Results Review for ONGC, Eicher Motors, Trent, Berger Paints, BSE, Aditya Birla

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ONGC (NS: ONGC ): We maintain our ADD rating on ONGC with a target price of INR 208, based on oil and gas production growth at 6/9% CAGR over FY24-26E, attractive valuation of 4.7x Mar-25 EPS, a ~10% discount to 5-year average P/E of 5.2x, 0.7x Mar-25 P/Bv with RoE of ~16%, and a dividend yield of ~6%. However, this is offset by limited earnings potential, owing to the levy of a windfall tax on crude oil prices and a decline in the price of domestically produced APM gas. Q2FY24 reported EBITDA at INR 184bn (-2% YoY, -6% QoQ), coming in marginally below our estimate, owing to higher-than-expected statutory levies and other expenses. However, PAT at INR 102bn (-20% YoY, +2% QoQ) came in well below our estimate, impacted by higher depreciation and depletion costs and lower-than-expected other income. Total crude oil and gas production and sales came below estimates.

Eicher Motors (NS: EICH ): Eicher’s Q2 PAT was ahead of estimates due to a better-than-expected margin at RE and steady performance at VECV. The margin beat at RE was driven by sharp gross margin expansion in Q2, which came as a surprise. Competition has significantly heightened in the 250-500cc segment post the recent launches by both Harley Davidson (in partnership with Hero MotoCorp (NS: HROM )) and Triumph (in partnership with Bajaj Auto (NS: BAJA )) at extremely competitive and similar price points to RE. While their ambitions are likely to be much higher, even if both these peers together can ramp up to 10% of RE volumes over 6-9 months, it would cap RE’s future growth potential. Given the competitive aggression, we believe that RE would be forced to reconsider its pricing/brand strategy very quickly, which will in turn drive margin pressure. Even export momentum is now derailed given the geopolitical challenges at least in the near term. While RE’s performance has held up so far, we expect the same to be impacted as competitors ramp up their production in the coming quarters. Given a better-than-expected performance in H1, we have raised our earnings estimate by 10%/4% for FY24-25E. Reiterate REDUCE with a revised price target of INR 3,407 (from INR 3,207) as we roll forward to Sep 25 earnings.

Trent (NS: TREN ): Trent continues its stellar topline growth. Standalone revenue grew 59.4% YoY to INR28.9bn (HSIE: INR26bn). Zudio continues to anchor this exceptional growth. All fashion formats delivered 10% SSSG. The F&G format Star is finding its bearings too (30% YoY, almost entirely SSSG-led) as it continues to improve its value proposition/sales density. Operative leverage-led gains can be seen in margins as EBITDAM expanded 119bps to 15.9% (HSIE: 14%). EBITDA grew 72.3% to INR4.6bn. Note Pre-IND AS EBITM expanded 110bps to 10.8%. We’ve revised our FY25/26 EBITDA estimates by 9/8% respectively to account for higher growth. Maintain SELL with a SOTP-based TP of INR1,650/sh (includes 37x Sep-25 EV/EBITDA for the standalone business).

Berger Paints (NS: BRGR ): BRGR grew 3.6% YoY to INR27.67bn (in-line). Decorative business clocked muted growth on account of (i) the extended monsoon and festive season and (ii) the impact of a high base. Industrial businesses performed well with double-digit growth. Distribution expansion remains healthy (added 2k retail outlets/1.7k tinting machines in Q2). GM/EBITDAM expanded 582/349bps YoY to 41.1/17.1% (HSIE: 39.8/17.5%), courtesy of (1) moderating RM prices, (2) a decrease in the salience of the enamel products (lower GM) in the overall mix, and (3) demand traction towards new products. We marginally cut our FY25/26 EPS estimates by 1-2% and maintained our ADD rating with a DCF-based TP of INR575/sh (implying 42x Sep-25 P/E).

BSE: BSE delivered a solid quarter with a significant beat on both the revenue and margins front. The revenue was up 46% QoQ and margins expanded ~1200bps QoQ led by a surge in transaction and clearing revenue. BSE traction in the derivative segment continues and it has gained ~12% market share. The launch of the new BANKEX contract with a Monday expiry is scaling new heights every week and will help in further gain in market share. The go-live of large discount brokers and increase in active UCCs (~1mn vs ~10mn for NSE) is driving volume for BSE. The revenue from the derivative segment was ~INR 50mn and incurred a cost of ~INR 150mn. The impact of higher revenue from the derivative segment will come in Q3 as the price hike is effective November 23. We expect the derivative segment to contribute ~10/30% of BSE’s FY24/25E revenue. The rise in clearing revenue is a function of the higher number of trades in the derivatives segment and higher margin collection from members is leading to higher interest income. We expect a revenue/PAT CAGR of ~35/44% over FY23-26E, led by traction in transaction revenue. We increase our EPS estimates by ~6/3% for FY25/26E and assign a SoTP-based TP of INR 2,490, based on 40x core FY26E PAT + CDSL (NS: CENA ) stake + net cash ex SGF. The stock trades at a core P/E of 36/30x FY25/26E. Maintain BUY.

