News Headlines for 23-10-2018

Business Standard

Ø Net direct tax collection grows 15.7% to Rs 4.89-lakh cr

Ø Indian banks’ profitability weaker than BRICS: Moody’s

Ø Syndicate Bank gets Rs 728-cr capital infusion

Ø IL&FS revival plan may include stake sales

Ø Cabinet to take up second sugar relief package

Ø KKR files bankruptcy plea against dairy firm Kwality

Ø Lakshmi Vilas Bank shortlists 5 investors to sell stake

Ø Oil import bill for FY19 seen rising 42%; falling rupee cause for concern

Ø MFIN proposes common code of conduct for banks and NBFCs in microlending

Ø SBI plans to raise up to Rs 250 bn in FY19 to meet capital adequacy

Ø Nasscom signs deal with Hiroshima govt for building Japan-India IT corridor

Ø PNB Housing raises Rs 17.75 bn in commercial paper from MFs, banks

Ø NCLT approves 45 resolution plans, orders 19 liquidations in 2 years of IBC

Mint

Ø Indian steel cos to forge pacts with global firms to expand

Ø SpiceJet receives credit ratings downgrade as industry struggles

Ø PDPS for oilseeds farmers to compensate up to 25% of MSP

Ø Canara Bank seeks bids to replace Gammon at the Mumbai port

Ø NYSE-listed Azure Power raises $185 m

Ø Bhushan Power: NCLAT puts off case to Nov 1

Ø Fiat agrees to sell Magneti Marelli to KKR’s Calsonic Kansei

Ø Govt review coastal shipping rule relaxation: Nitin Gadkari

Ø Reliance to decide site for India’s first pod taxi prototype

Ø Morgan Stanley prefers large banks, downgrades Yes Bank, RBL

Ø ArcelorMittal entry set to heat up India’s steel industry

Ø Jubilant Life Q2 profit rises 67% to ₹210 crore

Financial Chronicle

Ø Tata Sons writes off entire Rs 28,651 crore investment in Tata Teleservices

Ø India has second highest insurance gap in the world of $27 billion: Report

Ø Number of crorepatis has risen by 60 per cent in India, says CBDT

Ø RBI likely to keep rates on hold in rest of FY2019

Ø REC eyes $5b via mid-term notes on GSM

Ø Sebi sets limits on MF commission, expenses

Ø Govt expects record exports in FY19

Ø Govt frees spectrum for 5G services, wifi from licence norms

Ø FinMin, RBI lock horns over payment system regulator

SOHN India 2018 conference…

The key takeaways of which are …

RAMDEO AGARWAL : RBL bank

• Investment rationale: Value migration in banks from PSU banks to Private banks.
• Four pronged strategy – QGLP ( Quality , Growth , Longevity , Price )
o Quality (both business and management)
 The diversified loan book along with strong focus on risk management (GNPLs lower than HDFC bank).
 High quality management with 20 plus years of experience. High skin in the game with 9.4% ESOPs.
o Growth:
 The customer grown from 2mn in FY16 to 4.5 mn in FY18
 The CASA momentum is also playing through with CASA ratio of 24%
o Longevity:
 Banking is 50% of GDP versus 150% in USA and 200% in China. This suggest huge growth potential even on growing base.
 The focus on risk management will ensure quality growth sustainability
o Price :
 At 33x FY20 P/E, the stock is not cheap but given 38-40% EPS CAGR , this seems to be dependable. The comparison with HDFC bank ( from 1997 to 2005 holds uncanny similarity )
• Risk :
o The nascent book, which has not yet seasoned out .
o 14% of the book is still pertaining to risky micro finance

NAVNEET MUNOT – Healthcare and allied Industry
• Interesting Quote: “When you tell yourself there is no money . Then your brain start working . An amazing opportunity comes to you”
• Opportunity size : Global IT industry size USD3tn, Auto – USd2tn, Oil – USD3tn, but then pharma is USD8tn ( sum of all the three )
o India health care growing but will grow (albeit on lower base). Three things that will drive growth are 3As of Awareness / Availability/ Affordability
• Structural drivers in place like Under penetration, rising income level, changing attitude , arguing population , changing disease profile among others
• Key pressure points : News flows has been negative for last few months (NITI Aayog wants all the drugs to be benchmarked).
• But things can change: a) Lower revenue growth – Better 3As can lead to growth b) Lower ROC: Better utilisation , Better realisation , Asset light model will lead to increase

