July 26, 2024

TOP NEWS

Banks: RBI has proposed to tighten banks LCR norms and has released draft guidelines. The regulator has proposed to impose an additional run-off factor of 5 per cent on both stable and less stable retail deposits that are enabled with internet and mobile banking facilities. View: This could increase the liquid reserve requirement across banks and would have marginal negative impact on margins. Negative read through for banks.

SJVN: The company has received a huge order worth Rs 13,497 crore from the Government of Mizoram to complete a pumped storage project. Positive

KPI Green: Company gets LoI from Gujarat Urja Vikas Nigam for 620 MW grid-connected solar & hybrid RE projects. (Positive)

Texmaco Rail and Engineering: The Board approved the acquisition of Jindal Rail Infrastructure for an aggregate consideration amount of Rs 615 crore and at 8.1x FY24 Ev/ebitda.

RESULT PREVIEW

*Result on 27 July

*Result on 27 July

STRONG RESULTS

DLF: Pre-sales for Q1FY2025 were up 3x y-o-y and 4.4x q-o-q at Rs. 6404 crore and collections were up 88% y-o-y and 35% q-o-q at Rs. 2968 crore. OCFs increased by Rs. 1047 crore q-o-q led to rise in net cash balance by Rs. 1349 crore q-o-q to Rs. 2896 crore. It upped its FY2025 launch pipeline.

MACRO WRAP

• US advance Q2 GDP rose 2.8%, accelerating from the prior 1.4%, and above the 2.0% consensus. Consumer spending rose by 2.3% in the advance estimate, above the prior 1.5%. Core PCE for Q2 rose 2.9%, above the 2.7% forecast but down from the prior 3.7%. Data is sentimentally bullish for USD
• US June PCE is reported today and will be one to watch in case there is any upside surprise. That would upend market’s expectations of Fed rate cuts coming in quicker. Consensus expects core PCE to come in at 0.2% MoM from 0.1% previously or at 2.5% YoY from 2.6% previously.
• US initial jobless claims for the w/e 20 July fell to 235k, from a revised higher, 245k, and was beneath the expected 238k, while the 4wk average was more-or-less unchanged at 235.5k (prev. 235.25k). Continued jobless claims, for the week that coincides with the US jobs report, dipped to 1.851mln from, and also the expected, 1.860mln.
• The 2-year bond yield was unchanged at 4.43%. The 10-year treasury yield declined 4 basis points to 4.24%. Interest-rate markets are pricing in 66 basis points of rate cuts this year. A rate cut in September is now more than fully priced in.
• The US dollar was broadly unchanged after flipping between losses and gains, while remaining in a narrow range 104.08 to 104.46. It has settled at around 104.39. 

INVESTMENT CALL

First Cut: Tech Mahindra Q1FY25 Consolidated Results – Revenue and Margin beats modest estimates, Net New Deal wins improve.

·         Constant currency revenue grew 0.7%q-o-q to $ 1,559 million slight beating our estimate of $1,554, led by Retail, Healthcare and Manufacturing. Reported revenue in USD was up 0.7% q-o-q/ down 2.6% y-o-y while revenue in rupee terms stood at Rs. 13,006 crore, up 1% q-o-q/ down -1.2% y-o-y

·         EBIT margin improved 112 bps q-o-q to 8.5%, beating our estimates of 8.2%, mainly due to cost saving efforts under project Fortius and continued focus on operational efficiencies. Net profit stood at Rs. 852 crore, down 12.2% q-o-q/ up 23% y-o-y missing our estimates of Rs 894 crore impacted by higher tax rate. 

·         Net new deal TCV for the quarter stood at $534 million, up 7% q-o-q/49% y-o-y. Company added 1 client each in $50 million+ and $ 5 million+ category. Number of active clients fell by 7 q-o-q to 1165.

·         Retail, Healthcare and Manufacturing grew 6.2%/7.7% and 2.4% q-o-q respectively while BFSI and Hitech & media each grew 0.7% q-o-q. Core Communication vertical reported weakness down 2% q-o-q while Others was down 6.9% q-o-q.

·         Net headcount improved by 2165, taking Total headcount to 147,620. LTM Attrition and Utilisation remained unchanged for the quarter.

·         We will come out with a detailed note later.

Result Summary                                                                         Rs Crore

Actual Vs Estimates                               Rs Crore

First Cut - DLF Q1FY25 Consolidated Results – Strong performance; FY2025 launch pipeline upped

·         The company registered strong pre-sales booking of Rs. 6404 crore (up 3.1x y-o-y, up 4.4x q-o-q) for Q1FY2025 led by launch of second phase of its luxury project in New Gurugram – Privana West, which clocked Rs. 5600 crore pre-sales. Collections during Q1FY2025 were up 88% y-o-y (up 35% q-o-q) at Rs. 2968 crore.

