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Hindustan Zinc- 8% increase in Net revenue with a positive future outlook

by 5paisa Research Team 25/10/2021

Hindustan Zinc Limited is the only company in India that specializes an integrated production of lead and zinc. The company produces Zinc, lead, silver and cadmium. It is the world’s second largest producer of zinc.

In the second quarter of FY22 the mined metal production went up by 12% QoQ and 4% YoY. The production of refined zinc declined by 14% QoQ and 10% YoY while the production of lead also declined by 18% YoY. The silver production was in line with the lead production and was down 5% YoY. The FY22 Q4 target for silver production stands at 720 tonnes.

The cost of production of all the products increased drastically because of a staggering increase in the price of coal, met coke and diesel. Also due to the shutdown of maintenance the volume being produced by the company was dwindling. In retaliation to this, management has increased the ore reserves from 115MT to 150MT and even the cost guidance saw an upwards push in FY22. The cumulative capital expenditure for FY22 has been set at $250-300 million.

The Net revenue increased by 8% YoY to Rs.61.2 billion mainly due to the increase in net realizations which were sought after because of the decreased volume produced. Even though the EBITDA increased YoY by 13%, the quarterly growth was at a decline by 6% which can be attributed to very high input and operational cost and less volumes produced. The Profit after tax stood at Rs.20.2 billion which is 4% higher than last year but 4.7% lower than last quarter. The PAT margin declined by 132.9bps YoY from the second quarter of FY21. The Return on Equity has been estimated to increase from 22% in FY21 to 31.7% in FY22. A 33.4% increase in the EPS has been reported as possible by the analysts for FY22 as compared to the 17.3% increase that took place in FY21. The P/E value which stood at 16.9 in FY21 is estimated to decline to 12.6 in FY22 which may show that the company is undervalued.

Given the current scarcity of metals and coal, and the huge hike in raw material prices, the company is slowly adjusting to the new normal and building a new supply and operating chain around it. Given its strong valuations and a lower than CMP intrinsic value, buying the share at the correct time will mostly yield good profits to the investor.

 

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Chemical Sector update and views of industry policy expert, Dr. Uttam Gupta

by 5paisa Research Team 25/10/2021

In the recent discussion, industry policy expert Dr. Uttam Gupta gave a thumbs up to NBS Scheme for phosphatic fertilizers and compensation for gas price increase for urea companies, he touched upon key policy issues in the chemical sector.

The industry expert mentioned the critical situation of India in regards to dependence on Coal and Natural Gas. Coal contributes to ~60% of India’s primary energy basket and depends on 84.5% of oil and 50% gas through imports which needs to be reduced. 

The call highlighted that after a dramatic fall in the coal inventory, the situation is, however, improving as the domestic companies are gearing up to produce more coal. Hence, aiding in reduction of coal import bills. Coal India Limited has been trying to produce 1bn tonnes of coal out of the 1.5bn tonnes that the Indian government proposed to produce domestically. CIL could only produce 738mn tonnes in FY20. The zeal to become a zero-carbon country has also contributed to reduced import bills.

The Chinese market has faced a loss in the production of coal due to unrivaled flood in a key coal mining area which serves upto 25% share of total China’s coal output. China provides 46% share of the total global output.

The prices of natural gas are rocketing high as the commodity witnessed panic buying and obsession of Europe to ramp up on it to fulfill the zero-emission policy. The prices for APM gas domestically have increased year on year. The prices increased from US $1.79/mmbtu to US$2.9/mmbtu between April’21 and Oct’21 and these are likely to increase to US$5.9/mmbtu in 1HFY23 and US$7.65/mmbtu in 2HFY23. 

The spot price for the same at the start of the year was US$5.5-6/mmbtu which has now zoomed to US$33/mmbtu. 

On the other hand, crude oil prices have also drastically increased from US$60/bbl in January to US$85/bbl now. India’s fiscal deficits suffers upto US$2bn for every U$1/bbl increase. The Indian government that promised to reduce 10% of crude oil dependency has only failed to do so as the import dependency increased from 77% to 84.5% in FY21. Even the high excise duties do not seem to waiver until there are changes made in the stimulus policy.

The government’s NBS policy comes out in favor of DAP and NPK fertilizers being stepped up in case inputs costs rise. Since the prices of DAP seem to have appreciated by 60%, the government has again increased the subsidy. This is positive for the phosphatic industry leader, Coromandel International. The aggregate subsidy bill for Urea stood at Rs. 597bn and NBS for non-urea fertilizers stood at Rs600bn in FY22E. This is estimated to increase to Rs. 1,197bn higher than that FY22 budgeted allocation of Rs. 795.3bn, this also includes NBS worth Rs207bn for non-urea fertilizers. The shortage of supply, if faced, will be addressed by the government through PSUs and co-operative producers belonging to the fertilizer sector of the country.
 
