The Economy Is Re-Starting
Yesterday’s Market Performance
Nifty: 16258.80 I 128.00 (0.79%)
FII Buy Net: 2828.57 CR
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DII Sell Net: 411.36 CR
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In today’s issue, we discuss;
- India recorded 34% growth in the export numbers, are we getting close to economic normalization? Hope so!
- Varun Beverages dropped their quarterly results: the company’s recorded strong recovery.
- Top movers and shakers of the market, other important financial news, and an educative concept to help you keep learning. Read along!
IIFL Wealth: 1,589.60 | 205.80 (14.87%)
The script surged over 14% after the company’s net profit rose 42% to Rs 116.85 crore in the June 2021 quarter from Rs 82.27 crore during the year-ago period
Vodafone Idea: 6.00 | 1.40 (18.92%)
The share tumbled over 18% after Vodafone Chief Executive Officer Nick Read said the telecom major will not be infusing fresh equity into debt-ridden Vodafone Idea
Note: Above are not owned by the authors of the newsletter and are neither recommendations to buy the stocks; not our style at FinLearn.
Trade Deficit widens further, alluding to a return to economic normalization as lockdowns ease (what?)
- The economy is re-starting!! July’21 recorded a trade deficit (difference between what we export and import, linked directly to demand & supply of goods) of USD 11.2Bn, up from USD 9.4Bn in June’21; Exports were up 8.2% sequentially, and imports expanded by 10.8% leading to a wider deficit
- Against the low base of 2020, exports & imports showed solid growth (?) 48% and 63% respectively; interestingly, if we take FY19 as a base (when everything was normal, whatever normal means :P), both exports & imports are up 34% and 15% (nice!!) respectively
- Exports were aided by growth across oil (grew 39% vs fall of 25% in June 21) & non-oil sectors (growth of 35% yoy) depicting decent global demand (across both oil & non-oil)
- A gradual recovery would imply a widening deficit, with import growth exceeding that of export, largely led
Interesting! Tell me more? What categories have grown the most?
- Labor-intensive sectors, such as engineering goods (up 42%), petroleum and organic chemicals (up 28%), pharmaceuticals, gold & jewelry, have been among the major contributors to exports in the past 2 years; Iron Ore exports saw a drop for the first time in 27 months, recording a negative growth of 3.5% YoY, on the back of a slump in demand in China, the largest importer of Iron Ore
- Imports grew 11% sequentially, driven by an MoM growth in Gold (up 333%) and Petro Products (21%), with fuel consumption still to pick up beyond pre-covid levels; Non-Oil Non-Gold Imports growth moderated to 41% growth YoY (low base et al.), with Electronic & Capital Goods showing decent uptick (11% & 15% YoY)
- Prima Facie, one would imagine this trend to continue (especially if you look at an FY19 comparison), thus implying import led growth outstripping export-led helped by increased vaccinations & gradual opening of localized lockdowns across geographies, leading to economic normalization
Okay? Why have you told me all this? Give me some context please? (Yessss)
- Greater imports vs exports would directly impact our Current Account to GDP ratio which presently is forecasted for a deficit of ~0.85%, implying a Balance of USD 26 Bn, from a surplus of 0.9% in FY21 (albeit with moderating capital flows, the balance is expected to touch ~USD 50 Bn for the year)
Positive BoP (Balance of Payments) dynamics have a direct impact on the INR vs USD equation (keeping it stable, as global liquidity continues to chase Emerging Market arbitrage)
Flows are important, and FIIs drive a large % of volume on a daily basis, with a weakening / stable INR against the USD extremely important to maintain current status (with Fed rates as they are present) and therefore maintaining the liquidity in the system (Nifty touching 16,000 was driven by ~USD 700 Million in large-cap, starting mid- July, buying driven by FII flows)
Varun Beverages, master bottler & distributor for PepsiCo. in the country dropped their quarterly results; what did we make of the performance and what that tells us about overall consumption trends
Product LowDown: Pepsi-Cola, Mountain Dew, Mirinda, 7Up, Everest, Tropicana, Nimbooz, Sting, Aquafina
Geographies: India (~90% right of manufacturing & distribution), Sri Lanka, Nepal, Morocco, Mozambique, Zambia, Zimbabwe
