Repo Rate – Status Quo

RBI left the repo rate unchanged at 6.5% (as expected) unanimously. Also, monetary stance has been
maintained.

Domestic economic activity is exhibiting resilience. Investment activity has gained steam on account
of robust government capex and balance sheets of banks and corporates remain strong. Imminent
festive season is expected to provide support to economic activity.

Global slowdown is one risk that needs to be monitored. FY24 real GDP forecast is kept unchanged
at 6.5%.

Vegetable prices eased in August, leading to headline inflation easing to 6.8%, and these prices are
expected to ease further. Core inflation at 4.9% is comforting. Going ahead, lower kharif sowing
(especially pulses), El-Nino effects (skewed South-West Monsoon season), lower reservoir levels and
uncertain global food and energy prices (exhibiting hardening bias) and possible upside risks, which
need to be watched carefully. MPC remains resolute on maintaining its medium-term target of 4% CPI
inflation.

FY24 Inflation forecast kept unchanged 5.4%.

Liquidity: The combination of I-CRR and advance tax outgo has tightened liquidity conditions in
September. Going ahead, while some of these will reverse, festive season will result in liquidity
withdrawal. At the margin liquidity conditions are likely to remain neutral. Further, governor stated
that RBI will undertake OMO sales (liquidity tightening) to ensure liquidity stance is consistent with
monetary stance. This perhaps suggests, a relatively hawkish stance from RBI – owing to ensuing
BoP stress?

Our view: While rates and stance have been status quo, RBI’s suggestion of OMO sales could perhaps
be RBI’s attempt to push domestic market rates higher given the sharp spike in global bond yields.
Thus hereon, given that liquidity is currently neutral fluctuations around Balance of Payments and
global rates will be critical in determining domestic monetary conditions.
Nuvama Q2 Results Preview – Outliers
We expect Q2FY24 shall be similar to Q1FY24—not only in terms of aggregate revenue and PAT
growth, but also underlying trends. We forecast revenue/PAT growth for our coverage universe (ex-
OMCs) would be 6%/18% YoY.
- BFSI profits are likely to skid (<15%) as margins stay under pressure while commodity profits move
out of deflation
- Top line buoyant in high-ticket consumption and industrials but remains muted in exporters and
low-ticket consumption
- Lower input prices to propel EBITDA growth/margins YoY
Our conviction leans towards margin-sensitive sectors: FMCG, domestic autos, cement, telecoms and
internet.

Sector-wise Stock Outliers as highlighted in Q2 Preview are as below with higher conviction names
highlighted in BOLD

Sector Outperformers Underperformers

Agri Dhanuka & Coromandel (strong UPL (global agri pressure)
demand)
Automobiles Maruti (margin improvement), Sona BLW (lower than usual growth)
Tata Motors (strong growth
continues), Samvardhana
Motherson
Banking Indusind Bank, Federal Bank, Kotak Mahindra Bk, AU SFB
Shriram Finance, Axis Bank, Five
Star, MMFS
Capital Goods L&T (order inflow can surprise),
Titagarh
Cement JK Cement, Ultratech, Dalmia
Bharat(industry leading growth)
Chemicals GFL, SRF (inventory pile-up)
 Consumer Polycab Voltas (margin pressure)
Durables
Consumer Staples Nestle, Tata Consumer, Indigo Britannia, Marico (muted vol grwth)
Paints (2-3x industry growth)
IT Persistent, Coforge (strong Tech Mahindra (weak grwth & poor
growth) margins)
Home Prince Pipes(strong vols, improved Greenply (muted demand, margin
Improvement realisations) pressure with elevated timber prices)
Insurance Maxlife, Star Health (strong grwth)
Metals Coal India (strong vols), NMDC Tata Steel (Europe to disappoint), HZL
(price vol growth) (lower base metal prices)
Oil & Gas MGL/IGL (strong vol, margins),
GAIL
Pharma Alkem (weak domestic season,
guidance cut likely)
Real Estate Prestige Estate, DLF, Macrotech
Devp (strong pre-sales)
Retail Titan/Trent, Bata (supported by Jubilant Foodworks (muted SSG,
weak base) margin pressure), Vedant (less
wedding dates), VMart (shift in festive)

CDSL – Initiating on the Demat Duopoly Leader

Madhukar has initiated coverage on CDSL (Mcap Rs142 bn) with a BUY rating which provides ~20%
upside. CDSL is the demat accounts leader with a market share of 73.8% in a duopolistic industry.
Furthermore, the company has been consolidating its position with an incremental share of 80%-plus.
CDSL has been gaining from a mega trend: financialisation of savings, which has driven retail equity
holdings. Annual issuer (linked with strong capital mkt cycle, thus Unlisted companies may provide a
growth kicker), transaction (Rising share of demat accounts, retail volume and delivery ADTO drives
higher transaction charges) and KYC charges (New demat and MF investors to drive KRA fees) shall
thus continue to accrue.

