India

• As expected, Apollo Hospitals Enterprise (APHS IN) will replace Indian Oil Corp (IOCL IN) in the NIFTY Index (NIFTY INDEX) after the close of trading on 30 March.
• The index methodology has been changed to make new listings eligible for index inclusion if they complete one month by the review cutoff date, down from three months earlier.
• Estimated one-way turnover is 0.63% and will result in a one-way trade of around INR 14bn. Passive trackers will have a lot to trade on the stocks.

• Byju’s (Byju) is the largest edtech company in India. It offers online and offline courses.
• As per media reports, its latest funding round on Nov 21 was done at a valuation of US$21bn.
• Byju is rumored to be in talks with Churchill Capital VII SPAC to go public in the US.

• Swiggy is a leading food delivery platform in India. It along with its listed rival, Zomato, control nearly the entire food delivery market in India.
• Swiggy last raised another $700m investment led by Invesco US with a valuation of $10.7bn in Jan 2022. 
• Recent media reports have indicated that the company could look to raise around US$800m via an IPO in early 2023

• Inclusions are FSN E-Commerce Ventures (NYKAA), Mindtree Ltd (MTCL), Paytm (PAYTM), SRF Ltd (SRF) and Zomato (ZOMATO), while Indian Oil Corp (IOCL IN) moves lower from the NIFTY Index.
• Deletions are Aurobindo Pharma (ARBP), Hindustan Petroleum (HPCL), Indraprastha Gas (IGL), Jindal Steel & Power (JSP) and Yes Bank (YES), while Apollo Hospitals (APHS) moves up to the NIFTY Index.
• Estimated one-way turnover on the NIFTY NEXT50 Index is 10.24%, the one-way trade is INR 8,486bn and there is over 1 day of ADV to trade on a few stocks.

• Bank Of Baroda (BOB IN) will replace RBL Bank Ltd (RBK IN) in the Nifty Bank Index (NSEBANK INDEX) at the close of trading on 30 March.
• Index trackers will need to buy over 2 days of ADV on BOB while selling over 2 days of ADV on RBL. There will be capping changes too.
• Bank Of Baroda (BOB IN) trades cheaper than its peers on forward PE and price to book and could outperform over the near-term.

• Polycab India is a leading manufacturer of cables & wires with a diverse product range catering to industrial and household segments
• In 2009 the company diversified into EPC business to strategically cater to the Cables & Wires requirement of large infrastructure EPC projects
• We recommend a Buy the stock for a target price of Rs 2,640 implying an upside of 11% from CMP

• It also announced major Capex in the east, which along with its north expansion, will increase its capacity to 40mn MT over the next 3-4 years and firm up the volume growth visibility.
• Ambuja Cement: We maintain our ADD rating on Ambuja Cements (ACEM), with a lower TP of INR 380/share (SOTP-based).
• ACEM is working on various cost levers (reduce clinker factor, increase TSR factor and green power) to boost its margin.

• We initiate coverage with a BUY rating and value the company at 5.5x FY24 EBITDA and 0.5x book value of CWIP to arrive at the target price of Rs 150/share, implying an upside potential of 28% from the current levels.
• Nalco is the only pure equity play on Aluminium and Alumina commodities in India
• Aluminium is expected to remain in a deficit a second consecutive time in CY22 supporting higher prices

• Automotive Axles (AAL), established in 1981, is largest independent manufacturer of rear axle drive assemblies in India (primarily for CVs, M&HCV)
• As of FY20, rear drive axles comprise ~60% of its topline with brakes share at ~20% and other parts comprising the rest
• Target Price and Valuation: We introduce FY24E. We now value the company at a revised target price of Rs 1730 i.e. 20x P/E on FY24E EPS (earlier TP Rs 1260).

• One 97 Communications’ (OCL or Paytm used interchangeably in the report) two-sided digital ecosystem of 64.4mn average monthly transacting users (MTUs) (as at Dec’21) from >350mn consumer base and over 24.9mn merchants is core to its unit economics.
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• We analyze Q3 FY22 Earnings for Bajaj Electricals (BJE IN) , Crompton Greaves Consumer Electricals (CROMPTON IN) , Havells India (HAVL IN) and Stove Kraft (0490943D IN) 
• Stress in rural is hurting BJE, CROMPTON is riding high on new products, Upcoming AC season is the key for HAVL. For Stove Kraft growth is falling off a cliff. 
• BJE and HAVL would be best placed to explore a potentially long and short respectively. 

