India

• The S&P BSE family of indices represents the performance of stocks listed on the Bombay Stock Exchange (BSE) across various sizes, themes, industries, and strategies.
• This series will mainly focus on the following indices of the S&P BSE family: S&P BSE 500, S&P BSE 200, S&P BSE 100, and S&P BSE SENSEX.
• In this insight, we take a look at the leading candidates who could become Adds/Deletes during the June 2022 Semi-annual Rebalance.

• On Monday, Aurobindo Pharma (ARBP IN) had announced the acquisition of the branded generic business and certain assets of Veritaz Healthcare Limited for a cash consideration of INR 1.7 bn.
• It should be known that Veritaz is a promoter group entity, which is why acquisition will fall within the scope of Related Party Transactions.
• Being a promoter company and having had some red flags in the past such as negative net-worth, continuous loss making nature, etc. The cash consideration looks questionable.

• We speak to channels of Kajaria Ceramics (KJC IN) , Indigo Paints (INDIGOPN IN) & Finolex Industries (FNXP IN) to understand the current operating environment.
• For Kajaria Ceramics (KJC IN) volume outlook is cloudy.  Paint customers are opting for some down trading but within organised players only. 
• Improved product quality at competitive price is aiding Finolex Industries (FNXP IN) to gain some market share.

• The changes to the NIFTY Index (NIFTY INDEX), Nifty Bank Index (NSEBANK INDEX) and NIFTY NEXT50 Indices were announced on 24 February and will be implemented at the close today.
• There is a fair amount to trade on the NIFTY Index (NIFTY INDEX) and Nifty Bank Index (NSEBANK INDEX) stocks given the sizeable passive assets that track the indices.
• There is pre-positioning on some of the names and there could be opportunities to build positions to play for a reversal.

• The S&P BSE family of indices represents the performance of stocks listed on the Bombay Stock Exchange (BSE) across various sizes, themes, industries, and strategies.
• This series will mainly focus on the following indices of the S&P BSE family: S&P BSE 500, S&P BSE 200, S&P BSE 100, and S&P BSE SENSEX.
• In this insight, we take a brief look at the constituent selection methodology and the historical price performance of Index Rebalance Events for the above-mentioned indices.

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.

• Anton Oilfield
• Vedanta Resources

The Greenko group launched a roadshow for new USD 3-year 144A/RegS green notes yesterday, with the roadshow to end today. The bonds are expected to be rated Ba1/BB by Moody’s/Fitch. This is the first project bond issuance from a renewable energy storage project in India. The deal is forecast to price early this week.

In our view, the proposed bonds rank slightly less favourably than the existing GRNKEN notes, as they are backed by a project that is not yet operational (unlike the other bonds). However, this is partly offset by: [1] the parent guarantor’s credit strength; and [2] the short tenor (three years) of the proposed notes.

• PVR Ltd (PVRL IN) & Inox Leisure (INOL IN) announced a stock merger. The merger would be in a ratio of 3:10, creating the largest multiplex company in India. 
• Synergies include more bargaining power, better F&B margins and more ad revenues 
• Thanks to COVID’s impact, the merger may not require approval from CCI. 

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.

• Lippo Karawaci
• Sunac China Holdings
• Vedanta Resources

• Caplin Point Laboratories (CLPL IN)  develops, produces, markets, and exports generic pharmaceutical formulations and branded products, including liquid and lyophilized injections, ophthalmic products, tablets, liquid orals, capsules, softgel capsules etc.
• While Caplin has a healthy 5 year CAGR growth ~28% and strong margins, it however has slowed down recently. The return ratios, turnover and cash conversion have been heading southwards.
• There have been some dubious accounting related to cash flows and asset quality, and few red-flags relating to few of the subsidiaries as well which should not be overlooked.

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. Sunac China Holdings
2. Adaro Energy
3. Logan Property Holdings
4. Sino Ocean Land
5. Powerlong Real Estate Holdings

and more…

• We continue to see some encouraging signs that suggest that the lows may have been established for this correction.
• We still believe a bottoming process would likely take weeks or potentially months and could come with more tests of the lows — or even an undercut.
• With that said, we continue to see attractive and actionable setups, primarily within cyclical value (Energy, Materials, Manufacturing, Transportation, and Financials).

