“When markets rise — westay out as we are valueinvestors. When they fall —we stay out as we aregrowth investorsEventually FD returns!”KALPEN PAREKHPresidentDSP Mutual Fund

ASHLEY COUTINHOMumbai,18November

A fter a dismal year, themarket for public sharesales is seeing a few green shoots. In the pasttwomonths, fourcompanies—RouteMobile,

MonteCarlo,MazgaonDockShipbuilders,andIndianRenewable Energy Development Agency — haverefiled offer documents with the Securities andExchangeBoardof India (Sebi) for initial public offer-ings (IPOs). Mumbai-based realtor Puranik Buildersmay also refile its offer document, said people in theknow.Also,SBICards&PaymentServices,UTIMutualFund,andafewsmall financebanksareintheprocessof submitting their IPO documents with the marketregulatorinthenextfewmonths,sayindustryexperts.

So far, 27 firms have IPO approvals from Sebi andthey could raise an estimated ~18,000 crore throughthesharesales,datafromPrimeDatabaseshows.Theseinclude the likes of CSB Bank, Ujjivan Small FinanceBank, Bajaj Energy, Shriram Properties, and PennaCement. Another seven, which include some of thenames cited above, have filed offer documents in thepast threemonthsbutareyet toreceive theregulatorynod. “Wemay see a few deals coming through but itmay not necessarily point towards a revival,” saidPranav Haldea, managing director, PRIMEDatabase.Thisyear,14companieshaveraisedalittleover~15,000crorevia IPOs.All, exceptone,are trading inthegreenon thebourses,with IRCTCandAffle (India) clockinggainsinexcessof100percent.FY17andFY18hadseena combined mop-up of over ~1 trillion through IPOs.

While the markets have run-up a bit sinceSeptember, the rallymay not sustain owing to lack ofimprovement in earnings growth, believes Haldea.

Brokerages are cautious on the markets following aslump inkey economic indicators anda sharp liquid-ity-drivenrallypostthegovernment’smovetocutcor-poration tax rates. The benchmark BSE Sensex is up12per centyear-to-date.

And if the secondarymarket doesnot see amean-ingfulrally,themoodintheprimarymarketisunlikelyto see a turnaround. Several companies have let theapprovals for IPOs lapse this year. Thismay continueif there is not enough demand at the price they arelooking to raise money, says Haldea. “Valuationsremain trickyandcompanieswill have toensure theyleave enoughmoneyon the table to ensure their IPOssail through,”he said.

“For companies, it’s a question of trial and error,”

said Dara Kalyaniwala, vice-president, investmentbanking, PL Capital Markets. “There is still a greatdeal of uncertainty in themarket, and a refiling willenable companies to hit themarket as soon as senti-ment improves.”

Sebi’s letter of observation is usually valid for 12months. Give or take a month or two from the dateof filingandgetting regulatoryapproval, companiesare essentially looking at a 14-monthwindow at thetime of filing or refiling to hit themarket with theirofferings.According toKalyaniwala, companies thatrefile shell out ~1-1.5 crore bywayof fees to the regu-lator, investmentbankers, lawyers, if IPOsarebelow~1,000 crore. The amount could be slightly higherfor larger issues.

IPO market sees green shoots

THE COMPASS

The Smart ThestockofSanofi Indiawasupover5%onexpectationsthatafastgrowingchronicportfolioandleadershippositioninbasalinsulinshouldhelpkeepgrowthrateshigh.Further,marginscouldmoveupfurtheronhigherproportionofdomesticbrandedbusinessaftertheAdventdeal

QUICK TAKE: MARGIN GAINS AHEAD FOR SANOFI INDIA

Glenmark shines as Q2 marks rebound in earningsAnalystsexpectsalestopickupinUS,domesticmarkets

UJJVAL JAUHARI

Glenmark Pharmaceuticals’ better-than-expected July-September quarter perfor-mance, after several quarters of weakresults, enthused the Street. The stockgainedmore than21per centonMonday,followingbrokerageupgrades.

ThequarterprovedtobegoodforbothIndiaandUSsales,whichsawmomentumrebound,andwaswellsupportedbyothergeographies. Analysts believe thatGlenmark finally seems to be turning thecorner, as is evident from its good opera-tionalperformanceandcostmanagementinQ2. JPMorgansays that executionmis-steps, strategy shifts, andweak cash flowhad led to the stockde-rating from18-19xlastyearto10xcurrently.Whilethesecon-cerns were known and discounted in thestockprice,datapointsfromQ2resultsdohighlight scope formargin improvement

in thecomingquarters.The India business, which is about a

third of revenues, grewmore than 15 percentyear-on-year (YoY) inQ2, ledbycon-tribution from diabetes treatment drug,Remogliflozin. Notably, the momentumis expected to continue and the run-rateisexpectedtodoublebyMarch2020,withannualisedrevenuesof~70-80croreversus~36crorenow.Thedermatologyportfolioalso continues doing well and so is theconsumer products business, whichrecorded20percentYoYgrowth inQ2.

