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Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 25, 2024

Equity Right Research: Kaynes Technology: Elevated Earnings Projections and Strategic Entry into OSAT Sector Enhance Value , Re-iterate BUY

MCap: Rs 35,618 Cr; CMP: Rs5,564; TP: Rs7,963; Upside: 43%; Rating: BUY

Stock Data (as on 30 June,2024)
NIFTY	:25,377
52 Week H/L (INR)	:5,742/1,986
Market Cap (INR Cr)	:35,046
Outstanding Shares (Crs)	:6.40
Dividend Yield (%)	:0.00%
NSE Code	:KAYNES
BSE Code	:543664

Absolute Returns (%)
3 Months	:38.03%
6 Months	:106.53%
1 year	:157.61%

Shareholding Pattern (as on June 30,2024)
Promoters	:57.83%
FIIs	:14.27%
DIIs	:17.88%
Public	:10.03%

Financial Summary
Key Metrics	FY24	FY25E	FY26E
Net Revenue	1,805	2,996	4,195
YoY Growth %	60%	66%	40%
EBITDA	254	479	671
EBITDA Margin (%)	14.07%	16%	16%
PAT	183	298	433
YoY Growth %	92%	62.88%	45.24%
EPS (in INR)	28.68	46.57	67.64
ROE	7%	13%	18.50%

Valuation

We estimate revenue/ EBITDA /PAT growth of 66%/ 89%/ 63% in FY25E. PAT growth driven by healthy order book growth trend and high EBITDA margin profile guided by management(15-16%) in FY25. Factoring all the growth factors, we give buy rating on the stock with TP of 7,963 (171 TTM PE x FY25E 46 EPS).

About the stock

Kaynes Technology is engaged in the business of electronic manufacturing, offer end to end and IoT enabled solution, expertise in electronics system design and manufacturing (ESDM) services. It has three decades of experience in providing conceptual design, process engineering, integrated manufacturing and life cycle support. It serves various industries such as automotive, industrial, aerospace, defence, outer-space, nuclear, medical, railways, internet of things (IoT) and Information technology. Kaynes business vertical can be classified as follow:

OEM – Box Build: Kaynes specialize in delivering “Build to Print’ or ‘Build to specifications’ of complex box build, sub-systems and products across various industry verticals.

OEM – Turnkey Solution – Printed Circuit Board Assemblies (PCBA): Kaynes encompass electronic manufacturing of PCBA, cable harnesses, magnetics and plastics ranging from prototyping to product realization including mass manufacturing.

Original Design Manufacturing (ODM): Kaynes offers ODM services in smart metering technology, smart street lighting, BLDC technology, inverter technology, gallium nitride-based charging technology and IoT solutions for smart consumer appliances and devices.

Product engineering and IoT Solutions: Kaynes offer product engineering services include embedded design, firmware and software development, mechanical design. They also provide IoT solution such as cloud based services, IoT data analytics platform.

Growth Fuel Factors

Strong order book.
New business doors open coming soon –OSAT/PCB.
Government initiatives encourage foreign companies to enter in India.
Indian EMS industry represent growth of 41% CAGR by FY26.
Capacity expansion in existing business.
Highly outsourced by OEMs to EMS vendors.

Global economic outlook

The global economy achieved moderate growth rate of at 3.1% in 2023 compared to 3.2% in 2022. The various challenges such as geopolitical tension like conflict in Ukraine, higher inflation, monetary tightening by central banks, sluggish recovery in china and volatility in energy prices and food markets are contributed to slowdown in global economic growth. While advanced economy saw mixed results with US growing by 2.5% due to robust consumer spending but Eurozone lagging at 0.4% growth led by high energy price. Emerging market outperformed both the market at 4.3% growth rate driven by china’s reopening and India’s domestic demand.

According to the world economic outlook April 2024, the global economy is expected to grow at same run-rate of 3.2% during 2024 and 2025, mirroring to 2023. This forecast is supported by the expectation of continued disinflation and recovery for global economy. For developed economies, growth is projected to rise from 1.6% in 2023 to 1.7% and to 1.8% in 2025. While emerging markets and developing economies are expected to undergo a modest slowdown from 4.3% growth in 2023 to 4.2% growth in 2024 and 2025. Global inflation is forecasted to decline steadily from 6.8% in 2023 to 5.9% in 2024 and 4.5% in 2025 as supply condition improve.

Source: Company’s MDA

Indian Economy Outlook

According to the National Statistical Office (NSO), India’s GDP growth stood at 8.2% in FY24 compared to 7.0% in FY23. The overall economic growth supported by strong domestic demand, push in capital expenditure from government, moderate inflation and stable interest rate. India’s index of industrial production report 5.8% growth rate in FY24 compared to 5.2% in previous year. This strong growth momentum is evident by the growth observed in industrial production data, robust GST collection, per capita income and increasing private capital expenditure.

India’s economy continues to expand in CY24 as GDP growth is forecasted at 7% according to the IMF’s July World Economic Outlook. This growth supported by robust domestic demand, government’s push for capital expenditure and favorable policy environment. The recent interim budget for FY2024-25 increase capex by 16.9% reflecting the strong commitment of the union government to boost economic growth from significant investment in infrastructure development. Various government initiatives like ‘Make in India’,’Aatmanirbhar Bharat’ and the Production Linked Incentive (PLI) schemes supporting manufacturing sector and increasing domestic manufacturing.

India’s economic growth outlook appear strong despite challenges such as food inflation and cost pressures. This optimistic outlook supported by robust domestic demand, digital transformation and entrepreneurship. India aims to become 3rd largest economy reach GDP to US$ 5 Tn by CY27.

Source: Company MDA

Global Electronics Manufacturing Services (EMS) Industry

The global electronics manufacturing services (EMS) market was valued at US$ 539 bn in 2023 and is expected to reach around US$ 1,064 bn by 20233 with CAGR of 7.03% during 2024 to 2033. This growth is driven by the shift in in-house manufacturing to EMS vendor and rising demand for consumer electronics, industrial automation.

The future outlook for global EMS market is robust, with significant growth expected across various regions and industry segments. Asia-Pacific region such as china, Taiwan and Vietnam, dominates the EMS market because of lower maintenance costs, material availability, faster production, skilled labor. while Europe and North America are also expected to show substantial growth driven by advancement in automotive electronics, healthcare and industrial automation. Key trend for shaping the future of the EMS market include the integration of industry 4.0 technologies such as IoT, AI and automation.

Source: Syrma SGS MDA

Indian Electronic Manufacturing services (EMS) Industry

India’s EMS market is expanding rapidly from being a major importer of electronics to become key player in the global EMS market. As of 2023, India’s EMS market was valued at US$ 36 bn within that mobile phone and consumer electronics are highly weighted sector.

The outlook for India’s EMS industry is highly optimistic forecasted to reach US$ 135 bn by 2026 with a CAGR of 41.1%. This growth is anticipated to fueled by the increasing in outsourcing by original equipment manufactures (OEMs), decline in imported finished goods, growing demand of consumer electronics and rapidly growing EV sector particularly 2W,3W and 4W.

Indian government also aimed to expand electronic market and implemented some policies includes schemes like Promotion of Manufacturing of Electronics Components and Semiconductors (SPECS), Modified Electronic Manufacturing Clusters (EMC 2.0), Production Linked Incentives (PLI) and Phased Manufacturing Programme (PMP). Government incentivizing 20-25% of the capital expenditure through its M-SIPS schemes for electronic manufacturers. Additionally government allocate INR 76,000 crores for development of semiconductor and display manufacturing in India.

Indian EMS market is set for robust growth in the next decade. Aim to become leading manufacturing hub for electronic manufacturing as OEMs look to diversify their production bases away from china. Government initiatives like ‘Make in India’ and ‘PLI schemes’ will encourage both domestic and foreign companies to manufacture in India.

