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Adani Wilmar cuts IPO size to Rs 3,600 cr

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Edible oil major Adani Wilmar Ltd (AWL) has cut the size of its initial share-sale to Rs 3,600 crore from the Rs 4,500 crore planned earlier, people familiar with the development said on Friday.

The company, which sells cooking oils under the Fortune brand, is expected to float its initial public offering (IPO) this month, they added.
AWL is a 50:50 joint venture company between Ahmedabad-based Adani group and Singapore’s Wilmar group.

Now, the IPO will comprise a fresh issue of equity shares worth Rs 3,600 crore. There will not be any secondary offering.
According to the draft red herring prospectus, it was aiming to raise Rs 4,500 crore from the market by issuing fresh shares.
The company has only reduced the portion of general corporate purposes and not reduced the core objects of the issue.

Out of the IPO proceeds, Rs 1,900 crore will be used for capital expenditure, Rs 1,100 crore will be used for the repayment of debt and Rs 500 crore in funding strategic acquisitions and investments.

When contacted to confirm the development, a company’s spokesperson declined to comment.
The move to cut the IPO size is perceived to be a good move by investors as the issue size optimisation will help the company have better return of capital employed (ROCE) and return on equity (ROE).

This indicates the operating leverage and efficiency the company is able to demonstrate through minimal investment and it also suggests the revenues the company is able to churn at minimum capital employed and generate returns.

Despite the issue size reduction, the company will be flooded with high cash generation as it will repay the full long term borrowing of Rs 1,100 crore and save on interest cost and also fund the entire capex (capital expenditure) requirement through equity.

AWL, which is among the leading food FMCG companies in India with revenues of Rs 37,195 crore, plans to aggressively look at M&A (merger and acquisition) prospects in the foods space. The company may acquire a brand or a company engaged in foods, staples and value-added product categories.

Currently, six Adani group companies are listed on domestic bourses. Apart from Adani Enterprises, other listed ones are Adani Transmission, Adani Green Energy, Adani Power, Adani Total Gas, and Adani Ports and Special Economic Zone.

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SBI Life, MAX Financial among CLSA’s top insurance sector picks for 2022; stocks may rally over 45%

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Private insurance companies reported an annual premium equivalent (APE) growth of 20% in 2021, making the year a reasonable one for them, however, the stock market performance of some listed players was not quite impressive owing to high valuations, said analysts at CLSA. The brokerage firm believes in 2022, the prospects are better for the listed private insurance players with APE growth being the key driver. While SBI Life Insurance Company is CLSA’s top pick in the sector, Max Financial remains a ‘Buy’ call while HDFC Life Insurance and ICICI Prudential Life have been upgraded to a ‘Buy’ rating. Of the four stocks, Max Financial Services is down in red year-to-date, while the other three have gained marginally.

SBI Life Insurance: Buy
Target price: Rs 1,800

So far this year SBI Life Insurance Company’s share price has gained 2.16% to now trade at Rs 1,235 per share. In 2021, the stock rallied more than 33%. “We expect the strongest VNB growth over FY21-24CL, driven by solid APE growth and catch-up on margins/ product mix with peers. Long term, it has the lowest cost ratios and one of the strongest distributions,” CLSA said. SBI Life is CLSA’s preferred pick among private insurance players. The target price suggests a massive 45.7% upside potential.

Max Financial Services: Buy
Target: Rs 1,350

Shares of Max Financial Services have fallen more than 3.5% so far this year. In 2021, Max Financial was a strong performer as the stock rallied more than 40%. Analysts at CLSA believe that distribution risk is addressed, and Max Life delivers consistent growth with best-in-class core return on embedded value. They added that Growth momentum is picking up after a softer first half of the current fiscal year. The target price hints 38% upside.

HDFC Life: Buy
Target price: Rs 815

CLSA has upgraded HDFC Life Insurance Company to ‘Buy’ from ‘outperform’ rating earlier. In 2021, shares of HDFC Life slipped 4%, underperforming the overall market. Analysts believe that HDFC Life is a consistent performer, but closing the margin gap versus peers led to the past 12 months of underperformance. “Incrementally, we expect stock compounding to continue,” they added. The target price suggests 25% upside potential.

ICICI Prudential Life Insurance Company: Buy
Target price: Rs 750

ICICI Prudential has also been upgraded to ‘Buy’ rating from the previous rating of ‘outperform’. “While the VNB margins are best in class, IPRU will need to deliver on APE growth to close the valuation gap with peers,” CLSA said. The stock will have to rally 31% from current levels to touch the target price. 

