Strategy
India Strategy
BSE Sensex: 55,583
Refer to our June’21
Quarter Preview
Nifty-50: 16,563
1QFY22 results review: Strong start to FY22
In line; Nifty FY22/FY23 EPS STABLE
Motilal Oswal values your support in
the Asiamoney Brokers Poll 2021
for India Research, Sales, Corporate
Access and Trading team.
We
request your ballot.
Corporate earnings in the first quarter of FY22 have been in line with the elevated
expectations, aided by the deflated base of 1QFY21 and localized and less stringent
lockdowns v/s 1QFY21. Sectoral earnings have diverged sharply on account of the
impact of second Covid-19 wave and higher commodity prices impacting the margins
of select sectors (Auto, Consumer Staples, and Durables). On the flip side, cyclical
sectors such as Metals and Oil and Gas (O&G) have benefitted, driving in-line
aggregate earnings. For the MOFSL Coverage Universe, the earnings downgrade to
upgrade ratio for FY22 stands at 6:5 – as 59 companies have seen downgrades > 5%,
while 47 companies have been upgraded by > 5%. Management commentaries across
the board indicate an improvement in the demand environment post Jun’21, led by
the easing of restrictions and sharp reduction in active Covid-19 cases. The pace of
vaccination has picked up – average daily doses in August stand at 5.2m doses/day,
v/s 4.3m doses/day in July. Amid the likelihood of a normal monsoon season, we
expect corporate earnings to recover as economic activity picks up and pace of
vaccination accelerates further.
1QFY22 has been an in-line earnings season for the MOFSL Universe. ~42% of
companies in the MOFSL Coverage Universe have beaten our estimates, while 39%
have missed our estimates.
Nifty sales have been in-line (50% YoY; est. 48%), while EBITDA/PBT/PAT growth has
come in at 41%/103%/101% YoY (est. 38%/89%/94%). Of the Nifty constituents, 42%
have reported beats on our PAT estimates, while 34% have missed expectations.
The MOFSL Universe has reported sales/EBITDA/PBT/PAT growth of
51%/50%/120%/117% YoY (est. 46%/46%/111%/114%). Ex-Metals, EBITDA/PBT/PAT
growth for the MOFSL Universe has come in at 30%/70%/62% YoY (v/s est.
26%/60%/58% YoY). On a two-year CAGR basis, the MOFSL Universe has reported
EBITDA/PBT/PAT growth of 12%/14%/16%. Around 10 sectors have posted double-
digit or a higher two-year profit CAGR. The prominent ones among these are Metals
(127%), PSU Banks (60%), Specialty Chemicals (22%), Private Banks (15%), Cement
(13%), Technology (13%), and O&G (10%).
The Nifty FY22E/FY23E EPS estimate has remained steady at INR732/INR865 (earlier:
INR733/INR868). The downgrades in Auto & NBFC sectors have been compensated by
upgrades in Metals and Cement sectors.
Key highlights: 1) Technology: 1QFY22 marks the fourth quarter of robust QoQ
revenue growth; 8 of 13 companies have beaten our earnings expectations. 2) Metals:
Highest ever quarterly earnings of INR337b have contributed to 45% of incremental
PAT, aided by strong price realization in the domestic and export markets. 3) O&G: Led
by OMCs, the segment has posted a better-than-expected performance from the
Marketing segment. 11 of 15 companies have reported beats on PAT. 4) Consumer: 16
of 18 companies have posted double-digit sales growth, aided by the deflated base of
1QFY21 and buoyancy in rural and urban demand. RM prices, however, have
continued to impact the gross margins of companies. 5) BFSI: Most private banks have
reported fresh slippage from the Retail segment, although the impact on asset quality
has been less severe than that seen during the first wave. NBFCs have reported results
below expectations as lockdowns have impacted collections and disbursements,
leading to stress buildup across segments.
Gautam Duggad – Research analyst
(Gautam.Duggad@MotilalOswal.com)
Research analyst: Deven Mistry
(Deven@MotilalOswal.com) |
Jayant Parasramka
(jayant.parasramka@motilaloswal.com)
Motilal Oswal research is available on www.motilaloswal.com/Institutional-Equities, Bloomberg, Thomson Reuters, Factset and S&P Capital.
August 2021
Investors are advised to refer through important disclosures made at the last page of the Research Report.
1
 Motilal Oswal Financial Services
Strategy
Cement, Specialty Chemicals, Consumer Durables (largely Havells), and O&G have
reported beats on our 1QFY22 estimates, while Auto, Cap Goods, NBFC, and Telecom
have come in below our estimates.
Sectoral highlights – The MOFSL Technology Universe has posted healthy in-line
earnings, with USD revenue growth of 4.5% QoQ. The IT companies in our Coverage
Universe have together added 71k employees, indicating the expectation of continued
momentum in deal wins and a strong demand environment.
The Metals Universe has reported results in line with our expectations (PAT at
INR337b v/s est. INR339b), led by strong price realization for steel companies in both
the domestic and export markets, although partly offset by lower volumes. However,
deleveraging has taken a backseat as working capital has increased due to higher
inventory pile-up and commodity prices.
The MOFSL Private Banks Universe has reported PAT growth of 29% YoY despite
sluggish disbursements in overall loan growth. Asset quality has deteriorated
sequentially as banks have reported higher slippage, primarily led by Retail. However,
the overall impact has been curtailed and is much lower v/s the first wave. The
performance of the NBFC Universe has been below our expectations, with PAT decline
of 28% YoY (v/s est. 13% YoY growth).
The Consumer Universe has posted sales growth of 30.6% v/s our est. of 18.8% YoY. 9
of 18 companies have beaten our sales growth estimates. EBITDA performance has
been muted, despite the strong sales growth and some form of price hikes by
companies, driven by sharp raw material inflation. PAT growth has been in-line at 27%
YoY v/s est. of 24% YoY. Consumer Durables has reported 161% YoY growth (est.
135%), largely led by Havells reporting profit growth of 270% (v/s est 88% YoY). Voltas,
Whirlpool, Orient Electric, and Blue Star have posted results below our expectations.
The Healthcare Universe has reported PBT/PAT growth of 15%/18% YoY, in line with
estimates.
The MOFSL Cement Universe has reported results well above our expectations (115%
YoY growth in profit v/s our estimate of 94%), aided by a) 43% YoY volume growth, as
lockdowns have been less severe v/s 1QFY21, b) higher realization on firm prices, and
c) strong margins, led by cost control, offsetting higher fuel and freight costs.
The MOFSL Automobiles Universe has posted loss of INR1b v/s the expectation of
INR23b profit. Ex-Tata Motors, PAT would be INR43b as Tata Motors has been
impacted by both business closures in India and chip shortages for JLR. RM cost
inflation and operating deleverage have impacted most of the results in 1QFY22. PAT
for our O&G Universe has grown 84% YoY (est. 36%), led by a better-than-expected
performance from the Marketing segment for OMCs.
Sector-level earnings revision for the MOFSL Universe: Metals, Retail, and Cement
have seen FY22E earnings upgrades of 7%, 5%, and 2%, respectively. Auto, NBFC, and
Healthcare have seen FY22E earnings downgrades of 16%, 10%, and 3% respectively.
The top upgrades (FY22E) stand as follows: IOC (22%), Tata Steel (19%), BPCL (17%),
JSW Steel (13%), Cipla (6%), UltraTech Cement (6%), and Wipro (6%).
Top earnings downgrade (FY22E): Tata Motors (-77%), Maruti (-13%), Bajaj Finance (-
11%), M&M (-9%), and Britannia (-6%).
View: Corporate earnings in 1QFY22 have been led by cyclicals (Metals, Cement, and
O&G), aided by a low base and less stringent lockdowns v/s 1QFY21. Management
commentaries across the board suggest an improved demand environment post
June’21, led by the easing of restrictions, lower active COVID-19 cases, and a pickup in
vaccinations. Amidst the buoyant sentiments, elevated activity in primary markets,
Nifty valuations at 21x 12m forward EPS remain rich and thus consistent delivery on
earnings expectations going ahead become crucial. We remain OW on BFSI, IT, Metals,
Cement, and Capital Goods; Neutral on Consumer, Auto, and Healthcare; and UW on
Telecom, Energy, and Utilities.
2
August 2021
 Motilal Oswal Financial Services
Strategy
Exhibit 1: Preferred largecap ideas
Company
MCap CMP
(USD B)
Infosys
105
Hind. Unilever
76
ICICI Bank
66
St Bk of India
52
HCL Technologies
41
UltraTech Cem.
29
Titan Company
22
Divi's Lab.
18
Hindalco Inds.
13
SBI Cards
13
EPS (INR)
EPS CAGR
PE (x)
PB (x)
FY21 FY22E FY23E
9.5
10.4
9.9
12.0 12.0 12.0
3.3
2.9
2.5
1.4
1.3
1.1
5.0
4.7
4.3
4.6
4.0
3.7
21.7 19.7 17.5
14.0 11.6
9.5
2.3
1.9
1.6
15.3 12.4
9.3
ROE (%)
FY21 FY22E FY23E
27.3 30.6 39.0
29.5 19.0 23.6
12.6 13.8 15.3
9.3
13.1 14.6
21.0 21.1 23.6
13.2 14.5 16.4
13.8 20.0 30.1
24.2 26.8 28.8
13.4 21.0 19.5
16.9 23.6 30.5
(INR) FY21 FY22E
1705 45.6 52.6
2428 34.8 38.4
703 24.2 30.8
425 25.1 39.0
1123 43.8 49.3
7348 190.4 237.5
1838 11.0 17.8
4902 75.6 103.5
442 24.6 44.9
1025 10.5 17.7
FY23E FY21-23, % FY21 FY22E FY23E
65.6
20.0
37.4 32.4 26.0
47.5
16.9
69.8 63.2 51.1
39.0
26.9
29.0 22.8 18.0
50.4
41.7
16.9 10.9
8.4
58.9
16.0
25.6 22.8 19.1
305.7
26.7
38.6 30.9 24.0
29.9
64.7
166.7 103.3 61.5
135.4
33.9
64.9 47.4 36.2
50.0
42.6
18.0
9.8
8.8
29.4
67.5
97.9 58.0 34.9
Exhibit 2: Preferred midcap ideas
MCap CMP
Company
Cholaman.Inv.&Fn
L&T Technology
Max Financial
Deepak Nitrite
J K Cements
Indian Hotels
Aditya Birla Fashion
Zensar Tech.
Orient Electric
5.6
5.3
5.0
3.9
3.2
2.3
2.1
1.3
0.9
501
18.5
EPS (INR)
21.5
87.3
14.1
69.4
-3.4
-3.0
17.5
6.5
82.4
29.4
109.1
18.0
78.2
2.0
0.0
22.6
8.7
103.4
EPS CAGR
26.2
31.8
27.9
17.2
20.9
NM
NA
NA
24.5
51.6
27.1
58.5
95.9
37.5
34.3
NM
NM
28.6
57.9
37.7
PE (x)
23.3
42.1
74.5
30.7
28.7
NM
NM
25.0
50.2
20.6
17.0
33.7
58.6
27.3
23.4
70.5
NM
19.3
37.3
16.4
4.3
11.1
3.8
12.4
6.4
4.6
7.0
4.1
15.2
3.8
PB (x)
FY21 FY22E FY23E
3.7
9.5
3.2
9.2
5.4
5.2
9.3
3.7
12.5
3.2
3.1
8.0
2.7
7.2
4.6
5.0
9.3
3.3
10.2
2.6
17.1
21.2
18.6
39.6
21.0
-21.0
-34.5
15.5
26.3
16.6
ROE (%)
FY21 FY22E FY23E
17.0
24.4
18.8
34.4
20.6
-12.0
-13.1
15.8
25.0
23.1
19.7
26.0
19.9
29.6
21.2
7.2
0.0
18.3
27.2
24.0
(USDb) (INR) FY21 FY22E FY23E FY21-23, % FY21 FY22E FY23E
3,675 62.8
1,054 11.0
2,131 56.9
3,117 91.0
141
206
437
327
-7.1
-7.1
15.3
5.6
108.6 133.1
Solara Active Pharma 0.8
1,698 45.0
August 2021
3
 Motilal Oswal Financial Services
Strategy
1QFY22 in line with expectations
Commodities and Cyclicals drive beat; Auto disappoints
The MOFSL Universe has reported aggregate sales/EBITDA/PBT/PAT growth of
51%/50%/120%/117% YoY (v/s est. 46%/46%/111%/114%). Ex-Metals, MOFSL
EBITDA/PBT/PAT growth has come in at 30%/70%/62% YoY (v/s est.
26%/60%/58% YoY).
1QFY22 earnings have been in line with our expectations, led by cyclical sectors
such as Metals and O&G benefitting from high commodity price realizations.
Large private banks’ earnings have indicated a sequential increase in asset
quality pressure, led by the Retail segment. Private Banks' earnings have grown
29% YoY, in-line.
Metals, O&G, and Technology have accounted for 68% of the incremental YoY
profit accretion in 1QFY22. Corporate commentaries have indicated improved
economic recovery and demand since Jun’21. Raw material price inflation has
impacted sectors such as Auto, Consumer Staples, and Consumer Durables –
companies have taken price increases to pass on some of the raw material price
increase.
On a two-year CAGR basis, MOFSL earnings have posted a healthy 14%/15%
PBT/PAT CAGR over 1QFY20–1QFY22. Metals (127%), PSU Banks (60%),
Specialty Chemicals (22%), Private Banks (15%), Cement (13%), Technology
(13%), and O&G (10%) have posted a two-year PAT CAGR of over 10%. Capital
Goods (-22%), Consumer Durables (-21%), and NBFC (-14%) have posted double-
digit decline in the two-year PAT CAGR.
The EBITDA margin for the MOFSL Universe (ex-Financials) has expanded 170bp
YoY to 19.7% (est. 19.7%). Sequentially, margins have expanded in Metals,
Cement, Healthcare, and Utilities.
Exhibit 3: Cyclicals – Metals and O&G drive earnings growth, while Technology, Private Banks, Healthcare, Cement, and
Consumer post healthy performances
Sector
Var.
Var.
Chg. % Chg.
Chg. % Chg.