Operating leverage would drive EBIT margins higher by 376bp to 58.5% by FY26E from FY23 levels.

Our key investment rationale on CDSL are as follows:

· Retail demat leader with a share of ~81% in incremental accounts in FY23
· Strong partnerships with key large discount brokers underpin its leadership
· Extending lead over NSDL by capturing three–fourths of new demat accounts
· Leadership implies outsized knock-on effect on transaction charges pool
· New-to-market investors dominate account openings, bolstering KYC revenue

We reckon CDSL shall deliver FY23–26E revenue/EBIT CAGR of 14.6/17.2% and thereby ratchet up its
RoAE to 26.7% by FY26E.

Initiating coverage on CDSL at ‘BUY’ with a DCF-based TP of INR1,620. Our TP implies FY25/26E
EV/NOPLAT of 49.3/43.4x.
Venus Pipes – An attractive Opportunity
We first talked about Venus about a year ago and were bullish driven by 2-3 factors – size of
opportunity + ability of the company to scale.
Generally, both these become good factors for re-rating and the stock did rerate (and how) 3x in 1.5
years. But the recent stock price correction (~20% from highs) makes it an attractive entry point given
the future revenue visibility.

Our management interactions makes us optimistic as –

Venus is a dedicated SS tubes and pipes player, and its capacity market share is set to shoot up to 10%
by FY25E—from 4% in FY22 .Increasing broad-based demand in end-user industries shall help sweat
out the expanded assets base (with capacity trebling) to >80% by FY25E. Venus services diversified
end-user industries such as chemicals, engineering, and pharma, and rakes in revenue from multiple
streams: new projects, repair & maintenance and replacement demand. A diversified client base also
hedges the company against slowdown in one particular end-user industry. Moreover, the company
is constantly diversifying its client base by adding customers in new industries. Proximity to ports was
always an edge Venus had in exports (Kandla and Mundra), ongoing capacity expansion along with
backward integration shall provide exports a growth kicker

After successful capacity expansion in both seamless and welded, Venus aims to sweat these assets
to fulfil the robust order book and continuing strong demand. It has an order book of INR2bn from
sectors such as pharmaceuticals, chemcials, food processing and railways. Although there are some
issues on the global side due to a brief slowdown, domestic demand continues to be promising. But
with the global demand slowdown waning and bright domestic demand, Venus has decided to further
expand its seamless capacity by 4,800MT.year. The LSAW plant shall be enhanced to manufacture 56-
inch diameter pipes (high-margin segment). Capex, estimated at INR400mn, shall be funded from
internal accruals. Furthermore, the company has revised its capacity utilisation guidance upwards to
70%, from 60%, for FY24E. Post-FY25, Venus expects to add 15–20% value growth in capacity.

Venus is well-placed to drive solid earnings growth with a PAT CAGR of 54% over FY23–26E led by
tripling of capacity driving revenue CAGR at 32% and EBITDA margin expansion by 600bp from 12.5%
in FY23 to 18.5% by FY26E. A strong balance sheet despite heavy capex (D/E of 0.2x) and FCF (post
capex) beginning FY25E are key positives for the stock. Hence, we consider the recent correction as a
strong buying opportunity.

Sneha reiterates ‘BUY’ with a TP of INR1,686 based on 23x Q2FY26E EPS.

Mahanagar Gas: Ripe for a Re-rating

We have noticed and appreciate the renewed aggression in Mahanagar Gas’ management. In our
recent interaction with the CEO, we learnt that the company is realigning current sourcing contracts
and launching targeted schemes to boost volume growth. A State transport utility operating in MGL’s
geographical area is looking to add CNG buses to their fleet, which could potentially add volumes of
~0.3mmscmd – benefit of being in the right place, right time!

