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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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Adani Group Outlines $70 billion Green Energy Plan

Adani Group Outlines $70 billion Green Energy Plan
by 5paisa Research Team 20/10/2021

It is said that Gautam Adani is not used to thinking small. His emergence as one of the most formidable names in the infrastructure space was largely thanks to his aggressive approach to doing business. The latest example is his big bet on green energy. The latest big numbers may sound mindboggling, but that is the kind of plans that Adani has for green energy. The group will invest $50-70 billion over next 10 years in the green energy space.

Check - Adani Pays $3.50 Billion in SB Energy Holdings

Speaking at the Global Investment Summit in UK, Adani outlined his base plan to invest $20 billion over the next 10 years purely in renewable energy generation. In addition, the total organic and inorganic investments in the entire spectrum of green energy would end up in the range of $50 to $70 billion. At the upper end, that is roughly Rs.530,000 crore.

Adani has gone further to underline that out the total investments planned by the Adani group across various businesses, nearly 70% of the investments would only be in the area of sustainable technologies. This will include electrolyzer manufacturing, backward integration into sustainable energy components, supply chain products for renewables etc. In addition, the group will also invest in the confluence of digital and green energy like AI and Cloud.

Here are specific targets outlined by Gautam Adani at the Summit

a) Adani Green Energy will triple its renewable power generation capacity over the next 4 years from 25 GW to 75 GW. Adani Green is already the world’s largest solar power producer as of date in terms of installed capacity.

b) Adani group plans to become one of the largest green hydrogen producers in India and also emerge as the cheapest producer of hydrogen. This is an area where even Reliance Green is very active and aggressive.

c) The Adani group plans to become the world’s largest renewable energy company by 2030; as a dominant player straddling the entire chain from manufacturing equipment, producing supply chain components as well as actual renewable power generation.

In the last Reliance AGM, the group had outlined plans to invest $10 billion in green energy and become net carbon neutral by 2035. It looks like the Adani group is leaving no stone unturned to stamp its impact on green energy.

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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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