Results Review for Shree Cement, Ambuja Cement, Hero Motocorp, Trent, Phoenix Mill

Published 09-02-2023, 06:10 pm
ABUJ
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HROM
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PHOE
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SHOP
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SHCM
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SOBH
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TREN
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JKCE
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VMAR
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SYMP
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Shree Cement (NS:SHCM): We maintain our REDUCE rating on Shree Cement (SRCM), with an unchanged SOTP target price of INR 22,600/share. In Q3FY23, Shree reported strong 23% volume growth (low base effect). However, unitary EBITDA came in 30% lower YoY to INR 881/MT, owing to subdued pricing while fuel prices remained elevated (despite a 10% fall QoQ). Thus, EBITDA/APAT fell 14/44% Unitary EBITDA recovered INR 180/MT QoQ in Q3 and is expected to recover further in Q4, driven by falling fuel prices and op-lev gains. SRCM would be expanding its capacity to 55/80mn MT by FY25/2030E (vs 46mn MT in FY22).

Ambuja Cement: We upgrade our rating on Ambuja Cements (NS:ABUJ) to ADD, owing to the recent correction in stock price, with a revised TP INR 430/share. During Q4CY22, ACEM reported healthy volume growth (+7/9% YoY/QoQ) and margin normalization to INR 812/MT (+376/MT QoQ), driven by rationalization of fixed and freight costs items which had ballooned in Sep-22 quarter. It also hinted its organic expansions in the east (7mn MT) should be completed by FY25E-end. The company remains committed to doubling its consolidated capacity over the next five years and will also be working on various cost-reduction exercises to boost margins.

Hero Motocorp (NS:HROM): Hero MotoCorp’s (HMC) Q3 PAT, at INR 7.1bn, was in line with our estimate of INR 7bn. EBITDA margin remained stable QoQ, on expected lines, as benefits from softening input costs were offset by weak volumes in Q2 (down 13% QoQ). Management is hopeful of a rural revival in the coming quarters on the back of the positive rural sentiment and hence expects the 2W industry to post double-digit revenue growth in FY24. HMC would target to outperform industry growth and recover back lost market share, especially in the 125cc and above motorcycle segment as also in scooters, on the back of a healthy launch pipeline—it aims to launch one new model each quarter from here on. Its recent launch, Xoom, in the 110cc segment, comes loaded with many segment-first features and is in line with the same strategy highlighted above. However, given a lower-than-expected demand in Q3 and sustained weakness in Q4, we lower our earnings estimates by 1-6% over FY23-25E. At 14.7x FY24 PER, the valuation is attractive. We maintain BUY with a revised TP of INR 2,959 (from INR 3,086)—valued at 15x September 2024 earnings.

Trent (NS:TREN): Trent continued its stellar topline growth. Standalone revenue grew 36% CAGR (three-year) to INR21.7bn. We suspect while Westside’s growth remains handsome (HSIE: 3-yr CAGR 15%), Zudio’s blitz scaling continues to be the big needle-mover. The F&G format Star is finding its bearings too and improving its value proposition/sales density. However, with aggressive expansion comes costs. Hence, profitability was disappointed. PBTM came in at 9.6% (HSIE: 12%) due to front-loading of Zudio-related costs. We’ve largely kept our FY24/25 EBITDA estimates steady and maintained SELL, with a SOTP-based TP of INR1,040/sh.

Phoenix Mills: Phoenix Mills (PHNX) reported weak revenue/EBITDA/APAT at INR 6.8/3.8/1.7bn, a miss at all levels. Retail consumption was robust during the quarter at INR 26.5bn (+28% overall and +14% on a like-to-like basis from Q3FY20), aided by growth in Jewellery, Fashion, Electronics, and Entertainment categories. YTD Jan’23, consumption stands at INR 78bn and it is expected to cross INR 90bn, supported by growth in consumption across categories and malls and contribution from the upcoming mall in Ahmedabad which is expected to open by Feb’23 end. PHNX forayed into warehousing with INR 532mn of investment on a land parcel in NCR. New drivers are set to be in place with (1) Surat mall land (1msf of GLA) acquisition (PHNX holding at 53.7% stake) (2) business development target of 1-2 land deal every year with INR 10bn expected investment (3) office development gaining traction in Bengaluru/Pune/Chennai and (4) PHNX expanding residential segment with Alipore residential project in Kolkata (a total outlay of INR 10bn, GDV INR 20bn and 1msf of saleable area). The two upcoming office spaces in Bengaluru and Pune will begin leasing in H1FY24 and FY25 resp. Given strong traction in consumption, captive mall expansion, the addition of office space, a strong business development pipeline, and lower net debt, we maintain BUY, with an unchanged SOTP of INR 1,800/sh.

