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Divis Lab’s H2FY22 earnings grew 40% YoY to Rs. 40bn, driven by Custom synthesis and Nutraceuticals segments

by 5paisa Research Team 09/11/2021

Divis Lab’s Q2FY22 growth was majorly driven by Custom synthesis segment and Nutraceuticals segment. The overall revenue growth was a robust 40% YoY to Rs. 20bn in 1HFY22, while for the same time period, Generic API segment suffered by declining to 6.3% YOY to Rs. 16.6bn. Gross margin remained flat at 67.1% YoY, EBITDA margin declined by 180bp to 41.5% YoY, EBITDA rose by 9% YoY to Rs. 8.3bn, PAT grew at 15% YoY to Rs. 6.1bn. 

Exports stood at 88% of sales, of which 72% came from export sales in the US and Europe. Inventory levels are high for both CS and Generics to ensure a seamless supply chain and it has enough capacity to meet the demands of Molnupiravir. 

The backward integration in products for which Divis Lab holds 70% market share has been completed while It is yet to achieve backward integration on new introductions which will be done once they reach a considerable market share. 

In the API segment, no impurities were found in DIVI’s Sartan APIs, Nitrosamine or Azido, hence this should help drive up sales and gain market share. Even though the Generic API segment declined by 6.3% YoY 1HFY22, it is estimated that the revival of the segment will be supported by increase in market share of existing molecules by backward integration and addition of 16 new molecules that are under various development stages. Its strength and scale is estimated to increase 15% revenue CAGR in the Generic API segment to Rs. 47bn over FY21-23E.

On the contrary, which Divis has the one of the best recovery in iodine recovery rates, the pricing is key to remain competitive in media products. The commercialization of these products is expected in the next 1-2 years as it is already working on validation batches.

Divis has successfully built long-lasting relationships with its innovators on the basis of its chemistry and process skills, manufacturing scale from clinical to commercial qualities, and project execution. The supply contract for Molnupiravir API with Merck/MSD proves that DIVI is a favourite of global innovators for critical projects. It also has the requisite chemistry skills to work on any further Antiviral drug, including, the treatment of COVID-19. 

Divis is estimated to achieve 41% CAGR in CS to Rs. 56bn over FY21-23E given its technical leadership and large scale facilities. The company expects the construction of Kakinada to begin as soon as the land is handed over since the legal hurdles are settled. The estimated capex is ~Rs. 10-20bn and will be spread over the next 2-3 years. DIVI has already incurred capex worth ~Rs. 25bn since FY18. At present, the WIP capex stands at Rs. 4.3bn, which will be completed in FY22 and in the second half, an additional INR3b expected to be spent.
 

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IndusInd Bank shares tank on whistleblower complaint, the bank clarifies the allegations and justifies strong governance structure.

by 5paisa Research Team 09/11/2021

In the concall hosted by Mr Sumant Kathpalia, MD & CEO of IndusInd Bank, stated that the recent allegations against the bank regarding the evergreening of loans in its MFI subsidiary (Bharat Financial Inclusion Limited – BFIL) and the disbursements of loans without customer consent were baseless and inaccurate. He further clarified that chaos of the disbursements to ~84k accounts without customer consent happened due to a technical glitch. However, only 26k clients (of the total) were active, with a loan outstanding of Rs. 340m which is 0.12% of MFI loans. He also clarified that the company has provisions against the portfolio.

He also disposed of media articles circulating other allegations of top-level executives resigning from their posts. Mr. Rao, Non-Executive Chairman of BFIL who resigned in September this year, continues to work as an advisor with the IIB. The company supported their argument by mentioning their strong governance structure and risk framework remain strong; it has strengthened these over the years through strict supervision.

The management has maintained its loan growth and credit cost guidance as given during the 2QFY22 results. It expects loan growth to be 16–18%, and CASA ratio in excess of 40% by FY23E. CASA deposits (of the total deposits) is estimated to grow at 14.6% to Rs. 1227.4bn for FY22E. The credit cost of 160–190bp with an additional 50bp for Vodafone, the total credit cost guidance stands at 240bp. 

