Result Analysis : Larsen & Toubro Ltd Q2FY21

Result Analysis :  Larsen & Toubro Ltd Q2FY21

Larsen & Toubro Ltd.’s quarterly profit and revenue fell, and order inflows slowed, even as the nation eased the lock down curbs.

Net profit before exceptional item fell 41.8% year-on-year to Rs 1,462.84 crore in the quarter ended September, India’s largest engineering-to-construction company said in an exchange filing. That compares with the Rs 1,234.9-crore consensus estimate of analysts. 

Including exceptional item, the loss stands at Rs 2,322.10 crore.

L&T, in the reported quarter, posted an exceptional cost of Rs 3,732.30 crore, comprising impairment of funded exposure in the heavy forgings facility joint venture and impairment of assets in the power development business. 

 

L&T completed the sale of its electrical and automation unit to Schneider Electric during the July-September period. It also announced a *special dividend of Rs 18 apiece*

Revenue fell 12.2% over the year ago to Rs 31,034 crore

Operating profit fell 12% to Rs 5,318.77 crore Margin stood at 17.1%

The year-on-year numbers aren’t strictly comparable as last year’s figures don’t include Mindtree Ltd.’s results, which L&T acquired, and the switchgear business.

Order Book L&T’s order book inflow during the quarter stood at Rs 28,039 crore — a decline of 42% over the corresponding quarter a year ago.

International order during the quarter constituted 36% of the total order inflow. The consolidated order book of the group stood at Rs 2,98,856 crore as on Sept. 30, 2020.

L&T, which has stopped providing guidance for order inflow, said it's "seeing tremendous uncertainty in the current environment".

"We are still discovering what the new normal could be post Covid," said R Shanker Raman, chief financial officer at L&T during the press interaction.

"We are not a committing to a guidance this year." The company, however, received a letter of intent for high speed rail project or bullet train valued at Rs 25,000 crore. The project will be completed in four years, adding to order inflow in the third quarter.

Segment wise performance

Revenue YoY
Infrastructure 13,096 Cr (20%)
Hydrocarbon 4,050 Cr (6%)
IT & tech 6,200 Cr 5%
Financial 3,342 Cr (3%)
 

Outlook on Capital Spends

A strong emphasis by the government on infrastructure spending augurs well for the company, and the National Infrastructure Pipeline, which lays out a detailed capex road map till 2025, provides visibility on the domestic infrastructure outlook.

Sectors such as water, power transmission and distribution, metro/regional rapid transit system, railways, roads and expressways are witnessing increased traction as far as bidding / tendering activity is concerned.

 

View: It is a very good company for investment at current levels i.e in range of 890 to 950 with a long term target of 1300 . 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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Correlation of COVID 19, Economy and Market Return

 Correlation of COVID 19, Economy and Market Return

 

As we are all aware, it has been a difficult year for the Indian economy. The Covid-19 pandemic has severely impacted normal business functioning. However, after falling more than 37.5% between January 1, 2020, and the bottom on March 23, 2020, markets have since recovered, rallying by 49.6% between March 23, 2020, and August 31, 2020. 

Therefore, the main concern among investors currently is the disconnect between markets and the economy.

As our economy now slowly works towards reaching the pre-Covid-19 normality, a look at the below historical NIFTY-50 returns may bring out certain interesting perspectives to our minds: 

As can be observed from the above table, whenever the NIFTY 50 has delivered a compounded annual growth rate (CAGR) of 5% or less over the last 10 years, it has generally performed very well in the next 3, 5 and 10 year periods (please refer the highlighted cells). 10 year returns below 5% have generally occurred due to a strong reason related to economic/political or domestic/global events. And historically, markets tend to generate better returns in the next 3 or more years. After a gap of several years, the 10 year NIFTY 50 CAGR fell to 5% as on March 31, 2020, due to the impact of the Covid-19 pandemic.

