India

• MMP Industries (MMP IN)  is mainly engaged in the business of manufacturing, selling and distribution and trading of aluminum products such as powder, pyro and flake, paste, foils etc.
• The company has been on the main board of NSE since F20 but however, its financials are plagued with several forensic concerns.
• We highlight takeaways mainly related to negative cash flows and their misrepresentation in reporting standards. Additionally, the company is also engaged in various secretarial audit woes.

• Lemon Tree Hotels Ltd (LEMONTRE IN) (“LTHL”) is India’s largest mid-market hotel chain with 7 brands and 87 properties across 54 destinations and 8,489 rooms as at F22.
• We noticed few setbacks on the forensics, particularly with respect to impairment in subsidiary and unusual accounting with revaluation of PPE.
• While the operations have seen a revival in terms of ARR and margins, LTHL however is yet to reach occupancy levels of pre-covid.

• Bandhan Bank Ltd (BANDHAN IN) reported weak earnings with a flat (-2%) Net Interest Income growth and a +91 YoY growth in provisions.
• Additional slippage continues to come primarily from the EEB portfolio. The overall advances recorded is 14% YoY growth driven by the Retail segment, including housing and MSME.
• Improvement in customer behaviour in terms of regularizing accounts is a critical component that needs to be verified and checked for the bank to move ahead.

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.

• JSW Infrastructure
• Road King Infrastructure
• UPL Ltd
• Vedanta Resources

• The Adani Enterprises (ADE IN) FPO saw VERY muted demand (realtime available on NSE+BSE websites) on Day 1 Friday as the share price plummeted through the bottom of the range.
• The Adani Group responded to Hindenburg late Sunday with a 400-page rebuttal, cloaked in nationalistic terms. Hindenburg responded saying the company failed to answer 62 of 88 questions.
• This is not going away. They could lower the FPO price, or just pull the FPO. That won’t materially change the significant over-valuation of many Adani Group listco share prices.

In the next installment of our Webinar Wednesdays, we go live with Smartkarma Insight Provider, Travis Lundy as he gives us a quick rundown about what is the current situation that is happening with Adani Enterprises and where they are headed from this point on.

The webinar will be hosted on Wednesday, 1 February 2023, 17:00 SGT/HKT.

Travis Lundy has 20+ years of experience in Asia doing alternative strategies (i.e. non-delta1 non long-only) in fixed income, equity derivatives, and activist/catalyst/event-driven and long-short equity strategies, with most of that time spent managing money.

• Concord Biotech Ltd (658823Z IN) is looking to raise around US$250m in its upcoming 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, it 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.

• Gujarat Ambuja Exports (GAEX IN) is an Agro Processing conglomerate having a diverse product profile across oil seeds, edible oil refining, maize and starch, cotton yarn, wheat processing, etc. 
• Our forensics primarily include the takeaways on MACPPL acquisition, its true rationale, accounting impact on the balance sheet and few disclosure errs.
• Other major takeaway relates to capex story and grey areas relating to the capacity size and timely completion, especially for its marquee plant in Malda.

Vedanta Ltd’s (VEDL) Q3/22-23 results were weaker than expected, with thin profitability at the aluminium segment due to higher energy and commodity costs. However, we note positively the sale of Zinc International to Hindustan Zinc​ (HZL) and the fourth interim dividend (USD 570 mn). The financial risk metrics remain modest. The key risk remains the weak debt maturity profile, with large maturities in FY 2023-24.

Vedanta as a group has demonstrated a strong willingness to repay debt, and the capacity to do so by upstreaming cash as quickly as possible. In addition, we note the group’s creative methods to upstream cash efficiently, such as: [1] the sale of Zinc International to HZL; and [2] the merger between Cairn India and VEDL in 2017, when oil prices were low, with the deal partly funded by preference shares to Cairn India’s minority shareholders. We believe that the huge dividends by VEDL in FY 2022-23 (USD 3.7 bn) are the highest possible and will likely decline subsequently, given the correction in commodity prices. Still, this could offer comfort to lenders as it would support VRL’s refinancing needs (i.e. gap between the maturing debt and cash inflows).

• The Adani Group listcos have been on a wild ride for the last few years, rising from 10x TTM EV/EBITDA in March 2020 to 60x at end-September 2022. 
• Adani Group “business incubator’ Adani Enterprises (ADE IN) last fall indicated it might raise $2.4bn of equity and combined 6 co market cap is down $135bn since.
• A short seller report last week put the cat amongst the pigeons. Now MSCI is consulting investors about what it might do regarding Things.

