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Axis AMC and Inversion Collaborate for Turnaround Fund

Axis AMC and Inversion Collaborate for Turnaround Fund
by 5paisa Research Team 20/10/2021

Axis AMC and Inversion Advisory Services will collaborate to launch a Rs.3,500 crore fund to invest in stressed Indian companies that have the potential to turn around their performance and become multi-baggers over time. The structure will be an Alternative Investment Fund (AIF) and will be managed by Axis Asset Management Company.

Inversion Advisory is floated by Akhil Gupta with a functional team to do granular studies on such investment opportunities. Akhil Gupta needs no introduction in corporate circles. He is on the board of Bharti Enterprises and was one of the driving forces behind the launch of Bharti telecom services in India. He is also credited as the force behind the multi billion dollar acquisition of Zain of Africa by Bharti.

The fund raising under the AIF will have a base amount target of raising Rs.3,000 crore with a Greenshoe option to retain another Rs.500 crore based on the discretion of the fund managers. The fund is proposed to be sector agnostic and will not have any specific sectoral preferences. The identification of such opportunities will be done based on a well-refined, fine-tuned and back tested model.

As part of the strategy of the turnaround fund, it will predominantly invest in picking controlling stakes in pre-stressed, stressed, distressed as well as other underperforming assets. The focus will be on companies that have the potential for a turnaround given the right funding support and management bandwidth. Obviously, being a stressed assets fund, the investment perspective will be longer term.

The unique feature of the turnaround fund will be that it will not just be a passive investor. Mutual funds tend to be passive investors in any company. However, this turnaround fund will not only take an equity stake but also mentor the promoters, help them raise finance and also help them recruit the right talent to catalyse the turnaround of the company. The focus will be companies where the stock price is divorced from the turnaround potential.

The fund, if successful, will fill a long standing gap in the market. The turnaround ecosystem for stressed assets in India has been largely debt driven. If this experiment succeeds, it will also create the right equity ecosystem for turnarounds. After all, there is a huge appetite among risk-taking investors for these kind of asset classes.

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Moody’s Upgrades Outlook for Indian Banks from Negative to Stable

Moody’s Upgrades Outlook for Indian Banks from Negative to Stable
by 5paisa Research Team 20/10/2021

Just a couple of weeks after Moody’s upgraded India’s sovereign rating outlook from Negative to Stable, it has repeated the upgrade for Indian banks too. On the strength of improving asset quality and more durable capital buffers,  Moody’s has upgraded the outlook for the Indian banking system from Negative to Stable.

Check - Moody’s Upgrades India’s Rating Outlook to “Stable”

The upgrade is based on a sharp improvement in the health of the Indian banks rated by Moody’s. As per the latest Moody’s presentation, between FY18 and FY21, the stressed loans percentage fell from 10.5% to 7.1%. this is despite the intermittent pressures created by the COVID-19 pandemic and the COVID 2.0 relapse in 2021.

The second key parameter tracked by Moody’s, the Tier-1 capital adequacy ratio, has improved from 9.6% in FY18 to a more robust level of 11.1% in FY21. There has also been substantial recapitalization during this period. At the same time the net interest margin (NIM), the most important banking spread parameter, has improved from 2.7% in FY18 to a more competitive 3.1% in FY21. All these factors combined to justify this outlook upgrade.

One important positive feature pointed out by Moody’s pertaining to Indian banks is the falling cost of credit. The RBI had cut rates aggressively during the pandemic and the abundant liquidity in the system also ensured that transmission rates were very high. This resulted in a sharp fall in credit costs, which is also evident in the fall in interest costs of banks despite the sharp rise in credit during this period.

Moody’s estimates that as the GDP gradually picks up, banking risks should further abate. India’s GDP is expected to pick up by 9.3% in FY22 and by 7.9% in FY23. This is likely to boost credit growth at the rate of 10% and 13% over the next two years. According to Moody’s, most of the legacy problems of the banks are already provisioned and taken care of. In a way, banks are in a position to start off on a clean slate.

Like in the case of sovereign rating, the outlook upgrade adds one more layer of cushion for the stability of banks. It looks like Indian banks have emerged from the COVID crisis, almost unscathed.

Also Read:- 

Moody’s Upgrades the Outlook of 9 Banks from Negative to Stable

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Jubilant Foodworks and Havells India Share Q2 Results

Havells India and Jubilant Foodworks Share Q2 Results
by 5paisa Research Team 20/10/2021

Two major companies Jubilant Foodworks, the master franchisee of the Domino’s Pizza and Dunkin Donuts brands in India, as well as electrical goods player Havells announced their results on 20-Oct. Here is a quick take on the numbers.

