ABB India (NS:ABB): ABB’s reported strong revenue/EBITDA/PAT at INR 24.3/3.6/3.0bn, beating our estimates by 6/57/68%. For CY22, OI crossed INR 100bn for the first time since the divestment of its power grid, turbocharger, and solar business in CY18. ABB is seeing OI sustain at this level annually, going forward. During the quarter, the EBITDA margin expanded to 15% (+620/+506bps YoY/QoQ, vs. 10.1% est.). This expansion was on the back of a better gross margin in the mix, better capacity utilization, and an improved supply chain. ABB is seeing strong demand coming from Tier 3 and 4 cities, with 48% of the total new orders from these cities (43% in CY21) and in the medium term, demand from these cities is expected to match with Tier 1 and 2 cities. Export demand has been stable with a growth of 10% YoY. However, domestic demand has been higher than export demand and as a result, forms 88% of the CY22 revenue (87% in CY21). The cash balance stands strong at INR 36bn (INR 27bn in CY21) and INR 20bn is earmarked for inorganic growth, in line with global strategy, targeting small and medium firms across the globe. We have increased our EPS estimate for CY23/24 on the back of better margins and a favorable mix. However, we believe the punchy valuation would limit further upside on cyclical recovery and, thus, maintain REDUCE with an increased TP of INR 2,819/sh (54x Dec-24 EPS).
Fsn E-commerce Ventures (Nykaa (NS:FSNE)): Nykaa’s top line grew 33% YoY to INR14.6bn (HSIE: 15bn) on account of fewer festive days in Q3FY23. Adjusting for seasonality (Q2+Q3FY23 performance), BPC growth seems to have come off (32% YoY). BPC AUTC grew 29% vs 35% CAGR it clocked over FY19-22. Both BPC/Fashion missed net sales value expectations (Var: -4%). On profitability, the miss was starker as a ~300bp GM drop took away the scale-led efficiency gains. While still early days, our thesis seems to be tracking well. (1) BPC AUTC growth dropping to
Balkrishna Industries (NS:BLKI): BKT Q3FY23 earnings sharply declined 70% YoY to INR 1bn due to weak demand and the impact of higher cost raw material inventory. The demand environment continues to be weak in BKT’s key export markets of Europe and the US which are currently witnessing recessionary trends. Given the challenging demand environment, management has refrained from providing any volume guidance for FY24, although indicating a low single-digit growth in the near term. We do understand that the current cost headwinds seen in Q3 are transient in nature and we expect operational costs (raw material + freight) to sharply reduce in the coming quarters. However, it remains to be seen how much of this cost-benefit BKT is able to retain in the coming quarters, given the weak demand macro and we do expect the industry to pass on part of these benefits in order to help improve demand. Overall, we have factored in BKT’s margin to improve to 26% by FY25E from 19.1% currently. On account of a weak Q3, we have lowered our EPS estimates by 19% / 8% / 3% for FY23-25E. However, despite factoring in most positives, stock at 25.7x FY24E appears fully valued. Maintain our REDUCE rating with a revised TP of INR1,936 per share (INR2,048 earlier).
Gujarat Gas (NS:GGAS): Our ADD recommendation on Gujarat Gas (GGL), with a price target of INR 542, is premised on (1) volume growth at 9% CAGR over FY23-25E, and (2) a high spot LNG price environment. Q3FY23 EBITDA/PAT at INR 5.8/3.7bn came in above our estimate, owing to a higher-than-expected gross spread. Volume declined sharply by 36% YoY, 4% QoQ to 7.29mmscmd, mainly impacted by a decline in industrial PNG volumes. However, lower offtake of expensive spot LNG gas by industrial/commercial customers supported margins. Oil India (NS:OILI): Our BUY recommendation on Oil India with a target price of INR 280 is premised on (1) an increase in crude price realization and (2) an improvement in domestic gas price realization. Q3FY23 EBITDA stood at INR 59bn, came in above our estimate, supported by lower statutory levies and lower other expenses. However, APAT at INR 17bn, came in below our estimate mainly due to lower-than-expected other income. Oil and gas production was marginally above estimates.
