first call 05aug21

14
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited ESG Way - Sector Update - Expert speak: SEBI’s BRSR ESG principles We hosted Mr. Chaitanya Kalia, National Leader, Climate Change & Sustainability Services at EY India on SEBI’s new ESG regulation, BRSR. Hindalco - Company Update - Good performance sustains Novelis beat our Q1FY22 estimates. Key points: i) Robust shipments (down merely 1% QoQ) and record EBITDA/t (USD522; up 2%QoQ). ii) Net debt/EBITDA at targeted level of 2.5x. iii) Plans afoot to fully integrate China operations. iv) Receivables pertaining to the Duffel divestment marked down to EUR45mn. Going ahead, management expects a benign demand tailwind and favourable metal-scrap spread to sustain EBITDA/t above USD500. Titan Company - Result Update - Margins surprise; recovery again resilient The key highlight of Titan’s Q1FY22 result is that its Jewellery margins beat our and consensus forecasts on the back of better gross margin (improved product mix) and cost control. Besides, recovery trends remain robust, and Titan highlighted: i) Jewellery: July is clocking good demand and the segment is gaining traction among new customers. Besides, weddings are likely to support demand in H2FY22. ii) Watches and eyewear recovery is much faster than last year. State Bank of India - Result Update - Standing tall amid uncertainties SBI Q1FY22 PAT of INR65bn topped estimates on higher other income. Slippages were admittedly high at 2.5%—mostly from retail and SMEs (a consequence of mobility restrictions). A fair share of this has been recouped. A lower SMA pool with controlled restructuring (90bps) is notable—asset quality performance outshone even private peers. But softer business traction and lower NIM cannot detract from that. Transport Corporation - Result Update - Holding up in rough environment Transport Corporation of India (TCI) delivered Q1FY22 revenue – down 23% QoQ – along expected lines given lockdowns. Margin surprised positively, up 90bps QoQ, due to the higher Seaways contribution. The 14% QoQ slide in PAT is lower than our estimate, highlighting the strength of TCI’s moderate asset ownership model. India Equity Research August 5, 2021 FIRST CALL DAILY REPORT Edelweiss Research +91 22 4009 4400 [email protected] Sectoral Movements %Change Ticker 4-Aug-21 1 D 1 M 3 M 1 Y Nifty 16,259 0.8 2.7 11.2 46.5 Banking 41,015 2.6 2.8 9.8 67.9 IT 30,977 -0.6 7.0 20.1 73.3 Pharmaceuticals 26,373 -0.6 1.2 9.7 41.7 Oil 15,777 -0.5 -2.3 4.3 20.2 Power 2,645 0.0 -1.1 4.8 72.8 Auto 22,962 -0.8 -4.5 6.1 35.4 Metals 20,970 -0.2 12.1 15.4 153.3 Real Estate 3,287 -1.7 16.4 36.5 106.6 FMCG 13,622 -0.9 -0.3 7.7 19.0 Capital Goods 23,850 -0.8 4.3 16.4 84.2 MARKETS Change in % 04-Aug- 21 1D 1M 1Y Nifty 50 16,259 0.8 2.7 46.5 Nifty 200 8,607 0.3 2.7 50.0 Nifty 500 13,969 0.2 2.8 53.7 INDIA STOCK PERFORMANCE GLOBAL 04-Aug-21 1D 1M 1Y Dow 34,793 -0.9 0.0 27.9 China 3,483 0.2 -1.5 3.1 EM Index 1,304 0.8 -3.7 18.2 UPCOMING EVENTS CALENDER MACRO Change in % 04-Aug-21 1D 1M 1Y Fx (INR/USD) 74.2 0.1 0.2 1.2 !0-yr G-sec 6.2 0.0 2.2 7.4 Oil (USD) 70.5 0.2 -8.6 56.1 Explore: Sales Traders Says Currency Conversations Bond Vectors Valuation Vista 40,000 50,000 60,000 70,000 80,000 7,000 8,500 10,000 11,500 13,000 14,500 16,000 Jul 20 Oct 20 Jan 21 Apr 21 Jul 21 (x) (x) Nifty Index MSCI EM Index - Local Currency (RHS) Chambal chemicals results 05-08-21 05-08-21 Bajaj consumer results Cipla results 05-08-21 Tata Chemicals results 06-08-21 Date Event

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Page 1: First Call 05Aug21

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

ESG Way - Sector Update - Expert speak: SEBI’s BRSR ESG principles We hosted Mr. Chaitanya Kalia, National Leader, Climate Change & Sustainability

Services at EY India on SEBI’s new ESG regulation, BRSR.

Hindalco - Company Update - Good performance sustains Novelis beat our Q1FY22 estimates. Key points: i) Robust shipments (down merely

1% QoQ) and record EBITDA/t (USD522; up 2%QoQ). ii) Net debt/EBITDA at targeted

level of 2.5x. iii) Plans afoot to fully integrate China operations. iv) Receivables

pertaining to the Duffel divestment marked down to EUR45mn. Going ahead,

management expects a benign demand tailwind and favourable metal-scrap spread

to sustain EBITDA/t above USD500.

Titan Company - Result Update - Margins surprise; recovery again resilient The key highlight of Titan’s Q1FY22 result is that its Jewellery margins beat our and

consensus forecasts on the back of better gross margin (improved product mix) and

cost control. Besides, recovery trends remain robust, and Titan highlighted: i)

Jewellery: July is clocking good demand and the segment is gaining traction among

new customers. Besides, weddings are likely to support demand in H2FY22. ii)

Watches and eyewear recovery is much faster than last year.

State Bank of India - Result Update - Standing tall amid uncertainties SBI Q1FY22 PAT of INR65bn topped estimates on higher other income. Slippages

were admittedly high at 2.5%—mostly from retail and SMEs (a consequence of

mobility restrictions). A fair share of this has been recouped. A lower SMA pool with

controlled restructuring (90bps) is notable—asset quality performance outshone

even private peers. But softer business traction and lower NIM cannot detract from

that.

Transport Corporation - Result Update - Holding up in rough environment

Transport Corporation of India (TCI) delivered Q1FY22 revenue – down 23% QoQ –

along expected lines given lockdowns. Margin surprised positively, up 90bps QoQ,

due to the higher Seaways contribution. The 14% QoQ slide in PAT is lower than our

estimate, highlighting the strength of TCI’s moderate asset ownership model.

