1QFY20 | August 2019
VOICES
VOICES
India Inc on Call
VOICES, a quarterly product from Motilal Oswal Research, provides a ready reference for all the post results earnings calls attended by
our research analysts during the quarter. Besides making available to readers our key takeaways from these interactions, it also
provides links to relevant research updates, and transcripts links of the respective conference calls.
This quarterly report contains
Key takeaways from the post results management commentary for 150 companies, with links to the full earnings call
transcripts
Links to our Results Updates on each of the companies included
Research & Quant Team
(Gautam.Duggad@MotilalOswal.com); Tel: +91 22 6129 1522
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
1
 Motilal Oswal Financial Services
Contents
Summary
..................................................................................................................................................................................................................................
3
Sectors
...............................................................................................................................................................................................................................
8-150
Automobiles ......................................................................................................... 8-17
Amara Raja ........................................................................................................................ 9
Ashok Leyland ................................................................................................................... 9
Bajaj Auto ........................................................................................................................ 10
Bharat Forge.................................................................................................................... 10
BOSCH ............................................................................................................................. 11
CEAT ................................................................................................................................ 11
Eicher Motors.................................................................................................................. 11
Endurance Tech............................................................................................................... 12
Escorts............................................................................................................................. 13
Hero MotoCorp. .............................................................................................................. 13
Mahindra CIE................................................................................................................... 14
Mahindra & Mahindra..................................................................................................... 14
Maruti Suzuki .................................................................................................................. 15
Motherson Sumi.............................................................................................................. 15
Tata Motors..................................................................................................................... 16
TVS Motors...................................................................................................................... 17
Capital Goods ..................................................................................................... 18-24
ABB.................................................................................................................................. 18
Crompton Greaves CG ..................................................................................................... 20
GE T&D ............................................................................................................................ 21
Havells ............................................................................................................................. 21
L&T .................................................................................................................................. 22
Solar Inds......................................................................................................................... 23
Cement............................................................................................................... 25-31
Birla Corp ........................................................................................................................ 25
Dalmia Bharat ................................................................................................................. 27
Grasim Inds ..................................................................................................................... 27
India Cements ................................................................................................................. 28
JK Cements ...................................................................................................................... 29
JK Lakshmi Cements ........................................................................................................ 29
Sanghi Inds ...................................................................................................................... 29
Ultratech Cement ............................................................................................................ 30
Consumer ........................................................................................................... 32-45
Asian Paints ..................................................................................................................... 33
Britannia Inds .................................................................................................................. 33
Dabur India...................................................................................................................... 35
Emami ............................................................................................................................. 36
Godrej Consumer ............................................................................................................ 37
GSK Consumer................................................................................................................. 38
Hindustan Unilever.......................................................................................................... 39
Jyothy Labs ...................................................................................................................... 40
Marico ............................................................................................................................. 41
Page Inds ......................................................................................................................... 41
Parag Milk Foods ............................................................................................................. 42
Pidilite Inds...................................................................................................................... 43
United Spirits................................................................................................................... 44
Financials- Banks ................................................................................................ 46-58
AU Small Fin. ................................................................................................................... 47
Axis Bank ......................................................................................................................... 48
Bank of Baroda ................................................................................................................ 49
DCB Bank ......................................................................................................................... 49
Federal Bank ................................................................................................................... 50
HDFC Bank....................................................................................................................... 51
ICICI Bank ........................................................................................................................ 52
Indian Bank ..................................................................................................................... 53
IndusInd Bank.................................................................................................................. 54
Kotak Mahindra Bank ...................................................................................................... 55
RBL Bank ......................................................................................................................... 56
South Indian Bank ........................................................................................................... 56
State Bank of India .......................................................................................................... 57
Financials – NBFC ................................................................................................ 59-71
Aditya Birla Capital .......................................................................................................... 59
Bajaj Finance ................................................................................................................... 60
Cholamandalam Inv......................................................................................................... 60
Equitas Holdings .............................................................................................................. 61
ICICI Pru Life .................................................................................................................... 62
IndiaBulls Housing Finance .............................................................................................. 63
L&T Finance..................................................................................................................... 64
LIC Housing Fin. ............................................................................................................... 65
M&M Financial ................................................................................................................ 66
MAS Financial .................................................................................................................. 66
Muthoot Fin .................................................................................................................... 67
PNB Housing.................................................................................................................... 67
Repco Home Fin .............................................................................................................. 68
Shriram City Union Finance ............................................................................................. 69
Shriram Transport Finance .............................................................................................. 70
Healthcare .......................................................................................................... 72-81
Alembic Pharma .............................................................................................................. 73
Alkem Labs ...................................................................................................................... 73
Aurobindo Pharma .......................................................................................................... 74
Biocon ............................................................................................................................. 74
Cadila Healthcare ............................................................................................................ 75
Cipla ................................................................................................................................ 76
Dr Reddy’s Labs ............................................................................................................... 76
Glenmark Pharma ........................................................................................................... 77
Granules India ................................................................................................................. 77
IPCA Labs ......................................................................................................................... 78
Laurus Labs...................................................................................................................... 78
Lupin ............................................................................................................................... 79
Strides Pharma ................................................................................................................ 79
Sun Pharmaceuticals ....................................................................................................... 80
Torrent Pharma ............................................................................................................... 80
Media..................................................................................................................82-93
D B Corp .......................................................................................................................... 82
Entertainment Network .................................................................................................. 84
Jagran Prakashan............................................................................................................. 85
Music Broadcast .............................................................................................................. 86
PVR Ltd ............................................................................................................................ 88
Sun TV Network .............................................................................................................. 89
Zee Entertainment .......................................................................................................... 91
Metals ............................................................................................................... 94-97
Hindalco Inds................................................................................................................... 94
Hindustan Zinc ................................................................................................................ 95
Jindal Steel ...................................................................................................................... 95
JSW Steel ......................................................................................................................... 96
NMDC.............................................................................................................................. 97
SAIL ................................................................................................................................. 97
Vedanta........................................................................................................................... 97
Oil & Gas .............................................................................................................98-99
Reliance Inds ................................................................................................................... 98
Retail .............................................................................................................. 100-107
Aditya Birla Fashions ..................................................................................................... 101
Jubilant Foodworks ....................................................................................................... 103
Shoppers Stop ............................................................................................................... 103
Titan .............................................................................................................................. 105
V-Mart ........................................................................................................................... 106
Technology ...................................................................................................... 108-123
Cyient ............................................................................................................................ 109
HCL Tech ....................................................................................................................... 110
Hexaware Technologies ................................................................................................ 112
Infosys ........................................................................................................................... 113
L&T Infotech .................................................................................................................. 114
Mindtree ....................................................................................................................... 115
Mphasis ......................................................................................................................... 115
NIIT Technologies .......................................................................................................... 116
Persistent Systems ........................................................................................................ 117
TCS ................................................................................................................................ 118
Tech Mahindra .............................................................................................................. 119
Wipro ............................................................................................................................ 121
Zensar Technologies ...................................................................................................... 122
Telecom .......................................................................................................... 124-130
Bharti Airtel ................................................................................................................... 124
Bharti Infratel ................................................................................................................ 126
Vodafone Idea ............................................................................................................... 127
Tata Comm .................................................................................................................... 129
Utilities ........................................................................................................... 131-134
JSW Energy .................................................................................................................... 131
NHPC ............................................................................................................................. 131
Power Grid .................................................................................................................... 132
Tata Power .................................................................................................................... 133
Torrent Power ............................................................................................................... 133
Others ............................................................................................................. 135-150
Allcargo Logistics ........................................................................................................... 135
Brigade Entp. ................................................................................................................. 135
BSE Ltd .......................................................................................................................... 136
Container Corp .............................................................................................................. 137
Coromandel Intl ............................................................................................................ 137
Gateway Distriparks ...................................................................................................... 139
Godrej Agrovet .............................................................................................................. 139
Indian Hotels ................................................................................................................. 140
Info Edge (India) ............................................................................................................ 141
Interglobe Aviation........................................................................................................ 142
Kaveri Seeds .................................................................................................................. 143
Lemon Tree Hotels ........................................................................................................ 143
MCX............................................................................................................................... 144
Piramal Entp .................................................................................................................. 144
PI Inds............................................................................................................................ 146
Quess Corp .................................................................................................................... 146
SRF Ltd .......................................................................................................................... 147
Tata Chemicals .............................................................................................................. 147
Team Lease ................................................................................................................... 148
UPL ................................................................................................................................ 150
Note:
All stock prices and indices are as on 27th August 2019, unless otherwise stated.
 Motilal Oswal Financial Services
Voices
Inc. on Call
1QFY20 | India
| 1QFY20
Voices
BSE Sensex: 37,452
S&P CNX: 11,046
Another miss; earnings downgrade intensity increases
Commentaries reflect underlying economic slowdown
In this report, we present detailed takeaways from the 1QFY20 conference
calls as we refine the essence of India Inc. 'Voices'.
The 1QFY20 corporate earnings-report was below our expectations for
both the Nifty and the MOFSL Universe. Domestic Cyclicals continued
driving earnings growth for the third consecutive quarter, led by
Financials, which contributed almost the entire earnings delta but still fell
short of expectations. The Nifty delivered 5% earnings growth for the
quarter versus our estimate of 12%. The intensity of downgrades went up
with 93 companies witnessing 3%+ earnings cut (v/s only 30 companies
witnessing 3%+ earnings upgrades). We had cut our Nifty EPS estimate by
4% to INR560, and now expect 13%/16% profit/EPS growth in the Nifty
for FY20, singularly led by corporate banks. Barring Cement, IT,
Consumers, NBFC and Private Banks, all other sectors missed
expectations in the quarter. Corporate commentaries have weakened
across the board, especially on the Consumption front, as the impact of
economic slowdown, coupled with muted sentiment, is reflected in
demand.
In BFSI,
the asset quality situation has worsened sequentially with several
banks witnessing higher slippages and guiding for new stress accounts.
Many banks have guided for a moderation in loan growth, led by
economic slowdown (both consumption and capex remain weak), tight
liquidity and high promoter leverage (which has resulted in higher
number of defaults). SBIN, AXSB and RBK reported an increase in stressed
assets to select corporate groups (resulting in an increase in credit cost
estimates), while ICICIBC, HDFCB and KMB delivered a steady
performance. Overall, banks have improved their PCR to further
strengthen the balance sheet. Recoveries from NCLT-related cases have
been delayed but are expected in FY20, which could drive an
improvement in asset quality. Commentary across most companies is
cautiously optimistic. Vehicle financiers are expecting a slowdown in loan
growth, despite considerable market share gains across products. While
some players like SCUF expect a marginal increase in cost of funds, most
NBFCs believe that the worst on cost of funds is behind.
Consumer
companies indicated the likelihood of a slowdown in the near
term, mostly led by rural. Most companies have guided for a revival only
in 2HFY20. If volume growth slowdown persists, promotional intensity
could increase, leading to weak sales growth.
In Autos,
most OEMs have slashed their growth guidance for FY20,
despite expecting a recovery in 2HFY20 led by normal monsoon, festival
season demand and pre-buying ahead of BS6. However, companies have
refrained from providing outlook due to the uncertain environment.
In IT,
most companies highlighted a robust deal environment, with INFY
recording highest-ever deal wins (USD2.7b). 1Q also saw strong
headcount addition by most companies, making a case for offshore
migration of some of the onsite centric work. Margins remain a challenge
August 2019
3
 Motilal Oswal Financial Services
Voices | 1QFY20
across the industry amid investments in localization, digital capabilities
and rising attrition rates with talent crunch.
In Capital Goods,
management commentary suggests that small- and
medium-sized orders are flowing in, but large-ticket orders are on hold
and should see finalization now that the election uncertainty is behind.
Room AC companies have seen a strong summer season and inventory
levels are below normal.
In Cement,
the industry expects demand to remain muted in 2QFY20 on
account of monsoon, and a recovery is expected only in 2HFY20. Various
regions are witnessing roll back in prices. Current all-India prices are at
INR10-15/bag, which is 3-4% lower than the 1QFY20 average. Cement
players are also hopeful of cost savings in subsequent quarters as energy
prices (oil, petcoke, coal, etc.) have been on a downtrend.
Autos
Most OEMs have slashed their growth guidance for FY20, despite expecting a
recovery in 2HFY20 led by normal monsoon, festival season demand and pre-
buying ahead of BS6. However, companies have refrained from providing
outlook due to the uncertain environment. Also, expectations are for continued
tailwinds from commodities in the coming quarters. In FY20, the 2W industry is
expected to grow by 11-12%, PV industry to de-grow by 7-8%, CVs to decline by
4-5% and the tractor industry to grow by ~1%. This is based on the assumption
of a demand recovery and pre-buying benefits from Sep’19.
Capital Goods
Execution was healthy given the liquidity crunch in the economy and the
election for around two months during the quarter. Order inflows declined due
to weakness in domestic ordering amidst the general elections. Management
commentary suggests that small- and medium-sized orders are flowing in but
large-ticket orders are on hold and should see finalization now that the election
uncertainty is behind. Room AC companies have seen a strong summer season
and inventory levels are below normal.
Cement
Managements highlighted that cement industry volumes declined 3-4% YoY in
1QFY20, as all-India utilization stood at 67% versus 75% in 4QFY19. Also,
election-related headwinds impacted demand during the quarter. Cement
industry expects demand to remain muted in 2QFY20 on account of monsoon,
and a recovery is expected only in 2HFY20. Various regions are witnessing roll
back in prices. Current all-India prices are at INR10-15/bag, which is 3-4% lower
than the 1QFY20 average. Cement players are also hopeful of cost savings in the
subsequent quarters, as energy prices (oil, petcoke, coal) have been on a
downtrend.
Consumer
In 1QFY20, companies across the board indicated the likelihood of a slowdown
in the near term, mostly led by rural. Demand slowdown during the quarter was
led by subdued consumer sentiment, liquidity crunch in channels and poor
progress of monsoon. Most companies have guided for a revival only in 2HFY20.
If volume growth slowdown persists, promotional intensity could increase,
leading to weak sales growth.
RM basket for our consumer universe is seeing signs of inflation with some
exceptions (e.g. copra).
August 2019
4
 Motilal Oswal Financial Services
Voices | 1QFY20
Financials
Banks
Several banks guided for a moderation in loan growth, led by economic
slowdown (both consumption and capex remain weak), tight liquidity, and high
promoter leverage (which resulted in an increase in the number of defaults).
Banks are maintaining their cautious and conservative stance toward wholesale
lending while continuing to focus on retail growth. The banks will continue
focusing on retail deposits and expect momentum to be driven by retail term
deposits. Further, branch expansion is back in focus and many banks are guiding
to increase branches over the next few years.
On the asset quality front,
SBIN, AXSB and RBK reported an increase in stressed
assets to select corporate groups (which has resulted in an increase in credit
cost estimates), while ICICIBC, HDFCB and KMB reported a steady performance.
Overall, banks have improved their PCR to further strengthen the balance sheet.
Recoveries from NCLT-related cases have been delayed but are expected in
FY20, driving an improvement in asset quality.
NBFC
Commentary across most companies is cautiously optimistic. Vehicle financiers
are expecting a slowdown in loan growth, despite considerable market share
gains across products. The progress in monsoon, coupled with infra spend by
the government, would determine the outlook for 2HFY20. Even LTFH expects a
slowdown in retail loan growth across segments. BAF is cautious on some
segments like digital products financing, SME and B2C. While some players like
SCUF expect a marginal increase in cost of funds, most NBFCs believe that the
worst on cost of funds is behind.
Healthcare
Given the intensifying competitive scenario in US generics, pharma companies
are re-looking at the ANDA pipeline based on economic viability of the product.
Companies have been constantly looking at business opportunities evolving
from regulatory headwinds to peers and/or consolidation at the global level.
There have been mixed views in terms of impact of Jan Aushadhi, online
pharmacies and trade generics on the domestic branded formulation business
growth outlook. The API segment remains favorable with ongoing environment
concerns in China. While the interest to enter China market has been for a long
time now, companies are firming their position through tie-ups and JVs with
Chinese local companies to gain business from this market.
Media
Broadcaster companies (ZEE and SUNTV) have seen an impact on advertisement
revenue due to advertisers pulling on the back of the NTO regime’s execution.
Managements have reiterated to be committed on investments in digital
platforms. PVR remained focused on robust screen adds. Print companies were
optimistic on moderation of newsprint prices and reiterated that benefits
should start flowing in from 2QFY20.
August 2019
5
 Motilal Oswal Financial Services
Voices | 1QFY20
Metals
Tata Steel highlighted its European business was impacted by a compression in
spreads and further EUR10-12/t compression is likely in the coming quarter. On
the domestic front, lower offtake from (1) industrial products/projects and (2)
branded products and retail segments led to a sequential decrease in volumes.
4Q had witnessed heavy destocking given inventory build-up. The company has
also cut its FY20 capex guidance by 20-25% across its Indian and European
operations. SAIL highlighted that steel pricing has remained subdued amid lower
demand, particularly within the auto sector. The company also noted that
realizations have been on a downtrend, with average NSR for July at
INR37,189/t (v/s ~INR40,828 in 1Q). Hindalco expects its cost of production to
decline in the coming quarters on lower caustic and furnace oil. Vedanta expects
its Gamsberg mine to produce 180-200kt in FY20 and exit 4QFY20 with a run-
rate of 250kt.
Oil & Gas
Refining margin outlook for FY20 is likely to remain weak owing to higher global
capacity additions and lower-than-expected boost in diesel yields. OMCs expect
healthy marketing margins to continue. RIL’s petrochemical cracks are expected
to remain subdued, with strong growth in the retail business. MAHGL foresees
higher opex challenges, which would normalize its EBITDA margins. IGL expects
volume growth of ~12% from its high-growth gas, supported by government
regulations. PLNG plans to ramp-up its latest Dahej expansion and Kochi
terminal post completion of the Kochi-Mangalore pipeline.
Retail
Retail companies witnessed healthy revenue growth amidst slowing consumer
spends during the quarter. This has been aided by an improving private label
mix and better gross margins for fashion retailers. Increasing competition in
food & grocery space has exerted pressure on margins. Managements have
reiterated their focus on increasing the store count.
Titan – commentary indicated muted demand in the second half of June and the
whole of July due to rising gold prices. The company expects a material recovery
from September with likely 20% sales growth in jewelry segment in 2HFY20 and
beyond. Management believes that growth prospects in Jewelry remain robust
with market share gains in cities where its presence was weak. SSSG continues
to be a driving force for jewelry growth, contributing in the ballpark range of 60-
80% of segmental growth.
JUBI indicated about an evident slowdown in dine-in and consumers shifting
more toward delivery. It guided for aggressive 100 Dominos store additions in
the coming fiscal. Also, it used the price increase lever in 1QFY20 after over two
years of no pricing action. For Dunkin, JUBI now has no plans to expand the
network of stores and will wait for full year of breakeven.
Technology
Overall, the quarter saw a muted performance on both revenue and profitability
front. However despite macros being uncertain, most companies highlighted a
robust deal environment, with INFY recording highest-ever deal wins (USD 2.7b).
Performance of Tier II companies was affected by pockets of stress in either
specific client or related verticals. This can bring in near-term uncertainty in
growth trajectory. 1Q also saw strong headcount addition by most companies,
making a case for offshore migration of some of the onsite centric work.
Margins remain a challenge across the industry amid investments in localization,
digital capabilities and rising attrition rates with talent crunch.
August 2019
6
 Motilal Oswal Financial Services
Voices | 1QFY20
Telecom
Bharti and Vodafone Idea have seen subscriber losses and ARPU improvement
on the back of minimum recharge plans. Managements reiterated their plans of
network integration and focus on improving ARPU in the coming quarters.
Bharti Infratel reiterated that the exits are behind and gross additions will gain
momentum. TCOM appeared optimistic given promising prospects in
Growth/Innovation services and with large deal wins in the kitty.
Utilities
Power Grid (PWGR) has targeted capitalization of INR200-250b of projects in
FY20. However, its guidance may be at risk due to RoW issues for the Raigarh-
Pugalur line. In terms of new project awards, PWGR noted that INR115b of
works have been allocated under TBCB and regulated framework for bidding.
JSW Energy noted it is evaluating organic growth opportunities in renewable
energy. It believes competition has reduced and prices have started to stabilize
at reasonable levels. Torrent Power noted UnoSugen has started supplying
power under a long-term PPA since 1
st
Jul’19.
August 2019
7
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Key takeaways from management commentary
AUTOMOBILES
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
Most OEMs have slashed their growth guidance for FY20, despite expecting a recovery in 2HFY20 led by
normal monsoon, festival season demand and pre-buying ahead of BS6. However, companies have refrained
from providing outlook due to the uncertain environment. Also, expectations are for continued tailwinds
from commodities in the coming quarters. In FY20, the 2W industry is expected to grow by 11-12%, PV
industry to de-grow by 7-8%, CVs to decline by 4-5% and the tractor industry to grow by ~1%. This is based on
the assumption of a demand recovery and pre-buying benefits from Sep’19.
Positives: Low RM cost and festival season
demand
Ashok Leyland
Bajaj Auto
Eicher Motors
Weak demand resulted in inventory buildup of 30-45
days at dealer level.
Domestic CV demand remains uncertain till underlying
businesses recover.
Production cuts taken in 2QFY20 to reduce inventory.
Demand environment remained weak but expects
margins to have bottomed out.
2W exports for Bajaj to grow at 7-8%, whereas 3W
exports to remain weak due to uncertainties in markets
like Egypt.
Focus on gaining market share by differentiated product
launches. Target to gain market share in executive
segment with launch of 125cc motorcycle in Q2FY20.
Targeted to set up of ~350 RE Studio outlets in H1FY20
and further increase it to ~500 stores by end of FY20 to
improve accessibility of RE products.
Added six exclusive stores in international market,
taking total count to 48 (targeting total of ~80 such
stores in next 2 years).
RM cost savings to also reflect in Q2 and Q3.
Measures taken to cut costs by ~INR5b in FY20.
Focus on project orders to improve sales. Launch
of LHD vehicle in next few quarters to add up to it.
Dealer inventory stood at 7-8 weeks.
No aggressive measures taken to cut inventory as
festival season is approaching.
Dealer inventory stood at less than 30 days and
claimed to have its dealer network financially
healthy. Don’t see any problems in dealer and
customer financing.
Fall in commodity cost in 1QFY20 is expected to
reflect in 2Q/3QFY20.
Encouraging response to Twin 650 both in India
and international markets.
Price increase taken in Apr-19 and Jul-19 (0.8-1%).
Inventory days reduced marginally but remained
high at ~45 days.
Share of Hero FinCorp financing grew to ~47% (v/s
42% earlier).
Falling commodity prices to further improve
margins in coming quarters.
Inventory days were under control but increased
by ~2 days (higher than normal).
Did not provide guidance for auto volumes due
uncertainty in demand, but expects some
initiatives by govt. to boost demand.
Average discounts at ~INR16.9k (v/s ~INR15.1k in
4QFY19/1QFY19).
Commodity cost benefit, favorable FX and cost
reduction contributed ~40bp to the margin in
Q1FY20.
Hero MotoCorp
Commodity cost tailwind impact to come in the coming
quarters.
Industry volumes are expected to improve in festival
season.
Retail volumes declined in Q1FY20. Enquiries remained
stable but demand deferment was prevalent in both
urban and rural markets.
Tractor volume decline has bottomed out and guides for
flat tractor volumes in FY20.
Normal monsoon, low commodity prices, falling interest
rates and pre-buy on low base to result in a recovery in
H2FY20.
Company refrained from giving demand outlook for
coming quarters due to market uncertainty and drop in
enquiries.
Confirms for not completely exiting diesel segment and
is evaluating 1.5ltr diesel engine cars. Focusing on CNG
and hybrids to offset the impact from discontinuing
certain diesel cars.
Guides for stabilizing JLR volumes in China, and expects
growth on the lower base.
Confident on cost cut of GBP850m in FY20.
Maintained EBIT margin guidance of 3-4% for FY20/21,
with FY20 being at lower end of the range.
M&M
Maruti
Tata Motors
Inventory in CVs at 7 weeks (Jun-19) with expected
reduction in Q2FY20.
Consol. net debt increased by INR135b YoY to
INR465b in June-19.
August 2019
8
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Amara Raja Batteries
Current Price INR 623
Click below for
Results Update
Buy
AMRJ recently reacted to the 5- 6% price cut in the 2W replacement market by
EXID. Also, the warranty period was increased by six months across auto
segments.
Realized lead price was at INR141-143k/ton (v/s INR154k in 4QFY19).
Capex guidance of INR4-4.5b for ongoing capacity expansion in 2W batteries (by
3m units to 17m units), 4W batteries (by ~2m units to 14.5m) and
implementation of punch-grid technology.
AMRJ would be launching e-rickshaw batteries by 3QFY20.
Operating leverage drives margins: Lead prices were lower by 10-12% YoY.
Operating leverage and change in lease accounting (20-25bp benefit) drove
EBITDA margin expansion of ~300bp YoY (stable QoQ) to 15.4% (our estimate:
15.1%). Implementation of AS116 (lease accounting) resulted in higher
depreciation (by ~INR40m) and interest cost (by ~INR10m). Adj. PAT increased
~25% YoY (+18% QoQ) to INR1.4b (our estimate: INR1.3b).
Ashok Leyland
Current Price INR 67
Click below for
Detailed Concall Transcript &
Results Update
Buy
Demand environment uncertain. Demand to remain weak until underlying
businesses don’t recover.
Exports have been a challenge due to issues in the end market. Focus is on
gaining traction in project orders. LHD vehicles will be ready in couple of
quarters, thereby expanding addressable markets.
Target of reducing cost by ~INR5b (or 1.5-2pp of sales) by revisiting all cost
heads.
BS6 transition to start by end-Jan/beginning Feb for chassis production and till
Mar’20 for fully-built vehicle.
Weak demand has led to inventory build-up at dealer level with inventory of 1-
1.5 months. AL will calibrate production in 2QFY20 to bring inventory down to
normal level by Sep’19.
Capex could be lower than the earlier guidance of ~INR15b. It will calibrate
capex based on development of demand over the next few months.
Revenues from defense segment declined to ~INR300m in 1QFY20, a decline of
over 80% YoY. It expects defense business to recover in 2HFY20.
Captive finance (HLFL) supports 13-14% of AL’s volumes.
Net debt as of Jun’19 stood at ~INR5.1b.
Weak demand and higher inventory has led to operating working capital of
~INR6.7b. It is working to generate cash by reducing working capital.
August 2019
9
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Bajaj Auto
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 2,766
Neutral
Jul-19 trend for domestic motorcycle has been weaker than in Jun-19,
impacted by weaker macros, liquidity issues, weak consumer sentiment and
noise around BS6 and EVs.
Management expects EBITDA margins to have bottomed out and stabilize at
15-16%.
Focus on market share gain is through differentiated products and not
pricing.
It will be launching 125cc motorcycle in next one month,
with an objective to
gain share from the 100cc executive segment.
Dealer inventory at 7-8 weeks
(v/s normal of 4-5 weeks). Bajaj isn’t aggressively
looking to cut inventory as festive season is round the corner.
2W exports for BJAUT are expected to grow at 7-8%, whereas 3W exports
would decline in FY20 (due to Egypt).
It has launched three models in CT brand - CT110H, CT110 kick start and CT110
ES. Idea behind launching multiple variants is to try up-trade customer in the
same brand as well as challenge competitor by offering similar priced but better
product.
It is trying to shift away from price-based positioning to attribute
based positioning.
KTM has reported loss in March quarter
(gets consolidated with one quarter
lag) of EUR2.3m due to inventory destocking and higher marketing cost. These
are expected to normalize in coming quarters.
Plans to launch e-scooter under Urbanite brand in FY20.
Cash & cash equivalent has increased to ~INR171.3b (v/s ~INR163.7b).
Bharat Forge
Current Price INR 395
Buy
Click below for
Detailed Concall Transcript &
Results Update
Oil & Gas de-stocking impact is behind and
it expects an upturn from 2QFY20.
However, FY20 would see a decline in this segment. It has added a new
customer, which would contribute ~20% of revenues in FY20 and ~35% in FY21.
Also, new products would contribute 5%/10% in FY20/21.
US Class 8 truck segment is expected to de-grow by ~10%
in FY21, based on the
guidance provided by its OEM clients. It expects normalcy to return in ordering
cycle as fleets now start evaluating their next year requirements and start
placing those orders around October.
Nellore plant (light weighing technology) is likely to start operations from
Oct’19
and would fully ramp-up in three years, contributing ~INR3b revenues.
Electronic component business for EVs through JV with Refu Electronik would
start operations in FY21
and contribute INR1.5-2b revenues from power
electronics component (drives, invertors, converters, BMS systems, etc.). BHFC
would have ~50% stake and invest ~EUR11.4m.
New orders:
BHFC had secured new orders worth over USD30m in 1QFY20,
largely for machined components for PVs.
Its 51% subsidiary Kalyani Strategic Systems has won USD100m order through
JV with Rafael Advanced Systems for supplying 1,000 Barak-8 missile to the
Indian Army and Air Force.
