Explained: What went wrong at Srei Group firms and why RBI took control of the NBFCs

by 5paisa Research Team 05/10/2021

The Reserve Bank of India (RBI) on Monday superseded the boards of directors of Srei Infrastructure Finance Ltd and Srei Equipment Finance Ltd, both non-bank lenders promoted by businessman Hemant Kanoria and his family.

The RBI’s actions came after the non-banking finance companies defaulted on their debts and failed to attract external funding. Moreover, lenders to the two companies had refused to give any moratorium on their loans.

What led the RBI to take such an extreme step against Srei Group?

The RBI said it was superseding the boards due to governance issues and loan defaults by the Srei Group companies. The Srei companies reportedly owe Rs 35,000 crore to their creditors.

The development comes a week after creditors to the Srei Group companies rejected the top management’s proposal to grant the companies a one-year standstill from any action – legal or otherwise – to recover dues.

On October 1, Moneycontrol had reported that the lenders had adjusted Rs 3,000 crore from Srei Equipment’s cash flow against the loan dues in the last 10 months and drew money from the trust and retention account.

Talks for debt realignment were still on and lenders were waiting for a forensic audit to take a call on realignment, the report said.  

So, what has the RBI really done?

The RBI has appointed Rajneesh Sharma, a former chief general manager of Bank of Baroda, as the administrator to take over the boards of directors of the two Srei companies.

Moreover, the central bank said it will soon begin the process of resolution of the two NBFCs under the country’s insolvency and bankruptcy regulations and ask the National Company Law Tribunal to make the administrator the insolvency resolution professional.

How did things come to such a pass?

Things have reportedly been brewing at Srei for a while now.

Moneycontrol reports that the group had seen senior-level exits in the last six months, including of Srei Infrastructure Finance CEO Rakesh Bhutoria, as the lenders had imposed salary caps.

Sandeep Kumar Lakhotia resigned as company secretary and compliance officer of Srei Infrastructure on March 20. Pavan Trivedi, Srei Equipment’s chief operating officer, had also stepped down a month later.

A Business Standard report said, citing the head of corporate banking at a private bank, that the implosion of IL&FS in 2018 led to a liquidity crisis for NBFCs, including Srei. “This hit business growth. In addition, problems in the infrastructure sector – road and power – led to stress on the books for Srei on delays in payments by clients,” it said.

Srei had been moving away from infrastructure financing in the last four-five years. Disbursements by the equipment finance wing were also lower. This was in line with the management’s strategy to slow down disbursements in its books and focus on the co-lending model, the report said. A planned initial public offering (IPO) for Srei Equipment was also shelved after IL&FS crisis.

Instead, in July 2019, the board of Srei Infra decided to transfer its lending business, interest earning business and the lease business together with associated employees, assets and liabilities to Srei Equipment.

“Then, the business got impacted in March and April of 2020 due to Covid-19 and what was a problem quickly turned into a crisis. This is because infrastructure projects came to a halt and projects of borrowers were stuck,” the Business Standard report said.

But didn’t the RBI do anything to bail lenders out during the Covid-19 crisis?

It did. To provide respite from debt-servicing during the pandemic, the RBI directed all lending institutions to offer a nine-month moratorium and recast debts of micro, small and medium enterprises (MSMEs) and infrastructure companies. But that apparently “led to cash flow shortages for Srei as no respite was provided to NBFCs,” Business Standard said.

Thereafter, a series of events followed. Srei moved the National Company Law Tribunal with a scheme that proposed to pay full dues to all creditors in a structured manner. Some creditors accepted it, while others, including bankers, did not.

Media reports say that, after the scheme was filed, banks took control of the company’s cash flows and then capped salaries of Srei executives. Then, the RBI conducted an audit and flagged more than Rs 8,000 crore of probable related-party lending by the Srei group.

What did Srei want to do to resolve the crisis?

Srei was in talks with private equity players for raising equity capital. Srei Equipment Finance had received expressions of interest from 11 global investors, and subsequently, received non-binding term sheets from Arena Investors LP and Makara Capital Partners.

But this was before the RBI’s move to take control of the two companies. It is unclear how such proposals will move forward now.

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This top multibagger from chemical sector gained by 179% in one year.

Multi-bagger Post.
by 5paisa Research Team 05/10/2021

SRF Ltd has shown off a smooth yet aggressive upward trend. It created a fresh 52-week high of Rs 11690 on October 5, 2021.

SRF Ltd, which is mainly engaged in manufacturing chemicals, has turned multibagger by delivering stellar returns to shareholders, by rewarding them with over 179% gains in the trailing twelve months from October 5, 2021. The chemical sector has been a great hedge for the pandemic. And although SRF has diversified its business into packaging films, polymers and technical textiles, the chemical business stands at its core business operations. 