Yet again this week we are appreciative of MGL’s aggression towards volume growth, as they
announced cut in CNG prices, driven by cost reduction – spot LNG prices and domestic gas prices
cooling off. As per our calculations, the reduction in prices for CNG will result in increasing its
competitiveness v/s petrol/diesel by 48/33% (earlier 46%/30%). And in case there is any concern on
margin / spread compression, MGL reported INR16.8/scm margin in Q1FY24 – well above Mgmt.’s
targeted level of INR10/scm.

We reckon MGL shall clock accelerated volume growth of 8%-plus YoY for the rest of FY24. We are
convinced that MGL shall see a re-rating in its valuation of 10x FY25E PER, which is nearly one–third
lower than IGL’s 16x FY25E PER. We maintain BUY; TP of INR1,411

Credit Ratings – Upgrades/Downgrades tell a story

Anybody who remembers the 2008 crash, will be skeptical of Credit rating agencies ability to predict
the future. That said the data released by Crisil / Care on credit ratings does throw up some
interesting points.
For one, while India Inc saw higher number of credit rating upgrades than downgrades in H1 FY24 –
Crisil had ~1.91 upgrades for every downgrade while CareEdge’s ratio was 1.67X. BUT the concern
was that this upgrade to downgrade ratio came down meaningfully; in H2FY23 the ratio was
2.19x/2.72x for Crisil/ CARE respectively. Clearly an indication of a stabilising/ decelerating economy.

Secondly, the mix of sectors driving the upgrades/ downgrades showed clear differences across
different segments. Sectors backed by domestic demand and high government spending – largely
manufacturing/ BFSI, particularly NBFCs - drove the upgrades. Improved asset quality and strong
credit growth helped the NBFC space; Infra gained from govt spends and Residential real estate
builders saw sharp liquidation in inventory. On the other hand, the higher downgrades were driven
by mid-sized companies in export orient sectors: chemicals, textiles, API (Active Pharmaceutical
Ingredients) drugs and agro-based segments.

While the data is historical, it seems to fit in with other indications that while the economy is certainly
growing, the growth rate could now be stabilising/ decelerating. Also, the risk to overall growth
seems to be more external - w domestic/ capex themes to benefit: BFSI/ NBFCs (ICICIB; HDFCB, SHTF);
Capex Linked (BHEL,NTPC, L&T), Real Estate (Prestige, DLF, Lodha) and premium discretionary (mind
the valuations though!)

Credit Ratings – downgrade rates inches up; upgrades remain steady

Industrials - Order Book growth to continue

Interesting analysis by Subhadip and team on industrial order book growth.

Below exhibit shows that in previous 2 central election there was no slowdown in ordering pre election
so even this time there is unlikely to be any impact on ordering.

Amid fears of a global slowdown, exports are at a clear risk while private capex may experience some
delay in ordering, in our view.
Any larger-than-expected slowdown affecting new orders and exports demand, working capital
management, right capital allocation and volatility in input costs remain some of the key variables.
Central capex spending (INR10tn outlay for FY24BE) over the first five months of FY24E is leading the
race versus state capex with focus on railways, defence, power (generation and transmission) as the
main driving forces.

The RBI estimates industrial capacity utilisation at 76% as of Mar-23 (versus peak of 80–85%), leaving
significant room for growth as greenfield/brownfield expansion was seen across our Industrials
coverage universe over last 12–18 months.

PVR – Costa Coffee : The ‘Hot’ Deal

In the traditional movie watching experience f&b basket included popcorns, samosas and at max soft
drink, thus mammoth portion of the single screen revenues were contributed by pure ticketing
revenue. With advent of multiplexes the gourmet of experience changed with high margin f&b
contributing significant share now. Historically, PVR INOX focused largely on cold beverage with hot
beverage contribution being negligible.
Now “winter is coming” and it’s an opportune time, for PVR to increase its hotter beverage range. PVR
INOX will initially open Costa Coffee at 15-20 locations (out of 362 properties) over next 4 months with
target of 50-100 outlets based on response. Pricing will be at a premium to what Costa sells outside
of PVR INOX properties. In our view, this is likely to be a high-margin business for PVR INOX.

This will also be an opportunity for Costa to target 170mn footfalls, which PVR INOX sees on an annual
basis across its chain. PVR F&B revenues was ~INR4bn in Q1FY24 and INR16bn in FY23 (Pro forma).
Costa’s annual revenue in FY23 was INR1bn.