India Equity Research August 5, 2021

FIRST CALL DAILY REPORT

Edelweiss Research +91 22 4009 4400 [email protected]

Sectoral Movements %Change Ticker 4-Aug-21 1 D 1 M 3 M 1 Y

Nifty 16,259 0.8 2.7 11.2 46.5

Banking 41,015 2.6 2.8 9.8 67.9

IT 30,977 -0.6 7.0 20.1 73.3

Pharmaceuticals 26,373 -0.6 1.2 9.7 41.7

Oil 15,777 -0.5 -2.3 4.3 20.2

Power

2,645 0.0 -1.1 4.8 72.8

Auto 22,962 -0.8 -4.5 6.1 35.4

Metals 20,970 -0.2 12.1 15.4 153.3

Real Estate

3,287 -1.7 16.4 36.5 106.6

FMCG 13,622 -0.9 -0.3 7.7 19.0

Capital Goods 23,850 -0.8 4.3 16.4 84.2

MARKETS Change in % 04-Aug-

21 1D 1M 1Y

Nifty 50 16,259 0.8 2.7 46.5 Nifty 200 8,607 0.3 2.7 50.0 Nifty 500 13,969 0.2 2.8 53.7

INDIA STOCK PERFORMANCE

GLOBAL 04-Aug-21 1D 1M 1Y

Dow 34,793 -0.9 0.0 27.9

China 3,483 0.2 -1.5 3.1

EM Index 1,304 0.8 -3.7 18.2

UPCOMING EVENTS CALENDER

MACRO Change in %

04-Aug-21 1D 1M 1Y

Fx (INR/USD)

74.2 0.1 0.2 1.2

!0-yr G-sec 6.2 0.0 2.2 7.4 Oil (USD) 70.5 0.2 -8.6 56.1

Explore:

Sales Traders Says Currency Conversations

Bond Vectors Valuation Vista

40,000

50,000

60,000

70,000

80,000

7,000

8,500

10,000

11,500

13,000

14,500

16,000

Jul 20 Oct 20 Jan 21 Apr 21 Jul 21

(x)

(x)

Nifty Index MSCI EM Index - Local Currency (RHS)

Chambal chemicals results05-08-21

05-08-21 Bajaj consumer results

Cipla results05-08-21

Tata Chemicals results06-08-21

Date Event

Page 2: First Call 05Aug21

FIRST CALL

Edelweiss Securities Limited

2 Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset

Bharti Airtel - Result Update - Well-prepared to fill vacuum Bharti Airtel (Bharti) posted Q1FY22 results ahead of expectations. The second wave

affected subscriber additions, leading to meagre 1.6% QoQ growth for the India

Mobility business, but strong execution in other businesses drove up overall growth

by 4.8% QoQ.

Tata Consumer Products - Result Update - Robust sequential margin

improvement Tata Consumer Products’ (TCPL) Q1FY22 revenue (up 10.9% YoY) came in line with

our estimate, but EBITDA (down 17% YoY) surpassed it. India beverages business (up

28.2% YoY) was impacted, to some extent, by second wave. India foods grew 19.6%

YoY despite a high base and Tata salt gained market share. International business

(down 12.7% YoY) slowed due to pantry loading in the base quarter last year. Tata

Sampann portfolio grew 12% YoY due to pantry loading in the base quarter, bringing

the two-year CAGR to ~30%.

Parag Milk Foods - Result Update - Sustainable uptick awaited

Parag Milk Foods’ (Parag) Q1FY22 revenue grew in line--1% YoY on a low base of

31% decline--as milk sales picked up, while out-of-home (OOH) and HORECA

remained slow. EBITDA grew 51% YoY (25% above estimate) with a dip in

procurement prices as gross margin expanded.

CARE Ratings - Result Update - Healthy sales across the board CARE Ratings (CARE) reported a 32% YoY uptick in Q1FY22 sales on the back of 28%

ratings growth and 72% subsidiaries’ growth. Sales contracted 32% QoQ led by

seasonality in surveillance. The company outperformed peers amid marginally weak

credit growth. EBITDA shot up 71% YoY, but undershot by 12% due to inferior mix

and staff cost.

Kalpataru Power - Result Update - Soft quarter; JMC outlook encouraging Kalpataru Power’s (KPP) Q1FY22 headline numbers were impacted by execution

challenges (supply chain issues) coupled with commodity price headwinds. Key

highlights: 1) Strong ordering pipeline at INR400-450bn and KPP is targeting INR90bn

plus intake (including L1 of INR25bn) in FY22. 2) INR4.5bn spike in debt due to vendor

support, which is temporary. 3) JMC’s strong execution and margin to sustain riding

4x revenue visibility. 4) Management confident of clocking double-digit margin in

FY22.

Page 3: First Call 05Aug21

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

Edelweiss ESG report repository

India 2025 - Seeking Growth The ESG Way

Global ESG juggernaut accelerates; calling on India

UK-India ESG Forum – Mind the gap

ESG Disclosures levels: Lagging but catching up

Tobacco vs Alcohol: Is ESG reshaping valuations?

CARO 2020: Tightening the governance grip

COVID-19: Testing Corp India’s Social quotient

Impact Investing: A humane approach

Customize your ESG India basket (Index)

ESG disclosure requirements gets a leg up

ESG CXO e-series: Sustainable tomorrow

Launching Edelweiss ESG Scorecard

ESG CXO e-series: New era of disclosures

Companies hosted at ESG CXO e-

series

Tata Power: Upping the ESG quotient

Adani Group: Embracing ESG with open arms

Hindalco: Sustainability at core

Vedanta: Sustainability focus laudable

BRSR expert speak: The next level

L&T: Nurturing an ambitious ESG journey

Expert speak: SEBI’s BRSR ESG principles

We hosted Mr. Chaitanya Kalia, National Leader, Climate Change & Sustainability Services at EY India on SEBI’s new ESG regulation, BRSR.

1) BRSR integrates major global reporting standards into a standalone compliance requirements for top 1000 Indian listed companies. It is mandatory from FY23. 2) It is built on NGRBC’s 9 guiding principles

with different set of addressable questions categorized as Essential or Leadership. 3) BRSR provides more quantitative disclosures than BRR, with 140 questions and 300+ quantitative indicators. 4) Adopting BRSR is likely to enhance innovative and responsible investments, make meaningful decisions to attain distinct market position and enhance stakeholder relationship, thereby creating long-term value.

BRSR attempts to incorporate major global reporting standards

Multiple reporting standards are available across geographies namely Global GRI,

ISO 26000, CDP (prevalent in UK) and SASB. We understand that multiple reporting

standards lead to less uniformity. This raises the need for detailed and

comprehensive reporting practices as exemplified by BRSR. Imbibing BRSR practices

is likely to enhance stakeholder relationships, thereby creating long-term value for

the business. Additionally, such practices would assist in making meaningful

decisions and attain distinct market position. Complying with regulatory norms

would thereby enhance innovative and responsible investments.

