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Reliance Allowed to Seek Creditor Nod for Future Group Deal

Reliance Allowed to Seek Creditor Nod for Future Group Deal
by 5paisa Research Team 19/10/2021

In an interesting development, the NCLT Mumbai Bench permitted Reliance Retail Ventures to call for an Extraordinary General Meeting (EGM) to seek approval of its creditors and shareholders for the Future group merger deal. The NCLT Mumbai Bench also ruled that the objections raised by Amazon were premature and could be dealt with later.

The Rs.24,713 crore merger deal between Future group and Reliance Retail Ventures had run into legal wrangles after Amazon had objected to it. Amazon has an indirect stake in Future Retail due to its 49% stake in Future Coupons. Amazon’s contention was they should have been given the first right of refusal on account of the non-compete clause.

Check - Reliance Takes Over Future Group; So What is the Big Deal?

This ruling of the NCLT is all the more interesting because on 28-Sep, the NCLT had permitted six of the Future group companies to seek approval of creditors and shareholders via EGM for the proposed restructuring of companies ahead of the merger with Reliance Retail. However, since the Supreme Court final order on the subject is still pending, the NCLT has underlined that this is just a preparatory step ahead of the final Supreme Court order.

As the next step, the Future group companies will hold their respective EGMs between 10-Nov and 14-Nov while RRVL will hold its EGM on 30-Nov. The merger will still be subject to the final verdict of the Supreme Court in this subject. Future group companies and Amazon are parties to the litigation, which is pending with the Supreme Court.

Post the merger deal announcement in Aug-20, Amazon had approached the Singapore International Arbitration Centre (SAIC), which had asked for the merger to be put on hold till the final verdict. Future had objected to the jurisdiction of the SAIC, but the Supreme Court has set that debate to rest by ruling that Future group is bound by the SAIC decision.

Under the terms of the merger deal, Future Retail, Future Consumer, Future Supply Chain and Future Lifestyle Fashion will first merge into Future Enterprises. While the retail and wholesale business will be transferred to a subsidiary of RRVL, the logistics and warehousing business will be directly transferred by Future group to RRVL. 

Post the deal, Future group will repay its debt, but will be only left with a handful of businesses, including the 2 insurance joint ventures.

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Domestic Air Passenger Traffic Grows by 5.45% in September 2021

Domestic Air Traffic Grows by 5.45% in September 2021
by 5paisa Research Team 19/10/2021

If Aug-21 seemed like a good month with over 67 lakh passenger flying domestically, Sep-21 has done even better. The Sep-21 figure was higher than the August figure by 5.45% at 70.66 lakh passengers. These numbers were reported by the Directorate General of Civil Aviation (DGCA), which puts out monthly passenger traffic numbers.

On a YoY basis, the passenger traffic for Sep-21 was up by 79%, but that may be a tad misleading as the corresponding month of Sep-20 was an exceptionally tepid month wherein the flying percentage was much lower. In September, flights were allowed to operate at 85% of pre-COVID capacity as compared to just 72.5% in Aug-21.

There have been a number of factors for this surge in passenger traffic, apart from the higher flying ratios permitted and the higher PLF. One reason was the pent-up demand or the revenge spending as it is called. Also, the festival travel has shown a surge in the month of September and flying for non-business purposes was quite robust in Sep-21.

If you consider the 9 months period between Jan-21 and Sep-21, then the total passengers ferried stood at 531 lakhs. This is about 20.5% higher than the passenger traffic in the first 9 months of year 2020. Again, this is not strictly comparable since the period between March 2020 and May 2020 was a virtual aviation washout due to flying restrictions.

It may be recollected that in Jun-21, the flights were forced to reduce the flying to just 50% of pre-COVID capacity to limit the spread of COVID 2.0. However, that has now been raised to 100% in October. That should result in the PLF or passenger load factors getting back to the 85% plus levels, which is where airlines can once again hope to return to profitability.

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

The overall aviation industry is likely to benefit from this demand surge. For Sep-21, Indigo Airlines had a commanding market share of 56.2% while Air India, Go Air, Spice Jet and Vistara all had market share of 8-9% each. Air Asia had a share of around 5.5% in Sep-21. The big challenge for other airlines will now be to take back their market share from Indigo.

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Policybazaar gets SEBI Approval for its Rs.6,017 Crore IPO

Policybazaar gets SEBI Approval for its Rs.6,017Crore IPO
by 5paisa Research Team 19/10/2021

SEBI has given its approval for the Rs.6,017 crore IPO of PB Fintech. Incidentally, like in most cases, this is another case of the digital brand being better known than the promoting company. PB Fintech is the company that owns and operates some of the marquee digital brands like Policybazaar and Paisabazaar. The IPO is expected around the last week of October with Post Diwali listing.

