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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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Shares of railway-related companies were on a roll and rallied up to 18 percent on the BSE in Friday’s intra-day trade on heavy volumes amid expectation of higher budgetary allocation for Indian Railways in 2024-25 (FY24-25).

An outlay of Rs 2.4 trillion for the financial year 2023-24 (FY23-24) was made by Finance Minister Nirmala Sitharaman for the railways. According to reports, the interim budget FY24-25 will likely allocate Rs 2.8-3 trillion for the railways to keep its capex momentum intact. Rail Vikas Nigam (RVNL), Indian Railway Finance Corporation (IRFC), IRCON International, NBCC (India), RailTel Corporation of India, and Texmaco Rail & Engineering were up in the range of 5 percent to 18 percent. In comparison, the S&P BSE Sensex was up 0.65 percent at 71,653 at 11:59 AM.

Among individual stocks, RVNL zoomed 18 percent to Rs 288.65 on the back of a two-fold jump in trading volumes. A combined 126 million equity shares of the company changed hands on the NSE and BSE. RVNL was incorporated to bridge the infrastructure deficit on Indian Railways. RVNL generally works on a turnkey basis and undertakes the full cycle of project development from conceptualization to commissioning including stages of design, preparation of estimates, calling and award of contracts, project and contract management, etc. IRFC hit a new high of Rs 160.34, as it rallied 10 percent in intra-day trade today. In the past six trading days, the stock price of state-owned financial institutions has zoomed 50 percent. While, in the past six months, it skyrocketed 389 percent.

A sharp rally in the stock price of the company has seen the market capitalization (market cap) of IRFC cross the Rs 2 trillion mark for the first time ever. Currently, IRFC’s market cap stands at Rs 2.10 trillion; the BSE data shows. IRFC was set up as the dedicated funding arm of the Indian Railways (IR) for mobilizing funds from domestic as well as overseas Capital Markets. IRFC has played a significant role in supporting the expansion of the Indian Railways and related entities by financing a significant proportion of its annual plan outlay. It aims to be one of the leading Financial Service Companies in the country, for raising funds from the capital market at a competitive cost for Railway infrastructure augmentation, duly ensuring that the Corporation makes optimum profits from its operations.

Indian Railways are now poised to take a transformational leap in the Amrit Kaal of the post-Independence period and fulfill the vision of ‘Viksit Bharat’ which includes modern, faster, available on-demand passenger services and facilities, a substantial share in freight cargo with ancillary services in logistics parks and domestic industry driven rail infrastructure of highest standards. A record capex target of Rs 2.60 trillion in 2023-24, up 65.6 percent when compared to 2022-23, is targeted to initiate the necessary changes for this vision, across the entire network. Achieving India’s commitment of net zero carbon by 2070 will rest in part on more rail-bound passenger and cargo movement, IRFC said in its FY23 annual report.

Over the years, IRFC’s contributions to the Indian Railway sector have been substantial, with cumulative funding surpassing the significant milestone of Rs 5.5 trillion. This remarkable achievement is further bolstered by an impressive Asset Under Management (AUM) figure of Rs 4.66 trillion as of March 31, 2023. With a focused approach aimed at supporting the expansion and modernization of Indian Railways, IRFC remains committed to making the railway network future-ready. IRFC’s role in augmenting the annual plan outlay of Indian Railways by mobilizing funds from diverse financial sources, forming part of Extra Budgetary Resources (EBR) funding, has been commendable. With its robust financial position, unwavering commitment, and strategic vision, IRFC is well-positioned to drive the future growth and success of the Indian Railways and support infrastructure, ultimately fostering progress and prosperity for the nation, the company said.

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Shares of Aarti Industries (AIL) rose 8 percent on BSE to Rs 658.70 in Friday’s intra-day trade amid heavy volumes. 

The average trading volumes on the counter jumped over four-fold. A combined 6.04 million equity shares of the company changed hands on the NSE and BSE.

In the past two days, the stock of the specialty chemicals company has surged 13 percent after it secured a four-year supply contract worth over Rs 6,000 crore with a multinational conglomerate.

