Results Review For Shree Cement, Siemens, Alkem Labs, Godrej Properties, Lupin

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Shree Cements Ltd. (NS: SHCM ): We upgrade our rating on Shree Cement to ADD from REDUCE earlier with a revised TP of INR 26,600/share as the company delivered a strong margin despite both demand and cost headwinds. Shree’s Q3FY22 standalone volume/EBITDA/APAT fell 9/24/21% YoY on account of weak demand, supply disruption from the Chhattisgarh plant, and elevated power costs. Unitary EBITDA moderated 17/11% YoY/QoQ to INR 1260/MT.

Siemens (NS: SIEM ): Siemens India Ltd (SIL) delivered Q1FY22 revenue of INR 32.4bn (the beat of 4.4%), impacted marginally by COVID-19 and disruption in the supply chain caused by global semi-conductor shortage. EBITDA/APAT missed the estimate by 11.3/10.9% respectively, on account of higher commodity prices and lower forex gains. Consequently, EBIT margins across all segments shrunk both sequentially and annually. On a YoY basis, all businesses saw growth, with mobility growing the maximum (50%). Overall, order inflow for the quarter was strong at INR 53bn, +65% YoY, taking the order book to an all-time high of INR 155.8bn. SIL won a large INR 9bn worth of Pune Metro Line 3 Corridor order for electrical and mechanical systems to be executed as part of a consortium, together with Siemens AG (DE: SIEGn ), Siemens Mobility GmbH, and Alstom (PA: ALSO ) Transport India Ltd. Given punchy valuations, we maintain REDUCE on SIL, with an increased TP of INR 2,120 (38x Dec-23 EPS; earlier INR 2,000, rollover to Dec-23). Key risks: earnings upsides on account of potential expansion in margin owing to (1) rise in digitalisation and new-age technology, (2) increasing share of the private sector in the order mix, (3) abating supply chain issue and (4) hardening of commodity prices.

Alkem Labs: Alkem’s Q3 revenue/EBITDA beat our estimates by 2%/18%, led by good growth in India and international markets. It expects to outperform the IPM in the medium term. Despite heightened price pressure in the quarter, it remains confident of achieving double-digit growth in the US from FY23. Though the company has guided for a potentially subdued Q4 (2-3% margin impact due to higher API prices), we believe the near-term headwinds are transitory and remain confident in the company’s execution capabilities over the medium term. We raise our EPS estimates by 9%/4% for FY22/23e to factor in the Q3 beat and lower taxes and arrive at a TP of INR 4,200/sh, based on 24x Sep-23e EPS. Maintain BUY.

Godrej Properties (NS: GODR ): Godrej Properties Ltd (GPL) reported muted presales of 2.2msf (-7.5%/-38.7% YoY/QoQ), valued at INR 15.4bn (+3.6%/-40% YoY/QoQ), with the launch of three new projects/phases contributing INR 6.2bn to sales. Delay in regulatory approvals led to planned launch slipping to Q4FY22. GPL has revisited its earlier decision of entering a 50:50 partnership with DB Realty (DB) and forming an SPV to undertake slum rehabilitation and MHADA redevelopment projects in MMR, for an investment of INR 7bn, with a likely presales potential of INR 150bn. Given concerns raised by various stakeholders, analysts, and minority investors on this arrangement, GPL has decided not to proceed with this investment in DB or associated platform, whilst keeping options open for projects with DB on a case-to-case basis. We believe this may assuage investor concerns to a large extent. We maintain REDUCE with a SOTP valuation of INR 1,800.

Lupin (NS: LUPN ): Lupin’s Q3 revenue/EBITDA missed our estimates by 1%/22%, primarily due to pressure on gross margin and higher R&D spending. Adj. EBITDA margin dipped to 12.7% (-80bps QoQ, -595bps YoY), the lowest in the past seven quarters. After revising its margin guidance (in Q2), down from 17-18% to 16%+ for H2FY22, Lupin has now again revised it downward to ~14% for the next 2-3 quarters, despite savings in speciality burn (Solosec write-off). While material opportunities like gSpiriva, gSuprep, Peg-F (US) and gFostair (UK) in its complex pipeline are expected to fuel growth in the medium term, its ability to generate significant operating leverage remains elusive. We cut our FY23/24 estimates by 23%/4% to factor in the revised outlook and revise our TP to INR765/sh, based on 20x Sep-23e (vs 21x Sep-23e earlier). Downgrade to SELL.

