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Emkay Confluence: Unleashing India's Potential Day 3 Highlights

A blockbuster finish to a thumping 3-day conference, with participation by nearly 50 companies on Day-3! To conclude, we hosted about 151 companies over 3 days, with more than 500 clients registering and consuming 3,600 meetings. Ironically, while most companies (infrastructure/capital goods, EMS, banks, consumer discretionary, retail, etc) share a confident outlook, investors at margin are more cautious. While valuations give a reason for this, on the brighter side, it could prevent a sizeable drawdown. A few quick takeaways from today’s meetings:

Main Track MFI Panel

We hosted an eminent MFI panel, comprising of MFIN CEO Dr Alok Misra, CREDAG MD Udaya Kumar Hebbar, and Fusion MFI Founder & CEO Devesh Sachdev, to discuss the strategy on ‘How to balance growth with resiliency & profitability’. Investors’ fears on frequent disruptions seem misplaced, as interestingly, MFI has witnessed only 3 dislocations over 13 years, of which DeMon and the pandemic were extraneous. Udaya Hebbar @CREDAG highlighted only Rs8bn of credit losses on Rs850bn cumulative disbursements since inception. Outside this, there was consensus around growth prospects over several years ahead, as AP/Telangana and a few other states ramp up. MFIN on its part has been actively engaging with the RBI and the GoI to provide credit insurance cover to MFIs and liquidity support during times of crises, while MFIs on their part are encouraging customers to diversify revenue streams as well as to take insurance cover amid the rising natural vagaries.

Company Meetings

* BFSI Sector: Today, we hosted 7 banks (including 2 large banks, 2 SFBs, 1 payments bank) and one large NBFC-MFI. Most banks believe that overall credit growth remains strong, though some moderation is seen in mortgages. Margins should see some impact due to ICRR, but are likely to remain largely stable on full-year basis. There are no signs of asset-quality stress, but large banks like ICICIB and Axis Bank reiterated their commitment to hold up provision buffers. CREDAG too guided to create contingent buffers, to mitigate future asset-quality risks. Fino Payments Bank, one of the only profitable payment bank, intends to convert into an SFB, thereby opening up lending opportunity and hence boosting RoAs. Apart from the improving growth trajectory, Manappuram Finance is enthused about its planned MFI subsidiary IPO and thus unlocking value for investors.

* FMCG: Some consumer companies are attempting to target affluent households via brand extensions in the DTC space. Formalisation of several categories has been a dominant theme across companies — perhaps accentuated by the rapid proliferation of modern retail channels. Companies, such as Bajaj Consumer, with international operations are pivoting towards a captive distribution set-up.

* Consumer Discretionary: Unlike QSR/Apparel, which are facing growth moderation, discretionary categories of electronics/jewellery are growing in excess of 20%. Mid-cap regional players @Electronics Marts and @Aditya Vision are outpacing national players in their geographical space, with good unit economics. As with Dixon/Amber, these retailers are outdoing OEMs on growth and profitability. Senco Gold, like peers, continues to see robust footfalls and transactions, and expects a bright festive season.

* Autos: A common theme across most auto ancillaries over the last 3 days has been a step-up change in value addition and a conscious move away from components to assemblies. Companies like Ramkrishna Forgings are thus able to counter the slowdown in DMs. Indeed, it seems that auto ancillaries as a sector will emerge a dominant player in the global auto market.

* Cement: The Cement sector has been having a dream run, facilitated by robust infrastructure spends. Adani Cement is no exception, though the discussion here was fairly micro-focused and around how the group will leverage synergy benefits. Company is aiming for an EBITDA/ton of Rs1,450-1,500 through to FY28 by optimizing manufacturing and logistics costs. Sanghi Industries will likely expand its current capacity of 6mn ton several times over, by targeting coastal markets along the West and East coasts through shipping. Nuvoco remains bullish on the eastern markets over coming several years, forecasting double-digit growth.

Services Sector

* Logistics: A key takeaway from our conversations with logistics players (@TCI Express) is the general buoyancy in SME volume (which otherwise has been a key concern for investors). The second half will be better, as the festive season is expected to fare better. The Auto and Pharma sectors are relatively outperforming.

* Hospitality: Demand outlook for the hospitality sector remains positive on the back of strong domestic demand and a rebound in foreign tourism. Occupancies are upward of 75%, with ARRs at elevated levels — EIH highlighted its preference of maintaining pricing discipline, even in the event of a dip in occupancies. A near 25% increase in room supply (59K rooms) over the next 3 years will be easily absorbed, given the 6-7% demand growth.

* IT: As was apparent over the last two days, IT companies attending today also retained their cautious outlook in the near term, due to leakage in the base business, weakness in discretionary spending, and slower decision-making amid macro uncertainties. Midcap companies’ commentary on growth was relatively better than that of large caps which also justifies the valuation premium

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