Cochin Shipyard - IPO Coverage- Well-managed PSU with Bright Prospects-SUBSCRIBE

Cochin Shipyard - IPO Note - Well-managed PSU with Bright Prospects

Cochin Shipyard Ltd. (CSL) – a Miniratna company – is one of the largest PSU shipyard companies in India. Currently, it has two docks located adjacent to Cochin Port in West Coast of India: (1) Ship Repair Dock (1.25 lakh DWT) and (2) Shipbuilding Dock (1.10 lakh DWT). Further, it is in the process of setting up a new Dry Dock and an International Ship Repair Facility (ISRF), which will enable CSL to secure more projects in ensuing period. The Company gets many government orders on nomination basis like NBCC Ltd. Notably, CSL’s current order book stands at Rs33bn (1.6x FY17 revenue), which we believe will expand further in coming years owing to government’s strong endeavour to increase its defence production under “Make in India” initiative. Unlike other PSU shipyard companies, CSL has been profitable, as it has delivered a consistent performance with over 4% CAGR in earnings in last four years, which is commendable, in our view as the shipping industry witnessed multiple headwinds during this period.

CSL is coming up with an Initial Public Offering (IPO) with a fresh issue of 22.7mn shares and OFS of 11.3mn shares to mop-up Rs14.7bn at upper price band. Proceeds will be utilized towards proposed expansion of Dry Dock and ISRF. 

Key Positives

• Healthy Performance Track Record amid Challenging Environment
• Leadership in Ship Repair Segment Bodes Well
• Healthy Order Book; More to Flow in
• Location Advantage Offers an Edge
• Dry Dock and ISRF to Provide Scale to its Business
• Healthy Financial Track Record and Dividend Payout  

Key Risks

• Any Deterioration in Global Economic Conditions
• Delay in Obtaining Approvals for Dry Dock and ISRF and Cost Escalation for the Same
• Nature of Fixed Price Contracts
• Single Location Plant
• Litigations Pertaining to Legal and Tax Proceedings against CSL

Outlook & Valuation

We admire CSL’s ability to stay afloat in the turbulent period without compromising on margins. Going forward, government’s endeavour to improve its defence strength in sea route and several initiatives under flagship “Make in India” programme will result in healthy orders for CSL, which will drive growth. At the upper price band, CSL trades at 18.8x FY17 EPS post dilution. Though it is difficult to compare it with peers as most of the listed peers are loss making, we believe the current valuations are not expensive given healthy return ratios and bright prospects. Further, price to book ratio after dilution stands at 1.9x, which is attractive in our view. Hence, we recommend SUBSCRIBE to the issue.

UltraTech Cement - 1QFY18 Result Update - Sound Performance:BUY Target Price of Rs 4,750.

UltraTech Cement - 1QFY18 Result Update - Sound Performance amid Challenging Environment

UltraTech Cement (UCL) has reported a better-than-estimated operating performance in 1QFY18 with its reported EBITDA coming in at Rs14.7bn marginally topping our estimate of Rs14.4bn. EBITDA/tonne stood at Rs1,113 compared to Rs1,039 and Rs841 in 1QFY17 and 4QFY17, respectively. While average realization has witnessed a sharp up-tick (+7.5% YoY and +9.6% QoQ), cement sales volume remained subdued (-0.2% YoY and -6.3% QoQ) on the back of challenging demand environment led by sand crisis, water issues and drought in several pockets of Northern, Western and Southern regions. Further, a significant 2x YoY spike in the price of petcoke (which accounted for 71% of total fuel usage) and 9% YoY rise in diesel prices resulted in higher operating cost per tonne  (+5.6% YoY and +1.7% QoQ). However, the Management stated that improved efficiency led to ~5% rise in EBITDA during the quarter. Looking ahead, we expect UCL’s operating efficiency to improve further with the production ramp-up from newly acquired Jaypee units. We maintain our positive view on the stock due to: (a) a consistent rise in market share and leadership status; (b) consistent improvement in operating synergies; (c) likely turn-around of new acquired Jaypee units; and (d) well-placed to benefit from likely economic boom with ample reserve of limestone post recent acquisition. We maintain our BUY recommendation on the stock with a revised Target Price of Rs4,750.

Dismal Volume Drags Revenue

UCL’s revenue grew by ~6% YoY to Rs65.3bn vis-à-vis our expectation of Rs67.8bn mainly due to dismal sales volume. Sales volume – including exports – stood at 13.18mnT (-0.2% YoY and -6.3% QoQ) for the quarter. Looking ahead, we expect UCL’s sales volume growth to remain healthy post monsoon with the improvement in rural demand and pick-up in infrastructure development.

Operating Performance Remains Healthy Amid Cost Pressure

A strong recovery in average realisation and operating efficiency improvement enabled UCL to register 7% YoY and 24% QoQ growth in EBITDA to Rs14.7bn vs. our estimate of Rs14.4bn. EBITDA margin stood at 22.4% in 1QFY18 vs. 22.2% and 18.2% in 1QFY17 and 4QFY17, respectively. However, a significant 2x YoY spike in petcoke prices (usage is up to 71%) and 9% YoY rise in diesel prices resulted in higher operating cost per tonne  (+5.6% YoY and +1.7% QoQ).

Outlook & Valuation

We continue to like UCL given its consistent endeavour to upgrade its operating efficiencies, leadership status (an unmatched 89mnT capacity in India), strong brand equity and healthy financials. We upgrade our EBITDA estimate by 4% and 16% for FY18E and FY19E, respectively to factor in Jaypee acquisition. Considering, UCL’s healthy growth prospects in next two years due to above mentioned factors, we re-rate our target EV/EBITDA multiple from 14.0x to 14.5x. We reiterate our BUY recommendation on the stock with a revised Target Price of Rs4,750.