• Ruchi Soya Industries (RSI IN) is looking to raise up to US$560m via a follow-on public offer.
• The deal is almost akin to a relisting, as the free float was just at 1% prior to this deal. 
• Given the tight float, instead of discussing its track record , we will discuss the timeline of events leading up to the deal, past performance and undertake a peer comparison/valuation. 

• We spoke to channels associated with AU Small Finance Bank Limited (AUBANK IN) , Kajaria Ceramics (KJC IN) , Apl Apollo Tubes (APAT IN) & Blue Star Ltd (BLSTR IN) 
• Small Business Loan growth is slowing at AU, some down trading due to price increases seen in Kajaria 
• APL is getting hurt by cheaper alternatives, Blue Star channels are cautiously optimistic about the upcoming Air Conditioner season. 

• Life insurance penetration (life insurance premium/GDP) stagnating in India for last decade
• Entry of 23 private sector life insurance companies has not increased life penetration
• The private players have got the more profitable end of the market, leaving LIC with the lower end. LIC itself, which once expanded the market, has lost direction.

• Navi Technologies (NT) aims to raise around US$500m in its India listing. NT was started by Sachin Bansal, co-founder of Flipkart which was sold to Walmart in 2018.
• NT is a technology-driven financial products and services company. The company was only incorporated in 2018, it offers personal loans, home loans, general insurance and mutual funds. 
• In this note, we will talk about the not so positive aspects of the deal.

We view UPL Limited as “Low Risk” on the LARA scale, mainly due to the company’s robust business profile. UPL has global scale, being the fifth-largest generic agrochemical company in the world and the largest player in the post-patent segment. The industry enjoys reasonable pricing power and profitability due to the high barriers to entry, namely: [1] regulations; [2] the years-long registration process; and [3] the sales and distribution network. Geographical exposure is diversified, with 40% of UPL’s 9M/21-22 revenues derived from LatAm, 14% each from North America and Europe, 17% from Rest of the World and 14% from India, which accounts for 40-50% of total volume production. Thus, the company’s ratings are not limited by India’s sovereign rating.

On the flip side, the credit profile is weighed down by: [1] UPL’s seemingly aggressive financial policies and appetite, as seen in the USD 4.2 bn acquisition of Arysta LifeScience in 2019; and [2] the below-par financial metrics for the BBB ratings, albeit these are improving rapidly. There is event risk from either another potential major acquisition or UPL’s buyout of TPG and ADIA’s stakes (11% each) in subsidiary UPL Corp, which would increase leverage.

Our Credit Bias on UPL is “Stable”, as the robust business profile, strong FCF generation and improving financial metrics should help the company weather the volatile environment stemming from the Russia-Ukraine war.

• Navi Technologies (NT) aims to raise around US$500m in its India listing. NT was started by Sachin Bansal, co-founder of Flipkart which was sold to Walmart in 2018.
• NT is a technology-driven financial products and services company. The company was only incorporated in 2018, it offers personal loans, home loans, general insurance and mutual funds. 
• In this note, we will talk about the positive aspects of the deal.

• HUL, the largest FMCG player in India, was formed by merging three subsidiaries of Unilever in 1956.
• HUL’s portfolio of products covers a wide spectrum including soaps, detergents, skin creams, shampoos, toothpastes, tea, coffee, packaged foods and branded atta
• Powerful brands and an envious distribution network are its primary strengths

• According to our channel checks, the new smaller compact feature stores (of 20k-25k sqft) enjoy significantly better revenue/sqft (of ~1.5x) v/s the existing bigger stores (of 40k-50k sqft).
• Management targets to double revenue over the next 3-4 years backed by: its strategy of adding 10-12% new stores annually, its initiative to revive SSSG to high single or double digit on improved new store productivity and focus on private labels, strong growth in the Beauty segment and ecommerce initiatives.
• However, our revenue estimates are nearly 40% below the management.

• Demand recovery across segments to propel earnings Godrej Agrovet (GOAGRO) is likely to witness better demand across its segments of Palm Oil, Animal Feed (AF) and Crop Protection (CP).
• Conversely, the palm oil business is likely to be a beneficiary of rising prices.
• The palm oil prices rallied 42% YoY to USD1,383/t as of Jan’22..

• We have seen CEO changes for various other consumer companies in the past, and most changes have been value accretive.
• However, we remain cautious until the new CEO showcases his execution capability.
• His exit (along with past exits of many members of senior management) is certainly adding several risks.