India

• The NIFTY Index Family has a series of broad equity indices that represents large, mid and small market capitalisation segments of the Indian public equity market.
• The review of broad market indices will be done on a semi-annual basis and the changes will be implemented at the end of March and September every year.
• In this insight, we take a look at the selection criteria and the historical price performance of past Rebalance Events.

• Oyo (1698548D IN) is looking to raise around US$700m in its upcoming India IPO. The IPO will consist of both a primary and secondary portion.
• Oyo runs a digital platform that serves as a hotel and home aggregator between patrons, which include owners and lessors, and customers, such as travelers and guests booking for accommodation.
• As of Mar 2021, Oyo had 157,344 storefronts across more than 35 countries listed on its platform.

• ITC Ltd (ITC IN) ‘s core cigarette portfolio is relatively inelastic to the current commodity inflation. With the reopening of offices and social events, volumes are likely to trend higher. 
• A renewed focus on FMCG is likely to aid volumes for the non-cigarette segment. 
• Valuations are in favor and we see limited scope for de-rating if not re-rating.

We view Bharti Airtel as “Low Risk” on our LARA scale, mainly driven by its strong market position as the second-largest player in India’s telco industry. It owns robust network infrastructure across India, with a broad customer base. We also like the improving industry outlook with rationalising competition, industry consolidation to Airtel’s advantage, and improving regulatory conditions. Airtel is also committed to prudent balance-sheet management and stable leverage. However, the company will likely face continued significant capex requirements with respect to its 5G rollout, with the associated risks being higher than expected capex.

Our Credit Bias is “Stable”, given Airtel’s robust business risk profile and stable financial metrics.

• Paradeep Phosphates raised around US$194m in its India IPO. The IPO consisted of a mix of primary and secondary shares.
• Subscription for PP’s IPO had been tepid and previous deals with similar subscription rates had produced mixed performances upon debut.
• Were the firm to trade towards its closer peers’ average, there is a 5% upside potential and -18.6% downside potential on the FY23E and FY24E EV/EBITDA front, respectively. 

• Hindustan Unilever (HUVR IN) is focusing on protecting its business model and market share, which is the key in such an operating environment. 
• Presence across multiple price points and playing a targeted game in target geographies will aid in maintaining steady-state growth. 
• Current valuations, lack of trigger for driving exponential volume growth and expected slowing pace of premiumisation warrant caution. 

• Dr Lal PathLabs Ltd (DLPL IN) reported 35% y/y revenue growth in its non-COVID business in FY22. Non-COVID realization per patient is also back to pre-COVID levels.  
• The company has acquired Suburban Diagnostics last year, which will further widen its geographical footprint, with western region contributing 24% of revenue from 10% earlier.
• There is a lot of noise regarding competition in the industry. Thus far, DLPL has not seen much pricing pressure and underpenetrated Indian diagnostic segment can accommodate more players.

• LIC Housing Finance (LICHF IN) reported stellar results, in line with the expectation from our last note. NIM expanded while provisions declined leading to Q4FY22 PAT of INR 1100cr+.
• Asset quality improved with Stage 3 assets at 4.64% vs 5.04% QoQ and Stage 2 assets at 3.08% vs 3.75% QoQ. LICHF also recovered 350cr of NPAs during Q4FY22.
• Adjusted for one-off tax benefits and assuming FY23 NIM at 2.4%, LICHF’s normalized PAT potential is INR 3600cr+ suggesting that LICHF is trading at <6x P/E on FY23E PAT.

• RITES Ltd. (RITES) reported a good set of Q4FY22 numbers with revenues of Rs 766 Cr (up 20% YoY), supported by the higher export sales, EBIDTA of Rs 204 Cr (up 10% YoY), and APAT of Rs 141 Cr (down 1% YoY).
• The company registered EBITDA Margins of 26.7% in Q4FY22 (our estimate: 26.8%) as against 29.2% in Q4FY21
• We roll over our estimate to FY24 and retain a BUY rating on the stock, valuing the company at 11.5x FY24E EPS to arrive at a target price of Rs 275/share (Rs 305/share earlier), implying an upside of 10% from the CMP.

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Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Adani Ports & Special Economic Zone
• Bharti Airtel
• Lenovo
• Vedanta Resources

• Aggression in adjacencies, market share gains and under indexed rural exposure presents an opportunity. 
• COGS Inflation, Risk of downgrading in case of a further hike loom and is a potential risk. 
• YTD Britannia Industries (BRIT IN) is an outperformer and could remain so.

