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Paytm walks into stock market-IPO alert

by 5paisa Research Team 21/10/2021

One 97 communications Ltd. Which is popularly known as Paytm was started as a payment provider is becoming a financial intermediary. Paytm had 50mn monthly transacting users (MTU), 6mn active merchants, and gross merchandise value (GMV - P2M) of INR4tn for FY21. Recent partnerships to distribute financial services, instead of fees, aims to diversify revenue and earning streams. Valuation of Paytm envisages (USD20-25bn). The user base of 333mn (CAGR 13% over FY19-21), of which 50mn (15%) were monthly active users. The company has onboarded 21mn merchants, 37% CAGR over FY19-21, of which 6mn are active merchants and again of which 51% (3mn) used Paytm's business App in the month of Mar-21. GMV (merchant) was INR4tn for FY21, a CAGR of 33% and 5.9bn merchant transactions took place through its platform. 

Current revenue mix tilt towards payments

Paytm's reported FY21 consolidated revenue of INR28bn, down 15% YoY. Payments and financial services revenue (~75% by mix) grew 11% YoY in FY21, of which revenue from financial services was marginal. Commerce & Cloud business revenue declined 38% YoY in FY21 as high exposure to COVID impacted segments viz. travel & entertainment led to lower GMV (-70% YoY) - nevertheless the decline was non-linear due to better performance of other streams viz. advertising etc. 

Payment spreads improved

Paytm's payments net spread (take rate (Revenue divided by GMV) less processing charges divided by GMV) were negative 25bps/13bps in FY19/20. While the downward trajectory of taking rate continued in FY21 (50bps). Thereafter, a sharp cut in marketing expenses to 6bps of GMV vs. 1.2% in FY19 helped Paytm to report a contribution profit of INR3.6bn for FY21. The spread at which Paytm works is still suboptimal and take rates are low at 50bps for FY21 (reported 64bps for 4QFY21, including from Postpaid). 10bps improvement in non-UPI can boost revenue by 10-12% and net spreads by 6-7bps. The performance here is key to Paytm's valuation. 

IPO offer details  

Issue Size: INR166bn, 2.5x of FY21 Net-worth 
Fresh Issue: INR83bn 
Offer for sale: INR83bn 
Order of subscription: In case of under-subscription first 90% of the proceeds will go 
towards fresh equity, followed by a reduction in stake of Ant Financial to 24.9%, other selling shareholders, and finally towards the remaining 10% of fresh equity. 
Pricing may be in the range of USD20-25bn, based on media reports as compared to 
USD15bn (INR1.1tn) based on the last deal in Feb-20 to DG-PTM (institutional investor). 

Utilization of funds

Fresh raise of money would be utilized to strengthen the financial business and invest in new business/ acquisitions to expand the bouquet of product offerings and other corporate purposes. The company has acquired various other companies for value-added propositions (acquisitions like Little Internet Pvt Ltd, etc.) and expansion of product bouquet (acquisitions like Orbgen Technologies Pvt Ltd, etc.). Also, the company has scaled/commenced various business initiatives including insurance subsidiary, wealth management, etc. 

IPO proceeds to help innovate and invest

Based on its capital history, the company has so far raised INR190bn+, with its FY21 net-worth of INR65bn, implying investments/cash burn of INR128bn of which INR105bn were reported losses over FY18-21. The current proceeds from a fresh issue of INR83bn would provide Paytm capital to augment ammunition to invest/innovate/acquire (INR20bn) and to scale up the profitable revenue drivers.

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Buzzing Stock: Tata Power zoomed 71.4% in the last month. What’s driving the rally?

Buzzing Stock: Tata Power zoomed 71.4% in the last month. What’s driving the rally?
by 5paisa Research Team 21/10/2021

Tata Power shares have been on the upsurge given visible change in big focus from traditional areas to bet on green energy.

Shares of Tata Power Company has given stellar returns to investors in the past month with a gain of 71.4%. The share price stood at Rs 134.45 on September 20, 2021, and from then the stock has gone on to hit its 52-week high on the BSE of 269.70 on October 19, 2021, before closing at Rs 230.45 on October 20, 2021.

The Tata group stocks such as Tata Motors, Tata Power and Tata Chemical are proving to be major beneficiaries of the EV theme as it is getting the benefit of early mover and strategic asset allocation. Tata Power could well go on to be the leader in EV infrastructure in the country given recent events and this has been reflected in the stock price which has seen buying by investors betting on clean energy going forward.

