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Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited
Oil & Gas - Sector Update - Oil expert Fesharaki: Upside risks galore We hosted global energy expert Dr Fereidun Fesharaki, FGE’s founder.
Metals & Mining - Sector Update - Steel: Domestic prices edge up Domestic HRC price in traders’ market rose further by 3% WoW on average. Rebar
prices in both secondary and primary markets rose too. Regional prices remained
broadly stable; however, the CIS export price increased 2% WoW. In the last one
month, HRC price has shot up 10% on average, but still remains below the landed
price of imports.
Asian Paints - Result Update - Profitable volume growth desirable Asian Paints (APL) posted Q2FY22 revenue ahead of estimate (up 32.6% YoY), while
EBITDA (down 28.5% YoY) and PAT (down 29% YoY) missed our estimates. The
decorative business’s volume shot up 34% YoY (base 11% YoY) led by tier 1 and 2
towns. Steep unprecedented inflation in raw material prices compressed gross
margin 966bps YoY (lowest quarterly GM in several years) and EBITDA margin by
1,090bps YoY. However, we believe this is temporary, and APL has strong pricing
power and is hiking prices with a lag to combat inflation.
JSW Steel - Result Update - Bigger picture gets better We are upgrading JSW Steel (JSTL) to ‘BUY’ from ‘HOLD’ with an unchanged TP of
INR820 as:: i) consolidation of Bhushan Power & Steel (BPSL) likely to be value-
accretive; ii) volume from Dolvi expansion (5mtpa) is likely to be at a lower operating
cost of 15–20%; and iii) it is the only company to have capacity ramp-up advantage
through FY24E.
Havells India - Result Update - Pricing-led beat; consistent demand key Havells’s Q2FY22 double-digit revenue beat reflects sector-wide pricing scenario as
markets open up with double-digit volume growth across segments (ex-cables). This
reflects healthy demand for electricals/B2B and small appliances. Management
remains optimistic on H2 demand.
INDIAN HOTELS CO - Result Update - Leisure surge drives outperformance
Indian Hotels (IHCL) reported better-than-expected recovery in India (77% of
Q2FY20 versus 65% estimated) with leisure travel surge being the key driver (refer
to exhibit 3). Also, IHCL is increasing fund-raise from INR30bn (only rights) to
INR40bn (rights + QIP), and will make Roots Corp (Ginger) a 100% subsidiary (60%
earlier).
India Equity Research October 22, 2021
FIRST CALL DAILY REPORT
Edelweiss Research +91 22 4009 4400 [email protected]
Sectoral Movements %Change Ticker 21-Oct-21 1 D 1 M 3 M 1 Y
Nifty 18,178 -0.5 3.6 14.9 52.8
Banking 45,768 1.7 8.2 16.3 64.6
IT 35,914 -2.5 -1.4 20.6 67.7
Pharmaceuticals 25,476 -0.1 -3.5 -3.2 29.5
Oil 18,795 0.2 7.5 19.6 53.7
Power 3,488 0.4 15.6 29.3 108.6
Auto 25,845 0.5 11.4 13.0 45.4
Metals 20,948 -2.0 5.3 8.4 143.1
Real Estate 3,983 -1.3 10.0 26.7 112.8
FMCG 14,486 -0.9 -5.1 6.9 31.3
Capital Goods 27,069 0.1 4.5 12.6 92.4
MARKETS Change in % 21-Oct-21 1D 1M 1Y
Nifty 50 18,178 -0.5 3.6 52.8 Nifty 200 9,598 -0.5 3.3 56.7 Nifty 500 15,488 -0.5 3.3 58.9
INDIA STOCK PERFORMANCE
GLOBAL 21-Oct-21 1D 1M 1Y
Dow 35,603 0.0 3.9 25.5
China 3,592 -0.1 -1.0 8.4
EM Index 1,293 -0.6 2.4 13.8
UPCOMING EVENTS CALENDER
MACRO Change in %
21-Oct-21 1D 1M 1Y
Fx (INR/USD)
74.9 0.0 -1.7 -1.7
!0-yr G-sec 6.3 -0.6 3.5 7.2 Oil (USD) 84.8 0.2 11.3 99.7
Explore:
Sales Traders Says Currency Conversations
Bond Vectors Valuation Vista
FIRST CALL
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Sterlite Tech. - Result Update - Strong demand driving growth Sterlite Technologies (Sterlite) logged Q2FY22 results broadly met estimates with
the products business, specifically Optical Interconnect, driving growth. The services
segment rebounded after a blip in the previous quarter due to the second covid
wave.
Just Dial - Result Update - Awaiting traction in B2B
Just Dial (JD) posted weak Q2FY22 results with a drop in revenue and cost escalations
impacting profitability. However, revival in traffic and collections are pointing
towards some recovery over coming quarters.