Key drivers for growth of the Indian EMS Industry

High Outsourcing by OEMs
Growing Demand of Electronics
Large Domestic Market
‘China +1’ Strategy
Government Initiatives

Source: Avalon and Syrma SGS MDA

Global PCB Market Outlook

The printed circuit board assembly (PCBA) market is expected to grew at CAGR of 5% to reach valuation of US$ 145 Bn by the CY2032. This growth is attributed to factor such as rising demand for consumer electronics, automotive electronics and industrial automation and due to the rising expansion of Internet of Things (IoT). The key growth driver for PCBA and PCB is growing need for electronic devices in industries such as consumer electronics, automotive, healthcare and telecommunications.

Source: Kaynes MDA
https://exactitudeconsultancy.com/reports/38060/pcb-pcba-market/

Indian PCB Market Outlook

Indian PCB or PCBA market reached a valuation of US$ 5.4% Bn in CY2023. According to the IMARC group, the market is expected to reach US$ 21.3% Bn representing a CAGR of 16.4% during the period from 2023 to 2032. The rising demand for consumer electronics products, increasing application in electric vehicles and favorable government policy and schemes are the key factor driving the Indian PCB market.

Source: Kaynes MDA and
https://www.imarcgroup.com/indian-pcb-market

Company Overview

OEM – Box Build: Kaynes specialize in delivering “Build to Print’ or ‘Build to specifications’ of complex box build, sub-systems and products across various industry verticals.

Diversified Product Portfolio

Kaynes offers a wide-ranging product portfolio having applications across industry verticals such as automotive, telecom, aerospace and defence, space, medical, IoT and industrial, each of which is individually growing. This in turn limits exposure to downturns associated with a particular vertical. It also ensures consistency of revenues across periods on account of customers serving different industry verticals with different business or industry cycles.

Long standing relationship with marquee customer base

Over the past three decades, Kaynes has established long-term relationships with well known customers across the industries it caters to. Kaynes has a diversified customer base and has served 350+ customers in 26 countries. Their continued success is, in part, due to customer-centric practices such as open book costing, internal and external audits, and direct shipments to end customers.

Manufacturing Facility

Kaynes currently operates through its nine advanced manufacturing facilities to undertake high mix and high-value products with variable or flexible volumes. Kaynes’ operations are complying with global standards with 12 global accreditations—most for an ESDM company in India. It has a dedicated research facility at Mysore, Bengaluru and Ahmedabad with a 75+ member R&D team

Share holding pattern

Company’s majority holding held by promoter (57.83%) followed by FIIs 14.27%, DIIs 17.88% and public 10.03% as of June 2024. Promoter holding has declined from 63.57% in Sep 2023 to 57.83% in Dec 2023 due to the dilution of fresh issue. whereas FIIs and DIIs has increased their holding. Public holding has been continuously decreasing from high of 16.48% in Dec 2022 to 10% in June 2024 represent high interest of big hand in the company.

Shareholding pattern	Mar-23	Mar-24	Jun-24
Promoters	63.57%	57.83%	57.83%
FIIs	8.16%	14.19%	14.27%
DIIs	12.96%	18.36%	17.88%
Public	15.31%	9.61%	10.03%

Since the company listed ( Nov-2022) big spike seen in big shark holding such as FIIs and DIIs. FIIs holding has jump 67% from 8.53% holding in Dec 2022 to 14.27% holding in June 2024 and DIIs holding spike 56% from 11.43% holding to 17.88% holding during the same period. While public holding has declined 39% from 16.48% holding to 10% holding during the same period. This robust growth seen in big shark holding represent strong confidence and high growth potential in the business.

Shareholding pattern	Dec-22	Mar-23	Jun-23	45170	Dec-23	Mar-24	Jun-24
Promoters	63.57%	63.57%	63.57%	63.57%	57.83%	57.83%	57.83%
FIIs	8.53%	8.16%	7.96%	9.90%	12.71%	14.19%	14.27%
DIIs	11.43%	12.96%	13.12%	15.58%	19.04%	18.36%	17.88%
Public	16.48%	15.31%	15.35%	10.94%	10.41%	9.61%	10.03%

Q1FY25 Results Update

Strong order book promise to fuel revenue growth ahead

Company’s order book jumped 68% YoY and 22% sequentially to reached 5,039 Cr in Q1FY25. Sequentially 22% growth in order book driven by increase in average order inflow per month by 48% QoQ to 476 Cr. This robust growth in order book led by strong demand across verticals specially industrial and EV, Aerospace, outer space and strategic electronics along includes railway segment.

Company has achieved sizable customer in aerospace, outer space and strategic medical electronic vertical will secured revenue growth in upcoming years.

New Business Updates

OSAT business door open soon; government approval in final stage

Company’s new investment in OSAT business is in the final stage of obtaining government approval. Company had already acquired land in the Gujarat where construction will start soon. Company expecting positive response in the OSAT business by FY26. Along with this HDI printed circuit board project going as per plan, in the final stage of land acquisition. Management expecting to post revenue in HDI printed circuit business by FY26.

Robust topline growth but margin slight down

Strong growth post in topline/bottom line due to industrial vertical but margin remain slight lower

During the quarter, revenue grew 70% YoY but QoQ tank by 21% to 504 Cr. strong growth in topline on YoY basis led by strong demand in industrial (includes EV), aerospace & strategic electronics verticals. Segment wise growth driven by Box build (up 145% YoY) and PCBA (up 46% YoY) while ODM and product engineering segment post negative growth by 66% and 58% YoY respectively.

	Q1FY25	Q1FY24	YoY%	Q4FY24	QoQ%
Net Revenue	504	297	70%	637	-21%
COGS	366	205.8	78%	479	-24%
Gross Profit	138	91.2	51%	158	-13%
Gross Margin%	27%	31%	-11%	25%	10%
Employee Cost	33.5	24	40%	32	5%
Other expenses	37.2	28	33%	31	20%
EBITDA	67.3	39.2	72%	95	-29%
EBITDA Margin%	13.35%	13.20%	1%	14.91%	-10%
Depreciation	8.4	5	68%	7	20%
EBIT	58.9	34.2	72%	88	-33%
EBIT Margin%	12%	12%	1%	14%	-15%
Interest expense	28	11	155%	15	87%
Other Income	28.3	8	254%	29	-2%
PBT	59.2	31.2	90%	102	-42%
Total Tax	13.4	7.6	76%	21	-36%
PAT	45.8	23.6	94%	81	-43%
PAT Margin%	9%	8%	14%	13%	-29%
EPS (Diluted)	7.2	4.1	76%	12.7	-43%
No. of shares	6.4	5.8	10%	6.4	0%

Business Mix

Revenue break up: Kaynes report a revenue of 1,805 Cr in FY24 with 37% CAGR during FY20-FY24. Industrial includes EV was key contributor with 48% mix followed by automotive at 29%, railways at 11%, IoI/IT at 7%, aerospace at 3% and medical at 3%. The Industrial vertical was key driver in the last 5 years and its mix has improved to 48% in FY24 vs 20% in FY19.

Segment wise revenue mix: Segment wise, OEM-PCBA contribute 55% of the revenue mix, followed by OEM-Box Build at 42%, IoT/IT at 2% and ODM at 1% in FY24. OEM-PCBA was key driver in the last five years, and its mix has improved to 55% in FY24 vs 52% in FY19.

Order book up 3.3x in last three years: Kaynes’ order book has grown by 3.3x from 1,517 in FY22 to 5,039 Cr in Q1FY25 during the last three years. This strong order book fuel the revenue visibility in the upcoming years. Automotive orders get 6-9 months in execution, and aerospace and railways get around two years. Weighted average is 1.5 years execution period.

Year End (March)	FY20	FY21	FY22	FY23	FY24	Q1FY25
Order Book	352	670	1,517	2,486	4,115	5,039
Change in O.B		318	847	969	1629	924
Revenue	368	421	706	1126	1805	2309

Focus on Widening client base to de-risk

Kaynes has de-risked its business by widening client base. Top 1 client contribute 26% of the business while top-5 and top-10 contribute 53% and 69% respectively. Top-5 and top-10 contribution rose to 53% and 69% in FY24 vs 37% and 51% in FY22 respectively. This trend prove the lower client concentration in the company’s business model.

Kaynes has long-standing relationships with its clients, and the average relationship is in the range of 9-10 years whereas industrial and railways clients are >10 years. In automotive, IJL (India Japan Lighting Pvt Ltd) is the top client while in the industrial vertical, the key customers are from global manufacturers of electronic instruments and electromechanical devices. In the railways vertical, Siemens and Hitachi are the key customers.

