What is Driving the Rally in Specialty Chemical Companies

Speciality Chemicals
27/07/2021

Specialty chemicals companies have been in the news for all the right reasons. Take a look at how 8 major specialty chemical companies in India performed over last 1 year.

Company

CMP (27 Jul)

52-Week High

52-Week Low

Returns from Low

Aarti Industries

Rs.897

Rs.932

Rs.470

90.85%

Atul Ltd

Rs.9,079

Rs.9,660

Rs.4,851

87.16%

Gujarat Fluoro

Rs.1,655

Rs.1,773

Rs.367

350.95%

Alkyl Amines

Rs.4,639

Rs.4,749

Rs.893

419.48%

Balaji Amines

Rs.3,391

Rs.3,441

Rs.555

510.99%

Navin Fluorine

Rs.3,677

Rs.4,015

Rs.1,692

117.32%

Vinati Organics

Rs.1,930

Rs.2,132

Rs.963

100.42%

Clariant Chemicals

Rs.591

Rs.620

Rs.288

105.21%

Data Source: NSE

Most of the major specialty chemical companies (excluded recent listings) have done very well in the recent past. The most recent trend was the phenomenal performance of specialty chemicals stocks on 26 July on hopes of solid first-quarter results.

 

What is so special about specialty chemicals?

Specialty chemical companies have been building scale over last few quarters. The environmental clampdown in China served the cause of Indian specialty chemical companies. The pandemic forced a lot of global consumers of specialty chemicals to shift some demand to India. That is the long-term story, which is evident in the above table. On 26 July, specialty chemical stocks rallied on Q1 expectations.

Most specialty chemicals players touched new highs on 26 July on strong earnings expectations for Q1. Chemical analysts are factoring in double-digit growth for specialty chemical companies in the Jun-21 quarter led by a spurt in demand and better pricing power. Specifically, the CRAMS portfolio of specialty chemical companies is expected to do exceedingly well. The only challenge is the higher input costs, which is likely to impact OPMs by 100-200 bps. However, analysts are confident that specialty chemical players can easily pass on these costs.

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Canara Bank and IndusInd Bank – Quarterly Results

Canara Bank and IndusInd Bank – Quarterly Results
28/07/2021

Canara Bank reported 2.53% increase in total revenues at Rs.23,289 crore for the Jun-21 quarter. Net profits were up 158% at Rs.1,235 crore due to higher other income and lower loan loss provisions. Tepid interest income and investment income were compensated by higher other income in the quarter.

Canara Bank Quarterly Results

Rs in Crore

Jun-21

Jun-20

YOY

Mar-21

QOQ

Total Income

₹ 23,289

₹ 22,714

2.53%

₹ 23,774

-2.04%

Net Profit

₹ 1,235

₹ 479

157.90%

₹ 1,196

3.24%

Diluted EPS

₹ 7.50

₹ 3.29

 

₹ 7.26

 

Net Margins

5.30%

2.11%

 

5.03%

 

Gross NPA Ratio

8.52%

8.87%

 

8.94%

 

Net NPA Ratio

3.46%

3.95%

 

3.82%

 

Capital Adequacy

13.46%

12.85%

 

13.27%

 

 

Retail banking revenues were higher by 5% while treasury income was higher by 10% in the Jun-21 quarter but corporate banking revenues were down. Fortunately, other income was up 39.7% at Rs.6,233 crore. Provisions for NPAs in the Jun-21 quarter were 34% lower at Rs.2,340 crore. Gross NPAs tapered by 42 bps to 8.52%, but still high in absolute terms.

PAT margins were 5.30%  in Jun-21 quarter against 2.11% in Jun-20 quarter and 5.03% in Mar-21 quarter. Capital adequacy is a little uncomfortable at about 13.46%. Any aggressive expansion of the loan book will need additional capital buffers.

IndusInd Bank reported 7.84% higher revenues at Rs.9,363 crore in Jun-21 quarter. However, net profits doubled to Rs.1,016 crore due to lower provisioning for loan losses. Net interest income was up 8% while NIMs were healthy at 4.06%. IndusInd had a total customer base of 2.9 crore as of Jun-21.

IndusInd Bank Quarterly Results

Rs in Crore

Jun-21

Jun-20

YOY

Mar-21

QOQ

Total Income

₹ 9,362.76

₹ 8,682.17

7.84%

₹ 9,199.71

1.77%

Net Profit

₹ 1,016.11

₹ 510.39

99.09%

₹ 926.22

9.71%

Diluted EPS

₹ 13.11

₹ 7.36

 

₹ 12.09

 

Net Margins

10.58%

5.88%

 

10.07%

 

Gross NPA Ratio

2.88%

2.53%

 

2.67%

 

Net NPA Ratio

0.84%

0.86%

 

0.69%

 

Capital Adequacy

17.57%

15.16%

 

17.38%

 

 

While treasury income and corporate banking revenues were flat in Jun-21 quarter, retail banking revenues were up 22% at Rs.5,686 crore. Deposits grew 26% with CASA deposits growing 33% yoy. IndusInd had higher cost to income ratio of 40.38% while liquidity coverage ratio was healthy at 146%.

