Results Review for ONGC, Aurobindo Pharma, Thermax, Bharat Forge, Vinati Organics

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ONGC (NS: ONGC ): We maintain our REDUCE rating on ONGC, with a target price of INR 230, given: (1) limited upside potential for ONGC’s crude price realization in the current environment of windfall tax and (2) gas price realization too is unlikely to change significantly, as APM gas price is frozen till March 2025 and 95% of ONGC’s gas sales fall under APM. In Q3FY24, reported EBITDA stood at INR 172bn (-16% YoY, -7% QoQ), falling below our estimate, owing to higher-than-expected other expenses and employee costs. Similarly, PAT at INR 95bn (-14% YoY, -7% QoQ) also missed our estimate, impacted by higher-than-expected depreciation, albeit partially offset by higher-than-expected other income. Total crude oil and gas production and sales came below our estimates.

Aurobindo Pharma (NS: ARBN ): EBITDA growth (+68% YoY) was led by 15% YoY sales growth (+9% QoQ US on gRevlimid launch, +28% YoY in growth markets), higher GM (+253 bps YoY), and lower SG&A/R&D (flat YoY), which were partly offset by higher staff cost (+7% YoY). ARBP expects to maintain US oral solid business growth momentum, led by new launches and volume traction in the base business. It reiterates margin guidance of 20+% in FY24 (19.4% in 9M’24) and expects to improve in FY25, led by Pen-G plant commissioning (~40-50% captive consumption to improve gross margin). However, the USFDA action on Eugia Unit 3 (nine observations in Feb’24, followed by the temporary stoppage of production) will have an impact of ~USD 20 mn injectable sales in Q4 (margin impact due to remediation costs). Considering injectable growth and margin impact, we cut our EPS by ~3% for FY25/26E and revise the TP to INR 1,150 (18x Dec’25E) vs. INR 1,250 (19x). We maintain ADD given steady US growth visibility and value unlocking in key R&D assets (biosimilars, respiratory, and specialty). While the outlook remains steady, we believe any escalation at Unit 3 poses a risk to both growth and margin.

Thermax (NS: THMX ): Thermax Ltd (TMX) reported revenue/EBITDA/APAT of INR 23/1.9/1.4bn, missing our estimates by 1.4/3.3/8.1%. The EBITDA margin of 8.1% was in line with our estimate of 8.2%. The margin improved by 20bps YoY. TMX recorded INR 100mn as a one-off cost revision in a refinery order, which impacted margins negatively by 43bps. Order inflow during the quarter was INR 25.1bn, taking the total OB to INR 107.2bn. TMX expects a baseline quarterly run-rate of INR 23-24bn in ordering and expects ordering to ramp up in H2CY24 on the back of converting a couple of large orders from the pipeline in power/steel, etc. TMX stands to benefit from the investment in clean energy, sustainability, decarbonization, normalization of the international market, and impetus on cleaner air and water. We have recalibrated our estimates to factor in higher interest and depreciation on green solutions business. We maintain BUY on TMX, with a TP of INR 3,732 (48x Mar-FY26E EPS).

Samvardhana (NS: SAMD ) Motherson International: SAMIL Q3 revenue was marginally below our estimate due to a slowdown in light vehicle production across its key regions. PAT was below our estimate due to higher-than-expected depreciation and finance costs. Additionally, wage pressure remains a concern across geographies. As a majority of its operations are located close to its clients, management expects minimal impact from the Red Sea conflict on its operations. We reiterate BUY on SAMIL with a target price of INR 129, valued at 20x FY26 earnings. Our confidence in the company is undeterred due to its diversified presence across components, geographies and customer base. SAMIL is emerging as the key beneficiary of the rising premiumization trend across segments, as reflected in its order book ramp-up to USD 77.3bn. Additionally, SAMIL offers significant growth potential through inorganic opportunities, having completed 15 acquisitions since Sep 2022, totaling combined proforma revenue of USD 2.6bn (net).

Bharat Forge (NS: BFRG ): Bharat Forge’s consolidated EBITDA at INR 7bn surpassed our estimate due to a favorable product mix and effective cost optimization. However, PAT missed the estimate due to higher-than-expected interest and depreciation. The impact of the ongoing global challenges is evident on the export business, as growth has slowed down to just 4% YoY (vs 21% YoY in Q3). Management has further highlighted that growth could moderate in Q4FY24 and FY25 from the previously projected estimate of ~20%. While it expects to report growth rates stronger than the industry average, challenges are evident in its underlying markets. Despite expectations of subdued demand in certain segments, we expect 15% revenue growth (CAGR FY23-26E), to be driven by factors like (1) ramp-up of defense revenues that are likely to increase to INR 17bn by FY25E, from INR 3.5bn in FY23, (2) ramp-up potential at JS-Auto Cast, given there is a huge demand for castings, both in India and abroad, and (3) strong order backlog in aerospace, which would boost this segment’s revenue to INR 5bn over the next four years, from INR 1.7bn. Reiterate BUY with a revised TP of INR 1,286 (from INR 1185 earlier) as we roll forward to Mar-26 estimates.

