Godrej Consumer Products: key highlights of annual report – focus remains on driving consistent double digit volume growth in key markets
· The company will leverage on a global approach to product innovation and brand equity in its various categories as it seeks to achieve double digit volume growth over the next few years.
· The company has centred its growth strategy around emerging markets and the emergent consuming class in this markets. GCPL is ramping up its go-to-market and digital strategies and reach to go deeper and improve penetration.
· Around 80% of its revenues come from 4 markets - India, Indonesia, Nigeria and Bangladesh. In Indonesia more focus will be on improving the growth prospects of household insecticide category while in Africa the focus will be on margin and governance.
· GCPL’s 4 key products contributes 40% to its revenues and 60% to it overall profits. All these products are in underpenetrated categories such as liquid vaporisers, aerosols in household insecticides, grey coverage in hair care and air care category.
· A portfolio of power brands - Rs1000crore – Good Knight, Darling and Godrej No.1; Rs500-1000crore – Hit, Cinthol and Godrej expert.
· Mr.Sudhir Sitapati, joined as Managing Director last year, was granted 499,826 shares at price of Rs977.3 per share (at discount of 12% to current market price). with value of Rs49crore (the notional value of same currently stands at Rs43crore).
View: GCPL focuses on achieving consistent double digit volume growth over the next three to fives years leveraging on its key strategic pillars. Recent correction in the palm oil prices augurs well for the company as it will help the profitability to improve in H2FY2023. The stock has underperformed the broader indices for last one year and is currently trading at 42.6/36.5x its FY2023/FY24E earnings. In view of favourable risk reward, receding stress on margins and revamped growth prospects under new leadership makes it a good pick in the consumer goods space. We have a Buy recommendation on the stock.
Tejas Network: Earlier, the telcos were not allowed to issue fresh orders to companies not included in the trusted list for connecting networks and were also asked to take permission from the National Cyber Security Coordinator to upgrade networks with the equipment of companies, not on the trusted list. The department has amended the clause in the Unified License for the telcos which now says that the telcos also can’t expand the current networks using equipment from non-trusted companies – positive for Tejas Network as the amendments to the licence agreement effectively bar Chinese telecom equipment makers
Maruti Suzuki: Encouraging pre-booking for refreshed model of its premium SUV Grand Vitara; formal launch on 20th July, 2022. This is back to back launch by the company in the SUV segment. The Brezza launched earlier is receiving a strong response. We remain positive on the company, as we believe new launches will help it regain its market share in the SUV segment. Positive
Sunteck Realty: The company’s pre-sales for Q1FY2023 was up 89.2% y-o-y (down 33.8% q-o-q) at Rs. 333 crore. The collections were up 65.7% y-o-y (down 29.5% q-o-q) at Rs. 285 crore. Positive for the stock.
Ahluwalia Contracts: The company secured the new order for Construction work of Amity Campus Bengaluru, aggregating to Rs. 150 Crores (Approx.) from Ritnand Salved Education Foundation. The total order inflow during FY2023 stands at Rs.863 Crores. Positive for the stock.
Metal stocks (Hindustan Copper and Hindalco): The LME Copper price has declined by 3% yesterday to $7,573/tonne and has corrected sharply by 40% in CY22YTD while LME aluminium price also declined by 2.4% to $2,377/tonne due to demand concern from China amid new COVID-19 restriction given rising COVID-19 cases. The sharp fall in the international copper and aluminium price is negative for Hindustan Copper and Hindalco Industries as it would impact margin.
Eureka Forbes: Mr Pratik Pota, ex-CEO Jubilant Foodworks, has joined Eureka Forbes as CEO and Managing Director of the company. He will lead the management team to continue scaling the business, solidifying Eureka Forbes’ market leadership position, and delivering innovative products for a growing customer base – Positive read through for the stock
· RBI sets up mechanism to settle trade transactions in rupees. The Reserve Bank of India (RBI) said that it was putting in place a mechanism to settle international trade in rupees. The central bank’s move, which it said was to promote growth of global trade and to support increasing global interest in the rupee, comes amid increasing pressure on the Indian currency in the wake of Russia’s invasion of Ukraine.
· China reimposes curbs as BA.5 variant spreads Omicron outbreaks. Authorities in China are scrambling to prevent a mass outbreak after the highly infectious BA.5 Omicron variant of Covid-19 started to appear around the country. At least 6 cities have widespread restrictions and approximately 30mn people face covid curbs
First cut: Spandana Spandana Sphoorty Financial- Muted quarterly performance
· Spandana Sphoorty Financial reported washout quarterly performance with below par operating performance. Its NII and PAT (consolidated basis) de grew by ~47% y-o-y and ~42% y-o-y respectively in Q4FY22. For FY22, its PAT fell by 52% to Rs. 69 crore.
· Disbursements too were down by ~48% y-o-y to Rs. 3,373 crore in Q4FY22. This was primarily on account of lower disbursements led by disruptions caused by resignation of erstwhile MD & CEO and disruption of IT systems. For Q1FY23, disbursement was at 1,326 crore, down by 4% q-o-q.
