14 February 2023 HSIE Results Daily

HSIE Results Daily

Contents
Results Reviews
 ABB India: ABB’s reported strong revenue/EBITDA/PAT at INR
24.3/3.6/3.0bn, beating our estimates by 6/57/68%. For CY22, OI crossed INR
100bn for the first time since the divestment of its power grid, turbocharger
and solar business in CY18. ABB is seeing OI sustain at this level annually,
going forward. During the quarter, the EBITDA margin expanded to 15%
(+620/+506bps YoY/QoQ, vs. 10.1% est.). This expansion was on the back of
better gross margin in the mix, better capacity utilisation and an improving
supply chain. ABB is seeing strong demand coming from Tier 3 and 4 cities,
with 48% of the total new orders from these cities (43% in CY21) and in the
medium term, demand from these cities is expected to match with Tier 1 and
2 cities. Export demand has been stable with growth of 10% YoY. However,
domestic demand has been higher than export demand and as a result, forms
88% of the CY22 revenue (87% in CY21). The cash balance stands strong at
INR 36bn (INR 27bn in CY21) and INR 20bn is earmarked for inorganic
growth, in line with global strategy, targeting small and medium firms across
the globe. We have increased our EPS estimate for CY23/24 on the back of
better margins and a favourable mix. However, we believe the punchy
valuation would limit further upside on cyclical recovery and, thus, maintain
REDUCE with an increased TP of INR 2,819/sh (54x Dec-24 EPS).
 Fsn E-commerce Ventures (Nykaa): Nykaa’s top line grew 33% YoY to
INR14.6bn (HSIE: 15bn) on account of fewer festive days in Q3FY23.
Adjusting for seasonality (Q2+Q3FY23 performance), BPC growth seems to
have come off (32% YoY). BPC AUTC grew 29% vs 35% CAGR it clocked over
FY19-22. Both BPC/Fashion missed net sales value expectations (Var: -4%). On
profitability, the miss was starker as a ~300bp GM drop took away the scale-
led efficiency gains. While still early days, our thesis seems to be tracking well.
(1) BPC AUTC growth dropping to <30% already—is the TAM really
oversold? (2) BPC revenue growth < BPC NSV growth—is ad revenue as % of
NSV indeed declining? (3) The non-linear attributes of a platform remain
missing. We’ve cut our FY24/25 EBITDA estimates by 8% each to account for
higher gestation in fashion/B2B biz. Downgrade the stock to SELL with a TP
of INR125/sh (implying 86x FY25 EV/EBITDA).
 Balkrishna Industries: BKT Q3FY23 earnings sharply declined 70% YoY to
INR 1bn due to weak demand and the impact of higher cost raw material
inventory. The demand environment continues to be weak in BKT’s key
export markets of Europe and the US which are currently witnessing
recessionary trends. Given the challenging demand environment,
management has refrained from providing any volume guidance for FY24,
although indicating a low single-digit growth in the near term. We do
understand that the current cost headwinds seen in Q3 are transient in nature
and we expect operational costs (raw material + freight) to sharply reduce in
the coming quarters. However, it remains to be seen how much of this cost-
benefit BKT is able to retain in the coming quarters, given the weak demand
macro and we do expect the industry to pass on part of these benefits in order
to help improve demand. Overall, we have factored in BKT’s margin to HSIE Research Team
improve to 26% by FY25E from 19.1% currently. On account of a weak Q3, [email protected]
we have lowered our EPS estimates by 19% / 8% / 3% for FY23-25E. However,
despite factoring in most positives, stock at 25.7x FY24E appears fully valued.

