For Q1FY20, Nifty 50 reported revenue growth of 7% and net profit growth of 1% on YoY basis. Profitability at the aggregate level has been languishing for the last couple of years, and the quarter gone by was no different. Tata Motors and Bharti Airtel dragged the profits down by around Rs. 6,500 crore, while SBI and ICICI Bank pulled it up by around Rs. 5,400 crore. On the sectoral front, banks and financials did well, IT delivered stable numbers, but refining companies’ dismal show continued. Alarmingly, Nifty 50 ex-financials reported PAT fell by ~13% (YoY).
Q1FY20 aggregates
Annual reported net profit
Next 150 stocks by market capitalisation
The story was no different outside Nifty 50. A study of the next 150 stocks by market capitalisation shows Q1FY20 revenue growth of 3%, while net profit de-grew by 23%. The outliers were PSU banks helped by PNB, Interglobe Aviation and Reliance Capital, while refiners, Vodafone Idea and IDBI Bank were key draggers. Here, the fall in PAT of ex-financials 33% was far severe than overall. Primarily banks, financials, cement and pharmaceuticals delivered positive growth.
Q1FY20 aggregates
This basket annual aggregate is a mirror image of the NIFTY 50 performance for FY19 inclusive and/or exclusive of financials. For FY19, reported PAT was down 1%, whereas ex-financials it de-grew by 13%.
Annual aggregates: Reported net profit
Next 300 stocks by market capitalisation (outside top 200 basket)
The favourable base and turnaround of PSU banks helped this basket post decent gains. For Q1FY20, revenue grew by 3% enabling it to post aggregate profit of Rs.13,741 crore from Rs 3,736 crore in Q1FY19.
Break-up of sectors
Q1FY20 aggregates
Annual aggregates: Reported net profit
Q1FY20 earnings: Key highlights
Our take: Decent recovery in the monsoons, lower interest rate trajectory, contained inflation, lower crude oil prices, healthy foreign exchange reserves, relative outperformance by the rupee, PSU banks back into the black, volume traction in FMCG and paints are factors capable enough to trigger a pull-back in the markets and provide a floor for corrections till Q2FY20 numbers are rolled out. The low base of Q2FY19 and for full year FY19 are an added plus. We expect PSU banks, pharmaceuticals, FMCG and infra stocks to positively surprise on earnings for the remainder of FY20. IT, private banks and select NBFCs will deliver steady numbers. Traction in Nifty 50 is likely to be led by expanding EPS rather than PER multiples. From here on, corrections are likely to be bought till the roll out of Q2FY20 numbers, the caveat being that any unprecedented global event may derail this thesis.
Posted by Mehul Kothari | Published on 19-AUG-2019
INVESTMENT RATIONALE
Government Gung-ho on Infra-Projects: Larsen & Toubro (L&T), reported strong Q1FY20 earnings on back of spending driven by Government push on construction & infra projects.
Strong Earnings: In Q1FY20 for continuing operations L&T registered a Consolidated Gross Revenue growth of 10% and Consolidated PAT growth of 20.50% (Y-o-Y). Importantly, operating margins improved by over 200 (bps); primarily driven by cost efficiencies, better capacity utilisation and capability enhancement.
Sizeable Strong Order Book: Consolidated Order Book of the group stood at Rs.294,014 crores as at June 30, 2019, international Order Book component being 21%. This gives revenue visibility of 2 years at constant top line.
New Order Wins: The Company successfully won new orders worth Rs. 38,700 crores at the group level during the quarter ended June 30, 2019 a growth of 11% (YoY). Order inflows mainly came from Infrastructure and Power segments.
Infrastructure Mainstay of Order Book: Around 75% of the order is from Infrastructure segment, which stands at Rs.2,18,825 crores as at June 30, 2019. General Elections through and a firm mandate for pro-incumbency we expect Government to push harder infra-projects be it infrastructure development, rural electrification, airports, railroads, water supply and irrigation.
All segments to fire now: Key revenue contributors are infra-projects (~50%), IT&ITES (10%), Hydrocarbons (11%) & Financials (9%) while at PBT contribution from Infra-projects (34%), IT&ITES (20%) ,Hydrocarbon (7%) and Financials (19%). Profitability and blended margins are primarily driven by Financials and IT services and both these segments are on high growth trajectory.
Monsoon Fury: It’s unfortunate but parts of Maharashtra, Kerala, Andhra Pradesh, Karnataka and Gujarat have been devastated by floods. Restoring normalcy will require significant rebuilding of infra-structure, roads, water pipelines, electrical line and Civic amenities.
