Electronics Mart submits draft papers for Rs 500-crore IPO
Consumer durables and electronics retail chain Electronics Mart India Ltd has filed its draft red herring prospectus (DRHP) with the Securities and Exchange Board of India for an initial public offering.
The Hyderabad-based company aims to raise Rs 500 crore by selling fresh shares in the IPO. The IPO doesn’t include any offer for sale by existing shareholders.
The company intends to use the net proceeds to finance its capital expenditure and meet its working capital requirements to the tune of Rs 133.8 crore and Rs 200 crore, respectively.
In addition, it plans to use Rs 50 crore to pay off its debt. It will use the remaining money for general corporate purposes.
IIFL Securities, JM Financial and Anand Rathi Advisors are arranging the IPO.
Electronics Mart’s business
The company was founded by Pavan Kumar Bajaj and Karan Bajaj in 1980 as a proprietary concern. It began as a consumer durables and electronics store under the name of ‘Bajaj Electronics’.
It is now the fourth-largest consumer durable and electronics retailer in India and largest player in the southern region in revenue terms as of financial year 2019-20. It is especially dominant in Telangana and Andhra Pradesh.
EMIL has 7.5 lakh square feet of retail space across more than 90 stores. It has a workforce of over 2,600 people.
Its multi-brand outlets operate under the Bajaj Electronics brand. It also runs two specialized stores under the name of ‘Kitchen Stories’ catering to kitchen-specific requirements.
The company is also setting up another niche outlet under the name of ‘Audio & Beyond’ for high-end audio and home automation products.
It plans to deepen its store network in Andhra Pradesh and Telangana and gradually expand in the national capital region, the DRHP showed.
EMIL displays more than 6,000 stock keeping units (SKUs) ranging from large appliances such as air conditioners, washing machines, televisions and refrigerators as well as mobiles and small appliances, besides other IT peripherals. It houses products from more than 70 consumer durables and electronic brands.
The company’s total income for the year through 2020-21 inched up to Rs 3,207.37 crore from Rs 3,179 crore the year before despite the restrictions related to the coronavirus pandemic.
Its net profit for 2020-21, however, declined to Rs 58.62 crore from Rs 81.61 crore as consumer spending fell because of the pandemic.
5 Global Stock Market Tips by Gaurab Parija
Invest in global stock markets to give your portfolio an international edge
The alarm on your Apple phone diligently wakes you up every morning, not getting offending even after you hit ‘snooze’ multiple times. Once you are up, your day is filled with Zoom meetings and Google Meetups. In your busy day, you also find time to go online and purchase a fantastic study table from the Ikea online store for your daughter. In the evening, once your day has almost come to an end, you sit back on your couch and watch your favourite Netflix series. It has been a good day. However, have you realised your extensive use of global products and services? Probably not!
Also Read: - How to invest in stock market for beginners
The fact of the matter is that the world is shrinking – you can now travel almost anywhere in the world, interact with people across the globe, and use products and services of companies located in different countries. Just like your daily life has become global, why can’t your investment portfolio as well. Investing in global stock markets, especially through international mutual funds can give a definite edge to your portfolio.
Guest: Mr. Gaurab Parija, Head – Sales & Marketing, IDFC Asset Management Company.
With over 22 years of retail sales and distribution experience, Gaurab has spent considerable time in breaking down investment products for investors and making them more palatable.
1. What is international investing?
Investing in asset classes and global stock markets, or markets outside India, or your domestic market, is termed as international investing. People usually invest widely in their home countries and prefer such investments because of the inherent country bias. Country bias involves two aspects – since investment requires money, people are wary of investing it in a landscape not known to them.
Additionally, they also find it easier to understand and track the records of home-based companies. Investing in global stock markets takes your portfolio to the next level. In the US, Sir John Templeton showed residents that there is life and investment opportunities beyond their own country, bringing about the concept of international investing. The progress in India has been fairly good – there is a long way to go but we are seeing increasing interest in the segment.
