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Bajaj Auto Ltd.

Headquarters in Pune, Bajaj Auto Ltd. (Baja Auto) is the flagship company of Bajaj Group, engaged in the business of development, manufacturing and distribution of automobiles such as motorcycles, commercial vehicles, electric two-wheelers etc. and parts thereof in more than 79 countries. It is the world’s sixth-largest manufacturer of motorcycles and the secondlargest in India. It holds 48% of the KTM Brand, which manufactures sports and super sports two-wheelers.

• Despite reporting just 0.6% Y-o-Y rise in the total sales volume, Baja Auto reported a 16.4% Y-o-Y increase in standalone top- line to Rs. 10,202.8cr. Blended sales realization increased by 17.7% Y-o-Y (around 3% Q-o-Q). Domestic sales volume increased by 30% Y-o-Y, while exports sales volume, which declined by 25% Y-o-Y. With concerns on chip shortage easing, its domestic motorcycle market share stood at 20.7% in Q2 FY23, compared to 18% and 13% in FY22 and Q1 FY23. In spite of unfavorable sales-mix (lower business from high margin exports sales), the company reported a 120bps expansion in EBITDA margin, mainly driven by favorable forex and operating leverage. Consequently, standalone EBITDA and PAT increased by 25.5% and 20% Y-o-Y to Rs. 1,758.7cr and Rs. 1,530cr, respectively, in Q2 FY23.

• According to the management, the domestic demand of motorcycle is bottoming out and also there is the shift in trend from entry level to mid-to-higher levels. The company expects the domestic 2W market to grow by single digit. For exports market, decline in the sales was mainly due to poor macro-economic conditions in several markets of Africa and Latin America. However, ASEAN region witnessed good growth in the market. The management indicated that export sales volume is likely to improve sequentially, but the outlook will remain challenging due to USD appreciation and sustained higher inflation levels.

• With ease in the supply chain and expansion in the distribution network, Bajaj Auto witnessed steady increase in the 2W EV sales. It is targeting monthly sales of around 6,000 units per month and intends to launch 3-4 products in next 18 months.

• In the commercial vehicle space, domestic sales volume increased by 66% Y-o-Y mainly driven by strong order booking in the CNG segment and inventory build-up before the festive seasons. Currently, the company doesn’t have any EV model in the 3W category; however, it plans to launch electric 3W by FY23.

• Over FY22-24E, we are forecasting a double digit growth in the business with improving profitability. On the back of 5% CAGR rise in total sales volume and 4% CAGR rise in blended realization, standalone top-line is expected to increase by 11.3% CAGR to Rs. 41,094cr in FY24E. EBITDA margin is likely to expand by 139bps, mainly on account of easing cost pressure and sustained price hikes. Earning is likely to grow by 13.7% CAGR with 121bps expansion in the RoE, which is expected at 20% in FY24E.

Valuation: With supply side issue behind, Bajaj Auto is likely to benefit from couple of factors like 2W demand bottoming out, cyclical recovery in the demand of the high margin 3Ws and sequential improvement in the export sales volume. At CMP of Rs. 3,648.6, the company’s shares are trading at a FY24E P/E multiple of 16.3x, which seems to lower than the past decade average. Thus we are assigning a “BUY” rating on the stock.

Infosys Ltd.

Infosys Ltd. (Infosys) is a global leader in next-generation digital services and consulting. With over four decades of experience in managing the systems and workings of global enterprises, it enables clients in 54 countries to create and execute strategies for their digital transformation. The company caters to verticals like financial services, retail, communication, manufacturing, hitech, life sciences, energy, utilities etc.

• Against the market anticipation of revenue deceleration in the wake of global slowdown, Infosys reported a strong numbers for Q2 FY23. On the back of double-digit growth across the business verticals, it reported a top-line growth of 18.8% Y-o-Y (4% Q-o-Q) in constant currency to Rs. 36,538cr. Digital business, which contributed 61.8% to the revenue, grew by 31.2% Yo-Y. However, EBITDA margin contracted by around 210bps Y-o-Y to 24.4%. Sequentially, margin expanded by 155bps mainly on account of INR depreciation against USD and cost optimization. PAT margin contracted by 185bps Y-o-Y to 16.5% in Q2 FY23.

