India

• As forecast, Tata Motors Ltd (TTMT IN) will be added to the S&P BSE SENSEX Index (SENSEX INDEX) in December to replace Dr. Reddy’s Laboratories (DRRD IN).
• We estimate passive trackers will need to buy 2.3x ADV (7.2x delivery volume) on Tata Motors Ltd (TTMT) while selling 5x ADV (10.5x delivery volume) on Dr. Reddy’s Laboratories (DRRD). 
• The HDFC Limited (HDFC IN) / HDFC Bank (HDFCB IN) merger should see Adani Enterprises (ADE IN) added to the S&P BSE SENSEX Index (SENSEX INDEX) prior to the June rebalance.

• Zomato is one of the largest food delivery platforms in India. It was listed in Jul 21 and after initially doubling, its shares are now trading below its IPO price.
• It has grown its food delivery GOV by 3.5x over FY19-22 and growth remains strong, while profitablity has been improving.
• Its recent venture into quick commerce should allow for better fleet utilisation and hence, better longer term growth and profitability.

• Bajaj Holdings and Investment (BJHI IN) is expected to be included in the MSCI India Index at the November SAIR (Read more about the index inclusion here: https://skr.ma/xhbPx)
• Bajaj Holdings, a holding and investment company, with significant stakes in Bajaj Auto Ltd and Bajaj Finserv has historically traded at a steep discount to the market value of investments. 
• Its Holdco discount has narrowed to around 53%  and has the potential to narrow further with greater ownership and visibility post the likely index inclusion.

• Five Star Business Finance (0958461D IN) raised around US$190m in its India IPO. 
• Five-Star Business is a non-banking financial company (NBFC-ND-SI) that provides secured business loans to micro-entrepreneurs and self-employed individuals.
• We have looked at various aspects of the deal in our previous note, in this note, we talk about the demand and trading dynamics.

• Archean Chemical Industries (0810406D IN) has raised about US$178m in its India IPO. 
• Archean Chemical Industries (ACI) is a specialty marine chemical manufacturer in India focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. 
• We have looked at various aspects of the deal in our previous notes. In this note, we talk about the demand for the deal and the trading dynamics.

• Credit business has seen decent recovery with asset quality stabilization and down-sizing of the wholesale loan book. Retail book is growing via co-lending and other asset-light models.
• Asset Management business is scaling up well and is poised to benefit significantly from operating leverage, particularly in the Alternatives business as the carry fee kicks in from FY24.
• Insurance businesses continue to scale up well. Edelweiss is seeking strategic partners for both the insurance businesses to take advantage of the new IRDA regulations.

• Key highlight of RPSG Ventures’ (RPSGV) Q2FY23 results was the FMCG business which reported revenues of INR 125cr, suggesting an annualized run-rate of INR 500cr vs INR 430cr QoQ.
• RPSGV is doing all the right things to scale up its FMCG business. Its Sports venture also holds lot of promise.
• RPSGV’s Venture Capital (VC) Fund that focuses on investing in D2C startups made a lucrative exit in one of its investments which generated 7x MOIC in just 4 years.

• In May 2022, Delhivery raised around US$680m in its India IPO, the company is backed by a host of financial investors, the largest being Softbank.
• Delhivery is an online logistics service provider which covers express parcel delivery, heavy goods delivery, part truckload (PTL) freight, truckload (TL) freight, supply chain solutions, cross border solutions etc.
• In this note, we will talk about the upcoming lockup expiry.

• Bombay Exhibition Center (BEC) business has recovered sooner than expected and is now back to pre-COVID level with INR 50cr+ revenues in Q2FY23.
• Demand for exhibitions could grow structurally post-COVID, suggesting that the BEC business is now likely to be even stronger than pre-COVID.
• Office Leasing (IT Parks) business showed QoQ growth suggesting that the occupancy level showed marginal improvement.

• Q2FY23 results were subdued due to delay in launch of a few new projects. 
• Lower proportion of sales from Mumbai led to decline in realization by 9% QoQ, however, this has quarterly variation and was also impacted by delay in new project launches.
• The current quarter sales seem to be a temporary blip as most of the new projects are on track to launch in Q3FY23.