• Newspaper article pertaining to loan by RBL Bank to Sintex-BAPL highlights either `evergreening’ or extreme incompetence by the bank
• Rajeev Ahuja, present Acting CEO served on the Credit and Risk Committees which approved the Sintex-BAPL loan
• Not desirable that the RBL Bank board selects Rajeev Ahuja as the permanent CEO of the bank

• 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 company plans to raise US$650m through issuing new shares while existing shareholders will offer US$3120m worth of shares at the IPO.
• The company plans to use proceeds from the IPO for funding growth (both organic as well as inorganic growth through acquisitions and strategic initiatives) and for other general corporate purposes.

• The acquisition values Butterfly at MCap/sales of 2.3x on annualized FY22E sales (TTK FY22E Mcap/Sales: 4.2x).
• The acquisition will help Crompton to have stronger connect in south India, expand distribution network, will offer better right-to-win in kitchen appliances and reduce over dependence on Crompton brand.
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• V-Guard reported earnings CAGR of 8.6% over FY17-21 vs Havells (15.4%), Crompton (21.5%) and Polycab (39.2%).
• We model V-Guard’s earnings growth to be lower than peers ahead too due to negligible growth in stabilizer business with improving quality and quantity of power supply pan India, While V-Guard has forayed into high-growth consumer durables business, it generates lowest margin among all three segments, Non-South region also offers higher growth but lower margins and V-Guard’s right-to-win in kitchen appliances also appears low.

• Excluding one-off gains, Edelweiss reported weak Q3FY22 earnings, led by the credit business that has been adversely impacted by operational de-leverage from declining AUM.
• However, barring the credit business, Edelweiss’ rest of the businesses continue to post strong growth and profitability. 
• There are material headwinds in the credit business currently; however, these are poised to recede as the business scales up over the next 2Y.

• Despite the elevated valuation, KPIT remains a high conviction idea for us as we see potential for 21%+ earnings CAGR over the next decade. 
• Given the strong growth visibility, KPIT can sustain its current elevated valuation of 12x P/B and thus an investment in it can offer 21%+ CAGR over the next decade.
• Even if its exit valuations were to decline by 1/3rd at the end of the decade, it can still offer 16%+ CAGR.

• DealShare, an India-based social commerce firm, has raised US$45 million as part of its series E round from the Abu Dhabi Investment Authority.
• This is in addition to the US$165 million it raised for the same round last month, when it secured a coveted spot in the unicorn club after its valuation reached US$1.6 billion
• DealShare founder and CEO Vineet Rao told Tech in Asia that the company is preparing to expand its footprint overseas

• LICHF reported strong Q3FY22 earnings on the back of improving asset quality leading to limited provisioning and limited interest reversal impact from OTR.
• Disbursement in Q3FY22 was 135% of pre-COVID level i.e. vs Q3FY20. This growth momentum has continued from Q2FY22 when also it was 132% that in Q2FY20.
• Given our FY23 earnings (PAT) projection of INR 3,600cr+, LICHF with current market cap of around INR 20,000cr is available at an attractive valuation of <6x P/E  on FY23E PAT.

• As expected, increased opex (up 14% YoY) dented profitability.
• EBITDA fell 26% YoY, while adjusted profit (adjusted for an additional charge on restructuring cost) fell 40% YoY.
• We reduce our CY22E/CY23E EBITDA estimate by 15%/5%, considering a steep increase in energy costs.

• ACL reported Volume/Revenue growth of 2%/6% YoY however EBITDA/APAT saw de-growth of 26%/49% respectively on a YoY basis in Q4CY21
• The company’s operating performance was impacted during the quarter owing to higher costs led by increased power/fuel costs
• We value ACL at 13x CY23E EV/EBITDA (including Ambuja stake in ACC with no holding company discount) to arrive at TP of Rs 365/share

• Potential for sustained double-digit topline growth; attractive at current levels We reiterate our BUY rating on DABUR with a TP of INR705, implying 29% potential upside.
• Our investment thesis on DABUR is premised on the following key attributes: highest topline growth visibility among peers, consistent market share gains across categories, and potential to record even faster earnings growth post-completion of its ongoing investment phase.
• The key catalysts that underpin a sustained double-digit topline growth for DABUR include: a) an impressive performance in the Ayurvedic healthcare space,.

• HCG continues to improve its profitability led by 1) Scaling up of new centers and 2) Improving operational efficiency in its existing centers. 
• HCG reported revenue growth of 1.7% QoQ in Q3FY22, despite Q3 being a seasonally weak quarter and despite fell off of COVID related revenues.
• As per our projections, HCG has potential to generate annual earnings of 170cr+ by FY25, suggesting an IRR potential of 23%+ over the next 3Y.  

