Short Call | Tata Chemicals, Lupin, TTK Healthcare, EV battery wars rule the markets

Wealthy investors are looking to average their losses in the hope that things will get better shortly.

“When things go badly, people become cautious. Their caution causes things to go well, and when things go well, they become incautious. That's a forever cycle.” - Howard Marks

Foreign funds have turned net sellers since the last couple of trading sessions, but that does not appear to be a big worry at the moment. Midcap stocks continued to do well in a bearish market for the second day in a row, indicating that wealthy investors have begun sniffing around for bargains, or maybe, looking to average their losses in the hope that things will get better shortly.

Tata Chemicals

Till October last year, Tata Chemicals was a story about soda ash prices continuing to rise steadily in the foreseeable future. That narrative has come under a cloud. On Monday, the company cut prices by 3-4 percent in response to continuously falling soda ash prices in China. Reports suggest huge capacity addition of soda ash in Inner Mongolia from May 2023.

Kotak Institutional Equities expects Tata Chemicals’ Q4 numbers to be strong but is not so sure about the second half of 2023. After a blowout performance in the June quarter of last year, Tata Chemicals’ quarterly net profit and gross operating margins have fallen two quarters in a row. Add to that concerns of oversupply, the rerating story may have run its course for the time being.

Lupin

The stock was the biggest gainer in the pharma pack on Monday, surging 6 percent on massive trading volumes. Bulls’ enthusiasm is surprising considering that the company is still grappling with issues at its Pithampur plant following the observations by the US FDA. Brokerage firm Nuvama has said that three of the ten observations were serious and another three moderately serious.

It expects the US regulator to issue an Official Action Indicated (OAI) classification shortly , which means that violations found during the inspection are serious enough to compromise the safety, efficacy, or quality of products manufactured there.  Of the market is betting that the company may shortly have some good news on the launch of the generic version of anti-asthma drug Spiriva. Can that move the needle for the stock?

“The generic will make a big difference to the company's earnings, but the market already seems to have factored it,” Vibha Ravi, senior editor, Citeline, told Short Call. “During the last earnings call, the management had said the target action date should be in April minus an inspection and July if it is conducted.  Lupin has first to file status for generic Spiriva and the drug was to be launched by 31 March this year but a Complete Response Letter from FDA delayed it.”

TTK Healthcare

The stock has been on a tear since mid-March, climbing 34 percent. Sunil Singhania-run Abakkus picking up 2.46 lakh shares on March 24 appears to have got many HNI traders interested in the stock. Two weeks later the company said it was thinking of delisting its shares, and yesterday it fixed April 20 as the date for considering the proposal.

Why?

The company says its long term its long-term plan includes portfolio restructuring, new products and businesses with different risks and funding needs, and “does not want to subject public shareholders to uncertainties.”

The stock has been flat since the company first signalled its intent to delist on April 6. Given low liquidity, it is not an easy stock to get out. Those who jumped in hoping for a quick profit would now be hoping that the discovered delisting price is at a significant premium to their acquisition price.

But they need not lose heart. In the past, companies like Blue Dart Express and Allcargo Logistics announced delisting plans, but never got around to doing it. A more recent example is Vedanta, which by the way has been trying to shake off public shareholders for a couple of decades now.

Crude dynamics

Four major oil exchange traded funds have seen the longest run of outflows in eight months, with $211 million withdrawn last week alone, reports oilprice.com. Market is divided on whether the outflows are part of routine profit taking or reflect a lack of confidence in crude prices sustaining at higher levels. A section of analysts feel that OPEC may have been compelled to cut prices as it sees demand weakening going ahead.

Lithium rush

Argentina exported $233 million worth of lithium in the March quarter, 133 percent more than what it exported during the same period last year, reports mining.com. Top destinations were China (31 percent), Japan (31 percent), US (13 percent) and South Korea (12 percent), the report said.

Australia, Chile and China have roughly 90 percent of the world’s lithium stores, with Australia accounting for around 50 percent of global production. Lithium prices have halved in over the last five months, but production has soared as demand for electric vehicles continues to rise.

EV battery wars

Indonesia is urging Volkswagen AG to invest in its electric vehicle industry to counter the dominance of Chinese companies over its nickel reserves, reports Bloomberg.

Why?

“Indonesian) President Joko Widodo’s vision of building an end—to-end EV supply chain onshore is starting to take shape with billions of dollars in investments pouring in to turn the country’s nickel riches into batteries. But the industry is dominated by Chinese companies that have moved quickly to put in the funds and the technology needed to unlock the reserves, placing Indonesian products at risk of being left out of US and European markets.”