SBI Cards and Payment Services: This credit card company’s stock took a beating over the past 7-10 days after the RBI announced that it would come up with a discussion paper on the charges involved in various digital payment modes including credit cards, debit cards, and UPI. The regulator’s aim is to make digital transactions affordable for the users and financially viable for the service providers. However, card issuing companies are likely to be at the receiving end in case of a reduction in merchant discount rates (MDR). The company derives 24% of its revenues from the ‘spend-based fee’ segment. This is basically an interchange fee that it charges from merchants for processing card-based transactions. This fee constitutes 70-80% of MDR, with the remaining portion being shared by the payment network and the point-of-sale terminal providers. Although brokerage Motilal Oswal expects the company’s earnings to take a hit of 8-17% in case MDR is slashed by 10-20%, it still remains bullish on the company’s prospects. The brokerage expects the impact of any such move by the RBI to be mitigated by limiting the incentives the company offers to card users.
Shriram Transport Finance: This company’s promoter Shriram Capital recently announced a merger of the company and Shriram City Union Finance with itself. The merger will ease the corporate structure as Shriram Capital and Shriram City Union Finance will merge into Shriram Transport Finance Company. The merged entity will be called Shriram Finance. Shriram Finance is expected to be one of the largest retail NBFC with a focus on providing a diversified loan mix for MSME, two-wheeler, gold, and housing loans. The combined asset under management is expected to be around Rs 1.5 lakh crore with a distribution network of over 3500+ locations. The merger is expected to bring down the cost of funds by 30-40 bps. HDFC Securities remains skeptical of gains from the merger and maintains an ‘Accumulate’ rating on the company. Edelweiss however remains positive on the stock and maintains a ‘Buy’ rating on the stock.
Tata Steel: This integrated steel maker is facing a dip in demand for steel due to seasonal weakness. The company reported a 12.9% QoQ revenue growth in Q2FY22 to Rs 60,283 crore because of an increase in Indian operations’ revenues. With partial lockdowns impacting steel consumption in Q1FY22, production dipped from 7.88 million tonnes to 7.77 million tonnes in Q2FY22. Rising raw materials cost is no relief for this industry as it is eating into EBITDA margins. Also, as demand for steel is likely to increase in Q3FY22, the company will not have a respite in terms of increasing costs. ICICI Securities and BNP Paribas have downgraded the target price for this stock as the company’s expenses are likely to increase by 27% QoQ as it plans to expand production capacities. Brokerages however remain positive on the stock as a spike in steel demand and new product launches will drive revenues in H2FY22.
Computer Age Management Services(CAMS): This service provider to mutual funds, insurance companies, pension funds, among others, saw a reversal of its stock’s fortunes from September 2021 onwards. After its IPO in September 2020, its share price more than tripled within a year. Seen as a play on financialisation of savings in India with more investors moving to invest in stocks through mutual funds, it was the toast of the markets during this period. But from the beginning of September 2021, the stock’s upward price movement seems to have lost its legs after touching a life high of Rs 4,067.40. Then came the announcement that Kotak Mahindra Bankpicked up around 10% stake in its competitor KFintech. A natural corollary to this could be that the bank’s mutual fund arm would switch its business to KFintech from CAMS. Although this hasn’t happened yet, the stock’s 33% fall from an all-time high in September 2021 seems to reflect this sentiment. Then came the news that its promoter entity sold a 7.17% stake in the company on Tuesday. It will be interesting to see whether this company’s positioning as a long-term play on the growth of Indian capital markets will sustain. This is relevant considering many new mutual funds that received approvals are signing up with KFintech as a partner.
Burger King India: This restaurant operator is making some big moves within a year of listing on the stock exchanges. It is in the process of acquiring Burger King Indonesia, a company owned by its ultimate holding company F&B Asia Ventures (Singapore) for $183 million. It will also pump in another $40 million in the business to fund its expansion. Burger King Indonesia is the second-largest quick-service restaurant chain in Indonesia. There will also be an additional fund infusion to settle and pay off Burger King Indonesia’s debt. The deal is slated to close by April 30, 2022. The company is planning to raise up to Rs 1,500 crore to fund this issue of shares. The Indonesian business has 178 restaurants and one sub-franchise, and its revenues for 2019 were $100 million. The thing to note here for investors is that Burger King India hasn’t made a quarterly profit, based on available data, since December 2019.
