first call 04may21 - edelweiss
TRANSCRIPT
Edelweiss Research is also available on www.edelweissresearch.com, Bloomberg - EDEL, Thomson Reuters, and Factset Edelweiss Securities Limited
Consumer Staples - Sector Update - Battle of biscuits: Parle steals a march Britannia and Parle have dominated the nation’s chai time for years. While the latter
is relatively strong in a few northern states and in the glucose value segment of the
biscuit market, Britannia holds sway in the South and dominates the mid-premium
and premium biscuit segments. Britannia had been gaining market share over Parle
over FY13-20. However, in a surprising development, Parle gained significant market
share from smaller players in FY21, helping it narrow the share gap with Britannia.
Kotak Mahindra Bank - Result Update - Growth reviving; sustainability key
Kotak Mahindra Bank’s (KMB) Q4FY21 PAT missed estimates on higher credit cost as
it continued to hold onto its provision buffer and higher investment provisions.
Crucially, management indicated early signs of acceleration with 4.5% QoQ advances
growth–a trend whose sustenance is key to maintaining premium valuations. Asset
quality was broadly on anticipated lines as the bank continues to hold on to risk
guard rails, lending comfort on outlook.
SBI Life Insurance - Result Update - A breakaway performance SBI Life (SBIL) reported strong Q4FY21 results with NBP up 63% YoY. Consequently,
FY21 growth stood at a healthy 24%—primarily driven by strong performance of
non-par savings/annuity (11% of mix in FY20 to 20% in FY21). Q4FY21 marks a robust
build-up in momentum for ULIPs and its strongest growth in retail protection among
peers.
L&T Tech Services - Result Update - On growth trajectory L&T Tech Services’ (LTTS) Q4FY21 revenue growth of 3.9% QoQ to USD197.5mn
came lower than our USD201.0mn estimate, but above Street’s USD193.9mn
estimate. Operating margin expanded 140bps QoQ to 16.6%--higher than our and
Street’s estimates of 16.0%. PAT grew 4.5% QoQ to INR1,945mn, below our estimate
of INR2,061mn.
Shri.City Union. - Result Update - Managing well despite challenges Shriram City Union Finance (SCUF) reported Q4FY21 PAT of INR2.8bn, broadly in line
with estimates. Asset quality was steady with gross stage-3 at 6.4%. Business
momentum has picked up in key segments of SME and gold, but sustenance remains
key to re-rating.
India Equity Research May 4, 2021
FIRST CALL DAILY REPORT
Edelweiss Research +91 22 4009 4400 [email protected]
Sectoral Movements %Change Ticker 3-May-21 1 D 1 M 3 M 1 Y
Nifty 14,634 0.0 -1.6 -1.8 57.5
Banking 36,970 -0.9 -3.3 -7.4 63.0
IT 25,676 -0.9 -1.2 0.4 90.8
Pharmaceuticals 23,682 0.0 10.0 9.5 54.1
Oil 14,882 0.6 -1.3 0.8 28.4
Power 2,512 -0.8 -1.2 12.8 73.6
Auto 21,712 1.2 -3.9 -11.5 74.7
Metals 18,083 0.2 19.5 47.8 192.1
Real Estate 2,449 1.5 -8.5 -8.9 81.4
FMCG 12,676 -0.8 -1.5 -0.3 22.5
MARKETS Change in % 03-May-21 1D 1M 1Y
Nifty 50 14,634 0.0 -1.6 57.5 Nifty 200 7,696 0.2 -1.0 60.0 Nifty 500 12,395 0.2 -0.7 63.2
INDIA STOCK PERFORMANCE
GLOBAL
03-May-
21 1D 1M 1Y
Dow 34,113 0.7 2.9 43.6
China 3,447 -0.8 -1.1 20.5
EM Index 1,339 -0.6 0.0 50.8
UPCOMING EVENTS CALENDER
MACRO Change in %
03-May-21 1D 1M 1Y
Fx (INR/USD)
73.9 0.2 -0.9 2.4
!0-yr G-sec 6.0 -0.4 -2.7 -1.8 Oil (USD) 67.8 0.3 4.5 149.1
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Sales Traders Says Currency Conversations
Bond Vectors Valuation Vista
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7,000
8,500
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Apr 20 Jul 20 Oct 20 Jan 21 Apr 21
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Nifty Index MSCI EM Index - Local Currency (RHS)
EventDate
Adani Ports Quarterly Results04-05-21
Tata Steel Quarterly Results05-05-21
Adani Power Finance Results06-05-21
Tata Consumer Quarterly Results06-05-21
FIRST CALL
Edelweiss Securities Limited
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Supreme Industries - Result Update - Record profit despite a challenging
year Supreme Industries (SIL) ended FY21 with a bang: i) mere ~1% overall volume
decline; ii) significant market share gain in PVC (~4% versus 16% industry dip) as well
as CPVC pipes; iii) inventory gain of ~INR2bn (ex of which also PAT up >65% YoY); iv)
almost 5x jump in subsidiary profitability to INR1.46bn; v) sharp improvement in
working capital days and returns (ROCE improved >1150bps to 37%); and vi) net debt
free balance sheet with INR7.6bn surplus cash.
