Diwali 2020 To Be Behtar For Equity Investors!
Diwali Festival, known as the festival of wealth and auspicious time, always brings some excitement into the stock markets. Every Diwali, investors take stock of how the markets fared from previous Diwali and how it may perform till next Diwali.
The year gone by, did come as a surprise for a majority of investors as the broader markets underperformed the major benchmark indices, such as Sensex and Nifty, continuing its trend from the previous year once again. Investor stand disappointed as some recovery and outperformance was expected from mid caps and small caps after a dismal performance in the previous year (2017-2018).
The table below highlights that the number of stocks that generated positive returns, fell from 476 to 367. This is even though FIIs have been net investors to the tune of Rs. 35,991.65 crores and DIIs have purchased stocks worth Rs. 66,361.63 crores on net basis. The number of stocks that more than doubled during this period stood at 39 when compared to 104 stocks that more than doubled in 2017 -October to 2018-October.
The Year Gone By…. Diwali 18 to Diwali 19
The year gone by can be characterized as one of the most divergent years for the market, where only select stocks managed to keep the major indices, Sensex and Nifty, in green. From previous Diwali to this Diwali, we saw consumer durables stocks outperforming the markets. The BSE consumer durables index was the best performing sectoral index. BSE Oil & Gas index, led by BPCL, HPCL, followed closely. BSE Bankex and BSE Realty index were the other two sectoral indices, which delivered more than 10 per cent returns,beating Sensex returns. In the last one year, BSE Metal index proved to be the worst performer,dropping down by 35.14 percent.
All major constituents of this index, such as Tata Steel, SAIL, Coal India, Vedanta, Nalco, NMDC, and Hindustan Zinc, slipped in the range of 20 per cent to 50 per cent. Expectedly, BSE Auto emerged as the second-biggest wealth destructor during the period from the last Diwali to this Diwali. BSE Healthcare surfaced as the other sectoral index that failed to create wealth in this period.
Sectoral returns Diwali 18 to Diwali 19
Consumer Durables stocks
Titan Co. was the best performing consumer durables stock within the BSE Consumer durables index, with Whirlpool of India, Blue star, Voltas, and Crompton Greaves Consumer Electricals following the suit.
Oil & Gas stocks
Stocks in the oil & gas sector were seen outperforming the benchmark indices this year. From previous Diwali to this Diwali, the BPCL was top gainer in the oil & gas industry and was closely followed by Indraprastha Gas, HPCL, GSPL, and Reliance Industries.
FMCG stocks have always been preferred by investors who bet on India's consumption story. Vadilal Industries was one of the biggest gainers within the BSE FMCG constituents and was followed by BalrampurChini Mills, Nestle India, Godfrey Philips India, and Colgate-Palmolive (India).
Capital Goods stocks
The capital Goods stocks emerged as top performers over the last one year. Siemens was the top performer in the capital goods index,trailed by Honeywell Automations India, Kalpataru Power Transmission, Bharat Electronics, and VGuard Industries.
Banks once again outperformed Sensex, the benchmark index. Private Banks were seen beating PSUs in terms of returns. ICICI Bank proved to be the biggest gainers in the banking sector, followed by Kotak Mahindra Bank, City Union Bank, HDFC Bank, and Axis Bank.
Market Outlook Diwali 2020
The markets are trading at a kissing distance of its all-time high level of 40,312, touched in June 2019. The FIIs have turned bullish on Indian markets after the recent government announcement on corporate tax cuts. The upgrades in Indian markets by FIIs are witnessed due to an improvement in valuations related to Asian markets, increased real interest rates, a negative correlation with the global bond yields and, low sensitivity to the dollars and the renminbi.
The sentiment may also improve for Indian markets, owing to improving conditions across the world. "Despite the improvement in sentiments, the markets are expected to remain volatile," says Mr. Vishal Wagh, Research Head, Bonanza Portfolio Ltd. “In the coming year, we are expecting the market to remain volatile and trade on both sides of the tide. In the first quarter of the calendar year 2020, there may be a downswing and post that bulls may take charge. Currently, the market is trading at 26.70 PE with EPS approximate 433. With a conservative expansion in EPS of 6-7% p.a. one can see a target near to 13,000 on Nifty and 47,000 on Sensex.”