• SAIL Q4FY22 results were largely in line with our estimates. The company delivered a strong sales volume of 4.706 Million Tonnes (MT), up 8% YoY and 23% QoQ, marginally ahead of our estimate of 4.6 MT.
• Topline stood at Rs 30,759 Cr, a slight beat vs our estimate of Rs 29,236 Cr and up 32% YoY and 22% QoQ, led by higher steel prices and sales volumes
• We downgrade the rating on SAIL to HOLD from BUY and value it at 4.0x FY24E EBITDA to arrive at a target price of Rs 75/share (Rs 125/share earlier), against the CMP of Rs74/share.

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• SAIL reported an inline revenue at INR308b (up 32 % YoY and 22 % QoQ) in 4QFY22, driven by an improved mix of higher ASP and sales volume.
• Recently, the government announced various measures to cool down prices (refer Exhibit 1).
• Coking coal has been hovering above USD 500 for the last four months, The La-Nina phenomenon in Australia is over.

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• Our checks primary done over North of India suggest a stable to improving rural environment 
• There is a sense of aggression in ITC Ltd (ITC IN), Britannia Industries (BRIT IN) is well placed to grow volumes & Nestle India (NEST IN) is expected to be a steady performer. 
• Dabur India Ltd (DABUR IN)’ s image at the distributor level is quite shocking and Marico Ltd (MRCO IN)‘s products are more prone to volatility. 

• TVS Motor (TVSL IN)’s market share gains in the premium segment can further accelerate in case of easing supply issues and rural recovery. 
• While EV may not materially move the volumes in the near term, the ramp-up of the newly launched TVS iQube (EV) will determine the sentiment around the stock. 
• The sector view is positive, but current valuations are not lucrative enough to ignore capital allocation issues that have been a concern for TVSL. 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Delta Dunia Makmur
• Indika Energy
• JSW Steel Ltd
• Medco Energi
• Pakuwon Jati
• UPL Ltd

• JK Cement reported satisfactory volume and revenue growth in Q4FY22, supported by better demand and higher realization in its key markets.
• The stock is currently trading at 15x/12x FY23E/FY24E EV/EBITDA
• We value JKCL at 13x FY24E EV/EBITDA to arrive at a TP of Rs 2,800 (Rs 3100 earlier) implying an upside of 15% from the CMP and maintaining our BUY rating on the stock.

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• Delhivery raised around US$680m in its India IPO, the company is backed by a host of financial investors, the largest being Softbank.
• Delhivery is an online logistics service provider which covers express parcel delivery, heavy goods delivery, part truckload (PTL) freight, truckload (TL) freight, supply chain solutions, cross border solutions etc.
• We have covered various aspects of the deal in our earlier notes. In this note, we talk about the demand and trading dynamics. 

• After market close on Friday 20th May 2022, the constituency changes for S&P BSE 100, SENSEX 50, and SENSEX Next 50 Indices were announced. 
• There will be no changes for S&P BSE SENSEX and S&P BSE BANKEX Indices in the June 2022 Rebalance. 
• These changes will become effective at the open of Monday 20th June 2022. Below is a closer look at each of the names involved in the June 2022 Rebalance.

• Revenue ahead of estimate driven by improving product mix and higher realisation
• Key beneficiary of a multi-year CV upcycle: We see strong multi-year CV upcycle over the next 2-3 years

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• Camlin Fine Sciences (CFS) Q4 FY22 performance was lower than our expectations as the company witnessed severe raw material inflation as increased gas prices affected the CFS Euro subsidiary due to the ongoing Russia-Ukraine conflict.
• Consolidated Revenues stood at Rs 389 Cr, up 19% YoY (our estimate: Rs 377 Cr).
• With regards to the Lockheed Martin deal, the pilot project with a 1,500-ton capacity has the potential to generate Rs 120-140 Cr revenue with contribution kicking in from FY24 onwards.

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• Endurance Technologies’ (ENDU) consolidated revenue came in above our estimate by ~15%, mainly on the back of higher realizations following price hikes.

