#MOSL: Financials and Autos drove Q3FY24 earnings
Domestic cyclicals propel growth
In conversation with Motilal Oswal Institutional Equities' Head - Research Gautam Duggad on 'Hot Money'. #NDTVProfitLive
Domestic cyclicals propel growth
In conversation with Motilal Oswal Institutional Equities' Head - Research Gautam Duggad on 'Hot Money'. #NDTVProfitLive
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TVTranscript
00:00 Novartis India business could be up for sale. The company announces strategic review to
00:06 unlock value. Meanwhile, reports suggest Dr Reddy's may buy stake in the India unit.
00:14 And relief coming for PTM as its soundbox will now work beyond March 15th as RBI extends
00:22 a deadline for Pay the Payments Bank.
00:26 And meanwhile, Grapes turns sour for Sula as reports suggest that World Invest has likely
00:33 exited in a block deal.
00:37 As the largest democratic country is getting set for its 2024 polls, the Chief Election
00:43 Commissioner says the poll preparations are almost complete and we are fully ready.
01:04 Hello and welcome. You're watching Hot Money. I am Agam Vakil and in this show we take you
01:08 through all that is happening in the markets specifically which is buzzing in trade today
01:14 and of course towards the latter half of this particular edition of Hot Money we also have
01:18 a special conversation lined up for you. But at the moment we are talking about markets
01:24 which are trading at life highs at least as far as the Nifty is concerned, advancing with
01:29 about half a percent gains as we speak and it's turning out to be a reasonably good day
01:34 of trade. Remember while we did see the markets close about 22,000, the confirmation on trends
01:43 would perhaps be determined over the next two to three days should the Nifty sustain
01:48 over 22,000. That's where perhaps you will start seeing a little more in terms of bets
01:53 being placed on the upside and remember the Bank Nifty is also advancing by a half percent
01:59 as we speak. So that relative underperformance as far as banks go in the previous couple
02:05 of weeks, well that's not exactly playing out. In fact the Bank Nifty is also advancing
02:11 in tandem with the Nifty at the moment. And when it comes to the broader markets, again
02:15 we do have strength there, a little bit of an outperformance as well and even in the
02:20 broader markets we have more gainers than losers. In fact the advance decline ratio
02:25 across in the markets in general is favourable and we have the names like PB Fintech which
02:32 is up around 5.2%, Paytm is up 5%. But you know before I take these names let's just
02:38 talk about all the companies that we want to address in today's day of trade. So we
02:43 will be talking about Sula, Vineyards on the back of that big bulk deal coming through.
02:49 We will also be talking about PB Fintech. We are addressing Paytm on our show of course
02:56 and besides that we are also taking a look at a whole host of other counters in today's
03:02 day of trade. Crystal of course reacting to earnings and besides that several other stocks
03:08 which are in fact buzzing. QuestCorp is the other one which of course has announced its
03:13 restructuring plans and to take this all up we also have with us Mahesh M. Ojha of whose
03:22 research and business development at Hensex Securities who is going to be joining us in
03:26 the show as well to take us through all of these counters. But before I come to Mahesh
03:31 let me get across to Mahima to get us an update on the bulk deal regarding Sula, Vineyards.
03:39 Mahima what do you have for us? Well Aakam, so Sula, Vineyards today has 12% of equity
03:46 that exchange hands in trade today. Well approximately 1 crore shares were exchanged at 586 crores.
03:55 The reports as you rightly mentioned suggest that World Invest has sold its entire stake
04:00 of 8.3%. Apart from that the remaining stake we don't know who the buyers and sellers are
04:06 immediately however we will come to know about it by the end of the day. But if we talk about
04:10 the major shareholders well HDFC Large and Midcap holds around 9.5%, Goldman Sachs holds
04:16 around 3.5%, Quant holds around 4.3% and SBI holds around 3.3%. Now if we talk about Whirlwind
04:23 Quest it held around 20.9% stake in Sula as of June 2023 however they sold around 12.6%
04:30 stake in August and now it's said that they've sold out their remaining stake. Overall Sula's
04:36 performance for Q3 has also been a bit low as compared to the previous quarters and PE
04:42 valuations for Sula has also been rising. If we see the PE valuations as of September
04:47 it was around 42, as of December it was around 44 however the current PE stands at 56 times.
04:54 So probably the valuations are rising and hence probably the investors are exiting so
04:59 that's what we have for Sula so far.
05:02 Right Mahima thank you so much for getting us those details on the Sula Vineyards Block
05:06 Deal. Let's get in Mahesh in a conversation. Mahesh good afternoon thanks for joining in.