Hindustan Unilever - 1QFY18 Result Update - Superior Growth Trajectory to Sustain Rich Multiples:BUY Target Price of Rs1,296

Hindustan Unilever - 1QFY18 Result Update - Superior Growth Trajectory to Sustain Rich Multiples; Upgrade to BUY

Hindustan Unilever (HUL) has reported a strong set of numbers in 1QFY18 as its net sales grew by 5.2% YoY to Rs84bn, while EBITDA and PAT (before exceptional item) surged by 14.1% YoY and 14.6% YoY, respectively. Despite flat volume growth due to overhang on account of GST rollout, revenue growth was higher due to effect of pricing action in the previous quarters. 

Continued focus on premiumization, strong new product funnel, consistent focus on cost rationalisation and higher share of organised players post GST would drive accelerated growth for HUL in coming years. We expect HUL to post revenue and earnings CAGR of 12.2% and 18%, respectively through FY17-19E. Considering the strong performance in the reporting quarter, we have increased our earnings estimate by 6% for FY19E. The stock has been trading at an average one year forward multiple of over 45x in past three years. Taking into account these factors coupled with impressive return ratios, we upgrade our recommendation on the stock to BUY from HOLD with a revised Target Price of Rs1,296.

Volume Flat but Trend to Improve

Volume growth was flat, while revenue growth stood at 5.2% for the quarter. Revenue growth was led by Home Care (5.9% YoY) and Refreshments (10.8% YoY) segments. Personal products category grew by 3.5% YoY, while Foods portfolio witnessed 4.4% YoY revenue growth in the quarter. Notably, revenue growth was impacted to some extent due to GST-led inventory destocking and sharp fall in sales from CSD channel.

Strong Focus on Cost Control Yielding Results

Gross margins for the quarter rose by 90bps YoY to 51.4% on the back of price hike in past few quarters and stable input cost scenario. Continued focus on cost reduction led to reduction in all other cost heads i.e. A&P (down 20bps), employee cost (down 40bps) and other expenses (down 50bps). Thus, the resultant EBITDA margins improved 180bps YoY to 21.9%, which were the highest quarterly margins for HUL in at least past seven years.

Outlook & Valuation

We expect HUL to report revenues of Rs348.8bn and Rs394.2bn and net profit of Rs50.3bn and Rs59.1bn in FY18E and FY19E, respectively. Based on expected EPS of Rs27.4, the stock currently trades at PE multiple of 42.2x FY19E earnings. We believe that although valuations on absolute basis are rich, we expect HUL to sustain these valuations on the back of improved growth trajectory and superior return ratios compared to peers. We upgrade our recommendation on the stock to BUY from HOLD with an upwardly revised Target Price of Rs1,296, based on 45x Jun’19 earnings.

Kotak Mahindra Bank - 1QFY18 Result Update - Steady Quarterly Performance:BUY

Kotak Mahindra Bank - 1QFY18 Result Update - Steady Quarterly Performance; Maintain BUY

Kotak Mahindra Bank (KMB) has reported a healthy performance in 1QFY18 as its both standalone and consolidated net profit recorded a healthy growth. Its standalone PAT grew by 23.1% YoY (-6.5% QoQ) to Rs9.1bn on the back of healthy growth in customer assets (+19.8% YoY & +6.1% QoQ), best-in-class NIMs (4.5%) and strong growth in core fee income (+42.7% YoY & +6.3% QoQ). Further, the Bank’s consolidated PAT surged by 26.2% YoY (-4.1% QoQ) to Rs13.5bn backed by strong bottom line growth recorded by Kotak Securities (+108.3% YoY and +3.3% QoQ to Rs600mn), Kotak Life (+45.1% YoY and +2% QoQ to Rs710mn) and Kotak Prime (+10% YoY & -0.8% QoQ to Rs1.2bn). Customer assets growth was aided by 35.3% YoY and 5.7% QoQ growth in CV/CE and 21% YoY and 10.4% QoQ growth in corporate portfolio. Notably, the Bank has started benefiting from the full integration of erstwhile ING Vysya Bank (IVB) especially in post demonetization period.
 

Management Commentary & Guidance

• KMB successfully raised Rs58bn of core equity capital in 1QFY18, which helped the Bank to improve its Tier-I ratio to 18.8% vs. 16.5% in 1QFY17. The Management has clearly indicated that apart from organic growth, the Bank will be continuously exploring to expand through inorganic route as well.
   
• KMB will launch consumer finance business through its NBFC subsidiary – Kotak Prime, which will help the Bank to optimally utilise the excess capital available at Kotak Prime.
   
• Further, KMB is in process of buying back 26% stake in Kotak Life from Old Mutual which will take its holding to 100% in Kotak Life. Currently, the deal is waiting for regulatory approval.
   
• KMB has total exposure of Rs2.4bn to 4 out of 12 accounts – inherited from erstwhile ING Vysya Bank – identified by the RBI for insolvency proceeding. Provisioning on these accounts is in excess of RBI stipulation.
   
• With the positive initial response to the Bank’s Digital 811 Account, the Management believes the traction would continue in FY18 as well. However, standalone opex was partially impacted due to higher advertising cost for same.

Outlook & Valuation

KMB has undoubtedly proven its competitive edge over its private sector peers with higher fee based income generation, asset quality management and effective management of financial business subsidiaries. The Bank has raised Rs58bn of fresh equity during 1QFY18 via QIP at 5.1x Mar’17 consolidated book value. Resultantly, its standalone book value increased 17% QoQ. Further, incremental capital will help the Bank to explore organic and inorganic growth opportunities. Post this capital raising, we have upwardly revised our book value estimates for FY18E & FY19E by 19% and 16%, respectively. Valuing standalone entity at 4xFY19E adjusted BV and expecting subsidiaries to fetch Rs208/share after deducting holding company discount of 15%, we maintain our BUY recommendation on the stock with an upwardly revised Target Price of Rs1,144 (from Rs1,010 earlier).

