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Automotive Axles - CMP: Rs. 2,027,Target: Rs. 2,358

* AAL (Automotive Axles Ltd) is the one of the largest independent manufacturer of axles and brakes in India (primarily for CVs; M&HCV). It is a JV between the Kalyani Group and Meritor Inc each holding 35.5%. Meritor Inc has been recently acquired by Cummins Inc. The company is net debt-free.

* AAL has long-term agreements with Tata Motors for brakes and Ashok Leyland for axles and brakes.

* CV industry saw peak sales of 476000 units in FY19 and since then it has declined to 197000 unit in FY21. We saw revival in FY22 with industry volume of 297000 and the same is likely to continue to increase @20% CAGR to 430000 unit by FY24 which will still be lower then FY19 peak volume and leaving enough head room for growth for the next 3-4 years.

* AAL is currently engaging with OEM’s in the construction equipment space and sees this as a healthy diversification strategy

* AAL would be benefitted by the global outreach of Cummins and its intent to offer complete powertrain assembly solutions to its customers in the electric CV domain.

* We expect the company’s profitability to improve over the next 2-3 years supported by the cost control measures it is undertaking, new product launches, and recovery in the CV demand. The return ratios are also expected to improve in light of an improvement in profitability. We expect AAL to grow its topline/PAT at 24%/55% CAGR over FY22-24E. We value the stock at 20xFY24E EPS to arrive at a target price (TP) of Rs 2358.

Birla Corporation - CMP: Rs. 906,Target: Rs.1,295

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.

Bharti Airtel - CMP: Rs. 769,Target: Rs.932

* Bharti Airtel (Airtel) is India’s second largest telecom operator with a subscriber market share of ~31.7%. Improved from 29.9% in July’ 21 , despite competition from Rjio

* It enjoys industry leading ARPU in the wireless business. Q1FY23 ARPU stood at Rs 183 vs Rs 178 in Q4FY22. Management guides to improve ARPU to Rs 200 via tariff hikes and with the up gradation of customer. Over a long term, ARPU is expected to further increase to Rs 300. Industry has witnessed last round of tarriff hike in Nov-21

* Bharti has good Operating FCF generation . Over FY20-22 sales grew by 15.4% , however , Ebitda grew by 25.1%. Higher Ebitda with similar capex has led to good free cash flow generation which improved by 66.2% over same period.

* Management indicates despite bringing forward 5G capex, there wont be much change in 3-year cumulative capex as Bharti’s 4G investments are fungible and can move to 5G. With 5G launch there would be upgradation of Device ecosystem to 5G, wherein, management sees huge opportunity going ahead

* Looking at Competitiveness of the company, Increasing ARPU leading to margin expansion at Attractive valuation of 6.9 x EV/EBITDA stock can be purchased

CMS Infosystem - CMP: Rs. 287, Target: Rs.351

* CMS is the largest cash management company in India and majorly serves 2 verticals. Cash management services (69% of rev)- which caters to Different Banks by helping them in managing cash for ATM & retail services. Managed services (28% of rev), which majorly includes end-to-end Brown Label ATM , Software solution , AI based remote monitoring etc

* Company has strong management with Proven track record wherein Mr Rajiv Kaul who is executive vice chairman & CEO. He has been associated with Company since July 1, 2009. Prior to turning around CMS, Rajiv was CEO of Microsoft India

* CMS is the market leader with 46% market share in ATM cash management, 36% in Retail cash management, 26% in Cashin-transit

* Company has done acquisition and enter into Adjacent service lines. Companies Long term Relation with clients, being a market leader helps in cross selling and expanding its new service line which has great potential and scaling it up

* Over FY21- 27, TAM for Cash Management in India is expected to grow at a +19.1% CAGR & managed services market is expected to grow at a CAGR of 16.5%. We feel rising growth in the industry will support the growth of the company

* FY22 revenue grew by 22% and came at RS 1589.6 cr and plans to reach to Rs 2,500 crore-2,700 crore revenue by FY25E. (ie. A CAGR growth of over 18%). Operating cash flows to EBITDa for FY22 stands at 64%, indicating lower working capital requirement by the company .The company is a debt free company and FCFF stands at Rs 130 cr..

