HDFC Breaking Out of Long Consolidation Period

Yesterday’s Market Performance

Nifty: 17353.50 I -8.60 (-0.05%)
FII sell Net: 802.51 CR
DAX: 15,610.28 I 232.81 (1.47%)

Sensex: 58250.26 I -29.22 (-0.05%)
DII buy Net: 0.60 CR
FTSE: 7,095.53 I 53.84 (0.75%)

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In today’s issue, we discuss;

Page Industries has made a good comeback after the pandemic and now offers better growth momentum.
HDFC gave a breakout after a long (22-23 weeks) consolidation period, a potential actionable point?
Crypto prices plummeted after El Salvador became the first country to adopt Bitcoin as legal tender.
And some fundamental analysis concepts to widen your horizon (not saying otherwise 🙈) Read along!

Welspun India: 137.25 | +11.15 (+8.84%)

The script jumped over 9% after the company received one of the stringent and most recognized quality approvals—US Food and Drug Administration 510 (k) clearance for its 3-ply surgical masks.

ICICI Lombard: 167.55 | +16.85 (+11.18%)

The share price shed over 4% today after the company received the final approval from the Insurance Regulatory and Development Authority of India (IRDAI) for the proposed scheme of arrangement with Bharti AXA General Insurance Company

Page Industries set for next leg of growth, moving on from pre-pandemic troubles 🤩🚀

Company: exclusive licensee of Jockey & Speedo International for manufacture, distribution & marketing in India & other regions

What’s been up?

Page Industries (PAG In) has been re-aligning its business (think: automatic replenishment system & sales force automation) pre-pandemic (FY18 onwards), which was reflective in the decreasing growth in topline
The market rewarded (lolol) the company accordingly; stock touched an all time high of INR ~34k on 17th August 2018 (on the back of consistent early 20s growth), consequently making a pre-pandemic low of INR 17,000 a year later, with the company unable to maintain growth or return ratios
Between FY14-17, the company accelerated distribution, doubling its Multi Brand Outlets (MBOs) from 23,000, however in the ensuing period (FY17-19) the company slowed down, only growing at 10% (growing from 50,000 to 55,000 outlets)
Pre-pandemic commentary from the company also alluded to a general slowdown in the industry, with overall consumer spend towards innerwear decreasing (people decided to re-use, jk jk jk)

So what’s changed?

Within apparel, the innerwear category has been the fastest to recover post-pandemic, given the basic utility and general trend towards leisurewear driving growth (think: athleisure as a category)
Likewise, the company has restarted the aggressive MBO expansion (>40% growth, crossing 80,000 outlets, and a 10-15% addition to continuing), with a shift in focus towards Tier 2/3/4 towns, while also entering rural towns with products priced accordingly
In addition, the company is also expanding its Exclusive Branded Outlets (EBOs), which has grown almost 3x in 5 years (~930 outlets); e-commerce as a distribution mechanism has also picked up, and now contributes ~8% to the topline
PAG IN has delivered a good comeback after the slowdown in FY19-20 & H1FY21, led by market share gains, faster growth trends in athleisure (~33% of sales), strong online presence, and better on-ground execution

Interesting! Tell me more? (For sureee bro) 🤔

Athleisure looks very promising as a segment (been growing in double digits, estimated to touch a market size of USD 3 Bn), with WFH increasingly shifting demand towards comfort & casual wear
To give you context, globally the athleisure market is expected to touch USD 215 Bn vs the innerwear category of USD 175 Bn, with the category growing at 8% in the US
In case of PAG IN, athleisure has grown from contributing less than 30% to the topline pre FY15, to now accounting for ~35% of the topline (with expectations of more to come)
The company has also stepped up efforts in the under-penetrated women’s wear & kids segment, with dedicated teams, portfolio expansion and increased marketing spends (something to track to see impact?)

