Nestle India (NS:NEST)
Nestle reported a largely in-line Q2CY23 print as revenue grew by 15% while margins (both GM/EBITDAM) expanded. Domestic revenue growth of 15% YoY was broad-based across categories (all grew in double-digits for the 5th consecutive quarter) and channels. Prudent pricing was supported by mix and volume (around mid-single-digit volume growth). With a stable RM basket and higher net realization, GM expanded by 90bps YoY to 54.8% (57% two years back).
Most RM prices (except green coffee) are now trading at a lower range (wheat, edible oil, packaging material, fuels) or are stable (milk) which shall aid gradual recovery in margins. EBITDA margin expanded by 170bps YoY to 22.9% on better cost control. EBITDA grew by 25% YoY (HSIE 20%). Nestle continues to focus on distribution strengthening, category expansion and capacity building. We remain positive on OOH products and sustain growth for in-home products. We maintain our EPS estimates. We value Nestle at 52x P/E on Jun-25E EPS to derive a TP of INR 19,500. With a rich valuation, the absolute upside is limited in the medium term. Maintain REDUCE.
Bharat Petroleum Corporation (NS:BPCL)
Our BUY rating on Bharat Petroleum (BPCL), with a target price of INR 465, is premised on robust refining margins, a sharp recovery in auto-fuel gross marketing margins and the reduction in LPG under-recoveries. Q1FY24 EBITDA stood at INR 158bn, while APAT was at INR 106bn, coming in well above our estimates, supported by a strong performance from the marketing segment. Reported GRMs came in at USD 12.6/bbl (-USD 14.9/bbl YoY, -USD 7.7/bbl QoQ, HSIE: USD 11.7/bbl).
Shree Cement (NS:SHCM)
We maintain our REDUCE rating on Shree Cement, with an unchanged SOTP target price of INR 22,600/share. Cement volume grew 19/1% YoY/ QoQ in Q1FY24, led by strong demand and market share gains in the east and south. In our view, unitary cement EBITDA (ex-power) broadly remained flattish QoQ at INR 1,000 per MT as lower fuel cost benefit was set off by a correction in cement prices. Shree is targeting ~13% volume growth in FY24 and is also confident of margin expansions, mainly due to energy cost reduction. It announced new expansions of 7.2/12mn MT clinker/cement capacity by Mar-25.
Shriram Finance Ltd. (NS:SHMF)
Shriram Finance’s (SHFL) Q1FY24 earnings were marginally ahead of estimates, largely due to lower-than-expected provisioning. AUM growth continued to stay robust at 18.6%/4.1% YoY/QoQ and north of management guidance (15% YoY), driven by PV, MSME, and PL, with steady growth in the CV portfolio (+13% YoY). However, pressure on NIMs in a rising interest rate environment, along with merger-related costs, led to muted PPoP growth (+5.3% YoY).
Asset quality remained steady with a marginal improvement across segments, in a seasonally weak quarter, resulting in benign credit costs (200bps). While the P&L outcomes are yet to stabilize post-merger, SHFL continues to explore opportunities for synergies to drive strong growth and profitability. We tweak our FY24/FY25 estimates to factor in higher loan growth and maintain ADD with a revised SoTP-based TP of INR1,895 (implying 1.5x Mar-25 ABVPS).
Westlife Foodworld
Westlife continued to report healthy performance despite some slowdown seen in QSR demand. Revenue, restaurant EBITDA and EBITDA grew by 14/21/14% YoY. SSSG at 7% (HSIE: 6%) was led by an increase in guest count, product innovation (Piri Piri McSpicy, Jain Menu) and McSaver value platform. GM expansion of 260bps was partly offset by normalizing payroll expenses and a 50bps increase in Royalty, which limited RoM expansion to 135bps YoY at 23% (HSIE: in-line).
Notwithstanding near-term pressure, Westlife remains confident of high single-digit SSSG with 40-45 store addition in the medium term. We expect Westlife to continue to fare better vs. its peers, given (1) wide menu catering to various price segments across day parts (2) sustained dine-in footfall and (3) there are enough levers for margin expansion (full McCafe roll-out, menu expansion, etc.). We raise our FY24 earnings by 4% and value Westlife at 55x P/E on Sep’25 EPS to arrive at a TP of INR 850. Maintain ADD.