• Total contract value (TCV) during Q2 FY23 stood at USD 2.7bn, which is highest in about seven quarters and of which 54% were net new. With strong large deal wins and demand pipeline, the company has raised the FY23 revenue guidance to 15- 16% from 14-16%. However, operating margin guidance was lowered to 21-22% from 21-23% earlier. It has announced an interim dividend of Rs. 16.5 per share (an increase of 10% over FY22 interim dividend) and an open market share buyback of Rs. 9,300cr at a price not exceeding Rs. 1,850 per share.

• According to Gartner Inc., global IT spending is projected at USD 4.5tn in 2022, an increase of 3% from 2021. With concerns on the global economic outlook, we believe there will be deferral or slowdown in the global IT spending. Lower IT spending towards consumer technology is expected, but enterprise spending is anticipated to be stable and protected. Persistent higher inflation levels and interest rates are not likely to deter the enterprises IT spending.

• Infosys is a growth leader in the sector. With strong and differentiated digital & cloud solution; and ability to win large deals, we believe it will continue to report sector leading growth rate in the medium term. Over FY22-24E, we are forecasting a consolidated topline growth of 14.5% CAGR to Rs. 1.59lakh cr. EBITDA and PAT margin are likely to contract by 48bps and 11bps, respectively, to at 25.4% and 18.1% in FY24E. RoE is anticipated at 29% in FY24E, compared to 29.3% in FY22.

Valuation: Concerns on sustained higher inflation in the developed markets, synced aggressive interest rates hike across the globe and in the anticipation of reduced global IT spending; domestic IT index and Infosys share price have corrected around 30% and 22% YTD, respectively. However, with an expectation of stable global IT enterprise spending and Infosys’s strong large deal pipeline with good mix of transformational & cost optimization deals; the company is likely to report a resilient business growth and operating performance in the medium term. Thus we assign a “BUY” rating on the stock with a target price of Rs. 1,785.6 per share.

Dalmia Bharat Ltd.

Founded in 1939, Dalmia Bharat Ltd. (DBL) is one of India’s pioneering cement companies headquartered in New Delhi. With a growing capacity, currently pegged at 37mn tonnes, it is the fourth-largest cement manufacturing company in India by installed capacity. Spread across 10 states and 14 manufacturing units, the company is a category leader in super-specialty cement used for oil well, railway sleepers and airstrips. DBL is also the largest producer of portland slag cement in the domestic market.

• With 27.3% Y-o-Y growth in the sales volume, DBL’s consolidated revenue came in at Rs. 3,302cr (up 27.4% Y-o-Y) in Q1 FY23. However, higher fuel costs mainly led to around 10pps contraction in EBITDA margin, which stood at 17.8%. PAT margin contracted by 546bps Y-o-Y to 5.7% during the quarter. Operationally, capacity utilization increased by around 5ppts Y-o-Y to 69% with sales via trade channels improving by 300bps Q-o-Q to 68% in Q1 FY23.

• During the quarter, the company has added 2mn tonnes of clinker and 1.1mn tonnes of cement capacity through debottlenecking. The management has guided that the expansion projects are on track and targets to have a capacity of 49mn tonnes by FY24E. In the long run, it intends to have a capacity of around 110-120mn tonnes.

• To reduce the fuel cost and overall cost of production, the company is increasing the WHRS/solar power generation capacity. During the Q1 FY23, it added 41.4MW of renewable energy capacity during the quarter. DBL is targeting to have a total renewable capacity of 173MW by FY23E, compared to 105MW in FY22. Currently, it is one of the most environment friendly cement manufacturers in India. Also, the cost of fuels is easing from the peak levels, which will aid in lowering the cost of production and expanding the operating margins.

