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Fundamental News and Analysis.

Disclaimer: Investment in securities is subject to market risk. You are requested to read and understand the Risk Disclosure document, terms and conditions, policies and procedures, and Rights and obligations carefully before investing. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and the value of investments can go down as well. To the extent that it includes references to securities, those references do not constitute a recommendation to buy, sell or hold such securities. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. For a detailed research disclaimer


LATEST NEWS





>>9:30 AM



Escorts Kubota: The company’s dispatches in June’22 has been in line with expectations. The dispatches were down 19.8% y-o-y at 10,051 units, due to high base. Exports continue to do well and grew by 36.2% y-o-y. The management is positive on rural sentiments and expect it improve going forward this season. Positive





>>9:00 AM



Coal India: As per medis reports, Coal India is looking to take all of its eight subsidiaries public given benefit of high coal price. We highlights here that the coal ministry has already approved stake sale of 25% in Coal India' subsidiary of state-run Coal India’s Bharat Coking Coal Ltd. A potential stake sale and subsequent listing of Coal India's subsidiaries could unlock value and add to cash position, which bodes well for sustained high dividend payout. We have Buy rating on Coal India.





TOP NEWS





RBI released bi-annually Financial Stability report. Key takeaways are as follows:



· Despite global uncertainty, Indian economy is on recovery path, but RBI remains watchful of inflationary pressure, geopolitical risks and it warrants careful handling and close monitoring of the situation. RBI also flagged cybersecurity as a key risk.



· Banks and Non-banking Financial institutions have sufficient capital buffers and they can absorb any shock. In terms of Capital adequacy ratio, for SCBs, it rose to a new high of 16.7% in March 2022. Macro stress tests reveals that banks would be able to comply with the minimum capital requirements even under severe stress scenarios.



· Gross NPAs of Scheduled commercial banks (SCBs) fell to a six-year low of 5.9% in March 2022 from 7.4% in March 2021 and could fall further to 5.3% under the base line scenario by March 2023. Under the severe stress, it could rise up to 8.3% by March 2023. NNPA ratio also fell by 70 basis points during FY22 and stood at 1.7% as at March 2022. All banks are well capitalised and asset quality issues do not pose any significant threat.

· Private sector banks have aggressively lend to MSMEs. The aggregate gross NPA ratio of public and private sector combined in the MSME sector has moderated from 11.3% in September 2021 to 9.3% in March 2022. However, it still remains relatively high. The reports add that a lot of MSME loans have been restructured and they could add potential stress.



· Demand for consumer credit which was consistently trending upwards since the second wave of pandemic, has significantly moderated in Q1FY23, but consumer loans delinquencies especially for Fintech have improved sharply from 4.8% in Sep 2021 to 2.2% in March 2022.



· The slippage ratio, measuring new accretions to NPAs as a share of standard advances at the beginning of the period, declined across banks during FY22. Write-off ratio declined in FY22.





Federal Bank: Board approves raising of total funds to the tune of Rs. 12,000 crore by way of issuance of equity capital up to an aggregate amount of Rs. 4,000 crores and by way of issue of debt instruments up to Rs.8,000 crores in FY23.





Bharti Airtel: (1) Competition Commission of India (CCI) approved Google's proposed acquisition of a minority stake in Bharti Airtel. Google International LLC and Airtel have entered into an investment agreement to buy a minority and non-controlling stake of 1.28% of equity share capital in Bharti Airtel. (2) As per media news, Bharti Airtel has opted for the four-year moratorium on adjusted gross revenue (AGR) related dues for FY2018 and FY2019 amounting to around Rs 3,000 crore. Airtel has informed DoT that it will exercise the option of deferring its AGR related dues (for FY18 and FY19) by a period of four years but not opt for the equity conversion – positive read-thru as the AGR payments deferral will increase Airtel’s cash flows and help it to participate in the upcoming 5G airwaves sale.





Route Mobile: Coca-Cola UAE partners with Route Mobile LLC to automate their customer experience to boost online engagement. This partnership will enable Coca-Cola UAE to connect with their customers and make it easier for them to order beverage online. Customers will also be able to pay for the order via Coca-Cola's Payment Gateway without leaving the WhatsApp chatbot, making it a seamless end-to-end process – positive read-thru





Indus Tower: Bharti Airtel has bought additional 2.06% stake in Indus Towers. The above stake buy will take Bharti's equity stake in Indus to over 49%. Bharti previously has indicated intention to be majority owner in Indus Towers – positive read-thru