In Q2FY22, the MFI book for IIB stood at Rs. 281bn, which is, ~12.7% of loans, CAGR for past two years stood at 22%, NPAs in the MFI book stood at Rs. 9.05bn, which is, 3% of MFI loans, while the restructured book stood at Rs. 9.07bn, which is, 3.2% of MFI loans, with ~55% of customers completing at least three loan cycles. The PAT is estimated to grow to 69.5% to Rs. 48.1bn, NII to grow to 13.4% to Rs. 153.3bn and deposits to grow at 16% to Rs. 2972bn for FY22E.

Overall, the bank expects credit costs to range at 6–8% in the MFI business, with growth likely to remain strong. The total SMA book within MFI stood at Rs 50.5bn as of 31st Oct’21. SMA 0-30 dpd stood at INR26b, 30-60 dpd at Rs. 10.6bn, with the balance in 60+ dpd (including NPAs). ECLGS disbursements in MFI loans stood at Rs. 6bn.
The company stated that the business continues to do well with collection efficiency improving to 94.6%, surpassing pre-COVID levels in Oct’21. However, MFI, in Kerala and West Bengal remain lower, while other states are showing healthy trends. 
 

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These mutual fund schemes got the most investor money in Q2. Do you own any?

by 5paisa Research Team 09/11/2021

The Indian mutual fund industry has recorded strong growth in the recent past as stock markets recovered rapidly since the crash in March 2020 and as more and more investors sought to deploy their money in equities instead of relying only on fixed-income products.

In fact, latest data from the industry group Association of Mutual Funds in India (AMFI) show that the value of assets managed by the MF industry has increased almost 35% to Rs 37.41 trillion in September 2021 from Rs 27.74 trillion in September 2020.

Within this, the share of equity-oriented MF schemes has risen to 47.2% of the total industry assets in September 2021 from 40% in September 2020. This indicates an increase in the number of investors in such schemes as also growth in the value of assets held by these schemes.

However, there is a clear divergence in the MF schemes that have grown their assets under management (AUM) and those with smaller AUMs than before. So, which are these schemes?

Mutual funds launched 32 open-ended and 11 close-ended schemes during the three months through September. These include 13 equity schemes, 18 debt schemes, six exchange-traded funds (ETFs) and one hybrid scheme. These schemes mobilised a total of Rs 49,283 crore, AMFI data show.

Overall, equity schemes garnered a total of Rs 39,927 crore during the second quarter of the ongoing fiscal year on a net basis while hybrid schemes mopped up a net amount of Rs 41,774 crore.

A closer look at the data shows the schemes that received the highest inflows. Here are those schemes:

Highest recipient

The rapid rise in the stock markets has prompted some investors to exercise caution. This was evident from the tilt towards hybrid schemes, which invest in both equity and debt.

And it was a fund in this category that received the highest inflows during the quarter. The scheme was SBI Balanced Advantage Fund, which mopped up Rs 14,500 crore during its NFO in August. In fact, the scheme’s AUM crossed Rs 20,000 crore last month as it attracted more investors even after the NFO.

Large-cap funds

The total assets in this category rose to Rs 2.18 lakh crore as of September 30, 2021, from about Rs 1.95 lakh crore three months before, AMFI data show. This segment accounts for nearly 17% of the open-ended equity fund assets.

In this category, Axis Bluechip received the most net inflows—Rs 1,518 crore—in the July-September period. It was followed by Canara Robeco Bluechip Equity and Mirae Asset Large Cap with Rs 1,019 crore and Rs 631 crore, respectively, according to Morningstar data. All three funds are among the top performers in the category.

Flexi-cap funds

This is the second-largest segment among open-ended equity funds, barring ETFs. The total assets in this category rose to Rs 2.15 lakh crore as of September 30, 2021, from about Rs 1.76 lakh crore three months before.

ICICI Prudential Flexi Cap topped the charts in this category by garnering Rs 10,520 crore in its new fund offering.

Nippon India Flexi Cap collected Rs 2,860 crore in its NFO while existing star performer Parag Parikh Flexi Cap mopped up Rs 2,873 crore.

Mid-cap funds

The total AUM of mid-cap schemes climbed to Rs 1.53 lakh crore as of September 2021 from Rs 1.35 lakh crore at the end of June. This is 12% of the open-ended equity MFs.

