Month: September 2021

Pick-up in revenue helped better absorption of fixed cost

According to Sharekhan, despite the quarter being affected by COVID-19-related problems, the infrastructure sector recorded a 52.6 percent year-over-year increase in revenue (down 24.1 percent q-o-q), as all companies save Sadbhav Engineering Limited (SEL) reported better-than-expected execution.

Liquidity limitations and delays in receiving scheduled dates for EPC contracts continued to plague Sadbhav Engineering.

Higher execution, lower depreciation (down 10% y-o-y), and lower financing expense (down 19% y-o-y) drove operating profit growth of 57 percent y-o-y and net profit increase of 2.7x y-o-y in our infrastructure universe (ex-SEL), the brokerage says.

Outlook and valuation on Infrastructure space

“The infrastructure sector may see seasonal impact on execution although order book tendering and execution is expected to gather pace from Q3FY2022. We expect the logistics sector to benefit from pick-up in demand expected from August 2021 with the onset of the festive season, the brokerage has said.

Valuation

“We choose firms like KNR Construction, PNC Infratech, and Ashoka Buildcon in the infrastructure market because they have a high order backlog, timely execution skills, and robust balance sheets. We choose companies with asset-light business strategies, such as Mahindra Logistics, Transport Corporation of India, and TCI Express, and organisations with high-quality assets, such as Gateway Distriparks,” the brokerage has said.

3 Infrastructure Stocks To Buy For Gains In Future

Key Risks

Macroeconomic weakness would lead to lowering of estimates and valuation multiples of companies.

Leaders in Q1FY2022: KNR Constructions, Ashoka Buildcon, PNC Infratech

Preferred Picks: KNR Construction, PNC Infratech

Disclaimer

The above stocks are based on the report of Sharekhan. Investing in stocks is risky and investors should do their own research. The author, the brokerage firms or Greynium Information Technologies are not responsible for any losses incurred due to a decision based on the above article. Investors should hence exercise due caution as are at record peaks. Please consult a professional advisor.

Buy HDFC Life Insurance for 18% gains

The brokerage has set a target price of Rs 870 on the stock, as against the current market price of Rs 737, thus implying returns of 18%.

HDFC Life to acquire Exide Life

HDFC Life is set to acquire 100% of Exide Life for a total consideration of Rs 66.87 billion. According to Emkay Global, at 2.5 times Jun’21 EV, the valuation paid for Exide Life far exceeds the quality of franchise.

“The 2.5x P/EV (Jun’21) paid to Exide Life appears to be at a significant premium over its

intrinsic value. The three listed peers of HDFC Life currently trade at 3.5x Jun’21 enterprise value. It is worth noting here that these listed peers have a very strong brand, massive economies of scale, formidable bancassurance distribution and sustained high operating return EV,” the brokerage has said.

Valuation premium means little for HDFC Life but might delay consolidation in the sector

According to Emkay Global, the valuation premium of Rs 40 billion over the enterprise value of Exide Life means 3% of HDFC Life’s current market cap.

“However, the valuation of 2.5x P/EV for a franchise without any material banca distribution sets an expectation benchmark for other such struggling companies. Given that not many of the sector leaders would be keen on paying such a premium valuation for a weaker franchise, this would delay the consolidation process in the sector,” the brokerage has said.

“The share of current Top-8 private life insurers (SBI Life, IPRU Life, HDFC Life, Max Life, Bajaj Allianz Life, Tata AIA Life, Kotak Life and Birla Sun Life) in the private sector new business WRP has gone up to 83% in FY21 from 71% in FY14. So, these Top-8 players are not really facing real competition from the smaller players. On the other hand, the smaller players, especially the ones without material bancassurance, have been struggling. All these factors point to the fact that there are many smaller players up for sale and there are not many suitors for the firms without sizeable bancassurance distribution. In this background, the premium valuation paid for Exide Life looks unwarranted,” Emkay Global has said.

Highlighting some points from a concall, Emkay global has stated that according to the management the acquisition complements HDFC Life’s geographical presence as Exide Life has a strong foothold in South India, especially in tier 3 towns, which will give HDFC Life access to a wider customer base.

HDFC Life shares were last trading at Rs 736 on the NSE.

Disclaimer

The article is informational in nature, which is taken from the brokerage report of Motilal Oswal institutional Equities. Please do consult a professional advisor. Greynium Information Technologies Pvt Ltd, its subsidiaries, associates and authors do not accept culpability for losses and/or damages arising based on information in the article.

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