PremiumInvestors remain concerned about inflation and the potential for recessions throughout world. Higher interest rates tend to discourage borrowing and investments, slowing economic activity and could tip economies into recession.
Indian equity markets ended higher own Friday, paring earlier gains amid volatility. Shares had advanced as strong earnings reports, helped resist the weakness in global markets on fears of the impact of aggressive rate hikes from central banks.
Globally, stocks dropped as Treasury yields continued to climb, with traders betting the Federal Reserve will keep raising interest rates until inflation is defeated, and as investors assessed companies’ resilience to a multitude of headwinds in the latest earnings reports. The Stoxx Europe 600 fell 1.6%, futures on the S&P 500 fell 0.7%, and those on the Nasdaq 100 declined 1%.
Back home, Sensex closed higher for sixth straight session, gaining 104 points to 59,307.15. Nifty ended at 17,576.30, up marginally.
On the Nifty, Axis Bank, Kotak Mahindra Bank, ICICI Bank, HUL and SBI Life Insurance were among the top gainers, while losers included Bajaj Finance, Bajaj Finserv, Divis Labs, Adani Ports and UPL.
Bank index rose 2%, while capital goods, pharma, power, metal index fell 0.5-1%.
BSE midcap and smallcap indices shed 0.5% each
Ticking key boxes for a re-rating
o PAT 23% ahead of the Bloomberg consensus
o Segment preferences indicate profitability focus
o Clearing the air on multiple issues
o Remains our ‘smart beta’ pick
ACEM reported a marginally weaker than expected EBITDA performance due to higher than expected power and fuel cost.
Sales volume grew 11.7% YoY (down 9.3% QoQ) to 6.7mn tonnes, vs our estimates of 6.8mn tonnes
EBITDA stood at Rs3bn (-57% YoY and -56% QoQ), lower than our estimate of Rs4bn, while EBITDA/tonne stood at Rs454 vs. Rs1,172 and Rs926 in 3QCY21 and 2QCY22 and against our estimate of Rs602.
While, Blended realization increased 1.5% YoY and 1.4% QoQ to ₹5,478/tonne, higher than our estimate of Rs5,356.
Further, total cost/tonne increased by 19% YoY and 12% QoQ at Rs5,024. Power & Fuel cost/tonne saw a surge of 64% YoY and 18% QoQ to Rs2,111. This steep increase is due to higher coal and pet coke prices.
Consequently Adjusted net profit fell 65% YoY and 86% QoQ to Rs1.5bn, against our estimate of Rs1.95bn.
RSec Take: While realisations during the quarter were better than expected, overall costs were higher, leading to weaker than expected EBITDA performance. EBITDA margins at 8.3% contracted 1,343bps YoY and 885bps QoQ and was 294bps lower than our estimate. Going forward, we believe that ACEM has been strategic in addressing the capacity constraint issues by commissioning the Nagaur integrated unit, which can support a capacity up to 5mnT. Further, it has already got the approval for a brown field expansion of 1.5mnT cement grinding unit in Ropar, Punjab. These certainly bode well from the long term perspective. We currently have a HOLD Rating on the stock.
Bajaj Finance (BAF) reported yet another strong quarter, marginally ahead of our expectations, driven by robust AUM growth (consol.) of 31/7% YoY/QoQ, stable NIMs (calc.at 10.5%), normalized credit costs driving healthy earnings growth of 88/7% YoY/QoQ. AUM growth was driven by continued traction across products, especially the rural segment (+34% YoY, +4% QoQ) and mortgages (+31% YoY, +8% QoQ). The auto financing segment continued to de-grow (-5% YoY, +2% QoQ), however the management remains confident of growth returning in the segment, as BAF exits FY23. A strong growth in fee income (+46% YoY, +5% QoQ), likely led by an uptick in credit cards drove non-interest income growth of 40/7% YoY/QoQ. The co-branded credit cards-in-force stood at ~3.2 Mn vs 2.2/3Mn YoY/QoQ. Opex growth of 24/6% YoY/QoQ was primarily towards investments in the digital initiatives.