• Hikal is predominantly a B2B player that provides intermediates and active ingredients to global pharmaceutical, animal health, crop protection and specialty chemical companies.
• Maintain BUY on account of consistency in offtake for crop protection CDMO, expected recovery in Pharma, Visibility capex.
• That said we continue to monitor developments on recent critical issues- 1) Surat (Gujrat) GIDC incident and 2) MPCB notice for Taloja.

• Government of India (GoI) is looking to raise around US$5-10bn via selling a 5% 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 talk about the positive aspects of the deal.

• Natco has, over the years, developed a knack for manufacturing complex generic products with few competitors, especially for the US market
• India formulations mainly comprise oncology products (+33 launches).
• FY21 revenue break-up – Domestic Business: 19%, International Business: 50% (mainly from the US), APIs: 24%

• Ambuja Cement (Holcim group company) is a large cement player with capacity of 31.5 MT
• Upcoming new capacity in Punjab (1.5 MT) and eastern region (7.0 MT including clinker 3.2 MT) will enhance its cement capacity by ~8.5 MT to 40.0 MT
• In the phase II, the company plans to reach over ~50 MT capacity through capacity expansion in western region along with significant de-bottlenecking

• Hindustan Unilever Limited (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
• Powerful brands and an envious distribution network are its primary strength

• Ipca is a fully integrated pharma company manufacturing over 350 formulations and 80 APIs with exports contributing 50% of revenues in FY21
• Major therapeutic segments include pain management, cardiovascular and anti-diabetics, anti-infectives, anti-malarials, which together account for 75% of revenues
• Target Price and Valuation: Valued at Rs 1175 i.e. 24x P/E on FY24E EPS of Rs 48.9

• Government of India (GoI) is looking to raise around US$5-10bn via selling a 5% 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 will talk about the not so positive aspects of the deal.

• Mahindra Logistics is an end-to-end 3PL logistics solution provider, from performing milk run to in-factory logistics, warehousing to first mile and last mile logistics
• Serves over 400 customers via its two business segment: supply chain management [(SCM), 96% of revenues] and enterprise mobility
• Revenues from Mahindra comprise 52% of SCM revenues (FY21) while the rest is contributed by non-Mahindra

• Nestle India (NEST) reported Revenues for Q4CY21 in-line with our estimates;EBITDA & PAT were however a miss
• Clear signs of pressure have been noted on Gross Margins owing to inflationary RM
• We Maintain HOLD with unchanged TP of Rs18,600 as at CMP the risk-reward is unfavourable even as the long term growth trajectory appears fair (20+ projects in pipeline).

• Nestlé India (NIL) is the largest food company in India with over Rs 14000 crore of sales
• It is broadly present in infant & baby food products, noodles, chocolates & beverage categories.
• In the last five years, the company has forayed into newer categories and launched more than 100 new products.

• One 97 Communications’ (OCL or Paytm used interchangeably in the report) two-sided digital ecosystem of 64.4mn average monthly transacting users (MTUs) (as at Dec’21) from >350mn consumer base and over 24.9mn merchants is core to its unit economics.
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• Life Insurance Corp of India (1248Z IN) is the largest life insurer in India. LIC is looking to raise about $8 billion. It opens for anchor investors on 11 March. 
• LIC has leveraged its dominance to deliver healthy premium growth and high persistency ratio. However, the VNB margin and operational efficiency metrics are mid-tier compared to peers. 
• On balance, the fundamentals look sound. The IPO is worth a look for investors willing to brave the volatile IPO market conditions. 

• We speak to a B2B e-commerce consultant who onboards companies looking to sell on platforms like Amazon, Flipkart, Meesho & Shopee. 
• Shopee’s approach to a deal based app is seeing encouraging responses both from customers and sellers. 
• Indian E-Com has its own nuances, and there is a possibility that growth projections companies operating in the Industry may be overstated. 

