Results Review for Nestle India, SBI Life Insurance, Shree Cement, TVS Motors

  • Stock Market Analysis
  • Editors Pick

Nestle (NS: NEST ) India: Nestle reported a beat on revenue, while EBITDA margin was below our expectations. Domestic revenue growth was at 16% (+11% three-year CAGR), with volume growth of ~8%. Nestle continues to outperform the FMCG peers in volume terms, considering relatively less exposure to RM inflation. Growth was broad-based, with MAGGI Noodles, MILKMAID, NESCAFE and all key confectionaries outperforming. The company’s RURBAN strategy supported growth in the rural market too. Exports remained weak, up only 1% YoY. Gross margin was at 54% (-304bps/-142bps YoY/QoQ), lower than expected. Few commodities like edible oil and packaging material saw early signs of softening; however, fresh milk, fuel, grains, and green coffee costs are expected to remain elevated. EBITDA was up 1/6% YoY/three-year CAGR (HSIE +9% YoY). We remain positive on OOH products and sustain growth for in-home products. RM cost continues to be elevated, which poses a risk to the EBITDA margin in the near term. We cut our EPS estimates for CY22E by 3%, while we maintain them for CY23/CY24. We value Nestle at 52x P/E on Jun-24E EPS to derive a TP of INR 17,000. With a rich valuation, the absolute upside is limited in the medium term. Maintain REDUCE.

SBI Life Insurance Company Ltd (NS: SBIL ): SBILIFE reported an all-time high adj. VNB margin at 30.4% (+670bps) on the back of a multifold increase in NPAR savings mix to 29% (+22pps), driving adj. VNB higher 1.3x YoY to INR8.8bn (+62% vs. estimates). Total APE grew 31% ahead of estimates (3y CAGR at 15%), driven by better than industry growth trends in retail protection, at 63% YoY. The company's three growth levers stay in place: (1) SBI’s massive distribution network (24k+ branches); (2) healthy mix of protection and NPAR; and (3) lowest opex ratio among peers (FY22: 8.8%). We raise VNB estimates by 12/11% to factor in the beat on APE and VNB margins. We expect SBILIFE to deliver a healthy FY22-24E APE/VNB CAGR of 18/25% and retain BUY with an increased TP of INR1,660 (albeit lower multiple at 2.8x Mar-24E as we roll forward our earnings).

SBI Cards and Payment Services (NS: SBIC ): SBI (NS: SBI ) Cards reported a strong set of numbers, driven largely by a surge in spends (spends per card up 7% QoQ) and benign credit costs (net credit costs at 4% as COVID-related stress is largely over), leading to 7%/31% RoA/RoE. Business momentum continued to gain traction in terms of CIF (+19% YoY), unit spends (+54% YoY, 7% QoQ) and unit receivables (+14% YoY), driving stronger fees (+42% YoY). Share of revolving loans (26%) witnessed marginal uptick after the steep drop during COVID (38% to 25%), indicating portfolio re-leveraging, which in turn is likely to drive NIM reflation (13.2%). As per management, credit cards on UPI are likely to have a positive rub-off on the credit cards industry and SBI Card (~7% of CIF at RuPay network), although the operational guidelines are awaited. We tweak our FY23/FY24 earnings estimates by 1/2% to factor in better-than-expected traction in card spends, partially offset by lower-than-expected NIM reflation and maintain BUY with a revised target price of INR1,265 (38x FY24 EPS).

Shree Cements Ltd. (NS: SHCM ): We maintain our REDUCE rating on Shree Cement, with an unchanged SOTP target price of INR 20,200/share. In Q1FY23, the benefits of robust cement price increase in north/central regions (NSR up 10% QoQ) got negated by ~25% QoQ surge in energy costs and op-lev loss (vol down 7% QoQ). Unitary EBITDA fell 4% QoQ (down 27% YoY) to INR 1,091 per MT. The company expects energy inflation to continue in Q2 and expects some cool-off in Q3FY23. SRCM would be expanding its capacity to 56/80mn MT by FY25/30E (vs 46mn MT in FY22).

TVS Motor Company Ltd. (NS: TVSM ): TVS’ Q1 PAT, at INR 3.2bn, was ahead of our estimate of INR 2.4bn due to better-than-expected margin (flat QoQ at 10%), higher other income (INR 222mn vs INR 71mn in Q1), and lower tax rate of 25.8%. The fact that TVS has been able to maintain its margin at 10% in a difficult quarter highlights the underlying business resilience. In Q1, TVS has continued to outperform scooters and gained 330bps share to 24.9%. However, its 160bps market share loss in motorcycles is attributable to the chip shortage impact, which has hurt TVS (and BAL) more than peers in Q1. With supply issues now resolved, we expect TVS to continue its outperformance relative to peers on the back of its recent new launches, including Raider and Ronin. Even in EVs, it seems to be ahead of its listed peers with a strong product pipeline in place over the next 24 months and it has signed up with industry experts and JV partners to emerge a leading player in the industry. We maintain BUY with a revised TP of INR 1,030/sh (from INR 988 earlier) as we roll forward to June 24 earnings.

Jubilant Foodworks Ltd (NS: JUBI ): Jubilant revenue was a slight miss, but the EBITDA margin came in line. Revenue grew 10% on a three-year CAGR (HSIE 11%). Its like-for-like (LFL) growth stood at +28% YoY (HSIE +40%), while the three-year CAGR was a mere 3%. In our understanding, volume LFL three-year CAGR is down >2%. We believe that Q1 growth was primarily led by high store additions in the past few quarters. The company continued to expand, adding 58 stores for Domino’s (reaching 349 cities, vs 337 in Q4). We model for 200 store additions in FY23 (guidance is of 250) as slow economic conditions and top level transitions will limit expansion. The key highlight of the quarter was sustaining the margin despite several headwinds, and both GM and EBITDA margin came in line. With better cost control, we increase our FY23 EPS by 2%, while maintaining it for FY24/25. Our target price is INR 500 (INR 470 for Domino’s at 45x P/E on Jun-24E EPS + INR 30 for other initiatives). Maintain REDUCE.

