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ICICIdirect Research Posted on 09:00am 23-Jul-2020

eClerx has announced closure of buyback...

* Market Outlook

Indian markets are likely to open flat on the back of mixed global cues and a weak start to Asian markets. China-US tensions and rising number of Covid-19 cases are likely to weigh on sentiments. However, global news flows and outcome of domestic earnings will be key monitorables.

* Markets Yesterday

• Domestic markets ended lower amid rising US-China tensions and increasing Covid-19 cases globally

• US markets ended higher on the back of Covid-19 vaccine


* Key Developments  

• For HDFC AMC, a sharp recovery in equity market is expected to shore up AUM sequentially to | 3.5 lakh crore. Proportion of equity in overall AUM is expected to increase ~400 bps to ~41% of AUM. SIP flows are expected to see a marginal fall at ~| 1000-1100 crore a month. As the full impact of fall in equities from peak will be reflected in Q1FY21E, sequential traction in revenue is expected to stay gradual at ~5% to | 500 crore despite a strong recovery in equities. As percentage of AUM, revenue is seen at ~56 bps of closing AUM. Absence of impairment is seen in Q4FY20 and steady opex is expected to lead to earnings at | 323 crore; i.e. 36 bps of closing AUM

• Newgen reported Q1FY21 numbers. Revenues increased 1% YoY. EBITDA margins increased from 5.9% in Q1FY20 to 11.8%. PAT increased | 3.1 crore in Q1FY20 to | 9.1 crore due to a better performance at the operating level. The stock is up 8% and is trading at 18x FY20 PE

• For Q1FY21E, Biocon's revenues are likely to grow ~13% YoY |1651 crore, mainly on the back of continuing traction in small molecules. In the biologics segment, delayed shipment (~100 crore) impact from Q4FY20 may get offset by Covid-related impact in US. Contract research business (Syngene) remained flat YoY at ~| 422 crore (up 0.2%) led by growth in Discovery Services and steady dedicated R&D segment despite temporary Covid related operational shutdown in Q1FY21. EBITDA margins are expected to decline 767 bps YoY to 22.2%, mainly due to lower gross margins. Net profit is expected to decline ~38% YoY to | 127.4 crore in-line with operational performance and higher depreciation

• Given the weak demand in product segment and Covid-19 led execution challenges in solutions/services business, we bake in topline decline of 40% YoY to | 860 crore for Sterlite Technologies. With negative operating leverage kicking in, consolidated EBITDA is expected to decline 49% YoY at | 164 crore while EBITDA margins for the quarter are expected to decline 350 bps YoY to 19.1%. Reported PAT at | 28.3 crore, is expected to be down 80% YoY. Key monitorable is management commentary on overall demand & ramp up of solutions based business

• SKF's Q1FY21E performance is expected to follow the domestic auto segment affected by lockdown and depressed domestic demand. Revenue is expected to slide 55% YoY and 42.5% QoQ, coming in at | 351 crore. We do not expect much decline in SKF's employee expenses but other expenses would be cushioned by lower power costs & other variable expenses. Negative operating leverage is expected to take a toll on the operating profitability. Thus, we foresee SKF registering an EBIDTA loss of 14 crore. Hence, given a weak operating performance, we expect a net loss of | 15.1 crore for the quarter

• Bajaj Auto (BAL) reported healthy Q1FY21 results. Net revenues came in at | 3,079 crore (down 60.3% YoY) tracking higher than expected blended ASPs which stood at | 69,493/unit (up 6.9% YoY). Total volumes were down 64.5% YoY to 4.4 lakh units. Reported EBITDA margins came in at 13.3% (down 511 bps QoQ) amid gross margin expansion of 130 bps (including impact of forex gains). Consequent reported standalone PAT was down 53.1% YoY at | 528 crore