Chg. % Chg. %
(no of companies) Jun-21
over Jun-21
over Jun-21
QoQ % YoY
QoQ % YoY
QoQ YoY
Exp. %
Exp. %
Automobiles (17)
1,500 -23.0 124.7 6.2
134 -48.3 5,937 4.2
33 -79.3
LP
Capital Goods (9)
435 -42.3 40.6 -3.1
36 -58.1 279.2 -12.5
24
-69
LP
Cement (11)
358 -15.9 56.2 -3.0
91
-9.5 71.5
7.0
70
-6.6 119.7
Chemicals-Spec. (8)
52
4.7 76.3
6.3
12
-2.5 68.7
5.2
11
0
69.3
Consumer (17)
576 -4.9 30.6
9.9
130 -8.1 32.1
7.2
120 -11.2 28.6
Cons. Durables (6)
82 -29.5 54.9
3.8
7
-49.5 125.0 7.4
7
-49 163.8
Financials (35)
1,323 -13.0 11.4 -2.4
841 -4.1
6.8
-0.4
416 -14.5 25.9
Banks-Private (12) 501
2.7 10.2 -1.3
424 -0.7
6.1
0.3
238
-5
30.5
Life Insurance (4)
259 -45.3 20.0 -4.2
3
-77.8 -78.2 -54.2
3
-69.0 -71.8
NBFC (17)
207 -4.5 13.5 -4.8
167 -4.9 10.0 -6.1
70
-38 -25.8
Healthcare (21)
557
7.0 15.5
2.1
131 10.7 10.8
2.7
107 15.9 15.3
Media (3)
26
-9.5 37.1
1.2
7
-24.9 38.5 -13.1
6
-18 176.4
Metals (9)
1,988 0.7 94.2 -1.5
620
7.8 391.1 -0.9
479 11.0
LP
Oil & Gas (15)
4,722 -4.4 76.9
7.8
604 -5.4 55.8 16.9
416 -16 118.0
Ex OMCs (12)
2,102 -3.7 64.2
2.1
427
5.2 71.4
3.2
293
1.2 199.2
Retail (8)
113 -43.3 63.8
7.6
3
-85.9 LP 160.0
-5
PL
Loss
Staffing (3)
67
-0.7 18.0 -1.0
3
-7.5
3.1
-9.2
2
-32.9 21.5
Technology (13)
1,365 5.5 17.4
0.5
337
1.4 22.7 -0.4
317
3
24.8
Telecom (4)
469
2.1
4.0
1.4
212
0.1 13.9
1.2
-35 Loss Loss
Utilities (9)
811
0.8 20.7
2.7
271
2.9 10.6 -2.3
184
18
62.4
Others (17)
299 -15.5 33.0
0.9
39 -33.4 60.2 -1.2
0
-98.6
LP
MOFSL Univ (208) 14,778 -8.2 51.3 3.3 3,487 -6.6 49.7 2.8 2,156 -12.5 120.2
Ex Metals (199)
12,790 -9.5 46.3 4.0 2,867 -9.2 30.1 3.7 1,678 -17.5 69.9
August 2021
Sales
EBIDTA
PBT
Var.
Chg. %
over Jun-21
QoQ
Exp. %
-9.0
-1
PL
-20.3
13
-73.3
9.9
50
-5.0
4.4
8
-0.2
3.7
89
-13.5
14.4
5
-50.8
-6.1
315
-7.3
-0.2
180
-5.6
-63.1
4
-59.1
-37.4
54
-36.5
5.0
82
13.0
-6.9
5
-15.6
-1.1
337
12.4
31.6
299 -24.2
13.2
206
-8.6
Loss
-4
PL
-12.0
1
-53.8
-0.1
239
5.3
Loss
-55
Loss
20.3
114 -13.5
-96.6
-2
PL
4.6
1,497 -17.5
6.3
1,161 -23.5
PAT
Var.
Chg. %
over
YoY
Exp. %
Loss
PL
LP
-29.8
115.5 11.3
71.1
5.3
27.4
3.0
161.2 11.2
20.9 -6.1
29.3
1.1
-68.0 -57.1
-28.3 -36.6
17.6
3.5
65.4 -6.3
LP
-0.5
84.4 35.4
119.0 15.6
Loss Loss
24.8 -24.7
26.3
0.7
Loss Loss
15.4 -4.7
Loss
PL
116.9 1.6
61.9
2.2
4
 Motilal Oswal Financial Services
Strategy
Sector
(no of companies)
Nifty (50)
Sensex (30)
Sales
EBIDTA
PBT
PAT
Var.
Chg. % Chg.
Chg. %
Jun-21
over Jun-21
QoQ % YoY
QoQ
Exp. %
10,331 -7.5 50.3 1.9 2,628 -5.9
5,828 -5.7 36.3 0.4 1,957 -1.9
Var.
Var.
Chg.
Chg. % Chg. %
Chg. %
over Jun-21
over Jun-21
% YoY
QoQ YoY
QoQ
Exp. %
Exp. %
40.8 2.3 1,674 -8.0 102.6 7.1
1,173 -15.5
28.0 -1.3 1,255 0.6
76.4
3.3
888
-5.0
Var.
Chg. %
over
YoY
Exp. %
101.1 3.6
65.9
0.9
Exhibit 4: Healthy 16% profit CAGR for MOSL Universe over 1QFY20-1QFY22
Sector
Automobiles
Capital Goods
Cement
Chemicals-Speciality
Consumer
Consumer Durables
Financials
Banks-Private
Banks-PSU
Life Insurance
NBFC
Healthcare
Infrastructure
Media
Metals
Oil & Gas
Retail
Staffing
Technology
Telecom
Utilities
Others
MOFSL Universe
EBIDTA (INR b)
Two-year
PBT (INR b)
Two-year
PAT (INR b)
Two-year
1QFY20 1QFY21 1QFY22 CAGR (%) 1QFY20 1QFY21 1QFY22 CAGR (%) 1QFY20 1QFY21 1QFY22 CAGR (%)
143
2
134
-3.3
65
-79
33
-28.5
30
-94
-1
PL
43
9
36
-8.7
37
-2
24
-19.5
21
-6
13
-21.6
82
53
91
5.0
54
32
70
13.9
39
23
50
13.2
9
7
12
12.8
8
7
11
15.2
6
5
8
22.4
139
98
130
-3.2
132
93
120
-4.7
90
70
89
-0.2
12
3
7
-22.6
12
3
7
-23.1
8
2
5
-20.7
649
787
841
13.8
373
330
416
5.6
251
261
315
12.0
326
400
424
14.2
208
182
238
7.0
137
139
180
14.6
175
221
247
18.7
51
43
105
44.3
30
33
77
59.8
11
15
3
-45.0
11
12
3
-45.7
11
13
4
-39.8
138
152
167
10.1
103
94
70
-17.8
73
75
54
-13.8
99
119
131
15.4
74
93
107
20.3
56
70
82
20.8
11
7
10
-4.4
5
2
4
-15.3
3
1
2
-12.1
15
5
7
-31.3
14
2
6
-33.3
9
3
5
-27.8
262
126
620
54.0
116
-8
479
103.3
65
-27
337
127.2
547
387
604
5.1
360
191
416
7.5
246
162
299
10.2
21
-7
3
-61.3
13
-14
-5
PL
9
-11
-4
PL
3
3
3
-2.3
1
1
2
6.9
2
1
1
-15.8
247
274
337
16.7
247
254
317
13.2
187
189
239
13.1
147
186
212
20.3
-61
-33
-35
Loss
-47
-46
-55
Loss
282
245
271
-1.9
164
113
184
5.9
116
99
114
-0.7
71
24
39
-25.9
43
-6
0
-91.8
31
-12
-2
PL
2781
2330
3487
12.0
1658
979
2156
14.0
1122
690
1497
15.5
Exhibit 5: Sales for MOFSL Universe up 51% YoY (est. 46%)
Exhibit 6: EBITDA for MOFSL Universe up 50% YoY (est. 46%
YoY)
51
15 11 12 15 15
4 9
-1
23 25 22
11 7
-2 -1 -5
-30
-6
0
16
11
16 16
6
-5
18 15 20
30
15
6 7 4 1
11
10
37
19
50
-6 -16
Exhibit 7: PAT for MOFSL Universe up 117% YoY v/s our
expectation of 114% YoY growth
Exhibit 8: EBITDA margin (ex-Financials) up 170bp YoY to
19.7%
117
83
16 10
3 7
-6
16
15 17 5 16 8
2
2 0 7
-24 -38
17
31
.
.
August 2021
5
 Motilal Oswal Financial Services
Strategy
Sectoral performance highlights: Broad-based beat on earnings
Sales for the MOFSL Universe have grown 51% YoY. Ex-Metals, sales growth
stands at 46% YoY.
Autos, Metals, O&G, Specialty Chemicals, Retail, Cement, and Consumer
Durables have posted sales growth of 125%, 94%, 77%, 76%, 64%, 56%, and 55%
YoY, respectively, aided by a low base. 19 of 21 sectors have posted double-digit
sales growth YoY.
EBITDA for the MOFSL Universe has grown 50% v/s our expectation of 46% YoY
growth. Cyclicals such as Metals and O&G have contributed 61% to incremental
EBITDA YoY, led by higher realizations. On a two-year CAGR, EBITDA growth has
been the highest in Metals (103%), Healthcare (20%), Specialty Chemicals (15%),
Cement (14%), and Technology (13%).
The 117% YoY growth in profit for the MOFSL Universe was led by demand
recovery and a subdued base. On a two-year CAGR basis, Metals (127%), PSU
Banks (60%), Specialty Chemicals (22%), Healthcare (21%), Private Banks (15%),
Cement (13%), Technology (13%), and O&G (10%) have reported earnings
growth. Consumer has been largely flattish, while Consumer Durables, Capital
Goods, and NBFC have seen profit CAGR declines of 22%, 21%, and 14%
respectively. MOSL Auto universe has posted loss of INR1b in 1QFY22, dragged
by Tata Motors.
Exhibit 9: Metals, Cement, Utilities, Healthcare show sequential improvement in EBITDA margins; Autos, Consumer,
Consumer Durables, and Technology contract
Jun-20
Mar-21
Jun-21
August 2021
6
 Motilal Oswal Financial Services
Strategy
1QFY22 performance highlights for Nifty
Metals and O&G account for 56% of incremental profits YoY
Nifty sales have been in-line (50% YoY; est. 48%), while EBITDA/PBT/PAT has
risen 41%/103%/101% YoY (est. 38%/89%/94%).
21 Nifty constituents have reported beats on our PAT estimates, while 17 have
reported misses. Metals and O&G led incremental profit growth among the
Nifty constituents.
Ex-Metals, Nifty profits have risen 59% YoY v/s est. 53% YoY growth.
Eicher, M&M, Grasim, Shree, UltraTech, Asian Paints, ICICI Bank, IndusInd, SBI,
Cipla, Sun Pharma, JSW Steel, BPCL, IOC, ONGC, RIL, Titan, Tech Mahindra,
Wipro, and UPL have beaten our estimates.
EBITDA for 15/12 Nifty companies has been above/below our expectations.
9 Nifty companies have seen earnings upgrades of over 5% in FY22E EPS, while 7
have seen downgrades of over 5%.
Exhibit 11: Nifty posts 41% YoY EBITDA growth (v/s our
expectation of 38%)
Exhibit 10: Nifty sales see 50% YoY growth on low base
50
15
15
11 12 14
23 25 23
11 7
-2 -1 -5
-29
0
-7
-4 -10
31
16
12
17 15
2
-6
18
22
14
14
7 8
12
4 4
8
16
32
41
5 8
-1
Exhibit 12: Nifty PAT up 101% v/s our est. of 94% growth
Exhibit 13: Nifty EBITDA margin (ex-Financials) up 100bp to
20.1% YoY
101
81
17 22
3 4 5 3
-7
13 16 6 11 11 8 18 6
10
2
-21
-30
August 2021
7
 Motilal Oswal Financial Services
Strategy
Exhibit 14: Metals, IT and BFSI to drive 32% earnings growth for Nifty in FY22E; Consumer, Healthcare, and Cement to post
healthy performances
Sector
Agro Chemicals
Automobiles
Banking
Capital Goods
Cement
Consumer
Healthcare
Infrastructure
Metals
Oil & Gas
Retail
Technology
Telecom
Utilities
Nifty
Preview 1QFY22 PAT (INR b)
FY18 FY19 FY20 FY21 FY22E
22
25
27
34
45
302
218
103
179
288
439
605
896 1,116 1,548
72
80
89
69
91
70
80
116
134
161
210
241
289
292
337
67
82
90
130
154
37
40
37
50
64
180
233
71
216
624
944 1,005 740
994 1,078
11
14
15
10
16
612
711
741
792
941
14
-35
-41
-7
27
293
387
411
404
448
3,274 3,686 3,583 4,413 5,822
Review 1QFY22 PAT (INR b)
FY23E FY18 FY19 FY20 FY21 FY22E
52
22
25
27
35
45
432
302
218
103
178
229
1,953 439
605
896 1,116 1,500
113
72
80
89
69
91
191
70
80
116
123
163
396
210
241
289
292
326
179
67
82
90
128
159
78
37
40
37
50
66
483
180
233
71
216
720
1,333 944 1,005 743
994 1,096
26
11
14
15
10
16
1,116 612
711
741
792
925
47
14
-35
-41
-7
28
486
293
387
411
404
445
6,885 3,274 3,686 3,586 4,400 5,809
Growth YoY (%)
FY23E FY19 FY20 FY21 FY22E FY23E
53
11
8
30
31
16
421
-28 -53
74
28
84
1,898 38
48
25
34
27
113
11
11
-22
32
24
192
14
45
6
33
18
394
15
20
1
11
21
185
22
10
42
24
17
81
9
-7
35
32
23
549
30
-70
205 233
-24
1,302 6
-26
34
10
19
27
24
9
-35
61
68
1,106 16
4
7
17
20
53
PL Loss Loss LP
91
486
32
6
-2
10
9
6,858 13
-3
23
32
18
Exhibit 15: Nifty FY22/FY23 EPS largely unchanged
Sector
Automobiles
Capital Goods
Cement
Chemicals-Speciality
Consumer
Consumer Durables
Financials
Banks-Private
Banks-PSU
Life Insurance
NBFC
Healthcare
Infrastructure
Media
Metals
Oil & Gas
Excl. OMCs
Retail
Staffing
Technology
Telecom
Utilities
Others
MOFSL Universe
NIFTY EPS (INR)
PAT (INR b)
preview
FY22E
FY23E
397
586
145
188
241
288
34
43
438
522
32
38
1,867
2,392
977
1,270
402
533
48
56
439
533
366
426
9
11
23
34
1,247
975
1,326
1,615
1,088
1,309
29
61
9
12
1,020
1,212
-147
-108
538
589
72
192
7,645
9,078
733
868
PAT (INR b)
review
FY22E
FY23E
334
573
143
187
247
291
33
41
433
525
31
39
1,800
2,347
954
1,245
405
538
45
53
396
511
355
424
9
13
24
34
1,337
1,047
1,346
1,584
1,063
1,277
31
63
8
13
1,006
1,207
-154
-113
533
589
61
186
7,579
9,050
732
865
Upgrade/
downgrade (%)
FY22E
FY23E
-15.8
-2.2
-1.1
-0.6
2.3
0.9
-1.6
-4.5
-1.2
0.6
-0.4
0.6
-3.6
-1.9
-2.3
-1.9
0.7
0.9
-6.6
-5.7
-9.9
-4.1
-2.9
-0.6
5.1
11.5
5.1
-0.8
7.2
7.3
1.5
-1.9
-2.3
-2.4
4.8
4.3
-1.8
3.8
-1.3
-0.4
Loss
Loss
-0.9
0.1
-15.0
-3.1
-0.9
-0.3
-0.2
-0.3
FY21
38
-28
17
1
1
9
20
31
14
-1
5
35
-38
-19
175
34
5
-65
-3
8
Loss
-1
-67
22
15
Growth
YoY (%)
FY22E
41
59
29
21
13
18
34
29
74
4
20
15
19
21
129
8
35
177
29
17
Loss
11
106
34
35
FY23E
72
30
18
23
21
23
30
30
33
18
29
19
37
39
-22
18
20
107
52
20
Loss
11
203
19
18
August 2021
8
 Motilal Oswal Financial Services
Strategy
Exhibit 16: 33 Nifty constituents deliver 20%+ profit growth in 1QFY22
Company
Sales
Chg. Chg.
Var.
Jun-21
YoY. % QoQ. % (%)
High PAT gr.
