the lockdown.
Export:
Demand is slowly returning as markets open up. Its CKD plants in Africa
and the Middle East have been significantly ramped up since Mar’20. These
plants would also cater to the neighboring markets. Bangladesh is slowly picking
up; however, Sri Lanka would still take some time.
Capex:
FY21 target capex is INR7.5b (INR2.7b has already been spent up to
September, most of which was toward the modular platform).
Bajaj Auto
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 3,059
Neutral
2QFY21 performance
was influenced by a) premiumization (highest ever
volumes for super-premium brands), b) the success of Pulsar 125, and c) exports
doing very well. Despite MEIS and a lower 3W mix, margins have improved YoY
due to higher contribution from the premium segments and a favorable INR.
MEIS incentives, comprising 2% of export sales, were withdrawn from Apr’20. It
has passed on this loss through a price increase in the end markets. It has
intensified competition with Japanese OEMs manufacturing in China.
Domestic 2W:
The first five days of Navratras are at similar levels on a YoY basis.
There is uncertainty regarding volumes, and it remains to be seen how the
festive season would play out. Beyond the metros, recovery is fairly even across
the country. It has inventory of 45–48 days.
Pulsar 125cc captured 16% share in the 125cc Motorcycles segment, which has
not impacted the share of standard Pulsars. Among the 125cc disc brake
motorcycles, Pulsar 125cc has 40% market share. It is focused on acquiring
leadership in the 125cc segment.
Domestic 2W market strategy –
Domestic margins are at 15- to 16-quarter
highs, driven by higher sales in the Pulsar brand as well as correction in
prices/margins in the Entry-level portfolio. It is looking to outperform the
domestic Motorcycle market in a profitable manner – by gaining share in the
125cc segment as well as the upper-end Entry segment – and maintaining
leadership in the premium segment.
Financing
is coming back and was just 5–10pp lower in 2QFY21 v/s 2QFY20.
2QFY21 had finance penetration of 52%, of which Bajaj Finance accounted for
60%. Sep’20 financing penetration stood at 63%. It expects a further increase in
financing penetration in the coming quarters.
For domestic 3W,
while there is QoQ recovery in volumes, there is no clarity on
when normalcy would be restored. With passenger 3W having recovered only to
20% and cargo to 40% of pre-COVID levels, it has adjusted the stock to current
lower sales. The company has now attained market leadership in the Cargo and
Diesel segments as well.
November 2020
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 Motilal Oswal Financial Services
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Expect some migration from 4W cargo to 3W cargo, with revival in demand due
to the BS6 price hike in the 4W segment.
Exports
have seen good recovery, with most markets (except ASEAN) at 90% of
normal levels and 3Ws at 75–80%. It has increased market share in 30 of the 70
markets where it has a presence (which account for 80% of Bajaj’s export sales).
It expects to sustain a monthly run-rate of 200k over Oct–Nov’20.
Higher commodity prices would reflect in 3QFY21, and on a gross basis, would
have an impact of 1–2pp. However, it would mitigate this through judicious
price increases, mix management, and cost absorption.
Bharat Forge
Current Price INR 497
Buy
Click below for
Results Update
Outlook: The outlook for India and US CV has improved. However, it has
lowered its guidance for Aerospace as it expects this opportunity to play out
over a longer period. Growth would be driven by the PV and Agri segments and
ramp-up in the Renewable Energy and Marine segments.
Price hike and margins: OEMs are unable to pass BS6-led cost to the end
consumer; hence, the supply chain is stressed.
International business: Revenue (ex-O&G) is gradually recovering; however,
there is continued uncertainty surrounding a potential second wave of COVID
19. The Oil and Gas business outlook remains subdued as the rig count is down
to <150 rigs (v/s the peak of 900 rigs). O&G revenue stood at USD3–4m in 2Q
(v/s USD25m); growth would depend on government policies. The Aerospace
sector is facing severe headwinds; however, it is expected to expand in future.
US Class-8 Trucks: Production has recovered faster than expected. Demand is
improving on the back of increased freight volumes, higher freight rates, and
some pent-up replacement cycle demand.
Defense: There is acute lack of cash for procurement in the system; however,
the management expects some orders from the government.
Marine and Renewable: This could be as big as or bigger than O&G. Currently,
the business is ~INR500m p.a., but growth visibility would be 3x in the next
years’ time.
Cost-cutting: BHFC incurred exceptional expense of INR29m for VRS (offered
from Jul’20 at two plants).
Capex: INR2.5b capex is targeted for FY21 (INR2b already spent in 1HFY21).
CEAT
Current Price INR 1,140
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand:
Demand remains strong in Oct-Nov for OEMs as well as for
replacement, though it leads to an adverse mix. Replacement grew 30% with
farm segment showing highest growth of 17-18%. All others saw minimum
double-digit growth. TBB saw higher demand as measure of cost cutting by truck
operators. OEMs saw decline in single-digit while exports grew in single digit.
Due to capacity constraints, CEAT would prioritize OEM supplies over
replacement. Replacement market could see allocation problem due to capacity
constraints and very low inventory.
Gross margin improved due to lower commodity prices, favorable mix as
replacement share was 70% during the quarter (v/s 60% in 2QFY20), and cost
November 2020
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 Motilal Oswal Financial Services
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controls. RM cost/kg came down by 5% QoQ and 9% YoY, mainly due to carbon
black price reduction while price of other materials reduced by 5-10% YoY.
Natural rubber prices have increased to ~INR150/kg (from INR118/kg in
1HFY21). This would result in 2-3% QoQ increase in 3QFY21 (as it has low cost
inventory) and further increase in 4QFY21 (full reflection of current prices).
Merger of CSTL: Accumulated losses accounted in 2QFY21, resulted in tax
benefit of ~INR550m. It has absorbed all accumulated losses in 2QFY21.
OTR business is operating at 85-90% utilization. There are plans to increase
capacity from 30-35tpd now by 10-15tpd modules.
Margin expansion was led by operating leverage. Advertisement expenses were
up 20% YoY (3% of sales v/s ~2% in 2QFY20) due to signing Mr. Aamir Khan
(actor) as brand ambassador and continued IPL screen time.
Employee cost was higher YoY as cost in 2QFY20 was lower by INR210m due to
write-backs. It is expected to remain high due to the ongoing ramp-up at
Chennai, Halol and Nagpur plants.
Capex for FY21 stands at INR6.5-7b for projects and INR1.5b for maintenance.
The company has invested INR2.6b in 1HFY21.
Working capital has reduced by ~INR1.9b in 1HFY21; however, it would increase
by INR1b as finished goods inventory is very low currently.
Net debt has reduced by ~INR1.9b QoQ. However, net debt is expected to
increase as working capital normalizes and capex continues.
Eicher Motors
Click below for
Results Update
Current Price INR 2,591
Buy
Royal Enfield
Demand Outlook – 2QFY21 saw healthy demand, which is improving with more
urban centers opening up. More touch points and studio stores have
contributed to increased sales.
Bookings: It has an order backlog of 125k units (including 8k+ Meteor bookings)
with a one-month average waiting period.
Status of operations: RE is ramping up production every month as supply-chain
issues have been largely resolved. By the end of 2QFY21, production recovered
to pre-COVID levels, with capacity of ~1m units. This could be increased at 5% p.
a.to 1.2m units, with debottlenecking, without much capex.
Meteor: Meteor is expected to attract customers from other OEM brands. Other
upcoming RE products are targeted toward upgraders within the RE family.
International market: Meteor could also serve as an entry-level cruiser in the
global market. For Meteor, developing markets such as LATAM and SE Asia
would be important markets. For developed markets, Meteor could be a
relevant product for in-city commute, and the navigation system adds great
value.
Make it Yours (MIY) platform: MIY was launched a month back for 650cc Twins.
It is a huge step toward personalization – for eg., Thunderbird had 65
permutations, whereas Meteor has 500k.
Booking and value addition by MIY platform: Over 90% of Meteor bookings are
on MIY and all future launches would come on MIY. It has resulted in an
increase in accessory sales and is helping RE capture value in customer spend on
personalization, which customers would otherwise spend on aftersales.
November 2020
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New stores: In India, RE added 25 exclusive stores and 133 RE studios, taking the
total outlets to 1,717 stores (incl. 771 RE studio stores) in 1,400 cities.
Internationally, it added six exclusive stores, taking the total to 85 exclusive
stores. It entered new markets such as Cambodia and Costa Rica
Online inquiries are higher by 700%; two out of three inquiries are online and
the conversion of online is 12–13% (from 2–3% earlier).
Cost pressures are visible in the form of precious metals and core commodities,
which it is trying to dilute through value engineering.
Marketing expense: This is expected to increase in international markets on
increased operations and a low base. The spend would be toward experiential
marketing rather than mass marketing.
VECV added 38 touch points in 1HFY21 and would add another 100 in
FY21.Export market – It has added five new export markets to the existing 35
markets. It is expanding in the new markets of LATAM and North Africa.
Capex: RE’s FY21 capex would be INR4–4.5b (1H at INR2b).
Endurance Technologies
Current Price INR 1,084
Click below for
Results Update
Buy
India Business
The Maharashtra government has increased incentives by ~INR1b over a 7- year
period, resulting in an increase in annual incentives by INR110-130m to
~INR600m.
Growth was driven by HMSI (18.6% YoY), Yamaha (13.7% YoY), Suzuki (29% YoY)
and TTMT (38.5% YoY). As a result, share of Bajaj (3pp YoY) and RE declined
(90bp YoY).
OEM schedules indicate robust 3QFY21, with ENDU’s India revenues growing
34.5% to INR5.56b.
New business wins in 1HFY21 stood at INR3.6b p.a (excl. BJAUT), with peak sales
expected in FY22E. Also, it has INR12.3b RFQs on which it is working.
It is putting up 0.6m p.a CBS brakes capacity at Pantnagar to service HMSI and
TVSL, which would start by Jan’21. Also, it is putting up 0.72m p.a aluminum
cylinder head capacity at Pantnagar with SOP in Mar’21.
ENDU has offered VRS to 86 workers, which would entail one-time payout of
INR112m and result in savings of ~INR49m p.a. Further, it has reduced fixed cost
by INR25m/month (or 50-60bp).
Aluminum casting plant at Vallam would start in Dec’20 for supplies to Hyundai
and Kia.
Over the next two years, it expects strong ramp-up with new OEMs via (a) HMSI
(from INR6b in FY20 to INR9b in FY22), (b) HMCL (from INR2.16b to INR3.5b), (c)
Yamaha (from INR2.1b to INR3.5b), (d) TVS (from near zero to INR1.65b), and (e)
Hyundai and Kia (from <INR1b to INR3.1b).
It is looking at tech-oriented growth opportunity on both organic and inorganic
basis.
EU Business
In 1HFY21, ENDU has won new business worth EUR10.8m from Audi, Maserati,
and FCA (to start CY21 onwards).
Consolidation of two plants into one has been done and would lead to savings of
EUR0.6m p.a.
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Adverse mix and inventory reduction had impacted gross margin. This should
change in 3QFY21. Mix was impacted by new programs in EV components,
which will normalize over the next 2-3 quarters as the new programs see
improvement in efficiencies. On the other hand, EV components have longer life
(10-12 years) as against diesel (4-5 years).
It expects limited impact of second wave of COVID unless the lockdown
becomes much stricter.
Escorts
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 1,415
Neutral
Tractors
Supply chain constraints –
Supply chain remains a bottleneck for the Tractor
segment as suppliers are stocked out for Nov’20 as well, and demand would
outpace supply. While Dec would be seasonally weak, the industry would need
to replenish systemic inventory and hence constraints would persist. Capacity
constraints would ease from 4Q.
Market share loss:
Escorts lost market share due to supply-side constraints as it
had lower inventory before the lockdown, and OEMs carrying inventory before
the lockdown saw benefit in 1H. Its market share for FY21 as a whole would be
lower than its FY20 market share.
Geography-wise performance:
It gained market share in the South India
market, but lost in other geographies. South and West sales improved on good
monsoons, good reservoir levels, and a low base.
Growth outlook:
It expects the domestic Tractor industry to grow at low double
digit levels in FY21. Inventory is very low at both the company and industry
levels.
Inventory:
Stocks at the dealer and depot levels are very low.
Tractor PBIT margins were driven by:
a) op lev (production at 100% level), b) a
favorable mix (>40HP contribution at 66% v/s 45% in 2QFY20; highest margin
segment) contributing 150bp, c) soft commodity prices, and d) low SG&A
expenses on account of strong demand and the COVID impact.
Tractor PBIT margins are sustainable at 17–18% (v/s 14% peak in FY19) as the
benefit of structural reduction in material/other cost (part of Vision 2022) has
now started to reflect. This is despite cost pressures on commodities (1.5–2pp)
and mix normalization, as well as SG&A cost.
Mix for >40HP has been stronger for the industry, and Escorts has gained share
in this segment. Commercial applications, which utilize fewer HP tractors, were
weak in the first five months of FY21, boosting the mix for the industry.
However, this mix would reverse to some extent as demand in the Commercial
segment improves.
ESC manufactured more than 11k tractors/month in Sep/Oct’20 (v/s rated
capacity of 10k/month) and is now earmarking an investment of ~INR1b to
increase debottlenecking capacity to 12.5k/month.
Railways:
The business’ near-term outlook is weak due to the impact of COVID-
19 on new orders – which are expected to start coming in from Dec–Jan. Its
current order book of ~INR3.5b is also seeing some delays and deferment and
would have an execution time of 6–8 months.
November 2020
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 Motilal Oswal Financial Services
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Construction Equipment:
The CE business is seeing good recovery as the served
industry grew 31% YoY in 2QFY21. The government is going ahead with the
budgeted outlay of USD100b, 40% of which is already spent. It expects FY21
margins at similar levels as FY20 (~3.6%).
