India

• Doms (DOMS IN) is looking to raise around US$140m in its upcoming India IPO.
• DOMS is a leading player and brand in India’s stationery and art products market. It designs, manufactures, and sells a wide range of products, primarily under its flagship brand ‘DOMS’.
• In this note, we look at the company’s past performance.

• Jyoti CNC Automation (0907734D IN) plans to come up with ~INR 10 bn IPO
• JCAL is an established player in manufacturing of metal cutting CNC machines, mostly in 5-Axis category. It has 8% market share in India and is 12th largest global player.
• Even though JCAL has bright order book visibility, it remains unprofitable, largely because of concerns with subsidiaries.

• While the earnings season continues, this will be the final dedicated earnings edition.
• For reference, the previous earnings editions are [Week 8] Namaste India 🙏 | Earnings Edition – Part I & [Week 9] Namaste India 🙏 | Earnings Edition – Part II 
• At the bottom, we provide a consolidated view of all earnings (~ 50) tracked so far and we would be happy to engage in discussions on any of them.

• Muthoot Microfin (1363943D IN) is looking to raise up to US$163m in its upcoming India IPO. 
• Muthoot Microfin (MMF) is a microfinance institution providing micro-loans to women customers with a focus on the rural regions of India.
• MMF has undergone fast network expansion, which allowed the firm to nearly double its AUM over the track record period. 

• Bajaj Finance Ltd (BAF IN) , one of India’s largest NBFCs, aims to raise around US$1bn via a QIP.
• Bajaj Finance is an NBFC offering auto, consumer and home loans, along with other products as well.
• In this note, we run the deal through our ECM framework and talk about the deal dynamics.

• Cello World raised around US$230m in its India IPO and will begin trading soon.
• Cello World (CW) is an Indian consumer products company. The firm is a leading company in the consumerware market in India.
• In our previous notes, we looked at the company’s past performance and valuations. In this note, we will talk about the demand and trading dynamics

Tata Motors has released Q2/23-24 results that significantly outperformed expectations. Revenue grew 32% y-o-y to INR 105 k cr. Reported EBITDA surged 86% to INR 14.4 k cr, with the margin expanding 430 bps to 14.9%. Automotive FCF was INR 3.9 k cr, up INR 2.9 k cr. Jaguar Land Rover and the Commercial Vehicle segment in India recorded robust growth and profits, while Q2 was a transition quarter for the Passenger Vehicle segment.

• Honasa Consumer (Honasa IN) raised about US$200m in its India IPO.
• HC’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments.
• In our previous note, we looked at the company’s past performance and valuations. In this note, we talk about the trading dynamics.

Vedanta Ltd (VEDL) has released puzzling Q2/23-24 results. The oil & gas segment recorded a huge y-o-y jump in earnings during the quarter, for no apparent reason. In our view, the lack of explanation and attribution for the unexpectedly large earnings jump is very strange, compounded by the timing of the call (on a weekend, when fewer analysts would have attended). It is unclear if VEDL has made an accounting error, or if this was an attempt to put itself in a more positive light to gain better access to capital. This is a crucial period for the group, with parent Vedanta Resources (VRL) facing significant debt maturities in the next two years (USD 3 bn, with the nearest being the USD 1 bn maturing in January 2024). The results have increased our scepticism of the group’s financial reporting.

We move our recommendation on the VEDLN notes to “Not Recommended” from “Hold”.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Alam Sutera Realty
• China Vanke
• Vedanta Resources

• KPIT raised its full-year FY24 revenue growth guidance to 37%+ from 27-30% earlier, led by a strong Q2FY24 performance. EBITDA margin guidance has been also raised to 20%+ from 19-20%.
• Despite wage hike impact of 250bp, EBITDA margin came in at 20%, at the upper end of the 19-20% FY24 guidance. Operating leverage and realization improvement helped offset the impact.
• With the strong Q2 performance, we are upgrading our FY24 PAT estimate to INR 580cr+ vs INR 550cr+ earlier and FY25 PAT of INR 730cr+ vs INR 700cr+ earlier.