Despite volatility, the markets may inch up as the positives may far outweigh the negatives. Some of the biggest positives, which may show results in the coming year, are the tax rate cut and the lowering interest cost. The savings in the form of interest expense can add to the bottom line meaningfully. Bulls can sense an opportunity here.
Technicals Analysis of Stock Trends Edwards, Maggie & Bassetti
Almost unbelievable profits can be made by one who could buy stocks at the extreme bottom of a Bear Market and sell at the extreme Top of a Bull Market; or sell short at the extreme peak of a Bull Market and cover at the extreme Bottom of the following Bear Market.
It is not possible to accomplish either of the desirable results.
It is possible to avoid becoming trapped in purchases made at or near the extreme Bull Market Top so that losses become dangerous or ruinous in a Major Reversal. It is also possible, of course, to avoid such losses through ill-advised short sells near the extreme bottom of a Bear Market.
What is trending in Markets?
We saw algo trading being more popular this year than the year before. Says Chintan Bhagat , CEO of Mangal Keshav group of companies , “By Diwali 2020, one thing is for sure, trade cycles are going to be significantly shorter than they are now. When my father used to trade back in the 80’s and 90’s, one market move would last for several months at a stretch. That same move now takes place in 7-10 days. This time period will further shorten by next year as more algorithms are introduced into the market, information flow hastens and people become more agile to act. Market moves will be extremely quick with larger intraday swings and this will be accompanied by higher volatility than there is today. Computers will be trading against each other and retail investors as well as HNI’s, who have no system or algorithms will be forced out of the markets”.
He further adds, “Advancement of algorithms and artificial intelligence have changed the global trading landscape like never before. In the US markets, algo trading accounts for over 70% of trades while in India, 56% of the total trading volumes in F&O segment are driven by algo trades. Even the market regulator - SEBI, is looking to make algo trading more accessible, recently announcing several measures like the introduction of shared co-location services for small and mid-sized brokers to cut algo trading costs.
An algorithm is just a fancy term, what it actually represents is a set of rules based on a logic. This logic is the key ingredient and it must work, only then the algorithm can work. Algo trading has provided a paradigm shift to stock market trading. With the right skillset and technological tools, new age traders can benefit from algorithms as automation is the future
Review of Our Previous Diwali Portfolio
The present fiscal year witnessed the bourses touching skies reaching the all-time high of 40,312.07 level on June 4, 2019. However, it couldn’t sustain the level owing to the slowdown in the economy with certain sectors like auto and metal pulling the benchmark index down. Sensex has gained 9.77 per cent since Diwali, 2018. The 7 stocks that we recommended have on an average clocked 89 per cent annualised returns. If investors would have reinvested the amount in fixed deposits at 8 per cent interest rate, after booking early profits, then the total ROI would stand at 8.08 per cent for the year. Out of the recommended stocks, Sonata Software proved to be the highest gainer,clocking 20 per cent absolute returns in less than one month . Venkey’s, Piramal Enterprises and Suven Lifesciences too have gained 18 per cent, 17 per cent and 16 per cent respectively in less than six months. Out of the closed recommendations, Mahindra & Mahindra gave the lowest return of 11 per cent, still managing to beat the markets. However, Gujarat Alkalies and BCL Industries have not performed on a par with the other recommended stocks owing to the sluggish economy.
CMT, Head Research - Equity, Indiabulls Ventures Ltd.
We feel that the government has taken strategic reforms and its results will pave the way towards a 5 trillion dollar economy by FY25. The corporate tax reform itself is so effective that it will lead to earnings upgrades after 8-10 years. For the first time, the fiscal and monetary policies are unanimously working towards the growth which gives us confidence that the Indian economy will recover speedily. The Indian midcap sector has for a long time not contributed to the rally to which we feel shall start performing as the valuations are trading at attractive levels. Amongst the sectors, we feel, the Auto sector which was the most underperforming is now seeing early signs of a turnaround.The Finance minister has allocated upfront Rs. 50000 Crs as bank recapitalization and followed with the mergers of the PSU banks, the synergies of geographic location will help them garner good volume in their loan books. India had witnessed a consumption slowdown for 6 months on account of the central elections, but with good monsoon and lower interest rates, we feel consumption will pick up in H2FY20 thereby expecting FMCG companies to reports healthy volume growth in H2FY20.
