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CIO’s View
Management Meet Note
Mutual Fund Overview
Book Review World Economic Calendar
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CIO’s View Mr. Sandeep Tandon quant Mutual Fund
2021 A New World Order
2021 A New World Order
PROMINENT HEADLINES
Market Overview
Monthly Insight Recommendation Performance
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6
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37
45
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64
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Market OVeRVIew
Of course, the developed nations have an upper hand at this, given the heavy hand in procurement and backed by strong infrastructure and cold storage. Wealthier countries have secured extensive supply deals thus limiting risks, while many developing and emerging ones may have to rely on international groups that have promised to make vaccines affordable (with Oxford- AstraZeneca being the major one). Poor countries will continue to be ravaged by the pandemic, forcing them to expend meager resources
that are already stretched by growing debts to lenders in the United States, Europe and China. While population in India could be cajoled with optimism of Oxford- AstraZeneca vaccine (manufactured by Serum Institute) and the domestic ones (like Bharat Biotech & Cadila Healthcare in stage 3 trials), there’s caution against too much enthusiasm as availability and distribution in emerging markets may lag behind their developed peers. Apart from the infrastructural bottlenecks and challenges on climate (hot & humid),
Paras Bothra
As year 2020 wraps up and we move forward to 2021, the outlook for year ahead is of cautious optimism. while the expectations remain strong of rebound in economic activity led by normalization across sectors and with infused confidence of vaccines in the anvil which the Govt. will procure or manufacture and distribute.
1 January 2021INSIGHT
have raised debt from overseas markets given near zero interest rates and hence deleveraged. Besides, companies took advantage of strong resurgent stock markets and raised record Rs 1,77,468 crore in 2020, an all-time high, breaching Rs 1,60,032 crore in 2017. In fact, notwithstanding all-time highs of world stock markets, developed economies are still doling out fiscal packages (like that of US$ 900 bn recently made by US), over US$20 trillion worth of bonds yielding negative return globally and central
banks remain supportive of liquidity and would find it difficult to get out. For the time being, bond yields are expected to stay low, lending further support to stock valuations, hence the optimism.
What’s in store for 2021? Cleary that’s the question that everybody wants to find out and here again clearly there are no easy answers. While the economies are racing back to normalization, the pace hasn’t been an even one, as with the social wealth inequality, there has been the case with the companies too or what experts call a ‘K’ shaped one. Besides, all asset prices have been fueled by global liquidity and low interest rates and that will continue
The year 2020 in retrospect has been nothing short of a roller coaster ride and while the markets have recovered fully and thus depicted a ‘V’, the same cannot be said with regards to the economy or more so with different sects of people across different income groups and society.
distribution also depends on swift implementation strategies between Centre and State governments and hoping that vulnerable population are not subjected to usual political blame games. Until vaccines are available by and large, news of virus mutations like the one just found in UK could continue to scare people, sentiments and yes, financial markets, no matter how brief since it will take 15-18 months to inoculate a sizeable population to reach a stage of herd immunity against the Covid-19 virus. The year 2020 in retrospect has been nothing short of a roller coaster ride and while the markets have recovered fully and thus depicted a ‘V’, the same cannot be said with regards to the economy or more so with different sects of people across different income groups and society. Something, what will stand out and stick to the memories would be plight of the migrant workers crossing hundreds of miles on bare foot to make back to their villages. The informal sector has been greatly affected and except for a handful of surveys, there are not much of Govt. data to capture the plight. Thankfully, the higher allocation of funds towards MNREGA program for the year to a record Rs 1.1 trillion, helped alleviate some of the joblessness and income destruction. Thankfully, according to estimates, most of the jobs that returned as the economy clawed back to recovery were in the informal sector too. However, the key theme of the year 2020 would be inequality and that is evident across wealth, across sectors and hence across companies (based on market capitalization). Organized players gained market share during the lockdown at the cost of informal sector and while the process already started after demonetization, the pandemic thus hastened the whole process. The world that emerges from this terrifying chapter in history will be more unequal than ever. While one side, millions fell below poverty line, the buoyant stock markets helped amass wealth. Large companies
to support equity markets. However, a recovery in commodities is bad news for the manufacturing sector, since that needs to be passed on and we have already witnessed the same with auto manufacturers announcing price hikes. India’s economy is vulnerable to rising crude prices and yes, it needs to do some catching up to go beyond US$60/bbl (levels in FY20), but again normalization of activities and higher demand will play its part as well. Services sectors like that of airlines, multiplexes and retail have lost a significant portion of business and that is permanent in nature, but are recovering as well. Cost savings for IT sector on travel would thus be reversed as full normalization kicks in. Since lockdown, companies have invested in digital channels and digital payments as well as e-commerce sales of FMCG and consumption players have been higher than normal. However, majority of savings of the listed space have happened at the cost of employees or through lower employee costs, that doesn’t provide much optimism on future consumption. Thankfully, much of the void created in urban consumption has been compensated by rural, on account of Govt. programs as well as supported by back-to-back monsoon. However, with private capex to falter again, Govt. needs to spend higher and the same needs to be watched out. Different indicators have been giving mixed signals and thus even RBI Governor has opined at looking at forward earnings estimates of companies of different sectors to look for clues. The other way would be to look at the Care Ratings’ Economic Comeback Meter (CECM) which is a singular number based on all indicators and thus helps in coming to a conslusion rather than be puzzled. In CECM, production is represented by power generation, e-way bills, and non-oil-gold imports while consumption is measured by the sales of passenger cars and 2-wheelers, petrol consumption, and GST collections. Further, the
2January 2021 INSIGHT
investment is gauged on the growth in bank credit, and debt issuance in the market. Weights are assigned to indicators such that the resultant solution is a singular number. While an index of -2 to 0 shows deterioration; 0 to 5 shows ‘on comeback path’; 5 to 8 represents comeback; and 8 to 10 indicates growth path. Clearly, based on CECM data, the economy is certainly on a comeback path as the figures for Nov’20 at 2.62 is a sharp recovery from 0.58 in Aug’20 and is recovering month-on-month, however to be a back on growth path with a CECM figure of more than 8 looks a tall ask as of now.
A vaccine could be cure for the disease and thus help in normalization, however would that help in growing beyond normalization, on a strong note. Once vaccine arrives and a significant population is inoculated, different ecnonomies would probably grow at different rates albeit post full normalization. The key term is ‘growth’ here beyond normalization and this is where the fiscal stimulus led recovery in developed economies will probably score higher than
India’s credit backed one, as the former will be more sustainable. While the Govt. argues of recovery in indicators based on stimulus measures equivalent to ~15% of GDP, the real fiscal stimulus could be close to 2% of GDP, against 13.3% for US, ~11% for Australia and 20% for Singapore. A coin has two sides and one’s views matter which side one prefers. So far, higher liquidty (both global and domestic) has even lowered spreads between corporate and Govt. bonds, while others might argue of reflection of future corpoarte earnings performance. The same with equity maket valuation driven by lower rates and dollar weakness, which would correct some time in future and a flashback of ‘taper tantrum’ back in 2013 might refresh our memories, but again critics might argue of different strengths of economy back then and now. The fact is Covid-19 vaccine alone can’t help an economy that is tottered by sluggish investments, muted credit flows and capital constraints. Rising prices of commodities and firmer interest rates will pinch, making both goods and services costlier, if not immediate, some time in
future. Meanwhile, the Govt. needs to spend and infrastructure is the best bet thus creating employment and consumption and sustained economic growth. Besides, this is the first Govt. which has taken bold reforms in the agriculture space and if implemented in right spirits would fuel share of agriculture in GDP. The focus of the Govt. towards Production Linked Incentive (PLI) scheme could be a game changer with ease of land acquisition and lower power costs, which the Govt. is working upon. Even FDI inflows have been higher by 23% yoy in H1FY21 and could rise further as the Govt. has been showing the right intent with reforms in labour and land. Govt.’s focus on renewable energy will also reduce power costs and hence lower manufacturing costs and make India competitive among Asian peers. However, to take benefit of the PLI scheme, the Govt. has to ink free trade agreements (FTA) with the developed economies as well. Albeit sentimentally optimistic, these measures will take time to get implemeted, but if done right, could set the high growth path for next decade.
Wishing you a very happy and prasperous 2021.
Paras Bothra President - Equity Research (Retail) email - [email protected] Phone: +91 22 6611 1700 Direct: +91 22 6611 1786 Mobile: +91 98203 97061
The Indian economy could grow at over
11 percent in the 2022 financial year, as it has rebounded spectacularly after the initial loss of production due to COVID-19 this year. In the near term, there are reasons for optimism. Several indicators have rebounded faster than expected.
n Chandrasekaran, Chairman, Tata Sons.
The government is making efforts to deregulate
the economy with an aim to attract greater investments from across the world. India is looking forward for working with friends and neighbours and having a global footprint. India is working to turn the COVID crisis into an opportunity, and is confident of reaching the target of USD 5 trillion economy by 2025, and USD 10 trillion in another 7-10 years.
Piyush Goyal, Minister, Commerce and Industry
This year 2020 offered India an opportunity to
forge a new vision of globalization, focus on the shared interest of humanity as a whole. This year has given India an opportunity to emerge as the engine of the global growth.
anurag thakur, Union Minister of State for Finance and Corporate Affairs
With the outbreak of COVID-19 and
the ensuing collapse in economic activities have hurt Indian trade more than what the numbers are showing. For the last three years, India’s exports have been about $330 billion. However, this year, India may not be able to do $300 billion, or even $290 billion worth of trade, as things stand.
harad saraf, President, Federation of Indian Export Organisations
If the Indian economy grows at 5 percent in the era of
deglobalisation, then it will be a significant achievement. It is no longer feasible in the world of deglobalisation to grow at 7 percent as exports cannot grow at 20 percent or 30 percent in a year, which was good in an era of globalisation.
ruchir sharma, Chief Global Strategist, Morgan Stanley
The government is committed to improving the
ease of doing business, innovation ecosystem where every school student has access to the innovative tools and trends.
rajiv Kumar, Vice-Chairman, NITI Aayog
India’s private credit- to-GDP ratio is the lowest among its
global peers and the government is in the process of putting in place a framework for a credit push towards untapped segments.
amitabh Kant, CEO, NITI Aayog
The demand for chemicals and petrochemicals
is expected to rise 9 percent annually, and the size of the industry is likely to grow to $300 billion by 2025. The Indian chemical industry, over the last one-and-a-half decade, has transformed from manufacturing principal chemicals in a highly regulated market to being a mature industry in a liberalised economy.
d v sadananda Gowda, Minister, Chemicals and Fertilisers
In an evolving technology ecosystem, India
has a huge opportunity to become the digital talent hub of the world. And the demand for talent in advanced technology like AI, robotics, and data science will be 20 times greater than the supply by 2025.
debjani Ghosh, President, Nasscom
The pending demand has been very much in the
forefront of what is causing the increase in sales. 2020 hasn’t been a good year. We lost the first quarter so I definitely expect 2021 to be much better than 2020.
r C Bhargava, Chairman, Maruti Suzuki India Ltd.
