Quarterly flipbook - HDFC securities

India Equity Strategy

Quarterly flipbook

Quarterly flipbook:Q3FY22–Demand recovery sustaining but

input cost inflation gets more pronounced, impacting

profitability

Q3FY22 earnings season saw an overall in-line performance with divergences across

sectors and companies. Aggregate revenue/PAT grew by 29.7%/24.8% YoY across the

HSIE coverage universe (~200 stocks), while they had a two-year CAGR of

13.5%/21.3%. Our coverage universe saw strong growth in the segments of energy,

metals, chemicals, consumer discretionary, insurance & capital markets and large

banks, while industrials, cements and pharmaceuticals were a disappointment. IT

continued its steady growth. A common thread connecting most of the management

commentaries was that industries are facing unprecedented input cost inflation and

pricing actions are being implemented in order to protect margins. However, price

hikes are being taken in a calibrated manner, to prevent the momentum in demand

recovery from being derailed. Rising crude oil poses an additional threat to already

elevated raw material prices.

Varun Lohchab [email protected]

+91-22-6171-7334

Amit Kumar,CFA [email protected]

+91-22-6171-7354

Atishray Malhan [email protected]

+91-22-6171-7363

25 February 2022 Strategy

India Equity Strategy

d

HSIE Research is also available on Bloomberg ERH HDF <GO> & Thomson Reuters

Quarterly flipbook:Q3FY22–Demand recovery sustaining but input

cost inflation gets more pronounced, impacting profitability

Q3FY22 earnings season saw an overall in-line performance with divergences

across sectors and companies. Aggregate revenue/PAT grew by 29.7%/24.8% YoY

across the HSIE coverage universe (~200 stocks), while they had a two-year CAGR

of 13.5%/21.3%. Our coverage universe saw strong growth in the segments of

energy, metals, chemicals, consumer discretionary, insurance & capital markets

and large banks, while industrials, cements and pharmaceuticals were a

disappointment. IT continued its steady growth. A common thread connecting

most of the management commentaries was that industries are facing

unprecedented input cost inflation and pricing actions are being implemented in

order to protect margins. However, price hikes are being taken in a calibrated

manner, to prevent the momentum in demand recovery from being derailed.

Rising crude oil poses an additional threat to already elevated raw material prices.

~48% of our coverage stocks have beaten earnings estimates (vs. ~57% in Q2FY22).

Overall, the slight beat for the coverage universe (2.7%) was led by energy and

metal sectors, given their high combined weightages (~35%) in the aggregate

profit pool. Acknowledging the ground reality that input price inflation may take

longer than desired to subside, most of the sectors witnessed earning cuts with the

exception of large banks, technology, chemicals, energy, metal, insurance, and

capital markets. Consequently, overall earnings estimates were largely

maintained. Earnings upgrades were led by commodities and energy while

consumption faced margin headwinds. For the HSIE coverage universe, FY22/FY23

earnings growth stands at 31.7%/21.2%, leading to doubling of earnings over FY20-

23, post 28% YoY earnings growth in FY21. However, FY23 earnings could be at

risk, as we feel the stronger earnings momentum expected in FY23 has advanced

to FY22. Furthermore, Nifty consensus FY22 EPS remains largely unchanged. Nifty

is trading at ~22.9x FY22 EPS and ~20.6x FY23 EPS.

Sector highlights: Consumer staples demand remained muted due to subdued rural

recovery and witnessed price-led revenue growth. Consumer discretionary revival,

on the other hand, continued, given the wedding season and opening up of

shopping centres (after the unlock). Most large banks demonstrated asset quality

improvements, lower slippages, and higher recoveries that led to impressive PPOP

growth. Consequently, lending accelerated, resulting in promising credit growth.

Technology companies sustained their ride on cloud migration and digital adoption

wave, but unprecedented attrition persisted. Product price erosion in developed

markets impacted growth of pharma, while chemicals grew, led by higher price

realisations. Higher crude realisations helped growth of upstream oil & gas

companies, but city gas companies faced headwinds due to higher spot gas prices.

Higher presales growth and reducing leverage of realty companies adds to the

optimism prevailing in the housing and building materials sector. However, cement

companies faced difficulty in passing costs to consumers due to moderate demand in

the quarter. Infrastructure order books remained healthy. Power and auto sectors

continued their green journey with increased focus on renewable and EV.

Our preferred sectors continue to be large cap banks and IT, industrial & real

estate, insurance, and capital markets, while we remain underweight on

consumption (staples, discretionary, and autos), NBFCs, and small banks.

Q3FY22 results snapshot: Overall, it was an encouraging quarter, indicating a

sustained earnings momentum. In terms of stocks, notable earnings upgrades were

visible in CAMS, Apollo Hospitals, Navin Fluorine, V-mart, Kotak Bank, Dr Reddy’s

Lab, Dalmia Bharat, Jubilant Foodworks, Cadila, Shree Cement, and Tata Power.

Model portfolio: We maintain bias towards economy-facing and value sectors.

Stocks added/weight increased Stocks removed/weight reduced

Axis Bank, Cipla, ITC, Cummins India Radico Khaitan, CDSL, Ajanta Pharma

Q3FY22 deviation in estimates in comparison

to previews

Sector Revenue PAT

Autos -0.5% -3.5%

Banks and NBFCs 0.6% 5.1%

Insurance -3.0% -0.7%

Capital Markets -4.2% -3.9%

Consumer- Staples 6.8% 1.6%

Consumer Discretionary

(ex-Autos) -0.1% -6.7%

Industrials (Infrastructure+

Cap Goods+ Logistics) 0.3% -11.7%

Real Estate 3.2% 46.5%

IT and Exchanges 1.1% -0.4%

Energy (Oil & Gas) 2.3% 6.2%

Cement and Building

Materials -0.9% -19.0%

Chemicals 14.1% 44.4%

Pharma -2.4% 3.4%

Power/Utilities 4.9% 2.0%

Aviation 33.0% 45.5%

Metal 4.0% 3.6%

Total 1.9% 2.7%

Source: Bloomberg & HSIE Research

Sectoral Change in PAT Estimates in

comparison to Q2FY22

Sector FY22E FY23E

Autos -20.3% -3.6%

Banks and NBFCs 4.4% 1.8%

Insurance 5.8% 0.6%

Capital Markets 6.5% -0.2%

Consumer- Staples -0.6% -0.1%


(ex-Autos) -0.8% 1.2%

Industrials (Infrastructure+

Cap Goods+ Logistics) -5.1% -5.1%

Real Estate -0.2% 0.6%

IT and Exchanges 1.5% 1.4%

Energy (Oil & Gas) 0.8% -2.6%

Cement and Building

Materials -8.1% -6.5%

Chemicals 10.8% 2.4%

Power -0.5% -0.2%

Pharma -1.4% -2.3%

Aviation 14.3% -2.7%

Metal 4.4% 4.0%

Total 0.6% -0.4%

Source: HSIE Research

Varun Lohchab

[email protected]

+91-22-6171-7334

Amit Kumar,CFA

[email protected]

+91-22-6171-7354

Atishray Malhan

[email protected]

+91-22-6171-7363

P a g e | 2

Strategy

Result Scorecard- Quarterly Snapshot

HSIE Coverage

(INR Bn)

Q3 FY22 Preview Estimates Q3 FY22 Actuals Q3 FY21 Actuals Deviation

Revenue EBITDA PAT Revenue EBITDA PAT Revenue EBITDA PAT Revenue EBITDA PAT

Q3FY22 E Q3FY22 E Q3FY22 E Q3FY22 A Q3FY22 A Q3FY22 A Q3FY21 A Q3FY21 A Q3FY21 A Q3FY22 Q3FY22 Q3FY22

Autos 1560 182 52 1552 181 50 1577 230 95 -0.5% -0.7% -3.5%

Maruti Suzuki

India 233 15 9 233 16 10 235 22 20 0.0% 2.1% 14.2%

Bajaj Auto 90 14 13 90 15 14 89 17 17 0.5% 9.4% 11.2%

Mahindra &

Mahindra 237 46 20 236 45 18 216 25 7 -0.4% -2.5% -7.2%

Eicher Motors 30 7 5 29 6 5 28 7 5 -3.3% -13.7% -15.3%

Hero MotoCorp 80 10 7 80 10 7 98 13 10 0.1% 2.0% 2.0%

Tata Motors 727 68 -10 714 68 -15 757 121 29 -1.8% -0.4% NM

Ashok Leyland 67 7 -1 66 7 -1 60 7 0 -0.5% -1.8% 8.9%

Escorts 19 3 2 20 3 2 20 4 3 3.3% -3.8% -9.7%

Subros 6 0 0 5 0 0 6 1 0 -7.1% -14.2% -49.7%

Endurance 19 3 1 19 2 1 20 4 2 -0.6% -21.0% -23.8%

Amara Raja 23 3 1 24 3 1 20 3 2 2.4% 3.7% 0.6%

Bharat Forge 17 4 3 24 5 6 17 3 -2 42.7% 13.6% 128.4%

Sundaram

Fasteners 13 3 1 12 2 1 11 2 1 -8.3% -24.6% -27.6%

Banks and

NBFCs 797 576 280 802 567 294 712 529 186 0.6% -1.7% 5.1%

ICICI Bank 122 107 61 122 101 62 99 88 49 0.7% -4.7% 1.6%

Kotak Mahindra

Bank 41 32 21 43 27 21 39 29 19 5.0% -16.6% 2.6%

Bajaj Finance 45 36 21 47 39 21 34 29 11 5.5% 7.4% 0.6%

State Bank of

India 316 189 81 307 185 84 288 173 52 -2.9% -1.9% 4.5%

Axis Bank 81 62 31 87 62 36 74 61 11 6.2% -1.1% 17.0%

IndusInd Bank 38 33 13 38 33 12 34 30 8 0.4% -0.9% -7.4%

AU Small

Finance Bank 8 5 3 8 5 3 6 9 5 -0.9% -5.3% 14.0%

Shriram Trans

Finance 22 17 8 23 19 7 21 17 7 0.7% 10.1% -17.5%

Cholamandalam

Investment &

Finance

Company

14 10 6 14 10 5 13 10 4 0.0% -1.6% -6.4%

Mahindra &

Mahindra

Financial

15 11 5 15 11 9 14 10 -3 0.6% -3.0% 62.6%

Federal Bank 15 10 5 15 9 5 14 10 4 -0.7% -8.1% -3.4%

LIC Housing 13 11 5 15 13 8 13 12 7 10.5% 16.6% 51.0%

City Union

Bank 5 4 2 5 4 2 5 5 2 -0.9% -9.6% 12.1%

RBL Bank 10 8 2 10 6 2 9 8 1 2.7% -23.3% -6.2%

DCB Bank 3 2 1 3 2 1 3 3 1 2.3% -3.3% -8.8%

Karur Vysya

Bank 7 4 1 7 4 2 6 3 0 3.2% 8.5% 27.2%

Indostar Capital

Finance 2 1 0 1 1 0 1 1 0 -13.9% -27.5% -70.5%

REPCO Home

Finance 2 1 1 1 1 0 1 1 1 -6.0% -6.4% -58.9%

UJJIVAN SFB 4 2 -1 5 1 0 4 2 -3 10.1% -12.7% 61.7%

UJJIVAN

Financial

Services

0 0 0 0 0 0 0 0 0 NM NM NM

CREDAG 4 2 1 4 3 1 3 2 -1 9.0% 13.1% 49.8%

Bandhan Bank 21 17 8 21 20 9 21 19 6 2.7% 14.4% 4.0%

SBI Cards 10 11 4 10 11 4 9 9 2 4.6% 4.8% -12.1%

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Strategy

HSIE Coverage

(INR Bn)




Insurance 287 -25 32 278 -40 31 249 -20 34 -3.0% 59.0% -0.7%

SBI Life 45 NA 12 46 NA 12 35 NA 8 0.7% NM -2.1%

ICICI

Prudential 19 NA 5 19 NA 5 17 NA 4 3.1% NM 3.9%

GIC

Reinsurance 94 -11 6 90 -24 1 92 -10 9 -4.8% 111.2% -75.0%

ICICI Lombard 32 -1 3 33 -3 3 26 0 3 3.5% 94.1% 3.6%

New India

Assurance 81 -12 1 74 -13 6 67 -10 6 -7.8% 7.4% 302.3%

Max Financial 16 NA 4 16 NA 4 12 NA 4 1.5% NM -9.9%

Capital

Markets 32 16 12 31 16 11 23 12 11 -4.2% 2.6% -3.9%

Nippon Life

India 3 2 2 3 2 2 3 1 2 -2.5% 7.2% 3.6%

Angel One 6 2 1 4 2 2 2 1 1 -19.5% 11.8% 23.1%

ICICI Securities 8 5 3 8 5 4 6 4 3 8.0% 11.7% 10.2%

Motilal Oswal

Financial

Services

10 4 3 9 4 2 8 5 3 -5.3% -4.3% -24.1%

UTI AMC 3 2 2 3 1 1 2 1 1 -9.9% -21.4% -29.1%

CAMS 2 1 1 2 1 1 2 1 1 0.4% 4.2% 3.6%

Consumer-

Staples 485 125 94 518 129 96 445 115 87 6.8% 3.4% 1.6%

Hindustan

Unilever 128 31 22 131 33 23 119 29 20 2.5% 5.3% 5.5%

ITC Ltd 140 49 40 168 51 42 128 43 37 20.3% 5.0% 4.6%

Dabur India 29 6 5 29 6 5 27 6 5 -0.1% -1.3% -8.3%

Britannia

Industries 34 6 5 36 5 4 32 6 5 3.6% -7.7% -22.2%

United Spirits 28 4 3 29 5 3 25 4 2 2.9% 11.6% 0.6%

Nestle 37 9 6 37 9 6 34 8 5 0.0% 2.9% 0.6%

Marico 24 4 3 24 4 3 21 4 3 0.5% 1.8% 0.2%

Colgate

Palmolive 13 4 3 13 4 3 12 4 2 -1.1% 0.1% -1.1%

Emami 10 3 2 10 3 3 9 3 3 -2.0% 2.1% 10.2%

GCPL 33 7 5 33 7 5 31 7 5 -0.5% -1.0% -3.6%

Radico Khaitan 8 1 1 8 1 1 7 1 1 -2.6% -11.3% -13.9%

Consumer

Discretionary

(ex-Autos)

504 77 49 503 74 46 409 66 41 -0.1% -4.5% -6.7%

Avenue

Supermart 91 9 6 91 9 6 74 7 5 -0.1% -0.2% -0.7%

Titan Co 104 14 9 100 14 10 76 8 5 -3.3% 4.6% 6.7%

Havells India 36 5 4 37 4 3 32 5 3 2.6% -16.9% -15.7%

Trent 10 2 1 13 3 1 7 2 1 36.1% 45.9% 88.0%

Jubilant

Foodworks 12 3 1 12 3 1 11 3 1 -3.5% -0.5% -0.9%

Voltas 20 2 1 18 2 1 20 1 1 -8.4% 1.5% -26.9%

Aditya Birla

Fashion 27 5 2 29 6 2 21 4 1 6.1% 7.6% 26.8%

Crompton

Consumer 14 2 2 14 2 1 13 2 2 -2.7% -6.0% -11.4%

Symphony 2 1 0 1 0 0 1 0 0 -20.5% -38.8% -40.6%

V-Guard 9 1 1 10 1 1 8 1 1 3.8% -19.7% -30.3%

V-Mart 7 1 1 7 1 1 5 1 0 5.2% -3.7% -28.6%

TCNS Clothing 3 1 0 3 1 0 2 0 0 3.0% 5.2% 0.3%

Shoppers Stop 11 2 1 10 2 1 7 1 0 -10.4% -22.4% -9.8%

Asian Paints 84 16 11 85 15 10 68 18 13 2.0% -6.2% -9.9%

Berger Paints 26 5 3 26 4 3 21 4 3 -3.0% -15.4% -16.6%

Kansai Nerolac 17 3 2 18 2 1 16 3 2 5.9% -17.5% -24.6%

P a g e | 4

Strategy

HSIE Coverage

(INR Bn)




Bata India 9 3 1 8 2 1 6 1 0 -11.3% -35.3% -48.7%

Relaxo

Footwears 8 2 1 7 1 1 7 1 1 -7.7% -20.5% -26.2%

TTK Prestige 7 1 1 7 1 1 7 1 1 -3.0% 1.7% -1.3%

Orient Electric 7 1 0 7 1 0 6 1 1 1.3% -7.4% -10.8%

Industrials

(Infrastructure+

Cap Goods+

Logistics)

691 87 41 693 82 36 632 84 44 0.3% -5.9% -11.7%

Larsen &

Toubro 399 46 23 396 45 21 356 43 25 -0.8% -2.0% -10.5%

Siemens 31 4 3 32 3 2 29 4 3 4.4% -11.3% -10.9%

Cummins India 16 2 2 17 3 2 14 2 2 9.7% 9.5% 21.3%

ABB India 19 2 1 21 2 2 17 1 1 10.6% -2.5% 13.2%

KEC

International 33 2 1 33 2 1 33 3 1 2.4% 4.9% 1.8%

Kalpataru

Power

Transmission

19 2 1 18 2 1 20 2 1 -2.4% -11.3% -9.6%

GR Infra 17 3 2 18 3 1 22 5 3 4.8% -12.5% -21.0%

PNC Infratech 17 2 1 15 2 1 13 2 1 -7.9% -9.9% -19.8%

Dilip Buildcon 25 4 1 22 0 -2 25 4 1 -10.3% -98.2% -426.2%

KNR

Constructions 7 1 1 8 2 1 7 1 1 11.4% 10.2% 4.3%

IRB

Infrastructure 13 7 0 13 7 1 15 7 1 -2.0% -1.5% 46.3%

Ashoka

Buildcon 11 1 1 11 1 1 10 1 1 -2.1% -6.4% -9.8%

Ahluwalia

Contracts 7 1 0 7 1 0 5 0 0 -3.7% -0.8% 5.8%

NCC 26 3 1 27 3 1 19 2 1 4.0% 4.6% -3.7%

PSP Projects 4 1 0 5 1 0 4 0 0 18.5% 40.6% 38.7%

HG Infra 10 2 1 9 1 1 7 1 1 -3.6% -3.2% -11.1%

JMC Projects 13 1 0 13 1 0 11 1 0 1.2% 5.8% 25.6%

Sadbhav

Engineering 4 1 0 3 0 0 6 1 0 -5.3% -23.8% -366.5%

Capacite

Infraprojects 4 1 0 4 1 0 3 1 0 4.4% -6.9% -29.4%

ITD

Cementation 9 1 0 10 1 0 8 1 0 17.4% -0.7% -11.2%

J Kumar

Infraprojects 10 1 1 10 1 1 8 1 0 1.7% 2.6% 3.9%

Real Estate 61 18 10 63 18 14 63 17 9 3.2% 2.8% 46.5%

DLF 15 5 4 15 5 6 15 5 4 3.4% 12.8% 42.7%

Oberoi Realty 9 4 3 8 3 5 8 4 3 -4.1% -22.9% 53.6%

Prestige Estates 13 3 1 14 4 1 18 4 1 3.8% 23.5% 78.1%

Brigade

Enterprises 7 2 0 9 3 1 6 1 0 24.2% 35.9% 411.0%

Sobha

Developers 7 1 0 7 1 0 7 1 0 -4.0% -13.3% 3.8%

Kolte Patil 3 1 0 2 0 0 2 0 0 -24.7% -49.1% -58.8%

Phoenix Mills 4 2 1 4 2 1 3 2 1 -4.6% 2.2% 23.1%

Godrej

Properties 1 0 0 3 0 0 2 -1 0 101.4% NM 15.9%

Mahindra

Lifespaces 1 0 0 0 0 0 1 0 0 -72.6% 344.6% 18.8%

IT and

Exchanges 1549 375 263 1566 372 262 1294 343 245 1.1% -0.7% -0.4%

Tata

Consultancy

Services

488 139 101 489 134 98 420 122 87 0.1% -3.1% -3.5%

Infosys 311 83 56 319 84 58 259 74 52 2.4% 1.5% 4.4%

HCL

Technologies 217 51 34 223 52 35 193 54 40 2.9% 2.7% 2.9%

P a g e | 5

Strategy

HSIE Coverage

(INR Bn)




Wipro 204 43 31 203 42 30 157 41 30 -0.6% -3.0% -2.7%

Tech Mahindra 114 21 15 115 21 14 96 19 13 0.4% -3.1% -6.5%

L&T Infotech 40 8 6 41 8 6 32 7 5 2.4% 4.0% 7.2%

L&T

Technologies 17 4 2 17 4 2 14 3 2 0.2% 3.4% 2.8%

Mphasis 31 5 4 31 6 4 25 5 3 1.9% 2.5% -0.7%

Mindtree 28 6 4 28 6 4 20 5 4 -0.6% 1.5% 13.2%

MCX 1 0 0 1 0 0 1 0 1 3.5% 7.5% -5.6%

Tata Elxsi 6 2 1 6 2 2 5 1 1 0.4% 11.1% 8.8%

Persistent 15 2 2 15 3 2 11 2 1 1.2% 3.8% 1.4%

Cyient 12 2 1 12 2 1 10 2 1 1.1% 3.6% 8.0%

TeamLease 16 0 0 18 0 0 13 0 0 7.5% 0.6% -13.7%

Sonata 17 1 1 19 1 1 14 1 1 8.5% -3.2% -1.4%

Zensar

Technologies 11 2 1 11 2 1 9 2 1 -0.7% 3.6% 3.6%

CDSL 2 1 1 2 1 1 1 1 1 -3.4% -5.1% -8.8%

BSE 2 1 1 2 1 1 1 0 0 -1.2% -0.4% -22.9%

IndiaMart 2 1 1 2 1 1 2 1 1 -1.5% -9.8% -16.6%

Tanla Platforms 9 2 1 9 2 2 7 1 1 -3.0% 5.6% 9.1%

Mastek 6 1 1 6 1 1 4 1 1 -0.2% -1.6% -1.6%

Energy (Oil &

Gas) 6146 750 421 6289 700 447 4070 521 320 2.3% -6.7% 6.2%

Reliance

Industries 1850 299 166 1850 297 204 1179 216 148 0.0% -0.7% 22.8%

Oil & Natural

Gas Corp 284 154 77 285 160 88 170 83 13 0.1% 3.6% 13.5%

Indian Oil Corp 1550 128 72 1668 99 59 1063 96 49 7.6% -22.7% -18.4%

Bharat

Petroleum Corp 960 49 28 1010 42 25 667 43 32 5.2% -13.6% -11.9%

GAIL India 271 40 28 258 42 33 155 19 15 -4.9% 5.7% 17.9%

Petronet LNG 110 9 6 126 17 11 73 13 9 14.2% 84.6% 100.2%

Indraprastha

Gas 23 3 2 22 5 3 14 5 3 -3.4% 49.9% 58.3%

HPCL 997 38 24 966 19 9 687 33 24 -3.1% -51.4% -63.4%

Gujarat Gas 46 7 5 51 2 1 28 6 4 12.0% -66.6% -73.8%

Gujarat State

Petronet 6 4 2 5 3 2 6 4 2 -15.2% -9.0% -9.0%

OIL India 40 17 11 37 13 12 21 -1 19 -6.0% -25.9% 14.4%

Mahanagar Gas 9 1 1 10 1 1 7 3 2 18.8% -29.2% -35.0%

Cement and

Building

Materials

438 89 42 434 72 34 412 97 50 -0.9% -18.5% -19.0%

UltraTech

Cement 132 29 13 130 24 12 123 31 16 -2.0% -17.0% -8.7%

Shree Cement 35 9 4 34 8 5 33 11 6 -3.3% -7.4% 15.8%

Ambuja

Cements 37 8 5 37 6 3 35 8 5 2.2% -26.2% -34.0%

ACC 43 8 5 42 6 3 41 7 5 -2.2% -32.4% -36.4%

Dalmia Bharat 27 5 1 27 4 1 27 7 2 2.1% -22.5% -31.9%

Nuvoco Vistas 23 4 0 22 2 -1 22 5 0 -5.9% -36.5% NM

Ramco Cements 15 4 2 15 2 1 13 4 2 1.4% -36.1% -52.4%

JK Cement 20 4 2 20 4 1 18 5 2 3.2% -3.4% -16.7%

Birla Corp 17 3 1 18 2 1 18 4 1 4.4% -21.4% -48.8%

Heidelberg Cem 6 1 1 5 1 0 6 1 1 -12.7% -43.0% -46.8%

Star Cement 6 1 1 6 1 0 4 1 1 -1.2% -30.3% -35.8%

JK Lakshmi

Cement 13 2 1 13 2 1 13 2 1 -2.5% -13.5% -21.3%

Orient Cement 7 1 1 6 1 0 6 1 1 -7.7% -9.8% -22.0%

Sagar Cements 3 0 0 3 0 0 4 1 0 0.1% -2.6% -28.8%

P a g e | 6

Strategy

HSIE Coverage

(INR Bn)




Deccan

Cements 2 0 0 2 0 0 2 0 0 8.4% 59.1% 75.9%

Supreme

Industries 21 4 3 19 3 2 18 4 3 -7.4% -11.6% -11.4%

Astral Limited 10 2 1 11 2 1 9 2 1 11.8% 5.6% 10.4%

Prince Pipe

Limited 6 1 1 7 1 1 5 1 1 9.9% 12.2% 14.5%

Kajaria

Ceramics 10 2 1 11 2 1 8 2 1 4.9% -9.1% -8.0%

Somany

Ceramics 6 1 0 6 1 0 5 1 0 -2.0% -15.9% -15.9%

Chemicals 101 22 14 115 28 20 76 18 12 14.1% 30.2% 44.4%

Vinati Organics 4 1 1 4 1 1 2 1 1 -6.9% -22.4% -10.6%

Navin Fluorine 4 1 1 4 1 1 3 1 1 -1.8% -0.8% -6.2%

Deepak Nitrite 17 4 3 17 4 2 12 3 2 3.5% -21.1% -17.4%

Galaxy

Surfactants 10 1 0 9 1 0 7 1 1 -7.0% 5.3% 7.8%

Alkyl Amines 4 1 1 4 1 0 3 1 1 -1.4% -26.6% -30.4%

Balaji Amines 5 1 1 5 1 1 4 1 1 1.0% -7.5% -7.8%

Aarti Industries 14 3 2 24 10 8 12 3 2 75.2% 203.2% 339.3%

SRF 31 7 4 33 8 5 21 5 3 8.8% 19.4% 20.2%

Fine Organic 4 1 0 5 1 1 3 0 0 25.1% 13.2% 13.3%

NOCIL 4 0 0 4 0 0 3 0 0 4.9% 3.6% -1.2%

Sudarshan

Chemical 6 1 0 6 1 0 5 1 0 8.0% 16.1% 36.3%

Neogen

Chemicals 1 0 0 1 0 0 1 0 0 21.9% 8.3% -22.7%

Power/Utilities 556 206 89 583 219 90 498 205 84 4.9% 6.2% 2.0%

NTPC 270 71 34 282 84 36 242 74 33 4.5% 18.4% 5.2%

PGCIL 102 89 35 100 87 33 97 85 33 -1.6% -2.3% -4.5%

NHPC 21 12 8 19 12 8 21 12 8 -5.8% -3.8% -10.3%

CESC 17 3 2 16 2 2 16 3 2 -5.5% -35.5% -6.2%

TATA Power 95 16 4 109 16 4 76 17 4 14.7% 1.8% 17.0%

JSW Energy 18 6 2 19 8 3 16 6 1 4.7% 40.9% 86.5%

Torrent Power 34 9 3 38 9 4 30 9 3 12.3% 7.6% 14.3%

Pharma 471 104 65 459 98 67 425 97 60 -2.4% -5.9% 3.4%

Sun

Pharmaceutical

Industries

99 27 19 99 26 19 88 23 18 0.0% -1.8% 0.9%

Dr Reddy's

Laboratories 55 12 7 53 12 7 49 11 6 -2.5% 2.5% 1.2%

Torrent Pharma 22 7 3 21 5 2 20 6 3 -2.5% -20.2% -25.8%

Cipla 56 12 7 55 12 7 52 12 7 -1.6% 0.0% -1.5%

Aurobindo

Pharma 64 13 8 60 10 6 64 14 8 -6.2% -20.6% -27.9%

Lupin 42 7 4 41 5 7 39 7 4 -1.4% -21.7% 99.2%

Cadila 38 8 5 37 8 5 36 8 5 -3.2% -9.4% -3.9%

Alkem Labs 26 4 3 26 5 5 23 5 4 2.3% 18.0% 65.7%

Ajanta Pharma 9 2 2 8 2 2 7 2 2 -3.2% -2.9% 9.7%

Apollo

Hospitals 39 7 3 36 6 2 28 4 1 -7.6% -9.7% -25.4%

Narayana

Health 10 2 1 10 2 1 8 1 0 0.9% 8.2% 17.2%

Max Healthcare 13 4 2 13 4 3 11 3 1 -0.7% 1.2% 3.2%

Aviation 102 19 1 115 19 2 66 11 -7 33.0% -1.7% 45.5%

Interglobe

Aviation 84 18 1 93 18 1 49 8 -6 10.5% -2.3% 36.5%

SpiceJet 18 1 0 22 1 0 17 2 -1 22.5% 0.6% 9.0%

P a g e | 7

Strategy

HSIE Coverage

(INR Bn)




Metals 1707 382 215 1776 392 223 1224 261 113 4.0% 2.5% 3.6%

Tata Steel 597 153 90 608 159 96 419 95 37 1.9% 4.1% 6.2%

JSW Steel 365 92 48 381 91 45 219 59 27 4.2% -0.8% -6.6%

Hindalco

Industries 473 73 33 503 73 37 350 55 19 6.2% -0.2% 9.8%

Coal India 271 64 43 284 68 46 237 52 31 4.7% 6.7% 5.1%

Total 15486 3003 1679 15778 2927 1724 12176 2585 1384 1.9% -2.5% 2.7%


P a g e | 8

Strategy

HSIE Coverage – Earnings Estimate

HSIE Coverage CMP MCAP

($ Bn) Rating TP

Revenue Growth PAT Growth Change in PAT estimates

FY22E FY23E FY22E FY23E FY22E FY23E

Autos

14.2% 23.6% 303.6% 166.5% -20.3% -3.6%

Maruti Suzuki India 8,701 35.0 BUY 8,420 26.0% 22.9% -7.1% 91.8% 9.8% 4.4%

Bajaj Auto 3,579 13.8 BUY 4,350 24.5% 15.2% 4.4% 20.4% 1.9% 5.0%

Mahindra & Mahindra 850 14.1 ADD 965 0.8% 14.1% 218.7% 22.3% 9.8% 11.4%

Eicher Motors 2,708 9.9 REDUCE 2,400 18.1% 33.4% 26.2% 63.0% -8.7% -1.4%

Hero MotoCorp 2,671 7.1 ADD 3,024 1.5% 20.5% -8.2% 31.6% -13.6% -6.5%

Tata Motors 477 21.1 BUY 560 14.2% 26.6% NM NM -110.9% -18.3%

Ashok Leyland 124 4.9 REDUCE 115 13.4% 47.3% NM 1725.0% -90.4% -12.1%

Escorts 1,733 3.1 ADD 1,900 6.6% 8.1% -5.9% 16.1% -6.5% -0.8%

Amara Raja 473 1.1 NA NA 23.0% 10.0% -13.9% 22.1% -15.5% -7.0%

Endurance 1,360 2.6 ADD 1,820 14.2% 19.5% -4.4% 52.1% -22.4% -12.1%

Subros 363 0.3 BUY 410 9.5% 21.8% -12.8% 114.6% -33.7% -17.3%

Bharat Forge 704 4.4 BUY 1,000 46.4% 19.0% NM 31.4% 3.7% -4.7%

Sundaram Fasteners 818 2.3 ADD 900 30.8% 21.9% 40.4% 39.1% -6.5% 0.9%

Banks and NBFCs

12.8% 14.6% 39.4% 34.5% 4.4% 1.8%

ICICI Bank 744 69.0 BUY 940 22.4% 13.5% 38.8% 21.3% 5.0% 0.8%

Kotak Mahindra Bank 1,886 49.9 ADD 2,040 8.7% 16.2% 14.9% 15.0% 0.9% 3.0%

Bajaj Finance 7,045 56.7 REDUCE 5,536 25.5% 19.6% 56.2% 44.6% 2.0% 2.7%

State Bank of India 499 59.4 BUY 625 10.4% 11.9% 56.9% 23.4% 13.8% -0.9%

Axis Bank 778 31.8 BUY 950 14.1% 18.8% 91.7% 40.7% 0.7% 2.1%

IndusInd Bank 951 9.8 REDUCE 899 11.9% 13.3% 72.0% 37.3% -7.6% -2.3%

AU Small Finance Bank 1,274 5.3 REDUCE 1,127 34.8% 23.2% -7.7% 19.2% 16.2% 12.8%

Shriram Trans Finance 1,175 4.2 ADD 1,530 7.6% 11.4% 6.7% 38.0% -0.9% -0.5%

Cholamandalam

Investment & Finance

Company

684 7.5 BUY 646 13.5% 12.5% 36.0% 19.9% 0.1% -0.7%

Mahindra & Mahindra

Financial 153 2.5 ADD 195 3.2% 11.9% 168.5% 70.0% -6.6% -4.0%

Federal Bank 100 2.8 BUY 121 9.2% 18.9% 20.6% 27.8% -3.2% -0.9%

LIC Housing 363 2.7 REDUCE 394 4.0% 15.4% -25.9% 41.7% -11.6% -0.3%

City Union Bank 129 1.3 BUY 197 5.7% 15.8% 26.0% 21.4% 2.9% -1.3%

RBL Bank 139 1.1 REDUCE 155 3.6% 13.4% -94.1% 3288.1% -81.7% -7.6%

DCB Bank 72 0.3 ADD 125 4.6% 17.9% -15.7% 53.7% -9.4% -3.0%

Karur Vysya Bank 49 0.5 ADD 60 13.9% 9.1% 69.7% 21.3% 23.7% 3.8%

Indostar Capital Finance 233 0.4 REDUCE 234 13.9% 30.2% NM 113.9% -64.0% -18.7%

REPCO Home Finance 210 0.2 ADD 328 6.0% -3.0% -23.5% 31.8% -30.5% -19.7%

UJJIVAN SFB 17 0.4 REDUCE 20 -2.0% 31.0% -5747.4% NM 104.6% 17.3%

UJJIVAN Financial

Services - - ADD 187 NM NM NM NM NM NM

CREDAG 700 1.5 BUY 848 15.3% 37.4% 150.3% 141.3% -8.4% 0.0%

Bandhan Bank 314 6.8 BUY 363 10.9% 14.0% -93.6% 2752.7% -90.3% -6.6%

SBI Cards 798 10.0 BUY 1,098 2.6% 38.8% 52.9% 51.2% 0.1% 0.8%

Insurance

11.5% 14.1% -0.3% 34.2% 5.8% 0.6%

SBI Life 1,102 14.7 BUY 1,530 28.8% 14.8% 45.3% 16.6% 4.4% 4.3%

ICICI Prudential 500 9.6 ADD 700 24.7% 18.7% 31.5% 18.8% -2.0% -3.7%

ICICI Lombard 1,280 8.4 REDUCE 1,350 30.9% 17.4% -6.9% 62.0% 0.0% -2.4%

GIC Reinsurance 122 2.9 REDUCE 172 -1.1% 16.4% -50.9% 131.5% 0.0% 0.0%

New India Assurance 123 2.7 SELL 120 11.0% 7.5% -44.8% 30.7% 64.8% 0.7%

Max Financial 832 3.8 ADD 1,235 19.4% 15.0% 20.1% 15.8% 3.0% 3.1%

P a g e | 9

Strategy


($ Bn) Rating TP



Capital Markets

26.7% -1.5% 21.6% -10.4% 6.5% -0.2%

Nippon Life India 312 2.6 ADD 425 22.3% 11.0% 11.1% 7.9% 1.6% -3.1%

Angel One 1,324 1.5 BUY 1,870 81.0% 15.8% 91.3% 17.5% NA NA

ICICI Securities 651 2.8 ADD 920 30.1% -13.5% 33.6% -21.9% 10.1% -1.4%

Motilal Oswal Financial

Services 889 1.7 ADD 1,000 5.2% -8.8% -6.0% -27.5% 9.1% 8.9%

UTI AMC 802 1.4 BUY 1,215 38.7% 3.8% 27.2% -12.2% 1.6% -6.1%

CAMS 2,312 1.5 ADD 2,885 27.4% 10.4% 37.4% 12.9% 3.7% 1.3%

Consumer- Staples

14.9% 9.5% 14.0% 12.3% -0.6% -0.1%

Hindustan Unilever 2,261 70.8 REDUCE 2,542 10.6% 8.9% 11.0% 11.5% 0.2% 0.3%

ITC 216 35.5 BUY 285 21.9% 8.0% 16.6% 9.4% 0.3% 0.7%

Dabur India 543 12.8 ADD 650 15.8% 9.6% 14.1% 9.9% 0.5% -1.3%

Britannia Industries 3,511 11.3 REDUCE 3,600 7.7% 10.1% -14.4% 26.1% -9.7% -3.7%

United Spirits 857 8.3 ADD 970 20.3% 17.6% 125.4% 26.1% 1.8% 1.5%

Nestle 17,927 23.0 REDUCE 17,991 10.7% 10.4% 21.0% 12.0% -0.8% -0.3%

Marico 501 8.6 ADD 600 18.7% 8.8% 12.2% 22.4% 0.0% 0.0%

Colgate Palmolive 1,432 5.2 ADD 1,700 6.6% 7.0% 0.3% 6.2% -0.6% -2.0%

Emami 481 2.8 REDUCE 500 11.9% 8.5% 15.3% 6.2% 1.8% 0.3%

GCPL 804 11.0 ADD 1,025 12.6% 11.8% 11.5% 20.7% -4.5% -2.2%

Radico Khaitan 911 1.6 REDUCE 950 17.7% 13.0% 5.7% 31.7% -7.9% -3.8%


(ex-Autos) 29.1% 22.8% 40.0% 39.6% -0.8% 1.2%

Avenue Supermart 4,193 36.2 SELL 2,800 28.2% 43.3% 41.3% 57.3% 1.3% -0.2%

Titan Co 2,496 29.6 SELL 1,850 34.4% 16.5% 127.7% 24.2% 8.2% 5.6%

Havells India 1,202 10.0 ADD 1,550 29.9% 16.7% 17.5% 24.9% -5.9% -1.4%

Trent 1,054 5.0 SELL 860 74.2% 35.6% NM 59.5% 38.7% -11.5%

Jubilant Foodworks 3,030 5.3 REDUCE 3,300 32.3% 18.7% 80.3% 23.7% 0.9% -2.2%

Voltas 1,239 5.5 ADD 1,350 5.0% 26.0% 15.4% 46.7% -10.8% -3.4%

Aditya Birla Fashion 269 3.4 ADD 310 47.5% 28.9% 91.1% NM 0.0% -21.8%

Crompton Consumer 408 3.4 BUY 550 15.2% 15.2% 13.0% 21.5% -4.5% -2.5%

Symphony 966 0.9 ADD 1,200 22.4% 18.3% 34.1% 41.5% -23.8% -8.9%

V-Guard 197 1.1 ADD 275 26.9% 12.3% 14.9% 31.0% -11.3% -4.0%

V-Mart 3,397 0.9 ADD 3,700 55.1% 63.7% 22.7% 335.9% -54.0% -8.9%

TCNS Clothing 676 0.6 SELL 575 42.0% 44.0% NM 3491.8% -72.8% 6.2%

Shoppers Stop 337 0.5 SELL 230 61.0% 29.2% 65.5% NM 0.0% 0.0%

Asian Paints 3,237 41.4 SELL 2,700 27.5% 11.3% -4.1% 29.1% 1.0% -0.8%

Berger Paints 730 9.5 ADD 750 26.5% 12.5% 14.5% 30.3% -10.6% -5.4%

Kansai Nerolac 464 3.3 BUY 700 22.0% 12.2% 2.0% 29.0% 4.0% 0.0%

Bata India 1,868 3.2 SELL 1,500 41.6% 39.1% -267.2% 436.2% NA NA

Relaxo Footwears 1,231 4.1 SELL 1,030 12.7% 23.0% -8.5% 36.2% NA NA

TTK Prestige 804 1.5 ADD 1,170 20.8% 13.3% 20.5% 13.8% -0.6% -0.5%

Orient Electric 324 0.9 BUY 400 27.5% 15.5% 18.2% 31.5% -0.1% 0.0%

Industrials

(Infrastructure+ Cap

Goods+ Logistics)

16.5% 16.2% 24.5% 34.1% -5.1% -5.1%

Larsen & Toubro 1,821 34.1 BUY 2,504 15.0% 16.2% 22.5% 27.6% -4.3% -3.8%

Siemens 2,396 11.4 REDUCE 2,120 19.3% 19.2% 39.7% 28.5% 0.0% 0.0%

Cummins India 966 3.6 BUY 1,253 42.0% 8.9% 27.3% 38.1% -25.2% -25.8%

ABB India 2,098 5.9 REDUCE 1,815 19.1% 23.6% 280.9% 1.1% 67.2% 1.7%

KEC International 451 1.5 BUY 578 7.1% 15.1% -29.9% 89.4% -32.5% -11.5%

Kalpataru Power

Transmission 401 0.8 BUY 559 -5.0% 11.9% -16.5% 21.8% -6.0% -7.5%

GR Infra 1,397 1.8 BUY 2,358 13.1% 18.5% 8.3% 42.0% 0.0% 0.0%

PNC Infratech 273 0.9 BUY 412 22.8% 12.7% 32.6% 18.8% 2.0% -3.4%

P a g e | 10

Strategy


($ Bn) Rating TP



Dilip Buildcon 268 0.5 BUY 490 -0.6% 9.5% -146.0% -277.6% -182.4% -45.1%

KNR Constructions 305 1.1 BUY 360 17.0% 15.3% 37.6% 25.0% 0.4% 2.1%

IRB Infrastructure 236 1.9 ADD 302 11.0% 11.0% 189.3% 44.6% 76.9% 76.4%

Ashoka Buildcon 92 0.3 BUY 162 15.0% 11.7% -29.4% 46.2% 0.0% 0.0%

Ahluwalia Contracts 381 0.3 BUY 522 37.8% 15.0% 107.6% 43.0% -32.5% -18.3%

NCC 61 0.5 BUY 122 38.8% 23.1% 51.6% 66.5% 2.8% -0.9%

PSP Projects 513 0.2 BUY 671 37.1% 20.1% 73.6% 8.7% 15.1% 2.8%

HG Infra 594 0.5 BUY 988 42.2% 14.5% 61.4% 5.8% 11.4% 4.8%

JMC Projects 90 0.2 BUY 162 40.2% 11.9% 37.0% 108.5% -22.0% 0.4%

Sadbhav Engineering 32 0.1 ADD 50 5.3% 22.6% NM 193.5% -19.3% -47.6%

Capacite Infraprojects 131 0.1 BUY 232 56.7% 44.6% 2574.0% 147.3% -41.5% -21.1%

ITD Cementation 69 0.2 BUY 125 37.0% 18.0% 512.6% 70.8% -2.1% -14.3%

J Kumar Infraprojects 166 0.2 BUY 279 35.0% 16.5% 211.7% 30.4% 21.4% 2.7%

Real Estate

14.2% 18.1% 83.5% 36.9% -0.2% 0.6%

DLF 345 11.4 BUY 460 11.0% 10.5% 41.4% 30.7% 0.0% 0.0%

Oberoi Realty 932 4.5 ADD 1,060 34.0% 9.9% 69.2% -2.2% 9.6% 27.4%

Prestige Estates 450 2.4 ADD 540 -17.7% 19.3% 11.9% 50.5% -28.7% -5.0%

Brigade Enterprises 498 1.5 ADD 530 53.5% 8.2% 505.1% -29.2% 161.8% -6.6%

Sobha Developers 768 1.0 ADD 964 28.4% 19.2% 109.1% 120.9% -16.4% -6.9%

Kolte Patil 278 0.3 BUY 377 52.4% 22.8% NM 114.5% -45.0% -11.2%

Phoenix Mills 951 2.3 BUY 1,360 38.1% 41.0% 242.0% 184.0% 0.0% 0.1%

Godrej Properties 1,597 5.9 REDUCE 1,800 64.1% 25.0% 1061.7% 62.9% -8.4% -16.0%

Mahindra Lifespaces 303 0.6 BUY 379 87.6% 145.7% NM 351.5% NM -0.1%

IT and Exchanges

20.0% 15.9% 16.8% 17.2% 1.5% 1.4%

Tata Consultancy Services 3,563 175.7 ADD 4400 16.7% 15.3% 15.9% 16.9% 0.8% 1.0%

Infosys 1,743 97.7 BUY 2220 21.9% 15.9% 17.2% 21.3% 3.7% 7.4%

HCL Technologies 1,153 41.7 BUY 1485 13.8% 14.3% 7.7% 13.1% 0.7% -5.8%

Wipro 567 41.4 ADD 740 27.8% 13.4% 16.4% 12.0% 2.9% 3.1%

Tech Mahindra 1,413 18.3 BUY 2050 17.2% 16.6% 23.1% 16.0% -2.1% -1.1%

L&T Infotech 5,912 13.8 ADD 7675 26.9% 21.8% 19.9% 20.4% 1.3% -1.0%

L&T Technologies 4,455 6.3 ADD 5750 20.4% 19.6% 51.8% 18.1% -2.3% -5.6%

Mphasis 3,108 7.8 BUY 3800 22.9% 21.0% 18.2% 23.4% -1.4% -2.0%

Mindtree 3,802 8.4 ADD 5060 32.1% 21.0% 35.0% 20.7% 5.5% 4.8%

MCX 1,294 0.9 BUY 2,150 -10.3% 28.6% -31.6% 64.2% -22.0% -17.5%

Tata Elxsi 6,604 5.5 REDUCE 5900 34.5% 27.3% 46.3% 24.6% 6.2% 4.4%

Persistent 3,960 4.0 ADD 4900 35.0% 26.7% 49.8% 29.2% 0.1% 5.4%

Cyient 831 1.2 BUY 1285 10.5% 14.7% 32.2% 14.2% -1.0% -6.8%

TeamLease 3,957 0.9 BUY 5,260 33.5% 25.6% 49.8% 37.8% 0.1% -0.3%

Sonata 729 1.0 BUY 1085 29.5% 21.5% 50.0% 17.6% 2.8% -1.1%

Zensar Technologies 343 1.0 BUY 600 15.9% 16.0% 12.2% 7.7% -5.8% -15.3%

CDSL Ltd 1,383 1.9 BUY 1,800 66.1% 18.4% 59.5% 22.1% -3.3% 0.2%

BSE 2,078 1.2 BUY 2,260 44.6% 12.4% 72.5% 24.9% 4.6% 10.7%

IndiaMart 4,822 2.0 BUY 8,000 12.3% 28.8% 10.9% 13.7% -3.6% -3.0%

Tanla Platforms 1,553 2.8 BUY 1,880 37.9% 20.5% 52.7% 16.4% NA NA

Mastek 2,688 1.1 BUY 3365 26.6% 18.1% 38.7% 15.1% 7.7% 0.9%

Energy (Oil & Gas)

35.7% 9.7% 10.6% 18.4% 0.8% -2.6%

Reliance Industries 2,374 214.2 ADD 2,820 72.5% 15.0% 16.6% 36.0% -3.4% -4.0%

Oil & Natural Gas Corp 161 27.0 BUY 208 17.9% 7.2% 97.5% 19.0% -0.2% -0.6%

Indian Oil Corp 117 14.7 ADD 140 10.4% 4.2% -36.0% -5.6% 7.9% -5.8%

Bharat Petroleum Corp 357 10.3 ADD 435 47.4% 7.9% -34.5% 1.6% 6.8% -7.7%

GAIL India 139 8.2 BUY 215 51.7% 12.5% 67.1% -5.0% 13.9% 8.4%

Petronet LNG 205 4.1 REDUCE 230 66.7% 3.4% -4.8% -17.3% 5.9% -4.2%

P a g e | 11

Strategy


($ Bn) Rating TP



Indraprastha Gas 361 3.4 BUY 605 39.2% 21.2% 21.2% 20.9% 9.5% -2.0%

HPCL 289 5.5 ADD 345 5.8% 7.7% -51.9% 35.4% 0.0% 0.0%

Gujarat Gas 621 5.7 BUY 765 67.9% 7.8% 7.0% 30.9% -15.6% -5.3%

Gujarat State Petronet 290 2.2 ADD 340 51.0% 20.4% 10.3% 22.1% -7.1% -5.4%

OIL India 220 3.2 BUY 310 60.4% 9.0% 38.5% -7.5% 2.6% -1.2%

Mahanagar Gas 748 1.0 ADD 925 32.9% 4.5% -23.9% 11.8% -9.2% -6.5%

Cement & Building

Materials 16.2% 13.4% 3.8% 19.8% -8.1% -6.5%

UltraTech Cement 6,780 26.1 BUY 8,775 11.9% 9.4% 7.1% 22.4% 0.0% 0.0%

Shree Cement 24,604 11.9 ADD 26,600 13.4% 15.3% 0.7% 10.8% -12.3% -13.1%

Ambuja Cements 331 8.8 ADD 400 22.3% 9.6% 25.6% 1.7% -1.9% -4.0%

ACC 2,151 5.4 BUY 2,760 17.2% 8.7% 36.1% 4.0% -5.4% -3.1%

Dalmia Bharat 1,655 4.1 BUY 2,195 10.2% 21.4% -45.0% 62.4% -17.1% 5.4%

Nuvoco Vistas 335 1.6 BUY 677 23.1% 19.3% NM 499.8% -92.2% -55.9%

Ramco Cements 811 2.5 ADD 962 16.1% 12.1% -12.4% 17.4% 12.9% -26.4%

JK Cement 2,914 3.0 REDUCE 3,010 21.4% 14.3% 2.5% 18.1% -14.1% -20.1%

Birla Corp 1,097 1.1 BUY 1,718 8.5% 20.6% -35.8% 18.3% -8.9% -9.9%

Heidelberg Cem 197 0.6 REDUCE 205 5.8% 10.2% -36.4% 20.6% -25.9% -22.4%

Star Cement 89 0.5 BUY 130 23.6% 17.2% 12.4% 36.5% -2.8% -7.0%

JK Lakshmi Cement 446 0.7 BUY 765 15.5% 10.2% -11.9% 37.6% -8.7% -3.7%

Orient Cement 154 0.4 ADD 185 14.5% 7.0% 16.3% -0.8% 0.9% -2.6%

Sagar Cements 239 0.4 ADD 259 16.2% 45.1% -35.3% 46.3% -20.2% -11.3%

Deccan Cements 561 0.1 BUY 750 10.3% 8.3% 2.3% -3.5% 7.5% 6.3%

Supreme Industries 2,056 3.5 BUY 2,650 17.3% 13.9% -3.4% 2.3% 17.8% 17.7%

Astral 1,915 5.1 REDUCE 2,180 43.2% 23.6% 25.8% 42.1% -6.5% -0.3%

Prince Pipe 665 1.0 BUY 940 25.7% 12.8% 5.3% 24.7% 5.9% -3.6%

Kajaria Ceramics 1,189 2.5 BUY 1,450 35.2% 22.0% 37.6% 27.8% 4.2% 1.1%

Somany Ceramics 777 0.4 BUY 1,130 32.8% 17.7% 41.1% 54.6% -2.9% 10.0%

Chemicals

42.8% 14.5% 43.6% 13.2% 10.8% 2.4%

Vinati Organics 1,798 2.5 SELL 1,730 62.8% 36.6% 20.9% 39.7% -13.8% -15.3%

Navin Fluorine 3,811 2.5 BUY 4,905 19.2% 41.9% 21.4% 56.5% 7.8% 25.8%

Deepak Nitrite 2,014 3.7 SELL 1,730 55.0% 12.9% 42.1% 18.7% -6.6% -3.8%

Galaxy Surfactants 2,596 1.2 BUY 3,430 30.3% 14.3% -30.7% 51.7% -20.8% -11.7%

Alkyl Amines 2,999 2.0 SELL 2,955 21.1% 19.4% -21.5% 29.7% -19.0% -11.1%

Balaji Amines 2,906 1.3 REDUCE 3,750 39.0% 10.7% 24.7% 23.0% 6.1% 10.1%

Aarti Industries 916 4.4 BUY 1,380 48.2% 3.8% 129.1% -24.5% 75.5% 0.1%

SRF Ltd 2,397 9.5 ADD 2,675 45.4% 14.6% 60.5% 9.3% 15.1% 12.7%

Fine Organic 3,963 1.6 BUY 4,380 54.1% 23.9% 55.3% 41.5% 9.4% 8.8%

NOCIL Ltd 203 0.5 BUY 340 60.6% 12.6% 58.7% 14.2% -3.0% -8.6%

Sudarshan Chemical 555 0.5 BUY 790 15.8% 11.7% -17.8% 49.4% 7.6% -0.4%

Neogen Chemicals 1,552 0.5 BUY 2,150 34.2% 17.0% 39.0% 51.6% 10.2% 28.5%

Power/Utilities

11.2% 8.3% 9.8% 9.2% -0.5% -0.2%

NTPC 130 16.9 BUY 165 8.3% 11.2% 6.1% 8.2% 0.4% -1.8%

PGCIL 198 18.4 ADD 233 9.7% 3.8% 9.1% 8.3% 1.1% 2.5%

NHPC 28 3.8 ADD 33 9.0% 9.5% 3.6% 1.1% 0.0% 0.0%

CESC 76 1.3 BUY 119 19.4% 5.6% 29.1% 4.6% 0.0% 0.0%

TATA Power 221 9.4 ADD 258 20.5% 7.5% 39.3% 33.3% -17.3% -6.6%

JSW Energy 337 7.4 SELL 118 20.4% 3.1% 23.6% 14.5% 0.0% 8.2%

Torrent Power 474 3.0 REDUCE 555 6.1% 6.2% 25.0% 13.9% -0.2% -2.0%

P a g e | 12

Strategy


($ Bn) Rating TP



Pharma

12.7% 9.8% 19.3% 15.3% -1.4% -2.3%

Sun Pharmaceutical

Industries 840 26.9 BUY 985 16.1% 11.0% 30.9% 14.1% 0.2% 1.0%

Dr Reddy's Laboratories 4,201 9.3 BUY 5,170 11.2% 9.1% 7.9% 18.9% 0.3% -1.1%

Torrent Pharma 2,738 6.2 REDUCE 3,205 6.2% 11.9% -12.4% 32.6% -11.0% -4.3%

Cipla Ltd/India 915 9.8 BUY 1,115 14.1% 10.4% 20.5% 13.9% 0.4% 2.4%

Aurobindo Pharma 637 5.0 BUY 925 -4.7% 6.1% -21.3% 18.1% -13.8% -9.4%

Lupin 756 4.6 SELL 765 6.4% 6.3% 15.2% 3.3% 12.3% -22.6%

Cadila 371 5.1 ADD 425 5.1% 2.2% -3.1% 1.2% -3.0% -6.0%

Alkem Labs 3,090 4.9 BUY 4,200 20.5% 10.6% 15.8% 2.5% 9.2% 4.5%

Ajanta Pharma 1,888 2.2 ADD 2,405 13.8% 15.4% 9.8% 11.9% -1.1% -3.1%

Apollo Hospitals 4,611 8.8 BUY 5,365 43.7% 20.8% 1097.5% 45.9% -0.7% 0.7%

Narayana Health 647 1.8 ADD 720 44.6% 12.6% NM 27.0% 11.5% 5.7%

Max Healthcare 369 4.8 BUY 430 40.8% 8.7% 1572.5% 31.6% -10.1% 0.9%

Aviation

50.3% 77.6% -11.7% NM 14.3% -2.7%

Interglobe Aviation 2,040 10.5 REDUCE 1,925 66.1% 67.4% 4.5% NM 20.9% -2.7%

SpiceJet 61 0.5 NOT

RATED NA 5.9% 123.0% -102.7% 97.7% 0.0% 0.0%

Metals

44.2% 0.3% 178.9% -18.6% 4.4% 4.0%

Tata Steel. 1,139 18.6 NOT

RATED NA 45.6% -8.4% 393.6% -39.1% 5.5% 3.2%

JSW Steel. 615 19.8 NOT

RATED NA 76.0% 7.5% 172.9% -16.5% -3.2% -0.9%

Hindalco Industries 519 15.5 NOT

RATED NA 42.6% 1.0% 282.5% 2.9% 16.7% 15.5%

Coal India 158 13.0 NOT

RATED NA 15.8% 8.2% 27.6% 8.0% 3.7% 2.4%

Total

26.4% 12.1% 31.7% 21.2% 0.6% -0.4%

Note: Upside change in PAT estimates above 5% has been highlighted in green and downside change above 5% has been highlighted in red

CMP as on 23.02.2022


P a g e | 13

Strategy

HSIE Model Portfolio

HSIE Coverage CMP MCAP($ Bn) MCAPINR

Bn Rating TP

Model Portfolio as on 23rd Feb'22

Nifty

Weight

Portfolio

weight

Relative

weight

Nifty 17,063

100% 100.0%

Autos

5.4% 3.0% -2.42%

Maruti Suzuki India 8,701 35.0 2,628 BUY 8,420 1.5% 1.5% -0.01%

Bajaj Auto 3,579 13.8 1,036 BUY 4,350 0.6% -0.61%

Mahindra & Mahindra 850 14.1 1,056 ADD 965 1.1% -1.12%

Eicher Motors 2,708 9.9 741 REDUCE 2,400 0.5% -0.49%

Hero MotoCorp 2,671 7.1 534 ADD 3,024 0.5% -0.47%

Tata Motors 477 21.1 1,584 BUY 560 1.2% 1.5% 0.28%

Banks and NBFCs

34.0% 32.6% -1.39%

ICICI Bank 744 69.0 5,172 BUY 940 7.2% 7.0% -0.23%

Kotak Mahindra Bank 1,886 49.9 3,739 ADD 2,040 3.6% -3.60%

HDFC Bank 1,501 110.9 8,315 NA NA 8.6% 8.6% 0.00%

Housing Development Finance Corp 2,437 58.9 4,414 NA NA 6.0% 6.0% 0.00%

Bajaj Finance 7,045 56.7 4,249 REDUCE 5,536 2.5% -2.45%

State Bank of India 499 59.4 4,452 BUY 625 2.7% 5.0% 2.27%

Axis Bank 778 31.8 2,385 BUY 950 2.6% 4.0% 1.37%

IndusInd Bank 951 9.8 736 REDUCE 899 0.8% -0.75%

Shriram Trans Finance 1,175 4.2 318 ADD 1,530 1.0% 1.00%

Federal Bank 100 2.8 211 BUY 121 1.0% 1.00%

Insurance

2.7% 3.5% 0.77%

SBI Life 1,102 14.7 1,102 BUY 1,530 0.7% 2.0% 1.28%

Bajaj Finserv 16,134 34.2 2,566 NA NA 1.3% -1.25%

HDFC Life 569 16.0 1,200 NA NA 0.8% -0.76%

Max Financial 832 3.8 287 ADD 1,235 1.5% 1.50%

Capital Markets

0.0% 2.0% 2.00%

ICICI Securities 651 2.8 210 ADD 920 1.0% 1.00%

UTI AMC 802 1.4 102 BUY 1,215 1.0% 1.00%

Consumer- Staples

6.6% 6.5% -0.14%

Hindustan Unilever 2,261 70.8 5,310 REDUCE 2,542 2.7% -2.68%

ITC 216 35.5 2,661 BUY 285 2.5% 5.0% 2.46%

Britannia Industries 3,511 11.3 847 REDUCE 3,600 0.6% -0.55%

United Spirits 857 8.3 622 ADD 970 1.5% 1.50%

Nestle 17,927 23.0 1,726 REDUCE 17,991 0.9% -0.87%

Consumer Discretionary (ex-Autos)

3.8% 3.0% -0.75%

Titan Co 2,496 29.6 2,220 Sell 1,850 1.3% -1.30%

Aditya Birla Fashion 269 3.4 253 Add 310 1.0% 1.00%

Crompton Consumer 408 3.4 256 BUY 550 1.0% 1.00%

Tata Consumer 723 8.9 666 NA NA 0.6% -0.57%

Asian Paints 3,237 41.4 3,103 Sell 2,700 1.9% -1.88%

Orient Electric 324 0.9 69 BUY 400 1.0% 1.00%

Industrials (Infrastructure+ Cap Goods+ Logistics)

3.7% 7.0% 3.27%

Larsen & Toubro 1,821 34.1 2,555 Buy 2,504 3.0% 3.5% 0.46%

Adani Ports & Special Economic Zone 707 19.2 1,443 NA NA 0.7% -0.69%

KNR Constructions 305 1.1 86 Buy 360 1.0% 1.00%

Cummins India 966 3.6 268 Buy 1253 1.5% 1.50%

GR Infra 1,397 1.8 135 Buy 2358 1.0% 1.00%

Real Estate

0.0% 3.0% 3.00%

DLF 345 11.4 852 Buy 460 1.0% 1.00%

Phoenix Mills 951 2.3 170 Buy 1360 1.0% 1.00%

Mahindra Lifespaces 303 0.6 47 Buy 379 1.0% 1.00%

IT and Exchanges

17.5% 11.0% -6.50%

Tata Consultancy Services 3,563 175.7 13,177 ADD 4400 5.1% -5.11%

Infosys 1,743 97.7 7,328 BUY 2220 8.5% 7.0% -1.49%

P a g e | 14

Strategy

HSIE Coverage CMP MCAP($ Bn) MCAPINR

Bn Rating TP

Model Portfolio as on 23rd Feb'22

Nifty

Weight

Portfolio

weight

Relative

weight

HCL Technologies 1,153 41.7 3,130 BUY 1485 1.6% -1.57%

Wipro 567 41.4 3,107 ADD 740 1.1% -1.12%

Tech Mahindra 1,413 18.3 1,372 BUY 2050 1.2% 2.0% 0.79%

Cyient 831 1.2 92 BUY 1285 1.0% 1.00%

TeamLease 3,957 0.9 68 BUY 5260 1.0% 1.00%

Energy (Oil & Gas) 12.6% 9.5% -3.11%

Reliance Industries 2,374 214.2 16,062 ADD 2,820 10.9% 5.0% -5.86%

Oil & Natural Gas Corp 161 27.0 2,023 BUY 208 0.8% -0.83%

Indian Oil Corp 117 14.7 1,103 ADD 140 0.4% -0.42%

Bharat Petroleum Corp 357 10.3 774 ADD 435 0.5% -0.50%

GAIL India 139 8.2 613 BUY 215 1.5% 1.50%

Indraprastha Gas 361 3.4 252 BUY 605 1.0% 1.00%

Gujarat Gas 621 5.7 428 BUY 765 1.0% 1.00%

Gujarat State Petronet 290 2.2 164 ADD 340 1.0% 1.00%

Metals & Mining 3.3% 1.0% -2.34%

Hindalco Industries 519 15.5 1166 NA NA 0.9% -0.94%

Tata Steel 1,139 18.6 1391 NA NA 1.1% 1.0% -0.14%

JSW Steel 615 19.8 1484 NA NA 0.8% -0.82%

Coal India 158 13.0 976 NA NA 0.4% -0.44%

Cement & Building Materials 2.4% 1.8% -0.59%

UltraTech Cement 6,780 26.1 1,956 BUY 8,775 1.1% 0.9% -0.20%

Grasim Industries 1,670 14.7 1,099 NA NA 0.9% -0.86%

Shree Cement 24,604 11.9 890 ADD 26,600 0.4% -0.43%

Birla Corporation 1,097 1.1 85 BUY 1,718 0.9% 0.90%

Chemicals 0.6% 1.0% 0.44%

UPL 688 7.0 526 NA NA 0.6% -0.56%

Fine Organics 3,963 1.6 122 BUY 4,380 1.0% 1.00%

Power/Utilities 1.9% 5.0% 3.14%

NTPC 130 16.9 1,264 Buy 165 0.9% 2.0% 1.11%

Powergrid corp of India 198 18.4 1,381 Add 233 1.0% 2.0% 1.03%

CESC 76 1.3 101 Buy 119 1.0% 1.00%

Pharma 3.2% 4.0% 0.80%

Sun Pharmaceutical Industries 840 26.9 2,016 BUY 985 1.2% -1.19%

Dr Reddy's Laboratories 4,201 9.3 700 BUY 5,170 0.7% -0.69%

Cipla Ltd/India 915 9.8 737 BUY 1,115 0.6% 2.2% 1.56%

Aurobindo Pharma 637 5.0 374 BUY 925 0.9% 0.90%

Alkem Labs 3,090 4.9 370 BUY 4,200 0.9% 0.90%

Divis labs 4,182 14.8 1,110 NA NA 0.7% -0.68%

Telecom 2.3% 3.0% 0.73%

Bharti Airtel 704 53.4 4,006 NA NA 2.3% 3.0% 0.73%

Cash 0 3.1% 3.10%

Total 100.0% 100.0%

Note: CMP as on 23.02.2022 Stocks highlighted pink represent those which are a part of nifty but not under HSIE coverage

Source: Bloomberg and HSIE Research

Model Portfolio Performance Model Portfolio

Benchmark: Nifty Benchmark: BSE 200

Nifty Relative returns BSE 200 Relative returns

1month -5.3% -3.1% -2.2% -3.7% -1.7%

3 month -3.8% -2.0% -1.8% -2.9% -0.9%

6 month 5.7% 5.7% 0.0% 4.0% 1.7%

1 year 18.8% 15.0% 3.8% 17.2% 1.6%

Since 1.4.20 (From trough of Covid) 126.9% 110.7% 16.2% 111.1% 15.8%

Inception (since 28.2.20) 66.7% 55.3% 11.4% 55.8% 10.8%

P a g e | 15

Strategy

Sectorwise Growth (YoY)- Q3FY22

YoY Revenue Growth YoY PAT Growth

Source: HSIE Research Source: HSIE Research

0%

20%

40%

60%

80%

Au

tos

Ban

ks a

nd

NB

FCs

Insu

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Cap

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Mar

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nd

Exc

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Cem

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& B

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Mat

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Ch

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Ph

arm

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Pow

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Av

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on

Met

als

Tot

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YoY Revenue Growth (%)

-100%

-60%

-20%

20%

60%

100%

Au

tos

Ban

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NB

FCs

Insu

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Cap

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Mar

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& B

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Ch

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Pow

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Av

iati

on

Met

als

Tot

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YoY PAT growth(%)

P a g e | 16

HSIE Results Daily

BFSI

P a g e | 17

HSIE Results Daily

ICICI Bank

Classic flywheel; NTB business to limit RoA reflation

ICICI Bank (ICICIBC) delivered yet another quarter of consistent and

superior all-round performance with PAT growth at 25% YoY and standalone

RoE at 15%. Strong traction continued to build up on both sides of the balance

sheet, with average CASA ratio of 45% (deposit growth at 16.4% YoY) and

industry-leading loan growth of 16.4% YoY driving a strong earnings profile.

Net slippages were negative, driving credit costs to multi-quarter low of 1%,

while the stressed pool (restructured portfolio at 1.2%, BB & below book at

1.5%) declined marginally. On the back of best-in-class liability franchise and

industry-leading technology initiatives for NTB business sourcing from B2C

and B2B customers, ICICI Bank is building its risk-calibrated asset book to

sustain its market share gains and profitability, although incremental RoA

reflation is likely to be only marginal, going ahead. We raise our FY22E/FY23E

earnings estimates by 1.5%/1% to factor in lower credit costs and maintain

BUY with SOTP-based TP of INR940 (standalone bank at 2.9x Sep-23 ABVPS).

Healthy balance sheet growth drives strong P&L outcomes: ICICIBC

delivered NII growth of 23% YoY, with NIM at 4%, C/I ratio at 41%, and

credit costs at 1%. Loan growth was largely led by mortgage (+23%),

business banking (+39%), and credit cards (+32%), while wholesale credit

has also begun to pick up (+12.5%). Gross slippages (2.1%) and upgrades

(2.2%) were predominantly from the retail book, indicating the transient

nature of the impairments and strong asset quality of the corporate book.

Near-potential RoAs; growth is a key lever: Going forward, other than the

cards portfolio (by our calculations, this is still below potential), incremental

earnings growth in the near term is likely to be led by loan growth.

However, the bank’s relentless digital initiatives to further accelerate market

share gains across retail and wholesale through NTB customer acquisitions

and better cross-sell are likely to bring a set of new challenges around higher

opex intensity and sub-optimal pricing in the medium term. We continue to

watch out for disclosures around the NTB portfolio for any potential upside

risks to our explicit-period growth forecasts (17.5% CAGR until FY24E).

Financial summary

(INR bn) Q3FY22 Q2FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

NII 122.4 99.1 23.4% 116.9 4.7% 389.9 477.0 541.7 619.9

PPOP 101.5 88.2 15.1% 99.1 2.4% 364.0 401.5 474.1 544.1

PAT 61.9 49.4 25.4% 55.1 12.4% 161.9 224.7 272.7 318.1

EPS (INR) 8.7 7.1 24.0% 7.8 12.2% 23.4 32.5 39.4 46.0

ROAE (%) 12.3 14.3 15.2 15.5

ROAA (%) 1.4 1.7 1.8 1.9

ABVPS (INR) 191.3 216.5 250.3 286.9

P/ABV (x) 4.2 3.7 3.2 2.8

P/E (x) 34.4 24.8 20.4 17.5

Change in estimates

(INR bn) FY22E FY23E FY24E

Old New Δ Old New Δ Old New Δ

Net advances 8,623 8,632 0.1% 10,043 10,052 0.1% 11,684 11,694 0.1%

NIM (%) 4.1 4.1 0bps 4.1 4.1 0bps 4.0 4.0 0bps

NII 476.7 477.0 0.1% 540.9 541.7 0.1% 619.1 619.9 0.1%

PPOP 406.0 401.5 -1.1% 473.3 474.1 0.2% 543.3 544.1 0.2%

PAT 221.5 224.7 1.5% 270.5 272.7 0.8% 314.7 318.1 1.1%

Adj. BVPS (INR) 216.5 216.5 0.0% 249.5 250.3 0.3% 284.8 286.9 0.7%

Source: Company, HSIE Research

BUY

CMP (as on 21 Jan 2022) INR 805

Target Price INR 940

NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY

Price Target INR 939 INR 940

EPS % FY22E FY23E

1.5% 0.8%

KEY STOCK DATA

Bloomberg code ICICIBC IN

No. of Shares (mn) 6,944

MCap (INR bn) / ($ mn) 5,586/75,067

6m avg traded value (INR mn) 10,596

52 Week high / low INR 867/512

STOCK PERFORMANCE (%)

3M 6M 12M

Absolute (%) 6.5 25.3 45.6

Relative (%) 9.6 12.2 26.6

SHAREHOLDING PATTERN (%)

Sep-21 Dec-21

Promoters 0 0

FIs & Local MFs 42.5 43.8

FPIs 47.3 45.3

Public & Others 10.0 10.8

Pledged Shares 0 0

Source : BSE

Pledged shares as % of total shares

Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 18

HSIE Results Daily

State Bank of India

On the highway to a new normal

State Bank of India’s (SBI) asset quality continued to surprise positively with

annualised credit costs at 1.1%, driving a 5% beat. Gross slippages further

moderated to ~0.4%, even as the restructured book remained broadly steady at

1.5%, while early delinquencies improved to 0.2% (Q2FY22: 0.3%). With

healthy PCR of 71% and COVID provisions of 0.2% and little incremental

stress addition, the credit cost normalisation seems largely complete. Stronger

loan growth (+8.5% YoY) was led by the retail (+15% YoY) and overseas

portfolios (+21% YoY). Revival in economic activity, improving utilisation of

corporate credit limits, and expected recovery in private capex are likely to

augment portfolio growth, although a 1% RoA is contingent on higher asset

yields. We raise our FY22 earnings estimates by 6% to factor in lower-than-

expected credit costs and maintain BUY with a revised SOTP-based target

price of INR625 (core bank at 1.3x Sep-23 ABVPS).

In-line operating performance: SBI reported NII/PPOP growth of 7% YoY

each, on the back of steady loan growth (+8.5% YoY) and stable NIM

(3.11%). Retail loan growth (+15% YoY) was led by Xpress credit (+29% YoY)

and gold loans (+26% YoY), with steady growth in home loans (+11% YoY).

Asset quality portends a new normal: GNPA/NNPA improved sequentially

to 4.5%/1.3% (Q2FY22: 4.9%/1.5%), primarily led by lower slippages. GNPA

ratio improved across segments with domestic corporate at 7.1% and retail

at 0.9%. We continue to watch out for the steady-state impairments and

credit costs, as the bank gradually re-risks the portfolio.

All eyes on growth and RoA reflation: With multi-year low credit costs due

to a highly-rated corporate book and a large secured retail portfolio, we

believe SBI’s path to ~1% RoA remains contingent on the ability to reflate its

asset yields, while containing credit costs. The recently-announced infra-

focused Union Budget offers SBI significant room to gain market share in the

corporate portfolio; however, as it is the largest Indian bank, we argue that it

may be too thinly capitalised to partake in the capex cycle.

Financial summary (INR bn) Q3FY22 Q3FY21 YoY(%) Q2FY22 QoQ(%) FY21 FY22E FY23E FY24E

NII 306.9 288.2 6.5% 311.8 -1.6% 1,107.1 1,222.2 1,367.2 1,513.8

PPOP 185.2 173.3 6.9% 106.6 73.7% 715.5 680.6 897.3 1,067.3

PAT 84.3 52.0 62.3% 76.3 10.6% 204.1 320.3 395.3 496.3

EPS (INR) 9.5 5.8 62.4% 8.6 10.5% 22.9 35.9 44.3 55.6

ROAE (%) 8.4 11.9 13.1 14.5

ROAA (%) 0.5 0.7 0.8 0.9

ABVPS (INR) 228.1 268.5 308.8 357.2

P/ABV (x) 2.3 2.0 1.7 1.5

P/E (x) 23.2 14.8 12.0 9.5

Change in estimates



Net advances 27,150 27,013 -0.5% 29,980 29,989 0.0% 33,123 33,338 0.6%

NIM (%) 3.0 3.0 -7bps 3.1 3.1 2bps 3.1 3.1 6bps

NII 1,240.8 1,222.2 -1.5% 1,350.5 1,367.2 1.2% 1,477.5 1,513.8 2.5%

PPOP 713.0 680.6 -4.5% 905.2 897.3 -0.9% 1,047.4 1,067.3 1.9%

PAT 301.4 320.3 6.3% 395.0 395.3 0.1% 486.2 496.3 2.1%

Adj. BVPS (INR) 258.9 268.5 3.7% 292.0 308.8 5.8% 335.8 357.2 6.4%


BUY

CMP (as on 4 Feb 2022) INR 530


NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

6.3% 0%

KEY STOCK DATA

Bloomberg code SBIN IN


MCap (INR bn) / ($ mn) 4,733/63,598




3M 6M 12M

Absolute (%) (0.0) 16.1 49.3

Relative (%) 2.4 8.3 33.6


Sep-21 Dec-21

Promoters 57.6 57.6


FPIs 10.6 10.4


Pledged Shares 0.0 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 19

HSIE Results Daily

Bajaj Finance

Strong earnings but priced beyond perfection

Bajaj Finance’s (BAF) Q3FY22 earnings were in line with our estimates, led by

strong operating performance (PPoP +35% YoY), partially offset by surplus

provisioning (management overlay at 60bps). Asset quality improved sharply,

owing to a 140bps decline in GS-II+GS-III, driving adjusted credit costs to 2%.

Business momentum picked up further with 17% YoY growth in new

customer acquisitions and 24% YoY growth in new loans disbursed. Phase-I of

the company’s much-anticipated digital transformation, focusing on ETB

customers, was launched in a staggered manner, while Phase-II, focusing on

NTB customers, is likely to go live by Sep-22. Given the early stage of the

super-app launch, we will watch out for evidence of traction in NTB customer

acquisitions and impact on overall growth and profitability before building it

into our explicit forecasts. We revise our FY22/FY23 earnings estimates by

-1%/2% to factor in higher credit costs (sustained management overlay), which

are offset by improving margins. Our REDUCE stance with a revised TP of

INR5,536 is based on current steep valuations (8.2x Sep-23 ABVPS).

All-round strong operating performance: BAF reported strong NII/PPoP

growth of 41%/35% YoY, led by strong disbursements and healthy margin

(11.6% of AUM). We build in a robust 25% AUM CAGR over FY23-FY24E.

Cost-to-income, at 35%, was driven by investments in new initiatives.

Asset quality improves; credit costs normalising: GNPA/NNPA improved

to 1.7%/0.8%, with most segments trending better although the auto segment

continued to be an exception with GNPA at 11%. While the third wave has

had little impact on portfolio performance so far, management has

prudently increased the cumulative provisions to INR10.8bn (0.6% of AUM).

We build in average loan loss provisions at 1.7% of AUM for FY23-FY24E.

Super-app – an unproven journey: Phase-II of BAF’s digital initiatives is

targeted at NTB customer acquisitions and cross-sell to existing customers.

However, we will wait for evidence of significant traction from these

initiatives, before turning constructive on potential medium-term growth

forecasts.

Financial summary

(INR bn) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ

(%) FY21 FY22E FY23E FY24E

NII 47.3 33.6 40.7 42.9 10.2 138.9 174.3 208.5 263.1

PPOP 39.2 29.1 34.9 33.0 18.6 119.6 142.3 170.1 215.1

PAT 21.3 11.5 85.5 14.8 43.6 44.2 69.0 99.8 126.5

EPS (INR) 35.0 19.8 76.8 24.4 43.3 73.5 114.8 166.0 210.3

ROAE (%) 12.8% 17.2% 20.7% 21.5%

ROAA (%) 2.6% 3.7% 4.4% 4.4%

ABVPS (INR) 594.8 697.5 849.5 1,037.1

P/ABV (x) 13.1 11.1 9.1 7.5

P/E (x) 105.8 67.7 46.8 36.9

Change in estimates

INR bn FY22E FY23E FY24E

Old New Chg Old New Chg Old New Chg

AUM 1,918 1,918 0.0% 2,409 2,409 0.0% 3,021 3,021 0.0%

NIM (%) 9.9 10.1 24bps 9.5 9.6 10bps 9.7 9.7 0bps

NII 170.1 174.3 2.5% 206.4 208.5 1.0% 263.0 263.1 0.0%

PPOP 139.3 142.3 2.2% 168.1 170.1 1.2% 215.1 215.1 0.0%

PAT 69.7 69.0 -1.0% 97.7 99.8 2.2% 126.4 126.5 0.0%

ABVPS (Rs) 695 698 0.4% 845 849 0.6% 1,034 1,037 0.3%


REDUCE

CMP (as on 18 Jan 2022) INR 7,744

Target Price INR 5,536

NIFTY 18,113

KEY CHANGES OLD NEW

Rating REDUCE REDUCE

Price Target INR5529 INR 5536

EPS % FY22E FY23E FY24E

-1.0% 2.2% 0%

KEY STOCK DATA

Bloomberg code BAF IN

No. of Shares (mn) 604

MCap (INR bn) / ($ mn) 4,674/62,808


52 Week high / low INR 8,100/4,362


3M 6M 12M

Absolute (%) (1.5) 26.4 64.1

Relative (%) 0.1 12.1 39.0


Jun-21 Sep-21

Promoters 56.0 56.0


FPIs 24.0 24.2


Pledged Shares - -

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 20

HSIE Results Daily

Kotak Mahindra Bank

Capitalising on growth impulses; upgrade to ADD

Kotak Mahindra Bank’s (KMB) Q3FY22 performance was broadly in line with

our estimates, predominantly on the back of a favourable credit cost outcome

(credit costs at negative 20bps due to lower slippages and reversal of COVID

provisions). However, the biggest surprise was on the balance sheet front with

a second straight quarter of 8% sequential loan growth, driven by sustained

acceleration across home loans as well as unsecured personal loans and credit

cards. Even as growth impulses have now sustained for two straight quarters,

management commentary reflects refreshing confidence, especially for a

franchise that has been historically perceived to be overly conservative in its

approach to risk. We opine that KMB is finally in all readiness to capitalise on

its franchise competitiveness despite the trade-offs ahead in terms of diluting

its superior metrics (funding costs and opex ratios) in a high-growth phase. We

upgrade from REDUCE to ADD with an SOTP-based target price of INR2,040

(standalone bank at INR1,448, 3.7x Sep-23 ABVPS).

Formidable pricing advantage: Capitalising on savings deregulation and its

pivot to digital account opening ahead of other banks, KMB has steadily

built a formidable cost leadership with its SA mix at 41% (8-10 percentage

points ahead of peers), reflecting in superior funding costs (~80bps ahead of

peers), which allowed it to build a high-quality customer franchise on the

asset side of the balance sheet.

Accelerating client acquisition: KMB has leveraged the classic 4Ps (product,

price, place and promotion) of marketing to build a well-balanced, super-

prime and prime-plus customer franchise. Sustained cost leadership and a

constantly-improving DIY acquisition engine have allowed for accelerated

client acquisition and a larger customer funnel through the digital channel

(2.1mn customers added during Q3FY22; up ~3x over Q3FY21).

Firing on multiple growth engines: KMB’s loan book clocked 8% sequential

growth - including credit substitutes, loan growth clocked in at +20% YoY, a

huge positive surprise. While the loan growth continues to be dominated by

home loans (+38% YoY) on the back of loss-leader pricing, the bank is now

seeing the first signs of cross-sell conversion into other profitable consumer

segments, including unsecured personal loans and credit cards.

Subsidiary businesses on a tear: KMB’s subsidiaries have also delivered

strong earnings, contributing one-third of the consolidated PAT during the

quarter, driven by formidable tailwinds to its best-in-class capital market

businesses (investment banking and broking).

Trade-offs ahead: Given a mere 2% market share, we opine that KMB has an

extremely long growth runway. We raise our loan growth forecasts by 4-6%,

offset by higher opex ratios and incrementally lower spreads, as we expect

KMB to further ramp up its productivity metrics (term deposit mobilisation)

in order to capitalise on the broader asset growth opportunities.

Financial summary (INR bn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ(%) FY21 FY22E FY23E FY24E

NII 43.3 38.8 11.8% 40.2 7.8% 153.4 166.7 193.6 221.4

PPOP 27.0 29.0 -7.0% 31.2 -13.4% 122.1 120.2 142.7 167.9

PAT 21.3 18.5 15.0% 20.3 4.9% 69.6 80.0 92.0 106.8

EPS (INR) 10.7 9.4 14.7% 10.2 4.9% 35.1 40.4 46.4 53.9

ROAE (%) 12.4 11.9 12.2 12.7

ROAA (%) 1.9 2.0 2.0 2.1

ABVPS (INR) 294.7 331.8 370.6 412.4

P/ABV (x) 6.4 5.7 5.1 4.6


ADD CMP (as on 28 Jan 2022) INR1,898

Target Price INR2,040

NIFTY 17,102

KEY

CHANGES OLD NEW

Rating REDUCE ADD

Price Target INR1,831 INR2,040

EPS % FY22E FY23E

1% 3%

KEY STOCK DATA

Bloomberg code KMB IN


MCap (INR bn) / ($ mn) 3,766/50,608




3M 6M 12M

Absolute (%) (9.5) 14.9 10.2

Relative (%) (4.9) 5.8 (11.8)


Sep-21 Dec-21

Promoters 26.0 26.0


FPIs 45.6 45.0


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 21

HSIE Results Daily

Axis Bank

Back-book seems sorted; next stop - pricing power

Axis Bank’s (Axis) earnings surprised positively (17% ahead of our estimates),

driven by strong traction in loan growth (17% YoY) and further normalisation

in credit costs (90bps annualised). The asset quality overhang seems largely

over with muted net slippages (0.6% of loans), a steady restructured pool

(0.7% of loans), and a receding sub-investment grade portfolio (1.7% of loans),

alongside comfortable provisioning (~2% of loans). While loan growth was a

positive surprise, especially in wholesale and SME portfolios, NIMs were flat

at 3.5%. Having stabilised its back-book, Axis Bank is now commencing the

next leg of its journey anchored around sustained loan growth, portfolio re-

balancing towards higher-yielding loans, reflecting in better pricing power -

key monitorable to drive RoA reflation beyond 1.5% and further rerating. We

increase our FY22/FY23E earnings estimates by 3% each to factor in lower

credit costs and higher loan growth and maintain BUY with a revised SOTP-

based target price of INR950 (standalone bank at 2.1x Sep-23 ABVPS).

Improving balance sheet growth drives PPOP growth: Axis reported NII/

fee income growth of 17%/15% YoY on the back of strong loan growth (+17%

YoY). Axis continued to clock high opex (2.5% of assets), driven by

continued investments in tech and digital initiatives. Loan growth was

driven by housing (+20%), LAP (+29%), business banking (+50%) and SME

(+20%), while corporate loan growth also witnessed an uptick (+13%).

Asset quality woes mostly over: With a second successive quarter of low

credit costs (1.1% of loans), along with muted net slippages and absence of

negative shocks, the bank’s back-book clean-up seems largely accomplished.

Given comfortable provisioning, credit costs are likely to normalise (FY23-24

average at 1.2%).

1.5% RoA in sight; other levers necessary for RoA reflation: Axis reported

1.4% RoA in Q3FY22 and seems well on track to achieve 1.5% RoA by FY23.

However, any further reflation in earnings is largely contingent upon

emerging evidence on rising asset yields, particularly by increasing the mix

of unsecured retail and SME loans and exercising pricing power across the

portfolio, which is currently sub-par compared to other large private banks.

Financial summary (INR bn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

NII 86.5 73.7 17.4% 79.0 9.5% 292.4 333.5 396.2 466.5

PPOP 61.6 61.0 1.1% 59.3 3.9% 257.0 256.6 332.8 399.7

PAT 36.1 11.2 223.6% 31.3 15.3% 65.9 126.3 177.7 212.5

EPS (INR) 11.8 3.7 221.9% 10.2 15.3% 21.5 41.2 58.0 69.4

ROAE (%) 7.1 11.7 14.6 15.3

ROAA (%) 0.7 1.2 1.5 1.5

ABVPS (INR) 302.6 340.9 392.9 449.0

P/ABV (x) 2.3 2.1 1.8 1.6

P/E (x) 32.7 17.1 12.1 10.1

Change in estimates


Old New Change Old New Change Old New Change

Net advances 6,948 7,177 3.3% 8,060 8,308 3.1% 9,451 9,733 3.0%

NIM (%) 3.61 3.64 3 bps 3.74 3.79 5 bps 3.83 3.85 3 bps

NII 325.1 333.5 2.6% 379.5 396.2 4.4% 450.1 466.5 3.7%

PPOP 264.4 256.6 -2.9% 326.2 332.8 2.0% 391.1 399.7 2.2%

PAT 122.5 126.3 3.1% 172.4 177.7 3.1% 208.9 212.5 1.7%

Adj. BVPS (INR) 345.5 340.9 -1.3% 398.4 392.9 -1.4% 453.8 449.0 -1.1%


BUY



NIFTY 17,149

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

3.1% 3.1%

KEY STOCK DATA

Bloomberg code AXSB IN


MCap (INR bn) / ($ mn) 2,162/29,046




3M 6M 12M

Absolute (%) (13.7) (6.7) 9.3

Relative (%) (8.3) (15.2) (8.3)


Sep-21 Dec-21

Promoters 11.6 9.7


FPIs 55.7 51.7


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 22

HSIE Results Daily

SBI Life Insurance

Steady growth; in-line performance SBILIFE’s total APE was in line with our estimates; however, growth in the

protection segment moderated to 14% YoY due to limited access to physical

medicals. With strong growth in the NPAR and annuities segment and a

decent share of protection in the mix, VNB growth was stellar (+57% YoY). We

are positively impressed by the growth in premium from other channels (incl.

banca ex-SBIN), which is mitigating dependence on any single channel. The

company's three growth levers continue to remain in place: (1) parent SBI’s

massive distribution network (24k+ branches); (2) healthy share of protection;

and (3) lowest opex ratio amongst peers (9MFY22: 8.6%). We expect SBILIFE to

deliver a healthy FY21-24E VNB CAGR of 25% and retain our BUY rating on

the stock with an unchanged TP of INR1,530 (2.7x Sep-23E EV).

Strong on growth and margins: SBILIFE printed total APE at INR45.8bn

(+31% YoY; 2y CAGR 17%), in line with the estimate and higher than the

growth reported by private life insurers; the same was led by NPAR

segment (86%), ULIP, and annuities. The retail protection segment is seeing

growth moderate to 14% YoY, on the back of restricted medicals; however,

management is confident of regaining traction in its new product (launched

in Q2). The annuity segment delivered stellar growth (+100% YoY),

supporting margins. Adj. VNB grew 57%, boosted by healthy VNB margin

at 25.7% (+426bps YoY, on ETR). Management stated that margin expansion

has been primarily a function of the rising share of NPAR and annuities in

the mix and greater proportion of high-margin products. Persistencies

improved across cohorts in the range of 49-448bps, except for the 61st month.

Within the channel mix, new corporate partnerships registered an

impressive +51% YoY growth. SBILIFE did not taken any price hikes in Q3.

COVID reserves: COVID claims softened to INR1.9bn (0.2x of Q2 claims)

and were well within the mortality assumptions; however, the company

continues to carry closing COVID reserves of INR2.66bn to cover for any

spike on account of the Omicron variant.

Financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

NBP 72.9 54.4 -10.6 81.5 0.0 206.2 286.4 338.8 411.1

APE 45.8 35.1 15.0 39.8 0.0 114.5 147.5 169.4 194.2

Adj. VNB 11.8 7.5 14.8 10.3 0.0 26.6 38.6 45.1 52.4

Adj. VNBM (%) 25.7 21.5 426bps 25.8 -4bps 23.2 26.2 26.6 27.0

EV

350.6 411.6 483.7 566.3

MCap/EV (x)

3.5 3.0 2.6 2.2

P/VNB (x)

36.3 23.0 18.4 14.4

RoEV(%)

27.7 17.9 18.2 18.1


Change in estimates

(INR bn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

APE 147.5 147.5 0.0 169.4 169.4 0.0 194.2 194.2 0.0

VNB 38.6 38.6 0.0 45.1 45.1 0.0 52.4 52.4 0.0

VNBM (%) 26.2 26.2 0 26.6 26.6 0 27.0 27.0 0

EV 411.6 411.6 0.0 483.7 483.7 0.0 566.3 566.3 0.0


BUY

CMP (as on 21 Jan 2022) INR 1,241


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY

Price Target INR 1,530 INR 1,530

VNB % FY22E FY23E

Nil Nil

KEY STOCK DATA

Bloomberg code SBILIFE IN


MCap (INR bn) / ($ mn) 1,241/16,676


52 Week high / low INR 1,315/838


3M 6M 12M

Absolute (%) 7.1 22.3 41.3

Relative (%) 10.2 9.2 22.3


Sep-21 Dec-21

Promoters 55.7 55.7


FPIs 24.5 24.5


Pledged Shares Nil Nil

Source : BSE

Krishnan ASV

[email protected]

+91-22-6171-7314

Sahej Mittal

[email protected]

+91-22-6171-7325

P a g e | 23

HSIE Results Daily

ICICI Prudential Life

All eyes on momentum picking up

ICICI Prudential Life (IPRU) reported slower-than-industry APE growth

(+16% YoY, in-line with estimates), translating into a 20% YoY VNB growth.

We like IPRU’s reengineered business model, which is focused on a more

diversified product and channel mix, industry-leading share in sum assured

(9MFY22: 12.7%), and rising share of traditional products. We expect the

launch of new products coupled with strong momentum from non-ICICIBC

channel to aid future growth. We expect VNB to clock a 21.6% CAGR over

FY21-24E. We retain our ADD rating with a DCF-derived target price of

INR700 (Sep-23 EV + 24.5x Sep-23E VNB). The stock is currently trading at

FY22/23E P/EV of 2.8/2.4x and P/VNB of 27.3/21.6x.

In-line performance: Total APE grew slower than the private life insurance

industry, at 16% YoY (2-year CAGR at -3%), to come in at INR19.3bn, +3%

vs. estimates. Group protection exhibited strong growth (+70% YoY) on the

back of a pick-up in disbursements and new group-term arrangements

while retail protection de-grew 28% YoY as a result of limited medicals in a

restrictive environment; ULIP sale has remained encouraging, in line with

capital market buoyancy. Banca partners, other than ICICIBC, continue to

deliver strong growth momentum (+40% YoY). VNBM for Q3FY22 was in

line at 26.7% (+60bps sequentially), largely on account of higher share of

protection (+170bps QoQ) in the mix, driving VNB +20%YoY to INR5.2bn.

COVID provisioning and repricing products: Net COVID claims in Q3

were just shy of INR1.2bn (0.3x Q2 claims). IPRU additionally carries

INR2bn as closing reserves to cover any potential claims from the third

wave. The company has launched two products: long-term (30-yr) NPAR

savings product and a ROP protection plan to cater to underserved

customer cohorts. The company is aggressively expanding its agency

network (6k additions in Q3 vs. 12k in H1) to ramp up new business while

also targeting productivity gains. Persistency for 8MFY22 improved across

cohorts in the range of 150-300bps YoY, except in the 49th and 61st months.

Quarterly financial summary


NBP 39.0 34.7 12.3 37.3 4.6 132.3 184.7 220.7 259.1

APE 19.3 16.7 15.8 19.8 -2.4 64.6 80.6 95.6 109.1

VNB 5.15 4.28 20.3 5.15 - 16.2 21.3 25.3 29.1

VNBM (%) 26.7 25.7 100bps 26.0 60bps 25.1 26.5 26.5 26.7

EV

291.1 318.2 362.0 412.0

P/EV (x)

3.0 2.7 2.4 2.1

P/VNB (x)

39.8 27.3 22.0 17.6

ROEV (%)

26.4 9.4 15.6 15.7


Change in estimates

(INR mn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

APE 80.6 80.6 0.0 95.6 95.6 0.0 109.1 109.1 0.0

VNB 21.3 21.2 0.8 25.3 25.3 0.0 29.1 29.1 0.0

VNBM (%) 26.5% 26.3% 20 26.5% 26.5% 0 26.7% 26.7% 0

EV 318.2 318.1 0.1 362.0 361.9 0.0 412.0 411.8 0.0


ADD



NIFTY 18,113

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target INR700 INR700

VNB % FY22E FY23E

+0.8% 0.0%

KEY STOCK DATA

Bloomberg code IPRU IN


MCap (INR bn) / ($ mn) 874/11,743




3M 6M 12M

Absolute (%) (9.7) (3.0) 19.9

Relative (%) (8.1) (17.4) (5.2)


Sep-21 Dec-21

Promoters 73.4 73.4


FPIs 17.2 16.9



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Sahej Mittal

[email protected]

+91-22-6171-7325

P a g e | 24

HSIE Results Daily

SBI Cards and Payment Services

Reversion to steady-state metrics in play

SBI Cards reported earnings 12% below estimates due to higher-than-expected

provisioning. The business momentum witnessed steady traction in terms of

CIF (+15% YoY) and unit spends (+28% YoY), translating into higher fee

income (+31% YoY). However, unit receivables per card (-1.2% YoY) remained

muted, driving soft NIM (14%), as the share of revolve in receivables (27% of

mix) continues to be sub-optimal. Net credit costs clocked in at 7.1%, led by

accelerated write-offs and prudent management overlay (110bps); they are

likely to subside further with a receding stress pool [GS-II (9.4%) and RBI-RE

portfolio (2%)]. While potential regulations on MDR cap for credit cards are

an overhang, we argue that SBI Cards has profitability setoffs. The recent

correction offers an attractive price point into a well-regulated, high-quality

high-growth franchise. We tweak our earnings estimates by ~1% and maintain

BUY with a target price of INR1,100 (30x Sep-23 EPS).