2. Why should investors consider investing in international stocks and, more importantly, who should consider investing in international stocks?
People are now increasingly aware that asset allocation is an important part of wealth creation. Parking funds in diverse asset classes, be it gold, stocks, debt, real estate, etc., reduces risk. Further, as markets are getting more and more linked, optimal asset allocation should also include geographical diversification via investment in global stock markets.
The reasons behind this include:
i. Other countries might be doing relatively better when your country is facing volatility. Find countries with little or no correlation to your own country.
ii. If you know foreign companies which are doing very well, invest in them. The aim is to participate in growth opportunities across geographies. We are already helping foreign companies like Uber and Apple grow by consuming their products, so why not participate in their growth stories by investing in US stock markets?
iii. From a global GDP perspective, India only comprises 3%. Limiting investment to India leaves out 97% of the global GDP.
iv. Exposure to developed markets like the US stock market can reduce portfolio volatility.
Given the fact that the ease of investment has increased over the years, anyone with a reasonable amount of wealth should consider investing in global stock markets, based on their personal risk profiles and financial goals. Also, families that have dollar or other currency liabilities due to their children studying abroad should create dollar assets, by investing in US stock markets, to balance it out. Investments in global stock markets can help you create dollar assets. But it is important for you to remember that you are not just investing for the dollar edge but also for strong returns and diversification.
3. As an Indian investor, there are basically two ways by which I can invest in international stocks – either directly or through international mutual funds. In your opinion, which option would be better and why? – Can we also define international mutual funds here?
In a person’s life, there are two sources of wealth creation – salary or income and investment. Your focus should be on enhancing income by improving your career and the investment part should be managed by professionals or mutual funds. If you are a part of the investment industry and know all the underlying aspects, you can invest directly. However, if you don’t really know about underlying stocks, it is better not to attempt direct investing in global stock markets. Further, when it comes to international investing, you may not know the inherent vagaries. Therefore, it might be better to invest via international mutual funds.
International mutual funds invest in foreign companies that are listed on global stock exchanges. Such funds now offer access to all asset classes, making it better to invest via these schemes. Opportunities available through international mutual funds include investing in US stock markets like the NASDAQ and S&P 500, FAANG companies, ESG companies, consumption oriented funds, gold/mining funds, global funds, emerging market funds, and Chinese funds. However, from an Indian perspective, international investment should be a complement, not the core of your portfolio. It is best to invest 15-20% of your corpus in such funds. Choose international mutual funds following broad foreign markets and you can potentially add good value to your portfolio.
4. What are the risks in international investing ?
The risks inherent in international investing include:
i. Inability to track what the underlying company does, if you are investing on your own.
ii. Currency risk as we never know what might happen in the future. All currencies have a potential for depreciation.
iii. Choice of underlying stock
iv. The normal risk in equities, layered with currency depreciation, is the risk you take when investing in international mutual funds.
Investing via international mutual funds is more secure as they make a full assessment of the stocks, reducing the underlying risk considerably.
5. What should be our key takeaways and what is your advice to investors?
i. There are several clear benefits to investing in global stock markets, including geographical diversification, which can help you reduce the impact of volatility on your portfolio.
ii. Developed market equities, like US stock markets, are more stable than emerging market equities.
iii. International mutual funds offer a fillip to portfolio returns through participation in themes not available in domestic markets.
iv. Always keep in mind that limiting the downside is as important as cashing in on the upside.
v. If you have recently begun investing in equities, first get a hang of the domestic equities and then move to global stock markets.
My final advice would be to avoid comparing Indian and international funds. Your equation should not be based on choosing between India or international, it should be a combination of Indian and international funds as they complement each other. This is the way to sound investing.
