Markets Rise
The stock markets edged up once again as both external and internal cues were stable
On Episode 407 of The Core Report, financial journalist Govindraj Ethiraj talks to Abhishek Gaoshinde, deputy vice president of research at Sharekhan by BNP Paribas.
SHOW NOTES
(00:00) The Take
(04:12) Markets rise
(05:06) Oil prices fall as stockpiles increase
(06:04) TCS results are out, net profits down marginally QoQ
Inflation set to rise for last month
NOTE: This transcript contains the host's monologue and includes interview transcripts by a machine. Human eyes have gone through the script but there might still be errors in some of the text, so please refer to the audio in case you need to clarify any part. If you want to get in touch regards any feedback, you can drop us a message on [email protected].
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Good morning, it's Friday, the 11th of October and this is Govindraj Ethiraj, headquartered and broadcasting and streaming from Mumbai, India’s financial capital.
The Take
In 1999, Tata Motors was on the verge of selling its passenger car division to Ford Motors after the Tata Indica launched a year earlier stumbled.
The follow up discussions at Ford’s headquarters in the US didn’t go well. According to one account, Tata Motors officials which included Ratan Tata were insulted by some of the disparaging comments about the company and the car project.
Ratan Tata returned to India from the meeting more determined.
Eight years later, Tata Motors bought Jaguar Land Rover from Ford.
Back to the Tata Indica.
The problems were mounting, complaints about the engine and high noise and vibration levels in the car were pouring in.
In some cases, customers even turned violent.
This was a diesel car by the way.
Sales dropped and in 2000-01, Tata Motors announced a Rs 500 crore loss. The company had already inverted Rs 1,700 crore in the project.
The blame landed on Ratan Tata for thinking too big.
Ratan Tata called an emergency meeting at Taj President in Mumbai’s Cuffe Parade to take stock.
Team members were encouraged to speak freely and going by accounts, there was more self criticism than blame.
The net result was that a massive retrofit was launched for some 45,000 Tata Indica cars with 45 parts being repaired free of cost.
Customer meets were held and they were heard out patiently and feedback was collected.
A new car was already being worked on, the design saw some changes and a Tata Indica V2 was launched in 2001 which went on to do what the original car aspired for and more.
Ratan Tata would return with a Rs 1 lakh car Nano in 2009 which again ran into problems both internal and external which in some ways were more serious because eventually the project was wound down.
There are many aspects of Ratan Tata’s personality at play.
For one, his audacious goals which stretch way beyond most entrepreneurs would even dare attempt.
Remember, product entrepreneurs are rare in India, I do recognise that software products are also products but this is not the same league.
It takes some gumption and courage to attempt a product that has to prove itself day after day on the roads of the kind we have in India.
Third, if something does not work, you have to trust the teams you entrusted the build in the first place to find solutions.
That takes trust and patience at a time when time is running out in the marketplace.
And finally, when Tata may have got credit for the group’s many successes in his active tenure, he never really sought the limelight and his colleagues, whether in cars, software, hotels or steel, felt a sense of constant ownership that appears to last even after retirement.
Tata of course set a trailblazing path with the global acquisitions of brands like Jaguar Land Rover, Corus, Daewoo and Tetley.
That was another aspect of the vastness of his vision to grow and succeed. But all arose from his desire to take on bigger challenges.
All Tata employees and acquaintances speak of Ratan Tata’s humility and alignment with the traditional Tata Group principles of serving society along with creating value for shareholders.
His tenure has ticked all boxes and perhaps more.
In this time of confusing definitions of entrepreneurship and success, his life and career offer important insights into the true nature and role of entrepreneurship.
Of the kind that shapes companies and nations.
Our top stories and themes for the day:
Markets rise
Oil prices fall as stockpiles increase.
TCS results are out, net profits down marginally QoQ
Inflation set to rise last month.
And anecdotes and leadership lessons from former TCS CEO S Ramadorai on his time with Ratan N Tata
Markets & More
The stock markets edged up once again as both external and internal cues were stable, well.