Strong earnings growth: SBI Cards reported healthy PPOP growth of 23%

YoY on the back of strong other income (+36% YoY), partially offset by weak

NII growth (+10% YoY) and high opex (+28% YoY). High opex was driven

by higher account additions, marketing campaigns, and tech investments to

scale up and further digitise the customer acquisition engine.

Re-leveraging of balance sheet to drive per card profitability: The

increasing share of revolve in the loan mix with improving spends traction

is likely to drive the per card profitability for SBI Cards. Except for

marginally lower interchange fees (1.41% in Q3FY22 vs. 1.56% for FY20),

most of the other fee income streams are almost at pre-COVID levels. New

customer acquisitions remain well-balanced (~50:50) between Banca and

Open market channels.

Reversion to steady-state to drive high return ratios: SBI Cards delivered

RoA/RoE of 5%/21% in Q3FY22 despite elevated credit costs and muted NII.

With the stress pool receding and gradual re-leveraging of the portfolio, it is

poised to deliver >6% RoA by FY24. While we ascribe a low probability to

the RBI capping credit card MDRs, we believe that SBI Cards has levers to

offset its profitability in case of unfavourable regulations.


NII 10.0 9.1 9.9 9.2 8.4 38.8 39.9 55.3 73.7

PPOP 11.4 9.3 22.9 10.6 8.1 39.6 43.9 54.8 70.3

PAT 3.9 2.1 84.0 3.4 11.9 9.8 15.0 22.8 30.2

EPS (INR) 4.1 2.2 84.2 3.6 12.1 10.5 16.0 24.2 32.1

ROAE (%) 16.9% 21.7% 26.6% 28.0%

ROAA (%) 4.0% 4.9% 5.9% 6.2%

ABVPS (INR) 64.2 78.0 97.7 124.1

P/ABV (x) 12.7 10.5 8.3 6.6

P/E (x) 77.8 51.0 33.7 25.4

Change in estimates



Gross advances 315 315 0.0% 402 402 0.0% 506 506 0.0%

NIM (%) 14.4 14.1 -33 bps 15.4 15.3 -3 bps 16.0 16.1 3 bps

NII 40.8 39.9 -2.3% 55.4 55.3 -0.2% 73.5 73.7 0.2%

PPOP 42.3 43.9 4.0% 54.3 54.8 0.8% 70.1 70.3 0.3%

PAT 15.0 15.0 0.1% 22.6 22.8 0.8% 30.2 30.2 0.0%

Adj. BVPS (INR) 77 78 1.0% 96 98 1.5% 123 124 1.2%


BUY



NIFTY 17,149

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

0.1% 0.8%

KEY STOCK DATA

Bloomberg code SBICARD IN


MCap (INR bn) / ($ mn) 768/10,327




3M 6M 12M

Absolute (%) (27.9) (14.8) (21.1)

Relative (%) (22.4) (23.4) (38.7)


Sep-21 Dec-21

Promoters 69.4 69.5


FPIs 16.2 13.4


Pledged Shares 0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 25

HSIE Results Daily

IndusInd Bank

Still searching for retail portfolio stability

IndusInd Bank’s (IIB) Q3 earnings were 7% below estimates due to higher-

than-expected provisioning. The bank continued to witness elevated gross

slippages at 5%, nearly half from the MFI book (vs. 12% of loans), indicating

that the MFI portfolio continues to reel under stress. Credit costs too remained

elevated as the bank shored up its contingency buffer (1.5% of loans), while

also maintaining the coverage ratio at 72%. While deposit mobilisation stayed

strong (CASA +24% YoY), prolonged softness in two key segments (vehicle

finance, and MFI) continued to drag loan growth (~10% YoY), reflecting in

below-potential NIMs (4.1%). We revise our FY22E/FY23E earnings estimates

downward by 7%/4% to factor in marginally higher credit costs and maintain

REDUCE with a revised TP of INR899 (1.3x Sep-23 ABVPS).

Stable credit growth; lower C/D ratio: IIB reported in-line NII (+11% YoY)

and PPOP (+12% YoY), driven by steady loan growth and stable margins

(4.1%). Funding costs improved by 11bps sequentially (4.3%), with rising

CASA traction. Loan growth continues to be driven by the corporate

segment (+19% YoY), with focus on better-rated companies dragging asset

yields, while the consumer portfolio (+4% YoY) remains muted (vehicle: -1%

YoY).

Asset quality improving slower than peers: During a quarter where peer

banks have demonstrated significant normalisation in asset quality across

the portfolio, IIB’s retail (CFD) gross/net slippages remained elevated at 8%

and 4.2% of loans (MFI annualised gross slippages at 21%). The bank booked

accelerated annualised write-offs at 3%, ~56% from the MFI book. Recoveries

also included INR7.4bn from sale to ARC, a similar run rate as Q2FY22.

Protracted portfolio stabilisation; maintain REDUCE: Elevated slippages

and muted credit growth suggest that portfolio stabilisation is still distant.

While the bank’s internal review has indicated no serious lapses in the MFI

portfolio, we opine this also poses a regulatory overhang (aside from the

external review). We maintain our REDUCE stance on IIB as we continue to

watch out for signs of portfolio stability.


NII 37.9 34.1 11.4% 36.6 3.7% 135.3 150.8 171.6 189.8

PPOP 33.1 29.6 11.8% 32.2 2.9% 117.3 131.9 139.9 155.2

PAT 12.4 8.3 49.5% 11.5 8.3% 28.4 48.8 67.0 79.8

EPS (INR) 16.0 11.0 46.4% 14.8 8.5% 36.7 63.1 86.6 103.2

ROAE (%) 7.3 10.7 13.1 13.8

ROAA (%) 0.8 1.3 1.6 1.6

ABVPS (INR) 541.6 591.9 668.7 758.7

P/ABV (x) 1.7 1.5 1.4 1.2

P/E (x) 24.6 14.3 10.4 8.8

Change in Estimates



Net advances 2,336 2,367 1.3% 2,661 2,690 1.1% 3,030 3,065 1.2%

NIM (%) 4.3 4.4 7bps 4.5 4.4 -5bps 4.5 4.3 -14bps

NII 151.4 150.8 -0.4% 170.8 171.6 0.4% 189.8 189.8 0.0%

PPOP 128.6 131.9 2.6% 139.2 139.9 0.6% 155.4 155.2 -0.1%

PAT 52.2 48.8 -6.5% 69.5 67.0 -3.7% 80.0 79.8 -0.2%

Adj. BVPS (INR) 596.2 591.9 -0.7% 679.7 668.7 -1.6% 766.4 758.7 -1.0%


REDUCE



NIFTY 17,102

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

-6.5% -3.7%

KEY STOCK DATA

Bloomberg code IIB IN


MCap (INR bn) / ($ mn) 700/9,405




3M 6M 12M

Absolute (%) (23.2) (9.0) 12.6

Relative (%) (18.5) (18.1) (9.5)


Sep-21 Dec-21

Promoters 16.5 16.5


FPIs 51.7 47.7



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 26

HSIE Results Daily

ICICI Lombard

Weak CoRs continue; growth remains a concern

ICICI Lombard reported an in-line Q3 performance; weak growth in motor as

well as retail health segments has been the major setback. Also, combined

ratios (CoRs) have been elevated for the past few quarters (>105%), as health

and motor saw increased claims on the back of steady normalisation. For the

rest of FY22, we expect loss ratios in the health segment to stabilise and

remain range-bound, owing to the rapid pace of vaccination and mild nature

of the Omicron variant. Given that the valuation seems rich and uncertainties

exist around repricing in motor TP, we rate ICICIGI a REDUCE with a TP of

INR1,350 (implying a Sep-23E PE of 26.9x and a P/ABV of 5.1x).

Loss ratios deteriorate: ICICIGI reported slower-than-industry growth, with

NEP at INR33.1bn (+1.9% QoQ), owing to a poor motor sector forecast and

the fact that the retail health segment is still waiting to pick up pace. Loss

ratios in the health segment deteriorated to 75.1% (+370bps QoQ) on the

back of higher elective surgeries and acute disease claims, while

normalisation of road traffic pushed up the claims ratio in the motor

segment. Although the COVID claims intimation in Dec-21 has been much

lower than at the peak of the second wave, it remains a monitorable. While

the combined ratio for the quarter (calculated) moderated to 105% (-133bps

QoQ), it is materially higher than the historical CoR (sub-100%).

Management guidance suggests that CoRs are likely to improve but will

remain above 100% in the near to medium term. Higher-than-estimated float

income of INR7bn drove APAT to INR3.18bn (+4% vs. estimates).

Strategic plans: ICICIGI guided towards better revenue synergies over the

next 18-24 months by up-selling higher-yielding products to Bharti AXA’s

customer base; however, cost synergies are expected to kick in relatively

sooner over the next 9-12 months, led by initiatives such as branch

rationalisation (branch count down from 400 in Q2FY22 to 285 in Q3FY22).

The company has added 400 agents to its retail health network and is

showing signs of recovery from Dec-21 onwards. While retail health

continues to remain a valuable proposition and a key focus area for ICICIGI,

the company is likely to exit the crop business that was acquired from Bharti

AXA by FY23E. ICICIGI continues to maintain its defensive stance on motor

OD, given the competitive pricing environment.


(INR bn) Q3FY22 Q3FY21 YoY(%) Q2FY22 QoQ(%) FY21 FY22E FY23E FY24E

Premium (NEP) 33.12 26.11 NM 32.50 1.9 100.1 131.1 153.9 176.7

Operating profit 4.19 4.23 (NM 5.94 (29.5) 20.6 19.3 31.0 35.9

OP margin (%) 12.6 16.2 NM 18.3 -563bps 20.5 14.7 20.2 20.3

APAT 3.18 3.17 (NM 4.47 (28.9) 15.3 14.2 23.0 26.7

AEPS 6.5 6.5 NM 9.1 (28.9) 33.6 29.0 46.9 54.3

P/E (x)

42.4 49.1 30.3 26.2

P/B (x)

8.2 7.0 5.9 5.0

ROE (%)

22.1 14.1 17.6 17.5

Note: FY22E onwards, numbers include Bharti AXA GI’s merger. YoY numbers are not comparable

for Q2FY22 as Q3FY21 is standalone ICICIGI. Source: Company, HSIE Research

REDUCE

CMP (as on 19 Jan 2022) INR 1,423


NIFTY 17,938

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

Nil -2.4%

KEY STOCK DATA

Bloomberg code ICICIGI IN


MCap (INR bn) / ($ mn) 698/9,385




3M 6M 12M

Absolute (%) (6.9) (4.5) (5.8)

Relative (%) (4.3) (18.8) (27.4)


Sep-21 Dec-21

Promoters 48.1 48.1


FPIs 27.7 28.1



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Sahej Mittal

[email protected]

+91-22-6171-7325

P a g e | 27

HSIE Results Daily

Cholamandalam Investment and Finance Company

Stress book sticky; seeking new avenues of growth

Chola’s Q3FY22 earnings were a mild miss due to higher provisioning as the

aggregate stressed portfolio (GS-II + GS-III) remained sticky at 16% (Q2FY22:

19%). GNPA/NNPA printed higher at 8.5%/5.8% vs. GS-III/NS-III at

5.9%/3.7%, impacted by the RBI’s revised IRAC norms. The management

reiterated that the elevated GS-II includes restructured loans (6.3% of AUM),

which continue to perform well, reflecting better collection efficiencies. The

company’s foray into three new businesses in retail and SME lending is likely

to augment disbursals (+32% YoY, +20% QoQ) although these portfolios are

only likely to gain traction in the medium term. We trim our FY22/FY23

earnings by 2%/1% to factor in higher credit costs; maintain BUY with a

revised target price of INR646.

In-line operating performance: Chola reported muted NII (+6% YoY) and

PPOP (-4% YoY) growth on the back of a moderate AUM growth (+6% YoY)

and higher opex (C/I ratio at 36%). NIMs reflated sharply to 8.1% (Q2FY22:

7.7%), reflecting late-stage funding cost tailwinds. Disbursals were strong

(+32% YoY), particularly in the home equity segment (+59% YoY).

Stress pool remains sticky; LGDs unlikely to change: The aggregate stress

pool (16% of AUM) seems elevated, compared to pre-COVID levels of ~9-

10%, partly contributed by the restructured pool at 6.3% of loans, which is

largely current and standard (<30dpd). Consistent with upgradation norms,

~270bps of additional loans were classified as NPA, but are a part of GS-I/II

buckets. Provisioning stock remained steady at ~4% of loans (Q2FY22: 4.1%),

with GS-II PCR at 14%. Our LGD estimates on the stress pool remain largely

unchanged, reflecting sustained improvements in collection efficiency.

New businesses to augment growth; build-out key monitorable: Chola has

forayed into three new businesses focused on retail and SME lending to

disburse secured and unsecured personal and business loans, to be sourced

through a combination of FinTech partnerships, DSAs and its own branches.

While this is likely to further augment AUM growth, we remain watchful of

the traction in these segments, especially given rising competitive intensity,

and the evolving nature and limited vintage of its FinTech partnerships.


NII 13.6 12.9 6.0 12.7 7.4 46.5 52.8 59.3 69.0

PPOP 9.5 10.0 (4.3) 8.7 8.9 33.6 38.1 45.0 52.3

PAT 5.2 4.1 28.1 6.1 (13.6) 15.1 20.6 24.7 30.2

EPS (INR) 6.4 5.0 27.9 7.4 (13.7) 18.5 25.1 30.1 36.8

ROAE (%) 17.1 19.6 19.7 20.1

ROAA (%) 2.2 2.7 2.9 3.1

ABVPS (INR) 98.2 115.3 146.6 179.5

P/ABV (x) 6.5 5.5 4.4 3.6

P/E (x) 34.5 25.4 21.2 17.3

Change in estimates



AUM 762 762 0.0% 866 866 0.0% 1,014 1,014 0.0%

NIM (%) 7.2 7.2 0 bps 7.3 7.3 0 bps 7.3 7.3 0 bps

NII 52.8 52.8 0.0% 59.3 59.3 0.0% 69.1 69.0 0.0%

PPOP 38.6 38.1 -1.3% 45.0 45.0 0.0% 52.4 52.3 0.0%

PAT 21.0 20.6 -1.9% 24.9 24.7 -1.0% 30.3 30.2 -0.5%

Adj. BVPS (INR) 118.4 115.3 -2.6% 148.4 146.6 -1.2% 182.0 179.5 -1.4%


BUY



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-2% -1%

KEY STOCK DATA

Bloomberg code CIFC IN


MCap (INR bn) / ($ mn) 525/7,052




3M 6M 12M

Absolute (%) 4.8 21.4 45.6

Relative (%) 5.6 8.9 26.0


Sep-21 Dec-21

Promoters 51.6 51.6


FPIs 17.9 17.7



Source : BSE


Deepak Shinde

[email protected]

+91-22-6171-7323

Krishnan ASV

[email protected]

+91-22-6171-7314

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 28

HSIE Results Daily

Bandhan Bank

Low-hanging gains accrued; tough grind ahead

Bandhan Bank’s Q3FY22 earnings were marginally ahead of our estimates,

largely driven by higher-than-expected other income. The bank witnessed a

sharp reduction in early delinquency buckets of its EEB portfolio (~1000bps

reduction in 1-60dpd buckets) and restructured pool (INR17.3bn). However,

the total stressed pool of its EEB portfolio (SMA-II+ GNPA+ restructured)

remains sticky at 27% of loans (Q2FY22: 29%), indicating stubbornness of

high-vintage stressed assets. Incremental disbursements were driven

predominantly by non-EEB segments, in line with management guidance of

portfolio diversification (Group EEB share of the portfolio at 30% by FY25).

However, we remain watchful of the impending shift in the bank’s

sustainable RoE profile with these proposed changes to the portfolio mix.

Given low-base earnings, a marginal increase in credit costs from slower

resolution of high-vintage buckets of stressed loans results in a 75% cut to our

FY22 earnings forecasts. Maintain BUY with a revised target price of INR363

(2.7x Sep’23 ABVPS).

Disbursements gain traction, driven by non-MFI portfolio: Bandhan’s

disbursals grew 32%/61% YoY/QoQ, with incremental growth driven by the

non-MFI portfolio. EEB-individual’s share in the portfolio continued to inch

up steadily to 14% (Q3FY21: 6%), while the mix of housing and commercial

segments remained largely stable.

Early-stage delinquencies normalise; late-stage stays stubborn: Bandhan

reported GNPA/NNPA at 10.8%/3%, broadly stable sequentially as strong

recoveries were offset by higher delinquencies (slippages at 17% annualised)

in the early-delinquency buckets. The bulk of the stress continues to

emanate from the vulnerable EEB portfolio (84% of GNPA). Improvement in

collection efficiency in the MFI portfolio in two key states (West Bengal at

96% and Assam at 91%) is a positive. While early-stage delinquent buckets

witnessed a sharp sequential improvement, the late-stage delinquency

buckets (SMA-II+NPA) remain extremely stubborn, suggesting that the low-

hanging gains have already accrued during the quarter. Unwinding of the

late-stage stress pool remains a key monitorable.


NII 21.2 20.7 2.6% 19.4 9.8% 75.6 83.9 95.6 115.6

PPOP 19.5 19.1 1.9% 15.5 25.9% 68.6 71.7 78.4 91.9

PAT 8.6 6.3 35.8% (30.1) NM 22.1 1.4 40.1 51.4

EPS (INR) 5.3 3.9 36.0% (18.7) NM 13.7 0.9 24.9 31.9

ROAE (%) 13.5 0.8 21.0 22.3

ROAA (%) 2.1 0.1 2.9 3.1

ABVPS (INR) 90.3 96.0 119.5 147.4

P/ABV (x) 3.3 3.1 2.5 2.0

P/E (x) 21.5 338.2 11.9 9.2

Change in estimates



Net advances 884 880 -0.4% 1,067 1,065 -0.2% 1,295 1,300 0.4%

NIM (%) 7.5 7.5 -2 bps 7.5 7.4 -3 bps 7.5 7.5 -1 bps

NII 84.2 83.9 -0.3% 96.1 95.6 -0.5% 115.5 115.6 0.0%

PPOP 71.7 71.7 0.0% 79.0 78.4 -0.7% 91.8 91.9 0.1%

PAT 5.6 1.4 -75.0% 40.6 40.1 -1.3% 51.5 51.4 -0.1%

Adj. BVPS (INR) 102.3 96.0 -6.1% 128.8 119.5 -7.2% 155.4 147.4 -5.2%


BUY



NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-75% -1%

KEY STOCK DATA

Bloomberg code BANDHAN IN


MCap (INR bn) / ($ mn) 476/6,396




3M 6M 12M

Absolute (%) (6.6) (2.4) (13.3)

Relative (%) (3.5) (15.5) (32.2)


Sep-21 Dec-21

Promoters 40.0 40.0


FPIs 33.6 34.6



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 29

HSIE Results Daily

AU Small Finance Bank

Hyper-investment fraught with uncertain outcomes

AUBANK’s Q3FY22 earnings were 14% ahead of our estimates due to lower-

than-expected provisioning. Asset quality continued to improve with negative

net slippages in the quarter, driving GNPA down to 2.6% (Q2FY22: 3.2%). The

bank sustained its business momentum, with strong disbursement growth

(+33% YoY, +59% QoQ). AUBANK has further stepped up its investments on

franchise-building blocks (employees, branches, tech) and new asset classes

(credit cards, merchant acquiring), which are likely to stretch expense ratios

and drag near-term profitability metrics (opex to assets at ~5%). We increase

our FY233/FY23E earnings estimates by 6%/5% to factor in lower credit costs,

partially offset by elevated opex. We maintain our REDUCE stance with a

revised TP of INR1,127 (4.1x Sep-23 ABVPS) as the valuation continues to be

demanding, leaving no room for any disappointment.

Strong income growth; ramping up on opex: AUBANK reported robust NII

growth (+30% YoY), driven by strong loan growth (+33% YoY) and reflating

NIMs (6.3%). Other income (+50% YoY) was driven by loan processing fees

and PSLC fees. However, opex increased sharply (+51% YoY) on account of

higher employee headcount, business growth and investments (INR1.6bn

during 9MFY22) in franchise building, and new product initiatives; it is

likely to stay elevated in the medium term.

Asset quality continues to improve: GNPA/NNPA improved sequentially

to 2.6%/1.3% (Q2FY22: 3.2%/1.7%), led by strong upgrades and recoveries,

with ~70% resolution through cash recoveries. The restructured portfolio

(3.6%) and the contingency buffer (0.7%) were flat sequentially.

Investments scattered too thin; valuation too demanding: We argue that

AUBANK’s simultaneous investments in new growth engines such as credit

cards, merchant acquiring, in addition to its BAU franchise-building efforts,

are likely to be a drag on profitability. We highlight the fact that AUBANK’s

historically-low LGDs, which were built on a highly-secured portfolio, may

not sustain, given the rising pace of growth in its unsecured businesses.


NII 8.2 6.3 29.6% 7.5 8.9% 23.7 31.8 39.3 47.4

PPOP 4.6 8.7 -47.5% 3.9 17.1% 21.6 17.9 22.8 27.4

PAT 3.0 4.8 -36.9% 2.8 8.5% 11.7 10.8 12.9 15.7

EPS (INR) 9.5 15.5 -38.6% 8.8 8.3% 37.5 34.8 41.2 50.2

ROAE (%) 13.9 15.9 16.1 16.6

ROAA (%) 2.5 1.9 1.8 1.8

ABVPS (INR) 176.8 218.0 250.7 295.8

P/ABV (x) 7.2 5.8 5.1 4.3

P/E (x) 34.0 36.7 30.9 25.4

Change in estimates



Net advances 419 430 2.8% 500 518 3.6% 604 626 3.7%

NIM (%) 5.9 5.9 -2bps 5.9 5.9 0bps 6.0 6.0 -1bps

NII 31.7 31.8 0.3% 38.4 39.3 2.3% 45.8 47.4 3.4%

PPOP 18.8 17.9 -4.5% 22.6 22.8 0.7% 26.6 27.4 3.0%

PAT 10.2 10.8 6.3% 12.3 12.9 4.8% 15.3 15.7 2.4%

Adj. BVPS (INR) 210.6 218.0 3.5% 248.0 250.7 1.1% 293.3 295.8 0.8%


REDUCE

CMP (as on 28 Jan 2022) INR 1,271


NIFTY 17,102

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

6% 5%

KEY STOCK DATA

Bloomberg code AUBANK IN


MCap (INR bn) / ($ mn) 399/5,358




3M 6M 12M

Absolute (%) 3.5 8.2 46.1

Relative (%) 8.2 (0.8) 24.1


Sep-21 Dec-21

Promoters 28.4 28.3


FPIs 35.7 36.4


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 30

HSIE Results Daily

Max Financial Shift in product mix dents VNB margin

MAXL reported in-line total APE growth (-1.5% vs. estimates); however,

product mix migrating from NPAR to ULIP led to a lower-than-anticipated

VNB margin of 24.9% (-313bps vs. estimate), with VNB clocking in at

INR3.96bn (a two-year CAGR of 37%). With the Smart Income Plan in the

NPAR segment seeing strong traction, we believe MAXL is likely to maintain

a healthy share of NPAR in the mix. We lower our VNB estimates by 2-3% for

FY22E-24E on the back of the rising share of ULIP in the mix; further, we

expect MAXL to deliver VNB margins of 25-26% over FY22E-24E. We expect an

APE CAGR of 16.5%, a VNB CAGR of 17.3%, and operating RoEVs in the

range 20-21% over FY21-24E. We retain our ADD rating with a revised target

price of INR1,235 (Sep-22E EV + 20.2x Sep-23E VNB).

VNB margins disappoint: Max Life printed total APE in line with estimate

at INR15.9bn (a two-year CAGR of 26%); however, VNB margin was a

significant miss (-330bps vs. estimates) at 24.9% (-428bps QoQ), leading to a

VNB of INR3.96bn (+6% QoQ). The share of protection business in the

overall mix further moderated to 11%, as group protection declined 24%

QoQ. While the share of NPAR savings in the mix moderated to 23% (-10

pps QoQ), thereby denting margins, the company’s long-term outlook is to

maintain NPAR mix in 26-28% range. AXSB continued posting strong

growth (+32% QoQ) while other banks saw degrowth (-7% QoQ); we flag

this as a key monitorable going ahead. Persistency improved 100-200bps

(YoY) across cohorts in 9MFY22. EV clocked in at INR130bn (+17.6% YoY).

Commentary on price hike: MAXL is in negotiations with reinsurers for a

price hike in protection products - HDFCLIFE and IPRU also witnessed

material price hikes in Q3FY22. However, the company stated that any

price hikes will be passed on and will be margin-neutral. Management has

also indicated its intention to increase retention in protection business from

25% to 30-40%, which we believe will be margin accretive.

Financial summary

(INR bn) Q3

FY22

Q3

FY21 YoY (%)

Q2

FY21

QoQ


NBP 21.8 17.5 24.5 18.7 16.5 68.3 82.0 94.2 109.3

APE 15.9 12.3 30.0 12.8 24.1 49.6 59.2 68.0 78.3

VNB 3.96 3.50 13.1 3.74 5.9 12.5 15.0 17.4 20.1

VNB Margin (%) 24.9 28.6 -370bps 29.2 -428bps 25.2 25.3 25.5 25.7

EV

118.3 141.2 167.6 198.6

MCap/EV (x)*

3.3 2.8 2.3 2.0

P/Adj. VNB (x)*

23.5 18.3 14.5 11.2

ROEV

18.6 20.6 21.1 20.7

*Refers to implied P/VNB. EV adj for a stake in Max Life.


Change in estimates

(INR bn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

APE 59.2 59.2 0.0 68.0 68.0 0.0 78.3 78.3 0.0

VNB 15.0 15.4 -2.7 17.4 17.8 -2.6 20.1 20.6 -2.4

VNBM (%) 25.3 26.0 -70bps 25.5 26.2 -67bps 25.7 26.3 -64bps

EV 141.2 141.6 -0.3 167.6 168.5 -0.5 198.6 200.1 -0.7


ADD



NIFTY 17,102

KEY

CHANGES OLD NEW

Rating ADD ADD


VNB % FY21E FY22E

-2.7% -2.6%

KEY STOCK DATA

Bloomberg code MAXF IN


MCap (INR bn) / ($ mn) 317/4,254

6m avg traded value (INR mn) 805



3M 6M 12M

Absolute (%) (6.4) (17.7) 36.2

Relative (%) (1.8) (26.8) 14.1


Sep-21 Dec-21

Promoters 14.7 25.2


FPIs 27.7 26.1



Source : BSE

Krishnan ASV [email protected]

+91-22-6171-7314 Sahej Mittal [email protected]

+91-22-6171-7325

P a g e | 31

HSIE Results Daily

Shriram Transport Finance Company

Cyclical business in need of near-term catalysts

Shriram Transport Finance’s (SHTF) Q3FY22 earnings missed our estimates,

primarily due to higher provisions (INR3.5bn) on account of the RBI’s revised

norms on daily marking of NPAs. The stressed pool (GS-II + GS-III) improved

marginally on a QoQ basis to 20% of AUM and is expected to improve by a

further ~100bps in Q4FY22. Business momentum continued to pick up pace,

with 4% QoQ disbursal growth, and the management reiterated its double-

digit AUM growth guidance by Mar-22. With the current stock of provisions

at 7.9% (GS-III PCR at 50%), we expect loan loss provisioning to further

normalise. We trim our FY22 earnings estimates by ~1% to factor in the impact

of higher credit costs during the current quarter and maintain ADD with a

revised target price of INR1,530 (1.5x Sep-23 ABVPS).

PPOP beat driven by other income, late benefit of lower funding costs:

SHTF continued to report muted NII growth (+6% YoY), led by marginal

NIM reflation and asset growth. Other income surprised positively, driving

PPOP growth (+15% YoY). NIM reflated 20bps sequentially to 6.65%, driven

by belated funding cost tailwinds, and it is expected to improve further by

~10bps with run-down of surplus liquidity (~14% of AUM).

Adjusted GS-III improving; provisions to normalise: SHTF reported GS-II/

GS-III at 11.6%/8.4% (Q2FY22: 12.8%/7.8%). SHTF observed an adverse

impact on GS-III (80bps) and credit costs (100bps) from the RBI’s revised

NPA classification norms. The management has guided for GS-III/NS-III of

7.5%/4% by Q4FY22 on the back of a visible improvement in collections and

recovery efforts. We factor in credit costs of ~2% for FY23-FY24E.

Disbursements sustain momentum; merger timeline at ~9 months: Growth

momentum sustained for a fifth straight quarter with disbursements at

~INR155bn on the back of improving utilisation levels and demand for used

CVs, driven by improving economic activity. While the management has

guided for an indicative timeline of nine months for all statutory approvals

pertaining to the merger with SCUF, the extent of medium-term synergies

likely to accrue to the standalone business are still sketchy.


NII 22.6 21.5 5.5 21.4 5.6 80.7 86.9 96.8 113.0

PPOP 19.1 16.6 14.7 17.2 11.1 64.0 71.3 76.2 89.9

PAT 6.8 7.3 (6.5) 7.7 (11.8) 24.9 26.6 36.7 45.9

EPS (INR) 25.3 29.5 (14.5) 28.7 (12.0) 98.3 98.3 135.7 169.6

ROAE (%) 12.6 11.1 13.1 14.4

ROAA (%) 2.0 2.0 2.5 2.9

ABVPS (INR) 662 799 927 1,080

P/ABV (x) 1.8 1.5 1.3 1.1

P/E (x) 12.0 12.0 8.7 6.9

Change in estimates



AUM 1,276 1,280 0.3% 1,403 1,407 0.3% 1,583 1,588 0.3%

NIM (%) 7.0 7.1 7 bps 7.3 7.2 -9 bps 7.6 7.5 -3 bps

NII 86.0 86.9 1.1% 97.7 96.8 -0.9% 113.1 113.0 -0.1%

PPOP 68.4 71.3 4.2% 76.5 76.2 -0.4% 89.4 89.9 0.5%

PAT 26.8 26.6 -0.9% 36.9 36.7 -0.5% 45.0 45.9 1.9%

Adj. BVPS (INR) 795 799 0.5% 939 927 -1.2% 1,081 1,080 -0.1%


ADD

CMP (as on 25 Jan 2022) INR 1,167


NIFTY 17,278

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-0.9% -0.5%

KEY STOCK DATA

Bloomberg code SHTF IN


MCap (INR bn) / ($ mn) 316/4,241




3M 6M 12M

Absolute (%) (23.1) (15.8) (2.9)

Relative (%) (18.0) (25.0) (22.5)


Sep-21 Dec-21

Promoters 25.6 26.1


FPIs 53.7 53.2


Pledged Shares 0.0

Source : BSE


Deepak Shinde

[email protected]

+91-22-6171-7323

Krishnan ASV

[email protected]

+91-22-6171-7314

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 32

HSIE Results Daily

Aditya Birla Capital

Undervalued franchise looking for new stars

Aditya Birla Capital (ABCL) journey to drive consolidated return ratios closer

to franchise potential over the next three years is on track across businesses.

ABCL is steadily repositioning its lending business mix towards retail and

granular loans (60% of NBFC AUM is towards Retail + SME + HNI; 35% of HF

AUM is skewed towards affordable segment), which is gradually reflecting in

a sustained improvement in franchise earnings. The insurance businesses are

steadily building their profitability trajectory - the LI business, despite soft

growth, witnessed better net VNB margins at 11.2% while the health insurance

business remains on track to break even over the next couple of quarters. We

maintain BUY on ABCL with a revised SOTP-based TP of INR157 and initiate

coverage on ABSLAMC with a target price of INR720 (29x Sep-23 NOPLAT+

cash and investments).

Lending businesses on track: ABFL (NBFC) and ABHFL (HFC) continued

to track the FY24 management guidance in terms of NIMs, AUM mix and

RoA. ABFL reported NIM of 6.2% on the back of improving retail mix

within the portfolio (60%), which alongside lower credit costs (1.4%) helped

deliver 2.3% RoA. ABHFL reported NIMs at 4.2%, with a higher share of

affordable housing (35%) and delivered 1.8% RoA. Asset quality was

broadly steady for both businesses (GS-III + restructured at 7.8% and 9.5%

respectively) despite a gradual portfolio re-risking.

Promising trends in insurance businesses: ABSLI’s Individual APE growth

for Q3FY22 was relatively soft (+12% YoY, 2y CAGR at 8%); however, share

of high-margin protection and NPAR savings improved 76/560bps QoQ to

6.5%/54% in the mix, driving higher net VNB margin at 11.2% (+530bps

YoY). Price hikes in the protection segment are in the range of 10-25%, while

ABSLI also increased its sum assured retention to INR4mn (from INR2mn).

Growth in ABHI remained robust (+33% YoY) despite a high base. Loss

ratios remain elevated at 61% (+760bps YoY) due to spillover of COVID

claims. We see a line of sight to the health insurance business breaking even

over the next couple of quarters (exit Q4FY22E/Q1FY23E).

AMC business - star in the pack: With an extremely strong distribution

network, Aditya Birla Sun Life AMC (ABSLAMC) emerges as a formidable

franchise on our proprietary AMC Franchise Scorecard. ABSLAMC manages

the fourth-largest mutual fund and is one of the most profitable AMC

franchises (operating profit at 23bps of AAUM). With share of high-yielding

equity within the AAUM poised to rise to 42% by FY24E and the resulting

operating leverage (OP at >25bps of AAUM), the AMC business earnings

trajectory is likely to be stronger (three-year NOPLAT CAGR at 16%). We

initiate with a BUY rating and a TP of INR720 (29x Sep-23E NOPLAT + cash

and investments).

ABCL Valuation - Sum of the Parts

ABCL

Share

ABCL stake

(INR bn)

Value/sh

(INR) Comments

ABFL 100% 186 76.9 RI-based multiple of 2.0x Sep-23 ABVPS

ABHFL 100% 29 11.8 RI-based multiple of 1.6x Sep-23 ABVPS

ABSLI 51% 69 28.4 1.5x Sep-23E Embedded value

ABHI 51% 6 2.3 35x Sep-23E PAT

ABSLAMC 50% 100 41.4 29x Sep-23E NOPLAT + cash and investments

Others 100% 7 3.0 1x investment (Net worth)

TOTAL

396 163.9

Hold co. discount

7.2 10% for non-wholly-owned subsidiaries

SOTP

157


BUY CMP (as on 4 Feb 2022) INR124

Target Price INR157

NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

NA NA

KEY STOCK DATA

Bloomberg code ABCAP IN


MCap (INR bn) / ($ mn) 299/4,015




3M 6M 12M

Absolute (%) 17.3 1.4 37.2

Relative (%) 19.7 (6.7) 21.6


Sep-21 Dec-21

Promoters 70.7 71.0


FPIs 2.4 2.4



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Sahej Mittal

[email protected]

+91-22-6171-7325

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 33

HSIE Results Daily

ICICI Securities Tough quarter navigated well; maintain ADD ISEC printed flattish pure broking revenue in line with estimates, as share of

cash moderated in the volume mix. While the customer addition run-rate has

been impressive, we continue to watch out for a potential rise in ARPUs from

digitally-sourced customers. We draw comfort from ISEC’s (1) channel-

agnostic client acquisition and (2) renewed focus on building digital

capabilities. However, we continue to remain wary of the impact of any

significant market correction on delivery volumes (~75% of broking revenue).

We adjust our estimates to build in the beat on non-broking income in FY22

and the impact on ESOP book on the back of regulation change. Given the

positive macro lead indicators (rising retail participation and turbocharged

pipeline of primary issuances), we maintain our positive stance on ISEC and

maintain ADD with a target price of INR920 (23x Sep-23 EPS).

MTF to the rescue: Total broking revenue, at INR5.7bn (+5% QoQ), was 7%

ahead of our estimates, primarily on account of a significant beat on MTF

book. Pure broking revenues remained flattish sequentially as cash volumes

moderated in the mix, reflecting in blended yields at 0.53bps (-8bps YoY).

Growth in the average MTF + ESOP book was impressive (+29% QoQ) and

much ahead of pure broking revenue, suggesting that clients with prime and

NEO plans are leveraging heavily, albeit not translating into broking

revenue on account of lower rack rates. Market share in cash/derivatives

segment slipped further 50/9bps QoQ to 3% /8.3% - a large part of the

market share loss is accruing from low-yielding institutional volumes. While

the client acquisition run-rate fared well at 676k (Q2: 589k), activation and

monetisation remain long-term challenges. Distribution revenues beat

estimates on the back of higher life insurance yields from NBPs. Buoyant

markets and a slew of primary issuances drove all-time high advisory

service revenue to INR1.1bn (+52% QoQ).

Sustained healthy margin: Marketing expenses rose on account of higher

customer acquisitions but were partially offset by lower operating expenses;

however, EBITDA margin was strong at 61%. Adjusted PAT came in at

INR3.8bn (+8% QoQ), led by better-than-expected traction in the MTF

portfolio and strong distribution and advisory revenues. Management

expects RBI’s new circular capping ESOP funding limits at

INR2mn/customer for a bank’s subsidiary to impact NII by ~INR100mn/qtr.

Quarterly financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Adj. revenues 9,416 6,201 25.8 8,564 14.9 24,304 31,628 27,348 32,025

EBITDA 6,082 3,970 31.3 5,436 15.5 14,365 19,009 15,449 19,326

EBITDA Margin (%) 64.6 64.0 57bps 63.5 112bps 59.1 60.1 56.5 60.3

APAT 3,804 2,670 26.3 3,512 13.0 10,678 14,260 11,139 14,621

AEPS 11.8 8.3 26.3 10.9 13.0 33.1 44.3 34.6 45.4

EV/EBITDA (x)

21.1 16.5 19.2 15.7

P/E (x)

24.7 18.5 23.7 18.1

ROE (%)

70.4 66.0 44.1 51.1


Change in estimates

(INR mn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

Revenues 31,628 29,607 6.8 27,348 27,231 0.4 32,025 32,019 0.0

EBITDA 19,009 17,383 9.4 15,449 15,500 -0.3 19,326 19,487 -0.8

EBITDA margin (%) 60.1 58.7 140bps 56.5 56.9 -43bps 60.3 60.9 -52bps

APAT 14,260 13,047 9.3 11,139 11,104 0.3 14,621 14,672 -0.3

RoE (%) 44.3 40.5 9.3 34.6 34.5 0.3 45.4 45.5 -0.3


ADD



NIFTY 18,113

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+9.3% +0.3%

KEY STOCK DATA

Bloomberg code ISEC IN


MCap (INR bn) / ($ mn) 264/3,554




3M 6M 12M

Absolute (%) (2.8) 7.2 92.0

Relative (%) (1.2) (7.1) 66.9


Sep-21 Dec-21

Promoters 74.9 74.9


FPIs 6.3 6.6



Source : BSE



+91-22-6171-7325

P a g e | 34

HSIE Results Daily

LIC Housing Finance Positive surprise, but challenges still remain

LICHF’s Q3FY22 results surprised positively across P&L metrics with

NII/PPOP/PAT >10% ahead of our estimates. NIMs reflated to 2.4% (Q2FY22:

2% - dragged by interest reversals), although rising interest rates may cap the

reflation. Disbursements sustained momentum with 10% QoQ growth and

they are likely to witness increasing contribution from non-core segments,

going ahead. Asset quality improved ~77bps across GS-II and GS-III;

however, the stressed pool (GS-II + GS-III + restructured) remains elevated at

12%. Credit costs reduced sharply to 61bps, with GS-II/GS-III PCR at 3%/40%.

We raise our FY22/FY23 earnings estimates by 5%/2% to reflect lower-than-

expected opex and maintain REDUCE with a revised TP of INR394 (1x Sep-23

ABVPS).

Positive surprise on operating performance: LICHF’s NII/PPOP/PAT grew

by 14%/14%/6%, driven by NIM reflation and steady loan growth (11%

YoY). Post the volatility in earlier quarters, opex stabilised at 36bps of loans.

Disbursals clocked in at INR178bn (+10% QoQ), dominated by individual

home loans (~86% of total disbursements).

Asset quality improves - still a long journey ahead: GS-II/GS-III improved

sequentially to 3.75%/5.04% (Q2FY22: 4.42%/5.14%), while the restructured

book inched up marginally to 3.1% of loans. There was a ~100bps impact of

RBI’s revised norms on daily marking of NPAs, which is now a part of GS-I

and GS-II portfolios, with incremental provisioning of 10% towards these

assets. However, the portfolio normalisation towards steady-state has been

slower than expected. Retail home loans GS-III improved to 2.1% (Q2:

2.25%), while the developer book GS-III increased to ~27% (~13% for

LAP/others).

Re-risking of the portfolio key monitorable: While LICHF’s incremental

focus on non-core segments to drive growth and asset yields is a call option

on RoA reflation, it also remains a key monitorable. The core home loan

segment remains highly competitive with larger peers growing at a faster

clip, forcing LICHF to diversify into non-core segments on the back of

aggressive pricing, which has hurt the franchise in the past.

Financial summary

(INR bn) 3QFY22 3QFY21 YoY(%) 2QFY22 QoQ(%) FY21 FY22E FY23E FY24E

NII 14.5 12.8 13.6 11.7 24.6 52.4 54.5 62.9 68.1

PPOP 13.2 11.5 14.5 9.3 41.0 46.7 46.4 56.1 60.2

PAT 7.7 7.2 6.3 2.4 219.4 27.3 20.3 28.7 31.6

EPS (INR) 14.0 14.4 (3.2) 4.5 209.3 54.2 36.8 52.1 57.5

ROAE (%) 14.1% 8.9% 10.9% 10.9%

ROAA (%) 1.2% 0.8% 1.0% 1.0%

ABVPS (INR) 289.4 328.4 380.3 441.6

P/ABV (x) 1.3 1.2 1.0 0.9

P/E (x) 7.1 10.5 7.4 6.7

Change in estimates


Old New Chg Old New Chg Old New Chg

AUM 2,533 2,533 0.0% 2,827 2,828 0.0% 3,160 3,161 0.0%

NIM (%) 2.2 2.3 3 bps 2.3 2.3 0 bps 2.3 2.3 0 bps

NII 53.9 54.5 1.2% 62.9 62.9 0.1% 68.3 68.1 -0.2%

PPOP 45.1 46.4 3.0% 56.0 56.1 0.1% 60.3 60.2 -0.2%

PAT 19.3 20.3 5.1% 28.3 28.7 1.5% 31.1 31.6 1.5%

ABVPS (INR) 326.6 328.4 0.5% 367.0 380.3 3.6% 415.4 441.6 6.3%


REDUCE



NIFTY 17,102

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

5% 2%

KEY STOCK DATA

Bloomberg code LICHF IN


MCap (INR bn) / ($ mn) 211/2,832




3M 6M 12M

Absolute (%) (5.0) (11.5) (3.0)

Relative (%) (0.4) (20.6) (25.0)


Sep-21 Dec-21

Promoters 45.2 45.2


FPIs 24.1 23.5


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 35

HSIE Results Daily

Mahindra & Mahindra Financial Services

Gradual recovery in progress

MMFS’ Q3 earnings were significantly ahead of our estimates due to write-

backs on the provisioning undertaken in Q1FY22. MMFS’ stressed asset pool

(GS II + GS III) declined to 29% (Q1FY22 peak of 35%) and it is likely to

decline further to 25% by Mar-22 on the back of increasing economic activity,

and better collection and recovery efforts. Disbursements witnessed healthy

growth (+28% YoY) and are gradually inching up towards pre-COVID levels.

The management remains committed to achieve 4% NS-III (6% NNPA as per

IRAC norms) by Mar-22, which is likely to keep credit costs elevated in

Q4FY22. We revise our FY22/FY23E earnings estimates downwards by 4%/2%

to factor in higher credit costs and lower loan growth. We maintain ADD with

a revised SOTP-based TP of INR195 (earlier INR196), implying a 1.3x Sep-23

ABVPS. Gradual normalisation of portfolio stress, sponsor-backed funding

cost advantage, and inexpensive valuations underpin our ADD rating.

Steady progress on recoveries; stiff target for Q4FY22: MMFS continued to

witness signs of receding portfolio stress as GS-II (17.8%) and GS-III (11.3%)

improved sequentially (Q2FY22: 19.7%/12.7%) and the restructured book

stayed stable (6.8%). GNPA/NNPA as per RBI’s revised IRAC norms clocked

in at 17%/10%; however, the management aims to bring NNPA below 6% by

Mar-22, which seems a stiff target in our view and is likely to entail higher

credit costs. However, a healthy overall PCR at 9% (GS-III PCR at 53%),

alongside better focus on collections and recoveries, is likely to provide

some cushion to credit costs.

Disbursements picking up pace; growth deferred to FY23: Disbursements

were strong at INR80bn (+28% YoY, 24% QoQ), with rising traction in auto

and used vehicles segment, and are inching close to pre-COVID levels of

>INR100bn. While the management commentary indicated sustained market

share gains in select segments, loan growth remains subdued (-4% YoY). We

expect AUM growth to pick up steam in FY23 and build in an AUM CAGR

of 13% for FY22-24E.


NII 15.4 13.5 13.4 14.4 6.4 55.3 57.1 63.9 73.0

PPOP 10.6 10.2 4.3 10.2 4.5 41.5 39.8 43.6 46.5

PAT 8.9 (2.7) NM 10.2 (12.6) 3.3 9.0 15.3 22.0

EPS (INR) 7.2 (2.2) NM 8.3 (12.7) 2.7 7.3 12.4 17.9

ROAE (%) 2.5% 6.0% 9.6% 12.5%

ROAA (%) 0.4% 1.1% 1.8% 2.2%

ABVPS (INR) 99.7 103.5 111.9 121.9

P/ABV (x) 1.7 1.6 1.5 1.4

P/E (x) 63.3 23.2 13.6 9.5

Change in estimates



AUM 891 841 -5.6% 1,012 1,003 -0.9% 1,179 1,188 0.8%

NIM (%) 6.6 6.9 25bps 6.8 6.9 15bps 6.6 6.7 5 bps

NII 56.7 57.1 0.7% 64.5 63.9 -1.0% 72.4 73.0 0.7%

PPOP 39.9 39.8 -0.1% 43.8 43.6 -0.3% 46.2 46.5 0.6%

PAT 9.3 9.0 -3.7% 15.7 15.3 -2.5% 21.9 22.0 0.3%

Adj. BVPS (INR) 94.8 103.5 9.2% 111.2 111.9 0.7% 123.4 121.9 -1.2%


ADD



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-4% -2%

KEY STOCK DATA

Bloomberg code MMFS IN


MCap (INR bn) / ($ mn) 209/2,806




3M 6M 12M

Absolute (%) (14.3) 11.3 (1.8)

Relative (%) (13.5) (1.2) (21.4)


Sep-21 Dec-21

Promoters 52.2 52.2


FPIs 19.0 19.2



Source : BSE


Deepak Shinde

[email protected]

+91-22-6171-7323

Krishnan ASV

[email protected]

+91-22-6171-7314

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 36

HSIE Results Daily

Nippon Life India Asset Management

Market share loss persists; yields under pressure NAM printed core revenue, in line with our estimates. However, revenue

yields, in line with industry trends, continued to shrink. Market share in the

high-margin equity segment moderated further (-13bps QoQ) and continues

to remain a concern in medium- to long-term. We expect NAM to focus on

improving its performance to recoup its lost market share. We trim our

FY22E/23E/24E revenue estimates by 1.4/2.8/3.3% to build in the impact of a

sharp correction in capital markets and lower admin expenses in FY22E.

Driven by cost optimisation, we expect NAM to deliver FY21-24E

revenue/NOPLAT CAGRs of 15%/25%. We maintain our ADD rating on the

stock with a revised target price of INR425 (33x Sep-23E EV/NOPLAT + Sep-

22E cash and investments). The stock is currently trading at FY23E/24E

EV/NOPLAT of 26.6/21.6x and PE of 24.9/21.3x.

Pressure on yield sustains: Core revenue was broadly in line with the

estimate (-2% vs. estimates) at INR3.36bn (+3% QoQ); revenue yields as a

percentage of QAAUM continued to witness compression at 48.3bps (-

1.1bps) despite a higher share of equity in the mix. The SIP book was weak

as NAM’s SIP market share dipped by a further 40bps sequentially to 6.1%.

Admin/operating costs declined 16% sequentially (-12% vs. estimates) on the

back of some IT-related one-off expenses in Q2, resulting in an 8% beat on

the core operating profit. Other income was soft at INR304mn, primarily as a

result of lower MTM on equity investments and higher interest rates on

fixed income portfolio (translating into lower MTM), driving APAT lower to

INR1.74bn (-19% QoQ).

Key con call takeaways: The primary reasons for pressure on yields are: (1)

lower yields in new flows as old assets are replaced; (2) low TERs in high

AUM slabs; and (3) high commission pay-outs on NFOs. The company

launched three NFOs in Jan-22 and it has a healthy pipeline on the passives

front.

Financial summary


Revenue 3.39 2.68 26.1 3.28 3.3 10.6 13.0 14.4 16.2

Operating profits 2.05 1.38 48.4 1.86 10.4 5.2 7.4 8.6 10.1

OP Margin (%) 60.8 51.8 892bps 57.0 379bps 48.9 57.3 59.4 62.2

APAT 1.74 2.12 -17.9 2.14 -18.6 6.8 7.6 8.2 9.6

EV/NOPLAT (x)

44.6 30.6 26.6 21.6

P/E (x)

29.9 26.9 24.9 21.3

ROE (%)

23.9 23.4 23.3 25.0


Change in estimates

(INR bn)

FY22E FY23E FY24E

Revised Old Change

(%) Revised Old

Change

(%) Revised Old

Change

(%)

Revenues 12.986 13.2 -1.4 14.4 14.8 -2.8 16.2 16.8 -3.3

EBIT 7.5 7.3 2.2 8.6 8.7 -1.2 10.1 10.4 -2.7

EBIT margin (%) 57.6 55.6 202bps 59.7 58.6 100bps 62.5 62.1 40bps

NOPLAT 5.7 5.6 2.2 6.5 6.5 -1.2 7.6 7.8 -2.7

APAT 7.5 7.4 1.6 8.1 8.2 -1.0 9.5 9.8 -2.3

RoE (%) 23.4 23.1 34bps 23.3 23.6 -26bps 25.0 25.5 -51bps


ADD



NIFTY 17,110

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+1.6% -1.0%

KEY STOCK DATA

Bloomberg code NAM IN


MCap (INR bn) / ($ mn) 202/2,711




3M 6M 12M

Absolute (%) (25.4) (16.7) 2.1

Relative (%) (18.8) (25.1) (16.3)


Sep-21 Dec-21

Promoters 74.0 73.8


FPIs 6.6 7.2



Source : BSE



+91-22-6171-7325

P a g e | 37

HSIE Results Daily

Federal Bank

Steady franchise building new guardrails for growth

Federal Bank (FB)’s Q3FY22 earnings were broadly in line with our estimates

as declining credit costs (64bps) were partially offset by muted reflation in

asset yields and lower other income. Asset quality continues to be impressive

with negative net slippages, stable credit costs at 64bps, and a steady

restructured pool (2.6%). While loan growth witnessed healthy traction (+12%

YoY), asset yields continue to be soft, which is likely to reflate only gradually

through exercising of pricing power and growth in unsecured retail (credit

cards, PL, MFI, etc.). FB’s industry-leading FinTech partnerships (payments,

neobanks, etc.) are gradually beginning to drive new customer acquisition

(~75% of new accounts opened in Q3); they are likely to drive better business

productivity on both sides of the balance sheet and higher efficiencies in the

medium term. We tweak our FY22E earnings to factor in lower credit costs and

maintain BUY with a revised target price of INR121 (1.2x Sep-23 ABVPS).

Loan growth gains traction; asset yields remain muted: FB reported muted

NII growth (+7% YoY), as asset yields are yet to reflate, driving muted NIM

(3.27% vs. 3.22% in Q3FY21). Loan growth was led by wholesale (+13.4%)

and agri (+18%), while management remains cautious on unsecured retail in

the near term (nearly ~100% ETB). Opex remained elevated at 2.2% of assets

due to wage revision and investments in tech and FinTech partnerships.

Asset quality - no negative shocks: GNPA moderated sequentially to 3.06%

from 3.24%, led by strong upgrades/recoveries (1.5%). Restructured book

remained flat sequentially at 2.6% of loans (80% secured), while the bank

prudently added 46bps of standard asset provisions. FB’s granular portfolio

is likely to keep credit costs lower (an average of 73bps during FY23-24E).

FinTech partnerships to accelerate medium-term growth prospects: FB’s

early adoption of FinTech partnerships to build new growth engines is

beginning to reflect in new customer acquisition and business momentum.

Its ability to identify scalable profit pools and monetise these partnerships

through cross-sell (deposits, loans, etc.) remains a key monitorable.


NII 15.4 14.4 7.1% 14.8 4.0% 55.3 60.4 71.9 83.2

PPOP 9.1 9.6 -4.4% 9.1 0.2% 37.9 39.5 46.9 54.9

PAT 5.2 4.0 29.1% 4.6 13.4% 15.9 19.2 24.5 30.4

EPS (INR) 2.5 2.0 22.8% 2.2 11.7% 8.0 9.1 11.7 14.4

ROAE (%) 10.4 11.0 12.4 13.8

ROAA (%) 0.8 0.9 1.0 1.1

ABVPS (INR) 72.7 81.8 92.0 103.1

P/ABV (x) 1.3 1.2 1.0 0.9

P/E (x) 12.0 10.5 8.2 6.6

Change in estimates



Net advances 1,465 1,468 0.3% 1,665 1,667 0.1% 1,900 1,900 0.0%

NIM (%) 3.2 3.2 -2bps 3.4 3.4 1bps 3.4 3.4 0bps

NII 60.8 60.4 -0.7% 71.6 71.9 0.3% 83.1 83.2 0.1%

PPOP 40.6 39.5 -2.6% 46.9 46.9 0.0% 55.0 54.9 -0.3%

PAT 19.1 19.2 0.3% 24.6 24.5 -0.4% 30.3 30.4 0.0%

ABVPS (INR) 80.5 81.8 1.6% 91.3 92.0 0.8% 102.7 103.1 0.4%


BUY



NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

0.3% -0.4%

KEY STOCK DATA

Bloomberg code FB IN


MCap (INR bn) / ($ mn) 201/2,707




3M 6M 12M

Absolute (%) (6.5) 12.2 34.5

Relative (%) (1.4) 3.0 14.9


Sep-21 Dec-21

Promoters 0.0 0.0


FPIs 25.9 25.2


Pledged Shares - -

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 38

HSIE Results Daily

Motilal Oswal Financial Services

Strong core; maintain ADD Pure broking revenues combined with NII on the MTF book beat estimates,

driving capital markets APAT to INR0.6bn (+39% QoQ; adjusted for one-offs

in base). The AMC (ex-WM) APAT beat was driven by stronger-than-expected

AUM growth and better EBITDA margin; however, the portfolio management

business continues to face redemptions. A major drag on APAT came from a

miss on treasury income, primarily on account of consolidation in capital

markets, driving APAT (ex MOHFL) 57% sequentially lower to INR2.2bn. We

raise our FY22E (6%)/FY23E (9%)/FY24E (4%) to factor in strong performance

across core businesses and stronger EBITDA margins in AMC and broking

segments. We maintain ADD with a target price of INR1,000 (15x/23x Sep-23E

broking/AMC APAT + 0.6 x/0.5x for Sep-22E treasury/MOHFL).

Strong core performance: AMC (ex-WM): PAT was impressive at INR0.6bn

(+39% QoQ; base quarter profits adjusted to the tune of INR828mn accruing

from the GR Infra exit). MOAMC witnessed sequential improvement in

yields with net inflow, at INR12.7bn, skewed towards active schemes (net

MF/alternates flows at INR10.5bn/INR2.2bn). Capital markets (including

WM) reported steady PAT of INR1.7bn (+24% QoQ, 17% beat) on the back of

strong 10% QoQ growth in interest earning assets, which drove +52% QoQ

in net interest income and better-than-expected WM performance. However,

high-yielding cash ADTV (ex-prop) market share slipped to 6.1% (-22bps

QoQ).

Non-core segments: MTM gain on treasury remains volatile and clocked in

INR50mn, significantly below our estimate of INR1bn, as a consequence of

sharp correction in equity markets. MOHFL disbursements, at INR1.9bn,

picked up pace (+19% QoQ) on the back of improving macro conditions.

However, NNPA inched up to 2.3% (+ 90bps QoQ), which may emerge as a

concern in the future.

Outlook: We are positive on AMC and PE business due to a positive flow

environment and IBEF IV (estimated commitments of INR40bn) receiving a

strong response. While broking volumes stayed healthy after the final phase

of peak margin norms, we believe that a sharp correction in equity markets

can impact cash volumes and dent broking revenue.

Financial summary: MOFS (ex-MOHFL) (INR bn) Q3FY22 Q3FY21 YoY(%) Q1FY22 QoQ(%) FY21 FY22E FY23E FY24E

Revenue 8.68 7.74 12.1 11.56 (24.9) 29.3 30.8 28.1 32.2

EBITDA 3.83 4.31 (11.1) 6.86 (44.1) 14.7 15.0 10.6 12.4

EBITDA Margin (%) 44 56 -1153bps 59 -1517bps 50.2 48.7 37.7 38.5

APAT 2.20 3.29 (33.3) 5.14 (57.3) 12.0 11.3 8.2 10.1

P/E (x)

10.2 10.9 15.0 12.1

ROE (%)

34.6 25.2 16.1 17.8


Estimate change

(INR bn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

Revenues 30.77 30.60 0.5 28.05 27.35 2.6 32.24 31.90 1.1

EBITDA 14.99 13.98 7.2 10.58 9.72 8.8 12.42 11.96 3.9

EBITDA margin (%) 48.7 45.7 304 37.7 35.5 216 38.5 37.5 104

APAT 11.28 10.62 6.3 8.19 7.54 8.6 10.14 9.79 3.6

RoE (%) 25.2 23.8 137 16.1 15.0 109 17.8 17.5 33


ADD



NIFTY 17,102

KEY

CHANGES OLD NEW

Rating ADD ADD

Price

Target INR 1000 INR 1,000

EPS % FY22E FY23E

+8.6% +3.6%

KEY STOCK DATA

Bloomberg code MOFS IN


MCap (INR bn) / ($ mn) 127/1,701




3M 6M 12M

Absolute (%) (3.3) (17.1) 42.2

Relative (%) 1.3 (26.2) 20.2


Sep-21 Dec-21

Promoters 70.5 70.4


FPIs 9.3 10.2



Source : BSE



+91-22-6171-7325

P a g e | 39

HSIE Results Daily

Computer Age Management Services

In-line core; upgrade to ADD CAMS reported in-line revenues (+4% QoQ, similar to other AMCs); however,

controlled admin costs drove a 3% beat on core income, which came in at

INR981mn. While core yields continued to witness compression in line with

industry trends (marginally lower yield compression compared to the listed

AMCs), non-asset based revenue showcased strong growth on the back of

higher transactions and call center activity. Market leadership in the duopoly

RTA market, significant entry barriers, and high switching costs place CAMS

in a uniquely advantageous position; however, we remain wary of sustained

pricing pressure on AMCs percolating to RTAs in the near- to medium-term.

We tweak our EPS estimates lower by 2/3% to build in higher tech spend for

FY23-24E (per management guidance) and expect FY21-24E revenue and

operating profit CAGRs of 16/22%, driven by buoyant equity flows and rising

contribution from nascent businesses including payments, AIF, and

insurance. We value CAMS at 43x Sep-23E EV/NOPLAT + Sep-22 cash and

investments. Given the steep correction in the stock over the past few months,

we upgrade our rating to ADD (from REDUCE) with a revised target price of

INR2,885 - the stock is currently trading at FY23E/24E EV/NOPLAT of

39.8x/34.9x and P/E of 38.8x/34.6x.

Cost control drives earnings beat: In-line revenue, at INR2.38bn, continued

to witness yield compression on asset-based revenue (lower impact

compared to listed AMCs), whereas non-asset based revenue saw a strong

sequential uptick (+12%) from higher SIP registrations, NFO revenue spill-

over, and increased call-center activity. Controlled admin expenses resulted

in 3% lower-than-estimated opex, driving core operating profit to INR0.98bn

and APAT coming in at INR0.77bn (+6.6% QoQ).

Revenue yields and growth outlook: MF AAUM came in at INR26.7trn,

implying a stable market share at 70%. Despite the share of equity

improving in the mix (+142bps QoQ), MF asset-based revenue yields were

flat QoQ, indicating sustained pressure on yields. CamFinserv has tied up

with four additional entities and is expected to gradually scale up; however,

any meaningful revenue generation will need sizeable investments to build

a Financial Information User (FIU) network. FT AMC’s operations broke

even in Q3 and are expected to gradually aid blended margins. While we

remain positive on the AMC industry and RTA business outlook, we believe

that the recent pressure in yields seen across AMCs could trigger higher-

than-expected pricing pressure for RTAs (negotiations due in Mar-22).

Financial Summary


Revenues 2.4 1.9 27.8 2.3 4.4 7.1 9.0 9.9 10.9

Operating profits 1.0 0.7 41.8 0.9 6.6 2.4 3.6 4.0 4.5

OP margin (%) 41.3 37.2 407bps 40.5 82bps 34.7 39.6 40.1 41.0

NOPLAT 0.7 0.5 43.7 0.7 7.1 1.8 2.7 3.0 3.4

APAT 0.8 0.6 37.0 0.7 6.6 2.1 2.8 3.2 3.6

EV/NOPLAT (x)

65.6 44.7 39.8 34.9

P/E (x)

60.2 43.8 38.8 34.6

ROE (%)

38.9 49.9 47.5 45.3


ADD

CMP (as on 11 Feb 2022) INR 2,529


NIFTY 17,375

KEY

CHANGES OLD NEW

Rating REDUCE ADD


EPS % FY22E FY23E

-1.6% -3.2%

KEY STOCK DATA

Bloomberg code CAMS IN


MCap (INR bn) / ($ mn) 124/1,662




3M 6M 12M

Absolute (%) (15.7) (18.6) 27.8

Relative (%) (12.7) (25.3) 15.0


Sep-21 Dec-21

Promoters 31.0 23.8


FPIs 26.5 30.4



Source : BSE



+91-22-6171-7325

P a g e | 40

HSIE Results Daily

UTI Asset Management Company

Sharp fall in yields disappoint

UTIAM reported a weak quarter as equity yields witnessed a sharp

compression (worst-hit amongst the listed peers), resulting in a 7% miss on

revenue, although equity QAAUM growth has been stronger than peers.

Declining yields, coupled with elevated staff costs, continue to drag core

profitability (EBIT margins at 44% vs. NAM/HDFCAMC at 61/75%). While we

draw comfort from management commentary around a buoyant flows

environment and a strong growth outlook for the retirement solutions

business; we remain wary of continued pressure on yields in the medium -

term. We reduce our revenue estimates by 5-8% over FY22E-24E to build in

further yield compression. We expect UTIAM to deliver FY21-24E 16%

revenue CAGR and 32% NOPLAT CAGR as a consequence of strong AUM

growth and continued cost rationalisation. We maintain BUY with a revised

target price of INR1,215 (27.9x Sep-23E NOPLAT + Sep-22E cash and

investments).

Core performance disappoints: Revenue was 7% below estimates at

INR2.8bn (+1% QoQ) on the back of a sharp decline in yields in equity

segment. Revenue as a percentage of MF QAAUM declined 3.5bps to

50.2bps despite a higher share of equity (43.2%; +55bps QoQ) in the mix.

Staff costs, at INR0.97bn (-3% QoQ), have continued to stay elevated and

cost saving on this front remains elusive in the medium-term. Core

operating profit, at INR1.3bn has dipped 2.5% sequentially as one-off admin

expenses further dent profitability. High yields on fixed income portfolio

and tepid capital markets resulted in lower-than-estimated treasury income

(-64% vs. estimates), driving APAT to INR1.99bn (-36% QoQ, a 25% miss).

Yield outlook: As new flows replace old book, management expects yields

to witness continued compression in the coming quarters. However, the

company plans to develop smart beta products on the passives front (higher

yields in passives) to cushion blended yields.

Market share remains a concern: Market share dropped by 23bps to 5.3% in

the hybrid category, although it is stabilising in the active equity segment.

NPS AUM market-share slipped 127/33bps YoY/QoQ to 27.7% due to lower

allocation although the company is confident of recouping the lost share.

Financial summary

(INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue 2.82 2.12 33.2 2.80 0.6 8.1 11.2 11.6 12.7

Operating profits 1.21 0.48 154.6 1.22 (0.6) 2.4 4.9 5.1 6.0

OP Margin (%) 43.1 22.5 2055bps 43.6 -54bps 29.5 43.7 44.1 47.2

APAT 1.27 1.40 -9.5 1.99 (36.1) 4.9 6.3 5.5 6.0

EV/NOPLAT (x)

48.8 22.3 22.0 19.7

P/E (x)

25.3 19.9 22.6 20.6

ROE (%)

16.5 18.8 15.4 15.8


Change in estimates

(INR bn)

FY22E FY23E FY24E

Revised Old Change

(%) Revised Old

Change

(%) Revised Old

Change

(%)

Revenues 11.2 11.8 -5.4 11.6 12.4 -6.1 12.7 13.8 -8.2

EBIT 5.0 5.4 -8.0 5.2 5.9 -11.0 6.1 7.2 -15.1

EBIT margin (%) 44.6 45.8 -125bps 45.0 47.5 -247bps 48.1 52.0 -391bps

NOPLAT 4.2 4.4 -4.9 4.1 4.6 -11.2 4.5 5.3 -15.3

APAT 6.3 6.7 -5.7 5.5 6.0 -8.6 6.0 6.9 -11.8

RoE (%) 18.8 19.8 -109bps 15.4 16.7 -133bps 15.8 17.7 -187bps


BUY



NIFTY 17,102

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-5.7 % -11.8%

KEY STOCK DATA

Bloomberg code UTIAM IN


MCap (INR bn) / ($ mn) 123/1,652




3M 6M 12M

Absolute (%) (6.1) 1.4 75.6

Relative (%) (1.4) (7.7) 53.5


Sep-21 Dec-21

Promoters 0.0 0.0


FPIs 4.7 5.5



Source : BSE


+91-22-6171-7314

Sahej Mittal [email protected] +91-22-6171-7325

P a g e | 41

HSIE Results Daily

Angel One

Sustaining the blitzscale; maintain BUY

ANGELONE delivered a 10% beat on the top-line led by better-than-estimated

customer activity levels (higher average revenue-generating orders per

customer), higher depositary fees and stronger net interest income. We are

positively surprised with the rising efficacy of the marketing spend reflecting

in lower customer acquisition costs (CAC) and a six-quarter high EBITDA

margin of 51%, constant iteration around improving customer journeys, and a

steady growth in aggregate revenue generating orders. ANGELONE remains

one of the best plays on the secular growth story in the Indian capital markets

and our highest-conviction BUY. We raise our FY22/23E earnings estimates by

15/6% on better-than-expected numbers and maintain BUY with an increased

target price of INR1,870 (20.5x Sep-23 EPS).

All-round impressive performance: Net broking revenue at INR2.75bn

(+19% QoQ) was 15% ahead of our estimates, on the back of better than

estimated avg. orders per customer at 22.6 (vs. estimated

19.1orders/customer). Customer acquisition run-rate continues to remain

elevated at 0.46mn/month; however, on a positive note, the company has

calibrated its unit marketing expenses reflecting in a 6-quarter high adjusted

EBITDA margin of 51%. Depositary income at INR358mn continues to offer

a cushion to broking revenues. Retail ADTO market share stayed impressive

at 14/21% (+20/-40bps QoQ) for equity cash and F&O segments. Strong

growth in NII on MTF book coupled with depositary income drove a 23%

beat on profitability at INR1.65bn (+23% QoQ).

Sustained tech leadership: The new super-app is well on time and the

management has stated that the rollout will take place in a phased manner

with the first version involving broking services (in Q1FY23). Within the

next 8-10 months, the super–app will be fully functional in four phases).

Also, with the continuous iteration on the mobile app, the company has

improved its e-KYC journey to onboard customers resulting in an increased

conversion rate at 41% (vs. 30.7% earlier). The company expensed INR1bn

on tech spends during 9MFY22 and believes that the launch of its refined

super-app will further help in understanding customer behaviour and

hence, improving their activity levels.


(INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Adj. revenues 4,450 2,222 100.3 3,882 14.6 8,978 16,252 18,816 21,697

EBITDA 2,259 1,096 106.2 1,842 22.6 4,431 8,071 9,507 11,034

EBITDA Margin (%) 50.8 49.3 145bps 47.4 332bps 49.4 49.7 50.5 50.9

APAT 1,646 732 124.8 1,343 22.6 3,073 5,878 6,912 8,012

AEPS 20 9 121.9 16 24.0 37.6 71.8 84.5 97.9

EV/EBITDA (x)

24.4 10.1 6.6 5.2

P/E (x)

37.1 19.4 16.5 14.2

ROE (%)

35.7 44.5 39.8 36.0


Change in estimates

(INR mn)

FY22E FY23E FY24E

Revised Old Change

% / bps Revised Old

Change

% / bps Revised Old

Change

% / bps

Revenues 16,252 15,442 5% 18,816 17,877 5% 21,697 20,654 5%

EBITDA 8,071 7,053 14% 9,507 9,001 6% 11,034 10,474 5%

EBITDA margin (%) 49.7 45.7 399bps 50.5 50.3 18bps 50.9 50.7 14bps

APAT 5,878 5,119 15% 6,912 6,539 6% 8,012 7,602 5%

RoE (%) 36.2 33.2 302bps 36.7 36.6 16bps 36.9 36.8 12bps


BUY

CMP (as on 18 Jan 2022) INR 1,384


NIFTY 18,113

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+15% +6%

KEY STOCK DATA

Bloomberg code ANGELONE IN


MCap (INR bn) / ($ mn) 115/1,539




3M 6M 12M

Absolute (%) (13.2) 8.8 300.0

Relative (%) (11.5) (5.5) 274.9


Sep-21 Dec-21

Promoters 43.8 43.7


FPIs 4.7 5.4



Source : BSE



+91-22-6171-7325

P a g e | 42

HSIE Results Daily

CreditAccess Grameen

Sustained outperformance to drive rerating

CreditAccess Grameen (CREDAG) delivered all-round strong performance,

significantly beating our estimates. Portfolio stress continued to normalise,

with PAR-0 falling sharply from its peak of 30.6% to 6.8%, while the GNPA

moderated to 6% (Q2FY22: 7.7%) for the consolidated entity. High collection

efficiencies (97% including arrears), low number of zero-payment borrowers

(3.5% of AUM), and adequate provisioning (GS-III PCR at 58%) suggest that

moderate credit costs could sustain. CREDAG is incrementally focusing on

driving portfolio growth (+18.4% YoY) in the MFI and retail finance portfolio,

with ~48% of new customer additions in 9MFY22 from outside the top-3 states.

We raise our FY22E earnings estimates by 3% to factor in lower credit costs

and maintain BUY with a revised target price of INR848 (2.8x Sep-23 ABVPS).

Our implied multiple reflects CREDAG’s high cross-cycle potential RoE and a

relatively conservative approach to an inherently risky business.

Strong balance sheet growth drives strong P&L outcomes: CREDAG

reported strong NII/PPOP growth of 34%/59% YoY on the back of healthy

NIM (11.4%) and strong AUM growth (+18.4% YoY). While the portfolio

growth was driven largely by CAGL-MFI (+22% YoY), the management is

upbeat about healthy growth traction in retail finance as well as MMFL

(+13% YoY). Average outstanding per borrower continued to inch up to

INR38.6K (+24.4% YoY) due to sharp borrower rationalisation in previous

quarters, although customer additions are now gradually gaining traction.

Stress pool shrinks significantly ahead of peers: The consolidated

GNPA/NNPA improved to 6.0%/2.6% (Q2FY22: 7.7%/3.4%), while the

restructured book was steady at 1.4%. While the stress pool in standalone

CAGL is rapidly reverting to steady state (GS-III at 5.5%), MMFL’s stress

pool is only gradually improving (PAR-0/GS-III at 16.7%/8.6% vs.

19.7%/10.1% in Q2FY22). With diminishing stress pool, CREDAG is well-

geared to drive portfolio growth in a risk-calibrated manner, well ahead of

peers, and it remains our top pick among MFI lenders.

Financial summary


NII 4.2 3.1 33.8 3.7 12.5 13.6 15.7 21.6 27.7

PPOP 2.7 1.7 58.6 2.2 25.1 9.5 10.1 14.3 18.0

PAT 1.2 (0.8) NM 0.6 88.5 1.3 3.2 7.8 10.4

EPS (INR) 7.7 (5.3) NM 4.1 88.7 8.1 20.7 50.0 66.8

ROAE (%) 3.8 8.3 17.7 19.6

ROAA (%) 0.9 2.0 4.0 4.2

ABVPS (INR) 212.8 215.3 275.4 338.6

P/ABV (x) 3.4 3.4 2.7 2.2

P/E (x) 90.3 35.4 14.7 11.0

Change in estimates



AUM 160.2 161.0 0.5% 206.7 207.8 0.5% 267.0 268.5 0.6%

NIM (%) 10.6 10.6 2 bps 11.7 11.7 -3bps 11.7 11.6 -3bps

NII 15.6 15.7 0.4% 21.5 21.6 0.3% 27.6 27.7 0.3%

PPOP 10.0 10.1 0.8% 14.3 14.3 0.1% 17.9 18.0 0.4%

PAT 3.1 3.2 3.1% 7.8 7.8 0.1% 10.3 10.4 0.9%

ABVPS (INR) 223.4 215.3 -3.6% 275.3 275.4 0.1% 340.4 338.6 -0.6%


BUY



NIFTY 17,214

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

3% 0%

KEY STOCK DATA

Bloomberg code CREDAG IN


MCap (INR bn) / ($ mn) 114/1,373




3M 6M 12M

Absolute (%) 2.7 1.4 (8.8)

Relative (%) 5.0 (6.6) (24.4)


Sep-21 Dec-21

Promoters 73.9 73.9


FPIs 9.3 8.8



Source : BSE


Deepak Shinde

[email protected]

+91-22-6171-7323

Krishnan ASV

[email protected]

+91-22-6171-7314

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 43

HSIE Results Daily

City Union Bank

Rerating contingent on growth revival

City Union Bank’s (CUBK) Q3FY22 earnings were 12% ahead of our estimates

due to lower-than-expected credit costs (~1.3% annualised). Net slippages

moderated to ~1%, while high write-offs (2.3%) drove GNPA down to 5.2%.

Total stress pool (NNPA + restructured + SR + SMA-II) improved marginally

to 11.5% (Q2FY22: 12.5%) and the management maintained its credit cost

guidance, based on repayment trends, highly-secured loan book (99% of

loans), and historical LGDs. Credit growth was muted (+5% YoY), driven by

portfolio run-down (in corporate and retail) and cautious stance by the

management, although growth is likely to pick up, going ahead. The bank

remains on target to achieve 1.5% RoA by H2FY23, although near-term growth

outlook remains subdued. We raise our FY22 earnings estimates marginally to

factor in lower credit costs, partially offset by muted loan growth; we

maintain BUY, with a revised target price of INR197 (2.1x Sep-23 ABVPS).

Muted credit growth; jewel loans save the day: NII was flat on a YoY basis

due to moderation in NIM (-16bps YoY) and muted loan growth (+5% YoY).

Loan growth continues to be driven by gold loans (+48% YoY, +4% QoQ),

while rising competitive intensity in the retail and corporate segment and a

funding cost disadvantage led to a run-down in the portfolio. While the

management has indicated renewed focus on growth with improving macro

environment, we expect high single-digit growth during FY22.

Marginal improvement in asset quality; LGD assumptions unchanged:

GNPA/NNPA improved sequentially to 5.2%/3.4% (Q2FY22: 5.6%/3.5%).

While the PCR drifted further lower to 35%, the management expressed

adequacy of coverage with improving macro environment and expects high

recoveries from written-off accounts. Only ~11% of the restructured pool is

yet to make a single payment, while SMA-I sequentially improved by

100bps. With credit costs gradually reverting towards steady-state levels,

improving loan growth traction remains a key monitorable for CUBK (~50%

of system credit growth), even as the margins are likely to stay stable (~4%).


NII 4.9 4.9 0.2% 4.8 2.4% 18.3 19.3 22.4 25.9

PPOP 3.7 4.6 -19.4% 4.1 -8.8% 14.8 15.6 18.2 20.8

PAT 2.0 1.7 15.4% 1.8 7.7% 5.9 7.5 9.1 11.2

EPS (INR) 2.6 2.3 14.9% 2.4 7.8% 8.0 10.1 12.3 15.2

ROAE (%) 10.6 12.1 13.0 14.2

ROAA (%) 1.2 1.3 1.4 1.6

ABVPS (INR) 64.5 71.5 85.2 99.7

P/ABV (x) 2.2 2.0 1.7 1.5

P/E (x) 18.1 14.3 11.8 9.6

Change in Estimates



Net advances 399 394 -1.3% 459 449 -2.2% 521 509 -2.2%

NIM (%) 3.9 3.8 -6 bps 4.0 4.0 1 bps 4.0 4.1 10bps

NII 19.6 19.3 -1.6% 22.6 22.4 -0.8% 25.8 25.9 0.6%

PPOP 16.3 15.6 -3.8% 18.2 18.2 0.0% 20.6 20.8 0.9%

PAT 7.3 7.5 2.7% 9.1 9.1 -0.3% 11.1 11.2 0.7%

Adj. BVPS (INR) 75.0 71.5 -4.6% 88.4 85.2 -3.6% 102.4 99.7 -2.7%


BUY



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS %

FY22E FY23E

3% 0%

KEY STOCK DATA

Bloomberg code CUBK IN


MCap (INR bn) / ($ mn) 107/1,434




3M 6M 12M

Absolute (%) (17.2) (6.6) (17.9)

Relative (%) (14.7) (14.4) (33.7)


Sep-21 Dec-21

Promoters 0.0 0.0


FPIs 16.1 16.0



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 44

HSIE Results Daily

RBL Bank

Relief on provisions; opex narrative difficult to fathom

Despite a healthy NIM (4.3%) and a return to loan growth (+3% YoY), RBL

Bank (RBK) missed estimates, with PAT at INR1.6bn. Opex for the quarter

was significantly higher due to new card issuances (+0.6mn), spend-related

reward expenses, and continuing investments in branches, people, and tech.

Although slippages were elevated at 5.4% (annualised), predominantly from

the MFI and cards businesses, these have tapered off >300bps sequentially,

resulting in a multi-quarter low provisioning at 3% of loans. The management

commentary around stability of deposits since end-Dec 2021 is particularly

reassuring. While the ongoing investments in distribution channels and tech

are understandable, we argue that the guidance around continued investments

in the CC business calling for higher opex in FY22/23e are likely to stretch the

1% RoA narrative further into FY24. We hack our FY22E earnings forecasts by

>80% and maintain REDUCE with a revised TP of INR155 (earlier INR159).

Weak core profitability offset by lower slippages: Loan growth (+3% YoY)

was driven by corporate (+17%) and commercial banking (+11%), whereas

retail (-6%) was impacted by micro-banking (-28%) and business loans (-

20%), as RBK recalibrated its loan mix. GNPA improved 56bps sequentially

to 4.8% as asset quality stabilised, resulting in lower credit costs at 3% of

loans (Q2FY22: 4.6%), even as PCR inched up marginally to 63%.

Higher opex likely to push back RoA reflation: The management has

guided for an elevated cost-to-income ratio in the medium-term as the bank

continues to invest in its credit cards business, distribution, tech, and talent.

While the disruption to near-term RoAs is disappointing, we fail to see how

these investments in the cards business can strengthen the bank’s medium-

term RoA trajectory as the CIF mix transitions to a Tier-2 centric, NTCC-led

model, which is likely to reflect an EMI-heavy portfolio (against the current

revolve-heavy mix) and, hence, lower profitability on the cards business.

Financial summary (INR bn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ(%) FY21 FY22E FY23E FY24E

NII 10.1 9.1 11.3% 9.2 10.4% 37.9 39.2 44.5 50.3

PPOP 6.3 8.0 -21.6% 6.9 -8.7% 30.9 28.5 31.9 36.8

PAT 1.6 1.5 6.2% 0.3 406.9% 5.1 0.3 10.2 14.4

EPS (INR) 2.6 2.6 -1.1% 0.5 407.8% 8.5 0.5 17.0 24.1

ROAE (%) 4.4 0.2 7.8 10.2

ROAA (%) 0.5 0.0 0.9 1.1

ABVPS (INR) 191.0 189.1 204.1 222.3

P/ABV (x) 0.8 0.8 0.7 0.7

P/E (x) 18.0 304.7 9.0 6.3

Change in estimates



Net advances 630 640 1.6% 713 725 1.6% 810 819 1.1%

NIM (%) 4.3 4.3 -2 bps 4.5 4.5 0 bps 4.5 4.5 0 bps

NII 39.2 39.2 0.2% 44.0 44.5 1.2% 49.7 50.3 1.2%

PPOP 32.3 28.5 -11.9% 34.9 31.9 -8.5% 36.8 36.8 0.1%

PAT 1.6 0.3 -81.5% 10.3 10.2 -1.2% 14.3 14.4 0.9%

Adj. BVPS (INR) 191.2 189.1 -1.1% 207.6 204.1 -1.7% 228.4 222.3 -2.7%


REDUCE



NIFTY 17,110

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

-81% -1%

KEY STOCK DATA

Bloomberg code RBK IN


MCap (INR bn) / ($ mn) 92/1,234




3M 6M 12M

Absolute (%) (26.4) (21.9) (29.9)

Relative (%) (19.8) (30.2) (48.4)


Sep-21 Dec-21

Promoters 0.0 0.0


FPIs 29.2 28.9


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 45

HSIE Results Daily

Karur Vysya Bank

In search of upside levers to profitability

Karur Vysya Bank’s (KVB) Q3FY22 earnings significantly beat our estimates

on the back of steady NIMs and lower credit costs (1.1% annualised). Asset

quality improved with negative net slippages driving GNPA down to 7%

(Q2FY22: 7.4%), while the restructured portfolio remained steady at ~3% of

loans. Loan growth (+7% YoY) was driven by home loans (+10%) and jewel

loans (+14%), while the bank looks to kick-start other avenues for growth

(personal loans to ETB customers, LAP, commercial banking, etc.) to achieve

double-digit loan growth. With steady-state NIM and sustained normalisation

of credit costs for a second consecutive quarter, KVB is inching gradually

towards its ~1% RoA target. We increase our FY22/FY23E earnings estimates

by 9%/5% to factor in lower credit costs, partially offset by low traction in fee

income, and maintain ADD with a revised TP of INR60 (earlier INR55).

Steady operating performance: KVB reported strong NII growth (+18%

YoY), led by a gradual pick-up in loan growth (+7% YoY) and a marginal

10bps YoY improvement in NIMs at 3.7%. Cost of funds continued to drift

lower (-12bps QoQ; -59bps YoY), as did asset yields; however, management

is upbeat about sustaining NIM at ~3.5%. Opex remained elevated at 2.6%,

including the INR270mn impact of provisions for pension-related costs.

Stress pool stabilises; provisions drift lower: GNPA/NNPA improved

sequentially to 7%/2.6% (Q2FY22: 7.4%/3%), driven by strong upgrades and

recoveries (2.4% of loans). The total stress pool (NNPA + restructured + SR)

at 6% is among the lowest among old private sector banks. With PCR at 65%

and sub-1% SMA-I+II book, we expect little major negative surprises in

credit costs in the near term.

On track for 1% RoA; searching for asset growth drivers: KVB reported

0.9% RoA in Q3 on the back of stable NIMs and subdued credit costs. While

credit costs may inch up marginally, the bank’s path to a 1% RoA depends

on it exercising pricing power in select segments, such as commercial

banking and unsecured retail credit, where it is seeking to grow faster.

Financial summary


NII 6.9 5.8 17.8% 6.8 1.0% 23.6 26.9 29.3 32.8

PPOP 4.0 2.7 49.4% 3.8 7.0% 14.3 16.1 19.2 21.9

PAT 1.9 0.3 435.5% 1.7 12.1% 3.6 6.1 7.4 9.5

EPS (INR) 2.3 0.4 439.5% 2.1 12.1% 4.5 7.7 9.2 11.9

ROAE (%) 5.3 8.5 9.6 11.5

ROAA (%) 0.5 0.8 0.9 1.0

ABVPS (INR) 65.6 74.3 80.7 87.7

P/ABV (x) 0.8 0.7 0.6 0.6

P/E (x) 11.1 6.5 5.4 4.2

Change in estimates



Net advances 554 555 0.2% 623 624 0.2% 703 705 0.2%

NIM (%) 3.7 3.8 5 bps 3.8 3.8 2 bps 3.8 3.8 0 bps

NII 26.4 26.9 1.7% 29.0 29.3 1.1% 32.6 32.8 0.7%

PPOP 16.1 16.1 0.3% 19.4 19.2 -1.4% 21.8 21.9 0.2%

PAT 5.6 6.1 9.1% 7.0 7.4 4.8% 9.0 9.5 5.9%

Adj. BVPS (INR) 72.5 74.3 2.5% 79.8 80.7 1.2% 86.3 87.7 1.6%


ADD


Target Price INR 60

NIFTY 17,340

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS %

FY22E FY23E

9% 5%

KEY STOCK DATA

Bloomberg code KVB IN


MCap (INR bn) / ($ mn) 40/539




3M 6M 12M

Absolute (%) 2.4 3.1 18.3

Relative (%) 4.6 (7.2) (7.1)


Sep-21 Dec-21

Promoters 2.1 2.3


FPIs 18.9 15.5



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 46

HSIE Results Daily

Ujjivan Small Finance Bank

Accelerated AUM growth improves optics around stress

Ujjivan SFB’s earnings surprised positively, with a much lower-than-expected

loss at INR0.3bn as reclassified provisioning pushed PCR to 84%, reducing

the NNPA sequentially to 1.6% (Q2FY22: 5.1%). Business momentum

improved under the focused 100-day plan, resulting in healthy disbursals of

INR48bn (surpassing pre-COVID levels), offering better optics around the

stress pool. The aggregate stress pool (PAR>0) declined 400bps QoQ to 15%,

driven by healthy collections and strong business momentum, yet it remains

elevated and is likely to normalise only beyond FY22. The restructured book

tapered off to 7.5% (Q2FY22: 10.2%). The management guided for sustained

business momentum, going ahead, with continued focus on building volumes

and repairing asset quality; however, we hack our FY22 estimates (building in

a deeper red for FY22) on account of higher credit costs, offset by a cleaner

slate for FY23-24E. Although equipped with a QIP approval, we have limited

visibility of RoA reflation, given a stubborn stress pool and risks to premature

balance sheet expansion. We maintain REDUCE on Ujjivan SFB with a

revised TP of INR20 and maintain ADD on Ujjivan Financial Services with a

revised TP of INR187.

AUM acceleration drives stress pool optics: GNPA/NNPA improved to

9.8%/1.6% (Q2FY22: 11.8%/5.1%), with contained annualised gross slippages

at 5.5%. Enhanced focus on collections from delinquent accounts resulted in

PAR>0 improving 400bps sequentially to ~15% - MFI (15%), MSE (24%) and

housing (13%). Collections have witnessed encouraging trends at ~97% in

the past three months. We will watch out for further reduction in stress with

better execution in collections, which could increase the near-term opex.

Confidence capital crucial: In a short span of time, Ujjivan has been able to

hire all the immediately reporting positions to the CEO. With resumption in

economic activity, improved collections and stabilisation of the leadership

team, the management appears optimistic of business momentum, albeit

prematurely, given its current thin capitalisation (CAR at 19%). The INR6bn

QIP approval is especially crucial to infuse confidence capital and meet the

minimum shareholding norms prior to the reverse merger.

Financial summary

(INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


NII 4.5 4.3 5.0% 3.9 16.0% 17.3 16.9 22.2 26.3

PPOP 1.4 2.0 -30.6% 0.7 99.0% 8.1 5.6 9.4 11.2

PAT (0.3) (2.8) NM (2.7) NM 0.1 (4.7) 4.5 4.7

EPS (INR) (0.2) (1.6) NM (1.6) NM 0.0 (2.7) 2.6 2.7

ROAE (%) 0.3 (15.8) 15.3 14.2

ROAA (%) 0.0 (2.2) 1.8 1.6

ABVPS (INR) 16.2 14.1 16.4 17.9

P/ABV (x) 1.2 1.4 1.2 1.1

P/E (x) 408.3 NM 7.5 7.2

Change in estimates



Net advances 159 164 3.3% 195 200 2.2% 239 240 0.7%

NIM (%) 8.6 8.7 10 bps 9.8 9.7 -9 bps 9.8 9.7 -11 bps

NII 16.5 16.9 2.8% 21.8 22.2 1.7% 26.2 26.3 0.3%

PPOP 6.6 5.6 -16.1% 9.3 9.4 1.1% 11.3 11.2 -1.5%

PAT (2.1) (4.7) 124.2% 3.6 4.5 23.5% 4.6 4.7 1.5%

Adj. BVPS (INR) 14.3 14.1 -1.5% 17.0 16.4 -3.2% 18.8 17.9 -5.0%


REDUCE


Target Price INR 20

NIFTY 17,214

KEY STOCK DATA

Bloomberg code UJJIVANS IN


MCap (INR bn) / ($ mn) 33/456




3M 6M 12M

Absolute (%) (9.9) (28.2) (46.2)

Relative (%) (7.5) (36.2) (61.8)

Ujjivan Financial Services

ADD



NIFTY 17,214

KEY STOCK DATA

Bloomberg code UJJIVAN IN


MCap (INR bn) / ($ mn) 15/222




3M 6M 12M

Absolute (%) (21.5) (38.8) (45.8)

Relative (%) (19.2) (46.8) (61.4)

Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

P a g e | 47

HSIE Results Daily

DCB Bank

Soft asset quality and growth to restrict RoA reflation

DCB Bank’s (DCBB) Q3FY22 earnings disappointed (~10% miss) on account of

higher-than-expected opex and credit costs (1.5% annualised). Gross slippages

spiked to ~6.9%, largely from the gold loan and corporate portfolio, resulting

in a GNPA of 4.73% (Q2FY22: 4.68%), marginally offset by strong upgrades

and recoveries. Despite an elevated stress pool (NNPA + restructured book at

9.3% of loans), the management expects normalisation of slippages and a

rebound in recoveries over the next few quarters on the back of a fairly

granular and secured portfolio (~95%). PCR inched up to 48%, alongside an

18% cover for the restructured book, which is performing well on the back of

better collections. With asset quality still a work-in-progress, we believe that

soft loan growth, limited levers to margin expansion amid pricing pressure,

and rising competitive intensity are likely to keep return ratios in check. We

trim our FY22/FY23 earnings estimates by 9%/3% respectively and maintain

ADD with a revised target price of INR125 (0.9x Sep-23 ABVPS).

Gold loans dampen asset quality: GNPA inched up marginally to 4.73%

(Q2FY22: 4.68%) due to higher slippages from gold loan (INR1.4bn) and

corporate portfolio. However, collection efficiencies in the bank’s major

products improved closer to pre-COVID levels (ex-CV segment) on the back

of healthy recoveries and upgrades (6% of loans). The management expects

slippages to stabilise on the back of a largely secured portfolio and remains

confident of stronger recoveries over the next few quarters.

Higher opex intensity to prolong RoA reflation: NII growth was soft (+3%

YoY), led by improvement in margins to 3.6% (Q2FY22: 3.4%) and a

moderate revival in loan growth (+9.3% YoY). Disbursements clocked in at

~INR34bn (12% of loans) (Q2FY22: 14%), as the third wave impacted branch

productivity. We continue to watch out for disbursement trends improving

and sustaining in the medium term. DCBB guided for branch/headcount

addition in the coming quarters, which is likely to keep the cost-to-income

ratios elevated over the next few quarters.


NII 3.5 3.3 3.1% 3.2 6.7% 12.9 13.5 15.9 17.6

PPOP 2.0 2.8 -28.3% 1.8 13.5% 9.0 8.1 9.9 10.9

PAT 0.8 1.0 -21.7% 0.6 16.0% 3.4 2.8 4.4 5.1

EPS (INR) 2.4 2.4 0.0% 2.1 16.4% 10.8 9.1 14.0 16.5

ROAE (%) 9.4 7.3 10.3 10.9

ROAA (%) 0.9 0.7 1.0 1.0

ABVPS (INR) 101.9 106.0 124.9 138.8

P/ABV (x) 0.9 0.8 0.7 0.6

P/E (x) 8.0 9.5 6.2 5.3

Change in estimates



Net advances 291 286 -1.7% 329 328 -0.5% 372 372 0.1%

NIM (%) 3.69 3.58 -11 bps 3.89 3.87 -2 bps 3.87 3.86 -1 bps

NII 14.0 13.5 -3.6% 16.1 15.9 -1.5% 17.8 17.6 -0.7%

PPOP 8.6 8.1 -6.6% 10.1 9.9 -1.9% 10.9 10.9 -0.7%

PAT 3.1 2.8 -9.4% 4.5 4.4 -3.0% 5.2 5.1 -2.3%

Adj. BVPS (INR) 109.6 106.0 -3.3% 124.1 124.9 0.6% 141.5 138.8 -1.9%


ADD



NIFTY 17,464

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-9.4% -3.0%

KEY STOCK DATA

Bloomberg code DCBB IN


MCap (INR bn) / ($ mn) 27/363




3M 6M 12M

Absolute (%) (15.0) (6.4) (19.8)

Relative (%) (11.7) (13.8) (33.7)


Sep-21 Dec-21

Promoters 14.9 14.9


FPIs 10.9 9.3



Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

P a g e | 48

HSIE Results Daily

Repco Home Finance

Sub-par performance; need for a reset

REPCO’s Q3 earnings disappointed our estimates due to elevated

provisioning and subdued loan growth (-2.3% YoY). GS-III/NS-III increased

sharply to 7%/5.1% (Q2FY22: 4.3%/2.5%), as REPCO aligned its stage-wise

asset classification with the RBI’s IRAC norms. However, the spike in the

impaired portfolio, adjusted for change in classification norms, was a negative

surprise, even as the macro environment saw healthy recovery. Further, loan

growth continued to be muted, led by softer disbursements (-20% YoY; -15%

QoQ), falling significantly short of management guidance, and it is only

likely to pick up in FY23. NIMs were steady sequentially at 5%, driven by

stable asset yields. Given the impending appointment of a new MD & CEO

from 1 March, we await a roadmap from the new management. We hack our

FY22/FY23/FY24 earnings estimates by 24%/15%/14% due to elevated credit

costs and muted loan growth and maintain ADD with a revised target price of

INR328 (0.9x Sep-23 ABVPS).

Asset quality fails to impress: GNPA spiked sharply to 7% (Q2FY22: 4.3%),

even as PCR drifted lower to 30% (adjusted GNPA at 4.6%). While the recent

RBI clarification on IRAC norms provides relief to NBFCs until Sep-22, the

company guided that it would maintain its stock of incremental provisions

and organically lower GNPA/NNPA through enhanced focus on collections

and recoveries. GNPA deteriorated across segments, with home loans/LAP

GNPAs at 6.3%/10.2% and salaried/self-employed GNPAs at 3.8%/10%.

Subdued growth perplexing; eyes on new management: REPCO’s muted

loan growth (-2.3% YoY) is increasingly a cause of concern, having delivered

a mere 5% CAGR during FY19-FY21. Muted loan growth and deteriorating

asset quality continue to weigh on the stock despite depressed valuations

(0.6x Sep-23 ABVPS). We believe the new leadership team (MD & CEO,

CFO) needs to clearly articulate a medium-term roadmap in order to

address issues of how to keep the franchise relevant.


