Markets were under pressure last week but made a sharp recovery on Friday and completed a decent rearguard action from the lows made on Thursday. Unfortunately, the US markets which were going great guns on Friday, did a U-turn and after being up 300 points at one stage, closed lower by 150 points. This would have some effect when our markets open on Monday at least for the short term or the open. BSESENSEX lost 438.95 points or 0.66% to close at 65,721.25 points while NIFTY lost 129.05 points or 0.66% to close at 19,517.00 points. The broader markets saw BSE100, BSE200 and BSE500 lose 0.56%, 0.47% and 0.66% respectively. BSEMIDCAP gained a tad and was up 0.01% while BSESMALLCAP was clearly the outperformer and gained 1.51%. Markets were up on two of the five trading sessions and lost on three.
The Indian Rupee was under pressure and lost 59 paisa or 0.72% to close at Rs 82.84 to the US Dollar. Dow Jones gained on the first two days of the week and lost on the remaining three consecutively. The fall on Friday was significant as markets which were up about 300 points closed with losses of 150 points. Dow Jones lost 393.67 points or 1.11% to close at 35,065.62 points.
The week saw two issues open during the week. The first is from SBFC Finance Limited which has tapped the capital markets with its fresh issue and offer for sale. The issue consists of a fresh issue of Rs 600 crs and an offer for sale of Rs 425 crs. The price band of the issue is Rs 54-57. The issue opened on Thursday the 3rd of August and closes on Monday the 7th of August. The issue would raise Rs 1,025 crs. The company as the name suggests is a NBFC and has its focus or core lending to MSME in the 5 lacs to 30 lacs bracket. The company has its presence in 16 states and 2 Union Territories covering 120 cities which are served through 152 branches. The company has an AUM of just under Rs 5,000 crs at Rs 4,942 crs as of March 23.
The company reported an EPS of Rs 1.71 for the year ended March 23 which on a fully diluted basis was Rs 1.62. At the fully diluted EPS, the PE band is 33.33-35.19 times against the average peer group PE of 30.44. Very clearly there is overpricing in the issue.
The book value of the NBFC is 19.26 and the price to book is 2.80-2.95 times. Recently listed Utkarsh SFB had issued shares at a price to book of 1.12 which considering the present price which has doubled since listing is now 2.32. Even the AUM of the SFB is substantially higher than the NBFC.
It appears that the NBFC is taking advantage of the present euphoric mood on Dalal Street and the fact that markets are near all-time highs. There is also a very hefty grey market premium currently on the issue. Looking at the situation it would be a good idea to apply for the issue and hope to get an allotment. If successful, one must encash the listing gains and exit and await the performance of the bank in subsequent quarters to see how it fares.
At the end of day two of the issue, it was subscribed 7.48 times with QIB portion subscribed 7.09 times, HNI portion 13.67 times and Retail portion subscribed 5.26 times. There are 9.98 lac applications in all.
The second issue is from Concorde Biotech Limited which has tapped the capital markets with its offer for sale of 2,09,25,652 shares in a price band of Rs 705-741. The issue would raise between Rs 1,475crs – 1,550 crs at the top end of the price band. The issue opened on Friday the 4th of August and would close on Tuesday the 8th of August. The entire offer for sale is from Helix Investment Holdings Pte Limited, who post this issue would exit from the company. The promoter and promoter group would not be selling a single share through this offer.
The company is a bio-pharma company and a leading global developer and manufacturer of select fermentation-based APIs across immunosuppressants and oncology in terms of market share, based on volume in 2022. The company supplies to over 70 countries in regulated markets such as the USA, Europe and Japan. The company had a market share of over 20% by volume in 2022 across identified fermentation-based API products, including mupirocin, sirolimus, tacrolimus, mycophenolate sodium and cyclosporine. The company has a total installed fermentation capacity of 1,250 m3. This includes the new 800m3 plant which was commissioned in 2021 and received USFDA approval in June 2023.
In terms of operational performance, the operating revenues of the company were at Rs 853 crs, up 19.6% from Rs 713 crs in the previous year. The EBITDA was at Rs 345 crs, up 28.2% from Rs 269 crs. EBITDA margin is at 40.5%. The profit after tax was at Rs 240 crs, up 37.1% from Rs 175 crs. The PAT margin is 28.1%. EPS for the year is Rs 22.95 up 37.26% from Rs 16.72. The PE band on the above EPS is 30.72-32.29 times.
Concorde Biotech Limited is an investment opportunity which would provide some listing pop as is witnessed in almost all recent IPOs. However, it’s a business or company for the medium to longer term. With EBITDA margins which are at 40%, infrastructure for the next 4-5 years already built and regulatory approvals in place, the company has to just concentrate on ramping up the capacity utilisation. Once this ramp up happens the performance would continue to move up sharply.
At the end of the first day, the issue was subscribed 0.58 times with QIB portion subscribed 0.01 times, HNI portion 1.01 times and Retail portion 0.72 times. There were 2.04 lac applications.
The issue from Yatharth Hospitals and Trauma Care Limited would be listed on Monday the 7th of August. The company had tapped the capital markets with its fresh issue of Rs 490 crs and an offer for sale of 65.51 times. The issue is expected to have a decent listing with grey market premiums at around 25-30% of the issue price.
In economic news, GST collection for July 2023 was at Rs 1.65 lac crs against Rs 1.61 lac crs in June 2023.
RBI meets for its policy review meeting between Tuesday the 8th of August and Thursday the 10th of August, with the decision being announced on Thursday. The broad consensus about the outcome is that interest rates would be kept unchanged.
Markets were under pressure during the week and they took support near expected levels of 65K on BSESENSEX and approx. 19,300 on NIFTY. The lows made were 64,963.08 points and 19,296.45 points. In the week ahead expect volatility to dominate markets as they look to regain lost ground. While Mount 20K continues to be a target and objective, they seem quite far away at the moment. There are enough people who believe that markets are in a broad trading zone and they would vacillate going forward. Levels of 19,200 and 64,700-64,800 are strong supports while levels of 19850 and 67,200-67,300 are strong resistances.
Markets would try to regain some lost ground but they would remain choppy. With action continuing to remain focussed on BSESMALLCAP and partly in BSEMIDCAP there is cause for concern. Readers need to be wary of trading in unknown stocks and merely on the back of one quarter of good results. The strategy would be to continue to book profits on strong rallies and look to buy on sharp dips only. In short, it’s a trader’s market and will continue to remain so.
