Yesterday’s Market Performance
Nifty: 15763.00 I –15.50 (0.10%)
FII Sell Net: 2274.77 CR
DAX: 15,544.39 I -96.08 (-0.61%)
Sensex: 52586.84 I -66.23 (0.13%)
DII Buy Net: 921.45 CR
FTSE: 7,032.30 I 46.12 (0.65%)
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In today’s issue, we discuss;
- Radico Khaitan dropped its quarterly results- recorded a net profit of 36%.
- Auto sector shows signs of a rebound- aided by easing lockdowns and pent-up demand.
- Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!
Sun Pharma: 773.95 | 70.95 (10.09%)
The share jumped over 10% after the company reported a net profit at Rs 1,444.1 crore against a loss of Rs 1,655.6 crore (YoY)
Tech Mahindra: 1209.55 | 81.75 (7.25%)
The share price jumped over 7% after the company reported better numbers for 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.
Radico Khaitan drops another quarter beating performance; what’s in store for the alco-bev space and what do you need to know? 🍻
- Radico Khaitan (RDCK) reported another strong quarter, with volumes beating industry levels (IMFL industry volumes grew 52% vs RDCK growth at 59%) to 5.6 mn cases (55% domestic growth); sales beat street estimates and grew 47% during a quarter that was initially impacted by strict lockdowns (and limited delivery opportunity as well), with MoM run-rate eventually picking up in May
P&A (classified by the company as Prestige & Above, constituting brands on the higher side in terms of price, and margins) continued to extract market share from peers and recorded a 41% volume growth (which was lower YOY due to the impact of lockdown, but still better than industry levels)
The company recorded PAT growth of 36%, in spite of gross margins being impacted due to unfavorable product mix, high comparables, and higher input prices (more on that below); EBITDA grew by 22%, with overall margin hit lesser on the back of lower employee and other overhead costs;
Exports grew by double digits (Rampur Single Malt & Jaisalmer Gin, two marquee brands) contributing ~7% to the turnover during the quarter
Nice!! Give me some more details? 🤓
The company plans to increase focus in the whiskey segment (think: 8 Pm), with the launch of two super-premium brands, and further its market share in the vodka segment (think: Magic Moments) through the launch of a super-premium vodka brand, all in the next 12 months
Besides building on its market share gains, the company plans to increase its presence (more than usual) in key markets, namely UP, AP, Karnataka, and Telangana
From a bottom-line (another kind :P) perspective, the company indicated an expectation for stable raw materials prices (think: molasses, sugar, ethanol), with moderate inflation (& controllable) in glass & packing materials (the company runs a Tetra Pack packaging facility for its rum segment), and thus a return to 50-51% in Gross Margins in the coming quarter (helped by a better product mix & re-opening of on-premise consumption)
- The company expects to deliver 20-25% RoCE on the back of the above, with the expectation of a net debt 0 position in FY 23 (the company has been on a debt reduction journey since FY17, generating free cash every year, see exhibit below), plans to increase dividend/buyback accordingly
The company trades at a huge discount to peers (think: UBBL, UNSP, other discretionary peers like Asian paints, Berger Paints, HUL, Marico, see highlighted table below), and has consistently outperformed on growth & execution fronts; you can expect the valuations discount to narrow?
What’s the catch? What’s the hidden point? You’re right, the company has previously suffered from Corporate Governance issues, with the promoters accused of diverting money into non-core business-related investments, suppressing profit, and taking on far greater debt than the company could service
All this seems to be in the past – the company is on course to becoming debt-free in FY23, has delivered year after year of stellar growth (revenue & PAT), and has on-boarded reputed auditor Walker & Chandiok to conduct statutory audits going forward; the stock is well owned in the domestic MF & FII space alike, with healthy retail participation as well.
Note: Authors of this newsletter own stock of Radico Khaitan, although this is not a recommendation by any means, not our style at FinLearn. If you want to analyze Mid-Caps in this way, including building a laser eye focus towards numbers & promoter integrity, head over to FinLearnAcademy to know more!
Auto Trends and on the ground analysis, what it tells us about the next month and how does it impact you? 🚙
- Channels checks indicate the positive momentum recorded for Automobile companies in June, is expected to continue for the month of July, aided by easing lockdowns and pent-up demand
Category wise performance –
Tractors should be supported by a low base, and improved customer sentiment on the back of a near-normal monsoon, and adequate reservoir levels;
Passenger Vehicles (PVs) industry volumes are expected to improve on the back of pent-up demand, healthy order book, and pick up in enquiries/bookings in rural/urban areas (helped by easing of lockdowns); wage revisions for government employees (Woah!!) is also expected to add impetus
2W volumes are expected to be better sequentially (comparing 2020) although growth is expected to remain lower than 2019 levels; churn is expected to be minimal, and new product launches have been few and far between for customers to want to upgrade (Royal Enfield aside, which has released a new generation bike, but dispatches are likely to start in August 21)
CV industry volumes are expected to follow a similar pattern to 2W, with major purchases expected to remain lower in comparison to 2019, with freight demand limited due to a possible third-wave threat
Nice! What do I do with this though? Give me something tangible? 😏
- It’s all about names, isn’t it? TATA Motors (ahh TAMO, you good friend :P), Ashok Leyland (in CV space), Maruti Suzuki (need we say more?), Eicher Motors (in the 2W & CV space) are all industry leaders and can be beneficiaries of a return or rather a more robust return of demand (not taking valuations into perspective)
In the tractors space, Escorts (especially on a very low base from last year) and Mahindra & Mahindra (not taking valuation into consideration) are expected to deliver decent(ish) numbers
Auto-Component manufacturers, including Motherson Sumi and Apollo Tyres, are natural beneficiaries (chip shortage permitting)
What else caught our eye? 👀
Jio added most active users in May, stealing market share from Airtel & Vi
- Jio added 2.8 million subscribers in May21, taking its active market share to 34.3% and overall subscriber count to 338 Million; Airtel & Vi lost 5.6 & 7 Million users respectively on the back of aggressive pricing and introduction of Jio Phone, attracting lower end subscriptions (more vulnerable to pricing)
- Overall active subscriber count for the telecom sector fell by 11 million to 986 million, reflecting consolidation in SIMs and impact of covid second wave (what?)
Oyo closes strategic investment from wait for it….Microsoft
- Valuing the company at USD 9 Billion, the technology major Microsoft has finalised a strategic investment in the hospitality chain (with the further option to increase stake later on) with more such strategic partnerships on the table as the company looks to access the capital markets in the near future
- The hospitality chain recently raised USD 660 million in a term loan facility from global institutional investors (of course) that was oversubscribed 1.7x and currently counts SoftBank Vision II Fund, LightSpeed Venture Partners amongst others as backers
Fibonacci retracement levels are horizontal lines that indicate where support and resistance are likely to occur. They are based on Fibonacci numbers. Each level is associated with a percentage. The percentage is how much of a prior move the price has retraced.
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