NII 1.4 1.4 (1.0) 1.5 (3.6) 5.4 5.7 5.6 6.0

PPOP 1.2 1.3 (7.0) 1.3 (9.6) 4.7 4.9 4.8 5.0

PAT 0.3 0.8 (60.4) 0.9 (63.2) 2.9 2.2 2.9 3.2

EPS (INR) 5.0 12.7 (60.5) 13.7 (63.4) 46.0 34.8 46.9 51.6

ROAE (%) 15.0 10.1 12.2 12.0

ROAA (%) 2.4 1.8 2.3 2.3

ABVPS (INR) 277.2 279.7 341.2 414.6

P/ABV (x) 0.9 0.8 0.7 0.6

P/E (x) 5.1 6.8 5.0 4.6

Change in estimates



AUM 136 120 -12.0% 154 127 -17.3% 172 141 -18.1%

NIM (%) 4.5 4.7 18bps 4.3 4.5 28bps 4.2 4.5 28bps

NII 5.8 5.7 -1.6% 6.2 5.6 -9.2% 6.9 6.0 -12.4%

PPOP 4.9 4.9 0.6% 5.2 4.8 -8.4% 5.8 5.0 -12.7%

PAT 2.9 2.2 -24.4% 3.4 2.9 -14.5% 3.8 3.2 -14.2%

Adj. BVPS (INR) 323 280 -13.3% 379 341 -10.0% 446 415 -7.1%


ADD



NIFTY 17,322

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-24% -15%

KEY STOCK DATA

Bloomberg code REPCO IN


MCap (INR bn) / ($ mn) 15/199




3M 6M 12M

Absolute (%) (19.5) (24.2) (12.5)

Relative (%) (15.7) (28.6) (23.9)


Sep-21 Dec-21

Promoters 37.1 37.1


FPIs 17.6 18.0


Pledged Shares 0.0

Source : BSE


Krishnan ASV

[email protected]

+91-22-6171-7314

Deepak Shinde

[email protected]

+91-22-6171-7323

Neelam Bhatia

[email protected]

+91-22-6171-7341

P a g e | 49

HSIE Results Daily

Capital Goods

P a g e | 50

HSIE Results Daily

Larsen & Toubro

Mixed performance Larsen & Toubro’s (LT) Q3FY22 revenue/EBITDA came in line with our

estimates, whilst APAT miss was 11%. Execution was affected, mainly in

western India, due to the material supply issue. However, tendering activity

in the quarter was brisk. EBITDA margin, at 11.5%, was down 57bps YoY,

affected 30-50bps by commodity inflation. Hyderabad metro turned EBITDA

positive, at INR 300mn, on the back of higher ridership seen in the quarter. LT

expects to cut cash funding to the project through a mix of financial assistance

from the Telangana government (expected by FY22-end) and likely fund

infusion from third party investors (more mid-term timeline, as and when

happens). The project has already achieved refinancing at 280bps lower

interest rate. We maintain BUY on LT with an increased SOTP-based target

price of INR 2,504/sh (Dec-23E, 22x core Dec-23 EPS), given its (1) strong order

book (INR 3.4trn, ~3.7x FY21 core EPC revenue); (2) improving health of

Hyderabad metro project; (3) strong balance sheet; and (4) robust services

business.

In-line execution: LT posted revenue of INR 396bn (+11%/+14% YoY/QoQ),

a miss of 1%. International sales contributed 37% to revenue. The group

level EBITDA, at INR 45bn (+6%/13% YoY/QoQ), was 2% lower than our

estimate. EBITDA margin decreased 57/4bps YoY/QoQ, with 30-50bps

decrease attributable to commodity inflation. Consequently, PAT was at INR

21bn (-17%/+19% YoY/QoQ, 11% below estimate). LT is confident of

achieving its FY22 EBITDA margin guidance of 10.3% and revenue/order

inflow guidance of low to mid-teen growth.

Record-high order book: LT registered an order inflow of INR 504bn in Q3

(-31%/+20% YoY/QoQ), with 59% coming in from the domestic market. OB

at the end of Dec-21 stood at a record high of INR 3.4trn, with infrastructure

at 73%, constituting a major share of it, followed by hydrocarbon at 16%.

Geography-wise, domestic orders contribute 76% to OB. The total prospects

pipeline for Q4FY22 stands at INR 3.9trn vs INR 2.7trn in Q4FY21, of which

INR 3trn is domestic prospects pipeline.

Hyderabad metro EBITDA positive: Hyderabad metro ridership improved

to 0.2mn in Q3FY22 against 0.15mn in Q2FY22, aiding EBITDA to turn

positive (at INR 300mn). LT has an exposure of INR 72bn to it at standalone

level including INR 48bn of loss funding. INR 130bn of the project’s external

debt was refinanced. Consequently, the reduced finance cost will be INR

10bn per year, along with annual savings of INR 4bn. The announcement on

positive development in terms of financial assistance from the Telangana

government will be made by FY22-end.

Marginal improvement in debt: Net debt reduced to INR 788bn (vs INR

864bn on Sep 21-end), taking the net D/E to 0.86x. NWC to sales ratio was

flat at 23.1%, vs. 22% at Sep-21-end. LT has targeted FY22 NWC to sales of

22.3%. Outstanding receivables from the Andhra project now stand at INR

11.5bn.

Consolidated financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Revenues 3,95,629 3,55,964 11.1 3,47,729 13.8 13,59,790 15,63,639 18,17,093 20,45,397

EBITDA 45,304 42,800 5.9 39,949 13.4 1,56,241 1,78,799 2,12,954 2,43,713

APAT 20,547 24,667 (16.7) 17,225 19.3 69,010 84,542 1,07,847 1,28,329

EPS (INR) 14.6 17.6 (16.7) 12.3 19.3 49.2 60.3 76.9 91.5

P/E (x)

36.2 29.6 23.2 19.5

EV/EBITDA(x)

21.5 18.8 15.8 13.5

RoE (%)

9.7 10.9 13.0 14.4


BUY

CMP (as on 28 Jan 2022) INR 1,898


NIFTY 17,102

KEY CHANGES OLD NEW

Rating BUY BUY


EPS

change %

FY22E FY23E FY24E

(4.3) (3.8) (3.2)

KEY STOCK DATA

Bloomberg code LT IN


MCap (INR bn) / ($ mn) 2,666/35,823




3M 6M 12M

Absolute (%) 4.6 19.0 41.0

Relative (%) 9.2 10.0 19.0


Sep-21 Dec-21

Promoters 0.0 0.0


FPIs 22.86 23.24



Source: BSE

Parikshit D Kandpal, CFA

[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7330

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 51

HSIE Results Daily

Siemens

Miss on margins

Siemens India Ltd (SIL) delivered Q1FY22 revenue of INR 32.4bn (beat of

4.4%), impacted marginally by COVID-19 and disruption in supply chain

caused by global semi-conductor shortage. EBITDA/APAT missed the

estimate by 11.3/10.9% respectively, on account of higher commodity prices

and lower forex gains. Consequently, EBIT margins across all segments

shrunk both sequentially and annually. On a YoY basis, all businesses saw

growth, with mobility growing the maximum (50%). Overall, order inflow for

the quarter was strong at INR 53bn, +65% YoY, taking the order book to an all-

time high of INR 155.8bn. SIL won a large INR 9bn worth of Pune Metro Line

3 Corridor order for electrical and mechanical systems to be executed as part

of a consortium, together with Siemens AG, Siemens Mobility GmbH, and

Alstom Transport India Ltd. Given punchy valuations, we maintain REDUCE

on SIL, with an increased TP of INR 2,120 (38x Dec-23 EPS; earlier INR 2,000,

rollover to Dec-23). Key risks: earnings upsides on account of potential

expansion in margin owing to (1) rise in digitalisation and new age

technology, (2) increasing share of private sector in the order mix, (3) abating

supply chain issue and (4) hardening of commodity prices.

Financial highlights: Revenue: INR 32.4bn (+11.7/-19.0% YoY/QoQ, 4.4%

beat). EBITDA: INR 3.3bn (-8.1/-22.6% YoY/QoQ, miss of 11.3%). EBITDA

margin: 10.2% (-220/-47bps YoY/QoQ) vs estimate of 12.1%. Consequently,

APAT came in at INR 2.5bn (-8.9/-24.1% YoY/QoQ, 10.9% miss). Whilst gross

margin improved QoQ by 84bps, under absorption of overheads led to the

EBITDA margin miss. Order inflow stood at INR 53bn (+57/+65% YoY/QoQ)

and order backlog was at an all-time high of INR 155.8bn (+15% QoQ),

driven by a large INR 9bn worth of Pune Metro Line 3 Corridor order for

electrical and mechanical systems.

Segment-wise performance: Gas & power (33% revenue contribution):

revenue at INR 10.9bn (+7.1/-30.7% YoY/QoQ) and EBIT margin at 11.3% (-

125/-188 bps YoY/QoQ). Smart infrastructure (30%): revenue at INR 9.9bn

(+13/-21% YoY/QoQ) and margin at 6.2% (-135/-103bps YoY/QoQ). Mobility

(8%): revenue at INR 2.8bn (+50.5/-0.2% YoY/QoQ) and margin at 8.2% (-

81.3/-104.6bps YoY/QoQ). Digital industries (24%): revenue at INR 7.9bn

(+2.7/+0.9% YoY/QoQ) and margin at 8.42% (-200/+170bps YoY/QoQ).

Portfolio of companies (4%): revenue at INR 1.3bn (+39/+5.5% YoY/QoQ)

and margin at 2.3% (-303/-167bps YoY/QoQ). Gas & power and smart

infrastructure were mainly responsible for the quarterly underperformance.

Standalone Financial summary

(INR mn, Sep YE) Q1FY22 Q1FY21 YoY (%) Q4FY21 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenues 32,399 29,011 11.7 39,997 (19.0) 129,631 154,697 184,407 211,789

EBITDA 3,319 3,611 (8.1) 4,287 (22.6) 145,94 19,868 24,949 29,427

APAT 2,453 2,692 (8.9) 3,230 (24.1) 106,27 14,841 19073 22,265

Diluted EPS

(INR) 6.9 7.6 (8.9) 9.1 (24.1) 29.8 41.7 53.6 62.5

P/E (x)

81.2 58.1 45.2 38.8

EV / EBITDA (x)

55.6 40.5 32.1 26.8

RoE (%)

10.7 13.6 15.7 16.2


REDUCE

CMP (as on 4 Feb 2022) INR 2,416


NIFTY 17,516

KEY

CHANGES OLD NEW


Price

Target INR 2,000 INR 2,120

EPS change

%

FY22E FY23E FY24E

- - -

KEY STOCK DATA

Bloomberg code SIEM IN


MCap (INR bn) / ($ mn) 860/11,562




3M 6M 12M

Absolute (%) 4.8 18.2 30.6

Relative (%) 7.2 10.5 14.9


Sep-21 Dec-21

Promoters 75.00 75.00


FPIs 5.21 5.40


Pledged Shares - -

Source : BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 52

HSIE Results Daily

Voltas Mixed bag; UCP continues to outperform Voltas’ performance was a mixed bag, with a consolidated revenue miss and

an EBITDA that was in line. Despite a large base (37% growth), UCP segment

delivered 9% YoY (HSIE -2%) revenue growth. Voltas grew at a faster rate

than the industry, with a two-year CAGR of 35% vs. 20% for Blue Star and

24% for Lloyds. UCP EBIT margin pressure sustained (9.3%, -300bps YoY,

HSIE 10.5%) due to a calibrated price hike (industry-wise challenge). EMPS

was a drag with a weak revenue (down 35% YoY, HSIE -3%) due to low carry

forward order book. With better execution, EMPS EBIT margin was at 6.6%

(HSIE 3.5%). The RAC industry has missed two consecutive summer seasons,

and all eyes are on the approaching season (trade inventory is low). The

category has several structural drivers and there is a possibility of pent-up

demand, if there are no external challenges. With expectation of demand

recovery, UCP margin will also recover in FY23. The EMPS business is

expected to improve as the order inflow improves. We cut our FY22 EPS

estimates by 4%. We value the stock on SoTP (UCP/EMPS/EPS P/E at 50/9/15x

and Volt-Beko P/S of 4x) on FY24 to derive a TP of INR 1,350, arriving at an

implied PE of 43x. Maintain ADD.

▪ UCP outperformance continues, EMPS a drag: Consolidated revenue

declined 10% YoY (+34% in Q3FY21, +5% in Q2FY22), below our estimate of

a 2% decline. UCP revenue was up 9% YoY (+40% in Q3FY21, +34% in

Q2FY22; HSIE -2%). Voltas continued to be the market leader, with 25.8%

YTD market share in Nov 2021 (24.3% 2-year back). EMPS was a drag on

overall revenue, declining 35% YoY (+26% in Q3FY21, -28% in Q2FY22) due

to a low carry forward order book. EPS clocked 3% growth (+46% in

Q3FY21, +35% in Q2FY22; HSIE +5%). RAC is a structurally strong category,

and the approaching summer season could deliver pent-up benefits.

▪ Surprise on EMPS margin: UCP EBIT was at 9.3% (down 300bps YoY), with

pressure sustaining in the last three quarters. Stiff RM inflation and

industry-wide calibrated price hikes (industry missed last two seasons)

impacted the margin. If RAC demand sustains in the approaching season,

margin will recover in FY23. EMPS EBIT margin was at 6.6% (1.6% in

Q3FY21, 2.1% in Q2FY22; HSIE 3.5%) on good execution. JV loss expanded

to 320mn from 201mn in Q3FY21 and 186mn in Q2FY22.

▪ Con call takeaways: (1) The trade is cautious due to two failed summer

seasons; hence, inventory days are lower at 30-45. (2) Secondary sales in the

RAC industry have de-grown 5% in Oct and Nov, while Voltas was down

by 4% in this category. (3) Primary sales were low in Jan due to the extended

winter season in India. (4) With forecasts of a strong summer and no

expectations of any further COVID disruptions, seasonal demand should be

strong. (5) While sequential inflation is only led by forex fluctuations, the

raw material basket remains elevated. (6) In the EMPS segment, the

company saw order inflows of INR 4bn (domestic INR 1.65bn). (7) Voltas is

planning for INR 2.5-3bn in Capex for the next 18 months.

Quarterly/annual financial summary YE Mar (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 17,936 19,946 (10.1) 16,891 6.2 75,558 79,358 99,991 113,095

EBITDA 1,556 1,459 6.7 1,291 20.5 6,414 7,991 10,481 11,836

APAT 966 1,287 (25.0) 1,043 (7.4) 5,289 6,103 8,955 10,375

Diluted EPS (Rs) 2.9 3.9 (25.0) 3.2 (7.4) 16.0 18.4 27.1 31.4

P/E (x) 73.2 63.4 43.2 37.3

EV / EBITDA (x) 60.6 48.2 36.6 32.1

RoCE (%) 21.0 26.6 31.6 30.6


ADD

CMP (as on 14 Feb 2022) INR 1,170


NIFTY 16,843

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-4% 0%

KEY STOCK DATA

Bloomberg code VOLT IN


MCap (INR bn) / ($ mn) 387/5,199




3M 6M 12M

Absolute (%) (7.5) 18.6 8.3

Relative (%) (0.5) 16.9 (1.1)


Sep-21 Dec-21



FPIs 22.31 24.42



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 53

HSIE Results Daily

KEC International

Headwinds receding

KEC reported robust execution with revenue at INR 33.4bn, driven by non-

T&D segments. EBITDA margin, at 7.2%, was affected mainly by raw material

prices and losses in SAE. With the highest ever 9MFYTD order Inflow (OI) of

INR 141bn, the order book (OB) stands at INR 285bn (with L1 of INR 41bn).

Loss funding in SAE for 9MFYTD is at INR 2bn. On the other hand,

collections from Afghanistan are still stalled, with net exposure of INR 2bn.

The increasing share of civil projects with better collection period, receding

losses in SAE, and likely improvement in railways collections from Q4, the

NWC days are expected to be at 120 days. A well-diversified OB, and likely

improvement in margins due to increasing share of non-T&D in the mix may

lead to rerating. We maintain BUY on KEC with a revised target price of INR

578/sh (15x Mar-24E EPS). We have cut estimates to factor in longer-than-

expected recovery in SAE margins.

Robust performance: Revenue was INR 33.4bn (+1.5%/-7% YoY/QoQ, a 2.4%

beat); non-T&D segments, especially railways/civil/cables, growing

9%/81%/27% YoY, drove revenue growth. EBITDA was INR 2.4bn (-20%/-6%

YoY/QoQ, a 5% beat). EBITDA margin, at 7.2% (-193/+10bps YoY/QoQ, vs

est. of 7%), was affected by loss-making SAE. APAT came in at INR 936mn (-

36%/-25% YoY/QoQ, a beat of 1.8%). With completion of two legacy projects

by Mar’22, the SAE is expected to break even (on PBT) from

Q1FY23/Q2FY23.

Robust OB; FYTD OI highest ever: KEC received INR 67bn of orders, (INR

141bn FYTD, the highest ever 9MFYTD OI) taking the OB to INR 285bn

(including L1 of INR 41bn). KEC is aiming to close FY22 with new order

wins of INR 160-170bn, vs earlier guidance of INR 180bn.

Weaker collection and higher debt; expected to improve in Q4FY22: The

consolidated net debt, including acceptances (INR 19.4bn), jumped to INR

48.5bn (INR 43.5bn at the end of Sep-21). The interest cost for the quarter

rose to 2.5% of sales (vs 2% in Q2FY22). NWC was at 141 days vs 138 days in

the previous quarter, mainly because of weak collection from railways,

stalled projects in Afghanistan and loss funding in SAE. However, with

encouraging collection from railways in Jan’22 (Q4 in general being a better

quarter for collection) and increasing civil projects in the portfolio that have

better collection period, NWC is expected to improve. Consequently, KEC is

targeting debtor days at 120 vs. 141 at present.

Consolidated financial summary (INR mn) (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Revenues 33,400 32,892 1.5 35,875 (6.9) 1,31,142 1,40,472 1,61,685 1,76,164

EBITDA 2,390 2,987 (20.0) 2,530 (5.5) 11,412 10,174 14,599 18,106

APAT 936 1,451 (35.5) 803 16.6 5,527 3,873 7,336 9,914

EPS (Rs) 3.6 5.6 (35.5) 3.1 16.6 21.5 15.1 28.5 38.6

P/E (x)

22.2 31.7 16.7 12.4

EV/EBIDTA (x)

13.5 14.9 10.3 8.2

RoE (%)

18.0 10.8 17.7 20.2

Consolidated Estimate Change Summary (INR mn)

Particulars (INR

mn)

FY22E FY23E FY24E

New Old Chg. (%) New Old Chg. (%) New Old Chg. (%)

Revenues 1,40,472 1,47,669 (4.9) 1,61,685 1,65,927 (2.6) 1,76,164 182672 (3.6)

EBITDA 10,174 12,172 (16.4) 14,599 15,888 (8.1) 18,106 19219 (5.8)

EBITDA margin (%) 7.2 8.2 (100.0) 9.0 9.6 (54.6) 10.3 10.5 (24.3)

APAT 4,310 5,738 (24.9) 7,336 8,294 (11.5) 9,914 10767 (7.9)


BUY



NIFTY 17,577

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

-24.9 -11.5 -7.9

KEY STOCK DATA

Bloomberg code KECI IN


MCap (INR bn) / ($ mn) 130/1,742




3M 6M 12M

Absolute (%) 7.6 18.1 36.9

Relative (%) 9.7 6.2 15.8


Sep-21 Dec-21



FPIs 11.11 12.25


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7330

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 54

HSIE Results Daily

Cement, Building Materials

P a g e | 55

HSIE Results Daily

UltraTech Cement

Demand slump briefly hits cost pass-through

We maintain BUY on UltraTech (UTCEM) with an unchanged target price of

INR 8,775/share (16x Dec’23E consolidated EBITDA). We continue to like the

company for its strong growth and margin outlook and balance sheet

management. UTCEM’s consolidated EBITDA/APAT in Q3FY22 fell 22/26%

YoY (despite 6% revenue growth), owing to weak demand (mainly in Nov),

which muted cost pass-through amid sharp fuel cost inflation. Unitary

EBITDA fell 20/17% YoY/QoQ to INR 1,046/MT. The company is hopeful that

cost inflation has peaked out and, with demand picking up, all of this should

bolster volume growth and lead to margin rebound Q4 onwards.

Q3FY22 performance: Consolidated cement sales volume fell 3% YoY to

23.1mn MT (up 7% QoQ) on weak demand across all markets except in the

north. Trade sales were more impacted in Q3. Weak demand muted pricing

gains to a modest 1% QoQ (though up 9% YoY on earlier price hikes).

Further, unitary input cost spiked by ~INR 320/MT QoQ (INR 535/MT YoY)

on soaring fuel prices and rising raw material costs, leading to unitary opex

inflation of 6% QoQ. Thus, unitary EBITDA (blended) fell 17% QoQ (down

20% YoY) to INR 1,046/MT. White cement/putty volume, however, firmed

up 5/8% YoY/QoQ on healthy demand. RMC revenue rose 17% YoY. The

company continues to repay debt using internal accruals, with net debt

declining by ~INR 2bn QoQ (and INR 6bn vs Mar-21). Lower sales and

margin drove EBITDA/APAT down 22/26% YoY. In Q3, UTCEM reversed

INR 5.4bn of prior-period tax provisions, which was booked as an

exceptional item.

Outlook and other updates: UTCEM noted that demand has been strong

post weakness in Nov 2021 and, hence, it expects to deliver YoY volume

growth in Q4. This should bolster pricing power and encourage cost pass-

through. Management also expects Q4 input cost to remain at ~Q3 level and

moderate Q1FY23 onwards, leading to margin rebound QoQ. The

company’s grey capacity expansion is on track. It also announced a 0.6mn

MT white cement expansion in phases by FY26E and plans to increase its

putty capacity by 0.44mn MT in Q2FY23E. It is also aggressively expanding

its green power capacities with a target of ~34% share by the end of 2024E

(~16% in Q3FY22). UTCEM is also strategically working to increase its

construction chemicals business (mostly asset light model) to ~INR 25bn by

FY24/25E (4% of revenue), from INR 5bn in FY22E (1% of revenue).

Consolidated quarterly/annual financial summary YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ

(%) FY20 FY21 FY22E FY23E FY24E

Sales (mn MT) 23.1 23.9 (3.1) 21.6 6.9 82.5 86.4 93.8 101.1 113.0

NSR (INR/MT) 5,614 5,135 9.3 5,553 1.1 5,142 5,177 5,280 5,359 5,413

EBITDA(INR/MT) 1,046 1,299 (19.5) 1,254 (16.6) 1,137 1,339 1,262 1,309 1,335

Net Sales 129.8 122.6 5.9 120.2 8.1 424.3 447.3 500.7 547.9 618.0

EBITDA 24.2 31.0 (22.0) 27.1 (10.9) 93.8 115.7 123.7 138.3 157.3

APAT 11.7 15.8 (26.0) 13.1 (10.7) 38.7 55.8 59.8 73.1 97.1

AEPS (INR) 40.6 54.9 (26.0) 45.5 (10.7) 134.0 193.3 207.0 253.3 336.4

EV/EBITDA (x)

26.1 20.3 18.7 16.3 13.8

EV/MT (INR bn)

21.2 20.3 19.6 17.8 16.0

P/E (x)

58.7 40.7 38.0 31.1 23.4

RoE (%)

10.6 13.4 12.8 13.9 16.1


BUY

CMP (as on 17 Jan 2022) INR 7,870


NIFTY 18,308

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA % FY22E FY23E

0.0 0.0

KEY STOCK DATA

Bloomberg code UTCEM IN


MCap (INR bn) / ($ mn) 2,272/30,529




3M 6M 12M

Absolute (%) 6.4 7.3 44.3

Relative (%) 6.4 (8.1) 19.3


Sep-21 Dec-21



FPIs 16.58 15.74


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

P a g e | 56

HSIE Results Daily

Shree Cement

Weak demand, cost headwinds moderate margin

We upgrade our rating on Shree Cement to ADD from REDUCE earlier with a

revised TP of INR 26,600/share as the company delivered strong margin

despite both demand and cost headwinds. Shree’s Q3FY22 standalone

volume/EBITDA/APAT fell 9/24/21% YoY on account of weak demand, supply

disruption from the Chhattisgarh plant, and elevated power costs. Unitary

EBITDA moderated 17/11% YoY/QoQ to INR 1260/MT.

Q3FY22 performance: Cement sales volume fell 9% YoY (+4% QoQ), hit by

transporters’ strike in Chhattisgarh, and weak demand (mainly in east).

Shree bought coal shipment, which it later sold to its UAE subsidiary for

~INR 1.9bn. Adjusted for it, cement NSR rose 1% QoQ. Adjusted opex rose

6% QoQ, mainly led by ~13% QoQ fuel inflation and external clinker

purchase (amid transporter strike in Chhattisgarh). Thus, unitary EBITDA

fell 17/11% YoY/QoQ to INR 1,260/MT. While the UAE subsidiary’s revenue

rose 17% YoY to INR 2.77bn, EBITDA fell 47% YoY to INR 0.2bn.

Capex update and outlook: Shree’s 3mn MT SGU in Patas (Maharashtra)

got commissioned on 1 Feb. In FY23E, its 4mn MT brownfield clinker plant

in Chhattisgarh, 3mn MT SGU in West Bengal, and 106MW captive solar

power plants would get operational. Thereafter, its Rajasthan plant is

expected by commissioned by FY24E, leading to clinker/cement capacities of

33/53mn MT. Shree’s Capex will accelerate FY23E onwards, all of which will

be funded through internal accruals. The company noted that its fuel cost

has peaked out in Q3 and demand is picking up in Q4. We marginally trim

our EBITDA estimates, factoring in elevated fuel costs, leading to a 2% cut in

our SOTP-based TP to INR 26,600/sh. We value its standalone cement

business at 16.5x Dec-23E EBITDA and the UAE business at 1x BV. Given its

robust margin (despite cost and demand headwinds) and the recent

correction in the stock price, we upgrade the stock to ADD.

Quarterly/annual financial summary (standalone) YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales Vol (mn MT) 6.55 7.17 (8.6) 6.32 3.7 24.93 26.84 28.16 31.55 35.35

NSR (INR/MT) 5,132 4,640 10.6 5,076 1.1 4,775 4,690 5,068 5,215 5,293

EBITDA (INR/MT) 1,260 1,520 (17.1) 1,422 (11.4) 1,474 1,473 1,418 1,499 1,500

Net Sales 33.62 33.25 1.1 32.06 4.9 119.04 125.88 142.71 164.55 187.12

EBITDA 8.26 10.89 (24.2) 8.98 (8.1) 36.75 39.55 39.93 47.29 53.03

APAT 4.92 6.26 (21.4) 5.78 (14.8) 15.70 23.12 23.27 25.80 28.09

AEPS (INR) 136.4 173.6 (21.4) 160.1 (14.8) 435.2 640.8 645.1 715.0 778.6

EV/EBITDA (x)

23.4 20.9 20.7 17.5 15.6

EV/MT (INR bn)

20.43 19.23 18.86 16.73 15.04

P/E (x)

56.8 38.6 38.3 34.6 31.7

RoE (%)

13.9 16.4 14.4 14.2 13.8


Estimates revision summary

INR bn Current Estimates Old Estimates Revisions (%)

FY22E FY23E FY24E FY22E FY23E FY24E FY22E FY23E FY24E

Net Sales 142.71 164.55 187.12 137.45 155.50 176.81 3.8 5.8 5.8

EBITDA 39.93 47.29 53.03 41.13 48.28 54.11 (2.9) (2.0) (2.0)

APAT 23.27 25.80 28.09 23.92 27.17 29.24 (2.7) (5.0) (3.9)


ADD

CMP (as on 4 Feb 2022) INR 24,724


NIFTY 17,516

KEY

CHANGES OLD NEW

Rating REDUCE ADD


EBITDA

revision %

FY22E FY23E

(2.9) (2.0)

KEY STOCK DATA

Bloomberg code SRCM IN


MCap (INR bn) / ($ mn) 892/11,987


52 Week high / low INR 32,050/23,500


3M 6M 12M

Absolute (%) (14.9) (15.1) (8.7)

Relative (%) (12.4) (22.9) (24.5)


Sep-21 Dec-21



FPIs 13.53 13.05


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 57

HSIE Results Daily

Ambuja Cement

Cost spike hits margin; targets major expansion in east

We maintain our ADD rating on Ambuja Cements (ACEM), with a lower TP

of INR 380/share (SOTP-based). Weak demand and sharp fuel cost inflation

pulled down ACEM’s margin and profits in Q4CY21. ACEM is working on

various cost levers (reduce clinker factor, increase TSR factor and green

power) to boost its margin. It also announced major Capex in the east, which

along with its north expansion, will increase its capacity to 40mn MT over the

next 3-4 years and firm up the volume growth visibility.

Q4CY21 performance: Sales volume rose a modest 2% YoY, impacted by

weak demand, mainly in the east. Utilisation stood at 91% vs 84/95%

QoQ/YoY. Despite soaring cost pressure, weak demand drove flattish NSR

QoQ (+4% YoY). Opex rose 8/13% QoQ/YoY on account of elevated fuel

costs and higher other expenses (marketing and Marwar ramp-up). Logistics

efficiencies under ICAN initiatives moderated the impact of inflation.

Unitary EBITDA thus fell 27/30% YoY/QoQ to INR 793 per MT. Depreciation

increased on Marwar commissioning at end of Sep-21. ACEM also booked

INR 0.66bn exceptional cost as a one-off restructuring cost.

Capex updates and outlook: Over the next 3-4 years, ACEM will be adding

3.2/8.5mn MT clinker/cement capacities, incurring ~INR 38bn in Capex,

leading to a capacity of 40mn MT. ACEM is very bullish on the east outlook

and, hence, it is expanding its capacity in the region to ~33% (of its installed

capacity), vs ~20% currently. It is also adding 70MW WHRS across various

plants to increase green power share to ~25-28%. We cut our CY22/23E

EBITDA estimates by 10/6%, factoring in a sharp cost increase. We maintain

our ADD rating on the stock with a lower TP of INR 380/sh (SOTP-based).

We value the standalone cement business at 14x its Dec-23E EBITDA and its

50% holding in ACC at a 30% discount to our target market cap for ACC.

Standalone quarterly/annual financial summary YE Dec

(INR bn)

Q4

CY21

Q4

CY20

YoY

(%)

Q3

CY21

QoQ

(%) CY19 CY20 CY21P CY22E CY23E

Sales (mn MT) 7.16 7.04 1.8 6.20 15.7 23.96 22.67 27.02 28.91 30.93

NSR (INR/MT) 5,213 4,993 4.4 5,226 (0.2) 4,870 5,016 5,168 5,317 5,448

Opex (INR/MT) 4,421 3,902 13.3 4,091 8.1 3,973 3,849 3,981 4,232 4,271

EBITDA(INR/MT) 793 1,091 (27.3) 1,135 (30.2) 897 1,167 1,187 1,086 1,176

Net Sales 37.35 35.15 6.3 32.37 15.4 116.68 113.72 139.65 153.73 168.53

EBITDA 5.68 7.68 (26.0) 7.03 (19.2) 21.49 26.47 32.07 31.39 36.39

APAT 3.17 4.97 (36.2) 4.41 (28.1) 14.77 17.90 21.46 19.99 23.60

AEPS (INR) 1.6 2.5 (36.2) 2.2 (28.1) 7.4 9.0 10.8 10.1 11.9

EV/EBITDA (x)

23.7 20.0 15.3 15.3 13.0

EV/MT (INR bn)

17.21 17.92 15.67 15.32 14.46

P/E (x)

45.6 37.6 31.4 33.7 28.5

RoE (%)

6.8 8.4 10.1 8.7 9.6


Estimates revision summary INR bn CY22E Old CY22E Revised Revision % CY23E Old CY23E Revised Revision %

Net Sales 152.4 153.7 0.9 165.4 168.5 1.9

EBITDA 34.9 31.4 (10.2) 38.7 36.4 (6.0)

APAT 22.9 20.0 (12.6) 25.7 23.6 (8.3)


ADD



NIFTY 17,276

KEY

CHANGES OLD NEW

Rating ADD ADD


EBITDA

revision %

CY22E CY23E

(10.2) (6.0)

KEY STOCK DATA

Bloomberg code ACEM IN


MCap (INR bn) / ($ mn) 672/9,028




3M 6M 12M

Absolute (%) (15.6) (17.4) 19.6

Relative (%) (12.6) (21.3) 7.0


Sep-21 Dec-21



FPIs 16.52 14.69


Pledged Shares -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 58

HSIE Results Daily

ACC

Weak quarter; Capex pick-up to bolster outlook

We maintain BUY on ACC with an unchanged TP of INR 2,760/share (12x its

CY23E consolidated EBITDA). We continue to like it for a healthy uptick in its

operating margin (aided by Project Parvat) and improved volume growth

visibility from the planned 5mn MT capacity addition in CY22/CY23. ACC is

also committed to accelerate its cement and green power capacity additions

between CY22 and CY25E, further boosting its profit outlook. In Q4CY21,

weak demand and elevated energy cost pulled consolidated

volume/EBITDA/APAT down by 3/21/26% YoY.

Q4CY21 performance: Weak demand pulled cement volume down by 3%

YoY. NSR too fell 1% QoQ on weak demand, though it remained 5% higher

YoY on earlier price hikes. A sharp fuel price hike increased input cost

QoQ/YoY. Freight cost remained stable YoY/QoQ. Fixed costs fell QoQ on

op-lev gains. Continued gains in Project Parvat moderated the impact of

soaring fuel prices. Unitary EBITDA fell 15/32% YoY/QoQ to INR 715 per

MT on weak demand and sharp cost inflation. Weak demand also muted

RMC revenue growth to 6% YoY and segmental EBITDA fell 59% YoY.

Expansion updates and estimates: ACC expects to commission 1.6mn MT

SGU in UP in Q2CY22 and 2.7/1mnMT clinker/cement IU in MP in Q3CY22.

In H1CY23, it will commission another 2.2mn MT SGU in UP, thus

increasing its cement capacity to 39mn MT in CY23. ACC expects to further

add 5-10mn MT in the subsequent 2-3 years, primarily in the east and central

regions. In CY22, ACC will commission 38MW WHRS across plants and will

add another 45MW by CY25. It also expects to consume >40% green power

by CY25 and is targeting to double its TSR to 15%. These moves will both

boost margin and support its 20% CO2 emission-cut target for the CY20-30

period. We have cut our CY22/23E EBITDA estimates by 4/4% each,

factoring in energy cost inflation. We estimate Capex to increase in

CY22/23E to INR 13/27bn on account of ongoing and future expansions.

Consolidated financial summary YE Dec

(INR bn)

Q4

CY21

Q4

CY20

YoY

(%)

Q3

CY21

QoQ

(%) CY19 CY20 CY21P CY22E CY23E

Sales (mn MT) 7.49 7.71 (2.9) 6.57 14.0 28.89 25.53 28.87 30.77 34.06

NSR (INR/MT) 5,199 4,970 4.6 5,242 (0.8) 4,907 5,023 5,161 5,260 5,357

EBITDA(INR/MT) 715 844 (15.3) 1,058 (32.4) 782 960 1,011 995 1,034

Net Sales 42.26 41.45 2.0 37.49 12.7 156.58 137.86 161.52 175.60 197.63

EBITDA 5.56 7.01 (20.6) 7.12 (21.9) 24.13 24.84 29.98 31.45 36.12

APAT 3.36 4.51 (25.6) 4.50 (25.5) 12.78 14.09 19.18 19.95 22.17

AEPS (INR) 17.9 24.0 (25.6) 23.9 (25.5) 68.1 75.0 102.1 106.3 118.1

EV/EBITDA (x)

10.0 8.1 11.0 10.2 9.1

EV/MT (INR bn)

7.29 6.11 9.58 8.65 8.41

P/E (x)

22.5 18.5 21.1 20.2 18.2

RoE (%)

11.4 11.6 14.2 13.2 13.2



INR Bn CY22E

Old

CY22E

Revised

Chg

%

CY23E

Old

CY23E

Revised

Chg

%

Net Sales 176.6 175.6 (0.6) 201.8 197.6 (2.1)

EBITDA 32.8 31.4 (4.2) 37.8 36.1 (4.4)

APAT 20.7 20.0 (3.5) 22.8 22.2 (2.8)


BUY

CMP (as on 14 Feb 2022) INR 2,154


NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA % CY22E CY23E

(4.2) (4.4)

KEY STOCK DATA

Bloomberg code ACC IN


MCap (INR bn) / ($ mn) 404/5,435




3M 6M 12M

Absolute (%) (16.3) (6.7) 22.0

Relative (%) (9.2) (8.4) 12.6


Sep-21 Dec-21



FPIs 13.59 13.76



Source : BSE

Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 59

HSIE Results Daily

Dalmia Bharat

Hit hard by weak demand and fuel cost spike

We upgrade our rating to BUY on Dalmia Bharat (DBEL) with a revised target

price of INR 2,195/share (13x Dec-23E consolidated EBITDA), owing to

attractive valuation. While volume decline in the east flattened DBEL’s

consolidated net sales YoY to INR 27.31bn, elevated opex pulled down

EBITDA/APAT by 40/64% YoY to INR 4.09/0.65bn. DBEL sold off Hippo

Stores in Q3. The company also guided that its ambitious expansion plan is on

track. We expect that its balance sheet will remain stable, going ahead.

Q3 performance: Consolidated sales volume declined 2% YoY due to a

sharp 12% fall in its east sales, while the south volume grew 2-3% YoY. Poor

demand in the east led to a 3% NSR fall (moderating the YoY gain at 2%).

40% QoQ spike in fuel prices, higher lead distance, and packing charges

drove up opex by 6% QoQ, despite op-lev gains. Coupled with the NSR fall,

unitary EBITDA slumped 35% QoQ to INR 718/MT (down 39% YoY). In Q3,

DBEL completed a slump sale of its non-core Hippo Stores for EV of INR

1.55bn. Gross debt increased by ~INR 5bn QoQ (though down 20% YoY)

amid the huge ongoing Capex. DBEL guided that margin would improve

Q4 onwards, owing to demand-led price increases and peaking of fuel costs.

Capex and outlook: DBEL plans to spend INR ~22bn in Capex to support its

ambitious expansion to 48.5mn MT by FY24E and ~60mn MT by FY25E. We

believe DBEL’s leverage ratio will remain comfortable, despite these

ambitious growth plans. We cut our FY22/23E EBITDA estimates by 13/3%

to factor in weak pricing in Q3 and cost inflation in H2FY22. Owing to

attractive valuation (following the recent correction), we upgrade the stock

to BUY (from ADD earlier), with a revised TP of INR 2,195/sh (13x its

Dec-23E consolidated EBITDA).

Quarterly/annual financial summary (consolidated) YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY21

QoQ


Sales (mn MT) 5.7 5.8 (1.7) 5.1 11.8 19.3 20.7 22.1 26.6 30.6

NSR (INR/MT) 4,791 4,719 1.5 4,943 (3.1) 4,967 4,878 5,024 5,084 5,135

EBITDA(INR/MT) 718 1,174 (38.9) 1,108 (35.2) 1,091 1,333 1,031 1,174 1,155

Net Sales 27.31 27.37 (0.2) 25.21 8.3 95.81 100.97 111.28 135.14 156.96

EBITDA 4.09 6.81 (39.9) 5.65 (27.6) 21.05 27.59 22.84 31.21 35.31

APAT 0.65 1.78 (63.5) 1.59 (53.4) 2.23 12.19 6.57 10.48 10.34

AEPS (INR) 3.5 9.5 (63.5) 8.5 (59.1) 11.6 65.3 35.1 56.0 55.3

EV/EBITDA (x)

17.7 12.9 15.5 12.3 11.3

EV/MT (INR bn)

14.1 11.6 9.9 10.7 8.3

P/E (x)

148.9 27.2 50.6 31.7 32.1

RoE (%)

2.1 10.5 5.1 7.7 7.1





Net Sales 111.3 135.1 157.0 113.6 133.9 152.1 (2.1) 0.9 3.2

EBITDA 22.8 31.2 35.3 26.3 32.3 35.4 (13.3) (3.2) (0.2)

APAT 6.7 10.9 10.6 8.8 11.3 10.8 (23.6) (3.7) (1.9)


BUY

CMP (as on 28 Jan 2022) INR 1,786


NIFTY 17,102

KEY

CHANGES OLD NEW

Rating ADD BUY


EBITDA

revision %

FY22E FY23E

(13.3) (3.2)

KEY STOCK DATA

Bloomberg code DALBHARA IN


MCap (INR bn) / ($ mn) 334/4,491




3M 6M 12M

Absolute (%) (10.3) (16.9) 56.5

Relative (%) (5.7) (25.9) 34.5


Sep-21 Dec-21



FPIs 13.77 13.46


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 60

HSIE Results Daily

JK Cement

Margin stable QoQ across both segments

We maintain our REDUCE rating on JK Cement (JKCE), with a lower TP of

INR 3,010 (11.5x Dec-23E consolidated EBITDA). While we estimate its grey

EBITDA to grow at 20% CAGR during FY21-24E, we estimate flattish EBITDA

for white/putty, owing to rising competition. In Q3FY22, weak demand

(mainly in grey cement) moderated consolidated volume growth to 5% YoY.

High energy cost led to 19/35% YoY EBITDA/APAT decline. Ramp-up of the

refurbished kiln in Rajasthan moderated the inflation impact.

Q3FY22 performance: Grey cement volume fell 2% QoQ on weak demand,

moderating YoY growth to 5%. However, NSR firmed up 5% QoQ on

healthy pricing gain across its markets, lower clinker sales, and higher trade

sales. Opex went up ~7% QoQ on fuel price hike and higher other expenses.

The ramp-up of refurbished Nimbhera kiln moderated the impact. Thus,

unitary EBITDA came in flattish at ~INR 900/MT (our estimate), though

down ~15% YoY. Consolidated white/putty volume rose 14/7% QoQ/YoY on

good demand. Segmental EBITDAM remained flattish QoQ at ~19% (though

down ~10pp YoY, owing to rising competition in the putty segment). While

unitary EBITDA remained flattish QoQ for both segments (in our view),

blended margin expanded 2% QoQ on higher share of white sales.

Capex update and outlook: In 9MFY22, JKCE spent INR 9.8bn, mainly on

the Panna greenfield project. It will spend INR 12.5/14bn during FY22/23E

and expects to commission the Panna project by end-FY23E, leading to grey

cement capacity of 19mn MT. JKCE will not be expanding its white

cement/putty capacity in medium term. We have marginally trimmed

consolidated FY22/23/24E EBITDA estimates by 1/2/2%. During FY21-24E,

we estimate grey EBITDA to grow at 20% CAGR on capacity expansion and

margin improvement. We estimate consolidated white/putty EBITDA to be

flattish in this period despite 9% volume CAGR, owing to rising

competition-led margin compression.

Consolidated quarterly/annual financial summary YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 3.42 3.26 5.0 3.41 0.4 10.2 12.0 13.9 15.7 17.9

NSR (INR/MT) 5,930 5,622 5.5 5,558 6.7 5,666 5,507 5,751 5,851 5,917

EBITDA(INR/MT) 1,067 1,381 (22.7) 1,043 2.3 1,185 1,315 1,131 1,260 1,299

Net Sales 20.30 18.33 10.8 18.95 7.1 58.02 66.06 80.19 91.67 105.65

EBITDA 3.66 4.50 (18.8) 3.56 2.8 12.13 15.78 15.77 19.75 23.19

APAT 1.43 2.19 (34.9) 1.77 (19.5) 4.92 7.49 7.67 9.06 10.51

AEPS (INR) 24.8 6.8 267.2 33.0 (24.7) 63.7 96.9 99.3 117.3 136.1

EV/EBITDA(x)

23.1 17.4 17.7 14.4 12.2

EV/MT (INR bn)

15.4 14.0 14.3 14.6 12.0

P/E (x)

51.9 34.1 33.3 28.2 24.3

RoE (%)

17.3 22.3 19.1 19.4 19.3

Source: Company, HSIE Research; Operating trends are on blended basis (grey cement+ white/putty)


Current Estimates Old Estimates Revisions (%)


Net Sales 80.19 91.67 105.65 78.49 90.37 105.12 2.2 1.4 0.5

EBITDA 15.77 19.75 23.19 15.97 20.21 23.62 (1.2) (2.3) (1.8)

APAT 7.67 9.06 10.51 7.62 10.50 11.56 0.6 (13.7) (9.1)


REDUCE



NIFTY 17,267

KEY

CHANGES OLD NEW


Price Target INR3,145 INR3,010

EBITDA

revision %

FY22E FY23E

(1.2) (2.3)

KEY STOCK DATA

Bloomberg code JKCE IN


MCap (INR bn) / ($ mn) 255/3,433




3M 6M 12M

Absolute (%) (12.6) (1.6) 43.2

Relative (%) (8.1) (8.1) 30.6


Sep-21 Dec-21



FPIs 17.39 17.72


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 61

HSIE Results Daily

The Ramco Cements

Volume momentum strong; margin collapses

We maintain our ADD rating on The Ramco Cements (TRCL) with a lower

target price of INR 962/share (13x Dec-23E EBITDA). While TRCL continued

to deliver strong volume growth, weak pricing and fuel price spike resulted in

42/59% YoY decline in EBITDA/APAT (despite 16% revenue growth) in

Q3FY22. Unitary EBITDA fell 50% YoY to INR 758 per MT. TRCL expects

margin to recover Q4 onwards on improved pricing and fuel price decline.

Q3FY22 performance: TRCL continues to deliver strong volume growth, as

it ramps up its sales in the eastern region. Despite weak demand across the

south and east in Q3, TRCL’s volume rose 17% YoY to 3.1mn MT. However,

NSR fell sharply (7/1% QoQ/YoY) on weak pricing and change in regional

sales mix. Further, unitary energy cost soared by ~INR 560/MT QoQ due to a

spike in both thermal coal and pet coke prices. This led to a 6% unitary opex

rise QoQ despite op-lev gains. Unitary EBITDA slumped 50/44% YoY/QoQ

to INR 758 per MT. Interest and depreciation expenses went up YoY on

capacity and debt increase.

Capex update and outlook: It will commission 2.25mn MT clinker capacity

by Q4FY22. In FY23, it will commission 1mn MT grinding and 12/18MW

WHRS/CPP at Kurnool. In FY24, it will complete the kiln replacement at its

Tamil Nadu plant and add four dry mortar plants. TRCL expects fuel prices

to cool off marginally QoQ. Demand uptick has also supported the cement

price rebound in Jan-22. These should lead to margin expansion QoQ. We

cut EBITDA estimates for FY22/23/24E by 12/10/5%, factoring in weak

pricing and cost inflation.

Quarterly/annual financial summary - standalone

YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 3.1 2.6 17.4 2.7 13.4 11.2 10.0 11.4 12.5 13.8

NSR (INR/MT) 5,033 5,090 (1.1) 5,390 (6.6) 4,740 5,222 5,324 5,427 5,532

Opex (INR/MT) 4,275 3,582 19.3 4,039 5.8 3,759 3,703 4,131 4,099 4,141

EBITDA(INR/MT) 758 1,508 (49.7) 1,351 (43.9) 981 1,520 1,193 1,328 1,391

Net Sales 15.49 13.39 15.7 14.93 3.7 53.68 52.68 61.17 68.57 76.81

EBITDA 2.31 3.97 (41.8) 3.94 (41.4) 11.37 15.48 13.94 17.03 19.57

APAT 0.83 2.01 (59.0) 2.15 (61.6) 6.01 7.61 6.67 7.83 9.45

AEPS (INR) 3.5 8.5 (59.1) 9.1 (61.6) 25.5 32.3 28.3 33.2 40.1

EV/EBITDA (x)

18.1 13.3 17.8 14.3 12.3

EV/MT (INR bn)

11.2 10.7 12.8 12.0 11.8

P/E (x)

29.5 23.3 31.7 27.0 22.4

RoE (%)

12.8 14.4 11.3 12.0 13.0



INR mn Current Estimates Old Estimates Revisions (%)


Net Sales 61,167 68,568 76,807 60,695 68,249 74,363 0.8 0.5 3.3

EBITDA 13,943 17,034 19,567 15,761 18,916 20,539 (11.5) (9.9) (4.7)

APAT 6,670 7,830 9,452 7,674 9,624 10,590 (13.1) (18.6) (10.7)


ADD



NIFTY 17,149

KEY

CHANGES OLD NEW

Rating ADD ADD

Price Target INR 1,071 INR 962

EBITDA

revision %

FY22E FY23E

(11.5) (9.9)

KEY STOCK DATA

Bloomberg code TRCL IN


MCap (INR bn) / ($ mn) 212/2,848




3M 6M 12M

Absolute (%) (7.0) (18.1) 10.8

Relative (%) (1.5) (26.6) (6.8)


Sep-21 Dec-21



FPIs 8.71 8.15



Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 62

HSIE Results Daily

Nuvoco Vistas

Margin falls sharply; rebound expected in Q4

We maintain our BUY rating on Nuvoco Vistas with a reduced TP of INR

677/share (11x its consolidated Dec-23E EBITDA). We continue to like it for its

leadership presence in the east, large retail focus, and various margin

initiatives. Nuvoco is also working to reduce leverage on books. Q3FY22

performance was adversely impacted by the double whammy of poor demand

and sharp fuel cost spike. The impact, however, was moderated by the rising

contribution from synergy benefits and ongoing cost reduction. Consolidated

revenue/EBITDA fell 3/50% YoY to INR 21.7/2.3bn, leading to a net loss of

INR 855mn (amid high capital charges). Nuvoco, however, sees margin

recovering in Q4 on better demand and pricing and stable fuel cost QoQ.

Q3FY22 performance: Continued weak demand in the east and transporter

strike in Chhattisgarh (early-Oct) caused volume to decline 13% YoY. Weak

demand also moderated trade sales to ~75%, from sub-80% in H1FY22. NSR,

thus, fell 2% QoQ. The sharp increase in fuel cost and reduced availability of

low-cost linkage coal pushed opex 6% QoQ. Unitary EBITDA, thus, fell

37/42% QoQ/YoY to INR 554. Synergy and efficiency efforts moderated the

fall. Subsequently, EBITDA halved YoY, leading to a net loss (on high capital

charges). Net debt/EBITDA stood at 3.5x in Dec-21 (vs 4.7x in Mar-21).

Outlook: Nuvoco expects demand in the east to normalise in Q4, with prices

already starting to firm up. As its coal linkage in the east (low-cost) is

restored, it does not expect QoQ energy cost inflation in Q4. Additionally,

the full benefit of realised synergies/efficiencies should lead to a rise in

margin in Q4. We have cut our EBITDA estimates for FY22/23/24E by

12/12/4%, factoring in lower volumes and cost inflation. To reduce debt on

the books, Nuvoco has reduced its Karnataka Capex to INR 15bn (3mn MT

IU by late-FY25E). We expect net debt/EBITDA to moderate to 2.3x by FY23.

Quarterly/annual financial summary - consolidated YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 4.23 4.86 (12.9) 3.85 10.0 12.24 15.91 17.66 20.31 22.34

NSR (INR/MT) 4,716 4,354 8.3 4,810 (2.0) 4,625 4,444 4,844 4,989 5,039

Opex (INR/MT) 4,162 3,402 22.4 3,925 6.0 3,579 3,503 3,962 3,962 3,889

EBITDA(INR/MT) 554 952 (41.9) 885 (37.4) 1,046 941 882 1,027 1,150

Net Sales 21.65 22.31 (2.9) 20.20 7.2 67.93 74.89 92.20 109.98 122.96

EBITDA 2.27 4.52 (49.8) 3.31 (31.3) 12.97 14.61 15.78 21.45 26.40

APAT (0.86) 0.44

(0.26)

2.49 (0.26) 0.87 5.25 8.76

AEPS (INR) (2.4) 1.4

(0.7)

10.3 (0.8) 2.4 14.7 24.5

EV/EBITDA (x)

14.8 15.1 12.9 9.4 7.3

EV/MT (INR bn)

13.69 9.88 8.56 8.45 7.57

P/E (x)

60.9 NA 173.5 28.9 17.3

RoE (%)

4.9 NA 1.1 5.7 9.0

Source: Company, HSIE Research. Note: NA – not applicable




Net Sales 92.20 109.98 122.96 94.87 115.29 130.04 (2.8) (4.6) (5.4)

EBITDA 15.78 21.45 26.40 17.85 24.41 27.61 (11.6) (12.1) (4.4)

APAT 0.87 5.25 8.76 2.41 8.27 11.23 (63.7) (36.6) (22.0)


BUY



NIFTY 17,606

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

(11.6) (12.1)

KEY STOCK DATA

Bloomberg code NUVOCO IN


MCap (INR bn) / ($ mn) 152/2,048

6m avg traded value (INR mn) -



3M 6M 12M

Absolute (%) (20.3) - -

Relative (%) (18.0) - -


Sep-21 Dec-21



FPIs 7.76 7.28


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

Rajesh Ravi

P a g e | 63

HSIE Results Daily

Birla Corporation

Weak retail demand and cost pressure hit profits

We maintain our BUY rating on Birla Corporation (BCORP), with a revised TP

of INR 1,718/share (9x Dec-23E consolidated EBITDA). Poor demand and

pricing mainly in the east along with rising fuel prices led to a consolidated

decline of 6/2/39/64% YoY in volume/revenue/EBITDA/APAT. Demand picked

up in Q4, also aiding cost-pass thorough capabilities. BCORP’s 4mn MT

integrated plant in Maharashtra will get operational by Mar-22E, thus raising

its capacity to 20mn MT. We continue to like BCORP for its large retail

presence in the lucrative north/central regions and various cost-cutting

initiatives. We expect leverage ratio to cool off FY23E onwards on healthy cash

flows and lower Capex outgo in the next two years. These should drive

valuation rerating.

Q3FY22 performance: Sales volume fell 6% YoY, owing to weak demand

across its markets. Retail sales were hit the maximum (mostly in east),

contracting the share of trade sales/blended cement 4/3pp QoQ to 75/88%.

Even premium sales share contracted 4pp QoQ. However, NSR rose 1%

QoQ on increased share of sales in northern region, as the east market saw

sharper demand and price contraction in Q3. Higher fuel prices increased

opex 4% QoQ. Thus, unitary EBITDA fell 17/36% QoQ/YoY to INR 637/MT.

Capex update and outlook: The 3.9mn MT integrated plant at Mukutban

(Maharashtra) is under trial runs in Q4FY22 (since Jan-22) and should start

contributing FY23 onwards. With this, BCORP’s capacity has increased to

20 mn MT. We expect ramp-up from this plant and lower Capex in medium

term to moderate gearing over the next two years. We marginally trim our

EBITDA estimates for FY22/23E 3/2%, factoring in fuel price inflation. We

maintain our BUY rating on the stock with a revised TP of INR 1,718/sh (9x

its Dec-23E consolidated EBITDA).


(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales Vol (mn MT) 3.35 3.55 (5.6) 3.27 2.4 13.64 13.39 14.09 16.72 18.02

NSR (INR/MT) 4,934 4,770 3.4 4,878 1.2 4,819 4,848 4,935 5,020 5,115

EBITDA(INR/MT) 637 998 (36.2) 762 (16.5) 962 1,007 849 934 1,020

Net Sales 17.50 17.77 (1.5) 16.98 3.1 69.16 67.85 73.60 88.76 97.17

EBITDA 2.22 3.62 (38.6) 2.67 (16.8) 13.36 13.70 12.56 16.10 18.88

APAT 0.53 1.49 (64.2) 0.86 (37.5) 5.05 6.89 4.43 5.24 7.12

AEPS (INR) 6.9 19.4 (64.2) 11.1 (37.5) 65.6 89.5 57.5 68.0 92.4

EV/EBITDA (x)

10.4 10.1 11.5 8.8 7.3

EV/MT (INR bn)

8.86 8.85 7.36 7.00 6.82

P/E (x)

20.5 15.0 23.4 19.8 14.6

RoE (%)

13.2 15.9 8.4 8.6 10.9





Net Sales 73.60 88.76 97.17 68.63 82.73 91.93 7.2 7.3 5.7

EBITDA 12.56 16.10 18.88 12.98 16.47 18.89 (3.2) (2.3) (0.0)

APAT 4.43 5.24 7.12 3.75 5.26 7.24 18.1 (0.3) (1.7)


BUY



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

(3.2) (2.3)

KEY STOCK DATA

Bloomberg code BCORP IN


MCap (INR bn) / ($ mn) 104/1,393




3M 6M 12M

Absolute (%) (12.8) (1.4) 64.1

Relative (%) (10.3) (9.1) 48.3


Sep-21 Dec-21



FPIs 3.96 3.68


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 64

HSIE Results Daily

JK Lakshmi Cement

Profitability hit by lower sales and cost spike

We maintain our BUY rating on JK Lakshmi Cement (JKLC) with a revised TP

of INR 765/share (8x Dec-23E consolidated EBITDA). We expect its current low

gearing and healthy cash flow to support its planned Udaipur expansion,

without stressing its balance sheet and keeping the RoE buoyant at ~19-20%.

In Q3FY22, while consolidated revenue rose 2% YoY on better pricing,

volume, EBITDA, and APAT fell 7%, 24%, and 44% YoY respectively on weak

demand and soaring fuel prices.

Q3FY22 performance: Continuous 18-day transporter strike in Chhattisgarh

(early Oct-21), unseasonal rains, and COVID-lockdown pulled down

consolidated sales volume by 7% YoY. NSR improved by 1/9% QoQ/YoY, on

increased sales and better pricing in the northern region. Opex soared 16%

YoY and 4% QoQ due to higher fuel and diesel prices. Its fuel cost rose 15%

QoQ and it is expected to further increase by 10-15% QoQ in Q4. Unitary

EBITDA fell 19/16% YoY/QoQ on lower sales and higher cost pressure.

Interest expense fell 25% YoY as JKLC continues to retire debt on its books.

Capex and outlook: JKLC commissioned 5MW solar plant in Q3 in Udaipur

and will commission 10MW WHRS in Sirohi in Q4, which would translate

into annual cost savings of ~INR 0.2-0.3bn. JKLC will complete its 1.5/2.5mn

MT clinker/cement expansions at its Udaipur subsidiary in two phases in

FY24E (for a total Capex of INR 16.5bn). We expect the current low leverage

and healthy cash flows to buoy its RoE to ~19-20% and keep net

debt/EBITDA under 1x. Factoring in the inflationary pressures, we trim our

consolidated EBITDA estimates by 7/6/3% for FY22/FY23/FY24E

respectively.


(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 2.61 2.80 (6.7) 2.47 5.9 9.72 10.45 11.08 11.96 13.16

NSR (INR/MT) 4,918 4,496 9.4 4,896 0.5 4,490 4,524 4,931 5,030 5,106

EBITDA(INR/MT) 664 815 (18.5) 786 (15.5) 821 898 800 899 935

Net Sales 12.86 12.60 2.1 12.09 6.4 43.64 47.27 54.62 60.17 67.18

EBITDA 1.74 2.28 (23.9) 1.94 (10.6) 7.98 9.39 8.86 10.75 12.30

APAT 0.64 1.14 (43.8) 0.84 (24.0) 2.78 4.43 3.90 5.37 6.39

AEPS (INR) 5.4 9.7 (43.8) 7.2 (24.0) 23.6 37.7 33.2 45.6 54.3

EV/EBITDA (x)

10.1 7.9 8.4 7.0 6.4

EV/MT (INR bn)

6.08 5.57 5.38 5.40 5.25

P/E (x)

23.6 14.8 16.9 12.2 10.3

RoE (%)

17.6 23.4 17.0 19.7 19.4



INR Bn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Net Sales 53.8 54.6 1.5 58.6 60.2 2.7 63.6 67.2 5.6

EBITDA 9.49 8.86 (6.6) 11.45 10.75 (6.1) 12.70 12.30 (3.2)

APAT 4.27 3.90 (8.7) 5.58 5.37 (3.7) 6.38 6.39 0.2


BUY



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

(6.6) (6.1)

KEY STOCK DATA

Bloomberg code JKLC IN


MCap (INR bn) / ($ mn) 65/883




3M 6M 12M

Absolute (%) (9.9) (17.1) 56.2

Relative (%) (8.2) (26.4) 39.2


Sep-21 Dec-21



FPIs 12.48 12.97


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 65

HSIE Results Daily

Heidelberg Cement

Weak volumes and margin

We downgrade our rating on Heidelberg Cement (HEIM) to REDUCE from

ADD, with a lower target price of INR 205/share (8.5x Dec-23E EBITDA). In

the absence of any major expansion in the next three years, we expect HEIM’s

volume growth to be subdued and it could lose market share to other players

that are expanding in its core markets. In Q3FY22, HEIM reported weak

performance as its sales volume fell 11% YoY. EBITDA fell 43% YoY, given

sharp cost inflation that could not be passed on.

Q3FY22 performance: Sales volume fell 11/8% YoY/QoQ due to weak

demand and loss of market share. The share of trade sales fell to 77% (below

80% after many quarters). NSR went up 3/3% QoQ/YoY due to healthy

regional pricing. Opex shot up 13% QoQ, mainly due to higher input cost

(up ~INR 340/MT QoQ). Freight cost remained stable QoQ. There is a sharp

increase in other expenses despite the volume decline, magnifying the op-

lev loss. Unitary EBITDA, thus, fell ~37/37% YoY/QoQ to INR 607.

Outlook: HEIM noted that demand is improving in Q4. However, cement

price hike is yet to catch up with the sharp fuel price increase. Fuel prices are

expected to further increase QoQ in Q4. The increased share of green power

usage should moderate energy cost inflation. We cut our EBITDA estimates

for FY22/23/24E by 15/14/14%, factoring in weak volume and margin

pressure. In the absence of any major planned expansion over the next few

years and significant capacity additions by other players in the central

market, we expect HEIM to lose market share to them and, thus, expect its

margin to be under pressure. Thus, we downgrade to REDUCE (from ADD)

with a lower target price of INR 205 (8.5x the Dec-23E EBITDA).

Quarterly/annual financial summary

YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY21

QoQ


Sales (mn MT) 1.13 1.27 (11.1) 1.23 (8.4) 4.71 4.49 4.70 5.08 5.33

NSR (INR/MT) 4,827 4,691 2.9 4,683 3.1 4,611 4,718 4,766 4,861 4,958

Opex (INR/MT) 4,221 3,744 12.7 3,737 12.9 3,490 3,589 3,873 3,899 3,927

EBITDA(INR/MT) 607 947 (35.9) 946 (35.9) 1,122 1,129 892 962 1,031

Net Sales 5.45 5.95 (8.5) 5.76 (5.5) 21.70 21.17 22.40 24.67 26.43

EBITDA 0.68 1.20 (43.1) 1.16 (41.2) 5.28 5.07 4.19 4.88 5.49

APAT 0.30 0.64 (52.2) 0.60 (48.9) 2.68 3.15 2.00 2.41 3.28

AEPS (INR) 1.3 2.8 (52.2) 2.6 (48.9) 11.8 13.9 8.8 10.6 14.5

EV/EBITDA (x)

8.3 8.5 11.1 9.7 9.2

EV/MT (INR bn)

7.00 6.86 7.45 7.57 7.50

P/E (x)

16.3 13.9 24.3 20.2 14.8

RoE (%)

21.6 22.4 13.0 14.9 18.9



INR Bn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Net Sales 24.1 22.4 (6.9) 26.1 24.7 (5.6) 28.5 26.4 (7.4)

EBITDA 5.0 4.2 (15.4) 5.7 4.9 (13.9) 6.4 5.5 (13.9)

APAT 2.6 2.0 (21.9) 3.0 2.4 (18.5) 3.7 3.3 (11.6)


REDUCE



NIFTY 17,606

KEY

CHANGES OLD NEW

Rating ADD REDUCE


EBITDA

revision %

FY22E FY23E

(15.4) (13.9)

KEY STOCK DATA

Bloomberg code HEIM IN


MCap (INR bn) / ($ mn) 49/654




3M 6M 12M

Absolute (%) (14.3) (19.3) (7.6)

Relative (%) (12.0) (27.3) (22.5)


Sep-21 Dec-21



FPIs 5.81 5.47


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 66

HSIE Results Daily

Star Cement We maintain BUY on Star Cement with an unchanged TP of INR 130/share (8x

its Dec-23E consolidated EBITDA). In Q3FY22, Star’s profitability slumped on

weak realisation and elevated opex, despite a solid volume offtake. While

consolidated revenue rose 31% YoY to INR 5.55bn, EBITDA/APAT fell 20/15%

YoY to INR 675/438mn respectively. The ramp-up at Siliguri plant and price

rebound should accelerate margin Q4FY22 onwards. The upcoming 12MW

WHRS by H1FY23E should also reduce its power cost, bolstering the margin.

Q3FY22 performance: Star saw strong volume growth of 27/42% YoY/QoQ,

aided by strong ramp-up in both the east and NE region. NE sales volume

jumped 18% YoY and east sales soared 82% YoY, as Siliguri ramped up to

45% utilisation in Q3. The trade sales share remained high at 86%. However,

unitary EBITDA slumped 34% QoQ to INR 772/MT on weak pricing (down

4% QoQ) and high opex (up 3% QoQ). Elevated P&F, freight (non-

availability of trucks) and marketing expenses (to drive sales from Siliguri

plant) led to 3% QoQ opex inflation, despite op-lev gains.

Capex update and outlook: During FY22-25E, Star would incur total Capex

of INR 19-20bn towards the following capacity additions: 24MW WHRS,

3mn MT clinker, and 2mn MT cement. 12MW WHRS is expected to be

operational by H1FY23 and the rest are expected to be commissioned by the

end of FY25, leading to a consolidated cement/clinker/WHRS capacity of

7.7mn MT/6mn MT/24MW. Star should be able to fund this addition mainly

through internal accruals. While its Q3 numbers are weak, it expects healthy

pricing recovery and op-lev gains to bolster the Q4 EBITDA margin to INR

1,500/MT+, thus offsetting the impact on FY22 profit estimates. We keep our

EBITDA estimates for FY22/23/24 unchanged.


(INR mn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales Vol (mn MT) 0.87 0.69 26.5 0.62 41.7 3.0 2.70 3.31 3.80 4.37

NSR (INR/MT) 6,349 5,955 6.6 6,589 (3.7) 5,912 6,220 6,394 6,553 6,704

EBITDA (INR/MT) 772 1,215 -36.4 1,162 (33.5) 1,337 1,233 1,180 1,300 1,393

Net Sales 5,549 4,234 31.0 4,066 36.5 18,439 17,199 21,259 24,908 29,303

EBITDA 675 840 (19.6) 717 (5.8) 3,951 3,326 3,902 4,941 6,089

APAT 438 512 (14.4) 465 (5.8) 2,863 2,401 2,699 3,684 4,587

AEPS (INR) 1.0 1.2 (14.4) 1.1 (5.8) 6.9 5.8 6.7 9.1 11.3

EV/EBITDA (x)

9.2 10.1 8.7 7.2 6.1

EV/MT (INR bn)

10.1 8.2 7.8 7.6 7.4

P/E (x)

13.4 16.0 14.2 10.4 8.3

RoE (%)

15.4 12.0 12.6 15.6 17.3





Net Sales 21,259 24,908 29,303 21,259 24,172 29,305 - 3.0 -

EBITDA 3,902 4,941 6,089 3,902 4,950 6,068 - (0.2) 0.4

APAT 2,699 3,684 4,587 2,694 3,740 4,718 0.2 (1.5) (2.8)


BUY



NIFTY 17,110

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

- (0.2)

KEY STOCK DATA

Bloomberg code STRCEM IN


MCap (INR bn) / ($ mn) 39/523




3M 6M 12M

Absolute (%) (6.5) (14.1) (2.3)

Relative (%) 0.1 (22.5) (20.7)


Sep-21 Dec-21



FPIs 0.14 0.18



Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 67

HSIE Results Daily

Orient Cement

Healthy margin in tough quarter; Capex to accelarate

We downgrade our rating on Orient Cement to ADD from BUY earlier, with

an unchanged TP of INR 185/share (8x Dec-23E consolidated EBITDA). We

expect the company to continue to deliver healthy operating metrics, driven

by rising trade share, focus on high AFR usage, and upcoming WHRS.

However, owing to expected competitive intensity in Maharashtra and

Orient’s aggressive planned Capex from FY23 to FY25, we expect its net

debt/EBITDA to rebound to > 2.5x FY24E onwards (vs < 1x currently). During

Q3, Orient’s consolidated volume/EBITDA/APAT fell 10/14/19% YoY (despite

2% revenue growth), dragged by weak demand and rising energy costs.

Unitary EBITDA moderated 4/8% YoY/QoQ to INR 965/MT.

Q3 performance: Volume fell 10% YoY, on sharp fall in sales in Nov-21. NSR

firmed up 14/6% YoY/QoQ on healthy pricing, particularly in Maharashtra

and increased trade sales. Opex soared 19/10% YoY/ QoQ on lower

utilisation, elevated fuel cost (though the impact is lower vs peers owing to

higher usage of domestic coal and AFR) and increased other expenses. Thus,

the unitary EBITDA moderated 4/8% YoY/QoQ to INR 965/MT. Amid low

Capex and debt, interest expense continues to fall.

Outlook: Orient has improved its trade mix to 60% currently (vs 55% YoY)

to improve utilisation and margin. Further, it has one of the largest shares of

AFR usage in kiln (18%), which is reducing its opex. The 10MW WHRS

should also cushion margin FY24E onwards. However, we expect price

volatility in Maharashtra (accounting for ~40-45% of Orient’s sales) during

FY23/24E, owing to ramp-up from recently commissioned ~10mn MT

capacities of Dalmia, Birla Corp, and Shree Cement. Further, Orient is also

aggressively pursuing 3-3.5mn MT capacity expansions across Maharashtra

and Telangana by Mar-24E, incurring major Capex of ~INR 22bn. While it

has significantly lowered its net debt/EBITDA to 0.9x currently (vs ~2x YoY),

we estimate this to rebound to >2.5x FY24E onwards, even as we assume

that the Capex would stretch into FY25E. While we broadly maintain our

EBITDA estimates and target price, we downgrade our rating to ADD (from

BUY earlier), factoring in the margin risk and eminent balance sheet stress.

Quarterly/annual financial summary YE Mar

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales Vol (mn MT) 1.22 1.36 (10.4) 1.28 (4.7) 11.2 10 11.1 12.5 13.5

NSR (INR/MT) 5,070 4,449 14.0 4,798 5.7 4,740 5,222 5,532 5,528 5,582

Opex (INR/MT) 4,105 3,443 19.2 3,749 9.5 3,759 3,703 4,072 3,967 4,010

EBITDA(INR/MT) 965 1,006 (4.1) 1,048 (7.9) 981 1,520 1,460 1,561 1,572

Net Sales 6.18 6.05 2.1 6.13 0.7 24.22 23.24 26.60 28.46 31.31

EBITDA 1.18 1.37 (14.0) 1.34 (12.3) 3.83 5.51 5.84 5.78 6.25

APAT 0.44 0.54 (18.9) 0.57 (23.2) 0.87 2.14 2.49 2.47 2.65

AEPS (INR) 2.1 2.6 (18.9) 2.8 (23.2) 4.2 10.5 12.2 12.1 12.9

EV/EBITDA (x)

12.4 7.6 6.8 7.6 8.3

EV/MT (INR bn)

5.9 5.2 4.7 5.2 4.9

P/E (x)

40.9 16.5 14.2 14.3 13.4

RoE (%)

8.0 17.7 17.6 15.2 14.4


ADD



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating BUY ADD


EBITDA

revision %

FY22E FY23E

(1.4) 0.1

KEY STOCK DATA

Bloomberg code ORCMNT IN


MCap (INR bn) / ($ mn) 35/475




3M 6M 12M

Absolute (%) 0.7 6.3 84.9

Relative (%) 1.5 (6.2) 65.3


Sep-21 Dec-21



FPIs 5.97 6.64


Pledged Shares -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 68

HSIE Results Daily

Sagar Cements

Price hike expected to absorb cost inflation

We maintain ADD on Sagar Cements (SGC), with a revised TP of

INR 259/share (7.5x Dec-23E consolidated EBITDA). In Q3, lower volume and

cost pressure hit its performance. Consolidated volume/revenue/EBITDA/

APAT fell by 14/8/56/89% YoY. The commissioning of Jajpur SGU (1.5mn MT)

in Jan-22 has increased SGC’s capacity to 8.25mn MT. The ramp-up of recently

commissioned Satguru and Jajpur plants should accelerate volume growth

and diversify regional exposure. SGC expects the cement price rebound, along

with higher volume and lower cost inflation QoQ, to boost the Q4 margin.

Q3 performance: Volume fell 14/13% YoY/QoQ on weak demand. NSR

firmed up 4% QoQ on account of healthy pricing in Maharashtra and South.

Opex inflated 7% QoQ due to soaring fuel costs, packing charges, and op-lev

loss. The increased share of domestic fuel consumption moderated QoQ

inflation. Elevated opex pulled down unitary EBITDA by 49/13% YoY/QoQ

to INR 623 despite better realisation. Net debt and net debt/EBITDA have

currently almost peaked at INR 9.7bn and 3x respectively, owing to

completion of both Odisha and MP expansions.

Outlook: SGC commissioned the 1.5mn MT SGU at Odisha, in Jan-22. The

ramp-up of Satguru and Jajpur capacities should accelerate volume growth

FY23 onwards and diversify the company’s sales in regions other than the

South. SGC will continue to further expand the blended cement production

share from 50% (vs 40% YoY) reported in Q3. SGC expects sequential

margin rebound in Q4 on account of better volume, price rebound, and

lower P&F cost. We marginally downgrade our EBITDA estimates and TP to

factor in the cost inflation in H2. We maintain our ADD rating on the stock.


(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 0.74 0.86 (13.6) 0.85 (12.9) 3.13 3.16 3.53 5.03 5.53

NSR (INR/MT) 4,489 4,226 6.2 4,324 3.8 3,753 4,339 4,519 4,595 4,664

EBITDA (INR/MT) 623 1,213 (48.7) 712 (12.6) 592 1,267 920 887 892

Net Sales 3.34 3.64 (8.3) 3.69 (9.6) 11.75 13.71 15.93 23.12 25.80

EBITDA 0.46 1.04 (55.7) 0.61 (23.8) 1.86 4.00 3.24 4.46 4.93

APAT 0.05 0.50 (89.3) 0.21 (74.7) 0.26 1.85 1.20 1.75 2.02

AEPS (INR) 0.5 4.2 (89.3) 1.8 (74.7) 2.4 15.8 10.2 14.9 17.2

EV/EBITDA (x)

17.9 8.5 11.1 8.0 7.5

EV/MT (INR bn)

5.79 5.92 4.35 4.33 4.48

P/E (x)

106.1 15.1 23.3 15.9 13.8

RoE (%)

2.8 16.3 9.2 12.3 12.9



INR Bn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Net Sales 15.9 15.9 0.3 21.6 23.1 7.0 24.2 25.8 6.8

EBITDA 3.3 3.2 (2.9) 4.5 4.5 (0.6) 5.0 4.9 (0.6)

APAT 1.1 1.2 6.0 1.7 1.8 5.8 1.9 2.0 5.4


ADD



NIFTY 17,340

KEY

CHANGES OLD NEW

Rating ADD ADD


EBITDA

revision %

FY22E FY23E

(2.9) (0.6)

KEY STOCK DATA

Bloomberg code SGC IN


MCap (INR bn) / ($ mn) 28/376




3M 6M 12M

Absolute (%) (14.9) (9.2) 83.1

Relative (%) (12.7) (19.6) 57.7


Sep-21 Dec-21



FPIs 6.14 5.80


Pledged Shares - 5.49

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 69

HSIE Results Daily

Deccan Cements

Strong margin despite weak demand

We maintain our BUY rating on Deccan Cements (DCL), with an unchanged

target price of INR 750/sh (6.5x its Dec-23E EBITDA). Despite lower sales

(volumes fell 4/17% QoQ/YoY), DCL reported a solid margin of INR 1,023/MT

(expanded 16/7% QoQ/YoY) due to healthy pricing gain and low cost inflation.

Strong margin moderated net sales/EBITDA/APAT decline to 8/12/18% YoY to

INR 1.91/0.43/0.27bn respectively. We remain positive on the company, owing

to its consistent operating performance and stable balance sheet. DCL’s near-

doubling of its capacity to 4.3mn MT by the end of FY24E is broadly on track.

Q3FY21 performance: Sales volume fell 17/4% YoY/QoQ to 0.42mn MT due

to weak demand and an extended monsoon. NSR improved 4% QoQ (+11%

YoY) on better pricing and sales mix. DCL’s unitary input cost rose only

~INR 200/MT QoQ, owing to its major dependence on domestic coal (which

witnessed low inflation vs imported fuel). DCL’s other expenses also fell

sharply QoQ. These moderated opex inflation to 1% QoQ (+12% YoY). Thus,

unitary EBITDA firmed up 16/7% QoQ/YoY to a solid INR 1,023/MT.

Healthy margin moderated the profit decline amid weak volumes. DCL has

gradually increased its cement to clinker ratio from 1.15x two years ago to

1.26x now. It has also ramped up its WHRS, which has led to cost savings.

Capex update and outlook: DCL would incur Capex of ~INR 1/4/4bn in

FY22/23/24E, primarily for its 2-mn MT brownfield expansion by end-

FY24E. We expect healthy internal accruals to keep the balance sheet in

check, despite large Capex. We upgrade FY22/23E EBITDA estimates by

4/3% each to factor in healthy margin traction.

Financial Summary YE Mar

(INR Mn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Sales (mn MT) 0.42 0.51 (17.2) 0.44 (3.6) 1.5 1.8 1.9 2.0 2.3

NSR (INR/MT) 4,514 4,080 10.6 4,358 3.6 3,778 4,237 4,449 4,449 4,538

Opex (INR/MT) 3,492 3,121 11.9 3,475 0.5 3,245 3,254 3,512 3,597 3,586

EBITDA (INR/MT) 1,023 960 6.6 883 15.9 533 983 936 852 952

Net Sales 1,905 2,081 (8.4) 1,909 (0.2) 5,553 7,580 8,356 9,050 10,496

EBITDA 432 489 (11.8) 387 11.7 783 1,759 1,758 1,733 2,201

APAT 272 331 (17.8) 233 16.6 433 1,151 1,177 1,136 1,246

AEPS (INR) 19.4 23.6 (17.8) 16.7 16.6 30.9 82.2 84.0 81.1 88.9

EV/EBITDA (x)

10.8 4.0 4.0 5.7 5.9

EV/MT (INR bn)

3.75 3.11 3.13 4.39 3.07

P/E (x)

19.8 7.4 7.3 7.5 6.9

RoE (%)

10.1 22.7 19.1 15.9 15.3





Net Sales 8,356 9,050 10,496 8,263 8,797 11,000 1.1 2.9 (4.6)

EBITDA 1,758 1,733 2,201 1,686 1,676 2,204 4.3 3.4 (0.1)

APAT 1,177 1,136 1,246 1,095 1,069 1,265 7.5 6.3 (1.5)


BUY



NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

4.3 3.4

KEY STOCK DATA

Bloomberg code DECM IN


MCap (INR bn) / ($ mn) 9/116




3M 6M 12M

Absolute (%) (10.6) (14.1) 72.7

Relative (%) (5.5) (23.3) 53.0


Sep-21 Dec-21



FPIs 6.26 7.63


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 70

HSIE Results Daily

Astral

Weak demand, raw material inflation moderate profits

We maintain our REDUCE rating on Astral with a revised TP of INR 2,180/sh

(34x its Dec-23E consolidated EBITDA, implying 53x P/E), owing to its

expensive valuation. Weak demand in Q3FY22 pulled down pipes sales

volume, leading to an op-lev loss. While consolidated revenue rose 22% YoY

on account of better realisation across pipes and adhesives business,

EBITDA/APAT growth tapered off to 3/3% on account of lower utilisation,

rising raw material cost, and high other expenses. OPM contracted sharply in

the adhesive segment on account of rising input cost.

Pipes & fittings performance: Volatile PVC prices, COVID lockdown, and

unseasonal rains in Q3 impacted both demand and dealers stocking, all of

which led to 4/17% YoY/QoQ sales volume decline. Segmental realisation

firmed up 29/13% YoY/QoQ on account of resin cost pass-through and rising

share of CPVC amid weak PVC sales. Elevated resin prices and on op-lev

loss drove up opex by 35/13% YoY/QoQ, amid slight inventory gains QoQ.

Thus, unitary EBITDA rebound 12/17% YoY/QoQ to INR 48/kg. Segmental

revenue/EBITDA rose 24/7% YoY to INR 85.7/17bn respectively.

Adhesive performance: While segmental revenue firmed up 17% YoY to

INR 2.56bn, rising input costs (which are being passed through with a lag)

pulled down segmental EBITDAM by 5/3pp YoY/QoQ to 12%.

Capex update: Astral commissioned plastic tank plants in Hosur, Ghiloth

(blow molded), and Santej (blow molded). Its Bhubaneswar plant expansion

will be complete in Q4FY22. It commissioned the valve plant at Dholka and

has commenced production there. Its upcoming adhesive plant in Dahej is

expected to be operational in FY23. Astral is also adding a greenfield plant

in Telangana by FY24E. It expects to foray in the bathware segment (through

outsourced model initially) in Q1FY23.

Outlook: Astral expects pipes demand to accelerate FY23 onwards, riding

on new real-estate project launches and government’s focus on housing and

piping infrastructure. In the near term, stabilising of PVC resin prices will

drive dealers stocking. Astral remains confident of growing ahead of the

industry across both PVC and CPVC segments. We have trimmed FY22E

EBITDA by 5%, factoring in near-term slowdown in pipes sales. We have

also increased our Capex estimates for FY22/23/24E. We maintain REDUCE

with a revised TP of INR 2,180 (34x its Dec-23E consolidated EBITDA).


(INR mn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 10,989 8,975 22.4 11,541 (4.8) 25,779 31,763 45,497 56,215 69,867

EBITDA 1,976 1,920 2.9 2,115 (6.6) 4,429 6,445 8,063 10,889 13,000

EBITDAM (%) 18.0 21.4

18.3

17.2 20.3 17.7 19.4 18.6

APAT 1,273 1,232 3.3 1,412 (9.8) 2,479 4,044 5,086 7,230 8,669

Diluted EPS (Rs) 6.3 6.1 3.3 7.0 (9.8) 12.3 20.1 25.3 35.9 43.1

EV / EBITDA (x)

99.5 67.6 53.7 39.5 32.6

P/E (x)

177.4 108.7 86.4 60.8 50.7

RoE (%)

17.6 23.6 23.6 26.4 24.9


REDUCE



NIFTY 17,516

KEY

CHANGES OLD NEW



EBITDA

revision %

FY22E FY23E

(5.1) 0.2

KEY STOCK DATA

Bloomberg code ASTRA IN


MCap (INR bn) / ($ mn) 438/5,886




3M 6M 12M

Absolute (%) (3.4) (2.9) 45.2

Relative (%) (1.1) (10.9) 29.6


Sep-21 Dec-21



FPIs 21.32 19.85


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 71

HSIE Results Daily

Supreme Industries

Weak transient demand

We maintain BUY on Supreme Industries (SIL), with an SOTP-based TP of

INR 2,650/share. In Q3FY22, the pipes sales slump (in Nov-21) moderated

SIL’s consolidated revenue growth, which was down 5% YoY to INR 19.5bn.

Lower utilisation and gross margin and inventory loss (vs gain YoY) pulled

consolidated EBITDA/APAT down 21/21% YoY to INR 3.18/2.46bn.

Management said that since resin prices have seemingly bottomed out,

dealers would restock inventory. Along with a demand uptick, this should

cause a sales rebound in Q4FY22.

Pipes division adversely hit in Q3FY22: A sharp demand slump (for PVC

pipes) in Nov and falling resin prices in Nov/Dec (which made dealers

destock inventory) pulled down pipes sales volume by 26/21% YoY/QoQ.

However, EBITDAM expanded ~150bps QoQ to ~19% on better realisation

and product mix. Inventory loss (vs gain YoY) and higher other expenses,

however, dragged EBITDAM YoY by ~550bps. These factors caused pipes

EBITDA to decline 21% YoY, despite 1% revenue growth.

Mixed performance in other segments: The industrial division’s volume

firmed up 6% YoY on strong traction in the material handling segment

(volume up 14% YoY), driving segmental EBITDA up by 26% YoY. SIL is

adding new products and strengthening its market reach. However, volume

and EBITDA declined for both furniture (consumer) and packaging

divisions. COVID-lockdown drove its plastic furniture volume/EBITDA

down by 19/5% YoY. The packaging division EBITDA too fell 30% YoY on

RM cost pressure in XF division and competition from lookalike products.

Capex report card: SIL guided that its ongoing expansion in Guwahati,

Cuttack, and Erode (to be operational in H1FY23) should increase the total

capacity by ~10% to 0.79mn MT. In FY22E, SIL will incur Capex of INR 5.2bn

and continue to spend ~at least INR 3.5-4bn annually thereafter to expand

capacities. SIL targets 1.5-2x asset turnover from these investments.

Outlook: SIL believes resin prices to have bottomed out, which would result

in a normal channel stocking-led demand uptick in Q4. Further, pipes

demand is also expected to rebound. We reduce our FY22E EBITDA

estimate by 4% to factor in weak demand but maintain our EBITDA

estimates for FY23/24E. We remain positive on SIL owing to its leadership

presence in the growing pipes industry, healthy return ratios, and strong

balance sheet. We value its operating business at 21x its Dec-23E EBITDA

and its 30.8% holding in its associate Supreme Petrochem at a 30% discount

to its current market cap, leading to an SOTP-based TP of INR 2,650/share.

Consolidated financial summary YE Mar

(INR mn) Q3FY22 Q3FY21 YoY % Q2FY22 QoQ % FY20 FY21 FY22E FY23E FY24E

Net Sales 19,451 18,438 5.5 19,285 0.9 55,115 63,571 74,575 84,929 97,680

EBITDA 3,179 4,016 (20.8) 3,108 2.3 8,346 12,843 12,307 13,532 15,428

EBITDAM (%) 16.3 21.8 16.1 15.1 20.2 16.5 15.9 15.8

APAT 2,457 3,123 (21.3) 2,287 7.4 4,674 9,781 9,447 9,661 10,843

AEPS (Rs) 19.3 24.6 (21.3) 18.0 7.4 36.8 77.0 74.4 76.0 85.3

EV / EBITDA

(x)

32.7 20.5 21.8 19.7 17.1

P/E (x)

57.9 27.7 28.6 28.0 25.0

RoE (%)

21.2 36.0 28.0 25.3 25.0


BUY

CMP (as on 24 Jan 2022) INR 2,130


NIFTY 17,149

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

(4.1) (0.2)

KEY STOCK DATA

Bloomberg code SI IN


MCap (INR bn) / ($ mn) 271/3,636




3M 6M 12M

Absolute (%) (10.1) 1.4 23.4

Relative (%) (4.6) (7.2) 5.8


Sep-21 Dec-21



FPIs 10.38 16.16


Pledged Shares NIL NIL

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 72

HSIE Results Daily

Kajaria Ceramics

Market share gains continue

We reiterate our BUY rating on Kajaria Ceramics (KJC), with an unchanged

target price of INR1,450/sh (21x its Dec-23E consolidated EBITDA). KJC

reported robust growth across tiles, bathware, and ply segments, riding on

both healthy demand and market share gains, which drove its revenue by 27%

YoY. However, elevated gas prices muted EBITDA/APAT growth to 1/3% YoY.

KJC is confident to continue to gain market share, as it is eying a 15%+ tiles

volume growth CAGR for the next three years. It has doubled its Capex run-

rate FY22 onwards to expand capacities, all through internal accruals. It

expects its margin to rebound on full benefit of the price hikes taken in Q3

and if gas prices stabilise around current levels.

Robust growth momentum across all business segments: KJC reported

robust 14% YoY tiles sales volume growth in Q3, riding on both robust

demand and market share gain. Even realisation firmed up +5/12%

QoQ/YoY on healthy domestic demand, bolstering tiles revenue growth by

27% YoY. KJC also continues to grow its non-tiles businesses (bathware up

21% and ply up 96% YoY), aided by mix of both volume and realisation

gains. Subsequently, consolidated revenue firmed up 27% YoY.

High energy costs and other expenses muted profit uptick: Continuous rise

in gas prices drove up KJC’s unitary gas cost by ~33% QoQ and it almost

doubled YoY. Higher metal prices have also inflated opex for the faucets

segment. Other expenses, too, have firmed up, resulting in ~450/130bps

YoY/QoQ EBITDAM compression to 17.2%, despite significant price hikes

taken in the past year. The increased share of outsourced tiles sales also

moderated blended EBITDAM and muted EBITDA/APAT growth.

Accelerated Capex to support its aggressive growth target: KJC is

expanding its tiles capacity by 17% to 85 MSM by Q1FY23, incurring Capex

of INR 2.5bn (in FY22). It further outlined Capex of ~INR 2.9bn towards the

tiles and bathware segments. KJC has more than doubled its Capex run-rate

FY22 onwards compared to FY18-21, as it is targeting strong 15%+ tiles

volume CAGR for the next 3-4 years. This will continue to bolster its market

share gains (from 10% in FY21). As KJC is also accelerating its non-tiles

revenue, its share would expand to 13% in FY24E vs 9% in FY21.

Outlook: KJC guided that the full benefits of 5-6% tiles price hike in Q3

should drive margin rebound Q4 onwards. It expects gas prices to cool off in

after about six months. We estimate KJC to deliver 29% EBITDA CAGR

during FY21-24E, riding on strong volume growth, healthy pricing, and

increased share of own tiles sales.

Consolidated financial summary

YE Mar

(INR mn)

Q3

FY22

Q3

FY21

YoY

%

Q2

FY22

QoQ

% FY20 FY21 FY22E FY23E FY24E

Net Sales 10,682 8,383 27.4 9,736 9.7 28,080 27,809 37,610 45,894 54,849

EBITDA 1,838 1,818 1.1 1,805 1.9 4,159 5,088 7,280 9,438 10,906

EBITDAM (%) 17.2 21.7 18.5 14.8 18.3 19.4 20.6 19.9

APAT 1,220 1,189 2.6 1,161 5.1 2,553 3,081 4,238 5,417 6,311

AEPS (Rs) 7.7 7.5 2.5 7.3 5.1 16.0 19.4 26.6 34.0 39.7

EV / EBITDA (x)

48.2 38.9 27.2 20.7 17.7

P/E (x)

78.5 65.1 47.3 37.0 31.8

RoE (%)

14.9 16.6 20.2 21.8 21.4


BUY

CMP (as on 21 Jan 2022) INR 1,267


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

0.2 (0.5)

KEY STOCK DATA

Bloomberg code KJC IN


MCap (INR bn) / ($ mn) 202/2,710




3M 6M 12M

Absolute (%) 1.3 27.0 59.3

Relative (%) 4.4 13.9 40.4


Sep-21 Dec-21



FPIs 24.89 22.45


Pledged Shares NIL NIL

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 73

HSIE Results Daily

Prince Pipes

Margin expands QoQ on improving product mix

We maintain our BUY rating on Prince Pipes, with an unchanged target price

of INR 940/sh (18.5x its Dec-23E EBITDA, implying 31x P/E). We continue to

like Prince for its large product portfolio and robust pan-India distribution.

The Lubrizol deal should further contribute to its industry leading growth. In

Q3FY22, while weak demand led to 12% YoY volume decline, improving

product mix helped the company deliver gross margin expansion (on per kg

basis). This offset the impact of op-lev loss and elevated other expenses.

Subsequently, revenue/EBIDTA/APAT rose 21/8/1% YoY.

Q3FY22 performance: Sales volume fell 12% YoY (down 24% QoQ) in Q3 on

demand disruption, a high base and inventory destocking by dealers. CPVC

volumes, however, continue to grow (+30% YoY and also rose QoQ), thus

improving the product mix. This helped NSR firm up 37/15% YoY/QoQ.

Improved product mix, QoQ inventory gains (~1.5% of sales), and raw

material cost past-through boosted unitary EBITDA by 22/20% YoY/QoQ to

INR 34/kg. Robust pricing caused revenue/EBITDA/APAT to grow 21/8/1%

YoY, despite 12% volume decline.

Focus on market share gain: Prince noted that it has expanded its market

share to 6-6.5% currently from 5% a few years back. The company expects to

further gain market share through a strong focus on its retail distribution

sweating, new product launches, and increased penetration in project sales.

Capex update: Majority of the INR 2bn Capex for 50K MT Telangana plant

is already done. It is currently operating at 25K MT capacity. By Q1FY23, all

50K MT will get operational, boosting its sales mix and margin in south.

Total Capex for FY22E is expected to be INR 2bn.

Outlook: Prince expects agri demand to contribute Q4 onwards.

Government thrust on low-cost housing and Jal Shakti Mission along with

real estate pick-up should drive long-term demand. Improving product mix,

strong distribution focus, and large portfolio of non-agri products (~65%)

should keep margin buoyant. We have increased FY22E EBITDA estimates

by 10% factoring in a healthy margin trend. We keep FY23/24E EBITDA

estimates broadly unchanged.


(INR mn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 6,640 5,490 20.9 7,610 (12.7) 16,357 20,715 26,030 29,362 35,587

EBITDA 1,111 1,029 8.0 1,227 (9.4) 2,288 3,616 3,930 4,606 5,480

EBITDAM (%) 16.7 18.8 16.1 14.0 17.5 15.1 15.7 15.4

APAT 673 668 0.8 761 (11.5) 1,125 2,218 2,335 2,913 3,459

AEPS (Rs) 6.1 6.1 0.8 6.9 (11.5) 10.2 20.2 21.2 26.5 31.4

EV / EBITDA (x)

34.2 21.2 19.2 15.9 13.2

P/E (x)

69.5 35.3 33.5 26.9 22.6

RoE (%)

18.2 23.6 20.5 21.4 21.2


BUY



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

9.9 (1.3)

KEY STOCK DATA

Bloomberg code PRINCPIP IN


MCap (INR bn) / ($ mn) 78/1,052




3M 6M 12M

Absolute (%) (6.5) 6.9 77.2

Relative (%) (4.1) (1.1) 61.6


Sep-21 Dec-21



FPIs 3.60 4.84


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 74

HSIE Results Daily

Somany Ceramics

Strong performance and outlook

We maintain BUY on Somany Ceramics with an unchanged target price of

INR 1,130/share (13x Dec-23E consolidated EBITDA). We continue to like

SOMC for its strong retail distribution, improving product mix, and tightened

working capital (WC). In Q3, Somany reported 19% YoY consolidated revenue

growth, driven by similar growth across both tiles and bathware businesses.

However, EBITDA fell 2% YoY, owing to the elevated gas price impact. The

company continues to keep a tight leash on its debtors. Timely capacity

expansion in Q4FY22 should bolster its volume and market share growth.

Tiles volumes rose 5% YoY: Tiles sales volume declined 4% QoQ to 15.58

MSM, thus restricting YoY growth to +5%. This YoY volume growth is led

by acceleration in outsourced sales, as own capacities are already operating

at near-peak utilisation (95% vs 97% YoY). Somany noted that despite

demand, it could not source PVT tiles in Morbi (owing to elevated gas

price), which impacted its Q3 revenue to the extent of ~5%.

Margin hit on sharp gas price increase: Tiles NSR rose 7% QoQ (+14% YoY),

riding on price hikes taken in the quarter to pass on the gas price inflation.

However, the company highlighted that it could only pass on ~80-85% of the

total inflation (amid spike in gas prices), leading to consolidated EBITDAM

compressing by ~220/155bps YoY/QoQ to 10.6%. Gas prices increased ~10%

QoQ across Somany’s north and south plants, while its plants in Gujarat saw

~50% gas price spike QoQ. Thus, consolidated EBITDA fell 2% YoY to INR

624mn. Despite lower EBITDA, APAT rose 14% YoY on higher other income

and lower interest outgo.

