Category Archive : Sector Analysis

Tariff Hike by Vodafone Idea, Airtel and Reliance Jio

Tariff Hike Impact on Telecom Companies

Comparative Analysis of Tariff Hike Impact on Telecom Players – Airtel vs Vodafone Idea vs Reliance Jio

Introduction

In this article, we will do a comparative analysis of tariff hike impact on Telecom players – Airtel vs Vodafone Idea vs Reliance Jio. Telecom Sector is going through a rough phase and has a huge debt. How will these tariff hikes help Indian telecom sector to revive?

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

Tariff Hike Impact on Telecom Companies – Airtel vs Vodafone vs Reliance Jio

Why Tariff Hike?

  • Vodafone Idea and Airtel have shown huge losses in September quarter. These Telecom players are also facing a January-end deadline to pay up Rs.53,000 Cr and Rs.35,000 Cr in AGR dues as per Supreme Court.
  • Reliance Jio is having a huge debt burden. So Reliance Jio is also taking the necessary steps to move towards its target to become a debt-free company.
  • According to the reports by Jio, there is a need for the steps “to help sustain” the telecom industry, which is burdened with over Rs.7 Lakh Cr of debt and the world’s lowest average revenue per user (ARPU)
  • In short, all the telecom companies decided to raise the prices of their plans. How will these tariff hikes help Indian telecom sector to revive?
  • Let’s see the tariff hike impact on each Telecom player and do a comparative analysis of the same.

Tariff Hike Impact on Telecom Companies – How Will it Help them?

Tariff Hike Impact on Telecom Companies
A Comparative Analysis – Tariff Hike Impact on Telecom Companies
  • Here, we have done a comparative analysis of effects of tariff hike on Telecom players. How the tariff hike will help to boost the Revenue of the telecom companies, Earnings before Interest Taxes Depreciation and Amortization (EBITDA) is explained in the above table.
  • The Rise in EBITDA of Telecom players will be :
  • Airtel = Rs.7,400 Cr
  • Vodafone Idea = Rs.13,500 Cr
  • Reliance Jio = Rs.8,500 Cr
  • Vodafone Idea and Airtel had been making losses and had been saying that rates were unsustainable. The higher-than-expected tariff increases would lead to significant revenue gains.
  • Tariff rise would also help attract investments in Airtel and Vodafone Idea, which are looking to raise funds to pay over Rs.35,000 Cr and over Rs.53,000 Cr, respectively, in adjusted gross revenue (AGR)-based dues by January, as per a Supreme Court ruling.
  • Thus, these rise in EBITDA will help Vodafone Idea and Airtel to raise funds going forward required to pay AGR dues.

Tariff Hike Impact on Consumers

  • Minimum recharge became more expensive, now at Rs.49 against Rs.35 earlier (for unlimited call + 100 MB data)
    • This 30-45% tariff hike would be the biggest in India’s telecom industry, with pricing of voice services back for most plans. A prolonged price war since 2016, after the entry of Reliance Jio in Telecom Sector, damaged industry finances and heavily hurt revenues.
    • Vodafone Idea and Airtel, both increased rates only for prepaid subscribers, who account for over 90% of their user base.
    • Airtel tariff increases range from 50 paise a day to Rs.2.85 per day. Airtel is going to continue to make large investments in emerging technologies and digital platforms.
    • While, Reliance Jio is going to provide up to 300% more benefits than its competitors with the additional tariff on its users. Mr.Mukesh Ambani said, “While remaining committed to the ultimate interest of the consumer, Jio will take all necessary steps to help sustain the Indian telecommunications industry. Also, Jio will continue to work with the government on consultation for revision of telecom tariffs.”
  • As per the Fair Usage Policy (FUP), additional 6 paise per minute charge after a limit, for calls made to rival’s networks.
Vodafone Idea & Airtel - Q2 FY20 Losses due to Dues

Vodafone Idea, Airtel Report Biggest Losses in Q2 FY20

Who Will Save Vodafone Idea & Airtel?

Introduction

Vodafone Idea and Airtel have reported biggest losses of Rs.50,921 Cr and Rs.23,045 Cr respectively on account of Adjusted Gross Revenue (AGR) provisions to make to the Department of telecommunications (DoT).

