Good Morning Toasters!

Ssup friends! Hope it was a good start to the week. In a move away from normal, Starbucks India has decided to go desi, launching Masala Chai and Filter Coffee in an attempt to widen its target market. Interesting move.

In today’s issue, we cover news of Adani signing up for the 5G Spectrum Auction, which inadvertently (or not) pushed Airtel down, as investors took a walk down memory lane (think: Jio launching a price war, leaving 2.5 active players in the industry :P)

We preview Retail players, including Discretionary, Non-Discretionary and QSR players before the results season kickstarts. Commodity Inflation has been a constant during the quarter, with companies instituting price hikes to manage rising costs. Now that inflation isn’t transitory in nature anymore, how long does demand last?

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: 16,216.00 | -4.60 (-0.03%)
FII Net Sold: INR 170.51 crore

Sensex: 54,395.23 | -86.61 (-0.16%)
DII Net Sold: INR 296.99 crore

Company News

Airtel dips ~5% as Adani enters the 5G spectrum auction; what’s up and what do you need to know?

• Over the weekend, the other half of the A&A club and India’s richest man (no ways!!), confirmed plans to enter the 5G spectrum auction, catching the market unawares, and pushing the just about 2.5 player telecom market into a tizzy, with Airtel closing ~5% lower, and Vi ~3.5% higher (make it make sense)
• The Department of Telecom had zeroed in on the auction process after much deliberation, removing certain parameters (no down payment & no annual SUC)  to ensure the # of firms participating had increased, with applications closing on 8th July, for the auction scheduled for 26th July
• Launching a bid with the objective of providing ‘private network solutions & enhanced cybersecurity for their business interests in Airports, Ports & Logistics, Power Generation, Transmissions, Distribution and various other manufacturing processes, the company clarified that it had no intentions to be a part of the consumer mobility space (or in simple terms, sell sim cards)
• In addition, the company plans to use the enhanced network as they build their ‘own digital platform encompassing super apps, edge data centres and industry command and control centres’ (we’re confused as well :P)

Interesting! Tell me more? Sector de-rating cycle to begin again?

• The market is abuzz with news on Adani’s ultimate objective of entering the auction, with investors wary of another large player entering, de-rating the sector, pushing returns lower and driving price wars (think: Reliance Jio creating a duopoly for all practical purposes)
• A greenfield expansion (or building from scratch), will likely take Adani ~6 years to launch operations (amount of time Jio took), with 5G expected to take longer, given it is far more dense and requires greater investment in fibre backhaul
• In contrast, a brownfield expansion (or acquisition of an existing player) will give head-start to Adani with an existing subscriber base, while also consigning the sector to another round of de-rating, as returns will get compressed in the quest for subscriber additions
• The sector’s just about made any form of a comeback, with Bharti undertaking the role of a price maker, undertaking multiple tariff hikes in the last year or so, with Vi & Jio following in tandem

Okay! Limited clarity? Any conclusions?

• The 5G auction is scheduled for the 26th of July, with more clarity dependent on how / if Adani is aggressive in their bidding for spectrum, and whether they stick to their related business geographic circles or look to acquire more, which will probably guide more on their ultimate objectives
• Bharti Airtel is up ~26% in the last year, consistently reacting positively to industry-wide positives (tariff hikes, subscriber additions), and yet reacted the hardest to the news, dropping ~5% during market

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Around the World 🌎

• Rice wreaking havoc over Asia – In spite of wheat and corn prices surging after Russia invades Ukraine, rice has remained subdued but there is no guarantee it will remain so. Crop yields may decline in Thailand, the world’s second-largest exporter due to an increase in fertiliser costs, while China is worried about pests and India is hoping for a good monsoon
• Testing times for stock market – A four-decade high inflation and the rise in interest rates have caused the S&P 500 to fall 18% in 2022, even after rallying 3% to start July. It is yet to be seen how biggies navigate increased input costs, supply chain challenges and a decrease in consumer spending. Investors don’t expect stocks to crater after missing expectations because they have already retreated this year
• Gloomy days in Lanka – President Gotabaya Rajapaksa’s residence was taken over and he himself remains missing. High indebtedness, soaring inflation (at 80.1% last month) and poor economic management caused a major financial and political crisis in Sri Lanka rendering it incapable of securing energy supplies, leading to rolling blackouts and shortages at gas pumps

Industry News

Retail Q1FY23 results to show inflation impact; what’s up and what do you need to know?

• After two full years of partial or complete lockdowns, Q1FY23 is the first quarter to record three full months of normal operations, which should be visible in performance across Retail players
• Revenue momentum for Titan will likely continue, with the company’s business update indicating continued demand in Jewellery, coupled with aggressive store additions in the watch/eyewear segments, despite sluggish sales
• Varun Beverages (master bottler for Pepsi in India and neighbouring countries) will benefit from an unhindered quarter of operations, with the summer months likely going to add the extra seasonal push to the topline
• QSR chains have seen elevated commodity prices, with the likes of Wheat / Chicken / Oil / Cheese recording hikes b/w 15-30%, leading to Dominos / Pizza Hut / McDonalds / KFC instituting prices hikes b/w 5-15% to mitigate costs (source: Emkay Global Financial Services)
• Likewise, Page Industries and ABFRL are expected to record positive topline growth, via a mix of volumes & realisations, as increased mobility leads to a return of pre-covid consumption patterns

Interesting! Anything else?

• While commodity prices including Palm Oil, Cotton and PET (Crude) softened towards the end of Q1, the majority of the quarter involved high commodity prices, resulting in companies instituting price hikes in the range of 5-15% YoY (across QSR, Discretionary & Non-Discretionary players)
• Key to note in the coming results would be commentary from companies pertaining to demand towards the end of Q1, and heading into Q2 as inflation becomes more than just transitory in nature (:P), and how consumer choices will be impacted now that elevated prices are here to stay
• Likewise, of importance would be the tenure of the current price hikes instituted by companies once commodity prices have stabilised and/or are on the initial phase of a downward slope

What else caught our eye? 👀

InvITs are the new jazz

• The GoI plans to monetise an additional 500 km of completed highway projects worth Rs. 8000 crores through InvIT (Infrastructure investment trusts)
• Road InvITs are expected to generate 9-12% annual returns in the long run, with the NHAI having raised Rs. 7-8k Cr through this route so far
• NHAI road projects may also soon be offered to other operational road sector InvITs like Tower Infrastructure Trust etc. rather than just NHAI InvIT

King of Good Times?

• Mallya was held guilty by the SC for not disclosing assets and violating expressive orders of restraint passed by the Karnataka High Court
• He has already been asked to deposit back $40 million with interest within four weeks, failure of which will lead to the attachment of properties
• The Court said that Mallya did not show any remorse for his conduct and did not appear before it during the sentencing hearing

Educational Topic of the day

Rising Three Methods

The Rising Three Methods pattern is a bullish continuation pattern that appears in an uptrend and whose conclusion sees a resumption of that trend.

The Rising Three Methods pattern includes five candlesticks in total: two long and three short. A long white body is followed by three small body candles, each fully contained within the range of the high and low of the first candle. The fifth candle closes at a new high.

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