Results Review for IOC, Godrej Consumers, BPCL, SRF, GAIL, Indian Hotels, ACC

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Indian Oil (NS: IOC ) Corporation: Our ADD rating on Indian Oil Corporation (IOCL), with a target price of INR 84, is premised on (1) recovery in domestic demand for petroleum products; (2) improvement in refining margins for FY23/24/25; and (3) gradual improvement in marketing margins over FY24-25.

Godrej Consumer Products Ltd. (NS: GOCP ): GCPL’s consolidated revenue grew 9% YoY, with domestic/international clocking 11/7% YoY growth (10/8% three-year CAGR). The India business continued to be led by a high share of price hike (8% YoY), with volume growth coming in at 3% YoY. Home care growth was at 10/3% YoY for Q3/9MFY23; the company is focusing on expanding the market through new launches/formats. Personal care growth was at 14/19% YoY during Q3/9MFY23 and the price hike in personal wash supported the growth. The company has seen share gains in personal wash & hygiene. Indonesia remained weak with revenues down by 3% cc YoY (green shoots of macro recovery). GUAM sustained strong 23% cc growth, backed by growth in Africa. GM recovery was strong at 48/328bps YoY/QoQ, with the India business margin improving by 250/580bps. Consolidated EBITDA margin was up by 16/440bps YoY/QoQ to 21%. EBITDA grew by 10% (positive after five quarters), better than our expectation of 7%. We continue to believe that revenue recovery will be gradual but margin recovery will be faster. We maintain our EPS estimates. We value the stock at 37x on Dec-24 EPS to derive a TP of INR 900. We maintain ADD.

Bharat Petroleum (NS: BPCL ) Corporation: Our BUY rating on Bharat Petroleum (BPCL), with a target price of INR 395, is premised on (1) recovery in domestic demand for petroleum products; (2) improvement in refining margins over the coming 18 months; and (3) gradual recovery in marketing margins. Q3FY23 EBITDA stood at INR 42bn, while APAT was at INR 20bn, came in above our estimates, supported by a better-than-expected performance from the marketing segment. Reported GRMs were at USD 15.9/bbl (+USD 6.2/bbl YoY, -USD 0.9/bbl QoQ).

SRF (NS: SRFL ): We retain our ADD rating on SRF, with a target price of INR 2,495 on the back of (1) the continued healthy performance of the specialty chemicals business; (2) a strong balance sheet; and (3) the deployment of capex for high-growth specialty chemicals business over the next 3-4 years to tap opportunities emerging from the agrochemical and pharma industries. EBITDA/APAT were 6/6% below our estimates, owing to a 13% fall in revenue, higher-than-expected other expenses, and finance costs, offset by lower-than-expected raw material costs and lower-than-expected tax outgo.

GAIL (NS: GAIL ): Our BUY recommendation on GAIL with a target price of INR 110 is based on expansion in gas transmission volume over FY22-25E to 129mmscmd on the back of (1) an increase in domestic gas production and (2) completion of major pipelines in eastern and southern India. Q3FY23 EBITDA/APAT, at INR 3/2bn, came in below our estimates, impacted by lower transmission and marketing volumes, weak petchem production, high-interest costs, and inventory loss of INR 11bn.

Indian Hotels (NS: IHTL ): IHCL’s Q3FY23 numbers beat expectations on all fronts, registering record earnings. Q3 revenue grew 58% YoY to INR16.9bn, led by increased occupancy (68%) and ARR (+30% vs Q3FY20) leading to strong RevPAR growth (+29% vs Q3FY20). The increase in ARR was driven by strong demand, aided by the ongoing wedding season, vacation travel, increased corporate & MICE-driven travel, and the G-20 presidency. IHCL group’s EBITDA margin increased 647 bps YoY to 35%, the highest for any quarter, led by a material dip in operating expenses and employee cost as a % of revenue. Management reiterated the strong growth momentum will continue, led by green shoots of recovery in international business, increase in leisure travel, and continued uptrend in wedding, corporate and MICE business, which will continue to benefit the company in the coming quarters. Given the strong demand in the industry and supply trailing the same, we expect IHCL to report strong numbers, going ahead. We maintain our ADD recommendation with an unchanged FY25 EV/EBITDA multiple of 22x and an INR-based TP of INR345/share.

ACC (NS: ACC ): We maintain BUY on ACC, with a TP of INR 2,630/share (13x its Mar-25E consolidated EBITDA), owing to its attractive valuation. ACC margin recovered INR 460/MT QoQ to INR 479 per MT due to realization recovery (INR 100 per MT) and opex cool-off (INR 360 per MT). The integrated plant at Ametha in MP is delayed by a year to Q2FY24. The upcoming expansion in the central market will boost its volume growth visibility from H2FY24 onwards. ACC is also increasing its green power/fuel mix to mitigate the impact of rising fuel costs.

