Month: January 2024

Shares of Larsen & Toubro (L&T) plunged 7 percent in Wednesday’s intra-day trade to Rs 3,387.40 on the BSE after the company reported lower-than-expected margins for the December quarter (Q3FY24) despite beating revenue estimates.

The company’s management also indicated the pace of new orders in the domestic market had slowed and there would be weakness for the two quarters between now and June 2024 owing to the Lok Sabha elections.

At 09:52 am, L&T was the top loser among the BSE Sensex and Nifty 50 stocks, down 6.5 percent. In comparison, the benchmark indices were up nearly 0.1 percent.

The stock had hit a record high of Rs 3,738.90 in Tuesday’s intra-day trade. In the past 10 months, it has zoomed 64 percent.

For the reporting quarter (Q3FY24), L&T’s earnings before interest, taxes, depreciation, and amortization (EBITDA) margin declined to 10.4 percent from 10.9 percent a year ago. 

The company posted a 15 percent year-on-year (YoY) rise in net profit at Rs 2,947 crore on the back of better operational performance and more orders.

Revenue was up 18.84 percent YoY to Rs 55,128 crore. Despite the slowdown, L&T expects to end FY24 with an order book of Rs 5 trillion and more than 20 percent growth in its full-year order inflow.

L&T reported a 5 percent/10 percent miss at PBT on our/consensus estimates, despite a beat on revenues. While the margin was sub-par, orders were boosted by recent wins in the Middle East, analysts at Kotak Securities said.

The brokerage has downgraded L&T to Sell (from Reduce) on an expensive 33X one-year forward core EPS multiple.

It finds it difficult to be liberal on multiples, given the growing share of fixed price contracts (42 percent versus 33 percent earlier) and related increase in margin volatility.

It flagged the high 30 percent share of Saudi Aramco in backlog and its reassessment of growth plans, weakening domestic orders before the start of the proposed path of fiscal consolidation and margin bottoming out at much lower levels than expected as other concerns. 

L&T reported a 5 percent/10 percent miss at PBT on our/consensus estimates, despite a beat on revenues. While the margin was sub-par, orders were boosted by recent wins in the Middle East, analysts at Kotak Securities said.

The brokerage has downgraded L&T to Sell (from Reduce) on an expensive 33X one-year forward core EPS multiple.

It finds it difficult to be liberal on multiples, given the growing share of fixed price contracts (42 percent versus 33 percent earlier) and related increase in margin volatility.

It flagged the high 30 percent share of Saudi Aramco in backlog and its reassessment of growth plans, weakening domestic orders before the start of the proposed path of fiscal consolidation and margin bottoming out at much lower levels than expected as other concerns. 

It thus expects margins to recover in coming quarters on executing legacy projects from the execution backlog.

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Mark Mobius has joined Hong Kong-based Chartwell Capital in a non-executive, independent advisory capacity. Founded in 2007, Chartwell Capital is an independent, Hong Kong-based investment firm that focuses on China’s Greater Bay Area and the Asia-Pacific region. 

The company favors family-controlled, small-to-mid-capitalization companies and places an emphasis on collaborative engagement with its portfolio companies.

Chartwell Capital serves institutional clients such as endowment and pension funds, charitable foundations, family offices, and high-net-worth individuals.

“Hong Kong is a place of personal and professional significance for me, as it’s where I began my journey in fund management. It remains a vital international finance center and a key access point to China. I’m optimistic about the Hong Kong stock market’s future and see unique opportunities amid the market’s downturn. I believe Chartwell Capital has the right approach and positioning to navigate this landscape successfully,” Mark Mobius said.

Best known for his role at Franklin Templeton Investments where he managed one of the world’s first emerging markets (EM) funds, Mark Mobius helped grow the group’s EM assets under management from $100 million to $50 billion before his departure in 2018.

In the same year, he founded Mobius Capital Partners with two former colleagues. Mobius has also contributed to developing international policies for emerging markets. He served on the World Bank’s Global Corporate Governance Forum as a member of the Private Sector Advisory Group and as co-chairman of its Investor Responsibility Task Force in 1999.

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Shares of Adani group companies were in demand Monday as they rallied up to 7 percent in early deals on the BSE amid heavy volumes.