Detailed Stock Analysis by Invest Yadnya
Detailed Stock Analysis by Invest Yadnya

Vodafone Idea – Airtel Report Biggest Losses in Q2 FY20

Vodafone Idea - Airtel Report Biggest Losses in Q2 FY20
Vodafone Idea – Airtel Report Biggest Losses in Q2 FY20

Adjusted Gross Revenue (AGR) Rule

  • Telecom providers in India pay the Department of Telecommunications (DoT) nearly 3-5% of their adjusted gross revenue (AGR) in usage charges for spectrum or airwaves and 8% of AGR as licence fees.
  • The DoT and the mobile carriers had been at odds over the definition of AGR. The companies argue that AGR should comprise just revenue accrued from core services, while the DoT says AGR should include all revenue.
  • The Supreme Court backed the government’s stance that non-core items should be included while calculating AGR. Licensee fee and SUC are calculated on the basis of AGR
  • Last month, on October 24, 2019, the Supreme Court upheld the DoT’s view on AGR, that wireless carriers pay Rs.92,000 Cr in overdue levies and interest.
  • Vodafone Idea and rival Bharti Airtel, two of India’s three main mobile carriers, will have to pay a bulk of this state demand.
  • The Telecom industry as a whole faces dues worth over Rs 1.33 Lakh Cr in licensee fee, spectrum usage charge (SUC), penalties and interest.

Vodafone Idea Ltd (VIL)

  • The company reported a net loss of Rs.50,921 Cr, the biggest ever loss in corporate India’s history, due to outstanding payment on account of Adjusted Gross Revenue (AGR) provisions.
  • Vodafone Idea accounted for the estimated liability of Rs. 27,610 Cr related to licence fee and Rs.16,540 Cr related to spectrum usage charges up to September 30, 2019.
  • The company has made a provisioning of Rs.30,774 Cr.
  • Last year September 2018, VIL made net loss of Rs.4,974 Cr.
  • VIL’s gross debt as of September 30, 2019, stood at Rs.1.17 Lakh Cr, including a deferred spectrum payment obligations due to the government of Rs. 89,170 crore, but excluding lease liabilities

Airtel

  • Bharti Airtel posted a loss of Rs.23,045 Cr for the quarter due to a Rs.28,450 Cr provision towards AGR dues.
  • Last year September 2018, Bharti Airtel made net profit of Rs.1,19 Cr.
  • Relatively, Bharti is better placed, which runs operations in South Asia and Africa, its Indian revenue rose 3% year-on-year to Rs. 15,361 Cr.
  • But its operating cash flow will be close to Rs 20,000 Cr. If they now have to pay the AGR dues of around Rs.30,000 Cr, then everything will be gone.
  • They will not have any cash left to survive in the business. No bank will finance this kind of obligations.

Conclusion

  • Both telecom players are cash-starved and find themselves unable to pay dues in full. The doors are closed for them, as Vodafone’s parents have refused to infuse money. Moreover, borrowing such a large amount will not be easy for either of them.
  • The Management of both the firms have expressed a material uncertainty, whereby it may be unable to realise its assets and discharge its liabilities in the normal course of business.
  • Accordingly it may cast significant doubt on the group’s ability to continue as a going concern.
Insurance Sector

India’s Insurance Sector Analysis – Share Review

Best Multibagger Insurance Company Stocks for Decades

Introduction

In this article, we are going to do Insurance Sector Analysis in detail. Indian Insurance Sector is having a lot of potential to grow in the near future. We have tried to analyze the insurance sector on a broader angle here.

A Detailed Stock Analysis By Invest Yadnya
A Detailed Stock Analysis By Invest Yadnya

Insurance Sector Analysis

The life insurance industry in India is regulated by the Insurance Regulatory and Development Authority of India (IRDAI). Twenty four Life Insurance companies are licensed to do Insurance Business in India. Out of these companies, Life Insurance Corporation Of India (LIC of India) is the only public sector company.

Here is a detailed analysis of the Indian Insurance Sector and which companies should you look at.

