Fed Meeting & US Markets
All major US Indices are poised at critical support levels -just before US Fed meeting tonight.
Would Fed contimue its hawkish stand or it would reverse its recent policies !
A Make Or Break day (or night) for many markets including ours.
This H & S is wrong (that’s why it failed )
An inverse H & S plays out when a stock is coming out of long downtrend .
Similarly a normal H & S works if the stock is in long uptrend.
As per Elliot wave theory , we are probably entering in Wave 2.
A prolonged correction is underway ( with usual ups and downs- bear market bounces happen to be fast ) but overall trend is expected to be down.
Is it the time to start a new thread named ** Bear Therapy** 
Haven’t been active here since there isn’t much to do in a time like this other than sit out with some other productive activity.
Update on this view from Feb and Oct.
It is playing out as expected since Feb with steep decline (just as steep as the runup) wiping out about 50% of the gains from the Mar '20 bottom. Where will it stop? My guess is that we are heading for another 20-30% decline from here to get to Jan '20 levels. It may get there by end of year with some pullbacks if swing traders have the nerve.
The emerging macro headwinds with the tightening of liquidity and increase in rates, the receding Covid tailwinds, coupled with inflation could compress earnings and the higher rate outlook could depress multiples. Market will bottom when Covid traders and influencers pack their bags and leave.
Disc: Low market allocation since last several months (probably Oct or so), so please take opinion with a pinch of salt
ITC, Monthly - I don’t like cluttering charts with too many trendlines but this is a very interesting case. There is a long-term (10 year) horizontal resistance which it squeezed out of 2 weeks back. The medium term (5 year) downward sloping one from 2017 was broken out of 2-3 of months back. Short-term it has been on the rise but the rise has been noticeably slow compared to market’s post-pandemic performance. It appears all set to break out of the rising short-term (2 year) resistance trendline as well which should set it up for good momentum. Trading at 52 week highs when rest of market is struggling.
Does it deserve to take out the 2017 highs of 350? It is now at a 30% higher EBITDA and Rev and EBITDA now at all time highs. Cig. volumes have crossed pre-pandemic highs. There’s good performance from Agri and Paper businesses. Even Hotels should do well this year. Valuation is suppressed compared to long-term due to ESG (FIIs down from 20% to 10% last 5 yrs - but this is now climbing back up and is at 12%). The 85% div payout guided is a positive as well which should keep diworsification in check. Charts suggest we might get back to trading at 30 P/E levels as in the past which might make 400 as fair value.
Devyani, Weekly - Seems to be breaking out of 8 month downtrend post IPO highs. 140 appears to be a strong support (listing day open price) and was tested multiple times in the last 8 months.
Fundamentally this is a business with a very long runway and a hungry and capable management (credibility?). They have opened 246 new stores in the last FY (36% jump) which should stabilize and contribute to numbers going forward with improving SSSG. They have also guided for adding another 1000 stores in the next 4 years.
The growth wouldn’t have been exciting if not for the better performance of its units and improving EBITDA margins. The smaller delivery focused format in Pizza Hut appears to be helping PH chain. The effect of inflation as well is minimal as they have passed on price increases. At this point they have reached where Jubilant is in terms of OPM (23%) and are also profitable. Valuation isn’t very attractive but considering the growth potential, it might be justified. I think the market expansion done by Swiggy / Zomato will be capitalized by Jubilant / Devyani in the long run with shops closer to home offering easy takeout / cheaper delivery.
Varun Beverages. Weekly - Taking on a different trajectory of growth while breaking out of upwards trendline from last 2 yrs. Has undergone a tight upwards consolidation between 700-800 in the last 3 months. Problem with this stock is the liquidity considering there’s so little in terms of free float (mostly FII / DIIs) which despite 3 bonuses in 3 years (red flag?) still keeps liquidity tight, considering the low float pct-wise.
From the same group as Devyani, this business has compounded well in the last 6 years since listing (40% or so PAT CAGR) with stable ~20% margins. Growth has come from new products like Sting which is having breakneck growth, (440% YoY growth!), new geographies - in the last 10 yrs, VBL’s Pepsico sales volume contribution has gone from 21% to 85% as they have taken over from Pepsico and other franchises. Clearly there’s a lot of trust here between the two. Recently they have done a co-packing arrangement for Kurkure puffcorn (not distribution but this might be a foot-in-the-door for licensing Lays, Kurkure etc. in the long run). Valuation again isn’t very attractive but if your return expectation is moderate, there’s possibly a case to be made here.
