Q 4 F Y 2 1 Post Earnings R e v i e w
Recovery continues but caution ahead
30th June 2021 Q4FY21: Post Earnings Summary
Earnings encouraging but caution ahead
• There was broad based economic and earnings recovery across sectors with companies operating at almost full throttle, supported by lower Covid-19 cases in January and February
• Optimism around vaccination program facilitated positive sentiments as the benchmark indices touched new highs on the back of strong earnings growth going forward
• However, the emergence of the second Covid-19 wave in the second half of March may negatively affect earnings in Q1FY22 Rising commodity prices pose challenge
• Increasing prices of raw materials resulted in pressure on operating margins, particularly in the Consumer and Automotive sectors
• The trend may continue for a couple of quarters as commodity prices may continue to increase, supported by abundant liquidity and continued economic growth Re-emergence of interest in the pharmaceutical sector
• The second wave of Covid-19 and record increase in cases has brought the focus back on pharmaceutical companies, similar to what happened last year.
• Companies with strong Covid-19 product portfolio and vaccine manufacturers like Dr. Reddy’s Laboratories, Cipla, Cadila HealthCare, etc. will witness demand for their products Future outlook
• The government is planning to stimulate the economy with the help of the Reserve Bank of India to mitigate the effects of the second wave of Covid-19. This will facilitate demand and support earnings growth of companies
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Coverage Companies Coverage Companies Coverage Companies Coverage Companies BFSI – Banking Consumer – Essentials IT Oil & Gas HDFC Bank Britannia Industries Infosys Indraprastha Gas Ltd ICICI Bank Nestle India TCS Mahanagar Gas Ltd Kotak Bank ITC Ltd. HCL Technologies Petronet LNG Ltd Axis Bank Hindustan Unilever Tech Mahindra BPCL SBI bank Tata Consumer Products Wipro HPCL IndusInd Bank Consumer – Personal Care Persistent Systems Auto and Auto Ancillary Karur Vysya Bank Colgate Palmolive India Tata Elxsi Tata Motors Maruti Suzuki Bandhan Bank Godrej Consumers Mindtree Bajaj Auto BFSI – NFBCs / Specialty Finance Emami Ltd. Sonata Software Ashok Leyland Bajaj Finance Ltd. Consumer – Durables Happiest Minds Eicher Motors Bajaj Finserv Ltd. Blue Star Infibeam Avenues Minda Corporation Cholamandalam Investments Whirlpool India Pharmaceuticals Minda Industries HDFC AMC Symphony Sun Pharma Sundaram Fasteners HDFC Ltd. Consumer – Others Dr. Reddy Labs NAM Balkrishna Industries Asian Paints Cipla CreditAccess Grameen Bharat Forge Berger Paints Lupin ICICI Securities Endurance Technology Avenue Supermarts Glenmark Pharma BFSI – Life Insurance Miscellaneous HDFC Life Cements Cadila Healthcare Emmbi Industries ICICI Prudential Ultratech Cement Aurobindo Pharma Solar Industries SBI Life Ramco Cement Alembic Pharma ABB Max Financial Shree Cement Granules India Petrochemical and Chemicals Holding Companies ACC Cement Torrent Pharma Reliance Industries Bajaj Holdings Supreme Petrochemicals EID Parry UPL Ltd. Ramco Industries Aarti Industries Pilani Investments
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1 BSFI Sector Banking 5-10 NFBCs / Specialty Finance 11-15 Life Insurance 16-23 2 Consumer Sector Essentials 24-34 Personal Care 35-40 Consumer Durables 41-46 Others (Home Improvements | Supermarts) 47-53 3 Cement Sector 54-60 4 IT Sector 61-73 5 Pharmaceutical Sector 74-88 6 Petrochemical and Chemical Sector 89-95 7 Oil & Gas 96-103 8 Auto and Auto Ancillary Sector 104-118 9 Holding Companies 119-124 10 Miscellaneous 125-129
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Asset Quality largely improves • After factoring the NPA after the standstill withdrawn by the SC, the overall GNPA have remained largely as expected and lower than last year. • This has been on account of the restructuring, strong collection effort and book mix. • The restructuring is under manageable limits as well. Advance growth tepid but large banks healthy trends continue • While the overall growth at the industry remains tepid, most large banks have fared well. • The growth has been in safer assets and customer segments. • Banks are well capitalized and have excess deposits as well. NIMs have remained largely stable sequentially • NIMs have remained largely stable sequentially as book mix has remained stable sequentially and the book now consists of safer assets. • The liquidity remains comparatively higher. Costs have risen • Most costs have risen on account of the employee expenses and business momentum. • Some of these costs are likely to return in the ensuing year. Valuation • Most stocks are trading at marginally lower than their recent historic averages. • The asset book is relatively safer and the high credit costs are likely to have plateaued in the year. • We continue to like ICICI Bank and SBI bank.
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Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy • The operating income was largely in line with our expectation; however, the credit costs are higher. • While we do expect the credit costs • The GNPA were 1.36% vs a comparable HDFC Bank • NII grew 12.6% YoY/4.9% QoQ. to fall next year, it may remain 1.38% last quarter. elevated than otherwise. • We expect a healthier advance growth and the bank remains well funded. • The market share gains in advances, deposits and share of safer assets is • NII grew 16.9% YoY/5.2% QoQ as a positive. NIMs expanded 24 bps sequentially • GNPA and NNPA were 4.9% and 1.14% • The higher credit cost is on account ICICI Bank to 3.8%. respectively. of caution and dependent on the • Advances grew 13.7% YoY. pandemic outlook. • Nevertheless, it is well positioned across all factors versus peers. • The bank has remained cautious in the year with focus growth in • NII grew 8% YoY/ degrew 4.1% QoQ secured segment and has been to INR 3,843 Cr. aggressive in writing off the Kotak Mahindra Bank • GNPA was 3.25% & NNPA was 1.21%. • The NIMs were lower by 33 bps YoY unsecured book. The advance and 12 bps QoQ growth momentum improved in H2FY21, but it is a monitorable. uncertain times.
• It holds strength in AUM growth, • NII grew 11% YoY on marginally • GNPA and NNPA levels were 3.7% and asset quality and Margins.. Axis Bank improved NIMs 1.05% respectively. • We don’t expect adverse credit cost incrementally.
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Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy
• Despite its size and vulnerability, SBI has fared well in the year. • NII grew 18.9% YoY to INR 27,067 • The strong deposit franchise, Cr. • The GNPA were 5% and NNPA were customer segment and book mix SBI • NIMs were lower by 5 bps 1.5%. augurs well for the bank. It is, sequentially at 3.0%. therefore, better placed than its PSU
peers to weather further crisis especially related to the pandemic.
• We like the uptick in deposits • Net Interest Income (NII) increased however advance growth is a 9.4% YoY to INR 3,535 Cr. IndusInd Bank • GNPA were 2.7% and NNPA were 0.7% monitorable. • NIMs were 1 bps higher • It has entered into new segments sequentially. and await traction in other segments
• It has closed the year with book • NII grew 5% QoQ/3.7 YoY. The NIMs quality managed within its trend are likely to be marginally higher • The GNPA and NNPA were 7.87% and Karur Vysya Bank especially after the highs of last sequentially. 3.41% respectively. quarter.
• We are watchful of key metrics yet.
• Gross NPA / Net NPA stood at 6.81% / 3.51%, respectively • NII up 4.6% YoY to INR 17.6 bn • Healthy deposits growth of 36.6% • Written off INR 19.3 bn worth loan and NIM contracted by 133bps YoY on account of CASA growth assets to strengthen its balance Bandhan Bank YoY at 6.8% expected to reduce cost of sheet and restructured loans worth • Non-interest income up 57.4% funding; NIMs to improve for INR 6.2 bn of housing finance loans YoY at INR 7.9 bn FY22E • Collection efficiency (CE) of EEB Segment stood at 98% in value terms
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Operating profit strong but Credit costs relatively elevated but likely to have peaked
IndusInd Karur Vysya Bandhan Particulars (INR Cr) HDFC Bank ICICI Bank Kotak Bank Axis Bank SBI Bank Bank Bank Bank
Net Interest Income 17,120 10,431 3,843 7,555 27,067 3,535 613 1,757
Pre-Provision Profit 15,533 8,540 3,407 6,865 19,700 3,129 250 1,730
Provisions 4,694 2,883 1,179 3,295 11,051 1,866 71 1,594
Net Profit 8,187 4,403 1,682 2,677 6,451 926 104 103
Advances 11,32,837 7,33,729 2,23,689 6,23,720 24,49,498 2,12,595 50,364 81,613
Deposits 13,35,060 9,32,522 2,80,100 7,07,306 36,81,227 2,55,870 63,278 77,972
CASA (%) 46.1% 46.3% 60.4% 42.0% 46.1% 41.7% 34.0% 43.4%
NIM (%) 4.2% 3.8% 4.4% 3.6% 3.0% 4.1% 3.5% 6.8%
Cost to Income (%) 37.1% 41.3% 41.2% 43.8% 54.5% 41.1% 69.9% 32.0%
GNPA (%) 1.3% 5.0% 3.3% 3.7% 5.0% 2.7% 7.9% 6.8%
NNPA (%) 0.4% 1.1% 1.2% 1.1% 1.5% 0.7% 3.4% 3.5%
PCR (%) 69.8% 77.8% 62.8% 71.6% 70.9% 74.2% 72.7% 50.3%
Source: Company, KRChoksey Research
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Operating profit strong but Credit costs relatively elevated but likely to have peaked Karur Vyasa Particulars (INR Cr) HDFC Bank ICICI Bank Kotak Bank Axis Bank SBI IndusInd Bank Bandhan Bank Bank
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY
Net Interest Income 4.9% 12.6% 5.2% 16.9% -4.1% 8.0% 2.5% 11.0% -6.1% 18.9% 3.8% 9.4% 5.0% 3.7% -15.2% 4.6%
Pre-Provision Profit 2.3% 19.9% -3.2% 15.6% 10.5% 25.0% 12.6% 17.3% 13.7% 25.2% 5.2% 10.3% -2.8% -50.0% -9.6% 13.7%
Provisions 37.5% 24.0% 5.2% -51.7% 96.9% 12.6% -28.4% -57.4% 6.9% -18.1% 0.7% -23.5% -64.5% -83.4% 49.2% 92.7%
Net Profit -6.5% 18.2% -10.9% 260.5% -9.2% 32.8% 139.8% NM 24.1% 80.1% 8.6% 206.8% 201.4% 24.7% -83.7% -80.1%
Advances 4.7% 14.0% 5.0% 13.7% 4.5% 1.8% 7.0% 9.2% 3.4% 5.3% 7.3% 2.8% 1.7% 9.3% 6.3% 22.5%
Deposits 5.0% 16.3% 6.7% 21.0% 5.6% 6.6% 8.1% 10.5% 4.1% 13.6% 7.0% 26.7% 1.9% 7.1% 9.5% 36.6% (in Bps)
CASA (%) 310 388 106 117 158 428 - 300 79 93 132 134 63 267 50 656
NIM (%) 7 -11 24 -3 -12 -33 -3 1 -5 7 1 -15 17 - -150 -133
Cost to Income (%) 106 -183 169 -266 -110 -485 -149 -195 3 -194 -70 -218 64 2,319 494 177
GNPA (%) 51 6 58 -57 99 93 26 -116 21 -117 47 49 50 -81 570 533
NNPA (%) 31 4 51 -27 71 36 27 -51 27 -73 17 -36 86 -51 325 293
PCR (%) -1,868 -219 -825 224 -1,511 -624 -570 262 -436 567 -221 2,232 465 380 -2626 -1047 Source: Company, KRChoksey Research
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NBFC: AUM growth gradually picked up • The AUM and business grew marginally in sequential comparisons, and they have largely ended the year with business gradually returning to normalcy. • However, the lockdowns began in the month of April and May and this impact is a monitorable. • Collection efficiency was impacted after March 31. These were close to pre-Covid until March. • Asset Quality has been impacted, but they have resorted to restructuring and write offs. This is on expected lines. • CIFC increased provisions yet. It is expected to continue to remain watchful on the book quality. • Bajaj Finance has slowed growth, increased credit costs, consolidated business and restructured the book as well. It plans to launch digital initiatives to improve efficiency. • HDFC remains focus on retail assets. It remains cautious on wholesale assets.
Asset Managers: AUM largely a function of MTMs • The AUM growth for asset managers were marginal and driven by the MTM. • The focus is on strategy change and its impact on AUM especially for HDFC AMC, given its size and relatively loss in share.
Valuation • The stocks trade at largely their historic averages. • We are watchful of the impact on earning and businesses for companies under coverage. • HDFC Ltd. and Bajaj Finserv remain our top picks
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Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy
• In the medium to long-term, we continue to like the franchise, • ·GNPA and NNPA stood at 1.79% and market position, technological • NII of the bank grew 8.6% QoQ Bajaj Finance Ltd. 0.75% respectively. The provisioning initiatives, credit discipline, portfolio aided by lower cost of funds. coverage ratio was 58%. and geographic distribution. The NBFC’s strong capital position is a positive too.
• The NBFC and insurance subsidiaries • Revenue from operations rose • GNPA and NNPA of concerned are witnessing momentum. 15.7% YoY/degrew 3.6% QoQ. subsidiary stood at 1.79% and 0.75% • The insurance business have Bajaj Finserv Ltd. • Total operating expenses rose respectively. The provisioning coverage witnessed some cost advantages. 36.2% YoY/ flat QoQ. ratio was 58%. However, the activity is likely to improve.
• The NBFC has ended the year with • NII grew 37.2% YoY/degrew 2.8% an exorbitant credit cost. While it Cholamandalam • The Stage 3 assets were at 4% as of QoQ. has high share of dedicated reserves Investment and March 2021 up ~200 bps QoQ/YoY. The • NIMs have remained range-bound, towards the pandemic, the risks may Finance Company stage 3 PCR is at 44.3% higher by 75 bps closing the year at a computed NIM not be contained. Ltd. QoQ and 275 bps YoY. of 7.6%. • The focus is on book quality and collections.
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Companies Net Interest Income/Earnings Asset Quality / Provisioning Outlook / Strategy
• We like the strategic directions of the AMC with respect to the fund • Revenues grew 5.6% YoY. Its other HDFC AMC • Not applicable management strategies. We await incomes were lower. further positives of the same.
• NII grew 13.7% YoY on an AUM growth of 3.2% QoQ/10.3% YoY. • We believe the it is well placed in its • GNPA were 1.98% of the loan portfolio. HDFC Ltd. • NIM for the year were at 3.5% higher by mortgages business and market
10 bps. Overall spreads rose by 10 bps position and funding bodes well. YoY.
• GNPA for CAGL / MMFL stood at 4.4% • it expects recovery in collections • NII up by 56.8% YoY to INR 4.6bn and and write backs in Q2 of FY22E; as CreditAccess / 4.7%, respectively. other income grew by 119% YoY to INR collections to witness temporary Grameen Ltd. 25.3 cr • overall provisioning stood at ~5.0% decline in Q1 on account of for the quarter lockdown / restrictions • Revenue up by 54% YoY to INR 7.4bn. Revenue for Equities and Allied Business, Distribution, Private Wealth Management and Investment Banking segments were reported at INR 4.8 bn • Healthy client sourcing and reactivation of old customers ICICI Securities (+46% yoy) / INR 1.4 bn (+22% yoy) / INR • Not applicable backed by new product launches 1.6 bn (+82% yoy) / INR 0.5 bn (+441% yoy), respectively. to support the overall business in the long run • EBITDA margin improved on the back of reduction in employee expenses (- 18.4% qoq / -24.2% yoy)
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HDFC fared well as home loans performed better Nippon Cholamanda Bajaj Bajaj Finserv Asset CreditAccess ICICI Particulars (INR Cr) lam HDFC AMC HDFC Ltd. Finance Ltd. Ltd. Managemen Grameen Securities Investments t Net Interest Income / 4,664 13,239 1,249 503 4,027 302 464 739 Revenue
Other Income 4 0 92 43 1,115 61 25 NA
Employee Cost 768 1,460 269 64 282 65 96 106 Other Operating 838 9,391 245 43 217 79 64 155 Expenses
Pre-Provision Profit 3,062 2,388 828 NA 4,643 NA 329 472
Provisions 1,231 30 504 NA 719 NA 250 NA
Net Profit 1,356 1,744 243 316 3,180 167 77 329 Asset Under 1,52,947 1,52,947 76,518 3,95,500 5,69,894 2,30,300 13,587 NA Management
Cost to Income (%) 34.40% 81.97% 38.29% 19.54% 9.70% 39.75% 29.2% 44.7%
Source: Company, KRChoksey Research
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HDFC fared well as home loans performed better Cholamandal Bajaj Finance Bajaj Finserv Nippon Asset CreditAccess ICICI Particulars (INR Cr) am HDFC AMC HDFC Ltd. Ltd. Ltd. Management Grameen Securities Investments Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Net Interest Income 8.6% -0.3% -3.3% 23.2% -2.8% 37.2% 4.4% 5.6% 0.6% 13.7% 12.5% 10.0% 60.4% 56.8% 19.2% 53.9% / Revenue Operating Expenses 15.6% 10.6% -0.4% 36.2% 39.3% 27.9% 10.9% 2.1% -7.2% 41.1% 10.6% 17.9% 7.7% 24.6% 13.6% 10.6% Pre-Provision Profit 5.4% -5.2% -14.8% -13.9% -16.8% 34.8% NA NA 6.8% 17.1% NA NA 93.2% 84.0% 23.1% 100.8% Provisions -8.9% -37.0% 21.0% -98.5% 13.3% -9.5% NA NA 21.0% -43.6% NA NA -9.1% 346.4% NA NA 3931.7 Net Profit 18.3% 43.0% -16.1% 223.0% -40.5% 470.1% -14.4% 26.5% 8.7% 42.4% -21.3% NM 172.7% 23.4% 111.4% % Asset Under 6.5% 3.6% 6.5% 3.6% 0.9% 18.8% -2.8% 23.9% 3.2% 10.3% 4.1% 24.7% 10% 13% NA NA Management (in Bps) Change in PAT 255 664 -171 490 -658 818 -1,377 1,038 590 1,594 -23.6 53.65 3,998 654 150 1212 Margin Cost to Income (%) 205 341 240 777 1,126 -125 339 -369 -130 152 7.1 -41.96 -1,450 -760 240 -1,230
Source: Company, KRChoksey Research
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New Business Premium (NBP) improvement continue
• Premium of the listed companies grew 28%QoQ/37% YoY. All of them have grown robustly.
• Renewal premium grew 22% QoQ/13% YoY as early stage persistency improved.
• The NBP grew 28% QoQ/37% YoY.
• The APE grew 6% QoQ/29% YoY and Value of New Business (VNB) grew 32% QoQ/48% YoY. The margins improved for all
companies, most for SBI life.
• Early Persistency improved but later stage performance was mixed.
• The AUMs have grown 5%QoQ/38% YoY of the four insurers.
• The momentum across segments have been healthy as they continue to offer a diversified suite. The mortality payouts
have been as expected within the operating metrics or through reserves. The companies have increased the reserves for
the forthcoming year.
• The stocks trade below their averages since listing. We maintain our positive stance on the sector and prefer SBI life
insurance.
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Company Premium/APE performance Product mix/Market share
• GWP grew 21.6% YoY / 34.1% QoQ. APE grew 33.3% QoQ/36.5% • The product mix between Unit linked/non par HDFC Life YoY. saving/non par protection/par was 24%/36%/7%/33%
• The GWP grew 32.2% QoQ on improved momentum. NBP grew • The product mix between Unit linked/non par ICICI PruLife 49.4% QoQ. saving/npn par protection/group was 48%/29%/18%/6%
• The business momentum continued with premium growing • The product mix between Unit linked/non par SBI Life 12.8% QoQ/31.1% YoY in the quarter. Its new business grew 13.8% saving/non par protection/par/group was QoQ/62.6% YoY 65%/12%/17%/8%/4%
• The share of Par/Individual protection/Group • GWP rose 20.99% YoY, 53.54% QoQ. Max Life protection/non-Par savings/ULIP is
19%/9%/5%/30%/37%
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Company VNB/Margin Performance Persistency/Solvency/AUM
• Its 13th month persistency improved 200 bps YoY and 100 bps QoQ to 90%. 61st month persistency remained largely stable. HDFC Life • Margins grew 20 bps YoY and rose 50 bps QoQ at 26.1% • AUM rose 36.6% YoY to INR 173,840 Cr. • Solvency ratio was 201%
• The 13th month persistency rose 240 bps YoY to 82.4% and 6st • VNB margin for FY2021 was 25.1%. month grew 330 bps YoY to 58.8% ICICI • Value of New Business rose 25.7% YoY. • AUM grew by 40% YoY. PruLife • Solvency was at 217%.
• Persistency improved ~170 bps to 87.9% and 61.6% for the • The VNB margins improved to 20.4% higher by 170 bps 13th and 61st month persistency, respectively. SBI Life YoY/110 bps QoQ. This has been aided by strong new • AUM stood at INR 220,900 Cr up by 37.8%YoY/5.4% QoQ. business. • Solvency ratio was 215%.
Max Life • The New Business Margin was 25.2%. Up 440 bps YoY. • Persistency for the 13th and 61st month are 84% and 54%
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Companies Channel mix Industry Outlook / Strategy • HDFC Life has delivered a robust business performance despite a high base and the challenges in the industry. • Distribution mix between CA/Agency/Broker/Direct/Group • Its strength in distribution and product mix augurs very HDFC Life was 25%/6%/2%/17%/50% respectively. well • The diversified product and channel mix and its consistency is a positive. • ICICI PruLife has shown VNB margin improvements coupled with a healthy business momentum. • Banca/agency/Direct/Partnership/Group stands at • Its premium growth was strong with a higher ICICI PruLife 43%/23%/12%/10%/11% respectively. protection mix. • Its market share has improved in the year and is well positioned for traction.
• SBI life has shown a strong improvement in margin aiding a healthy growth in EV and profits. • With diversified product mix and distribution mix, it is SBI Life • Banca/agency/Others stands at 63%/26%/10% respectively. well placed. It has one of the largest bank partners in SBI and other banca partners are showing momentum. This coupled with increased productivity augurs well.
• Max life has gained market share led by new channel • The share of proprietary vs banca was 28% and 71% and push by its promoter Axis Bank. Max Life respectively • We expect this to continue the momentum in its business.