Debtor levels decreased to 30 days (v/s 58 days last year).
Capex
for FY21 increased at INR2.5–2.6b as the company would invest ~INR1b
toward additional capacity (debottlenecking).
Hero MotoCorp
Current Price INR 2,999
Buy
Click below for
Detailed Concall Transcript &
Results Update
Demand:
Festive retail sales were down 4% YoY during Navratras and Dusshera
(one-third of festival sales). However, management is confident of a very good
festive season as Dhanteras and Diwali are strong in the Hindi belt. Semi-urban/
urban has also started to do well.
Growth differential
between rural and urban has increased to 8% (v/s 4-6%
during pre-COVID levels); however, it is expected to normalize.
Production is normal
and at record high level of ~30k units/day over the last 10
days (~750k/month).
Product portfolio:
Under BS6, 125cc portfolio is getting wider acceptance on
pan-India basis as against being a ‘select market’ story earlier. Some HF deluxe
customers have upgraded to Splendor plus. Initial response for the premium
bike, Xtreme160R, is robust (South, West and East region). HMCL is on its way to
double its premium segment market share.
Financing has been on an uptrend with 40%+
penetration in 2QFY21 (v/s 43% in
pre-COVID) and share of Hero FinCorp at 50%. Other financiers have started
coming back as well.
Discounts are lower YoY,
but still necessary to drive customer sentiment. Also,
they are more targeted toward certain segments, which might need support (for
e.g. replacement demand has been weak v/s first-time buyers).
Harley Davidson alliance enhances HMCL’s Premium segment
strategy of
having presence across sub segments. There are two agreements on
Distribution and Licensing. For products under the Distribution agreement,
HMCL would only sell and not manufacture it. Under licensing agreement, HMCL
will develop (not joint development), manufacture and sell the products.
Inventory
is on track for the festive season. Plan is to end the festive season
with 4 weeks.
Working Capital:
Receivables are lower YoY while payables are higher, which is
a reflection of higher production (no change in credit terms).
EV strategy:
HMCL will also focus on mass EVs whereas Ather is focused on
premium EVs (current stake in Arther is ~35%).
Mahindra & Mahindra
Current Price INR 716
Buy
Tractors
Click below for
Results Update
MM expects the Tractor industry to grow in low double-digit in FY21.
The company has witnessed a decline in WC for the first time in FES.
Quarterly system stock was >45% lower than 2QFY20. 2QFY21 market share was
impacted by supply-side issues due to (a) inadequate stock build-up in 1QFY21,
November 2020
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(b) higher dependence on Maharashtra, and (c) labor shortage. Post the festive
season, MM plans to build back inventory. The market share loss on wholesale
basis is unlikely to normalize in FY21; however, this is not structural market
share loss as demand for the brand is robust.
International operations in the FES business reported positive PBIT in 2QFY21 at
INR30m (v/s PBIT loss of INR560m in 2QFY20). This was driven by (a) North
America retail volumes growing 41% (80bp market share gains), (b) Brazil retails
growing 31%, and (c) turnaround in Turkey operations. MM expects North
America Tractor business to remain in the positive zone as one-time correction
of inventory is done (which took two years).
MM saw strong Farm machine business growth of 90% in 1HFY21 and is seeing
very broad-based growth across implements.
Autos
Quarterly system stock in 2QFY21 was 58% lower YoY, which was impacted by
(a) supply-side issues, (b) very high dependence on Maharashtra, and (c) labor
shortage. MM expects to build up stock post the festive season.
Thar has got very strong response with over 20k bookings. Over 55% of Thar
customers are buying the MM brand for the first time. The automatic version of
Thar forms 44% of total bookings (indicating demand is also from non-off
roading customers).
Based on its learning from the success of Thar as well as past failures, MM is
reorienting its SUV business to focus on maintaining its DNA and brand position
to garner share. Also, unlike the past, MM has launched all Thar variants upfront
and this seems to be the right approach.
Capital Allocation and Investments
Impairments are part of MM’s efforts to take care of all issues related to its
international subsidiaries. It started with tougher businesses, and hence, higher
write-offs. The company has fully impaired its investment in all international
loss-making businesses identified for exit.
It has announced exit for the aeroplane business (Gippsaero), which made loss
of INR3-4b in FY20. It would continue with the servicing business for outstanding
obligations, which will get addressed in 2-3 years. The aero structures business
will continue, as it has made good progress in this long-cycle business and is
supplying to Boeing, Airbus and Tier-1 suppliers. This business doesn't need
much cash.
In 1HFY21, it invested INR28b in subsidiaries; of this, ~INR16b was invested in
rights issue of MMFS. The balance INR12b was toward debt reduction in some
international subs as well in operations in some subsidiaries.
Ssangyong: Discussions are ongoing with a potential investor. It expects
resolution of SYMC over the next few months.
Cost and margins
Cost reduction seen in 1HFY21 is largely structural in nature, particularly in the
Auto business. This was due to shift to digital marketing (including launches),
travel related costs, etc.
There are headwinds to margins in the form of (a) commodity cost inflation
impact, (b) normalization of pricing power as supply-side normalizes, and (c)
some costs coming back as the business normalizes.
November 2020
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Mahindra CIE
Click below for
Detailed Concall Transcript &
Results Update
India business
Demand momentum is expected to continue in 4QCY20, and OEMs are
confident of demand for the next six months; however, management is
cautiously optimistic on demand post the festive season.
CY19 sales levels are expected to recover by CY21; however, peak sales of CY18
(peak of the Auto sector) are expected to recover by CY23.
MACA would grow faster than the market by: 1) growing exports from 12–13%
to 20% (real benefit to be seen from 2HCY21 as it would take 12–18M to
activate orders), 2) increasing its business with existing OEMs, 3) acquiring new
OEMs as customers – such as Renault, Kia, etc., and 4) targeting Tier 1 suppliers
for new and incremental business. Moreover, the company is seeing some shift
in the business from EU operations to India. Management targets generating
25% of sales from new orders (v/s 15% currently).
Average capacity utilization is at 90%, with different units ranging from 80–100%
(Magnets at 100%).
The China substitution may generate benefit of INR20–30m/month in Magnets
and Gears.
The India BEP is INR3.5b/qtr revenues.
Europe business
The EU region is seeing a second wave of COVID-19 cases; however, this has not
impacted production at any plant.
A favorable currency exchange rate restricted EU sales decline to 12% in INR
terms (v/s 22% in EUR terms).
Demand outlook:
Passenger Vehicle Forgings and Gears (Italy) have a positive
outlook for the coming quarters, but Commercial Vehicle Forgings remains
challenged.
Metalcastello's key customer
is Caterpillar, which is at the bottom end of the
cycle in the US. Expect the market to revive post the US election in Nov’20.
Restructuring:
MFE incurred restructuring cost of INR270m. This was partially offset by the sale
of real estate property in Jeco (INR162m profit).
Major restructuring has been completed, and some additional cost is expected
for fine-tuning in 4QCY20. Margins would normalize toward the last month of
the quarter.
Metalcastello’s restructuring activity has been completed and the business is
seeing good margins.
The MFE Germany CV business is seeing restructuring. Current volumes would
remain stable for the remainder of CY20.
The PV business does not need any restructuring.
Post the restructuring; the EU business has a BEP of INR5.5b/qtr revenue. This
would further reduce by INR200m/qtr.
Capacity utilization: PV Forgings: 80%, Germany (CV): 65–70%
The government grant was EUR4m in the EU in 2Q and <EUR1m in 3Q.
Others
CIE took additional stake from the market to reach 60.18% (v/s 58.02% in
2QCY20 and 56.29% in 3QCY19).
Current Price INR 154
Buy
November 2020
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 Motilal Oswal Financial Services
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Capex: India CY20 capex would be at ~INR2.5b (9MCY20 capex at INR2b) toward
growth in capacity expansion. CY21 could be higher if the company wins
additional business.
Net debt stands at INR16.1b, including a lease of INR2.5b as well as the impact
of a weak INR (INR1b). Pure debt increased ~INR1.2b in Dec’19 due to an
increase in working capital (India business debt: INR1b; EU is balance).
EV risk to business: 25% of revenues (20% India and ~30% EU) are exposed to
engine components. MFE Germany does not do engine forgings. In PV Forgings,
crankshafts (25–30% of business) would not be relevant. The CV Forgings
business would not be affected.
Maruti Suzuki
Click below for
Results Update
Current Price INR 6,966
Buy
Retail performance, customer, and model profile
The festival period saw 27% growth in deliveries to 96.7k units and bookings of
85k (deliveries in FY20/FY19 were at 76k/75k units).
2Q retail grew 4%, with rural retail increasing by 10%. The share of rural
increased to 41% from 38.5%. The share of the Top 10 cities for the industry was
at 31.4% in 1HFY21 (v/s 36% in FY20).
The share of FTB increased (by 5pp to 48%) on account of a growing preference
for personal mobility and replacement decline (by ~7.6pp).
Pre-owned car demand was very high as inquiries were up 40%, but there was
no supply. Demand for pre-owned cars is at 1.4–1.5x that of new cars (reflecting
weak replacement demand).
Diesel vehicle share for the industry stood at 17.8% in 1HFY21 (17% in 2Q), while
competition (India ex-MSIL) had 34% share in diesel models. For passenger cars,
diesel share was just 1.5%, but mid-sized SUV had good demand for diesel
vehicles.
CNG model share in total volumes increased to 11.2% (v/s 7.2% in 2QFY20).
Demand outlook: Growth was majorly driven by pent-up demand; hence, the
sustenance of demand would be a key monitorable. Based on good Navratas
and Dussehra demand, Diwali and the Nov–Dec’20 period are expected to be
good.
Commodity prices had a negative impact of 1.3–1.4% YoY (steep price hike on
precious metals palladium and rhodium), and negotiations are on for a further
price hike. Forex had an adverse impact of 0.5% YoY.
Discounts were lower at INR17.3k per unit (v/s INR25.8k last year).
Current utilization levels are at 85–90%. Nov’20 would have fewer working days
(4–5 days less) due to Diwali.
Share of FTB in SUV increased to 28% in FY20 from 12% (five years ago). Among
FTB, SUV stood at 14% in FY20 from 7% (five years ago).
New financing schemes have added 5–6% to volumes. Leasing schemes are
being rolled out after pilot testing in four cities, and after good initial response,
they would be extended to 20 new cities.
November 2020
19
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Motherson Sumi
Current Price INR 140
Buy
Click below for
Results Update
Status of operations: Neither plant shut down (due to lockdown), nor any
changes in schedule by clients were reported. ~80% of plants are running at
capacity of >75% as the situation normalizes.
Demand: Strong demand has been cited for 3QFY21; management expects EU
demand recovery to continue despite the second wave of lockdown.
SMP: The green-field plants of SMP USA achieved EBITDA breakeven.
Profitability would continue to improve with cost-saving initiatives and volume
ramp-up. The management does not expect a further increase in expat cost or
staff cost with an increase in volumes.
PKC: Lower off-take was seen in this quarter – China was higher, but the US was
down 40% YoY, Europe 30%, and Brazil 39%. However, demand is picking up on
the back of an uptick in NA Class-8 orders.
Net debt stood at INR75.2b v/s INR90.83b in 1QFY21. The exchange rate impact
is ~INR1.2b.
The capex target remains the same for FY21E at INR20b. This would be sufficient
to cater to the current order book.
Tata Motors
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 169
Buy
On 2QFY21 performance
FCF generation in 2QFY21 was positive, led by the normalization of working
capital, with JLR at GBP463m (GBP528m working cap release) and S/A at INR23b
(INR30.8b work. cap release).
In 2QFY21, a cost savings program delivered GBP0.3b savings at JLR and INR2.8b
in standalone.
Net debt reduced from 1QFY21 levels, with net consol Auto debt at INR615b
(v/s INR678b) and new standalone debt at INR233b (v/s INR257b).
JLR
The EBIT margin beat was driven by a) a better mix (higher LR), b) lower VME, c)
furlough benefit, and d) cost savings in ‘Charge+’.
VME was lower at 3.8% (v/s 5.9% last year), benefitting from the release of
GBP64m of US residual, although underlying VME was at ~6%. VME is expected
to be higher than 6% in 3Q and then come down from 4Q.
Furlough benefit was at GBP55m in 2QFY21 (v/s GBP179m in 1QFY21). Furlough
schemes are ending in 3Q (Oct).
Dealer inventory was around ideal levels at 54 days. Going forward, wholesale
would be in line with retail.
Defender 110 is doing well and Defender 90 is now also on sale. Despite the
increase in production, the order book for Defender has increased further. JLR
expects Defender to clock ~5k/month.
With more hybrid launches (currently 7 PHEVs and 9 MHEVs), it expects the
contribution of hybrids & BEVs to increase, which would aid compliance with EU
norms in CY21. For CY20, due to the COVID impact on sales and delay in hybrid
launches, it has offered GBP90m in EU CO2 fines (expected to reduce with
increase in PHEV/BEV share in 3Q). It needs to have a low-double-digit
contribution from PHEVs to comply with EU norms in CY21.
November 2020
20
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
TVS Motors
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 478
Neutral
Festive performance and demand outlook: Retail sales grew marginally during
Navratri and Dussehra, predominantly in premium products. With urban market
retail reaching pre-COVID levels and rural positive, the company expects good
sales during Diwali. TVS would perform better than the industry on the back of
its portfolio.
Financing: Penetration was at 46% (v/s 56% in 4QFY20 and 46¡V47% in 2QFY20)
TVS Credit has 50% share. TVS Credit Services is seeing collections that are
similar to, if not better than, pre-COVID levels. Capital adequacy is at 17%. In 2Q,
it reported PBT of INR143m, after making provisions of INR250m.
TVSL took a price increase of 1.5% in 2Q and 1% in Oct¡¦20.
