Stock Market Investment Sh`ot, 28th June 2022

With rising global bonds having made foreign borrowings more expensive, Vedanta may fall back upon LIC to fund it to the tune of Rs4,809 crore. It is likely to be a direct transaction with LIC via 10-year bonds. Vedanta has a AA-rating with pricing likely at about 8.50%. That is not surprising considering that the 10-year benchmark stands at 7.41%. Vedanta will use the proceeds to repay existing debt and for capex. With global rates high and INR weak at Rs78.39/$, pressure is likely to build up on foreign currency borrowers.

Moody’s has upgraded the outlook for Tata Steel from Stable to Positive, in what is a clear reflection of its flawless track record in delivering solid operating performance on a consistent basis, while maintaining conservative financial policies. This upward rating is likely to be valid for a period of 12 months. At the same time, Moody’s also affirmed Tata Steel’s Ba1 corporate family rating (CFR). Tata Steel has mega plans to reduce its debt by at least $1 billion in FY23, as part of its well-articulated capital allocation policy.

Autos have been the stars of the stock market and the automobile index recently touched a 7-month high. The auto index rallied on the back of positive sales momentum in June, combined with stable commodity prices. The pressure on the operating margins is substantially lower than what it was in the previous two quarters. Effectively, the BSE Auto index has recovered 28% from its 52-week low level of 21,083 scaled in March 2022. Hero Moto, Maruti Suzuki, M&M, Bosch and TVS Motor have gained 10-13% in this period. 

Banks located in India, Saudi Arabia and South Africa are expected to post larger increases in margins in FY23, according to a recent note by Moody’s. With central banks hiking rates to curb inflation, there is likely to be an improvement in the margins of banks. However, Moody’s has also warned that the risk of 

higher loan-loss provisions could erase some of the margin gains. Of course steep rises in rates could be negative, but the agency is of the view that with inflation in control, rate hikes would be more calibrated.

Cement was becoming a big boys game for some time and the recent acquisition of Gujarat Ambuja and ACC by the Adani group has only underlined that trend. In fact, the announcement was followed by L&T announcing a mega capacity expansion. This is likely to put the pressure on smaller cement makers as they struggle to compete against the scale of the larger players. As any industry consolidates, the smaller players will be in a tight corner and this is no different. This could cause a glut and impact pricing power.

Bajaj Auto has finally decided to go ahead with the buyback of shares for the first time since the year 2000. The board of Bajaj approved the buyback of shares worth up to Rs2,500 crore. The two-wheeler major plans to buy back a total of 54.35 lakh shares representing 1.88% of the paid-up share capital via open market at Rs4,600 apiece. The buyback price represents a 20.6% premium to the market price of Bajaj Auto. Bajaj has a cash surplus of Rs17,526 crore, so it has enough of a cash pile to buy back shares.

Airbus, the European consortium, has emerged as the front-runner for an aircraft order worth $5.5 billion from Jet Airways, which is all set to resume operations after a 3-year gap. The order will include A320neo jets and A220 planes. However, as per the company, it is also in talks with Boeing and Embraer of Brazil, so the final call is yet to be made. Jet Airways only got back its flying license last month, and will go down as the first carrier to be revived under NCLT Rules. It is currently owned by the Kalrock Jalan consortium.

Kutch Copper, backed by Adani Enterprises, announced setting up of a greenfield copper refinery for the production of refined copper with capacity of 1 MTPA (million tons per annum). It will be executed in 2 phases and Adanis have already raised debt worth Rs6,071 crore from a consortium led by SBI. It will be one of the largest copper refinery complexes in the world with state of the art technology. Kutch Copper is likely to benefit from the void left by the shutdown of Sterlite Copper in Thoothukudi, of Vedanta group.