1) GREAT INDIA SALE – CLSA
CLSA says as select NBFCs face solvency pressure, rather than just liquidity, they will drive the second leg of the Great India Sale by divesting their stakes in non-core businesses like insurance, mutual funds, niche-NBFCs, etc. CLSA estimates that transactions worth Rs150bn-Rs200bn could be on the cards, and this also ties in with our view discussed in Themes 2019 that this year will be active in terms of M&As among financials. Select private banks may be prospective buyers as they seek to build a presence in the non-lending financial (NLF) segment.
WHO CAN BE THE BUYER
Select banks, especially emerging private ones, could be prospective buyers for such businesses as they plan to scale up their presence in the non-lending financial segment. A fairly valued transaction should be value accretive for banks, and we see scope for them to leverage existing clients to cross-sell products. Large banks like ICICI, SBI, and Kotak have demonstrated value creation from these subsidiaries.
2) TECH MAHINDRA BUYBACK
The company announced to buy back 2.05 cr shares at a price of `950/sh via a tender offer. While the offer price was at a handsome premium of 15% to the prevailing price, the buyback size equivalent to 2.3% of equity (excluding HTML Trust) seemed small for institutional investors, especially when a company has net cash of over `6500 cr as of Q3FY19-end but is choosing to use only about `1960 cr for the buyback. For the retail investors, analysts are recommending to tender as buyback price puts company valuation at 17x FY20 earnings compared to the highest multiple of 15x seen in the last five years. Also, since the stock had already rallied 20% in the last one month ahead of a buyback, the gains would be limited in the absence of any further known catalyst. The stock closed at `821.70, up 1.1% after paring gains from the record high of `840 intra-day when buyback details were announced.
3) CREDIT SUISSE – BRITANNIA
Britannia’s more than 50x 2-year forward valuation is not perturbing Credit Suisse a lot for now. The global brokerage house has upgraded Britannia to ‘Outperform’ from ‘Neutral.’ They have also upped the target price from Rs. 3,300 to Rs. 3,400.
Credit Suisse has flagged off the following triggers for the Biscuit major:
- -Govt stimulus for rural boosts consumption with a lag of 2 quarters
- -Britannia will gradually gain market share in biscuits over the next 4-5 years
- -Distribution expansion, focus on ‘Hindi belt’ to drive market share gains
- -Foray into non-biscuit categories holds promise
- -The launch of premium cakes, wafers, and other bakery pets is exciting
4) RELIANCE NIPPON LIFE AMC HITS UPPER CIRCUIT
Poonam Saney, ET NOW
Reliance Nippon Life AMC (RNAM) hit the upper circuit today, gained nearly 20% in the trade as Reliance Capital Ltd said that they had invited its partner, Nippon Life Insurance Co. Ltd., to make an offer to acquire up to 42.88% stake held by Reliance Capital in Reliance Nippon Life Asset Management Ltd. (RNAM). Nippon Life Insurance Co. Ltd. already owns a 42.88% stake in RNAM. Recently, ADAG group stocks were under pressure as Reliance Communication, part of ADAG group companies, filed for bankruptcy. In February, RNAM stock fell nearly 29% from its Jan2019 highs.
Today’s announcement that Reliance capital has invited Nippon Life Insurance, its existing foreign partner, to up stake in the company has filed an enormous overhang on RNAM stock. As per FDI policy, a 100% foreign investment limit is allowed under automatic route for other Financial services (herein AMC biz), which makes Nippon Life eligible to up stake depending on all other existing regulations. Analysts believe that RNAM has decent size assets and has been able to grow its retail assets well. In terms of valuation, the stock trades at about 20x on a Price/Earnings basis for FY20.
RNAM has total Assets under management (AUM) of Rs 4.14 lk cr as of Dec 2018, of which Mutual Fund AUM stands at Rs 2.36 lk cr. The Company grew its retail assets by 12% YoY to Rs 83005cr. The share of equity assets as a percentage of Mutual Fund assets has increased to 38% as of Dec 2018.
5) MINDA INDS ON AUTO SLOWDOWN
Amid concerns of a slowdown in PV & 2W demand trickling down to auto component makers, Minda Industries’ management speaks to ET Now about steps undertaken to sustain a strong margins trajectory. The company aims to do so by ensuring efficient cost management, upgrading its portfolio, and readying itself to leverage the opportunities provided on the back of new safety norms and BS-6 transition. Here are the key highlights of the conversation:
MINDA INDS TO ET NOW
- Seeing muted demand currently, expect it to continue till mid-2019
- Expect to see pre-buying before shifting to BS-6 engine
- New product addition to aiding topline as well as the bottom line for the company
- Near 50-50 split between 4W & 2Ws in rev mix help insulate against fundamental headwinds
- Not seeing double-digit demand, but no negative trajectory has seen either
- PV segment was worst hit in Q3, 2Ws saw good traction
- Don’t expect a significant rise in demand till H1FY20; see demand recover H2 onward
- Organic and inorganic strategies helped revenue growth in Q3
- Optimistic about pre-buying ahead of the shift to BS-6