NGRBCs 9 principles provide backbone for enhanced granularity

In our report, “BRSR expert speak: The next level”, we had mentioned that BRSR is

built on NGRBC’s 9 strong principles; this report discusses them in more granularity.

These principles form part of section C of BRSR structure and detail parameters

ranging from ethical nature of business to environmental restoration. Each principle

has its own significance with different addressable questions categorized either

under Essential or Leadership categories. Objective is to have a simple format

(mindful of burden of compliance cost), thereby creating a single comprehensive

source of non-financial and sustainability information. (Details on pages 5-13).

Headwinds to BRSR adaptation; India’s ESG disclosure score rising

Implementing new BRSR framework is likely to face some headwinds initially. In

addition to detailed quantitative KPIs, a number of questions under BRSR have risen

2.5x to 140 (98 Essential, 42 leadership). This may require updating the processes

and policies for implementing BRSR requirements, resulting in extra costs. Further,

the BRSR framework would require different departments such as HR, IT, R&D,

operations, etc., to manage and consolidate data more effectively, which is likely to

be more time consuming. Moreover, stakeholders’ ESG expectations may move

from “doing no harm” to “contributing proactively for change.”

We demonstrate India’s ESG disclosure scores are on a rising trajectory and that the

gap with global benchmarks is narrowing. We believe adoption of BRSR is the right

step towards enhancing sustainability (refer to Exhibit 19).

India Equity Research ESG August 5, 2021

Edelweiss ‘ESG Way’ Series ESG CXO e-Series

Jal Irani Alok Deshpande Aditya Narain Iqbal Khan +91 (22) 6620 3087 +91 (22) 6620 3163 +91 (22 )6620 3061 [email protected] [email protected] [email protected] [email protected]

Page 4: First Call 05Aug21

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 443 12 month price target (INR) 475 Market cap (INR bn/USD bn) 995/13.4 Free float/Foreign ownership (%) 65.3/21.2

What’s Changed

Target Price ⚊

Rating/Risk Rating ⚊

INVESTMENT METRICS

Good performance sustains

Novelis beat our Q1FY22 estimates. Key points: i) Robust shipments (down merely 1% QoQ) and record EBITDA/t (USD522; up 2%QoQ). ii) Net debt/EBITDA at targeted level of 2.5x. iii) Plans afoot to fully integrate China operations. iv) Receivables pertaining to the Duffel divestment marked down to EUR45mn. Going ahead, management expects a benign demand tailwind and favourable metal-scrap spread

to sustain EBITDA/t above USD500.

In our view, Novelis is expected to generate >USD2bn EBITDA/year due to stronger shipments/spreads sustaining much higher than USD500/t, thereby propelling Hindalco’s earnings and cash flow. Maintain ‘BUY’ on Hindalco with an unchanged TP of INR475 at 6.3x Q2FY23E EBITDA.

FINANCIALS (INR bn)

Year to March FY21A FY22E FY23E FY24E

Revenue 1,319.9 1,808.4 1,735.8 1,696.7

EBITDA 176.5 258.1 235.1 224.5

Adjusted profit 49.2 120.9 121.8 122.1

Diluted EPS (INR) 22.1 54.3 54.7 54.8

EPS growth (%) 24.6 145.7 0.7 0.3

RoAE (%) 5.6 16.7 14.5 12.8

P/E (x) 17.6 7.2 7.1 7.1

EV/EBITDA (x) 7.7 5.2 4.6 4.2

Dividend yield (%) 0.3 0.8 0.8 0.8

PRICE PERFORMANCE

Third successive quarter of >USD500/t EBITDA; better times ahead

Novelis’s Q1FY22 EBITDA, adjusted for one-off tax gains in Brazil, stood at

USD508mn—the highest ever. Key points: i) Shipments down merely 1% QoQ to

973kt given robust demand from all end-sectors, except aerospace. ii) EBITDA/t at

USD522 gains from benign metal-scrap spreads. iii) Achieved USD100mn of

combination synergies with Aleris. iv) Plans afoot to fully integrate the automotive

business in Asia by expanding the Zhenjiang plant to cold-rolled coils, resulting in

strategic synergies of >USD100mn with Aleris (earlier pegged at USD65mn). v) Global

automotive capacity to increase to ~1mtpa, resulting in better margins. In our view,

Novelis’s EBITDA/t is likely to sustain at USD530–550/t (management’s guidance:

>USD500/t) due to: i) strong demand tailwinds; and ii) better metal-scrap spreads.

Robust balance sheet to aid pursuit of growth opportunities

Novelis has achieved the targeted net debt/EBITDA of 2.5x. Despite higher working

capital requirement owing to higher LME Al price, management expects free cash

flow of USD740mn—similar to FY21. Furthermore, the company repaid USD124mn

of debt in Q1FY22 and refinanced USD1.5bn of senior unsecured notes due CY26 at

a lower interest rate. This extends maturity profile of debt and reduces interest cost

by USD35mn p.a. We believe the balance sheet has enough room to bankroll growth.

Explore:

Outlook and valuation: Breaching new frontiers; maintain ‘BUY’

We anticipate Novelis turning in progressively stronger performance. The company

has posted a third successive quarter of >USD500/t in EBITDA. Going ahead, we see

ramp-up of automotive lines, integrated automotive business in Asia and new

recycling capacity in Brazil to enhance shipments and profitability further.

That said, we see the ongoing semiconductor crisis and higher working capital

requirements as key risks. The partial write-down of receivables pertaining to the

Duffel divestment are likely to be a one-off, and we expect enhanced strategic

synergies to offset this ‘one-time’ loss. All in all, we continue to see Novelis

propelling Hindalco’s earnings further owing to stable cash flow and enhanced

profitability. Retain ‘BUY/SO’ on Hindalco with an unchanged TP of INR475 at 6.3x

Q2FY23E EBITDA.

