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Margin stability combined with steady growth

Result Synopsis

2Q saw healthy volume improvement MoM for Vijaya as footfalls continue to rebound translating in to 10% YoY growth on a Covid base. Importantly, margin at 40% does include some of the front loaded opex of large hubs opened in last 2 quarters. Pricing has not been affected by competition while volume growth appears to be less impacted compared to peers like DLPL.

Newly opened hubs at Panchgutta and Rajmundry would drive incremental growth over next 2 years with costs already baked in. Key to watch would be Vijaya’s ability to maintain ~38-40% underlying margin excluding the impact of front loading of costs for newly opened hubs and spokes. Despite disruption, Vijaya has clocked better realization over last few quarters while addition of a combination of 15 hubs and spokes would drive volume growth in next few quarters. In our estimates, we have bumped up volume growth in FY24 on a weak base in current fiscal while also adjust realization upwards in light of H1 FY23 performance. We lower FY23 EPS but keep FY24 largely unchanged and tweak target PE to ~40x (From 38x) to narrow the gap to Metropolis, given the better numbers delivery by Vijaya. Albeit, recent up move (since 1Q FY23 result and also from our initiation price) leads us to prune our BUY to an ADD with unchanged TP Rs500.

Result Highlights

? A marginal beat on revenues and EBIDTA in 2Q -revenues up 10% YoY while non Covid sales up 15% YoY

? Non Covid volumes up 18% QoQ driving a 16% QoQ revenue growth

? Healthy volumes coupled with operating leverage led to better than expected margin at 40.4% (+216bps QoQ) and translating in to 34% QoQ rise in PAT

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