India

• MSCI announced the changes to the Standard and Small Cap Indexes, along with FIF/NOS changes as part of the May SAIR. Plenty of flows in Asia Pacific.
• Announcement of changes to the FTSE AW/AC, HSI INDEX, HSCEI INDEX, HSTECH INDEX and SENSEX INDEX will be made after market close on Friday.
• There were inflows into Taiwan, Australia and Hong Kong focused ETFs, while there were redemptions from China and Korea focused ETFs.

• Polen Capital is a high-conviction growth investment manager.
• Over the first quarter of 2022, the Polen Global Emerging Markets Growth Composite Portfolio returned -14.68% gross and – 14.96% net of fees.
• The top relative and absolute detractors over the quarter included Yandex N.V.

• India stands out as a market at risk of breaking below congestive floor support (over owned, yield and FX pressure) like US big tech and more recently Europe.
• Nifty 15,000 lower wedge support to come under pressure post bounce attempt.
• USD/INR bull call to 77.80 and 78.64 on track. Watch rising resistance at 77.80/84 near term for a rally stall.

• Torrent Pharmaceuticals (TRP IN) is one of the front-runners in the Indian pharmaceuticals industry mainly having presence in chronic therapeutic segments. India contributes 51% of its total revenue.
• Torrent is consistently outperforming Indian pharmaceutical market by a wide margin, due to its strong exposure to fast-growing and high-margin chronic therapeutic segments, which ensures high recurring revenue.
• Despite the fading windfall from COVID therapeutics, Torrent is well-positioned for double-digit revenue growth, due to its sustained competitive positioning in anchor therapeutic areas of CVS, CNS, GI, and vitamins.

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• Birla Corporation (BCL) reported Volume/Revenue growth of 2%/6% YoY owing to better demand in its operating region.
• The company reported a volume of 4.24 mtpa which was higher by 5% than our expectation of 4.02 mtpa
• We roll over our estimate to FY24 and value the company at 7.5x FY24E EV/EBITDA to arrive at a target price of Rs 1,300/share, (1,500 earlier), implying an upside of 35% from the CMP.

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• We believe the company’s profitability might be hit due to the above factors, prompting us to recommend a HOLD rating on the stock with TP Rs 450/share.
• Aarti Drugs Q4FY22 reported revenue grew 38% YoY which stood above our expectations, led by healthy growth in Chronic therapies, especially in the anti- diabetic segment.
• Domestic revenue grew ~37% on a YoY basis while exports grew by around 50% YoY and API volumes grew 23% on a YoY basis.

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• Asian Paints delivered a strong set of numbers in Q4FY22 with revenue up ~21% YoY to Rs 7,893 Cr, led by a combination of volume growth (up 8%) and price mix.
• However, the near-term challenge still persists and we would wait to see if the visibility of the near term performance sustains before we change our rating to BUY
• We continue to maintain our HOLD rating with an unchanged TP of Rs 3,200 (57x FY24E EPS).

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We view Bharat Petroleum​ Corporation Limited (BPCL) as “Low Risk” on our LARA scale, primarily due to its strategic importance to India and its SOE status (52.98% government-owned). It is the Indian government’s vehicle to manage retail fuel prices. Thus, BPCL enjoys significant credit uplift. We like the company’s large scale and leading position in the oil & gas downstream sector. It owns many of the country’s refineries, fuel stations and gas pipelines. However, BPCL remains exposed to volatility in crack spreads and crude prices, which affect its profitability. Capex requirements in its refinery, marketing and petrochemicals operations remain significant. BPCL’s credit metrics are quite healthy.

Our Credit Bias is “Negative” given India’s intended sale of its BPCL stake. The divestment is expected to be concluded in 2023, which could end the company’s SOE status and trigger the Change of Control clause for its debt. Uncertainty over the buyer and hence the strength of BPCL’s new parent is a potential negative for the credit.

We initiate coverage with a “Hold” recommendation on the BPCLIN notes.

• Welspun India Ltd (WIL) posted its worst quarterly numbers in the last two years as company continues to face severe headwinds on cost front and which is also beginning to weaken demand environment.
• The numbers were a complete miss on all fronts. WILs revenue for the quarter stood at Rs 2,227 Cr (down 10% from our estimate of Rs 2,477 Cr), up 4.3% YoY
• Effectively, we change our rating from BUY to HOLD with a revised target price of Rs 70 (from Rs 133 earlier), valuing the company at 9x FY24 EPS of Rs 7.8 per share, implying an upside of ~2% from the CMP 69.

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• We recommend a BUY on Zensar, aided by strong revenue growth momentum and better recovery
• Zensar Q4FY22 performance beat our expectations on the revenue front.
• We assign 14.8x P/E multiple to its FY24E earnings of Rs 24.25 per share to arrive at a TP of Rs 360 per share, implying an upside of 25% from CMP.

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• Zydus Lifesciences Ltd (ZYDUSLIF IN) earns more than 40% revenue from the U.S. This business is under continued pricing pressure, which is squeezing the gross profit margin of the company.
• The company has received approval for COVID-19 vaccine in India, which seems to have limited visibility and revenue potential, amid competition and uncertain COVID-19 outlook.  
• Zydus has launched one new drug and received approval for another in India. However, its innovation portfolio has to go a long way to become a significant growth contributor.