SHANKAR SHARMA- MAN Industries & HFCL

Man Industries
• Investment rationale : Strong earnings growth (utilisation at low levels) with discounted valuations
• Business orientation: Comprising large domestic clients, along with best International clients.
• Growth drivers: a) Expansion of national gas grid in India b) Large number if water projects in India and c) Massive export opportunity which is very high on margin (bidding for several African projects ) d) Highly consolidated industry as threat from China regarding and now top 3 players control 70% plus market share
• Margin drivers a) Utilisation level at 24% will rise easily to 35% in FY19 and 45% in FY20 and will reach 65% over period of time

HFCL
• Investment rationale : Strong growth with attractive valuation
• Strong growth visibility over 3 years: a) Order book of INR100bn with more expected in due course of year b ) Signed MOU with technology players for defence product c) Setting up fibre manufacture plant in Hyderabad d) Key implementation partner for JIO and e) Pan India dedicated OFC network by government etc
• Financials: a) Revenues registered growth at 52% CAGR over FY12-18 and EBIDTA at 52% CAGR with debt is down to only INR4bn (only for working capital) b) Expect PAT to double over next 2 years with ROEs to go to 20% from13% now.
• Valuation: Compared to sterile this is trading at huge discount which will narrow over time.
• Key readings: Promoter has increased stake from 9% to 36% – a promising sign

ASWINI AGARWAL- Parag milk

• Investment rationale: Brand creation , Increase in value added products and Whey protein segment
• Growth and margin drivers: Expansion into new area and new products will drive growth. Growth in North India with focus on better margins Ghee and curd will drive the margin expansion.
• Whey protein is the next key driver: INR10bn market, which is supplied by import. But 3 problems a) limited stock b) date of manufacture is farther away and c ) spurious and contaminated product. Parag is the only key Indian player of the same.
• Focus on increasing operating efficiencies: Re-organinsing sales and distribution with Vector consulting and leading effort. Pilot in Mumbai is extremely successfully and will be replicated across
• Expected Financials : a) Mid teen revenue growth b) EBIDTA margin expansion of 60bps in FY19 and 50bps in FY20 c) EPS 28% earnings growth
• Risk : Senior management team visibility. Currently family run business and new management team is very new so that will be critical

PRASHANT KHEMKA- Jyothy laboratories

• Investment rationale : Forgotten and misunderstood FMCG company. Making it great business with attractive valuation
• Great business: Competitively positioned gaining market share, low category penetration , track record of value creation and fair dealing
• Attractive Valuation : Lowest cash flow multiple among the peer and substantial under valuation to intrinsic value
• Financials : a) revenue growth of 7% CAGR , expect that it will double to mid to high teen growth with EDBITA growth of over 20% versus 15% earlier
• Growth drivers: a) Increasing penetration (present in lower penetrated higher category products) b) expanding distribution (expanding reach by 20% each year) and new product and innovation on new products (atleast one new product each year )
• Strong governance practices : Seasoned management with strong record. MD owns over 66% of stock. Great free cash conversion cycle

RUKSHAD SHROFF- Exchanges (MCX )

• Investment rationale: Exchanges over 15 years across global gave returns at more than 20% CAGR. This occurs because the inherent traits ( listed below)
• Tend to become natural monopoly : True globally as well (as liquidity seeks liquidity).
• Exchange is a technology platform : a) Asset light model b) revenue / net fixed asset could be 4x c) customer fund growth (scalability without capex ). Cumulatively this should lead to higher margins and returns
• Multiple reform : a) More commodities are being allowed b) Introduction of options c) New participants and d) Longer duration products.
• Can be much large: A) Revenue from INR2.6bn to INR10 6bn with GDP growth of 11% b) Multiplier 0.5x to 2 x ( China’s current ) c) F&O mix to go to 20: 80 (future’s fee half and option only on premium). Cumulatively have PAT of INR6.8bn versus INR1bn. At 20-25x the value of INR136-170bn versus INR37bn currently

SHIV PURI- Indian Private Sector Banks (Kotak Mahindra Bank)