Gross NPAs at 2.88% was 21 bps higher yoy but the panic of Mar-20 is well and truly behind. The bank reported healthy ROA of 1.17%, even as capital adequacy was relatively comfortable at above 17%. 

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Equitas Holdings and Equitas SFB Amalgamation

Equitas Holdings and Equitas SFB Amalgamation
28/07/2021

The proposed amalgamation of Equitas Holding and Equitas Small Finance Bank (SFB) was already on the cards after RBI consented to reverse merger of bank holding companies after 5 years of operations. During the week, the amalgamation of Equitas Holdings and Equitas SFB was approved by their respective boards.

Merger model of Equitas Holdings and Equitas SFB

This is not a merger, but a reverse merger. Equitas Holdings is the holding company with 81.7% stake in Equitas SFB. Since Equitas SFB has the small bank license, it is Equitas Holdings that will have to merge into Equitas SFB. Under the terms of the merger, Equitas SFB will issue 226 shares to the shareholders of Equitas Holdings, for every 100 they held. 

The plan entails the "dissolution without winding-up" of Equitas Holdings after its merger with Equitas SFB. The merger is subject to regulatory approvals but should be completed by 01 November. After amalgamation, Equitas Holdings will cease to exist and Equitas SFB will be the surviving company.

Read: SFBs boosts as they can absorb the holding company

Why is the Equitas merger so important?

There are 3 reasons that this merger makes business sense.
 

1.   Firstly, holding companies have to reduce their stake in banks and SFBs to below 40%. This either leads to loss of control or dilution of capital. These risks can be avoided via the reverse merger route.

2.   Secondly, RBI clarified that holding companies can exit their stake in banks once it completes 5 years of operation. Holding companies are free to sell out after that.

3.    Finally, the holding company discount which is the bane of most holding companies can be avoided via this reverse merger.


The Equitas merger will set the tone for other similar structures like Ujjivan and IDFC to also go for a similar kind of arrangement. 
 

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Dr. Reddy Labs and Torrent Pharma - Quarterly Results

Dr. Reddy Labs and Torrent Pharma
28/07/2021

Dr. Reddy's Laboratories reported 11.72% growth in net sales at Rs.4,945 crore for the Jun-21 quarter. However, net profits were down -36% at Rs.380 crore on account of a Rs.184 crore asset impairment write-off in the Jun-21 quarter. Global generics sales were higher yoy but the API business was down. For Reddy Labs, the US accounts for 35% of revenues while India and other emerging markets account for 41%.

Dr. Reddy's Laboratories Quarterly Results

Rs in Crore

Jun-21

Jun-20

YOY

Mar-21

QOQ

Total Income (Rs cr)

₹ 4,945

₹ 4,427

11.72%

₹ 4,768

3.71%

Net Profit (Rs cr)

₹ 380

₹ 595

-36.02%

₹ 557

-31.74%

Diluted EPS (Rs)

₹ 22.89

₹ 35.78

 

₹ 33.51

 

Net Margins

7.69%

13.43%

 

11.69%

 

Gross margins at 52.2% was marginally lower than previous quarters. The positive feature of the quarter was R&D expenses at Rs.453 crore or 9.2% of revenues.  For the Jun-21 quarter, the EBITDA margins stood at 20.7% while free cash flows (FCF) was at Rs.680 crore. Indian revenues were driven by COVID drug sales. Net margins for Jun-21 quarter stood at 7.69%; lower than 13.43% in Jun-20 quarter and 11.69% in Mar-21 quarter.
Among brokerages, Axis Securities, HDFC Securities and BNP Paribas have upgraded their price target while ICICI Securities had downgraded Reddy Labs to Hold.

Torrent Pharma Ltd reported 3.79% growth in net sales at Rs.2,134 crore for Jun-21 quarter. Net profit for the Jun-21 quarter was up 2.8% at Rs.330 crore on stable EBITDA margins and gross margins in the India business. During the quarter, Torrent Pharma launched anti-COVID drug, Bariticinib, which is currently under clinical trials for Molnupiravir. India revenues were up 18% at Rs.1,093 crore while the US sales were down -29% at Rs.266 crore. Due to price erosion. Germany grew 5%, Brazil 9% while CRAMS vertical grew 6% yoy.

Torrent Pharma Quarterly Results

Rs in Crore

Jun-21

Jun-20

YOY

Mar-21

QOQ

Total Income (Rs cr)

₹ 2,134

₹ 2,056

3.79%

₹ 1,937

10.17%

Net Profit (Rs cr)

₹ 330

₹ 321

2.80%

₹ 324

1.85%

Diluted EPS (Rs)

₹ 19.53

₹ 18.98

 

₹ 19.16

 

Net Margins

15.46%

15.61%

 

16.73%

 

Torrent Pharma reported gross margins of 72.4% and EBITDA margins of 34% in the Jun-21 quarter. Till June, Torrent Pharma had 54 ANDAs pending for approval with USFDA with 7 tentative approvals in place. Net margins were 15.46% for Jun-21 quarter compared to 15.61% in Jun-20 quarter and 16.73% in Mar-21 quarter.
Among brokerages, Motilal Oswal and ICICI Securities have upgraded their target for Torrent Pharma while BNP Paribas has downgraded its target.
 

