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HDFC Securities Institutional Equities
Tata Motors - Multiple headwinds ahead
Tata Motors Ltd.'s Jaguar Land Rover Q2 margins declined 140 basis points QoQ to 14.9% due to adverse mix, higher variable marketing expenditure plus FME and this was despite higher capitalisation rate. India passenger vehicle and commercial vehicle margins improved over 100 basis points QoQ, largely due to improved volumes and soft input costs.
While FY24 is an operationally strong year for JLR, we expect it to face multiple headwinds from FY25, which include:
demand uncertainty in key regions;
normalization of mix;
rise in VME + FME as it moves from 'demand pull' to 'sales push mode';
need to raise capex at a time when margins may not be supportive.
A German luxury original equipment manufacturer has recently warned that 'luxury segment is not immune to economic woes', which is also aptly visible in the sharply reducing order backlog at JLR. In India, Tata Motors continues to lose wholesale market share in both PVs and CVs.
While margins have held up in India business, it remains to be seen if they sustain, considering -
slower growth expected in FY25 and
rising EV mix. While we have raised FY24 earnings by 15%, we keep FY25 estimates unchanged, given the headwinds highlighted above.
Maintain 'Sell' with a revised target price of Rs 534/share (from Rs 520/share) as we roll forward to Sep-25 earnings per share.
Dabur - Steady performance
Dabur India Ltd. delivered an in-line Q2 FY24 with consolidated revenue/Ebitda growing by 7/10% YoY with organic volume growth of 3% (~5% excluding beverages). The domestic business grew by 9% while the international business posted a 10% growth (24% constant currency growth).
Growth was driven by healthcare (+5%) and home and personal care (+6%). Uneven distribution of rainfall and shift in festive season impacted beverage business (down 10%) while foods grew 40%.
Foods business remains on track to achieve Rs 5 billion of exit revenue in FY24. With the softening raw material, gross margin expanded 295/172 bps YoY/QoQ to 48.3%.
However, the 43% increase in advertising and promotion expense (industry-wise similar trend) restricted Ebitdam expansion to 50 bps YoY at 20.6%.
Ebitda grew by 10% (our estiamte: 9%). With sustained improvement in urban demand and visible green shoots in rural recovery, Dabur remains optimistic of mid-high single volume growth with double-digit revenue growth, led by -
focus on power brands;
double-digit compound annual growth rate in healthcare; and
premiumisation across product categories.
Besides, Ebitda margin also has several tailwinds, which have been stable (~20%) for the last five years.
We maintain EPS estimates and value the stock at 45 times price/earnings on Sep-25EPS to derive a target price of Rs 650. Maintain 'Add'.
Britannia Industries - Mixed bag
Britannia Industries Ltd.'s Q2 FY24 print was a mixed bag, with revenue growing by a modest 1% (our estimate: 5%) and transactions (number of packets) and volume both being flat YoY (our estimate: 3%). However, Ebitda/PAT growth of 23/20% surpassed our expectation, led by gross margin expansion (395 bps YoY) and cost control initiatives.
Britannia took price corrections to defend its market share as competitive intensity rose (particularly from local/regional brands). We note that against cumulative ~20% price hike taken during peak inflation, Britannia has so far taken less than 2% price cuts.
Revenue growth will be volume-led, which will require additional push (consumer offers, marketing, etc.); thus, the operating margin will have limited room for expansion.
We maintain our EPS estimates for FY24- 26 and value Britannia at 42 times P/E on Sep-25 EPS to derive a target price of Rs 4,550. Maintain 'Reduce'.
Hero Motocorp - Market share continues to dip despite new launches
Hero MotoCorp Ltd. Q2 margin, at 14.1%, was up just 30bps QoQ despite the 5% QoQ volume growth and improved mix, due to higher promotional spend in Q2.
The continued weakness in entry segment can be highlighted from the fact that Hero MotoCorp has introduced attractive schemes on some of these models in key markets in the festive season, as per our channel checks.
Also, we remain circumspect of a demand revival in entry segment anytime soon given the below-par monsoon. Further, despite its multiple launches in CY23, Hero MotoCorp continues to lose share: its motorcycle market share is down 280 bps YoY to 44.2% in H1 while its scooter share has remained flat YoY at 6.6%.
More importantly, despite the launch of new variants in 125cc motorcycle segment, it has lost 330 bps share to 20.2% in H1. Even in premium segment, the new Xtreme 160R has not been able to make any mark.
Even in scooters, while Xoom seems to be doing well, it has cannibalised sales of other models. Hence, while Hero MotoCorp has a healthy launch pipeline largely focused on the 125cc and above segments, we do not expect it to drive any meaningful share recovery, given its patchy track record of new launches in these segments.
Maintain 'Reduce' with a revised target price of Rs 2,844 (from Rs 2,672)—as we roll forward to Sep-25 earnings.
Godrej Properties - Premium launches key for further rerating
Godrej Properties Ltd. reported the highest-ever quarterly presales worth Rs 50.3 billion (+109/+123% YoY/QoQ), with a booking area of 5.2 million square feet (+93/+133% YoY/QoQ) with sustenance sales contributing 20%.
On back of the strong presales, Godrej Properties is confident of achieving Rs 140 billion plus of targeted presales in FY24. Godrej Properties added one new project with a gross development value of Rs 7.3 billion in Q2 FY24, taking the total year-to-date gross development value addition to Rs 72 billion, on track, with targeted Rs 150 billion of GDV addition in FY24.
However, given a strong launch pipeline of ~18 msf and growth visibility of two to three years, Godrej Properties will be adding projects on replacement basis in most of the existing markets.
Repair expense for the Gurugram project has been under Rs 150 million till now (expected total repair expense Rs 1.6 billion). In addition to this, Godrej Properties has bought back 60 units for Rs 500 million and expects Rs 1-2 billion worth of total buy backs (100-200 units out of 1100 total units).
We reiterate 'Add' with an unchanged SOTP valuation of Rs 1,664/share.
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