India

• We believe EPL with its new management under Blackstone is destined for long-term growth, driven by: a) growing revenue contribution from Personal Care products, b) a gradual shift to laminated tubes from plastic/aluminum tubes, c) a recovery in travel tube, with the lifting of travel restrictions across the globe, d) higher revenue sustainability owing to long-term contracts in the Oral Care segment, and e) customer additions across geographies as well as greater cross-selling opportunities.
• However, EPL has been witnessing margin pressures since the last five quarters, which is likely to continue in the next couple of quarters too due to volatility in raw material prices.
• We believe EPL deserves to trade at higher multiples than its peers owing to its better global presence, strong management and leadership position in the Oral Care segment.

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• Gujarat Fluorochemicals Ltd (GFCL) will likely benefit from rising demand / realisation for fluoropolymers.
• Company is backward-integrated for most products, which enables it to expand capacity faster than global peers.
• PTFE price increase is being reflected in export realisatons; PVDF and FKM product developments are moving in the right direction.

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• PSP Projects (PSPPL) – incorporated in 2008 and led by Mr. P.S. Patel (CMD & CEO), has been working in the Buildings & Factories construction business
• PSPPL has gradually expanded its construction reach starting from Gujarat to other geographies over the years.
• We recommend a Buy the stock for a target price of Rs 620/ implying an upside of 11% from CMP

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• Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
• This week we looked at the South Korean SK twins that are looking to list. In addition, LIC appears to be testing waters again.
• Placement flows slowed down a bit with the mid-week HK holiday, although Australia and India blocks have continued to flow-in.

• There are 34 – mostly firm – transactions currently being discussed and analysed on Smartkarma. 
• Two new deals were discussed on Smartkarma: HDFC Bank (HDFCB IN) / HDFC Limited (HDFC IN). Perpetual Ltd (PPT AU) and Pendal (PDL AU); Gold Road (GOR AU) and DGO Gold (DGO AU) 
• Key updates took place for: Virtus Health (VRT AU),  Jin Jiang Capital Company Limited (2006 HK) and Western Areas (WSA AU)

• VRL Logistics (VRLL) announced a capex plan of INR5.6b to purchase 1,600 trucks (~25,000t carrying capacity) spread over the next 12-18 months.
• This capex is essential to: a) replace its older fleet that moves out due to the vehicle scraping policy and b) capture the pick-up in demand in the LTL segment.
• We believe VRLL would be very well placed to capitalize on the growth opportunity after this capacity addition.

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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 Hongqiao
2. Times China
3. China Jinmao Holdings
4. Guangzhou R&F Properties
5. Sunac China Holdings

and more…

SAEL Limited is roadshowing a USD 7NC4 green notes offering, with the proceeds to be used for refinancing all existing debt and capex of the restricted group (RG). The integrated player has three business lines: Renewable Energy, Warehousing Infrastructure, and Agri-processing & Solvent Extraction. 

We view SAEL as “Medium Risk” on our LARA scale. We note favourably the utility nature of the business, with contractual and visible revenue and cash flows for the RG that will hold SAEL’s renewable power plants (solar and waste-to-energy). Conversely, the credit is weighed down by the: [1] RG’s small scale and short track record of the associated assets (less than three years); [2] weak corporate governance, especially the private ownership; and [3] execution risk for the proposed organisational restructuring.

Our Credit Bias is “Stable”, given the revenue visibility and contractual cash flows under PPAs.

We expect the proposed notes to price at 7%.

• Government of India (GoI) is now said to be looking to raise around US$6-7bn via selling a stake in Life Insurance Corporation of India (LIC) in its upcoming India IPO.
• As of FY21, LIC was the largest life insurer in India with a 64.1% market share in terms of GWP, a 66.2% market share in terms of NBP.
• In this note, we undertake a peer comparison and look at the implied multiples at the rumored valuations.

• HDFCB has announced the long-awaited reverse merger of parent HDFCL.
• The merger should fulfill the implicit RBI policy of 1) not allowing a bank to be owned by an NBFC/HFC, and 2) having its lending business housed mainly in the bank.
• It should also generate cost/business synergies in the medium-to-long run.