05:12 You know we've seen earnings from Sula Vineyards and they've been pretty well I would say subdued.
05:18 We didn't see the kind of growth that we've seen that was expected based on the kind of
05:23 stock movement that came through. Well your view on Sula Vineyards how are we placed here?
05:29 Good afternoon Ado. Sula Vineyards this quarter is probably slowed down from the other quarter
05:37 but overall what we have seen in Sula Vineyard is continual rising momentum from the year
05:42 view, six monthly view. So overall we have to say we can see upward momentum in Sula
05:49 Vineyard in the upcoming days. One quarter doesn't decide the company's growth parameters
05:55 so it will be watchable the next two three quarters how the Sula Vineyard will post their
06:02 results. So our overall view on Sula Vineyard is very positive and we are very optimistic
06:09 about Sula Vineyard for upcoming growth in the term and we have very positive on their
06:17 business model. So we are looking that Sula Vineyard can do very well in upcoming days
06:23 and today also we have seen some deals so probably today is down due to deals. So it
06:29 will be watchable in next two three quarters and on one higher horizon you can add Sula
06:36 Vineyard and hold Sula Vineyard. One quarter doesn't depend on the growth parameter. So
06:43 overall we are very optimistic about Sula Vineyard and we are optimistic about Sula
06:49 Vineyard can touch 750 to 800 in coming next two three to six months.
06:55 Okay, fair enough. So well positive on Sula Vineyard and of course as Mahesh has already
07:01 mentioned a lot of the weakness is on account of the bulk deal that has come through. We
07:06 are still awaiting the final terms under which the bulk deals have well taken place but we
07:12 will get a lot of that information towards the end of the day. From there on we move
07:18 on to the top gainer on the MidCap 100 Index and that is PB FinTech. We have seen a good
07:24 up move in today's trade advancing by around 5.5%. I am going to get in my colleague Harsh
07:30 Saita to give us an update on this one. I believe we have a brokerage note here. Harsh
07:35 what are you gathering?
07:36 Well yes, so first off PB FinTech has received a composite insurance license which means
07:42 that it can now do reinsurance as well. Now to try and get more perspective what we'll
07:48 try to do is break down what Citi's view on this one is. What they are suggesting is that
07:54 first off PB FinTech is in a sweet spot when it comes to reinsurance. They have data coming
08:01 in from all the clients that they have and they are a FinTech and therefore able to disseminate
08:08 that data in a really strong manner and therefore they are well placed to do this reinsurance
08:13 business and do it very profitably, underwrite it well given the data that they have. Second
08:19 they also have the ability to source favorable reinsurance treaties from manufacturers and
08:27 they have that ability but of course they need to wait and watch as to whether they
08:31 can execute on that. And that's the other piece which Citi talks about. Some monitorables
08:37 they are getting into a new business so capital allocation, initial acceptance of reinsurers,
08:42 monetization plans, all of that still needs to be watched and looked at. But outside of
08:48 that PB FinTech is their preferred pick. They have a buy rating on it, target price 1150
08:54 and PB FinTech up and away in trade today Agam.
08:57 Alright Harsh thanks for getting us that, the latest on PB FinTech. Mahesh the insurance
09:03 sector in general and of course perhaps players like PB FinTech have seen strength of late.
09:10 What's your view on this particular company going ahead?
09:13 Recently PB FinTech, your colleague has mentioned that PB FinTech has received the insurance
09:20 license. So it is a very positive news for the PB FinTech and I hope that PB FinTech
09:27 can do very well in upcoming days. As you can see the PB FinTech rate are coming after
09:33 the IPO, this rate is coming to this time. So PB FinTech these results and numbers are
09:40 doing fantastically. So they have much more database. So it will be very positive for
09:47 PB FinTech and I hope that what brokers have given the target 1150 it can surpass the same
09:54 and I am not surprised if PB FinTech can touch 1450 to 1500 level in coming days. And I hope
10:02 it's very positive news for PB FinTech and they can approach the new market, insurance
10:11 sector has a very good opportunity in India. So it will be very positive side from our
10:18 view it will be very positive for PB FinTech. Okay Mahesh we leave it at that. Thank you
10:23 so much for joining us and taking us through your views on these two counters that we wanted
10:28 to address in today's G of Trade. Well we are going to conclude this particular part
10:33 of this edition of Hot Money and on that note we also slip into a short break. But on the
10:38 other side of this break we will bring you a conversation with Gautam Duggad of Motilal
10:44 Oswal on the report on how things have panned out as far as the Quartergon bias concern,
10:51 the report card there as well as what we can expect going forward. So stay tuned in and
10:55 we will be back in just a bit.
