IGI Logo

PRINCE PIPES

* Healthy Industry growth: Plastic pipe industry is largely driven by irrigation (50% demand) followed by Plumbing &WSS (35%) demand. On the back of GoI’s initiatives like (i) Jal Jeevan Mission which is likely to witness sharp increase in budgetary spends, (ii) Higher spends for urban development, (iii) Swachh Bharat mission (Capital outlay of 1.2Lakh Cr over 2021-2026) coupled with higher agri spends should enable the Plastic Pipe industry to grow by 13% over FY20-FY24E

* Prince Pipes & Fittings (PP&F) is one of the leading plastic pipes manufacturers in India. PP&F possesses 6% market share of an overall industry. The company offers wide range of products used in plumbing solutions, sewage & underground drainage works, irrigation solutions and storage solutions. With 7-strategically located plants across India, PP&F has a total 259,000TPA installed capacity. Hence, we believe, PP&F to be one of the key beneficiaries of expected industry growth.

* PP&F to outperform Industry growth: We reckon, with company’s strong brand image & strategic tie-ups company is likely to expand their market-share. Moreover, industry is witnessing a meaningful transition from unorganized to organized segment which will further enable the company to outperform industry growth by registering 15% CAGR in volumes over FY21-FY24E

* Better Product portfolio: PP&F has built their product portfolio towards margin lucrative products. With their tie-up with Lubrizol (world’s largest CPVC compound manufacturer), company is well poised to increase their CPVC revenue in coming years. Owing to which company is likely to report 15%/15.5% EBITDA margins in FY23E/FY24E respectively.

* Strong Balance sheet: PP&F has strengthened their balance sheet by reducing total debt from Rs2.75Bn in FY16 to Rs0.8Bn in FY21. As on date, company is long term debt free, and we believe total debt to further reduce to Rs0.35Bn in FY24E. Therefore, NetDebt/Equity is also expected to improve from -0.1x in FY21 to -0.3x in FY24E. With no major capex in coming years, we reckon PP&F to generate healthy FCFF of Rs 3.8Bn in FY24E

* Valuations: On account of reasons stated above, we believe company is set to witness strong traction in coming years. Hence, we expect PP&F to report Revenue/EBITDA/PAT growth of 12%/8%/11% over FY21-FY24E. Prince Pipes is trading at 26x on FY24E EPS of Rs27.

Buy Prince Pipes Ltd : CMP Rs.704 TGT Rs 1,091 Potential Return 55%

 

GREENPANEL INDUSTRIES

* Wood panel is witnessing massive shift in demand from Plywood to MDFs owing to higher demand for readymade furniture. Indian wood panel is valued at Rs20,000 Cr of which 80% is constituted by Plywood and rest 20% is constituted by MDF, particle boards. Globally the ratio is inverse wherein 80% of wood panels are MDFs. In India, MDFs is rapidly displacing the low-end and Low-mid end plywoods (~Rs12,000Cr).

* Greenpanel is the largest player in MDF industry with 35% market share and with industry set to grow by 25% CAGR over coming 5- years, Company is expected to witness robust demand.

* Currently Greenpanel has total capacity of 5.4L CBM/annum capacity and in order to cater the growing demand, company is expanding their capacities by 1.2Lcbm/annum. Over FY21-FY24E we expect volume growth of 18% CAGR.

* Exports which is ~20% of company’s sales is also witnessing robust demand coupled with higher realizations. This should further boost company’s growth.

* Greenpanel is strengthening their balance sheet by reducing their total debt from Rs4.41Bn in FY21 to Rs1.41Bn in FY24E resulting into Net debt/Equity to come in at -0.2x in FY24E from 0.5x in FY21. Greenpanel Industries is currently trading at 13x on FY24E EPS of Rs18.5.

Buy Greenpanel Industries Ltd : CMP Rs.319 TGT Rs. 470 Potential Return 47%

 

APOLLO PIPES

* Industry tailwinds: Large investments likely to flow in irrigation segment (50% pipe demand) coupled with healthy capital outlay in Water supply system (WSS) segment (35% pipe demand) over FY20- FY24E which should enable plastic pipe industry to register 13% CAGR over similar period. Revival in real-estate industry will provide additional boost

* Formalization of Industry: Plastic pipe industry is witnessing material shift in demand from unorganized (35%) to organized segment (65%). This should result into outperformance by organized players in coming years. Apollo Pipes is expected to gain market share from regional unorganized players.

