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By Anuj Upadhyay
Power Grid Corporation of India Ltd (NS:): PGCIL’s asset capitalization in Q3FY22 came in at ~INR52.4bn (+647% YoY), while Capex increased 19% YoY to INR34.9bn. Capitalization/Capex for 9MFY22 stood at INR185.1bn/71.9bn, compared to INR125.7bn/INR79.4bn in 9MFY21. Revenue increased 3.4% YoY, led by moderate growth in the transmission segment. EBITDA also grew 3% YoY, in line with sales. PAT came in marginally below our estimate, at INR33.5bn (+1% YoY), due to unfavorable movement in regulatory deferral account in the quarter. The company declared an interim dividend of INR5.5/share, taking the overall pay-out for the year to INR12.5/share (~6% yield). It is well-poised to benefit from the transmission investment opportunity, and we expect a capitalization of INR212bn/168bn for FY22/23. It is also eyeing new avenues like smart metering and distribution network strengthening and plans to invest ~INR250bn in it over the next four years. We have marginally revised our earnings estimates to factor in better capitalization in FY22 and retain our ADD rating with a revised TP of INR233 (vs INR224 earlier).
Tata Power Co. Ltd (NS:): Tata Power’s consolidated revenue increased 44% YoY to INR109.1bn in Q3, led by the acquisition of Odisha discoms and strong execution in the solar EPC segment. EBITDA, however, declined 7% YoY due to a steep rise in Mundra under-recovery. Margin, thus, was impacted by ~806 bps YoY and came in at 15%. Losses at Mundra widened to INR4.6bn in Q3FY22 vs a loss of INR950mn YoY, as it operated at a low PAF of 40% vs 75% YoY. However, higher profit in the Indonesian coal business, lower AT&C in Odisha discoms, and improved margin in the EPC segment caused APAT to rise 19.4% YoY to INR4.3bn. The company plans to incur INR34bn in Capex towards enhancing its cell and module manufacturing capacities by 4GW each. Further, its solar EPC order book stands at INR100bn vs INR92.6bn QoQ. We raise our earnings estimates for FY23 by 8%, factoring in increased profit at Bumi mines, falling AT&C losses in Odisha, and partial fixed cost recovery at Mundra through power sale to Gujarat under the new resolution. Accordingly, we revise our TP upwards to INR258 (INR215 earlier) and upgrade our rating to ADD, from REDUCE.
Aurobindo Pharma (NS:): Aurobindo’s Q3 revenue/EBITDA missed estimates by 6%/21%, owing to lackluster performance across businesses (ex-APIs) and lower GM as EBITDA margin missed our estimates by ~307bps. We expect the margin pressure to normalize over 2-3 quarters. Bottoming out of margins (as per management guidance) along with a robust pipeline in the US provide good growth visibility in injectables, biosimilars, and OTC drugs in the medium term. The potential of injectables business value unlocking and the FDA’s resolution of facilities remain key near-term triggers. We cut our FY22/23/24e estimates by 14%/9%/3% to factor in the Q3 miss/revised outlook and arrive at a SOTP TP of INR925, based on 15x Sep-23e EPS and NPV of INR40/30 for the PLI/gRevlimid opportunities. Maintain BUY.
Petronet LNG Ltd (NS:): Our REDUCE recommendation on Petronet LNG (PLNG) with a TP of INR 230 is based on: (1) the adverse impact of seasonally-adjusted high spot LNG price of over USD 25/mmbtu and (2) rising domestic gas production on spot LNG demand in the medium term. Q3 reported revenue/EBITDA/PAT was 14/85/100% above our estimate, driven by higher marketing margins, Use or Pay charges of INR 3.5bn, and lower employee costs and other expenses.
Prestige Estates (NS:): Prestige Estates (PEPL) registered the highest-ever quarterly presales at INR 42.7bn (+2.1x/2x YoY/QoQ), with collections at INR 24.3bn (+70%/+57% YoY/QoQ) in Q3FY22. Volume-wise, gross sales were at 5.6msf (+87%/+57% YoY/QoQ). Given robust booking and inquiry traction, PEPL expects to cross INR 100bn of presales in FY22. While net D/E rose to 0.57x due to land acquisitions and Capex, PEPL is committed to maintaining it below 0.35x. It will utilize proceeds from Blackstone (NYSE:) deal and divestment of its stake in StarTech to deleverage the company. Also, PEPL wants to set up an alternate investment fund to finance future land acquisitions so as to not bloat up balance sheet debt and keep growing sales further. We maintain ADD, with an unchanged SOTP of INR 540/sh.
Gujarat State Petronet (NS:): Our ADD rating on Gujarat State Petronet with a TP of INR 340 is premised on (1) transmission volume growing at +6% CAGR over FY21-23E to 41mmscmd, with an increase in gas supply from domestic sources, which should drive volumes and translate to growth in standalone EBITDA at 11% and APAT at 15% CAGR to INR 18bn and INR 12bn in FY23E and (2) compelling valuation at 7.8x FY23E EPS, considering high RoE of 23% in FY23E and combined FCF of INR 50bn over FY22-24E.
Nuvoco Vistas Corporation Ltd (NS:): We maintain our BUY rating on Nuvoco Vistas with a reduced TP of INR 677/share (11x its consolidated Dec-23E EBITDA). We continue to like it for its leadership presence in the east, large retail focus, and various margin initiatives. Nuvoco is also working to reduce leverage on books. Q3FY22 performance was adversely impacted by the double whammy of poor demand and sharp fuel cost spike. The impact, however, was moderated by the rising contribution from synergy benefits and ongoing cost reduction. Consolidated revenue/EBITDA fell 3/50% YoY to INR 21.7/2.3bn, leading to a net loss of INR 855mn (amid high capital charges). Nuvoco, however, sees margin recovering in Q4 on better demand and pricing and stable fuel cost QoQ.
HeidelbergCement (DE:) India Ltd (NS:): We downgrade our rating on Heidelberg Cement (HEIM) to REDUCE from ADD, with a lower target price of INR 205/share (8.5x Dec-23E EBITDA). In the absence of any major expansion in the next three years, we expect HEIM’s volume growth to be subdued and it could lose market share to other players that are expanding in its core markets. In Q3FY22, HEIM reported weak performance as its sales volume fell 11% YoY. EBITDA fell 43% YoY, given sharp cost inflation that could not be passed on.
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