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HDFC Retail growth set to accelerate, reports 17.6% growth in PAT

by 5paisa Research Team 19/10/2021

HDFC Bank reported 17.6% YoY growth in PAT, led by 14.4% YoY growth in operating profit and lower than-expected provisioning. Loan book grew by 15.5% YoY but the pick-up in the retail segment is encouraging, where growth has been lack lustre in the last few quarters. Accordingly, we expect margins to improve progressively and NII should revert to 15% YoY growth level in a few quarters. Risk and asset quality indicators have shown improvement across the board, with the demand resolution rate improving to 97.5% in Sep’21, nearly back to the pre-covid levels. GNPAs declined by 12bps QoQ to 1.35%. The management expects maximum impact of 10-20bps on asset quality from the restructured book. In light of such an impact, we think the bank is holding adequate level of provisioning (163% of GNPAs). Balance sheet capitalization remains strong with tier-I ratio of 18.7%. 

Loan book growth led by CRB; retail to increase

The bank has reported advances growth of 15.5% YoY and 4.4% QoQ. Growth in commercial and rural banking (CRB) has been strong, with the portfolio growing by 27.6% YoY and 7.4% QoQ. Trends in CV Finance, Tractor and construction equipment businesses have been strong. Outlook on SME growth is positive, which should translate into higher disbursements. Under its CRB segment, the bank is looking to enhance its village coverage significantly. Growth in the retail segment has also been encouraging at 12.9% YoY and 5.4% QoQ. The meaningful sequential pick-up in retail asset growth, seen after several quarters, is likely to sustain. The bank is positive about the retail segment’s growth trajectory, which will be aided by the launch of new products and the festive season (in the near term). During the quarter, retail asset disbursements were up 71% YoY and 59% QoQ, exhibiting phenomenal growth. With the RBI lifting the ban on HDFC Bank’s credit cards, the bank is looking to accelerate its monthly card acquisition run-rate to >500,000 in the near-term by tapping new liability relationships acquired in the last 9 
months (6.04mn during Jan-Sept’21). 42% growth in card spends in the first 10 days of October’21 points towards a continued recovery. Besides this, the bank has also been working on several strategic partnerships. It has also positioned itself to cater to opportunities in high growth sectors such as BNPL. A large branch footprint, coupled with 130,000 consumer durable merchant points, is expected to support the bank’s retail growth as the economic recovery gains further momentum. Auto loans also achieved new highs, with incremental disbursal value rising by 36% YoY. On the wholesale front, the outlook is positive as growth is expected to be supported by pick-up in infrastructure spending, among other factors. 

NII growth to pick-up pace on the back of retail acceleration 

For the last several quarters, NII growth has lagged overall advances growth as the wholesale portfolio has grown ahead of other segments. For 2QFY22, NII growth stood at 12.1% YoY and 4% QoQ with NIM stable at 4.1% QoQ. Going forward, NII growth is expected to gain traction as the high-margin retail segment’s growth picks up pace. The management has stated that it would take a few quarters for NII growth (YoY) to revert back to 15% levels. We are baking in 4.1% NIM over FY22-24E, supported by improving yields (as retail picks up) and low cost of funds. Noninterest income grew by 21.5% YoY and 17.7% QoQ. Fee income recovered strongly, growing by 25.5% YoY 
and 27.3% QoQ. Retail fee income was up 28% YoY.

Provisions lower QoQ growth, overall coverage is healthy

Provisioning for 2QFY22 was Rs39.25bn, down 19% QoQ and lower than our expectation. The bank took contingent provisions of Rs12bn in 2QFY22, taking the total stock of contingent provisions to Rs77.6bn as of 2QFY22. Overall provisions stand at Rs266.4bn, forming 163% of GNPAs. The bank has seen most risk and asset quality indicators improve in the last few months as the economic recovery post the second covid wave has strengthened. The bank has stated that it is well prepared to deal with the adverse impact from a possible third covid wave (if it comes). We expect overall credit costs to trend lower, leading to better earnings. 