* Expanding regional presence: Apollo Pipes has been predominantly present in north-India where it commands a robust market share. With new capacities in place, company is set to expand its regional presence in West, South, East & central India. This will lead to strong volume growth of 31% over FY21-FY24E.

* Gross profit margins to expand by 150bps over FY21-FY24E as input cost are expected to tapper-off & utilizations are set to improve. EBITDA margins are likely to remain range-bound at 12.5%/13%/13.5% in FY22E/FY23E/F24E respectively as company’s advertisement spends are expected to increase

* Balance sheet to strengthen further: Apollo Pipes have strengthened their balance by reducing total debt from Rs1,552 Mn in FY18 to Rs522 Mn in FY21. With no major capex, company is expected to generate free cash flow. Hence, we reckon total debt to decline to Rs372Mn by FY24E. Therefore, net debt/EBITDA should come in at - 1.1x in FY24E

* Lucrative Valuations: Apollo Pipes is currently trading at P/E(x) of 25x on FY24E EPS as compared to industry average of 34x. We believe, as Apollo Pipes is on the cusp of becoming a leading pan-India player, it should fetch similar valuations compared to other pan-India players. Apollo Pipes is trading at 22x on FY24E EPS of Rs76.5.

Buy Apollo Pipes Ltd : CMP Rs.1,668 TGT Rs. 2,250 Potential Return 35%

 

ACRYSIL

* Worldwide demand for Quartz Sinks is witnessing strong traction. Globally, only 7% kitchen sinks are Quartz sinks. In FY15, USA, UK and Europe Quartz sink share of total kitchen sink market was 20%,10%,20% respectively, which expanded to 30%/15%/25% respectively in FY21. Going ahead, Quartz sinks would likely form 15% of total industry globally.

* Acrysil is one of only four global players and the only Asian manufacturer of Quartz sinks with German technology - the sole approved technology by global Quartz sink vendors. Acrysil Ltd is likely to become one of the biggest beneficiaries of the robust global demand for Quartz sinks.

* Company is expanding Quartz sinks capacity from 600,000 units in FY21 to 1,000,000 units by FY23E to meet the growing demand. We believe, with growing preference for Quartz sinks, company will reach peak utilization levels by FY24E. Acrysil is also doubling stainless-steel sinks capacities over similar period which should further boost growth.

* Acrysil has tie-ups with global marquee clients. In 2014, it acquired UK based Homestyle Products Ltd while in 2019, it tied up with leading German brand “GROHE”. In 2021, it commenced supplies to IKEA. The company also has a strategic tie-up with many other global marquee clients

* Quartz Sinks revenues constituting 75% of company’s top-line are expected to grow by 30% CAGR over FY21-FY24E. Volumes & realizations of Quartz sinks should grow by 27% & 2% respectively. Stainless-steel sinks (14% of revenue) & appliances (11% of revenue) are likely to increase by 31% and 39% respectively over the same span.

* In the light of all the favorable factors, overall Acrysil Ltd’s Revenues/EBITDA/PAT are expected to achieve impressive growth of 28%/28%/32% CAGR respectively over the span FY21-FY24E. Acrysil Ltd is currently trading at 21.5x on FY24E EPS of Rs34.

Buy Acrysil Ltd : CMP Rs.700 TGT Rs. 995 Potential Return 42%

 

DALMIA BHARAT

* Largest Player in the Eastern market: DALMIABHARA (PAN India 4th largest player) holds ~6% of the PAN India capacity share with the total cement capacity of 33MTPA. While its ~63% (as of Sep’21) of cement capacity is mounted in the east that makes him the largest player of the east market holding ~16% capacity share of the east.

* Substantial Capacity addition under pipeline: DALMIABHARA capacity grew at 13% CAGR v/s industry capacity grew at 7% CAGR over FY11-21. Further, it had continued its expansion phase with the 11.5MTPA under pipeline and reached ~50MTPA by FY24E. In the Long-run company had kept an aim to be a 110-130MTPA cement company by FY30E.

* East the Highly attractive market: In terms of Demand, the East India Market stood Highly Attractive among the other region. 1) Shortage of housing - ~56% of PMAY houses constructed till now are in the East (only 54% had achieved yet). 2) 21 out of 110 cities selected under Smart City Mission are in the East 3) large pipeline of govt Infrastructure projects in the east. These factors would lead the robust demand and lead the east highly attractive market.

