Stock specific approach will work well; key variables like Q1FY19 result season, trade wars, rupee movement, oil prices and progress of monsoons remains a key..
indices gained on Friday. The NDA government comfortably defeated the
Opposition's no-confidence motion.The Lok Sabha on Friday took up a
no-confidence motion against the government for debate and voting, two days
after the start of the monsoon session. The motion was defeated with 325
members voting against it in the government’s favour and 126 for it (backing
S&P BSE Sensex ended on Friday at 36,496, up 145 points while the broader
Nifty50 index settled at 11,010, up 53 points
and pharma stocks gained as the rupee hit an all-time low. The Nifty IT index
was trading up by 1.5 per cent with Infosys, Tech Mahindra and HCL Tech up
between 1.6 per cent to 2.6 per cent. Meanwhile, in the pharma sector, Sun
Pharma and Cipla gained over 2.5 per cent each.
individual stocks, Bajaj Finserv hit a record high, after the Bajaj Group-owned
asset & wealth management firm posted a 41 per cent surge in its
first-quarter profit on Thursday.
Sectors and stocks
of Reliance Industries (RIL), Bandhan Bank, Jubilant FoodWorks, Bajaj Finance,
Bajaj Finserv, HEG and 3M India have hit their respective all-time highs on the
BSE in intra-day trade on Friday.
RIL hit a new
high of Rs 1,138, up 3% on the BSE. Since July 5, in past 11 trading sessions,
the stock surged 18% from Rs 965, after Mukesh Ambani, Chairman and Managing
Director in the Annual General Body Meeting (AGM) held on July 5, 2018 launched
ultra high speed fixed line broadband services for homes and enterprises under
the brand of JioGigaFiber. In comparison, the S&P BSE Sensex was up 2.6%
during the same period.
Bank has soared 10% to Rs 679, extending its past three days 11% rise on the BSE,
after the bank reported a strong 47.5% year on year (yoy) growth in net profit
at Rs 4.82 billion in June quarter (Q1FY19), on back of strong operational
income. The private sector lender had a profit of Rs 3.27 billion in year-ago
(up 9% at Rs 2,745) and (Bajaj Finserv up 7.4% at Rs 6,776) have rallied up to
9% after reporting a strong set of numbers for Q1FY19.
strong close in FY18, Bajaj Finance started FY19 with a bang as it reported 35%
AUM (assets under management) growth and 60% pre-provisioning profit growth on
year on year (YoY). The company reported an 81% YoY jump in consolidated net
profit at Rs 8.36 billion in the June quarter, helped by better-operating
expenses and increase in fee income. The company had posted a net profit of Rs
4.61 billion in the same quarter last year.
FoodWorks was up 6% to Rs 1,495 in intra-day trade ahead of Q1FY19 results next
week. The company scheduled to announce its first quarter results on Wednesday,
July 25, 2018. In past one year, the stock rallied 128% against 14.5% rise in
the benchmark index. The recent Football World Cup is also likely to boost
sales. With SSS growth well above cost increases, margins are expected to
expand sharply by 400bp YoY, resulting in a 63% YoY increase in EBITDA and more
than doubling of PAT YoY.
Asian stock markets retreated on Friday after China allowed its yuan currency
to slide further, stoking concerns Beijing's currency management could become
the next flash point in a fierce trade conflict with the United States.
broadest index of Asia-Pacific shares outside Japan was unsteady in early
trading, giving back morning gains to decline as much 0.1 percent at one point.
It was last up 0.08 percent.
Korea's KOSPI dropped 0.1 percent and Japan's Nikkei lost 0.55 percent. Hong
Kong's Hang Seng slipped 0.5 percent and the Shanghai Composite Index was down
markets in the region were hit after China's central bank lowered its midpoint
for the yuan for the seventh straight trading day and to its lowest in a year.
showing little signs of arresting its currency's depreciation, the yuan
promptly retreated to a near 13-month low.
The rupee is
already under pressure amid rising crude oil and higher inflation, while
sustained capital outflows by foreign institutional investors (FIIs) from local
equities and bond market also pressured the sentiment. Trade wars, volatility
in oil prices and higher US interest rate pose a risk to Indian economy.
