Results Review For NTPC, DLF, InterGlobe Aviation, Tata Power, GAIL (India)

By Anuj Upadhyay

NTPC (NS:NTPC): Generation/sales increased 10.5%/10.2% YoY to 74.8bn/69.3bn units in Q2FY22 due to demand recovery. Coal PAF, however, declined in Q2 to 85% vs 92% YoY, but coal PLF was up at 70% vs 64% YoY. Under-recovery came in at INR2.5bn while surcharge income declined to INR1.6bn vs INR6.6bn YoY. Consequently, after adjusting for one-offs, adj PAT declined 15% YoY to INR33.5bn, below our estimate. Overdue reduced to INR60.5bn vs INR90bn QoQ. NTPC plans to add 15GW of RES capacity by FY24 and another 45GW by FY32. We maintain our earnings estimates and expect its RoE to expand from 13.2% in FY21 to 13.7% in FY23 and generate an FCF of INR175bn over FY22-23E. Management plans to monetise its trading arm and renewable business, which will enhance the value proposition for stakeholders. We maintain BUY with a revised TP of INR 160/share (from INR143), assigning 1.5x BV to its equity investment in 8GW of upcoming solar capacities (~2GW to be operational and 6GW under construction), fetching an incremental value of INR12/share. The stock is trading at a discount to its peers with FY23 consolidated P/BV at 0.8x and PE at 7x.

DLF (NS:DLF): DLF surprised positively with presales at INR 15bn (+1.05x/+48% YoY/QoQ) on the back of record sales in Camellias (INR 10.4bn). While office collection remains robust at 100%, occupancy at DCCDL was flat at 86%. With FYTD presales of INR 25bn, DLF is well on course to surpass FY22 INR 40bn guidance, aided by 7.7msf launches in H2FY22 and traction in premium and luxury segments. Net debt continues to trend down (INR 40bn vs INR 47bn in Jun-21). Given the fact that (1) DLF is reviving office Capex plans, (2) it is taking price hikes in the premium segment, (3) there is the stabilisation of office vacancy, and (4) the company has robust launch plans, we maintain BUY, with an increased TP of INR 460/sh (roll forward to Sep-23E) to factor in demand recovery (office and residential) and better property price realisation.

Interglobe Aviation Ltd (NS:INGL): IndiGo reported a positive EBITDAR of INR 2.5bn in Q2 (vs loss of INR 14.2bn QoQ) as the industry traffic is improving post the second COVID wave. However, we believe that Indigo will witness formidable competition after a decade, post-Tata’s acquisition of Air India. With a combined domestic market share of 26% and an international share of ~18%, Tata will be able to make a broad-based offering as compared to the past – though it will take the group 12-24 months to consolidate operations. We set a revised TP of INR 1,925 at Indigo as we roll forward our TP timeframe to Sep-23E earnings. We value the stock at 7.5X EV/EBITDAR (vs. 7x earlier) to factor in the recovery in air traffic.

Tata Power Co. Ltd (NS:TTPW): Tata Power reported an 18% YoY rise in consolidated revenue to INR98.1bn in Q2FY22, led by improvement across the standalone business and strong execution in the solar EPC segment. EBITDA, however, declined 17% YoY due to a steep rise in Mundra under-recovery and higher raw material cost. The margin was impacted by ~718 bps YoY due to a rise in module prices and Mundra losses. However, lower interest expenses from deleveraging, higher shares from JV companies, and lower tax expenses led to APAT rising 36% YoY to INR5.1bn. We revise our earnings estimates upwards for FY22/FY23 by 5%/8% to factor in the 1.5GW p.a. solar capacity addition across its renewable portfolio, increased profit at Bumi mines, and earnings adjustment at Mundra (low PLF, going ahead). Accordingly, we revise our TP upwards to INR209 by assigning higher multiples to the solar business, reducing losses at Mundra, and robust growth in its solar rooftop and pump business. However, since the stock has risen a steep 70% over the past three months to INR218, it seems fairly valued currently. Hence, we downgrade it to REDUCE from a BUY.