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In INR Cr. HDFC Life ICICI Prudential SBI Life Max Life Key Financial & Actuarial Metrics
New Business Premium (Individual + Group) 6,560 5,188 6,187 2,583 Renewal Premium (Individual+ Group) 6,350 6,913 9,460 4,523 Total Premium 12,910 12,101 15,646 7,106 Profit After Tax 320 64 540 231 Asset Under Management (AUM) 1,73,840 2,14,281 2,20,900 90,407 Value of New Business (VNB) 780 591 880 461 Annualized Premium Equivalent (EV) 2,880 2,508 3,970 1,917 Key Financial Ratios (%) Solvency Ratio 201% 217% 215% 196% Persistency Ratio 13th Month 90.0% 82.4% 87.9% 84% 61st Month 53.0% 58.8% 61.6% 54% VNB Margin 26.1% 25.1% 20.4% 25%
Source: Company Reports, Bloomberg, KRChoksey Research
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In INR Cr. HDFC Life ICICI Pru SBI Life Max Life
Key Financial & Actuarial Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Y-o-Y Q-o-Q Metrics
New Business Premium 28.9% 29.9% 23.2% 49.4% 62.6% 13.8% 36.7% 47.8% (Individual + Group)
Renewal Premium (Individual+ 14.9% 38.7% 7.4% 21.7% 16.3% 12.1% 13.6% 57.0% Group) Total Premium 21.6% 34.1% 13.7% 32.2% 31.1% 12.8% 20.9% 53.5% Profit After Tax 0.0% 23.1% -64.3% -79.1% 1.9% 134.8% 117.9% 5.00% Assets Under Management 36.6% 5.0% 40.1% 4.6% 37.8% 5.4% 32.0% 6.7% (AUM) Value of new business (VNB) 52.9% 36.8% 25.7% 37.8% 63.0% 25.7% 43.6% 31.7% Total APE (Annualized Premium 36.5% 33.3% 27.1% 50.5% 47.6% 13.4% 36.0% 58.4% Equivalent) Key Financial Ratios Solvency Ratio 1,700 -100 2,280 -930 2,000 -1,900 100 -1200 Persistency Ratio 13th Month 200 100 240 -130 178 175 0 100 61st Month -100 0 330 -230 173 -6 200 0 Value of New Business Margin 20 50 129 -65 170 110 440 -80
Source: Company Reports, Bloomberg, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS
Kotak Mahindra Bank and HDFC Bank are our top picks
Recommendation Market Cap. CMP Target Price (INR) Upside P/ BV (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23 E
HDFC Bank BUY BUY 8,29,035 1,502 1,720 1,720 14.5% 4.0 3.1
ICICI Bank ACCUMULATE BUY 4,43,328 640 705 705 10.1% 2.1 2.3
Kotak Mahindra BUY ACCUMULATE 3,38,027 1,705 2,050 2,050 20.2% 5.7 4.3 Bank
Axis Bank HOLD ACCUMULATE 2,31,139 754 770 750 2.1% 2.5 2.0
SBI ACCUMULATE ACCUMULATE 3,76,217 422 450 450 6.7% 1.7 1.5 IndusInd ACCUMULATE ACCUMULATE 78,831 1,019 1,100 1,100 8.0% 3.5 1.5 Bank Karur Vysya ACCUMULATE HOLD 4,188 52 60 60 14.5% 1.0 1.0 Bank Bandhan HOLD BUY 540,701 336 350 307 4.2% 4.31 2.8 Bank Note: 1) 4 year average P/BV 2) Valuation ratios are provided for last 4 year average P/E (x) and FY22E P/E (x) Source: Company, KRChoksey Research
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HDFC and Bajaj Finserv are our top picks Recommendation Market Cap. CMP Target Price (INR) Upside P/ BV (x) Stocks 5 Yr. Revised Old INR Cr. INR New Old % FY23 E Avg*. Bajaj Finance HOLD ACCUMULATE 3,65,451 6,055 6,115 5,760 1.0% 6.5 7.2
Bajaj Finserv HOLD ACCUMULATE 1,95,874 12,308 12,500 12,500 1.6% 3.4 3.9 Cholamandalam ACCUMULATE HOLD 42,623 520 560 560 7.7% 3.4 4.1 Investments HDFC AMC ACCUMULATE ACCUMULATE 62,656 2,941 3,200 3,200 8.9% 10.8 9.2
HDFC Ltd. BUY BUY 4,51,446 2,500 3,012 3,012 20.5% 4.7 4.1 NAM UR UR 22,685 367 - - UR UR UR CreditAccess ACCUMULATE BUY 117,640 756 843 843 11.5% 2.71 2.8 Grameen 2 2 ICICI Securities 2 ACCUMULATE BUY 205,150 636 708 578 11.3% 17.4 18.5 Note: 1) 4 year average P/BV, 2) Valuation ratios are provided for last 4 year average P/E (x) and FY22E P/E (x), Source: Company, KRChoksey Research SBI Life is among our top picks Market Recommendation CMP Target Price (INR) Upside P/ EV (x) Stocks Cap. Revised Old INR Cr. INR New Old % Avg*. FY23 E HDFC Life BUY BUY 1,38,982 687 790 790 15% 4.8 3.8
ICICI Prudential HOLD ACCUMULATE 88,166 614 630 526 2.6% 2.7 2.1
SBI Life BUY BUY 1,00,090 999 1,200 1,200 20.1% 2.9 2.2
Max Financial HOLD HOLD 37,334 1,082 1,100 905 1.7% 6.7 3.1
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Overall FMCG Industry contracted in H1 – first in a decade • Normalcy in operations to some extent • Surge in staples & convenience foods in lockdown phase; normalized with easing of restrictions. • Heightened demand for hygiene, health, wellness, immunity products in H1; settled at elevated levels. • Discretionary/ ‘out-of-home’ consumption products contracted in H1; recovered in H2 with improved mobility. • Urban markets witnessed subdued demand; Rural markets relatively resilient • Sharp increase in e-Commerce channel; Convenience channel operations severely disrupted especially in H1. • North and South India tea prices have inflated YoY, the avg prices of North India tea have come off significantly from the peak. • Inflationary trend in input cost keeps margins under pressure • Gross margin could see contraction due to rising commodity prices. • However, most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • ITC margin was higher compared other peer companies; however, margins of Britannia has witnessed growth during the quarter. • FMCG Industry trends • Demand for Health & Hygiene, Immunity, Ayurveda products remained elevated; albeit at lower levels Vs. H1. • Staples & Convenience foods demand normalised after a surge in H1 • Rural markets continue to grow ahead of Urban/Metro • Higher crude and vegetable oil prices drive increase in input costs. • ITC e-commerce FMCG Sales doubled: now accounts for ~5% of revenue. • Increasing digital adoption by Traditional Trade & Collaboration with Online-delivery platforms.
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Companies Revenue and Segment-wise Performance
• Britannia reported Q4FY21 revenue growth of 9.2% YoY, however, marginally lower revenue sequentially to INR 31,308 Mn (-1.1% QoQ) on the back of ~8% on volume growth, while the revenue for FY21 stood at INR 131,361 Mn (+13.2% YoY). Britannia • Among dairy business, cheese witnessed moderate growth whereas Drinks impacted due to incremental in-home consumption. While bakery business did well, other adjacent businesses (croissants/cakes) posted limited upside in the quarter.
• HUL reported healthy revenue growth of 35% YoY (+2.1% QoQ) at INR 124,330 Mn mainly due to growth in Beauty & Personal care and Food & refreshment segment. Domestic consumer growth (without merger GSK CH and acquisition of VWash) up by 21% YoY. Revenue for FY21 stood at INR 470,280 Mn (+18.2% YoY). • Food & Refreshment segment (~28% of revenue) stood out among all segments with a growth of 96.4% YoY. Growth was mainly propelled by surge in in-home consumption for immunity products, foods, tea and coffee HUL which delivered double digit growth. In foods, ketchups and soups performed strongly growing with high double- digits. • The Home care segment (~31% of revenue) grew by 14.6% YoY due to strong recovery in the fabric wash, liquid and fabric sensations continue to outperform. Beauty & Personal segment (~37% of revenue) grew by 19.4% YoY; with robust performance across categories and strong double-digit growth in skin cleansing, hair and oral care. The skin cleansing performance was led by ‘Lifebuoy’ and double digit-growth in the premium segment. • ITC’s revenue during the Q4FY21 stood at INR 154,044 Mn (+22.6% YoY / 9.1% QoQ). The growth was mainly driven by strong recovery across all the operating segments including Cigarettes. • The FMCG-Others has emerged as a game changer with double-digit growth (+16 YoY), the staples, convenience foods and hygiene products accounting ~75% of total portfolio has recorded a strong growth of 11% YoY. For FY21, ITC Ltd revenue stood at INR 531,551 Mn (+3.4% YoY). • Share of contribution from Cigarette segment was 43% (46% in Q4FY20), FMCG segment was 24% (26% in Q4FY20), Hotel segment and Agri business contributed 2% and 22% respectively against 4% and 15% in Q4FY20 respectively to revenue and paper board and packaging segment share remained flat at 11%.
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Companies Revenue and Segment-wise Performance • For Q1CY21, Nestle India reported revenue growth of 8.6% YoY (+5.2% QoQ) to INR 36,108 Mn. Domestic sales grew by 10.2% driven by volume and price mix. However, export sales witnessed decline of 12.9% YoY due to lower exports from India. • Demand for out-of-home channel further improved in the quarter but continued to be impact by COVID. Key Nestle brands such as Maggi noodles, KitKat, Nescafe Classic, Maggi sauces, Milkmaid, and Maggi masal-ae-magic performed well and achieved double-digit growth. • During the quarter, e-commerce continued to deliver a strong performance and grew by 66%. By the end of Q1FY21, the contribution of e-commerce to domestic business stood at 3.8% YoY. • In Q4FY21, Tata Consumer Products reported healthy revenue growth of 26.3% YoY (-1.1% QoQ) at INR 30,372 Mn with volume growth across all segments, the growth was mainly driven by volume and value growth in the Indian branded business and improved performance of the non-branded business. Revenue for FY21 stood at INR 116,020 Mn (+20.4% YoY). • During the quarter, the India packaged beverage business recorded 57% value growth. The health and wellness Tata Consumer portfolio in beverages were strengthened with new product launches which includes Tata Tea Gold Care, Tata Tea Tulsi Green and Tetley Green Tea immune. • Overall branded segment (~90% of revenue) growth increased 26.4% YoY. Within Branded segment, branded domestic beverage segment (~40% revenue) witnessed growth of 57% YoY, Branded India food business (~21% revenue) grew 22.4% YoY and Branded international beverage segment (~30% revenue) grew 0.1% YoY. Non- branded segment mix (~10% of revenue) grew 28.8% YoY.
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Companies Margin Performance
• The company has witnessed gross margin contraction after three consecutive quarter, the gross margins declined by 262 bps QoQ, however it was marginally up by 80 bps YoY. At the operating level, the consolidated EBITDA during Q4FY21, grew by 11.3% YoY, with OPM at 16.1% (+30bps YoY); for the full year FY21 the consolidated EBITDA grew by 36.1% YoY, with OPM at 19.1% (+321 bps YoY). Britannia • The company’s operating performance missed our estimates due to higher raw material cost than expected. • The company expect the prices to be rangebound going forward given the positive outlook on monsoon and good harvest. After six consecutive quarters PAT witnessed contraction by 144 bps YoY. • For Q4FY21, Gross Margin declined by 121 bps YoY / 145 bps QoQ on account of increase in RM cost. • EBITDA stood at INR 30,430 Mn which grew by 45% YoY / 2.7% QoQ. EBITDA margins marginally up by 15 bps QoQ and 168 bps YoY in Q4FY21. EBITDA for FY21 stood at INR 116,260 Mn (+18% YoY), with OPM at 24.7% (marginally declined by 7 bps YoY), the expansion in margin was mainly due to better product mix and HUL operational efficiency. • Further, Advertising and Promotion and Other expenses (as a % of sales) declined to 11.4% in Q4FY21 compared to 12.8% in Q4FY20. Within segment, EBIT margin for home care stood at 21.2% (+217bps YoY/+221 bps QoQ), Beauty & personal segment at 27.5% (+262bps YoY/-172bps QoQ) & Food & refreshment segment at 16.4% (+376bps YoY/ +228 bps QoQ). • EBITDA margin contracted 423 bps YoY (down 226 bps QoQ) to 31.6% while absolute EBITDA grew by 8.2% YoY (+1.8% QoQ) to INR 48,711 Mn due to lower revenue and higher excise duty which increased by 36.4% YoY due to increase in National Contingent Calamity Duty (NCCD). • EBIT margin growth was mainly supported by FMCG business (+180 bps YoY) due to strong momentum ITC Ltd witnessed in essential category, cigarette business (down 358bps YoY/down 77bps QoQ) and Hotel segment (down 200 bps YoY / marginally up by 21 bps QoQ) while Agri business (+690 bps YoY / +296 bps QoQ). For FY21, EBITDA stood at INR 170,027 Mn (-12% YoY), with OPM at 32% (-549 bps YoY). • Overall, PAT de-grew by 2.6% YoY to INR 37,555 Mn, with NPM at 24.4% (-632 bps YoY) due to higher tax expenses. For FY21, PAT stood at INR 131,612 Mn (-14% YoY), with NPM at 24.8% (-502 bps YoY).
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Companies Margin Performance
• The RM cost as % of sales reduced by 145bps QoQ and 271bps YoY due to lower commodity prices particularly milk and its derivatives than in the corresponding quarter of FY20. This has resulted in EBITDA expansion by 312bps QoQ and 190bps YoY. Nestle • EBITDA for the quarter stood at INR 9,299 Mn (+17.2% YoY / +19.7% QoQ), with OPM at 25.8%. Net Profit increased by 14.6% YoY / 24.6% QoQ to INR 6,023 Mn, with NPM of 16.7% (+88 bps YoY; +260 bps QoQ). While the recent sharp escalations in the key RM prices poses challenges in the future.
• EBITDA stood at INR 3,002 Mn (-17% YoY), with OPM at 9.9% (-189 bps YoY), the margins were impacted mainly due to tea cost inflation in India. Tata Consumer • For FY21 EBITDA stood INR 15,438 Mn (+19.5% YoY), with OPM at 13.3% (-10bps YoY). • PAT for the quarter stood at INR 539 Mn (-75.3% YoY), with NPM at 1.8% (-533 bps YoY), margins were adversely impacted on account of expenses incurred towards business restructure and reorganization.
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Companies Industry/Outlook/ Strategy New Launches/Market share • To improve distributor channels and continue to ramp • Number of rural distributors were 23.5K outlets for the up the direct reach. Currently the direct reach of quarter compared to 19.3K in March 2020, which Britannia is ~2.4 mn outlets as of March 2021 (~2 mn in helped the company to increase its market share March 2020). considerably. witnessed 36 quarter of straight market • Number of rural distributors were 23.5K outlets for the share gains in the biscuit segment. Britannia quarter compared to 19.3K in March 2020, which helped • The company launched Treat Creme Wafers at INR10 the company to increase its market share considerably. price point • The company’s focused efforts on distribution & • During the festive season, the company launched new processes will help them get back on high growth variants of Diwali greeting packs – Shubhkamnayein. trajectory and consistently enhance value for all • The company also relaunched Pure Magic Chocolush in stakeholders. Hazelnut flavour. • HUL is confidently moving ahead with a strategic • HUL launched Domex toilet cleaner with power of purpose to be future-fit. sodium hypochlorite. • HUL has also accelerated its journey in e-commerce and • HUL relaunched Surf Excel with a new variant ‘Active strengthened the execution in the traditional trade Hygiene’ known to fight tough stains and capable to through its E-RTM initiatives. remove 99.9% of viruses. HUL • The company is focusing on fundamental growth which • HUL also introduced new hygiene products in Lifebuoy. is led by purposeful brands, improved penetration, and Lifebuoy laundry sanitizer an anti-germ post wash impactful innovation. liquid. • Moving forward on account of competitive volume-led • Lifebuoy has introduced instant germ kill spray that growth. kills illness-causing bacteria and viruses instantly. • Innovative 120+ new launches in record time • Reinforced Triple Bottom line philosophy & ‘Putting • ‘Reimagine Next’ launched – ‘crowdsourcing’ India First’ credo. innovation. • Established comprehensive protocols & enabled ‘work • Aashirvaad Salt gained traction in key focus ITC Ltd from home’ geographies along with healthy performance. • Accelerated end-to-end value chain Digitization. • Aashirvaad Salt portfolio was augmented with the • Structural cost reduction driven across all segments, launch of two new variants – Iodized Crystal Salt and with extreme focus on costs and cash conservation. Salt Proactive (with 15% lesser sodium).
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Companies Industry/Outlook/ Strategy New Launches/Market share
• The management plans to invest INR 2,600 Cr in next 3-4 years to augment its existing manufacturing capacities, Nestle • Retains market leadership in the key brands. as well as towards the new under construction ‘state-of- art’ factory in Sanand, Gujarat.
• India business integration is now complete. TCPL • During the year TCPL gained market share in both the continue to invest in building blocks for the future - R&D core categories of tea and salt. infrastructure, Digital, A&P & Innovation. • Launched 5 products under Tata Sampann Ready to Cook • In line with TCPL’s strategic priority of exploring new (RTC) portfolio during the quarter. opportunities, it has acquired 100% stake in Ready to • Tata Salt won 2 Silver Medals for digital campaigns at ET- Tata Drink (RTD) business (NourishCo). Brand Equity Digi Plus awards 2021. Consumer • The company also expanded its foods portfolio through • Starbucks collaborated with Label Life – a leading lifestyle acquisition of Kottaram Agro Foods Pvt Limited brand to launch “Starbucks Optimist Series’, a range of (Soulfull) – now Tata Soulfull. limited-edition merchandise during Q4. • It has also rationalized its International business – by • Tetley grew share in the rapidly growing segments of exiting coffee business in Australia (MAP) and Decaf, F&H and Green tea during the year. foodservice business in the US (Empirical).
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ITC margin was higher compared other peer companies
Particulars (INR Mn) Britannia HUL ITC Nestle Tata Consumer Sales 31,656 124,330 154,044 36,108 30,372 Total Expenditure 25,541 93,900 105,333 26,810 27,370 Cost of Raw Materials 15,453 38,120 36,840 15,135 13,229 Purchase of Stock 2,344 22,240 24,423 572 5,337 Changes in Inventories 218 -1,420 114 (730) -114 Employee Cost 1,318 5,550 11,446 3,681 2,702 Other expenses 6,209 29,410 32,509 8,153 6,208 EBITDA 6,115 30,430 48,711 9,299 3,002 EBITDA Margin (%) 19.3% 24.5% 31.6% 25.8% 9.9% Depreciation 486 2,660 4,085 936 659 EBIT 5,629 27,770 44,626 8,363 2,343 Interest Expense 318 110 29 23.2% 155 Other Income 826 1,090 5,795 540 430 PBT 6,137 28,750 50,392 297 2,618 Exceptional Items 0 140 0 0 -639 Tax 1,326 6,980 12,224 8,119 646 Share of Associates/Minorities 48 40 614 2,096 -794 PAT 3,643 21,870 37,555 6,023 539 PAT Margin 11.6% 17.6% 24.4% 16.7% 1.8% EPS 15 9.3 3.1 62.5 0.6
Source: Company, KRChoksey Research
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Performance of all the essential companies were better during the quarter due to recovery in demand
Particulars Britannia HUL ITC Change % QoQ YoY QoQ YoY QoQ YoY Sales -1.1% 9.2% 2.1% 35.0% 9.1% 22.6% Total Expenditure 2.8% 8.8% 1.9% 32.0% 12.8% 30.7% Cost of Raw Materials -0.8% 12.4% 4.3% 52.6% 4.3% 8.5% Purchase of Stock 30.3% 20.0% 23.3% 11.3% 54.4% 146.2% Changes in Inventories 19.3% -76.9% -202.2% -41.3% -90.7% -103.2% Employee Cost -5.7% 2.7% -6.1% 43.8% 0.1% 4.5% Other expenses 2.7% 13.3% -2.9% 19.1% 16.1% 38.3% EBITDA -17.4% 11.3% 2.7% 44.9% 1.8% 8.2% EBITDA Margin (%) -317 bps 30 bps 15 bps 168bps -226 bps -423 bps Depreciation 8.7% 9.0% -7.0% -1.8% -1.2% -1.1% EBIT -19.6% 11.5% 3.7% 51.8% 2.1% 9.1% Interest Expense -25.5% -12.2% -75.0% -63.3% -77.2% -80.4% Other Income -23.5% -19.6% 101.9% -58.7% 6.2% -13.2% PBT -19.8% 7.6% 7.0% 39.4% 2.7% 6.2% Exceptional Items 0 0 -127.5% -123.7% NM NM Tax -17.7% 56.1% 0% 44.2% -7.2% 49.6% Share of associates 54.3% 101.3% 300.0% -233.3% 1.2% -12.3% PAT -20.1% -2.8% 12.9% 43.6% 6.5% -2.6% PAT Margin -276 bps -144 bps 169 bps 106bps -59 bps -632 bps
Source: Company, KRChoksey Research
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Performance of all the essential companies were better during the quarter due to recovery in demand
Particulars Nestle Tata Consumer Change % QoQ YoY QoQ YoY Sales 5.2% 8.6% -1.1% 26.3% Total Expenditure 1.0% 5.9% 1.1% 30.5% Cost of Raw Materials 1.7% 2.0% -5.0% 51.5% Purchase of Stock 25.4% -17.9% 1.0% 10.4% Changes in Inventories -43.6% -27.1% -6.6% -76.1% Employee Cost -8.7% 2.7% 12.0% 16.7% Other expenses -3.8% 13.2% 19.5% 28.1% EBITDA 19.7% 17.2% -16.9% -2.6% EBITDA Margin (%) 312bps 190bps -189bps -294bps Depreciation -2.0% 2.5% 2.3% 2.9% EBIT 22.7% 19.1% -21.1% -4.1% Interest Expense 33.0% 20.5% -14.6% -17.4% Other Income 28.8% 31.9% 120.4% 95.9% PBT -3.1% -30.8% -12.2% 5.8% Exceptional Items 0 0 942.9% NM Tax 21.1% 15.3% 17.0% 93.5% Share of associates 12.2% 17.5% 321.2% 202.3% PAT 24.6% 14.6% -75.3% -170.5% PAT Margin 260bps 88bps -533bps 496 bps
Source: Company, KRChoksey Research
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Personal and Home Care witnessed volume momentum
• Normalcy in operations to some extent • Surge in staples & convenience foods in lockdown phase; normalized with easing of restrictions. • Heightened demand for hygiene, health, wellness, immunity products in H1; settled at elevated levels. • Discretionary/ ‘out-of-home’ consumption products contracted in H1; recovered in H2 with improved mobility. • Urban markets witnessed subdued demand; Rural markets relatively resilient • Sharp increase in e-Commerce channel; Convenience channel operations severely disrupted especially in H1. • Inflationary trend in input cost keeps margins under pressure • Gross margin could see contraction due to rising commodity prices. • However, most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • ITC margin was higher compared other peer companies; however, margins of Britannia has witnessed growth during the quarter. • FMCG Industry trends • Demand for Health & Hygiene, Immunity, Ayurveda products remained elevated; albeit at lower levels Vs. H1. • Staples & Convenience foods demand normalised after a surge in H1 • Rural markets continue to grow ahead of Urban/Metro • Higher crude and vegetable oil prices drive increase in input costs. • ITC e-commerce FMCG Sales doubled: now accounts for ~5% of revenue. • Increasing digital adoption by Traditional Trade & Collaboration with Online-delivery platforms.
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Companies Revenue and Segment-wise Performance
• Colgate revenue was up 19.8% YoY at INR 12,832 Mn; domestic revenue grew 20.2% YoY. For FY21, revenue stood at INR 48,412 Mn (+7% YoY). Colgate • Growth was broad based and witnessed across categories. Both toothpaste (~80% of sales) and toothbrush (~18% of sales) noticed growth through increase in house penetration. The impact of the second wave of COVID-19 and the lockdown thereafter need to watched and the demand scenario for coming quarters remains uncertain.
• Godrej Ltd reported double-digit revenue growth of 26.8%YoY (-10.6% QoQ) at INR 27,307 Mn. Growth on sequential basis was on account of excellent growth in Household Insecticides and Hygiene business which are value for money products. The HI business delivered 34% growth in India and 28% globally. Godrej • For FY21, revenue stood at INR 110,286 Mn (+11.3% YoY). Domestic sales (~54% of total sales) grew 35% YoY while Consumer volume grew by 29% YoY in Q4FY21 and 10% YoY in FY21, led by resurgence in Soaps, Hair Colour and Household Products Ltd insecticides and scale of up of hygiene. (GCPL) • Indonesian business grew by 5% YoY, while US, Africa and the Middle East and LATM grew by 30% YoY. Segment wise, household insecticides business, including Goodknight and incense sticks (~85% of revenue) reported a growth of 34% YoY in Q4 and 16% YoY in FY21. Soaps outperformed all other segments by delivering
• In Q4FY21, Emami reported revenue growth of 37.2% YoY (-22% QoQ) to INR 7,308 Mn against our estimates of INR Emami Ltd 9,975 Mn. The growth was on account of double-digit volume growth of 44% YoY in the domestic business; international business grew by 28% YoY. For FY21, revenue stood at INR 28,805 Mn (+8.5% YoY).
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Companies Margin Performance
• Gross margin improved sharply by 300bps YoY to 67.7% led by cost optimization. Advertisement spend as a percentage of sales declined to 11.6% during the quarter (16.1% in Q3FY21/ 14.6% in Q4FY20). Colgate • Employee cost marginally grew by 1.8% YoY. However, the Change in inventory helped in pulling of EBITDA margin to 32.9%, up by 833 bps YoY / 278 bps QoQ. Net Profit grew 51.1% YoY (+26.7% QoQ) due to higher volume sales and cost savings.
• EBITDA outperformed our estimates, however margins de-grew sequentially due to increase in raw material prices. EBITDA for the quarter stood INR 5,490 Mn (+15.2% YoY), with OPM at 20.1% (-202 bps YoY). GCPL • EBITDA for FY21 stood at INR 23,886 Mn (+11.9% YoY), with OPM at 21.7% (+12 bps YoY). • PAT for the quarter stood at INR 3,658 Mn (+59% YoY), with NPM at 13.4% (+271 bps). • Net Profit for FY21 stood at INR 17,210 Mn (+15% YoY), with NPM at 15.6% (+51 bps YoY).
• During the quarter the EBITDA stood at INR 1,628 Mn (+65.2% YoY / -52.2% QoQ), with OPM at 22.3% (+378bps YoY) the margin expansion was mainly due to lower raw material cost (-760 bps YoY / +267 bps QoQ) as well as employee cost as % of sales reduced by 313 bps YoY. Input cost pressure increased due to inflation in key Emami Ltd commodities which led to a gross margin decline of 250 bps YoY. • PAT stood at 878 Mn (+259% YoY / -58% QoQ), with NPM at 12% (+742 bps YoY mainly due to lower depreciation, and tax expenses.
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Companies Industry/Outlook/ Strategy New Launches/Market share • Colgate recently launched Asia’s first Toothpaste for Diabetics. Its unique formula harnesses the • The company’s strategic and disciplined approach to goodness of Ayurvedic ingredients helping building brands, driving innovation & relentless focus on diabetics to keep their gums strong and healthy. winning on the ground continues to deliver growth. • It has also expanded its Naturals toothbrush • The company continue to invest in its brands with higher Colgate portfolio with the launches of Super Flexi Salt and advertising spends to support innovations. Zig Zag Turmeric. • The continued efforts to amplify efficiencies across • It has launched Colgate Magik, a first of its kind operations have helped deliver strong gross margins, augmented reality toothbrush that completely EBITDA and NPAT growth. transforms toothbrushing time into a fun adventure. • New launches in Health scaling up well • 81% of GCPL’s global portfolio comprises household • Market share gains in HI, soaps, hair color insecticides, hygiene and value for money products, continues in Indian as well as Indonesia Market. delivering 14% growth. • Continue to gain market shares - 60 bps gain in Godrej • Strong growth led by soaps and sharp recovery in hair color. value and 100 bps gain in volume share. Consumer • Doubling down on chemists and e-commerce, ramping up • Launched Saniter health soaps that provides 99.9% rural distribution. protection from germs and viruses. • Second consecutive quarter of double-digit sales –growth of • Launched the Darling range of hair extensions in 23% in Africa, USA and Middle East market. the UAS with Walmart. • Cost reduction helped maintain cash profits (despite lower • 40+ New Launches in FY21 with 4% contribution in sales). It also improved gross margins and cash profit domestic business. margins. • Chyavanprash with Jaggery and No Added Sugar • International revenues grew 28% in Q4 and 12% in FY21. Third launched for the first time in India. Emami Ltd party manufacturing initiated in Sri Lanka. • Ayurvedic Onion range with unique and potent • Strategy of tapping opportunities in non-focus markets with blend of 21 ayurvedic herbs and onion extracts. high hair oil usage, with focus brands like Kesh King & 7 Oils • Light, non-sticky oil with a blend of premium herbs, in One has been paying off well. exotic flowers and goodness of almond.