The management expects C-I Ratio to range between 35-36% in FY23. Provisions declined sharply by 44/3% YoY/QoQ and stood at ₹734 Cr (vs our expectations of ₹712 Cr). The company currently holds a management overlay of ₹1,000 Cr and plans to retain and may be utlised ECL in the near term keeping in view rising inflationary pressures and increasing interest rates. With asset quality stress well managed, the management expects credit costs for FY23 to range between 1.35-1.45% (quarterly run-rate of ₹750-800 Cr in H2FY23). Earnings growth was healthy growing at 88/7% YoY/QoQ.
UPL Ltd. on Friday announced a strategic corporate realignment by creating distinct ‘pure-play’ business platforms – to unleash growth potential for each of these platforms through enhanced focus (led by specialised and dedicated teams) and efficient deployment of resources. The realignment will unlock value for UPL shareholders by facilitating ‘fair value recognition’ of the ‘distinct pure-play platforms.’
A wholly-owned subsidiary of the Abu Dhabi Investment Authority (“ADIA"), Brookfield and TPG to invest INR 1,580 crore (~US$ 200 Mn) for 9.09% stake in UPL SAS - India Agtech Platform at an equity valuation of ~INR 17,380 crore (~US$ 2.2 Bn).
KKR to invest US$ 300 Mn (~INR 2,460 crore) for 13.33% stake ‘Advanta Enterprises - Global Seeds Platform’ at an equity valuation of ~US$ 2.25 Bn (~INR 18,450 crore).
A wholly owned subsidiary of the Abu Dhabi Investment Authority (“ADIA") & TPG to hold 22.2% stake in UPL Cayman, which will be the Global Crop Protection Platform (ex-India).
These investments are independent transactions for which separate agreements have been agreed pursuant to negotiations between each of the investors and UPL Ltd.
Strategic Rationale for Realignment
• Create distinct pure-play platforms to accelerate growth with different investors
• Unlocking Value: Facilitate ‘fair value recognition’ of ‘pure-play platforms’ each having varied growth
prospects, profitability, and capital intensity
• Enable efficient capital allocation and resource deployment
• Simplification of Group Structure by aligning different operating business segments
IFL Securities on Friday reported a 22% year-on-year decline in its net profit to ₹55.3 crore for the second quarter ended September 30.
Total income grew 2% to ₹323.4 crore in the quarter under review.
Oil slipped on Friday and was heading for a second weekly decline as investors weighed the impact of sharp interest rate rises on energy consumption, offsetting hopes of higher Chinese demand and output cuts by OPEC and its allies.
To fight inflation, the U.S. Federal Reserve is trying to slow the economy and will keep raising its short-term rate target, Federal Reserve Bank of Philadelphia President Patrick Harker said on Thursday.
Brent crude slipped $1.16, or 1.3%, to $91.22 a barrel. U.S. West Texas Intermediate crude was down by 74 cents, or 0.9%, to $83.77.
IT solutions provider Mphasis has a reasonable proportion of large contracts in its pipeline and expects its current trend of new deal wins to continue over the medium term, despite macro headwinds, a top company official said on Friday.
The Bengaluru-based company said it won new deals worth $302 million, including two large deals worth $110 million, in the second quarter ended Sept. 30.
While the growth was flat with the first quarter, it was an improvement from the roughly 13% sequential drop in new contract value won in the first quarter.
European shares dropped on Friday, triggered by fears that major central banks would retain their aggressive rate-hike stance to rein in prices, while investors digested mixed earnings reports that did little to ease concerns of an economic slowdown. The region-wide STOXX 600 index fell 1%.
A slew of recent inflation reports and data indicating a strong U.S. labour market have dealt a blow to hopes of the Federal Reserve and other major central banks toning down their hawkish policy approach anytime soon. Adding to the jitters was U.S. social media company Snap Inc's bleak fourth-quarter outlook that sounded alarm bells about a hit to advertising from rampant inflation, setting Wall Street up for early losses.
Shares of Axis Bank Ltd rose more than 8% intraday on Friday on the National Stock Exchange,hitting a new 52-high of Rs895.70 apiece. Investors are visibly thrilled with the bank’s good set of numbers for the quarter ended September (Q2FY23). Margin improvement has been a key highlight in Q2 results.