Tata Steel
534 109.5 6.8
JSW Steel
289 145.3 7.3
Maruti Suzuki
178 332.7 -26.0
Grasim Industries
38 181.7 -14.4
Bharti Airtel
269 12.2
4.3
Eicher Motors
20 141.3 -32.9
Titan Company
35
75.5 -53.7
M&M
118 110.4 -11.8
Larsen & Toubro
293 38.0 -39.0
ONGC
230 76.9
8.6
Hero MotoCorp
55
84.7 -36.8
Hindalco
414 63.6
2.1
IOC
1,187 90.2 -4.1
Asian Paints
56
91.1 -16.0
Bajaj Auto
74 139.9 -14.1
IndusInd Bank
36
7.7
0.8
Axis Bank
78
11.1
2.7
UltraTech Cement 118 54.2 -17.9
Shree Cement
34
48.3 -12.2
ICICI Bank
109 17.8
4.8
Adani Ports
46
98.8 26.3
Sun Pharma
97
29.5 14.7
State Bank
276
3.7
2.1
Coal India
253 36.8 -5.3
UPL
85
8.7 -33.5
Reliance Inds.
1,399 58.6 -6.4
Tech Mahindra
102 12.0
4.8
Cipla
55
25.5 18.4
Wipro
183 22.4 12.4
Kotak Mah. Bank
39
5.8
2.6
ITC
122 37.1 -8.1
TCS
454 18.5
3.9
Infosys
279 17.9
6.0
Med/Low PAT gr.
HDFC Bank
170
8.6
-0.6
Divi’s Labs
20
13.3
9.6
HCL Technologies
201 12.5
2.2
Power Grid Corp.
103
9.7
7.5
Nestle
35
14.0 -3.7
Hind. Unilever
119 12.8 -1.8
Bajaj Finance
37
12.3 -3.6
HDFC
41
23.7
2.4
Negative PAT gr.
NTPC
268 10.6
2.1
Dr Reddy’ s Labs
49
11.4
4.0
BPCL
709 82.9 -7.8
Britannia
34
-0.5
8.7
Tata Consumer
30
10.9 -0.9
Bajaj Finserv
139
-1.7
-9.3
HDFC Life Insur.
75
31.7 -41.4
SBI Life Insurance
83
9.5 -46.6
Tata Motors
664 107.6 -25.1
Nifty Universe
10,331 50.3 -7.5
Nifty ex Metals
9,094 45.5 -9.0
Note: PL: Profit to loss; LP: Loss to profit
EBITDA
PBT
PAT
Chg.
Chg.
Chg.
Chg.
Chg.
Chg.
Jun-21
Var. (%) Jun-21
Var. % Jun-21
Var. %
YoY. % QoQ. %
YoY. % QoQ %
YoY. % QoQ. %
-2.3
1.7
2.1
-21.7
3.3
10.7
19.0
-2.0
-3.1
-0.3
-3.9
-1.9
3.0
56.6
0.9
-0.9
-1.2
-0.9
1.5
1.9
19.0
12.6
-3.9
6.0
0.2
2.3
1.7
-1.5
4.3
-1.8
7.0
-0.9
0.8
-4.1
-1.4
-1.6
4.9
-2.6
4.0
-5.4
2.3
161 2,886.8 13.6 -6.2
103 666.1 21.7
9.2
8
LP
-58.8 -8.9
7
LP
-8.7 16.8
130 24.7
5.3
5.1
4
9,477 -47.0 12.3
1
LP
-83.2 358.2
16 184.7 -16.8 5.2
32
95.7 -50.4 -4.8
122 105.7 20.0
4.2
5
376.5 -57.5 -1.2
63 141.6 17.4
8.3
111 101.8 -17.6 65.0
9
88.7 -30.7 34.1
11 174.1 -26.5 -10.4
32
8.8
1.8
4.9
64
9.8
-6.5
-2.8
33
59.2 -10.4 9.4
10
44.7 -13.9 -4.2
89
-17.5 4.2
-2.6
22
59.9 -3.5
-7.4
27
63.5 36.8 29.0
190
5.1
-3.7
-1.3
46
63.9 -42.5 0.0
19
4.7 -34.4 -7.0
234 38.5
0.1
2.5
19
44.3 -3.7
4.6
13
23.4 62.6 21.2
41
23.7 -0.8
8.1
31
19.0 -8.4
-0.4
40
50.8 -10.8 0.0
127 26.3 -1.1
1.0
74
21.1
2.2
-3.5
151
9
49
91
8
28
31
39
18.0
21.7
7.5
9.9
9.9
7.7
4.0
23.1
-3.8
-18.9
-16.9
-22.8
-17.2
-1.7
-76.5
-81.6
727.2
40.8
26.4
-2.5
19.0
12.3
8.5
-10.3
-3.7
2.1
-3.8
32.4
-10.5
-34.8
9.6
33.1
-9.3
-86.4
-78.0
-58.7
-5.9
-8.4
0.8
4.8
-7.8
5.0
-4.6
4.8
-7.1
0.8
121
83
6
5
17
4
0
12
23
68
5
37
78
8
14
13
29
25
9
60
15
24
89
43
7
173
18
11
39
22
40
122
72
103
8
41
74
7
27
14
32
LP
LP
LP
LP
369.2
2,391
LP
2,371
239.6
647.1
509.3
738.2
196.7
144.1
102.8
100.6
102.0
92.7
79.4
89.9
56.1
71.9
60.5
54.8
-26.3
110.5
39.9
33.7
24.8
31.6
28.4
28.0
23.6
19.0
30.8
-56.9
-10.9
10.4
-45.2
-94.7
-13.3
-60.4
6.9
-57.1
22.7
-28.8
-32.1
-20.5
6.2
-19.2
-5.6
-8.5
6.8
-4.7
48.5
3.2
-32.3
-61.0
11.1
12.5
96.6
2.9
-1.9
-17.3
-2.9
3.5
-8.4
13.1
-28.8
20.1
21.8
11.7
LP
8.7
-10.1
27.3
-0.9
1.1
99.9
46.4
-5.8
14.4
-0.6
11.4
5.3
11.0
-26.6
31.2
13.3
-6.6
-43.7
12.2
15.5
32.6
14.8
0.5
-9.5
-2.4
-4.0
-3.0
4.6
-7.6
94.3
-5.8
2.6
-26.3
4.7
91
LP
19.0 -6.8
59
LP
37.9 14.0
4
LP
-62.2 -28.9
4
LP
-8.3 36.5
3
LP
-17.3 -40.5
2
LP
-57.9 26.6
0
LP
-96.8
LP
9
2,294.9
-6.8 11.9
12
878.0
-65.6 -19.1
43
774.0
-9.0 22.6
4
496.1
-57.8 -1.4
23
276.2
33.1 -5.7
59
210.9
-32.3 103.5
6
161.5
-34.0 43.9
11
101.0
-20.3 -5.0
10
99.1
9.7
15.5
22
94.2
-19.3 -0.5
17
91.7
-6.2
8.8
7
78.5
-13.8 7.2
46
77.6
4.8
11.6
13
77.0
1.6 -14.8
20
74.1
37.0 33.4
65
55.3
0.8
11.6
32
52.8
-30.9 -8.9
10
50.4
-14.7 18.3
123
46.7
-1.8 18.6
14
39.2
11.7 16.4
8
36.4
90.7 27.6
32
35.2
8.7
24.7
16
31.9
-2.4
5.0
30
28.6
-19.6 -9.3
90
28.1
-2.7
-3.4
52
22.3
2.3
-5.9
77
5
32
30
5
20
10
26
16.1
12.8
10.0
5.5
5.4
4.8
4.2
2.1
-0.4
-1.5
-24.9
-28.7
-28.8
-31.5
-33.0
-42.9
Loss
101.1
59.3
-5.6
8.9
34.7
-7.4
-12.9
-6.7
-25.6
-6.3
-1.6
-4.2
-4.4
-2.2
-7.8
2.3
-27.0
4.6
15.3 -4.9
21.1 19.4
6.7
19.8
170.5 79.7
8.0 -11.8
5.1
-5.3
4.3 -25.1
12.0 -3.6
16.9
-15.5
-29.1
-28.0
-22.0
-31.2
-32.0
-39.8
Loss
102.6
66.1
-2.0
82
1.2
9
9.9
33
9.3
6
-1.5
4
-12.8 139
-10.2
1
-6.9
1
10.6
53
1.9 2,628
2.3 2,301
-8.9
43
-15.2
7
79.3
21
1.4
5
-2.2
3
-12.8
18
-62.9
3
-59.4
2
13.5
-26
2.3 1,674
2.5 1,433
23.7 -2.8
33
-7.1 -10.0
6
-60.5 159.8 16
7.9
0.5
4
30.0 -7.6
2
-25.1 -40.8
8
-0.8
-1.8
3
-62.5 -27.4
2
PL
Loss
-45
-8.0
7.1 1,173
-11.8 8.4 1,000
-14.2 -1.9
21.4 -6.5
-69.5 161.2
7.6
-2.1
65.9 -21.3
-14.9 -43.7
-4.9
-1.7
-58.1 -29.8
PL
Loss
-15.5 3.6
-20.2 4.4
August 2021
9
 Motilal Oswal Financial Services
Strategy
Nifty FY22E/FY23E EPS remains unchanged…
…and steady at INR732/INR865
Nifty EPS for FY22E/FY23E has remained steady at INR732/INR865
(INR733/INR868 earlier) as downgrades in Auto and NBFC have been
compensated by upgrades in Metals and OMCs. Nifty EPS is estimated to grow
35%/18% YoY in FY22/FY23.
FY22 earnings growth is estimated to be led by a) Metals, which continue to
benefit from strong price realizations; b) BFSI, which is expected to benefit from
economic recovery as demand revives; and c) strong earnings growth in export-
oriented sectors such as Technology and Healthcare.
Top upgrades (FY22E):
IOC (22%), Tata Steel (19%), BPCL (17%), JSW Steel (13%),
Cipla (6%), UltraTech Cement (6%), and Wipro (6%)
Top downgrades (FY22E):
Tata Motors (-77%), Maruti (-13%), Bajaj Finance (-11%),
M&M (-9%), and Britannia (-6%)
Exhibit 17: Nifty EPS revision: 9 Nifty constituents see >5% EPS upgrade for FY22E, while 7 see >5% downgrade
Company
IOC
Tata Steel
BPCL
JSW Steel
Cipla
UltraTech Cement
Wipro
Divi’s Labs
Hindalco
Sun Pharma
ICICI Bank
Bharti Airtel
HDFC
Shree Cement
Tech Mahindra
UPL
Coal India
HDFC Life Insur.
Larsen & Toubro
Power Grid Corp.
Asian Paints
Reliance Inds.
IndusInd Bank
HDFC Bank
Titan Company
TCS
Tata Consumer
Hind. Unilever
Bajaj Auto
NTPC
Infosys
Dr Reddy’ s Labs
HCL Technologies
Grasim Industries
Nestle
Preview
1QFY22 EPS
FY22E
FY23E
14.2
17.6
275.6
159.3
27.7
38.5
82.6
78.8
33.3
38.2
223.4
288.5
19.8
23.8
98.1
129.8
42.6
45.9
28.2
31.7
29.6
38.6
4.9
8.5
61.9
71.1
729.4
866.0
59.4
68.2
58.5
68.0
25.4
28.1
7.2
8.7
64.9
80.4
18.9
19.8
36.6
43.6
89.3
114.7
65.7
94.3
67.5
81.8
18.2
29.2
110.0
127.8
11.4
15.3
39.5
48.4
201.8
233.9
16.5
18.1
54.4
66.7
198.4
226.5
51.1
61.1
106.2
116.9
249.2
291.9
Current
EPS (INR)
FY22E
FY23E
17.3
17.0
329.2
190.3
32.4
40.5
93.8
87.0
35.4
39.9
237.5
305.7
20.8
25.2
103.5
135.4
44.9
50.0
29.5
33.6
30.8
39.0
5.1
9.7
63.7
71.6
750.3
850.8
61.0
71.7
59.4
68.7
25.7
28.8
7.2
8.5
64.9
80.4
18.9
19.8
36.4
45.4
88.7
113.7
65.0
94.3
66.2
79.3
17.8
29.9
107.2
125.7
11.1
15.0
38.4
47.5
196.1
226.9
16.0
17.6
52.6
65.6
191.3
218.1
49.3
58.9
102.3
110.3
239.7
276.2
EPS Upgrade /
Downgrade (%)
FY22E
FY23E
22.0
-3.4
19.5
19.5
16.9
5.1
13.5
10.5
6.3
4.4
6.3
6.0
5.5
5.6
5.4
4.3
5.3
9.0
4.7
5.8
3.9
0.9
3.2
13.9
2.9
0.7
2.9
-1.8
2.7
5.0
1.6
1.0
1.1
2.6
0.1
-1.6
0.0
0.0
-0.2
0.0
-0.6
4.2
-0.6
-0.9
-1.1
-0.1
-1.9
-3.0
-2.3
2.5
-2.6
-1.6
-2.6
-2.0
-2.8
-1.9
-2.8
-3.0
-3.0
-2.8
-3.2
-1.6
-3.5
-3.7
-3.6
-3.6
-3.7
-5.6
-3.8
-5.4
FY21
130.8
661.9
165.6
262.5
52.7
31.0
14.3
54.4
40.7
52.6
97.0
Loss
10.8
47.2
6.9
29.9
-23.9
4.8
21.2
16.0
15.4
1.1
-41.4
17.8
-35.4
0.6
20.8
11.5
-6.8
13.6
17.1
9.3
7.5
-23.1
7.6
EPS
Growth (%)
FY22E
-27.1
376.9
-48.7
186.2
18.1
24.7
11.1
36.9
82.6
17.9
27.2
LP
16.9
17.1
18.0
30.9
24.5
6.5
-21.3
5.6
8.9
30.9
62.6
16.9
61.4
23.6
17.0
10.4
16.8
1.9
15.5
33.3
12.5
50.5
10.2
FY23E
-1.5
-42.2
24.9
-7.2
12.7
28.8
20.8
30.9
11.3
13.8
26.7
90.7
12.4
13.4
17.5
15.7
12.1
18.8
24.0
5.0
24.8
28.2
45.1
19.9
68.0
17.3
35.9
23.7
15.7
10.0
24.7
14.0
19.6
7.9
15.3
August 2021
10
 Motilal Oswal Financial Services
Strategy
Preview
1QFY22 EPS
FY22E
FY23E
12.7
14.3
40.7
51.6
186.8
218.6
58.1
70.3
81.9
117.6
47.3
63.8
24.5
27.4
75.8
89.2
15.8
17.6
42.9
52.1
132.5
176.6
216.1
314.6
14.0
34.3
733
868
Current
EPS (INR)
FY22E
FY23E
12.2
14.4
39.0
50.4
178.2
215.6
55.3
67.3
78.0
121.2
45.1
60.9
23.2
25.6
71.4
88.3
14.6
16.7
38.9
45.1
117.7
168.6
187.7
304.7
3.2
34.7
732
865
EPS Upgrade /
Downgrade (%)
FY22E
FY23E
-3.8
0.3
-4.2
-2.3
-4.6
-1.4
-4.7
-4.2
-4.8
3.0
-4.8
-4.5
-5.3
-6.7
-5.9
-1.1
-7.6
-5.1
-9.4
-13.5
-11.2
-4.6
-13.1
-3.1
-77.4
1.2
-0.2
-0.3
EPS
Growth (%)
FY22E
15.3
55.2
20.1
9.7
54.0
101.3
44.1
-7.1
0.2
15.1
60.2
29.2
462.7
34.9
Company
ITC
State Bank
Hero MotoCorp
Kotak Mahindra Bank
Eicher Motors
Axis Bank
ONGC
Britannia
SBI Life Insurance
Mahindra & Mahindra
Bajaj Finance
Maruti Suzuki
Tata Motors
Nifty (50)
FY21
-14.8
13.3
-3.0
12.2
-24.3
271.0
23.8
31.0
2.4
12.8
-16.3
-22.7
LP
14.8
FY23E
17.6
29.3
21.0
21.7
55.4
35.2
10.0
23.7
14.4
15.8
43.3
62.3
994.3
18.2
August 2021
11
 Motilal Oswal Financial Services
Strategy
Exhibit 18: We estimate 26% CAGR in Nifty FY21–23E free-float PAT
Sales (INR b)
Sales CAGR % EBIDTA Margin (%) EBITDA CAGR
PAT (INR b)
Company
FY21 FY22E FY23E 20-22 21-23 FY21 FY22E FY23E 20-22 21-23 FY21 FY22E FY23E
High PAT Gr. (20%+)
18,261 23,527 25,008 10
17
25
24
25
26
17 1,423 2,330 2,632
Tata Motors
2,498 3,041 3,748
8
22
14
13
15
28
25
2
12
133
Bharti Airtel
1,006 1,127 1,287
14
13
45
48
49
23
18
-7
28
53
Tata Steel
1,563 2,341 2,034
25
14
20
29
23
97
23
83
394 228
JSW Steel
796
1,341 1,322
36
29
25
30
29
91
39
79
226 210
Axis Bank
292
335
400
15
17
88
86
88
11
17
66
138 187
ICICI Bank
390
456
546
17
18
93
85
85
18
13
162 213 270
Hindalco
1,318 1,757 1,813
22
17
13
14
14
31
21
55
100 111
Divi’s Labs
70
89
113
28
27
42
43
44
45
31
20
27
36
Cipla
192
215
235
12
11
22
22
22
21
11
24
28
32
Sun Pharma
332
382
426
9
13
25
26
26
24
16
60
71
81
ONGC
3,606 4,665 4,623
5
13
16
16
17
11
19
207 298 328
Adani Ports
125
177
206
22
28
64
66
66
41
31
50
66
81
State Bank
1,107 1,201 1,382
11
12
65
66
68
8
14
224 348 450
Shree Cement
126
150
174
12
18
31
28
29
7
13
23
27
31
UPL
387
420
454
8
8
22
23
24
14
11
35
45
53
IOC
3,639 4,855 5,120
0
19
11
7
7
44
-7
218 159 156
UltraTech Cement
447
530
613
12
17
26
24
25
17
15
55
69
88
Dr Reddy’ s Labs
189
231
255
17
16
23
22
23
19
16
24
32
36
Bajaj Finserv
178
213
258
11
20
89
84
85
21
18
45
49
69
Medium PAT Gr. (0-20%) 18,883 22,605 25,977
6
17
24
23
24
12
16 2,675 3,114 3,780
Tata Consumer
116
125
141
14
10
13
14
16
18
21
9
10
14
HDFC Bank
649
738
879
15
16
88
89
89
16
17
311 365 437
BPCL
2,302 2,850 2,954
0
13
9
4
5
11
-17
132
68
85
Infosys
1,005 1,184 1,411
14
18
28
27
28
20
19
194 224 279
Bajaj Finance
139
164
202
10
21
86
85
86
11
21
44
71
101
Hind. Unilever
460
507
582
14
12
25
25
26
16
17
82
90
112
HDFC
150
173
190
17
13
98
99
101
17
14
107 128 144
Reliance Inds.