• PNC Infratech: PNC Infratech (PNC) reported a muted quarter (owing to delay in execution of Jal Jeevan Mission (JJM) projects) with revenue/EBITDA/APAT of INR 15.2/2/1.1bn missing our estimates by 8/10/20%.
• Whilst FYTD22 order inflow was tepid at INR 27bn, PNC maintained its INR 80bn order inflow target for FY22. In the water segment (INR 41bn OB), PNC has INR 32bn OB under JJM (ex of INR 23.4bn of new JJM projects won Jan-22).
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• PNC Infratech: PNC Infratech (PNC) reported a muted quarter (owing to delay in execution of Jal Jeevan Mission (JJM) projects) with revenue/EBITDA/APAT of INR 15.2/2/1.1bn missing our estimates by 8/10/20%.
• Whilst FYTD22 order inflow was tepid at INR 27bn, PNC maintained its INR 80bn order inflow target for FY22. In the water segment (INR 41bn OB), PNC has INR 32bn OB under JJM (ex of INR 23.4bn of new JJM projects won Jan-22).
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• Ahluwalia Contracts: Ahluwalia Contracts (AHLU) reported revenue/EBITDA/APAT (miss)/beat of (4)/(1)/7%.
• AHLU is confident of crossing INR 25bn+ in revenue for FY22, backed by order backlog (OB) of INR 67bn and an L1 of INR 7bn.
• 15% of the OB is fixed price contracts and exposed to price volatility.

• Ahluwalia Contracts: Ahluwalia Contracts (AHLU) reported revenue/EBITDA/APAT (miss)/beat of (4)/(1)/7%.
• AHLU is confident of crossing INR 25bn+ in revenue for FY22, backed by order backlog (OB) of INR 67bn and an L1 of INR 7bn.
• 15% of the OB is fixed price contracts and exposed to price volatility.

• Given the impending appointment of a new MD & CEO from 1 March, we await a roadmap from the new management.
• We hack our FY22/FY23/FY24 earnings estimates by 24%/15%/14% due to elevated credit costs and muted loan growth and maintain ADD with a revised target price of INR328 (0.9x Sep-23 ABVPS).
• Repco Home Finance: REPCO’s Q3 earnings disappointed our estimates due to elevated provisioning and subdued loan growth (-2.3% YoY).

• Input cost inflation continues to weigh on margins.

• Latent View Analytics is the leading pure play data analytics services companies in India.
• It provides expertise on the entire value chain of data analytics from data and analytics consulting to business analytics and insights
• It engages to provide services to blue chip companies in technology, BFSI, CPG & retail, industrials and other industries

• Oil & Natural Gas Corporation (ONGC) is primarily engaged in exploration, development and production of crude oil and natural gas.
• ONGC’s crude oil production has been in the range of 54-63% of total domestic oil production in FY11-21
• Target Price and Valuation: We value ONGC at Rs 185 i.e. Rs ~164 for core oil & gas business and Rs ~21 for subsidiaries and other investments

• TCS Buyback: An Opportunity For Retail Investors.

The Asia HY Trade Book for the month of February includes a summary of our recommendations, as well as our high-conviction ideas. The report also features relative-value charts and lists of the bonds in the Lucror Asia HY index.

• KNR Constructions is one of the leading companies in the roads and highways sector having executed 6,000+ lane km of projects across 12 states in India
• The company also has an established presence in irrigation and urban water infrastructure management.
• Target Price and Valuation: We value KNR at Rs 360/share

• Gulf Oil Lubricants is one of the leading private companies in the domestic lubricants business
• The company reported volume growth at ~9% CAGR in FY16-21
• Target Price and Valuation: We roll over valuations to FY24E and value Gulf Oil Lubricants at Rs 565/ share i.e. 10x FY24E EPS

• JB Chemicals & Pharmaceuticals’ (JBCPL) Q3FY22 performance was better than our estimates on operational fronts.
• Excluding revenue deferred to Q3FY21 from Q2FY21, consolidated revenue grew 23% YoY to Rs6bn (I-Sec est: 5.8bn).
• EBITDA margin stood at 21.3%, higher than our estimate of 19.8%.

• Delhivery is looking to raise US$1bn 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.
• In this note, we talk about the positive aspects of the deal.

• Delhivery is looking to raise US$1bn 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.
• In this note, we talk about the not so positive aspects of the deal.

• The performance miss in EIM was led by lower realization and launch/event related marketing spends.
• With supply chain issues showing some signs of improvement, the management expects volume performance to be better.

• Elgi Equipments (Elgi) manufactures wide range of air compressors (~90% of revenue) and automotive equipment (~10%).
• Elgi is the second largest player in the Indian air compressor market (~22% market share) and among the top eight players globally
• Target Price and Valuation: We value Elgi at Rs 410 i.e. 50x P/E on FY24E EPS

• ENGR’s 3QFY22 revenue was 25% below our estimate, with the miss led by a 25%/26% miss in the Consultancy/Turnkey segment.
• Operating profit stood at INR625m, 48% below our estimate.
• This was on account of an unfavorable revenue mix, with 47% revenue from Turnkey projects.

