India

• We make two arguments in this note (A) Why you should invest in the Indian Life Insurance Sector right now; (B) Why you should start with SBILIFE  over HDFCLIFE
• Answers (A) The train has left-the-station on the long runway of double-digit growth in the sector; (B) The sector valuations are very reasonable due to short-term pressures, SBIL especially so.
• We compare SBILIFE and HDFCL’s valuations, and narrow the focus on to One Crucial Factor showcasing the fundamental strength of these businesses.

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. Adani Green Energy
2. Vedanta Resources
3. China Jinmao Holdings
4. Geely Auto
5. First Pacific Co

and more…

• Cello World is looking to raise around US$240m in its upcoming India IPO.
• Cello World (CW) is an Indian consumer products company. The firm is a leading company in the consumerware market in India.
• In our previous note, we looked at the company’s past performance. In this note, we talk about valuations.

• NIFTY 50 represents the 50 largest stocks listed in the National Stock Exchange (NSE) of India and the NIFTY Next 50 index tracks the next 50 largest names.
• In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50 and NIFTY Next 50 indices in the March 2024 rebalance.
• According to my latest estimates, there could be up to three changes or NIFTY 50 and five changes for NIFTY Next 50. The NIFTY 50 changes could have high impact.

• FSN E-Commerce Ventures (Nykaa) (NYKAA IN) seems to be facing problems in its core BPC segment. 
• Our casual LinkedIn browsing led us to an interesting post on the company and its practices that warrant attention.
• We have previously highlighted issues with the way the company has managed its Fashion Business, an attack on the BPC business could compound issues further.

• Honasa Consumer (HC) 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.

• Cello World is looking to raise around US$240m in its upcoming India IPO.
• Cello World (CW) is an Indian consumer products company. The firm is a leading company in the consumerware market in India.
• In this note, we look at the company’s past performance.

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.

• Adani Green Energy
• SK Hynix

• Due to the ongoing earnings season, for the next two weeks, we will temporarily deviate from our regular format and instead focus on reported earnings.
• We focus on reported earnings, performance against expectations, and the top three highlights that we believe are important from earnings calls for each company that is usually under coverage.
• Besides the Bullish/Bearish names, we draw attention to the ones that are highlighted as interesting and would be pleased to engage in discussions about any of them.

We view Reliance Industries (RIL) as “Low Risk” on the LARA scale. This is driven by the company’s: [1] large scale, leading position and diversified business portfolio; [2] strong track record of execution; as well as [3] modest credit metrics (Net Debt/EBITDA of c. 1x) and sound liquidity. There is a strong diversification effect from RIL’s three key segments (Oil to Chemicals, Digital Services and Retail), each of which is a market leader. The company raised substantial capital in FY 2020-21, FY 2021-22 and FY 2022-23 from partial stake sales of its key segments at very high valuations, resulting in a strong cash position.This will help RIL to grow and fund the persistent negative FCF. The key credit constraint is India’s rating, as the company is already rated one notch higher than the sovereign.

Our Credit Bias on RIL is “Stable”, as the company’s strong fundamentals and positive momentum in operations should partially offset the weaker outlook on India’s sovereign rating.

Controversies are “Immaterial”. While RIL is subject to controversies and lawsuits (given that it is one of the largest conglomerates in India), the disputes are mainly commercial in nature instead of ESG-related. A former director of Dhirubhai Ambani Hospital reported various instances of financial irregularities, mismanagement and corporate governance failures at the hospital. RIL and Chairman Ambani were fined in 2007 for alleged manipulative trading in shares of related companies. RIL operates in the oil & gas industry, which is subject to scrutiny from environmental agencies, given the effects of fossil-fuel drilling on greenhouse gas (GHG) emissions and biodiversity in particular (the company has not reported any such incidents). There is also global pressure to move towards greener energy and reduce GHG emissions. RIL is focused on building a gas-based portfolio, which is cleaner than oil. We deem the ESG Impact on Credit as “Neutral”.

• The NIFTY Index last week closed down (CC=-1) and it’s moving towards the Q2/median support at 19154.
• The Index is not as oversold WEEKLY and MONTHLY as some of its other peers in the APAC group and is expected to rebound this week or the next.
• Suggested support prices to go LONG are found in the 19154 to 18682 price area, the rebound should unfold in November and could last the entire month.

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.

• Vedanta Resources

• In its recent result, Bandhan Bank Ltd (BANDHAN IN) did not report the kind of improvement in asset quality in its core Microfinance segment that we were hoping to see.
• Fresh slippages into overdue accounts did not slow down as anticipated; NPA levels remained elevated; Loan growth is below the target run-rate.
• We anticipate the recovery to be drawn out, and hence suggest keeping patience. But  we maintain our long-term valuation of Bandhan Bank unchanged at 2.1x FY25e P/BV, implying +56% upside.

• Loan mix is improving, away from non-INR loans, asset mix is improving with less RIDF bonds, and bank is seeing an expanding LDR. 
• Loss loans and doubtful loans are in major decline, they are less important to total NPLs, and still credit costs were high in 1Q24, likely overly conservative.
• Credit growth is now at 22.6% YoY from 14.9% YoY one year ago, with consistent acceleration. With just 6% loan share, growth can remain high.

