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Multipie Weekly #6: Curated reads for investors

In current edition of our weekly newsletter we assess last week and last year’s performance across industries, explain why CLSA is bullish on Real Estate, discuss Zomato’s valuation, explain implications of new Ethanol policy, share insights on the Cabinet reshuffle, share an annual report highlight and more. We hope you enjoy reading this as much as we enjoyed writing it. If you want these directly in your mailbox, please subscribe here and share with your friends.

Let’s get started!

1. Which are the best and worst performing sectors over the last week and last year?

Markets ended the week marginally in green. Real Estate was the top gainer, with a weekly gain of 5.2% as against monthly gain of 4.2%, indicating fresh buying interest. Energy / Oil & Gas saw a correction, – down 2.2% last week.

For the last 1 year , old economy sectors such Power, Commodities and Industrials have been the best performers, while Telecom and Energy/ Oil & Gas have been the weakest performers.

Small & micro caps have significantly out-performed large caps over the last year!

Which sector are you most bullish on? Let us know!

2. Why is CLSA bullish on Real Estate?

With the recent outperformance of Real Estate, it raises the question – Are we nearing a Real Estate upcycle? Last week, CLSA hosted 11 of India’s top developers and 2 prop-tech companies for its Real Estate Access Day 2021. We have shared above CLSA’s targets on key players (buy recommendation on Sunteck, Prestige and DLF and negative outlook on Godrej Properties).

We share four key takeaways from the note:

  1. Developers expect doubling their sales in 3-4 years
  • Growth expectation led by new launches planned in FY22, affordability (lower interest rate) led demand and ongoing industry consolidation 
  • Market share of top 10 developers:  From 15-16% in CY18-19 to 27% in CY20
  • The price hikes (upto 5-10%) by few prominent developers have been readily absorbed
  1. Expects Industry consolidation and new acquisitions and JV deals
  • Expect multiple M&As in next 1-2 years, as small developers struggle, given no expectation of interest-free moratorium, as it was given in last year
  • Godrej, Lodha and Mahindra plan to spend significantly on acquisitions
  • Sunteck, Prestige and Brigade are looking more towards JDA/ JV deals
  1. Focus on reducing debt and improving balance sheets
  • Top 10 listed developers have lowered net debt by ~27% in FY21, mainly led by strong sales in latter half of FY20-21 and better cost control
  • Expecting better cash flows in years to come, further lowering debt levels
  1. Long term outlook on office demand is positive
  • Corporates have cautiously started calling employees back to office
  • Embassy REIT highlighted that occupants who had earlier vacated offices are now reconsidering the decision

3. Zomato IPO – The valuation debate

Zomato’s valuation ask is equivalent of their entire listed QSR segment

While IPOs have been hot all of last year, no IPO has generated a buzz like Zomato. While the increased demand, improved metrics in FY21 are discussed, the question remains on the high valuation ask. We did some number crunching on what the expected Market cap implies:

  • The IPO price band of Rs 72-76 implies market cap of Rs  55,000-60,000 crores!
  • When the market is fully mature, it can trade at 25x MCap/EBITDA (looking at global peers), implying an annual EBITDA expectation of ~Rs 2,500 cr
  • At an estimated overhead cost of Rs 2,000 cr, it implies Zomato needs to earn contribution profit of Rs 4,500 cr annually at full scale
  • Contribution margin (CM) per order of Rs 20/ share (generally 5% of average order value – was Rs 16/ order for 4QFY21)
  • At Rs 20 CM per order, Zomato will need 225 cr orders to generate that EBITDA (for reference they have done 40 cr orders in their best year FY20)
  • Assuming 40% market share for Zomato (competition from Swiggy and restaurants having their own delivery set-ups now), it implies 560 cr food delivery orders per year across India
  • This means 11 crores households (out of total 25 crores) or 45% of the country will need to order once a week to reach this number!

Credits to Giriraj Daga for original framework for this valuation approach.
Note: Zomato’s IPO valuation of 4X GMV and 25X Revenues for FY22E is significantly higher than:

  1. Delivery Hero, a leader in over 35 of the 40 emerging markets, is at <1X GMV and 7X Revenues
  2. Meituan, China’s largest FoodTech (~65% share) is at  1.5X GMV and 6X Sales
  3. Doordash, US’s largest player, is at  1.5X GMV and 14X Sales.

However, GMP indicates listing at a premium! What do you think?

4. Ethanol Blending in Fuels has big implications

Your car can now run on ethanol! Well not entirely.

On 28th June, the Ministry of Road, Transport and Highways issued a notification allowing upto 12-15% ethanol blending with petrol! GoI aims to reach a target of 20% by 2025. Multipie explains the impact across industries. Key impact on:

1. Sugar industry 

2. Oil-marketing companies (OMC)

3. Automobile makers

Sugar Wonder why sugar companies have been rallying?

