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HDFC Securities Institutional Equities
Indian Oil - High refining margin improves earnings
Our 'Add' rating on Indian Oil Corporation Ltd., with a target price of Rs 100, is premised on robust refining and marketing margins, partially offset by muted petchem earnings and elevated debt.
IOCL reported Ebitda of Rs 213 billion (+11 times YoY, -4% QoQ), which was broadly in line, while adjusted profit after tax came in at Rs 130 billion, marginally below estimate.
Earnings were supported by strong performance from the refining segment. Marketing gross margins saw a sequential decline to Rs 3.3/litre. Reported gross refining margins stood at $18.1/barrel of oil (-2% YoY, +2.2 times QoQ), coming in line. Crude throughput came in lower-than expected at 17.8 mmt (-5% QoQ, our estimate: 18.5 mmt).
Ambuja Cements - Healthy outlook on margin and expansion
We upgrade our rating on Ambuja Cements Ltd. to 'Buy' from 'Add' earlier, with an unchanged target price of Rs 480/share (SOTP-based). We like the company for its healthy operating and growth outlook.
During Q2 FY24, both standalone and consolidated volume growth suffered owing to floods in Himachal Pradesh and muted demand in the eastern region.
Standalone volume fell 17% QoQ. Op-lev loss and seasonally high maintenance expense moderated the benefits of fuel and logistics cost savings and unit Ebitda fell Rs 20/metric tonne QoQ to Rs 1020/mt.
Ambuja remains committed to doubling its consolidated capacity by FY28. Its planned expansion will start getting operational from late FY25E onwards. It is working on various cost-reduction exercises to boost the margin by Rs 300-400 per mt by FY25E-end.
Godrej Consumers - Margin recovery to sustain
Godrej Consumer Products Ltd.'s Q2 FY24 operating print was largely in line with consolidated revenue/Ebitda growing by 6/26%. The organic India growth was modest at 2% (volume 4%) as household insecticide performance was flattish due to poor monsoons while the additional Shravan month impacted hair colour sales.
Management remains confident of delivering high single-digit growth in HI in the medium-long term. Internationally, all regions exhibited healthy constant currency growth; however, the reported growth was 2% due to currency devaluation.
Indonesian business (both revenue/Ebitda) continues to witness recovery. The softening raw material basket aided gross margin recovery, which expanded by 700 bps to 54.9% while Ebitdam expanded by 315 bps YoY to 20.1% as Godrej Consumer stepped up media spends (+180 bps YoY). Godrej Consumer will continue to focus on-
category development in existing portfolio;
expanding total addressable market in India; and
simplifying international operations, which shall aid volume growth and margin expansion.
We cut EPS by 6/3% owing to the increase in ETR guidance. We value the stock at 42 times on Sep-25 EPS to derive a target price of Rs 1,050. Maintain 'Add'.
Nuvoco Vistas - Muted demand and cost increase halt margin recovery
We maintain BUY on Nuvoco Vistas Corporation Ltd., with a revised target price of Rs 485/share (10 times its consolidated Sep-25E Ebitda). In Q2 FY24, Nuvoco delivered weak 1% YoY volume growth, given muted demand in the eastern region.
Cement net sales realisation rose 6/3% YoY/QoQ, owing to stable pricing in the north and a late price uptick in the east. Cement opex rose 4% QoQ, led by a rise in slag prices, op-lev loss and maintenance expenses.
The impact is cushioned through lower fuel and freight costs QoQ. Overall, unit Ebitda fell Rs 30/metric tonne QoQ to Rs 712/ metric tonne. Its net debt to Ebitda marginally cooled off to 3.6 times at Sep-23 versus 3.8 times at March-23.
The company reiterated that it would take up major capex only after its net debt fell below Rs 40 billion.
PNC Infratech - New order booking key for rerating
PNC Infratech Ltd. reported Q2 FY24 revenue/Ebitda/adjusted profit after tax of Rs 16.9/2.3/1.4 billion, missing our estimates by 5.7/3.9/7.4%. Ebitda margin: 13.4% (+18/+28 bps YoY/QoQ, versus our estimate of 13.2%, owing to lower input and raw material prices; partly offset by higher employee expenses).
The order book as of September 2023 stood at Rs 171.4 billion (~2.4 times FY23 revenue, including level-one Rs 37.1 billion excluding GST), with the road engineering, procurement and construction segment contributing 62% of the total order book.
It maintained its FY24 revenue growth guidance of 15% YoY (Rs 20 billion+ from the water segment), with an Ebitda margin of 13.3-13.5%, an order inflow of Rs 100 billion and capex of Rs 1.2 billion.
The company plans to infuse Rs 1.0/4.5/4.3bn in H2 FY24/25/26. The monetisation plan of 11/1 hybrid annuity model/built-operate-transfer assets is expected to materialise by FY24-end.
PNC has a net debt position of Rs 2 billion as of Sep-23. Given better margins and a robust balance sheet, we maintain 'Buy', with an unchanged target price of Rs 452/share (13 times Sep-25E rolled over, 1.2 times price/book value for HAM equity investment).
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