Star Health and Allied Insurance (NS: STAU ): STARHEAL printed a soft NEP growth (+15% YoY, in line with estimates), impacted by the unwinding of the high claims-ratio group business. Loss ratios clocked a positive surprise at 63.7% (-445bps QoQ, -285bps vs. estimate), driving COR to 94.8%. With a 25% price hike in its flagship Family Health Optima (50% of the retail mix) and tighter underwriting and claims review process, we expect a structural improvement in loss ratios (~64-65% over the next three years). STARHEAL is the largest standalone health insurer (retail GDPI market share at 33% for 9MFY23), anchored on an extremely strong distribution network, retail-dominated business mix, and best-in-class opex ratios. We upgrade our earnings for FY23E/24E/25E to factor in better loss ratios. We expect STARHEAL to deliver revenue/APAT CAGRs of 21%/26% and RoEs in the range of 14.7-16.8% over FY23-FY25E and maintain a BUY with an unchanged target price of INR795 (DCF derived multiple at 44x Sep24E AEPS and 6.8x Sep24E P/ABV).

Max Financial Services Ltd (NS: MAXI ): MAXL posted a massive beat on VNB (+44% vs. estimate) at INR3.73bn (+50% YoY) despite a 5% YoY degrowth in total APE, driven by sharp improvement in VNB margins to 39.3% (+795bps QoQ). While we are reassured by the sharp uptick in the NPAR savings business mix at 56%, management expects this to mean-revert towards 40-45% levels. We flag any further dip in MAXL’s wallet share in the AXSB banca channel (Q3FY23: 70%) as a business concern. We tweak our estimates marginally for FY23E-24E to factor in higher margins offset by weak APE growth and expect APE/VNB CAGRs of 12/13% and operating RoEVs in the range of 20-21% over FY23-25E. We retain ADD with a TP of INR1,035 (Sep-24E EV + 12.7x Sep-23E VNB less 10% discount for growth uncertainties).

TTK Prestige (NS: TTKL ): TTK Prestige’s Q3FY23 revenue contracted by 9% YoY and the pressure is seen across all products. We were anticipating weak growth (3% YoY), owing to the shift in festive benefits in Q2, soft demand, and heavy base (robust FY22 and H1FY23). But deceleration was higher than expected; Q2+Q3 combined (to normalize change in the festive period) were down 4% YoY. Cookers/cookware/appliances revenues clocked -10/-14/-7% YoY growth while three-year CAGRs were +9/+8/+4%. GM saw marginal sequential improvement but was down 200bps YoY to 40%. Operating deleverage further impacted the EBITDA margin, which was down 550/200bps YoY/QoQ to 12% (the lowest in six quarters). EBITDA contracted by 38% YoY. TTK has enjoyed home improvement and a new housing theme, clocking 25% and 21% YoY growth in FY22 and H1FY23. We were expecting the deceleration in growth trajectory (rising competition, weak demand for the mid-economy segment, heavy base), a key reason for our downgrade earlier. We cut our FY23/24/25 EPS by 7/3/3% each. We value the stock on 32x Dec-24 EPS to derive a TP of INR 800. We maintain the REDUCE rating.

Orient Electric Ltd (NS: ONTE ): Orient Electric’s performance was a mixed bag—a miss on revenue but a beat in gross margin. The fan industry is undergoing a BEE rating change (implemented from 1 Jan 2023); hence, non-rated fans have seen pre-buying by channel partners. However, the pre-buying was slower than our estimate. ECD growth in Q3 for Orient was at 12% YoY (fans clocked 15%) as compared to Havells clocking 5% (no presence in the economy segment). However, ECD growth in 9MFY23 for Orient was 6%, as compared to Havells’ 16%. Fan rating change is resulting in a mid-single-digit realization increase (higher increase for Star-1 and Star-2); hence, fan growth should be healthy in FY24 (do not expect any meaningful impact on volume due to rating change). Lighting & switchgear was muted at 2% YoY growth. GM saw 100/200bps YoY/QoQ improvement to 28.6% (beat, lower discounting impact on slower pre-buying). Higher upfront expenses (employee hiring, distribution revamp, consultant fee, etc.) impacted the EBITDA margin, which contracted by >200bps YoY to 7.4%. These expenses are largely operational and will continue to impact the EBITDA margin, leading to a cut in our EPS by 6/3% for FY23/24. We value the stock on 30x Dec-24 EPS to arrive at a TP of INR 275. Maintain REDUCE.

Greenpanel Industries Ltd (NS: GREP ): We maintain our BUY rating on Greenpanel Industries, with an unchanged target price of INR 430/share (12/20x its Mar’25E consolidated EBITDA/APAT) We like Greenpanel for its leadership positioning in the high-growth MDF segment, superior margin, and working capital profile (most efficient among peers). Greenpanel’s MDF sales volume fell 2% YoY, amidst rising imports in India and weak demand in the US/Europe. The sharp fall in MDF exports realization, weakness in the ply segment, and forex loss led to consolidated revenue/EBITDA/APAT declining by 1/17/41% YoY. Even on a high base of FY22, we estimate that Greenpanel will deliver 11% MDF volume CAGR until FY25E, maintaining its industry lead.

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