How Aditya Birla Sun Life MF stacks up against peers as IPO opens next week
Aditya Birla Sun Life Asset Management Co Ltd will open its initial public offering for subscription next week, seeking to become the fourth mutual fund house in India to list its shares on stock exchanges.
The company said the red herring prospectus that it filed with the Registrar of Companies has been approved, paving its way to hit the stock market.
The mutual fund house is a subsidiary of publicly listed Aditya Birla Capital Ltd, the financial services holding company of the diversified Aditya Birla Group led by billionaire Kumar Mangalam Birla.
Aditya Birla Capital’s board had approved taking the unit public on April 14 this year. The MF house filed its draft red herring prospectus with the Securities and Exchange Board of India five days later.
Opening date: September 29
Closing date: October 1
Anchor allotment date: September 28
Price band: Rs 695-712
Lot size: Minimum 20 shares, and multiples of 20 thereafter
Minimum investment required: Rs 13,900-14,240
Number of fresh shares to be issued: 28,50,880
Offer for sale by existing shareholders: 3,60,29,120 shares
Equity dilution: 13.5%
Total IPO size: Up to Rs 2,768.25 crore
Aditya Birla Sun Life AMC
The company is India’s fourth-largest mutual fund house by assets. It is a joint venture of Aditya Birla Capital and Canada’s Sun Life.
Aditya Birla Capital owns 51% of the AMC while Sun Life holds 49%. Their respective stake will fall to 50.01% and 36.49% after the IPO.
Aditya Birla AMC has hired 11 merchant banks to arrange the IPO. Kotak Mahindra Capital, BofA Securities and Citigroup Global Markets India are the lead bankers. The other bankers include IIFL Securities and Axis Capital.
Valuation, AUM comparison
Aditya Birla AMC will join three other mutual fund companies on the bourses—Nippon Life India MF (formerly Reliance Mutual Fund), HDFC MF, and UTI MF.
Nippon Life floated its IPO in October 2017, HDFC MF in July 2018 and UTI AMC last September. HDFC AMC is the largest with a market value of Rs 69,036.49 crore. Nippon Life AMC is valued at Rs 27,435 crore and UTI AMC at Rs 14,098 crore.
Aditya Birla AMC is targeting a valuation of Rs 20,500 crore at the upper end of its price band. However, market sources say it is likely to list at a premium and close the gap with Nippon Life.
Overall, India has almost three dozen mutual fund companies. The biggest MF is SBI Mutual Fund, with assets under management (AUM) of Rs 5.24 trillion at the end of June 2021. ICICI MF and HDFC MF are neck and neck, with an AUM of about Rs 4.3 trillion and Rs 4.2 trillion, respectively.
Aditya Birla AMC is ranked fourth and reported an AUM of Rs 2.75 trillion. In addition, it had also Rs 450 crore in assets under domestic fund of funds, according to the Association of Mutual Funds in India.
Nippon Life has an AUM of Rs 2.4 trillion as of June 30 and Rs 1,737 crore under local fund of funds. Kotak Mahindra MF and Axis MF are the other large asset managers in India with AUM of Rs 2.46 trillion and Rs 2.1 trillion, respectively, excluding fund of funds. UTI MF had an AUM of Rs 1.87 trillion at the end of June.
Which small cap stocks have attracted FIIs the most?
Foreign institutional investors and foreign portfolio investors have historically dictated the movement of Indian stock markets. However, with the rising flow of domestic money in the local bourses, especially after the 2016 demonetisation drive and asset prices getting punctured in the real estate market, this is slowly changing.
Indeed, a lot of the current froth in the market where the top benchmark indices are trading near their all-time highs is attributed to the domestic investors—both mutual funds and retail investors.
One segment of the stock market that is usually seen as a haven for punters looking to make a quick buck with trading opportunities and retail investors who get attracted by lower per share price is the small cap space. These are companies with a market capitalisation of less than Rs 5,000 crore.
This segment tends to have a high beta and usually swings much more in a volatile market condition.
