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Yatharth Hospital & Trauma Care Services Ltd.

Yatharth Hospital and Trauma Care Services Ltd (YHTCSL) incorporated in Feb 2008, is a super speciality hospital with 1,405 beds across 4 facilities spread across Noida, Greater Noida, Noida Extension, and Jhansi. Noida Extension and Greater Noida are the 8th and 10th largest private hospitals in the Delhi NCR, respectively, in terms of the number of beds in FY23. YHTCSL has acquired the Orchha facility (305-bedded) multi-speciality hospital that started operation on April 10, 2022, and it is one of the largest hospitals in the Jhansi-Orchha-Gwalior region in terms of bed capacity.

* The company is introducing new specialities with high-margin which will change the product mix. The general medicine segment is a low-margin business with a revenue share of 50% in FY21 and subsequently improved to 31% in FY23, supporting to improvement of the overall margin profile. The Noida Extension Hospital is taking the lead which will soon begin providing a full range of oncology treatments, including radiation and PET lines. While the Noida and Greater Noida hospitals will continue to offer the current oncology services for the treatment of cancer, YHTCSL aims to become the Noida Extension Hospital the center of excellence for complete oncology therapy. At the consolidated level, the current ALOS of the company is 4.6 days which is on a higher side compared to other players in the industry but the management is comfortable to maintain in the near future as they are moving into super-specialities.

* The strategic location and proximity to Asia's largest airport which is coming to Noida will help YHTCSL to improve the share of international patients and improve the ARPOB. The completion of Noida airport is expected to be completed in the next few years. The company is planning to align its marketing strategies, especially digital marketing which will be targeting towards international patients. The Greater Noida Hospital which started the operation in 2010 but increased its bed capacity from 100 to 400 in 2018 is moving towards maturity now, which will contribute to the ARPOB growth. As the company is moving towards the super-specialty segment which will also be a contributor to higher ARPOB. Increased hospital maturity and an increase in international patients will translate to an improved ARPOB.

* Yatharth is Expanding its presence into other regions which will de-risk from its regional concertation. The recent acquisition of the fourth Hospital in Jhansi Orchha in Madhya Pradesh (305 beds to the current capacity) indicates that YHTCSL is open to expanding its presence in regions other than Delhi-NCR and aiming to improve its presence into new geographies. YHTCSL also looking for inorganic growth opportunities across Uttar Pradesh, Haryana, Punjab, and Madhya Pradesh for both types of acquisition-O&M and 100% equity purchase, with at least 300-400 bed size

Valuation: We like YHTCSL due to 1) A leading super-speciality hospital in the Delhi-NCR, 2)Diversification into new specialities where the margin is higher than the current margin, 3) expansion into other regions through inorganic growth, and 4) Focus on increasing the share of international patients and improving ARPOB. We expect Revenue / EBITDA / PAT to grow at a CAGR of 20.0%/ 23.2%/ 26.6% during FY23-26E. We ascribe an OUTPERFORM rating on the stock with a target price of INR 523 and value the stock with 13x on FY26E EBITDA.

Bharat Dynamics Ltd.

Bharat Dynamics Limited(BDL) is a government-owned defence company. It is primarily focuses on the manufacturing and development of munitions, missiles, and defence systems for the Indian Armed Forces and other customers. Some of the key products and services include:- Missiles: Production of various types of missiles, including surface-to-air missiles, anti-tank guided missiles, and other tactical and strategic missile systems. Ammunition: Manufactures a wide range of ammunition for different types of weapons used by the armed forces. Counter measure Systems: BDL develops and produces counter measure systems to protect military platforms from incoming threats like anti-aircraft and anti-ship missiles. Electronic Warfare Systems:

* Long term revenue visibility, supported by 8.2x Order book: BDL is currently enjoying an 8.2x order book of its FY23 revenue which is comprised of various strategic programs like LRSAM, QRSAM, Akash systems, Astra missiles, laser guided rocket, etc. Currently, BDL has a healthy order book position of Rs.204.08bn as on 31st May 2023 that gives us comfort to medium to long term revenue growth, which will keep the production lines engaged in the years ahead. Given the immense potential of BDL products for exports, the Company expand its foot prints in the global market to gain decent market share and BDL has already made forays into the Export Market by exporting the Light Weight Torpedoes & Akash missile system to a friendly foreign country.

