INSTITUTIONAL EQUITY RESEARCH Strategy: Covid Series...
Transcript of INSTITUTIONAL EQUITY RESEARCH Strategy: Covid Series...
INSTITUTIONAL EQUITY RESEARCH
Page | 1 | PHILLIPCAPITAL INDIA RESEARCH Please see penultimate page for additional important disclosures. PhillipCapital (India) Private Limited. (“PHILLIPCAP”) is a foreign broker-dealer unregistered in the USA. PHILLIPCAP research is prepared by research analysts who are not registered in the USA. PHILLIPCAP research is distributed in the USA pursuant to Rule 15a-6 of the Securities Exchange Act of 1934 solely by Rosenblatt Securities Inc, an SEC registered and FINRA-member broker-dealer.
Strategy: Covid Series (III)
First ever GLOBAL shutdown: FEAR!!! And GREED (???)
INDIA | STRATEGY UPDATE
23 March 2020
We came out with a PREDICTIVE series of notes on Covid-19: (1) Manageable: Near-term; Prolonged: detrimental (20-Feb-20) (Click here). In this, we
highlighted India’s excessive dependence on China for imports and its adverse impact, on various sectors/MSME (importers + exporters) and likely payment delays (hit for the financial sector).
(2) Slowdown to aggravate: Domestic and global (12-March-20) (Click here). In this, we said equities would remain under stress and talked about fears of global recession, Indian economy/earnings hit in H1FY21, lesser impact of global monetary stimulus (as it’s an economic slowdown, not limited to financial markets like in 2008), and likely demand improvement in 2H2020. In this entire phase of correction, we didn’t turn positive on the basis of valuations turning cheap, rather highlighted that earnings will be slashed post which valuations may not look cheap. We assumed 10%/12% earnings growth in FY21/22, when consensus was in the range of 25%/16%. Consumption, financial sector, and trade to be most impacted; investment to remain weak. FY21 in India, 2020 globally – washout year.
(3) In this note, we dig into company-wise likely valuations of our coverage Universe, assuming lower earnings for FY21 (cut assumed in the range of 5%-50%). We conclude: (i) Most of the stocks 95/137 are trading at/below their median PE/PB (ii) 30/137 stocks are trading at/below all-time low valuations (Data period: 2005 – Recent) (iii) Out of current PC coverage 80/106 (data available) made their life-time lows during financial crisis (iv) Nifty, is currently trading at 11.6x 1-year forward PE vs. 15.3x median, life-time low was at 7.6x. Key names which are near low valuations are: Axis, SBI, L&T, Hero Motocorp, ITC etc.
What has changed since our last report? (1) Corona cases are surging globally. (2) Situation in India has also deteriorated from being contained a few days back. (3) City-wide shutdowns have risen across India/the globe.
While we know the future is extremely uncertain: We build following scenarios (1) Situation worsens in India and globally: Further reasonable selling in equities; Indian
GDP growth at 3.5-4.0%; global economic recession to deepen. (2) Situation gets contained in India, shutdown isn’t extended beyond 15
th April 2020: We
would be gradual buyers in equities. Indian economic impact will be limited; our FY21 GDP target – 4.5-5.0%. Q4FY20 impact will be severe.
(3) Contained in India, worsens globally: Indian equities will outperform, Indian GDP range of 4.0-4.5%, global recession.
(4) Situation contained in India and key global economies: Indian equities should outperform, we will be aggressive buyers at current levels. Manageable India economic impact; global economic slowdown will last for 3-5 months.
Basic outcome of all the above scenarios: Income losses (of varied degree) for individuals, corporates, and government. There is a demand for stimulus in India and globally – unless its substantial and timely, it may not address economic problems. Global recession – EU is hit significantly across economies, US also worst impacted; even if China stabilizes, weak global demand will continue to impact them. After financial and economic correction, there will come CREDIT crunch – most painful to address and lasts longer. Equity flows will likely be impacted in the medium-term (FII+DII), thus upside levels will be capped.
While we know discretionary consumption is hit the most currently, we would expect pent-up demand to return at a strong pace as soon as situation stabilizes and shutdown doesn’t stay for long. Private and public capex will remain hit for the whole of FY21. The fiscal situation will remain under stress for FY21, as impact on tax revenue will be long-lasting and disinvestment is at a huge risk. Unless/If the fiscal stimulus is meaningful, we would expect rural spending to come under stress. Both central and state government spending will take a hit for FY21. External trade activity will remain extremely tepid due to a global slowdown; India will benefit, if international brent prices remain around US$ 35/barrel, by way of sharply lower oil import costs.
Anjali Verma (+ 9122 6246 4115)
[email protected] Neeraj Chadawar
(+ 9122 6246 4116) [email protected]
Page | 2 | PHILLIPCAPITAL INDIA RESEARCH
STRATEGY: COVID SERIES (III) STRATEGY UPDATE
Sector outlook: In the current scenario, we expect pharmaceuticals to outperform (we stick with our top picks – Divis, Ipca; Add: Cipla, Cadila, Biocon). For the medium-long term, consumption should fare better, (valuations still expensive). In the table below, we have looked at valuation matrix after lowering earnings across sectors (these are likely reduction, should not be considered as analyst’s earnings estimates for FY21/22). We see most prominent cuts for metals, financials, cement, discretionary, and IT. We maintain our stance of buying only quality names as they will be able to withstand slowdown and recover sooner.
