Results Review For New India Assurance, JK Cement, Kajaria Ceramics

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By Krishnan ASV

New India Assurance Company Ltd (NS: THEE ): While NEP grew 13.7/4.0% YoY/QoQ (+1.5 vs. est.), higher-than-estimated loss ratios (+862bps vs. estimates) dragged underwriting profitability. We note that the company’s competitive positioning is weakening and remain concerned about its ability to write profitable business. We have changed our estimates to build in higher loss ratios (as the economy further opens up) and slightly higher float income (given the buoyancy in equity markets). We estimate an FY23E adj. RoE of just 8.2% and can at best assign a valuation of just 0.6x Mar-23E ABV (less 10% discount for additional 10.4% supply). While we rate NIACL a SELL with a TP of INR 110, privatisation seems to be the only end game for the turnaround of this franchise.

J.K. Cement Ltd (NS: JKCE ): JK Cement (JKCE) delivered strong volume growth across both grey (+48% YoY) and white & putty (+24%) segments, aided by healthy demand and low base effect. Thus, despite fuel cost pressure, segmental EBITDAs (grey/white & putty) firmed up 37/40% YoY respectively in 4Q. Ahead of its major expansion in the central region, JKCE’s net debt/EBITDA has cooled off to 1.2x, suggesting that the balance sheet would remain under check. We expect JKCE’s robust show across both businesses to continue. We maintain a BUY rating on the stock with an unchanged TP of INR 3,070/share (11.5x Mar’23E consolidated EBITDA).

Kajaria Ceramics (NS: KAJR ): Kajaria Ceramics (KJC) reported good performance in Q4FY21 as its consolidated net sales/EBITDA/APAT rose 14/5/7% QoQ (46/105/156% YoY) to INR 9.53/1.91/1.27bn respectively. It reported QoQ volume/revenue growth across all three business segments – tiles, bathware, and plywood. Strong cost controls and price hikes moderated the impact of the surge in gas, copper and packing costs, leading to a strong 20% EBITDAM. KJC remains upbeat on demand prospects and has announced an 18% tiles capacity increase (to come into effect by the end of FY22E) to ride the domestic growth. The company will continue to ramp up its bathware and plywood revenues. We continue to like KJC for its leadership in tiles and robust growth and margin outlook. We maintain our BUY rating and a revised TP of INR 1,104/share (19x its consolidated Mar’23E EBITDA).

Capacite Infraprojects Ltd (NS: CAPE ): Capacite Infraprojects Ltd. (CIL) missed our revenue/EBITDA/APAT estimates by 5/4/7% as lockdown following the second wave of the pandemic affected execution during Mar-21. Labour availability, which had fallen by 40% in May, is expected to normalise by the end of June-21. Management has guided for INR 20bn of topline/order inflow for FY22. CIL could also expand into the international market if the client fits in its quality framework. Given that a large part of the order book of INR 87bn has raw material inflation pass-through, margins are expected to remain resilient at 16.5%, despite the sharp rise in commodity prices. With execution ramping up and the share of government orders increasing, CIL is well placed for a rerating. We cut our FY22E/23E est. by 33/6% to account for the impact of the second wave and maintain BUY with a reduced target price of INR 300/sh (vs INR 320/sh earlier).

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