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PremiumSensex Today | Market Highlights: European shares climbed on Monday, buoyed by the momentum on Wall Street that propelled the S&P 500 to close above 5,000 for the first time, while investors assessed earnings and economic data for insights into the European Central Bank's rate outlook.
The pan-European STOXX 600 rose 0.3% and hovered around its two-year highs, with all the sectors trading in the green.
Italian stocks outperformed regional peers with a 0.6% increase, hitting their highest level since June, 2008.
This week is packed with economic data, including euro zone's fourth-quarter GDP growth, consumer price inflation from Spain and other regions, and ZEW survey to gauge industry expectations on the state of the region's economy.
Across the Atlantic, investors will closely monitor the U.S. January CPI print on Tuesday for clues on the potential timing of a rate cut by the Federal Reserve.
As the S&P 500 has soared to fresh highs, fewer stocks have been participating in the rally, stirring worries that recent gains could reverse if the market’s leaders stumble.
Strong market breadth, or the number of stocks taking part in a broader index’s rise - is often viewed as a healthy sign by investors as it shows gains are less dependent on a small cluster of names.
Trading in Asia hours is expected to be thin as most of the region including China, Hong Kong, Japan, South Korea, Singapore, Taiwan, Vietnam and Malaysia are closed for holidays.
Mainland China's financial markets are closed for the Lunar New Year holiday and will resume trade on Monday, Feb 19. Hong Kong trade will resume on Feb. 14.
Oil prices fell in early Asian trade on Monday after Israel said it had "concluded" a series of strikes in southern Gaza, slightly easing concerns about supply from the Middle East.
While supply concerns in the Middle East remained relatively heightened, news from the U.S. eased some worries.
U.S. energy firms increased oil and natural gas rigs to their highest since mid-December, potentially signaling an increase in output. Domestic production returned last week to a record 13.3 million barrels per day (bpd).
Indian benchmark indices gave up early morning gains to close in the red, amid wide selloff across sectors.
While IT, Pharma, and Healthcare indices were able to hold their gains, rest of the indices closed deep in the red. Media, PSB, Realty, and Oil & Gas were the biggest losers, down 4.46%, 4.43%, 2.97% and 2.62%, respectively.
In the broader market, the Smallcap Index closed down over 3%.
Among sectors, IT, Pharma, and Healthcare indices were able to hold their gains, while rest of the indices were trading in the red. Media, PSB, Realty, and Oil & Gas were the biggest losers, down 4.21%, 4.37%, 3.12% and 2.79%, respectively.
In the broader market, Smallcap and Midcap indices were the biggest, while the volatility index VIX was up nearly 4%.
Across sectors, only Healthcare, IT, and Teck indices were in the green.
On the benchmark Nifty, apart from IT stocks, pharma and healthcare stocks like Dr Reddy's and Apollo Hospitals emerged as the top gains, while Coal India, Hero MotoCorp., and ONGC emerged as the top losers.
While IT Stocks led the gains on Sensex, Banking stocks were the top drag on the benchmark index.
Indian benchmark indices gave up early morning gains to trade in the red.
At 3 pm, Sensex was down 541.34 points, or 0.76%, at 71,054.15 and Nifty was down 160 points, or 0.73% at 21,622.50.
While the IT, Pharma, and Healthcare indices were able to hold their gains, rest of the indices were trading in the red. Media, PSB, Realty, and Oil & Gas were the biggest losers, down 4.27%, 3.57%, 2.80% and 2.25%, respectively.
In the broader market, the Smallcap Index was down over 3%.
Hero MotoCorp share price declined more than 5% on Monday during intraday trades. Hero MotoCorp had reported its December quarter financial performance on Friday post market hours.
Hero MotoCorp had seen its profit after tax (PAT) rise 51% to ₹1,073 crore. The company further had announced an interim dividend of ₹100 per share.
Analysts at Jefferies India Pvt Ltd continue to like Hero as they believe the Indian two wheeler industry is poised for a strong cyclical recovery. (Read the full story here.)
The domestic equity markets have begun the year 2024 on a weak note as the frontline indices have given negative returns so far this year. The benchmark BSE Sensex has dropped 1.5% year-to-date (YTD), while the Nifty 50 is down more than 0.4% since the beginning of 2024.
The drop in the Indian stock market has been largely led by the outflow of foreign institutional investors’ (FII) money amid rising bond yields in the US.
However, despite the volatility in the market, some penny stocks registered whopping gains so far this year. Some of these penny stocks on Dalal Street have risen around 100% to 200% in 2024 so far. (Read the full story here.)
Demand for petroleum products in India is expected to jump by a mid-single-digit percentage point in the financial year ending March 2024, following a 10 per cent post-pandemic recovery in 2022-23, according to Fitch Ratings, ANI reported.
Both petrol and diesel sales saw robust 4-6 per cent increases in the first nine months of 2023-24, driven by heightened economic activities in the agriculture and power sectors, as well as a surge in holiday travel and auto sales. (Read the full story here.)
The Indian market has shed around 0.3 percent in February amid a lack of cues so far post the Interim Budget and as RBI held rates (as expected).
Chris Wood, in his latest, Greed and Fear report post the budget stated that it is a testament to the confidence of Indian Prime Minister Narendra Modi ahead of the pending general election in April-May that his government announced a budget on 1 February that is almost devoid of vote-buying populism. (Read the full story here.)
Multi Commodity Exchange of India (MCX) share price plunged more than 9% during Monday's trading session following the bourse's weak Q3 results. MCX posted a net loss for the December quarter. MCX share price today opened at ₹3,728.05 apiece on BSE today. Multi Commodity Exchange of India share price touched an intraday low of ₹3,460.80 and a low of ₹3,784.45. (Read the full story here.)