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Colgate & Emami’s margin was higher compared GCPL
Particulars (INR Cr) Colgate GCPL Emami
Sales 12,832 27,307 7,308 Total Expenditure 8,614 21,817 5,680 Cost of Raw Materials 3,243 12,206 1,902 Purchase of Stock 723 612 953 Changes in Inventories 183 -734 -127 Employee Cost 915 3,084 760 Other expenses 3,551 6,650 2,192 EBITDA 4,218 5,490 1,628 EBITDA Margin (%) 32.9% 20.1% 22.3% Depreciation 455 545 830 EBIT 3,763 4,945 798 Interest Expense 66 229 47 Other Income 16 166 465 PBT 3,814 4,882 1,216 Exceptional Items 0 638 0 Tax 667 586 326 Share of Associates/Minorities 0 0 -13 PAT 3,147 3,658 878 PAT Margin 24.5% 13.4% 12.0% EPS 11.6 3.58 2.0 Source: Company, KRChoksey Research
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Performance of all the companies were better during the quarter due to recovery in demand
Particulars Colgate GCPL Emami Change % QoQ YoY QoQ YoY QoQ YoY Sales 4.2% 19.8% 4.2% 19.8% -21.8% 37.2% Total Expenditure 0.0% 6.6% 0.0% 6.6% -4.3% 30.8% Cost of Raw Materials 2.2% 1.0% 2.2% 1.0% -12.8% 6.1% Purchase of Stock 11.5% 22.8% 11.5% 22.8% 87.2% 79.8% Changes in Inventories -290.2% -1462.7% -290.2% -1462.7% -268.3% -72.7% Employee Cost 5.3% 1.8% 5.3% 1.8% -1.0% 5.4% Other expenses -11.6% 4.5% -11.6% 4.5% -8.7% 24.2% EBITDA 13.8% 60.4% 13.8% 60.4% -52.2% 65.2% EBITDA Margin (%) 278 bps 833 bps 278 bps 833 bps -1,419 bps 378 bps Depreciation -0.2% -1.6% -0.2% -1.6% -12.1% -2.7% EBIT 15.8% 73.7% 15.8% 73.7% -67.6% 500.8% Interest Expense -17.5% -21.2% -17.5% -21.2% 244.5% 95.9% Other Income -33.0% -63.5% -33.0% -66.3% 405.4% 220.9% PBT 14.5% 62.7% 14.5% 62.7% -52.1% 379.4% Exceptional Items 0 0 0 0 0 0 Tax -21.2% 120.8% -21.2% 120.8% -25.7% -541.7% Share of associates 0 0 0 0 52.3% 51.1% PAT 26.7% 54.1% 26.7% 54.1% -58.1% 258.9% PAT Margin 436 bps 546 bps 436 bps 546 bps -1,041 bps 742 bps
Source: Company, KRChoksey Research
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Improved sentiments leads to demand recovery • Majority of the consumer durables products has achieved double-digit growth in Q4FY21, mainly due to surge in demand. •Continuance of work from home culture and lectures/classes being conducted online supported the demand of goods that enhance convenience at home such as refrigerators, electric cooking appliances, washing machines and Acs. • As people spent more time at home, they are tended to upgrade their consumer durable products. •On the other hand, ‘Travel goods, handbags, office bags’ category recorded a decline of 30% mainly due to imposition of travel restrictions. •The mass population which falls under the daily wage earner category has been affected the most in this pandemic; they are likely to spend less in purchasing consumer durable products as their priority is to fulfill basic necessity.
•Pressure on operating margin continues •Higher revenue, backed by Cost control measures partially offset by a higher change in inventory resulting in improvement in margin for Blue Star Ltd. •Margins of Whirlpool was impacted due rising inflation in the commodity prices.
•Corporate outlook •Whirlpool is expanding distribution reach, entering new product categories, and expanding capacity in core products to recover and grow its business. •A huge investments in manufacturing sector consequent to the domestic demand growth and localization under the Atmanirbhar Bharat program.
•New product launches and Market share •Whirlpool India gained market share during the quarter. •Blue Star increased its market share in Air Conditioners, while it is looking to grow in water purifiers.
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Companies Revenue and Segment-wise Performance
• Blue Star reported revenue growth of 24% YoY (+43.4% QoQ) at INR 16,116 Mn in Q4FY21, however the revenue for FY21 witnessed sharp decline of 20.5% YoY to INR 42,636 Mn. • In terms of segment, Revenue of the Electro-Mechanical Projects and Commercial Air Conditioning Systems segment (~50% of revenue) stood at INR 7,800 Mn (+33.2% QoQ / 18.1% YoY); segment witnessed a gradual Blue Star Ltd recovery with a major order from the infrastructure segment. The Commercial Air Conditioning business recovery was attributed to Healthcare, Pharma and Government sectors. • Unitary Products revenue (~44% of revenue) increased 31.1% YoY/+59% QoQ to INR 7,818 Mn while Professional Electronics and Industrial Systems Business (~4% of revenue) registered a sharp revenue growth of 24%YoY/ +43.4% QoQ to INR 498 Mn.
• Whirlpool reported revenue growth of 31.5% YoY (+19.1% QoQ) at INR17,794 Mn. The double-digit growth was on Whirlpool India account of higher volume growth and pent-up demand during the quarter. For FY21, revenue stood at INR 58,999 Mn (-1.5% YoY).
• Symphony Ltd. reported total revenue from operations of INR 339 cr, on the back of growth observed across all markets. Domestic sales (~51.3% of total sales) grew 27.9% YoY, while international sales rose by 46.0%. Symphony Ltd • Exports are expected to grow exponentially over the next 2-3 years once the company’s Australia and US business commence operations on a full scale.
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Companies Margin Performance • EBITDA margin expanded 344 bps YoY to 6.3% in Q4FY21 while EBITDA grew by 172.7% YoY to INR 1,018 Mn. Improvement in profitability across business segment was mainly driven by cost realization measures. For FY21, EBITDA stood at INR 2,398 Mn (-15.2% YoY), with OPM at 5.6% (+35 bps YoY). Blue Star Ltd • Reported PAT increased significantly by 85.1% QoQ & 655% YoY; Net Profit margin for the quarter grew by 353 bps YoY/ +95 bps QoQ to 4.2%. The improvement in margins were mainly due to better product mix and improved price realization and order execution. • EBITDA margin expanded by 54bps YoY / 392bps QoQ to 10.7% in Q4FY21 while EBITDA grew by 38.5% YoY / 88.5% QoQ to INR 1,897 Mn mainly due to high volume growth and better product mix, employee cost and other expenses grew by 14% and 19.3% YoY respectively. Cost of materials grew by 39.2% YoY due to rise in prices of commodities. For FY21, EBITDA stood at INR 5,190 Mn (-22.9% YoY), with OPM at Whirlpool India 8.8% (-244 bps YoY). • PAT grew by 40.8%YoY to INR 1,301 Mn while Net Profit margin for the quarter expanded by 49 bps YoY / 253 bps to 7.3% due to lower interest expenses (-97.1% YoY). PAT for FY21 stood at INR 3,518 Mn (-28.2% YoY), with NPM at 6% (-222 bps YoY). • EBITDA rose by 154.5% QoQ & 94.5% YoY to INR 84 cr backed by decrease in employee cost. EBITDA margin increased by 950 bps YoY to 24.8% due to lower staff cost and other operating expenses during the quarter. Symphony Ltd • PAT increased by 72.2% YoY and 129.6% QoQ to INR 62 cr owing to steady gains in market share and strong brand recognition in the domestic market should continue to support topline.
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Companies Industry/Outlook/ Strategy New Launches/Market share • In the Electro-Mechanical projects business, BSL continue to prioritize its project execution based on assessment of • Blue star’s overall market share stood at 13.25% in FY21. customer credit profile and operating cash flow visibility. • Water Purifiers, Air Purifiers and Air Coolers are • BSL witnessing huge investments in manufacturing performing well in line with the plans, and it continued to Blue Star sector consequent to the domestic demand growth and gain market share. Ltd localization under the Atmanirbhar Bharat program. • Water purifiers achieved 3% market share in FY21. • Growth momentum expected in the Room-AC and • VRF market share stands at 19.5% and is 2nd largest player Commercial Refrigeration businesses to continue in the in it, while Chiller market share stands at 25-30%. coming quarters. • Whirlpool has delivered a very strong quarter across all financial levers. Underlying growth momentum in the home appliances industry continues to be very healthy. • The performance came on the back of strong and broad- based double-digit volume growth. Whirlpool • All categories and geographies showed continued • Whirlpool had been benefitted of market share gain. India momentum which helped end the year with the business growing ahead of markets. • Overall, there has been improvement in penetration of the durable’s category and with a strong pipeline of consumer relevant innovations, the company is very optimistic about its short- and medium-term prospects. • Company’s international operations continued to witness robust growth. Its Australian subsidiary, Climate Technologies’ posted strong revenue growth in Q4FY21, • while profitability remained impacted owing to higher The company launched 8 new products in household air Symphony input, freight and labour costs. coolers range and also launched duet series cooling fan Ltd in Q4FY21. • China (GSK) revenue also increased sequentially.
Meanwhile, sales in its Mexico (IMPCO) operations remained impacted due to Covid-19 and rising costs.
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Whirlpool margin was higher compared to Blue Star
Particulars (INR Cr) Blue Star Whirlpool Symphony
Sales 16,116 17,794 339 Total Expenditure 15,098 15,897 263 Cost of Raw Materials 9,749 11,790 70 Purchase of Stock 3,261 3,347 124 Changes in Inventories (416) -3,676 (18) Employee Cost 1,166 1,626 24 Other expenses 1,338 2,810 41 EBITDA 1,018 1,897 84 EBITDA Margin (%) 6.3% 10.7% 24.8% Depreciation 249 362 5 EBIT 770 1,534 79 Interest Expense 134 2 3 Other Income 398 132 6 PBT 1,033 1,663 82 Exceptional Items 0 0 0 Tax 362 425 19 Share of Associates/Minorities 9 62 1 PAT 680 1,301 62 PAT Margin 4.2% 7.3% 18.3% EPS 7.08 10.25 3.9 Source: Company, KRChoksey Research
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On QoQ basis, Blue Star performed better than Whirlpool
Particulars Blue Star Whirlpool Symphony Change % QoQ YoY QoQ YoY QoQ YoY Sales 43.4% 24.0% 19.1% 31.5% 56.9% 36.1% Total Expenditure 44.8% 19.6% 14.1% 30.7% 37.7% 22.3% Cost of Raw Materials 41.9% 15.4% 29.4% 39.2% 7.7% 0.0% Purchase of Stock 3.4% -0.1% 278.4% -0.6% 79.7% 69.9% Changes in Inventories -72.3% -79.4% NM 6.4% 28.6% 28.6% Employee Cost 11.5% -6.2% -3.5% 14.0% -11.1% -17.2% Other expenses 56.6% -20.7% 0.9% 19.3% 17.1% 5.1% EBITDA 24.8% 172.7% 88.5% 38.5% 154.5% 95.3% EBITDA Margin (%) -94 bps 344 bps 392 bps 54 bps 750 bps 950 bps Depreciation -4.1% 4.9% 3.2% 1.4% -16.7% -16.7% EBIT 38.3% 464.6% 134.3% 51.5% 192.6% 113.5% Interest Expense -10.1% 94.3% -96.6% -97.1% 50.0% 0.0% Other Income 391.8% 526.6% -53.6% -48.7% -33.3% -71.4% PBT NM NM 91.1% 39.9% 141.2% 60.8% Exceptional Items 111.7% 738.1% NM NM NM -100.0% Tax 179.6% 817.2% 87.5% 34.9% 171.4% 72.7% Share of associates 0.0% 38.7% NM 26.6% NA NA PAT 85.1% 655.2% 82.3% 40.8% 129.6% 72.2% PAT Margin 95 bps 353 bps 253 bps 49 bps 380 bps 580 bps
Source: Company, KRChoksey Research
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Demand Recovery in Paints and Retail sector
• Normalcy in operations • Production has started in phased manner. • The sector witnessed volume momentum. • Key brands has maintained its market share.
• Improvement in operating margins • Most of the companies under coverages has posted decent growth in the margin on YoY basis. The cost-effective measures and operational efficiency has helped the companies to maintain the margin level, despite all the headwinds. • Asian Paint’s margin was higher compared other peer companies, however, margins of Berger Paints and Avenue Supermarts has witnessed growth during the quarter. • Gross margins for the quarter better than last year supported by lower prices and good work on driving sourcing / formulation efficiency.
• Industry trends • Strong growth in Paint market in Q4 following a positive Q3; led by continued strong growth in tier 2 / 3 / 4 markets. • Strong growth in Projects and large institutional sales. • Strong growths in the Premium and Luxury range across regions well supported by Smartcare & Economy range Increase in digital option by traditional trade. Modern trade footfalls lower as consumer prefer e-com stores.
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Companies Revenue and Segment-wise Performance
• On consolidated basis, Asian Paints reported revenue growth of 43.5% YoY / -2% QoQ to INR 66,514 Mn. For FY21 the revenue stood at INR 217,128 Mn (+7.4% YoY). • The growth was attributed to premium and luxury product range. During the quarter, the company recorded a double-digit volume growth of 48%. On a segmental basis, Paints (~98% revenue) grew 42% YoY/ -3% QoQ to INR Asian Paints 64,272 Mn and Home improvement revenue up by 81% YoY / (up by 21% QoQ) to INR 1,859 Mn in Q4FY21. • The domestic business delivered a stellar performance registering a 48% volume growth in Q4FY21, which was led by robust growth in the premium and luxury product range. The home improvement business also grew in a big way, registering record sales for the quarter aided by the foray into the Home Decor business.
• Berger Paints reported revenue growth of 49.5% YoY (-4.3% QoQ) to INR 20,261 Mn against our estimates of INR 20,836 Mn. For FY21, revenue stood at INR 68,176 Mn (+7.1% YoY). Berger Paints • The growth was mainly due to revival in demand and gradual lifting-up of lockdown restriction in major parts of the country. Decorative business showed an improved performance after the COVID affected earlier quarters. General Industrial and Protective Coatings business line also showed improved performance for the quarter.
• Consolidated Revenue from operations de-grew by 1.71% QoQ / grew by 18.5% YoY to INR 74,120 Mn in Q4FY21 on account of ease in lockdown restrictions and gradual recovery noted. For FY21, revenue stood at INR 241,430 Mn (-3% YoY). Avenue • The overall sales and sales mix are trending close to pre-Covid levels, expect for specific segments. Apparel, Supermarts Laundry, Footwear, Travel and such other relevant out of home usage categories are still taking more time to recover. • Besides, discretionary consumption also showed early signs of recovery and did better compared to last quarters.
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Companies Margin Performance • Overall, Q4FY21 EBITDA margin improved by 128 bps YoY (-652 bps QoQ) to 19.8%, the sequential decline was due to rise in raw material cost than anticipated. For FY21 EBITDA stood at INR 48,556 Mn (+16.7 YoY), with OPM at 22.4% (+177 bps YoY). Asian Paints • Q4FY21 Net Profit up by 84.5% YoY / (-31.2% QoQ) to INR 8,521 Mn with NPM of 12.8% (+285 bps YoY). For FY21 PAT stood at INR 31,393 Mn (+16% YoY), with NPM at 14.5% (+107 bps YoY). The huge inflationary trend in raw material prices has been worrying, however, its impact on profitability has been negated with some path-breaking work on sourcing and cost optimization.
• Overall, EBITDA margin expanded by 118bps YoY to 16.6% (-303 bps QoQ) indicating an improvement in the cost efficiencies annually. EBITDA witnessed significant jump of 61% YoY to INR 3,356 Mn. For FY21 Berger Paints EBITDA stood at INR 11,779 Mn (11% YoY), with OPM at 17.3% (+61 bps YoY). • Net Profit increased by 103.2% YoY to INR 2,086 Mn (-24.1% QoQ) with NPM at 10.3% (+272 bps YoY). For FY21, PAT stood at INR 7,191 Mn (+9.3% YoY), with NPM at 10.3% (+21 bps YoY).
• EBITDA in Q4FY21 stood at INR 6,130 Mn (+47.6% YoY), as compared to INR 4,170 Mn in the corresponding quarter of last year. EBITDA margin stood at 8.3% in Q4FY21 as compared to 6.7% in Q4FY20. For FY21, EBITDA stood at INR 17,420 Mn (-17.9% YoY), with OPM at 7.3% (-120 bps YoY). Avenue Supermarts • Net Profit stood at INR 4,140 Mn for Q4FY21, as compared to INR 2,710 Mn in the corresponding quarter of last year. PAT margin stood at 5.5% in Q4FY21 as compared to 4.3% in Q4FY20. Net Profit stood at INR 11,650 Mn for FY21, as compared to INR 13,500 crore in FY20. PAT margin stood at 4.9% in FY21 as compared to 5.5% in FY20.
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Companies Industry/Outlook/ Strategy New Launches/Market share
• Q4 demand conditions expected to be strong with strong recovery in consumer sentiments. • With view to strengthen its presence as household • Roll-out of Covid vaccination program augurs well for the names company has foray into other décor domestic demand recovery to become broad-based and well segment like Lighting, Furnishing& furniture. Asian entrenched. • Company has launched 1500+ SKUs across three Paints • Raw Material prices already seeing a sharp inflation – need brand: Nilaya, Royale and Ador. With foraying into to see if prices sustain at the higher levels, before any impact this segment its home improvement category is on product prices. expected to report healthy growth going forward. • Focus on cost optimization and expenses shall be restricted only for critical requirements.
• D-Mart follows Everyday low cost - Everyday low price (EDLC- • 2 stores were added in Q4FY21, and 22 stores were EDLP) strategy which aims at procuring goods at competitive Avenue added in FY21. price, using operational and distribution efficiency and thereby Supermart • These were converted into Fulfillment Center for delivering value for money to customers by selling at its E-Commerce Business in FY21. competitive prices.
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Asian Paints margin was higher compared to Berger Paints and Avenue Supermarts
Particulars (INR Mn) Asian Paints Berger Paints Avenue Supermarts Sales 66,514 20,261 74,117 Total Expenditure 53,332 16,905 67,990 Cost of Raw Materials 34,356 12,722 0 Purchase of Stock 6,715 972 66,138 Changes in Inventories -3,277 -2,284 -2,983 Employee Cost 4,121 1,268 1,367 Other expenses 11,417 4,227 3,469 EBITDA 13,183 3,356 6,127 EBITDA Margin (%) 19.8% 16.6% 8.2% Depreciation 2,134 542 1,050 EBIT 11,049 2,814 5,077 Interest Expense 299 119 123 Other Income 754 150 481 PBT 11,505 2,845 5,436 Exceptional Items 0 0 0 Tax 2,864 748 1,297 Share of Associates/Minorities -119 -11 0 PAT 8,521 2,086 4,139 PAT Margin 12.8% 10.3% 5.5% EPS 8.9 2.1 6.4 Source: Company, KRChoksey Research
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Performance of Asian Paints & Berger Paints is better as compared to Avenue Supermarts
Particulars Asian Paints Berger Paints Avenue Supermarts Change % QoQ YoY QoQ YoY QoQ YoY Sales -2.0% 43.5% -4.3% 49.5% -1.7% 18.5% Total Expenditure 6.7% 41.2% -0.7% 47.5% -0.8% 16.4% Cost of Raw Materials 18.9% 42.2% 16.7% 63.9% - - Purchase of Stock 12.9% 67.6% -50.2% -30.2% 3.6% 20.0% Changes in Inventories -234.0% 7.1% 118.7% 50.5% 2146.5% 185.1% Employee Cost 6.2% 22.8% -1.0% 2.5% -1.9% 8.4% Other expenses 29.2% 22.8% 7.3% 63.3% 1.7% 13.1% EBITDA -26.3% 53.4% -19.1% 61.0% -11.1% 46.8% EBITDA Margin (%) -652 bps 128 bps -303 bps 118 bps -87bps 158bps Depreciation 10.4% 9.7% 2.5% 9.9% -7.7% 0.4% EBIT -30.7% 66.1% -22.3% 76.9% -11.8% 62.3% Interest Expense 41.3% 16.4% -3.8% -9.9% 8.5% -14.6% Other Income -23.0% 35.1% 34.5% -15.2% 6.2% 38.1% PBT -31.2% 65.5% -22.9% 75.9% -10.8% 63.1% Exceptional Items 0 0 0 0 NM NM Tax -33.6% 30.8% -21.2% 33.4% -20.2% 109.3% Share of associates 576.7% -17.3% -232.9% NM - - PAT -31.2% 84.5% -24.1% 103.2% -7.4% 52.6% PAT Margin -543 bps 285 bps -268 bps 272 bps -34bps 124bps
Source: Company, KRChoksey Research
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Our top picks are Hindustan Unilever, Nestle India and Britannia Industries Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23E
Britannia Industries ACCUMULATE BUY 88,130 3,657 4,000 4,000 9.3% 58.8 47.3
Nestle India ACCUMULATE BUY 1,69,486 17,599 19,640 19,640 11.6% 79.0 62.2
ITC Ltd. ACCUMULATE ACCUMULATE 2,50,300 203 228 228 12.3% 30.1 13.8
Hindustan Unilever ACCUMULATE BUY 5,85,882 2,493 2,805 2,805 12.5% 62.1 66.2
Tata Consumer Products UR UR 69,849 758 UR UR UR 51.4 UR
Colgate Palmolive India HOLD ACCUMULATE 45,378 1,670 1,721 1,721 3.1% 47.2 43.5
Godrej Consumers ACCUMULATE ACCUMULATE 89,785 878 925 925 5.4% 52.3 37.5
Emami Ltd. UR UR 24,448 550 UR UR UR 76.7 UR
Blue Star ACCUMULATE ACCUMULATE 7,855 815 900 900 10.4% 45.2 55.1
Whirlpool India UR UR 28,103 2,217 UR UR UR 54.2 UR
Symphony BUY REDUCE 7,213 1038 1230 1230 18.5% 69.4 39.6
Asian Paints ACCUMULATE ACCUMULATE 2,87,894 3,002 3,180 2,960 64.6 54.2 5.9% Berger Paints UR UR 78,184 804 UR UR UR 69.1 UR
Avenue Supermarts UR UR 2,11,877 3,271 UR UR UR 117.6 UR
Note: UR – Under Review Source: Company, KRChoksey Research, CMP as of 29th June 2021
KRChoksey Research HEAD RESEARCH Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 53 is also available on Bloomberg KRCS
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Strong volume growth have boosted earnings • During the quarter, cement industry witnessed strong volume growth, led by an uptick in both rural and urban real estate and infrastructure activities. Volume growth was also aided by a lower base of March’20 on account of lockdown in the country. • Among our coverage universe, Ultratech reported strong volume growth of 29.6% YoY / 16.3% QoQ to 27.8 MT, due to robust demand from both rural & urban regions, while Shree Cement reported 19% YoY / 9.7% QoQ growth in cement volumes to 8.2 MT. ACC’s cement sales volume saw a growth of 21.6% YoY to 8 MT from 6.6 MT in Q1CY20, mainly driven by robust demand and low base effect, while Ramco Cement reported 9.5% YoY (up 23% QoQ) growth in cement volumes to 3.2 MT. Robust cement demand and revival in infrastructure and housing activities aided revenue growth • Cement demand remained strong in East, North, and Central regions, while there were signs of revival in Western region. However, in Southern region demand remained weak, which is reflective of Ramco’s muted volume growth (9.5% YoY). • In Q4FY21, among our coverage companies, Shree Cement reported revenue growth of 23.1% YoY / 18.7% QoQ, while Ultratech saw 32.7% YoY / 17.5% QoQ revenue growth. ACC witnessed revenue growth of 22.6% YoY / 3.6% QoQ, while Ramco Cements clocked 17.3% YoY / 21.8% QoQ growth in its Q4FY21 revenues. Operating efficiency supported EBITDA margins despite higher input costs • Despite higher input costs due to rising pet coke prices, as well as higher power & fuel costs, companies were able to hold on to their EBITDA margins due to operating efficiency and various cost control measures undertaken by the companies. • Ultratech saw an expansion of 309 bps YoY in its EBITDA margins, while ACC and Ramco Cement’s margins expanded by 329 bps and 745 bps respectively on YoY basis.
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Companies Revenue Volume
• Consolidated revenue grew 32.7% YoY / 17.5% QoQ in • Consolidated cement sales volume grew 29.6% YoY / Q4FY21 to INR 144 bn. 16.3% QoQ to 27.8 MT, due to strong demand from Ultratech Cement • Realizations grew 3.5% YoY and 1.1% QoQ in Q4FY21. both rural & urban regions. • Capacity utilization for Q4FY21 stood at ~93% (up 13% • Volume growth was recorded in all the regions. YoY), and for March 2021 at ~99%.
