Business Strategy and Outlook
Newcrest accounts for less than 3% of global mine production and is a price taker. Returns have improved post the expensive acquisition of Lihir, but are likely to remain below the company’s cost of capital for the foreseeable future.
Operations are focused on the Asia-Pacific region, with production split roughly evenly between Australia and Papua New Guinea, or PNG, with a smaller contribution from the Americas. The company is a long-established low-cost producer, save a cost spike in 2013, which subsequently abated.
Current management was installed in 2014 and brought a focus on cost efficiency, capital discipline and optimisation. Under Sandeep Biswas,Newcrest has been a much more reliable producer and has delivered incremental improvements at its operations, boosting throughput and lowering unit costs, particularly at Lihir and Cadia. Newcrest has a solid exploration record. Excluding acquired Lihir ounces, gold equivalent reserves increased from 3.4 million ounces in 1992 to 78 million ounces in December 2017, while resources increased from 8.5 million ounces to 144 million ounces. Gold equivalent resources were added at less than AUD 20 per ounce. Reserves at the end of 2020 were 49 million ounces of gold and 6.8 million metric tons of copper.
Financial Strength
The company’s balance sheet is sound. The company ended June 2021 with modest net cash of USD 0.2 billion. We expect net debt to grow to end fiscal 2022 to about USD 1.5 billion with the acquisition of Pretium Resources and elevated capital expenditure at Cadia, Lihir and with the development of Havieron and Red Chris. However, despite the increase, we think the balance sheet is still sound. We forecast debt/EBITDA to peak slightly to around 0.7 in fiscal 2022 before declining gradually through the remainder of our forecast period.Newcrest has long-dated corporate bonds totaling USD 1.65 billion. The bonds mature in fiscal 2030, 2042, and 2050 with maturities of USD 650 million, USD 500 million, and USD 500 million, respectively. At the end of fiscal 2021, the company had USD 1.8 billion of cash and USD 1.6 billion of undrawn debt.
Bulls Say
- Gold companies can behave countercyclically. They provide a hedge to inflation risk and tend to offer some benefit in times of market uncertainty. Gold can gain from continued money printing and/or if there is a flight to safety.
- Newcrest’s reserves are massive and mine life is long, offering leverage to upwards movements in the gold price.
- Newcrest owns several world-scale deposits in Cadia, Telfer, Lihir, and Wafi-Golpu. Large deposits typically bring significant exploration upside and expansion options.
Company Profile
Newcrest is an Australia-based gold and, to a lesser extent, copper miner. Operations are predominantly in Australia and Papua New Guinea, with a smaller mine in Canada. Cash costs are below the industry average, underpinned by improvements at Lihir and Cadia. Newcrest is one of the larger global gold producers but accounts for less than 3% of total supply. Gold mining is relatively fragmented.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
Approach
The investment philosophy is to optimise returns without taking excessive duration or credit risk. with most performance is driven by selecting securities offering attractive yields within the AAA rated segment. Expectedly, the investment approach relies on fundamental research. It entails combining qualitative aspects with quantitative analysis. This in turn helps the managers to determine issuer exposure they can take, thereby acting as a risk-management tool for the individual portfolio and the fund company. The investment team lays more emphasis on risk control, thereby focusing on balancing safety, liquidity, and return.
Portfolio
The fund’s investment mandate is to invest at least 80% of assets in corporate bonds having a rating of AA+ and above. Anupam Joshi’s emphasis on liquidity and risk control is borne out by the fund’s portfolio, where almost 100% of assets are invested in AAA or equivalent rated securities. Papers issued by public-sector undertakings such as NABARD, PFC, and REC continue to find a place in the portfolio. From the private sector, established names such as HDFC and Tata Sons, in which the manager has confidence, feature in the portfolio. On the duration front, the team believes interest rates will move up from where they are currently, but it will be a more gradual increase. In line with the same, the modified duration of the fund has been reduced in the past year to 2.72 years in November 2021 from 3.35 years in October 2020. Finally, Joshi will build cash when there aren’t attractive investment opportunities and to ride out periods of volatility and uncertainty.
People
Anupam Joshi joined HDFC Mutual Fund in October 2015 and has been managing this fund since then. Earlier, he was associated with IDFC Mutual fund as portfolio manager from 2008 till his exit from the fund house.