Cost-cutting measures initiated two years ago are yielding results. The focus has
been on material cost, marketing cost (through digitalization), etc. Employee
cost has been lower in 1H due to salary cuts; it has been restated to pre-COVID
levels from 1st Oct.
Export sales: TVS performed better than the industry as its export sales were
down by only 29% (v/s industry decline of 40%) during the quarter.
Export incentives: TVSL started accounting for sharp reduction in MEIS
incentives from Sep-20 and accounted for incentives at earlier rates up to Aug-
20 based on feedback from consultants. It would mitigate this loss through
some price increases and cost reduction.
The Indonesia subsidiary achieved PBT breakeven in 2Q (v/s USD1.03m loss in
2QFY20) based on 2W volume growth of 5.5% to 14.7k units.
Capex: It has increased its capex target to INR5b for FY21 (v/s INR3b earlier).
Furthermore, it would invest an additional INR0.9¡V1b in TVS Credit (~INR0.5b)
and Norton. This is over and above the INR1.5b invested in subsidiaries in
1HFY21.
November 2020
21
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
CAPITAL GOODS
With the pace of recovery gradually picking up, managements across the board attributed to recovery in the
Products business being faster v/s the Projects business. Most companies continue to focus on working
capital over execution (with execution being slowed on purpose in some cases). ABB’s management
indicated continuous engagement with clients via the digital medium has demonstrated the benefits of
digitalization at a lower cost. Cummins’ management was cautious on demand recovery, mainly in exports,
as a second lockdown across Europe poses a risk to ongoing recovery. Havells and Crompton’s
managements indicated market share gains across most categories – at the expense of unorganized players
and smaller organized companies. For ACs, Voltas’ management alluded to higher-than-normal inventory
with the company; however, it expects the same to get normalized before end-2020.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY21
Domestic Capex Cycle & Order Lineup
In the Motion business, continuous engagement
via the digital medium aided order wins and led
Electronics Data Centres, Pharma, and
to revenue growth.
Warehouse Logistics are some of the sectors
Such trends strongly indicate clients have
that reported strong growth.
ABB
experienced the benefits of digitalization from
Demand is ~85% v/s last year. The company
close quarters, with ABB using automation
has aligned its cost and operations
(such as remote monitoring) to service clients at
accordingly.
lower costs.
Management has refrained from guiding for FY21
Telecom is one of the segments wherein the
as it still assesses the impact of COVID-19.
growth outlook is positive on the exports side,
Sales mix was favorable as products sales are yet
Cummins
with investments in 5G across most Asian
to recover in the domestic market, thereby
countries.
leading to gross margin expansion.
Lloyd’s sales recovery is led by growth in AC sales.
B2C product categories grew in excess of 15%
Ad spends and capex remained low in 2Q.
YoY, while B2B product categories declined
Havells
The festive season is turning out to be a good
~14% YoY. However, demand for B2B
one, and the management expects to build on
products is gradually improving.
this momentum going forward.
It is more challenging to mobilize labor to sites
L&T does not anticipate any major risk to
v/s bringing the workforce to the office. Labor
ordering due to weak state finances.
Larsen and
availability is back at pre-COVID levels, but
Borrowing limits have been raised both for
Toubro
productivity is yet to recover.
center and state govts. Believe ordering to be
Working capital as % of sales stood at 26.7%,
strong in 2HFY21.
similar to 1QFY21 levels, but higher than 2QFY20
The company has bagged the High-Speed Rail
levels of 23%. Management is hopeful of
order in 2QFY21 – a four-year project. There
economic recovery enabling improvement in
have been no significant order cancellations
working capital in the seasonally strong 2HFY21.
in the current quarter.
Company-level inventory stood at ~110 days,
Pace of execution was better in the Middle
slightly higher than normal, with the
East in some projects due to the better
Voltas
management confident of normalization by end-
availability of labor and government support.
Dec’20.
However, few legacy orders saw delays.
In the EMPS segment, clients are still deferring
Volt-Bek is ramping-up production at the
payments; hence, management has taken ECL
Sanand factory. Production of Frost-free Refs
provisions. Voltas expects margins to gradually
and Top-load WMs would also be undertaken
recover to 5–6% and they might remain under
in the near future.
pressure in the near term.
November 2020
22
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
ABB
Click below for
Results Update
Business update
ABB is focused on costs and cash conversion.
Demand is ~85% v/s last year. The company has aligned its cost and operations
accordingly.
The company inaugurated ‘eMart’ for electrification products, while doubling its
capacity for the robotics facility.
A favorable forex impact led to an increase in margins.
Cash balance stood at INR16b in 9MCY20 (v/s INR13.4b 9MCY19).
Electrification
Order inflow stood at INR4.9b, with order backlog at INR13.2b.
Orders were seen from the Data Center, Metro Rail, Food & Beverage, and MV
Distribution (repeat orders) segments.
Revenue was led by a strong performance in exports, while the Services
business-related constraints persist.
Margins: Capacity uptick and cost rationalization aided margin accretion.
Motion
Orders won stood at INR5.5b, with order backlog at INR16.5b.
ABB focused on transportation, digitalization, and services. Continuous
engagement with customers through digital means helped drive growth.
Margin: A better volume with mix and cost reduction measures led to higher
profitability.
Industrial Automation:
Order inflow stood at INR2.7b, with order backlog at INR13.4b.
Projects were deferred due to market uncertainties and delayed decision
making.
Opportunity exists in water projects, chemicals, and small and mid-sized plants.
Revenue: Lower revenues due to prolonged slowdown in the Metal and Cement
sectors led to orders from customers being deferred. Exports and capex-related
project revenues were also subdued.
Margin: Project mix and execution challenges (EPC & Conventional Power
Generation segments), decline in services and export components, and an
unfavorable forex impact led to margin decline in the quarter.
Turbochargers: ABB India is a hub unit for Turbocharger. Exports were mainly
across SAARC regions, with Bangladesh and Sri Lanka doing well. In India, Indian
Railways is moving away from diesel to electric locomotive, thus reducing the
usability of Turbocharger.
This is the only segment that has exposure to projects. Two business units work
only on projects, primarily from the O&G and Power sectors. With both the
sectors facing headwinds, margins have been impacted.
Robotics and Discrete Automation
Order inflow stood at INR330m, with order backlog at INR1.2b.
Ordering was lower from auto OEMs and ancillaries, while opportunities are
expected in the Consumer and Electronics segments going ahead.
Revenue: Project revenues stood lower, while Services revenues were higher.
Some customer sites are still not operational, which is restricting the movement
of outsiders.
Margins: Higher Services revenues led to margin improvement.
23
Current Price INR 1,122
Buy
November 2020
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Capex for the robotics facility is complete, and the facility is up and running.
Margin
Other expenses on a normal basis stand at ~INR3.5b every quarter. They now
stand at ~INR2.5b (owing to 80–85% of normal sales).
Discretionary expenses would be incurred cautiously, while operational and
business spends would continue.
Discretionary spends form 20–25% of total other expenses.
Exports
Order inflows were static in 3QCY20.
Currently, exports account for just 12% of total orders despite ABB’s expectation
that the segment would compensate for the sluggishness in the domestic
market.
Within Electrification, the strong domestic business of the MV Switchgear
division is being leveraged for exports.
Management is of the view that for any business to scale its exports, it should
first get firmly established in the domestic market.
Others
ABB has adequate land available in India and could double current capacity at
the company level based on each business’ requirement.
Blue Star
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 745
Neutral
EMP segment
INR2.1b is the carry forward OB for Electro Mechanical Projects.
Commercial AC
– Orders from the Healthcare, Pharma, and Government sectors
partially aided demand recovery.
Major orders bagged were from greenfield electronic clusters in Hyderabad,
Vijayanagar Institute in Bellary, Grand Hyatt, NMDC Chandigarh, etc.
International business
– Gradual revival was seen, with encouraging order
inflow. The Qatar market recovered with an uptick in government projects.
Management expected 4–4.5% margin for this segment in FY21.
Margin improvement in 2QFY21 was owing to the execution of better quality
projects and efficient cost management.
There are some slow-moving projects in the Building and Real Estate sector.
UCP segment
RAC
– With the opening up of retail counters and growth in the e-commerce
channel, demand recovery exceeded management expectations. BLSTR
maintained market share at 12.75%. Expect 2QFY21 momentum to continue in
the next quarter as well. By December’20, management expects 100% recovery
in the RAC business. Inventory has moderated from 1QFY21 levels.
Channel inventory in RAC stood at 40–60 days, and the situation continues to
improve.
The RAC market is moving toward the mass premium range of products.
BLSTR is enhancing its position in the northern market. Northern and southern
region revenue share was around 30–35%, followed by the western and eastern
regions (for RACs).
Share of e-commerce in sales stood at 12% for BLSTR (v/s 16% for industry). The
management is now focusing on BLSTR’s e-commerce site.
November 2020
24
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Import ban:
BLSTR was the least affected as its manufacturing is supported by
OEM manufacturers in India. The idea of the ban is to create a level playing field
with regard to imports from FTA countries. This move would take 5–6 months to
consolidate the RAC market. Blue Star manufactures ~100% IDUs in-house.
Commercial Refrigeration
– The Modular Cold Room and Medical Refrigeration
business saw healthy orders from the Pharma segment. The company
maintained market leadership across product categories. Major orders received
during the quarter comprised a UP medical supply corporation, Dr Reddy’s Lab,
Thyrocare, etc. Market share in the Variable Refrigerant Flow (VRF) segment
stood at 19–20% – BLSTR is the No 2 player in this category. Market share in
Chillers stood at 25–30%.
The e-commerce channel contributed major revenues for Water Purifier. BLSTR
now has market share of 3% and is expected to achieve breakeven in FY21.
Decline in RAC and Commercial Refrigeration was almost the same in 2QFY21.
Some action was taken in 1QFY21 to rationalize procurement in RAC. As a result,
while there is some reduction in inventory sequentially, it is still higher than it
usually is at this time of the year.
The company expects 7–7.5% margins from this segment in FY21. The full
benefit of the significant impact of cost-cutting reduction measures undertaken
would reflect by end-FY21.
Crompton Greaves Consumer Electronics
Current Price INR 304
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand outlook and business ramp-up
CROMPTON is now tracking 76% of secondary sales via the Tally app.
Sales via rural channel have grown exponentially. The company has gained
significant market share this quarter. Use of e-commerce channel has also aided
growth.
Growth is visible across all product lines and geographies. Only B2B Lighting
sales are still subdued.
Channel inventory is optimal at present. Company-level inventory is slightly
lower as there are some challenges in labor availability and supply chain issues.
Management is endeavoring to further ramp up inventory at the company level.
Electrical consumer durables:
Fans:
Revenue was up 23% YoY, both in terms of value and volume. Silent-pro
fans were very well received by market. Super-premium fans grew 300% YoY.
Overall, the end market data does not suggest that fans as a category is growing
recently (beyond 7-8%). Hence, growth for CROMPTON has come from gaining
market share at the cost of the unorganized sector as well as from small
branded players.
Pumps:
Revenue grew 18% YoY in volume terms with residential pumps growing
24% YoY. Agri-pumps continued to face some challenges. Value growth in
pumps segment was 13% YoY.
Appliances:
Revenues were up 32% YoY driven by Water heaters (+43% YoY).
Management is of the view that the brand has reached No.2 position in water
heaters now and is very close to the leader.
Lighting:
B2C LED business is now witnessing value growth in line with volume growth,
with the growth being in double digits.
25
November 2020
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Management is of the view that price erosion in LEDs has now bottomed out.
B2B business is yet to recover, especially the B2G business. B2G business is
down significantly and is expected to remain muted. B2B business (ex-B2G) has
remained flat YoY.
Margins
Cost rationalization initiatives have aided margins in 2QFY21. The company has
started spending on advertisements now.
Lighting margins came in double digits, owing to price erosion bottoming out.
Gross margins have also improved in 2QFY21.
Salary increases were on hold until recently, but the company have given salary
hikes effective 1st Oct onwards. Hence, savings incurred due to deferral of hikes
will be reversed now (~50bp).
Some part of savings incurred from nil sales promotion during the pandemic is
also expected to be reversed. However, other cost saving initiatives will
continue.
Cummins India
Current Price INR 508
Sell
Exports
Click below for
Detailed Concall Transcript &
Results Update
Pent-up demand aided export growth, with management cautiously optimistic
on demand.
Next six months are expected to be very turbulent.
Over a period of 2-3 years, KKC aims to improve global market share, offer new
products and add value to its customers.
Impact of MEIS scheme withdrawal – KKC provided for INR130m in 2QFY21 on
account of withdrawal of export benefit scheme. Management believes new
incentive rules will be implemented from 1st Jan’21, which will help to negate
this loss.
Biggest growth in exports is led by the telecom sector related to 5G rollouts,
especially in Asia.
Europe and LATAM are witnessing a second wave of COVID cases, and hence,
management is unsure of demand from these markets in the near future.
Domestic
This segment is witnessing recovery across segments on MoM/QoQ basis.
However, management is unable to provide for FY21 guidance as yet.
Break-up of domestic revenue: Powergen declined 35% YoY and Industrial
declined 21% YoY while distribution decline was lower at 4% YoY.
Margins
Mix had positive impact of ~2.5%, while cost rationalization of raw material
yielded ~1% advantage.
Other expenses stood lower owing to reduction in royalty, warranties, etc.
Warranty expenses – If usage of product is lower, warranty costs go down. If
usage goes up, warranties will also go up.
Commodity prices are generally passed on to the customer, but in case of
substantial rise, it may prove to be a risk.
November 2020
26
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Havells India
Click below for
Detailed Concall Transcript
& Results Update
Demand outlook
The B2B business is still weak, but on the path to recovery; the B2C business is
seeing strong growth.
Lloyd’s sales recovery is led by growth in AC sales.
Ad spends and capex remained low during the quarter.