Interestingly, there is also another important perspective to note. While the NIFTY 50 has given a CAGR of 5%, India’s nominal GDP has grown at a CAGR of 11.5% over the last 10 financial year. India’s nominalGDP has run ahead our equity markets in the last decade. There is, therefore, a material disconnect between the performance of the market and our economy in the last 10 financial years. 

With this in mind, it must also be noted that theCovid-19 pandemic is a rare event or disruption. Our economy may suffer for a period, but it is expected to trudge back to normalcy at some point of time, aided by the concerted effort of the Government and the Reserve Bank of India (RBI). The markets, therefore, appear to be focusing on the likely recovery in future, instead of the current economic disruption. Foreign Portfolio Investors (FPIs) too appear to have echoed the sentiment, investing around INR 91,044 crore from May to August 2020, after withdrawing INR 68,857 in the months of March and April, 2020.

Additionally, the Indian economy has already begun to show initial signs of recovery in the past few months. In the long term, India’s excellent demographics, abundant natural resources and a young and competitive manpower may prove to be huge positives. India may also provide businesses a possible avenue to reduce their dependence on China.
Although rising Covid-19 infections continues to remain a significant risk for the economy, it will be interesting to observe how the markets perform in the next few years.

 Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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Result Analysis : Polycab – Q2FY21

Result Analysis : Polycab – Q2FY21

CMP: 950 (As on 26-10-2020) 

Total revenue from operations 2,113 Cr 

2,241 Cr (-5.71%) YoY | 976.5 Cr (116.42%) QoQ 

Six months ended revenue: 3,090 Cr Vs. 4,193 Cr (-26.32%) 

Net Profit of 221.5 Cr 

193.7 Cr (14.51%) YoY 117.5 Cr (88.83%) QoQ 

Six months ended Net profit: 339.1 Cr Vs. 329 Cr (3.01%) 

EPS (in Rs.) 14.75 

12.90 YoY | 7.87 QoQ 

Six months ending EPS: 22.62 Vs. 22.02 

View: Result is overall good. YoY revenue declined marginally but profit up and margin also improved in this quarter.

Business Updates & Highlights

EBITDA in Q2FY21 was around INR 312 Cr Vs. 270 Cr Vs. 56 Cr in Q1FY21 therefore up by 15.5% in YoY and up by 457% in QoQ. EBITDA margin in Q2FY21 was around 14.8% Vs. 12.1% therefore improved in YoY with good margin. 

Material cost also significantly improved in this quarter (Q2FY21) and it was around INR 1512 Cr on the revenue of INR 2,113 Cr and it was around 71.5%. Material cost for Q2FY20 was around INR 1645 Cr on the revenue of INR 2,241 Cr and it was around 73.4%. Therefore it was improved by 200 bps in YoY. 

Company is primarily operating into two main segment Wires & Cables which cover topline around 80% and FMEG – 10.8%. 

Wires and cables business declined 7% YoY to Rs. 1,741 Cr in Q2FY21 from Rs. 1,881 Cr in Q2FY20. The business saw improving momentum with resumption of economic activities. B2C wires and exports sustained the strong traction. Wires & Cables business bottom line in Q2FY21 was around INR 254.1 Cr Vs. 201.1 Cr in Q2FY20 and it was up by 26.3% in YoY. 

FMEG business grew 25% YoY to Rs. 244 Cr in Q2FY21 from Rs. 195 Cr in Q2FY20. Growth was resilient across most categories and regions. FMEG bottom line in Q2FY21 was around INR 19.6 Cr Vs. 6.5 Cr in Q2FY20 therefore also up by 201.5% in YoY.

