Results Review for ITC, Indian Oil Corporation, DLF, Indraprastha Gas, IRB Infra
ITC (NS:): ITC delivered a beat on revenue growth, sustaining healthy growth across all segments. Revenue was up 16% YoY, with cigarettes/FMCG/hotels/agri/paper growing 10/12/35/30/32% YoY. Cigarette volume growth was at ~9% (2% three-year CAGR) and, with a stable demand environment, we expect this trajectory to improve in the coming quarters. Cigarette EBIT growth was at 12% YoY. FMCG registered an 8% two-year CAGR vs. Emami’s 6%, Dabur’s 5%, HUL’s 8%, and Marico’s 10%. FMCG’s EBITDA margin was up 75bps YoY to 9.1% (favorable product mix negated the RM inflation), while EBITDA growth of 22% YoY was much ahead of peers. Besides FMCG, the company delivered a strong performance across its hotel, agri, and paper businesses. Paper continues to see strong momentum, while paperboard volumes were at a record high. The hotel business, too, is sustaining smart recovery after the pandemic. We continue to remain positive on ITC, especially with the economy moving towards normalcy. Further, the absence of a tax increase on cigarettes in Budget 2022 also gives confidence in sustaining cigarette volume growth. We maintain our EPS estimates for FY23/24. We value ITC on a SoTP basis to derive a target price of INR 285 (implied P/E of 20x Mar-24E EPS). Maintain BUY. In the sublime performance of other FMCG companies, ITC’s outperformance will remain a key for stock rerating.
Indian Oil (NS:) Corporation: Our ADD rating on Indian Oil Corporation (IOCL) with a target price of INR 135 is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins for FY23/24, and (3) gradual improvement in marketing margins over FY23-24 vis-à-vis FY22 levels.
DLF (NS:): DLF booked record presales of INR 27.3bn (+2.6x/+36.5% YoY/QoQ) on the back of continued sales momentum in Camellias at INR 5.9bn (+2x/+1.7% YoY/QoQ) and One Midtown at INR 12.5bn (+78% QoQ). With FY22 presales at INR 72.7bn (+2.4x YoY, highest-ever in last 10 years), DLF has surpassed its FY22 presales guidance of INR 60-65bn. Revenue/APAT degrew to INR 15.5bn/4.1bn due to higher operating expenses and lower other income. Net debt stood at INR 26.8bn, as of Mar-22 vs. INR 32.2bn, as of Dec-21. Office physical occupancy is expected to normalise by Q2FY23; Q4FY22 physical office occupancy at Cybercity/Chennai SEZ/Hyderabad SEZ/Kolkata IT Park stood at 36%/80%/20%/25%. Given that there are (1) price hikes in premium projects; (2) robust launch plans; and (3) expected increase in office occupancy levels, we maintain BUY. However, we reduce our TP to INR 450/share due to the adverse impact of rising interest rates, higher cost of capital, and cap rates expansion.
Indraprastha Gas Ltd (NS:): Our BUY recommendation on Indraprastha Gas (IGL) with a target price of INR 545 is based on (1) robust volume growth at ~15% CAGR over FY22-24E, (2) regulatory support from the government to curb pollution in the Delhi/NCR region, and (3) a strong portfolio of mature, semi-mature, and new geographical areas. Q4FY22 EBITDA was 61% above our estimate and PAT was 90% above, owing to higher realisation, 18% lower-than-expected raw material cost, and higher other income of INR 774mn (+2.8x YoY, +2.5x QoQ, HSIE: INR 336mn).
IRB Infrastructure Developers Ltd (NS:): IRB reported revenue/EBITDA/PAT of INR 14.3/6.4/1.7bn, beat/miss/beat on our estimates. EBITDA margin was 44.8%, missing our estimate on account of preferential allotment issues expenses and cost booked on Panaji Goa claims. Higher inflation, however, benefitted BOT projects with tariff revised upwards by 10%. This will also result in lower losses for private InvIT expected at INR 1.5bn in FY23 (INR 4bn in FY22). In the quarter, Fitch upgraded the long-term rating to BB+ from BB. This will expectedly reduce the overall interest cost by 1.1bn annually. IRB expects more execution from HAM projects in FY23 and, consequently, the EBITDA margin is expected to come down to 24%. IRB expects to transfer projects worth INR 25bn (in equity value) to public InvIT by the start of the next calendar year. The concept paper is expected in the coming months. We maintain ADD and reduce SOTP TP to INR 279/sh to account for the lower EBITDA margin, owing to commodity inflation and change in mix towards HAM.