HDFC Bank's asset quality is improving

Demand resolution rate stood at 97.5% for Sept’21, almost back to the pre-covid level of 98%. Bounce resolution rates have also improved back to Feb’20 levels. In fact, number of customers who self-cure after bouncing is 10% higher than pre-covid levels. The total restructured book is 1.5%. The management’s expectation is that the maximum impact (worst case scenario) from this pool will be 10-20bps on asset quality. Going by the bank’s own standards on risk/stress assessment throughout the covid period and with the benefit of a majorly vaccinated population and reversion to economic normalcy, we do not expect any negative surprises on the asset quality front. For 2QFY22, the bank reported GNPAs of 1.35%, down 12bps QoQ. NNPAs stood at 0.4%. The bank maintains a healthy provisioning coverage of 71%. Retail GNPAs declined by 13bps QoQ to 1.37% and CRB GNPAs were down 28bps QoQ to 1.95%. Gross slippages for 2QFY22 were Rs53bn compared to Rs73bn in 1QFY22. The slippage ratio for the quarter was 1.8%, down from 2.5% in 1QFY22. 

Conference Call Takeaways 

Asset Quality 

Reported GNPAs of 1.35% also include 20bps of standard facilities of the borrowers whose other facilities have been tagged 
NPAs. Out of the 150bps restructured loans (~Rs180bn), 25bps have been classified as restructured (even though they are not) due to the borrowers’ other facilities being restructured. Restructured accounts also contain some accounts that were under 
moratorium. Gross slippages in 2QFY22 were 1.8% (Rs53bn). Recoveries and upgrades were Rs35bn, write-offs Rs26bn and sale of NPAs Rs5bn. 

Retail asset quality improved

Retail demand resolution improved to 97.5% in Sept’21 (compared to 98% pre-covid), which is higher than the levels witnessed before the second covid wave. Compared to pre-covid levels, 10% more customers are now self-curing post bouncing. Bounce resolution rates for most buckets have reverted to pre-covid levels. Remaining resolution rates are expected at pre-covid levels by Dec’21. Impact on collections in case of a third covid wave is expected to be lower due to better preparation by the bank, including a highly vaccinated workforce. Recoveries have been 10% higher than pre-covid levels and are improving MoM. The bank took an empathetic stance towards affected customers in terms of restructuring. Risk assessment of the restructured portfolio indicates 10-20bps impact on NPAs in the worst-case scenario. 

Business and Loan Growth 

Credit card spends grew by 36% YoY and 27% QoQ. In the first 10 days of October, card spends were up 42% MoM. 416,000 new credit cards have been issued during 5 weeks of the quarter and the monthly run-rate is expected to improve further. Merchant tie-ups are being enhanced with several strategic partnerships in the pipeline. Merchant and customer engagements have been improving consistently. Under its partnership with PayTM, bank will be offering credit card and other products to retail customers and merchants. In addition to this, the bank expects to monetize data collected from its business partnership with PayTM. UPI transactions (by volume) increased 2.2x YoY and 35% QoQ. The bank has positioned itself to capture opportunities in emerging growth sectors such as BNPL. Currently, Easy EMI customer base stands at 3.5mn. The bank has 2.5mn merchant acceptance points and consumer durables loans have been enabled at 130,000 merchant points. 

Growing Commercial and rural banking (CRB) segment all set for expansion 

CRB growth was aided by market share gains, record high disbursements and strong customer acquisitions, all led by deepening penetration. Growth in the segment is expected at 20-25% for FY22. Retail CV volume financed by the bank were 4.5x YoY compared to industry volume growth of 1.2x. A similar trend was witnessed in Tractor and construction equipment. Growth in e-commerce is expected to support CV business. Growth outlook for SME is positive with expectation of strong disbursements. The bank intends to expand its village coverage significantly. 

Growing Mid-Corporate segment  

Mid corporate segment is healthy and growing. The brand pull of the offering is very strong. Segment witnessed 29% YoY growth. Growth target of expanding to over 100 cities has been already achieved, ahead of the March’22 timeline. The bank expects capex demand in several sectors and improved capacity 
utilization to support further growth. Wholesale SME witnessed 33% YoY and 7.5% QoQ growth. Growth target of expanding to 575 districts by March’22 has almost been achieved. Healthcare business grew by 5% QoQ.

