Cummins: Cummins India (NS:CUMM) Ltd (CIL) delivered a positive surprise with the highest quarterly revenue/EBITDA/PAT at INR 21.8/4.1/3.6bn, beating our estimates by 12/37/34%. Revenue outperformance, pricing action, and op-lev resulted in gross and EBITDA margin expansion. CIL maintained its guidance of the returning to historical gross margin range of 35-36% (+300bps) in 18-24months. The demand environment is strong in both domestic and export markets, and CIL expects to grow at 2x the Indian GDP growth. With the transition to stringent CPCB 4+ norms expected to take place in July’23, Powergen pre-buying is expected to pick up in Q4FY23/ Q1FY24. CIL has multiple tailwinds, namely, stringent upcoming norms, Capex cycle recovery, adoption of alternative fuels with lesser carbon footprint, revival in industrials, and supporting manufacturing policies. CIL highlighted that it continues to evaluate on CTIL merger and will arrive at a solution that is in the best interest of various stakeholders. We have increased our FY23/24/25 EPS by 7.4/3.7/9.8% to factor in strong growth. Maintain BUY, with an increased SOTP of INR 1,818 (35x Dec-FY24E EPS).
Astral Limited (NS:ASTL): We maintain our REDUCE rating on Astral, with a revised TP of INR 1,880/sh (30x its Mar-25E consolidated EBITDA), owing to its expensive valuation. We believe Astral’s foray into new businesses (paints and bath ware) will reduce its valuation premium. During Q3FY23, Astral’s consolidated revenue rose 15% YoY (strong growth across both plumbing and adhesives), inventory losses (in pipes) and high chemical prices (in adhesives), and early losses in bath ware pulled down EBITDA/APAT by 6/27% YoY. Astral expects some inventory gain in Q4FY23.
Hindustan Petroleum (NS:HPCL) Corporation: Our ADD rating on Hindustan Petroleum Corporation (HPCL) with a price target of INR 260 is premised on (1) recovery in domestic demand for petroleum products and (2) robust refining margins over the coming 18 months. Q3FY23 EBITDA came in at INR 17bn, marginally below our estimate, owing to lower-than-expected GRM, partially offset by better-than-expected marketing segment performance. Reported GRM stood at USD 9.1/bbl (HSIE: USD 10.6/bbl).
Oberoi Realty (NS:OEBO): Oberoi Realty (ORL) registered subdued presales of Rs 6.4bn (-68/-45%, YoY/QoQ), largely contributed by the Borivali new tower launch. ORL has settled its dues with its JV Partner in 360W, with the purchase of 63 units for INR 34bn consideration (non-cash, valued at INR 45bn at the last ORL sales price). Focus will now shift to business development and new launches. It has a strong launch pipeline for the next 12 months, with a new tower expected to open up in Goregaon and a Thane Kolshet/Pokhran launch in Q4FY23/Q1FY24. Decision on Glaxo Worli–retail/office–shall be taken in Q4FY23. ORL has ~INR 75bn of ready inventory and this shall be utilized towards growth capital and new land acquisition. We remain constructive on ORL and maintain BUY, with an increased NAV-based TP of INR 1,158/sh as we roll forward to FY25 estimates.
Deepak Nitrite (NS:DPNT): We maintain SELL on Deepak Nitrite (DNL), with a price target of INR 1,583 (WACC 12%, terminal growth 4%). The stock is currently trading at 19x FY24E EPS. We believe growth in DPL is capped as the phenol plant is already running at full capacity and margins in advanced intermediates remain under pressure owing to high input costs. EBITDA/APAT were 11/16% below estimates, owing to higher-than-expected raw material costs and lower-than-expected other income.
Endurance Technologies Cn Ltd (NS:ENDU): Endurance Q3 PAT declined 18% QoQ to INR1.1bn due to weak 2W demand in India, input cost pressure and lack of State incentive in Q3. Going ahead, domestic 2W OEMs continue to see weak demand in domestic and export markets and are likely to remain the key concern for Endurance. Further, while supply chain challenges seem to have eased out globally, the demand outlook remains weak in Europe, given the record high inflation and rising interest rates in the region. Further, the rapid EV transition in Europe could emerge as a risk. On the back of a gradual decline in input costs and a reduction in energy costs in Europe, we factor in consolidated margin improvement to 14.5% by FY25E (from 12% in FY23E), still well below its previous peak of 16.3% achieved in FY20. While we have factored in most of the key positives, valuations at 29.1x FY24E earnings, appear expensive. Reiterate REDUCE with an unchanged target of INR 1,340, valued at 25x Sep2024E.
