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India Strategy: Mispriced PSU: Good Tactical Opportunity
India Strategy: Mispriced PSU: Good Tactical Opportunity
What’s in the price – Nifty 50, Nifty Midcap 100 and BSE 200……........................................................ 7
Sector Trends……………………………………………………………………………………………………………………………….. 22
Annexure………………………………………………………………………….............................................................. 33
Annexure 1: Methodology……………………………………………………………………………………………………. 34
RM prices Index*
Elara Paints RM
India Crude
Elara Autos RM
RM prices Index*
Elara Fertilisers
Elara Chemicals
Elara Cement RM
owing to operating leverage benefits whereas consumption companies are
Prices Index*
Prices Index*
Agrochemicals
prices Index
prices Index
Prices Index*
Basket
Elara FMCG
expected to take a margin hit depending on the level of pricing power
RM
Elara
RM
they are able to execute
• Given most PSU operate in commodity-heavy segments like energy
(ONGC, OMC & gas companies), metals (SAIL & NALCO), they stand to CY20 CY21 YTD Sep-21 Qtr, YoY (%)
benefit from commodity price rise and with plenty mispriced opportunities Note: '*Composite price movement calculation based on equalweight assigned to each component, Other
indices have raw material weightage based on production requirements; Composite prices calculated based on
in the sector, we see them as good tactical buys
raw materials required for an industry in general; Source: Bloomberg, Elara Securities Research
highest value to long-term growth potential (LTGV), 80% 47% 44% 52% 54% 51% 53% 52%
39%
55% 54% 62%
60%
indicating stretched valuation 11% 12% 14%
40% 12% 12% 11% 14% 15%
14% 16%
14%
A closer look at near-term monthly history also is showing 20% 42% 44% 36% 35% 37%
46%
33% 31% 33% 30% 24%
similar trend with LTGV currently at 61% 0%
FY19
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
Latest
In fact, this month we have observed the highest
contribution of LTGV component across indices like BSE 200 CBV STGV LTGV
and Nifty Midcap 100 Source: Bloomberg, Elara Securities Research
The upcoming earnings season would be the next trigger to …and short term monthly history exhibits similar trend
determine near-term direction of markets, implying a miss 100%
may lead to correction, and in-line numbers may mean 80% 53% 52% 54% 59% 60% 58% 53% 54% 54% 56% 56% 56% 60% 62%
STGV contributing a bigger share to the price 60%
40% 12% 12% 12% 10% 11% 13% 18% 16% 16% 16% 16% 16% 15% 14%
20% 35% 36% 35% 31% 29% 29% 29% 30% 31% 29% 28% 28% 26% 24%
0%
Dec-20
Jan-21
Mar-21
Apr-21
Aug-20
Sep-20
Feb-21
Jul-21
Aug-21
Sep-21
Oct-20
Nov-20
May-21
Jun-21
CBV STGV LTGV
Source: Bloomberg, Elara Securities Research
Latest
FY18
FY12
FY13
FY14
FY15
FY16
FY17
FY19
FY20
FY21
contribution as well as other metrics, such as P/E. CBV STGV LTGV
The upcoming earnings season would be the lever Source: Bloomberg, Elara Securities Research
for the shift in composition of What’s in the Price …and for Nifty Midcap 100 also, it is inching closer to an
Framework all-time high
(%)
100%
20%
80% 42% 35%
45% 54% 53% 52% 52%
55% 61% 63%
34%
60% 8%
2%
11%
40% 13% 14%
23%
15%
58% 32% 9%
47% 53% 23% 47%
20% 33% 33% 33% 29%
22% 16% 17%
0%
FY12
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV
Source: Bloomberg, Elara Securities Research
% FY13 FY14 FY15 FY16 FY17 FY18 FY19 FY20 FY21 Latest
<0 30.7 17.5 12.3 10.2 7.2 8.9 6.5 25.2 12.5 11.7
0-25 19.0 12.5 10.4 8.5 9.4 4.2 8.0 9.7 8.0 5.3
26-50 22.7 27.5 20.2 22.2 20.0 21.1 16.1 20.4 21.5 15.5
51-75 19.0 32.5 36.8 40.9 41.1 42.6 42.2 25.2 37.0 32.5
76-100 4.9 6.9 17.8 14.2 18.3 20.5 23.1 16.5 19.0 32.5
>100% 3.7 3.1 2.5 4.0 3.9 2.6 4.0 2.9 2.0 2.4
Current -
Hi Lo Range 10YR Max 10 YR
Name CBV STGV LTGV STDEV CBV STGV LTGV 10Yr Avg
(%) (%) Min (%)
(bps)
Auto