The bank’s net interest income (NII) rose 10% sequentially and 31% year-on-year (y-o-y). Net interest margin (NIM) expanded by 36 basis points (bps) sequentially to 3.96% in Q2. One basis point is 0.01%. NII improvement was aided by strong growth in loans which grew by 18% (y-o-y). Retail and SME grew at healthy rate of 22% and 28% respectively. Retail loan has the highest share in total loan book which is 58%, followed by SME 11% and corporate 31%.
“Strong NIM expansion and low credit costs drive us to raise FY23 earnings by 14% and FY24-25 by 7%," said analysts from Jefferies India in a report on 21 October. (Read here)
Havells sustained an all-round revenue growth on a YoY in 2QFY23. Revenue grew by 14% YoY to Rs36.8bn (our estimates of Rs35.1bn), led by healthy growth across segments. However, EBITDA margin declined by 595bps to 7.8% primarily due to higher raw material cost (69.1% of sales in 2QFY23 from 65.8% YoY), while EBITDA declined by 36% YoY to Rs2.9bn (our estimates of Rs3.9bn).
Though prices of key commodities have reduced, benefit of cost moderation is expected to reflect in the coming quarters. Consequently, PAT decreased by 38% YoY to Rs1.9bn due to lower margin (our estimate of Rs2.7bn). The overall revenue growth is on track, aided by a revival in capex and higher prices. However, higher RM cost has dampened margin performance.
For FY23E, we reduce our EBITDA/PAT estimates by 8%/9% to factor lower margin during 2QFY23 due to higher commodity prices, while we maintain our FY24E estimates. Considering strong up-tick over the next couple of years, improved growth visibility, improvement in return ratios and likely revival of Lloyd business led by structural changes, we maintain our BUY rating on the stock with unrevised Target Price of Rs1,631, valuing the stock at 60x FY24E earnings.
Gold prices fell on Friday and were bound for a second weekly drop, dragged down by elevated U.S. Treasury yields and dollar amid a growing chorus of hawkish comments from Federal Reserve officials.
Spot gold was down 0.4% at $1,620.60 per ounce, after hitting their lowest level since 28 September. Bullion prices have shed 1.3% so far this week.
U.S. gold futures lost 0.8% to $1,624.20.
Benchmark 10-year Treasury yields scaled a fresh peak since June 2008, while the dollar index rose 0.2%, eroding appetite for greenback-priced bullion among overseas buyers.
The September quarter earnings of decorative paints maker Asian Paints Ltd were dull.
Prolonged monsoons hit demand for paints and inflation prompted customers to switch to economy products. Also, price hikes taken by the company were not sufficient to offset the cost pressure. So, an unfavorable combination of sharp erosion in gross margin, inferior product mix and elevated operating expenses played spoilsport.
Consequently, the company missed consensus estimates on profit and operating performance. Shares fell 1.14% on the NSE on Friday.
The near-term outlook offers limited comfort. (Read here)
Indian billionaire Gautam Adani’s group is looking to raise at least $10 billion in new debt over the next year as his conglomerate seeks to refinance its high-cost borrowings and fund projects in the pipeline, according to people familiar with the plans.
Using multiple instruments including foreign currency debt and green bonds, the Adani Group plans to raise up to $6 billion to swap its existing high-interest debt with lower-cost borrowings and deploy the rest for project financing, one of the people said, asking not to be identified as the information is private. The effort could start as early as the ongoing December quarter, the people said.
The move is aimed at lowering the ports-to-power group’s overall burden of repayments, which has come under the spotlight as Asia’s richest person pursues a string of ambitious acquisitions to diversify into sectors like green energy, digital services and media.
In-line with expectations; decent performance
Colgate Palmolive (India) (CLGT) numbers were broadly in line with our estimates. Revenue growth was 2.6% YoYat Rs1,378Cr (our estimate Rs1,397Cr). We expect a volume decline of 1- 2% on account of rural slowdown and inflationary pressure. However, The management remains cautiously optimistic as demand is likely to recover in the upcoming quarters. EBITDA stood at ₹408 Cr while EBITDA Margin of 29.6% (our estimate of 28.4%) reported 22bps YoY decline owing to gross margin pressure partially offset by reduction in staff costs (down 9.7% YoY) & Ad spends (down 14.6% YoY). Adjusted PAT at ₹278Cr was up~3%(our estimate of Rs265Cr). Net Sales for H1FY23 was recorded at Rs. 2,565Cr, an increase of 2.5% YoY. Net profit for H1FY23 stood at ₹487 Cr. We have marginally tweaked our FY23E/24E to factor in Q2FY23 numbers and RM inflation.