• Investment thesis : Exponential technology are disrupting industry one by one and the Indian industries are also vulnerable. Look at the Longevity of the business under exponential growth.
• Investment in new paradigm should have 3 things a) massive transformational purpose b) customer centric (very hard to replicate this) and c) agile management (future more uncertain and should read through changes)
• Indian private segment banks key investment idea based on a) building Digital ecosystem in India (Aadhar authentication) b) cost of financial intermediation has dropped significantly this will lead to financial inclusion c) bank will have customer database through UPI (Unlike in China) and d) regulators are not going to allow FinTech to grow without regulation
• The bank which is most agile and focussed is Kotak Mahindra Bank a) strong and agile management b) customer focus on culture ( 811 is vindication) and c) best capital allocator

SUNIL SINGHANIA- India branded packaged food in India (Bombay BurMah)

• Investment Rationale: Huge under-penetration with no substitute for food
• Penetration level is much lower: S curve applies to food industry and India is way under penetrated (India at USD58per capita versus Mexico at USD578 and China USD258)
• Long term growth driver: Availability , Affordability, Investment , Renders it USD200bn food opportunity (can grow 5x in 10 years).
o Huge opportunity across segment
o GST has helped a lot reflected in the fact that across food category this has been lower
o Across companied are planning to diversify thus suggesting confidence in growth area
o Nestle 6x and Britain’s 5x size in 10 years
• Britannia is well placed – dominating in the categories it was present at, premiumisation has helped EBIDTA margins a theme that will further play. But valuations are expansive
• Proxy for Britannia is Bombay Burmah- One of the oldest company wirth zero debt and has 51% holding in Britannia.
• Current holding company discount is 73% and any reduction in that will drive strong re-rating.

🏦 *TOWER TALK* 🏦 June 4 – 10, 2018

🎯 Power Finance Corporation to extend finance to sewage treatment plants, smart cities, railway electrification, mining, electric cars charging stations, etc. The management, estimates about Rs.12,000 crore debts to be upgraded in FY19. All very positive for the Company. Buy before the share takes a leap.

🎯 Dilip Buildcon stock has taken a big beating on the back of rumours of auditors having resigned from the Company. A sharp bounce is possible. Buy.

🎯 The big slide in the Manpasand Beverages stock has made the Company a lucrative buy. Although the management has clarified that the current working is steady risk bearing investors may buy in small quantities.

🎯 Bank of India posted Rs.3969 crore losses in Q4 on the back of higher NPA provisions. Sell immediately.

🎯 Kiri Industries posted spectacular results for 2018. Consolidated EPS was at around Rs.125. Enhanced capacities also likely to contribute this year. An excellent buy.

🎯 India’s leading state run producer of crude, Oil and Natural Gas Corporation reported a 36% hike in profitability. A good buy in these times of uncertainty.

🎯 Lakshmi Vilas Bank is reportedly in talks with banks and PE funds to sell up to 26% stake and use the proceeds for aggressive expansion. Nice opportunity to add this efficient bank to your portfolio.

🎯 Leading textile major, Siyaram Silk Mills, reported vastly improved results for Q4 and full year of 2018. New capacities will further add to the revenue and profits for this year. A safe Buy.

🎯 The Madras High Court order to halt construction of Vedanta copper smelter plant may have temporary financial effects. The Company is still a lucrative investment. Hold.

🎯 Auto components major Motherson Sumi Systems net profit was up a mere 7% for Q4. It is prudent to wait for the dust to settle before making fresh investments here.

🎯 In spite of one time exceptional expenses of Rs.213 crore on stamp duty, Grasim Industries reported an 18% rise in earnings and EPS. The future looks even better. A good buy.

🎯 PNC Infratech presented excellent results for Q4. The order book position is also improving. A fairly good investment. Buy.

🎯 Power Grid Corporation of India plans to raise Rs.17,500 crore for capital expenditure but a substantial part of the funds will be met by internal accruals. A very good share to add for the long-term.

🎯 Indian Overseas Bank losses have widened to Rs.3609 crore for Q4. Gross NPAs is a whopping 25%+. It is prudent to remain away from this share. Sell.

🎯 A Rs.944 crore profit posted by Punj Lloyd (a turnaround infrastructure company) makes this Company a good buy, especially on the back of the recent debt restructuring initiatives.