We expect the index to maintain its ongoing bullish sequence of high highs till 42,511, which could be witnessed in the upcoming samvat year. The weakness in crude remains the key catalyst among the other parameters. Since the last Diwali, it witnessed almost more than a 22 per cent decline while our index witnessed a modest up move close to 8-9 per cent. The current trend of the commodity remains weak as the downside continues to be open for a further decline of close to 20 per cent.
On the monthly scale, the Sensex did witness a stiff resistance around 40,100-40,300 cluster zone but the recent swing base looks firm and established around 36,100- 36,000. The ongoing price sequence and its subsequent strength indicators have not yet witnessed any overbought situation on the long term scale. Meanwhile, multiple studies based on technical behaviour of the market are expressing an inflection point around 41,650-42,511 zone.
VP - Research, Religare Broking Ltd
Going forward, the second half of FY20 will be a crucial period for the markets. A seeming demand revival is appearing around the corner in the festive season, following economy-boosting measures by the government and the RBI. Further, we will also be seeing an impact of corporate tax cuts on earnings. The strategy (reinvesting in form of Capex/dividend) adapted by the corporates for utilization of tax savings, will be a key monitorable as it is likely to boost Nifty's earnings growth. This, in turn, could assuage valuation concerns for the benchmark. Moreover, the impact of transmission of the low-interest cost will be visible in terms of credit growth, consumption revival, volume recovery in automobiles, etc. Amongst the sectors, we expect FMCG, Auto (particularly PVs), Infrastructure, and Consumer Durables to do well. However, on the flip side, the government faces a challenge of maintaining the fiscal target for FY20E (estimated at 3.3%) due to the revenue loss as an outcome of the corporate tax cut and poor GST collection.
We can expect interest expenses of highly levered corporate to drop meaningfully and shore up their net income as early as Q3FY20. Our analysis suggests that a 100 bps reduction in interest rate will expand NSE 500 (Ex. Fin) net income margin by 480 bps.
CEO Mangal Keshav
Despite the present global economic slowdown and rising trade war tensions, we feel that over the period of one year, investors will see good returns by investing in the markets at the present valuations
Head of Research, Samco Securities
All the negative factors have kept the markets under pressure but, by next Diwali, equities would be marching ahead. One of the reasons behind this can be the upcoming elections in the US in 2020.Apart from this, thanks tothe efforts by the Modi government, we will also see a revival in Capex, improvement in sentiments, nudging of growth, and a peaceful global outlook, which should take Sensex higher by approximately 12 per cent to levels of 43,300. The India-centric revival will come from the auto sector, which comprises of 49 per cent of India's manufacturing GDP.
After an action-packed year behind us, the markets look all set to reward investors, willing to remain invested up till next Diwali and beyond. The accommodative stance by the RBI, the government’s initiative on lowering corporate tax rates, and various other steps taken to boost the economy have created optimism in the minds of investors. In all probability, the expansionary steps taken by the government of India will help Indian corporates deliver better profitability in the coming years. While the contours of the slowdown are visible, and the economy is not out of the woods, yet the investor sentiment has improved in the recent couple of months.
Some may argue that there is more that needs to be done, in terms of expansionary fiscal policy, and the deficit can be stretched a little more to revive the demand side of the economy. Here is where the next budget becomes a very important event for the markets. Going by the change in stance (aggressive expansion), adopted by the government, the budget can be expected to provide a much-needed booster to various ailing sectors, which have been acting as strong pillars to the Indian economy viz., Automobile, Financials, PSU Banks, etc. Investors can build portfolios keeping that in mind.
The biggest risk for the Indian markets remains external risks. The good news for equity investors in the Indian markets is that the so-called external risks are slowly diminishing. For example, the uncertainty around the US-China trade war, Brexit, and Crude oil are expected to die down as we get closer in the new calendar year.
With all the negative news already discounted by the markets, it does look like the markets have not fully estimated the benefits. When you club this with the savings in the form of interest rate outgo for corporate India, what you have in hand is an improvement in net cash flows, which in turn may kick start the investment cycle in the country. Corporates have shown reluctance towards investing in the current business environment, where the demand is weak in the economy.
The long wait for the recovery in the mid caps and small caps could be over in the coming year. Compared to the current year's performance, one can expect broader markets to perform better in the next year. Also, the point to note here is the fact that India is one of the worstperforming markets in the emerging market space at present. Brazil, Russia, and Shanghai have outpaced the Indian equity markets on a YTD basis. This can be reversed but only with a greater number of FIIs getting overweight on the Indian markets. Here, EPS can be reported higher, which can make us confident about the better market prospect by next Diwali.
