August Series To See Consolidation | Trade Setup: July 28
Transcript
00:00 Good morning and thanks so much for tuning into the Trade Setup. I'm Neeraj Shah. Let's
00:04 take stock of the markets and a lot of stocks which will react today on open. So let's try
00:09 and figure out all of that as well. First, the US markets took a bit of a U-turn really.
00:14 I mean, we're doing well for a better part of the day and then went off about two thirds
00:21 of a percent, if you will, for the Dow that has that to connecting a little bit. So while
00:25 we didn't quite have the 127-year-old record broken, but still 13 days of gains, straight
00:32 gains is not a mean feed. So good going there. No big changes on the other queues per set.
00:37 So that kind of steady, steady as they go, no big changes there. The GIFT Nifty should
00:43 be pointing towards a start, which is indicating some consolidation. Remember, we had a downtick
00:48 in trade yesterday for our markets, so kind of preempted some of this as well. Some global
00:54 news flow before we get to the key stats of trade yesterday. So gasoline prices in the
00:58 US have hit an eight-month high. Now, that is a bit of a pickle from an inflationary
01:03 perspective. Sugar spread has collapsed on good prospects for Brazil harvest. More so
01:07 for the domestic sugar stocks. It is important, but important to keep that in mind as well.
01:13 China's weak consumer and property market point to possibly a gloomy economy as per
01:18 a headline on Bloomberg. Well, and would that mean that there is more stimulus coming is
01:23 the question. And at the Bali G20 summit, Prime Minister Modi and Xi Jinping discussed
01:30 bilateral relations. Well, hopefully they improve sooner rather than later. So some
01:36 global news flow there. In other news, of course, Intel posted a very strong quarter
01:41 and the stock is up about 6-7% in after hours. And frankly, viewers, if you follow the story
01:46 of what Intel did or what Intel has done in this year, from promising about a profit number
01:52 or good prospects only two years out to suddenly bring you a surprise profit, you suddenly
01:57 you now know that at times even management don't quite know what is coming up in the
02:03 business. So really strong showing by that stock in the US markets when they open today,
02:09 Intel will be a strong show. It anyways has in after markets move quite a bit. Nevertheless,
02:13 coming back to Indian markets, the key stats of trade yesterday, something that we started
02:17 doing over the last three or four sessions, hopefully it helps. So Nifty corrected about
02:21 0.6%, but recovered from the day's low, by the way, it had corrected nearly 0.8, 0.9%,
02:26 ended up at 0.6% lower. Bank Nifty wobbled and the roll over this month is also not very
02:32 high. So you can very well argue that there are not too many long bullish positions in
02:37 the Bank Nifty, despite the fact that banks aren't exactly expensive and the results thus
02:41 far have proved to be okay. Yesterday, Tech Mahindra, Axis and Bajaj Finance led losses
02:50 along with Mahindra and Mahindra, which was the top user and Pharma stocks and like Zipla
02:54 and Dr. Reddy's led the charge higher in trade. Now, you know, therefore, what's the trade
03:00 set up of today's trade? Well, you know, yesterday's weakness attributable to overbought conditions
03:06 and the monthly settlement, maybe the 20 EMA now, therefore, of 19,500 remains the key
03:13 support zone for the indices. Remember, bulls have enjoyed a winning streak for four consecutive
03:19 expiries with July recording gains of more than 3.5%. Can August finally be that consolidation
03:25 move? Support at 19,500 or slightly lower resistance as we approach 20,000. Could we
03:31 be there in and around that period? Very likely, it could even be lower, by the way, and even
03:36 that would be considered a consolidation move because we've had such splendid run since
03:40 March that you can't argue too much against it. And Pharma continues to be the key sector
03:45 being bought into. By the way, for the July series as well, the pocket which had the maximum
03:50 gains was Pharma, 9.5%, if I'm not wrong. So really strong show by pharmaceutical stocks
03:56 in the series gone by as well. And that's to be kept in mind. Flows were negative, 3,979
04:02 crores from their buys, DI has bought about 2,528 crores. And even if you dismiss this
04:06 as a one-off, you have to admit that in the last 10 days, we've had three days of FI sell
04:11 numbers. One was a small number digit number, but it's not a one-way street anymore, as
04:15 it should not be as well, because they've pumped in money in all of the last three months,
04:21 May, June and July too, despite these sell numbers would be very strong on pop flows.
04:27 At some point of time, you will hit normalcy, if you will. So that's to be kept in mind.
