Results Review for L&T, DLF, BPCL, AU Small Fin Bank, Petronet LNG, Navin Fluorine

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Larsen & Toubro: Larsen & Toubro (LT) reported yet another strong quarter, with revenue/EBITDA/APAT at INR 510.2/56.3/32.2bn, a beat of (0.2)/4.3/13.3%. This was led by robust execution owing to a strong order backlog at the beginning of the year. The consolidated net D/E stood at 0.77x as of Sep’23 vs. 0.58x as of Jun’23. The H1FY24 NWC to TTM sales ratio (ex-off financial services business) stands at 16.7% (-310bps YoY). Whilst prospects pipeline and H1FY24 performance warranted guidance upgrade, given uncertain geopolitical issues and the upcoming Indian election, LT has kept guidance open-ended with a positive bias of surpassing the same. Given: (1) the record-high order book (OB) of INR 4.5trn, (2) bottoming out of infra margins, (3) improvement in subsidiary performance, and (4) higher public capex towards a green economy, we maintain our BUY stance on the stock with an unchanged SOTP based target price of INR 3,613/sh (standalone P/E multiple of 26x on Sep-25E EPS). DLF (NS: DLF ): DLF recorded in-line presales of INR 22.4bn (+8.6%/+9.2% YoY/QoQ), with sustenance sales at 84%. For FY24, it reiterated guidance of INR 120-130bn in total presales, backed by 11.2msf of launches with a sales potential of INR 197bn. Of this, 5msf will be in the luxury segment, with 3.5msf in DLF Phase V and 1.5msf in Chennai. Collections stood at INR 22.8bn (+98%/+55% YoY/QoQ) as a result of which DLF achieved net cash status at INR 1.4bn (vs INR 570mn net debt in Q1FY24). Collection is expected to accelerate in H2FY24 and DLF has guided for INR 64-65bn of collection in FY24. The cash position remains strong at INR 32bn, earmarked for growth, dividend payout and debt reduction. We have recalibrated our residential/land pricing assumption for the NCR market higher by 10-15% for DLF. With DLF Phase V now touching the INR 1 lakh/sqft mark, 4x the initial launch prices, there are upside risks to our pricing assumption. Also, given (1) the strong presales momentum supported by price hikes, (2) robust launch plans, and (3) an expected increase in office occupancy levels, we maintain BUY on DLF, with an increased TP of INR 650/share.

Bharat Petroleum (NS: BPCL ) Corporation: Our BUY rating on Bharat Petroleum (BPCL), with a target price of INR 470, is premised on robust refining margins, a sharp recovery in auto-fuel gross marketing margins, and the reduction in LPG under-recoveries. Q2FY24 EBITDA stood at INR 129bn, while APAT was at INR 85bn, coming in above our estimates, supported by stronger-than-expected performance from the refining segment. Earnings were also supported by higher inventory gains. Reported GRMs came in at USD 18.5/bbl (+USD 1.7/bbl YoY, +USD 5.9/bbl QoQ, HSIE: USD 17.7/bbl).

AU Small Finance Bank (NS: AUFI ): In a strategic move and a first of its kind, AUBANK announced a merger with Fincare SFB, ostensibly for its MFI loan book (product gap) and strong presence in south India (regional gap). We opine that the proposed merger is premature for a relatively young franchise that is just beginning to set its own guardrails. In Q2FY24, AUBANK marginally beat estimates, benefitting from a limited rise in funding costs and healthy non-interest income, partly offset by normalised credit costs (60bps annualized). The sequential loan growth moderated (+2% QoQ), while deposits clocked +9% QoQ growth, led by traction in current accounts, reflecting in a 20bps QoQ NIM compression at 5.5% as the loan mix incrementally moved towards secured low-yielding products, concomitant with sustained repricing of liabilities. We opine that the relatively unfamiliar nature of the MFI book poses a downside risk to credit costs. We tweak our FY24E/FY25E estimates (unadjusted) to factor in higher opex and credit costs, and maintain REDUCE, with a revised TP of INR550 (2.9x Mar-25 ABVPS).

Petronet LNG (NS: PLNG ): Our REDUCE recommendation on Petronet LNG (PLNG) with a TP of INR 208 is based on: (1) limited near-term earnings growth visibility, (2) increased capex outlook, and (3) subdued return ratios due to a high capex cycle for the next five years. In Q2, reported EBITDA was at INR 12.2bn (+4% YoY, +3% QoQ) while PAT came in at INR 8.2bn (+10% YoY, +4% QoQ), marginally below our estimates. Volume was up 16% YoY, at 223tbtu, coming in above our estimate, but declined 3% QoQ, owing to a decline in regas volumes in Q2.