Financial

ROE and ROCE is around 22.6% and 29.3% respectively and book value per share is around INR 257 and share is currently trading at 3.4x of its book value. Company is currently trading at annualized PE of around 20 which is average as per industry benchmark. Promoter holding is around 68.5% in the company which is very strong and stable. FIIs, Mutual fund hold and IFC hold around 6.1, 13.1% and 9.5% in the company. Cash and cash equivalent from operating activities as of Sep 2020 Vs. around INR 774 Cr Vs. 238.5 Cr as of Sep 2019 Vs. 245 Cr in March 2020 (**Very strong**). Debt equity ratio is 0.04X as of Sep 2020 Vs. 0.10x of March 2020 (stable & positive).

Share View: Share price high 1,182 (52 week) and now 882. PIL is a leading Electricals brand with over Rs 88 billion revenue. PIL is the largest manufacturer of Wires and Cables in India and a fast-growing player in the FMEG space. PIL manufactures and sells various types of cables, wires, electric fans, LED lighting and luminaires, switches and switchgears, solar products, pumps and conduits and accessories. 

Position: Share strong support price is INR 750. Mid / Long term investor should continue with the company and any correction will give opportunity to add and long term target can be 1,250/1500. 

Opportunities: The organized home wires and cables industry in India has a market size of around Rs 54,000 crore, of which PIL is the market leader with approximately 15% market share. PIL's market position is facilitated from its strong distribution network with 6 warehouses and a dealer-distributor network of over 5,000 entities. PIL has significant market share in West and South India, which contributes around 70% to its revenue share. Strong client base includes Reliance, JSW, Asian paints, Siemens Nifty 50 companies clientele. Indian Electrical Equipment Industry plans to make India the “country of choice” for production of electrical equipment. Government announced expenditure of  INR 111 lakh crore in infrastructure sector over next 5 years, as a part of National Infrastructure Pipeline (NIP). Increase in Consumer Spending, Infrastructure Growth and Industrial Investments to Drive Electricals Industry.  Strong operating cash flow which was more than double in this quarter as compare to March 2020. Due to healthy financial profile company has sufficient accruals and cash and cash equivalents to meet its capex and long term debt requirements. 

Risk: The house wires and electrical cables segment is highly fragmented with a large number of unorganised players constraining the pricing power of organised sector players. Apart from unorganised sector, PIL also faces competition from organised sector players such as Havells India Ltd, Finolex Cables Ltd, and KEI Industries Ltd. Due to cost cutting measure and operation efficiency company has been able to manage their bottom line but topline corrected and also increasing topline with more than double digit with this competition will be challengeable in future. Electrical cables and wire contributed more than 80% of PIL business and any slow down in Real estate, power and slowing economic environment can impact the performance of the company since company mainly dependent on this segment. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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"Income Tax Policy Changes"

"Income Tax Policy Changes" - As Announced by CBDT:

As we all know their are various announcements made since February 2020, regarding Income tax slab, new filing rules, applicability of tax savings etc. Hence through this article we have tried to form a summary points for announcements made by CBDT in respect of Income tax rules and filing procedure. 

1. Income Tax New disclosures asked in the new ITR forms 1 to 7 are: 1. House ownership: Individual taxpayers who are joint owners of house property cannot file ITR 1 or ITR4.

2. Passport: One needs to disclose the Passport number if held by the taxpayer. This is to be furnished both in ITR 1-Sahaj and ITR 4-Sugam. Hopefully, it will be made mandatory in other ITR Forms as and when they are notified.

3. Cash deposit: For those filing ITR 4-Sugam, it has been made compulsory to declare the amount deposited as cash in a bank account, if such amount exceeds Rs 1 crore during the FY.

4. Foreign travel: If you have spent more than Rs 2 lakh on travelling abroad during the FY, you need to disclose the actual amount spent.

5. Electricity consumption: If your electricity bills have been more than Rs 1 lakh in aggregate during the FY, you need to disclose the actual amount.

6. Investment details: Details of investment qualifying for deduction under chapter VIA with bifurcation of details of investment made during the period from April 1, 2020 to June 30, 2020.

7. For every assessment year, the last date for filing tax returns is July 31, However, this year ITR filing date has been extended till November 30, 2020 due to pandemic Covid-19.