• Astec Lifescience posted robust operational numbers. The revenue grew 45% YoY to | 112 crore. OPM expanded by 1694bps YoY to 25.3% largely on account of better gross margins, resulting into EBITDA growth of 341% YoY to | 28.3 crore. Better operational performance led bottom line to stand at | 16.2 crore against a loss of | 1.1 crore in Q1FY20 

• Dhanuka Agritech registered a revenue growth of 70.7% YoY to | 374 crore, largely driven by volume growth. OPM improved 839 bps YoY to 17.5% translating into EBITDA growth of 228.7% YoY to | 65 crore. PAT was at | 51.8 crore (+253% YoY). The company announced a buy back at the maximum price of | 1000/share with total buy back size of | 100 crore 

• In order to achieve better operational efficiency and faster decision making in the organisation, Container Corporation has decided to re-organise its administrative setup from two-layers (i.e. regions and corporate office) to single-layer organisation (i.e. corporate office) with four operational areas managing its 63 operating terminals 

• According to sources, a consortium comprising Imperial Capital, Flight Simulation Technique Centre, and Big Charter have placed a bid for Jet Airways while the other consortium is led by Kalorck Capital

• As per media sources, Axis Bank has seen another top level exit with Naveen Tahliyani, Transformation Head quitting within seven months of joining the bank

• Glenmark has announced top-line Phase-3 clinical trial results of Fabiflu (Favipiravir) in mild to moderate Covid19 patients. The trial data has demonstrated that patients receiving FabiFlu shook off the virus about 29% faster than those receiving standard supportive care (control arm)

• As per media reports, Coal India has reported that it may not sign new fuel supply agreements with customers, for a period, who renege on contracts on frivolous grounds, after major customers walked out of deals to buy fuel, citing poor quality and high transport costs. Furthermore, on companies cancelling contracts for poor quality and high transport cost, it reported that supply of coal of better quality and larger quantity than what is committed have increased its revenue. It also reported that it made a provision of | 1,365 crore for variation in coal quality in previous years, but it withdrew the provision in the last fiscal

• As per media reports, Gail has asked the government to rework the US LNG purchase deal through diplomatic ties with US government. It has asked for aligning the contract prices with current prices and also reducing the annual purchase volume

• As per media reports, Gail's Kochi Mangalore pipeline is set to be commissioned in early August. This will benefit Petronet LNG as presence of many industrial units in and around Mangalore gives visibility for volume growth for Petronet

• As per media sources, NTPC is planning to set up a solar park in Sri Lanka under the aegis of International Solar Alliance. The proposed solar park follows NTPC Ltd’s plan to set up a coal-fuelled power project in Trincomalee did not make much headway and was eventually scrapped after Colombo asked India to change the location of the stalled US$500 million project

• Sunteck Realty has entered a joint development agreement with land-owners to construct a housing project in Vasai West that has a revenue potential of Rs 5,000 crore over the next five-seven years

• Media reports say that Bharat Forge is one among 16 corporate entities, which participated in the first round of discussion on the private rail operations project which envisages investment worth | 30,000 crore in the sector.

• eClerx has announced closure of buyback. The company has bought back 20.9 lakh equity Shares at an average price of | 522.97/- per equity share and utilized | 109 crore which is 100% of the maximum buyback size (excluding transaction costs)

• Time Technoplast has informed in exchange filing that Crisil has reaffirmed its 'Crisil AA-/Stable/Crisil A1+' ratings on the bank facilities and commercial papers of the company. While the operating performance of the company will be moderately impacted by covid-19 related lockdown, the financial profile of the company is strong with robust networth and healthy debt protection metrics (D/E 0.4x, interest coverage ratio 4.6x)

• Punit Goenka has resigned from the post of non-executive-non-independent director of Zee Media Corp citing preoccupation


* Today's Highlights

Results: HDFC AMC, Zensar, Mphasis, Biocon, SKF India, Radico, GM Breweries, Sterlite Tech, Dish TV, Tube Investments