Pan-Asia Index Rebalances/ Events/ Delta One, Periscope Analytics

Brian Freitas

Pan-Asia Index Rebalances/ Events/ Delta One

Index Rebalance

<p>The <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.</p><p>More than a third of the way through the review period that runs from February to July, we see one possible change to the index with <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> replacing <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a>. There could be more changes if some large stocks like <a href="https://www.smartkarma.com/entities/adani-green-energy-ltd" target="_blank" data-smartkarma-citation="entities:29012:1" rel="noopener">Adani Green Energy Ltd (ADANIGR IN)</a> and <a href="https://www.smartkarma.com/entities/dmart" target="_blank" data-smartkarma-citation="entities:23656:1" rel="noopener">Avenue Supermarts Ltd (DMART IN)</a> are included in the Futures &amp; Options (F&amp;O) segment of the market.</p><p><a href="https://www.smartkarma.com/entities/vedanta-ltd" target="_blank" data-smartkarma-citation="entities:514:1" rel="noopener">Vedanta Ltd (VEDL IN)</a> does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.</p><p>Passive funds benchmarked to the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> will need to trade around 3 days of ADV on <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> and <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a>. Plus there will be flow from active funds and from cash and carry baskets on the index.</p><p><a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a> trades at a valuation premium to its regional peers, while <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a> trades at a discount to its domestic peers.</p><p>The big event to watch for is the potential inclusion of <a href="https://www.smartkarma.com/entities/adani-green-energy-ltd" target="_blank" data-smartkarma-citation="entities:29012:1" rel="noopener">Adani Green Energy Ltd (ADANIGR IN)</a> and <a href="https://www.smartkarma.com/entities/dmart" target="_blank" data-smartkarma-citation="entities:23656:1" rel="noopener">Avenue Supermarts Ltd (DMART IN)</a> in the F&amp;O segment that will open the door for index inclusion.</p>

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 29 September 2021 and the announcement of the changes will be made four weeks prior to the effective date.More than a third of the way through the review period that runs from February to July, we see one possible change to the index with Info Edge India (INFOE IN) replacing Indian Oil Corp (IOCL IN). There could be more changes if some large stocks like Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) are included in the Futures &amp; Options (F&amp;O) segment of the market.Vedanta Ltd (VEDL IN) does not make the cut for index inclusion following the 10% reduction in its free float following the open offer.Passive funds benchmarked to the NIFTY Index (NIFTY INDEX) will need to trade around 3 days of ADV on Info Edge India (INFOE IN) and Indian Oil Corp (IOCL IN). Plus there will be flow from active funds and from cash and carry baskets on the index.Info Edge India (INFOE IN) trades at a valuation premium to its regional peers, while Indian Oil Corp (IOCL IN) trades at a discount to its domestic peers.The big event to watch for is the potential inclusion of Adani Green Energy Ltd (ADANIGR IN) and Avenue Supermarts Ltd (DMART IN) in the F&amp;O segment that will open the door for index inclusion.

