Bull-run halts as auto, metal stks dip; Sensex ends flat, Nifty holds 15100
The Nifty Auto, Metal, and Pharma indices settled over 1 per cent lower each
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8:48 AM
BROKERAGE VIEW :: MOFSL on Torrent Pharma
CMP: Rs 2,750 | TP: Rs 2,520 (-9%) | Reco: Neutral
>> Torrent Pharma (TRP)’s 3QFY21 performance was below estimates. Recovery in the Domestic Formulation (DF) / Germany business was offset by decline in the US and currency headwinds in Brazil. Reduced opex kept profitability at elevated levels.
>> We reduce our EPS estimates for FY21/FY22/FY23 by 4%/8%/6%, factoring in: a) an increase in opex for the DF segment with the easing of the COVID-led lockdown, b) the adverse effect of price erosion in the base business, and c) a delay in new approvals at the Indrad/Dahej facilities. We continue to value TRP at 25x 12M forward earnings and roll our TP to INR2,520.
>> We expect a 21% earnings CAGR, led by a 10% CAGR in DF sales, 300bp margin expansion, and reduced interest cost on account of debt reduction. However,
>> Torrent Pharma (TRP)’s 3QFY21 performance was below estimates. Recovery in the Domestic Formulation (DF) / Germany business was offset by decline in the US and currency headwinds in Brazil. Reduced opex kept profitability at elevated levels.
>> We reduce our EPS estimates for FY21/FY22/FY23 by 4%/8%/6%, factoring in: a) an increase in opex for the DF segment with the easing of the COVID-led lockdown, b) the adverse effect of price erosion in the base business, and c) a delay in new approvals at the Indrad/Dahej facilities. We continue to value TRP at 25x 12M forward earnings and roll our TP to INR2,520.
>> We expect a 21% earnings CAGR, led by a 10% CAGR in DF sales, 300bp margin expansion, and reduced interest cost on account of debt reduction. However,
we maintain Neutral as the current valuation adequately factors in the improving outlook in DF/Germany/Brazil
8:45 AM
BROKERAGE VIEW :: MOFSL on Godrej Consumer
CMP: Rs 736 | TP: Rs 800 (+9%) | Reco: Neutral
>> Overall sales growth was in line with our expectation. While sales in Soaps and the Africa business was healthy, the same in Household Insecticides (HI) disappointed for the second consecutive quarter. Macroeconomic worries are affecting performance in Indonesia. While FY21 initially promised to be stellar due to favorable outlook for Soaps, Hygiene products and HI, it now seems barely likely to cross double-digit growth despite a weak base in FY20. In its analyst meet in Dec’20, the company indicated that more work needs to be undertaken for all-round growth.
>> With gross margin pressure due to steep palm oil cost increase not fully passed on and likely higher ad spends going forward (after a 140bp reduction YoY in 9MFY21), operating margin is unlikely to sustain close to record highs of recent quarters.
>> The single-digit EPS trajectory over the past five years is not expected to change materially over the next few years. RoCE at less than 20% is also much lower than its peers and is unlikely to improve materially going forward. Thus, our valuation of 41.4x/35.7x FY22E/FY23E seems fair. Maintain Neutral
>> Overall sales growth was in line with our expectation. While sales in Soaps and the Africa business was healthy, the same in Household Insecticides (HI) disappointed for the second consecutive quarter. Macroeconomic worries are affecting performance in Indonesia. While FY21 initially promised to be stellar due to favorable outlook for Soaps, Hygiene products and HI, it now seems barely likely to cross double-digit growth despite a weak base in FY20. In its analyst meet in Dec’20, the company indicated that more work needs to be undertaken for all-round growth.
>> With gross margin pressure due to steep palm oil cost increase not fully passed on and likely higher ad spends going forward (after a 140bp reduction YoY in 9MFY21), operating margin is unlikely to sustain close to record highs of recent quarters.
>> The single-digit EPS trajectory over the past five years is not expected to change materially over the next few years. RoCE at less than 20% is also much lower than its peers and is unlikely to improve materially going forward. Thus, our valuation of 41.4x/35.7x FY22E/FY23E seems fair. Maintain Neutral
8:42 AM
BROKERAGE VIEW :: MOFSL on Britannia
CMP: Rs 3,473 | TP: Rs 3,830 (+10% ) | Reco: Neutral
>> Britannia Industries (BRIT) was aided by a confluence of positive factors in 9MFY21, such as high in-home consumption (biscuits constitute 75–80% of sales), reduction in ad spends, decline in material cost, and low promotional spends (owing to strong demand). These are likely to drive the strongest topline growth since FY12 (13.5% in FY21E) and the highest PAT growth since FY16 (40% in FY21E).
>> However, the sales momentum is tapering after an extraordinary spurt of 26.1% in 1QFY21, with 12.1%/6.1% growth in 2Q/3Q. While the above mentioned factors leading to the extraordinary margin growth are still at play until 4QFY21, it presents a significant hurdle from an FY22/FY23 perspective. This is because none of these sales/EBITDA growth factors present a structural positive. To put things in perspective, BRIT reported a cumulative EBITDA margin expansion of 140bp between FY16 and FY20, and is likely to witness nearly 400bp expansion in FY21E due to factors that are unlikely to sustain going forward.
>> We like the structural story, we maintain our Neutral rating on account of: a) fair valuations (43.7x/39.9x FY22E/FY23E EPS), b) sustained concerns related to elevated group inter-corporate deposits (ICDs) – currently ~INR7b (v/s INR6b at the end of FY20 when they crossed their own erstwhile stated threshold of INR5b), and c) an uncertain earnings outlook beyond FY21.