Some of the sectors which represent the broader
economy and which have underperformed will start to pick up. I probably believe that it is just the beginning. The party has just started and my sense is that over the next two to four years, you are really going to see this space march ahead versus the very obvious popular benchmarks and popular indices.
nilesh shah, Managing Director, Kotak AMC
The MSME sector plays a pivotal role in the
growth of the nation. Corona, because of which lockdown had to be enforced, gave a massive blow to the industry including MSMEs, and to deal with this Prime Minister Narendra Modi announced a package of Rs 20 lakh crore.
Pratap Chandra sarangi, Minister of State for MSMEs
As we peep into the next year, the setup for the
equity market looks still fine. Given the kind of circumstances that we are in and we are coming out of a fairly difficult kind of a crisis, we don’t have a choice but to work with certain scenario assumptions as we move into 2021.
taher Badshah, CIO Equities, Invesco Mutual Fund
Uncertainty in the economic outlook is due to the
COVID-19 pandemic and therefore I would urge caution especially given winter months... Till the pandemic does not go away, some of the sectors that are affected by social distancing will continue to experience a demand slump.
Krishnamurthy subramanian, Chief Economic Advisor
India would be the engine of global growth, along with a few other countries, contributing to the revival of the global economy in a significant way. We owe it to the humanity that we all put our heads together, pan up something and come up with a budget which can play its role in reviving India. nirmala sitharaman, Finance Minister
With regard to the banking sector, he reiterated the need for banks to remain vigilant and take proactive measures to strengthen their resilience and lending capacity by raising capital and making provisions proactively shaktikanta das, RBI governor
At quant, we have studied volatility for more than a decade. Volatility is more than just a risk appetite indicator or statistical measure or fear index. Instead, we consider volatility to be a more significant and broader phenomenon - it is the deviation of market participants’ collective perception from reality. Volatility indices are the clearest indicators of market sentiment, as evident in their relationship with participants’ activity. Further, volatility provides predictive
One of the oldest market legends is of a young man approaching John D. Rockefeller and enquiring about the future direction of the Standard Oil Company’s stock. After a brief pause and deliberation, the founder of Standard Oil replied – ‘Young man, I believe they will fluctuate’. After more than a 100 years, that tip still holds. The ability to accurately forecast global volatility is the key to enhance portfolio returns and protect capital in a challenging environment.
information on market trajectory by quantifying the difference between actual risk premium and what the market is pricing in.
Beginning with the February 2018 ‘Vixtermination’ event, when the VIX jumped 4 times to 50 in 2 trading sessions, global markets have woken up from their QE-induced lull into a Volatility Expansion Phase (VEP) which started in 2018 and should last till 2023. The combined, multi-lateral effects of quantitative tightening, rising populism, growth slowdown
FROM THE DESK OF CIO
CIO’s View
due to trade wars, rising geopolitical uncertainty, and the ballooning global pile of credit and leverage, has pushed markets away from the shore into choppy waters. Our research suggests a prolonged period of transformation, which based on cycles analytics could last up to 2047 as global markets search for a new equilibrium as endorsed by our “Global Reset” theory.
When the Covid-19 pandemic hit the world, nobody envisioned the indelible impact it would leave on us. Hyper-volatility in the financial markets was observed through this period and will last for a couple of years into the future too. As the markets become non-linear and parabolic, to stay relevant, money managers must think with an unconstrained mind, actively update their methods and earnestly search for absolute returns, considering all markets and asset classes. At quant, we refer to ourselves as Dynamic Money Managers. We believe that the era of the traditional buy and hold strategies will underperform through this period as a hyper volatile environment calls for fund managers to seek opportunities and act with agility.
In the investment management business, it has long been the norm to focus primarily on security selection (SS) decisions as opposed to asset allocation (AA) decisions. Security Selection helps outperform when the tide is rising. However, alpha is limited to the volume and volatility of the tide – Liquidity and Risk Appetite. Going ahead, it is expected that as the market evolves, the outperformance of the last two decades may not be repeated through security selection alone. It is the law of marginal returns at play, as more investors and analysts reduce the company-specific informational inefficiencies.
We believe that the solution going forward lies in Adaptive Asset Allocation (AAA) – an investment management approach that ascribes equal importance to both security selection and asset allocation decisions. AAA provides alpha by enabling us to sail through as the tide recedes or becomes volatile. There
are three aspects to this – tactical, dynamic and strategic. During major market movements, tactical and dynamic aspects protect against downside risk, thereby enhancing
and smoothening returns, while the strategic aspect capitalizes on the relative discrepancies in individual asset prices through valuation methodologies. In essence, this process combines the successful attributes of both active and passive management.
quant Mutual Fund runs on two simple yet powerful guiding mantras – ‘Being Relevant’ and ‘Predictive Analytics.’ The guiding philosophy of ‘Being Relevant’ means that in a dynamic and volatile world, to remain relevant, and to preserve and grow wealth, the test of time must be passed every day by continuously updating knowledge and innovating on systems and processes. This is enabled by ‘Predictive Analytics’: an all-encompassing framework for understanding and forecasting markets, across assets and geographies. Our focus at quant lies on quantifying everything. We have
been ardent believers of the study of behavioral finance which tells us that market moves are highly dependent on the aptitude and appetite of market participants. To address this, we have developed and track several analytical indicators which measure market sentiments from different perspectives. These indicators have the unique ability to condense multidimensional research into a one-dimensional single number. This philosophy coupled with our multidimensional research and our VLRT investment framework aid us in our decision making process.
Our analysis begins by understanding and analyzing global cues. After understanding the global macro environment, we identify the overall Risk-On/Risk-Off environment. Subsequently, our VLRT Framework comes into action. This VLRT framework is a combination of four elements, namely: Valuation Analytics, Liquidity Analytics, Risk Appetite Analytics and Timing.
In the investment management business, it has long been the norm to focus primarily on security selection (SS) decisions as opposed to asset allocation (AA) decisions. Security Selection helps outperform when the tide is rising. However, alpha is limited to the volume and volatility of the tide – Liquidity and Risk Appetite.
• Valuation Analytics: Knowing the difference between price and value
• Liquidity Analytics: Understanding the flow of money across asset classes
• Risk Appetite Analytics: Perceiving what drives market participants to certain actions and reactions
• Timing: Being aware of the cycles that govern how the other three dimensions interact
quant MF Schemes Scheme Returns (March 24-Dec 28,2020) in Rs
Scheme Respective Benchmark Indices Returns(March 24- Dec 28,2020) in Rs
quant MF Schemes Outperformance Relative to Respective Benchmark Indices
Portfolio Beta
114.97% 80.89% 34.08% 0.88
quant Small Cap Fund*
150.61% 104.16% 46.45% 0.95
quant Mid Cap Fund* 99.11% 86.73% 12.38% 0.84
quant Multi Asset Fund*
78.28% 28.66% 49.62% 0.55
quant Absolute Fund (Balance)*
85.16% 52.74% 32.42% 0.68
85.27% 78.40% 6.87% 0.78
76.70% 82.64% -5.94% 0.76
118.73% 59.48% 59.25% 0.84
** 1st NAV Date 6 Nov 2020 - quant ESG Fund * NAV For Both Growth & Direct Plan ,NAV Recorded on 28 December 2020
quant Active Fund
quant Active fund is a Multicap Fund which is a flagship
scheme of quant Mututal Fund. Through quant Global
Research’s predictive analytical tools, we can observe
that the Volatility Expansion Phase will last upto 2023
in which the dynamic style of money management
will take precedence over the traditional strategies of
money management. As a fund house, the underlying
theme driving the relative allocation is our ability to
identify cross asset, cross market inflexion points. This
quantitative approach is based on our proprietary VLRT
framework, wherein we incorporate the full spectrum
of data along deeper aspects related to the three axis
of Valuation Analytics, Liquidity Analytics, and Risk
appetite Analytics viewed in a dynamic setting – Time.
Consequently, this forms our multi-dimensional VLRT
framework. The formulation of this macro narrative
guides our micro level stock selection.
The success of our dynamic approach can be gauged by
the fact that the quant Active Fund has outperformed
its benchmark by 34% with a beta of only 0.88. This
outperformance has translated into an exponential
increase in corpus for our active fund which currently
stands at INR 135 crore (a growth of 1676% in the past 9
months).
The scheme currently has 40 stocks in its portfolio which
are split amongst large, mid and small cap companies
to the tune of 35%, 24% and 40% respectively. Given the
prevalent volatility, the portfolio is tilted towards the
defensive sectors – Pharma & Healthcare, IT and FMCG.
