In today’s briefing:
- Campus Activewear IPO: Mysterious Return Ratios
- Life Insurance Corporation of India IPO – Regional Peer Comparison
- SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close
- Bajaj Finance Ltd – Operationally Strong; Web Platform Completes Omnichannel Strategy
- Nippon Life India Asset Management Ltd – Weakness in Yields Due to Competition and Adverse Mix
- Yields in Asia Are Far from the Peak
- Hindustan Unilever – Volumes Surprises; Expect Further Sequential Inflationary Pressure
- Hindustan Unilever – Home Care Saves the Day; Margin Pressure Continues
- Indian Hotels Company – RevPar Impacted Amid Omicron Wave
- Minda Industries – Outlook Intact; New Products to Drive Outperformance
Campus Activewear IPO: Mysterious Return Ratios
- Campus Activewear Ltd (1535013D IN) is about to go public soon.
- The RHP has portrayed Campus’s return ratios such as ROCE to be one of the highest in its peer group, inching past the likes of Bata India Ltd (BATA IN).
- However, upon further investigation of the financials, the return ratios seem to be mysterious, simply because of capital reserve arising from acquisition of promoter-companies, back when Ind AS was adopted.
Life Insurance Corporation of India IPO – Regional Peer Comparison
- Government of India (GoI) is looking to raise around US$2.7bn via selling a 3.5% stake in Life Insurance Corporation of India (LIC) in its upcoming India IPO.
- This is less than half of its initial plans in terms of fundraising target and comes at less than half of its initial valuation target.
- We have looked at various aspects of the deal in our earlier notes. In this note, we compare it to its international peers and talk about valuations.
SENSEX Index Rebalance Preview: Tata Motors Should Replace Dr. Reddy; Hindalco Is Close
- Today is the last day of the review period for the June review of the S&P BSE SENSEX Index (SENSEX INDEX). Changes become effective at the close on 17 June.
- We see Tata Motors Ltd (TTMT IN) and Tata Motors DVR (TTMT/A IN) replacing Dr. Reddy’s Laboratories (DRRD IN). Hindalco Industries (HNDL IN) is a close add on sector balance.
- The impact on DRRD IN will be higher than on TTMT IN, in terms of days of ADV to trade and days of delivery volume that needs to change hands.
Bajaj Finance Ltd – Operationally Strong; Web Platform Completes Omnichannel Strategy
- AUM growth likely to remain strong: Overall AUM increased by 29.1% YoY.
Customer acquisition will be supported by omnichannel strategy: Total customer franchise stood at 57.6mn, up 18% YoY.
- Margins lower due to drop in yields: NII growth was 25% YoY for 4QFY22 and 29% for FY22.
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Nippon Life India Asset Management Ltd – Weakness in Yields Due to Competition and Adverse Mix
- Market share up 22bps in FY22: Overall MF QAAUM increased by 23.9% YoY and 1% QoQ. Growth (YoY) in QAAUM was led by the equity segment on the back of buoyant capital markets over the last one year.
- Maintaining leadership in B-30: B-30 sourcing continues to be strong for NAM at 17.2% compared to 16.6% for the industry.
- New product launches; ramping up international business: The company has highlighted about a number of new product launches in the coming quarters, which include funds focused on international equities as well as domestic themes in the equity & debt segments.
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Yields in Asia Are Far from the Peak
- Rates in Asia are among the worst performers this year, but they remain expensive – relative to the US and to their own history – and should continue to underperform.
- Other reasons for rates in Asia to sell off include: a marked increase in inflation, low projected real rates, currencies turning volatile, and deteriorating debt profiles.
- I like paying rates in Asia by pairing them with receivers in countries in other regions. China is an exception in the region as it remains in an easing mode.
Hindustan Unilever – Volumes Surprises; Expect Further Sequential Inflationary Pressure
- 4QFY22 headline performance: HUVR’s standalone turnover (including other operating income – OOI) grew by 11% YoY to Rs134.6bn (vs our est. of Rs129.9bn).
- 4QFY22 segmental performance: Home Care surprised us, growing at 23.7% YoY; segment EBIT margin was down 140bps YoY at 19.8%. Beauty & Personal Care grew by 3.6% YoY; segment EBIT margin was down 130bps YoY at 26.2%.
- Operating margins in line: While gross margin was lower than our expectation at 49.5% (vs est. of 51%), down ~300bps YoY at 49.5%.
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Hindustan Unilever – Home Care Saves the Day; Margin Pressure Continues
- Beat on volume: Revenue grew 11% YoY (35% in Q4FY21 and 10% in Q3FY22), with home care/BPC/F&R growing 24/4/5% (11/2/11% three-year CAGR).
- In-line EBITDA margin: Gross margin contracted by 301bps YoY (-117bps in Q4FY21 and -186bps in Q3FY22) due to high commodity inflation.
- Call takeaways: (1) HUL continued to gain volume and value market share in more than 75% of its portfolio.
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Indian Hotels Company – RevPar Impacted Amid Omicron Wave
- We were surprised by the weak 4QFY22 results of Indian Hotels Company Ltd (IHCL) as it implied that the impact of Omicron was higher than what we had expected.
- However, as indicated by the management on the conference call and in our own interactions with experts, there has been a strong demand revival from Corporates and MICE segments since April’22.
- IHCL’s 4QFY22 revenue declined by 21.5% QoQ but increased by 41.8% YoY to Rs8,721mn.
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Minda Industries – Outlook Intact; New Products to Drive Outperformance
- Production ramp-up in progress on improving demand: The Pune switches plant caters to PV switches for OEMs such as Mahindra & Mahindra, Tata Motors, Volkswagen Group, etc.
- Tie-ups and inorganic initiatives: MNDA will continue to explore global tie-ups and acquisitions with an objective of improving time-to-market for new technology products relating to PACE.
- The introduction of safety regulations, such as BNVSA (Bharat New Vehicle Safety Assessment Program) and mandatory implementation of six airbags, as well as localization efforts through PLI/FAME2 schemes should drive sales for products such as airbags, EV parts and other electronic components.
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