* Company to witness Robust Volume Growth: COVID-led-demand destruction had dented the industry volume by ~12% y/y in FY21, despite that DALMIABHARA volume had increased by 7% y/y due to the incremental capacity and eastern market robust demand. Thus, we believe DALMIABHARA volume is likely to grow substantially by ~10/16% y/y in FY22/23E.

* Price hikes would continue to offset the inflating cost: Fuel/Diesel cost had jumped 3x from the low in FY21 and to offset this inflating cost cement industry had taken potential price hikes and a higher share of Blended cement. Thus, backed by healthy realization Dalmia is likely to maintain its healthy EBITDA/te level of +Rs1300/te in FY22/23E.

* Strong Balance Sheet to support Future CAPEX: Supported by the strong profitability, we expect Dalmia to generate a robust free cash flow of Rs30bn post-CAPEX of Rs23bn over FY22/23E and aid to fund its future CAPEX without pressurizing its balance sheet. Net Debt/EBITDA stood at 0.04x in FY21. Currently, it trades at 12/10x of EV/EBITDA on FY22/23.

Buy Dalmia Bharat Ltd : CMP Rs.1,886 TGT Rs. 2,640 Potential Return 40%

 

INDIAMART

* Dominant market share in B2B classified business with around 70% market share in paid listings. Performance is led by higher value proposition for sellers leading to higher pricing power, efficient matching algorithm resulting in higher buyer satisfaction; and the network effect attracting more buyers and sellers to the platform. The strength of business model is visible in the 16% CAGR growth in paying subscribers over FY16-21 and 36% CAGR growth in the number of registered buyers.

* Strong promoter track record (currently hold around 50% stake) which is visible in superior execution as IndiaMart has clocked 22% CAGR revenue growth over last 5 years. EBIT margin has grown from -19% in FY17 to 23% in FY20 and doubled to 47% in FY21 on the back of positive leverage and conscious reduction in advertisement expense. It has proactively invested in technological innovation to sustain traffic growth.

* High quality business as it is completely powered by organic traffic with little advertisement expense, driven by high value proposition to sellers. Buyers benefit from diversified product listing (72mn product listings across 97k categories); whereas, sellers find high quality traffic (~30% growth in traffic over last 5 years) on the platform. Being B2B business, it is less subject to disruption compared to B2C online classified segment which face high competition from Google/Facebook

* Huge opportunity to grow as only 2% of addressable MSMEs pay for priority listing services in India compared to 4% in China. Also 55% of MSMEs have some sort of digital presence compared to 90% in China. The pickup in digitalization going ahead is set to expand the presence of MSMEs using internet for B2B transactions. Online B2B classified expected to grow at around 20% pa. going ahead led by growth in the number of paying suppliers.

* It is net debt free company with net cash of Rs 23bn that offers optionality value and would help it to invest in its platform to fight off any threat from competitors. It benefits from minimal capex requirement (~1% of sales) leading to strong FCF generation. The subscription- based business model requires upfront payment for suppliers leads to negative working capital situation. Diversified revenue base across industries and geographies helps to lower business risk

* Strong revenue growth outlook along with growing margin trajectory led by positive operating leverage makes it an attractive play in online classified space. The stock trades at PER of 52.3x on FY23E earnings. Revenue/ EBITDA / PAT are expected to grow at CAGR of 23.3%/20.4%/23.0% over FY22- FY24E

Buy IndiaMART Ltd : CMP Rs.7,324 TGT Rs. 10,200 Potential Return 39%

 

PNC INFRA

* Healthy Order book of ~3.5x of FY21 revenues provides revenue visibility. Entry into water segment to help diversify.

* Strong execution and operational capabilities supported by largely owned construction equipment.

* Robust tendering from NHAI to boost the awarding activities in near term driven by HAM and EPC projects.

* Strong Balance sheet, improvement in Net Working Capital Days and double-digit margin profile to support.

* Entry into water segment could significantly help build on Order book. Water sector is key focus area for Government.

* Sharp pickup in project awarding activities from NHAI. Improved execution with better labor availability and almost projects moving as per schedule.

* Recent order inflows, continued focus on asset monetization and comfortable balance sheet provide comfort. Trades at attractive P/E of 15x FY23.

Buy PNC INFRA Ltd : CMP Rs.331 TGT Rs.460 Potential Return 39%

 

POLYCABS

* Polycab is has leadership position in the wires and cables segment where it holds 21% market share. It is expected to enhance its leadership by further portfolio widening and in-house manufacturing capabilities.