Capex:
It plans to invest INR4-4.5b for residual capex for ongoing projects in
India and EUR40m in EU subsidiary for aluminum forging plant. Expects capex
10
August 2019
 Motilal Oswal Financial Services
AUTOMOBILE | Voices
intensity to drop significantly in FY21. It will decide on plans to put up aluminum
forging capacity in the US in the next few months. In the last 12 months, it has
added ~40k ton forging capacity and machining capacity.
Bosch
Click below for
Results Update
Current Price INR 14,495
Neutral
Bosch believes that the Indian auto industry is going through a paradigm shift –
the current slowdown is not cyclical but structural in nature – hence, recovery
should take longer. While it expects FY20 to see a decline, FY21 should also
remain muted owing to a spillover of the current weakness.
Hence, the company is investing in restructuring, reskilling and redeployment to
align with adjustment of portfolios (towards EVs, mobility solutions, etc.) and
competencies.
Aftermarket business also saw single-digit decline in 1QFY20; full-year FY20 is
expected to be muted.
FY20 capex should be in the normal range of INR3.5-5b; the company would
look at rightsizing investments given market conditions.
CEAT
Current Price INR 898
Click below for
Detailed Concall Transcript &
Results Update
Buy
New capacity on track – TBR started in 4QFY19 and full ramp-up is expected in
12-14 months; PCR will start in Dec’19 with ramp-up planned over 2-3 years,
and 2W should start in Sep’19 with ramp-up in 1.5-2 years.
For new PCR capacity, it has a large order book from OEMs, which will take care
of the initial capacity.
TBR price increase in Jul’19 and another in next few days, totaling to 1.5-2%
increase.
RM prices are stable at 1QFY20 level, as increase in natural rubber is expected
to be off-set by crude price decline.
Specialty tyre (OTR) is currently operating at ~50% utilization. It expects to
break-even at utilization of 80%, which it expects to achieve by end-FY20.
2W competitive intensity has increased. CEAT has been able to keep its market
share strong through distribution and new product launches.
Capex of INR2-3b has been deferred by a year. It now expects to invest INR13-
14b for capacity (incl. OTR) in FY20 and INR11-12b in FY21. Of ~INR40b of
capacity addition capex, it has already invested ~INR14b so far. Deferment is for
PCR and 2W tyres.
Net debt stands at ~INR16.4b (v/s ~INR15b as of Mar’19).
Eicher Motors
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 16,123
Buy
Royal Enfield
Company is accelerating the pace of setting up RE Studios to improve
accessibility of RE products, with ~350 outlets by 1HFY20 and ~500 outlets by
end-FY20 (v/s earlier target of 350 in FY20). It expects these smaller sales and
service outlets to break-even at monthly volumes of ~10 units. These outlets are
being added by existing RE dealers only.
August 2019
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 Motilal Oswal Financial Services
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It has added 13 outlets in 1QFY20, taking the total dealer outlet number to
~928 units (added ~89 in last one year). It plans to increase retail footprint in
India to 1,100 towns with 1,350 stores by end-FY20.
Walk-ins are still weak due to headwinds faced by the entire industry. It doesn’t
see any RE specific issues or any product/brand fatigue related issues. For RE in
India, growth is expected to come from higher variant products/newer
platforms, whereas base volumes should come in from Classic/Thunderbird.
Dealer and channel inventory is <1 month. Barring exceptions, its network is
financially healthy with no problems in either dealer financing or customer
financing.
The 650cc Twins still have 3-4 months waiting period; it is now inching towards
monthly run-rate of 5k units.
Added six exclusive stores in the international market, taking the total count to
48 exclusive stores. It is targeting ~80 such stores in the next 1.5-2 years.
It didn’t get any benefit of commodity costs in 1QFY20, but expects the benefits
to reflect in 2Q-3QFY20.
It is planning transition to BS6 in 4QFY20 only.
FY20 Capex of up to INR7b for (a) Phase-2 of Vallam Vadagal plant (by Sep’19),
(b) construction of the technology center, and (c) development of new products
and to expand RE’s portfolio for the global markets.
VECV
Prevailing higher discounting in heavy trucks segment impacted EBITDA margins.
Good progress made in South East Asia markets with ramp-up of sales for UD
branded trucks. Over 10 new products/variants have been introduced to gain
access across new segments in target markets.
Post the green-field Bhopal capacity addition of ~40,000 by Apr’20 with capex of
~INR4b, truck capacity should increase from 90,000 to 130,000.
MDEP engine (5-8 liter engines) capacity can be scaled up to 100k units from
current 50k units.
Endurance Technologies
Current Price INR 882
Click below for
Detailed Concall Transcript &
Results Update
Buy
India business
Entering aluminum forging business with investment of ~INR350m to
manufacture components for inverted front forks (currently imported). At a
later stage, it would also make components for EVs. Manufacturing would start
by Jun’20 and would have peak revenues of ~INR1.3b in three years.
Tie-up with KTM for transfer of latest/advanced technology for suspensions.
ENDU would invest EUR4m over two years as equity stake in KTM Industries and
KTM would transfer technology free of cost to ENDU.
Won new business worth ~INR1.9b from HMSI, Kia, HMCL, TVS & Getrag, with
SOP from 3QFY20 and peak production by FY21.
TVS has given orders for 2W front forks and 3W brakes (initial order for disc
brakes). While disc brake supplies will start from 2QFY20, supplies for new
orders will start by end-3QFY20.
Hyundai & Kia are currently contributing ~INR1b to revenues, which should
ramp up to ~INR3b by FY21.
August 2019
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 Motilal Oswal Financial Services
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Update on new plants
2W suspension plant at Gujarat started in Sep’18; it is currently producing
2,600 front forks/ day and has LOI of 6,200 front forks/ day.
Karnataka front fork plant for HMSI will start by Sep’19 and should be ramped
up to 3,500 front forks/ day by Jan’20. It would also supply to TVS from this
plant.
Vallam plant to start in 3QFY20 and would supply to Hyundai & Kia.
ABS: Testing is currently on. Clearance is expected by 4QFY20, post which, it
could start supplies.
EU Business
EU PV volumes declined 3%. In that context, EU business grew ~3% in EUR terms
and ~6% (excluding the aluminum price reduction pass through).
New orders won worth ~EUR12.8m from Maserati & FCA.
Escorts
Current Price INR 496
Click below for
Detailed Concall Transcript &
Results Update
Neutral
ESC’s dealer inventory was at 3-3.5 weeks, as it took inventory correction in 1Q.
Tractor retails for ESC were much better than wholesales and also industry
wholesales.
It is yet to see any material recovery in Jul’19. Any earliest sign of recovery
would be in Sep’19 with festive season sales.
Competitive intensity has not changed dramatically, barring a few exceptions.
Volumes in north and central markets declined by ~2% YoY (strong markets for
ESC), whereas those in south and west markets (opportunity markets for ESC)
were down by 31% YoY due to very low reservoir levels.
Railway biz is expected to grow at 15-20% in FY20, whereas CE is likely to
recover in 2HFY20 (seasonally stronger).
EBITDA margin will likely remain under pressure in FY20 due to operating
deleverage and a weaker mix in Railway.
It has earmarked capex of INR2.5-3b for ongoing capacity addition (incl. JV), new
products and maintenance.
Hero Motocorp
Current Price INR 2,611
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Retail volumes declined ~6% in 1Q. Inquiries are ok, but demand deferment is a
problem in both urban and rural (more in rural).
Inventory reduced by ~3 days to 42-47 days (v/s 45-50 days in 4QFY19). This is
including company level inventory but without sub-dealer inventory.
HMCL is hopeful of a recovery in demand starting with festive season (end
Sep’19); it thus expects 2H to be better than 1H.
<110cc scooter volumes declined ~23% in 1Q, whereas >125cc scooter volumes
grew ~12% for the industry. Recently launched Destini 125 has ~15% market
share of the 125cc scooter segment.
It saw some benefit of commodity in 1QFY20 and expects commodity cost
tailwind to continue in the coming quarters.
It took price increase in Apr’19 and Jul’19 (0.8-1%).
August 2019
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Financing penetration is ~37% for HMCL, whereas Hero FinCorp has ~47% share
of financing (v/s 42% earlier).
AS116 benefit at EBITDA level was ~10bp and impact at PBT was ~INR40m.
Depreciation in 1QFY20 was higher by ~INR650m for accelerated provisioning
for BS4-related equipment. It expects ~INR300m/quarter for remainder of FY20.
Spares revenue grew ~3% YoY to ~INR6.2b.
Mahindra CIE
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 158
Buy
MACA expects a recovery in India business margins, led by cost management
and ramp-up at Bill Forge Mexico.
Impact of EVs on 2W/3W would be only on AEL (~10-15% of AEL revenue or ~3%
of overall India revenue).
AEL’s medium-term focus is on entering PV segment, exports, and expanding
margins to ~15% (from ~11.2% in 2QCY19).
Capacity utilization at ~70% in India and 80-85% in EU.
Europe business focus is on maintaining profitability in a weak market
environment. The company expects EU PV and CV volumes to stabilize at 2Q
level.
EU business revenue declined ~2% YoY to INR11.7b (flat growth on CC basis),
impacted by lower EU PV and CV volumes. PBIT margin shrank ~110bp YoY (-
30bp QoQ) to 9% due to operating deleverage.
Mahindra & Mahindra
Current Price INR 556
Click below for
Results Update
Buy
Tractors outlook:
Expect the worst to be over now; should see some
improvement from Aug’19. Company has guided for flat tractor volumes in FY20
for the industry, based on 6-8% growth in the remainder of FY20.
Autos outlook:
Company has not given any outlook due to the prevailing
uncertainty in the market. It expects some initiatives from the government in
this area. MM is expected to outperform the auto industry, based on its strong
and refreshed portfolio.
Overall some green shoots for demand are visible
in the form of (a) near
normal monsoons, (b) benign commodity prices, (c) possibility of lower interest
rates at ground level, and (d) likelihood of pre-buying happening on low base of
2H.
Inventory in both tractors and autos are under control,
it is higher by just 1.5-2
days than normal. MM dealers are not witnessing any dealer financing issues,
though it is a problem at industry level.
Commodity cost benefit
of ~50bp was realized in 1QFY20, with further benefit
expected in coming quarters.
Ssangyong Motors is witnessing pressure
on volumes in both Korea and export
markets, leading to losses due to negative operating leverage. It is focusing on
(a) driving up volumes through doubling up of marketing efforts, and (b)
controlling costs.
August 2019
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Stimulus for demand recovery:
GST reduction to 18% (from 28%) for Autos
seems difficult as there is no elbow room available with the government. In the
past, excise duty cuts during a downturn drove recovery. For demand to
recover, one-time stimulus is required (may be for the short term) as well as
transmission of rate cuts to consumer.
Government thrust on EVs is good news for MM
as it has first mover
advantage. GST would make e-3Ws and e-cars for fleet viable.
BS6:
It expects small vehicles (1.2 liter engine) to be largely petrol dominated,
while sub-4mtr SUVs should see 50:50 petrol:diesel (as against ~74% diesel
currently). Large SUVs will remain diesel dominated as percentage cost increase
would be lower. Price pass-through including contribution margin will be
dependent on the then prevailing market situation.
Peugeot 2Ws - worst is behind:
MM undertook major restructuring of staff and
also invested materially in product development in FY19, especially in e-scooter.
In fact, it is developing an e-scooter and manufacturing it in India for Peugeot,
with first batch being shipped out in the coming days. It expects Peugeot 2Ws to
be EBITDA positive in a year’s time.
Maruti Suzuki
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 6,277
Buy
Demand environment:
Uncertainty in the market makes it difficult to provide
guidance. Drop in footfalls and inquiries. Efforts are on to generate footfalls.
Fuel mix:
Petrol 66% for industry. For MSIL, it is 78% in 1QFY20 v/s 72% in
1QFY19.
BS6:
Alto, Baleno, Wagon-R, Swift and Dzire are BS6 compliant. Majority of the
model will be compliant by end-CY19.
Retails down by 17% YoY (in line with wholesale),
with the decline similar in
urban as well as rural. Inventory is marginally over one month at dealer level. 4-
5 days inventory with company.
Discounts:
INR16,941/unit (+40bp QoQ).
Commodity cost benefit, favorable FX and cost reduction contributed ~40bp
YoY.
Also, cost increase due to BS6 & safety features were fully passed on,
which had mathematical impact on margin by 50bp.
Some more benefit on commodity and FX in 2QFY20.
Cost-reduction initiatives would continue to contribute in 2Q.
Diesel: Evaluating 1.5ltr diesel and not completely exiting diesel.
Fleet segment: CNG is doing well for MSIL. Also, petrol hybrid model will find
acceptance in fleet segment.
CNG contributes over 6% of total volumes. In market where CNG is available,
the actual share is much higher at 22%.
Rural:
39% of volumes in FY19. 17% decline in 1QFY20.
CAFE regulations require fuel efficiency improvement and simultaneous
reduction in CO2. It does not see a material cost increase in petrol due to CAFÉ
norms, although there will be a need for alternative fuels.
August 2019
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
Motherson Sumi
Current Price INR 102
Click below for
Detailed Concall Transcript &
Results Update
Buy
SMP’s greenfield plants are already seeing improvement and would take a
couple of quarters to attain breakeven. Once majority of the programs are
launched, it should attain normalized margins.
Albama, US greenfield plant issues with respect to labor are not unique to SMP,
but witnessed across players including its customers.
Underlying market conditions are challenging, which is also impacting ramp-up
at greenfield plants.
Reydel is doing well and it has won new orders from customers post MSS
takeover.
SMRPBV capex in 1QFY20 at ~EUR44m v/s earlier guided capex of EUR225m for
FY20. There could be a reduction in this quarterly run-rate of capex going
forward. Its maintenance capex is EUR125-150m.
SMR – stable performance
SMR revenue in EUR terms fell 0.2% YoY (-4.7%QoQ) to EUR402m (in-line).
EBITDA margin shrank 20bp YoY (-70bp QoQ) to 10.9% (est. of 11.1%).
PKC: In-line performance
PKC revenue in EUR terms increased by 10.5% YoY (+4% QoQ) to EUR327m (est.
of EUR340m).
EBITDA margin expanded ~60bp YoY (+150bp QoQ) at 10.1% (est. of 9.8%).
Lower interest resulted in PBT of EUR21m; PAT increased 23% YoY to EUR16m.
Tata Motors
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 120
Neutral
China volumes for JLR are stabilizing, with Jul’19 volumes till date surpassing
full-month volumes of Jul’18. Management expects growth hereon led by a low
base, new Evoque launch in Aug-19, low systemic inventory (including negligible
inventory of outgoing CV5 compliant vehicles).
The company is very confident on delivering cost reduction of GBP850m (350bp)
in FY20 through (a) GBP250m benefit through headcount reduction, (b)
GBP250m through RM cost reduction, (c) GBP200m from overhead reductions
and (d) GBP150m through additional operating profit improvement initiatives.
Of these, in 1QFY20, it has already saved GBP90m (GBP60m on staff cost and
GBP30m on overheads).
It expects to realize cash of GBP1b in FY20 through (a) GBP0.5b investment cuts
(of which GBP0.3m realized in 1QFY20) and (b) GBP0.5b in working capital
reduction.
It maintained EBIT margin guidance of 3-4% for FY20/21, with FY20 being at
lower end of the range. This would be largely driven by cost-cutting measures,
volume improvement and a reduction in variable marketing expenses (VME). It
expects VME to moderate from peak of 8.8% of sales in 1QFY20 and remain in 6-
9% range. Similarly, it expects warranty expense to moderate from 1QFY20 peak
of 6.2% of sales and remain in the range of 4-6%.
Brexit is expected to conclude by 31/Oct/19, resulting in short-term pain.
However, GBP depreciation would offset the impact of tariff costs, partly in first
year (net of hedging), Second year onward, it expects to benefit from currency.
August 2019
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 Motilal Oswal Financial Services
AUTOMOBILE | Voices
In anticipation of Brexit, it has been going slow on Fx hedging. This is reflected in
over 70% of unrealized Fx hedge losses expected to realize in next 12 months.
New product launches are as follows: New Defender in 4QFY20 and New XJ
electric in 4QFY21.
TVS Motors
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 370
Neutral
Demand outlook: Management lowered its guidance for FY20 domestic 2W
industry growth – from marginal growth (as given in 4QFY19) to a decline due to
the delay in economic recovery and weak start to monsoon. However, TVSL is
likely to outperform industry due to its strong product portfolio and exports.
Decline in moped demand is due to higher rural exposure as well as the highest
impact of insurance.
It expects further commodity cost benefit in 2QFY20. This, coupled with a high
focus on cost reduction, is likely to reduce material cost. On cost cutting, it is
focused on VAVE, alternative sourcing and increasing localization (import
content already down from 14% in FY18 to 12% in FY19 to 11% in 1QFY20). It
had earlier guided for import content to come down to ~10% for FY20.
Exports: Management guided that it will continue its growth momentum in
exports. Stability in key exports markets led by rising crude and stable currency
is helping demand. TVSL will continue to outgrow industry.
Price hike: TVS has taken a price increase of 0.1% in 1QFY20 and further 0.2% in
Jul-19. It has fully passed on cost inflation due to ABS/CBS regulation.
Inventory level remains comfortable at 5 weeks.
TVS Credit Services has loan book of ~INR84b (v/s ~INR83.4b as of Mar-19). PBT
declined by ~10% YoY in 1QFY20 to ~INR450m, whereas PAT stood at
~INR300m.
Retail finance penetration gradually increased in FY19 from 39% in 1Q, 43% in
2Q, 47% bin 3Q and 51% in 4QFY19.
Capex: INR6.5b in FY20. Capex is in non-capacity creation and in areas of
technology. Further, it would be investing ~INR2b-2.5b in subsidiary in FY20.
It maintained plan to launch electric 2W in FY20.
Invested ~INR690m in TVS Motor Singapore (~INR390m), Sundaram Auto
(~INR250m) and Ultraviolette Auto (~INR50m).
August 2019
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 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
CAPITAL GOODS
Execution was healthy given the liquidity crunch in the economy and the election for around two months
during the quarter. Order inflows declined due to weakness in domestic ordering amidst the general
elections. Management commentary suggests that small- and medium-sized orders are flowing in but large-
ticket orders are on hold and should see finalization now that the election uncertainty is behind. Room AC
companies have seen a strong summer season and inventory levels are below normal.
Outlook for FY20
KEY HIGHLIGHTS FROM CONFERENCE CALL
Domestic Capex Cycle
Seeing opex-related enquiries rather
than higher capex spending.
Slowdown in Power Grid capex has
impacted the project business.
Slowdown in economy to impact
domestic business growth going
forward.
Exports remain uncertain due to
currency volatility, trade wars, etc.
Government orders saw slowdown
owing to elections. With strong mandate
to the incumbent government, capex
spending should pick up.
Expect competition to be rationale in AC
business with likely price hikes to offset
input cost pressure.
Outlook remains robust over medium
term; however current liquidity crunch
has led to higher working capital for the
company.
Not witnessing any pickup in private
capex at broader level, except in roads
and airports.
ABB
Robotics and Automation to continue to drive growth over
the medium term.
Cummins
KKC has cut its FY20 guidance for its domestic business at
8-10% from 10-15% YoY earlier, while guidance for exports
has been cut to 12-15% decline v/s flat to negative earlier.
Havells
Consumption slowdown and liquidity crunch have
impacted the business, but expect consumption to pick up
in 2H.
Competition is strong in white goods space (AC segment),
limiting scope for price hikes.
Larsen and
Toubro
FY20 order inflow guidance at 10-12%, revenue guidance
at 12-15% and EBITDA margin for the core E&C business at
10.5%.
Voltas
Harsh summers led to strong AC business sales for the
company as well as the industry. Inventory levels are
below normal levels and distributors were able to
generate strong cash flows. Due to delayed summers,
there were no price hikes as the focus was on inventory
liquidation.
Expect UCP segment margins at 11% on a sustainable
basis.
ABB
Click below for
Results Update
Current Price INR 1,381
Sell
Macro
Challenging environment given the elections. Overall, market has been subdued.
Revenue has been sluggish due to macro trends from the customer end in the
last quarter. Company believes that the same will be passed through in the
coming quarter.
Order backlog/Order inflow/Execution
Has witnessed growth order book and order inflow. To help in revenue growth
in 3Q and 4Q.
Orders up 23% for the quarter. Have seen growth across business lines.
Base order up 16%.
Exports are on an uptrend.
August 2019
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 Motilal Oswal Financial Services
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Received a large data-center order from one of the large global clients.
Executed largest single location lift irrigation project with ABB motors.
Segmental comments:
Robotics and discrete business
Seeing slowdown in automotive market leading to decline in ordering.
Looking to diversify into other end markets.
Received one order from an edible oil company.
Overall, orders down 16% while revenue was up 4%.
OB = INR1.5b
Electrification business
Orders up 19%, revenue was up 14%. OB = INR14b
Motion
Orders up 14%, revenue was up 9%. OB = INR16b
Industrial automation
Orders up 15%, revenue was flat.
Seeing green shoots in energy and metals orders.
OB= INR14b
Power Grid (PG)
Fared well compared to competitors. PG order backlog stands at INR53.8b
Outlook
Order backlog growth should lead to revenue growth.
Macro trend may vary, but ABB tends to focus on micro segments.
Will prefer cash realization over revenue, which has been the focus all along.
Overall, sluggishness in the market continues and is a worry. But, still will look to
work hard across key markets and mitigate the same.
Railways & Metro – next growth story lies with infra growth. ABB is expanding
its product range and operations.
Other takeaways
Exports and services growth continues. Export >30% growth led by PG. PG>50%
and non PG>20%.
PG demerger on track.
Has initiated Solar Inverter divestment. More concentrated players are
becoming active in the segment. Have decided to transfer people and
capabilities to an Italian company, FIMER. Even as ABB has decided to exit the
business, the deal structure is being worked out for the India entity (Forms 7-8%
of revenue, while margins are not that great).
Other expenses increased due to normal operational reasons, contracted
services, warranty provisions for new products, and on provision reversals
impact last year.
Higher tax expense due to non-deductibles, mainly MSME interest.
Margin increase led by closure of EPC business leading to lower cost overheads.
August 2019
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 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Crompton Greaves Consumer Elec
Current Price INR 226
Click below for
Detailed Concall Transcript &
Results Update
Buy
Overall business environment
The ECD segment registered healthy revenue growth of 16% YoY to INR10.7b
(our est. INR10.6b), supported by strong double-digit revenue growth across
fans, pumps and appliances. The segment can grow a further 15% due to an
increase in its product range and geographic expansion. EBIT margins stood at
20.3% (+80bp YoY), ahead of our estimate of 19.5%.
Company wants to scale up the water heater and air cooler business, intending
to rank as 2nd/3rd in the segment in the medium term.
Ad spends for the quarter stood at INR290m v/s INR240m.
Lighting – launched an innovative anti-bacterial bulb
LED sales increased 4% YoY in value terms and 12% in volume terms.
Conventional lighting, which forms 20% of the lighting segment sales, registered
21% YoY sales decline.
For B2C, which forms 50% of the lighting segment sales, company is focused on
introducing new products, increasing ad spends to support new product
launches and boosting the distribution network. Launched new products like
anti-bacterial bulb and five-star rate bulb, which are sold at 20% premium and
now form 15% of the lamp sales.
The B2B business, which forms balance 50% of the lighting business sales, has
seen a slowdown given the delay in awarding from government entities due to
the elections. Crompton has focused on improving its sales force and has
appointed 12 new account managers to scale up the business meaningfully. B2B
order pipeline remains robust.
Lighting margins witnessed 100bp gross margin improvement. However, EBIT
margins declined 160bp YoY to 5.1%. Margin compression was on account of (a)
300bp YoY higher ad spends during the quarter, (b) 200-300bp impact on due to
incremental provision for ECL, and (c) investment in B2B business. Management
expects Lighting margins to revert to double-digits on sustainable basis
gradually.
Led bulb is seeing price stabilization; however, there is price erosion of 10% in
the batons and panels category.
EESL sales for the quarter stood at INR420m.
Expect double-digit bottom line growth in the lighting segment, going ahead.
Fans
Market share further improved by 100bp in the fans segment.
Premium category fans registered 24% YoY growth.
Aura Fluidic (5-year warranty) and the anti-dust fan are the growth drivers in the
fans category.
Pumps
CREST Mini is doing well. Pumps segment registered double-digit volume as well
as value growth Residential pumps form 80% of the category sales and 20%
comes in from agriculture pumps forming another 20% of sales.
Water heater/ air coolers
Water heaters registered 44% YoY growth during the quarter and air coolers
registered 138% YoY growth. Air cooler growth was supported by desert coolers.
Crompton intends to get ranked 2nd/3rd in both the segments in the medium
term.
August 2019
20
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
GE T&D India
Click below for
Results Update
Orders: INR4.2b, (-32% YoY); order book at INR59.3b (-10% YoY)
Weak quarter in orders: Order finalization delayed given the election period.
TBCB orders are coming up for the next green corridor.
Green energy corridors to be ordered in CY19; expect PGCIL tendering and
orders in 2QFY20.
Bangladesh HVDC - GE T&D has participated and faces competition from Indian
and Chinese players; technical bids submitted; Price by end-Aug’19 and
awarding by Sep’19.
Ordering pick-up in green energy corridor to provide new opportunities for GE
T&D.
INR2b of orders stuck on account of delay in financial closure from the client’s
end, and is thus, slow moving.
65-70% of the order book is executable in the current financial year.
Of the order book, 20% comes from Central Utility, 30% from State Utility and
balance 50% from Private Utility.
Execution
Execution delays faced by the company on account of (a) decline in HVDC
revenue as project nears completion (decline of INR650mYoY), (b) execution of
a project worth INR2b being held back on stress witnessed due to delay in
finalization of financial closure, (c) execution of a State Utility project getting
postponed to 2QFY20 given procedural delays from the client side.
CK2 in the order book is at INR1.4b and will be completed in Mar’19/1QFY20.
Working capital and debt position
Have seen some delays in payments from customers having financial issue. Net
working capital currently stands at INR10b.
Gross debt stand at INR2.5b and net debt at INR2b
Margins
Given execution deferment, margins are expected to remain in higher single
digit for FY20.
Current Price INR 155
Neutral
Havells India
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 661
Neutral
Update on Lloyd business
It has extended benefits similar to Havells dealers to Lloyd dealers for long term
association.
The company believes that the strategy is in right place. It has decided on
manufacturing facility much ahead of the changes witnessed in the segment.
Over the last one year, the pricing pressure has increased and competition has
decided to focus on volume rather than pricing.
While the Lloyd business has not seen revenue growth over the past two years,
this is a transition period and will become far more stable business.
Working capital strategy will mirror similar to Havells strategy as the new plant
becomes operational.
Don’t think that Lloyd will be price premium brand. Will be mass premium which
implies that business needs to be competitive. Some of the premium brands
have also taken price cuts and are actually playing mass premium segment.
Inventory continues to be as last year and is higher compared to usual level post
AC season, although not too high.
August 2019
21
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
LED TV – structural changes to the category – Chinese brands are coming up at
lower pricing. Lloyd will continue to be in LED TV, but may be a passive category
as the focus is more on ACs, refrigerators and washing machines.
It has been working on distribution channel revamp. This is a time-consuming
exercise.
AC witnessed marginal decline. Larger decline in LED.
Ad-spends were 10% of sales. This should normalize going forward and should
be seen as an upfront investment. Hoping to limit ad-spends to 5-5.5% of sales
by next year.
It will take 1-1.5 years for production to ramp up from domestic manufacturing
unit.
Cables & Wires
Steady growth in wires despite housing slowdown.
Cables – had certain production bottlenecks, which have been resolved with
capex coming down.
Switchgears
Industry has been registered negative growth since Nov.
Impacted due to slowdown in real estate and cash crunch.
Havells has gained market share.
Hope for a better environment, but recovery may be stretched out.
ECD
Fans delivering mid-teens growth. However, growth has slowed down a bit.
Expects superior growth to continue.
Other appliances – market share is low so growing at fast pace. Continues to
gain market share.
Lighting
High volume growth continues.
Significant pressure on LED prices continues.
Margins
High ad-spends impacted margins as well. Should moderate and support
margins.
Have been investing for strengthening business. These costs have peaked and
expect margins to improve hereon.
Distribution network strategy
Havells is concentrating on improving rural distribution. Have setup separate
team for the same.
However, rural penetration led growth is not strong enough to compensate for
slowdown in the real estate sector.
Have got 25,000 retail outlets in rural, targeting 60,000 retail outlet in rural
market over the next 1-2 years.
Capex
Have invested INR1.4b in 1Q.
For the full year, it will be INR5.0b.
Larsen & Toubro
Current Price INR 1,358
Buy
Click below for
Results Update
Strong order inflow supported by domestic market:
LT witnessed INR387b of
order inflows (+11% YoY) supported by ordering from the domestic market.
Domestic order inflow grew by 16% YoY, whereas international ordering stood
muted YoY at INR90b. 90% of domestic ordering was supported by public and
private sector ordering.
August 2019
22
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
FY20 guidance maintained:
The company maintained its guidance for FY20 –
revenue growth of 12-15%, order inflow growth of 10-12% and core E&C margin
of 10.5%.
INR8.4t of prospective order pipeline:
Total prospects (domestic + overseas)
stand at INR8.4t. Segment wise: Infrastructure forms INR5.4t, power T&D at
INR1t, power generation at INR0.5t, hydrocarbon at INR1.2t, and metals and
material handling and defense put together at INR 0.3t. International ordering
pipeline stand at INR1.5t, with orders in the hydrocarbon and infrastructure
segments looking strong.