SIS India - Result Update - A strong finish, poised to accelerate SIS delivered yet another solid quarter – sales up 11% YoY in Q4FY21 – boosted by
its international business (up 32% YoY). The domestic security segment was largely
flat YoY, which is commendable given the tough environment. Margins were slightly
weaker, but management expects them to normalise in FY22E. All in all, in FY21, SIS
clocked 8% sales growth and sustained its EBITDA level, with OCF up more than 3x
(123% of EBITDA).
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Battle of biscuits: Parle steals a march
Britannia and Parle have dominated the nation’s chai time for years. While the latter is relatively strong in a few northern states and in the glucose value segment of the biscuit market, Britannia holds sway in the South and dominates the mid-premium and premium biscuit segments. Britannia had been gaining market share over Parle over
FY13-20. However, in a surprising development, Parle gained significant market share from smaller players in FY21, helping it narrow the share gap with Britannia.
In this note, we look at the recent developments in the ongoing tug-of war between the two behemoths of the biscuit industry and the initiatives taken by Britannia.
Down trading, trusted vale-end offerings boost Parle’s market share
Parle has regained sizeable market share in FY21. We attribute this to:
(1) The pandemic compelled many migrants to return to rural areas last year and
due to their propensity to consume trusted but value-end products, this would have
benefitted Parle against smaller players. (2) Parle is still way stronger in rural areas
of many parts of North India versus Britannia. (3) Down trading within category due
to economic slowdown has benefitted Parle given its dominance in the glucose
segment and a low price player in non-glucose segment.
Milk Bikis brand’s relaunch, pan-India push to spur Britannia’s share
Britannia’s Milk Bikis brand is dominant in southern states and the company is now
taking it to northern states as well. Milk Bikis Atta biscuit carries the ‘Doodh roti ki
Shakti’ tag line written in Hindi and Britannia has also roped in acclaimed actor
Pankaj Tripathi as brand ambassador. It currently has 26% share in the milk biscuit
category, but aims to increase its market share in the milk+glucose category
wherein it currently has only 4% share. Britannia has initiated large visibility drive
covering 1.4mn square feet in eight key states, covering over 2,000 villages--one of
the largest deployments by a biscuit company in India.
Outlook: H1 high base challenge for Britannia; valuations comforting
We will keep an eye on Parle gaining share from other players and narrowing the
gap with the No.1 player, Britannia. On the other hand, Britannia is focusing on
reducing the distribution gap with Parle in its weaker markets. For this, Britannia is
focusing efforts on Hindi belt states and rural areas, where it is relatively weaker.
It will be challenging for Britannia to grow in H1FY22 given the high base; hence,
one needs to monitor its progress on two years’ basis. Wave 2 of the pandemic is
likely to spur in-home consumption and we expect Britannia to effect price hikes
gradually. We expect the company to outperform regional players led by its strong
innovation pipeline and distribution expansion. We maintain ‘BUY’ on Britannia
with TP of INR4,195. The stock is trading at 41.4x FY23E EPS.
