Business & Technology

Cipla – Transformation turning haywire

May 25, 2016 by Nasheman

Cipla reported a muted PAT of INR809mn in Q4FY16 as it posted mere 6.7% EBITDA margin. There was deterioration in every expense line including gross margin (down 600bps YoY), employee cost (up 28% YoY) and R&D expense (jumped to 8% of sales). More worrying was management commentary which pointed to a diametric turn towards B2B strategy from its earlier stated transformation to DTM in European markets. Post Invagen consolidation, which entails 25% EBITDA margin, Cipla estimates ~16-18% EBITDA margin on mid teens revenue growth over the next 2-3 years. We see at least 20% cut in consensus estimates for FY17 and FY18. Maintain ‘HOLD’ with reduced TP of INR480 (20x FY18E EPS; INR500 earlier).

No improvement in core margin even post 3 years

While Cipla met its FY16 revenue guidance, reported EBITDA margin fell to 6.7% with every expense piece disappointing. While gross margin has worsened to lowest in past 2 years, employee expenses shot up 28% YoY. India sales (39% of sales) grew 16% YoY; South Africa (~12% of sales) declined 15% YoY in constant currency. According to the company, while Invagen was consolidated for ~40 days, its business contribution during the quarter was lower at ~20 days due to channel inventory. Cipla believes that its FY16 base margin, excluding Nexium’s limited competition benefit as well as one-off expenses during FY16, will be ~16-18%. Factors like incremental R&D spending and regulatory changes like the Bonus Act are hardly non-core, in our view.

Design for growth and profitability far from shape

Cipla seems to have taken a U-turn with the decision to return to DTM strategy from B2B and exit from certain EU markets with commensurate headcount cut. While Invagen may help the company gain a more solid base of ~USD400mn in US, we believe growth and profitability are unlikely without niche launches, which unfortunately are not yet in sight. Except India, none of the major businesses are stable growth engines; in fact, many of these are diluting value.

Outlook and valuations: Glum outlook; maintain ‘HOLD’

Long-term outlook on Cipla remains unclear versus peers. UK MDI approval does not seem exciting enough given that launched products do not seem to be doing well commercially. The company also has outstanding Form 483 for its Indore facility, which is a risk. Hence, we prune FY17/18E EPS 4%/3%. We maintain ‘HOLD/SP’.

Colgate Palmolive – Volumes on road to recovery

May 25, 2016 by Nasheman

Colgate Palmolive’s (Colgate) Q4FY16 numbers came in line with estimates—sales jumped 6.8% YoY, EBITDA fell 2.5% and PAT dipped 10.8% YoY. Recovery in volume growth at 4% YoY (highest in 4 quarters) coupled with pick up in herbal innovations indicate gradual recovery in FY17 (to be aided by soft volume growth in base). Heightened competitive intensity, especially from herbal players—Dabur clocked 6 quarters of double digit oral care growth in Q4FY16, Patanjali’s Dant Kanti crossed INR4.5bn mark in FY16—remains key overhang. We are enthused by the recent success of Palmolive handwash. Maintain ‘HOLD’.

Sales look up; brand investments to aid momentum
Key positives: (i) 4% YoY domestic volume growth (highest in 4 quarters); (ii) rise in brand investment to aid volume recovery; (iii) success in personal care (3% of India sales; 21% of global sales) can boost long-term growth; and (iv) step-up in herbal segment innovation (launched first sensitive toothpaste with clove). Key negatives: (i) 450bps jump in annual tax rate (ex INR311 prior period reversal); FY17 effective tax rate to be 32%; (ii) toothpaste market share loss to 55.7% in YTD16 (up 60bps MoM in April 2016) from 57.2% in 2015; and (iii) inventory days up to 72 days from 59 in FY15.