Aditya Birla Fashion (NS: ADIA ) and Retail: ABFRL's Q2FY24 print disappointed on all counts. The bigger concern is the rising debt and elevated inventory & payables (net debt: ~INR43bn, net debt/equity: 1.5x) amid weak demand - a recipe for accidents. Q2 revenue grew 5% YoY to INR32.26bn (HSIE: INR33.14bn). Both Lifestyle brands/Pantaloons’ performance remained weak (-5.6/-6.7% respectively) with -12/-15% SSSG respectively. Margins were sub-optimal courtesy (1) lower retail throughput driven by normalizing demand, (2) continued investments in new forays and (3) brand investments. GM/EBITDAM contracted 171/288bps YoY to 53.4/10% resp (HSIE: 55.1/9%). While we largely maintain our FY25/26 EBITDA estimates, we remain uncomfortable with the rising debt. Hence, we downgrade ABFRL to a SELL rating with a DCF-based TP of INR170/sh, implying 19x Sep-25 EV/EBITDA.

Bata India (NS: BATA ): Revenue declined 1.3% YoY (four-year CAGR: 3.2%, INR8.19bn vs HSIE: INR8.71bn). Bata attributed this to the shift in festive demand to Q3. Q2 SSSG remained in negative single digits. GM/EBIDTAM expanded 307/278bps YoY to 58.1/22.2% (HSIE: 56/23.2%), courtesy of the sneakerization/premiumization of the portfolio. While we remain watchful of how Bata treads the growth-margin equation across its volume drivers, we’ve cut our FY25/26 EPS estimates by 6% each (to account for lower growth) and maintain a REDUCE rating with a DCF-based TP of INR1,450/sh, implying 26/Sep-25 EV/EBITDA/37x Sep-25 P/E.

Galaxy Surfactants: Our BUY recommendation on GALSURF with a price target of INR 3,491 is premised on (1) the stickiness of business, as over 50% of the revenue mix comes from MNCs and (2) the ability to pass on fluctuations in raw material costs to its customers. Q2 EBITDA was 3% above our estimate while APAT aligned with our estimate.

Lemon Tree (NS: LEMO ): Lemon Tree Hotels (LTH) recorded the best-ever Q2 in its history as revenue grew 16% YoY in Q2FY24 to INR2.3bn, led by an increased occupancy of 71.7% (+542 bps YoY) despite subdued ARR growth of 7% YoY, leading to strong RevPAR growth of +16% YoY. The increase in occupancy was driven by strong demand, aided by vacations and corporate travel but the key was ARR growth kept deliberately low to attract price-sensitive customers. LTH EBITDA margin declined by 225 bps YoY to 45.5%, led by increased renovations and pre-operative expenses of Aurika, Mumbai. Management guided that the strong growth momentum will continue as it expects a favourable supply-demand mismatch to last for another four years. Also, it guided about no major capex hereon and that its focus is on asset sweating and deleveraging. Aurika Mumbai with 669 rooms (recently opened in October 2023) is expected to drive RevPAR growth. We expect LTH to benefit from ongoing demand tailwind and report strong numbers, going ahead. We resume coverage with a BUY rating with an unchanged FY25 EV/EBITDA multiple of 17x and a TP of INR125/share.

Star Cement: We upgraded Star Cement to BUY from ADD earlier, with a revised TP of INR 190/share (9x its Sep-25E consolidated EBITDA). Star continued to deliver the industry-best margin (INR 1,100/MT) in Q2FY24, despite flattish volumes (+1% YoY, -23% QoQ). Star will be commissioning 3/2mnMT clinker/griding capacities in the northeast region (NER) over the next 4-5 months and 2mn MT SGU in Assam by FY26E, thus maintaining its market leadership in the NER. Healthy demand, focus on cost and expected incentives for new capacities should sustain its industry-best margin performance, in our view.

Orient Cement: We maintain our REDUCE rating on Orient Cement with a revised TP of INR 180/share (7.5x Sep-25E EBITDA). In Q2FY24, Cement delivered strong 15% YoY volume growth. It reported weak NSR, down 3% QoQ, which was almost set off by a 3% lower opex. So, unitary EBITDA declined marginally by INR 20/MT QoQ to INR 607/MT (up INR 345/MT YoY). The 10MW WHRS in Chittapur got operational, which will result in ~INR 50/MT savings. Management aims to commission 2/3mn MT clinker/cement Chittapur brownfield expansion in FY26 (delayed owing to environment clearance). Additionally, an SGU in MP and brownfield clinker expansion at Devapur will be commissioned in the next three years. We estimate the ongoing major expansion will stretch the leverage ratio net debt/EBITDA from 0.1x in FY24 to 1.6/2.6x in FY25/26E respectively.

V-MART Retail (NS: VMAR ): V-MART reported 8.5% growth YoY (INR 5.49 bn, in-line). Organic business (ex-Unlimited/Limeroad) grew 5% in Q2 (INR4.23bn, in-line). Footfall density (footfalls/sq. ft) still remains at 66% of pre-pandemic times but is showing signs of revival (up 7% YoY). V-MART just about broke even in Q2 at the EBITDA level (HSIE: -0.5%), led by recalibration of product mix downwards (resulting in 12% ASP correction) and extended EoSS-led discounting of high-priced inventory. Limeroad expenses continue to drag margins (although the burn is reducing). We’ve cut our FY25/26 EBITDA estimates by 16/3% respectively to account for a more gradual recovery in profitability. Consequently, our TP is revised downwards to INR1,850/sh (earlier: INR2,050/sh, implying 23x Sep-25 EV/EBITDA). Maintain REDUCE.

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