MAHINDRA & MAHINDRA LTD
CMP (As on Nov 06,20): 613.60 INR
TGT: 700.00 INR
Overview
The Mahindra Group is a USD 20.7 billion federation of companies that enables people to rise through innovative mobility solutions, driving rural prosperity, enhancing urban living, nurturing new businesses and fostering communities. It enjoys a leadership position in utility vehicles, information technology, financial services and vacation ownership in India and is the world’s largest tractor company, by volume.
It also enjoys a strong presence in agribusiness, aerospace, commercial vehicles, components, defense, logistics, real estate, renewable energy, speedboats and steel, amongst other businesses.
Headquartered in India, Mahindra employs over 2,40,000 people across 100 countries.
INVESTMENT RATIONALE
The JV and its impact (M&M, FIPL)
We expect the JV is a going to be key factor going forward for the M&M for the following reason
-Product portfolio horizon will increase in the domestic automobile market with major beneficiaries in the tractor segment.
-Improving scale of operations and sharing of technological advancement
-Using FIPL global reach improvement in Export
-In view of the scale of operations at M&M (total vehicle production including tractors at approximately 9-10 lakh units in FY19), the combined supply of both M&M and Ford India will be more than 3 times the current supply at FIPL (total vehicle production at approximately 2,6 lakh units in FY19), resulting in economies of scale.
-The new JV would have ample power at M&M 's disposal for fresh capex on the imminent basis of vehicle manufacturing
The Big News: The timely relaxation of the Agricultural sector lockdown helped to ensure a speedy recovery of tractor demand
In May 2020, they sold 24,017 domestic tractors, representing a 2 percent increase over the previous year. The timely relaxation of the Agricultural sector lockdown helped to ensure a speedy recovery of tractor demand during May. Farmer sentiment is likely to remain positive in the near term as a result of several developments including robust Rabi crop growth, higher recruitment, good market performance and a regular monsoon forecast that indicate well for a strong Kharif harvest. Both of these augurs well for asking the tractor to move ahead.
Innovative funding solution
Mahindra 's launch of these innovative funding solutions is yet another step in serving its customers during these difficult times. The building stone of each of schemes is to provide consumers with financial stability and peace of mind, particularly for Covid warriors who offer unprecedented help now. Together with the numerous digital initiatives recently revealed by Mahindra in terms of both sales and operation, these deals will provide the consumers with a seamless purchase and experience for a Mahindra vehicle.
Mahindra’s Auto Sector sells 9,560 vehicles in May 2020
In the Passenger Vehicles segment (which includes UVs, Cars and Vans), Mahindra sold 3,867 vehicles in May 2020, compared to 20,608 vehicles in May 2019. In the Commercial Vehicles segment, the company sold 5,170 vehicles in May 2020, as against 17,879 vehicles in May 2019. Exports for the month of May 2020 were 484 vehicles. The company’s overall automotive sales (Domestic + Exports) stood at 9,560 vehicles in May 2020,
compared to 45,421 vehicles during May 2019.
FINOLEX INDUSTRIES LTD
CMP (As on Nov 06,20): 568.40 INR
TGT: 680.00 INR
Overview
Finolex Industries Limited was founded in 1981 and is engaged in the manufacture of PVC pipes and fittings. It is India's only manufacturer of PVC Pipe which enjoys backward integration with its own manufacturing unit for PVC resins. FIL is the leading and most trusted brand with a market share of more than 20 per cent in the organized segment.
INVESTMENT RATIONALE
Demand is expected to pick up during the monsoon session
Demand is expected to pick up during the monsoon session in the reason of Maharashtra and Karnataka agricultural markets. The discounted product push strategy is now back to normal levels. Projection for demand also appears strong, and the company operating at full capacity. During FY20, management guided volume growth of 12-15 per cent.