Fiscal slippage, liquidity crunch, fear of NPAs not reaching the bottom yet, and the lack of demand and investment in the economy are perceived to be the risk factor, going into the next Diwali. With the government acknowledging the risks and promising to take the counter steps (fiscal recalibration) to arrest the slowdown and pull the economy back on track, investors can focus on identifying the stocks that promise to deliver consistent growth.
Diwali 2020, thus, promises to be prosperous for equity investors. Investors can focus on FMCG, select Pharma, select NBFC (better liquidity), railway stocks with the healthy order book, and the insurance sector stocks to beat the markets. Keeping the US$5 trillion economy target by FY2025 in mind, we recommend the following stocks with a one-year holding period at least to book healthy returns.
Biocon Limited is a biopharmaceutical company engaged in manufacturing generic active pharmaceutical ingredients (APIs), novel biologics as well as biosimilar insulin and antibodies. Biocon focuses on reducing therapy costs of chronic diseases with its aim of providing ease of access to affordable healthcare for patients and partners through its products and services. The company also owns a subsidiary, named Syngene International Limited which is into the business of integrated end-to-end discovery and development services.
On a consolidated basis, the revenue from operations was Rs.1,465.9 crores in Q1FY20, an increase of 30.44 per cent compared to Rs.1,123.8 crores in Q1FY19. PBDT swelled by 53.98 per cent from Rs.289 crores in Q1FY19 and reached Rs.445 crores in Q1FY20. As a result of various product launches, the company’s net profit for Q1 of the current fiscal year touched Rs.235.6 crores, depicting a rise of 70.97 per cent from Rs.137.8 crores gained in the same quarter of the last fiscal year. For FY19, Biocon’s revenue increased by 33.53 per cent to Rs.5514.4 crores from Rs.4129.7 crores in FY18. PBDT grew by 70.65 per cent and reached Rs.1,661.8 crores in FY19 against Rs.973.8 crores achieved in FY18. Thanks to the revenue growth, led by the biologics segment, the company gained a net profit of Rs.10,001.7 crores in FY19, more than double the net profit yielded in FY18, which was Rs.431.8 crores. Three of the Biocon’s strategic business segments, small molecules, biologics, and research services, performed very well in FY19 and helped the company cross Rs.15 billion mark in terms of revenue. The biologics segment which recorded a growth of 97 per cent to Rs.1516.9 crores, was the key driver for Biocon’s incremental growth in the last financial year. The company’s revenue was boosted by 28 per cent to Rs.1,825.6 crores in the research services segment and 18 per cent to Rs.1,772.8 crores in the small molecules segment. However, the revenue growth in branded formulations was relatively less at 7 per cent to Rs.656.4 crores.
Being a pharmaceutical company, Biocon invests heavily in research and development activities, keeping the strong impact of R&D on the company’s future growth in mind. For FY19, the R&D expenses of the company increased by 34 per cent with an improved focus on biosimilars and generic formulations programs. From the revenue earned solely by Biocon (excluding the revenues gained from Syngene, its subsidiary enterprise) in FY19, the company spent 13 per cent or approximately Rs.479.6 crores on R&D. Since its acquisition, Syngene has been a strategic driving force for Biocon. It delivered a revenue growth of 28 per cent in FY19, which amounted to a whopping Rs.1,825.6 crores.
In the last fiscal year, Biocon set up a wholly-owned subsidiary, Bicara Therapeutics, in Boston, USA. This subsidiary venture is set up to focus on developing a pipeline of bifunctional antibodies to support the company’s immune-oncology programmes. Its products received a significant demand boost due to its strategy of first catering to the needs of emerging nations and then focus on the developed markets.
Currently, Biocon-developed biosimilars are being commercialized by some of its partners in the international markets. However, the company aspires to spearhead the commercialization of some of its biosimilar assets on the global front in the near future. Together with new greenfield constructions, the company plans to expand some facilities in FY20 in a bid to support its future needs in biosimilars, small molecule APIs, and formulations segments.
Alembic Pharmaceuticals Limited is a Vadodarabased multinational pharmaceutical company, involved in developing formulations and active pharmaceutical ingredients (API), etc. Its APIs include independent manufacturing blocks for macrolides, non-steroidal antiinflammatory drugs (NSAIDs) and other drugs. With such a diverse portfolio, the company holds 1.6 per cent of the Indian pharma space.