Offshore investors usually don’t play in this segment as most of these stocks tend to be below their investment mandate radar. But that doesn’t exclude FII/FPI participation wholly from such stocks.
In fact, many investors and analysts try to fish for hidden gems that can be a mid-cap or even a large cap over the medium to long term.
We dived into the data for the April-June quarter and spotted over 100 small-cap stocks where FIIs or FPIs increased their stake by at least 0.6 percentage points during the three months.
Top small caps
FIIs increased their stake in ten small cap stocks by at least four percentage points last quarter. Barring two stocks, all the others command a market cap of Rs 500 crore or more.
At the top of the heap is Sakar Healthcare, a drugmaker based in Ahmedabad that saw FIIs pull up their stake by as much as 8.8%. However, this wasn’t because of a horde of portfolio investors buying the stock but due to a single FPI, Cobra India (Mauritius), buying a stake via a preferential allotment. This entity is associated with Swiss healthcare investor HBM.
Stock brokerage firm 5Paisa Capital, the parent of this website, is another notable name that attracted FII interest with their holding rising 7.6%. During the quarter the company attracted two more FII shareholders to take the number of such investors to eight. Of the existing four key FPIs, WF Asian Reconnaissance Fund Ltd, in particular, pulled up its holding. An entity associated with Canada’s Fairfax also bought additional shares.
Chemical producer Kiri Industries, tech firm Newgen Software, construction company Capacit’e Infraprojects and power solutions company SE Power were the other firms where the FII stake went up 4% or more last quarter.
The financial services sector, in particular, was a hot draw with four companies making the cut in this list.
These were Ashika Credit, Choice International, financial and remittance services firm Finkurve, which operates under the Arvog brand, and lender Paisalo Digital, which is trying to reinvent itself as a fintech firm.
Other small caps on FII radar
In addition, FIIs or FPIs were stoked about a bunch of other small-cap stocks and hiked their stake by 2-4% in around 20 such companies.
These include some well-known companies such as JK Tyre & Industries, Dhampur Sugar Mills, Rupa & Company, Bajaj Consumer Care, Raymond, Shalby, Hind Rectifiers, Hathway Cable, JSW Ispat and NRB Bearings.
Other small caps in this list include Ritesh Properties, Hindustan Everest, Karda Constructions, Dhanvarsha Finvest, Orient Cement, Seamec, PTC India, Visaka Industries, Gujarat State Fertilizers and Shakti Pumps.
Banking outlook positive as loan growth to revive, margins to stabilise
As India’s Covid-19 vaccination count nears the 85-crore mark, and the country looks set to put a series of disruptive lockdowns behind, its economic trajectory could finally be looking up, bankers say.
Top bankers are upbeat on the prospects of credit growth, as government spending appears set for an upswing and risk appetite and demand in the economy come back to pre-Covid levels, according to a report by IIFL Securities.
Senior executives at Axis Bank, HDFC Bank, ICICI Bank and IndusInd Bank say that in the near future, the banking sector could witness four major trends, the report said.
An uptick in loan growth
First, credit offtake or loan growth could pick up by the second half of 2022. This, banking industry executives say, will be driven by an increase in government spending mainly in the infrastructure segment, with private sector capital expenditure following close behind.
Even as their loan books begin to look healthier, banks are unlikely to take undue risks and lend to businesses, and will focus on companies with good credit ratings. Going forward, the accent is likely to be on client-level profitability, as opposed to merely shoring up loan disbursement numbers.
Bankers feel that excess liquidity will persist for a few quarters, according to the report. This will mean that interest rates could bottom out, before they begin to go up again.
In the next couple of quarters, banks would keep margins stable as they keep getting weighed down by excess liquidity. But beyond that, as credit offtake picks up, especially toward the riskier medium and small enterprise segment, margins will begin to rise, as interest rates begin to inch up again.
