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ICICIdirect Research Posted on 09:14am 21-Jul-2020

As per media reports, capacity utilisation of PSU refiners reduced following a fall in demand...

* Market Outlook

Indian markets are likely to open in the green on the back of firm global cues amid positive outcomes of potential Covid19 vaccines trials. However, global news flows and earnings outcomes of domestic companies would be key monitorables.

* Markets Yesterday

• Domestic markets ended higher tracking gains in the IT sector and amid strong corporate earnings

• US markets ended higher led by gains in tech heavyweights and positive news flows about the Covid-19 vaccine


* Key Developments  

• For Bajaj Finance, moratorium has come down from 27% to 15%. Credit growth was reported at 7% YoY, down 6% QoQ to | 138000 crore, lowest ever in the last several years due to lockdown. New loan addition also slowed to 50 lakh from 60 lakh QoQ. Lower growth would impact NIM negatively. NII is seen declining to | 4025 crore, down 15% YoY but provisions may surge to | 1500 crore (| 1940 crore in Q4FY20) as the management is planning to raise provisions for Covid and build higher PCR. Asset quality expected to see some shocks accordingly. PAT is estimated to decline 29% YoY to | 851 crore

• As per media sources, the government is mulling privatising more than half of its state-run PSU banks to keep only five PSBs, going forward. As part of this plan, the government plans to sell stakes in Bank of India, Central Bank of India, Indian Overseas Bank, Uco Bank, Bank of Maharashtra, Punjab & Sind Bank. Also, the government has clarified it would disclose the full plan under privatisation policy currently being formulated

• Hindustan Unilever (HUL) is likely to witness a revenue decline of 2.4% (including the acquired company's sales). It was able to start manufacturing in mid-April but only reached the previous year’s levels by June 2020. We believe HUL would have been able to refill the inventory at the distributor level by the end of June 2020, which would have absorbed some of the lost sales in April & May. Q1FY21 would have been a near washout quarter for cosmetics & ice-creams. However, soaps, sanitisers would have seen strong growth induced by increased hygiene awareness. We expect 12% & 13% revenue decline in home care & BPC (beauty & personal care) categories, respectively. With benign raw material cost, reduction in A&P spends and other cost cutting measures, we expect the company to maintain operating margins at 26.5% (35 bps higher). PAT is likely to grow 7.9% aided by profits from GSK acquisition & lower income tax

• For Axis Bank, advances momentum is expected to remain benign led by retail segment (53% of advances); disbursement to MSME and corporate segment to keep growth at ~15% YoY to | 573966 crore. Deposit inflow is expected to remain healthy at | 651942 crore. Impact of lower CD ratio and cut in MCLR, is to be curtailed by aggressive reduction in deposit rates safeguarding margins, expected to decline ~5 bps to ~3.5%. Fee income is expected to remain muted impacting operational performance with PPP at | 5570 crore. Credit cost is going to be crucial in determining earnings trajectory. Given relative lower moratorium at 28% and adequate contingent provision, credit cost is to tapper down at ~0.8% of advances, leading to PAT at | 753 crore. Moratorium to keep GNPA ratio steady at ~4.8-5%. Commentary on moratorium trend to remain key monitorable

• For Hindustan Zinc, on the back of Covid-19 related shutdown, we expect zinc, lead and silver volumes to be lower YoY. In dollar terms, LME zinc prices during the quarter were down 28.6% YoY, 7.3% QoQ to US$1970/tonne while lead prices were down 10.8% YoY, 8.9% QoQ to US$1679/tonne. We expect zinc sales of ~162500 tonne, lead sales of ~42500 tonne and silver sales of ~120000 kg for the quarter. The topline is likely to decline 21.9% YoY, 11.3% QoQ to | 3893 crore, EBITDA is likely to decline 31.7% YoY, 13.9% QoQ to | 1692 crore while PAT is likely to decline 29.4% YoY, 7.0% QoQ to | 1245 crore. We expect the EBITDA margin to come in at 43.4% in Q1FY21

• Bajaj Finserv is expected to witness a slowdown in overall performance as well as profitability primarily due to moderation in lending business. Consolidated revenue is seen flat YoY at | 12387 crore with earnings set to dip ~25% YoY to | 637 crore. A substantial moderation in AUM growth and higher provisioning is seen impacting profitability of lending business. In life insurance, premium accretion is seen remaining flat YoY at | 1928 crore, while general insurance business is expected to witness a decline in premium growth to | 2560 crore. Despite substantial claims, slower premium accretion is expected to impact earnings in the insurance business. Commentary regarding traction in protection business and health insurance will remain a monitorable

• For SBI Life, premium accretion is expected to get hit in April 2020 but strong revival in subsequent months is seen keeping growth momentum healthy. Renewal premium may remain healthy though expect some moderation owing to lockdown. Premium growth is seen at 6% YoY to | 7052 crore while premium on APE basis may decline 23% YoY, due to higher accretion in single premium. Commission expense is expected to remain lower at 3.6%, led by higher traction in single premium business. Anticipating no substantial increase in claims, expect surplus at | 228 crore. Given seasonally slower quarter and impact of lockdown, PAT is seen declining 22% YoY to | 290 crore. The management commentary on claims and demand for protection products is to be watched