The festive season is turning out to be a good one, and the management
expects to build on this momentum going forward.
Margin
Margin improvement is led by Lighting and ECD. Management expects to
maintain margins, although there is some input cost pressure.
Certain expenses were lower than normal. Costs for travel, promotions, and ads
would be incurred gradually and would take time to return to normal levels.
Also, it is possible these costs may not return to pre-COVID levels entirely.
Havells did not undertake any salary cuts in 1HFY21. Hence, the current
employee expense is sustainable.
Growth outlook
Rebound in economy and market share gains are driving growth for Havells.
The company has gained market share from unorganized as well as organized
players.
The rural channel is growing strongly (+140% YoY).
There is some improvement in residential demand as well. The Wires segment
saw 19% YoY growth.
Consumer and Residential Products sales have grown by 15%+ YoY.
Consumer lighting grew ~15% YoY.
Inventory levels are lower than normal in the channel.
It has been four months since the unlocking of the economy, and the
management has not seen slowdown in demand. If current demand was only
pent-up, it would have slowed later on post the lockdown.
Other takeaways
Fans – Management believes Havells has grown faster than peers in the
industry. Industry would have grown in the single digits during the quarter.
Capex – INR3.3b would be incurred for FY21. Havells does not intend to invest in
a new facility in FY22; it plans to increase capacity at existing facilities. However,
the company may invest in new facilities if market sentiment improves.
AC ban – Management believes it is the right move to promote Make-in-India.
AC as a category is becoming more and more essential. With the development
of a local manufacturing ecosystem, there is scope for exports as well.
Lloyd’s margins – There is scope for margin expansion as the company has its
own plant under operation.
Havells is focused on increasing market share, growing individual segments, and
maintaining contribution margins.
Current Price INR 825
Neutral
November 2020
27
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
KEC International
Current Price INR 349
Click below for
Detailed Concall Transcript &
Results Update
Buy
Bid pipeline has been healthy in the international T&D segment across Africa,
the Middle East, and SAARC. KEC has bid for INR300b of orders in the last couple
of months, and will bid for another INR250b over the next few months. Final
awarding is a bit slower than management’s anticipation.
The company is L1 in four orders in SAE Brazil. Execution for these orders will
happen by 1QFY22E.
Strong revenue growth momentum in Railways should continue in FY22.
Current order book provides decent medium-term revenue visibility
Order book stood at INR195b (excluding L1 position) with OB/Rev ratio of 1.6x.
Order inflows declined by 8% YoY to INR24.4b in 2QFY21. Order inflows were
strong across Power T&D (INR20b v/s INR2.8b in 2QFY20). Of all segments,
Railways’ order book stood at ~INR51b, providing strong revenue visibility in
FY21E. Order inflow from Railways is expected to pick up due to ordering
activity picking up over the next few quarters.
Larsen & Toubro
Current Price INR 1,132
Buy
Click below for
Results Update
Macro environment:
Green shoots in economy are clearly visible with PMI,
exports, traffic volume, GST, etc. having recovered. Bank credit is also in the
positive territory.
Labor status:
It is more challenging to mobilize labor to sites compared to
bringing workforce to the office. Labor availability is back to pre-COVID level,
but productivity is yet to recover.
E&A sale update:
INR4b of retention amount was held back as some obligations
were due. The consideration has now been received in Oct’20. Adjusted for
working capital, debt and closure charges, net proceeds amounted to INR130b.
Another INR50b were expensed toward tax (INR25b) and carrying value
(INR25b). Hence, net profit from the sale stood at INR80b.
On the cash proceeds of INR130b, INR20b is the tax outgo (lower than P&L tax
due to tax credit available).
Rough usage of INR110b cash post tax:
INR50b will be used for debt repayment,
INR20b toward investments in Finance Holdings and IT business, INR20b toward
Hyderabad Metro and the remaining amount has been given as special dividend
of INR18/share.
Divestment plans and Impairments:
1) Hyderabad Metro – After recapitalizing
and once traffic stabilizes, L&T will look to divest the asset. 2) Nabha Power –
L&T is eyeing an exit. Currently, it does not have any potential suitor for the
asset. However, as a starting point, it has re-evaluated the asset and took
impairment of INR16b. Invested equity was INR27b, net worth was around
INR38b. As per L&T’s estimates, market value is INR22b. So, impairment taken is
worth INR16b. 3) Uttarakhand plant – Impairment stood at INR10b. 4) Forging
business – There are no steady order inflows in the nuclear forging business.
L&T was keen to restructure debt into equity earlier, but has now taken
impairment of carrying value at INR10b.
November 2020
28
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Other key takeaways
Working capital
– Management is ensuring that absolute working capital
doesn’t escalate.
Hyderabad Metro – INR3.5-3.75b is the finance cost per quarter, with
depreciation at INR750m/quarter.
Nabha power plant has robust PLF of 92%.
The company has bagged the High Speed Rail order in 2QFY21. It is a 4-year
project.
Provisions in Heavy engineering segment stood at INR1.2b.
Bid pipeline:
INR6.1t in total (Infra - INR3t, Power - INR1.2t, MMH - INR15k,
Hydrocarbon - INR1.1t, Heavy Civil + defence + smart infra - INR1.0t).
No significant order cancellations have happened in the current quarter.
Cash buffer:
L&T had raised INR120b during the pandemic as liquidity buffer,
out of which, it has repaid INR40b. With further recovery and better collections,
there is buffer to reduce debt.
Key segmental comments
Infrastructure:
Margins affected by productivity challenges and job mix.
Power:
Award deferments seen in 1HFY21. Opening order book was healthy on
the back of large wins in FY20. Revenue increase in 2QFY21 was driven by large
opening order book. Major part of order book yet to cross margin recognition
threshold.
Heavy Engineering:
Muted order wins in pandemic environment. Better
capacity utilization aided revenue recovery in 2QFY21. Margins were affected by
a one-time warranty provision.
Defense:
Significant order wins in 2HFY21 led to replenishment of opening order
book. Revenue declined owing to tapering of a large order.
Hydrocarbon:
Muted order inflow was due to lower capex/depressed oil prices.
Development projects:
Operations for the Hyderabad Metro were affected
during large part of 2QFY21. Under-recovery of fixed costs impacted EBITDA.
Others:
Revenues were impacted largely due to lower handover in the Realty
business.
Voltas
Click below for
Results Update
Current Price INR 770
Buy
Unitary Cooling Products
1HFY21 AC industry sales declined 59%.
2QFY21 AC volumes grew 11% for VOLT, while inverter AC volumes grew 36%.
Market share in ACs stood at 26.8% in Aug’20 (v/s 26.4% YTD).
Lower material costs and sensible marketing spends led to margin expansion.
Volume growth stood at 20% in Commercial Refrigeration Products and 28% in
Air Coolers.
E-commerce formed just 5% of sales in 2QFY21. AC requires installation, and
hence, the lower penetration is relative to some other categories in ecommerce.
Currently, VOLT has INR10b of inventory, translating to ~110 days.
There were hardly any ad spends in 1HFY21 as there was no point in advertising
in such a market where the COVID pandemic was rampant.
Electromechanical Projects and Services
The company took ECL related provisions in 2FY21, especially in the Middle East,
which impacted profitability.
29
November 2020
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Pace of execution was better in the Middle East in some projects due to better
availability of labor and government support. However, few legacy orders saw
delays.
Management is witnessing deferment of payments by clients, and hence, ECL
provisions were undertaken.
Overall, order book stood at INR68.5b. Of this, international order book stood at
INR23.2b.
Management expects gradual margin recovery to 5-6%; however, it may remain
under pressure in the near term.
Volt-Bek
Seeing encouraging feedback on products launched.
Ramping up production in Sanand factory.
Production of Frost-free Refs and Top-loads WMs would also be undertaken in
the near future.
Have 6,000 touch points now.
Lower losses in 2QFY21; however, there may be a need to infuse more
marketing spends in the coming years as focus is on expanding market share.
Restructuring:
Management has clarified that they do not plan to sell the B2B business as of
now. This is an internal restructuring to focus more on the B2C business.
This exercise should not be seen as a precursor to demerger. The company had
options to demerge directly as well, if that had been the plan.
There will be a project-specific management team looking at the B2B business
now.
Other takeaways
Other income declined owing to MTM.
Ban on refrigerant ACs will impact fringe players and help in market
consolidation. VOLT has reduced imports over the years; the company believes
imports of components will be substituted over the next 2-3 years,. VOLT is an
industry leader and strong anchor customer for suppliers.
VOLT’s imports: CBU imports are quite low and limited to select SKUs. IDU
imports were at 70-80% a couple of years back, but have gradually reduced.
Management is planning to set up an AC factory in South India.
Festive season: The company has launched an attractive financing scheme
(higher product warranties are being offered).
.
November 2020
30
 Motilal Oswal Financial Services
CEMENT | Voices
CEMENT
Managements informed that cement volumes saw recovery, led by strong demand in East and North. On
the other hand, demand remained tepid in West and South due to the prolonged impact of COVID-19 and
the monsoons. Demand recovery was attributable to strong rural and semi-urban demand and a pickup in
government infra and road projects from September, while the Real Estate sector continues to suffer due to
muted demand. Demand in October remained strong, and a pickup in construction activity post the festive
season would further drive demand. Shree Cement’s management guided for the strong volume growth
seen in 2QFY21 to sustain in 2HFY21. Managements informed that cement prices have firmed up across
regions in Oct’20 and are up by INR10/bag over Sep’20, on average. Due to sharp hikes in petcoke prices,
companies have increased the use of imported coal. UltraTech guided for a ~10% YoY inflation in power and
fuel cost in 3QFY21. Moreover, the fixed cost reduction achieved in 1HFY21 may not sustain in 2HFY21 as
part of fixed costs – such as admin expenses, repairs, and ad spends – are likely to increase with an increase
in operations.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook FY21
Commentary on Capex Cycle
MIL Acquisition
– Revival process with
Lead distance stood at 290km and is likely to
remain below 300km.
INR4.0b capex has been initiated. It is
Dalmia Bharat
Petcoke price stands at USD95/t, and the
expected to be commissioned in 3QFY22E.
company is set to increase the consumption of
Trial run for Bengal GU & debottlenecking at
imported or domestic coal to reduce the
Bokaro GU would start in Dec’20; Cuttack
impact of rising petcoke prices.
GU/ 30MW WHRS would be commissioned
in Apr’21/4QFY22E.
Capex guidance of INR4.0b/INR5.0b for
capex in East / cost improvements projects
(including WHRS).
JK Cement
Ultratech
Cement
The company expects to achieve consolidated
cost savings of INR100/t from 4QFY21 on
account of cost efficiencies from newly
commissioned capacities.
It has switched to imported coal due to
petcoke availability issues, which has led to a
rise in prices. Promotional expenses and all
other essential overheads have been
normalized.
The company has maintained market share in
the White Cement and Wall Putty businesses
and expects to achieve over 10% growth.
It achieved cost reduction of INR4.5b in
1HFY21, but a part of this would return in
2HFY21.
Power and fuel costs are expected to go up by
10% QoQ in 3QFY21 on account of higher
petcoke prices. This is being partly mitigated by
a switch to imported coal, currently cheaper
than petcoke.
Lead distance was at 453km v/s 457km in
2QFY20 and is expected to reduce further with
the commissioning of new grinding units.
Employee expenses are guided to remain at
INR1.75b per quarter going forward.
Depreciation is expected to be at INR13.0b for
FY21. Petcoke mix stands at 70% and is
expected to reduce as the company would
switch to thermal coal gradually, unless
petcoke prices soften.
Shree Cement
Panna expansion
– Environmental clearance
has been received and 90% of factory land
has been acquired, with INR1.6b capex to
date.
Mangrol expansion
– INR2.3b would be
spent for the balance items and INR1.5b
saved out of the budgeted amount of
INR20.0b.
Nimbahera Line 3 modernization
– INR2.6b
has been spent up to 2QFY21 out of the
budgeted INR5.0b. INR2.0b is expected to be
spent in 2HFY21.
Capex for 1HFY21 stood at INR4.5b (2QFY21
– INR2.86b); FY21 guidance has been
reduced to ~INR12b (from INR15b earlier).
Capacity commissioning has been delayed –
Bara Phase 2 is expected to be
commissioned in Mar’21, 1.2mt would be
commissioned in East in 2QFY22, 2.2mt in
Cuttack in 4QFY22, Super Dalla in 1QFY23,
and Pali in 3QFY23.
Raipur Third Clinker Line
– The 10–12ktpd
capacity is expected to be completed by
1QFY23 with capex of INR10.0b.
The Pune and Odisha grinding units are
expected to be commissioned in Dec’20.
The company would announce plans for the
Bengal grinding unit in 2HFY21.
November 2020
31
 Motilal Oswal Financial Services
CEMENT | Voices
Birla Corp
Click below for
Results Update
Current Price INR 749
Buy
Utilization
Capacity utilization improved to 84% during the quarter (v/s 83% in 2QFY20).
Market mix
Trade sales stood at 81% of the mix v/s 83% in 2QFY20.
Premium cement sales increased to 48% of trade channel cement v/s 41% in
2QFY20.
Blended cement share remained unchanged at 93% of volumes in 2QFY21.
Demand recovery to sustain in 2HFY21
Steady demand from the Rural, Retail, and IHB segments boosted cement
demand in the northern, central, and eastern markets in 2QFY21.
Demand from the Infrastructure sector continues to improve steadily with the
return of migrant labor.
The company expects recovery in cement demand to sustain through 2HFY21.
Pricing remained stable in 2QFY21, barring some seasonal disturbances due to
the monsoons.
Cost: Rising fuel cost to put pressure on cost in 2HFY21
The company reduced its freight cost by 1% in 2Q, despite an increase in diesel
costs, through optimizing the market mix.
