Energetic Rally in the IRCTC Stock
When we talk of ecommerce value creators, the first names that come to our mind are Flipkart, Byju’s, Zomato and Paytm. There was been one listed ecommerce ticketing player doing phenomenally well since its listing in Aug-19. IRCTC came out with its IPO at Rs.320 and got listed in mid-August 2019. Over the last 2 years, the stock price has grown 10-fold from Rs.320 to Rs.3,295, an incredible 221% CAGR.
In the last 10 months since November 2020, IRCTC has grown 2.55 times from Rs.1,290 to Rs.3,295. What triggered such a sharp bounce at a time when Sensex gave around 30% returns? There are 3 factors that can explain this rally since the lows of November 2020.
1) The rapid opening up of economic activity, post COVID 2.0, is likely to be a big boost. It is expected that by December the vaccination process should be done and rail activity should resume in totality. That is a big boost to IRCTC.
2) The National Monetization Plan worth Rs.600,000 crore will entail intense private participation in highways and railways. IRCTC will not be constricted by the monopoly of the Indian Railways as private trains will give a big boost to IRCTC.
3) Lastly, there is a huge investment planned in rail infrastructure and that would mean greater efficiency in the railway network and deeper business prospects for IRCTC. All these factors helped the IRCTC stock in the last 10 months.
Don’t forget the Zomato effect
Most people may not have noticed this, but just look at the performance of IRCTC since the day of Zomato listing on 23rd July. IRCTC is up 42% since the day of Zomato listing. What is the link? It shows that IRCTC with its incredible digital reach may actually be a very cheap franchise on the digital edge that it holds. That could unfold in the coming months.
Cairn Energy to withdraw Legal Cases and Claims against India
Cairn has accepted the terms offered by Indian government to put an end to the legal dispute over retrospective taxation. One condition is that this would only apply in case the other party agrees to withdraw all legal suits and commits not to proceed legally in future.
The dispute goes back to the sale of Cairn India by its parent Cairn UK to Vedanta. The government had sent a tax bill of Rs.10,247 crore to Cairn UK for unpaid capital gains tax. It withheld dividends payable to Cairn UK, held back tax refunds and disposed of shares lying in Cairn demat account to recover dues.
To get back the money from Indian government, Cairn UK had approached the arbitral courts, which had given an order in their favour. With this order, Cairn was trying to recover monies from the Indian government by confiscating global Indian assets including foreign bank accounts, ships and Air India planes.
Things changed after the Indian cabinet approved rescinding retrospective tax legislation. Post scrapping retrospective tax legislation, Indian government offered to refund amounts withheld without interest or penalty. This entails paying back $1 billion to Cairn UK. This payment will be subject to Cairn UK withdrawing all legal cases filed in this regard.
The CEO of Cairn made a statement on 07th September that they were willing to accept the offer of the Indian government. The decision had the approval of institutional shareholders like Fidelity and Blackrock. As per the agreement, Cairn UK will also withdraw all relevant legal cases against Indian government.
This will put an end to the 10-year dispute between Cairn UK and the Indian government. Since Cairn UK was the most prominent retrospective taxation case, it also puts an end to such roadblocks to foreign investment. Interestingly, Cairn UK has committed to distribute 70% of the pay-out by the Indian government as special dividend to its shareholders.
Sansera Engineering IPO - 7 Things to Know
The 40 year old auto component company, Sansera Engineering IPO, will open on 14 September and the issue will close for subscription on 16 September.
Here are 7 things you should know about the IPO about Sansera Engineering IPO
1) Sansera Engineering manufactures precision parts for automobiles and other industrial uses. Its main customers are original equipment manufacturers (OEM). It is a global leader in supply of connecting rods and has 15 operational plants across India.
2) In terms of revenues mix, 88.5% of its revenues come from the auto components business with the balance coming from the industrial precision segment. Sansera derives 65% of its revenues from India and 35% from abroad.
3) For the fiscal year ended Mar-21, Sansera reported revenues of Rs.1,572 crore and net profits of Rs.109.86 crore. The pandemic had impacted revenues in FY20 but FY21 has seen largely normalized revenues.
4) Sansera Engineering brings strong design and engineering capabilities and its diversified portfolio across auto components and industrial components fairly de-risks its business model. It also spreads its risk between domestic and international markets.
5) The entire IPO will be an offer for sale with promoters and early investors offering a total of 1,72,44, 328 shares in the price band of Rs.734 to Rs.744. At the upper end of the price band, the issue will be worth Rs.1,282.98 crore.
6) The book built IPO has a face value of Rs.2. Retail investors can apply in lots of 20 shares up to a maximum of 13 lots representing 260 shares of Sansera Engineering. The issue has allocated 50% for QIBs, 15% for HNIs and 35% for retail investors.
7) The issue will be lead managed by ICICI Securities, IIFL Securities and Nomura Financial Advisory. The registrar to the IPO will be Link Intime India.
The OFS will basically enable Sansera Engineering to list on the exchange and also arrive at a market driven valuation of its business.