Hero MotoCorp: The Arbitration Tribunal has ruled that of Hero MotoCorp to use ‘Hero’ trademark for selling its electrical vehicles. The Arbitration Tribunal has emphasized on the investments of ~Rs400 crore in EVs and almost Rs7,000 crore on brand building of ‘Hero’ trademark in the past 10 years. The Tribunal is expected to conclude the matter after final consideration of the case. This is a positive development for the company, as use of ‘Hero’ trademark would help the company to easily market its e-2Ws pan-India. Positive





Balkrishna Industries: The rating agency, CRISIL has reaffirmed rating at AA/A1+, while has improved outlook to positive from stable. The outlook revision reflects strong revenue growth of 43% in FY22, driven by a healthy 27% volume growth, primarily in the Eurozone and North America markets, and price hikes during the year in light of rising crude-linked raw material and freight costs. We have a buy rating on the stock. Positive





Maruti Suzuki: In the media interaction, the company’s focus will be on SUVs. The company expects one out of every two passenger vehicles sold in the Indian market to be SUVs. The initial launch of new Brezza has received positive response from customers and there has been a pre-booking of more than 45,000 units. We remain positive on Maruti Suzuki and expects its market share to regain in the SUV segment.





KRBL; LT Foods: According to global media sources Russia to ban rice exports from July 1 to Dec,31. This would result in sustain increase in the global rice prices due to higher demand-supply mismatch in the international markets – Positive for rice exporting countries such as KRBL and LT foods





Lupin: Gets USFDA approval for its ANDA - Paliperidone Extended-Release Tablets strength - 1.5 mg, 3 mg, 6 mg, and 9 mg. The tablets are indicated for acute and maintenance treatment of schizophrenia. Paliperidone Extended-Release Tablets have a market size of had estimated annual sales of $152 mn in the US and hence the approval is positive





Zydus Lifesciences: Gets final approval from the USFDA to market Lacosamide Injection USP strength - 200 mg/20 mL (10 mg/mL) single-dose vials. Lacosamide Injection is used to treat partial-onset seizures. It is also used with other medicines to treat primary generalized tonic-clonic seizures. Lacosamide Injection has a market size of USD 50 mn as per IQVIA MAT May 2022, positive





MOIL Limited: The company has increased price of manganese ore grades with content below Mn-44%, Mn-30% and Mn-25%) and has maintained price for manganese ore grades with content of Mn-44% and above. Price hike bodes well for margin and is positive for MOIL.





Oil & gas: Brent oil price declined to ~$110/bbl given concern on global oil demand due to recession fears. Although oil price decline is sentimentally negative for ONGC/Oil India and positive for OMCs (IOCL, BPCL and HPCL) but even these crude oil price levels are elevated and are above street expectations for FY23 earnings estimates. We prefer upstream PSUs in the oil & gas space and have Buy ratings on ONGC and Oil India given strong earnings growth tailwinds from high oil & gas price, attractive valuation and high dividend yield.







MACRO WRAP



  • US Jobless claims fall, consumer spending softens. US initial unemployment claims decreased by 2,000 to 2,31,000 in the week ended June 25, a sign that labour market remains tight as the broader economy shows signs of slowing. While inflation-adjusted consumer spending fell in May for the first time this year. Inflation adjusted consumers spending drops by 0.4% MoM in May vs expectations of 0.3% decline.

· India Inc.: In May, output of eight core industries surged to 18.1% yoy compared to 9.3% yoy in April. The growth was driven by robust performance in the production of cement, coal, fertilizers, and electricity industries. The cement industry recorded the highest growth of 26.3% in the month of May this year as against 8% last month. Another key driver was the coal sector that witnessed a sharp incline of 25.1%. Other sectors including fertilizer, electricity and natural gas grew by 22.8%, 22% and 7% respectively. The crude oil sector witnessed a growth of 4.6% against a contraction of 0.9% last month. Similarly, steel industry grew by 15% in May. The production of petroleum refinery products increased by 16.7% as compared to 9.2% last month.



· India`s external debt at $620.7 billion as at March 2022 up by 8.2% yoy. However external debt to GDP ratio declined to 19.9% as at March 2022 from 21.2% yoy.



· India`s fiscal deficit at the end of May stood at 12.3 per cent of the annual budget target for 2022-23, mainly due to higher expenditure. The country's fiscal deficit is projected at 6.4 per cent of the GDP for this fiscal ending March 2023 as against 6.71 per cent for the previous year. However, Government is not considering additional borrowing at this stage.





INVESTMENT CALL





Sector report - Investor Knowledge Series - Where to invest in a volatile market?



Sector in Focus: Consumer Discretionary - Resilient earnings prospects in tough times



  • Given a tough outlook for Q1FY2023 earnings, the second edition of our Investor Knowledge Series focuses on companies likely to clock strong earnings performance in the backdrop of multiple sector specific tailwinds.

