Results Review for Asian Paints, SRF, Gujarat Gas, Dalmia Bharat, Max Financial

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Asian Paints (NS: ASPN ): Asian Paints’ (APNT) Q4 performance was broadly in line. Sales growth, at 18.7% (three-year CAGR: 17%), marginally exceeded expectations (+3% vs HSIE). Decorative business clocked 8/21% volume/value growth (FY19-22 volume/value CAGR: 18/15% resp). Growth was all-around (across tiers and price points). Adjacencies continue to perform well. GM recoup is well underway but falls short of expectations (38.7% vs HSIE: 40.7%). Future price hikes are on the anvil but are likely to lag RM inflation, as demand elasticity from hereon may get tested. We marginally tone down our FY23/24 EPS estimates by 3.6/2% to account for lower GM and maintain SELL on APNT with a DCF-based TP of INR 2,550/sh (unchanged), implying 53x FY24 P/E.

SRF (NS: SRFL ): We retain our ADD rating on SRF, with a target price of INR 2,330, on the back of (1) continued healthy performance from specialty chemicals business and packaging films business; (2) strong balance sheet; and (3) deployment of Capex for high-growth specialty chemicals business over the next 3-4 years to tap opportunities emerging from agrochemical and pharmaceutical industries. EBITDA/APAT was 15/25% above our estimates, owing to lower-than-expected raw material costs and lower-than-expected tax outgo but were offset by higher-than-expected finance costs.

Gujarat Gas Ltd (NS: GGAS ): Our BUY recommendation on Gujarat Gas (GGL), with a price target of INR 625, is premised on (1) margin improvement; (2) a portfolio of mature, semi-mature, and new geographical areas (GAs); and (3) compelling valuations, given superior return ratios among the city gas distribution players. Q4FY22 EBITDA was 19% above our estimate and APAT was 18% above, owing to 27% above expectation per unit EBITDA margin. The beat on margins was driven by lower than expected gas cost due to lower offtake of expensive spot LNG gas by the industrial/commercial customers. Overall volumes declined 13% QoQ mainly due to a sharp 20% decline in industrial volumes.

Dalmia Bharat Ltd B (NS: DALB ): Dalmia Bharat reported a strong Q4FY22 result, led by a healthy rebound in its cement realization, leading to a ~25% EBITDA beat vs ours and consensus estimates. While consolidated revenue rose 7% YoY on both realization and volume uptick, EBITDA fell 11% on sharp energy cost inflation. Unitary EBITDA rebound 44% QoQ to INR 1,035/MT due to a healthy cement price recovery in the east, a rise in the share of trade sales, and op-lev gains. Continued gains in its IEX investments turned balance sheet net cash in Mar-22. Dalmia noted that its plans to expand capacity to 49mn MT by FY24E are on track. Owing to its attractive valuation, we maintain our BUY rating, with a revised TP of INR 2,030/sh (13x its Mar-24E consolidated EBITDA).

Max Financial Services Ltd (NS: MAXI ): MAXL disappointed in total APE (15% below our estimates); however, the shift in product mix towards NPAR and group credit-life resulted in a higher-than-anticipated VNB margin at 31.9% (+648bps vs. estimate), leading to VNB clocking in at INR5.86bn (two-year CAGR of 35%). We flag MAXL’s 500bps loss in AXSB wallet share as a key business concern and believe that maintaining/recouping this wallet share remains a key monitorable in the near to medium term. We lower our VNB estimates by 5-6% for FY23E-24E to factor in the growth slowdown in the Banca channel and expect MAXL to deliver APE CAGR of 13%, VNB CAGR of 11%, and operating RoEVs in the range of 20-21% over FY23-24E. We retain our ADD rating, with a revised target price of INR1,030 (Sep-22E EV + 16.4x Sep-23E VNB).

Asian Paints

Broadly inline

Asian Paints’ (APNT) Q4 performance was broadly in line. Sales growth, at 18.7% (three-year CAGR: 17%), marginally exceeded expectations (+3% vs HSIE). Decorative business clocked 8/21% volume/value growth (FY19-22 volume/value CAGR: 18/15% resp). Growth was all-around (across tiers and price points). Adjacencies continue to perform well. GM recoup is well underway but falls short of expectations (38.7% vs HSIE: 40.7%). Future price hikes are on the anvil but are likely to lag RM inflation, as demand elasticity from hereon may get tested. We marginally tone down our FY23/24 EPS estimates by 3.6/2% to account for lower GM and maintain SELL on APNT with a DCF-based TP of INR 2,550/sh (unchanged), implying 53x FY24 P/E.

Q4FY22 Highlights: Q4 consolidated revenue grew 18.7% YoY (three-year CAGR: 16%) to INR 78.9bn (HSIE: INR 76.7bn). The decorative business clocked 8/21% volume/value growth in Q4 (FY19-22 volume/value CAGR: 18/15% resp). Growth was all-around (across tiers and price points). Adjacencies (waterproofing, wood finishes, institutional segment) performed well. Network expansion remains strong (added 15k new retail points in Q4; total count: 145k). Its international performance was a mixed bag, with Nepal and Bangladesh performing well. Sri Lanka and Africa remain weak spots as high inflation, regional disturbances, and forex crisis create havoc. The industrial subsidiaries (both auto/non-auto) are inching towards normalcy (in terms of profitability). Consolidated EBITDA grew 9.5% YoY to INR14.4bn (HSIE: 14bn) as better cost controls cushioned the sub-optimal GM profile (38.7% vs HSIE: 40.7%). Note that price hikes (22% in FY22) still lag RM inflation (~26%); This trend is likely to persist in Q1FY23.

Outlook: APNT’s performance remains the most impressive among the top- 3 players. While GM pressure has been receding, courtesy price hikes. We suspect future price hikes are likely to lag RM inflation, as demand elasticity from hereon may get tested. Hence, we marginally tone down our FY23/24 EPS estimates by 3.6/2% to account for lower GM and maintain our SELL rating on APNT with a DCF-based TP of INR 2,550/sh, implying 53x FY24 P/E.

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