• There are 2 trading days left in the review period. We expect 5 changes at the rebalance that will be announced end-February and implemented at the close on 30 March.
• A lot of the stocks were AMFI migrations and Biocon Ltd (BIOS IN) is a potential deletion from the MSCI India Index at the February QCIR.
• The drop in the Adani Group stocks that are part of the index will result in passive inflows on the non-F&O constituents due to capping at 15% of index weight.

• Cipla Ltd (CIPLA IN) reported revenue growth of 6% in Q3FY23. Ex-COVID revenue growth was 11%. Despite price erosion and surging R&D investment, EBITDA margin expanded 153bps YoY to 24.2%.
• Ex-COVID India business recorded 11% revenue growth, driven by double-digit traction in core portfolio across therapies and business segments. Branded prescription business reported seventh consecutive quarter of market beating growth.
• US business recorded record high revenue, representing 30% growth in USD terms. Strong traction in respiratory products was further propelled by new launches including peptides. In December, Cipla launched leuprolide.

• Dr. Reddy’s Laboratories (DRRD IN) recorded record high revenue, EBITDA, and net profit in Q3FY23, driven by US business. The company generated healthy cash flow of INR20B during the quarter.
• Revenue from North America surged 64% INR30.6B, driven by new products launches, increase in volumes, and a favorable forex movement. gRevlimid contributed ~34% of North America revenue.
• The company plans to launch ~30 products in the U.S. market in FY24. With the pipeline shifting toward complex products, Dr. Reddy is well-positioned to maintain double-digit revenue growth.

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 Ports & Special Economic Zone
• Vedanta Resources

• The Adani Group stocks have taken a dive following the Hindenburg Research report. Group market cap is down more than US$47bn with company promoters taking the biggest hit.
• The Adani Enterprises FPO is almost certain to be undersubscribed. MSCI, in an unprecedented step, is monitoring publicly available information and is seeking feedback from the investment community.
• We find that the real float of some Adani Group stocks is much lower than the headline numbers and there could be selling if MSCI lowers the FIF.

• Be long Kawasaki Kisen Kaisha (9107 JP) vs MOL and NYK. The shares are cheap on a forward basis. KLine is reducing the Real World Float, causing further potential squeeze.
• Sabana Industrial REIT (SSREIT SP)‘s Partial Offer at 0.88x book is not overwhelming, but it is also not a control stake. It is probably priced near-right.
• IF Osstem (048260 KS)‘s price were to go higher, it is conceivable there could be a bump, but don’t bet on it as long as the stock trades <KRW 190,000. 

• We are lacking short ideas in Asia given we are long most markets. India presents a fresh short idea after failing at trend and price resistance.
• The failure at trendline and 18,200 price resistance was touted as a bearish turn. We have now formed a bear flat that is set to break lower.
• Macro: Remains bullish and we will probe for a long at 17,500/300. 19,470 is our macro bull projection.

• In this note, we will take a look at bookrunner performance for Indian IPOs from 2019-2022. 
• The following dataset includes all Indian IPOs above US$100m for the period of Calendar Years 2019-2022, which amounted to a total of 49 deals.
• The deals you see in this note are based on our historical IPO tracker. Feel free to drop us a message for additional information on any of these IPOs.

• Delta in core net interest income growth is accelerating like no other peer
• Net interest margin’s are now up 50% YoY at a reasonable level of 3.02%
• Credit costs have yet to decline despite NPL ratio down sharply

• The Adani Enterprises (ADE IN) Further Public Offering (“FPO”) expected to raise Rs 200bn has its first leg publicly complete with anchor investors taking Rs 59.849bn. 
• Noted shortseller Hindenburg Research published a long report suggesting Adani Enterprises and indeed the Adani Group were over-priced according to fundamentals and were the result of  a “con.”
• Now the book build starts. Deal structure and Adani Group CFO comments continue to suggest that Liquidity is a Bug, not a Feature.

• Mankind Pharma is looking to raise about US$1bn in its upcoming India IPO.
• 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 talk about the not-so-positive aspects of the deal.

• Hindustan Unilever (HUVR IN)‘s strong quarterly performance was overshadowed by a proposed hike in royalty payments to parent Unilever PLC (ULVR LN) 
• HUVR’s historical royalty growth has been below revenue and PBT growth and hence does not generate any red flags in terms of minority shareholder protection.  
• While the impact on EPS is ~3%, we believe much of the reaction around HUVR’s Royalty is Noise. 