Pricing trends in the domestic cement industry have remained subdued for a while now. A recent dealers channel check by Jefferies India showed that all-India average cement prices decreased 1.5% to ₹362 per 50-kg bag in January. The decline was more pronounced in the eastern region, with a 2.2% drop, followed by a 2% decline in the northern region month-on-month.
Hence, realization of cement companies are at risk in the March quarter (Q4FY24, if prices remain muted in the short term. Although there have been announcements of price hikes in some markets for February, dealers remain uncertain about their implementation, as per the Jefferies report dated 1 February. (Read the full story here.)
Rating: ACCUMULATE | CMP: ₹485 | TP: ₹561
Q3FY24 Result Update – Delayed winters affects 3Q performance
Quick Pointers:
Volumes declined by 0.9% due to late winter, non-winter portfolio grew by 5%
Strong focus on Innovation & NPD continues
We increase our FY24E/FY25E/FY26E EPS estimates by 2.3%4.4%/2.7% due to assumption of lower tax rate and higher other income even as there is no significant change in our sales growth and EBIDTA estimates. Emami continues to face seasonal challenges as late onset of winter resulted in 9% decline in sales in winter portfolio. Emami continues to invest behind new products and has added 90+ products in last 3 years and launched Zandu Toothpaste, Good Gut Shots, Brihngraj Hair oil, Shilajitprash Zandu Livital tablets and Ayurvedic Syrup. Emami has given cautiously optimistic outlook given benign raw material prices, expected pickup in rural demand and likely traction from various new launches (Zandu and international business). HMN remains positive on OTC Healthcare, Navratna & new launches under D2C.
Emami is investing for growth with 1) new launches in existing categories like Zandu and new D2C products 2) Acquisitions of D2C new age businesses 3) lowering dependency on seasonal portfolio and 4) robust growth in MT/E-com channels. We estimate 9% PAT CAGR over FY23-26 and value the stock at 25x Dec25EPS assigning a value of Rs561. Retain Accumulate.
Domestic volumes decline 0.9% YoY, Revenue up by 1.4%: Revenues grew by 1.4% YoY to Rs10bn (PLe: Rs9.9bn) Gross margins expanded by 291bps YoY to 68.8% (Ple: 70%) EBITDA grew by 7% YoY to Rs3.1bn (PLe: Rs3.2bn); Margins expanded by 166bps YoY to 31.6% (PLe:32.0%) Adj PAT grew by 9% YoY to Rs2.6bn (PLe: ₹2.5bn). PAT beat mainly due to tax rate at 5.5% (Ple at 11.5%) Declared second interim dividend of Rs4/share.
Concall key takeaways: 1) Rural markets are still under stress but recent downtrend in inflation and Govt initiatives can lead to recovery 2) Channels such as MT/E-com grew at ~10%/15% with scope of further expansion in margins 3) International markets see double-digit growth led by robust performance in the MENAP region 4) Kesh King oil remains under stress with a one-off decline 13% in 3Q, HMN expects bounce back based on past records 5) The Man Company & Brillare delivered 80% sales growth in 3Q 6) Healthcare is expected to deliver strong double digit growth in near term 7) Unlisted players are growing at the cost of listed players in the Health care/Ayurvedic segment 8) Pharmacy channels have seen 10-12% growth overall, online segment likely to grow by ~25/30% 9) No pressure on input cost since inflation is range bound 10) Expected 2-3% price hikes to be taken in coming FY as per normal trend 11) Promoter pledge stands around ~12% & shall be brought down to single digits in near to medium term 12) Co aims for volume growth around 6-8% 13) HMN has a net cash balance of Rs.4bn 14) Effective tax rate is expected to be ~ 10% for FY25.
Rating: SELL
Target Price : INR 3017
Downside : 17%
CMP : INR 3652 (as on 09 February 2024)
No step-up in sight
Q3FY24 performance well below expectations
Divi’s Laboratories’ (DIVI IN) Q3FY24 revenue and EBITDA missed our estimates by 13% and 28%, respectively. Revenue grew just 8.6% YoY. EBITDA margin improved 250bps YoY and 130bps QoQ, but was still a far cry from the historic 34%+ levels, recovery to which the stock is pricing in, in our view.
No visibility of a major step-up in earnings
DIVI management continued to refer to several opportunities in the CDMO segment – Some already started and contributing and some that may start in the next few quarters. However, we could not get any confidence on a meaningful step-jump in earnings, as regards the quantum that the stock is pricing in. While the GLP-1 agonist opportunity is big, currently DIVI is mulling only entering the market for basic amino acids that are KSMs for manufacturing long chain peptides. Only 3-4 Chinese players are present in that market currently. Per our back-of-the-envelope calculations, this may not significantly alter our growth projection of low-mid teen growth in the next 2-3 years.
Building in recovery in next two years; high risk of miss
We are building in significant recovery in growth and margins over the next two years. Our projections assume 13% topline growth and expansion of EBITDA margin from the current 26-27% to 33%+. Despite that, the stock is expensive on our numbers. We see high risks to achieving these numbers, unless some big CDMO contract kicks off and starts contributing to growth in a big way. It is worth noting that DIVI’s FY15-23 topline CAGR was only 8.3% in USD and 12.1% in INR terms.
Valuations: Maintain Sell; TP raised to INR 3,017
We reduce FY24E/25E core EPS by 6-13%, but maintain FY26E estimates. The stock trades at 53.1x FY25E core EPS. We reiterate SELL. We raise our TP from INR 2,443 to INR 3,017, which is 35x (earlier 28x) FY26E core EPS plus cash per share, reflecting the higher valuations in the sector. Any unforeseen large product opportunity in the custom synthesis business is the key upside risk to our call.
Indian benchmark indices gave up early morning gains to trade in the red.
At 2 pm, Sensex was down 491.98 points, or 0.69%, at 71,103.51 and Nifty was down 143.45 points, or 0.66% at 21,639.05.