  • In the consumer discretionary sector, some spaces like footwear, branded apparels, hotels, multiplexes and amusement parks are set to record strong operating numbers in FY2023 after two years of a lull impacted by pandemic.

  • The recent correction in broader markets provides good entry point to pick quality discretionary picks that have strong growth prospects, revamped business models with sustainable long-term earnings growth and are trading at decent valuations.

  • Preferred Picks - Aditya Birla Fashion & Retail (ABFRL), Trent, Indian Hotels Company (IHCL), Bata India (Bata), Wonderla Holidays and PVR.





Stock Update: Sundram Fasteners Ltd. – Shifting gears to rev up growth



Rating: Buy Reco Price: Rs720 Price Target: Rs1,030



· We retain a Buy rating on Sundram Fasteners Limited (SFL) with an unchanged PT of Rs. 1,030, led by the company’s strong performance outpacing the automobile industry's growth through diversifying client and product portfolios, benefiting from its established client relationships and prudent capital allocation.



· SFL is well-positioned to benefit from the technology shift from BS-VI to electric vehicles (EVs), especially in emission-control products. Moreover, the company has capabilities to benefit from technological trends shifting toward lightweight and high-strength products.



· We expect SFL’s earnings CAGR to improve by 38% during FY2022-FY2024E, driven by a 21.5% revenue CAGR and a 160 bps improvement in EBITDA margin to 17.9% in FY2024E from 16.3% in FY2022, with ROCE progressing to 24% in FY2024E.



· The stock is trading below its historical valuations at P/E multiple of 17.2x and EV/EBITDA multiple of 10.8x its FY2024E estimates



OTHER NEWS Globus Spirits (GSL): The company has entered into an arrangement under which it will provide strategic, technical, manufacturing and market tie-up with an aim to provide integrated services to operate 140KLPD plant owned by Tilaknagar Industries located at Shrirampur, Maharashtra. GSL will get service fees as a share of EBIDTA generated by the distillery assets, which might get added to other operating income of the company View: This will not lead to incremental earnings but provides opportunity to GSL to grow its business by leveraging its strengths in operating distilleries. TVS Motor: In the media interaction, the company’s management talked about its export business and expects exports to be key growth driver for the company. The company has presence in many emerging markets but now would be focusing on developed markets. Also, the company expects 30% penetration of e-2Ws in the domestic scooter market. Positive Ramkrishna Forgings: The rating agency, ICRA, has reaffirmed rating and outlook at A/A1/Stable. The ratings consider the healthy performance of RKFL in FY2022 owing to a strong revenue growth in the domestic M&HCV segment and a significant increase in its exports business by venturing into new geographies. Positive Reliance Industries (RIL): Reliance Brands enters into strategic partnership with UK-based food & organic coffee chain ‘Pret A Manger’. Reliance Brands with open Pret A Manger chains across India starting with major cities. The partnership marks RIL's foray into F&B industry. UPL Limited: The company has acquired 100% stake in Nature Bliss Agro (NBAL) and thus NBAL has become a wholly-owned subsidiary of UPL. NBAL proposes to carry out the business of manufacture and sale of crop protection and allied products, which has synergy with the existing business activities of UPL. For Private Circulation only Registered office: Sharekhan Limited, 10th Floor, Beta Building, Lodha iThink Techno Campus, Off. JVLR, Opp. Kanjurmarg Railway Station, Kanjurmarg (East), Mumbai – 400042, Maharashtra. Tel: 022 - 61150000. Sharekhan Ltd.: SEBI Regn. Nos.: BSE / NSE / MSEI (CASH / F&O / CD) / MCX - Commodity: INZ000171337; DP: NSDL/CDSL-IN-DP-365-2018; PMS: INP000005786; Mutual Fund: ARN 20669; Research Analyst: INH000006183; Compliance Officer: Mr. Joby John Meledan; email id: compliance@sharekhan.com; Tel: 022-61150000; For any queries or grievances kindly email igc@sharekhan.com or contact: myaccount@sharekhan.com. Disclaimer: Client should read the Risk Disclosure Document issued by SEBI & relevant exchanges and the T&C on www.sharekhan.com; Investment in securities market are subject to market risks, read all the related documents carefully before investing. Disclaimer: Investment in securities is subject to market risk. You are requested to read and understand the Risk Disclosure document, terms and conditions, policies and procedures and Rights and obligations carefully before investing. Recipients of this report should also be aware that past performance is not necessarily a guide to future performance and the value of investments can go down as well. To the extent that it includes references to securities, those references do not constitute a recommendation to buy, sell or hold such securities. The user assumes the entire risk of any use made of this information. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document and should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. For a detailed research disclaimer. kindly visitwww.sharekhan.com.



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