Jubilant Foodworks – Q2 Results

Jubilant Foodworks saw sales grow by 36.73% on a yoy basis for the quarter ended Sep-21 at Rs.1,116 crore. Net profits for the quarter were up 58.2% at Rs.120 crore. The revenue growth was driven by smart growth across in-store and home delivery sales. The store operations and capacities were back to normal at most locations.

 

Rs in Crore

Sep-21

Sep-20

YoY

Jun-21

QOQ

Total Income (Rs cr)

₹ 1,116.19

₹ 816.33

36.73%

₹ 893.19

24.97%

Operating Profit (Rs cr)

₹ 194.94

₹ 111.05

75.54%

₹ 121.03

61.07%

Net Profit (Rs cr)

₹ 120.24

₹ 76.01

58.19%

₹ 69.52

72.96%

Diluted EPS (Rs)

₹ 9.11

₹ 5.76

 

₹ 5.27

 

OPM

17.46%

13.60%

 

13.55%

 

Net Margins

10.77%

9.31%

 

7.78%

 

 

For the quarter, operating profits grew by 76% to Rs.195 crore resulting in the operating margins expanding from 13.6% to 17.46% on a yoy basis. There was higher same store sales, better share of home delivery sales and better inventory tweaks. One thaw in the flesh was the spike in the cost of raw materials by 36% due to food inflation.

Net margins for the Sep-21 quarter stood at 10.77%, which is an improvement over the 9.31% in Sep-20 quarter and a leap over the NPM of 7.78% in Jun-21 quarter. The story is all about the QSR recovery post-pandemic.

 

Havells India – Q2 Results

Havells India sales revenues grew 31.65% for Sep-21 quarter to Rs.3,238 crore. However, the net profits were lower by -7.3% to Rs.302cr. There was growth across all the major verticals of the company including switchgears, cables, lightings, electrical consumer durables and the Lloyds consumer segment.
 

Rs in Crore

Sep-21

Sep-20

YOY

Jun-21

QOQ

Total Income (Rs cr)

₹ 3,238.04

₹ 2,459.49

31.65%

₹ 2,609.97

24.06%

Operating Profit (Rs cr)

₹ 382.61

₹ 362.84

5.45%

₹ 293.72

30.26%

Net Profit (Rs cr)

₹ 302.39

₹ 326.36

-7.34%

₹ 235.78

28.25%

Diluted EPS (Rs)

₹ 4.83

₹ 5.21

 

₹ 3.77

 

OPM

11.82%

14.75%

 

11.25%

 

Net Margins

9.34%

13.27%

 

9.03%

 

 

For example, the revenues of the switchgears business grew by 13% and the electrical cables business was up 18.3%. Lightings and fixtures grew 32% while electrical consumer goods business grew 26%. Even the Lloyds consumer  business saw top line grow 23.5%. However, all these segments saw flat to tepid growth in EBIT profits while the Lloyds consumer business slipped into negative EBIT. 

The big challenge that Havells faced in the quarter was the sharp spike in raw material costs. This has been a feature of most of the Indian companies across sectors and the supply chain constraints have only worsened over the last few months.  This challenge got heightened by higher interest costs. Despite efforts by Havells to tweak its inventory more effectively to reduce the operating costs, the damage on the profit growth was done.

Net margins at 9.34% were lower than 13.27% in Sep-20 quarter but marginally better than 9.03% NPM in the sequential Jun-21 quarter. 

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Vijay Kedia Portfolio

Vijay Kedia Portfolio
by 5paisa Research Team 21/10/2021

Vijay Kedia may have started out in a family of stockbrokers, but his heart always lay in long-term research-based investing. That is what he has fine-tuned over time. Over the last few years, his out of the box thinking and his ability to identify and hold on to small and mid-cap stocks with conviction has been well appreciated. It is not surprising that his investment actions are closely tracked.

As of the close of September 2021, Vijay Kedia held 15 stocks in his portfolio with a market value of Rs.816 crore as of 20th October. Here is a snapshot of his top holdings in rupee value terms.
 

Here is Vijay Kedia's portfolio as of Sept-21.
 

Stock Name

Percentage Holding

Holding Value

Holding Movement

Vaibhav Global

1.8%

Rs.211 crore

No Change

Tejas Networks Ltd

3.4%

Rs.147 crore

Reduced in Q2

Cera Sanitaryware

1.0%

Rs.77 crore

No Change

Sudarshan Chemicals

1.4%

Rs.64 crore

No Change

Repro India

7.5%

Rs.52 crore

No Change

Mahindra Holidays

1.0%

Rs.33 crore

No Change. Bonus Adj.