NIFTY50 Index Rebalance Preview: Info Edge Could Replace IOC

<p>The <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a> is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 25 March and the announcement of the changes will be done four weeks prior to the effective date.</p><p>We are now almost at the end of the review period. There are 3 stocks that meet the criteria for inclusion in the <a href="https://www.smartkarma.com/entities/nifty-index" target="_blank" data-smartkarma-citation="entities:23617:1" rel="noopener">NIFTY Index (NIFTY INDEX)</a>: <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a>, <a href="https://www.smartkarma.com/entities/icici-lombard-general-insura" target="_blank" data-smartkarma-citation="entities:25882:1" rel="noopener">Icici Lombard General Insurance Company (ICICIGI IN)</a> and <a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a>. The three lowest ranked stocks in the index are <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a>, <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a> and <a href="https://www.smartkarma.com/entities/upl-ltd" target="_blank" data-smartkarma-citation="entities:20776:1" rel="noopener">UPL Ltd (UPLL IN)</a>.</p><p>We see a high probability of <a href="https://www.smartkarma.com/entities/tata-consumer-products" target="_blank" data-smartkarma-citation="entities:258:1" rel="noopener">Tata Consumer Products (TATACONS IN)</a> being included and <a href="https://www.smartkarma.com/entities/gail-india-ltd" target="_blank" data-smartkarma-citation="entities:15263:1" rel="noopener">Gail India Ltd (GAIL IN)</a> being excluded, and a lower probability of <a href="https://www.smartkarma.com/entities/icici-lombard-general-insura" target="_blank" data-smartkarma-citation="entities:25882:1" rel="noopener">Icici Lombard General Insurance Company (ICICIGI IN)</a> being included and <a href="https://www.smartkarma.com/entities/indian-oil-corp-ltd" target="_blank" data-smartkarma-citation="entities:7781:1" rel="noopener">Indian Oil Corp (IOCL IN)</a> being excluded.</p><p><a href="https://www.smartkarma.com/entities/info-edge-india-ltd" target="_blank" data-smartkarma-citation="entities:14461:1" rel="noopener">Info Edge India (INFOE IN)</a>'s average free float market cap is less than 1% lower than <a href="https://www.smartkarma.com/entities/icici-lombard-general-insura" target="_blank" data-smartkarma-citation="entities:25882:1" rel="noopener">Icici Lombard General Insurance Company (ICICIGI IN)</a> - can get close going into the tail end of the review period.</p><p>The index committee has a wide berth when choosing the number of changes to be made and it is highly unlikely that there will be more than 2 changes, especially since a maximum of 5 changes can be made in a year.</p><p><a href="https://www.smartkarma.com/entities/dmart" target="_blank" data-smartkarma-citation="entities:23656:1" rel="noopener">Avenue Supermarts (DMART IN)</a> has the highest market cap among non index constituents but is not eligible for index inclusion since there are no listed Futures and Options on the stock, a prerequisite for index inclusion.</p>

The NIFTY Index (NIFTY INDEX) is the flagship index of the National Stock Exchange of India (NSE). The index has 50 stocks and is a free float weighted market cap index. The next rebalance will be effective after the close of trading on 25 March and the announcement of the changes will be done four weeks prior to the effective date.We are now almost at the end of the review period. There are 3 stocks that meet the criteria for inclusion in the NIFTY Index (NIFTY INDEX): Tata Consumer Products (TATACONS IN), Icici Lombard General Insurance Company (ICICIGI IN) and Info Edge India (INFOE IN). The three lowest ranked stocks in the index are Gail India Ltd (GAIL IN), Indian Oil Corp (IOCL IN) and UPL Ltd (UPLL IN).We see a high probability of Tata Consumer Products (TATACONS IN) being included and Gail India Ltd (GAIL IN) being excluded, and a lower probability of Icici Lombard General Insurance Company (ICICIGI IN) being included and Indian Oil Corp (IOCL IN) being excluded.Info Edge India (INFOE IN)'s average free float market cap is less than 1% lower than Icici Lombard General Insurance Company (ICICIGI IN) - can get close going into the tail end of the review period.The index committee has a wide berth when choosing the number of changes to be made and it is highly unlikely that there will be more than 2 changes, especially since a maximum of 5 changes can be made in a year.Avenue Supermarts (DMART IN) has the highest market cap among non index constituents but is not eligible for index inclusion since there are no listed Futures and Options on the stock, a prerequisite for index inclusion.

NIFTY50 Index Rebalance Preview - Nearing The End of the Review Period

India Equity Value investor, Trivikram Consultants

Prashant Vaishampayan

India Equity Value investor

Picking Long Term Multi-bagger stocks

Trivikram Consultants

Trivikram Consultants is an equity research service founded by Prashant Vaishampayan, a registered Research Analyst with SEBI in India. Prashant has done equity research since 1992.  He worked with Jardine Fleming, SG Securities, UBS and Kotak Securities. Since 2010, he is managing his portfolio and doing outsourced equity research for institutional clients. A team of six professionals helps him in equity research. We focus on pharma, agro-chemicals, auto and auto components, banks and financial services, specialty chemicals and niche manufacturing sectors.   