5

35

65

95

125

Sales Growth(%)

EPS Growth(%)

RoE(%)

PE(x)

Metals & Mining HNDL IN Equity

36,000

39,800

43,600

47,400

51,200

55,000

150

215

280

345

410

475

Aug-20 Nov-20 Feb-21 May-21 Aug-21

HNDL IN Equity Sensex

India Equity Research Metals & Mining August 5, 2021

HINDALCO COMPANY UPDATE

Amit Dixit Meera Midha +91 (22) 6620 3160 +91 (22) 4088 5804 [email protected] [email protected]

Corporate access

Financial model Podcast

Video

Page 5: First Call 05Aug21

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 1,800 12 month price target (INR) 2,071 Market cap (INR bn/USD bn) 1,598/21.6 Free float/Foreign ownership (%) 47.1/18.1

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Margins surprise; recovery again resilient

The key highlight of Titan’s Q1FY22 result is that its Jewellery margins beat our and consensus forecasts on the back of better gross margin (improved product mix) and cost control. Besides, recovery trends remain robust, and Titan highlighted: i) Jewellery: July is clocking good demand and the segment is gaining traction among new customers. Besides, weddings are likely to support demand in H2FY22. ii) Watches

and eyewear recovery is much faster than last year.

Titan’s recovery once again testifies to the resilience of its model to any potential covid disruption. Plans on store addition remain robust (34–35 Tanishq stores) with margins also expected to normalize. Retain ‘BUY’ with a TP of INR2,071 (at 55x Dec-22E EBITDA).

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 2,16,440 2,49,025 2,90,790 3,19,869

EBITDA 17,240 28,962 35,476 38,704

Adjusted profit 9,740 18,676 23,777 26,252

Diluted EPS (INR) 11.0 21.0 26.7 29.5

EPS growth (%) (34.7) 91.3 27.3 10.4

RoAE (%) 21.1 12.0 19.4 20.9

P/E (x) 164.0 85.8 67.4 61.0

EV/EBITDA (x) 65.2 93.1 55.3 44.9

Dividend yield (%) 0.2 0.3 0.4 0.4

PRICE PERFORMANCE

Jewellery margins clock a positive beat; rapid recovery trends

Titan reported revenue of INR28.3bn (excluding bullion), up 122% YoY with a 50%,

10% and 40% mix in April, May and June, respectively. The Jewellery division

reported a 109% YoY surge in sales (excluding bullion sale current and base quarter)

and most of it is driven by grammage as gold prices were flat YoY. The better

performance this quarter than Q1FY21 was driven by traction till the third week of

April and the performance in the end of June, which has continued into Q2FY22.

Jewellery’s margin beat expectation owing to an improved product mix as studded

share was higher (22% versus. 18%) along with a lower share of gold coins (7% versus

14%). Watches/eyewear also reported growth of 291%/120% YoY with Titan

mentioning that recovery thereof has been faster than last year.

Q1FY22 conference call: Key takeaways

i) The company believes it will go back to pre covid margins once the situation

normalizes. ii) Hallmarking: Anticipating lot of competitive discounting, but there has

been no incremental activity. Also, it expects the unorganized channel to face supply

chain disruptions during festive season, which could benefit Titan. iii) Targeting 34–

35 Tanishq stores in FY22. iv) Titan has aggressive expansions plans for Taneira. v)

July store operational days: Jewellery: 80–90%; Watches: 75–80%.

Explore:

Outlook and valuation: Insulated play; maintain ‘BUY’

Titan’s recovery has once again proven the resilience of the model to any potential

covid disruption. We maintain the target at 55x EV/EBITDA and roll forward the

valuation to Dec-22E EBITDA, which yields a TP of INR2,071 (INR1,890 earlier). Retain

‘BUY/SO’. The stock is trading at 45x FY23E EV/EBITDA.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 32,490 18,620 74.5 71,350 (54.5)

EBITDA 1,440 ( 2,460) NM 7,950 (81.9)

Adjusted Profit 610 ( 2,700) NM 5,290 (88.5)

Diluted EPS (INR) 0.7 ( 3.0) NM 6.0 (88.5)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,800

43,600

47,400

51,200

55,000

1,050

1,210

1,370

1,530

1,690

1,850

Aug-20 Nov-20 Feb-21 May-21 Aug-21

TTAN IN Equity Sensex

India Equity Research Retail August 5, 2021

TITAN COMPANY RESULT UPDATE

Nihal Mahesh Jham Abneesh Roy +91 (22) 6623 3352 +91 (22) 6620 3141 [email protected] [email protected]

Corporate access

Financial model Podcast

Video

Page 6: First Call 05Aug21

Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited

KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 457 12 month price target (INR) 530 Market cap (INR bn/USD bn) 4,078/55.0 Free float/Foreign ownership (%) 43.1/7.7

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

Standing tall amid uncertainties

SBI Q1FY22 PAT of INR65bn topped estimates on higher other income. Slippages were admittedly high at 2.5%—mostly from retail and SMEs (a consequence of mobility restrictions). A fair share of this has been recouped. A lower SMA pool with controlled restructuring (90bps) is notable—asset quality performance outshone even private peers. But softer business traction and lower NIM cannot detract from that.

Uncertainty over subsequent covid waves and a relatively low provisioning buffer (sub-40bps) still temper our enthusiasm on credit cost for FY22. Rolling over to Dec-22E (with updated subsidiary values) yields a revised TP of INR530 (earlier INR500). Maintain ‘BUY’.

FINANCIALS (INR mn)

Year to March FY20A FY21A FY22E FY23E

Revenue 1433063 1542064 1677757 1887437

PPoP 681327 715542 805471 920870

Adjusted profit 144882 204105 263640 422419

Diluted EPS (INR) 16.2 22.9 29.5 47.3

EPS growth (%) 1580.2 40.9 29.2 60.2

RoAE (%) 7.2 9.3 10.9 15.6

P/E (x) 28.1 19.9 15.4 9.6

P/ABV (x) 2.4 2.0 1.8 1.5

Dividend yield (%) 0 0.9 0.9 0.9

PRICE PERFORMANCE

Asset quality obviously impacted, but recovery remains strong

Slippages stood at INR163bn (2.5%)—retail and business banking made up >75% of

this. Management highlighted that a fair share of these have been already recouped

in July, and that it expects further recoveries henceforth. Restructuring of INR200bn

(0.9% of loans, including pipeline) is well within the guidance range. The SMA pool

(1 & 2, for exposure above INR50mn) also was steady at INR113bn (46bps of loans).

The only fly in the ointment is total discretionary provisions stock at only 40bps,

which is below most private banks. Its sufficiency remains questionable, recent show

of asset quality strength notwithstanding. Repayments trajectory, therefore,

remains critical and credit costs will not shrink materially in the near term. Continued

improvements on overdue status remain key to our investment thesis.