Peer Comparison

Kaynes has been one of the fastest growing horse in EMS players, recording revenue/EBITDA/PAT of 37/44/108% over FY20-24. Particularly in topline growth, Kaynes stand first at 37% CAGR followed by Syrma at 30%, Cyient DLM at 21% and Avalon at 6%. This growth momentum will continue in the coming years led by strong order book, industry tailwind and entrance in new business vertical.

Income statement

Year End (March)	FY20	FY21	FY22	FY23	FY24	FY25E	FY26E	FY27E	FY28E	FY29E
Net Revenue	368	421	706	1126	1,805	2,996	4,195	5,523	6,689	7,693
Growth YoY%	0%	14%	68%	59%	60%	66%	40%	32%	21%	15%
COGS	242	286	489	780	1,330	2,067	2,894	3,811	4,616	5,308
Gross Profit	127	135	217	346	475	929	1,300	1,712	2,074	2,385
Gross Margin%	34.36%	31.98%	30.70%	30.73%	26.32%	31.00%	31.00%	31.00%	31.00%	31.00%
Employee Cost	42	46	60	77	103	210	294	387	468	538
Other expenses	44	48	63	101	118	240	336	442	535	615
EBITDA	41	41	94	168	254	479	671	884	1,070	1,231
EBITDA Margin%	11.08%	9.72%	13.27%	14.95%	14.07%	16.00%	16.00%	16.00%	16.00%	16.00%
Depreciation	7	10	13	19	25	60	84	110	134	154
EBIT	34	31	81	150	229	419	587	773	936	1,077
EBIT Margin%	9%	7%	11%	13%	13%	14%	14%	14%	14%	14%
Interest expense	23	24	26	35	53	52	52	52	52	52
Other Income	2	4	4	11	56	30	42	55	67	77
PBT	13	11	59	126	232	397	577	776	951	1,102
Total Tax	2	1	17	31	49	99	144	194	238	275
Tax rate%	17%	10%	29%	24%	21%	25%	25%	25%	25%	25%
PAT	11	10	42	95	183	298	433	582	714	826
PAT Margin%	3%	2%	6%	8%	10%	10%	10%	11%	11%	11%
EPS	16.4	2.3	9	16.4	28.68	46.57	67.64	90.99	111.49	129.12
EPS Growth (%)	0%	-86%	291%	82%	75%	62%	45%	35%	23%	16%

Balance Sheet

Year End (March)	FY20	FY21	FY22	FY23	FY24
Sources of funds
Equity Capital	7	8	47	58	64
Reserves	98	131	156	901	2,423
Total Shareholders Funds	104	139	203	959	2,487
Long term Debt	10	17	29	15	11
Short term Debt	113	122	140	121	295
Total Debt	122	140	170	136	306
Net Deferred Taxes	8	5	7	8	4
Other Non Current Liabilities	3	13	25	25	20
Total Sources of Funds	238	297	404	1,128	2,817
Application of Funds
Net Block	50	65	82	107	285
Goodwill	2	2	2	2	15
CWIP	12	13	8	29	76
Intangible assets	5	13	29	22	46
Non Current Investment	2	2	2	3	145
Other Non Current Asset	8	6	13	24	110
Total Non-Current Assets	79	100	136	188	677
Inventories	151	164	226	413	548
Debtors	95	122	198	227	355
Other Current Assets	35	19	41	105	151
Cash & Equivalents	12	14	22	486	1,525
Total Current Assets	294	319	486	1,231	2,579
Creditors	99	95	164	223	360
Other current Liabilities & Provns	35	28	55	68	79
Total Current Liabilities	134	123	219	291	439
Net Current Assets	160	196	268	940	2,140
Total Application of Funds	238	297	404	1,128	2,817

Cashflow Statement

Year End (March)	FY20	FY21	FY22	FY23	FY24
Profit from operations	43	20	98	171	272
Adjustments:
Receivables	29	-28	-76	-29	-142
Inventory	-29	-13	-63	-187	-135
Payables	16	9	92	87	145
Loans Advances	-12	0	-29	-34	-23
Other WC items	0	21	1	1	1
Working capital changes	4	-11	-75	-162	-154
Interest paid	0	21	0	0	0
Direct taxes	-2	-4	-2	-50	-48
Other operating items	0	1	0	0	0
Operating Cashflow	45	27	21	-41	70
Capex	-31	-25	-42	-58	-383
Free cashflow	14	2	-21	-99	-313
Investments	22	1	-2	-435	-1,123
Investing Cashflow	-9	-24	-44	-493	-1506
Proceeds from shares	0	1	0	660	1,344
Proceeds from borrowings	8	7	30	0	174
Repayment of borrowings	-20	-12	0	-34	-4
Interest paid fin	-24	-22	-26	-35	-53
Other financing items	0	26	23	-37	-32
Financing Cashflow	-36	0	27	554	1429

Net Cashflow	0	3	4	20	-7

Ratio Analysis

Year End (March)	FY20	FY21	FY22	FY23	FY24
Profitability (%)
Gross Profit Margin	34%	32%	31%	31%	26%
EBITDA Margin	11%	10%	13%	15%	14%
EBIT Margin	9%	7%	11%	13%	13%
PBT Margin	4%	3%	8%	11%	13%
PAT Margin	3%	2%	6%	8%	10%
Return (%)
ROE	11%	7%	21%	10%	7%
ROCE	5%	3%	10%	8%	6%
Efficiency (x)
Total Asset Turnover	1.0	1.0	1.1	0.8	0.6
Fixed Asset Turnover	7.3	6.5	8.6	10.5	6.3
Inventory Turnover	1.6	1.8	2.5	2.4	2.8
Debtor Turnover	3.9	3.9	4.4	5.3	6.2
Debtor days	93	104	101	73	71
Inventory days	225	206	167	191	148
Payables days	148	120	121	103	97
Cash conversion cycle (days)	170	190	147	160	122
Leverage
Debt/Equity	1.2	1.0	0.8	0.1	0.1
Debt/Assets	0.3	0.3	0.3	0.1	0.1
Debt/EBITDA	3.0	3.4	1.8	0.8	1.2
Debt/Capital	0.5	0.5	0.4	0.1	0.1
CFO/Debt	0.4	0.2	0.1	-0.3	0.2
Interest Coverage	1.5	1.3	3.1	4.3	4.3
Cash Ratio
Free Cashflow	14	2	-21	-99	-313
CFO/Total Assets	0.1	0.1	0.0	0.0	0.0
CFO/Total Debt	0.4	0.2	0.1	-0.3	0.2
CFO/Capex	-1.5	-1.1	-0.5	0.7	-0.2
Valuations
P/E (x)				58.81	100.41
P/BV (x)				5.8	7.4
EV/EBITDA (x)	43.5	252	122.3	82.6	54.77
Dividend Yield (%)	0%	0%	0%	0%	0%

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Fiscal Discipline in Focus: Government Plans Deficit Reduction by FY26

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 20, 2024

Government Expands Capex, Keeps Deficit in Check

As of July 24, 2024, the central government’s fiscal deficit has decreased to ₹1.41 lakh crore, down from ₹1.54 lakh crore in the same period last year. This positive trend reflects the government’s ongoing commitment to fiscal prudence and responsible economic management.

This reduction in fiscal deficit to two primary factors: a moderate growth in tax revenues and controlled government spending, according to a recent analysis by financial services firm Anand Rathi. The fiscal deficit for April-July 2024 was at ₹2.8 lakh crore, representing 17.2% of the annual target, indicating better budget control than the previous year. This marks a significant improvement from the previous year when the deficit had reached ₹6.1 lakh crore during the same period.

Interestingly, government expenditure during these initial months has been more restrained compared to the previous year. Capital expenditure, in particular, has seen a notable decrease of 17.6% year-on-year. This cautious approach to spending suggests that the government is carefully balancing its growth initiatives with fiscal responsibility.