 

 

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ICICI Prudential Life Insurance Company reports strong Q2 results with overall APE growth of 34.9% YoY basis.

by 5paisa Research Team 25/10/2021

ICICI Prudential Life Insurance Company (IPLI) reported strong growth of 43.5% YoY basis in 2QFY22 and 45.4% YoY basis in 1HFY22 in linked savings APE, sales of which were affected in last year due to covid-19. While Non-linked savings (excl. annuity) grew by 22.6% YoY basis (Rs. 4.6bn) in Q2FY22 and by 42% YoY basis in 1HFY22. The overall APE grew by 34.9% YoY basis (Rs. 19.8bn) in Q2FY22 and by 39.7% YoY basis in 1HFY22.

In 1HFY22, the company has successfully added 53 new partnerships. Non-ICICI Bank banca partners have delivered strong growth, reporting a 11-12% of the total banca share of 39%.

The overall retail protection grew by 21% YoY basis (Rs. 2.8bn) for 2QFY22 and by 23.3% YoY in 1HFY22. The growth was seen due to monetizing of its client pitching and engagements and ensuring that the covers are examined and correctly priced for the risk in the group term. Along with this, the upselling of critical illness covers now assures an enhanced sum. All these measures have effectively worked for the time being, however, moving forward there may be risks to this performance due to supply-side constraints and underwriting challenges which includes customers being reluctant to undertake physical medical examinations. Even with the challenges and risk, the management seems fairly positive towards medium to long term growth while the near-term outlook may be muted. 

As for the increasing reinsurance rates, the management is in discussions to come out with a final decision which may be a mix of hiked prices and tight underwriting norms. However, the company is confident that the heightened prices would be effectively passed onto the customers without actually causing a drastic impact. The company does not forestall any material changes in near-term due to reinsurance rate hike as retail protection growth is unlikely to pick up.
 

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HUL’s strong performance in Q2, however, underlying volumes lagged

by 5paisa Research Team 25/10/2021

Overall Performance 

Despite the shocking low underlying volume growth, which stood at ~4%, the underlying domestic consumer business grew at 11% YoY basis. In H1FY22, HUL reported 12% growth in sales, 8.5% growth in EBITDA and 6.2% growth in APAT. In Q2FY22, HUL reported 11.2% growth (Rs. 127bn) in sales YoY basis while 6.8% growth on QoQ basis. Adjusted PAT grew by 7.5% YoY basis while it grew by 11.5% QoQ basis.  HUL’s 75% of the business gains decent market share and relative penetration. The management believes that even if half of the entire business performs and gains market share on a global platform, the company situation remains stable and in good position.

Segment Performance

The various segments of the business grew at a healthy pace however the only concern hanging over their performance remains to be the inflationary pressure which affects the cost-pricing. 
~85% of the portfolio is made up of Health, Hygiene & Nutrition (HHN) which has continued to grow at a steady pace. Hand Sanitizers and Hand Washes are growing moderately while Laundry is picking up slowly. Brands like Dove, Tresemme, Pears, Surf Excel etc are doing very well. Discretionary portfolio has recovered well and is almost back to pre-covid level. The portfolio’s recovery in comparison to the performance in. Out-of-Home (OOH), consisting of ice-creams majorly, reached back to the pre-covid level.

Margins and Inflation

The margins, even though healthy, seemed to be under tension due to inflated prices of Palm oil & derivatives (used in skin cleansing & hair care), Crude & derivatives (used in laundry & household care), Packaging (plastic & paper) costs which are inflated to 40-50% in past one-year, multi-fold increase in Ocean freight, and significantly high tea prices. The company is trying its best to sustain the margins. It has spent more on its media expenses and ensured sufficient share of voice to share of market ratio. Even with the inflationary pressure in play, HUL does not seem to be bothered by any disruption in global supply chain challenges since it is doing well in terms of raw material sourcing flexibility & resilience. 

Story moving forward

The online demand through eRTM (Shikhar), E-Com & D2C in Q2FY22 makes up for more than 15% of the business as compared to more than 10% in Q1FY22. Shikha, present only in urban & semi-urban areas, is progressively penetrating rural areas. It is now a part of 650,000 stores with improving adaptability and stickiness. 
In a sector where when prices fall, volumes pick up, HUL needs to focus on the volume delivery while also keeping the market share first priority in order to retain its consumer franchise. Moving forward, HUL plans to focus more on heightened awareness about hygiene and e-commerce, which is in consumer’s favor from convenience and assortment point of view. 
 

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Dreamt of owning an IPL team? - Now you can buy Chennai Super Kings shares

by 5paisa Research Team 25/10/2021

Founded in 2008, Chennai Super Kings is a franchise cricket team based in Chennai, Tamil Nadu which plays in the Indian Premier League (IPL) and is a wholly-owned subsidiary of India Cements. It is one of the most popular team, having won the IPL title four times, and has a strong brand value and highest winning percentage. 

Founded in 2008, Chennai Super Kings is a franchise cricket team based in Chennai, Tamil Nadu which plays in the Indian Premier League (IPL) and is a wholly-owned subsidiary of India Cements. It is one of the most popular teams, having won the IPL title four times, has a strong brand value and highest winning percentage.
 