• The Ramco cement reported revenue growth of 17.3% YoY/21.8% QoQ to INR 16,306 mn in Q4FY21. • Ramco Cement reported 9.5% YoY (up 23% QoQ) Ramco Cement • Blended realization for the quarter stood at INR growth in cement volumes to 3.2 MT aided by 5,058/ton, a growth of 7.3% YoY, though on QoQ strong demand for cement in the country. basis, realization was mostly flat (0.4% de-growth).
• For the quarter, revenue grew 23.1% YoY (up 18.7% QoQ) to INR 42,049 mn. • Shree Cement reported 19% YoY (up 9.7% QoQ) • Blended realization for the quarter stood at INR Shree Cement growth in cement volumes to 8.2 MT on the back of 4,785/ton, a growth of 2.7% YoY, though on QoQ robust demand for cement in the country. basis, realization was mostly flat (0.2% de-growth).
• For Q1CY21, revenue grew 22.6% YoY/3.6% QoQ to • During the quarter, cement sales volume saw a INR 42,920 mn. ACC’s cement revenue rose 26.3% growth of 21.6% YoY to 8 MT from 6.6 MT in ACC* YoY (+2.7% QoQ, 91.7% of revenue). Q1CY20, mainly driven by robust demand and low • Realization saw an improvement of 6.5% YoY to INR base effect. 4,876/t (vs INR 4,579/t in Q1CY20). • RMX volume reported a 10.8% YoY decline to 0.83 mn m3.
Note: * stands for closing as per Calendar Year
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Companies Margin Outlook • EBITDA for the quarter grew 50.9% YoY / 19% QoQ to • The planned capacity expansion of 19.5 MT is INR 36.9 bn. EBITDA margin expanded by 309 bps expected to get completed by March 2023. YoY/32 bps QoQ to 25.6% in Q4FY21. • Company has plans for INR 40-50 bn capex in FY22 Ultratech Cement • Reported PAT grew 16.9% QoQ to INR 18.5 bn, though and further INR 30 bn in FY23. on YoY basis PAT saw a decline of 42.8%, mainly on • Company reduced the net debt by INR 27.2 bn in account of tax write back in the corresponding quarter Q4FY21 and from Q1FY22, interest costs will further of previous year. come down due to prepayment of loans. • EBITDA margin expanded 745 bps YoY to 27.5% in • The clinkering unit of 1.5 MTPA in Jayanthipuram is Q4FY21, though on QoQ basis margin fell by 211 bps expected to be commissioned during Q1FY22. due to higher power & fuel costs and higher freight • The clinkering unit of 2.25 MTPA in Kurnool is cost along with higher other expenditure. Ramco Cement expected to be commissioned during Q2 of FY22. • Net Profit for the quarter grew 46.7% YoY (up 6.5% • The 1 MTPA cement grinding facility, 12MW of WHRS QoQ) to INR 2,144 mn. Net Profit margin for the and 18MW of TPP in Kurnool are expected to be quarter expanded by 263 bps YoY to 13.1%, though on commissioned during FY23. QoQ basis, net profit margin fell by 189 bps. • EBITDA margin contracted by 150 bps YoY to 29.4% in • The company will commission ~6MT cement Q4FY21 from 30.9% in Q4FY20 due to higher employee capacity comprising of 3 MTPA at Odisha, and cost at 6.5% of sales in Q4FY21 (vs 5.9% in Q4FY20) & another 3 MTPA at Maharashtra by September Shree Cement higher energy cost at 16.7% of sales (20.4% in Q4FY20). 2022. • Net Profit for the quarter grew 48.6% YoY (up 26.2% • Around 3.5-4 MT clinker capacity will also get QoQ) to INR 7,964 mn, while Net Profit margin commissioned in Raipur. expanded by 325 bps YoY to 18.9% (up 113 bps QoQ). • Total capex for all these will be around INR 10 bn. • EBITDA margin stood at 20%, an improvement of 329 • ACC has recently commissioned 1.4 MTPA grinding bps YoY (+625 bps QoQ) due to operational efficiency unit in Sindri in Jharkhand and expects to ACC* and cost reduction initiatives. commission another 1 MTPA expansion at Ametha • Net Profit margin for the quarter expanded by 388 in MP by Q2CY22. bps YoY to 13.1% (+171 bps QoQ).
Note: * stands for closing as per Calendar Year
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Revenue growth across the companies
Particulars (INR Mn) Ultratech Cement Ramco Cement Shree Cement ACC Cement
Sales 1,44,056 16,306 42,049 42,920 Total Expenditure 1,07,152 11,816 29,671 34,317 EBITDA 36,904 4,490 12,378 8,602 EBITDA Margin (%) 25.6% 27.5% 29.4% 20.0% Depreciation 6980 958 3,302 1,432 EBIT 29,924 3,532 9,076 7,170 Interest Expense 3,772 152 563 112 Other income 603 99 1,265 440 Exceptional items -388 0 0 0 PBT 27,166 3,479 9,778 7,498 Tax 8,649 1,336 1,800 1,916 Share of Associates/Minorities -11.0 0 14 44.6 PAT 18,529 2,144 7,964 5,626 PAT Margin 12.9% 13.1% 18.9% 13.1% Adj. PAT 18,916 2,144 7,964 5,626 Adj. PAT Margin 13.1% 13.1% 18.9% 13.1% EPS 64.2 9.1 221.3 29.9 Adj. EPS 65.5 9.1 221.3 29.9
Source: Company, KRChoksey
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Q4FY21 witnessed improvement in operational efficiency
Particulars (INR Mn) Ultratech Cement Ramco Cement Shree Cement ACC Cement
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY
Sales 17.5% 32.7% 21.8% 17.3% 18.7% 23.1% 3.6% 22.6% Total Expenditure 17.0% 27.4% 25.4% 6.4% 22.8% 25.8% -4.0% 17.7% EBITDA 19.0% 50.9% 13.1% 60.8% 9.9% 17.1% 50.4% 46.7% Change in EBITDA Margin (bps) 32 bps 309 bps -211 bps 745 bps -236 bps -150 bps 625 bps 329 bps Depreciation 3.6% 3.0% 6.9% 15.1% 2.5% -28.9% -9.0% -9.3%
EBIT 23.2% 69.3% 14.9% 80.2% 12.9% 53.3% 73.0% 67.3%
Interest Expense 5.9% -25.5% -5.1% -29.7% -5.4% -23.8% -35.4% 5.9%
Other income -76.8% -69.8% 55.6% -13.1% 17.1% 28.8% -31.3% -21.4%
Exceptional items NA NA NA NA NA NA NA NA
PBT 16.5% 86.1% 16.9% 87.3% 14.7% 58.7% 163.0% 58.2%
Tax 15.7% -148.7% 38.6% 237.5% -18.4% 125.8% NA 25.2%
Share of Associates/Minorities NA NA NA NA NA NA 14.7% 100.0%
PAT 16.9% -42.8% 6.5% 46.7% 26.2% 48.6% 19.1% 74.2%
Change in PAT Margin (bps) -6 bps -1699 bps -189 bps 263 bps 113 bps 325 bps 171 bps 388 bps
Source: Company, KRChoksey
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UltraTech remains our top pick in Cement Industry
Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E
Ultratech Cement ACCUMULATE BUY 19,69,950 6,825 7,415 7,415 8.6% 40.4 25.2
The Ramco Cement ACCUMULATE ACCUMULATE 2,44,058 1,036 1,107 1,070 6.9% 29.7 23.7
Shree Cement ACCUMULATE ACCUMULATE 10,15,091 28,134 30,321 30,321 7.8% 51.3 34.5
ACC ACCUMULATE BUY 3,85,953 2,053 2,185 2,185 6.4% 25.8 18.9*
Source: Bloomberg, KRChoksey Research, CMP as of 29th June 2021 * ACC follows calendar year, thus FY23E would be CY22E for ACC
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS
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Order book and guidance reflect strong FY22 growth outlook, wage hikes to queer margins for the year • Revenue growth led by continued client digital investments across-the-board, deal TCV, guidance point to strong FY22 • Revenue for the IT firms under our coverage rose 1.6-9% QoQ in USD terms (0.7-9.1% QoQ rise in CC terms) in 4QFY21, with most companies’ revenue ahead of our estimates led by continuing digital client investments across verticals and strong deal wins, mainly towards digital
transformation initiatives, particularly movement of workloads to cloud. • YoY USD revenue rose 2.7-20.3% for most firms, with all IT firms under our universe except Sonata Software (1.4% decline) reporting revenue growth recovery; within the top-tier IT pack, it was Infosys (+13%) that clocked the best YoY USD revenue growth, while within the mid-tier
pack, it was Persistent Systems (+20.3%) that stood head and streets above the rest of the pack, aided by its large deal strategy. • Digital investments across verticals, along with continuing deal momentum aided revenue growth and importantly, growth outlook for FY22. • Vertical-wise, BFSI, Retail, Life Sciences, Manufacturing, Media, Communications, Transportation and Hi-tech all clocked healthy growth by
and large, with company-specific exceptions, thus ensuring broad-based revenue recovery. • Most IT firms gave out healthy FY22 revenue growth outlook in double digits, with strong deal wins and hiring plans reflecting underlying business strength; however, wage hikes are queering the pitch for margins, with outlook in a broad range, reflecting the uncertainty regards
the impact of hikes on margins, along with a return of certain operational costs, which we believe will become clear in 2HFY22. • Margins mixed in 4QFY21 despite growth leverage, cost control and operational efficiency, as wage hikes impact • EBIT margin performance for IT firms in our coverage universe was mixed, with Infosys, Wipro, HCLT and Mindtree reporting lower margins
on wage hike impact, even as peers reported margin expansion despite wage hike impact, aided by growth leverage and cost control. • Key margin drivers included growth leverage, continuing low cost levels of items such as travel, control in sub-contractor costs, higher utilisation and offshore revenue share. • Cash flow was also robust in 4QFY21, with operating cash flows led by higher profitability and collection discipline.
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TCS and Wipro stand out among top-tier IT, Persistent, Tata Elxsi and Sonata Software among mid-sized firms • Mix of large and small deals drive revenue, strong hiring reflects healthy underlying momentum • Among top-tier IT stocks, TCS and Wipro reported stand-out performances, with the IT majors clocking 3.0-4.2% QoQ CC revenue growth vs 2.0% for Infosys, 2.5% for HCLT and 0.7% for Tech Mahindra. Growth was fairly broad-based, with BFSI, Manufacturing, Consumer/Retail & CPG, Life Sciences, Technology and Communications verticals all clocking healthy all-round growth. • Margin-wise, TCS and Tech Mahindra were the key out-performers among the top-tier IT pack, recording 23bps QoQ and 55bps QoQ EBIT margin expansion, respectively, aided by growth leverage, cost control, higher utilisation and offshore revenue. Infosys, Wipro and HCLT all reported EBIT margin declines of 69bps-627bps QoQ, owing to wage hike impact, with HCLT awarding a one-time bonus to employees, which led to the steeper-than-expected margin decline. • Large deal execution, with a mix of smaller deals with lower execution time frames aided revenue growth for top-tier IT firms, and clients investing in digital transformation initiatives also underscores how core IT has become to enterprises. TCS’ large deal TCV rose 16.8% YoY for FY21, while that of Infosys rose by an extraordinary 56.4% YoY, reflecting healthy underlying traction. • Persistent Systems, Tata Elxsi and Sonata Software stand out among mid-sized firms • Persistent Systems reported a stand-out performance in 4QFY21, with USD revenue up 4.6% QoQ and up >20% YoY led by large deal execution and cross-selling efforts between its TSU and Alliance segments; EBIT margin rose by 47bps QoQ for Persistent despite wage hike impact, aided by growth leverage, higher offshore and lower D&A cost. • Robust growth in Broadcast & Media, and Medical Devices verticals drove robust performance by Tata Elxsi, with CC revenue up 9.1% QoQ along with a substantial 245bps QoQ EBIT margin expansion, reflecting strong growth recovery and FY22 outlook. • Sonata Software stood out among the lower end of the pack, clocking a robust 6.2% QoQ CC revenue and 6.8% reported USD revenue growth, aided by all-round vertical growth including ISV, Travel, Essential Retail and Commodities & Service Industry.
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Companies Revenue Margin Industry Outlook / Strategy • TCS’ revenue came at 4.2% CC QoQ • EBIT margin rose slightly by 20bps QoQ to • TCS has out-performed our and street growth, aided by BFSI (+7% QoQ in CC 26.8. expectations again on revenue, implying terms), Manufacturing (+3.9% QoQ), impressive revenue traction likely in Retail & CPG (+4% QoQ), Life Sciences FY22. Medium-term revenue visibility TCS and Healthcare (+3.8%) and even beyond FY22 appears strong, and Technology & Services (+2.8% QoQ); robust TCV data, all-time high hiring and growth was clearly all-round and not recent deals such as Postbank will led by just 1 or 2 verticals further drive revenue. • Revenue rose 2% QoQ in CC terms • EBIT margin rose slightly by as much as • The IT major has guided for 12-14% CC (2.8% QoQ in USD terms). 268bps QoQ on revenue growth, revenue growth for FY22, which is • Vertical-wise, Financial Services operational efficiency and higher exactly in-line with our expectations, (+9.6% QoQ in USD terms), Retail utilization. EBIT margin came in at its while EBIT margin guidance stands at Infosys (+3.9% QoQ) and MFG (+6.1%) saw highest level since 4QFY16. 22-24%, a fairly steep range, with the healthy growth, even as Hi-tech (- lower end 250bps below the FY21 4.6% QoQ) was subdued; this is a margin level. clear reflection of robust broad- based growth. • Wipro reported revenue up 3% QoQ • IT Services EBIT margin declined by 68bps • Wipro has revised its 1QFY22 revenue in CC terms, which is close to the QoQ to 21.0%. growth of 2-4% QoQ in CC terms upper end of its guidance, with key • Consolidated EBIT margin declined 73bps excluding Capco, to 8-10% including Wipro vertical drivers being BFSI (+2.7% QoQ, exactly in-line with our estimate, Capco, which has been consolidated QoQ in CC terms), Consumer owing to lower IT service margins. from April 29, 2021, an indication of Business Unit (+6.9%), ENU (+2.7%) healthy underlying and Technology (+9.9%). growth momentum. • HCL Technologies reported a 2.5% • EBIT margin saw a steep decline of 262 bps • The IT major guided for double digit CC QoQ CC revenue growth in 4QYF21, QoQ to 20.3% owing to wage hike impact revenue growth in FY22, with an EBIT while USD revenue rose 3% QoQ to and higher G&A cost; this, along with a one- margin range of 19-21%, indicating HCL US$ 2,696 . time bonus payout to employees to the margin decline of 30-230bps, a Technologies extent of INR 5.75 bn and steeply higher reflection of wage cost pressures and tax rate due to a lower base, led net profit part-return of some G&A costs. to decline 40.1% QoQ to INR 23.87 bn.
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Companies Revenue Margin Industry Outlook / Strategy • Tech Mahindra reported CC • EBIT margin rose 55bps QoQ to 16.5%, the • Management is targeting double digit revenue up 0.7% QoQ and USD highest level since 3QFY15, aided by lower revenue growth in FY22, with Tech revenue up 1.6% QoQ to US$ 1,330 employee cost. underlying business visibility boosted Mahindra million. by the healthy order book TCV. EBIT margin is likely to exceed 15% in FY22.
• Reported revenue up 5% QoQ in CC • EBIT margin declined 103bps QoQ to 18.6% • Management has reiterated confidence terms and 5.1% QoQ in USD terms owing to higher other expenditure, on growth momentum continuing and led by growth in Travel & including Travel cost (up 50bps QoQ as a % expects industry-leading double digit Mindtree Hospitality (+16.3% QoQ), of sales), with higher utilisation (84.3% revenue growth in FY22. Margin Manufacturing, CPG & Retail (+8.7% cum-trainees vs 83.1% in 3QFY21) being a guidance is in excess of 20% EBITDA. QoQ) and CMT (+4.1% QoQ), while key margin lever. Growth leverage the biggest margin BFSI (-1.2% QoQ) remains laggard. lever for FY22. • In USD terms, clocked 4.6% QoQ • EBIT margin expanded 47bps QoQ to 13.2%, • From 1QFY22, a further 50-60bps will rise in revenue in 4QFY21 to US$ aided by growth leverage, higher offshore reduce from D&A, which will be the 152.8 million, driven by the Services revenue share, SG&A leverage and lower steady-state figure, thus aiding Persistent business (+8.3% QoQ), volume D&A. margins. Systems growth came in at a robust 10.5% • Management commentary on QoQ for Services – 5.4% QoQ GDC sustaining deal TCV in the US$ 200-250 volume growth and 11.3% QoQ mn range drives confidence on offshore volume growth. underlying business momentum. • Tata Elxsi reported revenue growth • EBIT margin powered ahead by 245bps • Management is looking to maintain of 9% QoQ in CC terms and 8.7% QoQ to 30.2%, an industry-high figure, on margins in FY22 at FY21 level. QoQ in INR terms to INR 5.18 bn, revenue growth leverage and sustained • Once travel picks up, margins could led by healthy growth across EPD lower costs due to WFH mandate, which is return to earlier levels, even as the Tata Elxsi business (5.5% QoQ CC, 5% QoQ INR ensuring cost items such as travel are not company will continue to focus on growth), SIS business (+21.3% CC, likely to return at least in FY21. margin improvement. +21.6% INR), and the design segment - IDV – (+40.2% CC, +40.1% INR).
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Companies Revenue Margin Industry Outlook / Strategy • Sonata Software reported IITS revenue up • Consolidated EBIT margin rose 148bps • Onsite revenue share could rise going 6.8% QoQ in USD terms (6.2% QoQ in CC QoQ to 8.7%, given higher share of the IITS forward, given that offshore share has terms) to US$ 43.8 million, led by broad- business in total revenue, along with risen substantially over the past few based growth across key verticals including lower inventory and wage cost; segment- quarters due to the pandemic, and clients Sonata ISV (+9.2% QoQ in USD terms), Travel wise, IITS EBITDA margin saw a steep are looking at getting some incremental Software (+9.0%), Distribution & Manufacturing 543bps QoQ decline to 22.4% owing to the work done at their sites. (+11.5%), Retail Essential (+13.5%), Retail Non- wage hike impact, and this came about • IITS EBITDA margin outlook to be within Essential (+23.3%) and Commodity & Service despite growth leverage and healthy 22-24% range going forward. Industry (+6.8%) operating metrics, stable utilisation at 89% and billability at 79%. • Happiest Minds Technologies (HMT) • EBIT margin saw a decline of 194bps QoQ • Medium-term aspiration is to grow reported revenue up 15.4% QoQ to US$ 30.2 to 22.0%, owing to higher SG&A cost (up revenue at 20% annually, with an EBITDA mn, aided by organic growth along with the 278bps QoQ as a % of revenue), with the aspiration of 22-24%, even as some PGS acquisition; vertical-wise, it was Edu-tech margin dip coming despite growth operating costs could return in the near- Happiest Minds (+11.7% QoQ), Travel, Media & Entertainment leverage, operational efficiency including term. Technologies (+12.2%), Retail (+351% QoQ aided by PGS), higher offshore (85% vs 81%), higher FPP Industrial (+26.9%) and Manufacturing share (26.0% vs 22.2%) and higher utilisation (+18.7%). (82.6% vs 81.6%).
• For Q4FY21 on a consolidated basis Infibeam • Adjusted EBITDA increased 7.9% YoY • Going forward, continued rise in revenue grew 48.1% YoY (down 11.6% QoQ) to (down 7.0% QoQ) to INR 369 mn. EBITDA transactions processed volumes with INR 2,013 mn. margin contracted 684 bps YoY / +91 bps increasing India penetration and recovery • It was driven by sharp jump in transaction QoQ to 18.3%. in traditional sectors of consumption and processed in their payment business • Adjusted net profit came at INR 316 mn for international expansions, should help the segment (78% of revenue segment) Q4FY21; up 65.3% YoY / up 146.8% QoQ. company to post revenue growth at a Consequently, adjusted PAT margin CAGR of 37% over FY21-FY25. Also, Infibeam expanded 163 bps YoY / 1,008 bps QoQ to additional streams of revenue coming Avenues 15.7%. from new businesses (value added) like CPGS, Neo Banking, cash collection services (GoPayments) and Assisted Commerce to help to aid the margin expansion. Hence, we believe the company can post a CAGR earnings growth of 57% over FY21-FY25.
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Particulars (INR Cr) Infosys TCS HCL Technologies Tech Mahindra Wipro
Sales 26,311 43,705 19,641 9,730 16,245
Total Expenditure 19,040 30,904 15,092 7,833 12,218
EBITDA 7,271 12,801 4,549 1,897 4,028
EBITDA Margin (%) 27.63% 29.29% 23.16% 19.50% 24.79%
Depreciation 831 1,067 1,267 344 699
EBIT 6,440 11,734 3,282 1,553 3,328
Interest Expense 50 138 159 42 112
Other income 545 931 244 33 533
Exceptional Items 0 0 0 0 0
PBT 6,935 12,527 3,367 1,544 3,750
Tax 1,857 3,245 2,256 500 776
Share of Associates/Minorities 0 0 0 37.3 -1.6
PAT 5,078 9,282 1,111 1,081 2,972
PAT Margin 19.30% 21.24% 5.66% 11.11% 18.30%
EPS (INR) 11.96 24.97 4.06 12.37 5.39
Source: Company, KRChoksey Research
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Particulars (INR Cr) Persistent Systems Tata Elxsi Mindtree Sonata Software
Sales 1,113 518 2,109 1,076
Total Expenditure 925 350 1,647 973
EBITDA 188 168 463 103
EBITDA Margin (%) 16.92% 32.42% 21.93% 9.58%
Depreciation 42 11 71 9
EBIT 146 157 391 94
Interest Expense 2 2 11 4
Other income 40 7 39 19
Exceptional items 0 0 0 0
PBT 185 162 419 109
Tax 47 47 102 26
Share of Associates/Minorities 0 0 0 0
PAT 138 115 317 83
PAT Margin 12.37% 22.22% 15.04% 7.72%
EPS (INR) 18.03 18.49 19.26 7.99
Source: Company, KRChoksey Research
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Particulars (INR Cr) Happiest Minds Technologies Infibeam Avenues
Sales 221 201
Total Expenditure 165 164
EBITDA 56 37
EBITDA Margin (%) 25.28% 18.3%
Depreciation 7 11
EBIT 48 26
Interest Expense 2 1
Other income 3 2
Exceptional items 0 -
PBT 49 26
Tax 13 -6
Share of Associates/Minorities 0 -1
PAT 36 32
PAT Margin 16.33% 15.7%
EPS (INR) 2.55 0.12
Source: Company, KRChoksey Research
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Particulars Infosys TCS HCL Technologies Tech Mahindra Wipro
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY
Sales 1.5% 13.1% 4.0% 9.4% 1.8% 5.7% 0.9% 2.5% 3.7% 3.1%
Total Expenditure 2.9% 8.2% 3.7% 6.7% 10.3% 9.9% 1.0% -6.3% 5.8% -3.3%
EBITDA -1.9% 28.1% 4.9% 16.6% -19.1% -6.4% 0.1% 67.9% -2.2% 29.1%
Change in EBITDA Margin (bps) -96 bps 324 bps 19 bps 181 bps -594 bps -298 bps -15 bps 759 bps -149 bps 499 bps
Depreciation 0.6% 10.9% 4.2% 12.2% 6.7% 27.2% -3.9% -13.5% -11.6% 20.6%
EBIT -2.3% 30.7% 4.9% 17.0% -26.0% -15.0% 1.0% 112.1% 0.1% 31.0%
Interest Expense 2.0% 11.1% -24.6% -45.0% 8.2% 28.2% -1.0% -21.6% -19.9% -32.1%
Other income -10.8% -11.2% 34.7% 26.2% 29.1% 66.0% -85.2% -88.6% -18.5% -9.6%
Exceptional items ------
PBT -3.0% 26.2% 7.1% 19.2% -24.8% -13.3% -10.0% 60.1% -2.4% 26.5%
Tax -4.1% 59.9% 9.4% 34.1% 349.4% 216.4% 17.2% 108.9% -9.0% 25.0%
Share of Associates/Minorities 0.0 0.0 0.0 0.0 0.0 0.0 84.7% -52.8% -91.9% -91.0%
PAT -2.6% 17.1% 6.4% 14.7% -72.1% -65.0% -17.5% 34.5% 0.1% 27.8%
Change in PAT Margin (bps) -81 bps 67 bps 44 bps 98 bps -1494 bps -1141 bps -247 bps 264 bps -64 bps 353 bps
Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS
Particulars Persistent Systems Tata Elxsi Mindtree Sonata Software
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY
Sales 3.6% 20.2% 8.7% 18.1% 4.2% 2.9% -22.9% 15.8%
Total Expenditure 3.6% 15.7% 5.2% 6.1% 5.8% -4.6% -24.3% 15.0%
EBITDA 3.5% 48.4% 16.7% 54.7% -1.2% 42.9% -7.1% 24.1%
Change in EBITDA Margin (bps) -5 bps 322 bps 232 bps 767 bps -119 bps 615 bps 164 bps 64 bps
Depreciation -9.1% -0.2% 2.2% 4.7% -0.6% 5.0% -5.4% 1.6%
EBIT 7.7% 72.5% 17.9% 60.2% -1.2% 53.0% -7.2% 27.0%
Interest Expense 15.1% 35.5% 40.8% 31.5% -10.2% -10.9% -23.2% 0.0%
Other income 33.4% 36.5% -54.8% -49.0% -36.9% 112.6% 482.2% 55.3%
Exceptional Items ------
PBT 12.0% 63.5% 10.7% 47.3% -5.9% 60.3% 9.1% 32.3%
Tax 6.9% 61.2% 13.2% 68.0% -14.4% 84.2% -43.3% 26.0%
Share of Associates/Minorities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
PAT 13.9% 64.3% 9.7% 40.3% -3.0% 53.9% 53.8% 34.4%
Change in PAT Margin (bps) 113 bps 332 bps 17 bps 351 bps -109 bps 499 bps 387 bps 107 bps
Source: Company, KRChoksey Research
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS
Particulars Happiest Minds Technologies Infibeam Avenues
Change (%) QoQ YoY QoQ YoY
Sales 14.4% 18.4% -11.6% 48.1%
Total Expenditure 16.1% 0.2% -12.6% 85.0%
EBITDA 9.4% 156.3% -7.0% 7.9%
Change in EBITDA Margin (bps) -129 bps 1360 bps 91 bps -684 bps
Depreciation 42.2% 43.6% -32.6% -53.4%
EBIT 5.3% 190.9% 11.7% 157.3%
Interest Expense 78.6% 9.2% 7.0% -2.1%
Other Income -64.1% -21.5% 17.9% -56.8%
Exceptional Items NM NM NM NM
PBT -7.1% 583.9% 18.3% -19.6%
Tax 18.6% 594.2% -163.8% -220.0%
Share of Associates/Minorities 0.0 0.0 -45.3% -113.0%
PAT -14.2% 580.2% 146.8% 15.5%
Change in PAT Margin (bps) -553 bps 1349 bps 1,008 bps -442 bps
Source: Company, KRChoksey Research
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Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23 E
TCS ACCUMULATE BUY 12,33,726 3,341 3,700 3,700 10.7% 21.2 28.9
Infosys ACCUMULATE BUY 6,65,611 1,562 1,675 1,675 7.2% 16.4 26.9
Wipro HOLD BUY 2,98,015 544 555 555 2.0% 15.7 22.4
HCL Tech. BUY BUY 2,67,310 985 1,130 1,130 14.7% 15.4 18.4
Tech Mahindra ACCUMULATE ACCUMULATE 1,05,518 1,088 1,200 1,120 10.3% 14.3 15.2
Mindtree HOLD HOLD 42,654 2,582 2,700 2,195 4.6% 20.7 29.4
Persistent HOLD SELL 14,186 2,813 2,890 2,325 2.7% 17.2 32.7
Tata Elxsi ACCUMULATE HOLD 24,933 4,007 4,600 3,520 14.8% 25.6 45.6
Sonata ACCUMULATE ACCUMULATE 7,989 755 810 660 7.3% 11.2 20.7
Happiest Minds ACCUMULATE HOLD 13,953 949 1084 860 14.2% 47.3 61.8 Technologies
Infibeam Avenues BUY BUY 6,954 52 86 86 65.4% 60.5 44.4
Source: Company, KRChoksey Research, CMP as of 29th June 2021
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Muted quarter due to COVID 19’s second wave Indian Pharma exports grew at a strong pace in FY21: • India’s Pharma exports increased at 18.7% YoY to USD 24.44 bn (vs 7.6% YoY to USD 20.58 bn in FY20), driven by highest exports experienced in March 21 of USD 2.30 bn (up 48.5% YoY), due to low base effect in March 20, caused by first round of lockdowns and initial supply chain disruption at the advent of the pandemic, last year. Indian Pharma Market (IPM) growth momentum peaked in April 21: • For the month of April 21, IPM sales grew 51.5% to INR 15,662 Cr, driven by COVID second wave, which led to increased demand for anti-infectives, and nutritional products. Amongst the top corporate, Cipla, Intas, and Glenmark grew the most. • For the month ended Mar 21, Indian Pharma Market (IPM) reported revenue growth of 10.3% YoY (1.1% YoY in February 21 and 4.5% YoY in January 21). It was driven by strong recovery in demand for Gynecology, Dermatology, Vitamins, Gastro, Anti-infectives, Cardiac therapies etc. • For Q4FY21, the pharmaceutical market increased 5.3% YoY, driven by 5% YoY rise in pricing, and product launches at 2.7% YoY; partially offset by volume decline of 2.4% YoY, for the quarter. This was led by demand for therapies such as Gynecology, Dermatology, Analgesics, Gastro, Cardiac and Vitamins etc. Fall in revenue within coverage companies, QoQ, lower fall in expenses than in sales led to higher fall in EBITDA but decline in interest expenses and exceptional losses, led to mid single digit growth in profits QoQ • For Q4FY21, the aggregate revenue of coverage companies increased 3.0% YoY, however, fell 4.1% QoQ due to second wave of COVID 19 affecting the growth in base business in India and other geographies. EBITDA increased 17.2% YoY and -10.4% QoQ in Q4FY21. EBITDA margins improved 270 bps YoY (-150 bps QoQ) • Glenmark showed the highest revenue growth QoQ at 2.6% while Granules India Ltd. exhibited highest revenue growth YoY at 33.2%. Glenmark’s QoQ performance was benefited by growth in the US, the EU and API segments, partially offset by flat growth in RoW and decline in revenue in Latin America (LA) YoY, while Granules was benefited from strong growth in its PFI, and FD sales YoY for Q4FY21 . • Cadila showed the highest QoQ growth in EBITDA due to cost savings while Granules India Ltd. showed highest YoY growth in EBITDA in Q4FY21 due to improved products mix.
