Good Morning Toasters!

Hi there! Hope the markets haven’t broken your spirits too much. In today’s issue, we discuss the OG NBFC player, Bajaj Finance and key points from their latest result updates.

It’s a big week in the FAANG world; Alphabet and Microsoft have dropped their numbers, while Amazon, Apple and Meta are expected to by the end of this week. Netflix kickstarted the season, dropping their numbers last week.

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Market Watch

Nifty 50: 17,038.40 | -162.40 (-0.94%)
FII Net Sold: INR 4,064.54 crore

Sensex: 56,819.39 | -537.22 (-0.94%)
DII Net Bought: INR 1,917.51 crore

Company News

Bajaj Finance is still uncertain on the transition to the full-service bank; what’s up and what do you need to know?

Numbers

• Core Assets Under Management increased by 26% YoY, led via lower yielding product segments like Commercial Business and Mortgages (~55% of growth)
• Operating expenses for the NBFC remained elevated, with the company continuing to invest in its core business, coupled with the buildout of its Mobile App and Web based platform (more on this below)
• 4QFY22 earnings were in line with Bloomberg Consensus estimates, growing 14% QoQ, coming in at INR 24.4 Bn for the quarter

Business Update (give me something worthwhile bro)

• BAF added 2.6 Mn customers on its mobile application in 4Q vs 3.6 Mn during Q3, with the management pointing towards seasonality as a reason for the decline
• The current customer franchise for India’s OG NBFC stands at ~58 Mn customers (across platforms and services), with the company aiming to add ~9 Mn customers per annum, and touch ~100 Mn customers in the next 5 years
• BAF has a 4 year partnership with RBL Bank on co-branded credit cards, with a similar arrangement with DBS; the management indicated that a compliance review is presently underway on the newly released RBI Master Circular on Credit Cards

Interesting! And going forward?

• BAF, in addition to the Phase 2 rollout of its Mobile App is also expanding to a digital web platform to provide a seamless user experience across web & mobile
• In a major update, the company has intimated plans to invest/build out a full service payments business over the next 3-5 years (Hey Paytm!!), and will look for partnerships or take a shot independently, across segments including P2P, EDC and payment gateways
• The company expects to continue to add new users to its mobile application, including 14-16 Mn during the current fiscal, taking the total to ~33 Mn active users on its application
• From a profitability perspective, given continued investment in the business, the company expects Costs to remain elevated in the interim, with the Cost to Income Ratio (CIR) in the 34.5 – 35.5% range

Okay! Final thoughts? Valuations, Stock Price, Transition to Bank?

• The stock is richly valued at 8.2x FY23 P / BV, and opened 5% lower post the results, with the market clearly not pleased with the cost elevation outlook provided by the company
• Payments is a new business line, with a history of limited margin accretion (think: Paytm), yet the management expects CIR to not materially impact return ratios, post stabilisation in cost profile
• The management wasn’t particularly forthcoming when it came to answering questions pertaining to a possible transition to a full-service bank, instead of focusing on building out a successful payment & financial service business (at least for the next 2-3 years)
• Material risk remains with BAF, especially looking at size, scale, and future business Operandi, which will likely weigh on the stock in the near term (we feel)

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Around the World 🌎

• Not the best time for Meta – This may be the slowest revenue growth quarter for Meta given growing competition for users and privacy headwinds in its advertising business. Results posted in Feb too saw a sharp decline in profit, gloomy revenue outlook and a steep reduction in its daily active users. Investors have reacted harshly to the news with shares falling 44% and the company losing nearly $388 billion in market cap. Hope is left with new results coming in on Wednesday and investors expecting an 8% YoY increase in advertising revenue
• Stock market back in business? – Futures for major indexes showed a positive sign (S&P was up 0.3%, Dow Jones up 0.7% and Nasdaq-100 at 0.2%) after they declined majorly on Tuesday. In fact, the Dow dropped > 800 points while the Nasdaq Composite recorded its largest one-day percentage decline since September 2020. However, most on the street believe this to be temporary relief with the next moves in the stock market anticipated to be either sideways or down
• Robinhood cutting ties – Robinhood is cutting off the duplicate roles it had created during its peak in 2020, and even laying off 9% of its full-time employees. The platform gained heat with individual investors due to the rise of crypto and meme stocks but has fallen sharply since then – it has now traded at ~ $10 much lower than its IPO price of $38. The move has been justified by management by calling it an effort to  ‘continue delivering on our strategic goals and furthering our mission to democratize finance.’ A blog post announcing the same after market hours on Tuesday saw shares fall 5%

Global Tech News

US Big Tech drop earnings; what’s up and what do you need to know?

Microsoft Corporation

• For the quarter through March, the world’s OG Technology company reported an 18% quarterly rise in revenue (from a year earlier), touching USD 49.4 Bn, with its net income rising 8% to USD 16.7 Bn
• The company’s shares rose 6% post market after the management indicated a continued robust growth environment for the future, backed by demand for cloud & software continuing with the shift to remote work sustaining
• Microsoft Azure remains the second largest Cloud Technology company after Amazon, and yet Microsoft has been gaining market share by using its leadership position in Office tools to club deals and acquire customers
• The company’s overall cloud business was up 32% to USD 23.6 Bn in sales; the market share for Azure has increased to 20%, up from 7% in 2016

Interesting! Tell me more?