A little less than a third of revenues,theUS sales grew4.6 per cent YoY and 15percentsequentiallyinQ2.Theeightprod-uct approvals helped Glenmark grow,despite 5-6 per cent sequential erosion inthepricesof itsdermatologyportfolio.

The oncology generics of FulvestrantinjectionanddermatologyPimecrolimustopicalcreamareexpectedtodrivegrowth,

feel analysts, who expect these productsto attain $30 million annual revenues inthecomingquarters.Thestartofcommer-cialsuppliesfromtheMonroeplantbytheendofMarch2020andpick-upof injecta-bles and nebuliser sales are seen as otherkeydriversofUSsales.

AscapitalexpenditurerequirementoftheMonroeplantmoderates,itshouldalsohelp improve cash flows. Glenmark hasmaintaineditsguidancetoreducedebtbyat least ~700-800 crore by utilising pro-ceedsfromthesaleofnon-coreassets(like-ly inthesecondhalfof2019-20)andcash-flow fromcorebusiness.

While the Street will keep an eye outon the progress on these fronts, analystsat HSBC believe the worst is behind andhave upgraded the stock to ‘buy’ from‘hold’,whilethoseatNomurahavearrivedat a targetpriceof ~653 for the stock trad-ing at ~365.

Is Pidilite losing stickiness with investors?Stiffcompetition,constructionslowdowncouldmakevolumerecoverydifficult

SHREEPAD S AUTE

Withcloseto3percentdeclineinthe last twotradingsessionsafter its July-September 2019quarter (secondquarter,orQ2)results, the stock of PidiliteIndustries has underper-formed the flattish trend onthe Sensex.

From its all-time high of~1,494.50 on September 23, itis down 13 per cent, against 3percentriseinSensex.Volumegrowth worries in the nearterm aremaking investors jit-tery about the stock, which iscurrently trading at rich valu-ations of 49x its 2020-21 esti-matedearnings growth.

Theownerofpopularadhe-sive and waterproof brandssuch as Fevicol, FeviKwik, DrFixit, andM-seal, among oth-

ers, reported a nine-quarterlow volume growth of 0.6 percent in Q2. This was led by a0.9per centvolumedecline inconsumer and bazaar (C&B)products, which account forover 80 per cent of Pidilite’srevenues.Asaresult,Pidilite’snet sales grewby ameagre 2.8per cent year-on-year (YoY) to~1,807 crore.

Besides liquidity crunchandprolongedmonsoon,com-petitive intensity in water-proofing from players such asAsian Paints weighed onPidilite’s C&B volumes in Q2.Competitive intensity, in fact,ismakingthevolumeandmar-gin outlook gloomier forPidilite amid feeble consumerdemand.Thisisbecause,com-petitive intensity would war-rant more advertisement and

promotional spends andrestrict its pricing power tosomeextent.Andthis, inturn,wouldnegatethebenefitsfroman expected improvement ingross profit margin, at theearningsbeforeinterest, taxes,depreciation,andamortisation(Ebitda) level.

Currently,pricesofkeyrawmaterial such as vinyl acetatemonomer(VAM)standat$890permetric tonne,against$901per metric tonne in Q2, andPidilite has 45 days of VAMinventory inplace.

InQ2also,higheradvertise-ment expenses led to Pidilite’sEbitda margin shrink by 48basis points (bps) YoY to 20.4per cent, despite a sharp 398-bpsimprovementingrossprof-it margin. Advertising spendsinQ2were4.8percentofsales,

compared to typical levels of3.9-4 per cent. Pidilite’s profitbefore tax rose by 5.8 per centYoY to ~376.6 crore. Net profitgrowth of 40.6 per cent wasdriven by lower corporate tax.

Against this backdrop,Emkay Research has cut its2019-20 to 2021-22 earningsestimates by 3-4 per cent forPidilite and believes furtherpressureexists fromtheongo-ingslowdowninconstruction-relatedactivitiesand increasein competition.

Overall, the stock couldremainunderpressuretillclearsigns of volume and marginrecoveries emerge, given thepricey valuation.Overall, thestockcouldremainunderpres-sure till clear signs of volumeand margin recovery emergegiven thepriceyvaluation.