While the IT, Pharma, and Healthcare indices were able to hold their gains, rest of the indices were trading in the red, with PSB, Realty and Oil & Gas becoming the biggest losers.
In the broader market, the Smallcap Index was down over 2%.
Central Banks have undertaken the challenging task of raising rates to historical highs to combat inflation over the past two years. This effort appears to have yielded some success, as inflationary pressures have eased, and there are signs of a potential soft landing for global economic growth. While the projected 3.1% y/y real GDP growth for the world in CY24 may not be dazzling, it exceeds many expectations. The US has demonstrated resilient growth, despite persistently high interest rates, with consumption and the labour market remaining robust. Europe faces a more complex situation but may avoid a significant economic downturn with only minor setbacks.
The decline in inflation has been steady, along with stable economic outlook. Global energy and food prices have significantly retreated from their peaks over the past two years and are expected to stabilize sooner than previously anticipated. Base effects, along with a potential China slowdown, are key drivers of softening inflation. Additionally, the prospect of a prolonged El Niño event could challenge assumptions about food production. Moreover, persistent supply-side disruptions introduce heightened uncertainty, rendering demand-side measures less effective.
Delving into China's economic trajectory raises more uncertainties than clarifications. Despite upgraded growth forecasts for CY23 and CY24, there is a pervasive sense of tepidity surrounding the growth narrative. While policymakers pledge stimulus measures, their implementation appears inconsistent. PBoC exercises caution in injecting liquidity, given the escalating debt burden in sub-national entities and the real estate sector, which pose systemic risks. Stimulus efforts predominantly benefit large corporations, with smaller entities experiencing capacity underutilisation. Consequently, China may diverge markedly from other global economies in CY24, potentially exerting significant influence on commodity markets.
Currently, with a more tempered inflation trajectory, many Central Banks are signaling forthcoming rate cuts starting from mid-CY24. For instance, US Fed Chair, Mr. Powell, has suggested that rate reductions may occur after the Mar’24 policy meeting. Similar sentiments, albeit expressed with caution, have been observed from the ECB. Yields, meanwhile, remain below their CY23 peaks, while bond issuances are reaching unprecedented heights in both the USA and Europe. In Latin American emerging markets, recent trends indicate a move towards monetary policy easing, with several Central Banks opting to cut interest rates. This shift is aimed at stimulating economic activity and boosting investment in response to global economic uncertainties and domestic challenges.
In the near term, the impact of elections on the economy can be significant, as political uncertainty often leads to cautious investment and spending decisions among businesses and consumers. Also, high interest rates typically exert their influence on the economy with a lag, affecting various sectors and economic indicators over time. We expect higher volatility in global markets from H2CY24.
The interim Union Budget surprised markets by steadfastly adhering to fiscal consolidation, with projected fiscal deficits of 5.8% in FY24 (0.1 ppt below FY24 budget estimate) and 5.1% in FY25 (of nominal GDP). Importantly, this commitment to fiscal discipline did not come at the expense of capital expenditure, which received a notable boost of 16.9% in FY25 compared to the FY24RE. Key infrastructure sectors like Railways and Roads continued to receive significant allocations, while there was a continued emphasis on transitioning to green technologies and supporting emerging sectors (establishment of a Rs. 1trn innovation fund).
The growth of revenue expenditures was notably subdued. Leveraging softening natural gas and global food prices, the government positioned itself for a reduced subsidy burden in FY25. Notably, the allocation for the PM-KISAN scheme remained unchanged. MGNREGS program received a generous increase in allocation, reaching Rs. 860bn in FY24 (Rs. 600 bn in FY24BE), a figure maintained for FY25. Furthermore, the government outlined its future priorities, emphasizing support for youth, women, the impoverished, and farmers to realize a Developed India by 2047.
On the revenue front, the government has opted for a conservative approach, with moderate budgeting reflecting the positive momentum observed in direct tax collections. Additionally, dividends from Central Public Sector Enterprises (CPSEs) and Public Sector Banks (PSBs) are expected to surpass FY25BE. We anticipate the government to comfortably exceed its FY25 revenue target by ~Rs.700bn, providing it with ample flexibility. It's noteworthy that increased devolution to states, driven by shifts in the gross tax pool composition, and the continuation of concessional capital expenditure loan schemes are favourable developments. This is particularly advantageous given the higher GDP multiplier associated with state capital expenditure compared to that of the Union. Nonetheless, the substantial fiscal space retained by the Union will enable it to maintain reserves to mitigate potential shock.
The RBI has pursued a strategy akin to constructing countercyclical buffers. It has maintained a firm stance on policy, reaffirming its commitment to the 4% y/y CPI mandate. Given the favourable growth projections for FY25 and the inflation trajectory, we anticipate that the timing of the initial rate cut may be postponed to Aug’24 or beyond. Bond yields have reacted positively to lower fiscal deficit amidst tighter liquidity.
Further aiding yields will be India's inclusion in global bond indices, coupled with significantly reduced government borrowing projections for FY25 (targeting gross borrowing of Rs. 14.13 trn compared to Rs. 15.43 trn in FY24RE). Additionally, the RBI has additional room for maneuvering to lower rates amidst fiscal discipline, potentially resulting in a sustained decline in 10-year G-sec yields to below 7% in the near term. The yield curve remains flat as short-term rates remains high due to liquidity deficit. We expect sharp improvement in liquidity from late Mar’24 which would lead to softening in short term rates.
Rating: BUY
Target Price : INR 46304
Upside : 26%
CMP : INR 36741 (as on 08 February 2024)
Green shoots in demand
In-line with estimates; input cost benefits accrual delayed
Page Industries (PAG IN) Q3 revenue was in line with our estimates while margin was 231bp lower than our estimates, led by gross margin. The company still sells higher cost inventory and is yet to realize benefits of lower input cost. This led to slight underperformance at the PAT level.
