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Adani Ports 739.10 (4.40%)
Asian Paints 3180.60 (1.35%)
Axis Bank 676.10 (-0.52%)
B P C L 378.85 (2.74%)
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Bajaj Finance 7180.50 (2.01%)
Bajaj Finserv 17758.15 (2.16%)
Bharti Airtel 732.55 (1.43%)
Britannia Inds. 3578.50 (1.22%)
Cipla 921.25 (-0.74%)
Coal India 159.30 (2.41%)
Divis Lab. 4777.30 (0.53%)
Dr Reddys Labs 4662.75 (1.22%)
Eicher Motors 2451.55 (0.54%)
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H D F C 2807.80 (3.85%)
HCL Technologies 1184.70 (2.42%)
HDFC Bank 1525.75 (1.40%)
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Hero Motocorp 2472.70 (1.00%)
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ITC 225.45 (1.60%)
JSW Steel 646.75 (1.50%)
Kotak Mah. Bank 1964.25 (0.56%)
Larsen & Toubro 1789.20 (0.18%)
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Nestle India 19503.20 (0.54%)
NTPC 128.70 (0.78%)
O N G C 144.00 (1.23%)
Power Grid Corpn 214.50 (3.52%)
Reliance Industr 2482.85 (0.64%)
SBI Life Insuran 1188.05 (1.99%)
Shree Cement 26289.80 (0.76%)
St Bk of India 477.00 (0.36%)
Sun Pharma.Inds. 766.25 (2.80%)
Tata Consumer 773.25 (0.06%)
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TCS 3642.90 (1.82%)
Tech Mahindra 1629.65 (2.65%)
Titan Company 2386.50 (1.11%)
UltraTech Cem. 7323.20 (0.01%)
UPL 698.20 (1.12%)
Wipro 646.80 (1.89%)

Uncertainty looms over the troubled China real estate sector as the saga continues to unfold

by 5paisa Research Team 19/10/0011

China’s real estate’s prevailing trends lays emphasis on two thorny issues such as further moderation in sales momentum and sluggish land sales. Both of which paint pale outlook for developers facing the task of balancing the need to grow and balance sheet risk management
In the first round of centralized land sales, the bidding intense and competitive whereas it was the opposite in the second round even with land premium shrinking. The average failure rate rose to 27% vs. 10% in the first batch. The reasons for this would be the reservation of high prices despite lower premiums, and regulators reinforcement of market discipline. The policies that served as a boon to the green-tier developers now may turn a bust and destroy any business opportunity. To preserve the margins, developers opt to delay the pre-sale permits. However, this in turn impacts the cash flow and slower contracted sales.

Amidst the sluggish second round of auction, COLI acquired 23 plots worth RMB54bn, CRL and Longfor invested over RMB12bn respectively in August-September, according to CREIS.

The weakened market confidence and strict mortgage approval policies seemed to be the root cause of the fall of Evergrande and other developers. Evergrande, alone, suffered a 90% y-o-y drop due to this. However, in select cities, the mortgage policies have been easier which may help in picking up the sales rather slowly in the coming months and with a possibility of catching up in the peak season of Q4. Though the dynamics seems weaker with the deteriorated fundamentals over the years.

In addition to high land cost, the auctions also failed due to more stringent requirement and scrutiny of developers’ source of funding used for land purchases, further margin compression caused by requirements on high construction quality or self-owned rental housing, and risk-off sentiment as the Evergrande saga continues to unfold.

The thought of recovery of margins for the developers seems far-fetched because of persistent home price cap and higher absolute land cost. Along with this, weaker home purchase dynamics also come into play as the buyers’ expectation on home prices has been gradually moderated. This also puts pressure on the profitability and developer’s margins.

The weakening home sales could have negative implications in local government’s fiscal income. Hence to avoid this, select cities have lowered mortgage rates and sped up mortgage disbursement. However, the full policy relaxations, like during other downcycles, seem unlikely.

Top Stock picks with a “Buy” rating are all green-tier developers and they are China Resources Land, Longfor Group and Shimao Group.

Both CRL and Longfor have maintained double-digit core profit growth and DPS growth y-o-y basis, and respectable margins as compared to their peers and sector average.

CRL has proven a strong rental performance and has the ability to embark on a countercyclical land-banking strategy via diversified channels underpinning its growth momentum. The concerns with this stock would be inability to maintain sales momentum, lower margins and uncertainty of macroeconomics.

While Longfor Group has a fast growth pace in it non-DP segments which contribute to its strong earnings and cash flow. Among its peers, it also has the strongest balance sheet and lowest funding costs which helps in optimizing its acquisition and expansion opportunities. The risks associated with the group are slow sales, overspending on acquisitions, sell off of shares by key personnels and macroeconomics uncertainty.