GAIL (NS:GAIL) (India): Our BUY recommendation on GAIL with a price target of INR 210 is based on 9% CAGR expansion in gas transmission volume over FY22-24E to 136mmscmd on the back of (1) increase in domestic gas production, (2) increase in demand of RLNG, and (3) completion of major pipelines in eastern and southern India. Q2FY22 EBITDA/APAT was 34/47% above our estimates, owing to a 7% higher revenue, lower-than-expected raw material cost, higher-than-expected other income, and lower-than-expected tax outgo.

JSW Energy (NS:JSWE): Net generation increased 2.4% YoY to 6.8bn units, led by strong generation across the Vijayanagar and Ratnagiri plants; it was partially offset by lower output across Barmer stations and hydro plant. Accordingly, PLF declined for the Barmer stations and hydro plant, while it improved for Vijayanagar and Ratnagiri stations. EBITDA was flat but PAT decreased 5.5% YoY to INR3.4bn due to increased other expenses and tax expenses. JSW Energy expects to add 15.5GW of RES capacity by FY30, of which 2.5GW would be added by FY24. It has signed a PPA for 2.25GW of these capacities to date. It plans to venture into the green hydrogen business and is carrying out scoping for a pilot project. It has also signed MoUs with Maharashtra for resources for 5GW wind and 1.5GW hydro pumped storage projects, which are in nascent stages. JSW Energy’s current net D/E stands at 0.4x, while net debt/EBITDA stands at 2.0x. We maintain SELL along with our TP of INR118/share, as the stock price has risen steeply to INR346, which is unjustifiable to our valuation metrics (RoE - ~7%, FY23 P/E – 57x, P/BV – 3.8x).

Bandhan Bank Ltd (NS:BANH): Despite a healthy pick-up in disbursals (+29% YoY), Bandhan reported a loss of INR30bn due to accelerated provisioning on its elevated stressed portfolio (GNPA + restructured book at 21% of loan book). The bulk of the stress continues to stem from the micro-credit portfolio (>80% of stressed assets vs. two-thirds of loans), with a disproportionate share from Assam and West Bengal. On the back of a gradual pick-up in the macro-environment, the stressed pool is likely to normalise from Q3FY22, coupled with a stronger disbursal momentum. Bandhan significantly shored up its coverage, offering comfort on incremental credit costs. We hack our FY22/FY23 earnings forecasts by 59%/13% to factor in accelerated provisioning; however, we see little risk to longer-term franchisee profitability. Low-cost deposit traction and a strong RoE potential underpin our BUY stance with a revised target price of INR387 (2.7x Sep’23 ABVPS).

AU Small Finance Bank Ltd (NS:AUFI): AUBANK’s Q2FY22 earnings surprised positively, largely on account of lower provisioning as asset quality improved sharply after the disappointment over the past couple of quarters. Gross slippages moderated to 2.7% (annualised), driven by sharp upgrades and recoveries, resulting in negative net slippages, driving GNPA down to 3.2% (Q1FY22: 4.3%). Disbursals gathered pace (68% YoY, 171% QoQ) across most segments, although the sustainability of the growth momentum is to be seen. With the customer franchise (ex-wheels) largely in investment mode and vulnerable to economic shocks, and foray into new asset classes (retail unsecured credit), we argue that current valuations (5x Sep’23 ABVPS) are demanding and leave little room for any disappointment. We raise our FY22/FY23 earnings estimates by 6%/3% to factor in lower credit costs and maintain REDUCE with a revised target price of INR1,148.

Deepak Nitrite Ltd (NS:DPNT): We maintain SELL on Deepak Nitrite with a price target of INR 1,800 (WACC 11%, terminal growth 4.5%). The stock is currently trading at 19.3x FY24E EPS. We believe that (1) further growth in DPL is capped as the Phenol plant is already running at over 110% utilisation since Q2FY21 and (2) IPA prices would fall as demand normalcy returns. Besides, DNL is entering into challenging chemistries vis-à-vis the chemistries it is currently operating in. The fluorination and photochlorination chemistries will pave the way to tap agrochemical and pharmaceutical customers for the company. However, the company needs to demonstrate its competencies well over the period in these chemistries to seize business opportunities. EBITDA/APAT was 13/13% below estimates, owing to substantially higher-than-expected raw material costs, offset by lower-than-expected tax outgo.