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Why Did Stock Market Fall Today?

Falling Stock market
by Nikita Bhoota 28/07/2021

Considering the global cues, Dalal Street is facing a huge sell-off in today’s trade. Huge selling is seen in banking, financial, pharma, auto and IT stocks.

Sectoral Indices at glance:
 

Indices

(%)Change

Nifty Bank

-0.76

Nifty Auto

-0.93

Nifty Fin Service

-0.51

Nifty FMCG

0.00

Nifty IT

0.21

Nifty Media

-0.25

Nifty Metal

1.22

Nifty Pharma

-0.38

Nifty PSU Bank

-1.88

Nifty Pvt Bank

-0.51

Nifty Realty

-0.79

Source: NSE

Sensex has hit day’s low of 51,803 and day’s high of 52,674. It means Sensex tumbled 871 points today however recovered later and closed at 52,444 down 135 points.

Here, are the reasons for fall the in the stock market.

Weak Asian markets & US markets:

? Asian share markets are trading near seven-month lows. 

? The Japanese ‘Nikkei’ trading down by 450 points as the huge sell-off in the Chinese stocks sees collateral risk-off in other Asian markets. 

? The Hong Kong 'Hang Seng’ has tumbled over 2500 points in 3 days which signifies a loss in one market may result in foreign investors dump stocks in other markets.

? US stocks also corrected sharply with global cues as Nasdaq fell over 2% before recovering to close down 180 points.

 

Quarterly results in focus:

The following companies are going to announce their quarterly performance today.
Maruti Suzuki India, Nestle India, ABB India, Astec Lifesciences, Birlasoft, Central Bank of India, Century Textiles & Industries, Coforge, Dhanlaxmi Bank, Embassy Office Parks REIT, Gateway Distriparks, Geojit Financial Services, Greenpanel Industries, Grindwell Norton, Happiest Minds Technologies, Heritage Foods, HSIL, ICRA, IDBI Bank, Intellect Design Arena, JM Financial, Mahindra Lifespace Developers, Mahanagar Gas, Mold-Tek Packaging, Pfizer, Radico Khaitan, Ramco Systems, Route Mobile, RPG Life Sciences, Sagar Cements, SRF, Tata Coffee, TCI Express, TeamLease Services, United Breweries, UTI Asset Management Company, and Welspun India.

Rise in India VIX:

India VIX, volatility index, jumped 3.4% to 13.69 levels as the Sensex, Nifty 50 fell. India VIX has hit high of 15.98 and low of 11.35 today.

IMF cuts India’s GDP Forecast:

Due to the impact of the Covid second wave, the International Monetary Fund (IMF) cut India's growth projection from 12.5% to 9.5% for fiscal 2021-22.

FII flow trends:

FIIs net sold shares of Rs 1,459.08 crore, whereas DIIs net purchased shares of Rs 729.96 crore in the Indian equity market on July 27, as per provisional data available on the NSE.

F&O expiry & US Fed meet:

F&O expiry and US Fed meet and will be in focus as high volatility can be seen in the stock market.

 

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Rolex Rings IPO Day 1 Subscription

Rolex Rings IPO Day 1 Subscription
IPO
28/07/2021

The Rs.731 crore Rolex Rings IPO, consisting of Rs.56 crore of fresh issue and Rs.675 crore offer for sale, got a steady response from retail investors on Day-1. As per the combined bid details put out by the BSE, Rolex Rings IPO had been subscribed 3.84 times, with bulk of the demand coming from the retail segment followed by HNI segment. 

As of close of 28 July, out of the 56.86 lakh shares on offer in the IPO, Rolex Rings saw applications for 218.15 lakh shares at the end of Day-1. This implies an overall subscription of 3.84 times. The granular break-up of subscriptions is tilted in favour of retail investors. The QIB portion got virtually no subscriptions on Day-1 but they come on the last day.

However, on 27 July, Rolex Rings has already done an anchor placement of 24.37 lakh shares to QIB investors like HDFC Mutual Fund, Axis Mutual Fund, ICICI Pru MF, Birla MF, Kotak MF and SBI Mutual Fund. The original 50% QIB quota has been reduced by anchor investment amount of Rs.219 crore.

The HNI portion got subscribed 1.34 times but funded applications come in on the last day along with corporate applications, when we get a clearer picture. The real big story was the retail portion, which is already subscribed 7.10 times at the end of Day-1, showing strong retail appetite.

Among retail investors; out of the 28.43 lakh shares on offer, valid bids were received for 201.80 lakh shares, of which bids for 160.15 lakh shares were received at the cut-off price. The IPO is priced in the band of (Rs.880-Rs.900) and will close for subscription on Friday, 30 July. The anchor placement happened at the upper end of the band.