Exide Industries 46.1 8.9 44.4 12.9 43.8 12.6 43.6 63.1 (71) 59.3 16.8
Amara Raja Batteries 39.9 8.9 51.2 11.8 40.0 9.3 50.7 60.8 (56) 65.1 28.2
Bank
Union Bank Of India (11.8) 140.0 (28.2) 52.8 100.9 104.1 (105.1) 0.0 (7,687) 42.8 (105.1)
Bank Of India (66.5) 165.0 1.5 54.3 90.8 72.2 (63.0) 0.0 (6,450) 82.8 (63.0)
Bank Of Baroda 22.0 86.3 (8.3) 49.9 27.8 104.7 (32.5) 44.6 (2,412) 47.4 (96.7)
RBL Bank Ltd 28.7 27.4 43.9 31.0 28.6 45.8 25.6 27.3 (1,832) 78.7 5.6
Punjab National Bank (20.5) 119.0 1.5 45.9 38.7 78.0 (16.6) 39.4 (1,809) 71.9 (74.1)
Federal Bank 65.1 21.9 13.0 31.5 62.6 30.9 6.5 61.5 (652) 50.0 (62.9)
State Bank Of India 36.6 27.1 36.3 20.3 34.9 33.8 31.3 55.8 (504) 58.9 (3.7)
Bandhan Bank 29.7 21.9 48.5 21.4 25.8 30.6 43.6 23.6 (485) 79.8 32.4
Au Small Finance Bank 18.9 3.7 77.4 8.4 21.3 2.4 76.3 47.4 (104) 88.4 65.4
Kotak Mahindra Bank 18.2 5.6 76.2 5.2 19.5 4.6 75.9 64.8 (28) 82.1 64.5
Cement
ACC 34.1 12.8 53.0 14.7 34.5 18.2 47.4 50.9 (568) 67.8 26.2
Ultratech Cement 26.4 6.2 67.4 12.4 22.7 11.7 65.6 66.3 (181) 80.3 36.7
Consumer Discretionary
Rajesh Exports 74.2 40.5 (19.1) 54.2 59.8 91.8 (51.6) 47.1 (3,253) 38.1 (131.3)
next two years Bharat Heavy Electricals Industrials NM (94.9) 118.9 76.0 66.7
Bank Of Baroda Financials (23.3) 27.8 104.7 (32.5) 87.5
This could be due to current Union Bank Of India Financials NM 100.9 104.1 (105.1) 38.2
earnings being suppressed Tata Motors Consumer Discretionary NM (53.5) 100.2 53.3 415.7
Steel Authority Of India Materials 95.7 60.6 93.5 (54.1) 116.6
due to one-off reasons, and Rajesh Exports Consumer Discretionary NM 59.8 91.8 (51.6) 608.1
with normalcy returning to Punjab National Bank Financials 235.5 38.7 78.0 (16.6) 40.5
Interglobe Aviation Industrials NM (55.6) 77.5 78.1 2048.2
earnings growth over the NM
Bank Of India Financials 90.8 72.2 (63.0) 57.7
next few quarters Oil & Natural Gas Energy 49.0 65.8 67.9 (33.7) 165.0
Bharti Airtel Telecommunication Services NM (38.5) 67.4 71.1 690.9
Preferred companies would General Ins Corp Of India Financials NM 12.2 66.7 21.1 145.9
380.7
be those with high STGV and Tata Steel Materials 36.2 64.1 (0.3) 1313.6
GMR Infrastructure Industrials NM (96.2) 58.3 137.9 43.1
low LTGV. Cases where both Rural Electrification Corp Financials 71.1 218.2 51.0 (169.2) 159.2
STGV and LTGV are high Gujarat State Petronet Utilities (7.1) 90.5 48.0 (38.5) 315.4
Natco Pharma Health Care (4.5) 29.3 47.1 23.6 893.4
bets, which are likely to Canara Bank Financials NM 64.5 46.8 (11.3) 176.7
turnaround in the medium to RBL Bank Financials (15.3) 28.6 45.8 25.6 193.1
Hindalco Industries Materials (7.6) 20.9 45.3 33.9 487.5
long term 96.1
JSW Steel Materials 35.0 44.8 20.2 672.4
Mahindra & Mahindra Fin Secs Financials (34.4) 22.9 39.0 38.1 185.0
Oil India Energy 8.6 135.5 36.3 (71.8) 239.4
L&T Finance Holdings Financials (43.2) 30.8 35.7 33.4 90.9
Power Finance Corporation Financials 49.3 182.0 34.8 (116.8) 142.1
Note: *pricing as on 11 October 2021; Source: Bloomberg, Elara Securities Research
*Sectors are classified based on Elara classification; Source: Bloomberg, Elara Securities Research
FY15
FY17
FY18
FY19
FY20
FY21
Latest
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV CBV STGV LTGV
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
Energy LTGV contribution though off lows remains Financials LTGV contribution recovers from recent lows
negative indicating mispricing in the sector driven by price performance
100 (%) 18 4 100 (%)
18 39 22 171 21 26
60 135 47 49 50
96 96 100 92 12 64 60 68 56
64 62 74 60 26
20 11
(4) (1) (4) (1) 14 23
(20) (47) 67 9 13 9 18
(54) (52) 20 42 37 47
(60) 27 27 23 27 26
(19)
(100) (20)
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV CBV STGV LTGV
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV CBV STGV LTGV
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
