Results Review for ITC, State Bank of India, Berger Paints, Tata Elxsi, Thermax

ITC: ITC’s Q4 print was largely in-line with Revenue/EBITDA/APAT growing by 7/19/20% vs. the expectation of 8/17/17%. Cigarette revenue/EBIT growth was at 14% each, with volume growth at c.11.5% (4% four-year CAGR). A stable tax environment, normalisation in demand, & deterrent action by agencies on illicit trade continue to support cigarette recovery. We model cigarette revenue growth of 7/6% for FY24/FY25. FMCG remained an outlier, with revenue clocking 19% YoY growth (Nestle/Britannia clocked 21/11%). FMCG EBITDA performance was even better, with the margin expanding by 430bps YoY to 13.3%, & EBITDA growing 2.1x YoY. Hotel performance remained strong while paper and agribusiness were muted. ITC continues to outperform other FMCG peers however, the recent stock run-up (~50% in LTM) limits further rerating potential. We maintain our estimates and value ITC on a SoTP basis to derive a TP of INR 395. The implied target P/E is 22x Mar-25E EPS. Maintain ADD.

State Bank of India (NS: SBI ): SBIN posted its highest-ever quarterly profit and a strong beat, led by healthy loan growth (+17% YoY), better fees and lower credit costs, having front-loaded its provisions during 9MFY23 on a prudent basis. Asset quality remains strong, with GNPA at 2.8% (-36bps QoQ) and the restructured pool registering a marginal improvement to 0.8%. Operating expenses flared up QoQ on account of wage revision and franchise-building initiatives, resulting in an elevated C/I ratio at ~55%. While a relatively low LDR (~73%) and a high stock of surplus SLR (INR4trn) offer comfort on incremental loan growth, management has guided for modest growth in deposits, backed by excess liquidity on the balance sheet. We tweak our FY24E/FY25E estimates to factor in stronger loan growth and lower credit costs, partly offset by higher opex maintain BUY with a revised SOTP-based target price of INR732 (core bank at 1.2x Mar-25 ABVPS).

Berger Paints (NS: BRGR ): BRGR delivered 11.7% growth YoY, marginally lower than expected (~14% YoY four-year CAGR: 13.5% INR24.4bn). Over FY19-23, Berger’s performance has lagged that of APNT (14.5% CAGR vs APNT’s 16.4% - standalone). Decorative business clocked 14.5% growth in Q4. Distribution expansion remains healthy (addition of 8k retail outlets/5.2k tinting machines in FY23). Benefits of moderating RM inflation aided margins in Q4 (GM/EBITDAM expanded 514/211bps QoQ to 39.8/15.1% vs HSIE: 37.7/15.1% resp). We maintained our FY25 EPS and our ADD rating with a DCF-based TP of INR640/sh (implying 40x Jun-25 P/E).

Tata Elxsi (NS: TTEX ): Tata Elxsi’s (TELX) Q4 print was lower on revenue, impacted by a deceleration in the Transportation vertical. We expect TELX’s growth trajectory in the mid-teens as compared to 34/24% delivered in FY22/23. While the differentiation of TELX’s business (design-led engineering services) remains intact, reflected in its industry-leading margins, its growth profile has moderated relative to peers. Growth visibility for TELX is based on (1) recent deal wins (Alps Alpine strategic deal in Transportation vertical), (2) recovery in Media & Communication and Healthcare verticals, supported by new logo addition, (3) traction in large accounts (T10 grew 5% QoQ), and (4) hiring outlook of ~2,200 (offshore-led) for FY24E. Margin is expected to be impacted by wage increase in Q1, ESOP expense (-50bps margin impact). TELX’s cash generation has been weak over the past two years despite the surge in profit (OCF/EBITDA at 51% in FY23 vs. >70% over FY20-22). TELX, at 52x FY24E and 44x FY25E, remains expensive and we maintain SELL with a TP of INR 5,535, based on 35x Mar-25E EPS.

