India Pharma Market Returns to Trend-Line Growth

Good Morning Toasters!

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

Jubilant Foodworks aka Domino’s India loses its leader
India Pharmaceuticals returns to trend-line growth
News around the world
Trading & Investing Machine….new product in our arsenal

Market Watch

Nifty: 16,871.30 | +240.85 (+1.45%)
FII Net Sold: INR 176.52 crore

Sensex: 56,486.02 | +935.72 (+1.67%)
DII Net Bought: INR 1.098.62 crore

Corporate Development 👨💻

Jubilant Foodworks aka Domino’s India loses its leader

Having joined in 2017, the CEO was credited with a strong turnaround, helping the OG QSR chain recover from a sluggish performance in the core Domino’s franchise
By initiating a complete strategic revamp, including moving from deep discounts (day-based discounts) to offering customers assured value & low prices every day (everyday value), the company initiated an industry shift in consumption, from occasional to spontaneous buying, leading to increased frequency
Likewise, to tackle negative perception, the CEO invested in product upgrades, with new crust, liberal amounts of cheese (🤤) and other such initiatives, all the while maintaining the price
These initiatives, coupled with the launch of a standalone food ordering application, significantly improved Same Stores Sales Growth, and comparable EBITDA %, increasing to ~17% in FY19, from ~9.3% in FY16

Damn! So a big loss? How did the markets react? Tell me more?

Shares of Jubilant fell > 14% intraday (greatest since the COVID fall) after news of its CEO resignation (whatt)
The company currently trades at a wait for it, ~42x FY24E EPS, which when taking into consideration the run-up the stocks had in the last 18 months, is still expensive in comparison to global & local peers
Q3 numbers reflected a slowing SSG %, decreased overall spending at home and a general slow-down in top/bottom line, post which the stocks been weak
Likewise, other QSR players, including Devyani International, have also felt a changing narrative, partly due to expensive valuations, and partly due to slowing growth trends
That being said, the company has indicated that they have a strong leadership bench to replace the outgoing CEO, who will continue to serve in the current role for a period of 4 months, allowing Jubilant ample time to find an adequate replacement (we hope)

Paytm suffers (another) major setback🙃

The RBI has put restrictions on Paytm Payments Bank, barring India’s supposed OG Fintech bro from acquiring new customers (mostly in the savings & transaction banking category)
The gaps in technology have led the RBI in taking such a step; the lender also directed the company to appoint an IT Audit Firm, to conduct a comprehensive system audit
In the past, the RBI has taken similar steps at Airtel Payments Bank (albeit at a much smaller scale), and more recently, at HDFC Bank (although different challenges)
According to reports, the RBI barred the Payments Bank because the fintech allowed customer data to flow to servers abroad, in volition of India’s rules, not properly verifying customers in the process

Tell me more!!

Shares of One 97 Communications (Paytm) fell another 13% (to ₹ 672 but ended at ₹774) after the directive became public
The payments bank is owned 49% by the Parent Co and the remaining by Founder Vijay Sharma, which was also highlighted during the DRHP as a possible conflict of interest
The RBI has not put an embargo on the processing business of the bank which is a key revenue driver but on its saving and transaction banking customers
Paytm shareholders have significantly lost most of the value of their investment, with the stock listing at an issue price of INR 2150 (ridiculous 🧐), with the current issue likely to maintain pressure on the stock

Around the World 🌎

Haven assets are back in demand – The war between Russia and Ukraine has sent investors barreling into relatively safer assets of gold & government bonds, especially after commodity prices (Oil touched $130 a barrel) soared, leading to inflation paranoia. While many believe the US economy is in a good position to weather this storm and have been actively investing in travel and other stocks that have dipped, risk-averse ones are looking towards defense and utility stocks at this time
Covid story does not end – Chinese manufacturing hubs Shenzhen and Changchun have been in lockdown (yes, again!) in the past few days due to a surge in Covid-19 cases and have threatened the world’s supply chain even further (most were electronics and auto factories). Foxconn – Apple’s major assembler – are one of the giants who have halted operations, along with six others who are also based in Shenzhen. With no news on when work will resume, Toyota and Volkswagen are other major players that have been affected
Another blow to the supply chain – More than half a dozen Chinese companies have in the past week sent notices to customers and investors warning of supply delays, price increases, or overall slowdowns in their ability to meet orders post the drastic increase in the price of Nickel (that touched $100000 a metric ton). Many are hoping the government steps in (like they did by distributing copper and aluminium when those prices skyrocketed) as the crisis is affecting both productions as well as hedging functions

Industry News

India Pharmaceuticals returns to trend-line growth; What’s up and What do you need to know?

Industry Update

According to total sales data from IMS, the Indian Pharmaceuticals Market grew by 3% YoY in Feb’22, despite a low base in Feb’21; in comparison, Jan’22 recorded a 21% YoY growth
The decline in growth can be attributed to a variety of reasons, including 1. Subsiding Omicron wave, 2. Seasonal weakness, 3. Potential decrease in channel inventory
Across the industry, most major therapies posted low to mid-single digit growth in Feb, except for respiratory, which continued it’s double digit growth (16%)
MAT or Moving Annual Total, which is defined as total value of a variable, such as the sales figures for a product, over the course of the previous 12 months, IPM grew by ~19%, with volumes contributing ~10.6%, pricing 4.3% and new products 4.4%

And stocks? (Yess, thank you 😒) Gland Pharma

Across most listed players, Gland Pharma dropped the strongest numbers, growing at 61% YoY, followed by IPCA Laboratories (9% YoY);
Major global markets focused players including Dr. Reddy’s, Cipla, Lupin, Sun and Cadilla all grew in the range of 1-8%, with Reddy’s and Cipla growing at the slowest pace of ~1%
Acute: Chronic mix for major players (see below) did not change materially between months, with Gland & IPCA Acute therapies focus (think: Pain, Anti-Infectives, Anti Malarias, Derma etc), assisting in recording higher growth
The India Pharmaceutical Market (IPM) has reverted back to its trend-line growth, post heightened demand during Covid-19 months, with any likelihood of over-the-top numbers directly linked to future waves

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