Q4FY16 conference call: Key highlights
Urban areas clocking marginally higher growth than rural areas. Colgate Active Salt Neem has 1.1% market share (pan-India). Barring multi-usage and low priced packs, other segments—freshness, whitening, naturals, family—posting good growth. ~300mn consumers still do not use toothpaste, this along with promoting twice a day usage (<20% brush twice daily in urban areas) present strong growth potential. Premium mix improved ~400bps to 19.4% over FY12-16. Personal care focus will be on niche products where leadership (or second position) in modern trade is likely. Outlook and valuations: To improve gradually; maintain ‘HOLD’ We estimate 7.8% EPS CAGR over FY16-18. ~20% correction in stock price in past 1 year factors in risk from herbal players. Recovery in volume growth and return of pricing growth in FY17 (FY16 pricing growth negatively impacted by phasing out of fiscal sops) are re-rating triggers. At CMP, the stock trades at 29.1x FY18E EPS. We maintain ‘HOLD/Sector Performer’ with target price of INR917.

Pidilite Industries – Stellar quarter on most fronts; result update Q4FY16

May 23, 2016 by Nasheman

Pidilite’s Q4FY16 revenue, EBITDA and PAT growth at 18.9%, 78.1% and 89.2% YoY, respectively, was well ahead of estimates. The 7-quarter high sales growth was impressive, albeit on a low base (3.1% YoY volume growth in Q4FY15). Gross margin, at 55.3% (highest in at least 8 years), led by softer VAM during tough macro economic conditions is reflective of strong pricing power. Entry of Asian Paints into adhesives (Loctite) and increased aggression in waterproofing (Smartcare) need to be closely monitored. We remain positive in view of gradual demand recovery, new businesses and pick up in international growth. Maintain ‘BUY’.

Growth and margins: Firing on all cylinders
Key highlights: (i) 20.7% YoY growth it consumer and bazaar (C&B) business (highest in past 7 quarters; 13.6% YoY in Q3FY16) with 1,012bps YoY expansion in EBIT margin to 25.2%; (ii) sustained recovery in industrial business which grew 7.5% YoY with 20% EBIT margin (highest in 26 quarters); (iii) strong 35% constant currency growth in international business, led by US (grew 41% YoY driven by art materials) and SAARC (133% YoY growth led by Bangladesh and Sri Lanka); and (iv) 853bps/638bps YoY expansion in gross/EBITDA margins helped by soft raw materials prices

Q4FY16 conference call | Key highlights
Volume growth surpassed value growth. PIDI aspires to grow revenue in mid teens. Smaller towns are growing faster than bigger towns, though growth rate in small towns has slowed down. Nina’s annual revenue was INR1.6-1.7bn (14-15% like-to-like growth) with ~15% EBITDA margin. The company intends to target both B2B and B2C segments with newly acquired ICA brands; can earn annual sales of INR1bn. Outlook for international business is robust. Distribution network is ~3mn outlets. Currently, VAM prices are USD900-950.

Outlook and valuations: Positive; maintain ‘BUY’

We expect 19% CAGR over FY16-18E. Good performance of acquisitions (Bluecoat, Nina, ICA, Sri Lankan local glue player) and sustainability of robust growth in core business (paint players also saw robust growth in Q4FY16) outweigh risks from Asian Paints in water proofing and adhesives space. At CMP, the stock is trading at P/E of 31.3x FY18E. We maintain ‘BUY/Sector Outperformer’ with target price of INR731.

SpiceJet- One-offs jar; better times ahead

May 23, 2016 by Nasheman

Fuel benefits drive healthy show in a seasonally weak quarter
Despite being a seasonally weak quarter, Q4FY16 revenue of INR14.75bn was up 1% QoQ aided by 10% jump in volumes though partly offset by lower yields (down 8% QoQ). SpiceJet not only recouped volumes during the quarter (handled 3.39mn passenger versus 1.99mn in Q4FY15), but also recorded healthy ancillary income of 13.3% (of pax revenues) versus 8.6% YoY. While lower fuel costs continued to benefit (fuel CASK at INR0.87/ASKM, down 18% QoQ), the company had to provide INR1.5bn towards engine maintenance on reassessment of its liabilities which impacted margins. Thus, it reported lower EBITDAR at INR2.9bn versus INR4.3bn estimate. Adjusting for same and INR637mn of exceptional gains, adjusted PAT of INR1.5bn surpassed our INR1.3bn estimate.

