Siemens (NS:SIEM): Siemens India Ltd (SIL) delivered robust Q1FY23 revenue/EBITDA/APAT of INR 36.5/5.5/4.4bn, beating our estimate by 0/32/43%. The EBITDA margin expanded both annually and sequentially by 482bps and 422bps resp. This expansion was on account of lower commodity inflation/better mix (+135bps YoY gross margin), improving supply chain and operating leverage advantage. Profitability increase was driven mainly by higher volumes, better price extraction, and positive forex & commodity effects. All segments recorded annual growth, driven by continued expansion in capex across most market verticals. SIL received new orders worth INR 54.5bn (+2.8/+35.8% YoY/QoQ). With this, the implied order book stands at INR 190bn (+11% QoQ). We increase our estimates to factor in margin improvement. We maintain ADD rating on SIL, with an increased TP of INR 3,313 (rolled over to 46x Dec-24 EPS). Global headwinds, including geopolitical tensions, inflation resurgence, and rising interest rate constraints continue to remain the key risks to our thesis.
Eicher Motors (NS:EICH): Eicher Motors Q3 earnings beat estimates, largely due to higher-than-expected other income and improved performance at VECV, even as its operating performance was lower than our estimates. RE targets to launch multiple new products over the next 18-24 months, which would provide an upgrade option to its existing customers. The recently-launched Hunter has been very well-accepted and it seems to be attracting newer customers to RE, including women bikers. With the launch of the Hunter, RE is now rebalancing between growth and profitability and aims to make its product more accessible to customers. Apart from this, it has recently unveiled the Super Meteor 650, which offers many firsts for RE in this category. While exports are likely to remain weak in the near term due to geopolitical concerns, in the long run, we expect them to evolve into a strong growth story. Given the better-than-expected volume pick-up in Q3, we have raised our forecast for FY23 by 5.5%. However, we pare down our estimates by 1/6% over FY24-25E as we realign our margin estimates to its revised strategy. Reiterate ADD with a revised PT of INR of INR3,351 (from INR 3,859 earlier).
Bharat Forge (NS:BFRG): Bharat Forge's (BHFC) Q3 consolidated earnings missed estimates, largely led by a higher interest burden even as operational numbers (including standalone performance) were in line. Overall, management believes FY24 is expected to be a turnaround year for BHFC, given: 1) the sharp uptick expected in the defense segment from here on, led by its new order wins in exports (worth INR 20bn) and the much-awaited order win for ATAGs in coming quarters 2) huge outsourcing opportunities to BHFC in the renewables segment on the back of its recent acquisitions of Sanghvi Forgings (targeting 2x revenues in current fiscal) and JS Auto (new order wins worth INR2.5 bn) 3) turnaround expected in its overseas subsidiaries on the back of ramp-up of new Al forgings lines in US and Europe, for whom, capacities are fully booked with confirmed orders 4) tremendous growth opportunities envisaged in the aerospace segment. This is apart from the strong demand momentum it is witnessing in auto segments, from both domestic and export markets. However, given the weaker-than-expected Q3, we lower our FY23 estimates by 16%, while maintaining our FY24-25 earnings, given the healthy outlook across key segments highlighted above. Reiterate BUY with an unchanged TP of INR 928.
Torrent Power (NS:TOPO): Torrent Power (TPW) Q3FY23 PAT grew 86% YoY to INR6.8bn, led by (a) a reduction in franchisee T&D losses, (b) increased contribution from existing distribution circles and newly-acquired Dadra and Nagar Haveli & Daman and Diu (DNH&DD) circle and (c) gain from a sturdy sale of LNG. However, the PLF across its gas-based stations remains subdued due to unprecedentedly high RLNG prices. TPW’s 115MW SECI V wind project is now expected to commission in Q1FY24 due to a delay in the construction of the EHV line, while the CoD of its 300MW TPLD solar project is expected in Q3FY24. The PPA for its 300 MW SECI XII wind project at a tariff of INR2.94/unit is yet to be signed. The management has retained its INR15bn annual capex program across the regulated business (which would drive the RoE, going ahead) and INR2.5bn across its franchisee business to lower T&D losses. We have largely maintained EPS estimates for FY23E/24E but slightly tweaked our TP to INR545 vs INR552 earlier, factoring in the change in the regulated asset. We maintain our ADD rating.
