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ICICIdirect Research Posted on 09:00am 28-Jul-2020

IOC and Total formed a 50:50 JV to manufacture and market high-quality bitumen derivatives and specialty products in India...

* Market Outlook

Indian markets are likely to open in the green tracking positive global cues amid optimism about additional fiscal stimulus in the US. However, global news flows and earnings outcome of domestic companies would be key monitorables.

* Markets Yesterday

• Domestic markets ended lower dragged by a decline in banking and financial stocks after an RBI report warned of a surge in bad loans for FY21

• US markets ended higher amid hopes of additional Covid-19 relief package


* Key Developments  

• Nestlé India is likely to see 6.3% sales growth during the quarter as manufacturing & supply chain operations stay disrupted during the quarter. Given, large part of its product portfolio is essentials (milk, infant food), manufacturing in those plants started quickly. In the second half of April, the company was able to supply goods from the carry forward stock of March. However, Nestlé struggle to fulfil some of the categories (noodles) demand in May. With the steep decline in commodity cost and reduction in A&P (promotions were largely withdrawn), operating margins are likely to perk up by 145 bps to 24.7%. We estimate earnings growth of 12.7%

• Escorts reported a relatively healthy Q1FY21. Net sales fell 25.4% YoY to | 1,062 crore on 13.8% fall in tractor volume to 18,150 units, 75% fall in construction equipment sales, 53.5% fall in railway revenues. Tractor ASPs were flat QoQ at | 5.25 lakh/unit. Margins fell 281 bps QoQ to 11.3% amid inventory adjustment negatively impacting gross margins. Standalone PAT grew 5.3% YoY to | 92.2 crore

• Being the largest pan-India player, we expect UltraTech Cement to report a volume decline of 34% YoY to 13.6 MT, broadly in tandem with industry level de-growth of ~35% YoY. Realisations are likely to improve 5.6% QoQ, flat YoY led by firm cement prices across India. This would lead to company reporting revenue de-growth of 34% YoY, 30% QoQ to | 7235 crore. Higher fixed overheads (28% of total costs) and lower sales volume are expected to lead to 33% YoY drop in EBITDA/t to | 913/t for the quarter

• IndusInd Bank reported muted advances growth at 4% YoY to ~| 200357 crore, broadly in line with the industry growth rate. Deposit growth remained healthy at 4.9% QoQ to | 211970 crore despite outflow of government deposits in Q4FY20. MFI & CV segment are set to witness NPA pressures ahead but moratorium is seen keep asset quality stable in Q1FY21. Furthermore, lower moratorium book in Q4FY20 provides comfort for delinquency shock, going forward. GNPA & NNPA ratio are seen at 2.4% & 1.0%, respectively. NII is expected to remain subdued at | 3150 crore, on the back of slower growth in advances. Replacement of borrowings by retail deposits would entail reduction in the cost of funds. However, a reduction in CoF would be offset by a decline in yields, thus keeping NIMs broadly stable at 4.2%. Muted business growth and elevated credit cost at 125 bps are expected to lead to moderation in PAT at | 237 crore

• For IDFC First, we expect a restructuring of the balance sheet to continue with a decline in the wholesale loan book. However, MSME loans are expected to witness increased traction under the ECLGS scheme. Overall advances are expected to dip 2.3% QoQ to | 104588 crore. Traction in retail deposits is expected to remain robust, led by higher interest rate offered on depositors. We estimate deposits at | 67178 crore, up 3% QoQ. Opex may remain steady on account of lockdown. Lower CoF on account of replacement of borrowing by retail deposits is expected to keep NIMs steady at ~4.24%. Asset quality is expected to remain steady on the back of standstill asset classification norms. Unutilised provisions from the previous quarters would keep credit cost lower at ~45 bps of advances. We expect the bank to report a profit of | 175 crore. Capital raising by the bank is positive as it provides cushion against delinquency shock, going ahead

• NIIT Tech will report Q1FY21 numbers today. The company generates ~27% of its revenues from the travel vertical of which ~13.5% is from airlines, which have been severely impacted. As a result, we expect dollar revenues to dip 7.0% QoQ. In rupee terms, we expect revenues to decline 1.6% QoQ to | 1,091 crore. Further, we expect EBITDA margins to dip 197 bps to 15.8% due to a dip in utilisation, pricing pressure and impact of restricted stock units. Revenues and EBITDA were optically higher YoY due to absence of one-time expenses relating to ex gratia payment (240 bps) and M&A charges in Q1FY21E. Key interest in today’s conference call would be on travel vertical, large deal pipeline in BFSI, insurance and healthcare and margin outlook

• India Cement reported 48.5% YoY drop in the revenues to | 757 crore mainly led by sharp fall in the sales volumes (down 53% YoY to 1.43MT). However, margins expanded 410 bps YoY to 20.6% mainly on account of sharp increase in the cement prices (up 9.7% YoY to | 5301/t). As a result EBITDA/t also improved to | 1090/t vs. | 796/t reported last year. On absolute basis, EBITDA and PAT declined by 35.6% and 76.5% YoY to | 156 crore and | 17 crore, respectively

