Ujjivan Small Finance Bank Ltd: Buy

CMP: Rs.40.15

The microfinance industry in India has witnessed strong growth, with a compound annual growth rate (CAGR) of 17% over FY20-24.

Notably, the industry saw a sharp recovery in FY23-24, achieving a robust 23% CAGR during FY22-24. This resurgence was driven by high demand, bolstered by strong customer additions and improved asset quality metrics, which have reached multi-year lows. Photo: Business Today.

Despite some lingering stress in the microfinance group segment, many banks are pursuing growth in a risk-calibrated manner. Although concerns around asset quality are expected to persist for the next couple of quarters, recovery is anticipated as the industry approaches the end of FY25. While the growth in group loans is likely to moderate, individual and housing loans are expected to remain key drivers of growth for banks in this sector.

Ujjivan Small Finance Bank (UJJIVANSFB) looks particularly attractive in this context. Its strong customer base, focus on individual loans, and relatively low asset quality issues position it well for sustained growth. Additionally, the bank's diversified loan portfolio and strategic approach to managing risk amidst the current challenges in the microfinance space make it a compelling choice for investors at the CMP.

Targets Given by Various Brokerage Houses for Ujjivan Small Finance Bank Ltd (Rs.40.15):

💢Emkay Global Finance Services -- Rs.55.

💢HDFC Securities -- Rs.65

💢JM Finance -- Rs.65

💢Kotak Institutional Equities  -- Rs.55.

💢Axis Securities -- Rs.52.

Zee Entertainment Enterprises Ltd (Rs.130.40):

I have taken some shares of ZEEL for my portfolio clients, with short term targets of Rs.157/161.

Zee Entertainment Enterprises Ltd (ZEEL) holds stakes in several companies, primarily in the media and entertainment sector. Here’s a breakdown of some of the key entities:

Zee Learn Ltd: Zee Entertainment Enterprises Limited (ZEEL) holds around a 16% stake in Zee Learn Limited. Both companies are part of the larger Essel Group.

Siti Networks: ZEEL was a guarantor for loans taken by Siti Networks but does not hold a direct equity stake. However, it has had to engage in settlement agreements due to financial guarantees provided.

Zee Studios Ltd.: This is a fully-owned subsidiary of ZEEL, involved in film production and distribution.

India Webportal Pvt. Ltd.: ZEEL has a joint venture stake in this company, which manages digital properties.

Margo Networks Pvt. Ltd.: This is another subsidiary, focusing on content delivery technology.

These holdings are part of ZEEL's strategy to diversify its media portfolio across traditional and digital platforms.

Flash Focus: Fast Facts for Smart Investors 

In the event of an Iran-Israel conflict continuing, several stocks listed on NSE/BSE could potentially benefit or be impacted due to geopolitical dynamics, especially in oil, defense, and commodities:

💢Metal & Mining Companies: Companies like Tata Steel Ltd (Rs.165.25) and SAIL (Rs.133) may gain due to potential disruptions in the supply of commodities and higher prices for metals like aluminum and steel, which are heavily influenced by global conflicts. I have taken some shares of SAIL for my portfolio clients.

💢Shipping & Logistics: Gujarat Pipavav Port could experience gains from increased shipping rates due to heightened risk in global supply chains and disruptions in Middle Eastern trade routes.

Swan Energy Ltd (Rs.527) also could potentially benefit from an Israel-Iran war, primarily due to its involvement in the energy and shipping sectors:

💢LNG and Oil Storage: Swan Energy has developed a Floating Storage Regasification Unit (FSRU) for liquefied natural gas (LNG). If an Iran-Israel war causes disruptions in the oil and gas supply chain, there could be an increased demand for alternative energy storage and transportation solutions, such as LNG, which could benefit Swan Energy.

Moreover, any disruption in the Middle Eastern region could increase global shipping rates, and companies involved in LNG storage and transportation could see a boost in demand for their services.

Swan Energy Ltd has diversified into the defense sector through its subsidiary Reliance Naval and Engineering Ltd (RNEL) (formerly Reliance Defense and Engineering Ltd), which focuses on shipbuilding and defense-related projects.

Through RNEL, Swan Energy is positioned to benefit from potential defense contracts or shipbuilding opportunities, especially during times of geopolitical tension like an Israel-Iran war. If the conflict escalates, it could increase demand for defense assets such as warships, patrol vessels, and other naval defense equipment, providing opportunities for RNEL.

This diversification into defense adds another layer to Swan Energy's potential to gain from such conflicts, in addition to its core business in LNG storage and shipping.

However, the extent of Swan Energy's benefit depends on how long the conflict lasts and how significantly global energy supply routes are impacted. While it may not be a direct defense play, its energy and logistics operations make it a potential beneficiary of heightened geopolitical tensions.