Retail assets on demand 

The retail segment has witnessed strong demand trends. Loan inquiries increased MoM at the industry level. Auto loan book for the bank has grown at a healthy pace (auto loan disbursals up 36% YoY) in contrast to 37% YoY decline in domestic vehicle sales in Sept’21. Supply-side issues being faced by OEMs are expected to resolve over the next 1-2 months. Unsecured loan disbursals improved and focus on government business is yielding positive results. Strong growth in the combined mortgage book (HL + LAP) is expected to sustain in H2FY22. Loans above Rs0.1mn have witnessed good traction, but, loans below that (MFI and 2-wheelers) are expected to take ~60 days to reach pre-covid levels. Distribution channels are being improved in gold and business loans. Market share and underwriting quality for the bank have improved across products. The bank is focusing on strengthening its geographical footprint. Government and used car businesses would be the main focus areas going forward. Overall, the bank is bullish on retail assets growth in the coming quarters. The bank is one of the largest infra lending providers and would participate in the govt’s infra spending, which has already 
started. Disbursements in 2QFY22 stood at Rs80bn and the company is optimistic about disbursements 
growth in the coming quarters. 2.4mn new liability relationships (+31% YoY, +45% QoQ) were opened in 2QFY22. Lower NII growth over the last few quarters has been a function of higher growth in the (low risk) wholesale portfolio over the last 6-8 quarters. As the retail segment’s growth accelerates going forward, NII growth would also catch up. ~400 branches are in the pipeline and would be opened shortly. Employee expenses increase of ~Rs0.8bn can be attributed to ESOPs. Retail business is more cost intensive than the wholesale business. Customer acquisition, marketing expenses etc are 
expected to increase as the retail segment’s growth picks up. Technology spends constitute 2.7-2.8% of total revenue and 7-8% of total expenses. Bank has incubated a credit innovation lab to experiment new credit products, keep pace with the fintechs and stay at the 
forefront of innovation. 

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ACC beats profit estimates for Q3 despite cost spike

by 5paisa Research Team 19/10/2021

ACC Ltd, which is part of Holcim (formerly LafargeHolcim), has reported strong earnings for the quarter ended September 30, beating street estimates, even though high fuel costs increased its operational expenses.

ACC churned out 23.6% growth in net profit to Rs 450 crore as against Rs 364 crore in the year-ago period. Analysts had expected the company to post around 15% earnings growth on a year-on-year basis.

Net sales growth, however, fell a tad short of estimates, likely due to poor growth in volume sales of cement. Net sales rose 5.3% to Rs 3,653 crore for the three months ended September as against expectations of around 7% rise.

The July-September quarter—the third quarter for ACC’s financial year—is cyclically a weak period for cement makers as construction activity slows due to monsoon season.

The ACC scrip declined 2.5% ahead of the announcement of the results for the quarter in a nearly flat Mumbai market on Tuesday. The company’s share price is around 10% below its 52-week peak and closed at Rs 2,245.50 apiece.

ACC Q3 other key numbers:

1) Cement sales volume rose 1.2% to 6.57 million tonnes. This affected top-line growth.

2) Sales volume for ready mix concrete shot up nearly 50% to 0.68 million compared to year-ago period.

3) EBITDA margins rose to 19.5% from 19.4% in the same quarter last year.

4) EBITDA margin, however, is lower than the 20.9% for the nine months ended September 30.

5) Fuel costs rose 25% year-on-year. This is higher than rival UltraTech’s 17% increase in fuel costs.

ACC management commentary:

Sridhar Balakrishnan, managing director and CEO of ACC, said that the company recorded “solid performance” during the quarter through operational excellence and focus on sustainability while meeting customers’ needs.

“Despite a steep increase in fuel costs, our cost efficiency measures under project ‘Parvat’ have enabled us to maintain robust performance. I am confident that our relentless focus on execution of cost efficiency and capacity expansion projects will enable us to deliver strong shareholder value,” he said.