Gujarat State Petronet (NS:GSPT): Our ADD rating on Gujarat State Petronet with a TP of INR 280 is premised on (1) muted transmission volume over FY22-25E due to a high spot LNG price environment, given the geopolitical issues, low global inventories, and pick-up in demand post reopening of economies and (2) limited upside triggers in the near term. Hence, we believe that, at present, the stock is fairly valued with an RoE of 13.5% in FY24E and a combined FCF of INR 24bn over FY23-25E.
JK Lakshmi Cement (NS:JKLC): We maintain our BUY rating on JK Lakshmi Cement (JKLC) with an unchanged target price of INR 855/share (8x Mar-25E consolidated EBITDA). We remain positive about the company for its focus on improving geo-mix, increasing trade sales, increasing green energy share, and optimization of the supply chain. These should boost margin and profitability. Its ongoing brownfield expansion in Udaipur is broadly on track, to be commissioned by Q1FY25E (18% capacity increase), and is not stretching the balance sheet. In Q3FY23, JKLC reported strong 10/14% YoY/QoQ cement volume growth. Unitary EBITDA, however, came in flat QoQ (INR 644/MT) as higher fuel and freight costs QoQ negated op-lev gains. JKLC expects a flattish fuel cost QoQ in Q4FY23E but it is expected to fall in Q1FY24E, as its high-cost inventory gets over.
Galaxy Surfactants Limited (NS:GALX): Our BUY recommendation on GALSURF with a price target of INR 3,783 is premised on (1) the stickiness of business, as over 50% of the revenue mix comes from MNCs and (2) stable EBITDA margin since fluctuations in raw material costs are easily passed on to customers. Q3 EBITDA/APAT was 17/25% higher than our estimates, owing to lower-than-expected raw material cost, lower-than-expected other expenses, and lower-than-expected tax outgo, offset by higher-than-expected depreciation.
Lemon Tree (NS:LEMO): Lemon Tree Hotels (LTH) recorded the best-ever quarter in Q3FY23 with gross ARR touching a new high but occupancy levels still below the pre-covid levels (67.6% in Q3FY23 vs 71.3% in Q3FY20). LTH Q3FY23 revenue grew 63% YoY to INR2.3bn, led by increased ARR (+23.5% vs Q3FY20), leading to strong RevPAR growth (+17% vs Q3FY20). The increase in ARR was driven by strong demand, aided by the ongoing wedding season and vacation travel. LTH EBITDA margin increased 1,010 bps YoY to 54%, the highest for any quarter, led by a material dip in operating expenses and employee costs from the pre-covid levels. Management reiterated that the strong growth momentum will continue in Q4FY23 and FY24, led by strong travel demand, the opening of Aurika, MIAL in Oct-23, an increase in managed hotels signings, and a further improvement in occupancy, especially across brands like Lemon Tree Hotels and Keys. Given the strong demand in the industry and supply trailing the same, we expect LTH to report strong numbers, going ahead. We maintain our BUY recommendation with an unchanged FY25 EV/EBITDA multiple of 17x and an INR-based TP of INR108/share.
Neogen Chemicals Ltd (NS:NEOE): Our BUY recommendation on Neogen Chemicals (NCL), with a target price of INR 2,045/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 stood at INR 301mn, +1% above our estimate, while APAT at INR 147mn, came in -2% below our estimates, owing to higher-than-expected finance costs and tax expenses, partially offset by higher other income and lower depreciation.
Ashoka Buildcon Ltd (NS:ABDL): Ashoka Buildcon (ASBL) reported revenue/EBITDA/APAT of INR 15.6/1.2/0.7bn, beating/(missing) our estimates by 11.3/(8.9)/(11.5)%. With approvals pending from only a few stakeholders, all the asset monetization deals are expected to be completed by H1FY24. On the back of strong order inflows, the FYTD23 order book (OB) stands at INR 191.5bn (~3.2x FY23E revenue). The standalone gross/net debt decreased marginally to INR 8.5/5.8bn as of Dec’22 vs. INR 8.7/6.5bn as of Sep’22. The balance equity requirement for HAM assets as of Dec’22 stands at INR 2bn, of which INR 0.4bn would be funded in Q4FY23 and INR 0.9/0.4bn in FY24/25. ASBL has guided for a capex of INR 2.5bn for the next five quarters. It also guided FY23 revenue growth of 30% YoY. We cut our estimates to factor in weaker margins and maintain BUY, with a TP of INR 131/sh (9x Dec-24E EPS rollover).
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