In this briefing:
- Anmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
- Time-Out Not Time up for Trade War
- Indian Housing Finance Companies-Series 1 – Sector Outlook and Companies Profile
- Motherson In Merger Talks with One of Our Previously Short-Listed Candidates – Leoni
- Semiconductor WFE Outlook. Things Just Got Really Ugly
1. Anmol Industries Pre-IPO Quick Take – No Growth, Generous Payments to Founders
Anmol Industries (ANMOL IN) plans to raise US$100m+ in its India IPO via a sell-down of secondary shares. As per Frost & Sullivan, Anmol is the fourth largest biscuit manufacturer in India, behind the likes of Britannia Industries (BRIT IN), Parle and Sunfeast (owned by ITC Ltd (ITC IN)).
In FY17, the company undertook a restructuring wherein it merged three of its operating entities and demerged its treasury operations. Owing to this one can’t really come up with a clear picture of its past performance.
The picture on the demerger is a lot clearer though, as it led to the founders getting US$38m worth of liquid investments. Furthermore, the founder’s employment arrangements seem to be designed in such a way to let them take 12% of the PATMI each year, with no strings attached and additional 13% of FY17 PATMI as salary.
2. Time-Out Not Time up for Trade War
- Xi and Trump walk away from Buenos Aires with something to sell at home
- But trade negotiations will be dominated by fraught disagreements
- After 90-day negotiations, further delays to tariff escalation are likely
3. Indian Housing Finance Companies-Series 1 – Sector Outlook and Companies Profile
The Indian housing sector is arguably one of the most important contributors to the country’s GDP with 9% contribution in FY17 and is expected to improve to 13% GDP by FY25. We believe that if any investor intends to participate in the Indian growth story, they simply can’t overlook the housing sector and the companies those are going to be the direct beneficiaries.
We intend to cover the Housing finance sector and address key issues and companies in the sector through a series of articles over the next few weeks. We will highlight and identify sustainable business models in the Housing finance Sector that have not only created long-term shareholder wealth but have also maintained high levels of asset quality and prudence. These are the companies that have consistently maintained the highest credit rating through the entire cycle, by credible names like Crisil and ICRA.
The stock prices of many of these companies have corrected by 30-50% in the past few months due to liquidity concerns in the financial system post the ILFS default, which affected the NBFC sector including HFCs.
We believe the concern is overrated as many of these HFCs have a parentage with strong balance sheets. Moreover, reforms in recent times have helped to diversify the borrowing profile of these HFCs who in the past largely relied on the banks, thereby reducing the liquidity risk to a large extent.
This article, the first in the series, delves into the outlook of the housing finance sector that has got a significant boost due to several reforms from the government. It also provides a glimpse into the profile of key HFCs that cumulatively enjoys near 85% market share. Through some key indicators, we would understand their growth history and whether it has come at the cost of low asset quality.
4. Motherson In Merger Talks with One of Our Previously Short-Listed Candidates – Leoni
On Friday, following news about entering merger/acquisition talks with Leoni AG (LEO GR), shares of Motherson Sumi Systems (MSS IN) closed up 3.1% up to INR166. Leoni’s stock, on the other hand, increased by 2.7% at Friday’s close, although the stock has been experiencing a declining trend over the past year. We mentioned in Two More Acquisitions on the Way for Motherson Sumi, that Leoni could be a potential acquisition target for Motherson in its wire harnessing segment, although on the higher end of the size spectrum. The company representatives have not commented on this acquisition news and the deal is not finalised yet. Thus, this could simply remain at the discussion stage with no real transaction taking place.
Leoni has been experiencing a decline in its earnings during the recent quarters of FY2018, expecting negative free cashflows for FY2018E. However, recent news is that Leoni has recently been undertaking a comprehensive restructuring programme after cutting its earnings target for FY2018E and has appointed a new chief executive in September to lead these efforts. Further, it should be noted that Leoni is a well-established company in the auto components business and thus, could overcome its current struggles and be in a good position to exploit the long-term growth prospects of this market. Thus, acquiring Leoni is likely to strengthen Motherson’s position globally by providing the latter with increased coverage geographically and product wise.
5. Semiconductor WFE Outlook. Things Just Got Really Ugly
SEMI, the global industry association serving the manufacturing supply chain for the electronics industry, published three different forecasts for wafer fab equipment (WFE) sales in the past week. While the forecasts differ in approach and detail, they all agree on one thing, WFE revenues are continuing to fall and the outlook for 2019 is sharply down on previous estimates.
Specifically, Q4 2018 WFE revenues are set to decline 20.8% or $3.3 billion QoQ and the forecast which had just six months ago predicted 7% growth in 2019 is now calling for an 8% decline next year.
These latest forecasts cast a dark shadow over the predictions of the leading WFE manufacturers that H1 2019 would be stronger than H2 2018 and we anticipate a strong downward revision of forward guidance in the upcoming earnings season.
There may be a glimmer of hope on the horizon however as SEMI forecasts a strong rebound in the second half of 2019 leading to a return to growth of ~20% in 2020. Let’s see.