Galaxy Surfactants Limited (NS:): Our BUY recommendation on GALSURF with a price target of INR 3,295 is premised on (1) stickiness of business, as over 50% of the revenue mix comes from MNCs and (2) stable EBITDA margin since fluctuations in raw material costs are easily passed on to customers. Q4 EBITDA/APAT were 115/151% higher than our estimates, owing to a 7% rise in the revenue and lower-than-expected raw material cost (courtesy inventory gains), but were offset by lower-than-expected other income and higher-than-expected tax outgo.
Multi Commodity Exchange of India Ltd (NS:): We maintain BUY on MCX, following better-than-expected revenue and margin performance, led by options. Futures ADTV grew 9.4% QoQ, after five consecutive quarters of decline, led by a recovery in energy (+16% QoQ) and bullion (+11% QoQ). The options volume increased 78% QoQ, resulting in revenue of INR 220mn (+113% QoQ) vs. an estimate of INR 150mn driven by higher realisation. MCX has launched a new smaller duration options contract, which will lower the dominance of crude in options volume. We expect options to be ~85% of futures volume and ~25% of revenue in FY24E. The launch of new products like electricity futures, spot bullion segment, options, index options, and splitting of bi-monthly contracts are future volume drivers. The shift to the new trading platform (current contract ending in Sep-22) is crucial and remains the key management focus. This will lead to significant cost savings (shift from variable to fixed cost model), resulting in a margin tailwind in FY23/24E. We increase our EPS estimates for FY23/24E by 1.3/3.4%, led by better options revenue. We assign 35x P/E to Mar-24E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 2,000.
Teamlease Services Ltd (NS:): Teamlease reported a muted quarter (+3.1% QoQ, lower than the estimate) but the margin performance was in line. The core staffing volume growth of 4.3% QoQ was boosted by NETAP trainees (+8.4% QoQ), while the general staffing volume growth stood at 2.7% QoQ, impacted by higher attrition. The hiring activity has improved in key verticals (e-commerce, telecom, consumer, and BFSI) and the company has invested to deliver ~20% growth in the core staffing segment (~90% of revenue). Specialized staffing (8% of revenue) will continue to grow, led by traction in IT hiring, an increase in open positions, and hiring across domains. We expect gradual improvement in general staffing EBITDA margin, led by mark-up improvement and automation; HR services target is >10% and specialised staffing margin will stabilize at 9-10%. We have cut our revenue estimate by 2-3% due to Q4 miss and EPS estimates by ~6% after adjusting for the higher tax rate. Our target price of INR 4,850 is based on 40x Mar-24E EPS (five-year average PE of ~35x). The stock is trading at a PE of 36/28x FY23/24E EPS. Maintain BUY.
Nocil Ltd (NS:): Our BUY recommendation on NOCIL with a TP of INR 310 is premised on (1) ramp-up in capacity utilisation; (2) robust volume growth on the back of pick-up in demand in the tyre industry; and (3) expansion of margin with focus on specialised rubber chemicals. Q4 EBITDA/PAT was 135/132% above our estimates, owing to 23% higher revenue, lower-than-expected raw material cost courtesy inventory gains, and lower-than-anticipated opex, but were offset by higher-than-expected depreciation and tax outgo.
Star Cement Ltd (NS:): We maintain BUY on Star Cement (Star), with a revised TP of INR 115/share (8x its Mar-24E consolidated EBITDA). Star’s consolidated sales volume surged 27% YoY on the continued ramp-up of the Siliguri plant and healthy demand in the northeast (NE) region. Star’s consolidated revenue/EBITDA/APAT rose 24/9/4% YoY. Unitary EBITDA rebounded QoQ on better realisation, higher volume, and lower opex. Star is working on major expansions – planning to more than double its clinker capacity, adding ~65% to its grinding capacity and 23MW to WHRS by FY24E.