The BSE Sensex, and NSE Nifty50 ended in positive territory on Thursday with the Sensex rising 140 points to settle at 81,607.55.
While the Nifty50 closed at 24,998.45, up 16.50 points.
One reason for sentiment generally being positive into trade on Thursday was of course Wall Street which was back to its record highs. On Wednesday, the S&P 500, the Nasdaq Composite and the Dow Jones all closed at record highs.
It was the S&P's 44th record in 2024 with tech shares leading the way, including Apple. Alphabet Inc. fell 1.5% on news the US is weighing a Google breakup in a historic big-tech antitrust case.
Oil Prices
Oil prices were steady but quoting below $77 a barrel, having fallen sharply on Tuesday following cues from China that there may not be any more stimulus packages.
The markets as a whole are obviously expecting more.
Elsewhere, US crude inventories were up.
Official data from the US government showed the country’s crude stockpiles increased by 5.81 million barrels last week — a smaller buildup than the 11 million-barrel gain an industry group projected on Tuesday, Bloomberg reported.
In another sign that the middle east tensions are showing no signs of easing up, latest reports indicated that Iran is prepared to launch thousands of missiles at Israel and target economic sites if it’s attacked, said Bloomberg.
The major concern on the demand side is still China, the world’s largest importer of crude.
Meanwhile, Morgan Stanley raised its Brent price forecast by $5 to $80 a barrel for the fourth quarter of this year on heightened geopolitical risk.
TCS Results
Tata Consultancy Services (TCS) posted a 1.1% quarter-on-quarter (QoQ) fall in net profit for the second quarter ended September to Rs 11,909 crore, below street expectations.
India’s largest IT service firm’s Q2 FY24 revenue from operations rose to Rs 64,259 crore..
A Moneycontrol poll of 10 brokerages had pegged TCS’ July-September net profit at Rs 12,420 crore, and revenue at Rs 63,938 crore.
TCS also declared the second interim dividend of Rs 10 per share. Earlier, the company paid an interim dividend of Rs 10 on 19 July 2024.
Revenue growth was led by the Energy, Resources and Utilities sectors, said the company in a statement.
The company said it added 5,726 employees on a net basis in the September quarter of the current financial year.
This is the second quarter in a row that headcount has risen after declining for three straight quarters.
Else, its headcount had risen for 19 years.
The Tata group companies added 5,452 employees sequentially in the June quarter.
TCS now employs 6,12,724 people, the company said on October 10 as it shared the numbers for the second quarter of FY25.
Attrition levels stood at 12.3 percent from 12.1 percent in the previous quarter.
From the Covid period of course attrition levels have fallen sharply.
Hyundai IPO
The Indian market is buzzing with anticipation for the biggest ever IPO from Hyundai Motor India as the company plans to raise around Rs 27,870 crore through the offering.
The IPO is structured as an offer for sale (OFS), where 14.2 crore shares will be offloaded by Korean parent Hyundai Motor.
This means that the company will not receive any proceeds and the entire amount will go to the parent company, raising questions about whether the IPO is really worth the hype.
Hyundai Motor IPO price band is set at ₹1865 to ₹1960 per share.
Hyundai Motor IPO opens for subscription on October 15, 2024 and closes on October 17, 2024. The allotment for the Hyundai Motor IPO is expected to be finalised on Friday, October 18, 2024. Hyundai Motor IPO will list on BSE, NSE with tentative listing date fixed as Tuesday, October 22, 2024.
Hyundai Motor IPO price band is set at ₹1865 to ₹1960 per share. The minimum lot size for an application is 7 Shares.
Abhishek Gaoshinde, Deputy VP of Research at Sharekhan by BNP Paribas,
INTERVIEW TRANSCRIPT
Abhishek Gaoshinde: If you see that Hyundai's IPO is giving us an opportunity to play with an MNC theme, one. Two, it is simultaneously giving an Indian investors to play on the pure PV play given that currently only we have a one player that is a Maruti Suzuki which is a pure PV play, others like that Mahindra and Mahindra Data Motors are the co-operators. Third is that it is the second largest player in the domestic market, so it is giving us an alternative that we can play if we do not want to play with the Maruti then we can go with the Hyundai and here we do not have to compromise on anything.