04:33 It's a big day for earnings too, not too many large index names, but well, Madras and Sunni
04:38 is important. Manaco is important. There is M&M Financial Services, Exide, because of
04:43 the recent run-up that we've seen in that stock is important. There is Shalya Hotels,
04:47 very important to see what this one does after what Indian Hotels has done. There is United
04:54 Breweries, Supreme Industries, SPA cards and payments. So a bunch of very important names
04:59 on your numbers today. So do watch out for those. Now, stocks to watch in the session
05:03 today. That's a large list. So be mind with me. So first one is Bharat Electronics. I'm
05:10 starting off in the order of stocks that might have the biggest reactions on open. So VEL,
05:14 revenues up to 12.48% at 3533 crores versus 3141. The estimate was for 3494 crores. So
05:23 they've come in marginally above estimates, actually exactly in line with estimates on
05:26 that base. The EBITDA is where the beat came in, 673 crores versus 522. The expectations
05:32 were 546. So decent beat on EBITDA, nearly 25% of that above. EBITDA margin, 19.4% versus
05:41 16.6. The expectation was 15.65. Big beat there. Net profit there for 539 crores, expectations
05:47 of 498, a beat out there too. So strong showing by VEL. I would reckon that this one could
05:55 have a gap upstart in the session today. Indus Towers, well, you know, the point is it's
05:59 seen such high rolls and so many long positions rolled over that the expectations were very
06:04 high. Now, revenues up to 2.58% at 7075. No big changes there. EBITDA, 51% though. EBITDA
06:12 margin 49% versus 33%. Net profit 1347 crores versus 477 crores. The expectations were in
06:20 fact 1427 crores. So in a sense, they actually came out with numbers which were slightly
06:27 lower than estimated, but they did not take any further provisions against receivables
06:32 from IDIA, which is big. Second consecutive quarter of no provisions. The tower additions
06:38 was positive. FCA was negative, of course, due to the sharp increase in the CapEx requirements.
06:44 So very likely that despite the fact that the stock has already run up in the last few
06:49 days, that it could have a positive reaction. So do watch out for Indus Towers in the session
06:53 today. Then ACC, I thought was a really interesting number. You know, two days ago, three days
06:58 ago, I was telling you about the Ultratec call and how constructive they were sounding.
07:03 The stock has done well since then. Now, ACC comes into the picture. You know, there is
07:09 a, excuse me for this light issue, but anyway, maybe I'll come to ACC in a bit, but watch
07:16 out for ACC as well. I'll give you the numbers in just a moment. There's an MK note, which
07:21 is very constructive there. So that's to be watched out for. Then Lupin is an important
07:27 one to monitor. They've announced a resolution of the USFDA warning letter for Goa and with
07:32 Thampur plants. The warning was received in 2017, by the way, the warning letter, November
07:40 6, 2017. This, they've received the correspondence addressing the concerns raised in the warning
07:45 letter for the facility. Now, why is this important from a Lupin perspective? Because
07:51 all major facilities of Lupin have finally gotten the approval from the USFDA without
07:55 any mistakes or errors. With Thampur and Goa are crucial facilities for Lupin, by the way.
08:00 And this, this will now you expect the US sales ramp up on large winds with, you know,
08:07 Spiriva launch in the coming quarters, et cetera. So I would suspect that Lupin has
08:11 the potential to be the stock of the day as well, despite the fact that it was up about
08:15 4% yesterday and has gained about 8-9% in the last one week. This is very positive news
08:20 for Lupin. Watch out for that. IPCA is the other pharma stock in focus. CCA has approved
08:25 IPCA Labs proposal to acquire controlling stake in Unichem. I mean, this is a formal
08:30 approval that was well known. So watch out for IPCA and Unichem as well. They've been
08:35 open offer made, 26% stake, et cetera. So this is well documented, but a formal approval
08:40 from CCI. The other one which has done very well in the quarter is Ajanta Pharma. revenues
08:46 up 7%, 1021 in line with estimates. BitTap performance, very strong, 271 crores. Margins
08:52 much better than estimated. Net profit rose about 19% to 208 crores versus 175 crores.
08:58 So really strong show by Ajanta Pharma as well. In the session today, I'll just try
09:06 and give you a sense from somebody who sent this note to me on Ajanta Pharma numbers.
