India

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
• Yankuang Energy Group

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. Lippo Karawaci
2. Seazen (Formerly Future Land)
3. JSW Steel Ltd
4. China Jinmao Holdings
5. Guangzhou R&F Properties

and more…

JSW’s Q2/22-23 results continued to disappoint in our view, with very weak profitability due to a plunge in steel prices. Raw material prices remain high. At this pace, Gross Debt/EBITDA may reach 5x at FYE 2022-23. Liquidity is sound, with a large cash position. We revised our FY 2022-23 margin forecast downwards to reflect the weaker than expected operating environment.

We are concerned about JSW’s large capacity expansion programme and capex plan, which may not be appropriate given the deteriorating market conditions. Peer Tata Steel appears more shielded from adverse raw material costs (thanks to its deeper vertical integration), and is also more conservative in terms of debt management (it has reduced debt by USD 1 bn p.a.) as well as capacity expansion.

We do not expect rating pressure in the near term, but remain cautious in the medium term.

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.

• China SCE
• JSW Steel Ltd
• Reliance Industries
• UPL Ltd

• Foreign investor selling has taken the foreign headroom on Kotak Mahindra Bank (KMB) to 22%. That should result in the stock being added to the FTSE All-World Index in March.
• The stock will initially be added to the index at an investability weight of 5%. Subject to >20% foreign headroom, the investability weight will increase by 5% at subsequent rebalances.
• Continued foreign selling could result in an MSCI weight increase if the headroom increases above 25%. That could still be some time away though.

• There was a lot of confusion around how NSE Indices would handle the HDFC Limited (HDFC IN) / HDFC Bank (HDFCB IN) merger in its indices.
• The market consultation seeks to change the index methodology to bring it in line with other index providers. That will result in much lower turnover than the existing index methodology.
• Pidilite Industries (PIDI IN) is a high probability add to the NIFTY Index possibly in the first quarter of 2023. There will also be changes to Nifty Next 50 Index.

• Low valuations (3x Earnings, 8% cash yield) and an under supplied Oil market, nice value concoction  
• However, large part of value hinges on growth beyond FY25E, execution challenges and regulatory intervention may necessitate additional debt to fund ongoing capex
• Thus deleveraging unlikely, narrowing TV for traditional fuels – risks both earnings and valuations 

• Five-Star Business Finance (0958461D IN) is looking to raise around US$300m in its upcoming India IPO. The deal will be run by ICICI Securities, Edelweiss, Kotak, and Nomura.
• Five-Star Business is a non-banking financial company (NBFC-ND-SI) that provides secured business loans to micro-entrepreneurs and self-employed individuals.
• In this note, we talk about the positive aspects of the deal.

• Kaynes Technology India (7575164Z IN) (KTIL) has received SEBI’s approval for its IPO.
• Company is one of the end-to-end and IoT solutions enabled integrated electronics manufacturing player, having capabilities across the entire spectrum of ESDM services.
• Key forensics issues that should not be ignored include high liabilities off the books, grey areas surrounding receivables, perplexing churning across CFO and directors posts, etc.

• Rainbow Children’s Hospital (RAINBOW IN) is India’s largest pediatric multi-specialty healthcare chain, operating 15 hospitals and 3 clinics in 6 cities, with a total bed capacity of 1,550+.
• Due to its presence in the affluent cities of India, the company has superior ARPOB. With the normalization of business occupancy and outpatient volume improved significantly.   
• The company plans to add 100 beds by the end of FY23. Higher occupancy and greater scale of operation are the biggest margin driver for the company.

• Demand environment remains robust despite recessionary fears in US and Europe. Demand is being driven by structural factors like shift in the business model towards enterprise-wide digital transformation.
• One of the biggest headwinds – attrition – has now peaked and is trending downwards. Job market has cooled off and salaries of new hires have become reasonable.
• While the demand outlook and margin guidance is resilient, we estimate that the current valuations are fairly pricing the optimism. Projected IRRs are likely to be subdued from here on.

• Lohia Corp (1638860D IN) is looking to raise about US$183m in its upcoming India IPO. The deal will be run by ICICI Securities, HSBC, IIFL Securities and Motilal Oswal.
• Lohia Corp is the market leader in India for end-to-end manufacturing solutions within the machine segment for the Raffia industry in Fiscal 2022, according to Frost & Sullivan. 
• In addition to machines for the Raffia industry, it also manufactures spin-draw-wind machines (LOFIL) for polypropylene (PP) multifilament yarn that is used in upholstery, among others.

• We see 9 potential adds and 2 potential deletes for the MSCI India Index at the November SAIR. There are a few stocks close to the cutoffs.
• Inclusion in the index will require passive trackers to buy 7-14 days of ADV on the stocks. That increases to 18-55 days of delivery volume.
• There appears to be significant pre-positioning on a lot of the potential adds and the shareholding pattern as of end September should provide a better picture.

• AIPL has commenced a market consultation on amending the index universe to only include stocks that are a part of the Futures & Options (F&O) segment of the market.
• This is likely driven by a bunch of Adani-group companies that are at the cusp of index inclusion and are not a part of the F&O market.
• Post implementation of the change, Tata Motors Ltd (TTMT IN) is a likely inclusion to the index in December, though that depends on Dr. Reddy’s Laboratories (DRRD IN) being deleted.

• SEBI, capital market regulator penalises senior executives of Kotak Mahindra Asset Management Company for serious offenses in June 2022
• The Securities Appellate Tribunal (SAT) stays the penalties but a stay is not an exoneration, final order scheduled on November 10, 2022 
• Instead of disciplining senior executives, Kotak Mahindra publicly promotes concerned executives demonstrating contempt for the regulator. 

• Hero Motocorp (HMCL IN) has been outperforming the Nifty 50 over the last 6M
• Our flash checks done in the south suggests the outperformance may not last long
• Failure of a model, high competitive intensity, and changing preferences can again lead to high inventory levels leading to a possible correction in wholesales post-festive season. 

• Pivoting the world’s biggest transformation; addresses chemistry needs of the new economy 
• These new themes will outgrow world GDP growth – perhaps almost >2x 
• BASF is systematically aligning to the emerging trends, investing in future technologies and is integrating all of this sustainably in its value chain