Say for example, if we want to play with a passenger vehicle segment and we do not want to play with a tractor cycle, so that is the case currently that on some point of a time as an investor we have to compromise that we have to go with some other businesses. So in that terms it is giving us an opportunity to play on the pure PV play.
Govindraj Ethiraj: And how do you see the nature of float which is an offer for sale which means there is no money that looks like it is going into the company for future investment and so on?
Abhishek Gaoshinde: What we can say that it does not require so much kind of a fund because it has been generating healthy cash. So ideally it does not require a fund. If you see its objective what they have mentioned in their RHP is that they are coming out with this OFS mainly to get the benefit of listing into the stock market.
So I do not think that should have to be seen as a concern because it is giving an opportunity to play to the investors.
Govindraj Ethiraj: Got it. And how do you see the overall performance Abhishek? Like for example, I know revenue and profits were both of 16% and about 30% that is profits 30% for the year ended 31st March 2024.
And how is that looking vis-a-vis other companies?
Abhishek Gaoshinde: The direct comparison will happen with the Maruti Suzuki. So compared to that it has around 65% kind of its volume coming out from the UV segment compared to for if we see that for Maruti it is roughly 40% of its passenger vehicle volumes is coming from the UVs to around 21% of its volumes coming from the export markets. So because of these two things its ASPs are substantially higher than that of the Maruti.
And with this higher ASPs and the consistent market share of 14 to 15% for last two three years its EBITDA margin has been slightly better than that of the Maruti which is again percluding to the profitability margins or the return ratios. Second thing is that it has a slightly premium appeal compared to the entry-level products and that is helping it to be some kind of a dominant space in its addressable market sector.
Govindraj Ethiraj: So the price is at about 1865 to 1960. Now my question is not whether it's a good or bad price but generally how does this compare in terms of earnings and any other ratio that you'd like to use with other car companies?
Abhishek Gaoshinde: For example at this point of a time we can't talk much about its future estimates but roughly if you can say 10-12% kind of a CAGR if you assume for next two years then the stock would be available at 21-22 times of its FY26 earnings and currently Maruti is also trading at 20-23 times of its FY26 earnings. So in terms of the valuation it appears to be at par and even if talk about the FY24 numbers then at FY24 numbers it is available at 26.3 times compared to the Maruti which is available at 30 times. So Maruti which is a 40% kind of a market share in the domestic market having market cap close to 4 lakh rupees it has a market share of 15% and coming out with an IPO at a market cap of 1.59 lakh rupees. So if you go by market cap to market share matrix even in that way valuation-wise it appears reasonable given that currently PV cycle itself is in the downturn.
Govindraj Ethiraj: And how is the overall passenger vehicle market looking to you Abhishek? I mean we've been reporting the numbers here and talking about the numbers on the core report, dealer inventories are high, only some segments are doing very well other segments have slowed down.
Abhishek Gaoshinde: So beyond that what is more important to take into highlight here is that Mahindra has received over 170,000 units kind of a booking in the initial numbers only. So it says that the demand is a product-specific one, two the demand is continuously moving towards the UA side, three the demand is much higher for the newer products compared to the older products and on top of that we are sitting on a very high base so it was expected at the beginning of year also that in this year we will see some kind of a moderation in the overall growth and that has still continued the expectation.
What is more positive would be in this festive season is that if this inventory would be clear out then even that would be considered as a big positive for slightly positive for all this PV players.
Govindraj Ethiraj: Right Abhishek, thank you so much for joining me.
Abhishek Gaoshinde: Thank you.
Inflation Reuters Poll
Higher vegetable prices are back to haunt the Indian consumer, it would appear.
The Oct. 3-9 Reuters poll of 48 economists predicted retail inflation as measured by the consumer price index (CPI) jumped to 5.04% in September from a year ago from 3.65% in August. Forecasts ranged from 3.60% to 5.40%.