Key Statistics

  • Total Gross Premium Written for FY2018-19 was almost $100 Billion. Thus, the valuation of total premiums write (Life insurance + Non-life insurance) in India in FY2018-19 was around Rs.7 Lakh Crore.
  • If we compared it with Mutual Fund Industry, the total inflow in mutual fund industry is normally around Rs.1-1.5 Lakh Crore (that to in a good year). So, we can clearly get the growth potential of insurance sector in coming years.
  • Out of the total Rs.7 Lakh Crore premium in FY2018-19,
    1. 75% : Life Insurance Companies’ premium (Rs.5.25 Lakh Crore)
    2. 25% : Non-Life Insurance Companies’ premium (Rs.1.75 Lakh Crore)

Life Insurance Segment

% Share of Public and Private Sector in Life Insurance Segment
% Share of Public and Private Sector in Life Insurance Segment
  • If we take life insurance industry into consideration, public sector companies are contributing almost 66.2% in gross premium written. In this, LIC (Life Insurance Corporation of India) is a major contributor to public sector life insurance segment. That is, out total Rs.100 life insurance premium over the entire country, LIC is contributing Rs.66.2 in gross premium in FY2019. Also, in new-business premium contribution of Life Insurance is Rs.52.
  • Also, the shares of HDFC standard Life, SBI Life Insurance and ICICI Prudential Life Insurance are growing considerably. All private sector players are contributing 33.8% Life Insurance Segment in FY2019.
Insurance Penetration in India
  • Insurance Penetration rate indicates the level of development of insurance sector in a country. Penetration rate is measured as the ratio of premium underwritten in a particular year to the GDP.
  • Overall Insurance Penetration includes:
  • Life insurance penetration considers premiums from life insurance policies only as a percentage of GDP and
  • Non-life insurance penetration considers premium from other than life insurance policies like auto insurance, health insurance, etc. as a percentage of GDP
  • According to IRDAI’s annual report, India’s overall Insurance Penetration for FY2017-18 was at 3.69% of Premium as a % of GDP.
  • India’s Insurance penetration is one of the lowest across the world. (Developed Economy : USA – 7.14% , UK – 10.61%), (Emerging Economy : South Africa – 12.89%). Average of insurance premium across the developed economies as well as emerging economies is almost 6.09%.
  • So it is a very big opportunity for insurance sector in Indian economy, since we are 2% down compared with world average insurance penetration.
  • With the increase in India’s per capita income, insurance penetration is expected to see 50% growth by 2023. It indicates the prolonged earning visibility for insurance sector in coming future. As a result, the listed insurance players is going to enjoy the premium valuations hand-in-hand.
Premiums Market Share in First Year Life Insurance
Premiums Market Share in First Year Life Insurance (FY2019)
Premiums Market Share in First Year Life Insurance (FY2019)
  • In the above market share contribution, LIC is not yet listed company. But the next 3 private insurance players – HDFC Standard Life, SBI Life Insurance, ICICI Prudential Life Insurance all are listed companies.
  • A detailed analysis of the best Multibagger cis available on our website in stock subscription. Here, we have covered the analysis of almost all the listed insurance companies, be it general insurance or life insurance.

Non Life Insurance Segment

Growing Share of Private Sector in Non Life Insurance Segment
Growing Share of Private Sector in Non Life Insurance Segment
  • We can see how aggressively the private sector is growing in Non Life Insurance Segment.
  • Non life insurance products can be broadly categorized into the following product verticals : Motor insurance, Health insurance, Crop insurance, Fire insurance, Marine insurance and other insurance products.
Non-Life Insurance Gross Direct Premiums
Non-Life Insurance Gross Direct Premiums
Market Share of Major Companies in terms of Gross Direct Premium Collected
Market Share of Major Companies in terms of Gross Direct Premium Collected
  • Individual market share in terms of Gross Direct Premium Collected is shown above.
  • In Non Life Insurance segment, New India Assurance is the largest general insurance company in India in terms of net worth, domestic gross direct premium, profit after tax and number of branches.
  • ICICI Lombard general insurance is the second highest listed non life insurance player in terms of gross direct premium collected. The detailed analysis of ICICI Lombard general insurance is also available in our stock subscription.
  • United India Insurance, The Oriental Insurance Company, National Insurance Company and Bajaj Allianze General Insurance are also having a significant market share in terms of gross direct premium collected.