* Key growth drivers include expansion into Tier 2 and below markets, higher exports and entry into specialty cables. FMEG continues to deliver for the company with Polycab being one of the fastest companies to reach Rs10bn revenue.

* Polycab is aggressively leveraging its strong distribution network of 4000 plus dealers and 1.75 lac retailers to drive higher than industry growth. There has been a significant increase in A&P spends from 0.4% in FY14 to 1.4% in FY20 with the company now advertising aggressively in high profile events. Polycab has taken up multiple strategic initiatives to strengthen its relationship with both customers and other stakeholders especially influencers like electricians.

* The WC cycle has improved by 17 days from FY16-20 and the company has appointed external consultants to work on further improving the same, which is expected to improve return ratios and cash flow generation over the medium term.

* Polycab has undertaken a journey of transforming itself into a strong B2C player and we expect the trend to continue with increase in its distribution presence; it is working on a five-year vision Project Leap where it plans to double its revenue to Rs200bn by FY26E.

* Stock is trading at only 19x EV/EBIDTA on FY24, which is at significant discount to electricals peers. Company expected to deliver FY21-24E revenue/EBITDA CAGR of 14%/12% respectively.

Buy Polycab India Ltd : CMP Rs.2,338 TGT Rs.3,300 Potential Return 41%

 

ICICI BANK

* Non-lending businesses contribute 19-21% to the overall value of SBI, ICICI and KMB, specifically, 20% for ICICI, whereas, for other banks in our 11-bank coverage universe, at 0-5%, such businesses do not move the needle in terms of augmenting overall shareholder value.

* Our derived business mix risk scores (from an asset quality standpoint) are the lowest for SBI, AXSB, ICICI, BOB and FED whose scores range between 0.73-0.85, with ICICI at 0.84. Scores for HDFCB, KMB, DCB, IIB, CUB and RBL are higher and range between 0.93-1.30.

* We factor in (i) contingent Covid provisions (ii) other excess provisions (iii) provisions on restructured book and (iv) specific provisions and note that these provide the highest coverage for NPA plus restructuring estimate for ICICI at 89% of said combined stressed book.

* Over the 3-year period FY18-21, the decline in share of low-yield loans has been the highest for RBL, IIB, ICICI, AXSB and FED, ranging between 5.6-19.6% of loan book, with ICICI at 7.2%.

* In ICICI, we see an ability to increase, prospectively, the share of higher-yielding loans in a risk calibrated manner. ICICI currently trades at an implied valuation of 2.2x standalone FY23 P/BV.

Buy ICICI Bank Ltd : CMP Rs.842 TGT Rs.1,112 Potential Return 32%

 

GLAND PHARMA

* Gland can comfortably clock earnings CAGR of 24-25% over next 4-5 years without any dilution to ROCE, a unique proposition given that source of such stellar growth will be US in contrast to other large generic pharma companies who struggle or deliver lumpy growth

* Gland’s strength lies in generic injectables manufacturing with a long track record. Less commoditized due to 1.3-1.5x more capital required than oral solids and stringent FDA monitoring for any contamination. These entry barriers are a reason for, on average, ~50% shortages in injectables in US.

* Gland’s margin at a slight premium to other international peers – shows inherently robust profitability of B2B business model. We believe factors like strong track record in uninterrupted supplies, ability to supply at scale due to non-exclusive supply contracts, alleviating need for capital investment and transfer of compliance risk are key arguments that will propel increased outsourcing in favour of Gland.

* Long runway for growth – US generic injectables market would exhibit 16% growth to US$96bn in 2025 – Gland can comfortably sport 20- 25% revenue growth as market itself expanding in mid-teens.

* Foray in to complex injectables like peptides, hormones and newer dosage forms like pens, cartridges to support growth beyond next 2-3 years. Longer term ambition in biosimilar is a pivot in right direction.

* Expect an impressive revenue and PAT growth of 24% and 25% respectively over FY20-23 with ROE/ROCE much ahead of those for Indian generic companies. While no listed peer in India, globally closest overlap is with Recipharm and Catalent. Recipharm and Catalent trade at lower multiple and reckon Gland with a much better ROE (avg. 23% vs. mid-teens for Catalent) and margin should trade at a premium. Trades at an EV/EBITDA of 22x FY24 earnings.

