Results Review for IOC, SBI Cards, Route Mobile, Sagar Cements

Indian Oil Corporation (NS: IOC )

Our ADD rating on Indian Oil Corporation (IOCL), with a target price of INR 102, is premised on robust refining and marketing margins, offset by muted petchem earnings and elevated debt. IOCL reported EBITDA at INR 222bn (+13x YoY, +44% QoQ), while APAT came in at INR 138bn, above our estimate. The beat was largely driven by the better-than-expected performance from the marketing segment. Reported GRMs stood at USD 8.3/bbl (-74% YoY, -45% QoQ, HSIE: USD 7.6/bbl). Petchem segment weakness continues.

SBI Cards and Payment Services (NS: SBIC )

SBI (NS: SBI ) Cards’ (SBICARD) earnings were again marred by higher-than-expected provisions, while other key metrics exhibited healthy performance. The mix of revolving loans (~24%) seems to have bottomed out, with installment (EMI) loans supporting NIMs (11.5%) despite a rise in funding costs. Business momentum was healthy in terms of new card acquisitions (+22% YoY) as well as retail per-card spending (+7% YoY).

Asset quality deteriorated further with credit costs at 6.8%, largely stemming from the CY19 cohort (~16% of receivables), further delaying the path to steady-state credit costs. SBICARD continues to diversify its customer (self-employed) and geographic (Tier III/IV cities) profile and is searching for the right balance of risk-reward. We trim our FY24/FY25 earnings estimates to factor in higher credit costs and maintain BUY with a revised RI-based TP of INR 955 (implying 25x FY25 EPS). We are bullish on the overall credit card space and SBICARD’s ability to deliver superior profitability (5%+ RoA, 25%+ RoE).

Star Health and Allied Insurance (NS: STAU )

STARHEAL delivered seasonally-adjusted in-line NEP growth (+13% YoY), as the company continued shedding group business, loss ratios clocked in at 65% (Q1FY23: 66.3%), driving a 40bps YoY recovery in the combined ratio to 97.8%. While FY23 witnessed soft NEP growth (+15% YoY), we expect STARHEAL to deliver a rebound in growth (~22% CAGR over FY23-25E) and stable loss ratios, supported by a price hike in its flagship product and tighter underwriting and claims review process.

As the largest standalone health insurer (Q1FY24 retail GDPI market share at 32%), our thesis on STARHEAL is anchored on the largest agency-led distribution network, retail-dominated business mix, and best-in-class opex ratios. We build revenue/APAT CAGRs of 22/41% over FY23-25E and RoEs in the range of 17/18% for FY24E/25E and maintain BUY with a TP of INR795 (DCF derived multiple at 38x Mar-25E P/E and 6x Mar-25E P/ABV). Our implied P/E multiple for STARHEAL is at a ~20% premium to ICICIGI, also reflecting our relative optimism on STARHEAL’s core business.

Route Mobile (NS: ROUT )

Route reported a weak quarter with lower-than-expected revenue and margin performance. The revenue decline of 4.1% QoQ was impacted by seasonality and revenue loss due to consolidation in the industry (acquisition of ValueFirst and Kaleyra), offset by the ILD rate hike. The billable transactions increased 7.7% QoQ while realizations were down 10.9% QoQ due to a rise in NLD volume in the mix.

There is a change in guard in Route mobile- Proximus group will be the new promoter and Route’s ex-promoter will be the CEO of the combined entity’s (Route + Telesign) CPaaS business. The proposed change will help Route to expand its international presence and become the third-largest CPaaS player globally. The rate hike in the ILD segment, volume growth in NLD and rate hike, new client additions, and launch of new products like TruSense (identity and fraud detection) will aid growth for FY24E.

We believe Route will be able to deliver ~20% organic growth in FY24E, following a strong FY23 (organic growth of 41%), led by tailwinds in the domestic termination business and expansion of international operations. We reduce our EPS estimate by 5/2% for FY24/25E due to 1Q miss and maintain our BUY rating with a TP of INR 1,725, based on 22x June-25E EPS. The stock is trading at 24/20x FY24/25E EPS (below its 1Y average).

Home First Finance Company (NS: HOME )

Home First Finance (HOMEFIRST) reported a strong performance on the back of healthy YoY disbursals/AUM growth (~35%/33%). It continued its calibrated product diversification strategy (share of non-housing loans up 300bps YoY at 13%) and customer diversification strategy (mix of self-employed up 270bps YoY at 30.7%) to drive growth and margins. Core spreads inched up 17bps sequentially to 5.67%, driven by a higher mix of NHB borrowings, while the management reiterated its spread guidance at 5.25% due to elevated interest rates and no further rate hikes to the customers.

Asset quality witnessed marginal deterioration along expected lines in a seasonally weak quarter, with 1+ dpd steady at 4.3%. HOMEFIRST is looking to add 20 branches during FY24 (~18% addition to stock) to sustain 30%+ AUM growth, even as other sourcing channels continue to augment growth. While it continues to deliver superior profitability, current valuations provide limited upside. We tweak our FY24/FY25 estimates by 3% each for higher-than-expected growth and maintain ADD with a revised TP of INR890 (implying 3.4x Mar-25 ABVPS).

Greenpanel Industries Ltd (NS: GREP )

We maintain our BUY rating with an unchanged target price of INR 420/share (12/20x its Mar’25E consolidated EBITDA/APAT). We like Greenpanel for its leadership positioning in the MDF segment, high value-added share, large retail presence (85% in FY23), healthy margin, and working capital profile. Greenpanel’s consolidated revenue/EBITDA fell 13/14% QoQ in Q1FY24 as MDF volume and margin declined.

MDF volume declined 7/16% YoY/QoQ (in line with estimate) mainly due to a 19-day shutdown in the north plant and a decrease in export. Rising timber prices, higher advertisement and logistics costs, and op-lev loss drove down MDF EBITDA by 18% QoQ. The EBITDA margin for the MDF segment was 20.4% (down 150bps QoQ).

Sagar Cements (NS: SGRC )

We maintain our ADD stance on Sagar Cements (SGC), with an unchanged TP of INR 215/share (7.5x its Mar-25E consolidated EBITDA). In Q1FY24, Sagar delivered weak volumes – a decline of 1/13% YoY/QoQ owing to maintenance shutdown at the Mattampally plant. NSR was flattish QoQ in Q1. Opex increased 1% QoQ owing to op-lev loss and higher freight cost. Thus, unit EBITDA further fell ~INR 40/MT QoQ to INR 258 per MT (halved YoY) in Q1.