Shree Cements Ltd. (NS:SHCM): We maintain our REDUCE rating on Shree Cement (SRCM) with a revised TP of INR 28,700/share, owing to its expensive valuation. SRCM’s standalone revenue grew 5% YoY to INR 32.1bn on healthy cement pricing and jump in power sales, while cement volume declined. EBITDA fell 11% YoY to INR 9bn due to higher energy costs and op-lev loss. Unitary EBITDA cooled off 11% YoY to INR 1,378/MT (down 7% QoQ). APAT rose 6% YoY to INR 5.8bn on a large jump in other income and lower capital charges. Working capital increased in H1, pulling down OCF. Capex spending picked up in H1, as SRCM has multiple expansions underway until FY24E.
Dr. Reddy’s Laboratories Ltd (NS:REDY): Dr Reddy’s Q2 revenue/EBITDA/PAT beat our estimates by 12%/18%/24% due to strong growth in India and EM markets, partially led by its COVID portfolio. US business grew ~8% QoQ, led by a ramp-up in existing products and new launches, including gVascepa. We expect US growth to accelerate in H2 with improved launch momentum (company guidance) and further ramp-up in gVascepa and gRevlimid (in Canada). The medium-term outlook for the US remains strong with opportunities such as gRevlimid (settled), gCopaxone, and gNuvaring in the pipeline. The Sputnik V opportunity in India stands reduced, in our view, given the vaccine penetration (booster dose/Sputnik light trials ongoing). We revise our estimates by 4%/-4% for FY22/23E to factor in the Q2 beat/margin moderation and roll forward to Sep’23E EPS to arrive at a TP of INR5,225, based on SOTP of 23x Sep’23E EPS, NPV of INR249 for gRevlimid, and INR27 for Sputnik V. Maintain ADD.
Cadila Healthcare (NS:CADI): Cadila’s Q2 revenue grew 3% YoY, led by decent growth in India and EMs. EBITDA margin, at 22.7%, was in line, given lower R&D and other expenses. It expects US business to grow 5% in FY23. But we are cautious on the outlook, given potential competition in its key (high-margin) product Asacol HD, which could affect pricing. Moreover, the new launches in the US are contingent on Moraiya resolution. We see limited upside in ZyCov–D vaccine, given the delay and incremental competition in the adolescent segment. We cut our FY22/23E estimates by 1%/10% to factor in the US business’ tepid outlook and roll forward to Sep’23E EPS to arrive at a TP of INR525, based on 21x Sep’23 EPS (vs 22x earlier) and NPV of INR11/22 for COVID vaccine/gRevlimid. REDUCE.
Shriram Transport (NS:SRTR) Finance Company: Shriram Transport Finance’s (SHTF) Q2FY22 earnings surprised expectations, largely on the back of marginal improvement in asset quality that necessitated lower impairment provisioning. The stressed pool (GS-II + GS-III) tapered off by 200bps sequentially to 20.6% of loans on account of an improvement in the macro environment and a steady rebound in collections and recoveries. SHTF continued its business momentum with disbursals at INR179bn (125% of pre-COVID levels) and the management is confident of achieving double-digit AUM growth by Q4FY22. With the current stock of provisions at 7.6% of AUM (GS-III PCR at 49%), we expect normalised provisioning during H2FY22. We downgrade our FY22 earnings estimates by 11% to factor in sticky credit costs and maintain ADD with a revised target price of INR1,552 (1.5x Sep’23 ABVPS).
Ajanta Pharma Ltd (NS:AJPH): Ajanta’s Q2 revenue/EBITDA came in 8%/9% ahead of our expectations, primarily on account of robust growth in Indian and African businesses. EBITDA margin, at 29.7%, was broadly in line as higher other expenses were offset by savings in staff cost. The company has guided towards a higher opex of ~INR2.25bn per quarter vs. the average run-rate of ~INR2bn in preceding quarters, which is likely to offset some benefits on account of operating leverage. However, the growth outlook for the branded generic business, such as India, Africa (outperformance to continue) and US generics business (new launches led), remains strong. We expect 15%/16% revenue/EPS CAGRs over FY21-24e. We revise our EPS by 4%/-5% for FY22/23 to factor in Q2 beat/ margin moderation and roll forward to Sep’23 EPS to arrive at a TP of INR2,440/sh, based on 23x Sep’23e EPS. ADD.
Motilal Oswal (NS:MOFS) Financial Services: Pure broking revenue along with NII on MTF book beat estimates, driving capital markets APAT to INR1.4bn (+51% QoQ). Additionally, cash market share improved for the first time in six quarters. AMC’s (ex-WM) APAT beat was driven by improved EBITDA margin and exit from GR Infra. A significant MTM gain (INR2.7bn) resulted in MOFS (excluding MOHFL) clocking an APAT of INR5.3bn (+1.8x QoQ). We raise our revenue estimates by 25/10% to factor in higher cash market share, funding book, profit from exits in PE segment, FV of PE funds, and strong response on IBEF IV fund. We upgrade the stock to ADD with a revised target price of INR1,000 (15x/25x Sep’23E broking/AMC APAT, + 0.7x/0.5x for Sep’22E treasury/MOHFL).
DCB Bank Ltd (NS:DCBA): DCB Bank’s (DCBB) Q2FY22 earnings were ~10% below estimates on account of muted asset growth and lower fee income traction. Asset quality witnessed healthy improvement with ~0.3% net slippages, driven by strong upgrades and recoveries in the quarter. Although the headline numbers indicate a large stressed pool (gross slippages at 6.4%, restructured book at 6.8%), DCBB’s granular secured book (~95%) provides comfort on eventual low LGDs from the stressed portfolio (already evidenced in H1FY22). PCR inched up to 45%, alongside a 15% provisioning on the restructured portfolio. While asset quality remains on the mend, we opine that muted asset growth, margin compression and subdued fee income traction will continue to weigh down on return ratios. We hack our FY22/FY23 earnings estimates by 20% and 9% respectively. Maintain ADD with a revised TP of INR132 (1x Sep’23 ABVPS).
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