India

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.

• 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