Personal income tax collections have been a notable strength in the current financial environment, demonstrating resilience and outperforming expectations. As the deadline for annual tax returns approached in July 2024, these collections surged by an impressive 64% compared to the same month last year. This strong showing has resulted in personal income tax revenues reaching 33% of the budgeted target for the fiscal year 2024-25, indicating a healthy pace of collection.

The corporate tax situation is more nuanced and multifaceted compared to other areas of tax revenue. After briefly showing signs of recovery in June 2024, corporate tax collections have once again turned negative. This fluctuation is partly attributed to ongoing tax refunds, which have impacted the net collection figures. The volatility in corporate tax revenues highlights the challenges faced by businesses and the need for continued economic support and reforms.

On a more positive note, indirect tax collections have shown improvement, particularly in the realm of customs duties. Customs duty collections have significantly rose, posting a 29% increase compared to the same period last year. This increase could be indicative of recovering international trade volumes or changes in import patterns.

While divestment receipts have remained stagnant, suggesting potential challenges in the government’s asset monetization plans, there’s been a substantial boost in non-tax revenues. These have surged by 70% year-on-year, providing a welcome cushion to the government’s overall revenue position. This increase in non-tax revenues could be attributed to various factors such as dividends from public sector enterprises, fees, and other miscellaneous sources.

Government expenditure for the initial quarter of the fiscal year has reached 27% of the annual budget allocation, indicating a gradual recovery in spending patterns. This figure provides insight into the pace of government expenditure and its alignment with annual budgetary plans. July 2024 saw a mixed picture, with monthly revenue expenditure decreasing by 14% year-on-year, while capital expenditure rebounded strongly with a 108% year-on-year growth.

Despite this recent rebound in capital spending, it’s important to note that overall capital expenditure for the first four months of the fiscal year remains 18% lower than the previous year. This slower pace of capital spending can be partially attributed to the implementation of the model code of conduct during the first two months of the year, coinciding with the general elections. The subsequent recovery in spending after the elections has been limited, as the government awaited the full-year budget announcement.

The government expenditure is expected to accelerate in the coming months. This anticipated increase is likely to be triggered by the release of funds following the Parliament’s approval of the finance bill. As budgetary allocations are formalized and disbursed, we can expect to see a pickup in both developmental and welfare spending.

A significant boost to the government’s fiscal position has come from an unexpected quarter – the Reserve Bank of India (RBI). The government’s finances received a significant boost from the central bank’s unprecedented dividend payment, which amounted to ₹2.11 lakh crore. This windfall, combined with the strong performance of personal income tax collections, has created a more favorable fiscal environment. These positive developments may help offset potential shortfalls in other areas, particularly in divestment collections, which have yet to gain significant momentum this fiscal year.

The government’s ability to maintain this balance between fiscal prudence and necessary expenditure will be key to supporting India’s economic growth trajectory. Factors such as global economic conditions, domestic consumption patterns, and the pace of structural reforms will all play important roles in shaping the fiscal outcomes for the remainder of the year.

In conclusion, the latest fiscal data presents a picture of cautious optimism. While challenges remain, particularly in areas like corporate tax collections and divestment proceeds, the overall trend suggests that the government is making strides in its fiscal consolidation efforts. The coming months will be critical in determining whether this positive momentum can be sustained and translated into long-term economic benefits for the nation.

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Surge in adoption of EV in quick commerce led to expansion in business for battery-swapping companies

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 19, 2024

E-commerce Boosts High-End Electronics Sales in India

In the first half of 2024, the Indian market witnessed a significant shift in consumer behaviour concerning the purchase of high-value items such as washing machines, air conditioners, laptops, and tablets. Traditionally, Indian consumers preferred to see, touch, feel, and be assured of these products in brick-and-mortar stores before making a purchase. However, recent data from GfK-NielsenIQ reveals that this trend is rapidly changing, with online sales of these products outpacing those in physical stores by a substantial margin.

According to the data, air conditioner (AC) sales online surged by 62% in value during the January-June 2024 period compared to the same period last year, while offline sales grew by only 30%. Similarly, washing machine sales saw a 15% increase in value online, with offline sales remaining flat. In the laptop segment, online sales grew by 7%, whereas offline sales declined by 3%. The trend was even more pronounced for tablets, where online purchases doubled in value, compared to an 18% growth in physical stores.

Industry experts have noted that the gap in sales growth between online and offline channels for these electronic products has never been this wide. Historically, online sales growth for such products was typically only 4-6 percentage points higher than offline sales, except during the Covid-19 pandemic when physical stores were forced to shut down. However, the current data indicates a much more significant divergence.

Anant Jain from GfK India noted a significant change in consumer behaviour. He observed that online shopping is no longer limited to entry-level products, with many customers now researching in stores but buying online for better deals and convenience. Additionally, Jain emphasized that the average selling prices for categories like ACs, washing machines, and laptops are relatively higher than other products, which has contributed to the overall growth in sales value through online channels.

The data also shows that overall sales of consumer electronic goods grew by 17% online during the January-June period, compared with a 12% growth in offline sales. Interestingly, while sales growth by volume—or the number of units sold—was two percentage points higher offline at 12%, the value growth in the online market was notably stronger. This indicates that consumers are increasingly purchasing more premium products through e-commerce platforms and direct-to-consumer channels offered by brands.

Satish NS, the president of electronics company Haier India, noted that the previous resistance to buying premium models online has significantly diminished. He observed that many younger consumers are now choosing to purchase high-value electronics online, foregoing the traditional “touch and feel” experience. However, Satish emphasized that for the vast majority of consumers, price remains the most critical factor influencing their purchasing decisions, even more so than convenience.

This shift in consumer behaviour is also evident in the smartphone market. There has been a noticeable trend towards buying premium models online, a departure from the previous preference for in-store purchases of high-end devices. The online market for smartphones saw a boost during the summer sales in the April-June quarter of 2024, a period when offline sales were adversely affected by severe heat waves that kept people indoors.

The rapid growth of online sales in the high-value electronics segment signals a broader transformation in the Indian retail landscape. As more consumers embrace e-commerce for purchasing premium products, the traditional dominance of brick-and-mortar stores is being challenged. The convenience of online shopping, coupled with attractive deals and a growing comfort level with purchasing expensive items without physically examining them, is reshaping the way Indian consumers approach buying electronics. The shift towards online purchases is expected to persist, narrowing the divide between digital and physical retail channels. In the coming years, this trend may potentially lead to e-commerce platforms becoming the dominant sales channel for consumer electronics.

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Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 19, 2024

OfBusiness $1 Billion IPO A Milestone in India's Startup Evolution

OfBusiness $1 Billion IPO A Milestone in India’s Startup Evolution

With plans to conduct an initial public offering (IPO) that may generate up to $1 billion, SoftBank-backed OfBusiness, an Indian startup that specialises in B2B finance and commerce, is making headlines. This IPO is not only a big step forward for the business, but it also shows how the Indian startup scene is changing. The decision was made at a time when there are a tonne of chances in the market for companies who have effectively used technology to upend established sectors.

Asish Mohapatra, Ruchi Kalra, and Bhuvan Gupta founded OfBusiness (formerly known as OFB Tech Pvt. Ltd.) in 2015, and it has quickly expanded to become a significant player in the SME financing and industrial supply chain industries in India. The business offers working capital funding, technological solutions, and raw materials to small and medium-sized businesses (SMEs). It operates at the nexus of commerce, finance, and technology.

OfBusiness has established a name for itself by serving sectors with steady and significant demand for raw materials, such as manufacturing, construction, and infrastructure. The firm has positioned itself as a one-stop shop for SMEs, who frequently suffer with credit and liquidity concerns, by providing both finance and procurement options.

With a target of raising up to $1 billion, the proposed IPO is anticipated to be among the biggest in India’s tech-driven corporate sector. Executives at the firm have stated that OfBusiness would utilise the profits from the IPO to support its goals for growth.

Given the favourable market circumstances and growing investor interest for tech-driven enterprises with great growth prospects, the timing of the IPO seems strategically sound. OfBusiness is well-positioned to benefit from the present market momentum thanks to the success of recent initial public offerings (IPOs) in India, notably those of IT and fintech businesses.