Adani Energy Solutions (up 7 per cent at Rs 1,135.80), Adani Enterprises (6 per cent at Rs 3,058), Adani Total Gas (5 per cent at Rs 1,051), Adani Power (5 per cent at Rs 569.60), Adani Ports (APSEZ) (4 per cent at Rs 1,195), Adani Green Energy (1,737.75) and Ambuja Cements (3 per cent at Rs 560.50) were up 3 to 7 per cent.

In comparison, the S&P BSE Sensex was up 1.1 percent at 71,493 at 10:38 AM.

The sharp rally comes after brokerage Cantor Fitzgerald initiated coverage on Adani Enterprises, the group flagship company, with an “overweight” rating and a price target of Rs 4,368.

According to a CNBC TV18 report, the brokerage believes that Adani Enterprises is at the core of everything India wants to accomplish.

Adani Enterprises is engaged in mining & services, resource logistics, new energy supply chains including solar module and cell manufacturing, transport & logistics businesses like Airports and Roads, utilities like Water and Data Centres, and edible oil & food businesses in India and internationally.

The company operates as an incubator focusing on establishing new businesses in the transport & logistics and energy & utility sectors, apart from increasing its focus on direct-to-consumer businesses.

Adani Airports Holdings has an integrated airport network comprising seven operational brownfields and one under-construction Greenfield airport.

With a portfolio of eight airports, Adani Airports oversees around 23 percent plus passenger traffic in India. Adani Airports looks to serve 300+ mn consumers through airport infrastructure.

Adani New Industries (ANIL) was founded to create and develop a comprehensive platform to produce the lowest cost renewable energy and products across the value chain through an integrated supply chain mechanism.

The company aims to capitalize on the Indian government’s National Green Hydrogen Mission to lead India towards a greener and self-sufficient energy future.

Meanwhile, last week, APSEZ informed that the rating agency S&P Global Ratings has re-affirmed its investment grade rating ‘BBB-‘. S&P Global ratings have changed the outlook to ‘stable’ from ‘negative’.

APSEZ has maintained its dominant position in the Indian ports industry with operations across 14 ports, handling around 23.5 percent of the country’s total cargo volumes in FY23 (FY22: 23.7 percent). 

Furthermore, most ports in APSEZ’s portfolio have the flexibility to fix their tariffs, which are generally higher than other competing ports, in consultation with the state maritime boards.

Additionally, connectivity with the direct freight corridor would help APSEZ to benefit from the likely structural growth in India’s EXIM trade, according to India Ratings and Research (Ind-Ra).

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Shares of Tech Mahindra slipped 6 percent to Rs 1,322 on the BSE in Thursday’s intraday trade as investors booked profit in the shares after the company reported a 60.6 percent year-on-year (Y-o-Y) decline in net profit to Rs 510.4 crore for the December quarter (Q3FY24).

Ahead of the result, the stock rallied 13 percent in the past two weeks. It had hit a 52-week high of Rs 1,416 on January 23. Despite today’s decline, the stock has outperformed the market by gaining 16 percent in the past six months, as against a 6.7 percent rise in the benchmark index.

At 09:40 AM, Tech Mahindra was quoting nearly 5 percent lower at Rs 1,343.85 as compared to a 0.32 percent decline in the S&P BSE Sensex.

In Q3FY24, Tech Mahindra’s revenues stood at Rs 13,101 crore, down 4.6 percent Y-o-Y. Sequentially, the revenues were up 1.8 percent and profit was up 3.2 percent. In constant currency (CC) terms, revenue was up 1.1 percent quarter-on-quarter (Q-o-Q)/ down 5.7 percent Y-o-Y at $1,573 million.

In Q3FY24, reported earnings before interest and tax (EBIT) margin stood at 5.4 percent, up 70bp Q-o-Q. Total contract value (TCV) came in at $381 million (down 40 percent Q-o-Q/down 52 percent Y-o-Y), pulling down its trailing 12-month TCV/book to bill to its lowest in the last 3/5 years.

The company’s performance was impacted due to the macro uncertainty and weakness in top verticals like telecommunications, BFSI, and retail.

The management said the quarter was a mixed outcome, with growth in the Manufacturing and Healthcare segments, but muted spending in areas like Communications, BFSI, and Hi-tech. While this market dichotomy will take its own time to settle, the management said the company is focusing internally on realigning under the new structure and strengthening the foundations of the organization.