Liabilities accounted for; to commence fiscal with renewed vigour
Having provided INR1.5bn for meeting maintenance related obligations for the leased aircraft and INR233mn towards aircraft redelivery expenses during the quarter (INR2.3bn also provided for aircraft redelivery in FY15), management has maintained all legacy issues have now been completely provided for. SpiceJet reduced debt and past dues by ~INR2bn each during FY16, which is expected to continue in FY17 as well.

Outlook and valuations: Positive; maintain ‘BUY’

After successfully maximising earnings through strong revenue management – pricing strategies and ancillary income– and fuel benefits, we believe incremental gains will be driven by volumes and cost rationalisation. We model for volume growth of ~20% and expect cost rationalisation benefits to help SpiceJet report earnings growth of 50% plus for FY17E, i.e. PAT of INR6.5bn (revised up by 10%). Maintain ‘BUY’ valuing the stock at 7.5x FY18E EV/EBITDAR, resulting in TP of INR102.

Truefitt & Hill launches second outlet on Lavelle road

May 20, 2016 by Nasheman

World’s oldest barber shop; Truefitt & Hill comes with their 10th outlet in India and 2nd outlet in Bangalore at Lavelle Road set to make a promise of the best grooming experience for men

Truefitt & Hill known for its sophistication and finest grooming through their world class services and unmatched product quality are opening their 2nd outlet in Bangalore at Lavelle Road on the 18th of May 2016.

Truefitt and Hill could not have timed their foray into India any better as more and more men are looking into Grooming as a necessity now. Brought to India by the Lloyds Luxuries Ltd., which has acquired the Master Franchise License for not just India but also Nepal, Bangladesh, Sri Lanka, Bhutan, Myanmar and Vietnam, the venture looks promising. Started by Mr. Istayak Ansari & Mr. Krishna Gupta in 2013, Lloyds Luxuries Ltd aims at creating an atmosphere of total relaxation and ultimate comfort for their male guests. Through this, they wish to encourage grooming for men greatness.

Speaking on the occasion, Mr. Istayak Ansari & Mr. Krishna Gupta, Directors of Lloyds Luxuries Ltd. excitedly says, “After the successful opening of this international barber shop in indiranagar in the month of April, we are very happy to be coming to Lavelle Road. Through our second outlet in Bangalore, we wish to provide the most unique and unrivalled satisfaction to a larger audience in Bangalore. Our aim is that the customer should ultimately feel revitalized and renewed when it’s time to leave. We at Truefitt &Hill believe in giving an experience and not just a service. Taking care of yourself is a necessity and we groom here with a luxurious touch giving a friendly and a luxurious atmosphere with the best renowned people at your service”

Further adding to this they state, “Truefitt and Hill is the first high end international barber shop in India. Our vision is to take Truefitt & Hill across 75+ cities in India with 200+ outlets by 2024. The barbershop size will be 1000 to 1500 sq.ft. with an investment range from Rs. 100 lacs to Rs. 150 lacs. We currently have 6 outlets in Mumbai, 1 in Delhi and 1 in Indiranagar in Bangalore and 1 inGurgaon. By end of May we will also be launching outlet at Banjara Hills Hyderabad. We will also set up an academy to train Indian barbers in the fine art of male grooming in the near future.”

The outlet located in the central district of Lavelle Road, is spread over 1900 sq. ft with 3 VIP rooms, Salon area and reception area with retail section. Offering a quintessential feel with its classy interiors in mahogany wood adding chic blue wallpaper creating a contrast, makes for a complete relaxing environment.

JSW Steel – Volume ramp up, stable prices boost profitability

May 20, 2016 by Nasheman

JSW Steel’s (JSTL) Q4FY16 consolidated EBITDA jumped 8% YoY to INR18.3bn on higher standalone volumes (up 7% YoY) of 3.28mt and lower operating cost. However, domestic realisation dipped 19% YoY (though marginally high QoQ) to INR29,072/t. Management’s FY17 volume guidance stands at 15mt. Factoring this, we revise up our EBITDA estimates for FY17 and FY18 10% and 18%, respectively. However, we remain sceptical due to the bleak global demand outlook and limited upside in domestic realisation from current level. We believe current stock price factors in the upside in the stock. Maintain ‘REDUCE’ with revised TP of INR932 (INR817 earlier, based on 6x FY18E EV/EBITDA).

