Good Morning Toasters!

In today’s issue of the Morning Toast, we discuss:

• RBI issues master directives on cards to safeguard customer interests
• Is Elon Musk the greatest entrepreneur of all time?
• News around the world
• Results Preview
• An educational concept to keep you learning every day 🙂

Market Watch

Nifty 50: 17,171.95 | -220.65 (-1.27%)
FII Net Sold: INR 2,461.72 crore

Sensex: 57,197.15 | -714.53 (-1.23%)
DII Net Bought: INR 1,602.35 crore

Industry News

RBI issues master directives on cards to safeguard customer interests; what’s up and what do you need to know?

New Regulations

• Combining a bunch of different circulars/policies, the (RBI) has now directed that NBFCs and Scheduled Commercial Banks (SCBs) with a minimum Net Worth of INR 1 Bn (100 Crores) are permitted to conduct credit-card business, either independently or in tie-ups with a card-issuing bank
• Key to note here is a new clause inserted that requires these entities to obtain prior approval from RBI, with a view to safeguarding customer interests (more on this below)
• Card issuers are now directed that charges & interest rates on credit cards shall not be exorbitant (quote-unquote) and shall be concomitant with the cost incurred, with reasonable expected returns
• Likewise, the issuers shall also prescribe an interest rate ceiling in line with other unsecured loans; in case of levy of differential interest rate (basis customer’s payment default history), the issuer is required to be transparent by publishing the interest rate charges as clearly as possible

Transparency is the name of the game

• The RBI has emphasised taking explicit consent of customers while issuing add-on cards and providing a clear understanding of the arising liability
• On EMI conversion, the principal, interest and upfront discount should be stated prior to the conversion and should also be stated in the credit/bill statement
• Majorly, the interest component shall no longer be camouflaged as zero-interest / no-cost EMI anymore, which according to the RBI is misleading and constitute miss-selling

Interesting! Thoughts? And impact on major players?

• The guidelines have come at a time when there is increased noise around mis-spelling of cards, which has ultimately put customers into a debt trap
• There has been increased demand from NBFCs to be given credit card licences (similar to US markets), and with the RBI having released this circular to provide a clear process, the likelihood of obtaining such licenses will become challenging in the future (we believe)
• Large banking players have a long tenured history of operating in the Credit Cards space, with robust and compliant selling processes, which should result in minimal impact from these regulations
• That being said, with the RBI issuing clear directives, any non-compliance with these guidelines will likely result in penalties and an embargo from the regulator
• Newer players, NBFCs and private players with partnerships are likely going to be affected, with new business also coming under question

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Around the World 🌎

• Things not working out for Snap – The first quarter results of Snapchat were proof that the firm is having troubles given recent developments – disruptions in the digital ad market as well as the impact of rising inflation on advertisers and privacy policy changes implemented by Apple. Sales were lower than expected (though they jumped 38% YoY) while losses were wider at $360 million. Snap shares closed 4.4% down on Thursday before results were announced
• Toshiba up for auction – Toshiba Corp has solicited bids from investors after the shareholders rejected its proposal to split the company into two instead of wanting to sell the whole firm to a PE player. These investors also include those who want to take the company private. According to its timeline, it would seek nonbinding proposals from bidders and finish an initial evaluation before its annual shareholder meeting in June. Toshiba has been struggling for the past seven years after its accounting scandal
• Fed makes its decision – Fed Chairman Jerome Powell signalled that the central bank was likely to raise interest rates by a half percentage point in its meeting next month, and hinted at many similar moves in the future to control inflation. It will also formally announce plans at the May meeting to begin shrinking its $9 trillion asset portfolio in June. Growth for the world economy has stagnated with the IMF expecting to grow at 3.6% this year (vs 6.1% last year)

Global Company News

Is Elon Musk the greatest entrepreneur of all time? 🐐

• Between tweeting about buying Twitter, Elon Musk hopped onto the Tesla earnings calls and casually delivered an 81% growth in sales numbers for the world’s OG electric vehicle manufacturer
• This during a quarter in which every Tesla competitor (GM, Toyota) reported big sales declines
• From a bottom line perspective, the company produced ~USD 5 Bn in EBITDA and >USD 3 Bn in Net Income, without any money devoted to marketing (mind = blown)
• Tesla managed to deliver a record 310k cars last quarter, up from 308k, with the Model 3 and Model Y (cheaper variants) making up nearly all the deliveries
• The company delivered during an exceptionally difficult quarter, with its software prowess allowing it to swap hard-to-find chips; ~half of the Tesla vehicles shipped during the quarter were equipped with Lithium Iron Phosphate batteries, containing no nickel or cobalt, helping improve margins

Woah! Tell me more?