• The video game arm of the company generated ~10% of Total Revenues for the quarter, with overall revenue growth of 6%; the company’s had a busy year, with its USD 75 Bn acquisition of the gaming studio Activision expected to go through only next year;
• Microsoft’s seen a surge in usage of its subscription services (gaming + more) after adding new games, with the CEO indicating a 45% increase in average time spent engaging with the console
• Once closed (if?), Microsoft expects the combined entity to be the 3rd largest studio globally, with 30 game studios under management, and capabilities to take the lead in its cloud-gaming sector
• The company indicated it expects the current invasion of Ukraine to have USD 110 Mn impact on the top line; and yet, with minimal impact otherwise, Microsoft expects to charge ahead in terms of growth, building on performance in the last 2 years

Alphabet

• Google’s parent reported a 23% growth in topline touching USD 68 Bn for the first three months of the year, it’s slowest since the pandemic began in 2020, with the company blaming the global economic disruption on slowing advertisement sales
• Russia’s invasion of Ukraine had an outsized impact on YouTube ads, which came from suspending the vast majority of activities in the region, as well as a related reduction in spending by other companies in Europe overall
• Shares in the company closed down by ~3% and weighted even further post market hours, with investors reducing positions as a result of an expected continued slowdown in growth
• Sales for Google Cloud rose by ~44% (similar to Microsoft & Amazon) to USD 5.8 Bn, reporting an operating loss of USD 931 Mn, Google cloud business tailing both Amazon & Microsoft in size

Okay! Share some details?

• YouTube, the internet’s largest video destination felt most of the advertising sting, falling short of Wall Street’s revenue expectation by USD 600 Mn; the company has been investing heavily in TikTok alternative YouTube Shorts, including monetisation + live shopping options to keep-up
• The Shorts feature, has reportedly grown to >30 Bn daily views, or 4x during the same period last year, with the expectation to continue to develop & roll out features
• Google’s search advertising, linked to specific customer purchase requests was less affected by the economic sanctions + turmoil vs general awareness campaigns that took a hit (as mood soured)
• The company highlighted a return to travel, with high search volumes reminiscent of pre-pandemic 2019 levels

Nice! Big Tech conclusion?

• Cloud + Cloud infrastructure is a structural bet across big tech, with results and long term transformational journeys a constant theme; Amazon has reported >45% growth in Cloud
• Advertising is expected to take a hit, with Meta expected to report its slowest revenue growth since it IPO’ed, results due Thursday morning (IST); Snap, who reported results last week acted as a precursor to the pain (?)
• Amazon + Apple are expected to drop their numbers on Friday (IST), to cap 10 days of results across Big Tech (Netflix included)

What else caught our eye? 👀

Big news on India’s biggest IPO

• LIC will be launching its Rs.21000 Cr IPO from 4th May – 9th May with anchor investors coming in on 2nd May and a price range of Rs.902-Rs.949 apiece
• Another news includes an exit of management control from IDBI Bank, and hints towards further divestment as well the move of the share surplus of participating to 10% from 5%
• The GoI believes the domestic demand to be enough and will not be launching an FPO (follow-up public offer) for at least a year

Adani wants to do it all

• The Adani group is venturing into the world of media with a new wholly owned subsidiary at AMG Media Networks with the aim to “carry on the business of media related activities, including publishing, advertising, broadcasting, distributing etc. of content over different types of media networks”
• As per the MoA, the company will develop content for a range of platforms and media, including podcasts, OTT content, feature films, news, and so on
• It has an authorised capital and paid up capital of Rs 1 lakh each, and three directors – Pranav Vinod Adani, director at Adani Enterprises, Sanjay Pugalia, CEO & editor-in-chief, Media Initiatives, Adani Enterprises and Sudipta Bhattacharya, the chief technology officer of the Adani Group

Results Preview (Nifty 200)

Thursday, 28th April: Ambuja Cements, Axis Bank, Bajaj Finserv, Bajaj Holdings, Biocon, Coromandel International, MPhasis, P&G Hygiene, Shriram Transport, Vedanta, Varun Beverages

Friday, 28th April: Laurus Labs, SBI Life, IndiaMART InterMESH, Indusind Bank, L&T Finance Holdings, Maruti, Tata Chemicals, Ultratech Cements, Wipro, SBI Cards

Educational Topic of the day

Position Trading

A position trader can be compared to a squatter who sets up a tent in the middle of a crowded shopping mall, letting people pass by and stare but remaining relatively untouched by them until the authorities come in to shoo him off.

Edited by Raunak Karwa 

Let’s connect, I always love hearing from you. Hit me up at Raunak_Karwa on Twitter or Raunak.karwa@finlearnacademy.com