It is the only sports team in India that is available to the general public for investing in it. Owing to its popularity and love from the masses, the team generates revenues from gate ticket collection, in-stadium advertising, and merchandise sales. The team earns the highest revenue from Media rights which contribute ~60% of the total revenue, followed by Revenue from sponsorship which makes up ~15-20% of the total revenue, and the least contribution ~10% comes from Ticket sales.

With its strong brand value and popularity, CSK has managed to sail through the tough waters during the pandemic by maintaining positive broadcasting and other indirect revenue streams. CSK is estimated to continue generating strong revenues from merchandise sales, sponsorships, portions of prize money and digital viewership revenues for FY21-22.

At present, CSK holds a valuation of Rs. 3,850 crores while the brand value is worth Rs. 47,500 crores and this value is expected to grow even further with recovery in the sports industry. 

The price of the unlisted shares zoomed from Rs. 65/share in Jan ‘21 to Rs. 130/share at present, reporting a 100% growth. With cricket gaining popularity across the globe, IPL is gaining traction as well which may increase the brand value of IPL and its teams by multifold. This along with CSK’s popularity, we can expect more upside to the share price and higher valuations which could make CSK worth billions. 
 

Financial Overview:
 

Particulars FY20-21 (in crores)
Revenue from Operations 247.8
Total Assets 316.2
Total Outside Liabilities 100.1
Equity Shares Outstanding 31
Net-worth 116
Total Income 59
PAT 40.3
   
Ratios  
Current Ratio 4.44x
RoE 18.63%
Debt to Equity 0.3
NP Margin 16.25%

 

CSK’s lower dependency on debt reflects on increasing cash flow which can be shared with the investors through dividends and increased book value. It has also managed to increase its Cash and Cash equivalents component by maintaining its liquidity which has led to improve its Current Ratio. 

Going forward, a strong management on and off field, coupled with recovery in the sports industry and CSK’s popularity, one can expect profit and revenue growth. 

The top shareholders list includes big names such as Indian Cements Shareholders Trust, Sri Saradha Logistics Private Limited, Life Insurance Corporation of India, ELM Park Fund Limited, Hirtle Callaghan Emerging Markets Portfolio, Reliance Capital Trustee Ltd, and Radhakishan S Damani. 
Top principal partners of the team are Myntra, India Cements, Gulf, British Empire, SNJ 10000, Jio, Nippon Paint, Astral Pipes, Equitas. The official partners of the team are Clear, BKT, Dream 11 and Starbucks Coffee.
 

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ICICI Bank reports a robust growth in Q2FY22 however margins still remain under pressure

by 5paisa Research Team 25/10/2021

ICICI bank reported robust growth in the recently announced Q2 results, the overall business grew by 19% YoY as the net profit grew to Rs. 55.1bn, NIM grew by 4.0% (up by 11bp QoQ), loan growth stood at 17% YoY and 4% QoQ, NII grew by 25% YoY, fee income increased by 21% YoY which led to an increase of 23% YoY in core operating profit. Slippages clocked at Rs. 55.8bn (3.5% of loans), and the annualized retail slippage ratio stood at 4.3%. 

The growth and better-than-expected margins were driven by improvement in yields, reduction in cost of funds, and good business in SME and retail loans. This growth is estimated to stay consistently favorable. Other factors driving the growth were superior asset quality performance, improved earnings, wholesale segment improved contribution, newfound growth drivers in the retail segment (personal loans, credit cards), ability to reign in cost ratios gradually and significant reduction in incremental credit costs. The RoE stood at 14.1% and exit RoA stood at 1.8% in Q2FY22. 

Bank’s NIM stands muted and may continue the trend due to difficulty in sustaining the levels due to low interest reversals and high CASA ratio driven improvement in funding costs. The NIM may also get affected if the Bank plans to slash interest rates even lower in order to maintain market share and beat competition. 

The bank’s retail portfolio business strategy based on proprietary data and analytics by utilizing the existing customer database for sourcing retail products through cross-sell and up-sell has served well in growing the business segment. The bank has witnessed a significant growth in SME and business banking, in payment transactions from features like ‘Pay to Contact’ and ‘Scan to Pay’, and number of credit enquiries on its digital offerings and platforms like InstaBIZ. Monitoring these, the bank strategizes to grow its margins by programme-based lending rather than diluting margins. 

The bank registered less than 1% overdue in performing its corporate portfolio. One of the segments that is still under stress is the Commercial Vehicle Loans segment. The net slippage and overdues (without the Commercial vehicle segment) were back at March2021 levels. 

There seems to be no concentration risk in Restructuring under 2.0 and the quantum seems to be under Rs. 10bn while some accounts are still under resolution.
Thus, the risks that the bank may endure would be the deteriorating asset quality, slower economic recovery, higher credit costs, higher slippages and the NIM margins which still remain under tension. 
 

 

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