Higher volume, benign raw material cost boost EBITDA

Q4FY16 performance was boosted by standalone sales volumes that grew 7% YoY to 3.28mt. Further, decline in realisation (down 19% YoY) was more than offset by lower raw material cost (down 23% YoY). As a result, consolidated EBITDA rose 8% YoY to INR18.3bn. Ergo, reported standalone EBITDA/ tonne was stable at INR5,404 in Q4FY16 compared to INR5,469 in Q4FY15 (Q3FY16: INR3,443). International operations in the US, however, reported EBITDA loss of USD10.2mn compared to a slight profit of USD0.13mn in Q4FY15.

Upside in domestic realisation capped

We believe the upside in domestic flats steel realisation is limited from current level. Further, the company is expanding into longs which typically face pressure from secondary producers. Compared to 21% increase in HR coil prices, rebar prices have risen only 10% from February 5, 2016, level.

Outlook and valuations: Upside capped; maintain ‘REDUCE’

We retain our negative sector view factoring global capacity surplus (steel and iron ore) and visible slowdown in China. Considering volume benefits of JSTL’s capacity ramp up (24% YoY) and improved price environment, we revise up FY17E and FY18E EBITDA 13% and 18%, respectively. With RoE estimated to remain at 14.3% in FY18 despite ~18.0% CAGR in revenue and high net debt/EBITDA ratio of 6.33x, we continue to value JSTL at 6x FY18E EV/EBITDA. We maintain ‘REDUCE/SP’ with revised target price of INR932. At CMP, the stock trades at ~6.7x FY18E EBITDA.

Modi UK visit sees business deals worth $14 billion

November 13, 2015 by Nasheman

London: Prime Minister Narendra Modi’s visit here has seen $14 billion worth of business deals inked by enterprises of the sides, including a $4.4-billion investment by Britain’s OPG Power Ventures to add 4,200 MW capacity of new electricity generation in Tamil Nadu over the next few years.

Among the two-dozen pacts and investment commitments acknowledged by Prime Ministers Narendra Modi and David Cameron was one by Merlin Entertainment to open the famed Madame Tussauds wax museum in New Delhi by early-2017 and another by Vodafone to invest $1.4 billion to support the Government of India’s “Digital India” and “Make in India” initiatives.

This apart, the largest Solar power generator in Europe, Lightsource, said it was investing a little over $3 billion in India to design, install and manage around 3 GW of solar power infrastructure in India over the next five years in partnerships with Indian companies, led by Srei Infrastructure.

“Prime Ministers Cameron and Modi noted the deep and fruitful business relationship between the UK and India and welcomed the 9.2 billion pounds ($14 billion) of commercial deals between the UK and India announced during the visit,” said a joint statement issued by the two sides after the official talks.

Other major deals announced late on Thursday included:

– Standard Life, Bupa and Aviva to invest a combined total of $365 million in their Indian joint ventures

– Pact between Britain’s cloudBuy for facilitating $5,3 billion worth of transactions using an online marketplace

– British technology company Intelligent Energy’s $1.8 billion contract to provide clean energy for 27,400 telecoms towers of GTL

– Holland and Barrett International pact with Apollo to open 1,000 stores in India over the next five years

– Kloudpad Mobility Research’s investment in South India to make next generation smart watches, wearables and tablets

– TVS to open an advanced logistics facility at Barnsley, a town in South Yorkshire

– London Stock Exchange and Yes Bank pact for collaborations on bond and equity issuance, with focus on green infrastructure

– HDFC’s proposal for rupee-denominated bonds overseas up to $750 million under new Indian central bank guidelines

– Wipro’s commitment to increases its investment in Britain.

As per the joint statement, the two prime ministers also announced three UK-India city partnerships with Indore, Pune and Amaravati to support India’s ambitious urban development goals through technical assistance, expertise sharing and business engagement.

They also launched a new Thames-Ganga partnership for healthy river systems.