Shimao Group, on the other hand, displays strong dividend yield and attractive valuations. Once the Group’s landbanking attitude YTD as a means to preserve the solid margin profile is recognized, the company would become more popular among investors. With the share buyback at company and executive level, it signifies their confidence in the company and its future outlook. The risk associated with the Group is similar to the others, lower margins, slower sales and macroeconomics uncertainty.

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Which large cap stocks are mutual funds buying?

by 5paisa Research Team 18/12/0021

Indian stock indices are consolidating near their peak levels and have seen a rush of money towards large cap counters as investors, anticipating a correction, are looking at a comfort factor rather than make riskier bets.

While foreign portfolio investors (FPIs) or foreign institutional investors (FIIs) have been the driver of local bourses historically, domestic mutual funds have become very significant in the last few years given the rush of local liquidity. So much so that the current bull run is largely attributed to the flow of cash into domestic mutual funds, which have pumped in a massive amount of money into the stock market.

Although most local fund managers have been voicing concerns about valuations, quarterly shareholding data shows they pushed up their holding in over 200 listed companies. Of those, they increased their stake by two percentage points or more in around 18% of the companies.

In particular, they hiked stake in as many as 129 companies (as against 89 companies for FIIs) that have a valuation of $1 billion or more last quarter. Of these 129 companies, 74—or more than half—were large cap companies.

Mutual fund managers were bullish on top private-sector banks, FMCG companies, automobile and auto component makers, engineering, select financial services counters, and the Adani group pack, among others.

This is in contrast to FIIs, who were bullish on selective FMCG stocks, PSU banks besides gas and power companies, pharmaceutical and engineering companies, life insurers and a few automakers.

Top large caps that saw MF buying

If we look at the pack of large caps with a market valuation of Rs 20,000 crore ($2.6 billion) or more, then MFs pushed up their stake in HDFC Bank, ICICI Bank, HDFC, Bajaj Finance, HCL Technologies, ITC, Bajaj Finserv, Larsen & Toubro, Axis Bank, ONGC, Adani Enterprises, Tata Motors and Adani Ports.

HDFC Life Insurance, Power Grid, Pidilite, SBI Life Insurance, M&M, Bajaj Auto, SBI Cards, Godrej Consumer, InterGlobe Aviation, Britannia and Apollo Hospitals also saw domestic mutual funds pick up additional shares.

Further lower down the order, Mindtree, Ambuja Cements, IndusInd Bank, Motherson Sumi, Marico, United Spirits, GAIL, Piramal Enterprises, UPL, Bajaj Holdings, Hero MotoCorp and Jubilant Foodworks also saw buying activity by local fund managers.

Some large caps which saw buying from both foreign and domestic fund managers include HDFC Life Insurance, Marico, GAIL, Piramal Enterprises, Canara Bank, Varun Beverages and Dalmia Bharat.

Meanwhile, mutual funds picked up 2% or more additional stake last quarter in around ten large caps. This pack includes Clean Science & Tech, Coforge, Indraprastha Gas, Ashok Leyland, Bata, SBI Life Insurance, Godrej Consumer, Minda Industries, Escorts and Sona BLW.

Clean Science & Tech had also seen significant stake purchase by FIIs.

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Interview with Tourism Finance Corporation of India (TFCI)

Interview with TFCI
by 5paisa Research Team 19/10/2021

"TFCI wants to play the role of an investment catalyst for Indian tourism sector"

In conversation with Anirban Chakraborty, Managing Director and CEO, Tourism Finance Corporation of India Ltd(TFCI).  

TFCI’s Q1FY22 net profit stood at Rs 21.20 crore, up by 27.96% from Rs 16.57 crore in Q1FY21. What factors have contributed the most to help you outperform?   

At TFCI, we have focused on expanding our well-diversified portfolio, which has continued to yield good results over the years. Our Net Interest Income increased by 10% YoY to Rs 32 crore from Rs 29 crore with an additional income of Rs 2.4 crore during the quarter, which had mainly driven the net profit of the company. A combination of a broad-based economic revival, substantial decline in active Covid-19 infections and a large segment of the population getting vaccinated across the country has helped in significant recovery for the hospitality sector. Though Q1FY22 was a challenging quarter, owing to partial lockdowns due to the second wave, the gradual reopening saw improvement due to pent-up demand, especially in leisure destinations during the latter part of the quarter.   

Can you throw some light on your plans to utilize the funds (Rs 65.18 crore) recently raised via preferential allotment to marquee investors?  