Shoppers Stop - Result Update - Recovery on course; stable on key pillars Shoppers Stop (SSL) reported in-line recovery at 75% with the key highlight being
that festive sales have already touched pre-covid levels in certain regions. Other
highlights: i) Performance on its key pillars continues to be on track with private
label/beauty/omni contributing 14%/17%/8%. ii) Targeting 100/181
department/home & beauty stores by FY23 (current: 80/161). iii) Appointed two
new board members to strengthen omni initiatives.
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Global Oil Demand to recover by Mar-22
Oil price: USD65-70/bbl (2022E)
Limited refinery capacity additions
Global refinery runs are nearing 2019 level
“Golden Era of Refining” in longer-term
Oil expert Fesharaki: Upside risks galore
We hosted global energy expert Dr Fereidun Fesharaki, FGE’s founder.
Upside to Oil: i) Firm immediate prospects given low stocks, 0.5mbpd gas-to-oil switch, and limited OPEC+ hike, just prior to winter demand. ii) Upside risk to USD65–70/bbl 2022E as OPEC+ spare capacities are nearing 2019 lows along with potentially lower Iranian exports.
LNG famine: i) Spot LNG to stay high at USD12–20/mmbtu on demand growth and a two–fifths cut in capacity adds. ii) India missed locking into new long-term contracts. ‘Golden Era’ of Refining: i) New refinery adds to ease shortages, balancing GRMs at a healthy USD5-7/bbl 2022E. iii) USD8+/bbl GRMs 2024–2032 given no mega refinery adds against growing demand enabling sustained higher runs.
Improving refinery runs, widening distillate cracks aid GRMs further
Net refining capacity dipped 0.7mmbpd in Sep-21 (versus Dec-19) due to closure of
several refineries. Besides, no mega greenfield refinery is anticipated post-2025 as
against oil demand growth of 10mmbd till 2030. Global Inventory levels have slid
26mmb below 2019 levels, which is likely to stimulate refinery runs as demand is
nearing 2019 levels (full recovery by Mar-22). Asia’s gasoil surplus should narrow
on rising demand as gas-to-oil switching on high prices should add 0.5mmbpd to
demand this winter. This shall enhance gasoil cracks further (surged to 21-month
high of USD15.2/bbl on 15th October). Gasoline cracks might come under pressure
on lower seasonal demand offset by re-stocking given current low global
inventories. GRMs are thus likely to remain high before slowing down beyond 2032.
Oil price: USD65-70/bbl in 2022; long term parity at USD55-65/bbl
Market forces shall keep long-term oil prices in a range of USD55–65/bbl (now
>USD80). FGE anticipates oil prices to range from USD65–70/bbl in 2022. Iran oil
exports rose 0.5mmbpd with the possibility of adding another 1mmbpd by 2022,
which appears to be a key downside risks in our view. Meanwhile, OPEC+ might face
challenges in 2022 as its spare capacity is heading back to 2019 low levels. Besides,
US production outlook is lowered due to ongoing hurricane-related outages.
Strong outlook for Indian OMCs/ONGC; LNG demand to peak in 2040
In our report Golden era of refining, we highlighted GRMs shall sustain above
USD8/bbl after CY2023, a timeline that appears to have advanced (now ~USD7).
Rising light-heavy crude differentials along with improving complexity of refiners
could boost GRMs to USD12–20/bbl in the long run. OMCs have added benefits of
structurally enhancing retail margins given a 3-player oligopoly in the auto fuel retail
business (see Structural fuel retail expansion). Meanwhile, ONGC remains a key
beneficiary of rising oil/gas prices (refer to Navigating impending gas price surge).
Meanwhile, LNG demand is likely to grow sharply over the next two–three years,
peak in 2040 and flatten thereon. The recent LNG extreme price surge is temporary
in nature. However, CPC-Chevron deal and Qatar’s recent sales had moved the oil-
linked LNG price slope down by ~10.5%, redefining LNG’s long-term pricing.
Global oil demand
Global capacity additions
Global refinery utilization rate
India Equity Research Oil & Gas October 21, 2021
Expert Speak Global Oil, LNG & Refining Outlook
Jal Irani Iqbal khan Shubham Mittal +91 (22) 6620 3087 +91 (22) 4063 5459 [email protected] [email protected] [email protected]
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Steel: Domestic prices edge up
Domestic HRC price in traders’ market rose further by 3% WoW on average. Rebar prices in both secondary and primary markets rose too. Regional prices remained broadly stable; however, the CIS export price increased 2% WoW. In the last one month, HRC price has shot up 10% on average, but still remains below the landed price of imports.
That said, we note the rout in ferrous market in China, mainly on the concerns of faltering demand and Evergrande signalling that it would not be able to meet its financial liabilities. We would keep close tabs on potential policy support in China. All in all, we maintain the positive view on the sector with Tata Steel (TP: INR2,055; 5x Q3FY23E EBITDA) and JSPL (TP: INR575; 5x Q3FY23E EBITDA) as our preferred picks.