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Q4FY21 Earnings Review: Result Summary …(1/6)
Companies Revenue and Segment-wise Performance • Sun Pharma reported consolidated total Revenue growth of 4.1% YoY (down 3.6% QoQ) to INR 85,230 mn. • The growth was primarily led by India, EM and RoW markets; partially offset by decline in the US and API revenue. India grew 12.9% YoY (-3.0% QoQ, 32% of revenue) while EM grew 3.5% YoY (-7.0% QoQ, 17% of revenue) and RoW’s revenue increased at 6.3% YoY (-6.6% QoQ, 14% of revenue). • The YoY growth in India market was driven by market leadership the company has in domestic market and continued steady Sun Pharma growth in chronic segment and recovery in sub-chronic segment. The company launched 31 new products in India in Q4FY21. • API business declined 9.9% YoY (-3.3% QoQ, 5% of revenue) while Other revenue declined 10% YoY (+8.0% QoQ, 0.4% of revenue). • The US was affected by one-time contribution from the special business in the US in FY20. Additionally, the US sales declined due to decline in Taro sales as the market is not fully normalized yet. Nevertheless, the US sales from specialty products has been growing driven by Illumya, Cequa, Absorica LD and Yonsa. • Lupin reported Revenue decline of 1.6% YoY (down 5.8% QoQ) to INR 37,831 mn. This was due to 0.8% YoY (down 4.0% QoQ) decline in Revenue from Operations to INR 37,593 million while other operating revenue declined 56.5% YoY (down 76.2% QoQ) to INR 238 million. • The decline in Revenue from Operations was caused by formulations revenue growing at a slower pace of 1.2% YoY (down 2% QoQ) to INR 35,037 million. Lupin • The slower growth YoY in formulations business was driven by 5.3% YoY decline (up 3.7% QoQ) in North America revenue to INR 14,952 million. However, QoQ decline in formulations’ revenue can be attributed to 5.9% QoQ (up 7.9% YoY) decline in India revenue to INR 12,866 million. • Growth Markets grew 8.3% YoY (down 8.5% QoQ) to INR 3,033 million, EMEA revenue grew 2.7% YoY (up 14.6% QoQ) to INR 3,749 million, ROW revenue declined 5.6% YoY (down 58.6% QoQ) to INR 437 million. Additionally, even API revenue declined 22.2% YoY (down 25.7% QoQ) to INR 2,556 million. • Cipla reported slower revenue growth of 5.3% YoY (down 10.9% QoQ) to INR 46,065 mn in Q4FY21 due to slower growth in India market, South Africa, Sub Saharan, and Global Access business (SAGA), Emerging Markets (EM), and Europe (EU), and decline in revenue in API segment YoY; partially offset by strong growth experienced in North America, and South Africa (major market in SAGA) YoY. The decline in revenue QoQ can be attributed to decline in India, North America, SAGA, EM, and Cipla EU revenue QoQ (across all its markets). • India revenue grew 4.5% YoY (down 19.0% QoQ, 39% of revenue), North America increased 17.1% YoY (down 3.4% QoQ, 22% of revenue), SAGA revenue rose 2.8% YoY (down 7.1% QoQ, 18% of revenue), South Africa (part of SAGA, 71% of SAGA) increased 13.9% YoY (rose 4.7% QoQ, 13% of total revenue), EM revenue increased 4.1% YoY (down 11.5% QoQ, 9% of revenue), and Europe increased at 7.3% YoY (down 1.2% QoQ, 5% of revenue)
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Companies Revenue and Segment-wise Performance
• Dr. Reddy’s laboratories reported Revenue growth of 7.2% YoY (down 3.5% QoQ) to INR 47,682 mn. • North America revenue declined 3.2% YoY (up 0.6% QoQ, 37% of revenue) due to base effect, however QoQ it improved due to volume increase in base business and new product launches, partially offset by price erosion. • Europe grew 14.8% YoY (down 4.5% QoQ, 8% of revenue), due to new product launches and improvement in sales volumes. Dr. Reddy’s • India grew 23.5% YoY (down 11.9% QoQ, 18% of revenue) due to Wockhardt acquisition. • The sequential decline in India was due to reduced demand for COVID 19 products in Q4FY21, and seasonality. • Emerging markets grew 10.0% YoY (down 8.1% QoQ, 19% of revenue) due to strong growth in Russia and China. • PSAI grew 10% YoY (up 12.9% QoQ, 17% of revenue), while PP & Others declined by 12.8% YoY (down 58.9% QoQ, 1% of revenue).
• Cadila Healthcare reported Revenue growth of 2.5% YoY (+1.3% QoQ) to INR 38,467 mn in Q4FY21. • India geography, which comprises of Human health formulations business, Consumer wellness business and Animal health Cadila business posted strong growth during the quarter, as it grew by 18% YoY and registered revenues of INR 17,720 mn. Healthcare • Human health formulations business in India grew by 15% YoY and Consumer wellness business grew by 22% YoY, during the quarter. • At the same time, US formulations business registered revenue of INR 15,090 mn for Q4FY21.
• Glenmark Pharmaceuticals reported revenue growth of 3.3% YoY/2.6% QoQ to INR 28,599 mn, mainly led by growth in all its major markets such as India, US, EU, and in API segment, YoY. It was partially offset by decline in revenue in ROW and Latin America, on an annual basis. The company’s revenue growth at 2.6% QoQ, (better than Q3FY21’s sequential growth of 1.9%), was driven by strong growth clocked in in the EU, US, and API segment, sequentially. It was partially offset by decline in India Glenmark and flat growth in ROW and LA. • India business (~29% of revenue) grew 7.7% YoY/-6.6% QoQ. API business (~12% of revenue) grew 26.7% YoY/3.4% QoQ. EU business (~15% of revenue) grew 2.6% YoY/34.8% QoQ. ROW (~12% of revenue) grew -0.7% YoY/- 0.5% QoQ. US (~ 28% of revenue) grew 5.2% YoY / up 2.7% QoQ. LA (~ 5% of revenue) declined 26.6% YoY/up 1.0% QoQ. Other revenue (~ 1% of revenue) declined 68.1% YoY/33.7% QoQ.
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Companies Revenue and Segment-wise Performance • Torrent Pharma reported slower revenue growth of -0.5 YoY (down 2.9% QoQ) to INR 19,370 mn. • India business grew at a strong pace of 9.8% YoY (-0.9% QoQ, 47.6% of revenue). • Germany business grew at a strong pace of 23.6% YoY (+0.8% QoQ, 13.8% of revenue). The US business revenue declined – 30.1% YoY (-7.9% QoQ, 13.9% of revenue), Brazil business declined -3.6% YoY (9.2% QoQ, 9.8% of revenue). At the same time, Torrent Pharma other country’s revenue declined 4.4% YoY (+2.1% QoQ, 10.1% of revenue) and others revenue declined 10.4% YoY (-34.5% QoQ, 4.9% of revenue). • The US revenue were impacted by price erosion in base business and discontinuation of sartan portfolio. • Germany revenue were impacted by extension of lockdowns. • Aurobindo reported Revenue de-growth of 2.5% YoY (-5.7% QoQ) to INR 60.02 bn, due to sales decline across all segments including US, Europe, and Growth markets. It was partially offset by increase in revenue of anti-retroviral (ARV) and API revenue on a YoY and QoQ basis. • Overall Formulation business de-grew 3.6% YoY (-8.4% QoQ, ~ 87% of sales), while API business increased 5.1% YoY (16.4% QoQ, ~13.2% of sales). Aurobindo • Within Formulations, US sales de-grew 4.5% YoY (-10.0% QoQ, 48% of revenue). Growth markets declined 18.8% YoY/22.8% QoQ. Pharma Europe sales de-grew 6.0% YoY (-7.1% QoQ, 25.9% of revenue), and Anti-Retroviral grew 28.7% YoY (+10.8% QoQ, ~8.2% of revenue). • The US revenue declined due to decline in Natrol sales. The Europe revenue were affected by stocking up at the start of the pandemic in Q4FY20. The revenue decline in growth markets was due to low patient flow to hospitals and pharmacies in certain markets owing to COVID 19 situation.
• For the quarter, Alembic Pharma reported 6.1% Revenue growth YoY (down 2.6% QoQ). The decline is visible, sequentially, since Q3FY21. Alembic • Similarly, India segment (28% of revenue) witnessed 14.4% decline QoQ while it increased at a smaller pace of 4.7% YoY. Also, Pharma API segment revenue recorded flat growth QoQ in Q4FY21. Nevertheless, ex-US segment revenue (18% of revenue) experienced strong growth both QoQ and YoY and API segment revenue grew at a strong pace of 38.1% YoY (0.0% QoQ) in Q4FY21.
• Granules India reported Revenue growth of 33.2% YoY (down 5.4% QoQ) to INR 79,931 Lakhs in Q4FY21. • Contribution from Finished Dosage (FD) increased to 58% in Q4FY21 (from 57% in Q4FY20), PFI contribution increased to 18% (from 13% in Q4FY20); however, API segment’s contribution contracted to 24% in Q4FY21 (against 30% in Q4FY20). Granules India • API sales grew 9.2% YoY (-23.0% QoQ), PFI sales grew 84.4% YoY (-15.6% QoQ), while FD revenue rose 34.0% YoY (+9.2% QoQ).
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Companies Margin Performance
• EBITDA rose 36.8% YoY to INR 20,592 mn (-11.8% QoQ). • EBITDA margin expanded 577 bps YoY to 24.2% in Q4FY21 (from 18.4% in Q4FY20) due to enhancement in gross profits margin (GPM) for the quarter. • The GPM was 73.7% in Q4FY21 vs. 73.6% in Q3FY21 and 71.8% in Q3FY21. This coupled with cost control measures helped in EBITDA margin expansion YoY. Sun Pharma • On a sequential basis, EBITDA contracted by 226 bps due to flat GPM and increased operating expenses QoQ. • Company reported PAT of INR 8,942 mn for the quarter vs. PAT of INR 3,998 mn in Q4FY20, primarily due to improvement in EBITDA margins, higher other income at INR 1,110 mn (vs INR 1,022/3,150 mn in Q4FY20/Q3FY21), and lower finance cost at INR 301 mn (vs INR 518/261 mn in Q4FY20/Q3FY21). • Company had a forex loss of INR 108 mn (vs INR - 1,421/-716 mn in Q4FY20/Q3FY21).
• EBITDA margin expanded by 504 bps YoY to 18.7% in Q4FY21 (from 13.7% in Q4FY20) mainly on account of higher Gross Profit Margin YoY but contracted 68 bps QoQ due to decline in Gross Profit Margin QoQ while total expenses remained flat (as a % of revenue) QoQ but declined (as a % of revenue) YoY. Lupin
• Company’s reported Net Profit of INR 4,604 mn in Q4FY21 vs. Net Profit of INR 3,896 million in Q4FY20. Net Profit margin came in at 12.2% (vs 10.1% in Q4FY20 and 10.9% in Q3FY21).
• EBITDA for the quarter grew 25.7% YoY (down 35.3% QoQ) to INR 7,962 mn. EBITDA margin expanded by 281 bps YoY (down 653 bps QoQ) to 17.3%. YoY improvement in EBIDTA margin was on account of lower other expenses (as a % of revenue) YoY at 25.5% of revenue (vs 29.5% in Q4FY20 and 21.3% in Q3FY21) on account of cost saving measures. • QoQ contraction in EBITDA margins can be attributed to increased expenses due to rise in materials costs (raw materials Cipla costs as a % of revenue increased to 39.6% in Q4FY21 vs. 38.6% in Q3FY21 and 38.6% in Q4FY20) QoQ, depressing gross margins to 60.4% in Q4FY21 (vs. 61.4% in Q4FY20 and 61.4% in Q3FY21) • Net Profit grew 68.1% YoY (down 44.7% QoQ) to INR 4,134 mn. Accordingly, net profit margin expanded 335 bps YoY (down 550 bps QoQ) to 9.0%. Effective tax rate (ETR) was at 23.6% in Q4FY21 vs (26.1% in Q4FY20 and 26.3% in Q3FY21), contributed to net profit margin expansion YoY.
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Companies Margin Performance
• GPM expanded by 209 bps YoY (+81 bps QoQ) with reduction in raw materials costs both YoY and QoQ (as a % of revenue) • EBITDA increased by 11.0% YoY (down 7.2% QoQ) to INR 10,547 mn while EBITDA margin expanded by 77 bps YoY to 22.1% in Q4FY21 (from 21.4% in Q4FY20), primarily on account of higher Gross Profit Margin, despite higher other expenses (as a% of Dr. Reddy’s revenue) at 26.8% of revenue in Q4FY21 (vs 25.0% in Q4FY20 and 25.3% in Q3FY21). • Company reported Net Profit of INR 5,573 mn during the quarter, a decline of 28.7% YoY (up 1,897.5% QoQ). The decline in Net Profit was on account of higher effective tax rate at 32.3% (vs -6.2% in Q4FY20 and 95.% in Q3FY21).
• EBITDA rose 8.1% YoY (+ 6.0% QoQ) to INR 8,553 mn. EBITDA margin expanded 115bps YoY (+98bps QoQ). • EBITDA margin improvement YoY was on account of lower other expenses at 26.7% of revenue in Q4FY21 vs 29.1% in Q4FY20) & lower employee cost at 16.1% of revenue (vs 16.2% in Q4FY20). Cadila • Finance cost declined 71.8% YoY / 13.1% QoQ to INR 233 mn, while the company incurred other non-operating loss at INR 403 Healthcare mn, thereby Adj. PAT grew 79.9% YoY (+ 47.9% QoQ) to INR 7,799 mn. • The company recorded an unusual expense of INR 731 mn in Q4FY21, due to impairment of intangible assets associated with “Levorphanol”, a product forming part of the US specialty product segment and other products.
• EBITDA grew 12.4% YoY/-1.3% QoQ to INR 5,234 mn. EBITDA margin expanded 148 bps YoY (down 72 bps) to 18.3%, due to improved gross profits margin (GPM) YoY. The GPM increased to 67.2% in Q4FY21 compared to 64.7% in Q4FY20 and 67.3% in Q3FY21. However, the QoQ decline in EBITDA and EBITDA margins was due to marginally lower GPMs QoQ and slightly higher Glenmark operating expenses, on account of increased other expenses while employee costs were lower, sequentially. Pharma • The adjusted net profits increased 24.8% YoY/-0.4% QoQ to INR 2,339 mn due to increased EBITDA margins, lower interest expenses; partially offset by lower other income YoY. QoQ decline in net income was due to marginally lower EBITDA margin, lower other income; partially offset by lower interest expenses, QoQ. • Adjusted net profit margin expanded 141 bps YoY/- 25 bps QoQ to 8.3%.
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Companies Margin Performance
• EBITDA grew 6.2% YoY (-4.1% QoQ) to INR 5,820 mn. EBITDA margin expanded 189 bps YoY to 30.0% in Q4FY21 (from 28.2% in Q4FY20), on account of lower COGS at 25.6% in Q4FY21 vs. 27.1% in Q4FY20 and other expenses YoY. On a sequential basis Torrent Pharma though, EBITDA margin contracted by 38 bps due to higher other expenses, partly offset by lower COGS QoQ. • Net Profit grew 3.2% YoY (up 9.1% QoQ) with 59 bps YoY (+184 bps QoQ) improvement in Net Profit Margin due to higher other income and lower finance cost at INR 730 mn in Q4FY21 vs (INR 1,020 mn in Q4FY20).
• EBITDA for the quarter declined 3.2% YoY (-6.9% QoQ) to INR 12.75 bn while EBITDA margin contracted 13 bps YoY (-26 bps QoQ) to 21.2% in Q4FY21. Aurobindo • Reported Net Profit declined 7.2% YoY (-72.8% QoQ) to INR 8.01 bn mainly on account of increased expenses both QoQ and Pharma YoY. while Adj. Net Profit improved 1,082.8% QoQ (+8.3% YoY).
• Reported -6.4% QoQ and 4.3% YoY growth in EBITDA while EBITDA margins contracted by 109 Bps (QoQ) and 45 BPs (YoY) in Alembic Q4FY21. Pharma • Similarly, PAT declined 14.3% QoQ and increased 11.6% YoY.
• Gross margin improved 472 bps (+237 bps QoQ) to 51.7% in Q4FY21 from 47.0% in Q4FY20. • EBITDA grew 102.1% YoY (down 4.5% QoQ) to INR 20,201 Lakhs in Q4FY21. • EBITDA margin expanded to 25.3% in Q4FY21 (+861 bps YoY / +22 bps QoQ). Granules India • Expansion in EBITDA margin was on account of improved product mix and operational efficiencies arising out of higher capacity utilization. • Net Profit grew 38.2% YoY mainly on account of strong expansion in EBITDA margins YoY, while it was down 13.1% QoQ to INR 12,757 Lakhs as depreciation increased 20.7% and other income was lower by 80.0% QoQ.