The company also said that economic activity is gaining momentum driven by accelerated progress in the Covid-19 vaccination drive and reduction in Covid-19 cases.

“We believe that government impetus on infrastructure and housing will augur well for cement demand in the next quarters. We are positive that the cement sector would benefit from increasing demand in various sectors such as housing, commercial and industrial construction,” ACC said.

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Solar Industries bags order worth Rs.14.7 billion from Coal India

19/10/2021

Solar Industries has won an order of INR14.7bn from Coal India (CIL) which is to be delivered in two years. Order size has almost doubled from the last one. This is on account of increased production expectation by CIL ,sharp increase in the price of key raw materials and removal of higher overburden . Moreover, the company has handed over the first batch of Multimode hand grenades (MMHG) to the Indian Army during 2QFY22. With strong visibility in international markets and defense segment along with recent improvement in domestic business, Solar's growth should happen from all the directions. Management has guided 30% revenue growth in FY22 which includes 15% volume and 15% value growth. There will be an increased FY22/23 EPS by 7%/15% respectively and introduced FY24 EPS. We have factored revenue/EBITDA/EPS CAGR of 29%/30%/37% over FY21-24E. Further, we roll over the target price to FY24E EPS. Maintain BUY with TP of INR2,780 (earlier INR1,910) based on 35xFY24E EPS.

Domestic business: strong traction across segments like CIL, housing, and infra 

The strong pick-up witnessed in housing and infra is now extended in business from CIL. CIL has doubled the order size for the bulk explosives and is to be delivered over the next two years. It covers steep inflation in RM (ammonium nitrate) and higher explosive requirement gave the acute coal shortage the power plants in the country are facing. The contribution from CIL stood at 17% of the revenue (INR4.2bn in FY21, stagnant since the last five years). However, despite the doubling of the order book for CIL for the next two years, the market share of Solar has remained at 28-30% indicating similar growth for other players as well. With a view of reducing dependence on imported coal, we expect a strong off-take from CIL to continue providing robust visibility for the domestic business of Solar. We believe that the price of key RM, ammonium nitrate is up 20-25% in the last quarter which could put pressure on margin in the near term but new order wins reflect enough price hikes to cover the RM inflation over the long term. We have built a revenue CAGR of 29% over FY21-24 in the domestic business of Solar. International geographies on a steady path; Defence - Scaling up on expected lines Revenue from international geographies continues to be on a steady growth led by the strategy of expansion in newer markets. Although, there is some delay in starting operations in Australia and Indonesia on account of COVID. The company is expected to start the operation in Tanzania in 3Q and Australia in 4QFY22 while other geographies like Turkey, Ghana, 
Nigeria, Zambia, and South Africa continue to drive the growth of the company. During the 
2QFY22, Solar started the dispatch of the MMHG to the Indian army. Solar had received the order of 1mn units (INR3bn) of MMHG to be delivered in two years. The company had guided revenue of INR3bn during FY22 (INR1.3bn in FY21) from the defense business. 

Valuation and outlook 

Being a market leader in a highly regulated domestic explosives industry with huge entry barriers, 
SOIL is well-positioned for robust growth with multiple levers in place. All the business categories of Solar - International market, defense, housing & infra and even the CIL which was stagnant for last five years is on a strong growth trajectory now. With improved revenue growth, the company is back above 25% RoCE currently from 19% in FY21 and we believe ROCE to improve and reach 33% by FY24. The stock currently trades at 32x FY24E EPS and we have valued at 35x FY24E EPS with a TP of INR2780. Any slowdown in industrial production activity and adverse currency movement in international geographies are major risks.

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Penny Stock Update: These low priced stocks gained up to 19.87% on Tuesday.

Penny Stock Update: These low priced stocks gained up to 19.87% on Tuesday.
by 5paisa Research Team 19/10/2021

Today market has closed in red, S&P BSE Information Technology is the top gainer while S&P BSE Realty is the top loser.