Kotak Emerging Equity led the segment with net inflows of Rs 922 crore, according to Morningstar data.

Axis Midcap Fund, a favourite of investors, mopped up Rs 879 crore, while star performer PGIM India Midcap Opportunities Fund received Rs 775 crore.

Small-cap funds

The total AUM of this category increased to Rs 98,014 crore at the end of September 2021 from Rs 85,957 crore three months before.

PGIM India Small Cap was the top recipient in this category as it mobilised Rs 910 crore in its NFO.

Axis Small Cap came second with net inflows of Rs 541 crore, followed closely by Kotak Small Cap with net inflows of Rs 513 crore.

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Why do you make irrational financial decisions?

Heading: Why do you make irrational financial decisions?
by 5paisa Research Team 09/11/2021

Behavioral finance is the study of the effects of psychology on investors while taking financial decisions.

There are many instances where emotion and psychology influence our decisions, causing us to behave in unpredictable ways or contrary to conventional finance theories.

Our day to day lives are full of such behaviours. A common example of such decision making is credit cards vs paper money. For the same amount of payment, more pain is experienced when one has to shell out cash. Another example of irrational financial behaviour is buying lottery tickets with a one in a million chance of winning. Behavioural finance seeks to combine behavioural and cognitive psychological theories with conventional economics and finance to provide explanations as to why people make irrational financial decisions.

Following are the finance behavioural concepts:

Herd behaviour: When sheep herd, they move together at the same time. Usually, one or two leaders start, then momentum builds as more and more join until a large group is formed, all heading in the same direction. A similar idea holds true when investors follow the herd. The investors follow others rushing to buy or sell shares, debts, or any other investment. However, simply going with the herd is not likely to be a well-thought investment strategy as the followers can end up paying the price.

Anchoring: When formulating a financial decision or prediction, you have to start somewhere. The initial price or the number you pick turns out to have an enormous influence on your financial conclusion. For example, we walk into a car lot and note the sticker price, and we use that number as our starting point for negotiations. We know that we can buy the car for that amount, and we start the process of seeking a better price.

Mental accounting: Mental accounting refers to the tendency for people to separate accounts based on a variety of subjective criteria, like the source of the money and intent for each account. According to the theory, individuals assign different functions to each asset group, which has an often irrational effect on their consumption decisions and other behaviours.

Gambler’s fallacy: In the gambler’s fallacy, an individual erroneously believes that the onset of certain random events is less likely to happen, following an event or a series of events. This line of thinking is incorrect because past events do not change the probability that certain events will occur in the future. For instance, consider a series of coin flips that have landed with the ‘heads’ side up. Under the gambler’s fallacy, a person might predict that the next coin flip is more likely to land with the ‘tails’ side up.

Prospect theory: According to the theory, an average individual is more loss-sensitive. Losses have more emotional impact than an equivalent amount of gains. For instance, if you are gaining Rs 50 or Rs 100 and losing Rs 50, then both should have the same utility as in both cases, the net gain is Rs 50. However, despite the fact that you still end up with Rs 50 gain, in either case, most people view a single gain of Rs 50 as more favourable than gaining Rs 100 and losing Rs 50.

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Multibagger Alert: This energy exchange business has quadrupled investor wealth with a return of 301% in the past year!

 Multibagger Alert: This energy exchange business has quadrupled investor wealth with a return of 301% in the past year!
by 5paisa Research Team 09/11/2021

On a YTD basis, the stock has given a return of 242.89%.

The stock of India’s premier electricity exchange, Indian Energy Exchange (IEX) has given investors stellar returns of 301.72% over the last year. The share price stood at Rs 194.35 on November 6, 2020, and since then, the stock has more than quadrupled investor wealth.

Revenue for the quarter came in at Rs 110.4 crore, up 55.6% YoY and 21.1% QoQ. IEX registered an EBIDTA margin of 86.1% vs 82.2% QoQ, which is the highest ever in the company’s history. Absolute EBIDTA came in at Rs 95 crore as compared to Rs 74.9 crore in the last quarter. The company saw strong volumes in August and September whereas July witnessed a slight dip led by the second wave. PAT came in at Rs 77.4 crore, up 74.6% YoY & 24.6% QoQ.

