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HDFC Securities Institutional Equities
Axis Bank - Elevated loan-to-deposit ratio poses high repricing risk
Axis Bank Ltd. reported inline results, led by healthy loan growth (+4.5% QoQ) and a sharp improvement in asset quality. Net interest margins were flat sequentially at 4.11% with the deposit book continuing to reprice on the back of accelerated term-deposit mobilisation and decline in current account and savings account deposits (-118 basis points QoQ to 44.4%).
This led to a further increase in the loan-to-deposit ratio to ~94%, which appears increasingly untenable. Higher recoveries from written-off accounts resulted in net credit costs declining sequentially (42 bps annualised).
We lower our FY24 estimates by 4% to adjust for the current balance sheet structure (lopsided loan growth) and continued higher opex; maintain 'Buy' with a target price of Rs 1,135 (standalone bank at 2.0 times March-25 adjusted book value per share).
Tech Mahindra - Long road to recovery
Tech Mahindra Ltd. shed its margins to abysmal levels, which comes at the point of transition in leadership. We reckon that margin recovery from the troughs is a certainty, but the gradient remains unclear.
We expect the business mix to tilt towards non-telecom (communication, media, entertainment mix to reduce from 40% of revenue in FY23 to 33% in FY26E) as Tech Mahindra continues to be plagued by challenges in telco clients and loss in deal market share to tier-I peers (recent AT&T, BT, Telenor, Telefonica, Verizon deal wins by DXC, Infosys Ltd., Tata Consultancy Services Ltd., and HCLTech Ltd.).
However, leadership induction, organisational restructuring into six business units, delivery centralisation (effective January 2024) and business rationalisation (underway) will yield results in Enterprise segment growth and overall margins.
There is an absence of a near-term catalyst as the rationalisation is likely to continue into Q3 and deal conversion remains slow.
Maintain 'Reduce' recommendation on Tech Mahindra, with a target price of Rs 1,060, based on 15 times September-25E earnings per share (10 year average multiples).
Jubilant FoodWorks - Steady show; delivery continues to outperform
Jubilant FoodWorks Ltd.'s Q2 print was in line with revenue/Ebitda, up by 5/-10% YoY.
Despite the deceleration in industry demand, Jubilant FoodWorks could maintain its operation print witnessed in Q1 (like-for-like growth at -1% and Ebitdam at 21%).
Revenue growth of 5% is store addition-led, and the company opened 60 new stores in India, with total store count of 1,949. Both order growth and ticket size exhibited sequential improvement, especially in delivery on the back of -
the use of data and technology to bolster combo offers and
20-minute delivery.
Delivery revenue grew 8% (with positive LFL) while dine-in fell 4% (partially impacted by temporary store closure due to reimaging). Gross margin was steady at 76% with stable input prices. Ebitdam fell 340/20 basis points YoY/QoQ to 21% on high employee costs and store operation expenses.
Management is targeting 150- 200 bps Ebitdam expansion in the medium-long term, aided by cost efficiency initiative (in-line).
Notwithstanding near-term demand pressures, Jubilant continues to focus on-
driving LFL growth by strengthening value offering;
improving cost efficiency and productivity;
elevating customer experience;
long-term strategic initiatives (commissary); and
calibrated network expansion.
We maintain our earnings per share estimates and value Jubilant FoodWorks at 55 times price/earnings on Sep-25 EPS to arrive at a target price of Rs 500. Maintain 'Add'.
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