Consolidated revenue grew at 10%:
Overall, domestic revenue grew at 15%,
while international revenue was down 3%.
Consolidated margins expanded 110bp to 11.4%.
Core E&C revenue grew at 11%, ahead of our expectation of 8%. In particular,
domestic infra grew strongly by 27%.
Adjusted core E&C margins contract 60bp YoY to 7.9%:
Core E&C margins
shrank 60bp YoY to 7.9% in 1QFY19, impacted by a weak job mix and stage of
execution of order backlog. Infrastructure segment margin contracted 40bp YoY
to 6.4%, while power segment margin shrank 80bp YoY to 4.1%.
Exceptional item of INR936m pertains to impairment in a road SPV.
Hyderabad metro contributed INR1.6b of revenue and is EBITDA positive.
Other segment margin contracted on lower contribution from higher-margin
realty segment.
Working capital deteriorates by 200bp YoY to 23% of sales:
Working capital
cycle deteriorated to 23% of sales impacted by vendor support provided by L&T
and delayed payment from clients given liquidity tightness faced in the
economy. Management expects working capital cycle to improve going ahead.
Real estate opportunity:
Currently, LT is executing four real estate projects,
with total 4,500 flats to be delivered. Of these, it has already delivered 1,500
flats, and thus, the remaining 2,900 flats need to be delivered. As and when the
delivery happens, there will be lumpy revenue/profits booked in P&L, according
to the new accounting rule. The company is also trying to test the lease model in
commercial real estate. The idea is to have steady-state base income.
Other highlights:
MindTree will be consolidated from 2Q.
E&A division has been shown under discontinued operations. The segment
witnessed 31% growth in PAT.
Defense segment continues to see slow ordering.
Update on coastal road project - Expect the project to commence operations
again in sometime. Continues to be part of OB.
Update on Andhra Pradesh orders: Projects which are below 25% executed form
2-3% of order book. Continue to be part of OB.
Solar Industries
Current Price INR 1,144
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Revenue impacted by weakness in global markets, especially in Turkey and
Zambia. Even currency volatility led to translational loss of INR350m.
Expects overseas revenue to pick up 2QFY20 onwards as demand improves in
Turkey and Zambia, led by economic stabilization.
Exports and overseas revenue is expected to contribute INR10b FY20 onwards.
August 2019
23
 Motilal Oswal Financial Services
CAPITAL GOODS | Voices
Margins during the quarter were impacted by (a) raw material price (ammonium
nitrate) increase not being completely passed on to end consumers, and (b)
forex loss of INR90m being impacted due to INR appreciation.
Defense revenue stood at INR252 in 1QFY20; management expects it to reach
INR3b in FY20. Total investment in the defense business currently stands at
INR5b, incrementally plan to incur a capex of INR1b in FY20.
Solar has received trial order for Pinaka missile; company will participate in the
commercial tender for Pinaka missile and multi-mode grenade.
Solar is also planning to launch propulsion unit for space application and intends
to meet demand from ISRO.
Solar has capex plans of INR2.7b for FY20.
Expect revenues from CIL and SCCL to pick up in FY20 given its plans to increase
overburden removal.
Net working capital stands at 92 days as against 90 days in 4QFY19.
Vision 2020
SOIL plans to increase sales volume from 3.00lac metric tons to 4.5lac metric
tons. To enable this, SOIL will expand its capacity to produce 7lac metric tons.
Plans to increase overseas revenue three-fold from current INR3.5b; to enable
this, it plans to increase its manufacturing reach from five to 10 countries.
Plans to generate defense revenue of INR5b+.
.
August 2019
24
 Motilal Oswal Financial Services
CEMENT | Voices
CEMENT
Managements highlighted that cement industry volumes declined 3-4% YoY in 1QFY20, as all-India utilization
stood at 67% versus 75% in 4QFY19. Also, election-related headwinds impacted demand during the quarter.
Cement industry expects demand to remain muted in 2QFY20 on account of monsoon, and a recovery is
expected only in 2HFY20. Various regions are witnessing roll back in prices. Current all-India prices are at
INR10-15/bag, which is 3-4% lower than the 1QFY20 average. Cement players are also hopeful of cost savings
in the subsequent quarters, as energy prices (oil, petcoke, coal) have been on a downtrend.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook FY20
Volume Growth
DBEL has reduced the FY20 industry growth guidance to 6%
Cement volumes for DALBHARA were up
from 8-10% earlier. The company aims to grow in the same
by just 1% YoY to 4.6mt
Dalmia Bharat
range.
NCLT passed an order in the matter of Murli Industries on
22nd July’19. The transaction is likely to be completed in 3-
4 months, provided two conditions are fulfilled – (i) revival
of mines that were earlier cancelled by the government and
(ii) revival of GST incentive by the Maharashtra government
Of total capex of INR30b for east, INR9b has been spent till
now. Capex spent in 1QFY20 was INR3b. DEBL expects to
spend another INR8b over the remaining year
Demand for the company is expected to remain flattish in
1HFY20, but should pick up in 2HFY20. JKCE should witness
JK Cement
double-digit volume growth in 2HFY20.
Grey cement volumes (incl. clinker)
Work on the 7500TPD clinker production line and 1mt
decreased 3% YoY to 1.97mt, while white
cement grinding unit at Mangrol is in full swing and likely to
cement volumes were up 21% YoY to
be completed by Sep’19.
0.34mt in 1QFY20.
Trial-run for the 1mt cement grinding capacity at
Nimbahera was conducted in Jun’19; normalization will take
another two months.
Work on the 1.5mt grinding unit at Aligarh and 0.7mt
grinding unit at Balasinor is in progress and should be
completed by Dec’19 and Mar’20, respectively.
Total amount spent on expansion till 30th Jun’19 is INR9.0b.
Capex in 1QFY20 was ~INR3.4b. The company will spend
INR7b for the remaining 9MFY20 and balance INR2-3b will
be spent over FY21.
Industry should record growth of 6% in FY20. While demand
Industry utilization for 1QFY20 stood at
has witnessed slowdown in 1HFY20; it should revive in
67% while volumes declined 3-4% YoY.
Ultratech
2HFY20.
Sand mining issues are prevalent in
Cement
Bara grinding unit should get commissioned in 3QFY20.
Andhra Pradesh, Rajasthan and West
For Century Cement, the company is awaiting other
Bengal.
regulatory approvals, which should be completed by
There has been a slowdown in low-cost
2QFY20.
housing projects in Andhra Pradesh and
West Bengal due to political uncertainty.
Consolidated volumes for UTCEM
(including white cement) grew 2% YoY to
18.8mt in 1QFY20.
The company stabilized operations at
UNCL which operated at 60% utilization
in Jun’19.
Birla Corp
Current Price INR 550
Click below for
Results Update
Buy
Sales of premium products grew 12% YoY. Premium brands accounted for 37%
of trade cement sales.
Share of non-trade sales down to 17.7% from 21.2% a year ago.
August 2019
25
 Motilal Oswal Financial Services
CEMENT | Voices
Highlights of key markets
North
Operations of the Chanderia unit witnessed a major turnaround through a series
of strategic initiatives:
Capacity utilization was ramped up to 95% from 90% a year ago, with cross
branding and supplies to markets in central India (Uttar Pradesh and Madhya
Pradesh), where the company has developed a strong presence by investing in
distribution assets and brands.
Premium brands – Perfect Plus and MP Birla Ultimate – were introduced in the
MP Birla Cement portfolio.
Increased share of blended cement (from 71% to 88% in one year till June) and
trade channel sales (from 78% to 83%).
Company is enhancing mechanical mining capabilities, and thus, reducing
dependence on bought limestone.
Central India
Although demand in central India has been relatively subdued (especially in
Madhya Pradesh, which has seen a major slowdown in government projects and
Pradhan Mantri Awas Yojana), the company's superior brand and network
strength helped it maintain market share with marginal sales growth.
All the plants – integrated and grinding units – performed at peak capacity,
exceeding targets on all efficiency parameters.
12.2 MW power generation unit using waste heat recovery system
commissioned at Maihar. It will substantially bring down energy cost.
Ultimate Ultra, super-premium cement with water repellent properties, was
launched in Madhya Pradesh.
Eastern India
In West Bengal, MP Birla Cement Unique has emerged as the preferred brand in
the premium slag segment; it now contributes 42% of trade sales in the state.
The company sells 100% blended cement from its Durgapur plant.
Mukutban Greenfield Project: The 3.9mt integrated unit is likely to get
commissioned by FY22. Equipped with 40MW of CPP and 10.6MW of WHRS, the
total cost of the project is INR24.5b. Financial closure of the project has been
achieved by way of a 12-year term loan of INR16.3b from a consortium of four
banks led by Bank of Baroda at an interest rate of less than 9%.
Kundanganj capacity ramp up: The company is looking to scale up the
operations of RCCPL's Kundanganj unit as well, where 1.2mt of capacity is being
added. The project is expected to be completed in 2020-21. BCORP is adding
clinker capacity of 480,000 tons, which, in turn, can feed the additional clinker
needs of the Kundangunj grinding unit in eastern Uttar Pradesh.
Three solar power plants – one each at Maihar, Chanderia and Satna – are to be
installed in the September quarter.
Production of coal at the Sial Ghogri mine currently meets one third of the fuel
requirement of the Maihar unit. Coal production is being doubled.
August 2019
26
 Motilal Oswal Financial Services
CEMENT | Voices
Dalmia Bharat
Current Price INR 933
Click below for
Results Update
Buy
Dalmia Bharat has reduced the FY20 industry growth guidance to 6% from 8-
10% earlier. The company aims to grow in the same range.
Prices in July reduced by INR5-15/bag MoM in south and by INR15-20/bag MoM
in east.
Power & fuel cost per ton has been affected mainly by the Kalyanpur plant
operating at lower utilization levels and partly due to the absence of coal
linkage. DBEL expects to achieve savings of INR50-70/t on power & fuel in
subsequent quarters.
RM cost has moderated on account of softening of slag prices from last year.
Murli: NCLT passed an order in the matter of Murli Industries on 22nd July’19.
The transaction is likely to be completed in 3-4 months, provided two conditions
are fulfilled – (i) revival of mines that were earlier cancelled by the government
and (ii) revival of GST incentive by the Maharashtra government. Once these
conditions are met and the transaction is completed, it will take another nine
months for the company to get the plant up and running. There will be an initial
payment of ~INR4b for the acquisition of the asset and another INR4b for
starting the operations.
Capex: Of total capex of INR30b for east, INR9b has been spent till now. Capex
spent in 1QFY20 was INR3b. DEBL expects to spend another INR8b over the
remaining year.
Ind-AS impact on EBITDA was to the extent of INR120m.
Incentives recognized were ~INR360m in 1QFY20. The company expects to book
incentives of ~INR1.3b in FY20.
Incentive receivable as of now is INR6.5-7b.
Clinker utilization for the company stands at 80%.
Revenue for 1QFY20 includes INR930m towards the sale of investment
considered as stock-in-trade under ‘inventory’. Corresponding expense of such
sale has been recognized under 'Change in inventories of finished goods, work-
in- progress and stock-in-trade’ amounting to INR920m.
Grasim Industries
Current Price INR 724
Click below for
Results Update
Neutral
VSF
Globally, VSF prices have softened due to capacity over-hang and US-China
trade war.
China exports textiles worth ~USD50b to the US and the US-China trade war is
impacting prices.
Cotton prices are expected to remain soft on account of the US-China trade war,
arrival of new cotton crop and projections of higher cotton production in India
and globally.
Globally, VSF remains the fastest growing fiber with projected 6-7% growth;
India demand continues to be buoyant with double-digit growth.
Base Pulp prices are trending downwards with ~12% YoY correction. Given the
inventory to consumption time lag, benefit of lower prices should accrue in
subsequent quarters.
Commissioned 3rd Generation Specialty fiber line of 16KTPA based on in-house
green technology.
August 2019
27
 Motilal Oswal Financial Services
CEMENT | Voices
Chemicals
Caustic prices were impacted due to demand slowdown in Asia coupled with
increased imports. Prices in India softened with increase in imports and
production ramp-up of newly commissioned capacities in the domestic industry.
Chlorine supply exceeded demand during 1QFY20, leading to negative
realization.
Power costs reduced 7% YoY due to new sources and cost optimization;
company added wind power source at Vilayat (15.4MW with 35% PLF).
Chlorine VAP plant at Vilayat commissioned.
VAP and Epoxy contributed 21% to Chemicals EBITDA, the highest-ever VAP
EBITDA.
Work on the newly acquired plant (146 KTPA) at Balabhadrampuram has
started, ordering of long lead items in progress.
Sequentially, EBITDA is marginally higher; on YoY basis, ECU realizations were
impacted by negative chlorine prices.
Cement business
UltraTech’s Nathdwara achieved PBT break-even within two quarters of
acquisition.
Net debt shrunk over INR10b in 1QFY20 from 4QFY19.
Aditya Birla Capital
NBFC lending book grew 16% YoY to INR620b. Revenue stood at INR36b, while
net profit after minority interest stood at INR2.7b.
On investments in group companies:
Management has indicated that standalone capex will be given priority over
investments in group companies.
GRASIM will always maintain majority ownership (>51%) in Aditya Birla Capital
(ABCL). Currently, the stake stands at 56%.
Potential concerns on further investments in its associate company, Vodafone
Idea Limited (VIL), management has clarified that no disproportionate
investment will be made that can jeopardize the credit rating of GRASIM. Also,
with the INR250b rights issue done this year, VIL will not need to raise money
for the next two years.
India Cement
Click below for
Results Update
Current Price INR 76
Neutral
Growth in cement demand in south is estimated at 3% in 1QFY20.
Demand declined post elections in Andhra Pradesh due to cancellation of
various projects. Demand outlook in Telangana appears positive.
Demand in east should pick up post monsoon.
Capex was INR800m for 1QFY20.
Net debt stood at INR34.7b as of Jun’19. Debt increased marginally by INR1.1b
in 1QFY20.
Trade constitutes 65% of the company’s sales mix.
Fuel mix at 86% for kiln imported coal and 12% for petcoke in the quarter.
The company has launched premium brand Coromandel super kings in north
markets.
The market is facing liquidity crisis. Receivables have slowed down. The
company will contemplate on debt reduction once liquidity improves in market.
ICEM’s expansion plan in MP will depend on the profitability of 2QFY20.
August 2019
28
 Motilal Oswal Financial Services
CEMENT | Voices
JK Cement
Click below for
Results Update
Current Price INR 1067
Buy
Work on the 7500TPD clinker production line and 1mt cement grinding unit at
Mangrol is on in full swing and is likely to be completed by Sep’19.
Trial-run for the 1mt cement grinding capacity at Nimbahera was conducted in
Jun’19; normalization will take another two months.
Work on the 1.5mt grinding unit at Aligarh and 0.7mt grinding unit at Balasinor
is in progress and should be completed by Dec’19 and Mar’20, respectively.
Total amount spent on expansion till 30th Jun’19 is INR9.0b. Capex in 1QFY20
was ~INR3.4b. The company will spend INR7b for the remaining 9MFY20 and
balance INR2-3b will be spent over FY21.
The company’s debt level will increase by INR12b.
In Jun-Jul 2019, there has been minor correction in prices to the extent of 2%
due to seasonality.
Demand for the company is expected to remain flattish in 1HFY20, but should
pick up in 2HFY20. JKCE should witness double-digit volume growth in 2HFY20.
The company has high cost inventory of petcoke till end-Aug’19. JKCE expects
savings on power and fuel costs from 2HFY20.
Trade sales stood at 75% for 1QFY20.
The company is undertaking a debottlenecking exercise at its kiln in Nimbahera,
which is likely to result in some power & fuel savings.
The company is expanding its putty capacity by 0.2-0.3mt by Jun’20 at capex of
INR250-300m.
JK Lakshmi Cement
Current Price INR 327
Click below for
Results Update
Buy
The 20MW Thermal Power plant in Durg has been commissioned.
Orissa GU is likely to be commissioned by 2QFY20. Trial run will start in the first
week of October.
The company will repay INR2b of debt in FY20; capex for the year is INR750-
800m.
Other expenses for 1QFY20 include INR200m consultancy fee to BCG and
another INR50-60m donation. The company has hired BCG for logistics cost
improvement.
There has been pricing correction in Jun’19 due to seasonality.
JKLC is gaining market share in Rajasthan and Gujarat due to launch of new
brands.
JKLC trade mix: 64% trade and 36% non-trade.
The company has launched composite cement in the Eastern markets and is
sourcing slag from the Bhillai Steel plant.
Premium products account for 15% of trade sales and are at a premium of
INR10-12/bag.
Kiln fuel mix is 80-85% petcoke in Sirohi; while in the East, petcoke is 60-65%.
Average fuel cost stood at INR 7,800/t in 1QFY20 v/s INR8,100/t in 4QFY19.
2QFY20 should see an INR200/t decline in fuel prices.
Sanghi Inds.
Current Price INR 50
Click below for
Results Update
Buy
Demand in Gujarat declined 11% YoY amid elections due to shortage of labor
and slowdown in government spending. The state also faced liquidity issues and
water shortage in the quarter.
August 2019
29
 Motilal Oswal Financial Services
CEMENT | Voices
SNGI expects flattish demand in 2QFY20 due to seasonality but a pick-up post
monsoon.
Average prices in Gujarat stood at INR 300/bag in 1QFY20. These prices are still
sustaining in June and July 2019.
Gujarat constituted 86% of sales mix, with the remaining 14% coming from
Maharashtra, Rajasthan and Kerala.
Freight cost per ton declined 4% YoY due to lower diesel prices and benefits of
axle load norms.
Lignite constituted 25% of the fuel mix, while coal accounted for 75%. Weighted
cost of fuel stood at INR0.92.
The company’s expansion program is on track; 80% of the civil work has been
completed. The Kutch grinding unit is expected to commission by 1QFY20.
Environment clearance for the Surat grinding unit is expected to be received by
end-August, post which capacity should come on stream by Oct’20.
Ultratech Cement
Current Price INR 4,136
Click below for
Results Update
Buy
Utilization and price trend
Industry utilization for 1QFY20 stood at 67% while volumes declined 3-4% YoY.
Industry should record growth of 6% in FY20. While demand has witnessed a
slowdown in 1HFY20, it should revive in 2HFY20.
Sand mining issues are prevalent in Andhra Pradesh, Rajasthan and West
Bengal.
There has been a slowdown in low cost housing projects in Andhra Pradesh and
West Bengal due to political uncertainty.
On an all-India level, current prices are 3% lower than 1QFY20 average.
The industry should see capacity addition of 15mt in FY20.
JPA operations
The operations achieved PBT break-even and operated at 68% utilization for
1QFY20.
Bara grinding unit should get commissioned in 3QFY20.
Update on Century’s cement asset
The scheme of arrangement has been approved by the NCLT on 3rd Jul’19.
The company is awaiting other regulatory approvals, which should be completed
by 2QFY20.
UNCL operations
UNCL operated at 60% utilization as a major maintenance shutdown was
undertaken. UNCL recorded EBITDA of INR1.6b.
Achieved PBT break-even within two quarters of acquisition.
Enhanced proportion of low cost fuel usage to 78%.
Achieved cost reduction of INR100/t compared to 4QFY19.
The company is looking at options to liquidate non-core assets.
Cost trend
Average cost of petcoke during 1QFY20 was USD95/t v/s USD98/t.
Diesel prices have reduced by 4% YoY. Synergies with acquired and newly
commissioned capacities have led to lead distance reduction of 6% YoY. Lack of
availability of railway wagons has reduced rail dispatches to 21%.
The company has preponed its annual kiln shut down at 10 kilns. This has
impacted the cost by INR45/t.
August 2019
30
 Motilal Oswal Financial Services
CEMENT | Voices
Others
Net debt for the company reduced by INR10b QoQ in 1QFY20.
The company has planned capex of INR20b for FY20 towards installation of
WHRS, Bicharpur coal block, white cement putty plant and Bara project.
While environment clearance and land is in place for 3.5mt Pali greenfield plant,
the expansion is currently on hold, pending Board review.
August 2019
31
 Motilal Oswal Financial Services
CONSUMER | Voices
CONSUMER
In 1QFY20, companies across the board indicated the likelihood of a slowdown in the near term, mostly
led by rural. Demand slowdown during the quarter was led by subdued consumer sentiment, liquidity
crunch in channels and poor progress of monsoon. Most companies have guided for a revival only in
2HFY20. If volume growth slowdown persists, promotional intensity could increase, leading to weak sales
growth. RM basket for our consumer universe is seeing signs of inflation with some exceptions (e.g.
copra).
Management comment
on Rural
KEY HIGHLIGHTS FROM CONFERENCE CALL
Comment on demand scenario
Outlook FY19/20
Asian Paints
Economy appears to be in the midst of a
slowdown. Management highlighted the
need to be watchful, given the weak
economy and the poor progress on
monsoon, both of which could affect
demand in the coatings business.
‘Aggressive channel push’ facilitated healthy
decorative segment sales growth.
Category is growing at a very slow pace.
Company has never witnessed such a
slowdown. Britannia is however outpacing
the market by a big margin.
BRIT believes that it will take another 3-4
quarters for the business to return to earlier
levels.
Dabur is seeing a slowdown in the market,
which could affect growth. For 1QFY20, April
and May saw good growth but June was
poor. In June, particularly the North and
West regions saw a slowdown in line with
the economy.
Despite good sales growth in the domestic
business in 1QFY20, management has
cautiously refrained from giving double-digit
sales growth guidance for the full year given
the sequential slowdown.
Host of initiatives from the government is
expected to boost demand from 2HFY20.
HUVR expects near-term demand to be
subdued. At an aggregate level, HUVR
continues to grow ahead of the market.
Growth in smaller
towns is still
reasonably healthy.
Longer Diwali season last year will
affect growth in 3QFY20.
Gross margins witnesses in 1QFY20
are likely to continue going forward.
Britannia
Currently, rural
markets are growing
slower than the urban
markets.
Dabur
Rural reach is 48,000
villages; it is targeting
55,000 villages by the
year-end.
Rural constitutes 47%
of the domestic sales
for Dabur.
Cost efficiencies (CE): Current target
is 2% of revenue (targeted CE of
INR2.65b vs. last year amount of
INR2.3b).
ICDs are reduced to under INR5b as
of 1QFY20 (INR7b in March) and are
expected to decline by another
INR1.5b. It is not likely to go beyond
the current levels at any point in
time.
Management expects low realization
increase (and even deflation in a few
categories) in the remainder of the
year given benign material cost
inflation and increasing competitive
intensity.
International business grew at ~7.7%
CC. Minor improvement is likely for
the remainder of the year.
Maintaining ~20% EBITDA margin for
the full year.
Capex target INR2.5-3b in FY20.
There has been a further 4-6% price
reduction taken in Lux, Lifebuoy and
Pears in July given further softening
of commodity costs, which is
expected to boost demand.
Management expects double-digit
constant currency growth in the
international business for the rest of
the year.
Copra deflation may be closer to 20%
in FY20 compared to 15-20% guided
earlier.
Expect EBITDA margins of over 19%
for the year.
New foods are likely to do INR1.5-2b
in 2-3 years. Existing foods business is
likely to grow at 15-20% over this
period.
Hindustan
Unilever
Rural growth rate is
now in line with urban.
Consumption situation and liquidity in the
channel remain a challenge and management
is hoping for a revival in 2HFY20. Despite this
scenario, Marico did well and management
expects healthy growth going forward.
Rural expansion and
efforts to improve
effectiveness in rural
outlets should enable
Marico to grow ahead
of the market.
August 2019
32
 Motilal Oswal Financial Services
CONSUMER | Voices
Asian Paints
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 1,601
Sell
Macro factors and growth
Economy appears to be in the midst of a slowdown. Yet, APNT did well on
domestic decorative sales.
‘Aggressive channel push’ facilitated healthy decorative segment sales growth.
This largely involves being more proactive in terms of schemes.
Management highlighted the need to be watchful, given the weak economy and
the poor progress on monsoon, both of which could affect demand in the
coatings business.
Growth in smaller towns is still reasonably healthy. Some gains from the
unorganized segment are continuing post GST.
Destocking in trade channel in 1QFY19 provided a favorable base for growth in
the quarter.
There was no positive impact of delayed monsoon on paints demand.
Going forward, the longer Diwali season last year will affect growth in 3QFY20.
International business growth was slow. Key markets of Egypt and Sri Lanka
reported weak growth.
Costs and savings
Gross margins in 1QFY20 are likely to continue, going forward.
The company reduced prices toward the end of the quarter on solvent-based
products.
Effectively 0.4% price reduction spread in two halves on May 1 and June 1,
respectively.
Freight and marketing spend witnessed savings.
Ad spends are usually lower in 1Q every year. In addition, there was lower
adspend generally.
Staff costs are reflective of costs of expanded capacity but not so in case of
other expenses, which will rise as off-take from these plants increase –
something that has begun from 1QFY20.
Other points
The lower end segment continues to grow faster, partly aided by some
conversion from unorganized to organized.
Capex guidance – INR7b in FY20.
Britannia Inds
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 2,688
Buy
Performance
The market is growing at a very slow pace; BRIT has never seen such a
slowdown, but is still outpacing the market by a big margin. Though the
slowdown is expected to ease a bit, it is not expected to go away drastically.
BRIT believes that it will take another 3-4 quarters for the business to return to
earlier levels.
Volume growth was 3% for the quarter.
Company took a small price increase in 1Q, most of which, was a flow through
from previous quarters.
1HFY19 saw 70% growth in cookies (inactive competition during the period). On
this high base, company saw flat cookie sales growth during 1HFY20, which has
led to the mix move largely towards premium categories.
33
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Overall, the value portfolio has been growing slowly than the premium portfolio
(65-70% of biscuit portfolio currently).
MT and e-Commerce are outpacing the market.
International: Company has commercialized the Nepal plant; increase in import
duty in Nepal should help.
Growth in the ‘Hindi’ belt was impacted due to rural distress. However, BRIT
continues to gain market share in all the States. The ‘Hindi’ belt is growing at the
same rate as the company.
Currently, rural markets are growing slower than the urban markets.
With commodity inflation at 4%, company took some long position in flour;
subsequently, flour prices have increased considerably. Sugar witnessed a
meager 1% inflation; RPO saw 15% deflation while milk saw 10% inflation.
Employee cost increase was led by increments.
1QFY20 PAT excludes exceptional items related to VRS cost incurred in one of
the high-cost subsidiaries (for closure of a plant in West Bengal).
Ad spends continued during the quarter. Advertising spends on an absolute
basis stood at INR1.3b v/s INR1.07b.
Subsidiary: Dairy business was impacted by high milk prices and Britchip was
impacted by initial costs of operation.
Dairy-based drinks and yogurt sales come under BRIT, while other dairy sales
come under subsidiaries. Even in the International business, some sales get
captured under BRIT and some in subsidiaries.
Borrowed INR5b to purchase wheat for a period of nine months till Dec’19; this
month itself, company has bought wheat worth INR7b, to hedge against
expected inflation in wheat prices (already happened). This has also led to
higher interest cost for the quarter.
Update on new categories
Wafers: Launched pan-India; No-3 brand in less than a year of launch.
Milk Shakes: No-2 brand in less than a year of launch; one of the best launches
for the company in a long time.
Baked Salted Snacks: Test launch in TN; pan-India in a phased manner.
Croissant: Faced difficulty in manufacturing initially; took some time to stabilize
operations.
Biscuits: Work on several new formats underway; launch expected soon.
Dairy: Double-digit growth led by Milk-Shakes.
All new launches are gross margin accretive compared to gross margins of the
Biscuit business.
Some new businesses have no capital employed – Milk-Shakes and Wafers.
New categories to constitute ~2.5% of sales.
Others
Distribution: 21.3lac direct reach currently; rural preferred dealers at 19k.
Cost efficiencies: Current target – 2% of revenue (last year – INR2.3b; this year –
INR2.65b).
ICD: Is lower than INR5b currently from earlier INR6.85b; hopefully another
INR1.5b should accrue in the year. It is not likely to go beyond the current levels
at any point in time.
On competition from Amul: If the price point (premium-priced cookie) gains
traction, BRIT possesses the capabilities to manufacture it.
August 2019
34
 Motilal Oswal Financial Services
CONSUMER | Voices
Dabur
Current Price INR 441
Neutral
Click below for
Detailed Concall Transcript
& Results Update
Macro and outlook
Dabur exhibited good broad-based performance in a difficult environment.
Focus on power brands and lower unit packs (LUPs) helped to grow ahead of the
market. However, Dabur is seeing a slowdown in the market, which could affect
growth. For 1QFY20, April and May saw good growth but June was poor.
In June, particularly the North and West regions saw a slowdown in line with the
economy; competitive intensity has also increased in juices, honey, Amla hair
oil, oral care, etc.
Despite good sales growth in the domestic business in 1QFY20 (+10.5%) YoY,
management has cautiously refrained from giving double-digit sales growth
guidance for the full year given the sequential slowdown, channel liquidity
crunch and competitive intensity in some categories.
Only 1.4% effective realization increase YoY was witnessed for the quarter.