Conclusion

  • In accordance with the future growth potential , the listed players in the Insurance sector can be a good investment bet for the retail investors.
  • Best Multibagger Insurance Company Stocks are given below. You should keep the following 4 stocks on your radar :
    1. SBI Life Insurance,
    2. HDFC Standard Life Insurance,
    3. ICICI Prudential Life Insurance and
    4. Lombard General Life Insurance.
  • These companies can add a good value to your portfolio. All the 4 stocks mentioned above are covered in our detailed stock analysis vedios as well as eBooks.
Analysis of Indian retail sector

Retail Sector in India – 3 Point Analysis

Indian Retail Sector Analysis

Introduction

In this article, we are going to do a detailed analysis of retail sector in India. Indian Retail sector has gone through a considerable change in size, scope and complexity of retailing over the last two decades.

Analysis of Retail Sector in India

Analysis of Retail Sector in India
Analysis of Retail Sector in India

1.Current Outlook

  • Key Growth Drivers : Indian Retail sector has emerged as one of the most dynamic and fast-growing sectors due to entry of several new players in the recent times along with rising income levels, growing aspirations, favourable demographics and easy credit availability.
  • GDP Contribution : Retail sector contributes almost 10% of the India’s Gross Domestic Product (GDP). According to the latest numbers, current GDP of India is around $2.5 Trillion. So, its 10% contribution means, almost $250 Billion are contributed from this sector per annum.
  • Employment Contribution : As far as total employment in the country is considered, around 8% of the total employment is contributed by retail sector. So, we can clearly have an idea that this sector is very important for Indian economy in current scenario.
  • Valuation : The current total valuation of the retail sector is almost $900 Billion, which includes unorganised, organised and E-Tail. Still very few retail players are listed.
  • Globally, India is fourth-largest global destination in the retail space after US, China and Japan.
Contribution of 3 heads to Total Retail Market in India
  1. Unorganised Retail : Currently, the Indian retail market continues to be dominated by the unorganised retail (traditional kirana stores) accounting for about 88% of the total retail market.
  2. Organised Retail : On the otherhand, organised retail like Big Bazar, D’Mart, Malls, Showrooms etc, is contributing only about 9% of the total retail market.
  3. E-Tail : E-Tail like Flipcart, Amazon, Big Basket etc, accounts for only 3% of the total retail market in India.
Stock Market Analysis by Invest Yadnya
Stock Market Analysis by Invest Yadnya

2.Segment-wise Revenue Mix in Organised Retail

Segment-wise Contribution in Organized Retail
Segment-wise Contribution in Organized Retail
  • Within organized retail, food & beverage holds around 65% of the revenue.
  • While apparel and footwear contributions is 10%. We have covered detailed analysis of Bata and Relaxo in our stock analysis for stock subscribers.
  • Consumer Durables and Jewellery & accessories are contributing 9% and 7% respectively.
  • Health & Entertainment, Home Décor & Furnishings, Beauty & Personal Care contribute around 4%, 3% and 2% respectiely to the otal organised retail market.

3.Future Growth

  • India’s organised retail penetration is much lower compared with other countries, such as the United States which has organised retail sector penetration of 85%. This can indicate the scope of the future growth of the organised retail in India.
  • Also, according to the government’s expectation, overall indian retail sector is expected to grow around 9-10% every year for the next 5 years. The valuation of Indian Retail sector is estimated to reach up to $1.15 Trillion in next 2 years, according to the Ministry of Commerce.
  • The Indian retail sector will be able to achieve the above mentioned growth of 9-10% per annum, through the expansion of organised retail only. That is the reason why big retail players like Avenue Supermarts, Reliance retail is expected to be at a much premium valuation.
  • With the improvement in the market share of total organised and E-Tail, the overall retail sector can attain the 9-10% growth and thus, reach to the projected numbers in next 2-3 years.
  • Organised Retail’s contribution to the overall Indian retail is expected to improve to 12-15% from 9% currently.
  • The proprietors (unorganised retail) tend have the inertia to resist for the changes like implementation of GST Law etc. While the businessman (organised retail) try to adopt the changes as early as possible so as to take the first mover advantage. Also, with the availabilty of advanced technology, talent pool etc the operational efficiency in the organised retail players can be improved considerably. Thus, higher double digit numbers can be achieved by organised players for their overall profitability and net profits growth.
  • So, for the same reason, organised retail players like Avenue Supertmarts, Reliance Retail through Reliance Industries, Future Retail are the stocks with a very positive growth path in future.