MuTual FunD OvERvIEw
Important Details NAV (as on 29 December 2020) (Rs.) 273.29
Inception Date April 4, 2001
Fund Managers Mr. Ankit Pande, Mr. Vasav Sahgal,
Mr. Sanjeev Sharma
Entry Load Nil
Exit Load Nil
R-Squared 0.85
Portfolio Turnover Ratio (1 year) 5.26 Times
*as on 30th November 2020 **Standard Deviation & Sharpe Ratio are calculated on annualised basis using 3 years history of monthly returns; risk free rate assumed to be 5.96% for calculating Sharpe Ratio (calculated based on annualised CRISIL CBLO Index returns over 3 years)
Fund & Benchmark Index Name YTD 1Y 3Y 5Y
Quant Active Fund 45.20% 44.67% 50.24% 106.73%
NSE 500 Total Return Index 17.18% 16.75% 25.17% 82.19%
Fund Outperformance 28.02% 27.92% 25.07% 24.54%
Performance of the Fund along with Benchmark (as on 29 Dec 2020)
0.39
0.69
1.38
2.96
3.48
4.68
5.37
5.38
6.58
7.22
7.89
8.07
8.32
11.36
25.10
Oil & Gas
Ashika Mutual Fund Recommendation Alpha Generation Month of Recommendation Fund Name Benchmark NAV as on
24.12.2020 1 Year
Return (%) 3 Year
Return (%) 5 Year
Return (%)
Dec-19 Parag Parikh - Long Term Equity Fund Reg (G) NSE - Nifty 500 TRI 35.0 30.4 14.4 14.9
Jan-20 DSP - Dynamic Asset Allocation Reg (G) CRISIL Hybrid 35+65 Aggressive Index 18.2 12.3 8.3 9.0
Feb-20 Invesco - India Growth Opportunities Fund (G) S&P BSE 250 Large Midcap TRI 40.9 12.4 7.7 12.5
Apr-20 DSP - Top 100 Equity Fund Reg (G) S&P BSE 100 TRI 240.9 5.9 6.0 9.6
May-20 Axis - Focused 25 Fund Reg (G) NSE - Nifty 50 TRI 36.8 18.8 11.7 16.1
Jun-20 Nippon India - Tax Saver (G) S&P BSE 100 TRI 55.0 -0.5 -7.1 4.1
Jul-20 SBI - Small Cap Fund Reg (G) S&P BSE Small Cap TRI 70.6 32.1 3.9 15.8
Aug-20 Aditya Birla SL - Focused Equity Fund Reg (G) NSE - Nifty 50 TRI 72.1 14.2 7.1 11.3
Sep-20 Sundaram - Services Fund (G) S&P BSE 200 TRI 14.3 13.6 0.0 0.0
Oct-20 Invesco - India Contra Fund (G) S&P BSE 500 TRI 59.0 20.3 7.4 13.9
Nov-20 Mirae - Asset Tax Saver Fund Reg (G) S&P BSE 200 TRI 22.9 20.2 10.5 18.0
Dec-20 Mirae - Asset Large Cap Fund Reg (G) NSE - NIFTY 100 TRI 61.3 12.6 8.4 13.7
Note: All data are as on Nov 30, 2020; NAV are as on Dec 24, 2020
Source: Factsheet, Value Research
All DAtA Belongs to DecemBer 28, 2020
NAV AUM (Rs Cr) 3 M 6 M 1 Yr 3 Yr 5 Yr
Since Inception
Large & Mid Cap Fund
SBI - Large & Midcap Fund Reg (G) 261.7 3169 21.5 32.0 14.6 5.2 10.5 13.5 0.1 2.3
Mirae - Asset Emerging Bluechip Fund Reg (G) 70.1 13405 20.7 34.4 21.7 9.9 17.3 20.2 0.3 1.8
ICICI Pru - Large & Mid Cap Fund Reg (G) 371.0 3079 23.0 32.0 11.6 3.5 9.5 17.4 (0.0) 2.1
LIC - Large & Mid Cap Fund - Reg (G) 18.3 862 19.2 32.0 13.0 6.3 13.6 10.9 0.2 2.5
Sundaram - Large and Mid Cap Fund (G) 39.3 1353 16.9 28.3 6.3 6.0 11.6 10.4 0.1 2.2
Value Fund
SBI - Contra Fund Reg (G) 134.7 1490 27.8 45.6 29.8 3.3 9.5 16.1 (0.1) 2.3
IDFC - Sterling Value Fund Reg (G) 54.5 2893 22.2 42.3 14.8 (2.1) 9.0 14.0 (0.1) 2.1
Nippon India - Value Fund (G) 86.7 3160 21.8 34.7 15.2 3.9 9.8 14.9 0.1 1.5
Kotak - India EQ Contra Fund (G) 63.0 861 20.8 32.1 14.0 9.0 13.4 12.7 0.2 2.4
Invesco - India Contra Fund (G) 59.0 5609 20.1 30.6 20.3 7.4 13.9 13.8 0.2 1.9
Focus Fund
Axis - Focused 25 Fund Reg (G) 36.8 13359 26.8 35.9 18.8 11.7 16.1 16.5 0.4 2.0
Mirae - Asset Focused Fund Reg (G) 14.2 4173 19.5 35.2 20.0 0.0 0.0 23.1 0.0 1.9
SBI - Focused Equity Fund Reg (G) 174.9 12020 22.4 26.4 13.8 8.3 13.6 19.1 0.3 2.0
DSP - Focus Fund Reg Fund (G) 27.9 2042 20.7 30.5 7.6 6.5 10.5 10.1 0.2 2.1
Sundaram - Select Focus Reg (G) 214.5 1121 20.4 27.1 10.2 9.0 12.1 18.1 0.2 2.3
Since Inception
Sharpe Ratio
exp. Ratio
ELSS Fund
Mirae - Asset Tax Saver Fund Reg (G) 22.9 5044 21.0 35.8 20.2 10.5 18.0 18.0 0.3 1.8
Kotak - Tax Saver Scheme (G) 53.6 1445 19.5 30.0 14.4 7.6 12.3 11.8 0.2 2.2
Invesco - India Tax Plan (G) 63.3 1280 19.5 31.5 17.8 8.7 12.4 14.1 0.2 2.1
Axis - Long Term Equity Fund (G) 58.7 25618 27.1 35.0 18.4 12.3 14.1 17.4 0.4 1.7
SBI - Long Term Equity Fund Reg (G) 169.1 8185 19.9 31.9 17.9 4.2 8.9 14.0 0.0 2.0
Multi Cap Fund
Parag Parikh - Long Term Equity Fund Reg (G) 35.0 5757 12.2 29.3 30.4 14.4 14.9 17.8 0.5 2.0
SBI - Magnum Multicap Fund Reg (G) 57.5 9863 23.2 32.0 12.5 5.8 11.4 12.2 0.1 2.0
Kotak - Standard Multicap Fund (G) 41.5 32441 19.4 27.8 10.5 7.4 12.7 13.2 0.2 1.6
Motilal Oswal - Multicap 35 Reg (G) 29.7 11791 18.2 28.4 8.9 3.0 11.1 17.7 0.0 1.8
ITI - Multi Cap Fund (G) 11.5 164 21.1 25.8 1.7 0.0 0.0 8.6 0.0 2.6
Small Cap Fund
Invesco - India Smallcap Fund Reg (G) 13.4 685 17.4 34.5 24.9 0.0 0.0 13.9 0.0 2.4
SBI - Small Cap Fund Reg (G) 70.6 6202 21.2 43.7 32.1 3.9 15.8 18.9 0.1 2.2
Axis - Small Cap Fund Reg (G) 39.1 3366 18.0 38.5 22.0 10.1 14.0 21.2 0.3 2.0
HDFC - Small Cap Fund (G) 46.3 9323 21.2 43.0 20.9 0.2 11.1 12.8 (0.1) 1.8
ICICI Pru - Smallcap Fund Reg (G) 31.5 1635 21.5 46.3 22.7 1.3 9.4 9.1 0.0 2.2
Thematic/Sectoral Fund
Franklin - Build India Fund (G) 43.6 911 31.1 28.8 4.5 (0.2) 8.9 13.7 (0.1) 2.4
ICICI Pru - Banking and Financial Services Fund Reg (G) 65.5 3289 31.7 37.4 (6.9) 2.4 13.5 16.4 0.1 2.2
Nippon India - Pharma Fund (G) 253.0 4151 12.0 32.4 67.0 20.5 10.9 21.5 0.8 2.7
Sundaram - Rural and Consumption Fund Reg (G) 47.5 1508 18.3 26.8 12.5 2.3 12.4 11.3 (0.0) 2.2
Aditya Birla SL - Digital India Fund Reg (G) 86.7 735 20.8 58.9 57.9 26.6 18.9 8.7 0.9 2.7
Blance/BAF Fund
SBI - Equity Hybrid Fund Reg (G) 163.5 34353 17.7 22.4 12.1 8.5 11.1 12.9 0.2 1.7
Sundaram - Equity Hybrid Fund Reg (G) 105.5 1604 15.0 20.3 9.0 8.0 11.0 12.4 0.2 2.2
ICICI Pru - Balanced Advantage Fund Reg (G) 42.4 27647 12.0 19.3 11.0 8.2 10.0 10.7 0.2 1.7
Kotak - Balanced Advantage Fund Reg (G) 12.7 5180 8.8 17.0 13.0 0.0 0.0 10.2 0.0 2.0
Aditya Birla SL - Balanced Advantage Fund (G) 63.9 2521 15.8 20.6 14.8 7.8 11.1 9.4 0.2 2.1
Equity Savings Fund
Aditya Birla SL - Equity Savings Fund Reg (G) 15.5 495 9.9 15.3 10.7 5.5 8.2 7.4 0.1 2.5
DSP - Equity Saving Fund Reg (G) 14.1 406 8.5 14.1 7.6 4.4 0.0 7.4 (0.1) 2.4
Kotak - Equity Savings Fund Reg (G) 16.4 1363 7.2 11.7 9.8 7.4 8.5 8.2 0.3 2.2
Nippon India - Equity Savings Fund Reg (G) 11.0 360 9.0 10.8 (6.4) (4.5) 1.3 1.7 (0.7) 2.6
SBI - Equity Savings Fund Reg (G) 15.2 1339 11.3 16.8 11.0 6.7 8.1 7.7 0.2 1.7
Since Inception
Sharpe Ratio
exp. Ratio
Arbitrage Fund
Aditya Birla SL - Arbitrage Fund Reg (G) 20.6 3575 0.7 1.2 4.0 5.4 5.6 6.5 0.6 0.9
ICICI Pru - Equity Arbitrage Fund Reg (G) 26.5 9496 0.8 1.3 4.2 5.4 5.7 7.2 0.6 1.0
Kotak - Equity Arbitrage Fund (G) 28.7 15302 0.7 1.4 4.2 5.5 5.8 7.2 0.8 1.0
Nippon India - Arbitrage Fund (G) 20.6 8178 0.7 1.3 4.2 5.7 5.8 7.3 0.9 1.0
SBI - Arbitrage Opp Fund Reg (G) 26.0 3167 0.6 1.0 3.4 5.2 5.5 7.0 0.3 0.9
Index Fund
HDFC - Index Fund-NIFTY 50 Plan - (G) 127.0 2193 23.7 34.1 13.5 10.6 12.6 14.5 0.3 0.3
ICICI Pru - Nifty Next 50 Index Fund Reg (G) 28.5 893 19.6 24.4 13.0 1.7 10.5 10.4 (0.1) 0.9
HDFC - Index Fund - Sensex Plan 422.7 1649 24.8 35.3 14.3 12.5 13.6 15.0 0.4 0.3
Motilal Oswal - Nasdaq 100 FOF (G) 19.7 1485 12.5 22.3 50.6 0.0 0.0 37.4 0.0 0.5
Motilal Oswal - S&P 500 Index Fund Reg (G) 12.3 636 11.7 16.2 0.0 0.0 0.0 34.0 0.0 1.2
NAV AUM Mod
Duration (in Yrs)
AMP (IN Yrs ) 3 M 6 M 1 Yr 2 Yr Sharpe Ratio
Exp. Ratio
Solutions
ICICI Pru - Retirement Fund Pure Debt Plan (G) 12.0 480 0.0 10.9013 (14/01/2020) 2.5 4.1 10.1 0.0 0.0 2.1
Aditya Birla SL - Retirement Fund 30s Plan (G) 11.8 169 0.0 7.07 (23/03/2020) 16.4 22.7 13.9 0.0 0.0 2.6
HDFC - Retirement Savings Fund Hybrid Equity Reg (G) 20.1 493 0.2 12.743
(23/03/2020) 17.4 26.5 16.6 12.1 0.2 2.6
Aditya Birla SL - Bal Bhavishya Yojna Wealth Plan (G) 12.2 332 0.0 7.38 (23/03/2020) 16.0 22.1 13.4 0.0 0.0 2.6
ICICI Pru - Child Care Gift Plan Reg 157.5 671 0.0 103.1 (23/03/2020) 15.9 23.2 8.1 8.4 0.0 2.5
Dynamic/Multi Assets
Invesco - India Dynamic Equity Fund (G) 32.4 700 (0.0) 22.68 (23/03/2020) 9.1 14.5 7.1 8.3 (0.0) 2.4
ICICI Pru - Asset Allocator Fund (FOF) (G) 66.6 8490 0.4 43.7926 (23/03/2020) 12.9 18.9 12.9 11.4 0.4 1.3
ICICI Pru - Multi Asset Fund (G) 305.3 10606 (0.0) 196.1272 (23/03/2020) 18.6 20.4 10.5 9.0 (0.0) 1.8
SBI - Dynamic Asset Allocation Fund (G) 14.9 584 0.2 11.0136 (23/03/2020) 12.6 18.5 6.6 6.7 0.2 2.2
DSP - Dynamic Asset Allocation Reg (G) 18.2 1959 0.3 13.409 (23/03/2020) 9.8 13.4 12.3 10.7 0.3 2.1
NSE Code BPCL
Sector OIL & GAS
PROMOTER HOLDING 52.98%
Outstanding shares(Cr) 216.93