Bathware segment: This segment reported 20% YoY revenue growth,

maintaining 11% share in the total revenue. The Bath-fittings plant operated

at 102% (vs 98% YoY) while the Sanitaryware plant operated at 48% (vs 57%

YoY). Overall, bathware revenue growth was led by strong price increase.

Capex and outlook: Somany’s ~12MSM tiles capacity expansion (~INR 2.5bn

in Capex) across the north, west and south will be commissioned in Q4FY22.

It is also setting up another 4MSM slab/large tiles plant in Gujarat (Capex

INR 1.7bn) by Q1FY24. It expects to increase GVT share (in the sales mix) to

>35%, post the ramp-up of these capacities, from 29% currently. Somany’s

bathware capacity can be doubled at marginal Capex of ~INR 30-40mn.

These expansions should boost its volume growth and market share gain.

While gas prices are expected to rise sequentially in Q4, healthy demand

would help cost pass-through, in our view. We maintain our estimates and

BUY rating on the company, with an unchanged TP of INR 1,130/sh.


(INR mn)

Q3

FY22

Q3

FY21

YoY

%

Q2

FY22 QoQ % FY20 FY21 FY22E FY23E FY24E

Net Sales 5,870 4,925 19.2 5,607 4.7 16,101 16,505 21,920 25,798 28,652

EBITDA 624 633 (1.5) 682 (8.6) 1,314 1,908 2,371 3,436 4,073

EBITDAM (%) 10.6 12.9 12.2 8.2 11.6 10.8 13.3 14.2

APAT 322 282 14.0 350 (8.0) 412 761 1,075 1,661 2,064

AEPS (Rs) 7.6 6.7 14.0 8.2 (8.0) 9.7 18.0 25.4 39.2 48.7

EV/EBITDA (x)

32.3 20.9 17.5 12.4 10.4

P/E (x)

89.1 48.2 34.2 22.1 17.8

RoE (%)

5.9 10.5 13.4 17.9 18.8


BUY



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating BUY BUY


EBITDA

revision %

FY22E FY23E

(2.0) (0.1)

KEY STOCK DATA

Bloomberg code SOMC IN


MCap (INR bn) / ($ mn) 37/493




3M 6M 12M

Absolute (%) 9.5 19.4 108.0

Relative (%) 11.2 10.2 91.0


Sep-21 Dec-21



FPIs 2.85 2.48


Pledged Shares - -

Source : BSE


Rajesh Ravi

[email protected]

+91-22-6171-7352

Keshav Lahoti

[email protected]

+91-22-6171-7353

P a g e | 75

HSIE Results Daily

Chemicals

P a g e | 76

HSIE Results Daily

Aarti Industries

Capex and R&D to lead the way

We maintain our BUY recommendation on Aarti Industries (AIL) with a target

price of INR 1,380/share. AIL's constant focus on Capex and R&D will enable

it to remain competitive and expand its customer base. The toluene segment

in India is mainly untapped and catered to through imports; AIL will benefit

in the long term by entering this segment. Q3 EBITDA/APAT were 203/339%

above our estimates, mainly attributable to INR 6.1bn of one-off termination

fees in EBITDA, and lower-than-expected depreciation and finance cost.

Financial performance: Adjusted EBITDA (excluding the impact of INR

6.1bn termination fees arising on account of the termination of a long term

supply contract by the customer) grew 25/15% YoY/ QoQ to INR 3.6bn, on

the back of strong performance across both speciality chemicals and

pharmaceutical segments. Value-added products contributed 71% to

revenue in Q3. EBITDA margin came in at 18%, as higher input costs were

passed through to the customers.

Speciality chemicals: Adjusted revenue/EBIT grew 56/27% YoY to INR

16.6/2.8bn, owing to higher realisations and around 85% utilisation across all

facilities in Q3. EBIT margin for the segment was reported at 17%, led by

return of demand from established markets.

Pharma: Revenue/EBIT grew 40/10% YoY to INR 3.5/0.6bn, owing to the

pass-through of higher costs to the customers. Trial runs at the new

expanded block at the intermediate facility are underway, with

commissioning targeted for Q4FY22.

Call takeaways: (1) Capex in Q3/9MFY22 was INR 3/9bn. Capex of INR 45-

50bn would be spent from FY22 to FY24, mainly to add over 40/50 new

products for speciality chemicals/pharma segments respectively. (2) The

company guided for 25-35% YoY APAT growth in FY22.

Change in estimates: We raise our FY22 EPS estimate by 75.5% to INR 33.1

to account for the one-off termination fee and the 9MFY22 performance.

DCF-based valuation: Our target price is INR 1,380 (WACC 10%, terminal

growth 4%). The stock is currently trading at 30.7x FY24E EPS.

Financial summary (consolidated)

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 23,760 15,516 53.1 11,868 100.2 41,863 45,061 66,767 69,337 85,161

EBITDA 9,661 3,098 211.9 2,850 239.0 9,773 9,815 19,026 15,967 19,761

APAT 7,725 1,761 338.6 1,653 367.4 5,361 5,235 11,995 9,054 11,682

AEPS (INR) 21.3 4.9 338.6 4.6 367.4 14.8 14.4 33.1 25.0 32.2

P/E (x)

66.9 68.5 29.9 39.6 30.7

EV/EBITDA(x) 38.6 39.0 20.1 23.7 19.0

RoE (%)

19.1 16.2 30.1 18.8 20.6


Change in estimates (Consolidated)

Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 12,700 19,026 49.8 15,937 15,967 0.2 19,882 19,761 (0.6)

Adj. EPS (INR/sh) 18.9 33.1 75.5 25.0 25.0 0.1 32.5 32.2 (1.0)


BUY



NIFTY 17,214

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+75.5% -

KEY STOCK DATA

Bloomberg code ARTO IN


MCap (INR bn) / ($ mn) 363/4,886




3M 6M 12M

Absolute (%) 4.6 4.9 68.5

Relative (%) 7.0 (3.2) 52.9


Sept-21 Dec-21



FPIs 11.86 12.27



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338

mailto:[email protected]


P a g e | 77

HSIE Results Daily

Deepak Nitrite

High input costs continue to dent margins

We maintain SELL on Deepak Nitrite with a price target of INR 1,730 (WACC

11%, terminal growth 4.5%). The stock is currently trading at 18.9x FY24E EPS.

We believe that (1) further growth in DPL is capped as the Phenol plant is

already running at over 110% utilisation since Q2FY21 and (2) IPA prices

would fall as demand normalcy returns. Besides, DNL is entering into

challenging chemistries vis-à-vis chemistries it is currently operating in. The

fluorination and photochlorination chemistries will pave the way to tap

agrochemical and pharmaceutical customers for the company. However, the

company needs to demonstrate its competencies well over the period in these

chemistries to seize business opportunities. EBITDA/APAT were 21/17%

below estimates, owing to higher-than-expected raw material costs, higher-

than-expected other expense, offset by lower-than-expected finance cost,

higher-than-expected other income, and a lower-than-expected tax outgo.

Financial performance: Revenue grew 40% YoY to INR 17.2bn in Q3, owing

to a solid growth trajectory in the phenolics segment. This was further

supported by gains in BI and PP segments, led by positive demand and

higher realisation for key products. EBITDA grew 5% YoY to INR 3.5bn. The

EBITDA margin has shrunk by 671bps YoY to 20%, owing to higher input

prices as well as increased cost of power and logistics.

Basic intermediates (BI): Revenue/EBIT jumped 76/47% YoY to INR 3/1bn,

led by healthy realisation gains, as price hikes were undertaken for key

products, in line with higher input costs.

Performance products (PP): Revenue/EBIT grew 88/476% YoY to INR

2/0.5bn, owing to higher realisations and volume growth across all products

in its value chain. Volume growth for 9MFY22 was strong at 44%.

Deepak Phenolics (DPL): Revenue/EBIT jumped 38/6% YoY to INR 10/2bn.

The plants registered capacity utilisation of ~117%, supported by favourable

demand in India and key export markets. The brownfield expansion of IPA

has been commissioned in Dec-21, doubling the IPA capacity to 60ktpa.

Change in estimates: We cut our FY22/23/24 EPS estimates by 5.6/3.8/3.2%

to INR 81.8/96.0/112.2 to to factor in the overall performance in 9MFY22. Financial summary (consolidated)

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 17,223 16,814 2.4 12,347 39.5 42,297 43,598 67,575 76,323 93,001

EBITDA 3,519 3,865 (9.0) 3,350 5.0 10,258 12,470 16,714 19,547 22,673

APAT 2,425 2,543 (4.7) 2,166 12.0 6,110 7,758 11,024 13,087 15,307

AEPS (INR) 17.8 18.6 (4.7) 15.9 12.0 44.8 56.9 81.8 96.0 112.2

P/E (x)

47.5 37.4 26.0 22.2 18.9

EV/EBITDA(x) 29.3 23.7 17.7 14.9 12.4

RoE (%)

46.2 39.6 39.3 34.4 30.7



Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 17,803 16,714 -6.1% 20,499 19,547 -4.6% 23,638 22,673 -4.1%

Adj. EPS (INR/sh) 86.6 81.8 -5.6% 99.7 96.0 -3.8% 115.9 112.2 -3.2%


SELL

CMP (as on 27 Jan 2022) INR 2,126


NIFTY 17,110

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY22E FY23E

-5.6% -3.8%

KEY STOCK DATA

Bloomberg code DN IN


MCap (INR bn) / ($ mn) 290/3,898




3M 6M 12M

Absolute (%) (12.3) 11.4 120.2

Relative (%) (5.7) 3.0 101.7


Sept-21 Dec-21



FPIs 10.85 8.84



Source : BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 78

HSIE Results Daily

Vinati Organics

New Capex to drive future growth

Our SELL recommendation on Vinati Organics with a discounted cash flow-

based target price of INR 1,730 (WACC 10%, terminal growth 4.5%) is driven

by a shift in the revenue mix towards lower-margin iso butyl benzene (IBB),

butyl phenol, and other products as compared to ATBS, which has a higher

margin. We believe the current valuation is contextually high at ~36x FY24E

EPS. Q3 EBITDA/APAT were 22/11% below our estimates, owing to a 7% fall

in revenue, higher-than-anticipated raw material cost, higher-than-expected

other expenses, offset by higher-than-anticipated other income and a lower-

than-expected tax outgo.

Financial performance: Q2 revenue fell 1% QoQ, and grew 65% YoY, to INR

3,690mn. EBITDA came in at INR 928mn (-8/+29% QoQ/YoY). EBITDA

margin fell by 186/712bps QoQ/YoY to 25%, owing to high power and fuel

costs, and increasing share of lower-margin products in the product basket.

ATBS: Demand for ATBS in Q3 was slack due to the cyclical nature of the

business. It contributed 50% to the Q3 topline (50% in Q2). Currently,

demand is robust and the company doesn’t see any other competition

entering this product segment.

Iso butyl benzene (IBB): Revenue contribution came in at ~7% in Q3 (10% in

Q2), given reduced demand for Ibuprofen.

Butyl phenol: The butyl phenol segment clocked in INR 0.4bn revenue in

Q3 (12% of revenue mix), and it is expected to clock in INR ~1.8bn in FY22.

Capex: (1) The company is incurring INR 1bn to add 15ktpa capacity of

butyl phenol, which will commission in Dec-22. It is also laying INR 0.65bn

butyl phenol capacity to cater the agrochemical demand, which will come

on stream in Dec-22. (2) Capex of INR 3bn in Veeral Additives to produce

antioxidants to come on stream in Mar-22. Revenue potential at peak

utilisation of this Capex is INR 7bn. (3) Capex of INR 2.5bn in Veeral

Organics to introduce 5-6 niche speciality chemical intermediates, which

cater to agrochemical, fragrance, plastic, and polymers industries, to come

on stream in Mar-23. Revenue potential at peak utilisation is of INR 2.5bn.

Change in estimates: We cut our FY22/23/24 EPS estimates by

13.8/15.3/12.2% to INR 31.7/44.3/53.7 to factor in a higher operating expense

assumption and the overall performance in 9MFY22.

Financial summary

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 3,690 3,741 (1.4) 2,235 65.1 10,289 9,543 15,532 21,214 25,640

EBITDA 928 1,010 (8.2) 721 28.7 4,139 3,525 4,457 6,367 7,809

APAT 832 813 2.3 641 29.7 3,338 2,693 3,257 4,550 5,523

AEPS (INR) 8.1 7.9 2.3 6.2 29.7 32.5 26.2 31.7 44.3 53.7

P/E (x)

59.5 73.7 60.9 43.6 35.9

EV/EBITDA(x) 47.3 55.8 44.6 31.4 25.2

RoE (%)

28.6 19.1 19.5 22.8 22.6


Change in estimates

Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 5,135 4,457 (13.2) 7,435 6,367 (14.4) 8,806 7,809 (11.3)

Adj. EPS (INR/sh) 36.8 31.7 (13.8) 52.3 44.3 (15.3) 61.2 53.7 (12.2)


SELL



NIFTY 17,577

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY22E FY23E

-13.8% -15.3%

KEY STOCK DATA

Bloomberg code VO IN


MCap (INR bn) / ($ mn) 200/2,687




3M 6M 12M

Absolute (%) (1.9) (1.7) 57.5

Relative (%) 0.2 (13.6) 36.4


Sept-21 Dec-21



FPIs 4.45 4.53



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 79

HSIE Results Daily

Alkyl Amines

Margins continue to be under pressure

We maintain SELL on Alkyl Amines with a price target of INR 2,955 (WACC

10%, terminal growth 5%). The stock is currently trading at ~44x FY24E EPS.

We believe that the current valuation already factors in positives from the

potential volume growth, post doubling of the acetonitrile plant capacity, and

~40% additional capacities of the aliphatic amines plant. The rising raw

material prices are looking as a dampener and can continue to put pressure on

the margins in the near term. EBITDA/APAT were 27/30% below our

estimates, owing to higher-than-expected raw material cost, higher-than-

expected opex, and a higher-than-expected tax outgo.

Financial performance: Sales grew 8/16% QoQ/YoY to INR 3.8bn. Q3

volume was flattish sequentially, and higher realisations led to a rise in

sales. Gross margin fell significantly to 44.7% (-102/-1,621bps QoQ/YoY) in

Q3 as raw material prices of key inputs such as acetic acid, methanol and

ammonia continued to soar in the quarter. Currently, raw material prices

have cooled down and stabilised. EBITDA margin came in at 17.7% (-396/-

2,033bps QoQ/YoY) and witnessed a fall, owing to the trickle-down effect of

a lower gross margin and higher power and fuel costs.

Company updates: (1) Capex target over FY23-24E is of INR ~4bn. Apart

from this, the company is also looking at land parcels of 100-150 acres size

for its future expansion plans. (2) The acetonitrile expansion project is

commissioned now, and is gradually ramping up. The plants will reach

~50% capacity utilisation by Mar-22, and ~70% utilisation by Mar-23.

Acetonitrile’s realisation is holding up, and margin would recover, going

forward. (3) The company is expecting good export traction with the

ramping up of the new acetonitrile plant. (4) It plans to commission the

higher amines plant at a cost of INR 3.5bn in Kurkumbh in Mar-23.

Change in estimates: We cut our FY22/23/24 EPS estimates by 19.0/11.1/1.4%

to INR 45.4/58.9/73.7 per share to factor in subdued margins, owing to

higher raw material cost and higher operating expense assumptions, and to

account for the overall performance in 9MFY22.

Financial summary

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 3,767 3,487 8.0 3,239 16.3 9,929 12,424 15,041 17,963 20,193

EBITDA 666 755 (11.8) 1,231 (45.9) 2,590 4,291 3,301 4,314 5,372

APAT 459 541 (15.2) 845 (45.7) 1,798 2,953 2,320 3,009 3,766

AEPS (INR) 9.0 10.6 (15.2) 16.6 (45.7) 35.2 57.8 45.4 58.9 73.7

P/E (x)

91.9 55.9 71.2 54.9 43.9

EV/EBITDA(x) 63.8 38.2 49.7 37.9 29.9

RoE (%)

47.8 44.4 26.4 27.8 28.2


Change in estimates

Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 4,124 3,301 (20.0) 4,897 4,314 (11.9) 5,528 5,372 (2.8)

Adj. EPS (INR/sh) 56.1 45.4 (19.0) 66.2 58.9 (11.1) 74.8 73.7 (1.4)


SELL



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY22E FY23E

-19.0% -11.1%

KEY STOCK DATA

Bloomberg code AACL IN


MCap (INR bn) / ($ mn) 164/2,202




3M 6M 12M

Absolute (%) (5.1) (27.3) 55.8

Relative (%) (4.3) (39.8) 36.2


Sept-21 Dec-21



FPIs 2.29 2.22



Source : BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 80

HSIE Results Daily

Balaji Amines

Muted quarter

Our REDUCE recommendation on Balaji Amines (BLA) with a price target of

INR 3,750 is premised mainly on the pressure felt on the margins, owing to

the rising raw material costs and logistical challenges. Q3 EBITDA/APAT

were 8/8% below our estimates, owing to substantially higher-than-

anticipated raw material costs, higher-than-expected other expenses, and

higher-than-expected finance cost.

Volume, realisations and margin: Total sales volume was 24kt (-16/+0%

YoY/QoQ). The tabulated per-kg realisation from the amines segment comes

to INR 197 (+54/+8% YoY/QoQ). Back calculated per-kg EBITDA was at INR

45, +32/+9% YoY/QoQ. EBITDA margin dropped by 386bps YoY, and

remained flat sequentially, to 22.6%, primarily due to lower operating

leverage on account of a dip in volume offtake.

Call takeaways: (1) Revenue growth was muted sequentially, owing to

sluggish demand for a few products, as a few of the company’s clients

couldn’t procure key starting materials (KSMs) for some of its matching

products. At the same time, the company had to shut down the plants of

DMF and acetonitrile for a brief period to carry out de-bottlenecking, which

was completed in Nov-21. (2) Capex for DMC plant under Phase 1 of the 90-

acre greenfield project (Unit IV) is nearing completion, and the company

expects to commence operations in Q1FY23. The capacity of this plant

would be ~10-12ktpa. (3) BSCL continues to witness robust demand and

higher price realisation for its products. Unavailability of key raw material

kept the company from operating at full capacity. However, from Jan-22, the

supply bottlenecks have eased, and the company expects to operate the

subsidiary plant at 70-80% capacity in FY23.

Change in estimates: We raise our FY22/23/24E EPS estimates by

6.1/10.1/6.3% each to INR 93.7/115.2/135.5, to factor in the overall

performance in 9MFY22.

DCF-based valuation: Our price target is INR 3,750 (WACC 11%, terminal

growth 4%). The stock is trading at 26.7x FY24E EPS.

Standalone financial summary

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Net Sales 4,723 4,351 8.5 3,647 29.5 9,358 13,115 18,224 20,169 23,287

EBITDA 1,069 979 9.3 967 10.6 1,807 3,732 4,539 5,473 6,392

APAT 749 696 7.6 702 6.7 975 2,435 3,036 3,733 4,389

AEPS (INR) 23.1 21.5 7.6 21.7 6.7 30.1 75.2 93.7 115.2 135.5

P/E (x)

120.3 48.2 38.6 31.4 26.7

EV/EBITDA(x) 66.3 31.7 25.8 21.1 17.6

RoE (%)

14.6 26.8 25.4 24.2 22.5

Source: Company, HSIE Research | *Consolidated

Consolidated Change in Estimates

Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 4,255 4,539 6.7 5,026 5,473 8.9 6,036 6,392 5.9

Adj. EPS (INR/sh) 88.4 93.7 6.1 104.7 115.2 10.1 127.4 135.5 6.3


REDUCE



NIFTY 17,560

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

+6.1% +10.1%

KEY STOCK DATA

Bloomberg code BLA IN


MCap (INR bn) / ($ mn) 117/1,570




3M 6M 12M

Absolute (%) 6.2 5.7 203.5

Relative (%) 7.9 (3.5) 186.5


Sept-21 Dec-21



FPIs 4.00 3.90



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 81

HSIE Results Daily

Fine Organic Industries

Ahead in implementation of Capex plans

Our BUY recommendation on Fine Organic Industries (FOIL) with a target

price of INR 4,380 is premised on (1) constant focus on R&D, (2) diversified

product portfolio, (3) capacity-led expansion growth opportunity, and (4)

leadership in oleo-chemical based additives in the domestic and global

markets with a loyal customer base. Q3 EBITDA/APAT were 13/13% above

our estimates, owing to a 25% rise in revenue, lower-than-anticipated

depreciation, offset by higher-than-expected raw material cost, and higher-

than-expected tax outgo.

Financial performance: Revenue grew 6/55% QoQ/YoY to INR 4.6bn in Q3,

on the back of continued traction in exports, higher volumes, and better

realisations. The contribution of exports to total revenue was 59% in

9MFY22. Gross margin remained flat sequentially and fell by 118bps to 33%

in Q3, on account of higher raw material costs and higher freight costs.

EBITDA came in at INR 0.8bn, +9/+69% QoQ/YoY, with EBITDA margin

improving sequentially to 17.2% (+54/+144bps QoQ/YoY), owing to lower

opex. APAT was INR 0.5bn (+4/+81% QoQ/YoY).

Con call highlights: (1) Currently, all plants are running at optimum

capacity. The company expects them to reach full capacity by Mar-23, a year

earlier than guided previously. (2) The phase-2 capacity expansion at

Patalganga is on track and will be commissioned by Mar-22. (3) The

company is planning to acquire a big land parcel in Gujarat for further

expansion.

Change in estimates: We raise our FY22/23 EPS estimates by 9.4/8.8% to

INR 60.9/86.2, to factor in the preponement of achieving full capacity at all

plants by a year in Mar-23, and to account for the overall performance of

9MFY22. We cut our FY24 EPS estimate by 10.3% to INR 99.5, to factor in a

subdued margin assumption.


growth 4.5%). The stock is trading at 37.8x FY24E EPS. Financial summary (consolidated)

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 4,634 4,384 5.7 2,993 54.8 10,381 11,332 17,457 21,638 23,218

EBITDA 797 731 9.1 472 68.9 2,405 1,993 2,911 3,942 4,525

APAT 519 499 4.1 287 81.0 1,648 1,203 1,868 2,644 3,052

AEPS (INR) 16.9 16.3 4.1 9.4 81.0 53.7 39.3 60.9 86.2 99.5

P/E (x)

69.9 95.7 61.7 43.6 37.8

EV/EBITDA(x) 47.6 56.9 38.9 28.4 24.3

RoE (%)

29.5 17.8 23.4 27.7 26.4



YE Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 2,676 2,911 8.8% 3,643 3,942 8.2% 4,953 4,525 -8.6%

Adj. EPS (INR/sh) 55.7 60.9 9.4% 79.3 86.2 8.8% 111.0 99.5 -10.3%


BUY

CMP (as on 15 Feb 2022) INR 3,758


NIFTY 17,352

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+9.4% +8.8%

KEY STOCK DATA

Bloomberg code FINEORG IN


MCap (INR bn) / ($ mn) 115/1,548




3M 6M 12M

Absolute (%) 0.2 29.8 58.0

Relative (%) 4.4 24.9 46.5


Sept-21 Dec-21



FPIs 6.79 7.26



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 82

HSIE Results Daily

Galaxy Surfactants

Still tackling supply chain issues

Our BUY recommendation on GALSURF with a price target of INR 3,430 is

premised on (1) stickiness of business, as over 50% of the revenue mix comes

from MNCs, (2) stable EBITDA margin, since fluctuations in raw material

costs are easily passed on to customers, and (3) strong return ratios (RoE/RoIC

of 21/18% in FY24E). Q3 EBITDA/APAT were 5/8% higher than estimates due

to lower-than-expected raw material cost, depreciation, finance cost and tax

outgo, offset by 7% fall in sales, higher-than-expected other expense, and

lower-than-expected other income.

Revenue: Q3 revenue grew 6/38% QoQ/YoY to INR 9bn, supported by

robust domestic demand.

Margins: Gross margin remained flat sequentially, and fell by 1,029bps YoY

to 27%, owing to continued inflationary scenario combined with supply

chain challenges. EBITDAM remained flat sequentially, and fell by 948bps

YoY to 8% in Q3, mainly due to the trickle-down effect of a lower GM, offset

by reduced employee cost.

Volumes: Total volume in Q3 came in at 58kT (-1/-0.4% QoQ/YoY), still

reeling under the stress of international supply chain volatility. Performance

surfactants (64% of the volume mix) volume came in at 37kT (-3/+1%

QoQ/YoY), and specialty care (36%) volume came in at 21kT (+1/-3%

QoQ/YoY). India’s market grew 7% YoY, AMET de-grew 9% YoY, and the

rest of the world grew 3% YoY. Supply chain constraints impacted AMET

volumes.

Change in estimates: We cut our FY22/23/24 EPS estimates by

20.8/11.7/10.2% to INR 59.1/87.1/104.2, to account for higher input costs,

change in volume, and realisation assumptions.

DCF-based valuation: Our price target is INR 3,430 (WACC 10%, terminal

growth 4%). The stock is trading at 27x FY24E EPS.

Financial Summary (Consolidated)

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 9,291 8,773 5.9 6,747 37.7 25,964 27,841 36,285 41,472 46,229

EBITDA 764 709 7.8 1,195 (36.1) 3,689 4,488 3,390 4,741 5,669

APAT 456 419 8.8 852 (46.5) 2,244 3,021 2,093 3,176 3,902

AEPS (INR) 12.9 11.8 8.8 24.0 -46.5 65.0 85.2 59.1 87.1 104.2

P/E (x)

43.2 33.0 47.6 32.3 27.0

EV/EBITDA(x) 26.1 21.8 28.3 20.3 17.2

RoE (%)

23.1 25.5 15.1 20.0 20.9



Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR bn) 4.09 3.39 (17.2) 5.31 4.74 (10.6) 6.27 5.67 (9.5)

Adj. EPS (INR/sh) 74.5 59.1 (20.8) 98.7 87.1 (11.7) 116.1 104.2 (10.2)


BUY

CMP (as on 14 Feb 2022) INR 2,819


NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-20.8% -11.7%

KEY STOCK DATA

Bloomberg code GALSURF IN


MCap (INR bn) / ($ mn) 100/1,343




3M 6M 12M

Absolute (%) (5.2) (7.7) 29.6

Relative (%) 1.9 (9.4) 20.1


Sept-21 Dec-21



FPIs 2.42 2.05



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 83

HSIE Results Daily

Neogen Chemicals

New capacities drive revenue growth

Our BUY recommendation on Neogen Chemicals (NCL) with a target price of

INR 2,150/sh is premised on (1) increasing contribution of the high-margin

CSM business to revenue, (2) entry into the new-age electrolyte

manufacturing business, (3) capacity-led expansion growth opportunity, (4)

constant focus on R&D, and (5) improving return ratios and strong balance

sheet, going forward. Q3 EBITDA was 8% above our estimate, owing to a 22%

rise in revenue, offset by higher-than-expected other expenses. APAT was

23% below our estimate, owing to higher-than-expected depreciation, higher-

than-expected finance cost, lower-than-expected other income, offset by a

lower-than-expected tax outgo.

Financial performance: Revenue grew 56/17% YoY/QoQ to INR 1,326mn,

with growth led by higher contribution from the recently commissioned

phase I & II expansions at Dahej SEZ. Both demand and realisation were

favorable, owing to higher product offtake across key end user

industries. EBITDA grew by 41/16% YoY/QoQ to INR 238mn, with EBITDA

margin remaining stable at 18% despite facing high input costs. APAT grew

23% YoY, and fell 6% QoQ, to INR 105mn; its growth was contained due to

higher finance cost and depreciation.

Segmental information: Organic chemicals (80% of revenue) grew 52% YoY

to INR 1,050mn. Inorganic chemicals (20%) grew 69% YoY to INR 270mn.

Call takeaways: (1) Revenue guidance of INR 4.5bn maintained for FY22. (2)

Capacity expansion initiatives shall create revenue potential of INR 7-7.25bn

in FY24E. (3) NCL raised INR 2.25bn through the issuance of up to 1.605mn

equity shares on preferential allotment basis at an issue price of INR 1,402.12

per equity share. This shall help improve the company’s balance sheet.

Change in estimates: We cut our FY22 EPS estimate by 11.4% to INR 17.5 to

account for higher finance cost. We raise our FY23 EPS estimate by 2.6% to

INR 26.5 to factor in a higher revenue assumption.


growth 5.5%). The stock is currently trading at 42.7x FY24E EPS.


INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 1,326 1,132 17.2 852 55.7 3,061 3,364 4,514 5,280 7,318

EBITDA 238 205 16.0 168 41.3 581 644 850 1,135 1,641

APAT 105 111 (5.7) 85 23.0 287 313 436 660 969

AEPS (INR) 4.5 4.8 (5.7) 3.6 23.0 11.5 12.6 17.5 26.5 38.8

P/E (x)

144.4 132.1 95.0 62.7 42.7

EV/EBITDA(x) 73.6 67.6 49.5 37.4 26.2

RoE (%)

25.3 18.5 13.9 14.1 18.2



Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 840 850 1.3% 1,112 1,135 2.0% 1,638 1,641 0.2%

Adj. EPS (INR/sh) 19.7 17.5 -11.4% 25.8 26.5 2.6% 38.8 38.8 0.1%


BUY

CMP (as on 31 Jan 2022) INR 1,659


NIFTY 17,340

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-11.4% +2.6%

KEY STOCK DATA

Bloomberg code NEOGEN IN


MCap (INR bn) / ($ mn) 41/556




3M 6M 12M

Absolute (%) 39.8 81.2 134.6

Relative (%) 42.0 70.9 109.3


Dec-21 Jan-22



FPIs 4.73 4.42



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338




P a g e | 84

HSIE Results Daily

Sudarshan Chemical

On the path to recovery

We maintain a BUY recommendation on Sudarshan Chemical (SCIL) with a

target price of INR 790/share. We expect SCIL's PAT to grow at a 45% CAGR

over FY22-24E, led by a 33% CAGR in EBITDA. Two major global players

shifting away from the pigment business could act as a tailwind for Indian

pigment manufacturers. We believe SCIL is in a sweet spot to seize this

opportunity by offering products similar to those of global players. Q3

EBITDA/APAT were 16/36% above our estimates, owing to an 8% higher

revenue, lower-than-expected raw material cost and other expenses, lower-

than-expected depreciation, and lower-than-expected tax outgo.

Financial performance: Revenue grew 19/21% YoY/QoQ to INR 6,018mn on

the back of a better product mix, higher price realisations, and volume

growth. EBITDA fell 7% YoY and grew 40% sequentially to INR 739mn.

EBITDA margin came at 12% (-345/+166bps YoY/QoQ), owing to higher raw

material cost, energy cost, and logistics cost.

Pigment segment (93% of the revenue mix): Revenue/EBIT grew 25/89%

sequentially to INR 5,599/568mn. Demand momentum continued from the

domestic market. EBIT margin for the segment came in at 10%, -222/+345bps

YoY/ QoQ. The pass-through of intermediate price increase to customers

continued through Q3, which led to a sequential increase in the margins.

Capacity utilisation in Q3 was at ~ 80% of the operating capacity.

Con call takeaways: (1) Exports accounted for 45% of revenue for the

pigment segment; they have grown by 22% sequentially over Q2FY22. (2)

Speciality pigments constituted 67% of the revenue for the pigment segment

in Q3. Margins in speciality pigments are 1.5x of non-speciality pigments. (3)

Capex target for FY22 is INR 3bn.

Change in estimates: We raise our FY22 EPS estimate by 7.6% to INR

16.8/sh to account for the overall performance in 9MFY22.

DCF-based valuation: Our target price is INR 790 (WACC 10%, terminal

growth 4%). The stock is currently trading at 16.5x FY24E EPS.


INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21 YoY (%) FY20 FY21 FY22E FY23E FY24E

Net Sales 6,018 4,980 20.8 5,064 18.8 17,082 18,641 21,590 24,124 27,394

EBITDA 739 529 39.8 796 (7.2) 2,463 2,878 2,714 3,736 4,811

APAT 364 228 59.9 392 (7.1) 1,311 1,411 1,160 1,733 2,431

AEPS (INR) 5.3 3.3 59.9 5.7 (7.1) 18.9 20.4 16.8 25.0 35.1

P/E (x)

30.5 28.4 34.5 23.1 16.5

EV/EBITDA(x) 18.2 16.0 17.6 12.7 9.6

RoE (%)

22.4 21.0 14.8 19.9 24.4



Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 2,558 2,714 6.1% 3,660 3,736 2.1% 4,718 4,811 2.0%

Adj. EPS (INR/sh) 15.6 16.8 7.6% 25.1 25.0 -0.4% 35.1 35.1 -0.1%


BUY



NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+7.6% -

KEY STOCK DATA

Bloomberg code SCHI IN


MCap (INR bn) / ($ mn) 40/539




3M 6M 12M

Absolute (%) (5.4) (23.3) 15.9

Relative (%) (0.2) (32.5) (3.7)


Sept-21 Dec-21



FPIs 9.37 8.49



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 85

HSIE Results Daily

NOCIL

Highest topline ever!

Our BUY recommendation on NOCIL with a TP of INR 340 is premised on (1)

ramp-up in capacity utilisation, (2) robust volume growth on the back of pick-

up in demand in the tyre industry, and (3) expansion of margin with focus on

specialised rubber chemicals. We expect NOCIL’s PAT to grow at 21% CAGR

over FY22-24E, led by 18% CAGR in EBITDA. Q3 EBITDA was 4% above our

estimate, owing to 5% higher revenue, offset by higher-than-expected raw

material cost and opex. APAT was in line with our estimate.

Financial performance: Revenue grew 4/42% QoQ/YoY to INR 3.9bn, the

highest-ever booked in any quarter until date, supported by a sequential

realisation growth of 3% and volume growth of 1%. Operating activities

remained stable despite the impact of omicron variant of COVID-19 at

domestic customer’s end. The company has implemented price hikes in

Q4FY22, which will further boost realisation. Gross margin came in at

~40.7% (+16/-270bps QoQ/YoY) in Q3, on account of high raw material costs.

EBITDA remained flat sequentially and grew 35% YoY to INR 0.5bn, with

EBITDA margin coming in at 12.8% (-34/-59bps QoQ/YoY), owing to higher

power and freight costs.

Con call takeaways: (1) Utilisation levels have crossed pre-COVID levels on

a monthly run-rate basis. (2) Management has given guidance of over 10%

YoY volume growth, and revenue growth of over 50% YoY for FY22. (3)

China plus one strategy continues to play out well for NOCIL, as over 75%

of the global demand of rubber chemicals is met by China and companies

worldwide are derisking their businesses. NOCIL holds 42% market share of

the domestic market.

Change in estimates: We cut our FY22/FY23/24E EPS estimates by

3.0/8.6/10.6% to INR 8.3/9.4/12.1 to factor in the overall performance in

9MFY22.

DCF-based valuation: Our price target is INR 340 (WACC 10%, terminal

growth 4.5%). The stock is trading at 19x FY24E EPS. Financial summary

INR mn Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Net Sales 3,889 3,752 3.7 2,746 41.6 8,463 9,247 14,853 16,720 18,821

EBITDA 500 495 1.0 369 35.4 1,765 1,269 2,191 2,465 3,063

APAT 299 305 (2.0) 221 35.4 1,309 865 1,373 1,568 2,004

AEPS (INR) 1.8 1.8 (2.0) 1.3 35.4 7.9 5.2 8.3 9.4 12.1

P/E (x)

29.1 44.0 27.7 24.3 19.0

EV/EBITDA(x) 21.4 29.1 16.7 14.8 11.8

RoE (%)

11.2 7.1 10.6 11.5 14.1


Change in estimates

Y/E Mar FY22E

Old

FY22E

New % Ch

FY23E

Old

FY23E

New % Ch

FY24E

Old

FY24E

New % Ch

EBITDA (INR mn) 2,230 2,191 (1.7) 2,646 2,465 (6.8) 3,364 3,063 (9.0)

Adj. EPS (INR/sh) 8.5 8.3 (3.0) 10.3 9.4 (8.6) 13.5 12.1 (10.6)


BUY



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-3.0% -8.6%

KEY STOCK DATA

Bloomberg code NOCIL IN


MCap (INR bn) / ($ mn) 38/512




3M 6M 12M

Absolute (%) (14.6) (17.4) 50.6

Relative (%) (12.2) (25.1) 34.8


Sept-21 Dec-21



FPIs 2.12 2.74



Source: BSE

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Harshad Katkar

[email protected]

+91-22-6171-7319

Rutvi Chokshi

[email protected]

+91-22-6171-7356

Akshay Mane

[email protected]

+91-22-6171-7338



P a g e | 86

HSIE Results Daily


P a g e | 87

HSIE Results Daily

Asian Paints

Margin recoup falls short of expectations

Asian Paints’ (APNT) topline delivery (25.6% YoY) exceeded expectations

(HSIE: 23%). The decorative business clocked 18/27% volume/value growth,

underpinned by (1) strong pick-up in tier-1/2 cities and expansion in projects

business and (2) continuing momentum in waterproofing. Despite the

revenue beat, EBITDA was a miss (INR 15.4bn vs HSIE: 16.4bn) as the price

hike-led margin recoup fell short of expectations. Note that price hikes (21-

22% over 9M) have yet to catch up with the steep RM inflation (~25%), but the

same should take place by Q4. We maintain our FY23/24 EPS estimates and

our SELL rating on APNT with a DCF-based TP of INR 2,700/sh, implying 56x

FY24 P/E.

Q3FY22 highlights: Revenue grew 25.6% YoY (two-year CAGR: 25.4%) to INR

85.27bn (HSIE: INR 83.56bn). The decorative business clocked 18/27%

volume/value growth in Q3 (two-year CAGR for 9M: 20.2/17.5% respectively),

underpinned by (1) strong pick-up in metros/tier-1/2 cities and expansion in

projects business and (2) strong momentum in waterproofing. Premium &

luxury segment outpaced the economy segment. Network expansion remains

strong, with APNT having added 45k new retail points in the past seven

quarters. Its international performance was a mixed bag, with Asia and the

Middle East performing well. Africa is rife with regional disturbances. The

segment grew 9% YoY in Q3. The automotive subsidiary (PPG-AP) remains

affected. Non-auto industrial segment continues to clock strong performance.

Despite the revenue beat, EBITDA was a miss (INR 15.4bn vs HSIE: 16.4bn) as

the price hike-led margin recoup fell short of expectations (GM 36.8% vs HSIE:

38.7%, up 201bp QoQ, but down 832bp YoY). Note that price hikes (21-22% over

9M) have yet to catch up fully with the steep RM inflation (~25%); the same is

expected by Q4.

Outlook: APNT’s performance (including the ramp-up in adjacencies)

remains the most impressive among the top-3 players; the recent round of

price hikes means the worst of margin pressure is likely over. However,

positives seem priced in. We retain our FY23/24 EPS estimates and SELL on

APNT, with a DCF-based TP of INR 2,700/sh, implying 56x FY24 P/E.

Quarterly financial summary (INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY20 FY21 FY22E FY23E FY24E

Net Revenue 85,272 67,885 25.6 70,960 20.2 2,02,113 2,17,128 2,76,933 3,08,159 3,45,448

EBITDA 15,423 17,879 (13.7) 9,045 70.5 41,618 48,556 46,473 59,186 68,027

APAT 10,313 12,654 (18.5) 6,052 70.4 27,101 31,393 30,110 38,972 45,893

EPS (Rs) 10.8 13.2 (18.5) 6.3 70.4 28.3 32.7 31.4 40.6 47.8

P/E (x)

116.1 100.3 104.5 80.8 68.6

EV/EBITDA (x)

75.5 64.8 67.8 53.0 45.8

Core RoCE(%)

27.7 30.3 25.6 30.1 34.4


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 2,76,933 2,76,933 - 3,08,159 3,08,159 - 3,45,448 3,45,448 -

Gross Profit 1,05,269 1,07,019 (1.6) 1,26,507 1,26,300 0.2 1,42,613 1,42,382 0.2

Gross Profit Margin(%) 38.0 38.6 (63 bps) 41.1 41.0 7 bps 41.3 41.2 7 bps

EBITDA 46,473 48,472 (4.1) 59,186 59,010 0.3 68,027 67,830 0.3

EBITDA margin (%) 16.8 17.5 (72 bps) 19.2 19.1 6 bps 19.7 19.6 6 bps

APAT 30,110 31,663 (4.9) 38,972 38,867 0.3 45,893 45,772 0.3

APAT margin (%) 10.9 11.4 (56 bps) 12.6 12.6 3 bps 13.3 13.3 3 bps

EPS (Rs) 31.4 33.0 (4.9) 40.6 40.5 0.3 47.8 47.7 0.3


SELL

CMP (as on 20 Jan 2022) INR 3,308


NIFTY 17,757

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY23E FY24E

+0.3 +0.3

KEY STOCK DATA

Bloomberg code APNT IN


MCap (INR bn) / ($ mn) 3,171/42,618




3M 6M 12M

Absolute (%) 4.3 4.7 22.6

Relative (%) 7.2 (9.3) 3.2


Sep-21 Dec-21



FPIs 20.72 20.48



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Jay Gandhi

jay.gandhi @hdfcsec.com

+91-22-6171-7320

P a g e | 88

HSIE Results Daily

Avenue Supermarts

Disappointing print

D-MART disappointed on its Q3FY22 revenue/unit economics print. Revenue

grew 22% growth YoY (2-yr CAGR: 16%; HSIE: 27% growth YoY). Sales

density is yet to hit the pre-pandemic level (91% of Q3FY20). Inferior mix

continues to keep GM sub-optimal (14.9% vs HSIE: 15.1%). Better cost controls

cushioned the impact on EBITDAM (9.6%, up 28bps YoY; HSIE: 9.8%).

INR25.8/40.8bn of QIP money stands utilised. We maintain our SELL

recommendation on DMART with a revised DCF-based TP of INR 2,800/sh

(earlier 2,700/sh), implying 35x FY24E for the standalone business + 4x FY24E

sales for DMART Ready. Note: FY23/24 estimates remain unchanged and the

target price change is a function of DCF rollover (+3.7%).

Q3FY22 highlights: Revenue grew 22% to INR90.65bn (2-year CAGR for Q3

16%; 9MFY22: 8.5%). Revenue/EBITDA per sq. ft came in at INR35.2/3.4k per

sq. ft. Sales density is still ~9% shy of DMART’s typical run rate (partly

attributable to pick-up in store additions). Revenue mix remains essentials-

heavy; ergo, lower-than-expected GM (14.9% vs HSIE: 15.1%). Better cost

control cushioned the impact on EBITDAM (9.6%, up 28bps; HSIE: 9.8%).

The retailer added 17/29 stores in Q3/9MFY22 (store count: 263). Channel

checks suggest that pricing aggression by peers remains elevated.

Outlook: DMART’s anchor variable (footfalls/sales density) remains sub-

optimal vis-à-vis pre-pandemic days (partly attributable to the step-up in

store additions). While we factor in a full recovery in the next 2-3 quarters,

this assumption can be challenged by heightened competitive intensity from

deep-pocketed retailers. Hence, we maintain SELL on DMART with a

revised DCF-based TP of INR 2,800/sh (earlier 2,700/sh), implying 35x FY24E

for the standalone business + 4x FY24E sales for DMART Ready. Note:

FY23/24 estimates remain unchanged and the target price change is a

function of DCF rollover (+3.7%).


(INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY20 FY21 FY22E FY23E FY24E

Net Revenue 90,650 74,327 22.0 76,496 18.5 2,46,750 2,37,872 3,05,035 4,37,171 5,36,421

EBITDA 8,682 6,914 25.6 6,701 29.6 20,385 16,467 25,524 39,332 48,167

APAT 5,858 4,702 24.6 4,489 30.5 13,685 11,933 16,867 26,531 32,569

EPS (Rs) 9.0 7.3 24.6 6.93 30.5 21.6 18.4 26.0 41.0 50.3

P/E (x)

222.0 260.6 184.4 117.2 95.5

EV/EBITDA (x)

147.5 187.3 121.0 78.4 63.8

Core RoCE(%)

18.8 11.3 14.4 19.4 20.3

Source: Company, HSIE Research, Standalone Financials

Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 3,05,035 3,05,035 - 4,37,171 4,41,790 (1.0) 5,36,421 5,42,102 (1.0)

Gross Profit 43,885 44,190 (0.7) 65,789 66,477 (1.0) 80,729 81,576 (1.0)

Gross Profit Margin

(%) 14.4 14.5 (10 bps) 15.0 15.0 0 bps 15.0 15.0 0 bps

EBITDA 25,524 25,272 1.0 39,332 39,689 (0.9) 48,167 48,682 (1.1)

EBITDA margin (%) 8.4 8.3 8 bps 9.0 9.0 1 bps 9.0 9.0 (0 bps)

APAT 16,867 16,654 1.3 26,531 26,591 (0.2) 32,569 32,575 (0.0)

APAT margin (%) 5.5 5.5 7 bps 6.1 6.0 5 bps 6.1 6.0 6 bps

EPS (Rs) 26.0 25.7 1.3 41.0 41.1 (0.2) 50.3 50.3 (0.0)


SELL

CMP (as on 07 Jan 2022) INR 4,731


NIFTY 17,813

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY23E FY24E

-0.2 -

KEY STOCK DATA

Bloomberg code DMART IN


MCap (INR bn) / ($ mn) 3,065/41,186




3M 6M 12M

Absolute (%) 9.7 39.3 62.0

Relative (%) 9.6 26.7 37.7


Sep-21 Dec-21



FPIs 9.95 9.44


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

P a g e | 89

HSIE Results Daily

Titan

Market share gains continue

Titan’s Q3FY22 consolidated revenue grew 32% YoY to INR100.3bn. Jewelry

(ex-bullion) grew 38.6% (2-yr CAGR for Q3/9MFY22: 27/~17%). Strong festive

and wedding season were key underpinnings for the performance. Non-

jewelry sales breach pre-pandemic sales. Profitability beats estimates

(EBITDAM expanded 324bps to 14.4% vs. HSIE: 13.3%), courtesy (1) inventory

gains from rising diamond prices; (2) normalising bullion sales in jewelry;

and (3) a better product mix in non-jewelry segments. Our FY23/24 EPS

estimates only marginally change (2-3%). We maintain our SELL rating, with a

DCF-based target price of INR 1,850/sh (earlier INR1,800/sh), implying 50x

FY24 P/E.

Q3FY22 highlights: Consol. revenue grew 31.7% YoY to INR 100.3bn.

Jewelry grew 32.5% YoY to INR 90.6bn (HSIE: INR93.6bn). Ex-bullion,

jewelry grew 38.6% YoY to INR90bn. (2-yr CAGR for Q3/9MFY22: 27/~17%).

Titan continues to gain market share. Gains were more pronounced in South

and West regions. Standalone volumes (ex-bullion) were up 47% YoY,

implying a full volume recovery from pre-pandemic levels over 9MFY22.

Studded ratio stable at 26%. Non-jewelry sales breached pre-pandemic sales

in Q3 (2-yr CAGR: 3%). Overall profitability beats estimates, courtesy (1)

inventory gains from rising diamond prices; (2) normalising bullion sales in

jewelry; and (3) a better product mix in non-jewelry segments. (Non-

jewellery EBITDAM up 720 bps YoY at 11.8% vs HSIE: 10.5%). Consol.

EBITDAM expanded 324bps to 14.4% vs. HSIE: 13.3%). Consol. EBITDA

grew 70% YoY to INR14.4bn (2-yr CAGR: 38%; HSIE: 13.8bn). APAT stood

at INR 10.1bn (HSIE: INR9.5bn).

Outlook: Titan’s recovery execution has been on point and a strong volume

rebound is already baked in for FY22-24. We have marginally revised our

FY23/24 EPS estimates by 2-3% to account for lower cost of retailing. Despite

the generous estimates, we do not see any margin of safety at 67x FY24 P/E.

Hence, we maintain our SELL recommendation with a DCF-based TP of INR

1,850/sh (earlier INR1,800/sh), implying 50x FY24 P/E.

Quarterly financial summary (INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ(%) FY21 FY22E FY23E FY24E

Net Revenue 1,00,370 76190 31.7 74930 34.0 2,16,440 2,90,790 3,38,906 3,85,200

EBITDA 14,420 8480 70.0 9680 49.0 17,240 34,096 41,821 48,940

APAT 10,120 5300 90.9 6410 57.9 9,740 22,178 27,545 32,820

EPS (Rs) 11.4 6.0 90.9 7.2 57.9 11.0 25.0 31.0 37.0

P/E (x)

225.6 99.1 79.8 67.0

EV/EBITDA (x)

129.4 65.6 53.4 45.5

Core RoCE(%)

9.1 18.8 20.1 21.6

Source: Company, HSIE Research, Consolidated Financials

Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 2,90,790 2,79,733 4.0 3,38,906 3,30,023 2.7 3,85,200 3,82,734 0.6

EBITDA 34,096 32,799 4.0 41,821 40,725 2.7 48,940 48,053 1.8

EBITDA margin (%) 11.7 11.7 (0 bps) 12.3 12.3 0 bps 12.7 12.6 15 bps

APAT 22,178 21,263 4.3 27,545 26,813 2.7 32,820 32,158 2.1

APAT margin (%) 7.6 7.6 3 bps 8.1 8.1 0 bps 8.5 8.4 12 bps

EPS 25.0 24.0 4.3 31.0 30.2 2.7 37.0 36.2 2.1


SELL



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY23E FY24E

+2.7% +2.1%

KEY STOCK DATA

Bloomberg code TTAN IN


MCap (INR bn) / ($ mn) 2,197/29,526




3M 6M 12M

Absolute (%) 2.4 34.5 62.3

Relative (%) 4.0 25.3 45.3


Sep-21 Dec-21



FPIs 19.06 18.55


Pledged Shares - -

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 90

HSIE Results Daily

Havells India Strong revenue performance; positive outlook Havells delivered strong topline performance, led by positive demand trends

and pricing actions. Revenue grew 15% YoY (HSIE 12%; 27% two-year CAGR).

It reported 29% and 22% two-year CAGRs in ECD and lighting segments vs.

22% and 7% for Orient Electric. Lloyd’s revenue declined 9% YoY (-5% HSIE)

on a high base, but it was up 24% on two-year CAGR. Lloyd was unable to

take price hikes due to the existence of hyper-competition in the RAC

industry. As a result, it reported an EBIT loss of INR 418mn vs. a profit of INR

309mn in Q3FY21. Gross margin continued to be under pressure, contracting

583bps YoY to 32.3% due to input cost pressure and unfavourable segment

mix. EBITDA margin contracted 399bps YoY to 12.1% (HSIE 14.9%). The

company plans to take 5-10% price hikes from Feb-March in ECD/Lloyd, with

there being a strong possibility of higher hikes on account of further inflation.

Given the loss of two summer seasons and positive trade sentiment, we expect

large pent-up demand to show up in the upcoming season, which would

benefit Lloyd too. With pricing actions and a positive sentiment, we remain

optimistic for the stock. We cut our FY22 EPS by 5% while maintain it for

FY23/FY24. We value the stock at 55x P/E on FY24E EPS to derive a target price

of INR 1,550. Maintain ADD.

▪ Robust category performance: Revenue grew 15% YoY (+39% in Q3FY21 and

31% in Q2FY22), a beat to our expectation of 12% YoY growth. Switchgears,

cables, lighting, ECD, others grew 13/33/15/14/5% YoY. Two-year CAGRs

were +22/+30/+22/+29/+27%. Lloyd declined 9% YoY vs. 5% expected.

Demand from construction activities remained strong and industrial and

infra continued to show signs of revival.

▪ Margin pressure continues: GM was down 583bps YoY (-145bps in Q3FY21

and -597bps in Q2FY22; -262bps HSIE). Employee/A&P/other expenses grew

9/85/-7% YoY. The company’s A&P spends are back to pre-COVID levels.

EBIT margin for switchgear, cable, lighting, ECD, and others contracted by

209/92/167/520/152bps YoY to 29/10/21/13/2%. Contribution margin improved

sequentially, except for ECD/Lloyd. ECD margin improvement is expected

from Q4FY22. The upcoming season will be the key monitorable for Lloyd’s

overall show. EBITDA margin contracted 399bps YoY to 12.1% (+420bps in

Q3FY21 and -339bps in Q2FY22). EBITDA declined by 13% YoY (HSIE +4%).

PAT declined by 12% YoY to INR 3,059mn (HSIE INR 3,628mn).

Con call takeaways: (1) Festive demand, new construction activities, and

industrial were strong. (2) Slowdown was seen in the later part of the quarter

due to the COVID third wave. (3) RAC demand should be strong in the

coming season (on a low base) due to loss of past two seasons. (4) Crabtree

and Standard revenue was at INR 3bn and INR 6bn respectively. (5) Havells

expects Lloyd RAC EBIT margin to reach double digits in the long term and

blended margin (with W/M, Ref) near 7-8%. (6) Advertisement expenses are

back at normalised levels. (7) Capex guidance for FY22 stands at INR 2-2.5bn.


YE Mar (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 36,523 31,659 15.4 32,210 13.4 104,279 135,449 158,071 175,443

EBITDA 4,403 5,081 (13.3) 4,436 (0.7) 15,653 18,132 22,182 24,620

APAT 3,059 3,491 (12.4) 3,016 1.4 10,396 12,215 15,261 17,329

Diluted EPS (Rs) 4.9 5.6 (12.4) 4.8 1.4 16.6 19.5 24.4 27.7

P/E (x) 75.0 63.8 51.1 45.0

EV / EBITDA (x)

48.9 41.7 33.6 30.0

Core RoCE (%)

26.5 28.2 34.5 37.0


ADD

CMP (as on 21 Jan 2022) INR 1,242


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-5% 0%

KEY STOCK DATA

Bloomberg code HAVL IN


MCap (INR bn) / ($ mn) 778/10,451




3M 6M 12M

Absolute (%) (3.4) 12.5 9.7

Relative (%) (0.3) (0.6) (9.3)


Sep-21 Dec-21



FPIs 26.76 26.51


Pledged Shares - -

Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 91

HSIE Results Daily

Berger Paints

Growth-margin balance better than peers

BRGR’s topline delivery (20% YoY; INR25.5bn) missed expectations (HSIE:

INR26.28). Two-year topline CAGR (standalone) lagged that of APNT (23% vs

APNT’s 27%). However, BRGR has managed to better balance growth and

margin as we reckon (1) the focus on lower ASP products has been less

intense vs APNT; (2) there were formulation gains; and (3) strategic inventory

buying cushioned the RM inflation-led GM decline on a relative basis

(9MFY22 GM decline for BRGR was 540bps vs APNT’s 850bps). Standalone

volume growth stood at 12%. CY21 price hikes (+24) should catch up with RM

inflation by Q4 exit. Maintain ADD with a DCF-based TP of INR750,

implying 56x FY24 P/E.

Q3FY22 highlights: Consolidated revenue grew 20.4% to INR25.5bn (HSIE:

INR 26.28bn). Standalone revenue growth of 22.6% (two-year CAGR) lagged

APNT’s 26.8%). Decorative segment continued its strong momentum despite

the recent price hikes. Metros/tier-1s were key growth drivers. Industrials

continue to suffer growth pangs, especially in auto. Decorative volume

growth stood at 12%. That said, BRGR has managed to better balance

growth and margin as we reckon (1) the focus on lower ASP products has

been less intense vs APNT; (2) there were formulation gains; and (3)

strategic inventory buying cushioned the RM inflation-led GM decline better

on a relative basis (9MFY22 GM decline for BRGR was 540bps vs APNT’s

850bps). CY21 price hikes (+24) should catch up with RM inflation by Q4.

Dealer additions remain strong. Consolidated EBITDA declined by 5.5% to

INR3.9bn (HSIE: INR4.6bn). 2-year EBITDA CAGR (on 9M basis) grew at 7%

vs APNT’s 1%. APAT stood at INR2.53bn (HSIE: INR3bn).

Outlook: Our thesis of valuation multiples converging between APNT and

BRGR, owing to the inconsequential variance in medium-to-long term

performance between the two, has played out. We maintain our ADD rating

on BRGR given the relative valuation comfort it offers now vis-à-vis APNT.

with a DCF-based TP of INR750/sh (unchanged) - implying 56x FY24 P/E).

Quarterly financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY20 FY21 FY22E FY23E FY24E

Net Revenue 25,508 21,182 20.4 22,250 14.6 63,658 68,176 86,276 97,056 1,09,803

EBITDA 3,921 4,150 (5.5) 3,540 10.8 10,610 11,880 13,613 17,352 20,367

APAT 2,530 2,750 (8.0) 2,192 15.4 6,561 7,197 8,244 10,739 13,039

EPS (Rs) 2.6 2.8 (8.0) 2.3 15.4 6.8 7.4 8.5 11.1 13.4

P/E (x)

106.2 96.9 84.6 64.9 53.5

EV/EBITDA (x)

66.0 58.6 51.2 39.8 33.5

Core RoCE(%)

21.0 20.6 20.4 23.4 26.6


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 86,276 86,276 - 97,056 97,056 - 1,09,803 1,09,803 -

Gross Profit 33,801 33,801 - 39,966 39,966 - 45,764 45,764 -

Gross Profit Margin(%) 39.2 39.2 - 41.2 41.2 - 41.7 41.7 -

EBITDA 13,613 13,613 - 17,352 17,352 - 20,367 20,367 -

EBITDA margin (%) 15.8 15.8 - 17.9 17.9 - 18.5 18.5 -

APAT 8,244 8,244 - 10,739 10,739 - 13,039 13,039 -

APAT margin (%) 9.6 9.6 - 11.1 11.1 - 11.9 11.9 -

EPS (Rs) 8.5 8.5 - 11.1 11.1 - 13.4 13.4 -


ADD



NIFTY 17,375

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY23E FY24E

- -

KEY STOCK DATA

Bloomberg code BRGR IN


MCap (INR bn) / ($ mn) 697/9,371




3M 6M 12M

Absolute (%) (7.9) (12.3) (7.0)

Relative (%) (4.9) (18.9) (19.8)


Sep-21 Dec-21



FPIs 11.22 11.3


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 92

HSIE Results Daily

Jubilant FoodWorks Mixed bag; long-term levers in place Jubilant reported a miss on revenue; however, EBITDA margin was a beat.

Revenue grew 13% YoY (HSIE 17%) and +6% on a two-year CAGR. It’s like-

for-like (LFL) growth stood at +7.5% YoY (-0.2% in Q3FY21; HSIE +26%) and a

two-year CAGR of 5%. The company’s revenue was impacted in the peak

season (second half of December), but with the easing of restrictions, we

expect it to perform well for the remaining part of Q4. Dine-in + Takeaway is

at 94%, vs. 78% in Q3FY21 (82% in Q2FY22). GM was down 70bps YoY (in-

line) to 77.6%. Op-lev led to a 24-bps YoY expansion in EBITDA margin to

26.6% (HSIE 25.8%). The company opened the highest number of Domino’s

stores (75) in Q3; however, expansion in other brands was slow, as it added

one store each of Hong’s Kitchen and Dunkin. Further, it opened two

Popeye’s stores in Jan-22. Jubilant has already proved itself in building a

strong franchise (Domino’s); now replicating the same across other organic

and franchisee brands will be a key monitorable for the stock. We marginally

cut FY23/24 EPS by 2%. Our target price is INR 3,300, based on 60x P/E on Dec-

23E EPS for Domino’s India and INR 300/share for ex-Domino’s India. With

the recent correction, we upgrade from SELL to REDUCE.

▪ Miss on revenue: Net revenue was up 13% YoY (flat in Q3FY21, +37% in

Q2FY22, 17% HSIE). LFL came in line at +7.5% YoY (-0.2% in Q3FY21,

+29.4% in Q2FY22). OLO contribution to delivery stood at 97.6% while app

downloads stood at 8.2mn (the highest in a quarter).

▪ Highest number of stores opened: Jubilant opened 75 Domino’s stores in

Q3FY22 vs. 75 opened in H1FY22. It also opened up one Dunkin’ store and

one of Hong’s Kitchen. Given the company has already met its FY22 store

expansion target of 175 stores in Q3, it has now revised the target to 200

stores. The company has launched two Popeye’s until date.

▪ Margin pressure eases: GM contracted by 70bps YoY (+340bps in Q3FY21

and -54bps in Q2FY22) to 77.6%. The company had taken some price hikes in

Q3. Rent expense was up 17% YoY, while employee/other expenses were up

-11/28% YoY due to reclassification of variable employee costs. EBITDA

margin was at 26.6% vs. 26.4% in Q3FY21 and 26% in Q2FY22 (25.8% HSIE).

EBITDA grew 14% YoY.

Call takeaways: (1) In Q3FY22, the on-ground COVID impact had improved

even though dine-in was capped at 50% across regions; however, the last

fortnight of December was impacted by the Omicron wave. (2) Delivery and

takeaway continued to grow more than pre-COVID levels. (3) The company

has taken price hikes due to increasing input costs (up QoQ as well). (4)

Popeye’s is seeing a good response, and it is a long-term growth avenue. (5)

It will be expanding Hong’s Kitchen, going forward; however, Ekdum store

expansion will follow later. (6) Domino’s has managed to deliver >60% of its

orders in under 20 minutes, a key metric for the company.


(INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 11,935 10,572 12.9 11,007 8.4 33,119 43,819 52,017 58,533

EBITDA 3,174 2,786 13.9 2,860 11.0 7,712 10,889 13,058 14,905

APAT 1,466 1,343 9.2 1,315 11.4 2,598 4,682 5,791 6,892

EPS (INR) 11.11 10.18 9.2 9.97 11.4 19.7 35.5 43.9 52.2

P/E (x) 167.9 93.1 75.3 63.3

EV / EBITDA (x)

90.3 54.1 43.7 37.5

RoCE (%)

19.8 28.0 33.5 41.3


REDUCE



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating SELL REDUCE


EPS % FY22E FY23E

0% -2%

KEY STOCK DATA

Bloomberg code JUBI IN


MCap (INR bn) / ($ mn) 436/5,855




3M 6M 12M

Absolute (%) (12.1) (11.6) 22.3

Relative (%) (11.3) (24.1) 2.7


Sep-21 Dec-21



FPIs 41.41 39.77



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Varun Lohchab

[email protected]

+91-22-6171-7334

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 93

HSIE Results Daily

Trent

Hits it out of the park

Trent’s Q3 performance surprised positively. Standalone revenue grew 86%

YoY to INR13.48bn (two-year CAGR for 9MFY22 stood at 5%). The make-up of

format-wise store openings implies that the beat was mostly SSSG-led,

although store expansion has been healthy too. GM declined 513bps YoY to

51.2% (vs HSIE: 52%). We reckon this is primarily a function of the rising

Zudio skew in the mix. However, the impact on PBT margin was lower YoY (-

140bps, 13%) as Zudio entails lower cost of retailing vs portfolio. FY24

EBITDA estimate remains largely unchanged. We retain our SELL

recommendation with an SOTP TP of INR 860/sh (earlier INR850), implying

31x FY24 EV/EBITDA.

Q3FY22 highlights: Revenue grew 85.8% YoY (INR 13.48bn vs HSIE: INR

10.18bn). The moderate pace of store openings suggests that the beat was

largely SSSG-led. Two-year revenue CAGR for 9MFY22 stood at 5%. In Q3,

Trent added 6/30 Westside/Zudio stores (net) respectively. Store expansion

is likely to rev up from here on and management intends to end FY22 with

425 stores (374 currently). GM declined 513bps YoY 51.2% (vs HSIE: 52%).

We reckon this is primarily a function of the rising Zudio skew in the mix.

However, the impact on PBT margin was lower YoY (-140bps, 13%, HSIE:

9.1%) as Zudio entails lower cost of retailing vs portfolio. Apart from the

recovery surprise, PBTM beat expectations also, partly due to higher rental

concessions than expected. PBT/PAT stood at INR1.75/1.33bn respectively.

Outlook: Trent has the best revenue and margin recovery profile in the

apparel space. Its disciplined working capital management and well-

capitalised balance sheet do not allow us to fault the business. However, its

punchy valuation (38x FY24 EV/EBITDA) restrains us from becoming

constructive on the stock. Hence, we maintain SELL with an SOTP TP of

INR 860/sh (implying 31x FY24 EV/EBITDA).

Quarterly financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY20 FY21E FY22E FY23E FY24E

Net Revenue 13,478 7,254 85.8 10,204 32.1 31,777 20,475 35,663 48,357 54,897

EBITDA 2,917 1,800 62.1 2,213 31.8 5,632 2,038 5,954 8,899 10,435

APAT 1,329 797 66.8 1,256 5.8 1,546 (510) 1,693 2,701 3,299

EPS (Rs) 3.7 2.2 66.8 3.5 5.8 4.3 (1.4) 4.8 7.6 9.3

P/E (x)

269.2 (931.6) 245.9 154.1 126.2

EV/EBITDA (x)

76.6 211.3 73.7 49.7 42.6

Core RoCE(%)

7.2 (0.6) 5.5 8.2 8.9


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 35,663 31,155 14.5 48,357 47,465 1.9 54,897 53,467 2.7

Gross Profit 18,294 15,965 14.6 24,862 24,327 2.2 27,996 26,992 3.7

Gross Profit Margin(%) 51.3 51.2 5 bps 51.4 51.3 16 bps 51.0 50.5 51 bps

EBITDA 5,954 5,376 10.8 8,899 9,405 (5.4) 10,435 10,555 (1.1)

EBITDA margin (%) 16.7 17.3 (56 bps) 18.4 19.8 (141 bps) 19.0 19.7 (73 bps)


SELL

CMP (as on 11 Feb 2022) INR 1,070


NIFTY 17,375

KEY

CHANGES OLD NEW

Rating SELL SELL



-5.4 -1.1

KEY STOCK DATA

Bloomberg code TRENT IN


MCap (INR bn) / ($ mn) 381/5,118




3M 6M 12M

Absolute (%) (6.6) 19.0 54.5

Relative (%) (3.7) 12.3 41.6


Sep-21 Dec-21


FIs & Local

MFs 6.02 6.81

FPIs 30.13 28.94


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 94

HSIE Results Daily

Relaxo Footwears

Disappointing print

Relaxo disappointed on its Q3FY22 print. Revenue grew 10.6% growth YoY to

INR7.43bn (a two-year CAGR: 11%; HSIE: 20% growth YoY). Volumes

declined by 10% YoY; net realisation improved by ~23% YoY as we reckon (1)

skew improved towards higher-ASP closed footwear and (2) price hikes were

taken (which lag RM inflation). Profitability remained sub-optimal due to the

double whammy of (1) RM inflation and (2) additional trade margin given (to

neutralise the impact of GST hike). GM/EBITDAM contracted by 570bps+ as a

consequence (45.5/16.4% vs HSIE: 48/19% resp). We marginally tone down our

estimates by 1% each for FY23/24 and our DCF-based TP to INR1,030/sh

(earlier INR1,050/sh); implying 55x FY24E P/E. Maintain our SELL

recommendation.

Q3FY22 highlights: Revenue grew 10.6% growth YoY to INR7.43bn (a two-

year CAGR: 11%; HSIE: 20% growth YoY). Volumes declined by 10% YoY;

net realisation improved by ~23% YoY as we reckon (1) skew improved

towards higher-ASP closed footwear and (2) price hikes were taken (which

lag RM inflation). Profitability remained sub-optimal due to the double

whammy of (1) RM inflation and (2) additional trade margin doled out (to

neutralise the impact of GST hike). GM/EBITDAM contracted by 570bps+ as

a consequence (45.5/16.4% vs HSIE: 48/19% resp). EBITDA was down 18%

YoY at INR1.2bn (HSIE: INR1.5bn). Management highlighted that RM

inflation seems to have peaked out and the impact of GST rates will settle by

the end of Q4; however, it will start giving advantage in unblocking of funds

in inverted duty. The company added 0.15mn pairs/day in capacity in Q3.

Outlook: Relaxo remains a strong category leader and it is well-poised to

gain market share within an immature ecosystem. While we factor in a

convergence between RM inflation and price hikes over a couple of

quarters, profitability is likely to remain under pressure in the near term.

Against this backdrop, lofty valuations (68x FY24 PE/45x FY25 EV/EBITDA)

do not allow us to become constructive on the stock. Hence, we maintain

SELL, with a DCF-based TP to INR1,030/sh (earlier INR1,050/sh); implying

55x FY24E P/E.


Net Revenue 7,435 6,720 10.6 7,144 4.1 24,105 23,592 26,592 32,703 38,075

EBITDA 1,216 1,487 (18.2) 1,168 4.1 3,637 4,559 4,268 5,759 6,892

APAT 701 901 (22.2) 687 2.1 2,309 3,049 2,702 3,796 4,655

EPS (Rs) 2.8 3.6 (22.2) 2.8 2.1 9.3 12.3 10.9 15.3 18.7

P/E (x)

142.8 108.2 122.0 86.9 70.8

EV/EBITDA (x)

90.7 71.6 76.4 56.4 46.7

Core RoCE(%)

17.1 20.6 18.0 23.4 27.0


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 26,592 27,642 (3.8) 32,703 33,385 (2.0) 38,075 38,870 (2.0)

Gross Profit 12,403 13,114 (5.4) 15,679 16,006 (2.0) 18,369 18,753 (2.0)

Gross Profit Margin(%) 46.6 47.4 (80.0) 47.9 47.9 (0.0) 48.2 48.2 0.0

EBITDA 4,268 4,630 (7.8) 5,759 5,813 (0.9) 6,892 6,958 (1.0)

EBITDA margin (%) 16.1 16.8 (70.0) 17.6 17.4 20.0 18.1 17.9 20.0

APAT 2,702 2,977 (9.3) 3,796 3,839 (1.1) 4,655 4,706 (1.1)

APAT margin (%) 10.2 10.8 (61.0) 11.6 11.5 10.8 12.2 12.1 11.7

EPS (Rs) 10.9 12.0 (9.3) 15.3 15.4 (1.1) 18.7 18.9 (1.1)

SELL

CMP (as on 31 Jan 2022) INR 1,231


NIFTY 17,340

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY23E FY24E

-1.1 -1.1

KEY STOCK DATA

Bloomberg code RLXF IN


MCap (INR bn) / ($ mn) 306/4,118




3M 6M 12M

Absolute (%) (7.5) 7.0 49.4

Relative (%) (5.3) (3.3) 24.1


Sep-21 Dec-21



FPIs 3.56 3.81


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

P a g e | 95

HSIE Results Daily

Aditya Birla Fashion and Retail

Recovery healthy

In both sales and profitability, ABFRL's Q3FY22 print beat expectations.

Revenue increased by 39.5% to INR28.73bn (HSIE: 27.07bn).

Madura/Pantaloons rose by ~51/31% YoY respectively, to INR18.76/10.66bn.

The 145bps YoY (53.7%) GM recoup was sharper than expected (HSIE: 52%),

owing to (1) lower-than-expected inventory provisioning and discounting

levels and (2) a higher skew of Madura in the revenue mix. Expansion remains

healthy and the company momentarily sported a net cash position. We retain

our ADD rating on ABFRL with a DCF-based TP of INR 310/sh (unchanged),

implying 25x FY24 EV/EBITDA. Note: FY23/24 EPS revised downwards by 3-

4% to account for marginally higher cost of retailing.

Q3FY22 highlights: Revenue grew by 39.5% YoY to INR 28.73bn (two-yr

CAGR: 6%; HSIE: 27.07bn). Lifestyle brands/Pantaloons clocked a two-year

CAGR of 11/-1% resp in Q3 to INR15.89/10.66bn (HSIE: 13.75/10.54bn resp).

Note, on a 9M basis, both flagships are still at 89/68% of pre-COVID levels.

The sharper-than-expected recovery in Lifestyle brands was underpinned by

category extensions and segment expansion. All channels

(wholesale/retail/online) performed better than expected. The 145bps YoY

(53.7%) GM recoup was sharper than expected (HSIE: 52%), owing to (1)

lower-than-expected inventory provisioning and discounting levels and (2) a

higher skew of Madura in the revenue mix. Other business increased by

30.5% YoY to INR2.87bn (HSIE: INR2.75bn). Standalone EBITDA grew 51%

to INR5.53bn (HSIE: 5.16bn; EBITDAM: 19.3%), as normalisation of rental

bills was marginally sharper than expected. Lifestyle brands/Pantaloons

added 147/17 (net) stores resp. YoY (store count: 2,488/361).

Outlook: We are encouraged by ABFRL’s topline/margin recovery; our

FY23/24 EBITDA estimates are 3-4% lower to account for higher cost of

retailing, courtesy the recent inorganic acquisitions. However, we maintain

ADD on ABFRL with a DCF-based TP of INR 310/sh (unchanged), implying

25x FY24 EV/EBITDA.

Quarterly financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenue 28,728 20,590 40 19,960 44 51,811 76,420 98,472 1,13,194

Adj EBITDA 5,553 3,685 51 3,147 76 5,943 9,527 16,379 19,676

APAT 1,908 664 187 141 1,254 (6,496) (1,995) 2,138 3,990

EPS (Rs) 2.03 0.81 151 0.15 1,221 (7.1) (2.2) 2.3 4.4

P/E (x)

NM NM NM NM

EV/EBITDA (x)

10.7 7.2 6.9 6.5

Core RoCE(%)

(34.5) (6.0) 5.3 9.3


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 76,420 74,052 3.2 98,472 95,465 3.2 1,13,194 1,09,869 3.0

Gross Profit 39,602 38,153 3.8 51,523 49,663 3.7 59,112 56,991 3.7

Gross Profit Margin

(%) 51.8 51.5 30 bps 52.3 52.0 30 bps 52.2 51.9 35 bps

EBITDA 9,527 11,701 (18.6) 16,379 17,058 (4.0) 19,676 20,297 (3.1)

EBITDA margin

(%) 12.5 15.8 (334 bps) 16.6 17.9 (123 bps) 17.4 18.5 (109 bps)


ADD



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating ADD ADD



-4.0 -3.1

KEY STOCK DATA

Bloomberg code ABFRL IN


MCap (INR bn) / ($ mn) 277/3,725




3M 6M 12M

Absolute (%) 2.0 36.7 86.0

Relative (%) 4.4 28.9 70.2


Sep-21 Dec-21



FPIs 13.83 13.51


Pledged Shares 0 0

Source : BSE


Jay Gandhi

[email protected]

+91-22-6171-7320

P a g e | 96

HSIE Results Daily

Kansai Nerolac

GM pressure seems to be bottoming out

Kansai Nerolac’s (KNPL) topline performance (15% YoY, INR16.9bn, 2-year

CAGR: 16%) was largely in line. In decorative segment, volume/value grew in

high-single/double digits; performance continues to lag top-2. YTD, KNPL

price hikes in decorative/industrial coatings stand at 21/18%. Price hikes

should broadly cover RM inflation by Q4 in decorative, while there is some

price re-calibration left in industrial segment. Over 9MFY22, given KNPL’s

revenue mix, it faced significant heat on GM (810bps YoY). However, reversal

is likely to be as sharp and is baked in. We’ve marginally revised our FY23/24

EPS estimates down by -3/-2% respectively. We maintain our BUY rating with

a DCF-based TP of INR700/sh (unchanged), implying 45x FY24 P/E.

Q3FY22 highlights: Standalone revenue grew 15% YoY to INR 16.9bn (in-

line). Decorative segment continues to lag top-2 players and clocked high-

single/double digits in volume/value resp. Metros/tier-1 cities outpaced

rural segment with good traction in emulsions, construction chemicals,

wood finishes and project sales. In auto-industrials, demand remained

muted on account of semi-conductor shortage. YTD, KNPL price hikes in

decorative/industrial coatings stand at 21/18%. Price hikes should broadly

cover RM inflation by Q4 in decorative, while there is some re-calibration

left in industrial segment. Distribution growth came in double digits. Over

9MFY22, given KNPL’s revenue mix, it faced significant pressure on GM;

however, the reversal is likely to be the sharpest as can be seen from

sequential improvement. EBITDAM contracted 727bps to 12.4% in Q3.

9MFY22 two-year EBITDA CAGR stood at -7% (INR 5.62mn. Q3: INR2.1bn,

HSIE: INR2.5bn). Adj. PAT came in at INR1.32bn (down 34% YoY; HSIE:

INR1.65bn).

Outlook: Given KNPL’s industrial-heavy revenue skew, the double

whammy of (1) demand impact in auto industry, courtesy chip shortage and

(2) runaway RM inflation was felt the most by it among top-tier paint

companies. However, most of the pain seems to be over. Our FY23/24 EPS

estimates are marginally toned down by -3/-2% respectively. Maintain BUY

with a DCF-based TP of INR700/sh, implying 45x FY24 P/E.

Quarterly financial summary (Consolidated) (INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenue 18,104 15,926 13.7 16,196 11.8 50,743 61,410 69,466 79,198

EBITDA 2,122 3,044 (30.3) 1,628 30.4 8,633 8,440 11,377 13,462

APAT 1,253 2,038 (38.5) 873 43.6 5,257 4,987 6,903 8,312

EPS (Rs) 2.3 3.8 (38.5) 1.6 43.6 9.8 9.3 12.8 15.4

P/E (x)

61.3 64.6 46.7 38.8

EV/EBITDA (x)

37.4 38.8 28.8 24.0

Core RoCE(%)

12.6 10.8 13.6 15.4


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 61,410 61,907 (0.8) 69,466 70,026 (0.8) 79,198 79,835 (0.8)

Gross Profit 20,952 21,321 (1.7) 25,322 25,526 (0.8) 29,464 29,701 (0.8)

Gross Profit Margin(%) 34.1 34.4 (32 bps) 36.5 36.5 0 bps 37.2 37.2 0 bps

EBITDA 8,440 8,845 (4.6) 11,377 11,554 (1.5) 13,462 13,588 (0.9)


APAT 4,987 5,365 (7.0) 6,903 7,133 (3.2) 8,312 8,472 (1.9)

APAT margin (%) 8.1 8.7 (55 bps) 9.9 10.2 (25 bps) 10.5 10.6 (12 bps)

EPS (Rs) 9.3 10.0 (7.0) 12.8 13.2 (3.2) 15.4 15.7 (1.9)


BUY



NIFTY 17,375

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-3.2 -1.9

KEY STOCK DATA

Bloomberg code KNPL IN


MCap (INR bn) / ($ mn) 268/3,603




3M 6M 12M

Absolute (%) (14.2) (19.3) (13.9)

Relative (%) (11.2) (25.9) (26.7)


Sep-21 Dec-21



FPIs 3.40 3.57


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 97

HSIE Results Daily

Crompton Consumer Small bump in performance; remain positive Crompton's Q3FY22 revenue was a slight miss but the EBITDA margin was in

line. Revenue was up 5% (HSIE 8%, 15% two-year CAGR), with ECD clocking

6% growth (HSIE 8%, 18% two-year CAGR). High base (pent-up benefit in

base) was expected to impact reported growth. The underlying demand is

largely stable, with recent softening in RM inflation also partially postponing

demand (last year was pre-buying). Fans registered 11% growth (22% two-year

CAGR), with super premium fans growing 30%. Crompton has gained ~2%

market share in fans in the past 12 months. The pump business was impacted

by weak demand (extended monsoon). Appliance business continued to

deliver strong growth - 13% YoY, 28% 2-year CAGR. Lighting remained weak

(flat YoY, 5% two-year CAGR), owing to contraction in conventional lighting

and B-G business. B-C lighting LED sustains strong momentum, clocking 22%

YoY growth. EBITDA margin, at 14.3%, was broadly in line (HSIE 14.8%),

unlike peers that faced high volatility. Crompton has managed the margin

trajectory far superior to its peers. We remain positive for pick-up in seasonal

demand, while there is a possibility of inventory filling spillover from Q4 to

Q1. We cut our EPS estimates by 4/3/2% for FY22/23/24. We value Crompton at

42x P/E on FY24E EPS to derive a TP of INR 550. Maintain BUY.

▪ Slight revenue miss, lighting still WIP: Net revenue grew by 5% YoY (+26%

in Q3FY21 and 14% in Q2FY22, HSIE 8%). ECD saw 6% YoY growth (+32% in

Q3FY21, 18% in Q2FY22, HSIE 8%). Market share gain continues in fans, with

super premium and premium fans growing 30% and 10% YoY respectively.

Appliances grew 13% YoY, with geysers growing 11%. ECD was up 22% on

two-year CAGR vs. 29/22% for Havells/Orient. Lighting revenue was flat YoY

(+10% in Q3FY21, +2% in Q2FY22, HSIE +6%). Lighting was up 5% on two-

year CAGR vs. 22/7% for Havells/Orient.

▪ In-line margin: GM contracted by 41/34bps YoY/QoQ to 31.7%. Commodity

costs continued to be elevated, but are stabilizing now. Employee/other

expenses grew by 21/3% YoY. EBITDA margin was broadly in line at 14.3%, -

54bps YoY (+206bps in Q3FY21 and -30bps in Q2FY22). EBITDA grew by 1%

YoY to INR 2,016mn (HSIE INR 2,144mn). ECD EBIT margin contracted

37bps YoY (-9bps in Q3FY21 and -7bps in Q2FY22) to 19.4%. Lighting EBIT

margin contracted 178bps YoY (+539bps in Q3FY21 and -31bps in Q2FY22) to

10.5%. The company expects lighting margin to remain in the 10-11% range,

given the higher advertisement investments. PBT/PAT declined 2% YoY.

▪ Con call takeaways: (1) The company saw slowdown in demand in Jan-22;

however, it remains optimistic of bouncing back. (2) Trade inventory level is

slightly higher YoY. (3) Lighting is down due to legacy B-B and B-G (EESL)

businesses, which will not be in the base, going forward. (4) Market share for

overall fans is at 27% (ranked No. 1), with 35% in premium (ranked No. 2).

(5) In geysers, the company is ranked No. 2/3 vs. No. 7 a few years ago.


Net Sales 14,102 13,482 4.6 13,848 1.8 47,500 54,719 63,032 70,648

EBITDA 2,016 2,001 0.8 2,141 (5.8) 7,047 7,894 9,349 10,665

APAT 1,481 1,511 (2.0) 1,705 (13.1) 5,345 6,041 7,339 8,394

Diluted EPS (INR) 2.36 2.41 (2.1) 2.71 (13.1) 8.5 9.6 11.7 13.4

P/E (x) 49.9 44.2 36.4 31.8

EV / EBITDA (x)

36.6 32.4 27.2 23.7

RoCE (%)

55.3 50.7 54.8 57.8


BUY



NIFTY 17,340

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-4% -2%

KEY STOCK DATA

Bloomberg code CROMPTON IN


MCap (INR bn) / ($ mn) 267/3,582




3M 6M 12M

Absolute (%) (8.8) (12.9) (0.8)

Relative (%) (6.7) (23.2) (26.1)


Sep-21 Dec-21

Promoters 5.99 5.99


FPIs 41.47 40.17



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 98

HSIE Results Daily

Bata India

Print remains disconnected from ‘turnaround’ narrative

Bata’s Q3 print remains disconnected from its ‘turnaround’ narrative.

Revenue, at INR8.41bn, just about hit pre-pandemic levels. On a 9M basis,

Bata’s recovery is the weakest within the discretionary pack (2-year CAGR: -

16%) and significantly lags immediate peer Metro (9M 2-yr CAGR: -1%).

Profitability remained sub-optimal due to (1) higher inventory mark downs,

(2) one-time compensation to realign trade to the higher GST regime, (3)

higher A&P spends and rent normalisation and (4) higher

franchisee/wholesale skew in revenue mix (EBITDAM: 20%). Treading the

growth-margin revival equation is tough to execute in retail and Bata’s Q3

show doesn’t instill confidence yet. Hence, we maintain our SELL rating with

a revised DCF-based TP of INR1,500/sh, (implying 40x FY24 EPS). Note: TP

change is on account of assigning a multiple to excess cash on books in

addition to valuing the core operations.

Q3FY22 highlights: Revenue grew 36.7% YoY to INR8.41bn (a two-year

CAGR: 1%; HSIE: INR9.48bn). Value marginally lagged volumes. On a 9M

basis, Bata’s recovery significantly lags immediate peer Metro (9M 2-yr

CAGR: -1%). Franchisee/wholesale salience in mix continues to improve

(Q3: 20% vs pre-COVID: 10-12%). Assortment relevance is improving too

with increasing salience of sneakers in portfolio. GM/EBITDAM improved

107/91bps YoY to 52.7/20% resp in Q3 but significantly lags pre-pandemic

margins (800/1160bps YoY lower resp; HSIE: 54/27%) due to (1) higher

inventory mark downs, (2) one-time compensation to realign trade to the

higher GST regime (INR70mn), (3) step-up in talent acquisition, (4) A&P,

rent normalisation and (4) higher franchisee/wholesale skew in revenue mix.

Bata added 34 franchise stores in Q3 (franchise count: 284, total store count:

1,557). PAT is still at 62% of pre-pandemic levels in Q3 (INR0.72bn; HSIE:

INR1.4bn).

Outlook: Treading the growth-margin equation while pivoting to different

growth channels (wholesale, franchise) and realigning assortment isn’t a

walk in the park. Bata Q3 show doesn’t instill confidence in execution yet.

Hence, we maintain our SELL rating with a revised DCF-based TP of

INR1,500/sh (implying 40x FY24 EPS).


Net Revenue 8,413 6,156 36.7 6,141 37.0 30,561 17,085 23,736 33,663 38,116

EBITDA 1,686 1,178 43.2 1,191 41.6 4,994 (900) 1,081 4,997 6,262

APAT 723 264 173.8 370 95.2 3,431 (429) 718 3,855 4,892

P/E (x)

76.2 NM 364.3 67.8 53.4

EV/EBITDA (x)

50.4 NM 232.5 50.0 39.4

Core RoCE(%)

29.1 NM 4.3 31.3 36.1


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 23736 24200 (1.9) 33,663 33,667 (0.0) 38,116 38,038 0.2

Gross Profit 12756 12944 (1.5) 18,259 18,194 0.4 20,515 20,419 0.5

Gross Profit Margin

(%) 53.7 53.5 25 bps 54.2 54.0 20 bps 53.8 53.7 14 bps

EBITDA 1081 1775 (39.1) 4,997 5,114 (2.3) 6,262 6,252 0.2

EBITDA margin (%) 4.6 7.3 (278bps) 14.8 15.2 (35 bps) 16.4 16.4 (1 bps)

APAT 718 1230 (41.7) 3,855 3,958 (2.6) 4,892 4,879 0.3


SELL



NIFTY 17,464

KEY

CHANGES OLD NEW

Rating SELL SELL


EPS % FY23E FY24E

-2.6 +0.3

KEY STOCK DATA

Bloomberg code BATA IN


MCap (INR bn) / ($ mn) 244/3,274




3M 6M 12M

Absolute (%) (12.6) 13.1 20.4

Relative (%) (9.3) 5.6 6.5


Jun-21 Dec-21



FPIs 5.23 6.01


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 99

HSIE Results Daily

TTK Prestige In-line show; margin remains buoyant TTK Prestige’s Q3FY22 saw a marginal miss on revenue; however, EBITDA

margin was a beat. Standalone revenue was up 6% YoY (HSIE 9%) and

delivered a two-year CAGR of 15%. Pre-buying activities in Q2 (shift in

festive demand vs. YoY) also impacted Q3 performance. Q2+Q3 combined

revenue clocked 20% YoY growth, reflecting the strong underlying demand.

Gross margin was a beat, with 92/256bps YoY/QoQ expansion to 42.4% (HSIE

41.5%). Price hikes taken in Q2 and beginning of Q3 covered the rise in RM

costs. EBITDA margin was at 17.5% (HSIE 16.7%), up 6bps YoY (+219bps in

Q3FY21 and +222bps in Q2FY22). With well-placed demand drivers, we expect

TTK to sustain healthy revenue growth. The company has remarkably

managed EBITDA margin during turbulence (unlike in the past), clocked

~17% margin in the last two quarters vs. 15% pre-COVID. We maintain our

EPS estimates and value the stock at 42x PE on FY24E EPS to derive a TP of

INR 1,170. Maintain ADD.

▪ Marginal miss on topline: Revenue grew by 6% YoY (+24% in Q3FY21 and

+37% in Q2FY22). Domestic sales were up 5%, while exports were up 44%

YoY. Rural market continued to perform well. Online channels (18% of sales)

saw some deceleration, growing slower than the offline channels. TTK

introduced 46 new SKUs in Q3 across all categories, with plans to add 63 new

SKUs in Q4FY22. Prestige Xclusive chain is at 670 stores in 380 towns, and

the category contributes 7-13% of revenue depending on the quarter.

Cookers, cookware, and appliances grew +10%, 9%, and 2% YoY

(+29/+34/+19% in Q3FY21 and +44/36/36% in Q2FY22).

▪ Margin buoyancy continues: Gross margin expanded by 92bps YoY (-29bps

in Q3FY21, +33bps in Q2FY22) to 42.4%. Gross profit came in at INR 3.1bn, in

line with our expectations. Employee/other expenses grew by 14/8% YoY.

EBITDA margin remained flat YoY (+219bps in Q3FY21 and +222bps in

Q2FY22) at 17.5%. EBITDA grew by 6% YoY (HSIE 4%). PBT was up 3% YoY,

while PAT grew 2% YoY to INR 887mn.

Con call takeaways: (1) The brand is not witnessing demand pressure, but

the buoyancy in demand seen in the previous quarters has tapered off. (2)

RM pressure was maintained through price hikes taken in Q2 and early Q2.

(3) Price hikes have covered the RM pressure, and the company will closely

watch RM prices before taking further pricing actions. (4) Industry

participants too have taken price hikes, albeit with a delay. (5) The company

has launched 46 SKUs in Q3 and plans to add 63 in Q4. (6) Unorganised

players have lost about 12% market share, now making 34-36% of the market.

This share loss was captured by zonal and national brands. (7) The company

is the 3rd/4th largest mixer grinder player with 6-7% market share. It will be

adding new products to increase the share in this space. (8) About INR

500mn to INR 1bn of Capex is planned for FY23.


Net Sales 7,191 6,794 5.8 8,086 (11.1) 22,019 26,597 30,122 33,119

EBITDA 1,256 1,182 6.2 1,358 (7.5) 3,334 4,207 4,785 5,306

APAT 887 865 2.5 986 (10.1) 2,494 3,005 3,419 3,850

Diluted EPS (INR) 64.0 62.4 2.5 71.2 (10.1) 18.0 21.7 24.7 27.8

P/E (x) 52.2 43.4 38.1 33.8

EV / EBITDA (x)

37.5 29.5 25.7 22.8

RoCE (%)

24.1 29.0 28.6 28.8


ADD



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code TTKPT IN


MCap (INR bn) / ($ mn) 130/1,753




3M 6M 12M

Absolute (%) (15.0) 8.4 53.6

Relative (%) (14.2) (4.1) 34.0


Sep-21 Dec-21



FPIs 9.94 9.57



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 100

HSIE Results Daily

V-Guard Industries

Beat on revenue; margin sees a sharp dip

V-Guard delivered a beat on revenue, but its EBITDA margin saw a sharp

decline, resulting in lower-than-expected EBITDA. Revenue grew by 16% YoY

(HSIE 12%), with the two-year CAGR at 24%. Volume grew 11% YoY for

9MFY22. Electronics, electrical, and consumer durables segments were up -

4/19/28% YoY. South and non-south delivered 15/18% YoY growth. The key

highlight of the quarter was a miss in EBITDA margin despite an in-line gross

margin. EBITDA declined 26% vs. the expectation of an 8% decline. Higher

overhead cost and unfavorable mix resulted in weaker margin. As summer

approaches, expectations for cooling products and their derivatives (stabilizer

for V-Guard) are high, after the washout of the previous two summers. All

eyes are on the upcoming season’s demand traction, with the possibility of

some seasonal benefits shifting from Q4 to Q1. Seasonal product traction will

determine margin recovery. We reduce our FY22/23/24 EPS estimates by

9/3/3%. We value V-Guard at 35x PE on FY24 EPS to derive a target price of

INR 275. Maintain ADD.

▪ Positive surprise on revenue growth: Net revenue grew by 16% YoY (+32%

in Q3FY21 and +46% in Q2FY22, 12% HSIE). Electronics (stabilizer, UPS,

etc.), electrical (wires, pump, etc.), and consumer durables (fan, water

heater, KEA, etc.) registered -4/+19/+28% YoY growth (+35/+31/+31% YoY in

Q3FY21). The south region grew 15% YoY (20%, a two-year CAGR) while

the non-south region registered 18% YoY growth (30%, a two-year CAGR).

South: non-south mix was at 58:42 vs. 59:41 in Q3FY21.

▪ Miss on margin: Gross margin contracted 201bps YoY (-55bps in Q3FY21, -

64bps in Q2FY22), broadly in line with our expectation of a 215bps

contraction. A&P expenses (excl. schemes), as a percentage of revenue, stood

at 1.8% vs. 0.9% YoY. Employee costs were up by 20% YoY (+7% in Q3FY21,

+41% in Q2FY22). EBITDA margin was down by 494bps YoY (+424bps in

Q3FY21, -163bps in Q2FY22) to 8.8%. EBITDA declined 26%, a miss on our

expectations (HSIE -8%). EBIT margin for the electronics, electricals and

consumer durable segment contracted by 763/88/718bps YoY

(+880/+110/+440bps in Q3FY21) to 17/8/3%. APAT was at INR 525mn.

Con call takeaways: (1) Hubli and east have seen a sales slowdown, albeit

on a high base. (2) The company expects to get back to 2x GDP growth rates

from FY23. (3) V-Guard expects margin to recover due to the curb on hyper-

inflation, price hikes by peers, and normalisation of factory startup costs. (4)

Pumps were not impacted as the company has negligible exposure to agri

pumps, and has large residential pumps. (5) Planned Capex for FY23 is INR

700mn. (6) The share of inhouse manufacturing is at 55%, but it is increasing.

(7) A&P should get back to 2.5% to 3% from FY23.


YE Mar (INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 9,607 8,274 16.1 9,030 6.4 26,990 34,250 38,465 42,848

EBITDA 844 1,136 (25.7) 936 (9.8) 3,065 3,489 4,212 4,881

APAT 525 770 (31.8) 591 (11.1) 1,970 2,264 2,966 3,508

Diluted EPS (INR) 1.22 1.79 (31.8) 1.38 (11.1) 4.58 5.26 6.90 8.15

P/E (x) 47.0 40.9 31.2 26.4

EV / EBITDA (x)

29.9 25.3 20.7 17.5

RoCE (%)

18.1 20.6 27.6 30.2


ADD



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

9% 3%

KEY STOCK DATA

Bloomberg code VGRD IN


MCap (INR bn) / ($ mn) 93/1,245




3M 6M 12M

Absolute (%) (18.0) (13.4) (14.8)

Relative (%) (15.6) (21.2) (30.6)


Sep-21 Dec-21



FPIs 14.29 14.32



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 101

HSIE Results Daily

Orient Electric Sustaining healthy growth; margin remains a drag Orient Electric (Orient) posted a marginal beat on revenue; however, pressure

on margin was more than expected. Revenue grew 10% (HSIE 8%) and

sustained a healthy two-year CAGR of 17%. ECD segment clocked revenue

growth of 5% YoY (in-line) over a strong base (22% two-year CAGR, Havells

29%). The lighting segment revenue saw a beat on estimate, growing 25% YoY

and 7% two-year CAGR (Havells 22%). Growth in lighting was driven by B-C

segment with recovery visible in B-B. EBITDA margin, at 9.8% (HSIE 10.7%),

contracted 382bps YoY due to high input cost pressure (GM dipped 344bps).

EBITDA declined 21% YoY (+21% two-year CAGR). With recovery in B-B

lighting and positive trade sentiment for ECD, we expect the company to

sustain healthy revenue growth across segments. We maintain our EPS

estimates and value Orient Electric at 38x P/E on FY24E EPS to derive a TP of

INR 400. Maintain BUY.

