Results Review for Dalmia Bharat, Sundaram Finance, Apollo Tyres, Aarti Industries

Dalmia Bharat Ltd B (NS: DALB ): We maintain our BUY rating on Dalmia Bharat (DALBHARA), with an unchanged TP of INR 2,440/sh (13x its Mar-25E consolidated EBITDA). We continue to like DALBHARA for its robust volume and margin outlook. Dalmia reported strong volume growth (+12/9% YoY/QoQ) and healthy unit EBITDA recovery (+INR 300/365/MT YoY/QoQ) to solid INR 1,021 per MT, driven by both realization firm-up and cost reduction. Dalmia will be acquiring 5.2mnMT JPA’s cement plants in the central region by H2FY24E, expanding its pan-India footprint. This along with the ongoing expansion will increase its capacity to 54mn MT by FY24E-end (vs 36mn MT at FY22-end).

Sundaram Finance (NS: SNFN ): SUF’s earnings were largely in line with estimates, with lower other income offset by steady credit costs (48bps annualized). Business momentum sustained strong traction, with disbursement growth at +44% YoY (+8% QoQ), driven by the M&HCV portfolio (~96% YoY for 9MFY23) and PVs (+38% YoY). Asset quality was robust with GS-III/NS-III at 2.4%/1.4% (IRAC GNPA/NNPA at 4.0%/2.8%), while the restructured portfolio improved further to 2.3% (FY22: 4.9%). Spreads reflated marginally (~20bps), despite downward pressure in a rising interest rate environment. SUF’s sustained efforts at portfolio diversification across geographies (non-South at 43.8% of AUM vs. 36.7% in Q1FY21), products (non-M&HCV portfolio at ~70%), and vintage (used vehicles at 23% of disbursals) remain on track to augment portfolio growth. We tweak our FY23/FY24 earnings to factor in better-than-expected AUM growth and NIMs, partially offset by higher opex intensity. Maintain BUY with a revised SoTP-based target price of INR2,635 (standalone entity at 2.5x Sep-24 ABVPS).

Apollo Tyres (NS: APLO ): Apollo Tyres posted a strong 31% YoY growth in Q3 PAT on the back of improved margin in India, led by softening of input costs, even as demand remained weak, both in India and Europe. In India, Apollo continues to work on profitable growth that has seen it raise prices ahead of the industry (8% in Q1 and 5% in Q2) in TBR. It is now a price leader in the PCR category as well, having taken a 3% price hike in Q3, ahead of the industry. Its focus on profitability is visible in its margin expansion, which is ahead of its peers. In Europe, it continues to increase its share of UHP tyres whose mix continues to improve: now stands at 45% in Q3 from 43% QoQ. The weak demand outlook in the domestic replacement segment is likely to be offset by a strong offtake from OEMs. Also, while the near-term demand outlook in Europe is weak, players like Apollo are benefitting from the vacuum left by Russian tyre exports in Europe post the geopolitical crisis, and hence, Apollo’s Europe business continues to see healthy outperformance over the industry. Further, weakness in demand is likely to be more than offset by: 1) benign input costs: domestic raw material cost likely to decline by mid-single digits in Q4 QoQ in standalone; 2) pricing discipline in the industry; 3) expected decline in costs in Europe from Q4. On account of a strong operating performance in Q3, we raise our estimates for FY23-25E by 10%. Reiterate ADD with a revised TP of INR349/sh (from INR 316 earlier).

Aarti Industries (NS: ARTI ): We maintain our BUY recommendation on Aarti Industries (AIL), with a target price of INR 851/share. AIL's constant focus on Capex and R&D will enable it to remain competitive and expand its customer base. The toluene segment in India is mainly untapped and catered to through imports; AIL will benefit in the long term by entering this segment. EBITDA/APAT was 7/10% above our estimates, owing to lower-than-expected employee expenses and lower-than-estimated total tax.

Emami (NS: EMAM ): Emami delivered 1% YoY revenue growth, with organic domestic revenue declining by ~2%. Growth pressure was witnessed across the brands, with Boroplus/Navratana/Kesh King/Healthcare/F&H clocking YoY growth of -3/-6/-1/+2/-1%. International business too witnessed growth deceleration, registering 7% growth (20% in 9M). GM remained under pressure, contracting by 150/70bps YoY/QoQ to 66%. Emami has accelerated upfront expenses (employee hiring, distribution, etc.); thus, the EBITDA margin contracted by >500bps YoY to 30%. EBITDA declined by 14% YoY (HSIE -15%). Emami is trying to add new growth levers (acquired Dermicool and Helios Lifestyle) along with expanding team width. However, we remain cautious about the core business growth, given the limited scope to add new consumers in niche categories. Further, we believe that Emami has already peaked at its current margin level, sustaining which would be difficult (also seen in the last 3-4 quarters). We value the stock at 25x P/E on Dec-24E EPS to derive a TP of INR 450. Maintain REDUCE.

Multi Commodity Exchange of India Ltd (NS: MCEI ): MCX reported a better-than-expected revenue performance but margins dipped due to higher payments to the technology vendor. The technology transition remains the key challenge/focus area and the company has indicated that the shift will be done before the extended deadline of June-23. MCX has agreed to pay 63moons a hefty amount of INR 1.6bn over the next two quarters, which will impact its profitability in the near term. The options ADTV has witnessed strong growth of +24% QoQ in the quarter and is up ~5x YoY. We remain constructive on the options growth story, led by (1) increasing retail participation with ~0.3mn traders up 3x YoY, (2) the launch of shorter duration contracts, and (3) index options and FPI participation providing an additional push to volumes. We expect the options revenue to grow 314/37% and contribute 40/48% of revenue in FY23/24E. Futures ADTV was flat QoQ; in fact, the cannibalization of futures volume is lower than expected, led by Algo trading. We cut the revenue estimate by 0.6/3.9% and the EPS estimate by 17/6% for FY24/25E. We have a BUY rating and assign 30x P/E to Sep-24E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 1,800.

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