Indowind Energy Ltd (Rs.20.93):  Indowind Energy Ltd, being a renewable energy company primarily focused on wind power generation, is less likely to see direct benefits from an Israel-Iran conflict. The company operates in the green energy space, and geopolitical tensions in the Middle East, especially in the oil and gas sectors, may not directly impact the demand for wind energy.

However, there are a few indirect ways in which Indowind Energy could potentially benefit:

1. Energy Shift: If oil prices rise significantly due to the conflict, it could accelerate the global push toward renewable energy as nations look to reduce dependency on fossil fuels, which might favor renewable energy companies in the long term.

2. Government Policies: Heightened geopolitical risks might lead to governments prioritizing energy security, potentially increasing investment in local renewable energy projects, which could benefit companies like Indowind.

In the short term, however, the direct impact on Indowind Energy would likely be minimal compared to companies in the oil, defense, and logistics sectors.

Swan Energy Ltd: A multibagger.

Target: Rs.1000+

If you can remember, I had suggested a buy or I bought the shares of Swan Energy Ltd (Rs.554.55) near Rs.210/Rs.217. The stock has delivered more than 3x returns from my buy price. Photo: Energy World.

Since, the scrip has already given a mind-boggling returns over a given period, the question is: How much the stock can further move up considering the new initiatives and completion of some vital projects of the company like FRSU. 

Let's explore its ventures, including its real estate projects, textile division, and LNG initiatives:

Real Estate Projects and Land Bank: 

Swan Energy is actively engaged in the real estate sector, particularly in prime areas of Khar-Bandra, Mumbai. The company has significant plans, with projects encompassing approximately 2 million square feet of development potential, valued at around Rs.12,000 crore. Recently, it has obtained an occupation certificate for a premium residential project in Bengaluru, showcasing their expansion in the real estate sector.

Textile Division:

Swan Energy’s textile division is a substantial segment of its operations. The company is noted for its capacity to produce 3 million fabrics per month. In addition to fabric production, it also manufactures and sells yarn and ready-made garments, thereby diversifying its textile offerings. 

In India, the textile value chain exhibits varying profit margins across yarn, fabric, and garments:

💢Garments: In India, garment manufacturing generally offers the highest margins, ranging from 10% to 30%. This is due to the value addition from cutting, sewing, designing, and branding. Indian companies involved in apparel exports or premium domestic markets often see better margins due to increased demand and branding.

💢Fabric: Margins in the fabric segment are moderate, typically between 8% to 15%. Fabric production margins depend on the type of fabric, its end-use (e.g., fashion vs. industrial textiles), and the level of processing involved, such as dyeing and finishing. Companies in India that specialize in niche fabrics may experience higher margins.

💢Yarn: Yarn manufacturing in India has the smallest margins, typically around 5% to 10%, due to the highly competitive and commodity-like nature of the yarn market. The margins in this segment are also influenced by fluctuations in raw material prices (like cotton, which India is a major producer of), and energy costs, which are significant for spinning mills.

In summary:

- Highest margins: Garments

- Lowest margins: Yarn

However, these are ballpark figures and are often influenced by local market conditions, international demand, government policies, and raw material availability.

LNG Projects:

Swan Energy is heavily invested in LNG projects, operating both Floating Storage Regasification Units (FRSU) and LNG terminals. 

The company is establishing a major LNG terminal in Gujarat, which is expected to enhance its capabilities in the energy sector significantly.

Oil and Gas Exploration:

In addition to its LNG activities, Swan Energy is involved in oil and gas exploration expanding its footprint in the energy market. This diversification supports its strategic goals across multiple sectors, including energy and infrastructure.

The acquisition of Reliance Naval and Engineering Ltd (RNEL) by Swan Energy Ltd is significant in the context of the reported order from Russia for the construction of 28 light vessels. Here are some insights:

Swan Energy Ltd's Acquisition of RNEL: The acquisition has been described as a strategic move to strengthen Swan Energy's position in the shipbuilding sector, especially for defense contracts. This is highlighted in reports discussing Swan Energy's plans to utilize RNEL's capabilities to fulfill international orders, including the one from Russia.

The order from Russia: The order from Russia for the 28 light vessels, estimated to be around $1 billion, emphasizes the potential for Swan Energy to leverage RNEL's expertise in shipbuilding for international clients. 

However, my sources could not confirm whether those orders are still alive or ready for execution with the correct management of Swan Energy Ltd in place or they have been cancelled.

Reliance Naval and Engineering Vs Gaden Reach Shipbuilders and Engineers Ltd

💢Reliance Naval and Engineering Ltd (RNEL):  

RNEL located in Gujarat, is India's largest private-sector shipyard with extensive infrastructure, including the largest dry dock. It spans around 210 hectares capable of building large naval ships, commercial vessels, and offshore structures. Photo: RNEL, Facebook.

☀️The fact that RNEL is engaged in the construction of both naval and commercial vessels, reflects a broader market approach.

This includes specialized defense projects for the Indian Navy, as well as commercial ships.

