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What are investors so excited about IDFC

IDFC
23/07/2021

It is not often that you see IDFC rallying 19% in a single day, but in the last few days, the stock has been on an absolute run. It even scaled its 52-week high price level and touched Rs.62.60 on 22 July. 

IDFC was originally conceived 25 years ago to bankroll India’s infrastructure thrust. In 2014, IDFC got the banking license after which it hived off its infrastructure lending business into IDFC Bank, which commenced operations in Oct-15.

The rally gathered momentum after IDFC confirmed that it was eligible to exit its stake in IDFC First Bank having completed 5 years. Earlier, RBI had clarified that holding companies could exit their banking units, five years after the banks commenced business. 

Since IDFC First Bank had commenced operations in Oct-15, IDFC was officially eligible to exit its stake in IDFC First Bank. IDFC Bank had merged with Capital First in 2018 to form IDFC First Bank.

IDFC currently holds 36.6% in IDFC First Bank through its 100% holding in IDFC Financial Holdings. IDFC also holds 100% in IDFC AMC. However, it must be noted that IDFC has not expressed its intention to exit IDFC Bank. So, what makes markets so excited?

Markets are excited about IDFC for 3 reasons. Firstly, this would mean that the group would be able to engineer a reverse merger of IDFC into IDFC Bank, which is likely to substantially value accretive. 

Secondly, the merger of IDFC into IDFC Bank does away with the need for the parent to systematically reduce its stake in the bank as per RBI regulations. Finally, this merger will ensure that IDFC is not subjected to the traditional holding company discount any longer. That is what, perhaps, excited markets the most!

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Zomato IPO lists with a bang and stays on top

Zomato IPO Listing
23/07/2021

There was an urgency about the Zomato business model. Their food delivery model was based on quick delivery and adherence to the timelines. Not surprisingly, when it came to the Zomato listing, the company took an unprecedented decision to list the company 4 days ahead of schedule; on 23 July instead of 27 July. 

 

If ever there was a statement on timely delivery, this was it. That was on a lighter vein, because even the actual listing and trading on Day-1 was equally eventful. Now, for the listing story of Zomato.

 

With the solid response to the issue and a surfeit of demand from QIBs, it was apparent that Zomato IPO would be priced at the upper end of the band at Rs.76. However, against the discovered IPO price of Rs.76, Zomato IPO listed at Rs.115 on the BSE and Rs.116 on NSE. The listing price was at a premium of 52% over the IPO price.

 

On the NSE, Zomato IPO did come under pressure after scaling higher levels and closed at Rs.125.30, still a premium of 64.87% over the issue price and above the listing price on the first day of trading.

 

On the BSE, the stock closed at Rs.125.85, a premium of 65.59% over the IPO issue price and again well above the opening price on Day-1. It may be recollected that the Zomato IPO had been oversubscribed 38.4 times with strong demand from QIBs.

 

On Day-1 of listing, Zomato touched a high of Rs.138.90 on the NSE and a low of Rs.115. On Day-1, the Zomato stock traded a total of 69.49 crore shares on NSE amounting to value of Rs.8,625 crore. On the NSE, Zomato was the top stock on 23 July in terms of value traded and the second highest on volumes traded.

 

On the BSE, Zomato touched a high of Rs.138 and a low of Rs.114. On the first day, the Zomato stock traded a total of 4.52 crore shares on BSE amounting to value of Rs.576 crore. During the day, Zomato had crossed market capitalization landmark of Rs.100,000 crore but closed the day with market cap of Rs.98,732 crore. However, its free float market cap at the close of Day-1 is just Rs.8,886 crore.
 

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JSW Steel and Ambuja Cements results: Volumes and revenues flatter

JSW Steel and Ambuja Cements results
24/07/2021

Two commodity companies; Ambuja Cements and JSW Steel announced their quarterly results on 23 July. Both had a similar story of strong volume growth and better pricing.

JSW Steel reported 145.31% YoY growth in sales at Rs.28,902cr. Strong growth in steel exports compensated for local pressures due to COVID 2.0. Net profits for Jun-21 quarter stood at Rs5,904cr on volume growth and pricing power compared to net loss of Rs-561cr in the Jun-20 quarter. JSW Steel earned Rs.323 crore from share of profits in Bhushan Steel.