At 10:42 am, AIL was up 7 percent at Rs 655.20 as compared to a 0.94 percent rise in the S&P BSE Sensex.

The stock had hit a 52-week high of Rs 661.40 on December 29, 2023. 

AIL has signed a long-term agreement with a multinational conglomerate for the supply of a niche specialty chemical. The contract is expected to generate revenue of over Rs 6,000 crore for the company.

The product has been an integral part of AIL’s long-term growth strategy and its volume has consistently increased over the past 4-5 years, it said. 

AIL’s ongoing capital expenditure programs will meet the contract requirements and hence it does not see any additional capital expenditure for this contract.

Earlier on December 27, AIL announced that it had entered into a long-term supply contract with a global agrochem major for a niche agrochemical intermediate.

The contract offers AIL a revenue potential of nearly Rs 3,000 crore for 9 years with the contract supplies commencing from the current fiscal year, the company said.

This agrochemical intermediate serves as a crucial input component for a widely used herbicide applied in diverse food and cash crops (such as corn, soybean, cotton, sugarcane, and sunflower).

The global market for this herbicide is large and steadily growing, it added.

Meanwhile, the management in the Q2 earnings call said they maintain optimism about potential demand revival in the end-use segments such as agrochemical, polymer additives, and other discretionary applications going forward.

“We expect the worst to be over in H1FY24 and anticipate that it will take a few more quarters for normalized demand across various end segments/product lines. Thus we expect consequentially better performance in H2FY24 and foresee FY25 to be a normalizing year given the current pace of recovery,” it said.

Analysts at Prabhudas Lilladher expect recovery post H2FY24 with higher capacity utilization of its products, increasing contribution from LT- contracts, and volume growth from newer projects.

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Indian snacks maker Haldiram’s is in talks to acquire a majority stake in listed rival Prataap Snacks, which is valued at $350 million, to expand its presence in the potato chip market, two people with direct knowledge of the matter said.

The talks are at an early stage and a valuation has not been discussed, though it could be at a premium to Prataap’s stock price. Haldiram’s is eyeing a majority stake of at least 51%, but a final number has not been decided, said the sources, who declined to be named as the discussions are confidential.

Prataap is best known for its Yellow Diamond chips brand and competes with Pepsi’s Lay’s brand and other snack-makers in a market where local, unorganized food sellers still dominate the fried chips segment.  

Venture capital firm Peak XV Partners, formerly known as Sequoia Capital India, owns around 47% of Prataap Snacks and is looking to fully exit its stake in Prataap, the sources added.  

Haldiram’s CEO Krishan Kumar Chutani, Prataap CEO Amit Kumat, and Peak XV declined to comment.  

Prataap made its stock market debut in 2017 and had annual revenues of around $200 million last year. It says it sells over 12 million packets of its salty snacks daily, which are priced as low as 5 rupees (6 U.S. cents).  

However, Haldiram’s, a family-run business founded in 1937, is a much larger manufacturer of packaged snacks with revenue of over $1 billion and runs 150 restaurants across the nation. Last year, Reuters reported the company was seeking a $10 billion valuation in deal talks with conglomerate Tata Group and other strategic investors it wanted to bring on board. Still, the talks didn’t materialize overvaluation concerns.  

“A deal (with Prataap) will help Haldiram’s tap the potato chips segment. Consumers often prefer western flavored snacks over local ones,” said one of the sources.  

Prataap has 14 manufacturing plants across nine Indian states. Though smaller unorganized companies dominate India’s fried snacks landscape, branded products have boomed in recent years as consumers become health-conscious and have higher disposable incomes to spend on packaged goods.  

India’s Moneycontrol news website reported on Dec. 19 that Prataap’s founders and Peak XV were looking to sell a stake to investors and conglomerates, but did not name buyers.  

Local snack makers like Prataap have struggled with inflationary pressures and rising competition in India, a price-conscious market, and its stock price still hovering near its 2017 listing level.  

Prataap in a November earnings report estimated India’s snacks market was worth $5.2 billion, growing 14% each year.

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