Skip to main content

Deep-Diving into India Inc. Balance sheets - Quality with Quantity

- Vikram Kotak

Dear Investors,

Hope this letter finds you in good health and spirit.

In our previous letters we periodically wrote about global economy, macro economy, deglobalization, inflation and Indian markets. This time, the team has done special research to find nuggets from a few blue-chip annual reports/results of the Companies out of which in some we have holdings. I would like to thank my team members Pankaj and Anna for this good work. Let me elaborate sector wise as follows –


A. Banks & Financial Services: With strong collections and declining slippage, the worst on asset quality looks behind now. The focus hereon will be on loan growth and margins. Even exchanges showed a good growth, led by sharp swings in the equity market and increased retail participation

1. Kotak Mahindra Bank – Bank reported the industry leading CASA @ 60.7% for Mar’22. Also, amongst comparable peers, it reported highest NIM (Net Interest Margin) at 4.8% & CAR (Capital Adequacy Ratio) at 22.7% in Q4FY22.

2. HDFC Ltd – In Mar’22, the Company recorded its highest monthly individual disbursements ever (the previous high was in Mar’21). Awaited Merger with HDFC bank will aid in expanding the loan sourcing network.

3. Bajaj Finance – Targeting to have a customer base of 90-100 mn on their book in the next 4-5 years. As of FY22, customer franchise stood at 57.57 Mn.

4. ICICI Bank – For Q4FY22 bank reported the highest ever quarterly (annualised) RoA (Return on Assets) of ~2.1% & RoE (Return of Equity) of ~17%.

5. SBI – PCR (Provision Coverage Ratio) improved sharply to ~75% in FY22 vs ~62% in FY19 (pre-covid). Credit cost came down significantly to ~0.9% in FY22 from ~2.7% in FY19

6. HDFC Bank – Many of it’s peer bank’s loan books is tilted towards retail loan whereas HDFC bank is banking on the other side with wholesale: retail mix of 61: 39 in FY22 vs 54: 46 in FY19

7. BSE – Star MF, is India’s largest Mutual Fund distribution platform. It processed a record number of 1.97 crore transactions in the month of Mar’22 against its previous best of 1.87 crore transactions in Jan’22. It has managed to gain 600bp market share over FY19-22 (stands at 85% in Mar’22). During the same period, the STAR MF platform shown 73% CAGR in the number of transactions processed.


B. Metal & Mining: Strong commodity cycle & deleveraging

1. Jindal Steel & Power – Net debt as of 31st Mar’22 is at ~INR 8,900 crs. vs peak of ~INR 46,700 crs. in FY16 which translate into Net Debt to EBITDA of ~0.6x in FY22 vs ~13.4x in FY16

2. Tata Steel – Highest ever Net profit of ~INR 40,000 crs. 3rd largest Indian corporate in FY22 by profit (preseeded by Reliance & ONGC). Also, in FY22 Tata steel emerged as the most profitable Tata group company beating TCS. Though it is not strictly comparable as Tata Steel derives its income from steel which is cyclical in nature whereas TCS is a IT giant with a more consistent revenue growth story historically.

3. Coal India – In FY22 reported net cash & cash equivalents of ~INR 33,000 crs vs ~INR 15,000 crs in FY21 which is equivalents to ~30% of its market cap. Net working capital days came down to 33 days in FY22 vs 85 days in FY21


C. Information Technology (IT): Good demand growth but impacted by higher attrition, higher subcontracting charges & no mega deals

1. Tata Consultancy Services (TCS) – Lowest attrition at 17.4% in the IT industry. TCS was ranked a Leader in 92 competitive assessments published by leading research firms in FY 2022 (86 in FY 2021). Top rankings included Best IR Professional (#1), Best IR Program (#2), and Best ESG (#2). As a part of the Corporate Social Responsibility initiative company spent INR 727 crs. in FY22

2. Infosys – Highest attrition at 27.7% amongst its comparable peers. Infosys is recognized as a Global Top Employer® 2022 in 22 Countries, ranked among Top 3 Employers in Asia Pacific, Middle East, and North America and ranked among the Top Employers in Europe for Best-in-Class People Practices; Ranked #1 in India again. 3rd consecutive year of being carbon neutral. As a part of Corporate Social Responsibility initiative company spent INR 397 crs. in FY22


D. FMCG, Retail & Durables: The sector witnessed steep inflation impacting margins and demand, Rural demand saw more severe demand compared to urban.