• In terms of demand outlook, the cement sector will witness a sustained higher demand in the medium & long term, mainly on the back of increased asset generation in the infrastructure and housing space. The company is likely to report a 7.8% CAGR rise in cement sales volume over FY22-24E, while blended realization is expected to report a growth of 1.8% CAGR. Consequently, the consolidated top-line is anticipated to be at Rs. 13,588cr (a 9.7% CAGR growth over FY22-24E). EBITDA margin is expected to be depressed in current fiscal, mainly due to the cost inflation but is likely to be recover in FY24E. Thus EBITDA is forecasted to be at Rs. 3,050cr in FY24E (up 13.4% CAGR over FY22-24E) with a margin of 22.4%. Earnings to grow at 6.6% CAGR to Rs. 1,301cr in FY24E.

Valuation: At CMP of Rs. 1,519.7, the stock is trading at an FY24E EV/EBITDA multiple of 8.8x. Considering its efficient operations and improvement in profitability over FY24E, we are assigning a “BUY” rating on the stock with a target price of Rs. 1,818.6 per share.

Oracle Financial Services Software Ltd.

Oracle Financial Services Software Ltd. (OFSS) is a world leader in providing products and services to the financial services sector and is a majority owned subsidiary of Oracle Corporation. Oracle Corporation is the world’s most complete, open and integrated business software & hardware systems company.

• Financial technology solutions & products is the principal business segment of OFSS. It also has a services business comprising of bespoke consulting services business and the business process outsourcing services. The company’s product portfolio has significantly expanded over the years as more and more components are added as standalone offerings. As of FY22, OFSS generated around 90% of the total business from the products segment.

• The company is a global leader in the core banking solutions that helps banks takes an advantage of rapidly emerging opportunities in the sector. This solution enables banks to offer retail and corporate banking services to meet evolving customer needs and effectively comply with regulatory guidelines and standards.

• Its customer footprint continues to be diverse in terms of scale and geography. The company caters to the needs of the global multinational banks, small-to-large regional banks, as well as specialized banks and financial services companies. It generates around 90% of the business from the overseas market.

• OFSS’s Cloud/Software-as-a-Service (SaaS) based solutions offer flexibility, faster go-to-market and avoids large up-front investments by the financial institutions. With improving deployment of these solutions by the financial institutions, the company’s investment in the organic SaaS solutions has started gaining traction. Last year, it has signed a largest-ever multiyear SaaS deal with a tier-1 US bank.

• On the back of almost double digit growth across the products and services, OFSS’s consolidated revenue increased by 9.8% Q-o-Q to Rs. 1,402.5cr in Q1 FY23. Total operating expenditure was higher by 4.9% (lower than top-line growth), leading to a 260bps sequential expansion in the EBITDA margin. Consolidated EBITDA increased by 16.2% Q-o-Q to Rs. 647.4cr. However on account of higher effective tax rate, consolidated PAT increased at a modest rate of 2.1% Q-o-Q to Rs. 491.8 in Q1 FY23.

• During the quarter, 15 customers went live on its software products, while it signed deals worth USD 26.2mn with customers across 29 countries. Further, the company has won several cloud deals for its Oracle Analytical Application and Oracle FLEXCUBE lending & leasing cloud products from customers in Europe and the US. OFSS’s product capability offers customers multiple deployment choices thereby helping them to have a competitive edge.

Valuation: At a CMP of Rs. 2,956.2, OFSS’s shares are trading at a FY24E P/E multiple of 12.6x, which seems to be attractive for a company generating consistent return over the period. Thus we assign a “BUY” rating on the stock with a target price of Rs. 3,454.5 per share.

Harsha Engineers International Ltd

Incorporated in 1986, Harsha Engineers International Ltd. (HEIL) is a leading engineering company, offering diversified range of products across geographies and end-user sectors. The company manufactures brass, steel and polyamide cages; and stamped components. Products manufactured are supplied to customer in over 25 countries spread across five continents. During FY20- 22, around 65% of the consolidated business was generated from the overseas sales of its products.

• On the back of an improved usage of bearings across sectors like mining, automotive, heavy machinery, infrastructure development etc., the global demand of bearing is expected to grow by 6.4% CAGR over 2021-29. Precision bearing cage is one of the critical components within the bearing and is expected to grow in-line to the bearing market to reach a size of USD 8.6bn by 2029. Brass, steel and polyamide cages form the majority share of the market, of which 60% is estimated to be organized trade.