8. Income Tax Exemptions and Deductions that you can claim under the New Tax Regime for FY 2020-21 (AY 2021-22): Withdrawal by an employee from the Employees' Provident Fund (EPF) is not taxable after 5 years of continuous service.

9. Withdrawal from National Pension Scheme (NPS) on maturity or premature closure up to 40% of the amount received on such withdrawal remains tax free for all. In case of partial withdrawal from NPS, up to 25% of the contributions made by the individual will be tax free. Employer’s contribution to NPS up to 10% of their basic salary and dearness allowance also remains tax free.

10. Under Section 10 (10D) of the Income Tax Act, the sum assured and any bonus paid on maturity or surrender of the life insurance plan is tax free. Maturity proceeds continue to be exempt under Section 10(10D) even in the new regime. The maturity amount including interest received on the Sukanya Samriddhi Yojana will not attract any tax.

11. Conveyance Allowance granted to meet expenditure incurred on conveyance in performance of duties of an office and any allowance granted to an employee to meet the cost of travel on tour or on transfer (including relocation) are tax free.

Interest received from post office savings account balance up to Rs3,500 annually per individual will remain free from tax.

12. Any scholarship granted to meet education costs is tax exempt under Section 10 (16) of the Income Tax Act. Gratuity received from the employer up to Rs20 lakh after rendering 5 years of continuous service. Leave en-cashment received at the time of resignation or retirement up to Rd3 lakh.

13. Form 26AS will now be a complete profile of the taxpayer w.e.f. 01.06.2020, CBDT vide Notification dated May 28, 2020 amended Form 26AS in Sec 285BB w.e.f. 01.06.2020. Key takeaways are:

14. New form 26AS will also provide information in respect of “Specified financial transactions” which include transactions of purchase/ sale of goods, property, services, works contract, investment, expenditure, taking or accepting any loan or deposits of such value as may be prescribed but not less than of Rs 50,000.

15. Information about income tax demand, refund, proceedings pending, and proceedings completed which may include assessment, reassessment under section 148, 153A, 153C, revision, appeal will also be shared in this form 26 AS. 

16. Information on this form 26AS will not be a one-time affair at year end. This will be a live 26AS, as this will be updated regularly within 3 months from the end of the month in which such information is received.

17. Form 26AS will now be a complete profile of the taxpayer for that particular year as against earlier form 26AS which just provided the information about taxes paid by way of TDS/TCS or self-assessing. This form will also have mobile no, email I’d and Aadhar no. of the taxpayer.

18. Further an enabling provision has been notified empowering the CBDT to authorise DG Systems or any other officer to upload in this form, information received from any other officer, authority under any law. Thus any adverse action initiated or taken or found or order passed under any other law such as custom , GST , Benami Law etc. including information about Turnover , import , export etc. will also be put in this form 26AS so that not only the concerned taxpayer but also all the Income Tax authorities will know and have access to such information.

19. This form 26AS will also provide information received by Tax Deptt from any other country under the treaty /exchange of information about income or assets of the taxpayer located outside India.

20. The implication of this new form 26AS will be that banks , financial institutions or any other authority or customer , buyer etc. while carrying out due diligence of the person/ corporate concerned will now ask for form 26AS so as to be sure that there are not any major issues about such person/corporate.

21. This will now make difficult for any taxpayer to hide information from any bank / financial institution/ authority about any proceedings against under any law or tax demand, tax disputes etc, So mandatory passport no. is to be mentioned, applicable for all.