Impressive uptick in domestic steel prices
Domestic steel prices have risen by 10–11% across product categories in the last
one month. HRC price has risen a further 3% WoW to INR71,060/t on average in
traders market. The list price of major steel producers is INR68,000-69,000/t on
average. Hence, we do not rule out further price hikes in the first week of
November. Primary rebar prices have followed the uptick in secondary rebar prices-
rising 11% in last one month. As a result, domestic steel prices are up INR3,000-
3,500/t QoQ. That said, this is not enough to offset the adverse impact of coking
coal prices; hence, we are likely to witness raw material spreads compression in
Q3FY22. However, domestic prices are still at a discount to landed price of imports.
Hence, we are unlikely to see an increase in imports.
China’s ferrous crash cause for concern
Steel and iron ore prices crashed today in China possibly on the concerns of faltering
demand in the residential construction segment as Evergrande group signalled that it
would be unable to meet its financial liabilities. Besides, there are reports of steel
mills, particularly those in Jiangsu, Guangdong and Guangxi, having gradually resumed
production this month as power situation has reportedly improved. That said, we
believe that policy support is imminent given the faltering macro growth parameters.
Outlook: Regional price outlook positive; China the swing factor
While regional prices are stable with Japan/Korea HRC price above USD1,000/t and
China export price at USD980/t. Our checks last week indicate that CIS and
European mills have been endeavouring price hikes on high energy cost despite
weakness in the automotive market. In India, successive price hikes in traders’
market would ameliorate the coking coal cost increase in Q3FY22.
We are concerned about today’s crash in China’s ferrous market mainly due to
demand concerns and certain sections in government seeking to curb speculation
in commodities market. We await further details and developments in this regard.
Based on the favourable domestic price environment, we maintain our positive
view on the sector with Tata Steel (TP: INR2,055) and JSPL (TP: INR575) as preferred
picks in the space (both ‘BUY’).
India Equity Research Metals & Mining October 21, 2021
METALS & MINING SECTOR UPDATE
Amit Dixit Meera Midha +91 (22) 6620 3160 +91 (22) 4088 5804 [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 3,002 12 month price target (INR) 3,550 Market cap (INR bn/USD bn) 2,880/38.5 Free float/Foreign ownership (%) 47.2/19.8
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Profitable volume growth desirable
Asian Paints (APL) posted Q2FY22 revenue ahead of estimate (up 32.6% YoY), while EBITDA (down 28.5% YoY) and PAT (down 29% YoY) missed our estimates. The decorative business’s volume shot up 34% YoY (base 11% YoY) led by tier 1 and 2 towns. Steep unprecedented inflation in raw material prices compressed gross margin 966bps YoY (lowest quarterly GM in several years) and EBITDA margin by 1,090bps
YoY. However, we believe this is temporary, and APL has strong pricing power and is hiking prices with a lag to combat inflation.
Overall, we believe APL’s operational prowess and market leadership will help it sustain volume growth. Maintain ‘BUY’ with a revised TP of INR3,550.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 2,17,128 2,62,787 3,00,922 3,37,192
EBITDA 48,556 47,294 64,824 75,943
Adjusted profit 32,068 31,733 45,401 54,172
Diluted EPS (INR) 33.4 33.1 47.3 56.5
EPS growth (%) 15.4 (1.0) 43.1 19.3
RoAE (%) 28.0 23.2 28.7 29.2
P/E (x) 89.8 90.7 63.4 53.2
EV/EBITDA (x) 58.6 59.8 43.2 36.5
Dividend yield (%) 0.6 0.5 0.7 0.8
PRICE PERFORMANCE
Revenue robust; margins under pressure
What we like: Net sales were up 32.6% YoY (5% ahead of Street estimates). Domestic
business continued to grow logging 34% YoY volume growth. The Ess Ess business
recorded a positive EBIT after many quarters while the Sleek business is also close to
breaking even. Other income shot up 67% YoY.
What we do not like: EBITDA fell 28.5% YoY (23% below our estimate although it is
33% below Street’s estimate). Gross and EBITDA margins contracted 966bps YoY and
1,090bps YoY, respectively.
Other highlights: The industry took price hikes in Q1FY22 and Q2FY22 totalling 7%.
However this is still not enough to tackle the unprecedented raw material inflation.
South Asia showed good growth while the Middle East and Africa were sluggish (in
international business). Industrial coatings registered strong double-digit growth.
Q2FY22 conference call: Key takeaways
APL is expanding ‘Rurban’ footprint – into new towns and suburbs, with 40,000+ new
retail points added over the last year and a half. Twenty six Beautiful Homes stores
are functional. By Q4FY22, the company is confident of getting into reasonable
EBITDA margin range on the back of price increases and formulation changes.
Explore:
Outlook and valuation: Strong pricing power; maintain ‘BUY’
We expect double-digit growth in decorative volumes to sustain, riding potential
demand shift from unorganised segment (~30%). Going ahead, APL’s ability to raise
prices should help it improve margins. Considering the miss on margins, we are
lowering the TP to INR3,550 (from INR3,755); retain ‘BUY/SO’ (63.4x FY23E EPS).
