Results Review for Havells India, JSW Energy, Kajaria Ceramics, ICICI Securities

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Havells India (NS: HVEL ): Havells delivered a strong topline performance, led by broad-based growth across all categories, with a beat on our RAC and Switchgear estimates. Revenue grew by 16% on a three-year CAGR (15% ex-Lloyd) while Lloyd's business sustained an 18% three-year revenue CAGR. All segments including Switchgear saw close to mid-teen three-year revenue CAGR. The contribution margin improved sequentially for switchgear and lighting while it remained flat for ECD and Lloyd. RM softening benefits were marginally visible in Q1. EBITDA margin came in at 8.5% (HSIE 11.2%). The sharp miss on EBITDA margin was due to (1) cables being impacted by inventory loss as commodity prices saw a sharp decline and (2) higher-than-expected A&P spends on ECD and Lloyd. With the recent correction in commodity prices and easing of high-priced inventory in cables, we expect the margin to improve from Q2FY23 onwards. Healthy underlying CAGR reflects sustenance of new housing and home improvement themes for CD categories. We remain positive on Havells’ superior execution and margin upcycle trajectory. We value the stock at 50x P/E on June 24 EPS, giving a target price of INR 1,400. Maintain ADD.

JSW Energy (NS: JSWE ): Consolidated revenue increased 75.2% YoY to INR30.3bn in Q1, led by improved demand, a strong contribution from short-term sales, solar capacity addition, and 45MW uprating at Karcham Wangtoo station. EBITDA also increased 46.3% YoY to INR10.2bn, but to a lesser extent than revenue, as the strong revenue growth was partially offset by a 110.9% YoY rise in fuel cost (given that global disruptions have pushed up international coal prices to record highs). However, adjusted PAT increased 122.8% YoY to INR4.6bn, far above consensus estimates, aided by higher-than-estimated sales and lower interest expenses on its deleveraging exercise. PAT has been adjusted for a one-time reversal of a loss of INR1.2bn recognized in earlier years on a loan given to JPVL. In Q1FY23, JSW commenced 225MW of group captive solar project while SECI IX and X projects of 1.26GW wind capacities will be commissioned by Q3FY24. DPR for 2.5GW pumped hydro storage is submitted to CEA. JSW Energy’s net D/E stands at 0.46x, while net debt/EBITDA stands at 1.75x. We maintain SELL and retain our target price of INR160, as we believe the stock has been trading at an unjustifiable valuation, at INR234 (RoE - ~7.2%, FY24 P/E – 35x, P/BV – 2.0x).

Kajaria Ceramics (NS: KAJR ): We maintain our BUY rating on Kajaria Ceramics (KJC), with an unchanged target price of INR 1,310/share (21x its Mar’24E consolidated EBITDA). We continue to like KJC for its market share gain and healthy margin in the tiles segment (function of its robust distribution and cost controls) and its fast expansion in the bath ware and ply businesses. KJC delivered a 10% EBITDA beat in Q1FY23. Consolidated net sales/ EBITDA/APAT delivered 13/13/22% CAGRs (3-year), indicating healthy traction. Despite elevated gas prices, KJC maintained its OPM QoQ at ~15%. It expanded its tiles capacity by ~20% in Q1FY23, which will boost its volume growth. It is also acquiring a 51% stake in a Telangana-based floor tiles company (capacity - 4.79 MSM) by the end of FY23 to increase its foothold in the southern market. It refrained from giving margin guidance, amidst elevated gas prices and erratic supplies (in the north).

ICICI Securities (NS: ICCI ): ISEC printed de-growth (-19% QoQ) in pure broking revenue on a weak base (Q4: -5% QoQ), as cash volumes plunged 20% sequentially (illustrating the dependence on cash volumes). We draw comfort from ISEC’s renewed focus on building digital capabilities; however, given the high dependence on cash delivery volumes and tech-based handicap, we believe that its revenues will remain cyclical and face headwinds from the new-age FinTech brokers. We cut our FY23/24E APAT estimates by 4/8% to build in weak cash volumes, pressure on broking yields, and drag from staff costs in the medium term. Given the healthy retail participation and attractive valuation, we maintain our positive stance on ISEC; however, we trim our target multiple to 17.5x (from 20x) as we roll forward our earnings to Mar-24E (from Sep-23E) and maintain ADD with a revised target price of INR675.