India Equity Research Consumer Staples May 3, 2021
Biscuits SECTOR UPDATE
Abneesh Roy Tushar Sundrani +91 (22) 6620 3141 +91 (22) 6620 3004 [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Neutral Price (INR) 1,724 12 month price target (INR) 2,100 Market cap (INR bn/USD bn) 3,417/46.3 Free float/Foreign ownership (%) 73.9/42.2
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Growth reviving; sustainability key
Kotak Mahindra Bank’s (KMB) Q4FY21 PAT missed estimates on higher credit cost as it continued to hold onto its provision buffer and higher investment provisions. Crucially, management indicated early signs of acceleration with 4.5% QoQ advances growth–a trend whose sustenance is key to maintaining premium valuations. Asset quality was broadly on anticipated lines as the bank continues to hold on to
risk guard rails, lending comfort on outlook.
KMB’s strong foundations—liability franchise, capital, limited stress—form a perfect launching pad. That said, sustained growth momentum is key. Maintain ‘BUY’ with revised TP of INR2,100 (earlier INR2,070, multiples unchanged) as we rollover to September 2022E.
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 193328 219585 233934 258212
PPoP 100208 122147 125087 135809
Adjusted profit 59472 69648 75346 81998
Diluted EPS (INR) 31.1 35.2 38.1 41.5
EPS growth (%) (7.1) 13.3 8.2 8.8
RoAE (%) 13.0 12.4 11.2 10.9
P/E (x) 55.5 49.0 45.3 41.6
P/ABV (x) 6.9 5.5 4.9 4.4
Dividend yield (%) 0 0.1 0.1 0.1
PRICE PERFORMANCE
Asset quality steady; holding to risk guard rails lends comfort
KMB’s risk management approach is aptly reflected in proactive recognition and
build-up of provisioning buffer. Headline asset quality numbers were intact--
GNPL/NNPLs came in 3.25%/1.21% versus 3.27%/1.24% (proforma) in Q3FY21.
Restructured book is merely sub-20bps. While the bank is incrementally getting
positive on asset quality outcomes with collections nearing pre-covid-19 levels, it
proactively held a buffer on stressed pool, eliminating any material possibility of
earnings shocks even post second covid wave. We believe asset quality pressures
will manifest through FY22 and provisioning buffer will continue to build up, keeping
credit cost high. Capitalisation and a lower mix of vulnerable segments lend comfort.
Early signs of growth visible; sustainability key
The bank has been risk-conscious for a while, which has taken a toll on its growth.
However, early signs of growth were visible this quarter with 4.5% QoQ loan growth.
Impressively, KMB’s strengthening liability franchise sustained with CASA now >60%.
This has drastically helped the bank lower its funding cost--savings deposits cost is
down to 3.74% from 5.2% a year ago. Management communicated that it has shifted
its strategy towards accelerated asset accretion. Execution on this front will be
monitored closely, as will be the possibility of inorganic growth.
Explore:
Outlook and valuations: Well-positioned; maintain ‘BUY’
KMB’s strong foundations—liability franchise, capital, limited stress—form a perfect
launching pad. Non-banking subsidiaries are also scaling up and gaining momentum.
Our current P/BVPS target multiple includes a ~10% haircut for excess capitalisation.
We maintain ‘BUY/SN’.
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
Net Revenue 57,923 50,490 14.7 53,412 8.4
Pre-provisioning Profits 34,075 27,253 25.0 30,833 10.5
Reported Profits 16,824 12,666 32.8 18,535 (9.2)
EPS 8.3 6.4 9.4
Above In line Below
NII
PPOP
PAT
Overall
30,000
34,600
39,200
43,800
48,400
53,000
1,100
1,285
1,470
1,655
1,840
2,025
May-20 Aug-20 Nov-20 Feb-21 May-21
KMB IN Equity Sensex
India Equity Research Banks May 3, 2021
KOTAK MAHINDRA BANK RESULT UPDATE
Santanu Chakrabarti Prakhar Agarwal Anisha Khandelwal +91 (22) 4342 8680 +91 (22) 6620 3076 +91 (22) 6623 3362 [email protected] [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 959 12 month price target (INR) 1,570 Market cap (INR bn/USD bn) 959/13.0 Free float/Foreign ownership (%) 39.3/26.2
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
A breakaway performance
SBI Life (SBIL) reported strong Q4FY21 results with NBP up 63% YoY. Consequently, FY21 growth stood at a healthy 24%—primarily driven by strong performance of non-par savings/annuity (11% of mix in FY20 to 20% in FY21). Q4FY21 marks a robust build-up in momentum for ULIPs and its strongest growth in retail protection among peers.
