Hindustan Unilever (NS: HLL )
HUL’s revenue growth of 6% YoY was below our expectations (HSIE: 9%), as inventory de-stocking by trade (1-3 days) in anticipation of price cuts led to a 3% volume growth (2% four-year CAGR, HSIE 6%). Home care & BPC saw mid-single-digit volume growth while F&R volumes were flat. Benefits of GM expansion (+255bps YoY) were largely offset by (1) higher A&P spends (2) capability building (restructuring in HFD portfolio) and (3) an increase in royalty rate which limited EBITDAM expansion to 55bps.
In the near term, in a stable commodity scenario, growth will largely be volume led with pricing remaining flattish to slightly negative. With the resurgence of small players given softening RM inflation, HUL will continue to focus on (1) rebalancing price and volume growth (2) building back gross margins (3) stepping up A&P investments and (4) defending market share. We model a gradual recovery in demand given the 2-3 quarter lag seen between price cuts and demand upticks. We cut our FY24 estimates by 2% to reflect near-term pressure. We value the stock on 47x P/E on Jun-25E EPS to derive a TP of INR 2,550. Maintain REDUCE.
Infosys (NS: INFY )
The low probability event recurred in successive quarters with a guidance cut (three times in Q1 in the last 14 years) following a sequential revenue drop (eight times in the last sixty quarters) in the previous quarter for Infosys (INFO). While the growth print in Q1 for INFO at 1% QoQ CC was better than peers, the lowered guidance of 1 to 3.5% CC (vs. 4 to 7%) implies a 0 to 1.7% CQGR over the next three quarters. Management attributed the guidance cut to lower-than-expected volumes and longer ramp-up time.
The recent deal signings (Q2 large deal net new at USD 1.2bn or the second highest in the last ten quarters + mega deal booking in Q2) provide visibility but are likely to flow through towards the fiscal end. We’ve factored growth at 3% CC (4% CC earlier) for FY24E and recovering to 10% in FY25E (implying 2.2% CQGR which is similar to its 10Y CQGR). Positives are (1) improved large net new deal wins, (2) focus on improving the operating profile with intervention across pricing, pyramid improvement, automation to improve productivity, supported by GenAI, a portfolio mix (reflected in improving revenue/client trend) and G&A optimization, (3) improving utilization with large scope to improve (~300bps) and strong cash generation in Q1 (96% FCF/APAT vs. 85% in FY23). Maintain ADD with a lowered TP of INR 1,450, based on 20x Jun-25E EPS.
Havells India (NS: HVEL )
Havells’s Q1FY24 revenue grew by 14% YoY (HSIE: 8%), led by better-than-expected performance of C&W and Lloyd. Sustained tailwinds in the B2B segment (infra/construction upcycle) once again offset the sluggish B2C demand environment. Exponential growth in switchgear during Q4FY23 led to the normalization of channel inventory levels during the quarter. ECD's performance remained impacted by below-par primary sales of fans, given a disrupted summer season.
Moreover, B2C lighting will remain impacted in the near term by price erosion. Softening RM basket aided 140bps YoY expansion in gross margins but EBITDA fell 20bps, largely on account of unabsorbed costs. We expect Havells to have a strong H2FY24, given sustained tailwinds from the B2B portfolio and the return of B2C demand on softening inflation. We cut our FY24/FY25 earnings by 4/1% respectively to reflect weak margin performance (largely Lloyd). We value the stock on 48x P/E on Jun-25 EPS to derive a TP of INR 1,450. We maintain ADD rating.
Can Fin Homes (NS: CNFH )
Can Fin Homes (CANF) reported a steady quarter as loan growth at ~18% YoY was in line with management guidance of ~18-20%, driven by moderate growth in disbursals (+14% YoY). Lagged asset repricing and a mild softening in the funding environment helped improve spreads/NIMs sequentially by 16/11bps and these are likely to sustain during FY24.
CANF upped its efforts to reduce sourcing dependence on DSAs (~80%), by way of investing in alternate channels such as builders (APF), branches (15 to be added in FY24), and Tech for digital sourcing, which is likely to further augment loan growth in a highly competitive environment. Asset quality stayed steady with slippages from the restructured portfolio at sub-10%, within the guided range. We marginally tweak our FY24/FY25 earnings estimates and maintain BUY with a revised RI-based TP of INR 900 (implying 2.4x Mar-25 ABVPS). CANF remains our top pick among HFCs.
Zensar Technologies (NS: ZENT )
Zensar reported a strong EBITDA margin expansion of ~425bps QoQ (substantial beat), while the revenue growth was soft (+1.3% QoQ CC). The strong margin improvement for the second consecutive quarter was on account of SG&A rationalization, higher utilization, better productivity & business mix (lower passthrough), and a ~100bps one-time benefit. Margins are now expected to be around the mid-teens, supported by continued gains in productivity, subcontracting expenses, pyramid rationalization and utilization improvement.
The wage hike in Q2FY24E will impact margins and the investments in the sales engine will limit further margin expansion. We have factored in EBITDAM of 17.4/17.2% for FY24/25E respectively (below Q1FY24 levels). Softness in hi-tech was offset by strong BFSI and consumer services verticals. The management expects challenges in consumer and hi-tech verticals and cited the uncertainty in the current demand environment with delay in decision-making. The deal bookings at USD 154mn were soft we trim our revenue estimate by ~1% but increase EPS estimates by ~12%, supported by a better operational trajectory for FY24/25E. We maintain our BUY rating with a TP of INR 520, based on 18x June-25E EPS. The stock is trading at a P/E of 18.1/16.7x FY24/25E EPS, in line with the five-year average P/E multiple.
We maintain our REDUCE rating on Heidelberg Cement (HEIM), with an unchanged target price of INR 160/share (7x Mar-25E EBITDA). In the absence of any major planned expansion for the next few years, we expect HEIM to continue to lose market share. In Q1FY24, volume grew 8/1% YoY/QoQ, owing to strong demand and a low base (five-year-CAGR: -1%).
Its NSR declined 2.5% QoQ, owing to weak pricing in the central region. Cost was reduced on all fronts and opex fell 7/6% QoQ/YoY. On QoQ, unitary input cost/fixed expense/freight cooled off by INR 150/50/110 per MT respectively. Thus, unit EBITDA recovered ~INR 190/MT QoQ to INR 772/MT. Debottlenecking expansion of 0.2/0.2mn MT clinker/grinding is delayed to H2FY25 (vs FY24 expected earlier).
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