Buy Gland Pharma Ltd : CMP Rs.3,726 TGT Rs.4,925 Potential Return 32%

 

SBI CARDS

* SBI Cards, a subsidiary of SBI, is the second-largest credit card issuer in India with around 19% market share both in terms of number of credit cards outstanding and spends. It offers an extensive credit card portfolio to individual cardholders and corporate clients covering all major spend categories and cardholder segments in terms of income profiles and lifestyles.

* The company has a diversified customer acquisition network which includes a large number of outsourced sales personnel present in 145+ cities, tele-sales, online channels, email & SMS marketing, mobile applications, co-branding partnerships (nonbanks and banks) and the partnership with SBI which provides access to its vast branch network and customer base. SBI Cards has been a leading player in open market customer acquisition in India.

* SBI Cards has been improving its market share over the years by growing much faster than the industry both in terms of numbers of cards and amounts of spends. Its cards portfolio has certain unique characteristics such as higher contribution from a) millennials/younger customers, b) Government/PSU employees and c) customers located outside Tier-1 markets. Even during FY19-21 (a period impacted by Covid), the company grew its cards base by 42% and annual spends by 18%. The management does not foresee any significant impact of the restrictions of new issuance on MasterCard network.

* New card issuances, spends and receivables and profits should start recovering from Q2 FY22 after being impacted in the preceding quarters due to pandemic waves. Both liquidity and capital are not constraints for reverting to the pre-Covid growth trends. The company has substantial unutilized bank lines and a strong capital adequacy of 26%. It holds significant provisions against Gross NPLs and >30 dpd restructured pool. RoA/RoE should likely revert to the pre-Covid corridor of 6-7%/30-35% from H2 FY22.

* The large scale of operations, strong brand, deep expertise/focus, robust risk management (incl. collections), access to SBI’s customers/platforms (YONO) are structural business moats, which along with increasing adoption of digital payments and credit cards in India represents long-term growth opportunity for SBI cards. Notably, it is the only listed pure-play credit card issuer; thus, would continue to command a much higher valuation than most Banks and NBFCs. At the current market price, stock discounts its FY22E ABV of Rs77 by 14.7x.

Buy SBI Card Ltd : CMP Rs.1,130 TGT Rs.1,625 Potential Return 44%

 

CRISIL

* CRISIL is a rating services and analytics and risk solutions company with a global presence. Bulk of its revenues come from non-rating businesses provided to global financial institutions. The revenue share of India ratings business is around 18% and the share of rating support services to S&P Global at ~10%. Acquisition of Greenwich Associates in FY20 has further increased the share of non-rating income, completed offerings under benchmarking analytics services and added legs to overall growth.

* Expected revival in domestic rating business would support an already improving growth and margin trajectory of CRISIL. In this business, the company intends to hold market share gain reaped over the past three years along with premium pricing. Global Research & Risk Solutions (Irevna) has witnessed improved revenue traction in the past 12-18 months driven by robust growth in high-margin services like model risk, traded risk, non-financial risk, buy-side research, etc. Coalition & Greenwich combined represent a full suite of benchmarking analytics services for global banks and financial institutions. Growth synergies will emanate from common customer base and cross-sell/wallet share opportunities.

* The improvement in company-level operating margin seen during H1 CY21 will continue. CRISIL aspires to revert to its earlier 27-29% margin band in a few years. Margin levers will be a) stronger growth in better-margin services in research segment, b) revival in domestic rating income growth (most profitable business) and c) swift turnaround in Greenwich profitability which is expected to break-even in CY21 and has the potential to reach overall research segment margins in a couple of years.

* Our bullish stance on CRISIL is premised on a) dominant market share in India rating business pie, b) diversified revenue mix (less-cyclical), c) improving margins, and d) robust corporate governance and superior rating performance (better average default rates and stability rates). On a 12% revenue CAGR, we see 18% earnings CAGR during CY21- 24. Improved earnings trajectory and escalation of RoE will cause rerating of valuation. At the current market price, stock discounts its CY21E EPS of Rs57.5 by 50.2x.

Buy CRISIL Ltd : CMP Rs.2,887 TGT Rs.4,460 Potential Return 54%

 

To Read Complete Report & Disclaimer Click Here

 

Please refer disclaimer at https://yesinvest.in/privacy_policy_disclaimers
SEBI Registration number is INZ000185632

 

Above views are of the author and not of the website kindly read disclaimer