Good Morning Toasters!

Ssup friends. A big week in global markets, with the US Fed scheduled to meet this week, and ofcourse raise rates (by how much?) in an attempt to curb inflation. Indian markets had a late reaction last week to global macro numbers, same way again this time around?

In today’s news, we cover everyone’s favourite stock (sorry Mukesh), as Ambuja cement continues a strong upward rally after announcements made by Adani Group pertaining to capacity and capex were met favourably by the street. Ambuja already trades at a premium to Ultratech, but the question is whether it can continue on from here or not?

We return with a technical setup, analysing HDFC Life on multiple time frames and across Price Action & Technical Indicators. The stock’s been weak, and is in a general downtrend. More of the same?

Market Watch

Nifty 50: 17,622.25 | +91.40 (+0.52%)
FII Net Bought: INR 312.31 crore

Sensex: 59,141.23 | +300.44 (+0.51%)
DII Net Sold: INR 94.68 crore

Company News

Ambuja Cement continues rally, hits 52 week high; what’s up and what do you need to know?

• The Adani Group’s acquisition of Holcim’s stake in ACC / Ambuja Cement sometime ago has boosted growth expectations in the company (rightly so), resulting in a ~25% / 65% re-rating in EV / EBITDA valuations of the two companies, when compared to their last 5 years average (more on this below)
• This, coupled with the recent announcement of a INR 200 Bn investment in the two companies to improve capacity to 140 Mt in the next 5 years, which looked ambitious when announced at first (by the group Chairman), gives all the more reason to reconsider valuation benchmarks at soon-to-be India’s second largest cement player
• Background: ACC / Ambuja cement stocks have been trading at a stark discount (30 / 20%) to their peers, for a lack of growth focus / capacity expansions in the respective cos, which changed dramatically post the acquisition announcement in May’22
• Change in outlook: a drastic change in outlook, with the new management setting aims to become the largest integrated player in the country, increasing capacity by 2030, including exploring prospects of group led synergies have led to a substantial change in perception of the companies

Got it! So scope for another round of re-rating? Or is the rally in this one done?

• Adani has proposed raising additional funds to strengthen its balance sheet, have access to long-term resources to meet growth needs, and leveraging synergies from group companies, especially in raw materials, renewable power and logistics (which should bump-up ACC / Ambuja’s positioning)
• Assuming execution / achieving the base case scenario (capacity increase to 120 Mt by CY27E), ACC / Ambuja have the scope of providing incremental INR 100 / ton cost benefits by increasing capacity to 140 Mt (additional 20 Mt), which will likely result in improved EBITDA / return profile
• Likewise, assuming the group undertakes a mix of organic & inorganic expansion (consolidation within the industry is expected), and achieves 140 Mt capacity expansion by CY27E, in addition to INR 100 / ton cost improvement, there exists the possibility of a 2.5% long term improvement in RoIC (Source: Emkay Global)
• Adani group focus, including heightened activity on the counter will likely benefit the company until their inability to increase capacity and fulfil promises, with benefit of execution likely to remain with the company until such time (we believe)

Interesting! Final thoughts?

• ACC / Ambuja had a 20% market share in 2011, which has declined by 5% in the last decade, and clearly in line with the stock price as lack of growth focus and limited capacity enhancements have plagued the number 2 player (combined)
• Ambuja stock has sharply re-rated since the announcement of takeover, and now trades at a 20-30% premium to the largest player in the country, Ultratech; the question is where to go from here?

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Around the World 🌎

• Will the ballsy move pay off? In the midst of a gloomy real estate market Chinese company Onewo (the property manager arm of China Vanke) is planning a huge IPO valued at $783.6 million in the hopes of taking advantage of a profitable last quarter. International investors can subscribe to upto 90% of the 116.7 million shares on offer. The company will use the proceeds for acquisitions, technology development and developing its “Onewo Town ” model.
• Big bucks incoming at Starbucks: In its Investors’s Day event, Seattle based coffee chain Starbucks has projected a whopping 15-20% growth over the next 3 years with a target of opening 8 new stores every day. Between 2023-25, It is also planning to return $20 billion to its investors mainly by paying dividends and share buybacks. And they’re giving credit to Covid! The pandemic led to a big surge in its digital and delivery orders, with customer preference shifting to cold beverages and customised coffee drinks.
• 2012 wasn’t the end of the world, is this? The global economic slowdown is worsening each day due to high inflation, rising interest rates and supply chain problems. There is even a widespread possibility of some countries facing recession in 2023 (!!). The IMF is fearing a bad third quarter and has already revised down its global growth to 3.2 % in 2022 and 2.9% in 2023.

Technical Setup

Ready for another slump in HDFC Life?

• HDFC Life is a part of the HDFC Group and is engaged in carrying on the business of life insurance.
• Analysing HDFC Life  on a weekly time-frame, we observed that the stock is making a squeeze pattern in Bollinger bands. This pattern is formed when the 2 standard deviations have a narrow gap
• A squeeze pattern occurs due to a consolidation which usually leads to the continuation of trend (in this case – bearish)

Great start! What’s next?

• When we switch to a daily time-frame, we observe that the stock took resistance along the 200 DMA (day moving average) and started to show some negative impact
• On 14 September 2022, the 200 DMA strategy gave a sell call (see image below)

Awesome! Apart from the strategy is there any more price action as confirmation?

• If you look at price action on a daily time-frame, you’ll see that the prices have given a breakdown below an important support band (555-560)
• As a matter of fact, the stock is currently trading below all important moving averages (10, 20 & 50)

Interesting, Any final thoughts?

• On a weekly time-frame, shows that the stock has consolidated making a squeeze pattern on bollinger band which might be followed by its trend (bearish)
• On a daily time-frame, stock has been broke its important support and is trading below all important moving averages which shows weakness
• 200 DMA has also given a sell signal showing signs of negativity ahead

Keep a track?

What else caught our eye? 👀

Direct tax collection piles up higher:

• The gross collection of direct taxes has reached ₹8.3 lakh crore for the financial year 2022-23 up until September 17. Compared to the corresponding period in FY 21-22, when the total collection amounted to ₹6.4 lakh crore, it has seen a growth of 30%.
• Of the gross collection of ₹8.36 lakh crore, Corporate Income Tax makes up ₹4.36 lakh crore and Personal Income Tax along with Securities Transaction Tax makes up ₹3.98 lakh crore.
• The Central Board of Direct Taxes said that almost 93% of Income Tax returns have been processed till September 17 and the number of refunds issued in this financial year has increased by 468%.

Pouring money in the media:

• Bharti Airtel and Reliance Jio plan on spending a combined amount of approximately ₹350 to ₹400 crore in advertising in lieu of the festive season to cater to the launch of their upcoming 5G services.
• Media planners have said that Airtel, Jio and Vi are all gearing up but Airtel might beat the others when it comes to spending. Earlier, planners had estimated the total spending to reach ₹700 crore, but Vi hasn’t revealed any 5g roll-out plans yet.
• Brands have the option to invest in three major properties – the FIFA World Cup, the ICC-T20 World Cup and Kaun Banega Crorepati. There will also be on-ground campaigns deployed at points of sale and other consumer touchpoints.

Educational Topic of the day

What is Dilution?

• Dilution is the reduction in shareholders’ equity positions caused by the formation or issuance of new shares.
• Dilution reduces, when a company’s earnings per share (EPS), which can cause a negative impact on share prices.
• When a company raises additional equity capital, existing shareholders are usually marginalised

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