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HSIE Results Daily
Maintain our REDUCE rating with a revised TP of INR1,936 per share
(INR2,048 earlier).
 Gujarat Gas: Our ADD recommendation on Gujarat Gas (GGL), with a price
target of INR 542, is premised on (1) volume growth at 9% CAGR over FY23-
25E, and (2) a high spot LNG price environment. Q3FY23 EBITDA/PAT at
INR 5.8/3.7bn came in above our estimate, owing to a higher-than-expected
gross spread. Volume declined sharply by 36% YoY, 4% QoQ to 7.29mmscmd,
mainly impacted by a decline in industrial PNG volumes. However, lower
offtake of expensive spot LNG gas by industrial/commercial customers
supported margins.
 Oil India: Our BUY recommendation on Oil India with a target price of INR
280 is premised on (1) an increase in crude price realisation and (2) an
improvement in domestic gas price realisation. Q3FY23 EBITDA stood at INR
59bn, came in above our estimate, supported by lower statutory levies and
lower other expenses. However, APAT at INR 17bn, came in below our
estimate mainly due to lower-than-expected other income. Oil and gas
production was marginally above estimates.
 Gujarat State Petronet: Our ADD rating on Gujarat State Petronet with a TP
of INR 280 is premised on (1) muted transmission volume over FY22-25E due
to a high spot LNG price environment, given the geopolitical issues, low
global inventories, and pick-up in demand post reopening of economies and
(2) limited upside triggers in the near term. Hence, we believe that, at present,
the stock is fairly valued with an RoE of 13.5% in FY24E and a combined FCF
of INR 24bn over FY23-25E.
 JK Lakshmi Cement: We maintain our BUY rating on JK Lakshmi Cement
(JKLC) with an unchanged target price of INR 855/share (8x Mar-25E
consolidated EBITDA). We remain positive about the company for its focus
on improving geo-mix, increasing trade sales, increasing green energy share,
and optimisation of the supply chain. These should boost margin and
profitability. Its ongoing brownfield expansion in Udaipur is broadly on
track, to be commissioned by Q1FY25E (18% capacity increase), and is not
stretching the balance sheet. In Q3FY23, JKLC reported strong 10/14%
YoY/QoQ cement volume growth. Unitary EBITDA, however, came in flat
QoQ (INR 644/MT) as higher fuel and freight costs QoQ negated op-lev gains.
JKLC expects a flattish fuel cost QoQ in Q4FY23E but it is expected to fall
Q1FY24E, as its high-cost inventory gets over.
 Galaxy Surfactants: Our BUY recommendation on GALSURF with a price
target of INR 3,783 is premised on (1) the 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. Q3
EBITDA/APAT were 17/25% higher than our estimates, owing to lower-than-
expected raw material cost, lower-than-expected other expenses, and lower-
than-expected tax outgo, offset by higher-than-expected depreciation.
 Lemon Tree: Lemon Tree Hotels (LTH) recorded the best-ever quarter in
Q3FY23 with gross ARR touching a new high but occupancy levels still below
the pre-covid levels (67.6% in Q3FY23 vs 71.3% in Q3FY20). LTH Q3FY23
revenue grew 63% YoY to INR2.3bn, led by increased ARR (+23.5% vs
Q3FY20), leading to strong RevPAR growth (+17% vs Q3FY20). The increase
in ARR was driven by strong demand, aided by the ongoing wedding season
and vacation travel. LTH EBITDA margin increased 1,010 bps YoY to 54%, the
highest for any quarter, led by a material dip in operating expenses and
employee costs from the pre-covid levels. Management reiterated that the
strong growth momentum will continue in Q4FY23 and FY24, led by strong
travel demand, the opening of Aurika, MIAL in Oct-23, an increase in
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HSIE Results Daily
managed hotels signings and a further improvement in occupancy, especially
across brands like Lemon Tree Hotels and Keys. Given the strong demand in
the industry and supply trailing the same, we expect LTH to report strong
numbers, going ahead. We maintain our BUY recommendation with an
unchanged FY25 EV/EBITDA multiple of 17x and an INR-based TP of
INR108/share.
 Neogen Chemicals: Our BUY recommendation on Neogen Chemicals (NCL),
with a target price of INR 2,045/sh is premised on (1) increasing contribution
of the high-margin CSM business to revenue; (2) entry into the new age
electrolyte manufacturing business; (3) capacity-led expansion growth
opportunity; (4) constant focus on R&D; and (5) improving return ratios and
strong balance sheet, going forward. Q3 EBITDA stood at INR 301mn, +1%
above our estimate, while APAT at INR 147mn, came in -2% below our
estimates, owing to higher-than-expected finance costs and tax expenses,
partially offset by higher other income and lower depreciation.
 Ashoka Buildcon: Ashoka Buildcon (ASBL) reported
revenue/EBITDA/APAT of INR 15.6/1.2/0.7bn, beating/(missing) our
estimates by 11.3/(8.9)/(11.5)%. With approvals pending from only a few
stakeholders, all the asset monetisation deals are expected to be completed by
H1FY24. On the back of strong order inflows, the FYTD23 order book (OB)
stands at INR 191.5bn (~3.2x FY23E revenue). The standalone gross/net debt
decreased marginally to INR 8.5/5.8bn as of Dec’22 vs. INR 8.7/6.5bn as of
Sep’22. The balance equity requirement for HAM assets as of Dec’22 stands at
INR 2bn, of which INR 0.4bn would be funded in Q4FY23 and INR 0.9/0.4bn
in FY24/25. ASBL has guided for a capex of INR 2.5bn for the next five
quarters. It also guided FY23 revenue growth of 30% YoY. We cut our
estimates to factor in weaker margins and maintain BUY, with a TP of INR
131/sh (9x Dec-24E EPS rollover).