Disc: Have positions in ITC from 260-280 levels, Devyani from 150-160 and VBL from 750-850 levels. I have shed the ultra-bearishness I have had since last Oct and have started buying where there’s long-term value + momentum
Can you please elaborate on what made you shrug off the bearishness? Are there any indicators you are tracking which are suggesting the worst is over? Would be good to know!
@nirvana_laha Fed has done its bit in scaring commodities down. The 75 bps and the continuous “we will do all we can” has kept the commodity speculators in check so we may not have a runaway inflation. This is a positive for all sorts of consumption which is why the picks are domestic consumption focused where I find relative safety.
The devaluation of the dollar and the respective repricing of assets was what led to the rally in '20 and '21 across all risk assets and commodities. Now the dollar “appears” to be strengthening relative to other currencies as pandemic policies are being reversed.
There are things going bust in the crypto space, small/microcaps have taken a mauling, influencers are being called out on social media - all good signs that normalcy is being restored.
I think there are larger shifts at play in geopolitics where there are possibly going to be two trading blocs - one that will deal with russia and china in yuan and another that will trade in dollar. India is sort of well-placed as we will very likely emerge as a neutral trading member in both blocs which augurs very well for us (we could buy russian crude and export petro products to the west for eg.) - this is what is probably showing in the relative strength of the INR as compared to other currencies.
Again, this doesn’t mean that I have completely shrugged off the bearishness - my allocation to equities had gone down to 20% by end of last year - so I couldn’t afford to sit out with that sort of cash call for too long and so have started looking at areas of strength and consumption clearly stood out. Let’s see if it works out ok.
Hi there …
Devyani indeed has long runway and the management is pretty agressive in opening more stores. I did go through there concall and they have realised that pizza hut is clear no 2 and they have to change it to delivery business rather than dine in. But personally there product quality ( pizza hut ) is still far away from dominoes. Avg daily sales are still poor for pizza hut. This is one moving part I will track for margins and growth as well. Rest KFC has excellent margins and avg daily sales. I bought this one as the price action was pretty resilient even during the panic fall.
Also do take a look at guj fluro as technofunda …strong business ,tailwinds and price might break to new ath soon.
Regards
Divyansh
IDFC First Bank, Monthly - Has been in a downward channel for 18 months and has taken channel support at 30. July has closed convincingly above June open which is quite bullish as well. August will very likely be another green candle. If it has enough in the tank for a breakout post that, it can re-test Jan '21 highs in 6 months. This scrip has extreme retail participation and has tested patience of everyone who has touched it in the last 5 years or so. Why should this time be different?
To understand, we need to go back to Jan '18 when the merger of erstwhile IDFC Bank and Capital First was announced. The promoter who everyone should know by now, courtesy social media coverage for the stock, promised a lot of things. The promoter being very savvy in self-promotion probably added to the hope. Maybe market expected things to turnaround overnight but what transpired is one misfortune after another - as profligacy in infra, power, telecom loans from the past came home to roost, along with Covid.
In the intervening 4 years though, the texture of the business has changed considerably
That’s some seriously impressive retail deposit growth (73% CAGR), the CASA ratio is now 50% which is on par with the leaders in the pvt banking space, ICICI and HDFC Bank. This has helped the bank replace wholesale deposits with relatively cheaper retail deposits. NIMs have grown from 3% to 6% and retail loan book is now substantial.
The bank has grown retail loan book considerably and has reduced infra financing (26k Cr to 7k Cr) and risky wholesale loans. Most of these are what the promoter appears to have promised in FY19 and th execution seems to have kept pace with that.
But the price has gone nowhere because all this matters for squat if you book value per share doesn’t grow and that has been the problem for IDFC First Bank. The net-worth of the bank was 18k Cr before the merger and is now at a meagre 21k Cr now. On top of this, to provide for all the troubles, the bank has had to dilute - the equity base has grown from 4800 Cr to 6300 Cr. So effectively, the BVPS has deteriorated from Rs.38 to Rs.33 during the period which explains the abysmal stock performance.