JSW Steel has delivered strong Q2/23-24 results in our view, driven by higher volumes and a recovery in steel prices. The numbers were in line with management’s earlier guidance for an improvement in operating environment and steel prices. The financial risk profile is improving, and liquidity is adequate.

Steel prices remained the key credit driver. A small price increase has resulted in a significant EBITDA increment, due to the high operating leverage. Based on management’s guidance for an improvement in the operating environment and steel prices, we expect better H2/23-24 numbers, with revenues inching up and a larger earnings improvement. Debt will likely remain stable following the merger with JISPL (completed in Q2), and the leverage profile should continue improving on the back of higher earnings.

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.

• Lippo Malls Indonesia Retail Trust
• Vedanta Resources

• Blue Jet Healthcare Ltd (BJHC IN) is a CDMO focusing on specialty pharmaceutical and healthcare ingredients and intermediates. The company targets to raise $100M from its upcoming India IPO.
• The IPO, which will open for subscription on October 25, consists of OFS of 24.3M shares by two of the promoters. The price range has been fixed at INR329–346/share.
• Blue Jet enjoys a competitive advantage in the global contrast media market through established customer relationships with the top contrast media manufacturers. The company is on a capacity expansion spree.

• The investigative analysis highlights a deceptive and confusing saga involving the Vedanta Group’s semiconductor venture in India. 
• The group skillfully blurred the lines between Vedanta Ltd (VEDL IN)  and Vedanta Resources (VED LN), creating an impression that the semiconductor business was under Vedanta Limited, despite previous clarifications. 
• Eventually, regulatory authorities penalized Vedanta for disclosure lapses, exposing governance concerns and a lack of transparency in this complex corporate maneuver.

• Foreign investors sold ~5.7m shares of Indusind Bank (IIB IN) from July to September. That selling has pushed foreign room above the key 15% threshold.
• With foreign room crossing 15%, passive trackers will need to buy a chunk of Indusind Bank (IIB IN) stock at the end of November.
• There will be positioning on Indusind Bank (IIB IN) though it appears some of that was taken off in the last couple of days.

• Over the last few weeks, companies in India have been disclosing their shareholding pattern as of end-September. There are a few companies with significant float changes from end-March and/or end-June.
• The changes in free float could be reflected in domestic and global indices over the next couple of months resulting in action from passive trackers.
• We find 9 stocks where there could be inflows with passive trackers needing to buy over 1 day of ADV on most stocks.

• The Government of India (GoI) is looking to raise up to US$130m from trimming its stake in Housing and Urban Development Corporation Limited (HUDCO IN). 
• The base deal includes a 3.5% stake sale, with an option to double it up to 7%. The selldown is targeted at meeting SEBI’s minimum public float requirements of 25%. 
• At 7.5 days of three month ADV, the deal isn’t a very large one for the firm to digest.

• Triveni Turbine (TRIV IN)  is one of the leading players in manufacturing of steam turbines, which in turn has uses across various energy intensive industries. 
• The company has recovered well from covid, has a robust order book in conjuction with healthy financial position. Balance sheet is debt-free, high cash and lean WC cycle. 
• The only possible risk that comes to the balance sheet would be of potential statutory disputes. The contingent liabilities remain under-stated.

• ICICI Prudential Life Insurance (IPRU IN) reported its 2Q24 earnings results yesterday, with flat sales and decreasing margins
• The lack of support from ICICI Bank, its parent, has been the main concern, with ICICI Pru consistently losing market share to other private peers due to below-par growth.
• We value ICICI Pru at ~1.4x FY25e P/EV, implying a -15% downside to current price, reflecting the bleak outlook in terms of growth and margins in the medium-term.

• HDFC Bank (HDFCB IN) released its first results since its amalgamation. This can make comparatives difficult where historicals are not adjusted, except for some QoQ items.
• We use Dupont Analysis to better understand how the newly amalgamated bank looks now compared with the past, which generally shows a more profitable bank at the core. 
• Credit costs, tax expenses are also positives, with the former improving 27bps YoY and the latter improving 23bps YoY. Investment income is a major positive driver in Sep 23 quarter.

• Asirvad Micro Finance Limited (1053198D IN) is looking to raise around US$183m in its upcoming India IPO. The deal will be run by JM Financial, Kotak, Nomura, SBI Caps.
• Asirvad Micro Finance Limited (Asirvad) is a non-banking finance company (NBFC), and a microfinance institution (MFI) offering small loans to low-income women in India.
• As per the CRISIL report, Asirvad was the largest MFI in India in terms of geographical coverage and third largest MFI in India in terms of AUM, in FY23.

• Agilus Diagnostics Limited (SRLL IN) is the largest diagnostics service provider in terms of number of laboratories and the second largest in terms of revenue from operations in India.
• Agilus has built an extensive network spread across 25 states and five union territories in India. An asset light model enables growth of the service network in a cost-effective manner.
• Indian diagnostics industry is expected to have a CAGR of 8–10% during FY23–28 to reach INR1,150B–1,250B in FY28, providing immense growth opportunities for large players like Agilus.