Financials: The Company has delivered Consolidate Revenue Cagr of 11% and PAT Cagr of 16% in preceding 5 years. It enjoys ROE of around 17.50% and its long term debt to equity ratio is 1.22. We expect profitability to pick up momentum going forward.
Valuation: Decent Monsoons so far, greater infra push by Government, monetary policy easing and improving economy augurs well for L&T. We expect the present of momentum of Q1FY20 will continue over FY20 & FY21.Assuming, L&T to deliver Consolidated PAT Cagr of 20% over next couple of years, translates into an EPS of Rs.105. It is presently trading at PER of 20.53x and P/BV of 2.96 on ttm basis respectively which is at a discount from mean levels.
Valuing the company at a PER of 20x FY21e, per share target price comes at Rs.2100.)
Posted by Mehul Kothari | Published on 23-AUG-2019
About the Company
Tata Capital Limited ("TCL"), the flagship financial services company of the Tata Group, is a subsidiary of Tata Sons Private Limited and is registered with the Reserve Bank of India as a Systemically Important Non-Deposit Accepting Core Investment Company ("CIC").
TCL group has a diversified product portfolio with a presence in both the wholesale and retail finance segments.
In the previous tranche of preference shares, CRISIL had assigned ‘AAA/Stable’ rating on preference shares of ₹40 crore of Tata Capital Limited (TCL). CRISIL has also reaffirmed its ratings on the company's other debt instruments and long term bank facilities at 'CRISIL AAA/Stable/CRISIL A1+'.
About Preference SharesPreference shares are one of the special types of share capital having fixed rate of dividend and they carry preferential rights over ordinary equity shares in sharing of profits and also claims over assets of the firm. It is ranked between equity and debt as far as priority of repayment of capital is concerned. Some of the key features of preference shares are:
Fixed Dividends - Preference shares carry a fixed rate of interest on the face value for payout of dividends
Preferential Rights - Preference shares have preferential rights over ordinary equity shares with respect to sharing of income and claims on assets. Preference share dividend has to be paid before any dividend payment to ordinary equity shares. Similarly, at the time of liquidation also, these shares would be paid before equity shares
No Voting Rights - These shares have no voting rights and the holders do not have any say in the management of the company
Fixed Maturity - Similar to a debt instrument, preference shares also have fixed maturity date
Dividends Paid out of Profits - Preference dividend is paid out of the divisible profits of the company. A company is not bound to pay dividend on preference shares if its profits in a particular year are insufficient. In case of cumulative preference shares, dividends are postponed to future years
* In pursuance of Section 43 of the Act, the CRPS shall carry a preferential right with respect to (a) payment of dividend calculated at a fixed rate, which may either be free of or subject to income tax; and (b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium. Note: Investors are advised to consult their tax advisor before investing in any financial instrument.
Who Can Apply: Scheduled Commercial Banks; Co-operative Banks; Regional Rural Banks; Insurance Companies; Mutual Funds; Indian Companies and Bodies Corporate registered in India; Trust; Resident Individual Investors; Hindu Undivided Families through Karta; Limited Liability Partnerships; Public Financial.
Who Cannot Apply: Minors without guardians’ name; Association of Persons, Foreign Portfolio Investors; Qualified Foreign Investors; Foreign Nationals; Non-Resident Indians; Persons resident outside India; Venture Capital Funds; Alternative Investment Funds, Overseas Corporate Bodies; Foreign Institutional Investors; Multilateral and Bilateral Financial Institutions; Bodies Corporate incorporated outside India.
Disclaimer: This document is prepared by the Research Division of IndiaNivesh Securities Ltd (The Company) on the publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been taken based upon this information. IndiaNivesh Securities Ltd does not warranty either expressly of impliedly, the accuracy, completeness or reliability of any information provided herein. Neither IndiaNivesh Securities Ltd nor any of its employees / Directors / authorized representatives shall be liable for any direct, indirect, special consequential, punitive or exemplary damages including lost profits arising in any way from the information contained in this material, and hereby disclaims any liability with regard to the same. This report is disseminated for the information of authorized recipients only and is not to be relied upon or taken is substitution for the exercise of due diligence and judgment by any recipient. This report does not provide individually tailored investment advice; investor should seek independent financial advice with respect to the merits and risks involved in any of the matters concerning investment in the Schemes / products mentioned in the report.)
