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Biocon Biologics sells 15% stake to Serum Institute

Biocon Biologics sells 15% stake to Serum Institute
by 5paisa Research Team 17/09/2021

Biocon Biologics, the bio-similars arm of Biocon Ltd, will place 15% stake with Serum Institute Life Sciences, a subsidiary of the Serum Institute of India. Serum Institute is owned by the Poonawala Group. Serum Institute is already the world’s largest vaccine maker and is the Indian licensee and manufacturer of the COVID-19 vaccination, Covishield, a product of AstraZeneca. Adar Poonawala will also get a seat on the board of Biocon Biologics.

 

The 15% stake in Biocon Biologics has been valued at $730 million, so the overall Biocon Biologics subsidiary is being valued at around $4.86 billion. This is higher than the valuation at which a 1.80% stake in Biocon Biologics was placed with Abu Dhabi based ADQ. That had been done at a valuation of $4.20 billion. As part of the deal, Biocon Biologics gets access to 100 million doses of vaccines annually over 15 years, and this will include the COVID-19 vaccine in the initial years.

 

For Biocon, this deal offers a major foothold in the vaccine manufacturing space for the Biocon group, which is expected to be a big growth area in the coming years. While the relationship will begin with COVID-19 vaccines, Biocon Biologics and Serum Institute will also invest in setting up a research division for vaccines. The two companies will make and distribute vaccines and antibody treatments as part of the deal.

 

For Biocon stock, this is an important move because its total market cap stands at $6.3 billion. With Biocon Biosimilars getting a valuation of $4.9 billion and Syngene already having a listed valuation of $3.3 billion, the sum of parts story could prove to be value accretive for the valuation of the Biocon group as a whole. Biosimilars is expected to become a $90 billion opportunity in the near future as more of these products lose exclusivity.

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What explains the huge rally in Zen Technologies stock?

Zen Technologies Stock
17/09/2021

On 20th August 2021, the stock of Zen Technologies was trading at Rs.79 per share. Less than a month later, the stock is trading at Rs.193, giving returns of 144% in less than a month. What is surprising about this sudden rally is that over the last five years, the stock of Zen Technologies did nothing. In fact, if you look at 5-year returns of Zen, it is at the same level of price appreciation as in the last 1 month. What changed for the stock?

The rally in the Zen Technologies stock began with the company receiving a huge Rs.155 crore order from the Indian Air Force for the supply of Counter Unmanned Aircraft Systems (CUAS). Zen specializes in the manufacture of drones and anti-drone systems as well as drone support systems. The Rs.155 crore order was the largest single order that Zen Technologies had received. That was also the time when Zen revealed its outstanding order book position at Rs.402 crore.

However, the big gamechanger for the government hinting at combining the drone PLI scheme with the auto PLI scheme. When the government announced the automobile performance linked incentive (PLI) scheme, it also included Rs.120 crore allocation for incentives to drones. This was a gamechanger as the incentive amount was bigger than the total revenues of drone companies combined. 

However, the government expects the drone revenues to grow from Rs.60 crore currently to Rs.900 crore in the next 3 years on the strength of the PLI scheme for drones. The PLI scheme will cover manufacture of drones, drone components and anti-drone systems. Since Zen Technologies is present in all the three segments, it is expected to be a big beneficiary of the Drone PLI scheme. 

The incentives for drones will be 20% of the value addition, which is likely to add to revenues and margins of Zen Technologies substantially. That seems to have clearly enthused the stock.

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Set up of National Asset Reconstruction Company (NARCL) for Bad Bank

National Asset Reconstruction Company
by 5paisa Research Team 17/09/2021

On 16th September, the government announced plans for a Bad Bank with assured government guarantees of Rs.30,600 crore. The structure will be something like this. There will be the National Asset Reconstruction Company (NARCL) which will hold and manage the assets. Then there will be the India Debt Reconstruction Company (IDRCL), which will handle the operational part like appointing consultants, turnaround specialists, assessing the net asset value of the loan etc.