TFCI being a specialized institution and an industry leader in its segment, is well-positioned to witness a multi-year credit growth. Hence, the raising of Rs 65 crore via preferential allotment to promoter group and marquee investor entities led by Anurag Bagaria (Chairman & CEO, Kemwell Biopharma Private Limited) and P.S Jayakumar (ex-MD & CEO, Bank of Baroda) will go a long way in the strategic expansion of the company. This displays the confidence of the investor community in the business model of TFCI. These funds will be utilized to boost the company’s strong position in the lending ecosystem and to accelerate its strategic priorities. TFCI provides a long-term line of credit to projects in the hospitality segment and the company has the vision to play the role of an investment catalyst for the Indian tourism sector, while also diversifying into other promising segments.   

What are your top strategic priorities for business expansion?  

With the help of large-scale vaccination programs and relaxations being rolled out, the tourism sector is inching its way back to recovery. Various segments of the tourism sector are witnessing a surge in bookings due to pent-up demand from travellers. Also, events like weddings, etc, which were postponed due to lockdown are also driving revenues in a big way. Our foremost priority is to lend to those businesses which have a strong asset cover and steady cashflows which helps us to avoid delinquencies and ensures recovery, even during unexpected events like this pandemic. Also going ahead, the company plans to further diversify its book by lending to the education and healthcare sector as these sectors usually tend to face lesser disruptions in a situation like COVID. These initiatives will help TFCI in building a well-diversified loan book.  

What are your growth levers?  

As per the JLL’s Hotel Momentum India report, the hospitality industry in India witnessed a growth of 84.7% in terms of Revenue Per Available Room during Q2 2021 (April-June) as compared to Q2 2020. With several states across the country adopting relaxed lockdown measures and no quarantine requirements, we expect a further boost in demand for domestic travel.

During the last year, we have also witnessed a structural shift in demand from unorganized hoteliers to larger organized institutions. This was mainly driven by their inability to sustain their operations due to the long Covid-19 induced lockdown, a shift in consumer preferences towards better hygiene, and unavailability of extended credit lines to carry business as usual. These factors have created a demand-supply mismatch in the sector. We expect this supply gap to be met by the larger and steady players, and TFCI being one of the largest lenders to such organizations is poised to grow in the coming future.   

Furthermore, going forward, with economic activities gradually getting back to pre-covid levels we expect improved disbursements activity in various sectors. As of June 30, 2021, our CRAR stood at 41.95% and our recent fundraise will help us to boost our adequacies and aid in further credit dissemination.  

 

 

 

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Future shines bright for Divis Labs on the possibility of production of first ever oral COVID-19 drug

by 5paisa Research Team 19/10/2021

Merck, also widely known as MSD, and its partner Ridgeback Biotherapeutics reported robust results for Molnupiravir Phase 3 trials from the interim analysis. The drug is said to reduce the risk of hospitalization or death by 50% in patients suffering from Mild to Moderate Covid-19. The study gave viral sequencing data which showed its consistent efficacy across viral variants Gamma, Delta and Mu.

The companies plan to get approval from FDA EUA (Emergency Use Authorization) and other global regulatory agencies for the drug. If it succeeds in this, Molnupiravir will the first ever oral COVID-19 drug which can be taken from home without any healthcare facility support.

This would play a vital role in Divi’s Labs’ growth as it is the authorized manufacturer of Molnupiravir API for MSD in India. It has a completely fully integrated manufacturing process, hence could be one of the key suppliers, effectively impacting the company’s revenue growth.

With global players looking to diversify their suppliers and reducing dependency on one sole source for generic APIs, provides a positive outlook for Divi’s Labs. Divi’s has proven itself to address any growth concern positively and has highlights its six growth engines.

Upon EUA approval, MSD wins a supply contract worth of $1.2 Bn with the US government to produce 1.7m course of Molnupiravir at a price of $700 per course. It is believed that both the companies have begun stockpiling of the drug in anticipation. MSD expects to deliver a quantity of 10m courses by 2021 end and Divi’s Lab is expected to produce 1M courses in FY22e and 0.7M in FY23e for the US.

Divi’s Lab would generate a whopping revenue of $53M and $44M in FY22e and FY23e respectively. An ROE of 23%-25% can be expected for FY22-23e, EPS estimated to increase by 0.4-4.4% and adjust the operating costs and items below the EBITDA line. These estimates are in respect to the contract with the US Government alone and would likely to increase if the companies can sign supply agreements from other countries.

With the Voluntary License agreement between Divi’s and MSD, Divi’s labs would supply Molnupiravir in India and other low-middle-income countries (LMICs) while MSD retains its API supply rights in the US, EU and other regulated markets. Divi’s Labs received a custom synthesis project for Molnupiravir API in 2QFY21 with incentives for expedited completion and invested CAPEX of 4bn for three supply streams (two for exports and one for MSD’s VL partners in India). It has started operations of one of the export streams while the other two are assumed to start soon. A strong net cash position of cINR21bn and consistent cash generation allow it to comfortably invest for future drivers.