Demand starts to pick up in innerwear
Revenue grew 2.4% YoY to reach INR 12,288mn in Q3, led by volume growth of 4.6% YoY and a realization decline of 2.1% YoY. Although athleisure continues to decline the most in the portfolio, other categories saw volume growth. Demand in innerwear is yet to pick up meaningfully, although green shoots are visible.
EBITDA margin to reach 21.5% by FY26E
EBITDA margin expanded 263bp YoY to 18.7%, led by lower employee and Other expenses. Gross margin declined 32bp YoY to 53.1%. EBITDA grew 19.1% YoY to INR 2,297mn. We expect EBITDA margin to improve gradually from FY25, led by lower input prices, completion of Auto Replenishment System (ARS) implementation and improving demand. We expect margin to reach 21.5% by FY26E.
Valuation: reiterate Buy with a TP of INR 46,304
Athleisure wear and women’s innerwear are strong opportunities despite near-term pressures. We believe it will derive robust operating leverage from the strong recall of its brand, Jockey. It is focused on strengthening its business model by focusing on inventory management and optimizing cost. We revise our estimates taking into consideration Q3 performance, which led to an EPS cut of 2.5% for FY24E and 4.4% for FY25E. We introduce FY26 estimates. We expect a sales CAGR of 9.7%, an EBITDA CAGR of 16.4% and an APAT CAGR of 17.0% during FY23-26E. We reiterate Buy with a DCF-based TP of INR 46,304 on 56.4x (from 64.6x FY25E) FY26E P/E.
Q4FY24 Highlights
Revenue growth of 5% YoY to ₹2.3bn, EBITDA margin at 29.1% (+490bps YoY). Domestic business 80% of revenue, defense 72% of revenue. Order book of Rs18.14bn.
Order Inflow
Order Inflow of ₹2.56bn during Q3FY24, out of which defense is Rs1.54bn (Radar – Rs1.36bn EW & Comm. – Rs150mn) and Exports is Rs953mn. Expect to book Rs2.3bn orders in Q4FY24.
The JV Astra Rafael Comsys (ARC) reported ₹3.95bn of order inflow in 9MFY24, has an orderbook of ₹5.47bn. Revenue of ₹1.5bn in 9MFY24, expecting Rs920mn revenue in Q4FY24 for ARC.
Visibility of order inflows of over ₹5bn in the next three quarters for ARC.
Akash NG
Have significant contribution in Akash NG. Akash NG was successfully tested during the quarter. Has the potential to give recurring revenue in the future.
Space Segment
Astra has decided to further expand its business in the space segment by foraying into satellite integration and launch its own satellite in the next few years. This facility will be near the existing bangalore unit and budgeted a spend of Rs400mn in the next 3 years. System integration in the new bangalore facility for conservation and communication satellite for SAR payload (ToT from ISRO). Will be building and integrating the satellites and then sell it to the operating companies.
Have supplied payloads for existing satellites. Building own satellite payloads and satellites
FY24 guidance
Revenue of Rs8.6-8.9bn.
Order Inflow of ₹Rs2.3bn in Q4FY24.
FY25 guidance
Order Inflow - Rs13bn of order inflow (majority of these would be production orders from domestic, includes Arudhra Radar order from BEL, long range radar from DRDO and AWC program).
Revenue - Rs10-11bn. Revenue for FY25 would include Arudhra execution (20% of contract), ABS radar, MRT. Telemetry missile would be Rs1.4bn and exports Rs2.5bn.
PBT Margin in the range of 16-18%.
Anti-drone System
Unmanned Aerial Vehicle is going to be a big opportunity in defense warfare.
Astra will demonstrate its first anti-drone system next quarter.
Building capabilities in space business – nanosatellites, microsatellites from design stage to control and command.
Also looking at inorganic expansion to fill in portfolio gaps.
Software Defined Radios
Final trials of Software Defined Radios have been pushed till June 2024.
Export revenue in FY25 would be ~20-25% and expect to maintain FY24 margin level in FY25.
Sukhoi Upgrade
DRDO is planning to upgrade both radar and EWS.
In radar, some specifications are yet to be finalized while for EWS, they are releasing orders.
There are two to three players in competition, there could be more depending on the specifications finalized.
Major programs where Astra is participating
Uttam AESA Radar: HAL is the production partner and 50% is earmarked for indigenous production.
LCA Mk-1: Have already supplied subsystems five years back to LCA Mk-1 and would be present in supplying for incremental production. LCA Mk-1A, LCA Mk-2 (DRDO finalizing specification), Su-30, Ground-based Radars, Weapon Locating Radar.
Missile - DLR: Radar for the Akash missile, QRSAM, Akash NG – Seeker is designed by DRDO and produced by BEL. Astra will supply microwave components and a transmitter which will be an import substitute. There is one player competing for the same, Akash Prime, Astra Missile
Platforms - Himshakti, Dharashakti, Varuna
Meteorology
Automatic Weather Station and Remote Terminals to IMD
Doppler Weather Radar supply to IMD and ISRO (so far 15 have been installed and commissioned)
Counter Drone Radar
The product is ready and expected to be launched next quarter.
Have form RFIs in hand for the same.
Expect to finalize contracts from FY26.
Interest cost contains Rs90mn of interest to be booked for advances which are more than a year old. Interest cost for working capital has decreased compared to base quarter. Advances received from both exports and DRDO contracts. This interest on advances is not to be paid but just an accounting entry which will likely get reversed.
Brahmos Program
Not present in Brahmos seekers, only present in telemetry for Brahmos. Also, developed ultimeter for Brahmos which has been hitherto imported.
AWACS program
Have supplied TR modules, antenna systems to the earlier AWACS program. Astra will also participate in the next program for Mk-1A (6 numbers) and further for Mk-2. Present in both primary and secondary radars. Astra’s contribution would be 40-45% in the overall radar value.
