ICICI Bank, Kotak Mahindra Bank, Metro Brands, Kajaria Ceramics And More Q2 Results Reviews: HDFC Securities

HDFC Securities Institutional Equities

ICICI Bank - Consistent performance adds to growth leadership

ICICI Bank Ltd. clocked another steady quarter on the back of consistent loan growth (+18% YoY) and lower credit costs (23 basis points of loans), maintaining its robust asset quality alongside a healthy provision coverage ratio (~83%).

Loan growth was driven by healthy deposit growth (+19% YoY), largely retail term deposits as the current acccount and savings account ratio eased to 40.8% (-222 bps QoQ), resulting in a 22-bps QoQ spike in the cost of deposits.

With limited yield reflation despite improving retail mix, net interest margins softened by 25 bps QoQ to 4.53% and are likely to trend further lower.

We tweak our FY24E/FY25E forecasts to factor in the elevated cost of funds and opex intensity, largely offset by normalised credit costs (more than 40 bps for each of FY24-25); we maintain 'Buy' with a SOTP-based target price of Rs 1,190 (standalone at 2.9 times March-25 adjusted book value per share).

Kotak Mahindra Bank - New leadership in place; deposits still need solving

Kotak Mahindra Bank Ltd. delivered an in-line performance, with a healthy loan growth (+18% YoY), partly offset by margin compression (-35 bps QoQ) and gradual normalisation in credit costs (47 bps annualised).

While loan growth was widespread across segments, Kotak Mahindra Bank continued to grow its unsecured retail book (11% of loans), in line with its strategy to improve the share of high-yield products.

Deposit growth was sluggish (4% QoQ) with a stagnation in savings account and sustained momentum in the active money pool (+28% QoQ), as the CASA ratio moderated sharply (48.3%; -75 bps QoQ). An elevated loan-to-deposit ratio at 87% (Q1 FY24: 85%) remains a key roadblock to sustaining higher growth.

On the succession front, the Reserve Bank of India approved the appointment of Mr. Ashok Vaswani, an external candidate, as the MD and CEO, which removes a key overhang on the stock.

We tweak our FY24/FY25 estimates to adjust for higher loan growth, normalising credit costs, and changing deposit mix. We retain 'Add' with a revised SOTP based target price of Rs 2,180 (standalone bank at 2.9 times March-25 ABVPS).

Metro Brands - Results in line; thesis on track

Metro Brands Ltd.'s revenue grew 16.7% YoY to Rs 5.6 billionn (our estimate: Rs 5.5 billion), led by a higher share of premium products in revenue mix (products more than Rs 3,000 accounted 48% in mix in H1 FY24 versus 43% in H1 FY23). KPIs (sales density, margins) normalisation continues as-

1. Metro Brands faces tough comparables versus base (H1 FY23 comprised meaningful pent-up demand and higher wedding days) and

2. share of discounted sales gradually normalises towards pre-pandemic times (7.5% in Q2 from sub 5% in FY23).

Gross margin/Ebitdam contracted 55/293 bps YoY to 56.8/28.0% (our estimate: 57.0/27.8% respectively). Store addition guidance remains on track (100 stores in FY24). We largely maintain our FY25/26 EPS estimates and maintain our 'Sell' rating on the stock with a discounted cash flow-based target price of Rs 840/share, implying 46 time Sep-25E price/earnings.

CreditAccess Grameen - Steady progress; retail pivot offers interesting trade-offs

CreditAccess Grameen Ltd. delivered steady in-line outcomes, as assets under management growth began normalising, albeit the retail finance business grew sharply on a low base. AUM growth clocked in at 36% YoY (+3% QoQ), led predominantly by new customer additions and a modest rise in average ticket size.

Asset quality continued to be impressive with PAR-0/GNPA at 1.3%/0.8%, resulting in benign credit costs.

Asset yields continued to reflate (+40 bps QoQ), and concomitant with benign credit costs, drove return on asset/return on equity of 5.6%/24.7%.

While the company could witness incremental pressure on NIMs (higher cost of funds and changing loan mix), CreditAccess is poised to sustain its strong earnings on the back of operating leverage and low credit costs.

We raise our FY24E/FY25E earnings estimates by 15%/13% for sustained improvement in operating metrics; maintain 'Buy', with a revised target price of Rs 1,650 (3.0 times Sep-25 ABVPS).

Kajaria Ceramics - Cost savings drive earnings rebound; volume to pick up

We upgraded Kajaria Ceramics Ltd. to 'Buy' with a revised target price of Rs 1,470/share (35 times Sep-25 EPS). Kajaria’s Q2 FY24 tiles volume/consolidated revenue growth remained muted at 6/4% YoY on subdued demand. Ebitdam expanded 400 bps YoY to 16% on a sharp 68% cool-off in gas prices (despite partial cost benefits passing through). Tiles/non-tiles revenue rose 3/18% YoY.

Consolidated Eitda/adjusted profit after tax rose 39/47% YoY. Kajaria Ceramics expanded its tiles capacity by 4.9 million square metre in Q2 FY24 and will be further adding 5.1 msm in Nepal next year.

Kajaria Ceramics expects demand to accelerate H2 FY24E. We estimate the company to deliver 12/22/26% consolidated revenue/Ebitda/APAT CAGR during FY23-26E and its RoE/return on capita employed should remain robust at 20% plus.

Sagar Cements - Strong volume, margin recovers on a low base

We maintain our 'Add' stance on Sagar Cements Ltd., with a revised target price of Rs 250/share (7.5 times its Sep-25E consolidated Ebitda). We like Sagar Cements for-

1. its rising regional diversification;

2. its increased focus on green fuel and power consumption; and

3. its focus on increasing blended cement production.

In Q2 FY24, healthy demand and new plant ramp-up drove the volume (up 27/11% YoY/QoQ). Owing to lower fuel cost and operating-leverage gain, unit Ebitda recovered Rs 200/metric tonne QoQ to Rs 459/metric tonne in Q2 FY24.

Management marginally downgraded their FY24 volume guidance to 6.2 million metric tonne versus Rs 6.4 miliion metric tonne guided earlier. Management highlighted that demand momentum continues to stay strong in its region. It expects Rs 800-850 Ebitda per metric tonne in H2 FY24, driven by op-lev gain and better realisation.

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