09:12 Very good set of numbers. You know, they've maintained EBITDA margin guidance of 25% plus
09:19 or minus 1% for FY24, which is good. Mid single digit YY growth in US States for FY24. Price
09:27 erosion has come down, which is actually very good. Mid-teens YY growth in branded generics
09:32 as well. India business up by 15%. I think they put in probably all the right things
09:38 forward to Ajanta Pharma. And therefore that's the other pharma stock that you've got to
09:41 keep in mind. So these are the few that will have probably the biggest reactions. Now some
09:46 of the others. So Blue Dart, well, the numbers seemed a bit underwhelming. Net profit down
09:53 margins 15.4% versus 20.6%. So very likely that the stock might see a bit of an negative
09:59 reaction. It's an illiquid stock, be careful if you're trading it. Indian hotels. Now,
10:03 a lot of smart money told me that they are out of the hotel stocks because they were
10:11 in a fabulous run. I look at these numbers. Yes, they are lower than estimated. Sure,
10:16 the stock would react negatively, but the space still seems to be constructive. The
10:20 presentation still seems to be good. The growth outlook still seems to be very positive. So
10:25 don't quite know. I mean, 16% uptick in revenue and a 31% uptick in PAD is not bad, but you
10:32 have to keep in mind that the valuations that maybe one or two of these companies are trading
10:37 at actually make in very positive scenarios. So a slip here, a slip there would actually
10:43 upset the apple car. So very likely, I mean, I'm saying that Indian hotels in today's session,
10:50 by virtue of the valuations that he's trading at, are the numbers up to the mark? No, they
10:54 are not. Are they very disappointing? No, they are not. But certainly not up to the
10:58 mark. And you probably got to deliver quarter after quarter in a cyclical industry like
11:03 hotels to be able to get what you're getting. So I would suspect that there could be maybe
11:07 a bit of a negative reaction, but let's wait and watch. Some brokers are saying that it's
11:10 not going to be so. Keep that in mind. J.K. Lakshmi was a weak set of numbers. I thought
11:14 margins corrected, net profit down, revenue up 4.6% only. So yeah, not the best of numbers
11:23 you have to admit. And you know, cement, a clutch of names have been doing okay, like
11:28 I said about ACC. So in J.K. Lakshmi's case, the slip in volume kind of drags down the
11:34 overall profitability. EBITDA per ton was at 616 versus 691 QOQ and 848 YOY. So, you
11:40 know, not a great number by J.K. Lakshmi, not a great number by Sagar Cement either.
11:46 So both of those stocks actually could come under a bit of pressure in the session today.
11:50 Xiam Metallics, I thought was okay. The stock is trading at 52 week highs. Keep that in
11:54 mind. 403, 404 or thereabouts is where the stock is. So that's to be born. We haven't
12:00 won the prize here, but that's okay. It is at around those levels. Now, revenues up 2.5%
12:05 at 3,300 in line with estimates. EBITDA down 33% at 404, but better than the estimated
12:10 number. Margins, almost in line of slightly better. Net profit down 42% at 237, better
12:16 than the 195 crores. And Shyam has posted better numbers than Gulali Par and Ispa. Bear
12:22 that in mind. Good numbers. I thought under the circumstances. So let's wait and watch.
12:29 Sona BLW or Sona Comstar, whichever way you call it, both are right. But Sona Comstar
12:34 consolidated numbers, revenues up 25% at 731. The estimates were 776. EBITDA margin at 27.69
12:41 versus 32.15. Net profit 47.7, up 47% at 112 crores versus estimate of 108 crores. Now
12:51 the thing about Sona viewers, we will stick with this play, is that they have estimated
12:59 loss of revenues of about 25 crores in Q1 and about 100 crores in FY24 in the electric
13:05 two-wheeler business due to the fail to incentive reduction. But they expect traction in the
13:10 motors business to be much bigger than the iStartup motor business in three years' time.
13:15 So they're sitting on a pre-order book, but it's not a cheap stock. And a 100 crore number
13:23 miss or a shave off on the revenue front spread over four quarters, not that much, but could
13:30 lead to small misses like this relative to estimates. Maybe the estimates get corrected
13:35 in the second quarter itself. So I think the Jefferies node was constructive, but it's
13:41 an expensive stock, may react negatively today. Let's wait and watch. Rail Vikas Nigam, OFS
13:47 was okay. They got good demand and therefore that could help the stock. Let's wait and
13:53 watch. The other thing is MK on ACC. This is the node that I was wanting. So the Q1
14:03 EBITDA is 45% and 33% above consensus and their estimates. They reported, MK says it
14:13 reported industry leading volume growth of 23% YOY to 9.4 billion tons. And the total
14:19 cost per ton declined 11% YOY, 8% QOQ, benefiting from lower input prices and better operating
14:25 leverage. They raised the target price as well. The other brokerages are neutral. Macquarie
14:30 is neutral. Jefferies is just going to first cut and therefore they will come in the final
14:36 node, at least the one that I didn't have. But because of the beat, you could argue that
14:43 cement looks in a prime position. The way I spoke about Ultratech a few days back, where
14:47 in their call suggested that they are very constructive on the business as well. Watch
14:53 out. Some smart money tells me that unless crude prices plays havoc, it could be a good
14:58 turn of the next couple of quarters for cement companies. Using the Ultratech call, they
15:04 mentioned that despite monsoons settling in, they haven't seen too much of a price erosion.