OfBusiness’s IPO gains further trust from SoftBank’s engagement, one of the biggest tech investors globally. SoftBank’s Vision Fund has a history of supporting prosperous startups, and the fund’s investment in OfBusiness demonstrates its strong belief in the company’s development potential and business plan. Furthermore, early investors like SoftBank will have the chance to partially exit and get returns on their investments thanks to the IPO. Given that SoftBank recycles funds from profitable exits into new investments, this may be very tempting to them.

Investors find OfBusiness’s IPO to be appealing for a number of reasons. First off, the business is in a fast-growing industry. Following the epidemic, the Indian economy has been steadily recovering, with the government placing a major emphasis on manufacturing and the expansion of infrastructure. As a result, there is a strong need for the financing options and raw materials that OfBusiness offers.

Second, small and medium-sized businesses (SMEs), the backbone of the Indian economy, can meet their demands using the organization’s business strategy. In India, SMEs frequently struggle with access to loans, operating cash, and procurement. By providing a smooth platform that combines financing and procurement, OfBusiness solves these problems and allows SMEs to grow their business without the typical limitations.

Although there is a lot of room for expansion with the IPO, OfBusiness will face a number of obstacles. There are many companies fighting for market share in India’s B2B financing and commerce sectors, which is getting more and more competitive. Infra.Market and Udaan are two other companies making progress in this area, and OfBusiness will need to keep coming up with new ideas to stay ahead of the competition. The macroeconomic situation also presents a unique set of hazards. Inflation and rising interest rates may have an effect on the need for finance solutions, and supply chain interruptions may have an influence on raw material availability. Businesses must use good risk management and diversification techniques to reduce these hazards.

To conclude the SoftBank backed OfBusiness $ 1 Billion IPO displays the company’s goals of maintaining its growth trajectory and solidifying its market position. OfBusiness is well-positioned for success despite the obstacles that still lie ahead because to its solid business strategy and the support of well-known investors like SoftBank. The IPO is a strong indication for the larger Indian startup ecosystem in addition to being a critical milestone for OfBusiness.

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Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 19, 2024

Tiny Titans: Grand Re-Entry of Small Cars

Industry experts predict a strong resurgence for small cars in India’s auto market, despite recent SUV dominance. Several factors point to a resurgence in demand for small cars, including a recent surge in two-wheeler sales indicating improving sentiment at the entry level of the personal mobility market, an expanding pool of two-wheeler owners looking to upgrade to four-wheelers, and the need for affordable and efficient mobility solutions in metro cities and urban areas. Small car segment to gain development by 2026, expert says.

Maruti Suzuki, India’s car market leader which previously relied heavily on small cars, is expected to expand its portfolio of such models beyond the Alto. The company plans to offer a mix of petrol, CNG, and electric options, with reports suggesting they are already testing small electric vehicles. Maruti Suzuki’s chairman, RC Bhargava, emphasized the company’s commitment to small cars at a recent annual general meeting, Bhargava emphasized the importance of affordable small cars in India’s economic landscape. Despite a temporary dip in demand, he projected a revival of the small car segment by the end of fiscal year 2025-26.

The small car segment’s market share in India has declined significantly over the years, dropping from around 50% two decades ago to just 3.24% currently. This decline coincided with a sharp increase in average vehicle prices, rising from Rs 3.48 lakh in 2019 to Rs 6.98 lakh. Increased prices, driven by BS-VI emission compliance and required safety upgrades, are believed to be key factors in the market’s downturn. Among auto manufacturer Tata Motors and Datsun abandoning small car segment. However, the increasing congestion in city roads and limited parking spaces are causing small cars to regain Favor among buyers.

Today’s small car buyers have diverse drivetrain choices beyond just petrol, including CNG and electric options, contrasting with the limited fuel selections of the past. MG Motors’ compact EV, Comet, has already attained success in the price-sensitive market segment. Satinder Bajwa, chief commercial officer at JSW MG Motor, emphasized the crucial role this segment plays in making car ownership more accessible across cities, especially as urban populations expand, and traffic congestion intensifies.

Experts suggest that increased model diversity and government incentives, especially for EVs, could revitalize the entry-level vehicle market. The shift in consumer behaviour towards using financing options to upgrade lifestyles is expected to be a key factor in the segment’s revival. Ravi Bhatia, president of Jato Dynamics, suggests that automakers need to leverage electric powertrains, modular platforms, and lightweight materials to offer well-packaged vehicles with lower total cost of ownership.

Dealers emphasize that government support to make vehicles affordable is crucial for driving growth in this segment. Dealer Nikunj Sanghi proposes GST cuts and scrappage-based upgrades to boost small car sales. Maruti Suzuki’s Bhargava also notes that rising rural incomes will help narrow the affordability gap, and government recognition and action to support the sector could accelerate this process.

The revival of the small car segment is not just a matter of market dynamics but also a reflection of changing urban needs and environmental concerns. As cities grapple with pollution and congestion, small cars, especially electric ones, offer a more sustainable and practical solution for personal mobility. The success of models like the MG Comet demonstrates that there is a market for well-designed, affordable small cars that cater to urban needs.

In conclusion, while the small car segment has faced challenges in recent years, a combination of factors including changing urban landscapes, technological advancements, and potential policy support point towards its resurgence. As automakers adapt to these new realities and consumer preferences, the small car segment in India appears set for a renaissance, potentially reshaping the country’s automotive landscape once again.

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REC Board Greenlights ₹1.55 Lakh Crore Bond Fund!

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 18, 2024

Green Ambitions, Trade Concerns: India's COP29 Roadmap

Green Ambitions, Trade Concerns: India’s COP29 Roadmap

The Indian government is intensifying its efforts to finalize a strategy for the upcoming 29th UN Conference of the Parties (COP29) of the UNFCCC, scheduled to take place in Baku, Azerbaijan, in November 2024. This comes amid mounting concerns over the European Union’s (EU) plans to impose a carbon tax on key shipments from India and other nations, a move that could significantly impact India’s economy.

As one of the world’s largest emitters of carbon, India will play a crucial role at COP29, representing the interests of the global south and advocating for the needs of developing nations in the ongoing climate negotiations. Union Environment, Forest, and Climate Change Minister Bhupendra Yadav emphasized that India’s focus will be on addressing the challenges faced by these nations, particularly concerning climate adaptation and mitigation.

COP29 is particularly significant this year, as the world faces unprecedented extreme weather events like heatwaves, droughts, and floods, all driven by global warming nearing the critical threshold of 1.5°C above pre-industrial levels. The conference will be a vital platform for discussions on climate finance, including the long-delayed loss and damage fund, and the EU’s proposed Carbon Border Adjustment Mechanism (CBAM), commonly known as a carbon tax.

The EU’s CBAM, set to be implemented by January 2026, would impose a 25% tariff on energy-intensive goods such as iron, steel, cement, fertilizers, and aluminium exported to Europe. This move is expected to impact approximately 0.05% of India’s GDP. Minister Yadav indicated that India would thoughtfully evaluate its response to the CBAM and may consider imposing retaliatory tariffs on EU exports if the tax is implemented. The CBAM has already sparked significant concern, as it could disrupt over $8 billion worth of Indian metal exports to the EU.

Preliminary consultations with experts and stakeholders are already underway in India to shape the country’s agenda for COP29. According to Yadav, these discussions are crucial in setting the stage for India’s participation in the global climate summit. Climate finance will be a central theme, as developing countries, including India, continue to push for adequate financial support and technology transfer to facilitate their transition to low-carbon economies. A major expected outcome of COP29 is the development of a New Collective Quantified Goal (NCQG) on climate finance, aimed at setting a new financial target to support developing countries in their climate efforts, building on the benchmark set by the Paris Agreement of $100 billion per year.

India has consistently been a strong advocate for climate finance, emphasizing the need for developed nations to fulfil their financial commitments to the global south. Minister Yadav highlighted India’s constructive role in previous COPs, particularly in discussions on the loss and damage fund and the Global Stocktake (GST). He indicated that India would maintain a similar stance at COP29, focusing on practical solutions rather than creating obstacles in the negotiations.

