India

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• The NIFTY Index has been falling for 2 weeks and is reaching mildly OVERSOLD territory. If this was a retracement during the main rally, it may be time to BUY.
• The Market Reversal Matrix’s shows a bullish pattern, the time+price combined probability of success for LONG trades from current prices, after 2 weeks down, is >66%.
• Price area to go LONG: 19400 to 18792, you can go LONG this week and also next week, if down (CC=-3).

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.

• Country Garden Holdings Co
• MGM China Holdings
• Vedanta Resources

• SBFC Finance Limited (1547353D IN) IPO opens for subscription this week.
• The company has shown strong operations in F23, led by growth in overall business, productivity, profits on the back of controlled credit costs.
• There are however few cautions that warrant attention, which includes the litigations, attritions, write offs, etc.

• Concord Biotech Ltd (658823Z IN) is looking to raise around US$188m in its India IPO.
• Concord Biotech (Concord) is an India-based biopharma firm, which develops and manufactures fermentation-based active pharmaceutical ingredients (APIs).
• As per F&S, Concord was one of the leading global developers and manufacturers of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on FY21 volume.

• In this insight, we take a look at the Potential ADDs/DELs for the BSE SENSEX, 100, and 200 Indices in the December 2023 Rebalance.
• In July, we saw the deletion of HDFC Limited (HDFC IN) from several indices in this family which triggered multiple intra-review index changes.
• At present, I do not see any changes for the SENSEX index but I see seven ADDs/DELs for BSE 100 and five ADDs/DELs for BSE 200.

• Concord Biotech Ltd (658823Z IN) is amongst the few fermentation-based API manufacturing companies globally. The company commanded market share of 20%+ by volume in 2022 across identified fermentation‐based API products.
• Concord Biotech IPO opens for subscription on August 4. The IPO consists of offer for sale of 21M shares by Helix Investment Holdings at a price band of INR705–741/share.
• Large and growing addressable market, sizable market share, niche and limited competition offering, consistent growth and profitability, and reasonable valuation make the IPO worth of subscribing.

• SBFC Finance Limited (1547353D IN) is looking to raise up to US$131m in its India IPO. 
• SBFC Finance is a systematically important, non-deposit taking non-banking finance company (NBFC-ND-SI), offering secured MSME Loans and Loans against Gold. 
• In our previous note, we looked at the company’s past performance. In this note, we talk about RHP updates, undertake a peer comparison and provide our thoughts on valuation.

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

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
• Gajah Tunggal
• Indika Energy
• Road King Infrastructure
• Sands China

• Sula Vineyards (SULA IN) is one of the leading wine producers in India.  
• Focus on premiumization, market leadership, and industry prospects are attractive. 
• However, high working capital, recent resignations, and customer concentration along with market’s high valuations make it a watch-list candidate.

Lucror Analytics’ ESG Scores are based on a 3-tiered scale and are adjusted for Controversies (if applicable).
We view Adani Transmission Limited’s ESG as “Adequate”, in line with the Environmental and Social pillars. Governance is “Weak”. Controversies are “Material”, but Disclosure is “Strong”.

• R R Kabel (2333180Z IN) is looking to raise about US$200m in its upcoming India IPO. 
• R R Kabel is an Indian consumer electrical company, which primarily sells wires, cables and fast moving electrical goods (FMEG). 
• R R Kabel registered strong earnings growth on the back of growth in the volume of wires and cables sold. However, the lack of commodity hedging affected the firm’s margins.  

• Using the current index methodology throws up 5 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be BIG.
• Using the proposed index methodology throws up 11 changes for the NSE Nifty Next 50 Index (NIFTYJR INDEX) in September. Turnover will be HUGE.
• The market consultation being put on hold could indicate pushback from index users or the possibility of F&O contracts being introduced on some of the non-F&O index constituents.

• Cipla Ltd (CIPLA IN) reported better-than-expected Q1FY24 result, with revenue growing 18% YoY, driven by India and the U.S., both of which reported record high revenue.  
• Stellar performance across all markets drove EBITDA to multi-quarter highs. EBITDA margin expanded 230 bps YoY and 310 bps QoQ to 23.6%. Net profit increased 45% YoY to INR10 billion.
• Cipla expects the average revenue run rate of $210–215M from its U.S. business in the coming quarters. For FY24, management has raised EBITDA margin guidance to 23% from 22%.

• 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.