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Coverage universe reported mixed set of numbers
Particulars (INR Mn) Sun Pharma Lupin Cipla Dr. Reddy’s Total Revenue 85,230 37,831 46,065 47,682 Total Expenditure 64,638 30,756 38,102 37,135 Material Cost 22,408 13,176 18,224 15,415 Employee Cost 16,775 6,402 8,147 8,930 Other expenses 25,456 11,178 11,731 12,790 EBITDA 20,592 7,076 7,962 10,547 EBITDA Margin (%) 24.16% 18.70% 17.29% 22.12% Depreciation 5,535 2,157 2,852 3,088 EBIT 15,057 4,918 5,111 7,459 Interest Expense 301 318 275 297 Other Income 1,110 582 601 826 Exceptional Items 6728 0 0 15 Net (gain) /loss on FX 108 0 0 0 PBT 9,030 5,182 5,437 7,973 Tax 550 540 1,282 2,579 Share of Associates -56 2 -40 179 Minority Interest -517 40 -19 0 PAT 8,942 4,604 4,134 5,573 PAT Margin 10.5% 12.2% 9.0% 11.7% Adj. PAT 15,670 4,644 4,134 5,588 Adj. PAT Margin 18.4% 12.3% 9.0% 11.7% EPS 3.7 10.1 5.1 33.5
Source: Company, KRChoksey Research
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Sun Pharma, Lupin& Cipla lead in margin improvement on YoY basis Particulars Sun Pharma Lupin Cipla Dr. Reddy’s Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales -3.6% 4.1% -5.8% -1.6% -10.9% 5.3% -3.5% 7.2% Total Expenditure -0.6% -3.2% -5.0% -7.4% -3.2% 1.8% -2.4% 6.1% Material Cost -4.0% -2.8% -4.2% -6.2% -8.6% 7.9% -5.9% 0.7% Employee Cost -2.5% 1.5% -9.4% -16.2% -3.5% 6.7% -2.5% 4.4% Other expenses 4.0% -6.5% -3.4% -3.0% 6.6% -9.1% 2.2% 15.0% EBITDA -11.8% 36.8% -9.1% 34.7% -35.3% 25.7% -7.2% 11.0% EBITDA Margin (bps) -226 bps 577 bps -68 bps 504 bps -653 bps 281 bps -88 bps 77 bps Depreciation 4.1% -3.8% -11.7% 0.7% 14.8% -17.5% -0.8% 12.7% EBIT -16.5% 62.0% -8.0% 58.1% -48.0% 77.6% 226.3% 10.3% Interest Expense 15.3% -41.9% 3.0% -70.3% -42.7% -48.2% 58.0% 29.1% Other Income -64.8% 8.6% 175.0% -72.1% -30.8% -35.5% 17.2% 12.2% PBT -58.3% 56.4% -1.2% 4.4% -46.8% 65.8% 185.0% 9.9% Exceptional Items NM 158.1% NM -100.0% 0.0% 0.0% -99.7% 114.3% Tax -77.5% -33.8% -35.3% -48.6% -52.3% 49.8% -3.4% NM Share of associates 18.9% 251.6% 0.0% -82.8% NM NM 18.5% 70.5% Minority Interest -184.9% -155.7% 29.4% 141.6% NM NM NA NA PAT -51.7% 123.6% 5.0% 18.2% -44.7% 68.1% 1,897.5% -28.7% PAT Margin -1,047bps 561bps 126 bps 204bps -550 bps 335 bps 1,112 bps -587 bps Adj .PAT -15.4% 137.2% 5.2% 50.7% -44.7% 68.1% -10.6% -28.5% Adj PAT Margin -258 bps 1,032 bps 129 bps 426bps -550 bps 335 bps -93 bps -585 bps Source: Company, KRChoksey Research
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Aurobindo Pharma post highest revenue growth among the pack
Particulars (INR Mn) Cadila Healthcare Glenmark Pharma Torrent Pharma Aurobindo Pharma
Sales 38,467 28,599 19,370 60,015 Total Expenditure 29,914 23,365 13,550 47,268 Material Cost 13,440 9,384 4,960 24,071 Employee Cost 6,209 5,372 3,410 8,544 Other expenses 10,265 8,609 5,180 14,653 EBITDA 8,553 5,234 5,820 12,747 EBITDA Margin (%) 22.23% 18.30% 30.05% 21.24% Depreciation 1,886 1,111 1,650 2,660 EBIT 6,667 4,124 4,170 10,087 Interest Expense 233 833 730 182 Other Income -403 85 390 639 Exceptional Items 731 0 0 -6.9 PBT 5,300 3,375 3,830 10,692 Tax -2,016 1,036 590 2,597 Share of Associates 38 0 0 -84 Minority Interest 564 0 0 -4 PAT 6,790 2,339 3,240 8,016 PAT Margin 17.65% 8.18% 16.73% 13.36% Adj. PAT 7,521 2,339 3,240 7,867 Adj. PAT Margin 19.55% 8.18% 16.73% 13.11% EPS 6.6 8.3 19.2 13.7 Source: Company, KRChoksey Research
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EBITDA margin improvement across companies on YoY basis
Particulars Cadila Healthcare Glenmark Pharma Torrent Pharma Aurobindo Pharma Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 1.3% 2.5% 2.6% 3.3% -2.9% -0.5% -5.7% -2.5% Total Expenditure 0.1% 1.0% 3.5% 1.5% -2.4% -3.1% -5.4% -2.4% Material Cost 3.9% 6.7% 3.0% -3.9% -11.7% -6.1% -6.4% -3.8% Employee Cost -1.2% 2.0% -10.0% 2.5% -6.1% 1.5% -3.0% -1.1% Other expenses -3.8% -6.0% 15.0% 7.4% 11.9% -3.0% -5.1% -0.6% EBITDA 6.0% 8.1% -1.3% 12.4% -4.1% 6.4% -6.9% -3.2% EBITDA Margin (%) 98 bps 115 bps -72 bps 148 bps -38 bps 189 bps -26 bps -13 bps Depreciation 4.5% 5.7% -3.6% -12.0% -1.2% -1.8% -3.8% 14.5% EBIT 6.4% 8.8% -0.6% 21.5% -5.2% 9.7% -7.6% -6.9% Interest Expense -13.1% -71.8% -12.7% -15.4% -19.8% -28.4% -6.5% -42.8% Other Income -246.5% -191.0% -43.7% -80.8% 387.5% 160.0% -12.3% 96.0% PBT -15.5% 1.5% -3.0% 6.2% 7.3% 30.7% -11.4% -1.5% Exceptional Items NM 39.2% NM NM NA NA NM NM Tax -275.8% -285.8% 3.9% 6.1% -1.7% -381.0% -75.5% 21.2% Share of associates -75.5% 1,800.0% NA NA 0.0% 0.0% NM NM Minority Interest 6,950.0% 158.7% NA NA 0.0% 0.0% NM NM PAT 28.8% 73.3% -5.8% 6.2% 9.1% 3.2% -72.8% -7.2% PAT Margin 376 bps 721 bps -73 bps 22 bps 184 bps 59 bps -3,294 bps -67 bps Adj. PAT 47.9% 79.9% -0.4% 24.8% 9.1% 3.2% 992.4% -7.6% Adj. PAT Margin 638 bps 872 bps -25 bps 141 bps 184 bps 59 bps 1,198 bps -72 bps Source: Company, KRChoksey Research
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Granules India reports highest growth in revenue
Particulars (INR Mn) Alembic Pharma Granules India
Total Revenue 12,804 7,993 Total Expenditure 9,387 5,973 Material Cost 3,146 4,414 Employee Cost 2,372 999 Other expenses 3,868 1,559 EBITDA 3,417 2,020 EBITDA Margin (%) 26.7% 25.3% Depreciation 512 445 EBIT 2,905 1,575 Interest Expense 26 68 Other Income 40 33 Exceptional Items 0 0 PBT 2,919 1,540 Tax 545 264 Share of Associates 51 0 Minority Interest 83 0 PAT 2,507 1,276 PAT Margin 19.6% 16.0% EPS 12.8 5.1
Source: Company, KRChoksey Research
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Granules India reports robust EBITDA and Adj. PAT growth Particulars Alembic Pharma Granules India Change % QoQ YoY QoQ YoY Sales -2.6% 6.1% -5.4% 33.2% Total Expenditure -1.1% 6.8% -5.6% 19.5% Material Cost 7.4% 19.2% -6.9% 25.1% Employee Cost -9.6% -3.9% 20.2% 35.3% Other expenses -1.8% 5.0% -1.9% 6.0% EBITDA -6.4% 4.3% -4.5% 102.1% EBITDA Margin (bps) -109 bps -45 bps 22 bps 861 bps Depreciation 9.0% 16.0% 20.7% 14.1% EBIT -8.7% 2.5% -9.8% 158.3% Interest Expense 10.8% -67.0% -5.9% 3.8% Other Income 56.1% 343.8% -80.0% -85.4% PBT -8.3% 9.9% -16.3% 12.6% Exceptional Items NM NM NA NM Tax -7.9% -12.4% -28.7% -40.4% Share of associates NM NM NA NA Minority Interest 18.5% -61.0% NA NA PAT -14.3% 11.6% -13.1% 38.2% PAT Margin -268 bps 97 bps -142 bps 57 bps Adj .PAT -14.3% 7.0% -13.1% 291.7% Adj PAT Margin -268 bps 7 bps -142 bps 1,053 bps Source: Company, KRChoksey Research
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Granules India, Aurobindo Pharma and Lupin are among top picks
Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY22 E
Sun Pharma HOLD HOLD 162,578 677 706 706 4.3% 24.9 25.81
Dr. Reddy Labs HOLD ACCUMULATE 90,376 5,445 5,575 5,575 2.4% 26.6 27.92
Cipla HOLD HOLD 79,014 980 997 997 1.7% 27.4 28.73
Lupin ACCUMULATE HOLD 52,707 1,167 1,258 1,258 7.8% 28.5 30.4
Glenmark Pharma ACCUMULATE ACCUMULATE 18,487 655 696 696 6.3% 16.6 17.13
Cadila Healthcare ACCUMULATE ACCUMULATE 65,686 640 684 684 6.8% 28.8 29.29
Aurobindo Pharma ACCUMULATE ACCUMULATE 56,671 968 1,044 1,044 7.8% 15.8 16.33
Alembic Pharma HOLD HOLD 19,396 987 995 995 0.8% 19.8 20.23
Granules India BUY BUY 8,044 325 459 459 41.27% 14.6 15.66
Torrent Pharma UR UR 4,12,681 2,471 UR UR UR 33.7 35.51
Note: UR – Under Review Source: Bloomberg, KRChoksey Research, CMP as of 29th June 2021
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Chemical companies witnessed YoY revenue growth in Q4FY21 • Q4FY21 revenue growth was driven by growth in volume as well as on a low base of a covid hit previous year. • UPL’s revenue growth was led by strong growth in India (23%), Latin America (40.5%) and EU (16.9%), while growth in North America was flat (0.3%) while ROW reported negative growth (-11.2%). • Aarti Industries revenue growth was led by specialty chemical division’s growth while Supreme Petrochemical’s revenue growth was supported by return of normalcy at its plants, as all the plants operated at normal levels during the quarter. • While for RIL, the demand growth for polymers, polyester and elastomers was robust on a QoQ basis led by FMCG, Health & Hygiene, Pipes, Auto, Paint and Apparels.
EBITDA Margins expanded across the company • From our coverage universe, Supreme Petrochem reported EBITDA margin of 24.9% in Q4FY21, due to substantial lower raw material costs compared to last year. Aarti Industries EBITDA margin expanded 118 bps YoY to 21.5% in Q3FY21. However, on QoQ basis margin declined by 249 bps due to lower margins of both specialty chemicals and pharma segments on QoQ basis. • UPL’s EBITDA margin expanded by 351 bps YoY due to lower employee costs and lower forex loss.
Valuation & Outlook • Specialty chemical companies are now seeing uptrend in demand with picking up of discretionary end use sector. • The sustainable solutions portfolio will be the growth driver for UPL over the next few years, while Aarti Industries growth will be driven by its pharma as well as specialty chemicals division.
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Companies Revenue Margin Industry Outlook / Strategy • Consolidated Revenue for the • EBITDA margin declined to 13.6% • RIL’s focus on new businesses quarter stood at INR 1,720.95 (down 98 bps YoY and 208 bps QoQ) such as Digital and Organized bn, up by 24.9% (QoQ) and 13.6% mainly on account of reduction (108 Retail for driving growth and their (YoY) led by strong rebound in bps YoY / 35 bps QoQ) in O2C’s ability to quickly diversify into new demand and price realization in EBITDA margins due to increased businesses through acquisitions Petrochemical's segment, both feedstock prices. However, it was and successfully at that, can create on an annual and sequential partially offset by increase in margins long term shareholders’ value basis. It was also led by of organized retail (93 bps YoY / -12 once these new businesses Reliance Industries sequential but marginal bps QoQ) and digital services (179 generate the desired return on recovery in demand and bps YoY/- 182 bps QoQ). Cost inflation capital employed. increase in price realizations for affected margins growth across • Hiving off O2C business into a refined products. major segments, QoQ. subsidiary indicate likely • EBITDA was INR 233.51 bn, up by 8.3% monetization soon. QoQ / 6.0% YoY.
• Revenue increased by 91.5% • EBITDA grew by 707.5% YoY/32.2% • Brent crude has rallied during last YoY/36.5% QoQ to INR 12,691 QoQ to INR 3,164 mn. quarter, and if the rally continues it mn, beating our estimate. • EBITDA margin expanded by 1902 bps will put pressure on the company’s • The beat was on account of YoY to 24.9% due to substantial lower margin going forward. return of normalcy at its plants, raw material costs compared to last • USD/INR is more or less stable, as all the plants operated at year. However, on QoQ basis EBITDA hence no adverse impact is Supreme normal levels during the margin declined slightly by 82 bps. expected on the company’s Petrochemicals quarter. • Net Profit saw a quantum jump of financials. 885.5% YoY to INR 2,317 mn, on a low • As company’s all plants are now base of last year. While sequentially operating at normal levels, we PAT saw a growth of 35.1%. believe, once the 2nd Covid wave • PAT margin expanded 1471 bps YoY. gets controlled, FY22E would be a good year for the company in terms of revenue growth.
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Companies Revenue Margin Industry Outlook / Strategy • UPL Ltd reported consolidated • EBITDA has seen a growth of • On the back of strong performance in Revenue growth of 14.9% 38.8% YoY/15.6% QoQ to INR FY21 despite challenging business YoY/40.2% QoQ to INR 1,27,960 26,010 mn, while EBITDA margin environment, management is optimistic mn. expanded by 351 bps YoY due to about UPL’s future growth and has • UPL’s growth was largely led by lower employee costs and lower guided for 7-10% revenue growth and 12- volume growth of 18% YoY due forex loss, though sequentially 15% EBITDA growth for FY22E. to market share gains in key margin fell by 433 bps. • UPL has pared its gross debt by INR 50.4 UPL Ltd. territories combined with • Reported PAT has seen a strong bn and net debt by INR 31.4 bn at the end favorable weather and normal growth of 72.3% YoY/33.9% QoQ to of FY21, Gross and net debt as of FY21 monsoon in Indian market. INR 10,630 mn, adjusted for end stood at INR 2,37,740 mn and INR • Volume growth for the quarter exceptional items PAT has grown 1,89,220 mn, respectively. Management stood at 18% compared to 7% in by 45.1% YoY/59.6% QoQ. is targeting less than 2x Net Debt to Q3FY21 and 29% in Q4FY20. • Adjusted NPM saw an expansion EBITDA by FY22E. of 186 bps YoY and 109 bps QoQ.
• Aarti Industries’ consolidated • Gross Profit margin expanded 548 • Company has guided for a revenue revenue grew 12.4% YoY/1.9% bps YoY to 53.8% in Q4FY21, mainly growth of 25% and PAT growth of 35% in QoQ to INR 12.1 bn. due to lower inventory and FY22. While till FY24, the company • Specialty Chemical revenue grew purchase of stock in trade. management is confident of clocking 1.7x 13.9% YoY/1.8% QoQ to INR 10.5 Though on QoQ basis GPM to 2x growth. bn, while Pharma sales grew remained mostly flat (30 bps • The incremental capex of INR 15 bn that 8.5% YoY/-3.6% QoQ to INR 2.2 decline). will be incurred in FY22E, result will start Aarti Industries bn. • EBITDA margin expanded 118 bps flowing from FY25E. YoY to 21.5% in Q3FY21. However, on QoQ basis margin declined by 249 bps due to lower margins of both specialty chemicals and pharma segments on QoQ basis.
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Supreme Petrochem and Aarti Industries reported healthy YoY revenue growth
Particulars (INR Cr) Reliance Industries Supreme Petrochem UPL Ltd. Aarti Industries
Sales 172,095 1,269 12,796 1,209 Total Expenditure 126,224 963 10,195 949 EBITDA 23,351 316 2,601 260 EBITDA Margin (%) 13.6% 24.9% 20.3% 21.5% Depreciation 6,973 10 526 66 EBIT 16,378 306 2,075 195 Interest Expense 4,044 2 421 22 Other income 3,237 6 49 0 Exceptional items -797 0 80 0 PBT 16,382 311 1,623 173 Tax 1,387 79 322 34 Share of Associates/Minorities 14 0 358 3 PAT 14,995 232 1,063 136 PAT Margin 8.7% 18.3% 8.3% 11.3% Adj. PAT 14,198 232 1,143 136 Adj. PAT Margin 8.3% 18.3% 8.9% 11.3% EPS 20.52 24.6 13.9 9.5 Adj. EPS 20.13 24.6 14.9 9.5
Source: Company, KRChoksey Research
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EBITDA margin expansion across the company
Particulars Reliance Industries Supreme Petrochem UPL Ltd. Aarti Industries
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 24.9% 13.6% 36.5% 91.5% 40.2% 14.9% 1.9% 12.4% Total Expenditure 31.1% 10.3% 37.5% 52.1% 48.3% 10.0% 5.2% 10.7% EBITDA 8.3% 6.0% 32.2% 707.5% 15.6% 38.8% -8.7% 18.9% Change in EBITDA Margin (bps) -208bps -98bps -82bps 1902bps -433bps 351bps -249bps 118bps Depreciation 4.6% 10.1% 0.15% 8.5% -10.8% -6.9% 11.9% 33.2% EBIT 9.9% 4.3% 33.6% 924.3% 25.0% 58.5% -14.0% 14.7% Interest Expense -6.5% -33.3% -35.6% -11.0% -43.5% 125.1% 25.1% -36.4% Other income -27.3% -16.6% 0.1% 159.1% -26.9% 133.3% -97.7% -97.6% Exceptional items -758.7% -118.7% 0.0% 0.0% -202.6% -53.2% 0.0% 0.0% PBT 9.3% 77.6% 33.4% 917.5% 53.1% 67.0% -17.4% 27.2% Tax 1,476.1% -48.2% 28.7% 1024.2% 195.4% 52.6% -16.3% 31.0% Share of Associates/Minorities -81.3% NM 0.0% 0.0% 150.3% 88.4% -17.1% NA PAT 0.7% 129.1% 35.1% 885.5% 33.9% 72.3% -17.6% 23.3% Change in PAT Margin (bps) -209bps 439bps -19bps 1471bps -39bps 277bps -267bps 100bps
Source: Company, KRChoksey Research
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Reliance Industries is the top pick
Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23 E
Reliance Industries BUY BUY 13,45,607 2,090 2,464 2,345 17.9% 22.4 23.7
Supreme Petrochemicals ACCUMULATE HOLD 6,995 744 784 435 5.4% 20.9 19.1
UPL Ltd. ACCUMULATE ACCUMULATE 61,613 805 855 822 6.2% 20.6 11.3 Aarti Industries ACCUMULATE HOLD 30,106 864 916 658 6.0% 30.1 26.9
Source: Bloomberg, KRChoksey Research, CMP as of 29th June 2021
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Region-wise COVID related restrictions impacted CNG and PNG volumes for the quarter • CNG Segment: o IGL had 612 stations with Compression capacity of 87.79 lakh kg per day through which it provides CNG to ~12.63 lakh vehicles as on year ended March 2021, with an average sale of 26.23 lakh kg per day as on year ended March 2021. o IGL as on year ended March 2021 had its operations in NCT of Delhi, Noida, Greater Noida, Ghaziabad, Rewari, Karnal, Kaithal, Kanpur, Muzaffarnagar and Ajmer with 16.85 lakhs residential consumers and ~6700 industrial / commercial customers. o Total CNG stations operational by MGL were 271 stations out of which 19 stations were operational at Raigad GA as on year ended March
2021 . In case of domestic sales, volume had decreased from 0.509 MMSCMD to 0.457 MMSCMD which was an decrease of 10% while in case of industrial and commercial segments sales volume had increased from 0.378 MMSCMD to 0.411 MMSCMD an increase of 9% compared to the previous quarter.
o CNG stations in Raigad had crossed the average level of 52,000 kg per day in the month of March 2021. It is expected to go up when some more CNG stations become operational in coming months. • PNG – Domestic and Commercial & Industrial connection: o IGL increased it’s steel and MDPE pipeline network from 14605 kms in FY20 to 16539 kms in FY21. Company had total 16.85 lakh connections in domestic and commercial in Delhi & other geographical areas as on year ended March 2021. o IGL had tied up long term contract for RLNG to meet PNG Industrial & Commercial demand.
o In Raigad GA MGL had laid 68.53 kilometer of pipeline during the quarter thereby taking the total length of pipeline to 260.87 kilometer. o MGL’s PNG industrial Net realization for the quarter declined to INR 20.58/scm (as against INR 30.78/scm in Q3FY21) and commercial category Net realization was at INR 10.53/scm.
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Companies Revenue Performance • Net Revenue for the quarter came in at INR 1551 cr (-0.13% YoY / +7.26% QoQ), mainly due to 8% QoQ increase in total volume backed by rising preference of private vehicles arised due to the pandemic second wave.
Segment-wise Performance: • Segment Contribution: o Q4 FY21: CNG 70%; Residential 9%; Commercial/Industrial 14%; and Sale to other CGD companies 7%; Indraprastha Gas Ltd o Q4 FY20: CNG 73%; Residential 6%; Commercial/Industrial 13%; and Sale to other CGD companies 8% • Q4 FY21 Performance o CNG volume up 7% YoY to 438 Million SCM, PNG Domestic Volume up 10% YoY to 45 Million SCM, PNG Industrial Volume up 27% YoY to 76 Million SCM, PNG Commercial volume down 13% to 13 Million SCM and Natural Gas Volume with no % change YoY at 42 Million SCM in Q4FY21. o Pandemic restrictions on vehicular movement has an impact on the CNG volumes. However, easing of restrictions will likely to lift volumes going ahead. • Net revenue was reported at INR 718 cr up 4.2% YoY (+7.69% QoQ). CNG, domestic PNG reported volume growth. Industrial PNG grew 21.7% YoY. Mahanagar Gas Ltd • CNG volume down 34.15% YoY to 516.51 SCM Million, PNG Industrial/Commercial Volume down 18.36% YoY to 121.12 SCM Million and PNG Domestic volume growth of 14.92% YoY to 169.52 SCM Million.
• Q4FY21 revenue of Petronet LNG Ltd. declined by 11.6% YoY (+3.4% QoQ) to INR 7177 mn owing to lower gas prices. • It planned to set up more tanks, new jetty at Dahej in addition to expansion at Dahej by 5MTPA. Petronet LNG Ltd • Dahej regasified volumes were at 204tbtu (222tbtu in Q3) while Kochi volumes were at 14tbtu.
• Bharat Petroleum Corporation Ltd (BPCL) reported standalone revenue of INR 768.8 bn (11.4% YoY / +15.2% QoQ), as demand rose during the quarter. Market sales increased to 11.2MMT (+4.1% YoY). BPCL • The export sales rose by 23.5% YoY to 0.63MMT. The company’s throughput remained flat at 8.4MMT compared to prior year period, however, grew at 15.9% on a sequential basis. • Hindustan Petroleum Corporation Ltd (HPCL) reported standalone revenue of INR 748.4 bn which grew by 13.1% YoY HPCL (+9.0% QoQ), on account of strong demand recovery observed post-lockdown relaxation in FY21.
• Despite demand declines and tough economic conditions in FY21, HPCL added 2,158 new retail outlets (highest in a year) to
drive volumes further.
• GRM stood at US$ 8.11/bbl driven by higher volumes in high margin products like lubes, etc.
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Companies Margin Performance • Gross Margin/SCM stood at INR 16.2/ SCM up 3.84% YoY (-5.81% QoQ). • EBITDA margin expanded by 745 bps YoY (-290 bps QoQ) to 28.75% due to lower gross margin (INR 16.2 in Q4 vs INR 17.2 in Q3) and sharp hike in spot LNG gas prices. Indraprastha Gas Ltd • PAT margin was at 21.35%, up by 503 bps YoY (-179 bps QoQ) due to lower tax expenses (QoQ basis) and lower share of profit of associates & JVs.
• Gross Margin /SCM stood at INR 17.7/ scm increased INR 15.6/scm YoY (with flat QoQ), led by lower natural gas price in Q4 FY21. • EBITDA margin was at 44.1%, up 854 bps YoY (-346 bps QoQ) as company plans to sell CNG via a mobile unit to increase penetration owing to lack of space to build infrastructure in certain areas. • PAT came in at INR 213 cr, was up by 27.7% YoY and down by 1.98% QoQ due to the cost economics of natural gas over Mahanagar Gas Ltd other alternative fuels in conjunction with rising pollution concerns, achieving higher growth over the long term should not be a concern. • PAT margin was 29.66%, up 538 bps YoY (-292 bps QoQ).
• EBITDA rose 56.4% YoY to INR 1,091 mn and margin expanded 626 bps YoY to 14.4%, due to reduction in demand and regasification volume to remain low for the current quarter. Petronet LNG Ltd • For Q4FY21, Petronet LNG Ltd. reported Net Profit of INR 6233 mn (+73.6% YoY / -29% QoQ) due to lower tax rate and decline in other income to INR 492 Mn.
• EBITDA margin was at 6.6% up by 749bps YoY and 13bps QoQ on mixed performance from raw materials. • Profit after tax for Q4FY21 stood at INR 119401 mn reported an increase of 329.9% QoQ, due to lower tax expense, high BPCL operating profit and one time exceptional items boosted.
• Outlook remains positive with improvement in GRM and potential to execute planned projects. • EBITDA margin was at 6.2% up by 730 bps YoY and 140 bps QoQ, on account of lower material and operational costs. HPCL • Total domestic and export sales volumes reported at 9.8 million metric tonnes (+6.3% YoY) and 0.3 million metric tonnes (- 3.1% YoY), respectively.
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Companies Outlook / Strategy • IGL had recently got entry into Gurgaon to lay infrastructure; Initially the permission had been given for the area between west side of Sohna Road and NH 8 in Gurugram district. IGL had commissioned 14 CNG stations in the GA. Indraprastha Gas Ltd • IGL had been authorized for Meerut (except area already authorized), Muzaffarnagar & Shamli geographical area in the 9th round of bidding by PNGRB in which IGL had commissioned 10 CNG stations. • IGL had tied up long term contract for RLNG to meet PNG Industrial & Commercial demand. • MGL added 99 new industrial/commercial PNG customers, taking the count up to 4,192. • Capex for FY21 is expected at INR 340 Cr. Mahanagar Gas Ltd • Added 6 new CNG stations (Total- 271) in Q4FY21 with 19 operational stations in Raigad. • MGL extended domestic household network to 1.6mn (+54,688 in Q4) and led 165.69 kms of steel and PE pipeline, totaling upto 5916 kms (Raigad ~ 68.53 kms in Q4; Total ~ 260.87 kms). • The 17.5 mmtpa Dahej terminal has been booked for 7.5 mmtpa under RasGas long term volumes while an additional 8.25 mmtpa has been booked as regasification capacity, thus providing visibility to long term volumes. • The recent change in their business strategy to set up 1,000 LNG stations along with investment in Compressed Bio Gas Petronet LNG Ltd (CBG) plant is a dampener, as returns are likely to be back ended. • High growth opportunities from CGD and power sector ramp up will spur gas demand in the country, which will necessitate more infrastructure coming on stream. • BPCL sold its entire 61.5% stake in Numaligarh refinery to OIL (54.16%), EIL (4.40%), and Government of Assam (3.20%). • The divestment of government stake from the company, along with opening up of global economy, higher GRMs, and expectation of Indian economy to improve in FY22 will support the company’s financials in short to medium term. BPCL • Capex guidance for FY22 is around INR 120 bn, including INR 30 bn in refinery, INR 10 bn in petchem, INR 40 bn in marketing, and remaining in equity investments and other projects. • The board has declared INR 79/share of total dividend, which includes INR 35/share as special dividend and INR 21/share as interim dividend. • HPCL added CNG facilities at 203 outlets (total to 674 outlets) and 102 additional LPG distributions were added, total count to 6,192. • Capex for FY21 planned at INR 140.4 bn, of which refining capex was close to INR 60 bn. HPCL • Company completed its share buy-back through open market and acquired 10.5cr equity shares worth INR 24 bn (INR 29.5 bn including tax). • Company announced a final dividend of INR 22.75/share for FY21.
