The Baseline    
30 Sep 2022
Five Interesting Stocks Today
  1. Nestle India: The foreign parent of this FMCG major is set to invest Rs 5,000 crore in the business over the next three years, a significant ramp-up compared to its investment of Rs 8,000 crore made over the last 60 years. The stock rose nearly 3% after Nestle S.A.’s CEO Mark Schneider made this announcement in a press conference on September 23.

Given the sheer size of the investment vis-à-vis the previous commitment, India has clearly become an important emerging market for Nestle. The CEO highlighted that the company was facing a difficult situation globally on account of runaway inflation. India, on the contrary, appears to be in a bright spot owing to its rising middle-class population and increasing per-capita income levels.

According to Suresh Narayanan, Chairman at Nestle India, the investment outlay will be spent across new growth opportunities in the nutrition segment, including plant-based proteins and healthy snacking. The Maggi maker may look to acquire companies present in this segment. Additionally, the capex will be utilized in developing the emerging categories of pet care and toddlers’ snacks. The pet care market size is roughly Rs 4,000 crore in India and growing at a CAGR of 20-25%. Given the fresh capex, Nestle India will be able to take on Hindustan Unilever. It has some catching up to do here – HUL has actively invested in building its health and nutrition segment since FY20, notable investments, being the acquisition of Horlicks and Boost brands.

Investors need to watch for Nestle India’s margins in upcoming quarters as they were under pressure owing to input cost inflation. In a major relief, the prices of edible oil and packaging material softened over the past few months. However, wholesale prices of wheat and milk continue to trend higher. 

  1. Torrent Pharmaceuticals: This pharma company’s stock fell over 5% intraday on Wednesday after it announced the acquisition of Curatio Healthcare for Rs 2,000 crores. Expensive deal valuation could be the reason why the acquisition did not excite investors. Torrent Pharma acquired Curatio at a costly valuation of 8.2 times enterprise value/trailing twelve months sales (EV/TTM sales). For reference, recent deals by big players in the pharma industry have an average of 4.2 EV/sales. In addition, the management in the analyst call on Tuesday said that 75-85% of the Rs 2,000 crore price tag would be funded by debt. This comes at a time when Torrent Pharma was reducing its debt and the stock comes up in a screener that lists companies that are decreasing leverage. 

Curatio derives over 82% of its revenue from the dermatology segment with cosmetic dermatology as the leading contributor. Over the last decade, cosmetic dermatology as a therapy grew at 18% CAGR, which is comfortably higher than the Indian pharmaceutical market’s (IPM) growth. Curatio’s revenue grew 25% YoY in FY22 after two years of stable sales and the management guided for 24% revenue growth from the Curatio portfolio in FY23, and expects to sustain this level going forward. 

Brokerages like ICICI Securities and Prabhudas Lilladher kept their ‘Buy’ rating on Torrent Pharma, indicating an upside of over 15%. The brokerages have a positive outlook on the company as the deal allows it to foray into the high-growth cosmetic dermatology segment. 

  1. Life Insurance Corporation of India (LIC): This insurance stock is falling in trade for the last five sessions, hitting all-time lows almost every day. It touched an all-time low of Rs 618 on Thursday, which is 29% lower than its issue price. The stock was also trading below its second support or S2 level on Tuesday. It also shows up on a screener of stocks with low to medium Trendlyne Momentum Score. 

Ever since its listing, LIC’s share price has been on a declining trend. Reports suggest that LIC’s declining market share and its dependency on the age-old, somewhat outdated model of agents as its biggest distribution network is a dampener in terms of growth. However, in its annual general meeting on Tuesday, LIC’s Chairperson M R Kumar said that the company is devising strategic changes in product mix and distribution channels to enhance growth and improve market share. The plan is to shift the product mix towards non-participating products, increasing this to 12-15% in the next 3-4 years. In non-participating products the profits and dividends are not shared with the policyholders, making it lucrative for insurance companies to sell such policies. M R Kumar also says that in the ‘LIC 3.0’ version the company plans to close Q2FY23 with increased market share and better technological processes to match the competitors.

LIC has also been making changes in its holdings. On Tuesday it announced the acquisition of an additional 2% stake in Bharat Petroleum Corp (BPCL) over a period of 9 months (December 28, 2021 to September 26, 2022). LIC now holds a 9% stake in BPCL. On Wednesday it announced a significant stake reduction in Gujarat State Fertilizers & Chemicals to 3.96% from 6.05% from April 8 to September 27. This transaction amounts to nearly Rs 133.9 crore. Possibly with these new changes, LIC may be able to adapt to the shifts in the market, the rise of digital channels and increasing interest rates affecting people’s investment choices.

  1. Power Grid Corporation of India: This power stock fell nearly 8% in trade on September 23 after reports of it buying shares of Power Finance Corporation (PFC) - a subsidiary of Power Grid, from Rural Electrification Corporation (REC). This suggests that Power Grid is getting into the business of financing power projects where its competence is limited. According to reports, this would cause the company’s dividend yields to drop to 4%.

However, on Tuesday the Centre rejected REC’s proposal to sell PFC’s stake to Power Grid. This drove the stock to rise 3% in trade on Tuesday in an otherwise volatile market. Foreign brokerage Citi gave a ‘Buy’ rating on the stock on a stable business outlook, high market share and better RoE. The stock also shows up on Trendlyne’s screener of companies with improving RoE over the past two years.

The company’s board also approved a power transmission project costing Rs 327.7 crore, on Monday. The project will connect Jamnagar Oil Refinery of Reliance Industries with Jam khambhaliya ISTS PS. 

Energy indices like BSE Power and Nifty Energy have been up for the past three months. Jefferies in its report says that it is bullish on the power sector and predicts decade-long growth. It also expects power stocks to improve their renewable energy capacity by 82% to 305 GW till FY30E. Power Grid is among Jefferies’ top picks from the sector. Trendlyne’s consensus recommendation also shows 17 analysts recommending a ‘Buy’ on the stock. 

  1. KPIT Technologies: This IT Consulting & Software company rose 14.6% over the past month, outperforming the Nifty 500 index by 18.2% till Thursday. This rise comes at a time when most IT companies are falling given the high inflationary environment. The Nifty IT declined by 6.5% over the past month as of Thursday. 

The surge in the stock was triggered by its acquisition of four Technica group companies in the automobile software and electrical space. The firm expects this acquisition to improve its scale of operations. The acquisition will cost the company a fixed consideration of 80 million euros, and a maximum variable payment of 30 million euros. Post the completion of the acquisition in October, the Technica group will be fully owned by the firm. 

The management believes that the acquisition will improve KPIT’s EPS upon consolidation and increase revenue by at least 10% by the end of FY24. It may raise its revenue guidance upon completing the acquisition, according to reports. In July, it had given a revenue guidance of 18-21% for FY23. Trendlyne’s Forecaster estimates KPIT Tech’s revenue to grow 6.1% QoQ to Rs 727.2 crore. The stock also shows up on a screener which lists companies with revenue increasing sequentially for the past four quarters.

The company expects to maintain its margin guidance for FY23 as well, according to reports. It says there is no slowdown in demand as its Europe business vertical is not impacted by the macroeconomic tailwinds yet. Its Europe business segment was the largest contributor to revenue in Q1FY23, accounting for nearly 30% of revenue.

Trendlyne's analysts identify stocks that are seeing interesting price movement, analyst calls, or new developments. These are not buy recommendations.

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