Reliance Industries (NS:): Our ADD rating on Reliance Industries (RIL) with a price target of INR 2,735/sh is premised on (1) recovery in the O2C businesses; (2) EBITDA growth in the digital business, driven by improvement in ARPU, subscriber addition, and new revenue streams; and (3) potential for further value unlocking in the digital and retail businesses. RIL’s consolidated EBITDA stood at INR 352bn (+19% YoY; +13% QoQ, HSIE: INR 344bn), above our estimate, while APAT stood at INR 158bn (-3.2% YoY, +16% QoQ), marginally below our estimate. Earnings were mainly driven by improvement in the O2C and E&P segments.
ICICI Bank (NS:): ICICI Bank (ICICIBC) reported yet another quarter of all-round impressive balance sheet performance with loan growth (+20% YoY), NIMs (4.7%) and asset quality (GNPA at 3.1%), reflecting in strong profitability vectors (standalone RoE of ~18%). Net slippages continued to remain benign (+0.5% annualised); however, the bank further shored up its contingent provisions, taking the stock of contingent provisions prudently to 130bps. Given the benign credit cycle, we believe that the bank is currently witnessing a profitability overshoot, which is difficult to sustain. With deposit mobilisation lagging loan growth and timing differences in repricing, we believe that peak NIMs are now behind (expecting moderation in FY24E). We tweak our FY23E/FY24E earnings estimates by 2-5% and maintain BUY with an SOTP-based TP of INR1,105 (standalone at 3.0x Sep-24 ABVPS).
Kotak Mahindra Bank (NS:): Kotak Mahindra Bank (KMB) clocked a strong beat, led by solid loan growth (+23% YoY), reflation in NIMs (+30bps QoQ), and lower-than-expected credit cost (20bps annualised) as the bank continued to marginally absorb its surplus provisions. Loan growth was steady across segments, with continued strong traction in unsecured retail credit (9.3% of loans). KMB is on track to increase the mix of unsecured high-yielding loans to the mid-teens by end-FY24. However, deposit growth continues to lag, resulting in a loan-to-deposit ratio running stretched at ~90%. While KMB’s move to chase super-normal yields through a higher mix of unsecured has merit, we believe overall loan growth could be constrained by the soft pace of deposit mobilisation. We tweak our FY23/FY24 estimates to adjust for higher opex, offset by rising yields; maintain ADD with a SOTP-based target price of INR2,290 (standalone bank at 3.5x Sep-24 ABVPS).
SBI Life Insurance (NS:): SBILIFE’s adj. VNB came in 3% below the estimate at INR14.5bn (+19% YoY), as VNB margin moderated 483bps QoQ to 26.6% on the back of a higher share of ULIPs in the mix (65%). While the management continues to remain upbeat about growth in the NPAR savings business (+3% QoQ), we continue to watch out for stronger sequential trends. The company’s three growth levers stay in place: (1) SBI’s massive distribution network (24k+ branches); (2) a healthy mix of protection and NPAR; and (3) the lowest opex ratio among peers (9MFY23: 9.7%). We expect SBILIFE to deliver a healthy FY22-25E APE/VNB CAGR of 17/22% and retain BUY with an unchanged TP of INR1,850 (3x Sep-24E).
LTIMindtree: LTIMindtree (LTIM) delivered its first quarterly performance as a combined entity clocking quarterly revenue of USD 1.05bn and recording deal bookings of USD 1.2bn. We believe that LTIM can take market share from tier-1 IT (LTIM 5% of India tier-1 IT but 8-10% share of incremental growth). LTIM expects ~USD 1bn in revenue synergies over 4-5 years and ~200bps cost synergies. Our TP of INR 4,920 and rating of BUY is based on a 15% revenue CAGR and 17% earnings CAGR over FY22-25E and is supported by (1) an increase in deal pipeline and a greater proportion of large deals supported by strong client mining credentials (T10 accounts have grown at >4% CQGR and USD 10mn+ up >20% in last six quarters); (2) strong cross-sell and up-sell opportunity supported by vertical and service-line synergies with limited client overlap; and (3) operational synergies supported by access to wider talent pool (86k+ employees), SG&A optimisation and consolidation of delivery centres (India and Europe overlap). We also believe that risk mitigation will be work in progress as the attrition risk at the senior leadership level persists (recent exit being joint President Sales). While vertical-specific (hi-tech) challenges have increased, the supply side factors have become favourable since the announcement of the deal in May’22. The opportunities of transition from mid-tier IT to tier-1 are greater than the risks of this transition. We value LTIM at 25x Sep-24E EPS implying a PEG of
JSW Energy (NS:): JSW Energy Q3FY23 sales were 10% above the consensus estimate at INR22.5bn (+18.7% YoY), driven by higher blended realisation, which was up 30.3% YoY to INR5.5/unit. Net generation, however, declined 4.8% YoY to 4.3bn due to a relatively weaker merchant market as coal prices increased by 37% YoY to $227/ton during the quarter. Accordingly, EBITDA and PAT declined 21% YoY and 41.8% YoY to INR6.2bn and INR1.9bn respectively. Receivables days stood at 69 days vs 66 QoQ due to the seasonality factor in the hydro business. A committed pipeline of 10GW by FY25 is well on time. Over and above this, JSW Energy received an LoA for the SECI wind project and plans to start its construction in the next 18-21 months. Acquisition of Mytrah Energy is expected to be completed in Q4FY23 (delayed by a quarter), which along with the phase-wise commissioning of SECI IX-810MW and X-450 MW will take the total operational capacity to 9.1GW by FY24 (65% RE). Further, JSW Energy completed the acquisition of the Utkal Ind-Bharath project having 700MW capacity pursuant to NCLT under IBC whose project revival plan is in progress and commissioning is expected in the next 24 months. JSW Energy is generating INR24-25bn p.a. in cash profit, which is sufficient to fund its pipeline projects and aims to maintain the debt/EBITDA level below 4-5x. However, the valuation looks expensive at INR262 (RoE – ~8.9%, FY25 P/E – 23.6x, P/BV – 2.0x); thus, we maintain SELL with a SoTP of INR186.
