Dabur India Ltd. (NS:DABU): Dabur’s Q1 revenue growth and EBITDA margin were in line. Revenue grew 8% YoY (HSIE 8%), with a three-year CAGR at 7%. Domestic revenue/volume grew 10/5% YoY, with three-year CAGR at 12/8% vs. HUL 9/2%, Nestle (NS:NEST) 11/7%. Dabur is sustaining its volume outperformance among its peers. Dabur’s Healthcare/HPC/F&B grew -21/16/50% YoY, with a three-year CAGR at 11/8/20%. Healthcare contraction is due to the high base (COVID contextual products), while new launches would continue to drive growth, going ahead. Despite the stressed demand environment, the company delivered its growth on the back of the expansion of its rural distribution and new-age channels in urban. The company gained a share in 98% of its portfolio. GM contracted 224bps YoY to 45.9% (HSIE 45.5%), and besides the impact of RM inflation, the low healthcare mix also daunted the margin. EBITDA margin declined by 188bps to 19.3%, while EBITDA was down 2% YoY (in-line). We maintain underlying revenue growth of 9% for FY23/24. Dabur has the ability to manage margins even in adversity, given its diversified product and limited sensitivity to RM vs. peers. We model a 21% EBITDA margin in FY23/24. We value the stock at 42x P/E on Jun-24E EPS to derive a target price of INR 550. Maintain ADD.
Britannia Industries (NS:BRIT): Britannia’s Q1 revenue growth was broadly in line, but EBITDA margin was a miss. Revenue grew 9% YoY (10% HSIE), driven by pricing actions. Three-year revenue CAGR was at 11% vs. Nestle’s 11%. Volume contracted by 2% YoY (HSIE +1%), while the underlying volume trajectory is largely sustaining. Unlike other FMCG players, Britannia continued to see traction in rural India, driven by improved market share (1.5x higher gain than All-India). The margin pressure was sustained with GM contracting 182/116bps YoY/QoQ to 36.9% (in-line). EBITDA margin was down by 274bps to 13.5% (lowest in the last 30 quarters). The company is taking additional price hikes to cover the commodity pressure. EBITDA declined 10% YoY (HSIE flat). Volume growth acceleration along with improvement in the margin will be a tough task in the current challenging demand environment. ICDs, at the end of Q1FY23, stood at INR 6.9bn vs. INR 7.4bn in Q4FY22. We value Britannia at 35x P/E on Jun-24 EPS to derive a target price of INR 3,200. Maintain REDUCE.
Godrej Consumer Products Ltd. (NS:GOCP): GCPL’s revenue growth and EBITDA margin were broadly in line. Consolidated revenue grew 8% YoY, and domestic/international clocked 12/3% YoY growth, with 12/7% three-year CAGR. India's business continued to be led by a high share of price hike (18% YoY), with domestic volume declining 6% (HSIE -4%, three-year CAGR at 4% vs. HUL/Emami at 6/1%). Personal care sustained robust +20% growth (price hike led), and HI was down 4% (8% three-year CAGR) with a weak season and high base. Indonesia remained weak, down 8% YoY and flat on three-year CAGR. Consolidated EBITDA margin was broadly in line at 17% (HSIE 17.3%), domestic at 22.9% (HSIE 23.6%) and international at 9.2% (in-line). The new CEO remained focused on accelerating growth, but the seasonality impact in India and challenges in Indonesia continued to check the outcomes. We maintain 10% underlying revenue growth with a 20-21% EBITDA margin for FY23/24. We value the stock at 35x on Jun-24 EPS to derive a TP of INR 850. We maintain ADD.
GAIL (NS:GAIL) (India): Our BUY recommendation on GAIL with a target price of INR 180 is based on expansion in gas transmission volume over FY22-24E to 126mmscmd on the back of (1) increase in domestic gas production, (2) increase in demand of RLNG, and (3) completion of major pipelines in eastern and southern India. Q1FY23 EBITDA/APAT, at INR 44/29bn, came in ahead of our estimates, mainly driven by higher-than-expected transmission and marketing volumes and higher marketing margins.
Voltas (NS:VOLT): Voltas' Q1FY23 saw a mixed bag performance. UCP revenue was in line with market share recovery in RAC, while segment margin saw a miss (seen industry-wide). EMPS continued to disappoint, by missing both revenue and margin. UCP delivered a 125/111% value/volume YoY growth (HSIE 123%), with the three-year CAGR at 8%. Voltas also regained some of its market share, which touched 24% (June exit) vs 19% earlier (March exit), a market share lead of 950bps over the No. 2 player. Voltas is also a leader in the inverter segment (earlier dominated by LG), with the market share at 22%, 300bps higher than LG. Despite increasing competition, we believe Voltas’ core strength (after-sales service, distribution network, etc.) will continue to support its market share. RAC is Voltas’ core business (unlike other players); we believe an aggressive and proactive approach will continue to bring efficiency and competitiveness in the long run. UCP EBIT margin saw pressure (7.7% vs. HSIE 9%); with commodity softening and easing trade inventory, we expect a recovery in EBIT margin. We model 11% EBIT margin for FY24/25. Performance of project business remained weak and we do not expect immediate relief (although we model 6% EBIT margin for FY24/25). We cut our EPS estimates by 17/6/3% (largely to offset the weak performance of the project business) for FY23/24/25. We value the stock on SoTP (UCP/EMPS/EPS P/E at 43/10/15x and Volt-Beko P/S of 4x) on Jun-24 to derive a TP of INR 1,050. Maintain ADD.
Gujarat State Petronet (NS:GSPT): Our ADD rating on Gujarat State Petronet with a TP of INR 265 is premised on (1) muted transmission volume over FY22-24E due to the high spot LNG price environment, driven by geopolitical issues, low global inventories, and pick-up in demand post reopening of economies and (2) limited upside triggers in the near term. Hence, we believe that, at present, the stock is fairly valued with an RoE of 16% in FY24E and a combined FCF of INR 36bn over FY22-24E.
KEC International (NS:KECL): KEC reported a mixed quarter, with revenue at INR 33.2bn, driven by non-T&D segments. EBITDA margin, at 5.1%, was affected, mainly by losses in SAE (INR 0.7/1bn EBIDTA/PBT loss), and higher freight costs (+INR 0.4bn). With Q1FY23 order inflow (OI) of INR 34.7bn (vs. INR 200bn guidance for FY23 i.e. ~17.4%) and L1 on INR 80bn, the order book (OB) stands at INR 317bn (~2.3x FY22 revenue). On the other hand, collections from Afghanistan are still stalled, with net exposure increasing to INR 2.6bn. The consolidated net debt increased to INR 60.8bn (vs. INR 47.7bn at the end of Mar’22) with interest cost for the quarter rising to 3% of sales (vs. 2.2% in Q4FY22). NWC worsened further to 148 days vs. 137 days in the previous quarter. Given continued high debt build-up, elevated working capital, and weak profitability, we downgrade KEC rating from BUY to REDUCE, with a revised target price of INR 375/share (14x Mar-24E EPS). We cut our FY23E/24E EPS by 36.6/14% and 1-yr forward multiple from 15x to 14x. Debt reduction is key for further rerating.
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