Shree Cement (NS:SHCM): We maintain our REDUCE rating on Shree Cement, with a revised SOTP target price of INR 24,000/share, owing to its expensive valuation. Cement volume grew 10% YoY in Q2FY24 and its unit EBITDA expanded INR 25/MT QoQ to INR 1024/MT. Margin expanded INR 340/MT on a sharp fall in fuel costs (INR 0.8/mnCal and green power consumption share increased to 59% vs 51% YoY). We estimate its blended unit EBITDA will expand INR 165/MT in FY24E on fuel cost reduction, rising share of green power, and brand premiumization. Ongoing expansions will increase its capacity to 72mn MT by FY26, vs 46mn MT at FY23 end.
Cummins: Cummins India (NS:CUMM) Ltd (CIL) recorded weak revenue of INR 19bn (-3%/14% YoY/QoQ, a miss of 4.6%). This was driven mainly by normalisation of advance pre-buy for CPCB 2 gensets in anticipation of CPCB 4+ implementation which got pushed out to Jul-24. Consequently, the power-gen segment contributed INR 4.9bn (-28%/-44% YoY/QoQ). CIL witnessed a demand drop of 60% in LHP segment, a 70% drop in MHP segment and 2% in HHP segment i.e.500KVa+ products. This skewness of mix towards better-margin HHP power gen, along with lower commodity inflation and retention of prices, contributed towards better gross margin at 36.7% (+488bps/+418bps YoY/QoQ). CIL expects to maintain this at 32-34% level for the near future (2-3 years) before moving to 35%. Industrial segment was robust, contributing INR 3bn (+20%/+27%), mainly on account of strong deliveries in sub-segments such as construction, railways and defence. The export market is still weak contributing INR 5bn (-5%/2%). EU and Americas demand is weak, dropping 50%, while APAC and ME dropped 5-10%. CIL expects export market to worsen before bottoming out in the coming quarters. CIL, however, has multiple tailwinds, namely, stringent emission norms, capex cycle recovery, adoption of alternative fuels with lower carbon footprint, revival in industrials, and support for manufacturing policies. We maintain BUY, with an unchanged SOTP of INR 2,082 (35x Sep-25 EPS).
Prestige Estates (NS:PREG): Prestige Estates (PEPL) registered the highest-ever presales in any quarter by value and volume at INR 71bn (+102%/+81% YoY/QoQ) and 6.8msf (+50%/+79% YoY/QoQ) resp. This was mainly on the back of robust presales in Prestige Park Grove in Bengaluru, which clocked INR 46bn. The average price realisation was also the highest ever at INR 10,369psf (+34%/+1% YoY/QoQ). The total launches during the quarter were at 13.1msf. Prestige City in Hyderabad will be launched on 9th Nov’23, which will have a saleable area of 10msf and GDV of INR 70bn. Presales from Mumbai were INR 4bn, contributing 5%. For FY24, it expects to achieve annual presales of around INR 200bn. It expects to achieve this on the back of a strong launch pipeline with a GDV of around INR 494bn. Prestige Ocean Towers (60% economic interest) and Prestige Nautilus in MMR will be launched in H2FY24 with a total GDV potential of INR 90bn. It will launch its first project in NCR, Prestige Bougainvillea Gardens in H2FY24 with a saleable area of 3.1msf. We maintain BUY, with an increased SOTP-based TP of INR 908/sh, to factor in better-than-expected realisation/presales and improving visibility on office assets with the financial closure of the BKC project.
Apollo Tyres (NS:APLO): Apollo Tyres’ consolidated earnings at INR 4.8 bn beat our estimate of INR 4.4bn, led by better-than-expected performance both in India and Europe. In India, both OEM and replacement demand outlook continues to be healthy. Further, management believes weak tyre demand in Europe has bottomed out and expects the same to recover in H2. While input costs are expected to inch up in Q2, we expect Apollo’s margins to sustain above their target of 15% level, aided by: (1) focus on premiumization and profitable growth both in India and Europe, (2) pricing discipline in India, and (3) gradual ramp-up in utilization levels. Management has reiterated that it would not need incremental capacity for at least a couple of years and its strong cash generation would be utilized to pare down debt. This would help boost RoCE, which, if annualized for H1, stands at 16%+, above its target of 15%. On the back of a strong performance in H1, we have raised our FY24-25 estimates by 16%/5%. Maintain ADD with a revised TP of INR433/sh (from INR 415 earlier)—valued at 12x Sep25 earnings.