With such impressive future business expansion plan, some drawbacks may spurt out. Risk such as delay in pick-up of supplies which would impact the revenues, higher input costs and operating expenses, failure of compliance at the plants and weakening demand.

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DMART reported a robust growth in Q2 FY22. Can the retail giant continue the trend?

by 5paisa Research Team 19/10/2021

The retail giant, DMart’s bullish momentum spills into Q2 and there seems to be no looking back. This is proved with the stock price zooming 94% in one year and outperforming the Nifty50 benchmark which only grew 54% in the same period.

The retail giant vows to its winning business model which has resulted in a whopping 46% sales growth in Q2, year on year basis, giving a tough competition to its competitors. The company successfully added 8 more stores in Q2, reaching a new total of 246 stores.

With such success, one may also question its high valuations. Is the high PE of 239 justifiable? Or is the 106x FY23e PE fair in correlation with its fundamentals? Can this affect the company’s ratings in the future?

So far, the company seems to have a clear positive outlook on the long-term view and would continue to do so.

DMart’s business model earning profits through scale and lower costs makes a strong case for its future valuations. This is evident with the company’s performance throughout the disruptive times caused by a deadly worldwide pandemic. While majority of the industries and companies suffered painful losses and shutdowns, DMart managed to rise above the crowd.

With its own pace of the network roll-out and increased in-store demand, DMart has managed to expand its business by opening 8 more stores. Since the grocery market is dominantly captured by “mom and pop stores” (about 95%), it gives immense space for the retailer to grow 10x than what it is today. 

To defy the argument of expensiveness, if the company continues to grow at the current pace, then the market would assign and price in a 16% long-term earnings compounding, which the company can successfully achieve over a decade’s time.

On the stock front, the stock behaves like a defensive stock when the bear market strikes and outshines when the bull market comes into play.

The above-mentioned points support the arguments for the expected higher valuations of the company and also justifies the potential high growth and an estimated revenue CAGR of 26-27% over a decade.

However, an investor must also factor in the drawdowns the company may face. The price-based competition from ecommerce competitors can put stress on the SSSG and gross margins, keeping up with the pace of network roll out each year and the effect of Covid-19 on the macroeconomics leading to the slowdown of demand.

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Liquidity - a boon or bust? RBI’s attempt to recover and stabilize the economy

by 5paisa Research Team 19/10/2021

With the economic recovery coming into play, there is a sense of mixed feelings looming over.

Increased activities showed the recovery tracker rising from 103 to 105, and the PMI long-term average rising up to 53.7 from 53.5. This change came from both increased exports and imports activities. Until September, exports proclaimed higher figures, however, since September imports picked up too which also signified the demand from the domestic market. Another signifier was the higher than budgeted Tax revenues, especially the Corporate Tax Collections. With a positive trend reversal and increased vaccination rates, the up-coming few months also seems to have a strong positive outlook.

The picture isn’t as rosy as it may seem. The recovery tracker has only moved 5% above the February 2020 levels, core industries remained 2% below pre-pandemic levels, exports were 17% above the pre-pandemic levels and domestic consumptions remained 7% below the pre-Covid Levels. The sluggishness may crop into the recovery at the cost of growing inequality. 80% of the informal sector population has felt the burn due to the pandemic and same was the case during demonetization.

The Balance of Payments will likely to be in surplus for the coming few years. However, this may reduce with the rising trade deficit amounts coming from the workplace mobility coming into force and higher oil prices. Even with this, the increased capital inflow coming from asset-monetization, private equity, IPO Funding for start-ups, and inclusions of global bond indices may mean that RBI would continue purchasing dollar for longer adding to liquidity.

The CPI heading Inflation was higher than RBI’s 4% target for 23 months while CPI core inflation was above 4% for 18 months. The cost push inflation showed the elevated energy prices with the prices of coal, crude and gas soaring globally. In India, core CPI has high correlation with the energy prices. The rising prices indicates worries looming over the CPI forecast. Another worry comes with inequality-driven inflation as large companies gain pricing power.

The liquidity is close to 12Trn which higher than FY21 when there was so much uncertainty regarding the pandemic and vaccines. Such high levels of liquidity may cause problems such Asset bubbles, lower returns to depositors (almost negative to pensioners) and striking inequality at firm and individual levels.

Looking at the increased liquidity and inflation, the issues will be addressed at the 8th October policy meeting. The meeting would focus on liquidity-neutral operation twist actions for OMO bond purchases, hiking reverse repo rate to 3.75% from 3.35%. These hikes would only be followed in H2FY22 and would later be reversed from accommodative to neutral. Hopefully, there would be steps taken by the RBI towards liquidity as well.

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