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ITC (NS:): ITC delivered a beat on revenue growth, sustaining healthy growth across all segments. Revenue was up 16% YoY, with cigarettes/FMCG/hotels/agri/paper growing 10/12/35/30/32% YoY. Cigarette volume growth was at ~9% (2% three-year CAGR) and, with a stable demand environment, we expect this trajectory to improve in the coming quarters. Cigarette EBIT growth was at 12% YoY. FMCG registered an 8% two-year CAGR vs. Emami’s 6%, Dabur’s 5%, HUL’s 8%, and Marico’s 10%. FMCG’s EBITDA margin was up 75bps YoY to 9.1% (favorable product mix negated the RM inflation), while EBITDA growth of 22% YoY was much ahead of peers. Besides FMCG, the company delivered a strong performance across its hotel, agri, and paper businesses. Paper continues to see strong momentum, while paperboard volumes were at a record high. The hotel business, too, is sustaining smart recovery after the pandemic. We continue to remain positive on ITC, especially with the economy moving towards normalcy. Further, the absence of a tax increase on cigarettes in Budget 2022 also gives confidence in sustaining cigarette volume growth. We maintain our EPS estimates for FY23/24. We value ITC on a SoTP basis to derive a target price of INR 285 (implied P/E of 20x Mar-24E EPS). Maintain BUY. In the sublime performance of other FMCG companies, ITC’s outperformance will remain a key for stock rerating.
Indian Oil (NS:) Corporation: Our ADD rating on Indian Oil Corporation (IOCL) with a target price of INR 135 is premised on (1) recovery in domestic demand for petroleum products, (2) improvement in refining margins for FY23/24, and (3) gradual improvement in marketing margins over FY23-24 vis-à-vis FY22 levels.
DLF (NS:): DLF booked record presales of INR 27.3bn (+2.6x/+36.5% YoY/QoQ) on the back of continued sales momentum in Camellias at INR 5.9bn (+2x/+1.7% YoY/QoQ) and One Midtown at INR 12.5bn (+78% QoQ). With FY22 presales at INR 72.7bn (+2.4x YoY, highest-ever in last 10 years), DLF has surpassed its FY22 presales guidance of INR 60-65bn. Revenue/APAT degrew to INR 15.5bn/4.1bn due to higher operating expenses and lower other income. Net debt stood at INR 26.8bn, as of Mar-22 vs. INR 32.2bn, as of Dec-21. Office physical occupancy is expected to normalise by Q2FY23; Q4FY22 physical office occupancy at Cybercity/Chennai SEZ/Hyderabad SEZ/Kolkata IT Park stood at 36%/80%/20%/25%. Given that there are (1) price hikes in premium projects; (2) robust launch plans; and (3) expected increase in office occupancy levels, we maintain BUY. However, we reduce our TP to INR 450/share due to the adverse impact of rising interest rates, higher cost of capital, and cap rates expansion.
Indraprastha Gas Ltd (NS:): Our BUY recommendation on Indraprastha Gas (IGL) with a target price of INR 545 is based on (1) robust volume growth at ~15% CAGR over FY22-24E, (2) regulatory support from the government to curb pollution in the Delhi/NCR region, and (3) a strong portfolio of mature, semi-mature, and new geographical areas. Q4FY22 EBITDA was 61% above our estimate and PAT was 90% above, owing to higher realisation, 18% lower-than-expected raw material cost, and higher other income of INR 774mn (+2.8x YoY, +2.5x QoQ, HSIE: INR 336mn).
IRB Infrastructure Developers Ltd (NS:): IRB reported revenue/EBITDA/PAT of INR 14.3/6.4/1.7bn, beat/miss/beat on our estimates. EBITDA margin was 44.8%, missing our estimate on account of preferential allotment issues expenses and cost booked on Panaji Goa claims. Higher inflation, however, benefitted BOT projects with tariff revised upwards by 10%. This will also result in lower losses for private InvIT expected at INR 1.5bn in FY23 (INR 4bn in FY22). In the quarter, Fitch upgraded the long-term rating to BB+ from BB. This will expectedly reduce the overall interest cost by 1.1bn annually. IRB expects more execution from HAM projects in FY23 and, consequently, the EBITDA margin is expected to come down to 24%. IRB expects to transfer projects worth INR 25bn (in equity value) to public InvIT by the start of the next calendar year. The concept paper is expected in the coming months. We maintain ADD and reduce SOTP TP to INR 279/sh to account for the lower EBITDA margin, owing to commodity inflation and change in mix towards HAM.