The business has spent its efforts in building a retail franchise which is not easy. It has roped in Mr. Bachchan, spent considerable sums in ads and promotions, grown from 206 branches to 641 branches and built a better CASA franchise and also better retail loan book. So the P/B I would be willing to give for Rs.33 BVPS in FY22 would be higher than the multiple I would have given in FY19 when the BVPS was Rs.38.
There’s a lot of scope for improvement in the business as well, as cost-to-income improves. There should probably be lesser negative surprises going forward, going by the provisioning done already in the past (courtesy equity dilution). The RoE should improve in the next 2-3 years which can make this trade at 2x P/B. The BVPS should grow as well with reduced provisions. So there are multiple things that can go right from here than wrong and there’s probably sufficient margin of safety at 1x P/B around Rs.33.
Risks:
Disc: Built positions between Rs.30 and Rs.35 which I thought was fair value. I am a novice and don’t really understand banking well and usually avoid it, so please don’t consider this advice.
Some updates
Devyani - We now have a breakout confirmation as of last week’s closing. If results day after tomorrow are good, we should be heading towards 200.
IDFC First Bank - Results were pretty good on all fronts except NIM which should correct itself as the bank reprices. Turnaround continues, provision reduces, loan book grows, RoE improves. As the branches mature, the Cost-to-Income will continue trending down as RoE climbs towards high-teens in the next 2-3 years. I think most people were either too early or bought at slightly excessive valuations - on a scrip with such a high equity base, price doesn’t turnaround swiftly unless confirmation from fundamentals is unambiguous. As of now, every passing quarter is increasing probability and I suspect same may continue for next 2-3 quarters, post which a re-rating may happen.
ITC - Good results with 39% topline growth and 34% bottomline growth YoY. There’s 5% growth in PAT QoQ as well. It still continues to remain cheap and should slowly continue its re-rating.
Varun Bevarages - The numbers are sort of eye-popping. Q1 FY22 PAT of 787 Cr alone is greater than entire FY21 PAT of 694 Cr! This in a business with market cap of 60k Cr.
What’s phenomenal is the volume growth of 97% - 300 million cases over 152 million cases in Q1 FY21. Summer coming early did help and the base quarter as well but this is not 20-30% volume growth but a whopping near doubling of volumes. Post results, the P/E has now dropped from 72 to 46 which makes it good value for a midcap growing at this rate.
New positions
Manyavar, Weekly - Seems like this will be a moving week for the stock after consolidating for 4 months around 1000-1100 levels. On the daily as well, today it has closed at 52 wk high after 3.5 months.
On the fundamentals, I must say I haven’t liked any other listed business this much at first glance. This is a business that is roughly 25 years old, IPO-d earlier this year. It has around 75% gross margins and about 45-50% EBITDA margins which is phenomenal aided by the brand value of Manyavar which probably contributes 80% of topline and probably all the profits, along with some fledgling brands in Mohey, Manthan and Twamev.
I believe this business has longevity and has carved a niche and created a market for itself. Wedding and births are where we tend to spend the most without second-thought, so being able to cater to the need of the former is probably what is aiding the phenomenal gross margins here. Ads spends are around 70 Cr which makes it easier for them to afford Bachchan Sr. and Ranveer Singh (uses him as model as well, along with the ads). They also have good relationship with vendors (intricate artwork and lots of manual labour). This creates an almost impenetrable moat for itself amongst competitors who are mostly small-time in comparison.
I like how they are trying to expand the market as well with upselling the accessories, cross-selling to bride/kids/wedding guests and also creating new markets in celebration wear for festivals like Diwali. The brand positioning as well is very well thought-out. The expansion plans to almost double retail floor space as well augurs well for growth in next 2-3 years as they enter new cities. There’s a good market size in terms of people in marriable age as well in India that helps.
So this ticks almost all the boxes of great margins, expanding market, good moat and a consumer who is bound to switch off rationality while shopping. Valuation though isn’t very good - it is expensive and there’s no denying that. But I am tempted to think it is good value, given the growth opportunities.
Metro Brands, Daily - Has consolidated for 6 months and broken out today with great volumes. The resistance trendline was tested multiple times before this breakout.
The business has some good in-house brands in metro / mochi and also sell other brands, like crocs and clarks. Here again I think the expansion opportunities are huge and the way crocs is taking over Indian market in the last 5 years is really good (reminds me of what VBL is doing with Sting). Valuation is in favour at about 60x P/E given the great growth (good Q1 results as well).