A key trigger for recent movement in the stock price was the deal with Tata Motors to develop electric vehicle charging infrastructure. Tata Power partnered with Tata Motors, Morris Garages India Limited and JLR for developing EV charging infrastructure for their customers and dealers, including those for e-buses used by multiple state transport utilities.

Moreover, Tata Power's wholly-owned subsidiary Tata Power Solar Systems recently bagged Rs 538 crore contracts to build 100 MW of distributed ground-mounted solar projects for EESL. With this win, the Utility-Scale EPC order book of Tata Power Solar now stands at around 4 GW (DC) capacity with an approximate value of Rs 9,264 crore (without GST), thereby strengthening its position as India’s leading Solar EPC player.

There is also the buzz surrounding the company with regards to fund raising for the initial public offering (IPO) of its renewable energy unit. According to reports, Tata Power is in talks with a large pension and sovereign asset managers, including Canada Pension Plan Invest Board (CPPIB) and Government of Singapore Investment (GIC), to raise at least USD 500 million ahead of the proposed IPO for its renewable energy unit.

At 2.55 pm on Thursday, the stock of Tata Power Company Limited was trading at Rs 224.90, down by 2.41% or Rs 5.55 per share on BSE. The 52-week high of the scrip is recorded at Rs 269.70 and the 52-week low at Rs 51.65 on the BSE.

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Changing trends in the software industry

by 5paisa Research Team 21/10/2021

Software, they say, is absorbing the world: As business processes get automated, more and more software needs to be created, updated, and maintained. Therefore, as a dominant provider of software services, India is at the center of the action.

Indian software industry during the pandemic

The value of India’s IT services exports grew 2 percent last year which is the slowest in two decades. Growth in effort accelerated measured in person-hours. Revenue growth slowed due to business disruptions for customers and onsite work falling sharply. Onsite work where engineers travel abroad to work in the offices of their customers' yields more than thrice the revenue per hour of offshore work but also incur higher costs as employees get paid in line with their much higher local cost of living and have lower profit margins. Offshore work is a win-win scenario where both customers and service providers are benefited. Customers pay less and service providers to see healthier margins. But all services cannot be delivered from offshore. After a sharp fall till around a decade ago, the onsite/offshore mix had stabilized at one-third. The limit has been redefined by changes forced by the pandemic, as growth in offshore business last year was the strongest in many years. For some firms more than three-fourths of work was done offshore. This would not be sustained completely but a part of it may remain. A higher offshore share of work brings down the average cost of services making Indian IT services more competitive.

Retaining industry growth post-pandemic

As the customers’ businesses of the software companies stabilize, and digitization accelerates, Indian IT Services firms’ revenues may grow for a few years stronger than the pre-pandemic levels. Firms were unprepared for this acceleration in business and many are having to let go of business due to a lack of spare staff (“bench”) to handle the rush of new work. To address this shortage and to re-build the bench, they are hiring more. The top five IT Services firms have announced 1,20,000 new hires. Several other types of firms are also expanding their hiring of IT staff at the same time. Tech-focused Indian start-ups have raised more than $40 billion over the past year, of which 10-15 percent may be spent on hiring developers to write software (the rest spent on advertising, discounts, acquisitions, technology capacity, or physical capacity like warehouses). Software-as-a-Service (SaaS) firms are also flush with funds, and will mostly use them to hire engineers. SaaS companies are also generally profitable and are seeing strong growth in revenues, facilitating more hiring.

Hike in hiring after the pandemic

Global software and SaaS firms are also increasing their presence in India, with some of them now offering salaries that appear to be benchmarked to dollar-based compensation in the US. Conventional Indian businesses are spending more on technology, with spending on software growing more than 15 percent last year despite the pandemic-related uncertainty. For the economy, one-third of investment is on intangibles, which is mostly software. This is growing faster than conventional investments in machinery and buildings and has accounted for more than 40 percent of incremental investments in the economy over the past three years.The community of software developers in India which is 4.5 million may expand by nearly 10 percent this year. Over the past five years, 1,60,000 people have been added. The net hiring this year may reach around 4,00,000. Job openings on various portals are soaring, and human resources managers are as worried about retaining their staff as they are about hiring for the growth of their companies.