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• PI Industries (PIIND) posted a steady quarter in line with our estimates as the company proved its execution & operational capabilities in this volatile environment. The company reported revenue of Rs. 1395 cr higher by 17.7% / 3% YoY/QoQ.
• EBITDA Margin came in at 22% which was 101 bps higher YoY, led by favourable product mix in export & domestic market and ISAGRO performance, coupled with improved operating leverage
• The stock currently trades at 47x at FY22 EPS, given strong performance on the export and domestic front we value PIIND at 35x (its FY24E EPS) coming at a Target Price of Rs 3161.

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• Dr. Reddy’s Laboratories (DRRD IN) reported 15% y/y growth in revenue in Q4, driven by strong performance across all the markets. Adjusted for one-offs, net profit grew 54% y/y.
• Despite pricing pressure, the U.S. business should continue its growth momentum with better traction in key products launched in FY22 and upcoming new launches, including generic version of Revlimid.
• Inflationary pressure (raw material, freight), lower offtake of COVID-related products in India, and currency headwinds in emerging markets are some downside risks for the company.

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EBITDA and PAT in line; cigarette volumes resilient – ITC’s 4QFY22 EBITDA and PAT growth came in line with our estimates.

Sales beat led by Agri business and Paperboards – ITC’s revenue grew 16.8% YoY to INR155.3b (est. INR138.4b) in 4QFY22.

Valuation and view – ITC’s re-rating would depend on sustained earnings growth going back to the high-teens levels witnessed in the first half of the last decade (at 18% CAGR) which had slowed down to 6.6% CAGR over the latter half of the decade.

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• TVS Motor (TVSL IN) primary setback is in the form of poor capital allocation
• In TVS Motors: Analysis Of Various Investments , we had briefed on the investment policy of the company and how the non-core investments/subsidiaries are dragging the profits.
• This insight is an extension of the previous one; we update on the various investments the company has undergone and how it impacts the capital allocation.

• We anticipate the uptick in retail primarily aided by the wedding season to be short-lived for Hero Motocorp (HMCL IN). 
• HMCL has not been able to keep pace with changing consumer preferences, the limited success in premium segment and scooters is likely to remain an overhang even on new launches.  
• Inventory correction at the dealer’s end could aid wholesales supporting valuations, but the company remains structurally unattractive. 

• Eicher Motors (EIM IN) is well-positioned to offset margin pressures due to its aspirational brand, the success of its new models and exports. 
• Easing supply issues along with newer export markets provide a compelling runway for revenue growth. 
• While our estimates are in line with consensus,  we believe the YTD outperformance is likely to continue and any opportunities presented amidst market volatility must be exploited. 

• Dr Reddy Q4FY22 reported revenue growth of 14.8% YoY (vs. our expectations of 8.0% YoY), led by strong performance in geographies such as the US, India, and Emerging Markets. 
• The company is building a global pipeline of biosimilars, developments of NCE for Immuno-oncology, and building up a Neutraceuticals portfolio, vaccines, CDMO, and digital healthcare platforms
• However, high inflation could decrease margins prompting us to reduce TP to Rs 4,500/share.

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• Gland Pharma reported a good set of numbers with revenue for the Q4FY22 growing by 24.3% on a YoY basis. 
• We believe stock trades at rich valuations of PE of 36.2x and 30.4x for FY23E and FY24E respectively
• We, therefore, recommend a HOLD rating on the stock with a target price of Rs 3,300/share.

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• JKLC reported strong Volume/Revenue/EBITDA/APAT growth of 8%/13%/3%/26% YoY and 28%/25%/89%/190% QoQ.
• The encouraging growth on all fronts was on account of higher volume, superior realization, stringent cost management, and lower tax
• We retain our BUY rating on the stock and roll over our estimate to FY24 and value the company at 7x of its FY24E EV/EBITDA to arrive at a target price of Rs 620/share, implying an upside of 48% from the CMP.

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• VIP Industries (VIP) Q4 FY22 results reported a weak set of numbers given the seasonally weak quarter.
• Revenue stood at Rs 356 Cr up 46% YoY on account of the low base & down 13% QoQ due to the 3rd wave of Covid-19 Omnicron variant
• Revising our FY23/24 estimates adjusting for the new cost environment we revise our recommendation from Buy to HOLD with a revised TP of Rs 596/share (earlier: Rs 600/share) valuing the stock at 47x FY24E EPS.

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Lucror Analytics Weekly Wraps provide an overview of all Morning Views comments and reports published by our analyst team in the past week, and also showcase a list of the most-read reports.

