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Sixth straight quarter of 25%+ YoY EBITDA growth; Re-iterate BUY

3M India maintained strong growth momentum with eighth straight quarter of 11%+ revenue growth YoY and sixth straight quarter of 25%+ EBITDA growth YoY. We believe the revival in industrials, infrastructure and automotive sectors augurs well for most segments of 3M India. Increase in localisation of mobile manufacturing is also expected to create additional growth opportunities for 3M India. While Consumer and Healthcare segments have reported muted growth, we model recovery in both the segments in H2FY24. Correction in commodity prices provide margin tailwinds in rest of FY24. We maintain BUY rating on 3M India with DCF-based revised target price of INR 32,650 (52x FY25E; Earlier TP: INR 29,150).

Q1FY24 results

3M India reported revenue, EBITDA and PAT growth of 11.2%, 48.5% and 53.4%, respectively YoY. Due to correction in commodity prices and change in revenue mix, gross margin expanded 258bps YoY. Operating leverage and cost-saving initiatives led to EBITDA margin expansion of 414bps YoY.

Segment-wise performance

Segment-wise revenue growth rates were: Healthcare: 27.3%, Consumer: 3.9%, Safety & Industrial: 5.7% and Transportation and Electronics: 12.7% YoY. EBIT margin of Healthcare and Consumer contracted but EBIT margin of Safety & Industrial and Transportation & Electronics expanded YoY.

Transportation and Electronics to drive growth ahead

With revival in automotive production, we model the demand for abrasives to remain higher. We also believe increase in production of mobile and rising localisation augurs well for growth of Transportation and Electronics segment. However, we model steady revival in Consumer and Healthcare segments.

Valuation and risks

We model 3M India to report revenue and PAT CAGR of 14.5% and 16.4%, respectively over FY23-25 with improving RoCE. We value the stock at DCF based revised target price of INR 32,650 (implied P/E of 52x FY25E). Key risks are steep increase in competitive pressure and commodity inflation.

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