Category

India

Brief India: RBI Confidential Reports Reveal a Gulf Between Axis Bank Annual Reports and Reality and more

By | Daily Briefs, India

In this briefing:

  1. RBI Confidential Reports Reveal a Gulf Between Axis Bank Annual Reports and Reality
  2. IndusInd Bank – Excessive Loan Growth, Especially To Property Developers
  3. Are Risky Assets Overvalued?
  4. Taking Off: Vietnamese Exports Are Rocking and Rolling
  5. The CPSE ETF Arb Is Back, but Tighter!

1. RBI Confidential Reports Reveal a Gulf Between Axis Bank Annual Reports and Reality

Axis%20rbi%20rar

Under the threat of being pulled up for contempt of court by the Supreme Court of India, the Reserve Bank of India (RBI) finally disclosed the confidential inspection reports, called Risk Assessment Reports, of some banks requested under the Right to Information Act (RTI), 2005. The reports, though dated (from FY2013 till FY2015), provide a valuable insight into the actual working of banks, at times in contrast to the management’s commentary to shareholders at that time. In the case of Axis Bank, the divergence of views of the management and the banking supervisor is evident. Many in the sell-side and business media tend to regard management’s commentary with reverence, and these supposed sentinels regurgitate the same to their clients and the public without the rigour of critical evaluation. The now public disclosures of the RARs of banks is a rude wake-up call to these watchpersons to thoroughly scrutinize and challenge audited accounts and management commentary. Media reports cite that Axis Bank may be considering a US$ 1.3 bn equity issue, and although a new CEO has taken charge, investors may well want to exercise caution regarding management commentary in light of the RARs that have been made public.

2. IndusInd Bank – Excessive Loan Growth, Especially To Property Developers

1

Of India’s listed banks, there is only one that has seen credit growth higher than Indusind Bank (IIB IN) over the past three years: Yes Bank Ltd (YES IN). This is not particularly good company. Adding enormous amounts of credit risk amidst a frail economic environment can lead to high NPL growth. IndusInd Bank expanded its loans 111% over the past three years, where Yes Bank is the only listed bank higher, at 146%. Perhaps it is no wonder that IndusInd bank saw its NPLs up 132% last year, higher than all listed banks, other than Yes Bank at 200%. There are also concerns with what appears to be excessive substandard loans and over zealous growth in real estate developer loans.

3. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

4. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

5. The CPSE ETF Arb Is Back, but Tighter!

Cpse1

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is a passive fund that was created to help the Government of India divest some of its stake in selected CPSEs through the ETF route. The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises. The number of names in the ETF reduces to 10 once Rural Electrification (RECL IN) is kicked out this Friday, July 12.

The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

We also see an additional trade in Indian Oil Corp (IOCL IN) based on the ETF offering.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: How US-China Trade War Impacts Monetary Policy in EM and more

By | Daily Briefs, India

In this briefing:

  1. How US-China Trade War Impacts Monetary Policy in EM
  2. Africa Airtel – IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out
  3. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank
  4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. How US-China Trade War Impacts Monetary Policy in EM

The breakdown in trade talks between the US and China has cast a pall over global markets and darkened the outlook for global growth. The markets are now expecting more rate cuts and other accommodative measures from some of the leading global central banks. Against this backdrop, EM regulators should be prepared to stimulate their economies with monetary easing. Moreover, with the renminbi FX rate creeping towards the psychological level of 7 vs. the USD, policymakers in other EM economies probably would not mind a bit of currency depreciation owing to lower interest rates. Or would they? We have looked at a number of recent monetary policy decisions in the EM space and have found diverging attitudes to policy easing.

2. Africa Airtel – IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out

Aa%20kpis

Africa Airtel has filed to list on the London Stock Exchange in an initial public offering to raise $750mn (£595mn) with proceeds to be used to pay down debt. The pricing range implies a market capitalization of $3.8-4.6bn (£3.0-3.6bn). 

Africa Airtel is the second-largest mobile operator in sub-Sahara Africa and has operations in 14 countries. Its largest market is Nigeria, which generates almost 40% of revenue and half of consolidated free cash flow.