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• HDFC Bank (HDFCB) announced the merger with HDFC Ltd. (HDFC), which we believe is beneficial for both entities and will help strengthen HDFCB’s leadership position as synergies emerge over the longer term
• The merger process is likely to be completed in 15- 18 months, subject to the completion of regulatory approvals
• We maintain our BUY recommendation with a target price of Rs 1,985 derived using the SOTP method (core bank at 3.5x FY24 ABV + Subsidiaries value Rs 70/-), implying an upside of 20% from CMP.

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• As per an update released by Marico Ltd (MRCO) on 5th April2022, the FMCG sector continued to witness subdued consumption patterns, primarily on account of weak rural sentiments and persistent inflation in global commodities.
• Inflation, accompanied by price hikes implemented across FMCG categories, affected consumer wallets and eventually resulted in decline in FMCG volume.
• Despite stressed macros, MRCO’s domestic business (~75% of topline) saw low single-digit revenue growth on the back of focused execution and market share gains

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• TCI has developed robust capabilities in multimodal Logistics via its presence across major transportation modes.
• The company has well-diversified service offerings from Road freight, integrated Supply Chain solutions, Sea freight, to a JV with CONCOR for Rail freight.
• These capabilities would be a key enabler for consistent growth in volumes and earnings for TCI over the next few years

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• Nifty RSI and price breakout sets the tone for a test on the 18,500 high zone with dip support at 17,700/500. RSI was the early rally signal.
• The early bull trigger came when the Nifty bank index crossed 36,900/37k pivot resistance signal a fresh long entry for the banks and the Nifty.
• Previous highs are the hurdles to challenge and clear for bull traction. India long can be paired with weaker market (Korea and Taiwan).

This month, we undertake a study of movements in the Lucror Analytics Risk Assessment (LARA) for issuers in the Lucror Asia HY index over the last five years.

The Asia Monthly focuses on providing updates on recent events, information on new issues and spread movements, as well as summarising our top picks, and discussing specific areas of interest in the “In-Focus” section. The Asia Monthly is intended to broaden investors’ understanding of the Asian USD high-yield market.

• Oil and Natural Gas Corporation (ONGC) and Oil India (OIL) have outperformed the Sensex by 74/42% over the last twelve months, as Brent crude price increased by 68%; we expect the outperformance to continue
• The Domestic Administered Pricing Mechanism (APM) gas price was revised upwards by 110% to USD 6.1/mmbtu in H1FY23; we expect it to further rise by 45% to >USD 8.8/mmbtu in H2FY23
• We expect Brent crude price, which is currently at >USD 100/bbl, to remain elevated, as Organisation of the Petroleum Exporting Countries (OPEC) supply growth is likely to lag global demand growth and supply concerns surrounding geopolitical issues would prevail.

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• HDFC Limited (HDFC IN) and HDFC Bank (HDFCB IN) are looking at a mega-merger where HDFC shareholders will receive 42 shares in HDFCB for every 25 HDFC shares held.
• Regulatory and other approvals are expected to take around 18 months and the merger will create a US$145bn behemoth. Some regulatory approvals could be tougher to get than others.
• HDFC Limited (HDFC IN) is a member of the FTSE All-World and MSCI India indices, while HDFC Bank (HDFCB IN) is not. The index treatment is tricky.

• This is at a time a shocker and at a time, not. Because of rising regulatory requirements for NBFCs, this was to be expected at some point.
• The deal pays Limited shareholders a slight premium vs previous close, but enables them to exit without a holdco discount. 
• Early days yet regulatorily speaking, but accretive, and it makes a lot of sense. It will be appreciated. 

• As of the close on 1 April, we expect Tata Elxsi Ltd (TELX IN) and Jindal Steel & Power (JSP IN) to be included in the MSCI India Index.
• Potential deletions at the May SAIR are HDFC Asset Management Co Ltd (HDFCAMC IN), Indraprastha Gas (IGL IN), Mrf Ltd (MRF IN) and Petronet LNG (PLNG IN). 
• Passive trackers will need to buy between 3-4 days of ADV on the inclusions and sell between 4-16 days of ADV on the deletions.

• Today morning, HDFC Limited (HDFC IN) announced that it would merger with HDFC Bank (HDFCB IN). 
• Investors have been asking the two companies about a possible merger for at least the past decade.
• In this note, we talk about the background for the merger and why now.