4,669 5,939 7,115
0
23
17
19
19
12
30
437 572 733
M&M
444
544
591
10
15
15
13
14
7
10
40
46
54
Kotak Mahindra Bank
153
168
195
11
13
80
78
78
14
12
100 110 133
Tech Mahindra
379
428
500
8
15
18
19
19
19
17
46
54
63
Asian Paints
217
267
303
15
18
22
19
21
12
14
32
35
44
TCS
1,642 1,905 2,214
10
16
28
29
29
14
17
326 397 466
Power Grid Corp.
400
412
429
2
4
88
88
88
3
3
125 132 138
Britannia
131
139
159
10
10
19
17
18
14
8
19
17
21
HCL Technologies
754
839
987
9
14
26
25
25
12
14
119 134 160
Wipro
619
772
910
12
21
24
21
22
14
15
108 116 138
Nestle
134
147
167
9
12
24
24
24
11
13
21
23
27
Hero MotoCorp
308
365
410
13
15
13
13
14
11
21
30
36
43
Eicher Motors
87
116
149
13
31
21
23
26
10
45
14
21
33
Grasim Industries
124
187
211
0
31
13
18
16
20
49
45
67
73
IndusInd Bank
135
155
187
13
18
88
86
86
11
16
29
50
73
NTPC
1,134 1,248 1,344
4
9
32
31
32
4
9
152 155 170
HDFC Life Insur.
381
454
540
19
19
3
2
2
6
10
14
15
17
Bajaj Auto
277
361
406
10
21
18
16
18
8
21
49
57
66
Titan Company
216
253
324
10
22
8
10
12
0
51
10
16
27
SBI Life Insurance
498
595
703
21
19
4
3
3
1
4
15
15
17
Larsen & Toubro
1,360 1,568 1,774
4
14
11
12
12
6
17
69
91
113
PAT de-gr. (<0%)
2,059 2,476 2,721
7
15
19
19
22
1
22
301 365 446
Maruti Suzuki
704
947
1,044
12
22
8
8
11
-1
47
44
57
92
ITC
455
516
563
6
11
34
36
39
2
19
130 150 177
Coal India
900
1,012 1,114
3
11
21
22
23
1
17
127 158 177
Nifty (PAT free float)
39,203 48,608 53,706
8
17
24
23
24
18
17 2,366 3,183 3,763
PAT CAGR %
20-22 21-23
78
36
LP
685
LP
LP
517
66
223
63
191
68
64
29
60
43
45
34
34
15
34
16
34
26
33
27
33
42
31
15
30
23
30
-15
28
27
21
23
20
24
12
19
19
26
18
19
17
-20
16
20
16
51
16
17
15
16
15
30
14
15
13
16
13
18
12
17
11
20
11
5
10
7
10
16
9
13
9
13
8
21
8
55
8
27
7
58
7
6
6
13
4
16
2
65
1
7
1
28
-2
22
0
45
-1
16
-3
18
29
26
August 2021
12
 Motilal Oswal Financial Services
Strategy
Sector-wise: Highlights / Surprises / Guidance
Autos: Demand and supply side pressures, along with commodity hurt 1QFY22
Localized lockdowns impact volumes sequentially; optimistic about upcoming festive season:
Demand and
supply were severely affected by the second COVID wave, weighed by localized lockdowns and oxygen shortage
over April–May. Volumes across categories, Tractors/2Ws/PVs/MHCVs/LCVs declined 4%/35%/26%/60%/39%
QoQ. Total revenue for our Auto OEM (ex-JLR) Universe stood at ~INR631b (-30% QoQ / +196% YoY). EBITDA
declined 52% QoQ to ~INR48.5b (in-line). Adj. PAT declined 72% QoQ to ~INR15.4b – primarily due to the
performance of TTMT S/A (loss of INR13b) dragging down overall PAT (below est; v/s loss of INR23.4b in
1QFY21). We expect demand recovery on the back of the upcoming festive season. However, demand recovery
would be faster in PVs v/s 2Ws as the core (rural and tier-2 cities) 2W markets were worse impacted by the
second COVID wave.
RM cost inflation continues to hurt margins; price hikes reduce the pain:
Commodity cost inflation continued in
1Q, however RM cost (% of sales) increased only 15bp QoQ (+460bp YoY) despite actual cost inflation of 2-3pp,
due to price hikes and mix benefit. Due to operating deleverage, there was an increase in staff and other
expenses (as a percentage of sales). Aggregate staff costs / other expenses (ex-JLR) were 260bp/70bp higher
QoQ at 7.2%/11.6% of sales. The EBITDA margin (ex-JLR) declined 350bps QoQ to 7.7%. Most of the
managements indicated continued commodity cost inflation in 2QFY22, post which it is expected to stabilize.
OEMs continue to take price hikes in Jul/Aug’21 across segments to dilute the impact of commodities.
Semiconductor shortage remains an overhang, with worst expected in 2Q:
Companies such as TTMT and MSS,
which derive revenues from overseas operations, have been severely affected by the semiconductor shortage.
TTMT’s JLR stated it would see a cut in production volumes by about 50% in 2QFY22. Domestic OEMs such as
MSIL and MM could see an impact on volumes in 2QFY22.
Rise in debt due to working capital:
Due to localized lockdowns in states in 1QFY22, the working capital
condition deteriorated in 1Q. We saw an increase in net debt in 1Q for companies such as TTMT (by INR204b
QoQ to ~INR613b), MSS (by INR13.7b QoQ to INR74.6b), and CEAT (by INR3.7b QoQ to INR17.85b).
2W OEMs start to talk about their EV strategy:
The 2W OEM commentaries were focused on their EV strategies
going forward. BJAUT would focus on launching its electric scooter Chetak in more cities and plans to launch its
e-3W by the end of CY21. Also, it is setting up a 100% subsidiary that would focus on electric mobility. HMCL
would launch an in-house product for fast-charging solutions by Mar’22 and products in partnership with
Gogoro in the latter part of CY22. TVS has committed capex of INR10b towards e-2W and 3W and capacity
expansion.
More downgrades than upgrades:
1QFY22 saw more downgrades than upgrades on account of commodity cost
inflation and volume uncertainty due to the COVID-19 impact and semiconductor shortage. Upgrades were
driven by volume upgrades (exports performance) and/or lower other costs. We have upgraded our FY22E EPS
estimates – the highest for BHFC (+16%), TVS (+7.6%), and BKT (+7%). We have lowered our EPS for TTMT (-
77%), AL (-54%), CEAT (-15%), AMRJ (-13%), MSIL (-13%), MRF (-11%), MM (-9%), MSS (-8%), and EIM (-7%) on
the impact of higher RM cost and lower volumes due to the COVID-19 impact and semiconductor shortage.
Valuation and view:
The commodity cost inflation intensity is expected to plateau from 2HFY22, while the
semiconductor shortage has impacted PV production recovery. The upcoming festival season could serve as a
catalyst for demand recovery, particularly for the trailing 2W segment. Current valuations are largely factoring in
sustained recovery (our base case), leaving a limited margin of safety for any disappointing developments. We
prefer 4Ws over 2Ws as PVs are the least impacted segment currently and offer a stable competitive
environment. We expect CV cycle recovery to slow over the near term.
MSIL
and
MM
are our top OEM picks.
Among the auto component stocks, we prefer
BHFC and APTY.
We prefer
TTMT
as a play on global PVs.
Positive surprises:
MM, EXID, ENDU, AMRJ, BHFC
Negative surprises:
TTMT, BJAUT, MSS, MSIL
August 2021
13
 Motilal Oswal Financial Services
Strategy
Guidance highlights:
MSIL:
Inquiries in July’21 are at 120% of Jun’21 levels, with retail similar to Jun’21 levels. It has 170k pending
bookings currently. It expects a commodity cost impact in 2Q as well and has taken a price hike in July’21.
MM:
Considering the high base, it expects tractor volumes to be muted from 2HFY22. Hence, it is guiding for
low- to mid-single-digit growth for the industry for FY22. MM is seeing strong demand for its SUV brand, and
industry demand is also good. It has pending bookings for its key brands, with Thar (10 months) seeing the
highest bookings. The upcoming XUV700 already has 40k inquiries even before showcasing the product.
TTMT:
JLR FY22 outlook:
2QFY22 wholesales are expected to be 65k units (v/s the earlier guidance of 60–65k,
50% lower than originally planned), translating to revenues of GBP3.7b. It has guided for positive EBIT and FCF
for 2HFY22. It has maintained the target of deleveraging the business to near-zero auto debt by FY24.
India:
Sequential improvement is expected in overall performance from 2HFY22, with the target to deliver a positive
EBIT margin with positive free cash flows in FY22. Demand for CVs has started to recover from Jun’21 (volumes
similar to Apr’21). PV demand is also recovering well.
BJAUT:
Domestic demand:
Wholesales are expected to trail Retail in 2QFY22 and would be flat YoY. BJAUT
expects to do better owing to its 125cc and new offerings in the Commuter portfolio. 3W retails were good at 6–
7k units in Jun’21 (v/s the expectation of 5k).
Exports demand:
It expects exports to stabilize and receive a boost
once the COVID-19 situation improves in these pockets of weakness.
RM cost:
Cost inflation of 3% is expected in
2QFY22, of which ~2% is expected to be offset via price hikes.
HMCL:
Demand outlook:
Unlike last year, pent-up demand is not that strong this year. It expects a positive
trend, starting with the 32-day festive season, to sustain in 2HFY22. It expects to neutralize 2QFY22 cost inflation
with a price hike of INR1,200 taken in Jul’21 and leap cost savings. It expects commodities to soften in 2H and
lead to margin recovery.
TVSL:
Demand has improved in Jul’21 and is approaching 4Q retail levels. It expects demand to normalize from
Sep/Oct’21. The momentum in exports is expected to continue (ex-Bangladesh and Nepal).
EIM:
While demand remains good, supply-side issues have impacted the production ramp-up and new product
launches. Although, it is seeing step-by step improvement in supply chain issues, it expects the semiconductor
shortage to continue to impact the supply chain over the next few months. Since the price hike in Jul’21, it has
largely covered the entire cost inflation up to Jun’21. Going forward, it expects relatively lower cost inflation.
MSS:
Outlook:
Global supply chain disruption is likely to be a headwind for OEM production over the near term,
but is expected to improve from 2HFY22. However, the underlying demand for PVs and CVs is very strong.
BHFC:
Outlook:
Despite semiconductor issues, it expects recovery to sustain in India and exports. Production for
US Class 8 trucks is expected to be 290–300k in CY21 (v/s ~217k in CY20). The current backlog in US Class 8
trucks is equivalent to 10 months of production.
EV strategy:
It has a comprehensive EV strategy covering power
electronics, control electronics, motors, etc. for all Auto sub-segments (from 2W to Buses).
BIL:
Volume guidance remains at 250–265kt for FY22 despite strong tailwinds due to COVID-led uncertainty in
the ecosystem. It took a 2–3% price hike in Jul’21 to offset cost pressures. It should maintain 28–30% operating
margins annually on a long-term basis.
APTY:
India demand:
Healthy demand momentum has been seen across key segments/channels (except T&B
OEM) since Jun’21.
Europe:
1QFY22 EU revenues were impacted by the transition at the Netherlands plant (first
quarter of transition) to Hungary and India as mold movement took longer. It expects revenues to normalize in
2Q.