With an annual turnover of more than Rs 7,541 crore, the company has a dominant presence in the domestic market as well as overseas as it exports to 75 countries. Its business segments include fluorochemicals, speciality chemicals, engineering plastics, packaging films and technical textiles. Out of the total revenues for Q1FY22 of Rs 2,699.5 crore, the chemical business contributed Rs 1,114 crore, which witnessed a growth of 58% over the previous quarter. This multibagger company witnessed a sequential jump of 319 basis points in net profit margin to 14.64%, taking net profit to Rs 395.28 crore for the quarter ended June.

The company is planning a capex of Rs 550 crore in the current financial year for the expansion in capacity in the chemical segment to cater for the rising demand domestically and internationally. The company’s strong product pipeline, consistent capex infusion, and rising demand has led the stock to be a multibagger in the chemical space. As for SRF, the diversification has not been ‘’diworsification’’ so far.

As of October 5, 2021, the stock was trading at Rs 11,510.00 as of 12:04 pm on the BSE. It has a 52-week high and low of Rs 11,690 and Rs 4,090.05 respectively.

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Despite sluggish domestic demand JSPL reports highest ever steel sales in Q2FY22.

Trending Company JSPL - QC.
by 5paisa Research Team 05/10/2021

Jindal Steel and Power Limited recorded sales growth of 10% YoY and 32% QoQ to 2.13 million tons during the quarter.

 

Amidst sluggish domestic demand due to the ongoing monsoon season in the country, India’s largest stainless-steel manufacturer, Jindal Steel and Power Limited (JSPL) report robust growth in sales and production in Q2FY22.

JSPL’s Steel sales volume surged by 10% YoY and 32% QoQ to 2.13 million tons during the quarter, breaching 2 million tons for the quarter for the first time. Exports continued to boost sales with the share of revenue coming from exports rising to greater than 40% in Q2FY22. The share of export revenue stood at 34% in Q1FY22 and 38 per cent in Q2FY21.

Steel production stood at 1.93 million tons in Q2FY22, posting a modest growth of 5% YoY. Inventory levels continued to decline as sales volume surpassed production for the third consecutive month in September 2021.

Looking ahead, the Naveen Jindal-led mill, once India’s biggest steelmaker by market value, is set to make fresh investments for growth, after aggressively slashing its debt levels by more than 60% since 2018. The company plans to spend USD 2.4 billion over the next six years to ramp up capacity, joining its peers in announcing massive expansions as a recovery from the pandemic boosts demand.

These expansion plans are driven by expectations of robust consumption as India aims to invest 100 trillion rupees (USD 1.3 trillion) in infrastructure to boost economic growth and create jobs.

JSPL is a leading Indian Infrastructure Conglomerate with a presence in the Steel, Power, and Mining sectors. With an investment of approximately USD 12 billion (Rs 90,000 crore) across the globe, the company is continuously scaling its capacity utilization and efficiencies to contribute towards building a self-reliant India.

At 1.12 pm on Tuesday, the stock of Jindal Steel and Power Limited was trading at Rs 422.95, up by 1.09% or Rs 4.55 per share, against a 0.31% gain in the benchmark index. The 52-week high of the company was recorded at Rs 501.60 while its 52-week low is Rs 179.30 on BSE.

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Superstar Stocks: BTST Trading and stocks that could deliver good returns till October 6, 2021.

Superstar stocks for tomorrow.
05/10/2021

Watch out for these stocks, Stocks that are in focus, Stocks to buy for tomorrow, Superstar Stocks selected on basis of a three-factor model, Bharti Airtel, Sumitomo Chemical, Hindustan Petroleum.

Many times market participants see a stock opening with a gap-up and wish they should have bought this superstar stock a day before to take advantage of the gap-up move. To fulfil this wish, we have come out with a unique system, which would help us to get the list of candidates that can be probable superstar stocks for tomorrow. 

The superstar stocks for tomorrow selected are based on a three-factor prudent model. The first important factor for this model is price, the second key factor is pattern, and last but not least is the combination of momentum with volume. If a stock passes all these filters it would flash in our system and as a result, it will help traders to spot the superstar stocks for tomorrow at the right time. 

Here are the superstar BTST stocks for October 6, 2021.

Bharti Airtel: The stock of Bharti Airtel had formed an inside bar on Monday and after an inside bar formation, the stock formed a bullish candle, which is positive for the stock. Interestingly, almost two hours are remaining in Tuesday’s session and the stock has already surpassed the volume of its previous trading session, plus the volume witnessed for the day is highest since September 28. The RSI on the daily time frame as well as weekly and hourly is in bullish territory. The stock can probably test levels of Rs 720 followed by Rs 735 on the upside, while on the downside, support is seen around Rs 685.  

Sumitomo Chemical India: The stock has gained nearly 3.5% on Tuesday and with this movement, it has witnessed a breakout of a downward sloping trendline. Moreover, the breakout has been seen on the back of above-average volumes. The daily volume so far has already surpassed its previous day volume and it is the highest since September 27. The volume activity is seen picking up in the last one and a half or so. The 14-period RSI is in the bullish territory on hourly and weekly time frame, while on the daily time frame it has marked a fresh 14-period high. The stock has the potential to test levels of Rs 435 followed by Rs 443 on the upside. On the downside, the level of Rs 407 is likely to act as immediate support for the stock. 

