Brief India: TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise and more

In this briefing:

1. TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise
2. Weekly Oil Views: Crude Rallies on US-China Deal Optimism, Tightening Supply
3. Singtel’s Weak 3Q18 Results but Dividend Looks Sustainable and Long Term Upside from Associates
4. Yes Bank: In the Cross Hairs of the Regulator
5. ECM Weekly (16 February 2019) – ByteDance, Embassy Office REIT, AB InBev Asia, CStone, Dexin

1. TRADE IDEA – Mahindra & Mahindra (MM IN) Stub: Rise

The company that brought the off-road vehicle to post-war India in the 1940s has grown into a leading personal vehicle manufacturer covering land, air and sea. Merely making cars, planes and boats wasn’t ambitious enough for this company though, the conglomerate wouldn’t be complete without a financial services and tech consulting business under the corporate umbrella. 

Indian holding companies typically trade a wider discount to NAV than their East Asian counterparts, however the 42% discount to NAV that Mahindra & Mahindra (MM IN) currently trades at, is a trough level historically for the company. In the body of this insight I will present my case for a stub trade on the company, detailing the business structure, performance and the unlisted stub businesses.

In this insight I will cover:

I. The Trade

II. Group Overview and Stub Business Review

III. My Track Record with Stub Trades

2. Weekly Oil Views: Crude Rallies on US-China Deal Optimism, Tightening Supply

There was no deal out of Beijing on Friday, but the markets appeared overjoyed at the news that the US and China had decided to continue their talks this week, in Washington.

Clearly, the “structural” issues that the US has with China are proving hard to work through (government subsidies for Chinese state-owned enterprises was reportedly one of the major stumbling blocks in last week’s talks). But the markets took the continuation of talks as a positive sign that the two sides are determined to find a resolution.

Could crude, which has been moving in lockstep with the global equity markets since October, be starting to reconnect with its fundamentals and pricing in the supply restraints and risks that have piled up over the recent months? There were signs pointing in that direction last week, as the rally in Brent and WTI to a three-month high at Friday’s settle surpassed the bounce in the stock markets.

We have also created a ready reference sheet of the various crude supply chokeholds across the world that have stacked up over the past few months, while the oil market remained fixated on the demand question. These supply restraints and risks are waiting in the wings as a potential bullish snowball, if and when oil demand worries are firmly pushed aside.

3. Singtel’s Weak 3Q18 Results but Dividend Looks Sustainable and Long Term Upside from Associates

Singtel (ST SP) recent 3Q18 results were relatively lackluster. Singapore revenue trends were encouraging, but EBITDA remains under pressure esp in the Enterprise segment. Optus saw good net subscriber additions, but this came at a cost – lower ARPU and mobile service revenue (MSR). We have lowered our forecast to reflect pressure on EBITDA and continued losses in Group Digital Life (GDL) but maintain a BUY on the stock with a target price of S$4.00. The near 6% dividend yield is the key support and we believe it can continue to be paid without resorting to increased leverage. Longer term, the fate of key associates (India and Indonesia in particular) are key to the stock’s performance

4. Yes Bank: In the Cross Hairs of the Regulator

Yes Bank is in the cross hairs of the Reserve Bank of India (RBI), the banking regulator. On February 13, 2019, the bank issued a press release stating that the regulator’s risk assessment report (RAR) for the year ended March 31, 2018 revealed nil divergence, i.e. the bank’s net profits and asset quality were in conformity with the regulatory norms, unlike in FY2016 and FY2017. However, on February 15, 2019, the bank released a note stating that the RBI had pulled up the bank, as publicly disclosing a part of the RAR breaches regulatory confidentiality and is in violation of regulatory guidelines. While the RAR is indeed confidential, the RBI did not publicly admonish other banks like HDFC Bank, Axis Bank and Kotak Mahindra Bank (KMB) when they had publicly revealed nil divergence from their RARs. It is apparent that Yes Bank is the bad boy in the eyes of the regulator, and the bank will have to renew its efforts to change that perception. Shareholders have to therefore exercise caution and take the surge in the share price with a pinch of salt.

5. ECM Weekly (16 February 2019) – ByteDance, Embassy Office REIT, AB InBev Asia, CStone, Dexin

Aequitas Research puts out a weekly update on the deals that have been covered by Smartkarma Insight Providers recently, along with updates for upcoming IPOs.

Accuracy Rate:

Our overall accuracy rate is 72.1% for IPOs and 63.8% for Placements 

(Performance measurement criteria is explained at the end of the note)

New IPO filings

• Reliance General Insurance (re-filed, India)

Below is a snippet of our IPO tool showing upcoming events for the next week. The IPO tool is designed to provide readers with timely information on all IPO related events (Book open/closing, listing, initiation, lock-up expiry, etc) for all the deals that we have worked on. You can access the tool here or through the tools menu.

News on Upcoming IPOs

• PineBridge-backed Uniparts gets SEBI nod to float IPO
• Cal-Comp Philippines eyes IPO by third quarter
• JERA new president says IPO is an option
• Singapore’s Zalora explores listing to fuel expansion
• S. Korea’s Homeplus files for up to $1.5 bln REIT IPO
• Korean bio unicorn in the making, Voronoi, to join the Kosdaq this year

Smartkarma Community’s this week Analysis on Upcoming IPO

• Homeplus REIT IPO – The Largest Ever REIT IPO in Korea
• Ecopro BM IPO: Valuation Analysis
• Embassy Office Parks REIT – Good Assets but Projections Might Be a Tad Too Bullish
• CStone Pharma (基石药业) IPO: Thoughts on Valuation (Part 2)
• Hansoh Pharma IPO Preview: A Decent Story Tarnished by a Huge Pre-IPO Dividend
• Ab InBev Asia Pre-IPO – A Brief History of the Asia Pacific Operations – Eeking Out Growth in China 
• ByteDance (字节跳动) IPO: How Jinri Toutiao Paves The Way for a Bigger Empire (Part 1)
• ByteDance (字节跳动) IPO: Tiktok the No.1 Short Video App for a Good Reason (Part 2)
• Dreamtech IPO: Valuation Analysis
• Dexin China (德信中国) IPO Review – Key Issues Remain but 9M Results Showed Strong Growth

List of pre-IPO Coverage on Smartkarma