* Sole supplier of defensive and offensive platforms: BDL has working appx. 25-30 upgraded version of existing platforms, most of the platforms are under gone trails phase and it is expected to complete in short term and most of the platforms are import banned from Govt. of India. BDL has expecting massive order from MoD during the period of FY24 to FY26. Furthermore, through indigenization initiatives, BDL has achieved indigenization levels of more than 80% to 90% in most of the products. In recent years, the Company has been outsourcing to the extent of 60% across its projects barring critical items and weapon system integration. Further with the increase in Make- In India push company is benefiting around 15-20% increase in revenue.

* Over FY23-26E, we are forecasting a double digit growth in the business with improving profitability. Standalone top-line is expected to increase by 14.0% CAGR to Rs. 41.86bn in FY26E. EBITDA margin is likely to expand, mainly on account of economics of scale and cost control measures. Earning is likely to grow by 21.6% CAGR with expansion in the RoE, which is expected at 17% in FY26E.

Valuation: BDL, with its over five decades of missile and allied defence equipment manufacturing experience, developed skill sets, and stateof-the-art infrastructure. Under its diversification program, BDL is poised to enter into the manufacturing of wide variety of weapon/systems in defensive and offensive platforms. We have a positive outlook on BDL, because it is catering the strategic needs of the MoD & Indian defence forces, supported by 1) Sole supplier of offensive, as well as defensive systems domestically, 2) Upcoming big-ticket project are in the pipeline & it started to materialised from H2FY24 onwards, 3) Huge exports opportunity, talks are under gone with 4-5 friendly countries, 4) Diversified product portfolio across armed forces, 5) The company's humongous order book, which stood at Rs.204.08bn as of 31st May-2023 (~8.2x of FY23 revenue) will support the the growth story of the company. We have “OUTPERFORM” rating on the stock with a target price of Rs.1,346 (32x of FY26E EPS).

Lumax Auto Technologies Ltd

Lumax Auto Technologies Ltd (LATL) incorporated in 1981 is a part of the D.K. Jain Group of companies. The company is a leading auto component manufacturer with a well-diversified product portfolio. It is engaged in the business of manufacturing and supplying of Automotive Lamps, Plastic Moulded Parts, and Frame Chassis to 2, 2, and 4-wheeler segments. It has Partnerships with 7 Global players like Yokowo (Japan), JOPP (Germany), and few others.

* LATL is witnessing an increased share of business from clients. In the PV segment, the company is witnessing orders for the supply of gear shifters, plastic parts and air filter assemblies from OEMs such as Maruti Suzuki, M&M, and Tata Motors for their new models. The company has also received order for the supply for chassis (to KTM) and plastic parts from Bajaj Auto and HMSI, in the 2W segment.

* New Products and Aftermarket sales: LATL’s new products such as Instrument Panels, Cockpits & Consoles, Headliner & Overhead Systems, Telematics, Gearshift Towers, and Antennas carry a healthy growth prospect in the medium to long term as these products are getting better traction in the market. These products will help to increase content per vehicle and drive the company’s growth. Hence, OEM is also increasing the penetration of the latest features and technology in their new launches or refresh models. In addition, the company is aggressively focussing on aftermarket sales by increasing its retail presence. This will help LATL to benefit from increased revenue per client and a richer product mix. Further with IAC India acquisition which is largely catering to premium and technical product management, it is confident to deliver better than industry growth and also leverage this partnership to cross-sell products like power window switches and interior lighting which will lead to high content per vehicle.

* Healthy order book: LATL’s current order book stood around Rs.9.6bn (Rs.6.5bn IAC India) of which 60% order is from PV segment. IAC India is also looking to do brownfield expansion for M&M for new EV models; FY24 total capex: Rs.1.4bn, of which IAC's share would be around Rs.550mn, and the remaining would be for the rest of the entity.

* Improved Product mix: LATL’s product mix improved in FY23 as PV segment contributed 29% to its revenue as compared to 20% in FY22 and two-wheeler segment contributed 37% to its revenue in FY23 compared to 43% in FY22.

Outlook and Valuations: We have a positive view on the LATL given: 1) its diversified product portfolio; 2) improving PV share post IAC India acquisition; 3) improving demand for the automatic gear shifter; and 4) healthy growth in the aftermarket segment (looking to launch a new product in the 2W segment) to bode well for LATL to register healthy growth over FY23-FY25E and to outperform the industry growth. We value LATL based on 17x of FY25E EPS with a TP of Rs.457 and recommend OUTPERFORM.

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