Nifty 50 - Q1FY20 Earnings Key Highlights
Q1FY20 Earning Aggregates: A Snippet (Review)
Nifty 50
For Q1FY20, Nifty 50 reported revenue growth of 7% and net profit growth of 1% on YoY basis. Profitability at the aggregate level has been languishing for the last couple of years, and the quarter gone by was no different. Tata Motors and Bharti Airtel dragged the profits down by around Rs. 6,500 crore, while SBI and ICICI Bank pulled it up by around Rs. 5,400 crore. On the sectoral front, banks and financials did well, IT delivered stable numbers, but refining companies’ dismal show continued. Alarmingly, Nifty 50 ex-financials reported PAT fell by ~13% (YoY).
Q1FY20 aggregates
Annual reported net profit
Next 150 stocks by market capitalisation
The story was no different outside Nifty 50. A study of the next 150 stocks by market capitalisation shows Q1FY20 revenue growth of 3%, while net profit de-grew by 23%. The outliers were PSU banks helped by PNB, Interglobe Aviation and Reliance Capital, while refiners, Vodafone Idea and IDBI Bank were key draggers. Here, the fall in PAT of ex-financials 33% was far severe than overall. Primarily banks, financials, cement and pharmaceuticals delivered positive growth.
Q1FY20 aggregates
This basket annual aggregate is a mirror image of the NIFTY 50 performance for FY19 inclusive and/or exclusive of financials. For FY19, reported PAT was down 1%, whereas ex-financials it de-grew by 13%.
Annual aggregates: Reported net profit
Next 300 stocks by market capitalisation (outside top 200 basket)
The favourable base and turnaround of PSU banks helped this basket post decent gains. For Q1FY20, revenue grew by 3% enabling it to post aggregate profit of Rs.13,741 crore from Rs 3,736 crore in Q1FY19.
Break-up of sectors
Q1FY20 aggregates
Annual aggregates: Reported net profit
Q1FY20 earnings: Key highlights
Our take: Decent recovery in the monsoons, lower interest rate trajectory, contained inflation, lower crude oil prices, healthy foreign exchange reserves, relative outperformance by the rupee, PSU banks back into the black, volume traction in FMCG and paints are factors capable enough to trigger a pull-back in the markets and provide a floor for corrections till Q2FY20 numbers are rolled out. The low base of Q2FY19 and for full year FY19 are an added plus. We expect PSU banks, pharmaceuticals, FMCG and infra stocks to positively surprise on earnings for the remainder of FY20. IT, private banks and select NBFCs will deliver steady numbers. Traction in Nifty 50 is likely to be led by expanding EPS rather than PER multiples. From here on, corrections are likely to be bought till the roll out of Q2FY20 numbers, the caveat being that any unprecedented global event may derail this thesis.
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Larsen & Toubro Stock Prices – Shareholding Pattern, Charts & Stock details
INVESTMENT RATIONALE Government Gung-ho on Infra-Projects: Larsen & Toubro (L&T), reported strong Q1FY20 earnings on back of spending driven by Government push on construction & infra projects. Strong Earnings: In Q1FY20 for continuing operations L&T registered a Consolidated Gross Revenue growth of 10% and Consolidated PAT growth of 20.50% (Y-o-Y). Importantly, operating margins improved by over 200 (bps); primarily driven by cost efficiencies, better capacity utilisation and capability enhancement. Sizeable Strong Order Book: Consolidated Order Book of the group stood at Rs.294,014 crores as at June 30, 2019, international Order Book component being 21%. This gives revenue visibility of 2 years at constant top line. New Order Wins: The Company successfully won new orders worth Rs. 38,700 crores at the group level during the quarter ended June 30, 2019 a growth of 11% (YoY). Order inflows mainly came from Infrastructure and Power segments. Infrastructure Mainstay of Order Book: Around 75% of the order is from Infrastructure segment, which stands at Rs.2,18,825 crores as at June 30, 2019. General Elections through and a firm mandate for pro-incumbency we expect Government to push harder infra-projects be it infrastructure development, rural electrification, airports, railroads, water supply and irrigation. All segments to fire now: Key revenue contributors are infra-projects (~50%), IT&ITES (10%), Hydrocarbons (11%) & Financials (9%) while at PBT contribution from Infra-projects (34%), IT&ITES (20%) ,Hydrocarbon (7%) and Financials (19%). Profitability and blended margins are primarily driven by Financials and IT services and both these segments are on high growth trajectory. Monsoon Fury: It’s unfortunate but parts of Maharashtra, Kerala, Andhra Pradesh, Karnataka and Gujarat have been devastated by floods. Restoring normalcy will require significant rebuilding of infra-structure, roads, water pipelines, electrical line and Civic amenities. Financials: The Company has delivered Consolidate Revenue Cagr of 11% and PAT Cagr of 16% in preceding 5 years. It enjoys ROE of around 17.50% and its long term debt to equity ratio is 1.22. We expect profitability to pick up momentum going forward. Valuation: Decent Monsoons so far, greater infra push by Government, monetary policy easing and improving economy augurs well for L&T. We expect the present of momentum of Q1FY20 will continue over FY20 & FY21.Assuming, L&T to deliver Consolidated PAT Cagr of 20% over next couple of years, translates into an EPS of Rs.105. It is presently trading at PER of 20.53x and P/BV of 2.96 on ttm basis respectively which is at a discount from mean levels. Valuing the company at a PER of 20x FY21e, per share target price comes at Rs.2100.)