Performance
Under Anupam Joshi (October 2015-November 2021) the fund’s direct share class has clocked an annualised return of 8.45%, outperforming the category average (6.51%) and featuring in the top performance quartile. Under the difficult environment of 2020, the fund clocked a return of 12.09%, outperforming the category average of 9.10%. In 2021, too, the fund’s direct share class has delivered a top-quartile performance. The fund is also a top-quartile performer over the trailing one-, three- and five-year periods.
About the fund
The scheme seeks to generate income/capital appreciation through investments predominantly in AA+ and above rated corporate bonds. Its benchmark against NIFTY Corporate Bond Index. The investment strategy is well-defined for this fund, which also paves way for its effective and predictable execution. It’s a low-risk, short- to medium-duration strategy that works on the philosophy of optimising returns for investors without exposing them to excessive duration or credit risk. Therefore, investments are made only in AAA rated securities and the duration is maintained within a range of 1.0 to 4.0 years.
Joshi brings in his own style of investing while managing this fund. For instance, earlier the fund was managed with an approach of holding majority of investments till maturity, thus allowing a linear roll-down in its average maturity. Joshi prefers managing the fund more actively. The strategy has its limitations: In times when credit markets are buoyant, the fund may find it hard to match peers that, within the defined mandate of the category, can go down the credit curve. The fund may also struggle against peers that follow a more dynamic approach to duration management, compared with Joshi’s measured approach, during fast changing interest-rate scenarios.
(Source: Morningstar)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
The Rs 700 crore- IPO by the API manufacturer, Supriya Lifescience was issued from December 16 to 20, 2021. The issue price was in the range of INR 265-274 per equity share. The Book Running Lead Managers were Axis Capital Limited and ICICI Securities Limited.
Overall, the issue received bids for 1,03,89,57,138 shares against 1,45,28,299 shares on offer, according to NSE data. The IPO comprised a fresh issue of up to Rs 200 crore and an offer for sale of up to Rs 500 crore.
The subscription by QIBs was 31.83 times, NII category was subscribed 161.22 times, Retail investors subscribed 56.01 times, thereby making the entire subscription 71.51 times.
The pre-issue holding of promoters was 99.98%, which after issue is 68.24%. The scrip was listed on secondary market at INR 425 on BSE with premium of 55.11% and on NSE it was listed at INR 421.
Proceeds of the issue would be utilized for funding capital expenditure requirements of the company, repayment and/ or pre-payment, in full or part, of certain borrowings availed by the company and general corporate purposes.
Supriya Lifescience looks forward to achieve continuous growth in coming years on account of strong fundamentals. Since past three to four years it has bee growing at the CAGR of 18%. The company has managed to maintain 40% EBITDA margin, which is due to their focus on penetrating into more regulated markets where we are able to get a much better average selling price for the existing products. They look forward to add more APIs into existing therapeutic categories apart from adding new therapeutic categories in their basket, like decongestants, anti-gout, xanthine derivatives and more vitamin derivatives. They wish to focus more on anti-anxiety therapies.
Supriya Lifescience envisages to expand across newer geographies and focus more on regulated markets like North America, Japan and China. Currently, twelve of the existing products are backward integrated and contribute about 65% of the total revenue and it continues to be their strategy for further capacity expansion and product developments as well. About Rs 92 crore of the amount that will be raised would be utilised for capacity enhancements by adding a new production block which would add further capacity.
About the company:
Supriya Lifescience is a manufacturer and supplier of active pharmaceutical ingredients (APIs) with a focus on research and development. As of October 31, it had niche product offerings of 38 APIs focused on diverse therapeutic segments such as antihistamine, analgesic, anaesthetic, vitamin, anti-asthmatic and antiallergic. The API maker has consistently been the largest exporter of Chlorpheniramine Maleate and Ketamine Hydrochloride from India, contributing to 45-50 per cent and 60-65 per cent, respectively, of the API exports from India, between fiscal 2017 and 2021.
(Source: economictimes.com)
General Advice Warning
Any advice/ information provided is general in nature only and does not take into account the personal financial situation, objectives or needs of any particular person.
