NUVAMA WEEKENDER

Do we Practice What we Preach?

March 7, 2024

Nina Hay was struggling in her marriage, and she didn’t know what to do about it…

Sunil Kumar was a chain smoker and was feeling out of breath lately…

Rahul Kapoor had never invested in equities…

Prima Facie there’s nothing surprising in these. A lot of people struggle in their marriages, are chain smokers or don’t
invest in equities. But it is surprising if I told you that Nina was a highly acclaimed Marriage Psychologist, Sunil Kumar
a leading pulmonary doctor and Rahul Kapoor a leading professor in the field of equity valuations and behavioural
finance.

What might strike you as stark is that while one could be an expert in resolving problems of others, the same might
not apply to their own lives. While being a spectator and helping others solve problems might be a skill (acquired or
natural), doing the same in one’s own personal life is often not a given. That is because human nature often believes
that ‘it cannot happen to me’ or ‘Its different for me. Even when you know the risks (cancer/divorce/financial
independence) what we do to others is often easier/different than what it takes for us.

But while it may not disadvantage them, by not practicing what they do, they might definitely have marginal
advantage by doing that, working through a troubled marriage, or being a doctor who is a non-smoker and a equities
professor who is also an investor.

But on that note – how many of us practise what we preach? And shudnt we?

On that rhetorical note, its time to relax and unwind, as the long weekend (the first of couple this March) is here. So
time to read our Weekender and spend time with family. 😊

P.S – All of us do read our Weekender 😊

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MGL: Time to Buy!

- MGL has cut the CNG price in Mumbai by INR3.3/scm (INR2.5/kg) or 3.5%. We estimate that INR1.7/scm (51% of
price cut) is attributable to a 38% QoQ fall in input
spot LNG (10% of input mix), and the balance to a reduction in margins.

- We believe MGL’s current low-cost spot sourcing mix would rise to 10% (now: 6%) as volumes rise further.
- The PNGRB has stated that MGL’s monopoly ended in Mumbai on 11th April 2021. As per regulation, this is
extendable for ten years, for which precedents exist in other geographies.
Hence, it is essentially a non-issue as marketing exclusivity opens up once the court case is resolved.

- Penetration of 35–40% in GA I and II and 15–20% in GA III implies tremendous scope for growth over coming
years. We expect MGL to maintain a long-term volume CAGR of ~6%. Its planned capex for FY24E/25E stands at
INR7–8bn/INR9bn.

After the knee-jerk dip, MGL is trading at 11x FY25E PE (26% discount to IGL’s 15x). We believe MGL likely to continue
to re-rate given discounted valuation to long-term avg (-1SD PE/PB) amid healthy demand. It is debt-free with high cash
of INR2bn-plus and a dividend yield of 3%.

We hence reiterate ‘BUY/SO’ on the stock with an unchanged TP of INR1,601.

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 NUVAMA WEEKENDER
Coal India : Improving outlook ahead

This has been a week packed with good news for one of our preferred large cap picks - Coal India.

Feb e-auction prices declined ~INR 2345/t (down Rs. 345/t MoM) and the premium stood at 39% vs 54% in Jan’24.
However, the volumes in Feb’24 rose to 10.3mt (vs 7.8mt in Jan’24), negating the impact ofe-auction price fall. The
calculated revenue for Feb’24 was Rs. 24bn vs Rs. 31bn in Jan’24. Assuming cost of production remains same, EBITDA
in Feb’24 stood at Rs. 10.6bn vs Rs. 10.7bn in Jan’24. Our analyst Ashish believes that e-auction prices have bottomed
out here. Q1 ahead is a seasonally strong quarter.

Coal India’s Gevra Mine got environmental clearance to boost output to 70mt/annum from existing 52.5mn ton, making
it Asia’s largest mine. This can drive upside to our 5% vol growth estimate for FY25 to 6-7%.

The cabinet this week gave approval for financial assistance scheme, allocating Rs.85bn for incentives towards coal
gasification projects. Of this, Rs. 40.5bn is allocated for PSUs offering them upto 15% of the capital expenditure as a
grant. The National Coal Gasification Mission aims to gasify 100 million tonne of coal by 2030 through surface
coal/lignite gasification projects. Coal India is a key beneficiary here. The government has approved equity investment
proposal by Coal India in JVs of CIL-GAIL and CIL-BHEL. The joint venture (JV) agreement has been formally signed
between CIL and Bharat Heavy Electricals Limited for setting up an ammonium nitrate plant through surface coal
gasification (SCG).