It is undertaking measures to improve efficiency and rationalize costs through
various means. The company has initiated digital transformation to achieve
operational efficiencies in the administrative and support functions of the
business.
It expects costs to increase in 2HFY21 as rising costs of petcoke and other fuels
are likely to put pressure on cost.
Project updates
The Kundanganj brownfield grinding unit expansion by 1.2mtpa has been
revived in response to the strong rebound in demand.
The Mukutban 3.9mtpa green-field integrated plant is guided to be
commissioned by Sep’21. The project is eligible for tax incentives as the state
govt. has extended the window by 18 months to Dec’22.
The debottlenecking of the Chanderia kiln capacity by ~0.4mtpa is nearly
complete and would be hooked up by doing a planned shutdown of the plant.
Dalmia Bharat
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 983
Buy
Operational Highlights
Sales volume up 7% YoY to 4.8mt.
Trade sales mix stood at 68%.
3.0mt Odisha clinker line started commercial production from 1st Oct’20 and is
currently operating at 70% utilization.
7% of current power requirement is being catered to by captive solar and WHRS
plants and the company is targeting to increase the mix to 35% by FY26E.
Lead distance stood at 290km and is likely to remain below 300km despite the
commissioning of new capacities.
Petcoke price stands at USD95/t and the company is set to increase the
consumption of imported or domestic coal to reduce the impact of rising
petcoke prices.
INR210m of incentive accrued in 2QFY21.
November 2020
32
 Motilal Oswal Financial Services
CEMENT | Voices
Demand outlook
Eastern region continued to outperform on account of strong rural demand and
pickup in the government’s infra projects.
Demand in southern region was impacted in Jul-Aug’20 on account of heavy
monsoons but has started picking up from Sep’20.
Realizations declined sequentially due to seasonal weakness in cement prices in
the eastern region.
MIL acquisition completed
The company completed the acquisition of the MIL asset, which has an
integrated capacity of 3.0mt and TPP of 50MW. This acquisition will expand its
geographical presence to Maharashtra.
Revival process will entail capex of INR4.0b and has been initiated. The plant is
expected to be commissioned in 3QFY22E.
The plant has ample limestone availability for the next 20 years and the state
government incentive will be available for the next seven years.
The plant will achieve the cost structure of the company in 4-6 quarters post
commissioning.
Betting big on the East
2.25mt Bengal GU and 1.0mt debottlenecking at Bokaro GU will start trial run
Dec’20 while 2.25mt Cuttack GU will be commissioned in Apr’21.
30MW WHRS is expected to be commissioned by 4QFY22E.
Revocation of incentive in Odisha will not impact the profitability of newly
commissioned clinker unit as the company has well established brand visibility
and the lowest cost structure in the region.
Capex
The company has guided for INR4.0b capex in the East and INR5.0b for cost
improvement projects including WHRS.
Cost of capacity expansion for recent organic and inorganic expansions stand at
USD60/t, which is lower than the cost of USD84/t for current capacity.
The company has ventured into retail segment as part of preliminary
experimentation, which involves minimal capital.
Deleveraging in focus
Net Debt/ EBITDA stands at 0.87.
The company repaid INR2.5b/INR4.5b of debt in 2QFY21/1HFY21.
It aims to be net debt free by 2HFY23E.
Cost of debt stands at 7.0% p.a.
Other Highlights
The company is targeting payback period of 4-5 years for cost improvement
projects like WHRS.
The company aims to be carbon negative by 2040 and is reducing power and
fuel cost continuously through usage of WHRS and solar power.
The company is yet to come up with divestment plan for IEX.
Grasim Industries
Current Price INR 858
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Improving capacity utilization
Viscose capacity utilization stood at 85% in 2QFY21 and ~100% in Oct-20.
Caustic Soda capacity utilization increased to 80% in 2Q v/s 49% in 1QFY21.
Fertilizer business divestment
November 2020
33
 Motilal Oswal Financial Services
CEMENT | Voices
The management announced sale of its Fertilizer business to Indorama for a
cash consideration of INR26.5b, subject to working capital adjustments (basis
Jun’20 quarter) at the time of the deal closure, or at 12x FY20 EV/EBITDA.
The rationale behind the exit is to improve its focus on the core business.
Moreover, higher working capital needs led to lower returns in the business.
The Fertilizer business reported a revenue/EBITDA of INR26.7b/INR2.2b in FY20.
In 1QFY21, it reported a revenue/EBITDA of INR6b/INR0.7b.
Working capital stood around six months.
The transaction is expected to complete in nine months.
Partners with Lubrizol for India’s largest CPVC resin plant
GRASIM has partnered with Lubrizol to manufacture and supply of CPVC resin.
The project, which will be constructed in two phases by 2HFY23, would have a
capacity of 100ktpa.
Lubrizol will invest in the project, whereas GRASIM would provide the land,
materials and utilities. While the costs would be pass-through, the latter would
receive a fixed compensation for managing the commercial operations.
VSF business
The performance of the VSF business continues to be impacted by weak pricing,
which led to reduced margins. However, significant fixed cost savings (INR1.16b)
offset the impact of weak pricing.
VSF demand witnessed a strong recovery in demand sequentially.
EBITDA declined 49% YoY to INR1.9b due to a 23% dip in VSF prices and lower
volumes (131kt, -11% YoY).
The share of VAP in total sales stood at 15%.
Grey VSF prices were lower by ~23% YoY during the quarter v/s ~4% decline in
cotton and ~28% in PSF. Sequentially, cotton prices have increased by 6%
against a 3% decline in VSF prices.
VSF inventory in China declined significantly to 16 days in Sep’20 compared to
45 days in Apr’20, despite improved capacity utilization in China. This has led to
~25% recovery in VSF prices in China to RMB10,700 over Sep-Nov’20.
The management expects a structural recovery in VSF prices, led by demand
recovery in China and sharp rise in cotton prices, leading to a widened discount
between cotton and VSF prices.
Price of key inputs like pulp and caustic weakened sequentially. Fixed cost
optimization measures led to a savings of INR1.16b (down 28%) from its FY20
quarterly average.
Chemicals business
Revenue from the Chemicals segment declined ~16% YoY to INR11.2b due to
weakness in ECU realization (INR24,171/t; down 20% YoY).
As a result, EBITDA declined ~32% YoY to INR1.87b.
Caustic Soda sales recovered 71% QoQ (down ~2% YoY) to 236kt due to demand
pick up from Textile and Paper segments.
Caustic Soda prices (CFR) in Asia dipped below USD250 levels due to an
oversupply situation, creating pressure on domestic prices.
Chlorine realizations maintained its uptrend in 2QFY21 driven by demand from
Organic Intermediates, Agrochemicals and CP segments.
Chlorine consumption in VAPs stood at 30% in 2Q from 27% in 1QFY21.
Fertilizer business
EBITDA improved by 21% YoY to INR600m on fixed cost reduction and better
PURAK sales. The latter contributed ~31% to segmental EBITDA.
November 2020
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 Motilal Oswal Financial Services
CEMENT | Voices
Urea sales declined 7% YoY to 278kt.
Other businesses – Textile and Insulators
Revenue for the Textile business declined 58% YoY to INR1.76b. Reported
operating loss was INR220m v/s a profit of INR130m in 2QFY20 (loss of INR550m
in 1QFY21).
Revenue for the Insulators business declined ~7% YoY to INR900m. Reported
EBITDA was INR90m v/s a loss of INR20m in 2QFY20.
Cement business (UTCEM)
Volumes were lower by 5% YoY due to recovery in demand.
India operations reported an EBITDA of INR27.8b and EBITDA/t of INR1,387 in
2QFY21, up 30% YoY.
Consolidated net debt reduced by INR47b in 1HFY21 to INR121.3b. Net debt-to-
EBITDA stood at 1.22x as of Sep’20.
Aditya Birla Capital (ABCAP)
Revenue/net profit after minority interest stood at INR45.9b/INR2.6b in
2QFY21.
Closing AUM (domestic) increased 11% QoQ to INR2,387b. Closing Equity AUM
grew 13% to INR821.7b in Sep’20.
In Life Insurance, individual first-year premiums (FYPs) grew 7% YoY to INR7.4b
in 1HFY21.
Others
Standalone net debt declined by INR6.4b in 1HFY21 to INR23.3b.
FY21 capex guidance has been raised to INR18.5b from INR16.1b guided earlier.
Capex spend in 1HFY21 stood at INR2.8b.
India Cement
Click below for
Results Update
Current Price INR 148
Neutral
Operational highlights
Sales volumes were at 2.11mt (v/s 2.67mt in 2QFY20).
Capacity utilization improved to 53% in 2QFY21 from 35% in 1QFY21.
Share of trade sales in the volume mix stood at 54% and would go up to 58% in
3QFY21. The PPC mix stood at 63%.
Revenue for shipping/windmill/RMC was at INR63m/INR65m/INR220m, and
EBITDA was at INR29m/INR60m/INR56m.
NPR fell to INR3,905/t in 2QFY21 from INR4,200/t in 1QFY21.
Cost insights
Fixed cost stood at INR1.4b due to various cost optimization measures, while
employee cost is guided to stabilize at INR750m per quarter.
The company’s focus on increasing the trade sales mix would improve the
blending ratio and reduce cost.
Power and fuel cost was lower on account of low-cost fuel inventory.
The company aims to sell higher volumes in markets situated closer to its plants,
thereby reducing freight cost.
Demand and pricing outlook
In 1HFY21, industry in South saw 29% YoY decline in volumes on account of
prolonged lockdowns and heavy monsoons. On the other hand, prices have
been strong, and the company expects sustained pricing discipline in 2HFY21.
In 2QFY21, Central, North, and East India reported YoY growth in volumes, while
West India continued to suffer from COVID restrictions and labor issues. South
India also saw a supply overhang.
November 2020
35
 Motilal Oswal Financial Services
CEMENT | Voices
Govt. projects have started picking up in Andhra Pradesh (AP), led by the
Polavarm irrigation project, PWD works, school renovations, and low-cost
housing projects. AP government demand for cement currently stands at
~200kt/month v/s pre-COVID levels of 800kt/month.
Demand in Tamil Nadu would be impacted by the Northeast monsoons in
November, but would improve from December on account of government
spending on infra projects.
Debt and capex
The company repaid debt of INR1.18b in 1HFY21 and would repay INR3.0b in
2HFY21.
Maintenance capex is guided to be INR1.0b in FY21. The company is also
upgrading its cement mill at Sankar Nagar and setting up WHRS at Chilamkur.
Chilamkur WHRS may be delayed if cashflow fails to support capex in FY21.
Other highlights
The company would continue with cash-based sales and has been focusing on
improving collection efficiency.
It has a higher trade sales mix in Tamil Nadu and Kerala. It is also trying to
improve its trade sales mix in Karnataka and focusing on reducing the
trade/non-trade price differential.
The company is focused on improving capacity utilization. Meanwhile, it
continues to monitor the demand-supply situation in Central India and would
accordingly take a call on the planned Damoh expansion.
JK Cement
Click below for
Results Update
Operational highlights
In 2QFY21, utilization in South was 60%, while for North it stood at 70%.
Trade sales mix was 66% in 2Q v/s 75% in 1QFY21.
Utilization for UAE operations was 90%.
Cost insights
The Nimbahera Line 3 upgrade would enhance clinker capacity by 1,000t per
day and reduce cost by INR100/t at this location.
The company expects to achieve consolidated cost savings of INR100/t from
4QFY21 on account of cost efficiencies from newly commissioned capacities.
Interest cost has remained flat YoY on account of repayment and renegotiation
of interest rates.
It has switched to imported coal due to petcoke availability issues, which has led
to a rise in prices.
There is no clarity on incentives for newly commissioned capacities at Balasinor
and Mangrol.
Promotional expenses and all other essential overheads have been normalized.
The company s exploring opportunities for cost rationalization, including setting
up a waste heat recovery system (WHRS) for capacities in South.
Demand and pricing outlook
The company achieved growth in sales on account of market share gains in
North and entry into new markets through the Aligarh grinding unit.
2QFY21 witnessed a price drop of INR5–10/bag QoQ due to the monsoon.
3QFY21 has seen a price hike of INR5–10/bag v/s September-end.
The UAE operation is expected to be impacted due to concerns over a second
wave of COVID-19 infections, and utilization levels of 90% achieved in 2QFY21
Current Price INR 1,919
Buy
November 2020
36
 Motilal Oswal Financial Services
CEMENT | Voices
would be unsustainable going forward. The company is working on a turnaround
plan.
Debt
Standalone gross/net debt stands at INR27.4b/INR13.7b.
Gross debt is expected to peak at INR30.0b in 4QFY21.
Repayment of INR8.0b is scheduled up to FY23.
The company expects net debt to remain below INR25.0b during the Panna
expansion.
Capex
Panna expansion – Environmental clearance has been received and 90% of
factory land has been acquired with INR1.6b capex to date. Board approval
would be sought in early FY22, and the project is expected to be completed
within two years post the board approval. Panna would have 3.5–4.0mtpa
capacity at USD90–100/t. If approved, it would entail capex of INR13b each in
FY22 and FY23. The management has also identified a location for setting up a
split grinding unit in Uttar Pradesh (UP).
The Panna expansion would cater to entirely new markets; the new split
grinding unit in UP would also cater to new areas of the state.
Mangrol expansion – INR15.8b capex has been incurred up to 2QFY21 out of the
budgeted INR20.0b. The company expects to spend another INR2.3b for the
balance items and save INR1.5b out of the budgeted amount.
Nimbahera Line 3 modernization – INR2.6b has been spent up to 2QFY21 out of
the budgeted INR5.0b. INR2.0b is expected to be spent in 2HFY21, and another
INR500m would be spent by 2QFY22at project completion.
Other highlights
The Panna plant would be set up under a 100% subsidiary with a mine lease.