• Greenply Industries (GIL) is one the leading players in the plywood business in India
• It has a distribution network of 2,300+dealers/authorised stockists pan-India
• It is foraying into the MDF boards business with greenfield manufacturing set-up at Vadodara, Gujarat of 800 CBM/day (capex of ~Rs 555 crore)

• Lumax Industries (Lumax Inds) reported a weak set of results in Q3FY22 which stood below our estimates
• It reported revenue for the quarter at Rs 435 Cr (our estimate – Rs 467 Cr), registering a de-growth of 4% QoQ
• We retain our BUY rating on the stock with a revised target price of Rs 1,350/share (earlier Rs 1,600/share), implying an upside of 26% from the CMP.

• In the last two quarters, MGFL traded off margin/spreads for Gold loan growth.
• This new business strategy helped it cover a lot of lost ground in terms of market share, with a cumulative Gold loan growth of ~24% over 2Q and 3QFY22. This new strategy also meant: elevated advertising/promotion costs and incentives for employees translating in higher operating expenses, and compression in spreads to ~11.5% v/s 14.5-15% under its earlier high yielding business model.
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• In-line performance with robust pickup in non-covid business.

• For MUTH, 3QFY22 was characterized by: interest cost savings, which led to an in line PPOP/PAT performance; elevated Gold loan auctions of INR28b, which resulted in gold AUM remaining largely flat QoQ, stable spreads of 13%, despite an aggressive competitive landscape; GS3 increasing by ~200bp QoQ to 3.8%, suggesting that auctions will remain elevated in 4QFY22 as well to pare down GS3 to the management’s guided level of 2-3%.
• We estimate MUTH to deliver a gold loan growth of ~10% in FY22E.
• However, this incremental growth in 4Q will come at the cost of a minor compression in spreads/margin,.

• Indian IT giant Tata Consultancy Svcs (TCS IN) released their public announcement document for their latest buyback after market close on 14th February 2022. 
• The company is planning to spend up to INR180bn (~US$2.4bn) which is one of the largest amounts spent in Tender Offer-style Buybacks in India.
• Below is a closer look at the details of this Buyback.

• Emcure Pharmaceuticals Limited is looking to raise around US$500m in its upcoming India IPO.
• EP is an Indian Pharmaceutical company engaged in the developing, manufacturing and globally marketing a broad range of pharmaceutical products across several major therapeutic areas. 
• In this note, we talk about the various aspects of the deal.

• Vedant Fashions raised around US$420m in its India IPO. While insti demand was decent, retail investor gave it a miss. 
• It is a fashionwear company targeting the Indian wedding and celebration wear segment. According to CRISIL, it was the largest company in India in the men’s Indian wedding wear segment.
• In this note, we will talk about the trading updates and other deal dynamics.

• Missed estimates, margin contraction with lower realisations.

• V-MART Retail: V-MART reported 47% growth YoY.
• Organic business (ex-Unlimited acquisition) recovered fully from the pandemic blues (INR5.74bn).
• The recent stock price correction allows us to upgrade our rating on V-MART to ADD (earlier REDUCE), as risk-reward becomes more palatable.

• Signs of improvement as retail rebounds.

• Apollo is one of the leading integrated healthcare service provider with avenues like hospitals, pharmacies, primary care & diagnostic clinics
• Apollo reported in line results but it was skewed with hospitals lagging our expectations while pharmacies were a beat on our estimates
• Target Price and Valuation: We value Apollo at Rs 5480 based on SOTP valuation.

• Powergrid is India’s largest power transmission utility with transmission lines of 172190 ckt km and 46900 MVA of transformation capacity
• Powergrid transmits about 50% of the total power generated in India on its transmission network
• Target Price and Valuation: We value the stock at Rs 210 at 1.9x FY24E book value

• H.G. Infra Engineering Limited (HGIEL) – incorporated in 2003, is a Jaipur (Rajasthan) based infrastructure company 
• Over the last 18 years, the company has successfully transformed itself into a primary road developer from a sub-contractor
• We recommend a Buy the stock for a target price of Rs 680 implying an upside of 11% from CMP.

• The company recognised gain of Rs 50.3 crore post transfer of CGD business to its subsidiary, Gujarat Gas.
• We maintain our BUY rating on the stock Target Price and Valuation: We value GSPL’s transmission business at ~Rs 185/share.
• At the CMP, GSPL’s investments in its listed CGD entity Gujarat Gas (54.1% stake) and unlisted Sabarmati Gas, is trading at ~74% discount