Face Value(Rs.) 10
Share holding pattern as on September 2020
STOCK PICKS
Investment Rationale
Privatization- remains the biggest trigger of all Since, last year when Cabinet
Committee on Economic Affairs
government stake in five major
CPSEs, BPCL was always the jewel in
the crown and remained in the thick
of investor’ interest. In early March
2020, Govt. invited bids for selling its
52.98% in oil marketing and refining
firm BPCL. However, Covid-19
Q2FY21 led by marketing margins, inventory gains BPCL’s Q2FY21 reported GRMs came
in at USD5.8/bbl, ahead of consensus
estimates led by inventory gains of
USD4.2/bbl, thus core GRMs stood at
USD 1.6/bbl, higher than consensus
estimates and way higher than
Singapore benchmark of USD0.1/
bbl. Although, benchmark GRMs
volumes in Q2FY21 however stood
at 9.2 MMT (down 12% YoY) mainly
due to the dip in gasoline, HSD and
ATF, but partially offset by higher
LPG demand. Diesel sales volumes
declined sharply by 15.5% yoy (up
10.3% qoq) to 3.9 MMT, while petrol
sales volumes was down by 6.7% yoy
(up 44.8% qoq) to 1.8 MMT. BPCL’s
adjusted operating profit at Rs 4,485
cr (up 100.6% yoy; up 14.5% qoq).
BPCL’s Q2FY21reported stood at Rs
3851.2 cr (up 62.2% yoy; down 1.7%
qoq) led by inventory gains. BPCL
reported inventory gains at Rs. 2,453
cr versus inventory loss of Rs. 26 cr in
Q2FY20, on account of benign crude
prices in May-June 2020. Core gross
threw unprecedented challenges
the deadline for submission of bids.
However, a remarkable recovery in
the world led by fiscal stimulus as
well as liquidity measures by global
central banks have resulted in robust
estimates for next year and beyond.
While mining-to-oil conglomerate
owned Think Gas — have put in bids
for BPCL, although it still needs
to be translated into meaningful
financial bids after detailed scrutiny
by potential investors. Vedanta group
seems to be serious to bid for BPCL
and is looking to raise $8 billion
via debt and equity. Apart from
Vedanta, Apollo is also an energy-
savvy investor and major player with
a USD77bn private equity portfolio.
Hence, competition is expected to
get heated in the final bidding if all
interested parties are shortlisted. The
government’s stake sale to private/
foreign players would unlock real
value of BPCL and could trigger
rerating of the company as valuation
of its refining and marketing assets
could get re-aligned to global peers.
Besides, BPCL’s potential buyer will
be blessed with it’s vast pan-India
network with right optimization
strategies.
A remarkable recovery in the world led by fiscal stimulus as well as liquidity measures by global central banks have resulted in robust estimates for next year and beyond.
Recovery in consumption and low oil price environment will support earnings Post easing of lockdown, recovery
is seeing in almost every broad
economic indicator as normalization
taken place. Recovery in consumption
of petroleum products also happened
at swift pace and while demand for
petrol is higher than pre-Covid-19
levels (led by demand of personal
mobility), demand for diesel is also
almost back to pre-Covid levels.
According to management, demand
Q2FY21 is going up. Besides, as crude
oil prices remain benign, this would
benefit oil marketing companies
compensate for lower refining
global demand, thus improving
refining margins ahead. Although,
FY20 and continue to benefit refiners.
However, inventory gains will not
come in aid in H2FY21 since crude oil
prices have sustained levels of ~USD
40/bbl, thus immediate earnings
marketing margins and volumes (back
to pre-covid levels) while refining
margins will remain subdued.
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500
1000
1500
2000
2500
3000
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liter, up 13%; lower 29% qoq. Interest
expenses stood at 12.6 cr vs Rs 639 cr
in Q2FY20 and Rs 587 cr in Q1FY21.
Decline in interest expenses is due to
decline in average borrowing, lower
interest regime and adjustment of Rs
270 cr forex gain.
inventory losses
pass on (given high excise duties),
hence Govt. could lower marketing
margins
played around in different sectors
and mobility recovering to pre-
Covid levels is the biggest trigger for
OMCs. Volumes have gained pace
and according to the management
have reached almost back to pre-
covid-levels. Thus, going ahead,
marketing margins will continue
crude prices have recovered on
normalization theme, nevertheless
still significantly lower than ~USD 60/
bb levels in FY20, although it would
negate inventory gains going ahead.
However, Singapore benchmark
Q2FY21, while marketing margins
liter in Oct to Nov, although there
could be some pressure in Dec’20.
Going ahead, in FY22, while higher
crude prices could force companies
to reduce marketing margins (on
higher excise duties), there will be
comfort from improving refining
crude price environment, subsidy on
LPG cylinders have reduced to zero
in May 2020 and is a necessary step
for privatization of BPCL. Moreover,
privatization is the biggest trigger
for the company which has not been
factored in as government’s stake
sale to private/foreign players would
unlock real value of BPCL and could
trigger rerating of the company
as valuation of its refining and
marketing assets could get re-aligned
to global peers. Besides, the recent
recovery in petroleum consumption,
interest cost are likely to lead to sharp
recovery in earnings in the short
term. At the CMP, the scrip trades at
8.5x FY22E EBITDA (consensus) and
investors are advised to ‘BUY’ for a
target of Rs 480 from 12-15 months
perspective.
Going ahead, in FY22, while higher crude prices could force companies to reduce marketing margins (on higher excise duties), there will be comfort from improving refining margins as well. Moreover, in a low crude price environment, subsidy on LPG cylinders have reduced to zero in May 2020 and is a necessary step for privatization of BPCL.
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600
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BPCL 3 year Price Chart Particulars (in Rs Cr) FY19 FY20 FY21e FY22e
Revenue 296,985 283,384 201,510 250,784
Growth (%) 26.4% -4.6% -28.9% 24.5%
EBITDA 15,120 9,026 13,795 16,077
EBITDA Margin (%) 5.1% 3.2% 6.8% 6.4%
Net profit 7,625 3,640 6,403 8,049
Net Profit Margin (%) 2.6% 1.3% 3.2% 3.2%
EPS (Rs) 38.8 18.5 32.8 41.2
Source: Bloomberg consensus
NSE Code WELSPUNIND
Bloomberg Code WLSI.IN
Outstanding shares(Cr) 100.4
Face Value(Rs.) 1.0
Shareholding Pattern as on 30th September 2020
Company overview Welspun India ltd. is one of the top three home textile manufacturers globally and the largest home textile company in Asia. It has modern manufacturing facilities at Anjar and Vapi in Gujarat where it produces an entire range of home textiles
for bed & bath category. It has one of the largest installed capacity of terry towels (90,000 tonne) and bed sheets (90 million meters). Welspun India has ranked No1. among home textile suppliers in the US and also a leading home textile export player to Europe. In order to increase its presence in overseas market,
STOCK PICKS
headroom to capitalize on any spurt in demand for home textiles.
Home textiles witness strong demand rebound from US Home Textile exporters continue to be key beneficiaries of higher in- home consumption due to increased work-from-home period and higher emphasis on health & hygiene driven by the pandemic. India’s home textile exports to US have been on increasing trend as reflected in November 2020 statistic, where exports to US surged 25% YoY at USD 281 million. Home textile exporters are emerging out of the downturn faster than other textile segments with increase in demand from people working from home and a sharper focus on health and hygiene amid the pandemic. Export order in home textile has been improving since the beginning of the 2QFY21 owing to reopening of departmental stores and pent-up demand. The momentum is expected to stay strong in the 3QFY21 due to the festive season. Welspun India will be one of the biggest beneficiaries from of this incremental demand for home textiles from overseas markets. US is the top contributor to Welspun’s top line at 67%, followed by Europe 18% and India & RoW 15%, thus Welspun is well poised to capture the surge in demand.
