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Federal Bank

* Federal bank is one of India's largest old generation private sector banks. At the end of Q2 FY2023 the bank had advances of Rs. 1.61 lakh cr. And deposits of Rs 1.89 lakh cr. The bank predominantly has a secured lending book which helped limit asset quality issues during the Covid 19 pandemic.

* Federal Bank has posted a good set of numbers for Q2FY23 as NII, and Advances increased by 19.1%/19.9% YoY. Provisioning for the quarter was up by mere 9% YoY because of which PAT was up by 53% YoY. GNPA and NNPA ratio improved to 2.46% and 0.78% while restructuring remained stable sequentially at 2.4% of advances.

* Overall asset quality for the quarter improved in Q2FY23, which was in line with our expectations. We expect asset quality to improve further in FY2023 given normalization of the economy. We expect the Federal bank to post NII/PPOP/PAT CAGR of 11.3%/17.2%/26.9% between FY2022- 24 and remain positive on the bank

 

HDFC Bank

* HDFC bank is India's largest private sector bank with a loan book of ? 14.79 lakh crore in Q2FY2023 and deposit base of ? 16.73 lakh crore. The Bank has a very well spread-out book with wholesale constituting ~61% of the asset book while retail accounted for the remaining 39% of the loan book

* Q2FY2023 numbers were in line with expectations due to change in portfolio mix towards corporate which resulted in expansion in NIM by 10bps YoY to 4.1%. The bank posted NII/PPOP growth of 18.9%/10% for the quarter on the back of loan growth of 23.4% YoY.

* While operating numbers were in line with expectations, the bank posted an improvement in asset quality as GNPA/ NNPA reduced by 12/7bps YoY to 1.23% and 0.33% of advances. Credit cost at the end of the quarter stood at 0.87% of advances. Given best in class asset quality, expected rebound in retail credit growth we are positive on the bank given reasonable valuations at 2.4xFY24, adjusted book which is at a discount to historical averages.

 

AU Small Finance Bank

* AU Small Finance Bank is one of the leading small finance banks with Total Loan AUM of ~50,161 Cr. at the end of Q1FY2023. It has a well-diversified geographical presence across India. AU has a very high exposure to high margin retail business, which accounted for 80% of AUM at the end of Q1FY2023.

* AU continued to report very strong numbers in Q1FY2023 as GNPA/ NNPA reduced by 243/170bps YoY to 1.96% and 0.56% of advances. Restructured advances at the end of the quarter also declined to 2.1% of advances. The bank posted NII growth of 34.8% for the quarter on the back of strong advances growth of 43.3% YoY while NIMs for the quarter stood at 5.9%.

* We expect AU SFB to post robust NII/PPOP/ PAT CAGR of 31.2%/31.9%/38.8% between FY2022-24 on the back of AUM CAGR of 32%. Reducing cost of funds will also help NIM expansion going forward. We believe that the worst is over for the bank and expect continued improvement in asset quality in FY2023, which should lead to a rerating.

 

Sona BLW Precision Forgings 

* Sona BLW, one of India's leading automotive technology companies, derives ~50% of its revenues from Battery Electric Vehicles (BEV) and Hybrid Vehicles and stands to benefit from the global electrification trend.

* Sona BLW has a strong positioning in the Indian Differential Gears market across PV, CV, and tractor OEMs and it continues to gain market share globally aided by its combined motor and driveline capabilities. Focus on R&D is yielding results in new product development which is likely to aid further growth.

* Sona BLW continues to add new customers and win new orders and its order book stands at `20,600 Cr which along with its strong financial profile and expected ~43% earnings CAGR over FY22-24E justifies the premium multiples of ~41x FY24E EPS.

 

Ramakrishna forgings

* Ramkrishna Forgings (RKFL), a leading forging player in India and among a select few having heavy press, stands to benefit from a favorable demand outlook for the Medium & Heavy Commercial Vehicle (M&HCV) industry in domestic and other key geographies in the near term.

* The company has phased out its CAPEX over the past few years during which it was impacted by industry slowdown in certain periods. With the end to the CAPEX cycle, the favorable outlook in the medium term, and sufficient capacity in place, we believe RKFL would be able to post a volume CAGR of 14% over FY22-24E.

* RKFL has been able to add new products which have higher value addition. Better mix along with operating leverage aided ~520 bps YoY improvement in EBITDA margins in FY22 and are expected to sustain going ahead.

 

Suprajit Engineering

* Suprajit Engineering (SEL) is the largest supplier of automotive cables to the domestic OEMs with a presence across both 2Ws and PVs. Over the years, SEL has evolved from a single product/client company in India to have a diversified exposure which coupled with its proposition of low-cost player has enabled it to gain market share and more business from existing customers.

* SEL overall has outperformed the Indian Auto industry in recent years aided by market share gains as well as commercialization of new products. The company believes that consolidation of vendors and new client additions would help in maintaining the trend of market/wallet share gains.

* SEL has grown profitably over the years and as a result, it boasts a strong balance sheet (net cash). We believe SEL is a prime beneficiary of a ramp-up in production by OEMs and its newly developed products for EVs would support revenues due to higher kit value. Its premium valuations are justified in our opinion owing to its strong outlook and top-grade quality of earnings.

 

P I Industries

* PI Industries is a leading player in providing Custom synthesis and manufacturing solutions (CSM) to global agrochemical players. The CSM business accounted for over 70% of the company's revenues in FY22 and is expected to be the key growth driver for the company in future.

