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Tata Motors wins binding agreements worth US$1Bn with TPG and ADQ for expansion in the EV industry.

by 5paisa Research Team 19/10/2021

Tata Motors won a binding agreement with PE firm, TPG, and ADQ worth US$1Bn for an 11-15% stake in its newly formed subsidiary, TML EVCo. Post money, the valuation of the new company would stand at ~US $9.1Bn.

The investment will be down in two phases. First 50% will be done by March 2022, post completion of setting up of the EVCo and second 50% by 3QCY22 on accomplishing “Go Live” actions. The investment will be in compulsory preference shares which will later convert to Equity, generating revenue threshold for 11-15% stake.

With this valuation, the revenue and EV penetration estimation would stand at ~9.8x EV/Sales ratio for FY24E. Such high EV/Sales valuation makes the company at par with world EV leaders such as Tesla which commands an EV/Sales of 10x.

However, the right valuation of an EV would be on the basis of strong correlation between EV OEMs’ valuation (EV/Sales) and their revenue growth expectations with the OEMs' market share. Even though Tata Motors does suffice this criterion, it might not be a “winner” just yet in India EV reason being its low volumes and the markets demands hierarchy changes as many players enter the market. Also, the valuation may also stand the test of low public charging infra roll out and low range of cars on sale as the popularity for EV is yet to gain traction from the general masses.

The new venture investment would serve as a boon to the new subsidiary. The company focuses to infuse excess of US$ 2.2 bn over the next 5 years and launch 7 new EV models, EV platform and transitioning from pure conversion models to an adapted platform for EVs gradually. In the 5-year road plan, the company aims to 20% sales from the EV division EV penetration of PVs in double digit. The management aims to achieve EBITDA break even by next year as the contribution margin of EVs is close to rest of PVs for Tata Motors.

The key concerns for Tata Motors still remain with revival of JLR and tackling with the competition in luxury end EV market players such as BMV, Tesla, Merc and Audi. Thus, if the demand persists and grows, it will get more difficult to keep up.

Additional concerns that the company have to tackle would be Brexit, US tariffs, higher than expected incentives, and slowdown of key auto markets its caters to such as US, China and Europe.

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Reliance Industries steadily moves towards green energy with two new partners – Stiesdal and NexWafe

by 5paisa Research Team 19/10/2021

Reliance Industries is slowly stepping towards green energy. In recent deals to achieve to its green goal, Reliance announced a collaboration with Denmark-based Stiesdal that has technology for producing g hydrogen electrolyzers and acquire stake in NexWafe provides access to wafer technology for solar photovoltaic modules.

RIL aims to spend US$10bn over the next three years in (1) Integrated Solar Photovoltaic Module factory, (2) Advanced Energy Storage Battery factory for storage of intermittent energy, (3) Electrolyser factory for production of green hydrogen, and (4) Fuel Cell factory for converting hydrogen into motive and stationary power.

With the collaboration with Stiesdal, Reliance aims to produce Hydrogen electrolyzers for India which produce green hydrogen. The company operates at a more cost-efficient process than its peers which will contribute to RIL’s aim to provide green hydrogen at US $1/kg which is much lesser than industry cost of US $5/kg. To support this bias, Stiesdal’s HydroGen claims to convert electricity to hydrogen at a cheaper rate than other electrolysis technologies on the market. RIL may also extend an agreement with Stiesdal for fuel cells that convert hydrogen to electricity.

NexWafe deals in developing wafers which are an intermediate process in development of solar cells and modules. NexWafe manufactures cost-efficient and energy-efficient wafter made out of silicon instead of expensive and materials such as polysilicon production and ingot pulling RIL’s stake acquisition in the company will help RIL to get access to wafer technology and create end-to-end manufacturing of components in solar energy value chain.

RIL has also invested 25 million euros in Series C funding of NexWafe. This investment done under India Strategic Partnership Agreement will allow both the countries to develop high-efficiency monocrystalline “green solar wafers” with NexWafe's proprietary technology and processes and commercialize it.

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Quarterly IT services update

by 5paisa Research Team 19/10/2021

Indian IT services continued to perform strongly in Q3CY21 as the strong momentum continued in winning deals in managed and as-a-services deals.