Market Valuations Correction from Consensus 12m Fwd PE since 2005 Consensus 12m Fwd PB since 2005
Index Current Value 15th Jan 2020 Latest Average Median High Low Latest Average Median High Low
Nifty Index 7763 -37% 11.6 15.2 15.3 19.7 7.6 1.6 2.5 2.5 4.1 1.4 NSE Midcap Index 11189 -37% 10.5 14.4 14.4 26.0 5.7 1.3 1.7 1.8 3.4 0.6 NSE Small Cap 3039 -42% 8.0 12.3 12.3 19.0 6.6 1.0 1.3 1.2 2.3 0.6
PC Valuation Scorecard
Sector Total Companies No of companies trading at/below Median PE/PB No of companies at/below all time low valuations:
Banks 7 7 3 NBFC 9 9 3 Automobiles 10 9 1 FMCG 11 5 3 Retail 9 5 2 Paints/Tiles 3 2 0 Con Electricals/Durable 9 4 2 Consumer- Others 2 1 0 Metals 10 5 1 Cap Goods 16 15 6 Cement 11 6 1 IT Services 9 7 2 Pharma 9 3 0 Infrastructure 8 8 5 Logistics 5 4 0 Agri Input 4 2 0 Sp Chemicals 5 3 1
Total 137 95 30
Source: Bloomberg, PhillipCapital India Research. Note: Data as of 23rd Mar 2020, 1.30 PM IST
Page | 3 | PHILLIPCAPITAL INDIA RESEARCH
STRATEGY: COVID SERIES (III) STRATEGY UPDATE
PC Universe valuations
Correction from Revised PE
Consensus 12m Fwd PE since 2005 FY21 PE vs
Consensus 12m Fwd PB since 2005 Net Debt (mn) FCF (mn)
Company Name Sectors Mcap (Cr) CMP 15th Jan 2020 FY21 FY22 Avg Median High Low Median Latest Median High Low FY19 FY19
Maruti Suzuki Automobiles 1,31,017 4337 -42% 16.7 13.6 17.9 16.7 32.6 7.5 0% 2.4 3.0 6.4 1.2 -293 29318
Bajaj Auto Automobiles 56,401 1949 -38% 10.5 9.1 15.6 16.1 21.7 5.0 -34% 2.1 5.1 8.7 1.9 -9228 10375
Mahindra & Mahindra Automobiles 36,196 291 -49% 8.4 7.3 13.1 13.2 19.3 3.2 -36% 0.7 2.3 5.0 0.7 -11518 19934
Tata Motors Automobiles 22,768 69 -66% 4.2 2.6 19.7 9.3
2.8 -55% 0.4 1.8 5.2 0.4 612678 -30750
Hero MotoCorp Automobiles 31,938 1599 -35% 9.1 8.4 15.3 15.2 20.6 9.9 -40% 2.1 5.7 10.5 2.2 844 6744
Ashok Leyland Automobiles 10,583 36 -56% 13.7 8.0 21.1 14.1
4.4 -3% 1.2 2.3 5.7 0.7 1491 4638
Bharat Forge Automobiles 12,078 259 -51% 19.5 13.1 22.9 20.7 108.4 5.4 -6% 1.9 3.7 32.3 0.8 28482 -13194
Apollo Tyre Automobiles 4,525 79 -55% 7.9 9.0 8.8 8.2 15.1 3.6 -4% 0.4 1.2 1.9 0.5 39780 -10769
Escorts Automobiles 7,214 589 -13% 12.2 10.1 12.4 11.0 35.2 4.2 11% 1.5 1.2 3.4 0.3 566 -1383
Ceat Automobiles 2,621 648 -36% 9.0 7.8 9.1 8.8 18.3 2.2 1% 0.8 1.4 2.7 0.3 13734 -6244
Hindustan Unilever FMCG 4,14,282 1914 -5% 48.8 42.8 35.5 34.7 58.1 19.1 41% 22.7 30.6 48.2 16.6 -36880 58640
ITC FMCG 1,91,959 156 -36% 12.9 11.4 23.8 24.2 33.4 11.1 -47% 2.8 6.7 11.3 2.6 -37608 70917
Nestle FMCG 1,29,311 13405 -10% 60.6 52.0 37.6 35.8 67.6 18.7 69% 45.6 22.0 55.0 14.8 -15749 15064
Dabur India FMCG 72,538 411 -16% 42.0 36.7 28.6 27.2 50.0 9.3 54% 9.7 9.4 12.9 2.6 1961 18776
Godrej Consumer Products FMCG 45,263 443 -42% 26.3 23.6 28.2 27.4 53.3 12.0 -4% 5.3 7.7 48.1 4.2 19810 10436
Britannia FMCG 53,930 2244 -28% 34.0 29.7 29.0 23.8 63.6 10.1 43% 10.2 8.5 23.5 2.5 282 2340
Marico Industries FMCG 31,403 243 -30% 28.8 25.5 28.4 25.7 47.8 13.2 12% 8.8 7.9 16.6 4.8 -2030 10370
Colgate FMCG 30,710 1129 -25% 36.5 33.4 30.7 30.4 46.5 16.4 20% 19.2 25.6 37.2 11.8 -3994 8873
Emami FMCG 7,935 175 -44% 16.3 14.8 29.1 26.2 49.6 13.3 -38% 3.3 8.6 17.8 2.7 -935 3723
Bajaj Corp FMCG 1,912 130 -45% 8.5 7.8 19.2 19.5 29.9 7.6 -56% 3.7 7.4 13.3 2.7 107 2449
Agro Tech Foods FMCG 902 370 -49% 19.6 16.8 30.3 31.2 56.5 17.0 -37% 2.0 3.7 5.0 2.3 -37 -51
Titan Company Retail 70,992 800 -33% 46.0 33.6 32.9 30.5 61.2 13.5 51% 8.6 9.0 15.6 4.2 -10947 8459
Jubilant Foodworks Retail 17,156 1300 -26% 36.8 27.9 46.4 45.4 69.5 24.5 -19% 9.2 11.3 20.4 5.5 -4891 3533
Trent Retail 14,797 416 -29% 82.9 53.4 58.0 45.1 567.9 7.8 84% 5.3 3.6 10.1 0.7 4399 -223
ABFRL Retail 12,751 165 -29% 159.0 65.9 71.3 63.8 167.5 44.2 149% 7.1 9.9 14.0 7.2 18380 1270