☀️The company aims to leverage its technological capabilities to serve both markets, which has been a significant part of its operational strategy.

💢 Garden Reach Shipbuilders and Engineers Ltd (Rs.1661.90): 

Garden Reach Shipbuilders and Engineers (GRSE), based in Kolkata, is a smaller shipyard with around 48.72 hectares. Though smaller in size, GRSE has a specialized focus on naval warships, with a long track record of delivering vessels to the Indian Navy. It compensates with efficiency, government support, and order execution capabilities.

☀️It specializes mainly in defense vessels for the Indian Navy and Coast Guard, including warships and submarines. 

☀️ It's also engage in the modernization of existing naval platforms. 

☀️Commercial Vessels: GRSE has a limited capacity to build commercial vessels. While its core business is focused on defense contracts, it has occasionally engaged in producing civilian vessels such as passenger ships and ferries.

Financial Summary: 

RNEL: Currently, there is no public disclosure regarding the exact value of the order book for Reliance Naval and Engineering Ltd (RNEL), especially after its acquisition by Swan Energy under the insolvency process. Before its financial troubles started, RNEL had secured substantial projects, including a $3 billion frigate contract from the Indian Navy and a $2 billion ship repair deal with the U.S. Navy. However, these projects were largely stalled due to the company's financial collapse.

Given the stalled projects and the company's insolvency status, it is difficult to determine an accurate total order book value, as many contracts were likely delayed or left incomplete.

GSRE: As of June 30, 2024, Garden Reach Shipbuilders & Engineers Ltd (GRSE) holds an order book valued at Rs.25,231.29 crore. This is an increase from the Rs.22,652.68 crore recorded at the end of March 2024. 

Furthermore, the majority (around 90%) of these orders come from the shipbuilding sector, largely from domestic contracts, including those for the Indian Navy.

Q. Were the former orders of RNEL cancelled?

Ans. The significant orders secured by Reliance Naval and Engineering Ltd (RNEL), such as the $3 billion frigate contract from the Indian Navy and the $2 billion ship repair deal with the U.S. Navy's Seventh Fleet, were not formally canceled, as per my sources (It is source based information and hence double check from your end).

Incidentally, RNEL’s inability to meet its financial commitments, operational obligations and eventual insolvency resulted in many of these projects facing considerable delays and ultimately getting stalled.

The acquisition of RNEL by Swan Energy Ltd (Rs.554.55) in 2022 under the Insolvency and Bankruptcy Code further complicated the situation, as new management took over. 

I reiterate, as per my sources, while there is no official record indicating the outright cancellation of these contracts, they were significantly delayed and potentially not fully executed due to the company’s financial collapse. 

Order details of Reliance Naval and Engineering Ltd (RNEL) secured during its operational years:

☀️$3 billion frigate order: This was part of India’s “Make in India” initiative and was awarded in July 2015. It was considered one of the largest warship-building projects in India's private sector, where RNEL was tasked with building naval frigates.

☀️$2 billion ship repair agreement with the U.S. Navy: This order was secured in February 2017. RNEL signed a Master Ship Repair Agreement (MSRA) to maintain vessels from the U.S. Navy’s Seventh Fleet.

These projects were milestones but faced execution difficulties due to the company's financial struggles. These past orders reflect RNEL’s significant role in both naval shipbuilding and defense-related projects.

Flash Focus: Fast Facts For Smart Investors 

I have taken some shares of Trident Ltd (Rs.37.19) for my portfolio clients. T: Rs.52.

Trident Ltd is a prominent Indian manufacturer known for its diversified portfolio in the textile, paper, and energy sectors. Established in 1990, the company is primarily recognized for its home textile products, including towels and bed linens, and has a significant presence in the yarn market. Trident has  its manufacturing facilities strategically located in Punjab and Madhya Pradesh. 

The company serves a diverse customer base spanning over 75 countries across six continents, including global retail brands like Ralph Lauren, Calvin Klein, IKEA, Target, and Walmart.

Trident Group, a $2 billion (market cap) global home textile manufacturer, is set to garner a larger share of the $202 billion US home furnishing market, with a focus on bed and bath linens.

With 62% of its revenue generated from exports and 39% from the US market, Trident is investing heavily in production capabilities and sustainability initiatives. The company has made significant capital investments to modernize production facilities and has partnered with Green Story for life cycle assessments.

Key Highlights:

💢Textile Division: Trident is one of the largest manufacturers of terry towels in India, catering to both domestic and international markets. Its textiles are well-regarded for quality and sustainability.

💢Paper Division: The company also produces eco-friendly paper products, contributing to its overall revenue and reinforcing its commitment to sustainability.

💢Energy Initiatives: Trident has made strides in the energy sector by focusing on renewable energy sources, further enhancing its sustainability goals.

💢Financial Growth: The company has consistently reported growth in revenues and has been expanding its operational capacity, investing heavily in capital expenditure.