Alkyl Amines: We maintain SELL on Alkyl Amines (AACL) with a price target of INR 1,921 (WACC 12%, terminal growth 5%). Demand headwinds and competition from Chinese manufacturers could result in a correction in per kg margins. The stock is currently trading at ~48x FY25E EPS. We believe that the current valuation already factors in positives from potential volume growth, after doubling of the acetonitrile plant capacity and ~40% additional capacities of the aliphatic amines plant. EBITDA/APAT were 26/33% below our estimates, owing to a 6% lower-than-expected revenue, higher-than-expected other expenses, offset by lower-than-anticipated raw material cost.
Prince Pipes and Fittings: We maintain our ADD rating on Prince Pipes, with an unchanged target price of INR 745/sh (30x its Sep-25E EPS). In Q2FY24, Prince reported sub-par volume growth of 8% YoY in a strong demand environment (peers delivered 20%+ growth). Management is hopeful of arresting its market share loss from Q3 onwards, after benefiting from various corrective actions it has taken so far. The share of high-value fittings in the sales mix stabilised in Q2FY24. This drove up the EBITDA margin back to 14%. Prince is setting up a greenfield pipe plant in Bihar (~40K MT expected in FY25, Capex INR 1.5bn), which will expand its plumbing capacity by 11%. In bathware, Prince targets INR 80mn revenue in Q3. It expects an EBITDA loss of INR 150-200mn in FY24 and an EBITDA break-even in the next two years.
HG Infra: HG Infra (HG) reported a muted quarter, missing our estimates on all fronts by 11.1/12.1/26.4%. The OB as of Sep’23 stood at INR 106.8bn (~2.6x FY23 revenue). Its FY24 revenue guidance stands at INR 50-54bn (~20% YoY) with an EBITDA margin of ~16%. On the order inflow front, it slashed its guidance further from INR 70-80bn to INR 50-60bn, given a truncated ordering period owing to elections and weaker-than-expected NHAI ordering. Equity infusion guidance for H2FY24/FY25/26 stands at INR 4/2.7/1.6bn. The standalone gross/net debt, as of Sep’23, reduced marginally to INR 6/4.8bn vs. INR 6.7/5.5bn, as of Jun’23 as execution remained muted. The company expects to receive monetisation proceeds from three out of four HAM projects by Nov-23 and from the fourth asset by FY24-end. Given robust OB, likely pick-up in project execution and healthy balance sheet, we maintain BUY on HG, with an unchanged TP of INR 1,252 (15x Sep-25E EPS).
Dilip Buildcon (NS:DIBL): Dilip Buildcon (DBL) reported an EBITDA margin of 12.1% (+54/-74bps YoY/QoQ) in Q2FY24, vs. our estimate of 12.6%, on account of higher input and raw material prices. In HFY24, the company won projects worth INR 26.4bn (i.e. ~27% FY24 OI guidance of INR 100-120bn), taking the Sep’23 OB to INR 239.9bn (~2.4x FY23 revenue). The standalone net debt stood at INR 20.7bn, with net D/E at 0.43x. Out of INR 22.6bn total equity requirement in all 18 HAM, INR 10.7bn has been invested until Sep’23. It expects to infuse another INR 4.5/4.3/2.7/0.4bn in H2FY24/FY25/26/27. It is planning to float own InvIT with Alpha Alternatives as a strategic partner and expects INR 20/40bn in cash/InvIT units by FY25-end. It reduced its FY24 revenue guidance to 6-8% YoY growth, with an EBITDA margin of 12-14%. Given lower interest cost on lower debt, we recalibrate our FY24/25/26 EPS higher and maintain ADD with an increased SOTP-based TP of INR 367/sh (10x Sep-25E EPS, 0.8x P/BV HAM equity investment).
Teamlease Services: Teamlease reported revenue growth of 4.7% QoQ (slightly better vs estimate) but the highlight of the quarter was the improvement in margins. The EBITDA margin expansion was led by improvement in PAPM, decline in core employee cost, stability in DA, and profitability in HR services (ed-tech). The general staffing volume growth was strong, led by festive demand and traction in retail, BFSI, industrial and consumer verticals. The degree apprenticeship (DA) headcount (ex of NEEM program) registered growth and the complete exit of the remaining ~10K NEEM headcount will be complete in Q4. Specialised staffing growth was impacted by the slowdown in IT sector hiring and the recovery in IT staffing will be protracted. The growth will be led by (1) continued volume growth in general staffing, (2) new logo additions, (3) recovery in DA volume growth, and (4) stable specialised staffing, led by strong GCCs. The EBITDA margin is expected to improve gradually, led by improving PAPM, reasonable wage inflation for general staffing, stable core cost structure, and change in business mix. We keep our EPS estimates unchanged for FY25/26E and maintain our ADD rating with a TP of INR 2,900, based on 25x Dec-25E EPS. The stock is trading at a P/E of 26/20x FY25/26E.
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