The company expects to gain market share in North without disturbing pricing.
The company has no plans to enter into the Paints business for now.
The company has maintained market share in the White Cement and Wall Putty
businesses and expects to achieve over 10% growth.
JK Lakshmi Cement
Current Price INR 341
Click below for
Results Update
Buy
Operational highlights
Sales volume stood at 2.38mt v/s 2.06mt in 2QFY20.
Trade sales mix stood at 55% while blended cement mix stood at 62%.
Premium product sales accounted for 21% of trade sales volumes.
Clinker/ cement production for 2QFY21 stood at 1.98mt/1.62mt.
In 1HFY21, consol. sales volume stood at 4.6mt including 950kt by UCWL.
Non-cement revenue stood at INR700m (flat YoY).
Cost insights
Petcoke mix stood at 68% on consol. basis with the North having a mix of 82%
while Durg has mix of 46% due to its presence in a coal abundant region.
Impact of higher petcoke prices will be visible from 4QFY21.
WHRS accounts for 40% of power requirement for UCWL and the Durg unit
while for Sirohi, it will go up to 40% post WHRS commissioning in Sep’21.
The company targets to achieve INR15/t cost reduction through implementation
of conveyor belt.
Freight cost is expected to rise on account of improved demand-supply equation
for trucks.
37
November 2020
 Motilal Oswal Financial Services
CEMENT | Voices
Demand and pricing
In the North, trade/non-trade price differential was down from INR85/bag in
1QFY21 to INR60/bag in 2QFY21 on account of price hike of INR30/bag for non-
trade and INR10/bag for trade.
In 2QFY21, prices remained flat QoQ in Gujarat. In the East and Chattisgarh,
prices were hiked by INR5/bag. Odisha saw a decline of INR30/bag on account of
monsoons.
In Oct’20, the North witnessed marginal price hike while prices remained flat in
the East and Gujarat. Rural demand has been strong while infra demand has
started picking up and is expected to gain momentum on account of return of
labor force post Diwali, which will support prices.
In 2QFY21, all operating geographies witnessed YoY growth in volume and the
trend continued in Oct’20. However, Nov’20 sales volume will be impacted on
account of Diwali.
UCWL capex
2.5mt GU will be commissioned in 3QFY23. It will have clinker capacity of 1.5mt
and WHRS.
It will entail capex of INR14.0b; of this, INR400m will be incurred in FY21.
30% of the capex will be financed through equity while 70% will be through
debt.
Debottlenecking of clinker capacity from 1.2mt to 1.5mt and GU from 1.6mt to
2.2mt is expected to be commissioned in 4QFY21.
Debt and capex
Standalone gross debt/net debt stands at INR14.0b/INR7.0b while consol. Gross
debt/net debt stands at INR19.0b/INR11.8b.
The company’s corporate guarantee for UCWL stands at INR6.0b, including
INR5.5b for term loan and INR500m for working capital loans.
Consol. net debt is guided to remain in the range of INR10-12b during the period
of UCWL capex.
Capex guidance for FY21 stands at INR1.5b on account of WHRS, apart from
maintenance capex of INR300m.
Other highlights
20% of company’s cement production in the East is sold in East Madhya Pradesh
and Vidarbha.
JKLC and UCWL merger is unlikely to happen in the immediate future as (a)
UCWL is receiving tax incentives, and (b) UCWL has opted for the new tax
regime while JKLC is continuing with the old regime.
Shree Cement
Click below for
Results Update
Operational highlights
Sales volume was at 6.53mt v/s 5.72mt in 2QFY20 (4.93mt in 1QFY21).
Clinker production for 1HFY21 was at 7.28mt.
Utilization in South improved to 68% (v/s 50% in 1QFY21 and 35% in 2QFY20) on
market share gains as the brand is gaining traction.
Sales mix
Overall trade sales mix was at 76%, down from 80% in 1QFY21, on account of a
pickup in govt. demand, driven by infra projects.
The trade sales mix for North/South/East stands at 65%/85%/100%.
Regional sales mix for North/East/South stands at 66%/26%/8%.
The PPC/OPC/PSC mix stood at 73%/25%/2% v/s 75%/24%/1% in 2QFY20.
38
Current Price INR 23,949
Neutral
November 2020
 Motilal Oswal Financial Services
CEMENT | Voices
Premium sales accounted for 6.5% of sales volume v/s 4% in 2QFY20 (4.5% in
1QFY21) and reached 400kt in 2QFY21 from 250kt in 2QFY20.
Cost insights
Lead distance was at 453km v/s 457km in 2QFY20 (475km in 1QFY21) and is
expected to reduce further with the commissioning of new grinding units.
Employee expenses are guided to remain at INR1.75b per quarter going
forward. Employee count fell to 6,220 in Sep’20 from 6,330 in Sep’19.
Depreciation is expected to be at INR13.0b for FY21.
The petcoke mix stands at 70% and is expected to reduce as the company would
switch to thermal coal gradually, unless petcoke prices soften. Currently, coal is
8–10% cheaper than petcoke.
Demand and pricing outlook
Demand has picked strongly since Sep, led by rural and semi-urban areas, and
pickup in government infra projects, supported by the return of labor.
In 2QFY21, cement realization remained flat YoY at INR4,600/t (-2% QoQ),
supported by better pricing in South.
Urban real estate demand is yet to pick up, but the overall demand trend is
expected to remain stable with around 7–8% growth in 2HFY21.
Prices have firmed up in October and are expected to increase further post the
festive season.
In October, demand in Bihar was impacted on account of elections, but it is
expected to pick up post the festive season.
Capex
Raipur third clinker line – This is expected to be completed by 1QFY23. It would
ntail capex of INR10.0b. The company has got approval for 12,000tpd, but it
would take a call on actual capacity (10,000–12,000tpd) by Dec’20.
The Pune and Odisha grinding units are expected to be commissioned in Dec’20.
The company has guided for capex of INR12.0–14.0b in FY21 and expects this to
be at INR12.0b in FY22.
The company would announce plans for the Bengal grinding unit in 2HFY21.
It plans to double its grinding capacity to 80.0mt over the next six years with the
target to reach 57.0mt over the next three years. This would be accomplished
through expansions in North and East.
The company has mining leases in Gujarat, Rajasthan, and Andhra Pradesh and
would come up with expansion plans in the next 2–3 years.
Energy mix and outlook
The company has 508MW/210MW/2MW/29MW capacity of Thermal
Power/WHRS/Solar Power/Wind Power.
Renewable energy sources account for 45% of power requirement, and the
company aims to improve this to 50% by FY22.
UAE operations
At the time of acquisition, UAE operations had ROCE of >10% in USD terms
(>20% in INR terms), but post-acquisition, the entire Middle East economy
suffered due to lower crude prices. It impacted cement demand in the region.
Pricing remains weak in the region and is expected to improve in a few quarters.
Clinker exports to other countries have been impacted on account of poor
demand.
The company has increased capacity from 10,000tpd to 14,000tpd post the
acquisition.
November 2020
39
 Motilal Oswal Financial Services
CEMENT | Voices
It has set up WHRS with capex of INR32.0b and implemented various cost
rationalization measures.
Other highlights
The company expects to book incentive of INR2.2–2.5b in FY21, in line with
trends of the last 3–4 years.
Few state govt. have delayed incentive payments with a backlog of 2–3 years.
Domestic capacity stands at 25.6mt/40.0mt for clinker/cement, while overseas
capacity stands at 3.0mt/4.0mt.
There would be no incentives for the Odisha and Pune grinding units while it has
not been firmed up for the recently announced Raipur Line 3.0 clinker.
Power sales have been negligible in the last three quarters on account of tepid
demand and are expected to remain weak in 3QFY21.
The Ramco Cements
Current Price INR 852
Neutral
Click below for
Results Update
The company implemented various cost reduction measures to lower overhead
expenses in 2QFY21.
Capacity expansion update: The integrated plant in Kurnool and 1.5mt clinker in
Jayanthipuram should get commissioned by Mar’21, as guided earlier. On the
other hand, the 1.0mt GU in Kurnool, along with a railway siding and 12MW
WHRS, is expected to be commissioned in FY22.
Railway sidings were commissioned at Kolaghat/Odisha in Sep’20/Oct’20.
In Jayanthipuram, out of 27MW of proposed WHRS, a unit of 9MW was
commissioned in Sep’20, while another 9MW each was due for commissioning
in Dec’20 and Mar’21.
Capex stood at INR6.85b for 1HFY21. Balance capex of INR8.8b would be
incurred on ongoing projects.
Gross debt was down INR1.04b in 1HFY21 to INR29.20b as of Sep-20.
Average cost of debt was down to 6.51% p.a. in 2QFY21 from 7.36% p.a. in
2QFY20.
Ultratech Cement
Current Price INR 4,863
Click below for
Detailed Concall Transcript
& Results Update
Buy
Capacity utilization improves to 80% in October; rural demand stays strong
The company operated at 66% capacity utilization in 2QFY21 and a higher rate
of 74% in Sept. October utilization has further improved to ~80%.
Rural demand has sustained on account of a good monsoon season and govt.
support. These factors have improved rural cash flow, while urban demand has
started picking up slowly amid phase-wise unlocking.
Govt. spending on infra and road projects has picked up, while urban real estate
is seeing slow recovery.
In the western region, while demand has picked up in Gujarat, it remains tepid
in Maharashtra (but is improving as infra projects have started to pick up).
UTCEM has set up a regional office in North East and is penetrating into North
Bengal and the North East market through the Sonar Bangla plant.
Infra projects are driving demand in North, and Delhi NCR is seeing recovery in
urban housing demand.
South India demand has also started to see an uptick on account of infra and
irrigation projects.
November 2020
40
 Motilal Oswal Financial Services
CEMENT | Voices
In 2QFY21, UTCEM witnessed pan-India YoY growth in volumes, barring in West.
It expects industry volumes to grow in 2HFY21, supported by revival in non-
trade demand and government road and infra projects.
2QFY21: Operational highlights
Trade share in volumes was up 4ppt YoY to 71% (but down from 78% in
1QFY21). Blended cement sales were also up 3ppt YoY to 71%.
UTCEM increased its penetration in the rural markets by 5% YoY. The number of
UBS (UltraTech Building Solutions) outlets grew 4% QoQ to 2,300.
Cost of production declined 7% YoY on account of lower petcoke costs,
increased share of low-cost green power (WHRS, solar), and 14% YoY decline in
fixed costs.
During the quarter, the company booked a one-time expense of INR3.35b,
largely due to the impairment of INR2.72b. This was attributable to lower
realizable value of prior period loans offered by an acquired Binani asset to an
erstwhile promoter entity (fiberglass) of Binani.
Revenue from White Cement / RMC was up 72%/187% QoQ to
INR4.3b/INR4.3b; White Cement volumes stood at 330kt.
Incentives booked stood at INR30/t in 2QFY21.
Fixed cost reduction to continue
Logistics cost was up 1% YoY / 2% QoQ at INR1,140/t. This was on account of
higher diesel prices (14% YoY / 13% QoQ), partially offset by savings on sourcing
realignment, geomix optimization, and synergy with acquired CTIL plants.
It achieved 9% YoY cost reduction (up 3% QoQ) in power and fuel costs per ton
on account of lower petcoke cost and higher petcoke usage. Average petcoke
price was down 22% YoY to USD71/t, whereas pet coke usage stood at 75%
(2QFY20: 64%). Petcoke spot prices were at USD100/t.
The company achieved a consistent reduction in the consumption of fossil fuels
through investments in green power (WHRS, solar, wind). Green power
consumption rose to 13% (v/s 9% in 2QFY20) and should rise to 30% over the
next three years.
Raw material cost per ton was up 3% YoY / 6% QoQ on higher fly ash price (up
3% YoY / 8% QoQ). The clinker-to-cement conversion ratio improved by 2% YoY.
Other expenditure per ton rose 11% QoQ (but was down 18% YoY) on higher
maintenance cost and a 4% increase in packing cost. The company has guided
for a sustainable reduction of 10% YoY in FY21 or INR5.0b in fixed overheads.
UTCEM achieved cost reduction of INR4.5b in 1HFY21 in response to COVID-19,
but a part of this, including ad spends, would return in 2HFY21.
Power and fuel costs are expected to go up by 10% QoQ in 3QFY21 on account
of higher petcoke prices. This is being partly mitigated by a switch to imported
coal, which is currently cheaper than petcoke.
November 2020
41
 Motilal Oswal Financial Services
CONSUMER | Voices
CONSUMER
Rural demand continued to outperform urban in 2QFY21, enabling sequential recovery for most companies
in the sector. Margin improvement was seen in the quarter as companies sharply cut unwanted costs. Some
of these cost savings are likely to sustain going forward as well. Furthermore, largely benign raw material
costs aided savings, and there has been no material change in their outlook going forward. While cuts in ad
spends have also helped, most companies expect these costs to gradually return to normal levels in 2HFY21.
Most companies have utilized the COVID opportunity to accelerate new launches, which are also seeing a
higher contribution to the overall company topline. Better channel pipeline efficiency further underpins the
confidence for topline recovery/growth in subsequent quarters. Secondary sales surpassed primary sales in
2Q as most companies pruned dealer inventory levels, thereby boosting channel ROIs. The e-commerce
channel grew robustly in the quarter, leading to higher salience in the channel mix across companies. Most
companies have guided for further topline improvement in 3QFY21, with many discretionary product
companies guiding for near-normal levels by 4QFY21 as: (a) rural performance is likely to strengthen further
in 2HFY21, (b) continued sequential recovery is expected in discretionary consumption, (c) demand would
return in large urban clusters, and (d) there are early signs of a good winter season and festive demand.
Additionally, some companies announcing significant capex plans indicates management confidence
regarding medium-term prospects.
Demand Environment post Lockdown
Pent-up demand supported 2QFY21 sales across
industries.