Record Premium Collections by Private Life Insurance Companies in Aug-21
Jul-21 was a month of 11% contraction in life premiums but new business premiums (NBP) bounced back to 2.88% growth in Aug-21. Interestingly, while LIC reported lower premiums in Aug-21 comparable to last year, the premium collections of private insurers was sharply higher YoY. Much of this growth came from ULIPs and protection products.
The bigger story was the dichotomy between private insurers and LIC. During Aug-21, the total NBP mop-up was up 2.88% YOY at Rs.27,821 crore. Big daddy LIC saw the NBP falling by -3.82% in Aug-21 to Rs.18,961 crore. However, private insurers saw new business premiums grow by an impressive 20.94% yoy to Rs.8,860 crore.
This is the highest levels of premium collected by private insurers in a month. Private insurers also compensated for the fall in LIC premium collections so the life insurance industry overall ended with growth of 2.88%. For FY22 (Apr-Aug), LIC saw NBP premiums taper by -6.75% YOY while private insurers saw premiums grow 23.05%. As a result, overall NBP premiums FY22 (Apr-Aug) was up 1.62%.
How the Big four private insurers stacked up in Aug-21?
1) SBI Life Insurance: The second largest private insurer reported 24% growth in NBP flows for Aug-21 YOY. However, Aug-21 premiums were up 74% compared to the average for first 4 months of FY22.
2) ICICI Prudential Life: The third largest private insurer reported 43% growth in NBP flows for Aug-21 YOY. However, Aug-21 premiums were up 37.5% compared to the average for first 4 months of FY22.
3) HDFC Life Insurance: The largest private insurer reported muted -6% fall in NBP flows for Aug-21 YOY. However, Aug-21 premiums were up 22% compared to the average for first 4 months of FY22.
4) Max Life Insurance: Max reported 16.5% growth in NBP flows for Aug-21 YOY. However, the Aug-21 premiums were up 34.8% compared to the average for first 4 months of FY22.
Rupee weakens over US Dollar - Currency Market Update
The Indian rupee had been static around Rs.73/$ for a long time. In the last two days i.e. 07 Sep and 08 Sep, the rupee has sharply weakened to Rs.73.58/$. That is a rather sharp weakening in less than two days.
Here are some factors that drove the rupee lower.
a) One of the main reasons was dollar demand from banks and corporates. This demand normally comes up when there are dollar payments due. This led to a spike in value of the dollar and weakening of the rupee.
b) An important reason has been the hardening of the dollar index. The Bloomberg Dollar Index (DXY) measures dollar value against a basket of hard currencies. DXY has been strengthening on hopes that taper will harden the dollar.
c) The dollar has taken cues from the US bond yields. In last 2 weeks, the US bond yield have gone up from 1.23% to 1.36%. This indicates that bond markets are pricing a rate hike by the Fed, which buoyed the dollar.
d) The weakness against dollar is not just with INR, but most Asian currencies. That is because, some portfolio managers are again getting into long-dollar trade, which is likely to put pressure on emerging markets like India.
e) Portfolio flows have also been a factor. After being equity buyers last week, FPIs withdrew $750 million on 06 Sep and 07 Sep. That kind of selling by FPIs has also put pressure on the dollar.
f) Portfolio managers are beginning to express valuation concerns on India with Buffett Ratio shooting up sharply and the India premium over EM valuations at its highest.
The good news is that exporters are selling dollars around 73.70/$ and that could cap the rupee weakness. Clearly, the pressure is visible on the INR after it had appreciated in the last 2 months from 75 levels to 73 levels.
SEBI Announces Optional T+1 Settlement From 01-January
Late on 07th September, SEBI announced that it would roll out optional T+1 settlement cycle for stocks from January 2022. Indian stock markets currently operate under T+2 rolling settlements. In this system, if a long or short equity position is taken on any trading day, it has to be either squared up on the same day or it goes into compulsory delivery and gets settled 2 trading days after the trade date (T).
New SEBI T+1 Settlement New Rules
The rolling settlement system was introduced in India in 2001 on the T+3 format and later shifted to T+2 settlements in 2003. At that point, T+1 was discussed but the idea was put off as market participants felt that the banking system was not geared up to handle T+1 settlements. Market participants and infrastructure providers are now of the view that the banking infrastructure has improved substantially to handle this pressure now. Hence, T+1 would improve liquidity and reduce funds lock-in for clients.
Accordingly, SEBI has announced optional rolling settlement in stocks effective from 01-Jan 2022. Stock exchanges will have the discretion to select stocks to offer T+1 settlement cycle on. The only condition is that once the shift is made to T+1, there would be a minimum lock-in period of 6 months and the exchanges will have to provide 1-month advance notice to the members and other clearing institutions for any future shift.
That means; effective Jan-22, there would be T+2 and T+1 settlement cycles happening simultaneously on the stock exchanges. If a stock is moved into T+1, that would apply for normal deals and for block deals. One catch in this shift is that for brokers the T+1 stock positions cannot be netted against the T+2 stock positions.
Indian banking has certainly come a long way since 2003 and handling T+1 settlement should not be a problem. Another view is that shifting to the T+1 cycle will align equity cycles better with the F&O cycle, which is already in T+1. ANMI has raised objections, but it does look like the benefits of T+1 could outweigh the demerits. Of course, the immediate challenges like netting of cycles may have to be addressed.