Many of the typical emerging market themes are at play here with a scope for sustainable long-term growth driven by an expansion in mobile services offset by headwinds from uncertain economic growth, currency headwinds and capricious regulators.

As with the other African companies, the potential value creation from mobile money services is intriguing, particularly in Nigeria which is only now seeing these services launch. This represents what could be a c. $900mn opportunity for Nigerian mobile operators. For investors, Airtel Africa’s LSE listing could offer an easier way to play that than MTN Group Ltd (MTN SJ) (diluted by its wide footprint) or MTN Nigeria (local listing).

In this insight, we look at the market opportunity, review Africa Airtel, lay out what we know about the IPO details and discuss some the forecast and valuation assumptions. We also have included a list of questions for the management team when the roadshow kicks off.

3. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank

Axis%20gross%20npa%20fy18

On June 14, 2019, Tech Mahindra (TECHM IN)  joined the ranks of Tata Global Beverages, Ambuja Cements (ACEM IN)  and Dr. Reddy’S Laboratories (DRRD IN) in appointing Shikha Sharma as an independent director. Private equity firm KKR had also appointed Sharma as an adviser for their alternative investments. The irony of publicly-owned and listed blue-chip companies eagerly seeking Sharma for the prestigious position of independent director on their boards is that she had a poor track record and an unceremonious exit as chief executive officer (CEO) of Axis Bank Ltd (AXSB IN) . On her watch in Axis Bank, senior management personnel were rewarded for epic mismanagement, poor operational risk controls led to staff being arrested for money laundering, whistle-blowers were persecuted, and accounts for two consecutive years were fudged, which finally led to the banking regulator effectively booting her out as CEO. Any one of these issues should have disqualified her for any prominent position in publicly-owned and listed companies. Indeed, with such an embarrassing exit, the private corporate sector should have boycotted her, but instead she has been welcomed with open arms to join their boards of directors. Her appointments on prestigious boards lays bare how corporate governance is actually practised in India, where a candidate with such a dismal track record is eagerly sought after to grace boards.

4. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: IndusInd Bank – Excessive Loan Growth, Especially To Property Developers and more

By | Daily Briefs, India

In this briefing:

  1. IndusInd Bank – Excessive Loan Growth, Especially To Property Developers
  2. Are Risky Assets Overvalued?
  3. Taking Off: Vietnamese Exports Are Rocking and Rolling
  4. The CPSE ETF Arb Is Back, but Tighter!
  5. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO

1. IndusInd Bank – Excessive Loan Growth, Especially To Property Developers

1

Of India’s listed banks, there is only one that has seen credit growth higher than Indusind Bank (IIB IN) over the past three years: Yes Bank Ltd (YES IN). This is not particularly good company. Adding enormous amounts of credit risk amidst a frail economic environment can lead to high NPL growth. IndusInd Bank expanded its loans 111% over the past three years, where Yes Bank is the only listed bank higher, at 146%. Perhaps it is no wonder that IndusInd bank saw its NPLs up 132% last year, higher than all listed banks, other than Yes Bank at 200%. There are also concerns with what appears to be excessive substandard loans and over zealous growth in real estate developer loans.

2. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

3. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

4. The CPSE ETF Arb Is Back, but Tighter!

Cpse1

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is a passive fund that was created to help the Government of India divest some of its stake in selected CPSEs through the ETF route. The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises. The number of names in the ETF reduces to 10 once Rural Electrification (RECL IN) is kicked out this Friday, July 12.

The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

We also see an additional trade in Indian Oil Corp (IOCL IN) based on the ETF offering.

5. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO

Peers%20 %20ultratech%20costs%20per%20tonne

Emami Cement (ECL IN) (ECL) plans to raise around US$150m in its India IPO via mix of primary and secondary share issuance.

ECL only began to generate revenue from its cement operations in FY17, when its first cement plant became operational. Growth has since been aided by the commencement of operations at another plant and by the acquisition of a third plant. Nonetheless, the company remains loss-making as operations are still being ramped up.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: Africa Airtel – IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out and more

By | Daily Briefs, India

In this briefing:

  1. Africa Airtel – IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out
  2. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank
  3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. Africa Airtel – IPO Prospectus First Look: The Mobile Money Opportunity in Nigeria Stands Out

Aa%20kpis

Africa Airtel has filed to list on the London Stock Exchange in an initial public offering to raise $750mn (£595mn) with proceeds to be used to pay down debt. The pricing range implies a market capitalization of $3.8-4.6bn (£3.0-3.6bn). 

