Aarti Industries, Westlife Foodworld, Kalpataru Power Transmission Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

Aarti Industries - Capex mode on

Aarti Industries Ltd.'s constant focus on capex and research and development will enable it to remain competitive and expand its customer base. The toluene segment in India is mainly untapped and catered to through imports; Aarti Industries will benefit in the long term by entering this segment.

Ebitda was 10% below our estimate, mainly owing to higher-than-expected other expense. Adjusted profit after tax was 14% above our estimate owing to an unanticipated moving annual total credit entitlement and a prior period tax set-off that led to a tax income in Q4.

Westlife Foodworld - Dine-in sustaining outperformance

Westlife Foodworld Ltd.’s Q4 FY23 performance was largely in line with estimates. Revenue, restaurant Ebitda (restaurant operating margin) and Ebitda (pre-Ind AS) were up by 22/34/27% YoY.

Same-store sales growth was at 14% on a double-digit increase in dine-in guest count. Restaurant operating margin expansion of 220 bps YoY to 24.5% (our estimate: 23.4%) was aided by underlying gross margin expansion of 370 bps YoY to 72%. The management has maintained its medium term guidance of high single-digit SSSG and 40-45 store addition yearly.

In the near term, we expect pressure margins for quick service restaurant companies on decelerating discretionary spending.

However, we believe Westlife Foodworld is better placed and we expect it to fare better versus its peers, given it is sustaining dine-in footfall; McD’s has a wide price offering that is well-supported by beverage; there are enough levers for margin expansion (full McCafe roll-out, menu expansion, etc.).

Kalpataru Power Transmission - Accelerated profitability growth

Kalpataru Power Transmission Ltd. reported Q4 FY23 revenue /Ebitda /adjusted profit after tax of Rs 44/3.1/1.1 billion, beating/(missing) our estimates by 12/(10)/(21)%. It also reported an exceptional gain of Rs 540 million.

Kalpataru Power secured new orders worth Rs 252.4 billion in FY23, taking the order book to an all-time high of Rs 459.2 billion.

The net debt as of March 2023 stood at Rs 16.8 billion. Kalpataru Power has guided for FY24 revenue to grow by 30% YoY with the profit before tax margin between 4.5-5%.

It also guided for order inflow of Rs 260 billion. It plans to incur finance costs at ~2% of revenue and capex of Rs 2.5-2.8 billion. Return on capital employed guidance is 18-20%.

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