HDFC Bank - 1QFY18 Result Update - Loan Growth Momentum Gradually Picking-up:BUY

HDFC Bank has delivered a healthy performance on business growth and operating front in 1QFY18. Despite a mere 6.1% YoY growth in banking industry loan, its loan book grew by 23.4% YoY and 4.8% QoQ, led by higher growth in corporate, business banking and retail loan segments. This outperformance on loan growth front with a huge margin vs. the industry is really commendable as it is the second largest bank in India in terms of loan book size. Its operating profit grew by 29.2% YoY and 3.3% QoQ to Rs75.2bn led by 20.4% YoY and 3.5% QoQ growth in NII to Rs93.7bn. Strong growth in loan book and 10bps QoQ growth in NIM to 4.4% led to improvement in NII. However, net profit grew by 20.2% YoY (-2.4% QoQ) to Rs38.9bn due to 79.8% YoY and 23.5% QoQ rise in provisioning expenses to Rs15.6bn on the back of higher slippages form agriculture portfolio. Its gross NPA and net NPA increased by 23.1% QoQ and 37.1% QoQ, respectively in 1QFY18. However, we are not much concerned over this marginal rise in gross NPA, as the headline NPA and PCR continue to remain best-in-class in the industry

 

Management Commentary & Guidance

• Approximately 60% of incremental growth in NPA can be attributed to agri loan portfolio on the back of farm loan waiver offered by several state governments. Notably, the Bank has provided for adequate provisioning towards the same.

 

• Provisioning expenses were higher primarily due to general loan loss provisioning of Rs2.1bn and higher specific loan loss provisioning for incremental slippages from agri loan portfolio.

 

• The Management expects system loan growth to normalise in coming quarters, and the Bank will continue to grow higher than the overall industry growth. Currently, loan growth is equally contributed by both retail and wholesale segments.

 

• The Bank continues to maintain its guidance of NIM in the range of 4-4.4% in coming period.

 

• Capital adequacy ratio improved by 100bps QoQ to 15.6% led by fresh issue of Rs80bn of Tier-I Capital Bond and Rs20bn of Tier-II bond.

 

Outlook & Valuation

Despite adverse operating environment, the Bank continued to deliver strong performance on business growth as well as operating and assets quality fronts. It has been consistently outperforming its peers both in financial and operational fronts backed by strong liability franchise, low exposure to stressed sectors and superior risk management practices. We have revised our loan growth target to 20-21% from earlier estimate of 17-18% led by relatively higher loan growth over last two quarters. As a result, we have upwardly revised our earnings estimates by 1.9% and 3.1% for FY18E & FY19E, respectively. We maintain our BUY recommendation on the stock with an upwardly revised Target Price of Rs1,940 (from Rs1,833 earlier) based on 4x FY19E Adjusted Book Value.

Navkar Corporation - 1QFY18 Result Update - Limited DPD Impact:BUY

Navkar Corporation - 1QFY18 Result Update - Limited DPD Impact; Upgrade to BUY 

Navkar Corporation (NCL) has delivered a decent performance in 1QFY18. Surpassing volume growth, its consolidated revenue grew by 9.6% YoY (flat on QoQ basis) to Rs988mn. Volume grew by 4.7% YoY (4.4% QoQ) to 86,073 TEUs, while realisation grew by 4.6%YoY (-4.5% QoQ) to Rs11,482/TEU. Realisation growth was aided by higher contribution from Vapi ICD and improved revenue-mix and lower share of empty cargoes, which stood at 4,524 in 1QFY18 compared to 5,300 in 1QFY17. EBITDA increased by 10% YoY and 11.6% QoQ to Rs390mn partly due to certain one-off expenses relating to: (1) loss on sale of asset; (2) employee bonus accounting post IND-AS; (3) higher operating and employee cost relating to Greenfield project at Vapi in both 1QFY17 as well as 4QFY17. However, NCL’s adjusted PAT declined by 7.7% YoY (+7.3% QoQ) to Rs217mn largely due to higher tax outgo. Looking ahead, we expect limited impact from Direct Port Delivery (DPD) due to favourable exports-mix, while ramp-up at Vapi ICD is expected to start meaningfully contributing to NCL’s overall sales in ensuing quarters. Hence, we upgrade our recommendation on the stock to BUY from HOLD with an unrevised Target Price of Rs229. 

Capacity Ramp-up at Vapi ICD to Boost Volumes 

Container volumes handled by NCL – including 5,780TEUs from Vapi ICD – stood at 86,073 TEUs in 1QFY18, which translates into almost 100% capacity utilization at Panvel. Notably, excluding Vapi ICD, NCL’s volume at Panvel fell by 2% YoY. Operations started at Vapi (Road + CFS) from 1QFY17 with attractive pricing of ~Rs23,000/TEU (blended package for CFS + Transportation) compared to ongoing rate of ~Rs35,000/TEU. At Vapi ICD, NCL handled 5,780TEUs in 1QFY18 compared to 2,886TEUs in 4QFY17 and 325TEUs in 1QFY17, respectively. Looking ahead, NCL’s management pegs volume from Vapi at ~100,000TEUs in FY18 considering steady ramp-up by the local companies. However, we believe this is most unlikely to achieve considering a required run-rate of ~31,400TEUs/quarter for the balance three quarters. Though NCL has received all requisite approvals for the railway siding at Vapi ICD, inspection by GM (Railways) is only pending due to incessant rains, which is expected to commence only by mid Aug’17. 

Outlook & Valuation

We believe that NCL continues to remain well-placed to cash in the expected rise in EXIM trade on the back of several initiatives undertaken by the Government. Further, the threat of new entrants in CFS & ICD (Inland Container Depots) industry is moderate as limited land availability at strategic locations would discourage the competitors. We expect limited impact from Direct Port Delivery (DPD) due to favourable exports-mix, while Vapi ICD ramp up is expected to start meaningfully contributing to NCL’s overall sales in ensuing quarters. Hence, we upgrade our recommendation on the stock to BUY from HOLD with an unrevised Target Price of Rs229.