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13:47 It's a wrap on Q3 results season and who better to break down the good, the bad and the ugly
13:57 of how corporate India has turned out in Quarter 3 than Gautam Duggal, Head of Research, Motilal
14:03 Oswal, Institutional Equities. His quarterly report in fact is one that the market watches
14:08 very keenly. Gautam, hi, great to have you on NDTV Profit. You know this was an important
14:15 quarter because it was in a sense the quarter of reckoning after the kind of run up and
14:21 slightly insane run up we saw towards the end of calendar year 23. Then the question
14:27 became that have these companies really performed and that's what Q3 was all about. In that
14:34 context, how many companies do you think have stood that test?
14:38 Hi, Tamanna. Good morning. Thanks for having me here. Yes, you put it quite correctly that
14:45 markets has had a fabulous run and therefore corporate earnings to that extent becomes
14:51 a very important driver and indicator track. I think this quarter has gone off quite well
14:57 aggregate basis. If I look at a very top down view for the 250 odd companies for which we
15:03 predicted earnings in our coverage intervals, we were predicting an earnings growth of 19%.
15:09 We've got 29%. So decent beat. For Nifty, we were predicting about 10% earnings growth
15:17 and we got 17%. More importantly, a lot of sectors have contributed, you know, auto which
15:25 has beaten expectations big time. PSU banks, they've also beaten expectations. Cement,
15:32 even private banks at about 20% plus earnings growth have met our expectations. Metals and
15:37 oil and gas have been a big driver. Obviously, metals on a very low base and given the nature
15:42 of the sector, the beat was quite humongous. We were expecting 20% kind of a growth in
15:48 metals which was 17% plus. Even oil and gas led by OMCs have had a very strong quarter.
15:55 The only weak point that I see in the quarterly earnings was consumer, more so on the staple
16:02 side and the low ticket consumption item, which is going through a period of lull. So
16:06 top line growth was very muted, even though earnings overall at about 14% profit growth
16:11 was better than our expectations. And then of course tech. While expectations were muted
16:18 and those muted expectations were met, the commentary still doesn't point towards any
16:22 big revival in the offing in tech. I forgot to mention even pharma earnings were quite
16:26 strong and we've seen earnings upgrading pharma. So all in all, a pretty good earnings season.
16:31 We are well on track to deliver 20% earnings growth for FY24/15. We had started with an
16:37 EPS of 975 for the quarter, for FY24. When we ended the quarter, we are still at 976.
16:45 So that basically means 20% earnings growth for FY24 and we are at about 1140 rupees for
16:50 FY25/15 which basically converts to about 15-16% growth. So if that happens, we've already
16:58 seen a 22% earnings compounding from 15 the last four years between FY20 and 24. And next
17:04 two years, 24 to 26 also is looking quite decent at about 15-16%. So corporate earnings
17:09 are quite resilient and completes the very strong macro and micro picture beautifully.
17:16 Yeah. And you know, also underlines that despite valuations that have run up, there is a solid
17:24 reason to bet on the growth of these companies. But you talked about metals being outperformers.
17:29 I think auto has also done very well and surprised on the upside this quarter. What about your
17:34 public sector companies? And I come to that because the kind of run up we saw and it's
17:39 a wide basket, so we'll get into the details, but railway stocks, solar energy, power, defence,
17:47 all of these, a lot of companies running up because they're owned by the government and
17:53 were seen to benefit from the kind of capex push that policy-wise has been coming in.
17:59 The question is that on margins, on deliverables, on speed, on efficiency, did they really pass
18:05 the test? So, Tauna, before you look at the PSU, you
18:09 also look at what happened in the previous 10 years. If you look at the BSE PSU index
18:14 in CY12 and CY21, they were virtually flattish. The PSU as a pack, the earnings I remember
18:22 we had put out a note in December 22 when we analysed the decadal performance of PSU
18:27 companies, both earnings market cap, broke it into two halves and all of that. The earnings
18:32 were also very lacklustre. Now, between December 22 and now, the PSU index has done fabulously
18:39 well. A large part of the incremental push on earnings as far as fundamentals of concern
18:44 has come from PSU banks. PSU banks were making losses to FY18, after that they started improving
18:50 and now they are at such a scale that they're doing phenomenal profit numbers with 20% ROEs.