▪ Healthy topline performance: Net revenue grew by 10% YoY (+25% in

Q3FY21 and +37% in Q2FY22), with decent growth across segments. ECD

saw 5% YoY growth (+42% in Q3FY21, 38% in Q2FY22, HSIE 5%), with good

performance in fans; however, appliances were impacted by delay in the

onset of winter. Lighting & switchgear segment revenue was up by 25% YoY

(-8% in Q3FY21, +35% in Q2FY22, HSIE +18%). Lighting business grew by

22% YoY, while switchgear continued to deliver double-digit growth.

▪ Input cost pressure compresses margins: GM contracted by 344bps YoY to

27.6% (-310bps in Q3FY21 and -477bps in Q2FY22). Commodity headwinds

continue to impact margins. Lighting EBIT margin was at 14.7%, +8bps YoY

(+138bps in Q3FY21 and +121bps in Q2FY22). ECD EBIT margin contracted

by 379bps YoY to 11.1% (+138bps in Q3FY21 and -453bps in Q2FY22).

Employee/other expenses grew 5/18% YoY. EBITDA margin, at 9.8% (10.7%

HSIE), saw a 382bps YoY contraction (+447bps in Q3FY21 and -290bps in

Q2FY22). EBITDA declined 21% YoY to INR 665mn (HSIE INR 718mn). The

company needs price hikes of 4-6% to offset the margin pressure.

▪ Con call takeaways: (1) Air coolers and water heaters are major focus areas,

besides fans. (2) Orient has taken 15% price hikes in fans in 2021, which was

met with resistance by the trade. (3) Orient remains the market leader in the

premium fans category (MRP above INR 4,000), which contributes 10% of its

fans revenue. (4) The ecommerce channel (10-20% revenue across ECD

products) saw slow growth on a strong base. (5) The company has taken a

price increase of ~15% in fans in the past year. (6) Room heater category was

impacted by delay in onset of winter while air cooler was impacted as

channel inventory remains at high levels. (7) Hyderabad plant will

commercialise at the end of 2023.



Net Sales 6,784 6,183 9.7 5,944 14.1 20,326 25,921 29,937 33,849

EBITDA 665 842 (21.1) 619 7.4 2,195 2,496 3,159 3,711

APAT 381 519 (26.7) 348 9.5 1,197 1,416 1,861 2,232

Diluted EPS (INR) 1.8 2.4 (26.7) 1.6 9.5 5.6 6.7 8.8 10.5

P/E (x) 62.0 52.5 39.9 33.3

EV / EBITDA (x)

32.7 28.8 22.4 18.6

RoCE (%)

33.9 49.8 51.9 56.7


BUY



NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code ORIENTEL IN


MCap (INR bn) / ($ mn) 74/999




3M 6M 12M

Absolute (%) 5.2 1.8 46.6

Relative (%) 8.3 (11.3) 27.7


Sep-21 Dec-21



FPIs 8.74 8.99



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 102

HSIE Results Daily

Symphony Weak show; all eyes on seasonal demand Symphony's domestic business remained under pressure (a miss in revenue)

due to high channel inventory and weak trade sentiment. Domestic revenue

was at INR 1,210mn (HSIE INR 1,625mn), up +3/-10% YoY/QoQ, down 7% on a

two-year CAGR. Exports were at INR 250mn (HSIE INR 212mn) vs. INR 60mn

YoY. Despite strong exports, RoW revenue was down 14% YoY. CT Australia

was impacted massively (20% down YoY) by the lockdown in the domestic

market while business in the US performed well. Gross margin contracted

536bps YoY (-8bps in Q3FY21, +36bps in Q2FY22, HSIE +81bps) to 43.8%.

EBITDA margin came in at 21.9% (HSIE 28.5%), declining 9% YoY (HSIE

+49%). With two back-to-back weak seasons (lockdown impact) in India, trade

partners are more cautious in building up inventory. There is a possibility of

demand spilling over from Q4FY22 to Q1FY23 in normal season too. Thereby,

we cut our FY22 EPS by 19% and FY23/FY24 by 9%. We value the stock at 35x

P/E on 24E EPS and derive a TP of INR 1,200. Maintain ADD.

▪ Another miss on revenue: Standalone revenue clocked +18% YoY growth (-

40% in Q3FY21 and +25% in Q2FY22). Domestic revenue grew by 3% YoY

(HSIE +38%) and -18% on two-year CAGR. The weak channel demand was

due to the higher than normal trade inventory (weak season 2021) along

with weak trade sentiment (two weak seasons, rising COVID cases, high

inflation, etc.) are resulting in a more cautious trade approach. All eyes are

on the upcoming summer season, and there is a possibility of a shift in trade

demand from Q4FY22 to Q1FY23. Exports grew 317% YoY (HSIE +254%) to

INR 250mn. The consol RoW was down by 14% YoY due to weak CT

business in Australia (stricter lockdown). Q4 is a seasonal quarter for CT and

we will wait for the seasonal pick-up to understand underlying demand.

▪ Margin under pressure: Standalone GM contracted 536bps YoY to 43.8% (-

8bps in Q3FY21 and +36bps in Q2FY22) vs. expectation of +81bps YoY. The

company had not taken many price hikes to offset the rising commodity

costs. Employee/ASP/other expenses were up by 23/100/17% YoY. EBITDA

was down 9% YoY vs. our expectation of 49% growth. Domestic business

reported an EBIT of INR 310mn down 28% YoY. On a consolidated basis, the

company’s gross margin was flat YoY (-349bps in Q3FY21 and 148bps in

Q2FY22) at 44.4%. The company reported an EBIT loss of INR 10mn for RoW

vs. loss of INR 70mn YoY (EBITDA loss for CT in the base quarter).

▪ Con call takeaways: (1) Standalone GM impacted by limited price hikes

along with other initiatives to support the channel. (2) Trade sentiment will

only improve as inventory off-take happens. (3) The US revenue has spilled

into Q4; further, Q4 is a skewed quarter for CT. (4) CT is reducing its fixed

costs and is expected to be cash positive in FY22. (5) IMPCO took 30% price

hikes in Q3FY22. (7) The company will require 5% price hike to cover the

commodity price inflation. Hikes required are lower than inflation as the

company has reduced costs through value engineering.

Quarterly/annual financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 1,460 1,240 17.7 1,400 4.3 9,000 11,020 13,036 14,429

EBITDA 320 350 (8.6) 350 (8.6) 1,390 1,926 2,707 2,915

APAT 290 350 (17.1) 320 (9.4) 1,119 1,501 2,125 2,412

Diluted EPS (Rs) 4.1 5.0 (17.1) 4.6 (9.4) 16.0 21.4 30.4 34.5

P/E (x) 65.2 48.6 34.4 30.3

EV / EBITDA (x)

50.3 35.5 24.7 22.5

RoCE (%)

24.5 32.9 53.7 62.7

Source: Company, HSIE Research * Quarter numbers are standalone

ADD

CMP (as on 25 Jan 2022) INR 1,046


NIFTY 17,278

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-19% -9%

KEY STOCK DATA

Bloomberg code SYML IN


MCap (INR bn) / ($ mn) 73/984




3M 6M 12M

Absolute (%) 0.8 (2.2) 2.5

Relative (%) 5.9 (11.4) (17.2)


Sep-21 Dec-21



FPIs 4.24 4.31



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 103

HSIE Results Daily

V-MART Retail

Acquisition of Unlimited weighs on profitability

V-MART reported 47% growth YoY. Organic business (ex-Unlimited

acquisition) recovered fully from the pandemic blues (INR5.74bn). 2-yr

CAGR for 9MFY22 stands at -10.6%. Footfall density still needs to catch up,

while transaction sizes remain elevated vs. pre-pandemic levels. The

acquisition of Unlimited weighed down profitability and is likely to be a drag

in the near term. We account for this and tone our FY23/24 EBITDA estimates

down by 7/3% resp. Consequently, our DCF-based TP stands revised at INR

3,700/sh (earlier INR3,850), implying 26x FY24 EV/EBITDA. The recent stock

price correction allows us to upgrade our rating on V-MART to ADD (earlier

REDUCE), as risk-reward becomes more palatable.

Q3FY22 highlights: Revenue grew 47% YoY to INR 6.92bn. Organic

business (ex-Unlimited acquisition) recovered fully to INR5.74bn (HSIE:

INR5.6bn) on the back of increased operational days and festive-led

consumption. Effective footfalls/store still remain significantly lower (68%

recovery vs Q3FY20). Transaction sizes remain elevated (+124%) vs. Q3FY20.

9M SSSG value/volume stood at 35.5/38.9% resp in Q3. While GM improved

30bps YoY to 37% (HSIE: 36%), Unlimited format’s higher cost of retailing

dragged EBITDAM down 254bps YoY to 19.6% (HSIE: 21.4%). VMART took

8-10% price hike in Q3 to mitigate RM inflation. It added six stores in Q3

(stores: 374) and intends to add ~60 new ones in FY23. Growth investments

(warehousing capacity) has picked up (INR2.58/3.7bn of QIP money stands

utilised).

Outlook: While V-MART remains among the stronger value fashion

retailers within the ecosystem, profitability may be under pressure in the

near term, courtesy Unlimited. Consequently, we’ve toned down our

FY23/24 EBITDA estimates by 7/3% resp. Our DCF-based TP stands revised

at INR 3,700/sh (earlier INR3,850), implying 26x FY24 EV/EBITDA. The

recent stock price correction allows us to upgrade our rating on V-MART to

ADD (earlier REDUCE) as risk-reward gets more favourable.


Net Revenue 6,920 4,700 47.2 3,380 104.8 16,630 10,755 16,679 27,511 33,310

Adj EBITDA 1,353 1,038 30.3 206 555.3 1,324 368 637 2,044 2,730

APAT 571 479 19.3 (141) (503.8) 799 224 275 1,198 1,688

EPS (Rs) 28.9 26.4 9.8 (7.2) (503.1) 44.0 11.4 13.9 60.8 85.7

P/E (x)

93.5 361.8 295.4 67.7 48.0

EV/EBITDA (x)

56.3 210.9 124.3 38.9 28.6

Core RoCE(%)

19.7 0.1 2.0 14.5 18.6


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 16,679 16,679 - 27,511 27,300 0.8 33,310 32,969 1.0

Gross Profit 5,557 5,407 2.8 9,414 8,905 5.7 11,465 10,754 6.6

Gross Profit Margin(%) 33.3 32.4 90 bps 34.2 32.6 160 bps 34.4 32.6 180 bps

EBITDA 637 1,100 (42.1) 2,044 2,207 (7.4) 2,730 2,806 (2.7)


Source: Company, HSIE Research, Pre IND AS 116 financials

ADD

CMP (as on 11 Feb 2022) INR 3,583


NIFTY 17,375

KEY

CHANGES OLD NEW

Rating REDUCE ADD



-7.4 -2.7

KEY STOCK DATA

Bloomberg code VMART IN


MCap (INR bn) / ($ mn) 71/950




3M 6M 12M

Absolute (%) (15.9) 4.6 20.0

Relative (%) (13.0) (2.0) 7.1


Jun-21 Sep-21

Promoters 46.7 46.4


FPIs 23.4 22.1


Pledged Shares 0 0

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 104

HSIE Results Daily

TCNS Clothing

Recovery broadly in line but lags peers

TCNS Clothing recovered its pre-pandemic sales in Q3 (INR3.29bn; HSIE:

INR3.19bn) as offline sales hits near full recovery. Recovery lags peers though

(Trent/Madura clocked 24/11% 2-yr CAGR). Online salience continues to

normalize towards pre-pandemic levels. GM surprised positively (67.8%, up

670bps+ vs HSIE: 65%) due to (1) normalizing offline salience (2) lower

inventory provisioning and discounting, and (3) improvement in quality of

online sales. The cost of retailing normalized too; ergo, the beat on EBITDAM

lagged that on GM (19.2 vs HSIE: 18.8%). Store additions to pick up in Q4.

FY24 EBITDA estimate remains unchanged. Maintain SELL rating with a

DCF-based TP of INR575/sh (unchanged), implying 13x FY24 EBITDAR.

Q3FY22 highlights: Revenue grew 38% YoY to INR 3.28bn, clocking a full

recovery from the pandemic blues (HSIE: INR3.19bn). Near full recovery in

offline revenue was the key underpinning (INR2.72bn vs HSIE: 2.86bn).

EBO/LFS/MBO sales clocked -5/-2.5/29% CAGR on a 2-yr basis. Online

salience continues to normalize towards pre-pandemic levels (23% in

9MFY22 vs 9MFY21 30%; 9MFY20; Q3FY22: 17%). GM surprised positively

(67.8%, up 670bps+ vs HSIE: 65%) due to (1) normalizing of offline salience

(2) lower inventory provisioning and discounting, and (3) improvement in

quality of online sales. EBITDA came in at INR630mn (vs INR679mn in

3QFY20; HSIE: INR599mn). The recovery in EBITDAM lags topline as cost

normalization was sharper. The store expansion roadmap is likely to be

aggressive. Management intends to close FY22 at 600 EBOs. Cash position

remains healthy (now INR1.8bn vs INR1.55bn in mid-Feb-21). PAT stood at

INR251mn (in-line).

Outlook: While INR1.8bn in cash & reserves seems comfortable, capital

(especially WC) efficiency remains a concern for the category (as was the

case pre-COVID too). Immediate peers are worse off. Also, with increasing

online reliance (even post-COVID), the risk of conceding pricing power,

ergo margins to platforms, remains high for the category over the medium-

to-long term. Hence, we maintain our SELL rating on the stock with a DCF-

based TP of INR575/sh (unchanged), implying 13x FY24 EBITDAR.


Net Revenue 3,285 2,379 38.1 2,393 37.3 11,487 6,355 9,067 12,990 14,861

EBITDA 630 385 63.9 302 108.5 865 24 898 2,285 2,745

APAT 251 127 97.8 111 126.4 839 (564) (8) 883 1,589

EPS (Rs) (Reported) 3.9 1.9 101.5 1.7 126.5 11.8 (8.7) (1.2) 13.3 24.4

P/E (x)

60.1 (90.4) NM 57.7 32.1

EV/EBITDA (x)

54.0 1,907.7 51.4 20.1 16.0

Core RoCE(%)

11.4 (8.6) 0.5 16.1 27.9


Change in estimates

(INR mn)

FY22E FY23E FY24E

New Old Change

(%) New Old

Change

(%) New Old

Change

(%)

Revenue 9,067 9,022 0.5 12,990 12,990 - 14,861 14,861 -

Gross Profit 5,666 5,457 3.8 8,124 8,124 - 9,287 9,287 -

Gross Profit Margin(%) 62.5 60.5 200 bps 62.5 62.5 - 62.5 62.5 -

EBITDA (Reported) 898 923 (2.7) 2,285 2,337 (2.2) 2,745 2,745 -

EBITDA margin (%) 9.9 10.2 (33 bps) 17.6 18.0 (40 bps) 18.5 18.5 -


SELL



NIFTY 17,375

KEY

CHANGES OLD NEW

Rating SELL SELL



-2.7 -

KEY STOCK DATA

Bloomberg code TCNSBR IN


MCap (INR bn) / ($ mn) 41/555




3M 6M 12M

Absolute (%) (18.7) 23.4 67.2

Relative (%) (15.8) 16.8 54.3


Sep-21 Dec-21

Promoters 32.3 32.3


FPIs 18.9 17.6


Pledged Shares - -

Source : BSE


Jay Gandhi


+91-22-6171-7320

Premraj Survase

[email protected]

+91-22-6171-7330

P a g e | 105

HSIE Results Daily

Consumer Staples

P a g e | 106

HSIE Results Daily

Hindustan Unilever Pressure on volume and margin persists HUL reported in-line domestic volume growth, but high price inflation led to

beat on revenue. Near-term demand outlook continues to be a concern, with

rural India witnessing an inflation-led slowdown. Revenue grew at 10% YoY

(HSIE 8%) with UVG of 2%, in line with our estimates. Grammage reduction

impacted YoY volume growth by 2% in the quarter. UVG, on two-year CAGR,

was weak at 3% (2.5% in Q2FY22). Elevated input costs, besides slowing down

growth, continued to impact the gross margin, which contracted by 186bps

YoY (HSIE 138bps). Given the inflationary environment, we expect the gross

margin pressure to continue in H1FY23 despite staggered price hikes. EBITDA

growth was at 15% (HSIE 10%), owing to limited spends on A&P (down 14%

YoY). While demand remains under pressure impacting volume, we see

limited headroom for cost optimisation to ease out profitability. We maintain

our EPS estimates for FY22/FY23/FY24. We give 55x P/E on Dec-23E EPS to

derive a TP of INR 2,542. Maintain REDUCE.

▪ In-line volume, pricing drives topline: Revenue grew 10% YoY (20% in

Q3FY21 and 11% in Q2FY22), with home care/BPC/F&R growing 23/7/3%

(10/8/11% two-year CAGR). Domestic revenue saw 11% YoY growth, a beat

on our estimates (HSIE 8%), led by higher inflation as volume growth was in

line at 2% YoY. The health, hygiene, and nutrition portfolio grew 10% on

two-year CAGR while discretionary and OOH grew 5% and 12% on two-yr

CAGR. Discretionary and OOH portfolio are now above the pre-COVID

levels. We expect demand to remain under stress until inflation eases out.

▪ Optimised spends drive EBITDA margin: Gross margin contracted by

186bps YoY (-24bps in Q3FY21 and -142bps in Q2FY22) due to elevated

commodity costs. Home care EBIT margin expanded by 166bps YoY (+75bps

in Q3FY21) to 20.6%. BPC EBIT margin, at 27.8%, contracted 134bps YoY

(+81bps in Q3FY21). F&R margin expanded 454bps YoY to 18.6%.

Employee/A&P/other expenses grew by 18/-14/6% YoY. EBITDA margin

expanded 99bps YoY to 25% (-87bps YoY and -46bps QoQ). EBITDA grew

15% YoY (HSIE 9%).

▪ Call takeaways: (1) FMCG market growth is soft with rural volume pressure

more acute than that of urban markets. (2) Near-term operating environment

remains challenging, with higher inflation expected sequentially. (3)

HULexpects commodity inflation flattening in H2FY23, tapering thereafter.

(4) Grammage reduction impacted YoY volume growth by 2% in Q3FY22,

similar to what was seen in Q2FY22. (5) There may be some volatility in ad

spends on a QoQ basis, but directionally, spend will remain competitive. (6)

20% of the company's portfolio is growing at 1.5-1.7x of total growth. (7)

Nutrition integration is now above 90%. (8) HUL is expected to realise INR

3-5bn of incentives from the PLI scheme.


Net Sales 1,30,920 1,18,620 10.4 1,27,240 2.9 4,70,280 5,20,121 5,66,495 6,14,099

EBITDA 32,790 28,540 14.9 31,320 4.7 1,16,260 1,27,439 1,41,123 1,54,421

APAT 22,920 19,510 17.5 21,870 4.8 81,793 90,805 1,01,214 1,11,271

Diluted EPS (INR) 9.8 8.3 17.5 9.3 4.8 34.8 38.7 43.1 47.4

P/E (x) 65.0 58.6 52.6 47.8

EV / EBITDA (x)

45.2 41.0 36.9 33.6

RoCE (%)

27.7 18.1 19.7 21.2


REDUCE

CMP (as on 20 Jan 2022) INR 2,262


NIFTY 17,757

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code HUVR IN


MCap (INR bn) / ($ mn) 5,314/71,414




3M 6M 12M

Absolute (%) (8.7) (7.1) (4.0)

Relative (%) (5.8) (21.0) (23.4)


Sep-21 Dec-21



FPIs 15.45 14.71



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 107

HSIE Results Daily

ITC Hits a home run ITC delivered a beat on revenue growth with superior growth across all

segments. Revenue was up 32% YoY with cigarettes/FMCG/hotels/agri/paper

growing 14/9/101/100/39% YoY. Cigarette revenue growth was at 14% (volume

growth at 13% YoY), a beat on our expectation (HSIE 8%). With mobility

increasing, we expect the cigarette momentum to continue from here on.

Cigarette EBIT growth was at 14% YoY. FMCG registered 11% two-year CAGR

vs. Emami’s 9%, Dabur’s 13%, HUL’s 11%, Marico’s 15% and Colgate’s 6%.

FMCG EBITDA margin was at 9.1% (-50bps YoY) despite commodity

headwinds. Beside FMCG, the company delivered a strong performance

across its hotel, agri and paper businesses. Occupancy in hotels segment

returned to pre-pandemic levels, with EBIT back in the black after six

consecutive quarters of losses. We continue to be positive on ITC, especially

with the economy moving towards normalcy. Further, no tax increase in the

budget 2022 on cigarette also gives confidence on sustaining cigarette volume

growth. Given the strong Q3 performance and positive demand environment,

we raise our EPS estimates for FY22/23/24 by 1/1/1%. We value ITC on an SoTP

basis to derive a target price of INR 285 (implied PE of 20x PE Dec-23E EPS).

Maintain BUY. Given the muted performance of other FMCG companies,

ITC’s outperformance will be a key for stock rerating.

▪ Robust revenue growth: The revenue from cigarettes grew 14% YoY (11%

QoQ) and volume grew 13%, a beat on our estimates. FMCG saw broad

based recovery across discretionary/OOH and staples. Growth in hygiene

products moderated due to lower COVID intensity. MT and ecommerce

(channel salience at 7%) continued to perform well. Packaged foods in rural

grew faster than the industry. Its rural stockist network/market

coverage/direct outlet servicing have increased by 1.7/1.5/1.1x YoY. Hotels

saw sequential improvement in ARRs (below pre-COVID levels). The agri

business continued to see export-led growth. The paper business grew 39%

YoY, led by value-added products and demand revival.

▪ Positive signs in profitability: The cigarette EBIT grew 14% YoY to INR

39.5bn. Despite commodity headwinds, the FMCG EBITDA margin came in

at 9.1% (-50bps YoY, +140bps vs. Q3FY20), led by pricing actions, mix

benefits, and cost management. Hotels posted an EBIT profit of INR 506mn

(vs. loss of INR 673mn in Q3FY21). The agri EBIT grew 51% YoY. The paper

margin improved during a favorable pulp cycle, and cost-competitive fibre

chain. APAT was at INR 41.6bn vs. HSIE INR 39.7bn.

Other takeaways: (1) ITC is not witnessing any disruptions in January. (2)

Paperboard is seeing a favorable pulp cycle with value-added performing

well too. (3) ITC Infotech margin expanded on improved business mix and

higher resource productivity. (4) It launched two products in the plant-

based proteins segment.


YE Mar (INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 168,069 127,621 31.7 135,535 24.0 492,728 600,762 648,903 698,409

EBITDA 51,021 43,147 18.2 46,150 10.6 170,027 207,135 223,980 240,330

APAT 41,562 36,879 12.7 36,972 12.4 133,829 155,988 170,597 183,197

Diluted EPS (INR) 3.4 3.0 12.7 3.0 12.4 10.9 12.7 13.9 14.9

P/E (x) 21.5 18.5 16.9 15.7

EV / EBITDA (x)

15.2 12.5 11.5 10.6

Core RoCE (%)

37.7 44.6 46.9 49.8


BUY



NIFTY 17, 560

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+1% +1%

KEY STOCK DATA

Bloomberg code ITC IN


MCap (INR bn) / ($ mn) 2,889/38,827




3M 6M 12M

Absolute (%) 5.4 11.7 8.2

Relative (%) 7.0 2.5 (8.8)


Sep-21 Dec-21

Promoters 0.00 0.00


FPIs 10.81 9.99



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 108

HSIE Results Daily

Nestle India Broadly in line; valuation still unattractive Nestle’s Q4CY21 revenue was in line, while EBITDA margin was better than

expected. Domestic revenue growth was at 9% (+10% 2-year CAGR), with

healthy volume and mix growth (+8% YoY). The company saw broad-based

growth and traction was better in small towns and rural, contrary to its peers’

performances. Growth was led by deeper penetration (achieved 2/3rd of

targeted villages). Exports were down by 7% YoY on lower coffee exports and

change in product mix. Gross margin was at 57% (-205bps/+132bps YoY/QoQ),

slightly better than expected (HSIE 56%). The raw material inflation was

partly offset by better mix. EBITDA was up 13% YoY (+12% 2-year CAGR,

HSIE 10%), led by the company’s cost-saving initiatives. We expect the

healthy growth in in-home products to sustain and OOH to recover, but

margin may be a cause for concern in the near term. We maintain our EPS

estimates for CY22E/CY23E and value Nestle at 55x P/E on Dec-23E EPS to

derive a TP of INR 17,991. With rich valuation, the absolute upside is limited

in the medium term, making the risk-reward unattractive. Maintain REDUCE.

▪ Revenue in line: Revenue grew by 8% YoY (+9% in Q4CY20 and +10% in

Q3CY21). Domestic revenue grew by 9% YoY (+10% in Q4CY20 and +10% in

Q3CY21, +9% HSIE) with 5% volume (tonnage) growth. Small town and

villages clocked 14% and 9% growth. Exports degrew 7% YoY (+18% HSIE).

The company saw good traction in Maggi noodles, with increase in

availability. Kitkat, Munch, and Nescafe Classic continued to deliver strong

growth. We expect the momentum to sustain, led by deeper penetration and

recovery in OOH products.

▪ Beat in margin, cautious outlook: GM, impacted by rising raw material

prices, contracted 205bps YoY (+231bps in Q4CY20 and -239bps in Q3CY21)

vs. HSIE estimate of 308bps contraction. Employee/other expenses were up

by -4/3% YoY. EBITDA margin expanded 80bps YoY to 23.4% (+29bps in

Q4CY20 and -84bps in Q3CY21). EBITDA grew 13% YoY (HSIE 10% YoY).

Adjusted PAT was up 21%, post adjusting for exceptional item of INR 2.4bn.

While Nestle has managed to improve its margin via cost savings and

efficiencies, continued RM inflation poses a risk to it in the near term.

Analyst meet takeaways: (1) Nestle has been able to deliver steady topline

growth in the past six years through a mix of volume (penetration-led) and

mix growth. (2) The company has seen broad-based growth across all towns

but growth has been skewed towards smaller towns and rural. (3) While the

nutrition business is witnessing encouraging growth, milk continues to be

impacted by the competition. (4) The company’s commodity cost index has

been up in high single digit in the last 6-9 months. (5) It has saved about 1-

1.5% of sales through its cost-saving initiatives since CY20.

Quarterly/annual financial summary YE Dec (INR mn) Q4CY21 Q4CY20 YoY (%) Q3CY21 QoQ (%) CY20 CY21P CY22E CY23E

Net Sales 37,393 34,326 8.9 38,826 (3.7) 133,500 147,094 162,853 179,813

EBITDA 8,752 7,760 12.8 9,629 (9.1) 32,619 36,209 40,639 45,722

APAT 5,684 4,833 17.6 6,174 (7.9) 20,928 23,273 28,150 31,529

Diluted EPS(INR) 58.9 50.1 17.6 64.0 (7.9) 217.0 241.4 291.9 327.0

P/E (x) 83.5 75.1 62.1 55.4

EV / EBITDA (x)

52.6 47.9 42.3 37.6

RoCE (%)

77.3 61.5 57.5 61.3


REDUCE

CMP (as on 17 Feb 2022) INR 18,126


NIFTY 17,305

KEY CHANGES OLD NEW



EPS % CY22E CY23E

0% 0%

KEY STOCK DATA

Bloomberg code NEST IN


MCap (INR bn) / ($ mn) 1,748/23,485


52 Week high / low INR 20,609/15,900


3M 6M 12M

Absolute (%) (6.9) (3.2) 8.3

Relative (%) (3.4) (7.0) (3.7)


Sep-21 Dec-21



FPIs 12.31 12.35



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 109

HSIE Results Daily

Dabur

Stable all-round performance Dabur’s revenue and EBITDA margin came in line with our expectation.

Revenue grew 8% YoY (HSIE 8%), with two-year CAGR at 12%. Domestic

revenue/volume grew 7/2% YoY, with two-year CAGRs at 13/10% vs. HUL’s

11/3%, Marico’s 15/7%, Colgate’s 6/4%, and Emami’s 9/6%. Excluding the

COVID-contextual range of Chyawanprash and honey, FMCG volume grew

by 8% YoY. Dabur’s domestic healthcare/HPC/F&B grew -3/8/38% YoY, with

broad-based growth on two-year CAGRs at 11/12/20%, indicating a stable

performance amid a weak demand scenario. With demand levers in place and

distribution-led rural growth expected to continue, we believe Dabur would

sustain healthy growth. Its EBITDA margin expanded by 29bps to 21.3% (in-

line) despite the commodity headwinds. We expect it to maintain its current

margin level, given the pricing actions it has already taken. We remain

positive on Dabur, given its strong product portfolio and product expansion

pipeline. We maintain our FY22/23/24 EPS estimates and value the stock at 50x

PE on Dec-23E EPS to derive a target price of INR 650. Maintain ADD.

▪ Food, HPC continue to deliver: Net revenue grew by 8% YoY (+16% in

Q3FY21 and +12% in Q2FY22), in line with our expectation. Due to a large

base, health supplements declined 8%, while digestives/OTC and ethical

were up 12/4% YoY. On a two-year CAGR, health

supplements/digestives/OTC were up 11/6/15%. In HPC, oral care clocked

7/17% YoY/two-year CAGR (Colgate clocked 5/5% YoY/two-year CAGR)

with 50bps market share gain in toothpaste. Hair oils/shampoo/home

care/skin and salon saw growth of 6/21/19/3% YoY and 9/24/8/6% on two-

year CAGR. Food/beverages were up 26/39% YoY, while on a two-year

basis, they were up 21/20%. Market shares gained across all the categories.

International revenue grew 7% YoY in INR terms, with 9% YoY cc.

▪ In-line EBITDA margin: GM contracted by 205bps YoY (+31bps in Q3FY21

and -204bps in Q2FY22) to 48.3%. Employee expenses remained flat YoY

while other expenses grew by 16% YoY (-3% in Q2FY21). A&P spends were

down 16% YoY. EBITDA margin expanded by 29bps YoY (+9bps in Q3FY21

and -60bps in Q2FY22) to 21.3% (in line with HSIE). EBITDA grew by 9%

YoY (HSIE 11%). PBT grew by 10% YoY, while PAT grew by 2% YoY. Dabur

has enough levers to maintain/expand EBITDA margin in FY23/FY24.

Call takeaways: (1) Dabur saw faster rural growth, led by increase in rural

distribution. (2) Real is gaining market share with its MT expansion in the

south and west India. (3) The company has created three sub-brands within

Real - fruit power, milk power and Real health (4) It has increased exports

from Turkey to offset the currency depreciation impact on RM imports. (5)

The company has launched new products in existing categories to grow the

market opportunity exponentially.


YE Mar (INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 29,418 27,288 7.8 28,176 4.4 95,617 1,10,741 1,21,410 1,33,717

EBITDA 6,275 5,742 9.3 6,207 1.1 20,027 23,872 26,543 30,158

APAT 5,033 4,921 2.3 5,044 (0.2) 16,934 19,329 21,238 23,958

Diluted EPS (INR) 2.8 2.8 2.3 2.9 (0.2) 9.6 10.9 12.0 13.6

P/E (x) 57.9 50.7 46.2 40.9

EV / EBITDA (x)

47.0 39.1 34.9 30.4

RoCE (%)

44.3 55.4 61.1 68.8


ADD



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code DABUR IN


MCap (INR bn) / ($ mn) 984/13,219




3M 6M 12M

Absolute (%) (8.9) (9.4) 6.0

Relative (%) (7.2) (18.6) (10.9)


Sep-21 Dec-21



FPIs 21.35 21.11



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 110

HSIE Results Daily

Godrej Consumers In-line show; all eyes on strategies to deliver

GCPL’s Q3 performance was broadly in line. Consolidated revenue grew 8%

YoY (HSIE 9%), with domestic revenue growing by 8% (HSIE 8%) and

international revenue growing by 9% (HSIE 10%). Domestic revenue posted

9% two-year revenue CAGR. Domestic volume growth was flat YoY, two-year

CAGR at 3% vs. Dabur's 10%, Marico’s 7%, Emami’s 6%, Britannia’s 4%,

Colgate’s 4% and HUL’s 3%. Despite the higher-than-expected gross margin

contraction (439bps YoY vs. HSIE 363bps), GCPL’s EBITDA margin came in

line at 21.2%. Indonesia remained WIP, growth challenges persisting, and it is

one of the top priority areas for the new CEO. India volume growth

challenges (industry led, share gain continues) would persist in the near term,

and price hike will remain the key contributor to growth. Sequential margin

is expected to improve; the quantum of expansion will depend on further RM

trend. We, therefore, expect GCPL to deliver stable growth at 11% CAGR over

FY22-24. We cut our FY22/23/24 EPS by 4/2/2%. We value the stock at 42x on

Dec-23 EPS to derive a TP of INR 1,025. Maintain ADD.

▪ In-line revenue: Consolidated revenue was up 8% YoY (10% in Q3FY21, 9%

in Q2FY22, HSIE 9%), with domestic growing 8% YoY (11% in Q3FY21, 10%

in Q2FY22; in-line HSIE) and international growing 9% YoY (7% in Q3FY21,

7% in Q2FY22; 10% HSIE). Domestic volume growth was flat YoY.

Indonesia/GUAM/LATAM & SAARC revenues grew 0/13/10% YoY (0/15/12%

in Q3FY21) with cc growth at -2/12/19% YoY. Home care/personal care posted

4/12% YoY revenue growth. Fabric care witnessed strong growth, whereas

Air Fresheners grew steadily. HI delivered a soft performance due to adverse

seasonality in south and east India. Sales momentum continued in personal

wash and hygiene products, which posted double-digit YoY and two-year

CAGRs. Hair colour continued to gain market share, despite a soft Q3.

▪ Gross margin pressure improves sequentially: GM contracted by 439bps

YoY (-167bps in Q3FY21, -616bps in Q1FY22) to 50.7%; however, it was up

85bps QoQ. Employee costs were down by 1% YoY (+7% in Q3FY21), A&P

was flat YoY (+11% in Q3FY21) and other expenses were up 2% (-3% in

Q3FY21). EBITDA margin fell 211bps YoY (+55bps Q3FY21, -211bps Q2FY22)

to 21.2%, in line with our estimate of 21.3%. EBITDA declined by 2% YoY vs.

HSIE 1%. Operating EBITDA margin for Indonesia/GUAM/Latin America &

SAARC came in at 21/15/13% vs. 25/14/13% in Q3FY21.

▪ Con call takeaways: (1) Revenue growth was led solely by price hikes as

volume remained flat. (2) The company gained market share in HI and hair

colour despite softness. (3) Hair colour saw softness as the company took

sharp price hikes that impacted the inventory. (4) There are greenshoots in

revival in the core business in Indonesia. (5) It is seeing sequential

improvement in gross margin and maintains medium term improvement

guidance. (6) Sequentially, A&P spends are up on an INR basis. The impact

of spends are not immediate. (7) FY23 estimated tax rate is at 22-23% while

for FY22, it should be slightly lower.

Quarterly/annual financial summary YE Mar (INR mn) Q3FY22 3QFY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 33,026 30,554 8.1 31,637 4.4 110,286 124,128 138,770 152,715

EBITDA 6,991 7,112 (1.7) 6,792 2.9 23,883 26,601 30,793 34,295

APAT 4,995 4,970 0.5 4,800 4.1 17,150 19,128 23,080 25,974

Diluted EPS (Rs) 4.9 4.9 0.5 4.7 4.1 16.8 18.7 22.6 25.4

P/E (x) 53.0 47.5 39.4 35.0

EV / EBITDA (x)

42.7 37.5 33.3 28.4

RoCE (%)

21.0 23.7 26.9 30.4

Source: Company Data, HSIE Research

ADD



NIFTY 17,267

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-4% -2%

KEY STOCK DATA

Bloomberg code GCPL IN


MCap (INR bn) / ($ mn) 898/12,064




3M 6M 12M

Absolute (%) (9.6) (9.7) 19.4

Relative (%) (5.1) (16.2) 6.8


Sep-21 Dec-21



FPIs 26.21 25.63



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 111

HSIE Results Daily

Britannia Industries Macro headwinds continue; margin disappoints Britannia’s Q3 revenue saw a beat but the margin was a miss. Revenue grew

13% YoY, a beat on our estimate (9% HSIE). Two-year revenue CAGR was at

10% vs. Marico’s 15% and HUL’s 11%. Volume growth came in at 5% (HSIE

3%) despite grammage reduction, supported by traction in new products and

distribution expansion. The key highlight of the result was the margin miss;

GM/EBITDA margin contracted by 518/422bps YoY/QoQ. EBITDA margin has

fallen below 16% in the past two quarters as compared to >19% last year. The

company plans to take a further price hike in Q4FY22 to mitigate the RM

pressure but respite to gross margin is unlikely. We, therefore, cut our

FY22/23/24 EPS estimates by 9/4/1%. ICDs increased from INR 5bn in Q2FY22

to INR 5.8bn at Q3FY22. We value Britannia at 40x P/E on Dec-23 EPS to derive

a target price of INR 3,600. Maintain REDUCE.

Beat on volumes: Consolidated revenue increased by 13% YoY (6% in

Q3FY21 and 6% in Q2FY22), compared to our estimate of +9% YoY.

Standalone revenue was up 13% YoY (6% in Q3FY21 and 6% in Q2FY22).

Domestic volume growth was slightly over 5% vs. the expected 3%. In Q3,

the company saw decent traction in Milk Bikis and Potazos, after launching

them pan-India. Rural sales were strong as the company expanded its reach.

It maintained leadership and further widened the share gap with the second

largest competitor. The company took about 65% of its price hikes through

grammage reduction.

Margin disappoints: Consolidated GM contracted by 518bps YoY (224bps in

Q3FY21 and -502bps in Q2FY22) to 37.9%. The company managed to keep a

stable GM sequentially, despite 4% QoQ and 20% YoY RM inflation. Besides

the core commodities, other ones like industrial fuel, freight, laminates and

corrugated boxes added to margin pressure. Employee/other expenses grew

by -3/11% YoY. EBITDA margin fell by 422bps YoY (+248bps in Q3FY21 and

-428bps in Q2FY22; -237bps HSIE) to 15.1% (lowest in the past ten quarters).

EBITDA fell by 12% YoY, vs. the expected 4%. Despite the planned price

hikes, we expect the inflationary pressure to continue to impact the margin

in Q4. PBT declined by 18% YoY, while APAT declined by 19% YoY.

Con call takeaways: (1) The company managed to increase its market share

delta with the second-largest player. (2) Market share growth in rural is 2x

compared to urban share growth (3) Milk Bikis (ex-Tamil Nadu and Kerala),

Potazos and Tiger Crunch are at an annual revenue run rate of INR 4bn, INR

700mn and INR 3bn respectively. (4) It continued to grow its rural

distribution. (5) It managed to increase its cost efficiencies by 5.6x over FY14,

led by a mix of savings across manufacturing, material, and distribution. (6)

The pan-India launch of croissants is finalised for FY23.



Net Sales 35,750 31,656 12.9 36,074 (0.9) 131,361 141,463 155,729 168,632

EBITDA 5,397 6,115 (11.7) 5,583 (3.3) 25,093 22,193 27,013 30,011

APAT 3,692 4,526 (18.4) 3,818 (3.3) 18,506 15,837 19,967 22,435

Diluted EPS (Rs) 15.3 18.8 (18.5) 15.9 (3.5) 76.8 65.7 82.9 93.1

P/E (x)

46.0 53.8 42.6 38.0

EV / EBITDA (x)

33.3 37.3 30.6 27.2

RoCE (%)

59.1 55.1 65.3 68.7


REDUCE

CMP (as on 31 Jan 2022) INR 3,535


NIFTY 17,340

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

-9% -4%

KEY STOCK DATA

Bloomberg code BRIT IN


MCap (INR bn) / ($ mn) 852/11,443




3M 6M 12M

Absolute (%) (3.8) 3.3 1.4

Relative (%) (1.6) (7.1) (24.0)


Sep-21 Dec-21



FPIs 17.65 17.59


Pledged Shares - -

Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 112

HSIE Results Daily

United Spirits Uptrend story continues; beat on all fronts United Spirits (UNSP) posted net revenue growth of 16% YoY (a 6% two-year

CAGR), a beat on our estimates, led by strong P&A realisation. The

underlying sales were up 14% YoY (HSIE 13%), excluding the one-off sale of

bulk scotch. P&A volume was in line at 12.3mn cases (HSIE 12.5mn), up 8%

YoY (a 4% two-year CAGR). P&A realisation saw a sharp jump YoY/QoQ by

11/7% to INR 1,724/case (an all-time high), with the uptrend continuing. The

underlying gross margin sustained at 44.3% (HSIE 44.6%), while EBITDA

margin expanded by 159bps YoY to 17%, led by cost controls. EBITDA clocked

28% YoY and an 8% two-year CAGR (comparable to other FMCG companies).

The journey from a debt of INR 40bn in FY17 to becoming debt free is a

commendable feat and a result of consistent focus on OCFs. The COVID wave

is impacting near-term demand, but we have not modeled a significant impact

of it in our numbers. We are confident that the premiumisation trend in the

liquor industry would sustain (unlike many FMCG categories). State-wise

pricing actions and portfolio reshuffle are the key monitorables in the near

term. We value UNSP at 50x P/E on Dec-23E EPS (standalone) to arrive at a TP

of INR 970 (including INR 48/share of non-core assets). Maintain ADD.

▪ Product mix drives topline: Reported/underlying net revenue was up 16/14%

YoY (-4% in Q3FY21 and +14% in Q2FY22). Total volume was by 4% to

22.1mn cases (-1% in Q3FY21, 3% in Q2FY22) vs. HSIE 23.2mn. The P&A

revenue was up 20% YoY (-1% in Q3FY21, +21% in Q2FY22; HSIE 14%),

driven by strong performance in scotch. The P&A volume was up 8% YoY to

12.3mn cases (flat Q2FY21, +6% Q2FY22) vs. HSIE 12.5mn. Popular revenue

was down 2% YoY (-7% in Q3FY21, flat in Q2FY22; HSIE +8%). Popular

volume was down 1% YoY (-2% in Q3FY21 and flat in Q2FY22, HSIE +8%).

Popular realisation was down 1% YoY (-5% in Q3FY21 and flat in Q1FY22).

Cost control drives EBITDA margin: Reported GM contracted by 49bps YoY

to 44.1%, while underlying GM contracted by 31bps YoY to 44.3% (+24bps in

Q3FY21 and +207bps in Q2FY22), HSIE 43.5%. Employee costs declined 8%

YoY (+23% in Q3FY21, 19% in Q2FY22) to INR 1,441mn. A&P grew 26% (-7%

in Q3FY21, -3% in Q2FY22). Other expenses were up 2% YoY (-2% in Q3FY21,

flat in Q2FY22). EBITDA margin came in at 17% (HSIE 16%).

Con call takeaways: (1) Off-trade demand remained resilient with continued

recovery in the on-trade channel. (2) Demand saw disruptions in the last

week of December due to COVID; however, recovery is expected soon. (3)

A&P spends in the quarter were higher to support innovation and

renovations along with on-trade recovery. The company maintains annual

A&P spends at 8-9% as a percentage of sales. (4) RM costs are expected to be

up 4-5% YoY; further, they will be higher sequentially due to rising oil prices.

(5) UNSP is in talks with states for pricing actions with the ongoing excise

cycle until May. (6) It is seeing positive signs from the reduction in excise on

BIO liquor. (7) Scotch salience is at 22-24% (50% is BIO).

Quarterly/annual financial summary (standalone) YE Mar (INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 28,847 24,887 15.9 24,468 17.9 78,892 94,883 111,605 121,027

EBITDA 4,907 3,838 27.9 4,256 15.3 9,877 15,704 19,696 21,652

APAT 2,911 2,299 26.6 2,730 6.6 4,239 9,555 12,053 13,672

Diluted EPS (INR) 4.0 3.2 26.6 3.8 6.6 5.8 13.2 16.6 18.8

P/E (x) 144.3 64.0 50.8 44.7

EV / EBITDA (x)

62.5 39.1 30.8 27.6

RoIC (%)

11.2 21.6 24.0 24.4


ADD



NIFTY 17,110

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code UNSP IN


MCap (INR bn) / ($ mn) 612/8,223




3M 6M 12M

Absolute (%) (4.6) 30.7 30.6

Relative (%) 2.0 22.3 12.1


Sep-21 Dec-21



FPIs 19.08 17.94



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 113

HSIE Results Daily

Marico Steady show; positive outlook on margin Marico posted steady revenue growth and an in-line margin. Revenue

/EBITDA grew 13/4% YoY (HSIE 13/3%). Domestic volume was flat YoY;

however, it was up 7.3% on a two-year CAGR. Positive signs were visible as it

gained market share/penetration across 95%/94% of its portfolio. International

portfolio grew 19% YoY; Vietnam stood out after having seen pressure for the

past few quarters. Gross margin, at 43.7% (-318/+125bps YoY/QoQ, HSIE

43.5%), saw pressures from crude derivatives and edible oil (sequential

deceleration), which were partially offset by copra deflation. Marico is taking

proactive pricing actions in core brands, which will help drive volume growth

in the ensuing quarters. Marico’s thrust to drive both core brands along with

new initiatives (D2C, food) will sustain steady volume growth. Gross margin

is bottoming out with copra softening; we model sequential margin

improvement from Q4FY22. We maintain our EPS estimates and value Marico

at 45x PE on Dec-23E EPS to derive a target price of INR 580. Maintain ADD.

▪ In-line revenue: Revenue grew 13% YoY (+16% in Q3FY21 and +22% in

Q2FY22), in line with our estimates. Domestic volume remained flat YoY

(+15% in Q3FY21 and +8% in Q2FY22). Volume growth on a two-year CAGR

was 7.3% higher than the low single digit growth for the FMCG market.

PCNO saw 8/1% YoY value/volume growth while VAHO saw 3% YoY value

growth. Saffola grew 19% YoY, while foods portfolio grew 28% YoY. Overall

FMCG market volumes witnessed a drop in Q3, with rural lagging urban.

Macro headwinds will continue in the near term, but pricing actions will

accelerate volume growth in FY23.

▪ International revenue up 19%: This business clocked 19% YoY growth (18%

cc). Bangladesh grew 16% cc YoY in Q3, with new launches scaling well

along with accelerated growth in VAHO. MENA/South Africa saw cc

growth of 21/6% YoY while South-East Asia grew 27% YoY cc growth, led

by a sharp recovery in HPC in Vietnam and positive momentum in foods.

▪ In-line margin: GM dipped by 318bps YoY (+223bps in Q3FY21 and -556bps

in Q2FY22). Rice bran/LLP/HDPE were up 29/17/24% YoY. Copra prices

were down 1% YoY and 13% QoQ. Employee/adv/other expenses grew by

6/9/11% YoY. EBITDA margin contracted 156bps YoY to 17.9%. EBITDA

grew 4% YoY (HSIE 3%). Domestic/international EBIT margin dipped

302bps/349bps YoY (-162bps/+25bps in Q3FY21). We model 19.5-20%

EBITDA margin for FY23/FY24.

Con call takeaways: (1) Marico maintains medium-term growth aspirations

of 13-15% and margin of over 19%. (2) It expects a better GM sequentially,

led by copra and edible oil price deflation. (3) Copra deflation and right

pricing will lead to decent volume growth; however, realisation will be

down. (4) It has been proactive in revising pricing for Saffola and Parachute.

(5) Rural demand is lower due to a high base and impact of inflation. (6)

A&P, as a percent of sales, will be at 9% in FY23. (7) MT performed well in

Q3 while ecommerce growth tapered down on a high base.


Net Sales 24,070 21,220 13.4 24,190 (0.5) 80,480 95,563 103,930 113,534

EBITDA 4,310 4,130 4.4 4,230 1.9 15,880 16,927 20,270 23,208

APAT 3,100 3,070 1.0 3,090 0.3 11,620 12,367 14,914 17,237

Diluted EPS (INR) 2.40 2.38 1.0 2.39 0.3 9.01 9.59 11.56 13.36

P/E (x) 52.3 49.1 40.7 35.2

EV / EBITDA (x)

38.3 35.9 30.0 26.2

RoCE (%)

55.2 63.4 69.8 77.7


ADD



NIFTY 17,102

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code MRCO IN


MCap (INR bn) / ($ mn) 609/8,189




3M 6M 12M

Absolute (%) (16.5) (11.1) 14.6

Relative (%) (11.8) (20.1) (7.4)


Sep-21 Dec-21



FPIs 25.92 25.92



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 114

HSIE Results Daily

Colgate Palmolive

In-line show; macro headwinds to continue

Colgate’s Q3 net revenue was slightly below our estimates while EBITDA was

in line. Net revenue grew by 4% YoY (HSIE 5%), at a +6% two-year CAGR.

Volume grew 3% YoY (HSIE 2%), at a 4% two-year CAGR. The company took

price hikes in November (similar to peers); however, volume did not

decelerate like it did for other FMCG companies. Increased consumer

promotions supported volume growth. Colgate, like other FMCG companies,

saw volume decelerate in rural. We expect the pressure on rural to persist in

the near term. Urban demand, however, would remain relatively unaffected,

given a less severe COVID wave. Consumer traction in new launches (both

pastes and brushes) remains good. Gross margin contracted by 316/23bps

YoY/QoQ to 66.6% due to commodity inflation and promotions. EBITDA

margin contracted by 36bps YoY to 29.7% (+253bps in Q3FY21, -221bps in

Q2FY22) vs. HSIE 29.4%. We maintain our EPS estimates and value Colgate at

40x P/E on Dec-23E EPS to arrive at a TP of INR 1,700. Maintain ADD.

▪ Promotions-led volume growth: Net revenue grew 4% YoY (+8% in Q3FY21

and +5% in Q2FY22). Volume grew 3% (+5% in Q3FY21, +2% in Q2FY22).

The company continued with innovative product launches. The overall

penetration trends remained strong. Rural was impacted but urban

performed well. While rural demand is subdued, we expect the near-term

urban demand to remain good on a lower impact of COVID’s third wave.

▪ In-line EBITDA: Gross margin shrunk 316bps YoY (+403bps in Q3FY21 and

130bps in Q2FY22) to 66.6% (67.5% HSIE) due to commodity cost pressures.

Employee expenses grew 16% YoY (+13% Q3FY21), while A&P was down

24% YoY (+38% Q3FY21). Other expenses were up 8% YoY. EBITDA margin

was down 36bps YoY (+253bps in Q3FY21 and -221bps in Q2FY22) to 29.7%,

broadly in line with our expectation of 29.4%. EBITDA grew 3% YoY (in-

line).

▪ Management interaction and press release takeaways: (1) Rural demand

was impacted in Q3 and Colgate remains cautious on near-term rural

demand. (2) It took pricing actions in Q3FY22; however, volumes were still

up on account of consumer offers. (3) There has been no grammage

reduction by the company. (4) Raw material cost pressure was sequentially

stable, but Colgate has limited levers to expand the near-term gross margin.

(5) Ecommerce demand was a mixed bag with some segments doing well,

but traffic was down. (6) The company continued to launch innovation

products like Colgate Gum Expert as well as a new range of Palmolive face

care products.



Net Sales 12,801 12,319 3.9 13,524 (5.3) 48,412 51,626 55,260 59,054

EBITDA 3,806 3,706 2.7 4,008 (5.0) 15,096 15,577 16,501 17,519

APAT 2,523 2,484 1.6 2,692 (6.3) 10,354 10,383 11,029 11,685

Diluted EPS (Rs) 9.3 9.1 1.6 9.9 (6.3) 38.0 38.1 40.5 42.9

P/E (x) 36.7 36.6 34.4 32.5

EV / EBITDA (x)

24.6 24.0 22.6 21.3

RoCE (%)

118.4 181.9 161.1 195.4


ADD

CMP (as on 27 Jan 2022) INR 1,395


NIFTY 17,110

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

0% 0%

KEY STOCK DATA

Bloomberg code CLGT IN


MCap (INR bn) / ($ mn) 379/5,095




3M 6M 12M

Absolute (%) (9.1) (22.4) (9.8)

Relative (%) (2.4) (30.8) (28.2)


Sep-21 Dec-21



FPIs 19.14 18.02



Source : BSE


Varun Lohchab

[email protected]

+91-22-6171-7334

Naveen Trivedi

[email protected]

+91-22-6171-7324

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 115

HSIE Results Daily

Emami Miss in revenue; cautious on margin base Emami posted a slight miss on revenue growth and beat in EBITDA margin.

Revenue was up 4% YoY (HSIE 6%) with two-year CAGR at 9% while

EBITDA remained flat YoY (HSIE -2%). Domestic revenue was up 3%, driven

completely by pricing. Revenue/volume growth on two-year CAGR were at

9/6% vs. Dabur’s 13/10%, HUL’s 11/3%, Marico’s 15/7% and Colgate’s 6/4%.

The company’s EBITDA margin contracted 129bps YoY to 35.1% (HSIE 33.7%).

With macro headwinds (inflation, slow rural) continuing, going ahead,

Emami’s discretionary categories will be impacted more. The company is

committed to accelerate growth through various initiatives like focus on new

launches, rising ecomm mix, and expanding management bandwidth. We

believe these will help it achieve better revenue growth during FY22-24 at 9%

CAGR as compared to 4% CAGR during FY16-21. EBITDA margin, at 33%

(9MFY22), will be difficult to sustain as the company is focusing on growth

acceleration. Thereby, earnings trajectory will be moderate. We maintain our

EPS estimates for FY23/24. We value Emami at 25x P/E on Dec-23E EPS to

derive a TP of INR 500. Maintain REDUCE.

Slight miss on revenue: Net revenue grew by 4% YoY (15% in Q3FY21,

+7% in Q2FY21) vs. HSIE 6%. High inflation led to deceleration of consumer

demand. Domestic/international/CSD revenue grew 3/7/16% YoY.

Boroplus/Navratana/pain management grew 2/11/7% YoY (+10/0/+10% two

year CAGR), while male grooming/healthcare declined 3/6% YoY (+1/+14%

two year CAGR). The company continued its strong traction in MT (+14%

YoY) and ecommerce (+75% YoY), with the salience of these channels at 14%

of domestic revenue. The international business grew 7% YoY (16% two-

year CAGR), mainly driven by Bangladesh.

Miss on margin, stable outlook: GM dipped by 299bps YoY (+214bps in

Q3FY21, -150bps in Q2FY22) to 67.4% (HSIE 68.5%). Employee, advertising,

other expenses grew by -6/2/-2% YoY. EBITDA margin contracted by 129bps

YoY (+395bps in Q3FY21, +15bps in Q2FY22). EBITDA remained flat YoY

(HSIE -2%). We believe the company will exercise prudence in their ad

budget allocations in the near future. We model in EBITDA margin close to

31% for FY22-24 (27/26% in FY19/20).

Con call and press release takeaways: (1) BoD has approved share buy-back

for amount not exceeding INR 1.6bn at a price not exceeding INR 550/share.

(2) The company is offering e-com products aligned with the customer’s

wants and latest trends. (3) The company had introduced sugar free

offerings for Chyawanprash which has helped it gain market share. (4) It

does not see any competitive pressure in Bangladesh (cooling hair oil

launched by Marico). (5) Male grooming industry degrew 40% during the

pandemic due to low mobility; as things improve, the company will be

aggressive in this space.


YE Mar (INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 9,719 9,336 4.1 7,888 23.2 28,805 32,221 34,947 38,131

EBITDA 3,415 3,402 0.4 2,772 23.2 8,831 9,918 10,745 11,983

APAT 2,689 2,588 3.9 2,348 14.5 6,680 7,705 8,179 9,321

Diluted EPS (INR) 6.05 5.82 3.9 5.28 14.5 15.0 17.3 18.4 21.0

P/E (x) 33.1 28.7 27.1 23.7

EV / EBITDA (x)

24.7 21.6 19.6 17.3

RoCE (%)

34.6 50.3 60.8 66.5


REDUCE



NIFTY 17,560

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

+2% 0%

KEY STOCK DATA

Bloomberg code HMN IN


MCap (INR bn) / ($ mn) 221/2,974




3M 6M 12M

Absolute (%) (12.1) (11.7) 2.4

Relative (%) (10.4) (20.9) (14.6)


Sep-21 Dec-21



FPIs 12.71 12.52



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Varun Lohchab

[email protected]

+91-22-6171-7334

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 116

HSIE Results Daily

Radico Khaitan

Beat on P&A volume; Capex would add risk Radico reported a miss on revenue and margin. Net revenue growth was at

12%, a miss to our estimate of 15%, due to weak performance in Popular. The

two-year CAGR was at 9% vs. 6% posted by UNSP. P&A volume grew 18%

(HSIE 14%) to 2.36mn cases, with the two-year CAGR at 11%. P&A value was

up 21% YoY, with realisation at INR 1,483/case. Commodity inflation

continued to impact the GM (down by 459bps YoY to 46.2% HSIE 47%),

resulting in an EBITDA margin of 15.5% (vs. HSIE 17%). However, the key

highlight of the result was the announcement of an INR 7.4bn Capex plan for

a brownfield expansion in Rampur and a greenfield one in Sitapur, which

would almost double the ENA production capacity and the gross block. The

Capex will ensure smooth availability of quality ENA to drive premium

products and control the backend. Although this may bring operational

efficiencies, it will also add weights on BS/CF. Radico has managed to

deleverage its balance sheet by focusing on improving FCFs (net debt reduced

from INR 9.5bn in FY16 to INR 2bn in FY21). Thereby, the stock has

consistently enjoyed the rerating journey (15x P/E in FY15 to 40x in FY21). The

company is returning from asset light to asset heavy in an industry that has

historically seen several headwinds. Thereby, it is adding risks in many ways.

We cut the target multiple, from 38x P/E to 30x on Dec-23 EPS. We downgrade

our rating from ADD to REDUCE.

▪ P&A volume growth momentum continues: Net revenue grew by 12% YoY

(+6% in Q3FY21 and +13% in Q2FY22; HSIE 15%). P&A and Popular

revenues grew (YoY) 21% (15% two-year CAGR) and 3% (2% two-year

CAGR). IMFL volume was up by 7% YoY to 6.98mn cases. P&A volume

grew by 18% YoY (+5% in Q3FY21 and +18% in Q2FY22; 14% HSIE). Popular

volume was up by 3% YoY (-1% in Q3FY21 and +3% in Q2FY22; 7% HSIE).

The liquor industry’s premiumisation trend and Radico’s focus on new

launches in P&A should help sustain the market share gain trend.

▪ Inflation pressure continues: GM declined by 459bps YoY (+232bps in

Q3FY21 and -306bps in Q2FY22; -380bps HSIE) to 46.3%. Employee/selling

and distribution expenses were down 25/7% YoY (-5/+18% in Q3FY21), while

other expenses were up 36% YoY. EBITDA margin contracted 267bps YoY to

15.5% (+238bps in Q3FY21 and -130bps in Q2FY22) vs. HSIE 17.1%. EBITDA

declined by 5% YoY (HSIE +8%). We expect near-term margin to continue to

face pressure, due to elevated commodity prices and delayed price hikes.

▪ Con call takeaways: (1) Capex will not only benefit the company’s

profitability but also secure grain-based ENA. (2) Premium brands are

seeing strong traction and expect the premiumisation trend to become

stronger. (3) The company achieved 20% market share in Vodka with its

Magic Moments brand while its 1965 rum has 10% share in defense. (4) ENA

prices were up 2.5% YoY. (5) Radico expects to revert to normal margin

levels when the RM inflation subsides or price hikes are initiated.


Net Sales 7,660 6,842 12.0 7,088 8.1 24,181 28,456 32,157 35,687

EBITDA 1,190 1,246 (4.5) 1,115 6.8 4,089 4,440 5,573 6,863

APAT 767 805 (4.7) 692 10.9 2,706 2,861 3,768 4,347

Diluted EPS (INR) 5.8 6.1 (4.7) 5.2 10.9 20.3 21.4 28.2 32.5

P/E (x) 48.3 45.7 34.7 30.1

EV / EBITDA (x)

32.2 29.4 23.0 19.3

RoCE (%)

13.6 13.7 16.6 16.8


REDUCE



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating ADD REDUCE


EPS % FY22E FY23E

-7% -3%

KEY STOCK DATA

Bloomberg code RDCK IN


MCap (INR bn) / ($ mn) 131/1,756




3M 6M 12M

Absolute (%) (7.0) 10.5 86.1

Relative (%) (4.6) 2.7 70.3


Sep-21 Dec-21



FPIs 20.06 20.48



Source : BSE


Naveen Trivedi

[email protected]

+91-22-6171-7324

Varun Lohchab

[email protected]

+91-22-6171-7334

Saras Singh

[email protected]

+91-22-6171-7336

P a g e | 117

HSIE Results Daily

Infra, Construction

P a g e | 118

HSIE Results Daily

IRB Infra

In-line performance IRB issued ~150/102mn shares to Cintra/Bricklayers for a consideration of

~INR 31.8/21.7mn. This deal was first of its kind in India and augurs well for

creating a long-term asset growth platform for the company. The proceeds

were utilised to reduce the holding company’s debt by ~INR 32.5bn. This will

result in savings in interest cost. The residual net cash of ~INR 21bn will be

utilised for winning larger projects with potential asset addition of INR

200bn. Therefore, we increase the EPC business P/E multiple to 12x, to account

for larger bid capacity and strengthened balance sheet. We also increase the

BOT business multiple to account for the better-than-expected volume

growth/WPI inflation reset. On expanded equity base, net impact of dilution

results in SOTP of INR 302/sh. However, on our revised TP, there is limited

upside; hence, we downgrade our rating to ADD (earlier BUY).

Q3FY22 financial highlights: Revenue: INR 12.8bn (-17.3%/-12.7%

YoY/QoQ, 2% miss). EBITDA: INR 7.4bn (+2.6%/+2.9% YoY/QoQ, 1.5%

miss). EBITDA margin: 57.7% (+1119/+875bps YoY/QoQ, vs est. of 57.4%).

IRB’s share of losses from Private INVIT expanded to INR 962mn from INR

356mn in Q2FY22. APAT came in at INR 727mn (+4.6%/+71.8% YoY/QoQ,

46% beat on account of higher than estimated other income). Toll collection

improved to pre-COVID levels across all BOT assets with the Mumbai-Pune

project revenue growing at 11% YoY. BOT/TOT segmental revenue came at

INR 4.9bn (+4/11% YoY/QoQ). Toll collection saw an increasing trend with

average daily toll collection reaching INR 54.4mn in Dec-21. The two private

INVIT projects, viz., Hapur Moradabad and Kishangarh Gulabpura, will be

operational by H1FY23.

Robust order book: IRB bagged one BOT project of INR 66.5bn for

development of Ganga Expressway, taking the order book to INR 185bn as

of Dec-21, with EPC contributing 65.5% and O&M contributing 34.5%. It

expects to commence construction of its two projects viz; Pathankot Mandi

(HAM) and Palsit Dankuni (BOT), which achieved financial closure in

Q4FY22. IRB received AD for its Vadodara-Mumbai project in Nov-21. IRB

has bid for two BOT and two TOT projects, results of which are awaited.

Net debt reduced; balance equity requirement of INR 17bn: IRB completed

a preferential allotment of 24.86%/16.94% shares to Cintra/Bricklayers for

INR 53.5bn. The proceeds were utilised to prepay debt of INR 32.5bn.

Resultantly, the consolidated net debt came down to INR 93bn (vs INR

144bn in Sep-21), with net D/E at 0.75x. Equity commitment for four new

projects will be INR 2bn/7bn/7bn/1bn in Q4/FY23/FY24/FY25.

Consolidated financial summary (INR mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 12,791 15,472 (17.3) 14,652 (12.7) 52,986 58,841 65,311 74,875

EBITDA 7,384 7,200 2.6 7,176 2.9 25,127 29,420 30,239 35,266

APAT 727 695 4.6 423 71.8 1,171 3,389 4,901 7,884

EPS (INR) 2.1 2.0 4.6 1.2 71.8 1.9 5.6 8.1 13.1

P/E (x)

147.9 51.1 35.4 22.0

EV/EBITDA (x)

10.3 13.0 9.8 9.4

RoE (%)

1.7 3.5 3.9 6.0

Consolidated estimate change summary

Particulars (INR in

mn)

FY22E FY23E FY24E


Revenues 58,841 59,078 (0.4) 65,311 65,596 (0.4) 74,875 76079 (1.6)

EBITDA 29,420 27,235 8.0 30,239 30,240 (0.0) 35,266 35224 0.1

EBITDA margin (%) 50 46.1 390 46.3 46.1 20 47.1 46.3 80

APAT 3,389 1,916 76.9 4,901 2,779 76.4 7,884 5822 35.4

EPS 5.6* 5.5 2.9 8.1* 7.9 2.6 13.1* 16.6 (21.2)

Source: Company, HSIE Research, Consolidated financials *based on revised numbers of equity shares

ADD CMP (as on 11 Feb 2022) INR 287


NIFTY 17,375

KEY

CHANGES OLD NEW

Rating BUY ADD



+2.9 +2.6 -21.2

KEY STOCK DATA

Bloomberg code IRB IN


MCap (INR bn) / ($ mn) 174/2,331




3M 6M 12M

Absolute (%) 26.8 88.1 161.1

Relative (%) 29.8 81.5 148.2


Sep-21 Dec-21



FPIs 13.34 48.15



Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7355

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 119

HSIE Results Daily

G R Infraprojects Adverse mix, one-off impact profitability

G R Infra (GRIL) delivered a muted performance; a 4% revenue beat and a

13/21% EBITDA/APAT miss. A delay in the appointed date (AD) of three

projects hampered execution. The lower EBITDA margin is attributed to

higher proportion of EPC in the revenue mix vs HAM and INR 300mn

additional provisioning on old debtors and CSR. With the receipt of 4/7 HAM

project AD in the past three months, executable OB is INR 120bn. GRIL has

guided for INR 100bn of order inflow for Q4FY22 vs INR 24bn FYTD22.

Competitive intensity is expected to reduce and the company is well-placed to

capture its share of orders. HAM asset monetisation via InVIT is planned over

the next 6-9 months, with the intention to improve competitiveness and

recycle equity. Owing to back-ended order inflows, we have lowered our EPS

estimates. We maintain BUY with a reduced TP of INR 2,358 (18x Dec-23E

EPS, HAM 1.2x P/BV).

Financial performance highlights: Revenue: INR 18bn (-18%/+7%

YoY/QoQ, 5% beat). EBITDA: INR 2.6bn (-48%/-8% YoY/QoQ, 13% miss).

EBITDA margin, at 14% (-812/-234bps YoY/QoQ, vs est. 16.8%), was muted

mainly due to (1) higher share from EPC vs HAM and (2) INR 300mn

additional provision (INR 190mn for dated receivable and INR 110mn for

CSR spend, which was earlier recorded in Q4 annually). Consequently,

APAT was at INR 1.3bn (-60%/-21% YoY/QoQ, a 21% miss). FY23 revenue

growth is expected at 5-10%.

Order book (OB) stable: The OB stands at INR 146bn, (ex-L1 of INR 12bn).

The order pipeline is INR 660bn, with INR 560/70bn in road and non-road

segment. The order pipeline for the new segment, transmission, stands at

INR 150-160bn, with INR 10bn in projects already bid. In a reverse auction,

the company is L2 for one of the two orders bid on. GRIL expects additional

INR 100bn in inflows in Q4FY22. It also expects higher road orders in the

coming six months, as smaller players who have aggressively won recent

projects will be occupied executing them.

InVIT in next 6-9 months: GRIL has decided to float an InVIT in the next 6-9

months to hold completed HAMs on this platform. The goal is to lower the

cost of capital by avoiding delays and negotiation costs linked to asset

transfer after completion, while also improving the overall margin by

continuing on the high-margin O&M part of the project. GRIL has a balance

equity requirement of INR 13.3bn for under construction assets, of which

INR 1.2bn will be spent in Q4FY22 and INR 5.5/6.5bn in FY23/FY24. The

standalone debt is INR 11.5bn (INR 12bn, as of Sep-21), with a D/E ratio of

0.28x (0.34x as of Sep-21).

Standalone Financial Summary (INR Mn) YE March 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 18,184 22,159 (17.9) 16,995 7.0 70,406 79,645 94,378 1,11,510

EBITDA 2,548.1 4,904 (48.0) 2,779 (8.3) 11,065 12,625 16,537 19,755

APAT 1,290 3,213 (59.9) 1,630 (20.9) 5,806 6,288 8,926 11,057

EPS (INR) 13.3 33.2 (59.9) 16.9 (20.9) 60.0 65.0 92.3 114.4

P/E (x)

27.3 25.2 17.8 14.3

EV/EBITDA (x)

15.4 13.6 10.3 8.7

RoE (%)

18.1 15.9 18.5 18.5

Standalone estimate change summary

Particulars (INR mn) FY22E FY23E FY24E

New Old % Chg New Old % Chg New Old % Chg

Revenues 79,645 85,274 (6.6) 94,378 1,00,127 (5.7) 1,11,510 1,13,991 (2.2)

EBITDA 12,625 14,319 (11.8) 16,537 17,575 (5.9) 19,755 20,663 (4.4)

Margins (%) 15.9 16.8 (94.1) 17.5 17.6 (3.1) 17.7 18.1 (41.2)

APAT 6,288 7,390 (14.9) 8,926 9,432 (5.4) 11,057 11,771 (6.1)


BUY CMP(as on 14 Feb 2022) INR 1,641


NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

(14.9) (5.4) (6.1)

KEY STOCK DATA

Bloomberg code GRINFRA IN


MCap (INR bn) / ($ mn) 163/2,187




3M 6M 12M

Absolute (%) (16.2) 3.9 -

Relative (%) (13.2) (2.8) -


Sep-21 Dec-21



FPIs 2.87 2.55


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 120

HSIE Results Daily

Brigade Enterprises Strong performance

BRGD reported presales of 1.1msf (-29%/-17% YoY/QoQ), valued at INR 6.8bn

(-26%/-18% YoY/QoQ). In retail segment, consumption recovered to 100% of

pre-COVID level in Q3FY20. However, 15% of the tenants will still get

COVID relief in Q4FY22, specifically the impacted sectors. BRGD expects to

book 70-75% of pre-COVID rentals in FY22. Hospitality segment witnessed

strong demand revival and became GOP positive, with occupancy at 59% in

Q3FY22, which is the pre-COVID level vs 45% in Q2; the ARR touched 70% of

the pre-COVID level. Given BEL’s strong cash position of INR 13.1bn, strong

business development pipeline, and healthy balance sheet, we remain

constructive. We maintain ADD, with an unchanged TP of INR 530. We have

cut our FY23/24 estimates to factor in higher input costs/interest/depreciation.

Financial highlights: Revenue: INR 9.2bn (24% beat); real estate revenue at

INR 7.1bn (+32%/+21.4% YoY/QoQ), hospitality at INR 635mn (+2.1x/+54%

YoY/QoQ) and leasing at INR 1.6bn (+84%/+17%YoY/QoQ). EBITDA: INR

2.6bn (36% beat). RPAT/APAT was at INR 784mn (+5.6x/+3.2x YoY/QoQ).

BRGD is guiding for a 6% price hike across projects in the next few months

to counter higher commodities prices.

Residential sales strong; robust launch pipeline in coming quarters: BRGD

registered presales of 1.1msf (-29%/-17% YoY/QoQ), valued at INR 6.8bn (-

26%/-18% YoY/QoQ), with Hyderabad and Chennai contribution 27% of the

area sold and 36% of the value. The average realisation came at INR

6,281/sqft (+4%/-1% YoY/QoQ). BRGD has a strong launch pipeline, with

2.4msf expected in Q4FY22 and Q1FY23. BRGD is in the advanced stages of

~15msf of land bank tie-up planned for the next nine months - ~5 msf in

Chennai, 1.5 msf in Hyderabad, and ~8.5msf in Bengaluru. The total capital

requirement is INR 5bn, which shall be funded with a combination of QIP

inflows, internal accruals, and external debt (if required).

Robust collections aid debt reduction: Strong residential collections, at INR

8.4bn, helped reduce RE debt by INR 523mn to INR 2.9bn. Debt in

hospitality/leasing segments stands at INR 6/32bn (-1.8%/+1.2% QoQ). The

consolidated gross/net debt stands at INR 41bn/27.9bn (INR 41.3bn/29.6bn

as at Sep-21). The average cost of borrowing has also come down to 7.81%,

from 7.92% in Q2FY22.

Consolidated Financial Summary (INR mn) YE March Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 9,210 6,446 42.9 7,527 22.4 19,500 29,942 32,383 34,969

EBITDA 2,575 1,484 73.5 1,924 33.9 4,719 7,945 8,220 9,674

APAT 784 139 464.6 239 228.6 300 1,813 1,283 2,326

EPS (INR) 3.8 0.7 464.6 1.2 228.6 (2.2) 6.3 5.6 10.1

P/E (x)

(230) 80 91 50

EV/EBITDA (x)

31 19 19 16

RoE (%)

(2) 5 4 7

Consolidated Estimate Change Summary


New Old Chg.(%) New Old Chg.(%) New Old Chg.(%)

Revenues 29,942 26,759 11.9 32,383 31,910 1.5 34,969 37,351 (6.4)

EBIDTA 7,945 6,871 15.6 8,220 8,344 (1.5) 9,674 9,984 (3.1)

EBIDTA Margins (%) 26.5 25.7 86 25.4 26.2 (77) 27.7 26.7 93

APAT 1,813 693 161.8 1,283 1,375 (6.6) 2,326 2,696 (13.7)


ADD



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS Change

%

FY22E FY23E FY24E

+161.8 -6.6 -13.7

KEY STOCK DATA

Bloomberg code BRGD IN


MCap (INR bn) / ($ mn) 116/1,565




3M 6M 12M

Absolute (%) 1.9 49.7 91.1

Relative (%) 4.3 41.9 75.3


Sep-21 Dec-21



FPIs 13.08 13.93


Pledged Shares - -

Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 121

HSIE Results Daily

KNR Constructions

In-line performance KNR posted a strong Q3FY22 financial performance with

revenue/EBITDA/APAT at INR 7.7/1.6/0.9bn, beating our estimates by

11/10/4%. The order book (OB), as of Dec-21, stood at INR 100bn (~3.7x FY21

revenue). The order inflow (OI)/revenue guidance for FY22 stands at INR

60/31bn. In the quarter, KNR transferred 49% of its stake in two HAM projects

to Cube Highways for INR 2.4bn (1.17x P/BV), with INR 1bn expected by Jun-

22, when the remaining stake is transferred. KNR turned net cash with zero

debt and cash and cash equivalents are at INR 4bn, as of Dec-21. The NWC

days came down to 40 from 45, as of Sep-21. KNR expects NHAI to open

tenders for roads and highway construction in Q1FY23. We maintain BUY

with an increased TP of INR 360 (18x Dec-23E EPS, HAM 1x P/BV). We have

increased our FY22/FY23/FY24 EPS estimates by 0.4/2.1/3.6% on the back of

better margins and lower interest costs.

Q3FY22 financial performance highlights: Revenue: INR 7.7bn

(+11.7%/+1.4% YoY/QoQ, 11% beat). Revenue mix:

Irrigation/HAM/EPC/back to back orders 36/34/20/10%. EBITDA: INR 1.6bn

(+17.5%/-5.2% YoY/QoQ, 10% beat). EBITDA margin: 20.7% (+103/-144 bps

YoY/QoQ; lower than our estimate of 21%). RPAT: INR 1bn (+29.9%/+5.8%

YoY/QoQ). Exceptional Item: Profit of INR 214mn on sale of stake in wholly-

owned subsidiary. APAT: INR 858mn (+10.6%/-9.9% YoY/QoQ, 4% beat).

KNR has given FY22 revenue guidance of INR 31bn, pegging EBITDA

margin at 18-20%.

Robust OB: The OB stands at INR 100bn (~3.7x FY21 revenue), excluding a

HAM project worth INR 7.7bn received in Jan-22. Captive (HAM project)

work constitutes 43% of the OB, whereas state/Central government orders

constitute 42%/10%. OI in Q4FY22 is pegged at INR 20bn. The quary land

purchased for captive consumption has commenced operations and 3mn

cubic ft will be sourced through this land, while balance 1.5mn cubic ft will

be sourced via open market.

Strong liquidity position: At the standalone level, there was no debt in

KNR’s books, as of Dec-21 (vs INR 1bn, as of Sep-21). The NWC days stood

at 40, as of Dec-21 (vs 45 days as of Sep-21). Irrigation receivables (including

unbilled revenue) stood at INR 5.9bn (vs INR 7bn as on Sep-21). During the

quarter, KNR transferred 49% stake in two HAM projects to Cube Highways

for INR 2.4 bn (1.17x P/BV). Balance INR 1bn is expected to realise at the

time of transfer of the balance stake by June-22. KNR has given a capital

expenditure guidance of INR 1.8/1.5bn for FY22/FY23, of which INR 1.3bn is

already incurred in 9MFYTD. It infused equity of INR 4.8bn in eight HAM

projects, with INR 1.3/2.6/1.3/0.8bn expected to be infused in FY22/23/24/25.

Standalone Financial Summary (INR Mn) YE March Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 7,663 6,863 11.7 7,556 1.4 27,026 31,609 36,444 42,681

EBITDA 1,589 1,353 17.5 1,675 (5.2) 5,358 6,580 7,235 8,536

APAT 858 776 10.6 952 (9.9) 2,554 3,516 4,393 5,215

EPS (INR) 3.1 2.8 10.6 3.4 (9.9) 9.08 12.50 15.62 18.54

P/E (x)

34.0 24.7 19.8 16.7

EV/EBITDA (x)

16.0 13.1 11.9 10.1

RoE (%)

14.6 17.4 18.7 18.8

Standalone Estimate Change Summary

Particulars

(INR mn)

FY22E FY23E FY24E

New Old Chg (%) New Old Chg (%) New Old Chg (%)

Revenues 31,609 32,179 (1.8) 36,444 37,144 (1.9) 42,681 43,181 (1.2)

EBITDA 6,580 6,441 2.2 7,235 7,299 (0.9) 8,536 8,420 1.4

Margin (%) 20.8 20.0 80.1 19.9 19.6 20.2 20.0 19.5 50.0

APAT 3,516 3,502 0.4 4,393 4,302 2.1 5,215 5,034 3.6


BUY CMP (as on 15 Feb 2022) INR 309


NIFTY 17,352

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

+0.4 +2.1 +3.6

KEY STOCK DATA

Bloomberg code KNRC IN


MCap (INR bn) / ($ mn) 87/1,168




3M 6M 12M

Absolute (%) 9.5 8.1 41.1

Relative (%) 13.8 3.2 29.6


Sep-21 Dec-21



FPIs 4.29 4.55


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 122

HSIE Results Daily

PNC Infratech Weak execution PNC Infratech (PNC) reported a muted quarter (owing to delay in execution of

Jal Jeevan Mission (JJM) projects) with revenue/EBITDA/APAT of INR

15.2/2/1.1bn missing our estimates by 8/10/20%. Whilst FYTD22 order inflow

was tepid at INR 27bn, PNC maintained its INR 80bn order inflow target for

FY22. Revenue growth target for FY22 was raised from 20% to ~22-24% and

retained at 10-15% for FY23. Aligarh Ghaziabad asset proceeds are likely to

flow in by the Q1FY23; they will be partly used for funding INR 7.2bn of

balance equity requirement in 11 HAM assets. In the water segment (INR

41bn OB), PNC has INR 32bn OB under JJM (ex of INR 23.4bn of new JJM

projects won Jan-22). We have cut our EPS estimate to factor in back-ended

order wins. Given a strong OB and a comfortable balance sheet, we maintain

BUY with reduced TP at INR 412 (15x Sep-23E, 1x P/BV for HAM equity

investment).

JJM order delays lead to miss: Revenue: INR 15bn (8% miss). EBITDA: INR

2.0bn (10% miss). EBITDA margin: 13.4% (vs estimate of 13.7%). Interest cost

came in at INR 208mn (+37% YoY, -14% QoQ). Exceptional item: INR 390mn

of impairment charges towards PNC’s stake in Aligarh Expressway, an

associate, to be sold to Cube Highways. RPAT: INR 810mn (-21% YoY, -40%

QoQ). APAT: INR 1.1bn (+9% YoY, -17% QoQ, 20% miss). Revenue from

INR 32bn Jal Jeevan Mission (JJM) projects is expected to start flowing in

Q4FY22 (INR 1-1.5bn, vs Q3FY22, with significant contribution of INR 15bn

expected in FY23.

Banking on Q4FY22 for new order wins: Total FYTD22 order wins stand at

INR 27bn and PNC expects to win INR 50-55bn in Q4FY22. Owing to muted

order wins in 9MFY22, the OB stands at INR 120bn (~2x FY22 revenue, ex of

INR 23.4bn JJM orders win in Jan-22). Road EPC constitutes 66% of the OB,

with water & irrigation projects forming 34%. PNC expects an order inflow

of INR 80bn in FY22, with results on INR 170bn worth of bids awaited.

Ghaziabad-Aligarh asset proceeds likely by end of Q1FY23: For the

Aligarh project, all approvals are in place and final COD/EOT is awaited.

The company has received a valuation offer for five HAM and one BOT

assets, but it has yet to take a final call (cumulative INR 6.7bn of equity

investment). The total equity requirement for 11 HAM assets is INR 14.7bn,

with INR 7.5bn already infused. The remainder will be infused in tranches

of INR 2/3.2/2bn in Q4FY22/FY23/FY24 through internal accruals.

Standalone Financial Summary (INR mn) YE March Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 15,220 13,224 15.1 16,150 (5.8) 49,254 60,484 68,166 78,186

EBITDA 2,044.9 1,785 14.5 2,216 (7.7) 6,728 8,296 9,298 10,709

APAT 1,125 1,032 9.0 1,354 (16.9) 3,619 4,820 5,713 6,601

EPS (INR) 4.4 4.0 9.0 5.3 (16.9) 14.1 18.8 22.3 25.7

P/E (x)

19.6 14.7 12.4 10.7

EV/EBITDA (x)

10.0 8.5 7.6 6.4

RoE (%)

13.3 15.4 15.9 15.8


Particulars

(INR mn)

FY22E FY23E FY24E


Revenue 60,484 58,120 4.1 68,166 67,140 1.5 78,186 75,533 3.5

EBITDA 8,296 7,981 3.9 9,298 9,370 (0.8) 10,709 10,856 (1.4)

EBITDA (%) 13.7 13.7 (1.6) 13.6 14.0 (31.5) 13.7 14.4 (67.5)

APAT 4,820 4,704 2.5 5,713 5,899 (3.2) 6,601 7,129 (7.4)




NIFTY 17,305

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

2.5 (3.2) (7.4)

KEY STOCK DATA

Bloomberg code PNCL IN


MCap (INR bn) / ($ mn) 71/952




3M 6M 12M

Absolute (%) (13.3) (9.4) 0.7

Relative (%) (9.8) (13.1) (11.2)


Sep-21 Dec-21



FPIs 11.57 10.88


Pledged Shares - -

Source : BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 123

HSIE Results Daily

Dilip Buildcon

Dismal performance

Dilip Buildcon (DBL) reported a weak quarter, missing our estimate at all

levels. Moderate project progress, extended southern monsoon, commodity

price spike (metals, fuel, and bitumen), and absence of early completion

bonus suppressed EBITDA margin to a mere 0.3%. Due to high commodity

price volatility, price escalation coverage in EPC projects reduced to 50-60%.

DBL has 13 HAM assets slated for divestment, with expected total proceeds of

INR 27.8bn. All future projects would be monetized via a listed Shrem private

InVIT for better equity valuation. We maintain BUY; however, given the

margin pressure, execution delays, and high operating leverage sensitivity, we

reduce our FY22/23/24 EPS and TP to INR 490 (12x Dec-23E EPS, 1x P/BV HAM

equity investment).

Q3FY22 financial highlights: Revenue was INR 22bn (-10.9/+1.9%

YoY/QoQ, 10% miss); EBITDA margin, at 0.3%, fell sharply (-1621/-1027bps

YoY/QoQ, est. of 14.3%) on account of under-absorption of fixed overheads

and elevated raw material prices; there was an exceptional item - INR 594mn

profit from 49% stake sale in three HAM subsidiaries to Cube Highway.

APAT: loss of INR 1.6bn (vs est. profit of INR 502mn). The topline is

expected at INR 90-91bn for FY22, similar to FY21, with margin expected to

improve in Q4FY22.

Receding early completion bonus: DBL has maintained a track record of

completing ~90% of the projects ahead of SCOD and receiving early

completion bonuses. However, due to COVID restrictions, majority of its

projects have been either delayed or achieving COD on time, which has

reduced profitability and impacted the EBITDA by 1.5-2%.

Asset monetization: DBL has 13 HAM assets earmarked for divestment,

three of which (vs 5, with 2 being mutually excluded from the agreement)

have been committed to Cube for a consideration of INR 4.3bn at a valuation

of 1.4x. The remaining 10 assets (INR 23.5bn monetization estimate – valued

at 1.6x) will be transferred to Shrem InVIT. Shrem shall issue units worth

INR 17.5bn to DBL Infra, a subsidiary, and the balance INR 6bn shall come

in the form of cash in FY23. The requirement in these 10 assets is ~INR 15bn,

of which INR 9bn will be invested by DBL and DBL Infra as equity and

remaining INR 6bn will be in the form of unsecured loans. The total equity

requirement in all 23 HAMs is INR 29bn, of which 18.9bn has been invested

until Dec-21. The remaining equity shall be funded largely via proceeds

from the Shrem and CPPIB deals. DBL has realized INR 2.9bn from Cube

and the balance INR 1.4bn is expected to be received by Q1FY23. The NWC

days were at 102 (vs 96, as of Sep-21). The net D/E stood at 0.53x (vs 0.51x in

Sep-21).

Standalone financial summary INR in mn Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 21,976 24,667 (10.9) 21,561 1.9 91,035 90,524 99,123 1,10,027

EBITDA 63 4,069 (98.5) 2,277 (97.2) 13,636 7,671 13,043 14,987

APAT (1,639) 1,111 (247.6) (208) 687.2 3,193 -1,469 2,609 3,898

EPS (INR) (11.2) 7.6 (247.6) (1.4) 687.2 21.8 -10.0 17.8 26.7

P/E (x)

15.6 -34.0 19.1 12.8

EV/EBITDA (x)

5.7 2.3 2.0 1.8

RoE (%)

8.5 -3.6 5.8 8.1


Particulars

(INR mn)

FY22E FY23E FY24E


Revenue 90,524 95,220 (4.9) 99,123 1,12,360 (11.8) 1,10,027 1,29,439 (15.0)

EBITDA 7,671 12,480 (38.5) 13,043 15,851 (17.7) 14,987 18,867 (20.6)

EBITDA (%) 8.5 13.1 (463) 13.2 14.1 (95) 13.6 14.6 (95)

APAT (1,469) 1,782 (182.4) 2,609 4,754 (45.1) 3,898 7,029 (44.5)




NIFTY 17,375

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

-1.82x -45.1 -44.5

KEY STOCK DATA

Bloomberg code DBL IN


MCap (INR bn) / ($ mn) 50/671




3M 6M 12M

Absolute (%) (41.6) (37.7) (36.3)

Relative (%) (38.6) (44.3) (49.2)


Sep-21 Dec-21



FPIs 10.79 9.60



Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7355

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 124

HSIE Results Daily

NCC

In-line performance

NCC Q3FY22 revenue/EBITDA/APAT came in at INR 27/2.9/1bn, largely in

line with our expectations. With order inflow (OI) of INR 40.3bn in Q3FY22,

the order book (OB) stood at INR 402bn. INR 99bn worth of orders in the OB

are under the Jal Jeevan Mission (JJM). The execution of these projects has

picked up strongly, with a turnover of INR 8.5bn recorded in the last month

and a half. NCC expects an annual turnover of INR 50bn from the JJM

projects in FY23. Consequently, it has upgraded its revenue expectation for

FY22 to INR 100bn. Vizag land sale has been kept in abeyance as the previous

buyer couldn’t mobilise funds within the timelines. NCC has paid INR 1bn

revenue share to the AP government and incurred INR 0.9bn for registration;

the land is now a freehold. NCC expects to monetise this land and it is

actively looking for an investor. We maintain BUY with a TP of INR 122 (9x

Dec-23E), given (1) pick-up in execution of JJM projects; (2) abating AP risk;

and (3) improvement in NWC days.

Financial highlights: NCC reported revenue of INR 27bn (41/23%

YoY/QoQ), a 4% beat. EBITDA came in at INR 2.9bn (22/24% YoY/QoQ, 2.8%

beat). EBITDA margin fell by 165bps YoY to 10.8% due to higher raw

material prices (240bps GM contraction YoY). There was an exceptional loss

of INR 200mn, accounting for the impairment of investment in international

subsidiary. Consequently, APAT came in at INR 1bn (51/31% YoY/QoQ), in

line with estimate. NCC expects to achieve INR 100bn in revenue in FY22

and a better EBITDA margin on expectation of lower commodity prices.

JJM project execution picks up: NCC secured INR 40.3bn of orders in

Q3FY22, taking the OB to INR 402bn, of which buildings/water &

environment accounted for 61/20% and roads, electrical, irrigation and

mining constituted 3-7% each. NCC expects an OI of INR 43bn in Q4. The

total JJM project in the OB is worth INR 99bn, of which NCC has already

executed 8.5bn worth of orders in the last month and a half. It expects to

achieve an FY23 turnover of INR 50bn from JJM projects. The international

operations are expected to wind down completely in FY23, with more clarity

on it expected in Q1FY23.

Vizag land monetisation, new investor search on: Gross debt decreased to

INR 20.4bn as of Dec-21 vs INR 21bn as of Sep-21. The total limit with NCC

stands at INR 132bn, which includes INR 100bn in BG limit (up to INR 75bn

utilised), INR 10bn in LC limit, and INR 22bn in WC limit (INR 18bn

utilised). Capex for FY22 is budgeted at INR 2.5bn (INR 1.5bn incurred so

far). The AP order book stands at INR 44bn, with INR 2.1bn of revenue

realised in 9MFY22. During the quarter, 97.8acres of land in Vizag has been

transferred to NCC from AP government and it has now become a freehold

land with an estimated value of INR 5.6bn. NCC’s deal with the earlier

buyer is in abeyance due to the latter’s failure to secure funding. NCC is

looking for a new buyer and expects to monetise the land in near future.

Financial summary standalone

(INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 27,039 19,184 40.9 21,990 23.0 72,557 1,00,693 1,23,940 1,38,592

EBITDA 2,928 2,393 22.4 2,366 23.7 8,545 10,838 15,121 17,185

APAT 1,060 703 50.7 809 31.0 2,611 3,960 6,592 8,108

Diluted EPS (INR) 1.7 1.2 50.7 1.33 31.0 4.3 6.5 10.8 13.3

P/E (x)

16.8 11.1 6.7 5.4

EV/EBITDA (x)

6.7 5.0 3.8 3.4

RoE (%)

5.0 7.1 10.9 12.0




NIFTY 17,267

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS change

%

FY22E FY23E FY24E

+2.8 -0.9 -0.8

KEY STOCK DATA

Bloomberg code NJCC IN


MCap (INR bn) / ($ mn) 44/590




3M 6M 12M

Absolute (%) (9.4) (18.3) (27.7)

Relative (%) (4.9) (24.8) (40.3)


Sep-21 Dec-21



FPIs 13.26 12.15



Source : BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7355

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 125

HSIE Results Daily

HG Infra

Marginal miss

HG Infra (HG) reported revenue/EBITDA/APAT of INR 9.2/1.5/0.9bn, a miss

of 3.6/6/6.7%. The order book (OB) stands at INR 79.5bn (~3.15x FY21 revenue).

With 9MFYTD revenue of INR 25.8bn and INR 10bn expected in Q4FY22, HG

will most likely surpass its FY22 revenue guidance of INR 34bn. 9MFYTD

order inflow stood at INR 43.2bn. The appointed date of five HAM projects

are expected in H1FY23, with an in-principle financial closure already in

place. The net debt remained flat at INR 1.6bn (similar level as in Sep-21). HG

has pushed back monetisation of three HAM projects (COD by Q4FY22), from

Jun-22 to Mar-23, in order to get a better valuation. Given robust order inflows

and strong execution, we increase our EPS estimate. We maintain BUY with an

increased SOTP-based TP of INR 988 (14x Dec-23E EPS, HAM 1x P/BV).

Financial highlights: HG reported revenue of INR 9.2bn (+25%/+22%

YoY/QoQ, 3.6% miss). EBITDA came in at INR 1.5bn (+23/+19% YoY/QoQ,

6% miss). Due to higher commodity prices, especially cement and steel,

EBITDA margin came in at 15.9% (-22bps/-39bps YoY/QoQ, vs our est. of

16.3%). RPAT/APAT was INR 889mn (+35.6%/+27.3% YoY/QoQ, 6.7% miss).

HG is confident of crossing its FY22 revenue/EBITDA guidance of INR

34bn/5.5bn.

Strong OB; focus on expanding HAM portfolio: The OB stood at INR

79.5bn at the end of Dec-21 (inclusion of one EPC order received in Jan-22

would take the OB to INR 87.9bn). FY22 order inflow guidance of INR 50-

60bn seems achievable, with 9MFYTD inflows at INR 43.2bn. HG has a bid

pipeline of INR 260bn. It expects some of the bids for railway and water-

supply projects submitted earlier to fructify in the near future. The

appointed date (AD) for all five new HAMs is expected to be received in

H1FY23. HG is evaluating order bookings from existing clients IRB and

Adani, which may result in INR 20bn EPC order from each.

Balance sheet comfortable: The standalone net debt remained flat at INR

1.6bn (similar level as in Sep-21). In nine HAM projects, equity invested

until date stands at INR 2.9bn, of the total INR 12.6bn required by mid-FY25

and the pending equity requirement is INR 7.5bn (Q4FY22/FY23/24/24 – INR

1.3/3.6/2.1/0.5bn). HG expects to add INR 30bn/15bn of HAM/EPC projects,

and another INR 10bn in new segments in its portfolio in FY23. HAM

monetisation plans have been pushed to FY23, as HG believes that it is a

buyers-market and, with increase in interest rate, it may get better valuation.

Standalone financial summary – INR mn YE March Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 9,156 7,343 24.7 7,496 22.1 25,275 35,932 41,142 46,285

EBITDA 1,452 1,181 22.9 1,218 19.2 4,107 5,710 6,313 7,021

APAT 889 655 35.6 698 27.3 2,110 3,405 3,604 3,965

EPS (INR) 13.6 10.1 35.6 10.7 27.3 32.4 52.3 55.3 60.8

P/E (x)

19.5 12.1 11.4 10.4

EV/EBITDA (x)

10.4 7.5 7.2 6.4

RoE (%)

22.8 28.3 23.2 20.5




Revenues 35,932 33,502 7.3 41,142 37,949 8.4 46,285 42,579 8.7

EBIDTA 5,710 5,285 8.0 6,313 6,045 4.4 7,021 6,606 6.3

EBIDTA Margins (%) 15.9 15.8 0.7 15.3 15.9 (3.7) 15.2 15.5 (2.2)

APAT 3,405 3,058 11.4 3,604 3,439 4.8 3,965 3,728 6.3

Source: Company, HSIE Research, Standalone financials

BUY



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

+11.4 +4.8 +6.3

KEY STOCK DATA

Bloomberg code HGINFRA


MCap (INR bn) / ($ mn) 41/552




3M 6M 12M

Absolute (%) (19.8) 6.6 125.3

Relative (%) (17.3) (1.2) 109.5


Sep-21 Dec-21



FPIs 2.16 1.26


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 126

HSIE Results Daily

Ahluwalia Contracts

Robust recovery

Ahluwalia Contracts (AHLU) reported revenue/EBITDA/APAT (miss)/beat of

(4)/(1)/7%. AHLU is confident of crossing INR 25bn+ in revenue for FY22,

backed by order backlog (OB) of INR 67bn and an L1 of INR 7bn. 15% of the

OB is fixed price contracts and exposed to price volatility. However, variable

contracts are not fully immune in the short term with WPI based pricing for

some material like aluminium. The total order inflow FYTD has been INR

12.7bn, with INR 20/25bn expected for FY22/23. AHLU is witnessing greater

competitive intensity in bidding, which it expects would reduce by H1FY23. It

is seeing larger number of big ticket projects getting tendered, making

qualification difficult for smaller players. On the back of this factor and

expectation of stable raw material prices, FY23 revenue growth is pegged at

20% YoY with EBITDA margin of 12%. AHLU has a 4.7acres of land parcel in

the hub of Kolkata and primarily intends to dispose it off. Also, the idea of

residential development on it is not discarded yet. We maintain BUY with a

reduced TP of INR 522 (13x multiple; Dec-23E EPS).