Fine Organic Industries (NS:FINO)
Our ADD recommendation on Fine Organics with a TP of INR 4,781 is premised on (1) leadership in oleo-chemical-based additives in the domestic and global markets with a loyal customer base (2) a unique business model with high entry barriers (3) a diversified product portfolio and (4) pricing power. Q1 EBITDA/APAT were 25/31% below our estimates, owing to a 7% fall in revenue, higher-than-expected raw material costs, lower-than-expected other income, and higher-than-expected tax outgo.
Ujjivan Small Finance Bank (NS:UJJI)
Ujjivan SFB once again clocked an all-time high PAT, led by robust loan growth (+35% YoY), and a moderate improvement in NIMs (+10bps QoQ). Despite strong sequential traction in deposits (+4% QoQ), back-book repricing in the MFI portfolio supported NIM expansion. GNPA clocked in at 2.6%, witnessing a 26bps QoQ improvement on the back of strong upgrades/write-offs despite seasonally higher slippages. While Ujjivan has absorbed most of the surplus liquidity on its balance sheet, incremental pressure on funding costs and high opex intensity from franchise-building investments are likely to restrict productivity gains. We adjust our FY24/25 estimates for improvement in yields and credit costs to maintain ADD with a revised TP of INR50.
Mahindra Lifespace Developers Ltd. (NS:MALD)
In the absence of new launches, Mahindra Lifespaces Developers Ltd (MLDL) reported subdued presales of INR 3.5bn (-43%/-4% YoY/QoQ), with volume at 0.42msf (-35%/-14% YoY/QoQ). MLDL launched its first plotted development in Chennai, selling 70% of the launched inventory (Q2FY24). It also laid out its plan to achieve annual presales of INR 80-100bn (5x, 5yrs) by FY28, including INR 5bn annual IC&IC lease income (MMR/Pune/Bengaluru are expected to contribute INR 60/20-30/20-30bn).
For this, MLDL expects to add GDV worth INR 400-500bn, funded through internal accruals, debt and current/prospective partners. The current BD pipeline is worth INR 55bn, excluding INR 80bn worth of Thane land parcel, which will be a mixed development with 50% residential and 50% commercial projects. For FY24, nine launches are planned two are key launches i.e. Kandivali Ph1 with a GDV of INR 12bn and Citadel Ph2 with a GDV of INR 7-8bn.
Given the management guidance of 5x growth in five years, we have increased our NAV premium from 25% to 35%. We have also recalibrated our realization higher by 10-15% to factor in new BD accretion at higher price realization vs. our estimates. We maintain BUY and increase our TP from INR 521/sh to INR 622/sh.
Symphony (NS:SYMP)
Symphony reported a weak operating print with standalone revenue/ EBITDA/ PAT falling by 17/85/45% YoY. Domestic revenue/EBIT fell by 15/36% as peak summer months were disrupted by unseasonal rains. Domestic revenue was in line but EBIT saw a miss. The RoW business was aided by 40% growth in IMPCO Mexico, while CT, Australia continued to remain impacted by the weak macro environment.
With domestic channel inventory lower compared to the last three years and buoyed by healthy collection in July, Symphony remains optimistic about delivering growth in both revenue and EBITDA in FY24. With the aim of de-risking its business from seasonality, Symphony continues to focus on (1) geography expansion (2) channel diversification and (3) product expansion into adjacent segments. RoW execution is still WIP and consistent performance is still missing. We cut our FY24 EPS by 3%, value the stock at 30x P/E on Jun’25E EPS and derive a TP of INR 900. Maintain REDUCE.
PSP Projects (NS:PSPP)
With decent execution in the quarter, PSP Projects (PSP) reported revenue/EBITDA/APAT at INR 5.1/0.6/0.4bn, (missing)/beating our estimates by (4.8)/4.9/6.9%. In Q1FY24, it was awarded orders worth INR 7.6bn (excluding GST +37.8% YoY), which took its OB (as of Jun’23) to INR 53.2bn (an all-time high ~2.8x FY23 revenue). The current bid pipeline stands at INR 60bn. The increase in gross debt from INR 1.5bn as of Mar’23 to INR 2.8bn as of Jun’23 is majorly on account of the execution ramp-up in UP projects.
The revenue guidance for FY24 remains unchanged at INR 26bn, with a margin of 11-13% and an OI of ~INR 30bn. Given the limited upside from current levels, we continue with our ADD rating on the stock with an increased TP to INR 809/sh (13x Jun-25E EPS rolled over).