PB Fintech is targeting valuation of around $7 billion for the entire property. In rupee terms, that would translate into a starting IPO market cap of around Rs.53,000 crore. Policybazaar is a digital platform that allows uses to select the insurance policy that is best suited to them based on a variety of parameters that customers can specify. 

Policybazaar not only offers a digital platform to research and compare insurance policies from different originators, but it also enables transaction fulfilment through the portal itself. Paisabazaar, another property of PB Fintech, is into arranging of loans from leading financiers for customers based on a digital evaluation of credit needs and credit scores.

The Rs.6,017 crore IPO will comprise of a fresh issue of Rs.3,750 crore and an offer for sale of Rs.2,267 crore. Out of the total OFS size of Rs.2,267 crore, nearly Rs.1,875 crore worth of shares will be offered by early investor, Softbank Vision Fund Python. Tencent of China owns 9% in Policybazaar but will not be participating in the OFS. The founders of Policybazaar will also be looking to monetize part of their holdings via OFS.

Check - Policybazaar file for IPO

The digital business is an upfront spend-heavy business and requires a lot of investment in customer development, branding etc. Policybazaar will use a large part of the fresh issue proceeds towards enhancing the visibility and awareness of the brands as well as for customer acquisition. The company will also explore organic and inorganic expansion.

Among the major early investors in Policybazaar, Softbank of Japan owns around 15.76%, Tencent of China holds 9% and Claymore Investments owns 6.26%. Interestingly, Info Edge, owns a 14.56% stake in Policybazaar. It may be recollected that Info Edge was also the largest investor in Zomato although it had only sold a small part of its holdings in the OFS.

Also Read:-

List of Upcoming IPOs in October 2021

List of Upcoming IPOs in 2021

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China’s GDP Growth Slows and What it Means for India

China’s GDP Growth Slows and What it Means for India
by 5paisa Research Team 19/10/2021

The global markets were up against negative data flows on 18th October. For the third quarter ended Sep-21, China reported GDP growth of just 4.9%. That is a full 300 bps lower compared to 7.9% GDP growth reported in the Jun-21 quarter. The two major reasons for the fall in growth were stringent anti-COVID measures and a massive power shortage.

There were some positives like the retail sales of consumer goods in China inching up to 4.4% in Sep-21 as  compared to 2.5% in Aug-21. However, this is still well below the double-digit growth in consumer good sales till the month of June. In the midst of all these news flows, Evergrande is teetering on the brink of insolvency, with global ramifications.

Check - How China’s Evergrande Could Create a Major Crisis?

The real crisis that China is up against is the power crunch. To an extent, the situation is similar to India. Both, India and China depend heavily on thermal power generation to the extent of 70% of their power needs. That means, their ability to generate power is largely dependent on coal supplies. Two things changed in the last few months.

Firstly, China has been reducing its dependence on Australian coal due to its proximity to the US and their plans for creating a QUAD alternative. Secondly, the coal prices globally have gone up 4-fold in the last 5 months due to global shortage of coal caused by surge in power demand. As China recovers, this power crunch is proving to be the stumbling block.

The Chinese government has, meanwhile, come down heavily on a number of businesses in China including chemicals, pharmaceuticals, digital plays, education industry etc. All these have dampened sentiments and impacted growth.

For India, this has some key implications. Firstly, if the slow growth is combined with the Evergrande crisis, China could be up against a hard landing. That would mean a sharp fall in demand for metals, alloys and minerals. That would turn the tables against India’s robust commodity plays and impact India’s GDP growth as well as stock market valuations.

The other side of the story is what happens to the Yuan. With Evergrande and a likely hard landing, PBOC may be inclined to let the Yuan weaken. As we have seen in 2015, that can have a deep impact on the INR.

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Hindustan Unilever and Nestle India Share Q2 Results

Hindustan Unilever and Nestle India Share Q2 Results
by 5paisa Research Team 19/10/2021

Two of India’s most promising FMCG companies declared their quarterly results for Sep-21 quarter. In both the cases, the theme was the same. Higher input costs evaporated some of the top line gains but price hikes could be passed on due to better bargaining power for both these companies. Here is a quick dekko.
 

Hindustan Unilever: Q2 Results Sep-21 quarter


Hindustan Unilever top line revenues were up 11.67% YoY at Rs.13,046 crore. Net profits for the quarter were up 10.49% at Rs.2,181 crore. Hindustan Unilever saw aggressive revenue growth across home care, beauty, personal care and food and refreshments.