Africa Airtel is the second-largest mobile operator in sub-Sahara Africa and has operations in 14 countries. Its largest market is Nigeria, which generates almost 40% of revenue and half of consolidated free cash flow.

Many of the typical emerging market themes are at play here with a scope for sustainable long-term growth driven by an expansion in mobile services offset by headwinds from uncertain economic growth, currency headwinds and capricious regulators.

As with the other African companies, the potential value creation from mobile money services is intriguing, particularly in Nigeria which is only now seeing these services launch. This represents what could be a c. $900mn opportunity for Nigerian mobile operators. For investors, Airtel Africa’s LSE listing could offer an easier way to play that than MTN Group Ltd (MTN SJ) (diluted by its wide footprint) or MTN Nigeria (local listing).

In this insight, we look at the market opportunity, review Africa Airtel, lay out what we know about the IPO details and discuss some the forecast and valuation assumptions. We also have included a list of questions for the management team when the roadshow kicks off.

2. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank

Axis%20gross%20npa%20fy18

On June 14, 2019, Tech Mahindra (TECHM IN)  joined the ranks of Tata Global Beverages, Ambuja Cements (ACEM IN)  and Dr. Reddy’S Laboratories (DRRD IN) in appointing Shikha Sharma as an independent director. Private equity firm KKR had also appointed Sharma as an adviser for their alternative investments. The irony of publicly-owned and listed blue-chip companies eagerly seeking Sharma for the prestigious position of independent director on their boards is that she had a poor track record and an unceremonious exit as chief executive officer (CEO) of Axis Bank Ltd (AXSB IN) . On her watch in Axis Bank, senior management personnel were rewarded for epic mismanagement, poor operational risk controls led to staff being arrested for money laundering, whistle-blowers were persecuted, and accounts for two consecutive years were fudged, which finally led to the banking regulator effectively booting her out as CEO. Any one of these issues should have disqualified her for any prominent position in publicly-owned and listed companies. Indeed, with such an embarrassing exit, the private corporate sector should have boycotted her, but instead she has been welcomed with open arms to join their boards of directors. Her appointments on prestigious boards lays bare how corporate governance is actually practised in India, where a candidate with such a dismal track record is eagerly sought after to grace boards.

3. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: Are Risky Assets Overvalued? and more

By | Daily Briefs, India

In this briefing:

  1. Are Risky Assets Overvalued?
  2. Taking Off: Vietnamese Exports Are Rocking and Rolling
  3. The CPSE ETF Arb Is Back, but Tighter!
  4. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO
  5. The Next Liquidity Crisis

1. Are Risky Assets Overvalued?

Fredgraph

US stocks are significantly overvalued and we should expect lower than average returns going forward, unless there is going to be a substantial increase in earnings growth.

In the credit space, corporate bonds are expensive, and leveraged loans unattractive.

As risky assets become less attractive and expensive, that leaves investors mostly with Government Bonds.

2. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

3. The CPSE ETF Arb Is Back, but Tighter!

Cpse1

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is a passive fund that was created to help the Government of India divest some of its stake in selected CPSEs through the ETF route. The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises. The number of names in the ETF reduces to 10 once Rural Electrification (RECL IN) is kicked out this Friday, July 12.

The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

We also see an additional trade in Indian Oil Corp (IOCL IN) based on the ETF offering.

4. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO

Peers%20 %20ultratech%20costs%20per%20tonne

Emami Cement (ECL IN) (ECL) plans to raise around US$150m in its India IPO via mix of primary and secondary share issuance.

ECL only began to generate revenue from its cement operations in FY17, when its first cement plant became operational. Growth has since been aided by the commencement of operations at another plant and by the acquisition of a third plant. Nonetheless, the company remains loss-making as operations are still being ramped up.

5. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank and more

By | Daily Briefs, India

In this briefing:

  1. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank
  2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. Shikha Sharma Rewarded with Prominent Directorships for Mismanagement at Axis Bank

Axis%20gross%20npa%20fy18

On June 14, 2019, Tech Mahindra (TECHM IN)  joined the ranks of Tata Global Beverages, Ambuja Cements (ACEM IN)  and Dr. Reddy’S Laboratories (DRRD IN) in appointing Shikha Sharma as an independent director. Private equity firm KKR had also appointed Sharma as an adviser for their alternative investments. The irony of publicly-owned and listed blue-chip companies eagerly seeking Sharma for the prestigious position of independent director on their boards is that she had a poor track record and an unceremonious exit as chief executive officer (CEO) of Axis Bank Ltd (AXSB IN) . On her watch in Axis Bank, senior management personnel were rewarded for epic mismanagement, poor operational risk controls led to staff being arrested for money laundering, whistle-blowers were persecuted, and accounts for two consecutive years were fudged, which finally led to the banking regulator effectively booting her out as CEO. Any one of these issues should have disqualified her for any prominent position in publicly-owned and listed companies. Indeed, with such an embarrassing exit, the private corporate sector should have boycotted her, but instead she has been welcomed with open arms to join their boards of directors. Her appointments on prestigious boards lays bare how corporate governance is actually practised in India, where a candidate with such a dismal track record is eagerly sought after to grace boards.

2. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: Taking Off: Vietnamese Exports Are Rocking and Rolling and more

By | Daily Briefs, India

In this briefing:

  1. Taking Off: Vietnamese Exports Are Rocking and Rolling
  2. The CPSE ETF Arb Is Back, but Tighter!
  3. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO
  4. The Next Liquidity Crisis
  5. Trade War Takes Its Toll

1. Taking Off: Vietnamese Exports Are Rocking and Rolling

Asia%20exports%201

Whisper it quietly but not all Asian exporters are struggling. In the first six months of 2019 the dollar value of exports from Korea dropped 8.5% YoY. Taiwanese exports were down 3.6% YoY . Meanwhile, Chinese exports, the country at the heart of the trade war, were down just 0.1% YoY.  

2. The CPSE ETF Arb Is Back, but Tighter!

Cpse2

The Central Public Sector Enterprises Exchange Traded Fund (CPSE ETF) is a passive fund that was created to help the Government of India divest some of its stake in selected CPSEs through the ETF route. The ETF is based on the Nifty CPSE index and currently includes 11 listed Central Public Sector Enterprises. The number of names in the ETF reduces to 10 once Rural Electrification (RECL IN) is kicked out this Friday, July 12.

The sixth tranche of the ETF is expected to open on July 18 to anchor investors and on July 19 to non-anchor investors. The new units are expected to start trading on July 29. The discount on the ETF will be 3%, opening up arbitrage opportunities to investors.

We also see an additional trade in Indian Oil Corp (IOCL IN) based on the ETF offering.

3. Emami Cement Pre-IPO – Still in Ramp Up Phase but Emami Shares Pledge Might Lead to an Early IPO

Peers%20 %20ultratech%20costs%20per%20tonne

Emami Cement (ECL IN) (ECL) plans to raise around US$150m in its India IPO via mix of primary and secondary share issuance.

ECL only began to generate revenue from its cement operations in FY17, when its first cement plant became operational. Growth has since been aided by the commencement of operations at another plant and by the acquisition of a third plant. Nonetheless, the company remains loss-making as operations are still being ramped up.

4. The Next Liquidity Crisis

Fredgraph

Liquidity events involve a shortage of market liquidity, funding liquidity or both.

The LF Woodford Equity Income fund collapse in June is a good example of both above.

Systemic liquidity crisis affect all market participants, and they are generally preceded by a flat or inverted yield curve, which reflects a shortage of credit in the system. 

After that, we are just some large event short of a full-fledged liquidity crisis.