FLFL Retail 3,410 169 -60% 20.5 14.1 39.2 38.7 50.3 19.8 -47% 1.5 4.0 4.8 1.9 8030 -658
V-Mart Retail 2,743 1511 -11% 36.3 25.3 27.8 22.2 56.9 6.7 64% 4.8 4.1 12.2 1.2 -166 30
Shoppers Stop Retail 1,710 194 -52% 22.0 13.5 41.0 39.4 107.0 19.2 -44% 1.5 4.0 6.8 1.2 233 720
Thangamayil Retail 388 283 -27% 6.4 5.4 8.3 7.6 21.3 3.8 -16% 1.4 1.6 3.5 1.0 409 677
KDDL Retail 139 119 -64% 19.1 7.5 18.9 19.6 40.3 4.0 -3% 0.8 3.1 8.1 0.9 1121 -188
Asian Paints Paints/Tiles 1,46,839 1531 -17% 46.3 38.4 32.7 29.8 57.9 14.0 55% 11.8 10.3 16.4 4.5 1751 10499
Kajaria Ceramics Paints/Tiles 5,909 372 -32% 22.7 17.7 20.3 23.8 37.2 5.3 -5% 2.9 4.6 9.4 1.0 -1574 2308
Somany Ceramics Paints/Tiles 553 90 -61% 6.3 4.7 19.0 20.8 35.5 4.2 -70% na 3.9 6.2 0.6 5331 -1248
Havells India Con Electricals/Durable 31,303 500 -22% 38.1 29.1 23.6 17.9 49.2 3.6 112% 6.0 5.6 2392.2 0.7 -5836 13089
Voltas Con Electricals/Durable 16,624 502 -28% 27.2 21.4 20.3 20.5 36.2 4.6 33% 3.3 4.2 13.6 1.1 -65 2041
Polycab Con Electricals/Durable 9,644 647 -40% 13.1 10.4 16.5 15.7 21.2 12.8 -17% 2.1 2.6 4.0 2.0 -452 8245
Page | 4 | PHILLIPCAPITAL INDIA RESEARCH
STRATEGY: COVID SERIES (III) STRATEGY UPDATE
Correction from Revised PE
Consensus 12m Fwd PE since 2005 FY21 PE vs
Consensus 12m Fwd PB since 2005 Net Debt (mn) FCF (mn)
Company Name Sectors Mcap (Cr) CMP 15th Jan 2020 FY21 FY22 Avg Median High Low Median Latest Median High Low FY19 FY19
V‐Guard Industries Con Electricals/Durable 6,903 161 -28% 30.3 24.4 25.8 24.9 49.0 7.6 22% 5.7 5.6 11.9 1.8 -746 872
Finolex Cables Con Electricals/Durable 2,861 187 -55% 8.6 7.3 11.4 11.0 22.3 5.4 -22% na 1.2 4.3 0.8 -484 436
Orient Electric Ltd Con Electricals/Durable 3,386 160 -22% 24.9 18.7 28.9 28.7 45.4 19.1 -13% 7.2 8.1 13.0 6.4 935 270
KEI Industries Con Electricals/Durable 2,071 231 -56% 6.0 4.5 14.1 13.8 21.2 6.4 -57% na 3.6 4.6 2.1 5396 2327
Bajaj Electricals Con Electricals/Durable 3,447 303 -18% 35.0 16.2 15.0 13.0 49.1 2.7 169% 2.4 3.0 6.1 0.8 15663 -8347
JC-Hitachi Con Electricals/Durable 5,739 2111 7% 41.7 32.4 33.2 35.0 57.7 5.5 19% 6.6 7.6 11.3 1.2 na na
Indo Count Industries Consumer- Others 498 25 -59% 5.5 5.0 9.7 9.6 17.9 3.8 -43% 0.4 2.3 5.6 0.5 3017 1373
Orient Paper & Industries Consumer- Others 286 13 -54% 3.9 2.6 3.2 2.0 13.3 0.2 94% 0.2 0.4 2.0 0.1 165 320
Hindustan Zinc Metals 53,767 127 -41% 10.5 8.2 9.3 9.0 26.8 3.3 17% 1.4 1.9 9.3 0.6 -169730 83190
JSW Steel Metals 33,902 140 -50% 13.1 9.7 9.5 9.6 20.0 1.9 36% 0.8 1.2 2.7 0.3 461420 82032
Vedanta Metals 23,902 64 -61% 8.9 4.2 7.6 7.1 16.7 2.9 26% 0.4 1.2 5.8 0.3 493340 66882
Tata Steel Metals 29,046 256 -49% 7.9 5.6 9.2 8.2 67.3 1.7 -4% 0.4 1.1 2.8 0.3 945555 -273268
Hindalco Metals 19,430 87 -60% 5.2 4.0 11.0 8.9 93.3 2.8 -42% 0.3 0.8 2.4 0.3 426163 41462
NMDC Metals 19,688 64 -51% 5.1 4.2 9.5 9.1 16.1 3.7 -44% 0.6 1.2 2.2 0.6 -42436 11575
Jindal Steel & power Metals 9,435 93 -49% 15.0 7.7 18.7 10.9
3.3 38% 0.3 1.3 11.3 0.2 390821 37021
SAIL Metals 9,727 24 -54% 7.8 5.2 14.8 9.6
3.5 -18% 0.2 0.8 4.3 0.3 447539 -11031
NALCO Metals 5,392 29 -40% 19.3 11.8 13.1 13.1 27.4 4.4 47% 0.5 1.2 3.4 0.5 -34296 7615
Pennar Inds. Metals 233 16 -45% 4.2 3.5 7.7 7.4 12.7 3.8 -42% 0.3 1.1 1.9 0.3 3860 37
Larsen & Toubro Cap Goods 1,00,910 719 -46% 9.9 8.0 21.5 21.9 44.4 10.4 -55% 1.3 3.0 12.5 1.5 -23927 6778
Siemens Cap Goods 36,688 1029 -32% 29.9 25.5 37.4 34.3 85.8 10.2 -13% 3.6 5.5 12.0 2.2 -36457 -1150
ABB India Cap Goods 17,376 820 -38% 40.4 32.7 37.7 36.2 78.5 11.5 12% 4.1 5.8 15.0 2.5 -14730 7692
Hindustan Aeronautics Cap Goods 16,877 505 -41% 7.3 5.4 8.2 8.2 9.9 6.3 -11% 1.1 1.6 1.9 1.2 40458 -24063
Bharat Electronics Cap Goods 15,009 62 -41% 7.6 6.4 14.6 13.9 27.0 4.9 -46% 1.4 2.4 5.0 0.9 -8507 6122
BHEL Cap Goods 7,156 21 -56% 5.3 3.5 18.0 19.1 36.0 5.8 -72% 0.2 1.6 6.7 0.2 -48878 -19666