NEW DELHI |TUESDAY, 19 NOVEMBER 2019 InvestorWWW.SMARTINVESTOR.IN FOR INFORMED DECISION MAKING <

PUNEET WADHWANewDelhi,18November

Monthsaftercuttingtheirpro-jection for global real GDPgrowth for CY19 to a six-yearlowof2.9percent inJuly, ana-lystsatMorganStanleynowseeamarginalrecoveryandexpectthe year to record 3 per centgrowth.Theyhaveretainedtheprojection for CY20 at 3.2 percent and expect growth tospeedupinCY21at3.5percent.

With the global monetaryeasingsincethefirstquarterof2019 (1Q19) and trade tensionsnowsubsiding,MorganStanleybelieves global growth is likelyto trough in the fourthquarterof 2019 (4Q19), followed by arecovery from the first quarterof 2020 (1Q20)onwards.

“Global growth shouldrecover from 1Q20, reversingthedowntrendof thepast sev-en quarters as trade tensionsandmonetarypolicyareeasingsimultaneously for the firsttime since the downtrendbegan,” wrote Chetan Ahya,

Morgan Stanley’s chiefeconomist and global head ofeconomics in a recent co-authored report.

Uncertainties relating totradewars,macrodatafromtheUS, and the reduced scope ofmonetary policy, however, arethe threekey risks.

Region-wise, MorganStanley expects growth in

emergingmarkets (EMs) to behigher than their developedmarket (DM) peers, as centralbanks continue cutting rates.It expects 13 central banks toease further in 2020, bringingthe global weighted averagepolicyratestoaseven-yearlowbyMarch2020.Theseratecuts,it says, will be concentrated inEMs, with central banks in

India,BrazilandRussiacuttingratesoncemore.

Regarding India, MorganStanleyexpectsgrowthtoaver-age 5 per cent in CY19 andimproveto6.3percentinCY20and 6.8 per cent in CY21. On afinancialyearbasis, itsanalystspegGDPgrowthat6.5percentinFY21and6.9percentinFY22(versus5per cent inFY20).

“We expect growth toimprove in 2020with the sup-port of past policy measuresandexpectationsofcontinuedreformactionfromthegovern-ment. Apart from a cyclicalrecovery, we expect a policyfocus on improving trendgrowth through productivity-enhancing measures,” Ahyasaid in theco-authoredreport.

AnalystsatCLSA,however,remain cautious on how theglobaleconomywillpanoutin2020. They see 2019 globalgrowth at 2.2 per cent, downfrom 2.9 per cent in the previ-ous year, and slip to a mere1percentin2020beforebounc-ingbackto2.2percent in2021.

PUNEET WADHWANewDelhi,18November

The slump in key economicindicatorsandasharpliquidi-ty-driven rally since the gov-ernment cut corporation taxrates on September 20 havemade brokerages cautious onthe markets and they nowindicate a limited upside forthe indices in the short-to-mediumterm.

Sincethecutincorporationtax rates, foreign portfolioinvestors (FPIs) have pumpedin ~39,930 crore or $5.6 billion(as on November 14) in equi-ties, while mutual funds haveinvested nearly ~6,000 crore,datashow.TheS&PBSESensexand the Nifty 50 have gained12 per cent and 11 per cent,respectively, since then.

“Belying our expectationsofrecoverystartinginthethirdquarter,high-frequencyindica-torshaveplungedanddomesticcredit conditions remain tightamidweak global demand. Asa result, wenowexpect India’seconomic recovery to bedelayed and the subsequentpickup to be sub-par,” wroteSonal Varma, chief economistfor India and Asia ex-Japan atNomura inareport.

Analysts at CLSA, too,apprehend that real grossdomestic product (GDP)growth for FY20 may slip to 5percent.Theirworst-case sce-nario stands 50 basis point(bps)lowerthanthisprojectionat4.5per cent.

“India is in themiddle of asevere credit contraction thatstarted with the liquiditysqueeze triggeredby thecrisisin the non-banking financialcompanies(NBFCs)whichhasnow spread to deposit-takingcompanies as well.Corporationtaxcutsareaboldmovebutwill taketimetogaintraction. India’s recovery willbe postponed to late 2020,”said Eric Fishwick, chiefeconomist atCLSA.

Analysts at KotakInstitutional Equities led bySanjeev Prasad, MD and co-head for institutional equities,cautionagainstrichvaluationsat which the Indian markets

are trading despite weak eco-nomic scenario.

“TheIndianmarketistrad-ing at rich valuations in thecontextofhistoricalvaluationsdespite a sluggish economy.The Nifty50 trades at 22.4xFY2020E EPS and 17.7xFY2021EEPS.Weremainscep-tical of a quick recovery in theIndian economygiven severalstructural issues,the limited fiscalcapacity to sup-port consump-tion or invest-ment demand,and inefficacy ofpolicy rate cuts,given ‘crowdingout’ by high gov-ernmentborrowings,”hewroteinarecentco-authoredreport.