• HCG posted decent revenue growth in Q2FY23. Its new centers also saw improved profitability with scale.
• HCG has been rolling out price increase across its network which alone should help it to expand margins by 100-150bp in FY24.
• With new centers maturing, HCG is gearing up for a stellar FY24 and FY25. As per our estimates, HCG is on track to post FY25 PAT of INR 170cr+.

• In Nov 2021, Sapphire Foods Limited (SFL), one of Yum Brand’s franchisees in the Indian subcontinent, raised around US$280m in its Indian IPO. 
• The lock-up on its shareholders will expire soon, with a number of PE funds on its register
• In this note, we will talk about the upcoming lockup expiry.

• Bikaji Foods (BIKAJI IN) , an ethnic snacks company, raised approximately US$107m in its India IPO.
• Its product range includes six principal categories: bhujia, namkeen, packaged sweets, papad, western snacks as well as other snacks which primarily include gift packs, frozen food, mathri range and cookies.
• We have looked at various aspects of the deal in our previous notes. In this note, we talk about the demand for the deal and the trading dynamics.

• Apollo Hospitals Enterprise (APHS IN) recorded 14% y/y growth in revenue in Q2FY23. Occupancy in both the mature as well as new hospitals improved in Q2FY23 compared to prior quarter.
• Q2FY23 reported EBITDA declined 8% y/y to INR5.65 billion due to impact of 24/7 operating costs, which stood at INR1.74 billion (vs INR475 million in Q2FY22).
• In October, Apollo Hospitals entered into a definitive agreement to acquire 60% stake in Kerala First Health Services Limited, which offers Ayurveda medical services under the “AyurVAID Hospitals” brand.

• Escorts Kubota Limited (ESCORTS IN) reported a 69 bps YoY gain in market share, but a -540 bps drop in EBITDA margins in spite of a 2% price hike.  
• We believe the product and management issues highlighted earlier, are likely to ensure both margins and market share do not cross 10% for FY23.
• As per the FY22 Annual Report, auditors have received whistle-blower complaints, but no details are disclosed. Credit-impaired trade receivables are also increasing. Stock is not cheap and hence the caution.  

• In Q2FY23, Thermax (TMX IN) recorded strong revenue growth of 41% y/y to Rs20.8bn, driven by strong growth across all the three segments.
• The company bore the brunt of high raw material prices as EBIT margins saw a 900 bps decline y/y to 6.9%. However, EBIT margin improved 200 bps over Q1FY23.
• The order book of the company grew 46% y/y to Rs94.8bn. Order book is well diversified across sectors. Domestic orders comprised ~84% of the order book.  

• In Nov 2021, Paytm raised around US$2.2bn via selling a mix of primary and secondary shares in its IPO. 
• The company is backed by Alibaba (ADR) (BABA US), Softbank Group (9984 JP) and counts Berkshire Hathaway Inc Cl A (BRK/A US) among its investors. 
• In this note, we will talk about the upcoming lockup expiry.

• Fusion Micro Finance Ltd (1053199D IN) raised approximately US$134m in its India IPO.  
• Fusion Micro Finance (FMF) is a non-banking financial company – microfinance institution (NBFC-MFI) that provides financial services to unserved and underserved women in rural and peri-rural areas across India.
• We have looked at various aspects of the deal in our previous notes. In this note, we talk about the demand for the deal and the trading dynamics.

• Global Health (Medanta) (GH IN) raised approximately US$268m in its India IPO.  
• Global Health (GH) is a hospital network that operates under the Medanta brand. The firm currently has five hospitals in operation and one more planned for development. 
• We have looked at various aspects of the deal in our previous notes. In this note, we talk about the demand for the deal and the trading dynamics.

• We see 4 potential adds, 1 close add and 1 potential delete for the FTSE All-World/All-Cap indices at the upcoming QIR that will be implemented at close on 16 December.
• The largest impact will be the passive selling on Golden Agri Resources (GGR SP) due to a nationality change from Singapore to Ineligible.
• There is a big lock-up expiry on Delhivery where US$2.89bn of shares will be free for trading on 21 November – that is significantly larger than the potential passive buying.

• Tata Motors Ltd (TTMT IN) will eliminate its ADS program. This is another potentially juicy trade. 
• Canada’s Brookfield, along with EIG look to take over Origin Energy (ORG AU), one of Australia’s largest energy companies.
• This OZ Minerals Ltd (OZL AU) trade is fundamentally a bit short gamma on copper. If copper takes another dive, then it may no longer be interesting to be long. 