Cummins India Cap Goods 10,840 391 -33% 15.4 12.2 21.0 20.7 34.1 8.8 -26% 2.4 4.9 7.8 1.7 -6988 5629
Thermax Cap Goods 8,103 680 -37% 23.6 18.4 23.4 23.0 43.2 5.1 2% 2.2 4.0 12.0 1.6 -1833 1501
KEC International Cap Goods 4,802 187 -43% 7.1 5.4 11.6 12.1 21.4 3.6 -41% 1.3 2.0 4.5 0.5 15633 1293
Kalpataru power Cap Goods 2,924 189 -56% 4.9 3.5 12.3 11.7 26.8 3.1 -58% 0.7 1.5 5.0 0.4 32591 2003
Engineers India Cap Goods 3,333 53 -49% 7.8 6.7 16.3 15.7 32.4 6.7 -50% 1.4 3.0 9.1 1.4 -26611 5489
Bharat Dynamics Cap Goods 3,000 164 -49% 9.7 8.1 10.2 10.3 12.0 6.5 -6% 1.1 1.9 2.1 1.1 -3695 2533
Cochin Shipyard Cap Goods 3,083 234 -42% 4.9 5.8 12.7 11.2 22.7 4.5 -57% 0.7 1.4 2.4 0.7 -25949 5954
GE T&D Cap Goods 1,689 66 -58% 6.2 5.6 34.6 35.2 56.9 15.8 -82% 1.2 5.5 10.0 1.5 -6361 3224
Praj Inds. Cap Goods 870 48 -61% 16.9 10.4 16.7 16.8 33.5 5.1 1% 1.0 2.2 12.2 0.9 -880 539
VA Tech Wabag Cap Goods 501 92 -57% 4.1 2.9 15.5 14.5 30.5 4.8 -72% 0.4 2.0 4.8 0.5 4327 -651
Ultratech Cement Cement 90,124 3122 -31% 21.0 14.8 20.6 18.8 37.5 3.8 12% 2.2 3.2 7.2 0.8 194690 -25908
Shree Cement Cement 62,965 17451 -26% 34.9 27.9 22.5 16.4 49.1 3.4 113% 4.3 5.7 8.4 3.0 -27123 1914
Ambuja Cement Cement 29,249 147 -31% 17.6 14.2 18.1 17.1 32.3 6.4 2% 1.1 2.5 6.0 1.1 -66248 7109
ACC Cement 18,892 1007 -34% 15.9 13.5 18.5 17.6 36.7 6.9 -9% 1.5 2.9 7.9 1.4 -38218 6846
Page | 5 | PHILLIPCAPITAL INDIA RESEARCH
STRATEGY: COVID SERIES (III) STRATEGY UPDATE
Correction from Revised PE
Consensus 12m Fwd PE since 2005 FY21 PE vs
Consensus 12m Fwd PB since 2005 Net Debt (mn) FCF (mn)
Company Name Sectors Mcap (Cr) CMP 15th Jan 2020 FY21 FY22 Avg Median High Low Median Latest Median High Low FY19 FY19
Dalmia Bharat Cement 7,890 409 -51% 18.8 11.3 30.7 31.4 54.4 12.7 -40% 0.7 1.5 2.1 0.8 31868 15630
JK Cement Cement 6,974 903 -31% 19.0 13.0 11.2 9.2 22.9 1.4 106% 2.0 1.1 3.7 0.2 21224 0
HeidelbergCement India Cement 3,014 133 -32% 12.9 10.8 17.2 17.2 23.2 9.6 -25% 1.9 2.6 3.5 1.4 583 2026
Star Cement Cement 2,701 66 -30% 11.3 8.6 12.8 11.9 21.2 8.7 -5% 1.3 2.2 3.6 1.3 -477 4677
JK Lakshmi Cement Cement 2,453 208 -40% 8.9 7.2 20.5 20.1 37.9 9.6 -56% 1.2 2.7 3.9 0.7 15847 1979
India Cement Cement 2,795 90 2% 20.9 13.6 12.4 11.7 30.6 3.3 79% 0.5 0.8 2.9 0.3 31815 1479
Sanghi Cement Cement 492 20 -54% 18.0 7.0 13.5 13.2 24.7 2.7 37% 0.3 1.3 2.4 0.3 7190 -2330
Tata Consultancy IT Services 6,37,361 1699 -24% 19.6 17.9 19.4 19.6 27.6 7.1 0% 6.2 6.2 11.4 2.3 -71800 295470
Infosys Technologies IT Services 2,26,679 532 -31% 13.9 12.5 18.2 17.4 28.4 10.2 -20% 2.5 4.2 10.2 2.5 -315880 150780
HCL Technologies IT Services 1,14,245 421 -29% 10.8 10.1 14.3 14.0 22.6 4.6 -23% 2.1 3.2 4.9 1.0 -7600 52729
Wipro IT Services 99,812 175 -30% 10.5 9.6 15.5 15.0 26.8 7.0 -30% 1.7 2.9 7.7 1.5 -59062 135320
Tech Mahindra IT Services 50,203 520 -35% 11.6 10.3 13.1 13.0 35.2 2.7 -10% 1.9 2.7 14.6 0.9 -9241 25499
L&T Infotech IT Services 22,297 1280 -34% 14.7 13.0 18.1 18.2 20.5 13.5 -19% na 4.5 4.6 4.3 -4150 5339
L&T Technology Services IT Services 11,224 1074 -33% 14.0 12.0 19.7 20.0 27.9 13.2 -30% 3.2 5.2 7.1 3.5 1396 2739
Mindtree IT Services 12,312 748 -16% 17.0 14.3 14.1 13.8 27.9 5.1 22% 3.3 2.7 5.7 0.9 -2557 1171
NIIT Technologies IT Services 5,686 910 -50% 11.5 10.0 9.5 8.7 23.4 2.0 33% 2.1 1.6 4.7 0.4 -9561 4282
Sun Pharma Pharma 81,227 339 -25% 17.9 13.3 22.4 22.3 33.3 12.2 -20% 1.7 4.4 7.8 1.7 32388 -15386
Dr Reddy's Labs. Pharma 46,131 2776 -5% 23.1 18.2 20.9 19.8 46.3 10.0 16% 2.6 3.6 5.3 1.1 36153 27806
Divi's Laboratories Pharma 48,918 1843 -1% 35.6 25.6 21.4 20.6 43.2 10.1 73% 5.4 4.9 13.1 2.5 -97 3249
Cipla Pharma 31,621 392 -19% 20.1 15.3 21.6 21.2 32.6 13.7 -5% 1.7 3.2 4.7 1.7 36974 16852