5. Trade War Takes Its Toll

Capture%201

The strength of the dollar and the US-China trade war have taken their toll on the world economy The erosion in global US dollar purchasing power is translating in weaker demand for Asian exports. The easing of US-China trade tensions following the G20 meeting is welcome. However, of equal importance is where the US dollar heads from here. The biggest risk here is that the ECB and the BoJ expand extraordinary monetary policy measures, and in doing so spark another round of competitive devaluation by non-US dollar areas and a further erosion in global US dollar purchasing power

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans and more

By | Daily Briefs, India

In this briefing:

  1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans and more

By | Daily Briefs, India

In this briefing:

  1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  2. India Auto

1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

2. India Auto

Water%20status

In this Insight, we bring you takeaways from our visits to Tractor dealers in Northern India (Jodhpur in Rajasthan) and Western India (Vadodara & Dahod in Gujarat). The visits included dealers of Mahindra & Mahindra (MM IN) , Escorts Ltd (ESC IN) , TAFE (which has a partnership with Agco Corp (AGCO US) , John Deere (part of the Deere & Co (DE US) ), Local village administrations (Panchayats) and some farmers. The purpose of the visits was to understand the current demand environment and evaluate the possibility of a turnaround in the sector.

Our visits seem to indicate the current slow down could be temporary and is nowhere a structural problem for the Industry. MSP hikes and water reservoir levels continue to be key determinants of demand. There are initial signs of a turn around in sentiment on the ground, with inventory slowly moving post elections. Water reservoir levels in August should help decide the trend for the current financial year. M&M trading at 13x (Consensus) forward, and Escorts at 11x (Consensus) forward could be attractive at current levels.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.



Brief India: This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans and more

By | Daily Briefs, India

In this briefing:

  1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans
  2. India Auto
  3. Fishing in Muddy Waters: Radico Khaitan Hits a Low as India Spirits Stumbles. Look for Value

1. This Week in Blockchain & Cryptos: Visa, Ubisoft, GM, Target, FB & Apple Reveal Blockchain Plans

N transactions

2. India Auto

Water%20status

In this Insight, we bring you takeaways from our visits to Tractor dealers in Northern India (Jodhpur in Rajasthan) and Western India (Vadodara & Dahod in Gujarat). The visits included dealers of Mahindra & Mahindra (MM IN) , Escorts Ltd (ESC IN) , TAFE (which has a partnership with Agco Corp (AGCO US) , John Deere (part of the Deere & Co (DE US) ), Local village administrations (Panchayats) and some farmers. The purpose of the visits was to understand the current demand environment and evaluate the possibility of a turnaround in the sector.

Our visits seem to indicate the current slow down could be temporary and is nowhere a structural problem for the Industry. MSP hikes and water reservoir levels continue to be key determinants of demand. There are initial signs of a turn around in sentiment on the ground, with inventory slowly moving post elections. Water reservoir levels in August should help decide the trend for the current financial year. M&M trading at 13x (Consensus) forward, and Escorts at 11x (Consensus) forward could be attractive at current levels.

3. Fishing in Muddy Waters: Radico Khaitan Hits a Low as India Spirits Stumbles. Look for Value

Popular%20brand%20owner

According to the global Industry data published this week Radico Khaitan (RDCK IN), an India based popular alcoholic beverages maker, owns 2 of the top 12 fastest growing spirits brands globally in 2018. However, the stock is down 30% YTD trading close to its 52-week low as the spectre of regional alcohol ban rears its head in two states in India, including Andhra Pradesh, one of the bigger markets for alcoholic beverages in the country. Radico Khaitan had reported strong growth in sales, margins and profits for the quarter and year ended March 31st 2019. The proposed liquor ban, when implemented, will hurt Radico Khaitan’s revenue growth, operating margins and net profit (expect full year impact in FY2021). However, based on our earnings/valuations analysis, the YTD stock slide seems to fully factor in the potential earnings downside. Any further stock decline could be opportunities for investors looking for favourable entry points. Regulatory issues – taxes/regional bans – will continue to be the key sector risks.

In the note below, we look at (1) likely earnings scenario for Radico Khaitan (RDCK IN) after factoring in possible volume/revenue impact from expected state alcohol ban and (2) implied valuations at the revised earnings levels and potential stock upside (3) Radico Khaitan’s earnings and operational track record. We include few data points on India spirits market fundamentals and also present the list of top spirits brands for 2018, ranked by absolute volume growth.

Get Straight to the Source on Smartkarma

Smartkarma supports the world’s leading investors with high-quality, timely, and actionable Insights. Subscribe now for unlimited access, or request a demo below.