ITC Ltd (NS:ITC)
ITC’s Q1 print was operationally in line, with EBITDA/APAT growing by 11/18% vs. the expectation of 11/16%. Cigarette net revenue/EBIT growth was at 11% each, with volume growth at c.8% (4% four-year CAGR). The relative stability in taxes backed by deterrent action by agencies on illicit trade continued to support cigarette recovery. We model cigarette revenue growth of 6-7% for FY24-FY26. FMCG continued to post resilient performance with revenue clocking 16% YoY growth (Nestle/Britannia clocked 15/9%).
FMCG EBITDA margin expanded by 325bps YoY to 11% while EBITDA grew 2.1x YoY. A high base of Paper and Agribusiness (-6/-24% YoY) impacted overall reported growth. Hotel demerger is set to be completed in 15 months with ITC shareholder set to receive 1 share of ITC hotels for every 10 shares of ITC. The core business performance remains healthy, outperforming other FMCG peers. The recent stock run-up (~44% in LTM) limits further rerating potential. We maintain our estimates and value ITC on a SoTP basis to derive a TP of INR 450. The implied target P/E is 24x Jun-25E EPS. Maintain ADD.
ONGC (NS:ONGC)
We maintain our ADD rating on ONGC with a target price of INR 190, based on oil and gas production growth at 5/7% CAGR over FY23-25E, attractive valuation of 4.1x Sep-24 EPS, a ~20% discount to 5-year average P/E of 5.2x, 0.7x Sep-24 P/Bv with RoE of ~17%, and a dividend yield of ~6%. However, this is offset by limited earnings potential, owing to the levy of a windfall tax on crude oil prices and a decline in the price of domestically produced APM gas.
Q1FY24 reported EBITDA stood at INR 195bn, coming in above our estimate, owing to lower-than-expected employee costs and statutory levies. Reported PAT at INR 100bn (-34% YoY) came in above our estimate, also supported by higher other income. Total crude oil and gas production and sales came marginally below estimates.
Crompton Consumer (NS:CROP)
Crompton’s Q1FY24 print was a mixed bag with ECD revenues surpassing expectations but disappointing on margins. Overall EBITDA was in line at INR 1.9bn (HSIE: INR 1.9bn). ECD revenue grew 6% YoY (TTM for Crompton was up 1% YoY vs. flat for Havells and -5% for Orient, which continues to see the impact of the BEE rating change). Within ECD, appliances clocked 19% growth, followed by fans at 5% (premium fans grew 22%) while pumps were flat. ECD margins fell 425bps to 12.7% (16.4% in Q4), given (1) higher A&P spends (150bps) (2) GM pressure in fans due to rating change and delayed price hike (150bps) and (3) built-in kitchen loss which is in investment phase (50bps).
Crompton 2.0 is focusing on accelerating revenue with an increase in branding, distribution and R&D expenses. These costs are upfront in nature, thereby impacting the operating margin. We believe revenue acceleration will be visible gradually but in the interim cost increase may impact margin in the near term. In our opinion, if management executes this strategy well, then investors’ confidence in the valuation multiple will improve. We marginally cut our EPS for FY24/25 and value the stock at 35x on Jun‘25E EPS to derive a TP of INR 400. Maintain BUY.
TTK Prestige (NS:TTKL)
TTK Prestige’s Q1FY24 revenue was in line with our estimates falling by 8% YoY however, it disappointed on EBITDA/PAT, which fell 22/12% YoY. Domestic revenue (down 8%) and exports (down 12%) continued to remain weak on (1) demand softness due to an inflationary environment (2) consumer wallet share moving away from kitchen appliances (3) a high base of LY (4) pricing-led competitive intensity and (5) weak global macroeconomic environment.
Gross margin expanded by 110bps YoY to 43%, while EBITDAM fell 210bps YoY to 11.8% (HSIE 13.5%) on negative oplev. With no near-term trigger in sight and a high base, we expect near-term demand to remain soft. We expect positive revenue growth only from Q3 onwards. We maintain our estimates and value the stock on 30x Jun-25 EPS to derive a TP of INR 725. Maintain REDUCE.
Galaxy Surfactants Limited (NS:GALX)
Our BUY recommendation on GALSURF with a price target of INR 3,496 is premised on (1) the stickiness of business, as over 50% of the revenue mix comes from MNCs and (2) the ability to pass on fluctuations in raw material costs to its customers. Q1 EBITDA/APAT were 4/10% lower than our estimates, mainly owing to a 12% fall in revenue, offset by lower-than-expected raw material costs and operating expenses.