Consumption will drive earnings in second half of FY19: Anand Rathi

October 11
14:02 2018

Siddharth Sedani

The recent 12 percent correction from highs on the Nifty was driven by domestic (high valuations, lack of expected earnings, rupee depreciation) and global factors (higher crude oil and rising global interest rates and bond yields).

In 2018 so far, the rupee has depreciated 16 percent versus the dollar. Since long, India has never faced a yearly capital account deficit and in most years capital account surplus fully funded the current account deficit. India is now faced with large overall balance of payments deficit and chance of even a capital account deficit.

Steps are taken in the right direction by the government — forming a new board at IL&FS and lenders such as SBI stepping up target to purchase good portfolio of assets from NBFC’s which will give respite to the liquidity and sector.

September quarter earnings have begun and will provide stock-specific reactions.

Ahead of festive season, consumption will be the key to drive earnings for H2FY19 and raising of minimum support price (MSP) in Rabi crop.

Aditya Birla Fashion and Retail | Rating: Buy | Target: Rs 237

For a second successive quarter, despite negative SSSG (same store sales growth), Pantaloons’ EBITDA margin expanded 330 bps YoY to 9.6 percent. As per the management, its sharp EBITDA margin expansion resulted from the gross margin expansion and store rationalisation.

Driven by better product mix and store rationalisation, Pantaloons’ 9.6 percent margin was its highest, expanding 330bps YoY.

On the strong profit growth, we raise our EBITDA margin Estimate by 1 percent to 8.30 percent FY20E .

The company’s revenue grew 8.7 percent YoY, to Rs. 1910 Cr, in line with our estimate.

Segment-wise, Pantaloons’ revenue growth was ~11 percent & Madura Lifestyle brands 6 percent.

The profit after tax came at Rs 5.6 crore against Rs 20.3 crore net loss YoY.

Going ahead, the management will focus on margin expansion and SSG levers in Pantaloons. To achieve this, Pantaloons will focus on –

Strengthening its private-label mix by improving its price-value proposition

Network expansion – adding 40-50 stores a year

Improving brand influence by increasing advertisement spends

Improving in-store (and online) shopper experience.

After achieving Rs 100 crore turnover in the first full year of operation, management expects its innerwear division to grow 2x in FY19 to Rs 200 crore, driven by its foray into women’s innerwear and rapid expansion in the number of points of sales.

Mahindra & Mahindra Financial Services | Rating: Buy | Target: Rs 609

The company reported an income growth of 28.6 percent in its Q1-FY19 standalone results at Rs 1,925 crore as against Rs 1,498 crore in Q1FY18. The company’s loan book grew 23 percent to Rs 55,390 crore in Q1-FY19 as against Rs 45,150 crore in Q1-FY18.

During the latest quarter, the company has witnessed higher growth in CV segment followed by tractors and cars segment. PAT grew by 34 percent at Rs 269 crore in Q1 FY19 as against Rs 201 crore Q1 FY18.

In terms of net spreads, the company has reported an increase of 40 basis points at 2.9 percent in Q1-FY19 against a net spread of 2.5 percent in Q1-FY18.

The company is also expected to focus on increasing its SME business which should also improve its return ratios going ahead.

The company has a healthy mix of both vertical lending across products while geographic mix across verticals which provides it a stable base business which reduces volatility and diversifies risk.

Going ahead, we believe the company to continue to grow its foot print across the country which should enable it to grow at higher rates and maintain its market share in vehicle segment.

With Indian economy witnessing improvement in its macros especially the rural and semi urban areas given higher government impetus we believe MMFS is well established in hinter land to reap positive benefits in medium term.

Biocon | Target: Rs 823

Biocon has reported a growth of 21.2 percent in its consolidated revenues at ?1,123 cr in Q1FY19 as against Rs 927 crore in Q1-FY18. Profit after tax for the company grew by 47 percent and stood at Rs 119 crore in Q1-FY19 against Rs 81 crore in Q1-FY18. The top 10 brands in its India portfolio reported a strong double digit growth.

The key developments during the quarter were approval of Fulphila (Pegfilgrastim) Biosimilar co-developed by Biocon and Mylan for launch in

The company’s sterile Drug Product manufacturing facility in Bengaluru received EIR from U.S.FDA and EUGMP certification

Syngene extended its collaboration with Baxter upto 2024 and strengthens its growing client base amongst others.

Going ahead, we continue to expect company to get benefits of first wave of Biosimilar commercialization in the next two years which should drive higher revenues along with higher growth in formulation business on back of new launches and deeper penetration.

We expect company to grow at a CAGR of around 29 percent over next two years which should also improve better profit margins going ahead.

Disclaimer: The author is Vice President – Equity Advisory, Anand Rathi Shares and Stock Brokers. The views and investment tips expressed by investment experts/broking houses/rating agencies on Moneycontrol are their own, and not that of the website or its management. Moneycontrol advises users to check with certified experts before taking any investment decisions.

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