Build To Print and Build To Specifications
Domestic business with DRDO and other players is completely BTS with a margin of 40-45%. While exports have ~18% share from BTP (margin of 8-10%).
Indian benchmark indices gave up early morning gains to trade in the red.
At 1 pm, Sensex was down 496.71 points, or 0.69%, at 71,098.78 and Nifty was down 159.80 points, or 0.73% at 21,622.70.
While the IT, Pharma, and Healthcare indices were in the green, rest of the sector indices were trading in the red, with PSBs, Oil & Gas and Realty, leading the charts as the biggest losers. Nifty Bank was down over 2%.
In the broader market, the Smallcap Index was down over 3%.
EBITDA lower than estimates on lower crude realization, however PAT in line on higher other income
Performance: EBITDA/Adj. PAT was at ₹171.6/95.4bn was down 15.9/13.7% YoY and 6.5/6.7% QoQ. (note: Exploration write-off costs are taken below EBITDA).
Crude production: was down 3.3% YoY and 0.6% QoQ to 5.22mmt (was lower than the company target). Natural gas production: was down 4.3% YoY and 1.5% QoQ to 5.12bcm.
Crude and Gas realization: Net crude realization was down 6.1% YoY and 1.4% QoQ to USD 73.5/bbl. The gas realization was at USD 6.5/mmbtu. Windfall taxes of USD 8.1/bbl vs USD 10.3/bbl last qtr.
Depreciation including exploratory write-off stood at ₹74.1bn up 14.6%YoY and 24.3% QoQ on account of higher depreciation YoY and QoQ.
Finding cost: stood at USD9.7/bbl, marginally higher than the last 3 years’ average of USD8.7/bbl. The statutory levies as a % of revenue stood at 27.4% (versus 28.9% YoY and 27.4% QoQ).
Other expenses at ₹55.5bn (up 22% YoY and 2% QoQ).
The other income at ₹34bn, up 141% YoY and 63% QoQ. It included a dividend income of ₹11.62bn.
OVL performance: production for crude at 1.82mmt (vs 1.62 YoY and 1.77 QoQ) and gas at 0.86bcm (vs 0.94bcm YoY and 0.81bcm QoQ), recovery from lower production in FY22 which was impacted by Russia-Ukraine war. The PAT at ₹1.8bn, down 67% YoY and 44% QoQ.
Dividend: Board approved interim dividend of ₹4.00/sh. In 9MFY24 a total dividend of ₹9.75/sh has been declared (41% payout of 9MFY24 earnings), we expect another higher final dividend.
There is a concall scheduled today at 3:45pm, details – 18001218750 / 044 47700319 (ACCESS PIN only for international participants: 3126586#).
Weak levers driving margin beat; retain Reduce | TP ₹4,650, Downside 12%
Alkem Q3 results were largely in line as revenues grew 9% YoY on back of strong ROW performance. Management had earlier guided to ~15% margin in H2 which might be eclipsed by ~200bps. Q4 OPM appears in the range of 12.5-13%, being a traditionally weak quarter and Q4 FY23 was a high base quarter for domestic business. Better margin performance is most likely due to strong showing of ROW markets which have jumped 43% YoY in 9m FY24. Domestic portfolio continues to be impacted by weak showing in anti-infectives where the product mix has been a drag for Alkem. Company reiterated its expectation of steady margin improvement of about 100bps every year with FY24 margin of ~17%. Losses at Enzene to narrow while chronic productivity would continue to improve pushing margin towards ~20% in FY25. Our India and US business estimates remain mostly unchanged while bulk of the ~9% higher estimated EBIDTA in FY24 and FY25 each is due to increased ROW sales expectation. Rest of the earnings upgrade is attributed to lower tax rate assumption and higher other income. We introduce FY26 estimate but do not see any major outperformance from India and US business and retain Reduce based on 23x FY25 EPS with revised TP Rs4,650 (earlier Rs3,770).
Result Report Q3 FY24
Recommendation: ADD
CMP: ₹4,909
Target Price: ₹5,577
Potential Return: +13.6%
Underlying ICE margins continues to be healthy
Hero MotoCorp (HMCL) 3QFY24 reported results were in-line with our/street estimates as EBITDA margins expanded 250bp YoY (-10bp QoQ) at 14%. However, underlying ICE margins were healthy at 16% (v/s ~15% QoQ and ~12.2% YoY) is healthy. The management indicated lead demand indicators from the rural remain positive with, 1) higher contribution (>3%) vs urban and 2) improving inquiry mix from 40-45% 2-3 quarters back to 50-55% currently. Going ahead customer response to recent product launches (especially for Xtreme 125R) would be the key catalyst to watch for. Maintain ADD with revised TP of Rs5,577 (vs Rs5,021) based on ~20x Mar’26 S/A EPS plus Rs133 for Hero FinCorp. Management’s action to overhaul brand strategy supported by Ather’s continued brand acceptance provide an additional lever for the stock. We build in revenue/EBITDA/Adj.PAT CAGR of 10.7%/15.1%/13.7% over FY24-26E. HMCL trades at 19.9x/18x FY25/26 EPS.
Result Report Q3 FY24
Recommendation: ADD
CMP: ₹1096
Target Price: ₹1250
Potential Return: +14%
Margin rise should be seen in the context of RoEV, Maintain ADD
(1) Ultra-long duration Non-Par product launched this financial year causes margin to spike on sequential basis. (2) Year-on-year APE growth still shows a negative print on 9-month basis but is positive for 3Q. (3) We maintain an ADD rating with a revised price target of ₹1250.
Indian benchmark indices pared some of their losses, but they were still trading in the red.
At 12 pm, Sensex was down 255.73 points, or 0.36%, at 71,339.76 and Nifty was down 95.85 points, or 0.44% at 21,686.65.
While the IT, Pharma, and Healthcare indices were up, rest of the indices were trading in the red with PSBs, Oil & Gas and Realty, the biggest losers.