• There were a bunch of indices where the review period ended last week. The changes will be announced this month and implemented in December.
• Emerald Resources Nl (EMR AU) replaced Invocare Ltd (IVC AU) in the S&P/ASX 200 (AS51 INDEX) at the close on Friday.
• There were large outflows from mainland China listed ETFs during the week. Outflows from iShares Emerging Markets (EEM US) continued for another week.

Tata Steel has released its Q2/23-24 results. Consolidated production and sales volume declined 3% and 2% y-o-y, respectively, to 7.31 mn tons and 7.07 mn tons, respectively. Consolidated revenue fell 7% to INR 55,682 cr, driven by lower volume and prices. EBITDA was INR 4,315 cr, with a margin of 8%. EBITDA margin/ton was INR 6,106. The Indian business continued to perform well, but the European business continued to weigh on the overall performance.

While the results were decent, the Indian business’ good performance was offset by increasing losses in the UK operations. The financial risk profile is deteriorating. Positively, liquidity is solid, with a large cash position. Key near-term credit drivers would be the restructuring of the UK business and a GBP 1.25 bn green steel manufacturing project in the UK.

Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. Evergrande
2. Logan Property Holdings
3. Japfa Comfeed Indonesia
4. Medco Energi
5. Zhenro Properties Group

and more…

• India’s rice export ban triggers global market chaos, leading to panic buying and uncertainty in rice supply, affecting both India and Thailand.
• El Niño’s drought threatens Thailand’s rice production, adding to the crisis. Other Asian nations impose export bans, raising inflation concerns.
• Global rice prices rise, impacting vulnerable nations and sparking fears of a repeat of the 2008 rice crisis due to protectionist policies.

• As highlighted in our prior notes, HDFC Bank (HDFCB IN) has been able to maintain its ROA and ROE despite NIM compression post merger.
• As the excess liquidity (related to the merger) recedes over the next 3-4 quarters, ROA and ROE should further normalize.
• HDFCB has been able to clock 5%ish QoQ growth across deposits and loans, allaying growth concerns on a larger base post merger.

Bharti Airtel’s Q2/23-24 results were robust in our view, with solid revenue and earnings growth across the Indian and African businesses. Operational stats were healthy, with strong increases in user bases and ARPU (particularly the 5G customer base). The financial risk profile remains stable. Liquidity is adequate.

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Azure Power Global Ltd
• Evergrande
• Japfa Comfeed Indonesia
• Medco Energi
• Zhenro Properties Group

• In Q2FY24, Cipla Ltd (CIPLA IN) clocked record-high quarterly revenue at INR66.8B (+15% YoY), and EBITDA margin of 26%, driven by double-digit growth across India, North America, and South Africa.
• U.S. business reported highest ever revenue of $229M. India revenue is up 10% YoY, driven by continued market beating performance in branded prescription and trade generics businesses.
• Cipla raised FY24 EBITDA margin guidance from 23% to 23% to 24% with bias towards the higher end. The company started FY24 with an EBITDA margin guidance of 21–22%.

• We see 8 stocks moving from MidCap to LargeCap, 8 stocks moving from LargeCap to MidCap, 13 stocks from SmallCap to MidCap, and 14 stocks from MidCap to SmallCap.
• Some stocks are expected to be inclusions to global indices later this month while others are potential NIFTY Index and/or Nifty Next 50 Index changes in March.
• On average, the upward migrating stocks have outperformed the downward migrating stocks by close to 100% over the last 8 months. The passive flow can be used as an exit.

• Honasa Consumer (1652951D IN) IPO is a book built issue worth INR 17 bn, comprising INR 3.65 bn worth fresh issue and INR 13.4 bn of OFS (41.2 mn shares). 
• The company is renowned for its flagship brand, Mama Earth while it has acquired other brands recently such as B-Blunt, Dr. Sheth and has also ventured in the salon business. 
• Our concerns remain on the A&P spends and related growth output, acquisition value and employee churning.

