Cummins: Cummins India (NS:CUMM) Ltd (CIL) surprised us with the highest quarterly revenue/EBITDA/PAT at INR 21.8/4.1/3.6bn, exceeding our expectations by 12/37/34%. Revenue outperformance, pricing action, and op-lev all resulted in increased gross and EBITDA margins. CIL reaffirmed its forecast of returning to its historical gross margin range of 35-36% (+300bps) within 18-24 months. Demand is robust in both domestic and foreign markets, and CIL aims to grow at twice the rate of Indian GDP growth. With the changeover to stricter CPCB 4+ standards due in July’23, Powergen pre-purchases are expected to increase in Q4FY23/Q1FY24. Stringent forthcoming regulations, Capex cycle recovery, use of alternative fuels with lower carbon footprint, industrial resurgence, and supportive manufacturing policies are all tailwinds for CIL.CIL stated that it is still evaluating the CTIL merger and will arrive at a solution that is in the best interests of all stakeholders. To account for significant growth, we revised our FY23/24/25 EPS by 7.4/3.7/9.8%. Maintain BUY with a higher SOTP of INR 1,818. (35x Dec-FY24E EPS)
Astral Limited (ASTL:NS): Due to its costly valuation, we retain our REDUCE rating on Astral, with a revised TP of INR 1,880/sh (30x its Mar-25E consolidated EBITDA). We anticipate Astral’s expansion into new areas (paints and bath products) will lower its valuation premium. During Q3FY23, Astral’s consolidated revenue increased by 15% year on year (strong growth in both plumbing and adhesives), but inventory losses (in pipes) and high chemical prices (in adhesives), as well as early losses in bath ware, reduced EBITDA/APAT by 6/27% year on year. Astral anticipates some inventory growth in Q4FY23.
Hindustan Petroleum Corporation (NS:HPCL): Our ADD recommendation on Hindustan Petroleum Corporation (HPCL) is based on (1) a recovery in domestic demand for petroleum products and (2) healthy refining margins over the next 18 months. EBITDA in Q3FY23 was INR 17bn, which was somewhat lower than our forecast due to lower-than-expected GRM, which was partially offset by better-than-expected marketing sector performance. The reported GRM was USD 9.1/bbl (HSIE: USD 10.6/bbl).
Oberoi Realty (NS:OEBO): Oberoi Realty (ORL) reported subdued presales of Rs 6.4 billion (-68/-45%, YoY/QoQ), owing partly to the debut of the Borivali new tower. ORL has cleared its debts with its JV Partner in 360W by purchasing 63 units for INR 34 billion (non-cash, valued at INR 45bn at the last ORL sales price). The emphasis will now move to company development and new product launches. It has a robust launch pipeline for the next 12 months, including a new tower in Goregaon and a Thane Kolshet/Pokhran launch in Q4FY23/Q1FY24.In Q4FY23, a decision on Glaxo Worli-retail/office will be made. ORL has ready inventory of INR 75 billion, which would be used for growth capital and new land purchase. As we go forward to FY25 projections, we remain positive on ORL and maintain BUY, with an increased NAV-based TP of INR 1,158/sh.
Deepak Nitrite (NS:DPNT): We keep Deepak Nitrite (DNL) on SELL with a price objective of INR 1,583 (WACC 12%, terminal growth 4%). The stock is now selling at 19 times FY24E earnings per share. We believe DPL growth is limited since the phenol plant is currently at full capacity and margins in advanced intermediates are under pressure due to high input costs. Due to higher-than-expected raw material prices and lower-than-expected other income, EBITDA/APAT were 11/16% below projections.
Endurance Technologies Cn Ltd (NS:ENDU): Endurance’s third-quarter profit fell 18% year on year to INR1.1 billion, owing to sluggish 2W demand in India, input cost pressure, and a lack of state incentives. Going forward, Endurance expects local 2W OEMs to continue to face sluggish demand in both home and export markets. Furthermore, while global supply chain issues appear to have subsided, the demand forecast in Europe remains bleak, owing to the region’s record high inflation and rising interest rates.Furthermore, Europe’s quick EV transition could pose a problem. We anticipate consolidated margin improvement to 14.5% by FY25E (from 12% in FY23E), owing to a sustained fall in input prices and a reduction in energy costs in Europe. This is still significantly below the prior peak of 16.3% set in FY20. While we have taken into account the majority of the important positives, valuations at 29.1x FY24E earnings appear to be high. REDUCE should be repeated with the same aim of INR 1,340, valued at 25x Sep2024E.
Furthermore, Europe’s quick EV transition may pose a problem. On the strength of a sustained fall in input prices and a reduction in energy costs in Europe, we expect consolidated margins to increase to 14.5% by FY25E (from 12% in FY23E), albeit significantly behind the prior peak of 16.3% achieved in FY20. While we have factored in the majority of the important positives, prices at 29.1x FY24E earnings appear to be high. Reiterate REDUCE with an unchanged objective of INR 1,340, valued at 25x Sep2024E.
