by Vivek Ananth
In the movie Groundhog Day, the main character Phil realises that he is reliving the same day over and over again. It's now April 2021, but it feels like all of us are once again, going through the early days of the pandemic.
To put things in perspective, in this week’s Analyticks we bring you
What investors can expect from the realty sector in Q4FY21 and beyond
Solara Pharma Active Services’ merger plans and way forward
Screener: Stocks that mutual funds have been loading up on
Let’s dive in.
Realty: Lockdown clouds are circling again
The realty sector generates the second highest employment in India, and if the sector sneezes the entire economy can catch a cold. This is what happened when stringent lockdown measures were taken in 2020. As the lockdowns receded, the sector got back in shape, as workers returned from home, and construction activity picked up with many state governments giving sops for registration of new property.
But BSE Realty’s journey over the past nine trading sessions tells a story...
...that can’t be captured in any other way. Localised lockdowns point to a torrid April 2021, and unless the vaccine rollout picks up pace the trend may continue into May 2021 as well. This is despite the low interest rates that no doubt boosted the fortunes of real estate developers, along with stamp duty cuts in many states.
Whatever the future may be, it is earnings season, and this is the right time to take stock of how Q4FY21 could pan out for the realty sector. We take a look at what some brokerages had to say.
Strong sales momentum in Q4
HDFC Securities, Nirmal Bang and ICICI Direct in their earnings preview notes feel that the strong sales momentum seen in Q3FY21 will continue in Q4FY21. You can find these reports here.
ICICI Direct said in its report previewing the Q4 results that the residential sector’s sales volumes will remain healthy. This will be aided by the stamp duty cut in Maharashtra (till March 31), and other states. This should aid companies like Brigade Enterprises and Oberoi Realty, the brokerage says.
The problem is while businesses in leased properties - which include malls, multiplexes, family entertainment, food and beverages, etc - have resumed activities, some weakness will persist due to rules regarding operating times, occupancy and social distancing in many states.
There are also fears that because of sporadic weekend lockdowns and full lockdowns across various urban centres in India in April 2021, especially Maharashtra and Delhi, the performance in Q4 will not sustain.
The festive season in April was a complete miss for both residential and leased properties, including commercial spaces. It will be interesting to see if tenants of these spaces now seek additional cuts in lease rentals. This can impact companies like Phoenix Mills, Brigade Enterprises and DLF among others.
Solara Active Pharma: India’s second largest API manufacturer in the making
With active pharmaceutical ingredients (API) and its manufacturers in focus in India, Solara Active Pharma Sciences announced a merger with Aurore Group, which includes Aurore Lifesciences, Empyrean Lifesciences and Hydra Active Pharma Sciences. These three entities will merge into Solara Active, and the merged entity will hold a 67% stake in Aurore Pharma Sciences’ arm Aurore Pharma (Private Ltd).
In essence, Solara Active will subsume all Aurore Group entities, for which Aurore’s shareholders will get 27% stake in the merged entity. The promoter holding in Solara Active post the merger will be at 55.15%, with the rest held by public shareholders.
But what is the reason for such a complicated merger? One word: dominance.
A pure play API company
The rationale of this merger seems simple. India is looking to become a dominant player in making APIs. The merged entity will position Solara Active as the second largest API maker in India. The company’s stock price rose by more than 5% after the deal was announced.
Aurore Group made a profit of Rs 95 crore in FY21 on revenues of Rs 545 crore, most of this comes from API sales and contract researching and manufacturing services (CRAMS). It has two manufacturing units, and one R&D unit. When these are added to the Solara fold, the merged entity will have eight manufacturing units and three R&D units. One of Aurore’s manufacturing units is already FDA approved.
Solara Active will now have over 100 commercial products in its stable, and with Aurore’s CRAMS business its offering to customers will be far larger than before. The deal is expected to close by March 2022.
Pre merger, Solara’s profits quadrupled in four quarters
It’s not that Solara Active didn’t have robust financials before the proposed merger. The company’s net profit quadrupled in four quarters, while its revenues grew at a compounded quarterly growth rate of 12.1%.
Aurore’s margins are far higher (31%) than Solara Active’s margins at 25%. So this merger will directly add to its margins and bottomline.
But investors will want to see whether the synergies of a pure play API maker, in addition to a CRAMS provider actually pans out. As they say, there is often a slip between the cup and the lip.
Screener: Companies that saw the highest rise in MF shareholding in Q4FY21
The last quarter of FY21 saw the market swerve in different directions, touching new highs, then receding from those highs before the Budget. In the midst of this, mutual funds took positions in many stocks over the three months ending March 31, 2021.
There were 11 stocks out of the Nifty 50 that saw consistent buying by mutual funds in Q4FY21, according to this screener. There were three stocks - Tata Steel, Bharat Petroleum Corporation, and IndusInd Bank - that saw mutual funds add the highest stake during the recently concluded quarter.
This chart shows the shareholding change of mutual funds in these three stocks
You can check out other screeners, and build your own here.
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