Imposition of high import duty by the US has triggered a trade war like
situation with other countries like China, Europe, India too resorting to
higher tariffs. Brent
crude oil prices hit a four-year high of $80 per barrel recently, stoked by
fears of an escalation in trade war between US and China, proposed US sanctions
on Iran and Opec’s decision to extend oil quotas till 2018-end. However, prices
have cooled off since then as some of these concerns eased. Even then, Brent
crude oil prices are around 47 per cent higher at around $72 a barrel level
currently compared to the year ago period.
maintaining record low-interest rates for six years for reviving economic
growth since the 2008 financial crisis, the US Fed began raising rates since
December 2015. The rates have been hiked five times since January 2017. The
nervousness around domestic metal stocks has aggravated recently, with an
escalating global trade war. We believe non-ferrous metal prices will see
higher volatility, led by a strengthening dollar and a sluggish economic
scenario in China and Europe, while the ferrous (steel) sector is better
placed. For India's steel sector, prospects remain better, led by domestic
demand, an import duty cushion and consolidation. Prices in the domestic
market, which had continued to rise since November, might soften a bit due to
onset of the monsoon, when construction activities facing slowdown in monsoon.
Going ahead, we believe markets will take cue from Q1FY19 results,
management commentary post Q1FY19 results, movement in rupee and crude oil
prices, key developments from ongoing trade wars between US and China.We advise investors to remain stock
specific and consider companies with earnings visibility.
enjoys market leadership position in the industry. The Company is transforming
itself from from a traditional sanitaryware player to a complete bathroom
solutions provider. The government’s emphasis on affordable housing is a boon
for the Company’s growth in the coming years. Implementation of GST also helps
the Company indirectly as it minimises unhealthy price competition.
is upgrading its technological edge by inducting new technologies into
production processes. The use of 3D printing, robotic glazing, trap glazing,
etc. are just few improvements which are helping in quality and productivity in
the Sanitaryware plant. In the faucet plant too, robotic grinding and
polishing, low pressure and high pressure die casting machines, automatic
chrome plating units, etc. have helped in quality.
brand promotion - CERA continued its advertising in several prominent national
and regional general entertainment television channels. It helped CERA maintain
top of mind recall of its brand name among its target audience - architects,
designers, developers, consultants, trade partners and consumers. A recent
market research conducted showed that CERA enjoyed top of mind recall amongst
Launch of new
brands: CERA launched two brands to cater to all price segments-JEET for mass
segment and SENATOR by CERA for premium segment. Along with CERA and ISVEA, the
Company now effectively covers the entire spectrum.
designs: CERA launched new designs in faucets, tiles, Sanitaryware, wellness,
kitchen sinks and mirrors, thereby keeping up and even ahead of the market
trend. This is helping your Company gain the leadership in the market place.
distribution: CERA continues its efforts to reach out to under-penetrated towns
with full force. Substantial increase in sale has been achieved through this
effect and your Company will continue its efforts to reach every nook of the
country through its retail network.
companies entering sanitaryware may pose a threat to the Company’s prospects.
However, the Company’s strong brand recall, distribution strength and product
quality are helping it ward off any such threat.
significant correction in the stock price was owing to fall in topline with the
introduction of GST. The current depressed valuations as compared to last 3
years median PE gives an opportunity to investors to grab this consumption
story and reap the benefits of wealth creation in the longer term. The
management expects 15-18 percent revenue growth in FY19 led by
double-digit growth in the faucets and tiles segments. Sanitaryware is expected
grow at high single-digits. The management has guided to a 100-150 bps margin
improvement for FY19 on account of product premiumisation and price hikes. At
CMP of Rs. 2,674 (Face value: Rs. 5), the stock trades at a P/E of 35x on FY18
EPS. We recommend a “Buy” with a target price of Rs. 3,500 (35x on FY19
EPS of Rs.100) implying an upside of 30 percent.
L& T Finance Holdings Ltd.
The Company had made a
strategic decision to improve its ROE and exit low RoE business. After the
appointment of Mr. Dubhashi as MD & CEO in July 2016, LTFH redefined its
business strategy to achieve top quartile return on equity (RoE) by FY20 or earlier.
Accordingly, the Company has restructured its lending business and exited from
number of segments that were a drag on overall profitability. The substantial
progress of the restructuring process is reflected in the improved return
ratios with RoE increasing from 9.78% in Q1FY17 to 18.45% in Q1FY18.
Improvement in earnings is achieved despite accelerated provisions in
FY18, especially on impaired wholesale loans. The Company is well on track
to deliver on its stated objective and see further RoE improvement driven by
loan book growth and decline in the cost-income ratio.
Having reached steady state
RoE, the Company’s focus will be on:
• Responsible growth
• Maintaining steady state RoE
• Minimising sigma through
tightly managing all families of risk
Cost to Income ratio improved
to 23.4 percent in Q1FY19 as compared to 24.07 percent in Q1FY18. The Company’s
costs were under control despite considerable investments in Digital and data
analytics, branch infrastructure and manpower.