Trident Ltd. has positioned itself as a key player in its sectors, leveraging innovation and sustainability to drive its business forward.

In addition to its core businesses, the company has made strides into the renewable energy space, specifically focusing on solar energy.

Trident has successfully completed a solar power project in Budhni, Madhya Pradesh, with a total capacity of 8.87 MWp. This project is divided into two phases: the first phase, which has already been commissioned, produces 5.48 MWp while the second phase, expected to be operational soon, will contribute an additional 3.39 MWp. 

The electricity generated from this solar installation is intended for captive use across Trident’s manufacturing facilities, allowing the company to reduce its carbon footprint and achieve significant cost savings on the energy front.

Emergency: Kangana Ranaut's Film Set for Release After Legal Battles and Censor Board Modifications..

Kangana Ranaut's film Emergency co-produced by Zee Studios and Manikarnika Films, which is Ranaut's own production company, in all probability is set to be released soon, as per my sources and media briefings.

The film portrays the controversial period of the Emergency in India and features Ranaut as former Prime Minister Indira Gandhi.

The latest update on Kangana Ranaut's film Emergency involves an ongoing legal issue regarding its release. During a court hearing on September 30, 2024, Zee Studios, which co-produced the film, informed the Bombay High Court that they have agreed to the modifications suggested by the Censor Board of Film Certification (CBFC). 

The changes were recommended due to concerns raised, particularly by Sikh groups, about the film's portrayal of their community. The modifications include editing certain scenes, like references to Jarnail Singh Bhindranwale and violent imagery.

The CBFC had initially provided guidance for 11 cuts to the film, which Zee Studios and Kangana Ranaut have now agreed to implement. As a result, the film is awaiting approval to receive its certification, allowing it to move forward with its release. The next court hearing is set for October 3, 2024.

The film, which explores the period of India's Emergency in the 1970s under then-Prime Minister Indira Gandhi, had faced delays due to protests and the CBFC's concerns.

The film production company Zee Studios informed the Bombay High Court that they agreed to implement changes suggested by the Censor Board of Film Certification (CBFC). The case has been adjourned to October 3, 2024, for further hearing.

Flash Focus: Fast Facts For Smart Investors 

Coffee Day Enterprises Ltd (Rs.36.70) is a conglomerate with interests in coffee plantations, coffee retailing, hospitality, logistics, and other sectors. The company was once a household name, synonymous with the burgeoning Indian coffee culture.

Given the current festival and upcoming marriage seasons, I have taken some shares of Coffee Day Enterprises Ltd (Rs.36.70). My target price is Rs.52, and my stop loss is Rs.31.

The company also owns and operates a resort, provides consultancy services, and is involved in the sale and purchase of coffee beans. It defaulted on coupon payments for redeemable non-convertible debentures (NCDs).

#The shares of my recommended Sarthak Industries Ltd (Rs.34.56) hit 20% buyer freeze today. Those who are holding the shares of the company should at least book some profits and hold the rest with a SL of Rs.32.

3i Infotech Ltd (Rs.32.70) and the US rate cut

Interestingly, while 3i Infotech Ltd operates in more than 15 countries across four continents, the company's primary revenue source is from the United States of America or the US. This calls for the analysis of the issue related to the recent rate cuts in the US.

It's to be noted that about 90% of 3i Infotech's revenue, comes from offering IT solutions to its clients. It generates 10% of its revenue from transaction services.

Incidentally, coming just weeks before the presidential election, the US Federal Reserve on September 18 cut its benchmark interest rate by an unusually large  half-point (50 basis points), a dramatic shift after more than two years of high rates. 

In an effort to help tame inflation the US kept the rates high for a long time, making the borrowing painfully expensive for American consumers. The move plunged the dollar index to a 14-month low level on that day. 

Q. How a US Fed Interest Rate Cut Could Benefit 3i Infotech?

Ans. Understanding the Impact of Interest Rate Cuts on IT Services: 

While 3i Infotech doesn't directly deal with loans, a US Fed interest rate cut can indirectly benefit the company in several ways:

💢Increased Economic Activity💢

🏵️Stimulus: Lower interest rates can stimulate economic growth by making borrowing cheaper for businesses and consumers. This can lead to increased demand for goods and services, including IT solutions.

In other words, a lower interest rate regime can lead to increased IT spending by businesses, which may benefit 3i Infotech through higher project volumes.

🏵️Investment: Businesses may be more inclined to invest in technology upgrades and expansions when borrowing costs are lower. This could increase demand for 3i Infotech's services.

💢Favorable Exchange Rates💢

🏵️Currency Appreciation: A rate cut can weaken the US dollar relative to other currencies. This can make US-based IT services more affordable for international clients, potentially increasing 3i Infotech's exports.

🏵️Competitive Advantage: A weaker dollar can make Indian IT services more competitive in the global market, attracting more clients and increasing exports.