I have continued to buy domestic focused consumption as mentioned in this post here. I am seeing some macro shifts that make me more inclined towards domestic consumption than export focused or chemical / commodity businesses as I was positioned most of last year
Disc: Have positions in VBL around 800. ITC around 270 and IDFC First around 33 levels. Initiated positions in Manyavar around 1100 and Metro brands around 700
You should not compare the normal june quarter (Summer season) result with covid affected year . Better to compare with june at PBT level, 19-20 . It is 22% cagr … indeed good but not eye popping
Thanks @ranjan_r for bringing this up. Screener did not have June 2019 quarter data and I didn’t realize it had a high summer base from then. I went back and checked from BSE for 2019 and you are right.
I just did the math on PBT based on possible summer months in the respective years and it looks like this
June + Sept 2019 - 1114 Cr
June + Sept 2020 - 759 Cr
June + Sept 2021 - 1066 Cr
Mar + June 2022 - 1782 Cr
Yes it is still good growth but not eye-popping and I take that back. Still think it is a good compounder for 20-25% returns - reasonable starting valuations at 46 P/E for a 20-25% grower can give somewhere around 25% CAGR for next few years I think which is still not bad for my return expectations.
Craftsman Automation
Technicals:
The stock broke out after forming an inverse head and shoulders pattern at 2450 levels, which give it a target of about 3060 levels (9.3% from current price).
Recently the stock also took out its previous ATH @ 2778 and is consolidating / retesting that swing high with an increase in recent volume activity. My strategy here is to trail the stock until key MA’s (21/50 depending on broader market scenario) are not broken.
Fundamentals:
Craftsman belongs to the auto anc. / industrial engineering pack which is in focus and the sector as a whole is outperforming the broader market. Craftsman enjoys healthy OPM’s (24/25%) and is trading at a reasonable evaluation of 2.4xSales. The QoQ earnings are trending upwards and management commentary is positive as well. Attaching the latest concall here
Disc: Holding from lower levels with recent transactions.
Just posting volume growth as an additional data point here for Varun Beverages:-
All comparison is based on Current year and not financial year basis. YoY BASIS:-
Growth has been fairly stable, added greenfield capex’s, sting growing at 185% in H1 and in general new territories are showing much better growth. Its likely to be a compounder.
The new territories they had acquired in South and West have just started growing as two years were a complete washout due to covid. Original plan was to double distribution in these territories and this is the first normal year of operations in these territories. Will be interesting to see how much the distribution expands, as historically PEPSI had a weaker market share in these territories vs Coke due to N number of reasons.
Just an example of under-penetration in Bihar. The capacity they expected to completely utilise in 3 years, has been completely utilised just in Year 1.
Another interesting aspect from the results:-
GM’s contracted and EBITDA Margins expanded due to operating leverage. GM’s contracted due to PET Raisin prices increasing by 30% YOY. In a sweet spot where if GM’s recover, EBITDA Margins can further go up in strong Quarters+New capex will expand capacities by 30%.
Disc Invested. Seems to be a 15-18% volume growth story.
Updates based on a couple more results
Devyani
Price is trading around previous peak post listing. A close above 200 with volumes on the weekly should take this higher. The results were quite strong with 100% topline growth YoY and bottomline from a loss of 29 Cr to 74 Cr. 70 new stores added during the quarter taking the total to 1000+ stores. KFC ADS at all time high, above pre-pandemic levels at 1.27 Cr. Also nice is the 30% SSSG in Pizza Hut. These small format delivery focused stores are firing really well. P/E dropped from 114 to 85 levels post results. The runway here is long and hopefully they can continue to execute like they have done with Varun Beverages
Manyavar
The breakout on the weekly last week is showing signs of continuation this week. 105% topline growth and a strong 123% bottomline growth with strong EBITDA margins of 51%. Store expansion as well is on track as they have expanded from 1.1 million sft to 1.28 million sft in the last few months. Here again the strong performance drops the P/E from 102 to 86 levels despite the big runup pre-results. The TAM here is huge
and unlike tech startups talking of TAM, here its actually meaningful in the hands of a business model with strong moats and a capable management. How they scale Mohey, Manthan and Twamev will tell us if their success with Manyavar is replicable.