Management expects low realization increase (and even deflation in a few
categories) in the remainder of the year given benign material cost inflation
(don’t expect it to rise in the near term) and increasing competitive intensity.
No pipeline filling except the regular activity ahead of the festive season, which
is a usual exercise.
International business is showing reasonable ~7.7% constant currency (CC)
growth. Minor improvement is likely for the remainder of the year. MENA
decline in sales has bottomed out and the company is reporting single-digit
growth on double-digit decline in large part of the base year. The US and Turkey
business have also stabilized, while the Bangladesh market was weak in 1QFY20.
Management believes that the international business (contributed ~30% to
sales before slowdown in FY19) is not a stretch for management bandwidth.
Additional segmental highlights
Beverage business continues to suffer due to the late onset of summer in the
North and heightened activity from milk-based players. Carbonated beverages
sales have actually done better than juices in the quarter. There is some down
trading being witnessed in juices. Management believes that they will need to
step up on innovation and invest in capex to facilitate increase in LUP salience.
Real is primarily urban and the company wants to expand the brand.
Dabur Amla, Brahmi and Sarson are witnessing healthy growth now.
Management believes that the ongoing momentum in Amla is sustainable.
Channel details
Urban direct reach is currently 1.2-1.3m and company may look to expand
eventually to over 2m outlets.
Rural reach is 48,000 villages; it is targeting 55,000 villages by the year-end.
Rural constitutes 47% of the domestic sales for Dabur.
Ecommerce is 1.4% of sales; company is targeting 2% for the full year.
Wholesale forms 25-30% of overall sales, albeit it is much higher in some
channels. Management believes that proportion of wholesale will keep reducing
due to weakening economics for such players led by compliance and other
factors.
New launches/ focus brands impact
Focus brands performance for next leg of growth- Pudin Hara 18% growth, Lal
Tail 5-6% growth (non-season in 1QFY20) and Honitus 8-10% growth. None of
35
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
these brands have reached annual sales of INR1b sales yet. Management is
reasonably satisfied with the progress here.
Eight power brands (Dabur Amla, Red Toothpaste, Real, Chyawanprash, Honey,
Honitus, Pudinhara and Lal Tail) contribute ~65% to sales. Management believes
that the power brands can grow at 10-12% steady state on sales going ahead.
Hajmola and Pudin Hara did very well, aided by new launches.
Babool Ayurvedic toothpaste has been launched at a very attractive price point
and Ayurvedic proposition. Have INR10 and INR20 price point for this product.
Babool was an economy brand earlier and was struggling for growth. In fact, the
company had not advertised materially for this brand in the past five years.
Management is looking to revive Meswak as well.
Other Clarifications
Excluding impact of Ind-AS 116, EBITDA margin was up 116bp.
While ad-spend to sales appears to have declined, expenses on key brands
increased YoY.
Staff costs are likely to grow at 8-9% for the rest of the year, in line with sales.
Hair oils, honey and oral care are witnessing higher competitive intensity, and
hence, ad spends have increased.
Target of maintaining ~20% EBITDA margin for the full year.
Exceptional item: INR200m DHFL related provision was taken in 1QFY20.
Dabur will comply with proposed FSSAI regulation on ‘red dot’ for higher sugar
content products if implemented. It is not particularly concerned as carbonated
beverages have much larger sugar content and have a bigger market than the
juices in Dabur’s portfolio.
Capex target INR2.5-3b in FY20.
Emami
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 304
Buy
Performance
Overall volume growth was 2%; domestic saw flat volumes for the quarter.
Macroeconomic environment continues to be challenging, with a distinct
slowdown in the consumer demand curve, particularly for discretionary
products.
Big slowdown in rural consumption. Rural growth was slow at 1% while urban
was at 2.6% for the quarter.
Power brands continue to increase market share. Volume growth for 1QFY20:
Cool Oils market share (vol) increased by 60bp to 66.8%.
Ayurvedic Medicinal Oil market share (vol) grew 190bp to 26.0%.
Balms market share (vol) at 54.7%, increased 130bp.
Fairness creams maintained leadership with a market share (vol) of 64.6%.
BoroPlus Antiseptic cream market share (vol) at 76.0%, increased 80bp.
Modern trade (MT) saw 17% growth during the quarter, 9% of sales currently
(v/s 7% last year).
RM increased during the quarter. Expect RM to ease in 2HFY20. Mentha prices
are easing; had higher price inventory in 1QFY20. Expect to see benefit from
3QFY20 onwards.
Pancharishtha declined 12% for the quarter.
According to Nielsen, the domestic fairness category is declining.
August 2019
36
 Motilal Oswal Financial Services
CONSUMER | Voices
10% growth in international business (ex-Crème 21) is also the constant
currency growth.
Outlook
Remains positive for balance part of the year based on company’s strategic
initiatives.
Kesh King: 15-17% average growth expected for FY20.
Balm should grow at 6-7% for FY20. Taking initiatives (promotions and trade
push) to drive growth in the category.
Will slightly rejig strategy on Men’s fairness, post inputs from BCG.
Company has consciously slowed down the pace of new launches; will launch
new products once market revives.
No major increase in ad spends expected for the full year unless market revives.
Advertising rates have also declined. Over the years, company has increased
spends on digital.
EBITDA margin should expand for full year.
9-10% growth expected for full year. More than 15% growth estimated in the
international business.
Next 6-9 months will see significant reduction in pledge.
22% tax rate for the full year.
Other points
7 Oils in One is now 1.5-2% of domestic business; 100ml packets are a big
contributor for the brand.
Crème 21: 17% contribution to international business.
International margins are slightly lower than the domestic business.
Inventory at distributor level in international business is in the range of 50-60
days.
Wholesales now at ~40%; hopeful of a bounce-back next quarter.
Direct reach: 9.5lac outlets, no plans of further addition.
IND AS 116 has had no major impact.
Godrej Consumer
Current Price INR 604
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Macro observations and growth expectations
Management remains confident that volume growth will be better in the
remainder of the year. This is more from GCPL’s perspective than a commentary
on the market.
Performance in Jun’19 was better than April and May 2019.
Management believes that 2QFY20 volume growth in the domestic business
should be better than 1QFY20 volume growth.
Monsoon progress has been good after a weak start, albeit still in deficit.
Government and the RBI’s efforts are likely to improve channel liquidity.
Profitability in Africa should be better sequentially. However, company does not
believe that margins will go back to erstwhile numbers in FY18 very soon as they
are also investing for growth.
Segmental and geographical highlights
HI — An extended summer impacted Household Insecticides (HI) category sales
in 1QFY20. Incense sticks also played a role. Its own product in incense sticks has
been rolled out to six states now.
August 2019
37
 Motilal Oswal Financial Services
CONSUMER | Voices
Management believes that it is too early to share data on the performance of its
own incense sticks. It is present in only Andhra Pradesh for over three months
and has double-digit share in this sub-segment in the state.
Customers of HI seem to want faster efficacious and stronger products. GCPL
will innovate according to the changing market requirement.
Have not re-launched Power chip yet. Likely to re-launch in 2QFY20.
Expectations remain strong despite focus on incense sticks now. Power Chip is
also strong and with faster efficacy.
Indonesia business was affected by slowdown in hypermarket/super-market
channel in 1QFY20. NPD and distribution expansion gives them confidence for
future growth.
Africa witnessed mixed performance. South Africa saw double-digit sales growth
(despite difficult operating environment), but smaller markets in Africa
witnessed slowdown led by macro factors. Product mix improvement will help
growth. Dry hair is now 52% of the hair extension sales, and thus, wet hair
proportion is increasing.
Downtrading is being witnessed in Africa due to weak economic outlook.
Other points
Management did not comment on number of NPD launch targets, unlike last
year.
Ind-AS 116 – INR40m impact at consolidated level and INR10m at the India
business level.
Transfer of some brands from tax-free location (structure during Megasari
acquisition) to Indonesia has led to creation of deferred tax assets in recent
quarters; subsequently with tax benefits.
GSK Consumer
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 8,055
Neutral
Performance
Volume growth for the quarter was broad-based. Domestic volume growth for
both Horlicks/Boost was 4% v/s 5.4% overall volume growth supported by
exports.
Exports grew 15% in 1QFY20; large part of the growth was contributed by
Malaysia.
Rural growth is seeing the same trend as earlier.
Pricing and deflation led to gross margin expansion for the quarter. Company is;
however, seeing inflationary trends in raw material prices now, led by steep
inflation in dairy (~40% YoY) due to significant reduction in milk supply and
increase in barley prices. Company is expecting high single-digit inflation for the
remaining part of the fiscal year.
1/3rd of the RM cost is seeing high single-digit inflation.
Second price hike taken (<1%) in July in select SKUs.
High employee cost during the quarter was due to long-term base settlement at
one of the factories and retention cost of the merger process.
Other income one-offs were due to clearing of old vendor balances (retention
cost is one-off for the year and won’t continue in FY21); post one-off’s growth in
other income was 15% during the quarter.
Horlicks gained 80bp volume and value share during the quarter.
August 2019
38
 Motilal Oswal Financial Services
CONSUMER | Voices
Highest ever distribution now at 2m v/s 1.78m last year (13% growth) as
measured by Nielsen. Sachets are the major driver in this distribution expansion,
contributing 10.5% to sales currently, with volume growth of 14% during the
quarter.
Business auxiliary income saw 15.5% growth in 1QFY20.
New launches and campaigns
Two new products were launched in 1QFY20: (a) Active Horlicks in the North
and South markets, and (b) Boost Bites (Chocolate flavored biscuits) in all four
Southern states.
To eliminate seasonality of the product, company launched ‘Chill out campaign’
to drive cold consumption of Chocolate Horlicks.
Other takeaways
Competitive intensity has not decreased; company’s initiatives and new
launches have led to gain in market share.
Investment strategy on media has increased for long-term gains.
5.5-6% share for Protein Plus currently; its target of INR500m for Protein Plus
remains unchanged for the year.
Ready to Drink category (RTD) doing well in the South.
Hindustan Unilever
Current Price INR 1,862
Buy
Click below for
Detailed Concall Transcript &
Results Update
Macro
Rural growth rate is now in line with urban.
Host of initiatives from the government is expected to boost demand from
2HFY20. HUVR expects near-term demand to be subdued.
At an aggregate level, HUVR continues to grow ahead of the market.
Management stated that it is ‘not wasting money in the market’ going for the
promotions route, unlike peers.
HUVR has not seen any down trading yet.
Uttar Pradesh and Bihar are doing well; the company has seen no specific
slowdown in the two states relative to the rest of the market.
GSKCH merger update
Approval of shareholders/creditors received in June-end.
NCLT sanction sought now, hearing scheduled for the first week of September.
Segmental
Personal products did well but personal wash demand was soft leading to 4%
growth in Beauty & Personal Care.
Premium personal wash did well but some benefits were passed on in certain
products, which have not resulted in a volume uptick.
There has been a further 4-6% price reduction taken in Lux, Lifebuoy and Pears
in July given further softening of commodity costs, which is expected to boost
demand.
Home Care and Foods did well with 10% and 8% growth, respectively.
Competitive intensity has declined
Barring home care, competitive intensity has declined in most categories, which
is one of the factors affecting ad spends.
In modern trade, competitive intensity is increasing in certain pockets.
New launch momentum strong
Beauty and Personal care la unches
39
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Personal Wash - Launched Lux Botanicals and Pears Naturale range nationally,
and Fair & Lovely soap in select geographies.
Re-launched Pond’s Men range; launched FAL Ayurveda face wash and facial
kits.
Launched new Sunsilk variants nationally with natural Ingredients.
Launched Elle 18 Lasting Glow compact nationally.
In Personal wash, apart from price interventions and new launches, there have
also been ‘moves on products’ that will be discussed in later quarters.
In Home Care, HUL re-launched Rin nationally and launched Sunlight Liquid in
select geographies.
Other points
Erratic demand and increasing receivable days are being witnessed in Canteen
store sales.
Jyothy Labs
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 147
Neutral
Macro
Management expects a stable demand environment. However, competitive
intensity is likely to be very high in a deflationary commodity environment.
Management sees naturals as a continuing trend.
For the first time, management has seen no benefits on rural demand either
before elections, during elections and after elections.
Rural demand so far in July was a shade better than June.
Category highlights
Ujala fabric whitener has g rown sharply by 70bp YoY. Company has rolled out a
brand new advertising campaign.
Ujala Crisp and Shine grew 21.8% YoY, while Henko delivered 23.3% growth.
There was no material impact of the water shortage in Chennai on demand
because it does operate in the mass segment of the market.
Henko INR10 pack is 20% of portfolio now.
Weather conditions were not supportive for household insecticides, leading to
over 20% sales decline. The company, however, gained share in both LVs and
coils YoY. Management believes that it needs to scale up own products to
combat the spurious incense stick business as well as create awareness on illegal
trade.
Weaker monsoon so far in central India, its key market for HI, has also led to a
sharp decline in HI sales for the quarter.
Guidance and comment on financials
Management had given 12% top-line target for FY20 at the end of FY19.
Guidance has now been revised to 10-12%.
Ad-spend will be INR1.5b for the full year. For 1QFY20, it was only INR280m.
EBITDA margin guidance of 15.5% for the rest of the year.
Realizations declined as lower-end products did better and competition-led
price cuts also played a role. Management expects volume growth to be more
than value growth for the full year as well because of various offers by players in
the sector.
Naptha and crude-related RM prices were down, contributing to gross margin
improvement. Lower sales of HI, a lower gross margin business, have also led to
expansion in gross margins.
40
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Effective tax rate of 20-21% for full year.
Marico
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 386
Buy
Macro comments and expectations
Consumption situation and liquidity in the channel remain a challenge and
management is hoping for a revival in 2HFY20. Despite this scenario, Marico did
well and management expects healthy growth going forward.
In India, 6-8% volume growth is expected domestically for the rest of the year.
Rural expansion and efforts to improve effectiveness in rural outlets should
enable Marico to grow ahead of the market. Technology is enabling the
company to obtain an edge over peers, as in better direct distribution v/s peers;
and far better flexibility in responses.
Management expects double-digit constant currency growth in the international
business for the rest of the year.
Copra deflation may be closer to 20% in FY20 compared to 15-20% guided
earlier. 3QFY20 may see some inflation from current low levels.
Expect EBITDA margins of over 19% for the year.
Comments on segments
Parachute rigid packs continue to do very well with 9% volume growth for the
quarter. However, decline in non-focus non-rigid packs contributed to a decline
of 1.5% to overall volumes.
VAHO- Management is targeting double-digit volume growth for the rest of the
year. Longer-term growth in this category will be driven by both rural growth
and new launches.
Saffola has done well mainly in modern trade (MT) and e-commerce but has
struggled in general trade (GT). Remains a work in progress for now.
Differentiated price points for GT compared MT and E-commerce to in the last
75 days has not worked so far.
The company was under-indexed chemists and specialty food outlets and is
investing in the same as these are crucial for the new product portfolio.
New launches
Breakfast is a very low investment prototype experiment.
3-4 products are likely to pick up scale and are likely to contribute materially to
sales by end of FY20.
New foods are likely to do INR1.5-2b in 2-3 years. Existing foods business is likely
to grow at 15-20% over this period.
Page Inds
Click below for
Results Update
Current Price INR 18,256
Neutral
Management - key comment on results
On the demand front, not much has changed between 4QFY19-1QFY20.
Footfalls for the last 18 months have been weak.
Quarter to date growth in 2QFY20 is not too different from 1QFY20.
Plenty of headwinds currently.
Premium innerwear market is growing at double-digits annually (not 1QFY20).
Category and channel details
There is slowdown in demand across categories.
August 2019
41
 Motilal Oswal Financial Services
CONSUMER | Voices
There is no material difference in terms of slowdown in various channels. Even
online growth has slowed compared to the past, while its % of sales is
increasing.
Kid’s innerwear target market is around 15.5m customers in Sec A and Sec B.
Company believes it currently has 2% share in the category, which was started
few years ago. Therefore, there is a huge room for growth.
For the Kid’s innerwear business, management wants a team of 100; out of this,
80 are already on board.
EBOs currently contribute 16-17% to sales.
As part of a pilot project in a large city, order to replenishment ratio has
increased from 65% to 95% due to dedicated distributors for EBOs.
Management stated that it intends to increase MBO reach sharply in the current
year (currently around 55,000).
On competition
Company believes that the low market share (~15% across segments) has room
for many players.
It does not see competition eating into its share.
Company will increase depth and breadth of distribution.
It aims to increase ad spends and marketing spends to boost growth.
Other points
Working capital has improved from Mar’19 levels.
Inventory to sales improved to 4.5x at end-Jun’19 from 3.74x at end-Mar’19. In
terms of days, it therefore seems to have returned to 81 days, which was
witnessed at end-FY18, compared to 97 days at end-FY19.
Material costs are in control.
Outsourcing is around 27-30% of total production. Management wants it to
remain at these levels for now.
Price increase was 3-4% at the beginning of the calendar year. No increase
recently.
Parag Milk Foods
Current Price INR 145
Click below for
Detailed Concall Transcript &
Results Update
Buy
Performance
Volume growth was 9-10% for the quarter.
Company has already passed on the price increase in raw milk by combination
of increased consumer prices (average 8-9%; higher for value-added products)
and reduced trade discounts. The full effect of this correction will come from
2QFY20.
Operating cash flow for the quarter stood at INR50-60m.
Procurement: 12-12.5llpd for 1QFY20.
Cash on books: INR250-260m.
INR70-80m GST write-off: Exceptional item.
WC days in line with FY19 days.
PSI incentive – INR520m pending as on 1QFY20 v/s INR470m (Mar’19).
Maharashtra government subsidy: INR250m outstanding.
RM and Margins
The compression in gross margins was mainly due to an increase in milk
procurement prices.
August 2019
42
 Motilal Oswal Financial Services
CONSUMER | Voices
Due to drought effect of last year and delayed monsoons, feed availability was
severely constrained leading to stress at farmer level. Therefore, raw milk prices
paid to farmers increased sequentially during the quarter.
Average RM inflation for 1QFY20 was 12% QoQ (peak increase was 20%);
INR28/liter average price for the quarter. Don’t see further increase in prices.
Seeing some improvement in RM prices due to good monsoon, will see further
decrease in prices post season.
Recent management changes
Mr. Venkat Shankar was appointed as Chief Executive Officer of the Company
w.e.f. 4th Jul’19.
Mr. Vimal Agarwal (CFO) has left the company for a better opportunity w.e.f
19th Jul’19, and Mr. Shashikant Dalmia (having around 6-7 years of work
experience in Parag) was appointed as Chief Financial Officer (CFO).
Mr. Harshad Joshi (COO) and Mr. Amrendra Sathe (CCO) have also left the
organization recently.
Other key highlights
Retail presence in Mumbai has been doubled.
INR2.6b gross debt and INR2.3b net debt.
Pride of cows (POC): Will supply to 40-45 cities in India. Want to double the POC
business in the next two years.
34% overall market share in cheese; Amul has 41% share in the market.
65% capacity utilization on Sonipat; INR1b sales expected from Sonipat in FY20.
Acquired Proliva for a total consideration of INR8.6m. Proliva is a protein-based
nutrition brand with 15 SKUs and annual sales of INR20m.
Outlook
No change in Vision 2020 target – Revenue: INR27-30b, EBITDA margins
(including other income): 11-12%, ROCE: 18-20%.
Other expenses as % sales should be 14-15%.
Pidilite Industries
Current Price INR 1,371
Click below for
Detailed Concall Transcript
& Results Update
Neutral
Outlook and comments on performance
Demand conditions remain challenging, more so in infrastructure-related
businesses. Inventory with dealers has gone up slightly.
Management is cautiously optimistic in the medium term.
Network franchise expansion to smaller population centers, new product
addition, premiumization and earlier price increases taken are enabling healthy
sales growth.
Industrial business did well for the quarter, led by the pigment business. Some
of the positive impact on growth has also been because of shutdown of some
plants in China in these products.
Subsidiary performance
Subsidiaries like Nina and Percept and Cipy exhibited a decline in revenue
because of weak market conditions in the real estate and infrastructure
segments.
Nina and Percept are primarily involved in new construction, which has been
badly affected.
Bangladesh - new plant (second in the country) commissioning affected
profitability YoY in the quarter.
43
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
Waterproofing – two thirds of the market will be from new construction and the
remaining is on remedial measures in existing structure.
Pricing, costs and margins
USD870 v/s USD980 consumption cost of VAM in 1QFY20 v/s 4QFY19. End of
quarter VAM prices were lower than the average quarterly run rate.
The company took some price reductions in both April/May. Effective 200bp
price decrease put together during the quarter. Company may pass on more if
VAM costs come down further. Other raw materials are also on downtrend.
Will aim to keep margins between 22-24%.
Ad-spend was INR750m in 1QFY20.
Capex will be ~3% of sales in FY20.
Tax rate is likely to be ~32% for the year.
United Spirits
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 599
Macro and overall view
Buy
Margin view
The company was cautious on calling out buoyant growth prospects despite
good performance in 1QFY20 (9% growth in Prestige and above sales, despite
election impact) due to general moderation of growth across consumer
categories.
Management mentioned that 1QFY20 results has given them confidence that
the gross margin pressure can be offset by improvement in operating
efficiencies.
Management will consistently work on growing EBITDA margins YoY despite
likely modest gross margin improvement compared to the past.
Clarifications on bulk scotch sales
During a stock evaluation in the UK business, company found bulk scotch. As the
mix in India has changed, the bulk scotch was no longer needed and the
company sold the same to Diageo. There could be more such sales going
forward but in the nature of one-offs.
The bulk scotch sale is not a reflection of lower demand in India. In fact, each
premium level of UNSP’s portfolio continues to grow faster than the level
below.
Management expects gross margin pressures to abate. Glass cost increase
seems to be largely over, but ENA costs have seen a slight increase.
15 states have seen price increase in recent quarters.
In additional to lower ad spends due to election related slowdown, there were
savings on A&P due to savings from Project Catalyst, a global effort to optimize
A&P costs.
50bp impact on EBITDA as a result of IND-AS 116 impact.
Given globally low alcohol prices, management is looking at the possibility of
importing alcohol after gauging the significantly high import duties.
Severance costs and reduction in multitude of factories are leading to reduction
in staff costs.
‘McDowell No 1 Platinum’ campaign was launched during the Cricket World Cup
with movie star Vicky Kaushal as brand ambassador.
On Andhra Pradesh, prohibition is not immediately on the horizon. Andhra
Pradesh contributes 3-4% to countrywide sales. The government has announced
44
Other points
August 2019
 Motilal Oswal Financial Services
CONSUMER | Voices
plans to take over retail vends. UNSP has had a mixed track record on
government taking over retail vends.
Popular segment sal es were boosted by lower base of growth in Karnataka in
1QFY19.
August 2019
45
 Motilal Oswal Financial Services
FINANCIALS/BANKS| Voices
FINANCIALS/BANKS
Several banks guided for a moderation in loan growth, led by economic slowdown (both consumption and
capex remain weak), tight liquidity, and high promoter leverage (which resulted in an increase in the
number of defaults). Banks are maintaining their cautious and conservative stance toward wholesale
lending while continuing to focus on retail growth. The banks will continue focusing on retail deposits and
expect momentum to be driven by retail term deposits. Further, branch expansion is back in focus and many
banks are guiding to increase branches over the next few years.
Outlook for FY20
Provisioning pressure
KEY HIGHLIGHTS FROM CONFERENCE CALL
Axis Bank
HDFC
Bank
Expects margins to remain flat over
FY20E with an upward bias.
Expects cost to assets to decline to
<2% in next three years.
Guided target RoE of 18% over
medium term (FY22), driven by
improving credit cost, margins
expansion, lower opex and higher
fee income.
The management has received
approval for capital raise of upto
INR180b
The vehicle industry has seen a bit
of slowdown over the last few
quarters and similar trends
reflected in the bank vehicle
segment growth.
The bank further guided some
softening in the unsecured retail
credit due to slowdown in
consumption.
The bank is not targeting any
particular level of loan growth and
focus is on growing the core
operating profits in a risk calibrated
manner.
The management has not provided
any specific guidance on credit cost
for FY20E. However, Management is
focusing to apply a consistent
conservative provisioning policy,
and expects credit cost to stabilize
at its long-term average of ~100bp.
The bank adopted conservative
provisioning norms in unsecured
retail portfolio and provides 100%
provision on the 90 days past due
stage itself.
The bank has been creating
contingent provisions in certain pool
of stressed accounts.
The bank stepped up provisions on
unsecured loan book. The bank
increased its provision rate in the
unsecured NPL buckets, thereby
writing off the NPLs in 150 days vs
180 days earlier.
ICICIBC guided for credit cost of
1.2%-1.3% in FY20 as PCR has
already crossed targeted ~70%.
It expects credit cost to sustain at
~20% of PPOP on a long term basis.
Exposure towards troubled
sectors/accounts
There are certain new groups that
have newly displayed signs of
stress in recent months and thus
have downgraded INR22.4b into
the BB & below book.
The bank has exposures towards
eight stressed corporate groups
includes infrastructure finance,
infrastructure, power, telecom,
housing finance, travel and
tourism, commodities, molded
plastics and media related sectors.
The banks remain cautious at NBFC
segment. However, lending
continues to strong NBFCs.
Continues to see higher slippages
trends from the agri portfolio.
ICICI Bank
Planning to add ~400-450 new
branches over the next one
year.
Bank maintained its guidance to
achieve 15% RoE by Jun ’20.
RBL Bank
St. Bank
of India
Expect C/I ratio will be ~51-52%
Plan is to add ~60 to 80 branches
this year.
Expect loan growth to be around
30% with PAT growth in the mid to
high 20% over FY20.
FY20E ROA target (1.4% to 1.5%)
may get pushed by two quarters
Bank guided for domestic margins
of ~3.2% for FY20.
C/I ratio to improve on the back of
lower wage provisions and
improved digitalization.
Expects core ROA at 0.5%-0.6% not
considering recoveries from NCLT
resolutions and sale of assets/value
unlocking from subsidiaries.
Guided elevated stress in few
corporate accounts having exposure
~INR9-10b and thus expect
incremental credit cost of 35-40bp
towards these exposures. Thus
overall expect credit cost of 1.5%-
1.6% for FY20E.
Expects credit cost of 1.4% for
FY20E after considering DHFL
account and stressed accounts in
the renewable sector.
Expect provisions write backs from
the NCLT resolutions.
ICICIBC has seen a decline in its
overall net stressed loans led by a
decline in their BB & below book.
Total BB & below pool stands at
INR154b (2.6% of loans).
Exposure towards NBFC, HFC (incl
non-fund & investments) stood at
INR420b (7.1% of total net
advances) while exposure towards
builder portfolio stood at INR202b
(3.4% of total net advances).
The bank expects GNPA ratio will
increase to 2.3%-2.5% by FY20E.
Total outstanding watch list (loans
above INR50m) is INR270b.
Two standard accounts out of total
20 standard stressed accounts
(exposure of
~INR190b), which are part of the
resolution, constitute 70% of total
exposure.
August 2019
46
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
AU Small Finance Bank
Current Price INR 673
Click below for
Detailed Concall Transcript &
Results Update
Buy
Balance sheet and P&L related
The growth in the vehicle portfolio was led by the change in mix towards the
used vehicle segment.
The size of the used vehicle market is almost 1.2x of the new vehicle market.
Recently, more organized players are seen entering the used vehicle segment.
It expects to increase traction in the used vehicle/cash-on-wheels (cow)
segment in the wheels portfolio.
During the quarter, ~52% of the incremental disbursement in the vehicle
segment was in used vehicles.
Total NBFC exposure lending to 161 companies with ~88% of the portfolio into
investment grade rating.
On the MSME portfolio, the bank does not fund supply chain finance business
and has small ticket size secured loans.
Build-up of high quality non-SLR investment of INR26b to maintain higher
liquidity, considering the market environment.
The decline in margins was largely due to lower yields on the investment book.
It also holds extra cash to maintain higher liquidity.
The yields on Cash-on-Cow (COW) segment should be 17%+.
Focus on improving the retail branch banking profile to improve retail deposits
traction. It is currently facing pressure in garnering CASA. It believes that the
liability business still need more time to start delivering.
The bank securitized AAA rated vehicle portfolio of INR13.4b and expects the
securitization to increase further in the coming quarters.
Incremental IRR on fresh disbursement was up by 90bp.
~88% of the loans are secured.
The bank sold 0.8% equity stake in Aavas Financiers Ltd.
Focus on reducing the ticket size across business portfolios.
Business generated of INR1.31 through internal leads during the quarter.
Risk adjusted IRR on used vehicle/cash-on-wheels is higher. The difference
between incremental yields on used and new vehicle is 50bp.
The average ticket size for used vehicle is INR3lacs. The average age of the used
vehicle is 5-7 years.
It expects to achieve break-even in branch banking over the next 12-18 months.
Asset Quality
In the real estate book, one account slipped during the quarter.
The bank moved the entire portfolio into daily recognition.
Nil exposure to the DHFL group.
Guidance
Expect C/I around 52-53% over the next 2-3 years and cost to average assets of
3.25% by FY22.
Expect credit cost of 60-70bp.
August 2019
47
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Axis Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 683
Buy
Balance sheet & P/L related
The bank aims to target cost to assets ratio under 2% in three years.