Cyient (NS: CYIE ): Cyient reported a decent quarter; revenue was up 4.4% QoQ CC (better than the estimate), led by core services (+6.5% QoQ CC, +2.5% organic). The services growth was driven by communications and new growth areas like automotive and mobility. Investments in new areas (EV and mobility) will help the company align its growth with the industry. Aerospace remained stable while transportation and utilities continue to drag growth, but improvement in the two is likely in H2. The company has tweaked the organizational structure to align sales efforts and accelerate service growth. The strong TCV wins of USD 424mn indicate a positive momentum. Management guidance of 13-15% YoY CC organic growth, ~6-7% inorganic, and EBIT margin of 13-14% appear encouraging. The margin was down ~300bps QoQ but we believe it has bottomed out. We increase our FY24E EPS estimate by ~2% while maintaining our BUY rating. Our target price of INR 940 is based on 16x FY24E EPS. The stock is trading at 16/14x FY23/24E, a steep discount of ~50% to ER&D peers (LTTS).

Mastek (NS: MAST ): Mastek reported a weak quarter with lower-than-expected revenue and margin performance. The revenue was down 4.7% QoQ (-0.1% QoQ CC) due to issues in the NHS account. One large program was put on hold due to political uncertainty and organizational restructuring in NHS UK. The UK government technology spending has slowed down, indicating near-term moderation in deal wins. The order book improved by 4% QoQ CC to USD 191mn, led by Evosys, but the pace of growth moderated. The company expects to scale the US geography and investments have been made to strengthen the sales team and the partner ecosystem. The acquisition of MST Solutions (salesforce consulting partner) appears to be a decent acquisition and will strengthen the US portfolio. The target EBITDA margin range is 19-20%; we see near-term headwinds of ~100bps related to ongoing supply side concerns and integration of MST. We cut our FY23/24E EPS by 4.9/2.5% and maintain our REDUCE rating, considering a slowdown in organic growth and margin pressure. Our TP of INR 2,060 is based on 16x FY24E EPS.

RBL Bank (NS: RATB ): Despite moderation in NIMs (~4.4%) and steep rise in opex, RBK reported a significant beat on the back of strong loan growth (~7% YoY) and lower credit costs (1.7%). Gross slippages were elevated (4.5% annualized), predominantly from the MFI and cards businesses; however, higher upgrades/write-offs led to a 32bps QoQ improvement in GNPA. Deposit traction was relatively muted, but the management guided retail deposits to gain momentum through the rest of FY23. While the management articulated its strategy around building a desired scale and market share gains in its segments of choice, we opine that the recalibration of the deposit mix is likely to call for elevated investments in distribution, which is likely to prolong the time-to-maturity and return to optimal profitability. We lower our FY23E and FY24E earnings forecasts by 8%/2% respectively and maintain REDUCE with a revised TP of INR105, implying 0.5x Mar-24 ABVPS (earlier TP at INR113).

Sagar Cements (NS: SGRC ): We maintain our BUY stance on Sagar Cements with an unchanged TP of INR 230/share (7.5x Mar-24E consolidated EBITDA). We like Sagar for its prudent capacity growth, rising regional diversification, and increased focus on green fuel/power consumption and blended cement production. In Q1FY23, Sagar reported in-line performance. While healthy demand in the south and ramp-up of Jeerabad/Jajpur plants drove up volumes, elevated fuel costs and negative EBITDA contribution from the new plants pulled down the margin, leading to a net loss. Sagar expects its P&F cost to be flat QoQ in Q2. The new plants are also expected to turn EBITDA break-even in FY23. Sagar is also expecting to acquire Andhra Cements by Q3, which will increase its capacity to ~11mn MT.

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