Overall, we remain positive on the outlook of the company. The stock is currently at 4.5x EV/EBITDA FY26.

Gujarat Fluorochemicals: EV battery chemicals for growth

In our interaction with Mr. Bir Kapoor, CEO of Gujarat Fluorochemicals our focus was to understand how deep is the
destocking phase for fluoropolymers and the opportunity in EV battery chemicals. Although fluoropolymer prices have
remained fairly stable, volumes were affected in FY24, accentuated by holiday season in USA and Europe. The company
believes, globally destocking phenomenon appears to be diminishing and volumes must see a recovery moving forward.

Gujarat Fluorochemical caters to EV/ESS ecosystem by offering battery salts, additives, electrolytes, and CAM & cathode
binders. The company expects global market size for products to grow at a CAGR of 29% from 1,359GWh to 6,231Gwh,
and in terms of value to reach about USD100bn by 2030. GFL has outlined cumulative capex plan of INR60bn over the
next four–five years, and these investments are expected to yield an asset turnover ratio of approximately 2x at full
capacity and EBIDTA margins of >25%. In our estimates, we are building in significant ramp-up in FY26/27. To finance
its capex, GFCL– EV is contemplating fund-raising opportunities from private equity or climate-focused fund.

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 NUVAMA WEEKENDER
On the back of overall improvement in product mix towards higher grades of fluoropolymers, FY25 is likely to be more
exciting than FY24. The management is also confident of achieving the peak profit run-rates of FY23, in FY25. We are
valuing the EV business at INR913/share (based on 15x EV/EBITDA - FY27 and discounting at 12%), yielding an overall
SOTP of INR4,588; Reiterate ‘BUY’.

We are bullish on the Sp Chemicals pack - with Guj Fluoro/Jubilant Ingrevia and Aarti Industries being the top pick.

[Nuvama Technical Update] Long-term Thematic- Trust the Thrust. Nifty nearing 22,500 Target and heading
towards 24,000 Levels.

Model Portfolio Return of +55% with Alpha of +24%.

The way forward - Nifty is heading towards our long-term target of 24000.

 In the current phase of the bull market, large caps can be expected to catch up, setting themselves up for a strong
trend rally in the coming months.
 We have published timely buy recommendations for the BankNifty since 14th February’24 around 45500 and
expect new highs with targets between 49500 and 50600, which should give the markets a strong tailwind.
 We recommended a Thematic on the IT sector on 7th December’23 and expect an upside potential of 20%-50%.
We expect the IT sector to be a key contributor to the Nifty rally towards 24000.

 Our "Hidden Gem" theme - Public Sector Enterprises (PSEs) - will continue to provide upside potential in the
coming years, and on a broader basis, as the theme has expanded from large caps to mid-caps, as expected.
 Nifty has formed a higher base and will now have a medium-term support at 21500-21600 levels. The medium-
term trend remains bullish and will continue to move higher with 21500 level as a risk-management level.
 Midcaps have performed strongly over the past year and the easy money-making phase in high beta will be
challenging and one needs to be more stock specific from current levels. Favoured sectors - Railroads, Real
estate, Defence, and Infrastructure.

 With the general election around the corner, markets are likely to take a breather and experience some volatility.
We recommend buying on market weakness in Large-caps and maintaining a stock specific approach.
 US markets have seen a strong rally and we remain optimistic and expect a further 8-10% rally in US indices
which will continue the global risk-on scenario.

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 NUVAMA WEEKENDER
We were ahead of the curve and expected a new bull market in PSE & PSUBANKS and recommended it in our
Thematic report as a hidden gem that has shown strong outperformance since Aug’22.

Regulatory Bumps to The Fore

In the last week, most of my discussion with investors seem to have centered around regulatory changes. Importantly,
these “policy shifts” are from a multitude of agencies – the GoI, the Supreme Court and the RBI, spanning across various
sectors – Healthcare, CGDs, Renewable Energy and Financials. While some of the steps, particularly w.r.t financials
could arguably be termed as an implementation of existing policies and others could be said to be in public interest, it
does highlight risks with multiple regulators and competing visions.