Equity Bottom-Up

<p><a href="https://www.smartkarma.com/entities/6040" target="_blank" data-smartkarma-citation="entities:6040:1">Pi Industries (PI IN)</a> reported revenue growth of 29% YoY in 2QFY19. The Custom Synthesis Manufacturing (CSM) segment recorded a 33% revenue growth YoY while the Indian revenue (Agri input) growth was at 24% YoY in 2QFY19.</p>
<p>Reported EBIDTA stood at Rs 1,346 mn vs Rs 1,222 mn in 2QFY18. EBIDTA margins reported at 18.6% vs 21.8% in 2QFY18. PAT stood at Rs. 944 mn vs Rs 803 mn in 2QFY18.</p>
<p>EBITDA margins declined due to higher crude prices, higher input costs and a lag in the price reset with customers. We expect EBITDA margins to improve from 3Q FY19E as crude prices have cooled off and higher prices may be charged to customers.</p>
<p>We have valued PI at 22 times the business EPS estimates for the year ending September 20E, of Rs 38 per share. We have added the cash value of Rs 22 per share as of 30th September 2018 to arrive at the fair value estimate of Rs 858 per share over the next 12 months.</p>
<table class="table table-striped">
<tbody>
<tr>
<td>Particulars</td>
<td style="text-align: right;">FY17</td>
<td style="text-align: right;">FY18</td>
<td style="text-align: right;">FY19E</td>
<td style="text-align: right;">FY20E</td>
<td style="text-align: right;">FY21E</td>
</tr>
<tr>
<td>PE (X)</td>
<td style="text-align: right;">                 25</td>
<td style="text-align: right;">                 31</td>
<td style="text-align: right;">              28</td>
<td style="text-align: right;">              22</td>
<td style="text-align: right;">              18</td>
</tr>
<tr>
<td>ROCE</td>
<td style="text-align: right;">30%</td>
<td style="text-align: right;">24%</td>
<td style="text-align: right;">23%</td>
<td style="text-align: right;">24%</td>
<td style="text-align: right;">25%</td>
</tr>
<tr>
<td>ROE</td>
<td style="text-align: right;">33%</td>
<td style="text-align: right;">21%</td>
<td style="text-align: right;">20%</td>
<td style="text-align: right;">21%</td>
<td style="text-align: right;">22%</td>
</tr>
</tbody>
</table>
<div class="content-caption"><em>Source: PI Industries Annual Report 2018 and Trivikram Consultants Research as of 12th November 2018</em></div>
<div class="content-caption"><em>E= Estimates</em></div>

Pi Industries (PI IN) reported revenue growth of 29% YoY in 2QFY19. The Custom Synthesis Manufacturing (CSM) segment recorded a 33% revenue growth YoY while the Indian revenue (Agri input) growth was at 24% YoY in 2QFY19.
Reported EBIDTA stood at Rs 1,346 mn vs Rs 1,222 mn in 2QFY18. EBIDTA margins reported at 18.6% vs 21.8% in 2QFY18. PAT stood at Rs. 944 mn vs Rs 803 mn in 2QFY18.
EBITDA margins declined due to higher crude prices, higher input costs and a lag in the price reset with customers. We expect EBITDA margins to improve from 3Q FY19E as crude prices have cooled off and higher prices may be charged to customers.
We have valued PI at 22 times the business EPS estimates for the year ending September 20E, of Rs 38 per share. We have added the cash value of Rs 22 per share as of 30th September 2018 to arrive at the fair value estimate of Rs 858 per share over the next 12 months.