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 70,960 53,502 32.6 55,854 27.0
EBITDA 9,045 12,652 (28.5) 9,136 (1.0)
Adjusted Profit 6,052 8,519 (29.0) 5,743 5.4
Diluted EPS (INR) 6.3 8.9 (29.0) 6.0 5.4
Above In line Below
Profit
Margins
Revenue Growth
Overall
39,000
43,600
48,200
52,800
57,400
62,000
2,075
2,350
2,625
2,900
3,175
3,450
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
APNT IN Equity Sensex
India Equity Research Consumer discretionary October 21, 2021
ASIAN PAINTS RESULT UPDATE
Abneesh Roy Tushar Sundrani Amritasai Sista +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 674 12 month price target (INR) 820 Market cap (INR bn/USD bn) 1,629/21.8 Free float/Foreign ownership (%) 57.6/17.9
What’s Changed
Target Price ⚊ Rating/Risk Rating
QUICK TAKE
Bigger picture gets better
We are upgrading JSW Steel (JSTL) to ‘BUY’ from ‘HOLD’ with an unchanged TP of INR820 as:: i) consolidation of Bhushan Power & Steel (BPSL) likely to be value-accretive; ii) volume from Dolvi expansion (5mtpa) is likely to be at a lower operating cost of 15–20%; and iii) it is the only company to have capacity ramp-up advantage through FY24E.
Going ahead, we see three key positives: i) sales volume rate at 5mt/quarter; ii) ramp-up of value-added capacity; and iii) turnaround of overseas subsidiaries. That said, lower scope of debt reduction due to capex commitment through FY24E remains the key risk. We maintain the TP of INR820 at an unchanged 5.5x EBITDA rolling over to FY23E, implying upside potential of 20%.
FINANCIALS (INR bn)
Year to March FY21A FY22E FY23E FY24E
Revenue 798.4 1,701.6 1,894.8 1,806.1
EBITDA 197.6 418.5 444.5 415.6
Adjusted profit 75.3 218.6 228.7 219.4
Diluted EPS (INR) 31.1 90.4 94.6 90.7
EPS growth (%) 86.7 190.2 4.6 (4.1)
RoAE (%) 18.1 39.4 31.2 24.0
P/E (x) 21.6 7.5 7.1 7.4
EV/EBITDA (x) 10.9 5.2 4.8 4.9
Dividend yield (%) 1.0 2.3 2.5 2.0
PRICE PERFORMANCE
In-line performance as overseas subsidiaries turn around
JSTL’s Q2FY22 performance met estimates. Key points: i) Standalone EBITDA/t at INR22,944 (down 13% QoQ) owing to higher coking coal cost. ii) Blended standalone realisation was up INR2,000/t QoQ owing to prior priced exports and favourable contracts. iii) Overseas subsidiaries delivered EBITDA of INR4.9bn (Q1FY22: INR2.9bn). Going ahead, we expect: i) India sales volume to increase to ~5mt per quarter led by Dolvi ramp-up and consolidation of BPSL operations; ii) higher coking coal cost of USD95–100/t likely to impact margins; and iii) cost reduction initiatives across units and ramp-up of value-added capacity to likely lead to sustainable profitability improvement.
Looking beyond near-term impact of elevated coking coal cost
In our view, JSTL presents a compelling long-term opportunity as: i) consolidation of BPSL would be value-accretive (INR35/share); ii) it is the only company to ramp up capacity through FY24E; and iii) ongoing brownfield expansion at Vijaynagar (5mtpa) and scope to further expand BSPL capacity to 3.5mtpa present additional volume growth opportunities. However, we don’t expect material debt reduction at JSTL, unlike peers, as high capex is expected to continue through FY24E. That said, we expect the entire capex to be met through internal accruals, resulting in 32–35mtpa capacity by FY25E at nearly unchanged debt levels.
Explore:
Outlook and valuation: Prospects getting better; upgrade to ‘BUY’
We view the additional value of INR35/share from BPSL consolidation and the volume uptick through FY24E mitigating the impact of higher coking coal prices in the near term. All in all, we are upgrading the stock to ‘BUY’ at an unchanged TP of INR820/share (5x FY23E EBITDA), implying upside potential of 20%..
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 3,25,030 1,92,640 68.7 2,89,020 12.5
EBITDA 1,04,170 44,140 136.0 1,02,740 1.4
Adjusted Profit 71,700 15,930 350.1 58,270 23.0
Diluted EPS (INR) 29.7 6.6 350.1 24.1 23.0
Above In line Below
Profit
Margins
Revenue Growth
Overall
39,000
43,600
48,200
52,800
57,400
62,000
300
395
490
585
680
775
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
JSTL IN Equity Sensex
India Equity Research Metals & Mining October 21, 2021
JSW STEEL RESULT UPDATE
Amit Dixit Meera Midha +91 (22) 6620 3160 +91 (22) 4088 5804 [email protected] [email protected]
Corporate access
Financial model Podcast
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KEY DATA
Rating HOLD Sector relative Neutral Price (INR) 1,290 12 month price target (INR) 1,250 Market cap (INR bn/USD bn) 881/11.8 Free float/Foreign ownership (%) 40.5/8.2
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Above In line Below
Profit
Margins
Revenue Growth
Overall
Pricing-led beat; consistent demand key
Havells’s Q2FY22 double-digit revenue beat reflects sector-wide pricing scenario as markets open up with double-digit volume growth across segments (ex-cables). This reflects healthy demand for electricals/B2B and small appliances. Management remains optimistic on H2 demand.