Despite economic slowdown, management remains confident of corporate
growth higher than industry growth while maintaining the customer rating
profile.
Bank has launched two products during the quarter.
Co-branded credit with Flipkart.
Trading platform on Axis Direct.
31bp of capital consumption was due to two regulatory changes during the
quarter.
Asset quality
The bank is using a conservative formula driven provisioning policy on corporate
lending portfolio.
Corporate slippages were INR21.3b containing two chunky accounts:
o
One in the power sector and one in shipping sector. Total exposure to these
two accounts is INR8.5b.
o
Both the accounts were in BB & below pool.
o
79% of net slippages from BB & below pool.
Net slippages of INR26.2b include INR13.8b from corporate, INR4.1b from SME
and INR8.9b from retail & agri.
INR10.1b reductions include repayment and upgrades from BB & below pool,
while slippages were INR12b during the quarter.
Exposure to eight stressed groups includes infrastructure, infra finance, telecom,
HFC, tourism, molded plastic, power and media, commodities. The exposure
downgraded to the BB & below pool is INR22.4b.
Term Loans: INR70b out of which INR10b is already NPA and INR29b is in BB
& below pool. Of the remaining INR31b around 2/3rd portion is into one
operating media account.
Investment in terms of bonds: Total INR22b out of which INR2b is NPA. Bank
has created INR4b of MTM provisions on the investment portfolio.
Non-fund based exposure: INR30b out of which 1/3rd is NPA or BB & below
and 2/3rd is with one telecom account where the bank has given bank
guarantee/credit enhancement etc.
Over the last two years, 9% of written off pool has been recovered.
SMA-2: 0.4% of total loans.
Bank follows daily NPA recognition tagging method.
On unsecured retail bank provides 110% provision against requirement norms
for 90day dpd.
Total provisions made towards land parcels of INR5.35b.
Provisions of INR4.6b made towards non funded exposures during the quarter.
Total contingent provisions pool is INR23.6b, of which INR4.6b is towards
nonfund, INR5.1b is towards BB & below/SMA accounts and INR13.9b for
various stressed sectors or special situation provisions.
Provision towards land parcels is not included in the contingent provisions.
Run down in the corporate bonds is towards the financial services company.
Large part of the real estate book is towards LRD and top notch builders. Under
construction finance is ~INR1b.
Only one NPA in the NBFC space (real estate space).
INR28b in non-fund based to NPA.
48
August 2019
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Guidance
Management is expecting NIMs to be flat in FY20.
Management has got an approval for capital raise in the next one year.
Bank of Baroda
Current Price INR 97
Click below for
Results Update
Buy
Balance Sheet & P&L related
Bank is working on running down the high-cost bulk deposits of Vijaya Bank,
which should bring down the cost of funds and aid margins.
Bank has cut the savings deposit and TD rates, which will further aid margins.
Expect treasury gains to pick up in the coming quarters.
Capital consumed during the quarter was on the higher side as the bank's
exposure to foreign markets has to be externally rated.
The pension liabilities adjusted for Dena Bank and Vijaya Bank is INR10b+ on the
opening balance sheet.
Asset Quality
It has exposures towards stressed corporate accounts like Reliance Home
Finance, Sintex (INR8.5b), Religare, DHFL (INR19.6b), Suzlon, PTC (INR19b), and
ILFS (INR28b).
Provision taken in the books of Vijaya Bank and Dena Bank has exceeded the
capital provided by the government.
Slippages break-up: Agri-INR12.8b; Retail-INR8.8b, Corporate-INR15.9b while
International book-INR4.1b.
Fresh slippages inched up to INR55.8b; of this, INR4.37b was due to the IL&FS
group (Marwad Road Project).
Bank had a watch-list of INR100b as at 4QFY19, of this, INR27.9b slipped this
quarter. Some accounts like Sintex and DHFL were added this quarter. Also, the
non-funded exposure to the watch-list is INR23b.
Under IND-AS , even for SMA-2 account, higher provision is required.
DCB Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 200
Neutral
Balance sheet and P&L related
The bank witnessed challenging environment for loan growth; it will remain
cautious for the next two quarters and largely focus on low-risk products.
Fee income dropped largely due to non-compliance at ATM machines as
required by the RBI, which resulted in a loss of ~INR30m.
C/I ratio increased due to salary hikes given to employees.
The bank exited some of the loans above INR50m, where it witnessed some kind
of stress. This resulted in lower loan growth.
Around 20% of the bank’s branches are concentrated in rural areas, where CASA
normally remains low. The bank guided for CASA to remain at 25%.
Term deposits that have matured and long-term refinancing from SIDBI, NHB
have re-priced at higher rates, which led to a contraction in the NIM.
The corporate portfolio has run down, staying away from bulky assets, not core
strength of the bank; it will be opportunistic toward this segment.
RWA growth is more than balance sheet growth, mainly due to an increase in
operational risk (by 15%) which kicks in the first quarter of every year.
Interbank deposits have declined by 27% YoY.
The bank has increased focus on retail term deposits.
The bank will be deepening its presence into existing geographies.
49
August 2019
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Around 70%-75% of mortgage book is LAP.
Asset quality
Slippages increased mainly from five accounts. It includes one residential
project, AIB portfolio, two accounts in SME portfolio (ticket size INR30m).
The bank has restructured one account of INR160-170m in SME portfolio.
It is witnessing some level of stress in new commercial vehicle portfolio.
The bank has a total floating provisions buffer of INR840m.
Acquisition of two branches of Abu Dhabi Commerical bank in India
The bank made an offer to acquire two branches of Abu Dhabi Commerical Bank
in India (Mumbai & Bengaluru) and will acquire certain portfolios and deposits
only.
The bank will do its due diligence over next 60 days.
The two branches has total deposits of INR11.5b and advances of ~INR10b.
Also, the acquisitions will be at par value of balances in the underlying accounts.
Guidance:
The bank will continue to open 15-17 branches every year.
Expects NIMs to remain under pressure over next two quarters.
Overall guided NIMs in the range of 370-375bp.
Floating provisions of INR60m, standard provisions of 20m and the balance are
loan loss provisions.
Federal Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 84
Buy
Balance sheet and P&L related
Bank has been running down/selling down corporate loans where it is seeing
some amount of stress and managing the same by accelerating retail loans.
SA growth remains a concern for the industry as a whole, and the bank is
abstaining from increasing the SA rates.
FB is gaining share in auto loans in the ticket size of INR7lac to 12lac (doing end
use financing on the same).
Deposit growth has been impacted due to running down of CDs in 1QFY20.
Yields on loans have gone up due to re-pricing and improvement in yields.
Cross sell rate is 2 products per customer at present and the target is to take this
number 3.5.
Retirement provision for the quarter: INR800m – of which INR200m is due to a
fall in the yield this quarter (additional).
Retail yields: 10%, Corporate: 8.9%, BuB & CoB: 11%.
LLP provision: INR1,770m , investment provision: INR150m.
Bank maintains low duration in the AFS portfolio.
FB is looking at Australia and Africa markets for forex remittance markets.
Board has sent an approval to the RBI for renewal of MD’s term.
Asset Quality
INR320m has slipped into NPA from two IL&FS accounts. Third account is in the
AMBER category. Bank has increased the provision on these accounts from 7.5%
to 10%.
Bank has exposure to stressed housing NBFC and has done 15% provision on the
same.
FB is experiencing stress in the business banking portfolio and therefore has
tightened the underwriting criteria for these loans.
Extension of moratorium in Kerala has been in discussion between RBI and the
government.
50
August 2019
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Retail slippages are due to the conditions prevailing in the home state and bank
is confident of recoveries going forward. Moratorium book is INR2b as of
1QFY20.
20% of slippages (INR100cr due to moratorium) has been recovered in the first
two weeks of July.
Bank’s total developer portfolio is below INR1b.
Guidance and others
Bank is planning for wholesale : retail mix of 50 : 50.
By FY20, technical PCR would go up by 250bp from the current levels.
Core fee income (excl. treasury gains) growth will continue to be higher than
loan growth.
FY20 NIM: 3.2%; Loan growth: 18 to 20%.
Recoveries & Upgrades: INR 9b to INR10b.
Credit cost: 55bp to 60bp.
FY20/21 ROA: 1.12%/1.25%.
Branch addition in FY20: 15 to 20.
HDFC Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 2,259
Buy
Balance sheet and profit & loss
Fee income impacted as change in regulations in mutual funds resulted in lower
MF fees.
Key drivers of fee income (excl. mutual funds) are retail assets, increasing
volumes in life insurance products, cards issuance (both debit & credit cards),
and third-party distribution fees.
The bank bought PSLC certificates during the quarter to meet PSLC guidelines.
MTM gains on bond portfolio of INR0.8b.
The bank is looking to diversify funding towards increasing institutional funding
as well. Overall, it increased focus toward garnering deposits.
Drivers to C/I ratio improvement will be the business mix strategy (retail:
wholesale mix will continue to be 55:45), increased focus on digitalization to
improve business productivity.
Vehicle industry has seen a bit of slowdown over the last few quarters. This
reflected in the bank’s vehicle segment growth.
Growth in personal loans is due to increasing customer leveraging, increasing
ticket size and also increasing growth from the semi-urban areas. Personal loan
is typically offered to salaried customers.
The unsecured business loan book is INR150b. Around 5%-6% of total loans
linked to external benchmark.
~53% of branches in urban & semi urban regions.
The bank hired few freshers in the risk underwriting team and undergoing
various trainings.
HDB Financials: Increase in NPL mainly in the construction equipment segment.
Also, cost of funds has gone up which led to a contraction in margins by 30-
40bp.
Asset quality
The bank made general provisions of INR0.9b for standard advances toward
NBFC/HFCs, etc.
Also, created contingent provisions of INR1.7b toward a few accounts (across
various sectors).
August 2019
51
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Increase in provisions mainly due to (i) agri portfolio, (ii) increased provisions
towards unsecured loan book, (iii) additional contingent provisions made
towards a few accounts, and (iv) growing balance sheet size.
The bank stepped up provisions on unsecured loan book across NPA buckets
and expects the similar approach going forward.
Slippages of INR42.3b (2.0% of advances). Excluding agri, slippage ratio is 1.4%.
The bank continues to have caution approach toward NBFC segment and
evaluates their liquidity position. However, it continues to lend to good
companies.
During the quarter, recoveries stood at ~INR10b and write-offs at ~INR21b.
ICICI Bank
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 419
Buy
Balance sheet and P&L related
Focusing on the SME portfolio both from the asset and liability perspective.
Business banking consists of small ticket sized secured portfolio.
Gold loans/KCC forms ~2%/~3% of the total rural portfolio.
Interest on the income tax refund on NIM was 9bp v/s 20bp last quarter.
Bank has reduced its MCLR by 10bp recently.
Lower fees from third party distribution led to lower fee income. Excluding
mutual fund distribution fee, core fee income grew 14% YoY.
~94,057 employees as of 1QFY20.
Peak interest rates on TD were reduced by 20bp to 7.3%.
Kisan Credit Card (KCC) loans are priced adequately to take care of the credit
losses.
Banks would prefer doing NBFC/HFC portfolio very selectively.
Tax rate in the previous years was lower due to subsidiary stake sale (which
attracts lower tax rate).
40% of the SA deposits are from semi urban/rural areas.
Within the international book, management is focused more on cash
management and remittance business rather than term loans.
Asset Quality related
Recoveries were lower due to delayed resolution of a steel account.
Upgrade in the BB and below pool is from the iron and steel sector.
Bank is expecting slippages from the KCC portfolio in 3QFY20 to be higher than
1QFY20.
Coverage has increased this quarter as some of the NPAs moved to D3 bucket,
which requires higher provisions.
Unsecured portfolio: (a) Penetration within internal customers is at low level,
and (b) according to the Credit Bureau, bank’s portfolio doesn’t look concerning.
KCC slippages in 1QFY19: INR3.3b.
Builder Finance portfolio: (a) Bank has been cautious on the portfolio since last
couple of years, and (b) exposure has been spread across top rated borrowers.
Guidance
Expect credit cost for FY20E to be in the range of 1.2-1.3% (~ 20% of the core
operating profit).
Not targeting any loan growth; focusing on core operating profit.
Management is planning to add ~400-500 branches over the next one year.
August 2019
52
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Indian Bank
Click below for
Results Update
Current Price INR 193
Buy
Asset Quality
SMA-2 outstanding is INR35b, which includes accounts like Air India.
No lumpy accounts that slipped during the quarter. Only two corporate
accounts (steel trading and hotel) of INR1.3b slipped, while other slippages have
largely come from the RAM sector.
MTM provisions on investments made is on two accounts — DHFL (INR1.4b) and
Reliance Capital (INR0.5b).
DHFL exposure is INR14.8b, of which the term loan is INR13b with the rest in the
form of NCDs.
Reliance Capital NCD is of INR1.25b; on this the bank made provisions of
INR0.5b, while it also has a term loan of INR1.20b.
In terms of the Power accounts, the bank has an exposure of INR5.7b
(fundbased) to RKM Power and holds 25% provision, while towards Prayagraj, it
holds provisions of up to 40%.
SMA-1 outstanding is INR110b (largely agri and retail loans); the bank believes
that only some portion will move to SMA-2 book.
DHFL exposure is under SMA-1 category.
In Andhra Pradesh, the bank has limited exposure. There is no big exposure to
any single account.
Total MSME restructured book is INR10b.
The bank expects slippage run-rate of INR30-35b (INR8-10b per quarter) and
recoveries of INR30-35b over FY20E. The slippage run-rate guidance does not
consider DHFL account.
ICA has been signed for DHFL, Reliance Home Finance, and RKM Power (for
three standard accounts), while it overall signed ICA for 17 accounts.
On Agri loans, bank has crop loans which are collateralized by gold, and thus, it
does not see much stress currently.
On the SME portfolio, the dispensation provided to GST customers and earlier
forbearance has started slipping into NPA now.
Balance Sheet and P&L related
The decline in margins was mainly led by increase in cost of funds. The bank
guided NIMs at 3.0%.
The bank adjusted risk-based pricing and expects yields to pick up in coming
quarters.
For the MSME segment, the bank’s focus is on clusters and supply chain traders;
it expects the portfolio to grow at 15-16%.
On the PSLC fee income, the first quarter is always the highest and the bank
utilized this opportunity.
The bank expects strong treasury gains over the next two quarters as well if the
declining rate environment continues.
Guidance
The bank expects credit growth at 15% YoY for FY20E. There are many adequate
proposals in the pipeline.
August 2019
53
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
IndusInd Bank
Click below for
Results Update
Current Price INR 1,385
Buy
Balance sheet and P&L related
MCLR rates are coming down, while fixed rate loan book (vehicle+ MFI) will
continue supporting margin trajectory
CAR including 1QFY20 profits stood at 15.5%. This does not include the
preference capital issued to promoters (warrant conversion) as the merger took
place on 4th Jul’19. Including this, the capital ratio stood at 16%.
Post-merger, the customer base now increased to 21m.
The bank aims to reach a branch count of 2,000 by FY20.
The yields on corporate segment declined, but are not comparable due to the
merger effect. The bank further reclassified its business banking portfolio under
consumer finance, which also led to this decline.
In vehicle financing, the bank expects to gain market share from NBFC players. It
expects vehicle industry growth to pick up during the festive season only. Thus,
2QFY19 will also remain sluggish for the industry.
Liabilities of BHAFIN have not fully transferred and will take another 6-9 months
to get reflected.
On the vehicle segment growth, the used book is just 20% of the total vehicle
portfolio.
There is an increase in corporate loan fees, mainly due to renewals which
typically happen in the first quarter. Therefore, the first quarter is higher
compared to other quarters.
Asset quality
ILFS exposure: The bank has made adequate provisions. The recent bids on the
SPV reflect that the bank has made higher than adequate provisions.
The potential stressed book (funded and non-funded) has come down to 1.67%
v/s 1.9% QoQ – reflects deduction of INR3b into the stressed book. This
deduction includes ~INR2b through repayments.
The increase in net additions to the slippages in consumer segment is mainly
due to addition of MFI book and business banking book into the retail segment.
Bharat Financial Inclusion Ltd
BHAFIN witnessed overheating in Orissa and West Bengal and thus slowed down
disbursement to this region; expect this to continue for a few more months.
Guided to grow AUM at 35% YoY and 20% YoY in customer borrowers over FY20.
Earlier, it rolled out 3,500 Kirana stores and further planning to roll out 10,000
Kirana stores by this year.
It has further processed opening saving accounts through paperless. It is
disbursing loans directly into saving accounts of borrowers.
Guidance/Others
The bank guided for credit cost in the range 55-65bp for FY20.
The bank guided for loan growth of mid 20% in the medium term.
System deposits are stable at 10% YoY. Liquidity situation is improving as
reflected in the declining trends of the CD ratio by 50bp.
August 2019
54
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Kotak Mahindra Bank
Current Price INR 1,502
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Macro Update
Government of India borrowing from abroad could lead to a further reduction in
interest rates (50bp to 75bp) in the economy.
Reduction in G-sec yields would provide buffer to public sector banks to provide
more and would shore up their capital levels.
KMB will be achieving some market share going forward but would still be
cautious in lending.
Balance sheet and P&L related
Employee cost is a bit higher in 1QFY20 due to higher provisions on the
retirement benefits (as yields have come down).
Bank has grown its market share in the tractor segment (included in Agri
segment) and collection efficiency is not impacted yet. The bank claims to be
one of the largest lender in the tractor segment.
Management has been cautious on crop loans as a segment (ING used to do
crop loans).
Earlier loans used to be provided against land in the name of crop loans by
other banks.
As of 1QFY20, size of the crop loans is very small in Kotak’s portfolio.
Collection in CV/CE segment is not impacted yet.
Due to NBFC stress, KMB is getting to underwrite the loans of their choice with
attractive spreads.
Bank is cautious on lending against illiquid land.
Bank has clubbed the corporate book and business banking during the quarter.
Margins are higher due to pricing power and also due to benefit of lower cost of
funds.
Current SA rate below INR 1 lac: 4% (from 5% earlier). Full benefit of the SA rate
reduction will come in 2Q.
Bulk of the SME book has been re classified into business banking and corporate
book. Some slippages have come from the SME book in this quarter.
Life insurance: 20% to 25% of the book in terms of new business premium is
guaranteed returns and the rest is Non-PAR savings.
Bank will built the consumer durable book slowly. Will use digital in a big way
Opening of the new branches will be based on what a particular region
contributes in terms of assets and liabilities.
Acquisition cost in 811 (digital world) is 15 to 20% of the physical world. But
ticket size in 811 is quite lower.
Post the AADHAR verdict, bank is confident of achieving the same run rate on
customer acquisition as last year.
Guidance
Bank has guided for 20% loan growth for FY20.
August 2019
55
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
RBL Bank
Click below for
Detailed Concall Transcript
& Results Update
Current Price INR 357
Buy
Balance sheet and P/L related
Improvement in yields was largely due to changing loan mix.
Bank is experiencing a fall in cost of deposits due to easing liquidity conditions in
the system.
Retail fees constitute ~70% of total fee income.
Credit cards: Retail spends remained well diversified across categories of regular
use.
Card sourcing is done through 60 locations with plans to add more locations.
93% of MSME book is originated by RBL Finserve.
MFI: ATS on new disbursal is INR33K whereas on outstanding basis it is INR19K.
Consumption of capital was high due to higher capital toward unrated exposure
(15bp to 17bp) and also due to provision toward operational risk.
Exposure to eastern state is ~35% of total MFI book.
- Ticket sizes are lower than industry ticket size (INR42K).
Opex was higher due to fees on IFC loan, higher rent on premises and
acquisition cost on cards.
SA ticket sizes: INR80K to INR1 lac.
70% of the TD are under INR10m and are one year old.
MSME loans (INR3 lac to INR5lac) are done through RBL Finserve.
Asset quality
Management believes that it will have higher credit cost and GNPAs over the
coming quarters.
Credit cost will go up to 1.5-1.6% (taking into account the LGDs).
GNPA could rise to 2.5% by FY20.
Overall quantum would be less than 1.75% of overall book (INR9b to INR10b).
Bank is not expecting the entire exposure to slip.
The number of accounts is in low single digit (not included in BB & below).
Bank doesn’t foresee stress in any of other sectors.
Write-offs mainly from credit card book.
NPA in retail : 1.8%
LAP: 1%
Cards: 1.15%
Others: 2.8%
Credit cost in the cards business: 4.3% to 4.4% (unchanged).
Guidance
C/I ratio will be 51%-52%.
Plan is to add ~60 to 80 branches this year.
PAT growth in mid-to-high 20s and loan growth between 30% and 35%.
FY20 ROA target (1.4% to 1.5%) may get pushed by a quarter or two.
Opex growth for FY20 should be ~40%.
South Indian Bank
Current Price INR 11
Click below for
Detailed Concall Transcript &
Results Update
Buy
Balance sheet and P&L related
Management remains committed to expand retail, SME and agri portfolio.
Bank has entered into partnership with various life insurance companies for
distribution of life insurance policies.
Of the total provision, loan loss provision was at INR1.8b.
Due to focus on the asset side in the recent past, management has not pushed
branches for retail TDs.
56
August 2019
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
Bulk deposits’ proportion has declined by 3% in the last one year.
There were some MTM losses on the corporate bond side, which can be
reversed; nothing is left on the G-sec portfolio.
HTM: INR155.7b, HFT: INR0.12b.
Yield in the gold loan is at sub 10%. Target yield for the bank is 10%.
Yield in home loans is close to MCLR.
Yield in MSME loans: 10.25%. Cautious on this portfolio as there is liquidity
problem in the segment.
Improvement in NIMs will come only due to pricing power on the asset side.
Moratorium due to Kerala floods is available till 31st Dec’19. Also, there are
informal requests to not enforce coercive action for recovery of loans.
Restructured book due to floods: INR1.6b.
Remittance business has shown some moderation.
Profile of the LAP customers
All are internal customers.
Management is cautious on the business coming from DSA.
ATS: INR3.8m.
Business loans: ATS – INR3.7m. No insistence on 100% collateral as it is cash
flow-based.
Asset Quality
Recoveries and upgrades: INR870m; w/off: INR1.32b.
There are one or two accounts where management is seeing stress and is
working towards finding a resolution (One HFC: INR1.5b; account is standard).
Both SMA-1/SMA-2 do not have accounts above INR1b.
Overall SMA-2 stands at 2.65% (1.71% in 4QFY19).
INR4b in accounts with ticket size of less than INR50m.
INR2b in account with ticket size of above INR50m. There is one account of
INR500m and above.
In the below BBB book, there are sectors like HFCs, textiles, hospitality, etc.
In BBB, there are sectors like airport, diversified , hospitality, etc.
Guidance and others
Credit cost: 1% to 1.1% (INR2b every quarter). Does not include credit cost on
the security receipts portfolio.
One tranche of SRs (sold in FY17) carries 50% PCR. ~100 accounts are there
in the portfolio (Total amount sold: INR17b).
Rating agency reviews the portfolio every six months.
Target recovery: INR5-6b. Management is expecting maximum recoveries to
come from agri, MSME portfolios.
Management is expecting 10-15bp improvement in full-year NIMs (2.7-2.9%).
Loan growth: 15-18%.
Already taken shareholder’s approval to dilute 300m shares and raise Tier-II
capital of INR5b. Might raise capital in 2HFY19.
Bank will try to contain slippages at INR10b.
State Bank of India
Current Price INR 286
Buy
Click below for
Results Update
August 2019
Balance sheet & P/L related
Pension provisions were higher during the quarter as yields have fallen by
100bp. Total pension provisions made during the quarter stood at ~INR40b.
57
 Motilal Oswal Financial Services
FINANCIALS/BANKS | Voices
MTM on the corporate bonds is INR12b.
The bank has a good pipeline of projects in the renewable energy, oil & gas and
road projects.
Retail sector growth is robust and among retail segments, the unsecured
portfolio is growing well. The bank is not witnessing any slowdown toward the
unsecured portfolio
MTM gains have been substantial post 30th June.
Total interest reversal is INR27.9b during the quarter v/s INR12.4b in 1QFY19
International NIMs at 2%.
Asset quality
Provisions of INR23b made on two standard accounts (DHFL, renewable energy
account), which are not part of PCR currently. The provisions made on the bond
portfolio are ~15%, and 7.5% on the term loan.
The bank is building LGDs and accordingly made provisions in the DHFL case.
Sashakt is no more relevant after June 7 circular. Out of 38 accounts, 18 are NPA
and remaining 20 accounts are standard.
Two standard accounts out of total 20 standard accounts (exposure of
~INR190b), which are part of the resolution, constitute 70% of total exposure
(INR140b). DHFL is one of the two accounts.
SBI Caps is assisting resolution plan of DHFL. The last date of resolution plan for
DHFL is 6th Dec’19
Corporate slippages: One account is NPA due to delay in ICA (INR20b), barring
that the corporate slippages were in line.
Within agri slippages, one state has contributed INR20b. If the same borrower
has any other loans with the bank, then those accounts will also be classified as
NPA (spillover to the P-segment).
Recovery in agri GNPA is very difficult and normally goes under farm loan
waivers category.
SME slippages were higher as dispensation got withdrawn and also some small
trading companies slipped during the quarter.
One of the PSU account was recognized as NPA and recovered during this
quarter. The account is performing as per the restructuring plan.
Signed ICA worth INR190b, mostly in the power sector.
Nearly INR20b worth of loans is in SMA and also appearing in INR190b (where
ICA is signed).
The stressed pool of the bank is INR270b (loans above INR50m).
Total MUDRA loans are INR260b and 2% of total GNPAs are MUDRA loans.
Exposure to telecom increased: One large private telecom player and one PSU
player. Both the companies are AAA rated.
Jet Airways could go for liquidation as well. The bank exposure in Jet Airways is
INR16b, on which it carries provisions of INR8b.
Guidance/business update
Expects credit cost of 1.4% for FY20 after considering DHFL account and one
stressed accounts in the renewable sector.
Expects core ROA at 0.5%-0.6% not considering recoveries from NCLT
resolutions and sale of assets/value unlocking from subs.
The bank expects NIM to expand to ~3.2%.
IPO of SBI card might be by the end of the fiscal.
August 2019
58
 Motilal Oswal Financial Services
FINANCIALS/NBFC| Voices
FINANCIALS/NBFC
Commentary across most companies is cautiously optimistic. Vehicle financiers are expecting a slowdown
in loan growth, despite considerable market share gains across products. The progress in monsoon,
coupled with infra spend by the government, would determine the outlook for 2HFY20. Even LTFH expects
a slowdown in retail loan growth across segments. BAF is cautious on some segments like digital products
financing, SME and B2C. While some players like SCUF expect a marginal increase in cost of funds, most
NBFCs believe that the worst on cost of funds is behind.
Asset quality
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
ILSF Exposure
Bajaj Fin
AUM growth of 25%+ over the
medium term.
Expect 39-40% C/I ratio going forward.
Expect disbursement CAGR of 15%
YoY in vehicle finance.
Cost of funds to be largely stable.
Asset quality to be largely stable, but
cautious in certain retail lending
segments.
Expect INR250-500m of resolutions in
LAP in FY20.
Vehicle finance asset quality to be
largely maintained.
Do not see any asset quality pressure.
Credit costs should remain sub-2% on a
steady state basis.
Credit costs should moderate as
wholesale book is well covered
No provisions expected for IL&FS
exposure.
While there have been slippages in
corporate lending, management is
confident of eventual recovery.
INR2.25b, of which
20% has been provided
for.
Chola Inv
& Fin
None
Mahindra
Finance
MMFS to grow 500-700bp faster than
the underlying auto industry.
None
L&T Fin.
Share of rural + housing will increase
in FY20.
NIM + fees at 6.5-6.8%.
Expect overall loan book to grow at
15%, with share of loan book largely
stable.
Spreads have bottomed out;
prepayment rate on a downtrend.
INR18b exposure to
SPVs of subsidiaries of
IL&FS, of which 2 are
green and 4, amber.
LIC Housing
None
Aditya Birla Capital
Current Price INR 89
Click below for
Results Update
Buy
Business
Improvement in net VNB margin was due to higher productivity and better
channel and product mix. Should see early double-digit VNB margin in FY20.
Persistency in Life Insurance should increase further – HDFCB’s persistency ratio
performance has been better than average and the share of sourcing from
HDFCB has been increasing.
One mid-corporate account has slipped into NPL.
Auto, gems and jewelry and real estate sectors are witnessing challenges.
NBFC segment – AUM growth of 25% in SME and retail to continue. Corporate
AUM growth would be dependent on risk appetite.
Management expects 14% RoE in 1HFY20 in the NBFC business.
Will recover 50% of exposure to the Essel group from the AMC in August, post
the sale to Oppenheimer. The balance is on track to be recovered in the next 4-5
months.
NBFC – Disbursements of INR31b in 1QFY20, Repayment was INR42b.
HFC – INR10b disbursement in 1QFY20.
August 2019
59
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
With product mix change, ECL stage 3 could go up 5-10bp.
Loss in the Health Insurance business has peaked out; should reduce going
forward.
Liquidity
Raised INR40b of long-term borrowings in the quarter.
Received USD100m ECB in the HFC subsidiary. Also have INR15b of undrawn
lines.
Others
50% of ECL from retail and SME segment.
Stage 3 for corporate segment is flat.