Torrent Power: Torrent Power (TPW) reported a strong Q3FY22 result, surpassing the consensus estimate. Consolidated revenue increased 27.6% YoY to INR 37.7bn, largely led by higher merchant sales, lower T&D losses, and gain from the sale of LNG. This led to EBITDA rising 7.3% YoY to INR9.3bn. Deleveraging and a fall in interest rates have led to lower interest expenses. PAT increased by 14.8% YoY to INR3.7bn, surpassing our consensus estimates. While PLF across its gas-based stations has declined due to the rise in LNG prices, TPW has managed to maintain its PAF, ensuring recovery of fixed charges. We maintain our TP of INR555 as well as the REDUCE rating, since the stock, having risen steeply recently, is looking less attractive at the current CMP.

Brigade Enterprises (NS: BRIG ): BRGD reported presales of 1.1msf (-29%/-17% YoY/QoQ), valued at INR 6.8bn (-26%/-18% YoY/QoQ). In the retail segment, consumption recovered to 100% of the pre-COVID level in Q3FY20. However, 15% of the tenants will still get COVID relief in Q4FY22, specifically the impacted sectors. BRGD expects to book 70-75% of pre-COVID rentals in FY22. The hospitality segment witnessed a strong demand revival and became GOP positively, with occupancy at 59% in Q3FY22, which is the pre-COVID level vs 45% in Q2; the ARR touched 70% of the pre-COVID level. Given BEL’s strong cash position of INR 13.1bn, strong business development pipeline, and healthy balance sheet, we remain constructive. We maintain ADD, with an unchanged TP of INR 530. We have cut our FY23/24 estimates to factor in higher input costs/interest/depreciation.

Birla Corporation (NS: BRLC ): We maintain our BUY rating on Birla Corporation (BCORP), with a revised TP of INR 1,718/share (9x Dec-23E consolidated EBITDA). Poor demand and pricing mainly in the east along with rising fuel prices led to a consolidated decline of 6/2/39/64% YoY in volume/revenue/EBITDA/APAT. Demand picked up in Q4, also aiding cost-pass thorough capabilities. BCORP’s 4mn MT integrated plant in Maharashtra will get operational by Mar-22E, thus raising its capacity to 20mn MT. We continue to like BCORP for its large retail presence in the lucrative north/central regions and various cost-cutting initiatives. We expect the leverage ratio to cool off FY23E onwards on healthy cash flows and lower Capex outgo in the next two years. These should drive valuation rerating.

V-Guard Industries: V-Guard delivered a beat on revenue, but its EBITDA margin saw a sharp decline, resulting in lower-than-expected EBITDA. Revenue grew by 16% YoY (HSIE 12%), with the two-year CAGR at 24%. Volume grew 11% YoY for 9MFY22. Electronics, electrical, and consumer durables segments were up -4/19/28% YoY. South and non-south delivered 15/18% YoY growth. The key highlight of the quarter was a miss in EBITDA margin despite an in-line gross margin. EBITDA declined 26% vs. the expectation of an 8% decline. Higher overhead cost and unfavorable mix resulted in the weaker margin. As summer approaches, expectations for cooling products and their derivatives (stabilizer for V-Guard) are high, after the washout of the previous two summers. All eyes are on the upcoming season’s demand traction, with the possibility of some seasonal benefits shifting from Q4 to Q1. Seasonal product traction will determine margin recovery. We reduce our FY22/23/24 EPS estimates by 9/3/3%. We value V-Guard at 35x PE on FY24 EPS to derive a target price of INR 275. Maintain ADD.

HG Infra: HG Infra (HG) reported revenue/EBITDA/APAT of INR 9.2/1.5/0.9bn, a miss of 3.6/6/6.7%. The order book (OB) stands at INR 79.5bn (~3.15x FY21 revenue). With 9MFYTD revenue of INR 25.8bn and INR 10bn expected in Q4FY22, HG will most likely surpass its FY22 revenue guidance of INR 34bn. 9MFYTD order inflow stood at INR 43.2bn. The appointed date of five HAM projects is expected in H1FY23, with an in-principle financial closure already in place. The net debt remained flat at INR 1.6bn (similar level as in Sep-21). HG has pushed back monetisation of three HAM projects (COD by Q4FY22), from Jun-22 to Mar-23, in order to get a better valuation. Given robust order inflows and strong execution, we increase our EPS estimate. We maintain BUY with an increased SOTP-based TP of INR 988 (14x Dec-23E EPS, HAM 1x P/BV).

Somany Ceramics: We maintain BUY on Somany Ceramics with an unchanged target price of INR 1,130/share (13x Dec-23E consolidated EBITDA). We continue to like SOMC for its strong retail distribution, improving product mix, and tightening working capital (WC). In Q3, Somany reported 19% YoY consolidated revenue growth, driven by similar growth across both tiles and bathware businesses. However, EBITDA fell 2% YoY, owing to the elevated gas price impact. The company continues to keep a tight leash on its debtors. Timely capacity expansion in Q4FY22 should bolster its volume and market share growth.

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