Galaxy Surfactants Limited (NS:): Our BUY recommendation on GALSURF with a price target of INR 3,295 is premised on (1) stickiness of business, as over 50% of the revenue mix comes from MNCs and (2) stable EBITDA margin since fluctuations in raw material costs are easily passed on to customers. Q4 EBITDA/APAT were 115/151% higher than our estimates, owing to a 7% rise in the revenue and lower-than-expected raw material cost (courtesy inventory gains), but were offset by lower-than-expected other income and higher-than-expected tax outgo.
Multi Commodity Exchange of India Ltd (NS:): We maintain BUY on MCX, following better-than-expected revenue and margin performance, led by options. Futures ADTV grew 9.4% QoQ, after five consecutive quarters of decline, led by a recovery in energy (+16% QoQ) and bullion (+11% QoQ). The options volume increased 78% QoQ, resulting in revenue of INR 220mn (+113% QoQ) vs. an estimate of INR 150mn driven by higher realisation. MCX has launched a new smaller duration options contract, which will lower the dominance of crude in options volume. We expect options to be ~85% of futures volume and ~25% of revenue in FY24E. The launch of new products like electricity futures, spot bullion segment, options, index options, and splitting of bi-monthly contracts are future volume drivers. The shift to the new trading platform (current contract ending in Sep-22) is crucial and remains the key management focus. This will lead to significant cost savings (shift from variable to fixed cost model), resulting in a margin tailwind in FY23/24E. We increase our EPS estimates for FY23/24E by 1.3/3.4%, led by better options revenue. We assign 35x P/E to Mar-24E core PAT and add net cash (ex-SGF) to arrive at a target price of INR 2,000.
Teamlease Services Ltd (NS:): Teamlease reported a muted quarter (+3.1% QoQ, lower than the estimate) but the margin performance was in line. The core staffing volume growth of 4.3% QoQ was boosted by NETAP trainees (+8.4% QoQ), while the general staffing volume growth stood at 2.7% QoQ, impacted by higher attrition. The hiring activity has improved in key verticals (e-commerce, telecom, consumer, and BFSI) and the company has invested to deliver ~20% growth in the core staffing segment (~90% of revenue). Specialized staffing (8% of revenue) will continue to grow, led by traction in IT hiring, an increase in open positions, and hiring across domains. We expect gradual improvement in general staffing EBITDA margin, led by mark-up improvement and automation; HR services target is >10% and specialised staffing margin will stabilize at 9-10%. We have cut our revenue estimate by 2-3% due to Q4 miss and EPS estimates by ~6% after adjusting for the higher tax rate. Our target price of INR 4,850 is based on 40x Mar-24E EPS (five-year average PE of ~35x). The stock is trading at a PE of 36/28x FY23/24E EPS. Maintain BUY.
Nocil Ltd (NS:): Our BUY recommendation on NOCIL with a TP of INR 310 is premised on (1) ramp-up in capacity utilisation; (2) robust volume growth on the back of pick-up in demand in the tyre industry; and (3) expansion of margin with focus on specialised rubber chemicals. Q4 EBITDA/PAT was 135/132% above our estimates, owing to 23% higher revenue, lower-than-expected raw material cost courtesy inventory gains, and lower-than-anticipated opex, but were offset by higher-than-expected depreciation and tax outgo.
Star Cement Ltd (NS:): We maintain BUY on Star Cement (Star), with a revised TP of INR 115/share (8x its Mar-24E consolidated EBITDA). Star’s consolidated sales volume surged 27% YoY on the continued ramp-up of the Siliguri plant and healthy demand in the northeast (NE) region. Star’s consolidated revenue/EBITDA/APAT rose 24/9/4% YoY. Unitary EBITDA rebounded QoQ on better realisation, higher volume, and lower opex. Star is working on major expansions – planning to more than double its clinker capacity, adding ~65% to its grinding capacity and 23MW to WHRS by FY24E.
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