Alembic Pharma has introduced 54 products through the US front-end, out of which 9 were launched in FY19. The USFDA also approved its joint venture plant, Aleor Dermaceuticals in the last fiscal year. At present, the company has 161 abbreviated new drug applications (ANDAs) filings, of which 29 were filed in FY19. So, the total number of ANDA approvals is 89, including 12 tentative approvals. As for APIs, the company has filed for 8 drug master files (DMF). Its current portfolio boasts of 100 DMFs.
On a consolidated basis, the quarterly trends showed the net sales for Q1FY20 reaching Rs.948.91 crores, a rise of 10.01 per cent from the net sales of Rs.862.53 crores in the same quarter of FY19. PBDT increased by 27.37 per cent from Rs.149.52 crores in Q1FY19 and reached Rs.190.44 crores in the first quarter of FY20.
The company gained a net profit of Rs.119.08 crores for Q1FY20 compared to a net profit of Rs.90.38 crores gained in Q1FY19, registering a growth of 31.75 per cent. Overall, for the quarter ended June 30, 2019, the company posted improved financial results against the output of the same quarter of FY19.
As per the annual trend, Alembic Pharma posted an increase of 25.68 per cent to Rs.3,934.68 crores in FY19 in revenue from operations against that of Rs.3,131.81 crores in FY18. PBDT stood at Rs.864.55 crores and Rs.646.73 crores in FY19 and FY18, respectively. In FY19, the net profit increased by 40.78 per cent, amounting to Rs.592.57 crores against the net profit of Rs.420.91 crores gained in FY18. While the company’s current market capitalization stands at Rs.10,138 crores, the average return on equity was 21 per cent in FY19 as compared to 19 per cent in FY18, despite a significant increase in R&D expenses. Strengthening its R&D capabilities is one of the company’s priorities for which it spent nearly 13 per cent of its total revenue in the last fiscal year. It declared a dividend of Rs.5.5 per equity share for FY19.
The international generics business of Alembic Pharma grew by 48 per cent to Rs.1,782 crores in the last fiscal year. An approximately 40 per cent growth to Rs.1,288 crores in the company’s US business operations helped it expand its presence in the country. Europe and the Rest of the World (EROW) business expanded significantly by 73 per cent to Rs.494 crores in FY19. The API segment rose by 18 per cent to Rs.771 crores. On the domestic front, the growth of the branded business was comparatively slower, registering a rise of only 9 per cent to Rs.1,382 crores.
As a part of the company’s growth strategy, it continues to invest in the international generics market with successful ANDA and DMF filings. With increasing competition, it is focusing more on better efficiencies in terms of the supply chain. The current currency movements, regulatory and geo-political changes pose a threat to its business operations. As new facilities will be commissioned from FY21, the company’s capital investment is expected to reduce significantly since these facilities will be sufficient to comply with all its needs. The imminent lower Capex intensity will improve Alembic Pharma’s free cash flow generation over the next few years.
Jiya Eco Products
Jiya Eco-Products Limited (JEPL) manufactures biofuel, including bio briquettes and bio-pellets energy from forest and agricultural waste such as cotton stalk, groundnut shells, cumin waste, forest leaves, household waste, and juliflora. Biofuel acts as an alternative to other commonly-used nongreen fuels such as coal, charcoal, firewood, diesel, and petrol. Compared to regular fuels, biofuel manages to provide 30 to 50 per cent savings on fuel cost.
Mainly, the company produces biofuel pellets, kutti, and stoves. It offers biofuel and biomass pellets in different sizes, ranging between 6 millimeters and 10 millimeters. At present, it has a fully functional plant at Bhavnagar, Gujarat, with a capacity of 1,19,680 MTPA for briquettes and 1,19,680 for pellets. The company claims to manufacture biofuel that does not emit sulfur or phosphorus with smoke and does not produce fly ash as well.
On a consolidated basis for Q1FY20, Jiya Eco Products Ltd. posted an increase of 10.25 per cent in net sales to Rs.52.51 crores from Rs.47.63 crores in Q1FY19. In Q1FY20, its operating profit grew by 12.37 per cent and reached Rs.7.45 crores as compared to Rs.6.63 crores in Q1FY19.