Operationally soft; well placed to capitalise on opportunities

SBI’s operating profit was impacted by lower NIMs (partially impacted by higher

interest income reversals of INR8bn). From a business momentum standpoint, things

were steady with 5.8% YoY/ flat QoQ loan growth—largely from the retail segment

and well supported by steady deposit traction (up> 1% QoQ). Armed with a strong

franchise, not to mention slackened competition, SBI expects significant credit

market share gains. Growth pickup remains imperative for a sustainable re-rating.

Explore:

Outlook and valuation: Recovery play; maintain ‘BUY’

SBI still trades at temptingly low valuations and remains well positioned as a recovery

play. We see risk-on gaining momentum and potential dwindling of social costs. A

discount to private peers is nevertheless warranted on account of lower credit cost

elasticity (low provisioning) and structural limitations. Maintain ‘BUY/SO’.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 3,94,412 3,45,990 14.0 4,32,923 (8.9)

Pre-provisioning Profits 1,89,798 1,65,214 14.9 1,97,002 (3.7)

Reported Profits 65,040 41,893 55.3 64,507 0.8

EPS 7.3 4.7 7.2

36,000

39,800

43,600

47,400

51,200

55,000

175

235

295

355

415

475

Aug-20 Nov-20 Feb-21 May-21 Aug-21

SBIN IN Equity Sensex

India Equity Research Banks August 5, 2021

STATE BANK OF INDIA RESULT UPDATE

Santanu Chakrabarti Prakhar Agarwal Parth Sanghvi +91 (22) 4342 8680 +91 (22) 6620 3076 [email protected] [email protected] [email protected]

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KEY DATA

Rating BUY Sector relative Neutral Price (INR) 446 12 month price target (INR) 530 Market cap (INR bn/USD bn) 34/0.5 Free float/Foreign ownership (%) 33.3/1.6

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Holding up in rough environment

Transport Corporation of India (TCI) delivered Q1FY22 revenue – down 23% QoQ – along expected lines given lockdowns. Margin surprised positively, up 90bps QoQ, due to the higher Seaways contribution. The 14% QoQ slide in PAT is lower than our estimate, highlighting the strength of TCI’s moderate asset ownership model.

All in all, we are bullish on TCI; its improving business mix should lift margins and returns profile over the next three–four years, which can drive a re-rating. Factoring in the strong performance, we are revising up the TP to INR530 (up from INR450), implying 19x one-year PE (up from 17x). At 15x PE, the margin of safety is ample. Retain ‘BUY’.

FINANCIALS (INR mn)

Year to March FY20A FY21E FY22E FY23E

Revenue 27,178 28,024 32,158 37,896

EBITDA 2,405 2,612 3,167 3,898

Adjusted profit 1,531 1,586 2,036 2,543

Diluted EPS (INR) 19.8 20.1 25.8 32.2

EPS growth (%) 5.4 1.5 28.4 24.9

RoAE (%) 14.9 13.7 16.5 18.2

P/E (x) 22.5 22.2 17.3 13.8

EV/EBITDA (x) 15.8 14.0 11.9 9.4

Dividend yield (%) 0.4 0.5 0.6 0.7

PRICE PERFORMANCE

Strong performance in another lockdown-hit quarter

TCI’s Q1FY22 revenue slid 23% QoQ—in line with estimates given the lockdowns in

April and May. However, margin surprised positively and expanded 90bps QoQ due

to a change in business mix (higher contribution from shipping) and better sequential

margins in the shipping business. PAT decreased by only 14% QoQ—better than our

estimate. The freight division’s revenue dipped 26% QoQ while its margin came in at

4% (4.5% in Q4FY21). Supply chain revenue, given the segment’s dependence on the

auto sector (~80%), plunged 27% QoQ. The Seaways division’s Q1FY22 revenue

ebbed only 9% QoQ, but its margin surged 70bps QoQ.

Business mix change to drive re-rating

Our investment rationale for TCI is premised on improvement in its underlying

business mix over the next three–four years. The company is targeting a higher-

margin LTL mix of 40% in the freight division. The supply chain’s division operates in

the fast-growing 3PL category, which is expected to log a CAGR of 15%-plus over the

next five–seven years. TCI also plans to add capacity in Seaways (in Q4FY22), which

should aid margin improvement and RoCE. Overall, the company’s focus on

establishing multi-modal capabilities would show up in its growth in four–five years.

Explore:

Outlook and valuation: Improving business mix; Retain ‘BUY’

Factoring in a strong Q1FY22 performance and an improving business mix (better

margin and RoCE profile), we are revising up the SoTP-based TP to INR530 (up from

INR450), implying a one-year forward PE of 19x (from 17x, while tweaking up our

estimates. The stock at 15x PE provides ample margin of safety in our view.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 6,108 3,280 86.2 7,966 (23.3)

EBITDA 711 279 155.2 856 (16.9)

Adjusted Profit 484 99 390.8 560 (13.6)

Diluted EPS (INR) 6.3 1.3 390.8 7.3 (13.6)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,800

43,600

47,400

51,200

55,000

150

220

290

360

430

500

Aug-20 Nov-20 Feb-21 May-21 Aug-21

TRPC IN Equity Sensex

India Equity Research Logistics August 5, 2021

TRANSPORT CORPORATION RESULT UPDATE

Alok P. Deshpande Sameer Chuglani +91 (22) 6620 3163 +91 (22) 4040 7415 [email protected] [email protected]

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KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 580 12 month price target (INR) 705 Market cap (INR bn/USD bn) 3,186/42.9 Free float/Foreign ownership (%) 43.8/20.1

What’s Changed

Target Price ⚊

Rating/Risk Rating ⚊

QUICK TAKE

Above In line Below

Profit

Margins

Revenue Growth

Overall

Well-prepared to fill vacuum

Bharti Airtel (Bharti) posted Q1FY22 results ahead of expectations. The second wave affected subscriber additions, leading to meagre 1.6% QoQ growth for the India Mobility business, but strong execution in other businesses drove up overall growth by 4.8% QoQ.

We believe the Indian telecom industry structure can move towards a

duopoly in the wake of Vodafone Idea’s inability to raise capital. The government may provide the latter sops, but we reckon the situation cannot be salvaged without a significant tariff hike. Bharti, with its superior network and strong balance sheet, is well placed to capture market share in our view. We keep our estimates broadly unchanged and retain ‘BUY’ with a DCF-based TP of INR705.

