(Please refer to our website for complete coverage universe http://research.ambitcapital.com)
UPDATES
Retail: FDI in food retail - Path to profitability unchanged
The hype around Government nod for 100% FDI in marketing of food products including ecommerce notwithstanding, we believe the space needs more than just regulation. Food has been the retailer's graveyard due to poor unit economics – barring D-mart and Reliance Retail (to an extent), few have achieved scale profitably despite aggregate investment of >$4bn over FY05-15. Unlike footwear (low inventory turns), ecommerce in grocery doesn't seem to have resolved any problem (exits and losses continue) of modern trade despite seeing $500mn worth of investments over FY15-16. The current policy (only food manufactured and produced in India) is margin-dilutive but legitimises ecommerce grocery models. We prefer companies like Trent (BUY, TP Rs2,009) which focus on unit economics (losses stem from under-absorption of corporate overheads due to limited scale) and have the capital as well supply chain capabilities (JV with Tesco, THL). (Abhishek Ranganathan, CFA, +91 22 3043 3085)
DERIVATIVES
Alpha This Week: An alternative take on the markets
The Nifty has been consolidating in a range capped at levels near 8300 ever since the index out of the resistance at 8000 levels in end-May'16. In spite of a sharp gap down opening on Friday last week, on the back of volatility induced by the 'Brexit' verdict, the index managed to respect the 8000 levels and has moved up smartly from those levels since then. Going forward, we expect these levels to continue acting as significant support for the index in case of any correction and for the index to resume its upmove. On stocks, we initiate fresh shorts on M&M and fresh longs on Idea whilst continuing with our shorts on Zee Entertainment and Hindustan Zinc and our longs on Ashok Leyland. We advise exiting longs on HCL Tech. (Prashant Mittal, CFA, +91 22 3043 3218)
(Click here for detailed note)
ANALYST NOTES
Tata Power: Unravelling renewable acquisition
We spoke with renewables expert to address concerns on Tata Power's acquisition of Welspun's renewables. Key takeaways: (a) risk of solar PPA of Rs8/unit not being honoured is remote given no default by SEB due to merit order dispatch (Rs15/unit PPA from old plants also being honoured). Also, solar faces no backdown unlike wind (volatile supply); (b) 88% of Welspun's solar projects are in Tamil Nadu, MP, Karnataka and Andhra, which are keen on meeting RPO (64% of solar PPA of 13GW signed in FY16 in these states); (c) deal value of Rs81mn/MW not comparable with replacement value of Rs60mn/MW as tariff at Rs8/unit is higher than current bids of Rs4.5-5/unit. Welspun's assets enjoy superior equity IRR of 28% vs 12-14% for recent solar projects. We see acquisition at 1.4x invested equity as value accretive; we may upgrade TP by 4% to Rs107 post conclusion of transaction. Remain Buyers (trading at 1.2x FY18 P/B). (Bhargav Buddhadev, +91 22 3043 3252)
You received this message because you are subscribed to the Google Groups "LONGTERMINVESTORSRESEARCH" group.
To unsubscribe from this group and stop receiving emails from it, send an email to longterminvestorsresearch+unsubscribe@googlegroups.com.
Visit this group at https://groups.google.com/group/longterminvestorsresearch.
For more options, visit https://groups.google.com/d/optout.
No comments:
Post a Comment