For the first quarter of the current fiscal year, the company’s net profit rose by 21.5 per cent to Rs.7.46 crores from Rs.6.14 crores.
On the annual front, Jiya Eco’s net sales stood at Rs.213.26 crores in FY19, reporting an increase of more than double the net sales of Rs.92.58 crores in FY18. Expanding significantly, it reported an operating profit of Rs.27.03 crores in the last fiscal year as compared to the net profit of Rs.11.62 crores in FY18.
The company’s net profit rose by 113.93 per cent to Rs.18.27 crores in FY19 from Rs.8.54 crores in FY18.
On the retail burner front, Jiya Eco installed 25 new burners at retail client sites in FY19, thereby taking the company’s total installed base to 400 burners. Along with expanding its pellet line capacities, the company aims at installing approximately 1000 more burners by the end of FY21. In FY19, the company introduced processed agriwaste products, which drove its revenue generation substantially and contributed to over 60 per cent of its total revenue that year. Due to the rapid and highly efficient combustion in comparison with briquettes, agri-waste products have been highly successful in gaining demand among consumers.
Jiya Eco constantly strives to improve its product quality and offerings by adding premium quality products to its portfolio. The company also focuses on value addition to its products, an example of which is its plan to produce biofuel pellets made with pine wood from Gandhidham. Gandhidham is known for having numerous plywood factories which generate a huge amount of timber waste. As of now, the company is waiting for regulatory approval, after which, it will commence the commercial production and export of sample batches.
The company is also taking proactive steps such as offering discounts on early payments to improve the working capital cycle since elongated payment cycles are very common in this industry. With these, Jiya Eco expects a significant improvement in its financial health in the current and the next fiscal year.
Heidelberg Cement India Limited is involved in the manufacturing of Portland cement. Heidelberg Cement Group forayed into India in early 2006. The move was motivated by its pursuit of growth which originated from the opportunities offered by the growing markets in developing countries.
As a part of its growth strategy, the group acquired a controlling stake in Mysore Cements Limited and Indorama Cement Limited Joint Venture which later on was renamed as Heidelberg Cement India Limited. Its product portfolio includes Portland Pozzolana Cement (PPC) and Portland Slag Cement (PSC). PPC is produced either by grinding the Portland clinker with gypsum and pozzolanic materials in measured proportions or by blending Ordinary Portland Cement (OPC) with pozzolanic materials in certain proportions. PSC is manufactured by either grinding the Portland clinker with gypsum and granulated slag or blending the ground granulated blast furnace slag with OPC using mechanical blenders.
Heidelberg Cement’s manufacturing facilities are located in Karnataka, Madhya Pradesh, and Uttar Pradesh. The Company has a total cement manufacturing capacity of 5.4 million tons per annum (MTPA) with a clinker capacity of 3.4 MTPA. Its products are sold under the brand name of ‘mycem’. The Company undertook a brownfield capacity expansion in central India to increase its cement manufacturing capacity from 2.1 million tonnes per annum to 5.4 million tonnes per annum.
Looking at the quarterly trends, HCIL reported the net sales of Rs.582.44 crores in the first quarter of FY20, an increase of 8.49 per cent as against the net sales of Rs.536.85 crores in the same quarter of FY19. PBT also increased by 54.44 per cent for Q1FY20 and reached Rs.121.81 crore as compared to Rs.78.87 crore for the first quarter of the last fiscal year. The company gained a net profit of Rs. 79.03 crores in Q1FY20, an increase of 54.6 per cent to the net profit of Rs.51.12 crores, gained in Q1FY19.
On the annual front, the net sales for FY19 were Rs.2,109.44 crores, an increase of 9.12 per cent compared to Rs.1,933.16 crores for FY18. The PBT increased by 64.5 per cent to be Rs.341.61 crores in FY19 against Rs.207.67 crores in FY18. The net profit in FY19 was reported at Rs.220.66 crores, rising by 65.69 per in comparison with a net profit of Rs.133.18 crores in the last financial year. The company declared a total dividend of Rs.4 per equity share for FY2019.
In cement production, HCIL reported an increase of 4.6 per cent or 4.82 million tonnes in FY19 from a total production of 4.61 million tonnes in FY18. The company reported its highest ever annual production and sales volumes, sales revenue, EBITDA and net profit in the last fiscal year.
