By Anuj Upadhyay
Torrent Power Ltd (NS:): Torrent Power (TPW) reported a healthy operational performance in Q4FY22, led by a reduction in AT&C losses, higher demand, and improved collections efficiencies across its distribution business. Consolidated revenue increased 21.4% YoY to INR 37.0bn, led by the above factors and gain from the sale of LNG. This made EBITDA rise 8.3% YoY to INR9.9bn. Interest expenses declined on deleveraging and a fall in interest rates. TPW, however, reported a loss of INR4.9bn due to impairment of INR13bn towards the DGEN station. A record-high RLNG price, the PLF across its gas-based stations has declined steeply, thus impacting PLF and fuel-based incentives from these projects. Further, the rise in module prices has delayed its upcoming solar projects, which will impact its projected earnings for FY23E/24E. Accordingly, we have cut our EPS estimates by 18%/17% for FY23E/24E and reduced our TP to INR501, vs INR555 earlier. However, the stock price has corrected steeply in the past two weeks and is now trading below our target price. Hence, we upgrade our rating to ADD, from REDUCE earlier.
BSE Ltd (NS:): BSE Ltd reported better-than-expected revenue growth (+6.2% QoQ) and in-line margin performance. The uptick in transaction charges (+10.3% QoQ) is lifting growth, which in turn is driven by special rate (+20% QoQ) and StAR MF (+11% QoQ). The special rate transaction volume has a high correlation with market sentiment and can be volatile in nature. BSE StAR MF continues to drive strong volume growth (+97% YoY) and BSE is open to monetise the platform (revenue of INR 0.5bn), yet no bids have been received. On the traditional business, the cash market share is maintained at 7.5%, while the derivatives market share further declined to 2.5% (vs. 6.3% YoY). New initiatives like the insurance platform, power exchange, INX, spot exchange appear promising but lack revenue visibility. We expect growth in transaction charges to moderate in FY23E and there is a possibility to grow listing revenue with differential pricing. We cut our revenue estimate by 3.9/3.4% and EPS estimate by 7.7/5.4% for FY23/24E, based on lower growth expectations. We assign a SoTP-based target price of INR 830, by assigning 30x core P/E to Mar-24E PAT + CDSL stake + net cash. The stock is trading at a core P/E of 29/24x FY23/24E. Maintain ADD.
Mahanagar Gas Ltd (NS:): Our ADD recommendation on Mahanagar Gas (MGL) with a target price of INR 865 is premised on its loyal customer base in CNG and commercial establishments, which is less price-sensitive than the industrial customer base and enables the company to maintain higher per-unit margins than peers. Q4FY22 EBITDA, at INR 2.2bn, and APAT, at INR 1.3bn, were 2.3x/2.9x above our estimates, mainly due to higher realisation and lower-than-estimated gas cost.
Birla Corporation (NS:): We maintain our BUY rating on Birla Corporation (BCORP), with a revised TP of INR 1,472/share (9x Mar-24E consolidated EBITDA). While demand/NSR recovered 2/4% YoY, sharp energy inflation pulled down unitary EBITDA by 31% YoY (+2% QoQ). Thus, while consolidated revenue rose 6% YoY to INR 22.64bn, EBITDA/APAT fell 29/51% YoY to INR 2.77/1.5bn respectively. We continue to like BCORP for its large retail presence in the lucrative north/central regions and various cost-cutting initiatives. With major Capex done, we expect the leverage ratio to cool off during FY23-24E.
Zensar Technologies (NS:): We maintain BUY on Zensar, following a better-than-expected revenue and margin performance and healthy deal wins (+32% QoQ). Zensar delivered growth of 4.2% QoQ CC, supported by healthy growth in the BFSI (+5.1% QoQ) and consumer (+4.1% QoQ) verticals. The TCV stood at USD 165.6mn and it was the best in the last five quarters (excluding one large deal in Q2) and consisted of wins across verticals. The investments in the BFSI/retail vertical coupled with M3Bi are yielding results. The management focus remains on delivering consistent and predictable revenue growth. The EBITDA margin was stable sequentially but down 565bps YoY to 14.2%, impacted by higher employee costs and rising sub-con expenses (+55% YoY). The management expects EBITDA margin to stabilise in the mid-teens; higher fresher intake and near-shore locations will reduce dependence on subcontractors and increase utilisation. We reduce our EPS estimates by 3/5% for FY23/24E to factor in the 100bps margin drop in FY23E. Our TP of INR 440 is based on 20x FY24E EPS (earlier 22x). The stock is trading at a PE of 17/13x FY23/24E EPS, a discount of ~40% to the mid-tier IT median.
Orient Electric Ltd (NS:): Orient Electric (Orient) delivered a subdued revenue performance due to the company’s stance on protecting its margins and delayed channel filling towards the close of peak season. Revenue declined 6% YoY (HSIE +12%) due to 11% decline in ECD segment (HSIE +8%). With Jan/Feb seeing disruption in trade, the company focused on filling channel inventory in the peak season (Q1FY23). Thereby, primary numbers for ECD are weak in Q4 despite healthy secondary/offtake (trade inventory was low while company inventory was high at the end of March). With sustaining market share, we expect ECD to bounce back strongly in Q1. This move helped the company maintain its gross margin YoY and sequentially. The lighting & switchgear segment sustained demand momentum. While we remain bullish on ECD and especially fans as a long-term play, we believe that, amongst the top peers, Orient lags on execution. We, therefore, cut our target P/E to 35x on FY24E EPS, from 38x earlier. We cut our FY23/24 EPS by -4/-5%. We downgrade our BUY rating to ADD, with a revised TP of INR 340.
NCC (NS:): NCC Q4FY22 revenue/EBITDA/APAT came in at INR 31/2.7/1bn, with EBITDA and PAT missing our estimates. The higher raw material prices impacted the margin by 110bps, compared to Q4FY21 when it was 11.1%. With order inflow (OI) of INR 99bn in FYn22, the order book (OB) stood at INR 393bn (incl. subs). Strong order inflows are expected in Q1FY23, with a major sewage treatment plant order in Mumbai. NCC expects revenue growth of 10-15% in FY23, with an EBITDA margin of ~10%. During the quarter, NCC sold its stake in NCC Urban for INR 2bn against its equity investment of INR 500mn and has received INR 470mn to date, with the balance expected to come in FY23/24. The collection period has been reduced to 92days from 134days in Mar-21 on account of better collections from state governments. Consequently, gross debt has come down to INR 11.8bn (vs INR 20.4bn as on Dec-21). The total receivables from the AP project now stand at INR 5.1bn. We maintain BUY with a reduced TP of INR 108 (9x Mar-24E), given high commodity inflation and the resultant impact on margins.
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