IRB Infrastructure Developers Ltd (NS:IRBI): IRB reported revenue/EBITDA/APAT of INR 15.1/7.4/1.4bn, (behind)/ahead of our estimates by (0.5)/7.1/32%. EBITDA margin came in at 49.2%, beating our estimate of 45.7%. Consequently, APAT came in at INR 1.4bn (+94.5%/+3.2x YoY/QoQ a 32% beat). IRB refinanced the project loan for another private InvIT SPV through the issuance of NCDs with a fixed coupon rate of 8.9% p.a. As of Dec’22, the order book (OB) stood at INR 191.2bn (~3.2x of FY23E revenue). The consolidated gross debt reduced to INR 126.7bn vs. INR 127.1bn, as of Sep’22. IRB expects to infuse equity of INR 2/7/2bn in Q4FY23/FY24/FY25. It guided for order inflow (OI) of INR 60-80bn for Q4FY23 and a construction revenue of INR 45bn for FY23. We maintain ADD rating on the stock with an increased SOTP target price of INR 306/sh as we roll forward to Dec-24 estimates. EPS change is reflective of a better margin on improved toll.
Fine Organic Industries Ltd (BO:FINO): Our ADD recommendation on Fine Organics with a TP of INR 5,157 is premised on (1) leadership in oleo-chemical-based additives in the domestic and global markets with a loyal customer base (2) a unique business model with high entry barriers (3) diversified product portfolio and (4) pricing power. Q3 EBITDA/APAT was 19/28% below our estimates, owing to higher-than-expected raw material costs, higher-than-expected operating expenses, and higher-than-expected tax outgo.
CESC (NS:CESC): CESC’s consolidated PAT in Q3FY23 remained largely flat at INR3.4bn due to lower profit across the Haldia project (under-recovery of O&M and fuel cost) and higher losses across the distribution franchisee (DF) segment. Dhariwal too reported a flat 2% YoY growth in PAT to INR510mn, while standalone PAT came in at INR1.9bn (+1.1% YoY). However, the Noida business reported a strong 103.7% YoY rise in PAT to INR550mn, led by a strong 15% rise in power demand and improved incentives. In the Chandigarh discom, CESC is yet to receive an order from the apex court and, hence, we have not included it in our valuation. We have maintained our earnings estimates for FY23/24 and retain our BUY rating on CESC at a SoTP-based TP of INR108. Our positive stance on CESC is also based on the grounds that the company continues to trade at an attractive valuation of 6.6xFY25P/E and 0.7xFY25 P/BV.
Borosil (NS:BORO) Renewables: Borosil Renewables’ (BRL) Q3FY23 PAT declined significantly ~51% YoY to INR225mn, as the cost of raw materials, fuel & power, and employee expenses continued to remain elevated. Sales volume, on a quantitative basis, grew 3% YoY. Realization decreased 5% YoY to INR134.3/sqmm, as BRL was unable to fully pass on the escalated input cost due to intense competition from Chinese players this impacted its EBITDA and margin by 52% YoY and 2061bps respectively. Q3FY23 revenue de-grew by 4% YoY to INR1.6bn. Furthermore, the discontinuation of anti-dumping charges imposed on Chinese solar glass in August 2017 posed a challenge for BRL for sustaining its profitability levels amidst the rise in competition and input costs. Trial production has begun in SG-3 and commercial production is expected soon which would double BRL’s sales in coming quarters. Further, to contain the price decline and maintain the current margin level, BRL has increased its export share to 36% of the total sales in Q3FY23 and plans to retain this, going ahead, given exports command higher margins. Therefore, we maintain our ADD rating with a revised TP of INR529/share vs INR609/share earlier, factoring in (1) limited domestic solar glass availability (2) commissioning of SG-3 in Q3FY23 and (3) ramp-up of domestic manufacturing of solar modules.
Ahluwalia Contracts (India) Ltd (NS:AHLU): Ahluwalia Contracts (AHLU) reported revenue/EBITDA/APAT of 7.4/0.7/0.5bn, missing our estimates on all fronts by 13/21.4/25.1%. With FY23 revenue guidance at INR 30bn, AHLU maintained 10-15% YoY growth for FY23, with reduced EBITDA margin (incl. other income) in the range of 10-11%. Margin is expected to improve from FY24 with softening of commodity prices, a narrower gap of indices with input prices, slightly lesser competitive intensity, and new projects bid at elevated input price assumption. FYTD23 order inflow (OI) came in at INR 40.2bn with Q4FY23 guidance of another INR 5bn. Excluding the L1 of INR 6.7bn, the FYTD23 order book (OB) stands at INR 81.1bn (~2.7x FY23E Revenue). On the diversification front, client-wise, government orders form 82.5% of OB and, segment-wise, institutional and hospital are the major drivers, contributing 39.8/29.4%, with infra/residential/commercial/hotel contributing 11.8/11.7/6.7/ 0.8%. Geography-wise, AHLU is present in 16 states with East/North/ West/South/international regions contributing 42/35.8/11.5/5.3/ 5.4%. We maintain BUY on the stock, with a reduced TP of INR 568/sh (13x Dec-24E EPS).
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