Good Morning Toasters!

Hello Friends! Happy weekend. After hitting a 52-week low of 15,183.40 three weeks ago, the Nifty finally jumped around 6.5% this week and reclaimed the 16000 mark. Sensex is up around 1,700 points and settled at 54,482. The slowdown in FII selloffs and softening commodity prices are among the factors which helped the Indian market recover from lower levels. Hope this uptrend continues 🙌

In today’s issue, we cover Mahindra and Mahindra’s new plan to incorporate 4 wheeler electric passenger subsidiary. The company has raised Rs. 1,925 crores from British International Investment (BII) for its yet-to-be-incorporated EV subsidiary. The tie-up between Mahindra and BII seems to be a booster for India’s fast-growing EV segment.

We also have a look at the impact a rising Brent has had on upstream and downstream players, with RIL poised to deliver a strong a EBITDA beat

And finally, we’ve started a rollout of our newest product, Trade:able, that aims to democratise trading, via a unique and fun learning experience. There are a bunch of amazing rewards and prizes to win. Click here to know more.

Market Watch

Nifty 50: 16,220.60 | +87.70 (+0.54%)
FII Net Sold: INR 109.31 crore

Sensex: 54,481.84 | +303.38 (+0.56%)
DII Net Bought: INR 34.61 crore

Company News

Mahindra & Mahindra joins the EV bandwagon; what’s up and what do you need to know?

• In its quest to do all things TATA (jk jk), Mahindra & Mahindra (MM) announced the incorporation of a subsidiary (EVCo) to undertake the E-PV (Electric Passenger Vehicle) business, with all identified & related assets to be transferred to this co. (MM has invested INR 4 Bn in the E-PV business as of March 22)
• In addition, the company announced the execution of an agreement with British International Investment (BII), which is the Development Finance Institution of the UK Government, and invests b/w GBP 1.5 – 2 Bn each year to advance the UK Government’s Clean Green Initiative
• MM & BII have agreed to invest up to INR 19.25 Bn each in the EVCo. over two tranches in the next 2 years towards the creation of an E-SUV Portfolio of cars, with advanced technologies (all things advanced, always :P)
• The creation of a separate EV subsidiary and fund infusion are steps toward the company’s plans of creating a large E-4W product portfolio and reaching 20-30% electric penetration in SUVs by 2027

Interesting! Tell me more?

• BII is expected to invest through the compulsorily convertible preference share route, which will result in BII having a shareholding in the range of 2.7% to 4.8% of the share capital, implying a valuation of INR 404 – 700 Bn for the EvCo (separate subsidiary)
• SUVs and Sedans are expected to see higher acceptance in comparison to hatchbacks, given the price-conscious nature of the current EV ecosystem; the likes of TATA Nexon, TATA Tigor Sedan and MG ZS UV have seen high acceptance, while Maruti has cancelled its planned investment in their EV hatchback over affordability concerns
• That being said, EV creation is a long-drawn game, with high investments required in product and platform, and MM’s planned investments of INR 80 Bn by FY27 and 8 launches across multiple dedicated EV Platforms (pure / hybrid), an ambitious bet (we feel)
• While competitors have successfully launched EV products, MM is yet to successfully do so, with past launches (non EV) also not particularly performing strongly, not to mention management bandwidth issues with EV Mobility CEO resigning recently

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Around the World 🌎

• TWTR coming under the Musk spell – 30% of the talent acquisition team at Twitter is being laid off due to increasing business pressures and the fear of Elon Musk. As part of a broader restructuring process, the company has paused hiring and is cutting costs. Many tech companies like Coinbase, Unity etc. have enforced similar layoffs while others like Microsoft, Meta etc. have imposed hiring freezes
• Not so Sunny anymore – Ramesh Balwanai aka Sunny has been charged on all 12 accounts that he perpetrated a fraud scheme along with founder Elizabeth Holmes at Theranos Inc. and faces up to 20 years in prison for each count. He was in charge of the company’s lab and often fired employees raising concerns, and even exaggerated financial models to lure investments
• No stopping Levi – Jeans maker Levi Strauss & Co. reported higher sales in the last quarter (an increase of 15% to $1.47 billion) in spite of issues like excess inventory among retailers and a slowdown in consumer spending plaguing the industry. A more casual dress code, expanding product line, and an increase in prices seem to be the driving factors

Industry News

RIL earnings to jump 50%+ QoQ; what’s up and what do you need to know?

Disclaimer: an untypical forward-looking piece, with some assumptions

• Average Brent Crude prices surpassed USD 110 / barrel (bbl) mark, up ~9 / bbl mark since Q4FY22, primarily due to the Russia-Ukraine conflict, leading to benchmark Gross Refining Margins (GRMs) jumping to USD 20 / bbl +
• Upstream companies (defined as those who are primarily interested in identification/discovery and extraction) are therefore likely to post a sharp uptick in earnings on account of higher oil and gas prices
• In contrast, Oil Marketing Companies are expected to report a core-earnings loss due to auto-fuel and LPG under-recoveries (defined as the notional losses incurred due to the difference b/w the subsidised price at which OMCs sell certain products (diesel, LPG, Kerosene) and the actual price they should receive for meeting their cost of production)

Interesting! Share some details? (some stock names yoo)

• RIL’s consolidated EBITDA is expected to rise (up >30% QoQ), given the sharp jump in O2C earnings (up 74%) on the back of improved GRMs and high brent crude prices
• Likewise, OMCs can be expected to see some buoyant GRMs and inventory gains, but overall earnings will still be affected by under-recoveries (explained above), with the likes of IOCL / BPCL / HPCL all likely to suffer net losses, generating losses of INR 8.8 per litre on petrol and 12.9 per litre on diesel
• In contrast, GRMs are expected to remain at their current level due to continued low global inventories, lower Chinese export quota, strong product demand and lower Russian and Chinese refining throughput
• Shares of IOCL, BPCL / HPCL have plunged b/w 25-40% from their highs, and are expected to remain under pressure until the next quarter, with any impact of increased production in the US and China, likely to reflect then (we believe)

What else caught our eye? 👀

Indigo pulling up its socks

• After a significant number of cabin crew members took sick leave to attend an Air India recruitment drive, the company the increased salaries of the pilots by 8%
• An increase of 8% had already been implemented in April, and this time overtime allowance for pilots was also reinstated to the pre-Covid level
• A section of pilots however remain unsatisfied and had to decide to organise a strike after the April announcement

No one touches our wheat

• Export of flour and other derivatives like maida, semolina, wholemeal atta and resultant atta has been restricted
• Global supply disruptions in wheat and wheat flour have led to price fluctuations and potential quality-related issues – hence the move
• Wheat flour exports remain free but permission must be sought

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Saturday, 9th July: Avenue Supermarts (DMART)

Educational Topic of the day

Contango

Contango is the market condition in which the price of a commodity futures contract is currently trading higher than the spot price of the underlying.

Contango is the normal market condition for a futures contract. This is because the price for a futures contract accounts for the spot price plus the cost of carrying, so it will often be more than just the underlying spot price – depending on the time until delivery.

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