JK Cement (NS:JKCE): We maintain our REDUCE rating on JK Cement (JKCE) with a lower TP of INR 2,485 (11x Mar-25E consolidated EBITDA). We believe its margin will be subdued for the next 2-3 quarters, on account of Panna stabilization costs and intensifying pressure in white cement. In Q3FY23, JKCE reported healthy consolidated volume growth of 21/11% YoY/QoQ, led by strong traction in grey cement, while white volumes declined. Consolidated unitary EBITDA contracted INR 230/MT QoQ on stabilization expense in grey, competition pressure in the white segment, and an increase in fuel and freight costs. Fuel cost is expected to cool off by 8% QoQ in Q4. JKCE’s 4mn MT central expansion got commissioned in Q3FY23. The company will further add 5.5mn MT of grey cement capacity spread across the north, central, and south and 0.66mn MT clinker across the central region (Panna) by FY25E to strengthen its distribution reach.

Navin Fluorine International: We retain our BUY rating on NFIL, with a target price of INR 5,174 on the back of (1) earnings visibility, given long-term contracts (2) tilt in sales mix towards high-margin high-value business (3) capacity expansion-led growth and (4) strong R&D infrastructure. EBITDA/APAT was 32/26% above our estimates, owing to a 13% rise in revenue, and lower-than-expected operating expenses offset by higher-than-expected raw material costs.

Relaxo Footwears: Inflation-led pressure on consumer demand continued for Relaxo. Revenue declined 8.4% YoY to INR6.8bn in Q3 (a three-year CAGR: 4% HSIE: INR7.3bn). Volume/net realization growth stood at -9/1% respectively,- a function of (1) higher skew of closed footwear in the mix (2) soft demand (especially in the Hawaii/PU/EVA segment). Profitability remains sub-optimal vs pre-pandemic levels, courtesy high RM inflation in key inputs and higher SG&A expenses. Price correction of 15-20% should in Q2 has begun to spur some demand. We’ve cut our estimates by ~5% each for FY24/25 to account for lower profitability. Our DCF-based TP stands at INR700/sh implying 47x Dec-24E P/E. Maintain SELL.

Computer Age Management Services: CAMS clocked a sequentially flat quarter (-3% vs. estimate) disappointment stemmed from market share loss in MF AAUM (-70bps QoQ) coupled with sustained pricing pressure (higher than most listed AMCs) on the MF business yields. Marginal moderation in employee costs, partly offset by continued tech investments, drove core income/PAT to INR0.91/0.74bn (+1/2% QoQ). Market leadership in the duopoly RTA market, significant entry barriers, and high switching cost position CAMS favorably however, we are wary of further TER cuts that can potentially derail RTA’s medium-term earnings. We trim our FY23/24E/25E estimates by 3/4/8% to factor in MF market share loss, continued outflow in the debt segment, and delayed accruals in non-MF business. Given the sustained weakness in fundamentals (market share loss, soft operating performance, and sustained pricing pressure) and a modest 9/11% revenue/OP CAGRs over FY22-25E, we downgrade our stance to REDUCE with a lower TP of INR2,120 (28x Sep-24E EV/NOPLAT + Sep-23E cash and investments our target multiple implies a ~17-44% premium to listed AMCs).

Shoppers Stop (NS:SHOP): STOP’s revenue grew at 4% (three-year CAGR) to ~INR11.3bn (up 19% YoY HSIE: 10.75bn). While bill cuts/stores are normalizing, they are yet to catch up to pre-pandemic levels. Growth remains realization-heavy (3-yr CAGR for ticket sizes stood at ~7%). Store openings remained healthy and momentum is likely to continue. GM was largely flat despite an improving mix towards private labels at 40.9% (HSIE: 41.3%). Pre-IND AS EBITDA at 9% (in-line). We revise our FY24/45 EBITDA estimates upwards by ~11/9% each to account for (1) higher store additions (2) a higher private label portfolio and (3) improved sales density-led profitability. But maintain our SELL rating with a DCF-based TP of INR460/sh (implying 15x Dec-24 EV/EBITDA).

Symphony (NS:SYMP): Symphony's domestic business (70% of consolidated revenue) delivered a beat on revenue, led by positive channel sentiment. Domestic revenue came in at INR 1,980mn, up 64% YoY and 4% on three-year CAGR. Strong secondary sales in the summer of 2022 cleared the inventory of two failed seasons. Recovery in domestic revenue was also driven by the positive sentiment of channel partners regarding the brand and the upcoming season. Domestic EBIT was up by 97% YoY, margin came at 31% (+500bps YoY). The RoW business (30% of consolidated revenue) was impacted by weak traction in CT, Australia (down >10% in 9M). Weak traction both in Australia and the US is leading to subpar performance. The RoW delivered an EBIT loss of INR 100mn (largely attributed to weak CT performance). The domestic business saw a beat but RoW performance was weak hence, we maintain our EPS estimates. We value the stock at 35x P/E on Dec’24E EPS and derive a TP of INR 1,150. The company has proposed to buy back at INR 2,000/share for an amount up to INR 2bn (1.43% of paid-up capital). Maintain ADD.