Lupin Pharma 27,565 609 -19% 27.7 19.2 19.6 19.7 32.4 9.4 41% 1.9 4.5 8.2 1.9 75090 -3154
Biocon Pharma 30,750 256 -9% 27.1 20.1 22.0 18.7 64.9 7.2 45% 3.8 3.0 7.3 1.0 13658 -6132
Aurobindo Pharma Pharma 18,410 314 -35% 7.1 5.9 12.5 12.3 33.0 2.1 -43% 1.0 2.4 6.1 0.4 50096 -12979
Cadila Healthcare Pharma 29,545 289 10% 20.6 8.3 17.8 18.3 27.3 7.7 12% 2.4 4.4 7.8 1.8 72501 -40968
Ipca Laboratories Pharma 17,242 1365 9% 26.4 20.0 15.8 15.9 28.3 2.9 65% 4.0 3.1 4.5 1.0 1827 3266
Adani Ports & SEZ Infrastructure 44,495 219 -44% 8.9 8.1 21.5 19.3 89.0 9.9 -54% 1.5 3.8 12.9 1.7 212206 -22412
PNC Infratech Infrastructure 2,565 100 -48% 5.8 5.0 16.2 15.6 26.4 7.0 -63% 0.9 1.9 3.0 1.0 653 -265
NCC Infrastructure 1,232 20 -66% 2.5 2.0 15.0 15.5 33.3 2.9 -84% 0.2 1.2 4.8 0.2 16943 -4033
KNR Construction Infrastructure 2,700 192 -35% 11.6 8.9 14.0 14.3 45.5 1.9 -19% na 1.6 4.1 0.2 2511 -679
Ashoka Buildcon Infrastructure 1,319 47 -56% 3.7 3.2 31.1 23.3 241.6 3.2 -84% 1.7 1.6 7.5 0.5 7333 -6906
Sadbhav Engineering Infrastructure 617 36 -71% 6.8 5.4 18.0 16.0 41.3 3.4 -57% 0.3 2.6 8.7 0.3 15269 -353
Ahluwalia Contracts Infrastructure 1,375 205 -31% 9.8 8.3 10.4 10.6 16.5 5.8 -8% 1.4 2.2 4.2 0.9 -1480 574
ITD Cementation Infrastructure 500 29 -53% 5.5 4.3 17.4 16.0 62.9 5.2 -66% 0.4 2.5 4.5 0.5 4236 -3725
Container Corp Of India Logistics 18,711 307 -45% 20.0 15.3 19.0 16.9 33.0 7.6 19% 1.5 3.0 5.0 1.4 5606 -24496
VRL Logistics Logistics 1,264 140 -49% 13.0 9.8 21.9 21.7 31.2 9.9 -40% 1.7 4.6 6.9 1.8 1431 -263
Allcargo Logistics Logistics 1,467 60 -44% 10.1 7.3 11.5 11.8 18.7 4.0 -14% 0.6 1.7 3.7 0.4 3539 641
Gateway Distriparks Logistics 859 79 -39% 15.2 9.7 14.8 14.6 26.5 4.7 4% 0.6 1.7 4.3 0.6 8078 -8676
Navkar Logistics 219 15 -57% 5.4 4.2 13.6 15.1 22.9 3.6 -64% na 1.6 2.4 0.3 4771 -1123
Page | 6 | PHILLIPCAPITAL INDIA RESEARCH
STRATEGY: COVID SERIES (III) STRATEGY UPDATE
UPL Agri Input 20,596 270 -54% 7.5 6.0 12.1 12.5 19.4 5.1 -40% 1.1 2.3 4.6 0.9 260100 -270810
PI Industries Agri Input 14,777 1070 -27% 26.3 19.6 20.8 23.2 35.6 8.9 13% 4.6 5.1 8.4 2.2 -892 81
Coromandel Inter Agri Input 13,533 462 -19% 15.5 12.5 11.9 11.5 21.8 2.0 35% 2.7 2.6 4.6 0.8 27952 -1924
Chambal Fertiliser Agri Input 4,160 100 -42% 4.8 4.2 8.8 8.2 20.1 3.5 -41% 0.9 1.5 2.8 0.6 86497 -21924
SRF Sp Chemicals 16,410 2855 -20% 17.9 15.2 11.2 12.7 25.2 2.1 41% 2.9 2.4 4.3 0.3 35313 -4688
Aarti Industries Sp Chemicals 11,871 682 -20% 18.7 15.1 16.5 16.7 27.1 7.5 12% 3.3 3.9 6.2 1.5 15969 -924
Atul Sp Chemicals 10,753 3625 -16% 16.3 13.2 16.6 18.0 22.7 2.8 -10% 2.7 3.3 4.3 1.2 3 2388
Vinati Organics Sp Chemicals 7,308 711 -28% 10.9 8.5 15.7 15.2 34.0 4.4 -29% 4.3 3.7 7.9 1.2 -1 -138
Camlin Fine Sciences Sp Chemicals 450 37 -55% 5.2 3.7 16.6 14.0 53.1 5.8 -63% 1.0 3.2 5.2 1.1 3574 -1320
Source: Bloomberg, PhillipCapital India Research
Note: Data as of 23rd Mar 2020, 1.30 PM IST
PC valuation financials Correction from Revised PB Consensus 12m Fwd PB since 2005 FY21 PBvs
Company Name Sectors Mcap (Cr) CMP 15th Jan FY21 FY22 Average Median Low Median
HDFC Bank Banks 4,33,369 790 -38% 2.3 2.0 3.6 3.6 1.9 -38% ICICI Bank Banks 1,89,153 293 -45% 1.5 1.4 1.9 1.9 0.6 -19% Kotak Mahindra Bank Banks 2,15,478 1128 -33% 3.9 3.4 5.0 4.8 2.2 -20% State Bank of India Banks 1,66,399 186 -43% 0.7 0.7 1.5 1.4 0.7 -48% AXIS Bank Banks 94,407 334 -55% 1.0 0.9 2.2 2.2 0.9 -53% Indusind Bank Banks 23,757 342 -76% 0.6 0.5 2.7 2.7 0.5 -79% DCB Bank Banks 2,911 94 -52% 0.7 0.7 1.6 1.5 0.3 -50% HDFC Limited NBFC 2,80,474 1620 -35% 3.0 2.8 4.9 4.8 2.2 -37% Muthoot Finance NBFC 21,091 526 -31% 1.4 1.2 1.6 1.6 0.6 -13% Shriram Transport Finance NBFC 11,058 486 -56% 0.5 0.5 2.1 1.9 0.7 -72% Cholamandalam Investment and Finance NBFC 12,196 151 -55% 1.3 1.1 2.3 2.5 0.2 -48% LIC Housing Finance NBFC 9,879 196 -57% 0.5 0.4 1.7 1.8 0.5 -69% Mahindra & Mahindra Finance NBFC 9,266 150 -58% 0.7 0.7 2.3 2.3 1.1 -68% Manappuram Finance NBFC 6,984 83 -53% 1.0 0.8 1.7 1.7 0.3 -42% Shriram City Union Finance NBFC 5,861 888 -36% 0.7 0.7 2.0 2.0 0.8 -62% Magma Fincorp NBFC 512 19 -71% 0.2 0.2 1.0 1.0 0.2 -82%