Indian Bank - 1QFY18 Result Update - Strong Operating Performance Continues: BUY

Indian Bank - 1QFY18 Result Update - Strong Operating Performance Continues

Indian Bank has delivered a healthy operating performance in 1QFY18. Its operating profit surged by 38.7% YoY and 17% QoQ to Rs12.5bn led by strong growth in NII (18.1% YoY & 5.4% QoQ to Rs14.6bn) and relatively lower opex (10.9% YoY and -4.6% QoQ) of Rs8.6bn. Resultantly, the Bank’s net profit grew by 21.2% YoY and 16.5% QoQ to Rs3.7bn. However, fresh slippages increased to Rs7.1bn in 1QFY18 compared to Rs6.3bn in 4QFY17. Fresh slippages primarily came from one large corporate account along with recognition of NPAs from loan under special RBI moratorium post demonetisation. Further, the Bank’s operating revenue was supported by higher treasury profit and recovery from written-off accounts.

Management Commentary & Guidance

• Indian Bank has total exposure of Rs28bn to 8 accounts out of total 12 loans referred to Insolvency & Bankruptcy Code (IBC) by the RBI. Notably, the entire exposure to these accounts has already been classified as NPAs and the Bank has further provided for Rs1.3bn of additional provisioning towards these accounts in 1QFY18.
  
• The Bank’s loan book de-grew by 8.3% QoQ due to slowdown in infra loan portfolios. Notably, Retail and Agri loan continued to grow at healthy pace. The Bank expects 12-13% growth in loan book in FY18 led by Retail, SME and Agriculture segments.
  
• For FY18E, the Management looks forward to 12-13% growth in loan book and 10-11% growth in deposits. Growth in loan book will be driven by Retail, SME and Agriculture segment.
  
• The Bank’s NIMs improved by 27bps YoY and 4 bps QoQ to 2.8% led by 82bps YoY and 20bps QoQ decline in cost of deposits to 5.51%. It expects NIMs to reach 3% in FY18E.
  
• The Bank expects further improvement in asset quality led by 5% and 3% decline in gross NPA ratio and net NPA ratio by FY18-end from current levels of 7.2% and 4.1%, respectively.
  
• The Bank is planning to come out with fresh equity issue to comply with regulatory norms, which would bring down the Government of India’s stake to 75% from 82%.
  

Outlook & Valuation

Following an impressive 121% upsurge in last 12 months, we believe that the current stock price has discounted most of the near-term positives. Further, Government of India is mulling consolidation of public sector banks, which creates a very high level of uncertainty for the Bank’s future earning trajectory, as the balance sheet quality of several PSU banks is considered to be pathetic. Further, we expect the Bank will continue to witness elevated level of credit cost, which will keep its earnings and return ratios subdued over next 6-8 quarters. We change our recommendation on the stock to HOLD from BUY with an unrevised Target Price of Rs341 based on 1.1x FY19E Adjusted book value.

Axis Bank - 1QFY18 Result Update - Asset quality holds up; BUY

Axis Bank - 1QFY18 Result Update - Asset quality holds up; Upgrade to BUY  

 

Axis Bank has started FY18 with positive surprise on asset quality front led by sequentially lower fresh slippages, moderation in credit cost along with stable overall asset quality. Fresh slippages declined to Rs35.2bn in 1QFY18 compared to Rs48.1bn in the previous quarter. Its watch list has substantially declined to 2.1% of total loan book from the level of 6.7% in Mar’16, which clearly indicates that the Bank is approaching the end of recognition of stressed loan. This along with PCR (including technical W/O) at 65% and specific PCR at 56% gives comfort to credit cost outlook for next 4-6 quarters. Led by strong demand from retail, SME and corporate working capital segments, the Bank’s loan book grew by 11.8% YoY and 3% QoQ in 1QFY18. The Bank’s quarterly performance on both revenue and earnings front exceeded our estimates owing to higher other income (+9.6% YoY to Rs30bn), and relatively lower opex and provisioning expenses.

 

Management Commentary & Guidance

• Axis Bank has total exposure to the tune of Rs52.3bn to 8 accounts out of total 12 loans referred to Insolvency & Bankruptcy Code (IBC) by the RBI. Notably, the entire exposure to these accounts has been classified as NPAs and the Bank has provisioning coverage of ~50% towards these accounts.

 

• Having incorporated higher provisioning requirement for the loans referred to IBC, the Management continues to maintain credit cost guidance of 175-225bps for FY18. Further, it expects credit cost to revert towards the long-term average from next fiscal onwards. 

 

• The Bank has made enhanced standard asset provisioning at 1% for four sectors i.e. Power, Infrastructure Construction, Iron & Steel and Telecom.

 

• The Bank expects NIMs to compress by ~20bps in FY18 out of which 4bps has already taken place in 1QFY18. Notably, migration to MCLR contributed 30bps decline in NIMs, which offset 27bps positive contribution from decline in CoF in 1QFY18. Further, management expects operating expense to moderate to mid-teens level in 2HFY18 from the current level of 20%.

 

• The Bank expects loan book to grow ~5% faster than the overall banking system in FY18, driven by Retail and SME segments.

 

Outlook & Valuation 

Analysis of stressed assets of the Bank clearly suggests that the Bank is approaching the end of recognition of stressed loan cycle, which along with higher PCR clearly indicates sharp moderation in credit cost from FY19 onwards. We have upwardly revised our loan growth estimate to 14-15% from 11% earlier led by pick-up in loan growth from retail SME and corporate working capital segments. Further, we have also upwardly revised our PAT estimates by 23% and 27% for FY18E and 19E, respectively. We upgrade our recommendation on the stock to BUY from HOLD with a revised Target Price of Rs600 (from Rs502 earlier) based on 2.3x FY19 Adjusted book value.

Asian Paints - 1QFY18 Result Update - Revenues in Line-Hold

Asian Paints - 1QFY18 Result Update - Revenues in Line; Higher Cost Impairs Profitability

 

Asian Paints has reported a mixed set of numbers for 1QFY18. While its consolidated net sales grew by 6.4% YoY to Rs38.2bn in line with our estimates, EBITDA and net profit came in sharply below our estimates. While EBITDA fell by 18.5% YoY to Rs6.7bn vs. our estimate of Rs8.1bn, net profit decreased by 20.4% YoY to Rs4.4bn vs. our estimate of Rs5.7bn. 