Navin Fluorine International: We retain a BUY on Navin Fluorine International Ltd (NFIL), with a target price of INR 4,616 on the back of (1) earnings visibility, given long-term contracts, (2) tilt in sales mix towards high-margin high-value business, (3) capacity expansion led growth, and (4) strong R&D infrastructure. EBITDA/APAT were 33/31% below our estimates, owing to a 21% fall in revenue, higher-than-anticipated depreciation, and higher-than-expected interest cost, offset by lower-than-expected raw material cost.

Birlasoft (NS: BIRS ): Birlasoft (BSOFT) delivered strong Q2 performance, both on revenue (matching Persistent Systems’ sequential growth) and margins. We believe that BSOFT’s return potential is a combination of earnings growth trajectory (accelerating) and multiple rerating, supported by resilience and scalability of service portfolio, strong relative positioning, and recent leadership refresh (Birlasoft – the next large mid-tier). Q2 performance was marked by manufacturing/BFSI verticals-led growth, large client mining (T10 grew ~2x of company average), strong deal velocity including USD 100mn+ large deal, and margin improvement despite wage hike impact. While growth acceleration and deal velocity are supported by changes in incentive structure and latent demand in ERP services (S/4 HANA transition), the margin upside is premised on improving business mix (BFSI traction), streamlining delivery organization (leadership induction from tier-1) and sub-contracting optimisation. We maintain our BUY recommendation on BSOFT with an upgraded TP of INR 650, based on 23x Sep-25E EPS, supported by 23% EPS CAGR over FY23-26E and RoCE >22%.

Aether Industries (NS: AETH ): We retain our BUY rating on Aether Industries, with a target price of INR 1,200, on the back of (1) capacity expansion-led growth, (2) advanced R&D capabilities, (3) technocratic management, (4) market-leading position in most of its products, (5) strong product pipeline, and (6) marquee customer base. EBITDA/APAT were 14/19% above our estimates, mainly owing to lower-than-expected raw material costs and higher-than-expected other income.

Mahanagar Gas (NS: MGAS ): Our BUY recommendation on Mahanagar Gas (MGL) with a target price of INR 1,240 is premised on (1) attractive valuation, (2) improvement in volume growth due to the acquisition of Unison Enviro’s (UEPL) three geographical areas, and (3) decline in input gas cost. Q2FY24 EBITDA, at INR 4.8bn, and APAT, at INR 3.4bn, came well above our estimates, owing to higher-than-expected per unit EBITDA margins and volume.

DCB Bank (NS: DCBA ): DCB Bank (DCBB) earnings were in line with estimates on the back of healthy loan growth (+19% YoY) and range-bound credit costs, partly offset by a 14bps QoQ moderation in NIMs (3.7%). Slippages were elevated at 4.6% (Q1FY24: 4.2%) resulting in GNPA levels inching up to 3.4%. A sharp dip in the CASA ratio to 25% (-93bps QoQ), was offset by build-up in term deposits, driving a strong deposit growth (+23% YoY). DCBB continues to beef up investments in its franchise-building activities with an intent to double its balance sheet in the next 3-4 years. However, given that deposit re-pricing is likely to sustain for a few more quarters, concomitant with concerns around asset quality, we expect limited levers to near-term ROA reflation. We tweak our FY24/25 earnings to factor in elevated opex and higher funding costs as a result of higher deposit mobilization, maintain ADD with revised TP of INR140 (0.9x Mar-25 ABVPS).

J. Kumar Infraprojects: JKIL reported yet another operationally strong quarter, with revenue/EBITDA/APAT at 11/1.6/0.7bn, beating our estimates by 2.9/3.5/7.0%. In FYTD24, it won projects worth INR 71.9bn vs. a revised FY24 inflow guidance of INR 80bn+. The order book as of Sep’23 stood at INR 164.5bn (~3.9x FY23 revenue, ex. L1 of INR 16.4bn). Gross debt stood at INR 6.4bn as of Sep’23 vs. INR 5.1bn as of Jun’23, leading to a gross/net D/E of 0.26/0.04x. JKIL maintained its FY24 revenue growth guidance of 15% YoY with an EBITDA margin of 14-15%. Capex incurred in H1FY24 stands at INR 620mn. Excluding the Chennai elevated corridor project, the FY24 capex guidance stands at INR 1.5bn. With ~71% utilization of non-fund-based limits and 45% utilization of fund-based limits, the company is well-placed to incur capex with a mix of debt and internal accruals. Further, it guided for FY24-end debt levels of INR 6.5bn and NWC days at 120. Given the limited upside on our TP, we maintain our ADD rating on the stock, with an unchanged TP of INR 446/sh (9x Sep-25E EPS).

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