MARKET WRAP: Sensex slips 394 pts amid weak global cues; RIL declines 1.7%
All that happened in the markets today
 "(Photo: Kamlesh Pednekar)")
NSE's Nifty ended at 11,312 levels, up 96 points, or 0.84 per cent. (Photo: Kamlesh Pednekar)
9:03 AM
Markets at Pre-open
9:03 AM
Markets at Pre-open
9:01 AM
BROKERAGE VIEW :: JPMorgan on ZEEL
CMP: Rs 174 | Revised target price: Rs 190 from Rs 140 | Reco: Upgrade to Neutral from Underweight
>> Incremental disclosures on balance sheet/ZEE5 coupled with management commitment towards improving FCF and further strengthening of the Board are steps in the right direction, implying downside protection from the current depressed levels (share price halved over the past year).
>> Further we believe the stock can re-rate significantly (trading at 10x F22E P/E vs past 1yr median of 15x scenarios) if management delivers on the stated commitments.
>> We will wait to see evidence of sustainable improvement even if we miss the first leg of stock upmove. Zee guided for positive advertising revenue growth in 2H and 50%+ PAT conversion to FCF from F22, noting further significant increase in inventory and receivables is unlikely.
>> Incremental disclosures on balance sheet/ZEE5 coupled with management commitment towards improving FCF and further strengthening of the Board are steps in the right direction, implying downside protection from the current depressed levels (share price halved over the past year).
>> Further we believe the stock can re-rate significantly (trading at 10x F22E P/E vs past 1yr median of 15x scenarios) if management delivers on the stated commitments.
>> We will wait to see evidence of sustainable improvement even if we miss the first leg of stock upmove. Zee guided for positive advertising revenue growth in 2H and 50%+ PAT conversion to FCF from F22, noting further significant increase in inventory and receivables is unlikely.
8:57 AM
BROKERAGE VIEW :: Morgan Stanley on RIL
Stance: Overweight | Target price: Rs 1,801
>> Risks to upside:
>> Risks to upside:
- Further details onforthcoming deleveraging initiatives.
- Rising market shareand reduced competitiveintensity inIndiantelecom industry.
- Improvement incoreenergy margins.
- Potential ban onsingle-use plastic to hurt margins inthe medium term.
- Lowerutilization of recently started downstream energy projects.
- Delay in monetization of itsenergy and telecom assets.
8:52 AM
BROKERAGE VIEW :: Jefferies on Insurance cos
>> The Top-5 private life insurers (ex-HDFC Life) reported near doubling of premiums from guaranteed return plans (non-par savings products). Among listed players, SBI Life and ICICI Pru Life saw higher growth from low base whereas HDFC Life consolidated on a high base. Even insurers like Bajaj Life and Birla Life posted sharp growth.
>> We remain cautious of this segment as an increased share of the guaranteed return businesses can raise risk from volatility in interest rates.
>> We remain cautious of this segment as an increased share of the guaranteed return businesses can raise risk from volatility in interest rates.
8:46 AM
BROKERAGE VIEW :: Kotak Institutional Equities on Tata Power
CMP: Rs 57 | Fair value: Rs 70 | Reco: Buy
>> Tata Power hosted its annual investor meet highlighting its growth aspiration through (1) step-up increase in revenue contribution from the renewable business, (2) deleveraging its balance sheet through divestments, equity raise and proposed InVIT for releasing fresh capital and (3) resolution of Mundra and merger of companies with the parent company to derive maximum fiscal efficiency.
>> We raise our fair value estimate for Tata Power to Rs70/share (from Rs62/share). The revision in fair value estimate is based on a higher multiple of 8X (from 7.5X) assigned to Tata Power Solar as well as the renewable portfolio owing to the ambitious growth targets of the company for these business verticals, as well as lowered holding company discount for the investment portfolio owing to continued progress on asset monetization.
>> Tata Power hosted its annual investor meet highlighting its growth aspiration through (1) step-up increase in revenue contribution from the renewable business, (2) deleveraging its balance sheet through divestments, equity raise and proposed InVIT for releasing fresh capital and (3) resolution of Mundra and merger of companies with the parent company to derive maximum fiscal efficiency.
>> We raise our fair value estimate for Tata Power to Rs70/share (from Rs62/share). The revision in fair value estimate is based on a higher multiple of 8X (from 7.5X) assigned to Tata Power Solar as well as the renewable portfolio owing to the ambitious growth targets of the company for these business verticals, as well as lowered holding company discount for the investment portfolio owing to continued progress on asset monetization.