 

Considering the sharp fall in earnings, we have revised our net profit estimate downwards by 10% for FY18E and 7% for FY19E and now we expect the Company to post revenue and earnings CAGR of 14.2% and 12.6% through FY17-19E. Considering the rich valuations at 43.1x FY19E earnings coupled with persistent pressure on margins, we maintain our HOLD recommendation on the stock with a revised Target Price of Rs1,170.

 

Volume Growth to Improve in Ensuing Quarters

Volume growth in decorative segment came in at ~3-4% (average volume growth of past 8 quarters was 11%), mainly due to sharp inventory destocking in June prior to GST roll-out. Compared to decorative segment, industrial and automotive JV segments reported good performance. International business growth was impacted due to sharp currency devaluation in key markets such as Egypt; Sleek and Ess Ess business reported lower growth due to transition effects of GST.

 

Price Hike Fails to Maintain Margins

Consolidated gross margins for the quarter fell by 430bps YoY and 100bps QoQ to 42.8%. Prices of key raw material Titanium di-oxide were higher by over 25% YoY during the quarter, which impacted the margins. Although the Company has undertaken two price increases totalling 5.7% in past four months, it has not been able to contain the fall in margins. Lower gross margins coupled with marginal increase in other cost heads led to a 530bps fall in EBITDA margins to 17.4%.

 

Outlook & Valuation

We expect recovery in decorative volume growth in coming quarters as trade pipeline fills in post GST roll-out and will also be aided by good monsoon, implementation of 7th Pay Commission’s recommendations and higher share of organised industry in GST regime. We expect the Company to report consolidated net sales of Rs174.6bn and Rs199.5bn and net profit of Rs21.5bn and Rs25.6bn in FY18E and FY19E, respectively. Based on expected EPS of Rs26.7, the stock trades at rich valuations of 43.1x FY19E earnings. We maintain our HOLD recommendation on the stock with rolled over Target Price of Rs1,170, based on 42x June’19 earnings.

Q! Results updates

Decent numbers: Bajaj Finserv (CMP 4930). Target 5650. 6 months. SL 4100.
Add more on dips towards 4500-4600. Good stock to own for long term.

 Decent numbers:Ultratech Cement(CMP 4,171). next Target 5750. SL 3800. 6 months

 Decent numbers: Kansai Nerolac(CMP449). Revised target 572. SL 390. 6 months

LT approves bonus shares in ratio 1:2

The members of Larsen & Toubro through a postal ballet process have approved the issue of bonus shares in the ratio of 1:2 on July 4, 2017, as reported by the company’s BSE filing.

The date of July 14, 2017, is set as the record date for the bonus issue of shares. Bonus shares are free shares issued by the company to their existing shareholders. Bonus shares are issued in a ratio of the shares an investor hold. Bonus shares increase the number of shares in the market which changes the Earning Per Share or EPS.

Bonus shares are usually announced by the company with a record date, the date which is considered for the bonus shares. All the investors holding the shares on the record date are eligible for bonus shares.

Stock View:

Larsen & Toubro Ltd is currently trading at Rs 1691.65, up by Rs 7.8 or 0.46% from its previous closing of Rs 1683.85 on the BSE.

The scrip opened at Rs 1686.6 and has touched a high and low of Rs 1696 and Rs 1679.75 respectively. So far 560271(NSE+BSE) shares were traded on the counter. The current market cap of the company is Rs 157173.33 crore.

The BSE group 'A' stock of face value Rs 2 has touched a 52 week high of Rs 1834 on 30-May-2017 and a 52 week low of Rs 1295.3 on 09-Nov-2016. Last one week high and low of the scrip stood at Rs 1723 and Rs 1661.35 respectively.

The promoters holding in the company stood at 0 % while Institutions and Non-Institutions held 56.02 % and 42.09 % respectively.

Bad Loans to Industry Increase Dramatically for Public Sector Banks

The Reserve Bank of India (RBI) declares the Financial Stability Report (FSR) twice a year. The FSR for June 2017 was declared late last week.

Up until a few years back, the FSR was one among the many documents published by the RBI during the course of the year. Only serious banking correspondents and analysts followed it. Over the years, as the bad loans problem of banks has gone from bad to worse, the importance of the FSR has gone up and it is now followed by more people than it was in the past. This is because, it is in the FSR that the RBI declares the latest ratio of bad loans for banks.

And how does this latest scene look? Not too good, it must be said.

As of March 2017, the gross non-performing advances ratio or the bad loans ratio for banks stood at 9.6 per cent. This basically means that for every Rs 100 of loans lent by banks, Rs 9.6 was not being repaid by the borrowers. A loan is categorised as a non-performing advance once the repayment from the borrower has been due for 90 days or more.

In comparison, the gross non-performing advances ratio had stood at 9.2 per cent in September 2016. Over a period of six months, the ratio has jumped by 40 basis points. One basis point is one hundredth of a percentage.

Given that nearly one-tenth of the bank loans have been defaulted on, it is safe to say that Indian banks on the whole are in a generally precarious position. The situation becomes even more bleak if we look at the government owned public sector banks.

Take a look at Figure 1. The blue part of the bars essentially shows the bad loans ratio over the years. For public sector banks (shown as PSBs in the Figure), it currently stands somewhere around 12.5 per cent ((I wonder why the RBI has not given a precise figure for this), having jumped from around 10 per cent, in March 2016. It was at 11.8 per cent as on September 30, 2016.

Figure 1: Bad loans of public sector banks  

The situation gets even worse when we look at the loans given by banks to the industry sector. Take a look at Figure 2. The left part of the figure shows the bad loans ratio for industry.

Figure 2: Bad Loans Ratio for Industry  

As on March 31, 2017, the gross non-performing advances ratio or the bad loans ratio for public sector banks for loans given to industry, stood at 22.3 per cent. This basically means that out of every Rs 100 loans given by public sector banks to the industry, Rs 22.3 has been defaulted on. In comparison, the figure for private sector banks stood at 6.6 per cent. For foreign banks, it was at 6.1 per cent.

As of March 31, 2017, lending to industry formed around 38 per cent of the total outstanding loans of banks.

How were things for public sector banks on this front, as on March 31, 2016? The gross non-performing advances ratio for loans given to industry was at around 15 per cent for public sector banks. It has increased dramatically since then by over 700 basis points.