Conclusion

  • Thus, with the expansion in the market share of organised retail, Indian Retail sector will achieve the estimated projections in next 2-3 years.
  • Improving economy, changing demographic profile, increasing disposable incomes in hands of the middle class, brand awareness and growing urbanization along with rising discretionary spends are the main growth drivers in the organized retail market in India.
Analysis of Indian Cement Sector

Analysis of Indian Cement Sector

Opportunities in Indian Cement Sector

Introduction

In this article, we are going to analyse the Indian Cement Sector. The opportunities in infrastructure and thereby in cement sector have multiplied after declaration of the Budget 2019-20.

Government has a focused the Infrastructure growth (roads and railways), Metro stations, ‘Housing for All’ scheme, Industrial as well Rural Development etc. in the Budget 2019-20. Therefore, the cement sector can get a direct advantage of these various types of infrastructure developments.

Analysis of Indian Cement Sector

We are going to discuss the parameters like production capacity, consumption pattern, also what are the reasons behind the opportunities and growth in the Indian Cement Sector in coming years.

Analysis of Indian Cement Sector
Analysis of Indian Cement Sector

A.Production Capacity

  • Let us see the current status of production capacity of the cement sector in India.
  • As far as overall world market is considered, China is the largest producer of cement. After China, India is the second largest cement producer. The total production capacity of India is 510 MTPA (Million Tonnes per Annum) and this production capacity can grow up to 550 MTPA by 2025 as per the current growth the corresponding demand.
  • When we consider the India’s last year’s consumption for FY2018-19, it was 328 MT, however the overall production for FY2018-19 was 337 MT. Thus, India’s cement sector is having a current production capacity of 510 MTPA ie. around 500MTPA, but the annual production is just 337 MTPA. Thus, Indian Cement Industry is currently working at 65%-70% of its annual production capacity.
  • Hence, we can say that after proposing a boost in the Infrastructure and overall development supported by the government as mentioned in the last weeks Budget 2019-20, Indian cement sector can utilise its 100% production capacity in near future. Thus, cement sector in India can enjoy this simultaneous demand and growth advantage surely for next 5 years. Since government have its full focus on the country’s economic and development activities.

B.Consumption Growth

  • The consumption growth for last 3 years is more than 4.3%, while the inflation of the cement prices have increased by 5%-6%.
  • Therefore, from overall revenue side, the Indian cement sector can grow at the rate of 10%-11%. This growth can go up to 12%-15% with if the Indian cement sector players execute the aggressiveness in their business strategies for improving the operational efficiency.
  • India’s top 20 cement companies contribute to the 70% of the overall Indian cement sector annual capacity of 510 MT. Thus, these top 20 players are producing almost 350 MT. As far geographical positioning of the sector is concerned, the production capacity is higher in Rajasthan and southern Indian states than west and east states.

Let us see which are the 4 big opportunities for Indian Cement Sector

1.Smart City Initiative

  • Under the ‘Smart City Initiative’ by the government, 100 cities are proposed under this project and the number of cities covered is further going to increase in future.
  • Thus, this Smart City Project will offer a great demand for the Indian cement sector.

2.’Housing For All’

  • As per the government’s vision under ‘Housing for All’ scheme, every Indian should have at least one home by 2022. This is also a great opportunity in the real estate sector. And with the development of real estate sector, the basic raw material required ie. cement is also going to grow at the equal pace.
  • Almost 65% of the demand in the cement sector comes from Housing and Real Estate Sector. So we can understand how the cement sector can get a direct boost from real estate and housing sector.

3.Infrastructure & Industrial Development

  • As far as the current progress of roads, railways and metro infrastructure development is concerned, almost 20% of the cement consumption is from public infrastructure.
  • Thus, we can see (Housing + Infrastructure Development), togetherly contribute 85% of the cement consumption. And the remaining 15% consumption of cement is from Industrial development.

4.Per Capita Consumption

  • According to the survey done for different countries, it is seen that cement sector can grow at the rate of around 1.2 times the GDP growth of that country.
  • If we consider the capita consumption of cement in a developing countries, it is around 210 Kg, while overall world average per capita consumption is around 580 kg. Therefore, in proportion to the future economic and development growth, the per capita consumption of cement in India can grow from 210Kg to 580 Kg.
  • This is also a very good signal for the future growth and opportunities for the cement sector in India.

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