To summarise? What’s the final word? 🤓

PAG IN is top of the line in terms of product portfolio & distribution, with a comparison on 10 innerwear players reflecting a lack of sustainable competition to the product
In the last 5 years, PAG IN grew at 12% CAGR vs Top 10 players clocking 7% CAGR (this during a period wherein PAG has suffered as well)
New product & athleisure growth, coupled with strong men’s innerwear brand recall for Jockey is likely to accelerate the next leg of growth
The company is under-valued (see image below) in comparison to its peer set, especially taking into consideration growth & return profile

Keep a track?

HDFC Ltd likely to break its all-time high of 2896? 😵

Analysing HDFC Ltd on a weekly time-frame (last 35 weeks), indicates that the stock gave a breakout after a long (22-23 weeks) consolidation period (see image below)
Breakouts on the higher side can be precarious, and don’t always lead to a rally; if the prices do not sustain over important levels, this stock is likely to revert back to pre-breakout prices (I.e. fall)
HDFC Limited faces another hurdle (Resistance Band) between the levels 2778 and 2894 (see image below), with a break-out from this range providing us with that definite confirmation (better safe than sorry right?)
To summarise, the stocks have been consolidating (over a 22-23 week period), finally breaking out and forming an uptrend, with prices now accumulating at the resistance band zone (point where traders expect maximum selling pressure/supply, or false breakout confirmations)

Hmm, interesting. Okay, so what can I expect from HDFC Ltd in the near term?🤩

Let’s move to a smaller time-frame (daily), to gauge overall trend, avoid any traps and answer that question (see image below)
On the daily time-frame the stock is currently trading in a rising channel (trading between two positive trendlines, taking support at the lower trendline and resistance at the higher)
A rising channel (see below), forms a Higher high & Higher low pattern (which indicates bullish / upside potential), with the prices for the time being, limited between these two trend lines
In a higher high, higher low pattern, prices keep breaking earlier highs and making new ones; in a similar vein, small corrective declines keep making new lows which are higher than the previous low (thus higher low)
Hence, we can say that HDFC is bullish if:
- It keeps trading in the rising channel or keeps making a higher high, higher low pattern
- Gives a breakout above the rising channel
Gives a breakout above the resistance band and makes a new 52 week high

So should we keep track?🤔

Yess, Finding multiple confirmations while performing technical analysis on a chart is important and helps avoid traps, at the same time notifies us about any upcoming hurdles.
We started on a higher time-frame with overall price action and trend analysis and took second confirmation on a daily time-frame, through rising trendline channels & Higher High and Higher Low pattern formation

Authors of this newsletter don’t own this name, and this above is not meant to be construed as a recommendation (not our style at FinLearn)

What else caught our eye? 👀

Crypto takes a tumble (oh cmon)

Bitcoin had recently hit its highest since May at $52000 but it then tumbled down to $42000 (i.e by 17%)
This huge sell-off is partially attributed to El Salvador accepting BTC as a legal tender even though the public there is said to be extremely wary of the volatility of the currency.
There has been a small recovery with BTC trading at ~ $46000 since the grand tumble.
Overall the cryptocurrency market value fell by $300 billion (!!!!!!) in the past 24 hours (with Ether down 12% and dogecoin down 16%)

Automobile chip shortage may dampen the festive mood

The automobile federation (FADA) has called the semiconductor shortage a ‘full-blown crisis’ that will harm the passenger vehicle sales majorly.
Automakers are struggling to supply vehicles to dealers owing to the production crunch.
Experts believe the demand for two-wheelers to be a key concern (especially because it is highly price-sensitive) but are optimistic with the news of educational institutes opening up.

Yes Bank doesn’t like the boss

Yes Bank wants to change the promoters of Dish TV (where they are the largest shareholder) citing the absence of sound corporate governance.
Through this move, they aim to recover the Rs. 6500 crores of debt owed.
They are also against the rights issue proposed by the current management (which they believe is a ploy to increase promoter stake in the company