Those at Jefferies alsobelieve it is too early to call abottomforthemacro,necessi-tatingmorepolicysupport.Themarket, they say, craves a per-sonal income tax cut but thegovernmenthasappearedhes-itant given fiscal constraints.

“Evenwithoutanexpendi-ture stimulus, we expect the

fiscal deficit to slip by around~1 trillion or around 50 basispoints (bps). We remain cau-tious.Overweightsinourmod-el portfolio include financials,industrialsandtechnology,andunderweights (are) consumer,materials and energy,” wroteSomshankarSinha,managingdirector and head of equityresearch for India at Jefferies

in a recent report,which has been co-authored with ana-lysts Piyush NaharandPratikChaudhuri.

BNP ParibasSecurities sees theS&P BSE Sensex at40,500 by end-2019— just 0.5 per cent

higher fromthecurrent levels.Nomura, on the other hand,maintains a March 2020Nifty50 target of 12,545 —5.5 per cent higher from thecurrent levels. As an invest-ment strategy, they prefer thecorporate bank, insurance,infrastructure and healthcaresectors.Theyareunderweightonconsumer,autos,ITservicesandNBFCs.

MorganStanleyseesglobalGDPgrowthat3.2%in2020; saysEMstooutperform

Slowgrowth,priceystocksmakebrokeragescautious

MarketsreversegainsaswintersessionstartsBLOOMBERGMumbai,18November

Indian equities snapped athree-week advance to endtheday in thered,as investorsturned their attention to thewinter session of Parliamentanduncertainty surroundingtheU.S-China trade talks.

TheS&PBSESensex Indexfell 0.2 per cent, reversingfrom an intraday gain of asmuchas0.5percent.TheNSENifty50 Index was littlechanged at -0.1 per cent. Themarkets in Asia were mixedas investors awaited freshdevelopments in trade talksbetween theUS andChina.

While Indiaunveiled ruleson Friday to help creditorsrecover loans due from largeshadow lenders, all eyes are

nowon theUS-China negoti-ations and thewinter sessionof Parliament.

Ordinances related to cor-porate-tax rates and e-cigarettes are on the agenda.Investors are also turningtheir attention to economicdata out later this month forcues on growth.

Slewofcompaniesinprocessoffiling,re-filingpublicissuedocumentswiththeregulator

The market,analysts atJefferies say,craves a personalincome tax cut butthe governmenthas appearedhesitant

THEY PROJECT A BETTER FUTURE2019 2020 2021

Morgan CLSA Morgan CLSA Morgan CLSAStanley Stanley Stanley

GLOBAL 3 2.2 3.2 1 3.5 2.2

US 2.3 2.2 1.8 1 1.9 2.2

EuroArea 1.2 1 0.9 0.3 1.2 1.5

Japan 0.9 0.7 0 NA 0.7 0.7

UK 1.2 NA 1.4 NA 2 NA

China 6.1 6.3 6 6 5.9 5.8

India 5 5.7 6.3 5 6.8 6.2

Brazil 0.8 NA 2.2 NA 3.1 NA

Russia 1.2 NA 1.7 NA 2 NAAll figures in %; NA: Not available Sources: Morgan Stanley, CLSA reports

RCom stockdown 8%over Q2 lossShares of debt-riddenReliance Communications(RCom) onMonday tumbledover8percentafter thecom-pany posted a consolidatedloss of ~30,142 crore for theSeptemberquarter.

The company's scripdropped3.39percenttocloseat~0.57—itsrecordlow—ontheBSE.AttheNSE,itslipped8.33per cent to closeat ~0.55.

RCom on Friday posted aconsolidated loss of ~30,142croreforJuly-September2019due toprovisioning for liabil-ities after the SC ruling onstatutorydues.Thecompany,whichisgoingthroughinsol-vency process, had made aprofitof~1,141croreinthecor-responding three months ayear ago. The SC last monthupheld the Centre's positionon including revenue fromnon-telecommunicationbusinesses in calculating theannualAGR,whichhas to bepaidas licenceandspectrumfee to theexchequer. PTI

Issue size CurrentG/L(~cr) (%)

IRCTC 64.51 187.98

Affle (India) 459.00 119.57

IndiaMART InterMESH 475.59 97.47

Polycab India 1,346.19 74.35

NeogenChemicals 132.35 71.12

MetropolisHealthcare 1,204.29 58.41

SpandanaSphoorty 1,189.85 51.70

EmbassyOfficeParksREIT 4,750.00 39.17

MSTC 212.04 32.46

Rail VikasNigam 481.57 28.95G/L: General ledger; Source: Basis of allotment Compiled by BS Research Bureau

TOP IPO GAINERS THIS YEAR