August 2021
14
 Motilal Oswal Financial Services
Strategy
Exhibit 19: Key operating indicators
Volumes ('000 units)
2 Year
QoQ
1QFY22
CAGR (%)
(%)
1,006
-19.3
-14.0
1,024
-44.4
-34.6
658
-28.8
-29.1
354
-12.2
-28.2
187
-14.3
-7.6
115
-16.5
-40.1
97
-18.1
-28.8
18
124
6
3,491
-54.6
-32.7
-56.4
-30.3
-59.2
-39.6
-68.0
-27.5
EBITDA margins (%)
2 Years
QoQ
1QFY22
(bp)
(bp)
15.2
-30
-260
9.4
-500
-460
7.0
-100
-310
4.6
-580
-370
13.9
-10
-80
2.5
-390
-580
9.0
480
-630
7.9
300
-650
-4.7
PTL
-1,240
17.5
-840
-530
1.1
-440
-780
17.5
-840
-530
7.7
-380
-350
Adj PAT (INR m)
2 Year
QoQ
1QFY22
CAGR (%)
(%)
10,612
-5.7
-20.3
3,654
-42.2
-57.8
757
-46.8
-73.8
4,408
-69.3
-62.2
9,340
1.7
-6.8
-12,960
NA
PTL
-286
NA
PTL
-44,523
24.2
-178
-2,810
PTL
PTL
2,672
-46.4
-45.1
-720
-289.8
-156.5
2,371
-47.5
-57.9
15,373
-43.8
-71.7
JLR in GBP m; Source: MOFSL, Company
BJAUT
HMCL
TVS Motor
MSIL
MM
TTMT (S/A)
TTMT (JLR) *
TTMT (Cons)
Ashok Leyland
Eicher (RE)
Eicher (VECV)
Eicher (Consol)
Agg. (ex JLR)
Exhibit 20: Aggregate EBITDA margin reduction
18
11
4
-3
-10
Aggregate (excl JLR)
Exhibit 21: RM costs still at higher levels
74.5
72.0
69.5
67.0
64.5
Agg RM cost (%)
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 22: Revised EPS estimates
Bajaj Auto
Hero MotoCorp
TVS Motor
Eicher Motors *
Maruti *
MM (incl MVML)
Tata Motors *
Ashok Leyland
Escorts
Amara Raja
Bharat Forge *
BOSCH
Ceat
Endurance Tech*
Exide Industries
Mahindra CIE *
Motherson Sumi *
Apollo Tyres*
Balkrishna Industries
MRF
Rev
196.1
178.2
25.2
78.0
187.7
38.9
3.2
1.8
83.7
36.2
21.9
481.7
74.0
48.6
10.4
15.6
7.7
18.0
79.7
2,941.9
FY22E
Old
201.8
186.8
23.4
82.7
216.1
42.9
14.0
3.8
85.5
41.6
18.9
460.8
86.7
48.4
10.2
15.5
8.4
18.9
74.5
3,320.8
Chg (%)
-2.8
-4.6
7.6
-5.7
-13.1
-9.4
-77.4
-54.2
-2.1
-13.0
15.8
4.5
-14.6
0.3
1.4
0.8
-8.2
-4.6
7.0
-11.4
Rev
Old
Chg (%)
226.9
233.9
-3.0
215.6
218.6
-1.4
32.9
32.3
1.8
121.2
118.5
2.3
304.7
314.6
-3.1
45.1
52.1
-13.5
34.7
34.3
1.2
6.7
7.0
-4.9
83.6
94.4
-11.5
45.8
48.2
-5.0
30.8
31.6
-2.7
595.6
571.8
4.2
121.2
130.5
-7.1
64.9
63.9
1.7
13.6
13.0
4.8
17.7
17.4
2.0
11.7
12.1
-2.8
23.1
23.3
-0.5
94.9
89.9
5.5
3,861.9
3,972.7
-2.8
* Consolidated estimates; Source: MOFSL, Company
FY23E
August 2021
15
 Motilal Oswal Financial Services
Strategy
Capital Goods: Execution robust despite lockdowns; sustenance of order inflows a key monitorable
Revenues in line with estimates:
Aggregate
revenue
growth for our Capital Goods Coverage Universe stood at
~41% (two-year CAGR of -4%), in line with our expectation.
LT revenue increased 38% YoY, with core E&C
growing ~57% YoY (5% below estimate), with the two-year CAGR at -8%, suggesting the impact of the second
COVID wave on execution.
Short-cycle businesses such as ABB/SIEM/KKC reported healthy revenue growth YoY
on a soft base, with the two-year revenue CAGR at -9%/-8%/-6%, indicating a gradual return to normal. Despite
ongoing headwinds in the SAE business, KECI revenues stood 10% above our estimates on the back of strong
execution in the domestic business. BHE was the most impacted by the second COVID wave, with revenue
coming in 32% below our estimate. Within Infrastructure, ASBL/KNRC revenue growth stood 38%/23% above
our estimates, aided by better-than-expected execution despite moderate tolling income. Execution has been on
an uptrend QoQ and is expected to gradually improve further.
Commodity costs dent gross profit; lower fixed cost absorption impacts operating profit:
Aggregate gross
profit increased 21% YoY (against 41% revenue growth), indicating the impact of commodity prices. While
aggregate operating profit almost quadrupled on a muted base,
it stood 13% below our estimates.
BHEL
reported another quarter of operating loss.
Ex-LT, the EBITDA miss was higher at 47%.
E&C EBITDA margins
came in at 7%, in line with our expectations and better v/s 1QFY20 levels, suggesting nil impact of the
commodity price inflation thus far. Higher operating leverage led to operating profit for short-cycle businesses
such as ABB/KKC/SIEM, which were disproportionately impacted by the first COVID wave and had reported
losses / marginal breakeven. Operating profit for KECI declined despite strong revenue growth, weighed by
commodity-led cost escalation and losses in the SAE business. On the other hand, higher commodity costs and
negative operating leverage impacted EBITDA for BHE (~85% below our estimates).
Adj. PAT below expectations:
Aggregate PAT came in ~30% lower v/s our estimate (INR12.8b). LT’s consolidated
adjusted PAT was 19% below our expectation, weighed by lower other income and a higher tax rate.
Ex-LT,
aggregate adj. PAT came in 72% below our expectations.
Apart from LT, adj PAT for SIEM, TMX, KECI, and BHE
stood below our estimates due to a miss on operating profit.
Order inflows to recover gradually:
While the second COVID wave led to some moderation in ordering activity,
order inflows stood ~32% higher YoY. LT reported a ~13% YoY increase in order inflows, with an 11% rise in the
core segment despite a low base. However, a strong bid pipeline of INR9t (up YoY) for 9MFY22, as indicated by
the management, is comforting. Excluding LT, order inflows increased 75% YoY, indicating some buoyancy in
ordering activity in our Coverage Universe. While the managements of ABB and SIEM indicated revival in
ordering activity across various end markets, TMX’s management was cautious as higher ordering could have an
element of pent-up demand. KECI indicated a strong tendering pipeline in the T&D and Railways segments, while
the possibility of a third COVID wave could lead to some delay in ordering, especially in the Railways segment.
Most businesses are expected to exercise caution when bidding, keeping an eye on working capital
requirements and surge in commodity prices.
Working capital, liquidity, and escalation in commodity prices are key challenges ahead:
Most project sites are
operating at 85–95% occupancy levels, with minimal labor disruption during the quarter. While execution across
various project sites is gradually scaling up, it is yet to go full throttle as various COVID-led precautions have
impacted efficiency across project sites. While the situation on working capital has eased sequentially with rising
credit availability, banks are still averse to finance-leveraged companies and are exercising caution. The rise in
commodity costs poses a challenge to margins for fixed cost projects in the order book.
Top picks:
LT, KECI, and BHE are our top picks in the Capital Goods space.
Positive surprises:
KKC, ENGR, ASBL, and KNRC
Negative surprises:
BHE, BHEL, and KEC
August 2021
16
 Motilal Oswal Financial Services
Strategy
Guidance and management commentary highlights:
LT:
Prospects for the remaining 9MFY22 are strong at INR9t (higher than last quarter, adjusted for already won
orders). Infra prospects stand at INR6.4t (+33% YoY), Hydrocarbon at INR1.8t (of which overseas accounts for
70%), and Power T&D at INR1.2t (of which overseas accounts for 60%).
ABB:
Orders for Systems and Services saw an uptick. The management expects additional orders. Green shoots
are visible in the Automotive segment, especially among OEMs.
KKC:
Royalties depend on the product mix; they should be between 0.6–1% of sales.
KECI:
INR700b worth of tenders is in the bid pipeline, of which INR450b is in T&D (India + International) and
INR110b in Railways.
BHE:
The company maintained its revenue guidance at 15–17% growth and margin guidance at ~22% for FY22,
and is confident of achieving this despite the miss in 1QFY22.
KNRC:
KNRC targets order inflow of INR20–30b for the remaining fiscal.
Exhibit 23: Book-to-bill ratio largely stable
Order book (INR b)
BTB (x)
Exhibit 24: Aggregate revenue growth
Capital goods revenue growth (%)
Exhibit 25: Aggregate EBITDA growth
Capital goods EBITDA growth (%)
Exhibit 26: Aggregate EBITDA margin
Capital goods EBITDA margin (%)
Exhibit 27: Aggregate PAT growth
Capital goods PAT growth (%)
August 2021
17
 Motilal Oswal Financial Services
Strategy
CEMENT: Better realization cushions the impact of higher costs
Volumes up 43% YoY:
Cement companies under our coverage clocked 43% YoY volume growth on a lower base
effect (1QFY20: +1%). On a sequential basis, volumes declined by ~20% due to weak demand owing to local
lockdowns. Companies having a higher exposure to South India witnessed a higher sequential decline as
compared to those having a higher exposure to North and Central regions. This was evident from the 33%/35%
QoQ decline in volume for TRCL/ICEM, while ACC/ACEM/JKLC saw a 14%/11%/8% decline. Owing to the strong
pricing environment, realization for our coverage universe improved by 5% QoQ and 3% YoY. As a result,
aggregate revenue for our coverage universe (excluding GRASIM) grew 48% YoY to INR319.9b.
Profitability driven by better realization:
Most companies in our coverage reported a strong margin, supported
by higher realization, but was partially offset by higher freight and fuel cost. EBITDA for stocks under our
coverage improved by 6% YoY (+13% QoQ) to INR1,396/t on the back of better realization (+3% YoY/+5% QoQ),
which was partially offset by higher cost/t (up 2% YoY and 3% QoQ). Aggregate EBITDA/PAT was up 51%/77%
YoY to INR83.4b/INR46b. Including GRASIM, EBITDA/PAT for our coverage universe was up 72%/115% YoY.
Deleveraging continued amid inventory build-up:
Cash flow generation was impacted on account of the 20%
QoQ decline in volumes, due to second COVID wave, and inventory build-up as companies positioned
themselves for the monsoon. The deleveraging continued as UltraTech reduced its net debt by INR7b to
INR59.8b, whereas DALBHARA reduced its gross debt by INR4.8b and is virtually a net debt free company (with a
net debt of just INR2.3b at the end of 1QFY22).
Higher fuel cost to impact margin; emphasis on green energy:
Companies expect petcoke costs to stabilize and
peak out soon as production improves at refineries across the globe. In the near-term, companies expect higher
freight and fuel costs to impact margin. This should be offset by better pricing and fixed cost absorption. The
managements have also enhanced focus on achieving carbon reductions and are cutting their reliance on coal-
based power sources by putting up a waste heat recovery system (WHRS) and renewable energy plants.
DALBHARA targets a green fuel mix of 22% by Mar’22, which stood at 14% in 1QFY22.
Top picks:
The offtake in sales volume in 2QFY22 has been better v/s Jun’21 and is expected to pick up further in
Sep’21, led by pent up demand and a retreating monsoon. While we maintain our expectation of 10% volume
growth for FY22 (on a low base of FY21), any extended lockdown is a key monitorable risk. We expect 10%
volume CAGR over FY21-23E, which should improve industry clinker utilization to over 80% (and over 85% in
North and Central India). Eastern India, with ~25% capacity growth over the next 18 months, is the worst placed
and is thus our least preferred region. With an improving demand outlook, we prefer companies that: a) are
moving down the cost curve, b) have the potential for market share gains, and c) provide valuation comfort.
UTCEM is our top largecap picks, while DALBHARA and JKCE are our top midcap pick.
Positive surprises:
UTCEM, ACC, ACEM, and JKCE
Negative surprise:
DALBHARA, TRCL, and ICEM
Guidance highlights:
Most managements in their post-earnings call reported a steady recovery in demand since Jun’21, led by the gradual
easing of lockdown restrictions, and expect pent-up demand to kick in once the monsoon recedes. In the near term,
rural demand is expected to witness a strong recovery on the back of a good monsoon and increase in MSP.
Government Infra projects continued at a good pace across regions, despite the COVID-led lockdown. Prices have
remained stable across regions in Jul’21, but are expected to soften due to heavy rains in Aug’21. Prices are
expected to see an upward correction in Sep’21, driven by an uptick in demand on account of a retreating monsoon.
Here are other guidance highlights:
UTCEM:
The 19.5mt expansion is progressing as per schedule, with commissioning likely to happen in phases by
FY23. It remains committed to turning net cash, while funding ongoing capex through internal accruals.
DALBHARA:
It plans to grow capacity at 14-15% CAGR to 110-130mt by CY31, and will increase grinding capacity
to 48.5mt from 30.8mt by FY24. Planned capex for FY22 is INR40b, of which INR3b was spent in 1QFY22.
JKLC:
FY22 capex guidance stood at INR1.7b for JKLC (including INR1.4b for the Sirohi WHRS and other projects).
Capacity debottlenecking at UCWL has been completed. It will now start work on the expansion project, which
should get commissioned over the next 2-3 years.
August 2021
18
 Motilal Oswal Financial Services
Strategy
TRCL:
Clinker expansion projects at Kurnool (2.25mtpa) is expected to be commissioned in 2QFY22, while clinker
expansion at Jayanthipuram (1.5mt) was commissioned on 28th Jun’21 and is ramping up well. It incurred a capex of
INR4b in 1QFY22 and has guided at a total capex of INR8b in FY22.
Exhibit 29: EBITDA/t increases 6% YoY
Aggregate EBITDA (Rs/ton)
Aggregate Vol (m ton)
Volume growth (%)
Exhibit 28: Volumes up 43% YoY for our coverage universe
49 45 52 59 59 54 59 68 59 53 60 60 42 56 66 75
60
Exhibit 30: Trend in key operating parameters
ACC
ACEM
UTCEM
BCORP
ICEM
SRCM
DALBHARA
JKCE
JKLC
TRCL
Sector aggregate
Volume (mt)
1QFY22
YoY (%)
6.8
43.7
6.4
53.2
21.5
47.0
3.4
39.0
1.9
36.2
6.8
38.7
4.9
33.6
3.0
71.1
2.7
39.5
2.1
10.4
59.6
43.2
QoQ (%)
-14.2
-11.3
-22.5
-19.7
-34.9
-16.7
-23.8
-22.4
-8.5
-33.3
-20.3
Realization (INR/t)
1QFY22
YoY (INR) QoQ (INR)
5,198
34
363
5,206
86
262
5,495
258
309
4,943
8
87
5,257
-44
409
5,043
326
258
5,294
-99
184
5,407
-57
137
4,633
302
81
5,648
364
576
5,285
161
268
EBITDA (INR/t)
1QFY22
YoY (INR) QoQ (INR)
1,279
177
201
1,495
74
146
1,536
118
208
1,026
58
86
833
-258
162
1,482
61
49
1,431
-246
223
1,323
104
195
813
60
-110
1,636
353
219
1,396
73
162
Source: MOFSL
Exhibit 31: Realization/t for the Cement universe up 5%
QoQ in 1QFY22
Realization (INR/ton)
Exhibit 32: Aggregate EBITDA up 51% YoY in 1QFY22
Aggregate EBITDA (INR b)
CONSUMER: Resilient performance despite a second COVID wave
Topline growth impressive, albeit on a weak base:
Companies in our coverage universe exhibited a resilient
performance, with a cumulative sales growth of 30.6% v/s our estimate of 18.8% YoY. Of the 18 companies under
our coverage (PGHH yet to announce results), 16 reported double-digit sales growth in 1QFY22, aided by a very
weak base, the exception being BRIT, which witnessed an unusually high sales growth (26.7%) in the base
quarter (1QFY21). While sales growth was largely ahead of our expectations (nine out of 18 coverage
companies), there were some notable beats as well (APNT, PIDI, UNSP, and VBL). The strong performance was
enabled by continued buoyancy in rural demand, with urban demand bouncing back faster than expected after
August 2021
19
 Motilal Oswal Financial Services
Strategy
lockdowns disrupted sales in May’21. At the same time, companies had adapted their strategies based on
lessons from last year’s first COVID wave, resulting in minimal disruptions to production, supply chain, and
availability. The remaining companies reported sales in line with our forecasts.