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HSIE Results Daily

Galaxy Surfactants
Margin improves on lower input costs BUY
Our BUY recommendation on GALSURF with a price target of INR 3,783 is CMP (as on 13 Feb 2023) INR 2,425
premised on (1) the stickiness of business, as over 50% of the revenue mix
Target Price INR 3,783
comes from MNCs and (2) stable EBITDA margin, since fluctuations in raw
NIFTY 17,771
material costs are easily passed on to customers. Q3 EBITDA/APAT were
17/25% higher than our estimates, owing to lower-than-expected raw material
KEY
cost, lower-than-expected other expenses, and lower-than-expected tax outgo, OLD NEW
CHANGES
offset by higher-than-expected depreciation.
Rating BUY BUY
 Q3 revenue grew 16% YoY but declined by 12% QoQ to INR 10.8bn. Demand Price Target INR 3,690 INR 3,783
in India remained resilient, with demand improving for premium categories.
FY23E FY24E
Demand for mass and masstige categories in the AMET region remained EPS % chg
stable. The slowdown in Europe impacted speciality volumes. - -

 Q3 margins: Gross margin improved 469bps QoQ and 413bps YoY to 32%,
aided by a significant decline in freight rates, raw material prices, and KEY STOCK DATA

improved availability of raw material as compared to last year. The supply- Bloomberg code GALSURF IN
side situation has improved. EBITDAM came in at 14% (+357/+604bps No. of Shares (mn) 35
QoQ/YoY).
MCap (INR bn) / ($ mn) 86/1,040
 Q3 volume: Total volume in Q3 came in at 58kT (-2/+1% QoQ/YoY).
6m avg traded value (INR mn) 75
Performance surfactant (67% of the volume mix) volume came in at 39kT (+6%
YoY), and specialty care (33%) volume came in at 19kT (-9% YoY). India’s 52 Week high / low INR 3,448/2,302

market grew 12.2% YoY, AMET de-grew 6.4% YoY, and the rest of the world
de-grew 8.9% YoY in Q3. While the underlying pressure on volume continues, STOCK PERFORMANCE (%)
demand continues to remain resilient in India. The continued slowdown in 3M 6M 12M
Europe and a hyperinflationary scenario that adversely impacts the mass and
Absolute (%) (14.9) (24.0) (16.3)
masstige segments remain the key risks, going ahead.
Relative (%) (12.7) (25.7) (20.3)
 DCF-based valuation: Our price target is INR 3,783 (WACC 10%, terminal
growth 4%). The stock is trading at 22x FY24E EPS.
SHAREHOLDING PATTERN (%)
Financial summary (consolidated) improving
Q3 Q2 QoQ Q3 YoY Sept-22 Dec-22
INR mn FY21 FY22 FY23E FY24E FY25E
FY23 FY23 (%) FY22 (%)
Promoters 70.93 70.93
Net Sales 10,803 12,316 (12.3) 9,291 16.3 27,841 36,857 48,107 52,647 58,406
EBITDA 1,541 1,317 17.0 764 101.6 4,488 4,007 5,483 5,671 6,899
FIs & Local MFs 12.73 12.72

APAT 1,062 839 26.6 456 132.8 3,021 2,628 3,781 3,906 4,873 FPIs 2.82 2.78
AEPS (INR) 30.0 23.7 26.6 12.9 132.8 85.2 74.1 106.7 110.2 137.5
Public & Others 13.52 13.58
P/E (x) 28.5 32.7 22.7 22.0 17.6
EV/EBITDA(x) 18.8 20.7 15.1 14.8 12.4
Pledged Shares 0.0 0.0

RoE (%) 25.5 18.3 22.0 19.4 20.8 Source: BSE

Source: Company, HSIE Research

Nilesh Ghuge
[email protected]
+91-22-6171-7342

Harshad Katkar
[email protected]
+91-22-6171-7319

Akshay Mane
[email protected]
+91-22-6171-7338

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HSIE Results Daily

Neogen Chemicals
Entering a new orbit BUY
Our BUY recommendation on Neogen Chemicals (NCL), with a target price of CMP (as on 13 Feb 2023) INR 1,300
INR 2,045/sh is premised on (1) increasing contribution of the high-margin
Target Price INR 2,045
CSM business to revenue; (2) entry into the new age electrolyte manufacturing
business; (3) capacity-led expansion growth opportunity; (4) constant focus on NIFTY 17,771