• At TMA we deliver high probability outcomes by focusing on our 3 pillars of technical analysis. 1) Response to key levels. 2) Price action. 3) Momentum confirmation.
• Every recommendation requires definitive evidence of all 3 pillars to be regarded as a high probability outcome. 
• The Nifty Index (NIFTY INDEX) delivered upon our 3 pillars in Nov/Dec 2022. A consecutive down month in January will be further evidence of a likely 15%-18% correction.

In our view, Tata Motors’ Q3/22-23 results were solid and much better than expected, especially in terms of profitability and cash flows. The strong performance was driven by gradual improvement in chip supply, cost savings, product mix and softer commodity prices. Guidance is also positive. The financial risk profile should improve, supported by significantly higher earnings and slightly lower debt. Liquidity, at least at Jaguar Land Rover (JLR), remains sound. JLR has no debt maturities until January 2024.

While Tata Motors will likely be able to deliver earnings improvement in H2/22-23, we believe it might be difficult for the company to achieve net-zero auto debt in two years as guided, considering the challenging operating environment. In this context, a revision of this target is warranted.

• Mankind Pharma  is looking to raise about US$1bn in its upcoming India IPO.
• 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 talk about the positive aspects of the deal.

• Krishna Institute of Medical Sciences (KIMS IN) is seeing a continued business recovery reflected in improving operating metrics. In Q2FY23, KIMS reported record high quarterly sales, EBITDA, and footfall.
• KIMS is following a disciplined growth strategy and plans to grow into markets that are adjacent to the current core markets of Andhra Pradesh and Telangana.   
• KIMS has set foot in a new market of Maharashtra, outside of its core market. With lower margins from acquired assets than matured hospitals, KIMS has scope for margin improvement.

• Adani Enterprises is looking to raise INR200bn (US$2.4bn) via a further public offering (FPO). Bookbuild will begin tomorrow (27th Jan 23) and last till the end of the month.
• Adani Enterprises is the flagship company of the Adani Group. The group’s entities’ stock performance over the past few years has made the founder one of the richest persons globally.
• We have covered most aspects of the deal in our earlier note published. In this note, we talk about the recent updates and the deal pricing and structure.

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 Ports & Special Economic Zone
• Azure Power Global Ltd
• Lippo Karawaci
• Tata Motors ADR

• Mankind Pharma (6596876Z IN), India’s fourth largest pharmaceutical company, has filed DRHP for INR55B IPO, which is comprised of an OFS of 40M shares by promoters and existing investors.  
• Mankind has 36 pharma brands that have each achieved annual revenue of more than INR500M. 18 of its brands are among 300 top selling brands of the Indian pharma market.
• During FY20–22, domestic sales of Mankind had a CAGR of ~16%, which is ~1.5 times that of the Indian pharma market, which grew at a CAGR of ~11%.

• Asian Paints (APNT IN) reported flat year-over-year volumes and flat sales in domestic decorative paints in 3Q FY23. The company’s gross margin recovery is aligned with easing raw material prices.  
• The company attributed the rough quarter to a heavy base from last year’s price increases and a prolonged monsoon, which impacted October volumes.
• We believe that the volumes are lower than what has been reported.  Increasing competition could challenge APNT’s premium 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.

• JSW Steel Ltd
• Reliance Industries

• With only 5 trading days to go in the review period, we see no constituent changes to the NIFTY Index (NIFTY INDEX) at the March rebalance.
• Pidilite Industries (PIDI IN) is the highest ranked non-index constituent, but its free float market cap does not exceed 1.5x the free-float market cap of Bharat Petroleum Corp (BPCL IN). 
• We do not expect LTIMindtree (LTIM IN) to be added to the index in March post the merger between Larsen & Toubro (LT IN) and Mindtree Ltd (MTCL IN). 

• Sun Pharmaceutical Industries (SUNP IN) is acquiring the U.S.-based late-stage biotechnology company, Concert Pharmaceuticals (CNCE US) for $576M in equity value. The transaction is expected to be completed in 1Q23.
• Concert has completed the evaluation of the efficacy and safety of its lead candidate, deuruxolitinib in adult patients with moderate to severe Alopecia Areata in its phase 3 clinical program.
• With the disease affecting up to ~1.5M people in the U.S., Alopecia represents potential blockbuster opportunity. Sun Pharma plans to file NDA for deuruxolitinib to the FDA in 1H23.

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. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Evergrande
5. Central China Real Estate

and more…