The Bad Bank will be implemented in 2 phases. In the first phase, Rs.90,000 crore of loans will be taken and in the second phase Rs.110,000 crore of stressed loans will be assumed. The total loans of Rs.200,000 crore will be first assessed for NAV. Based on the NAV, the NARCL will pay out 15% in cash and the balance 85% in the form of security receipts (SR). These SRs will be guaranteed for their value by the government up to Rs.30,600 crore.

However, the government guarantee comes with 2 conditions. Firstly, the entire resolution will have to be completed within a period of 5 years, failing which the guarantee will be revoked by the government. Hence this puts a sense of urgency. Secondly, the guarantee will require the company to file for liquidation. This will ensure that they fall back upon the government guarantee only in extreme cases.

The timing of the Bad Bank coincides with the spurt in recoveries. The Finance Minister has confirmed that banks have recovered over Rs.5 trillion in the last 6 years of which over 60% were recovered in the last 3 years. The time is ripe for pushing this Bad Bank idea through so that future resolutions can be smoother.

How will it impact banking stocks. PSU banks with relatively better asset quality like Bank of Baroda and Indian Overseas Bank, that can realize good NAV on their stressed loan books, will be the big beneficiaries of this Bad Bank move.

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Weekly Stock Market Wrap Up - 20th September

Weekly Stock Market Outlook
by 5paisa Research Team 18/09/2021

NIFTY 50

Nifty closed on a negative note at 0.25% near 17585.15 levels on friday. The market breath was bearish with 15 advances against 34 declines and 1 remain unchanged.  FMCG, IT, Metals, Pharma, PSU Banks, Realty index ended the session on negative note while Auto, Financial services, Media, private banks ended the session in green zone. 

NIFTY BANK

Nifty bank closed on a positive note near 37811.95 levels.  Kotakbank, hdfcbank, axisbank were top gainers while PNB, BANDANBNK, IDFCFIRSTB were top losers. 

Weekly Top 3 Gainers (13th Sept - 17th Sept)

SCRIP

LTP

%CHANGE

Thirumalai Chem

281

+41.88

ZEEL

255.30

+39.55

Surya Roshni

770.70

+39.48

 

Weekly Top 3 Losers (13th Sept - 17th Sept)

SCRIP

LTP

%CHANGE

BPCL

436..05

-11.20

Vaibhav Global

718.70

-9.16

GSPL

320.80

8.16

 

Weekly Chart- Nifty50

Nifty 50

 

For Nifty ended the day with red candle on daily chart but on weekly chart nifty formed bullish candle. On daily chart it formed a dark cloud-cover sort of candle pattern buyers push the price higher at the open, but sellers take over later in the session and push the price sharply lower. This shift from buying to selling indicates that a price reversal to the downside could be forthcoming.

Although on weekly time frame it ended the weekly session on positive but we can expect some fight between bulls and bears, every dip would be a buying opportunity.

Nifty find support near 17250 while 17800 will act as a psychological resistance.

Weekly Chart - BankNifty

Bank Nifty

 

RSI plotted on the weekly time frame, remains above the 50 mark and is drifting higher, indicating the bulls are trying to maintain their hold on the index. Prices had given breakout of its resistance zone and managed to close above it which further indicates buying in coming session.

Banknifty support is placed near 36150 while on higher side 38500 will act as an immediate resistance.

 

Call For The Week:

Call for the week

 

CALL : BUY RELIGARE ABOVE 175 SL 165 TGT 185 or higher levels.

Description:

RELIGARE has been moving higher recently and intact in strong uptrend. In the previous session it closed with a gain of 1.96%.

On the daily chart, in the previous session the stock formed a bullish candle. We can see rounding bottom pattern has formed. A close above 175 will confirm breakout of rounding bottom pattern. Price is trading above the ichimoku cloud which indicate that the short term bias is bullish.

On the hourly chart, parabolic SAR which used to determine the price direction as well as draw attention to when the price direction is changing. A series of dots placed below the price which is deemed to be a bullish signal. Closest support is placed at 165.