18:57 Who would have imagined SBI will do 20% ROE? Four years back if it had asked and taken
19:03 a poll, not many people would have said that. So, PSU banks have been a blockbuster set
19:10 of earnings once again. In fact, this is the first quarter where I have seen that PSU banks
19:15 have outperformed private banks on earnings as well. We have seen upgrades in earnings
19:19 for PSU banks while marginal downgrade in private sector banks. PSU banks aside, the
19:25 other element of the PSU's basket, things like OMCs, oil and gas companies like Gale
19:33 and some of the mining names like Coal India, NMDC, they posted very solid set of numbers.
19:39 Yes, on railways, some of the defence name, there was some disappointment in earnings
19:44 of concern and which is why you've seen a very quick market reaction coming in there
19:49 as well. But unfortunately, we don't cover that segment yet, especially railways and
19:53 defence. So, I'll restrict my comments on what we cover, which is metals, oil and gas
19:57 and PSU banks. In fact, in our own model portfolio, we had increased the weight of some of the
20:03 PSU names. We've been having a significant overweight on PSU banks since 2022. In fact,
20:09 we are underweight on private banks for more than a year now. And we have almost a 400
20:13 basis point of an overweight on PSU banks, which we continue. Because even after such
20:17 a significant run up, the PSU banks are still trading at about 0.9 to 1.1, 1.2 times price
20:24 per month, when the ROEs are doing about 17, 18% consistently for last year, this year.
20:30 And our expectation is these ROEs can sustain for next two years. So yes, the PSU index
20:35 has done phenomenally well. One element responsible for that is also underlying corporate earnings.
20:41 And second, obviously, the expectations of political continuity, and therefore, the hope
20:48 that the policy momentum will continue to remain intact. And the way the government
20:54 has prioritised CapEx in the last four years, where we have seen the budgeted CapEx going
20:59 up from 2.5 trillion, five years back to almost 11 trillion now. I think that push, the fact
21:06 that political continuity, that perception is getting bolstered, that all goes quite
21:11 well. Yes, some of the stocks obviously are looking overheated, given where they were
21:16 trading at one year back, and where they are. So there will be a disappointment if the earnings
21:21 don't fall.
21:22 Top lemons. Gautam, let's be specific. What would be the top lemons in terms of overheated
21:29 stock runs that have not actually proven their point or lived up to those expectations in
21:36 terms of quarterly numbers in Q3? What would be your top five lemons? And let me expand
21:41 it beyond PSUs.
21:42 Yeah, no, so far as PSUs are concerned, as I said, for the sectors that we cover in PSUs,
21:48 which is PSU banks, oil and gas, metals and mining, numbers were quite well, which is
21:53 why we still have Gale, Pol India, HPCL in our model portfolio, SBI and Bob I mentioned.
21:59 Sectors which I said disappointed are consumer staples. So they will take a lot of time to
22:04 recover in my view. While stock prices may not correct much, but the underlying earnings
22:09 will take some time to recover because the volumes have not seen a recovery. Rural is
22:13 still going through a period of lull. And not just staples, I think even within consumer
22:18 discretionary, some of the lower ticket mass items are struggling while jewellery, hotels,
22:26 things like print and all, they're doing phenomenally well. But it's a very K-shipped, I mean, it's
22:30 a very over abused term I know, but that's the underlying reality that there are two
22:35 different sets of consumers out there in the economy, one which is struggling and other
22:39 which is flourishing.
22:40 Correct. And now that's, I mean, you're right, K-shipped is overused, but it is what we're
22:45 seeing. Another important or interesting factor that caught my eye in your report, Gautam,
22:50 is your earnings upgrade downgrade ratio of 0.6 times, which you say is the worst since
22:56 Q3 FY22. And let me just break that down. So 58 companies saw upgrades by more than
23:02 3% and 84 companies were downgraded by more than 3%. Now, even in that rubric and that
23:09 overview that you've given that Q3 was largely a good quarter, how do you see this factor?
23:14 So this is clear reflection of the weakening of earnings trend in some of the broader market
23:20 segments. While you, when you look at Nifty, you don't get this picture because Nifty earnings
23:24 are quite stable. We are still talking about 90% growth, forward earnings revision is quite
23:29 stable, but in the broader markets, non-Nifty coverage that we track, there have been some
23:35 disappointments, which is also what is reflected in the forward market revisions, forward earnings
23:40 revision in this segment of the stocks. So this earnings upgrade to downgrade ratio being
23:45 weakest since Q3 FY22 is clearly a reflection of that fact. Also, you need to remember,
23:51 Tamanna, now that we are entering FY25, it will be lapping up on a high base of margins.
