Results Review for State Bank of India, Titan, CDSL, Balaji Amines, Kalpataru

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By Krishnan ASV

State Bank Of India (NS: SBI ): State Bank of India’s (SBI) Q1FY22 earnings surprised (26% higher than our estimates) due to higher income from recoveries. SBI continued to surprise positively on the asset quality front for a third straight quarter with slippages at 2.8% (annualized), better than private banks (AXSB: 4.5%; ICICIBC: 4.2%). The incremental restructuring during the quarter was at ~0.2% of loans. With the back-book adequately provided for (PCR at 68%), and ~0.4% of loans as a COVID buffer, we expect normalization of credit costs in H2FY22 (assuming no third wave). Loan growth was soft (+6% YoY) on account of muted economic activity, although the bank indicated a robust pipeline of undrawn limits in the corporate book. SBI’s journey to a 1% potential RoA is contingent on the bank finding ways to reflate its core profitability (PPOP stagnant at ~1.8% of assets over the past 8 quarters), especially by way of higher asset yields (soft in Q1FY22 that reflected fewer deployment opportunities, a low-risk corporate portfolio, and a mortgage-heavy retail book). We maintain BUY with a revised target price of INR 501 (earlier INR 490), valuing the standalone bank at 1.0x Mar’23 ABVPS - this revision reflects the valuation of listed subsidiaries.

Titan Company Ltd (NS: TITN ): Titan’s 1QFY22 top line grew 76% YoY. Jewellery (ex-bullion) grew 115% (2-yr CAGR: -21%). That said, Titan’s relative market share gain (in the jewelry) doesn’t seem material as most big-box jewelers grew at a similar clip or faster. Profitability print beats expectations, primarily driven by the jewelry segment. The jewelry margin stood at 6.5% (HSIE: 1%). Non-jewellery recovered ~44% of 1QFY20 sales (i.e, pre-COVID sales) but was disappointed in profitability. We marginally increase our FY23/24 EPS estimates by 3% each to account for the lower cost of retailing. Our DCF-based target price stands revised to INR 1,500/sh (earlier INR1,400/sh), implying 51x Jun-23 P/E. Maintain SELL.

Central Depository Services India Ltd (NS: CENA ): We maintain our BUY rating, following a strong revenue performance (+13.8% QoQ), driven by continued traction in transaction income and an uptick in annual issuer charges. Key attributes that underscore our positive stance include (1) strong momentum in transaction revenue (+20% QoQ), driven by retail activity (online brokers) and pledge income, (2) continued gains in BO account market share (+1000bps YoY to 64%), (3) sustained growth in annual issuer charges (annuity income), driven by BO accounts addition and unlisted opportunity, (4) investments in technology for enhanced capacity/security, (5) high cash generation and net cash of INR 9.1bn and, (6) +27/31% revenue/EBITDA CAGR over FY21-24E, following a strong FY21. The operating margin expanded 156bps QoQ to 61.5% (stood higher than our estimate), led by operating leverage, offset by higher provisions and an increase in regulatory cost. We increase our revenue estimates for FY22/23E by 10.7/14.6% and core P/E multiple to 45x (40x earlier). FY22/23E EPS increases by 17.8/17.6%. We value CDSL on a SoTP basis by assigning 45x to June-23E core profit and adding net cash to arrive at a target price of INR 1,440. The stock is trading at a P/E of 48.3/40.7x FY22/23E EPS.

Balaji Amines Ltd (NS: BAMN ): Our ADD recommendation on Balaji Amines (BLA) with a price target of INR 3,805 is premised on (1) robust demand from the pharma and agrochemical industry that comprises 77% of its revenue mix; (2) ramp-up in BSCL's production; (3) doubling of methylamines by FY24; (4) capacity addition of acetonitrile and taking up the capacity to 25.5ktpa by FY23; and (5) production linked incentive scheme that provides the right tailwinds for long-term volume growth. Q1 EBITDA/APAT was 17/22% above our estimates, owing to lower-than-anticipated raw material cost, lower-than-expected other expenses, lower-than-expected finance cost, and lower-than-expected tax outgo.

Kalpataru Power Transmission Ltd. (NS: KAPT ): Kalpataru Power (KPTL) reported revenue/EBITDA of INR 15.8/1.6bn, a miss of 6/7%. APAT too missed our estimates by 21% on higher-than-expected interest cost and taxes. KPTL secured new orders worth INR 8.6bn in Q1, taking the order book (OB) to INR 134bn. Management has guided for 10-15% topline growth in FY22 with double-digit margins. It expects to achieve a net cash status by FY22, with INR 7bn of cumulative cash flow from the transmission asset divestment and Indore real-estate project. The Shubham logistics monetization has been deferred by a couple of years, owing to limited interest. We roll forward our SOTP target price to INR 590/sh (Jun-23E, INR 560 earlier), maintain BUY, and retain our earnings estimates.

Nocil Ltd (NS: NOCI ): Our BUY recommendation on NOCIL with a target price of INR 330 is premised on (1) ramp-up in capacity utilization, (2) robust volume growth on the back of a pick-up in demand in the tyre industry, and (3) expansion of margin with focus on specialized rubber chemicals. We expect NOCIL’s PAT to grow at 27% CAGR over FY22-24E, led by 25% CAGR in EBITDA. In the absence of major Capex over the next two years, the RoCE shall expand from 9.6% in FY22E to 14.2% in FY24E and generate an FCF of INR ~5bn over FY22-24E. Q1 EBITDA/APAT was 43/58% above our estimates, owing to an 8% rise in revenue, lower-than-anticipated raw material costs, lower-than-expected other expenses, and lower-than-expected tax outgo.

JMC Projects (India) Ltd (NS: JMCP ): JMC Projects (JMC) reported revenue of INR 11.2bn (+2.4x/+5.5% YoY/QoQ), 6% below our estimate. However, EBITDA/APAT missed our estimate by 7/21% on higher commodity prices, revenue mix, and COVID-related expenses. The order inflow was robust at INR 46.5bn, taking the order book (OB) to an all-time high of INR 159bn. The road assets were affected by COVID and farmers' agitation, with daily collection declining to INR 4.5mn (vs INR 5.3mn in Q4FY21). JMC rerating may continue, given (1) an all-time high order book (~4x FY21 revenue); (2) potentially stronger balance sheet, post-restructuring of BOT assets by Q3FY22; and (3) likely growth outperformance on the back of robust order backlog. We upgrade our FY22/23 EPS by 5.6/9.2% and roll forward our valuation to Jun-23E. We reiterate BUY with an increased target price of INR 149 (11x Jun-23E EPS, INR 11/sh for BOT assets).

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