Particulars
FY17
FY18
FY19E
FY20E
FY21E


PE (X)
                 25
                 31
              28
              22
              18


ROCE
30%
24%
23%
24%
25%


ROE
33%
21%
20%
21%
22%



Source: PI Industries Annual Report 2018 and Trivikram Consultants Research as of 12th November 2018
E= Estimates

PI Industries 2QFY19- Margin Improvement Expected from 3Q FY19

IPOs and Catalysts/Events, Global Equity Research Ltd

Arun George

IPOs and Catalysts/Events

Uncompromised, Independent, Conflict-Free Research

Global Equity Research Ltd

Global Equity Research was started in 2017 by a group of experienced research professionals. It was founded on a passionate belief in the importance and the need for uncompromised, independent, conflict-free research. We aim to provide differentiated and actionable primary and bottom up fundamental research.

Equity Capital Markets

Galaxy Surfactants / Equity Capital Markets

<p>Galaxy Surfactants is one of India’s leading speciality chemicals firms. Galaxy will IPO through a secondary share sale of 6.3m shares, which is 18% of shares outstanding. At the mid-point of the IPO price range, Rs1,470-1,480 per share, Galaxy will have a market cap of Rs52.3 billion ($840 million). Galaxy had previously tried to IPO in May 2011 but had to withdraw it due to poor response from investors. The overall offer was subscribed just 0.30 times, according to press reports. In 2017, <a href="http://www.livemint.com/Companies/C3byVYdlEtunkz66Pre5hP/Swiss-chemicals-maker-Clariant-may-buy-Mumbais-Galaxy-Surfa.html" target="_blank">press reports</a> suggest that <a href="https://www.smartkarma.com/entities/22575" target="_blank" data-smartkarma-citation="entities:22575:1">Clariant AG (CLN VX)</a> and another company were in discussions with Galaxy to buy a controlling stake in a deal potentially worth Rs13-15 billion.  </p><p>Over FY13-17, Galaxy has demonstrated strong financial performance with profits growing 3x faster than revenues. Galaxy has a strong ROIC profile which has averaged a respectable 15% over FY13-17. However, its EBITDA margins are in the bottom-quartile among its peers. With margin pressure unlikely to abate, we believe that proposed IPO price range is unattractive due to: </p><ol><li>Galaxy’s margins are dependent on its product mix. A higher revenue mix of speciality care products is desirable as these products tend to have higher prices and margins. Consequently, Galaxy’s strategy is to increase speciality care products in its revenue mix. We believe that this plan is at risk as the volume growth of speciality care products has significantly slowed down from 6% in FY16 to 1% in 1H18.</li><li>Like peers, to maximise profits, Galaxy must maintain optimum levels of capacity utilisation. Overall, Galaxy’s capacity utilisation increased from 59.7% in FY17 to 62.5% in 1H18. However, Galaxy’s EBITDA margins decreased from 12.8% in FY17 to 12.1% in 1H18 due to steadily declining capacity utilisation of higher margin speciality care products.</li><li>Based on our estimates at the IPO mid-point, Galaxy lies above the linear trend line for EV/EBITDA vs ROIC and P/E vs ROIC, i.e. trades at a premium to fair value for the ROIC it delivers. Consequently, to lie at the linear trend line and trade at a fair value for the ROIC it delivers, the maximum IPO price can be Rs1,300. This price is 12% below the IPO mid-point price of Rs1,475.</li></ol>