Adani Green Energy Limited (AGEL) has released acceptable H1/23-24 results, with the company reporting strong earnings growth and robust margins. Leverage improved on the back of the higher earnings, even though net debt increased slightly. That said, we anticipate that the negative FCF will deepen in H2 and FY 2024-25, as AGEL has guided for significant capex in order to expand capacity.

Positively, management has affirmed its plans to repay the USD 750 mn ADANIG 4.375 24 using funds already set aside at the promoter level. It also plans to refinance the USD 500 mn ADGREG 6.25 24 through a new bond issuance. The company is likely to formally announce its refinancing plans by December 2023 (as required under the bond indentures).

• Ask Automotive (7175293Z IN) is looking to raise around US$145m in its upcoming India IPO. 
• ASK Automotive (ASKA) is the largest manufacturer of brake-shoe and advanced braking (AB) systems for 2Ws in India, in terms of FY23 production volume for OEMs and the branded IAM.
• As per CRISIL, it had an approximate 50% market share in said market. The IPO is expected to consist of 100% secondary shares, with promoters trimming their stakes.

• Halfway through the review period, we see 6 potential changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) using the current index methodology.
• Estimated one-way turnover is 15.26% and that will result in a one-way trade of INR 24bn. There will be more than 2x ADV to sell on nearly all deletes.
• There is a possibility of an index methodology change, but no news for the last 4 months could indicate pushback from users or more stocks added to the F&O market.

UPL’s Q2/23-24 results were very weak, with revenues and earnings declining significantly and a deterioration in working capital. Our scepticism of the company has continued to deepen with the results. We are concerned about the lack of discussion on the huge debt reduction and unusual earnings call set-up in Q4/22-23, as well as the subsequent rebound in debt in Q1/23-24. We note that the pressure to reduce net debt to USD 2 bn in Q4/22-23 was to meet management’s aggressive guidance and rating agencies’ expectations. Management had released the Q4 results in early May 2023, almost halfway through Q1/23-24. Yet, there were few indications of very weak Q1 or H1 numbers.

In addition, we are sceptical of management’s guidance, even after it has been revised downwards. The new guidance implies c. 18% y-o-y revenue growth and a c. 28-30% increase in EBITDA in H2/23-24. That said, management does not expect y-o-y improvement in Q3. Hence, for UPL to meet the guidance, all the growth would have to be registered in Q4. We do not believe that the company will be able to meet the full-year guidance.

• Honasa Consumer is looking to raise about US$200m in its upcoming India IPO.
• HC’s product portfolio includes products in the baby care, face care, body care, hair care, color cosmetics and fragrances segments.
• In our previous note, we looked at the company’s past performance. In this note, we talk about the RHP updates and valuations.

• Our earnings coverage continues for the second edition and is expected to continue for one more week.
• At the bottom, we provide a consolidated view of all earnings tracked so far (Bullish / Bearish) and would be happy to engage on any of them.
• We also highlight the earnings of some of the global companies that have significant operations or growth in India.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Bharat Petroleum’s ESG as “Adequate”, in line with its Environmental, Social and Governance scores. Controversies are “Material”, but Disclosure is “Adequate”.

• Global generics revenue increased 9% YoY to INR61 billion, mainly driven by double-digit growth in North America and Europe generic businesses, partly offset by muted growth in domestic market.
• Revenue from North America generics increased 13% y/y to INR31.7 billion, driven by growing momentum in core portfolio, Mayne integration, and favorable Fx. Pricing environment remains stable.
• Despite increase in SG&A and R&D expenses, EBITDA grew 13% YoY to INR 21.8 billion. Net profit increased 33% YoY to INR14.8 billion. Both EBITDA and net profit topped estimates.

• A group of shareholders raised around US$530m in Mankind Pharma(MP) IPO in May 2023. The pre-IPO shareholders will be released from their lockup soon.
• MP is a pharmaceutical company engaged in developing, manufacturing and marketing a range of pharmaceutical formulations across various acute and chronic therapeutic areas, as well as several consumer healthcare products.
• In this note, we will talk about the lock-up dynamics and recent updates.