* The company has been increasing it's share of high margin CSM business driven by strong relationship with global agrochemical players. PI is leveraging its chemistry skill sets and is looking to diversify its CSM portfolio to electronic chemicals, Pharma API, fluoro chemicals, etc. which will help drive business.

* We expect PI Industries to post revenue/PAT CAGR of 17%/24% between FY22-FY24 driven by 20% growth in the CSM business over the next 2-3 years. Moreover, foray into new segments like electronic chemicals and APIs will also help drive growth over next 3-4 years for the company.

 

Jubilant Ingrevia

* Jubilant Ingrevia was formed by spinning off the chemical and life science ingredients of Jubilant Life Sciences Ltd. The company has a vast array of products across its three divisions and is one of the top two producers of Pyridine - Beta and vitamin B3 globally.

* The company derives 56% of its revenues from the life science chemicals division while the specialty chemicals and nutrition & health solution business account for 28% and 15% of revenues respectively.

* At current levels the stock is trading at P/E multiple of ~10.6xFY24 EPS which is at a significant discount to other chemical companies. Therefore, we believe that there is value in the stock at current levels and hence rate it a BUY.

 

HCL Technologies

* HCL Tech (HCLT) is amongst the top four IT services companies based out of India and provides a vast gamut of services like ADM, Enterprise solutions, Infrastructure management services, etc.

* IT services grew by 5.3% QoQ CC in Q2FY23 whereas Products de-grew by 7.8% QoQ CC. New deal TCV at USD 2.38bn was up by 6% YoY and included many large deals. Strong deal wins will help drive growth in the services business, which should make up for the continued softness in the product business.

* At CMP, the stock is relatively trading at a discount to the other large-cap IT companies like Infosys and TCS and offers tremendous value at current levels given market leader status in Infrastructure management.

 

Stove Kraft

* Stove Kraft Ltd (SKL) is engaged in the business of manufacturing & selling Kitchen & Home appliances products like pressure cookers, LPG stoves, nonstick cookware etc. under the brand name of 'Pigeon' and 'Gilma'.

* In the Pressure Cookers and Cookware segment, over the last two years, the company has outperformed Industry and its peers. Post Covid, organized players are gaining market share from unorganized players which would benefit the player like SKL.

* Going forward, we expect SKL to report healthy top-line & bottom-line growth on the back of new product launches, strong brand name and wide distribution network.

 

Sobha

* Company operates in Residential & Commercial real-estate along with Contractual business. Companies 64% of residential pre-sales come from the Bangalore market, which is one of the IT hubs in India, we expect new hiring by the IT industry will increase residential demand in the South India market.

* Ready to move inventory and under construction inventory levels have moved down to its lowest levels. Customers are now having preference towards the branded players like Sobha Developers.

* Company expected new projects/phase spread over 13.58mn sqft across 10 cities. Majority of launches will be coming from existing land banks. Company having land bank of ~200mn Sqft of salable area.

 

Amber Enterprises

* Amber Enterprises India Ltd. (Amber) is the market leader in the room air conditioners (RAC) outsourced manufacturing space in India. Amber would outperform the industry due to its dominant position in Room AC contract manufacturer, increase in share of business in existing customers and new client additions.

* Amber plans to increase revenues from components (by increasing product offerings, catering to newer geographies, adding new clients) and exports (already started in the Middle east). In the past 2-3 year, Amber has acquired companies like IL JIN Electronics, Ever and Sidwal Refrigeration Industries, which would help in backward integration and also help the company to foray in different segments like railway, metro and defense.

* Going forward, we expect healthy profitability on back of foray into the Commercial AC segment, entry into export markets, participation in the PLI scheme.

 

Oberoi Realty

* Oberoi Realty is a real-estate company, focusing on the MMR region. Company has business vertices of residential and commercial real-estate.

* Company’s Borivali mall and Commerz III offices are set to reach an advanced stage of completion in FY23E and we expect the company’s rental income to rise significantly as these projects rentals commence from FY24E.

* We have seen good consolidation across India towards top-10 players. The volume upcycle is underway in top 7 cities and pricing upcycle will start soon. These tailwinds along with strong balance sheet are to benefit the company going forward.

 

Devyani International

* Devyani International Ltd. (DIL) is Yum! Brands’ largest franchisee in India, with more than 1,008 stores including KFC, Pizza Hut and Costa Coffee. Currently, DIL operates 391 KFC stores, 436 Pizza Hut stores, 69 Costa Coffee stores in India and balance stores from other brands and from international locations.

* QSR industry is expected to grow ~23% CAGR over FY20-25 which would benefit the player like DIL. Going ahead, We expect DIL would add 200 stores per annum (at least 3-4 year) which would drive strong revenue growth.

* Lower capex (shifted its strategy to smaller & delivery-focused stores) and improving store-level economics would boost the operating margin going ahead. Going forward, we expect DIL to report strong top-line growth & improvement in operating margins on the back of aggressive store addition, improving store unit economics and strong brand.

 

Marico

* Marico is one of the major FMCG companies present in hair oil, edible oil, foods & personal care segment. Major brands include Parachute, Saffola, Nihar, Hair & Care, Set Wet, Livon & Beardo.

* Marico’s products have strong brand recall coupled with an extensive distribution reach of more than 5mn outlets and direct reach of ~1 million outlets. Parachut flagship brand gained market share by 170 bps in FY22 & expected to perform better going ahead.

* In the medium term, the company aspires to grow revenue at 13-15% with 8- 10% volume growth. Marico has a strong balance sheet along with free cash flow and higher profitability. We expect Marico to report healthy bottom-line CAGR of ~11% over FY2022-24E due to better volume growth on the back of strong brand, wide distribution network.

 

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