• This analyst has historically highlighted many cases of mis-selling by the ICICI Prudential Life Insurance (IPRU IN) and the company has responded by focusing on its improving persistency ratio
• However disclosures reveal that the company has the highest mis-selling, total complaints (per 10,000 policies) and surrender ratio as compared to  the top 6 life insurance companies
• IRDAI and IPru Life’s board of directors remains unconcerned about the company’s status as a leader in mis-selling and in surrender ratios. Shareholders need not share this apathy.

• Axis Bank announced the acquisition of Citibank’s cards, consumer lending, and wealth businesses in a transaction that is likely to be closed over the next 9-12 months
• At an acquisition cost of US$1.6bn, while the deal appears to be a bargain for Axis Bank, the value accretion from Citi’s portfolio over the medium term is contingent on a host of factors including retention of existing customers, Axis Bank’s ability to continually add customers of such profile and its ability to up-sell and cross-sell
• Although the Citibank transaction adds significant heft to Axis Bank’s competitive positioning across cards and wealth management businesses, we believe that Axis Bank will need to up its game in order to create sustainable value from the Citibank portfolio.

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• Since its Q3FY22 result, Bajaj Auto (BJAUT) has outperformed NIFTY50 by ~15% amid worsening outlook on profitability, rising fuel prices and flattish demand outlook in key export markets.
• Though we keep our FY23E revenue estimates largely unchanged, we trim FY23E EBITDA margin by ~300bps to ~14.5% due to surge in RM costs, resulting in 2% cut in FY24E earnings.
• Though recent cost inflation would get partially reflected in Q4FY22, bulk of it would come Q1FY23E onward.

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• Wipro Ltd is India’s one of the largest IT services exporter and has a strong global presence
• It provides industry-wide solutions including next-gen services like Cloud Computing, Digital Transformations, IoT, Machine Learning, and ADM, among others.
• Wipro also has expertise in providing solutions in banking and financial and other services through its product and platform portfolio

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• Commodities and IT sectors are the biggest winners of FY22. In the last one year, the Metals sector has gone up 53%, Energy by 40%, commodities by 30%, and the IT index by 40%
• However, the consumer-facing sectors closed FY22 on a muted note with FMCG reporting growth of only 4% and the Auto sector of 5%
• The current market performance is factoring in the current rising inflation and the rising interest rate regime

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• As per our channel checks, OBER’s Thane launch has been pushed out to 1QFY23 (likely in Apr’22) v/s our initial expectation of an early launch in Mar’22 as the company awaits approvals.
• We had assumed INR6b of sales from the Thane project in 4QFY22, which will now spill over to FY23.
• While the delayed launch will impact our 4QFY22 presales/collections estimate, sales momentum in ongoing projects has largely remained intact.

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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. First Pacific Co
2. Yanzhou Coal Mining Company Limited H
3. Indika Energy
4. Lippo Karawaci
5. Agile Property Holdings

and more…

• Located near Hyderabad, Ahlada Engineers (AHLADA IN) manufactures and sells steel doors and windows in India. It also produces school furniture, drinking water systems and allied products across numerous industries.
• The facilities are spread across 3 manufacturing units in addition to one assembling unit and stock yard, with an area admeasuring 27,153 square yards on the outskirts of Hyderabad.
• Ahlada however suffers from some balance sheet and financial issues which are highlighted in our report.

• We upgrade Bharat Petroleum Corporation (BPCL) to BUY, with a target price of INR 420, given it has corrected ~30% from its peak over the last six months, owing to pressure on auto-fuel marketing margins and an increase in LPG under-recoveries
• We believe the recent correction is overdone, and see limited downside from current levels, led by: (1) improvements in refining margins, (2) resumption of daily auto-fuel price changes, and (3) a gradual reduction in LPG under-recoveries.

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• Axis Bank announced the acquisition of Citibank’s cards, consumer lending, and wealth businesses in a transaction that is likely to be closed over the next 9-12 months
• At an acquisition cost of US$1.6bn, while the deal appears to be a bargain for Axis Bank, the value accretion from Citi’s portfolio over the medium term is contingent on a host of factors including retention of existing customers, Axis Bank’s ability to continually add customers of such profile and its ability to up-sell and cross-sell
• Although the Citibank transaction adds significant heft to Axis Bank’s competitive positioning across cards and wealth management businesses, we believe that Axis Bank will need to up its game in order to create sustainable value from the Citibank portfolio.

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