Ramco Systems

1.8%

Rs.26 crore

No Change

Heritage Foods

1.1%

Rs.24 crore

No Change

Neuland Laboratories

1.0%

Rs.21 crore

No Change


The top-10 stocks account for 80% of the value of the portfolio of Vijay Kedia as of end Sep-21.
Stocks where Vijay Kedia added to the holdings

Let us look at the fresh addition of stocks to his portfolio in the Sep-21 quarter. There have been no significant new additions made by Vijay Kedia during the Sep-21 quarter. While there may have been some minor additions, only additions taking the stake to above 1% of the company get reported and there have been no such specific cases in the quarter.

There were also no significant accretions to the stock holdings during the quarter, although there have been some minor additions in certain stocks. In the case of Mahindra Holidays, the number of shares have gone up by 50% while the percentage holding remains the same. That is because of the effect of the 1:2 bonus issue effected in the quarter, which is largely value neutral to the shareholders.
 

What stocks did Vijay Kedia downsize in his portfolio?
 

There were a number of stocks in which Vijay Kedia has used higher levels to reduce his stake marginally like Vaibhav Global and Elecon Engineering. In terms of significant reductions, there were 3 stake reductions worth noting.

a) Despite being a small stake overall in value terms, Vijay Kedia did reduce his stake in Lykis Ltd by 70 bps from 10% to 9.3%.

b) His holdings in Cheviot Company used to be 1.3% till the June quarter and the fact it is not reported in this quarter shows it has fallen below the 1% reporting threshold.

c) A significant stake reduction was Tejas Networks where the stake has come down by 200 bps from 5.4% to 3.4%. As a result, Tejas has dropped to being the second largest holding in his portfolio after Vaibhav Global.

All the above reductions in stake happened during the Sep-21 quarter.
 

Check - Vijay Kedia's Portfolio - June 2021
 

Vijay Kedia Portfolio Performance in retrospect
 

In a way, Vijay Kedia’s portfolio came a full circle between 2015 and 2020 and despite a sharp rally in 2017, the portfolio value came back to the 2015 levels by September 2020. Hence most of the returns that Vijay Kedia portfolio earned in the last 6 years has been predominantly driven in the last one year only. Let us look at this last one year show.

Between Sep-20 and Sep-21, the portfolio value of Vijay Kedia has gone up from Rs.229 crore to Rs.816 crore. That translates into annualized portfolio appreciation of 256%. It is perhaps a classic case of conviction and staying power in mid and small caps.

Also Check -

1) Radhakishan Damani Portfolio - Sept 2021

2) Ashish Kacholia Portfolio - Sept 2021

3) Rakesh Jhunjhunwala's Portfolio - June 2021

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Rakesh Jhunjhunwala Portfolio

Rakesh Jhunjhunwala Portfolio
by 5paisa Research Team 21/10/2021

Rakesh Jhunjhunwala is known in the stock market by many epithets. From being called the Pied Piper of stock markets to the Big Bull to the Indian Warren Buffett, there is no gainsaying his immense influence on investors. His portfolio changes are also closely tracked and his profits on Titan, by now, are the stuff that legends are made of. Here is a quick look at his portfolio shifts as of end Sep-21.

As of the close of September 2021, Rakesh Jhunjhunwala held 38 stocks in his family portfolio with a market value of Rs.24,235 crore as of 20th October. Here is a snapshot of his top holdings in rupee value terms.

Here is Rakesh Jhunjhunwala's portfolio as of Sept-21.

Stock Name

Percentage Holding

Holding Value

Holding Movement

Titan Company

4.9%

Rs.10,442 crore

Small Increase

Tata Motors

1.1%

Rs.1,838 crore

No Change

CRISIL Ltd

5.5%

Rs.1,163 crore

No Change

Nazara Technologies

10.8%

Rs.942 crore

No Change

Escorts Ltd

4.8%

Rs.921 crore

No Change

SAIL Ltd

1.8%

Rs.866 crore

Increased in Q2

Fortis Healthcare

4.2%

Rs.812 crore

Minor decrease

Jubilant Pharmova

6.3%

Rs.632 crore

No Change

NCC Ltd

12.8%

Rs.614 crore

No Change

Jubilant Ingrevia

5.5%

Rs.593 crore

Reduced in Q2


The top-10 stocks account for 78% of the value of the portfolio of Rakesh Jhunjhunwala as of end Sep-21, with Titan alone accounting for 43% of his total family portfolio.