FINANCIALS (INR bn)

Year to March FY20A FY21E FY22E FY23E

Revenue 879 1,023 1,118 1,278

EBITDA 369 468 549 6,56

Adjusted profit (41) 43 45 132

Diluted EPS (INR) (7.8) 0.8 8.2 24.2

EPS growth (%) (8.7) nm 939.7 193.4

RoAE (%) (43.3) (22.2) 7.2 18.1

P/E (x) nm 732.1 70.4 24.0

EV/EBITDA (x) 11.9 10.0 8.6 6.9

Dividend yield (%) 0 0 0 0

PRICE PERFORMANCE

Pandemic impacts India Mobility business

Bharti’s Q1FY22 revenue grew 4.8% QoQ (Street expectation: 1.6% QoQ) to

INR270.6bn, with a weak India Mobility performance (up 1.6% QoQ) more than

offset by a strong showing in other businesses. The second set of lockdowns eroded

subscriber base by 0.1mn to 321.2mn. APRU inched up though 0.6% QoQ to INR146

as low ARPU subscribers declined. 4G subscriber addition at 5.1mn (13.7mn in

Q4FY21) is robust considering smartphone shipments were impacted in the quarter.

Overall EBITDA margin further improved to 48.7%, up 60bps QoQ, due to a decline

in network operating and sales & marketing expenses.

VI’s fate to determine future path

VI’s cash flows are insufficient to fulfil its upcoming debt obligation; the company

will need external funding to remain a going concern. In absence of any funding,

Bharti and Reliance Jio (RJio) will have an opportunity to grab market share. With its

network and spectrum investments, Bharti is well placed to exploit this potential

opportunity. Considering a 60–70% incremental EBITDA margin in this business,

incremental revenue would significantly boost bottom line, thereby shoring up the

ability to invest in network. We have not yet built this in our numbers, but it can

potentially drive a steep jump in revenue and profits.

Explore:

Outlook and valuation: Market share gain to continue; retain ‘BUY’

We believe Bharti’s investments in the network and strong balance sheet will help it

garner higher quality subscribers, thereby also driving up its market share gains.

Considering significant market share gain possibilities, the stock at 6.9x FY23E

EV/EBITDA is attractive. Maintain ‘BUY/SO’ with a DCF-based TP of INR705.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 2,70,634 2,40,129 12.7 2,58,312 4.8

EBITDA 1,31,901 1,04,821 25.8 1,24,158 6.2

Adjusted Profit 2,835 ( 1,59,331) (101.8) 7,592 (62.7)

Diluted EPS (INR) 0.5 ( 29.2) (101.8) 1.4 (62.7)

36,000

39,600

43,200

46,800

50,400

54,000

375

425

475

525

575

625

Aug-20 Nov-20 Feb-21 May-21 Aug-21

BHARTI IN Equity Sensex

India Equity Research Telecom August 5, 2021

BHARTI AIRTEL RESULT UPDATE

Pranav Kshatriya Sandip Agarwal Pulkit Chawla +91 (22) 4040 7495 +91 (22) 6623 3474 [email protected] [email protected] [email protected]

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KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 768 12 month price target (INR) 880 Market cap (INR bn/USD bn) 707/9.5 Free float/Foreign ownership (%) 65.3/19.5

What’s Changed

Target Price ⚊

Rating/Risk Rating ⚊

QUICK TAKE

Robust sequential margin improvement

Tata Consumer Products’ (TCPL) Q1FY22 revenue (up 10.9% YoY) came in line with our estimate, but EBITDA (down 17% YoY) surpassed it. India beverages business (up 28.2% YoY) was impacted, to some extent, by second wave. India foods grew 19.6% YoY despite a high base and Tata salt gained market share. International business (down 12.7% YoY) slowed due to pantry loading in the base quarter last year.

Tata Sampann portfolio grew 12% YoY due to pantry loading in the base quarter, bringing the two-year CAGR to ~30%.

The new leadership has infused vigour in execution. And, on the whole, we remain positive on the stock over the medium to long term. Maintain ‘BUY’ with TP of INR880.

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 1,16,020 1,33,392 1,49,548 1,66,213

EBITDA 15,438 19,342 23,329 27,591

Adjusted profit 8,873 12,548 15,580 18,742

Diluted EPS (INR) 9.6 13.6 16.9 20.3

EPS growth (%) 20.8 41.4 24.2 20.3

RoAE (%) 6.3 7.9 9.3 10.6

P/E (x) 79.7 56.4 45.4 37.7

EV/EBITDA (x) 44.1 35.3 29.1 24.3

Dividend yield (%) 0.5 0.8 1.0 1.2

PRICE PERFORMANCE

Robust domestic revenue growth; margin improves QoQ

What we liked: India beverages and food businesses recorded strong double-digit

growth and tea and salt made market share gains of 170bps and 370bps,

respectively. On two-year basis, revenue and EBITDA grew 25.7% and 13.8%,

respectively. E-commerce recorded significant growth of 153% YoY and contributed

7.3% to domestic sales. India foods business registered 19.6% YoY revenue growth

and 17% YoY volume growth despite a high base. The company is witnessing V

shaped recovery since the later part of June. Consolidated gross and EBITDA margin,

though down YoY, improved 153bps and 339bps, respectively, QoQ; possibly worst

is now behind, in our opinion.

What we did not like: International business dipped (down 12.7% YoY), reverting to

pre-covid demand trends in tea and coffee as there is no more pent-up demand or

pantry loading.

Q1FY22 conference call: Key takeaways

Tea prices have further come off INR20-30 since June end hence margin should

continue to improve QoQ. Demand in July has come back stronger than June. In

terms of Sampann, biggest traction is in poha, followed by Pulses and then spices.

Explore:

Outlook and valuations: Favourable tide’s brewing; maintain ‘BUY’

TCPL’s base businesses of salt and tea should provide steady revenue momentum,

while new businesses—pulses & spices—should provide the additional revenue fillip,

in our view. We maintain ‘BUY/SO’ with a TP of INR880. The stock is trading at 45.4x

FY23E EPS.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 30,085 27,139 10.9 30,372 (0.9)

EBITDA 3,995 4,827 (17.2) 3,002 33.1

Adjusted Profit 1,891 2,822 (33.0) 1,178 60.5

Diluted EPS (INR) 2.1 3.1 (33.0) 1.3 60.5

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

425

500

575

650

725

800

Aug-20 Nov-20 Feb-21 May-21 Aug-21

TATACONS IN EQUITY Sensex

India Equity Research Consumer Staples August 5, 2021

TATA CONSUMER PRODUCTS RESULT UPDATE

Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]

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KEY DATA

Rating REDUCE Sector relative Underperformer Price (INR) 135 12 month price target (INR) 127 Market cap (INR bn/USD bn) 13/0.2 Free float/Foreign ownership (%) 54.0/17.7

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Sustainable uptick awaited

Parag Milk Foods’ (Parag) Q1FY22 revenue grew in line--1% YoY on a low base of 31% decline--as milk sales picked up, while out-of-home (OOH) and HORECA remained slow. EBITDA grew 51% YoY (25% above estimate) with a dip in procurement prices as gross margin expanded.