Wages for the growing employee strength

India produces 3 million engineers a year. Therefore, hiring 5,00,000 should not be a challenge. However, much of the estimated $12-13 billion increase in the industry’s wage bill is likely to be for experienced software engineers, particularly for those in the 5-12-year experience. As the size of this group cannot be expanded quickly, this means substantial wage hikes for these engineers.As positive as this trend is for the Indian economy, adding substantially to India’s balance-of-payments and overall gross domestic product, this also throws up new challenges, both for companies and policymakers. Policymakers must help to keep the industry’s costs low so that more work comes India’s way and also must work on the ability of cities to handle the influx. Around three-fourths of India’s software engineers are based in just four cities: Bengaluru, Chennai, Hyderabad, and Pune. Most of the new openings are also in these cities. To avoid congestion and to tap a larger talent pool that may not want to move to these cities, the industry has tried to develop alternative centers, which have not succeeded. The number of engineers with the right skillsets must grow otherwise India may quickly become uncompetitive. Students shell out lakhs of rupees for an engineering degree, after which the hiring firm put them into a 6-12 month retraining course. The need for skills like Artificial Intelligence or Machine Learning may be too dispersed across firms for them to solve the problem themselves and they may end up hiring abroad. This becomes a public good which the government can plan for and facilitate.

The challenging task of sustaining the hired talent

Apart from the challenge of attracting/retaining talent, larger firms must also collaborate to enable an ecosystem that sustains the inflow of quality manpower with cost-efficiency. For larger IT services firms staff costs grew 16 percent in the June quarter and may rise further. As they compete with MNCs which are well-funded than start-ups and SaaS firms which generate much more revenue per employee. They may need to innovate the software development process again like they did while scaling up in the years after Y2K.

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These stocks are likely to be in focus on October 22

These stocks are likely to be in focus on October 22
by 5paisa Research Team 21/10/2021

Benchmark indices slipped in red for the third straight session on October 21 mainly dragged by IT and metal names.

At close, the Sensex was down 336.46 points or 0.55% at 60,923.50 level, and the Nifty was down 88.50 points or 0.48% at the 18,178.10 level. Kotak Mahindra Bank, ICICI Bank, HDFC Bank and NTPC were the top Sensex gainers whereas Asian Paints, Infosys, Reliance Industries and TCS were the top Sensex losers.

On Thursday, about 1580 shares have advanced, 1627 shares declined, and 130 shares are unchanged.

On the sectoral front, PSU Bank, auto, oil & gas and power indices ended on a positive note, while metal, IT, energy and FMCG indices ended in red. The indices in broader markets also ended in negative territory.

Watch out for these stocks in the Friday trading session:

CG Power and Industrial Solutions - The company announced that it had the benefit of uninterrupted working in Q2 and all the businesses have performed satisfactorily, improving capacity utilization. The sales for the quarter stood at Rs 1454 crore, a 119% rise on a YoY basis and the standalone sales recorded were highest in the last ten quarters. Also, the profit before tax recorded on a standalone basis was at Rs 137 crore, again, the highest recorded in the last 20 quarters.

UPL - UPL Global Limited, a step-down subsidiary of the company’s subsidiary viz. UPL Corporation Limited has entered into a definitive agreement for the acquisition of an 80% stake in the equity share capital of PT Excel Meg Indo – Indonesia. PTE has a good presence in Indonesia and belongs to the agrochemicals industry. This acquisition will help UPL to access a wide range of agrochemical products offered by PTE in Indonesia.

52-week high stocks – On Thursday, the stocks of ICICI Bank and Kotak Mahindra Bank in the Sensex pack outperformed the index and made fresh 52-week highs. These stocks are likely to be on the watchlist for Friday’s trading session.

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Delta Corp revamps post-Covid

by 5paisa Research Team 21/10/2021

The holiday season starts on a positive note for Casino Industry 


With the easing of lockdown of the economy and the easing of travel restrictions, tourism is picking up across the country. As Goa is one of the hottest tourist destinations is doing exceptionally well. The casino industry has also opened up and all the company's casinos (Goa, Sikkim, and Nepal) have started operations and are seeing signs of revival with business performance reaching pre-COVID levels. As we move into the holiday season, 3QFY22 (which is the strongest for the gaming industry) is likely to be strong as per management's guidance, given no further disruption on account of the third wave of COVID. Stock is not rated. 