Growth is led by Tier 2/3/4 markets (back at pre-
COVID demand levels).
Demand in metros, while still weak (70–80% of pre-
COVID levels), is better v/s 1QFY21.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook FY21
Asian Paints
Britannia
Dabur
Festival demand is leading recovery; however, management is
unsure of whether demand will continue to be as good (post
the festive season).
Both material cost and currency remain stable as of now, but
they need to be watched.
Since the company has a much wider distribution in smaller
cities and rural areas, it believes that it is gaining share from
other organized players and unorganized players that were
struggling in 1HFY21.
Sales saw double-digit growth in July, but weak growth in
August. Sales growth was back at healthy levels in September
(high single digits). Management believes it is difficult to predict
growth amid such volatility.
The outlook for RM is positive, but unlikely to be deflationary.
Ad spends are not at normal levels yet, but are rebounding
gradually.
BRIT has plans for greenfield expansion in Tamil Nadu, Uttar
Pradesh, and Bihar. It also has plans for brownfield expansion in
Odisha and Ranjangaon in Maharashtra.
Significant new customer additions were reported in the
Healthcare business; thus, expect healthy growth despite the
future base being less favorable against 1HFY21.
The company aims is to bring channel inventory down to ~12
days from ~15 days seen in 2QFY21.
Material costs are now increasing v/s 2QFY21.
The medium-term expectation is for ad spends to grow from
low historical levels. Accordingly, this should lead to largely
stable margins as gains from cost savings and operating
leverage would be used as ad spends and to drive sales growth.
Better performance is expected in 3QFY21 in Household
Insecticides (HI).
Sequential recovery in Hair Color is likely to continue in 3QFY21,
driven by festive demand. Oct’20 saw positive growth.
Some downtrading is seen as macros continue to
worsen.
Volume growth stood at ~9% for the quarter.
Adjacencies are growing moderately faster than
Biscuits.
Rural is growing at a much faster pace and now
contributes 30% to sales.
Business momentum was good in Oct’20 as well.
Sanitizer sales declined sequentially to only INR120m
in 2QFY21 from INR800m in 1QFY21. Liquid soaps and
soap usage is replacing sanitizer sales.
Most categories gained market share YoY in 2QFY21.
Godrej Cons.
Regional lockdown of 21 days in Guwahati, where the
HI manufacturing facilities are located, impacted
business.
Rural grew ahead of urban in the domestic market.
Rural demand is much better than urban.
Metropolitan demand is still muted.
Big cities are seeing higher demand for larger packs,
but less frequent buying. This is not the case in smaller
cities and rural areas.
Hindustan
Unilever
Management believes the worst is behind and is cautiously
optimistic.
Purchases in the winter season by channel usually pick up in
September, but have been delayed. However, management is
not concerned about winter season demand.
November 2020
42
 Motilal Oswal Financial Services
CONSUMER | Voices
Marico
Pidilite
UBL
Management expects 5–7% volume growth in the Coconut Oil
segment over the next 8–10 years before growth tapers, similar
to Bangladesh.
MRCO targets 8–10% volume growth in 2HFY21.
The e-commerce channel contributed 8% to total sales in
2QFY21 (+39% YoY); this level is expected to sustain over the
medium-to-long term.
The company desires a 21–24% EBITDA range to operate within
(27.3% in 2QFY21).
Less favorable material costs and normalization of ad spends
(which dipped sharply YoY in 2QFY21) should lead to operating
margins in the range of 21–24%.
Positioning of Araldite brands is yet to be decided and would
evolve over the next few months.
State mix, brand mix, and price increase led to sales decline of
43%, lower than volume decline of 48% YoY. State mix (higher
sales from high-realization states) played the biggest part in
driving above-realization growth.
Barley costs are 10% lower v/s last year. The outlook for the rest
of the year is likely to be similar. Bottle costs are also not seeing
any kind of inflationary trend.
Capex is estimated to be ~INR2b for the full year.
Direct delivery coverage has been restored to pre-
COVID levels.
The rural segment contributed 35% to total sales
(+300bp YoY). Rural sales saw 22% YoY growth in
2QFY21.
Rural and semi-urban demand recorded double-digit
growth in 2QFY21. On the other hand, urban demand,
while sequentially higher, is still weak YoY.
Standalone volume and mix growth stood at 3.6%,
while volume and mix growth in C&B segment was
7.4%.
Plants are operating at 90% utilization levels.
Volume decline is slowing month on month. On-trade
channel recovery has been very gradual. Online sales
even in the 2–3 best states are only 5–10%.
No major closure of on-trade sales is seen yet.
Asian Paints
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 2,167
Neutral
Macro drivers and operating environment
APNT had 11% volume growth in 2QFY21 with MoM improvement seen in the
quarter.
Pent-up demand supported 2QFY21 sales across industries.
Festival demand is leading the recovery, but management is unsure whether
demand will continue to be as good post the festive season.
Since the company has a much wider distribution in smaller cities and rural
areas, it believes that it is gaining share from other organized players and
unorganized players that were struggling in 1HFY21.
Although daily rise in COVID cases is lower than before, it is still at high levels. If
a second round of lockdown is implemented, business could be affected.
Growth is being led by Tier 2/3/4 markets (back to pre-COVID demand levels).
IIP decline declining every successive month is a good sign for the industrial part
of the business.
Metro demand while still weak (70-80% of pre-COVID level) is better than
1QFY21. Within metros, Mumbai, Bengaluru and Chennai are more sluggish
whereas Delhi and Kolkata are doing better.
Premium products and innovation
Premium products are also doing well along with mass products.
Innovation has be en strong in terms of ‘health and hygiene’.
APNT also launched a paint that is claimed to be effective against Coronavirus.
APNT launched sanitizers and disinfectants in 1HFY21. It also launched a
sanitizing service called ‘Sanisure’.
RM, currency and margins
Both material cost and currency are stable now, but they need to be watched.
There is inflation in some key raw materials.
No price cuts were taken by the company despite low material costs.
APNT has put in efforts to reduce fixed overheads, especially rentals.
Travel costs have declined, which has helped margin growth.
International, industrial, kitchen and bathroom fixture businesses
43
November 2020
 Motilal Oswal Financial Services
CONSUMER | Voices
International business volume growth was close to double-digit in 2QFY21 with
7.8%/44% sales/profit growth.
Industrial paints: Two-wheeler business demand is recovering. Re-finish is still
sluggish while OEM business has reported good growth after a muted 1QFY21.
Kitchen equipment business revenues were flat YoY at INR610m in 2QFY21;
1HFY21 witnessed 26% decline to INR860m.
Bath equipment business saw 4%/25% sales decline in 2QFY21/1HFY21.
Management believes that home décor will be an integral part of their business
growth in the future. The company has also launched sanitaryware recently.
APNT’s aim is to be an increasingly large player in products ‘between the walls’
as well.
Wood Finish is also a category that the company could look at.
Other points
INR3.35 per share interim dividend was declared in 2QFY21. Last year, the total
dividend was INR12 per share.
Britannia Inds
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 3,552
Neutral
Operating environment
Double-digit growth was seen in sales in July, but weak growth was reported in
August. Sales growth was back at healthy levels in September (high single digits).
Management believes it is difficult to predict growth amid such volatility.
Volume growth stood at ~9% for the quarter. Adjacencies are growing
moderately faster than Biscuits.
The quarter presented a greater level playing field (v/s 1QFY21); players with
high contract manufacturing and nimbleness were at an advantage.
Some down-trading is seen as macros continue to worsen.
Management does not believe it has lost market share to value players in the
market.
Ad spends are not at normal levels yet, but are rebounding gradually.
Modern trade (10% of revenues) continues to be weak. Historically, it has been
observed that MT contribution picks up a bit In January and August. The high
base in August last year was one of the reasons for weakness in YoY August
sales.
Rural is growing at a much faster pace and now contributes 30% to sales.
Adjacent and international businesses
New products contribute 4–4.5% to revenue.
The Middle East business is facing challenges, but the rest of the international
regions are growing in the double digits.
Dairy: Cheese posted double-digit growth in the quarter, but Milkshakes has not
improved as out-of-home consumption remains low. Benign milk prices and an
improving product mix are aiding margins.
Cakes: It launched a layer cake at INR5 during the quarter. The Cake business is
not growing aggressively as it is dependent on MT and closet clusters such as
the Railway sector.
The non-biscuit portfolio contributes ~25% to sales.
Costs and inventory
Just 2–3% RM inflation was seen in 2QFY21.
The outlook for RM is positive, but unlikely to be deflationary.
November 2020
44
 Motilal Oswal Financial Services
CONSUMER | Voices
BRIT has 9–10 days on inventory, which was down to 4–5 days in 1QFY21.
Distributor inventory was flat at 5–6 days.
Distribution
The company now has direct reach through 2.23m outlets.
It currently has a reach of 22,000 rural preferred distributors.
ICDs and balance sheet
Group ICDs as of September were INR7b. They were INR6b at the end of FY20
and INR5b at the end of FY19.
Expansion
BRIT has plans for green-field expansion in Tamil Nadu, Uttar Pradesh, and
Bihar.
Its plans for brownfield expansion are in Odisha and Ranjangaon in
Maharashtra.
The company has not specified the quantum of capex.
Sustainability efforts and targets
30% of laminates used in packaging are easily recyclable. ‘Good Day’ now uses
completely recyclable laminates.
The usage of plastic trays is reducing gradually.
It has a 5% sugar reduction target by 2022. Work is underway for two large
brands.
It has a 5% sodium reduction by 2022. Work is underway for two large brands.
Renewable energy would reach 45% by end-2021.
Dabur
Current Price INR 508
Buy
Click below for
Detailed Concall Transcript
& Results Update
Macros and outlook
The COVID crisis is serving as a further catalyst for change for Dabur.
No pipeline loading happened in 2QFY21. Secondary sales were actually higher
than primary sales for the quarter.
Channel inventory was 24 days in 2QFY20 and is now ~15 days. An improvement
of ~2 days is seen sequentially, and the company aims is to bring channel
inventory down to ~12 days.
Business momentum was good in Oct’20 as well.
Segmental
The Healthcare business (30% of domestic sales in FY20) grew 50% YoY: Health
Supplements (Chyawanprash and Honey) – 70.8% YoY, Digestives – 2.5%, OTC –
56.1%, and Ethicals – 26.4%. Significant new customer additions were reported;
thus, expect healthy growth although the future base is less favorable against
1HFY21.
HPC (50% of the domestic business in FY20) grew 9.1%, led by a robust category
leading growth rate of 24% in Oral Care. Hair Care declined 2.4% YoY on
continued weak growth in Hair Oils. The Oral Care category is growing at 5%,
with Naturals (25–30% of Oral Care category sales) growing at 8%. The
revamped Meswak and Babool products are also doing well, contributing to
growth. Dant Manjan has also started to do well. Additionally, the company
launched a new brand Dant Rakshak in markets where Dabur Red is weaker than
in the rest of the country (primarily North India).
Foods and Beverages (20% of domestic sales in FY20) declined only 3.8% YoY,
much lower than expected, with the Beverages segment declining 4.8% YoY. The
November 2020
45
 Motilal Oswal Financial Services
CONSUMER | Voices
Beverages business (ex-Horeca) actually grew ~6%. Management believes that
the F&B business, which was declining sharply in earlier quarters, has turned the
corner. A continued shift is seen from carbonated beverages to juices and
drinks. Dabur lost key summer season sales in 1QFY21; thus, the base would be
highly favorable in FY22.
Most categories gained market share YoY in 2QFY21.
The International business grew 5.5% (CC growth of 3.5%). Geographical CC
growth – MENA (-15%), Egypt (-3.3%), and Hobi (Turkey) – was up 31.3%;
Namaste (US) grew 14.6%, Nepal 29.3%, and Bangladesh 31.8%. Management
believes the Middle East business should return to recovery from 3QFY21.
Barring Nigeria and sub-Saharan Africa, most geographies are likely to do well.
Sanitizer sales declined sequentially to only INR120m in 2QFY21 from INR800m
in 1QFY21. Liquid soaps and soap usage is replacing sanitizer sales.
Competition
Chyawanprash:
Even after the recent spurt in the current year, penetration is
just ~4%; thus, category growth, partly led by competition, is welcome. The
company believes there s a broader nutraceuticals play for Dabur through this
category.
Honey:
In this category as well, penetration was low at the mid-20s levels v/s
50–60% in several other comparable countries. Hence, category growth and
competition are welcome in this category.
Costs and margins
The medium-term expectation is for ad spends to grow from low historical
levels. Accordingly, this should lead to largely stable margins as gains from cost
savings and operating leverage would be used as ad spends and to drive sales
growth.
The eventual target for ad spends (as a percentage of sales) over the next few
years is 12% (from ~8% currently).
India gross margins actually improved ~100bp YoY v/s 10bp growth at the
consolidated level. Gross margin expansion was led by a favorable mix and some
RM deflation. MENA is a profitable business, which declined YoY in 2QFY21.
Material costs are now increasing v/s 2QFY21.
Emami
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 396
Buy
Macro and trends
Overall demand trends are improving, particularly in rural.
Primary sales were in-line with secondary sales for 2QFY21 and 1HFY21
secondary sales were higher than primary sales.
Urban sales grew 8% and rural sales 20% for 2QFY21. Rural contributes to half of
HMN’s sales. Management expects HMN’s rural growth to continue at this pace
in the near term.
Good sales continued in Healthcare (Balms, Hygiene Products, and
Chyawanprash) in Oct’20 and over the first five days of Nov’20. This segment
grew 53%/40% in 2QFY21/1HFY21. The products contributed to around 50% of
sales for 2QFY21.
New launches boosting sales
It launched 20 new products (40 SKUs), mainly in the Health and Hygiene space,
which is aiding sales.
