- IT sees uncertainty on discretionary demand
- Construction activity to be soft unto elections
Niraj Shah, Agam Vakil and Hersh Sayta discuss on today's 'The Editors' Cut'.
- Construction activity to be soft unto elections
Niraj Shah, Agam Vakil and Hersh Sayta discuss on today's 'The Editors' Cut'.
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TVTranscript
00:00 It's time for editor's cut and high time and and you know
00:03 We are truly digital Samina because somebody requested us or rather spoke about us in a tweet that why don't we do an earnings?
00:10 Review of sorts on the 16 now, we can't do the whole thing, but I love to ask Agam
00:15 I'm a part of this of course, but I like to ask Agam that
00:18 Agam is great that Aniket asked us to do this
00:22 Yeah, and we are picking up specific pockets of earnings to be discussed in the session today
00:26 Yeah, 100% and so not only are we looking at how the quarters gone by but we're looking at fi25 upgrades downgrades
00:34 We're also talking about two sectors specifically with standout and that is the auto sector in terms of how it's done as well as
00:43 What we can expect from the banking space because a lot of divergence a lot of volatility has come through as well
00:50 But Neeraj, let's start with the quarter gone by and your observations here
00:54 Yeah, so some things that I've picked up and both of you feel free to come in on this. So
00:59 Rural weakness seemingly has not gone away because the staple companies have sounded off a mixed bag
01:05 Very few actually sounded very confident about both volume growth and margin growth
01:10 So that was the first takeaway and I think we saw that in the FMCG counters yesterday as well all for what in the red
01:16 I'm not saying that's necessarily the reason but that was one
01:19 Construction activity likely to be soft on two elections
01:22 So construction companies have sounded it off equipment companies have sounded that off what cement companies haven't now could it be because of housing demand?
01:28 So that's the other piece but because cement has sounded like the lone star of confidence if you will
01:35 Bulk deposit pricing and harsh might have a better insight but bulk deposit pricing inching up for banks
01:40 Could it impact you for as well and could it impact fi25?
01:44 So I think harsh both me and Adam would ask you about this when you come in with your piece on lenders
01:48 so that's part three and
01:50 automobile demand has been
01:52 stable save for tractors and maybe some commercial vehicle segments not all but
01:57 SUVs and PVs SUVs in particular
02:00 Rocking really Eminem's commentary out there and lastly tech companies and Agha would have a great inside here
02:06 But tech companies continue to see uncertainty on discretionary demand and therefore difficult to say if there is a pickup in store or not
02:13 so that was that was in a nutshell before we get to sectors and
02:17 You know and maybe just before I but before harsh talks about banks and then I'll follow up with automobiles
02:22 But just before that when I looked at the key upgrades and key downgrades numbers
02:28 I don't have them rounded off until Feb 14th, if you will but slightly earlier
02:33 But amongst the key brokerages and the key upgrades and downgrades that came in for earnings
02:38 Cipolla dr. Reddy's
02:42 HCL tech Sun Pharma and Adani ports were the ones which saw significant earnings estimate upgrades for a 525 in the back of this
02:50 so Pharma ruling the roost in that fashion, and I'm sure there are more but Pharma came out smelling very well and
02:55 earnings downgrades well ITC HUL so FMCG LTI my entry so IT and
03:03 Access and innocent banks or banks so that largely constitute the earnings down grades
03:08 And I'm sure there are more as I said
03:09 But in a nutshell if we had to point out the large ones on the nifty at least these ones were it so you know
03:15 Aniket and others who asked us about
03:17 Forward-looking things. Yeah, this seems to be the overarching picture. Yeah, and I'm that is it from the larger perspective now
03:25 Right, maybe we can run into space. Yeah
03:27 Yeah, so, you know farmer was certainly a very quiet mover the earnings came through very quietly and they were very strong
03:33 It's not just the the frontline names even the mid-cap farmer names have done
03:37 I was shown tremendous growth not only on the top line, but the bottom line as well
03:41 I did to a certain extent of course was expected but
03:44 you know, there were companies like LTI mind tree, which was which were training at such high valuations and
03:51 They were expected to give you a growth of around 15% 20% on a year-on-year basis and that perhaps