Strong Capex Guidance by Management
Management pushes the non-agricultural pipe products but does not expect a dramatic shift in the near-term product mix. This will maintain a total pipe margin of 8-9%. Non-agricultural share is 30%. Management has retained its Rs 1bn capex guidance for FY20 which will require 30,000-40,000mt of increased capacity in pipes and fittings.
PVC Pipe & Fitting is expected to see volume growth
Finolex has reported strong revenue growth on the back of higher segment volumes QoQ. The move in prices for PVC and EDC, however, caused a steep drop in margins. Going forward Management expects the volume momentum to continue. As far as industry segments are concerned, the segment PVC pipes & fittings is expected to report volume growth of 10-12 percent, going forward. With the CPVC sub-segment, their share of the pie should increase. The segment of PVC-resins is moving towards full captive consumption. Both is expected to help towards volume growth.
TITAN COMPANY LTD
CMP (As on Nov 06,20): 1253.50 INR
TGT: 1340.00 INR
Overview
Titan Company Ltd is the world's fifth largest wristwatch manufacturer and India's leading producer of watches. The company is engaged in manufacturing of watches, jewelry, precision engineering and Eyewear. They produce watches under the brand name Titan, Fastrack, Sonata, Nebula, RAGA, Regalia, Octane & Xylys. They export watches to about 32 countries around the world. They manufacture precious jewellery under the Tanishq brand name. Titan Industries Ltd is a joint venture between the Tata Group, and the Tamil Nadu Industrial Development Corporation (TIDCO).
INVESTMENT RATIONALE
A steady start in the first quarter of FY20
In Q1FY20, the company reported healthy numbers even in a tough environment, led by growth in revenue of 15.7% (YoY) to Rs5,151.1cr. There was witnessed a rise of 10.8% YoY to Rs363.7cr in consolidated net profit. Backed by healthy growth in revenue, EBITDA rose by 18.8% YoY to Rs573.4cr. Titan, engaged in manufacturing of various segments including jewelry, watches and eyewear reported growth in revenue at 14.3%, 20.1% and 13.1% respectively. The other segments of the company, accessories, fragrances and sarees reported an upswing by 37.9%. The jewelry segment reported a moderate growth subdued by rising gold prices and weak consumer sentiments which may be balanced by upcoming festival demands.
Expanding retail outlets and product portfolio
The company seeks for expansion of retail outlets for better customer reach. In the first quarter of FY20, it continued to add 45 stores for all businesses. With the enrichment of new collections in the jewellery portfolio. The Company is gearing up on all fronts across its portfolio of brands and businesses to stimulate demand in the coming quarter through innovative campaigns and new product launches. Rising demand in festive season, sustainability in gaining market share, in the upcoming quarters, the company is expected to foster growth.
CEAT LTD
CMP (As on Nov 06,20): 1109.55 INR
TGT: 1320.00 INR
Overview
CEAT Limited is engaged in manufacturing and sale of automotive tyres, tubes and flaps. The Company manufactures radials for a range of vehicles. It offers products for light commercial vehicles (LCVs), motorcycles, scooters, cars, farm vehicles and trailers, off the road (OTR)/specialty vehicles and trucks, among others. It has capacity to produce approximately 95,000 tires per day. The CEAT Bike tires include CEAT Zoom, CEAT Zoom Tubeless, F67, F85, Milaze, Secura Sport and Secura Zoom, among others. Its
scooter tire range includes Gripp and Zoom D. Its car tire range includes BT, Czar AT, Czar HT, Rhino and Rhino TQ. It offers Buland and Buland Mile XL RIB for LCVs. It offers Anmol SL and Buland Mile XL for autos. Its tire range for farm and agriculture vehicle includes Aayushmaan Front, Aayushmaan Rear,Samraat Front and Samraat Super Front. It has developed OTR or specialty tires for mining, quarrying, rock excavation, construction and port applications.
INVESTMENT RATIONALE
CEAT LTD: A dominant player in International markets too!