46
November 2020
 Motilal Oswal Financial Services
CONSUMER | Voices
These products’ contribution to sales in 2QFY21 was healthy at around 4% of
sales.
While sanitizer sales have fallen significantly in recent months, other hygiene
products continue to do well.
Good initial winter season response
Demand for winter products has picked up in the last few days with the onset of
winter in North India. HMN had a weak base of winter sales in 3QFY20.
Chyawanprash constitutes less than 2% of sales as the company is a distant
second largest player to Dabur.
Update on underperforming brands
Fair and Handsome is on a sequential recovery trend, but still down YoY.
Male Grooming remains weak.
Kesh King has posted some recovery in recent months to earlier high levels as it
regains market share from Kesh Kanti of Patanjali and, in some markets, from
Indulekha of HUVR as well. While demand continued to be good in Oct’20 as
well, management believes it is still premature to call out growth numbers.
Some recovery has also been seen in Pancharistha in recent months. Capex and
amortization
Capacity utilization is currently around 70%, and sales have just started
improving from 2QFY21. Management does not see the need for major capex
for the next two years.
Amortization of INR550m for Kesh King would be taken from 3QFY21 until
Jun’22.
Other points
EBITDA margins are likely to be around 30% going forward.
Share of Modern Trade to the total is 8–9%.
The pledge stands at 40% currently. They were earlier guiding for near-zero by
March 2021, but this seems unlikely as asset sales are taking longer.
Godrej Consumer
Current Price INR 699
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Home Insecticides (HI)
Regional lockdown of 21 days in Guwahati where the HI manufacturing facilities
are located impacted business.
Accordingly, secondary sales growth came in low double-digits, which is higher
than primary sales growth of 4% in 2QFY21.
GCPL might have gained share in the electric segment, but it lost in aerosols and
coils segments in 2QFY21, as per management.
Non-mosquito segments like cockroach and rat are seeing good demand.
Better performance is expected in 3QFY21 in HI.
Other businesses
Sequential recovery in Hair Color is likely to continue in 3QFY21, driven by
festive demand. Oct’20 saw positive growth.
In soaps, secondary sales growth was marginally higher than primary sales.
The company took some price hikes toward end-2QFY21 due to rising palm oil
prices. PFAD prices are currently at USD750 levels, up 35-40% YoY.
International business
Africa margins are down YoY due to higher salience on braids. The company is
aiming to expand margins by 300-400bp in Africa over the next 2-3 years.
47
November 2020
 Motilal Oswal Financial Services
CONSUMER | Voices
Indonesia grew 3% in CC terms v/s FMCG peers in the country seeing
decline.The geography was also impacted by stringent social distancing norms in
Sep’20 and down-stocking by retailers. Management is optimistic on medium-
term potential of the geography by market share gains, better penetration and
new product launches.
Financials
Used surplus cash from India to repay loans in the international markets, largely
in Africa. GCPL has also prepaid some loans.
WC days reduced by 12 days to 5 days due to lower receivable days.
Other points
Rural grew ahead of urban in the domestic market.
Digital spends continued rising over the years.
Hindustan Unilever
Current Price INR 2,120
Click below for
Detailed Concall Transcript &
Results Update
Buy
Operating environment
80% of the portfolio (health, hygiene and nutrition) grew 10% while
discretionary categories (15% of portfolio made up by skin care, cosmetics,
deodorants) declined 25% while out-of-home (5% of sales) declined 25% YoY.
These numbers in 1QFY21 were ~+6%, ~-45% and ~-70%, respectively.
Particularly, given some pipeline filling in Jun’20 quarter v/s pipeline shedding in
Mar’20, the Sep’20 quarter’s sequential improvement is more impressive.
Based on global experience, so far, recovery in the discretionary portfolio has
been strong and depends on people stepping out more.
In 70% of the portfolio, the company has increased category penetration
compared to pre-COVID levels.
In over 90% of the business, HUVR has gained market share. This is despite the
fact that Modern Trade (MT) demand (where HUVR has an even higher market
share compared to market share in General Trade) is still some way back from
normal levels.
Rural demand is much better than urban. Metropolitan demand is still muted.
Big cities are seeing higher demand of larger packs but less frequency of buying.
This is not the case in smaller cities and rural areas.
Supply and service levels are now back to pre-COVID levels.
HUVR launched 100+ SKUs over the last six months.
Volume growth was 1% on like-to-like basis, excl. GSKCH.
Management believes the worst is behind them and are cautiously optimistic.
Segmental information, Costs and Margins
The 30bp margin expansion was driven by (a) 90bp gain as a result of merger of
GSKCH, and (b) 60bp YoY decline in base business margins.
Fabric wash: Price reduction was taken in some SKUs in certain markets. Some
categories have declined as people are spending more time at home. Sequential
recovery is good.
Oral care saw double-digit growth after a long time.
‘Glow and Lovely’ and ‘Glow and Handsome’ have been launched to pleasing
initial response.
Nabha and Rajahmundry plants of GSKCH had temporary COVID issues. If not for
these issues, sales would have been even better for the GSKCH portfolio.
Secondary sales were not affected but primary sales were.
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Tea: HUVR has hiked prices because of the steep commodity cost inflation, but
focus is on gaining from the unorganized segment.
Purchases in winter season by the channel usually picks up in September, but
has been delayed. However, management is not worried about winter season
demand.
Ad spends were down only 5% YoY in 2QFY21 (v/s 31% YoY decline in 1QFY21),
which makes overall margin improvement even more worthy.
Other points
Shikhar app for retailers is available in 270,000 stores. Partnership with SBI also
enables credit to a retailer.
E-commerce sales have doubled from pre-COVID levels.
Domex has been taken from South India to the entire country as the household
cleaning category is growing very well post-COVID.
Indulekha has also been taken on a national level as the company is even more
confident after GSKCH’s efforts.
Jyothy Labs
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Detailed Concall Transcript &
Results Update
Current Price INR 139
Neutral
Positive sales growth in 2QFY21
Consumer sentiment has improved in 2QFY21, but is yet to achieve complete
normalcy.
Positive growth was attributable to its (a) agility – focus on hygiene products, (b)
flawless execution, and (c) financial prudence.
Rural demand (contributing 40% to sales) remained strong, backed by strong
monsoons and increased government support.
Sales in General Trade (GT) and e-commerce continued to be robust, but
remained weak for Modern Trade (MT) and Canteen Stores Department (CSD).
Key categories
Post Wash (accounts for half of Fabric Wash) has returned to pre-COVID levels.
The remaining portfolio is expected to recover over the next 1–2 quarters.
HI and Dishwashing are doing very well and have a positive outlook.
The T-Shine floor cleaner has received a good response.
It is focusing on low-priced SKUs (INR5 and INR10 packs), which account for 25%
of sales.
Costs, margins, and other financials
It would increase media spend in 2HFY21.
Higher ad spends in the HI category are leading to lower profitability; expect
profitability to expand after a few quarters.
Management maintained guidance of 15–16% EBITDA margins for the full-year
FY21.
Tax rates would be in the 17–18% range over the next two years.
Balance sheet improvements
Channel inventory was lower v/s last year.
For the first time in many years, JYL is net cash on a standalone basis (INR300m)
and marginally net debt at the consolidated level (INR400m).
Working capital improvement was the key reason for the company being net
cash.
NWC days were 17 days as of end-September, but likely to be closer to 20–21
days on a steady-state basis. This is largely on account of MT share potentially
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 Motilal Oswal Financial Services
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increasing by the end of the year (receivable days in MT are much higher v/s
GT).
Marico
Click below for
Detailed Concall Transcript
&
Broad environment
MRCO’s secondary growth tracked ahead of very healthy primary volume
growth of 11% YoY in 2QFY21.
Direct delivery coverage has been restored to pre-COVID levels.
The rural segment contributed to 35% of total sales (+300bp YoY). Rural sales
saw 22% YoY growth in 2QFY21.
The E-commerce channel contributed to 8% of total sales in 2QFY21 (+39% YoY)
and this level is expected to sustain over the medium-to-long term.
Segmental highlights
Parachute
saw an 8% volume growth, which was encouraging. Within the
coconut oils segment, MRCO enjoys market share of over 60%/46% in
urban/rural. It continues to gain market share in both segments, especially rural.
Management expects 5-7% volume growth over the next 8-10 years before
demand tapers off, as is the case in Bangladesh, where the brand’s volume
growth is now ~3% and growth is dependent on other product categories.
VAHO
has rebounded to positive growth rate (4% volume growth) after a sharp
decline in 1QFY21. It has also gained 200bp market share over the last 2 years.
Expanding to lower price products is aiding MRCO in the current environment.
Foods – 62% of volume growth has come from increased household
penetration, primarily new users. The share of healthy products in home
snacking is increasing. Saffola has also gained share in the oats category.
Therefore, unlike other snack categories like biscuits, there has been no
slowdown in sales momentum.
Foods segment
sales are expected at INR3-3.5b in FY21 and INR4.5-5b by FY22E.
Within a few months of its launch, Saffola Honey has already managed to
capture 8% market share in Modern Trade.
Other points
MRCO is targeting 8-10% volume growth in 2HFY21.
In 2QFY21, the company recognized an exceptional item of INR330m on account
of impairment to certain fixed assets.
Ad spends at 9.5% of sales is almost back to pre-COVID levels.
Management expects some softening of material costs in 4QFY21. Copra prices
increased by high single-digits in 2QFY21 but witnessed softening in the last 10
days of the quarter.
20% plus EBITDA margins are expected for FY21.
Cost savings of INR1.5b are targeted in FY21, most of which will be sustainable
in nature.
Current Price INR 374
Buy
November 2020
50
 Motilal Oswal Financial Services
CONSUMER | Voices
Page Inds
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 22,137
Neutral
Performance and outlook
In terms of sales growth, July was negative, while August was flat. However,
September witnessed double-digit growth and thus far 3QFY21 has been
maintaining positive momentum.
The management expects a full recovery by 4QFY21.
Volume decline was 13.6% YoY in 2QFY21. Faster Athleisure segment growth
(higher realizations, but similar margins) due to people not venturing outdoors
in 1HFY21 led to realization growth of ~9%.
Management’s target of a USD1b topline in five years remains intact.
While secondary sales were, in fact, higher than primary sales in 2QFY21, the
difference between them was minor.
Additional comments on costs and margins
In 1QFY21, an INR107m provision was taken on slow-moving goods, which
impacted gross margins. This quarter saw the reversal of these provisions
boosting GM in 2QFY21.
While the cost of yarn is rising, the availability of new crop at expected levels
over December–January should result in the softening of prices, as per the
management.
Margins are likely to be in the 21–22% range.
Lower other expenses were partially aided by savings on ad spends in 2QFY21 –
expected to normalize in the coming quarters.
The company did not undertake any material price increases in 1HFY21.
Other points
Jockey is present in over 2,870 cities and towns through 3,850+ distributor
accounts, with a retail network of 67,000+.
A 4–5% increase in MBO outlets is targeted in the current year.
Kids wear – PAG now has 15 exclusive junior outlets and kids wear is available in
8,000 outlets.
E-commerce salience was ~3x normal levels in 1QFY21 (around 10%), but has
now declined to 2–2.5x.
The JDA implementation would aid demand forecasting.
The company would proceed to set up the Odisha green-field facility first, which
was delayed due to COVID-19.
Capex of INR730m is likely in FY21. While capex for FY22 has not been decided,
management expects it to be ~INR2b.
Pidilite Industries
Current Price INR 1,560
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Macro and outlook
Rural and semi-urban demand recorded double-digit growth.
Urban demand while sequentially higher is still weak YoY.
Plants are operating at 90% utilization levels.
Standalone volume growth: Overall volume and mix growth stood at 3.6% while
volume and mix growth in C&B segment was 7.4%.
Costs and margins
VAM spot prices have moved up and reached USD900 now as against
consumption cost of USD761 in 2QFY21.
November 2020
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There was a sudden abnormal drop in VAM prices when the COVID pandemic
hit. However, VAM prices have normalized now and stand at USD900 (flat YoY).
Lower ad spends was the key factor behind the sharp dip in other expenses in
2QFY21, which will normalize in subsequent quarters.
The company desires 21-24% EBITDA range to operate in (27.3% in 2QFY21).
Huntsman acquisition
Araldite has leadership position in the niche but high quality epoxy-adhesives
used in marbles. Further, Araldite carpenter and Araseal (used as adhesives in
carpentry) are also dominant products.
This acquisition completes PIDI’s portfolio in the adhesives space.
Positioning of Araldite brands is yet to be decided and will evolve over the next
few months.
The acquired business in India and other emerging markets was INR4b of sales
in CY19. The fixed assets of the company are miniscule as products were largely
contract manufactured.
Transaction does not require approval of the Competition Commission and has
already been concluded earlier this week.
Management stated that Araldite already has very healthy margins, and hence,
focus is on growth. Araldite’s EBITDA margins are comparable to those of PIDI.
Other points
One-third of expected growth should come from new products.
Capex will continue at 4-5% of revenue for some time.
Tata Consumer Products
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 519
Buy
India Beverages
India Beverages business recorded volume and revenue growth of 12% and 29%,
respectively. Robust revenue growth was recorded across portfolio, driven by
higher volume and price realization. Further, TCP also managed to gain market
share in both volume and value terms.
Operating margins were stable on YoY basis, despite unprecedented inflation in
raw tea prices.
Tea price hike: Recent price hike in tea was in line with the increase in input
cost. Tea prices are coming down but are still significantly higher as compared to
last year.
Market share: Currently, half of the Indian tea market is in loose tea packets.
With increase in tea prices, many loose tea sellers are expected to face
problems. As a result, the market share shift from unorganized to organized
players is expected to happen at a faster pace. Going forward, TCP will focus on
gaining market share, as the company gained volume and value share (in
2QFY21) from unorganized as well organized players.
India Food business