03:59 Now and with the high with the benefit of hindsight does look like a bit of a stretch
04:04 Of course, that really didn't come through an ITC nature. They have built the FMCG back
04:10 That's where the weakness does subsist a lot of that is still on account of weakness in the rural area. So fair enough
04:16 Yeah, yeah, that's the observation but banks, of course, that's the that's the big one here. Yeah, absolutely
04:21 So I'm gonna try and cover all of lenders if I may
04:26 I'll start off with some key trends which are playing out in the lending space, especially in this quarter as
04:32 Has been a spillover of the last quarter one deposit growth has been in focus even in this quarter
04:37 And therefore there's been a focus largely on margins because the impact on that has started to come through
04:45 We saw both private as well as public sector banks
04:49 You know showcase how margins are on the decline
04:53 you know
04:56 Some of the surprises came in from the public sector banks because your loan to deposit ratio over there is quite strong
05:01 You know need to dilute margins, but nonetheless margins have come off which is one big observation from a PSU bank perspective
05:09 But lots of positives within that PSU bank space
05:13 Earnings growth continues to be quite robust on the back of benign credit cost
05:18 OPEX continues to be on the rise but OPEX on the rise is largely because of wage provisioning
05:24 So it's going to be temporary where the PSU banks are concerned
05:28 On the private banking side OPEX is higher largely because they are growing from a geographic reach perspective
05:35 Adding employees and that is expected to taper going forward, but how much forward
05:43 We're looking at in terms of the taper not really sure
05:46 But in Q3 the trend seems to be OPEX seems to be playing out in a strong fashion even within the private banking side
05:53 Where are concerns? Well, there were some concerns with regard to unsecured lending
05:58 that particular piece continues to be a
06:01 Piece of the puzzle which isn't fully solved yet because growth continues to remain quite robust over there
06:09 You know companies still looking for growth most companies still looking for growth most lenders
06:15 But at the same time there is some bit of concern with regard to rural B2C
06:20 Right where Bajaj Finance came out and suggested that there is some amount of delinquency and some amount of stress
06:26 And BAF is saying people should take yes people should take cognizance of it and they've been saying it's in the last two three quarters
06:31 It's not new
06:32 But but that's where it is
06:34 But growth continues to remain robust someone like a quota came out and said we'll still continue to do unsecured in a big way
06:39 They've grown
06:40 Unsecured mix from 7% just maybe four quarters back to 11 and a half now to 15
06:46 Sure, and that is supporting margins. Yeah, so a lot of these trends kind of playing out
06:51 Profit continues to be solid in terms of the overall lending space. What about specifics? Yeah, so so maybe I can move to specifics
07:00 Let me start off first with the largest lender SBI
07:03 margins declined
07:06 Surprisingly, we did mention about the loan to deposit. The other piece is that
07:10 Q3 was dominated by one-offs
07:13 They they put it out there saying that this is lots of one-offs in this quarter Q4 will have around a five thousand
07:20 Coror expense one-off as well
07:22 so that's something to look forward to the lending pipeline is very strong for SBI and the loan to deposit ratio is
07:28 You know probably best in class at the moment given the kind of you know, the kind of structural issues
07:35 We've seen with regard to deposit growth. It's probably the best. I'll quickly move on to the second largest HDFC
07:42 Deposit growth is weaker than loan growth
07:45 What they are suggesting is deposit rates for them as a strategy is not going to be
07:50 Deposit rates which is going to drive deposit growth. They believe more reach
07:55 more
07:57 Premium services is what is going to drive growth and they believe that the deposit repricing is still to be done for the next one
08:04 To two quarters from an industry perspective. So they are expecting deposit repricing to happen over the next one to two quarters more
08:10 Which is where pain may be expected. So how do you do something? Yes on the deposit side
08:17 Second is customer spending once it falls
08:20 Maybe that will aid deposit growth and third new customer relationships is what will drive deposit growth the surprise
08:25 With regard to guidance was the taper down their branch
08:29 Guidance from 1500 to 1000 for fi-24. Okay. So how are they gonna reach more customers?