💢Lower Cost of Capital💢

🏵️Financing: If 3i Infotech needs to borrow funds for expansion or investments (FCCB), lower interest rates can reduce the cost of financing. This can improve the company's profitability.

🏵️Debt Servicing: If there is synchronised cut by the RBI, then existing debt of 3i Infotech Ltd can become less expensive to service, freeing up cash flow that can be reinvested in the business.

💢Increased Consumer Spending💢

🏵️Economic Confidence: Lower interest rates can boost consumer confidence, leading to increased spending. This can indirectly benefit 3i Infotech as businesses may need to upgrade their IT systems to support growing demand.

💢Potential for M&A Activity💢

Reduced Cost of Borrowing: Lower interest rates can make it cheaper for companies to acquire other businesses. 3i Infotech might consider mergers or acquisitions to expand its market share or capabilities.

💢Increased Export Earnings💢

Currency Conversion: When the US dollar weakens, the value of 3i Infotech's export earnings in US dollars increases when converted to Indian Rupees. This leads to higher revenue in the local currency.

💢Increased Domestic Demand💢

Export-Led Growth: Increased exports can stimulate domestic economic growth, leading to higher demand for IT services within India.

💢Cost Management💢

By offshoring work to lower-cost regions like India, 3i Infotech can reduce operational costs while maintaining service quality, further improving profit margins.

💢Investment Opportunities💢

A favorable economic environment allows 3i Infotech to invest in new technologies and services, enhancing its competitive edge and market position

💢Offshoring Work💢

By moving more operations from the U.S. to India and other low-cost regions, 3i Infotech can significantly lower labor and operational costs, leveraging the cost advantages of offshoring

💢Conclusion💢 Thus as a global IT services provider, 3i Infotech is likely to benefit from the ripple effects of a US Fed interest rate cut. The company's exposure to various markets and its focus on providing IT solutions to businesses across industries make it well-positioned to capitalize on the potential economic growth and increased demand that often accompany lower interest rates.

💢Caveat💢 

While a weaker US dollar can provide a significant boost to 3i Infotech's revenues, it's important to note that other factors, such as global economic conditions, industry-specific trends, and competitive dynamics, can also influence the company's performance.

However, given the company's strong fundamentals and the potential benefits of a weaker US dollar, 3i Infotech appears well-positioned for continued growth and success.

Q. How did the four-day work week for US employees affect 3i Infotech's productivity?

Ans. 3i Infotech's implementation of a four-day workweek for U.S. employees is expected to enhance productivity significantly. Studies indicate that companies adopting this model often see increased productivity, with 85% of businesses reporting improvements. 

Employees typically experience better work-life balance, leading to higher satisfaction and reduced burnout, which can translate into more focused and efficient work. 

As 3i Infotech aims to implement this for around 400 employees, it anticipates similar benefits, potentially boosting overall operational efficiency and employee morale.

Increased Efficiency: The four-day workweek may lead to improved employee productivity and morale, potentially reducing costs associated with turnover and absenteeism, although this requires careful management to avoid overloading employees on working days.

 Flash Focus: Fast Facts For Smart Investors

I have taken some shares of 3i Infotech Ltd (Rs.32.67), T: Rs.52, SL: Rs.31 (Strict SL). 

Overview: 3i Infotech Ltd. is an Indian IT services company that operates globally, providing a wide range of services to clients in various industries. With a strong presence in India, the United States, Europe, the Middle East, Africa, and the Asia-Pacific region, the company has been experiencing steady growth and expansion. 

Strategic Partnerships and Contracts: 3i Infotech has been actively pursuing strategic partnerships to enhance its offerings and expand its market reach. 

A notable partnership was formed with InsureMO, a leading Insurance Middleware Platform. This collaboration is expected to bring several benefits to InsureMO customers, including reduced operational costs, faster product launches, and efficient DevOps processes. Photo: 3i Infotech Ltd.

Following the InsureMO partnership, 3i Infotech secured a contract from Ujjivan Small Finance Bank to develop end-user support services. This five-year contract, valued at Rs 396 million, represents a significant addition to the company's revenue stream.

Focus on NuRe: 3i Infotech is strategically focusing on building its value brand business, NuRe, a wholly owned subsidiary. NuRe offers various products, including NuRe CloudFirst for cloud-based solutions, NuRe Edge for 5G services, and NuRe Desk for remote work solutions. 

The company's recent partnership with RailTel to launch NuRe Bharat Network further expands its reach, enabling advertisers to connect with millions of daily users through the RailTel Super App.

At the end last year, the company launched NuRe Bharat Network in partnership with RailTel. This facility has enabled advertisers to connect with 1.8 million daily users through 3i Infotech's RailTel Super App. Moreover, 3i Infotech also offers free WiFi services across the railway network.

Hence, as the Indian government adds more high-speed corridors and expands its rail network, 3i Infotech could generate some additional revenues from the WiFi opportunity.