23:57 Do remember FY23, our margins had collapsed because commodity costs had spiralled up post
24:02 Russia-Ukraine. We had posted a decade in low gross and EBITDA margins in FY23. Now,
24:09 FY24 has been a phoenix like recovery in margins from those absolute bottom lows and thus FY25,
24:15 the job becomes that much more difficult, which is what some element of reality is sinking
24:20 in some of the middle and small cap stocks, where we have seen a very weak kind of earnings
24:25 revision on a forward basis.
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29:20 >> Hello and welcome.
29:21 You're watching the Portfolio Managers Show.
29:23 Devang Mehta, Director, Equity Advisory of Spark Capital Wealth Management joins us.
29:28 Hi Devang, thank you for joining us.
29:30 Devang, let's start by talking about a quick view on the broader markets.
29:36 We thought we were going into a price and time correction, but that's not how things are playing out.
29:41 There are lack of triggers, but the markets clearly have a mind of their own at this stage.
29:45 Do you feel like calendar year 24 could beat returns of calendar year 2023?
29:51 >> Thanks, Amina, for having me on the show.
29:54 It's great to be on NTV Profit.
29:56 I think clearly what we feel is that last six months, there has been this type of corrections,
30:01 maybe starting September, October, November, December, Jan, and now Feb.
30:05 There has been these corrections to the tune of 3%, 4% where mid caps and
30:08 small caps would have corrected a bit more the indices as well as the individual businesses.
30:12 But what we have seen is that this falls have been got bought into.
30:16 And that's the strength.
30:17 I think it's a confluence of factors, Amina,
30:19 where there are people coming in with a lot of great liquidity.
30:23 The domestic investors are still wanting to pump money into the equity markets.
30:27 The asset class is now clearly distinguished as an asset class where even people are talking
30:33 about money not going into FDs and coming into sort of stocks and mutual funds and stuff.
30:38 So that's one important part.
30:39 Liquidity from Indian markets, from Indian domestic investors is huge.
30:42 Domestic macros have been sort of very good.
30:45 Micros have been good.
30:46 If you look at the interim budget or the vote on account, that also talks about a bit of growth, right?
30:50 11%, 12% growth over a base of 10 lakh crore for infrastructure spend, low borrowing.
30:55 I think this all has sort of spurred the market in a different tangent.
30:58 And earning season, which just came to an end also, actually didn't disappoint it.
31:01 So I think there are a lot of green shoots there as well.
31:04 So I probably feel that we are in sort of good hands.
31:07 Whether you beat 2023 returns, that's going to be a bit tough because in '23,
31:12 people were starting to talk about X returns, right?
31:14 How many X you would do the money, right?
31:16 Percentages were sort of forgotten.
31:17 I don't think that type of a market will get in 2024.
31:20 The rally probably would narrow down a bit.
31:22 It would be a bit concentrated.
31:24 It's not the entire broad spectrum of the rally or the market that would now participate.
31:29 That's the only thing that can happen.
31:30 Devank, talk to us about the PMS that you run.
31:33 I believe it's a non-discretionary PMS.
31:35 One, what is a non-discretionary PMS for the sake of our viewers who don't know that?
31:39 What is the assets that you're currently managing?
31:42 And also, what is the minimum ticket?
31:44 Because most discretionary PMSs are 50 lakhs.
31:46 So help us understand that.
31:48 Sure. So non-discretionary PMS is something where we call it a driver-navigator type of a model
31:53 where we work very closely with the clients in sort of establishing the investment policy statement with them.
31:59 We also sort of again get into the portfolio construction or portfolio management or portfolio advising
32:06 in terms of how the clients want that portfolio to be.
32:09 Like, for example, is it a diversified portfolio?
32:12 Is it a concentrated portfolio?
32:14 Whether the portfolio needs more of a flexi-cap or a multi-cap approach?
32:18 Whether the portfolio is only large-cap, mid-cap, small-cap or micro-cap?
32:23 That's the type of portfolios differentiation in terms of portfolio.
32:26 Second, I think mutual funds, PMSs, AIFs all have a model portfolio.
32:30 Here we clearly, of course, we have certain universe of businesses.
32:34 But there is no model portfolio.
32:36 The client itself is a model where we sort of design the portfolio around his requirements.
32:41 So that's in short NDPMS.
32:43 We currently have around 500 crores of pure play EUM and around say 400-500 crores of family office type of EUM
32:51 in terms of my non-discretionary PMS which is called Bespoke Investment Ideas is what we name it.
32:58 And I think that's about it and that's the type of NDPMS we run.
33:02 And here we customize, tailor-made, make it a sort of a scientific, holistic approach
33:07 towards construction of portfolios.
33:08 And this is purely for a long-term horizon anywhere between three to five years.