Market share gain from China to benefit Indian textile players The outbreak of COVID-19 has opened up a new opportunity of growth for India in different sectors. Global businesses are looking at a manufacturing alternative to China following the US trade war and the ill effects of Covid on supply chains making corporate realizing the foolhardiness of depending on one country for all their needs. There has been news that the US government is considering a ban on some or all products made with cotton from the Xinjiang region of China over alleged human rights violations. Many retailers in the US and Europe are likely to discourage sourcing of textile products made from the raw material (cotton / cotton yarn) produced in the region. Further, the Atma Nirbhar
Bharat Abhiyan is turning point on its success. In order to make India as an export hub for textile, government included textile sector under Production Linked Incentive (PLI) scheme just like other sectors. Against the backdrop of the pandemic and the growing preference for India as a potential supplier, domestic textile players are seeing significant market share gains from China. From Jan-Sep 2020, market share (as a % of imports to the US) of China in Terry Towels & Bed sheets reduced by 350bp/510bp to 21% & 15%, respectively, while India’s market share in the same (Terry Towels & Bed sheets) increased by 360bp/90bp to 43% & 50% over the same period. Thus, all these developments present an opportunity for Indian exporters of textiles and clothing to cater to the requirements of global buyers and become a alternative suppliers. Welspun is well positioned to capitalize on this opportunity as it derives around 85% revenue from export markets.
Strengthening balance sheet by lowering debt Welspun India during H1FY21, has reduced its overall debt by Rs 737 crore, thus bringing down the net debt/equity below 1x at 0.77x. Lowering debt help the company to reduce its interest cost expense and boosting the net profitability during
company over the period has created strong distribution network in over 32 countries including US, UK, Europe, Canada and Australia. Welspun India is one of the prime beneficiaries from robust demand for home textile products particularly from US.
Investment Rationale One of the leading home textile manufacturers in India Welspun India is one of the leading home textile manufacturers in India with presence across segments like terry towels, bed sheets and rugs and carpets. The installed capacity of terry towel is currently at 90,000 tonne and bed sheets at 90 million meters which company plans to increase capacity by 20% through debottlenecking. The incremental capacity is expected to complete within Q2/Q3 of FY22. Company has rugs capacity of 10 million meters, which can be double to 20 million meters by transferring of this to Telangana. Company’s manufacturing facilities are located in Vapi and Anjar in Gujarat, while it has warehouses in Ohio, USA and Manchester, UK. Over the period, Welspun India has created a large distribution network across the globe catering to several large retailers. Terry towels contribute highest revenue share of 57% followed by Bed sheets 30%, Rugs & Carpets 7% and flooring 6%. Company’s B2C business has delivered strong growth with share improved from 17% in FY19 to currently 20% of revenue. The current average capacity utilization of terry towels is at around 85%, for bed sheets 77% and 70% for rugs and carpets, thereby leaving strong
welspun India during H1FY21, has reduced its overall debt by Rs 737 crore, thus bringing down the net debt/equity below 1x at 0.77x. Lowering debt help the company to reduce its interest cost expense and boosting the net profitability during 1HFY21.
welspun India is one of the leading home textile manufacturers in India with presence across segments like terry towels, bed sheets and rugs and carpets.
1HFY21. Over the years company has been able to control its balance sheet leverage and managed its capex funding in the mix of equity and debt. Consistent ability to generate positive operating cash flows over the period help the company to maintain stable balance sheet as well fund its expansions. On the back of its pricing power, company has maintained stable margins which ensured healthy RoE and RoCE. Company’s Q2FY21 numbers came ahead of consensus estimates on the back of buoyant demand in its home textile business. The company attributed the buoyant growth in home textiles primarily to increased focus on hygiene and ‘work-from-home’ factors in view of the pandemic. The demand for home textile products is expected to continue in next few quarters on the back of rising awareness of hygiene and work from home factors. Hence, the growth momentum seen in Q2FY21 is expected to continue in coming quarters also.
Key Risks Cotton/yarn is a key input in home
textiles thus any increase in cotton or cotton yarn prices will have an adverse impact on the margins of the company.
Any currency volatility could have a material impact on the earnings of the company as majority of revenues derive from export markets.
Valuation Welspun India is one of the leading players in Indian home textile sector having wide presence in US & Europe. US accounts nearly 70% of its revenue and has long standing relationships with major US retailers to whom company supplies. In last few months, home textile products like terry towels & bed sheets witnessed robust demand from US on the back of higher in-home consumption due to increased work-from-home period and higher emphasis on health & hygiene driven by the pandemic. Welspun India Q2FY21 numbers came better than expected due to the buoyant growth in home textiles business. The change in consumers’ underlying behavior and rise in awareness in hygiene & health has resulted in re- allocation of spending, driving overall demand for home textile products. To create further capacity, Welspun India is planning to debottleneck existing capacity, which could be enhanced by 20%. Further, company is de-leveraging its balance sheet by lowering the debt which will in turn boost the net profitability of the company going ahead. Thus, we hold our positive view on the scrip and recommend our investors to BUY for target of Rs 84 from 12 months investment perspective. The scrip, currently valued at P/E multiple of 10.5x of FY22E Bloomberg consensus EPS of Rs 6.5 which looks quite compelling at this level.
Over the years company has been able to control its balance sheet leverage and managed its capex funding in the mix of equity and debt. Consistent ability to generate positive operating cash flows over the period help the company to maintain stable balance sheet as well fund its expansions.
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welspun India 3 year Price Chart Particulars (in Rs Cr) FY19 FY20 FY21e FY22e
Revenue 5,815.3 6,741.1 7,080.6 8,028.8
Growth (%) 9% 15.9% 5.0% 13.4%
EBITDA 1,064.9 1,214.7 1,379.6 1,523.1
EBITDA Margin (%) 18.3% 18.0% 19.5% 19.0%
Net profit 189.7 524.4 554.1 649.4
Net Profit Margin (%) 3.3% 7.8% 7.8% 8.1%
EPS (Rs) 1.9 5.2 5.5 6.5
Source: Bloomberg consensus
NSE Code KSCL
Outstanding shares (Cr) 6.0
Avg. daily volume (1yr. on NSE) 267917
Face Value (Rs.) 2
Book Value 210.6
Company Overview Kaveri Seed Company Ltd (KSCL) is one of the fastest growing seed company in India. It is engaged in production, processing and marketing of products and services in yield optimization, soil enrichment and crop protection areas in India. It offers its products in two categories
– field crops and vegetables. Its range of field crops includes corn, paddy, cotton, sunflower, mustard sorghum, pulses, bajra and wheat. Its range of vegetables includes tomatoes, okra, chilies, watermelon, gourds and brinjal. KSCL is the largest producer of hybrid cotton seeds in India with a market share of ~15%. Kaveri
CMP: Rs 520 • Rating: BUY • Target: Rs 650
Shareholding Pattern as on 30th September 2020 (%)
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In H2, New Hybrids introduced in Maize namely KMH4210, KMH8322, KMH8333 & in the Summer Millet KBH 6310, KBH 6499 are expected to do well. Bitter Gourd and Okra as well as other new vegetables introduced in Q1FY21 like Cabbage, Beet root, Carrot, Marigold, Sweet Pepper, Pumpkin and Muskmelon crops which are performing very well. Performance of new OKRA hybrid KOKH 1107 are expecting to sell good quantity in H2.
Healthy Market share; dominant positioning Over the years, KSCL has maintained top three positions across the crops, operating in different agro-climatic conditions. It has a market share of ~15% in cotton, ~11% in maize, ~10% in Bajra and ~4% in Rice. KSCL is amongst the leading producer of hybrid seeds. It is amongst the top three seeds companies in the cotton segment and top five in the maize, rice and bajra segments. Cotton contributes the highest to KSCL’s topline (55-60%), followed by non- cotton crops that include maize, rice bajra, sunflower, sorghum which contributes around 40% in its topline. Its vegetables division contribution is negligible as a percentage of revenue, but the company is focused to improve it going forward.
eyes growth in vegetable segment Kaveri Seeds plans to launch 50 new products in the vegetable segment. Cotton, maize, rice and vegetables account for almost 70-80% of the country’s hybrid seed market and the company has established its presence across all these crops. It is now actively looking to increase its portfolio in the vegetable seeds space. Vegetable seeds market in India is currently valued at Rs. 30bn+ and is growing at 20% run rate. The company’s vegetable seeds business has been growing at 50% compound annual growth rate but current market share of KSCL is very low. The company plans to gradually improve its market share and the management expect that this segment will generate revenues of Rs 100 crore in next five years.
Cash Rich Company; Rewarding Shareholders KSCL is a fundamentally sound company with strong balance sheet, which is clearly reflected in its debt/equity ratio. As on September 30, 2020, KSCL total debt stood at Rs.1.32 crores and its cash and cash investments stood at ~Rs.500 crores. Hence, there is no issue of debt for the company. Technically, it’s a debt free company. KSCL has been consistently rewarding its shareholders in terms of divided. From last several years, the company has given dividend continuously. The company has no major expansion plans (Rs. 100 crore required for both capex and working capital) and has a strong balance sheet. With recurring and strong cash-flow visibility, the company intends to reward its shareholders going ahead.
Key Risks Kaveri has high concentration risk
and derives ~60% of its revenue from cotton seeds and lint.
Most seed companies including Kaveri report their earnings as
Seeds has access to 60,000 acres under seed production, with farms in Karnataka, Andhra Pradesh and across the country. The company has a pan-India presence with a strong distribution network of ~15,000 distributors (direct & in-direct) and retailers across 15 key states in India (up from 11,000 - 4 years ago). Kaveri has 26 warehouses at strategic location with a combined storage space of ~600,000 sqft.
Investment Rationale Implementing diversification strategy To reduce its dependence on a few products and expand geographical reach, Kaveri Seed has been focusing on and implementing its diversification strategy. This has been done by enhancing the non-cotton business wherein rice (selection rice volumes up by over 40%) and bajra witnessed strong demand. KSCL plans to increase non-cotton revenue share to 60% from current 40% over the long term. The company has also enhanced its offerings in the vegetables segment (demonstrated more than 50 new varieties of seeds), expanding distribution reach in northern, eastern and western regions (states such as Bihar, Jharkhand, Orissa, West Bengal, Gujarat and Maharashtra). It has also started exporting to new countries such as Pakistan, Sri Lanka, Nepal, besides Bangladesh that it now exports to. KSCL is exploring export opportunities and has shortlisted nine countries as potential export countries. Over the next 4-5 years, the company aims to achieve sizeable revenue share from exports. The share of new products in total revenue increased from ~5% in FY17 to ~23% in FY20. Kaveri has launched multiple variants of rice (selection + hybrid), maize and vegetable seeds. Success of these initiatives will create new growth avenues and de-risk the current business model centered around cotton seeds in South India.
