Results Review for SBI, Bandhan Bank, Aditya Birla Capital, APL Apollo, CESC

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By Krishnan ASV

State Bank of India (NS: SBI ): Despite healthy loan growth (~11% YoY) and stable NIMs (3.1%), State Bank of India’s (SBI) earnings missed estimates, with PAT at INR91bn, impacted by higher credit costs at 1.1% (annualised). Slippages were marginally elevated (~0.6%), driven by agri slippages and recognition of a large corporate account (INR12bn) while the restructured book improved to 1.1% (Q3FY22: 1.5%). Revival in economic activity and improving utilisation of corporate credit limits are likely to augment loan growth further although SBI may also need to build its equity buffers. However, the road to 1% RoA remains contingent on whether SBI is able to calibrate its yields in a rising interest rate scenario. We have cut our FY23/FY24 earnings estimates by ~7% each respectively to factor in repricing on both sides of the balance sheet and a higher opex. Maintain BUY with a revised SOTP-based target price of INR600 (core bank at 1.2x Mar-24 ABVPS).

Bandhan Bank (NS: BANH ): Bandhan Bank’s Q4FY22 earnings were significantly ahead of our estimates, driven by a strong pick-up in advances (+14% YoY), stronger margin (8.7%), and negligible credit costs. The bank witnessed a sharp ~900bps reduction in its total stress pool (SMA-2+ GNPA+ restructured), albeit still elevated at 17.5% of loans (Q3FY22: 27%). Incremental disbursements continued to be driven by non-EEB businesses, in line with the bank’s portfolio diversification objective (Group EEB share of the portfolio at 26% by FY26). The management guided for a ~20-25% YoY growth in FY23 on the back of a 2-2.5% credit cost for FY23. We remain watchful of the gradual shift in portfolio mix and its impact on the bank’s sustainable RoE profile. We tweak our FY23E/FY24E estimates to build in repricing on both sides of the balance sheet, offset by stubborn credit costs from the slower resolution of high-vintage buckets of stressed loans. Maintain BUY with a revised target price of INR404 (2.7x Mar-24 ABVPS).

Aditya Birla Capital Ltd (NS: ADTB ): A year since articulating its ambitious FY24 roadmap, ABCL’s journey to drive consolidated return ratios closer to franchise potential seems on track, with consistent execution across businesses. The lending businesses have gradually been repositioned towards retail and granular loans (two-thirds of NBFC AUM is towards Retail + SME + HNI; 38% of the HFC AUM is towards the affordable segment), which is reflecting in sustained improvement in franchise earnings. The insurance businesses continued to build their profitability trajectory - the LI business, alongside healthy growth, witnessed a better net VNB margin at 15%, while the HI business is expected to break even over the next couple of quarters. We maintain BUY on ABCL with a SOTP-based TP of INR164.

Apollo Tyres Ltd (NS: APLO ): APL Apollo Tubes’ (APL) Q4 revenue increased 63% YoY/31% QoQ to INR42.1bn, led by strong volume growth (+26.7% YoY) and higher realisation (+28.5% YoY). Value-added products contributed to 63% of overall volume in Q4, vs 57% YoY, led by strong growth across Apollo Z rust-proof (+47% YoY) and Apollo proof sheet segment (+242% YoY). EBITDA/ton, however, increased marginally by 1.7% YoY to INR4,823, vs INR4,742 YoY. Strong volume and improved realisation led to a 29% YoY rise in EBITDA to INR2.7bn, with margin contracting 167 bps YoY to 6.3% due to higher sales of general structures. PAT increased by 37% YoY to INR1,630mn, which was further supported by a fall in interest expenses. Given (1) the Raipur plant is beginning operation on the high-value products, (2) increased mix of value-added products (75% in FY25), and (3) enhanced government infrastructure spending, we expect volume and EBITDA/ton to improve, going ahead. We revise our estimates by 11%/7% for FY23E/24E and revise our TP to INR1,142 (34xFY24 EPS), from INR1,113 earlier; retain BUY.

CESC (NS: CESC ): CESC’s consolidated PAT in Q4FY22 increased marginally by 3.7% YoY to INR4.5bn, as higher earnings in the Noida circle (from higher power demand) were offset by increased losses in the distribution franchisee (DF) business (a loss of INR270mn vs a profit of INR270mn YoY), given penalty waiver in Malegaon circle. Dhariwal's profitability was lower due to a higher YoY base (from one-offs recovered in Q4FY21), while standalone PAT declined marginally by 4.1% YoY. The Dhariwal project has signed a three-year medium-term PPA for 210 MW with the Railway Energy Management Company (REMCL). CESC expects to receive a letter of intent (LoI) for the Chandigarh discom in Q1FY23. We have tweaked our earnings estimates, based on REMCL PPA with Dhariwal and extending losses in the distribution business. Accordingly, while we retain our BUY rating, we marginally lower our TP to INR113 (vs INR119 earlier). We have not included the Chandigarh discom in our valuation yet as we are waiting for the LoA.

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