MOSL: Morning India (24/February/20): 1. India Inc. RoE – Thematic (A Root and Branch Analysis); 2. Axis Bank; 3. Ambuja Cements; 4. IIFL Wealth; 5. Nocil; 6. Power Monthly; 7. Future Lifestyle
Morning India (24/February/20): 1. India Inc. RoE – Thematic (A Root and Branch Analysis); 2. Axis Bank; 3. Ambuja Cements; 4. IIFL Wealth; 5. Nocil; 6. Power Monthly; 7. Future Lifestyle
Today’s top research theme
India Inc. RoE: A Root and Branch Analysis
- RoE is one of the key strategic metrics used to evaluate capital allocation efficiency of a company. We present a detailed study of how RoE has changed over time for India Inc, identify the factors driving this change and its role in market cap creation.
- India Inc's RoE has undergone two phases over last 16 years: (1) 'The Rising Phase' over FY03-08, where this ratio for BSE500 hit a high of 22.9% (in FY07) and (2) 'The Downward Phase' over FY08-19, where the ratio halved to its lowest level of 9.5%.
- Some interesting insights: (a) Cyclical sectors are key drivers of India Inc. RoE. (b) PSUs' RoEs have remained at par with their private counterparts, but their valuation multiples have remained low. (c) A high RoE is desirable, but an improvement in it is key for market cap creation. (d) Mid-caps have a relatively low (v/s large-caps) but highly variable RoE, which leads to its outperformance versus large-caps. (e) Capital structure-led RoE improvement uplifts valuation multiple. (f) Improving RoE and earnings growth is a lethal combination for market cap creation.
- Based on the above hypothesis, our top picks within MOFSL coverage universe: Axis Bank, Bharti Airtel, Hindustan Unilever, Infosys and Ultratech Cement amongst large-caps, and Federal Bank, JSW Energy, Tata Global, Trent and Voltas amongst mid-caps.
Piping hot news
Senior govt officials meet to discuss relief measures for AGR-hit telecom industry
- Senior officials of the telecom department and other key ministries met on Sunday to discuss urgent relief measures that can be extended to the telecom industry, which is battling an unprecedented crisis on account of massive statutory dues it owes the government.
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