45-50% activation in HDFC Bank branches.
No real estate exposure in the structured finance book.
Stage 3 in LAP is sub-1%.
Group cash premium in LI in 1QFY20 – INR1.88b (INR3.93b YoY).
Other income of INR200m v/s INR100m in AMC.
Recovered INR1.77b of INR6.3b NPLs last year.
Bajaj Finance
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 3,358
Neutral
Business Updates
4,500 employees work in collections (out of 20,000).
Will wait for a quarter before revising near-term growth and asset quality
outlook.
A large proportion of cost is variable (many people are temp-staffed).
The company has to keep balancing new customer intake (which helps growth)
and increasing cross-sell to existing customers (which helps asset quality).
Liability side
Cost of funds is declining on both short term and long term. 3-year NCD now
costs 8% v/s 8.5% three months back. 60-day CP now costs 6.4% v/s 7% three
months back.
Will raise USD650-750m ECBs in CY19.
Asset quality
Process of sale of property of ILFS has begun. Sale of one tower has happened at
Dec’17 price. BAF should be able to recover its dues in 4-6 months.
FY19 slippages were at record best. There possibly could be some mean
reversion.
A customer who has been with BAF for more than 18 months has 0.15x of the
delinquency of a new customer.
Asset quality of RBL co-branded credit cards is better than that of top 4 credit
card issuers in India.
Four rural districts where BAF is present in are stressed.
Guidance
2,000 locations by Mar’20.
Medium-term AUM growth should be ~25% YoY.
2.2-2.3m co-branded RBL cards by Mar ’20.
Others
Digital products finance is 3% of AUM.
21-23% of customers repay digitally v/s 5% five years back. Target 40-45% in the
next five years.
60
August 2019
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
20m phones are sold in India every month. Of these, BAF’s target segment is
5.5m phones, but it does only 0.8m phones.
Rural gold loans business, started 3 years back, is doing well. Average ticket size
is INR85,000. Opened 23 gold loan branches in 1Q. This could be a 500-700
branches business in next 5-7 years, if things go well.
BAF has shares of 3-4 auto companies pledged to it. Total exposure is INR300-
400m. Well-run companies. These shares are collateral over and above the
regular collateral.
Cholamandalam Inv.
Current Price INR 270
Click below for
Detailed Concall Transcript &
Results Update
Buy
Business
Targeting 15% disbursement growth in vehicle finance in FY20.
In VF, yield increase was 30-70bp across products. Yields should improve over
the next few quarters.
Hired more employees in sales and collections, especially for low-ticket products
like 2W financing.
Freight rates/utilization has declined, mainly for HCVs (long haul) and not for
LCVs.
Car financing – Focusing on Maruti, Mahindra and to some extent Hyundai.
Increased market share from 2% to 3% YoY.
Liquidity
Incremental CoF is up 50-60bp, but it should not rise any further. Hence,
margins should be stable.
Cash on BS would be two months of repayments.
Asset Quality
INR240m recovery in HE from SARFAESI; should continue for another 1-2
quarters.
Methodology of ECL calculation is revised every year in 4Q.
INR500m is held as macro provisions over and above the ECL provisions.
Others
Construction Equipment financing – INR23.94b AUM. Disbursement growth was
10% in 1QFY20.
Yield in HE: 11.7%.
Incentives paid to feet on street are amortized under Ind-AS. Under IGAAP, it
was up-fronted.
Expense ratio should come off.
CIFC disburses loans only after considering OEM discounts on MRP.
Not looking at banking/SFB license.
Equitas Holdings
Current Price INR 110
Click below for
Detailed Concall Transcript &
Results Update
Buy
Balance sheet and P&L related
Management is looking at the northern region for small business loans.
30% of the used CV business is sourced through used SV dealers.
~INR1.8b moved from CASA to retail TD during the quarter.
Bank has re-started the selfie SA account opening (tab based) after the AADHAR
verdict.
August 2019
61
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Rejection rates have gone up to 60% from 30% earlier based on loans taken
from number of institutions (not on the amount of loan).
Management are expecting the yields to come down as the bank diversifies its
book. Also, opex and other expenses are different for different products, which
will to some extent nullify the lower yields.
Even though disbursements declined sequentially, the number of enquiries has
not come down.
90% of borrowers are first-time borrowers.
Except the clients in the vehicle finance business, clients in the other segments
are not yet integrated with the system.
70% of the retail business and majority of the small business come from Tamil
Nadu.
Bank has stopped the unsecured business loans as there was over leveraging of
consumers.
Bank has not done any PSLC sales this quarter nor management is intending to
PSLC sales in 2Q.
ATS in small business loans has gone up as the customer profile has changed
over the years.
Bank has identified 40 to 50 branches for affordable housing products.
GNPA in unsecured portfolio is expected to go up as management is running
down the portfolio.
Guidance
Scheme of listing: Bank is awaiting SEBI's approval.
After SEBI's approval it will take around 5-6 months for listing of shares.
Management has approached RBI for extension of the time limit.
15% growth in opex in FY20.
Bank is planning to open 20 liability and asset branches each in FY20.
ICICI Prudential Life
Current Price INR 399
Buy
Click below for
Results Update
Growth in the VNB was primarily driven by retail and group protection business.
Retail business constituted 95% of the overall APE in 1QFY20.
Growth in the group APE was driven by the Protection business.
Persistency ratios are better than the assumptions factored in.
Management has guided for further investment in the Protection business.
Management has also guided for doubling FY19’s VNB over the next 3-4 years,
implying the VNB will grow in the range of 19-25%.
IPRU Life does not have any NPAs in the bond portfolios despite the mayhem in
the debt markets.
Management will do long tenure Non-PAR saving products only if it finds a
suitable hedging product. Management is willing to take market risk but not
willing to take balance sheet risk.
o
Depending on the prevailing market conditions, interest rates and available
instruments, management will run the long-term annuity business.
The new IRDA regulations had no material changes to the surrender penalty.
Although cost ratios have improved, management is still not building the same
into margins. Also, cost ratios will depend on the growth rate of the savings
business.
August 2019
62
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Pool of policies completing five years is increasing, so the absolute level of
surrenders should increase, but it is not expected to worsen much.
Margins were pulled back in FY19 due to the worsening expense ratio, which is
not the case in 1QFY20.
Bulk of the admin expenses were for Protection business.
All the improvement in margins has been due to the product mix and any
improvement in the operating leverage was not taken into account.
Group business is coming from Credit Life and Group Fund Management
business.
ICICI Bank and Standard Charted are the two banks contributing the bulk of the
banca business to IPRU Life.
According to the management, there won’t be any need to raise equity capital
for the next three to four years.
IndiaBulls Housing Finance
Current Price INR 472
Click below for
Detailed Concall Transcript &
Results Update
under Review
Business Updates
INR285b ready liquidity on the balance sheet.
INR480m upfront income on assignments during the quarter.
Spreads should be stable between 300-325bp according to management.
Tapped ECB market for USD350m in May’19.
Will remain conservative on liquidity and capital position.
Most of the reduction in the CRE book is behind. Further reduction of another
INR20-30b likely.
Targeting INR100b disbursements in 2QFY20 followed by an increase in ensuing
quarters.
Mid-teens AUM growth is possible in FY20.
Hope to hear back from the RBI on LVB merger in the next 45-60 days.
INR60 refinancing of commercial real estate loans during the quarter.
Construction finance assets worth INR100b of five builders refinanced over the
past eight months.
Repurchased USD600m of NCDs this year.
Yields: HL – 9.5-9.75%, LAP – 13%. No change in yields during the quarter.
Asset Quality
Increase in GNPL in 1QFY20 was due to the company having excess provisions
and under Ind-AS, one can’t make floating provisions. Hence, management
classified certain exposures (including Essel and CCD) as Gross Stage 3.
Recovery from Palais Royale during the quarter – ~INR7b.
Additional provisions of INR4.5b over and above the NHB norms.
Write-off of INR280m during the quarter.
INR40b Stage 2 assets (50:50 between retail and corporate).
Others
Cumulative refinance by NHB to all entities, including banks, over the past 30
years amounts to INR2.1t.
2.5m customers.
INR110 loan repayments during the quarter.
Sold down INR15b during the quarter.
Gross borrowing repayment during the quarter of INR60-70b.
Buy-back of Masala Bonds and dollar bonds is subject to the RBI approval.
63
August 2019
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Capping 3-month CPs to less than 5% of overall borrowing.
L&T Finance Holdings
Current Price INR 98
Click below for
Detailed Concall Transcript &
Results Update
Buy
Liquidity & Funding
Raising money has been more difficult now compared to nine months back. For
example, a loan which used to be sanctioned in 15 days earlier now takes 2-3
months.
Reduced CP share to 13%, though the ALM can hold up to 22-23% share from
CPs.
Cost of funds won’t increase substantially hereon. Guidance on ‘NIM + fees’
maintained at 6.5-6.8%.
ECB borrowings are fully hedged. Total landed cost is 8.2-8.7% (3-5 year tenure).
Rural Finance
Increased market share in tractor and 2W finance. Will continue to
maintain/gain share hereon.
2W – LTFH’s market share is 10% (up from 5% in the past two years). This is due
to diversification of OEMs. 40% of disbursements are from Honda Motors
compared to 60% a year or two back.
In microfinance, there is ‘over-lending’ in West Bengal, Orissa and some
Southern markets. Yet, there is a lot of scope for further financial inclusion in
these markets
Housing Finance
Will eliminate DSA sourcing completely in the near-to-medium term in home
loans (30% currently).
50% of real estate disbursements in 1Q are to existing projects, 40% to LRD and
10% to new projects.
Break-up of RE book: LRD – 1%, Commercial finance – 10-12%, rest in
residential.
109 of 115 real estate projects are at 0DPD.
Supertech – No change in outlook. Receivable cover of 1.77x at current market
prices. Expecting sale of two assets which would lead to repayment of LTFH’s
loans.
Regarding real estate financing in Andhra Pradesh, exposure is INR20b. Entire
book is at 0dpd, and the Debt Service Reserve Account has not even been
touched. Owners of these projects are funds like GIC, ADIA.
Wholesale Finance
Sold down infra loans worth INR6.5-7b in 1Q v/s usual quarterly run-rate of
INR13-15b.
3% NNPL in the DCM and SFG book, barring exposure to the specific HFC.
14% ROE in the quarter excluding write back of interest on ILFS accounts.
Others
Exited SFG and DCM businesses because the company wants to ‘retailize’ its
balance sheet. There was no notification from the RBI as such. Already
compliant with draft NBFC guidelines on liquidity.
Out of the 4 ‘amber’ entities of IL&FS, three have been converted to ‘green’.
IL&FS has restructured some unsecured dues in some SPVs.
August 2019
64
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
In Andhra Pradesh, the new government mandated tariff cuts in some
renewable energy projects. However, in prior judgments, the Supreme Court
has upheld sanctity of PPA contracts.
Structured finance book will take 3-4 years to run-off on its own course, while
the DCM book will take 8-10 years.
Financed 190,000 2Ws in 1QFY20 v/s 280,000 in 3QFY19.
17-18 years contractual tenure in infra finance. However, on a practical basis,
loan gets refinanced after 4-5 years.
LIC Housing Fin.
Current Price INR 428
Click below for
Results Update
Buy
Business updates
Disbursement of INR78.71b in home loans during the quarter.
PMAY CLSS scheme – Disbursed 10,073 accounts worth INR20.21b, i.e. 24% of
home loan disbursements in volume terms and 21% in value terms were
PMAYCLSS compliant. The company received INR2.2b subsidy for beneficiaries.
Incremental yield: 9.55% non-annualized.
Annualized incremental yield: HL – 9.97%, LAP – 11.4%, Builder – 13.5%.
Incremental cost: 8.24% annualized.
Will focus on builder loans that cater to the affordable housing segment.
Spreads are expected to remain stable.
ALM mismatch in sub-1 year bucket – 13%.
No builder loans in subvention schemes.
Expect 15% home loan growth in FY20.
Asset quality
Three accounts in developer finance slipped into NPL in the quarter. Largest
account is INR2b. Vintage of these loans is 3+ years. NPL due to slow sales.
Top 8 accounts account for 65% of total corporate NPLs.
GNPL ratio – Individual loans – 1.26%, Home loans – 1.02%, LAP – 2%, Total –
1.98%.
GNPL – INR30.87b v/s INR20.36b YoY.
Recoveries of INR3.77b in 1QFY20 in retail lending.
INR1.5b worth of accounts classified as NPL, despite regularly servicing,
because, as per the new norms, if one project of a builder is NPL, the other ones
also have to be classified as NPL.
At least 2-3 quarters for resolution of developer NPLs.
NNPA ratio – 1.4% (v/s 0.8% YoY).
ECL provision is based on prior 20-quarters data. It rolls forward every quarter.
INR4.9b provisions outstanding on builder loans (incl. INR0.95b of standard
asset provisioning).
Nil write-offs during the quarter.
Stage 2 loans ratio – Individual (incl. LAP) – 4.5%, Corporate – 6%.
In 2011-12, home loan NPL ratio was higher than current level of 1%.
Others
12.4% loan growth in core home loans in 1QFY20.
August 2019
65
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
M&M Financials
Current Price INR 337
Click below for
Detailed Concall Transcript &
Results Update
Buy
Asset quality
NPA incurred in 1Q has been fully provided (required provision made upfront).
Unless final LGD is much higher than what they estimate, MMFS should be able
to write off without further provisions.
No pressure on cash flow collections in rural. Customers have enough money to
repay loans but not borrow more or buy assets. The company is not witnessing
new signals of stress in 2Q so far.
INR900m of write-offs in the quarter.
The company reset the rates of PD/LGD - PD has gone down by 2%, LGD has
increased 2%.
Housing finance NPA would be 6-7% excl. Maharashtra. Once Maharashtra
corrects, this will come down to 7-8%. MMFS HFC NPA provision during the
quarter was INR570m.
P&L
Gross spread level should remain at present levels if asset mix remains same.
There were some one-offs in 1QFY20 opex - INR25m from lease rentals from AS-
116, INR140m from increased gratuity due to salary hikes (5% hike in basic) and
INR160m from leave encashment.
Cost of acquiring and growing a business, cost of collection (have added people)
and investment for the future have led to higher costs. These benefits should be
visible in higher collection efficiency toward the later part of the year.
Business updates:
Guided for 10%/15% disbursement/AUM growth for FY20. Could be more if
sales pick up.
No need to infuse any more capital in AMC business for the next few years.
They haven’t faced challenges in raising funds from banks (PSUs) but the cost of
borrowing has remained sticky. Spreads have declined from 3QFY19 levels but
not as much as expected.
MAS Financial Services
Current Price INR 594
Click below for
Results Update
Buy
Business Updates
Cost of borrowings has gone up 45bp YoY to 9.3%. 47% of borrowings comes
from assignments.
Total liquidity incl. undrawn bank lines – INR18b.
Will not capture market share at the cost of asset quality.
NIM guidance of 7-7.5% and NII growth of 20% in FY20.
Branch expansion plans – 130-150 branches from current 93 branches in the
next 2-3 years.
Continued to guide for 20-25% loan growth going forward with 2.5-3% RoA.
Others
Ticket size mentioned in PPT is on disbursements.
Their borrowers need more money today because working capital cycles have
been stretched.
New branches are very small, don’t cost money.
Their top 10 NBFCs contribute 15% of AUM.
August 2019
66
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Their NBFCs sourced INR55b debt in 1Q.
Compliant with RBI guidelines on the liquidity front.
Muthoot Finance
Current Price INR 636
Click below for
Results Update
Neutral
Business Updates
There was no growth till mid-May, due to which interest income was recorded
for only part of the quarter. Also introduced some schemes in the quarter which
were at lower rates.
AUM growth would have been 200-300bp more if the liquidity situation were
normal.
Delinquent customers have been given additional three months to repay.
ECL break-up: Stage 1 and 2 – INR5.31, Stage 3 – INR1.58b. Extra provisions –
INR1.19b.
Auctions in 1QFY20 – INR3.4b (INR2.04b QoQ).
No impact of floods happening in the country on company operations.
Liquidity
Raised INR8b/INR3b via retail NCDs for the parent/HFC subsidiary in the quarter.
Expect more NCD issues in the coming month. Money will be utilized to expand
the gold loan business.
Banks are not releasing additional funds to Muthoot, due to their high NBFC
exposure.
Incremental CoF is up 100bp from both NCDs and banks. For example, NCD was
8-8.75% for 1-5 year tenure. Recent NCD issuances were from 9.25-10%.
Incremental cost of bank funding is 9.5%.
Management does not want to increase the share of CPs.
Guidance
Expect 15% AUM growth in FY20. Could also be higher if liquidity situation
improves.
Subsidiary AUM should grow by ~15% YoY in FY20.
Targeting expense ratio at 4-4.5%.
Expect spreads to be largely stable.
Others
PSU NBFCs (such as PFC, REC) and HDFC are getting bulk of the incremental
lending by banks to the NBFC sector.
The company accepts only ornaments, not bullion.
High-ticket loans form an insignificant portion of the total loan book.
‘Other loans’ include loans to Muthoot Money and Muthoot Home Finance.
Max loan per gram currently: INR2,300.
PNB Housing Finance
Current Price INR 663
Click below for
Detailed Concall Transcript &
Results Update
Buy
Business Updates
Rating changes by credit rating agencies were on account of high leverage of
PNBHF as well as vulnerability of the loan book due to real estate stress.
INR76.3b disbursements in the quarter. Of this, 92% was in retail (up 7% YoY)
and INR6.0b (8%) in corporate (down 81% YoY).
INR8.4b LRD portfolio refinanced in the quarter. This was because a lender can’t
hike rates in LRD easily and also because it bears the highest RWA.
August 2019
67
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
With equity infusion of INR20b (as approved by Board), gearing would be 7.5-
8x, making rating agencies comfortable with an upgrade.
Yields were up 100bp YoY due to the five rate hikes taken in FY19.
Not acquiring new corporates currently.
Management expects INR18-20b disbursements in corporate finance in FY20.
Yields: HL – 9.4%, CF – 11.7%, NHL – 10.5%.
Management doesn’t expect much impact of the subvention scheme related
circular by NHB.
Liquidity
INR50b liquidity maintained on BS.
INR115.5b borrowings mobilized during the quarter – INR68.6b from bank term
loans, INR26b from deposits, INR23b of sell downs and others.
INR8b monthly deposit mobilization run-rate.
INR23.2b assigned in the quarter. Mix of HL and LAP. Expect INR25-26b in 2Q.
Plan to exceed FY19’s number of INR73b.
Raised USD100m ECB from IFC in 2Q.
Rollovers of NCDs and CPs are happening by mutual funds.
INR60-70b committed lines of credit.
45D CP is now priced at 6%.
Asset Quality
Out of 5 accounts that were on watch, one has slipped into NPL (INR1.5b
exposure). But it has 2.5x security cover (27 acres of land). This is a corporate
term loan given to an NCR based builder.
INR1.5b of retail slippages during the quarter is a seasonal phenomenon.
25-27bp of credit cost guidance in FY20.
Three corporate exposures are under NPL (including the above mentioned one).
Subvention book is INR6b only.
Others
Top 20 developers constitute 60% of corporate loan book.
11% YoY growth in logins in 1Q.
No new branches to be opened in FY20.
26% of 1Q home loan disbursements in sub-INR2.5m ticket size.
Till FY19, management disclosed ticket size at account level. Now they disclose
at group level. Hence the ‘jump’ in ticket size.
Maximum permissible exposure is capped at 15% of NOF for an entity and 25%
of NOF by the regulator.
INR1.3b median ticket size in corporate lending.
Increase in share of loans sourced by DSAs (800bp jump) is optical because
corporate finance disbursements (which are direct) were muted in the quarter.
INR78.6b net worth.
Repco Home Finance
Current Price INR 316
Buy
Business
Click below for
Results Update
The auto sector slowdown impacted Repco’s borrowers as Tamil Nadu is an auto
hub.
Low loan takeovers experienced during the quarter.
13-15% loan book growth guidance for FY20.
INR13b of unutilized lines of credit from banks.
Target C/I ratio of sub-20% in FY20.
August 2019
68
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Sand mining still remains an issue in Tamil Nadu.
Competition from HFCs has reduced but that from banks has increased.
Incremental yield: HL – 10.6%; LAP – 13.3%, Total - 11.2%.
Cost of bank borrowings up 60bp YoY. Cost of CPs – ~7%.
Incremental lending rate is up 100bp+ in the past 16 months.
Incremental spread – 2.63%.
Asset Quality
Some increase in the GNPL ratio was due to macro factors too (slowdown).
Unlike FY19, credit cost should not be volatile in FY20.
Recoveries under SARFAESI – INR450m over the past year. For ~70% of NPLs,
SARFAESI has been notified.
Out of 4.2% GNPL ratio, less than 2% are ‘old’ NPLs.
2,200 accounts under GNPL.
~25% of GNPLs are from loans that are above INR10m ticket size.
Tamil Nadu’s GNPL ratio – 4.4% (70% contribution to overall GNPL).
INR1.5b recoveries in FY19 – the borrower paid back after SARFAESI was
initiated.
Others
Entered Rajasthan in 1QFY20.
Drought situation in some areas of TN in 1QFY20.
90% of their home loans classify as PSL.
15% share of business coming from DSAs.
Kept high liquidity on the balance sheet.
Comfortable with respect to LCR guidelines.
Disbursements in 1QFY20: AP – INR390m, Tel – INR280m, Kar – INR1.04b, Mah -
INR710m, TN - INR3.6b.
8-10% of the total loan book is above INR10m ticket size.
Shriram City Union
Current Price INR 1,393
Click below for
Detailed Concall Transcript &
Results Update
Buy
Business Updates
MSME disbursements were down QoQ/YoY as the company moved away from
its ‘corporate’ disbursements (INR10m+ ticket size). Disbursements, which were
at INR1.5b per month, have now declined to INR0.25-0.30b.
MTM loss of INR100m was on a long-term instrument taken through the P&L in
the quarter. It is an equity investment of INR1b in a Sri Lankan life and general
insurer.
SCUF’s share in 2W OEMs has been increasing.
Focusing on business in seven states – Gujarat, Maharashtra, Rajasthan, Andhra
Pradesh, Telangana, Tamil Nadu and Karnataka. Withdrawing from other states
(earlier 17 states).
Number of 2Ws financed in 1QFY20 – 273,000 (v/s 290,000 YoY).
While 2W sales are likely to be subdued, 2W financiers should still gain share.
80% of MSME customers are service providers – management is not seeing any
stress in this segment.
No meaningful rate hikes taken in the past two quarters.
Liability/Funding side
INR20b CC lines from banks.
Expect to raise money from international markets in 3QFY20 (October).
August 2019
69
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
Banks are not passing on MCLR cuts.
Borrowed INR7b through CP, INR6.5-7b through public NCDs and INR13b
through banks in the quarter. Total - INR27b.
Borrowing from capital markets is likely to remain subdued over the next 2-3
quarters.
Total off-balance sheet assets as of 1QFY20 – INR5b.
Asset Quality
Expect trend of bad debt recovery to continue at current levels (INR400m per
quarter).
One-off loss in builder funding (via subvention scheme) in the HFC during the
quarter.
Guidance
MSME Finance – demand is strong but the growth trajectory will depend on
liquidity. Working with banks on securitization/assignment too.
In 2QFY20, disbursements would be 90% of the run-rate levels.
Targeting 15% AUM growth in FY20.
Cost of funds could increase by 5-10bp in the next quarter.
Target INR10-12b of securitization per month.
Need to raise INR12-13b per month to meet borrowing commitments and
disbursement guidance.
C/I ratio in FY20 would be 38-39%.
Others
Expect gold loan disbursements to remain flat in 2QFY20.
Added 600-700 employees in the collection team and 200 in the credit team
during the quarter.
No update on group merger.
Disbursing personal loans only to existing customers currently (since Jan’19).
Shriram Transport Finance
Current Price INR 1019
Click below for
Detailed Concall Transcript &
Results Update
Buy
Business Updates
Disbursements in 1QFY20: New – INR8.91b, Used – INR112.6b, Others INR1.45b.
Total: INR122.96b.
Write-offs of INR5.32b during the quarter.
PCR declined QoQ as the company had made provisions for the Tamil Nadu and
Kerala floods last year; it no longer believes it is necessary to hold them. PCR to
be maintained at current levels.
Landed cost of ECBs raised – ~10%.
LTV – Used: 65%, New: 80%.
Incremental yield on advances: 16%.
Liquidity/Margins
Have not hit any limits in PSU banks.
Have raised USD250m via ECBs in 2QFY20 at 5.37% (v/s 5.95% for USD500m
ECBs in 1QFY20).
Completed INR57b of securitization in 1QFY20.
Able to raise money at 40-50bp above MCLR from banks.
Incremental CoF – 9.5%.
Guidance
Credit cost should remain stable at 2% in FY20.
70
August 2019
 Motilal Oswal Financial Services
FINANCIALS/NBFC | Voices
AUM growth may improve to 15% YoY if the situation in 2HFY20 improves.
6-7% opex growth in FY20.
Source of borrowing: Looking to increase Retail; NCDs: Banks would be reduced
to 50%.
Others
Crop sowing (acreage) is 10% lower this year.
Rural belt of Maharashtra and Chhattisgarh are not doing well due to bad
monsoons last year.
Cost of securitization: 8. 5-9.5%.
Demand in rural areas is better than in urban areas.
Rural Centers that were connected to urban areas have been reclassified as
Urban Centers; hence, there has been a rise in urban share.
August 2019
71
 Motilal Oswal Financial Services
HEALTHCARE| Voices
HEALTHCARE
Given the intensifying competitive scenario in US generics, pharma companies are re-looking at the ANDA
pipeline based on economic viability of the product. Companies have been constantly looking at business
opportunities evolving from regulatory headwinds to peers and/or consolidation at the global level. There
have been mixed views in terms of impact of Jan Aushadhi, online pharmacies and trade generics on the
domestic branded formulation business growth outlook. The API segment remains favorable with ongoing
environment concerns in China. While the interest to enter China market has been for a long time now,
companies are firming their position through tie-ups and JVs with Chinese local companies to gain
business from this market.
US business
With 15 ANDA launches in 1QFY20, ARBP guided for
ARBP guided for Sandoz acquisition to happen
launch of 40 new products over 9 months of this
soon and is awaiting FTC approval.
fiscal.
With net debt down ~USD125m QoQ, ARBP
ARBP would complete corrective and preventive
guided for net debt to reduce by USD150-200m
action (CAPA) related to ‘site under warning letter’
in FY20 compared to FY19.
by end-CY19.
Price erosion of ~5% in base portfolio, new
It has provided response/periodic updates related to
launches and better traction in existing products
observations at Unit 3. About 5-6 products are
are likely to drive US revenue.
pending for approval from Unit 3.
Trade generics India business to gradually pick-
up with change in distributors.
Sales of Cinacalcet to normalize and launch of
While prescription led India business got
limited competition products to be growth driver in
deferred at primary level, Cipla indicated strong
coming quarters.
secondary performance.
Out of cumulative ANDA filings of 253, Cipla has 63
Cipla maintained its guidance of 7-8% as % of
ANDAs pending for approval.
sales to be spent on R&D.
Cipla guided for 10-12 ANDA filings in FY20.
EM business would be recovered in 2Q which
got deferred from 1QFY20.
Multiple initiatives taken to revive growth in
CDH has guided for 25 new launches in remaining
branded formulation India business have started
9MFY20, which includes 5-6 high value products.
showing some benefits. CDH expect enhanced
CDH is implementing remediation measures at
benefit over medium term.
Moraiya site; it is simultaneously working on site
CDH has been facing challenges in trade generics
transfer of key products to its Liva site. This would
segment of India business.
be completed by end FY20.
CDH indicated recovery in animal health business
CDH has guided for single-digit growth in US generics
in coming quarter with situation normalizing in
(adjusting for authorized generic and specialty sales)
regions faced with delayed monsoon/draught like
for FY20.
situation.
There have been queries from European
regulatory authority on biosimilar Etanercept,
LPC is awaiting feedback from the USFDA on g-
which might delay the approval to
Proair, which might delay its approval.
4QFY20/1QFY21.
It is working on resolving one of the key regulatory
Biosimilar Etanercept is expected to be launched
issues related to out-of-specification (OOS) and
in 2HFY20, which will be significant for sales
would take about six months to resolve the same.
growth in Japan market.
Traction in levothyroxine would improve in 2HFY20
While there have been some challenges in trade
based on capacity ramp-up and approval for
generics segment of India business on account of
additional dosage.
seasonality, prescription led business is on
The injectable portfolio would drive US market
robust growth trajectory.
growth from 2HFY20.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook
Aurobindo
Pharma
Cipla
Cadila
Lupin
August 2019
72
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Alembic Pharma
Current Price INR 499
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Subdued domestic formulation business
India formulation business sales declined 2% YoY to INR3.2b in 1QFY20 on
account of de-growth in both specialty and acute portfolio.
Overall industry slowdown and delayed monsoons affected the acute therapy
business, which accounted for 35% of domestic formulation.
In terms of primary sales at the therapy level, only Ophthalmology exhibited
strong 17% YoY for the quarter. Gastrology, Dermatology and Nephrology
declined 20%, 13% and 17% YoY, respectively. Around 16% of ALPM sales are
under NLEM portfolio, which saw price hike of <3% YoY. There was a price hike
of ~ 5-6% in non-NLEM portfolio. Despite this, the 2% YoY decline in India sales
implies a sharp volume decline for the quarter.