To reduce its dependence on a few products and expand geographical reach, Kaveri Seed has been focusing on and implementing its diversification strategy.
Consensus Estimate: Bloomberg
Net Sales 930.3 1049.0 1170.4 1252.4
Growth (%) 14.9 12.8 11.6 7.0
EBITDA 253.2 313.5 353.1 361.5
EBITDA Margin (%) 27.2 29.9 30.2 28.9
Net profit 259.9 311.8 340.2 351.3
Net Profit Margin (%) 27.9 29.7 29.1 28.0
EPS (Rs) 42.9 51.7 56.4 58.2
agricultural income; hence they don’t pay corporate tax. Any change in tax law could adversely affect the company’s profitability and the return ratio.
Any material change in the Government’s policy towards cotton seed and/or below-average monsoon next fiscal year may impact Kaveri Seed’s performance.
Valuation The management expects financial performance to remain strong going forward aided by key product launches in core business and diversification strategy. Moreover, the new products are gaining traction along with a strong product pipeline, which will be introduced in the coming season will further help drive business. Going forward, KSCL’s growth is contingent on stability in the cotton business and strides in the high margin non-cotton business. The company remains committed to increase contribution of non-cotton category segment from 40% currently to 60% and has plans to launch over 50 products in rapidly growing vegetable segment. In addition, Government supports schemes such as ‘Rythu Bandhu’, market
share gains and good moisture levels in soil are likely to support company’s growth going ahead. The management expects to gain market share in the cotton segment in Maharashtra, Andhra Pradesh, Telangana and Gujarat going forward. The company’s cotton seed variety Jaadoo ATM has seen steady sales and Money Maker cotton seed variety has received strong traction. Sales of rice seed varieties are expected to grow on the back of KPH-468 and several products that have been launched and notified. Maize is expected to be driven by two new Rabi hybrids and three new Kharif hybrids. Strong growth in vegetables is expected to be driven by new hybrids across Hot Pepper, Okra, Tomato and Gourd. We remain optimistic about long term earnings growth prospects of the company given its leadership position, R&D focus, healthy product pipeline, newer products launch, diversification to newer geographies, presence across crop categories and strong distribution network. Hence, we recommend our investors to BUY the scrip for a target of Rs. 650 from 12 months investment perspective. Currently, the scrip is valued at P/E multiple of 9.2x on FY22E EPS.
The company remains committed to increase contribution of non-cotton category segment from 40% currently to 60% and has plans to launch over 50 products in rapidly growing vegetable segment.
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600 650 700
* All Figures quoted in Rs.
Calculated as on December 28, 2020
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Nifty CAGR: 13.2%
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31-Jan-19 1496513 0 (15549) (15549)
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30-Jun-19 5780649 212997 (312556) (99559)
31-Jul-19 7280745 212997 (523193) (310197)
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31-Oct-19 3805452 689902 (279263) 410639
30-Nov-19 5300467 689902 (286815) 403087
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29-Feb-20 5711903 1272382 (733289) 539092
31-Mar-20 7207537 1272382 (2755943) (1483561)
30-Apr-20 7623497 356948 (1030982) (674034)
31-May-20 6149806 833936 (1351330) (517394)
30-Jun-20 7651620 833936 (956088) (122152)
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31-Oct-20 6589893 1902621 (554750) 1347871
30-Nov-20 4415962 2580822 (272418) 2308404
28-Dec-20 4744368 2757455 (180744) 2576711
*Booked Profit = Profit booked after target achieved
**M2M = Open position marked to market as on date
***Net profit = Booked Profit + M2M P/L
****Invested Capital = Stock investment as recommended (minus) Stock sold on target
*****Calculation based on Rs. 5 lac invested on each stock recommended in our monthly insight on release date
******All Figures quoted in Rs.
****** Calculated as on December 28, 2020
monthly Profit & loss Fact sheet (rs.)
Rate Value Target Price
Days
Welspun India 01-Jan-21 7353 68.0 500004 84 23.5%
Kaveri Seed 01-Jan-21 962 520.0 500240 650 25.0%
Bosch 01-Dec-20 39 12820.0 499980 15200 18.6%
Sumitomo Chemical 01-Dec-20 1750 285.9 500273 340 18.9%
Prestige Estate 01-Dec-20 1850 270.1 499704 312 15.5%
MRF 02-Nov-20 8 66042 528337 76588 16.0% 19-Nov-20 76588.0 612704 84367 16.0% 17 343%
Dixon 02-Nov-20 54 9586 517646 11268 17.5% 26-Nov-20 11268.0 608472 90826 17.5% 24 267%
Privi Speciality Chem. 02-Nov-20 952 549 522374 640 16.6%
Ultratech Cement 01-Oct-20 122 4095 499594 4543 10.9% 19-Oct-20 4535 553293 53699 10.7% 18 218%
Essel Propack 01-Oct-20 2025 248 501522 290 17.1%
Valiant Organics 01-Oct-20 168 2970 498946 3350 12.8% 09-Oct-20 3344 561832 62886 12.6% 8 575%
Mishra Dhatu Nigam 01-Sep-20 2400 209 502246 260 24.2%
Hawkins Cooker 01-Sep-20 103 4852 499740 5890 21.4% 29-Dec-20 5890 606670 106930 21.4% 119 66%
Phillips Carbon Black 01-Sep-20 4275 117 501035 151 28.8% 25-Oct-20 148 630563 129527 25.9% 54 175%
Wipro 03-Aug-20 1770 282 499999 325 15.1% 05-Oct-20 325 574878 74880 15.0% 63 87%
Divis Lab 03-Aug-20 190 2644 502371 3050 15.4% 10-Aug-20 3058 581026 78654 15.7% 7 816%
Fine Organics 03-Aug-20 230 2177 500822 2470 13.4% 24-Aug-20 2466 567123 66300 13.2% 21 230%
ICICI Securities 01-Jul-20 1050 476 499818 620 30.2%
Apollo Tyres 01-Jul-20 4600 109 501341 130 19.3% 10-Aug-20 127 582498 81157 16.2% 40 148%
Galaxy Surfactants 01-Jul-20 335 1490 499300 1680 12.7% 04-Aug-20 1684 564130 64829 13.0% 34 139%
Nestle India 01-Jun-20 28 17571 491987 19500 11.0%
Tech Mahindra 01-Jun-20 925 541 500453 ADD 29-Sep-20 774 715691 215238 43.0% 120 131%
Abbott India 01-Jun-20 30 16979 509375 19464 14.6%
Bharti Airtel 04-May-20 985 508 500232 610 20.1% 20-May-20 606 597058 96826 19.4% 16 442%
Pfizer 04-May-20 102 4934 503304 5800 17.5%
Bayer Cropscience 04-May-20 116 4287 497334 5425 26.5% 27-May-20 5281 612584 115251 23.2% 23 368%
ITC 01-Apr-20 2950 170.29 502363 ADD
Britannia Industries 01-Apr-20 184 2719 500320 ADD 29-May-20 3384 622704 122384 24.5% 58 154%
TCS 01-Apr-20 274 1827 500508 ADD 14-Sep-20 2480 679520 179012 35.8% 166 79%
HDFC Bank 01-Apr-20 586 852 499290 ADD 10-Nov-20 1361.3 797739 298450 59.8% 223 98%
Britannia Industries 02-Mar-20 164 3048 499888 3400 11.5% 29-May-20 3384 555019 55130 11.0% 88 46%
Aarti Industries 02-Mar-20 505 990 499799 1177 18.9% 05-May-20 1139 575018 75220 15.1% 64 86%
Metropolis Healthcare 02-Mar-20 263 1885.73 495946 2200 16.7% 23-Nov-20 2190.7 576157 80210 16.2% 266 22%
Bajaj Finance 03-Feb-20 115 4305.89 495178 5000 16.1% 01-Dec-20 4902.0 563730 68552 13.8% 302 17%
Ashika Monthly Insight Recommendation Sheet
Rate Value Target Price
Days
Return
Gujarat State Petronet 03-Feb-20 2040 246 501493 300 22.0% 01-Apr-20 169 344168 -157325 -31.4% 58 -197%
Granules India 03-Feb-20 3600 140 502632 170 21.8% 07-Feb-20 164 591156 88524 17.6% 4 1607%
Concor 01-Jan-20 870 574.99 500239 665 15.7%
Mahanagar Gas 01-Jan-20 470 1066 501095 1164 9.2% 23-Jan-20 1162 546140 45045 9.0% 22 149%
SIS 01-Jan-20 1020 490 500147 568 15.8% 07-Feb-20 559 570119 69972 14.0% 37 138%
HDFC Life 02-Dec-19 875 571 499608 680 19.1% 17-Nov-20 670.6 586740 87133 17.4% 351 18%
Dr. Reddy’s Lab 02-Dec-19 171 2923 499818 3503 19.8% 07-Apr-20 3554 607713 107896 21.6% 127 62%
Just Dial 02-Dec-19 875 570 499170 750 31.5% 01-Apr-20 288 251615 -247555 -49.6% 121 -150%
IRCTC 01-Nov-19 561 893 500709 1170 31.1% 30-Jan-20 1158 649638 148929 29.7% 90 121%
PI Industries 01-Nov-19 350 1432 501323 1613 12.6% 07-Feb-20 1612 564109 62787 12.5% 98 47%
Procter & Gamble Hygiene 01-Nov-19 40 12325 492982 14078 14.2%
HDFC Bank 01-Oct-19 405 1235 500212 1395 12.9% 10-Nov-20 1361.3 551339 51127 10.2% 406 9%
Indian Hotels 01-Oct-19 3130 160 500595 179 11.9% 01-Apr-20 74 230525 -270071 -53.9% 183 -108%
Siemens 01-Oct-19 330 1549 511213 1680 8.4% 23-Oct-19 1689 557420 46207 9.0% 22 150%
Gujarat Gas 01-Sep-19 2800 179 501501 200 11.7% 30-Oct-19 200 559048 57547 11.5% 59 71%
Hindustan Unilever 01-Sep-19 265 1888 500371 1975 4.6% 20-Sep-19 1957 518507 18136 3.6% 19 70%
Divi’s Lab 01-Aug-19 305 1636 498882 1750 7.0% 22-Oct-19 1757 535885 37003 7.4% 82 33%
ICICI Bank 01-Aug-19 1175 426 500234 473 11.1% 25-Oct-19 468 550206 49972 10.0% 85 43%
City Union Bank 01-Jul-19 2410 208 500935 254 22.2% 16-Jan-20 248 597005 96070 19.2% 199 35%
Reliance Nippon Life 01-Jul-19 2250 222 499773 265 19.3% 27-Aug-19 258 579510 79737 16.0% 57 102%
Sanofi India 01-Jul-19 87 5740 499387 6775 18.0% 29-Oct-19 6678 581029 81641 16.3% 120 50%
Asian Paints 01-Jun-19 346 1445 499797 1560 8.0% 02-Aug-19 1549 535985 36188 7.2% 62 43%