While opening of lockdowns should prompt an increase in OOH

consumption and HORECA, procurement prices are also likely to rise. Hence, we maintain earnings despite beat and await uptick in value-added sales. Debt reduction of INR1.5bn is on the anvil from the capital raise of INR3.8bn; however, the equity dilution of 25-37% remains a near-term concern. The stock seems fairly valued, maintain ‘REDUCE’ with revised TP of INR127, valuing it at 15x Q3FY23E.

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 18,418 21,196 24,453 27,457

EBITDA 1,248 1,561 2,065 2,393

Adjusted profit 207 543 989 1,258

Diluted EPS (INR) 2.5 5.7 9.4 10.9

EPS growth (%) (77.9) 131.3 64.8 16.2

RoAE (%) 2.3 5.7 9.5 10.9

P/E (x) 54.5 19.0 11.5 9.9

EV/EBITDA (x) 11.7 8.0 5.3 4.4

Dividend yield (%) 0.4 0.4 0.4 0.4

PRICE PERFORMANCE

Dip in procurement prices spurs profitability

Sales were largely flat (1% YoY) on a base quarter decline of 31%. This was led by

growth of 4% YoY and 56% YoY in sales of milk and skimmed milk powder,

respectively, while value-added products dipped 9% YoY on a base quarter decline

of 24%. While milk prices softened during Q1FY22, realisation largely remained the

same, leading to gross margin expansion of 563bps YoY and 727bps QoQ. Owing to

the same, EBITDA grew 51% YoY and 144% QoQ and margin for Q1FY22 expanded

to 10.2%. Parag estimates 8% EBITDA margin in FY22 as procurement prices pick up.

FY22 to see an uptick on a low base

While Q1FY22 remained challenging owing to the severity of the second wave, sales

have picked up in July with rise in OOH consumption and HORECA opening up post

localised lockdowns. However, as procurement prices bottomed out at INR27, we

expect some pressure on gross margin as it is expected at INR30 for FY22. Parag had

raised INR3.8bn during April 2021 via a variety of instruments, which will be utilised

for working capital debt and to limit reduction. With debt reduction underway,

interest costs dip is awaited. Management estimates revenue growth of 15-18% in

FY22. Post 41% decline in EBITDA in FY21, we estimate 25% EBITDA growth in FY22,

29% CAGR over FY21-23E.

Explore:

Outlook and valuations: Uptick awaited; maintain ‘REDUCE’

Despite a challenging Q1FY22, Parag has seen benefits of dip in procurement prices

flow through to profitability. We await sustainable uptick in sales and maintain

‘REDUCE’ with revised TP of INR127 (INR114 earlier) valuing the stock at 15x as we

roll over to Q3FY23E. The stock trades at 24x/14x FY22/23E and seems fairly valued.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 4,384 4,356 0.7 4,344 0.9

EBITDA 449 297 51.2 184 143.5

Adjusted Profit 175 32 440.9 ( 96) (281.8)

Diluted EPS (INR) 2.1 0.4 440.9 ( 1.1) (281.8)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,800

43,600

47,400

51,200

55,000

75

90

105

120

135

150

Aug-20 Nov-20 Feb-21 May-21 Aug-21

PARAG IN Equity Sensex

India Equity Research Dairy August 5, 2021

PARAG MILK FOODS RESULT UPDATE

Shradha Sheth Meera Midha +91 (22) 6623 3308 +91 (22) 4088 5804 [email protected] [email protected]

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KEY DATA

Rating BUY Sector relative Outperformer Price (INR) 710 12 month price target (INR) 846 Market cap (INR bn/USD bn) 21/0.3 Free float/Foreign ownership (%) 100.0/29.2

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Healthy sales across the board

CARE Ratings (CARE) reported a 32% YoY uptick in Q1FY22 sales on the back of 28% ratings growth and 72% subsidiaries’ growth. Sales contracted 32% QoQ led by seasonality in surveillance. The company outperformed peers amid marginally weak credit growth. EBITDA shot up 71% YoY, but undershot by 12% due to inferior mix and staff cost.

CARE has been focusing on recouping market share and accelerating revenue growth across other businesses: risk solutions and analytics (CART). It expects other segments to grow by 35% ahead. With efforts underway in technology and HR, we expect margins to stabilise. Taking note of a gradual improvement in its market share, we keep ‘BUY’, valuing to stock at 25x Q3FY23 with a TP of INR846 (INR825 earlier).

FINANCIALS (INR mn)

Year to March FY21A FY22E FY23E FY24E

Revenue 2,484 2,707 3,065 3,447

EBITDA 958 1,039 1,203 1,389

Adjusted profit 895 915 1,025 1,183

Diluted EPS (INR) 30.4 31.0 34.8 40.1

EPS growth (%) 8.7 2.2 12.0 15.4

RoAE (%) 16.0 15.2 16.2 17.6

P/E (x) 23.4 22.9 20.4 17.7

EV/EBITDA (x) 16.8 15.4 13.0 10.9

Dividend yield (%) 2.4 2.7 2.8 3.1

PRICE PERFORMANCE

Outperformance vis-à-vis peers continues

CARE’s Q1FY22 overall revenue grew 32% YoY (15% ahead of estimates) on a low

base of 25% decline. Rating sales jumped 28% YoY outperforming peers (CRISIL with

overall ratings dip of 5% YoY and ICRA’s ratings growth of 10% YoY). This was amidst

credit contraction of 1% (-1.2% in Q1FY21) as industry credit growth slipped to -1.7%

(-1% in Q1FY21), while services recouped to -1.1% (from -2.6%). Long-term bond

issuances plunged 60% YoY for the industry owing to no TLTROs unlike Q1FY21.

EBITDA rose 71% YoY (12% below estimates) on a low base of 58% decline. Going

forward, management expects a pick up as the pipeline remains strong for FY22.

New ratings and other segments gain well

The transformation is underway to regain lost market share in ratings by way of

focusing on aggressively growing new ratings, new streams like REITS and InVITs,

securitisation and overhauling ratings models and refining the culture and

technology. Efforts on other subsidiaries have resulted in improving revenues as

Others segment rose 74% YoY in Q1FY22 and should grow 35% ahead. CARE is

focussing on garnering new business for initial ratings, which should do well as the

economy improves. While Q1 is slow seasonally, the company sees a lot of pipeline

work that should materialize in coming quarters for surveillance (~70% of ratings).