🎯 Ashoka Buildcon presented good results for Q4FY18. This efficient company is a fairly good buy as its bulging highway order book will contribute significantly to the bottom line going forward.

🎯 Inox group Company, Gujarat Fluorochemicals (leaders in industrial gases, refrigerants, chemicals, renewal energy etc.) reported an EPS of Rs.44.36 for 2018 as against Rs.13.32 in the previous year. Its huge expansion plans merit a buying.

🎯 CNG distributor, Indraprastha Gas, may find itself in a sweet spot after it decides to increase the price of its commodity. A good buy.

🎯 A 50% jump in profits of Mahindra & Mahindra makes this an excellent buy in this weak market. Robust tractor and UV sales helped profits to jump to Rs.1155 crore.

🎯 JSW Steel is contemplating acquiring Usha Martin’s speciality steel business. If it succeeds, there could be a big win. Risk bearing investors may enter.

🎯 A big slide in the price of Navkar Corporation makes this logistics company a good buy as its profits are rising albeit slowly.

🎯 National Steel & Agro Industries likely post EPS Rs.5.5 in FY18 and Rs.7 in FY19E stock will cross again its yearly high Rs.51 within a year.

🎯 Patel Engineering with a low equity of just Rs.15.7 crore has posted consolidated EPS of Rs.6 in FY18. The share is poised to touch Rs.75.

🎯 Datamatics Global Services has posted an EPS of Rs.12.1 for FY18. With a book value of Rs.86.52, the share trades at a price-to-book value of just 1.28. A reasonable PBV of 1.6x will take its share price to Rs.145 in the medium-term.

🎯 The robust Q4FY18 EPS of Rs.18 and FY18 EPS of Rs.60 by Indo-National (Nippo Batteries) was ignored by the discerning investors. The book value of the share is Rs.560 and is poised to touch over Rs.1000 in the medium-term.

🎯 KSE (formerly Kerala Solvents), which is into cattle feed, milk and ice cream business has posted an EPS of Rs.218 in FY18 on its tiny equity of Rs.3.2 crore. It may post an EPS of Rs.260 in FY19 and is a strong bonus candidate. A forward P/E of 18.03 against the industry average P/E of 40 will take its share price to Rs.4550 in the medium-term.

🎯 Pix Transmissions came out with excellent Q4 results. With an quarterly EPS of Rs.7, the share trades cheap at Rs.151.35 and can be bought for decent gains.

🎯 Cox & Kings has received nod from RBI to set up an NBFC. Now this travel service company can start the business of foreign exchange. Will it go the Thomas Cook way and create wealth for its stakeholders? A good buy at CMP.

🎯 Universal Cables is a no brainer buy. With a consolidated EPS of Rs.25 and its stake in group companies Vindhya Telelinks and Birla Cable, the stock hardly has any downside and can appreciate 100% from the current level.

🎯 Gujarat Sidhee Cement (GSCL) posted mind blowing quarterly numbers and for FY18. The Q4 EPS was Rs.2.3 and Rs.5+ for the full year. At CMP of Rs.32.40, the stock can give a good 50% return.

🎯 Munjal Showa seems to be finally coming out of the ashes. If its Q4 results are any indication, the stock has a long way to go and should be part of every portfolio,

🎯 Pennar Industries is reportedly doing well. Company has turned around wonderfully from a sick company a few years back. In Q4FY18 sales were subdued but, profit grew 4x. EPS for the quarter stood at Rs.4 and for the year as a whole stood at Rs.7+. At Rs.53.85 there’s nothing to lose in the stock and one can expect a 50% return from here on.

🎯 An Ahmedabad based analyst recommends BGR Energy Systems, Orient Abrasives, Pix Transmissions, Tanfac Industries of Aditya Birla Group and Umang Dairies. As per his opinion only very few growth oriented small-caps & mid-caps may rise from the current lower levels, because most of them are still overpriced and may slide further. Hence Money Times readers should focus only and only on few growth oriented small caps & mid-caps stocks that are available at reasonable valuations. From his last week’s recommendation Axtel Industries shot up to Rs.92.40 from Rs.77 & Pix Transmissions shot up to Rs.165.70 from Rs.115.10 in the highly negative sentiment among small-caps & mid-caps.