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MGL has a better margin profile compared with IGL Profit & Loss Account CGD Energy OMC (INR Mn) IGL MGL PLNG BPCL HPCL Revenue from Operations 15506 7177 75,753 768823 748434 Expenses: COGS 7139 2570 62817 658369 651674 Gross Profit 8367 4607 12,936 110454 96760 Gross Margin (%) 53.95% 64.19% 17.08% 14.37% 12.93% Employee benefit expenses 343 182 430 11328 4352 Other expenses 3107 1263 1596 48547 45745 EBITDA 4917 3162 10,910 50579 46663 EBITDA Margin (%) 31.71% 44.06% 14.41% 6.58% 6.23% Depreciation and amortisation expenses 761 448 2028 9998 9372 EBIT 4156 2714 8,882 40581 37291 Finance Cost 36 19 813 4776 2053 Other income 280 172 492 16640 5446 Profit/Loss before exceptional items 4400 2867 8561 52445 40684 Exceptional item 0 0 0 69929 0 Profit before Tax (PBT) 4400 2867 8,561 122374 40684 Total Tax expense 1090 738 2328 2973 10505 PAT 3310 2129 6233 119401 30179 PAT Margin (%) 21.35% 29.66% 8.23% 15.53% 4.03% Diluted EPS 4.73 21.54 4.16 59.32 20.43
Source: Company, KRChoksey Research
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HPCL delivered highest annual revenue growth for the quarter Particulars IGL MGL PLNG BPCL HPCL Change % YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ Revenue from Operations -0.1% 7.2% 4.5% 7.70% -11.58% 3.37% 11.40% 15.20% 13.1% 9.0% Expenses: COGS -13.6% 17.6% -13.9% 19.87% -15.52% 7.50% 4.60% 14.30% 5.7% 6.5% Gross Profit 15.2% -0.3% 18.7% 1.92 14.36% -12.88% 82.10% 21.30% 113.8% 29.8%
Gross Margin (%) 717 bps -408 bps 767 bps -364 bps 388 bps -318 bps 558 bps 72 bps 609 bps 207 bps
Employee benefit expenses -2.0% -8.5% 1.7% -8.54% 48.79% 25.36% 21.70% 30.30% -48.1% -50.7% Other expenses -1.2% 3.2% 0.0% 9.45% -60.57% 38.54% -15.80% 23.50% 4.1% 39.9% EBITDA 30.5% -1.8% 29.6% -0.16% 56.42% -18.30% 905.30% 17.50% 760.3% 41.3%
EBITDA Margin (%) 745 bps -290 bps 854 bps -346 bps 626 bps -382 bps 749 bps 13 bps 730 bps 142 bps Depreciation and amortisation expenses 16.2% 1.5% 1.8% 1.59% 4.43% 5.35% 6.60% 0.60% 15.5% 6.4% EBIT 33.5% -2.3% 35.8% -0.44% 76.48% -22.28% 359.10% 22.50% 345.6% 54.1% Finance Cost 33.3% 16.1% -9.5% 11.76% -21.45% -0.25% -17.50% 90.30% -39.2% 61.1% Other income -10.5% 8.1% -36.3% -15.69% -43.12% -50.65% 43.80% 9.90% 28.4% -37.0% Profit/Loss before exceptional items 29.5% -1.9% 27.5% -1.58% 76.04% -26.26% 630.80% 14.60% 384.2% 28.8% Exceptional item 0 0 0 0 0 0 747.00% -1767.% 100.0% 0 Profit before Tax (PBT) 29.5% -1.9% 27.5% -1.58% 76.04% -26.98% 691.50% 194.40% 267.1% 28.8% Total Tax expense 26.0% -4.1% 27.0% -0.40% 83.02% -20.79% 142.00% -78.40% 142.7% 30.8% PAT 30.7% -1.1% 27.7% -1.98% 73.57% -29.1% 977.30% 329.90% 11160.8% 28.2%
PAT Margin (%) 503 bps -179 bps 538 bps -292 bps 404 bps -376 bps 1750 bps 1137 bps 399 bps 60 bps
Diluted EPS 30.7% -1.0% 27.7% -2.05% 74.06% -29.01% 957.20% 321.90% 11250% 31.7%
Source: Company, KRChoksey Research
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Our top picks are Petronet LNG, HPCL and MGL Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Mn. INR New Old % 5 Yr. Avg. FY22 E
Indraprastha Gas Ltd HOLD ACCUMULATE 385,000 550 574 574 4.6% 25.6 26.7
Mahanagar Gas Ltd ACCUMULATE ACCUMULATE 1,14,548 1,160 1293 1293 11.5% 18.0 14.0
Petronet LNG Ltd BUY BUY 3,39,000 226 319 319 41.2% 18.2 11.0
BPCL ACCUMULATE ACCUMULATE 10,11,414 466 490 437 5.1% 11.9 11.8
HPCL ACCUMULATE BUY 4,15,280 293 325 325 11.0% 6.9 7.0
Source: Bloomberg, KRChoksey Research
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Auto industry slowly coming back on track; however, second COVID-19 wave creates hurdles A year of historical lows across all the segments • In FY21 there was a de-growth in sales of all segments compared to the previous year. The auto industry sales CAGR de-grew by 1.9% FY16 to FY21 vs CAGR growth of 5.7% between FY11 to FY16; while the sales CAGR marginally grew by 1.8% between FY11 to FY21 vs CAGR growth of 12.8% between FY01 to FY11. • The passenger vehicles sales de-grew by 2.24% YoY to 27.11 lacs units; 2-wheeler sales de-grew by 13.2% YoY to 151.2 Lacs units; 3- wheeler sales de-grew by 66.1% YoY to 2.2 lacs units. • CV segment performance will remain challenging due to high axle norms, delayed infrastructure projects. CV sales declined by 20.8% to 5.7 lacs units. The growth in Q4FY21 attributed to differed sales of previous quarters. • Q4FY21 sales which might include some deferred sales from previous quarters, only passenger vehicle segment at 9.34 lac sales was marginally above the previous high of Q4FY18 at 8.62 lacs. Commercial vehicles sales at 2.10 lacs in Q4FY21 were below 2.82 lacs in Q4FY18. • Similarly, Two- wheeler sales in Q4FY21 stood at 43.54 lacs against Q4FY18 figures of 51.13 lacs. Three-wheeler segment was the worst-hit with a sales of 0.86 lacs in this quarter compared to 1.97 lacs in Q4FY18. Macro Developments • On the sales front, a deep structural slowdown in the industry even before the pandemic, combined with the impact of COVID-19 in FY21, has pushed all vehicle segments back by many years. Recovery from here will require time and efforts, by all stakeholders. • There is uncertainty in the value chain owing to semiconductors, lockdowns and raw material. In an environment of uncertainty, instead of trying to predict the future, we will all work hard to create it.
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Companies Revenue and Segment-wise Performance
• MSIL reported total revenue from operations of INR 241,242 Mn, growth of 26.4% YoY (down 1.4% QoQ). In domestic market, the company sold 456,707 vehicles, higher by 26.7% over the same period previous year. • Exports were at 35,528 vehicles, higher by 44.4% over the same period previous year due to surge in demand. For FY21, the revenue Maruti Suzuki stood at INR 703,720 Mn (-7% YoY). The average realization for the quarter increased by 4.5% YoY and 4% QoQ to INR 466,440 per unit, for FY21 the average realization was marginally down by 0.4% YoY to INR 456,640. The PV segment performed well during the quarter with a double-digit volume growth of 22.9% YoY. • InQ4FY21, consolidated revenue grew by 41.8% YoY/ 17.1% QoQ to INR 886,279 Mn. Revenue growth was due to strong demand for M&HCV +85%, ILCV +111.4%, SCV & Pick Ups 63.4% and CV Passenger -52.2%; Domestic PV volumes were up 162.1% on YoY basis. Wholesales increased by 90.2% to 195,859 units in CV as pipeline inventory is rebuilt post BS VI transition to healthy levels. Tata Motors • Domestic Retails continues to be higher than wholesales in PV due to continued strong demand. For FY21, revenue stood at INR 2,497,948 Mn (-4.3% YoY). JLR retail sales were 123.5K vehicles, up 12% YoY; for FY21 sales were down by 13.6% to 439.6K units. The quarter reflected a strong YoY recovery of retails in China and N America. The business achieved 7.5% EBIT margin and strong positive free cash flows of £0.7 billion reflecting the recovery in sales, favorable mix and Charge+ delivery. • For Q4FY21, Bajaj Auto reported total revenue from operations of INR 85,961 Mn, a growth of 26.1% YoY (-3.5% QoQ). For FY21, the revenue stood at INR 277,411 Mn (-7.3% YoY). • For Q4FY21 2-W domestic volumes grew by 21% YoY at 487,731 units whereas 2-W Export volume has outperformed the domestic Bajaj Auto business with a growth of 24.3% YoY at 559,901. In Q4FY21, the domestic 2-W continued to grow on the back of robust demand for pulsar, dominar, KTM and Husqvarna. The average realization for Q4FY21 stood at INR 71,925 per unit (+7.9% YoY) as against INR 66,645 per unit in Q4FY20; while for FY21 the average realization stood INR 68,295 per unit (+8.3% YoY) as against INR 63,077 per unit in FY20. • Eicher Motors reported consolidated revenue from operations of INR 29,403 Mn, a growth of 33.2% YoY (+4.0% QoQ). Average price realization increased by 4.3% YoY and marginally declined by 2.3% QoQ due to higher mix of BS-VI motorcycles. Eicher Motors • Total volumes sales increased by 27.7%YoY at 222,771 vehicles due to gradual revival in demand. For FY21, revenue stood at INR 87,204 Mn (-4.7% YoY), with total volume sales at 650,279 units (-3.7% YoY). In its Joint venture business, VECV continued to be affected by demand slowdown in commercial vehicle space. VECV sold 18,167 trucks and buses registering a growth of 8.2% YoY and 56.2% QoQ. • Revenue in Q4FY21 increased by 60.0% YoY (+36.7% QoQ) to INR 8142 crores. The increase in revenue was led by volume increase of ~31.9% QoQ & 72.8% YoY and by rise in ASP by 10.3% QoQ. • AL’s LCV volume in Q4FY21 grew by ~112% YoY. The demand for LCVs was driven by e-commerce and growth in the rural economy. Ashok Leyland • MHCV truck volumes for Ashok Leyland (AL) had grown at ~111% YoY & was better than industry growth rate. MHCV truck volumes for AL had grown by 57% QoQ in Q4FY21 which was higher than the industry growth of 53%.
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Companies Margin Performance
• EBITDA stood at INR 20,844 Mn (-14.1% YoY / -35.3% QoQ), OPM reduced by 408 bps YoY / -453 bps QoQ to 8.6% in Q4FY21, OPM was below our expectations on account of rise in raw material prices. Net Profit stood at INR 12,411 Mn (-3.9% YoY / -37.8% QoQ), with NPM at 5.1% (-163bps YoY / -302bps QoQ). Maruti Suzuki • For FY21 EBITDA stood at INR 52,206 Mn (-25.7% YoY), with OPM at 7.8% (-200 bps YoY). PAT for FY21 stood at INR 43,891 Mn (- 22.7% YoY), with NPM at 6.2% (-130 bps YoY). The margin performance was hit by adverse commodity prices, adverse foreign exchange fluctuation and lower fair value gains on invested surplus, though it was supported by improved capacity utilization, lower sales promotion expenses, an increase in selling prices and cost-reduction efforts. • EBITDA increased sharply by 437% YoY/ 10.7% QoQ to INR 127,448 Mn due to better volumes, improved product mix, lower VME and cost savings offset partially by lower proportion of CV in total sales, commodity inflation and financing costs. Free cash flow for the quarter was 2.9KCr, as the company drove the cost and cash savings agenda delivered in Q4FY21. Tata Motors • The exceptional item in the quarter includes impairment reversal of 1.2KCr and onerous contract provision 7KCr in the PV business. Revenue for the year increased 7.1% to 47.0KCr and pre-tax loss before exceptional item was 3.7KCr (loss of 4.6KCr in FY20) while EBIT margin was (3.5%) improving 370 bps. Free cash flow for the year was 2.7KCr, with cash savings of 9.3KCr delivered in FY21 vs target of 6KCr.
• As the quarter witnessed sharp increase in the input cost, EBITDA margin contracted by 86 bps YoY to 18.1% (-171 bps QoQ). • EBTIDA for the quarter stood at INR 15,216 Mn (+21.5% YoY) and for FY21 it was INR 49,249 Mn (-3.3% YoY), with OPM at 18.2% Bajaj Auto (+65 bps YoY). For the quarter, Net Profit stood at INR 15,510 Mn (+14.6% YoY), with NPM at 18.4% (-204 bps YoY). PAT for FY21 was INR 48,574 Mn (-6.8% YoY), with NPM at 17.9%.
• Absolute EBITDA increased by 46.8% YoY to INR 6,344 Mn while EBITDA margin expanded 200 bps YoY, contracted by 219 bps QoQ to 21.6%. For FY21, EBITDA stood at INR 17,813 Mn (-18.3% YoY), with OPM at 20.4% (-339 bps YoY). The contraction in Eicher Motors margins was due to inflationary trends in the commodity prices. • Overall, bottom line recorded a profit of INR 5,261 Mn (+72.9% YoY) with NPM of 17.9% (+411 bps YoY / -94 bps QoQ). For FY21, PAT stood at INR 13,469 Mn (-26.3% YoY), with NPM at 15.4% (-452 bps YoY). • Absolute EBITDA improved by 43.8% YoY (35.6% QoQ) & margins reduced by 141 bps YoY (-10 bps QoQ) to 12.4%. • Net Profit improved by 1851.1% YoY (2375.8% QoQ) to INR 352.6 crores with Net profit Margin at 4.3% (+390 bps YoY/+410 bps Ashok Leyland QoQ). • EPS stood at INR 1.2 per share improved by 1900.0% YoY and 2300.0% QoQ.
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Companies Industry/Outlook/ Strategy • Current demand is holding with respect to the fresh booking. Pending bookings still exist. Nine states in lockdown which constitutes 35% of sales. Retails would be affected. If Covid-19 persists for longer time, retails might get severely affected. On supply of semi-conductors - Currently there is no major issue with the supply chain. Maruti Suzuki • Commodity prices have increased by 400bps YoY. Sequential impact is around 3%. Foresee the pressure in Q1 too. • On EV – company is working on localization of key components. Partnership with Toyota is reflected in exports, especially in Africa. The battery facility is on testing currently. • Price increase in Q4FY21 – partial hike of about 0.75% to 1%. April took a price increase of 1.25% average. • Demand impacted by lockdowns and strict restrictions. Subdued demand likely in Q1 FY22. Supply impacted by rising COVID cases and higher absenteeism. Semiconductor shortage worsens. Profitability impacted by lower operating leverage and commodity inflation. Accelerate sales momentum by leveraging and enhancing our exciting portfolio and “Reimagining” the front-end. Tata Motors • Drive up penetration of EV through portfolio expansion and accelerating charging infrastructure. Expediting cost reduction efforts in Q1. Capex deferral & avoidance to extent possible. Revised capital allocation for products. Continue development work for RDE programs. • Total volume in Q4FY21 increased by 17.9% YoY from 991,961 units to 1,169,664 units and it de-grew 13.9% in FY21 from 4,615,212 units to 3,972,914 units. Bajaj Auto • Export's sales volume of two-wheeler and commercial vehicle together performed well and stood at 635,545 units in Q4FY21. Export business volume stood at ~200,000 units per month. Within Q4FY21, company achieved highest sales in January. Exports for the KTM brand currently is about 8,000 units per month. • It was a challenging year for the industry with the COVID-19 pandemic leading to disruption in production, supply chain and retail operations. The company remained focused on deepening its presence in India and international markets. EML has added 535 dealerships and studio format stores, taking the retail presence to 2056 retail touchpoints across 1,750+ cities. Royal Enfield Eicher Motors expanded its presence in international markets by announcing its entry into Japan with its 1st standalone flagship store in Tokyo. • The company witnessed a significant recovery in the truck segment. Favorable measures announced in the Union Budget 2021-22 with respect to voluntary vehicle scrappage, Product Linked Incentive (PLI) scheme and many measures to boost the infrastructure segment, have also aided recovery in this quarter. • The company had undertaken price increase in Q3FY21 as well in Q4FY21. The impact of commodity price increases, particularly steel, which went up significantly in Jan 2021, had been partially negated through price increases and internal cost reduction initiatives. • Management stated that MHCV trucks segment will benefit from construction & lot of government spending on infrastructure. Ashok Leyland Last-mile connectivity demand propelled by e-commerce is likely to support LCV truck volumes. • Management also mentioned that AL had created a dedicated EV-only entity called SWITCH Mobility. SWITCH Mobility brings together Ashok Leyland's capabilities, both from Optare UK and Ashok Leyland's EV division.
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Companies New Launches/Market share • Non-urban markets contributed 41%, increase by 2% in FY21. Growth of 7%. • Sales of CNG vehicles increased in FY21. Sold 1.65 lakhs, grew by 50% (share of sales is 12%); (3) Exports impacted due to pandemic. Jimny exports created some positive sentiment. Maruti Suzuki • Retail market share – under 50%. First time buyer (46.95%) has gone up by 3.5%, additional car buying by up 3.6% (33.7%). Replacement has come down to 19.5%. • Maruti PC is 63%, van segment 97%, MPV 57% up by 7%. Entry SUV Maruti is the market leader. • All models gained market share in respective segments. • Average monthly sales of all models increased by ~2x in Q4 FY21 vs FY20. Tata Motors • Achieved highest ever UV sales in history of Tata Motors. Nexon and Harrier witnessed their respective highest sales since launch. • Continued to lead the EV market with 71.4% market share in FY21. Nexon EV crossed 4000 sales mark since launch • Share of 125cc+ (cubic capacity) increased from 46.0% in FY20 to 60.0% in FY21 in overall motorcycle volume. • The share of premium motorcycles (Pulsar and Dominar brand) in exports increased from ~13.0% in FY20 to ~16.0% in FY21, further strengthening the financial performance of the company. Bajaj Auto • New version of Pulsar, three upgraded variants of Platina & CT110 were introduced and distributed to dealers and distributors in FY21 and April 2021. • The re-opened bookings for electric scooter, Chetak was closed within 48 hours due to surge in demand and the company expects supply to normalize somewhere in July 2021. • Royal Enfield launch its all-new, grounds up motorcycle in the cruiser segment, the Royal Enfield Meteor 350. The motorcycle has received excellent response from the end users. • The market share of Royal Enfield declined marginally by 70 bps from 26.6% in FY20 to 25.9% in FY21. • Vintage Store opened in Chennai, Bangalore, Delhi, Mumbai, Patna, Kanpur, Indore, Patiala, Hyderabad, Eicher Motors Dehradun, Kolkota, Mathura, Bhadrak, Ghaziabad and Noida. Pre-owned, refurbished and restored motorcycles - a first-of-its-kind in twowheeler industry. • Launched the new Himalayan in three new distinctive, terrain-inspired colorways, combined with a host of functional upgrades including the Tripper navigation pod. • Ashok Leyland’s MHCV truck market share for Q4 FY 2021 had improved to 28.9% in comparison to 27.6% in Q4 FY 2020 (+1.3% YoY) & 28.1% in Q3FY21 (+0.8% QoQ). Ashok Leyland
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Margin highest for Bajaj Auto & Eicher Motors due to better cost rationalization. Particulars (INR Mn except no. of Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors Ashok Leyland vehicles) No of vehicles 492,235 191,341 1,169,664 222,771 44,060 Sales 241,242 886,279 85,961 29,403 8,142 Total Expenditure 228,140 836,161 71,428 23,059 7,831 Cost of Raw Materials 120,660 522,012 58,454 17,896 5,481 Purchase of Stock 60,514 38,130 5,978 855 276 Changes in Inventories (3,661) 9,790 -2,665 -1,359 -190 Employee Cost 9,060 79,830 3,081 2,254 572 Other expenses 33,825 102,780 5,894 3,415 991 EBITDA 20,844 127,448 15,216 6,344 1,013 EBITDA Margin (%) 8.6% 14.4% 18.1% 21.6% 12.4% Depreciation 7,416 62,171 662 1,248 245 EBIT 13,428 57,032 14,554 5,096 768 Interest Expense 326 21,448 20 39 457 Other Income 897 6,914 2,836 1,139 35 Exceptional Items 0 133,465 0 0 125 PBT 13,999 (76,433) 19,584 6,274 473 Tax 1,425 (1,324) 4,074 1,625 96 Share of Associates/Minorities 0 (745) 0 690 2.5 PAT 12,411 (76,054) 15,510 5,261 353 PAT Margin 5.1% -8.6% 18.4% 17.9% 4.3% EPS 41.10 (19.9) 53.6 19.3 1.2 Source: Company, KRChoksey Research
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Overall Tata Motors & Eicher Motors performed better than peers
Particulars Maruti Suzuki Tata Motors Bajaj Auto Eicher Motors Ashok Leyland Change % QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY No of vehicles (0.7%) 27.8% 21.0% 81.3% -10.5% 17.9% 6.4% 27.7% 31.9% 72.8% Sales (1.4%) 26.4% 17.1% 41.8% -3.5% 26.1% 4.0% 33.2% 36.7% 60.0% Total Expenditure 3.6% 30.3% 16.5% 20.2% -1.4% 26.9% 6.9% 29.8% 33.0% 55.5% Cost of Raw Materials 9.3% 45.1% 15.4% 34.8% -2.5% 30.2% 7.0% 47.5% 45.6% 159.1% Purchase of Stock 5.1% 26.8% 5.1% 29.4% 22.9% 45.4% 0.2% 26.5% 17.4% 27.1% Changes in (267.3%) 24.7% -200.9% -215.3% 55.6% 12.7% 26.1% 271.6% Inventories -9.8% -74.0% Employee Cost (5.1%) 10.6% 5.6% 3.7% -2.9% -10.0% (3.5%) 5.5% -5.8% 0.4% Other expenses 3.5% 11.2% 27.7% -22.7% 6.7% 6.1% 25.4% 7.2% 22.1% 32.0% EBITDA (35.3%) (14.1%) 10.7% 437.0% -12.0% 21.5% (5.6%) 46.8% 35.6% 43.8% EBITDA Margin (%) -453 bps -408 bps -83bps 1058bps -171bps -86bps -219bps 200bps (10 bps) (141 bps) Depreciation (0.1%) (9.9%) 1.4% 6.9% 1.9% 4.7% 1.5% 14.6% 15.1% 17.4% EBIT (45.8%) (16.3%) 24.3% -187.6% -12.5% 22.4% (7.2%) 57.6% 43.8% 54.8% Interest Expense 12.4% 15.2% 0.89% 9.83% 100.0% 124.2% 9.4% (28.8%) -2.4% 2.7% Other Income (91.0%) (89.8%) -2.9% 22.5% -23.2% -33.7% (8.9%) (20.4%) -24.9% -11.4% PBT (59.4%) (43.0%) -283.41% -17.93% -10.7% 11.0% (1.9%) 54.1% 621.5% 432.1% Exceptional Items - - NM NM NA NA NA NA NM NM Tax (72.3%) (49.8%) -114.01% -136.96% -14.5% -0.9% (4.1%) 14.0% 252.9% 208.9% Share of associates - - 112.65% -61.30% NA NA 119.9% (592.5%) NM 126.7% PAT (37.8%) (3.9%) -361.67% -23.13% -9.6% 14.6% (1.2%) 72.9% 2375.8% 1851.1% PAT Margin -302 bps -163 bps -1242bps 725bps -122bps -204bps -94bps 411bps 410 bps 390 bps Source: Company, KRChoksey Research
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Agri Demand on surge
Healthy growth as demand recovers • The strong recovery in end market demand across sector continued into this quarter enabling the company to register healthy double digit- growth in key parameters. The union budgets focus on infrastructure development along with the vehicle scrapping policy bodes well for
both the Commercial Vehicles & Industrial sector growth over the medium term. • Agriculture demand remains stronger. Other sectors demand stable. • Significant changes in product mix due to evolving demand scenario in the end market.
• Modernization, Automation, Upgradation and Addition of new equipment were the key strategies adopted by players to increase productivity, quality and efficiency. • Aerospace, renewable energy and defence are the key sectors with potential growth momentum in near future.
Performance overview • Balkrishna Industries has strengthened its distribution channels within the Indian market • Balkrishna is expected to reach 100% utilization levels at Bhuj plant in next few years. • Bharat Forge Industrial business grew sequential as well as YoY growth in Q4FY21 as the economy re-opened and started recovering. Increased infrastructure spending, mobilization of construction projects and mining activities are expected to improve fleet utilization and M&HCV demand further in the coming quarters.
Gearing up new launches to bolster sales; Rural recovery expected to boost domestic demand • Rural market led by good monsoon and robust crop output is expected to show strong growth as compared to urban region . • This will drive the demand for Tractor, Small Commercial Vehicles and Motorcycle in coming quarters.
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Companies Revenue and Segment-wise Performance • Minda Corporation Ltd (MCL), reported consolidated revenue of INR 7.9 bn which was up by 48% YoY (+7.3% QoQ), on account of increase in aftermarket sales and exports. Minda Corporation • Better consolidated revenue for the quarter largely aided by transition from BS IV to BS VI led by increased wiring harness content in two-wheeler category.