In the broader market, the Smallcap Index was down over 2%.
Result Report Q3 FY24
Recommendation: BUY
CMP: ₹902
Target Price: ₹1,088
Potential Return: +21%
Expansion delays deleveraging strategy
TRCL spent Rs15.85bn in 9MFY24, which includes Rs12bn for limestone-bearing land in Karnataka, ongoing expansion, and maintenance capex while guided for another Rs3.9bn for Q4FY24. Additionally, plans to incur Rs17bn in FY25E, leaving no room for deleveraging in the near future. Therefore, our PAT estimates eroded by 2/6/14% for FY24/25/26E over higher interest outgo and the net debt/EBITDA to remain at ~3x till FY26E.
Monthly figures – January 2024
Max Life outpaces other listed peers on YoY basis
Commentary on Total APE: Among listed / quasi-listed private sector life insurers, Max Life’s Total APE grew the fastest YoY, up 52% YoY but down -24% MoM. SBI Life grew 33% YoY but de-grew -38% MoM. Bajaj Allianz grew 33% YoY but de-grew -13% MoM. ICICI Pru grew 23% YoY and 2% MoM. HDFC Life grew 15% YoY but de-grew -9% MoM. LIC has posted a growth of 36% YoY and 11% MoM, leading the blended private sector growth on MoM and YoY basis, which was up 23% YoY but down -23% MoM.
Rating: BUY | CMP: Rs6,434 | TP:Rs7,050
Q3FY24 Result Update – In line EBITDA; HealthCo achieves break-even
Quick Pointers:
Digital business guided to breakeven in 6-8 quarters.
Occupancy target of 70% and 200 bps margin increase in hospital segment.
Apollo hospitals enterprise (APHS) reported consolidated EBITDA of ₹6.13bn (up 21% YoY) in-line with our estimates. Adjusted for 24x7 losses and ESOP cost (~Rs1.6bn), EBITDA was at ₹7.7bn, up 9% YoY. We believe APHS has created a solid growth platform across segments and digital foraying has further made it a strong Omni channel play. The company also has good presence in offline format, making it more of a formidable player than just pure play online company. Scale up in Apollo HealthCo has been on track with likely break even in EBITDA of digital business over next 6-8 quarters. Our FY25E and FY26E EBITDA broadly remain unchanged. Overall we estimate 16% EBITDA CAGR over FY24-26E (ex 24x7). Maintain ‘BUY’ rating with revised TP of Rs. 7,050/share (earlier Rs6,000/share) as we roll forward. We ascribe 25x EV/EBITDA multiple to hospital and offline pharmacy, assign 1x sales to the 24/7 business.
In-line EBITDA; HealthCo achieves break-even: Consolidated EBITDA at Rs6.13bn was broadly in-line with our estimate. 24x7 digital app expenses were at Rs1.4bn (Rs1.6bn in Q2) and additional Rs142mn of ESOP related non-cash expenses in Q3. Pharmacy OPM adjusted for 24x7 app exps declined 20 bps YoY at 7.7%. Apollo Healthco achieved breakeven with positive EBITDA of Rs. 20mn. Overall hospital EBITDA growth was moderate at 8% YoY with OPM of 23.8% (down 90bps YoY), due to seasonality and Chennai cyclone. AHLL reported EBITDA of Rs259mn (up 2% YoY) with 7.7% OPM.
Lower occupancy due to seasonality; healthy ARPOB: Overall occupancy stood at 66% vs 68% in Q2. ARPOB de-grew 2% QoQ and improved 10% YoY to Rs.56.4K. Overall consol revenues grew by 14% YoY while hospital revenues grew by 12% YoY. Net debt was largely flat QoQ to ₹15.5bn.
Key con-call takeaways: (1) Bed expansion – Progressing well with total expansion of 2,000 beds over the next 4 years at capex of Rs. 30bn. In FY25, hospitals will operationalize in Pune, Hyderabad and Kolkata along with brownfield expansion in Bangalore. New hospitals will operationalize towards end of FY25 and thereby will have minimal losses in FY25. (2) Mgmt guided revenue for hospital segment to grow at 14% for FY24 and 15% for FY25. In Q3, volume growth has contributed about 50% to revenue growth while the remaining contributed through pricing, payor and case mix improvements. (3) Guided for margin improvement in hospital segment of 200 bps over next few quarters aided by increasing inpatient volume, better case mix and scale up in occupancy to 70%. (4) Apollo 24x7 - GMV decreased 9% QoQ to Rs6.6bn. Earlier GMV guidance was at Rs. 30bn for FY24; now changed to ₹27-28bn. Guided for 60-70% growth in GMV in FY25. Digital business guided to breakeven in 6-8 quarters. (5) HealthCo – On track to achieve Rs100bn of revenues with ₹10bn of EBITDA in HealtCo (6) AHLL - Double digit growth of 20% guided Q1FY25 onwards. Current quarter EBITDA was subdued led by ongoing network expansions as well as relocation of cradles and spectra units (7) Payor mix-Insurance contributes 43% to total revenues.
Rating: REDUCE | CMP: ₹3,652 | TP: ₹3,150
Q3FY24 Result Update – Earnings downgrade continues
Quick Pointers:
Guided double digit revenue growth; commercialization of Kakinada plant in Q3FY25
Red Sea crisis may increase freight cost in near term.
We reduce our FY25E/FY26E EPS estimates by ~10%. Divi’s Laboratories (DIVI) Q3FY24 EBITDA was 11% below our estimate led by lower margins and generic API sales. GMs improved led by better product mix however OPM are still below pre COVID levels. Mgmt. suggested that moderation of raw material prices with commencement of some CDMO and contrast media contracts, will continue to aid revenues and margins. However, recovery will be gradual and near-term growth is likely to remain muted. We expect 25% EBITDA CAGR and 23% PAT CAGR over FY24-26E. At CMP, stock is trading at expensive valuations of 42x FY26E EPS. Maintain ‘Reduce’ rating with TP of Rs3,150/share, valuing at 35x FY26E EPS as we roll forward. Any sharp recovery in margin is key risk to our call.