🏦 *TOWER TALK* 🏦 May 28 – June 03, 2018

📍 Prakash Industries is contemplating to demerge its pipe division. Shareholders may be entitled to free shares of Prakash Pipes Ltd., Value unlocking opportunity for shareholders. Buy.

📍 Natco Pharma has presented bumper results for Q4 with profits up by 70%. An excellent pick at current beaten down prices. BUY.

📍 Dena Bank losses for Q4 widened to Rs.1225.42 crore in Q4. A reversal is nowhere in sight. Sell.

📍 A prominent US based Investment fund has acquired 7.8 lakh shares of Kaveri Seeds Company (a hybrid seed major) at around Rs.487/-. The company has big expansion plans. BUY.

📍 Long-term investors with higher appetite for risk may enter Power Finance Corporation. It has posted an EPS of Rs.22 on the back of falling NPAs and recommended 78% dividend. An excellent buy.

📍 Gujarat Gas (which reported an EPS of Rs.21.24 for this year v/s Rs.16.02 last year) is expected to do better this year in anticipation of volumes and a price rise. An good time to buy this evergreen stock.

📍 Glenmark Pharmaceuticals has received USFDA approval for Colesevelam Hydrochloride Tablets. The Company already has 35 product authorisations for sale in USA and another 62 ANDAs are pending, which can accelerate the company’s growth. A good buy at these bottom prices.

📍 Godrej Industries posted excellent figures for FY18. Being a promoter of Godrej Agrovet and still holding a majority stake, there is a chunk of hidden wealth too. A good long term buy.

📍 Escorts, which reported an EPS of over Rs.41 this year against only Rs.15 last year is reportedly doing extremely well. All divisions especially motorcycles and Tractors and the Railway divisions are showing rising volumes. A good buy even now.

📍 Indiabulls Housing Finance intends to float NCDs of around 15000 crore to fund business expansions. The share is a good buy at all times.

📍 Tata Steel is expected to make big market inroads by the acquisition of Bhushan Steel. Accumulate Tata Steel.

📍 Tata Motors reported disappointing results for Q4FY18, on the back of declining JLR sales. It would be prudent to switch to M&M.

📍 Shipping Corporation of India Q4FY18 profits jumped 174% to Rs.254.47 crore on a stagnant revenue of Rs.953 crore. The management expects the current quarter to be equally good. Buy.

📍 New India Assurance company plans to issue bonus shares in the ratio of 1:1. Business prospects are good for the industry. Buy.

📍 Shah Alloys one of the most versatile steel producers in India is a turnaround story and is expected to post excellent results, for Q4FY18 and the year as a whole. A good buy at around Rs.35.

📍 BMW is witnessing rising volumes of its luxury cars. It would be prudent to buy Force Motors, which makes engines for BMW.

📍 FMGC major Dabur India plans to invest around Rs.300 crore on expansions and acquisitions. A good long-term buy.

📍 Gulf Oil Lubricants India is witnessing rising volumes and profits. The Company recently declared a dividend of Rs.6.50. Buy and hold for two years to reap good returns.

📍 Hindalco Industries plans to raise 5000 crore. via corporate bonds to repay costlier debt. This move will boost profitability. Buy

📍 Jet Airways India has posted Rs.1036 crore loss in Q4FY18, on the back of rising fuel prices. The next few quarters will be equally bad. SELL IMMEDIATELY.

📍 The worst seems to be over for State Bank of India and Punjab National Bank. Despite big losses, stressed assets have reduced due to strong corrective action. Most analysts are now bullish about these two shares. Buy.

📍 PNC Infratech reported a 104% rise in profits on merely 7% rise in revenue. A good share to add.

📍 Eros International Media has posted Q4FY18 EPS of Rs.6.4 and FY18 EPS of Rs.24.3. The EBIT margins have expanded from 26.1% in FY17 to 36.4% in FY18 and PAT margin has expanded from 17.8% in FY17 to 22.7% in FY18. Its strong pipeline of theatrical and original content, will be fuelled by Rs.1000 crore ($150 million) JV investment with Reliance. The share may head towards Rs.200 mark.