Source: Bloomberg, PhillipCapital India Research
Note: Data as of 23rd Mar 2020, 1.30 PM IST
Page | 7 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
Market Valuation charts Nifty current one year forward PE multiple of 11.6x is trading at 1.7 standard deviation below its long term average (15.2x). In mid Jan-2020 Nifty was trading at a premium valuation of 18.6x. On price to book Nifty is trading below two standard deviation from long term average.
NSE Midcap index is trading at 10.5x on one year forward PE while it was trading at 17.4x in Jan-2020
Source: Bloomberg, PhillipCapital India Research,
Note: Data as of 23rd Mar 2020, 1.30 PM IST
Mean
Mean + 1SD
Mean -1SD
6
8
10
12
14
16
18
20
22
Jul-05 Aug-07 Sep-09 Oct-11 Dec-13 Jan-16 Feb-18 Mar-20
12M Fwd Nifty PE
Mean
Mean + 1SD
Mean -1SD
1.2
1.7
2.2
2.7
3.2
3.7
4.2
Jul-05 Aug-07 Sep-09 Oct-11 Dec-13 Jan-16 Feb-18 Mar-20
12M Fwd Nifty PB
5
10
15
20
25
30
Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16 Mar-18 Mar-20
NSE Midcap PE
Mean
Mean + 1SD
Mean -1SD
0.0
0.5
1.0
1.5
2.0
2.5
3.0
3.5
4.0
Feb-06 Feb-08 Feb-10 Feb-12 Feb-14 Feb-16 Mar-18 Mar-20
12M Fwd Midcap PB
5
7
9
11
13
15
17
19
21
Nov-11 Dec-13 Jan-16 Feb-18 Mar-20
NSE Small Cap PE
Mean
Mean + 1SD
Mean -1SD
0.5
0.7
0.9
1.1
1.3
1.5
1.7
1.9
2.1
2.3
2.5
Nov-11 Dec-13 Jan-16 Feb-18 Mar-20
NSE Small Cap PB
Page | 8 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
Domestic cyclical sector Cyclical sector impacted the most in this recent sharp correction, most of the sectors are now trading far below its long term average on one year forward PE.
Source: Bloomberg, PhillipCapital India Research,
Note: Data as of 23rd Mar 2020, 1.30 PM IST
LPA
+ 1SD
-1SD
8
10
12
14
16
18
20
22
24
Nov-11 Dec-13 Jan-16 Feb-18 Mar-20
Autos 12m fwd PE
LPA
+ 1SD
-1SD
-1SD
0
5
10
15
20
25 Banks 12m fwd PE
LPA
+ 1SD
-1SD
0
5
10
15
20
25
Mar-09 Jun-11 Aug-13 Oct-15 Dec-17 Mar-20
PSU Banks 12m fwd PE
LPA
+ 1SD
-1SD
8
10
12
14
16
18
20
22
24
26
Mar-09 Jun-11 Aug-13 Oct-15 Dec-17 Mar-20
Infra 12m fwd PE
LPA
+ 1SD
-1SD
4
6
8
10
12
14
16
18
20
Nov-11 Dec-13 Jan-16 Feb-18 Mar-20
Metals 12m fwd PE
LPA
+ 1SD
-1SD
6
7
8
9
10
11
12
13
14
15
16
Jan-09 Apr-11 Jun-13 Sep-15 Dec-17 Mar-20
Energy 12m fwd PE
Page | 9 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
Cyclical Sectors
Defensive Sectors Defensive sectors are also trading one standard deviation below its long term average on one year forward PE
Source: Bloomberg, PhillipCapital India Research,
Note: Data as of 23rd Mar 2020, 1.30 PM IST
LPA
+ 1SD + 1SD
-1SD
4
9
14
19
24
29
34
39
Feb-11 May-13 Aug-15 Nov-17 Mar-20
Realty 12m fwd PE
LPA
+ 1SD + 1SD
-1SD
8
13
18
23
28
33
38
Nov-11 Dec-13 Jan-16 Feb-18 Mar-20
Media 12m fwd PE
LPA LPA
+ 1SD + 1SD
-1SD
15
20
25
30
35
40
Mar-09 Jun-11 Aug-13 Oct-15 Dec-17 Mar-20
FMCG 12m fwd PE
LPA
+ 1SD
-1SD
10
12
14
16
18
20
22
24 IT 12m fwd PE
LPA LPA
+ 1SD
-1SD
10
15
20
25
30
35 Pharma 12m fwd PE
+ 1SD
Page | 10 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
Disclosures and Disclaimers PhillipCapital (India) Pvt. Ltd. has three independent equity research groups: Institutional Equities, Institutional Equity Derivatives, and Private Client Group. This report has been prepared by Institutional Equities Group. The views and opinions expressed in this document may, may not match, or may be contrary at times with the views, estimates, rating, and target price of the other equity research groups of PhillipCapital (India) Pvt. Ltd.