Multi Commodity Exchange: MCX has reported a strong growth of 16% QoQ in revenue, driven by options. However, the profitability was impacted by a payout made to 63moons, licensing/CDP cost, and higher SGF contribution. There has been a realignment of the cost structure post the implementation of the new CDP, with the SSC now comprising licensing fees (linked to options revenue) and platform running costs. The new platform's amortization will lead to an increase in depreciation as well. The rising SGF cost is a concern for exchanges, with MCX having an SGF of INR 7.59bn, and an additional contribution may be required if there is a spike in volatility or a rise in client concentration/default risk. We have assumed an SGF contribution of INR 0.40/0.50bn for FY25/26E. The focus now is on product launches and scaling FPI and DII volumes, with the approvals for HFT and DMA in place. The launch of monthly series contracts and Index options will boost options volume but is subject to regulatory approvals. We expect options notional/premium CAGR of +85/67% over FY23-26E. We remain constructive on the options growth story, supported by increasing active traders, a new tech platform, shorter-duration options, and regulatory tailwinds. We have increased our revenue/EPS estimates by ~13/6% for FY26E. Our BUY rating remains intact, with a target price of INR 4,100, based on a P/E of 33x FY25E core PAT + net cash ex SGF.

Vinati Organics (NS: VNTI ): Our SELL recommendation on Vinati Organics (VO) with a discounted cash flow-based target price of INR 1,416 (WACC 11%, terminal growth 5%) is driven by (1) a shift in the revenue mix towards lower-margin butyl phenol and other products as compared to ATBS, which has a higher margin, and (2) an anticipated decrease in ATBS demand due to customer destocking in FY24. Molecules that are contributing ~60% to revenue are showing either demand weakness or muted growth. We believe the current valuation is contextually high at ~43x FY25E EPS. Q3 EBITDA/APAT were 6/21% below our estimates, owing to lower-than-anticipated revenue, partially offset by lower-than-expected raw material cost.

Dilip Buildcon (NS: DIBL ): Dilip Buildcon (DBL) reported revenue/EBITDA/APAT beat/(miss) of (1.3)/0.2/(4.8)%. EBITDA margin: 12.4% (+189/+29bps YoY/QoQ), vs. our estimate of 12.2% on account of lower input and raw material prices. In FYTD24, DBL won four projects worth INR 26.4bn, taking FYTD24 order wins to INR 26.4bn (i.e. ~33% FY24 OI guidance of INR 80bn). With this, the Dec’23 OB stood at INR 218.4bn (~2.2x FY23 revenue). The standalone net debt as of Dec’23 stood at INR 18.2bn vs. INR 20.7bn as of Sep’23, with net D/E at 0.36x. It reiterated its guidance for reducing the debt by INR 8bn by FY24-end and becoming net cash by FY26-end. It is planning to float its own InvIT with Alpha Alternatives (AA) as a strategic partner and expects INR 20/40bn in cash/InvIT units by FY25-end. Given lower interest cost on reducing debt, we recalibrate our FY24/25/26 EPS higher and maintain ADD with an increased SOTP-based TP of INR 483/sh (10x Mar-26E EPS, 1.2x P/BV HAM equity investment).

Ami Organics (NS: AMIO ): We retain our ADD rating on Ami Organics (AO), with a target price of INR 1,201 (WACC 11%, terminal growth 6%), on the back of (1) expansion of its specialty chemicals portfolio, (2) contribution from long-term contracts which shall start contributing to revenue from 4QFY24, and (3) strong product pipeline in its advanced pharma intermediate business. EBITDA was 20% short of our estimate, mainly due to a 10% lower-than-expected revenue and higher-than-expected employee expense, offset by lower-than-expected raw material cost.

Neogen Chemicals (NS: NEOE ): Our BUY recommendation on Neogen Chemicals (NCL) with a target price of INR 2,127/share is premised on (1) entry into the new-age electrolyte manufacturing business, (2) increasing contribution of the high-margin CSM business to revenue, (3) capacity-led growth momentum in legacy business, and (4) improving return ratios and strong balance sheet, going forward. NCL’s EBITDA/APAT will grow at a CAGR of 38/45% over FY23-28E while RoE will improve from 11% in FY23 to 31% in FY28E. Q3 EBITDA/APAT were 34/93% below our estimates owing to 10% lower-than-expected revenue, 11% higher-than-expected operating expenses and higher tax expenses. The company has elected to opt for the tax rate as per section 115BAA of the Income Tax Act. As a result, there was an adjustment towards MAT credit which has resulted in higher tax outgo in Q3. Henceforth, the tax rate will be lower than the current tax rate.

IRM Energy (NS: IRME ): Our BUY recommendation on IRM Energy (IRM) with a target price of INR 665/sh is premised on (1) a ~40% CAGR volume growth over FY24-26E and (2) robust margins. In Q3FY24, EBITDA stood at INR 422mn (+15% YoY, +1% QoQ), broadly in line, while consolidated PAT totaled INR 238mn (+20% YoY, -9% QoQ), below our estimates due to higher-than-expected depreciation and interest costs, partially offset by higher other income. Volume at 0.55mmscmd (-1% YoY, +7% QoQ) surpassed our estimate.

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  • Ram Kapoor @Ram Kapoor
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