 

 

Hindustan Unilever

       

Rs in Crore

Sep-21

Sep-20

YoY

Jun-21

QOQ

Total Income (Rs cr)

₹ 13,046

₹ 11,683

11.67%

₹ 12,194

6.99%

Operating Profit (Rs cr)

₹ 2,945

₹ 2,660

10.71%

₹ 2,661

10.67%

Net Profit (Rs cr)

₹ 2,181

₹ 1,974

10.49%

₹ 2,097

4.01%

           

Diluted EPS (Rs)

₹ 9.28

₹ 8.40

 

₹ 8.92

 

OPM

22.57%

22.77%

 

21.82%

 

Net Margins

16.72%

16.90%

 

17.20%

 


In terms of top line revenues, the home care segment grew 15.7%, beauty & personal care business grew 10.5% and the foods & refreshments vertical grew 7.2% on a YoY basis. In terms of operating profit growth; home care grew 7.4%,  beauty & personal care grew 5.3% and the big boost to growth in profits came from foods & refreshments at 18.8%. 

Check - Hindustan Unilever Quarterly Results

HUL reported healthy EBITDA margins of 25% on the back of calibrated price increases as it managed to pass on some of the cost increases to the end customer. Hindustan Unilever also declared an interim dividend of Rs.15 per share. It reported Net margins at 16.72%.
 

Nestle India: Q3 Results Sep-21 quarter


Nestle India top line revenues grew by 9.62% in the Sep-21 quarter at Rs.3,882.57 crore. Net profits were up 5.16% at Rs.617.37 crore as higher input costs took a toll on operating margins. The growth for Nestle was driven by domestic business as the sales growth of 9.6% was driven by 10.1% growth in domestic sales and 1.3% growth in export sales.

 

 

Nestle India

       

Rs in Crore

Sep-21

Sep-20

YoY

Jun-21

QOQ

Total Income (Rs cr)

₹ 3,882.57

₹ 3,541.70

9.62%

₹ 3,476.70

11.67%

Operating Profit (Rs cr)

₹ 852.46

₹ 792.48

7.57%

₹ 752.71

13.25%

Net Profit (Rs cr)

₹ 617.37

₹ 587.09

5.16%

₹ 538.58

14.63%

           

Diluted EPS (Rs)

₹ 64.04

₹ 60.89

 

₹ 55.86

 

OPM

21.96%

22.38%

 

21.65%

 

Net Margins

15.90%

16.58%

 

15.49%

 


For the third quarter ending Sep-21, Nestle saw growth across all the major categories including food, beverages and confectionary categories. While the ecommerce channel of sales is building market share, the OOH or out of home channel has also got a boost as life returns to normalcy.

Nestle did take a hit on account of input costs spike. That was evident in operating profit growing by just 7.57% and the operating margins tapering from 22.38% in the Sep-20 quarter to 21.96% in the Sep-21 quarter. But a good part of the cost spikes have been passed on to the end customer via price hikes across product categories.

Nestle declared a second interim dividend of Rs.110 per share. The net profit margins at 15.90% were lower than 16.58% in Sep-20 quarter.

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Reliance Retail Buys Stake in Ritu Kumar's Collection

Reliance Retail Buys Stake in Ritu Kumar's Collection
by 5paisa Research Team 20/10/2021

It looks like Reliance Retail has a real eye for fashion labels. Less than a week after Reliance Retail bought a 40% stake in Manish Malhotra’s company, MM Fashions, they have made their next big purchase. Reliance Retail has now bought a 52% stake in the Ritu Kumar Label. While Manish Malhotra has become the first port of call for ravishing Bollywood celebrities, Ritu Kumar has focused on the upper end market with more of ethnic lines.

The price at which the stake has been bought in Ritu Kumar label has not been made public. What is known is that Reliance Retail will buy 35% from the PE fund, Everstone, and the balance 17% from other stakeholders. Ritu Kumar is generally credited with introducing designer wear and upmarket label brands in the Indian scenario. It has been in existence since the late 1960s.

The Ritu Kumar brand broadly covers 4 critical sub-brands. These include Label Ritu Kumar, RI Ritu Kumar, Aarke and Ritu Kumar Home & Living. For Reliance, this acquisition gives them a huge brand image and reach in the ethnic designer wear with an established name in the upper end of the market. For the Ritu Kumar label, this gives them the opportunity to corporatize and grow with a bigger balance sheet.

The trend in fashion brand marketing in India is gradually moving towards the European model where large brands are corporatized. For example, the promoters of Zara and LVMH are among the wealthiest people in the world and have been driven by a corporate culture introduced into the fashion industry. For Reliance Retail, this is an answer to Aditya Birla Fashions buying stakes in big brand lines like Tarun Tahiliani and Sabyasachi.

In a way this is a marriage of boutique stores and corporate scale, which is likely to be the future paradigm. Designer labels are constrained for want of a larger balance sheet. For Reliance Retail, this is one more step towards the larger omnichannel dreams. Under the Omnichannel approach, offline, online, proprietary labels, outsourced labels, ethnic labels and chic labels will coexist under the same roof. It is the balance sheet that really matters.

Also Read:- 

7-Eleven to Open its First Store in India in Partnership with Reliance Retail

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