However, CLGT‘s focus on driving growth via increasing oral care pie in India through the renovation of core, innovation across price points by launching-relaunching new products, driving per capita consumption/ higher frequency of brushing and developing new segments are key growth drivers over the medium to long term.
In this backdrop, we expect CLGT to report growth at 6%/4% Revenue/PAT CAGR over FY21-24E, led by strong cash generation, higher dividend payout, and fairly attractive valuations as against peers. Maintain BUY with a revised TP of Rs1,750/share at 39x FY24E EPS.
Early stage investing platform Indian Angel Network (IAN) on Thursday launched its second fund with a corpus of ₹1,000 crore (about $121 million), more than double the size of its first fund of ₹375 crore that closed in 2019.
The IAN Alpha Fund will have a base investment corpus of about ₹650 crore (about $78 million) with an additional investment option of ₹350 crore (about $42 million), the fund’s investment committee member Saurabh Srivastava said.
The Alpha Fund will be led by IAN’s senior managing partner Padmaja Ruparel, and managing partners Jaideep Mehta and Vinod Keni. Mehta was previously the chief executive officer at HT Media -owned Mosaic Media Ventures.
British retail sales volumes fell by a bigger-than-expected 1.4% in monthly terms in September, official data showed on Friday, as consumers felt the hit from rising prices, Reuters reported.
September's data was also affected by a one-off public holiday to mark the funeral of Queen Elizabeth when many retailers closed, the Office for National Statistics said.
Economists had expected retail sales to fall 0.5%.
Excluding automotive fuel, sales fell 1.5% from August.
ITC Ltd maintained its strong momentum in the July-September (Q2FY23) quarter, with all segments witnessing year-on-year revenue growth. But what is worth noting is that the three-year volume compound annual growth rate (CAGR) in its mainstay cigarette business is estimated at 5%. This compares to largely flat three-year volume CAGR in Q1.
Investors aren’t complaining. Shares of ITC touched a new 52-week high of Rs353.20 apiece in opening deals on Friday on the NSE. (Read here)
Shares of Axis Bank advanced on Friday, after the lender reported a 66.3% jump in consolidated net profit for the September quarter.
The stock jumped 6.50% to its 52-week high of ₹879.95 on the BSE.
Axis Bank on Thursday reported a 66.3% jump in consolidated net profit for September quarter to ₹5,625.25 crore, driven by a substantial decrease in bad loan provisions and margin expansion.
India is pushing for a valuation of around 640 billion rupees ($7.7 billion) for state-owned IDBI Bank Ltd. in what could be the biggest sale of the government’s stake in a lender in decades, according to a person familiar with the matter.
The government earlier this month invited bidders for a 60.72% stake in the Mumbai-listed lender. The valuation target means the administration is seeking a premium of roughly 33%, based on IDBI Bank’s market value of about $5.8 billion as of Thursday close. (Read here)
The Indian rupee recovered from its initial decline versus the US dollar and was little changed on Friday, as traders assessed the outlook for the local unit after the previous day's choppy session.
The rupee traded at 82.7650 to a dollar around 1030am, barely changed from 82.7600 at previous close. The currency had opened lower at 82.90, pressured by U.S. Treasury yields.
On Thursday, the rupee had dropped to a record low, but managed to recover on likely intervention by the Reserve Bank of India.
In terms of balance sheet composition, the share of loans and investments in total assets rose from 83% to 86% on YoY basis, whereas the share of INR loans rose from 89% to 93% and the share of retail and CBG loans in loan book rose from 65% to 69%. The share of RIDF book declined from 4.28% to 3.09% of total assets on YoY basis. We had predicted positive loan mix changes and RIDF decline for AXSB in our sector report dated 11th June 2022.