Conservation of biodiversity is also expected to feature prominently in India’s agenda for COP29. Yadav hinted at a broader approach to environmental protection, linking development activities with the preservation of biodiversity and enhancement of land productivity. India’s recent initiatives, such as issuing soil health cards to farmers and promoting natural farming practices, reflect this integrated approach to sustainable development. The minister also underscored the importance of collaborative efforts in conservation, citing the International Big Cat Alliance as an example of how protecting biodiversity requires joint action.

On the EU’s CBAM, European officials maintain that the mechanism is not intended as a trade tool or protectionist measure but rather as a means to combat climate change by addressing the risk of carbon leakage. The CBAM will apply to imports from all non-EU nations that do not have an emissions trading system (ETS) linked to the EU’s ETS. India and other major developing nations like Brazil, Russia, China, and South Africa have condemned the CBAM as discriminatory, arguing it could severely damage their economies and make EU trade prohibitively costly.

In 2022-23, goods covered by the CBAM constituted about one-fourth of India’s total exports to the EU, with iron, steel, and aluminium exports particularly vulnerable. As the EU gradually increases the tax rate to cover 100% of grey emissions by 2034, Indian industries could face billions in lost exports and increased costs. The EU argues that CBAM creates a level playing field for domestically manufactured goods, which must meet strict environmental standards, but developing countries fear that it will further disadvantage their economies in global trade.

The debate over the CBAM is likely to be a contentious issue at COP29, with developing nations, including India, pushing back against what they see as an unfair imposition by developed countries. As the world grapples with the dual challenges of climate change and economic inequality, the outcomes of COP29 will be closely watched by nations around the globe.

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HAL Gains Momentum as Analysts Predict Strong Growth Potential

Business, Equities, Expert Views, Investor Forum, Market News, Markets, Research, Research Reports, Result Updates - September 18, 2024

HAL Stock Rises as Government Clears Huge Aero-Engine Purchase

On Tuesday, shares of Hindustan Aeronautics Ltd (HAL) opened more than 5% higher, reflecting a notable increase in the company’s stock price. This increase came after the Union Cabinet Committee made a significant decision to allow the purchase of 240 engines for the Su-30 MKI fighter jets used by the Indian Air Force (IAF). The agreement, which is valued at Rs 26,000 crore, is a significant victory for HAL and should improve the company’s prospects for long-term growth.

Highlights of the Agreement: Deliveries of the aero-engines, which will power the IAF’s Su-30 MKI fleet, are scheduled to begin in a year and be finished in eight. The fact that more than 54% of the engine components will be produced domestically is one of the deal’s most important features; it shows HAL’s dedication to lowering India’s reliance on foreign suppliers. HAL plans to produce the engines at its Koraput plant in Odisha, with the assistance of foreign suppliers for a few essential parts. Utilising a technology transfer agreement with Russia, the business makes sure the engines satisfy international standards.

The agreement is regarded as essential for strengthening India’s defence capabilities as well as for HAL. The IAF’s Su-30 fleet is a vital component, and this purchase guarantees the aircraft’s efficient and continuous operation. As of right now, HAL has given the IAF 113 of these engines, and it’s predicted that the Su-30 would need about 900 engines in all over its lifetime.

HAL’s Robust Order Pipeline: HAL ended FY24 with a sizable order book worth Rs 94,000 crore. That will be greatly increased by this new engine purchase, bringing the company’s entire order book to almost Rs 1.2 lakh crore. Long-term revenue visibility is provided by this amount, which is equivalent to 3.2 times HAL’s trailing twelve months (TTM) revenue. With orders worth Rs 48,000 crore pending, HAL’s future appears bright. Contracts for Su-30 aircraft, RD-33 engines, Advanced Light Helicopters (ALH), and Light Utility Helicopters (LUH) are among these orders. HAL’s robust pipeline, according to analysts, will guarantee consistent growth over the ensuing years.

Sukhoi-30 Fleet Modernisation and New Purchases: Apart from acquiring the engines, HAL plans to undertake a substantial modernisation of the IAF’s complete Su-30 fleet. With a projected Rs 65,000 crore refurbishment, the fighter jets would be outfitted with state-of-the-art technology. The Uttam active electronically scanned array (AESA) radar, cutting-edge electronic warfare technologies, better avionics, and stronger weapon control systems will all be included in the updated aircraft. These enhancements will boost India’s defence readiness and increase the Su-30 fleet’s combat capability. HAL’s order book will soon grow as a result of efforts to replace the twelve Su-30s that were lost in accidents.

Development of Domestic Defence Manufacturing: The agreement is a significant step towards India’s goal of being self-sufficient in the defence industry. For HAL and the Indian defence industry, the fact that more than 54% of the engine components would be made domestically marks a significant accomplishment. It demonstrates the business’s capacity to localise vital technology and lessen its dependency on outside vendors.

Even while essential parts like castings, forgings, and spares will still be purchased from foreign vendors, the indigenisation of basic components is a noteworthy accomplishment. This project helps to strengthen India’s defence manufacturing capabilities and backs the government’s ‘Make in India’ campaign.

HAL’s challenges and Prospects for the Future: Although this encouraging development, HAL has recently encountered certain difficulties, particularly with relation to the Tejas Light Combat Aircraft (LCA Mk-1A) delivery delays. GE Aerospace, the company that supplies essential parts for the aircraft, experienced supply chain problems that resulted in the delays. Although HAL management is aware of these delays, they nevertheless project a 13% growth in revenue in FY25, with higher manufacturing sales providing a major boost. HAL is optimistic that the Tejas Mk-1A would start to be delivered in the September quarter of FY25, although analysts are still wary of any additional delays.

With the purchase of 240 Su-30 MKI engines, HAL has achieved a major milestone for both the Indian military industry and the corporation. HAL is well-positioned for long-term growth, with multiple collaborations in the works and a robust order pipeline. Despite short-term difficulties brought on by disruptions in the supply chain, the company’s robust order book and dedication to indigenisation provide good revenue visibility. HAL’s endeavours to modernise India’s Su-30 aircraft and manufacture next-generation engines highlight the vital role it plays in fortifying the nation’s defence capabilities.

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British Fashion Titan ASOS Makes Exclusive Indian Debut Through Ajio

Markets, Research, Research Reports, Result Updates - August 26, 2024

Nykaa's Innovation and Expansion Fuel Impressive Q1FY25 Results

Nykaa’s Innovation and Expansion Fuel Impressive Q1FY25 Results

About the stock

Nykaa, a leading Indian e-commerce platform focused on beauty and fashion, has demonstrated strong growth and financial performance in its latest quarterly report. The company’s strategic initiatives, including expansion into physical retail, focus on innovation, and investments in technology, have driven significant revenue growth and improved profitability.

Financial performance Q1FY25

Nykaa reported strong financial performance in Q1FY25. The company’s revenue from operations grew by 23% year-on-year, reaching INR 17,461 crore. This growth was accompanied by a 22% increase in gross profit, resulting in a gross margin of 43.3%. While expenses related to fulfillment, marketing, employee salaries, and other operations also increased, Nykaa’s ability to manage costs effectively led to a significant improvement in EBITDA, which grew by 31% year-on-year. This positive trend translated to a remarkable 127% year-on-year growth in PBT and a 150% increase in PAT.

Financial statement

Particulars	Q1FY25 (Rs mn)	Q1FY24 (Rs mn)	YoY (%)
Revenue from Operations	17,461	14,218	23%
Gross Profit	7,560	6,186	22%
Gross Margin	43.30%	43.50%	-21 bps
Fulfillment expenses	1,667	1,357	23%
As % of revenue from operations	9.50%	9.50%	0 bps
Marketing and S&D expenses	2,484	1,918	29%
As % of revenue from operations	14.20%	13.50%	-73 bps
Employee Expenses	1,559	1,386	12%
As % of revenue from operations	8.90%	9.70%	82 bps
Other Expenses	890	790	13%
As % of revenue from operations	5.10%	5.60%	46 bps
EBITDA	961	735	31%
EBITDA Margin	5.50%	5.20%	34 bps
PBT	221	97	127%
PBT Margin	1.30%	0.70%	58 bps
PAT	136	54	150%
PAT Margin	0.80%	0.40%	39 bps
Adj. EBITDA	1,090	759	44%
Adj. EBITDA Margin	6.20%	5.30%	90 bps

Segments wise performance

● Beauty Segment: The beauty business remains a strong driver, with a 28% YoY growth in GMV and a 23% increase in net revenue. Nykaa’s strategic focus on expanding its brand portfolio and enhancing customer engagement through initiatives like Nykaa Play and personalized skincare solutions has been pivotal in this growth.
● Fashion Segment: Although the fashion segment experienced a slight decline due to shifts in product mix and promotional strategies, it still achieved a 21% YoY growth in net revenue. The company is addressing these challenges by focusing on category-specific growth and enhancing its luxury offerings.