Lag in input-cost pass-through is throwing up challenges in managing OPMs even as leaders continue to benefit from consolidation. For Havells, while competitive position, especially in electricals (wires, switches, small appliances), remains strong, a re-rating would hinge on how Lloyd’s returns fare over the medium term, apart from ongoing penetration in stronger electrical segments. Retain ‘HOLD’.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 1,04,279 1,26,371 1,47,266 1,68,322
EBITDA 15,653 18,162 22,116 25,739
Adjusted profit 10,396 12,410 15,512 18,222
Diluted EPS (INR) 16.6 19.8 24.8 29.1
EPS growth (%) 41.8 19.4 25.0 17.5
RoAE (%) 22.0 22.6 24.8 25.9
P/E (x) 84.7 71.0 56.8 48.3
EV/EBITDA (x) 55.5 47.8 39.1 33.4
Dividend yield (%) 0.2 0.6 0.8 1.0
PRICE PERFORMANCE
Volumes decent, in line; beat largely price-led; Lighting/ECD shines
Cutting through noise, Havells Q2 numbers have a few interesting aspects. Cable and
wire value growth is 80% led by pricing, even as volumes growth fared weaker; for
all other categories, value growth is half led by pricing and half by volume. Switches,
lighting and ECD growth in healthy double digits reflects better demand on ground
for real estate, industrial and B2B. In our view, the divergence in cables versus other
segments shows Havells’s market strategy and focus on cash flows. To us, Lloyd’s
EBIT loss is a negative surprise resonating with our market feedback of high
competition from MNC players and share gains for Voltas, particularly in south. (click
to read Q&A)
What should investors focus on Havells over 12–24 months
Premium-electrical positioning for Havells has been consistent reflecting in its
industry-leading margins/cash flows. Tier II penetration with compatible products
(Standard, Rio, etc) should continue to aid better electrical growth, and remains a
key earnings trigger. More importantly, the consistent gap in Lloyd’s returns versus
leaders remains a key area for the leadership at Havells to focus on. Given RAC is
70%-plus of revenue, the category remains key; other categories (refrigerators, LED
TV) are unlikely to have any material impact on FY22–24E numbers in our view.
Explore:
Outlook and valuation: Consistency in growth key; retain ‘HOLD’
We see B2B and electrical segments for Havells faring better than many peers given
revenue mix even as Lloyd-related challenges go higher. All in all, we are raising
FY22/23E earnings by ~5/9% given better growth, This along with a rollover to FY23E
earnings yields a revised TP of INR1,250; retain ‘HOLD/SN’.
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 32,210 24,518 31.4 25,982 24.0
EBITDA 4,437 4,207 5.5 3,531 25.6
Adjusted Profit 3,016 3,249 (7.2) 2,343 28.7
Diluted EPS (INR) 4.8 5.2 (7.2) 3.7 28.7
39,000
43,600
48,200
52,800
57,400
62,000
700
855
1,010
1,165
1,320
1,475
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
HAVL IN Equity Sensex
India Equity Research Consumer Durables October 21, 2021
HAVELLS INDIA RESULT UPDATE
Amit Mahawar Angad Saluja Manoj Kumar K V +91 (22) 4040 7451 [email protected] [email protected] [email protected]
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KEY DATA
Rating HOLD Sector relative Neutral Price (INR) 214 12 month price target (INR) 203 Market cap (INR bn/USD bn) 254/3.4 Free float/Foreign ownership (%) 60.9/10.6
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Leisure surge drives outperformance
Indian Hotels (IHCL) reported better-than-expected recovery in India (77% of Q2FY20 versus 65% estimated) with leisure travel surge being the key driver (refer to exhibit 3). Also, IHCL is increasing fund-raise from INR30bn (only rights) to INR40bn (rights + QIP), and will make Roots Corp (Ginger) a 100% subsidiary (60% earlier).