Revenues miss by lower generic API sales: DIVI’s Q3FY24 sales came in at Rs18.6bn (up 9% YoY); lower than our estimates of Rs19.2bn. Generic revenues came at Rs8.4bn; down 2% YoY while custom synthesis (CS) delivered strong growth; up 25% YoY. During Q3FY24 EU and US contributed 71% of revenue. Product mix for generics and custom synthesis in Q3FY24 were at 54% and 46% of revenue. Nutraceutical business for the quarter was at Rs1.53bn, decline of 5% YoY.
Another quarter of weak margins: GM came in at 60.7%; up 300 bps QoQ on account of change in product mix. Employee expenses grew by 12% YoY, while other expenses increased by 15% YoY. Resultant EBITDA came in at ₹4.9bn (up 20% YoY and 2% QoQ) vs our estimate of Rs5.5bn. OPM came in at 26.4%, up 130bps QoQ; below our estimate of 28.5%. Margins are still below pre COIVD levels. There was a forex gain of ₹180mn during the quarter. PAT came in lower at Rs3.6bn; 7% below our estimate.
Key concall takeaways: Generic Business: Stable demand for established products. Expanded capacities for both large and small molecules; have gain market share in most of its key molecules. Pricing pressure still persists and expect to stabilize over next 2-3 quarters. Kakinada Unit: Invested ₹4.5bn till date. Utilized 200 acres of land for current block; total land parcel 500 acres. Commercialization to start from Q3FY25, pending regulatory approval. Nutraceutical segment: Anticipates double-digit growth. Company is trying to qualify certain other Iodine-based generic CM products as well. Custom synthesis: The two major products which are under patent continue to witnessed ramp up. Actively involved in peptide building blocks for anti-diabetic and anti-obesity drugs. Divis will produce amino-acids for same. GLP-1 Opportunity: Sufficient capacity to meet initial demand; products patent-protected. This will start contributing from FY25. Capacity utilization was at 80%. Cash stands at Rs39.1bn. Guided for double digit revenue growth. Red Sea crisis will lead to increase in freight costs.
Indian benchmark indices gave up early morning gains to trade in the red.
At 11 am, Sensex was down 282.35 points, or 0.39%, at 71,313.14 and Nifty was down 97.60.45 points, or 0.45% at 21,684.90.
IT, Pharma, and Healthcare indices were up, while the rest of the indices were trading in the red. In the broader market, the Smallcap Index was down over 2%.
Rating: ACCUMULATE | CMP: ₹4,909 | TP: ₹5,150
Q3FY24 Result Update – In-line results; demand strength to continue
Quick Pointers:
Rural enquiry mix has increased sharply over the few months.
Margin should continue to benift from higher scale, mix and higher spares sale.
Hero Motocorp’s (HMCL) ICE EBITDA margin reached 16% similar to FY19 levels given regular price hikes, premiumisation and model mix. HMCL is seeing recovery in the rural market and is aiming to grow ahead of the industry on back of aggressive model launch, recovery in core market. The company is confident of continuing the growth momentum and we concur given low base. In the EV 2W segment, HMCL plans to introduce two new, more cost-effective models in 1QFY25, expected to boost EV sales. Additionally, strong demand is anticipated for premium bikes, Karizma, X440 and Maverik with capacity expected to increase to 10k per month.
We believe, HMCL is moving in the right direction and further re-rating is possible if premium segment takes-off. With the rural market rapidly recovering, HMCL stands to gain significantly from this trend. We expect margins to improve in the medium term from operating leverage, premiumisation, cost control, higher spares and stable commodity (we build in ~110bps increase over FY24-26E). Key monitorable will be 1) performance of new launches, 2) uptick in EV sales, 3) competition in core segment and 4) sustained recovery in rural markets. We change our FY24-26E EPS by 4-7% to incorporate 3Q result and commentary; retain ‘Accumulate’ at TP of ₹5,150 (at 18x on Mar-26E EPS, ₹104 for Fincorp and ₹115 for Ather).
In line revenue and margins: Revenue grew by ~21% YoY but came slightly below PLe and in line with Bloomberg consensus estimates (BBGe). EBITDA margins at 14% were in line with PLe and BBGe and was flattish QoQ, COGS was lower than expected while other operating expenses came higher than expected. Margin was helped by lower commodity cost, leap savings and better product mix. Higher other income aided the beat on PAT versus PLe by c7%.
Key takeaways: (1) HMCL observed a demand revival across all regions, with rural areas showing significant improvement. Rural enquiries rose from a 40% mix in 1HFY24 to 50-55% from the festive season to present. (2) HMCL predicts industry revenue to grow in double digits in FY25E, with HMCL expected to outpace this. The 125cc segment's strong performance is anticipated to persist, and the 200+cc segment is projected to see high growth due to new entrants. By Mar-24, production capacity for Karizma, HD 440, and Maverick will hit 10k units. (3) Financing has been crucial for growth in recent years and is expected to remain key over the next few years. The financing rate has climbed to 60-65% from ~40% a few years ago. (4) HMCL plans to invest ~Rs. 6bn to double its Parts Accessories & Merchandise (PAM) business capacity from Rs. 50bn to Rs. 100bn by FY27, expecting double-digit sales growth in PAM. (5) HMCL is boosting its EV production and will introduce affordable and mid-segment models in 1QFY25, alongside expanding its national network. (6) HMCL anticipates a rise in export volumes in FY25. (7) In Q3FY24, ICE margins reached 16% (up from 15% in Q2), with a 200bps impact from EVs (up from 90bps in Q2). It has adjusted prices to cover the commodity cost increase over the last two years. (8) Inventory levels is at 4-6 week.