• IndiaFirst Life Insurance (1083896D IN) is looking to raise about US$250m in its upcoming India IPO. The deal will be run by ICICI, Ambit, BNP, BOBCap, HSBC, Jefferies and JMF. 
• IndiaFirst Life Insurance (IFLI) Is a private life insurer in India with a product portfolio of retail and group products, ranging across different segments. 
• The company’s retail product portfolio in India comprises nine participating products, 16 non-participating products (comprising 11 nonparticipating savings products and six non-participating protection products) and four unit-linked products.

• Our Indian bank profitability and credit quality screens, in terms of credit quality metrics to end-September 2022, continued in a constructive vein, although pre-provision profitability trends generally softened
• The solid macro-economic backdrop has supported credit quality to September-end, as the declining NPA ratios and cost of risk show; yet India may be approaching peak level for its macro-indicators
• Much good news is discounted by the macro and easy credit conditions; we are negative on State Bank of India and ICICI Bank, but we remain positive on HDFC Bank

• Yesterday, with earnings, Tata Motors Ltd (TTMT IN) announced that it would delist its ADS, making an application on or around 13 January.
• This sounds relatively benign because since 2004 when the ADS was listed, local funding capacity has increased substantially. It may no longer be needed. 
• But it is MUCH more interesting than that. There is lots of fun to be had here. 

• Post market close yesterday, Tata Motors Ltd (TTMT IN) announced that it intended to delist Tata Motors ADR (TTM US) and terminate its ADS program.
• The easiest option for most ADS holders will be to sell the ADS. That could take the ADS lower and to trade at a discount to the underlying shares.
• Sell Tata Motors ADR (TTM US) outright or sell the ADS/buy Tata Motors Ltd (TTMT IN) for an arb trade.

• The Government of India (GoI) aims to raise around US$500m via selling a 1.4% stake in Axis Bank Ltd (AXSB IN). 
• This won’t be the first selldown by GoI as it has been reducing its stake since 2019. We have covered a number of the past deals in the name.
• In this note, we will run the deal through our ECM framework and comment on other deal dynamics.

• Over the last five quarters, monthly transacting customers have increased by 36%, QoQ, the pace could be slower, but the trend remains upwards. 
• AOVs and Order frequency have the potential to inch up, but only over the long term.
• Take rates are inching up, delivery fees are going higher, and with a higher market share Zomato (ZOMATO IN) ‘s food delivery business is expected to continue improving. 

• Archean Chemical Industries (0810406D IN) is looking to raise about US$178m in its India IPO. 
• Archean Chemical Industries (ACI) is a specialty marine chemical manufacturer in India focused on producing and exporting bromine, industrial salt, and sulphate of potash to customers around the world. 
• We have looked at the background of the deal in our earlier notes. In this note, we will talk about the peer comparison and valuations.

• Dr Lal PathLabs Ltd (DLPL IN) reported revenue growth of 7% y/y in Q2FY23, driven by 15% y/y growth in non-COVID business, which clocked highest ever quarterly revenue.  
• Although business growth was mainly driven by a double-digit patient volume growth, average realization per patient also increased 3% y/y to INR746.
• Amid rising competition, the company reported sequential improvement in bottom-line. Normalized EBITDA increased 20% compared to Q1FY23. Normalized EBITDA margin improved 310 basis points sequentially.

• Phyx44, a biotech-enabled food science startup based in Bengaluru, India, has secured US$1.2 million in seed capital.

• The startup will use the money to accelerate R&D, expand the team and work on the co-development of product formulation with key partners.

• Founded in early 2021, Phyx44 develops animal-free milk proteins and fats for use in dairy products. It bets on microbial fermentation as the best way to replicate dairy.

Tata Motors’ Q2/22-23 results were better than expected, with reasonable improvement in revenue and earnings. That said, this was partly due to the low base effect last year, owing to COVID-19. The financial risk profile has improved slightly, on the back of the higher earnings and stable debt. Liquidity appears to be adequate, especially at Jaguar Land Rover (JLR).

The operating environment will likely remain difficult in FY 2022-23, and possibly for even longer. While we derive comfort from the growing order book, this accounts for only c. 50% of full-year deliveries for now, and is hence insufficient to provide firm revenue visibility. Still, the order book development indicates that demand for JLR’s vehicles is exceeding its ability to deliver.