Read: Steel in Demand

JSW Steel reported record crude steel production of 4.10 million tonnes in Q1 with saleable steel of 3.61 million tonnes. Volumes were up 29% yoy with exports growing 14%. EBITDA margin for Jun-21 quarter was 35.5% while net margins were up 500 bps at 20.43%. 

Ambuja Cements reported 50.26% yoy growth in sales at Rs.6,978 crore and has embarked on its ambitious 1.50 million tonnes (MT) capacity expansion at Ropar, Punjab. Net profits for Jun-21 quarter were up 91.78% yoy at Rs.877 crore. For Jun-21 quarter, cement sales volumes grew from 4.19 MT to 6.33 MT. The greenfield Mundwa Marwar plant will start production in Q3.

Also Check : Ultratech Cements Results and ACC Cements Results

For the Q2 Jun-21 quarter, operating EBIT was up 78% with operating EBIT margins expanding 310 basis points to 24.8%. Ambuja Cements gained from higher volumes and cost efficiency gains. EBITDA margins for the Jun-21 quarter were up 90 basis points at 28.70%. Net margins at 12.56% compared favourably with 9.84% in the Jun-20 quarter and 12.28% in the sequential Mar-21 quarter.

Read: Cement Sector Updates

Overall, the story of JSW Steel and Ambuja Cements was a story of YoY growth in volumes and better pricing, although sequential pressure was visible due to COVID 2.0.

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Federal Bank and SBI Cards Quarterly Results - NPA provisioning

Federal Bank and SBI Cards Quarterly Results
24/07/2021

On 23 July, two financial stocks viz. Federal Bank and SBI Cards announced quarterly results. The common threat in both cases was the pressure on loan book created by COVID 2.0.

Federal Bank reported 2.28% rise in revenues at Rs.4,148 crore for the Jun-21 quarter. The actual growth came from other income as interest income was flat. Revenues from retail banking revenues were sharply higher but revenues from treasury operations and corporate banking were lower YoY. 

Profit after tax (PAT) for Jun-21 quarter fell by -12.88% to Rs.357 crore due to a 64% spike in loan loss provisioning at Rs.671 crore due to COVID 2.0 stress. Gross NPAs at 3.51% are relatively comfortable but were higher on YoY and sequential basis. The bigger challenge is the return on assets or the ROA which is extremely low at 0.17%, against a private banking average of 0.50%. Capital adequacy at 15.36% also needs urgent ramping up.

Check: HDFC  Bank Q1 results

SBI Cards & Payment reported 9.66% increase in revenues at Rs.2,362 crore for Jun-21 quarter. On a YoY comparison, the interest income was sharply lower by -18.5% due to lower interest yields. However, this was compensated by a 65% rise in fee income. Some respite came from the doubling of Other income in the Jun-21 quarter.

Net profit for Jun-21 quarter were down -22.55% at Rs.305 crore YoY due to the impact of asset stress on the profits. During Jun-21 quarter, SBI Cards saw gross NPAs spike from 1.35% to 3.91% while net NPAs spiked from 0.43% to 0.88% YoY. Expected credit losses in the Jun-21 quarter were flat at Rs.1,396 crore. Clearly, the asset quality stress appears to have been accentuated by COVID 2.0.

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Reliance Industries Q1 results profits see traction from O2C and Digital

Reliance Ind Q1 Results
24/07/2021

The Reliance Industries quarterly results remain a major event since like in the case of AGM, what is good for Reliance Industries is good for India. And Reliance did not disappoint and actually flattered the street once again. Here is a quick take on the Reliance Q1 results.

Reliance Industries reported 58.24% YoY growth sales at Rs.144,372 crore for the Jun-21 quarter. Oil & petro-chem still dominate the revenue sweepstakes but other verticals are catching on. In revenue terms, O2C (oil to chemicals) dominated with 58% share, followed by retail operations at 22% and digital with 13% revenue share.

