India

• Dr. Reddy’s Laboratories (DRRD IN) started FY24 on a strong note, with Q1FY24 revenue and net profit growing 29% and 18%, YoY, respectively, driven by North America generics business.
• Revenue from North America generics increased 79% y/y and 26% q/q to INR32 billion, driven by new product launches, continued momentum in existing products, and favorable forex rates movement.
• During Q1FY24, the company has launched six new products in the U.S. With a rich ANDA pipeline of 85 ANDAs, launch momentum is expected to accelerate in the current fiscal.

• National Securities Depository Limited (NSDL) is looking to raise around US$400m in its India IPO. 
• The deal will be run by ISec, Axis Capital, HSBC, IDBI, Motilal and SBI Caps.
• It IS the largest depository in India in terms of number of issuers, number of active instruments, market share in demat value of settlement volume and value of assets.

The Asia HY Trade Book for July 2023 includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds across Asia (ex-Japan) HY and crossover credits.

Tata Motors Limited (TML) has reported stronger Q1/23-24 results than expected, thanks to Jaguar Land Rover’s (JLR) impressive performance. Specifically, this business delivered much higher sales volumes, revenue, profits and FCF. In addition, better selling prices and lower raw material costs drove exceptional improvement in profitability. The financial risk profile continued to strengthen, with lower net debt and higher earnings. Liquidity remains sound.

We expect the company to continue performing well for the rest of the year. JLR’s performance in the prior year was constrained by the semiconductor supply shortage, which continues to ease. JLR also demonstrated that demand for its products is still strong. The order book remains high, providing visibility on demand. In addition, we anticipate that JLR’s re-organisation with three separate brands will enhance brand image. We see Range Rover moving up to the luxury segment from the premium segment, with an increase in selling prices and higher margins. We believe that the financial risk profile of the group and JLR will continue improving.

• Tata Motors Ltd (TTMT IN) has announced a Scheme of Arrangement where all the Tata Motors DVR (TTMT/A IN) shares will be cancelled.
• For every 10 shares of Tata Motors DVR (TTMT/A IN) held, shareholders will receive 7 shares of Tata Motors Ltd (TTMT IN). 
• The process is expected to take 12-15 months to complete and there will be passive buying in Tata Motors Ltd (TTMT IN) at the end of it.

Tata Steel’s Q1/23-24 results were weaker than expected, as the European business dragged down profitability. On a standalone basis, Tata Steel India performed well, registering a strong EBITDA margin (c. 22%) which was slightly better than that of JSW Steel. However, the EBITDA loss in the European business, particularly the UK business, affected profitability. The company’s financial risk profile deteriorated, with Net Debt/EBITDA increasing to higher than management’s guided range. Liquidity remains sound. However, management is committed to deleveraging its balance sheet and aims for Net Debt/EBITDA to be 2-2.5x by FYE 2023-24.

Tata Steel India’s business remained solid. Compared to its closest peer, JSW Steel, Tata Steel India is 100% self-sufficient in terms of iron ores with huge reserves (500-550 mn tonnes), and 30% in terms of coking coal. It also has a lower dependence on exports (which is pressured by increasing Chinese exports), with exports typically accounting for c. 10-15% of sales (vs. 25-30% for JSW Steel).

The group’s future will depend on the decisive action that management takes towards the UK business, which is highly uncompetitive, mainly due to: [1] increased energy costs in the UK; and [2] high capex required for a green transition. Energy costs in the country were already twice those in Europe before the Russia-Ukraine war, and are now at elevated levels. Plants in the region are also reaching end-of-life, and production levels have hence become less stable (with unplanned outages). Any long-term solution for the UK business must address rising carbon costs and local emissions reduction goals. Tata Steel UK has asked the government to subsidise 50% of capex for its green transition. Management said it will continue to run Tata Steel UK optimally for cash, with minimal support from Tata Steel in India.

• Over the last few weeks, companies in India have been disclosing their shareholding pattern as of end-June. There are a few companies with significant float changes from end-March and/or end-December.
• 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 see 6 stocks where there could be passive inflows and 2 stocks that could have passive outflows – but there are caveats.

• Titagarh Wagons (TWL IN) (now ‘Titagarh Rail Systems’) has seen an extraordinary momentum in its share price in last couple of years, especially after bagging crucial contracts for Indian Railways.
• The company was limping until F22 due to its Italian subsidiary (TFA). However, the recapitalization of TFA (including change in accounting) in F23 should make the balance sheet look better.
• Forensic analysis revealed several takeaways, ranging from write-offs and internal audit issues to heavy contingent liabilities.

• Muthoot Microfin (1363943D IN) is looking to raise up to US$163m in its upcoming India IPO. The deal will be run by ICICI-Sec, Axis Capital, JM Financial and SBI Capital.  
• Muthoot Microfin is a microfinance institution providing micro-loans to women customers with a focus on the rural regions of India. 
• It is the fourth largest NBFC-MFI in India in terms of gross loan portfolio as of 9M23 (ending 31st Dec 2022). It is part of the Muthoot Group.