In short, trend for this stock is positive. A break above 175 can lift price higher towards 183-185 levels as long as 165 holds on the downside.

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Why did FIIs Invest Rs.16,300 crore in September?

FII invest
19/09/2021

During the month up to 17-September, the foreign institutional investors (FIIs) infused Rs.16,305 crore into Indian markets. Out of this, the FIIs infused Rs.11,287 crore into equities and Rs.5,018 crore into debt. This is almost equal to the total infusion by the FIIs in the entire month of August. What has driven the surge in FII flows into India? After all, the IPO scene in September is hardly as aggressive as it was in August.

FII inflows into debt were driven by 3 reasons. Firstly, there is the stable to strong rupee, which ensures that returns are protected or enhanced in dollar terms. Secondly, the yield spread between Indian bonds and US bonds widened by more than 480 basis points due to a sharp fall in US bond yields. Thirdly, FIIs are also being attracted to Indian bonds on hopes that they will be included in the JP Morgan Bond Index, encouraging passive flows.

In the last few days, a series of far-reaching reforms pushed up FII appetite for Indian equities. The government announced an aggressive Rs.26,000 crore automobile & drone PLI scheme and set in motion the creation of a bad bank to take over stressed banking assets. In addition, the Telecom Relief Policy was a pleasant surprise while the recent aviation capacity boost also enthused FII investors.

Also Read: Which auto stocks gain from Rs.26,058 crore PLI scheme?

However, flows are not restricted to India alone as most Asian emerging markets saw robust flows in September. For instance, FIIs infused $2.60 billion into Taiwan, $535 million into South Korea and $290 billion into Thailand. Even Indonesia got $162 billion of FII inflows in September. Even as valuation risks are still prominent for EMs, FIIs see these EMs as compelling alpha stories.

There are two events to watch out for. The FOMC meets on 21st and 22nd September and is expected to give a timeline for taper. The likely Evergrande implosion in China is also an event that could have negative implications for Asian EMs, including India. That may set the tone for the coming weeks.

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Ministry of Civil Aviation allows Airline Companies to Fly with 85% Capacity

Ministry of Civil Aviation
by 5paisa Research Team 19/09/2021

On Saturday, 18th September, the Ministry of Civil Aviation allowed domestic carriers to operate flights at 85% of pre-COVID levels. This was 50% in June, 65% in July, 72.5% in August and has now been increased to 85%. In a way, this is almost a reversal back to the December 2020 levels.

Last year, in the face of COVID-19, the Civil Aviation Ministry had cut down flying ratio substantially but had gradually raised it to 80% by December 2020. It stayed at 80% till May-21 but was subsequently dropped to 50% in Jun-21 due to the onset of COVID 2.0. This increase in flying capacity to 85% will help flights to inch back to normalcy.

For airline companies, this comes as a major boost to their operating performance. In the airline industry, every empty seat and every idle aircraft entails a huge cost. That is because, huge fixed costs in the form of lease rentals, airport charges, maintenance costs and manpower costs continue as usual. Hence, the trick lies in improved capacity utilization.

The passenger load factor (PLF) had touched 70% in Aug-21 with 34% yoy increase in flyers. That PLF is now likely to increase further with the capacity allowed at 85%. The PLF is a key factor that impacts the RASK-CASK spread. The revenue per average seat kilometre (RASK) is currently below the cost per average seat kilometre (CASK) for all the major airlines in India, which explains the huge losses. Higher PLF will reduce that burden.

Both the listed airlines; Interglobe (Indigo) and SpiceJet stand to gain from this move. Of course, Indigo is a decisive leader with 58% market share, so it is an obvious beneficiary. SpiceJet will be able to gain market share, as it benefits from its fleet of Boeing 737-Max back in the skies.

In a related announcement, the Civil Aviation Ministry also revised the timelines for fare bands on airline ticket prices to 15 days from 30 days currently.

Read more:- DGCA lifts ban on Boeing 737 Max Aircraft