- Revenues recovered 85% of pre-covid levels vs 55% recovery during the first phase of the lockdown (was better than the 75% recovery forecasted by the investing community); the company has seen a 2-year revenue CAGR of 10-12% for Calendar Year 21 (year to date) indicating the minimal covid impact
We covered the company some issues ago, including the introduction of lower-priced SKUs, massively improving go to market for the products; growth has also been boosted by the introduction of a wider range of offerings, with the newest brand, Sting already achieving a critical mass of 10 mn cases (in the first half of CY21, launched in end CY19);
Other categories like Juices / Carbonated Soft Drinks (sale of Tropicana by PepsiCo. will not have a bearing on their agreement with VBL, which has signed a 20-year lease for production) and Water have seen volume growth of 35% and 200% (water volume on a low base)
- EBITDA % improved marginally (30bps) despite a hit on gross margins (higher PET/sugar prices), with the company instituting strong cost savings & consolidation of two acquired plants
The company has seen a consistent drop in gross margins between CY17-20 (~5%), due to a consolidation of low margin territories and accentuated in the last 2 years by Covid-19; debt reduction (partly through IPO proceeds, and through internal accruals) have helped pare INR 4.5bn in debt, drastically reducing interest expense (which should be viewed as a +)
The company indicated a recovery back to pre-2017 margins through a leaner cost structure (helped by Covid-19) and building on operating leverage (we’ll keep track, you should too)
Interesting! Anything else?
- The stocks seen a 52 week low of 430 and a high of 919, has decent FII and DII ownership and has been on a debt reduction spree (which we like); interest expense saving should result in a strong EPS CAGR of 30% between CY19-23E (source: Emkay Research)
- The company’s recorded strong recovery and the reception to new products and initiatives launched (lower priced SKUs, stocking of cooling units at no additional costs), has been positive, with positive margin reversal likely in the near term, the company prima facie is making all the right noises (be it topline or bottomline)
Keep a track?
Authors of this newsletter don’t own the above name.
What else caught our eye? 👀
Nykaa preps for a public market debut
- India’s first women unicorn, filed its draft papers with the regulator yesterday, preparing to list on the bourses in the near future; the e-commerce site for beauty products plans to raise INR 600 crore from the markets
- The company offers more than 2500 products (across mascara, makeup, eyeliner, and more), has ~70 brick & mortar stores, and has recorded a run-rate of USD 330 million (rising by 35% during the pandemic)
- If all goes to plan, Nykaa is poised to become India’s first women-led unicorn to go public, with the Promoter / Management group owning ~50% of the company (last valued at USD 2 Billion)
The government apparently preparing a relief package for the Telecom Sector
In response to the letter released by Mr. Birla? Or just taking cognizance of a sector that now has 2 / 3 participants standing, the Government of India is preparing to release a relief package to the tune of INR 70,000 crore for the state-owned company, BSNL
The telecom department plans to release a relief package allowing telcos to surrender spectrum, reduce bank guarantees, phase out levies, and prospectively define AGR to provide relief to the sector, and Vi (okay, this looks like a lot for one relief package, we’d be wary)
Mr. Birla has also resigned as the Executive Chairman of Vi, which was ratified by BoD and would seem? to firm up their plans on exiting the company
India state refiners to invest USD 27Bn in the next 5 years to boost refining capacity
India is the world’s third-biggest oil importer & consumer, with a production capacity of ~249 million tonnes a year, translating to ~5 Million barrels per day
The government expects refining capacity to touch 298 million tonnes by 2025, with state & private refiners increasing capacity (through government support); Indian Oil indicated in their annual report a target to touch 88 Million tonnes (from 70 Million presently)
India is expected to be the main driver of rising demand for energy over the next 2 decades, accounting for 25% of global growth, and is poised to overtake the European Union as the world’s third-biggest energy consumer by 2030
Technical indicators are heuristic or mathematical calculations based on the price, volume, or open interest of a security or contract used by traders who follow technical analysis.
Asset Quality Deteriorates Across NBFCs 📈