i) Positive investment variance (10% of opening EV, vs. estimate of 7%); and ii) positive operating experience variance (3% of opening EV) led to 6% outperformance in EV. This cascades to 5% FY22/23E EV upgrade, driving up TP to INR1,570 (from INR1,500; multiple unchanged). Maintain ‘BUY’. SBIL remains one of our top 2 picks in life space, wherein we incidentally see ‘best risk-return in listed history.’
FINANCIALS (INR mn)
Year to March FY20A FY21A FY22E FY23E
APE 1,07,400 1,14,500 1,64,802 1,88,597
EV 2,62,878 3,33,778 3,95,276 4,70,558
PAT 14,222 14,558 15,773 16,553
Diluted EPS (INR) 14.2 14.6 15.8 16.6
EPS growth (%) 7.2 2.4 8.3 4.9
VNB margin (%) 18.7 20.4 22.2 24.0
RoEV (%) 20.5 19.1 19.4 20.0
P/E (x) 67.5 65.9 60.8 58.0
P/EV (x) 3.7 2.9 2.4 2.0
PRICE PERFORMANCE
Business momentum in top gear
Q4FY21 marked the return of growth across product categories, particularly non-par
savings, ULIPs and individual protection. In contrasts to peers, growth in individual
protection stood out as the company did not back off from selling despite
heightened risk perception in a pandemic environment. It continues with the
philosophy of approaching customers with a bouquet of products and driving sales
based on their preferences. VNB margin rose 170bps in FY21 to 20.4%, mainly due
to a better business mix, partially offset by strengthening mortality and yield curve
assumptions. The persistency ratio improved greatly in 37th and 49th month buckets.
Cost leadership here to stay
By dint of its scale and productivity of third-party distribution, SBIL is the lowest-cost
life insurer—with a cost ratio (operating cost to gross written premium) of 8.3% in
FY21, an improvement of 160bps YoY. This was led by a reduction of 110bps in
operating expense ratio to 4.8% and 50bps in commission ratio to 3.5%. While
management’s endeavour would be to bring this further down, the scope thereof is
limited. That said, SBIL is and would remain the lowest-cost life insurer compared
with top peers by a wide margin. Improvement was led by increasing adoption of
digital practices across all areas of business, including robotics and cloud computing.
Explore:
Outlook and valuation: Deserves a higher valuation; maintain ‘BUY’
Lower-cost ratio, improved persistency and strong growth in premium has pushed
SBIL to the top of the pile in Q4FY21 performance. While margins still lag peers, it
comes married to highest room for improvement over FY21–23E. The stock is trading
at 2.4x FY22E P/EV; in our view, it deserves a large re-rating. Maintain ‘BUY/SO’.