Thermax (NS: THMX ): Thermax Ltd (TMX) reported revenue/EBITDA/PAT of INR 23/1.9/1.6bn, beating our estimates by 0.4/9/15%. EBITDA margin was a positive surprise at 8.7% vs. our estimate of 8%. This was on the back of stabilising raw material costs, a better supply chain and stable demand resulting in a gross margin of 44.8% (+693bps/+63bps YoY/QoQ). Also, the focus on products and services is bearing results in improving margins and stable revenue, reducing revenue volatility. The enquiry to order cycle in products is shorter and is seeing good strength. Order inflow for the quarter was stable sequentially at INR 22.5bn, with closing order book at INR 97.5bn (+11% YoY). Large orders from the steel and cement industry specifically are expected in Q3/Q4FY24. The export order pipeline is soft with growth driven by waste to energy, waste heat recovery and biomass-based projects. TMX stands to benefit from the investment in clean energy, sustainability, decarbonisation, normalisation of the international market and government impetus for cleaner air and water. We maintain ADD, with an unchanged TP of INR 2,433 (40x Mar-FY25E EPS).

Endurance Technologies: Endurance Q4 PAT grew 26% QoQ to INR 1.36bn on the back of recovery in Europe margin to 17.8% (+350bps QoQ) as well as improvement in India margin by 80bps QoQ to 11.9%. While Endurance standalone outperformed the domestic auto industry, its Europe business underperformed the Europe auto industry in Q4. Going ahead, domestic 2W OEMs continue to see weak demand in domestic and export markets and are likely to remain the key concern for Endurance. Further, while supply chain challenges seem to have eased out globally, the demand outlook remains weak in Europe, given the record high inflation and rising interest rates in the region. On the back of a gradual decline in input costs and a reduction in energy costs in Europe, we factor in consolidated margin improvement to 14% by FY25E (from 11.8% in FY23), which is still well below its previous peak of 16.3% in FY20. While we have factored in most of the key positives, the valuation at 29.6x FY24E earnings appears expensive. Reiterate REDUCE with a revised target of INR 1,426 (earlier INR 1,340), as we roll forward to FY25 EPS (unchanged target multiple of 25x).

V-MART Retail (NS: VMAR ): V-MART reported 29.5% growth YoY (INR 5.94 bn vs HSIE: INR 5.3bn). Organic business (ex-Unlimited/Limeroad acquisition) grew at 9% CAGR (4-year) in Q4FY23 (INR4.94bn 3-year CAGR: 8% HSIE: INR 4bn). Note: Unit economics remains weak but is improving at the margin (footfall density stood at 91% of pre-pandemic times). Profitability was weaker than expected (3.9% vs HSIE: 5.7%) due to a 5% price cut across the portfolio and an inferior product mix. Note: FY23 has a one-time expense towards Limeroad (INR120mn). We’ve marginally cut our FY24/25 EBITDA estimates to account for higher Limeroad expenses. Consequently, our TP is revised downwards to INR2,450/sh (earlier: INR2,500/sh implying 23x Jun-25 EV/EBITDA). Maintain BUY.

PSP Projects (NS: PSPP ): PSP Projects (PSP) reported yet another weak quarter, with revenue/EBITDA/APAT at INR 7.3/0.7/0.4bn, missing our estimates at all levels. PSP continues to disappoint with a slower-than-expected execution ramp-up in H2FY23. In FY23, it was awarded the highest-ever orders worth INR 32.2bn (excluding GST). FYTD24 order inflow (OI) stands at INR 7.6bn. With the Bhiwandi and Pandharpur projects being excluded from the OB, its entire OB of INR 50.5bn (~2.6x FY23 revenue) is under execution. The current bid pipeline stands at INR 60bn, of which 20% of orders are from Gujarat and 67% are private. The standalone gross/net debt stood at INR 1.5/0.5bn as of Mar’23. The revenue guidance for FY24 stands at INR 26bn, with a margin of 11-13% and an OI of ~INR 30bn. Given a robust OB and likely higher execution in H1FY24, we maintain our FY24/25 EPS estimates and TP at INR 788/sh (13x Mar-25E EPS). However, with limited upside to our TP, we continue with our ADD rating on the stock.

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