Bandhan Bank (NS:): Bandhan Bank’s Q3FY23 earnings missed estimates on account of high interest reversals impacting NIMs and a higher credit cost as management continues to build buffers (added INR4bn from the recently-announced ARC transaction). Continued elevated slippages (15.2% annualised) from the restructured and EEB portfolio, partly offset by write-offs, resulted in a flat GNPA/NNPA print. While the management seemed confident of the ongoing borrower behaviour corrections reflecting in the gradual abating of stress in its core EEB portfolio, we are cautious about any near-term outcomes from the bank’s hard pivot ahead. We hack our FY23 estimates by 18% and our FY24/FY25 forecasts by 5-6%; maintain ADD with a revised TP of INR255 (1.9x Sep-24 ABVPS).
Petronet LNG (NS:): Our REDUCE recommendation on Petronet LNG (PLNG) with a TP of INR 215 is based on: (1) an adverse impact of high spot LNG price and (2) rising domestic gas production on spot LNG demand in the medium term. Q3 reported EBITDA was at INR 17bn (-3% YoY, +43% QoQ), while PAT came in at INR 12bn (+3% YoY, +59% QoQ), above our estimates, supported by income towards ‘use or pay charges’ of INR 8.5bn for CY22 and higher-than-expected other income of INR 1.8bn. Volumes came below estimates at 167tbtu (-20% YoY, -13% QoQ).
IndiaMART InterMESH: IndiaMART posted an in-line revenue growth (+4.5% QoQ) and cash collection from customers (+28% YoY) was better than expected. The company has made investments in its sales engine over the last few quarters (headcount +37% YoY) to revive growth but it has led to margin erosion. Most of the major investments are now over and the sales headcount growth will be in line with paid supplier growth, resulting in operating leverage in FY24E. The paid supplier addition of ~6.3K in Q3 was soft but management has indicated that it will continue the rate of ~8-9K suppliers per quarter. The ARPU will improve as the customers move up the value chain. We maintain our positive stance, based on (1) growth visibility led by improving cash collections; (2) investments in growth engine; (3) improving margin outlook; and (4) lower churn in top customers. We keep our estimates and TP unchanged, we have a BUY rating with a DCF-based TP of INR 5,500 (~31x Dec-24E EV/EBITDA), supported by revenue CAGR of 24% over FY22-25E.
Aether Industries (NS:): We retain our BUY rating on Aether Industries, with a target price of INR 1,121 on the back of (1) capacity expansion-led growth, (2) advanced R&D capabilities, (3) technocratic management, (4) market leading position in most of its products, (5) strong product pipeline, and (6) marquee customer base. EBITDA/APAT were 10/5% below our estimates, mainly owing to a 10% fall in revenue.
RBL Bank (NS:): RBL Bank’s (RBK) Q3FY23 earnings disappointed on account of elevated opex intensity and moderately higher provisions. Gross/net slippages and write-offs, while sequentially lower, remain high at 3.9%/2.4% and 2.4% (annualised), with the bulk of the stress continuing to emanate from credit cards and MFI businesses. Loan growth improved (+15% YoY) as retail credit (~53% of loans) continued to gain traction, driven by credit cards and new segments (home loans, tractors, etc.). Despite a sequential pick-up, deposit mobilisation (+2.9% QoQ) is likely to be incrementally challenging, given the tight liquidity environment and a relatively weak competitive positioning. We believe this calls for sustained investment in distribution (branches, people, higher deposit pricing, etc.), and investment in new businesses, which is likely to keep medium-term opex ratios elevated. Despite lower credit costs driving a 4% upward revision to our FY23E/FY24E earnings estimates, we expect return ratios to stay sub-par and, hence, maintain REDUCE with a revised TP of INR150 (0.6x Sep-24 ABVPS).
Click on the PDF to read the full report:
