Alpha Ideas

Note by well known Kochi investor K S Priyan 

Bi-polar impact of Kerala deluge: big win coming for some & permanent loss for others.

Big win : Reconstruction, Supply n Leverage

– Cement, roofing, pipe, electrical, wood and plywood cos will have an unprecedented demand starting 15days for next 3months at least fm the staggering amount of reconstruction needed. A fortnight of poor offtake that too in midst of monsoon low season is nothing.

Cement – Ramco,Ind Cement
Wires – Vguard
Roofing- Everest, Visaka
Steel – JSW n others
Electrical – Havells, CG
Other- HIL, Cera

– Lower income households and MSMEs are the biggest users of Gold loans cos and therefore a dramatically higher demand for loans can be expected. On the other hand there will be rising delinquency but as collateral(LTV sub 75pct) is gold, a strong n liquid asset, the net impact will be NIL.

– PV sales will rocket as cars in thousands have been damaged beyond repair. Maruti n Mahindra

– Roads estimated over 5k km have been damaged and need repair or rebuild at express pace. Tar/ Bitumen manufacturers will see demand surge

– Organised retail chains like Big Bazaar n Reliance Mart are running out of stock. In ST their ability to manage supply chain will stand out compared to mom-pop shops.

– Massive medical demand of anti-infection, gastroenteritis, antibacterial etc. Cipla, DRL, Abbott best placed

The ones really impacted are:

– Wonderla will not be able to recover the loss of visitor. Discretionary spend will be seriously curtailed as will be travel fm northern districts to Kochi, an important stream of income

– Rubfila will be impacted in med term with serious hike in RM cost and low latex availability in ST. Weak rupee is not helping in imports either. Questionable ability to pass rising cost

– Insurance cos are going to take big hit. Massive loss for car, crop and establishment insurance. Bajaj Allianz, Hdfc Ergo n NIA would be top of losers

– Banking to certain extent due to slow biz, loan delinquency, damage to branch infra, employee absenteeism. Drop in CASA in ST for Federal, SIB, DXB

– KNR toll controls the main entry to Kerala fm TN side. The traffic is down to trickle and will take time to normalise. Permanent loss

– Air travel is unrecoverable and biggest impact would be to INDIGO

– Aster Medcity, the sole listed hospital has been closed since last week and will take a fortnight to reach full availability. Massive loss expected from biz loss

– Liquor cos are looking at serious loss fm, short-med term impact of wage loss, lost Onam week sale(makes 5-6pct of annual), impacted distribution and competing demand of surplus inflow in next month in MT. USL, Radico, UBL

– Gold retail is complete washout. Marriages have been postponed or planned in low key. TITAN has minor presence

– Tea and coffee estates of Munnar, Wynad n Coorg are in serious trouble fm record rain fm mid-july and now the washout expected to last 2weeks. Further absenteeism will drag prod down for next 6months. Darjeeling estates have taken year to recover fm troubles and sets an example. TGBL, Tata Coffee, Harrison’s etc

– Muthoot Capital will have med term impact on demand and higher delinquency. Collateral(2W) in most cases will be worthless. Onam sale washout is serious but may get normalised in q3

– 2W sales are washout in q2 with entire festival peak lost. May take upto late Q3 for stabilisation of demand

Mixed to low impact :

– VGuard has NO factory in Kerala. Therefore a prod disruption may not happen. Sales especially of high margin stabilizer be impacted in ST fm lost Onam sales in Q2. This will more than be covered in incoming reconstruction n refurbishing demand In Q2-3

– Kitex staff live in dorms on campus fully provided for. The location is on high land. Impact is abysmal if any. Weak rupee is good

-Tyre companies stock RM 2-3 months advance and then Indian prod in monsoon only contributes to 15-20pct of consumption, rest being imported. Global rubber prices are soft and compensate more than enuf for Rupee depreciation.

– Cochin Shipyard has been spared any damage to inventory or work day loss