· The company laid down vision Spandana 2.0 – Vision for next 3 years. It intends to focus on its micro finance book and plans to achieve AUM of Rs. 15,000 crore by FY25. It has identified seven additional states to scale up its operations. Additionally, it plans to build 10-15% secured portfolio by pursuing new products.
· Collection efficiency has improved with overall collection efficiency at 94.1% Q4FY22. For Q1FY23, collection efficiency stood at 96%.
· Collection efficiency for restructured book in Q4FY22 and Q1FY23 was at 64% and 63% respectively.
· GNPA ratio was at 15% in Q4FY22 versus 5% in Q3FY22. Its restructured book stood at 15% of the consolidated AUM.
Special Report - Q1FY2023 Results Preview - Low base to drive healthy growth; inflation key risk
In Q1FY23, aggregate PAT of Nifty 50 companies is expected to grow by a healthy ~30% y-o-y reflecting last year’s low base due to the second wave of COVID-19 and price hikes amid inflation. However, corporate earnings would decline q-o-q amid muted demand and margin contraction driven by input cost pressures and seasonality.
Earnings growth for Nifty-50 companies would be majorly driven by RIL (all-time high GRM) and ONGC (elevated oil & gas price) and excluding these, growth is likely to be only 10% y-o-y. Private banks are set to see strong credit growth and lower credit costs while automakers would post good growth led by a volume recovery on a low base of Q1FY22. Cement, metals, IT, healthcare are likely to be laggards given margin pressure.
Nifty 50 companies’ earnings estimates for FY23E/FY24E have seen minor downward revision as upgrades in oil & gas, automobile sectors offset downgrades in the metal and cement sectors. We believe that management commentary on demand outlook remains key for FY23 earnings outlook, given inflation, interest rate hikes and talks of a global economic slowdown.
Nifty’s valuation of 18.4x/15.9x FY23E/FY24E EPS has become reasonable post recent market correction. Consensus estimates are building in an ~15% CAGR in earnings over FY22-24E for Nifty-50 companies. However, there is risk of downward revision due to tough macro conditions and global uncertainties. Thus, we believe that sustained high inflation and aggressive interest rate hikes are key risks to equities.
High-conviction investment ideas:
Large-caps: RIL, ICICI Bank, SBI, ITC, UltraTech, M&M, Infosys, DLF, Pidilite, Maruti, L&T, Hero-MotoCorp.
Mid-caps: Mahindra Lifespaces, Polycab India, Vinati Organics, APL Apollo, Persistent Systems, PI Industries, PVR, Thermax, Oberoi Realty, Axis Bank and Bata.
Small-caps: NOCIL, Carborundum Universal, KSB Ltd, HCG and Dhampur Sugar and Zydus Wellness.
Sector update: Consumer Discretionary sector Q1FY23 earnings preview: Eyeing the footfalls of growth
· Branded apparel, retail, hotels and multiplexes are expected to clock strong performance in Q1FY2023 led by improved footfalls, strong pent-up demand, stable store operations and higher ticket purchases.
· Rising inflation, lower demand and high cotton prices will affect performance of home textile companies. Garment exporters will perform well owing to a low base.
· FY2023 is expected to one of the strongest years for discretionary companies after two years of pandemic-led disruptions. Textile companies will feel the heat of global recessionary environment in the near term (EBIDTA margins might stabilise in H2 as cotton prices are seeing softness)
· Preferred Picks:
o Branded apparel and retail: ABFRL, Trent and Bata India
o Textile: KPR Mills
o Out-of-home discretionary: Indian Hotels Co, Wonderla Holidays, Inox Leisure and PVR
Star Health and Allied Insurance Company Ltd: Star Health and Allied Insurance Co. and Common Services Centers (CSC), under Ministry of Electronics & Information Technology, have partnered to provide over 5 lakh CSCs access to a select range of Star Health insurance products, specially designed to meet the needs of rural customers, across tier-II, tier-III cities and rural markets pan India. This tie-up is a step towards increasing health insurance penetration in rural India. Positive.
Escorts Kubota: As per media, Kubota Corp. will build new factories in US and India for construction and agriculture by investing around 300 billion yen (US$2.2 billion) by 2030. Kubota is joint promoter of Escorts Kubota in India and could possibly benefit from thus announcement.
SpiceJet: As per media reports, the Managing Director of the airline, Ajay Singh was booked for defrauding a businessman worth billions of rupees on the pretext of granting him shares in the company. Singh, according to the complainant, has defrauded others in a similar manner. Negative for the stock.
Dilip Buildcon: As per media reports, CCI approved Shrem InvIT’s plan to buy of company’s stake in ten projects. Positive for the stock.
Mangalore Refinery and Petrochemicals Limited (MRPL): The company’s board of directors will meet on 15th July, 2022 to decide on complying with minimum public shareholding requirements by issue of further public offer, preferential issue, qualified institutions placement etc. as per SEBI requirement. We highlight here that ONGC/HPCL holds 71.63%/16.96% stake in MRPL while public shareholding is only 11.42% as on March 2022.