1. HUL – Recorded spectacular performance by crossing Rs. 50,000 Crs of revenue mark in FY22. Achieved highest market share gains in a decade, 75% of business portfolio is winning market share (highest in hair care & tea). HUL’s market share in hair care touched a 15-year high in CY21. Fabric brand, Surf excel is now the biggest laundry brand. Towards sustainability, the company has 94% reduction in CO2 emissions against 2008.

2. ITC – ITC’s ‘Sunrise’ brand in the spices category, further strengthened its market standing as the leader in its core market of West Bengal. The ‘YiPPee!’ brand continued to strengthen its consumer franchise and consolidated its market standing as a strong No. 2 brand. ‘Savlon’ reinforced its position as one of the most preferred brands for expert germ protection, witnessing healthy repeats across the portfolio. Free cash flow generation at 88% of PAT is also higher than the past five-year average of 82%. ITC was able to maintain a dividend pay-out above 90% for a second consecutive year. ITC’s Windsor (Bengaluru), Grand Chola (Chennai) and Gardenia (Bengaluru) are the first three hotels in the world to achieve LEED zero carbon certification. The company plans to adopt 100% re-usable, recyclable or compostable / biodegradable plastic packaging by 2028.

3. Dabur – Market share gains in 99% of portfolio with major gain in Chyawanprash, Honey and Real Brand. Dabur is the leader in the Chyawanprash category which has seen tremendous growth of ~300% during Covid. Further, the Chyawanprash per capita penetration has gone up to 22% in Covid Vs 5% Pre-Covid.

4. Marico – Market share gains in 97% of portfolio with major gain in Parachute, Value Added Hair oil and Saffola oats. Ranked as #20 in Best Companies to Work For & #2 in the FMCG industry by Business Today. ESG rating upgraded to “AA” in FY22 vs “A” in FY21.

5. Jubilant Foodworks – The Company created a new all-time record with the opening of 80 new Domino’s stores in Q4 Vs 93 stores in the FY19, taking the network strength for Domino’s in India to 1,567 stores. Management sees the potential of 3000 stores in India in medium term. The Company now delivers 70% of it’s orders within 20 mins.


E. Real Estate: The sector has seen healthy demand on account of the cycle turn however needs to look out for the impact of interest rate hikes.

1. DLF – Outstanding performance towards debt reduction as from the peak of ~Rs. 25,000 Crs of net debt in FY17, net debt has sharply fallen to Rs. 2,680 Crs in FY22.

2. Godrej Properties – Recorded best ever sales and best ever profit at Rs. 7,860 Crs and Rs. 352 Crs, respectively in the FY22. It has also signed a business development deal for 9.33 msf worth Rs. 9,000 Crs in FY22. It aims to launch 26 projects/ phases in FY23 and expects pre-sales to the cross the Rs. 10,000 Crs mark.


F. Capital goods: The sector is expecting strong order book on account of Govt’s capex spending plan on infrastructure and defence

1. Hindustan Aeronautics Ltd – Working capital has improved significantly for HAL as receivable days dropped to 69 (227 days in FY19). This is equivalent to the World average debtors days for an Aeronautic Industry. Consistently going upwards in ‘Make In India’ – Signed contract with Bharat Electronics Ltd for Indigenous Infra-Red Search Track System (IRST). Also entered into an MoU with Israel Aerospace Industries (IAI) to convert Civil (Passenger) aircraft to Multi- Mission Tanker Transport (MMTT) aircraft in India.

2. Larsen & Toubro – Rising oil prices have led to high traction in Middle East geographies. Middle East contribution has increased to 20% in FY22 vs 13% in FY21. Further, with Govt’s focus on infrastructure spendings, construction activities is going to pick up in India. L&T which started its business as Construction Company is now generated 28% of its consolidated revenue and 48% of Consolidated EBITDA from IT and Financial Services. Further, the IT business’s contribution in overall value of the business has increased from 13% in FY19 to 34% as of date.


G. Telecom: Tariff hikes & SIM consolidation

1. Bharti Airtel – in Q4FY22 continues to report industry leading ARPU (Average Revenue Per Unit) of INR 178 vs INR 135 of in Q4FY20. 4G customers crossed +200 mn milestones and now they are 62% of the overall customer base. Net Debt to EBITDA ratio (annualized) as on Mar’22 is at 2.51 vs 4.15 Mar’19.