With the covid situation normalising and recovery timelines looking more certain, we are lowering the cost of capital assumptions and rolling forward to Sep-22E, which yield a revised DCF-based TP of INR203 (INR146 earlier), implying 25x FY23E EV/EBITDA, higher than its pre-covid average (20x, peak 23x). Maintain ‘HOLD’. IHCL’s leisure-driven outperformance is close to peaking, and will moderate ahead.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 15,752 35,633 45,263 50,046
EBITDA (3,618) 6,836 12,112 14,240
Adjusted profit (8,801) (550) 3,513 5,300
Diluted EPS (INR) (7.4) (0.5) 3.0 4.5
EPS growth (%) nm nm nm nm
RoAE (%) (22.0) (1.4) 9.4 13.4
P/E (x) nm nm 72.4 48.0
EV/EBITDA (x) (83.8) 44.9 24.9 20.8
Dividend yield (%) 0 0 0 0
PRICE PERFORMANCE
Strong overall recovery driven by leisure surge
IHCL posted a strong performance with consolidated revenue up 184% YoY (down
28% versus Q2FY20). Standalone revenue shot up 179% YoY (down 23% versus
Q2FY20). July/Aug/Sep contributed 31%/34%/35% to revenue. Demand was mainly
led by leisure travel, clearly visible in the city-wise performance (see exhibit 3). As
per IHCL, the uptick in corporate travel is also visible. RevPar stood at ~INR4,700 in
Q2FY22 with occupancy at 57% and ARR at ~INR8,300. Subsidiaries reported a higher
192% increase YoY (down 35% vs. Q2FY20). While costs did increase QoQ, savings on
pre-covid continued, with fixed costs down from INR1.6bn/month to INR1.3bn. We
are currently building in sustainable annual savings of INR2bn.
Increased capital-raise; Ginger to become a wholly owned subsidiary
Net debt was constant QoQ at INR35.7bn (Q1FY21: INR36.1bn). IHCL has raised the
fund-raising amount from INR30bn (rights issue total) to INR40bn (50% rights issue,
50% QIP). The company will acquire the remaining 40% of Roots Corporation Limited
from existing shareholders; Ginger, as a result, would become a wholly owned
subsidiary. The purchase consideration thereof would not exceed ~INR5bn. While
IHCL is to still disclose the exact usage of the higher fund-raising, it is targeting to
become a net debt free company.
Explore:
Outlook and valuation: Recovery factored In; maintain ‘HOLD’
Factoring in the outperformance in Q2FY22, we are raising FY22/23E EBITDA by
5%/3%. With the covid situation normalising and recovery timelines looking more
certain, we are lower the cost of capital assumptions and rolling forward the
valuation to Sep-22E, which yield a revised DCF based TP of INR203. Retain ‘HOLD’.
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 7,284 2,567 183.8 3,446 111.4
EBITDA 728 ( 1,503) NM ( 1,488) NM
Adjusted Profit ( 1,206) ( 2,300) NM ( 2,773) NM
Diluted EPS (INR) ( 1.0) ( 1.9) NM ( 2.3) NM
Above In line Below
Profit
Margins
Revenue Growth
Overall
39,000
43,600
48,200
52,800
57,400
62,000
75
110
145
180
215
250
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
IH IN Equity Sensex
India Equity Research Leisure & Hotels October 21, 2021
INDIAN HOTELS CO RESULT UPDATE
Nihal Mahesh Jham Yash Mehta +91 (22) 6623 3352 [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 277 12 month price target (INR) 386 Market cap (INR bn/USD bn) 110/1.5 Free float/Foreign ownership (%) 45.8/5.1
What’s Changed
Target Price ⚊
Rating/Risk Rating ⚊
QUICK TAKE
Above In line Below
Profit
Margins
Revenue Growth
Overall
Strong demand driving growth
Sterlite Technologies (Sterlite) logged Q2FY22 results broadly met estimates with the products business, specifically Optical Interconnect, driving growth. The services segment rebounded after a blip in the previous quarter due to the second covid wave.
Network creators and governments are investing heavily in digital
infrastructure, and Sterlite is hoping to capitalise on it with the investments it has made. The company is focused on three levers for growth, namely: i) growing the optical business; ii) taking the system integration business global and scaling it up in India, and iii) building a strong wireless solutions business. We broadly maintain our estimates and retain ‘BUY’ with an unchanged TP of INR386.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 48,252 62,399 79,017 91,277
EBITDA 8,107 11,349 15,121 18,255
Adjusted profit 2,680 5,074 7,781 10,259
Diluted EPS (INR) 6.7 12.6 19.3 25.4
EPS growth (%) (51.3) 89.3 52.7 31.3
RoAE (%) 14.5 24.7 30.7 33.6
P/E (x) 41.4 21.9 14.3 10.9
EV/EBITDA (x) 16.1 12.0 8.8 7.0
Dividend yield (%) 0.9 1.8 2.5 3.2
PRICE PERFORMANCE
Strong order book drives confidence
Sterlite’s revenue grew 15.1% QoQ, in line with Street’s estimates of 15.5%. EBITDA
margin declined by 30bps QoQ to 17.4%, marginally ahead of Street’s estimate of
17.2% as the proportion of services increased in the overall revenue. Order book
expanded further to INR115bn, from INR112bn in the previous quarter, 76% of which
is executable from FY23 and beyond. The company continues to see an increase in
contribution from its targeted Telcos segment and Americas and EMEA geographies.