Equity benchmarks witnessed a range bound activity and settled the week at 21782, down 0.3%. In the process, broader market relatively outperformed as Nifty midcap gained 0.9%. Sectorally, pharma, Oil & Gas, PSU Banks outperformed while FMCG, Private Banks underperformed.
Technical Outlook
The index witnessed a range bound activity as Nifty oscillated in 2% range throughout the week. Consequently, weekly price action formed a high wave candle confined within last week’s bull candle, indicating extended breather above 50 days EMA
Going ahead, we expect index to prolong the consolidation in the broader range of 22000-21400 that would help index to form a higher base above 50 days EMA and eventually pave the way for next leg of up move. In the process, stock specific action would prevail as we approach the fag end of the earning season. Thus, accumulating quality stocks on dips would be prudent strategy to adopt as immediate support is placed at 21400. Our positive bias is further validated by following observations:
Most global indices inched up marginally to record new 52-week highs ahead of next week’s US inflation numbers
steady oil prices and bond yields are likely to act as tailwind
On the sectoral front, BFSI, IT, Pharma, Oil&Gas, Metal would remain in focus
On the stock front, in large cap we prefer Reliance industries, Infosys, Bank of Baroda, Adani ports, Ambuja cement, Coal India, Dr Reddy while in midcaps Union Bank, Indian Hotels, ACC, Coforge, IGL, Thermax, AB Capital are looking good
The higher base formation above 50 days EMA highlights inherent strength that makes us to retain support base at 21400 as it is confluence of:
50% retracement of mid Dec-Jan rally (20508-22124)
Past two week’s low is placed at 21430
50 days EMA is placed at 21316
Rationale
In the current leg of the up move in the broader market, NBFC stocks have largely remained laggards. Bajaj FinServ has been underperforming over the past few months. Despite market recovery, stock failed to pass through its supply zone of ₹1620-1640 levels and reverted along with increase in OI indicating short positions has created at higher levels. Along with that, it has seen noteworthy Call writing at 1600 strike, which indicates limited upside. Hence, we expect the stock to continue its underperformance. Any rise in the stock should be used to create fresh short positions for target of ₹ 1485 levels.
Rationale
Broader markets continue to do well in the ongoing consolidation in the headline index where pharma stocks have started performing well and remain in focus. We expect stocks like Syngene to outperform in coming days. The stock is witnessing significant pick up in delivery volumes in the past two weeks after its results. Along with this, the stock saw a significant closure in OI indicates ongoing short covering move. On the option front, OTM calls strikes are witnessing closure which is positive sign and we expect stock to move towards ₹795 levels in the coming sessions.
Bank Nifty remained extremely volatile and after breaching penultimate week’s low, Friday’s short covering helped it to trim its losses to just 0.5% as outperformance from PSU banks and recovery among private sector heavyweights helped Bank Nifty to hold 45000 twice in last two weeks. We believe that Bank Nifty may extend its gains towards 46500-46800 levels next week with support remains near 45000.
Volatility continued in headline indices and after testing life highs in the penultimate week, Nifty corrected almost 400 points. Recovery in the last session helped Nifty to close with marginal losses where private banks remain the weak link. On the other hand, broader markets continued with their outperformance and despite some profit booking from highs, they closed the week green. Going ahead, we expect 21650-21700 levels to be remain crucial support.
Zomato Ltd seems to have perfected the recipe for delivering strong results quarter after quarter. In the three months ended December (Q3FY24), the company’s food delivery business remained stable, but what truly caught the attention was the impressive performance of its quick commerce arm—Blinkit.
In Q3, Blinkit’s gross order value (GOV) grew 28% sequentially thanks to festive tailwinds. While most of the growth was volume-led, a rise in the average order value also helped. 90% of Blinkit’s GOV originates from the top eight cities, highlighting significant acceptance. Moreover, the average time taken for new stores to reach 1,000 orders per day dropped to two months in October from 5.8 months in Q4FY23. Little wonder, its shares rose 6.5% in the past two trading sessions following Q3 results, scaling to a new 52-week high of ₹151.40 on Friday. (Read the full story here.)
Indian benchmark indices were in the red at 10 am.
Sensex was up 228.81 points, or 0.32%, at 71,366.68 and Nifty was up 68.40 points, or 0.31%, at 21,714.10.
Apollo Tyres Ltd managed to sail through the December quarter (Q3FY24), but bleak demand prospects led investors to book profit in its shares. The stock slipped about 5% on Friday – a swift fall from the 52-week high of ₹557.90 seen the previous day.
In India, the company saw its replacement and export volumes grow in mid-single digit year-on-year in Q3, while OEM volumes were flat. It lost market share marginally in the domestic truck and bus, radial (TBR) segment. (Read the full story here.)
EaseMyTrip share price jumped over 5% in early trade on Monday after the company’s board in-principally approved the proposal to open a 5 star hotel in Ayodhya, strategically situated near the iconic Shree Ram Mandir. EaseMyTrip shares rallied as much as 5.56% to ₹53.67 apiece on the BSE.
Easy Trip Planners, the online travel tech platform, announced the in-principal approval of the board by proposing its newest joint venture: a luxurious 5-star hotel in the prime location of Ayodhya.
The hotel’s prime location is less than 1 kilometer from the revered temple, the company said in a release. (Read the full story here.)
Indian benchmark indices opened in the green on Monday.
Sensex was up 42.97 points, or 0.06%, at 71,638.46 and Nifty was down 82.85.45 points at 21,800.80 at market open.
Indian benchmark indices were in the green in pre-open on Monday, ahead of CPI inflation data.
Sensex was up 129.82 points, or 0.18%, at 71,721.56 and Nifty was up 18.30 points, or 0.08%, at 21,800.80 during pre-open.
