Results Review For Godrej Consumers, Astral, Oil India, Vinati Organics, Nuvoco

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Godrej Consumer Products Ltd. (NS: GOCP ): GCPL revenue growth was in line, but gross margin pressure led to a miss on EBITDA margin/growth. Consolidated revenue grew 9% YoY (HSIE 9%), with domestic revenue growing by 10% (HSIE 10%) and international revenue growing by 7% (HSIE 9%). Domestic revenue posted 10% two-year revenue CAGR. Domestic volume growth was at 4%, two-year CAGR at 4% vs. Dabur's 13%, Marico’s 9%, Emami’s 8%, Britannia’s 5%, Colgate’s 2% and HUL’s 2%. GM fell by 616bps YoY to 49.8% due to a lag between the increase in input cost and price increases (domestic). GCPL managed to keep its EBITDA margin at 21.5% (HSIE 22.3%), limiting its fall to 201bps YoY. While near-term margin pressure is evident, we expect the company to overcome it as the benefits of price hikes begin to flow in. With demand drivers in place across home care and personal care, we continue to see steady growth for GCPL. Given the margin pressure, we cut FY22 EPS by 2%, but maintain FY23/FY24 EPS. We value the stock at 42x on Sep-23 EPS to derive a TP of INR 1,033. Maintain ADD.

Astral Poly Technik Ltd (NS: ASTL ): We maintain our REDUCE rating on Astral with a revised TP of INR 2,110/sh (34x its Sep-23E consolidated EBITDA, implying 53x P/E), owing to its expensive valuation. Astral’s Q2 consolidated revenue/EBITDA/APAT buoyed 55/47/63% YoY to INR 11.54/2.12/1.41bn respectively (EBITDA was in line with our estimates). The uptick is led by strong demand, market share gains in pipes, and sustained margin buoyancy across both pipes and adhesives. Astral expects pipes margin to expand further, benefitting from the recent price hikes and sustained plumbing demand momentum.

Oil India (NS: OILI ): Our BUY recommendation on Oil India with a target price of INR 320 is premised on (1) an increase in crude price realisation and (2) improvement in domestic gas price realisation (at USD 2.9/mmbtu). We expect oil price realisation to increase to ~USD 68/bbl in FY22E and USD 70/bbl in FY23E vs. USD 44/bbl in FY21, given the expected global economic rebound, post-COVID. Q2FY22 revenue was 1% below our estimates while EBITDA was 32% below, owing to higher-than-expected operating expenses (on account of provisions and write-offs). RPAT came in 32% below our estimate, impacted by higher depreciation, which was offset by higher other income and lower interest cost.

Vinati Organics Ltd (NS: VNTI ): Our SELL recommendation on Vinati Organics with a discounted cash flow-based target price of INR 1,745 (WACC 10%, terminal growth 4.5%) 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. In the absence of a new product pipeline, we believe the current valuation is high at ~32x FY24E EPS. Q2 EBITDA was 8% below our estimate and APAT was 2% above, owing to a 4% fall in revenue, higher-than-anticipated opex, offset by higher-than-anticipated other income and lower-than-expected tax outgo.

Nuvoco Vistas Corporation Ltd (NS: NUVO ): We maintain our BUY rating on Nuvoco Vistas (Nuvoco) with an unchanged target price of INR 827/share (11x its consolidated Sep-23E EBITDA). We continue to like it for its leadership presence in the east, its various margin initiatives and continued deleveraging of its balance sheet. Weak demand in the east and high opex hit its profitability in Q2. The impact, however, was moderated by the rising contribution of synergy benefits and ongoing cost reductions. While consolidated revenue grew 13% YoY to INR 20.20bn, EBITDA fell 9% YoY to INR 3.31bn. Higher capital charges led to a net loss of INR 0.26bn (vs a net loss of INR 0.16bn YoY). Nuvoco reduced its net debt/EBITDA to 3.1x in Sep-21 (vs 4.7x in Mar-21) and aims to lower it further to 2.2x by Mar-22E.

Sundram Fasteners (NS: SNFS ): Sundram Fasteners (SF) reported healthy Q2FY22 standalone revenue growth of INR10.6bn (+39% YoY, +13% QoQ) despite the ongoing chip shortage. The revenue outlook is encouraging, with SF on course to surpass its pre-COVID turnover this year itself (FY19 revenue was INR40bn). The company is gaining market share from smaller parts suppliers, against the backdrop of COVID. Further, the share of exports is expected to reach 50% of revenues in the medium term (up from 35% presently), when the new plant ramps up and SF increases its order size wins. While our estimates are largely unchanged over FY22-24E, we are rolling forward our TP timeframe to Sep-23E and setting a revised target price of INR 900, based on 28x forward EPS. We recommend accumulating the stock on declines.

CESC (NS: CESC ): CESC’s consolidated PAT in Q2FY22 decreased by 12% YoY due to increased losses in the distribution franchisee (DF) segment (a loss of INR410mn vs INR80mn YoY), given the one-off impact of INR200mn in the Malegaon segment. Haldia and Dhariwal continued to perform strongly, while standalone PAT growth remained flat despite the delayed WBERC tariff order. Standalone generation increased 2.5% YoY, while T&D losses were flat at 8.6%. CESC’s bid for a 100% stake in the Chandigarh discom is likely to receive a letter of intent (LoI) by Q3FY22. We retain our BUY rating with a revised TP of INR109 (from INR101), as we now assign a higher multiple to the company’s regulated business, factoring in the improved performance at the Noida and Dhariwal businesses. We have not yet factored in the Chandigarh discom, as we await clarity on the bid and letter of award (LoA).

Galaxy Surfactants Limited (NS: GALX ): Our BUY recommendation on GALSURF with a price target of INR 3,675 is premised on (1) stickiness of business, as 55% of the revenue mix comes from MNCs, (2) stable EBITDA margin at >12%, since fluctuations in raw material costs (RMC) are easily passed on to customers, and (3) strong return ratios (RoE/RoIC of 22/20% in FY24E). Q2 EBITDA/APAT were 40/50% lower than estimates due to substantially higher-than-expected raw material cost, higher-than-expected other expense, higher-than-expected depreciation, higher-than-expected tax outgo, offset by higher-than-expected other income.

ITD Cementation India Ltd (NS: ITCM ): ITD Cementation (ITD) reported weak revenue/EBITDA/PAT at INR 8.1/0.5/0.15bn, with revenue in line but EBITDA/PAT below our estimates by 37%/27%. Operating margin was subdued at 6.2% on account of higher commodity costs, a margin booking threshold yet to be reached on projects worth INR 41bn (moved into execution in Q2FY22), and a provision of INR 250mn on the Bengaluru elevated metro project. The order backlog (OB) is robust at INR 115bn (4.2x FY21 revenue). 20% of contracts are without price escalation clauses. Given we expect a strong recovery, we have increased our revenue estimate. We retain BUY with TP of INR 126 (10x Sep-23E EPS).

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