Results Review for BPCL, Gail, Vinati Organics, Aditya Birla Fashion and Retail

Bharat Petroleum (NS: BPCL ) Corporation: Our ADD rating on Bharat Petroleum (BPCL), with a target price of INR 390, is premised on robust refining and marketing margins, offset by elevated debt, owing to a rise in working capital requirement and capex. Q4FY23 EBITDA stood at INR 112bn, while APAT was at INR 65bn, coming in well above our estimates, supported by a better-than-expected performance from the marketing segment. Reported GRMs were at USD 20.6/bbl (+USD 5.3/bbl YoY, +USD 4.7/bbl QoQ, HSIE: USD 19.8/bbl).

Gail (India) (NS: GAIL ): Our BUY recommendation on GAIL with a target price of INR 125 is based on (1) an increase in gas transmission volume to 123mmscmd by FY25 on the back of an increase in domestic gas production, (2) completion of major pipelines in eastern and southern India, and (3) expectation of improvement in earnings from the petchem segment. Q4FY23 reported EBITDA/PAT at INR 3.1/6bn, well below our estimates, impacted by one-offs amounting to INR 12bn in the gas transmission segment and inventory loss of INR 2.3bn in the marketing segment. Higher-than-expected other income of INR 10.1bn in Q4 supported earnings.

Vinati Organics: Our SELL recommendation on Vinati Organics with a discounted cash flow-based target price of INR 1,512 (WACC 11%, terminal growth 5%) is driven by a shift in the revenue mix towards lower-margin iso butyl benzene (IBB), butyl phenol, and other products as compared to ATBS, which has a higher margin. We believe the current valuation is contextually high at ~32x FY25E EPS. Q4 EBITDA/APAT were 7/18% below our estimates, owing to higher-than-anticipated input cost and higher-than-expected tax outgo.

Aditya Birla Fashion (NS: ADIA ) and Retail: ABFRL's Q4FY23 print disappointed in profitability. Q4 revenue grew 26% YoY to INR28.8bn (4-yr CAGR: 10.7% HSIE: INR 27.6bn). Both Madura/Pantaloons grew ahead of estimates. However, the big disappointment was on the margins. Continued investments in new forays and brand investments kept margins sup-optimal (the miss was Madura-led). EBITDAM contracted 965bps YoY to 6.7% (HSIE: 9.3%). Investments are likely to continue. That coupled with elevated inventory levels and rising debt levels places ABFRL precariously as margin loss due to inventory liquidation (in the event of a slowdown) becomes a base-case probability. Consequently, we cut our FY24/25 EBITDA estimates by 5% each and downgrade the stock to REDUCE with a revised DCF-based TP of INR190/sh implying 18x Jun-25 EV/EBITDA.

Crompton Consumer (NS: CROP ): Crompton’s Q4FY23 print surprised positively, largely on account of a decent ECD performance in a challenging environment. ECD revenue grew by 8% YoY (Havells/Orient dipped 14/20% YoY). ECD growth was led by appliances (+43%) and pumps (+15%) while fans were flat (premium fans +24% BLDC fans up 2.5x). While maintaining its fans' market share in the mass segment, Crompton has gained market share in premium fans (#2 in BLDC). Lighting remained weak due to subdued B2B performance. The company is focusing on fixing white spaces by taking various corrective steps like (1) higher brand investments (2) innovation and R&D (3) expanding GTM reach (4) new brand architecture in pumps and (5) a dedicated sales team in lighting. The current valuation is low (ECD business is valued at

JK Lakshmi Cement (NS: JKLC ): We maintain our BUY rating on JK Lakshmi Cement (JKLC) with a lower target price of INR 815/share (8x Mar-25E consolidated EBITDA). In Q4FY23, JKLC reported a subdued 3% YoY volume growth and even the EBITDA margin recovered a modest INR 40 per MT QoQ to INR 687. However, JKLC is confident of ramping up the margin to INR 800 per MT in FY24E and towards INR 1000 per MT by H2FY25E, driven by improving geo-mix, increasing trade sales, increasing green energy share, and optimisation of the supply chain. Cooling off energy prices should also boost the margin rebound. The upcoming Udaipur expansions in FY24E should boost volume growth.

Multi Commodity Exchange: MCX reported a weak quarter as revenue declined 6.8% QoQ, while the margin dipped in Q4 due to higher payments to the technology vendor. Technology transition remains the key focus area for MCX and it has conducted several mock trading sessions in the last few months. The management is confident of completing the technology shift by June-23 however, we highlighted in our recent note that the shift will be delayed by at least one quarter. The options revenue declined 1% QoQ despite a +17% growth in notional ADTV, as the premium-notional turnover declined to 2.17% vs 2.53% in Q3FY23. We remain constructive on the options growth story on the back of continued traction in energy contracts, the launch of new contracts (mini and index options) and the pick-up in bullion volumes. We expect the options revenue to grow 42/19% and contribute 42/45% towards total revenues in FY24/25E. We keep revenue estimates unchanged and change the EPS estimate by -4.1/+0.9% for FY24/25E. We maintain our BUY rating and assign 25x P/E to FY25E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 1,700.

Star Cement: We maintain ADD on Star Cement with a revised TP of INR 130/share (8x its Mar-25E consolidated EBITDA). Star’s reported a decent 7% YoY volume growth in Q4FY23. Despite a major fall in incentive accruals, its unit EBITDA recovered ~INR 150 per MT QoQ to INR 1346 per MT (industry best for the fourth consecutive quarter!) on better logistics management and op-lev gains. Star’s 12MW WHRS has become operational in Q1FY24. This along with other productivity gains and energy cost tailwinds will keep the margin buoyant despite the GST incentives expiration. Star’s ongoing expansion will increase capacity by 70% to 9.7mn MT by H1FY25E.

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