Recognition: In January, 2024 there was a media report which said that 3i Infotech Ltd  has been recognised as a Representative Vendor in the 2023 Gartner Market Guide for Higher Education Student Information Systems.

This acknowledgment underscored the success of their NuRe Campus EdTech initiative, a cutting-edge cloud-based platform designed to streamline and automate all aspects of university operations.

From admissions to examinations, NuRe Campus offers a comprehensive solution that has garnered praise as India's premier university management system. This achievement solidified 3i Infotech's position as a leading player in the educational SaaS landscape.

Financials: The Net Sales were at Rs.179.75 crore in June 2024 down 7.53% from Rs. 194.38 crore in June 2023. 

Net Sales were at Rs.91.83 crore in March 2024 quarter. So, sequentially, there was a marked improvement in sales figures.

Quarterly Net Loss was at Rs.8.53 crore in June 2024 down 45.29% from Rs.15.59 crore in June 2023. 

Incidentally, the Quarterly Net Loss was at Rs.45.64 crore in March 2024 quarter. So, both sequentially and on Y - o - Y basis, so there was positivity in this front too. 

EBITDA was negative at Rs.40.85 crore in March 2024 quarter. However, EBITDA stood at Rs. 2.91 crore in June 2024 quarter.

Growth Aspirations: 3i Infotech has set ambitious growth targets, aiming to achieve organic revenue of US$ 1 billion by 2030. With its expanding market presence, strategic partnerships, and focus on innovative solutions, the company is well-positioned to achieve its goals.

Conclusion: 3i Infotech Ltd. is a dynamic IT services company that is making strides in the industry. With a focus on innovation, strategic partnerships, and global expansion, the company is well-positioned to capitalize on emerging opportunities and achieve its long-term objectives.

Rajesh Exports Ltd (Rs.283.60)

A High - Risk - High - Gain Opportunity For Long Term, Amidst US Rate Cuts, Future Expansion And Perennial Mangement Issues..

Rajesh Exports Limited (REL), incorporated in 1989 and headquartered in Bangalore, India, is a global leader in the gold industry. As the only company worldwide with a presence across the entire gold value chain—from refining to retailing—REL processes an impressive 35% of the world's gold production, making it the largest processor and exporter of gold products from India. Renowned for being the lowest-cost producer of gold jewellery, the company operates state-of-the-art manufacturing and research facilities, with key operations in Bangalore and a significant refining facility in Balerna, Switzerland.

The Company is the largest refiner of gold in the world. With the acquisition of Valcambi, the world’s largest gold refinery at Switzerland, Rajesh Exports has built up a total capacity to refine 2,400 tons of precious metals per annum. Valcambi is a LBMA accredited refinery, the gold bars produced at Valcambi are good delivery bars, accepted across all the precious metal exchanges of the world and by all the Bullion banks.

Rajesh Exports Ltd is the largest Manufacturer of gold products in the world. Across its various manufacturing facilities Rajesh Exports has a total installed capacity to manufacture 400 tons of world class gold products per annum including the finest plain and studded jewellery, medallions and coins. 

Rajesh Exports has set up the world’s finest R&D facilities in Switzerland and in India for developing new designs and for evolving innovative manufacturing process for manufacture of world class gold products.

The Company exports its products to various countries around the world and also supplies its products to bullion banks, central banks, wholesale jewellery trade and retail jewellery trade.

Rajesh Exports has set up 82 retail jewellery showrooms under the brand name of SHUBH Jewellers. SHUBH Jewellers is one of the most trusted household jewellery brand names in South India known for quality, designs and value for money prices of its products.

REL's extensive marketing network covers India and major global gold markets, supported by one of the largest active jewellery design databases with 29,000 unique designs. Committed to innovation, REL has developed advanced technologies and processes in jewellery manufacturing while upholding the highest standards of corporate governance.

The US Fed's Rate Cut: The U.S. Federal Reserve's recent rate cuts could provide a supportive macroeconomic backdrop, while the company’s future growth prospects, particularly through diversification into lithium-ion batteries, add further interest. However, it’s important to examine the June 2024 quarterly results realistically and understand the company's broader context before making an investment decision.

June 2024 Quarter Results: Marginal Sequential Improvement: The sales of the company declined by 29.56% to Rs.60,355.50 crore in the quarter ended June 2024 as against Rs.85,688.59 crore during the previous quarter ended June 2023.

The net profit of Rajesh Exports declined 96.17% to Rs.11.86 crore in the quarter ended June 2024 as against Rs.309.36 crore during the previous quarter ended June 2023.

On the positive side, the company’s net profit (on sequential basis) rebounded in Q1 2024-25, growing by 137.57% from the previous quarter to ₹11.86 crore.

This, though Rajesh Exports Ltd's June 2024 quarter results showed a sequential improvement compared to the previous March 2024 quarter, but they still fall short of robust performance on a yearly basis. However, this is expected to improve from 2025, when its Lithium-ion battery factory starts operation.