📍 Cox & Kings (CKL) as part of value unlocking has approved the demerger of the highly profitable Foreign Exchange division (which falls under Leisure – India). CKL’s International business has stabilised after geopolitical volatility last year. Dubai continued to grow rapidly and recovery in UK business has increased after Brexit. CKL is expected to post an EPS of Rs.23 in FY18 and Rs.28 in FY19. The share has all the potential to cross the Rs.280 mark.

📍 Mangalam Drugs & Organics is the cheapest quality stock in the pharma space. On FY18E EPS of Rs.17 and FY19E EPS of Rs.20, the stock is available at a forward P/E of just 8.1x and 6.9x and is posed to touch Rs.200.

📍 Meghmani Organics is expected to notch an EPS of Rs.7.5 in FY18 and Rs.10 in FY19 post expansion. A reasonable P/E of 17.5x (industry P/E is 33x) will take its share price to Rs.130 in the medium term and Rs.175 thereafter.

📍 KSE, formerly Kerala Solvents, is all set to notch an EPS of Rs.220 in FY18 on a small equity of Rs.3.2 crore. It is a strong bonus candidate as well. The stock trades at a forward P/E of just 12.7x against the industry P/E of 40x and has the potential to double in the medium-term.

📍 Hinduja Global Solutions is expected to post an EPS of Rs.95-100 for FY18 if 9MFY18 results are anything to go by. A conservative P/E of 12.5x will take its share price to Rs.1187/1250.

📍 An Ahmedabad based analyst recommends 20 Microns, Axtel Industries, AMJ Land Holdings, Gujarat Siddhi Cement, IOL Chemicals & Pharmaceuticals, Mangalore Chemicals & Fertilizers, Maker Laboratories, Pix Transmission and Umang Dairies.

News around the markets…

🔹Business Standard :

Ø Govt raises Rs 14,500 crore from Bharat 22 ETF

Ø Council plans to further categorise GST rates, merge 12%, 18% slab

Ø Wipro’s Rs 11K cr share buyback to open on Nov 29

Ø Vodafone, Idea may face network issues post merger

Ø TechM hopes to touch $5 billion in revenues in FY18

Ø Coal India may double supplies via road

Ø Clean energy firms eye SE Asia, M East to hedge risks

Ø Reliance Industries, Adani, REC issue $1.7-billion bonds

Ø Vedanta set to overtake Aditya Birla group as largest aluminium maker

Ø Vijay Mallya’s extradition trial confirmed from December 4

Ø Domestic institutions lend their weight as anchors in IPOs

Ø Farmers demand total debt waiver, remunerative crop prices

Ø Logistics gets infrastructure status, industry sees 50 bps savings

Business Line

Mint

Ø Moody’s gives Baa2 rating for RIL’s offshore dollar bonds issue

Ø Electronics appliance market set to grow at 10% CAGR: study

Ø Centre’s solar plans get $98-m loan from World Bank

Ø Sugar mills see bumper crop, want curbs on stocking to go

Ø MCX gold options off to a slow start

Ø Phoenix Group to set up Rs. 325-cr rice mill in AP

Ø India can return to 8.5% growth rate: Arvind Subramanian

Ø Shell companies: Sebi panel to look into complaints of errors in classification

Ø JSW Steel exploring tie-ups to acquire stressed assets

Ø GST rate cut: FMCG firms asked to update MRPs immediately

Ø Govt tells PSU banks to consolidate international branches

Ø Taaleri eyes Fortum’s solar power projects in India

Financial Express

Financial Chronicle

Ø Transition to electric mobility system can save $330 billion: Report

Ø Big impetus to logistics sector; infrastructure status to bring down costs

Ø Government is committed to tackling bad loans; takes two steps forward

Ø Japan’s best export performance since 2008 crisis rolls on

Ø Wipro arm to provide smart lighting with Cisco in India

Ø Bond yields dip as RBI drops OMO sale

Ø Mumbai down 10 slots, Delhi 7 on list of preferred investment destinations

Ø Corporates cut investment in gold ETF by 38% in a year

Ø Sebi puts penny stocks under scrutiny; to seek withdrawal of LTCG

Ø JSW, Vedanta, Tata in race to hold controlling stake in Monnet

Ø FinMin to consult law ministry on inclusion of realty under GST