Rising commodity prices dampens operating margin:
In light of strong sales growth, EBITDA performance,
though robust, was not as strong as sales. This was driven by lower than expected margin performance due to
sharp inflation in the Agri and non-Agri basket. While most companies undertook some form of price hikes, the
lag between commodity inflation and these hikes pressurized margin. Companies also avoided steep price hikes
(in line with inflation) to avoid disturbing the brittle demand revival situation. EBITDA was ahead of our
expectation, with 15 companies under our coverage reporting EBITDA in line/above our estimate. CLGT and JYL
were the only companies from our coverage universe that disappointed on the EBITDA front. While raw material
prices have fallen from their peaks, managements are confident that the calibrated price hikes will begin to
deliver results in 2HFY22. Cumulative EBITDA for our coverage universe grew 32.1% YoY v/s our estimate of
23.2% growth.
Positive management commentaries:
With the second COVID wave behind us and a slow, but steady, return to
normalcy being witnessed in most states, managements are confident of a quick recovery. While some expect an
overhang from a third COVID wave, the overall commentary was cautiously optimistic. Discretionary categories
actually performed much better than our estimate. This momentum is expected to continue on the back of pent
up demand and improved mobility. Stable/easing commodity inflation and calibrated price hikes taken by most
companies should begin to deliver results in the quarters ahead.
PBT/PAT broadly in line with our estimate:
PBT for 12 out of 17 companies came in ahead/in line with our
estimates, with notable misses from JYL, ITC, TCPL, and CLGT. Cumulative PBT though was in line, coming in
28.6% higher YoY (est. 24%). Cumulative PAT growth, at 27.4% YoY, was in line (est. 23.7%), with just five of the
17 companies underperforming expectations.
Top picks – GCPL, BRIT, DABUR, and HUVR:
Appointment of a new CEO at
GCPL
offers scope for transformative
change, especially if he is able to strongly grow the domestic business and usher better capital allocation. There
are early signs of the laggard African business turning around in recent quarters under the new divisional CEO,
who took over in FY21. Topline growth and debt repayments in 1QFY22 were impressive. The structural story for
BRIT
remains strong, aided by: a) direct reach expansion to ~2.4m outlets, and b) further investment in IT
infrastructure. The remarkable market share improvement for eight consecutive years will continue as the
company widens its moats over peers. We like
DABUR
as it offers the best visibility, given: a) successful efforts
of the new CEO to boost growth, b) an attractive rural growth outlook (~48% of domestic sales from rural), and
c) strong traction in the profitable Healthcare business. We are positive on
HUVR
as rural demand continues to
remain resilient and the demand in Health, Hygiene, and Nutrition categories remain healthy. Discretionary
demand will improve as the lockdowns abate and mobility increases.
Positive surprises:
APNT, PIDI, UNSP, VBL, DABUR, and BRIT.
Negative surprises:
JYL, TCPL, ITC, and CLGT.
Guidance highlights:
APNT:
The Company continues to gain share from unorganized players and has a strong demand outlook going
forward. It has taken a 3% price increase in 1QFY22 and can take additional hikes in the future. With a higher RM
inflationary environment, the management expects to deliver EBITDA margin in the 19-21% range ahead.
BRIT:
BRIT continues to gain market share during the quarter and performance in Jul’21 remained stable as well.
The management was cautious about raising prices in a volatile environment earlier, but has now started hiking
prices. The management said its capex guidance for FY22 could be higher than INR1.3b.
August 2021
20
 Motilal Oswal Financial Services
Strategy
DABUR:
Lifting of restrictions and extended working hours of retail outlets boosted sales growth. The
management expects the inflationary environment to continue in 2QFY22 as well. It has taken a 3% price
increase and achieved INR200m in cost savings in 1QFY22. Confident about delivering flat operating margin and
double-digit sales growth. Also expects the Foods portfolio to cross INR1b in sales in FY22.
HMN:
The Healthcare segment continues to do well and expects the segment to grow at double-digit CAGR in
the medium term. The company raised prices by 3.5% YTD and doesn’t intend to raise prices in FY22 as material
cost inflation has now stabilized. Expects GM of above 67% but increase in ad spends could check EBITDA margin
expansion in FY22.
GCPL:
FY22 started with a strong, broad based growth in Home Care, Personal Care and Hygiene segments. . The
management is positive about good growth in HI and Personal wash segment. It expects RM inflation to remain
high in the near term. GCPL has raised prices by 4-5% in 1QFY22 and expects further calibrated hikes going
forward. A&P spends will normalize going forward. Also, confident of delivering high teen margin in the Africa
business over the next 4-5 years.
HUVR:
FMCG demand recovered in Jun’21 after disruptions. Rural demand remained resilient. With mobility
improving, demand for FMCG products will grow, especially in Discretionary categories resulting into better
operating margins going forward. HUVR have taken a 3% price increase in Tea, Soaps, and Detergents in 1QFY22.
Cost synergies from GSK are tracking ahead of our expectation, whereas manufacturing synergies to be realized
going ahead.
MRCO:
90% of the MRCO’s portfolio gained market share in India. Rural growth exceeded urban growth, and the
outlook remains positive. The management expects GM in FY22 to be slightly lower than FY21 levels. MRCO will
aggressively rationalize cost in FY22 in both its domestic and international businesses.. The management expects
Honey, Noodles, and Soya Chunks to achieve sales of INR1b. It expects the Foods segment to achieve sales of
INR5b in FY22.
PIDI
saw a demand recovery from mid-Jun’21 onwards. Rural and semi-urban are sustaining growth. . Recovery
in the International business remains healthy and is growing faster than the India business. Price increase of 4-
6%, helped to mitigate 75% of material cost inflation. It expects VAM prices, currently at USD1,610, to sustain in
2Q as well, before softening in 2HFY22. Capex in FY22 to remain at the higher end of the 4-6% sales range.
PAG:
Lockdowns in 1QFY22 resulted in a loss of around half of sales volume. Manufacturing, most EBO outlets
and around 61% of 80K+ MBOs are now fully operational. Athleisure continues to increase as a proportion of
sales and Women’s innerwear is also doing well. Yarn costs increased by ~3% in 1QFY22, but is now moderating.
PAG took average price hikes of 4% in 1QFY22. EBITDA margin stood at 19% in Jul’21. About 50% of new stores
are being added in Tier II and III cities, with a major focus on MH, UP, WB and Rajasthan.
UNSP’s
off-trade channel is near full operations by the end of 1QFY22, whereas the on-trade channel continues
to remain subdued, given the restrictions on opening and operating timings of bars/restaurants/pubs across
states. Stable commodity prices aided margin with ENA costs stabilizing but some inflation witnessed in glass
costs. Ongoing strategic review of popular segments will be concluded by Dec’21.. The management expects
capex to remain in its historic range in FY22.
UBBL:
Post severely impacted 1QFY22, lockdowns and restrictions affected the on-trade business in July’21 as
well. Key RM - barley was up 15%. It expects inflation in glass cost to be offset with market bottles coming back.
UBBL expects overall inflation to be around mid-single digits going forward. Capex guidance for FY22 stood at
INR2.5b and may be further increase if management sees improvement in volumes.
August 2021
21
 Motilal Oswal Financial Services
Strategy
Exhibit 33: Quarterly volume growth
Quarterly volume growth (%)
APNT (domestic decorative)*
BRIT (base business)
CLGT (toothpaste)
DABUR (domestic FMCG)
HMN (domestic)
HUVR (domestic)
ITC (cigarette)*
MRCO
Domestic
Parachute
VAHO
Saffola
PIDI (consumer bazaar)
*Our estimate
1QFY20
16.0
3.0
4.0
9.6
0.0
5.0
3.0
6.0
9.0
7.0
3.0
6.0
2QFY20
14.0
3.0
4.0
4.8
1.0
5.0
2.5
1.0
(1.0)
0.0
1.0
(1.0)
3QFY20
11.0
3.0
2.3
5.6
(2.0)
5.0
2.5
(1.0)
(2.0)
(7.0)
11.0
2.0
4QFY20
2.5
0.0
(8.0)
(14.6)
(20.0)
(7.0)
(11.0)
(3.0)
(8.0)
(11.0)
25.0
(3.1)
1QFY21
(38.0)
21.0
0.0
(9.7)
(28.0)
4.0
(37.0)
(14.0)
(11.0)
(30.0)
16.0
(58.6)
2QFY21
11.0
9.0
4.0
16.8
10.0
14.0
(12.0)
11.0
10.0
4.0
20.0
7.4
3QFY21
33.0
3.0
6.0
18.1
13.0
17.0
(7.0)
4QFY21
48.0
8.0
16.0
25.4
39.0
31.0
7.0
1QFY22
106.0
1.0
8.0
34.4
38.0
9.0
31.0
15.0
25.0
21.0
8.0
29.0
12.0
21.0
22.0
34.0
17.0
17.0
24.0
22.0
45.3
103.0
Source: Company, MOFSL
Exhibit 34: Strong sales growth, led by improved mobility
and pent-up demand on a very weak base
Consumer aggregate YoY sales growth (%)
10.9 13.7 9.1
7.4 5.5 4.8
11.8
26.6 30.6
Exhibit 35: Aggregate EBITDA margin expands 30bp YoY due
to better sales, offset by higher RM costs
Consumer aggregate EBITDA margins (%)
25.6
25.2 25.0
24.9 25.2
24.4
24.0 24.0
23.7
23.3
22.5
22.2
5.4
-6.2
-17.3
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 36: Aggregate adjusted PAT up 27.4% YoY, led by strong volume and sales growth over a weak base
Consumer aggregate YoY PAT growth (%)
27.0
14.8
12.1
9.5
11.7
0.3
-2.7
-22.6
23.7
7.7
22.8
27.4
Source: Company, MOFSL
Consumer Durables: Demand scaling back, but commodity prices dent margins
Revenue growth in line with our estimates:
Revenue for our Consumer Durables Coverage Universe rose ~55%
YoY, in line with our estimated growth.
Havells outperformed our expectations (~27% above our estimate).
In
Consumer Electricals, revenue growth for HAVL (core)/CROMPTON/ORIENT was strong on a low base (two-year
revenue CAGR: flat/-12%/-14%), aided by (a) resurgent demand in June’21 and (b) market share gains from the
unorganized sector in the last couple of months. In Consumer Durables, Room Air Conditioners (RACs) were
highly impacted as the lockdowns over Apr–May’21 (key months) led to lower off-take. However, an extended
summer season and better-than-expected normalcy in North India provided some respite for RAC sales in
June’21. Thus, revenue growth for VOLT (UCP)/BLSTR (UCP)/Lloyds stood at ~22%/84%/62% YoY
(two-year
August 2021
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 Motilal Oswal Financial Services
Strategy
CAGR: -30% est./-25%/-13%).
Revenue growth for WHIRL stood at ~31% YoY, with the two-year CAGR at -18%,
the best in our Coverage Universe for white goods. Across the board, commodity-linked price hikes undertaken
in 4QFY21 and at the start of 1QFY22 aided revenue growth, with the quantum of hikes for Consumer
Electricals/Durables companies at 8–12%/6–8%.
Gross margin moderates; lower fixed cost absorption impacts EBITDA:
The continued uptrend in commodity
costs led to moderation in gross margins across our Coverage Universe. The aggregate operating profit for our
Coverage Universe increased by 125% YoY, 7% higher v/s our estimates, owing to higher-than-expected EBITDA
for HAVL (71% above our estimates).
Ex-Havells, EBITDA was 20% lower than our estimates.
A large part of the
miss was on account of Consumer Durables (BLSTR, VOLT, and WHIRL). This miss on EBITDA was primarily due to
(a) the price hikes undertaken being inadequate to offset the commodity cost impact and (b) the lower
absorption of fixed costs – as most companies incurred employee costs with wage hikes.
Adjusted PAT above our estimate, led by strong performance from HAVL:
The aggregate increase in PAT stood
11% higher than our estimate, with HAVL outperforming the rest of our Coverage Universe (97% above our
estimate).
Ex-Havells, adj.PAT stood 20% lower than our estimates.
Inventory levels moderately elevated in RACs; upcoming festive season holds the key:
The anticipation of a
strong summer season had led to RAC companies beefing up their inventory. However, brands were left with
marginally higher than normal inventory with the second COVID wave playing spoilsport in the key summer
season. Inventory in the channel is at normal levels, which is a key positive. With the upcoming festive season
and the imminent normalization of the economy, offtake across various categories holds the key. Robust
demand could lead to companies opting for further price hikes.
Top picks:
ORIENT is our top pick
in the sector, given its strong position in Fans and Lighting and gradual scale-
up in the Appliances segment.
WHIRL
is our preferred pick in the White Goods space.
Positive surprises:
HAVL
Negative surprises:
BLST, VOLT, WHIRL
Guidance and management commentary highlights:
HAVL:
Geographical trends are varying due to the lockdowns. East and South were weak in 1Q, while North did
well. East has started improving, but South continues to be impacted.
VOLT:
The management expects FY22 industry volume growth to be lower v/s FY20 levels. While the expectation
of pent-up demand during the non-season is low, a good festive season could aid inventory liquidation.
CROMPTON:
Commodity costs rose by a further ~10% between 4QFY21 and 1QFY22. CROMPTON took a ~5%
price hike in 1QFY22.
BLSTR:
The RAC market grew 55% YoY in 1QFY22, while BLSTR grew 58%. For the overall industry, it expects the
market to be flat in FY22 (v/s FY20), provided there is no disruption from a third COVID wave.
Exhibit 37: Aggregate revenue growth
Consumer durables revenue growth (%)
Exhibit 38: Aggregate EBITDA growth
Consumer durables EBITDA growth (%)
August 2021
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 Motilal Oswal Financial Services
Strategy
Exhibit 39: Aggregate EBITDA margin
Consumer durables EBITDA margin (%)
Exhibit 40: Aggregate PAT growth
Consumer durables PAT growth (%)
FINANCIALS – BANKS: Growth/asset quality witnesses pressure; 2HFY22 recovery outlook intact
Most Banks reported sluggish disbursements, which resulted in muted trends in overall loan growth. However,
Banks reported a pick-up in disbursements over Jul’21. Deposit growth continues to remain healthy. Growth in
term deposits came in a tad higher, resulting in a slight moderation in the CASA ratio across most Banks.