Alkyl Amines Chemicals Ltd (NS:ALKY): We maintain SELL on Alkyl Amines (AACL) with a price target of INR 2,334 (WACC 12%, terminal growth 5%). The stock is currently trading at 44x FY24E EPS. We believe that the current valuation already factors in positives from potential volume growth, after doubling of the acetonitrile plant capacity and ~40% additional capacities of the aliphatic amines plant. EBITDA/APAT was 26/26% below our estimates, owing to a 15% fall in sales, higher-than-expected other expenses offset by lower-than-expected tax outgo.
Century Plyboards (NS:CNTP) India: We maintain our BUY rating on Century Ply, with an unchanged target price of INR 715/sh (20x its Mar’25E consolidated EBITDA). We like Century for its strong franchise (pan-India distribution, aggressive marketing, and a wide range of SKUs), leadership presence in most wood segments, and healthy return ratios. In Q3FY23, its consolidated revenue rose 3% YoY, led by growth in the plywood segment. However, EBITDA/APAT fell 14/13% YoY owing to elevated timber prices, the decline in laminate sales, and on rising-imports led drag on MDF/particle board sales and margin. Despite the expected margin pressure in MDF and particle boards during FY24/25E, We expect Century to deliver a 15% EBITDA CAGR during FY22-25E.
Kalpataru Power (NS:KAPT) Transmission: Kalpataru Power (KPTL) reported revenue/EBITDA/APAT of INR 35/3/1.1bn, (missing)/beating our estimates by 2.9/4/(11)%. Healthy execution growth was witnessed in Water, B&F, O&G and Urban Infra businesses. KPTL secured new orders worth INR 195bn in FYTD23, taking the order book (OB) to an all-time high of INR 414bn (excluding L1 of INR 52bn). KPTL is eyeing transmission, B&F, Water, and Railways as the growth driver. With the merger completed with JMC, KPTL expects a financial synergy in terms of interest cost savings of INR 500-700mn in FY24. The merged entity is well-placed to bid for larger project sizes in both domestic and international markets. Within the domestic market, water and transmission opportunities are huge, KPTL expects a 60-70% opportunity within the water segment is yet to open as other states start opening tenders under JJM (mostly carried by UP till now). We have recalibrated our estimates higher to factor in strong order inflows. We roll forward our valuation to Dec 24E and maintain a BUY rating on the stock with an increased SOTP valuation of INR 708/sh.
Prince Pipes And Fittings Ltd (NS:PRCE): We maintain our BUY rating on Prince Pipes, with an unchanged target price of INR 705/sh (18.5x its Mar-25E EBITDA). We like Prince for its large product portfolio, robust pan-India distribution, and low exposure (~30-35%) to price-sensitive agri markets. It reported strong performance in Q3FY23 due to good demand and channel restocking (volume up 35/14% YoY/QoQ). Despite an INR 6/kg inventory loss in Q3FY23, unitary EBITDA recovered to INR 16/kg (vs the H1FY23 margin of INR 5/kg). With resin prices recovering and demand picking up, we expect volume and margin to rebound.
NCC (NS:NCCL): NCC’s Q3FY23 revenue/EBITDA came in at INR 33/3.5/1.5bn, beating our estimates by 5.6/12/14%. With order inflow (OI) of INR 55bn in Q3FY23, the 9MFY23 OI stands at INR 126bn (vs. the new guidance of INR 200bn), taking the order book (OB) to INR 418bn (~4x FY22 revenue). The order book for the AP project stands at INR 50bn with NCC only adding projects funded by the central government. Sequentially, the EBITDA margin improved and is expected to improve further by 10-20bps on account of better gross margin. In the Sembcorp arbitration, the final hearing is in this month with the final outcome expected by May/Jun’23. The Malad sewage water treatment plant construction is expected to start in 1-2 months with design, licensing, and approvals in process. Given the robust order book, pick-up in execution, stable balance sheet, and commodities price correction, we maintain BUY on NCC, with an increased TP of INR 111 (9x Dec-24E rolled over).
HG Infra: HG Infra (HG) reported revenue/EBITDA/APAT at INR 11/2/1bn (missing)/beating our estimate by (1.9)/2/1.4% resp. It expects FY23 revenue growth of 25% plus (INR 46bn) with an EBITDA margin of 15% plus on the back of a robust OB of INR 110bn. It reported an early completion bonus of INR 160mn in Q3FY23 and expects INR 45mn in Q4FY23. The order inflow (OI) in 9MFY23 was INR 60bn with another INR 30-40bn expected in Q4FY23. It is L1 in its first non-highway project i.e. Delhi Metro project worth INR 4bn with the scope of work including the construction of an elevated viaduct and four elevated stations. It expects a margin of 14% from this project and a margin of 15% plus at the aggregate level, going forward. The company plans to monetize four HAM projects at a ~40% premium to book value of INR 3.5bn invested equity by Sep’23. Given robust order inflow and strong execution, we maintain BUY, with an increased TP of INR 1,017 (14x Dec-24E EPS) to factor in a higher level of execution and better EBITDA margin.
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