Emami (NS:EMAM): Emami posted steady revenue growth and beat in EBITDA margin. Revenue/EBITDA were up 7/8% YoY (HSIE 9/-1%). The two-year CAGR was at 9%. Domestic revenue/volume growth was at 9/6% YoY, clocking a two-year CAGR of 11/8% vs. Nestle’s 10/9%, Marico’s 15/9%, Colgate’s 5/2% and HUL’s 7/2%. Growth was broad-based, except for Navratna, which declined 9% YoY but was up 2% on two-year CAGR. The immunity portfolio in healthcare, too, saw pressure as fears of COVID receded. Rural demand has slowed down in the past four weeks. Emami continues to expand its footprint in e-commerce, which now accounts for 4% of the domestic revenue. We expect the margin to remain under pressure in H2FY22 due to the increase in commodity costs and a strong H2FY21 base. We maintain our EPS estimates for FY23/24. We value Emami at 25x P/E on Sep-23E EPS to derive a TP of INR 500. Maintain REDUCE.

APL Apollo Tubes Ltd (NS:APLA): APL Apollo Tubes’ (APL) Q2 revenue increased 40% QoQ to INR30.8bn, aided by higher realisation despite an 11% YoY volume decline. Value-added products contributed to 62% of overall volume in Q2 vs 57% YoY, aided by strong volume growth across heavy structures and the Apollo Z segment. As a result, EBITDA/ton increased to INR5,199 vs INR3,514 YoY (+48% YoY), led by a better product mix, and higher realisation. EBITDA increased 31% YoY to INR2.2bn; however, margin contracted marginally by 50 bps YoY to 7.2% due to high input costs. Adj PAT surged by 43% YoY to INR1,313mn. With normalcy resuming in business, APL would continue on its growth trajectory. We maintain estimates and expect APL to post revenue/PAT CAGRs of 20%/34% over FY21-24E, led by an increased mix of value-added products (75% in FY25 vs 57% in FY21), capacity expansion, improved margin, and enhanced government infrastructure spending. We retain our TP of INR1,113 (35xFY24 EPS) and BUY rating on APL.

Uti Asset Management Co Ltd (NS:UTIA): UTIAM posted depressed yields, resulting in a lower-than-estimated revenue (4% below estimates), although equity QAAUM growth has been faster than peers. In addition, high staff costs continue to pose a significant challenge to core profitability. We draw comfort from management commentary around a healthy NFO pipeline, a buoyant flows environment, and a strong growth outlook for the retirement solutions business. We raise our AUM growth estimates, offset by further yield compression. We expect UTIAM to deliver FY21-24E revenue/NOPLAT CAGRs of 19/42%, as a consequence of strong AUM growth coupled with cost rationalisation. We maintain BUY with an unchanged target price of INR1,340 (28.2x Sep-23E NOPLAT + Sep-21E cash and investments).

V Guard Industries Ltd (NS:VGUA): V-Guard delivered a beat on revenue with in-line EBITDA. Revenue grew by 46% YoY (21% two-year CAGR, HSIE 24%) with 26% volume growth. Electronics, electrical, and consumer durables segments were up 22/47/71% YoY. Robust growth was across markets, with south and non-south markets registering 45% and 49% YoY growth. South: non-south mix was at 61:39. Gross margin contracted by 64bps YoY to 30.9% due to the input cost pressure. The company had taken pricing actions to offset the cost pressure with further price hikes planned during H2FY22. EBITDA grew 27% YoY (HSIE 28%). EBITDA margin contracted 163bps YoY to 10.4% (HSIE 12.4%). Consumer durable EBIT margin remained weak (3% in Q2,

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