Hindustan Petroleum Corporation: The stock has hit a fresh 52-week high and with this, it has witnessed a breakout of cup like pattern. Interestingly, the breakout has been backed with above-average volume and the volume so far is the highest since September 29. The RSI is in the bullish territory on the hourly, daily and weekly time frame. The stock has the potential to test levels of Rs 330 and immediate support for the stock is placed at Rs 306

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IPO Listing in September 2021.

Four IPOs were listed in September 2021 out of which two IPOs performed exceptionally well.
by 5paisa Research Team 05/10/2021

Four IPOs were listed in September 2021 out of which two IPOs performed exceptionally well.

The primary market has been quite busy since the start of the year. The activity continued in September as well as four IPOs were listed.

Ami Organics Ltd and Paras Defence & Space Technologies Ltd have performed well since they have been listed as we can see in Table 1.0.

Paras Defence and Space Technologies Limited: This IPO also made a sound debut. The offer price of the IPO was Rs 175 which opened at Rs 469 on NSE i.e. stock registered gained 168% from its issue price. The Initial Public Offering (IPO) was subscribed 304.26 times on September 23, 2021. The public issue was subscribed 112.81 in the retail category, 169.65 in the QIB category, and 927.70 in the NII category. The current market price of the stock on NSE is 198% high than the offer price of IPO.

Ami Organics Limited: The offer price of the IPO was Rs 610 which opened at Rs 910 on NSE i.e. stock registered gained 49.18% from its issue price. Ami organics made a strong debut; the initial public offering was subscribed 64.54 times. Ami Organics IPO was subscribed 64.54 times. The public issue was subscribed 13.36 times in the retail category, 86.64 times in QIB, and 154.81 times in the NII category by September 3, 2021. Ami Organics IPO is a public issue of 6,542,342 equity shares. The issue offers 3,281,723 shares to retail investors, 1,854,166 shares to qualified institutional buyers, and 1,406,453 shares to non-institutional investors. The current market price of the stock on NSE is 117.54% high than the offer price of IPO.

Following table depicts the list of IPOs along with their opening, closing date and IPO size:

 

Company Name  

Opening Date & Closing Date  

IPO Size  

Offer price  

List price  

Listing Gain/Loss (%)  

Total Gains  

Last Traded Price  

Ami Organics Limited  

1st September, 2021 & 3rd September, 2021  

₹569.64 crores  

₹610  

  

₹910  

49.18  

117.54  

₹1327  

Vijaya Diagnostic Centre Limited  

1st September, 2021 & 3rd September, 2021  

₹1,895.04 crores  

₹531  

₹540  

1.69  

3.58  

₹550  

Sansera Engineering Limited  

  

14th September,2021 & 16th September 2021  

₹1,282.98 crores  

₹744  

₹811.5  

9.04  

8.33  

₹806  

Paras Defence and Space Technologies Limited  

  

21st September, 2021 & 23rd September, 2021  

₹170.78 crores  

₹175  

₹469  

168  

198.85  

₹523  

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Top 5 holdings of ace investor Vijay Kedia.

Top 5 holdings of ace investor Vijay Kedia.
by 5paisa Research Team 05/10/2021

One of the most famous investors of this era, Vijay Kedia is the Managing Director of Kedia Securities Pvt Ltd. The ace investor is known for his investments mainly in mid-cap stocks. He is not particularly a big fan of large-cap stocks.

Some of the aspects he looks for while investing are; management with a good track record, a zeal to take the company forward, the company’s market share, growth aspirations, and potential.

Let us take a look at the portfolio of Vijay Kedia.
 

The investor holds a basket of 16 stocks and has a net worth of over Rs 864.4 crore. Here are his top 5 holdings:  

  1. Tejas Networks Ltd- Incorporated in 2000, the company is engaged in the business of optical, broadband and data networking products. Kedia holds 50 lakh shares of the company, with the holding’s value amounting to Rs 285 crore.

  1. Vaibhav Global Ltd- The company is engaged in the business of production and export of fashion jewellery and lifestyle accessories. It aims to be the value leader in the electronic retailing of jewellery and lifestyle products. Kedia holds 30 lakh shares of this company with the holding’s value amounting to Rs 210.3 crore.  

  1. Cera Sanitaryware Ltd- Cera Sanitaryware is a market leader in the sanitaryware sector and also provides a range of faucets, tiles, shower products, kitchen sinks and personal care products. Vijay Kedia’s holding in this company’s shares amount to Rs 71.7 crore.

  1. Sudarshan Chemical Industries Ltd- The company is a colour and effect pigment manufacturer and has acquired a strong position in pigments and agrochemicals in India and worldwide. With 10 lakh shares, Kedia’s holdings in this company amount to Rs 66.4 crore.

  1. Repro India Ltd- This international publishing industry services company undertakes physical book distribution, print on­ demand, offset printing, and digital services. With over nine lakh shares, Vijay Kedia’s holding's value in this company amounts to Rs 50 crore.