Yesterday’s Market Performance

Nifty: 17003.80 | -68.80 (-0.40%)
FII Net Sold: INR 271.59 crore

Sensex: 57124.31 | -190.97 (-0.33%)
DII Net Bought: INR 1,196.48 crore

Howdy Toasters!

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

• HSBC AMC agrees to buy L&T Investment Managers
• Ola taking longer to hit the jackpot
• An education concept to keep you chugging along

HSBC AMC agrees to buy L&T Investment Managers for USD 425 Million; What’s up and What do you need to know? 🤝

Deal Contours

• HSBC AMC shall acquire 100% equity shares of L&T Investment Management Limited (LTIM), a wholly-owned subsidiary of L&T Finance Holdings (LTFH), and the investment manager for L&T Mutual Fund for a sum of USD 425 Million
• The deal will likely require approvals from SEBI, CCI, and other regulatory bodies (think: AMFI), with a likely timeline of ~10-12 months (taking into consideration other such transactions)
• In addition, LTFH will be entitled to excess cash in LTIM, until the completion of the acquisition

Nice! Info on LTIM, HSBC AMC & Deal rationale? 🤩

• L&T Mutual Fund is currently the 12th largest AMC in the country, with AUMs of ~ INR 803 Billion and >2.4 Million active accounts; India’s OG infrastructure conglomerate entered the mutual fund business after acquiring DBS Chola in 2010, later increasing their AUMs by taking over Fidelity’s India Mutual Fund business (~8881 crores)
• This isn’t the first time LTFH has tried exiting the MF business, with an agreement signed with Blackstone (a year ago) falling through at the final hurdle over regulatory clearances and valuation differences
• The key rationale for LTFH to pursue an exit has been a realignment in core group strategy, with the financier looking to focus primarily on their lending business, and accordingly free-up capital via stake / outright sales
• In addition to selling their Mutual Fund business, LTFH in 2019 also exited the wealth management business via a sale to IIFL Wealth
• From HSBC AMC’s perspective, this acquisition ties in to their longer term goal of developing a wide wealth management business, significantly improving their AUMs, which at INR 117 Billion dwarf in comparison

Interesting! Tell me more? Valuations, stock price et al.? 🤔

• HSBC will likely fund the acquisition from existing resources, and will have minimal impact on its Common Equity Tier 1 Ratio, with the bank indicating that it expects the acquisition to immediately be valuable accretive from an earnings perspective, and add RoIs >10% in the longer term
• Q2FY22 average AUMs for LTIM were to the tune of INR 78,274 crores, and with a cumulative deal value of INR 3,800 crores, rough calculations indicate that the company is valued at ~4.9% of average AUMs
• To give you context, the recently concluded Sundaram AMC and Principal deal was valued at ~4.5% of average AUMs; however, listed players (much larger & better run) in comparison command valuations in the 8-10% of average AUM range
• The stock reacted negatively, on the day of the announcement and was down ~6.8%, primarily because news of the sale has been reported across media outlets leading up to the official exchange notice (stock up ~2.8% during the week)

Keep a track for further deal announcements and next quarter results?

Like our news coverages?😍 Become a part of our fam, subscribe to our newsletter. Subscribe here

Ola taking longer to hit the jackpot; what’s up and what do you need to know? 😧

• Mass production of Ola’s e-scooters are likely to be delayed further until January after they were pushed from October to mid-December
• Total orders received stand at 90,000 (Acc to the Founder), with the current manufacturing capacity at 150/day (whoops) not helping
• Adding to their woes is the global shortage of chips + India’s huge dependance on imports, especially in the EV space
• Many customers voiced their disappointment on social media, especially those who had paid the entire amount of Rs. 99,999 upfront, with the top Management indicating that a delay of 2-4 weeks is minimal compared to the industry standard

Damn! Do I want to know more? 🙄

• Indian automakers don’t have a reliable supply chain yet, as 70% of the components are imported from China; also, the company’s body shop is operating at half capacity and its paint shop isn’t even operational yet
• The company started the year with a promise to be the world’s largest scooter factory producing 100 million scooters a year, and recorded >150,000 bookings via a small deposit
• The company released few bikes earlier this month (primarily to test), in a grand ceremony (for social media, ofc), with >1000 customers reverting with mixed reviews, including overheating, with the vehicle coming to a halt post hitting its top speed (115 Km/ph)
• Several features (like the hill hold) haven’t been added to the tester product either – Ola has justified that features will be added continuously “like most tech products”

But wait, that’s not all! 😶

• The founder in a tweet seemed to dismiss the issues highlighted by recent media reports, indicating that the factory is ramping up fast, with growing number of deliveries (without particularly giving any numbers)
• The company’s seen several top management changes, with the CFO, COO, Quality Assurance Head to name a few making exits (although this has been the case in the past, with minimal impact on business)
• The EV space is hot, more so with several government (both central & state) initiated subsidies drastically reducing cost of manufacturing, and cost of purchase, which will likely heat up the competition between incumbent players (think Bajaj, TVS, Hero) and relatively new entrants like Ather & Ola

What else caught our eye? 👀

Brownfield investments to be unlocked

• The National Monetisation Pipeline (NMP) will help release capital through the monetization of de-risked brownfield assets
• Private sector investments in these assets will produce cashflow which can then be used to create greenfield infrastructure assets
• Announced in August 2021, the NMP is looking monetise 13 classes of core assets with an estimate value of ₹6 trillion over FY22-FY25.

RBI taking their role seriously

• RBI will be conducting another three-day Variable Rate Reverse Repo (VRRR) auction on Monday (it has been conducting four and seven day auctions too)
• The aim is to remove from circulation up to Rs 2,00,000 crore – just last week it sucked up Rs 81,160 crore from the system in a surprise auction
• The auction route seems to be favored by the current officials though the general opinion is that hiking the reverse repo rate would have led to less volatility

IIFL to invest big in the Fintech space

• IIFL Fintech Fund to invest Rs. 300 crore in early-stage Indian Fintech startups
• The fund which was set up in August 2021 has already invested in four startups and will end the fiscal year with ten more
• It has received cumulative sponsorship of Rs. 140 crore from two IIFL Group firms—IIFL Finance and IIFL Securities

India Volatility Index (VIX)

India Volatility Index (VIX) indicates the degree of volatility or fluctuation traders expect over the next 30 days in the Nifty50 Index. India VIX was introduced by the NSE in 2008, but the concept was originally introduced by Chicago Board Options Exchange in 1993.