Results Review For SBI Life Insurance, Havells India, Mphasis, Bandhan Bank

  • Stock Market Analysis

By Krishnan ASV

SBI (NS: SBI ) Life Insurance: SBILIFE’s total APE was in line with our estimates; however, growth in the protection segment moderated to 14% YoY due to limited access to physical medicals. With strong growth in the NPAR and annuities segment and a decent share of protection in the mix, VNB growth was stellar (+57% YoY). We are positively impressed by the growth in premium from other channels (incl. banca ex-SBIN), which is mitigating dependence on any single channel. The company's three growth levers continue to remain in place: (1) parent SBI’s massive distribution network (24k+ branches); (2) healthy share of protection; and (3) lowest opex ratio amongst peers (9MFY22: 8.6%). We expect SBILIFE to deliver a healthy FY21-24E VNB CAGR of 25% and retain our BUY rating on the stock with an unchanged TP of INR1,530 (2.7x Sep-23E EV).

Havells India (NS: HVEL ): Havells delivered strong topline performance, led by positive demand trends and pricing actions. Revenue grew 15% YoY (HSIE 12%; 27% two-year CAGR). It reported 29% and 22% two-year CAGRs in ECD and lighting segments vs. 22% and 7% for Orient Electric. Lloyd’s revenue declined 9% YoY (-5% HSIE) on a high base, but it was up 24% on two-year CAGR. Lloyd was unable to take price hikes due to the existence of hyper-competition in the RAC industry. As a result, it reported an EBIT loss of INR 418mn vs. a profit of INR 309mn in Q3FY21. Gross margin continued to be under pressure, contracting 583bps YoY to 32.3% due to input cost pressure and unfavourable segment mix. EBITDA margin contracted 399bps YoY to 12.1% (HSIE 14.9%). The company plans to take 5-10% price hikes from Feb-March in ECD/Lloyd, with there being a strong possibility of higher hikes on account of further inflation. Given the loss of two summer seasons and positive trade sentiment, we expect large pent-up demand to show up in the upcoming season, which would benefit Lloyd too. With pricing actions and a positive sentiment, we remain optimistic for the stock. We cut our FY22 EPS by 5% while maintain it for FY23/FY24. We value the stock at 55x P/E on FY24E EPS to derive a target price of INR 1,550. Maintain ADD.

Mphasis (NS: MBFL ): With continued momentum in the direct business (+9% QoQ CC) and healthy deal wins (eight consecutive quarter of TCV> USD 200mn), we reiterate Mphasis (MPHL) as our preferred pick in the mid-tier IT space. MPHL’s growth is expected to be driven by (1) expansion in the direct business (organic +6.3% QoQ); (2) strong traction in BFSI vertical (increase in tech spend by global banks); (3) continued growth in the top-10 accounts (+9.5% QoQ); (4) increasing share/size of large deal wins (signed four large deal wins in Q3 with one at USD 92mn in healthcare); (5) Blink acquisition, which is aiding new deal wins (two synergy deal wins); and (6) better growth alignment with hyperscalers. The DXC decline was ~10% QoQ (in-line) and is only 5% of revenue. We expect the company’s growth to converge with direct core growth (26% CAGR over FY21-24E), led by healthy deal wins (TCV CAGR of 43%). The ongoing supply side challenges will have some impact on margins; the target EBIT margin range is 15.5-17%. Our target price of INR 3,800 values MPHL at 32x Mar-24E EPS. Maintain BUY.

Bandhan Bank: Bandhan Bank’s Q3FY22 earnings were marginally ahead of our estimates, largely driven by higher-than-expected other income. The bank witnessed a sharp reduction in early delinquency buckets of its EEB portfolio (~1000bps reduction in 1-60dpd buckets) and restructured pool (INR17.3bn). However, the total stressed pool of its EEB portfolio (SMA-II+ GNPA+ restructured) remains sticky at 27% of loans (Q2FY22: 29%), indicating stubbornness of high-vintage stressed assets. Incremental disbursements were driven predominantly by non-EEB segments, in line with management guidance of portfolio diversification (Group EEB share of the portfolio at 30% by FY25). However, we remain watchful of the impending shift in the bank’s sustainable RoE profile with these proposed changes to the portfolio mix. Given low-base earnings, a marginal increase in credit costs from slower resolution of high-vintage buckets of stressed loans results in a 75% cut to our FY22 earnings forecasts. Maintain BUY with a revised target price of INR363 (2.7x Sep’23 ABVPS).

Persistent Systems (NS: PERS ): We maintain ADD on Persistent Systems (PSYS), following a robust Q2 (beat on all fronts) and a healthy deal momentum. PSYS’ growth continuation is premised on (1) improving deal wins (TCV is up 18.3% QoQ with a healthy book-to-bill of 1.7x); (2) high volume of mid-sized deals leading to healthy ACV growth; (3) client mining capabilities reflected in strong scale-up in >USD 5mn+ client bucket; and (4) strong Salesforce and Azure practice and improving partnerships with GCP and AWS. Organic growth was 6.1% QoQ and acquisition of SCI will provide access to some top US banks while Shree Partners will give access to FTEs. The IP-led business was up 16.2% QoQ, supported by seasonality. The margin expanded 10bps, led by flat sub-con cost and better pricing, offset by higher ESOP cost (~70bps) and rising attrition. We reduce EPS estimates by 0.8/1.2% for FY23/24E and our target price of INR 4,900 values PSYS at 35x Mar-24E, supported by a 26% EPS CAGR over FY22-24E.

Orient Electric: Orient Electric (Orient) posted a marginal beat on revenue; however, pressure on margin was more than expected. Revenue grew 10% (HSIE 8%) and sustained a healthy two-year CAGR of 17%. ECD segment clocked revenue growth of 5% YoY (in-line) over a strong base (22% two-year CAGR, Havells 29%). The lighting segment revenue saw a beat on estimate, growing 25% YoY and 7% two-year CAGR (Havells 22%). Growth in lighting was driven by B-C segment with recovery visible in B-B. EBITDA margin, at 9.8% (HSIE 10.7%), contracted 382bps YoY due to high input cost pressure (GM dipped 344bps). EBITDA declined 21% YoY (+21% two-year CAGR). With recovery in B-B lighting and positive trade sentiment for ECD, we expect the company to sustain healthy revenue growth across segments. We maintain our EPS estimates and value Orient Electric at 38x P/E on FY24E EPS to derive a TP of INR 400. Maintain BUY.

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