15:09 That's quite something. So let's wait and watch. Standard disclosure, of course, that
15:14 the Adani Group owns ACC and Amuja and AMG Media Networks, a subsidiary of Adani Enterprises,
15:21 holds 48% stake in Quitterland Business Media, which is the owner of BQ Prime. So please
15:26 take that caveat. But I mean, independent of that, the whole pocket seems to be pointing
15:32 towards decent performance. So do watch out for the cement stocks in trade today. So there's
15:38 a BEL, there is Lupin, there is ACC, there is Indus Towers, clutch of others, JK Lakshmi
15:49 maybe on the negative side, not the best of numbers, Sagar Cement on the negative side,
15:53 not the best of numbers. A lot of numbers to watch out for on a day which could be a
15:59 day of consolidation. So expect a flattish start, but a lot of movement in specific pockets.
16:06 Expiring to expiry, pharma and real estate have seen the maximum long rolls. So that's
16:13 to be kept in mind. In terms of stocks, I was reading a research note, I think from
16:20 MK, which spoke about how Indus Towers and Escorts have seen the maximum rolls. So that's
16:26 to be kept in mind. And lastly, I was reading this very interesting note from Moti Lal Oswal
16:34 on the takeaways from Vedant Fashion Porn Call. And Vedant Fashion says that this year,
16:41 I think I have that detail for you just before we wrap up. They say that this year, wedding
16:48 dates in the second half of FY24 are 30 to 40 percent higher versus second half of FY23.
16:55 So imagine the sales growth that could come in for maybe a Vedant, maybe a Titan, maybe
17:00 a Kalyan Dwellers, maybe a Thangamal Dwellers, what have you. Everything related to the wedding
17:05 season would have a fabulous period. In fact, it would be great for consumption as well
17:10 maybe. So bear that in mind that we'll have a lot more festive days in the second half
17:16 related to the base effect in the corresponding quarter last year. So keep that trend in mind.
17:25 Thanks so much for tuning in to The Trade Setup. A bunch of conversations today, by
17:28 the way. Sunil D'Souza, CEO of Tata Consumer, joins in at 9.30. Then you have Lotus Labs,
17:35 Dr. Satyanarayan Chawla after a very weak quarter talking about what would happen to
17:40 the rest of the year. So that's to be watched out for. There is Puneet Chatwal of IHCL joining
17:46 in at 10.45am. Tune in for that. Vivek Vikram Singh, MD and Group CEO of Sona Comstar talks
17:52 about their numbers at 11.30. So that's to be kept in mind. And of course, you know,
17:59 last update, PQ Prime is launching its brand new initiative called the Alternative Bet.
18:07 The idea is to tell everybody that in India, per se, it is not just equities. It's not
18:13 just debt. The whole host of newer alternative investment classes that are coming to the
18:19 fore and for anybody who can take advantage and can study them should try and do that.
18:25 It is an initiative that will run through the course of the next one, two, three years,
18:30 trying and bringing as many alternative investment managers to try and talk about what's happening
18:35 in the oil space so that people realize the power of diversification in a portfolio. We
18:42 start the Alternative Bet as a series today with the founders of Neo Asset Management.
18:50 It's a niche group established in Mumbai, and they talk about all the options out there
18:55 on the table, and then talk about a couple of aspects that they specialize in.
19:06 The world of SIP has changed Indian equity markets and Indian mutual funds forever. We
19:12 think in alternatives, the next 10-15 years is a phase where Indian money will change
19:18 the world of alternatives. We need our savings to come and channelize these savings into
19:23 these instruments so that it can be productively channelized into buying roads and transmission
19:28 lines and data centers and lending to companies. And that is what we want to do at Neo. We
19:33 want to channelize long-term savings of our customers into some of these highly productive
19:38 assets.
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