Explore:

Outlook and valuation: Well placed; retain ‘BUY’

We expect CARE to perform well, particularly as its new management team gradually

regains market share and lifts the contribution of other businesses. Maintain ‘BUY’

at 25x Q3FY23, in line with its five-year average; it yields a TP of INR846 (INR825

earlier). The company is trading at a deep discount – 40%-plus – to peers.

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 492 374 31.6 796 (38.2)

EBITDA 86 50 71.1 305 (71.7)

Adjusted Profit 110 93 18.1 261 (57.6)

Diluted EPS (INR) 3.7 3.2 18.1 8.8 (57.6)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,800

43,600

47,400

51,200

55,000

275

375

475

575

675

775

Aug-20 Nov-20 Feb-21 May-21 Aug-21

CARE IN Equity Sensex

India Equity Research Credit Rating August 5, 2021

CARE RATINGS RESULT UPDATE

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KEY DATA

Rating HOLD Sector relative Neutral Price (INR) 476 12 month price target (INR) 440 Market cap (INR bn/USD bn) 71/1.0 Free float/Foreign ownership (%) 45.6/7.1

What’s Changed Target Price

Rating/Risk Rating ⚊

QUICK TAKE

Soft quarter; JMC outlook encouraging

Kalpataru Power’s (KPP) Q1FY22 headline numbers were impacted by execution challenges (supply chain issues) coupled with commodity price headwinds. Key highlights: 1) Strong ordering pipeline at INR400-450bn and KPP is targeting INR90bn plus intake (including L1 of INR25bn) in FY22. 2) INR4.5bn spike in debt due to vendor support, which is temporary. 3) JMC’s strong execution and margin to sustain

riding 4x revenue visibility. 4) Management confident of clocking double-digit margin in FY22.

While KPP’s outlook is stable, JMC’s prospects have improved significantly. Promoter pledge (45%) is dipping gradually, but not meaningfully. Maintain ‘HOLD’ with revised TP of INR440.

FINANCIALS (INR mn)

Year to March FY20A FY21A FY22E FY23E

Revenue 79,040 76,710 88,368 1,01,428

EBITDA 8,600 8,080 9,361 10,744

Adjusted profit 4,390 4,380 5,698 6,559

Diluted EPS (INR) 28.6 29.2 38.0 43.7

EPS growth (%) 4.1 2.1 30.1 15.1

RoAE (%) 13.8 16.4 13.9 14.2

P/E (x) 16.7 16.3 12.5 10.9

EV/EBITDA (x) 9.2 9.6 7.9 6.8

Dividend yield (%) 0.7 2.1 1.5 1.5

PRICE PERFORMANCE

Good show in challenging commodity pressure environment

KPP’s 9% revenue growth came 7% below consensus on account of execution

challenges in a couple of sites. Commendably, the company posted double-digit

margin in spite of commodity price pressures and higher freight cost in international

projects (USD3mn impact). It has already made provisions of INR1.3bn for higher

commodity prices. Q1 intake was weak at INR8.5bn, but KPP is confident of INR90bn

plus order intake (INR50bn from TLT and INR40bn from Railways & Pipeline) in FY22

riding INR450bn ordering pipeline in which domestic TLT opportunity is INR150bn

(TBCB+HVDC). Net debt rose 50% QoQ due to vendor support at the beginning of the

year, which we believe will recede gradually.

JMC: Strong show on all counts; restructuring gathering pace

JMC’s (SA) EBITDA doubled led by execution ramp up in B&F and urban infra

segments and margin expanded 130bps. With 150% plus order intake growth in FY21

/Q1FY22, JMC’s revenue visibility has improved substantially to 4x and it’s on track

to comfortably clock 20% plus growth. In road BOOT projects, while toll collection

took a hit (KEP–famers agitation, second wave), KEP and WEP are at advance level

of restructuring. Kohima transmission deal closure in 2-3 months and cash flow from

Indore real estate likely to reduce consolidated debt by 50% to ~INR13-14bn.

Explore:

Outlook and valuations: JMC on strong footing ; maintain ‘HOLD’

KPP is on growth track with operational and deleveraging parameters both at SA and

JMC. While meaningful reduction in promoter pledge is awaited, we revise up P/E

multiple to 9x (earlier 7.5x) factoring in improving JMC outlook. We maintain

‘HOLD/SN’ with revised TP of INR440 (earlier INR365).

Financials Year to March Q1FY22 Q1FY21 % Change Q4FY21 % Change

Net Revenue 15,860 14,590 8.7 23,370 (32.1)

EBITDA 1,620 1,560 3.8 2,430 (33.3)

Adjusted Profit 760 690 10.1 1,300 (41.5)

Diluted EPS (INR) 5.1 4.6 10.1 8.7 (41.5)

Above In line Below

Profit

Margins

Revenue Growth

Overall

36,000

39,600

43,200

46,800

50,400

54,000

225

280

335

390

445

500

Aug-20 Nov-20 Feb-21 May-21 Aug-21

KPP IN Equity Sensex

India Equity Research Engineering and capital goods August 5, 2021

KALPATARU POWER RESULT UPDATE

Swarnim Maheshwari Amit Mahawar Manoj Kumar K V Angad Saluja +91 (22) 4040 7418 +91 (22) 4040 7451 [email protected] [email protected] [email protected] [email protected]

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This report is distributed in Hong Kong by Edelweiss Securities (Hong Kong) Private Limited (ESHK), a licensed corporation (BOM -874) licensed and regulated by the Hong Kong Securities and Futures Commission (SFC) pursuant to Section 116(1) of the Securities and Futures Ordinance “SFO”. This report is intended for distribution only to “Professional Investors” as defined in Part I of Schedule 1 to SFO. Any investment or investment activity to which this document relates is only available to professional investor and will be engaged only with professional investors.” Nothing here is an offer or solicitation of these securities, products and services in any jurisdiction where their offer or sale is not qualified or exempt from registration. The report also does not constitute a personal recommendation or take into account the particular investment objectives, financial situations, or needs of any individual recipients. The Indian Analyst(s) who compile this report is/are not located in Hong Kong and is/are not licensed to carry on regulated activities in Hong Kong and does not / do not hold themselves out as being able to do so. Copyright 2009 Edelweiss Research (Edelweiss Securities Ltd). All rights reserved.

Aditya Narain

Head of Research

[email protected]