• HEIL with a market share of around 50-60%, it is the largest manufacturer of precision bearing cages in the organized domestic market. The company is also amongst the leading manufacturers of precision bearing cages in the world with a 6.5% share in the global organized brass, steel and polyamide bearing cages market in 2021.

• The company has long testing relationships with top-6 global bearing manufacturers, which cumulatively have a global market share of around 55%. Most of these manufacturers have over a decade long relationship and generated over 70% of the business of HEIL.

• HEIL has reported a profitable business growth over FY20-22. On the back of an 11.8% CAGR rise in the engineering products realization and 9.8% CAGR higher sales volume, HEIL reported a 22.1% CAGR rise in consolidated top-line to Rs. 1,321.5cr in FY22. Consolidated EBITDA and PAT margin expanded by 308bps and 448bps, respectively during the period. Over FY22-24E, we are forecasting a modest growth of 0.9% CAGR in the consolidated top-line to Rs. 1,344.6cr in FY24E. Business growth is likely to be maintained by 3.4% CAGR rise in volume growth. Engineering realization is anticipated to decline by 2.3% CAGR. EBITDA and PAT margins are forecasted to expand by 53bps and 70bps, respectively, over FY22-24E. RoIC and RoE is expected to be lower by 52bps and 32bps, respectively, to 7.9% and 9.1% in FY24E.

Valuation: Recently, HEIL came out with an IPO at Rs. 330 per share, subsequently it got listed at Rs. 450. Concerns on global slowdown and resultant lower business for the company would have lowered the investor’s interest. However, we feel the global infrastructure spending across the globe coupled with the benefit arising from the China+1 strategy would keep the demand rolling for the HEIL’s product. Thus we assign a “BUY” rating for the stock with a target price of Rs. 523.9 per share.

Latent View Analytics Ltd.

Founded in 2006, Latent View Analytics Ltd. (LVAL) is a pure-play global data analytics firm. The company with its end-to-end data analytics solutions enables companies to predict new revenue streams, anticipate product trends & popularity, improve customer retention rates and optimize investment decisions. It derives around 95% of the revenue from the USA and provides services to 30+ Fortune 500 companies.

• Over 2018-2020, Data & Analytics (D&A) service market grew by 15% CAGR to around USD 34bn. Further it is forecasted to grow by 19.1% CAGR to USD 68bn over FY22-24E, while the work outsourced to India is estimated to grow by 20% CAGR. With around 40% share in the D&A service market, India is the top outsourcing destination for analytics work, which we believe will be maintained in the medium term.

• LVAL is a pure-play global data analytics company. It has presence across the D&A value chain i.e. from data consulting services to data engineering and to business analytics & digital solutions (which includes look-back, look-at and look-ahead analysis). With such wide capabilities, LVAL is able to serve 30+ Fortune 500 companies engaged across sectors like Financial Services, Consumer & Retail, Technology, Industrials, Media & Entertainment etc.

• Normally, an enterprise prefers to engage with a vendor who has a local presence. Thus LVAL through its subsidiaries is present in every top-5 analytics market. The company is looking to further strengthen its operations in geographies like the UK and the Europe, which is the second largest D&A market in the world. D&A spending in the UK and the Europe is likely to expand by 18.5% CAGR over 2020-24. Over the next 3-4 years, the company is targeting 15-20% of the annual revenue from the European region, compared to current 8-10%.

• Considering the growth in the global analytics market and LVAL’s mainstay in the Technology vertical (65.5% contribution to the consolidated revenue), we are anticipating a 19.4% CAGR rise in consolidated top-line over FY22-24E to Rs. 581.7cr in FY24E. EBITDA margin is expected to expand by 38bps during the period to 30.2% while PAT margin to contract by 148bps (mainly attributable to lower other income and relatively higher effective tax rate) to 24.7% in FY24E. Cash flow from operating activities to increase by 9.3% CAGR with an average cash flow of Rs. 103.3cr. RoIC and RoE are likely to expand by 389bps and 76bps, respectively, over FY22-24E.

Valuation: Global enterprises needs to remain invested in the digital technologies so as to stay competitive and be future ready. Companies like LVAL will continue to remain in demand in the medium term, thus we are assigning a “BUY” rating on the stock with a target price of Rs. 438.4 per share

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