It is estimated more than 2000 medium to small deals were won through CY22, a record high so far. Despite strong ACVs, pipeline remains strong. Managed services deals worth $8.4bn were signed, showcasing a strong growth of +21.7% YoY, and+2.4% QoQ even after a strong Q2 performance. Among these, ITO grew at +12% YTD21 and BPO grew at +40% YoY. As-a-Service generated deals worth $13.4bn and grew at +55.8% YoY, and +14.5% QoQ. Going forward, Managed services are estimated to grow at +10.1% YoY (revised from +9% YoY) and As-a-Service to grow at +25% YoY (revised from +21% YoY).

Between 2019 and 2021, the companies have been effective in passing on the cost to the clients in new contracts. A 4% growth in the new contract prices have already been witnessed and accepted. However, the pressure remains on the existing contracts.

Even with the increase in prices, the demand still high, especially in ADM, ER&D Services and Industry specific BPO. ER&D services are gaining high demand in Manufacturing, Hitech and Healthcare industries. Going forward, the tech companies may face issues as the spendings are estimated to increase in CY22 itself. Discretionary spending is improving and there is shift of spending from hardware to new-age tech services like Cloud, cybersecurity, analytics, data.

The maximum demand came from Retail & CPG (+38% YoY), followed by Travel (31% YoY), Business services (+30% YoY), Telecom (+28% YoY), Manufacturing (+27% YoY), Energy (+26% YoY), and BFSI (+20% YoY). While, there was a muted growth from the healthcare with only +13% YoY.

Geographically, Americas posted the maximum growth at 36.5% YoY and +19.6% QoQ while APAC reported a mute growth of 59.6% YoY, and -6.4% QoQ. EMEA contributed and grew at +35.4% YoY, and +3.2% QoQ

The future outlook and prospects look very positive and robust for the Indian IT industry.

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Multibagger Alert: This top multibagger from the forgings sector gained 247% in one year!

Multibagger Alert: This top multibagger from the forgings sector gained 247% in one year!
by 5paisa Research Team 19/10/2021

Ramkrishna Forgings has generated over 20% return in the last month.

In the last year (year-to-date or YTD) as of October 19, 2021, Ramkrishna Forgings Ltd (RKFL) has been a multibagger, increasing shareholders' wealth by almost 3.5 times. This ‘A’ graded small-cap stock has been in the buzz lately due to its strong quarterly results and robust order pipeline.

RKFL is primarily engaged with the automotive sector where it supplies rolled, forged and machine products. The Indian Government’s PLI for the sector of Rs 57,042 crore is expected to boost manufacturing which augurs well for RKFL. The net sales for Q2FY22 jumped sequentially by 38.77% to Rs 579 crore. The net profit too soared to Rs 44 crore, a substantial growth of 78%. The fundamentals have been crucial to make this stock a multibagger.

Ramkrishna Forgings Ltd had announced on October 18 that it had bagged an order from Indian Railways for the manufacturing and supply of loco shells. This order is further strengthening the company’s diversification into the non-auto segment, especially into railways.

With this order, the stock had rallied 3.15% on that day. In the latest quarter, it had received total contracts amounting to Rs 620 crore from varied geographies and segments. The macroeconomic scenario can be favourable for this multibagger stock as there has been a positive outlook on stimulus packages for infrastructure and manufacturing space.

Ramkrishna Forgings Ltd is one of the leading suppliers of rolled, forged and machine products. It primarily serves the automotive sector along with railways, bearing, oil & gas, earthmoving & mining industries.

The stock is trading flat at Rs 1199.65 as of October 19, 2021, on BSE. It has a 52-week high and low of Rs 1259.60 and Rs 320.15 respectively.

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Superstar Stocks: BTST Trading and stocks that could deliver good returns till October 20, 2021.

Superstar Stocks: BTST Trading and stocks that could deliver good returns till October 20, 2021.
by 5paisa Research Team 19/10/2021

Stocks that are in focus, Stocks to buy for tomorrow, Superstar Stocks selected on basis of a three-factor model, Deepak Nitrite, M&MFIN and TCNS Clothing.

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 the 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, will help traders to spot the superstar stocks for tomorrow at the right time!

Here are the superstar BTST stocks for October 20, 2021.

