Results Review for L & T, SRF, Apollo Tyres, Kansai Nerolac, Nuvoco Vistas Corp

Larsen & Toubro: Larsen & Toubro (LT) reported Q4FY23 revenue/EBITDA/APAT at INR 583.4/68.3/39.9bn, in line/(missing) with our estimates by 0.1/(8.4)/(7.5)% respectively. EBITDA margin: 11.7% (-65/+78bps YoY/QoQ) vs. our estimate of 12.8%. The margin was impacted largely by higher input prices in projects and manufacturing portfolios. The Hyderabad metro saw ridership improving to 408k per day from 394k per day in Q3FY23. The consolidated net D/E stood at 0.81x as of Mar’23, similar to the Dec’22 level. The FY23 NWC to sales ratio (ex-off financial services business) was at a five-year low level of 16.1%. Given: (1) the record-high order book (OB) of INR 4tn and order inflows (OI) of INR 2.3tn (2) bottoming out of infra margins (3) improvement in subsidiary performance (4) improvement in net working capital levels and (5) pick-up in private and public capex in coming years, we have increased the standalone multiple to 24x, from 23x. We maintain a BUY on the stock with an increased TP of INR 2,724/sh (24x core Mar-25 EPS).

SRF (NS: SRFL ): We retain our ADD rating on SRF, with a target price of INR 2,788 on the back of (1) continued healthy performance from the speciality chemicals business (2) strong balance sheet and (3) deployment of capex for high-growth speciality chemicals business over the next 3-4 years to tap opportunities emerging from the agrochemical and pharma industries. Q4 EBITDA/APAT were in line with our estimates.

Apollo Tyres (NS: APLO ): Apollo Tyres’ consolidated earnings, at INR 4.1 bn, beat our estimate of INR 3.3bn, led by better-than-expected performance, both in India and Europe. In India, Apollo continues to work on profitable growth that has seen it raise prices ahead of the industry. Its focus on profitable growth is also visible in the fact that Apollo has let go of some market share in the PCR segment to maintain pricing. As a result, its operating performance has been well ahead of its Indian peers. In Europe, it continues to increase its share of UHP tyres whose mix now stands at 43% and it also continues to outperform the PCR segment, in a difficult demand environment. Going ahead, in India, management expects to post high single to low double-digit revenue growth, largely volume led. Pricing discipline is likely to sustain as no new major capacity is expected to come on stream in the near term and input costs remain low. Also, while the demand outlook in Europe remains challenging, management is confident of maintaining its operating performance, given benign input costs. Further, management expects to hit the mid-term RoCE target of 15% in FY24 itself, provided operating conditions remain favourable. Reiterate ADD with a revised TP of INR394/sh (from INR 349 earlier) as we roll forward to FY25 EPS.

Kansai Nerolac: Kansai Nerolac’s (KNPL) standalone revenue grew 13.6% to INR 16.1bn (four-year CAGR: 9% HSIE: INR16.2bn). The industrial segment continues to drive performance, backed by strong automotive demand. KNPL’s decorative market share is estimated at 9-10% it has lost its share in the past three years. Management intends to fix this by filling up white spaces in the portfolio via its new premium product (paint + range). GM expanded 359/136bps YoY/QoQ to 31.6% as (1) previous price hikes caught up with RM inflation (esp on the industrial side) (2) there is rising salience of premium products in the mix and (3) input costs are moderating. Despite the sequential GM improvement, EBITDAM declined 148bps as management flexed the marketing lever to gain lost ground in the decorative segment (EBITDAM: 9.5% vs HSIE: 9.7%). We reduce FY24/25 EPS estimates by 3.3/4.1% to account for higher marketing spending needed to fend off competition and regain market share in decorative. Maintain our BUY rating with an unchanged DCF-based TP of INR500/sh (implying 32x Jun-25 P/E).

Nuvoco Vistas (NS: NUVO ) Corporation: We maintain BUY on Nuvoco Vistas, with a lower TP of INR 475/share (10x its consolidated Mar-25E EBITDA). In Q4FY23, Nuvoco’s sales volume recovered 16% QoQ but NSR fell 2% QoQ. However, as cement opex too decreased by 5% QoQ (cool-off in fuel cost and op-lev gain), unitary EBITDA recovered by INR 130 per MT QoQ to INR 750 per MT. Nuvoco reduced its debt on books in FY23 and remains committed to reducing gearing before taking up the south expansion.

Mahanagar Gas (NS: MGAS ): Our ADD recommendation on Mahanagar Gas (MGL) with a target price of INR 1,170 is premised on (1) lower volume growth compared to peers and (2) long-term volume growth visibility remaining low since no new geographical areas (GA) were won in the 9/10/11th round of CGD bids. However, their recent acquisition of Unison Enviro’s (UEPL) three GAs remains a key monitorable. Q4FY23 EBITDA, at INR 3.9bn, and APAT, at INR 2.7bn, came well above our estimates, owing to higher-than-expected realisation and lower opex. Volumes came broadly in line.

Birla Corporation (NS: BRLC ): We maintain our BUY rating on Birla Corporation (BCORP), with an unchanged target price of INR 1,310/share (8.5x Mar-25E consolidated EBITDA). We continue to like BCORP for its large retail presence in the lucrative north/central regions. We expect a recovery in margins as Mukutban ramps up and it starts accruing its incentive benefit from H2FY24 onwards. Unitary EBITDA improved by INR 235 per MT QoQ in Q4FY23 to INR 600 per MT, aided by higher volume, Mukutban loss reduction, and better realisation. With no major near-term Capex, gearing should reduce from FY24 onwards.

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