India

• 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

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.

• Road King Infrastructure
• Vedanta Resources

• Easy Trip Planners (EASEMYTR IN) has had a good run on its bourses and is probably one of the very few new-age companies which is profitable. 
• However, the overall narrative does not look attractive to us when we deep dive into the forensics, including the cost drivers and balance sheet risks to the company.
• Perplexing business model, customer concentration and high valuations make it unattractive inspite of high profitability.

• IEX is a play on digital infrastructure (hedge against inflation), electricity reforms, decarbonisation and energy transition
• An opportunity that offers virtuous growth, minimalistic capital needs and presents a scalable business model (addressing INR 8trn electricity market)
• India will see an average power consumption growth of 5% over the foreseeable period. Power Exchanges should outgrow this meaningfully

• Redington India (REDI IN)‘s primary business pertains to distribution of Information Technology,mobility and other technology products. The company also is engaged in supply chain solutions and after sales services.
• Although company has a strong business, a glance at the balance sheet and financials reveals some concerns particularly at the subsidiary level which should not be ignored.
• Forensic discomforts revolve around goodwill, poor earnings quality, instances of margin flirting, branch audit not being carried out by statutory auditors, etc.

• Craftsman Automation (CRAFTSMA IN) is engaged in the business of manufacturing engineering components, sub-assemblies, products and rendering of contract manufacturing services to various industries
• Key forensic takeaways include working capital troubles, alongside inflation woes deteriorating gross margins etc. There is grey area noticed in accounting treatment pertaining to JV as well.
• Focus should also be on the aluminum segment, which is going through a tough phase regarding operating leverage and low margins.

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…

• Oyo (1698548D IN) is looking to raise around US$700m in its upcoming India IPO. The IPO will consist of both a primary and secondary portion.
• Oyo runs a digital platform that serves as a hotel and home aggregator between patrons, which include owners and lessors, and customers, such as travelers and guests booking for accommodation.
• Since our last notes, Oravel Stays (Oyo) had filed its addendum, containing both its full-year performance for FY22, and its most recent 1Q23 performance (period ending Jun 2022).

• IndiaMart (INMART IN)‘s annual report analysis highlights some of the issues that should not be overlooked.
• In addition to changes in important disclosures, the company still continues to see less flow-through of deferred income into revenues.
• On the assets side, it should be noted that the strategic investments are yet to show any promise, while fixed assets show some concerns including non-verification, disposals, etc.