High growth in US business
US sales stood at INR3.5b, up 53% YoY, led by a combination of new products
launches and market share pick-up in some older products.
Ex-US (ROW) sales declined by 14% YoY to INR1.1b due to the adverse impact of
serialization in the EU segment. Management indicated a gradual uptake in
revenue in the coming quarters.
Other key highlights
At end-1QFY20, cumulative ANDA filings stood at 165, of which 98 have received
approvals (incl. 12 tentative). During this quarter, ALPM filed four ANDAs and
received nine approvals.
ALPM has now commercialized 50 products in the US, of which three were
launched in 1QFY20. Out of these, seven are through partners. The company has
planned a run-rate of 20-25 product launches in FY20.
Total R&D spend for 1QFY20 stood at INR1.4b or 15% of sales; guided for similar
rate of R&D spend for the next three quarters.
The company has successfully completed inspection by US FDA of its Oncology
Formulation Facility at Panelav, Gujarat with zero observations.
Alkem Labs
Current Price INR 1,826
Click below for
Detailed Concall Transcript &
Results Update
Buy
For 1QFY20, the YoY growth in the prescription-led DF segment was due to
volume growth of 3.5%, price hike of 5%, and new product launch growth of
2.7%.
The trade generics segment of India business grew at healthy rate unlike some
peers who faced disruption in this quarter.
Full benefit of softening of raw material prices would accrue in the coming
quarters, even as 1QFY20 witnessed some gains.
Price erosion has dropped to mid-single digit for Alkem’s US portfolio.
Alkem now has 10,000MRs and is largely done with MR addition over the
medium term.
With respect to biotech business, the initial focus would be India and other
emerging markets.
58 ANDAs pending for approval in the US generics segment.
R&D spend to be 5-6% of sales for FY20.
August 2019
73
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Effective tax rate to be 12-14% for FY20 and 13-15% for FY21.
It incurred capex of INR960m for 1QFY20; guidance for FY20 is INR4-4.5b. This
capex is largely towards the bio facility, Indore facility and other brownfield
expansion.
Particularly, Indore facility would be commercialized by Feb-Mar CY20.
Gross debt stands at INR10.5b and net debt stands at INR9.3b.
Aurobindo Pharma
Current Price INR 588
Buy
Click below for
Detailed Concall Transcript &
Results Update
ARBP would complete corrective and preventive action (CAPA) related to ‘site
under warning letter’ by end-CY19.
ARBP has provided response/periodic updates related to observations at Unit 3.
About 5-6 products are pending for approval from this site.
It has guided for ~40 launches over the remaining 9MFY20.
Auromedic sales were stable YoY at USD67m.
ARBP has maintained its guidance of USD150- 200m debt reduction in FY20.
ARBP has filed CB30 with USFDA for valsartan. It has started supplying losartan
using API from outside.
ARBP has limited price erosion of ~5% in its base business of US generics.
During the quarter, sales from Apotex stood at USD25-30m, while Spectrum
sales came in at USD16m.
The new bag line has been commercialized and validation batches have been
started by ARBP.
The key approval of FTC is awaited for integrating Sandoz acquisition.
Net debt for the company decreased QoQ from USD724m to USD593m due to
lower working capital requirement and reduced capex.
R&D spent stood at INR2.4b (4.5% of revenues) for 1QFY20.
ARBP received final approval for 9 ANDAs in 1QFY20. Approvals for FY19
included 6 injectables as well. ARBP launched 15 products in 1QFY20.
Cumulative ANDAs pending for approval is 139 which includes 45
injectables/ophthalmics.
Biocon
Current Price INR 229
Click below for
Detailed Concall Transcript &
Results Update
Neutral
Increased share of Biologics and profit share component in 1QFY20 led the
strong improvement in margins.
Clinical trials related to bevacizumab biosimilar are on track with submission
expected in the US and Europe by end-FY20.
EMA submission for the insulin Aspart is planned in 2HFY20 and the USFDA
submission is expected in mid-CY20.
Gross R&D spends were lower in 1QFY20; BIOS has guided it to be 15% of
revenue (Ex- Syngene) for full-year FY20.
Operational expense related to Malaysia facility is about USD55m (annualized)
BIOS guided for margins achieved in 1QFY20 to sustain in FY20.
August 2019
74
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Branded formulation sales declined 9% YoY as uncertainty in UAE market
continued to put pressure on overall performance of branded formulation
segment.
Further, streamlining of discounts impacted growth to some extent in India
market.
In anticipation of demand for its Fermentation based APIs, BIOS is setting
greenfield project at Vishakhapatnam with investment of INR6b.
Cadila Healthcare
Current Price INR 218
Buy
Click below for
Detailed Concall Transcript &
Results Update
The USD55m QoQ decline in US sales is largely due to (a) sharp reduction in
Authorised generics (AG) sales of g-Androgel, and (b) seasonality related to g-
Tamiflu sales, and (c) regulatory issues at Moraiya.
Adjusting for AG and specialty sales, CDH’s US sales were ~USD800m for FY19.
CDH has guided for single-digit growth in US generics for FY20.
Company would be completing work related to cross contamination issue by
2QFY20.
Net debt remains at elevated level of INR63b at the end of 1QFY20.
US business
CDH received 10 approvals (including 2 tentative) in 1QFY20.
CDH launched 8 ANDAs in 1QFY20.
CDH has guided for 25 new launches in remaining 9MFY20, which includes 5-6
high value products.
Despite decreased sales of Sentynl portfolio, CDH has maintained a marketing
team in anticipation of adding new products to the portfolio.
While CDH is implementing remediation measures, it is simultaneously working
on site transfer of key products to its Liva site. This would be completed by end-
FY20.
India business
Trade generics form about 8-10% of India formulation sales. CDH has been
facing challenges for growth in this business.
The prescription business grew 7% YoY for the quarter, led by fast growing
Gynecology & Hormone therapies at 14.5% v/s 7.7% industry growth.
Dermatology segment posted 9.91% growth v/s 6.3% industry growth. The
Cardiac segment also recovered leading to slight improvement in its market
share from 4.5% to 4.53% QoQ.
Initiatives have been undertaken to improve growth of the prescription business
by revamping sales operating system, portfolio rationalization, better customer
engagement and extensive use of data from newly created digital tools.
CDH launched five new products in the vaccine segment.
August 2019
75
 Motilal Oswal Financial Services
HEALTHCARE | Voices
Cipla
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 465
Neutral
The impact of realignment of distributors in trade generics was ~INR2b.
Deferral of sales to July affected prescription business in India by INR700m for
the quarter.
Deferral of sales in emerging markets was to the tune of USD14m
Though R&D cost was 6.5% of sales for 1QFY20, Cipla maintained its guidance of
7-8% of sales for FY20.
Cinacalcet sales lead US growth
The US business grew 67% YoY on the back of Cinacalcet sales along with new
launches. This quarter, the company also received approvals for Ambrisentan
and Pregabalin.
As the Cinacalcet sales normalize next quarter, the management has guided for
limited competition product launches which would drive the growth from 3Q.
The company currently has cumulative ANDA filings of 253 of which 63 are
under approval and 21 have tentative approval. It continues to guide for 10-12
ANDAs filings in the fiscal.
The company has received Establishment Inspection Report (EIR) for the
Kurkumbh plant after completion of US FDA inspection.
Distributors churn in trade generics/deferral of prescription sales impacted DF
growth
DF business declined by 12% YoY for the quarter. There has been impact of
~INR2b business in trade generic segment due to change in around 100
distributors.
Further, deferral of prescription business to July was ~INR700m. Adjusting for
the same, the YoY growth would have been 4% for the quarter.
Contribution of Generics sales has reduced to 16% from 22%YoY. The Chronic
segment contributes 50% of segmental sales.
Dr. Reddy’s Labs
Current Price INR 2,541
Click below for
Detailed Concall Transcript &
Results Update
Neutral
DRRD may have additional query related to g- Nuvaring.
Guidance of >30 ANDA launches in the US for FY20 maintained.
While R&D cost was USD52m for 1QFY20, the company indicated it would rise in
coming quarters. (4) India business momentum is expected to remain healthy
led by new launches and enhanced MR effort.
Business highlights
Global Generic sales increased 8% YoY to INR33b, led by growth of 15% YoY in
India sales (INR7b), 19% YoY in Europe sales (INR2.4b) and 10% YoY in emerging
markets (INR7.3b). US sales grew at a muted rate of 3% YoY to INR16b, affecting
growth in this segment.
The company’s PSAI business de-grew by 16% YoY to INR4.5b for the quarter.
This was due to product-specific manufacturing issues. However, management
indicated that PSAI sales would recover in the coming quarters. Even proprietary
products and others sales declined by 21% YoY to INR914m, further impacting
overall revenue growth.
Pace of YoY contraction in US sales receding
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While 1QFY20 turned out to be the fourth consecutive quarter of a YoY decline
in US sales, we note that the pace of decline has been moderating (-1.3% YoY to
USD234m in the quarter). DRRD launched five products in 1QFY20. The base
business erosion ROW sales drive growth in emerging market
New launches and volume traction in existing products led to 27% YoY growth to
INR2b in ROW sales. Revenue in Russia stood at INR4b, up ~5% YoY, led by new
launches and better realization in a few products. CIS and Romania sales grew at
a modest rate of 2% YoY for the quarter.
Glenmark Pharma
Current Price INR 375
Neutral
Click below for
Detailed Concall Transcript &
Results Update
While there exist few niche opportunities in the near term, GNP has guided for
5-10% YoY growth in US generics, considering price erosion in the base business.
GNP has maintained overall revenue growth guidance of 10-15% despite
moderate revenue growth in 1QFY20.
R&D spend was INR3b (13% of sales) for 1QFY20.
GNP had gross debt/net debt of INR46b/INR35b at end-1QFY20.
GNP has guided for total capex of INR7b, with INR4b for tangibles and INR3b for
intangibles.
US sales growth was partly impacted by changes in the re-imbursement
environment and higher patient co-pay for Mupirocin cream. This has resulted
in an increase in the number of prescriptions for Mupirocin against Mupirocin
cream.
GNP anticipates two limited competition product approvals in 2QFY20, out
which one is injectable and another is a topical product.)
The traction has been promising for Remogliflozin in India with INR20m per
month in less than two months since launch. GNP expects this to further build
up in coming months. GNP is targeting to close one more marketing deal for
Remogliflozin in 2QFY20 with various lines
In 1QFY20, GNP invested USD27m in NewCo innovation business. GNP indicated
that NewCo would initiate process of raising capital in the US during 4QFY20 to
fund development of its pipeline and future growth plans.
Sales from the acquired dermatology brands were insignificant during the
quarter, as GNP was integrating the acquisition. The company expects to garner
higher sales from this portfolio starting 1QFY20.
Granules India
Current Price INR 94
Click below for
Detailed Concall Transcript &
Results Update
Buy
GRAN had INR500m capex for 1QFY20; company has indicated ~INR1.5b as FY20
capex.
Operational expense related to Vizag facility should increase 4QFY20 onwards.
Ibuprofen prices are stable currently; however, a gradual downtrend is expected
in the coming quarters.
With 3 ANDA filings in 1QFY20, GRAN has guided for 8-12 ANDA filings for FY20.
Currently, GRAN has 22 ANDAs pending for approval.
GRAN remains on track to launch 6 ANDAs in the US market for FY20.
R&D spend was INR340m for 1QFY20; of this, INR180m was capitalized.
~90% of the finished dosage business is from the US.
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Management has maintained its guidance for promoter pledge reduction to
zero by end-FY21.
GRAN remains confident of sustaining the GM achieved in 1QFY20 for full-year
FY20. (b) Net debt stood at INR8.6b; company intends to reduce it to INR7.5b in
FY20.
While JVs contributed INR255m to PAT for the quarter, GRAN has maintained its
full-year JV PAT guidance of ~INR400m, as planned shutdown of the Biocause
facility would affect its performance over the near term.
Increased inventory for the US market has led to a rise in cash-to-cash cycle by
two days to 112 days.
IPCA Labs
Click below for
Results Update
Current Price INR 986
Buy
On completion of the remediation measures, IPCA has invited the USFDA for
inspection at its facilities under import alert.
Remediation cost for 1QFY20 was INR60m and IPCA guided this cost to INR100m
for FY20. (3) IPCA has guided for the Institutional anti-malaria business to touch
INR2.3-2.5b for FY20. (4) IPCA has maintained guidance of 100-150bp YoY
expansion in EBITDA margin.
Strong YoY growth in the API business was led by healthy offtake in Valsartan,
Losartan and other key molecules.
API capacity utilization for Ratlam plant (one of the key plants) is ~80%. IPCA has
indicated debottlenecking over the near-medium term to cater to future needs.
While API business grew 37% YoY for 1QFY20, IPCA has indicated a minimum
20% YoY growth in FY20.
IPCA received orders worth INR900m from global fund to be executed over the
next 12 months; of this, IPCA would have business of INR280m in 2QFY20.
YoY growth in domestic formulation is led by 7-8% YoY growth in volume and 3-
4% YoY hike in price.
IPCA has maintained a focused approach on its key brands. For instance, Zerodol
and other key brands in the anti-bacterial segment have a force of 1,000 MRs.
IPCA has a total MR strength of 4,200 with 300 added on YoY basis.
Due to highly competitive scenario, ramp-up is expected to be gradual in the UK
business.
R&D spend is at 2.5% of overall sales.
IPCA incurred capex of INR600m in 1QFY20 and guided for INR2.2-2.3b for FY20.
IPCA has guided for effective tax rate of 20% for FY20.
Laurus Labs
Current Price INR 326
Click below for
Detailed Concall Transcript &
Results Update
Buy
While ARV-API business performance was muted , LAURUS guided for an
improvement in the coming quarters. Business of almost INR750m-INR1b is
pushed to 2QFY20.
In South Africa, the switch from Efavirenz-based combination to DTG has been
much slower than expected.
LAURUS incurred capex of INR450m in 1QFY20 and guided for INR1.5b-INR2b in
FY20.
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The company had net debt of INR11b at end-1QFY20.
LAURUS has completed backward integration and de-risked itself from supply
issues from China. This has partly enabled an improvement in the gross margin.
The company indicated that commercial launch by one of its customers would
drive Synthesis business in 4QFY20.
There have been supply issues from China for its one of the oncology product
(Gemcitabine). LAURUS is working on backward integration to resolve this issue.
It has a decent opportunity in Ingredients to supply to one of its US partner. The
benefit of the same would accrue in 2QFY20.
LAURUS is fully integrated for Metformin in the US market. This has led to high
single- digit market share in this product for the company.
Till date, it has filed 20 ANDAs with one in 1QFY20; has approvals for 5 ANDAs
till date.
Order book of USD20m from one of the European customers in formulations.
Expects to have free cash flow from FY21.
Lupin
Current Price INR 739
Buy
Click below for
Results Update
LPC is awaiting feedback from the USFDA on g-Proair, which might delay the
approval for the same.
Traction in levothyroxine would improve in 2HFY20 based on capacity ramp-up
and approval for additional dosage.
There have been queries from European regulatory authority on Etanercept,
which might delay the approval to 4QFY20/1QFY21.
LPC is working on resolving one of the key regulatory issues related to out-of-
specification (OOS) and would take about six months to resolve the same.
Branded US sales stood at USD5m for the quarter.
LPC indicated that prescription has grown 20% QoQ for Solosec. It would take at
least two years for Solosec to break even.
LPC maintained its guidance of 20+ launches in the US market for FY20.
G-Brovana has been filed from contract manufacturing site in the US. There are
other companies as well that have filed ANDA for this product.
Company has target action date (TAD) for gSpiriva in Nov’20.
LPC would also have four injectables launches in 2HFY20, including g-Emend
which would be Day-1 launch.
With five ANDA approvals in 1QFY20, LPC has ~152 ANDAs pending for approval.
LPC guided for capex of INR6-7b in FY20.
R&D spend stood at INR3.8b (8.7% of sales) for 1QFY20.
Strides Pharma
Current Price INR 379
Buy
Click below for
Results Update
Net debt was at INR7b at end-1QFY20.
STR announced soft launch of g-Sensipar in Jul’19.
Operational expense related to Singapore and Chennai facility was INR250m for
1Q. Guided for 10-15 ANDA filings in FY20 (one filed in 1QFY20).
With course correction in place, Africa secondary sales are exhibiting good
traction.
Improved market share, healthy traction in older products drive US sales
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Regulated markets sales (81% of sales) grew 81% YoY to INR5.6b in 1QFY20.
Growth was mainly led by a robust increase in US sales (+125% YoY to INR3.9b)
on the back of the improved market share in existing products, the stable pricing
environment and traction in molecules launched in the previous quarter.
STR has 65+ approved ANDAs, of which only half have been commercialized (37
till date), which is indicative of a strong pipeline of potential launches.
During the quarter, one ANDA was filed, taking the total number of approvals
pending to 22. STR expects to file 10-15 ANDAs this year. R&D spend for the
year stood at INR250m or 7.7% of sales.
STR maintains a healthy share in some of the key molecules: Ergocalciferol
(45%), Methoxsalen (63%), Acarbose (50%), Ranitidine (65%), Efavirenz (20%)
and Buspirone (52%).
Sun Pharma
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 417
Buy
Specialty portfolio comprising patented products had sales of USD94m across
markets.
Commercialization of Cequa is delayed to 3QFY20 as it had certain
manufacturing- and supply chain-related issues.
Market share of Odomzo reached 12% at end-1QFY20.
Finance cost declined sharply due to reduced INR borrowing.
There have been changes in senior management – (1) Kal Sundaram to head
strategic initiatives and Japan/China business (from India business earlier), (2)
Kirti Ganorkar to head India business and (3) Alok Shanghvi to head generic
business development.
US business from a particular customer was available only for 4QFY19 and
1QFY20.
While R&D spend has been lower for the quarter at 5%, SUNP maintained its
guidance of 8-9% for FY20.
There has been gradual ramp-up in Illumya sales, driven by an increase in the
number of both prescribers and patients.
DF growth adjusting for transition of distribution from Aditya Medisales to its
wholly owned subsidiary was ~12% YoY for the quarter.
Emerging market business grew on constant currency terms, but currency
headwinds led to flat YoY growth in INR terms.
Direct to customer (DTC) spend is seasonal with an increase expected in 1Q and
2Q.
SUNP guided for one more new product to be ready for clinical trial next year,
based on positive results from initial studies.
At end-1QFY20, total ANDA approvals stand at 466, while 108 are pending for
approval. 13 have tentative approval status. For 1QFY20, three ANDAs were
filed and it received approvals for 13.
Torrent Pharma
Current Price INR 1,683
Neutral
Click below for
Detailed Concall Transcript &
Results Update
TRP indicated US sales would come in flat YoY at ~USD220m in FY20 if Indrad
also receives OAI (official action indicated) classification.
The company has gradually resumed losartan sales to the US market.
It repaid INR3.3b of debt this quarter, lowering gross debt to INR56b.
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Incurred capex of INR1.8-2b till date on oral oncology facility.
R&D spend was at INR1.4b, 6.7% of sales.
Increased traction in existing products drives US sales
US sales grew 11% YoY to USD51.4m in 1QFY20. Favorable currency led to 13%
YoY growth in INR terms to INR3.8b. Despite no new approval, TRP has been
able to deliver growth in the US business. This is largely on account of increased
share in existing products, wherein regulatory headwinds for peers created
opportunity for TRP. Also, TRP was able to have full-quarter impact of products
launched in 4QFY19.
The company has started selling losartan at a gradual pace. TRP filed three
ANDAs during the quarter, taking cumulative ANDAs pending for approval to 34.
Four ANDAs have been filed with third parties, of which 1-2 approvals are
expected over the medium term. This, in our view, will marginally compensate
for the loss of approvals from the Dahej site.
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MEDIA
Broadcaster companies (ZEE and SUNTV) have seen an impact on advertisement revenue due to advertisers
pulling on the back of the NTO regime’s execution. Managements have reiterated to be committed on
investments in digital platforms. PVR remained focused on robust screen adds. Print companies were
optimistic on moderation of newsprint prices and reiterated that benefits should start flowing in from
2QFY20.
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
Margins
The spot newsprint price is about ~INR1-2/kg below 1QFY20 price of
INR40/kg and may go down further by INR2/kg.
Expect the government to roll back the 10% custom duty on imported
No Margin outlook
DB Corp
newsprints.
provided.
The sharp cost reduction should be sustainable and mitigate the weak
revenue performance.
The company stated July month to be affected from print business and
Jagran
expects recovery from August.
No Margin outlook
Prakashan
Expects Digital business to grow around 15-20% in the next 2-3 years.
provided.
The company expects to save around INR400m due to softening of news
print prices.
Expect Q2-Q3 FY20 to show better performance aided by strong movie
releases.
PVR
Capex guidance at INR5b for FY20 with 80+ screen adds. Currently 100+
screens are in fit out stage; expect to reach 1000 screens over next 2
No Margin outlook
years.
provided.
FY20 will see strong SPH growth, post changes in F&B offerings at
cinemas.
Net ATP is expected to grow 4-5% in 2HFY20.
SSG in box office will be 3-5%, ATP and footfall will grow 4-7.
FY20 subscription revenue to grow by over 20% as 35% of market is still
analog.
SUN TV
Ad spends will be muted for the year, expect mid-single digit growth in
ad revenue for FY20.
No Margin outlook
Plan to invest ~INR1500m towards OTT content over next 18 months,
provided.
but target to be cash neutral with likely deal soon with a leading telecom
player and OTT player.
Aim to reach 50% market share in south and will gradually target to keep
improving market share.
FY20 domestic subscriber revenue is expected to grow by mid-20%.
Ad market remains soft, but company expects a recovery from 2H.
Zee Entp.
Targets to exceed industry growth.
Expect over 30%
Margin guidance for FY20 over 30%, which factors in the increase
EBITDA margins for
content investment toward Zee5.
FY20.
WC investment in FY20 should be restricted to INR5-7b, which should
improve FCF. In fact, FY21 should see a big improvement.
D B Corp
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 139
Buy
Key takeaways
Local and national players are curtailing ad spends due to the ongoing slowdown
in consumption spends.
Spot newsprint price is about ~INR1-2/kg below 1QFY20 price of INR40/kg; it is
likely to decline further by INR2/kg.
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Expect the government to roll back the 10% custom duty on imported
newsprints.
Management does not intend to take a cover price increase in the near term.
Sharp cost reduction should be sustainable and mitigate the weak revenue
performance.
1Q performance
New campaign ‘Life Badal Jaaygi Boss’ has seen good traction with megastar
Salman Khan as the face of campaign.
The latest campaign was designed to: Focus on brand building, create impact on
readership and achieve circulation growth through campaign.
The company continues building synergy and leverage strength across each
business segment and is confident to deliver enterprise growth despite the
challenging environment.
DBCL maintains prudent and aggressive approach and expects softening of
newsprint prices to support growth. Moreover, stable government and recovery
in rural areas will add to its steady performance.
The focus is to reduce cost & optimize resources. There is room for cost
measures on a sustainable basis.
Buyback was one off. The company will continue to reward shareholders with
dividends in future rather than buyback.
Ad revenue
Ad revenue declined 2.8% due to weak growth in print and digital segments.
Going by category, decline in revenue was seen across education (by 3%,
lifestyle & health and auto segments. Government and political spends were up
3% due to election. Real estate segment grew by a decent 15%.
Growth in real estate ads was due to its initiatives in real estate space, but the
sector on whole is facing slowdown.
Overall volumes were down across markets. However, the company saw a rise
in its market share in Rajasthan (from 52% to now 60%) and Gujarat (from 32%
to 38%).
Circulation revenue
The company has 5.6m copies in circulation with 23 pages per copy and average
realization is at INR2.63/copy.
DBCL does not intend to increase cover prices – the decline in prices was due to
a fall in circulation revenue.
Good focus on cost control, not looking forward to lose customers on the back
of prices rise.
Ink consumption was down due to cost-optimization initiatives.
Entrance in Bihar market was successful – it is now the second largest player in
that market, and planning to be the leader soon.
Radio biz
Radio witnessed good growth, revenue came at INR377m, EBITDA at INR131m.
In radio segment, government revenue was up by 30%, contribution remained
at 16% in 1QFY20.
In small towns and rural areas, radio market is under pressure.
Election spend on radio was good (political spends in radio is usually lower).
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Newsprint
Organizations have raised concerns and requested the government authorities
to call off the 10% duty imposed on import of newsprint, as imports are due to
lack of capacity amongst local players to meet demand (lack of capacity both in
quality and quantity of newsprint).
In 1QFY20, blended newsprint prices were at INR40.5/kg (spot prices differ by
INR1-2), down from INR45/kg at the beginning of year. We expect prices to fall
by ~INR2/kg.
Indian newsprint price is at INR36/kg & imported prices are at USD450-465/ton
(ex. trading, freight charges, ~30% loading cost).
Expect the price to come down to ~INR38/kg.
Expect government to take back the custom duties in ~30 days.
Due to difference in production technology of newsprint in India (width of
newsprint produced locally is half than produced by foreign players at one go),
the production and supply by local players is insufficient to meet demand.
The company has requested to utilize foreign machinery in India, but investment
will take at least 3-4 years to come up.
Total newsprint consumption in India is 2.5 million ton/year, whereas its local
production is at ~1 million ton/year. Thus, the company sees huge gap in
demand and local supply, leading to huge imports in newsprints.
Currently there is excess supply of international newsprint market. However, if
there is a rise in custom duty, suppliers might have to absorb some costs.
Ad outlook
Due to slowdown in consumption spends and some sectors, we will closely look
how the market shapes up over the next two quarters.
Entertainment Network
Current Price INR 365
Click below for
Detailed Concall Transcript &
Results Update
Buy
Key takeaways
Ad revenue is likely to pick up pace in 2HFY20.
ENIL maintained the EBITDA growth guidance of 12-15% for FY20, although the
composition may change with a higher share from the solutions business.
Batch 1/2 stations’ capacity is expected to reach 75%+/65% over time.
According to IRS, industry listenership increased 8.3%, with Radio Mirchi’s
listenership rising by 14% to 45m/month.
Radio segment
Revenues from the radio business were up 1% YoY due to a high base of last
year.
Radio industry grew 9.2% during the quarter.
EBITDA margin for radio stood at 19% on a pre-Ind-AS 116 basis.
Over a two-year period, industry revenue growth stood as follows: Radio Mirchi:
23.3% YoY, DB Radio: 24% YoY, Fever: 24% YoY, Nasha: 24% YoY and Radio City:
1% YoY. Big FM fell by 15% YoY.
EBITDA margin in heritage channels was at 34%.
Government and political business slowed down in the radio segment.
35 stations grew by 6.6%, Batch 1 stations grew by 5.7%, Batch 2 grew by
INR45m.
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As per IRS, listenership in industry grew 8.3%, with Radio Mirchi’s listenership up
14% to 45m/month.
Car listenership up by 28% YoY, now forms ~26% of total listenership.
Capacity utilization for Batch 1 stood at 33% and for Batch 2 at 16%.
50:50 revenue mix between national and regional clients.
As of 1QFY20, right to use assets stood at INR2020m and right to use liabilities at
INR2,280m.
Revenue share for radio and solution stood at 72% and 28%, resp.
USA business is in pre-emptive stages with investment of INR35m and currently
under loss.
Non-FCT Business:
EBITDA margin for non-radio business stood at 18% on pre a Ind-As 116 basis.
Revenues from Solution up 42% YoY.
Gross margin at 30% for solutions business.
Push towards activations in growth markets.
Digital business has very low cost of production. Hence, it is highly profitable.
Presence across 63 cities, availability of skills and high execution capabilities
provides the company competitive advantage in digital and solutions business.
Outlook
Expect EBITDA growth of 12-15% for FY20.
Fixed costs for solutions business below variable cost to be INR320m in FY20.
Auto sector will perform well in radio advertisements over the year.
Advertisement revenues likely to pick pace in 2HFY20.
Expect Batch 1 stations capacity to reach 75%+ and Batch 2 stations to reach
65%.
YouTube viewership to cross 1b in FY20, which provides huge platform for
original contents.
Queries have risen for solutions business which has huge market.
Solution business to gain more demand amid economic slowdown as they are
preferred over radio ads.
Expect digital business to grow at ~50-100% YoY to reach ~INR750m over the
next five years.
Jagran Prakashan
Current Price INR 64
Click below for
Detailed Concall Transcript &
Results Update
Buy
Key takeaways
Auto segment ads (14-15% of total sales) declined ~30%, leading to revenue loss
of ~INR150m, whereas Education segment saw a growth of ~7-8%.
The company stated that the print business was affected in Jul’19, but recovery
is expected from Aug’19.
Expect the Digital business to grow ~15-20% in the next 2-3 years.
Company expects to save ~INR400m due to softening of newsprint prices.
1QFY20 performance
Jagran Prakashan generated INR1b of cash post tax, which was partly used to
reduce debt, in line with group policy.
Net cash as of Jun’19 was ~INR3,000m.
Local advertisement revenue for Dainik Jagran continues to grow along with
pick-up in State Government spends.
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Central government spends and national spends continue to decline.