The order book position of Rajesh Exports Ltd, as of  30th June, 2024 is a whooping Rs.7,02,564 million.

US Dollar Impact on Gold Prices and Rajesh Exports: Gold, being globally priced in USD, often becomes cheaper when the dollar weakens. With the U.S. cutting rates, the dollar is expected to fall, which makes gold more affordable for international buyers. This can boost demand for gold, especially in emerging markets, which could benefit Rajesh Exports, both as a gold refiner and exporter.

Rajesh Exports’ business, which processes 35% of the world’s gold, stands to gain from higher gold consumption as the metal becomes more accessible. Additionally, a weaker dollar could also ease cost pressures on the company’s export operations, further helping its profitability.

Diversification into Lithium-Ion Battery Manufacturing: One of the key future growth avenues for Rajesh Exports is its planned foray into the lithium-ion battery market. Under the PLI (Production Linked Incentive) scheme, the company is setting up a 5 GWh lithium-ion battery manufacturing facility. The plant is expected to be operational by 2025, adding a significant new revenue stream to the company’s existing gold business.

Rajesh Exports Limited’s exciting venture into advanced technology energy solutions, gained significant traction through a Tripartite Agreement with the Ministry of Heavy Industries (Government of India), the Department of Industries and Commerce (Government of Karnataka), and ACC Energy Storage Pvt Ltd. Selected as one of three successful participants in the Rs.18,100 crore PLI Scheme for Advanced Chemistry Cells, REL has established a 100% subsidiary, ACC Energy Storage, to manufacture lithium-ion cells for batteries. The agreement includes assurances of support from both the central and state governments for the establishment of a 5 GWh Factory, with a customised incentive package from Karnataka. Last year's, Mr.Rajesh Mehta emphasised the company’s commitment to providing clean and green energy solutions, aiming to position REL as a global leader in advanced energy storage technology while continuing its legacy in the gold business.

The diversification into energy storage solutions is strategically important, as the demand for batteries—driven by electric vehicles (EVs) and renewable energy—continues to rise both in India and globally. By 2025, when production begins, Rajesh Exports could see substantial new revenue from this sector, helping to offset any volatility in the gold market.

Expanding Retail Presence:  In addition to its gold refining and export business, Rajesh Exports has expanded into gold retail through its ‘Shubh Jewellers’ brand. The company currently operates 82 retail outlets across Karnataka, catering to growing domestic demand for branded and affordable gold jewelry.

While this segment is relatively small compared to the company’s global operations, it provides steady domestic revenues and a hedge against volatility in international markets. The potential for further expansion in this segment could be a positive long-term driver of growth.

Recapitulation:

💢 Good Sequential Improvement: The June 2024 results show slight recovery compared to the March 2024 quarter, indicating resilience in a challenging global environment. However, caution is needed as year-over-year performance has not been strong.

💢Dollar Weakness Benefits Gold Consumers: With the U.S. cutting rates, the weakening dollar could lead to increased gold demand, which would benefit Rajesh Exports’ core business in gold refining and exporting. This could help improve margins and revenue in future quarters.

💢Lithium-Ion Battery Business: The upcoming lithium-ion battery plant, expected to start production in 2025, presents a new and exciting revenue stream. With the global push towards electric vehicles and renewable energy, this venture could significantly boost Rajesh Exports’ topline in the years to come.

💢Expanding Retail Footprint: The company’s network of 82 retail stores in Karnataka offers a stable domestic revenue stream. The retail expansion adds another layer of diversification to the business.

Caveat -- A Matter of Governance: It is a concerning reality that, of late, the promoters of Rajesh Exports Ltd. have adopted an uncooperative, careless, and somewhat mischievous attitude towards shareholders. This shift in their demeanor has grown increasingly hostile, painting a picture far from the ideal of corporate governance. For a company that prides itself on being the largest gold refiner in the world, with an impressive order book as of June 30, 2024, such behavior is not only unexpected but detrimental to its corporate ethos.

Even more alarming is the company's recent practice of submitting quarterly results to the BSE and NSE without including a valid telephone number—a glaring oversight that raises red flags. This, in my view, is a blatant violation of the disclosure norms set by SEBI, and it casts a shadow on corporate transparency. The fact that such omissions are allowed to pass unchecked by the stock exchanges is both perplexing and troubling.

What's more concerning is that Rajesh Exports is not alone in this regard. According to my observation, a significant number of listed Indian companies seem to engage in similar questionable practices, which undermines the integrity of the market.

As a dedicated market participant, I sincerely urge the Indian Stock Exchanges, along with SEBI, to ensure that all companies adhere to basic governance standards. At the very least, companies should provide a valid address and telephone number with the documents they submit. This is not just a formality; it is a fundamental expectation of transparency and accountability in the financial markets.

Why 2025 could be the tentative Year For Commencement of Operations of the Battery Plant?