Macro environment favourable; transition remains key
Sterlite continues to see robust demand for its products and services as evident from
its strong order book and high utilisation. The company is seeing good traction in the
Optical Interconnect business, wherein attach rates have increased to 8%, from 1%,
and can potentially go to 100%. The company has completed the integration of
Clearcomm and has also won two new orders in the UK. With this order book has
increased 2.7% QoQ/7.5% YoY to INR115bn. The company continues to invest in R&D
to drive growth in different segments and is well positioned to capitalise on the
higher capex in the digital network rollout. The company recently announced that
Mr. Ankit Agarwal will be the new MD. It has already hired seasoned global
professionals to lead key verticals; we will keep a close watch on the transition.
Explore:
Outlook and valuation: In a sweet spot; retain ‘BUY’
A strong order book imparts revenue visibility, which is likely to be the key driver of earnings growth in the next few years. The stock is trading at an attractive 14.3x FY23E EPS. Maintain ‘BUY/SO’ with an unchanged TP of INR386 (20x FY23E EPS) considering strong demand for its product, and superior execution and ratios.
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 15,075 11,595 30.0 13,092 15.1
EBITDA 2,628 2,024 29.8 2,319 13.3
Adjusted Profit 1,057 585 80.8 1,158 (8.6)
Diluted EPS (INR) 2.6 1.5 82.1 2.9 (8.7)
39,000
43,600
48,200
52,800
57,400
62,000
125
165
205
245
285
325
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
SOTL IN Equity Sensex
India Equity Research Telecom October 21, 2021
STERLITE TECH. RESULT UPDATE
Pranav Kshatriya Sandip Agarwal Pulkit Chawla +91 (22) 4040 7495 +91 (22) 6623 3474 [email protected] [email protected] [email protected]
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KEY DATA
Rating REDUCE Sector relative Underperformer Price (INR) 883 12 month price target (INR) 812 Market cap (INR bn/USD bn) 55/0.7 Free float/Foreign ownership (%) 48.3/33.9
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Above In line Below
Profit
Margins
Revenue Growth
Overall
Awaiting traction in B2B
Just Dial (JD) posted weak Q2FY22 results with a drop in revenue and cost escalations impacting profitability. However, revival in traffic and collections are pointing towards some recovery over coming quarters.
We still do not have much clarity on how JD fits in the new promoter’s ecosystem. Although possibilities are aplenty, given lack of details and
execution challenges, we are not building them in our estimates. Despite a marketing campaign, JDMart engagement is underwhelming, which underscores our hypothesis that displacing the leader in a network effect-led business is tough. We are cutting FY22/23E EPS by 28%/17% due to escalating costs, higher investments and slower monetisation. Retain ‘REDUCE’ with a revised TP of INR812.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 6,752 6,830 8,381 9,111
EBITDA 1,549 687 1,835 1,910
Adjusted profit 2,142 1,281 2,795 3,234
Diluted EPS (INR) 33.3 16.7 32.5 37.3
EPS growth (%) (20.1) (49.8) 94.0 14.8
RoAE (%) 16.8 5.4 8.1 9.2
P/E (x) 26.5 52.7 27.2 23.7
EV/EBITDA (x) 25.3 24.5 8.6 7.5
Dividend yield (%) 2.9 1.4 2.8 3.2
PRICE PERFORMANCE
Results disappoint; lead indicators point to recovery
JD’s Q2FY22 revenue declined 5.7% QoQ, versus Street’s 3.4% growth forecast, as
realisation and number of campaigns declined 4.1% QoQ and 1.6% QoQ,
respectively. EBITDA margin, adjusted for one-time advertising expenses in Q1FY22,
dipped 1,000bps QoQ to 10.2% and is short of Street’s 16.4% estimate. Cost
escalation is largely on account of 6% higher employee cost. Overall profit at
INR329mn is in line with Street’s estimates due to a spurt in other income. The silver
lining is a 20.5% QoQ spurt in unique visitors and a 28.3% QoQ jump in collections,
which indicate ensuing quarters will see improvement in revenue.
JDMart still to take off; possibilities aplenty in new home
Traffic data from third-party websites indicate an underwhelming engagement for
JD’s new B2B venture- JD Mart. This reinforces our belief that it is difficult to displace
an established incumbent in a platform-based business characterized by strong
network effect. We do see JD becoming new promoter’s vehicle in capturing B2B
commerce opportunity by enabling transactions as well as integrating JD with the
retail venture. The B2B transaction platform’s success will require razor-sharp
execution and large, ‘patient’ capital for creating long-term value for stakeholders.
Details are hazy; we await a road map from management.
Explore:
Outlook and valuation: Still circumspect; retain ‘REDUCE’
While we are cutting FY22/FY23 revenue estimates by 8.6%/4%, our EPS estimates
are lower by 28%/17%. The stock is trading at 27.2x FY23E EPS. We are revising the
TP to INR812 (from INR940) as we are trimming estimates and rolling over the
valuation to Q4FY23E EPS while maintaining the target 25x multiple.