• Tesla has nearly doubled deliveries from last year, touching 936k cars shipped, and has recently opened two new Gigafactories in Germany & Texas
• The company’s production numbers are now moving closer to being on par with traditional luxury car makers like Mercedes and BMW, while already having overtaken the likes of Volvo and Subaru
• One of the wildest charts from the quarterly presentation was a day-wise breakdown of orders, that showed a spike in Tesla’s booked the day after the Super Bowl (American football final), with heavy competitor advertising during the event, ultimately assisting Tesla as a leader in the EV space
• It however not all smooth sailing, with a strict Covid-19 lockdown in China expected to impact ~50k deliveries, as Tesla’s gigafactory is just restarting production

And elsewhere? Twitter, Boring Co., SpaceX, Neuralink et al.

• In a regulatory filing, Elon Musk has revealed plans to raise USD 46.5 Bn (split equally, b/w cash & debt) to fund his bid for Twitter, answering one of the biggest questions regarding the takeover
• Likewise, Musk has plans to launch a tender offer, a direct offer to shareholders that sidesteps the board and would be in response to the Poison Pill (limits Elon from amassing >15% of the company, while allowing other shareholders to buy more shares are cheaper prices) adopted by the board
• Elsewhere, Musk announced a USD 625 Mn fund-raise for his tunnelling enterprise, The Boring Co., recording a USD 5.6 Bn valuation; the press release highlighted the company intends to create safe, fast-to-dig, and low-cost transportation, utility and freight tunnels

Greatest of all time?

• Elon Musk is the wealthiest man in the world, has now built four multi-billion dollar companies and a fifth company that is worth more than USD 1 Tn
  • Tesla – USD 1 Tn + MCAP
  • SpaceX – USD 100+ Bn Valuation
  • PayPal – USD 100+ Bn
  • The Boring Company – USD 5.6 Bn
  • Solar City – USD 2.6 Bn
  • Neuralink – USD 1 Bn
• Tesla was long ridiculed, and at one point held the record for the most # of active short positions, in stark contrast to the company’s fortunes today
• Warren Buffet accumulated 99% of his USD 250 Bn wealth after his 50th birthday; Elon’s the same age

What else caught our eye? 👀

India slipping in the ranks

• March saw India slip to the third place in the Emerging Markets (EM) league table majorly because of the impact of the ongoing war which is adding to inflationary pressures, weakening the currency, and sending stock prices lower
• Indonesia and the Philippines emerged on top of this table buoyed by strong exports and GDP growth respectively with Russia coming in last
• China, another usual top competitor came in fifth after the new wave of infections led to its zero-covid policy which impacted supply chains worldwide

All about India’s largest IPO

• The IPO size for LIC has been trimmed down to Rs. 30,000 Cr from an earlier Rs. 60,000 Crore and may be slashed to Rs. 21000 Cr with a greenshoe option of Rs. 9000 Crore
• Anchor investors include Abu Dhabi Investment Authority, Singapore-based GIC, three Canadian pension funds and Qatar Investment Authority for the IPO with a market cap of Rs. 6 lakh crore
• The decision over the timing of the IPO will be taken this week – the question is if retail and domestic demand is enough or if they should wait for geopolitical tension to ease and FIIs to return to the market

Results Preview (Nifty 200)

Thursday, 23rd April: ICICI Bank

Educational Topic of the day

Accretion

Accretion is a finance term that refers to the increment in the value of a bond after purchasing it at a discount and holding it until the maturity date. A bond is said to be purchased at a discount price when the purchase price falls below its par value.

As the redemption date approaches, the value of the bond will grow until it converges with its par or face value at maturity.

The acceleration in the value of the bond over time is known as the accretion discount.

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