Lacklustre two-sided moves to dominate trading in truncated week

New Delhi: Markets in the week gone by were choppy and volatile. They gained on two of the five trading sessions and lost on three. Mount 20K on NIFTY is looking like an uphill task and markets are just not able to gather enough steam to put in the thrust to surmount the same.

BSE SENSEX lost 398.60 points or 0.61 per cent to close at 65,322.65 points while NIFTY lost 88.70 points or 0.45 per cent to close at 19,428.30 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.45 per cent, 0.27 per cent and 0.20 per cent respectively. BSEMIDCAP gained 0.88 per cent while BSE SMALLCAP was up 0.63 per cent. Action continues to remain focused on midcap and Smallcap space.

The Indian Rupee remained unchanged at Rs 82.84 to the US Dollar. Dow Jones gained on three of the five trading sessions and lost on two. Dow gained 231.60 points or 1.18 per cent to close at 35,281.40 points.

RBI in its monetary policy meeting held between August 8 and 10 decided to keep rates unchanged. Repo rate would remain at 6.5 per cent and this would be the third consecutive meeting where the rates would remain unchanged. Inflation is estimated to reach 5.4 per cent and RBI is concerned about disruptions in food supplies for various reasons and the impact it is having on food prices and inflation.

The week gone by saw two IPOs close their subscription. The IPO from SBFC Finance Limited had opened for subscription on Thursday (August 3) and closed on Monday (August 7). The issue was subscribed 70.16 times overall with QIB portion subscribed 192.90 times, HNI portion subscribed 49.09 times and Retail portion subscribed 10.98 times. There were 24.29 lakh applications.

The second issue was from Concorde Biotech Limited which had opened for subscription on Friday (August 4) and closed for subscription on Tuesday (August 8). The issue was subscribed 24.86 times overall with QIB portion subscribed 67.67 times, HNI portion 16.99 times and Retail portion 3.77 times. There were 12.84 lac applications in all.

The issue from Yatharth Hospital and Trauma Care Limited listed on Monday (August 7). Shares were issued at Rs 300 per share. The discovered price was Rs 304 on BSE and the closing price Rs 333.75. The gain was Rs 33.75 or 11.25 per cent. The share lost some ground and closed at Rs 330.70, a gain of Rs 30.70 or 10.23 per cent.

The issue from TVS Supply Chain Solutions Limited opened on Thursday (August 10) and would close on Monday (August 14). The issue would raise Rs 600 crore fresh and Rs 280 crore through an offer for sale. The company is a global integrated supply chain solutions provider. It is India’s largest and among the fastest growing companies having a global presence. It can be best described as an India based multinational company which pioneered the development of the supply chain solutions market in India. The company is promoted by the TVS group having its origin in Tamil Nadu and is a large conglomerate from Southern India. A public issue from this group had last come about 28 years ago.

One of the customers they serve is an ATM company in Europe. When the ATM is down, it needs to be restored and put back in service at the earliest. The technician visits the location and after checking the machine, orders the defective part replacement on the system. The logistics provider ensures that the required part is delivered to the boot of the technician’s car in the night so that the ATM can be serviced next morning. The same facility has been similarly replicated in India where instead of a car the part may also be delivered to the bike of the technician. Such customised solutions ensure customer stickiness and also results in larger and longer engagements. This was given as an example from the activities that the company does.

In terms of financial performance, the company reported revenues of Rs 10,235 crore for FY23 which was higher by 10.66 per cent when compared with FY22 at Rs 9,249 crore. In terms of EBITDA, the number was 152 crore in FY23 versus Rs 121 crore in FY22. The company reported an EPS of Rs 1.02 on a fully diluted basis for the year ended March 2023. On this EPS, the PE multiple is a staggering 183.33 to 193.14 times. Very clearly a valuation does not inspire to invest. Such companies are valued at EV/EBITDA and here the company scores favourably when compared to its peers with the value being 15.16-15.75 times.

Going forward one would expect this ratio to improve for the company as revenues and profitability is concerned. If one were to hazard a guess on how revenues could scale up for this company, I believe we could see a rising trend with the current 10.6 per cent growth moving up by a percentage point or better each year to reach around 16-17 per cent in about 4 years’ time. This would correspond to a revenue number of Rs 18,000 crore approximately. EBITDA would improve significantly from the present 6.5-6.6 per cent to around 9 per cent plus. This change would add to EBITDA and the PAT would make the difference as well.

In conclusion, apply if convinced in the business and the group. This is a business that would take yet another two to three years for delivering fruit, but the path that the company is trending in is successful. Take a measured call by either investing now or waiting for the share to list and then investing.

At the end of day 2 of subscription the issue was subscribed 1.05 times with QIB portion subscribed 0.15 times, HNI portion 1.05 times and Retail 3.75 times.

SME IPO has become a pure game of lottery. There was this recent case of an IPO which planned to raise Rs 9.5 crore at a price band of Rs 40-42. The issue size was 21.42 lakh shares and the company received subscription of 64.27 crore shares and was oversubscribed 300 times. What is interesting is that besides the other costs, there would be a processing fee cost of approximately Rs 90-100 lakh on the number of applications received by the company and this would reduce the funds raised by the amount. Interesting times in SME and it may be said that when it rains, it pours. The issue in question is Srivari Spices Limited.

The week ahead has a trading holiday on Tuesday (August 15) which is India’s Independence Day. This would disrupt trading as global markets are open. This would effectively mean that post the holiday we would have a three-day week. Markets would have 19,600 on NIFTY as a pivot and crossing of this in either direction would make markets move in that direction with some force and speed. This would correspond to 65,800 on BSESENSEX. On the support side, levels of 19,200 on NIFTY would act as support while it would be 64,600 on BSESENSEX. Mount 20K is the target for markets but that has become equivalent to Mount Everest. With results season over there are no immediate triggers in the market place currently. Expect markets to trade in both directions and volatility to rule the day. They would remain range bound in the short term.

Trade cautiously.