Yesterday’s Market Performance

Nifty: 15885.20 I 122.20 (0.78%)
FII Sell Net: 1539.88 CR
DAX: 15,568.73 I 24.34 (0.16%)

Sensex: 52950.63 I 363.79 (0.69%
DII Buy Net: 1505.82 CR
FTSE: 7,081.72 I 49.42 (0.70%)

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Howdy Toasters!

In today’s issue, we discuss;

• Rising NPAs & decreasing AUMs woes continue for NBFCs- a lane through uncertainties.
• Aditya Birla Fashion & Retail recorded a 40% recovery in Q1.
• Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

IRCTC: 2,468.90 | 137.60 (5.90%)

• The stock was up more than 5% after the company announced that its board will meet on August 12 to discuss the subdivision of the company’s equity shares.

Varun Beverages: 789.10 | 27.30 (3.58%)

• The share price gained over 3% after the company posted Q2 net profit at Rs 308.2 crore versus Rs 140.8 crore and revenue was up 49.1% at Rs 2,483 crore versus Rs 1,665.7 crore, YoY.

Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn.

NBFC results have been a mixed bag? What trends have we noticed and what can you extrapolate from them? 🔍

• After analyzing Q1FY22 results for most major NBFCs (think: BAF, MMFS, LTFH, SHTF, SCUF & CIFC), we noticed a steep decline in AUM growth, mainly due to weak disbursements, along with a sharp deterioration in asset quality for most vehicle financiers; borrowers had a challenging second wave, due to higher mortality rate amongst employees, which impacted collection efficiency (most in May21, with a gradual reversal by July21)

• Among vehicle portfolios, most lenders have indicated continued stress in passenger vehicle segments (cab aggregators) due to lockdowns across the country, coupled with elevated fuel prices (duh!!) and sluggish tourism (pandemic et al.); School & Private buses were the other portfolios that remained under stress (makes sense) with personal cars & tractors immune to this slowdown (weird?)

• The RBI recently released the second version of the resolution framework (first one was released at the onset of the pandemic, last year), compelling lenders to restructure retail assets, leading to a steep surge in OTR 2.0 (nomenclature) which is mainly contributed by self-employed and low-income individuals (think: 2W, 3W, CVs), indicating a preference to conserve and maintain liquidity during uncertain times (which could persist going forward)

• Collection efficiencies have dipped (a run-way back to normalcy can be short-sighted due to a possible third wave), impacting the restructured book (under different stages) and leading to a surge in provisioning (greater provisioning, limited capital for growth)

Damn!! Looks like there’s a fair bit of uncertainty? Give me some more details? 🤔

• Bajaj Finance (2W & 3W portfolio) & Mahindra & Mahindra have been the worst affected, with both seeing a marked decline in AUMs, coupled with a steep rise in NPAs (BAF has a 19% GNPA in auto portfolio)

• On the contrary, asset quality has remained in check for players like Shriram Transport Finance (more focused towards used vehicle financing) and Shriram City Union Finance (defined rural play, with product portfolio geared accordingly), with limited (in comparison to others) growth in GNPA (between quarters) (See the exhibit below)

• Vehicle financiers will continue to have it tough (and you should track key metrics to avoid untoward surprises) with the stop-start nature of business activity most susceptible to the covid impact; business activity is expected to be least impacted (with most companies having organized inoculation activities, to minimize a possible third wave impact)

• Track BAF, MMFS, CIFC, SHTF & SCUF to get a sense of the overall space

Aditya Birla Fashion & Retail (ABFRL) recorded upwards of 40% recovery in the quarter, and revealed an aggressive expansion plan for the future 💃📉

• Despite limited operations (need we give an explanation for why?), ABFRL posted a stronger than expected recovery in sales (40% in Q1FY22 vs 15% in Q1FY21) helped by strong traction in Omni/digital sales (up to 2.5x) and better recovery in other retail channels

• EBITDA loss of INR 1.6 Bn was lower than INR 3.5 Bn loss in Q1FY21, helped by better gross margins (up 8%) and improved cost management measures;

• Sales were driven by a 46% recovery in Lifestyle (85% recovery in other sales channels which includes e-commerce / online initiatives) and 25% recovery in Pantaloons (higher mall presence impacting business); wholesale/retail channels were slower to come back to speed (as expected)

What else caught our eye? 👀

Reliance Retail in talks to become a master franchisee for Subway India (are you tired? We’re tired) 

• Ed-Tech, Music Streaming, Grocery, E-Pharmacy, Payments, whatever category Just Dial is wasn’t enough for India’s richest man; Reliance Retail is in talks with Subway Inc to purchase the India master franchise for USD 200 – 250 Million
• Subway India presently has a presence across 600 stores and is managed through multiple franchises, or development agents, who manage/run outlets either via their own network and/or through sub-franchise arrangements, with the parent entity (Subway International) collecting a fixed fee of 8% of revenue
• Presently, the chain has a market share of ~6%, in the organized QSR space that is valued at INR 18,800 crore (in other news, Devyani International, operating KFC, Pizza Hut opens for investors this week)

PolicyBazaar files DRHP 

• PB Fintech which operates insurance marketplace PolicyBazaar and credit comparison portal PaisaBazaar filed its draft IPO papers over the weekend; the company aims to raise INR 6,017 crores (fresh issue of INR 3,750 and a second exit for 2,267 crores) from the markets

• The company is accessing the primary markets to raise capital for ‘new opportunities to expand its customer base including offline presence, strategic investments & acquisitions, expand its presence outside India & general corporate purposes’

• Pretty categorical in their prospectus, the company indicated that they expect to incur a loss in the foreseeable future as they build their business and expand operations

Vodafone Idea pretty close to becoming a going concern? 

• The promoter, Mr. Birla indicated in a press release that he was okay releasing his stake in the debt-laden telecom company to any government identified entity/solution in order to ensure the continuation of operations (the company is due over INR 50,000 crore, and is staring at a potential shortfall in cash flow in FY23)

• The company has been in the market to raise external funds (INR 25,000 crore), and presently faces a massive AGR penalty + other debt (backdated) to the tune of INR 58,254 crore for which the company (along with Bharti Airtel) were fighting for a rebate/moratorium from the government in the supreme court (not forthcoming, with multiple judge changes not helping)

Limit Order