In this edition, we talk about Hyundai Motor India’s mega IPO and what quarterly earnings are indicating about the corporate sector. We also talk about the tussle between two billionaires over satellite spectrum and what the latest inflation print means.
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Few people in India would have heard of Chung Ju-Yung. But only a few wouldn’t have heard of the company he founded in 1967 and its cars that have carried millions of Indians over the past quarter of a century.
Any guesses on what company are we talking about?
Those who still don’t get it, here’s another hint: Its first brand ambassador in India was Shahrukh Khan.
Yes, we are talking about Hyundai Motor Company—the South Korean automaker that entered India in 1996, launched the ‘tall boy’ Santro in 1998 and became India’s second-largest carmaker just the next year.
And twenty-five years on, Hyundai has managed to retain that position despite competition from Indian, Japanese, European and American carmakers.
Why are we talking about Hyundai? Because this week, Hyundai Motor India hit another milestone. The company floated India’s biggest initial public offering, with its Korean parent raising Rs 27,800 crore by selling part of its stake. The Hyundai IPO surpassed state-run LIC’s Rs 21,000 crore offering in 2022 as the largest in India.
The IPO was covered 2.37 times, with institutional investors bidding for almost seven times the shares reserved for them. However, retail investors’ portion was subscribed just 50%, indicating their reluctance to buy the company’s shares.
On the flip side, the IPO comes at a time when car sales in India have slowed after two years of rapid growth due to pent-up demand after the Covid-19 pandemic. With interest rates and inflation still high, and economic growth slowing down, most carmakers in India have been reporting tepid sales in recent months.
In fact, the Society of Indian Automobile Manufacturers said this week that automakers’ sales to dealers fell 1.8% during the July-September quarter, marking the first drop in two-and-a-half years. A separate set of data from the Federation of Automobile Dealers Associations showed that sales by dealers to consumers slipped 4.5% during the quarter.
Car sales are likely to grow in the current quarter thanks to festive season demand. Will that boost shares of Hyundai and its rivals such as Maruti Suzuki, Tata Motors and Mahindra & Mahindra? We can’t say, of course. But even if the shares don’t, you can still take out your favourite set of wheels out of the garage, go for a drive, and enjoy the festivals.
Corporate Conundrum
While India’s IPO market is still going strong, the broader corporate sector has started showing signs of stress. This was evident from quarterly earnings announced by a bunch of companies this week.
IT giant Infosys’ Q2 revenue rose 5.1% to Rs 40,986 crore but its profit of Rs 6,506 crore missed analysts’ estimate. Wipro’s revenue fell 1% to Rs 22,302 crore while HCL Tech’s consolidated revenue climbed 8.2% to Rs 28,862 crore.
All the three companies exceeded revenue forecasts by analysts. But their outlook differed, which suggested that global tech spending hasn’t yet fully recovered.
Infosys lifted its full-year revenue growth estimate to 3.75-4.5% from 3-4%. However, it retained its margin forecast at 20-22% on salary hikes. HCL Tech lifted its revenue growth forecast to 3.5-5% for FY25 from 3-5% earlier. Wipro expects revenue for the third quarter ranging from a 2% fall to staying flat.
The most disappointing outlook this week, however, came from Bajaj Auto. The maker of Chetak scooters and Pulsar bikes said Q2 standalone profit rose 21% year-on-year to Rs 2,216 crore thanks to higher motorcycles sales. However, profit after including a deferred tax liability grew only 9% to Rs 2,005 crore.
Bajaj Auto’s total quarterly revenue jumped 21.8% to Rs 13,127 crore, but its warning of only 3-5% sales growth expectation during the festival season shocked the market. The company’s shares slumped almost 13% on Thursday and fell further on Friday. Its warning also affected its peers with Hero MotoCorp, TVS Motor and Eicher Motors slipping too.
Meanwhile, billionaire Mukesh Ambani-led Reliance Industries reported a 4.8% year-on-year drop in second-quarter consolidated profit to Rs 16,563 crore while revenue was little changed. Reliance, India’s biggest company by market value, said lower margins hurt its mainstay oil-to-chemicals (O2C) business, offsetting the boost from tariff hikes by its telecom unit Jio Infocomm. The O2C segment’s EBITDA fell 23.7% while Jio posted a 23% jump in profit.
Battle of the Billionaires
While Reliance’s earnings maybe a short-term cause for concern, Ambani has a longer-term headache to deal with.
The government said this week that it won’t conduct any auction to allot spectrum for satellite broadband services but would instead allocate the airwaves through an administrative process.
The decision goes against Reliance, which had been pitching for an auction to create what it called “a level-playing field”, and had opposed the Telecom Regulatory Authority of India’s consultation process that hinted at allocating—not auctioning— spectrum for satellite-based home broadband services.
Ambani’s position is similar to those of his main Indian competitor—Sunil Mittal. The Bharti Airtel boss this week also supported an auction, saying satellite companies should take licences and buy spectrum as telecom companies do.
But the government’s decision is a huge boost to another billionaire—Elon Musk. The Tesla boss and the world’s richest man wants to offer satellite broadband services in India through his company Starlink. This could be problematic for both Reliance Jio and Airtel as Musk has extra-deep pockets to start a price war—something that Jio itself had done in 2016.