Financial highlights: Revenue: INR 6.8bn (+28%/-2% YoY/QoQ, 4% miss).

EBITDA: INR 694mn (+2.2x/+10% YoY/QoQ, est. in-line). EBITDA margin:

10.2% (+425/+111bps YoY/QoQ, vs est. of 9.8%). Depreciation: INR 85mn

(+12%/+1% YoY/QoQ). Interest cost: INR 106mn (+18%/-9% YoY/QoQ).

APAT: INR 423mn (+2.8x/+18%, 7.3% beat). AHLU is confident of crossing

INR 25bn in revenue for FY22. FY23E revenue growth is pegged at 20%,

with 12% EBITDA margin.

OB robust and largely government led: OB at the end of Dec-21 stands at

INR 67bn (~2.5x FY22E revenue), with L1 of INR 7.2bn expected to be

converted into order book in Q4FY22. The order inflow FYTD stands at INR

12.7bn. AHLU expects INR 25bn of orders in FY23. Sector-wise, government

order forms 85% of OB and, segment-wise, hospitals are the major drivers,

contributing 44%, with infra contributing 12%, institutional 20% and

residential 17.4%. AHLU has a bid pipeline amounting to INR 25bn, of

which hospital constitutes INR 10bn.

Stable NWC and gross debt: Standalone gross debt increased marginally to

INR 200mn, from INR 250mn in Dec-21 end. NWC days reduced to 89 from

91 in Q2FY22, mainly due to improving payment from the states. Capex

undertaken in 9MFY22 was at INR 197mn, with INR 20mn expected in

Q4FY22. Cash and other balances improved to INR 3.6bn, from INR3.5bn, at

Sep-21 end. The average cost of borrowing was 7.1%.


Net Sales 6,835 5,361 27.5 6,980 (2.1) 19,822 27,315 31,412 35,684

EBITDA 694 317 119.1 631 10.0 1,542 2,745 3,732 4,346

APAT 423 147 187.4 358 18.3 772 1,604 2,294 2,715

EPS (INR) 6.3 2.2 187.4 5.3 18.3 11.5 23.9 34.2 40.5

P/E (x)

33.5 16.1 11.3 9.5

EV/EBITDA (x)

14.8 10.5 7.4 6.2

RoE (%)

9.2 16.8 20.2 19.6


Particulars

(INR mn)

FY22E FY23E FY24E


Revenues 27,315 27,671 (1.3) 31,412 31,822 (1.3) 35,684 36,150 (1.3)

EBITDA 2,745 2,734 0.4 3,732 3,876 (3.7) 4,346 4,512 (3.7)

Margin (%) 10.1 9.9 17.0 11.9 12.2 (30.0) 12.2 12.5 (30.0)

APAT 1,604 1,574 1.9 2,294 2,376 (3.4) 2,715 2,809 (3.3)




NIFTY 17,352

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

1.9 (3.4) (3.3)

KEY STOCK DATA

Bloomberg code AHLU IN


MCap (INR bn) / ($ mn) 26/348




3M 6M 12M

Absolute (%) (14.1) 1.5 25.7

Relative (%) (9.9) (3.4) 14.2


Sep-21 Dec-21



FPIs 12.15 12.34



Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 127

HSIE Results Daily

Ashoka Buildcon

Subdued quarter

Ashoka Buildcon (ASBL) reported standalone revenue/EBITDA/APAT of INR

11/1.2/0.7bn, a 2/6/10% miss on our estimates. It reported an exceptional loss of

INR 7.7bn towards impairment of its investment in five BOT assets (under

Ashoka Concession Ltd) sold to KKR. It is in advanced talks with an investor

for stake sales in Jaora and Chennai ORR projects, which may yield cash

inflow of INR 5bn. Even the city gas distribution projects may be put on sale

(ASBL equity investment at INR 870mn). ASBL secured the highest ever order

inflow of INR 85.3bn in FYTD22. Including the recently-won orders, the order

book (OB) stands at INR 144.7bn. The company reiterated FY22 revenue

growth guidance of 20%. We maintain BUY with a TP of INR 162 (9x Dec-23E

EPS).

Weak Q3FY22 financial performance: Revenue: INR 11bn (+12.5%/+20%

YoY/QoQ, 2% miss). EBITDA: INR 1.2bn (+14% YoY, +14% QoQ, 6% miss).

EBITDA margin: 10.9% (+18/-57bps YoY/QoQ, vs est of 11.4%). Depreciation:

INR 167mn (-23%/+1% YoY/QoQ). Interest cost: INR 249mn (+36%/+19%

YoY/QoQ). Exceptional item: INR 7.7bn towards impairment of its

investment in subsidiaries. RPAT: INR (6.9)bn (INR 856mn in Q3FY21, INR

956mn in Q2FY22). APAT: INR 757mn (-12% YoY, -21% QoQ, 9.8% miss).

ASBL has maintained revenue growth guidance of 20% YoY and EBITDA

margin guidance of 11.4% for FY22. Owing to its strong order book, the

company expects to grow at 25-30% during FY23/24E.

Robust order inflows, outlook positive: OB stood at INR 112.5bn at the end

of Dec-21; including order wins in Q4FY22, OB stands at INR 144.7bn (3.2x

FY22 revenue). ASBL has received INR 85.3bn order inflow until now in

FY22 and is expecting INR 15bn for the rest of Q4FY22. ASBL had been

striving to increase contribution to OB from segments other than roads &

railways to 30%, and with new inflows, it has already reached 32% FYTD22.

Order inflow for FY23 is pegged at INR 120bn.

ACL asset sale concluded; focus to remain on HAM projects: ASBL has

sold its entire shareholding in five BOT toll assets to KKR for INR of 13.4bn.

This is reflected in the INR 7.7bn write-off on impairment. Standalone debt

increased to INR 6.5bn (INR 3.8bn as of Sep-21) due to delay in roads

segment collection; ASBL expects to reduce it to INR 5bn by FY22-end.


Net Sales 11,037 9,807 12.5 9,171 20.3 38,175 44,665 51,365 56,501

EBITDA 1,207 1,055 14.4 1,055 14.4 5,195 5,136 5,753 6,385

APAT 757 856 (11.6) 956 (20.8) 2,581 2,597 3,056 3,328

EPS (INR) 2.7 3.1 (11.6) 3.4 (20.8) 9.2 9.3 10.9 11.9

P/E (x)

9.8 9.7 8.3 7.6

EV/EBITDA (x)

5.5 5.4 4.6 3.9

RoE (%)

9.2 9.3 11.2 10.8

Estimates Change Summary (INR mn)

Particulars (INR

mn)

FY22E FY23E FY24E


Revenues 44,665 44,665 - 51,365 50,025 2.7 56,501 55,027 2.7

EBITDA 5,136 5,136 - 5,753 5,903 (2.5) 6,385 6,603 (3.3)

EBITDA (%) 11.5 11.5 - 11.2 11.8 (60.0) 11.3 12.0 (70.0)

APAT 2,596.9 2,570.9 1.0 3,055.7 2,974.5 2.7 3,328.3 3,368.7 (1.2)




NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

1.0 2.7 (1.2)

KEY STOCK DATA

Bloomberg code ASBL IN


MCap (INR bn) / ($ mn) 25/340




3M 6M 12M

Absolute (%) (16.7) (13.9) (17.8)

Relative (%) (9.7) (15.7) (27.2)


Sep-21 Dec-21



FPIs 2.80 2.40


Pledged Shares - -

Source : BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 128

HSIE Results Daily

PSP Projects

Strong performance

PSP Projects (PSP) reported revenue/EBITDA/APAT of INR 4,856/741/469mn

in Q3, 18.5/40.6/39% ahead of our estimates. Its entire order book (OB) of INR

40bn (excluding Bhiwandi) is under execution, leading to strong revenue

booking. Excess provision reversals in near-completion projects led to a strong

EBITDA margin of 15.3%. However, on a sustainable basis, it is expected to

remain at 12-13%. The bid pipeline is robust at INR 35bn. The precast facility

received its first order of INR 490mn and it is expected to generate INR 3bn in

revenue at full capacity utilisation. We maintain BUY on PSP with a revised

TP of INR 671/sh (13x Dec-23E EPS). We have revised our estimates to factor in

the robust revenue outperformance.

Q3FY22 financial highlights: PSP posted revenue of INR 4.9bn

(+24.5/+24.4% YoY/QoQ), 18.5% ahead of our estimate. EBITDA was at INR

741mn (+57.8/+35.4% YoY/QoQ), a beat of 40.6%. EBITDA margin stood at

15.3% (+322/+124bps YoY/QoQ, vs 12.5% estimate). Depreciation came in

higher at INR 94mn (+46/+34% YoY/QoQ), on account of the recently-

commissioned precast facility. APAT came in at INR 469mn (53/28%

YoY/QoQ, a beat of 39%). EBITDA margin outperformance was led by

reversals of excess provisions in the near-completion projects. PSP has given

a revenue guidance of INR 16.5-17.5bn for FY22 and 20%+ growth for FY23.

Strong bid pipeline: With 9MFY22 order inflow (OI) of INR 9.8bn, the OB

stands at INR 40bn (INR 35bn ex-Bhiwandi project). The Pandharpur project

(INR 1.3bn) is still in a slow lane; on the other hand, local authorities have

agreed to pay INR 60mn of the total outstanding amount of INR 200mn. All

the six UP hospital projects have now been mobilised. On the Surat

Diamond Bourse, INR 1.2bn worth of work is pending, which will be

executed by Feb 2022. The bid pipeline stands at INR 35bn (60% Gujarat). A

total OI of at least INR 16bn is expected in FY22.

Comfortable balance sheet: Standalone gross debt remained unchanged at

INR 1.9bn (D/E 0.3x). PSP has utilised INR 5.5bn (fund/non-fund is INR

840mn/4.7bn), of the INR 10.5bn credit limit.

Standalone financial summary (INR mn)

Particulars (INR mn) Q3FY22 Q3FY21 YoY(%) Q2FY22 QoQ(%) FY21 FY22E FY23E FY24E

Net Sales 4,856 3,902 24.5 3,904 24.4 12,409 17,009 20,429 24,670

EBITDA 741 469 57.8 547 35.4 1,348 2,327 2,548 3,214

APAT 469 307 53.0 366 28.2 835 1,450 1,577 1,952

Diluted EPS (INR) 13.0 8.5 53.0 10.2 28.2 23.2 40.3 43.8 54.2

P/E (x)

24.9 14.3 13.2 10.7

EV / EBITDA (x)

15.6 9.2 8.3 6.5

RoE (%)

16.8 24.3 21.9 22.5

Standalone Estimate Change Summary (INR mn)

Particulars

(INR mn)

FY22E FY23E FY24E

New Old Chg.

(%) New Old

Chg.

(%) New Old

Chg.

(%)

Revenues 17,009 16,579 2.6 20,429 20,179 1.2 24,670 22,750 8.4

EBITDA 2,327 1,934 20.3 2,548 2,456 3.7 3,214 2,998 7.2

EBITDA margin (%) 13.7 11.7 201.1 12.5 12.2 30.0 13.0 13.2 -14.8

APAT 1,450 1,260 15.1 1,577 1,534 2.8 1,952 1,902 2.6


BUY



NIFTY 17,110

KEY CHANGES OLD NEW

Rating BUY BUY


EPS

change %

FY22E FY23E FY24E

15.1 2.8 2.6

KEY STOCK DATA

Bloomberg code PSPPL IN


MCap (INR bn) / ($ mn) 21/280




3M 6M 12M

Absolute (%) 9.4 23.1 39.9

Relative (%) 16.0 14.7 21.5


Sep-21 Dec-21



FPIs 1.27 1.71


Pledged Shares -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7330

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 129

HSIE Results Daily

JMC Projects

Write-offs continue to impact performance JMC Projects (JMC) reported a loss of INR 193mn on account of an additional

provision of INR 876mn on Kurukshetra Expressway project. The company

has received lenders’ consent for restructuring of Wainganga expressway

while Vindhyachal asset sale may be concluded by Mar-22. The FYTD22 order

inflow was robust at INR 99.8bn, taking the order book (OB) to an all-time

high of INR 191.9bn. Given (1) an all-time high OB (~5.2x FY21 revenue); (2)

potentially stronger balance sheet, post restructuring of BOT assets by Mar-22;

and (3) likely growth outperformance on the back of robust order backlog, we

maintain BUY with a revised target price of INR 162 (11x Dec-23E EPS). We

change our FY22/FY23/24 EPS estimates by (22)/0.4/(3.6)%.

Q3FY22 financial highlights: Revenue: INR 13.4bn (+26.5%/+2.1%

YoY/QoQ, 1.2% beat). EBITDA: 1.2bn (+27.5%/+50% YoY/QoQ, 5.8% beat).

EBITDA margin: 9% (+7/+249bps YoY/QoQ, vs 8.6% estimate). Exceptional

item: Loss of INR 876mn on account of (1) INR 478mn (vs INR 1.8bn in

Q2FY22) of additional provision for expected credit loss on Kurukshetra

Expressway. (2) INR 398mn (vs Rs 1.1bn in Q2FY22) of additional shortfall

provision on same. Interest cost: INR 319mn (+19%/+15% YoY/QoQ).

Reported loss was at INR 193mn vs expectation of INR 370mn profit. APAT:

INR 464mn (+81%/-43% YoY/QoQ, 26% beat owing to higher than expected

EBITDA margin and other income).

Robust order inflows and OB: JMC received orders of INR 99.8bn during

9MFYTD, taking the OB (ex INR 13bn L1 orders) as on Dec-21 to an all-time

high of INR 191.9bn (~5.2x FY21 revenue). JMC has given an order inflow

guidance of INR 120bn for FY22 and INR 70bn for FY23. We expect growth

momentum to pick up from Q1FY23 once these orders move into execution.

Balance sheet cleaning underway: Standalone net debt decreased to INR

6bn from INR 7bn as of Sep-21. The terms of restructuring of Wainganga

expressway is under discussion with lenders and the sale of Vindhyachal

asset would be completed by Mar-22. JMC has written off its investment in

the KEPL project, invoking the force majeure clause while perusing claims

and termination payments against the NHAI. Total loss funding for FY22/23

is pegged at INR 1.1/0.1bn. JMC will incur INR 0.7bn on major maintenance

on the BOT portfolio in FY23 through equity infusion.

Standalone financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenues 13,483 10,660 26.5 13,207 2.1 36,888 51,708 57,882 65,231

EBITDA 1,218 955 27.5 865 40.9 3,315 4,156 5,557 6,523

APAT 464 257 80.6 816 (43.1) 711 974 2,031 2,617

Diluted EPS

(INR) 2.8 1.5 80.6 4.9 (43.1) 4.2 5.8 12.1 15.6

P/E (x)

23.1 16.9 8.1 6.3

EV/EBIDTA (x)

6.7 5.9 4.3 3.4

RoE (%)

7.2 10.6 22.3 23.5

Estimate change summary (standalone)

INR mn FY22E FY23E FY24E

New Old % chg. New Old % chg. New Old % chg.

Revenues 51,708 50,179 3.0 57,882 57,208 1.2 65,231 65,632 (0.6)

EBIDTA 4,156 4,258 (2.4) 5,557 5,492 1.2 6,523 6,563 (0.6)

EBIDTA Margins (%) 8.0 8.5 (44.9) 9.6 9.6 (0.0) 10.0 10.0 (0.0)

APAT 974 1,248 (22.0) 2,031 2,023 0.4 2,617 2,714 (3.6)




NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY



-22.0 +0.4 -3.6

KEY STOCK DATA

Bloomberg code JMCP IN


MCap (INR bn) / ($ mn) 16/221




3M 6M 12M

Absolute (%) (5.7) (10.3) 28.9

Relative (%) 1.3 (12.1) 19.4


Sep-21 Dec-21



FPIs 0.93 1.05


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 130

HSIE Results Daily

J. Kumar Infraprojects

In-line performance

JKIL reported largely an in-line performance with revenue/EBITDA/APAT at

9.7/1.4/0.6bn. FY22 revenue is expected at INR 34-35bn, with EBITDA margin

of 14-15%. The order inflow (OI) of INR 2.7bn took the order book (OB) to

INR 106bn (~4.1x FY21 revenue). JKIL has bid for projects worth INR 80bn

(Kanpur, Agra metro/Goregoan-Mulund link road worth INR 20/60bn resp.)

and has a bid pipeline of INR 280bn (incl. INR 80bn of BKC-Bhiwandi HSR

project). Consequently, it expects OI of INR 20/50bn in FY22/23. JKIL, in a

strategic partnership with Patel Infra, has bid for Chennai metro and will be

bidding for upcoming packages worth INR 80-100bn. Inflows are expected in

Q1FY23. The stuck coastal road project worth INR 4bn is expected to start in

Apr-May-22. The balance sheet is robust with gross/net debt at INR 4.8/0.4bn.

Of the INR 60bn of BG limit, 35% is unutilised. The NWC was stable at 122

days. We maintain BUY with a target price of INR 279 (7x Dec-23E EPS).

In-line financial performance: Revenue: INR 9.7bn (+18%/+25% YoY/QoQ,

in line with est.). EBITDA: INR 1.4bn (+20%/+26% YoY/QoQ, a 2.6% beat);

EBITDA margin of 14.3% (+19/+10bps YoY/QoQ, vs 14.2% est.).

RPAT/APAT: INR 587mn (+31%/+43% YoY/QoQ, a 4% beat). Steel prices

have shot up recently; however, all contracts are protected by price

escalation clauses. Consequently, EBITDA margin is expected to be in the

range of 14-15%. JKIL expects revenue to grow at 12-15% CAGR and

maintains a target of INR 50bn for FY25. The revenue guidance for FY22 has

been maintained at INR 34-35bn.

Robust order book and bid pipeline: JKIL received an order of INR 2.7bn in

Q3FY22, bringing the OB to INR 106bn (~4.1x FY21 revenue), as of Dec-21.

OI for 9MFY22 stands at INR 18.1bn, with another INR 2bn expected in Q4.

It has bid for INR 35-40bn worth of project with major inflows from these

expected in Q1FY23. The bid pipeline stands at INR 280bn, of which JKIL

expects to win INR 50bn worth of jobs in FY23. The coastal road project, the

only stuck project, worth INR 4bn, is expected to start by Apr-May-22.

Leverage stable: Gross debt fell to INR 4.8bn (INR 5.1 at the end of Sep-21),

leading to a D/E of 0.23x. JKIL expects a debt level of INR 5bn by the end of

Mar-22. Capex in 9MFY22 stands at INR 600mn, with INR 0.8-1bn expected

for the full year FY22. Of the BG limit of INR 60bn, JKIL has utilised 65%.

Standalone financial summary YE March (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 9,657 8,162 18.3 7,720 25.1 25,708 34,706 40,433 46,498

EBITDA 1,386 1,155 19.9 1,100 25.9 3,114 4,973 5,792 6,650

APAT 587 450 30.5 411 43.0 639 1,992 2,597 3,150

Diluted EPS (INR) 7.8 5.9 30.5 5.4 43.0 8.4 26.3 34.3 41.6

P/E (x)

21.3 6.8 5.2 4.3

EV / EBITDA (x)

5.9 3.4 2.5 1.7

RoE (%)

3.4 10.0 11.8 12.8


Standalone estimate change summary



Revenues (Rs mn) 34,706 33,421 3.8 40,433 38,935 3.8 46,498 44,776 3.8

EBITDA (Rs mn) 4,973 4,363 14.0 5,792 5,575 3.9 6,650 6,403 3.9

Margins (%) 14.3 13.1 127.3 14.3 14.3 0.4 14.3 14.3 0.1

APAT (Rs mn) 1,992 1,641 21.4 2,597 2,530 2.7 3,150 3,077 2.4


BUY CMP (as on 9 Feb2022) INR 180


NIFTY 17,464

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

21.4 2.7 2.4

KEY STOCK DATA

Bloomberg code JKIL IN


MCap (INR bn) / ($ mn) 14/183




3M 6M 12M

Absolute (%) (1.6) (14.0) (2.0)

Relative (%) 1.7 (21.5) (15.9)


Sep-21 Dec-21



FPIs 8.62 8.00



Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7335

Nikhil Kanodia

[email protected]

+91-22-6171-7355



P a g e | 131

HSIE Results Daily

ITD Cementation

Strong order accretion

ITD Cementation (ITD) reported muted revenue/EBITDA/PAT at INR

10/0.8/0.2bn, with revenue beat of 17%, an in-line EBITDA, and APAT miss of

11%. EBITDA margin was impacted by higher commodity prices, extended

southern monsoon (lower revenue and hence impact on margin), and profit

thresholds still to be reached in some of the large projects (which moved into

execution in Q3FY22). The order backlog (OB) is robust at INR 163.7bn (6x

FY21 revenue). About 60% of contracts are covered by price escalation clauses.

Given strong recovery, we have increased our revenue estimate. Given that we

expect commodity inflation to sustain in the near term, we have recalibrated

our EPS lower. We retain BUY with a reduced TP of INR 125 (10x Dec-23E

EPS).

Muted financial performance: ITD booked revenue of INR 10bn

(+26%/+23% YoY/QoQ, 17% beat). EBITDA: INR 806mn (+14%/+60%

YoY/QoQ, in-line). EBITDA margin: 8.1% (-88/+186bps YoY/QoQ, est. 9.5%).

Lower-than-expected EBITDA margin was due to higher commodities

prices; there was no one-off provisioning in the quarter. Interest cost: INR

341mn (-1%/-5.1% YoY/QoQ). Other income: INR 27mn (+2.7x/-24% in

YoY/QoQ) RPAT/APAT: INR 197mn (-35/+32%; 11% miss). In line with its

guidance, ITD has achieved a revenue run-rate of INR 10bn in Q3 and has a

strong order book, which we believe would ramp up to INR 13-15bn/quarter

starting Q3FY23.

Strong order book, loss-making projects mostly completed: Order inflow

(OI) in Q3FY22 stood at INR 8.9bn (INR 75bn FYTD), taking the OB to INR

115.3bn, as of Dec-21. Adding INR 48.3bn of new order wins in Jan-22, total

OB FYTD22 stood at INR 163.7bn, which is a lifetime high for the company.

ITD bid pipeline is robust at INR 200bn and the company expects to win

additional INR 15-20bn worth of orders in FY22. It has achieved significant

progress in Kolkata metro, which is 96% complete now, while Mumbai

underground metro is 86% complete and Udangudi project 55% complete. A

large part of the painful loss-making projects, such as the Bengaluru

elevated metro, are already complete and ITD does not expect any

additional provisioning requirements in Q4FY22.

Balance sheet comfortable: ITD's consolidated gross debt increased

marginally to INR 5.5bn (INR 5.2bn as of Sep-21), with D/E at 0.5x, due to

execution ramp-up and payment delays. Debt is expected to reduce to INR

5bn by Mar-22-end on account of better collections in Q4FY22.

Consolidated Financial Summary (INR mn) YE March 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 9,981 7,917 26.1 8,115 23.0 27,277 37,356 44,080 50,869

EBITDA 806 710 13.6 504 59.9 2,129 3,263 4,481 5,852

APAT 197 300 (34.5) 149 32.1 159 977 1,669 2,300

EPS (INR) 1.1 1.7 (34.5) 0.9 32.1 0.9 5.7 9.7 13.4

P/E (x)

78.7 12.8 7.5 5.5

EV/EBITDA (x)

6.7 4.6 3.2 2.5

RoE (%)

1.5 8.8 13.4 15.8

Consolidated Estimate Change Summary



Revenues 37,356 36,824 1.4 44,080 42,900 2.8 50,869 49,507 2.8

EBIDTA 3,263 3,307 (1.3) 4,481 4,768 (6.0) 5,852 5,814 0.7

EBIDTA Margins (%) 8.7 9.0 (24.7) 10.2 11.1 (94.9) 11.5 11.7 (24.0)

APAT 977 997 (2.1) 1,669 1,948 (14.3) 2,300 2,395 (4.0)




NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

(2.1) (14.3) (4.0)

KEY STOCK DATA

Bloomberg code ITCE IN


MCap (INR bn) / ($ mn) 13/168




3M 6M 12M

Absolute (%) (5.6) (14.6) 0.1

Relative (%) 1.5 (16.4) (9.3)


Sep-21 Dec-21



FPIs 10.35 10.67


Pledged Shares - -

Source : BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355



P a g e | 132

HSIE Results Daily

Capacite Infraprojects Recovery awaited Capacite Infraprojects’ (CIL) execution continues to remain muted.

Restrictions on CIDCO project’s Vashi package led to INR 400mn lower

revenue booking; from Jan-22, the restrictions have lifted and execution has

restarted. The order book (OB) stood at INR 84.7bn (9.6x FY21 revenues, ex of

INR 43.5bn MHADA order), as of Dec-21, with almost a 100% price inflation

pass-through clause. CIL maintained its guidance of becoming debt free by

Sep-23. In the quarter, CIL’s credit rating was upgraded from IND ‘D’ to

investment grade IND ‘BB’. Post further upgrades (CIL guidance – ‘A’ by

Q1FY23), the margin requirement for BG and CC accounts may be lowered by

~5%, which will free up some cash. Additionally, the performance bank

guarantee (PBG) requirement for government and private projects has come

down, which will again release cash. Cumulatively, CIL expects INR 900mn

retention release (next six months) and INR 1.2bn cash margin release over the

next two years. We cut our EPS to factor in delays in handing over of INR

18bn of CIDCO project site. Reiterate BUY with reduced TP of INR 232/sh.

Q3FY22 Financial highlights: Revenue: INR 3.7bn (+20%/+6% YoY/QoQ, 4%

beat). EBITDA: INR 572mn (+5%/-7% YoY/QoQ, 7% miss). EBITDA margin:

15.6% (17.9%/17.8% for Q3FY21/Q2FY22, vs est. of 17.5%). RPAT/APAT: INR

128mn (-16.2%/-25.9% YoY/QoQ, 29% miss on account of EBITDA miss,

higher depreciation and interest cost). Revenue from CIDCO project was

impacted by INR 400mn due to restrictions imposed on the project, which

were lifted in Jan-22.

Robust OB; execution ramping up: With order inflow (OI) of INR 6.6bn for

9MFYTD, the OB stood at INR 84.7bn, as of Dec-21 (of this, INR 18bn of

CIDCO site is yet to be handed over). CIL is in advanced negotiations for

orders worth INR 18.6bn and expects FY22 OI at INR 24bn. It has received a

repeat order for civil works at Raymond, Thane, worth INR 2.3bn.

Comfortable balance sheet: Standalone gross/net debt decreased to INR

2.7bn/882mn (INR 2.9bn/893mn in Q2FY22, including INR 550mn of

promoter loan) with a D/E of 0.28x/0.09x. Collections came in at INR 3bn

(similar to Q2FY22). CIL has spent INR 335mn on Capex in 9MFYTD, with

INR 200mn expected in Q4FY22. It is in advanced stages of non fund based

limit enhancement with banks, amounting to INR 2.5bn. This would help

replace retention money with retention BG and release INR 900mn. CIL

expects its credit rating to be restored to ‘A’ category in Q1FY23, which will

reduce the margin requirement by ~5%, from current 10-15%, and help

realise INR 1.2bn of cash margin over the next two years. All this will result

in less cash requirement, which can be used to encourage growth. CIL

expects to be debt free by Sep-23.


Revenues 3,655 3,058 20 3,434 6 8,797 13,789 19,940 23,039

EBITDA 572 546 5 612 -7 1,365 2,185 3,290 3,801

APAT 128 152 -16 172 -26 18 479 1,184 1,592

EPS (INR) 1.9 2.2 -16.2 2.5 -25.9 0.3 7.1 17.4 23.5

P/E (x)

537.5 20.1 8.1 6.0

EV/EBIDTA (x)

8.0 4.7 3.4 2.9

RoE (%)

0.2 5.0 11.5 13.7


Particulars

(INR mn)

FY22E FY23E FY24E


Revenue 13,789 16,220 (15.0) 19,940 22,733 (12.3) 23,039 26,540 (13.2)

EBITDA 2,185 2,660 (17.8) 3,290 3,751 (12.3) 3,801 4,379 (13.2)

EBITDA (%) 15.9 16.4 (55.0) 16.5 16.5 (0.0) 16.5 16.5 (0.0)

APAT 479 819 (41.5) 1,184 1,500 (21.1) 1,592 1,979 (19.5)




NIFTY 17,352

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

-41.5 -21.1 -19.5

KEY STOCK DATA

Bloomberg code CAPACITE IN


MCap (INR bn) / ($ mn) 10/129




3M 6M 12M

Absolute (%) (21.0) (34.7) (30.9)

Relative (%) (16.8) (39.6) (42.4)


Sep-21 Dec-21



FPIs 7.25 7.74



Source: BSE

Pledge as a % of total shares


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 133

HSIE Results Daily

IT, Exchanges

P a g e | 134

HSIE Results Daily

Tata Consultancy Services Steady drive

TCS reported in-line revenue performance, while the margin was a miss. The

deal TCV continues to be strong (book-to-bill of 1.16 vs. 1.12 for ACN), driven

by BFSI and NorthAm. We expect TCS’ growth to be steady, supported by (1)

healthy demand environment, owing to cloud adoption; (2) growth

opportunity for Horizon-2 services, which includes AI/analytics and security;

(3) improvement in client addition (added four clients each in USD 100mn and

USD 50mn buckets); and (4) better alignment with fast-growing (~40% YoY)

hyperscaler ecosystem (Azure, AWS, and GCP). The ongoing supply side

issues (attrition increased to 15.3%, yet industry-best) and return of

discretionary spend will limit margin expansion, despite the advantages of

operating leverage and better pricing. Reskilling/training, promotions, and

fresher hiring will help tide attrition challenge. Revenue and EPS estimates

change is <1%; our target price of INR 4,400 is based on 32x Mar-24E EPS with

EPS CAGR of 15% over FY21-24E. Maintain ADD.

Q3FY22 highlights: (1) USD revenue came in at +3% QoQ (+14.4% YoY),

marginally higher than our estimate (+2.8% QoQ). (2) EBIT margin, at 25%

(below our estimate of 25.8%), declined 57bps QoQ, impacted by hiring cost

(-70bps) and higher discretionary spend (-60bps), partially offset by

operational efficiency and FX tailwind. (3) Revenue growth was led by retail

& CPG (+4.1% QoQ), followed by communication & media (+3.4% QoQ) and

manufacturing (+3.4% QoQ), supported by the ramp-up of deal wins and

strong bookings in the quarter. (4) Net additions in the quarter were at

28,238, while attrition increased to 15.3% TTM (+340bps QoQ). (5) Deal TCV

in Q3 was USD 7.6bn with book-to-bill at 1.16x (increased 12% YoY). The

total deal wins included BFSI TCV at USD 2.9bn; retail & CPG TCV at USD

1bn; and NorthAm TCV at USD 4.5bn (+15% QoQ).

Outlook: We have factored in USD revenue growth of +16.1%/14.4%/10% for

FY22/23/24E with Q4FY22 at 3.2% QoQ. EBIT margin for TCS is factored in

at 25.4%/25.9%/26.3% for FY22/23/24E. Valuations are at 32/28x (FY23/24E)

with FY21-24E EPS CAGR at 15%.

Quarterly financial summary YE March

(INR Bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD

mn) 6,524 5,702 14.4 6,333 3.0 22,032 22,174 25,741 29,457 32,393

Net Sales 488.85 420.15 16.4 468.67 4.3 1,569.49 1,641.77 1,915.93 2,209.30 2,461.86

EBIT 122.37 111.84 9.4 120.00 2.0 385.80 424.81 486.05 572.07 648.47

APAT 97.69 87.01 12.3 96.24 1.5 323.40 333.56 386.62 451.95 508.18

Diluted EPS

(INR) 26.4 23.5 12.3 26.0 1.5 87.4 90.2 104.5 122.2 137.4

P/E (x)

44.1 42.8 36.9 31.6 28.1

EV / EBITDA

(x) 33.4 30.0 26.3 22.3 19.6

RoE (%)

37.3 39.1 43.5 47.0 47.8


Change in estimates YE Mar

(INR Bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD

mn) 25,668 25,741 0.3 29,200 29,457 0.9 32,118 32,393 0.9

Revenue 1,911.38 1,915.93 0.2 2,190.00 2,209.30 0.9 2,440.95 2,461.86 0.9

EBIT 489.64 486.05 (0.7) 572.62 572.07 (0.1) 641.12 648.47 1.1

EBIT margin (%) 25.6 25.4 -25bps 26.1 25.9 -25bps 26.3 26.3 8bps

APAT 390.19 386.62 (0.9) 453.12 451.95 (0.3) 502.41 508.18 1.1

EPS (INR) 105.5 104.5 (0.9) 122.5 122.2 (0.3) 135.8 137.4 1.1


ADD

CMP (as on 12 Jan 2022) INR 3,860


NIFTY 18,212

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-0.9 -0.3

KEY STOCK DATA

Bloomberg code TCS IN


MCap (INR bn) / ($ mn) 14,278/1,91,867




3M 6M 12M

Absolute (%) 5.7 20.9 21.6

Relative (%) 4.2 4.1 (1.9)


Sep-21 Dec-21



FPIs 15.37 14.98



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 135

HSIE Results Daily

Infosys

Power packed performance

We maintain BUY on Infosys (INFY), following a significant beat in revenue

(+7% QoQ CC vs. estimate of 4.4%) and a strong growth outlook. Revenue

growth guidance for FY22E was upgraded to 19.5-20% CC (16.5-17.5% earlier)

and the EBIT margin band remains unchanged at 22-24%. INFY’s growth

trajectory remains robust, supported by (1) a strong deal pipeline and wins – it

closed 25 large deals with TCV of 2.5bn +17% QoQ (NN deals wins was up

+40% QoQ); (2) broad-based momentum across verticals, BFSI (five large deals

in Q3), retail, manufacturing, life-science and communication; (3) operational

pivots of offshoring and utilisation mitigating the near-term impact from

higher sub-contracting; (4) uptick in fresher onboarding (55k in FY22 vs. 45k

planned earlier and 21k in FY21) to fulfil demand and offset the near-term

attrition surge (+540bps QoQ). We remain positive on INFY (top pick in tier-1

IT) with >17% EPS CAGR and >40% RoIC, valuing the company at INR 2,220,

based on 30x Mar-24E EPS.

Q3FY22 highlights: (1) INFY reported robust revenue growth of +7% QoQ

CC and +21.5% YoY CC. Growth was broad-based across verticals, with

digital revenue growing +10.9/41.1% QoQ/YoY in USD terms while the core

remained flat. (2) EBIT margin declined 7bps QoQ to 23.5%, impacted by

wage hike and promotions (-80bps), lower utilisation (-40bps), offset by FX

tailwind (+20bps QoQ), cost optimisation (+50bps QoQ) and SG&A leverage

(+40bps QoQ). (3) Attrition spiked to 20.1% and will remain at elevated

levels. (4) Of the 25 large deals wins in Q3, six were in retail, five each were

in BFSI/COMM/ENU, and two were in manufacturing and one in hi-tech

vertical. By region, sixteen deals were in the US, seven in Europe and two in

RoW. (5) Net headcount stood at 12K in Q3 (+37% YoY).

Outlook: We have factored in USD revenue growth of 20.1/15.4/10.5% for

FY22/23/24E with Q4FY22 at 4.1% QoQ. EBIT margin is factored in at

23.9/24.2/24.5% for FY22/23/24E. Valuation is at 25.3x FY24E (~10% discount

to TCS) with FY21-24E EPS CAGR at 17.1%.


YE March (INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD

mn) 4,250 3,516 20.9 3,998 6.3 12,774 13,658 16,406 18,934 20,927

Net Revenue 318.67 259.27 22.9 296.02 7.7 907.91 1,004.72 1,225.14 1,420.08 1,590.47

EBIT 74.84 65.89 13.6 69.72 7.3 193.74 246.21 292.39 343.40 389.84

APAT 58.09 51.97 11.8 54.21 7.2 164.04 193.51 226.82 275.18 310.51

Diluted EPS (INR) 13.9 12.4 11.8 12.9 7.2 39.1 46.2 54.1 65.6 74.1

P/E (x)

48.0 40.7 34.7 28.6 25.3

EV / EBITDA (x)

34.6 27.2 23.4 19.8 17.3

RoE (%)

25.2 27.3 30.8 36.6 36.7


Change in Estimates YE March

(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD

mn) 16,191 16,406 1.3 18,446 18,934 2.6 20,387 20,927 2.6

Revenue 1207.52 1225.14 1.5 1383.43 1420.08 2.6 1549.44 1590.47 2.6

EBIT 289.41 292.39 1.0 324.82 343.40 5.7 371.98 389.84 4.8

EBIT margin

(%) 24.0 23.9 -10bps 23.5 24.2 70bps 24.0 24.5 50bps

APAT 225.20 226.82 0.7 260.09 275.18 5.8 293.32 310.51 5.9

EPS (INR) 53.7 54.1 0.7 62.0 65.6 5.8 70.0 74.1 5.9


BUY

CMP (as on 12 Jan 2022) INR 1,877


NIFTY 18,212

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+0.7 +5.8

KEY STOCK DATA

Bloomberg code INFO IN


MCap (INR bn) / ($ mn) 7,896/1,06,104




3M 6M 12M

Absolute (%) 11.4 21.3 36.9

Relative (%) 10.0 4.5 13.4


Sep-21 Dec-21



FPIs 33.46 33.17



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 136

HSIE Results Daily

Wipro

Marginal miss, deal wins on track

Wipro delivered a muted performance in Q3; growth of 3.0% QoQ CC was

below estimate and the lowest in the last five quarters. The organic growth at

~2% QoQ was the lowest among top-3 IT. The guidance of 2-4% QoQ growth

is in-line with our estimate but includes inorganic component of ~40bps.

Wipro organic growth engine has revived significantly in FY22E (~16% YoY)

vs. historical average of low single digit growth. The large deal pipeline is

robust but Wipro closed more mid-sized deals in the quarter. TCV was up

37% YoY and ACV was up 28% in 9M, providing growth visibility. The IT

services margin registered a decline of 20bps QoQ led by wage hike and

higher sub-con and travel cost. Higher intake of fresher’s (10K in Q3) will

offset the impact of attrition surge however the ongoing talent crunch and rise

in discretionary cost will keep margins under check. We reduce our revenue

estimate for FY22/23E by 0.6/0.5% to factor in revenue miss. Our target price of

INR 740 is based on 24x Mar-24E EPS (~20% discount to INFY). The stock is

trading at 26.9/22.5x FY23/24E EPS. Maintain ADD.

Q3FY22 highlights: (1) Revenue growth of 2.3% QoQ (estimate +3.5% QoQ)

was at the midpoint of the guided range; (2) IT services’ EBIT margin stood at

17.6% (-19 bps QoQ, estimate of 17.5%), impacted by wage hike (2 month

impact), +3/39% QoQ increase in travel/sub-con expenses and lower

utilisation (-250bps QoQ to 75.6%) offset by offshoring (+70bps to 56.3%); (3)

Growth was led by BFSI/communication/consumer/health verticals offset by

ENU; (4) attrition increased to 22.7% (+220bps QoQ); and (5). IT services

EBIT margin will be in a narrow range.

Outlook: We have factored in +27.4/+13.5% USD revenue growth for

FY22/23E respectively, which implies Q4FY22 growth of 3.5%. The IT

services EBIT margin is factored in at 18.1/18.5% for FY22/23E, resulting in

an EPS CAGR of 16% over FY21-24E.

Quarterly Financial summary


FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


IT revenue (USD

Mn) 2,640 2,071 27.5 2,580 2.3 8,256 8,137 10,366 11,761 12,985

Net Sales 203.14 156.70 29.6 196.67 3.3 610.23 619.43 791.76 897.57 1,002.95

EBIT 34.33 33.25 3.3 33.97 1.1 101.42 120.14 136.13 159.13 191.40

APAT 29.69 29.67 0.1 29.31 1.3 97.22 107.95 125.67 140.72 168.45

Diluted EPS (INR) 5.4 5.4 0.1 5.3 1.3 17.7 19.7 22.9 25.7 30.7

P/E (x)

39.0 35.1 30.2 26.9 22.5

EV / EBITDA (x)

29.0 23.9 21.2 18.0 14.8

RoE (%)

17.3 19.4 21.5 21.5 22.9



(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

IT revenue

(USD Mn) 10,428 10,366 (0.6) 11,824 11,761 (0.5) 13,041 12,985 (0.4)

Revenue 795.35 791.76 (0.5) 903.03 897.57 (0.6) 1007.98 1002.95 (0.5)

EBIT 138.72 136.13 (1.9) 161.37 159.13 (1.4) 195.31 191.40 (2.0)

EBIT margin

(%) 17.4 17.2 -25bps 17.9 17.7 -14bps 19.4 19.1 -29bps

APAT 127.11 125.67 (1.1) 142.11 140.72 (1.0) 171.15 168.45 (1.6)

EPS (INR) 23.2 22.9 (1.1) 25.9 25.7 (1.0) 31.2 30.7 (1.6)


ADD



NIFTY 18,212

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-1.1 -1.0

KEY STOCK DATA

Bloomberg code WPRO IN


MCap (INR bn) / ($ mn) 3,789/50,919




3M 6M 12M

Absolute (%) 4.9 31.5 51.0

Relative (%) 3.5 14.7 27.6


Jun-21 Sep-21



FPIs 9.83 9.69



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 137

HSIE Results Daily

HCL Technologies

Growth recovery; services margin declines

We maintain BUY on HCL Tech (HCLT), supported by strong growth in services

(+5.3% QoQ CC) and recovery in P&P (+24.5% QoQ CC). The services growth was

led by ER&D but the ~200 bps decline in margin was higher than peers. Key

attributes that support our growth outlook are: (1) growth momentum in ER&D

services (+8.3 QoQ CC), supported by digital engineering and IoT services; (2)

robust TCV of USD 2.14bn (+64% YoY growth), led by eight large deals in services

and product; and (3) strong fresher hiring, which will continue in FY23E. HCLT

has maintained its P&P guidance (0-1%) despite recovery in Q3 (indicating a steep

decline in Q4); however, the overall guidance of double-digit growth remains

unchanged. The margin guidance is maintained at 19-21%; however, considering

the decline in the services margin, EBIT% for FY22E will be at the lower end of the

guidance. We have increased the revenue estimates for FY23/24E by +1.2/1.7% and

reduced EPS estimates by 5.3/1.6% due to lower margin. We maintain our BUY

rating with a target price of INR 1,485, valuing the HCLT stock at 22x Mar-24E

EPS, factoring in +13/14% CAGRs in revenue/EPS over FY21-24E.

Q3FY21 highlights: (1) HCLT’s delivered decade-best revenue growth of +7.6%

QoQ CC, higher than our estimates (+4.4% QoQ), supported by ER&D and P&P

business (seasonally strong); (2) IT&BS segment grew +4.7% QoQ CC, led by

digital and cloud transformation, while ER&D grew +8.3% QoQ CC and P&P

registered +24.5% QoQ CC, driven by renewals and new license; (3) among the

verticals, growth was led by technology (+14% QoQ CC), followed by retail &

CPG (+11.5% QoQ CC) and telecommunications & media (+11.3% QoQ CC); (4)

TCV of USD 2.14bn was >2bn for the second consecutive quarter; (5)

consolidated EBIT margin remained flat (+8bps QoQ) at 19%, led by healthy

margins in P&P business (32%), offset by decline in IT&BS margins (-220bps); (6)

attrition inched up to 19.8% (+140bps) and the company hired ~16K freshers in

9M (and plans to hire 22K in FY22E).

Outlook: We have factored in USD revenue growth at +13.1/13.5/12.4%, IT&BS

growth at +14.7/14.9/12.9%, ER&D growth at +15.1/16.8/15.3%, and P&P growth

at +3/1.2/4.5% for FY22/23/24E respectively. EBIT margins are estimated at

19.2/19.3/20.3% over the same period, translating into an EPS CAGR of 14% over

FY21-24E (TCS/INFY/WPRO at 15/17/16% CAGR). Valuation, at ~20x FY24E, is

inexpensive with ~4% FCF yield and ~24% RoIC.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 2,977 2,617 13.8 2,790 6.7 9,936 10,176 11,512 13,064 14,681

Net Sales 223.31 193.02 15.7 206.55 8.1 706.78 753.79 857.45 979.78 1,115.74

EBIT 42.51 44.15 (3.7) 39.16 8.6 138.53 160.71 164.76 189.44 227.00

APAT 34.42 34.33 0.3 32.65 5.4 110.62 124.62 134.17 151.76 183.33

Diluted EPS (INR) 12.7 12.7 0.3 12.0 5.4 40.8 45.9 49.4 55.9 67.6

P/E (x)

32.8 29.1 27.0 23.9 19.8

EV / EBITDA (x)

21.3 17.5 16.9 14.5 11.9

RoE (%)

23.8 22.4 21.1 21.4 22.9


Change in Estimates YE March (INR

bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 11,397 11,512 1.0 12,909 13,064 1.2 14,435 14,681 1.7

Revenue 848.75 857.45 1.0 968.21 979.78 1.2 1097.07 1115.74 1.7

EBIT 165.83 164.76 (0.6) 197.94 189.44 (4.3) 228.47 227.00 (0.6)


APAT 134.74 134.17 (0.4) 160.20 151.76 (5.3) 186.32 183.33 (1.6)

EPS (INR) 49.7 49.4 (0.4) 59.0 55.9 (5.3) 68.7 67.6 (1.6)


BUY

CMP (as on 14 Jan 2022) INR 1,337


NIFTY 18,256

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-0.4 -5.3

KEY STOCK DATA

Bloomberg code HCLT IN


MCap (INR bn) / ($ mn) 3,630/48,775




3M 6M 12M

Absolute (%) 6.9 35.2 31.6

Relative (%) 7.0 19.5 8.1


Jun-21 Sep-21



FPIs 23.22 22.30



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 138

HSIE Results Daily

Tech Mahindra Telecom drives growth With better-than-expected revenue growth of +4.7% QoQ CC (organic ~4%)

and healthy net new deal wins (TTM +97% YoY), we maintain BUY on Tech

Mahindra (TechM). The growth was led by CME (5G deals) while enterprise

was soft due to the furlough impact. The net-new TCV, at USD 704mn, was

strong across the telecom and enterprise segment, driven by mid-sized deals.

5G remains a big opportunity and deal wins are in areas of network, cloud,

data and IoT. The key attributes that underscore our positive stance are (1)

healthy deal wins in the enterprise vertical (~USD 1.4bn in 9MFY22 vs USD

~1.2bn in FY21); (2) growth revival in telecom, led by 5G; (3) healthy fresher

addition of 10K in FY22; and (4) increased hiring from tier 2-3 cities (hired ~8k

people) to rationalise delivery costs. We believe that the margin expansion

levers are limited, due to high attrition, increase in sub-contracting cost and

ongoing fresher hiring. We cut our EPS estimate by ~3% for FY23/24E to factor

in the lower margin. Our target price stands at INR 2,050, based on 24x Mar-

24E EPS. The stock is trading at 21/18x FY23/24E (~15% discount to tier-1

average).

Q3FY22 highlights: (1) TechM revenue stood at USD 1,534mn (higher than

our estimate of USD 1,521mn), +4.1% QoQ (+4.7% QoQ CC); (2) telecom

business witnessed healthy growth of 6.9% QoQ CC and enterprise business

grew by 3.2% QoQ CC; (3) retail/manufacturing registered growth of

+14.3/+3% QoQ, while technology/BFSI decline of -1.9/-1.5% QoQ was

impacted by furloughs; (4) EBIT margin, at 14.8% (below our estimate of

15.5%), declined -36bps QoQ, impacted by wage hike, higher sub-

contracting cost and lower utilisation, which was partially offset by

operating leverage and lower SG&A expenses; (5) 4th consecutive quarter of

net-new TCV of greater than USD 700mn, of which telecom/enterprise TCV

stood at USD 226/478mn.

Outlook: We have factored in USD revenue growth at +16.7/15.6/13.5%,

factoring in telecom growth at +16.4/15.6/14.2% and enterprise growth at

+16.9/15.6/13% over FY22/23/24E respectively. EBIT margins are estimated at

14.8/15.2/15.5% over the same period, translating into an EPS CAGR of 19%

over FY21-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 1,534 1,309 17.2 1,473 4.1 5,182 5,111 5,966 6,894 7,825

Net Revenue 114.51 96.47 18.7 108.81 5.2 368.68 378.55 443.49 517.06 594.66

EBIT 16.98 15.37 10.5 16.52 2.8 42.80 53.89 65.60 78.35 92.43

APAT 13.69 13.10 4.5 13.39 2.2 42.51 45.06 55.48 64.37 75.26

Diluted EPS (INR) 15.5 14.8 4.5 15.2 2.2 48.2 51.1 62.9 73.0 85.3

P/E (x)

31.2 29.5 23.9 20.6 17.6

EV / EBITDA (x) 22.1 17.8 15.2 12.8 10.8

RoE (%) 20.2 19.3 21.3 22.6 24.0


Change in Estimates

YE Mar (INR Bn) FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 5,945 5,966 0.3 6,884 6,894 0.1 7,810 7,825 0.2

Revenue 442.46 443.49 0.2 516.29 517.06 0.1 593.59 594.66 0.2

EBIT 66.75 65.60 (1.7) 79.45 78.35 (1.4) 94.04 92.43 (1.7)


APAT 56.50 55.48 (1.8) 66.19 64.37 (2.7) 77.21 75.26 (2.5)

EPS (INR) 64.1 62.9 (1.8) 75.0 73.0 (2.7) 87.5 85.3 (2.5)


BUY



NIFTY 17,577

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-1.8 -2.7

KEY STOCK DATA

Bloomberg code TECHM IN


MCap (INR bn) / ($ mn) 1,462/19,647




3M 6M 12M

Absolute (%) (0.1) 25.7 63.6

Relative (%) 2.0 13.8 42.5


Sep-21 Dec-21



FPIs 35.54 35.35



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 139

HSIE Results Daily

L&T Infotech

Growth and quality

L&T Infotech (LTI) delivered a strong revenue growth of 9.2% QoQ CC

(highest-ever), led by healthy deal wins and demand environment. LTI has

consistently delivered an industry-leading growth rate and the momentum

will continue, based on (1) healthy growth in BFS vertical supported by

Temenos partnership, (2) strong client profile (~72 of fortune 500 are clients),

(3) robust partnership ecosystem (top-rated partner for AWS, Azure, GCP,

Temenos, Snowflakes, Adobe, Pega etc.), (4) healthy deal wins/pipeline and

client addition (added 27 new logos - one fortune 500), (5) efficient sales

engine reflected in the fact that 25% of the revenue and ~56% of TCV is from

new logos. The margin performance was better than expected and the

company is hiring freshers aggressively to cater to demand and overcome

supply side challenges (added ~8.2K employees YTD vs. 4.5K in FY21). We

keep revenue estimate mostly unchanged and reduce margin estimate by ~20-

50bps. Our target price of INR 7,675 is based on 40x Mar-24E EPS. Maintain

ADD.

Q3FY22 highlights: (1) LTI’s revenue came in at USD 553mn, +8.7/+29.3%

QoQ/YoY, which was above our estimate of USD 539mn; the pass-through

revenue in the manufacturing vertical contributed ~2% to growth, with

normalised growth at 6.7% QoQ; (2) growth was broad-based across

verticals, led by manufacturing (+19% QoQ CC) and BFS (+10.4% QoQ CC);

(3) EBIT margin improved by 74bps QoQ to 17.9% (estimate of 17.5%),

supported by growth & operational efficiencies (+40bps QoQ) and FX

tailwind (+30bps QoQ); (4) top-5 account improved +9% QoQ and top 6-10

account grew by +5.2% QoQ in USD terms; (5) LTI added 1,818 employees in

Q3FY22 compared to 4,084 employees in Q2FY22 and plans to add 5,500+

freshers in FY22; (6) it will continue to deliver top-quartile growth and PAT

margin guidance was maintained at 14-15% for FY22E.

Outlook: We have factored in USD revenue growth of +26.4/20.8/16.2% and

EBIT margin of 17.2/17.2/17.8% for FY22/23/24E respectively. APAT margin

is estimated at 14.5/14.3/14.8% for FY22/23/24E. At the CMP, LTI is trading at

42.7x FY23E with an FY21-24E EPS CAGR at 21%.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 553 428 29.3 509 8.6 1,525 1,670 2,112 2,550 2,964

Net Sales 41.38 31.53 31.2 37.67 9.8 108.79 123.70 157.02 191.23 225.24

EBIT 7.43 6.50 14.2 6.48 14.6 17.56 23.93 27.07 32.86 40.12

APAT 6.13 5.19 18.0 5.52 11.0 15.21 18.95 22.71 27.34 33.42

Diluted EPS (INR) 35.2 29.8 18.0 31.7 11.0 87.3 111.3 130.4 157.0 191.9

P/E (x)

76.7 60.2 51.3 42.7 34.9

EV / EBITDA (x)

56.1 41.2 36.3 29.6 24.0

RoE (%)

29.5 29.8 28.5 28.7 29.1



(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 2,095 2,112 0.8 2,536 2,550 0.5 2,940 2,964 0.8

Revenue 155.95 157.02 0.7 190.18 191.23 0.5 223.46 225.24 0.8

EBIT 27.13 27.07 (0.2) 33.58 32.86 (2.1) 40.22 40.12 (0.3)


APAT 22.73 22.71 (0.1) 27.85 27.34 (1.8) 33.47 33.42 (0.2)

EPS (INR) 130.5 130.4 (0.1) 160.0 157.0 (1.8) 192.2 191.9 (0.2)


ADD

CMP (as on 19 Jan 2022) INR 6,692


NIFTY 17,938

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-0.1 -1.8

KEY STOCK DATA

Bloomberg code LTI IN


MCap (INR bn) / ($ mn) 1,173/15,758




3M 6M 12M

Absolute (%) (2.4) 53.1 63.9

Relative (%) 0.2 38.8 42.3


Sep-21 Dec-21



FPIs 13.25 12.53



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 140

HSIE Results Daily

Mindtree High spot: margin discipline

Mindtree (MTCL) delivered healthy QoQ growth (following a very strong quarter)

and margin beat (~100bps expansion) was the highlight of the quarter. Recovery in

T1 business was encouraging and growth was broad-based across verticals,

geographies, and service lines. Mindtree’s growth momentum is expected to

continue, powered by T1 account (+7.2% QoQ) and stable growth in non-T1

accounts (+3.8% QoQ), customer success (+3.9% QoQ) and cloud services (won 10

deals with cloud hyperscaler). The sustainable growth is validated by (1) strong

deal TCV of >USD 300mn (TTM USD 1.6bn +14% YoY), which includes annuity

and transformational deals; (2) lower dependence on sub-contractors; and (3)

healthy growth in the travel vertical, which is almost touching the pre-pandemic

level. The company is confident of delivering an EBITDA margin of >20%, despite

the ongoing supply side challenges, as it expects support from better margins in

new deals, higher offshoring, and better pricing. To address the issue of rising

attrition (+420bps), the company continues to hire freshers (>50% of total hire) and

when the freshers come into the billing cycle, the dependence on sub-con will

reduce and utilisation will revive. We maintain our revenue/EPS estimates for

FY23/24E. Our target price of INR 5,060 is based on 37x Mar-24E EPS (25% CAGR

over FY21-24E on a high base in FY21 of >70%). Maintain ADD.

Q3FY22 highlights: (1) MTCL reported healthy revenue of USD 366mn

(marginally below our estimate of USD 369mn), +4.7% QoQ in USD terms (+5.2%

QoQ CC), supported by healthy growth in T1 business at 7.2% QoQ and

continued growth in non-T1 business at +3.8% QoQ. (2) EBITDA margin

improved by 101bps QoQ to 21.5%, aided by GM expansion (+64bps QoQ),

operational efficiencies (+60bps QoQ), and FX tailwind (+41bps). (3) Growth was

broad-based across verticals, led by travel (+7.3% QoQ), communications, media

& tech (+6.1% QoQ; supported by healthy growth in T1 business); and BFSI

(+4.3% QoQ); retail, CPG and manufacturing remained flat sequentially. (4) Deal

TCV was at USD 358mn, 15% YoY (book to bill at 0.98x compared to 1.14x in

Q3FY21). (5) The company had a net headcount addition of 2,227 in Q3 while

attrition inched up by 420bps QoQ to 21.9%.

Outlook We have factored in USD revenue growth of +31.3/+20.2/+14.8% and

EBITDA at 21.2/21.3/21.8% for FY22/23/24E respectively. We expect an EPS

CAGR of 25% over FY21-24E and RoIC of >45% to support the valuation (41x

FY23E).



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 366 274 33.7 350 4.7 1,089 1,077 1,413 1,698 1,950

Net Sales 27.50 20.24 35.9 25.86 6.3 77.64 79.68 105.24 127.36 148.22

EBIT 5.92 4.68 26.5 5.31 11.6 7.87 13.83 19.73 23.79 28.40

APAT 4.38 3.73 17.2 3.99 9.7 6.66 11.57 15.62 18.85 22.52

Diluted EPS (INR) 26.6 22.7 17.2 24.2 9.7 40.4 70.3 94.8 114.4 136.7

P/E (x)

117.3 67.5 50.0 41.5 34.7

EV / EBITDA (x)

72.3 45.9 33.6 27.2 22.5

RoE (%)

19.5 29.7 32.2 31.2 30.1



(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 1,419 1,413 (0.4) 1,704 1,698 (0.4) 1,962 1,950 (0.6)

Revenue 105.64 105.24 (0.4) 127.82 127.36 (0.4) 149.14 148.22 (0.6)

EBIT 19.44 19.73 1.5 23.67 23.79 0.5 28.27 28.40 0.5


APAT 15.46 15.62 1.1 18.76 18.85 0.5 22.42 22.52 0.4

EPS (INR) 93.8 94.8 1.1 113.9 114.4 0.5 136.1 136.7 0.4


ADD

CMP (as on 13 Jan 2022) INR 4,744


NIFTY 18,258

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+1.1 +0.5

KEY STOCK DATA

Bloomberg code MTCL IN


MCap (INR bn) / ($ mn) 782/10,506




3M 6M 12M

Absolute (%) 8.7 90.1 171.8

Relative (%) 7.9 74.0 148.1


Sep-21 Dec-21



FPIs 15.01 15.72



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 141

HSIE Results Daily

L&T Technology Services Minor miss; long-term growth drivers intact

L&T Technology Services (LTTS) reported a moderate quarter, with a slight

miss on revenue growth while the margins fared well. The management has

maintained its guidance of 19-20% growth for FY22E, which implies Q4

growth of ~2-4% QoQ. We believe LTTS’ growth will be led by (1) robust deal

wins with TCV of USD 90mn - three wins of TCV >USD 10mn and one deal of

USD 45mn from a tier-1 automotive company in the US; (2) strong client

portfolio/relationships and mining capability (added one client in USD 30mn+

bucket); (3) traction in transportation vertical led by electric, connected, and

autonomous; and (4) growth in plant engineering and medical devices vertical.

The telecom & hi-tech vertical will face challenges in Q4 due to one client-

specific issue in the media vertical. The long-term guidance of hitting USD

1bn run-rate in Q2FY23E and USD 1.5bn in FY25E remains on track. The

company expects to maintain at least 18% EBIT margin and the ongoing

supply side challenges will be offset by operational efficiencies. We

acknowledge LTTS’ prowess/diversity in digital ER&D, but citing near-term

challenges, we cut estimates by ~2-3%. Our target price of INR 5,750 is based

on 42x Mar-24E EPS. Maintain ADD.

Q3FY22 highlights: (1) LTTS’ revenue stood at USD 225.1mn (lower than

our estimate of USD 227.6mn), +3.6/+18.5% QoQ/YoY (+4.2/+19.5% QoQ/YoY

CC); (2) growth was largely led by transportation (+5.1% QoQ CC), followed

by telecom & hi-tech (+4.7% QoQ CC) and plant engineering (+4.4% QoQ

CC); (3) LTTS won a USD 45mn deal from a tier-1 automotive player and

will set up a center in Poland; (4) EBIT margin improved 20bps QoQ to

18.6% (higher than the estimated 17.8%), supported by operational

efficiencies and pyramid rationalisation, offset by higher onsite revenue; (5)

digital engineering contributed 56% to revenue (+5.5% QoQ); (6) the

company added 2,135 employees vs. 1,531 employees in H1FY22 and this

addition will continue in Q4FY22.

Outlook: We have factored in USD revenue growth of +19.7/+18.8/+17.2%

and EBIT margin at 18.1/17.9/18.3% for FY22/23/24E respectively. LTTS is

currently trading at 50x FY23E with the FY21-24E EPS CAGR at 32%.


YE Mar (INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 225 190 18.5 217 3.6 786 737 882 1,047 1,227

Net Sales 16.88 14.01 20.5 16.08 5.0 56.19 54.50 65.64 78.53 93.25

EBIT 3.14 2.13 47.5 2.96 6.1 9.28 7.89 11.89 14.03 17.04

APAT 2.49 1.79 39.1 2.30 8.2 7.51 6.27 9.51 11.24 14.28

Diluted EPS (INR) 23.8 17.1 39.1 22.0 8.2 72.0 60.1 91.2 107.7 136.9

P/E (x)

75.3 90.3 59.4 50.3 39.6

EV / EBITDA (x)

50.2 54.4 38.4 32.0 26.1

RoE (%)

28.6 20.1 24.7 24.2 25.7


Change in Estimates

YE Mar (INR bn) FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 889 882 (0.8) 1,064 1,047 (1.6) 1,243 1,227 (1.3)

Revenue 65.71 65.64 (0.1) 79.82 78.53 (1.6) 94.46 93.25 (1.3)

EBIT 11.70 11.89 1.6 14.49 14.03 (3.2) 17.50 17.04 (2.7)

EBIT margin (%) 17.8 18.1 31bps 18.2 17.9 -29bps 18.5 18.3 -26bps

APAT 9.39 9.51 1.3 11.57 11.24 (2.9) 14.62 14.28 (2.3)

EPS (INR) 90.0 91.2 1.3 110.9 107.7 (2.9) 140.1 136.9 (2.3)


ADD

CMP (as on 18 Jan 2022) INR 5,421


NIFTY 18,113

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+1.3 -2.9

KEY STOCK DATA

Bloomberg code LTTS IN


MCap (INR bn) / ($ mn) 572/7,685




3M 6M 12M

Absolute (%) 12.0 60.0 128.7

Relative (%) 13.6 45.6 103.6


Sep-21 Dec-21



FPIs 9.50 9.23



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 142

HSIE Results Daily

Mphasis Growth visibility powered by deal wins With continued momentum in the direct business (+9% QoQ CC) and healthy

deal wins (eight consecutive quarter of TCV> USD 200mn), we reiterate

Mphasis (MPHL) as our preferred pick in the mid-tier IT space. MPHL’s

growth is expected to be driven by (1) expansion in the direct business

(organic +6.3% QoQ); (2) strong traction in BFSI vertical (increase in tech

spend by global banks); (3) continued growth in the top-10 accounts (+9.5%

QoQ); (4) increasing share/size of large deal wins (signed four large deal wins

in Q3 with one at USD 92mn in healthcare); (5) Blink acquisition, which is

aiding new deal wins (two synergy deal wins); and (6) better growth

alignment with hyperscalers. The DXC decline was ~10% QoQ (in-line) and is

only 5% of revenue. We expect the company’s growth to converge with direct

core growth (26% CAGR over FY21-24E), led by healthy deal wins (TCV

CAGR of 43%). The ongoing supply side challenges will have some impact on

margins; the target EBIT margin range is 15.5-17%. Our target price of INR

3,800 values MPHL at 32x Mar-24E EPS. Maintain BUY.

Q3FY22 highlights: (1) Revenue came in at USD 414mn, +7.8/+24.2%

QoQ/YoY (CC terms), led by growth of +9/+36.1% QoQ/YoY (CC terms) in

the direct business (93% of revenue), offset by DXC-HP (5% of revenue) de-

growth of -10.4/-49.2% QoQ/YoY (CC terms); (2) EBIT margin stood at 15.1%

(in line with our estimate of 15%), flat sequentially and declining -129bps

YoY. Adjusting the M&A related charges, EBIT margin improved 10bps

QoQ; (3) management has maintained its organic operating margin

guidance of 15.5-17% and industry leading revenue growth in the direct

business; (4) deal wins in direct international, at USD 335mn, improved 39%

QoQ - 57% of them were in New-Gen services; (5) the company added a

billable headcount of 568 in Q3FY22 and it intends to add 5,500 freshers by

FY22E; (6) top client grew 7.6% QoQ and the top-5/10 clients grew 10.1/9.5%

QoQ in Q3.

Outlook: We have factored in 22/21/16% growth in revenue, based on

growth in the direct business at 36/24/18% and DXC-HP at -50/-29/-13% for

FY22/23/24E respectively; further, we have factored in EBIT margin at

15.2/15.5/16.3% for FY22/23/24E, resulting in an EPS CAGR of 24% over

FY22-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 414 334 24.0 385 7.5 1,240 1,309 1,597 1,926 2,243

Net Sales 24.74 22.77 8.7 24.35 1.6 88.44 97.22 119.45 144.49 170.50

EBIT 4.05 3.69 9.6 3.92 3.2 14.19 15.61 18.22 22.36 27.78

APAT 3.26 2.94 10.9 2.99 8.8 11.42 12.17 14.38 17.75 22.12

Diluted EPS (INR) 17.5 15.8 10.9 16.1 8.8 61.3 65.3 77.2 95.3 118.7

P/E (x)

49.3 46.3 39.2 31.8 25.5

EV / EBITDA (x)

33.1 30.0 25.3 20.5 16.4

RoE (%)

20.6 19.7 20.9 23.1 25.3


Change in Estimates YE March (INR

bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 1,586 1,597 0.7 1,903 1,926 1.3 2,216 2,243 1.3

Revenue 118.48 119.45 0.8 142.69 144.49 1.3 168.38 170.50 1.3

EBIT 18.24 18.22 (0.1) 22.81 22.36 (2.0) 28.50 27.78 (2.5)


APAT 14.35 14.38 0.3 18.09 17.75 (1.9) 22.66 22.12 (2.4)

EPS (INR) 77.0 77.2 0.3 97.1 95.3 (1.9) 121.6 118.7 (2.4)


BUY

CMP (as on 21 Jan 2022) INR 3,025


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+0.3 -1.9

KEY STOCK DATA

Bloomberg code MPHL IN


MCap (INR bn) / ($ mn) 567/7,620




3M 6M 12M

Absolute (%) (10.9) 28.9 90.7

Relative (%) (7.9) 15.8 71.7


Sep-21 Dec-21



FPIs 20.85 21.10



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 143

HSIE Results Daily

Tata Elxsi All-round performance; priced to perfection Despite strong growth and excellent margin performance, we maintain our

REDUCE rating on TELX due to diminishing margin of safety (it is trading at a

premium valuation of 65/52x FY23/24E, which is a ~40% premium to LTTS). The

growth of 5.5% QoQ was in line with the estimate, while margin came was better

than expectation. EPD growth was strong but weakness was witnessed in the IDV

segment (-15.4% QoQ). The margin expanded 235bps to 33.2%, led by growth,

offshoring (~75%), and better utilisation (83%); however, considering the

increasing cost structure, EBITDA margin should stabilise at ~30%. Further margin

upgrades seem difficult, given the supply-side challenges and rising attrition (up

to 18.2%). We remain positive on the company’s growth prospects and growth

leadership in ER&D (+27/31% revenue/EPS CAGR over FY21-24E), although the

risk-reward is unfavourable with growth premium vs. ER&D peers reducing. The

near-term prospects remain strong with FY22E revenue growth expected at 33.6%,

which would subsequently normalise to ~26/21% in FY23/24E. Our TP of INR 5,900

is based on 44x Mar-23E EPS, ~17% premium to mid-tier IT.

Q3FY22 highlights: (1) TELX reported healthy revenue growth of 6.5% QoQ CC

and 32.7% YoY CC, led by EPD (+9.6/+35.4% QoQ/YoY). (2) Segmental growth:

EPD (89% of revenue) grew +9.6% QoQ CC, which included transportation

growth at 9.7% QoQ CC (led by electric, autonomous & connected technology),

broadcast & communications at 6.3% QoQ CC (led by addition of marquee

customer & multi-year deal wins), and healthcare & medical at 20.7% QoQ CC

(supported by large deals & traction in digital health). IDV (9% of revenue)

declined -15.4% QoQ CC, impacted by project completion with one of the large

clients but it is expected to resume by Q4 or Q1FY23E. (3) Margin: EBITDA

margin improved 240bps QoQ to 33.2% (higher than our estimate of 30%),

supported by healthy revenue growth, backed by multi-year deals and

operating leverage (higher utilisation & offshoring). (4) TELX had a strong net

headcount addition of 414 in Q3 and attrition increased 430bps QoQ to 18.2%.

(5) Management commentary included a strong order book and deal pipeline for

Q4FY22, driven by the digital transformation services across the verticals.

Outlook: We have factored in the USD revenue growth of 34/26/21% for

FY22/23/24E, factoring in EPD growth of 33/29/21% and IDV growth of

43/8/27%. EBITDA margin has been taken at 30.3/29.7/30% for FY22/23/24E,

translating into a 31% EPS CAGR over FY21-24E. Following the recent stock

performance (+22/65% in 3M/6M), TELX is currently trading at 65x FY23E.


YE Mar (INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 85 65 30.9 80 5.5 227 247 330 417 505

Net Sales 6.35 4.77 33.2 5.95 6.7 16.10 18.26 24.56 31.25 38.40

EBIT 1.97 1.33 48.5 1.70 15.7 3.00 4.78 6.91 8.63 10.70

APAT 1.51 1.05 43.5 1.25 20.4 2.71 3.68 5.39 6.71 8.35

Diluted EPS (INR) 24.2 16.9 43.5 20.1 20.4 43.6 59.1 86.5 107.7 134.1

P/E (x)

160.1 118.0 80.7 64.8 52.0

EV / EBITDA (x) 124.7 81.3 57.0 45.4 36.3

RoE (%) 26.7 30.1 37.4 38.8 38.2


Change in Estimates


Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 329 330 0.3 413 417 0.9 501 505 0.9

Revenue 24.48 24.56 0.3 30.99 31.25 0.9 38.07 38.40 0.9

EBIT 6.65 6.91 3.9 8.36 8.63 3.2 10.12 10.70 5.8


APAT 5.20 5.39 3.6 6.55 6.71 2.4 7.96 8.35 4.9

EPS (INR) 83.5 86.5 3.6 105.2 107.7 2.4 127.8 134.1 4.9


REDUCE

CMP (as on 19 Jan 2022) INR 6,981


NIFTY 17,938

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

+3.6 +2.4

KEY STOCK DATA

Bloomberg code TELX IN


MCap (INR bn) / ($ mn) 434/5,838




3M 6M 12M

Absolute (%) 11.0 65.3 162.8

Relative (%) 13.6 50.9 141.1


Sep-21 Dec-21



FPIs 12.71 11.93



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 144

HSIE Results Daily

Persistent Systems

Deal wins trending upwards We maintain ADD on Persistent Systems (PSYS), following a robust Q2 (beat

on all fronts) and a healthy deal momentum. PSYS’ growth continuation is

premised on (1) improving deal wins (TCV is up 18.3% QoQ with a healthy

book-to-bill of 1.7x); (2) high volume of mid-sized deals leading to healthy

ACV growth; (3) client mining capabilities reflected in strong scale-up in

>USD 5mn+ client bucket; and (4) strong Salesforce and Azure practice and

improving partnerships with GCP and AWS. Organic growth was 6.1% QoQ

and acquisition of SCI will provide access to some top US banks while Shree

Partners will give access to FTEs. The IP-led business was up 16.2% QoQ,

supported by seasonality. The margin expanded 10bps, led by flat sub-con

cost and better pricing, offset by higher ESOP cost (~70bps) and rising

attrition. We reduce EPS estimates by 0.8/1.2% for FY23/24E and our target

price of INR 4,900 values PSYS at 35x Mar-24E, supported by a 26% EPS

CAGR over FY22-24E.

Q3FY22 highlights: (1) PSYS’ revenue came in at USD 199.1mn (higher than

our estimate of USD 196.5mn), +9.2/+36.2% QoQ/YoY, supported by healthy

growth in services revenue (+8.3% QoQ) and IP revenue (+15.9% QoQ). (2)

Growth in Q3FY22 was broad-based across verticals, led by BFSI at +14.6%

QoQ, followed by technology & emerging at +6.9% QoQ and healthcare &

life-sciences at +6.6% QoQ. (3) Revenue from the top account reported

robust growth of +13.1% QoQ, contributing 17.5% of the total, and revenue

from top-5/10 grew by +10.1/8.3% QoQ respectively. (4) EBIT margin stood

at 14% (higher than our estimate of 13.4%), +10bps QoQ, supported by better

gross margins. (5) PSYS reported TCV growth of +18% at USD 334mn, which

included new TCV wins of USD 158mn (+5.6% QoQ). (6) It added a

headcount of 1,110 in Q3FY22 (vs. 975 in Q2FY22) and attrition increased by

330bps QoQ at 26.9%.

Outlook: We have factored in USD revenue growth at 34/26/19% and

EBITDA margin at 16.6/15.9/16.3% over FY22/23/24E, resulting in FY22-24E

EPS CAGR at 26%. At CMP, PSYS is trading at a PE of 37.7/30.7x FY23/24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 199 146 36.2 182 9.2 502 566 759 955 1,141

Net Sales 14.92 10.75 38.7 13.51 10.4 35.66 41.88 56.55 71.65 86.68

EBIT 2.08 1.36 52.7 1.87 11.2 3.27 5.07 7.73 9.69 12.11

APAT 1.76 1.21 45.9 1.62 9.1 3.59 4.51 6.75 8.72 10.70

Diluted EPS (INR) 23.1 15.8 45.9 21.2 9.1 47.0 59.0 88.3 114.1 140.1

P/E (x)

91.6 72.9 48.7 37.7 30.7

EV / EBITDA (x)

63.8 45.3 32.7 26.6 21.1

RoE (%)

14.4 17.4 22.2 24.3 25.0



(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 754 759 0.6 946 955 1.0 1,131 1,141 0.9

Revenue 56.21 56.55 0.6 70.96 71.65 1.0 85.93 86.68 0.9

EBIT 7.71 7.73 0.3 9.80 9.69 (1.1) 12.30 12.11 (1.5)


APAT 6.79 6.75 (0.6) 8.79 8.72 (0.8) 10.83 10.70 (1.2)

EPS (INR) 88.8 88.3 (0.6) 115.0 114.1 (0.8) 141.7 140.1 (1.2)


ADD

CMP (as on 21 Jan 2022) INR 4,302


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-0.6 -0.8

KEY STOCK DATA

Bloomberg code PSYS IN


MCap (INR bn) / ($ mn) 329/4,418




3M 6M 12M

Absolute (%) 6.6 53.3 169.2

Relative (%) 9.7 40.2 150.2


Sep-21 Dec-21



FPIs 19.30 19.92



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 145

HSIE Results Daily

Tanla Platforms

Heading towards better profitability

Tanla reported a decent quarter with a slight miss on revenue (INR 8.8bn vs.

estimate of INR 9.1bn) but better-than-expected margin performance. The

gross margin of enterprise business improved +244bps QoQ to 24.6%,

powered by a better mix. While enterprise growth was led by the BFSI,

wholesale and government verticals, higher messaging volumes from

enterprises were a result of festive season and marketing campaigns. The next

phase of growth in the platform business will be powered by Wisely, whose

commercial launch is expected in March 2022. We continue to maintain our

positive stance, based on: (1) strong industry tailwinds as enterprises and new

age startups digitise their customer engagement; (2) Tanla’s capabilities built

for multiple channels like SMS, voice, RCS, and WhatsApp; (3) robust growth

in Trubloq volumes (~25% growth with 63% market share; processed 88bn

transactions); (4) healthy addition of new clients; and (5) rich cash reserves of

INR 8.8bn. We maintain our EPS estimates for FY23/24E and have a BUY

rating with a TP of INR 1,880, based on 35x FY24E EPS. The stock is trading at

a P/E of 38/33x FY23/24E.

Q3FY22 highlights: Enterprise revenue increased 5.1/35.1% QoQ/YoY to

INR 8.2bn, led by higher messaging volumes from festive season campaigns,

while gross margin expanded 244bps QoQ to 24.6%, as a result of the change

in business mix. For 9MFY22, Tanla added 237 new clients, compared to 206

in 9MFY21. Platform revenue increased 5.4/37.9% QoQ/YoY to INR 0.66bn,

owing to an increase in the volume of transactions processed by the DLT

platform Trubloq, but gross margin contracted 175bps QoQ to 90.9%.

OCF/FCF for the quarter came was impacted by the increase in DSO days

and higher collections in Q2 (ILD price increase). The 9M cash generation,

FCF/PAT ratio, is at 95% while the target is 95-100%.

Outlook: We estimate +25/27% revenue/EPS CAGRs over FY21-24E on

account of addition of enterprise clients, increased messaging volumes, and

the ability of Wisely to scale with more partnerships.


YE March (INR mn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 8,849 6,541 35.3 8,416 5.1 19,428 23,415 32,283 38,908 45,443

Gross Profit 2,610 1,611 62.0 2,302 13.4 3,911 5,777 9,142 10,700 12,270

EBITDA 2,028 1,269 59.9 1,787 13.5 1,850 4,335 7,060 8,253 9,480

APAT 1,580 935 69.0 1,362 16.0 1,284 3,561 5,447 6,332 7,290

EPS (INR) 11.66 6.90 69.0 10.05 16.0 9.5 26.3 40.2 46.7 53.8

P/E (x)

188.0 67.8 44.3 38.1 33.1

EV / EBITDA (x)

129.4 54.4 32.8 27.4 23.2

RoE (%)

18.0 44.7 48.8 38.4 31.6


Change in estimates

INR Mn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 32,829 32,283 (1.7) 40,068 38,908 (2.9) 46,873 45,443 (3.1)

EBITDA 6,931 7,060 1.9 8,243 8,253 0.1 9,544 9,480 (0.7)

EBITDA

margin (%) 21.1 21.9 76bps 20.6 21.2 64bps 20.4 20.9 50bps

APAT 5,270 5,447 3.4 6,289 6,332 0.7 7,301 7,290 (0.1)

EPS (INR) 38.9 40.2 3.4 46.4 46.7 0.7 53.9 53.8 (0.1)


BUY

CMP (as on 24 Jan 2022) INR 1,781


NIFTY 17,149

KEY CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

+0.7 -0.1

KEY STOCK DATA

Bloomberg code TANLA IN


MCap (INR bn) / ($ mn) 243/3,266




3M 6M 12M

Absolute (%) 67.5 86.2 143.3

Relative (%) 73.0 77.7 125.7


Sep-21 Dec-21



FPIs 13.35 13.47



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 146

HSIE Results Daily

IndiaMART InterMESH

Investing for growth

IndiaMart posted a decent quarter with revenue of INR 1.88bn (+3.1% QoQ)

but surprised negatively on the margins (-372bps QoQ). Paid supplier

addition improved due to lower churn and economic recovery (6k addition vs.

our estimate of 5k). The company is undertaking investments in manpower

and talent retention to fuel growth, which has impacted margins in the

quarter. The company has been actively executing acquisitions over the past

year (INR 7.1bn), with its largest one being Busy Infotech (an ERP software

for on-premises accounting) which is acquired for a cash consideration of INR

5bn. We maintain our positive stance, based on (1) higher visibility, given the

25% YoY growth in deferred revenue; (2) strong cash collections of ~INR 6.2bn

for 9MFY22, an increase of 40.1% YoY; (3) economic recovery leading to better

MSME health; (4) healthy cash reserves of INR 25.2bn, which will be used to

create adjacency; and (5) cross-sell opportunity from the Busy Infotech

acquisition. Our TP of INR 8,000 is based on 57x FY24 P/E (DCF implied),

supported by revenue/EPS CAGRs of +21/16% over FY21-24E. Maintain BUY.

Q3FY22 highlights: (1) IndiaMart revenue came in at INR 1.88bn (vs.

estimate of INR 1.91bn), a 3.1% growth QoQ, driven by +4.0/-0.8% QoQ

growth in paid suppliers/ARPU; (2) cash collections from customers were

flat QoQ while deferred revenue increased by +4.5% QoQ to INR 7.9bn; (3)

total business enquiries were down -22.5/-24.0% QoQ/YoY and daily unique

business was down -11.5/-8.0% QoQ/YoY; (4) EBITDA margin was down

372bps QoQ to 41.9% (vs. our estimate of 45.7%) due to +7.5/26.7% QoQ

increase in manpower/outsourced cost; (5) Busy has revenue of INR 0.42bn

for FY21 with EBITDA/PAT margin of 36/26%; its RoE is 24% and it has

grown at 28% CAGR over FY16-21; Busy’s integration will be EPS accretive

and it will enhance FY23E revenue/EPS by +6/4%; (6) top-10 clients ARPU

increased by 10% YoY to INR 0.21mn in Q3.

Outlook: We expect revenue growth of +28.8/21.0%, based on paid supplier

growth of +16.8/14.9% and ARPU growth of 3.9/5.7% for FY23/24E

respectively. EBITDA margin estimate stands at 40.5/42.4% for FY23/24E,

leading to an EPS CAGR of 16% over FY21-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 1,881 1,736 8.4 1,824 3.1 6,389 6,696 7,516 9,684 11,719

EBITDA 788 878 -10.3 832 -5.3 1,689 3,282 3,280 3,925 4,966

APAT 702 802 -12.5 822 -14.6 1,474 2,798 3,104 3,530 4,328

EPS 22.8 26.3 -13.2 26.8 -14.9 47.9 91.0 101.0 114.8 140.8

P/E (x)

104.4 55.0 49.6 43.6 35.5

EV / EBITDA (x)

85.8 39.9 40.7 32.9 24.9

RoE (%)

67.8 29.7 20.9 23.5 23.9


Change in estimates

INR Mn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 7,535 7,516 -0.2 9,118 9,684 6.2 11,077 11,719 5.8

EBITDA 3,494 3,280 -6.1 4,176 3,925 -6.0 5,083 4,966 -2.3

EBITDA

margin (%) 46.4 43.6 -273 bps 45.8 40.5 -526 bps 45.9 42.4 -351 bps

APAT 3,383 3,104 -8.2 3,742 3,530 -5.7 4,292 4,328 0.8

EPS (INR) 110.0 101.0 -8.2 121.7 114.8 -5.7 139.6 140.8 0.8


BUY

CMP (as on 25 Jan 2022) INR 5,005


NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-5.7 +0.8

KEY STOCK DATA

Bloomberg code INMART IN


MCap (INR bn) / ($ mn) 153/2,056




3M 6M 12M

Absolute (%) (31.7) (31.0) (35.8)

Relative (%) (26.5) (40.2) (55.5)


Sep-21 Dec-21



FPIs 27.91 26.53



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 147

HSIE Results Daily

Cyient

Growth reviving

Cyient reported a good quarter; revenue was up 5.9% QoQ CC (higher than

our estimate) and margin performed better than expected. The services

segment reported double-digit YoY growth after thirteen quarters (+4.4/12.4%

QoQ/YoY CC), led by recovery in aerospace (+3.9/14.5% QoQ/YoY). The worst

phase of commercial aerospace is over and, going ahead, growth will be led by

Avionics and MRO revival. The management has maintained its double-digit

growth guidance for services but lowered the DLM growth guidance (single

digit vs. 15-20% earlier), citing fulfilment challenges. Margin guidance has

been upgraded by 50bps. The deal pipeline was up 27% YoY and the company

closed seven deals worth TCV of USD 69mn (+8% QoQ) in the quarter.

Margin performance has been decent (over the past six quarters) but further

expansion seems difficult due to rising attrition. We lower our EPS estimate

by 3.5/4.6% for FY23/24E due to reduced DLM revenue guidance and a slight

reduction in margin assumption. Our target price of INR 1,285 is based on 22x

Mar-24E EPS. The stock is trading at 19.1/16.7x FY23/24E, a steep discount of

~55% to LTTS. Maintain BUY.

Q3FY22 highlights: (1) USD revenue grew +5.2% QoQ (above our estimate

of 3.9% QoQ; core services/DLM revenue grew +3.6/12.9% QoQ; (2) services

EBIT margin improved 10bps QoQ to 15.6% (higher than our estimate of

14%), led by operational efficiency (+87bps), SG&A leverage (+139bps) and

lower depreciation (+54bps), but was partially offset by furloughs (-107bps),

change in revenue mix (-80bps), merit increase (-54bps) and travel (-25bps);

(3) DLM margin declined 81bps QoQ to 6%, impacted by supply-side

challenges; (5) the company won seven large deals of TCV USD 68.8mn, six

of which were in services and one in DLM; (6) attrition inched up to 29.3%

(the highest in mid-tier IT).

Outlook: We have factored in +10.1/+13.9/+13.4% USD revenue growth for

FY22/23/24E respectively; FY22E implies +10.5/+8.2% growth in

services/DLM. We have factored in a 13.6/13.5/13.6% EBIT margin for

FY22/23/24E, resulting in an EPS CAGR of 14% over FY22-24E.

Quarterly Financial summary YE March

(INR bn)

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD Mn) 158 141 11.7 150 5.2 625 557 613 698 792

Net Sales 11.83 10.44 13.3 11.12 6.4 44.27 41.32 45.66 52.36 60.19

EBIT 1.64 1.16 41.1 1.56 5.4 4.08 4.16 6.22 7.08 8.20

APAT 1.32 0.95 38.2 1.21 8.6 3.73 3.72 4.92 5.61 6.42

Diluted EPS (INR) 12.0 8.7 38.2 11.0 8.6 33.9 33.8 44.7 51.0 58.4

P/E (x)

28.8 28.9 21.8 19.1 16.7

EV / EBITDA (x)

17.3 15.9 11.4 9.9 8.5

RoE (%) 14.5 13.5 16.0 16.8 17.6


Change in Estimates


Revised

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 617 613 (0.7) 704 698 (0.9) 798 792 (0.7)

Revenue 45.98 45.66 (0.7) 52.82 52.36 (0.9) 60.64 60.19 (0.7)

EBIT 6.21 6.22 0.1 7.15 7.08 (1.0) 8.42 8.20 (2.6)


APAT 4.96 4.92 (1.0) 5.82 5.61 (3.5) 6.73 6.42 (4.6)

EPS (INR) 45.1 44.7 (1.0) 52.9 51.0 (3.5) 61.2 58.4 (4.6)


BUY



NIFTY 17,757

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-1.0 -3.5

KEY STOCK DATA

Bloomberg code CYL IN


MCap (INR bn) / ($ mn) 108/1,447




3M 6M 12M

Absolute (%) (19.3) (0.2) 94.5

Relative (%) (16.4) (14.1) 75.1


Sep-21 Dec-21



FPIs 35.56 34.72



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 148

HSIE Results Daily

Zensar Technologies

Gradual recovery; strategy on track

We maintain BUY on Zensar, following an in-line revenue performance and

better-than-expected margin delivery coupled with healthy deal wins. Zensar

delivered growth of 4.7% QoQ CC, supported by healthy growth in the BFS

(+22.4% QoQ CC) and consumer (+9.6% QoQ CC) verticals. The TCV stood at

USD 125.2mn in Q3 and, excluding the large City of San Diego deal in Q2, it

improved by ~30% QoQ. The hi-tech vertical was impacted by furloughs and

will return to growth trajectory. The investments in the BFSI/retail vertical are

yielding results and will be the prime revenue driver. The margin profile has

been volatile and was impacted by higher sub-con and rising employee costs.

The management expects EBITDA margin to stabilise in the mid-teens; higher

fresher intake and near-shore locations will reduce dependence on

subcontractors and increase utilisation. We reduce our EPS estimates by 6/4%

for FY23/24E, to factor in the lower margin. Our TP of INR 600 is based on 24x

FY24E EPS. The stock is trading at a PE of 22.2/16.4x FY23/24E EPS, a discount

of ~40% to tier-2 IT.

Q3FY22 highlights: (1) Zensar’s revenue came in at USD 147.1mn,

+3.7/+19.8% QoQ/YoY (+4.7/19.9% QoQ/YoY CC terms), in line with our

estimate of USD 148mn; (2) among the verticals, growth was led by

consumer/banking verticals, registering growth of +9.6/+22.4% QoQ CC,

which offset the decline in manufacturing/hi-tech/insurance of -5.6/-2.1/-

1.4% QoQ CC; (3) among the geographies, growth was led by the Europe

(+6% QoQ), followed by the US (+4.4% QoQ; supported by healthy growth

in BFS & consumer vertical), while South Africa declined (-4.1% QoQ;

impacted by FX and COVID restrictions); (4) EBITDA margin contracted

97bps QoQ to 14.4% (vs. our expectation of 13.8%), impacted by FX

headwind (-30bps), lower utilisation (-120bbps), and SG&A (-20bps), but

partially offset by lower cost of delivery (+60bps); (5) attrition inched up to

26.7% (+350bps QoQ) while utilisation declined by 340bps QoQ to 79.9%.

Outlook: We expect USD revenue growth of +15.6/15.2/12.5% and EBITDA

margin of 15.9/15.4/17.2% for FY22/23/24E, resulting in revenue/EPS CAGRs

of +14/18% over FY21-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD Mn) 147 123 19.79 142 3.66 566 494 571 658 740

Net Sales 11.03 9.07 21.62 10.51 4.94 40.10 36.68 42.52 49.33 56.22

EBIT 1.11 1.44 -22.95 1.14 -2.88 3.47 5.11 4.90 5.48 7.36

APAT 0.91 0.99 -7.80 0.94 -3.60 2.63 3.50 3.92 4.23 5.73

Diluted EPS (INR) 4.0 4.3 -7.1 4.2 -3.6 11.5 15.3 17.2 18.5 25.1

P/E (x) 35.7 26.8 23.9 22.2 16.4

EV / EBITDA (x)

17.3 11.7 11.6 10.0 7.5

RoE (%) 12.7 15.7 15.5 15.3 18.7



(INR bn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 572 571 -0.1 659 658 -0.2 747 740 -1.0

Revenue 42.56 42.52 -0.1 49.45 49.33 -0.2 56.77 56.22 -1.0

EBIT 4.79 4.90 2.2 5.94 5.48 -7.7 7.75 7.36 -5.1


APAT 3.87 3.92 1.3 4.50 4.23 -6.1 5.94 5.73 -3.6

EPS (INR) 16.9 17.2 1.3 19.7 18.5 -6.1 26.0 25.1 -3.6


BUY



NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+1.3 -6.1

KEY STOCK DATA

Bloomberg code ZENT IN


MCap (INR bn) / ($ mn) 93/1,247




3M 6M 12M

Absolute (%) (7.9) 9.2 72.9

Relative (%) (2.8) 0.0 53.2


Sep-21 Dec-21



FPIs 15.75 17.81



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 149

HSIE Results Daily

Sonata Software Steady growth, margin moderation

We maintain our BUY recommendation on Sonata, following strong growth of

8.6% QoQ CC (~4% organic) in the IT services segment (IITS) and continued

traction in the DPS business (+33% YoY). The Microsoft portfolio (~50% of

IITS) is driving growth (+9.6% QoQ), with the company remaining optimistic

that the opportunity (digital services + dynamics 365) can deliver >20% YoY

growth consistently. Travel vertical reported second consecutive quarter of

>+4% growth but the recovery trajectory might be prolonged due to the impact

of the third wave (in Europe). The IITS EBITDA margin declined 80bps QoQ

to 24.1%, owing to ongoing supply side concerns, partially offset by

offshoring and peak utilisation (~90%). Attrition inched up to 22-23% level

and the company is expected to hike wages in Q4 and Q1FY23E to counter

attrition. The target margin range for IITS is ~23-25%; however, we believe it

would be closer to the lower end. DPS growth was strong, supported by

growth in cloud license sales. Sonata’s growth will be driven by Microsoft

account, data analytics and cloud services, and strong DPS business. We

increase our revenue estimates by ~2% but cut our EPS estimates by 2.1/1.2%

for FY22/23E due to lower margin (~100bps margin cut for IITS). Our target

price of INR 1,085 is based on 22x Mar-24E EPS. The stock is trading at a P/E of

20.8/17.4x FY23/24E.

Q3FY22 highlights: IITS revenue stood at USD 53.4mn, with +8.1% QoQ

growth, above our estimate of USD 52.5mn. Digital/platform revenue

contributed 72/23% to IITS revenue and grew +11/+13% QoQ while IP-led

revenue (32% of the revenue) declined 1.2% QoQ. Retail/distribution

ISV/travel grew +16/8.6/8.4/4.8% QoQ. IITS EBITDA margin stood at 24.1% (-

80bps QoQ) and DPS EBITDA margin stood at 2.5% (-310bps QoQ).

Consolidated revenue witnessed robust growth of +92% QoQ, supported by

strong growth in DPS (+142% QoQ) and EBITDA margin stood at 7.1% (-

569bps QoQ), largely impacted by the change in mix and lower IITS margin.

The wage hike will have an impact of ~150bps in Q4 and attrition is expected

to moderate.

Outlook: We expect IITS growth of +26.4/+20.1/16.2% and DPS growth of

+30.7/21.2/21.7% for FY22/23/24E. IITS margin will be at 23.3/22.9/23.3% and

DPS margin at 3.5/3.5/3.6% for FY22/23/24E respectively. We expect to see

revenue/EPS CAGRs of +21/28% for FY21-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


IITS Revenues (USD mn) 53 41 30.2 49.4 8.1 181 160 203 243 283

Net Sales 18.58 13.96 33.1 9.63 92.9 37.43 42.28 54.77 66.52 80.26

EBIT 1.19 1.01 17.8 1.11 6.9 3.36 3.40 4.39 5.35 6.50

APAT 0.98 0.76 29.2 0.91 7.1 2.77 2.44 3.66 4.30 5.12

Diluted EPS (INR) 9.4 7.3 29.2 8.8 7.1 26.7 23.5 35.2 41.4 49.3

P/E (x)

32.3 36.6 24.4 20.8 17.4

EV / EBITDA (x) 23.6 22.3 17.1 13.9 11.2

RoE (%) 38.5 31.0 37.4 37.8 38.6


Change in Estimates

YE March (INR bn) FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD mn) 201 203 1.0 239 243 1.8 278 283 1.8

Revenue 53.23 54.77 2.9 64.46 66.52 3.2 77.80 80.26 3.2

EBIT 4.44 4.39 (1.3) 5.44 5.35 (1.6) 6.53 6.50 (0.4)


APAT 3.58 3.66 2.1 4.39 4.30 (2.1) 5.18 5.12 (1.0)

EPS (INR) 34.5 35.2 2.1 42.3 41.4 (2.1) 49.8 49.3 (1.0)


BUY



NIFTY 18,113

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+2.1 -2.1

KEY STOCK DATA

Bloomberg code SSOF IN


MCap (INR bn) / ($ mn) 90/1,215




3M 6M 12M

Absolute (%) (7.1) 9.9 119.0

Relative (%) (5.5) (4.4) 93.9


Sep-21 Dec-21



FPIs 16.49 13.94



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 150

HSIE Results Daily

Mastek Growth revival on the cards, order book strong Given a strong UK government portfolio and ongoing turnaround in the US

business, we maintain a BUY on Mastek, despite the fact that it had a soft Q3

(though it was in line with our estimate). The softness was mainly due to a

slowdown in UK private (retail and BFSI), owing to project completions and

furloughs. However, we expect Mastek’s growth trajectory to revive, based on:

(1) a strong footing in the UK government business; (2) cloud

migration/transformation agenda, which is driving Evosys growth; (3)

expected recovery in UK private, based on deal wins; and (4) continued

growth in the US geography. The deal pipeline is healthy and Mastek closed a

USD 60mn NHS deal, driving the 12M order book to USD 171mn (+10% QoQ).

