Fundamental News Analysis (FNA) for 14 July 2022
India’s June WPI inflation at 15.18% vs estimates of 15.8% and 15.88% in May.
Sanofi India: The company to consider one-time special interim dividend on July 26. Positive read-thru.
Infosys: Infosys announced a definitive agreement to acquire BASE life science, a leading technology and consulting firm in the life sciences industry, in Europe for EUR 110 million ($111 million), including Management Incentives, Bonuses and Retention. The transaction is valued at 4.1x EV/sales of FY2022 (June-ended year), which is reasonable given strong growth. Specialised domain in life sciences and expansion into Nordic region. Together with Infosys, BASE will further expand its portfolio of expertise into Consumer Health, Animal Health, MedTech and Genomics segments. BASE collaborates with leading software technology providers in the life sciences industry such as Veeva, IQVIA and Salesforce. The revenue of BASE life science has grown at a CAGR of 52% to EUR 26.6 million – positive as this acquisition will augment Infosys’ deep life sciences expertise, and expands its footprint further in the Nordics region and across Europe, and scales its digital transformation capabilities with cloud-based industry solutions.
IT Sector: As per ISG Index, the contracting activity during the quarter remained strong, though the labor markets remain tight. Managed Services ACV awards exceeded $8 billion, up 8% yoy in H1FY22. It expects stabilisation of attrition because of macroeconomic factors, hiring innovation, retention strategies and a slowdown in startup hiring. Functional areas such as Industry-Specific BPO and ER&D achieved record highs in ACVs during 1HFY2022. The quarter saw strong deal wins for Indian IT companies including TCS, Infosys and HCL Tech – positive read-thru for Indian IT companies given strong contracting activities, stabilisation of attrition, better pricing prospects and strong growth in managed services ACVs
Tata Power: The company's subsidiary TP Saurya Limited has received 'Letter of Award' to set up 600 MW Hybrid Project for SECI at Karnataka. With this project, Tata Power's RE capacity now stands at 5.5GW (installed 3.6GW and 1.9GW at various stage of implementation). Positive read through for Tata Power.
JSW Energy: The company’s subsidiary JSW Neo Energy Limited has received the Letter of Award (LoA) for 300 MW Wind capacity from Solar Energy Corporation of India Limited (SECI) against Tariff based Competitive Bid invited by SECI. Subsequently the company’s total power generation portfolio increases to 7.3GW with renewable energy share at 57%. Positive read through for JSW Energy.
HDFC Ltd: The company will launch an issue of bonds on a private placement basis on Friday, July 15, 2022, to raise up to Rs 5,000 crore. The secured redeemable non-convertible debentures (NCDs) will bear interest rate at 7.77%, payable annually and has a tenor of 4 years 11 months and 10 days. The proceeds of the present issue would be utilised for financing/refinancing the housing finance business requirements of the company. Positive.
Dabur India: The company has increased its takes to 100% from 76% earlier in its Bangladesh subsidiary – Asian Consumer Private for Bangladeshi Taka[BDT] 60crore (INR 51crore). Dabur is acquiring stake from Advance Chemical Industries for cash consideration. Asian Consumer Private, Bangladesh is in the business of manufacturing and marketing of the consumer care products in Bangladesh and has revenues of BDT158.8crore (INR 135crore); revenues grew at CAGR of 10% over FY2020-22. The deal is valued at 1.6x its FY2024E sales.
View: Positive read through for the company as it is planning to scale up its business in Bangladesh in the coming years with new launches and distribution expansion.
US CPI inflation accelerates to 9.1%, highest in 41 years vs estimates of 8.8% in June. US inflation accelerated in June by more than forecast, underscoring relentless price pressures that will keep the Federal Reserve on track for another big interest-rate hike later this month. Core CPI which strips out the more volatile food and energy components, advanced 0.7% from the prior month vs estimates of 0.5%. Street is now expecting 175 basis-point hike in interest rates in next 2 meetings amid persistent inflation.
Mindtree: beat on all fronts - the company reported strong operating performance with better-than-expected revenue growth despite weakness in retail vertical. Order booking and headcount addition remained impressive in Q1. Q1FY23 revenue growth was 5.5% QoQ c/c, ahead of consensus estimates. EBIT margins improved by 30 bps QoQ (EBITDA margins up 10 bps QoQ to 21.1%) despite impact of visa/travel expenses, exceeding estimates, led by strong revenue growth. Strong operating performance helped net profit to beat relative to expectations. Growth strong across verticals with the exception of Manufacturing and Retail. Management reiterated strong demand for 1HFY23. Order booking ($ 570 mn, +46% QoQ/+13% YoY) along with reasonably decent employee addition provide comfort on growth momentum in the near-term. The company is well positioned to manage the supply-side issues and the management reiterated to achieve 20% margin in FY2023.
Stock update: Dabur - Growth prospects to improve ahead
Rating: Buy Reco price: Rs. 545 Target Price: Rs. 645
· Dabur India (Dabur) to post resilient mid-single digit volume growth in Q1FY2023, which is better compared to flat sales volume/volume decline for peers (vs. high base of 34% volume growth in Q1FY2022).
· With recovery in out-of-home consumption, the food and beverage business to register strong growth, while home and personal care business to register low double-digit growth in Q1.
· Better monsoon boosting rural demand and sustained strong growth in beverages business will help volume growth to remain high compared to the industry in the coming quarters. On the other hand, OPM will improve on a y-o-y basis in H2FY2023 with softening of key commodity prices.
· The stock is currently trading at 45x and 37x its FY2023E and FY2024E EPS, which is at a stark discount to its last five years’ average. We maintain our Buy recommendation with an unchanged PT of Rs. 645.
Stock Update: Bosch Ltd. – Set for drive on long growth runway
Rating: Buy Reco Price: Rs16,383 Price Target: Rs19,135
· Bosch Limited (Bosch) continues to lay emphasis on future technologies, including electric vehicles, foraying into new markets and expanding its retail reach.
· Support from parent company and investment in R&D would be key drivers to tap emerging opportunities in EVs and connected vehicles in India.
· We expect Bosch’s earnings to clock a 26.4% CAGR during FY22-FY24E, driven by a 20% revenue CAGR and a 240-bps rise in EBITDA margin expansion to 14.8% in FY24E from 12.4% in FY22.
· We retain Buy with a revised PT of Rs. 19,135, factoring in a recovery in automotive demand across segments, access to robust e-mobility technology, and improving content per vehicle. The stock trades below its historical average at a P/E of 24.8x and EV/EBITDA of 16.8x its FY24E estimates.
Raymond: The company has appointed Mr. Atul Singh as executive vice-chairman of the board and will lead the group. As Raymond is gearing up to mark its centenary year in 2025, the company is on a transformation journey by strengthening its leadership by bringing in diverse experience on board. Singh has over 35 years of leadership experience, leading businesses across several geographies. He worked at Coca-Cola for about two decades at several senior leadership positions and concluded his journey there as chairman, Asia-Pacific – Positive read through for the stock
Hindustan Zinc: The company's board of directors announced interim dividend of Rs21/share, which implies healthy dividend yield of 7.7% on CMP of Rs272. Sentimentally positive for Hindustan Zinc and Vedanta Limited (holds 64.92% stake in Hindustan Zinc).
Greaves Cotton: Greaves Retail, the retail arm of Greaves Cotton, has opened its AutoEVmart , a multi-brand EV retail store in Thiruvananthapuram. The store will offer EV vehicles from over 14 leading EV brands under one roof.
Source : Sharekhan