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• Given the fair visibility in earning in coming years and ability to manage costs, we maintain our recommendation of BUY with revised TP of Rs 4,153/share
• Companies Q4 Revenue was up 21.6% YoY at 409 Cr (against our estimate of 390 Cr), but company reported lower than expected EBITDA of 94 Cr (+12% YoY) against our exp of Rs 103 Cr on account of higher than expected gross margin pressure.
• Effectively, company posted 23% EBITDA margin which was down 300 bps over last quarter (against our estimate 26.4%).

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• Delhivery (1058656D IN) IPO will run from 11-13th May. The company plans to raise INR52.35bn (US$680m) through the issuance of a mix of new shares and OFS by existing shareholders.
• At the indicative IPO price range of INR462-487 per share, Delhivery will have a market capitalisation of INR334.7-352.8bn and a post-money EV of INR294.8-312.9bn.
• Delhivery plans to use the IPO proceeds for funding organic growth initiatives such as building scale and expanding network infrastructure as well as for funding inorganic growth.

• Rainbow Children’s Hospital (RCH) raised around US$200m via issuing a mix of primary and secondary shares in its India IPO.
• RCH is a multi-specialty pediatric and obstetrics and gynecology hospital chain in India, operating 14 hospitals and three clinics in six cities, with a total bed capacity of 1,500 beds.
• In this note, we will talk about our the trading updates.

• On 6th May 2022, Larsen & Toubro (LT IN)‘s publicly-listed subsidiaries Mindtree Ltd (MTCL IN) and Larsen & Toubro Infotech (LTI IN) announced plans to merge.
• I discussed this situation previously in Mindtree-LTI: A Potential US$20bn+ Indian Tech Merger; Mindtree Could Outperform LTI when the ratio was 0.66, expecting a scrip ratio north of 0.70.  
• Below is a closer look at the details of the transaction and the outlook for the combined entity.

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• DCB Bank’s (DCB)Q4FY22 performance was strong with growth picking-up, NIMs at multiquarter high aided by better recoveries and asset quality improvement.
• We believe the stock trades at attractive valuations (0.5x FY24E ABV) and the improving operating performance and asset quality are key triggers for re-rating the stock
• We maintain our BUY rating with a target price of Rs 115/share (0.8x FY24E ABV), implying an upside of 47% from CMP.

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• Disbursements strong: Disbursements at Rs127bn were up 58% YoY and 22% QoQ. Vehicle Finance disbursements grew by 43% YoY and 15% QoQ.
• Improved collections and higher write-offs lead to lower NPAs: Write-offs for 4QFY22 at Rs5.5bn (calc), 0.7% of gross advances, were higher than normal range of 10-20bps per quarter.

• Other key takeaways: (1) Focus is to maintain NIM at ~7.5% levels and RoA at 3-3.5%

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• The Larsen & Toubro Infotech (LTI IN) and Mindtree Ltd (MTCL IN) merger will create a company with revenue of US$3.5bn and a market cap of US$18bn.
• The merger ratio is 73 shares of Larsen & Toubro Infotech for 100 shares of Mindtree. The merger is expected to complete in 9-12 months. 
• There are likely to be some inflows from MSCI and FTSE trackers but the big kicker will be inclusion in the NIFTY Index – but a (smallish) rally is needed.

• Two-Thirds of the way through the review period, we see 7 stocks migrating from MidCap to LargeCap, 8 stocks from LargeCap to MidCap, and 1 new listing added to LargeCap.
• Post listing, Life Insurance Corp of India (LIC) (1248Z IN) should be added to the LargeCap segment while Delhivery (1058656D IN) should be added to the MidCap segment.
• On average, stocks expected to migrate from Mid Cap to Large Cap have outperformed. Stocks expected to migrate from the Large Cap to Mid Cap segment have performed the worst.

• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• On the IPOs front, LIC’s anchor book wasn’t great while Delhivery finally launched its IPO and Hong Kong market saw its first launch in a while.
• Placements remained few and far between with only Air New Zealand (AIR NZ) launching its shortfall bookbuild.

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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
• Azure Power Global Ltd
• Central China Securities
• China Hongqiao
• Country Garden Holdings Co
• Jingrui Holdings
• Ronshine China Holdings
• Times China

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• Delhivery (1058656D IN) is the largest and fastest-growing 3PL express parcel delivery player in India. It will launch its Rs52.4 billion ($0.7 billion) IPO on 11 May.
• In Delhivery IPO: Yet to Convincingly Deliver, we noted that the negatives outweigh the positives.  
• In this note, we look at the valuation metrics. We think that Delhivery is at best fairly valued at the IPO price range. 

• Delhivery (1058656D IN) is looking at raising INR 52,350m (US$685m) in its IPO by selling up to 113.3m shares at a range of INR 462-487/share.
• At the mid point of the IPO range, Delhivery (1058656D IN) will be valued at INR 344.8bn (US$4.5bn) while the free float market cap will be much lower.
• Delhivery (1058656D IN) could get entry to the FTSE All-World Index at the December QIR, while inclusion in the MSCI India Index could take place at the May 2023 SAIR.