Stocks where Rakesh Jhunjhunwala added to the holdings

Let us look at the fresh addition of stocks to his portfolio first in the Sep-21 quarter. There were 2 important new additions made by Rakesh Jhunjhunwala to his portfolio. He added a 1.6% stake in Canara Bank via the bank’s equity placement with market value of Rs.569 crore. He also added a 1.4% stake in Nalco, worth Rs.274 crore. Interestingly, both his fresh additions are from the PSU space.

There were also some stocks where Rakesh Jhunjhunwala increased his positions. Firstly, he did make some marginal additions to his holding in Tata Communications. He increased his stake in Titan by around 10 bps in the quarter while his stake in SAIL increased by 40 bps from 1.4% to 1.8% in the September 2021 quarter.

Check - Rakesh Jhunjhunwala's Portfolio - June 2021

What stocks did Rakesh Jhunjhunwala downsize in his portfolio?

In the Sep-21 quarter, Rakesh Jhunjhunwala did make some marginal reductions in his holdings in Crisil, Geojit, Aptech, Fortis and Rallis. Most of these reductions ranged between 2 bps and 8 bps. However there were some significant stake reductions as under.

a) He reduces his stake in Jubilant Ingrevia, part of the Bhartia group, by 80 bps from 6.3% to 5.5% in the Sep-21 quarter.

b) He significant reduced his stake in real estate company, TARC Ltd, by 180 bps from a level of 3.4% to just about 1.6% during the quarter.

c) A very significant stake reduction was in Mandhana Retail, the manufacturers of Being Human apparel, by 540 bps from 12.8% to 7.4%.

d) In the case of 2 stocks, Rakesh Jhunjhunwala’s stake fell below the 1% threshold. In the case of Multi Commodity Exchange (MCX) his stake fell from 4.9% to below 1%. In the case of one of his old favourites, Lupin, his stake fell from 1.6% to below 1%.

All the above reductions in stake happened during the Sep-21 quarter.

Rakesh Jhunjhunwala Portfolio Performance in retrospect.

How did the portfolio perform as of the end of September 2021 quarter compared to different time frames in the past. Interestingly, the portfolio of Rakesh Jhunjhunwala virtually did not make any returns between September 2015 and March 2020, when the markets bottomed out after the pandemic. The real story started after that.

Between Mar-20 and Sep-21, the portfolio value has gone up from Rs.8,356 crore to Rs24,235 crore. That is a 2.9 fold appreciation or you can almost call it a 3-fold increase. That is actually much better than what the Nifty and Sensex have done. If you just consider the last one year between Sep-20 and Sep-21, the portfolio is up by a whopping 87% from Rs.12,945 crore as of one year back.

Also Check:-

1) Vijay Kedia Portfolio - September 2021

2) Radhakishan Damani Portfolio - Sept 2021

3) Ashish Kacholia Portfolio - Sept 2021
 

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Vodafone opts for 4 Year Moratorium on AGR Charges

Vodafone opts for 4 Year Moratorium on AGR Charges
by 5paisa Research Team 21/10/2021

Almost a month after the government offered the telecom relief package, Vodafone idea has opted for the 4-year moratorium which pertains to payment of AGR charges and spectrum usage charges. Bharti is yet to respond to the 4-year moratorium offer. The last date for giving a declaration of intent to avail the moratorium happens to be 29th October.

AGR stand for the Annual Gross Revenues and has been the bone of contention regarding the inclusion of non-telecom revenues. That has been settled by the court and the telecom companies have to pay the AGR dues to the government and the moratorium only allows for postponement of the dues considering the cash flow constraints.

However, even Vodafone plans to avail the facility in tranches. To begin with, the board of Vodafone Idea has only approved the moratorium for the Spectrum Usage Charges and not for the AGR charges. The SUC will now be deferred during the four year period from October 2021 to September 2025.

The Telecom Relief package offered by the government on 15-September included this four year moratorium clause as well as the facility to convert the principal statutory dues to the government into equity; subject to conditions. However, this can be done at the end of 4 years once the moratorium is completed. It will address the cash flows issue but not the profitability issue for the telecom companies.

Vodafone has total debt of Rs.191,000 crore in its books and there were worries that the implosion of Vodafone would have serious repercussions in terms of jobs, dues to banks, dues to the government and dues to other operating creditors. The telecom companies basically have 4 years to bring their operations back on track.

The catch in the entire moratorium story is that the company availing the moratorium facility will have to pay interest on the outstanding amount. This interest will be charged at 2% above the MCLR (marginal cost of funds based lending rate). That would be a substantial cost and add to the eventual liability by a big chunk. 

That explains why telecom companies have been generally wary of jumping at the moratorium offer. Bharti Airtel has already hinted that it may not be too keen to avail the moratorium considering its huge costs.

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