Century Plywood (NS:CNTP) India: Century Ply retains our BUY rating and target price of INR 715/sh (20x its Mar’25E consolidated EBITDA). Century appeals to us because of its strong brand (pan-India distribution, active marketing, and a diverse variety of SKUs), leadership in most wood sectors, and high return ratios. Consolidated revenue increased 3% year on year in Q3FY23, led by growth in the plywood business. However, EBITDA/APAT declined 14/13% year on year due to higher wood prices, a decline in laminate sales, and an impact on MDF/particle board sales and margins from rising imports. Despite predicted margin pressure in MDF and particle boards in FY24/25E, Century is expected to produce a 15% EBITDA CAGR during FY22-25E.
Kalpataru Energy (NS:KAPT) Kalpataru Power (KPTL) announced revenue/EBITDA/APAT of INR 35/3/1.1bn, (missing)/beating our projections by 2.9/4/(11%)%. Water, B&F, O&G, and Urban Infra businesses saw healthy execution growth. KPTL received new orders totaling INR 195 billion in FYTD23, bringing the order book (OB) to an all-time high of INR 414 billion (excluding L1 of INR 52bn). Transmission, B&F, Water, and Railways are the growth drivers for KPTL. With the completion of the merger with JMC, KPTL anticipates a financial synergy in terms of interest expense savings of INR 500-700 million in FY24.The combined company is well-positioned to bid on larger projects in both domestic and foreign markets. Within the domestic market, water and transmission potential abound; KPTL anticipates a 60-70% opportunity in the water segment as other states begin to issue tenders under JJM (mostly carried by UP till now). We have raised our estimates to account for robust order inflows. With an increased SOTP valuation of INR 708/sh, we roll forward our valuation to December 24E and retain a BUY recommendation on the company.
NS:PRCE Prince Pipes And Fittings Ltd: We keep our BUY rating on Prince Pipes and our target price of INR 705/sh unchanged (18.5x its Mar-25E EBITDA). We like Prince because of its diverse product range, strong pan-India distribution, and modest (30-35%) exposure to price-sensitive farm markets. Due to robust demand and channel replenishment (volume up 35/14% YoY/QoQ), it recorded a great performance in Q3FY23. Despite an INR 6/kg inventory loss in Q3FY23, unitary EBITDA rebounded to INR 16/kg (compared to INR 5/kg in H1FY23). With resin costs rising and demand increasing, we anticipate a rebound in volume and profit.
Prince Pipes And Fittings Ltd (NS:PRCE): We maintain our BUY rating on Prince Pipes, with an unchanged target price of INR 705/sh (18.5x its Mar-25E EBITDA). We like Prince because of its diverse product portfolio, strong pan-India distribution, and modest exposure (30-35%) to price-sensitive farming markets. It reported a great performance in Q3FY23 due to high demand and channel replenishment (volume up 35/14% YoY/QoQ). Despite an INR 6/kg inventory loss in Q3FY23, unitary EBITDA rebounded to INR 16/kg (up from INR 5/kg in H1FY23). With resin prices stabilising and demand increasing, we anticipate a comeback in volume and margin.The final hearing in the Sembcorp arbitration is this month, with the ultimate outcome coming in May/June’23. Construction on the Malad sewage water treatment facility is planned to begin in 1-2 months, with design, licencing, and clearances in the works. Given the strong order book, improved execution, stable balance sheet, and commodity price correction, we retain our BUY rating on NCC, with an increased target price of INR 111. (9x Dec-24E rolled over).
HG Infra (HG) announced revenue/EBITDA/APAT of INR 11/2/1bn (missing)/beating our forecast by (1.9)/2/1.4%, respectively. It anticipates revenue growth of 25% or more (INR 46 billion) in FY23, with an EBITDA margin of 15% or more, on the back of a strong OB of INR 110 billion. It announced an INR 160 million early completion incentive in Q3FY23 and expects INR 45 million in Q4FY23. The order inflow (OI) in 9MFY23 was INR 60 billion, with an additional INR 30-40 billion forecast in Q4FY23. It is L1 in its first non-highway project, the Delhi Metro, which is valued INR 4 billion and includes the construction of an elevated viaduct and four elevated stations.It anticipates a margin of 14% from this project and a margin of 15% or more at the aggregate level in the future. By September 23, the company intends to monetize four HAM projects at a 40% premium to book value of INR 3.5 billion invested equity. Given the strong order inflow and execution, we retain BUY with an improved TP of INR 1,017 (14x Dec-24E EPS) to account for stronger execution and EBITDA margin.
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