 Hospitals – The SC order on standardized rates for procedures can potentially alter the dynamics of the sector
and clearly risk much needed private investments. The GoI will begin consultations with states on the way
forward even as GIC has proposed some solutions. See a low probability of implementation but if implemented
the impact could be high. Multiple authorities involved – the Supreme Court, State Governments and Central
Governments. Given the stratospheric valuations, hospital stocks reacted sharply: down by ~15-20%.
 Utilities – CGDs/ Wind Power
o CGDs: A day after the Union minister stated that gas prices for consumers needed to be affordable,
MAHGL/IGL cut CNG price by INR 2.5/kg after Oil Min statement. While the price cut seems to reflect lower
cost (38% QoQ fall in input spot LNG) as well as to normalize margins, the timing raises concerns on a
changed policy i.e a controlled price. Not surprisingly, CGD were down 10-15%.
o Wind Power: The GoI is considering re-introducing “reverse auction” as a method of pricing. While the
impact is not clear, it does create a policy uncertainty. Inox Wind/ Suzlon reacted negatively.
 RBI – NBFCs: While the actions of RBI do not constitute any “policy change” per se, the flurry of sanctions is
certainly a surprise – Paytm, IIFL and now JM Financial – in does indicate a crackdown on IPO funding. However,
given the RBI’s its track record over the past decade in pre-empting risks has been exemplary.

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 NUVAMA WEEKENDER
While political stability is a strong suit for India, greater regulatory certainty/ clarity would be beneficial.

Indian brands go lux : Gear up for Sabyasachi X Estee Lauder lipsticks

Sabyasachi (Mukherjee) has undoubtedly emerged as one of the most globally acclaimed collaborative designers from
the Indian subcontinent. With remarkable portfolio spanning prestigious partnerships with renowned names like
Christian Louboutin, H&M, Starbucks and Pottery Barn, the designer unveils his latest endeavor in collaboration with
French cosmetic giant Estee Lauder – a limited edition line of lipsticks bearing his signature touch.

Estee Lauder has exposure to domestic luxury brands with their 30% investment in Forrest Essentials (great example of
how Indian brands can win international acclaim). Sabyasachi is creating a unique niche for itself and is one of the
strongest breakout brands out of India.

More here

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 NUVAMA WEEKENDER
RED SEA: Holding reigns of Global internet connectivity

The ongoing conflict around the Red Sea region is not only disrupting the global shipping industry but it also hold reigns
of global internet connectivity. The Asia-Africa-Europe-1 cable known as AAE cable travels 15,500 miles along the sea
floor through south China and Europe provide internet connectivity to almost dozen countries from India to Greece.

The cable passes along the dense channel through Red Sea and briefly passes over the land through Egypt. The global
network of underwater cables forms a large part of the internet’s backbone, carrying the majority of data around the
world and eventually linking up to the networks that power cell towers and Wi-Fi connections. 16 of these critical
submarine cables only as thick as hose pipe passes 1200miles through Red Sea hop over Europe (for a brief 100mile
journey) and back to Mediterranean Sea connecting Europe to Asia. It has been estimated that around 17 percent of
the world’s internet traffic travels along these cables and passes through Egypt. This route is world largest choke point
and most vulnerable place for global internet. Going through Egypt is the only viable option as through South across
Africa makes it unviable and to north there is only one cable travelling above Russia. Red Sea being shallow water body
historically many cables are disrupted due to shipping or otherwise.

There are limited alternate options, Elon Musk’s Starlink has popularised satellite internet, however its not an
replacement of underwater cables. Google attempted to by-pass Egypt in Jul 21 Blue-Raman subsea cable (connecting
India to France) which travels through Red sea and reaches Mediterranean vis Isreal. Blue runs through Israel and into
Europe, while Raman connects to Saudi Arabia before passing along to India. However, Isreal and Europe have complex
political relationship. In all, Egypt is always going to be at the center of Europe and Asia’s internet connections and Red
Sea will remain internet chokepoint and one of the most vulnerable place for global connectivity. The Red Sea hold the
reigns and the conflict threatens global connectivity. Food, clothing, shelter….internet!

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 NUVAMA WEEKENDER
What to Watch – Spaceman on Netflix

An astronaut who is just over six months into a solo mission to investigate a mysterious galactic phenomenon, Jakub (a
tortured, reined-in performance from Adam Sandler) is ill-placed to deal with the breakdown of his marriage to his
pregnant wife, Lenka (Carey Mulligan), left behind on Earth. Directed by Johan Renck and featuring Adam Sandler, Carey
Mulligan, and Paul Dano is sure to keep you at the edge of your seats – a must watch sci-fi.

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 NUVAMA WEEKENDER
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