Things to watch out for

Going ahead, CLSA analysts expect private Life insurers to deliver 20% Cagr in VNB over FY22-24CL with APE growth of 16-17% over FY23/24. Although Life Insurance Corporation of India (LIC) is expected to come with its mega IPO this year, analysts do not see it as a disruptor. “LICs individual APE market share is down from 44% in FY18 to 36% in 9MFY22, with market share loss accelerating with evolving product mix,” they said. Analysts further highlighted that the LIC cost base is now materially higher than private insurers; hence, LIC is unlikely to be a growth disruptor for private insurers.

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Bears pull Sensex down 900 points; here’s what’s dragging markets? No sign of crash, add quality stocks

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Bears maintained a strong hold on Dalal Street on Thursday as taking the recent fall to the third straight day, benchmark indices Sensex and Nifty tumbled further amid inflation concerns and hawkish Fed. The BSE Sensex gave up the psychological level of 60,000 and plunged over 900 points, while Nifty50 fell below 17,800 support level. Amid steep correction, analysts advised investors to stick to the safety of high quality large-caps in performing sectors.

“Indian market is following global cues which is slightly weak. Also, the market is trying to be cautious ahead of the major event of budget,” according to Gaurav Garg, Head of Research at CapitalVia Global Research. “For long term investors, every such opportunity is a good time to add quality stocks to the portfolio. Also, it is prudent to note that, timing the market is not always possible, hence, one should take the SIP route to add quality stocks to the portfolio, however, such opportunities (3-5% correction) should be used to add these stocks (if one has got surplus cash),” Garg said.

Is a market crash coming? Not likely

Milan Vaishnav, CMT, MSTA, Consulting Technical Analyst and founder, Gemstone Equity Research & Advisory Services, told Financial Express Online: “Markets have seen a rather rapid correction of nearly 600 points in the last three days. This has come after a strong technical pullback of nearly 1800+ points from the lows of 16400. The present technical structure on the charts suggests consolidation; however, there are no signs that point at any major drawdown or a crash. So, I think investors should now start approaching the markets on a highly selective note; all such opportunities should be used at picking up good quality stocks with improving relative strength. This is the time to add good quality stocks.”

Markets volatile in the run-up to Budget 2022

Amarjeet Maurya, AVP Research Analyst, Angel One, told Harshita Tyagi that “Markets will remain under pressure in the near term mainly because of rising inflation in the US and a possibility of interest rate hike by Fed. However, wage growth rate, demand is going up in the US, while unemployment rate is going down which is a positive. Going forward, the inflation, which rose globally due to supply chain issues, will cool off as Omicron cases go down. Overall, near-term prospect in US is positive which will be reflected in India as well.” He added that at the moment, markets are volatile in the run-up to the Budget but strong growth in terms of earnings is expected in the next two years. They are bullish on banking, consumption sector and select stocks in the IT sector and investors are advised to buy on dips.

Market may witnesses recovery from here

Parth Nyati, Founder, Tradingo said, “The Indian equity market is showing weakness for the third day in a row on the back of FIIs’ selling, rising US bond yields, and concerns of inflation. However, this is just a correction that should be taken as a buying opportunity. If we look at the trend of last three years, then the market starts to correct between 15-20th January and then it witnesses post-budget rally. A similar trend is visible for this year as well. However, I believe the market may witnesses recovery from here as we are near critical support levels. Nifty is trading near critical support of 17650 which was the previous breakout level while 17500 is another important support level. On the upside, 18000-18200 is an immediate resistance area; above this, we can expect a move towards an all-time high. The texture of Bank Nifty is strong and it may outperform from here and I believe we can expect strong earnings by banking names.”

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RIL Q3FY22 results preview: O2C, retail to drive Reliance profit, revenue; green energy foray to aid growth

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Mukesh Ambani’s Reliance Industries Ltd is likely to see a rise in profit and revenues on the back of improvement in refining, petrochemicals and retail performance, when it reports its fiscal third quarter earnings on Friday. Analysts expect the oil-to-telecom conglomerate to post better numbers than the previous quarter. RIL is scheduled to release its October-December quarter results for the current fiscal on Friday, 21 January 2022, after market hours.