What has changed between March 2016 and March 2017? The only possible explanation for this massive increase in bad loans of public sector banks is that the banks have had these bad loans for a while. It is only now that they have started recognising these bad loans as bad loans.

While this is a good thing, the trouble is that nobody knows where this is likely to end. For instance, this is what the RBI said in the June 2016 Financial Stability Report: "Under the baseline scenario, the gross non-performing advances ratio may rise to 8.5 per cent by March 2017 from 7.6 per cent in March 2016. If the macro situation deteriorates in the future, the gross non-performing advances ratio may increase further to 9.3 per cent by March 2017." The real figure came in at 9.6 per cent.

In the latest Financial Stability Report, the RBI says: "The macro stress test indicates that under the baseline scenario, GNPAs of SCBs may rise from 9.6 per cent in March 2017 to 10.2 per cent by March 2018... However, if the macroeconomic conditions deteriorate, the gross non-performing assets ratio may increase further under such consequential stress scenarios."

Also, it is worth pointing out that the large borrowers are responsible for the bulk of the mess. The RBI defines a large borrower as anyone who has loan of Rs 5 crore or moe. These large borrowers accounted for 56 per cent of lending and 86.5 per cent of bad loans. This is clear from Figure 3.

Figure 3:

When it comes to the hundred largest borrowers they accounted for 15.2 per cent of the loans and 25.6 per cent of the bad loans. Due to various reasons over the years, banks have been unable to recover these loans.

It remains to be seen whether they can do a better job of recovering loans from the largest borrowers in the days to come. We haven't seen the last of this issue yet.

Impact of GST On Banking transactions, Insurance, and Investments

Goods and Service Tax (GST) is the hottest topic of the season, isn’t it?

If you look around in newspapers, TV channels, hoardings by the road, on buses, trains there’s so much information about it.

GST seminar, GST software, GST tax consultants, GST triggered sale, etc. It’s all about GST….

So, are you worried about rising prices?

Wouldn’t you want to know how GST is going to impact your financial transactions?

In this article, we take an incisive look at how GST will affect your financial wellbeing, while managing your investments and savings.

Presently, most of the banks and financial institutions have proactively communicated the revised service tax structure to their customers via e-mails or text messages. So, under the new tax regime, the service tax rate on almost all banking, insurance and capital market transactions will be 18% as against the 15% charged earlier.

And that’s just the beginning… here are the details:

Impact on mutual fund investing

Mutual fund investors will also have to bear a greater cost. With the rise in the service tax, the total expense ratio of mutual fund might be a tad higher but within the specified limits set by the regulator. Further, fund houses will deduct GST from the commission paid to the distributors who do not have GST registration.

Additionally, the mutual fund distributors and independent financial advisors will have to enroll for GST. However, advisors who do not earn more than Rs 20 lakh commission will be exempt from GST. Thus, the effective cost of advice rendered by the investment adviser / financial planner / financial guardian may escalate.

However, the change in tax structure does not affect the fundamental attributes or investment objective of a mutual fund scheme in any way. It is advisable to remain calm and refrain from making any hasty decisions for the time being. Be wise and consult your investment adviser to make prudent investment decisions.

Brokerage

While buying shares, the brokerage post-GST will also be greater as against earlier. The brokerage component on which service tax is calculated is a very small proportion of the overall transaction, especially if you transact through a discount broker. Hence, this could be slightly dearer for retail investors. With the higher GST rate of 18%, the cost of holding securities in a demat account will increase too.

ATM transactions

All your ATM transactions, beyond the free limit will cost you 3% more now. For example, the State Bank of India under the old tax regime charged a Rs 50 plus service charge (15%) for each transaction beyond your four free transactions. So, for every withdrawal of Rs 10,000, you would pay Rs 1550 (service charge plus service tax). But under GST, the same transaction will cost you Rs 1850.

Loan processing fee

Loan processing fees, too, will go up due to GST. Each category of loan has a different cost structure. For instance, there is a service tax levied on processing fee and loan pre-payment fee for personal loans. The processing fee charged is approximately 1% - 2% of the loan amount plus the service tax.

So, for example, if a loan amount of Rs 5,00,000 attracts a processing fee in the range of Rs 5000 – 10, 000, the service tax equates to Rs 750 – 1500. But under GST, your cost will go upto Rs 900 – 1800; a sum total of around Rs 5,900 -11,800 (processing fee + 18% GST).
 

Charges on Personal Loan	GST Rate	Pre GST rate
Processing Fee	0.50% -1% of the loan amount + 18% GST	0.50%-1.00% of the loan amount + 15% Service Tax and surcharge
Prepayment Charges	2% - 5% p.a. of principal outstanding amount + 18% GST	2% - 5% per annum of principal outstanding + 15% Service tax

(Source: www.icicibank.com)
Insurance premiums

Paying insurance premiums will prove to be costly. Your general insurance, life insurance, and Mediclaim premiums will hike up due to GST. We have highlighted some of the insurance products below.
 

Product Type	Applicable On	GST Rate	Pre-GST rate
Term Policy	Premium payable	18%	15%
Unit Linked Insurance Policy	All applicable charges	18%	15%
Riders	Premium Payable i.e. Accidental Death Benefit Rider	18%	15%
Health Insurance Policy	Premium Payable	18%	15%
Endowment Policy	First Premium	4.50%	3.75%
Endowment Policy	Premium Payable i.e. Regular Premium	2%	1.90%
Single Premium Annuity Policy	Premium Payable	1.80%	1.50%

(Source: www.iciciprulife.com,)
Other banking services

Similarly, other banking services such as NEFT / RTGS / IMPS, debit card, credit card, e-wallets, cheque book service, loan processing fees etc. will be dearer now.

To sum-up

There is an increase in the cost of compliance for all banks, brokerage houses, insurance companies, and mutual fund houses to register all their branches under each state respectively. Along with this, each of these branches will now have to file and pay their taxes independently, unlike earlier where it was all accumulated at and submitted by the head branch office. This marginal rise in tax rates should not be the deciding factor for any financial decisions for the time being. Just remember to keep your financial health in the pink and remain focused on your financial goals.
src:PersonalFN Research

One Month performance of Indian Markets as on June 30.