The company not only has its reach in domestic market but has also broadened its reach in international markets as well. It is one of the major exporters among India’s tyre manufacturers. In the previous year, the company has expanded its footprints in global markets by entering into nine new countries. With an increase in global reach, the company will have a better and a vast insight of the customer needs. With a greater understanding of the customer needs, the company would be well proficient in designing market-specific products which would add value to the organization.
Investing in technology upgradation and R&D for fueling growth
The company has laid its focus on new and innovative materials and processing and product development. It’s focus on innovation and quality products is technology driven. Simulation of technology enables the company to understand the products in a better way. Automation, digital, design thinking, and data analytics will help to shrink the product development time, which will make the development more efficient. New investments in the areas of predictive testing and advanced raw material characterization will provide a technological edge over competition and help in aiding growth.
Initiation of production at the newest tyre plant in India. The tyre maker company has started the production at the factory with the annual capacities of 28,500 passenger and 2,500 motorcycle tyre a day. The facility is considered a "smart factory" that will operate at zero-emissions levels and was built on a 163-acre site according to green building standards. Drop in crude oil prices Since rubber accounts for 70 percent of total opex for the tyre industry, a significant drop in crude oil price would help in margin expansion of the firm. Price of crude oil and price of rubber are positively linked to each other as they move in tandem. The decline in crude oil price has made CEATLTD a big gainer.
VINATIORGA
CMP (As on Nov 06,20): 1135.40 INR
TGT: 1350.00 INR
Overview
Vinati Organics Ltd is engaged in the manufacture of organic intermediates and monomers and polymers of specialties. It produces iso butyl benzene which is the primary raw material to produce ibuprofen, a vital bulk drug. Incorporated in Jun.'89 Vinati Organics Ltd is sponsored by Maharashtra Petrochemicals Corporation (MPCL) and Vinati Enterprises and has facilities at Mahad and Lote Parashuram Maharashtra. The company has a technological partnership with Institut Français du Petrole (IFP) France one of the largest petroleum refining and petrochemical processes licensors in the region. Vinati Organics is the world's third largest company to produce Acrylamido Methylpropane Sulfonic Acid and began commercial production in October 2002. The company launched several products during FY 2014-15. The HPMTBE product is a transparent colorless liquid with a purity level of 99.90 per cent. It has a competitive advantage of being highly solvent and has applications in the pharmaceutical and organic metal compounds industries. In FY 2015-16 the Company began to diversify its product range by introducing products such as HPMTBE; several specialized products and IB-based derivatives which are used in personal care products.
INVESTMENT RATIONALE
Industry Outlook
Speciality Chemicals: This segment is a fragment of Indian Chemicals sector. Indian specialty chemicals are demanded from end-user industries like automotive, textile, construction chemicals, agrochemicals, personal care and few application-driven segments including paints, coatings, colourants and surfactants. The speciality chemicals segment has been thriving over the past few years. This segment is expected to reach INR 4,527.36 Bn by FY 2024 in comparison to INR 2,356.92 Bn in FY 2018 owing to rise in demand from end-user industries. Pharmaceuticals: India is one of the pre-eminent producers of cost-effective generic medicines and vaccines with exports across the globe. India supplies 20% of the total global demand by volume. By the end of 2020, the exports are estimated to grow by 30% to reach US$ 20 billion. The US market is the most lucrative generics market for India’s harma industry.
Keeping volume growth intact
The company has been utilizing its 26 ktpa capacity to the fullest to bring more fecund results. The company has been pushing its brown field expansion of 14 ktpa to bring in more results and with constant efforts it has kept its volume growth intact. Moreover, volume growth is greater than 10 percent leading to 100 percent utilization of the capacity. Considering the same we expect gradual increase in commercial production in Q4 leading to contribution of approximately INR 1.2 bn to the topline by FY21E.
Disclaimer: Ashish Biswas is Head of Technical Research at CapitalVia Global Research Limited- Investment Advisor. The analyst does not hold position in any of the stocks mentioned above. Views expressed are personal.