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SRF (NS:): We maintain our ADD rating on SRF, with a target price of INR 2,650 on the back of (1) continued healthy performance in the specialty chemicals industry; (2) solid documentation of the best; and (3) deploying CAPEX in the high-growth chemicals industry over the next 3-4 years to support opportunities from the agrochemical and pharma industries. EBITDA/APAT was 24/24% below our estimate, due to a 7% fall in revenue, higher-than-expected raw material costs, offset by lower-than-expected depreciation, and higher-than-expected other income.
Marico (NS :): Marico posted in-line performance in both revenue and EBITDA margins. Consolidated revenue increased by 3% YoY while internal revenue/volume increased by 1/3% YoY (three-year revenue/volume CAGR at 11/7% vs. HUL’s 10/3%). Domestic volume was led by the price cut in Saffola oil, which was under pressure in Q1. PCNO revenue/volume was down 11/3% YoY (market share continued to expand) while VAHO value increased by 2%. VAHO volume saw an impact of 1% due to reduced packet size. Domestic demand for the bulk sector continues to be weak; however, the premium continues to grow. The international business maintained its growth, increasing by 11% CC YoY (10% three-year CAGR). Gross margin expanded 117bps YoY to 43.6% Sequentially lower due to higher cost of goods sold. We expect the margin to further improve the ongoing price adjustment in copra. EBITDA grew by 2% (HSIE 6%) and came in at 17.3%. We cut our FY23 EPS estimates by 2%. We are building on a revenue CAGR of 11% over FY21-25E and an EBITDA margin of ~20-21% for FY24-25. We choose Marico, given its ability to drive growth in its core products, D2C/food drive initiatives, and margin increases. We value the stock at 42x Sep-24E EPS to get a target price of INR 565. Keep ADD.
TVS Motor Company Ltd. (NS:): TVS’ Q2 PAT, at INR 4.1bn, was ahead of our estimate of INR 3.9bn due to better-than-expected revenue growth as margins were in line. The revenue hit was driven by a higher-than-expected ASP. TVS continued to outperform peers in H1 as well and saw a 480bps market share gain in scooters to 24.1%. Also, it regained its lost share in motorcycles in Q2, ending H1 with stable market share YoY. Even in exports, while the 2W industry is down 6%, the export of TVS is 2%. With supply challenges now largely behind us, we expect TVS’ performance to continue in H2 as well on the back of its ramp-up of new launches, including the new Ronin, Raider, and Jupiter 125. Even in EVs, it seems like ahead of its listed peers with a strong product pipeline available in the next 24 months and has signed up with industry experts and JV partners to emerge as a leading player in EVs. Due to better-than-expected volume growth in H1 and improved outlook, we increased our TVS earnings by 19% each in FY23-FY25. We maintain BUY with a revised TP of INR 1,275/sh (from INR 1,030 earlier) as we move forward to September 24.
Hero Motocorp (NS :): Hero MotoCorp’s (HMC) Q2 PAT (adj), at INR 7.6bn, was ahead of our estimate of INR 7.1bn due to higher-than-expected revenue growth, as margins were in line. Revenue beat expectations on the back of an improved mix and inflation picked up in H1. While HMC continues to maintain its dominance in the 100-110cc segment, it aims to improve market share in the >125cc segment, led by: (1) promoting customer acceptance of the X-Tec models; (2) upcoming new launches in each of the main product segments including 125cc and premium; (3) the unveiling of models under their tie-up with Harley. After a subdued Q2, management saw 20% YoY growth in the 32-day festive period. Management remains optimistic about the revival of demand in the 2Ws, given the positive rural sentiment and the upcoming wedding season. This, combined with the cost of input lubrication, is likely to drive margin expansion (around 200bps included) over our forecast period. Given the lower-than-expected demand in Q2, we are reducing our earnings estimates by 6-8% over FY23-25E. At 13.7x FY24 PER, the valuation is attractive. We maintain BUY with a revised TP of INR 3,086 (from INR 3,347) as we proceed to the Sep-24 forecast.
City Union Bank (NS:): Despite another low earnings, City Union Bank’s (CUBK) Q2FY23 earnings beat our estimates due to lower-than-expected debt costs (1.1% y-o-y). Slippages continued to remain elevated (~2.7%), partly offset by restorations and upgrades, driving GNPA to 4.4% (Q1FY23: 4.7%). However, the total pressure pool (NNPA + restructured + SR + SMA-2) remained stuck at ~9.8%. Management continued to guide 15-18% growth in loans and continued healthy growth in returns, which could translate into lower cost of debt in FY23. On the back of a bad credit cycle and the current pricing environment, CUBK is on track to achieve its 1.5% RoA target for FY23 – however, we highlight CUBK’s deposit-side strategy as something to watch. We revise our FY23 forecast for higher loan growth and maintain BUY, with a TP of INR265 (2.4x Sep-24 ABVPS).
