Morning Insight
Morning Insight 15 April 2015 For private circulation only Global Economies and Equities This morning the Asian stock indices have posted mixed performance – Chinese data on its exports and GDP growth have led to some of the Asian equity indices to fall while Chinese indices are in significantly positive territory; China’s March exports fell 15% yoy while its imports fell 12.7%, which is the sharpest rate since 2009. Due to poor performance on both exports and imports, there were worries on China’s January-March GDP growth rate. However, China reported this morning 7% GDP growth for this first quarter of 2015. This 7% growth is the weakest expansion since 2009 – however, in our view, as long as China maintains its growth at 7%, there may not be serious setback to the global equities. The World Bank cut its 2015 growth forecasts for developing East Asia and China, and warned of "significant" risks from global uncertainties including the potential impact from a strengthening dollar and higher U.S. interest rates. It expects the developing East Asia and Pacific (EAP) region, which includes China, to grow 6.7% in each of 2015 and 2016, down from 6.9% growth in 2014. That's down from its previous forecast in October of 6.9% growth this year and 6.8% in 2016; Singapore joined regional peers in refraining from easing monetary policy further after economic growth last quarter beat analysts’ estimates. GDP rose an annualized 1.1% in the three months through March from the previous quarter; Oil production from the fastest-growing U.S. shale plays is set to fall some 45,000 barrels per day to 4.98 million bpd in May from April, the first monthly decline in over four years, projections from the U.S. Energy Information Administration showed on Monday. The projected slip from 5.02 million bpd in April underscores how record crude production from the U.S. shale boom may be backtracking after global markets saw prices effectively slashed by 60% since June on oversupply and lacklustre demand; Indian Economy and the Equity Markets The domestic market gained strength in last couple of hours of trade on Monday with the equity benchmarks closing at more than one month high ahead of JanuaryMarch quarter earnings. The BSE Sensex closed above the 29,000- mark, up 165 points at 29,044, the highest level since March 5. The NSE Nifty index reclaimed 8,800 level, climbing 54 points to close at 8,834. Both the FIIs & DIIs were net buyers of stock worth Rs.417.01 crore & 46.42 crore respectively; The World Bank has said India continues to be the leading nation in remittances pulling in $70 billion from its global migrant workforce in 2014. “Total remittances in 2014 reached $ 583 billion. While India received $ 70 billion, China $ 64 billion and the Philippines $28 billion; Retail inflation, as measured by the consumer price index (CPI), slowed to 5.17% year-on-year in March, compared to 5.37% in February. The fall was largely broadbased with food inflation, which constitutes nearly half the index, coming in at 6.14% compared to 6.79% in February, clothing and footwear slowed to 6.27% yoy from 6.38%, though fuel and light inflation perked up a bit; S&P warns that India’s fiscal balance is vulnerable to financial or commodity risk; Mutual funds pumped in over Rs.40,000 crore in equity markets in FY2015, making it their first net inflow in six years for an entire fiscal. It should be noted that they pulled out over Rs.14,000 crore in the preceding financial year, FY2014; The World Bank has predicted that India’s GDP growth would outperform that of China in both 2015 and 2016. While it expects China to grow at 7.1% and 7%, India is estimated to grow at 7.5% and 7.9% respectively in 2015 and 2016; Founder & Managing Director [email protected] Equinomics Research & Advisory Private Limited - Investment Adviser 15 April 2015 Equinomics Morning Insight | Indian Economy (Continued) The RBI has been quite aggressively buying dollar from the spot markets – it has purchased $49.2 billion of dollar from the spot markets during the first 10 months (April-February) of FY2015. In our view, this is the brilliant move and it would help the economy in any possible event of pull out by the FIIs from the Indian debt or equity markets; We initiate our “BUY” recommendation on Bambino Agro Industries Ltd. Bambino Agro Industries Limited (Bambino) is more than 3 decades old a small FMCG company engaged in manufacturing vermicelli, macaroni and other pasta products at its manufacturing units located in Bibinagar- Andhra Pradesh, Gurgaon-Haryana and at Indore -Madhya Pradesh. Over the years, Bambino has emerged as a market leader in the pasta industry. The installed capacity of the company as on date stands at 1,30,460 tonnes p.a and products are sold under the Brand name “Bambino” acquiring enviable reputation in domestic and overseas markets. Bambino has a wide distribution network for selling the products. Though Bambino is more than 3 decade old company, it still remains as a small FMCG company with a turnover of Rs.262 crore in FY2014 (year end September). However, in the last 5 years it started growing significantly – while its net sales have grown significantly. While its net sales have grown by 36% from Rs.193 crore in FY2009 to Rs.262 crore in