08:35 That's a concern at least the way I look at it
08:38 I see I see a bank third largest lender does not expect credit cross to rise
08:42 Continues to hold around 30,000 throw out of buffer provision slippages. Sorry buffer provisions
08:48 Slippages are in retail b2b and rural. Those are the ones which have increased. I'll quickly move on to Kota
08:55 Nims have remained flat low base, of course, but flat nonetheless, which is a big positive
09:00 they expect deposit rates to go up their product called active money and
09:05 Has grown very very well and those balances are aiding margins is what they suggested
09:09 Unsecured we spoke about how they're gonna take it to 15% and very very lastly Bajaj finance one on the NBFC side of things
09:17 They've indicated stress in rural b2c the calibrating loan growth in rural b2c brought it down from 26 to 10%
09:24 On a year-on-year basis. They are expecting cost of funds to move up. So that's another big negative
09:30 Risk metrics outside of rural b2c are in good shape is what they suggest and loan losses are
09:35 Normalizing so they are saying that they'll slowly start to trend upwards that is normalized
09:41 Sure. Sure. So plenty to take a forward when it comes to the lenders in general
09:46 And of course that diversions when we when you consider the private sector banking space
09:50 Against the public sectors as well as NBFC is and of course Bajaj finance has seen its own share of challenges
09:56 but neither it does seem like
09:59 The lumpiness in volumes growth for autos is behind us
10:03 You could argue and I know people, you know, I'll make this quick because I know we people are waiting for that F&O segment
10:09 So I'll make this very quick Adam
10:11 But yes, you put it well because I asked this to Anisha as well
10:15 Was it a tale of two things where in practice didn't do well, but PVS did do well
10:18 Yeah, he said of course that their market share has risen
10:20 So he's taking heart from that but automobiles at large q3 largely driven by volume growth
10:26 In the quarter, so that was right a better product mix and maybe lower commodity costs which aided margins for automobiles by and large
10:33 So that's part one
10:34 There was some logistic related challenges
10:36 Maybe because of Red Sea or otherwise for the exporters and I sure laid it out in its commentary very very clear
10:42 So that was part two a PV demand very healthy for SUVs, but it's not healthy
10:48 For lower-end models wasn't the healthiest. Yeah, that is part one
10:53 Two wheeler OEMs expect a sustained recovery in both domestic as well as export volumes
10:58 this is a great thing and he don't want to cop kind of
11:01 Amplified that in the commentary lastly tractors are looking at a continuation of the cyclical downturn
11:08 Even Anisha wasn't able to save ended at the end and a Scots commentary was weak
11:12 So that was the overall and very quickly to specific companies because viewers need takeaways
11:18 Yeah
11:19 Hero, they have said that the two-wheeler industry revenue should grow in double digit in f5 25
11:24 Yeah
11:24 hero expects to outperform the industry so more than double digit which probably implies market share gains and they expect margins to be on
11:32 A gradual uptrend right maybe because of pricing part. Yeah, so hero commentary looks fabulous
11:37 The stock has run up and all that but the commentary was very strong
11:39 Ashok Lenin on the other hand wasn't the strongest argument Harsha
11:43 They guided the f5 24 volumes are estimated to be below f5 18 peak
11:48 Yeah, and q4 will see moderation in growth due to higher base
11:52 Escorts similar story. We know what's happening with tractors domestic tractor industry expected to decline by six to seven percent
11:58 Why oh why the q4 volumes could see a 12 to 13 percent decline?
12:03 So this is escorts and therefore tractors look wobbly
12:06 I share amongst everything as they said they said expect exports to recover from key markets only post to three quarters
12:13 So it's not happening in the immediacy. So there is a bit of a weakness there, too
12:16 Sorry, if I'm sounding very weak or I'm bringing out some of the weaker hands, but that's what's come out
12:22 Yes, lastly auto components were a bit of a mixed bag
12:24 We know the standout was Bharat Forge because of what they have said but companies like sonar Comstar
12:29 Actually sounded okay. There is the EBITDA guidance EBITDA margin guidance. Excuse me to over 28%
12:35 Versus a band of 25 to 27 percent. So that's one and they said that the new order book has increased quite significantly
12:43 Of course at the end I'm ending with Bharat Forge is most famous quote of this earning season
12:49 I would add which is what Baba Kalyani put out and said that looking ahead in q4 and further into a 525
12:54 We expect growth momentum to moderate. Yeah, so yeah autos auto components a mixed bag autos to a mixed bag as would be in most sectors
13:01 But clear trends that PVS are doing well or the SUVs are doing well
13:06 Yeah factors and some commercial vehicles are not speaking of SUVs
13:09 There's one name which is not in this list and that's force motors
13:12 which has given us a return of four to five times in the last 12 months and
13:17 that of course is
13:20 Possibly tilting the scales just a tad bit towards the positive end
13:23 And of course, it's also gained as much as 25% just in the last three sessions Wow
13:28 Force motors force motors. Yes forceful move. Absolutely. Yes
13:31 So of course SUVs are well for good reason to which is clearly pushing it force motors upwards
13:38 But well, thanks so much for that guys
13:40 So there you have it the update on how the quarters gone by and of course and well a good
13:46 Insight coming in as far as a banking sector along with the auto sector that we've discussed in the show and with that it's a wrap
13:53 on editors card
13:56 You
13:58 (electronic music)