Domestic consumption, especially discretionary consumption continues to remains strong across businesses here from VBL, Metro to Devyani and Manyavar. IDFC First’s retail loan book growth also points to the same. The wage hikes across IT are entering the economy through these discretionary spends and will very likely continue to remain strong across the festive season till end of year at least I think. So far signs are pointing to the same (1 lakh scorpio-n bookings in 30 mins for eg.). Margins should improve as well going forward with easing inflation. Let’s see.
Disc: Have positions in Devyani around 155 and Manyavar around 1100.
Arman Finance: Back to back stellar results.
Q1 Pat was at 15.71 crores vs 3.57 crores YoY
QoQ (ex of securitzation income in Q4) Pat has grown from 10.48 crores to 15.71 crores.
Impact of ticket size changes in Mfin industry+Yield caps being removed is yet to be seen.
Annualised ROE for Q1 is at 28%
Stock hits an all time high/52 week high today
Moreover, they have announced a fund raise. Probably only Microfinance NBFC which is doing so.
Second idea:-
Bharat Wires- Usha Martins peer.
Company did a Deepak Nitrite esque capex in 2015-2017 funded by debt. When they expanded their steel wire ropes capacity from 6000 MTPA to 72,000 MTPA. Unlike Deepak, due to operational delays/delays in commissioning Capex the company went through severe financial challenges.
In 2021, they had to undergo Corporate Debt Restructuring.
Debt Restructuring details:
o Sustainable debt considered at INR 2,250 Mn
§ INR 250 Mn paid upfront
§ INR 1,450 Mn would continue as term loan to be repaid in 11.5 years from FY21 to FY32
§ Balance INR 550 Mn would continue as fund based working capital
o Balance INR 3,826 Mn of outstanding debt converted in Compulsory Convertible Preference Shares (CCPS)
90% of the business comes from exports and 10% from Domestic customers.
Recently Company came out with a strong Q1 where Capacity utilisation inched up from 40% to 50% (indicating substantial capacity headroom)
Credit Rating talks about- OPM’s sustaining between 14-15%
Effectively if capacity utilisation starts increasing. There could be substantial growth in the PAT given end user industries are experiencing tailwinds at the moment.
Guesstimate:- at 80% utilisation and 100% utilisation
Quarterly revenue increases to 214 crores at 80% utilisation and to 260 crores at 100% utilisation (which might not be possible given 6000mtpa of capacity is non integrated and old unlike the new plant which is fully integrated)
Run rate at 80% utilisation=856 crores per annum
Co can do 80-90 crores of pat at that run rate
Given its a technical+funda analysis thread. Both the businesses have given a breakout with high volumes.
Breakout+High Volumes in Bharat Wires=
Disclosure:- invested in Arman, Usha and Bharat Wires. Not a reco by any means of imagination.
NR Agarwal, Monthly - Strong breakout on the monthly and also hit 52 week high today with volumes. This is also incidentally a 3.5 year high. AGM transcript gives some insight on where the business is heading. It looks like writing-printing paper contribution will reduce from 54% to 25% and duplex board (used in packaging in FMCG like Colgate) contribution will increase. The 600 Cr capex should contribute 1000 Cr to the topline from late next year. The market cap is around cumulative CFO of last 5 years and around 1x P/B and is cheaper even when compared to other peers, so not very demanding and more can go right than wrong from here.
Nifty, Monthly - The tidal shift that started in early July has continued in August despite global headwinds (or perhaps because of gloabal headwinds). August close is all time high close on the monthly and appears to be a flag breakout. Domestic consumption and resumption of FII flows is a theme that is playing out and I suspect we are barely scratching the surface. There aren’t many avenues for capital to go to in '22 with China and Europe going through a crisis, Russia wreaking havoc in the energy markets and several countries going belly up and US markets which are mostly global focused going through de-rating with no strong re-rating in sight. We probably have one of the highest growth adjusted for inflation, a stable regime, a relatively strong currency and regulator, great demographic and prospects. Let’s see
Disc: I continue to stay invested in domestic consumption themes in VBL, IDFC First, Devyani, Manyavar, Metro. Sold whatever is left of ITC as better opportunity was available in NR Agarwal where I have positions between 330-360
Bharat Wire - It seems to be now in overvalued zone. Now i see it has PE of 35 where as the industry PE is 15. Seems margin of safety is gone now.
Hi, I have attached the chart for ABFRL. It has crossed its YH today, quite convincingly. Looks set for more gains. Have no position but intend to build some tomorrow
Regards,
Nikhil