 One Month performance of Indian Markets as on June 30.

Historical P/E Ratios – Nifty 50 (Monthly Average)

P/E Ratio (on last day of June 2017): 24.23
P/E Ratio (on last day of May 2017): 24.35

Historical P/BV Ratios – Nifty 50 (Monthly Average)

P/BV Ratio (on last day of June 2017): 3.52
P/BV Ratio (on last day of May 2017): 3.62

Historical Dividend Yield – Nifty 50 (Monthly Average)

Dividend Yield (on last day of June 2017): 1.12%
Dividend Yield (on last day of May 2017): 1.19%

 

Don't Let Stock Prices Fool You

A common saying says, "Don't judge a book by its cover." Some equally valid words of wisdom for investors could be, "Don't judge a stock by its share price ." Despite much readily available information for investors, many people still incorrectly assume that a stock with a small dollar price is cheap, while another with a heftier price is expensive. This misconceived notion can lead investors down the wrong path and into some bad decisions for their money.
The cheapest stocks - "penny stocks" - also tend to be the riskiest. That stock that just went from $40 to $4 might end up at zero. And a stock that goes from $10 to $20 might double again to $40. Looking at a stock's share price is only useful when taking many other factors into account.

Many Factors to Consider
Investors often make the mistake of looking only at stock price, because it is often the most visibly quoted number in the financial press. However, the actual dollar price of a stock means very little unless many other factors are considered. For example, if Company A has a $100 billion market capitalization and has 10 billion shares, while Company B has a $1 billion market capitalization and 100 million shares, both companies will have a share price of $10, but Company A is worth 100 times more than Company B.

A stock with a $100 share price may be intimidating to many retail investors, because it seems very expensive. Some investors think that a triple-digit share price is bad, and they feel that a $5 stock has a better chance of doubling than the $100 stock. This is a misguided view, because the $5 stock might be considerably overvalued, and the $100 stock undervalued. The opposite also could be true as well, but share price alone is no sign of value. Market capitalization is a clearer indication of how the company is valued, and gives a better idea of the stock's value.

Why Market Cap and Share Price?
Stocks are divided up into shares so that clearly distinguishable units of the company and investors can buy a portion of the company corresponding to a portion of the total shares. The actual number of shares outstanding for publicly listed companies can vary widely.

Big examples of this are stock splits and reverse stock splits. There are some psychological associations with stock prices, and companies will sometimes choose to cater to this investor psychology through stock splits. For example, people tend to prefer buying stocks in round lots of 100 shares. This leads to the conclusion that a stock with a share price of more than $50 may turn off the average investor, because it requires a cash outlay of at least $5,000 to buy 100 shares. This is a large financial commitment to make to one stock for the average retail investor. As a result, a company that has had a good run and has seen its shares rise from $20 to $60 might choose to do a 2-for-1 stock split.

Stock Splits
A 2-for-1 split means that the company will change every share of stock into two. It also means that the value of each share will be divided in half, so that the two new shares will be exactly equal to the one old share. An investor might be more comfortable buying the shares at $30, making a $3,000 investment to purchase 100 shares, but the rationale is absent when looking at the actual transaction.
When the investor buys the stock after the split, 100 shares constitute a $3,000 investment. However, the investor could just as easily have bought 50 shares before the split, made the same $3,000 investment and had the same percentage ownership in the same company. This is why market cap is important. The company's market cap will not change due to the split, so if a $3,000 investment means a 0.001% ownership in the company before the split, it will mean the same afterward.

Reverse Splits
A reverse split is just the opposite. Some investors think that stocks that are less than $10 are riskier than stocks with double-digit share prices. If a company's share price drops to $6, the company can counter this perception by doing a 1-for-2 reverse stock split. In this case, the company will convert every two shares of stock outstanding into one share worth $12 (2 x $6). The principles are the same. This can be done in any combination - 3-for-1, 1-for-5, etc. - but the point is that this does not add any true value to the stock, and it does not make an investment in the company more or less risky - all it does is change the share price.

Real World Example
An example of where a high price may have made investors pause is Warren Buffett's Berkshire Hathaway (NYSE:BRK.A

Berkshire Hathaway Inc

BRK.A

254,700.00

+0.32%

). In 1980, a share of Berkshire Hathaway sold for $340. The triple-digit share price would have made many investors think twice. However, Berkshire Class A shares are worth $173,300 each in 2013. The stock rose to those heights because the company, and Buffett, created shareholder value. At $173,300 per share, would you consider the stock expensive? The answer to that question does not depend on the dollar price of the shares. Another example of a stock that has generated exceptional shareholder value is Microsoft (Nasdaq:MSFT

Microsoft Corp

MSFT

68.93

+0.64%

). Microsoft's shares have split multiple times since its IPO in March 1986. Microsoft closed at $27.75 on its first day of trading, and is currently valued at $32.93 per share in 2013. That seems like a meager return over 20 years, but when all the splits are accounted for, a $27.75 investment in 1986 would be worth significantly more today. Because the stock did split, the share price in 2013 was $33, but each share also represented a much smaller piece of the company. Microsoft and Berkshire both produced stellar returns for investors, but one decided to split several times, while the other did not. Does this make one more expensive than the other now? No - if either should be considered expensive or cheap, it should be based on the underlying fundamentals, not the share prices.

When Does Price Matter?
Share price can have a big impact on a company. There are the psychological implications to the market mentioned above, but there are also real implications that can affect a business's solvency. Companies can raise cash through equity or debt. The weighted average cost of capital (WACC) is a weighted average of a company's cost of debt and cost of equity. If a company's share price plummets, its cost of equity rises, also causing its WACC to rise. A dramatic spike in cost of capital can cause a business to shut its doors, especially capital-dependent businesses like banks. This problem was in the spotlight during the 2007-08 credit crisis, and should be on the minds of investors following a sharp stock decline.