We know from above that Rajesh Exports is setting up a 5 GWh lithium-ion battery plant in Karnataka, under the Indian government's Production Linked Incentive (PLI) scheme. The project is expected to use advanced chemistry cells, and Rajesh Exports has established a subsidiary called ACC Energy Storage to oversee the construction and operation of the facility.

Although specific completion dates have not been officially confirmed as Rajesh Mehta and his team went mute since more than a year, the timeline aligns with the government's broader objectives for battery storage, which aim for completion within the stipulated time under the PLI guidelines. Also, given the scale and complexity of such projects, including the PLI support, the plant could take a few years to become fully operational. 

It is to be noted that the PLI (Production Linked Incentive) scheme for Advanced Chemistry Cell (ACC) batteries, which includes Rajesh Exports' 5 GWh lithium-ion battery plant, requires participants to complete their projects within a specific timeline. According to the PLI guidelines, the manufacturing facilities should be completed and production started within two years from the award of the incentive, with an additional performance period of five years after that. This means that companies need to start production by 2025 to meet the requirements of the scheme. 

Attractive Investment Outlook for Rajesh Exports: As the clean energy sector gains momentum in India, Rajesh Exports stands out as a compelling investment opportunity. Recent developments surrounding the company's lithium-ion battery manufacturing facility highlight its potential for growth and market leadership.

On June 3, 2024, The Business Standard reported that Indian government is intensifying efforts to enhance testing capabilities for advanced chemical cells (ACC) as part of its Production-Linked Incentive (PLI) scheme. This initiative is particularly significant for key beneficiaries, including Rajesh Exports, Ola Electric Mobility, and Reliance New Energy Ltd., all of which are approaching the two-year deadline to operationalize their manufacturing facilities.

Incidentally, Rajesh Exports signed its contract for establishing a lithium-ion battery manufacturing plant under the PLI scheme in July 2022. With the deadline looming, the urgency for the facility's completion is paramount. 

The groundwork for this project however began with an official announcement in January 2023, when Rajesh Exports entered into a tripartite agreement with the Ministry of Heavy Industries and the Karnataka government to set up a 5 GWh lithium-ion cell factory in Karnataka. This strategic investment underscores Rajesh Exports' commitment to contributing to India's burgeoning clean energy landscape.

The government's recent push to ramp up testing capabilities is crucial for ensuring that the ACC batteries produced meet rigorous safety and performance standards. The Ministry of Heavy Industries has been proactive in encouraging testing agencies like iCAT and ARAI to secure accreditation from the National Accreditation Board for Testing and Calibration Laboratories (NABL). This step not only enhances the credibility of the testing process but also assures investors of the reliability of Rajesh Exports' products in the electric vehicle and energy storage markets.

As Rajesh Exports nears its two-year deadline, the readiness of its manufacturing plant is likely to influence stock prices positively. Increased enthusiasm in India's clean energy and electric vehicle sectors further amplifies this potential. The enhanced testing infrastructure will boost confidence in the quality of Rajesh Exports' ACC batteries, solidifying its market position.

The approaching deadline signifies that production is on the cusp of becoming fully operational. This pivotal moment for Rajesh Exports could trigger a notable uptick in its stock price, reflecting heightened investor confidence as the company enters the ACC battery market.

In summary, Rajesh Exports is poised to benefit immensely from the government's initiatives aimed at bolstering testing infrastructure. The ability of its ACC batteries to meet stringent quality and safety standards will not only enhance market confidence but also create new opportunities in the electric vehicle and energy storage sectors. 

This development fortifies Rajesh Exports' competitiveness in India's rapidly evolving clean energy landscape, aligning seamlessly with the country's broader objectives for sustainable energy solutions.

Investors should take note: as the deadline approaches, Rajesh Exports could emerge as a key player driving growth in the clean energy sector, making it an attractive buy for those looking to capitalize on the future of sustainable energy.

Conclusion: At the CMP of Rs. 283.60, Rajesh Exports offers a high - risk - high - gain opportunity with 2 to 3 years perspective (Like my earlier recommendations: Zomato Ltd at Rs.53, Reliance Infrastructure ~Rs.100, Wockhardt Ltd at Rs.170, Premier Explosives Ltd at Rs.28/29, P C Jewelers Ltd at Rs.27/29, etc)

The weakening U.S. dollar and growing demand for gold could provide a near-term boost, while the company’s foray into lithium-ion battery manufacturing offers significant long-term growth potential.

Investors looking for a diversified company with exposure to both traditional (gold) and future-ready (lithium-ion batteries) sectors may find Rajesh Exports an interesting pick. 

Also, as the company navigates the complexities of global demand for gold and the execution of its battery project, it’s crucial to keep an eye on its financial performance in the coming quarters.

Finally, while the June 2024 quarter showed some improvement and it still has a humongous order book position, challenges persist, including the management issues and lack of any information from the company's end since the beginning of last year.

It is therefore essential to approach the stock with realistic expectations and with cautionary visions.