Margins exhibited mixed trends, impacted by interest reversals and excess liquidity, though lower cost of funds
provided support. Fee income witnessed a sequential decline, impacted by muted business activity, while opex
stood modest. Core PPOP witnessed wide diversion, but earnings remains buoyant, despite elevated provisions.
Asset quality deteriorated sequentially as banks reported higher slippages, led by Retail. The overall impact was
however curtailed and much lesser than the first COVID wave. PCR remains healthy, with banks continuing to
carry additional provision buffers. The restructuring book witnessed a 6-23bp increase for large Banks, 45-190bp
for small and midsize Banks, and ~630bp for BANDHAN.
Life insurers reported strong trends in APE, led by Non-PAR and the Annuity segment, while ULIP witnessed a
strong recovery. Growth in the Protection business though moderated for all, barring SBILIFE. COVID-19 claims
increased sharply, thereby impacting profitability. VNB margin expanded for IPRU and SBILIFE, but moderated
sequentially for MAXF. HDFCLIFE reported stable trend. Persistency trend improved.
Private Banks – Business growth/asset quality witnessed pressure; earnings remain buoyant:
Growth in
advances has been subdued, with AXSB/ICICIBC/HDFCB reporting marginal growth, while IIB/KMB witnessed a
decline of ~1%/3%. Disbursements declined sequentially across most Retail segments. The Corporate book
witnessed a growth of 1-3% for AXSB/HDFCB/IIB, but the same declined for ICICIBC/KMB. Banks reported
subdued NII growth (with the same highest for ICICIBC at 18% YoY and lowest for KMB at 6%). NIM exhibited
mixed trends. KMB/ICICBC reported an increase of 21bp/5bp QoQ, and AXSB/HDFCB/IIB saw a decline of 7-10bp.
Fee income declined sequentially in the 15-23% range. Banks reported a sequential deterioration in their asset
quality ratios. However, the impact was lower than what was witnessed in the first COVID wave. GNPA ratio
witnessed an increase of 15-31bp across Banks. Both AXSB and ICICIBC saw a 3% increase in their BB and Below
book. Banks have reported a stable PCR (+-3pp) in the 65-78% range, with KMB relatively lower at 65%. While
ICICIBC utilized provisions of ~INR10.5b, IIB created further provisions of INR4.5b. Other Banks kept their
provisioning buffer unchanged and carry additional provision buffers of 0.4-2% of loans.
PSU Banks – Operating performance improving; asset quality remains under control:
SBIN reported a steady
quarter, with a beat in earnings aided by controlled provisions, while operating performance stood in line. Loan
growth remains muted, while margin expanded by 4bp QoQ, despite a weak NII growth. Asset quality
deteriorated marginally on elevated slippage in Retail/SME, but recovered/upgraded in Jul’21. The restructured
book remained in check, while SMA 1/2 (exposure of over INR50m) was stable QoQ. BOB reported a strong
earnings performance, supported by a healthy core operating performance, despite sluggish business trends.
Domestic NIM improved sharply (39bp QoQ) to 3.12%. Asset quality trends were stable sequentially in a
challenging environment, with GNPA/NNPA ratio declining by 1bp/6bp QoQ. Collection efficiency (excluding
Agri) was stable QoQ at 93%, better vis-à-vis many other peers. We thus upgrade our rating to BUY. The overall
August 2021
24
 Motilal Oswal Financial Services
Strategy
operating performance of PSU Banks has started showing recovery signs, with a stable trend in asset quality. We
resume coverage on INBK and UNBK with a Buy rating and with a Neutral rating on PNB.
Small Finance Banks
–
Asset quality showing resilience; collection efficiency recovers:
AUBANK reported a
strong 1QFY22, led by a healthy NII growth (40% YoY) and controlled provisions. NIM improved by 30bp QoQ to
5.6%, aided by a sharp improvement in the CoF. Asset quality trends were stable sequentially in a challenging
environment, as collection efficiency stood at 101% in 1QFY22 and improved further in Jul’21. EQUITAS reported
a decline in its earnings, impacted by higher opex and elevated provisions. Loan growth remains muted, while
liability momentum continues to stay strong, with the CASA ratio improving to 40%. On the asset quality front,
slippages stood elevated, while the restructuring book increased to ~7.5% of loans. Collection efficiency for
Jun’21 stood at 83.5%, which improved to the mid-90s in Jul’21, providing comfort on recovery trends.
Life Insurance – Strong APE growth, VNB margins remain mixed; performance impacted by higher COVID-19
claims:
IPRU reported a strong APE growth (~48% YoY), while the same for HDFCLIFE/MAXF/SBILIFE stood in the
28-32% range. All insurers, barring SBILIFE, witnessed strong trends in the Non-PAR and Annuity segment. The
ULIP segment too bounced back strongly. Growth in Protection moderated for all insurers, barring SBILIFE, which
reported a strong growth. VNB margin expanded for IPRU and SBILIFE, but moderated sequentially for MAXF.
HDFCLIFE reported a stable trend. Persistency improved for all, barring SBILIFE, which reported a sequential
decline. COVID-19 claims increased sharply across all insurers, with HDFCLIFE settling the highest gross claims of
INR15.7b. IPRULIFE/SBILIFE/MAXLIFE settled gross COVID-19 claims of INR11.2b/INR7.1b/INR10.3b. Most
insurers have built in additional COVID-19 reserves of INR2.7b-INR7b towards future COVID-related claims.
Our view:
Banks reported an in line performance, even as business growth and asset quality trends were
subdued. We expect a gradual recovery in the growth momentum as economic activity recovers, which, along
with a low cost of funds, would support margins. Fee income should witness improving trends. Collection
efficiency is showing a steady improvement over Jun-Jul’21 and will enable moderation in the slippages run-rate
from 2HFY22. The restructuring book remains controlled. Banks are carrying an additional provision buffer,
which should limit the impact on credit cost. We continue to remain watchful of the asset quality outlook in the
near term. We have largely maintained our earnings estimate (+-5%) for large Banks, reduced our estimates for
RBK (-72%), BANDHAN (-14%), and DCBB (-15%), but increased the same for BOB (47%) and AUBANK (8%).
We
maintain our preference for ICICIBC and SBIN. Among Life Insurance players, we prefer MAXF and IPRU.
Positive surprises:
ICICIBC, BOB, AUBANK, and SBILIFE
Negative surprises:
BANDHAN, DCBB, and RBK
Rating change:
We upgraded BOB to Buy from Neutral and resumed coverage on INBK, PNB, and UNBK
Guidance highlights:
HDFCB
expects a healthy recovery in collections as the overall environment normalizes. In the unsecured
portfolio, the management would continue to focus on higher income customers. The bank sees improved
demand for Home loans. The management has maintained its medium to long term C/I ratio guidance of ~35%.
KMB
will continue to relentlessly grow its Home loan portfolio, as the competitive advantage in CoF would help
it gain market share. It sees an opportunity to grow its unsecured business. A higher focus would be on mid-
Corporates and SMEs, due to better yields and risk adjusted profitability. Its primary focus here would be on
financing working capital requirements. Overall, it expects loan growth to pick up in coming quarters.
ICICIBC:
The focus remains on building its loan book in a granular manner, while it continues to strengthen its
deposit franchise. The bank is witnessing a rise in demand for working capital financing. Business Banking and
SME book would continue to grow on the back of recent digital initiatives, while Retail disbursements too are
showing a healthy pick up from Jun’21. It expects NPA additions to be lower in 2Q and meaningfully decline from
2HFY22. The management remains confident that the COVID-19 provision buffer is sufficient to manage
potential provisioning requirements.
AXSB
would continue to focus on the mid-Corporate segment. Collections saw a quick recovery in Jul’21. The
management expects slippages to moderate meaningfully over 2HFY22.
SBIN:
The management guided at 15% RoE over the medium term. Xpress Credit is likely to grow at 25-30%. It
expects its international portfolio to grow over the next few quarters. The management is looking to recover
~INR140b from the written-off accounts.
August 2021
25
 Motilal Oswal Financial Services
Strategy
IIB
expects loan growth to be in the 16-18% range over the next two years, with CD ratio between 85% and 90%.
It expects credit cost to remain at 160-180bp in a normal scenario and NIM to be in the 4.15-4.2% range. It is
targeting a RoA of ~1.7% and a Retail deposit mix of 45-50%.
FB:
The focus remains on the Retail segment, Gold loans, and the Business Banking book. The management
expects gold loans to grow by 30%. It is targeting a C/I ratio of ~48% in FY22. It does not expect any material
drop in its CoF and expects NIM to remain close to 3.2%. Slippages in FY22 are expected to remain at a similar
trajectory as the last two years.
RBK
expects Retail growth to take 1-2 quarters to revive, while Wholesales would support growth. The bank
aims to build a Housing portfolio of ~INR100b over the next 3-4 years. The management expects the C/I ratio to
remain higher over the next few quarters (up 100-200bp). It aims to increase PCR to ~65% by FY22. While gross
slippage would remain elevated over 2QFY22, it is expected to subside from 2HFY22.
Exhibit 41: Margins/operating performance exhibited mixed trends; earnings remain buoyant despite elevated provisions
INR b
AXSB
BANDHAN
DCBB
HDFCB
ICICIBC
IIB
KMB
FB
RBK
AUBANK
SBIN
BOB
INBK
PNB
UNBK
1QFY22
77.6
21.1
3.1
170.1
109.4
35.6
39.4
14.2
9.7
7.2
276.4
78.9
39.9
72.3
70.1
NII
YoY (%) QoQ (%)
11.1
2.7
16.7
20.3
0.6
-0.8
8.6
-0.6
17.8
4.8
7.7
0.8
5.8
2.6
9.4
-0.1
-6.9
7.0
40.4
10.4
3.7
2.1
15.8
11.0
3.1
19.8
6.6
4.2
9.5
29.8
1QFY22
64.2
18.7
2.0
151.4
88.9
31.9
31.2
11.4
8.1
4.5
189.7
57.1
34.7
61.0
53.0
PPOP
YoY (%) QoQ (%)
9.8
-6.5
18.1
8.2
5.3
-2.0
18.0
-2.5
-17.5
4.2
8.8
1.8
19.0
-8.4
21.8
28.3
17.1
-7.9
1.3
20.7
5.1
-3.7
41.2
-8.9
26.1
36.2
15.5
8.2
31.4
2.4
1QFY22
21.6
3.7
0.3
77.3
46.2
10.2
16.4
3.7
(4.6)
2.0
65.0
12.1
11.8
10.2
11.8
PAT
YoY (%) QoQ (%) 1QFY22
94.2
-19.3
3.46
-32.1
262.1
8.50
-57.5
-56.7
3.31
16.1
-5.6
4.10
77.6
4.8
3.89
99.1
9.7
4.06
31.9
-2.4
4.60
-8.4
-23.1
3.15
NM
NM
4.36
1.2
20.3
5.60
55.3
0.8
2.92
NM
NM
3.04
220.0
-30.9
2.85
231.8
74.6
2.73
254.9
-11.2
3.08
NIM
YoY (%)
QoQ (%)
6
(10)
35
170
(11)
(15)
(20)
(10)
20
5
(22)
(7)
20
21
8
(8)
(49)
19
80
30
(9)
2
52
32
2
51
23
5
30
70
Source: MOFSL, Company
Exhibit 42: Loan growth remains muted, while Deposit traction stood healthy; CASA ratio moderates across most Banks
INR b
AXSB
BANDHAN
DCBB
HDFCB
ICICIBC
IIB
KMB
FB
RBK
AUBANK
SBIN
BOB
INBK
PNB
UNBK
1QFY22
6,148.7
747.7
255.0
11,476.5
7,386.0
2,107.3
2,174.7
1,298
565.3
339.6
24,319.1
6,684
3,644
6,613
5,846
Loans
Deposits
CASA deposits
CASA ratio (%)
YoY (%) QoQ (%) 1QFY22 YoY (%) QoQ (%) 1QFY22 YoY (%) QoQ (%) 1QFY22 YoY (bp) QoQ (bp)
12.0
0.1
7,138.6
16.0
2.3
3,080.3
20.0
-3.1
43.0
200
(200)
7.2
-8.4
773.4
27.6
-0.8
332.0
47.8
-1.9
42.9
586
(46)
1.7
-1.8
306.0
4.0
3.0
66.4
2.8
-2.2
21.7
(24)
(115)
14.4
1.3
13,458.3
13.2
0.8
6,118.0
28.1
-0.6
45.5
540
(60)
17.0
0.7
9,262.2
15.5
-0.7
4,251.0
24.8
-1.5
45.9
340
(40)
6.4
-0.9
2,672.3
26.5
4.4
1,123.5
33.0
5.2
42.1
212
40
6.6
-2.8
2,865.6
9.6
2.3
1,724.4
16.2
1.8
60.2
350
(20)
7.0
-1.6
1,694
9.3
-1.9
590
18.8
1.0
34.8
279
100
-0.3
-3.6
744.7
20.6
1.8
250.7
34.9
7.8
33.6
350
180
29.4
-1.9
370.1
38.5
2.9
94.9
145.3
14.7
26.0
1,200
300
5.8
-0.7
37,209.9
8.8
1.1
16,592.3
10.7
0.7
46.0
63
(16)
-2.7
-5.4
9,313
-0.3
-3.7
3,821
12.8
-1.6
43.2
372
34
7.3
0.1
5,401
10.4
0.4
2,209
8.7
-3.0
40.9
(63)
(140)
0.8
-1.9
10,976
2.1
-0.8
4,871
7.3
-1.1
45.2
170
(33)
0.5
-1.1
9,085
1.8
-1.7
3,306
11.2
-1.5
36.4
309
6
Source: MOFSL, Company
August 2021
26
 Motilal Oswal Financial Services
Strategy
Exhibit 43: Snapshot of a change in asset quality ratios – asset quality deteriorated across major Banks
Asset quality
(%)
AXSB
BANDHAN
DCBB
HDFCB
ICICIBC
IIB
KMB
FB
RBK
AUBANK
SBIN
BOB
INBK
PNB
UNBK
As on 4QFY21 (%)
NNPA
1.05
3.51
2.29
0.40
1.14
0.69
1.21
1.19
2.12
2.18
1.50
3.09
3.37
5.73
4.62
As on 1QFY22 (%)
NNPA
1.20
3.29
2.82
0.48
1.16
0.84
1.28
1.23
2.01
2.26
1.77
3.03
3.47
5.84
4.69
GNPA
3.70
6.81
4.09
1.32
4.96
2.67
3.25
3.41
4.34
4.25
4.98
8.87
9.85
14.12
13.74
PCR
72.4
50.3
45.2
69.8
77.8
74.5
63.6
65.9
52.3
49.7
70.9
67.3
68.1
63.1
69.6
GNPA
3.85
8.18
4.87
1.47
5.15
2.88
3.56
3.50
4.99
4.31
5.32
8.86
9.69
14.33
13.60
PCR
69.8
61.8
43.3
67.9
78.4
71.6
64.8
65.7
60.9
48.8
67.9
67.9
66.5
62.9
68.7
GNPA
15
137
78
15
19
21
31
9
65
6
34
-1
-16
21
-14
NNPA
15
-22
53
8
2
15
7
4
-11
8
27
-6
10
11
7
QoQ Change (bp)
PCR
(261)
1,153
(183)
(189)
62
(297)
123
(17)
866
(90)
(302)
55
(160)
(13)
(88)
1QFY22
Slippage
Ratio
4.2
9.0
8.3
2.5
3.9
5.2
2.8
2.3
9.5
2.9
2.5
3.0
4.8
6.2
4.8
Source: MOFSL, Company
Restructuring book increased
over 1QFY22, led by the Retail
segment. The same remains
controlled for large Banks, but
is relatively higher for small and
midsized Banks
Exhibit 44: Snapshot of the restructuring book across Banks
INR b
AXSB
BANDHAN
DCBB
HDFCB
ICICIBC
IIB
KMB
FB
RBK
AUBANK
BOB
SBIN
INBK
PNB
UNBK
BOI
CBK
Absolute
29.1
52.8
13.7
91.8
48.6
56.9
5.5
24.1
11.5
12.7
215.8
202.3
98.4
133.9
156.3
112.6
183.2
Restructured book
Dec'20
Mar'21
0.42%
0.30%
NA
0.76%
2.70%
4.26%
0.50%
0.57%
0.40%
0.54%
0.60%
1.80%
0.28%
0.19%
0.90%
1.07%
1.00%
1.58%
0.80%
1.85%
1.40%
1.34%
0.77%
0.73%
1.62%
1.64%
1.82%
NA
0.56%
1.10%
2.54%
NA
1.62%
NA
Jun’21
0.44%
7.06%
5.39%
0.80%
0.66%
2.70%
0.25%
1.86%
2.03%
3.73%
3.23%
0.83%
2.70%
2.02%
2.70%
3.04%
2.82%
Source: MOFSL, Company
FINANCIALS – NBFCs: Impacted momentum, stress build-up due to COVID second wave; steady recovery
in disbursements and collections in Jul/Aug’21
Not surprisingly, all NBFCs/HFCs reported an impact on disbursements and collections in Apr/May’21 due to
localized lockdowns across the country. Disbursements and collections witnessed sharp improvement from the
second half of Jun’21 and this continued into Jul/Aug as well.