Strategic Initiatives

● Supply Chain & Fulfillment: Investments in supply chain optimization have led to significant improvements in delivery times, with 50% of orders in major cities now being delivered the same or next day. This emphasis on expedited and dependable delivery positions Nykaa favorably within the competitive e-commerce landscape.
● Category Innovation: Nykaa’s focus on category-specific innovations, particularly in the fragrance and skincare segments, has driven substantial growth. The introduction of initiatives like CSMS and the expansion of luxury fragrance brands showcase Nykaa’s ability to cater to evolving consumer preferences.

Brand Focus:

● House of Brands Strategy: The Beauty segment within Nykaa’s House of Brands grew by 47% YoY. Investments in marketing and offline expansion are helping high-potential brands like Kay Beauty and Dot & Key to thrive.
● Sustainable and Inclusive Growth: The acquisition of Earth Rhythm and its focus on clean beauty and sustainability align well with Nykaa’s broader strategy of diversification and customer retention.
● eB2B Business: The eB2B business has grown rapidly, with a 72% YoY increase, driven by a focus on improving order quality and expanding the retailer base.

Customer & Market Expansion

● Customer Base Growth: Nykaa’s customer base expanded by 33% YoY, reaching 35 million, underscoring the brand’s increasing popularity and market penetration.
● Brand Partnerships and Offering: In the past year, Nykaa has added over 1,500 new brands to its portfolio, bringing the total to more than 6,700 brands. This expansion in brand partnerships enhances Nykaa’s product offerings, making it a go-to platform for a wide variety of beauty and fashion products. Nykaa has added luxury fragrance brands like Burberry, Dior, Estee Lauder, Jo Malone, Tom Ford, etc.
● Physical Store Network Expansion: Nykaa has significantly expanded its physical store network, which now includes 200 stores across India. This makes Nykaa one of the largest beauty retail networks in the country. The expansion of physical stores complements Nykaa’s online presence, providing customers with a seamless omnichannel shopping experience.
● Fulfillment Network and Reach:Nykaa’s fulfillment network has also seen significant growth, now covering 98% of pincodes in India through 44 warehouses. This extensive reach ensures that Nykaa can efficiently service a vast geographical area, enhancing customer satisfaction by reducing delivery times and improving service reliability.
● Content Creation and Engagement:Investing heavily in content creation, Nykaa has managed to reach 1 billion people through various Intellectual Properties (IPs). This focus on content not only strengthens brand awareness but also drives customer engagement, fostering a deeper connection with the brand.

Technology and Efficiency:

● Personalization Technology: Investments in personalization technology have enhanced customer experience and engagement through hyper-personalized recommendations.
● Operational Efficiency: The company has optimized fulfillment processes, reduced packaging costs, and increased warehouse capacities to support future growth.

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Flexiloans Bags ₹375 Cr in Series C, Targets ₹5,000 Cr AUM Within 18 Months

Research, Research Reports, Result Updates - August 26, 2024

Sammaan Capital Targets ₹1 Lakh Cr AUM by FY27 Amid Strategic Rebranding

About the Company

Sammaan Capital Ltd is a NHB regulated lending business which offers home loans and loans against property. The company’s services also extend to corporate mortgage loans, including lease rental discounting and residential construction finance. Recently, the company underwent a significant transformation, rebranding itself as ‘Sammaan Capital Limited’. This change was accompanied by the receipt of a Certificate of Registration as an NBFC-ICC from the Reserve Bank of India (RBI), following a comprehensive six-month review process. This development marks a new chapter in the company’s operations within the financial sector.

Q1FY25 Highlights

The company reports a net worth of ₹20,269 Cr and a high capital adequacy ratio of 34.21%. The company maintains low leverage with a gearing ratio of 1.9x, indicating moderate borrowings of ₹37,628 Cr. Asset quality appears solid, with gross and net NPAs at their lowest levels in four years, standing at 2.68% and 1.52% respectively. The company’s total loan assets are ₹66,566 Cr, with an own book of ₹53,979 Cr. Profitability remains steady, with a profit after tax of ₹327 Cr in Q1FY25. The 1.8% return on assets indicates steady profitability.

Financial Statement (in Cr)	Q1 FY 25	Q1 FY 24	YoY %	Q4 FY 24	QoQ%
Interest income	1688.99	1818.03	-7.10%	1572.55	7.40%
Total income	2236.27	1915.62	16.74%	2255.13	-0.84%
Finance costs	1309.12	1353.9	-3.31%	1291.48	1.37%
Net interest income	379.87	464.13	-18.15%	281.07	35.15%
OPEX	230.48	226.07	1.95%	241.92	-4.73%
PPOP	696.67	335.65	107.56%	721.73	-3.47%
Profit/(loss) before tax	437.14	396.23	10.32%	431.89	1.22%
Profit/(loss) after tax for the period/year	326.76	294.39	11.00%	319.43	2.29%
EPS (Basic) (₹)	5.43	6.1		5.7
EPS (Diluted) (₹)	5.41	6.08		5.67

Financial Highlights (in ₹ Cr)	Q1FY25	Q4FY24	QoQ (%)	Q1FY24	YoY (%)
Net Worth	20269	19792	2.41%	17576	15.32%
Total Loan Assets	66566	65335	1.88%	65787	1.18%
Own Book	53979	53090	1.67%	53211	1.44%
Return on Assets	1.80%	1.60%	12.50%	1.70%	5.88%
Gross NPA%	2.68%	2.69%	-0.37%	2.87%	-6.62%
Net NPA%	1.52%	1.52%	0.00%	1.69%	-10.06%

Future Outlook FY2025 to FY2027:

As of Q1FY25, the company reports a legacy AUM of ₹37,386 Cr, with a target to reduce this to single-digit percentage of AUM by FY27. The new AUM stands at ₹29,180 Cr, with a goal to reach ₹1,00,000 Cr+ by FY27. Annual incremental disbursals are ₹12,450 Cr (annualized), aiming for ₹35,000 Cr by FY27. The company shows an incremental retail RoA of 2.9% and incremental RoE of 15.3%, targeting 3.20% and 18% respectively by FY27. The company has called for final monies of ₹100 per right share, potentially garnering ₹2,462 Cr by August 22nd to strengthen capital. They have capital buffers to manage the legacy book and support recoveries. Notably, 66% of the new AUM (loans sourced since FY22) has already been sold down. The average monthly retail disbursal during the quarter was approximately ₹1,050 Cr.

Retail Origination Engine

The company has expanded its CLM/Sell-down subsidizing from 29% to 37% of AUM since FY22, disbursing ₹2,058 Cr through co-lending and offer down in Q1FY25. The loan profile reveals a focus on home loans (₹1,190 Cr) and LAP (₹867 Cr), with high median CIBIL scores indicating quality borrowers. The company is expanding its co-lending partnerships, with IDBI Bank recently added and Bank of India set to join, bringing the total to 10 partner banks by H1FY25. Strategic appointments, such as Mr. Mrutunjay Mahapatra to the IT Strategy Committee, underscore the company’s commitment to technological advancement.

Loan Disbursement

The Loan Disbursement Profile shows a total of ₹2,058 Cr distributed across 6,360 cases, with a significant focus on home loans. Home loans account for ₹1,190 Cr spread over 4,646 cases, while LAP (Loan Against Property) contributes ₹867 Cr across 1,714 cases. The average ticket size varies considerably between loan types, with home loans averaging ₹25.62 lacs and LAP at a higher ₹50.58 lacs. Notably, the median CIBIL scores are consistently high across all loan categories, ranging from 760 for LAP to 762 for both the overall portfolio and home loans specifically.