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Tata Capital Ltd – Preference Shares Issue 2019
About the Company Tata Capital Limited ("TCL"), the flagship financial services company of the Tata Group, is a subsidiary of Tata Sons Private Limited and is registered with the Reserve Bank of India as a Systemically Important Non-Deposit Accepting Core Investment Company ("CIC"). TCL group has a diversified product portfolio with a presence in both the wholesale and retail finance segments. In the previous tranche of preference shares, CRISIL had assigned ‘AAA/Stable’ rating on preference shares of ₹40 crore of Tata Capital Limited (TCL). CRISIL has also reaffirmed its ratings on the company's other debt instruments and long term bank facilities at 'CRISIL AAA/Stable/CRISIL A1+'. About Preference SharesPreference shares are one of the special types of share capital having fixed rate of dividend and they carry preferential rights over ordinary equity shares in sharing of profits and also claims over assets of the firm. It is ranked between equity and debt as far as priority of repayment of capital is concerned. Some of the key features of preference shares are: Fixed Dividends - Preference shares carry a fixed rate of interest on the face value for payout of dividends Preferential Rights - Preference shares have preferential rights over ordinary equity shares with respect to sharing of income and claims on assets. Preference share dividend has to be paid before any dividend payment to ordinary equity shares. Similarly, at the time of liquidation also, these shares would be paid before equity shares No Voting Rights - These shares have no voting rights and the holders do not have any say in the management of the company Fixed Maturity - Similar to a debt instrument, preference shares also have fixed maturity date Dividends Paid out of Profits - Preference dividend is paid out of the divisible profits of the company. A company is not bound to pay dividend on preference shares if its profits in a particular year are insufficient. In case of cumulative preference shares, dividends are postponed to future years * In pursuance of Section 43 of the Act, the CRPS shall carry a preferential right with respect to (a) payment of dividend calculated at a fixed rate, which may either be free of or subject to income tax; and (b) repayment, in the case of a winding up or repayment of capital, of the amount of the share capital paid-up or deemed to have been paid-up, whether or not, there is a preferential right to the payment of any fixed premium. Note: Investors are advised to consult their tax advisor before investing in any financial instrument. Who Can Apply: Scheduled Commercial Banks; Co-operative Banks; Regional Rural Banks; Insurance Companies; Mutual Funds; Indian Companies and Bodies Corporate registered in India; Trust; Resident Individual Investors; Hindu Undivided Families through Karta; Limited Liability Partnerships; Public Financial. Who Cannot Apply: Minors without guardians’ name; Association of Persons, Foreign Portfolio Investors; Qualified Foreign Investors; Foreign Nationals; Non-Resident Indians; Persons resident outside India; Venture Capital Funds; Alternative Investment Funds, Overseas Corporate Bodies; Foreign Institutional Investors; Multilateral and Bilateral Financial Institutions; Bodies Corporate incorporated outside India. Disclaimer: This document is prepared by the Research Division of IndiaNivesh Securities Ltd (The Company) on the publicly available information, internally developed data and other sources believed to be reliable. Whilst no action has been taken based upon this information. IndiaNivesh Securities Ltd does not warranty either expressly of impliedly, the accuracy, completeness or reliability of any information provided herein. Neither IndiaNivesh Securities Ltd nor any of its employees / Directors / authorized representatives shall be liable for any direct, indirect, special consequential, punitive or exemplary damages including lost profits arising in any way from the information contained in this material, and hereby disclaims any liability with regard to the same. This report is disseminated for the information of authorized recipients only and is not to be relied upon or taken is substitution for the exercise of due diligence and judgment by any recipient. This report does not provide individually tailored investment advice; investor should seek independent financial advice with respect to the merits and risks involved in any of the matters concerning investment in the Schemes / products mentioned in the report.)