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
APE 39,700 26,900 47.6 35,000 13.4
PAT 5,324 5,307 0.3 2,328 128.6
Diluted EPS 5.32 5.31 0.2 2.33 128.3
VNB margin (%) YTD 20.4 18.7 19.3
Above In line Below
Profit
Margins
Revenue Growth
Overall
30,000
34,600
39,200
43,800
48,400
53,000
675
735
795
855
915
975
May-20 Aug-20 Nov-20 Feb-21 May-21
SBILIFE IN Equity Sensex
India Equity Research Insurance May 3, 2021
SBI LIFE INSURANCE RESULT UPDATE
Santanu Chakrabarti Vinayak Agarwal +91 (22) 4342 8680 +91 (22) 6620 3020 [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 2,797 12 month price target (INR) 2,994 Market cap (INR bn/USD bn) 294/4.0 Free float/Foreign ownership (%) 25.7/9.1
What’s Changed
Target Price ⚊
Rating/Risk Rating ⚊
QUICK TAKE
On growth trajectory
L&T Tech Services’ (LTTS) Q4FY21 revenue growth of 3.9% QoQ to USD197.5mn came lower than our USD201.0mn estimate, but above Street’s USD193.9mn estimate. Operating margin expanded 140bps QoQ to 16.6%--higher than our and Street’s estimates of 16.0%. PAT grew 4.5% QoQ to INR1,945mn, below our estimate of INR2,061mn.
Management is extremely optimistic about FY22—revenue growth guidance of 13-15%. It is confident of healthy deal win closures and pipeline build up as customers are looking for innovation and digital led transformation to strengthen their market positioning. Maintain ‘BUY’ with TP of INR2,994.
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 56,192 54,497 65,120 74,583
EBITDA 11,105 10,074 14,881 18,239
Adjusted profit 8,224 6,938 10,083 12,453
Diluted EPS (INR) 77.5 65.4 95.5 117.9
EPS growth (%) 6.0 (15.6) 46.0 23.5
RoAE (%) 31.3 22.2 26.9 28.7
P/E (x) 36.1 42.8 29.3 23.7
EV/EBITDA (x) 25.0 26.6 17.6 14.1
Dividend yield (%) 1.1 0.9 1.4 1.7
PRICE PERFORMANCE
Broad-based growth across verticals
All verticals grew QoQ with two--Plant Engineering and Transportation verticals--of
five delivering strong growth of 9.9% and 6.5%, respectively. Revenue growth in
Transportation vertical was driven by autonomous vehicles (auto and trucks); Plant
Engineering segment was driven by ramp-up of deals in the oil & gas industry. By
geography, LTTS reported steady growth of 4.4%/7.5%/3.1% QoQ for North
America/ Europe/ Rest of the World; India declined 2.3%. EBIT margin at 16.6%
jumped 140bps YoY driven by higher utilisation, higher offshore revenue mix and
operational efficiencies. Utilisation increased 140bps QoQ to 78.9%. Attrition stood
at 12.2%. In Q4FY21, LTTS won six deals with TCV of USD10mn plus and two
USD25mn plus deals.
Optimistic outlook
Management has given guidance of USD revenue growth of 13-15% in FY22. It sees
strong demand and pockets of opportunities in the US and in Europe; in Japan and
India, management is seeing some delay due to resurgence of covid. In Q1FY22, it
expects margin headwinds in the form of wage hikes. The company will use levers
like utilization, offshore mix, operational efficiencies as well as improvement in
margin of its Telecom & Hi-Tech business to drive growth.
Explore:
Outlook and valuations: Momentum continues; retain ‘BUY’
LTTS’s outlook is optimistic after three consecutive quarters of strong deal wins, sequential revenue growth and operating margin improvement. It is focussing on investing in disruptive technologies and design labs to accelerate growth. The stock is trading at 29.3x FY22E. We maintain ‘BUY/SO’ with TP of INR2,994.
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
Net Revenue 14,405 14,466 (0.4) 14,007 2.8
EBITDA 2,931 2,683 9.2 2,756 6.3
Adjusted Profit 1,945 2,048 (5.0) 1,861 4.5
Diluted EPS (INR) 18.4 19.3 (4.8) 17.6 4.5
Above In line Below
Profit
Margins
Revenue Growth
Overall
30,000
34,600
39,200
43,800
48,400
53,000
1,050
1,425
1,800
2,175
2,550
2,925
May-20 Aug-20 Nov-20 Feb-21 May-21
LTTS IN Equity Sensex
India Equity Research IT May 3, 2021
L&T TECH SERVICES RESULT UPDATE
Sandip Agarwal Pranav Kshatriya Pulkit Chawla +91 (22) 6623 3474 +91 (22) 4040 7495 [email protected] [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Neutral Price (INR) 1,524 12 month price target (INR) 1,800 Market cap (INR bn/USD bn) 101/1.4 Free float/Foreign ownership (%) 66.1/26.1
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Managing well, even with challenges
Shriram City Union Finance (SCUF) reported Q4FY21 PAT of INR2.8bn, broadly in line with estimates. Asset quality was steady with gross stage-3 at 6.4%. Business momentum has picked up in key segments of SME and gold, but sustenance remains key to re-rating.