Axis Bank 01-Jun-19 614 812 498614 905 11.4%
Honeywell Automation 01-Jun-19 19 26087 495655 30195 15.7% 25-Oct-19 29105 552999 57344 11.6% 146 29%
MCX 01-May-19 575 868 499354 1005 15.7% 30-Aug-19 971 558147 58793 11.8% 121 36%
TCS 01-May-19 220 2259 496953 2490 10.2% 14-Sep-20 2480 545600 48647 9.8% 502 7%
Crompton Greaves Cons. 01-Apr-19 2138 234 501153 256 9.2% 20-Sep-19 251 536681 35528 7.1% 172 15%
Equitas Holdings 01-Apr-19 3637 138 500875 191 38.7% 01-Apr-20 42 152499 -348375 -69.6% 366 -69%
Page Industries 01-Apr-19 20 25219 504373 29080 15.3% 14-Aug-19 17525 350506 -153867 -30.5% 135 -82%
ITC 01-Mar-19 1800 278 500089 319 14.8%
Tech Mahindra 01-Mar-19 605 824 498456 960 16.5% 29-Sep-20 774 468101 -30356 -6.1% 578 -4%
HDFC Bank 01-Feb-19 240 2101 504338 1204 -42.7% 20-May-19 2403 576686 72348 14.3% 108 48%
Pfizer 01-Feb-19 163 3066 499703 3490 13.8% 20-Sep-19 3389 552433 52730 10.6% 231 17%
Abbott India 01-Jan-19 65 7593 493527 8580 13.0% 11-Jun-19 8566 556790 63263 12.8% 161 29%
Indraprastha Gas 01-Jan-19 1850 273 504362 315 15.5% 08-Apr-19 314 581748 77386 15.3% 97 58%
United Spirits 01-Jan-19 800 623 498624 735 17.9% 14-Feb-20 711 568576 69952 14.0% 409 13%
Textile: Government Incentivizing to boost export
Indian textile sector in last few months have witnessed improvement in revenue on MoM basis across categories with textile export revenues steadily touching pre-covid levels for apparel and yarn
category. The outbreak of COVID-19 triggered shutdowns across the globe have taken a toll on prime consumption centers of Europe and US which account around 70% of total apparel demand and imports. This has impacted the Indian textile companies which are hugely dependent on export revenue. Indian textile sector were grappling with muted growth even before COVID-19 and with the spread of virus early in 2020, has made situation worse. However, gradual withdrawal of the lockdown from May onwards, brought some kind of relief to domestic textile companies which witnessed some improvements in revenue in past few months. In textile division, home textile products witness faster demand recovery on the back of increasing awareness of hygiene as the work from home driving higher demand for bed sheets and towels. So, the outbreak of COVID-19 act as a catalyst for home textile segment as people are staying more in home, resulting in higher demand for bed sheets and towels. Home textile manufacturers are currently operating at a relatively higher capacity as orders continue to galore. Outbreak of the pandemic has thrown open an opportunity for the home textile manufacturers to venture into health
and hygiene textile segment including facemasks, wipes, disposable linens etc. Margins of home textile manufacturers are likely to expand significantly, driven by improving scale of operations and subdued cotton prices.As textile is one of the key export oriented sector, government always strive to lend support to the growth of the sector. Recently cabinet has approved the Rs 1,480-crore National Technical Textiles Mission set to run for the next four years. Technical textiles are a futuristic segment of textiles used for a vast array of applications such as agriculture, roads, railway tracks, bullet and fire-proof jackets and high altitude combat gear etc. Further, government is ready to announce the National Textile Policy which will augur well for entire domestic textile sector. The policy is likely to target investments of Rs 10,000 crore and exports of USD 100 billion. This policy is overwhelmed by entire industry as it is the right step from the government towards the development of the Indian textile companies. The textile industry will get a fillip, and from a policy, objective perspective setting aside Rs 10,000 crore, which could potentially help exports worth about Rs 2 lakh crore over five years. Hence, Indian textile sector is poised for growth in long run on the back of government’s proactive step towards the development of the sector.
SECTOR OuTlOOK
13% 18%
13% 17%
15% 22%
CY15 CY16 CY17 CY18 CY19 YTD20
Demand to rise in Home textile export Home Textile exporters continue to be key beneficiaries of higher in-home consumption due to increased work- from-home period and higher emphasis on health & hygiene driven by the pandemic. Margins of home textile manufacturers are likely to expand significantly, driven by strong order books, improving scale of operations and YTD lower cotton prices (despite the recent uptick). Specially, US witnessed a post pandemic recovery in the home textile sector, with structural uptick in demand owing to work from home/hygiene ascribing more relevance to bed sheets and towels use. Thus, the Indian home textile exporters witnessed faster revenue recovery in past few months. Global big retailers are raising fund in order to ensure return to normalcy in home textile order books and working capital cycle. Higher export orders led domestic home textile manufacturers to operate at a significantly higher capacity which resulted in better operating leverage. In October 2020, home textile exports to US has witnessed improvement with global cotton sheet export volumes to US improved sequentially to 118mn sq mtrs in Oct from 77mn sq mtrs
Indian home textile exports to US is on uptrend India’s home textile exports to US have been on increasing trend as reflected in November 2020 statistic, where exports to US surged 25% YoY at USD 281 million. Home textile exporters are emerging out of the downturn faster than other textile segments with increase in demand from people working from home and a sharper focus on health and hygiene amid the pandemic. According to CRISIL analysis of 50 companies which account for 60% of India’s home textile exports, revenue de-growth of these companies will be limited to 10-12% in FY21 as compared to 30-35% decline for the overall textile sector. The Rs 55,000 crore Indian home textile sector, comprising products such as terry towels, bed sheets and spreads, pillow cases, curtains and rugs and carpets, derives 60-70% of its revenue from exports. The US and the EU account for 80% of these exports, with big-box retailers of essentials and departmental stores among
the major customers. Export order has been improving since the beginning of the 2QFY21 owing to reopening of departmental stores and pent-up demand. The momentum is expected to stay strong in the 3QFY21 due to the festive season. The large home textile companies reported 7% YoY improvement in revenue during Q2FY21 after registering 40% YoY decline in revenue during 1QFY21. The lockdown had a limited impact on retailers of essentials as these operated through the Covid-19 pandemic. However, sales at departmental stores suffered heavily in the March-May period. Some retailers also underwent restructuring, leading to permanent store closures. The Indian home textile manufacturers who are largely dependent on domestic market are affected more than exporters due to extensive lockdowns in India and gradual opening of many retail outlets, leading to slower recovery. Thus, export focused home textile companies are better placed than domestic oriented players due steady recovery in developed markets.
in September 2020. India’s share of Cotton sheet/Terry towel exports to the US has improved during YTD20 over CY19, thus benefiting Indian export textile manufacturers.
US imports market share in made-ups
US imports market share in cotton sheets US imports market share in terry towels
Source: USDA; Note: Season beginning August 1
Source: Technopak, Ministry of Commerce
Europe & Central Asia, North America, Export driven economies, Others
29%
21%
47%
32%
India’s export break down by country Break up of Indian Textile market (%)
world cotton supply to be weak in 2020-21 The United States Department of Agriculture (USDA) projects 2020-21 global production to decline by 6.7% YoY to 24.8 million tonne while Global consumption is estimated to increase by 13.1% YoY to 25.2 million tonne, implying global deficit of 0.4 million tonne. For China, cotton production is expected to increase by around 1% YoY to 6 million tonne and consumption is expected to increase by 15% YoY to 8.3 million tonne, leading to a deficit of 2.3 million in CY21E. For India,
USDA world cotton production, consumption & Surplus
production is estimated to be flat YoY at 6.4 million tonne but consumption should see an uptick of 20% YoY to 5.2 million tonne, leading to a surplus of 1.2 million tonne. However, shortage of cotton supply has firm up the cotton price, though the domestic cotton prices YTD have declined by around 16% YoY. Since March 2020, the domestic cotton prices have rebounded by 8%. Nonetheless, YTD cotton prices have been benign, thus supporting the margins of domestic textile manufacturers.