The data will be released on Oct. 14 at 1200 GMT.
Food items, especially vegetables and other perishables, which make up a significant share of overall household spending in the country, saw an uptick in prices as heavy rains reduced the availability of essential crops.
A high base from last year, which helped bring down inflation in July and August, became a lower base last month, having the opposite effect.
At 5.04%, the inflation number for September has crossed the Reserve Bank of India's (RBI) 4% medium-term target.
Ratan Tata, A Special
There are many aspects of Ratan N Tata’s vision, leadership style and personality which are now emerging in greater detail as those who have worked with him share their experiences.
The Core Report is presenting a special edition on Ratan Tata, businessman, entrepreneur and philanthropist as seen through the eyes of some of his closest lieutenants in good times and not so good times.
Tune in for that edition on Saturday, October 12.
Meanwhile, as part of interviews for that series, I spoke to former TCS MD and CEO S Ramadorai and I asked him to share some of the anecdotes from his stint, one which saw, among other things, the famous listing of the TCS stock just 20 years ago.
INTERVIEW TRANSCRIPT
Subramanian Ramadorai: I think every interaction with Mr. Tata or travelling with him was a learning experience and more in terms of a friend or a professional rather than a boss versus an employee. We travelled together a lot even prior to the IPO after he took over as the chairman of the group as well as I became the chairman of CEO of TCS. Some of the anecdotes are, we went on a trip to Latin America and we took a very interesting route that is from Bombay to Joburg and then Joburg to Sao Paulo non-stop flight.
I think lo and behold, it was on a Sunday we decided to leave Bombay and then as we land in Joburg, as we go into the immigration counter, people say that to Mr. Tata that we cannot get out of the immigration. The reason he was very perplexed and I got my clearance and I was about to go out, then I saw him not able to make it. Lo and behold, we found that his visa had expired, there was no way we could do anything to get the visa process done on a Sunday and as I come out of the immigration to the baggage area and then the people wanting to greet us from Tata group in South Africa, they got one bouquet for me, one for Mr. Tata and I had to tell them that give both the bouquets to me because Mr. Tata is stuck inside and he is not able to come out. I had a nice room, a shower right in the airport where I think I had a dry shower in the bathroom for the last almost 6-7 hours. There was an incident where we both laughed but it was a very experience where he never got irritated, he never started scolding his people or whatever it is but mistakes can happen by anyone, any place, anywhere and you get to face some of the situations with a colleague or with a friend and that was the lesson from that.
Now, similar anecdote but I thought I will give this one which is stuck in my mind all the time and I keep reminding him once in a while when we have a joke together saying that, do you remember the trip?
Govindraj Ethiraj: Right. So, the other question is to do with more on the leadership front, I mean you know instances or instance where you felt an action of his or a statement demonstrated leadership which is genetic and all pervasive in a way going beyond just a company or a business.
Subramanian Ramadorai: His whole quality of leadership was always excellence in everything and excellence has no bar, you keep raising the bar from your previous experience to the next experience and by challenging that whether it was in Tata Motors with the Nano car or in TCS with the Tata business excellence model to achieve the score of 600 plus, his behavior was the same where he would challenge saying that I definitely want this to be done. Very similar situation is when we have done the IPO and the first quarter of results we had to disseminate, it is very particular that I will not have anything other than 16th of the end of quarter, we had to publish the results.
We said it is a horrendous task with all the subsidiaries, I do not know what you do but I want that to be done because we had to claim our number one place with the IPO by people who know what this company is and it will all beat all the benchmarks. Same thing when that Nano car and we had gone to Delhi together and I happened to be there and attended the inauguration or the launch of the Nano vehicle and the leadership is where a person across the spectrum the moment he saw the joy of launching that product he came and hugged me, which is very unusual for a group chairman to come and say that I could see the moment of team spirit at the moment of being together, almost tears in his eyes to see a product of his vision came out and here is the launch that was happening. So, I think these are instances where you again remember the man for what he is rather than what people claim him to be.