8:44 AM
BROKERAGE VIEW :: Kotak Institutional Equities on Muthoot Finance
CMP: Rs 1,256 | Fair Value: Rs 1,100 | Reco: Reduce
>> Muthoot Finance reported marginal (1% qoq) loan book decline despite sharp rally in gold prices, likely due to funding challenges. Even as we expect growth to
>> Muthoot Finance reported marginal (1% qoq) loan book decline despite sharp rally in gold prices, likely due to funding challenges. Even as we expect growth to
catch up over the next nine months, we find Muthoot’s valuations overheated post the sharp stock rerating, following the rally in gold prices.
>> Muthoot’s business tends to be highly cyclical with linkages to the gold cycle and it would be inaccurate to juxtapose current strong return ratios to arrive at long-term valuation multiples.
Notably, Muthoot reported average RoA of 2.6-6.8% during the recent cycle, i.e. 2014-20 (peak of 6.8% in FY2020) and RoE of 14-28% (peak of 28% in FY2020); the stock currently trades at 3X book FY2022E. At our RGM-based FV of Rs1,100 (from Rs1,025), the stock will trade at 2.5X book June 2022E. In the current environment, we prefer inexpensively valued vehicle finance NBFCs (Cholamandalam, Shriram Transport Finance and SCUF) over Muthoot Finance.
>> Muthoot’s business tends to be highly cyclical with linkages to the gold cycle and it would be inaccurate to juxtapose current strong return ratios to arrive at long-term valuation multiples.
Notably, Muthoot reported average RoA of 2.6-6.8% during the recent cycle, i.e. 2014-20 (peak of 6.8% in FY2020) and RoE of 14-28% (peak of 28% in FY2020); the stock currently trades at 3X book FY2022E. At our RGM-based FV of Rs1,100 (from Rs1,025), the stock will trade at 2.5X book June 2022E. In the current environment, we prefer inexpensively valued vehicle finance NBFCs (Cholamandalam, Shriram Transport Finance and SCUF) over Muthoot Finance.
8:39 AM
BROKERAGE VIEW :: Motilal Oswal Financial Services on KNR Construction
CMP: Rs 257 | TP: Rs 295 (+15%) | Reco: Buy
>> KNR Construction (KNR) outperformed in terms of execution by reporting revenue growth v/s our expectation of 35% YoY decline. The EBITDA margin expanded YoY on account of the rising share of higher margin irrigation projects, resulting in a strong beat on earnings. Including L1 orders, the order book (OB) stood strong at Rs 7,850 crore, implying OB/rev at 3.5x and providing healthy revenue visibility.
>> KNR continues to surprise with its steady performance. However, the working capital cycle has witnessed marginal deterioration. This is primarily on account of pending dues from the Telangana government, which have been stalled since Feb’20 and currently stand at INR6.8b. The management hopes to receive Rs 440 crore within the next few weeks.
>> Factoring the strong performance in 1QFY21, we increase our FY21/FY22E EPS by 28%/7%. We maintain our Buy rating, with TP of Rs 295 based on: (a) unchanged 12x Mar’22E EPS to the EPC business and (b) the book value of road assets.
>> KNR Construction (KNR) outperformed in terms of execution by reporting revenue growth v/s our expectation of 35% YoY decline. The EBITDA margin expanded YoY on account of the rising share of higher margin irrigation projects, resulting in a strong beat on earnings. Including L1 orders, the order book (OB) stood strong at Rs 7,850 crore, implying OB/rev at 3.5x and providing healthy revenue visibility.
>> KNR continues to surprise with its steady performance. However, the working capital cycle has witnessed marginal deterioration. This is primarily on account of pending dues from the Telangana government, which have been stalled since Feb’20 and currently stand at INR6.8b. The management hopes to receive Rs 440 crore within the next few weeks.
>> Factoring the strong performance in 1QFY21, we increase our FY21/FY22E EPS by 28%/7%. We maintain our Buy rating, with TP of Rs 295 based on: (a) unchanged 12x Mar’22E EPS to the EPC business and (b) the book value of road assets.
8:36 AM
BROKERAGE VIEW :: Motilal Oswal Financial Services on Tata Power
CMP: Rs 57 | TP: Rs 66 (+16% ) | Reco: Buy
>> TPWR has been keen on moving to a more consumer-facing model and leveraging its expertise and brand. In this context, the quantification of its targets provides some growth context. However, we still await visibility on whether the opportunities within T&D and new consumer businesses would pan out. Growth in its in-house Solar EPC business is compelling, but would still depend on overall ordering within Renewables by FY25 and the co.’s ability to maintain market share.
>> Nevertheless, TPWR has walked the talk in recent months through asset monetization and WC management – despite the current Covid-19 environment. Net debt at the end of Jun’20 had reduced to Rs 44,400 crore (from Rs 47,100 crore in FY20).