After a positive close on Monday (18th October 2021), the market closed in red after a sudden sell-off in the last hour of the trading session on Tuesday. Most of the sectoral indices were down and closed in red, while some sectors have closed positive. The Nifty 50 has dipped down by 0.32% i.e., it has closed down by 58.30 points. Besides, BSE Sensex is down by 0.08% i.e., it has closed down by  49.54 points in today’s trade. S&P BSE Information Technology and S&P BSE TECK were top gainers in today’s trade and closed up by 1.34% and 1.10% respectively. Information Technology stocks such as Larsen & Toubro Infotech Ltd, Mphasis Ltd, L&T Technology Services Ltd and Oracle Financial Services Software Ltd were top gainers.

Larsen & Toubro Infotech Ltd closed up by 15.93% at Rs 6847. Moreover, BSE TECK Index consists of majorly same stocks as S&P BSE Information Technology which closed in positive along with Coforge Ltd. Further BSE Capital Goods, BSE DOLLEX 30 and BSE Energy were high and closed positive in today’s trade. This is evident that the IT sector was up and closed with a green mark.

In contrast to these, the majority of sectors has closed in red. BSE Realty was the top loser in today’s trade and closed down by 4.56%. The stocks of the same index such as Indiabulls Real Estate Ltd, Oberoi Realty Ltd and DLF Ltd were top losers in today’s trade.

Likewise, S&P Fast Moving Consumer Goods, BSE CPSE and BSE Basic materials have closed in negative. S&P BSE SME IPO has again closed in red after Monday.

Here is the list of penny stock that gained up to 20% on the closing basis on Tuesday 19th October 2021:
 

Sr No.  

Stock  

LTP   

Price Gain%  

1.  

Mandhana Retail Ventures Ltd  

18.1  

19.87%  

2.  

Consolidated Construction Consortium Ltd  

0.6  

9.09%  

3.  

Zenith Steel Pipes & Industries Ltd  

0.9  

5.88  

4.  

Gayatri Highways Ltd  

0.95  

5.56  

5.  

Ankit Metal & Power Ltd.  

3.15  

5.00  

6.  

DCM Financial Services Ltd  

3.15  

5.00  

7.  

Imagicaaworld Entertainment Ltd  

12.60  

5.00  

8.  

Adroit Infotech Ltd  

12.70  

4.69  

9.  

Grand Foundry Ltd  

4.25  

4.94  

10.  

Digjam Ltd  

18.10  

4.93  

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Nestle India Q3 profit inches up 5% as rising input costs hurt

by 5paisa Research Team 19/10/2021

Nestle India said Tuesday its profit after tax for the third quarter ended September 2021 rose 5% to Rs 617.4 crore from Rs 587 crore a year earlier, helped by volume growth and price hikes as demand recovers.

The company, which follows the January-December financial year, said profit was up 14.6% sequentially from Rs 538.6 crore in the April-June period. 

Revenue for the third period rose 9.6% to Rs 3,882.5 crore from a year earlier and 11.7% sequentially. Growth was driven by increased volumes, improved demand for ready-to-eat food and milk-based products, and price hike. 

The company said its domestic sales rose 10.1% during the third quarter, a shade lower than the 10.2% sales growth recorded in the same period last year. On a quarter-on-quarter basis, sales were up an impressive 13.7%. 

Nestle India, which markets marquee brands like Maggi noodles, Nescafe coffee and Kitkat chocolates, said that the April-June quarter had been hit hard by the second wave of the coronavirus pandemic.

However, the July-September quarter saw the resurgence of organised trade and that sales via e-commerce channels accelerated as consumer behaviour shifted toward online purchases. 

Nestle India Q3 other key details

1) The company reported a 1.3% rise in exports to Rs 177.6 crore during Q3.

2) Rising commodity prices and packaging costs suppressed margins to 24.4% from 24.9%. 

3) Total input costs rose almost 16% due to higher commodity prices, particularly edible oil and packaging materials.

4) Brands like Milky bar, Kitkat and Munch saw double-digit percentage growth during the second quarter.

5) Nestle India declared second interim dividend for 2021 of Rs 110 per share, amounting to Rs 1,060.57 crore.

6) The company had in May paid the first interim dividend of Rs 25 per share.