>> Britannia Industries (BRIT) was aided by a confluence of positive factors in 9MFY21, such as high in-home consumption (biscuits constitute 75–80% of sales), reduction in ad spends, decline in material cost, and low promotional spends (owing to strong demand). These are likely to drive the strongest topline growth since FY12 (13.5% in FY21E) and the highest PAT growth since FY16 (40% in FY21E).
>> However, the sales momentum is tapering after an extraordinary spurt of 26.1% in 1QFY21, with 12.1%/6.1% growth in 2Q/3Q. While the above mentioned factors leading to the extraordinary margin growth are still at play until 4QFY21, it presents a significant hurdle from an FY22/FY23 perspective. This is because none of these sales/EBITDA growth factors present a structural positive. To put things in perspective, BRIT reported a cumulative EBITDA margin expansion of 140bp between FY16 and FY20, and is likely to witness nearly 400bp expansion in FY21E due to factors that are unlikely to sustain going forward.
>> We like the structural story, we maintain our Neutral rating on account of: a) fair valuations (43.7x/39.9x FY22E/FY23E EPS), b) sustained concerns related to elevated group inter-corporate deposits (ICDs) – currently ~INR7b (v/s INR6b at the end of FY20 when they crossed their own erstwhile stated threshold of INR5b), and c) an uncertain earnings outlook beyond FY21.
8:40 AM
BROKERAGE VIEW :: MOFSL on Tata Consumer Products
CMP: Rs 593 | TP: Rs 680 (+15%) | Reco: Buy
>> Performance during 3QFY21 was impacted due to higher tea prices, which led to 570bp contraction in consolidated gross margin. The management expects tea prices to stabilize by 1QFY22. This would ease the pressure on gross margin going forward.
>> We expect gross margin to improve sequentially in 4QFY21 and normalize in 1QFY22.
>> TCP has two strong legs in the India business - Tata Tea and Tata Salt - by which it is targeting lower double-digit growth, driven by cross-selling between Tata Chemicals and TCP's distribution channels, and expansion into new geographies.
>> It is building its third leg - Tata Sampann, which should grow in high doubledigits and deals in pulses and spices. The market size of pulses/spices in India currently stands at INR1,500b/INR600b, with unorganized players constituting 99%/70% of the market. Growth is expected by grabbing market share from unorganized players by increasing the distribution reach. Apart from the above, TCP has launched nutrimixes (chilla), poha, and chutney in the ready-to cook space, which should aid growth.
>> Over FY20-23E, we expect sales/EBITDA/PAT of 12%/20%/25% CAGR. We arrive at an FY23E SoTP-based TP of INR680/share. Maintain Buy
>> Performance during 3QFY21 was impacted due to higher tea prices, which led to 570bp contraction in consolidated gross margin. The management expects tea prices to stabilize by 1QFY22. This would ease the pressure on gross margin going forward.
>> We expect gross margin to improve sequentially in 4QFY21 and normalize in 1QFY22.
>> TCP has two strong legs in the India business - Tata Tea and Tata Salt - by which it is targeting lower double-digit growth, driven by cross-selling between Tata Chemicals and TCP's distribution channels, and expansion into new geographies.
>> It is building its third leg - Tata Sampann, which should grow in high doubledigits and deals in pulses and spices. The market size of pulses/spices in India currently stands at INR1,500b/INR600b, with unorganized players constituting 99%/70% of the market. Growth is expected by grabbing market share from unorganized players by increasing the distribution reach. Apart from the above, TCP has launched nutrimixes (chilla), poha, and chutney in the ready-to cook space, which should aid growth.
>> Over FY20-23E, we expect sales/EBITDA/PAT of 12%/20%/25% CAGR. We arrive at an FY23E SoTP-based TP of INR680/share. Maintain Buy
8:32 AM
FII/FPI & DII trading activity on NSE, BSE and MSEI
8:30 AM
Rupee check
Source: Bloomberg
8:27 AM
Oil climbs to 13-month highs, as supply cuts, demand optimism support
>> Oil prices edged up on Tuesday to their highest in 13 months as supply cuts by major producers and optimism over fuel demand recovery support energy markets.
>> Brent crude futures for April gained 29 cents, or 0.5%, to $60.85 a barrel. US West Texas Intermediate crude (WTI) for March was at $58.25 a barrel, up 28 cents, or 0.5%.
>> Both Brent and WTI are at their highest since January 2020. Front-month prices for both contracts are up for the seventh session on Tuesday, the longest win streak since January 2019.
(Source: Reuters)
(Source: Reuters)
8:24 AM
SGX Nifty Update
>> At 8:23 am, the index was up 25 points at 15,167 levels.
8:21 AM
Asian market check
In Asia, stocks traded mixed as investors mulled stimulus prospects and the impact of rising inflation expectations with stocks at record highs. Topix index rose 0.1%, Australia’s S&P/ASX 200 Index fell 0.2% and Kospi index added 0.9%.
8:19 AM
Wall Street reached all-time closing highs
Wall Street reached all-time closing highs in overnight trade as investor optimism was stoked by prospects of a speedier economic recovery from the global health crisis, driven by increased stimulus and an accelerated vaccine rollout.
All three major U.S. stock indexes gained ground, with the S&P 500 and the Dow posting their sixth consecutive gains, their longest winning streak since August. The Dow Jones Industrial Average rose 0.76%, the S&P 500 gained 0.74% and the Nasdaq Composite added 0.95%.
8:16 AM
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First Published: Feb 09 2021 | 7:57 AM IST