After Reliance’s objections became public, Musk this week tweeted that an auction would be “unprecedented” since spectrum was a natural resource and that the global trend was to allot the airwaves administratively.
Musk’s view found support from Indian communications minister Jyotiraditya Scindia, who said that the spectrum will be allocated administratively and the TRAI will work out its pricing. “If you do decide to auction it, then you will be doing something which is different from the rest of the world,” Scindia said.
Musk immediately cheered the decision. “We will do our best to serve the people of India with Starlink,” he tweeted.
The Horse Bolts Away
Last week, the Reserve Bank of India kept interest rates on hold yet again and Governor Shaktikanta Das warned about keeping the “inflation horse” on a tight leash lest it bolts away. Well, this week, the horse did just that!
Government data showed that retail inflation accelerated to 5.49% in September—far above the RBI’s 4% target—from 3.65% the previous month. This is the highest reading since December 2023, when the price index was at 5.69%.
More worryingly, food inflation surged to 9.24% from 5.66%, with vegetable prices soaring 36% year-on-year in September versus 10.71% in August.
Higher food prices also pushed the wholesale price index-based inflation to 1.84% in September from 1.31% in August.
Wholesale food prices jumped 9.5% in September, versus 3.26% in August, with vegetable prices on the boil at 48.7%, compared with a drop of 10% in August.
Clearly, risks to inflation persist due to adverse weather conditions and unseasonal rains.
So, what’s the impact of the jump in inflation? Well, besides pinching out pockets, the latest numbers make it less likely for the RBI to start cutting interest rates at its next policy meeting in December.
However, inflation isn’t the only factor that guides the RBI. Economic growth is another. And the economy is showing signs of a slowdown. GDP growth slowed to 6.7% in the April-June quarter. Auto sales, industrial production, manufacturing and services output, and corporate earnings are slowing, too. All this makes the RBI’s job trickier.
Market Wrap
Indian stock markets remained weak this week as well, weighed down by tepid quarterly earnings and record foreign outflows. The 30-stock Sensex slipped 0.2% over the five-day period while the 50-stock Nifty lost about 0.4%.
While many companies have reported earnings that missed Street estimates, foreign portfolio investors have offloaded shares worth a net amount of $8.4 billion so far in October, according to NSDL data. This tops the previous record outflow of $8.35 billion in March 2020, when the Covid-19 pandemic started.
Tech and banking stocks were the major gainers this week. Wipro was the standout performer, followed by ICICI Bank and Larsen & Toubro. State Bank of India, HDFC Life Insurance, Axis Bank, HDFC Bank were among the top gainers. Tech Mahindra, Bharti Airtel, HCL Tech, and drugmaker Dr Reddy’s also ended in the green.
Other stocks that rose during the week included automakers Grasim, BPCL, Hindalco and Power Grid.
Bajaj Auto was the biggest loser this week, falling almost 15%. Other automakers including Mahindra & Mahindra, Maruti Suzuki, Hero MotoCorp and Tata Motors also slipped.
FMCG stocks remained weak for the second week in a row with Nestle and Tata Group company Trent dropping nearly 6% each. Bajaj Finance and Bajaj Finserv as well as Adani Enterprises, Tata Steel, UltraTech also lost ground.
Earnings Snapshot
- Axis Bank Q2 standalone net profit climbs 18% to Rs 6,918 crore, tops estimates
- Nestle India’s Q2 profit before exceptional items and tax slips 9% to Rs 1,021 crore
- Tata Chemicals consolidated net profit falls to Rs 194 crore from Rs 428 crore a year ago
- LTI Mindtree consolidated revenue rises 5.9% to Rs 9,433 crore but misses forecasts
- L&T Technology Q2 revenue up 7.8% at Rs 2,573 crore, profit up 1.3%; retains full-year forecast
- HDFC Life Insurance Q2 profit rises 14.9% to Rs 433 crore but value of new business margin shrinks
- PVR Inox posts Rs 11.8 crore loss in Q2 vs Rs 166 crore profit year ago, misses analysts’ profit forecast
- Tyre maker CEAT’s profit falls to Rs 122 crore from Rs 208 crore a year ago
Other Headlines
- Supermarket chain Vishal Mega Mart files for Rs 8,000 crore IPO
- RIL unit Reliance Brands acquires 51% stake in India unit of UK’s Mothercare
- RBI bars Sachin Bansal’s Navi Finserv, three other NBFCs from issuing loans for violating rules
- Govt increases minimum support price for wheat by 6.6% to boost production
- India’s merchandise trade deficit narrows to $20.78 billion in September from $29.65 billion in August
- Samsung workers end strike at Tamil Nadu factory
- Insurer Star Health gets $68,000 ransom demand after data leak
- Jio Financial, BlackRock in talks for private credit venture, reports Bloomberg
- Bharti Airtel awards 5G contract to Ericsson, also in talks with Nokia
- SEBI increases F&O position limits for trading members to Rs 7,500 crore from Rs 5,000 crore
- India needs to spend over $170 billion for aviation expansion through 2030, says S&P Global
That’s all for this week. Until next week, happy investing!
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