·         DLF reported lower than expected consolidated revenues at Rs. 1362 crore (down 4.3% y-o-y) and operating margins of 16.8% (down 11 ppts y-o-y). However, consolidated adjusted net profit was up  22.5% y-o-y at Rs. 645.6 crore (in-line with estimate) led by higher other income (up 273% y-o-y at Rs. 367.5 crore).

·         The company has increased launch area and sales potential for FY2025 to 12.8 msf (from 11.6 msf) and Rs. 42,000 crore (from Rs. 36,000 crore). Net cash surplus increased by Rs. 1349 crore q-o-q to Rs. 2896 crore. OCFs increased by Rs. 1047 crore q-o-q to Rs. 1349 crore.

·         Currently, we have a positive view on the stock. We shall come out with a detailed update post management interaction.

Results (Consolidated)                                                                     Rs cr.

Actual vs. Estimates                                     Rs cr.

First cut: Chalet Hotels Q1FY2025 (Consolidated) results – Operating performance in line

·       Chalet Hotel’s revenue grew by 16.2% y-o-y to Rs. 361 crore, largely in line with our and average street expectation of Rs. 350 crore and Rs. 354 crore, respectively, driven by 15.4% y-o-y growth in the hospitality business and 24.6% y-o-y growth in the annuity business. Growth in the hospitality business was largely due to room additions as key operating metrics – ADR, RevPar and occupancy delivered muted growth of 1.3%, 2.5% and 50 bps y-o-y, respectively due to impact of elections and extreme heat wave across the country.

·       EBITDA margin fell by 174 bps y-o-y to 38.8%; in line with our expectation of 38.9% and higher than average street expectation of 37.6%. EBITDA margin of the hospitality business improved by 75 bps y-o-y to 41.2%, while annuity business EBITDA margin fell sharply by 532 bps y-o-y to 74.3%.

·       EBITDA grew by 11.2% y-o-y to Rs. 140 crore. This coupled with higher other income and lower interest cost led to 43% y-o-y growth in the adjusted PAT to Rs. 61 crore. PAT came in higher than our expectation of Rs. 41 crore and in line with average street expectation of Rs. 62 crore.

·       View: Overall, Chalet’s Q1FY2025 operating performance was in line with our expectations. Proceeds from QIP in April-24 were largely utilised to repay debt, resulting in net debt lowering to Rs. 1,532 crore at Q1FY2025-end versus Rs. 2,509 crore at FY2024-end. We will review our earnings estimates and come out with a detailed report post the conference call. Currently we have Positive view on the stock.

Results (Consolidated)                                                                             Rs. crore

Actual vs estimates                                                  Rs. crore

First Cut – MGL Limited Q1FY2025 Consolidated Results

·         Revenue reached Rs. 1868 crores, reflecting an 8% year-over-year increase and a 3% quarter-over-quarter rise, exceeding our estimates by 20%.

·         EBITDA was Rs. 472 crores, which is a 16% decrease year-over-year but an 8% increase quarter-over-quarter, surpassing our estimates by 30%.

·         Total volume for the quarter reached 343.91 SCM million, representing a 1.8% increase. CNG volumes saw a slight rise of 0.2%, reaching 242.57 SCM million.

·         Piped Natural Gas (PNG) volumes experienced a significant rise of 6.1%, reaching 101.34 SCM million.

Results (Consolidated)

Actuals Vs Estimates

Stock Update: ICICI Pru Life Insurance – Q1FY25 Results update: Mixed bag Q1, outlook improving

Rating: Buy         Reco Price: Rs. 701   Target price:  Rs. 800

·         ICICI Prudential reported a ~34% y-o-y growth in APE, albeit on a lower base led by strong growth across its distribution channels. VNB margins stood at 24% vs estimates of 24.5% and 30% y-o-y.

·         VNB margins lagged on an adverse product mix and higher expense ratio . VNB grew by 8% y-o-y to Rs. 472 crore.

·         Management expects APE growth to outpace industry led by sustained strong growth across its distribution channels, while VNB growth would depend upon product mix and expense ratio.

·         We maintain a Buy with a revised PT of Rs. 800 by increasing the multiple, given growth outlook improving. The trades at 2.1x/1.8x its FY2025E/FY2026E EVPS

Valuation Table                                                         Rs. crore

Result Snapshot (Consolidated)                                                                            (Rs. Cr)

Actuals vs estimates (Rs. Crore)        

Stock Update: AU Small Finance Bank – Q1FY25 Results - Downside risk keeps us on sidelines, maintain HOLD

Rating: Hold         Reco Price: Rs. 631   Target price:  Rs. 700

·         The merged entity reported healthy operational performance (better than estimates), driven by higher than-expected NIM expansion and lower opex growth. However, credit cost was higher than the guided range.

·         Asset-quality trends saw normalisation q-o-q vs. the proforma basis. RoA for the merged entity came in at ~1.6%.