Freight Corridors and their Magic

One of the largest, most impactful and amongst the most consequential infrastructure project’s in
India is now close to fruition, not to mention it is long over-due, but when ready (and soon it will be)
its impact will be magical. Nanduri Srinivas, Director Operations & Business Development at Dedicated
Freight Corridor Corporation of India (DFCCIL) talks about it here

➢ Eastern DFC – 900kms complete and operational, to be completed anytime now and fully
operational by Dec23.
➢ Western DFC – most difficult task of goingthrough Aravalli Hills is completed, trains
undergoing trials, will complete upto 100kms from Mumbai by Dec23, last 100kms patch will
be completed next year.
➢ Avg speed of trains : Coal or goods trains on common line doesn’t run at > 20-25kms/hr, DFC
will allow unhindered long distance movement at 60kms/hr (no crossings). Benefits already
being felt, Coal from the Eastern coal fields to Power houses in the North used to take 4days,
now taking 1.5days. Turnaround time has improved meaningfully. Indian Railways will not face
wagon crunch. Last year country hasn’t faced coal crises. Powerhouse in hinterland are
mandated to maintain coal inventory of 25days, they can now manage the plant as efficiently
by maintaining an inventory of 7days by being connected to DFC. 18day dead working capital
which can be INR 2.5bn for a typical power plant, can be released.
➢ Targeting non-conventional freight, light cargo eg machine parts, high value cargo, trucks on
train, RORO. Signed MoU with Amul, trucks from Gujarat to NCR now take 12-15hrs against
30hrs.
Age is just a number !
Taking up Sky diving is a feat in itself, but imagine doing it for the very first time --- when you are a
spring chicken ---- all of 100 years old!
And then coming back again at 104 years – this time for the world record!

Dorothy Hoffer a 104 year old Chicago resident did just that! Seems unbelievable right?

The woman who stunned people with her bravery and vigour for life’s numerous thrills shared that
things are just heating up for her. On being asked about her future plans, Hoffner said, “One never
knows.”

Even though Hoffner did not confirm any of her daredevilish plans to the reporters, she did mention
her hopes of completing a third plunge. With that, she also hopes to ride a hot air balloon. “I’ve never
been on one,” reasoned the 104-year-old.

When she was asked how it felt to hold the world record, unofficial for now, she replied, “Like I’m
old.” Hoffner soon expressed her thoughts on the matter and told the reporters, “Age is only a
number, you know.”

P.S – the oldest man to do a jump Al Backshire was 103 years old when he jumped in 2020.
In other news – If you have taken inspiration from this – November is the only month you can do
Skydiving over the Himalayas and with a view of Everest from 25000 feet – its literally mind blowing.
Read more here.
What to do over the Weekend
What to Watch – The Vaccine War in Theatres near you (IMDb 8.1/10)
A true story based on the book ‘Going Viral’ by Dr Balram Bhargav the Head of Indian Council of
Medical Research (ICMR) during the Covid19 period, the movie traces the journey of Indian scientists
as they race against not just time, but anti-India elements to develop the first indigenous and
affordable vaccine against Covid19 Covaxin. The movie stars – Nana Patekar, Pallavi Joshi, Anupam
Kher and Raima Sen and is directed by Vivek Agnihotri. The movie shows how the nation shifted its
attention from from naysayers to celebrating the efforts of unsung heroes, frontline workers and
relentless scientists who didn't rest for months in a bid to create India's indigenous COVID-19 vaccine,
Covaxin. Agnihotri narrates the ordeal, struggle and eventual success of these women scientists.

A must watch with your family!

Where to go – Visit the good old Restaurant Goa Portuguesa in Mahim
Founded by Dr Suhas Awchat ‘Goa Portuguesa’ is an Exotic Fun Dining and a multiple award wining
restobar serving Goan, Portuguese and Continental Vegetarian, Non Vegetarian and Seafood
delicacies. In addition to serving iconic Goan dishes such as Vindalho and Balchao, Goa Portuguesa
offers a wide variety of traditional Hindu vegetarian preparations, thus dispelling the myth that Goans
eat only Fish and Pork. Live music in the Restobar is another speciality which patrons love.

Note:

1.Special thanks to our Institutional Equities Sales team for putting together this report.
2. This is an Institutional report and stocks covered there are communicated to clients.

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