R&D; and (5) improving return ratios and strong balance sheet, going forward.
KEY
Q3 EBITDA stood at INR 301mn, +1% above our estimate, while APAT at INR OLD NEW
CHANGES
147mn, came in -2% below our estimates, owing to higher-than-expected
Rating BUY BUY
finance costs and tax expenses, partially offset by higher other income and
lower depreciation. Price Target INR 1,890 INR 2,045

 Financial performance: Revenue grew 40% YoY, 26% QoQ at INR 1,863mn, FY23E FY24E
EPS %
with YoY growth, driven by higher utilisation levels across plants and robust +0.3% +6.2%
demand. EBITDA grew 27% YoY and 24% QoQ to INR 301mn, with EBITDA
margin coming in at 16% (-177/-20bps YoY/QoQ) on account of the increased
KEY STOCK DATA
cost of raw materials, high employee cost and depreciation. APAT grew by
Bloomberg code NEOGEN IN
40/49% YoY/QoQ to INR 147mn, supported by strong operating profit and
higher-than-expected other income of INR 14mn. No. of Shares (mn) 25
 Con call takeaways: (1) NCL has announced a Capex of INR 4.5bn for the MCap (INR bn) / ($ mn) 32/392
following projects: (a) enhancement of planned electrolyte capacity from 250
6m avg traded value (INR mn) 40
mtpa to 1,000 mtpa to be ready by FY24 and further expansion to 5,000 mtpa
52 Week high / low INR 1,795/1,128
to be operational by FY25; (b) expansion of Specialty Lithium Salts capacity
from 400 mtpa to 1,000 mtpa to be operational by FY25; and (c) greenfield
expansion of Electrolyte and Specialty Lithium Salts at a new site for STOCK PERFORMANCE (%)
dedicated battery materials. (2) The company has approved the corporation 3M 6M 12M
of a wholly owned subsidiary (WOS). The main object of WOS is to consider
Absolute (%) (7.1) (10.2) (16.0)
the growth opportunities in Energy Storage such as Lithium-Ion Battery
material space and other future energy storage chemistries. (3) Higher Relative (%) (4.9) (11.8) (19.9)

utilisation across plants and sustained demand from key end-user industries
has resulted in robust growth in revenue. (4) Rising contribution of the high- SHAREHOLDING PATTERN (%)
margin advanced intermediates and custom synthesis resulted in better Sept-22 Dec-22
EBITDA despite continued inflationary pressure.
Promoters 60.19 60.19
 Change in estimates: We raise our FY23/24/25 EPS estimates by 0.3/6.2/5.5%
FIs & Local MFs 19.12 18.88
to INR 20.8/36.0/59.9 to factor in 9MFY23 performance.
 DCF-based valuation: Our target price is INR 2,045 (WACC 11%, terminal FPIs 3.74 3.99

growth 5.5%). The stock is currently trading at 36.1x FY24E EPS. Public & Others 16.95 16.94
Financial summary (consolidated) Pledged Shares 0.00 0.00
Q3 Q2 QoQ Q3 YoY
INR mn FY21 FY22 FY23E FY24E FY25E
FY23 FY23 (%) FY22 (%) Source: BSE
Net Sales 1,863 1,481 25.7 1,326 40.4 3,364 4,873 6,384 8,114 11,556
EBITDA 301 243 24.2 238 26.6 644 866 1,098 1,737 2,628
APAT 147 99 48.7 105 40.4 313 446 518 898 1,493
AEPS (INR) 5.9 4.0 48.7 4.2 40.4 12.6 17.9 20.8 36.0 59.9
P/E (x) 103.5 72.6 62.6 36.1 21.7 Nilesh Ghuge
EV/EBITDA(x) 53.7 39.5 32.5 21.0 14.0 [email protected]
RoE (%) 18.5 14.3 11.2 17.1 23.6 +91-22-6171-7342
Source: Company, HSIE Research

Change in estimates (consolidated) Harshad Katkar

FY23E FY24E FY25E [email protected]
Old New Ch% Old New Ch% Old New Ch% +91-22-6171-7319
EBITDA (INR bn) 1,096 1,098 0.2 1,666 1,737 4.2 2,525 2,628 4.1
AEPS (INR/sh) 20.7 20.8 0.3 33.9 36.0 6.2 56.8 59.9 5.5 Akshay Mane
Source: Company, HSIE Research [email protected]
+91-22-6171-7338

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Aug-22 Aug-22
1 Yr Price Movement

Aug-22
HSIE Results Daily

Aug-22

Gujarat Gas
Sep-22 Sep-22 Sep-22 Sep-22
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