TTK Prestige (NS: ): TTK Prestige’s Q2FY23 revenue was slightly off while its EBITDA margin came in line. Standalone revenue was YoY (HSIE 4%) on a higher basis, 12% CAGR for three years. Domestic sales rose 1% while exports were down 28% YOY, affected by the economic slowdown and inflationary pressures overseas. The company’s core business was broadly based with cooks/cookers/electrical appliances growing at 11/11/13% in three-year CAGR. Gross margin contracted 11/200bps YoY/QQQ to 39.7%. With the company still maintaining a high cost base, we expect the benefits of RM lubrication to be evident in Q4FY22. EBITDA margin reached 14.8% (in line). EBITDA down 12% YoY (+ 11% three-year CAGR) vs. A 9% drop is expected. Although home improvements and new housing developments are expected to continue, we believe that growing competition (Butterfly renewed under Crompton, etc.) and soft demand from the middle economy segment will continue to maintain TTK’s earnings. We cut our FY23-25 EPS by 2% each. We value the stock at 35x Sep-24 EPS to get a TP of INR 950. We maintain a REDUCE rating.
JK Lakshmi Cement (NS:): We maintain our BUY rating on JK Lakshmi Cement (JKLC) with an unchanged price target of INR 740/share (8x Sep-24E consolidated EBITDA). We remain optimistic about the company with a focus on increasing commercial sales and the combined share of cement / AFR consumption and increasing the lead distance. Its current low leverage and healthy cash flow will support its upcoming Udaipur expansion, without stressing the balance sheet and keeping RoE growing. In Q2FY23, while JKLC reported muted volume growth of +2% YoY, it reported a slow QoQ cognitive decline and fixed cost management moderated the consolidation of EBITDA to 23% QoQ (-17% YoY) in INR 648 by MT. While JKLC reported a ~3% QoQ fuel cost increase in Q2, it has driven another ~8% QoQ increase in Q3 and expects to decelerate from Q4FY23 onwards.
Mahindra Lifespaces: Mahindra Lifespaces Developers Ltd (MLDL) reported stable presales of INR 4bn (+32/-34% YoY/QoQ, in line with estimates) in the weak quarter, with volume of 0.47msf ( +21 / -28) % YOY/QQQ). New launches, mainly Nestalgia Ph 1 in Pune, contributed 35% to presales. H1FY23 presales stood at INR 10bn (FY22 presales were at INR 10.2bn). The IC & IC segment saw muted performance, with 22.3acres leased to MWC for INR 680mn (-8/-42% YoY/QoQ), although pipeline prospects are strong and MLDL expects to beat FY22 performance in -FY23. MWC Jaipur accounted for 87% / 84% by volume / value. MLDL has a strong BD pipeline of INR 50bn, with INR 20bn worth of projects in advanced stages of completion (including one redevelopment project in MMR). MLDL expects to end the year at least with INR 30bn of BD consolidation (FY23TD BD consolidation stands at INR 17bn). Given the tailwinds in the corporate business, the upcycle in the residential business, a strong balance sheet, a reliable brand image, and a strong business development pipeline, we remain bullish on MLDL and maintain a BUY rating, with a NAV-based TP unchanging. of INR 521/sh.
Orient Electric: Orient Electric delivered another disappointing quarter of performance across revenue and margins. Revenue decreased by 14% (HSIE +3%) with a three-year CAGR of 6%. The lost revenue was an account of ECD’s slower performance (3% three-year CAGR vs. 10/16/24% for Crompton/Havells/V-Guard). Orient saw a slowdown in fans due to channel deregulation (an industry-wide phenomenon) and sales returns led by distribution and cancellation periods. We expect lost sales due to BEE-led destocking from Q4FY23; however, the scale-up of the distribution revamp remains to be seen. Lighting and switchgear revenue beat estimates, growing 15% YoY and 10% three-year CAGR (Havells/Crompton posted 16/-2%). Light growth was broadly based, with BB delivering 40% YoY growth. GM, at 26.3%, was a loss, associated with higher A&P spending and consulting costs; EBITDA margin gained 800/400bps to 2.3% (HSIE 7.8%). EBITDA declined 81% YoY to INR 116mn. Constant misses and uncertainty about the ability to perform compared to peers often depend on the stock. We have cut our EPS by 15/5/5% for FY23/24/25. We value the stock at 30x Sep-24 EPS to reach a TP of 265. Save REDUCE.
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