(million tonne) 2016-17 2017-18 2018-19 2019-20 2020-21P Production
India 5.9 6.3 5.6 6.4 6.4
China 5 6 6 5.9 6
US 3.7 4.6 4 4.3 3.5
Pakistan 1.7 1.8 1.7 1.4 1
Total 23.2 27 25.8 26.6 24.8
Domestic Consumption
Total 25 26.7 26.2 22.3 25.2 Surplus (production - consumption)
China -3.2 -2.9 -2.6 -1.3 -2.3
India 0.7 1.1 0.4 2.1 1.2
Pakistan 0.6 0.6 0.7 0.7 1.2
Total -1.8 0.2 -0.4 4.3 -0.4
Textile products price increased in recent months The textile products prices have gained traction in October, with a gradualrecovery in demand on account of the festive season and pandemic unlocking. With cotton price continue to gain on MoM basis on account of the demand from the casual wear, knitted and home textile segments, though the cotton price is still lower on YTD basis. The US Department of Agriculture (USDA) estimates a steady cotton production for the current season, it would lead to an oversupply in the domestic market, impacting prices further. However, Cotton Corporation of India had taken steps to liquidate its inventory during July-September, which would help in a substantially lower inventory. Cotton yarn prices continued their recovery in November and remained stronger than blended yarn prices, on account of higher demand from export markets. Also, large cotton spinners who have purchased prior to COVID have written-down inventory losses during Q2FY21, which may have impacted the H1FY21 operating margins. Domestic cotton prices have declined around 16% YoY YTD CY20. However, since March 2020, the domestic cotton prices have rebounded by around 8%. US cotton prices have corrected by around 8.4% and 6.3% YoY YTD CY20 respectively. Current yarn
market share gains from china to benefit Indian textile players The outbreak of COVID-19 has opened up a new opportunity of growth for India in different sectors. Increasing geopolitical tensions between the US and China and global companies intending to establish an alternate sourcing destination are likely to benefit Indian textile players going forward. Various countries are looking at Indian markets and it’s time to gear up supply chains, quality, and deliver at the promised schedules, which will enable India to become a market leader. Global businesses are looking at a manufacturing alternative to China following the US trade war and the ill effects of Covid on supply chains making corporate realizing the foolhardiness of depending on one country for all their needs. Further, the Atma Nirbhar Bharat Abhiyan is turning point on its success. In order to make India as an export hub for textile, government included textile sector under Production Linked Incentive (PLI) scheme just like other sectors.Against the backdrop of the pandemic and the growing preference for India as a potential supplier, domestic textile players are seeing significant market share gains from China. From Jan-Sep 2020, market share (as a % of imports to the US) of China in Terry Towels & Bed sheets reduced by 350bp/510bp to 21% & 15%, respectively, while India’s market share in the same (Terry Towels & Bed sheets) increased by 360bp/90bp to 43% & 50% over the same period. Hence, the Indian textile players will have to be resilient and competitive in intent to increase its wallet share in global textile export markets.
price is inching towards 2019 level after steep correction in the beginning of 2020. Export textile manufacturers have been able to pass on the increased cotton price increasing the price of the products on the back of strong rebound in US and Europe markets. So increased realization will negate the impact of higher cotton price and will help in maintain the margins.
Source: Industry report
IndiaChina
Indian & China Bed sheet export share to US (%)
Indian & China Terry Towels export share to US (%)
National textile policy to support textile manufacturers Government will announce new National Textile Policy entailing a “futuristic” strategy and action plan for India to unleash its full potential and become globally competitive in the sector. The policy is already got delayed due to the coronavirus pandemic.The policy is likely to target investments of Rs 10,000 crore and exports of USD 100 billion. The policy is a step in the right direction from the Government of India. The textile industry will get a fillip, and from a policy, objective perspective setting aside Rs 10,000 crore, which could potentially help exports worth about Rs 2 lakh crore over five years or longer. Further, as the textile is a highly labor-intensive industry it can create a lot of employment with the implementation of the policy. Government has also realized that India’s export share in manmade fibre (MMF) products is miniscule at 0.7% in the total global market of USD 150 billion. Further, a study done by the government has revealed that by 2030, the share of MMF- based textile and apparel products will reach 80%, while for cotton it will get reduced to 20% as the global demand is more for MMF based products. Thus, the rollout of this policy will augur well for export textile manufacturers to gain more export market share.
Indian textile companies have witnessed strong demand rebound in last few months, mainly from home textile segment. The home textile companies have seen strong demand revival during Q2FY21 on the back of high demand from big retailers (selling essentials), who saw their inventory pipeline running dry due to a demand recovery. Further, imposition of lockdown across countries has led to higher consumption of Home Textile products (in the last eight months) including Bedsheets and Towels as people are spending more time at home, with higher emphasis on hygiene. In addition, escalating geopolitical tensions between the US and China and global companies intending to establish an alternate sourcing destination are likely to benefit Indian textile players going forward. Domestic textile players are expanding their capacities and utilization levels on the back of higher inquiries from global players. Further, the rupee depreciation over the year make Indian textile exporters more competitive compared to Chinese. Government is also lending all its supports towards the development of the sector and included the textile sector under PLI scheme in order to incentivize the sector. Thus, Indian textile sector is poised for next leg of growth which will come from gaining export market share.
Source: ACE Equity & Bloomberg
Note: N/A - not available
(Rs Cr) Revenue (Rs Cr)
EBITDA (Rs Cr)
PAT (Rs Cr)
1 Yr Forward P/E (x)
1 Yr Forward P/Bvps (x)
KPR Mills 6,126 3,206 622 377 19.4% 11.8% 20.6 7.6 12.6 2.4
Vardhman Textiles 5,926 6,735 937 578 13.9% 8.6% 9.9 6.0 10.4 0.9
Welspun India 6,968 6,741 1,215 524 18.0% 7.8% 18.2 6.0 10.7 1.8
Trident 4,765 4,728 830 340 17.6% 7.2% 11.3 5.5 10.8 1.3
HimatsingkaSeide 1,444 2,198 418 13 19.0% 0.6% 1.0 6.5 7.7 1.0
Indo Count Industries
3,011 2,080 183 74 8.8% 3.5% 7.5 9.7 16.3 2.3
Filatex India 974 2,868 232 85 8.1% 3.0% 19.8 N/A N/A N/A
Arvind 1,216 7,084 692 96 9.8% 1.4% 3.5 4.5 5.9 0.4
Kewal Kiran 1,011 525 95 73 18.1% 13.9% 16.7 N/A N/A N/A
SP Apparels 388 763 83 47 10.9% 6.1% 9.3 4.4 5.4 0.6
The Ramco Cements Ltd.
Overview on India Cement Sector India is the 2nd largest cement maker in the world. India holds 8% share of Global cement installed capacity. India is 2nd to China and the capacity is even higher than US and Europe.
India’s cement capacity is 544 million tonne in FY20. In 1982 the capacity of Indian cement is only 25 million tonne. Thus, from 20 million tonne capacity in 1982 to 544 million tonne, Indian cement industry has achieved a creditable achievement.
Indian cement industry is subdivided into four regions, namely North, East, West and South.South Indian companies are most profitable on EBITDA front. South region has always given consistent performance in terms of net profitability.
In last 10 years, North and Central regions have done extremely well on the back of NCR developments. Northern cement companies have outpaced the Southern companies during that period. South have created lot of excess capacity than consumption. However, in some Northern states like Rajasthan & MP, there excess of supply.
There are lot of states where limestone are not available like UP, Bihar, West Bengal. India has low per capita cement consumption of Rs 195 Kg as compared to global
average of 500 kg, which shows significant opportunity for growth.
India need lot of infrastructure creation and that would drive the demand for cement in coming years. There is huge scope for cement companies to grow in India as our consumption is around 40% of global average.
Top 10 companies account 60% of total cement capacity. 70% of capacity is located in 8 states.
India’s cement capacity is 544 million tonne in FY20. In 1982 the capacity of Indian cement was only 25 million tonne.
Company Information BSE Code 500260
NSE Code RAMCOCEM
Bloomberg Code TRCL.IN
Sector CEMENT
Face Value(Rs.) 1.0
annum)
% share
Northern India 132 24%
Western India 81 15%
Eastern India 80 15%
Central India 66 12%
Southern India 185 34%
In Eastern India, there is only grinding capacities as there are no big lime stone availability in that region. Lime stones are mostly available in AP, Chhattisgarh, MP.
Ultratech Cement is the largest player in India with 114 million tonne and has share of 22%, Lafarge Holcim India, hold second position with capacity of 63 million tonne and market share of 12%. Top ten companies account 337.72 million tonne and 62% of market share.
Ramco Cement: Technology driven company Ramco integrated cement plants of 12mtpa, grinding capacity 7.2 mtpa. Company is the 5th largest company in India and largest in South India.Company is also increasing its clinker capacity and by end of March company’s capacity will be 20.4 million tonne from 12 million tonne now.
Promoter has started this group with capital of Rs 5 lakh. Company has excellent R&D capabilities. Company is also the highest EBITDA/tonne making company in India with other cement companies use to benchmark the Ramco’s operating profitability.
Company is the most digitized company in India. Company has 175 MW of captive power plant for all its cement plants.
Last quarter has been best in the history of the company. Company has made EBITDA/tonne of Rs 2035 during Q2FY21, which is best in the industry as no company has made so strong EBITDA/tonne. EBITDA margin in last quarter was 36% despite of such pandemic hit economy with RoCE of 13%.RoCE was little bit on lower side because of expansion going on, otherwise company has track record of maintaining healthy RoCE.
Cement demand in last 10 years has been growing at 5% CAGR. Cement demand is around 327 million tonne. In 2022E, company is expecting demand to reach at 379 million tonne.
India’s Top 10 Cement Groups/Companies
Source: Company
Source: Company
SHARe %
2 LAFARGE HOLCIM INDIA (ACC+AMBUJA) 63.06 12%
3 SHREE CEMENT LTD. 40.40 7%
4 DALMIA BHARAT LTD. 26.10 5%
5 THE RAMCO CEMENTS LTD. 20.40 4%
6 INDIA CEMENTS LTD. 15.55 3%
7 BIRLA CORPORATION LTD. 15.38 3%
8 CHETTINAD CEMENT LTD. 14.92 2%
9 JSW CEMENT LTD. 13.93 2%
10 JK LAKSHMI CEMENT LTD. 13.10 2%
Total 337.72 62%
256 269 272 269
Cement Demand in the last 10 years (Demand in MTPA)
Ramco Performance
Source: Company
PARTICULARS H1FY21 H1FY20 Q2FY21 Q2FY20 Q1FY21 FY20 FY19 FY18 FY17 FY16
Utilization (%) 68% 87% 71% 87% 62% 90% 85% 71% 60% 58%
Sales Volume (Million Tonne)
4.15 5.43 2.21 2.72 1.94 11.2 11.12 9.31 8.35 7.2
Total Revenue (Rs Cr)
2,317 2,718 1,265 1,326 1,052 5,406 5,175 4,443 3,993 3,662
EBITDA (Rs Cr) 720 672 450 304 270 1,174 1,065 1,136 1,238 1,160
PBT (Rs Cr) 494 491 338 213 156 787 716 785 850 673
PAT (Rs Cr) 345 360 236 168 110 601 506 556 649 542
EBITDA/Tonne (RS)
1,736 1,238 2,035 1,118 1,394 1,048 957 1,220 1,483 1,611
EBITDA % 31% 25% 36% 23% 26% 22% 21% 26% 31% 32%
PBT % 21% 18% 27% 16%

prominent headlines sector outlook: textile cio’s view

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