Berger Paints (NS:BRGR): BRGR’s topline delivery (8% YoY; three-year CAGR: 14% INR21.9bn in Q4) missed expectations (HSIE: INR23.6). FY19-22 CAGR (standalone) has lagged that of APNT (12% vs APNT’s 15%). However, BRGR has managed to better balance growth and margin as we reckon the focus on lower ASP products has been less intense vs APNT over FY19-22. Standalone volume growth remained flat/grew 19% YoY in Q4/FY22. FY22 price hikes are yet to catch up with inflation but are inching closer. The long-term risk of growth potential being split post-Grasim’s entry looms large. We have cut our FY23/24 EPS estimates by 8% each to account for lower GM. Ergo, our DCF-based TP stands revised at INR600/sh (implying 49x FY24 EPS). We downgrade the stock to REDUCE (earlier: ADD).
Aditya Birla Fashion and Retail Ltd (NS:ADIA): ABFRL's Q4FY22 print beat expectations; Q4 revenue grew to INR21.8bn (three-year CAGR: 4%; HSIE: INR 21.4bn). Both flagships aided the beat. It nearly recouped pre-pandemic sales (96% recovery) in FY22. EBITDAM expanded 261bps to 17%, led by (1) higher GM (given higher full-price sales), (2) price hikes, (3) scale recoup. Expansion remains healthy, but working capital management remains inferior (rising creditors’ support). Against this backdrop, a further raise seemed imminent but the quantum perplexed us. Our FY23/24 estimates broadly remain unchanged and our ADD rating stays but we do adjust for the share dilution. Hence, DCF-based TP stands revised to INR270/sh (implying 25x EV/EBITDA). Note: Capital allocation will be a key monitorable from here on.
Bata India (NS:BATA): Bata’s Q4 topline came in line at INR6.65bn and nearly hit pre-pandemic sales in Q4 (98%). However, its path to recovery has been the most arduous amongst peers (FY19-22 CAGR for Bata stands at -7% vs Metro’s +3%, Relaxo’s +5%, and Campus Activewear’s 26%). Margins surprised positively. We suspect (1) higher full-price sales, (2) lower inventory markdowns, (3) price hike absorption, and (4) cost optimisation to have played a part. Treading the growth-margin equation across Bata’s volume drivers is tough to execute, but these are early days and we give the benefit of execution (although untested) in our estimates. We maintain our SELL rating, with a DCF-based TP of INR1,400/sh, implying 40x FY24 EPS. Note: EPS estimates broadly remain unchanged.
Fine Organic Industries Ltd (NS:FINO): We downgrade Fine Organics from BUY to ADD, with a revised target price of INR 5,290. The downgrade is largely owing to a 22% increase in the stock price in the past three months. The stock is trading at 40x FY24E EPS (EPS CAGR of 21% over FY22-24E, RoE of 31.7/28.0% in FY23/24E). We like Fine Organics, owing to (1) leadership in oleo-chemical based additives in the domestic and global markets with a loyal customer base, (2) unique business model with high entry barriers, (3) diversified product portfolio, and (4) pricing power. Q4 EBITDA/APAT were 96/143% above our estimates, owing to a 31% rise in revenue, lower-than-expected raw material cost, higher-than-expected other income, and lower-than-expected tax outgo, but were offset by higher-than-expected other expense.
V Mart Retail Ltd (NS:VMAR): V-MART reported 30% growth YoY. Organic business (ex-Unlimited acquisition) recovered fully in FY22 (INR3.85bn in Q4) from the pandemic blues. Footfall density is yet to catch up, while transaction sizes remain elevated vs. pre-pandemic levels. Unlimited format’s inferior unit economics certainly remains a drag on portfolio unit economics. Profitability beat (11% vs HSIE’s 6%) was primarily a function of (1) better topline recovery and (2) higher-than-expected GM (higher full-price sales). We continue to realign profitability (-20/-40%) for FY23/FY24, given the Unlimited drag, and maintain our ADD rating, with the DCF-based TP of INR3,500/sh (unchanged, implying 25x EV/EBITDA).
TCNS Clothing Co Ltd (NS:TCNS): TCNS’ journey to pre-pandemic sales remained underwhelming, partly due to category-specific idiosyncrasies. At INR2.34bn (broadly in line), revenue was at ~81% of a pre-COVID level. Recovery continued to lag that of peers (Trent/Madura clocked 21/8% three-year CAGRs). Profitability missed expectation (EBITM at -3.8% vs HSIE’s 0.4%) as the cost of retailing remained inefficient. We largely maintain our FY23/24 EBITDA estimates and leave our DCF TP of INR575/sh unchanged (implying 13x FY24 EV/EBITDAR). We upgrade the stock to REDUCE, as valuation is more palatable after the recent correction.
Click on the PDF to read the full report: