Results Review for Berger Paints, Deepak Nitrite, Aditya Birla Fashion, G R Infra

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Berger Paints (NS: BRGR ): BRGR’s topline (53.4% YoY; three-year CAGR: 17%) came in better than expected but fell short vis-a-vis APNT’s. Its three-year CAGR (standalone) for topline was 16% vs APNT’s 20%. Waterproofing outpaced growth in paints. Despite the revenue beat, profitability fell short of expectations as lower GM (-283bps) dragged EBITDAM down (14.7% vs HSIE: 16.5%). Lower GM was a function of (1) the absence of high-margin project business (unlike in Q1FY22) and (2) greater industrial salience. Brand spends are likely to inch up ahead (especially directed at luxury and waterproofing segments). There is a marginal revision in FY24/25 EPS estimates (+2% each) to account for the improvement in GM. We maintain our ADD rating, with a DCF-based TP of INR640/sh (earlier INR600/sh); implying 47x Jun-24 EPS).

Deepak Nitrite (NS: DPNT ): We maintain SELL on Deepak Nitrite, with a price target of INR 1,605 (WACC 11.5%, terminal growth 4.5%). The stock is currently trading at 18.7x FY24E EPS. We believe that (1) high input costs will continue to put pressure on the company’s margin and (2) further growth in DPL is capped as the phenol plant is already running at full capacity. Besides, DNL is entering into challenging chemistries vis-à-vis chemistries it is currently operating in. The fluorination and photochlorination chemistries will pave the way to tap agrochemical and pharma customers. However, the company needs to demonstrate its competencies well over the period in these chemistries to seize business opportunities. EBITDA/APAT were 13/14% below estimates, owing to higher-than-expected raw material costs, higher-than-anticipated other expenses, offset by a 14% rise in revenue and lower-than-expected finance cost.

Aditya Birla Fashion (NS: ADIA ) and Retail: ABFRL's Q1FY23 print beat expectations, especially on profitability. Q1 revenue grew to INR28.7bn (three-year CAGR: 12%; HSIE: INR 28.1bn). Beat was primarily led by Madura. Pantaloons marginally fell short on topline but surprised on profitability. Unit economics for both flagships has been improving. EBITDAM expanded 101bps from pre-pandemic levels to 16.3% (15.2% in Q1FY20; HSIE: 14.5%), led by (1) higher GM (given higher full price sales), (2) price hikes, and (3) scale recoup. Expansion was muted in Q1, but we expect it to pick up Q2 onwards. We revise our FY24/25 EBITDA estimates marginally (~2% each) and maintain ADD with a revised DCF-based TP of INR280/sh (earlier 270/sh), implying 22x Jun-24 EV/EBITDA. Note: Capital allocation will be a key monitorable from here on.

Prestige Estates (NS: PREG ): Prestige Estates (PEPL) registered presales of INR 30bn (+4.1x/-8% YoY/QoQ), with collections at INR 21.5bn (+110%/-12.6% YoY/QoQ). Mumbai contributed INR 7.4bn, i.e. 25%, to the overall sales from its two launched residential projects. Total value of the Mumbai project is estimated at INR 180bn, of which INR 30-40bn of presales are expected in FY23. Overall, ~INR 120bn+ of presales are expected in FY23. PEPL will launch an alternative investment fund in Q2FY23 to finance land acquisitions to avoid bloating up the balance sheet debt. INR 7bn was spent on business development (BD) and at the run-rate of INR 6-7bn per quarter, it is expected for to further add to BD. PEPL will take a decision on monetisation of its stake in retail mall post the formation of retail REIT by Blackstone (NYSE: BX ). We maintain BUY, with an unchanged SOTP of INR 600/sh.

G R Infraprojects Ltd (NS: GINF ): Adjusting for the early completion bonus of INR 1.3bn, G R Infra’s (GRIL) performance came in line, with revenue at INR 23.4bn (+9.9%/+7.2% YoY/QoQ, a 6.7% beat, we have reduced INR 1.3bn bonus) and EBITDA at INR 3.5bn (+2.4%/+3.1% YoY/QoQ, a 3% beat). EBITDA margin: 15.1% (-111/-60bps YoY/QoQ; below our estimate of 15.6%). APAT came in at INR 2.2bn (+8.7%/+4.2% YoY/QoQ, a 2.8% beat). Revenue growth guidance for FY23 is 5-10%, with EBITDA margin at 15-16%. The order book (including L1 of INR 5.9bn) stood at INR 176bn, as of Jun’22. Order inflow (OI) guidance for FY23 remains INR 150bn. FY23 revised Capex guidance is INR 3-4bn, with INR 1.5bn already incurred in Q1FY23. With a total investment of INR 15bn till Q1FY23, GRIL has a balance equity requirement of INR 5/7/7bn for under-construction HAM assets, to be spent in FY23/24/25. Bharat Highways InvIT, which is sponsored by GRIL, has been granted a registration certificate as an InvIT by SEBI, and it will be floated by the end of FY23. We maintain BUY, with a TP of INR 2,266 (18x Mar-24E EPS, HAM 1.2x P/BV).

Nuvoco Vistas (NS: NUVO ): We maintain BUY on Nuvoco Vistas, with an unchanged TP of INR 591/share (11x its consolidated Mar-24E EBITDA). We continue to like it for its leadership presence in the east, large retail focus, and various margin initiatives. In Q1FY22, Nuvoco reported broadly in-line EBITDA (vs ours/consensus estimate). Its unitary EBITDA remained flattish QoQ at INR 789 per MT on healthy price recovery, despite the ~20% rise in fuel prices QoQ.
Galaxy Surfactants: Our BUY recommendation on GALSURF with a price target of INR 3,725 is premised on (1) 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. Q1 EBITDA/APAT were 33/37% higher than our estimates, owing to a 13% rise in the revenue, lower-than-expected other expense, and lower-than-expected tax outgo.

CESC (NS: CESC ): CESC’s consolidated PAT in Q1FY23 increased by 6.1% YoY to INR3.0bn, led by higher earnings at Dhariwal (from a new PPA with Railway Energy Management Company—REMCL), Noida Power (high power demand) and turnaround in the Rajasthan distribution franchisee (DF) segment (a profit of INR60mn vs a loss of INR110mn YoY). These were partially offset by increased losses in the Malegaon DF business (a loss of INR190mn vs profit of INR20mn YoY) and lower profitability in the Haldia business (INR660mn vs INR900 mn). Standalone PAT remained flat YoY. WBERC awarded multi-year tariff for FY21-23 and annual performance review for FY15-18, but the decision on regulatory assets stands deferred. We have not included the Chandigarh discom in our valuation as CESC is yet to receive a letter of intent (LoI). We maintain our earnings estimates for FY23/24 and retain BUY, with a TP of INR113.

Borosil (NS: BORO ) Renewables: Borosil Renewable’s (BRL) Q1FY23 PAT declined 24% YoY to INR301mn as the cost of raw materials, fuel and power expenses continued to remain elevated in the quarter. Realisation was slightly better QoQ at INR141/sqmm (flat YoY), but the company was unable to pass on the escalated input cost to its customers due to intense competition from Chinese players; hence, this impacted its EBITDA and margin by 22% YoY and 1,715 bps respectively. The quantitative sales volume grew 23% YoY and BRL reported revenue growth of 25% YoY to INR1,700mn in Q1. Though it would be tough for BRL to sustain its profitability amidst steep rise in input costs, we do not foresee much risk to the realisation for solar glass, given: (1) limited domestic availability of solar glass; (2) the company has existing contracts for soda ash and natural gas until Dec 2022 at prices that are favourable compared to current prices; (3) SG-3 is expected to commission in Oct 2022 and company plans to use furnace oil instead of natural gas in SG-3 for the time being; (4) anti-dumping duty on module that came into force in April 2022 will ramp up domestic manufacturing of solar modules. We maintain our ADD rating, with TP of INR704, based on FY25E 23x P/E.

Prince Pipes And Fittings Ltd (NS: PRCE ): We maintain our BUY rating on Prince Pipes with a revised target price of INR 750/sh (18.5x its Mar-24E EBITDA). In Q1FY23, Prince reported weak volume and margin, missing our estimates. Dealer destocking amid continued resin price decline in Q1 led to a 31% QoQ volume decline in the quarter. Op-lev loss and sharp inventory loss (INR 300-350mn) further pulled down unitary EBITDA by 55% QoQ to INR 14/kg. However, on a four-year CAGR basis, it still managed to deliver growth of 2/9% volume/EBITDA. We continue to like Prince for its large product portfolio, robust pan-India distribution, and low exposure (~30-35%) to price sensitive agri/rural markets.

PNC Infratech (NS: PNCI ): PNC Infratech (PNC) reported a robust beat of 23/22/32% on revenue/EBITDA/APAT, largely led by the roads segment. Water projects continue to see subdued execution, as only INR 27bn of the INR 80bn projects are under execution. As DPR gets approved, PNC expects another INR 15bn out of residual JJM orders of INR 53bn to move into execution by FY23 end. The overall revenue from the water segment is expected to be INR 13-14bn in FY23. PNC has maintained its revenue growth guidance of 15% YoY and EBITDA margin guidance of 13-13.5% for FY23. PNC expects an order inflow of INR 80-100bn in FY23. With cash balance of INR 4.6bn and standalone gross debt at INR 3bn, PNC had a net cash balance of INR 1.6bn, as of June’22. Capex guidance for FY23 stands at INR 1-1.2bn. Given a strong OB and comfortable balance sheet, we maintain BUY, with an unchanged TP of INR 407 (15x Mar-24E, 1x P/BV for HAM equity investment).

V-MART Retail (NS: VMAR ): V-MART reported 231% growth YoY (in-line). The organic business (ex-Unlimited acquisition) recovered fully from the pandemic blues in Q1FY23 (INR4.7bn; 3-year CAGR: 1%). Note: unit economics is yet to catch up. Footfall density was at 55%, while transaction sizes were up 138% vs pre-pandemic levels. EBITDA margin beat (15.1% vs HSIE: 12.5%) was a function of (1) 17-18% price hikes in H2FY22 and (2) product mix becoming superior. We’ve cut our FY24/25 EBITDA estimates by 5/3% to factor in a more gradual convergence of Unlimited financials to the portfolio. But we maintain BUY with a DCF-based TP of INR3,500/sh (unchanged and implying 26x Jun-24 EV/EBITDA).

NCC (NS: NCCL ): NCC’s Q1FY23 revenue/EBITDA/APAT came in at INR 29.6/2.8/1.2bn, beating our estimates by 8.6/3/26%. With order inflow (OI) of INR 44.6bn in Q1FY23, the order book (OB) stood at INR 406bn (~4x FY22 revenue). During the quarter, NCC secured a larger order—a major sewage treatment plant order in Mumbai with EPC component of INR 38.3bn and O&M component of INR 18.5bn. During Q1, NCC availed INR 5.5bn of working capital demand loan (WCDL), which resulted in increased standalone gross debt of INR 17.1bn, as of Jun’22 vs. INR 11.8bn, as of Mar’22. The interest coverage ratio stood at 2.88 times. The average cost of debt during the quarter stood at 8.67%. Given the robust order book, pick-up in execution, stable balance sheet, and commodities price correction, we maintain BUY on NCC, with a TP of INR 108 (9x Mar-24E).

Somany Ceramics Ltd (NS: SOCE ): We maintain BUY on Somany Ceramics with an unchanged target price of INR 840/share (13x Mar-24E consolidated EBITDA). We continue to like SOMC for its strong retail distribution, improving product mix, and tightened working capital (WC). We expect Somany to continue its healthy volume growth, supported by its ~20% capacity expansion in Q1FY23. EBITDA margin remained stable QoQ on cost controls, improved realisation (despite gas price inflation). The company expects healthy volume growth in FY23 and also expects margin to rebound as gas prices appear to have stabilised in Q2FY23.

PSP Projects (NS: PSPP ): PSP Projects (PSP) reported weak revenue/EBITDA/APAT of INR 3.5/0.5/0.3bn, missing our estimates at all levels. PSP faced festive season related reduced labour availability issues in the early part of Q1FY23, leading to weak execution and revenue booking. Its entire order book (OB) of INR 46bn (excl. Bhiwandi and Pandharpur forming 16% of it) is under execution, and execution is expected to pick up during the rest of 9MFY23. Post the completion of SDB project, PSP is now eligible to bid for a single project worth INR 25bn. The current bid pipeline stands at INR 40bn, of which 51% orders are from Gujarat and 41% are private. The topline is expected to grow by 25% YoY in FY23, with order inflow guidance at INR 20bn. We maintain BUY on PSP with a TP of INR 705/sh (13x Mar-24E EPS).

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