Yesterday’s Market Performance

Nifty: 16563.00 I 33.90 (0.21%)
FII Sell Net: 1088.32 CR
DAX: 15,925.73 I 51.71 (0.32%)

Sensex: 55582.58 I 145.29 (0.26%)
DII Buy Net: 506.21 CR
FTSE: 7,218.71 I 64.73 (0.90%)

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Before you get started, we just wanted to holla at you about a discord server we’ve recently launched. All things finance (trading, investing, economics, data, MFs & more) + memes (of-course). Join here (promise we won’t spam, have we ever??)

In today’s issue, we discuss;

• Poonawala Fincorp reported profits of INR 645 Mn in Q1, planning to introduce several new products to scale up the business.
• Ola forayed into India’s EV market (yaya can’t keep calm)
• Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!

Tata Steel: 1519.40 | 57.75 (3.95%)

• The share price gained over 3% after the company posted a consolidated net profit of Rs 9,768.34 crore for the quarter ended June 30, 2021

Spicejet Ltd: 68.65 | -3.40 (-4.72%)

• The stock tumbled over 4% after the company’s net losses widened in the quarter ended June 2021

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

Poonawala Fincorp (previously, Magma Fincorp) rejigs from top to bottom; poised for v2.0 and more?😎

Background

• Name sound familiar? Poonawala’s from Serum Institute of India (Covishield & More) acquired Magma Fincorp (NBFC from East India) in the last 6 months, changing the company name, infusing capital, rejigging management, and diversifying a portfolio to deliver a vision for v2.0 (phewss!!)

What’s up?

• Poonawala Fincorp reported profits of INR 645 Mn (missing consensus Bloomberg estimates of INF 754 Mn) due to lower Net Interest Income and Net Interest Margins, as the lender gradually changes its portfolio towards more secured products (more on this below)

• Gross Stage 3 (categorization of assets, prior to terming them as NPAs) surged to 5.4% (3.7% in the previous quarter) due to Covid-19 led collection inefficiencies; overall restructured book stands at INR 8.5 Bn (~6% of AUM) against which the company holds provisions of INR 1.5 Bn and an additional overlay of INR 2.8 Bn (~2% of AUM)

Interesting! So what next? What’s the plan? 🧐

• V2.0 is a bit different? The company aims to limit its exposure to the riskier business of used CV / CE & Tractor financing (higher rate of interest, more volatile repayment cycle) and instead build a healthier mix of secured and unsecured loans

• The new management (the company has installed a new professional team, from top to bottom) intends to create a significant presence in loans to professionals, Personal Loans (PLs), non-affordable housing, and SME Loan against Property (LAPs)

• Likewise, in order to rejig the portfolio (and leverage digitization), the management intends to introduce consumer durable financing, co-branded credit cards, and digital lending products by the end FY22 (new management, new ideas)

• The company has kickstarted this new direction, reflecting in the Q1 numbers – disbursement remained healthy at INR 17.3 Bn (+7x yoy, 22% qoq), mainly tilted towards secured products like housing

Nice! Tell me more? 

• The company sits on comfortable liquidity of INR 32.4 Bn as of June 21, and the incremental cost of borrowing stands at <7% (plans to bring this down to <1.5% in the near term)

• The changed profile of the promoters should significantly improve the company’s borrowing dynamics (gradual shift towards capital markets), in turn, brings in a rejig of asset class and the right blend of secured vs unsecured

• The company has carried out a complete overhaul of its credit and underwriting policies in the last 2 months, leveraging learnings from its own business (Poonawala Finance) and industry best practices

• The business shift is likely in the mid to longer-term, from a past rural focus to semi-urban / urban geographies (with changing product mix); near term growth can be expected from used pre-owned car finance (average time duration holding vehicles as dipped from 6 yrs to 4.5), business loans, affordable housing & LAP

Final word? Summarise please, way too much information (sorry sorry) 😅

• Post the fund infusion, the company is well placed in terms of adequacy, promoter backup and liquidity; probable rating upgrade (upon improved borrowing profile), lower cost of funds, promoter ability to inject funds (without fear of forced dilution) all augur very well for the future (from a stock positioning perspective)

• RoA & RoEs seem well poised for FY23E and FY24E, with current valuations hovering in the 2.2x adjusted P / Bv range for a similar period

Ola launches electric scooter, riding into the EV space and intensifying the competitive landscape (for listed & unlisted alike) 🥳

• Ride hailing major, and now 2W manufacturer, Ola launched its EV 2W on Independence Day (poetic), prima facie delivering models with specs better than incumbent players, at cheaper price points (classic PE backed strategy :P)

• On-road prices, which include benefits of FAME II subsidies, and not including state-specific subsidies (centre + state push to electrify transport) are INR 99,999 for S1 and INR 129,999 for S1 Pro, which are cheaper than current industry incumbents (think listed players: Ather Energy, Bajaj Chetak & TVS Motor)

• S1 model features a 121 km driving range, 90 Km / Hr top speed, 0-40 km acceleration in 3.6 seconds (damn!!), multiple driving modes, reverse option, navigation and remote monitoring; S1 Pro, includes a higher driving range of 181 kms, with more driving modes

• The S1 model contains a 2.98 KwH battery pack, which is larger in comparison to Ather Energy, Bajaj Chetak and TVS Motors at a cheaper price point, and giving a longer driving range (interesting!!)

Nice!! So, another Jio moment in the making? (Jk Jk)

• The company has plans (not going to lie); they’re reported to touch a production capacity of 1 Million vehicles soon, with deliveries starting in October 2021 (initial capacity of 20,000 units from their plant in Karnataka); the company received ~ 1 Lakh pre-orders (you could book one by committing INR 150 we think)

• Prima Facie, especially with the specs listed (rider feedback on the range is key), Total Cost of Ownership would suggest that owning an Ola EV 2W would provide better value in comparison to the Honda Activa ICE (assuming monthly usage of 350 Kms in Maharashtra)

• In the next 4-5 years, EV penetration is expected to rise to 10-15% in E-2Ws, 50% in Intracity E-buses, and 20-25% in InterCity E-Buses, auguring well for players like Ola

• The competition is heating up, with listed players like Ather, Bajaj Chetak and TVS Motors bound to feel the heat eventually (once the initial scepticism fades away); Ola is in it for the long haul (and their ability to raise capital, wouldn’t hurt either) with growth & margins equally under pressure for incumbent players

What else caught our eye? 👀

Saudi Aramco is close to finalizing a deal for up to USD 25 Billion with Reliance Industries

• The Saudi Arabian giant is discussing the purchase of roughly 20% in RIL, in a supposed all-stock deal (~USD 20-25 Billion in Aramco shares, giving RIL ~1% in return)

• A transaction would prima facie be beneficial for both parties, boosting Aramco’s sale of crude to India, and giving India’s largest conglomerate a steady supply of crude for its giant refineries

• The biggest indication of the deal reaching fruition came in July, during the Reliance AGM, when the Saudi Aramco Chairman, Yaseer Al Rumaayan was inducted on the  RIL Board (sooner rather than later, this one will happen)

Adani plans to launch a super app (no wayss) 

• India’s favorite billionaire (second?) will soon launch a super app (in vogue) combining all the consumers of his various business under one unified platform, allowing them to transact cross-functionally

• The group has 400 million customers that engage at multiple levels with the various products & services, with plans to bring them all under a single fold (ambitious?)

Rural India consumption outperforms Urban levels handsomely 

• With an improving Covid-19 situation and good monsoon rain, Rural led consumption of groceries & food items outpaced cities in July, reversing the trend in June (recorded higher urban consumption for the first time in 2 years)

• The second wave had a much harder impact (in comparison to the first wave), when activity was not particularly affected; rural markets were helped by interventions through the free supply of food grains, direct benefit transfer of money and the outlay on the rural jobs guarantee than ensured demand was durable

Odd Lot

A number of shares which are less than or greater than but not equal to the board lot size. For example, if the board lot size is 100 shares, an odd lot would be 95 or 102 shares. Usually odd lots are difficult for trading and it is not accepted easily in the market.

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