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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Result Analysis : ACC Ltd – Q3FY20

Result Analysis :  ACC Ltd – Q3FY20

CMP: 1,577 (As on 20-10-2020)

Total revenue from operations 3,537 Cr 

3,528 Cr (0.25%) YoY | 2,602 Cr (35.91%) QoQ 

9 months ending revenue: 9,641 Cr Vs. 11,597 Cr (-24.34%) 

Net Profit of 363.9 Cr 

302.5 Cr (20.12%) YoY 270.9 Cr (34.41%) QoQ 

9 months ending net profit: 957.9 Cr Vs. 1,104 Cr (-15.39%) 

EPS (in Rs.) 19.33

16.07 YoY |14.39 QoQ 

9 months ending EPS: 50.89 Vs. 58.65 

View: Result is above expectation. YoY revenue flat and very marginally up but profit up by more than 20% due to better cost efficiencies and highly controlled expenditure. Operating profit margin also improved in this quarter. QoQ revenue and profit both have up due to started economic activities and resume the business environment. 

Business Updates & Highlights

Q3FY20 EBITDA was around INR 671 Cr Vs. 557 Cr in Q3FY19 therefore up by 21% in YoY. EBITDA margin was around 19.4% Vs. 16.1% in YoY. EBITDA margin 330 bps improved in YoY.

9 months ending 2020 EBITDA was around INR 1,783 Cr Vs. 1,872 Cr in 9 month ending Sep 2019 therefore declined by 4.7% in YoY. 9MFY20 EBITDA margin was around 18.9% Vs. 16.5% in 9MFY19. Therefore EBITDA margin was also improved by 240 bps for 9MFY20.

Sales volume (cement) in Q3FY20 was around 6.49 Mt Vs. 6.44 Mt in Q3FY19.

Power & fuel cost has significantly reduced in this quarter from 784 Cr to 630 Cr almost 19.6%. Higher usage of AFR in the fuel mix and Improved operational efficiency. 

Also raw material cost declined in this quarter and reason for declining was operating efficiencies, source optimizations, negotiations and efficient supply chain management. 

Financial

ROE and ROCE is around INR 12% and 19% respectively and book value per share is around INR 632 and share is currently trading at 2.5x of its book value. Company is currently trading at annualized PE of 24 which is good as per Industry benchmark. Promoter holding is around 54.5% in the company which is strong and stable. FIIs and mutual fund hold around 12.8% and 6.7% in the company. Company is virtually debt free. 

Share View 

Share price high 1,590 (52 week) and now 1,562. ACC Limited (ACC) is a leading player in the Indian building materials space, with a pan-India operational and marketing presence. Synonymous with cement. The management control of company was taken over by Swiss cement major Holcim (now LafargeHolcim) in 2004. ACC operated as subsidiary of Lafarge Holcim. On 1 September 2006 the company is only Cement Company to get Superbrand status in India 

Position: Share support price is INR 1,350. Long term investor should continue with the company.

Opportunities 

 The demand has been better in retail and rural segment, with gradual pick up in demand from commercial and industrial segment. Further demand growth to be driven by affordable Housing and rural housing, roads and allied activities supported by good monsoons. Revival of infrastructure projects and construction. Cement business delivered strong operating performance, driven by efficiency improvement and better price realization. Margin also improved in this quarter by more than 330 bps. Better cost control mechanism in this quarter material cost, power & fuel cost, freight & forwarding cost down by more than double digit for higher operational efficiency. Operational efficiency and better negotiation will be work in longer run. 

Risk 

Continuing lock down in urban centres impacting RMX business segment. Company has also contingent liabilities of around INR 1,147 Cr which appeal is pending in Hon’ble Supreme court against COMPAT in case of any adverse order can direct impact the company bottom line significantly. 

Sources: Various publications

Disclaimer: The information provided herein is based on publicly available information and other sources believed to be reliable, but involve uncertainties that could cause actual events to differ materially from those expressed or implied in such statements. The document is given for general and information purpose and is neither an investment advice nor an offer to sell nor a solicitation. While due care has been exercised while preparing this document, we do not warrant the completeness or accuracy of the information. We will not accept any liability arising from the use of this material. The recipient of this material should rely on their investigations and take their own professional advice.

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