Indian Energy Exchange Ltd engages in the power exchange business and provides an automated platform for the trading of electricity and related products. It facilitates the exchange of power between the generation (like NTPC, Tata Power, Adani Power) and energy distribution companies. It has a near-monopoly in this business, commanding a market share of 95% in the power exchange market. At present, only two companies are engaged in the business of power exchange - IEX and Power Exchange India Ltd (PXIL).

IEX’s primary revenue sources include transaction fees (about 84% of revenues) and annual subscription fees (5% of revenues). Since the commencement of its business in 2008, the trading volume on its exchange has been increasing at a staggering rate of over 32% CAGR, which has driven the top-line of the company.

Shares of IEX have seen strong traction over the last year due to the green energy theme playing out in the markets, as well as their near-monopoly status (with nearly 95% market share). The addition to the F&O segment in the latest series also came as an important tailwind.

Looking ahead, the company’s prospects remain positive given its clean balance sheet, near monopoly, regulatory tailwinds and introduction of newer products, which is expected to drive strong double-digit volume growth in the medium term.

At 12.20 pm on Tuesday, the stock is trading at Rs 787.55, up by 0.87% or Rs 6.80 per share on BSE. The 52-week high of the scrip is recorded at Rs 956.15 and the 52-week low at Rs 194.80 on the BSE.

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Nemish Shah - The man who took Infosys public!

Nemish Shah - The man who took Infosys public!
by 5paisa Research Team 09/11/2021

Here's a peek into the investment strategy of Nemish Shah, co-founder of ENAM Holdings.

Nemish Shah is an ace-investor who completed his Bachelor’s in Commerce (B.com) from Lala Lajpat Rai College, Mumbai University in 1977. He is the director and co-founder of ENAM Holdings, a privately owned and managed investment house.

Initially, ENAM was a broking entity, and it soon forayed into the investment banking profession. Throughout these developments, ENAM adhered to investment research as its backbone. In 2010, ENAM merged its investment banking and broking operations with Axis Bank in a deal valued at Rs 2,067 crore. At present, Shah manages the firm’s treasury operations and is focused on growing its proprietary capital, under ENAM Holding’s Pvt Ltd.

A little-known fact: Infosys, a leading Information technology giant, was taken public by ENAM in 1993. And at the time of issuance, the shares of Infosys were undersubscribed. It was Nemish Shah and Vallabh Bhanshali, co-founder of ENAM, who convinced people to invest in Infosys.

Investment philosophy of ENAM Holdings

ENAM holdings have a value-based and relationship-oriented culture and investment philosophy. The firm follows a fundamental, bottoms-up research approach for identifying companies with sustainable competitive advantages and execution capabilities. It gives huge importance to the quality of management teams and governance frameworks of the companies that it invests in.     

Furthermore, ENAM Holdings is an ethical firm that does not invest in businesses that involve intoxication, gambling or anything that harms living creatures. 

Investment strategy of Nemish Shah

The investor, who has been through various market cycles, looks for the following pre-requisites while selecting a company for investment:

A) The company’s ROCE should not be below 9%.

B) The company has planned future growth.

C) The company should have sound management.

D) And lastly, he should get a discounted entry price.
 

Coming to his personal portfolio, as per the information published by Trendlyne, Nemish Shah publicly holds 7 stocks and has a net worth of over Rs 1,260.9 crore.

Let’s take a look at the 7 stocks in his portfolio and their holding value:

  1. Lakshmi Machine Works Ltd (Rs 954.4 crore)  

  1. Elgi Equipments Ltd (Rs 119.4 crore)  

  1. EID Parry (India) Ltd (Rs 103.8 crore)  

  1. Bannari Amman Sugars Ltd (Rs 75.6 crore)  

  1. Zodiac clothing company Ltd (Rs 4.9 crore)  

  1. Rane Engine Valve Ltd (Rs 1.9 crore)  

  1. Super Spinning Mills Ltd (Rs 1 crore)

From his portfolio, it is quite evident that he doesn’t like to invest in a huge number of stocks and rather invests in a selected few stocks and have diversity in them.

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