Conclusion
Some investors may focus on share price when looking at a stock, because it is the most visible number in the financial press. Investors should not get fixated on share price alone, because companies can change share prices dramatically through stock splits, reverse splits and stock dividends without changing fundamentals. Dig a little deeper when thinking about your next investment, and remember that a stock with a high price can go much higher under the right circumstances, just as a stock with a low price can sink even further if it isn't really a good value.

Share Price or Share Value: What is More Important?

Value Is Better Measure for Investors and Price More Important to Traders

One issue that often confounds investors in the stock market is resolving the difference between a stock's value and its price.
If you have spent any time in the stock market, you know that value and price are two different measures arrived at by different means.
The real estate collapse of 2008 demonstrated the same principle. Houses that may have a value derived from appraisals or other means and sell for substantially less..

Back to stocks.
 
Investors in the stock market can determine a stock's value by looking at such factors as:

•      Earnings (past, present and, more importantly, future projections)
•     Market share
•     Sales volume over time
•     Potential and current competitors
•     Running through a variety of metrics
•     Reviewing reports by analysts who follow the company
•     And so on

Most of this analysis is straight forward and based on published facts and figures, although there is still room for different interpretations of the number. For example, if a company ventures into a new area of business, through merger or acquisition, it may work or it may not.

Stock market analysts make a lot of money sorting out the facts and figures along with the possibilities for success or failure.

In the end, stock market analysts will arrive at a value, that is, what they believe the stock should trade for on the market.

Often, the stock's price is at or near that value, discounting daily fluctuations due to a rising or falling market.

However, there are many occasions where a stock's price (what it is actually trading for on the open market) is way off the value.

The price a stock trades for (or indeed the price of anything) is simply the number that a willing seller and a willing buyer reach that is agreeable to each party. In other words, a stock (anything sold in a free market) is worth what someone is willing to pay.
While the fundamentals influence stock prices over the long term, supply and demand rule stock prices in the short term.
More buyers than sellers means the price will rise and more sellers than buyers means the price will fall.

Whether there are more buyers or sellers on any day depends on many factors, such as:

•     Overall market trends
•     News, good or bad
•     Economy
•     Confidence or lack of it in the economy
•     Company news (earnings, scandal and so on)

In short, traders are more concerned with price and investors are more concerned with value.
Traders live on price changes, whether up or down. They make money by figuring out which way prices are going to move and taking a position to profit if they are correct.

Investors are more concerned with value, since over the long term a correct assessment of value will guide their decision to buy or sell.
Taking a long-term view doesn't mean buy and forget. Things change and often rapidly. It is important to reassess value or a regular basis.

If you do this, it is unlikely you will hold a failing stock or sell one with strong future prospects.

GST's Impact on Mango People's Pocket

Finally, India's biggest tax reform - Goods and service Tax (GST) is a reality. Yes, after a lot of speculation around the timely implementation, GST has been rolled out.
As we have saying, GST is a much-needed economic reform. It should eventually expand India's narrow tax base and increase government revenues.

That said, every coin has two sides. GST is no exception. It will have its fair share of chaos in the coming months. There could be protests across the country over tax rates and compliance burdens and it could affect the smooth functioning of the economy.

While GST will impact businesses and industries in a big way, it won't directly affect the salaried class and self-employed personnel (Mango People aka Aam Aadmi). Since it is an indirect tax, it does not change the way they pay their personal taxes. The only impact they will see would be due to the change in rates of the goods and services they avail.
Data Source: clearTax.in

Performance of Major Markets During the Week Ended 30th June, 2017

The decline in oil prices over the last three years has been one of the major drivers of global stock markets. Higher crude oil prices mean higher inflation for the US economy which approached 3% during the first part of 2017. US markets ended lower by 0.6% this week.
 
Meanwhile, Brazilian markets rose higher this week as shares of state-controlled oil company PetrÓleo Brasileiro SA rose higher along with crude oil prices. Brazilian markets have been volatile lately owing to uncertainty related to the country's political crisis. Brazilian president Michel Temer was under a political storm after bribery allegations surfaced against him earlier this year. The Brazilian market closed the week up by 2.3%.

Back home, Indian share markets concluded a historic week with the nationwide launch of GST at the stroke of midnight today. Implementation of GST promises to transform India into a single common market and there are many sectors which will gain immensely from this transition. The implementation of the same is bound to bring more companies under the new tax regime, thus providing a level playing field to organized players that face huge competition from the unorganized segment. Although markets are bound to be turbulent due to short term uncertainty across sectors as the GST is implemented. The Indian stock market ended the week lower by 0.7%.

Ginni Filaments :DD Sharma's Another New Stock Pick

Ginni Filaments : Corporate Overview

Ginni Filaments is yet another shining example of DD Sharma’s awesome sense of timing.

DD Sharma assured a target price of Rs. 70 for Ginni Filaments which is now within touching distance.
No doubt, he will increase the target price given that the Company is on the proper track.

DD Sharma explains why Ginni Filaments is investment worthy

For some reason, DD Sharma, the veteran stock picker, does not figure prominently in our radar despite the fact that he has several multibagger stocks to his credit.
One reason for this could be the fact that he appears only on the Hindi channel CNBC Awaaz and not on the English channels.
Anyway, there is no doubting the quality of his analysis.
In February 2017, when Ginni Filaments was languishing at Rs. 31, DD Sharma recommended a buy on the basis that the Company is a “niche player” in textiles.

He explained that in the traditional textiles business, Ginni exports its products to elite global consumers such as Disney and Benneton.
In the non-woven segments, the Company supplies products like ‘wet wipes’, ‘water filters’ etc to other elite consumers such as Johnson & Johnson etc.
He explained that the non-woven segment is a business with huge potential for growth with hefty margins and that it would transform the fortunes of the Company for the better.
DD Sharma also reeled out impressive facts and figures relating to the Company’s financial performance to prove his point.
Towards the end, he projected a target price of Rs. 70 for the stock, which was a 100% gain from the then prevailing price.
The best part is that DD Sharma reiterated his bullishness for Ginni Filaments in May 2017 when the stock had surged to Rs. 45