• In this insight, we take a look at the names leading the race to become ADDs/DELs for the NIFTY 50 and NIFTY 100 indices in the September 2023 rebalance.
• The NIFTY Next 50 methodology was supposed to change in June 2023 but this has been kept on hold for now. This change could still take place before September 2023.
• In this insight, we take a look at our expectations for index changes under both the existing methodology and the proposed new methodology.

Vedanta Ltd’s Q1/23-24 results were weak in our view, as expected. The company is facing challenges from lower commodity prices and the large debt-servicing and repayment requirements from parent Vedanta Resources. Gross debt and net debt increased significantly, while the cash declined materially. The low and declining cash position will limit VEDL’s dividend-upstreaming capacity this fiscal year.

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.

• HPCL-Mittal Energy Ltd
• Innergex Renewable Energy

• The NIFTY Index has been in a strong rally since early April 2023, returning almost +17% as of last Friday’s Close. The MRM tool shows the index is OVERBOUGHT WEEKLY .
• The NIFTY Index has reached a “Tails” area of the current pattern: forecasts in these price areas are less reliable, but the MRM tool indicates the index is topping.
• SHORT trades can be implemented at prices > Last Close (19745). Higher prices are possible, it could take +1/+2 weeks for the index to complete its topping process.

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.

• AAC Technologies Holdings
• JSW Steel Ltd
• Reliance Industries

• HDFC Bank (HDFCB IN) reported weak QoQ growth in deposits and advances. This is however temporary due to seasonality. The growth trajectory for rest of the year remains intact. 
• HDFCB continues to invest aggressively into expanding its geographical presence to drive growth. Benign credit cost enables investments without impacting the ROA.
• HDFC Ltd (“HDFC”) has been also merged into HDFCB effective Jul 1. The merged entity is carrying sufficient liquidity at 120%+ LCR to meet the additional CRR and SLR needs.

• We published on Polycab as our 2023 high conviction idea on Dec 25 2022. Since then, the stock has been up 75%+, exceeding our 65%+ upside FY26 target.
• The steep rise was probably driven by strong earnings growth on the back of upbeat demand environment led by healthy domestic capex, rising exports and robust housing demand.
• At the current valuation, Polycab is richly valued and we assign a “SELL” rating. Polycab’s current market cap at INR 68700cr+ is well above our FY26 projection of INR 63500cr+.

• Federal Bank (FB IN) aims to raise around US$370m via a QIP to increase its Tier-1 capital.
• The deal is well flagged as the company had earlier obtained board approval for a fundraising and had guided towards a funding raising in FY24.
• In this note, we talk about the deal dynamics and run the deal through our ECM framework.

• SAMHI Hotels (SAMHI IN)  plans to raise around US$200m (estimated) in its Indian IPO.
• Samhi is India’s third-largest hotel asset owner, by number of keys, with a portfolio of 25 operating hotel assets comprising 3,839 keys, as of Feb 2023.
• In this note, we look at its updated filings and discuss the changes since its last filing in 2019.

• Max Healthcare Institute (MAXHEALT IN) reported robust Q4 performance, with revenue and EBITA increasing 26% and 44%, YoY, respectively. Growth was driven by increase in ARPOB and occupied bed days.
• Max commissioned new 92 beds oncology block at one of its network hospitals in March. New oncology block contributed positively to revenue and EBITDA in the first month of launch.
• Max is on track to double its bed capacity in next 5–6 years. Apart from ongoing brownfield expansions, the company has land parcels with potential to add 1,000 beds.

• EbixCash (EBIXC IN), a subsidiary of Ebix Inc (EBIX US) and India’s largest end-to-end financial exchange, is seeking to launch an Rs60 billion (US$730 million) in July. 
• In EbixCash IPO: The Bull Case, we highlighted the key elements of the bull case. In this note, we outline the bear case.
• The key elements of the bear case rest on margin pressure due to rising operating costs, a related party being the largest customer, declining revenue visibility and deteriorating cash generation.

• India-based fashion brand Freakins has bagged US$4 million in its seed round led by Matrix Partners India and Blume Ventures.
• Founded in 2021 by Shaan Shah and Puneet Sehgal, Freakins is a direct-to-consumer clothing brand that specializes in denim.
• The Gen Z-focused firm has built up a catalog of over 1,500 styles, which it says caters to different body types.

• InterGlobe Aviation Ltd (INDIGO IN)’s co-founder Rakesh Gangwal’s 29%+ stake was released from lock-up today.
• He had earlier stated his intention to pare down his stake after a long drawn, and very public battle, with his co-founder Rahul Bhatia. 
• In this note, we will talk about the lockup dynamics and possible placement.

• EbixCash (EBIXC IN), a subsidiary of Ebix Inc (EBIX US) and India’s largest end-to-end financial exchange, is seeking to launch an Rs60 billion (US$730 million) in July.   
• EbixCash’s Forex operations have emerged as a leader in India’s airport Forex business. Also, EbixCash’s inward remittance business in India is the clear market leader.
• The key elements of the bull case rest on fast-paced growth, growth runaway from the post-COVID recovery, declining contract assets, improving balance sheet, and declining leverage.