Results Review for Astral, Aarti Industries , Aditya Birla Capital, Radico Khaitan

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Astral (NS: ASTL ): 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 downpipes sales volume, leading to an op-lev loss. While consolidated revenue rose 22% YoY on account of better realization across pipes and adhesives business, EBITDA/APAT growth tapered off to 3/3% on account of lower utilization, rising raw material cost, and high other expenses. OPM contracted sharply in the adhesive segment on account of rising input costs.

Aarti Industries (NS: ARTI ): 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 was 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.

Aditya Birla Capital Ltd (NS: ADTB ): 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 the affordable segment), which is gradually reflected 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).

Narayana Health (NS: NARY ): NH’s Q3 EBITDA beat our estimates by 8%, mainly on account of a strong recovery in the flagship units. While seasonality impacted the volume uptick and ARPOB growth QoQ, which led to the 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 a 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 a SOTP TP of INR720/sh. ADD.

Radico Khaitan (NS: RADC ): 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 realization 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 the 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.

CreditAccess Grameen Ltd (NS: CRDE ): CreditAccess Grameen (CREDAG) delivered an all-around strong performance, significantly beating our estimates. Portfolio stress continued to normalize, 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.

Prince Pipes (NS: PRCE ): 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 a 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.

Mahindra Lifespace Developers Ltd. (NS: MALD ): 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 a 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 inquiries 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.

Ujjivan Small Finance Bank Ltd (NS: UJJI ): 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 normalize only beyond FY22. The restructured book tapered off to 7.5% (Q2FY22: 10.2%). The management guided for sustained business momentum, going ahead, with a 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.

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