Sobha (NS:SOBH): Sobha’s (SDL) reported revenue/EBITDA/PAT of INR 8.7/0.9/0.3bn (miss)/beat our estimates by 16/(26)/(25)%. It recorded the highest-ever quarterly presales, both in value and volume terms, of 1.48msf, valued at INR 14.2bn (+36%/+22% YoY/QoQ). The realization inched up on account of a higher contribution from the Gurgaon project. For 9MFY23, presales stood at INR 37.3bn (+35% YoY) and are expected to cross INR 50bn by FY23-end on the back of 11msf of unsold inventory and a robust launch pipeline of 12msf, of which, 1msf will be launched in Q4FY23. The non-Bengaluru region contributed 40% to total sales (vs. 22.4% in Q2FY23). Presales from NCR were strong, contributing 24% to total sales (5% in Q2FY23). Collections were also the highest-ever at INR 14.1bn (+40%/+5% YoY/QoQ) on the back of robust residential cash collection of INR 11.6bn (+38%/+7% YoY/QoQ). This resulted in the consolidated gross/net debt reducing to INR 20/18bn vs. INR 22/19bn as of Dec’22, with net D/E at 0.72x vs. 0.77x as of Dec’22. EBITDA margin was affected by the higher-than-expected cost in the contractual business SDL expects to see normalization in EBITDA margin after Q4FY23. We maintain BUY with an unchanged TP of INR 935.

V-MART Retail (NS:VMAR): V-MART reported 12% growth YoY (2% lower than expected). Organic business (ex-Unlimited acquisition) grew 8% YoY in Q3FY23 (INR6.2bn 3-year CAGR: 8% HSIE: INR 6.8bn). Note: Unit economics remains inferior to pre-pandemic times. (footfall density is at 62%), while transaction sizes were up 118% from pre-pandemic levels (up 7% YoY). The profitability miss was starker (13.3% vs HSIE: 18%) and was a function of elevated online spending, which include (1) a one-time integration cost for Limeroad and (2) related manpower increases. We’ve cut FY24/25 EBITDA estimates by 13/7% respectively to account for continued investments towards Limeroad. Consequently, our TP is revised downwards to INR2,900/sh (earlier: INR3,150/sh implying 25x Dec-24 EV/EBITDA). Maintain BUY.

J. Kumar Infraprojects: JKIL reported an in-line quarter, with revenue/EBITDA/APAT at 10.6/1.5/0.7bn, marginally beating our estimates by 1.9/2/2.6%. JKIL FY23 revenue guidance now stands at the higher end of the INR 40-42bn range to INR 42bn, with an EBITDA margin of 14-15%. The order inflow (OI) of INR 16.9bn in 9MFY23 took the order book (OB) to INR 112bn (~3.2x FY22 revenue). JKIL reiterated its OI guidance for FY23 at INR 50bn, of which 33.8% of orders were achieved in 9MFY23. The balance sheet continues to be robust, with gross debt at INR 4.8bn (D/E at 0.20x). With INR 1.1bn of Capex incurred in 9MFY23, JKIL increased FY23 Capex guidance to INR 1.5bn (+INR 0.5bn). The quarter’s outperformance on execution, order inflow, and balance sheet is largely in line with our annual estimates we continue with our valuation multiple at 9x. We maintain ADD, with an increased target price of INR 387/sh (9x Dec-24E EPS, rolled over).

AGS Transact: AGS Transact (AGS) reported a lower-than-expected revenue across segments however, new deal wins improve growth visibility for FY24E. Revenue growth remained flattish QoQ, with an increase in digital services being offset by the decline in ATM management, banking automation solutions (BAS), and other automation services. The company had announced two new managed services deal wins for managing 8K ATMs (~30% of current base), revenues from which will flow over the next 12 months with no additional capex. The company expects to maintain a margin of >25%, led by a focus on higher-margin fixed-price contracts. We expect a recovery in the payment solution business, led by (1) new deal wins (2) implementation of CRM machines (3) growth in cash management due to compliance-related tailwinds, and (4) traction in digital payment business led by digital adoption by OMCs. We cut revenue estimates by ~6.8/7.4% and EPS estimates by -7.8/6.9% for FY24/25E to factor in revenue miss. We maintain BUY on AGS with a target price of INR 105, valuing the stock at 12x Sep-24 EPS.

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