In this Insight:

1. China Jinmao Holdings
2. Guangzhou R&F Properties
3. Sunac China Holdings
4. Greenland Hong Kong Holdings
5. Evergrande

and more…

• Even as the US 10y yield has come off the peak, rates in emerging markets – including in Asia – have been selling off as they remain under pressure.
• Rates in Asia are vulnerable as they are expensive vis-à-vis the rest of EM, rising inflation should result in further rate hikes in the region, and debt profiles have deteriorated.
• I thus expect rates in Asia to underperform and prefer selling bonds in the region paired with long bond positions in countries in other regions.

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• ITC reported a healthy set of numbers in Q4FY22with Revenue of Rs 15,331Cr (our estimate – Rs16,205Cr), down 2.2%QoQ but up ~16.5% YoY, led by a strong 8% volume growth in Cigarettes (in line with our estimates).
• Gross Margins at 52.5% was 132bps lower YoY on account of unprecedented RM inflation
• Benign taxation, inexpensive valuations (20x FY24E EPS), 5% dividend yield makes us BUYers of the stock. Our TP is revised to Rs 295 (earlier Rs 280).

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• Star Cement (SCL) reported robust revenue/volume growth of 27%/24%YoY in Q4FY22, driven by higher demand in its operating region. However, lower realization impacted the company’s margins
• The stock is currently trading at 8x FY23E and 7x FY24E EV/EBITDA
• We retain our BUY rating on the stock and value the company at 8x FY24E EV/EBITDA to arrive at a target price of Rs 105/share, implying an upside of 14% from the CMP.

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• Paradeep Phosphates (75690Z IN) is looking to raise up to US$194m in its India IPO. The IPO will consist of a mix of primary and secondary shares.
• Paradeep Phosphates (PP) is a fertilizer manufacturing company based in India. The firm engages in manufacturing, trading, distribution and sales of a variety of complex fertilizers.
• At listing, while PP would be the smallest peer on the revenue and mcap fronts, it trails our identified peer set on the margin front as well.

• We speak to channels across West, North and South to understand the 2W demand environment 
• Mid segment is still not seeing recovery, premium and lower end segment is stabilising / doing relatively better. 
• Restoration of supplies and aggressive marketing strategies can aid volume recovery for TVS Motor (TVSL IN) and Eicher Motors (EIM IN) 

Lucror Analytics Morning Views comprise our fundamental credit analysis, opinions and trade recommendations on high yield issuers in the region, based on key company-specific developments in the past 24 hours. Our Morning Views include a section with a brief market commentary, key market indicators and a macroeconomic and corporate event calendar.

• Bharat Petroleum Corp

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• We retain our BUY rating on the stock valuing it at 5.5x FY24E EV/EBIDTA arriving at a target price of Rs 1,000/share, (Rs 1,075/ share earlier) implying an upside of 30% from CMP.
• Steel Strip Wheels Ltd (SSWL) reported a mixed set of numbers in Q4FY22 supported by the improvement in alloy wheels and the PV segment.
• Revenue for the quarter improved by 24% QoQ to Rs 1,063 Cr (our estimate – Rs 990 Cr). 

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Tata Motors’ Q4 and FY 2021-22 results were better than expected. The company delivered lower than estimated losses and q-o-q improvement in cash flows. That said, the financial risk profile deteriorated significantly due to decreased earnings, albeit partly cushioned by lower debt (driven by cash release from working capital). Liquidity remains sound.

We expect the operating environment to remain difficult in and perhaps even beyond FY 2022-23. We derive comfort from the increasing order book, even though it currently only accounts for c. 50% of full-year deliveries and is hence insufficient for firm revenue visibility. That said, the expanding order book indicates that demand for Jaguar Land Rover exceeds the company’s ability to deliver.

• Organic disbursements at Rs22bn and inorganic disbursements stood at Rs11.4bn.

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• Core businesses to see sustained recovery in FY23; geographical expansion on the cards

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• Domestic business sees strong growth momentum in key segments

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• Affle Ltd. (Affle) reported a strong growth backed by robust device addition. The company’s Q4FY21 revenue stood at Rs 315 Cr, decline 7.2% QoQ and grew 123% YoY due to seasonally weak demand during the quarter.
• Its Operating Margins decline by 130bps QoQ to 18.6% (in line with the management expectations) due higher inventory and data cost
• We recommend a BUY on the stock and assign a 32x P/E multiple to its FY24E earnings of Rs 35.94/share which gives a TP of Rs 1,140/share, implying an upside potential of 18% from CMP.

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