We expect the next phase of growth to be driven by the US geography; the

company is looking for an M&A to gain a head start there. The EBIT margin

was maintained in the quarter but, going forth, it could face headwinds due to

increase in discretionary cost, attrition, and fresher hiring. We have cut our

EPS estimate by 1-4% and our TP of INR 3,365 is based on 24x Mar-24E EPS.

The stock is trading at a P/E 25.1/20.4x FY23/24E, which is a discount of ~34%

to the mid-tier IT average.

Q3FY22 highlights: (1) Revenue grew to USD 73.6mn (+3.7/20.9% QoQ/YoY

CC), in line with our estimate of USD 73.7mn, led by growth in the US

geography (+3.8% QoQ); it offset the decline in non-government UK

business (-8.8% QoQ); (2) among the verticals, growth was led by healthcare

with revival in NHS (+17.8% QoQ), followed by government (+9.6% QoQ)

and retail (+1.2% QoQ), partially offset by decline in financial services (-5.1%

QoQ) as well as other verticals (-24.1% QoQ); (3) EBIT margin remained flat

QoQ at 19.1%, supported by an improvement in the gross margin; (4) cloud

and enterprise app, which is primarily Evosys, was up +11 QoQ while

digital & application engineering declined -8% QoQ; (5) Mastek hired 275

employees on a net basis in Q3 (208 employees in Q2), with attrition inching

up 380bps QoQ to 28%.

Outlook: We expect USD revenue growth of +26.2/17.2/14.1% in

FY22/23/24E, which implies a CQGR of 4/2.2 for FY23/24E. We estimate EBIT

margin would come in at 19.2/18.2/19.1% in FY22/23/24E, resulting in an

FY22-24E EPS CAGR of 19%.


YE Mar (INR bn) Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Revenue (USD mn) 74 60 22.4 72 2.1 151 232 293 343 392

Net Sales 5.52 4.43 24.6 5.34 3.4 10.71 17.22 21.80 25.73 29.76

EBIT 1.06 0.92 14.7 1.02 3.2 1.32 3.20 4.19 4.68 5.69

APAT 0.74 0.57 28.2 0.72 1.9 1.31 2.11 2.93 3.37 4.16

Diluted EPS (INR) 24.81 20.15 23.1 27.78 (10.7) 46.1 73.5 98.6 113.5 140.2

P/E (x)

61.9 38.8 28.9 25.1 20.4

EV / EBITDA (x)

51.6 20.6 16.5 14.2 11.4

RoE (%)

17.4 25.4 30.2 28.0 28.0


Change in Estimates


Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue (USD Mn) 293 293 (0.0) 343 343 0.1 391 392 0.1

Revenue 21.80 21.80 (0.0) 25.71 25.73 0.1 29.72 29.76 0.1

EBIT 4.17 4.19 0.3 4.80 4.68 (2.5) 5.78 5.69 (1.5)


APAT 2.94 2.93 (0.5) 3.50 3.37 (3.7) 4.21 4.16 (1.0)

EPS (INR) 99.1 98.6 (0.5) 117.9 113.5 (3.7) 141.7 140.2 (1.0)


BUY

CMP (as on 20 Jan 2022) INR 2,854


NIFTY 17,757

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-0.5 -3.7

KEY STOCK DATA

Bloomberg code MAST IN


MCap (INR bn) / ($ mn) 85/1,140




3M 6M 12M

Absolute (%) (3.5) 14.3 147.6

Relative (%) (0.5) 0.4 128.2


Sep-21 Dec-21



FPIs 4.16 4.84



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

P a g e | 151

HSIE Results Daily

CDSL

On a strong footing

CDSL growth moderated to +3.8% QoQ (vs. average growth of ~14% in the

past four quarters) and both revenue and margin were below our estimates.

The transaction and IPO/corporate action charges grew by +6.0/+8.9% QoQ,

but the pace of growth declined towards CY21-end. The encouraging part is

that the company continues to add BO accounts at a healthy rate (+92.4% YoY)

and gain market share. The market-linked revenue (~70%) is volatile but

delivered a pre-pandemic (FY15-FY20) CAGR of 16%. We maintain a positive

stance, based on (1) continuing momentum in transaction/pledge/IPO

revenue, led by retail activity (online brokers); (2) continued gains in BO

account market share (+1,061bps YoY to ~70%); (3) growth in annual issuer

charges; (4) higher activity in the IPO market; and (5) +17/18%

revenue/EBITDA CAGRs over FY22-24E, following two strong years of

revenue growth (+53/66% growth in FY21/22E). We cut our revenue and EPS

estimates for FY23/24E marginally (1-2%). Our SoTP valuation assigns 45x to

Mar-24E core profit and adds net cash to arrive at a TP of INR 1,800.

Q3FY22 highlights: CDSL revenue stood at INR 1.51bn (+3.8/+75.9%

QoQ/YoY), lower than our estimate of INR 1.57bn. The annual

issuer/transaction/KYC revenues were up +0.6/+6.0/+11.0% QoQ. Revenue

from IPO/corporate action was up 8.9% QoQ, while other comprising e-

voting and e-CAS revenue declined by 18.2% QoQ. On the cost front,

employee/technology/other costs were up/down by +5.9/-5.3/+4.4% QoQ,

and EBITDA margin at 68.1% remained flattish (vs. estimate of 69.3%).

Outlook: We expect revenue growth of 66/18/15% and an EBITDA margin of

67/68/68.2% in FY22/23/24E. The revenue CAGR of 31% over FY21-24E

assumes +21/34/52/40% CAGR in issuer/transaction/IPO/KYC revenue. Core

PAT CAGR over FY21-24E is at +36%.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Revenue 1,515 861 75.9 1,460 3.8 2,251 3,437 5,708 6,760 7,771

EBITDA 1,032 560 84.3 992 4.1 1,084 2,118 3,826 4,597 5,301

APAT 837 537 56.0 864 (3.1) 1,255 2,003 3,196 3,901 4,409

Diluted EPS 8.0 5.1 56.0 8.3 (3.1) 12.0 19.2 30.6 37.3 42.2

P/E (x)

125.8 78.8 49.4 40.5 35.8

EV / EBITDA (x)

139.1 70.2 38.5 31.6 27.0

RoE (%)

17.3 22.8 30.4 30.8 29.2

Cash/Mcap (%) 4.0 4.8 5.2 6.3 7.5


Change in estimates YE March

(INR mn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 5,837 5,708 (2.2) 6,828 6,760 (1.0) 7,836 7,771 (0.8)

EBITDA 3,958 3,826 (3.3) 4,668 4,597 (1.5) 5,368 5,301 (1.2)

EBITDA

margin (%) 67.8 67.0 -77bps 68.4 68.0 -35bps 68.5 68.2 -29bps

APAT 3,365 3,196 (5.0) 3,957 3,901 (1.4) 4,462 4,409 (1.2)

EPS (INR) 32.2 30.6 (5.0) 37.9 37.3 (1.4) 42.7 42.2 (1.2)


BUY



NIFTY 17,464

KEY CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-1.4 -1.2

KEY STOCK DATA

Bloomberg code CDSL IN


MCap (INR bn) / ($ mn) 158/2,122




3M 6M 12M

Absolute (%) 3.9 14.8 194.8

Relative (%) 7.2 7.4 180.9


Sep-21 Dec-21



FPIs 8.57 9.16



Source : NSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 152

HSIE Results Daily

BSE

On track; new initiatives promising

BSE Ltd reported a decent quarter with an in-line revenue (+2.0% QoQ) and

margin. Growth was led by higher book building (+31.3% QoQ) and StAR MF

(+12.5% QoQ) revenue. BSE maintained its cash market share at 7.3%, while

the derivatives market share declined to ~3.3% (vs. 6.6% QoQ). New initiatives

like the insurance platform and power exchange appear promising but

currently lack revenue visibility. The exchange has sought regulatory

approval for electronic gold receipts (EGR), which will enable spot gold

trading. The mock trading in electricity futures is expected to start in Q4FY23

and can create an additional revenue stream. Revenue growth will be led by

continued growth in transaction volume, rising number of transactions in

StAR MF, and stable listing revenue. The exchange can generate higher listing

revenue if they charge based on market-cap instead of issued capital. We

increase the EPS estimate by +1.5/2.6% for FY23/24E, based on better margin.

Our SoTP-based target price of INR 2,260 assigns 25x to core Mar-24E PAT

(INR 1271/share), INR 594/share for the CDSL stake, and adds net cash of INR

396/share. Maintain BUY.

Q3FY22 highlights: Revenue was up 2.1% QoQ to INR 1.93bn, in line with

our estimate of INR 1.95bn. Cash transaction revenue declined by -12.5%

QoQ, due to decline of 7% in volumes. StAR MF realisation declined by 4%

QoQ to INR 2.7/order but volume was up 106/18% YoY/QoQ, leading to

revenue growth of 12.5%. Listing/book building revenue was up 1.1/31.3%

QoQ. INX ADTV declined sharply to USD 4.8bn (-59% QoQ) and the

number of daily trades were at 37k. EBITDA margin stood at 34.5% (+217

bps QoQ), supported by flattish operational expenses. The company

declared a bonus issue of 2:1 and the search for new MD & CEO has started.

Outlook: We expect revenue growth of 44.6/12.4/10.8% and EBITDA

margins of 32.9/34.2/35.2% in FY22/23/24E respectively. We are assuming

StAR MF revenues of INR 0.51/0.76/1.1bn in FY22/23/24E. Core profits after

taxes for FY22/23/24E stand at INR 1.70/1.98/2.28bn.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 1,927 1,206 59.8 1,887 2.1 4,505 5,014 7,247 8,147 9,030

EBITDA 665 119 458.2 610 8.9 81 725 2,383 2,785 3,175

APAT 702 421 66.9 730 (3.8) 1,410 1,750 3,018 3,770 4,157

EPS 15.6 9.3 66.9 16.2 (3.8) 31.3 38.9 67.1 83.8 92.4

P/E (x)

66.3 53.4 31.0 24.8 22.5

EV / EBITDA (x)

932.4 105.8 31.8 26.7 22.9

RoE (%)

5.8 7.0 11.6 14.0 15.0



(INR mn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 7,164 7,247 1.2 8,102 8,147 0.6 8,883 9,030 1.7

EBITDA 2,300 2,383 3.6 2,740 2,785 1.6 3,028 3,175 4.9

EBITDA

margin (%) 32.1 32.9 78bps 33.8 34.2 37bps 34.1 35.2 107bps

APAT 3,225 3,018 (6.4) 3,713 3,770 1.5 4,052 4,157 2.6

EPS (INR) 71.7 67.1 (6.4) 82.5 83.8 1.5 90.0 92.4 2.6


BUY



NIFTY 17,267

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

+1.5 +2.6

KEY STOCK DATA

Bloomberg code BSE IN


MCap (INR bn) / ($ mn) 94/1,257




3M 6M 12M

Absolute (%) 48.4 70.6 241.6

Relative (%) 52.9 64.1 229.0


Sep-21 Dec-21

Promoters 0.00 0.00


FPIs 7.59 9.06



Source : NSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 153

HSIE Results Daily

Multi Commodity Exchange

Options to drive growth

We maintain BUY on MCX, following better-than-expected revenue and

margin performance. Futures ADTV declined (-6.6% QoQ) sequentially for

the fifth consecutive quarter, led by decline in energy (-12% QoQ), metals (-

5.3% QoQ) and continued weakness in bullion (-2.3% QoQ). The uptick in

option volumes is offsetting the decline in futures volume and creating an

additional channel of revenue (started charging in Q3). The launch of new

products like electricity futures, spot bullion segment, natural gas options and

splitting of bi-monthly contracts (regulatory approval awaited) will boost

volumes. The regulatory changes related to peak margin collections and

segregation of collaterals among exchanges will add to additional compliance

and it has impacted volumes. The shift to the new trading platform and new

revenue streams will lead to a margin tailwind in FY23/24E. We moderate our

EPS estimates for FY23/24E by 2.9/1.1% to adjust for lower futures volume. We

assign 35x P/E to Mar-24E core PAT and add net cash (ex-SGF) to arrive at a

target price of INR 2,150.

Q3FY22 highlights: MCX revenue stood at INR 0.89bn (+7.6/-11.2%

QoQ/YoY), slightly higher than our expectation of INR 0.86bn. The total

traded value for futures was at INR 15.71trn (-6.6/-24.2% QoQ/YoY) and

ADTV stood at INR 238bn (-6.6/-25.3% QoQ/YoY). Bullion/energy/metals

ADTV were down -2.3/-12.0/-5.3 QoQ, while agri ADTV increased by +6.3%

QoQ. EBITDA margin stood at 42.7%, up 211bps QoQ, on account of control

in expenses. Active UCC was up 11.5/66% QoQ/YoY, indicating higher retail

participation. Options notional/premium ADTV stood at INR 86/1.84bn and

contributed ~INR 0.1bn in Q3, which is ~12% total revenue.

Outlook: We estimate +5/192% futures/options ADTV CAGRs, leading to

+14/+24% revenue/EBITDA CAGRs over FY21-24E. The change in

technology vendor in Oct-22 should lead to a ~500bps margin benefit over

FY23-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 896 1,009 (11.2) 832 7.6 3,978 3,906 3,502 4,502 5,732

EBITDA 383 487 (21.4) 338 13.2 1,784 1,852 1,453 2,414 3,514

APAT 345 718 (52.0) 327 5.5 2,365 2,252 1,541 2,530 3,480

EPS 6.8 14.1 (52.0) 6.4 5.5 46.5 44.3 30.3 49.7 68.4

P/E (x)

33.1 34.7 50.8 30.9 22.5

EV / EBITDA (x)

38.0 36.2 45.5 27.1 18.4

RoE (%)

18.1 16.2 10.8 17.2 22.6



(INR mn)

FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 3,534 3,502 -0.9 4,588 4,502 -1.9 5,787 5,732 -0.9

EBITDA 1,487 1,453 -2.3 2,500 2,414 -3.5 3,548 3,514 -1.0

EBITDA


APAT 1,695 1,541 -9.1 2,606 2,530 -2.9 3,517 3,480 -1.1

EPS (INR) 33.3 30.3 -9.1 51.2 49.7 -2.9 69.1 68.4 -1.1


BUY

CMP (as on 31 Jan 2022) INR 1,538


NIFTY 17,340

KEY CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-2.9 -1.1

KEY STOCK DATA

Bloomberg code MCX IN


MCap (INR bn) / ($ mn) 78/1,054




3M 6M 12M

Absolute (%) (9.8) (4.1) (6.4)

Relative (%) (7.6) (14.4) (31.8)


Sep-21 Dec-21

Promoters 0.00 0.00


FPIs 32.49 31.35



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 154

HSIE Results Daily

Teamlease Services

Strong growth momentum

We maintain BUY on Teamlease, following a better-than-expected revenue

(+15.7% QoQ) and improving macro environment. The robust performance

was witnessed in core/HR services that grew +17.0/+17.7 QoQ, supported by

strong volume growth in general staffing (+9.0% QoQ). Specialised staffing

remained flattish (+1.2% QoQ) due to seasonal impact. Improved hiring

activity across key verticals (ecommerce, telecom, consumer, and BFSI), the

addition of 53 new logos, and positive hiring outlook across industries will

aid growth in the core staffing segment (90% of revenue). Specialised staffing

(8% of revenue) will continue to grow, led by traction in IT hiring, increase in

open positions, and hiring across domains. We expect (1) gradual

improvement in general staffing EBITDA margin, led by mark-up

improvement and automation, (2) HR services targeting margin of >10%, and

(3) specialised staffing margin to stabilise at 8-8.5%. We maintain our EPS

estimates for FY23/24E; our TP of INR 5,260 is based on 40x Mar-24E EPS (five-

year average PE of ~35x). The stock is trading at a PE of 39/29x FY23/24E EPS.

Q3FY22 highlights: Revenue stood at INR 17.6bn, up 15.7% QoQ, vs. our

estimate of INR 16.4bn. Core/specialised/HR services revenue was up

+17.0/+1.2/+17.7% QoQ. The mark-up increased to INR 726 and the associate

to core ratio increased to 388 (+5.8% QoQ). EBITDA margin for core

staffing/specialised staffing/HR services stood at 1.7/8.4/7.6%. The company

focuses on making organic investments in talent and technology.

OCF/EBITDA at 85% for 9MFY22.

Outlook: We expect revenue growth of 25.6/20.4% in FY23/24E and EBITDA

margin of 2.2/2.5% respectively, leading to revenue and EPS CAGRs of 26%

and 40% over FY21-24E.



FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Revenue 17.62 12.75 38.2 15.24 15.7 52.01 48.81 65.19 81.88 98.60

EBITDA 0.38 0.25 51.9 0.34 10.3 0.95 0.98 1.40 1.84 2.42

APAT 0.30 0.23 28.7 0.26 17.9 0.85 0.81 1.22 1.68 2.25

Diluted EPS (INR) 17.7 13.7 28.7 15.0 17.9 49.5 47.6 71.4 98.4 131.5

P/E (x)

76.8 79.8 53.3 38.6 28.9

EV / EBITDA (x)

68.3 62.5 43.8 32.4 23.9

RoE (%)

15.2 13.3 18.0 21.4 22.9


Change in estimates

INR bn FY22E

Old

FY22E

Revised

Change

%

FY23E

Old

FY23E

Revised

Change

%

FY24E

Old

FY24E

Revised

Change

%

Revenue 62.88 65.19 3.7 79.47 81.88 3.0 95.59 98.60 3.1

EBITDA 1.40 1.40 0.0 1.85 1.84 (0.5) 2.41 2.42 0.2

EBITDA


APAT 1.24 1.22 (1.3) 1.70 1.68 (0.8) 2.25 2.25 (0.1)

EPS (INR) 72.3 71.4 (1.3) 99.2 98.4 (0.8) 131.5 131.5 (0.1)


BUY

CMP (as on 25 Jan 2022) INR 3,799


NIFTY 17,278

KEY CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-0.8 -0.1

KEY STOCK DATA

Bloomberg code TEAM IN


MCap (INR bn) / ($ mn) 65/873




3M 6M 12M

Absolute (%) (17.5) (4.1) 36.6

Relative (%) (12.4) (13.3) 17.0


Sep-21 Dec-21



FPIs 37.65 38.21



Source : BSE


Amit Chandra

[email protected]

+91-22-6171-7345

Mohit Motwani

[email protected]

+91-22-6171-7328

P a g e | 155

HSIE Results Daily

Oil & Gas

P a g e | 156

HSIE Results Daily

Reliance Industries

Growth in all segments

Our ADD rating on Reliance Industries (RIL) with a price target of INR

2,820/sh is premised on (1) recovery in the O2C businesses; (2) continued

EBITDA growth in the digital business, driven by improvement in ARPU,

subscriber addition, and new revenue streams; and (3) potential for further

value unlocking in the digital and retail businesses.

RIL reported standalone revenue of INR 1,112bn (+81% YoY; +15% QoQ)

and EBITDA of INR 139bn, (+60% YoY; +12% QoQ), 3% below our estimates

in Q3. Standalone APAT was at INR 102bn (+18% YoY, +10% QoQ;

HSIE:INR 113bn).

Standalone oil to chemicals (O2C) segment: Revenue grew 69% YoY to INR

1,198bn, primarily due to improved realisation, supported by increase in oil

prices and higher volumes. Q3 EBITDA improved by 41% YoY to INR

129bn, mainly due to better transportation fuel cracks and yield

management. Crude throughput at 19.7mmt, up +18% YoY, +5% QoQ.

Oil & gas: Revenue grew 65% QoQ to INR 21bn and EBITDA improved 89%

QoQ to INR 17bn, driven by sharp improvement in price realisaton and

stable production from KG D6 block. The average KG D6 production for Q3

was at ~18 MMSCMD (flat QoQ), supported by sustained production from

R-Cluster and Satellite Cluster.

RJPL: Revenue improved by 6% YoY and 4% QoQ to INR 242bn due to a

meaningful increase in gross subscriber addition of 34.6mn in Q3. ARPU

was up +6% QoQ to INR 151.6, while the net subscriber addition was -8.4mn

due to SIM consolidation and repurposing of customer retention effort.

Reliance Retail (RR): Gross revenue (ex-Petro) grew 52.5% YoY to INR

577.1bn (HSIE: INR 520bn). Core retail revenue nearly doubled (two-year

CAGR: 18.5%) to INR 379.8bn (HSIE: 257.7bn). All segments (ex-

connectivity) recovered well. Two-year revenue CAGRs for grocery(ex-

JioMART)/consumer electronics/F&L/connectivity segments are estimated at

20/1/47/17% respectively. 97% of stores were operational in Q3FY22 (similar

YoY); footfalls were at 95% of pre-COVID levels (vs 89% in Q2). Adj EBITDA

(excl. INR 3bn investment income) grew 52% YoY to INR 35.2bn (HSIE: INR

22.1bn). Improving mix (higher contribution of F&L, reducing contribution

of connectivity) aided margin beat (Adj. EBITDAM: 7%). Core retail

EBITDAM stood at 8.2%, down 190bps YoY (HSIE: 7.2%). RR added 837

stores/2.3mn sq. ft in Q3, taking the count to 14,412 stores/39.6mn sq. ft.

Valuation: We use EV/EBITDA to value downstream at Sep-23E EV/e, retail

on peer benchmarked EV/e and E&P and Jio on DCF. The stock is currently

trading at 10.6x Sep-23E EV/EBITDA and 22x Sep-23E EPS. Maintain ADD.

Financial summary – consolidated

Year Ending March (INR bn) 3Q

FY22

2Q

FY22

QoQ

(%)

3Q

FY21

YoY


Net Sales 1,850 1,676 10.4 1,179 57.0 5,975 4,669 8,055 9,267 10,401

EBITDA 297 260 14.2 216 37.7 890 807 1,076 1,369 1,616

PAT 204 154 32.2 148 37.7 427 437 509 693 834

Diluted EPS (INR) 24.1 20.2 19.2 19.5 23.4 67.4 67.8 75.3 102.4 123.3

P/E (x)

36.7 36.6 32.9 24.2 20.1

EV / EBITDA (x)

21.0 22.3 15.5 11.8 9.6

RoE (%)

10.2 7.6 6.9 8.5 9.4


ADD

CMP (as on 21 Jan 2022) INR 2,478


NIFTY 17,617

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-3.4% -4.0%

KEY STOCK DATA

Bloomberg code RIL IN


MCap (INR bn) / ($ mn) 16,763/225,260




3M 6M 12M

Absolute (%) (5.5) 18.4 18.0

Relative (%) (2.4) 5.3 (0.9)


Sep-21 Dec-21



FPIs 25.39 24.73



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Jay Gandhi

[email protected]

+91-22-6171-7320

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356




P a g e | 157

HSIE Results Daily

ONGC

Operationally in line

We maintain our BUY recommendation on ONGC with a target price of INR

208, based on (1) increase in crude price realisation and (2) improvement in

domestic gas price realisation (to USD 2.9/mmbtu). Average 9MFY22 oil price

realisation improved to USD 74/bbl vs USD 44/bbl in FY21, given the expected

global economic rebound, post COVID. While Q3FY22 revenue was in line,

EBITDA/APAT were 4/14% above our estimates, owing to lower-than-

expected employee cost, other expenses and exploration costs, and higher-

than-expected other income.

Standalone financial performance: Revenue for Q3FY22 was in line, at INR

285bn (+67% YoY, +17% QoQ). EBITDA was at INR 160bn (+91% YoY, +21%

QoQ) due to lower opex. APAT was at INR 88bn, up +7x YoY, supported by

lower opex and higher-than-expected other income.

Standalone operational performance: Q3 crude oil realisation was USD

77.6/bbl (+75% YoY, +9% QoQ), while gas realisation was USD 2.9/mmbtu

(+50% YoY, +53% QoQ). Oil sales volume was 4.4mmt (-1%YoY, +3% QoQ).

Gas sales volume was 4.1bcm (-5% YoY, +1% QoQ).

Con call takeaways: (1) Capex guidance was maintained at ~INR 300bn for

FY23/FY24E. (2) Oil production for FY23/24 was guided at 20.98/24mmt,

while gas production was guided at 24.28/32bcm. (3) The company has

chalked out an action plan for enhanced production target for oil and gas

over FY24/25 to 60/63mmtoe (4) KG 98/2 production currently is at

1mmscmd and is expected to reach 10mmscmd by FY25; Capex incurred for

KG 98/2 project is at INR 155bn with total Capex expected at INR 340bn. (5)

OVL’s Capex has been around USD 1bn; it is expected to rise to USD 1.2bn

over the next two years.

Change in estimates: We marginally reduce FY22/23/24 estimates by

0.2/0.6/0.6% to INR 32.5/38.7/41.2, to factor in Q3FY22 performance.

We value ONGC’s standalone business at INR 178 and its investments at

INR 30. The stock is currently trading at 4.3x FY23E EPS.

Standalone financial summary YE March

(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22* FY23E* FY24E*

Revenues 285 244 16.9 170 67.3 4,250 3,606 4,253 4,558 4,791

EBITDA 160 132 20.7 83 91.3 611 566 779 889 946

APAT 88 129 (31.9) 13 596.6 180 207 409 487 518

AEPS (INR) 7.0 10.2 (31.9) 1.0 596.6 14.3 16.5 32.5 38.7 41.2

P/E (x)

11.6 10.1 5.1 4.3 4.0

EV/EBITDA

(x) 5.2 5.8 3.5 3.1 2.7

RoE (%)

8.5 9.7 17.6 18.9 18.2


Change in estimates (consolidated)

FY22E FY23E FY24E

Old New Ch% Old New Ch% Old New Ch%

EBITDA (INR bn) 780 779 (0.1) 893 889 (0.5) 951 946 (0.5)

AEPS (INR/sh) 32.6 32.5 (0.2) 38.9 38.7 (0.6) 41.4 41.2 (0.6)


BUY



NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

-0.2% -0.6%

KEY STOCK DATA

Bloomberg code ONGC IN


MCap (INR bn) / ($ mn) 2,091/28,097




3M 6M 12M

Absolute (%) 7.5 43.2 71.3

Relative (%) 14.5 41.4 61.9


Sept-21 Dec-21



FPIs 8.08 8.87



Source: BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 158

HSIE Results Daily

Indian Oil Corporation

Marketing segment underperforms

Our ADD rating on Indian Oil Corporation (IOC) with a target price of INR

140 is premised on (1) recovery in domestic demand for petroleum products in

FY22 and FY23, (2) improvement in refining margins in FY22/23, and (3)

sustainability of auto fuel gross margins over INR 4.8/lit.

Reported EBITDA/APAT stood at INR 98.7/58.6bn, -23/-18% below our

estimates, owing to higher-than-expected raw material costs and inventory

loss. Lower-than-expected employee cost and finance cost and higher other

income supported earnings. Reported GRM stood at USD 12/bbl (HSIE: USD

5/bbl).

Refining: Crude throughput in Q3 was broadly in line at 17.4mmt (-3% YoY

and +14% QoQ). Capacity utilisation stood at 99%, on an average. Reported

GRM stood at USD 12/bbl vs USD 6.6/bbl in Q2FY22 and USD 2.2/bbl in

Q3FY21. Refining EBITDA, at INR 76bn (23x YoY, 3.7x QoQ), improved

substantially, driven by higher GRMs and throughput. We estimate core

GRM at USD 3.3/3.5/bbl in FY22/23E.

Marketing: Domestic marketing sales volume stood at 19.2mmt (-2% YoY)

while exports were at 1.6mmt (-2% YoY). Marketing EBITDA loss stood at

INR 4bn, impacted by inventory loss. We expect blended gross margins of

INR 4.8/4.5/lit in FY22/23E.

Updates: (1) The board declared second interim dividend of 40% i.e., INR 4

per equity share of face value of INR 10 each, for FY22. (2) Borrowings, as of

Dec-21-end, stood at INR 883bn (+5% QoQ). (3) A forex loss of INR 150mn

was reported in Q3.

Change in estimates: We revise our FY22/23/24 EPS estimates by +8/-6/-4%

to INR 15.9/15.0/14.5 to factor 9MFY22 performance and moderated margins

for FY23/24.

Our SOTP target, at INR 140/sh, is based on 5x Mar-23E EV/e for

standalone refining and petchem businesses, 5.5x Mar-23E EV/e for

marketing business, 6x Mar-23E EV/e for pipeline business, and INR 35/sh

for other investments. The stock is currently trading at 8.3x on FY23E EPS.

Maintain ADD.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenue 1,668 1,354 23.2 1,063 56.8 4,838 3,639 4,018 4,188 4,395

EBITDA 99 106 (7.2) 96 2.5 162 417 314 307 309

APAT 59 64 (7.8) 49 19.2 (159) 228 146 138 133

AEPS (INR) 6.4 6.9 (7.8) 5.4 19.2 (5.0) 23.6 15.9 15.0 14.5

P/E (x)

(25.1) 5.3 7.8 8.3 8.6

EV / EBITDA (x)

14.1 5.1 5.4 5.7 5.7

RoE (%)

(15.3) 22.0 12.5 11.0 10.0



FY22E FY23E FY24E


EBITDA (INR bn) 299 314 5.0 318 307 (3.6) 318 309 (2.9)

AEPS (INR/sh) 14.7 15.9 8.0 15.9 15.0 (5.7) 15.1 14.5 (4.3)


ADD



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+8.0% -5.7%

KEY STOCK DATA

Bloomberg code IOCL IN


MCap (INR bn) / ($ mn) 1,172/15,744




3M 6M 12M

Absolute (%) (4.9) 18.0 26.0

Relative (%) (4.1) 5.5 6.4


Sept-21 Dec-21



FPIs 7.21 7.94



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 159

HSIE Results Daily

Bharat Petroleum Corporation

Inventory losses dent profitability

Our ADD rating on Bharat Petroleum (BPCL) with a target price of INR 435 is

premised on (1) recovery in domestic demand for petroleum products in FY22

and FY23, (2) improvement in refining margins over the coming 18 months,

and (3) sustained auto fuel gross margin over INR 4.5/lit. Q3FY22

EBITDA/APAT, at INR 42.1/24.6bn, were -14/-12% below estimates, owing to

high operating cost and inventory loss. Reported GRM stood at USD 9.7/bbl

(HSIE: USD 5.7/bbl).

Refining: Crude throughput was in line at 8mmt (+10% YoY, +11% QoQ) in

Q3. Reported GRM stood at USD 9.7/bbl vs USD 2.5/bbl YoY, USD 6/bbl

QoQ. Improved product cracks and higher throughput resulted in higher

GRMs.

Marketing: Domestic marketing sales volume was 11.2mmt (flat YoY, +13%

QoQ). Blended gross margin, at INR 4.8/lit (-15% YoY, -11% QoQ), was

impacted by inventory loss of INR 14.2bn. We expect blended gross margin

of INR 4.8-5/lit over FY22-24E.

Con call takeaways: (1) Capex guidance for FY23/24 is of INR 100/100bn. (2)

Debt at the end of Q3 was INR 242bn, with a D/E ratio of 0.4x (3) The

Propylene Derivatives Petrochemical Project (PDPP) at Kochi is fully

commissioned with current utilisation rate at 75-80%. Production from the

PDPP will be ramped up in Q4FY22. Management expects PDPP project, on

a full-year basis, to contribute GRM of USD 1/bbl. (4) BPCL to commission

1,200 EV stations in CY22 and ~7,000 EV stations over the next 3-5 years. (5)

In Q3, BPCL’s retail market share in MS and HSD is ~29%. (6) BPCL to invest

INR 220bn for development of 23 geographical areas in City Gas business.

Change in estimates: We adjust our FY22/23/24E EPS estimates by +7/-8/-5%

to INR 50.6/51.4/60.1 to factor in the 9MFY22 performance and moderated

margins over FY23-24.

SOTP-based valuation: Our target price comes to INR 435/sh (5x Mar-23E

EV/e for standalone refining business, 5.5x Mar-23E EV/e for marketing

business, 6x Mar-23E EV/e for pipeline business, and INR 170/sh for other

investments). The stock is currently trading at 7.4x on FY23E EPS.


(INR bn)

3Q

FY22

2Q

FY22

QoQ

(%)

3Q

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenues 1,010 815 23.9 667 51.4 2,846 2,302 3,393 3,661 3,921

EBITDA 42 45 (5.9) 43 (2.2) 89 213 185 189 214

APAT 25 27 (8.6) 32 (23.0) 31 162 106 108 126

AEPS (INR) 11.6 12.7 (8.6) 15.0 (23.0) 14.6 77.2 50.6 51.4 60.1

P/E (x)

26.2 4.9 7.6 7.4 6.4

EV/EBITDA (x)

15.4 5.3 6.4 6.1 5.1

RoE (%)

8.1 35.9 19.3 18.2 19.4



FY22E FY23E FY24E


EBITDA (INR bn) 176 185 4.9 202 189 (6.6) 224 214 (4.8)

AEPS (INR/sh) 47.3 50.6 6.8 55.7 51.4 (7.7) 63.2 60.1 (4.9)


ADD



NIFTY 17,780

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

+6.8% -7.7%

KEY STOCK DATA

Bloomberg code BPCL IN


MCap (INR bn) / ($ mn) 829/11,138




3M 6M 12M

Absolute (%) (8.2) (9.8) 1.2

Relative (%) (7.4) (22.3) (18.4)


Sept-21 Dec-21



FPIs 11.97 12.66



Source: BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 160

HSIE Results Daily

GAIL (India)

Natural gas marketing outperforms

Our BUY recommendation on GAIL with a target price of INR 215 is based on

10% CAGR expansion in gas transmission volume over FY22-24E to

136mmscmd on the back of (1) increase in domestic gas production, (2)

increase in demand of RLNG, and (3) completion of major pipelines in eastern

and southern India. Q3FY22 EBITDA/APAT at INR 42.2/32.9bn were 6/18%

above our estimates, owing to strong performance from the gas marketing

segment, lower-than-expected raw material cost, and higher-than-expected

other income.

NG marketing: Q3 revenue came in at INR 221bn (+86% YoY, +24% QoQ).

Marketing volume was at 97mmscmd (+1% YoY, -1% QoQ) and tariff was at

INR 2,021/tscm (+62% QoQ). The operating profit came in at INR 18bn (+60%

QoQ).

Petchem: Q3 revenue was reported at INR 24bn (+24% YoY, +5.1% QoQ),

with sales volume at 217kT, (-6% YoY, -2% QoQ). The overall revenue was

up YoY despite decline in volumes due to improvement in realisation, which

remains healthy at INR 111/kg (+32% YoY, +7% QoQ). The operating profit

of the segment was at INR 5bn on account of improved price realisation.

Con call takeaways: (1) The company incurred a Capex of INR ~50bn for

9MFY22 with guidance of INR 75bn for FY22/23. (2) The management has

guided 5-6% increase in gas transmission volume over couple of years;

current gas transmission volumes trend at ~106mmscmd due to shutdowns

at some of the fertilizer units. (3) The company expects to sustain its

petchem and LPG+LHC margins despite high input gas prices. (4) Post

commissioning of all five fertilizer units, volume offtake is expected at

6mmscmd.

Change in estimates: We adjust our FY22/23/24E EPS estimate by

+14/+8/+3% to INR 23.1/21.9/23.9, post incorporating the Q3FY22 results.

Our SOTP, at INR 215/sh, is based on 7x Mar-23E EV/e for the stable

natural gas, LPG transmission, and gas marketing business, 5x EV/e for

the cyclical petchem and LPG/LHC business, INR 49 for investments. The

stock is currently trading at 6.7x FY23E EPS.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenue 258 215 19.8 155 66.7 725 574 870 979 1,035

EBITDA 42 35 21.7 19 120.3 90 72 135 131 143

APAT 33 29 14.8 15 121.1 94 61 103 97 106

AEPS (INR) 7.4 6.4 14.8 3.3 121.1 21.2 13.8 23.1 21.9 23.9

P/E (x)

6.9 10.7 6.4 6.7 6.2

EV / EBITDA (x)

7.8 9.8 4.8 4.7 3.8

RoE (%)

19.8 12.0 17.6 14.3 13.5


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 119 135 14.1 121 131 8.4 139 143 3.2

AEPS (INR/sh) 20.3 23.1 13.9 20.2 21.9 8.4 23.1 23.9 3.3


BUY



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+13.9% +8.4%

KEY STOCK DATA

Bloomberg code GAIL IN


MCap (INR bn) / ($ mn) 655/8,795




3M 6M 12M

Absolute (%) (2.1) 2.9 13.0

Relative (%) (0.4) (6.4) (4.0)


Sept-21 Dec-21



FPIs 18.36 19.69



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 161

HSIE Results Daily

Gujarat Gas

Margin impacted by higher gas cost

Our BUY recommendation on Gujarat Gas (GGL), with a price target of INR

765, is premised on (1) volume growth at 14% CAGR over FY21-24E; (2)

portfolio of mature, semi-mature, and new geographical areas (GAs); and (3)

compelling valuations, given superior return ratios among the city gas

distribution players. Q3FY22 EBITDA was 67% below our estimate and APAT

was 74% below, owing to 69% below-than-expected per unit EBITDA margin

due to higher spot gas cost and operating expenses, offset by 9% higher

volumes and lower-than-expected employee expenses and interest cost.

Volumes: Blended volume remained muted in Q3 at 11.39mmscmd (-0.5%

YoY, -0.2% QoQ), but was higher than HSIE estimate of 10.43mmscmd, led

by higher-than-expected industrial demand of 8.41mmscmd (2-yr CAGR:

+9%, -3% QoQ). CNG volumes were at 2.17mmscmd (2-yr CAGR: +20%,

+11% QoQ), domestic PNG volumes at 0.67mmscmd (2-yr CAGR: +8%,

+5%QoQ) and commercial PNG volumes at 0.14mmscmd (2-yr CAGR: +8%,

+17% QoQ).

Margin: Per unit gross spread was at INR 4.56 (-41% YoY, -25% QoQ),

impacted by higher costs of spot LNG, which is primarily used for the

industrial segment. This, in turn, dented EBITDA margin to INR 2.27/scm (-

61% YoY and -43% QoQ). We expect per unit EBITDA of INR 5.3/5.9/6.7/scm

in FY22/23/24E.

Change in estimates: We reduce our EPS estimates for FY22/23/24E by

9.8/3.4/0.3% to INR 19.8/25.9/34, to factor in higher spot gas cost and

moderate volumes over FY22-24.

DCF-based valuation: Our target price of INR 765 is based on Mar-23E

free cash flow (WACC 9%, terminal growth rate 3%). The stock is

currently trading at 25.6x FY23E EPS.


(INR bn)

3Q

FY22

2Q

FY22

QoQ

(%)

3Q

FY21

YoY


Revenue 51 36 41.9 28 81.6 103 99 165 178 222

EBITDA 2 4 (43.3) 6 (61.3) 16 21 21 27 34

APAT 1 2 (50.3) 4 (68.8) 12 13 14 18 23

AEPS (INR) 1.8 3.6 (50.3) 5.7 (68.8) 17.2 18.5 19.8 25.9 34.0

P/E (x)

38.6 35.9 33.6 25.6 19.6

EV / EBITDA (x)

28.8 22.2 21.6 16.6 12.5

RoE (%)

43.3 32.8 26.8 27.6 28.2


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 23.8 21.3 (10.2) 28.5 26.9 (5.6) 35.3 34.3 (2.8)

AEPS (INR/sh) 22.0 19.8 (9.8) 26.8 25.9 (3.4) 34.1 34.0 (0.3)


BUY



NIFTY 17,267

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

(9.8)% (3.4)%

KEY STOCK DATA

Bloomberg code GUJGA IN


MCap (INR bn) / ($ mn) 457/6,150




3M 6M 12M

Absolute (%) 6.2 (9.8) 52.8

Relative (%) 10.7 (16.3) 40.2


Sept-21 Dec-21



FPIs 8.07 7.72



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 162

HSIE Results Daily

Hindustan Petroleum Corporation

Profitability remains weak

Our ADD rating on Hindustan Petroleum Corporation (HPCL) with a price

target of INR 345 is premised on (1) recovery in domestic demand for

petroleum products in FY22/23, (2) improvement in refining margins over the

coming 18 months, and (3) sustainability of auto fuel gross margin over INR

4.5/lit. Q3FY22 EBITDA/APAT at INR 18.7/8.7bn were 51/63% below our

estimates, owing to (1) irrecoverable excise duty loss incurred on inventories

at the depot/pipeline network, resulting from excise duty cut on retail fuel

prices and (2) higher F&L due to stabilisation phase at the Mumbai refinery.

GRM was reported at USD 6.4/bbl (HSIE: USD 1.5/bbl).

Refining: Crude throughput in Q3 stood at 4.2mmt (+6% YoY, +68% QoQ),

on account of higher utilisation at the expanded capacity, resulting in an

overall combined capacity utilisation of 106% at refineries in Q3FY22. GRM

stood at USD 6.4/bbl vs. USD 1.9/bbl YoY, USD 2.4/bbl QoQ. GRMs

improved on better product cracks and higher throughput.

Marketing: Domestic marketing sales volume was 10.5mmt (+1.3% YoY,

+15.8% QoQ). Blended gross marketing margin for the quarter including

adventitious loss stood at INR 3.3/lit. We estimate blended gross margin at

INR 4.8/lit in FY22E and INR 5.0/lit in FY23E.

Con call takeaways: (1) Capex planned for FY22 and FY23 is INR 145bn

each. (2) Borrowings as of Dec-21-end stood at INR 373bn. (3) 386 retail

outlets were added, taking the total to 19,602 as of Dec-21-end. (4) Mumbai

refinery expanded capacity was successfully commissioned and both

refineries are operating at over 100% utilisation. (5) Benefit of higher

throughput and improved product cracks to be accrued next quarter

onwards. (6) Vizag expansion is likely to be completed by Mar-22. (7) HPCL

has taken various steps to achieve the net zero emission target over the next

five years, and it will spend ~20% of its Capex on non-fossil fuel.

Our SOTP at INR 345 is based on 5x Mar-23E EV/e for standalone

refining, 5.5x Mar-23E EV/e for marketing business, 6x Mar-23E EV/e for

pipeline business, and INR 73/sh for other investments. The stock is

currently trading at 6.6x on FY23E EPS.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenue 966 831 16.3 687 40.7 2,691 2,332 2,467 2,656 2,804

EBITDA 19 30 (37.9) 33 (43.3) 47 160 87 120 150

APAT 9 19 (54.8) 24 (63.1) 3 107 51 69 90

AEPS (INR) 6.1 13.6 (54.8) 16.6 (63.1) 2.1 73.4 35.3 47.8 61.6

P/E (x)

148.7 4.3 8.9 6.6 5.1

EV / EBITDA (x)

17.0 5.1 9.2 6.4 4.9

RoE (%)

8.6 30.9 12.9 15.8 18.2


ADD



NIFTY 17,340

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY23E FY24E

- -

KEY STOCK DATA

Bloomberg code HPCL IN


MCap (INR bn) / ($ mn) 446/5,987




3M 6M 12M

Absolute (%) 1.2 20.3 43.7

Relative (%) 3.4 10.0 18.3


Sept-21 Dec-21



FPIs 18.29 20.19



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 163

HSIE Results Daily

Petronet LNG

Marketing margin drives earnings

Our REDUCE recommendation on Petronet LNG (PLNG) with a TP of INR

230 is based on: (1) the adverse impact of seasonally-adjusted high spot LNG

price of over USD 25/mmbtu and (2) rising domestic gas production on spot

LNG demand in the medium term. Q3 reported revenue/EBITDA/PAT was

14/85/100% above our estimate, driven by higher marketing margins, Use or

Pay charges of INR 3.5bn, and lower employee costs and other expenses.

Financial performance: In Q3, Use or Pay charges of INR 3.5bn have been

recognised in P&L on account of lower utilisation by one of its customers.

Adjusting for the same, revenue/EBITDA/PAT stood at INR 122.5/13.8/8bn,

+67/+4/-9.4% YoY. EBITDA margin was at 11% (-692bps YoY, -69bps QoQ).

Higher marketing margin of USD 6.8/mmbtu vs USD 6.1/mmbtu in Q2 also

led to an improvement in EBITDA.

Terminal-wise Q3 performance: Utilisation was 88% at Dahej and 19% at

Kochi. Volumes at Dahej and Kochi were 196tbtu and 12tbtu with total

volume at 208tbtu (HSIE 212tbtu; -11% YoY, -13% QoQ). Dahej’s services

volume was 76tbtu (-27% YoY, -35% QoQ). Overall volume declined due to

high spot LNG prices seen in Q3. Management believes moderation in spot

LNG prices, completion of connectivity to Bengaluru and expansion of CGD

network in the adjoining cities would improve Kochi terminal utilisation.

Con call takeaways: (1) Management has guided Capex of INR 15bn for

FY23. (2) Current project updates: (a) construction ongoing for two LNG

tanks at Dahej at a cost of INR 12.5bn, (b) third jetty at Dahej approved by

the Board at a cost of INR 16.5bn, (c) capacity expansion at Dahej from 17.5

to 22.5MTPA along with two LNG tanks to be completed over the next three

years, (d) Capex of INR 16bn is estimated for the east coast FSRU terminal

with a capacity of 4MTPA. (3) PLNG’s current gas sourcing contract with

Qatar Gas expires in 2028 and it is considering extending the contract; Dec-

23 is the deadline for contract extension.

DCF valuation: Our TP of INR 230 is based on Mar-23E cash flow (WACC

10%, terminal growth rate 3%). The stock is trading at 14.2x FY23E EPS.

Financial summary YE March

(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY


Revenues 126 108 16.5 73 71.9 355 260 434 448 483

EBITDA 17 13 33.6 13 29.7 40 47 45 38 40

APAT 11 8 38.9 9 30.2 28 29 28 23 24

AEPS (INR) 7.6 5.5 38.9 5.9 30.2 18.3 19.7 18.7 15.5 16.0

P/E (x)

12.0 11.2 11.7 14.2 13.7

EV/EBITDA (x)

8.0 6.5 6.9 8.1 7.6

RoE (%)

26.2 26.1 23.7 18.9 19.0


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 42 45 4.9 39 38 (3.5) 41 40 (1.2)

AEPS (INR/sh) 18 19 5.9 16 15 (4.2) 16 16 (1.5)


REDUCE



NIFTY 17,606

KEY

CHANGES OLD NEW



EPS % FY22E FY23E

+5.9 -4.2

KEY STOCK DATA

Bloomberg code PLNG IN


MCap (INR bn) / ($ mn) 329/4,425




3M 6M 12M

Absolute (%) (3.7) 5.9 (6.1)

Relative (%) (1.3) (2.1) (20.9)


Sept-21 Dec-21



FPIs 32.13 34.06



Source: BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 164

HSIE Results Daily

Indraprastha Gas

Beat on better-than-expected margin

Our BUY recommendation on Indraprastha Gas (IGL) with a target price of

INR 605 is based on (1) robust volume growth at ~19% CAGR over FY21-24E,

(2) regulatory support from the government to curb pollution in the

Delhi/NCR region, and (3) a strong portfolio of mature, semi-mature, and new

geographical areas (GA). Q3FY22 EBITDA was 50% above our estimate and

PAT was 58% above, owing to lower-than-expected raw material cost and

lower operating expenses.

Volumes: Blended volume remained robust at 7.66mmscmd (HSIE:

7.84mmscmd; +22% YoY, +6% QoQ). CNG volume stood at 5.63mmscmd

(+26% YoY), domestic PNG at 0.49mmscmd (+10% YoY),

industrial/commercial at 1mmscmd (+13% YoY) and trading volumes at

0.5mmscmd, (+17% YoY). Overall PNG volume was at 2mmscmd, up 14%

YoY, 5% QoQ.

Margins: Per-unit gross spread in Q3 was at INR 11.8 (-19% YoY, -13% QoQ;

HSIE: INR 9.5), impacted by higher gas cost of INR 19.7 (+87% YoY, +41%

QoQ). Per-unit EBITDA came in at INR 6.7, (-23% YoY, -16% QoQ), as

against HSIE’s INR 4.3/scm. Per-unit opex was broadly in line at INR 5.1.

Outlook on volume: We expect average CNG volume to increase by 20%

YoY to 5.9mmscmd in FY23E. Total volume is estimated to increase by 19%

YoY to 8.1mmscmd in FY23E.

Outlook on per-unit EBITDA: Per-unit EBITDA is expected to decline by

2% in FY22 to INR 7.4/scm on account of elevated gas cost and marginally

improve to INR 7.5/scm in FY23E. Consolidated EBITDA should grow by

24% YoY in FY22E to INR 18bn and 20% YoY in FY23E to INR 22bn, driven

by improvement in volumes, positive outlook, and steady per-unit margins.

Change in estimates: We revise our EPS estimates upwards by +3/+1/+1.6%

for FY22/23/24E to INR 20.3/24.5/25.7, factoring in strong volumes. However,

our moderated EBITDA margin assumption of INR 7.5/scm over FY25-30

delivers a revised target price of INR 605/sh.

DCF-based valuation: Our target price is INR 605 (WACC 9%, terminal

growth rate 3.0%). The stock is trading at 16x FY23E PE.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenues 22.15 18.31 21.0 14.46 53.2 64.85 49.41 68.79 83.36 96.21

EBITDA 4.70 5.30 (11.4) 5.01 (6.2) 15.20 14.83 18.41 22.16 24.44

APAT 3.09 4.01 (23.0) 3.35 (7.9) 10.95 10.47 12.95 15.80 17.72

AEPS (INR) 4.4 5.7 (23.0) 4.8 (7.9) 17.8 16.8 20.3 24.5 25.7

P/E (x)

22.0 23.4 19.3 16.0 15.2

EV/EBITDA

(x) 16.6 17.7 13.5 10.7 9.2

RoE (%)

25.8 20.1 20.5 21.0 18.7


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 18 18 3.0 22 22 1.0 24 24 1.5

AEPS (INR/sh) 19.7 20.3 3.0 24.3 24.5 1.0 25.3 25.7 1.6


BUY



NIFTY 17,267

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+3.0% +1.0%

KEY STOCK DATA

Bloomberg code IGL IN


MCap (INR bn) / ($ mn) 274/3,688




3M 6M 12M

Absolute (%) (20.1) (26.7) (27.9)

Relative (%) (15.5) (33.2) (40.5)


Sept-21 Dec-21



FPIs 21.88 20.23



Source: BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 165

HSIE Results Daily

Oil India

Higher expenses dent earnings

Our BUY recommendation on Oil India with a target price of INR 310 is

premised on (1) increase in crude price realisation and (2) improvement in

domestic gas price realisation (at USD 2.9/mmbtu). Oil price realisation for

9MFY22 improved to USD 70.4/bbl vs USD 44/bbl in FY21, given the expected

global economic rebound, post COVID. Q3FY22 revenue was 6% below our

estimates, while EBITDA was 26% below, owing to higher-than-expected

operating expenses (on account of higher provisions). RPAT came in 14%

below estimate, offset by higher-than-expected other income.

Standalone financial performance: Sales in Q3 were INR 37bn (76% YoY,

+13% QoQ). Crude realisation in rupee terms was at INR 5,737/bbl (+82%

YoY, +11% QoQ). EBITDA came in at INR 13bn (HSIE INR 17bn, +39%

QoQ), owing to a higher provision of INR 4bn.

Standalone operational performance: Crude oil realisation increased to

USD 76.6/bbl, (+79% YoY, +10% QoQ); gas realisation was at USD

2.9/mmbtu, (+58% YoY, 59% QoQ). Oil sales volumes were at 0.73mmt (flat

YoY, -2% QoQ), while gas sales volumes were at 0.63bcm (+8% YoY, -6%

QoQ).

Call takeaways: (1) The standalone Capex guidance for FY23/FY24 is at

~INR 43/45bn. (2) The company has guided oil production for FY23E at

3.6mmt and gas production at 4bcm; oil production in FY24E is expected at

4mmt; its improvement will come through accelerated production from five

existing fields. (3) Despite a sharp rise in oil and gas prices, the company

does not expect any burden of under-recovery. (4) NRL expansion from

3MTPA to 9MTPA is expected to be completed by FY25.

Change in estimates: We revise our FY22/23/24 estimates by +2.6/-1.2/-1.6%

to INR 58.4/54/56, to factor in the 9MFY22 performance.

We value Oil India’s standalone business at INR 168 (5.5x Mar-23E EPS)

and its investments at INR 142. The stock is currently trading at 4.2x

FY23E EPS.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22* FY23E* FY24E*

Revenues 37 33 12.9 21 75.8 206 225 361 393 409

EBITDA 13 9 38.7 -1 1,450.8 53 57 101 120 123

APAT 12 5 146.8 19 (36.1) 52 46 63 59 61

AEPS (INR) 11.5 4.7 146.8 (1.3) 979.5 48.3 42.2 58.4 54.0 56.0

P/E (x)

4.7 5.4 3.9 4.2 4.0

EV/EBITDA (x)

6.5 7.7 2.8 1.9 1.4

RoE (%)

22.5 19.5 23.6 17.8 15.6



FY22E FY23E FY24E


EBITDA (INR bn) 104 101 (2.4) 120 120 0.2 124 123 (0.1)

AEPS (INR/sh) 56.9 58.4 2.6 54.7 54.0 (1.2) 56.9 56.0 (1.6)


BUY



NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY22E FY23E

+2.6% -1.2%

KEY STOCK DATA

Bloomberg code OINL IN


MCap (INR bn) / ($ mn) 245/3,290




3M 6M 12M

Absolute (%) 1.7 35.7 95.2

Relative (%) 8.8 34.0 85.8


Sep-21 Dec-21



FPIs 9.96 10.11



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 166

HSIE Results Daily

Gujarat State Petronet

Earnings impacted by lower volume

Our ADD rating on Gujarat State Petronet with a TP of INR 340 is premised

on (1) transmission volume growing at +6% CAGR over FY21-23E to

41mmscmd, with increase in gas supply from domestic sources, which should

drive volumes and translate to growth in standalone EBITDA at 11% and

APAT at 15% CAGR to INR 18bn and INR 12bn in FY23E and (2) compelling

valuation at 7.8x FY23E EPS, considering high RoE of 23% in FY23E and

combined FCF of INR 50bn over FY22-24E.

View on the result: Q3FY22 EBITDA/APAT were 9% below our estimates,

owing to lower-than-expected volume, higher employee cost, and lower

other income. However, it was offset by lower-than-expected operating

expenses, gas transmission expenses, depreciation, interest cost, and higher-

than-expected blended transmission tariff.

Volume: Gas transmission volume in Q3 was 31.9mmscmd (-19% YoY, -15%

QoQ) vs our estimate of 35.6mmscmd. Volume break-up in mmscmd was:

refinery 8.5, power 2.1, CGD 13, fertilizers 3.2, and others 5.1.

Tariffs: Calculated blended transmission tariff for Q3 stood at INR

1,343/tscm (+8% YoY, +7% QoQ), 5% above our estimate.

Change in estimates: We reduce our FY22/23/24E consolidated EPS

estimates by -7.1/-5.4/-4.6% to INR 31.4/38.4/32.3, to factor in the Q3FY22

performance.

DCF-based valuation: We value the transmission business using

discounted cash flow (DCF) at INR 102/sh (WACC of 10% and terminal

growth rate of 3%). To this, we add INR 238/sh as the value of its

investments in Gujarat Gas, Sabarmati Gas, etc. to arrive at a target price

of INR 340/sh. The stock is trading at 7.8x FY23E PER.


(INR bn)

Q3

FY22

Q2

FY22

QoQ

(%)

Q3

FY21

YoY

(%) FY20* FY21* FY22E* FY23E* FY24E*

Revenue 5 6 (19.9) 6 (18.2) 122 115 174 210 231

EBITDA 3 4 (11.6) 4 (15.8) 32 36 40 47 45

APAT 2 3 (35.4) 2 (14.3) 17 16 18 22 18

AEPS (INR) 3.8 5.9 (35.4) 4.4 (14.3) 30.6 28.5 31.4 38.4 32.3

P/E (x)

9.8 10.5 9.5 7.8 9.3

EV / EBITDA (x)

6.2 5.6 4.8 3.7 3.5

RoE (%)

42.3 28.5 24.4 23.4 16.2


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 42 40 (4.3) 49 47 (3.4) 46 45 (2.6)

EPS (INR/sh) 33.8 31.4 (7.1) 40.6 38.4 (5.4) 33.9 32.3 (4.6)


ADD



NIFTY 17,606

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

-7.1% -5.4%

KEY STOCK DATA

Bloomberg code GUJS IN


MCap (INR bn) / ($ mn) 169/2,269




3M 6M 12M

Absolute (%) (5.6) (11.5) 32.1

Relative (%) (3.3) (19.5) 17.2


Sept-21 Dec-21



FPIs 17.47 16.61



Source: BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 167

HSIE Results Daily

Mahanagar Gas

High gas cost dents earnings

Our ADD recommendation on Mahanagar Gas (MGL) with a target price of

INR 925 is premised on its loyal customer base in CNG and commercial

establishments, which is less price-sensitive than the industrial customer base

and enables the company to maintain higher per-unit margins than peers.

Q3FY22 EBITDA, at INR 1.03bn, and APAT, at INR 568mn, were 29/35%

below our estimates due to higher gas costs, higher employee cost, and

operating expenses, partially offset by 19% above-estimate revenue of INR

10.3bn.

Volume and margin: Blended volume stood at 3.30mmscmd (4% above our

estimate). CNG segment’s volume came in at 2.39mmscmd (two-year

CAGR: 4%, +7% QoQ), given the economic recovery, post unlock. PNG

segment’s volume in Q3 was at 0.91mmscmd. The per-unit gross spread, at

INR 8.6/scm, contracted by INR 9.1/scm YoY and INR 7/scm QoQ in Q3. Per-

unit EBITDA was at INR 3.4/scm vs. INR 12.4per scm YoY and INR 10.5per

scm QoQ. Margins were primarily impacted by high gas cost in Q3.

Earnings call takeaways: (1) MGL added two new CNG stations in Q3,

taking the count to 278. It also added 77 new industrial/commercial PNG

customers, taking the count to 4,254. 75,247 new domestic households were

connected in Q3, taking the count to ~1.79mn households. (2) The company

incurred Capex of INR 5bn in 9MFY22 and has guided for Capex of INR 6bn

for FY22E. (3) MGL signed a new term contract in the quarter for a tenure of

18 months for 0.15mmscmd volumes for reducing dependency on volatile

spot gas; with this, the total term contract volumes are at 0.25mmscmd. (4)

MGL announced an interim dividend of INR 9.5/sh.

Change in estimates: We reduce our FY22/23/24 EPS estimate by

9.7/5.2/4.5% to INR 76.3/85.3/83.6, to account for EBITDA margin pressure

on near-term rising gas cost.

DCF-based valuation: Our target price is INR 925, based on Mar-23E free

cash flow (WACC 9%, terminal growth rate 3.0%). The stock is currently

trading at 9.4x FY23E EPS.

Financial Summary YE March

(INR bn)

3Q

FY22

2Q

FY22

QoQ

(%)

3Q

FY21

YoY


Revenue 10 8 23.8 7 54.2 30 25 34 35 37

EBITDA 1 3 (65.8) 3 (67.4) 11 13 11 12 12

APAT 1 2 (72.2) 2 (73.9) 8 10 8 8 8

AEPS (INR) 5.7 20.7 (72.2) 22.0 (73.9) 80.3 100.3 76.3 85.3 83.6

P/E (x)

9.9 8.0 10.5 9.4 9.6

EV / EBITDA (x)

6.2 4.9 5.4 5.1 5.2

RoE (%)

29.7 32.0 22.0 21.9 19.3


Change in estimates

FY22E FY23E FY24E


EBITDA (INR bn) 12 11 (9.1) 13 12 (4.8) 13 12 (4.1)

AEPS (INR/sh) 84.6 76.3 (9.7) 90.0 85.3 (5.2) 87.6 83.6 (4.5)


ADD



NIFTY 17,464

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY22E FY23E

(9.7) (5.2)

KEY STOCK DATA

Bloomberg code MAHGL IN


MCap (INR bn) / ($ mn) 79/1,061




3M 6M 12M

Absolute (%) (21.6) (30.0) (29.9)

Relative (%) (18.4) (37.5) (43.8)


Sept-21 Dec-21



FPIs 29.38 25.32



Source : BSE

Harshad Katkar

[email protected]

+91-22-6171-7319

Nilesh Ghuge

[email protected]

+91-22-6171-7342

Akshay Mane

[email protected]

+91-22-6171-7338

Rutvi Chokshi

[email protected]

+91-22-6171-7356



P a g e | 168

HSIE Results Daily

Pharma

P a g e | 169

HSIE Results Daily

Sun Pharma

Going from strength to strength

Sun’s Q3 revenue/EBITDA came in line with our estimates, led by growth

across businesses. Its global specialty business grew 17% QoQ to USD183mn

on the back of decent ramp-up in Ilumya, Cequa, Levulan, and Absorica. With

Winlevi ramp-up fueling further growth in the coming quarters and strong

resilience shown in the US generic business (ex-Taro), especially at a time

when most US generic businesses are struggling to contain price erosion, we

believe Sun can grow its US revenue at a solid ~11% CAGR over FY21-24e. Its

strong balance sheet (net cash position) is likely to aid potential inorganic

initiatives. We cut our FY24e EPS by ~2% and arrive at a TP of INR985/sh,

based on SOTP of 25x Sep-23 EPS and NPV of INR15/sh for gRevlimid. BUY.

In-line revenue/EBITDA; PAT beat: Revenue grew by 12% YoY to INR99bn

on the back of strong growth in India (+15% YoY, outperformance in key

therapies), EMs (+19% YoY) and the US (+6% YoY, 10% QoQ, specialty

business ramp-up). EBITDA margin came in at 26.5% (-158bps QoQ) due to

lower gross margin (-57bps QoQ, cost inflation) and higher other expenses

(+107bps QoQ, normalisation of selling and distribution expenses).

India business continues to roll: Revenue grew by 15% YoY, as recovery in

patient footfalls led to improved demand in the non-COVID portfolio (esp.

chronic and semi-chronic segments). The company outperformed market

growth in some of its key therapies like CNS, CVD, and gastro. Sun has

gained ~8.6% market share in the IPM in Q3 (vs. ~8.1% levels in previous

quarters). The company launched 25 new products in India in Q3.

Specialty business gains further strength: The global specialty business

(USD183mn, +17% QoQ) gathered decent pace, despite COVID tailwinds in

the latter half of Q3, on the back of strong ramp-up Ilumya, Cequa, Levulan

and Absorica. Sun also launched Winlevi in the US in Q3, which should

ramp up in the coming quarters, providing more legs to the specialty

business growth. The US generics business (ex-Taro) grew ~6% QoQ as new

launches (five in Q3) and better supply chain management offset price

erosion.

Con call takeaways: (a) Taro: GM at ~55%; (b) Winlevi: initial response has

exceeded expectations, higher SG&A cost in the quarter due to launch in the

US; Ilumya: 9mFY22 sales have surpassed FY21 sales, launched in Canada;

Cequa: announced Canada launch; Levulan: supply issues in Q2 due to

quality testing, situation has improved now; Liposomal Inj.: to be launched

shortly in the US with 180 day exclusivity; (d) R&D: lack of patients

volunteering for trials has posed challenges, especially post COVID; aim of

spending 8-9% of sales for R&D; (e) Halol plant: no intimation of FDA audit.

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 98,631 88,368 11.6 96,259 2.5 3,34,981 3,88,945 4,31,709 4,76,067

EBITDA 26,169 23,345 12.1 27,063 (3.3) 84,677 1,06,798 1,20,864 1,33,299

EBITDA Margin 26.5 26.4 0.4 28.1 (5.6) 25.3 27.5 28.0 28.0

APAT 19,010 17,809 6.7 21,234 (10.5) 59,448 77,805 88,793 97,849

Adj. EPS (INR) 7.9 7.4 6.7 8.8 (10.5) 24.8 32.4 37.0 40.8

P/E (x)

33.1 25.3 22.2 20.1

EV/ EBITDA (x)

22.9 17.7 15.2 13.3

RoCE (%)

11.4 14.5 15.3 15.2


BUY



NIFTY 17,340

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

- -2%

KEY STOCK DATA

Bloomberg code SUNP IN


MCap (INR bn) / ($ mn) 2,002/26,905




3M 6M 12M

Absolute (%) 5.0 7.8 42.4

Relative (%) 7.1 (2.5) 17.0


Dec-21 Sep-21



FPIs 13.00 12.07



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 170

HSIE Results Daily

Cipla

In-line quarter; robust outlook intact

Cipla’s Q3 results came largely in line with our estimates as strong growth

trends in India and the US were partially offset by weak performance in other

markets. India business continues to remain on a strong footing (+13% YoY)

and is expected to outperform the market growth over the next few years. The

US business witnessed improved traction (+6% QoQ), led by market share

gains in Albuterol and Arformoterol. Its robust respiratory pipeline in the US

(Abraxane, gAdvair, and gDulera), along with gRevlimid, offers good growth

visibility in the medium term. We raise our estimates by 2%/3% for FY23/24e

to factor in robust outlook and arrive at a TP of INR1,115, based on SOTP of

24x Sep-23e EPS, NPV of INR27 for gAdvair, and INR43 for gRevlimid.

Maintain BUY.

Results broadly in line: Revenue grew +6% YoY to INR55bn as healthy

growth in India (+13% YoY, strong growth across key therapies) and the US

(+6% QoQ, +9% YoY, respiratory portfolio) offset subdued performance in

SAGA (-2% YoY, decline in SA tender, SSA and CGA businesses) and API

business (-9% YoY, developed market order slowdown). EBITDA margin

inched up to 22.5% (+25bps QoQ) as lower gross margin (-41bps QoQ,

higher material and freight costs) was offset by decrease in other expenses (-

69bps QoQ, impact of cost control measures).

US business going from strength to strength: US business grew 6% QoQ to

USD150mn, ~6% ahead of our estimates, as strong traction in the respiratory

business offset price erosion. Cipla expects revenue from its respiratory

pipeline in the US to cross USD150mn in FY22e (from USD50mn in FY20),

implying more than 3x growth in just two years. The company expects its

quarterly run-rate to further improve materially from H2FY23 with key

launches such as gAbraxane, gRevlimid and gAdvair along with steady

ramp-up of Lanreotide (to be launched in Q4FY22) as the company guides to

add USD300-500mn topline to the US business by FY25e.

Con call takeaways: (a) gAdvair – awaiting updates from the FDA,

gAbraxane – furnishing more data to the FDA, market formation to start in

Apr-22 with first player’s launch; Albuterol – 16% share (including brands);

Aformoterol – 27% share (including brands); Lanreotide – to be

manufactured at partner’s site and launched in Q4, aim to build sustainable

market share in the medium term; (b) India: One India strategy leading to

synergies at portfolio level, supply chain, advertising, and digital analytics;

(c) EU – filed two respiratory products; (d) Strategy – aims to depend on

organic products in US and EU, while partner with innovators for patented

products in India and EMs; (e) engaging with FDA for Goa plant clearance.

Financial summary

YE Mar (INR

mn)

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 54,789 51,687 6.0 55,198 (0.7) 1,91,596 2,18,552 2,41,352 2,65,378

EBITDA 12,310 12,309 0.0 12,262 0.4 42,524 49,271 54,309 60,381

EBITDA Margin 22.5% 23.8% -135bps 22.2% 25bps 22.2% 22.5% 22.5% 22.8%

APAT 7,286 7,481 (2.6) 7,114 2.4 24,049 28,946 32,995 37,173

Dil. EPS (INR) 9.0 9.3 (2.6) 8.8 2.4 29.8 35.9 40.9 46.1

P/E (x)

28.0 23.3 20.4 18.1

EV/ EBITDA (x)

16.0 13.6 11.9 10.2

RoCE (%)

13.1 14.4 14.4 14.5

Source: Company, HSIE Research, nos. ex-gRevlimid and gAdvair

BUY

CMP(as on 25 Jan 2022) INR 904


NIFTY 17,278

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

+2% +3%

KEY STOCK DATA

Bloomberg code CIPLA IN


MCap (INR bn) / ($ mn) 729/9,802




3M 6M 12M

Absolute (%) 0.2 (4.6) 8.0

Relative (%) 5.4 (13.8) (11.6)


Dec-21 Sep-21



FPIs 24.23 24.66



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 171

HSIE Results Daily

Dr. Reddy’s Labs

Decent quarter; robust outlook intact

Dr. Reddy’s Q3 revenue/EBITDA/PAT came broadly in line with our

estimates on the back of decent YoY growth across key businesses (ex-EU).

While the company might witness COVID-led tailwinds in India in Q4, it is

well-poised to grow its non-COVID portfolio in double digits. The medium-

term outlook for the US remains strong, with opportunities such as gRevlimid

(settled), gCopaxone, and gNuvaring in the pipeline. The PSAI business is

also expected to post good growth on the back of new launches, CDMO scale-

up, and entry into B2B segment. We cut our estimates by 3% for FY23/24e and

arrive at a TP of INR5,170, based on an SOTP of 23x Sep-23e EPS, NPV of

INR249 for gRevlimid, and INR19 for Sputnik V. Upgrade to BUY.

Results broadly in line: Revenue grew 9% YoY to INR53bn on the back of

strong growth in RoW markets (+47% YoY, higher volumes, new launches)

and proprietary business (+37% YoY adj. for milestone income in the base),

along with decent support from all other businesses (ex-EU). Adj. EBITDA

margin stood at ~23% (+14bps QoQ), as increase in gross margin (+126bps

QoQ, product mix, better procurement costs) was partially offset by the

uptick in SG&A costs (+66bps QoQ, marketing spends, annual increments).

Stable performance in the US, pipeline strong: The US revenue was at

~USD248mn (-2% QoQ), primarily due to double-digit price erosion for its

product portfolio, which was majorly offset by new launches and market

share gains in existing products. The company expects this price erosion to

gradually cool off in the coming quarters. While the ramp-up of the recently

launched products like gVascepa and gRevlimid (Canada) will offset near-

term price erosion, its medium-term outlook remains strong, given that

launches of gCopaxone, gNuvaring and gRevlimid (US) are on the anvil.

Con call highlights: (a) US pipeline: 91 pending ANDAs, including 45 Para

IVs and 24 FTFs. (b) gCopaxone: submitted all data to FDA, awaiting

response, launch unlikely in the near term; gNuvaring: launch unlikely over

the coming months; gVascepa: ~11-12% share, potential to gain a lot more

share, gRevlimid: to take some time to reach its potential in Canada; (c)

Biosimilars: six products, including Rituximab (EMs like India/Russia,

followed by developed markets) and Bevacizumab to be launched over

2024-32; Peg-F: partner (Fresenius) has guided for CY22 launch in US and

EU; (e) PSAI business: improved outlook in the coming quarters to be driven

by new launches, CDMO scale-up, and entry into B2B segment; (f) awaiting

update from FDA on Duvvada plant; (g) INR10bn of net cash position to be

utilised for M&As in all its geographies over the coming months.

Financial summary

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 53,197 48,796 9.0 56,548 -5.9 1,89,222 2,10,349 2,29,429 2,54,063

EBITDA 12,258 10,888 12.6 12,952 -5.4 45,257 46,223 53,351 59,613

EBITDA Margin 23.0 22.3 73bps 22.9 14bps 23.9 22.0 23.3 23.5

Rep. PAT 7,065 198 3,468.2 9,920 -28.8 19,058 29,519 32,613 38,321

EPS (INR) 42.7 34.1 25.4 46.7 -8.5 103.5 177.3 195.9 230.2

P/E* (x)

38.2 22.3 20.2 17.2

EV/ EBITDA* (x)

20.2 18.4 15.1 12.4

RoCE* (%)

13.2 12.8 13.8 14.4

Source: Company, HSIE Research; *Adjusted for gRevlimid and Sputnik V

BUY

CMP(as on 28 Jan 2022) INR 4,219


NIFTY 17,102

KEY

CHANGES OLD NEW

Rating ADD BUY


EPS % FY23E FY24E

-3% -3%

KEY STOCK DATA

Bloomberg code DRRD IN


MCap (INR bn) / ($ mn) 702/9,433




3M 6M 12M

Absolute (%) (7.7) (10.8) (13.4)

Relative (%) (3.0) (19.9) (35.4)


Dec-21 Sep-21



FPIs 27.42 27.76



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 172

HSIE Results Daily

Apollo Hospitals

Business stabilising; robust outlook intact Apollo’s Q3 revenue/EBITDA missed our estimates by ~8%/10%. While the

vaccine revenue waned off (-80% QoQ), the non-COVID business continued

to recover at a decent pace (IP volumes up 6% QoQ), despite a seasonally

weak quarter. The outlook for high-growth pharmacy and diagnostics

businesses remains intact, partially aided by integration of Apollo 24/7. With

multiple growth drivers in place, we expect Apollo to report strong

revenue/EBITDA CAGRs of 18%/24% over FY20-24e. Besides this, it expects to

announce strategic funding partnerships for Apollo HealthCo (Apollo 24/7,

back-end pharmacy) in the near term. We raise our EBITDA estimates by 1-2%

for FY22-24e and arrive at an SOTP TP of INR5,365/sh. Upgrade to BUY.

Hospital business stabilising: Revenue moderated by 7% QoQ to INR20bn,

as decline in vaccine revenue and seasonality impact offset continued

traction in non-COVID business and local market share gains, translating to

decline in ARPOBs (-3% QoQ), higher IP volumes (+6% QoQ) and lower OP

volumes (-41% QoQ, decline in vaccinations). Accordingly, the mature, new

and Proton units reported ~3%/16%/1% revenue de-growth QoQ. However,

the hospitals business witnessed a ~125bps EBITDA margin improvement at

a broad level on account of better payor and case mix. Apollo aims to

improve its overall ARPOBs to ~INR 50,000 (vs. ~INR46,000 currently) and

occupancies to ~75% (vs. ~65% currently) over the next two years.

SAP outlook intact; AHLL has multiple growth levers: Pharmacy business

revenue improved by 12% QoQ. Notwithstanding short-term lumpiness,

Apollo remains confident of growing this business at ~18-20% CAGR in the

medium term, driven by ~400 store additions p.a. and Apollo 24/7 benefits.

AHLL revenue moderated by 18% QoQ as COVID-led benefits waned off.

EBITDA margin also came in lower by 49bps QoQ. Besides a massive scale-

up in the diagnostics segment (targeting 50-60%+ CAGR in the medium

term), Apollo remains confident of scaling up some other high-potential

sub-segments, including the dialysis and IVF centers.

Con call takeaways: (a) Hospitals – MoU for a 250-bed hospital in Jammu,

looking for brownfield (400-500 beds in two years) as well as greenfield

(~300 beds) expansions in Bengaluru, adding presence in South Mumbai

(~400 beds in ~3 years on an asset light model – trust model), brownfield

expansions in Gurgaon, North Delhi and Noida - ~2,000 beds in ~3 years at a

corporate level with expected Capex of ~INR25-30bn; (b) Apollo HealthCo –

funding process expected to be finalised in ~3 months, proceeds to aid in

marketing and potential inorganic acquisitions.

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Revenues

Hospitals 20,183 14,362 40.5 21,686 (6.9) 50,023 82,582 94,154 1,05,184

Pharmacy 13,074 11,263 16.1 11,671 12.0 48,760 53,767 65,479 79,620

AHLL 3,133 1,973 58.8 3,813 (17.8) 6,818 13,485 18,427 24,162

Consolidated 36,390 27,598 31.9 37,170 (2.1) 1,05,600 1,51,708 1,83,216 2,19,491

EBITDA margin

Hospitals 24.6 20.1 453bps 23.3 125bps 13.8% 23.0% 24.3% 25.4%

Pharmacy* 7.4 6.6 +76bps 8.1 -72bps 7.5% 7.8% 8.0% 8.3%

AHLL 15.8 14.1 171bps 16.3 -49bps 11.3% 15.7% 15.8% 17.7%

Consolidated 16.1 14.1 199bps 16.5 -41bps 10.8% 16.5% 16.6% 17.2%

EBITDA 5,870 3,903 50.4 6,150 (4.5) 11,374 25,094 30,484 37,783

EV/ EBITDA (x)

59.9 27.1 22.0 17.4

RoCE (%)

6.9 17.9 21.2 23.8

Source: Company, HSIE Research, * margins ex-Apollo 24/7 costs

BUY

CMP (as on 11 Feb 2022) INR 4,515


NIFTY 17,375

KEY

CHANGES OLD NEW

Rating ADD BUY



+1% +1%

KEY STOCK DATA

Bloomberg code APHS IN


MCap (INR bn) / ($ mn) 649/8,724




3M 6M 12M

Absolute (%) (1.1) 12.1 63.8

Relative (%) 1.8 5.5 50.9


Dec-21 Sep-21



FPIs 52.41 51.54



Source : BSE

TP based on Sep’23 estimates:

a) 20x EV/EBITDA for hospitals

b) 25x EV/EBITDA for pharmacy

c) 3x EV/sales for Apollo 24/7

(discounted FY26e revenue)

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 173

HSIE Results Daily

Torrent Pharma

Another let-down quarter Torrent’s Q3 results were below expectations as revenue/EBITDA missed

estimates by ~2%/20%. EBITDA margin at ~26% (568bps miss) took a hit on

account of elevated price erosion in the US and certain one-offs (higher

freight, contract provisioning and under-absorption of overheads). While we

expect Torrent to outperform the industry growth in India and Brazil, macro

headwinds in the US (price erosion) and Germany (muted market growth)

along with company specific issues (pending plant clearances by FDA) will

continue to hinder the medium-term growth in these markets. We reduce our

EBITDA estimates by 7%/2% for FY22/23e to factor in the Q3 miss and arrive

at a TP of INR3,205/sh, on 16x Sep-23e EV/EBITDA. Downgrade to REDUCE.

Disappointing quarter: Revenue increased by 6% to INR21bn as strong

growth in India (+15% YoY) and RoW markets (+19% YoY) was offset by

muted performance in the US (-11% QoQ, -21% YoY) and Germany (-10%

YoY). EBITDA margin dropped to ~26% (-536bps QoQ) on account of a

decline in gross margin (-242bps QoQ, price erosion, under-absorption of

plant overheads due to lower volumes) and increase in other expenses (+299

bps QoQ, higher freight, contract provision on a US product).

India business continues to do the heavy lifting: Revenue grew by ~15%

YoY to ~INR11bn, led by strong performance across all key therapies.

Torrent has managed to maintain its MR productivity at ~INR 1mn per

month (vs. 0.85mn in FY21) for the third consecutive quarter. It is looking to

add ~400-500 MRs over the coming months to increase the depth of coverage

in key therapies and aid smooth launch of new products.

US business hits rock bottom: Revenue declined by 11% QoQ to USD31mn

on account of price erosion and absence of new launches. Torrent expects

price erosion to remain elevated for at least one more quarter. Potential

launch of Dapsone (GDUFA date in Feb, USD135mn derma product with

two players) in Q4 and contribution from Levittown facility (USD8-10mn

annual run-rate) can offset price erosion in the coming quarters. Its pipeline

consists of 51 pending ANDAs; however, the approvals hinge on facility

clearance from the FDA as majority of these are from Dahej and Indrad. We

don’t expect any of these facilities to be cleared before H2FY23.

Con call takeaways: (a) India - to maintain ~8% price growth, trade Gx

contribution stabilised at ~2% of India biz; (b) Germany – tender business to

improve from H2FY23 with the next series of tenders in Oct; (c) Brazil –

entered into CNS space, launched Rivaroxaban (R$800mn market), to

maintain 6-8% price hikes for FY23; (d) US – major erosion in Nebivolol and

Olmesartan; (e) Guidance - GMs and EBITDA margins to normalise by

Q1FY23; the company aims to repay INR9bn debt in FY23e.

Financial summary

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY22

QoQ


Net Sales 21,080 19,950 5.7 21,370 (1.4) 80,048 84,983 95,117 1,06,306

EBITDA 5,380 6,070 (11.4) 6,600 (18.5) 24,857 24,896 30,082 35,081

EBITDA Margin 25.5 30.4 -490bps 30.9 -536bps 31.1 29.3 31.6 33.0

APAT 2,490 2,970 (16.2) 3,160 (21.2) 12,523 11,752 15,582 19,200

Adj. EPS (INR) 14.7 17.5 -16.2 18.7 (21.2) 74.0 69.4 92.1 113.4

P/E (x)

42.7 45.5 34.3 27.9

EV/ EBITDA (x)

22.6 21.8 17.4 14.3

RoCE (%)

17.2 15.2 18.3 20.3


REDUCE

CMP(as on 25 Jan 2022) INR 3,161


NIFTY 17,278

KEY

CHANGES OLD NEW

Rating ADD REDUCE



-2% -

KEY STOCK DATA

Bloomberg code TRP IN


MCap (INR bn) / ($ mn) 535/7,188




3M 6M 12M

Absolute (%) 2.5 3.9 20.0

Relative (%) 7.6 (5.3) 0.3


Dec-21 Sep-21



FPIs 11.63 11.53



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 174

HSIE Results Daily

Alkem Labs

Decent quarter; outlook upbeat

Alkem’s Q3 revenue/EBITDA beat our estimates by 2%/18%, led by good

growth in India and international markets. It expects to outperform the IPM

in the medium term. Despite heightened price pressure in the quarter, it

remains confident of achieving double-digit growth in the US from FY23.

Though the company has guided for a potentially subdued Q4 (2-3% margin

impact due to higher API prices), we believe the near-term headwinds are

transitory and remain confident on company’s execution capabilities over the

medium term. We raise our EPS estimates by 9%/4% for FY22/23e to factor in

the Q3 beat and lower taxes and arrive at a TP of INR 4,200/sh, based on 24x

Sep-23e EPS. Maintain BUY.

Revenue broadly in line, EBITDA beat: Revenue grew INR26bn (+13%

YoY) as robust growth in India (+20% YoY) and RoW markets (+25% YoY,

Australia, Chile, Philippines and Kazakhstan) offset subdued performance

in the US (-7% YoY, -6% QoQ). EBITDA margin moderated to ~19% (-327bps

QoQ), primarily due to lower gross margin (-29bps QoQ, cost inflation) and

higher other expenses (+215bps QoQ, normalisation of marketing spends).

India business going strong; outperformance to continue: India business

grew by 20% YoY to INR18bn. This was driven by strong volume growth in

key therapies (especially in the acute segment). The company also

outperformed the market in key chronic therapies, while its trade Gx

business (~20% share in India business) continues to outperform its Rx

business. Alkem expects IPM to grow at ~8-9% in FY23 and remains

confident of outperforming the market in the medium term.

US business faces heightened pressure: Revenue declined ~6% QoQ to

~USD77mn due to market share loss in some products and elevated price

erosion on the base business. Alkem aims to file 12-15 ANDAs annually,

which will aid the company in achieving its intended target of double-digit

growth in the medium term. In the long term, it aspires to change its

product mix from simple generics to a higher share of more complex ones in

an attempt to derisk the portfolio from the highly competitive generic space.

Con call takeaways: (a) India – aims to take chronic contribution from 15%

to 21-22% by FY24-25; (b) Biosimilars – agreement with Theramex for

Tocilizumab in the EU, the UK, Switzerland and AU; with filing expected in

2024-25 and commercialisation in 2026, this business might require a further

~INR1bn investment before it starts generating positive returns; (c)

Guidance – GM: ~59-60% in Q4FY22, R&D: ~6% of sales, EBITDA margin:

~20% in FY22, ETR: ~4% in FY22, 10-12% in FY23; Capex: INR4-4.5bn in

FY23, INR4.5-5bn in FY24; (d) Indore plant: awaiting PAI by the FDA.

Financial summary YE Mar (INR

mn)

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 26,190 23,181 13.0 28,000 (6.5) 88,650 1,06,789 1,18,151 1,34,249

EBITDA 4,985 5,291 (5.8) 6,244 (20.2) 20,224 21,736 23,936 28,528


APAT 5,257 4,159 26.4 5,443 (3.4) 16,299 18,871 19,335 22,503

Adj. EPS (INR) 44.0 34.8 26.4 45.5 (3.4) 136.3 157.8 161.7 188.2

P/E (x)

25.8 22.3 21.7 18.7

EV/ EBITDA (x)

21.6 19.8 17.6 14.4

RoCE (%)

19.8 19.9 18.2 18.8


BUY

CMP(as on 4 Feb 2022) INR 3,514


NIFTY 17,516

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

+4% -

KEY STOCK DATA

Bloomberg code ALKEM IN


MCap (INR bn) / ($ mn) 420/5,646




3M 6M 12M

Absolute (%) (3.7) 3.4 18.0

Relative (%) (1.2) (4.4) 2.3


Dec-21 Sep-21



FPIs 5.40 5.33



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 175

HSIE Results Daily

Cadila Healthcare

Disapponting quarter

Cadila’s Q3 revenue/EBITDA missed our estimates by ~3%/9% due to lower-

than-expected sales in India/EMs and higher R&D and other expenses. The

company expects its India business to grow in strong double digits in FY23.

While it guides for a flattish FY23 in the US, it aspires to take US revenue to

~USD1bn (vs. ~USD800mn in FY22e) by FY24e. However, we believe this is

far-fetched, given that it hinges on multiple factors like Moraiya resolution in

CY22, normalised price erosion in FY23, and timely launch of two high-value

products. We cut our FY22-24e estimates by 3-8% to factor in the Q3 miss and

near-term uncertainties in the US (price erosion, Asacol generic entry) and

arrive at a TP of INR425/sh, based on 18x Sep-23 EPS (vs 21x earlier) and NPV

of INR9/20 for COVID vaccine/gRevlimid. Upgrade to ADD.

Revenue/ EBITDA miss: Revenue came at INR37bn (+1% YoY, ~5% adj. for

COVID base), as strong growth in API (+25% YoY), EU (+11% YoY) and

Alliances business (+149% YoY) was offset by muted growth in all the key

markets - US (-7% YoY, flat QoQ), India (-2% YoY, +17% YoY adj. for COVID

base) and EMs (-1% YoY). EBITDA margin dropped to 20.6% (-216bps QoQ)

as savings in staff cost (-109bps QoQ, rationalised manpower) was offset by

increase in R&D (+106bps QoQ) and other expenses (+185bps QoQ).

US business stable, near-term outlook uncertain: Revenue came at USD

201mn (flat QoQ, -7% YoY) in the quarter as price erosion and decline in

gLialdia sales (competition) were offset by new launches and volume uptick

in other portfolio products. Cadila launched three products, including

Nelarabine injectaion (with 180-day exclusivity) in the quarter. The company

guides for a flat FY23 but aims to hit ~USD1bn revenue by FY24 on the back

of Moraiya approval, ~40 new launches and two high-value launches.

Con call highlights: (a) Saroglitazar – aim to launch for PBC and NASH

indications by early-2025 and 2027 respectively in the US; Asacol franchisee

– expecting generic entry from ~Q2FY23; gRevlimid – expected launch by

2022-end; CUTX 101 – NDA approval likely by 2022-end; Desidustat – aims

to launch by April in India with a potential to become INR2.5bn+ franchisee

in ~3 years; (b) Business outlook – US: expects ~6-7% erosion in FY23; India:

expects strong double digit growth in FY23; EMs – biosimilars can add

~USD30-40mn annual revenues from FY24; (c) ZyCoV-D – tech transfer

agreement with a Korean company, expects ~80mn orders from the same;

(d) R&D at ~8% of sales; annual cost savings of ~INR1.5-2bn to continue in

FY23, based on certain initiatives, boosting EBITDA margin by ~80-100bps;

(e) Capex plans – expanding m-RNA vaccine for WHO pre-qualification,

(supply in FY23-24), expanding for quadrivalent flu vaccine, new site for US

market and debottlenecking of an SEZ; (f) Moraiya - expects FDA audit in

the coming months and site clearance by year-end.

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 36,550 36,330 0.6 37,848 -3.4 1,51,022 1,52,325 1,55,608 1,67,223

EBITDA 7,525 7,665 -1.8 8,608 -12.6 33,410 33,375 33,466 36,161


APAT 5,004 5,006 -0.0 6,019 -16.9 23,387 21,395 21,663 23,209

Adj. EPS (INR) 4.9 4.9 -0.0 4.9 -1.1 22.8 20.9 21.2 22.7

P/E (x)

16.6 18.1 17.9 16.7

EV/ EBITDA (x)

13.2 12.0 11.6 10.5

RoCE (%)

12.8 11.2 10.5 10.6

Source: Company, HSIE Research, ratios adjusted for NPV of INR9/sh. for COVID vaccine and

INR20/sh. for gRevlimid

ADD



NIFTY 17,560

KEY

CHANGES OLD NEW

Rating REDUCE ADD


EPS % FY23E FY24E

-6% -8%

KEY STOCK DATA

Bloomberg code CDH IN


MCap (INR bn) / ($ mn) 417/5,607




3M 6M 12M

Absolute (%) (16.9) (31.1) (14.5)

Relative (%) (15.3) (40.4) (31.5)


Dec-21 Sep-21



FPIs 3.79 4.11



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 176

HSIE Results Daily

Aurobindo Pharma

All-round miss; outlook intact

Aurobindo’s Q3 revenue/EBITDA missed estimates by 6%/21%, owing to

lackluster performance across businesses (ex-APIs) and lower GM as EBITDA

margin missed our estimates by ~307bps. We expect the margin pressure to

normalise over 2-3 quarters. Bottoming out of margins (as per management

guidance) along with robust pipeline in the US provide good growth visibility

in injectables, biosimilars, and OTC drugs in the medium term. The potential

of injectables business value unlocking and the FDA's resolution of facilities

remain key near-term triggers. We cut our FY22/23/24e estimates by

14%/9%/3% to factor in the Q3 miss/revised outlook and arrive at an SOTP TP

of INR925, based on 15x Sep-23e EPS and NPV of INR40/30 for the

PLI/gRevlimid opportunities. Maintain BUY.

Disappointing quarter: Revenue, at INR60bn (-1% YoY, adj. for Natrol), was

below estimate as strong growth in betalactam APIs (+77% YoY, improved

demand) was offset by subdued performance in the ARV (-65% YoY, high

base) and the US business (-6% YoY, -8% QoQ, price erosion). EBITDA

margin collapsed to ~17% (-304bps QoQ), primarily due to lower gross

margin (-328bps QoQ, cost inflation, product mix, price erosion).

US business faces the heat: US revenue declined ~8% QoQ to USD367mn,

mainly due to elevated price erosion and high base of Q2. In view of current

market conditions, management believes that the worst of pricing pressure

is over and expects it to normalise gradually in the next 1-2 quarters.

Con call highlights: (a) Global general inj. - reiterates its goal to reach

USD650-700mn (current quarterly run-rate of USD100-110mn) by FY24;

company expects significant launches (10-15 products) from FY23, which

can drive double-digit growth in the segment; (b) Biosimilars – second onco

biosimilar filed with EMA in Jan, three more in the pipeline, including a

MAB (can be filed by next year); (c) Vaccines – hoping to make advances in

key vaccines over 2-3 years; (d) gRevlimid - litigation settled (FY24 launch

expected); (e) India – aims to enter into the domestic market and reach

~INR10bn topline in ~3 years through organic or inorganic route; (f) PLI –

going ahead with only the Pen-G facility (spent INR4-5bn, expected Capex

stands at ~INR18.5bn with PLI benefit of INR14bn); to start production by

FY24-end; (g) aim to rationalise WC by another ~USD100-150mn; (h) Plants –

Unit-1: discussions ongoing with the FDA on repeat observations (aim to

resolve in a year), Unit-5: audit ongoing in this sterile API plant, all plants

are due for inspection and ready, Vizag plant: almost complete – expect

filing/commercialisation from FY23/24.

Financial summary YE Mar (INR

mn)

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 60,022 60,648 (1.0) 59,419 1.0 2,47,746 2,35,981 2,50,430 2,70,852

EBITDA 10,163 12,807 (20.6) 11,867 (14.4) 53,334 44,986 52,308 59,587


APAT 5,638 NA NA 6,956 (18.9) 32,921 26,284 30,981 35,890

Adj. EPS (INR) 9.6 NA NA 11.9 (18.9) 56.2 44.9 52.9 61.3

P/E (x)

10.9 13.7 11.6 10.0

EV/ EBITDA (x)

6.7 7.5 6.2 5.2

RoCE (%)

10.1 9.6 10.8 11.7

Source: Company, HSIE Research, ratios adj. for NPV of PLI scheme and gRevlimid

BUY

CMP(as on 10 Feb 2022) INR 684


NIFTY 17,606

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS % FY23E FY24E

-9% -3%

KEY STOCK DATA

Bloomberg code ARBP IN


MCap (INR bn) / ($ mn) 401/5,389




3M 6M 12M

Absolute (%) (2.2) (22.2) (29.3)

Relative (%) 0.2 (30.2) (44.1)


Dec-21 Sep-21



FPIs 21.37 21.71



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 177

HSIE Results Daily

Lupin

Not out of the woods yet !

Lupin’s Q3 revenue/EBITDA missed our estimates by 1%/22%, primarily due

to pressure on gross margin and higher R&D spends. Adj. EBITDA margin

dipped to 12.7% (-80bps QoQ, -595bps YoY), the lowest in the past seven

quarters. After revising its margin guidance (in Q2), down from 17-18% to

16%+ for H2FY22, Lupin has now again revised it downward to ~14% for the

next 2-3 quarters, despite savings in specialty burn (Solosec write-off). While

material opportunities like gSpiriva, gSuprep, Peg-F (US) and gFostair (UK) in

its complex pipeline are expected to fuel growth in the medium term, its

ability to generate significant operating leverage remains elusive. We cut our

FY23/24 estimates by 23%/4% to factor in the revised outlook and revise our

TP to INR765/sh, based on 20x Sep-23e (vs 21x Sep-23e earlier). Downgrade to

SELL.

In-line revenue; margin miss: Revenue grew by ~4% to INR41bn as good

growth in the US (+7% YoY, +10% QoQ) and India (+8% YoY) offset subdued

performance in the API (-25% YoY, lack of demand for cephalosporins) and

RoW business (-6% YoY). Adj. EBITDA margin came at 12.7% (-80bps QoQ),

as lower gross margin (-87bps QoQ, input costs, product and region mix)

and higher R&D spends (+44bps QoQ, included some one-offs) were

partially offset by savings in staff cost (-41bps QoQ, specialty restructuring

in US). Reported profit of INR5.5bn came on account of tax write-back of

INR5.2bn, due to a negative bottomline over 9mFY22.

US business resilient, pipeline holds promise: US revenue rose to

~USD202mn (+10% QoQ) on account of a steady ramp-up of Albuterol

(reached ~20% share), despite price erosion in the base business and a weak

flu season. Lupin achieved its Q1 guidance to reach a quarterly run-rate of

USD200mn from Q3 - sustenance will be the key now. Key products like

Albuterol and Brovana AG and new product pipeline with gSpiriva

(litigation settled, USD1bn market), gSuprep (FTF, USD200mn, Sep-23), and

Pegfilgrastim provide decent growth visibility in the near to medium term.

Con call takeaways: (a) Guidance - EBITDA margin: ~14% over the next 2-3

quarters, 20%+ by FY24, ETR: ~30-32% for FY23, Capex: INR5-6bn normal

run-rate; (b) EU – gFostair: good progress in contracting with physicians,

COVID impact on volume uptick to ease with the UK opening up; (c) US

pipeline – aims to launch gSuprep, gSpiriva (TAD date in Aug) and Peg-F in

H2FY23; Dulera: aims to respond to the CRL in ~2 months and expects to

obtain an approval in FY23; gRevlimid: launch expected in FY25; Injectables:

~7-8 products filed, on track to file ~6 medium complexity products; (d)

looking to spin off NCE entity over the coming quarters; (e) Plants -

Pithampur and Tarapur: inspection to commence in a few months, Goa:

aims to launch ~7 products in FY23, ~20 products pending in total.