·         We believe there could be downside risk in profitability or growth, given the outlook on margins and cost is negative in the near term and retail deposit mobilisation remains a tall task in the current challenging environment. Either growth would be lower or profitability will be challenged.

·         Additionally, if stress build-up is higher than expected in the MFI/credit cards business going ahead, credit cost may also inch higher but the probability is low here. Thus, the uncertain outlook keeps us on the sidelines. We maintain our HOLD rating on AU SFB with an unchanged PT of Rs. 700. The stock trades at 2.5x/2.2x its FY2025E/FY2026E BV estimates.

Valuation Table                                                                                  Rs. Crore

Result Snapshot (Rs. cr)

Actual vs Estimates (Rs. cr)

Stock Update: Coforge Q1FY25 Results – Decent Quarter, Maintain Hold

Rating: Hold     Reco Price: Rs 6,335        Price Target: Rs 6,650

·         Reported revenue stood at $291.4 million, up 1.6% q-o-q/7.8% y-o-y in constant currency terms, beating our estimates of $290.8 million

·         Order book executable over next 12 months stood at $1,070 million, up 19.3% y-o-y provides confidence on FY25 growth.

·         The acquisition of Cigniti is anticipated to enhance Coforge’s presence US, bring in new logos, and create additional cross-selling opportunities

·         We believe the revenue synergies would be crucial due to the potential risk to functional testing services from Gen AI, prompting us to be cautious regarding Cigniti’s revenue and margin trajectory until clarity emerges post the transition. We maintain Hold with a revised PT of Rs 6,650 (valuing at 32xFY26E EPS). At CMP, the stock trades at 37.7/30.5x its FY25/26E EPS

Valuation (Consolidated)                                                  Rs Crore

Result Summary                                                                         Rs Crore

Actual Vs Estimates                                                   Rs Crore

Stock Update: Mahindra & Mahindra Financial Services Limited  Q1FY25 results– Weak Q1

Rating: Buy         Reco Price: Rs. 298 Target price:  Rs. 345

·   Earnings were broadly in line mainly led by higher other income and lower credit cost. However, operational performance was weak led by higher NIMs compression and muted business momentum.

·   Credit cost was lower despite an increase in GS2 as well as GS3 assets mainly due to reversal of ECL provisions driven by lower LGDs and PDs assumptions.

·   NIMs were down by 36bps q-o-q as yields were lower due to interest income reversals and mix change.

·   Recovery in business momentum and asset quality is key for stock performance. The stock trades at 1.8x/ 1.6x its FY2024E/FY2025E BV estimates, respectively. We maintain Buy with an unchanged PT of Rs. 345.

Stock update: Welspun Living Q1FY2025 (Consolidated) result update – Brighter times ahead

Rating: Buy                  Reco. Price: Rs. 177                  Price Target: Rs. 211

·         Welspun Living Ltd’s (WLL’s) Q1FY2025 numbers met expectations with revenue/PAT growing by 16%/14% y-o-y, respectively; EBITDA margins stood at 13.5%.

·         Management is positive on demand outlook in the coming quarters and has maintained revenue guidance at 12% for FY2025 and for EBITDA margins at 15-15.5%.

·         The board has approved a buyback of Rs. 278 crore at Rs. 220 per share; capex for FY2025 is expected to be Rs. 860 crore (Rs. 300-400 crore in FY2026). Net debt to remain stable y-o-y in FY2025.

·         We maintain a Buy with a revised PT of Rs. 211. Stock trades at 23x/19x its FY2025E/26E earnings, respectively.

Valuation (Consolidated)                                                   Rs. crore

Results (Consolidated)                                                                                     Rs. crore

Actual vs estimates                                                  Rs. crore

Stock update: Jyothy Labs Q1FY2025 (Consolidated) result update – Strong Q1 with double digit volume growth

Rating: Buy                  Reco. Price: Rs. 547                  Price Target: Rs. 655

·         Jyothy Labs Limited’s (JLL’s) Q1FY2025 operating performance was in line with our expectation with revenues growing by 8% (versus expectation of 8.5%) while OPM stood at 18% (versus expectation of 17.9%).

·         Domestic volume grew by 10.8%, outpacing industry growth. Management targets double-digit revenue growth in FY2025, largely driven by volumes with improved market share across categories and higher growth in modern trade and e-Commerce channels.

·         JLL eyes OPM of over 16-17%. Any improvement in the product mix and efficiencies might help to score better margins ahead of aspiration.

·         Stock trades at 49x/42x its FY2025E/FY2026E EPS, respectively. With JLL being a consistent performer in the mid-cap space and good earnings visibility, we maintain a Buy with a revised PT of Rs. 655.

Valuation (Consolidated)                                                   Rs. crore

Results (Consolidated)                                                                                     Rs. crore