Weak opening and expiry to dominate markets
<br>The Indian Rupee lost 30 paisa or 0.39 per cent to close at Rs 76.48 to the US Dollar. Dow Jones lost on three of the five days and closed with losses of 639.83 points or 1.86 per cent at 33,811.40 points. On Friday Dow lost a massive 980 points which was the largest single day loss in over 1.5 years. Incidentally, this is the fourth consecutive weekly loss for Dow. The sharp fall on Friday was because the US FED is expected to raise interest rates in their upcoming meeting on the 3rd and 4th May by 50 basis points. Readers would recall that inflation in the US has skyrocketed and is currently at unprecedented levels. While there would be tightening of rates for sure, it would call for a series of hikes which would be beyond the customary 25 basis points.
The management of HDFC Bank and HDFC Limited have accepted that they have not been able to convince the market and analysts of the benefits that would accrue to the combined twins. This is after the fact that even three weeks after the merger announcement, shares continue to trade at a substantial discount to what they were trading prior to the announcement. This does not take into account the fact that there was a massive first day jump on the 4th of April when the merger was announced. Shares of HDFC closed at Rs 2,206 against Rs 2,451 on the 1st of April, while HDFC Bank closed at Rs 1,355 against Rs 1,506 earlier. Their highs on the 4th of April were Rs 2,855 and Rs 1,722 respectively.
The government has announced PLI (production linked incentive) scheme for 14 sectors. The total investment committed is Rs 2.34 lakh crore. This is expected to bring a total production of 28.15 lakh crore and create employment of 6.45 million jobs over the next five years. As investments pour out under the schemes and the benefits are visible to all, expect the government to roll out the same in sectors not covered as yet.
The week ahead sees two primary market issues hitting the capital markets. These issues would be the first under the new regime where changes have been made in respect of leveraging restricted to Rs 1 crore, split of the HNI bucket into two parts of 2-10 lakhs and 10 lakhs and over and the anchor allocation lock-in being split into two with a lock-in of 30 days and 90 days. This would lead to substantially lower responses in the HNI segment and also a significant drop in the QIB segment as listing gains would be pruned on account of no funding cost being a part of the grey market premium.
The first issue is from Campus Activewear Limited which is tapping the markets with its offer for sale of 479.50 lakh shares in a price band of Rs 278-292. The issue opens on Tuesday the 26th of April and closes on Thursday the 28th of April. The company would raise Rs 1,394.3 crore at the top end of the price band.
The company is India's largest manufacturer and seller of sports and athleisure footwear in the men, women and kids' category. They launched the brand in 2006 and clocked sales of Rs 700 crore in the year ended March 2021. It is believed, looking at the nine months numbers for the year to end March 22 that the sales would have crossed the 1,100 crore mark. It now appears that the company is at an inflection point and one could expect the present number of Rs 1,100 crore to more than double in the next two years because of its distribution reach, SKU's, price points from Rs 700-3500 and acceptability as an aspirational brand amongst tier2 and tier3 which account for about 3/4th of its total sales.
The company reported an EPS of Rs 2.82 for the nine months ended December 2021 against similar previous year period of Rs 0.56. For the full year ended March 2021 the EPS was Rs 0.88. One must keep in mind that this was the period of Covid-19 when there were many constraints affecting industry and retailing as well. The full year earnings for March 22 on an annualised basis of 9 months December 21 would be Rs 3.76. Based on this EPS the PE band is 73.9-77.65. This compares very favourably with the competitors as listed in the RHP.
Considering the fact that the company is at an inflection point and is well poised to more than double its revenue and profits in the next 24 months, the company offers scope for appreciation for medium and long term investors.
The second issue is from Rainbow Children's Medicare Limited which is tapping the markets with its fresh issue for Rs 280 crore and an offer for sale of 2.40 crore shares in a price band of Rs 516-542. The issue opens on Wednesday the 27th of April and closes on Friday the 29th of April.
The company as the name suggests is one of India's largest paediatric multi-speciality hospital chains, having 14 hospitals and 3 outpatient clinics. They are located in six cities and with 1,500 operational hospital beds. They are a very large obstetrics and gynaecology service provider rendering quality service to its patients. Their area of domination is Hyderabad and Bengaluru which accounts for more than 75 per cent of their total revenues. The hospital company is building on its hub and spoke model to grow their geographical presence. It has entered a hospital in Delhi and would be growing their chain in the NCR region in the near future. Over the next three years they would be adding 500 beds in a phased manner, details of which have been shared and finalised in the document.
The majority of doctors who are part of the hospital are full time associated with the hospital which ensures that the company gets its fair share of revenues. There is also an ownership scheme formulated for doctors which brings about continuity and a sense of ownership amongst the doctors.
The company reported revenues of Rs 761.3 crore for the nine months ended December 21, adjusted EBITDA of Rs 256.7 crore and a profit after tax of Rs 126.4 crore. The EPS for the period would be Rs 4.74 on a fully diluted basis for the nine months. If one were to annualise the same it would be Rs 6.32. The PE band on the fully diluted and annualised EPS for the year ended March 2022 would be 81.6-85.75 times. While there is currently no listed peer in the children's hospital range currently, Cloud nine has recently filed its document to tap the markets as well.
The asking price is steep and offers little or no returns in the short term. One may look at the company post listing when considering that new subscription norms have been issued, the share may be available at more affordable valuations.
LIC is expected to have its roadshow for its forthcoming IPO probably on Friday in the coming week. The size of the issue has been further reduced and so has the valuations. Details of the issue are expected shortly over the next couple of days.
Coming to the markets in the coming week, they are expected to open weaker looking at the significant fall witnessed in Dow on Friday. This fall was on account of a higher interest rate hike expected in the forthcoming FED meeting. The Russia-Ukraine war has entered the third month with no resolution. Ne does hear that the Ukrainian Premier wants a meeting but he ensures that the same doesn't happen because of some conditions which crop up. In any case markets have discounted the war and are moving on.
April futures expire on Thursday the 28th of April. Currently the series is down 292.80 points or 1.68 per cent which is not significant. With a weak Monday on the cards, the bulls need to pull a rabbit out of the hat to salvage the series which is increasingly looking like going in favour of the bears.
Last week's lows of 59,009 on BSESENSEX and 16,824 on NIFTY will be significant support for the market on their way down. If these levels are broken the next and final support levels would be at 55,000 on BSESENSEX and 16,450-16,480 on NIFTY. In any case markets have already become vulnerable and any further fall would make them even more vulnerable.
The strategy for the week would be to buy on really big falls and sell on any strong rallies. The markets need to find their level and it would take some time to do so. The breadth of the market has increased and more and more Smallcap and midcap stocks are participating in the movement. By and large this pack is outperforming the benchmark indices. Stick to large caps for safety and trade cautiously.
(Arun Kejriwal is the founder of Kejriwal Research and Investment Services. The views expressed are personal)