In Q1FY19, the overall loan
book of the company has seen a rise of 24 percent on yoy basis to Rs. 86,571
crores in Q1FY19. The break-up of loan book for Q1FY19 is as follows: Rural -
22%, Housing - 24%, IDF - 8%, Wholesale Excl.IDF - 45% and Rundown - 1%. The
Company remains wholesale heavy with ~56% exposure to infrastructure, corporate
and supply chain lending. Renewable power and road projects are the key loan
segments. RoE is relatively low in wholesale finance mainly due to higher
provisions. Management envisages reducing exposure to 50% of the loan book by
2020. LTFH used sell-down of wholesale loans as a strategic lever in guiding
its portfolio composition to higher “Retailisation”. At the end of Q1FY19,
Rural and Housing businesses together constituted 46% of total portfolio as
against 35% at the end of Q1FY18.
Company witnessed Strong growth in fee income as a result of its strategy of
concentrating on “NIMs + Fees” for measuring transaction profitability. NIMs + Fees stands at 6.58%
(Q1FY19) vs 5.77% (Q1FY18). Despite rising interest rates, NIMs were managed
well due to
Change in Product Mix
Better ALM strategy
Competitive position in many of its products
Income is getting more broad based across all businesses.
L&T Finance Holdings (LTFH)
has reported a yoy growth of 71 percent in Net Profit to Rs. 538 crore in the
first quarter of fiscal 2018-19.
Company has prepared financial statement for Q1 according to the new accounting
rules Indian Accounting Standards, which came into effect from April 1, 2018.
In line with the new accounting norms, LTFH’s legacy Infrastructure stressed
asset portfolio now carries provisions of Rs 30 billion, against total
portfolio of Rs 50 billion. Of the Rs 30 billion, the finance company was
already carrying nearly Rs 12 billion of provisions as of March 31, 2018, under
the old accounting rules. The remaining Rs 18 billion has been made in the
first quarter of the current financial year.
Quality performance Q1 FY19 vs. Q1 FY18
Stage 3 levels have gone down to 7.93% from 11.70%
Stage 3 levels have gone down to 3.17% from 6.13%
Provision coverage increased to 61.99% from 50.74%
of Rs. 155, the stock trades at P/BV of 2.59x of Q1FY19 Book Value. We
recommend a Buy with a target price of Rs. 180 (2.59 x of FY19estimated Book
Value of Rs. 69.4) by FY19 end implying an upside of 16 percent.
the net advances grew by 36 percent year-on-year to Rs 42,198.09 crore.
"The growth in the corporate & institutional segment and commercial
banking (wholesale portfolio) was pegged at 31 percent, while that of other
segments (retail assets and development banking & financial inclusion –
non-wholesale portfolio) was 43 percent."
Q1 surged 27 percent to Rs 44,949.59 crore YoY with current accounts &
savings accounts (CASA) ratio improving to 24.42 percent as at June 2018 from
22.09 percent as at June 2017.
margin expanded to 4.04 percent for the June quarter, up from 3.54 percent in
same period last year and also from 3.8 percent as of FY18.
has improved to 24.42% as on June 30, 2018 from 22.09% as on June 30, 2017.
Adequacy Ratio as per BASEL III Capital regulations as on June 30, 2018 was
Provisions for bad loans for the quarter stood at Rs 140.35 crore, which were
higher by 24.4 percent compared to March quarter 2018 and increased by a
whopping 48.6 percent compared to June quarter last fiscal, but provision
coverage ratio improved.
coverage ratio at the end of June quarter stood at 60.41 percent, which has
improved from 57.99 percent in June 2017 and 57.57 percent in FY18.
remained stable in Q1 with gross non-performing assets as a percentage of gross
advances were unchanged at 1.4 percent on sequential basis while net NPAs were
lower at 0.75 percent against 0.78 percent in previous year.Net profit during the quarter stood
at Rs 190.04 crore, increased from Rs 141.02 crore in corresponding period last
fiscal. The growth was backed by net interest income, other income and
RoA stood at
1.26% for Q1 FY19, RoE at 11.16% for Q1 FY19. For FY18 (RoA stood at 1.21
percent and ROE of 10.95 percent)
At CMP of Rs.
576 (Face value: Rs. 10), the stock trades at a P/BV of 3.5x at FY18 Book Value
of Rs. 164. We recommend a Buy with a target Rs. 635 (3.5x of FY19
estimated Book Value of Rs. 181).