Events over the past two years have tested SCUF’s resilience,
particularly given its reliance on the SME/self-employed segment. Ironically, a seasoned underwriting franchise and strong foothold in this same self-employed segment is what lends comfort on that exposure though. Roll forward to Sep 2022E and increase in target multiple to 1.4x (1.3x earlier) leads to revised TP of INR1,800 (earlier INR1,520) . Maintain ‘BUY’. Second wave risks key to monitor.
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 36170 34880 37092 40520
PPoP 22775 22530 24227 26427
Adjusted profit 10159 10106 12163 14564
Diluted EPS (INR) 153.8 153.0 184.2 220.6
EPS growth (%) 2.6 (0.5) 20.4 19.8
RoAE (%) 15.0 13.3 14.3 15.1
P/E (x) 9.9 10.0 8.3 6.9
P/ABV (x) 1.6 1.4 1.2 1.0
Dividend yield (%) 1.9 2.1 2.1 2.1
PRICE PERFORMANCE
Asset quality holding up; sustenance key
Asset quality showed encouraging trends with gross stage-3 steady at 6.4%.
Collection efficiency has improved steadily in the quarter, followed by an
understandable softening in April. Restructuring demand is also low at
INR1.5bn(46bps of loans), in line with management expectations. Going forward, we
remain cautious on its key operating segment (SME), which though improving from
the early trough, needs monitoring. It is in SME outcomes, we believe, that the key
to SCUF’s future balance sheet health and credit cost outlook lies.
Business momentum improves
Growth momentum improved with disbursements growth >6% QoQ to INR65.7bn,
leading to 3.6% QoQ AUM growth. By segment, growth continues to be led by focus
segments of business (SME) loans and gold loans. Though disbursement momentum
has picked up QoQ, one can expect some near term softening given onset of second
wave. The company during the quarter launched LAP. This, in conjunction with
launch of gold loan products on a pan-India basis and improved traction in SME/2W,
will drive growth momentum. Next couple of months remain crucial from growth
perspective and will shape outlook for FY22. With levers for maintaining NIM, we
expect core momentum to gradually improve.
Explore:
Outlook and valuations: Valuation comfort; maintain ‘BUY’
Events over the past two years have tested SCUF’s resilience, particularly given its
reliance on the self-employed segment. The company responded by going slow on
growth and recalibrating collection strategies to navigate the tough environment.
The stock trades at 1x FY22E P/BV, rendering comfort. We maintain ‘BUY/SN’.
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
Net Revenue 9,297 9,038 2.9 9,179 1.3
Pre-provisioning Profits 5,719 5.360 6.7 5,808 (1.5)
Reported Profits 2,821 1,531 84.3 2,797 0.9
EPS 42.5 23.2 83.3 42.3 0.5
30,000
34,600
39,200
43,800
48,400
53,000
625
825
1,025
1,225
1,425
1,625
May-20 Aug-20 Nov-20 Feb-21 May-21
SCUF IN Equity Sensex
India Equity Research Non Banks May 3, 2021
SHRIRAM CITY UNION. RESULT UPDATE
Santanu Chakrabarti Prakhar Agarwal Vinayak Agarwal +91 (22) 4342 8680 +91 (22) 6620 3076 +91 (22) 6620 3020 [email protected] [email protected] [email protected]
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 2,109 12 month price target (INR) 2,437 Market cap (INR bn/USD bn) 268/3.6 Free float/Foreign ownership (%) 12.5/20.5
What’s Changed Target Price
Rating/Risk Rating ⚊
QUICK TAKE
Record profit despite a challenging year
Supreme Industries (SIL) ended FY21 with a bang: i) mere ~1% overall volume decline; ii) significant market share gain in PVC (~4% versus 16% industry dip) as well as CPVC pipes; iii) inventory gain of ~INR2bn (ex of which also PAT up >65% YoY); iv) almost 5x jump in subsidiary profitability to INR1.46bn; v) sharp improvement in working capital days and returns (ROCE improved >1150bps to 37%); and vi) net debt
free balance sheet with INR7.6bn surplus cash.