(Agencies)

Quintype partners with Motherly to enhance NextGen Parenting Platform

November 13, 2015 by Nasheman

Content-driven digital platform to use Quintype for content personalization, community building and mobile integration

Bengaluru: Quintype, a data-driven publishing company based out of Bangalore and California, today announced its partnership with Motherly, a digital platform that supports Millennial women with expert information and mom-to-mom inspiration on their journey to motherhood.

Motherly will be using Quintype’s publishing platform to expand its model by personalizing content for users, helping build its community of expert contributors and moving the interface to a mobile-first experience.

“Motherly is on the brink of doing something amazing for modern mothers,” said Amit Rathore, Founder & CEO, Quintype. “We are excited to be helping Motherly as they evolve their business to be fully responsive to their constituents. The Motherly team knows what their audience needs and we are equipping them with a data driven mobile first platform to engage their viewers where they are, on any device”, adds Amit.

Backed by the Matter.vc accelerator program, Motherly provides a next-generation parenting platform that will go far beyond the confines of a standard ‘mommy blog.’ It’s an inspiring community network that supports Gen Y women on their journey to motherhood. Through partnerships with experts, social influencers and user generated content, Motherly will deliver snackable, personalized content in a voice and presentation only a woman can rely on and relate to. Motherly meets modern women in the micro-moments of joy, frustration and curiosity that make up motherhood and connects her to likeminded women.

In addition to information and community, Motherly will provide curated products and services to meet the needs of women and their families, whatever their life-stage and lifestyle may be. Motherly will officially launch in early December 2015.

“We see Quintype as an opportunity to leverage a publishing platform as comprehensive as what Buzzfeed and Vox Media have built, without the distractions and costs in becoming a pure technology company,” said Jill Koziol, Co-Founder and CEO of Motherly. “This partnership is an opportunity for us focus on our core business of connecting moms to expert information and mom-to-mom inspiration”, adds Jill.

Quintype was founded on the premise that most media organizations prefer to focus on their content, audience and monetization strategies. Quintype is delivering an affordable, cloud-based, data-driven solution that is long overdue for both new media companies starting up, as well as mature publishers that need a fast and reliable solution for migrating from the kluge of legacy technology they find themselves trapped in.

About Quintype

Quintype is a data-driven publishing company focused on digital media. Its seamless, end-to-end SaaS platform uses big data and artificial intelligence to manage all aspects of a highly responsive, mobile first online media operation. This data-driven approach lets media organizations reduce technology costs while at the same time leveraging data to increase revenue and profits.

DomainX™ 2015 becomes the first Live-streamed domain name conference internationally

August 8, 2015 by Nasheman

Bangalore: DomainX™, the 1st dedicated international domain name conference that was held today in Bangalore, was a great success with over 600 participants from diverse domains attending the event that was held over two days of inspiration, networking and knowledge.

Mr. Ron Jackson, Publisher of DNJournal.com from Tampa Bay, Florida, presided over the event as the chief guest.

DomainX™ not only educated the participants about the thriving global domain name industry and its various facets but also facilitated an impactful interaction of prominent investors, successful entrepreneurs, tech-savvy innovators and domain name investors to open a spectrum of business opportunities for all involved.

DomainX™ created a history of sorts with becoming the first Live-streamed domain name conference anywhere in the world. DomainX™ was applauded for bringing together a galaxy of international industry experts to a common platform.

Ron Jackson, founder, editor and publisher of Domain Name Journal; Nidhi Hola, Director – Marketing of Godaddy India; Samarth Kholkar, Business Development Leader for IBM Cloud Business; Rodney D Ryder, Advisor to the Ministry of Communications and Information Technology, Government of India; Anirudh Suri, Founding Partner at India Internet Fund were some of the eminent speakers amongst others.

The keynote address on domain names as an investment class was delivered by DomainX™ Brand Ambassador Mr. Deepak Daftari who showcased through his keynote the appeal of domain names to investors across the world and the impending growth on the horizon of the domain name industry.

Zak Muscovitch, Founder of DNAttorney.com discussed UDRP, URS & INDRP issues in an enlightening panel discussion moderated by INDRP Arbitrator Ankur Raheja.
Veteran domain name investor and mentor Deepak Daftary hosted a fireside chat with Ned O’Meara and Martjin Schneider to explore domain name markets in countries such as Australia and the Dutch market.

