GAIL (NS: GAIL )
Our BUY recommendation on GAIL with a target price of INR 137 is based on (1) an increase in gas transmission volume to 127mmscmd 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.
Q1FY24 reported EBITDA/PAT at INR 24/14bn, came in below our estimates, impacted by weak earnings from the LPG and Liquid Hydro Carbon (LHC) segment. However, sharp pick-up in natural gas transmission volumes, higher tariffs and higher gas marketing volumes supported earnings. Other income came in higher at INR 2.7bn, however, was partially offset by a higher interest cost of INR 1.8bn (+3.6x YoY, +95% QoQ).
Oberoi Realty (NS: OEBO )
Oberoi Realty (ORL) registered subdued presales of INR 4.8bn (-38%/-81% YoY/QoQ) in the absence of new launches. ORL has a strong launch pipeline for FY24, with a new tower expected to open up in Goregaon and a project launch in Pokhran (launch planned pre-Diwali) and Kolshet in Thane. Commerz 3 and Borivali Mall are expected to start operation by Mar/Jun’24 resp., with rental potential of INR c.5bn in Commerz 3 and INR c.3.5bn in the mall. ORL for now plans to use Glaxo land in Worli for a residential project.
Traction is expected to pick up in the 360W project with 5 units of sales likely to get recorded during Q2FY24. In terms of Business Development (BD), ORL has an ongoing deal in Gurugram, an LOI signed for a redevelopment project in MMR and a few prospective land parcels in the pipeline. Given the expected robust cash flows from ready-to-move-in inventory in the 360W and Mulund projects along with new business development outside MMR, we remain constructive on ORL and maintain BUY, with an increased TP of INR 1,298/sh (reflective of increased carpet area in Thane project and better-than-expected realization in the current portfolio).
Petronet LNG (NS: PLNG )
Our REDUCE recommendation on Petronet LNG (PLNG) with a TP of INR 243 is based on: (1) the adverse impact of high spot LNG price and (2) rising domestic gas production on spot LNG demand in the medium term. In Q1, reported EBITDA was at INR 12bn (+11% YoY, +25% QoQ) while PAT came in at INR 8bn (+13% YoY, +29% QoQ), above our estimates, driven by the higher-than-expected volume of 230tbtu (+11% YoY, +24% QoQ) and lower other expenses.
Navin Fluorine International: We retain a BUY on Navin Fluorine International Ltd (NFIL), with a target price of INR 5,368 on the back of (1) earnings visibility, given long-term contracts (2) tilt in sales mix towards high-margin high-value business (3) capacity expansion led growth and (4) strong R&D infrastructure. EBITDA/APAT was 31/42% below our estimates, owing to a 23% fall in revenue, higher-than-expected other expenses, higher-than-anticipated depreciation, and higher-than-expected tax outgo, offset by lower-than-expected raw material cost.
IRB Infrastructure Developers Ltd (NS: IRBI )
IRB reported revenue/EBITDA/APAT of INR 16.3/7.8/1.3bn, beating our estimates on all fronts. EBITDA margin came in line with our estimate of 47.6%. The OB as of Jun’23 stood at INR 337.1bn (~5.6x FY23 adjusted revenue), with EPC contributing 25% (INR 84.2bn) and O&M contributing 75% (INR 252.8bn, INR 25-30bn up to FY26).
The consolidated gross/net debt stood at INR 127.9/100bn vs. INR 125.8/100.7bn as of Mar’23 with a net D/E of 0.74x. It expects to infuse equity of c.INR 25bn (including INR 15bn for Hyderabad ORR) in FY24 and another INR 3-5bn in FY25. It reiterated its FY24 construction revenue guidance at INR 50-55bn (+20-25% YoY). With material prices going down, construction EBITDA margins are expected to stabilize at ~25%. It slashed its FY24 OI guidance from c.INR 100bn to INR 50-60bn with a combination of TOT and BOT projects. We maintain our ADD rating on the stock with an unchanged SOTP-based target price of INR 32/sh.
H.G.Infra Engineering Limited (NS: HGIN )
HG Infra (HG) reported a muted quarter, missing our estimates on all fronts by 8.2/6.9/11.1%. The OB as of Jun’23 stood at INR 116.7bn (~2.6x FY23 revenue). It reiterated its FY24 revenue guidance at INR 50-55bn (+ 20-25% YoY) with an EBITDA margin of ~16%. On the order inflow front, it slashed its guidance from INR 80-90bn to INR 70-80bn.
The total equity requirement in twelve HAM projects is INR 15.9bn, of which INR 7.6bn is already infused as of Jun’23. HG guided for infusing INR 4.1/2.7/1.6bn in the balance part of FY24/FY25/26. Further, it guided for incurring a capex of INR 1bn for FY24/25 each. The standalone net debt, as of Jun’23, increased to INR 5.5bn. The company expects to receive monetization proceeds from three out of four HAM projects by Q3FY23. Given strong execution and robust OB, higher level of execution, and better EBITDA margin, we maintain BUY, with an increased TP of INR 1,201 (14x Jun-25E EPS rolled over).
Nocil Ltd (NS: NOCI )
Our BUY recommendation on NOCIL with a TP of INR 267 is premised on (1) a ramp-up in capacity utilization and (2) an expansion of margin with a focus on specialized rubber chemicals. Q1 EBITDA/PAT was 10/5% below our estimates, owing to an 8% fall in revenue, higher-than-expected other expenses, higher-than-expected tax outgo, offset by lower-than-expected raw material cost, and higher-than-expected other income.
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