Tech spends will drive up costs
In the near term, banks would have to continue to spend on their technology backbones, to compete with new-age fintech players who have not only made it much easier but also a who lot cheaper for the customer to move money and to invest in the stock market, mutual funds, buy insurance, debt instruments and other financial products.
This increased spending on technology would mean a spike in costs, at least in the near term, till they are offset by higher operating efficiencies and revenues from cross-selling of products.
Asset quality improving
Bankers say that while efficiencies in collections have continued to improve, there could be slippages, which would go down meaningfully only by the second half of 2022.
While loan restructuring could see an adverse impact on the emergency credit line guarantee scheme book, most big banks should be able to whether this, given their high levels of provisioning coverage ratios.
Axis Bank says it will look to grow loans at 5-6 percentage points higher than the industry (which is expected to grow at about 6.5% in FY22).
HDFC Bank says that its retail loan segment is seeing healthy demand and that inquiries are already at pre-Covid levels.
ICICI Bank says margins are likely to remain at the current level of about 3.9% in the near term, as benefit on the cost of funds is negated by pressure on lending yields. The bank is hopeful of margin improvement over a medium term.
IndusInd Bank is looking to grow its loans in the mid-teens over the next two years from about 6.5% currently. Retail loan growth for the bank could remain weak for the next one-two quarters. Hence, loan growth would be driven by the corporate segment in the near term, the IIFL Securities report says.
Merger with Sony to rerate Zee stock, address governance issues: IIFL Securities report
The proposed merger of Zee Entertainment Enterprises Ltd with Sony India will not only largely address Zee’s corporate governance issues but also improve its reach and scale, according to an IIFL Securities report.
Moreover, the merged company’s $1.8 billion cash balance after the equity infusion from Sony Group—which will own a majority stake in the combined entity—will be used to step up investments, the report said.
“With the significant rerating that the consummation of the deal is likely to entail, we see a reasonable chance of the deal getting shareholder approval,” IIFL Securities said, putting a buy call on the stock.
Indeed, the biggest merger and acquisition (M&A) deal in India’s media sector brings cheer to the shareholders of Zee Entertainment, which has been facing shareholder activism and concerns over its corporate governance.
Zee Entertainment’s share price has shot up nearly 80% in the last two weeks. This has given some respite to its shareholders, who had seen the stock suffer for the past several months after the debt-laden promoters, Essel Group, all but lost control of the company. This had even prompted Zee’s institutional investors to call for removal of the CEO Punit Goenka, son of Essel Group head Subhash Chandra.
IIFL Securities said the merger may take six to eight months to consummate. It pegged a 50% probability of the deal going through. Based on that, it has set a new target price of Rs 406 a share, almost a fifth higher than Zee’s current market price. Its actual equity valuation of the merged company is even higher.
The target price means there could be still some steam left in the stock even after the sharp run-up over the past couple of weeks.
“We estimate +10% EPS accretion in FY24 on synergies and, based on 25x target PER, Sep-2022 equity value per share could be about Rs 490,” the report said.
The brokerage also said there are significant synergy benefits from the merger as Sony has considerable strength in sports, the kids’ genre and English content while Zee is strong in regional content and movies.
Risk elements for the Zee and Sony deal
To be sure, there is no surety that the deal would be executed as there are several factors that needs to be there for it to see the light of the day. Besides regulatory approval, 75% of the voting shareholders need to give their nod to the proposal that has been structured in a way that doesn’t give them the benefit of a mandatory open offer. The securities norms give exemption to deals struck via amalgamation or mergers.
On the flip side, the deal envisages special or differential treatment to Essel group with Sony giving a non-compete fee to Essel through stake that would allow it to retain 4% stake. This may raise concerns at the table of the authorities.
Then again, the deal envisages continuation of Punit Goenka as chief of the merged company. Key shareholders have been calling for removal of Goenka and it is not clear how the deal would progress if large institutional investors stick to their stand that they want him out.