Meanwhile, Tech Mahindra has absorbed the wholly owned subsidiaries; Perigord Premedia (India) Pvt. Ltd., Perigord Data Solutions (India) Pvt. Ltd., Tech Mahindra Cerium Pvt. Ltd. & Thirdwave Solutions Ltd. via a modified scheme of merger with the company, it said in an exchange filing.

Tech Mahindra had another quarter of low profitability, with a 7.0 percent adjusted EBIT margin (excluding restructuring and other one-time costs), down 30bp Q-o-Q/500bp Y-o-Y, and slightly below our estimates, Motilal Oswal Financial Services (MOFSL) said in its result review report.

The brokerage, however, said it remains positive about the restructuring initiatives at Tech Mahindra under the new leadership.  The recent steps, including right-sizing SBUs, investing in key accounts, establishing vertical delivery teams, and prioritizing employee investments, are moves in the right direction, it said.

That said, MOFSL expects to see the positive impact of these actions only gradually, which can result in near-term misalignment with investor expectations, particularly in profitability. 

With the management committing to incremental clarity post Q4 earnings, April remains the key to any view change, the brokerage firm said with a ‘Neutral’ rating on the stock.

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Shares of Zee Entertainment Enterprises (ZEEL) slipped 10 percent on the BSE in Tuesday’s intraday trade after Sony Pictures Networks India Private, a wholly-owned subsidiary of Sony Group Corporation of Japan, issued a termination notice to the company on their merger agreement on Monday. The Japanese firm has sought $90 million in termination fees from ZEEL.

Foreign brokerage CLSA has downgraded ZEEL from ‘Buy’ to ‘Sell’ with a revised target price of Rs 198 (from Rs 300).

“With the Zee-Sony merger being terminated, we believe Zee’s price-to-earnings (PE) will slump back to 12x levels, as seen before the Sony merger announcement (August 21). This was also the period of the Covid-19 second wave, while Zee’s stock PE had also de-rated in the past during the promoter share pledging crisis (in 2019) and the fall in business cash conversion,” CLSA said in its report.

It further added that Zee’s corporate governance has been in focus, more so since the unprecedented promoter share pledging crisis of 2019 wherein Zee promoters (the Essel Group) repaid loans with multiple stake sales to investors in Zee and promoter’s shareholding came down from 42 percent to 4 percent. 

“Zee-Sony merger would have addressed Zee’s low promoter ownership challenge as post-merger Sony would have owned 51 percent,” it said.

Analysts at Motilal Oswal Financial Services (MOFSL) have downgraded the stock to ‘Neutral’ with a target price of 200 (18x on one-year forward P/E).

“Assuming zero value for the OTT business and assigning 10x to current Linear TV Ebitda (H1FY24 annualized), the stock would be valued at Rs 230 per share. However, if we assume no material recovery in OTT’s profitability and ascribe 15x on FY26E PAT of Rs 1,070 crore (factors some recovery in linear TV business and adjustments for recent one-offs), the stock would be valued at Rs 167 per share,” the brokerage firm said.

On Monday, ZEEL said its Board took on record communications received from Culver Max Entertainment Pvt, (formerly Sony Pictures Networks India) (Culver Max) and Bangla Entertainment Pvt. to terminate the merger cooperation agreement dated December 21, 2021, and seeking a termination fee of $90 million on account of “alleged breaches” by ZEEL of the terms of the merger agreement, invoking arbitration and seeking interim reliefs against ZEEL.

The company further said it categorically refutes all claims and assertions made by Culver Max and BEPL regarding alleged breaches of the MCA by ZEEL, including their claims for the termination fee, and reserves all its rights in this matter.

The company is evaluating all available options and based on the guidance received from the Board will take all necessary steps to safeguard the long-term interests of its stakeholders, including by taking appropriate legal action and contesting Culver Max and BEPL’s claims in the arbitration proceedings, ZEEL said.

ZEEL had inked the merger cooperation agreement with Culver Max and BEPL on December 21, 2021, about the composite scheme of the arrangement, which was approved by the Mumbai bench of the National Company Law Tribunal (NCLT) in August 2023.

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