The event emphasised the ambition of DomainX™ 2015 to deliver ‘two days of inspiration’ with a business networking session on 7th August which connected global experts and key domain name investors in an intimate environment where knowledge was shared freely and key business ties were forged.

Organised by Domain Name Owners Association of India (DNOAi™), the DomainX™ conference was supported by Godaddy, Escrow.com, IBM, INForum.in, Resello, .Desi & Airfare.in. Godaddy is the world’s leading domain name registrar and provides domain name registration services to individuals and organisations world over. While Escrow.com pioneered the process of online escrow services and is one of the leading providers of secure business and consumer transaction management on the Internet

The organisers expressed their pleasure on the immense success of DomainX™ and said, “We are enthralled at the astounding success of DomainX 2015. It’s very heartening to see realization of our dream to provide a common platform to various stakeholders of the industry. We are sure that this conference will keep pushing the envelope on innovating to contribute to the growth of a flourishing domain name industry in India.” The DomainX™ organizers included Manmeet Pal Singh and Gaurav Kohli..

About DNOAi™

DNOAi™ is the first (in India) privately held association of similar minded domain name owners who have joined hands in order to bring investment, monetization and general awareness towards the domain name sector as well as web development industry.

With experience in domain names and website development, DNOAi aim to grow DNOAi™ into the largest domain name organization in India. Domain Name Owners Association of India™ tries to bring together top brass investors, successful entrepreneurs and tech-savvy innovators in India, to demonstrate and exhibit the impact of our industry on thefinancial market.

For more information visit www.DNOAi.com

Regulate Internet calls, disallow Internet.org-like app: DoT

July 16, 2015 by Nasheman

New Delhi: A government panel on Net neutrality has proposed to regulate domestic calls made using Internet-based calling applications such as Skype, Whatsapp and Viber at par with phone call services offered by telecom operators.

The panel has opposed projects like Facebook’s Internet.org, which allow access to certain websites without mobile data charges, while suggesting that similar plans such as Airtel Zero be allowed with prior clearance from TRAI.

“In the case of Over-The-Top (OTT) VoIP international calling services, a liberal approach may be adopted. However, in the case of domestic calls (local and national), communication services by TSPs (telecom service providers) and OTT communication services may be treated similarly from a regulatory angle for the present.

The Committee is chaired by DoT Advsior for Technology A K Bhargava and members in the panel include A K Mittal, V Umashankar, Shashi Ranjan Kumar, G Narendra Nath and R M Agarwal.

Net neutrality implies that equal treatment be accorded to all Internet traffic and no priority be given to an entity or company based on payment to content or service providers such as telecom companies, which is seen as discriminatory.

The neutrality debate flared up in India after telecom operator Airtel launched a platform, Airtel Zero, that would allow free access of some websites on its network. However, the companies were asked to pay Airtel for joining the platform.

The panel discussed Facebook’s Internet.org and said that until April 2015, Internet.org users could have free access for only a few websites, and Facebook’s role as gatekeeper in determining what websites were on that list was seen as violating Net neutrality.

The panel said that “collaborations between telecom operators and content providers that enable such gate-keeping role to be played by any entity should be actively discouraged”.

At the same time, the panel approved allowing zero rating platform after telecom operators compared it with a toll-free number. It said there is a multitude of possibilities in designing tariff plans and everything cannot be validated in advance on parameters of Net neutrality.

The panel proposed “ex-ante determination” and “ex-post regulation” model for dealing with tariff plan, including zero rating.

Under ex-ante determination, the panel has proposed telecom operators to follow current practice of filing tariffs before the Telecom Regulatory Authority of India and the regulator should carefully vet it on scale of Net neutrality before giving its nod.

In line with demand from telecom operators, the panel has recommended that OTT players should be brought under regulation to comply with national security norms like telecom operators in the country do.

“National security is paramount, regardless of treatment of Net neutrality. The measures to ensure compliance of security related requirements from OTT service providers need to be worked out through inter-ministerial consultations,” the report added.

(PTI)