• Minda Industries Ltd (MIL) reported consolidated revenue of INR 22.4 bn (+49% YoY / +10% QoQ), backed by Aftermarket sales of INR 2.4 bn (+74% YoY) during Q4FY21. Minda Industries • The company acquired new business from leading global OEM for 2W switches. In the Acoustics business, Clarton Horn received new orders from Japanese & American OEM. • SFL Q4FY21 consolidated revenue grew by 53.2% YoY to INR 12.7 bn (14.8% QoQ). The Company's Domestic and Overseas subsidiaries have registered an impressive performance (+74.15% YoY) during Q4FY21. Sundram Fasteners • The operating revenue of Sundram Fasteners (Zhejiang) Limited, China, a step-down subsidiary of the Company has crossed the milestone of INR 1 bn mark for the first time in a quarter at INR 1.02 bn. • In Q4FY21, revenue from operations stood at INR 17,535 Mn (+27.8% YoY/+16.2% QoQ) owing to sales volume growth of 17% YoY at 68,002 units. • The volume recovery was mainly due to strong demand from agriculture segment across all geographies. For FY21 Balkrishna Industries revenue stood at INR 57,832 Mn (+20.2% YoY). • In other segments, demand has seen an uptick on back of increased commodity prices, infrastructure creation and pick- up in economic activities. • For Q4FY21, Bharat Forge reported consolidated revenue from operations of INR 20,828 Mn, a growth of 19.6% YoY (+20.9% QoQ). The strong recovery in the end market demand across sector continued during the quarter enabled the company to register healthy double-digit growth. Total shipment tonnage grew by 39% YoY (+9.6% QoQ) to 55,837. • Standalone Domestic revenue registered significant recovery with growth of 52.7% YoY / 9.6% QoQ to INR 5,653 Mn. Bharat Forge • Standalone Export revenue witnessed double-digit growth of 49.3% YoY / 42.9% QoQ to INR 7,310 Mn, largely driven by America and Europe. • For FY21, consolidated revenue stood at INR 63,363 Mn (-21.3% YoY). Standalone Domestic revenue declined by 8% YoY at INR 16,388 Mn, while Exports declined by 25.9% YoY to INR 19,642 Mn. • Endurance Technologies Q4FY21 revenue increased sharply by 33.6% YoY (+4.5% QoQ) to INR 21.3 bn, increase in topline was mainly on account of strong growth of 25.9% YoY in the Q4FY21 volumes, backed by demand recovery and a low base Endurance Technologies for the month of March 2020. • Domestic Aftermarket business also increased by 4.7% YoY. • European business revenue increased by 3.3% YoY, as new car registrations increased by 0.7% YoY in EU & UK.
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Companies Margin Performance • Gross margin stood at 36.8% down by 53 bps QoQ; and lowered by 243 bps on YoY basis. This was largely due to lag of raw Minda material indexation and low labour productivity. Corporation • The consolidated EBITDA for the quarter stood at INR 89 cr up by 128.2% YoY. EBITDA margin stood at 11.2% & was positively impacted by operating leverage and cost control measures like reduction in fixed cost. • Consolidated EBITDA for Q4FY21 stood at INR 301.6 crores (+116% YoY / +8% QoQ). Consolidated EBITDA margin stood at 13.5% Minda Industries (+414bps YoY / -26bps QoQ). • Consolidated PAT stood at INR 164 crores (+779% YoY / +20% QoQ). PAT margin stood at 7.3% (+608 bps YoY / +60 bps QoQ). • EBTIDA for the quarter stood at INR 236.8 crores grew by 92.8% YoY (up 2.7% QoQ) while EBITDA margin reported at 18.6% as compared to 14.8% in Q4FY20 and 20.8% in Q3FY21. Annual growth in EBITDA margin aided by stringent cost control measures Sundram & improvement in operational efficiency. Fasteners • Net Profit reported at INR 140.8 crores (up 158 % YoY) largely impacted by decrease in interest expense by 50.2% YoY. PAT margin for the quarter stood at 11.06% as against 6.6% in Q4FY20. • EBITDA improved by 43.3% YoY to INR 5,505 Mn, while EBITDA margin expanded by 341 bps YoY due better product mix and operational efficiency. Balkrishna • For FY21, EBITDA stood at INR 18,104 Mn (+42.4% YoY), with OPM at 31.3% (+488 bps YoY). Industries • PAT increased by 47.2% YoY to INR 3,801 Mn (+17% YoY), PAT margin improved by 238 bps YoY to 21.5%. • For FY21 PAT stood at INR 11,775 Mn (+22.7% YoY), with NPM at 20.4% (+41 bps YoY) EPS stood at INR 19.7 (vs INR 13.7 in Q4FY20).
• The Company reported Consolidated EBITDA of INR 4,258 Mn (+187.5% YoY), with OPM at 20.4% (+1194 bps YoY / +397 bps QoQ). The margins were driven by improvement in performance of overseas operations. Bharat Forge • PAT during the quarter stood at INR 2,086 Mn, with NPM at 10%. • BFL continues to focus on restructuring, operational optimization and cost improvement across business segment to stabilize margins.
• EBITDA for Q4FY21 increased by 40% YoY but declined 6% QoQ to INR 3.32 bn, while EBITDA margin for Q4FY21 enhanced at Endurance 15.6% (up 68 bps YoY). EBITDA margin was affected by sharp rise in price of raw materials. Technologies • Endurance Technologies Ltd. (ETL) reported net profit of INR 1.9 bn as compared to net profit of INR 1.07 bn in Q4FY20 (+75% YoY) supported by decrease in effective tax rate by 4.4% YoY.
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Companies Industry Outlook / Strategy
• In FY21, it has booked INR 66.7 bn worth of orders from the start of the year. For the quarter, it has INR 10.5bn worth orders of which ~33%, i.e. 3.5 bn worth were replacement business lifetime order whereas INR 7bn were for new businesses. Minda Corporation • Due to temporary shutdowns of dealerships because of COVID 19 restrictions, near term demand outlook may be impacted. But the company expects growth to be pushed by higher aftermarket revenues & superior grip in export market lead by die-casting business. • MIL met 10% of its power requirements by solar energy in FY21 and the target is to reach 15% by the end of FY22. • Merger of Harita Seatings Systems Ltd. with Minda Industries Ltd. Completed, retrospective effect on financials from 1st April Minda Industries 2019. • Stake increased in Harita Fehrer Ltd. to 100% by acquiring 49% stake from F.S. Fehrer Automotive GmbH, Germany. • The company incurred Rs 140 Crores towards capital expenditure as a part of capacity expansion of existing lines of business. • SFL has plans to diversify into new businesses such as aerospace, EVs and defense. The plan is to first establish itself as a major Sundram Fasteners player in Indian market and then expand globally. The company is of the view that it will take some time to become major player in these new market segments. • The management has approved a capex plan of INR 1,900 Cr to increase the tire capacity for its brownfield project at Bhuj. It will also increase carbon black capacity including advance carbon black and power plant at Bhuj. Balkrishna Industries • The proposal for new capex includes debottlenecking and brownfield expansion along with addition of balancing and ancillary equipment at Bhuj. This expansion will add 50,000 MTPA capacity at a cost of INR 800 Cr which is expected to complete in next 2 years. Post Brownfield capex achievable capacity of Tire Plant will stand at 335,000 MTPA. • Although the near-term outlook is negative due to the lockdown to curb the 2nd COVID 19, the medium to long term outlook is very encouraging especially for the M HCV sector. The focus on infrastructure spending, government's focus on increasing manufacturing as % of GDP from 16% to 25%, PLI schemes, AtmaNirbharta policy and the scrappage policy coupled with Bharat Forge investment in road infrastructure points to a long runway for the MHCV sector. • The Company continues to identify and address new opportunity in the domestic automotive industry, the commencement of operations at CLWT enables BFL to open newer avenues for the company to address in traditional and new technology mobility solution going ahead. • ETL started operations on 2nd February 2021, at a new plant at Vallam near Chennai to supply machined aluminum castings for Hyundai, Kia, Royal Enfield, and are now in the process of acquiring new business from these existing as well as new OEMs. Endurance Technologies • ETL has a very strong focus on their profitable aftermarket business and are targeting to make it at least 10% of their domestic net sales value from current level of 6.5%.
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Minda Sundram Balkrishna Endurance Particulars (INR Cr) Minda Industries Bharat Forge Corporation Fasteners Industries Technology Sales 794 2238 1273 1,753 2,082 2133 Total Expenditure 737 2059 1088 1,203 1,657 1914 EBITDA 89 302 237 550 428 332 EBITDA Margin (%) 11.2% 13.5% 18.6% 31.4% 20.4% 15.6% Depreciation 24 107 45 106 160 112 EBIT 72 203 196 444 265 227 Interest Expense 8 15 7 2.8 22.9 2 Other income 7 9 4 61 52 7 Exceptional items 0 2 0 0 8 - PBT 64 190 189 502 293 225 Tax 16 48 48 123 57 38 Share of 0 0 (280) Associates/Minorities 6 22 0 PAT 55 164 141 380 209 187 PAT Margin 6.9% 7.3% 11.1% 21.7% 10.0% 8.8% Adj. PAT 13 162 141 380 209 187 Adj. PAT Margin 1.6% 7.2% 11.1% 21.7% 10.0% 8.8% EPS 2.3 5.2 6.7 19.7 23.7 13.3 Adj. EPS 0.5 5.1 6.7 19.7 23.7 13.3
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Endurance Particulars Minda Corp. Minda Ind. Sundram Fast. Balkrishna Ind. Bharat Forge Tech. Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales 7.3% 48.1% 10.0% 49.0% 14.8% 53.2% 16.2% 27.8% 20.9% 19.6% 4.5% 33.6% Total Expenditure 6.5% 38.9% 9.9% 40.1% 17.2% 42.1% 16.8% 21.7% 15.1% 4.0% 6.5% 29.0% EBITDA 8.8% 128.2% 8.0% 116.0% 2.7% 92.8% 14.8% 43.3% 50.0% 187.5% -5.7% 39.5%
Change in EBITDA Margin 15 bps 393 bps (26 bps) 414 bps (220 bps) 380bps (30 bps) 170bps (80 bps) 220bps (164 (bps) 68 bps bps) Depreciation -0.9% 9.0% 6.8% 19.8% -0.4% 3.0% 1.6% 5.4% (0.2%) 10.3% 7.1% -9.1% EBIT 7.3% 118.6% 4.0% 216.0% 1.5% 7.9% 18.5% 56.9% 115.8% NM -6.2% 70.7% Interest Expense -20.7% -30.9% -24.5% -31.4% 34.2% -50.2% 35.4% 15.8% (31.8%) (50.4%) 128.0% -27.0% Other income -25.4% -55.3% -46.4% -36.4% -57.2% -17.6% 12.2% -6.4% 37.8% (2.4%) -15.0% -61.0% Exceptional items NM NM NM NM NM NM NM NM NM NM NM NM PBT 12.0% 193.6% 14.1% 400.0% (0.5%) 169.1% 17.6% 45.2% 113.7% -1,909% 6.0% 74.0% Tax 13.7% 121.5% 0.4% 223.8% 4.2% 186.0% 19.8% 50.5% 65.6% 894.5% 26.0% 66.0% Share of 1.4% 188.4% 141.6% NA NM NM - - NM 13.9% NA NA Associates/Minorities
PAT 10.3% 223.0% 20.0% 779.0% (1.3%) 158.0% 17.0% 43.5% NM NM 1.0% 75.0%
1415 (50 210 Change in PAT Margin (bps) 18 bps 372 bps 60 bps 608 bps (181 bps) 449 bps 14 bps 238 bps 2216bps Bps bps) bps
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Our top picks remain Ashok Leyland, Balkrishna Industries and Minda Corporation
Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr INR New Old % 5 Yr. Avg. FY22 E
Tata Motors BUY BUY 1,13,405 342 394 370 15.2% 13.1 20.2 Maruti Suzuki ACCUMULATE BUY 2,26,096 7,488 8,000 8,000 6.9% 29.8 35.0 Bajaj Auto ACCUMULATE ACCUMULATE 1,19,354 4,125 4,352 4,140 5.5% 19.3 22.6 Ashok Leyland ACCUMULATE ACCUMULATE 36,254 123.5 135 135 9.31% 18 57.5 Eicher Motors UR UR 70,685 2,586 UR UR - 41.8 NA Minda Corporation ACCUMULATE BUY 3,102 130 143 115 10.34% 21.2 18.1 Minda Industries ACCUMULATE HOLD 17,645 651 687 533 5.50% 38.4 46.0 Sundram Fastners HOLD ACCUMULATE 16,704 802 815 800 1.58% 29.2 33.2 Balkrishna Industries ACCUMULATE BUY 43,329 2,243 2,455 2,455 9.5% 27.5 51.9 Bharat Forge UR UR 34,787 748 UR UR NA 33.3 NA Endurance UR UR 22,403 1061 - - 33.0 NA Technology
Note: UR – Under Review Source: Company, KRChoksey Research, CMP as of 29th June 2021
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Revenue witnessed recovery, driven by improved performance of underlying holdings • Holding companies reported a healthy growth in revenues on a YoY basis, supported by buoyant financials of their underlying portfolio companies. • Bajaj Holdings, Ramco Industries and Pilani Investments witnessed a recovery in revenue growth on YoY. Expansion in margins on a YoY basis • EBITDA margin expanded for all the holding companies on a YoY basis, driven by higher revenues and lower expenses. • Bajaj Holdings and Ramco Industries reported significant improvement in EBITDA margins in the range of 400 to 1,100 bps increase on a YoY basis. Valuation & Outlook • Bajaj Holdings, EID Parry, Ramco Industries are trading above their five-year Price/NAV discount average, offering upside potential for investor to invest.
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Companies Revenue Margin Industry Outlook / Strategy
• Revenues degrew 16.3% YoY/7.8% • EBITDA margin fell 1050 bps QoQ/87 bps Bajaj Holdings • Bajaj Auto and Bajaj Finserv reported QoQ to INR 92 Cr. YoY to 62.8%. traction in their business performance
• Board has approved the closure of • Revenues degrew 16.9% QoQ/ -7.9% • EBITDA margin fell 429 bps QoQ/698 bps Pettavaithalai unit and sold 4% in EID Parry YoY to INR 3,908 Cr. YoY to 7.7%. Coromandel International for debt reduction.
• Company has an irrevocable option of shifting to a lower tax rale and simultaneously forgo certain tax incentives, deductions and • Revenue grew 11.8% QoQ/46.6% YoY • EBITDA margin expanded 423 bps YoY Ramco Industries accumulated MAT credit. to INR 339Cr. (down 425 bps QoQ) to 11.7%, • The Company has not exercised this option for the FY21 in view of the benefits available under the existing tax regime. • It allotted 31,63,500 Bonus Equity Shares of INR 10 – each fully paid up on January 04, 2021 in the proportion • Revenues grew 29.9% YoY/2.1% QoQ • EBITDA margin fell 90 bps QoQ but grew Pilani Investments of 2 Equity Shares for every 5 Equity to INR 50 Cr. 1,586 bps YoY to 96.5%. Shares held by the Equity Shareholders of the Company as on the record date of January 02, 2021.
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Increase in topline for Holding Companies on a YoY basis
Particulars (INR Cr) Bajaj Holdings EID Parry Ramco Industries Pilani Investments
Sales 92.5 3,908 339.5 50.2 Total Expenditure 34.4 3,606 300.0 1.7 EBITDA 58.1 302 39.6 48.4 EBITDA Margin (%) 62.8% 7.73% 11.7% 96.51% Depreciation 8.4 81 7.9 0.1 EBIT 49.6 221 31.6 48.3 Interest Expense 0.9 40 2.0 15.9 Other income 19.9 21 17.7 0.9 Exceptional items 0.0 -14 0.0 0.0 PBT 68.6 187 47.4 33.3 Tax 31.6 124 12.3 8.2 Share of Associates/Minorities 913.4 -69 31.3 -2.8 PAT 950.4 -6 66.4 22.4 PAT Margin 1027.5% -0.16% 19.6% 44.59% Adj. PAT 950.4 -6 66.4 22.4 Adj. PAT Margin 1027.5% -0.16% 19.6% 44.59% EPS 103.3 -0.36 8.6 20.2 Adj. EPS 103.3 -0.36 8.6 20.0
Source: Company, KRChoksey Research
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Expansion in margins on a YoY basis
Particulars Bajaj Holdings EID Parry Ramco Industries Pilani Investments
Change (%) QoQ YoY QoQ YoY QoQ YoY QoQ YoY Sales -13.5% 15.7% -16.9% -7.9% 11.8% 46.6% 2.1% 29.9% Total Expenditure 16.4% -16.6% -12.8% -0.4% 17.4% 39.9% 37.5% -76.6% EBITDA -22.1% 35.5% -46.5% -51.6% -18.1% 130.4% 1.2% 55.4% Change in EBITDA Margin (bps) -803.6 1,070.2 -429 -698 -425.5 423.6 -90 1586 Depreciation 0.0% 1.3% -1.9% -6.5% -4.7% 0.8% 0.2% 1.3% EBIT -24.2% 41.6% -54.2% -58.9% -20.9% 240.1% 1.2% 55.6% Interest Expense -3.1% -63.6% -16.6% -58.4% -2.5% -44.7% 3.4% 47.5% Other income 30.4% -28.0% -415.3% 29.1% 826.2% 9.8% NA NA Exceptional items NA NA -85.4% NA NA NA NA NA PBT -18.6% 25.2% -43.3% -59.1% 18.7% 116.7% 2.9% 64.3% Tax -13.4% 16.7% 46.6% -39.7% -25.3% 253.3% 5.1% -14.4% Share of Associates/Minorities 37.1% 21.9% -50.0% -26.6% -35.0% 116.6% -126.2% -110.2% PAT 32.6% 22.2% -105.9% -104.0% -7.3% 102.2% -36.5% -41.0%
Source: Company, KRChoksey Research
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Bajaj Holdings and Pilani Investments are top picks
Recommendation Market Cap. CMP Target Price (INR) Upside P/NAV Discount Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. Current
Bajaj Holdings BUY BUY 39,821 3,578 4,166 4,166 16.4% 53% 60%
EID Parry BUY BUY 7,894 446 514 463 15.2% 32% 58%
Ramco Industries ACCUMULATE ACCUMULATE 2,407 278 300 280 7.9% 52% 56% Pilani Investments BUY BUY 2,203 1,989 2,300 2,044 15.6% 74% 87%
Source: Bloomberg, KRChoksey Research, CMP as of 29th June 2021
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Companies Revenue Margin Industry Outlook / Strategy • Emmbi Industries reported revenue • EBITDA has seen a growth of 1.7% growth of 23.9% YoY/25.8% QoQ to INR YoY/14.8% QoQ to INR 8.7 Cr, while • With gradual easing of Covid-19 92.5 Cr. EBITDA margin contracted by 206 related curbs, we expect the • Emmbi’s topline growth in Q4FY21 was bps YoY/90 bps QoQ on account of company to improve its capacity Emmbi largely led by good growth in exports higher other expenses. utilization, thereby aiding its fixed market as domestic market continued to • Other expenses has seen a 32.5% asset turnover ratio in the coming face uncertainty due to Covid related YoY/29.4% QoQ increase, thereby quarters. disruption. impacting EBITDA margin. • The company has guided for a • Revenue from operations grew by 44.6% • GPM declined to 44.8%, a revenue growth of 30% in FY22E, YoY to INR 791 Cr (up 22.5% QoQ). contraction of 73 bps QoQ and 105 which seems quite achievable • The quantity of explosives increased by bps YoY. seeing the current order book Solar 13% YoY to 1,07,336 MT and its value • EBITDA margin for the quarter position (INR 1510 Cr at end increased by 42% YoY to INR 418 Cr. rose to 20.8%, an expansion of 32 Q4FY21) of the company, which is While realization of explosives increased bps QoQ and 441 bps YoY. ~2xFY21 sales, thereby providing by 25% YoY to INR 38,922 per MT. good revenue visibility. • In Q1CY21, total revenue grew 7% YoY/- 4.2% QoQ to INR 1,629 Cr driven by • EBITDA margin for the quarter saw increase in revenue across business an expansion of 717 bps YoY/209 • ABB India continues to have a segments due to continued focus on bps QoQ to 8.1%. stable order backlog as of March execution of order backlog. • Reported PAT came at INR 151 Cr 31, 2021, at INR 4328 Cr, widely • Motion segment (38% of sales) grew for the quarter; up 128.2% spread across various end markets. ABB 11.2% YoY/-2.6% QoQ, while Electrificaiton YoY/142.2% QoQ. However, • The company will continue to business (38.1% of sales) grew 1.6% YoY/- adjusted for exceptional item of focus on order wins and seamless 2.2% QoQ. Robotics and Discrete INR 74.5 Cr, adjusted PAT stood at execution across projects while Automation segment (2.9% of revenue) INR 76.1 Cr. Adjusted PAT margin continuing to engage closely with grew 12.7% YoY/11.1% QoQ while Process for the quarter stood at 4.7%. customers. Automation business (19.6% of revenue) grew 10.9% YoY/-15.8% QoQ.
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Emmbi & Solar Industries reported strong YoY revenue growth; while YoY growth for ABB was muted
Particulars (INR Cr) Emmbi Industries Solar Industries ABB
Sales 93 791 1,629 Total Expenditure 89 627 1,497 EBITDA 9 165 132 EBITDA Margin (%) 9.4% 20.8% 8.1% Depreciation 2 23 25 EBIT 7 142 107 Interest Expense 3 10 3 Other income 0 2 25 Exceptional items 0 0 -75 PBT 4 134 204 Tax 1 39 53 Share of Associates/Minorities 0 0 0 PAT 3 91 151 PAT Margin 3.3% 11.5% 9.2% Adj. PAT 3 91 76 Adj. PAT Margin 3.3% 11.5% 4.7% EPS 1.7 10.1 7.1 Adj. EPS 1.7 10.1 3.6
Source: Company, KRChoksey Research
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Both ABB and Solar Industries reported YoY EBITDA margin expansion
Particulars Emmbi Industries Solar Industries ABB
Change (%) QoQ YoY QoQ YoY QoQ YoY
Sales 25.8% 23.9% 22.5% 44.6% -4.2% 7.0%
Total Expenditure 25.6% 25.0% 22.0% 33.6% -6.3% -0.7%
EBITDA 14.8% 1.7% 24.4% 83.4% 28.9% 812.1%
Change in EBITDA Margin (bps) -90bps -206bps 32bps 441bps 209bps 717bps
Depreciation -0.5% 8.9% -7.5% 1.8% -14.8% -6.7%
EBIT 19.8% -0.1% 31.6% 110.2% 46.7% -951.2%
Interest Expense 7.0% -4.9% -4.2% -27.3% -54.1% -6.2%
Other income 400.0% 48.6% -81.6% -87.7% 75.8% -44.8%
Exceptional items 0.0% 0.0% 0.0% 0.0% NA 31.2%
PBT 34.1% 4.7% 21.6% 83.5% 153.3% 135.1%
Tax 47.7% 718.3% 35.5% 96.5% 191.3% 157.1%
Share of Associates/Minorities 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
PAT 30.2% -18.2% 16.6% 82.2% 142.2% 128.2%
Change in PAT Margin (bps) 11bps -170bps -58bps 238bps 559bps 491bps
Source: Company, KRChoksey Research
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Emmbi Industries is our preferred pick in Miscellaneous sector
Recommendation Market Cap. CMP Target Price (INR) Upside PE (x) Stocks Revised Old INR Cr. INR New Old % 5 Yr. Avg. FY23 E
Emmbi Industries BUY BUY 171 97 118 118 22.0% 15.3 6.9
Solar Industries ACCUMULATE ACCUMULATE 14,361 1,587 1,693 1,602 6.7% 38.8 34.7
ABB HOLD HOLD 38,004 1,789 1,815 1,510 1.4% 74.5 62.4
Source: Bloomberg, KRChoksey Research, CMP as of 29th June 2021
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Our employees in sales and marketing team, dealers and other professionals may provide oral or written market commentary or trading strategies that reflect opinions that are contrary to the opinions expressed herein, .In reviewing these materials, you should be aware that any or all of the foregoing, among other things, may give rise to real or potential conflicts of interest. • Associates (Group Companies) of KRCSSPL might have received any commission/compensation from the companies mentioned in the report during the period preceding twelve months from the date of this report for services in respect of brokerage services or specific transaction or for products and services other than brokerage services. • KRCSSPL or its Associates (Group Companies) have not managed or co-managed public offering of securities for the subject company in the past twelve months • KRCSSPL encourages the practice of giving independent opinion in research report preparation by the analyst and thus strives to minimize the conflict in preparation of research report. KRCSSPL or its analysts did not receive any compensation or other benefits from the companies mentioned in the report or third party in connection with preparation of the research report. Accordingly, neither KRCSSPL nor Research Analysts have any material conflict of interest at the time of publication of this report. • KRCSSPL or its associates (Group Companies) collectively or its research analyst do not hold any financial interest/beneficial ownership of more than 1% (at the end of the month immediately preceding the date of publication of the research report) in the company covered by Analyst, and has not been engaged in market making activity of the company covered by research analyst. • This report is not directed or intended for distribution to, or use by, any person or entity who is a citizen or resident of or located in any locality, state, country or other Jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject KRCSSPL and affiliates to any registration or licensing requirement within such jurisdiction. 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KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS
KRChoksey Research Phone: +91-22-6696 5555, Fax: +91-22-6691 9576 HEAD RESEARCH is also available on Bloomberg KRCS