This report is issued by PhillipCapital (India) Pvt. Ltd., which is regulated by the SEBI. PhillipCapital (India) Pvt. Ltd. is a subsidiary of Phillip (Mauritius) Pvt. Ltd. References to "PCIPL" in this report shall mean PhillipCapital (India) Pvt. Ltd unless otherwise stated. This report is prepared and distributed by PCIPL for information purposes only, and neither the information contained herein, nor any opinion expressed should be construed or deemed to be construed as solicitation or as offering advice for the purposes of the purchase or sale of any security, investment, or derivatives. The information and opinions contained in the report were considered by PCIPL to be valid when published. The report also contains information provided to PCIPL by third parties. The source of such information will usually be disclosed in the report. Whilst PCIPL has taken all reasonable steps to ensure that this information is correct, PCIPL does not offer any warranty as to the accuracy or completeness of such information. Any person placing reliance on the report to undertake trading does so entirely at his or her own risk and PCIPL does not accept any liability as a result. Securities and Derivatives markets may be subject to rapid and unexpected price movements and past performance is not necessarily an indication of future performance.
This report does not regard the specific investment objectives, financial situation, and the particular needs of any specific person who may receive this report. Investors must undertake independent analysis with their own legal, tax, and financial advisors and reach their own conclusions regarding the appropriateness of investing in any securities or investment strategies discussed or recommended in this report and should understand that statements regarding future prospects may not be realised. Under no circumstances can it be used or considered as an offer to sell or as a solicitation of any offer to buy or sell the securities mentioned within it. The information contained in the research reports may have been taken from trade and statistical services and other sources, which PCIL believe is reliable. PhillipCapital (India) Pvt. Ltd. or any of its group/associate/affiliate companies do not guarantee that such information is accurate or complete and it should not be relied upon as such. Any opinions expressed reflect judgments at this date and are subject to change without notice.
Important: These disclosures and disclaimers must be read in conjunction with the research report of which it forms part. Receipt and use of the research report is subject to all aspects of these disclosures and disclaimers. Additional information about the issuers and securities discussed in this research report is available on request.
Certifications: The research analyst(s) who prepared this research report hereby certifies that the views expressed in this research report accurately reflect the research analyst’s personal views about all of the subject issuers and/or securities, that the analyst(s) have no known conflict of interest and no part of the research analyst’s compensation was, is, or will be, directly or indirectly, related to the specific views or recommendations contained in this research report.
Additional Disclosures of Interest: Unless specifically mentioned in Point No. 9 below: 1. The Research Analyst(s), PCIL, or its associates or relatives of the Research Analyst does not have any financial interest in the company(ies) covered in
this report. 2. The Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively do not hold more than 1% of the securities of the
company (ies)covered in this report as of the end of the month immediately preceding the distribution of the research report. 3. The Research Analyst, his/her associate, his/her relative, and PCIL, do not have any other material conflict of interest at the time of publication of this
research report. 4. The Research Analyst, PCIL, and its associates have not received compensation for investment banking or merchant banking or brokerage services or for
any other products or services from the company(ies) covered in this report, in the past twelve months. 5. The Research Analyst, PCIL or its associates have not managed or co-managed in the previous twelve months, a private or public offering of securities for
the company (ies) covered in this report. 6. PCIL or its associates have not received compensation or other benefits from the company(ies) covered in this report or from any third party, in
connection with the research report. 7. The Research Analyst has not served as an Officer, Director, or employee of the company (ies) covered in the Research report. 8. The Research Analyst and PCIL has not been engaged in market making activity for the company(ies) covered in the Research report. 9. Details of PCIL, Research Analyst and its associates pertaining to the companies covered in the Research report:
Sr. no. Particulars Yes/No
1 Whether compensation has been received from the company(ies) covered in the Research report in the past 12 months for investment banking transaction by PCIL
No
2 Whether Research Analyst, PCIL or its associates or relatives of the Research Analyst affiliates collectively hold more than 1% of the company(ies) covered in the Research report
No
3 Whether compensation has been received by PCIL or its associates from the company(ies) covered in the Research report No
4 PCIL or its affiliates have managed or co-managed in the previous twelve months a private or public offering of securities for the company(ies) covered in the Research report
No
5 Research Analyst, his associate, PCIL or its associates have received compensation for investment banking or merchant banking or brokerage services or for any other products or services from the company(ies) covered in the Research report, in the last twelve months
No
Independence: PhillipCapital (India) Pvt. Ltd. has not had an investment banking relationship with, and has not received any compensation for investment banking services from, the subject issuers in the past twelve (12) months, and PhillipCapital (India) Pvt. Ltd does not anticipate receiving or intend to seek compensation for investment banking services from the subject issuers in the next three (3) months. PhillipCapital (India) Pvt. Ltd is not a market maker in the securities mentioned in this research report, although it, or its affiliates/employees, may have positions in, purchase or sell, or be materially interested in any of the securities covered in the report.
Suitability and Risks: This research report is for informational purposes only and is not tailored to the specific investment objectives, financial situation or particular requirements of any individual recipient hereof. Certain securities may give rise to substantial risks and may not be suitable for certain investors. Each investor must make its own determination as to the appropriateness of any securities referred to in this research report based upon the legal, tax and accounting considerations applicable to such investor and its own investment objectives or strategy, its financial situation and its investing experience. The value of any security may be positively or adversely affected by changes in foreign exchange or interest rates, as well as by other financial, economic, or political factors. Past performance is not necessarily indicative of future performance or results.
Page | 11 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
Sources, Completeness and Accuracy: The material herein is based upon information obtained from sources that PCIPL and the research analyst believe to be reliable, but neither PCIPL nor the research analyst represents or guarantees that the information contained herein is accurate or complete and it should not be relied upon as such. Opinions expressed herein are current opinions as of the date appearing on this material, and are subject to change without notice. Furthermore, PCIPL is under no obligation to update or keep the information current. Without limiting any of the foregoing, in no event shall PCIL, any of its affiliates/employees or any third party involved in, or related to computing or compiling the information have any liability for any damages of any kind including but not limited to any direct or consequential loss or damage, however arising, from the use of this document.