To meet the target of 20% blended fuel, sugar companies have to expand ethanol storage capacities 3x from current 300 crore litres to 900 cr L

  • Ethanol is not only a by product in sugar mills, but can even be produced through grains and sugar cane juice
  • Largest company Shree Renuka Sugar has already announced Rs. 450 cr investment to expand its ethanol capacity 
  • Trivia: 1000 kgs of sugar cane produces 115 kg of sugar and 45 kg of molasses, which gives 10.8 litres of ethanol


Need to set up ethanol distilleries to make blended fuel available pan India

  • An interest subvention scheme of Rs. 8,460 cr approved by the Cabinet for those willing to establish standalone ethanol distilleries
  • GAIL and HPCL are setting up grain-refineries to boost ethanol output by 2025. Proposed capacities are 5,00,000 litres/day and 1,25,000 litres/day respectively.


GoI expects automobile makers to equip their vehicles with parts compatible 20% ethanol fuel such as rubberised and plastic components 

  • NITI Aayog, released its ‘Roadmap for Ethanol Blending in India 2020-25‘ 
  • TVS Motors and Bajaj Auto have already developed 2-wheelers that run exclusively on ethanol; restriction of blended fuel with 5% ethanol for new 
  • No major assembly line changes required to make blended fuel compatible engines in India

5. Modi 2.0: Cabinet Reshuffle – Sending a message?

The big news of last week was the first cabinet reshuffle, first in second term.

Noteworthy Inductions and Assignments:

  • Piyush Goyal – Textiles
  • Sarbananda Sonowal – Ports, Shipping & Waterways and AYUSH
  • Bhupendra Yadav – Labour & Employment and Environment 
  • Ashwini Vaishnaw – Railways, MeitY and Communications
  • Jyotiraditya Scindia – Civil Aviation
  • Narayan Rane – MSMEs
  • Hardeep Puri – Petroleum & Natural Gas
  • Mansukh Mandaviya – Health & Family Welfare and Chemicals & Fertilisers
  • Anurag Thakur – I & B and Youth Affairs & Sports
  • Kiren Rijiju – Law & Justice 


  • MSMEs – This has been a sensitive sector. Shift of baton from Nitin Gadkari to Narayan Rane, a first time cabinet minister. Will be interesting to watch!
  • Labour & Employment – Focus on expediting the long-pending labour code reforms which, the govt believes, will lead to a substantial amount of FDI inflow and increased ‘ease of doing business’
  • Railways, MeitY and Communication – Ashwini Vaishnaw comes with a robust background of being an ex-IAS, B.Tech from IIT Kanpur, and an MBA from Wharton. There is a positive buzz on the hopes of growth initiatives.

6. Annual report insight: 

The annual report of Precision Camshafts, an auto components manufacturer shared (Page 27) a map of export competitiveness and scale of various auto components that we found interesting. A study of the same indicates that Fasteners, Engine-Electricals, Bearings, Shafts, Axles, Rubber Components are higher capability areas.

Note: Did you see our FY21 annual report tracker – it covers details of over 280 declared annual reports! Share link with your network!

7. Tweet of the week:

8. In other news:

  • We hosted Raunak Onkar, Head of Research and Co-Fund Manager at PPFAS, on our first video format podcast on our show Breaking Investment Stereotypes. Please given it a listen here if you haven’t!

  • SEBI banned Allegro Capital from securities markets for 1 year for a case related to alleged insider trading in Biocon shares. However, Kiran Mazumdar Shaw called it an Agatha Christie Fiction, that harms their reputation
  • On Steel sector outlook: JP Morgan released a report Cement vs Steel where they note Tata Steel’s FY22 EBITDA > EBITDA of entire listed Cement sector; however it still trades at a market cap of <0.3x of Cement, with higher ROEs. We recommend anyone interested to listen to this 5 minute segment by Ajay Srivastava in his talk with Niraj Shah of BloombergQuint.

  • Flying cars are a reality! Slovakian AirCar’s flying car completed a key milestone as it completed a 35 minute intercity flight
  • In light of the semiconductor shortage, JLR expects a 36% fall in volumes in H1. However, it remains optimistic for a recovery in H2.
  • Private Equity inflows into domestic firms rose by 118% to $11.8 Bn in H1 2021
  • As US troops commence withdrawal, Joe Biden has stated that the US war in Afghanistan will end by 31st August 

That’s all for this week. Please share with your peers if you found this helpful and subscribe at multipie.co to start receiving these as a weekly digest every weekend!

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