Galaxy Surfactants is one of India’s leading speciality chemicals firms. Galaxy will IPO through a secondary share sale of 6.3m shares, which is 18% of shares outstanding. At the mid-point of the IPO price range, Rs1,470-1,480 per share, Galaxy will have a market cap of Rs52.3 billion ($840 million). Galaxy had previously tried to IPO in May 2011 but had to withdraw it due to poor response from investors. The overall offer was subscribed just 0.30 times, according to press reports. In 2017, press reports suggest that Clariant AG (CLN VX) and another company were in discussions with Galaxy to buy a controlling stake in a deal potentially worth Rs13-15 billion.  Over FY13-17, Galaxy has demonstrated strong financial performance with profits growing 3x faster than revenues. Galaxy has a strong ROIC profile which has averaged a respectable 15% over FY13-17. However, its EBITDA margins are in the bottom-quartile among its peers. With margin pressure unlikely to abate, we believe that proposed IPO price range is unattractive due to: Galaxy’s margins are dependent on its product mix. A higher revenue mix of speciality care products is desirable as these products tend to have higher prices and margins. Consequently, Galaxy’s strategy is to increase speciality care products in its revenue mix. We believe that this plan is at risk as the volume growth of speciality care products has significantly slowed down from 6% in FY16 to 1% in 1H18.Like peers, to maximise profits, Galaxy must maintain optimum levels of capacity utilisation. Overall, Galaxy’s capacity utilisation increased from 59.7% in FY17 to 62.5% in 1H18. However, Galaxy’s EBITDA margins decreased from 12.8% in FY17 to 12.1% in 1H18 due to steadily declining capacity utilisation of higher margin speciality care products.Based on our estimates at the IPO mid-point, Galaxy lies above the linear trend line for EV/EBITDA vs ROIC and P/E vs ROIC, i.e. trades at a premium to fair value for the ROIC it delivers. Consequently, to lie at the linear trend line and trade at a fair value for the ROIC it delivers, the maximum IPO price can be Rs1,300. This price is 12% below the IPO mid-point price of Rs1,475.

Galaxy Surfactants IPO Preview: Selling Shareholders Cleaning Up

Special Situations, Content Strategist, Smartkarma

Crispin Francis

Special Situations, Content Strategist

Smartkarma

Smartkarma unites the fragmented investment industry, connecting institutional investors, independent research providers, and corporates within a single network.

Research Reinvented

Event-Driven

<h2>Deal Background</h2><ul>
<li>UPL Limited (BSE:512070) agreed to acquire the remaining 51.6% stake in Advanta Limited (BSE:532840) on November 23, 2015</li>
<li>Shareholders of Advanta will receive an <strong>equivalent</strong> of 167 UPL shares for every 157 Advanta Shares owned</li>
<li>Citigroup is the financial advisor to UPL Limited</li>
<li>Kotak Investment Banking is the financial advisor to Advanta Limited</li>
<li>Expect Deal Duration - Reported in <a href="http://www.advantaseeds.com/upladvantamerger.pdf" target="_blank">Presentation</a> to be 8 - 9 months (Approx ~ August 2016)</li>
<li>Advanta is highly illiquid: Avg 3m daily volume of…</li>
</ul>

Deal Background
UPL Limited (BSE:512070) agreed to acquire the remaining 51.6% stake in Advanta Limited (BSE:532840) on November 23, 2015
Shareholders of Advanta will receive an equivalent of 167 UPL shares for every 157 Advanta Shares owned
Citigroup is the financial advisor to UPL Limited
Kotak Investment Banking is the financial advisor to Advanta Limited
Expect Deal Duration - Reported in Presentation to be 8 - 9 months (Approx ~ August 2016)
Advanta is highly illiquid: Avg 3m daily volume of…


India

UPL Limited is an Indian multinational agrochemical and specialty chemicals company that manufactures and markets a comprehensive range of sustainable agriculture products and solutions. These include conventional crop protection products like pesticides, fungicides, herbicides, and insecticides, as well as seeds, bio-solutions, and post-harvest solutions. The company is headquartered in Mumbai, India, and was founded on May 29, 1969.

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UPL (UPLL IN)

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Brian Freitas

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Brian Freitas

PI Industries 2QFY19- Margin Improvement Expected from 3Q FY19

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Trivikram Consultants

Galaxy Surfactants IPO Preview: Selling Shareholders Cleaning Up

Galaxy Surfactants is one of India’s leading speciality chemicals firms. Galaxy will IPO through a secondary share sale of 6.3m shares, which is...

Arun George

Advanta / UPL Limited - Reap The Harvest

Deal Background UPL Limited (BSE:512070) agreed to acquire the remaining 51.6% stake in Advanta Limited (BSE:532840) on November 23,...

Crispin Francis

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