Results Review for Alkem Labs, Prince Pipes, BSE, HG Infra, Somany Ceramics

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Alkem Laboratories Ltd (NS: ALKE ): Alkem’s Q1 revenue/EBITDA beat estimates by 26%/37%, led by good growth in India and international markets. India's business delivered a stellar growth of 65% YoY (25% two-year CAGR), led by a strong recovery in acute and outperformance in chronic and trade generic businesses. Barring the COVID-led boost to vitamins, the performance was largely driven by good growth in the core portfolio, which is encouraging. The outlook for the US business remains strong as the company is confident of achieving growth in the mid-teens over the next few years despite high single-digit price erosion. With the cost base largely normalized, we expect a 21% earnings growth over FY20-23e, led by operating leverage. We raise our EPS estimates by 13%/9% for FY22/23e to factor in the Q1 beat and higher growth in India. Our revised TP is INR 3,960/sh. BUY.

Prince Pipes And Fittings Ltd (NS: PRCE ): We maintain our BUY rating on Prince Pipes with an unchanged target price of INR 870/sh (18.5x its Jun’23E EBITDA, implying 30x P/E). In Q1FY22, its volume declined 56% QoQ, pulling down revenue/EBITDA/APAT by 57/72/ 82% QoQ to INR 3.31/0.41/0.18bn respectively. Op-lev and inventory losses also accentuated the decline. However, demand has been on an upswing post-May’21, owing to robust plumbing/SWR demand. Prince tied up with UltraTech’s UBS platform to expand its retail distribution and also forayed into the industrial CPVC pipe segment riding on the Lubrizol deal. We continue to like Prince for its comprehensive product portfolio and robust pan-India distribution. These, along with the Lubrizol deal, should continue to drive Prince’s industry-leading growth.

BSE Ltd (NS: BSEL ): We maintain a BUY rating on BSE Ltd on account of strong performance (in line with expectation) and better-than-expected EBITDA margin. Growth was driven by market-linked revenue, with core transaction revenue increasing by 25.6% QoQ. BSE maintained its market share of 7.2% in the cash segment, supported by interoperability. The exchange is trying to rebuild the derivatives volume, whose current market share is only ~6.5%; it is expected to support cash volumes and is a potential revenue driver. New initiatives like the insurance platform, power, and spot exchange are promising but currently lack revenue visibility. Revenue growth will be led by continued growth in transaction volume, StAR MF and stable listing revenue. INX, which is growing strongly (~63% YoY), can be a revenue driver if BSE starts charging (expected in FY23E). We increase the EPS estimate by +10.2/9.6% for FY22/23E, based on volume uptick and better margin. We assign a SoTP-based target price of INR 1,385, by assigning 20x (earlier 15x) to core June-23E PAT (INR 546/share), INR 466/share for the CDSL stake, and adding net cash of INR 372/share.

H.G.Infra Engineering Limited (NS: HGIN ): HG Infra (HG) reported revenue/EBITDA/APAT at INR 9.1/1.5/0.9bn, ahead of our estimates by 28/30/50%. The order book (OB) stands at INR 61bn (~2.4x FY21 revenue). Over the past few quarters, HG has delivered a strong execution outperformance, strengthened its balance sheet, started winning new orders, and showed a strong recovery in NWC days. We believe HG deserves multiple upgrades, backed by robust growth and solid financial discipline. We increase our P/E target multiple from 10x to 12x, upgrade our FY22/23 EPS by 5.8/6.3%, and roll forward our valuation to Jun-23E. We maintain BUY with an increased SOTP-based TP of INR 702/Sh.

Somany Ceramics Ltd (NS: SOCE ): We maintain our BUY rating on Somany Ceramics (SOMC) with an unchanged target price of INR 940/share (13x Jun’23E consolidated EBITDA). We continue to like SOMC for its strong retail distribution, improving product mix, and tightened working capital. In Q1FY22, pandemic impact pulled down SOMC’s tiles volume by 41% QoQ and even bathware revenue halved. Thus, consolidated revenue/EBITDA/APAT fell 41/74/91% QoQ to INR 3,299/231/45mn respectively. In addition to the op-lev loss, soaring fuel prices also hit the margin and profits.

ITD Cementation India Ltd (NS: ITCM ): ITD Cementation (ITD) reported in-line revenue/EBITDA at INR 8.2/0.8bn. However, APAT missed our estimates by 19% on higher-than-expected taxes and a lower share of profits from associates/JVs. The order backlog (OB) is robust at INR 120bn (4.4x FY21 revenue), aided by Q1FY22 order wins of INR 16bn. While the lockdown impacted execution to an extent during the quarter, ITD has retained its earlier guidance of 15-20% topline growth for FY22. The inflation escalation clause in 65-70% of the OB would limit the impact of higher commodity prices on the margin to 120bps to 150bps. We roll forward our valuation to Jun-23 and maintain BUY on ITD with an increased target price of INR 117/sh (INR 111/sh earlier), given (1) a large and diversified OB (~4.4x FY21 revenue), (2) a strong balance sheet (gross D/E 0.5x) and (3) supportive valuation (7.0x Jun-23E EPS). We have not changed our estimates.

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