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Axis Bank CMP: Rs. 934 Target: Rs.1130

Axis Bank is among India’s top-3 private banks with advances at Rs. 7.3 Lac Cr, strong liability franchise, large distribution network and an array of product offerings. With top management revamped in 2019 and organizational restructuring/changes happening over last 4 years, Axis is now in a good position to harvest the gains. We see the most recent quarterly results as an indication that the bank has reached an inflection point as the bank delivered on its long term ROE target of 18%.

Axis has consistently improved upon each of its parameters i.e. loan growth, fee income, NIMs, opex and credit cost which have together resulted in expansion in ROA from 0.6% in FY19 to 1.8% as on Q2FY23.

Axis has managed to get its asset quality in line with large pvt. peers however it still lags with respect to NIMs (4% vs 4.3% for HDFC/ICICI) and cost/income (46% vs 40% for HDFC/ICICI) and thus ROA (1.8% vs 2.0%)

Valuations at 1.8x FY24 P/B and 10.8x FY24 P/E are undemanding and provide scope for re-rating to close the gap with large pvt. peers trading at an avg. of 2.6x FY24 P/B.

We recommend to buy; valuing the standalone bank at 2.0x Sep 2024E BV at Rs. 1060 plus Rs. 70 as the value for its subsidiaries (MF, Broking, IB and Others) leading to a target of Rs. 1130.

Birla Corporation CMP: Rs. 978 Target: Rs.1295

BCORP (Birla Corporation Limited) is the flagship Company of the M.P. Birla. The company’s core business activity is cement manufacturing and having a presence in the jute goods industry as well. Its cement division has 11 plants at eight locations with an installed capacity of 20 MTPA.

Capacity expansion to be the key driver: BCORP is aiming to be reach 30 MTPA by 2030. The company completed its major capacity expansion of 3.9 MTPA greenfield unit at Mukutban in Apr’22 which is expected to significantly aid in company’s sales volume and profitability . It further plans to increase the capacity of its Kundanganj Unit in UP to 3 MTPA from the existing 2 MTPA and is also setting up a 1.2 MTPA capacity at Gaya.

Measures being taken to mitigate rising input costs: BCORP has undertaken various measures to control its input costs. Company has increased extraction of coal from its captive mines.; Increased its usage of AFR (alternative fuel and raw materials) from 4% to 12%; increased the share of WHRS and solar energy from 22% to 23%.

Favorable regional presence: BCORP operates in lucrative Central and Northern regions with some presence in the Eastern region as well. Both Central and Northern region will witness relatively lower pricing volatility given its favorable demand supply dynamics. With assembly elections in UP, we expect good demand from the state which is a key market for BCORP.

Valuation: The stock is trading at attractive valuation of 6.9x FY24 EV/EBITDA. We value BCORP at 7.5x FY24 EV/EBITDA with a target price of Rs. 1295.

Elecon Engineering CMP: Rs. 365 Target: Rs. 514

Elecon is a manufacturer of industrial gears (~90% mix) & material handling equipment (MHE) (~10% mix). It is a play on industrial capex across various sectors, especially in cement, steel, power, sugar and other sectors.

Elecon is the leader in industrial gears with a market share of 35% in India.

Strong industrial capex is likely to drive higher utilisation in the industrial gear segment. We envisage particularly solid demand from steel and cement sectors (around 30% of Elecon’s sales) based on announcements made by major players.

After a decade of juggling issues related to liquidity and legacy EPC projects, the MHE segment is finally turning around after the company revised its strategy. Unlike before, it no longer participates in EPC projects for MHE. All new orders are either product-based or aligned towards after-market sales.

Elecon offers strong growth visibility with improving balance sheet. We expect a CAGR of 22%/41% in revenue/profits, respectively, over FY22–24E, driven by robust demand, operating leverage and low interest expense. This will be accompanied by ROCE improvement from 17% in FY22 to 29% by FY24E. We assign a TP of Rs. 514/share, valuing the company at 18x Sep 2024E (in line with other midcap Cap Goods cos).

Sanghvi Movers CMP: Rs. 316 Target: Rs. 483

SML (Sanghvi Movers Ltd.) is the largest crane rental company in India and Asia; and the fifth-largest in the world. At present, the company has a fleet of 389 medium to large sized heavy duty telescopic and crawler cranes ranging from 20 to 1000 MT. Out of 389, 247 cranes are of over 100MT capacity. SML also has a fleet of more than 95 High Bed Trailers and 64 multi-axle lines which are being used for the movement of its crane and crane parts from one location to another.

Company’s fleet is primarily catered for the construction of various industrial plants like Power, Steel, Cement, Fertilizers, Petrochemicals & Refineries, Metros and Windmill sector; with Windmill sector contributing around 40% of the revenue.

Revival of Wind Farm Capex: Wind farm sector has been struggling since FY18 when the government brought in competitive bidding process for wind farm power rate. Capacity addition dropped from 5 GW in FY17 to 1 GW in FY22. Now with the removal of the tariff ceiling as announced by MNRE, the recent SECI auction in May 22 drive good demand and witnessed tariff of Rs.2.92. According to Crisil, capacity addition is expected to double in FY23 and to be around 15 GW between FY24-27

Utilization reaching optimal level; room for yield to improve: In FY18, capacity utilization went down to 41%, but has now gradually bounced back to 82% in H1FY23. Yield too has improved from 1.3% in Q1FY21 (during covid) to 1.85% in H1FY23. Management has indicated that the yield can move up to 2.10-2.15% in FY24.

Valuation: The share is trading at EV/EBITDA of 4.6x and PE of 10.2x FY24E. Considering the industry tailwind, revival of capex cycle, high earning growth visibility, strong balance sheet and strong cash flow generation we see stock is undervalued and should command higher valuation. We value the share at 16x PE and arrive at target price of Rs. 483.

Ujjivan Small Finance Bank CMP: Rs. 29 Target: Rs.40

Ujjivan has transitioned from a NBFC (Ujjivan Financial Services) to a Small Finance Bank in Feb 2017, with 69% of AUM constituting MFI loans, 15% from Affordable Housing, 9% from MSME, 4% from NBFCs and 3% from other retail products (SME, Vehicle, Personal). Ujjivan intends to increase the share of secured portfolio from 31% today to 50% in long term

Strong accretion in deposit franchise (92% of total borrowings from nil in FY17) with 61% retail mix & 27% CASA ratio; long runway for growth with incremental focus on secured products viz. affordable housing, SME, vehicle, personal loans and experienced leadership team infuses confidence.

Ujjivan underwent turbulent times over FY21 & 22 led by covid impacting its MFI book. Ujjivan has upfronted most of the asset quality pain and residual stress (Standard Restructured book) is at just 0.8% with NNPA back to pre-covid levels (at 0%) which is better than the best in class MFI player i.e. CreditAccess Gramen. Thus we expect credit cost to decline from 7.4% in FY22 to 1.5% over in FY24-25

Decline in credit costs will aid RoE expansion to ~18-20% levels on steady state basis and thus we expect the stock to re-rate to atleast 1.5x Sep 2024 BVPS and arrive at a TP of Rs. 40/share.

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