- Sterlite Technologies (STL): This optical fibre and wireless solutions-based company’s stock crashed nearly 11% in Thursday’s trading session as investors were surprised by the company’s Q3FY22 results STL clocked losses of nearly Rs 137 crore during the quarter as against a profit of Rs 86.6 crore in Q3FY21. Back in Q2FY22, the company was extremely bullish on the prospects of 5G transition in the telecom industry with reforms and revival and capex cycle underway. Infact, it aimed to clock annual revenues of Rs 10,000 crore by the end of Q4FY23 from around Rs 4,868 crore achieved in FY21, This would have translated to a CAGR of 43%. So what went wrong for this Vedanta Group company? The company charged a one-time provision for losses of Rs 48 crore to its total revenue and Rs 116 crore to its operating expenses which ultimately led to a fall in profits.
This was done to provide for possible bad debts that can arise from certain ongoing and older projects on its service side of the business. Put simply, the management is anticipating lack of cash collections here. Cash generation was a pertinent issue back in H1FY22 as well with the company reporting an EBITDA of Rs 530 crore and cash flow from operations (before tax) of just Rs 294.5 crore. Notably, the management did not disclose finer details of these old projects nearing their completion in its earnings call. Interestingly, even if we ignore the one-time charge here, the company would still clock a subdued revenue growth of 7% YoY and EBITDA margin of just 10%. In Q2FY22, management gave an EBITDA margin guidance of 16-18% for upcoming quarters. Investors would want to keep an eye on the collection issues this company is facing.
- Indraprastha Gas: On Wednesday, Indraprastha Gas hit a 52-week low of Rs 450.5 on the bourses. This came after a draft policy note released by the Delhi Government indicated on the minimum requirement of electric vehicles for cab aggregators and delivery services. The company had earlier hiked prices to combat a sharp spike in gas prices.
This policy would require that 5% (four-wheelers) and 10% (two-wheelers) of their fleet new purchases are electric vehicles by March 2022. Additionally, 50% of all new two-wheelers and 25% of all new four-wheelers should be electric by March 2023. Interestingly, cab aggregators account for 30-40% of total CNG sales for IGL. Even if this new policy draft was to be approved with certain relaxations, the long-term sales volume growth outlook for the company could alter drastically. Sales volumes may also be impacted in H2FY22 if the price gap between CNG and petrol prices narrows further with IGL hiking prices frequently over the past few weeks. According to Motilal Oswal, two prominent CGDs in China suffered fall in sales growth of 3-11% as EVs gained prominence in the country. Understandably, it is anticipating a flat profit growth trajectory for IGL between FY22-24. The stock could face further pressure in the near term owing to a slowdown in mobility and in road traffic congestion amid the 3rd wave of Covid.
- Nazara Technologies: This Indian gaming company gained nearly 13.5% in the last one week as it continued on its acquisition spree. The company recently announced its acquisition of Planet Superheroes and Datawrkz. This is its continuing effort to build a ‘Friends of Nazara’ network since 2017. It will acquire a 55% stake in Datawrkz for a consideration of nearly Rs 124 crore. The rationale behind this investment is to boost advertising revenues from certain platforms and products like world cricket championship and Sportskeeda. The other key reason is to reduce the user acquisition costs which are more than 20% of Nazara’s revenues.
Earlier in January, its subsidiary Nodwin Gaming acquired a complete stake in Planet Superheroes for Rs 4.2 crore. The company hopes to effectively engage with a growing Indian gaming community by selling merchandise be it game-based T-shirts, caps, character toys, mugs and lamp shades etc. Planet Superheroes offers its users global merchandise from brands such as Marvel, Disney, Hamleys and Toys R Us. Interestingly, the company also raised the limit for inter-corporate loans to Rs 1,000 crore from Rs 550 crore according to its recent filing. This comes as a red flag for a company which generated net profits of only Rs 28.7 crore on revenues of Rs 533 crore in the last 12 months and a negative cash flow operations of Rs 7 crore in H1FY22. Basically, the previous deals are yet to generate meaningful profit and cash for the company. Nazara Tech raised Rs 315 crore back in October 2021 from institutional investors. This is after its IPO of Rs 583 crore in March 2021. It will be interesting to see how far these acquisitions go to create durable cash flow generation.
- Tata Elxsi: This design and technology services company’s stock has been on fire over the past two years rising nearly nine times over the past two years. But in the past two trading sessions, this stock rose over 17%, after it announced its Q3FY22 results touching a new 52-week high on Thursday. This makes it one of the most overbought stocks among the Nifty 500 companies. The company’s profit during the quarter rose nearly 20% QoQ (43.5% YoY), while its revenues were up 6.7% QoQ (33.2% YoY). Trendlyne’s Forecaster consensus average target price is Rs 4,932, while the stock is trading near Rs 7,500 levels. No wonder the consensus recommendation on the stock is to hold on to it.
- Max Healthcare Institute: This hospital company saw a surge in its promoter group’s pledged shareholding in Q3FY22. This is the first time since Q1FY21 that the company’s promoter shareholding was pledged. The promoter entity Kayak Investments Holding Pte pledged nearly 69% of its stake in the company (69% of 36.40 crore shares or 37.54% stake held by Kayak Investment) held in the company to lenders which include JP Morgan Chase Bank, Nomura Singapore, Deutsche Bank AG, etc. Additionally, the promoter entity also gave an undertaking not to sell its balance unencumbered shareholding, or create any encumbrances contrary to the lending facility agreement signed between. This comes after the promoter entity sold nearly 9.27% stake in two bulk deals on September 29, 2021. Part of this stake sale was picked up by HDFC Mutual Fund, SBI Mutual Fund and Veritas Funds. For now, investors should know that there is no more stake sales coming from Kayak Investments.