ITC, SBI, Thermax, Tata Elxsi, PSP Projects, Endurance Technologies & More Q4 Results Review: HDFC Securities

HDFC Securities Institutional Equities

ITC - Core business remains healthy

ITC Ltd.’s Q4 print was largely inline with revenue/Ebitda/adjusted profit after tax growing by 7/19/20% versus the expectation of 8/17/17%. Cigarette revenue/Ebit growth was at 14% each, with volume growth at ~11.5% (4% four-year compound annual growth rate). A stable tax environment, normalisation in demand, and deterrent action by agencies on illicit trade continue to support cigarette recovery. We model cigarette revenue growth of 7/6% for FY24/FY25. FMCG remained an outlier, with revenue clocking 19% YoY growth. FMCG Ebitda performance was even better, with the margin expanding by 430 bps YoY to 13.3%, and Ebitda growing 2.1 times YoY.

Hotel performance remained strong while paper and agribusiness were muted. ITC continues to outperform other FMCG peers; however, the recent stock run-up limits further rerating potential.

SBI - Improving quality of earnings

State Bank of India posted its highest-ever quarterly profit and a strong beat, led by healthy loan growth (+17% YoY), better fees and lower credit costs, having front-loaded its provisions during nine months-FY23 on a prudent basis. Asset quality remains strong, with gross non-performing asset at 2.8% (-36 bps QoQ) and the restructured pool registering a marginal improvement to 0.8%.

Operating expenses flared up QoQ on account of wage revision and franchise-building initiatives, resulting in an elevated cost/income ratio at ~55%. While a relatively low loan-to-deposit ratio (~73%) and high stock of surplus statutory liquidity ratio (Rs 4 trillion) offers comfort on incremental loan growth, management has guided for modest growth in deposits, backed by excess liquidity on the balance sheet.

Tata Elxsi - Transportation vertical decelerates

Tata Elxsi Ltd.’s Q4 print was lower on revenue, impacted by a deceleration in the Transportation vertical. We expect Tata Elxsi’s growth trajectory in the midteens as compared to 34/24% delivered in FY22/23. While the differentiation of Tata Elxsi's business (design-led engineering services) remains intact, reflected in its industry-leading margins, its growth profile has moderated relative to peers.

Thermax - In-line performance, margin beat

Thermax Ltd. reported revenue/Ebitda/profit after tax of Rs 23/1.9/1.6 billion, beating our estimates by 0.4/9/15%. Ebitda margin was a positive surprise at 8.7% versus our estimate of 8%. This was on the back of stabilising raw material costs, a better supply chain and stable demand resulting in a gross margin of 44.8% (+693 bps/+63 bps YoY/QoQ). Also, the focus on products and services is bearing results in improving margins and stable revenue, reducing revenue volatility.

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