Deepak Nitrite: The stock has gained nearly 3.25% on Tuesday and it has formed a bullish candle along with a surge in the volumes. The volume for the day has already surpassed its previous trading session volume. The RSI on an hourly, daily and weekly time frame is in the super bullish territory. The stock can probably test levels of Rs 3050 followed by Rs 3100 on the upside, while on the downside, support is seen around Rs 2900. 

Mahindra & Mahindra Financial Services (M&MFIN): The stock has gained 3.5% on Tuesday and formed a supersized bullish candle. With this, it has witnessed a breakout of the consolidation pattern along with a surge in the volumes. The stock has already surpassed the volume of its previous trading session and is the highest since October 5. The 14-period RSI is in the bullish super territory on hourly, daily and weekly time frame. The stock has the potential to test levels of Rs 200 followed by Rs 206 on the upside. On the downside, the level of Rs 189 is likely to act as immediate support for the stock.

TCNS Clothing: The stock has jumped over 6% on Tuesday and formed a sizable bullish candle on the daily chart. The volume for the day is the highest single-day volume since September 27. The RSI on the hourly, daily and weekly chart is in bullish territory. The stock has the potential to test levels of Rs 740-750 and immediate support for the stock is placed at Rs 700.

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Marquee Investor Rakesh Jhunjhunwala digs a 'Ratna' from Government Kitty.

Marquee Investor Rakesh Jhunjhunwala digs a 'Ratna' from Government Kitty.
by 5paisa Research Team 19/10/2021

New addition to the ace investor’s portfolio as of September 2021, is a 1.4% stake in NALCO.

S&P BSE Metal Index is witnessing favourable market sentiment with 17.55% price returns in the last one month, amid higher metal prices globally. LME (London Metal) Index reached an all-time high of 4762.80 in October of 2021. It consists of six metals with aluminium accounting for 42.8% weightage.

Industry Dynamics

  • Aluminium is the second-most used metal globally, after Iron.

  • India is the third-largest producer of aluminium after China and Russia. The share of India in the world production was 5.76% during April - June 2021.

  • The principal user segment of the aluminium industry in India continues to be the electrical and electronics sectors followed by automotive, transportation, building, construction, packaging, consumer durables, industrial and defence.

This heavy captive industry is dominated by few large players that include, Vedanta, HINDALCO, BALCO and NALCO. NALCO is the only public sector player in the segment.

NALCO

National Aluminium Company Limited (NALCO) is a Navratna CPSE having inte­grated and diversified operations in min­ing, metal and power. NALCO is one of the largest integrated Bauxite-Alumina- Aluminium-Power Complex in the coun­try. It is a low-cost producer of Alumina and Bauxite. In FY 2020-21, NALCO achieved the highest ever Bauxite production (73.65 lakh tons) from its captive mines, since inception.

The debt-free PSU has reported a phenomenal jump of 1990 % in net profits (Rs 347.73 crore) for the last reported quarter Q1 FY 2022 on a YoY basis, largely on account of a low base. However, the recent price hike has positively impacted the profitability of the metal producer. For the quarter, the net sales amounted to Rs2475 crore, with a 79% increase on a YoY basis.

Given the rising demand in automotive, real estate, white goods, infrastructure and others, the ever-present demand for aluminium is sustainable in the near future. This increased demand along with the forecast for LME (London Metal Exchange )to trade at 4912.82 in 12 months.

The PSU has also committed to investing around Rs 30,000 crore by the financial year 2027-28 on various expansion and diversification plans. Of this proposed investment, the company will spend over Rs 7,000 crore on the fifth refinery, development of Pottangi bauxite mines and transportation and Utkal D&E coal mines. The remaining Rs 22,000 crore will be spent on the smelter and captive power plant (CPP) expansions, which also include expansion of the company’s smelter plant at Angul district in Odisha with the construction of a 1400 MW feeder CPP.

One of the most popular figures of the Indian stock market Rakesh Jhunjhunwala bought NALCO’s shares during the September quarter fuelling the momentum in the metal space. His stake in the state-run aluminium maker is to the tune of 1.4% which have caught the attention of the retail investors.

The stocks of the PSU have touched their week high yesterday at Rs 124.75 and closed at 121.70 showing a gain of 13.1% in one trading session. The stock has since seen some profit booking and is trading at Rs 122 in the morning session on October 19, 2021.

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