Read: Reliance AGM 2021

Overall, the RIL group reported 57% growth in value of goods and services (VGS) at Rs.158,862 crore, which was supported by 71% growth in exports at Rs.56,156 crore. Jio Platforms, the digital vertical, reported 9.8% VGS growth at Rs.22,267 crore while Reliance Retail reported 22% growth in VGS at Rs.38,547 crore. Jio Platforms recorded 38% rise in data traffic at an unprecedented 20.3 billion GB. Reliance Retail added 12,803 stores in the quarter to take its total operating store space to 34.5 million SFT as of Jun-21.

For the Jun-21 quarter, RIL reported record consolidated EBITDA at Rs.27,550 crore. Digital is next to O2C in EBITDA contribution recording 21% growth in EBITDA at Rs.8,892 crore. The average ARPU for the quarter was Rs.138.40 per subscriber per month. Jio added a huge 4.23 crore new customers in the quarter taking its client base to 44.10 crore. 

It does sound like an aberration but there was a strong reason for the lower net profits. Net profits for the Jun-21 quarter fell -7.25% on a yoy basis at Rs.12,273 crore. However, this was entirely due to the exceptional gain of Rs.4,966 crore in the Jun-20 quarter. If you exclude that, the net profit would have grown yoy. Net margins were stable. Overall, it was another quarter in which RIL consolidated its leadership in O2C, digital and retail.
 

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What is Pharma APIs and what API stocks to invest in

Pharma API Stock
24/07/2021

Active Pharma Ingredients (APIs) are the raw materials that go into the manufacture of medicines. Currently, China is the world largest API manufacturer followed by the US and India. However, the gap between them is not too much. The big advantage for India is the potential growth opportunity. 

India’s API industry is estimated at Rs.79,800 crore as of 2020 but it is likely to grow at 8.57% CAGR over next 5 years to Rs.131,000 crore by 2026. Chinese API industry will grow by just 6.5% in the same period. These refer to the merchant API business which are non-exclusive in nature.

Broadly, Indian APIs cater to 7 major therapeutic applications.

  • Oncology
  • Diabetes
  • Cardiovascular Diseases
  • Pain Management
  • Respiratory Diseases
  • Communicable Diseases
  • Central Nervous System issues

In recent times, 3 factors shifted the game in favour of Indian API manufacturers. Firstly, most countries believe that China did play a role in supressing details of the pandemic and hence would prefer to diversify from their overt API dependence on China. Secondly, the Chinese government has clamped down heavily on environmental lapses and API industry has come in for a lot flak, disrupting supply chains. That opened a new window of opportunity for India. Lastly, to promote APIs, government of India also offered Product linked incentives (PLI) scheme for APIs. Here is a look at some major API names in India and thematic investment ideas.

 

Also Read: Glenmark Pharma IPO Information Note

 

What API stocks to buy in India?

Some of the major API players in India include Divi’s Laboratories, Aarti Drugs, Neuland Laboratories, Solara Active Pharma, Granules India etc. In fact, the forthcoming IPO of Glenmark Life Sciences is a pure API play as it gets 90% of its revenues from API sales. Here are 3 API stocks to take a close look at.

  1. Divi’s Laboratories: is a pure play API company which caters to innovator companies. It reported 50% top line and 81% bottom line growth in Jun-21 quarter. With a market cap of over Rs.90,000 crore, Divi has emerged as the second most valuable pharma play.
  2. Aarti Drugs: made its mark as a key paracetamol API maker, which has been a China domain for long. The pandemic saw a huge demand shift in favour of Aarti Drugs, making the stock a multi-bagger. Its APIs for antibiotics like Ciprofloxacin have seen heavy demand. Despite the rally, it remains a solid play on Indian API.
  3. Solara Active Pharma: was formed by demerging the API divisions of Strides and Sequent. It has a huge portfolio of over 50 molecules manufactured across six of its facilities. The stock has doubled in the last 1 year but remains a niche play in APIs.

 

Glenmark Life Sciences IPO: A low hanging fruit, it is the API division of Glenmark Pharma. It promises growth and pedigree to investors along with valuations that are among the lowest in the API peer group. 

API, along with CDMO, is emerging as the big story for Indian pharma. India has the expertise and the companies to make the best of the opportunity.