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ABB India (NS:): ABB reported a strong revenue/APAT at 21/1.6bn (10/12% beat), aided by increased traction in exports and services. EBITDA margin was impacted by higher commodity prices and supply chain disruption which, since then, has shown signs of improvement. ABB is betting big on exports and automation. It has expanded its capacity at the Vadodara plant to cater to the export of large machines. On similar lines, it will be adding capacity and automating other manufacturing plants on the back of a healthy cash balance of INR 27bn. It also intends to use this cash for any inorganic opportunity within India. ABB is witnessing renewables driving end-market demand. It also completed the milestone of 5GW on solar automation solution delivery. In line with its strategy to reduce dependence on large orders, it saw a huge uptick in small ticket orders. The current order backlog stands at a robust INR 49bn. The turbocharger business divestment to a wholly-owned subsidiary has received the board approval. More details are expected in a few months. We believe most of the potential upside on cyclical recovery is already priced in the lofty valuation and, thus, maintain REDUCE with revised a TP of INR 1,815/sh (45x Dec-23 EPS).
Cummins: Cummins India (NS:) Ltd (CIL) has recorded, yet again, a good quarter with revenue/EBITDA/APAT at INR 17.3/2.7/2.4bn, a beat of 9.7/9.5/21.3%. Demand outlook is robust due to the government’s big push on infrastructure, recovery in private Capex, and international markets opening up; however, segments like railways, construction and marine are yet to pick up. Whilst there is a gradual improvement in the core products supply chain, CIL highlighted that despite high order board, revenue was suboptimal by 10-15%. The company is participating in the hydrogen ecosystem as it has technology and products know-how to serve clients during this energy transition. CIL intends to localise hydrogen products and offerings once there is a demand to support the same. A robust cash balance shall aid product development and technology up gradation. We maintain BUY on CIL with an increased SOTP-based target price of INR 1,253 (Dec-23E EPS).
IRB Infrastructure Developers Ltd (NS:): IRB issued ~150/102mn shares to Cintra/Bricklayers for consideration of ~INR 31.8/21.7mn. This deal was the first of its kind in India and augurs well for creating a long-term asset growth platform for the company. The proceeds were utilised to reduce the holding company’s debt by ~INR 32.5bn. This will result in savings in interest costs. The residual net cash of ~INR 21bn will be utilised for winning larger projects with potential asset addition of INR 200bn. Therefore, we increase the EPC business P/E multiple to 12x, to account for larger bid capacity and strengthened the balance sheet. We also increase the BOT business multiple to account for the better-than-expected volume growth/WPI inflation reset. On an expanded equity base, the net impact of dilution results in SOTP of INR 302/sh. However, on our revised TP, there is limited upside; hence, we downgrade our rating to ADD (earlier BUY).
Computer Age Management Services Lt (BO:): CAMS reported in-line revenues (+4% QoQ, similar to other AMCs); however, controlled admin costs drove a 3% beat on core income, which came in at INR981mn. While core yields continued to witness compression in line with industry trends (marginally lower yield compression compared to the listed AMCs), non-asset-based revenue showcased strong growth on the back of higher transactions and call centre activity. Market leadership in the duopoly RTA market, significant entry barriers, and high switching costs place CAMS in a uniquely advantageous position; however, we remain wary of sustained pricing pressure on AMCs percolating to RTAs in the near- to medium-term. We tweak our EPS estimates lower by 2/3% to build in higher-tech spend for FY23-24E (per management guidance) and expect FY21-24E revenue and operating profit CAGRs of 16/22%, driven by buoyant equity flows and rising contribution from nascent businesses including payments, AIF, and insurance. We value CAMS at 43x Sep-23E EV/NOPLAT + Sep-22 cash and investments. Given the steep correction in the stock over the past few months, we upgrade our rating to ADD (from REDUCE) with a revised target price of INR2,885 – the stock is currently trading at FY23E/24E EV/NOPLAT of 39.8x/34.9x and P/E of 38.8x/34.6x.
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