Asset Quality

The latest quarter (Q1FY25) shows gross NPA at 2.68% and net NPA at 1.52%, both at their lowest levels in four years. The company maintains a robust provision buffer, with total imputed provisions of ₹6,287 Cr, representing 11.6% of the loan book and 3.5x the gross NPAs. This includes ₹4,000 Cr of expected recoveries from a pool of ₹10,000 Cr. The enhanced capital buffers, bolstered by a recent rights issue, are strategically positioned to support the tactical run-down of the legacy book and facilitate recoveries. The company aims to reduce its legacy Assets Under Management (AUM) to a single-digit percentage of total AUM by FY27, indicating a focused approach on improving overall asset quality and operational efficiency.

Financials Analysis

Interest income decreased by 7.10% year-over-year from 1818.03 Cr in Q1 FY24 to 1688.99 Cr in Q1 FY25. Finance costs also saw a decrease of 3.31% year-over-year, dropping from 1353.9 Cr to 1309.12 Cr. Net interest income experienced a significant decline of 18.15% year-over-year, falling from 464.13 Cr to 379.87 Cr. In contrast, OPEX & PPOP showed a substantial increase of 1.95% & 107.56% year-over-year, PPOP rising from 335.65 Cr in Q1 FY24 to 696.67 Cr in Q1 FY25 and OPEX rising from 226.07 to 230.48 in Q1FY25.

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Research, Research Reports, Result Updates - August 23, 2024

Rites Limited Q1FY25 Profit Falls Amid Revenue Dip, Secures ₹1200 Cr Export Order

Company Overview

RITES is a multidisciplinary engineering and consulting firm, renowned as a Navratna and Schedule ‘A’ Central Public Sector Enterprise. It offers customized, diverse, and comprehensive solutions for all transport and infrastructure needs. The business operates in areas such as project design engineering, rolling stock export, turnkey construction, and management consulting, providing services to various industries including roads, metros, bridges, tunnels, green mobility and sustainability, airports, land ports, ropeways, infrastructure and urban planning, ports, harbours, and educational structures. Trusted by customers both domestically and abroad, RITES is essential to the growth and modernization of transportation infrastructure by offering innovative and sustainable solutions.

Products & Services: Locomotives, coaches, wagons, and train sets in narrow, meter, standard, cape, and broad gauges (including semi-high-speed train sets).Management consulting covering many sectors including railways, metros, airports and land ports, highways, ropeways, and urban planning. Services in consultancy, exports, leasing, turnkey, and EPC segments.

Industry Outlook:

The transport infrastructure environment is set to change due to growing economic demands, sustainability requirements, and technical advancements. Smart infrastructure will optimize traffic flow, enhance safety, and improve user experiences through intelligent transportation systems that leverage data analytics and artificial intelligence (AI). Increased semi-high-speed train services and related infrastructure will shorten travel times and improve connections between key urban centres. Infrastructure supporting extensive networks of charging and refuelling stations will accelerate the shift to electric and hydrogen-powered transportation, crucial for reducing the sector’s carbon footprint. Governments are prioritizing infrastructure capital expenditure due to its economic multiplier effect. The Asia-Pacific region plans significant investment in transportation infrastructure to accommodate urbanization and economic growth. Future transportation infrastructure will focus on inclusivity, sustainability, and innovation, with continued investment in next-generation transport technologies to build environmentally friendly, robust, and interconnected systems that enhance connectivity and quality of life. These developments will significantly impact global economic and social evolution.

Q1FY25 Business & Financial Performance:

RITES Ltd. reported sales of Rs 486 Cr in Q1FY25, an 11% decline YoY. This decline was primarily due to poor performance in the exports business and reduced revenue in the quality assurance segment, despite growth in other areas. EBITDA decreased by 34% to Rs 106 Cr YoY, and PAT was Rs 90 Cr, a 24% YoY decrease. EBITDA margins for the company were estimated at 21.8% in Q1FY25, up from 29.6% in Q1FY24 to 27.5%. The decrease in income was linked to lower QA, overseas consulting, and exports for the quarter. Profit decreased due to lower income without a corresponding reduction in expenses. Falling margins were a result of a changed revenue mix in exports and lower consulting profits.

Q1FY25 Financials Result: (Rs Cr)

Particulars	Q1FY25	Q4FY24	Q1FY24	% Change (QoQ)	% Change (YoY)
Sales	486	643	544	(24)	(11)
Total Revenue	486	643	544	(24)	(11)
Other Expense	22	31	50	(29)	(56)
Total Expenditure	380	467	383	(19)	(1)
EBIDTA	106	176	161	(40)	(34)
PBT	113	185	163	(39)	(31)
Tax	25%	50%	43%	(51)	(43)
PAT	90	137	119	(34)	(24)

Ratio Analysis:

Ratios	(%)
OPM%	26.3
Debt / equity	0.0
Current Ratio	1.65
ROE	19
ROCE	25.90
ROA	8.56
EBITDA MARGINS%	25.64
P/E	35.05
P/B	6.12
EV/EBITDA	17.43

Segment Performance :
RITES recorded sales of Rs 271 Cr (down 11% YoY) in consultancy, Rs 5 Cr (down 87% YoY) in exports, Rs 34 Cr (up 9% YoY) in leasing, and Rs 171 Cr (up 4% YoY) in turnkey during the quarter. Turnkey, leasing, and consulting all had EBITDA margins of 1.2%, 38%, and 40%, respectively. A pickup in the exports segment is anticipated in H2FY25, with the commencement of supply of locos/coaches to Bangladesh and Mozambique.

Healthy Order Book Secured

In Q1FY25, the company received orders worth Rs 1300 Cr—more than one order per day for the quarter. With a robust order book totalling Rs 6,355 Cr, the company can project its revenue for the next two years. Thirty-nine percent of the order book consists of high-margin consulting services. Steady expansion in the domestic and international consulting sectors is anticipated, and additional capital expenditure in the Railways budget for 2024–2025 will further spur the company’s growth. The company also holds export orders worth Rs 1200 Cr, with an expected increase in export revenue in H2FY25.

Concall Highlights:

• As of Q1FY25, the orderbook is valued at Rs 6,355Cr: The division of the order book is as follows:39 percent came from consulting (Rs 2,492 Cr), 37 percent came from turnkey (Rs 2,351 Cr), 19 percent came from exports (Rs 1202 Cr), 3 percent came from leasing (Rs 190 Cr), and 2 percent came from the REMCL segment (Rs 120 Cr). 61% of the projects in the order book are awarded through competitive bidding, with 39% awarded by nomination. The company secured projects totalling Rs 1301 cr in Q1FY25.
• Segment of consulting: In Q1FY25, projects totalling Rs 293 Cr were secured. The sector with the largest revenue and profit margins continued to be consulting, notwithstanding the segment’s depressed margins. Revenue from consulting decreased by 10% in the quarter .At least 40% of the orderbook from the consulting division is expected to remain with the company. Section is dealing with rigid competitiveness than in the past because most new orders are being placed through competitive bidding as opposed to nominations. While Due to a competitive bidding process for newly secured orders, the quarter’s QA business was negatively impacted, and margins decreased.

* Turnkey and Leasing: In Q1FY25, new Turnkey and Leasing projects totalling Rs 54 Cr and Rs 48 Cr were obtained. The business Expect the Turnkey segment’s margin to be between two and three percent.
• Export: The company currently has two export orders: one for the delivery of 200 locomotives to Bangladesh Railways and another for the delivery of 10 locomotives with CFM Mozambique. The two projects have an order value of Rs 1200 Cr. It is anticipated that export revenue will increase in H2FY25. The corporation has put in bids in new regions in an effort to get more export orders. For Zimbabwean orders While Zimbabwean officials are trying to secure finance from Asian sources, the company hopes to receive limited orders.
• REMC business: Due to one-time increased expenses, the company’s revenue in Q1FY25 was Rs 35 Cr, down 18% YoY. revenue from consulting for the RTC procurement in Q1 of FY24. Energy management operations kept growing.
• Capex: For FY25, the company plans to spend between Rs100 and Rs140 Cr. It is a low-investment company.

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