Election revenue was much lower than expected.
Almost all newspaper brands were successful in improving per copy realization
with no impact on market position.
Dainik Jagran’s I-Next reported a profit of INR150m in 1QFY20 v/s loss of around
INR70m in FY19.
The company was able to contain operating expenses at 2% growth along with a
fall in operating expenses for Music Broadcast.
Auto segment ads (14-15% of total sales) dropped by ~30%, leading to revenue
loss of around INR150m.
Education segment saw a growth of about 7-8%.
Unsold copies declined from 3% to 1.5% and management expects it to remain
the same, leading to a savings of around INR100m per year.
Digital business saw a growth of 10% YoY this quarter.
The import/indigenous newsprint mix saw a steep increase to 42%/58% from a
normal 30%/70%, as prices of quality paper increased domestically; thus, the
company has decided to import the same.
Event and activation business is stabilizing with near double-digit growth in
revenue and operating profits.
Definitive agreements for acquisition of BIG FM have been executed
andapplication for MIB approval has been submitted.
Business Outlook
The company expects to save around INR400m as a result of lower raw material
cost for newsprint prices.
Total benefits from drop in newsprint prices should see full benefits from
2QFY20.
The company expects newsprint prices from imports to be around USD500m for
the rest of the year.
The outdoor business, which saw 7% margin this quarter, is expected to increase
and is on its way to achieve higher margins of around 10% this year.
Expect Digital business to grow around 15-20% in the next 2-3 years
Management is in talks with Mahindra and Hero for a possible deal in the
coming quarters. It expects the transition from BS-V to BS-VI in the auto industry
to push sales in the coming festive months, leading to more ad revenues.
Despite the budget notification of tax on buy-backs, the company remains
committed to distribute funds through dividends/buy-backs.
Receivables have increased consistently since the past 3 years and mainly
constitute government payments yet to be made.
The company has advocated for an increase in its cover price and is in talks with
competitors to follow the same trend.
Music Broadcast
Current Price INR 37
Click below for
Detailed Concall Transcript &
Results Update
Buy
Key takeaways
Industry ad volumes have declined 9% v/s 12% for MBL. Both national (12-13%)
and local ad volumes (5-6%) are down due to weak economic conditions.
Management believes ad volumes have bottomed out in 1QFY20, but expect
demand revival from next quarter, to be aided by the festive season.
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MBL’s ad pricing is at ~10-15% premium to peers and at ~30% premium to local
players.
Cash balances and short-term investments stood at INR26b in 1QFY20.
1QFY20 Performance
The quarter witnessed a decline in volumes across national and local ads due to
slowdown in consumption spends and weak economic conditions; the topline
declined for national and local ads
Only auto and political categories witnessed growth, while the ‘Others’ category
was negatively impacted.
Government and political categories couldn’t cover the shortfall witnessed in
the ‘Others’ category. In contrast to management’s expectation, the
government category showed muted spends post elections.
Government ads declined 50% on account of higher base and muted spending.
Weak consumption, muted ad activity and issues in the financial industry led to
lower revenues during the quarter.
Despite a difficult industry scenario, MBL’s yield was up 4%.
Local advertisers captured the opportunity on the back of low cost plans.
Volume split between local and national now stands at 60:40, on account of
small clients moving towards local advertisers.
Management has compromised on ad volumes to maintain pricing power in the
market.
MBL’s ad pricing is at ~10-15% premium to peers and at ~30% premium to local
players.
Listenership mix stands at 6% from cars, 30% from direct mobile devices and the
rest via other mediums.
Rate hike of 4% was taken across markets; 5% rate hike was taken in the top 4-5
markets.
There is continued focus on the creative integration of solutions, which is
witnessing higher demand. There is less focus on the events business due to low
margins and similar offerings within the group company.
In Delhi, MBL rose to the second position on the back of management’s effort
for promotions and new offerings.
June was severely impacted while April-May performed well, achieving 95% of
the company’s targets.
Company continues to make deals and offer creative solutions to sustain volume
growth in the future, but not at the cost of cutting rates.
Old station volume utilization was at ~50-55%; for new stations, volume
utilization was at 40% – a drop of 10% for both the phases.
Phase-VI EBITDA contribution was 10%.
Cash balances and short-term investments stood at INR26b in 1QFY20.
On RBNL acquisition: Binding agreements and documents have been signed for
the RBNL acquisition while approval from the ministry is awaited. ~50% of
RBNL’s debt will mature this year and the remaining ~50% next year.
Industry
In volume terms, at the national level, ads declined 12-13%, local advertiser’s
volumes declined ~5-6%.
Some local advertisers have seen growth on account of group deals and
synergies.
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Industry volumes declined 9%; while for MBL, volumes were down 12%.
Premium players in the industry have seen decline in volumes due to price
pressure, whereas players with mass offerings have seen traction from local
participants.
Ratio for ad rates of Radio and TV now stands at 1:10 from 1:7 earlier.
Outlook
Management believes ad rates have bottomed out during June-July and expects
demand revival from Aug-Sept.
Volume growth is also expected to pick up from 2Q-3QFY20, along with demand
on account of the festive season.
MBL doesn’t intend to offer radio ads along with print ads, as prices for the print
medium is ~4-5x than radio, thus, there is a possibility of cannibalization and
inefficiency in accounting for ad pulls.
PVR
Current Price INR 1,567
Buy
Key takeaways
Click below for
Detailed Concall Transcript &
Results Update
Expect a better performance in 2Q/3QFY20, supported by a strong pipeline of
movie releases.
Net debt at INR13b. Capex guidance at INR5b for FY20 with 80+ screen adds.
Currently, 100+ screens are in fit-out stage; expects to reach 1000 screens over
the next two years.
Slowdown in the economy has affected ad revenues for PVR, although
management is taking steps to counter the challenges.
FY20 will see strong SPH growth, post changes in F&B offerings at cinemas. Net
ATP is expected to grow 4-5% in 2HFY20; have already passed on the GST
benefits.
1QFY20 Highlights
Box office revenue was up 19% to INR4.6b, driven by 19% growth in admissions
(though it was affected by ongoing sporting season); net admissions at 27m.
Ad revenue up 28%; F&B revenue up 29%. Will see strong revival going ahead.
50+ new screens have been opened in past four months, with many more to
open soon.
1Q saw big films like Lion King, Kabir Singh, Super 30, etc. which aided growth.
Q2/Q3 are expected to be stronger with big movie releases and going into the
festive season.
Other expenses have been higher due to one-offs on account of launch and
advertisement spends on high-profile multiplexes.
Slowdown in the economy is affecting ad revenue for cinemas; management is
taking steps to s ustain ad revenue.
Outstanding performance in the quarter despite overall moderate content,
leading to 52.5% occupancy.
Revenue stood at INR1.2b with EBITDA of INR284m; operating margin of 24%
above management’s expectations.
Annual EBITDA expected to be INR1b+ for FY20.
Management believes the performance was strong given the seasonal impact of
sports season and moderate movie qualities.
100% growth will be yield driven in SPI ad business.
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SPI
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MEDIA | Voices
Many initiatives have been undertaken; management to grow off-screen in
collaboration with partners.
The renewed contract between PVR and Bookmyshow does not include SPI
Cinemas as SPI already had a three-year agreement with Bookmyshow.
Business Outlook
Net ATP is expected to grow 4-5% in 2H; have passed on the price due of GST
benefits.
FY20 will see strong SPH growth, post changes in F&B offerings at cinemas.
Capex guidance at INR5b for FY20.
Planning to get capex down to INR17.5m from INR20m per screen in smaller
cities & towns.
Management has factored in the delay in deliveries of real estate locations.
Accordingly, the guidance on screen ads have been moderated, but most of the
locations are at advanced stages of completion.
Delay in screen ads can be expected if real estate issue continues in the next
fiscal year.
Rate of revenue will be faster than expenses going ahead.
Expect strong numbers from distribution business in Q2 on account of
distribution of Indian films.
USD10m capital commitment in the production business with margins in range
of 8.5-10%, and 20% pre-tax IRR.
Rebranding some of properties and refurbishing with higher training cost;
looking to create value by providing attracting footfalls.
Net debt stands at INR13b and is expected to remain the same by FY20.
Expect Q2 and Q3 to be better performing quarters aided by strong movie
releases.
Screen guidance: 80+ during this year; already opened 36 screens.
Currently 100+ screens are in fit=out stage and PVR is expected to reach 1000
screens over next 2 years.
No plans for foray into Middle East due to unfavorable risk reward ratio.
Others
Size and time for the QIP issue has not yet been decided.
Allegation by Ronie Screwvala has been dismissed by CCI.
Industry Scenario
SSG in box office will be 3-5%, ATP and footfall will grow 4-7%.
Cinemas are witnessing huge demand as an entertainment, despite OTT
platforms, leading to creation of high quality content.
Netflix, Zee5, Amazon Prime are currently focused only for handset devices, OTT
is failure in India’s big screen market, as the medium is promoted primarily for
handsets, not for TV screens. Thus, opportunity for cinema business continues
to be strong.
Sun TV Network
Current Price INR 451
Click below for
Results Update
Buy
Key takeaways
Subscription revenue is expected to grow by over 20% in FY20, as 35% of the
market is still analog.
Ad spends will be muted for the year; expect mid-single-digit growth in ad
revenue.
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SUNTV plans to invest ~INR1,500m toward OTT content over the next 18
months, but it targets to be cash neutral with a likely deal soon with a leading
telecom player and an OTT player.
Company aims to achieve a 50% market share in south and gradually expand the
pie thereafter.
1QFY20 performance:
Net revenue was down by INR700m.
IPL revenue was split between March’19 and June’19 quarters.
Company delivered an improvement in Tamil markets in terms of ratings
(currently 1130 GRP, improved by over 20%; it has ~2% market share); market
share of some competitors declined in the state.
Decent pick-up in Andhra Pradesh (climbed up to no. 3 spot in viewership with
small gap between no.3 and no.2 player), along with an improvement in Telugu
and Kannada movie markets.
Bangla launch led to incremental content costs of ~INR150m during the quarter.
Depreciation/amortization stood at INR200m/INR1,370m for the quarter.
Pay channel grew by 70% and DTH grew by 30%.
Cash & CE stood at INR2,800m in 1QFY20.
Over 60% of movies in southern area have been purchased and distributed by
SUNTV, including major movies.
Content cost up by INR150-200m due to launch of fiction program and Bangla
costs up by INR150m and INR100m due to private placement to producer
model. Management believes content cost is sustainable.
During the quarter, receivable stood at INR119.3b, advertisement receivables
days grew from 98 to 101, DTH revenues receivable days grew from 120 to 145
and international revenue receivable days were up from ~3 months to ~4.5
months.
DTH & MSO are growing at impressive pace in Tamil Nadu.
35% of the market is still analog. Both private cable operators and DTH
operators are performing well.
ARPU prices improving for both cable and DTH operators.
Prime time slots are commissioned; during non-prime time, SUN TV is moving
toward private producer model.
Satellite movie INR50m additional cost expensed toward the TV premiere in
1QFY20.
OTT Platform: Sun Next
Plans to focus on OTT platform with investment of ~INR1500m over the next 18
months, built on the regional content in south India.
Soon to enter into a deal with a leading telecom player and OTT player for
content streaming.
25% of smartphone market is expected to be in south India and SUNTV aims to
leverage the opportunity for its Sun-Next OTT platform.
Target to be cash neutral in Sun Next, as investment will be neutralized with the
big ticket deal.
Advertisement from digital platform to see huge boost going ahead.
August 2019
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Business Outlook
Advertisement
Slowdown in the economy has led to deceleration in sectors like auto, real
estate and FMCG, which led to a fall in advertisement spends.
Advertisement spends will be muted for the year, management has guided for
around mid-single-digit growth in ad revenue for FY20.
Subscription
Subscription revenue to grow by 20% in FY20.
Expect ~INR5b subscription revenues from 4QFY20/1QFY21, post conclusion of
digitization, with no major regulatory changes going ahead.
Movie
Expect INR3,000-3,250m revenue from movies in FY20.
One movie to be released by September’19 and another by March’20.
Budget for upcoming two movies is ~INR1,500m.
Others
Aim to reach 50% market share in south and will gradually target to keep
improving market share.
No planning to reduce stake in IPL Franchisee and expect huge value going
ahead in the long term as the market develops further.
Promoter compensation flat since two years and going ahead for FY20.
Dividend payout will continue to be at ~40-45%.
Well prepared with strong balance sheet to expand in northern market.
Zee Entertainment
Current Price INR 364
Neutral
Click below for
Detailed Concall Transcript &
Results Update
FY20 domestic subscriber revenue is expected to grow by mid-20%. Ad market
remains soft, but company expects a recovery from 2H. Targets to exceed
industry growth.
Margin guidance for FY20 at 30%+, which factors in the increase content
investment toward Zee5.
WC investment in FY20 should be restricted to INR5-7b, which should improve
FCF. In fact, FY21 should see a big improvement.
ZEE has received the first binding offer and another binding offer is expected to
be received in a few days, post which the family will evaluate the decision
(amongst the two offers, one is from strategic partner and other one from
financial partner).
1QFY20 performance
Zee reported a strong performance (despite operating challenges faced by
industry) on account of the TRAI tariff order implementation.
Channel subscriptions increased strongly, as reflected in strong 47% subscription
growth.
Company is increasing its viewership share across markets, especially in the
southern market.
Marginal impact from Ind-AS 116.
Delay in collection of subscription revenue due to a lag in the implementation of
NTO has led to an increase in receivables to INR21.4b.
Cash & treasury investment at INR17.6b in 1QFY20.
Total working capital investment is expected rise by INR500-700m in FY20.
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Overall gross debt for the company stood at INR11b, and debtors amount stood
at INR22.7m.
Other income was high due to INR600m from income tax refund. Change in fair
value of preference listed shares has resulted in lower adjusted PAT.
Finance cost was up due to dividend payment on preference shares & impact
from Ind-AS 116.
ZEE5 update
MAU & DAU stood at 76.4m & 6.6m in June.
Zee5 released 18 original shows and movies during quarter, and is on track to
achieve commitment of 72 original shows and movies in FY22.
Zee5 witnessed strong start in APAC market, and has dubbed content in 5
international languages.
Not happy with Zee5 DAU & MAU as the industry range is 25%.
Looking to push OTT content for non-subscribers and bullish on Zee5 OTT
platform to monetize growth.
Losses from Zee5 did not have significant impact on overall consolidated
margins during the quarter.
Promoter stake sale
Zee has received the first binding offer and another binding offer is expected to
be received in few days, post which the family will evaluate the decision
(amongst the two offers, one is from strategic partner and other one from
financial partner )
Zee Media won’t be part of stake sale process on account of regulatory norms.
Subscription revenue
Implementation of TRAI led to improvised pricing of its channel on the basis of
popularity and demand of these channels, which were earlier priced at
discounted rates or were distributed for free on account of regulations. Pricing
wasn’t commensurate to users in south, and there was no price change due to
regulation. But the flexibility allowed the company to raise subscriber revenues
(e.g. a channel in Tamil Nadu priced from INR2 to INR10).
Implementation allowed to price channel by popularity; increased transparency
led to jump in subscriber revenue.
Hindi portfolio saw some impact on reach and viewership; ZeeTV was 2nd
ranked channel during the quarter.
Zee maintained its top position amongst regional channels of Bengali, Marathi &
Kannada; regional movies’ performance was strong. Tamil continues to build up
its strong fictional lineup.
International subscription was down 9.7% on account of decline from MENA
region.
On ad revenue
Reach and viewership of all pay channels were impacted due to transition phase
of NTO regime, leading to advertisers pulling back their spend and diversion to
sports channel.
Going forward underlying demand for ads remains strong and the onset of
festive season will boost ads spend; Zee will maintain the no1 position in
advertisements.
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Business outlook
For FY20, domestic subscriber revenue is expected to grow in mid 20s, on
account of fall in yields for preference of bouquet channels vis-à-vis a-la-carte,
which yielded higher prices.
Margin guidance for FY20 at above 30%, considering all the rise in costs and
investment in Zee5.
Ad growth looking soft for short term, but good over next couple of quarters;
company confident of beating industry growth.
Free cash flow is expected to improve in FY20; cash generation to be much
higher in FY21.
August 2019
93
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METALS| Voices
METALS
Tata Steel highlighted its European business was impacted by a compression in spreads and further EUR10-
12/t compression is likely in the coming quarter. On the domestic front, lower offtake from (1) industrial
products/projects and (2) branded products and retail segments led to a sequential decrease in volumes. 4Q
had witnessed heavy destocking given inventory build-up. The company has also cut its FY20 capex guidance
by 20-25% across its Indian and European operations. SAIL highlighted that steel pricing has remained
subdued amid lower demand, particularly within the auto sector. The company also noted that realizations
have been on a downtrend, with average NSR for July at INR37,189/t (v/s ~INR40,828 in 1Q). Hindalco
expects its cost of production to decline in the coming quarters on lower caustic and furnace oil. Vedanta
expects its Gamsberg mine to produce 180-200kt in FY20 and exit 4QFY20 with a run-rate of 250kt.
Global Commodity Prices
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook for FY20
Aluminum market to remain in deficit of ~1.2-1.5mt in CY19.
Hindalco
Expect cost of production for Aluminum to decrease led by lower
caustic soda and furnace oil.
Copper concentrate market to be in ~100kt deficit.
Novelis’ EBITDA per ton to sustain above USD400/t in FY20.
LME to remain
depressed in the near
term.
Price correction from
current levels in
domestic steel prices is
unlikely.
Steel realizations in July
have been lower by
~INR3,600/t v/s its 1Q
average.
JSW Steel
Demand uptick likely from 2H.
Expects lower coking coal prices in 2Q.
SAIL
Company targets saleable steel volumes of ~16mt in FY20.
Capex for FY20 is expected at INR40b.
Hindalco Inds
Current Price INR 181
Click below for
Detailed Concall Transcript &
Results Update
Buy
Imports: Domestic demand growth in Aluminum has slowed to 7% YoY in
1HCY19 v/s 11% the previous year. Scrap imports, on the other hand, have
grown at 8% YoY. With China imposing restrictions on scrap imports, more scrap
can flow into India. Imports within copper have also grown 11% YoY. Copper
imports account for ~42% share in consumption.
Cost of production: Coal costs decreased 3% QoQ. Given the drop in global coal
prices, importing coal is now cheaper than producing coal from its Gare Palma
mines. The company expects cost of production to decline further on lower
caustic and furnace oil.
Net debt: Net debt stood at INR399b.
Aleris acquisition: Company needs to obtain three approvals to close the
transaction for Aleris. The company expects to close the deal in 3QFY20.
Hedging: FY20 hedges – 11% of the volumes for commodity at INR153.1k/t and
4% is hedged for commodity at USD2,2260/t. 31% of the currency is hedged at
USD75.44.
Copper: Cathode volumes were impacted by planned shutdown. Expect
production to ramp up in subsequent quarters. Volumes of 90-100kt are
expected in 2QFY20.
Muri plant: Company expects to restart Muri plant in September. Company
expects INR500m impact in 2QFY20. Total impact in 1QFY20 was ~INR800m.
August 2019
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METALS| Voices
Hindustan Zinc
Current Price INR 213
Neutral
Click below for
Detailed Concall Transcript &
Results Update
Commissioning of Fumer project will lead to additional 35t of silver.
Cost of production was impacted by higher power cost on account of water
scarcity, which more than offset the decline in coal prices.
Management is positive on zinc prices. Current stocks are at just five days of
consumption now. Expect zinc market to be in deficit for the next two years.
An increase in electricity duty from INR0.4 to INR1 has been proposed.
However, there is pressure to roll back entire electricity duty. A rise of INR0.6
could result in US35/t cost increase. However, the company is re-blending its
turbines, which, along with other modifications, could lead to additional 60-
65MW power output and thus drive costs lower.
Employee expenses include ~INR200m of reversals related to incentive and
bonus provision. The company expects employee cost of INR2.1-2.2b on a
quarterly basis.
FY20 guidance:
Mine production is expected to be 1mt.
Silver production to be at 750-800t.
Share of value-added products to increase to 25% from 16% in FY19.
Status of projects:
SK mine: Shaft is fully commissioned and integrated with mine. Second paste fill
plant was commissioned in June.
RA mine: Shaft project expected to commission in 3QFY20.
Zawar: Dry tail stacking plant to be commissioned in 2QFY20. Two paste fill
plants to be commissioned in 3QFY20.
Smelter: Debottlenecking to 1.2mt in progress, of which expansion to 1.13mt to
be completed in current quarter.
Mine expansion: The company will conduct studies for the next phase of mine
development from 1.2mt to 1.35mtpa. These studies and scoping will be
completed by 4QFY20.
Jindal Steel & Power
Current Price INR 104
Buy
Click below for
Results Update
Indian Steel operations
Rail sales volume was up 21% QoQ (+126% YoY). Rail NSR went up by INR1,300/t
for the current quarter. Rail accounts for 1/6th of its volume mix, while plates
account for 1/3rd; pure longs account for 50%.
The company expects coking coal and iron ore prices to decline. It expects to
maintain EBITDA at INR11,200/t.
FY20 volume guidance is at 6.5mt.
NSR was lower INR700/t in this quarter. However, CoP declined INR2,100/t, led
by ramp-up and operational efficiency at Angul (INR1,100/t) and lower RM
(INR1,000/t).
Angul CoP is now comparable with Raigarh. Targeted Angul CoP will be
INR2,000-2,500/t lower than Raigarh.
Currently, NSR is lower by INR2,000/t in 2QFY20. However, cost of steel
production should decline by INR1,200/t.
Power
EBITDA improved on higher generation and lower coal costs.
August 2019
95
 Motilal Oswal Financial Services
METALS| Voices
Outstanding dues from TANGEDCO at INR7b. Hopes to receive the dues in the
next 5-6 months.
Jindal Power is likely to be allocated 315MW (L1). NHPC tender mandated
power to start flowing Oct’19 onwards from the PPA. However, only ~1,000MW
capacity has found buyers.
Current debt at INR70b. Plans to prepay this debt.
International business:
Oman witnessed a strong summer season, which impacted construction
activities.
Production at Mozambique mines has ramped up (+19% QoQ and 126% YoY).
Productivity at these mines can increase by 10-15% YoY.
Share Purchase Agreement for sale of Botswana assets (USD150m) has been
executed. Transaction is dependent on completion of condition precedents.
Others:
Company aims to achieve more than INR400b of revenue in FY20.
It expects net debt to decline to INR340b by end-FY20.
Interest cost remains high given higher LC discounting, bank charges and lower
interest income.
Company’s loan against shares has decreased to INR9.1b. It plans to reduce this
by another INR4-5b.
JSW Steel
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 213
Buy
Coke production is now completely captive. This will drive cost savings v/s
imported coke.
There was no supply of APM gas during the quarter. It had to depend on LNG
imports, which drove an increase in power and fuel costs.
Coking coal price averaged ~USD197/t CFR in 1Q. It is expected to decline by
~USD2-5/t in 2Q.
Organic capex plans are at the fag-end of their completion. Dolvi’s 5mtpa
expansion is scheduled for commissioning by end-FY20. Capex momentum is not
expected to see a slowdown due to the current weakness in the steel market.
Management does not expect further fall in domestic steel prices. The Indian
steel industry continues to lobby the government for appropriate protection
against imports. The government is examining the case.
Domestic demand outlook for the near-term remains weak. However, the
government and the RBI are expected to take measures to improve the liquidity
situation in the country, which should drive improvement in demand from 2H
onwards.
August 2019
96
 Motilal Oswal Financial Services
METALS| Voices
NMDC
Current Price INR 84
Click below for
Results Update
Buy
Target production of 32mt in FY20 excluding Donimalai. Donimalai has 6mt
capacity and overall production will depend on its restart.
Donimalai: Fresh approvals and clearances would be required to renew the
mining lease agreement. May require fresh FC and EC approvals from the
central government.
Steel plant: SMS, BF and BOF are complete. Delay is due to material handling
and by-product plant. The steel plant is expected to commission in 1QFY21.
Project cost is INR22.3b, of which INR15.7b has been spent.
The company is investing in railway infrastructure to enhance evacuation
capacity from Chhattisgarh from 28mt to 40mt.
Steel Authority of India
Current Price INR 33
Neutral
Click below for
Results Update
Targets saleable steel volumes of ~16mt in FY20.
Capex guidance of INR40b for FY20.
Net sales realization in 1Q stood at INR 40,828/t (Long: INR41,608; Flat:
INR40,080). For July, the avg. stands at INR37,189/t (Long: INR 38,514: Flat:
INR36,135).
Debt stands at ~INR485b and has increased QoQ on subdued collections.
The company has curtailed production due to a weak market. Total finished
inventory stands at ~1.5mt.
Employee cost declined YoY due to lower pension provision and lower number
of employees. SAIL noted its pension provisioning is linked to profitability and
net worth, albeit with a floor.
Vedanta
Click below for
Detailed Concall Transcript &
Results Update
Current Price INR 138
Neutral
Aluminum
Aluminum reported CoP declined on the back of higher coal linkage and higher
local bauxite sourcing.
Aluminum EBITDA declined 55% QoQ to INR1.8b amid lower LME at ~USD70.
Vedanta has targeted a COP of USD1,500 on the back of ramp-up in alumina
refinery, higher bauxite production and higher coal security.
Oil and Gas
Company expects volumes to ramp up with an exit run-rate of 260-270kboepd
for FY20. It targets to reach an exit run-rate of 200kboepd in 2QFY20.
Zinc International
Skorpion mine witnessed a slope failure in May, which led to a revision in its
mining plans.
Company expects Gamsberg mine to produce 180-200kt in FY20 and exit
4QFY20 with a run-rate of 250kt. VEDL has maintained its production target
from Black Mountain mine and Skorpion at ~170kt in FY20.
The company is targeting CoP for Gamsberg at ~USD1,000/t.
August 2019
97
 Motilal Oswal Financial Services
OIL & GAS| Voices
OIL & GAS
KEY HIGHLIGHTS FROM CONFERENCE CALL
Outlook of FY20
Oil & Gas
Kochi-Mangalore pipeline expected to be completed by Aug-
Sept’19.
GAIL
Most of the US LNG cargoes for 2019 and 2020 have been
placed.
-
There is no clarity over restructuring of the company.
All CGDs on Jagdishpur-Haldia pipeline have been
commissioned and the whole pipeline would be completed by
Dec’2022.
We expect stable crude prices and rupee to smooth volatility
OMCs
for OMCs.
(IOC/BPCL/HP
Marketing margins are likely to remain healthy with low oil
CL)
prices and lack of interference.
We expect benchmark GRM to hover around ~USD5/bbl in
near to medium term led by global pressure on product
spreads.
Oil production continued to worsen with 6% YoY decline while
ONGC
gas production remained robust with 4% YoY rise.
Gas production from KG-DWN-98/2 is expected to come on-
stream from Dec, 19, which would further boost gas
production.
Expect incremental production of oil to largely offset oil
depletion from major older fields.
Expect strong volume growth of 7-9% to continue for FY20/21,
with higher adoption from Industries aiding volume growth.
Petronet LNG
Expect no major competition from other existing or upcoming
-
LNG terminals.
Capex plan for the year stands at ~INR6-8b, expect high
dividend payout to continue.
RIL GRM likely to face pressure from decrease in Lt-Hv crude
spread and increase in global capacity additions.
Reliance Inds
We expect ~USD10/bbl GRM for FY20 (against USD11.3/bbl in
FY19).
RJio growth momentum to slow relative to the previous years.
Retail would remain among key performers for the stock.
Refining margin outlook for FY20 is likely to remain weak owing to higher global capacity additions and
lower-than-expected boost in diesel yields. OMCs expect healthy marketing margins to continue. RIL’s
petrochemical cracks are expected to remain subdued, with strong growth in the retail business. MAHGL
foresees higher opex challenges, which would normalize its EBITDA margins. IGL expects volume growth of
~12% from its high-growth gas, supported by government regulations. PLNG plans to ramp-up its latest
Dahej expansion and Kochi terminal post completion of the Kochi-Mangalore pipeline.
GRMS
Led by high unplanned shutdown globally in
July, we have seen high refining margins.
However, global capacity addition in 2019 is
way ahead of incremental demand, which
would keep GRMs under pressure.
No subsidy sharing for ONGC and OINL in
1QFY20.
Companies neither expect any subsidy
burden nor any subsidy discussion with the
government for the remainder of FY20.
RIL reported GRM of USD8.1/bbl in 1QFY20.
Premium over SG GRM stood at USD4.6/bbl.
Petchem sales volumes for the quarter were
flat YoY, though EBITDA/mt improved due to
change in product mix.
Reliance Industries
Current Price INR 1,275
Buy
Click below for
Results Update
Refining & marketing: GRM of USD8.1/bbl
RIL guided that against incremental demand of 1.2mnbopd in 2019, global
incremental refining capacity is expected at 1.8mnbopd. Next year, incremental
refining capacity addition is expected at 0.9mnbopd v/s incremental demand of
1.4mnbopd.
In anticipation of a decline in the cost of heavy crude post IMO 2020, the
company has been increasing the crude desalter capacity and boosting the
capacity of DTA coker by 30%. It has also been trying to use certain FO streams
as feedstock to benefit from poor FO prices post IMO 2020.
98
August 2019