Financial summary

Q3

FY22

Q3

FY21

YoY

(%)

Q2

FY21

QoQ


Net Sales 41,210 39,474 4.4 40,413 2.0 1,50,869 1,60,584 1,70,653 1,89,855

EBITDA 5,240 7,367 -28.9 5,463 -4.1 24,908 21,644 27,372 37,280

EBITDA Margin 12.7 18.7 -595 bps 13.5 -80 bps 16.5 13.5 16.0 19.6

APAT 7,190 3,963 81.4 2,580 178.7 11,405 13,141 13,572 21,185

Adj. EPS (INR) 15.8 8.7 81.2 5.7 178.7 25.1 28.9 29.9 46.7

P/E (x)

34.8 30.1 29.2 18.7

EV/ EBITDA (x)

17.2 20.2 15.7 11.2

RoCE (%)

6.8 9.7 8.6 12.2


SELL



NIFTY 17,516

KEY

CHANGES OLD NEW

Rating REDUCE SELL


EPS % FY23E FY24E

-23% -4%

KEY STOCK DATA

Bloomberg code LPC IN


MCap (INR bn) / ($ mn) 396/5,326




3M 6M 12M

Absolute (%) (6.6) (24.3) (17.0)

Relative (%) (4.2) (32.1) (32.8)


Dec-21 Sep-21



FPIs 15.28 15.66



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 178

HSIE Results Daily

Max Healthcare

In-line quarter

Max’s Q3 proforma EBITDA came broadly in line at ~INR3.6bn, led by all-

time-high ARPOBs and decent volumes on the back of continued momentum

in core business, despite a seasonally weak quarter. With a multitude of short

and long-term growth drivers (international business, improvement in payor

mix, and expansion plans) in place, we expect Max’s EBITDA to grow at ~15%

CAGR over FY22-FY28e. Despite the aggressive expansion plans, we expect

post-tax RoCEs to stay at ~17-22% levels through FY28e. We tweak our FY23/24

estimates by 1%/-2%, to factor in encouraging overall outlook and arrive at an

SOTP TP of INR430/sh, based on ~24x FY24e EBITDA. Maintain BUY.

Hospital business showing encouraging trends: Hospital revenue grew

~4% QoQ to INR12.6bn (adj. for vaccine revenue), led by all-time-high

ARPOBs (+3% QoQ, improved payer mix) and decent volumes, despite a

seasonally weak quarter. Barring international business (55-60% of pre-

COVID in Q3), the company is operating at pre-pandemic levels with non-

COVID beds accounting for ~99% of total occupied beds (vs. ~60% in Q1).

While Q4 occupancies are expected to dip marginally, Max remains

confident of maintaining 75%+ occupancy levels (among industry-best) on a

sustained basis. With international business recovering and improvement in

payor mix, we believe the company is well-poised to improve its core

hospital EBITDA margin profile, from ~26-27% currently.

Max Labs – non-COVID business stabilising: Lab revenue came in at

INR220mn (flat QoQ). However, the non-COVID business share went up to

~86% (vs. ~82% in Q2), mainly led by expansion of service coverage (24+

cities now vs. ~20 in Q2) and addition of channel partners (added ~90 in Q3,

~700 in total). Addition of channel partners, centers and one-off expenses on

new website launch weighed on the EBITDA margin in the quarter.

Further acquisitions announced; strong balance sheet and CFs provide

headroom for growth: The company announced further expansion plans

with ~300 beds to be added in Dwarka on an asset light model and

commissioning a 400 bed hospital (250-beds in phase-1) in East Delhi (near

Patparganj) to go along with earlier announcements of Vikrant foundation

(Saket) and Gurugram greenfield expansion. Given the strong CF generation

on the cards (management expects INR13-15bn OCFs p.a.), Max aims to

fund most of the Capex requirements (~INR40bn over 4-5 years, ~40-45% of

cumulative OCFs) through internally-generated CFs. With an adj. net debt/

EBITDA of ~1x in FY22e, the company has enough capacity to leverage the

balance sheet that provides potential headroom for growth.

Con call takeaways: (a) Nanavati: VRS phase-1 successfully completed,

savings of INR90mn p.a. with an estimated payback period of less than ~2

years; (b) Expansion plans – to add ~2,800 beds over FY22-27e with an

estimated outlay of ~INR40bn (incl. ~INR5bn for land); (c) 2-3% price hikes

annually (would be higher in this year).

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 13,167 10,905 20.7 13,533 (2.7) 36,290 51,112 55,579 63,399

EBITDA 3,623 2,530 43.2 3,621 0.1 6,362 12,899 14,844 17,457

EBITDA Margin 27.5 23.2 431 26.8 76 17.5 25.2 26.7 27.5

Adj. PAT 2,530 1,350 87.4 2,113 19.7 451 7,540 9,921 10,936

Adj. EPS (INR) 2.6 1.5 113 2.2 43 0.5 7.8 10.3 11.3

EV/ EBITDA (x)

58.8 29.1 25.2 21.7

RoCE (%)

8.3 22.2 22.8 21.8

Source: Company, HSIE Research, proforma nos., projections excl. vaccine opportunity

BUY



NIFTY 17,352

KEY

CHANGES OLD NEW

Rating BUY BUY



+1% -2%

KEY STOCK DATA

Bloomberg code MAXHEALT IN


MCap (INR bn) / ($ mn) 360/4,842




3M 6M 12M

Absolute (%) 2.2 16.6 90.4

Relative (%) 6.4 11.7 78.9


Dec-21 Sep-21



FPIs 16.67 14.23



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 179

HSIE Results Daily

Ajanta Pharma

Mixed quarter

While Ajanta’s Q3 revenue/EBITDA came in ~3% below our estimates,

primarily due to weak performance in the US and Asia markets, PAT came

~10% ahead of our estimates, buoyed by lower-than-expected taxes. EBITDA

margin, at 28.6%, was broadly in line. The company believes that its cost bases

have broadly normalised (quarterly run-rate of INR1.6bn for staff cost and

INR2.5bn for other expenses) in Q3, which is likely to offset some benefits on

account of operating leverage in the near term. However, even as the US and

Asia businesses face headwinds, growth outlook for the branded generic

businesses (in India and Africa) remains strong. We expect 15%/16%

revenue/EPS CAGRs over FY21-24e. We cut our EPS by 4%/3% for FY22/23e

and arrive at a TP of INR2,405/sh, based on 23x Sep-23e EPS. Maintain ADD.

Revenue/EBITDA miss, margin in line: Revenue grew 12% YoY to

INR8.4bn as strong growth in India (+16% YoY, outperformance across key

therapies) and Africa branded (+88% YoY, low base) offset muted growth in

Asia (-2% YoY, COVID-led disruptions) and the US (+3% YoY, -14% QoQ

price erosion). EBITDA margin moderated to ~29% (-111bps QoQ) as higher

gross margin (+368bps QoQ, product/ geography mix) was offset by increase

in staff cost (+126bps QoQ) and other expense (+353ps QoQ, normalisation

of marketing and other such spends).

India outperformance continues: Revenue grew by 16% YoY, mainly led by

market share gains, new launches, and price increases. As per AIOCD data,

cardiac, ophthal, derma and pain outperformed therapy growth in Q3.

Trade Gx sales grew to INR300mn (+17% YoY) in the quarter. Ajanta has

launched 16 products, including four first-to-market ones. We expect its

India business to grow and clock mid-teen growth in the medium term.

Africa back on track; US facing the heat: Africa branded business recovered

strongly, growing 88% YoY on a low base, as business conditions improved.

However, the Asia business moderated by ~2% YoY as it is still recovering

from COVID-led disruptions. We expect low-to-mid teen growth in its EM

branded business. Its US business declined to ~USD22mn (-14% QoQ) due to

severe pricing pressure (double-digit) and lack of new launches. It plans to

file around seven ANDAs in Q4, which could bring the launch momentum

back on track in the coming quarters.

Con call takeaways: (a) India - ~200FF curtailed in Q1, normal growth can

be maintained by optimising existing FF; (b) US – profitable at PAT level

despite aggressive price erosion; (c) FY23 pricing strategy – India: ~10% (as

per WPI) price hikes on NLEM products (~15% of India revenue), non-

NLEM hikes depend on market dynamics, EMs: full pricing power in ~30-

40% of countries, among the rest some countries have relaxed pricing

regulations while talks going on with others; (d) Guidance - EBITDA

margin: ~30%, R&D: ~6% of sales, ETR: ~21% for FY22, Capex: INR2bn in

FY22, INR1-1.5bn maintenance Capex for FY23e.

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 8,379 7,487 11.9 8,848 (5.3) 28,897 32,872 37,945 43,425

EBITDA 2,396 2,417 (0.9) 2,628 (8.8) 9,986 9,349 11,208 13,701

EBITDA Margin 28.6 32.3 -369 29.7 -111 34.6 28.4 29.5 31.6

APAT 1,918 1,766 8.6 1,959 (2.1) 6,539 7,181 8,032 10,034

Dil. EPS (INR) 22.2 20.4 175 22.6 (2.1) 75.1 83.1 92.9 116.1

P/E (x)

29.3 26.5 23.7 19.0

EV/ EBITDA (x)

18.7 19.8 16.1 12.7

RoCE (ex-cash) %

25.2 22.7 27.1 32.0


ADD

CMP (as on 31 Jan 2022) INR 2,184


NIFTY 17,340

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS % FY23E FY24E

-3% -

KEY STOCK DATA

Bloomberg code AJP IN


MCap (INR bn) / ($ mn) 189/2,540




3M 6M 12M

Absolute (%) 3.0 (4.7) 23.7

Relative (%) 5.2 (15.0) (1.7)


Dec-21 Sep-21



FPIs 8.95 8.72



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 180

HSIE Results Daily

Narayana Health

Encouraging results

NH’s Q3 EBITDA beat our estimates by 8%, mainly on account of strong

recovery in the flagship units. While seasonality impacted the volume uptick

and ARPOB growth QoQ, which led to widening of losses at the new units,

robust recovery in the flagship units drove the overall margins of the India

business. We believe NH is well on course to improve its profitability,

primarily led by turnaround in new units (8-9% margin by FY24e) and supply

chain efficiencies that may lead to a robust EBITDA margin improvement to

~20% (+669bps) over FY20-24e. However, the potential entry of Aster DM in

Cayman (over-supplied market) could throw a spanner in the works and

remains a major risk. We revise our FY22-24e EBITDA estimates by 1-3% to

factor in the Q3 beat and arrive at an SOTP TP of INR720/sh. ADD.

Flagship units showing signs of recovery: NH’s India revenue came in at

INR7.7bn (+1% QoQ), primarily due to the seasonality impact (Q3 being the

weakest quarter) on account of postponement of elective surgeries in the

festive period. While new units had a subdued quarter, growing just 1%

QoQ and widening losses by ~320bps QoQ, the mature units drove the

improvement in profitability for India business as their margins expanded to

~23% (+260bps QoQ, strong recovery in flagship units). We forecast further

improvement in profitability would be led by a turnaround of new units (8%

margin by FY24e) and recovery of international business at flagship units.

Cayman business reports record revenue: Cayman revenue came in at

~USD 25mn (+26% QoQ, +30% YoY) as the business recovered well after

some disruptions (natural calamities) in the previous quarter. EBITDA

margin moderated to 41.0% (-117bps QoQ), on account of procedure mix.

Con call takeaways: (a) India: Q3 vaccine revenue at INR39mn (-83% QoQ)

with INR1mn margin (INR25mn in Q2); (b) Expansion/Capex: India – radio

onco set-up at Ahmedabad, Jaipur, and Shimoga.; aim to add two floors at

Gurugram; small-scale additions (~20-30 beds each) in Howrah, Mysore,

Ahmedabad, and Dharamshila and capacity additions in Bengaluru and

Kolkata over two years; exploring brownfield, greenfield, and inorganic

growth opportunities; Cayman – radiation onco centre in ~1 year, full

expansion in ~2 years.

Segmental quarterly performance

3Q FY22 3Q FY21 YoY (%) 2Q FY22 QoQ (%)

Revenues

India 7,717 6,089 26.7 7,638 1.0

Cayman 1,879 1,415 32.9 1,490 26.1

Total 9,596 7,504 27.9 9,128 5.1

EBITDA margins

India hospitals* 18.8% 14.1% 478bps 17.0% 180bps

Cayman* 41.0% 42.4% -144bps 42.1% -117bps

Total 18.2% 14.0% 425bps 15.5% 274bps

Source: Company, HSIE Research, *ex-corporate overheads allocation

Financial summary

3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Sales 9,596 7,504 27.9 9,128 5.1 25,823 37,331 42,043 46,558

EBITDA 1,750 1,049 66.8 1,414 23.8 1,821 6,316 8,147 9,408

EBITDA Margin 18.2 14.0 425bps 15.5 274bps 7.1 16.9 19.4 20.2

APAT 975 408 139.0 751 30.0 -143 3,348 4,251 5,078

Adj. EPS (INR) 4.8 2.0 277.6 3.7 30.0 -0.7 16.4 20.8 24.8

EV/ EBITDA (x)

74.8 21.5 16.8 14.5

RoCE (%)

3.6 19.9 20.2 20.4

Source: Company, HSIE Research, multiples adj. for NPV of Cayman expansion

ADD



NIFTY 17,214

KEY

CHANGES OLD NEW

Rating ADD ADD



+2% +1%

KEY STOCK DATA

Bloomberg code NARH IN


MCap (INR bn) / ($ mn) 135/1,773




3M 6M 12M

Absolute (%) 18.6 19.5 27.7

Relative (%) 21.0 11.4 12.1


Dec-21 Sep-21



FPIs 10.80 10.74



Source : BSE

Karan Vora

[email protected]

+91-22-6171-7359

P a g e | 181

HSIE Results Daily

Real Estate

P a g e | 182

HSIE Results Daily

DLF

Strong performance

DLF booked record presales of INR 20bn (+98%/+34% YoY/QoQ) on the back

of an overwhelming response received by project ‘ONE Midtown’. It has

surpassed its INR 40bn presales guidance for FY22, with 9MFYTD sales

coming in at INR 45bn; thus, it revised its sales guidance upwards to INR 60-

65bn. The company made an impairment provision of INR 2.24bn for its

Mumbai Tulsiwadi SRA JV project, towards an NPA loan. It has been

servicing the debt for some time but due to the inability of the other two

partners bringing in their contribution, it stopped servicing as well. DLF is in

talks with JV partners for an amicable resolution and further updates shall be

communicated in May-22. Net debt continues to trend down (INR 32bn vs

INR 40bn in Sep-21). Given there are (1) price hikes in the premium segment,

(2) higher presales guidance, and (3) robust launch plans, we maintain BUY,

with a TP to INR 460/sh.

Financial highlights: Revenue was INR 15.5bn (+0.4%/+4.6% YoY/QoQ, a

3% beat). EBITDA was INR 5.2bn (+4.5%/+14% YoY/QoQ, a 13% beat).

EBITDA margin came at 33.6% (+130 bps/+270 bps YoY/QoQ, 282bps beat).

Share of profits in associates and JVs: INR 1.88bn (+13.1%/+24% YoY/QoQ).

RPAT was INR 3.8bn (-15.5%/+0.4% YoY/QoQ). DLF has a net investment of

INR 4bn in one of its investee companies (Joyous Housing Ltd) with 1.4msf

carpet area. Due to this JV defaulting on its debt obligation and turning

NPA, DLF made a provision of INR 2.2bn. Consequently, APAT came at

INR 5.5bn (43% beat). DCCDL revenue/profit grew 7/13% YoY to INR

11.4/2.8bn.

Strong presales in new projects; presales guidance increased: Presales for

Q3FY22, at INR 20bn (+98%/+34% YoY/QoQ), was robust, on the back of an

overwhelming response to the newly launched ‘ONE Midtown’, which

registered presales of INR 7bn. Camellias registered presales of INR 5.8bn

(vs INR 10bn in Q2FY22). With INR 45bn of presales 9MFYTD, DLF has

revised its guidance for the full year to INR 60-65bn vs INR 40bn earlier. The

DCCDL office portfolio collection was at 100%, with occupancy flat QoQ at

86%. With better office leasing and marginally lower vacancy than Q2FY22,

DLF expects the vacancy to reduce further in Q4FY22 and reach 9-10% in

Q1FY23.

Better realisation translating into increased sales potential: DLF has

revised its sales potential to INR 470bn (vs INR 300-400bn in Q2FY22) due to

higher realisations than estimated. DLF sold 0.7msf of ONE Midtown project

at an APR of INR 19,000 per sq. ft., and took a price hike of INR 2,000-2,500

per sq. ft in tower C (to be launched in Q4FY22). DLF has also taken a price

hike of INR 5,000 per sq. ft. in Camellias.

Strong balance sheet: DLF generated cash surplus of INR 7.6bn, the highest

in the past five years, which reduced net debt to INR 32.2bn (vs. INR 39.9bn

at Sep-21 end); net D/E is now at 0.09x (vs. 0.11x at Sep-21 end).

Construction outflow guidance for FY22/23 is INR 9/14bn.

Consolidated financial summary (INR mn)


Net Sales 15,497 15,430 0.4 14,809 4.6 54,141 60,080 66,402 67,383

EBITDA 5,213 4,991 4.5 4,583 13.8 14,178 17,138 19,769 20,115

APAT 5,503 4,490 22.6 3,781 45.5 12,201 17,251 22,546 26,200

EPS (INR) 2.2 1.8 22.6 1.5 45.5 4.4 7.0 9.1 10.6

P/E (x)

90.1 57.1 43.7 37.6

EV/EBITDA (x)

73.2 59.9 51.1 49.3

RoE (%)

3.2 4.8 6.0 6.7




NIFTY 17,780

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

- - -

KEY STOCK DATA

Bloomberg code DLFU IN


MCap (INR bn) / ($ mn) 989/13,290




3M 6M 12M

Absolute (%) (7.1) 13.6 35.7

Relative (%) (6.3) 1.1 16.1


Sep-21 Dec-21



FPIs 17.00 16.46


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-3021-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 183

HSIE Results Daily

Godrej Properties Subdued presales Godrej Properties Ltd (GPL) reported muted presales of 2.2msf (-7.5%/-38.7%

YoY/QoQ), valued at INR 15.4bn (+3.6%/-40% YoY/QoQ), with launch of three

new projects/phases contributing INR 6.2bn to sales. Delay in regulatory

approvals led to planned launch slipping to Q4FY22. GPL has revisited its

earlier decision of entering a 50:50 partnership with DB Realty (DB) and

forming an SPV to undertake slum rehabilitation and MHADA

redevelopment projects in MMR, for an investment of INR 7bn, with likely

presales potential of INR 150bn. Given concerns raised by various

stakeholders, analysts, and minority investors on this arrangement, GPL has

decided not to proceed with this investment in DB or associated platform,

whilst keeping options open for projects with DB on a case-to-case basis. We

believe this may assuage investor concerns to a large extent. We maintain

REDUCE with an SOTP valuation of INR 1,800.

Financial highlights: Revenue came in at INR 2.8bn (+64%/+2.2x YoY/QoQ a

beat of 2x. EBITDA: INR (51) mn (vs INR (543) mn/(562) mn YoY/QoQ, INR

(471) mn est.). Other income: INR 1.9bn (+33.6%/-8.2% YoY/QoQ).

RPAT/APAT was at INR 390mn (+2.7x/+9% YoY/QoQ, 16% beat). GPL has

taken price hikes across projects to hedge the increased construction cost.

Net debt was at INR 3.1bn (INR 160mn in Sep-21).

Strong launch pipeline for Q4FY22: Premium projects launch timeline: GPL

expects to launch Ashok Vihar and Wadala project by Q4FY22/Q1FY23,

Worli project in FY23, and Bandra project in FY24. The company has guided

for the highest-ever quarterly presales booking for Q4FY22 (Q4FY21 – INR

26.3bn) and it has already launched three projects in Pune, one in Bengaluru,

two in NCR and one in Kolkatta. GPL maintained its FY23 presales guidance

of INR 100bn.

New strategic partnership with DB Realty in abeyance: GPL had earlier

announced investment in DB Realty and a joint SPV platform for slum

rehabilitation and MHADA redevelopment projects in MMR with a sales

potential of INR 150bn. The total investment in the SPV was earmarked at

INR 6bn (INR 3bn in SPV and INR 4bn as warrants in DB for a 10% stake, of

which INR 3bn was to be invested in the JV by DB). GPL expected to

leverage from the complementary skills, handing over business

development and site clearances to DB while taking responsibility for

construction and marketing of the project. However, given concerns raised

by shareholders, it decided not to proceed with any financial investment in

the platform.

Consolidated financial summary (INR mn) YE March (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 2,788 1,705 64 1,293 116 7,649 12,552 15,690 17,259

EBITDA (51) (543) (91) (562) (91) -3,336 627 2,381 3,248

APAT 390 146 168 357 9 393 4,568 7,443 7,918

Diluted EPS (INR) 1.4 0.5 167.7 1.3 9.0 1.4 16.4 26.8 28.5

P/E (x)

1,065.3 91.7 56.3 52.9

EV / EBITDA (x)

(125.9) 679.3 179.2 125.2

RoE (%)

0.6 5.3 8.0 7.8

Consolidated estimate change summary (INR mn)

Particulars (INR

mn)

FY22E FY23E FY24E

New Old Chg.

(%) New Old

Chg.

(%) New Old

Chg.

(%)

Revenues 12,552 15,504 (19) 15,690 20,536 (24) 17,259 19,501 (11)

EBITDA 627 1,666 (62) 2,381 6,010 (60) 3,248 6,098 (47)

EBITDA margin (%) 5.0 10.7 (576) 15.2 29.3 (1409) 18.8 31.3 (1245)

APAT 4,568 4,984 (8.4) 7,443 8,861 (16.0) 7,918 9,636 (17.8)


REDUCE CMP (as on 4 Feb 2022) INR 1,507


NIFTY 17,516

KEY

CHANGES OLD NEW



EPS Change

%

FY22E FY23E FY24E

-8.4 -16.0 -17.8

KEY STOCK DATA

Bloomberg code GPL IN


MCap (INR bn) / ($ mn) 419/5,629




3M 6M 12M

Absolute (%) (38.0) (8.0) 12.4

Relative (%) (35.5) (15.7) (3.4)


Sep-21 Dec-21



FPIs 30.02 29.85


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 184

HSIE Results Daily

Oberoi Realty

Strong presales

Oberoi Realty (ORL) registered the highest ever quarterly presales of 1.04msf

(2.4x/2.0x QoQ/YoY) for a booking value of INR 19.6bn (2.4x/2.0x QoQ/YoY)

due to strong demand across all projects. Profit share of INR 2.4bn from Three

Sixty West (TSW) was recognised in Q3FY22, with further momentum

expected to build once occupancy certificate is received (expected in Feb-22).

ORL has a strong sales pipeline for the next 12 months, with launch of new

towers expected in Borivali, Goregaon, and Thane. Further, the unsold stock

monetisation in Mulund and Worli could add to the overall sales. The Thane

project is likely to be launched in Q4FY22/Q1FY23. We maintain ADD with an

NAV-based TP of INR 1,060.

Financial highlights: ORL reported revenue/EBITDA of INR 8.3/3.3bn,

4%/23% miss on our estimate. EBITDA margin came in lower at 40% (est.

50%) due to change in the product mix and inclusion of revenue from lower

floors. The share of revenue from high realisation Goregaon projects was

lower vs the Mulund one. APAT came in at INR 2.3bn (24% miss). We

expect ORL to clock FY22/23E presales of INR 52/53bn vs. FY21 presales of

INR 32.9bn.

Strong presales momentum: Oberoi registered strong presales with the

highest-ever quarterly sales at INR 19.6bn. For Q3FY22, area booked was at

1.04msf (2.4x/2.0x QoQ/YoY) for a booking value of INR 19.65bn (2.4x/2.0x

QoQ/YoY). Elysian Tower 2, launched in Oct-21, registered strong sales of

INR 10bn. With two towers in Borivali and three in Goregaon Garden City

expected to be launched, plus the unsold Mulund inventory, the Worli

project, and the Thane project (to be launched in Q4FY22 or latest by

Q1FY23 in the worst case) on the anvil, ORL has a strong sales pipeline for

the next 12 months.

Three Sixty West OC awaited: ORL has booked INR 2.4bn (net) as its share

of profit from associates. It is expecting OC in another 2-3 weeks, post

which, the presales momentum may pick up. As of Dec-21, 28% inventory is

already booked. We estimate ORL would book about INR 8-10bn, post OC.

Balance sheet position comfortable: The consolidated net debt stood at

INR 26.5bn (vs INR 19.5bn on Sep-21), with net D/E at 0.26x (vs 0.20x on

Sep-21). With collections of INR 9.8bn (vs INR 5.3bn for Q2FY22), ORL

generated a positive CFO of INR 1.9bn. Strong cash flow generation is

expected from Three Sixty West, as well as from the Mulund, Thane, and

Borivali projects.

Consolidated financial summary (INR mn) (INR mn) Q3FY22 Q3FY21 YoY Q2FY21 QoQ FY21 FY22E FY23E FY24E

Net Sales 8,320 8,284 0.4 7,543 10.3 20,526 27,496 30,218 33,542

EBITDA 3,316 3,825 (13.3) 3,731 (11.1) 10,004 12,471 14,719 16,202

APAT 2,322 2,867 (19.0) 2,666 (12.9) 7,393 12,511 12,230 13,541

Diluted EPS (INR) 6.4 7.9 (19.0) 7.3 (12.9) 20.3 34.4 33.6 37.2

P/E (x)

45.1 26.6 27.2 24.6

EV / EBITDA (x)

34.7 27.2 22.8 20.3

RoE (%)

8.2 12.6 11.0 11.0

Consolidated Estimate Change Summary (INR mn)

Particulars (INR

mn)

FY22E FY23E FY24E


Revenues 27,496 22,716 21.0 30,218 24,683 22.4 33,542 27,398 22.4

EBITDA 12,471 10,903 14.4 14,719 10,963 34.3 16,202 12,412 30.5

EBITDA (%) 45.4 48.0 (264.2) 48.7 44.4 429.4 48.3 45.3 300.2

APAT 12,511 11,413 9.6 12,230 9,600 27.4 13,541 10,887 24.4


ADD CMP (as on 31 Jan 2022) INR 916


NIFTY 17,340

KEY

CHANGES OLD NEW

Rating ADD ADD

Price

Target INR 1,060 INR1,060

EPS

Change (%)

FY22E FY23E FY24E

9.6 27.4 24.4

KEY STOCK DATA

Bloomberg code OBER IN


MCap (INR bn) / ($ mn) 333/4,475




3M 6M 12M

Absolute (%) 1.2 36.2 73.8

Relative (%) 3.3 25.9 48.5


Sep-21 Dec-21



FPIs 22.21 20.49


Pledged Shares - -

Source : BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7330

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 185

HSIE Results Daily

Prestige Estates

Robust performance Prestige Estates (PEPL) registered the highest-ever quarterly presales at INR

42.7bn (+2.1x/2x YoY/QoQ), with collections at INR 24.3bn (+70%/+57%

YoY/QoQ) in Q3FY22. Volume-wise, gross sales were at 5.6msf (+87%/+57%

YoY/QoQ). Given robust booking and enquiry traction, PEPL expects to cross

INR 100bn of presales in FY22. While net D/E rose to 0.57x due to land

acquisitions and Capex, PEPL is committed to maintaining it below 0.35x. It

will utilise proceeds from Blackstone deal and divestment of its stake in

StarTech to deleverage the company. Also, PEPL wants to set up an alternate

investment fund to finance future land acquisitions so as to not bloat up

balance sheet debt and keep growing sales further. We maintain ADD, with

an unchanged SOTP of INR 540/sh.

Financial highlights: Revenue: INR 13.7bn (-25.4%/+2.5% YoY/QoQ, 3.8%

beat). EBITDA margin: 29.3% (+508/+16bps YoY/QoQ, vs 24.6% est.)

EBITDA: INR 4bn (-9.8%/+3% YoY/QoQ, 3% beat, because of lower-than-

expected overhead costs). Depreciation: INR 1.13bn (-19.6%/-1.3%

YoY/QoQ). Interest cost: INR 1.58bn (-34.5%/-12.4% YoY/QoQ). Other

income: INR 184mn (-77.2%/-61.5% YoY/QoQ). Share of associates: INR -

42mn (INR -112/-29mn Q3FY21/Q2FY22). RPAT/APAT: INR 933mn

(+58.9%/+22.9% YoY/QoQ, 78% beat).

Strong presales; robust launch pipeline: PEPL registered the highest-ever

quarterly gross sales at INR 42.7bn (+2.1x/+2x YoY/QoQ), with collections at

INR 24.3bn (+70%/+57% YoY/QoQ) in Q3. Volume-wise, gross sales were at

5.6msf (+87%/+57% YoY/QoQ). With this, the 9MFY22 sales stand at INR

71.1bn, collections at INR 50.1bn, and volume at 10.2msf up +97%/+51%/+2x

YoY. PEPL launched 8.27msf in the quarter. Over the next few quarters, it

has a robust launch pipeline of ~30msf in Mumbai, NCR, Bengaluru,

Hyderabad, and Chennai. This augurs well for presales growth.

Contributions from Mumbai projects to start flowing in: PEPL plans to

launch three projects, viz., Prestige City Mulund, Prestige Daffodils at Pali

Hill and Prestige Ocean Towers at Marine Lines in Apr-22. The sale

potential of Mumbai projects (including the upcoming residential and

commercial ones) is ~INR 409bn, of which PEPL’s share is INR 234bn. The

net book value of investments made in Mumbai projects stands at INR 25bn

(including INR 5bn paid for FSI).

Proceeds from divestment to reduce leverage: Net debt increased from INR

30.8bn in Sep-21 to INR 41.7bn (net D/E at 0.57x) in Dec-21, as PEPL incurred

INR 11.3bn/INR 13.6bn cost towards construction, land acquisition and FSI

premium (this includes INR 10bn paid for Mumbai land). The company

plans to reduce net debt to INR ~28bn by Mar-22, aided by inflow of INR

6.8bn from the Blackstone deal, INR 5bn from the divestment of stake in

StarTech and derecognition of Blackstone debt of INR 6.8bn at a

consolidated level. Also, PEPL plans to draw down INR 5bn for Capex/land

acquisition.

Consolidated Financial Summary (INR in mn) 3QFY22 3QFY21 YoY (%) 2QFY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 13,776 18,476 (25.4) 13,445 2.5 72,644 59,821 71,376 85,622

EBITDA 4,037 4,476 (9.8) 3,918 3.0 19,722 15,560 19,653 22,844

APAT 933 587 58.9 759 22.9 3,539 3,961 5,963 7,063

EPS (INR) 9.8 6.2 58.9 8.0 22.9 8.8 9.9 14.9 17.6

P/E (x)

52.2 46.7 31.0 26.2

EV/EBITDA (x)

10.2 12.9 10.5 9.2

RoE (%)

5.9 5.8 8.2 9.1




NIFTY 17,606

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS

Change %

FY22E FY23E FY24E

- - -

KEY STOCK DATA

Bloomberg code PEPL IN


MCap (INR bn) / ($ mn) 185/2,483




3M 6M 12M

Absolute (%) (10.4) 30.8 58.0

Relative (%) (8.1) 22.8 43.2


Sep-21 Dec-21



FPIs 25.31 24.67


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 186

HSIE Results Daily

Phoenix Mills

Moving towards normalisation

Phoenix Mills (PHNX) reported strong revenue/APAT at INR 4.2/1bn, -

5%/23% beat. Consumption grew 2x QoQ to INR 20.7bn with consumption in

Jan-22 at 79% of its pre-COVID level (Jan-20). As per the trend seen in the first

week of Feb-22, consumption is back at the pre-COVID level. No remarkable

concession is given to tenants in Q3FY22. Consumption for multiplexes and

F&B segment was 110%/102% of the pre-COVID level. The majority of tenants

are back to contractual rents with minimum guarantee levels being 110% of

the pre-COVID level. All under-construction malls are expected to be

operational by H1FY24, thereby taking GLA to 13msf. We maintain BUY, with

an unchanged SOTP of INR 1,360 on account of: (1) slightly better rental

pricing; (2) 15% NAV premium on account of likely new malls additions

(PML has huge growth headroom as balance sheet is under-leveraged and it

may now shift gear from capital perseveration to growth); and (3) likely ramp-

up in new office additions.

Financial highlights: Revenue: INR 4.2bn (+29.5%/+16.9% YoY/QoQ, 5%

miss). EBITDA: INR 2.3bn (+45.2%/+23.8% YoY/QoQ, 2% beat). EBITDA

margin: 54.2% (48.4%/51.2% Q3FY21/Q2FY22, vs est. of 50.6%). INR 990mn

(+54.3%/+70.6% YoY/QoQ, 23% beat). Ex-Palassio, retail rental income came

in at INR 2.4bn (87% of Q3FY20), with EBITDA at INR 2.2bn (86% of

Q3FY20). Phoenix Palassio generated a robust EBITDA of INR 267mn in

Q3FY22 (vs INR 253mn in Q2).

Consumption nearing pre-COVID levels: Retail consumption in Q3FY22

was at INR 20.7bn vs INR 10bn in Q2FY22. Consumption in Jan-22 was INR

4.9bn (79% of corresponding pre-COVID period). With all-time high

quarterly collections of INR 4.5bn in Q3FY22, retail collections for 9MFYTD

stood at INR 6.7bn. In Q3FY22/Jan-22, consumption was impacted by the

rising number of COVID cases and local restrictions in certain states. The

multiplexes/food and beverages (F&B) operators saw consumption in

Q3FY22 at 110%/102% of pre-COVID level. All the tenants have gone back to

minimum guarantee levels with 95-96% tenants back on contractual rents.

The minimum guarantee level has increased by 10% vs the pre-COVID level.

With 9MFYTD rental income of INR 5.5bn, PML expects a rental income of

INR 2.5bn in Q4.

Under construction malls to be operational by mid-FY24: Project Rise

received commencement certificate and is in advanced stages of design

development. Construction Capex of INR 6.5bn for Project Rise and INR

15bn balance Capex for under-construction malls will be funded largely

through internal accruals. Phoenix Citadel Indore and Palladium

Ahmedabad are expected to be operational in H1FY23 while Phoenix

Millennium Pune and Phoenix Mall of Asia in Bangalore will be operational

by H1FY24. With this, the retail gross leasable area (GLA) will be 13msf.

Comfortable liquidity position: Consolidated net debt stood at INR 18.1bn

(vs INR 29.8bn as on Sep-21). The average cost of debt went down by 23bps

QoQ from 7.84% to 7.61% as of Dec-21. The group liquidity stood at INR

24.5bn (vs INR 13.2bn as of Sep-21).

Consolidated financial summary INR in mn Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 4,251 3,282 29.5 3,638 16.9 10,733 13,341 20,897 26,130

EBITDA 2,305 1,588 45.2 1,863 23.8 4,942 7,026 12,982 16,151

APAT 990 641 54.3 580 70.6 526 1,799 5,105 6,669

EPS (INR) 5.8 3.7 54.3 3.4 70.6 3.07 10.5 29.8 39.0

P/E (x)

306.8 89.7 31.6 24.2

EV/EBITDA (x)

40.7 27.3 14.9 11.7

RoE (%)

0.9 3.3 9.5 11.4




NIFTY 17,267

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

+39.3 - -

KEY STOCK DATA

Bloomberg code PHNX IN


MCap (INR bn) / ($ mn) 162/2,182




3M 6M 12M

Absolute (%) (14.3) 6.7 17.8

Relative (%) (9.8) 0.1 5.2


Dec-21 Jan-22*



FPIs 31.60 30.63


Pledged Shares - -

Source: BSE *PHCPL, earlier a subsidiary has been merged

within PML and as a result the shareholding

pattern has been revised on January 13, 2022.



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7355

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 187

HSIE Results Daily

Sobha

Presales stable; launches awaited

Sobha (SDL) reported strong quarterly presales of 1.3msf (+17%/-2%

YoY/QoQ), valued at INR 10.5bn. INR 10bn in quarterly sales seems to be the

its new normal. Bengaluru saw a significant rebound from the previous

quarter, accounting for 73% of total presales volume (vs 59% in the previous

quarter). The residential launch pipeline stands at 13.4msf, with 62% of

launches planned for the Bengaluru market. SDL has taken price hikes of 2-

3% in a few of its projects to offset rising input costs. The average price

realisation has increased 4% QoQ to 7,920psf. SDL achieved the highest-ever

cash inflow of INR 10.6bn (+22%/+16% YoY/QoQ) on the back of the highest-

ever residential cash collection of INR 8.4bn. We maintain ADD, with an

unchanged TP of INR 964. We've also tweaked our FY22 EPS to reflect lower-

than-expected results.

Financial highlights: Sobha reported revenue of INR 6.7bn (-2.4%/-18.4%

YoY/QoQ), which was 4% lower than our estimate, with real estate (RE)

contributing 65% of total revenue. Under the completed contract method,

SDL has INR 77.5bn in revenue to be recognised from sales made until Dec-

21. EBITDA came in at INR 1.1bn (13% miss). EBITDA margin fell to 17.3% (-

114/-175bps YoY/QoQ, est. 19.1%). To counter the higher cost of

construction, SDL took a price hike of 2-3% in a few projects. RPAT/APAT

was INR 327mn (+51%/-32% YoY/QoQ), 3.7% ahead of our estimate.

Strong presales; robust launch pipeline: SDL registered strong quarterly

presales of 1.3msf (+17%/-2% YoY/QoQ), valued at INR 10.5bn (+18%/+1.7%

YoY/QoQ), with Sobha’s share at INR 9.1bn, the best ever since inception.

Non-Bengaluru sales accounted for 28% of total volume (vs 41% in Q2FY22),

with Gurugram/GIFT city/Pune contributing 15/3.5/3.3% resp. The average

realisation was up by 4% QoQ to counter the increased cost of construction.

SDL has residential launch pipeline of 13.4msf with 8.26msf planned for

Bengaluru. Project Dream Acres is its largest project in the pipeline that has

a developable area of ~3msf. SDL is focused on land monetisation rather

than investment. Therefore, these upcoming launches will be from existing

land bank, with balance payment being met through internal accruals. The

contractual order book stands at INR 23.5bn (+3% QoQ).

Balance sheet remains stable; collections robust: The consolidated net debt

reduced to INR 26.5bn (vs INR 27.8bn as of Sep-21), with net D/E at 1.07x

(1.13x as of Sep-21). SDL expects a net D/E ratio of less than 1.0x before

Q1FY23. The average borrowing cost has dropped to 8.65%, from 8.85% in

Q2FY22, thereby gradually reducing finance cost to INR 739mn (vs. INR

848mn in Q3FY21). SDL achieved the highest ever cash inflow of INR 10.6bn

(+22%/+16% YoY/QoQ) on the back of the highest ever residential cash

collection of INR 8.4bn.

Consolidated financial summary (INR mn) Particulars (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 6,682 6,844 (2.4) 8,191 (18.4) 21,098 27,087 32,299 35,831

EBITDA 1,153 1,259 (8.4) 1,557 (25.9) 4,102 4,958 7,203 7,990

APAT 327 216 51.4 483 (32.3) 623 1,302 2,877 3,359

EPS 3.4 2.3 51.4 5.1 (32.3) 6.6 13.7 30.3 35.4

P/E (x)

128.0 61.2 27.7 23.7

EV/EBITDA (x)

26.4 21.7 14.8 13.1

RoE (%)

2.6 5.2 10.7 11.4




NIFTY 16,843

KEY

CHANGES OLD NEW

Rating ADD ADD


EPS Change

%

FY22E FY23E FY24E

-21 - -

KEY STOCK DATA

Bloomberg code SOBHA IN


MCap (INR bn) / ($ mn) 80/1,070




3M 6M 12M

Absolute (%) (6.3) 39.2 87.7

Relative (%) 0.8 37.4 78.2


Sep-21 Dec-21



FPIs 17.05 18.06



Source: BSE



[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 188

HSIE Results Daily

Mahindra Lifespaces Gearing for new land addition Mahindra Lifespaces Developers Ltd (MLDL) reported strong sustenance

presales of 0.32msf (+3.2%/-18% YoY/QoQ), valued at INR 2.5bn (+28%/-17%

YoY/QoQ). The IC&IC segment saw strong performance, with 51.1acres leased

for INR 1.4bn. MLDL believes this performance is not a one-off and would

sustain. The run-rate and enquiries in this segment are now better than pre-

COVID levels. The segment also expects to benefit from the proposed

legislative changes for SEZs in the recent budget, with MWC Jaipur expected

to benefit the most. On new land/gross development value (GDV) addition,

MLDL expects to close INR 20bn of GDV by Mar/Apr-22. Further, it is in

advanced talks on projects in the INR 80bn worth of prospect pipeline, which

may add INR 20-25bn GDV in FY23E. It has taken price hikes across projects

(~1.5% hike every quarter). Given the tailwinds in industrial business, a

robust balance sheet, trustworthy brand image, and a strong pipeline, we

remain constructive on MLDL and maintain a BUY rating, with an unchanged

NAV-based TP of INR 349/sh.

Q3FY22 highlights: Revenue: INR 243mn (~73% miss). EBITDA came in at

INR (388)mn (INR (185)mn/92mn Q3FY21/Q2FY22, vs (Rs 159mn) est.).

Interest cost: INR 17mn (-47&/-18% YoY/QoQ). Other income: INR 588mn

(+3.8x/+3.2x YoY/QoQ). APAT came in at INR 250mn (+4.2x/+3.8x

YoY/QoQ), a beat of 19%, led by profit from associates. For 9MFY22, higher

input cost impacted margin by 300bps; however, MLDL took an average

price hike of 5%, thereby netting off the impact completely. MLDL, on an

average, takes a price hike of ~1.5% every quarter, with an approximate hike

of 20% from launch to receipt of occupancy certificate. MLDL’s consolidated

gross debt stood at INR 2bn, with cash balance at INR 1.6bn. The net D/E

stood at 0.03x (vs 0.01, as of Sep-21).

IC&IC performance picks up; SEZ legislation change a positive: MLDL

recorded sustenance sales of INR 2.5bn (+28%/-17% YoY/QoQ), with volume

at 0.32msf (+3.2%/-18% YoY/QoQ). 72% of sales was contributed by mid-

premium segment and the balance by the affordable segment. Collections

came in at INR 4.7bn (+60%/+2.7x YoY/QoQ). Construction outflow was INR

1.04bn (INR 690/700mn in Q3FY21/Q2FY22). During the quarter, new

launches were at 0.1msf (0/0.2msf in Q3FY21/Q2FY22). Within IC&IC, the

company leased 51.1acres for INR 1.4bn, well on the path to achieve its

target of INR 5bn per annum. With a new legislation proposed in the recent

budget for SEZs, MLDL believes that its IC&IC segment will benefit

substantially (mainly MWC Jaipur).

Robust prospect pipeline: MLDL has a robust FY23 prospect pipeline of

INR 80bn worth of GDV, with an expected strike rate of 25-30%, 50% of

which is outright purchases, 25% redevelopment projects, and the rest JDA

and distressed assets. It has entered two land transactions worth INR 13bn

(one each in Dahisar and Pimpri) in 9MFYTD and expects to add INR 20bn

by Mar-Apr-22, in line with its annual target of INR 20bn. FY23 additions

are beyond this.

Consolidated financial summary (INR mn) YE March (Rs mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 243 652 (62.6) 592 (58.9) 1,663 3,119 7,663 10,171

EBITDA (388) (185) (110.2) 92 (523.1) (935) (798) 157 417

APAT 250 (112) 323.6 65 283.7 (717) 317 1,432 1,782

Diluted EPS (Rs) 1.6 (0.7) 323.6 0.4 283.7 (4.7) 2.1 9.3 11.6

P/E (x)

(56.7) 128.3 28.4 22.8

EV / EBITDA (x)

(44.7) (56.7) 302.5 117.8

RoE (%)

(4.3) 1.9 8.3 9.4




NIFTY 17,214

KEY CHANGES OLD NEW

Rating BUY BUY


EPS

Change %

FY22E FY23E FY24E

+1.9x - -

KEY STOCK DATA

Bloomberg code MLIFE IN


MCap (INR bn) / ($ mn) 40/549




3M 6M 12M

Absolute (%) (7.1) 5.4 73.7

Relative (%) (4.7) (2.6) 58.1


Sep-21 Dec-21



FPIs 11.60 10.61


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-3021-7355

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 189

HSIE Results Daily

Kolte Patil Developers

Launches awaited Kolte Patil Developers (KPDL) reported its highest-ever quarterly presales of

INR 5.6bn (+77%/+31% YoY/QoQ), with volume at 0.86msf (+56%/+28%

YoY/QoQ). With this, KPDL is well on the path of surpassing its presales

guidance of 2.5msf for FY22. In value terms, the contribution of non-Pune

sales was ~31%, similar to that in the previous quarter. KPDL launched Equa

in Wagholi and additional towers in Life Republic, Hinjewadi, in Q3. Over

the next few quarters, it has a robust launch pipeline of ~5.38msf, with a

topline potential of INR 46bn. KPDL is evaluating a business development

(BD) pipeline with 10msf GDV in Pune, Mumbai, and Bengaluru. The net D/E

dropped lower to 0.19x (0.23x, as of Sep-21). Given its comfortable liquidity, it

can also acquire a land bank, paving the way for faster BD activities. We cut

our FY22/FY23/FY24 estimates by 45.6/12.6/8.6% to factor in some project

completion shifting by a few quarters and higher commodity prices. Maintain

BUY with an unchanged TP of INR 377 (Dec-23E).

Weak financial performance: KPDL reported revenue of INR 2.4bn

(+26.3%/-21% YoY/QoQ, 24.7% miss) in Q3FY22. EBITDA: INR 305mn (-

33%/-42.2% YoY/QoQ, 49.1% miss). EBITDA margin: 12.7% (vs 18.8%

estimated). APAT was at INR 122mn (-45.5%/-31% YoY/QoQ, a 59% miss).

KPDL has a robust launch pipeline of ~5.4msf in the next few quarters, with

a topline potential of INR 46bn. Additionally, it is targeting land acquisitions

of 7.5-8msf GDV in Pune, with a revenue potential of INR 40bn and another

2-3msf in Mumbai/Bengaluru, with a revenue potential of INR 25bn.

Robust sales from non-Pune region; higher contribution from premium

projects continues: KPDL reported its highest-ever quarterly presales of

INR 5.6bn (+77%/+31% YoY/QoQ) with volume of 0.86msf (+56%/+28%

YoY/QoQ). Demand outside Pune was strong, with contribution from

Mumbai and Bengaluru, in value terms, around 31%. Mumbai, in particular,

reported sales value of INR 1.4bn (vs INR 1.1bn in Q2FY22) on the back of

increased traction in Verve and sustained momentum in Vaayu projects.

Realisation in Q3FY22 was up at INR 6,489psf (+13%/+2% YoY/QoQ) due to

higher contribution from premium inventory in Mumbai and Pune.

Strong liquidity; room for accelerated BD activities: Collections were

robust at INR 4.2bn (+10%/+13%, YoY/QoQ). Operating cash flow was at

INR 1.2bn (vs INR 1.5bn in Q2FY22). Consolidated net debt reduced by INR

420mn in Q3FY22 to INR 1.7bn, with net D/E at 0.19x (vs 0.23x as on Sep-21).

Consolidated financial summary INR (in mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Sales 2,403 1,903 26.3 3,038 (20.9) 6,917 10,540 12,944 15,764

EBITDA 305 455 (33.0) 528 (42.2) 624 2,101 3,205 4,437

APAT 122 225 (45.5) 177 (30.8) (55.2) 884 1,895 2,823

EPS (INR) 1.6 3.0 (45.5) 2.3 (30.8) (0.7) 14.1 25.0 37.3

P/E (x)

(410.4) 21.2 12.0 8.0

EV/EBITDA (x)

42.8 12.0 8.3 5.9

RoE (%)

(0.7) 9.8 16.9 20.5

Consolidated estimate change summary

Particulars

(INR mn)

FY22E FY23E FY24E

New Old % Chg. New Old % Chg. New Old % Chg.

Revenues 10,540 12,531 (15.9) 12,944 13,561 (4.6) 15,764 16,594 (5.0)

EBITDA 2,101 2,854 (26.4) 3,205 3,629 (11.7) 4,437 4,920 (9.8)

EBITDA (%) 19.9 22.8 (284.9) 24.8 26.8 (200.1) 28.1 29.7 (150.3)

APAT 884 1,623 (45.6) 1,895 2,168 (12.6) 2,823 3,089 (8.6)




NIFTY 17,464

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS Change

%

FY22E FY23E FY24E

-45.6 -12.6 -8.6

KEY STOCK DATA

Bloomberg code KPDL IN


MCap (INR bn) / ($ mn) 23/305




3M 6M 12M

Absolute (%) (11.8) 25.2 14.9

Relative (%) (8.6) 17.7 1.0


Sep-21 Dec-21



FPIs 1.58 1.62



Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7335

Nikhil Kanodia

[email protected]

+91-22-6171-7355

P a g e | 190

HSIE Results Daily

Utilities

P a g e | 191

HSIE Results Daily

PGCIL

Strong capitalisation in Q3FY22

PGCIL’s asset capitalisation in Q3FY22 came in at ~INR52.4bn (+647% YoY),

while Capex increased 19% YoY to INR34.9bn. Capitalisation/Capex for

9MFY22 stood at INR185.1bn/71.9bn, compared to INR125.7bn/INR79.4bn in

9MFY21. Revenue increased 3.4% YoY, led by moderate growth in the

transmission segment. EBITDA also grew 3% YoY, in line with sales. PAT

came in marginally below our estimate, at INR33.5bn (+1% YoY), due to

unfavourable movement in regulatory deferral account in the quarter. The

company declared an interim dividend of INR5.5/share, taking the overall

pay-out for the year to INR12.5/share (~6% yield). It is well-poised to benefit

from the transmission investment opportunity, and we expect a capitalisation

of INR212bn/168bn for FY22/23. It is also eyeing new avenues like smart

metering and distribution network strengthening and plans to invest

~INR250bn in it over the next four years. We have marginally revised our

earnings estimates to factor in better capitalisation in FY22 and retain our

ADD rating with a revised TP of INR233 (vs INR224 earlier).

Muted quarterly performance: PGCIL’s revenue grew 3.4% YoY to

INR100.0bn, led by 2.6%/39.7% YoY growth in its transmission/consulting

segments. Telecom revenue declined 10.5% YoY to INR1.9bn. EBITDA grew

2.7% YoY to INR86.9bn, while the margin remained flat YoY at 86.9%.

Interest expenses declined 13.9% YoY to INR18.5bn, while depreciation rose

6.7% YoY to INR31.9bn. PAT came in slightly below our estimate, at

INR33.5bn (+1% YoY), due to unfavourable movement in regulatory deferral

account and higher staff expenses in the quarter.

Expect ~INR212bn capitalisation in FY22: In Q3, capitalisation/Capex stood

at INR52.4bn/INR34.9bn, up 647.2%/19.0% YoY. Capitalisation also rose

47.2% YoY to INR185.1bn in 9MFY22. The total projects in hand now stand

at INR245bn (CWIP, new, and TBCB stood at INR71bn, INR42bn, and

INR132bn respectively), expected to be capitalised over the next two years.

Further, transmission projects worth INR258bn are expected to be tendered

out in the next 1-1.5 years. We expect INR212bn/168bn capitalisation for

FY22/23.

Maintain ADD: PGCIL is well-poised to gain from the transmission

opportunity, apart from new tendering opportunities, and it has been

awarded the Leh transmission project worth INR260bn. Further, it is also

venturing into the smart metering and discom network infrastructure

segment and is in advanced stages of discussions with states like Gujarat,

MP, and Karnataka. We maintain our ADD rating, with a revised TP of

INR233 (vs INR224 earlier), factoring in strong capitalisation in FY22.

Financial summary

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ

(%) FY22E FY23E FY24E

Net Revenues 1,00,010 96,766 3.4 99,292 0.7 4,13,367 4,29,047 4,42,876

EBITDA 86,883 84,605 2.7 87,851 -1.1 3,61,264 3,73,280 3,83,681

APAT 33,494 33,239 0.8 33,383 0.3 1,34,510 1,45,659 1,53,769

Diluted EPS (INR) 6.4 6.4 0.8 6.4 0.3 19.3 20.9 22.0

P/E (x)

11.0 10.2 9.6

P/BV (x) 1.9 1.7 1.6

RoE (%) 17.6 17.6 17.3


ADD



NIFTY 17,606

KEY CHANGES OLD NEW

Rating ADD ADD


EPS Change % FY22E FY23E

0.4% 0.4%

KEY STOCK DATA

Bloomberg code PWGR IN


MCap (INR bn) / ($ mn) 1,479/19,877




3M 6M 12M

Absolute (%) 16.7 24.7 36.4

Relative (%) 19.1 16.7 21.5


Dec-21 Sep-21

Promoters 51.3 51.3


FPIs 28.2 27.9


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 192

HSIE Results Daily

NTPC

Earnings beat estimate; retain BUY

Generation/sales increased 11.1%/11.4% YoY to 72.7bn/67.6bn units in Q3FY22

as demand recovered. Coal PAF, however, declined in Q3 to 86% vs 89% YoY,

but coal PLF was up at 68% vs 64% YoY. Under-recovery came in at INR2.2bn,

while surcharge income declined to INR1.7bn vs INR5.7bn YoY. However,

dividend income increased significantly in Q3FY22. Consequently, after

adjusting for one-offs, adj PAT increased 10% YoY to INR36.2bn, above our

estimate. Overdue reduced to INR45bn vs INR60.5bn QoQ. NTPC plans to

add 3.5GW of RES capacity by FY24 and another ~55GW by FY32. We

maintain our earnings estimates and expects PAT to grow at a 7% CAGR,

while generating INR346bn in FCF over FY22-24E. Management plans to

monetise its trading arm and renewable business, which will enhance the

value proposition for stakeholders. We maintain BUY with a TP of INR

165/share, assigning a 1.2x BV to its regulated equity and a 1.5x BV to its

equity investment in 8-GW of upcoming solar capacities. The stock is

attractively valued at 0.9x/6.8x FY24 P/BV and PE.

Earnings above estimate: Although energy sales increased 11.4% YoY to

67.6bn units in Q3FY22 due to strong power demand, coal/gas PAF declined

361/471bps YoY to 85.5%/89.9%. Coal PLF, however, rose to 67.6% vs 64.3%

YoY. Accordingly, Q3FY22 under-recovery came in at INR2.2bn vs INR0.7bn

YoY. Surcharge income also declined to INR1.7bn in Q3FY22 vs INR5.7bn

YoY. This was offset by higher dividend income of INR6.3bn in Q3FY22 vs

INR70mn YoY. After adjusting for one-offs, PAT increased 9.6% YoY to

INR36.2bn, above our estimate.

Capacity addition: For FY22E/FY23E, we expect NTPC to commercialise

5.5GW/6.3GW. These projects will increase the standalone regulated equity

by 21% to INR781bn in FY23E vs. INR648bn in FY21. On the renewable

front, management plans to add 3.5GW of capacity by FY24 and ~55GW by

FY32. NTPC currently has 1.4GW of installed RES capacity, while another

~8GWof RES capacity is under construction and in the tendering stage.

Maintain BUY: NTPC plans to add 60GW of RES capacity by FY32, and it

has 8GW under construction. Along with strong Capex on the thermal front,

this should drive earnings growth at 7% CAGR over FY21-24E and improve

the RoE. While 14GW of the company’s capacity will complete 25 years of

plant life by FY22, their PPAs are expected to continue. It plans to monetise

the trading arm and renewable business, going ahead. We maintain BUY

with a TP of INR 165/share, assigning a 1.2x BV to regulated equity and a

1.5x BV to equity investment in 8GW of upcoming solar capacities. The stock

is trading at a discount to its peers, with FY24 consolidated P/BV at 0.9x and

PE at 6.8x.

Financial summary

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Revenues 2,81,885 2,42,468 16.3 2,84,908 -1.1 10,73,766 11,93,722 12,68,762

EBITDA 84,475 73,586 14.8 73,956 14.2 3,42,079 3,80,830 4,23,292

APAT 36,249 33,083 9.6 33,532 8.1 1,53,233 1,65,849 1,74,214

Diluted EPS (INR) 4.4 4.0 9.6 4.1 8.1 15.8 17.1 18.0

Consol P/E (x)

8.4 7.1 6.8

Consol Price/BV (x) 1.0 0.9 0.9

RoE (%) 13.4 13.4 13.0


BUY



NIFTY 17,102

KEY CHANGES OLD NEW

Rating BUY BUY



- -

KEY STOCK DATA

Bloomberg code NTPC IN


MCap (INR bn) / ($ mn) 1,359/18,262




3M 6M 12M

Absolute (%) 2.0 20.0 53.0

Relative (%) 6.7 10.9 31.0


Dec-21 Sep-21

Promoters 51.1 51.1


FPIs 14.5 13.5


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 193

HSIE Results Daily

Tata Power

High realisation in coal business boosts PAT

Tata Power’s consolidated revenue increased 44% YoY to INR109.1bn in Q3,

led by the acquisition of Odisha discoms and strong execution in the solar

EPC segment. EBITDA, however, declined 7% YoY due to a steep rise in

Mundra under-recovery. Margin, thus, was impacted by ~806 bps YoY and

came in at 15%. Losses at Mundra widened to INR4.6bn in Q3FY22 vs a loss of

INR950mn YoY, as it operated at low PAF of 40% vs 75% YoY. However,

higher profit in the Indonesian coal business, lower AT&C in Odisha

discoms, and improved margin in the EPC segment caused APAT to rise 19.4%

YoY to INR4.3bn. The company plans to incur INR34bn in Capex towards

enhancing its cell and module manufacturing capacities by 4GW each.

Further, its solar EPC order book stands at INR100bn vs INR92.6bn QoQ. We

raise our earnings estimates for FY23 by 8%, factoring in increased profit at

Bumi mines, falling AT&C losses in Odisha, and partial fixed cost recovery at

Mundra through power sale to Gujarat under the new resolution.

Accordingly, we revise our TP upwards to INR258 (INR215 earlier) and

upgrade our rating to ADD, from REDUCE.

High share of JV profit boosts PAT: Consolidated revenue grew by 43.6%

YoY to INR109.1bn, led by strong performance in standalone business

(+30.5% YoY), inclusion of Odisha business, and healthy growth in solar

EPC (+69% YoY). EBITDA, however, declined 6.6% YoY to INR16.3bn due to

a steep rise in Mundra under-recovery (EBITDA loss of INR1.2bn in Q3FY22

vs profit of INR3bn YoY), which led to a ~806 bps YoY fall in margin to 15%.

APAT, though, rose 19.4% YoY to INR4.3bn, driven by higher profit share

from the Indonesian coal business and improved profit in the EPC segment.

Expansion in cells and modules: Tata Power’s transition into the green

segment is gaining strong momentum, and the company now plans to incur

a Capex INR34bn over the next 18 months to enhance its cell and module

manufacturing capacity by 4GW each. The company has also participated in

the PLI Scheme floated by the government to boost domestic solar

manufacturing and, thus, expects an incentive of ~INR15bn against this

Capex. It is also strengthening its EV charging segment by signing MoUs

with TVS Motors and Apollo Tyres to deploy charging stations.

Upgrade to ADD: We raise our FY23 earnings estimate by 8% and revise TP

upwards to INR258/share (+from INR215/share), factoring in increased

profit at Bumi, falling AT&C losses in Odisha, strong execution and order

wins in the solar business, and partial fixed cost recovery at Mundra

through power sale to Gujarat under the new resolution. We upgrade our

rating on Tata Power to ADD, from REDUCE.

Financial summary

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Revenues 1,09,131 75,979 43.6 98,102 11.2 3,91,360 4,20,775 4,46,621

EBITDA 16,339 17,496 -6.6 16,636 -1.8 74,820 89,546 93,737

APAT 4,269 3,575 19.4 4,215 1.3 18,871 25,161 26,057

Diluted EPS (INR) 1.34 1.12 19.4 1.32 1.3 5.9 7.9 8.2

P/E (x)

40.5 30.4 29.3

Price/BV (x)

3.3 3.0 2.8

RoE (%)

7.0 9.1 8.8


ADD



NIFTY 17,464

KEY CHANGES OLD NEW

Rating REDUCE ADD



- 8

KEY STOCK DATA

Bloomberg code TPWR IN


MCap (INR bn) / ($ mn) 760/10,219




3M 6M 12M

Absolute (%) (1.6) 80.2 173.1

Relative (%) 1.6 72.8 159.2


Dec-21 Sep-21



FPIs 10.84 11.06


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 194

HSIE Results Daily

JSW Energy

Higher merchant sales and realisation boost PAT

Higher realisation and increased generation at the Vijayanagar and hydro

plants boosted Q3FY22 PAT by 126% YoY to INR3.2bn (above ours and

consensus estimate). Net generation, however, declined 2.6% YoY to 4.5bn

units, owing to lower generation across the Ratnagiri plant (on plant

maintenance). Accordingly, PLF declined for the Ratnagiri stations, but was

up for Vijayanagar and hydro plants; it was largely flat for the Barmer station.

EBITDA too increased 31% YoY, aided by an improved topline and flat fuel

cost (given job work arrangement by the company). JSW Energy expects to

add 20GW of RES capacity by FY30, of which it would add 2.5GW by FY24 (as

a PPA has been signed). Scoping work for the green hydrogen pilot project is

nearing completion; the company has signed MoUs with Rajasthan for

resources for the 10-GW renewable and 1-GW hydro pumped storage projects.

JSW Energy’s net D/E stands at 0.4x, while net debt/EBITDA stands at 1.7x. We

maintain SELL and retain our target price of INR118, as we believe the stock

has been trading at an unjustifiable valuation of INR312 (RoE - ~7.5%, FY24

P/E – 42x, P/BV – 3.0x).

Hydro and Vijayanagar stations report strong growth: While the

company’s net generation decreased 2.6% YoY to 4.5bn units due to

maintenance at its Ratnagiri plant (-26.7% YoY), it was partially offset by

higher generation across the Vijayanagar (+43.6% YoY) and hydro plants

(+12.6% YoY). Generation at the Barmer stations was flat (0.4% YoY).

Accordingly, PLF improved at Vijayanagar and Hydro stations by 1410bps

and 230bps YoY to 46%/27%, while it declined at the Ratnagiri projects by

1840bps to 51%. Revenue rose 17.7% YoY to INR18.9bn in Q3, led by

improved generation at Vijayanagar and hydro plants and higher

realisations. EBITDA also increased 30.9% YoY to INR7.9bn, while PAT

increased 125.8% YoY to INR3.2bn, further aided by higher other income

(+80% YoY to INR908mn). PAT was above ours and consensus estimate of

INR2.0bn for the quarter.

PPA signed for 2.5GW of RES capacity: The company expects to add 20GW

of RES capacity by FY30, of which 10GW would be added by FY25. It has

signed a PPA for 2.5GW of these capacities. JSW Energy has one the

strongest balance sheets in the industry, with the current net D/E at 0.4x; it

generates a strong cash flow of~ INR17bn-21bn p.a., which is sufficient to

meet its equity Capex for the upcoming RES capacities.

Maintain SELL on expensive valuation: We maintain our PAT estimates for

FY22/23 and the target price of INR118. However, the stock price has

remained substantially high at INR312, which seems highly unjustifiable to

our valuation metrics (RoE - ~7%, FY24 P/E – 42x, P/BV – 3.0x). Hence, we

retain our SELL rating.

Financial summary

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Revenues 18,935 16,089 17.7 20,875 -9.3 83,333 85,897 86,809

EBITDA 7,912 6,044 30.9 9,298 -14.9 30,715 32,610 32,989

APAT 3,208 1,421 125.8 3,366 -4.7 10,171 11,643 12,322

Diluted EPS (INR) 2.0 0.9 125.8 2.1 -4.7 6.2 7.1 7.5

P/E (x)

50.5 44.1 41.7

Price/BV (x) 3.4 3.2 3.0

RoE (%) 6.8 7.5 7.5


SELL



NIFTY 17,938

KEY CHANGES OLD NEW

Rating SELL SELL



- -

KEY STOCK DATA

Bloomberg code JSW IN


MCap (INR bn) / ($ mn) 513/6,892




3M 6M 12M

Absolute (%) (17.7) 58.8 317.9

Relative (%) (15.1) 44.4 296.2


Dec-21 Sep-21



FPIs 5.5 5.92



Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 195

HSIE Results Daily

NHPC

Maintain ADD rating on fair valuation

NHPC’s revenue declined by 7.6% YoY to INR19.3bn in Q3FY22, as 7.6% YoY

rise in generation (due to improved water and plant availability- PAF) was

impacted by lower income from secondary energy sales and high YoY base

due to the receipt of interest income of INR1.2bn from the beneficiaries of

TLDP IV project in Q3FY21. PAF in Q3FY22 came in at 84.5% vs 83.1% YoY.

EBITDA, however, came in flat at INR11.8bn (+0.2% YoY) on the back of a fall

in employee and other expenses. Depreciation also declined 14.5% YoY and

interest expenses were down 8.0% due to debt repayment and a fall in interest

rates. Other income declined 25.8% YoY due to decrease in net surcharge

income (by INR1.1bn), which led to a 5.9% YoY fall in PAT to INR7.6bn.

Parbati IV and Subansiri are expected to be commissioned in FY24, while the

company is also foraying aggressively into solar segments. We have

maintained our estimates and SoTP target price of INR33, (valuation - core

business – 1.4x P/BV, RoE – 10.4%, CoE – 13.5% and FY24BV of INR38/share).

Hence, we maintain our ADD rating.

PAT declines on low surcharge income: Generation increased 5.6% YoY to

3.9bn units, led by improved PAF. However, revenue fell 7.6% YoY to

INR19.3bn in Q3FY22 due to lower income from secondary energy sales and

higher YoY base (due to receipt of interest income from beneficiaries of

aTLDP IV project). Generation expenses increased by 8.5% YoY to INR1.3bn

due to higher water cess; however, other expenses decreased 26.9% YoY to

INR3.0bn due to decrease in provision against survey in investigation for

Tawang project. Employee expenses declined 15.7% YoY to INR3.2bn due to

superannuation. Accordingly, EBITDA came in flat at (+0.2% YoY)

INR11.8bn. Depreciation and interest expenses declined 14.5%/8.0% YoY to

INR2.9bn/1.3bn. However, other income declined 25.8% YoY to INR1.5bn

due to lower surcharge income, which lowered PAT by 5.9% YoY to

INR7.6bn.

Management discussion: NHPC expects 2 units of Subansiri to get

commissioned in FY23 and the balance in FY24. Parbati II tunneling work is

expected to be completed by Mar-23 and full commissioning take place by

FY24. These two projects will increase regulated equity by 70% to INR220bn

in FY24E vs. INR130bn in FY21. It has also received forest stage II clearance

for its Dibang project and has cleared the hurdle related to land acquisitions.

The mega project will take 9-10 years to get complete and would cost

INR300bn (GoI to provide a grant of INR70bn). The company is also

aggressively foraying into solar segments, with 1.25GW currently in the

tendering stage. It expects to commission it by FY24-FY25.

Maintain ADD: We have maintained our estimates and SoTP target price of

INR33, (valuation - core business – 1.4x P/BV, RoE – 10.4%, CoE – 13.5% and

FY24BV of INR38/share). Hence, we maintain our ADD rating.

Financial Summary

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22 QoQ (%) FY22E FY23E FY24E

Net Revenues 19,324 20,922 -7.6 27,454 -29.6 92,708 1,01,514 1,12,316

EBITDA 11,798 11,780 0.2 17,960 -34.3 51,240 55,148 61,052

APAT 7,606 8,081 -5.9 13,048 -41.7 35,056 35,438 38,537

Diluted EPS (INR) 0.7 0.7 -5.9 1.2 -41.7 3.49 3.53 3.84

P/E (x)

8.3 8.2 7.6

P/BV (x) 0.8 0.8 0.8

RoE (%) 10.4 10.0 10.4


ADD


Target Price INR 33

NIFTY 16,843

KEY CHANGES OLD NEW

Rating ADD ADD


EPS Change % CY22E CY23E

- -

KEY STOCK DATA

Bloomberg code NHPC IN


MCap (INR bn) / ($ mn) 295/3,969




3M 6M 12M

Absolute (%) (9.0) 10.5 17.4

Relative (%) (1.9) 8.8 7.9


Dec-21 Sep-21

Promoters 71.0 71.0


FPIs 5.6 5.1


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 196

HSIE Results Daily

ABB India

Positive priced in

ABB reported a strong revenue/APAT at 21/1.6bn (10/12% beat), aided by

increased traction in exports and services. EBITDA margin was impacted by

higher commodity prices and supply chain disruption which, since then, has

shown signs of improvement. ABB is betting big on exports and automation. It

has expanded its capacity at the Vadodara plant to cater to export of large

machines. On similar lines, it will be adding capacity and automating other

manufacturing plants on the back of a healthy cash balance of INR 27bn. It

also intends to use this cash for any inorganic opportunity within India. ABB

is witnessing renewables driving end-market demand. It also completed the

milestone of 5GW on solar automation solution delivery. In line with its

strategy to reduce dependence on large orders, it saw a huge uptick in small

ticket orders. The current order backlog stands at a robust INR 49bn. The turbo

charger business divestment to a wholly-owned subsidiary has received the

board approval. More details are expected in a few months. We believe most of

the potential upside on cyclical recovery is already priced in the lofty

valuation and, thus, maintain REDUCE with revised a TP of INR 1,815/sh (45x

Dec-23 EPS).

Strong financial performance: ABB posted a strong revenue of INR 21bn

(+24%/+18% YoY/QoQ, 10% beat), the highest since the Sep-17 quarter. On an

annual basis, all segments grew in strong double digits. Electrification and

mobility growth, although decent, was impacted by commodity inflation, as

both segments have fixed price contracts. Export/services made a comeback,

with 25/21% contribution to the revenue mix. EBITDA came in at INR 1.9bn

(4% miss) and margin was at 8.8% (vs 10.1% est.). Freight cost is expected to

put pressure on future margin with fuel prices rising. There was an

exceptional gain of INR468mn from the sale of motion division’s mechanical

power transmission business. Thus, APAT was INR 1.6bn (+2.5x/+32%

YoY/QoQ; 12% beat).

Strong order book: Q4CY21 order inflow (OI) was at INR 22.4bn, taking the

backlog to a healthy INR 49bn covering seven months of topline. Process

Automation (PA) segment made a comeback with traction in ordering from

steel and paint industry. Motions (MO) business had a decent Q4CY21 with

better capacity utilisation led by an integrated global supply chain.

Electrification (EL) saw good OI across all divisions with smart power

business seeing order and revenue growth. Robotics and Discrete

Automation (RDA) growth was muted. However, automotive segment is

showing signs of recovery. OBs for MO/EL/PA/RDA segments stand at INR

7/13/17/1.3bn resp.

Increased automation and capacity expansion on the cards: ABB is

activating a number of its divisions to push exports. It is doing so by

investing in smart factories with higher consumption of robots per unit of

workers. ABB used to have four robots per 10,000 workers, which has gone

up to six.

Financial summary (INR mn, Dec YE) 4QCY21 4QCY20 YoY (%) 3QCY21 QoQ (%) CY21 CY22E CY23E CY24E

Net Revenues 21,015 17,008 23.6 17,784 18.2 69,340 85,698 99,840 1,13,524

EBITDA 1,852 1,026 80.5 1,689 9.6 5,567 8,824 11,154 9,952

APAT 1,585 622 154.8 1,200 32.1 6,538 6,613 8,547 7,851

EPS (INR) 7.5 2.9 154.8 5.7 32.1 30.9 31.2 40.3 37.1

P/E (x)

70.6 69.8 54.0 58.8

EV/EBITDA (x)

79.6 49.9 39.0 43.3

RoE (%)

17.2 15.5 17.5 14.2


REDUCE CMP(as on 11 Feb 2022) INR 2,179


NIFTY 17,375

KEY

CHANGES OLD NEW



EPS

Change %

CY22E CY23E CY24E

+1.7 +1.3 -

KEY STOCK DATA

Bloomberg code ABB IN


MCap (INR bn) / ($ mn) 462/6,205




3M 6M 12M

Absolute (%) 0.3 30.1 53.1

Relative (%) 3.3 23.5 40.3


Sep-21 Dec-21



FPIs 3.49 3.76


Pledged Shares - -

Source : BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7335

Nikhil Kanodia

[email protected]

+91-22-6171-7355



P a g e | 197

HSIE Results Daily

Torrent Power

Merchant sale, lower losses, LNG trade uplift PAT

Torrent Power (TPW) reported strong Q3FY22 result, surpassing consensus

estimate. Consolidated revenue increased 27.6% YoY to INR 37.7bn, largely

led by higher merchant sales, lower T&D losses, and gain from sale of LNG.

This led to EBITDA rising 7.3% YoY to INR9.3bn. Deleveraging and a fall in

interest rates have led to lower interest expenses. PAT increased by 14.8% YoY

to INR3.7bn, surpassing ours and consensus estimates. While PLF across its

gas-based stations has declined due to rise in LNG prices, TPW has managed

to maintain its PAF, ensuring recovery of fixed charges. We maintain our TP

of INR555 as well as the REDUCE rating, since the stock, having risen steeply

recently, is looking less attractive at the current CMP.

PAT above estimate: In Q3FY22, TPW’s merchant sales rose 37.5% YoY to 66

MUs and margin was better due to trading of LNG, compared to its

conversion to electricity. This led to a net gain of INR850mn in the quarter.

Revenue grew by 27.6% YoY to INR37.7bn. T&D losses in 9MFY22 also

declined in Ahmedabad, Surat, Bhiwandi, Agra, and SMK to

3.4%/3.3%/12.3%/11.5%/40.9% from 5.8%/4.1%/ 19.1%/13.2%/41.1%, led by

improved demand, consumer mix, and collections. EBITDA also increased

7.3% YoY to INR9.3bn on the back of lower T&D losses, which was partially

offset by higher other expenses (due to major maintenance across station).

Interest cost declined 17.4% YoY, given the deleveraging exercise and fall in

interest rates. Accordingly, PAT increased by 14.8% YoY to INR3.7bn in

Q3FY22, which was above ours and consensus estimate of INR3.3bn.

High module prices could delay pipeline project: TPW has slightly delayed

the execution of some of its pipeline projects (100MW - GUVNL & 300MW –

TPLD) by 3-4 months, factoring in the steep rise in module prices, thus

postponing the equipment ordering. The project level IRR could get

hampered by a further delay or could lead to cancellation of these projects

with a nominal penalty payment. However, management has been making

bids for new projects based on high module prices. It expects to scale up its

RES capacity to 5GW by FY25-26E, from 2GW now. TPW has a healthy net

D/E of 0.6x, net debt/EBITDA of 1.8x, and a sustainable FCFE of ~INR10bn

p.a. This gives it enough room to fund the new capacities.

Valuation less attractive: We have maintained our estimate and SoTP target

price of INR555. While increasing power demand (post pandemic), fall in

T&D losses, healthy net D/E ratio, and sustainable FCFE place TPW among

the best power utility companies, its stock price has seen a steep uptick in

the recent month, factoring in these moats. At the CMP of INR580, the stock

is trading at 2x FY24 P/BV and 14xFY24 P/E, which seems fairly valued.

Hence, we retain our REDUCE rating on the stock.

Financial Summary

(INR mn, Dec YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22 QoQ (%) FY22E FY23E FY24E

Net Revenues 37,674 29,528 27.6 36,476 3.3 1,29,170 1,37,139 1,41,936

EBITDA 9,340 8,703 7.3 9,383 -0.5 37,742 41,140 42,577

APAT 3,681 3,205 14.8 3,674 0.2 16,135 18,378 19,865

Diluted EPS (INR) 7.7 6.7 14.8 7.64 0.2 33.6 38.2 41.3

P/E (x)

17.3 15.2 14.0

P/BV (x) 2.5 2.3 2.0

RoE (%) 14.5 15.6 15.2


REDUCE



NIFTY 17,516

KEY CHANGES OLD NEW




- -

KEY STOCK DATA

Bloomberg code TPW IN


MCap (INR bn) / ($ mn) 279/3,748




3M 6M 12M

Absolute (%) 12.6 23.0 80.7

Relative (%) 15.0 15.2 64.9


Dec-21 Sep-21



FPIs 6.86 7.33


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 198

HSIE Results Daily

Cummins Robust performance Cummins India Ltd (CIL) has recorded, yet again, a good quarter with

revenue/EBITDA/APAT at INR 17.3/2.7/2.4bn, a beat of 9.7/9.5/21.3%. Demand

outlook is robust due to government’s big push on infrastructure, recovery in

private Capex, and international markets opening up; however, segments like

railways, construction and marine are yet to pick up. Whilst there is a gradual

improvement in core products supply chain, CIL highlighted that despite high

order board, revenue was suboptimal by 10-15%. The company is

participating in hydrogen ecosystem as it has technology and products know-

how to serve clients during this energy transition. CIL intends to localise

hydrogen products and offering once there is demand to support the same.

Robust cash balance shall aid product development and technology

upgradation. We maintain BUY on CIL with an increased SOTP-based target

price of INR 1,253 (Dec-23E EPS).

Q3FY22 highlights: Revenue came in at INR 17.3bn (+22%/+0.4% YoY/QoQ,

a 9.7% beat). Domestic sales were at INR 12.6bn (+23%/+1% YoY/QoQ) while

exports came in at INR 4.4bn (+18%/+0% YoY/QoQ). Domestic power

generation/distribution/industrial business sales were INR 5/4.5/2.9bn

(+21/+23/+22%YoY). High/low horse power export sales were INR 1.9/2.2bn

(-4//48% YoY). EBITDA was INR 2.7bn (+12%/+4.4% YoY/QoQ, 9.5% beat),

with EBITDA margin at 15.6% (-138/+59bps YoY/QoQ) vs estimate of 15.6%,

affected by higher commodities prices, semi-conductor issues, and supply

chain disruptions. APAT was INR 2.4bn (+2.9%/+9.6% YoY/QoQ). CIL has

taken price hikes to absorb commodity inflation, though it lags behind by

20-25bps. Most of the international markets picked up while the African

market is still subdued.

Focus on clean energy technology: CIL highlighted that it has started

building prototypes for hydrogen application and is participating in

government tenders. It has bid for project in Leh-Ladakh in the automotive

segment to run buses on hydrogen using small electrolyser unit with

hydrogen fuel cell. Other opportunities include demonstration projects for

small steel plants and bigger projects like running a train on hydrogen fuel

cells. CIL expects a breakthrough in FY23, post which it may go aggressive

on the same.

Clean energy transition in stages: CIL expects diesel-based products to see

increased demand over the next 4-5 years and after that move toward hybrid

fuel era, in which diesel demand starts declining and blended fuels like

ethanol, methanol, LNG, CNG take over the market. More longer-term

gradual migration to EV and fuel cell technology shall sustainably reduce

fossil fuel reliance. CIL has technology, products, and services to cater to

customers as the energy transition happens. The focus is to localise the same

as demand picks up.

Data center outlook positive: CIL is highly bullish on its data center

business and expects double-digit growth for the next 5-10 years, mainly on

account of 5G rollout, increased data storage requirement from IOT and

OTT platforms.

Standalone financial summary (INR in mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenues 17,350 14,243 21.8 17,274 0.4 43,292 61,460 66,916 76,435

EBITDA 2,705 2,417 11.9 2,592 4.4 5,795 8,913 10,942 13,074

APAT 2,410 2,341 2.9 2,199 9.6 6,055 7,705 10,640 12,670

Diluted EPS(INR) 8.7 8.4 2.9 7.9 9.6 21.8 27.8 38.4 45.7

P/E (x)

43.0 33.8 24.5 20.5

EV/EBIDTA (x)

42.7 27.0 20.8 17.4

RoE (%)

14.1 16.7 20.8 21.8




NIFTY 17,375

KEY

CHANGES OLD NEW

Rating BUY BUY


EPS

change %

FY22E FY23E FY24E

-4.8 +0.5 +2.6

KEY STOCK DATA

Bloomberg code KKC IN


MCap (INR bn) / ($ mn) 260/3,497




3M 6M 12M

Absolute (%) 2.4 (0.6) 21.3

Relative (%) 5.3 (7.3) 8.5


Sep-21 Dec-21



FPIs 11.97 12.54


Pledged Shares - -

Source: BSE


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

P a g e | 199

HSIE Results Daily

APL Apollo

Fall in volume and high commodity prices dent PAT

APL Apollo Tubes’ (APL) Q3 revenue increased 24% YoY/5% QoQ to

INR32.3bn, aided by higher realisation despite a 19% YoY volume decline.

Value-added products contributed to 65% of overall volume in Q3 vs 57%

YoY, aided by strong growth across heavy structures (+31% YoY) and Apollo Z

segment (+25% YoY). Thus, EBITDA/ton increased to INR5,023 vs INR4,780

YoY (+5% YoY). However, lower volume and rise in input prices led to a 13%

YoY decline in EBITDA to INR2.0bn, with margin contracting 266 bps YoY to

6.3%. Adj PAT declined by 12.4% YoY to INR1,156mn (in line with

consensus). With normalcy resuming in HRC prices, volumes should revive,

going forth. We maintain estimates and expect APL to post revenue/PAT

CAGRs of 20%/34% over FY21-24E, led by an increased mix of value-added

products (75% in FY25), capacity expansion in Raipur, improved margin, and

enhanced government infrastructure spending. We retain our BUY rating on

the stock and TP of INR1,113 (35xFY24 EPS).

Fall in volume, rise in raw material cost offset strong realisation: Overall

volumes declined by 17.1% YoY to 402,729MT (-5.8% QoQ) as (1) the steep

rise in HRC price led to channel partners destocking in anticipation of a steel

price fall and (2) an extended monsoon slowed construction activity. Within

value-added products, heavy structures volume grew strongly by 31.1%YoY

to 35,143MT, with its EBITDA/MT growing 50.6% to INR7,531. Fall in

volumes across other categories was offset by a strong 50.7% YoY rise in

realisation to INR77,569 (price hike taken by management to counter input

cost inflation), which led to a 24.2% YoY rise in revenue to INR32.3bn. While

EBITDA/ton increased 5.1% YoY to INR5,023 (led by better product mix),

EBITDA declined 12.9% YoY to INR2.0bn due to the fall in volume and a

whopping 33.8% YoY rise in input costs. PAT declined 12.4% YoY to

INR1.15bn (in line with consensus).

Capacity expansion, outlook: APL’s capacity expansion of 1.4 mtpa in

Raipur is on course. Management expects to achieve 50%/100% utilisation by

H2FY23/ FY24. Capex for this expansion would be INR8bn, of which

INR4bn has been deployed and INR4bn will be deployed by Q1FY23.

Management has guided for volume at 1.8-2.0MT for FY22 and 2.5MT,

3.2MT, and 4MT for FY23, FY24, and FY25 and an EBITDA/tonne of

INR5,000 by FY25.

Reiterate BUY: We maintain our estimates and expect APL’s revenue/PAT

to grow at CAGRs 20%/34% over FY21-24E, led by healthy volume growth,

margin expansion, reduced working capital, and reduced debt. We maintain

our TP of INR1,113/share, based on 35x FY24E EPS, which reflects APL’s

superior performance, operational efficiency, and a strong positive outlook.

Financial summary

(INR mn, Dec YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Revenues 32,304 26,009 24.2 30,839 4.7 1,04,855 1,25,649 1,46,034

EBITDA 2,023 2,321 -12.9 2,222 -9.0 8,669 10,738 12,928

APAT 1,156 1,320 -12.4 1,313 -11.9 5,067 6,982 8,711

Diluted EPS (INR) 4.6 5.3 -12.4 5.3 -11.9 18.3 25.2 31.4

P/E (x)

47.1 34.2 27.4

P/BV (x) 10.7 8.8 7.1

RoE (%) 25.8 28.3 28.7


BUY



NIFTY 17,278

KEY CHANGES OLD NEW

Rating BUY BUY



- -

KEY STOCK DATA

Bloomberg code APAT IN


MCap (INR bn) / ($ mn) 215/2,893




3M 6M 12M

Absolute (%) 13.3 6.2 83.0

Relative (%) 18.5 (2.9) 63.3


Dec-21 Sep-21

Promoters 34.5 36.8


FPIs 24.6 25.2


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 200

HSIE Results Daily

CESC

Subdued power demand ups franchisee losses

CESC’s consolidated PAT in Q3FY22 remained flat at INR3.4bn (+0.6% YoY)

as higher earnings across the Dhariwal project (from high merchant rates in

Q3FY22) were offset by increased losses in the distribution franchisee (DF)

business (a loss of INR100mn vs profit of INR70mn YoY), given subdued

power demand and delays in loss recovery. Dhariwal continued to perform

strongly, benefitting from rise in merchant tariffs, while standalone PAT

growth remained flat despite the delayed WBERC tariff order. The Dhariwal

project has emerged as L1 for 210 MW bid in a medium-term tender floated by

the Railway Energy Management Company (REMCL). CESC’s bid for a 100%

stake in the Chandigarh discom is likely to receive a letter of intent (LoI) in

Q4FY22. We now expect CESC’s franchisee division to attain profitability only

in FY23, while reporting a loss of INR211mn in FY22 (vs the earlier estimate of

INR112mn PAT). Accordingly, while we retain our BUY rating on CESC, we

marginally lower our TP to INR119 (vs INR120 earlier). We have not included

the Chandigarh discom in our valuation yet as we are waiting for LoA.

Poor demand recovery widens franchisee losses: Sales volume in

standalone business was flat at 0.3% YoY, with lower power demand. PAT

also remained flat at INR1.84bn (-1.1% YoY) despite the delayed WBERC

tariff order, which impacted tariff realisation. Consolidated PAT, too,

remained flat at INR3.4bn (0.6% YoY) as strong earnings in the Dhariwal

project (+78.6% YoY to INR500mn) were offset by increased losses in the DF

business (loss of INR100mn vs PAT of INR70mn YoY), given the subdued

power demand and recovery. We now expect the franchisee segment to gain

a profit of INR263mn in FY23, while in FY22, it is expected to incur a loss of

INR211mn.

CESC’s Dhariwal emerges L1 in REMCL medium-term tender: CESC’s

wholly owned subsidiary Dhariwal Infrastructure has emerged an L1 with a

tariff of INR4.1/unit for a 210-MW capacity. REMCL floated a 1,500-MW

medium-term tender for three years against which it received bids only for

600 MW. We have not yet factored these developments into our financials as

we wait for the awarding of LoI. Further, its Case IV PPA with Maharashtra

discoms for the supply of 185 MW has been extended to 31 March 2022.

Maintain BUY: We have marginally revised our consolidated earnings

estimates downward by 1.9% and 1.2% for FY22E and FY23E respectively to

factor in the delay in loss recovery in the DF business in Rajasthan. We

expect this nosiness to turn profitable in FY23, with a PAT of INR388mn in

FY24. On a consolidated basis, CESC is valued at an attractive P/BV of 0.9x

and PE of 7.4x for FY24. A high dividend yield of ~5-6% is in line with

investor expectations. Hence, we retain BUY with a revised TP of INR119 (vs

INR120).

Financial summary (standalone)

(INR mn, Mar YE) 3Q

FY22

3Q

FY21

YoY

(%)

2Q

FY22

QoQ


Net Revenues 16,620 16,590 0.2 20,910 -20.5 82,643 87,292 92,145

EBITDA 2,120 3,030 -30.0 4,180 -49.3 16,505 17,424 18,381

APAT (Consol) 3,400 3,380 0.6 3,400 0.0 13,790 14,795 16,421

Diluted Consol EPS (INR) 2.6 2.5 0.6 2.6 0.0 10.4 11.2 12.4

P/E (x) (Consol)

8.8 8.2 7.4

Price/BV (Consol) 1.1 1.0 0.9

RoE (%) 13.7 14.0 14.4


BUY



NIFTY 18,258

KEY CHANGES OLD NEW

Rating BUY BUY



(1.9) (1.2)

KEY STOCK DATA

Bloomberg code CESC IN


MCap (INR bn) / ($ mn) 122/1,643




3M 6M 12M

Absolute (%) 0.9 8.5 34.9

Relative (%) 0.1 (7.5) 11.2


Dec-21 Sept-21

Promoters 52.1 52.1

FIs & Local MFs 22.1 23

FPIs 13.5 12.9


Pledged Shares - -

Source : BSE

Anuj Upadhyay

[email protected]

+91-22-6171-7356

Hinal Choudhary

[email protected]

+91-22-6171-7349

P a g e | 201

HSIE Results Daily

Kalpataru Power Transmission

Execution pick-up awaited Kalpataru Power (KPTL) reported revenue/EBITDA/APAT of INR

18.5/1.7/0.9bn, missing our estimates at all levels on account of higher

commodity prices and freight rate, which led to delayed client dispatches and

lower revenue booking. KPTL secured new orders worth INR 44bn in

FYTD22, taking the order book (OB) to INR 126.5bn. It is well on track to

achieve near net cash status with net debt at INR 5.5bn as of Dec-21 (vs INR

11.5bn as of Sep-21). Likely INR 3bn proceeds from sale of Indore real estate

project (KPTL expects to complete sales over next 12-15months) and

divestment of Shubham logistics (by FY24) shall aid further deleveraging. We

lower our FY22/23 EPS estimates to factor in the weak inflows and maintain

BUY with a reduced SOTP TP of INR 559 (Dec-23E).

Q3FY22 financial highlights: Revenue: INR 18.5bn (-7.3%/+14.2% YoY/QoQ; a

miss of 2.4% due to lower traction in T&D business and lower order inflows in

H1FY22). EBITDA: INR 1.7bn (-18.8%/+10.5%, a miss of 11.3%). EBITDA

margin, at 9.1% (10.4%/9.4% in Q3FY21/Q3FY22 vs estimate of 10%), was

affected by higher commodity prices and freight cost. Interest cost: INR 320mn

(+39.1%/+14.3% YoY/QoQ). RPAT was at INR 3.2bn. Exceptional item was INR

2.6bn gain on sale of 23% stake in Kohima Mariani Transmission Ltd (KMTL)

and fair value gain on retained balance 51% equity. Consequently, APAT was

at INR 959mn (-62.7%/+2.59x YoY/QoQ, a miss of 9.6%). The EBITDA margin

guidance for FY23 is expected in low double digits.

Robust OB: With 9MFYTD OI at INR 43.6bn, the OB as of Dec-21 stood at

INR126.5bn (~1.7x FY21 revenue and including Linjemontage, Sweden and

Fasttel, and Brazil), with T&D/railways/O&G share at 60/24/16%. L1 order

book stood at INR 40bn. The order inflow guidance for FY22 stands lowered to

INR 80bn (INR 90bn earlier). Bid traction has improved post the expiry of the

world bank ban.

Nearing net cash status: The proceeds from the sale of KMTL were used to

repay debt at the company level, thus reducing net debt to INR 5.5bn as of

Dec-21 (vs INR 11.5bn as of Sep-21). The Indore real estate project (INR 3bn

cash flow potential) has started seeing traction. KPTL sold ~45% of the total

salable area and expects to sell the balance units over the next 12-15 months.

Shubham logistics may get divested during FY23/24.

Standalone financial summary (INR mn) Q3FY22 Q3FY21 YoY (%) Q2FY22 QoQ (%) FY21 FY22E FY23E FY24E

Net Revenues 18,480 19,930 (7.3) 16,180 14.2 76,710 72,884 81,573 91,173

EBITDA 1,680 2,070 (18.8) 1,520 10.5 8,080 6,876 8,222 9,522

APAT 959 2,570 (62.7) 370 159.2 4,890 4,082 4,974 5,956

Diluted EPS (INR) 6.4 17.3 (62.7) 2.5 159.2 32.8 27.4 33.4 40.0

P/E (x) 18,480 19,930 (7.3) 16,180 14.2 11.5 13.8 11.3 9.4

EV/EBIDTA (x)

7.9 8.6 6.8 5.6

RoE (%)

13.2 9.9 10.9 12.2

Estimate Change Summary (Standalone)


New Old % Chg. New Old % Chg. New Old % Chg.

Revenues 72,884 77,383 (5.8) 81,573 85,723 (4.8) 91,173 92,874 (1.8)

EBITDA 6,876 7,728 (11.0) 8,222 9,196 (10.6) 9,522 9,928 (4.1)

EBITDA (%) 9.4 10.0 (55.3) 10.1 10.7 (64.9) 10.4 10.7 (24.6)

APAT 4,082 4,343 (6.0) 4,974 5,377 (7.5) 5,956 5,953 0.0


BUY



NIFTY 16,843

KEY

CHANGES OLD NEW

Rating BUY BUY



-6.0 -7.5 -

KEY STOCK DATA

Bloomberg code KPP IN


MCap (INR bn) / ($ mn) 56/755




3M 6M 12M

Absolute (%) (10.2) (13.0) 3.4

Relative (%) (3.2) (14.7) (6.0)


Sep-21 Dec-21



FPIs 7.49 5.70



Source: BSE

Pledge share as a % of total shares


[email protected]

+91-22-6171-7317

Manoj Rawat

[email protected]

+91-22-6171-7358

Nikhil Kanodia

[email protected]

+91-22-6171-7335

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Contributing analysts

INDUSTRY ANALYST EMAIL ID PHONE NO.

Head - Research (Consumer, Strategy) Varun Lohchab [email protected] +91-22-6171-7334

Strategy Amit Kumar,CFA

Atishray Malhan

[email protected]

[email protected]

+91-22-6171-7354

+91-22-6171-7363

AMCs, Brokerages, Insurance Krishnan ASV

Sahej Mittal

[email protected]

[email protected]

+91-22-6171-7314

+91-22-6171-7325

Banks, NBFCs

Krishnan ASV

Deepak Shinde

Neelam Bhatia

[email protected]

[email protected]

[email protected]

+91-22-6171-7314

+91-22-6171-7323

+91-22-6171-7341

Cement & Building Materials Rajesh Ravi

Keshav Lahoti

[email protected]

[email protected]

+91-22-6171-7352

+91-22-6171-7353

Construction & Infrastructure, Capital Goods,

Real Estate

Parikshit Kandpal, CFA

Manoj Rawat

Nikhil Kanodia

[email protected]

[email protected]

[email protected]

+91-22-6171-7317

+91-22-6171-7330

+91-22-6171-7335

Consumer Durables, FMCG Naveen Trivedi

Saras Singh

[email protected]

[email protected]

+91-22-6171-7324

+91-22-6171-7336

IT Services & Exchanges

Amit Chandra

Vinesh Vala

Mohit Motwani

[email protected]

[email protected]

[email protected]

+91-22-6171-7345

+91-22-6171-7332

+91-22-6171-7328

Oil & Gas, Chemicals

Harshad Katkar

Nilesh Ghuge

Rutvi Chokshi

Akshay Mane

[email protected]

[email protected]

[email protected]

[email protected]

+91-22-6171-7319

+91-22-6171-7342

+91-22-6171-7356

+91-22-6171-7338

Pharma Karan Vora [email protected] +91-22-6171-7359

Retail & Fashion, Paints Jay Gandhi

Premraj Survase

[email protected]

[email protected]

+91-22-6171-7320

+91-22-6171-7348

Utilities Anuj Upadhyay

Hinal Chaoudhary

[email protected]

[email protected]

+91-22-6171-7356

+91-22-6171-7349

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HSIE Results Daily

Rating Criteria

BUY: >+15% return potential

ADD: +5% to +15% return potential

REDUCE: -10% to +5% return potential

SELL: > 10% Downside return potential

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Institutional Equities

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Board: +91-22-6171-7330 www.hdfcsec.com

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