While the gross slippage number was middling, it was partly the result of conservative recognition, and final net slippage was negative: 39% of the gross slippages are (a) exposures that are standard but of borrowers whose other accounts slipped or (b) were upgraded during the quarter itself. Net of recoveries from written off accounts, net slippages were negative at ₹1.52bn. Annualised credit cost for the quarter amounted to a benign 38 bps. All provisions taken together provide a cover of 138% on GNPA. Restructured book is well contained at 38 bps of gross customer assets.
As flagged by management, corporate loans have made a comeback whereas retail loan growth slowed somewhat: Large and mid-corporate loans grew 6.0% QoQ and SME loans jumped 8.7% QoQ. Retail loans slowed to a sequential growth of 2.6%. However, as anticipated, high-margin businesses viz. credit cards and SBB tracked higher at 14.4% and 11.7% QoQ, respectively.
We reiterate BUY rating on AXSB with a revised price target of ₹1135.
On the technical front, Nifty formed a bullish candle pattern and with present price structure it can be expected that the index is likely to resolve higher and gradually head towards psychological mark of 18000-18100 in coming weeks. However, a brief breather in price action can be seen as Nifty is presently near strong resistances which coincide with a downward sloping trend line that has held down the highs of 2021 and 2022. Hence Index need to decisively close above it for the uptrend to continue, breach of which would lead the Index further higher towards the Sept’22 high of 18096. Immediate support for the market is seen at 17100 as slower pace of retracement over the past few sessions indicates of inherent strength in Nifty to add further on numerous occasions index witnessed buying demand in the vicinity of 200 days EMA. The momentum indicator RSI (relative strength index) is sustaining above 50 levels and has started to form Higher High, Higher Low which is in sync with the trend. This reflects the rising momentum in the prices. Eventually, one can expect the index to accelerate upward momentum. However, such a move would be in a non-linear fashion amid global volatility.
During the day index is likely to open on a flat to slightly negative note tracking weak global cues. Hence, as long as Index trades above 17350 momentum is likely to remain positive and buy on dip towards 17350-17400 would be the ideal approach going forward.
1. Result Update – Bajaj Finance
Confidence on growth sustainability to support valuations.
· NII growth at 31% YoY to | 7000 crore, marginal uptick in cost of funds
· GNPA, NNPA ratio declined to 1.17%, 0.44%, respectively, in Q2FY23
· PAT grew 88% YoY, 7% QoQ to | 2840 crore
· In Q2FY23, reported RoE at 23.57% and RoA at 5.4% (annualised)
Key triggers for future price performance
· Adding 10-11 mn customers in a year. Digital transformation, client additions and ambitious targets on AUM growth (25-27% CAGR to | 3.8–4 lakh crore by FY25) to boost profitability
· Strong deposit base and plans to raise to 25% of overall liabilities and reach ~| 50000 crore by end FY23E
· Stable asset quality and controlled costs expected to continue
· RoE at >18-19% and RoA at >4% with guidance over 4.5%
Samvat 2079 will go down in India’s stock market history as the year of India’s outperformance relative to developed markets and peers. The big question as we usher in Samvat 2079 is whether this outperformance will continue. Even though India’s valuations are high from the short term perspective, economic and earnings fundamentals partly justify the valuation premium. More importantly, the DII/retail support to the market is becoming strong enough to eclipse the FII selling. This explains the logic of FIIs turning buyers ( ₹1864crores yesterday) when US bond yields are moving up and the 10-year yield is at 4.23 percent.
IT and banks account for the major chunk of India Inc’s profits. After good Q2 results from IT, leading banks are posting very good Q2 numbers indicating that corporate earnings are in line with the optimistic expectations. Q2 results of Axis Bank and ITC have beaten expectations. The PSU bank index has the potential to sustain its outperformance.
Dhanlaxmi Bank said on Thursday its largest shareholders were seeking to curb the spending powers of its chief executive officer, escalating a bitter shareholder battle with the private lender's management.
The Thrissur, Kerala-headquartered bank will hold an extraordinary general meeting on Nov. 12 at the request of certain shareholders including B Ravindran Pillai, who holds a 9.99% stake in the bank, it said in a regulatory filing. (Read here)