Factoring the strong FY21 numbers, we revise up FY22/23E EPS 15%/9%. Rolling forward the valuation to Q2FY23E, we retain ‘BUY’ with revised TP of INR2,437 (INR2,073 earlier; INR117 for subsidiary Supreme Petro).
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 55,115 63,571 69,368 72,689
EBITDA 8,346 12,843 11,273 12,039
Adjusted profit 4,674 9,781 7,915 8,463
Diluted EPS (INR) 36.8 77.0 62.3 66.6
EPS growth (%) 22.5 109.3 (19.1) 6.9
RoAE (%) 21.2 36.0 23.6 22.7
P/E (x) 57.3 27.4 33.9 31.7
EV/EBITDA (x) 32.3 20.3 22.8 21.2
Dividend yield (%) 0.7 1.0 0.9 0.9
PRICE PERFORMANCE
Leader continues to gain market share
While PVC resin consumption in India fell 15.7% YoY in FY21 (~70% consumption in
plastic pipes), SIL’s PVC consumption dipped mere 3.7%, leading to significant
market share gains. Apart from PVC pipes, the company gained market share in the
CPVC segment as well (3.7% volume decline versus 11.6% industry decline). In FY21,
volumes across segments recovered significantly--packaging (up 7%), industrial (up
7%) and pipes (down mere 2%). Initial signs of the fallout of the second wave and
weak pipe volumes in Q4FY21 (down 2% YoY) notwithstanding, we believe SIL will be
among players to see limited impact, similar to last year (overall volumes fell mere
1% YoY in FY21 and pipes volumes slipped by only 2% YoY).
Inventory gains and Supreme Petrochem drive record profit
SIL’s Q4FY21 EBITDA margin jumped 530bps YoY to 24.5%--record high--led by
margin improvement in pipes (up 720bps YoY to 28%), industrials (up 150bps YoY to
15.6%) and consumers (up 150bps YoY to 25.6%). The margin expansion was led by
operating efficiency, savings in other expense, inventory gains (INR0.8-1.0bn) and
higher share of value-added products (up 46% YoY). While the company may report
inventory losses in Q1FY22/Q2FY22, some of the cost savings or rising share of value-
added products are likely to sustain, in our view.
Explore:
Outlook and valuations: Bolstering leadership; retain ‘BUY’
Factoring strong result led by market share gain & inventory gains and improving
profitability of Supreme Petrochem, we revise up FY22/23E EPS 15%/9%, keeping
target multiple unchanged at 36x. We maintain ‘BUY’ with revised TP of INR2,437
(INR2,073 earlier; SIL’s holding in SPL at INR117).
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
Net Revenue 20,846 14,305 45.7 18,438 13.1
EBITDA 5,097 2,734 86.4 4,016 26.9
Adjusted Profit 4,504 1,173 284.0 3,123 44.2
Diluted EPS (INR) 35.5 9.2 284.0 24.6 44.2
Above In line Below
Profit
Margins
Revenue Growth
Overall
30,000
34,600
39,200
43,800
48,400
53,000
875
1,125
1,375
1,625
1,875
2,125
May-20 Aug-20 Nov-20 Feb-21 May-21
SI IN Equity Sensex
India Equity Research Home Decor May 3, 2021
SUPREME INDUSTRIES RESULT UPDATE
Sneha Talreja Rohan Gupta +91 (22) 4040 7417 +91 (22) 4040 7416 [email protected] [email protected]
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Video
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KEY DATA
Rating BUY Sector relative Outperformer Price (INR) 364 12 month price target (INR) 600 Market cap (INR bn/USD bn) 54/0.7 Free float/Foreign ownership (%) 25.7/11.6
What’s Changed
Target Price ⚊
Rating/Risk Rating ⚊
QUICK TAKE
A strong finish, poised to accelerate
SIS delivered yet another solid quarter – sales up 11% YoY in Q4FY21 – boosted by its international business (up 32% YoY). The domestic security segment was largely flat YoY, which is commendable given the tough environment. Margins were slightly weaker, but management expects them to normalise in FY22E. All in all, in FY21, SIS clocked 8% sales growth and sustained its EBITDA level, with OCF up more than 3x
(123% of EBITDA).