>> Divestment-related measures (part receipt from International Shipping business, Arutmin, and Tata SED) and the infusion of Rs 2,600 crore from promoters would continue to aid debt reduction. As we build-in the expectations of normalization in its EPC business and some WC by FY22, we see the risk-reward as favorable. 1) the approval of a tariff hike at Mundra, 2) the merger of CGPL & Tata Power Solar with TPWR, and 3) favorable InvIT valuations would provide upsides to our estimates.
>> TPWR has been keen on moving to a more consumer-facing model and leveraging its expertise and brand. In this context, the quantification of its targets provides some growth context. However, we still await visibility on whether the opportunities within T&D and new consumer businesses would pan out. Growth in its in-house Solar EPC business is compelling, but would still depend on overall ordering within Renewables by FY25 and the co.’s ability to maintain market share.
>> Nevertheless, TPWR has walked the talk in recent months through asset monetization and WC management – despite the current Covid-19 environment. Net debt at the end of Jun’20 had reduced to Rs 44,400 crore (from Rs 47,100 crore in FY20).
>> Divestment-related measures (part receipt from International Shipping business, Arutmin, and Tata SED) and the infusion of Rs 2,600 crore from promoters would continue to aid debt reduction. As we build-in the expectations of normalization in its EPC business and some WC by FY22, we see the risk-reward as favorable. 1) the approval of a tariff hike at Mundra, 2) the merger of CGPL & Tata Power Solar with TPWR, and 3) favorable InvIT valuations would provide upsides to our estimates.
8:33 AM
BROKERAGE VIEW :: Motilal Oswal Financial Services on Muthoot Finance
CMP: Rs 1,256 | TP: Rs 1,300 (+4%) | reco: Neutral
>> While AUM growth took a backseat in 1QFY21, we believe this is a one-off given the muted disbursements in Apr-May’20. Demand for gold loans picked up in
>> While AUM growth took a backseat in 1QFY21, we believe this is a one-off given the muted disbursements in Apr-May’20. Demand for gold loans picked up in
Jul-Aug’20, and we expect it to sustain given the tough economic environment. Over the past year, MUTH has increased liquidity on the balance sheet from 3%
of loans to 20% of loans, which is comforting. However, this is likely to be a drag on margins going ahead. While MUTH’s subsidiaries have witnessed improving
collection efficiency, we remain cautious on the asset quality outlook. Maintain Neutral with TP of INR1,300 (3x FY22E BVPS).
8:32 AM
BROKERAGE VIEW :: Motilal Oswal Financial Services on IndiaMART
CMP: Rs 2,990 | TP: Rs 3,550 (+19%) | Reco: Buy
>> We forecast a 9% CAGR in paid suppliers, coupled with a 2% CAGR in ARPU over FY20–23, implying a revenue CAGR of 10% over FY20–23.
>> The recent drop in collections is primarily attributable to: (1) higher churn in monthly subscribers, (2) churn in annual subscribers whose payments are due in the near term, and (3) the extension of payment terms. 1QFY21 saw a 50% drop in collections.
>> We expect customers with multi-year subscription packages to continue on the platform at lower annual fees. Further growth in new suppliers in certain categories would partially offset decline in its stressed counterparts. We forecast 25% decline in collections for FY21, weighed by ~50% decline in 1QFY21 collections. In turn, we expect 7% decline in FY21 revenues, coupled with Vshaped recovery in FY22.
>> We forecast 8pp margin expansion over FY20–23 on account of the better management of cost structure and operative leverage in the business. This implies an EBIT CAGR of 22% and PAT CAGR of 26% over FY20–23.
>> We forecast a 9% CAGR in paid suppliers, coupled with a 2% CAGR in ARPU over FY20–23, implying a revenue CAGR of 10% over FY20–23.
>> The recent drop in collections is primarily attributable to: (1) higher churn in monthly subscribers, (2) churn in annual subscribers whose payments are due in the near term, and (3) the extension of payment terms. 1QFY21 saw a 50% drop in collections.
>> We expect customers with multi-year subscription packages to continue on the platform at lower annual fees. Further growth in new suppliers in certain categories would partially offset decline in its stressed counterparts. We forecast 25% decline in collections for FY21, weighed by ~50% decline in 1QFY21 collections. In turn, we expect 7% decline in FY21 revenues, coupled with Vshaped recovery in FY22.
>> We forecast 8pp margin expansion over FY20–23 on account of the better management of cost structure and operative leverage in the business. This implies an EBIT CAGR of 22% and PAT CAGR of 26% over FY20–23.
8:18 AM
FII/FPI & DII trading activity on NSE, BSE and MSEI
8:16 AM
Rupee check
Source: Bloomberg
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First Published: Aug 20 2020 | 7:41 AM IST