Copyright: The copyright in this research report belongs exclusively to PCIPL. All rights are reserved. Any unauthorised use or disclosure is prohibited. No reprinting or reproduction, in whole or in part, is permitted without the PCIPL’s prior consent, except that a recipient may reprint it for internal circulation only and only if it is reprinted in its entirety.
Caution: Risk of loss in trading/investment can be substantial and even more than the amount / margin given by you. Investment in securities market are subject to market risks, you are requested to read all the related documents carefully before investing. You should carefully consider whether trading/investment is appropriate for you in light of your experience, objectives, financial resources and other relevant circumstances. PhillipCapital and any of its employees, directors, associates, group entities, or affiliates shall not be liable for losses, if any, incurred by you. You are further cautioned that trading/investments in financial markets are subject to market risks and are advised to seek independent third party trading/investment advice outside PhillipCapital/group/associates/affiliates/directors/employees before and during your trading/investment. There is no guarantee/assurance as to returns or profits or capital protection or appreciation. PhillipCapital and any of its employees, directors, associates, and/or employees, directors, associates of PhillipCapital’s group entities or affiliates is not inducing you for trading/investing in the financial market(s). Trading/Investment decision is your sole responsibility. You must also read the Risk Disclosure Document and Do’s and Don’ts before investing.
Kindly note that past performance is not necessarily a guide to future performance.
For Detailed Disclaimer: Please visit our website www.phillipcapital.in IMPORTANT DISCLOSURES FOR U.S. PERSONS This research report is a product of PhillipCapital (India) Pvt. Ltd. which is the employer of the research analyst(s) who has prepared the research report. PhillipCapital (India) Pvt Ltd. is authorized to engage in securities activities in India. PHILLIPCAP is not a registered broker-dealer in the United States and, therefore, is not subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. This research report is provided for distribution to “major U.S. institutional investors” in reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”). If the recipient of this report is not a Major Institutional Investor as specified above, then it should not act upon this report and return the same to the sender. Further, this report may not be copied, duplicated and/or transmitted onward to any U.S. person, which is not a Major Institutional Investor.
Any U.S. recipient of this research report wishing to effect any transaction to buy or sell securities or related financial instruments based on the information provided in this research report should do so only through Rosenblatt Securities Inc, 40 Wall Street 59th Floor, New York NY 10005, a registered broker dealer in the United States. Under no circumstances should any recipient of this research report effect any transaction to buy or sell securities or related financial instruments through PHILLIPCAP. Rosenblatt Securities Inc. accepts responsibility for the contents of this research report, subject to the terms set out below, to the extent that it is delivered to a U.S. person other than a major U.S. institutional investor.
The analyst whose name appears in this research report is not registered or qualified as a research analyst with the Financial Industry Regulatory Authority (“FINRA”) and may not be an associated person of Rosenblatt Securities Inc. and, therefore, may not be subject to applicable restrictions under FINRA Rules on communications with a subject company, public appearances and trading securities held by a research analyst account. Ownership and Material Conflicts of Interest Rosenblatt Securities Inc. or its affiliates does not ‘beneficially own,’ as determined in accordance with Section 13(d) of the Exchange Act, 1% or more of any of the equity securities mentioned in the report. Rosenblatt Securities Inc, its affiliates and/or their respective officers, directors or employees may have interests, or long or short positions, and may at any time make purchases or sales as a principal or agent of the securities referred to herein. Rosenblatt Securities Inc. is not aware of any material conflict of interest as of the date of this publication Compensation and Investment Banking Activities Rosenblatt Securities Inc. or any affiliate has not managed or co-managed a public offering of securities for the subject company in the past 12 months, nor received compensation for investment banking services from the subject company in the past 12 months, neither does it or any affiliate expect to receive, or intends to seek compensation for investment banking services from the subject company in the next 3 months. Additional Disclosures This research report is for distribution only under such circumstances as may be permitted by applicable law. This research report has no regard to the specific investment objectives, financial situation or particular needs of any specific recipient, even if sent only to a single recipient. This research report is not guaranteed to be a complete statement or summary of any securities, markets, reports or developments referred to in this research report. Neither PHILLIPCAP nor any of its directors, officers, employees or agents shall have any liability, however arising, for any error, inaccuracy or incompleteness of fact or opinion in this research report or lack of care in this research report’s preparation or publication, or any losses or damages which may arise from the use of this research report.
PHILLIPCAP may rely on information barriers, such as “Chinese Walls” to control the flow of information within the areas, units, divisions, groups, or affiliates of PHILLIPCAP.
Investing in any non-U.S. securities or related financial instruments (including ADRs) discussed in this research report may present certain risks. The securities of non-U.S. issuers may not be registered with, or be subject to the regulations of, the U.S. Securities and Exchange Commission. Information on such non-U.S. securities or related financial instruments may be limited. Foreign companies may not be subject to audit and reporting standards and regulatory requirements comparable to those in effect within the United States.
The value of any investment or income from any securities or related financial instruments discussed in this research report denominated in a currency other than U.S. dollars is subject to exchange rate fluctuations that may have a positive or adverse effect on the value of or income from such securities or related financial instruments.
Past performance is not necessarily a guide to future performance and no representation or warranty, express or implied, is made by PHILLIPCAP with respect to future performance. Income from investments may fluctuate. The price or value of the investments to which this research report relates, either directly or
Page | 12 | PHILLIPCAPITAL INDIA RESEARCH
COVID SERIES (III) STRATEGY UPDATE
indirectly, may fall or rise against the interest of investors. Any recommendation or opinion contained in this research report may become outdated as a consequence of changes in the environment in which the issuer of the securities under analysis operates, in addition to changes in the estimates and forecasts, assumptions and valuation methodology used herein.
No part of the content of this research report may be copied, forwarded or duplicated in any form or by any means without the prior written consent of PHILLIPCAP and PHILLIPCAP accepts no liability whatsoever for the actions of third parties in this respect.
PhillipCapital (India) Pvt. Ltd. Registered office: 18th floor, Urmi Estate, Ganpatrao Kadam Marg, Lower Parel (West), Mumbai – 400013, India.