IT services prices see the highest-ever contribution of …while for materials earnings expectation mix is close to
long-term growth expectations… long-term median
100 (%) 11 100 (%)
80 10 28 26 33
41 48 46 80 43 48
13 10 5 57 69 64 65 57 64 66 55 60
60 7 60
6 6 11 9
40 79 10 40 15 9
59 64 63 7 12 8 6 12
20 52 46 48 46 16 43
32 20 28 29 36 28
23 24 19 28
0 0
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV CBV STGV LTGV
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
CBV STGV LTGV CBV STGV LTGV
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
0 0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY19
FY13
FY14
FY15
FY16
FY17
FY18
FY20
FY21
Latest
LTGV 10yr Median LTGV 10yr Median
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
Energy’s long-term expectations attribution negative, Financials’ LTGV crosses long term median post recent
primarily led by regulatory hurdles in the sector run up
40 80
(%) (%)
60
20
40
0
20
(20) 0
(40) (20)
(60) (40)
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
0 0
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY15
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21
Latest
LTGV 10yr Median LTGV 10yr Median
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
IT sector prices are pricing in strong long-term growth Materials expectations close to long-term median
potential with LTGV contribution at life-time high 80
(%)
80
(%)
60
60
40
40
20
20
0
0
Latest
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY15
FY13
FY14
FY16
FY17
FY18
FY19
FY20
FY21
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
0 -20
FY14
FY13
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
FY13
FY14
FY15
FY16
FY17
FY18
FY19
FY20
FY21
Latest
LTGV 10yr Median LTGV 10yr Median
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
*Sectors are classified as per GICS classification; Note: In any given year, the sector value is the median of the sector components
While energy has the most mispriced opportunities, it has While financials recent run-up priced in LT growth
seen negative impact of regulatory overhaul historically potential, about 18% of stocks seem to be mispriced still
Energy Financials
<0 0-25 26-50 51-75 76-100 <0 0-25 26-50 51-75 76-100
2013 85.7 14.3 0.0 0.0 0.0 2013 56.0 16.0 8.0 12.0 8.0
2014 42.9 28.6 28.6 0.0 0.0 2014 38.5 15.4 19.2 19.2 7.7
2015 14.3 57.1 28.6 0.0 0.0 2015 30.8 7.7 19.2 26.9 15.4
2016 57.1 28.6 14.3 0.0 0.0 2016 25.0 10.7 32.1 25.0 7.1
2017 71.4 14.3 14.3 0.0 0.0 2017 10.7 7.1 32.1 39.3 10.7
2018 85.7 14.3 0.0 0.0 0.0 2018 8.3 5.6 27.8 41.7 16.7
2019 42.9 42.9 14.3 0.0 0.0 2019 7.9 13.2 15.8 39.5 23.7
2020 85.7 14.3 0.0 0.0 0.0 2020 39.5 13.2 15.8 18.4 13.2
2021 100.0 0.0 0.0 0.0 0.0 2021 23.1 10.3 23.1 25.6 17.9
Latest 71.4 28.6 0.0 0.0 0.0 Latest 17.9 7.7 25.6 17.9 30.8
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
90%+ of IT sector stocks ascribe >50% value to LTGV While materials have 15% stocks ascribing negative
long-term value, indicating mispriced opportunities
Information Technology
Materials
<0 0-25 26-50 51-75 76-100
<0 0-25 26-50 51-75 76-100
2013 25.0 50.0 0.0 25.0 0.0
2013 34.6 19.2 30.8 15.4 0.0
2014 37.5 37.5 12.5 0.0 12.5
2014 16.7 12.5 33.3 33.3 4.2
2015 25.0 25.0 25.0 0.0 25.0
2015 16.0 16.0 20.0 40.0 8.0
2016 12.5 25.0 37.5 0.0 25.0
2016 12.5 8.3 12.5 45.8 20.8
2017 20.0 40.0 20.0 10.0 10.0 2017 4.2 16.7 25.0 29.2 25.0
2018 20.0 10.0 40.0 10.0 20.0 2018 7.7 11.5 15.4 46.2 19.2
2019 9.1 0.0 45.5 27.3 18.2 2019 7.7 19.2 11.5 34.6 26.9
2020 18.2 27.3 36.4 0.0 18.2 2020 33.3 3.7 22.2 22.2 18.5
2021 0.0 9.1 27.3 45.5 18.2 2021 3.7 18.5 22.2 37.0 18.5
Latest 0.0 0.0 9.1 54.5 36.4 Latest 14.8 11.1 18.5 33.3 22.2
Source: Bloomberg, Elara Securities Research Source: Bloomberg, Elara Securities Research
Value of Earnings
LTGV = CMP – CBV – STGV = 100% – 50% – 20% = 30% of CMP
Long Term Growth Value (LTGV)