By Arun Kejriwal
Markets have continued their volatility over the past five-day week. They lost the first two days, won the next two, and lost again on the last day. At the end of the week, BSESENSEX was down 1,141.78 points or 1.96% to close at 57,197.15 points. NIFTY lost 303.70 points or 1.74% to close at 17,171.95 points. The broader markets saw BSE100, BSE200 and BSE500 lose 1.67%, 1.58% and 1.74% respectively. BSEMIDCAP was down 1.15% while BSESMALLCAP was down 0.93%.
The Indian rupee lost 30 paisa or 0.39% to close at Rs 76.48 against the US dollar. Dow Jones lost three of five days and closed with losses of 639.83 points or 1.86% at 33,811.40 points. On Friday, Dow lost 980 points, the biggest one-day loss in more than a year and a half. Incidentally, this is the fourth consecutive weekly loss for Dow. Friday’s sharp decline is explained by the fact that the US Fed is expected to raise interest rates at its next meeting on May 3-4 by 50 basis points. Readers will recall that inflation in the United States skyrocketed and is currently at unprecedented levels. While there would certainly be some rate tightening, this would require a series of hikes that would exceed the usual 25 basis points.
The management of HDFC Bank and HDFC Limited admitted that they had been unable to convince the market and analysts of the benefits that would come from the combined twins. This is after the fact that even three weeks after the announcement of the merger, the shares continue to trade at a substantial discount to what they were trading before the announcement. This ignores the fact that there was a massive first day jump on April 4 when the merger was announced. Shares of HDFC closed at Rs 2,206 from Rs 2,451 on April 1, while HDFC Bank closed at Rs 1,355 from Rs 1,506 earlier. Their April 4 highs were Rs 2,855 and Rs 1,722 respectively.
The government has announced a PLI (Production Linked Incentives) program for 14 sectors. The total investment committed is Rs 2.34 lakh crore. This is expected to bring a total output of 28.15 lakh crore and create employment of 6.45 million jobs over the next five years. As investments pour into the schemes and the benefits are visible to all, expect the government to roll out the same in areas not yet covered.
The coming week sees two primary market issues hitting the capital markets. These issues would be the first under the new scheme where changes have been made with regards to leverage limited to Rs 1 crore, division of HNI compartment into two parts of 2-10 lakhs and 10 lakhs and above and locking in anchor allocation. be split in two with a lock-in of 30 days and 90 days. This would lead to significantly lower responses in the HNI segment and also a significant decline in the QIB segment, as listing gains would be reduced due to the lack of funding cost as part of the gray market premium.
The first issue comes from Campus Activewear Limited, which is tapping the markets with its sell offer of 479.50 lakh shares in a price range of Rs 278-292. The issue opens Tuesday, April 26 and closes Thursday, April 28. The company would raise Rs 1,394.3 crore at the upper end of the price range.
The company is India’s largest manufacturer and seller of sports and athletic shoes for men, women and children. They launched the brand in 2006 and recorded sales of Rs 700 crore in the year ending March 2021. It is believed, looking at the nine month figures for the year ending March 22, that sales would have crossed the 1,100 crore mark. It now appears that the company is at an inflection point and one would expect the current Rs 1,100 crore to more than double over the next couple of years due to its distribution reach, its SKUs, its prices of Rs 700 to 3,500 and its acceptability as an aspirational brand among Tiers 2 and 3, which account for about 3/4 of its total sales.
The company reported EPS of Rs 2.82 for the nine months ended December 2021 against a similar prior year period of Rs 0.56. For the full year ended March 2021, EPS was Rs 0.88. You have to keep in mind that it was the Covid-19 period when many constraints also affected industry and distribution. Annual income for March 22 on an annualized basis of 9 months on December 21 would be 3.76 rupees. Based on this EPS, the PE band is 73.9 to 77.65. This compares very favorably to competitors listed in the RHP.
Given that the company is at an inflection point and is well positioned to more than double revenue and earnings over the next 24 months, the company offers room for appreciation for medium to long-term investors. .
The second issue comes from Rainbow Children’s Medicare Limited, which is tapping the markets with its new issue for Rs 280 crore and a sell offer of 2.40 crore shares in a price range of Rs 516-542. The issue opens Wednesday, April 27 and ends Friday, April 29.
The company, as the name suggests, is one of the largest pediatric multi-specialty hospital chains in India with 14 hospitals and 3 outpatient clinics. They are located in six cities and have 1,500 operational hospital beds. This is a very large Obstetrics and Gynecology service provider that provides quality service to its patients. Their area of dominance is Hyderabad and Bangalore, which accounts for over 75% of their total revenue. The hospital company relies on its hub and spoke model to increase its geographical presence. He entered a hospital in Delhi and will expand his channel in the NCR region in the near future. Over the next three years they would add 500 beds in a phased manner, the details of which were shared and finalized in the document.
The majority of doctors who are part of the hospital are full-time associates with the hospital, which ensures that the company gets its fair share of revenue. There is also an ownership regime formulated for physicians which provides continuity and a sense of ownership among physicians.
The company reported revenue of Rs 761.3 crore for the nine months ended December 21, adjusted EBITDA of Rs 256.7 crore and profit after tax of Rs 126.4 crore. EPS for the period would be Rs 4.74 on a fully diluted basis for the nine months. If one were to annualize the same, it would be Rs 6.32. The PE band on fully diluted and annualized EPS for the fiscal year ending March 2022 would be 81.6 to 85.75 times. Although there are currently no counterparts listed in the children’s hospital lineup, Cloud Nine recently filed its document to mine the markets as well.
The asking price is high and offers little or no short-term return. One can look at the list of company releases when considering that new underwriting standards have been issued, the stock may be available at more affordable valuations.
LIC should have its roadshow for its next IPO probably Friday in the coming week. The size of the issue was further reduced, as were valuations. Details of the issue are expected shortly over the next few days.
Coming into the markets over the coming week, they should open weaker given the significant drop seen in the Dow on Friday. This decline is explained by a larger increase in interest rates expected at the next FED meeting. The Russian-Ukrainian war entered its third month without a solution. Does not mean that the Ukrainian Prime Minister wants a meeting, but he assures that the same does not happen due to certain conditions that arise. In any case, the markets have discounted the war and are moving on.
April futures contracts expire on Thursday, April 28. Currently, the series is down 292.80 points or 1.68%, which is not significant. With a weak Monday on the cards, the bulls need to pull a rabbit out of the hat to save the streak that looks increasingly going in the bears’ favor.
Last week’s lows of 59,009 on BSESENSEX and 16,824 on NIFTY will be important support for the declining market. If these levels are broken, the next and last support levels would be at 55,000 on BSESENSEX and 16,450-16,480 on NIFTY. In any case, the markets have already become vulnerable and any further decline would make them even more vulnerable.
The strategy for the week would be to buy on very big dips and sell on strong rallies. The markets need to find their level and that would take time. The breadth of the market has grown and more and more small and mid cap stocks are joining the movement. Overall, this pack outperforms benchmarks. Stick to large caps for safety and trade cautiously.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. Opinions expressed are personal)