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 1,560 1,675 (6.9) 1,654 (5.7)
EBITDA 159 447 (64.3) ( 172) (192.8)
Adjusted Profit 329 474 (30.5) ( 35) (1,034.9)
Diluted EPS (INR) 4.6 7.3 (36.4) ( 0.6) (943.6)
39,000
43,600
48,200
52,800
57,400
62,000
550
665
780
895
1,010
1,125
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
JUST IN Equity Sensex
India Equity Research Internet October 21, 2021
JUST DIAL RESULT UPDATE
Pranav Kshatriya Sandip Agarwal Pulkit Chawla +91 (22) 4040 7495 +91 (22) 6623 3474 [email protected] [email protected] [email protected]
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KEY DATA
Rating HOLD Sector relative Neutral Price (INR) 281 12 month price target (INR) 301 Market cap (INR bn/USD bn) 31/0.4 Free float/Foreign ownership (%) 3,627.5/692.5
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Recovery on course; stable on key pillars
Shoppers Stop (SSL) reported in-line recovery at 75% with the key highlight being that festive sales have already touched pre-covid levels in certain regions. Other highlights: i) Performance on its key pillars continues to be on track with private label/beauty/omni contributing 14%/17%/8%. ii) Targeting 100/181 department/home & beauty stores by FY23 (current: 80/161). iii) Appointed two new board
members to strengthen omni initiatives.
Rolling forward the valuation to FY23E, we maintain the target at 9x EV/EBITDA, which factors in our recovery expectations (pre-covid one-year average: 7x). We retain ‘HOLD’ with a revised TP of INR301. Sustained traction in key pillars will be a driver for SSL’s re-rating.
FINANCIALS (INR mn)
Year to March FY21A FY22E FY23E FY24E
Revenue 17,490 26,732 34,165 36,624
EBITDA 442 4,544 6,013 6,446
Adjusted profit (2,672) (1,157) 27 93
Diluted EPS (INR) (24.4) (10.6) 0.3 0.9
EPS growth (%) 51.4 (56.7) nm 240.1
RoAE (%) (286.7) (187.1) 51.3 81.9
P/E (x) nm nm 1,118.1 328.8
EV/EBITDA (x) 79.6 8.1 5.9 5.4
Dividend yield (%) 0 0 0 0
PRICE PERFORMANCE
In-line performance; festive recovery at pre-covid levels
SSL reported a 1.2x YoY revenue jump (in line) with stores operational for 87% of Q2
(sales recovery at 75% of Q2FY20). Gross margin came in at 38%, similar to Q1FY22,
but better than 32% seen in Q2FY21. Gross margin still remains lower than pre-covid
(~42%) due to higher ecommerce share. Cost base though remains lower than pre-
covid, which SSL plans to sustain. On recovery, SSL highlighted that while July was
muted due to multiple lockdowns and Maharashtra being completely closed, August
and September witnessed a sharp recovery. Also, management stated that festive
sales recovery stands at more than 100% in east India, followed by north India.
Stable on key pillars; new board members to strengthen omni
SSL’s private label mix was constant at 14% (Q2FY21: 15.5%, Q1FY22: 14%). Besides,
the beauty segment’s contribution was at 17% (Q2FY21: 15%, Q1FY22: 19%). SSL has
lined up many launches during the year, including three new Beauty by Shoppers
Stop stores by December. Omni channel sales grew 103% YoY with the share of e-
commerce at 8% (Q1FY22: 18%). Also, SSL has appointed 2 new board members: Mr.
Arun Sirdeshmukh – SVP & Global Business head, Ola Electric and CEO, Ola Cars in
India and Mr. Christine Kasoulis of John Lewis, UK, to strengthen omni initiatives. SSL
is targeting to spend INR0.4bn on omni initiatives in FY22 (H1FY22: 0.2bn)
Explore:
Outlook and valuation: Factoring in recovery; maintain ‘HOLD’
Rolling forward the valuation to FY23, we maintain the target 9x EV/EBITDA, which
factors in our recovery expectations (pre-covid one-year average: 7x). We maintain
‘HOLD’ with a revised TP of INR301 (INR276 earlier). An improvement in its key
metric pillars in normalized times will be a re-rating trigger.
Financials Year to March Q2FY22 Q2FY21 % Change Q1FY22 % Change
Net Revenue 6,316 2,924 116.0 2,011 214.1
EBITDA 706 ( 347) NM ( 628) NM
Adjusted Profit 305 ( 983) NM ( 726) NM
Diluted EPS (INR) 2.8 ( 11.2) NM ( 6.7) NM
39,000
43,600
48,200
52,800
57,400
62,000
150
180
210
240
270
300
Oct-20 Jan-21 Apr-21 Jul-21 Oct-21
SHOP IN Equity Sensex
India Equity Research Retail October 21, 2021
SHOPPERS STOP RESULT UPDATE
Nihal Mahesh Jham Abneesh Roy Yash Mehta +91 (22) 6623 3352 +91 (22) 6620 3141 [email protected] [email protected] [email protected]
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Aditya Narain
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