FY2014, its net profits has grown little more than 3-fold from Rs.1.63 crore to Rs.7.11 crore during the same period. Cheaply valued FMCG stock, reporting consistent & improving numbers & performance Bambino is one of the cheaply valued FMCG stocks (trades at 1.4x FY2014 EPS of Rs.8.56) with good brand reputation in the domestic and overseas markets. Bambino has reported total income from operations of Rs.61.45 crore and a net profit of Rs.1.60 crore for the quarter ended Dec 2014. Innovative range of products with global reach From its ongoing efforts, Bambino has introduced an innovative range of products such as Spaghetti, Macaroni, and Instant Pasta besides Indian Ethnic Food like spices, instant food mix, ready to eat sweets, snacks, soups powders, and hing (compounded asafoefida) as value-added products to the already existing product line. At present, Bambino has more than 74 prestigious products in variant styles, tastes & types and varieties. Its products are being exported to various countries including USA, Canada, Australia, New Zealand, South East Asia, Middle East, Far East, Japan & Africa. The decades of experience in Indian palate, understanding the global consumer preferences, most modern machinery and large production capacity enriched the company to establish wide international network and global reach to be a reliable business partner; Pressure on Wheat prices to help improve margins The global wheat prices are turning bearish due to surplus wheat production globally, which will lead to unlikely pickup in the exports from India. This will pile up the inventory levels with the domestic producers which will put pressure on the prices. As the company is in a segment which is more dependent on wheat flour for its products, the pressure on the wheat prices will result in lower procurement cost to the company and hence will help improving margins going forward; Looking to reposition itself as a food – healthcare organization As a pioneer in the vermicelli & pasta industry, Bambino is looking at future to reposition itself as a food healthcare organization. With this objective, the company has strengthened its R&D by identifying lifestyle diseases and developing traditional food of India, which also has health benefits. In order to establish that the product has got proper certification, it is being tested in reputed institutions & hospitals by clinical trials, to ensure what we claim will be in the final product. This will definitely enhances the value of the brand to enter a unique area of lifestyle diseases and giving them suitable solutions, without having side effects. This will also broaden the company’s spectrum of distribution to new channels like chemists, hospitals and other wellness stores. This will not only help the company to grow further but also bestow good profits. This will transform Bambino into a trans-national company with functional foods; Equinomics Research & Advisory Private Ltd | For private circulation only Outlook and Valuation In our view, Bambino is a niche company in the small cap space which is set to emerge as a reasonable-sized FMCG company in the long term. It is a deep-value stock and we expect the stock to move up to Rs.170/ in 12 to 18 months timeframe, based on 15x FY2016E EPS of Rs.11.33. In the long term, this stock has a potential to emerge as a multibagger. Hence, we suggest our investors to buy Bambino Agro Industries at the current market price of Rs.114.50/. Product suitability: This is a deep-value stock in the small cap space. Stocks in this space many times disappoint the investors in the short to medium terms. It is unlikely to move along with the broader indices and in fact, it may underperform them in the short to medium terms. Hence, this stock is suitable for only for those investors, who are very long term investors and also can take a significant amount of risk; Disclosure: I, G.Chokkalingam, do not hold the shares of Bambino directly or indirectly through friends, relatives or any proxies; Equinomics Morning Insight | Equinomics Research & Advisory Private Ltd Morning Insight Stock Disclosure: Whether Stock Held By: Bambino Agro Industries Ltd. G.Chokkalingam & Family Equinomics NO NO Equinomics Research & Advisory Private Ltd Investment Adviser CIN:U67190MH2014PTC252252 SEBI REG. NO. INA000001712 G. Chokkalingam - Founder & Managing Director Head Office – Mumbai 18 - A/3, Ekta CHS, Shivdham Complex, Opposite Fire Brigade, Near Oberoi Mall, Malad (East), Mumbai - 400097 Ph: +91 22 28492940 | Email: [email protected] | Website : www.equinomics.in Equinomics Research & Advisory Private limited (Equinomics) is a SEBI registered Investment Advisor. This document has been prepared by Equinomics Research & Advisory Private Ltd– Advisory Client Group. Besides, Equinomics is also Authorised person of Tata Securities Limited (TSL). TSL or Equinomics Research & Advisory Private Ltd focused-broking division may have issued other reports that are inconsistent with and reach different conclusion from the information presented in this report. The views and opinions expressed in this document may or may not match or may be contrary with the views, estimates, rating and target price of the Affiliates research report. 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