CSB Bank - CMP: Rs. 245,Target: Rs.370

* CSB has been in existence since over 100 years, although its loan book is at a mere ~Rs. 1k Cr. CSB operates through 604 branches spread across 16 states and 4 UTs. CSB has presence in 3 major states and derives 29%/28%/24% of its advances from Kerala/T.N/Maharashtra respectively.

* Fairfax became the promoter in 2018 & has led the turnaround. CSB has strengthened its entire top management team by recruiting various business heads from leading Pvt banks (like Axis/ICICI/HDFC/Yes).

* Gold loans (~40% mix) have been growing at over 30% CAGR since FY17 and are likely to continue this trend. With the new management team having firmed up product-wise plans for each of the retail, SME and corporate segments, the non-gold book (60% mix) will gradually start to grow at 16% CAGR; thus we expect blended loan growth of 23% CAGR over FY22-25E.

* Backed by best in class NIMs (5.3% in FY22), improvement in asset quality (NNPA of 0.7% in FY22 v/s 4.5% in FY18), AUM growth of 23% CAGR over FY22-25E and ROA of over 1.3%, we recommend to Buy the stock for a target price of Rs 370 at 1.7x Sep 2024 BVPS (same as City Union Bank’s 10 year average multiple).

Devyani International - CMP: Rs.189,Target: Rs.235

* Devyani International Ltd. (DIL) is the largest franchisee of Yum Brand franchise and operate their iconic brands KFC and Pizza Hut in India as well as in Nigeria and Nepal. DIL is also franchisee for the Costa Coffee brand and stores in India.

* Industry growth - The quick service restaurant market in India was valued at about Rs.188 billion in financial year 2020. This was further estimated to grow to over Rs.500 billion by 2025 implying CAGR of over 20%.

* Store Expansion – DIL had 1008 store at the end of Q1FY23 and company is looking to expand 200-250 stores every year for next few years. Considering 3-5% same store sales growth and some inflation company can easily growth over 25% CAGR for few years

* Strong Sustainable Financials: Company net working capital requirement is almost Zero and the cash generated from operation is more than sufficient to meet store expansion need as such the Net Debt is almost Zero. Company is likely to report ROCE of over 20% consistently

* Valuations - Company is operating a self sustained business model in strong industry growth environment. The stock can be compounder with over 20% CAGR for next many years. Though the stock is reasonably priced at 24x FY24 EV/EBITDA but long sustainable growth make it attractive for compounding in long run.

HDFC Bank - CMP: Rs. 1,397, Target: Rs.1,767

* HDFC Bank is promoted by the biggest mortgage lender in the country, HDFC Ltd. The bank is the largest private sector lender in India with a loan book of Rs. 14.8 Lac Cr and a network of 6,378 branches.

* HDFC Bank has consistently grown its market share in loans and deposits across credit cycles and has emerged as the best-managed bank in India with robust profitability, growth and asset quality metrics.

* Focus on fee income growth, continuous investments in digital initiatives, and controlled credit costs backed by strong underwriting have enabled the bank to outperform its peers.

* Asset quality has deteriorated slightly due to the pandemic with restructured loans emerging at 0.9% (one of the lowest in the banking system). Also slippages in last four quarters have settled at an average of ~1.6%, below pre-covid range of 1.8-2.0%.

* Despite tough macro environment, the bank delivered best in class ROA/ROE of 1.9%/16.6% during FY21/22.

* The stock is trading at attractive valuations at 2.5x FY24E BV against historical average of 3.3x one year forward P/B. We recommend to buy with a target of Rs. 1767 valuing the bank at 3.0x its FY24E BV.

