Yesterday’s Market Performance

Nifty: 17929.70 I 258.00 (1.46%)
FII Sell Net: INR 202.13Cr
DAX: 15,806.29 I 117.52 (0.75%)

Sensex: 60138.46 I 831.53 (1.40%)
DII Buy Net: INR 116.01 Cr
FTSE: 7,288.62 I 51.05 (0.71%)

Howdy Toasters!

In today’s issue of the Morning Toast, we discuss: 

• PolicyBazaar’s market debut
• Varun Beverages continues strong delivery
• Results Preview
• An education concept to keep you chugging along

PB Fintech Ltd has two key businesses – Policybazaar and Paisabazaar 🧐

Company overview 

• Launched in 2008, Policybazaar is a marketplace for buyers and sellers of insurance products with over 48 insurance agencies offering 390+ term, health, motor, home and travel insurance products on their platform

• Paisabazaar is an independent digital lending platform that enables consumers to compare, choose and apply for personal credit products (think: personal loans, business loans, credit cards, home loans & LAP) offered by banks, NBFCs etc.

  • Unique base of 22.5 Million customers, who have accessed their credit score through Paisabazaar

Policybazaar 

• In FY20, Policybazaar was India’s largest digital insurance marketplace among all web aggregators with 93.4% market share (basis number of policies sold), and a dominant player in online insurance distribution (~65% share)

• The company originated a premium of INR 27.4Bn from new insurance policies, touching INR 47 Bn including renewals for FY21 (~42% of total originated premiums for the online space)

Paisabazaar

• Paisabazaar is India’s largest digital consumer credit marketplace with a 53.7% market share (based on disbursals) in FY21

• ~40% of the disbursals in the last three years have been to customers acquired through their free credit score utility model, with the company offering more personalized and accurate product recommendations to consumers, using analytics and integrations with lending partners

Interesting! What about financials & use of proceeds? (Great q broo)  😉👍

• The company has recorded Total Premium growth of ~63% and 25% for FY20 and FY21, while total disbursals to existing customers also inching up YoY (increasing signs of customer retention)
• Revenue from operations (across business lines) was up 15% YoY to INR 886 crores for FY21, with the company considerable reducing losses as well (down to INR 150 from ~INR 300 crores);
• Q1FY22 numbers seem to give little away in terms of what to expect, with loss doubling on a YoY basis (Q1FY21 vs Q1FY22)
• The company will utilise net proceeds from fresh issue for enhancing visibility and awareness of its brands (Rs 1,500 crore), new opportunities to expand consumer base including offline presence (Rs 375 crore), strategic investments and acquisitions (Rs 600 crore), and expanding presence outside India (Rs 375 crore)

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Varun Beverages continues strong delivery, enhancing confidence in recovery trends and future prospects    🧐

• Master bottler for Pepsi in India (including neighbouring regions and select African markets), Varun Beverages continued its strong growth trajectory, with a volume 2-yr CAGR of 11% in Q3CY21 (follows a calendar accounting period)

• Barring second wave months of May-June, the company has delivered double-digit volume CAGR in the rest of the quarters (when compared YTD 21), led by improved mobility (to service demand) and continuation of healthy recovery trends

• Responsible for all products, including Carbonates (think: Pepsi & Sting, 70% of volumes) and Juices & Water (30% of volumes), the company recorded multi-fold growth across categories; Sting (energy drink) now contributes ~5% of volumes within 3 years of launch (nice!)

At what cost? 🤔

• Raw Material Inflation (PET, which is used for bottling) led to a 2% drop in margins, from a month on month perspective, with the company indicating the transient nature of current raw materials (supply chain disruptions), likely to impact in the short term

• To offset these margin troubles, the company plans to include lighter PET products (lower cost) and initiate price hikes wherever necessary

• The company plans to initiate capital expenditure to the tune of INR 4.8 Bn to address lower supply to Bihar markets; VBL has reduced debt, to the tune of INR 6 Bn in YTDCY21, which augurs well going forward

• The company has been on an improving Free Cash Flow (FCF) generation trend over the last 2 years, and will likely touch INR 9 Bn for CY21, on the back of increased economies of scale & lower capex requirement

Interesting! Stock Price, Valuations, Growth forecasts? (You know the drill :P)   😁

• Longer-term growth potential for the company remains intact, with market share gains likely because –

  • Low current per capita spends towards hydration leaving plenty of scope

  • Gradual growth in population numbers increasing target market size

• VBL is poised to build-out healthy operating leverage, albeit if the company executes in a timely and efficient manner

• The stocks been up ~38% in the last 6 months, and currently trades at 26x CY23E P/E, with scope to deliver double digit sales CAGR and health return ratios

What else caught our eye? 👀

India’s manufacturing activity back in action

• Companies scaled up production for the month of October in line with a substantial upturn in new work intakes
• The seasonally adjusted IHS Markit India Manufacturing Purchasing Managers’ Index was at 55.9 in October vs 53.7 in September
• All of these can be attributed to stock-building efforts and in anticipation of further improvements in demand (we’re all for any signs of recovery!!)

Petrol prices celebrating a festival of their own

• Global oil rates failed to provide any relief with petrol and diesel prices hiked for the sixth consecutive day
• Petrol price in Delhi is Rs 109.69/litre and diesel rate is Rs 98.42/litre while it is Rs 115.50/ litre and Rs 106.62/litre respectively in Mumbai
• Price of crude has crossed its three year high (over USD 85 a barrel) owing to a strong global demand

Dhanteras and gold : a love saga

• Dhanteras is considered an auspicious occasion for purchasing gold but prices have dropped leading up to the big day
• Jewellers are excited as this drop may help boost retail demand (in addition to a strong wedding season) and are hoping to reach pre-covid level sales
• Many investors however are opting for digital gold with Indian gold ETFs continuing to see strong net inflows

Tuesday 2nd November: Advanced Enzyme Tech, Bank of India, BASF India, Bharti Airtel, Dabur India, Gillette India, Godrej Property, Gulf Oil Lubricants, HPCL, Jindal Steel, P&G Hygiene, Radico Khaitan, Sun Pharma, Trent, United Bank of India

Wednesday, 3rd November: BHEL, Bosch, Max Financial, MRF