Nippon Life India Asset Management Ltd (NS: NIPF ): Revenue was 3.8% below estimates as a result of pressure on revenue yields. Falling market share in the high-margin equity segment, at 6.2% (-17bps), was a double whammy in a falling equity yield environment. We expect NAM to focus on improving performance to recoup its lost market share. Additionally, we expect NAM to benefit from higher credibility to raise HNI/institutional capital. We lower our FY23E/24E earnings by 11%/ 5% to factor in lower margins and expect NAM to deliver FY22-24E revenue/NOPLAT CAGR of 9.3/12.1%. We maintain ADD on the stock with a reduced target price of INR365 (with a lower multiple at 27x Mar-24E EV/NOPLAT, following a derating in the AMC sector even as we roll forward our earnings).

TTK Prestige (NS: TTKL ): TTK Prestige’s Q1FY23 revenue and EBITDA margin was a miss. Standalone revenue was up 68% YoY (HSIE 77%), clocking 11% three-year CAGR. The revenue growth was primarily led by strong performance in cookware, which was up 18% three-year CAGR. Gross margin contracted 257bps YoY to 42% (HSIE 41.5%). With carrying high cost inventory, we expect RM softening benefits will be majorly visible from Q3FY22. EBITDA margin came in at 13.8% (HSIE 15%). EBITDA was up 13% on three-year CAGR to INR 830mn (HSIE INR 951mn). Although home improvement and new housing theme is expected to sustain, we believe rising competition (renewed Butterfly under Crompton, etc.) will continue to keep earnings for TTK in check. As the earnings upcycle seems to be over, we cut our target multiple to 35x (37x earlier). Further, we cut our FY23/24/25 EPS by 4% each. With limited upside, we downgrade our rating to REDUCE from ADD, with a revised TP of INR 940.

V Guard Industries Ltd (NS: VGUA ): V-Guard delivered a mixed bag performance, revenue growing by 80% YoY to INR 10bn (HSIE 9.3bn), while EBITDA margin saw a miss. Net revenue registered 13% three-year CAGR, driven by 16/25% for electricals/CD segments. Electronics segment was up only 2%. Summer season products (stabilizer and fans) saw strong demand, while channel inventory has normalised now. Both south and non-south delivered healthy revenue growth of 12/14% three-year CAGR. Gross margin, at 30% (in-line), was down >300bps YoY due to high cost RM. EBITDA margin was at 8.1% (HSIE 10.3%), the miss on account of continued marketing spend and higher employee costs. With impact of commodity price fluctuation on demand and margin, on top of V-Guard’s limited pricing power in the non-south region, we see a risk on V-Guard’s EBITDA delivery in the coming quarters. Thereby, we cut our target multiple to 30x (35x earlier). Further, we cut our FY23/24/25 EPS by 5/3/3%. With a limited upside, we downgrade our rating to REDUCE from ADD, with a revised TP of INR 235.

Mahindra Lifespace Developers Ltd. (NS: MALD ): Mahindra Lifespaces Developers Ltd (MLDL) reported the highest-ever quarterly presales of INR 6bn (+3x/+1.8x, YoY/QoQ), with volume of 0.65msf (+2.6x/+1.7x, YoY/QoQ) on the back of robust response to new launches that contributed 75% to presales. The IC&IC segment also saw strong performance, with 42acres leased in MWC Jaipur for INR 1.2bn(+8x/+1.7x YoY/QoQ). The EV and renewable industry is driving the demand here. MLDL has a strong BD pipeline of INR 50bn, with INR 10bn worth of projects in advanced stages of conclusion by Q2FY23. It is expecting the first society redevelopment project within this fiscal year. New launches for the remaining part of the year are expected at INR 12-15bn, with INR 5bn each from Kandivali and Pimpri lands. In Q1FY23, INR 2.4bn was paid for land acquisition, despite which the residential segment has net debt of INR 10mn. Residual land payment stands at INR 4bn. Given the tailwinds in industrial business, the upcycle in residential business, a robust balance sheet, trustworthy brand image, and a robust business development pipeline, we remain constructive on MLDL and maintain a BUY rating, with an unchanged NAV-based TP of INR 521/sh.

JK Lakshmi Cement (NS: JKLC ): We maintain our BUY rating on JK Lakshmi Cement (JKLC) with an unchanged target price of INR 680/share (8x Mar-24E consolidated EBITDA). We hold on to our thesis: its current low gearing and healthy cash flow would support its planned Udaipur expansion, without stressing its balance sheet and keeping the ROE buoyant. In Q1FY23, while the company witnessed robust pricing QoQ, the same proved insufficient to pass on the soaring fuel price increase and unitary EBITDA cooled off to INR 847 per MT (-14% QoQ). Net debt on books remained flattish QoQ, even as its Udaipur plant expansion has gained pace (due for commissioning in FY24 end). Mr Arun Shukla has been inducted to the board of directors and elevated to CEO of the company after the retirement of Mr Sushil Wali and Mr Shailesh Chouksey w.e.f. Aug-22.

Click on the PDF to read the full report:

Drop an image here or Supported formats: *.jpg, *.png, *.gif up to 5mb

Error: File type not supported

Drop an image here or


Related Articles