Even as the second wave is causing much uncertainty, SIS has shown its business model is recession-proof, and that inspires a great deal of comfort. Retain ‘BUY’ with a TP of INR600 and unchanged estimates. At 16x PE, SIS is a solid business to own (EPS growth:15%+; RoE: 20%).
FINANCIALS (INR mn)
Year to March FY20A FY21E FY22E FY23E
Revenue 84,852 91,273 96,885 1,04,021
EBITDA 5,204 5,208 5,915 6,330
Adjusted profit 2,566 1,935 3,090 3,451
Diluted EPS (INR) 17.3 13.1 20.9 23.3
EPS growth (%) 18.9 (24.4) 59.7 11.7
RoAE (%) 17.1 22.7 15.7 15.3
P/E (x) 21.1 27.9 17.4 15.6
EV/EBITDA (x) 11.5 10.5 8.9 7.8
Dividend yield (%) 0.5 0.7 0.6 0.7
PRICE PERFORMANCE
Ends FY21 on a strong note; ‘essential services’ quality plays through
SIS reported yet another quarter of growth (YoY) in Q4FY21 in a challenging year,
with revenue up 11% YoY. For Q4FY21, SIS’s international security segment provided
a boost with sales up 32% YoY; domestic security was largely flat, but put up a
resilient performance amid this challenging period. The Facility management
business, relatively more hit earlier in the year, is also showing signs of recovery. The
Q4FY21 saw slightly weaker margins, but management expects these to normalise
in FY22E. All in all, in FY21, SIS clocked 8% YoY sales growth and sustained its EBITDA
level, with OCF up more than 3x (123% of EBITDA).
FY22 outlook and beyond
While the immediate impact of the second wave is unclear, taking a cue from FY21, we believe
the impact on SIS’s India businesses should be limited. Its business model has proved to be
unique, one which participates in growth during economic upturns, and remains highly
resilient even during severe downturns. Furthermore, during its detailed analyst meet, SIS
outlined its Vision 2025, whereby the company plans to aggressively capitalise on its market
leadership in almost all of its businesses and hence double the market share by 2025.
Importantly, SIS plans to achieve 85–90% of these growth objectives organically. Impending
labour reforms too should assist the company consolidate market share.
Explore:
Outlook and valuation: Retain ‘BUY’
We continue to be bullish on structural growth opportunities that SIS’s businesses
offer. We retain our estimates and TP of INR600, implying upside potential of 68%.
Our DCF-based TP assumes WACC of 12% and terminal growth of 5%, and implies
FY23E PE of 25x. Maintain ‘BUY/SO’.
Financials Year to March Q4FY21 Q4FY20 % Change Q3FY21 % Change
Net Revenue 24,452 22,097 10.7 23,575 3.7
EBITDA 1,233 1,385 (10.9) 1,469 (16.0)
Adjusted Profit 359 ( 40) NA 681 (47.3)
Diluted EPS (INR) 2.4 ( 0.3) NA 4.6 (47.3)
Above In line Below
Profit
Margins
Revenue Growth
Overall
30,000
34,600
39,200
43,800
48,400
53,000
325
355
385
415
445
475
May-20 Aug-20 Nov-20 Feb-21 May-21
SECIS IN Equity Sensex
India Equity Research Business Services May 3, 2021
SIS INDIA RESULT UPDATE
Alok P. Deshpande Sameer Chuglani +91 (22) 6620 3163 +91 (22) 4040 7415 [email protected] [email protected]
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