In today’s briefing:
- Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications
- India: Preview of Stock Reclassification for Active Funds
- ECM Weekly (9th May 22) – LIC, Campus, Rainbow, Delhivery, Shieldus, Yunkang, PAG, Keep, Air NZ
- Dabur – Weak HPC Show; Expect Resilient Margin in FY23
- Kotak Mahindra Bank – Accelerating on Growth Engines; Speed Bumps Ahead
- Marico Ltd. – Expect near Term Demand to Be Uncertain and Margins to Be Subdued
- Tata Consumer Products Ltd. – Operating Performance In-Line
- Morning Views Asia: Adani Green Energy, Azure Power Global Ltd, Central China Securities
- TVS Motor Company – Margin Beat; Supportive Outlook; EV Strategy Gathers Pace
- HSIE Results Daily: Cholamandalam Investment and Finance Company
Mindtree & L&T Infotech’s US$18bn Merger: Details and Index Implications
- The Larsen & Toubro Infotech (LTI IN) and Mindtree Ltd (MTCL IN) merger will create a company with revenue of US$3.5bn and a market cap of US$18bn.
- The merger ratio is 73 shares of Larsen & Toubro Infotech for 100 shares of Mindtree. The merger is expected to complete in 9-12 months.
- There are likely to be some inflows from MSCI and FTSE trackers but the big kicker will be inclusion in the NIFTY Index – but a (smallish) rally is needed.
India: Preview of Stock Reclassification for Active Funds
- Two-Thirds of the way through the review period, we see 7 stocks migrating from MidCap to LargeCap, 8 stocks from LargeCap to MidCap, and 1 new listing added to LargeCap.
- Post listing, Life Insurance Corp of India (LIC) (1248Z IN) should be added to the LargeCap segment while Delhivery (1058656D IN) should be added to the MidCap segment.
- On average, stocks expected to migrate from Mid Cap to Large Cap have outperformed. Stocks expected to migrate from the Large Cap to Mid Cap segment have performed the worst.
ECM Weekly (9th May 22) – LIC, Campus, Rainbow, Delhivery, Shieldus, Yunkang, PAG, Keep, Air NZ
- Aequitas Research puts out a weekly update on the deals that were covered by the team recently along with updates for upcoming IPOs.
- On the IPOs front, LIC’s anchor book wasn’t great while Delhivery finally launched its IPO and Hong Kong market saw its first launch in a while.
- Placements remained few and far between with only Air New Zealand (AIR NZ) launching its shortfall bookbuild.
Dabur – Weak HPC Show; Expect Resilient Margin in FY23
- Revenue miss, weak HPC: Net revenue grew by 8% YoY (+25% in Q4FY21 and +8% in Q3FY22), a miss on our expectation of 10.6% growth.
- A miss in margin; expect resilient margin in FY23: GM contracted by 130bps YoY (-35bps in Q4FY21 and -205bps in Q3FY22) to 47.4%.
- mployee/other expenses grew by 4/14% YoY (17/17% in Q4FY21). A&P spends were down 3% YoY.
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Kotak Mahindra Bank – Accelerating on Growth Engines; Speed Bumps Ahead
- Multiple tailwinds drive a strong quarter: KMB reported a strong set of earnings (NII growth of 18% YoY, RoA of 2.7%) on the back of reflating NIM (4.8% – best-in-class), strong loan growth, and negative credit costs (-0.5%) as asset quality continues to remain impressive (slippages at 1.2%; SMA II at 0.1%).
- Growth vs. margins – watch out for trade-offs ahead: With its formidable leadership in cost of funds (3.2%), KMB, from here on, is fully geared to accelerate growth in its secured and unsecured book further, supporting its large floating rate book (~68%) in a rising interest rate scenario.
- Subsidiary businesses continue to scale; maintain ADD: KMB’s subsidiaries continue to deliver a strong performance, contributing ~30% of the consolidated PAT on a steady basis.
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Marico Ltd. – Expect near Term Demand to Be Uncertain and Margins to Be Subdued
- 4QFY22 headline performance: MRCO’s 4QFY22 consolidated topline grew by 7.4% YoY to Rs21.6bn (our est. of Rs21.5bn).
- 4QFY22 margin performance: Gross margin improved to 44.5% (+30bps YoY and +80bps QoQ; vs our est. of 43.8%).
- FY22 performance: Revenue, EBITDA and APAT grew by 18.2%, 6.4% and 5.9%, respectively.
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Tata Consumer Products Ltd. – Operating Performance In-Line
- Headline performance: TCPL’s 4QFY22 consolidated revenue grew by 4.5% YoY to Rs31.8bn (vs our est. of Rs31.3bn).
- Business performance: India Branded business was up 6% YoY in 4QFY22.
- Consolidated 4QFY22 margin: Gross margin was up 540bps YoY at 44.6% (+90bps QoQ; vs est. of 43.7%)
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Morning Views Asia: Adani Green Energy, Azure Power Global Ltd, Central China Securities
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.
TVS Motor Company – Margin Beat; Supportive Outlook; EV Strategy Gathers Pace
- Srong results; margin beat driven by tight cost controls: TVS reported revenue of Rs55bn, which was below our estimate (-3%), due to flattish ASP QoQ.
- Encouraging outlook on demand and profitability: TVS expects the demand momentum to hold reasonably well in the export markets.
- Expect premium valuation to sustain on continued volume and earnings outperformance
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HSIE Results Daily: Cholamandalam Investment and Finance Company
- Steady P&L outcomes, increasing opex intensity: Chola reported stable NII growth (+10% YoY), in line with AUM growth, as NIMs remained steady at 8.1%.
- Receding stress pool; normalised credit costs: The aggregate stress pool has nearly halved to 12%, from the Q1FY22 peak of 21%, driven largely by strong collections and recoveries.
- New businesses to augment growth; build-out key monitorable
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