Karur Vysya Bank - CMP: Rs. 83, Target: Rs.117

* KVB’s loan book of Rs. 57k Cr is spread across corporate (23% mix), retail (23%), SME (31%) and agriculture/gold (23%). [25% of AUM is from Gold loans (part of Agri & Retail) having yields of 8.5-9.5%.

* 31% of AUM is from SME loans with Avg Ticket Size of Rs. 42 lacs & yields of 9-11% to segments like traders, textiles, chemicals, rubber, paper, spices and others. Being a well-established bank amongst the trading and small business community of TN, AP and Telangana, the bank has a sticky customer base.

* KVB’s concentrated focus on improving asset quality since the last 5 years has resulted in consistent decline in NNPA to 1.9% vs. 5.0% in FY19 & decline in slippages to 1-1.5% range from 3-4% during FY18-20.

* Credit cost has already been reduced to ~1% levels for 3 successive quarters against ~3% levels witnessed over FY18-20. This has resulted in RoA crossing the 1.0% level during Q1FY23. We expect further expansion in RoA to 1.17% by FY24E led by improvement across metrics viz. NIMs, cost/income and credit costs.

* For a bank with >1% RoA, we believe stock valuations at 0.7x FY24 are attractive. We value KVB at 1.0x FY24E BVPS, in line with Federal Bank as both have identical metrics.

Muthoot Capital Services - CMP: Rs. 251,Target: Rs.380

* Kerala based 2 wheeler financing NBFC with total AUM of Rs. 2088 Cr. South India forms ~67% of its AUM.

* Promoter i.e. Muthoot Pappachan group enjoys strong brand and credibility with operations spanning gold loans

* microfinance, housing finance and 2 wheeler finance with combined AUM > Rs. 25k Cr

* Presence in Tier 3/4 towns and rural centers. More than 50% of customers are new to credit.

* Access to group’s flagship co – Muthoot FinCorp’s ~3500 gold loan branches which sources 13% of AUM.

* Covid related stress along with new RBI norms for asset classification resulted in a spike in reported GNPA at 25.3% currently. Aggressive provisioning policy has resulted in PCR of 84% and thus NNPA is at 5.2%.

* Credit cost has already been reduced to 1.8% during Q1FY23 (in line with pre-covid levels). This has resulted in RoA bouncing back to pre-covid levels of 2.8% during Q1FY23. We expect RoA to stabilise at 3.0% levels over FY23 & 24 mainly led by decline in credit costs.

* We value the co at 1.4x FY23 BV which is at a 20% discount to the 18 month avg. valuation it commanded before the change in RBI norms in Nov 2021; We assume AUM CAGR of just 10% over FY22-24E.

TITAN - CMP: Rs. 2,597, Target: Rs. 3,085

* Titan is one of the leading player in lifestyle business catering to Jewellery, Watches and Wearables, EyeCare and other emerging businesses (Fragrances & Fashion Accessories - F&FA, Indian Dress Wear - Taneira). It is a leader in Jewellery business and contributes ~90% of total revenue from the segment.

* Titan has a planned expansion strategy to strengthen its EyeCare and Watches & Wearables segments, maintaining its aggressive position in Jewellery business. During H1FY23, it has expanded its retail network with an addition of ~172 stores and total stores stood at 2,408 as on Sep’22.

* Titan aims to grow at a 20% CAGR over the next five years on the back of – i) focus on retail network expansion, ii) product portfolio diversification, iii) unorganized to organized shift conveys an enormous opportunity in jewellery business, iv) Focus on wedding jewellery business. Since it has evolved as a critical growth driver with rising revenue share in the segment.

* The robust performance of the subsidiaries (Caratlane and Titan Engineering & Automation) and their positive outlook ensures strong trajectory over the mid-term.

* We recommend to BUY the stock with a target of Rs. 3,085 valuing it at 72x FY24E EPS.

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