• Kotak Mahindra Bank posted mixed set of numbers wherein reduction in moratorium book to ~9.65%( ~26% earlier) and healthy CASA growth to 56.7% were the silver lining, while moderation in growth and dip in asset quality (despite moratorium) were the dampeners. The bank reported that ~95% of the Morat 2.0 book is attributable to Morat 1.0 with ~80% of the Morat 2.0 book being secured. The bank has provided | 616 crore for Covid-19 during the quarter which takes total Covid provisions to | 1266 crore (~62 bps of advances) as on Q1FY21. GNPA & NNPA ratios were up 45 bps & 16 bps QoQ to 2.7% and 0.87%. Credit growth was subdued at | 203998 crore, down 1.9% YoY mainly led by regressive growth in Agriculture & Corporate segment. NII came in at | 3724 crore, up 17.4% YoY. On account of muted topline growth and soar in provisioning, PAT came in at | 1244 crore, down 8.5% YoY

• Nippon Life India AMC reported stable set of Q1FY21 numbers wherein healthy other income and controlled opex offset dip in revenues led by slower AUM growth. AUM recovered to | 2.74 lakh crore (up 7.4% QoQ) as on 30th June 2020 with retail comprising of 24% of the total AUM (industry rate of 19%). Equity AUM was down 24.7% to | 87100 crore. Debt AUM was also down 15.5% to | 86300 crore. SIP inflows dipped to | 700 crore as against | 810 crore in June 2019. In terms of distribution, B-30 AUM comprised of 17.3% of the total AUM as against industry rate of 15.4%. Steady opex and higher other income led PAT to come in at | 150 crore, up 22.03% YoY

• Maharashtra Seamless (MSL) reported muted operational numbers for Q4FY20. However, on the back of exceptional items relating to impairment of mining asset (worth ~| 247 crore), the company reported a loss at the net level. Consolidated operations reported a topline of | 588 crore (down 39% YoY, up 3% QoQ). EBITDA came in at | 104 crore (down 56% YoY, up 11% QoQ). EBITDA margin came in at 17.7% (down 282 bps QoQ, 688 bps YoY). The company reported exceptional item relating to the impairment of mining asset (of ~| 247 crore). MSL had made an investment in a mining asset through its foreign subsidiaries .The subsidiary holding the mining investment has partly impaired the investment. Accordingly, the company & its other subsidiaries have also impaired their investment and loans provided. Hence, on account of exceptional item, the company reported a net loss of | 210.8 crore

• As per Ministry of Steel, the steel sector in India has shown signs of improvement and in the month of June the country's crude steel production stood at 6.8 million tonne (MT) which was higher by 17.7 % over May, 2020, but on a YoY basis it was lower by 27.2 % .The ministry further added that the production of finished steel in June 2020 stood at 5.9 MT, (up 15.6 % compared to 5.1 MT in May 2020). However, on a YoY basis, the output of finished steel in June 2020 was lower by 33.3 %

• Dr Reddy's has received USFDA approval for XEGLYZE (abametapir) lotion, a 505(b)(1) NDA. The topical, indicated for treatment of head lice in patients older than 6 months, will be commercialized in US through partners. Additionally, this approval has triggered a contractual pre-commercialization milestone of US$20 million payable to Hatchtech Pty

• India's key aluminium industry body has sought a top tax refund rate of 12-13% under a proposed export scheme, compared to the 2% it receives under an existing one. It has urged the commerce and industry ministry for an initial 5% refund rate, subsequently going up to 12-13%, citing the high burden of unrebated taxes and duties, which are about 15% of production cost. The country exported aluminium products worth $5.5 billion in the previous fiscal year

• NBCC (India) has received two orders on project management consultant (PMC) basis. The cumulative costs of these projects are ~| 204.5 crore

• IOC and Total formed a 50:50 JV to manufacture and market high-quality bitumen derivatives and specialty products in India. The JV will set up six new greenfield plants in the first four years at an investment of | 226 crore

• Wipro is planning to monetise its AI tool ETHICA to companies. The tool helps in revenue forecasting and anomaly in payment related transaction

• Infosys has been selected by Consolidated Edison Company (Con Edison) to digitally transform Con Edison’s customer service capabilities over the next four years

• HDFC Ltd has informed exchanges regarding a board to raise | 14000 crore by way of issuance of securities through one or more modes, subject to regulatory approvals

• SBI has informed exchanges that post Yes Bank's FPO issue, the bank's stake has reduced to 30% vs 48.21% earlier

• As per media reports, BPCL's overseas partner OQ in Bharat Oman Refineries (BORL) will exit Bina refinery and its stake is likely to be sold to BPCL

 • As per RAM ratings, Music Broadcast witnessed listenership of 1.43 crore with top position in Mumbai, Delhi and Bangalore between week 13-22

 • Yoodlee films, Saregama India's movie arm has resumed production on two of its movies

 • India Ratings and Research (Ind-Ra) has affirmed HZL’s short term rating due to HZL’s strong market position in the global zinc market, healthy reserve life, low-cost operations and strong balance sheet with net cash position


* Today's Highlights

Results: Nestlé, Castrol, IDFC First, Orient Cement, Quess Corp, Sunteck Realty, NIIT Tech, Oriental Hotels, IndusInd Bank, UltraTech Cement, Sanofi, Hexaware