• Dabur has filed a case in the Delhi High Court alleging Marico has copied its honey brand with similarities such as the shape of the bottle, its yellow cap, dome-shaped label, usage of honey combs on the label. Marico forayed into honey under the Saffola brand recently

• Jubilant Life has received Indian drug regulator's (DCGI) approval for its generic version of Gilead Sciences' Remdesivir, lyophilised injection, 100 mg/vial under its brand name 'Jubi-R' for restricted emergency use in Covid-19 patients. Remdesivir is the only USFDA approved emergency use authorisation (EUA) antiviral treatment in severe (hospitalised) Covid-19 patients. The company plans to commercialise the drug in August 2020 through its distribution network, having secured non-exclusive license from Gilead earlier in May 2020

• The authorities have booked HUL for negligence during the Covid pandemic as 224 people were found Covid19 positive in its Haridwar factory

• Infosys announced a strategic long term partnership with Lanxess, a specialty chemicals company headquartered in Germany. Infosys will support Lanxess in its IT infrastructure digitisation strategy and enable its global workforce spread across 33 countries with a secure and fully managed modern workplace

• Indigo Airlines has announced a layoff of 10% of its workforce due to economic crisis caused by Covid-19 pandemic

• Cipla, Amgen settle the lawsuit relating to Cinacalcet hydrochloride (Sensipar) tablets filed in January 2019. As per the settlement Cipla can continue importing, marketing, and selling the generic drug (30/60/90 mg) in the US. The drug is indicated for treatment of hypercalcemia and secondary hyperparathroidism in adults

• Wipro’s consulting and business process services company today announced a partnership with ComplianceQuest to develop transformative quality management solutions for the medical devices and life sciences industries

• Realty firm Omaxe has signed an agreement with Jindal Steel and Power (JSPL) for supply of modular steel structure to its commercial project at Chandni Chowk in the national capital. Omaxe is developing a multi-level parking-cum-commercial project at Chandni Chowk under PPP model with North Delhi Municipal Corporation (NDMC). JSPL will supply 7,000-8,000 metric tonnes of structure steel to Omaxe

• The Andhra Pradesh government has increased VAT on petrol and diesel by | 1.2/litre and | 0.9/litre to | 4, respectively

• As per media reports, capacity utilisation of PSU refiners reduced following a fall in demand. IOC's capacity utilisation dropped to 85% from 94% while BPCL and HPCL's capacity utilisation was also lower

• Mindtree announced it has been commissioned by Husqvarna Group to provide DevOps-centric SAP services to help drive the company’s digital transformation initiatives. The company seeks to gain better visibility into its operations, more effectively improve service and product offerings across sales and service channels and optimize its supply chain

• Liberty House has evinced interest in collaborating with Tata Steel for its plant at Port Talbot. The project involves conversion of two coal-fired blast furnace into electric arc furnace melting scrap steel. Tata Steel UK earlier said it is exploring plans to close two blast furnaces at its Port Talbot steelworks, as part of plans to access millions of pounds via a UK government Coronavirus bailout fund

• Tata Steel is exploring plans to close its two blast furnaces at its Port Talbot steelworks in Wales and replace them with electric arc furnaces as part of plans to acquire millions of pounds via a UK government Coronavirus bailout fund. Under the proposal, the state would invest alongside Tata Steel, with the conversion of the furnaces starting in 2025. Ministers have placed stringent conditions on Project Birch cash, including demanding that it helps achieve its target of net-zero carbon emissions by 2050 and that jobs are not lost

• Alembic Pharma has received tentative approval from USFDA for the generic version of Boehringer Ingelheim's Synjardy (Empagliflozin + Metformin Hydrochloride) tablets in US. The drug, indicated for the treatment of type-2 diabetes mellitus, had an estimated market size of US$172 million as per IQVIA MAT March 2020

• CERC has proposed a uniform price discovery process through pooling of bids across power exchanges for optimal utilisation of transmission systems. The regulator has introduced a new concept called ‘Market Coupling’, meaning a process of collecting bids from all power exchanges and matching them to discover a uniform market clearing price. The job will be carried on by a ‘Market Coupling Operator’, an entity to be notified by the regulator

• Media reports indicate Sony Pictures Network (SPN) and Viacom 18 group will be merged with SPN controlling 74% stake and Viacom 18 partners controlling 26% stake in merged entity. The deal will be done via share swap

• Inox Leisure said they will not shut any cinema halls and maintained guidance of 41 new screens in FY21E

• Nippon India, Societe Generale and Sundaram BNP Paribas have acquired rights entitlement shares of PVR via open market transactions on July 20

• A PNG leakage incident occurred from IOC-AGPPL pipeline in Hubli, Karnataka on July 20

• As per media sources, Chhattisgarh Chief Minister Bhupesh Baghel has written to Prime Minister Narendra Modi, requesting him to make iron ore available to steel industries in the underdeveloped Bastar region at a 30% concession rate through National Mineral Development Corporation (NMDC). As per the letter, the concession would help the steel industries to operate on a larger scale, make them profitable, and would also create employment opportunities for local youth


* Today's Highlights

Results: Mahindra CIE, Bajaj Finserv, Syngene, Tata Elxsi, HUL, SBI Life, HDFC Life Insurance, Axis Bank, Bajaj Finance, Heidelberg Cement, Hindustan Zinc, Polycab, Himadri Specialty Chemicals