Operational update 

All the casinos are now operational with Sikkim, Nepal and 
Goa casinos resuming operations from 16th August, 8th September, and 20th September respectively. The company is witnessing strong traction in operational performance across all the casinos which is comparable to pre-COVID levels. Strong performance is expected to continue in 3QFY22.

Casino business

With the opening up of the economy and the onset of the holiday season, the outlook on casino business remains positive. A strong demand uptick was visible last year too after the re-opening of casinos and the same is expected for the remaining part of FY22. 
 
Online Gaming division

Over the last 2 years, the online gaming division has seen business performance volatility. During the peak of the 1st lockdown, the business did well which gradually declined as people started venturing out of their homes resulting in lower screen time. Over the last 18-20 months, the company realigned the business strategy for the online gaming division by developing a strong backed system, Human resource team and launched a multi-gaming platform - addagames.com - to attract users. 

Hospitality division 

The hospitality business is picking up in Goa as well as Daman and the onset of the holiday/festive season is likely to keep the traction intact. 

Daman casino license case

The management has reiterated a positive stance on 
Daman's casino license case is under process with the Mumbai High Court. 

New ship to replace the smallest vessel

The Company is replacing the smallest casino vessel in Goa with a large vessel which is expected to commence operation by the end of FY23. The CAPEX outlay for the project is expected to be in the range of INR2.5-2.7bn. The new ship is expected to have a capacity as high as the total existing capacity of Delta in Goa and will thus take the overall capacity to ~2x of current levels. 

Goa Casino project (Deltin Entertainment City)

The Company has received in-principle approval from the Goa Investment Promotion and Facilitation Board ( final approval awaited) for setting up of an integrated resort consisting of hotels, convention center, multiplex cinema, retail area, electronic casino, waterpark, and other facilities at Pernem, Goa. The company is in the advanced stage of finalizing the design. The CAPEX outlay for the project is expected in the range of INR15-17bn investment spread over a horizon of 4-5 years.

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Trending stocks: Keep a close eye on these small-cap stocks for 22 October 2021

Trending stocks: Keep a close eye on these small-cap stocks for 22 October 2021
by 5paisa Research Team 21/10/2021

The following small-cap stocks have made fresh 52-week high today –IRB Infrastructure Developers, Jindal Worldwide, Rail Vikas Nigam, Confidence Petroleum India, Thangamayil Jewellery and Ugro Capital.

Frontline indices Nifty 50 and Sensex fell by more than 0.50% on Thursday to end at 18,178.1 and 60,923.5 respectively. Metal and IT stocks further underperformed broader markets. BSE Small-cap index corrected by 0.69% i.e. 198.60 points.

Keep a close eye on these trending small-cap stocks for Friday, 22 October 2021:

KPIT Technologies – The company along with ZF Group, a global technology company supplying systems for passenger cars, commercial vehicles and industrial technology has announced that they will cooperate for joint development for an industry-leading middleware solution for the mobility ecosystem.

Built with the software expertise of KPIT paired with ZF’s strong understanding of vehicle systems, a mature, modular middleware solution that can be deployed across OEMs represents a transformative opportunity for the mobility ecosystem. This cooperation will also bring onboard solutions from other technology companies, including semiconductor specialists, software companies, cloud services and start-ups.

The middleware development will draw upon KPIT’s experience in several production programs and its strengths in cloud-based connected services. It will use KPIT’s existing assets, tools and accelerators and other core infrastructure.

Rajratan Global Wire – The company has recently released its Q2FY22 results and has furnished business updates. During the quarter the company successfully strengthened its TPM commitment to address JIPM standards and shop floor safety measures. It has introduced an incentive scheme to enhance 5S discipline compliance. The company has also strengthened its quality assurance and quality control review phenomenon. It has also tightened conversion cost and general administrative expense controls.

The business outlook for H2FY22 is as follows.

The company expects tyre and bead wire demand to sustain into the second half of FY2021-22. They expect to be allotted land in Sipcot Industrial Park for their proposed third plant. They expect wire rod costs to increase following an increase in pet coke prices.

52-week High Stocks - The following small-cap stocks have made fresh 52-week high today –IRB Infrastructure Developers, Jindal Worldwide, Rail Vikas Nigam, Confidence Petroleum India, Thangamayil Jewellery and Ugro Capital. Keep a close eye on these counters on Friday, 22 October 2021.

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