Nestle India management commentary:

The company said there are indications that business is set to return to pre-pandemic levels in some markets. 

It also said that the out-of-home channel is on a path of recovery as the hospitality sector, offices and malls reopen and demand picks up. The e‐commerce channel showed strong acceleration on the back of convenience and pandemic-driven consumer behaviour.

“This quarter has once again seen the company deliver ‘double‐digit broad‐based value growth’ in domestic sales across categories,” said Suresh Narayanan, chairman and managing director.

“Organized trade witnessed a resurgence in the third quarter with strong revenue growth in mid‐twenties after a muted second quarter which was impacted by the pandemic second wave,” he said.

The company, however, noted that the price outlook for wheat, coffee and edible oils remains firm to bullish while costs of packaging materials continue to increase amid supply constraints, rising fuel and transportation costs.

It expects input prices to be on a bullish trend both globally and, to some extent, locally. Milk prices are expected to remain firm while the recent decision to scrap import duties on edible oils, if continued beyond March 2022, can have a positive impact in muting food inflation pressures, the company said.

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Chart Busters: Top trading set-ups to watch out for Wednesday.

Chart Busters: Top trading set-ups to watch out for Wednesday.
by 5paisa Research Team 20/10/2021

On Tuesday, the benchmark index, Nifty has marked the fresh all-time high of 18604.45 level in the first 15-minutes of the trading session. Thereafter, the index was unable to move above its first 15-minutes candles high and witnessed correction. This resulted in the formation of a bearish belt hold like candlestick pattern on the daily chart. The Nifty Midcap 100 and Nifty Smallcap 100 has formed a sizeable bearish candle on the daily chart. The overall advance decline was tilted in the favour of the decliners. It hinted that the market participants prefer to book the profits at higher levels.

Here are the top trading set-ups to watch out for Wednesday.

JK Tyre & Industries: The stock has formed a high wave like candle as of August 06, 2021, and thereafter slid into the period of consolidation. During the period of consolidation, the stock has formed a symmetrical triangle pattern on the daily chart. On Tuesday, the stock has given a breakout of symmetrical triangle pattern along with above 50-days average volume. Post the breakout, the stock has marked the high of Rs 171.70 and thereafter it has witnessed minor profit booking at higher levels as selling pressure emerged in the market. However, since the last two trading sessions, the stock is outperforming the benchmark indices, which is a bullish sign. Currently, the stock is trading above its short and long-term moving averages. These averages are in rising mode. Interestingly, the daily RSI has also given symmetrical triangle pattern breakout, which is a positive sign. Recently, the momentum indicator daily MACD line has crossed above the signal line, which resulted in the histogram turning positive. On the daily timeframe, ADX is below 10 which suggests that the trend is yet to be developed. Directional indicators continue in the ‘buy’ mode as +DI continues above –DI. The technical evidence indicates a strong upside in the next couple of trading sessions. As per the measure rule of symmetrical triangle pattern the first target is placed at Rs 175 followed by Rs 184 level. On the downside, the 8-day EMA will act as strong support for the stock.

Strides Pharma Science: The stock has formed a bearish belt hold candlestick pattern as of January 08, 2021, and thereafter marked the sequence of lower tops and lower bottoms. From the high of Rs 999, the stock has lost nearly 44 per cent in just 153 trading sessions. After registering the low of Rs 562.55, the stock has witnessed counter-trend consolidation for the next 37 trading sessions. On Tuesday, the stock has given a breakdown of upward sloping trendline support along with relatively higher volume. Currently, the stock is displaying a bearish trend as it is trading below its short and long-term moving averages. These averages are in falling mode. The 200-DMA crossed over the 50-DMA 71 days ago, called the 'death crossover', which is a long term bearish signal. The weekly RSI is in a super bearish zone and it is in falling mode. The daily RSI has given a bearish crossover. The weekly MACD stays bearish as it is trading below its zero line and signal line. Considering all the above factors, the stock is likely to extend its southward journey. On the downside, the level of Rs 500 will act as minor support. While on the upside, the zone of Rs 587-591 will act as crucial resistance for the stock.
 

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