• Delhivery is now looking to raise around US$700m in its upcoming 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.
• We have covered various aspects of the deal in our earlier notes. In this note, we talk about valuation. 

• Campus Activewear Ltd (1535013D IN) India IPO raised around US$184m. The IPO was a 100% secondary selldown.
• The overall subscription rate for Campus had led the likes of Zomato, PAYTM and PB Fintech, and was most similar to that of Polycab India.
• Campus’ growth outlook and vertically integrated model should warrant it to trade at a premium to Metro Brands, while at a discount to Relaxo, given the latter’s more diversified offering. 

Tata Steel’s Q4 and FY 2021-22 results were exceptionally strong, with revenue surging and EBITDA doubling. The company paid down a large amount of debt during the year, significantly above the guided figure. The financial risk profile improved substantially on the back of increased earnings and lower debt, and appears in line with the BBB level. Liquidity is sound.

We revise our LARA assessment to “Low Risk” from “Medium Risk”. Tata Steel has delivered outstanding results in recent years, with significant deleveraging and strong earnings growth. This has resulted in a substantial boost to its credit profile. We view favourably the company’s track record of delivering on guidance, especially in terms of deleveraging.

• Equitas Small Finance Bank Ltd. (EQSFB) results were a mixed bag. While growth on the asset and liability side was encouraging and Opex growth was modest at 10% YoY thereby supporting operating profit, higher than expected provisions weighed on the bottom line.
• Disbursements stood at Rs 3,279 Cr (+29% YoY,+21% QoQ)aiding loan growth revival.
• We believe current valuations of 1.3x FY24E ABV are attractive and thus maintain our BUY rating on the stock with a target price of Rs 77 (1.9x FY24E ABV), implying an upside of 43% from the CMP.

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• SIS reported moderate growth in Q4FY22 with Revenue at Rs 2,648 Cr, registering an encouraging growth of 1.8% QoQ, (below our expectations).
• Consolidated EBITDA for the quarter de-grew by 4.1% QoQ to Rs 124 Cr, owing to tepid international business
• We recommend a BUY rating on the stock and assign a 21x P/E multiple to its FY24E earnings of Rs 28.4/share which gives a TP of Rs 590/share, implying an upside of 13% from the CMP.

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• Delhivery is now looking to raise around US$700m in its upcoming 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.
• We have covered various aspects of the deal in our earlier notes. In this note, we will undertake a peer comparison. 

• Delhivery (1058656D IN) is a fully integrated logistics player in India. The company’s application for a listing has been approved by the regulators.
• The IPO will be open from 11-13th May and the company has downsized the IPO from INR7,460 crore to INR5,235 crores, with existing shareholders offloading shares worth of INR1,235 crores.
• This insight focuses on new data points from the company’s Red Herring Document (RHD).

• The Reserve Bank of India roiled the market yesterday with an unexpected inter-meeting policy rate increase, leading to rates moving higher across the curve.
• I have been arguing for a few months that the RBI needs to start raising rates based on the high inflation and narrowing rate differential with the US.
• Despite the move higher in rates in India, I continue to like paying rates in India, particularly against receivers in other countries to hedge against the volatile US rates.

• India’s quick commerce market is estimated to grow 15x by 2025 to hit a market size of nearly US$5.5 billion – large enough to propel prominent investors’ interest and gain the early-mover advantage.
• One of the companies at the helm of this nascent yet flourishing industry is Zepto, a startup launched by two Stanford University dropouts, Aadit Palicha and Kaivalya Vohra.
• The Y Combinator-backed startup promises 10-minute grocery deliveries, outpacing the delivery speeds of several ecommerce companies

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• Tata Steel reported a strong Q4FY22 performance which stood largely in line with our estimates.
• The company’s revenue increased by 39% YoY and 14% QoQ (in line with our estimate with a slight beat by 1%) but ahead of consensus by 5% at Rs 69,324 Cr
• We ascribe 6.0x, 5.0x and 3.5x multiple to India standalone, other operations (excl standalone) and Europe on FY24E EBITDA to arrive at a 1-year forward TP of Rs 1,700/share (unchanged from our previous TP), implying an upside potential of 35% from the CMP.

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• KEC International (KEC Int) reported a poor set of numbers in Q4FY22 with revenues at Rs 4,275 Cr (down 2% YoY), EBIDTA of Rs 252 Cr ( down 29% YoY), and PAT of Rs 112 Cr (down 42% YoY)
• The company’s EBIDTA Margins declined to 5.9% in Q4FY22 from 7.2% in Q3FY22 and 8.1% in Q4FY21, primarily owing to an increase in material costs as well as interest costs during the quarter
• We value KEC International at 12.5x (14x earlier) FY24E EPS to arrive at a target price of Rs 385/share (Rs.555 earlier) implying an upside of 3% from the CMP and revise our rating from BUY to HOLD.

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