It also recorded the highest ever annual EBITDA per tonne, realisation per tonne, and waste heat recovery power generation. To optimize usage of natural resources, improve workforce safety and productivity as well as to ensure stringent environmental compliance and also to manage cost-efficient production, the company continues to invest in automation and digitization of processes across the production chain.
Polycab India Limited has been a dominant player in India’s cables and wires market for retail and institutional buyers. The company has been constantly developing its product portfolio to cater to the ever-increasing demand for fast moving electrical goods (FMEG).
On April 16, 2019, Polycab was listed on BSE and NSE. Its initial public offering (IPO) of Rs.1,345.3 crores was subscribed 52 times, which was an overwhelming response, according to the company’s management. The issue received bids for over 918 million shares against the total issue size of 25 million shares.
The reserved portion of qualified institutional investors was subscribed 97.78 times while retail investors subscribed 4.35 times.On its first day of trading on BSE and NSE, Polycab’s share opened at Rs.633, hit an intraday high of Rs.667.8, and later closed at Rs.654.8, which was 22 per cent more than its issue price of Rs.538.
Looking at the quarterly trends on a consolidated basis, Polycab reported the net sales of Rs.1,932.98 crores for Q1FY20, an increase of 14.88 per cent against the net sales of Rs.1,682.64 crores for the same quarter of the last fiscal year. PBDT also expanded by 54.24 per cent from Rs.158.76 crores in Q1FY19 and touched Rs.244.87 crores in the first quarter of FY20. For Q1FY20, the net profit registered a significant growth by 67.87 per cent to Rs.135.05 crores from Rs.80.45 crores in Q1FY19.
On the annual front, Polycab registered the net sales of Rs.7,955.98 crores in FY19, a rise of 15.05 per cent over the net sales of Rs.6,914.95 crore reported in FY18. The PBDT stood at Rs.899.84 crores in last fiscal year, a hike of 28.61 per cent from Rs.699.64 crores in FY18. The company’s net profit swelled by 40.22 per cent to Rs.502.63 crores in FY19 from Rs.358.46 crores posted in FY18 despite a challenging demand scenario.
Also, the company was able to improve and maintain liquidity, asset management, profitability, and leverage in the last financial year as it aimed to reduce the debt burden by proper management of receivables by focusing on profitable growth via acquisitions of quality clientele and better realisation.
According to a research report by CRISIL, the market for wires is expected to grow by nearly 15 per cent in India in the next five years. Thus, Polycab hopes to achieve annual growth rates of 7 per cent for fans, 7 per cent for lightings and luminaires, 9 per cent for switches and switch gears for its FMEG markets during the period from FY18 to FY23.
The company has a competitive edge over its peers as it not only manufactures products but also has integrated backward with joint venture Trafigura to produce copper wire rods. When the Gujarat-based Trafigura plant becomes fully operational, it will have the capacity to absorb all the company’s raw material needs for its FMEG business. This will support as a key growth driver for Polycab, making it more sustainable in the markets.
PSP Projects is among one of India’s fastest-growing construction companies. The company offers a diversified range of construction and allied services across industrial, institutional, government and residential projects in India. Timely and qualitative execution of all its projects is its forte that has enabled it to gain a strong reputation in the industry. Solid financial strength supports the company’s multidisciplinary capabilities and large equipment fleet, providing a major strategic advantage and building confidence of its clients. The fast-growing construction sector is the core market for this Ahmedabad-based company.
PSP Projects conducts business operations via its subsidiaries as well. PSP Projects Inc. is a wholly-owned subsidiary of the company, whereas, it holds a 50 per cent ownership stake in step-down joint venture P&J Builders LLC. PSP Projects & Proactive Constructions Private is also a subsidiary of this company.
As of March 31, 2019, PSP Projects has 120 completed projects and 46 projects under execution. Its order book amounts to a total of Rs.2,978 crores. The company received a single-largest order of Rs.1,575 crore of Surat Diamond Bourse Project, which is under execution. The company’s average ticket size of projects is around Rs.42.91 crores. Nearly 85 per cent of its revenue was contributed by the industrial and institutional segments in FY19. On a consolidated basis, PSP Project’s net sales for Q1FY20 stood at Rs.307.68 crores, a hike of 29.16 per cent from the net sales of Rs.238.22 crores in Q1FY19. The company’s PBDT grew by 19.03 per cent in Q1FY20 to Rs.44.81 crores from Rs.37.65 crores in Q1FY19. For the first quarter of the current fiscal year, it clocked a 19.99 per cent rise in the net profit from Rs.21.07 crore, gained in Q1FY19, to reach Rs.25.28 crores.