On Thursday, Reliance Industries Ltd (RIL) share price was trading nearly 2 per cent down at Rs 2,475 apiece, as BSE Sensex and Nifty 50 tumbled nearly 1 per cent so far in the trade. In the last one month, RIL share price has outperformed BSE Sensex, gaining nearly 9 per cent. In comparison, Sensex gained 7 per cent. Reliance Industries stock price soared over 18 per cent, while the 30-share index was up 14 per cent. On a year-to-date (YTD) basis, RIL has added 3.09 per cent while Sensex was up just half a per cent.

What to expect from RIL Q3FY22 results?

Hemang Jani, Head Equity Strategy, Broking and Distribution, Motilal Oswal Financial Services, said that renewed focus on green energy and recent developments pertaining to acquisition and investment announcement into alternate energy have been viewed positively by markets, as Reliance Industries could emerge as a big player in this emerging theme with its balance sheet and execution capabilities. He added that RIL’s O2C and retail are likely to drive growth this quarter. Consolidated EBITDA is seen at Rs 300 billion (+39% YoY / +15% QoQ, primarily driven by growth in O2C, followed by Retail). “We expect O2C EBITDA at Rs 150 billion (+73% YoY / +21% QoQ), RJio EBITDA at Rs 95 billion (+17% YoY / +5% QoQ), and Retail EBITDA at Rs 36 billion (+41%  YoY / +31% QoQ),” Hemang Jani told Financial Express Online.

Prabhudas Lilladher analysts noted that RIL’s earnings are likely to improve sequentially due to improved refining earnings. It added that RIL’s standalone earnings will grow 7 per cent sequentially, given higher refining profitability and higher gas realisation. “We factor in stable refining throughput (16.5MTPA, 16.8MT in Q2), given moderate pick up in global demand. Petrochemicals earnings will come off, due to moderation in spreads. Profitability will also improve due to higher gas realization of USD6.82/mmbtu (+USD2.8/mmbtu QoQ),” it said.

ICICI Direct research analysts said RIL’s consolidated EBITDA is estimated to grow 40.5% on-year to Rs 30,310.5 crore as all segments are expected to report healthy on-year growth. Sequentially, it is expected to grow 16.5% led by growth in the retail and O2C segments, they said. “We expect Jio to continue to lead subscriber addition with net subscriber addition of 8 mn. The monthly ARPU, like peers, is expected to witness growth, driven by tariff hike, at 4% QoQ at Rs 149. EBITDA (standalone) at Rs 9333 crore, is likely to grow 3.8% QoQ,” it said.

ICICI Direct also expects Reliance’s retail business to display a healthy recovery in Q3FY22 on the back of a buoyant festive season demand and robust store addition pace. Overall retail revenues are expected to increase 39% on-year to Rs 52,599 crore, it said. “On account of judicious cost saving initiatives and positive operating leverage, we expect EBITDA margins to improve 70 bps on-year to 6.8% (excluding other income on investments). Recovery in refining as well as petchem margins is expected to lead to growth of 14.5% sequentially (and 49.3% on-year) in O2C EBITDA to Rs 14,569.7 crore. E&P EBITDA is expected to improve 46.1% sequentially to Rs 1,564.8 crore as realisation for gas output from KG basin is expected to increase 69%.

Shrikant Chouhan, Head of Equity Research (Retail), Kotak Securities, expects RIL’s consolidated operating profit to grow by 7.8% sequentially and 30.1% on-year to Rs 28,062 crore. He expects RIL’s consolidated PAT to grow by 8.4% sequentially to Rs 14,823 crore. Further, Shrikant Chouhan expects operating profit for Jio to increase 4% quarter-on-quarter led by higher ARPUs, which will be partly offset by rising costs and retail to increase by 27% sequentially driven by sustained strong rebound in demand during festival season. “We expect RIL’s standalone operating profit to increase by 15% qoq reflecting improvement in underlying refining and petchem margins and likely higher volumes for both the segments,” Chouhan, told Financial Express Online.

Ravi Singh, VP & Head of Research, Share India Securities, said Reliance Industries Ltd’s third quarter results are likely to be better than previous quarter, and the earrings may increase by 7-8% sequentially, mainly on improved gasoline and diesel margins. “The consolidated EBITDA is expected to rise quarter-on-quarter due to growth in oil to chemicals EBITDA, telecom growth, and retail growth. The overall estimates are expected to improve as a combination of higher chemical margins, details on the new energy vertical, and new partnerships in key segments would be the key drivers,” Ravi Singh told Financial Express Online.

(The stock recommendations in this story are by the respective research analysts and brokerage firms. Financial Express Online does not bear any responsibility for their investment advice. Capital markets investments are subject to rules and regulations. Please consult your investment advisor before investing.)

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