Looking at the annual trends, the net sales were reported at Rs.1,050.40 crores for FY19, an increase of 39.75 per cent from Rs.751.64 crores for FY18. PBDT expanded by 41.96 per cent to Rs.161.73 crores in FY19 from Rs.113.93 crores in FY18. As the company received new orders worth Rs.1,415 crores in FY19, it posted a significant increase of 35.17 per cent in the net profit of Rs.89.21 crores from the net profit of Rs.65.99 crores, gained in FY18. It declared a final dividend of Rs.5 per equity share for FY19. ROCE percentage was 31.36 per cent and earnings per share stood at Rs.25.07 for the last fiscal year.
The company continues to strengthen its order books with various prestigious orders. The company engages in projects with upfront interest-free mobilization advances. Hence, it can make payments for raw materials and equipments from the advance received, thereby reducing its capital requirements and maintaining healthy financial margins. The growth drivers for the company’s order book include projects achieved from the institutional sector, Make in India campaigns, infrastructural development related to 100 Smart Cities by 2022, and the ‘housing for all’ initiative. Its debt-equity ratio is amongst the lowest in the industry, which gives it the privilege to bid for new projects.
With the easing of the financial environment in the economy, there will be an increase in the flow of domestic and international private equity and FDI into the infrastructure sector creating a funding source for construction projects.
V-Guard Industries Limited (V-Guard) manufactures, trades and sells electronic products. The company’s business segments include electronics, electrical/electromechanical and other products.
The electronics segment comprises of products such as voltage stabilizers, uninterruptible power supply (UPS) and digital (UPS). The electrical/electromechanical segment consists of products such as PVC cables, pumps and motors, electric water heaters, fans, switchgears, induction cooktops and mixer grinder. Its other products includes solar water heater and solar inverter. The manufacturing facilities of V-Guard are located in Tamil Nadu, Uttarakhand, Himachal Pradesh, Sikkim, etc.
On a consolidated basis, V-Guard’s net sales for Q1FY20 stood at Rs.706.65 crores, increasing by 10 per cent from the net sales of Rs.642.42 crores for Q1FY19. The sales growth was largely led by the electronics and consumer durable segment. The company cumulatively introduced a price hike of 2 per cent across its product categories during Q1FY20. It reported an operating profit of Rs.77.43 crores for Q1FY20, a rise of 53.72 per cent from Rs.50.37 crores in Q1FY19. Price hike, coupled with sales growth and savings in advertisement and promotional expenditures, led to an expansion in gross margins. The company incurred a net profit of Rs.53.03 crores in Q1FY20, a hike of 53.65 per cent from a net profit of Rs.34.52 crores in Q1FY19.
For the electronics segment, strong sales of both, stabilizer and UPS products during the summer led to an increase of 17.6 per cent in the segments performance. The electrical/electromechanical segment had a muted sales growth of 0.7 per cent in Q1FY20 from Q1FY19 due to de-stocking by dealers. The sales growth driven by the increased sales of kitchen appliances and fans in the consumer durable segment delivered a growth of 15.3 per cent YoY in Q1FY20.
Looking at the annual trend, the net sales were registered at Rs.2,594.01 crores for FY19, an increase of 11.08 per cent from Rs.2,335.26 crores for FY18. In FY19, PBDT increased significantly by 21.68 per cent to Rs.242.6 crores against Rs.199.37 crores in FY18. The company’s net profit increased by 24.44 per cent to Rs.168.05 crores in FY19 from Rs.135.05 crores in FY18.
Recently, V-Guard forayed into air coolers and kitchen appliances thereby diversifying its product offerings. With an encouraging consumer response, the company has come out with new models of air coolers and also launched a range of rice cookers to complement its kitchen product range of induction cooktops, gas cooktops, and mixer grinders.
The growth for the company is led by novel product launches and its continued expansion in new geographies. Its profitability varies according to seasons. For example, air coolers are in more demand during summer while the demand for heaters increases in winters. With a focus on innovation to improve the quality of its products, the company’s management expects a 15 per cent growth in FY20 and to achieve higher profit margins. It also projects to make approximately Rs.60 to 70 crores per annum CAPEX investments
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