Demand was impacted across product segments – Mortgages, Vehicle Finance, Gold Finance, and even B2B
Consumer Finance. The stress build-up was evident (in terms of both reported asset quality and the restructured
pool) across non-banking lending institutions. During COVID 1.0, the blanket six-month moratorium from the RBI
was a big enabler for lending institutions. In the absence of moratorium amid COVID 2.0, the stress reflected as a
build-up in GS2/GS3 loans and restructuring under RBI OTR 2.0
Due to muted disbursements and decent collections (which improved considerably in the second half of Jun’21),
most NBFCs reported flat or sequential decline in their AUM / loan books.
August 2021
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 Motilal Oswal Financial Services
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The increase in GS3 varied across product segments.
It was most pronounced in Vehicle Finance, followed by
Housing Finance, and the least so in Gold Finance. Most companies continued to strengthen their total ECL
provisions (including management overlay) and increased the provision cover (ECL/EAD) on their loan books.
However, due to sharp deterioration in GS3 for some of them, PCR on GS3 declined on a QoQ basis. Also, as the
RBI provisioning requirement on restructured loans (conservatively classified under S2 by most NBFCs) was
lower than the regular Ind-AS-based PCR on S2 loans, the PCR on S2 loans declined on a QoQ basis.
Collection efficiency (CE) was severely impacted in May’21 across product segments / lending institutions. The
sharp recovery seen in CE in Jun’21 has sustained in Jul’21 as well. The MFI segment was the only product
segment where total CE recovery was yet to happen even before COVID 2.0. Even the MFI segment has been
seeing steady recovery in CE over the last two months – except in certain states such as Maharashtra, Madhya
Pradesh, and West Bengal, which have been subject to longer and more stringent lockdowns.
Liquidity remains abundant:
There were some signs of moderation in the excess liquidity on the balance sheet
until 4QFY21. However, with the heightened uncertainty due to the second COVID wave, most NBFCs/HFCs
continue to maintain high liquidity buffers to (a) guard against any liquidity squeeze and (b) leverage
opportunities post the resumption of normal economic activity in 2QFY22. The borrowing environment
remained benign, with surplus liquidity in the system; most NBFCs continued to report sequential decline in their
incremental as well as blended cost of funds (CoF). Debt markets remained accessible, in the large part, to all
NBFCs, although incremental borrowing was muted in 1QFY22 due to low disbursements. Unlike 1QFY21, PTC /
direct assignment transactions were consummated in 1QFY22, especially by NBFCs/HFCs, which regularly
leverage securitization as a means to raise capital.
Most NBFCs have suggested they would continue to carry
excess liquidity for the large part of FY22 (and look to moderate it by end-CY21) given the uncertainty around
the COVID situation in the country.
HFCs – wholesale disbursements muted; impact on asset quality more pronounced on developer book:
Retail
home loan demand was impacted by localized lockdowns. Nevertheless, individual home loan disbursements
comprehensively exceeded YoY levels in HDFC, LICHF, and PNBHF in 1QFY22.
Corporate disbursements
(especially construction finance), however, were muted QoQ due to disruption in construction activity and large
HFCs’ cautious stance on the Wholesale segment. Large HFCs continued to witness moderation in cost of funds
(CoF), leading to minor expansion in spreads and NIMs.
While there was no significant asset quality deterioration for HDFC, LICHF/PNBHF saw sharp deterioration in
asset quality in their individual/corporate loan book – a disappointing development.
While restructuring was
very low in HDFC, it was relatively more pronounced in LICHF/PNBHF (2–3%). In the Affordable Housing Finance
(AHF) segment, Aavas, CANF, and Repco reported 54–63% QoQ decline in disbursements, with a minor impact
on asset quality, as they all resorted to restructuring in 1QFY22. While restructuring for Aavas/CANF was
contained at around 1.0–1.5%, it was more pronounced for Repco at ~5%. PEL continued to make good progress
on reducing the concentration in its wholesale loan book; it has exhibited slow, but steady, progress in building a
“digital-at-the-core” retail franchise. While it did share further details regarding the integration of DHFL and the
likely structure of the financial services entity, investors would look forward to the completion of the DHFL
acquisition. They would expect PEL to divulge its execution plans for this retail business and how it plans to
cross-sell its organic retail products to DHFL’s customers.
Vehicle financiers – stress most pronounced in MMFS, followed by CIFC, and least so in SHTF:
MMFS/CIFC
reported 35%/54% QoQ decline in disbursements, while SHTF fared relatively better, with just ~15% QoQ
decline in disbursements.
Even in terms of stress build-up, SHTF reported the least slippage/deterioration in
asset quality (~4% QoQ increase in S2 + S3), and restructuring was contained at just ~30bp of AUM. MMFS
reported the highest stress build-up, with a sharp increase of ~13% QoQ in Stage 2 + Stage 3 loans, while the
same stood at ~10% for CIFC. However, the incremental ECLGS disbursements in 1QFY22 were insignificant for
all three vehicle financiers.
Diversified financiers – decent quarter, with signs of strong rebound visible in Jul/Aug:
Disbursements were
impacted by lockdowns and the moderate risk aversion of diversified financiers to SME/personal loans. BAF’s
28
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 Motilal Oswal Financial Services
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asset quality performance was most impacted by Auto Finance (particularly 3W); it guided to deliver
GNPA/NNPA of 1.7–1.8% / 0.7–0.8% and budgets credit costs of INR42b–43b for FY22. SCUF also posted a ~50bp
QoQ increase in its GS3 loans, while disbursements in PL/MSME were muted in 1QFY22. CoF continued to
decline for both BAF and SCUF (down ~20bp/~10bp QoQ for SCUF/BAF).
Gold financiers – divergent performance between MUTH and MGFL:
Gold demand was impacted in 1QFY22
due to disruption in branch operations and customer acquisitions/disbursements being lower QoQ.
MGFL
reported sequential de-growth of 13% in gold AUM, while MUTH’s gold AUM was flat QoQ. Likewise, MUTH
delivered flat gold tonnage QoQ. On the other hand, MGFL reported sequential decline of 11% in gold
tonnage,
largely attributable to its 3M gold loan product (which led to higher auctions and customer
withdrawals) vis-à-vis MUTH’s average gold loan tenure of 6–9M (which resulted in insignificant auctions and
limited need for rollovers). Gold financiers are seeing pricing pressure in gold loans from banks, especially in
large ticket size gold loans, and have taken pricing actions / introduced new schemes to retain existing big-ticket
customers. Subsidiaries, especially MFI and Vehicle Finance, remained vulnerable and reported higher credit
costs due to COVID-led deterioration in asset quality.
Capital market players –
Strong performance continues:
ISEC reported strong topline numbers, aided by 35%
YoY growth in revenues, coupled with a significantly lower C/I ratio. Its market share in cash trading was down
by 40bp QoQ, but its share in derivatives trading improved to 3.3%. The ‘NEO’ plan has helped counter
competition from discount brokers as well as some traditional brokers offering discount plans. Other product
segments delivered robust performances as well. IIFLWAM reported higher-than-estimated profits on account of
higher trail-bearing revenue income. Net flows saw sharp rebound; IIFL One continued to gain traction. The
company seeks to increase ARR share to 70–75% over the next 12–18M (from ~50% currently). The IIFL One
share would rise to 50–55% of ARR by end-FY22.
Our view:
We remain positive on the sector and expect the second COVID wave impact to be transient on asset
quality. Although expected credit costs in FY22 would be lower v/s FY21, they would remain elevated and higher
than the normalized run-rate. With no moratorium benefit this time around, delinquencies were higher,
collections were impacted (with consequent deterioration in asset quality), and restructuring was the fallback
option for lending institutions. Companies made requisite provisions on the restructured pool of loans and
expect additional restructuring in 2QFY22 as well. Asset quality would start to improve from 3Q and show sharp
improvement by end-FY22. In our view, there is still some room for a positive surprise on margins owing to a) a
marginal reduction in CoF, with the repricing of higher cost liabilities, and b) a reduction in excess liquidity on
the BS. Lending NBFCs under our coverage are poised to deliver RoE in the lower teens to early twenties in FY22,
with CIFC, BAF, and MUTH delivering 18%+ RoE. Our preferred ideas are: HDFC, CIFC, MUTH, and ISEC.
Positive surprises:
IIFLW, PIEL
Negative surprises:
MMFS, LICHF, MGFL, CIFC, SHTF, Aavas, Repco, BAF
Rating changes:
None
Guidance highlights:
a) SHTF’s management guided for 10–12% AUM growth in FY22. b) During the 1Q earnings
call, BAF guided to deliver GNPA of 1.7–1.8% by end-FY22 and expects credit costs of INR42–43b in FY22. c) ISEC
expects the C/I ratio to remain at 40% levels over the near term.
August 2021
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Exhibit 45: HDFC/LICHF maintains steady AUM growth,
while PNBHF continues to report decline in AUM (%)
Q1 2021
12 10
9 10 8
1HFY21
6
5
9MFY21
10 11
6
FY21
Q1 2022
25
Exhibit 46: CANF’s AUM growth to gain steam; Aavas to
continue to deliver in 21–23% ballpark
Q1 2021
24
23
1HFY21
9MFY21
FY21
Q1 2022
21
21
-5
10
-9 -10 -11
PNBHF
6
-14
AAVAS
CANF
4
7
7
HDFC
LICHF
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 47: COVID lockdowns impact loan growth for vehicle
financiers, but affect SHTF relatively lesser (%)
Q1 2021
1HFY21
9MFY21
FY21
10
5
5
6
7
7
4
3
Q1 2022
16
13 13
7
Exhibit 48: MUTH continues to outperform MGFL in both
AUM growth and gold holdings (%)
Q1 2021
32
15
31
1HFY21
26
27
9MFY21
FY21
30
24
12
Q1 2022
-2
-5 -6
CIFC
Source: MOFSL, Company
MUTH
MGFL
-7
SHTF
MMFS
Source: MOFSL, Company
Exhibit 49:
PBT down 26% YoY (even on a low base of 1QFY21) for our NBFC coverage universe*
PBT - YoY growth (%)
10
11
10
-2
-5
-26
38
-9
-30
Source: MOFSL, Company, *MOFSL universe excl. PIEL, ABCAP and Indostar
August 2021
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HEALTHCARE:
Strong DF performance aided by COVID-19 drugs; US sales weighed by higher price erosion
Aggregate earnings of Pharma companies under our coverage (excluding JP) in 1QFY22 were in line with our
estimates. Aggregate sales were up 15% YoY to INR540b (est. INR530b). A low base of 1QFY22, and strong demand
for Domestic Formulations (DF), led to a 9% YoY growth in EBITDA to INR128b (est. INR124b). Key themes during
1QFY22 were: a) strong YoY growth in DF sales, led by heightened demand for COVID-19 treatment drugs and a
low base, and b) a YoY sales decline in US generics, due to a higher degree of price erosion in the base business,
exacerbated by the muted number of new launches. Aggregate other expenses, as a percentage of sales, stood at
22.6%, up 40bp YoY, while aggregate employee costs stood at 17.7%, down 130bp YoY, in 1QFY22.
Out of 20 companies (excluding JP), six have beaten our earnings estimates, while 11 missed our estimates.
BIOS, ALPM, GSK, LPC, and STR missed our expectations by a large margin.
Largecaps
–
SUNP/CIPLA (up 74%/36%) saw the highest growth in earnings. SUNP outperformed in all segments,
with over 20% sales growth in India/US/RoW markets. Ramp-up in the Specialty portfolio, improved demand in
Branded Generics segments across India/RoW, stability in Taro, and new launches led overall growth for SUNP.
CIPLA delivered 36%YoY growth in earnings on the back of strong offtake of COVID-related drugs and further
ramp-up in g-Albuterol in the US.
Midcaps –
LAURUS continued to witness strong earnings growth, at 41% YoY, in 1QFY22, led by the ARV
segment (API, FDF, and CRAMS). GLAXO posted 36% YoY growth on a low base, with a strong growth in Calpol
due to the COVID-19 outbreak. STR reported operating level losses due to the impact of the pandemic on
production and higher than expected price erosion.
Segment-wise,
DF
showed supernormal growth (46% YoY), on an aggregate basis for companies under our
coverage, in 1QFY22. The growth was driven by: a) increase in sales of COVID-19 drugs such as Remdesivir,
Favipiravir, etc., and other allied drugs such as Amphoterici B and VMNs, and b) a low base of 1QFY21, which
was marred by a supply chain and production disruption, and nationwide lockdown. Due to use of Anti-Infectives
in the treatment of COVID-19, Acute therapies strongly outperformed Chronic therapies. Chronic drugs were
impacted to a lower extent in 1QFY21, and hence growth remained subdued. Promotional activities and MR
travel was curtailed in 1QFY22 due to the lockdowns. Promotional activities have touched 50-80% of pre-COVID
levels for most of our coverage companies, resulting in lower savings in opex YoY in DF in 1QFY22.
US sales
were flat YoY in 1QFY22 due to: a) higher competition, leading to higher price erosion than that seen
before, b) slower pace of launches, and c) lack of one-time supply opportunities, a regular phenomenon earlier
for Generic Pharma companies. SUNP showed the strongest performance in the US, with sales growing 35% YoY
growth due to: a) stability in Taro, b) ramp-up in Specialty sales on a YoY and QoQ basis, and c) lower price
erosion in the base business, with better supply chain management. CIPLA/DRRD posted a nominal growth
(2%/1% YoY) in US sales. CDH/LPC US sales fell 11%/10% YoY. ALPM saw the biggest hit to US sales, posting a
38% YoY decline due to increased pricing pressure. Ongoing regulatory issues at Indrad/Dahej and price erosion
in the base business, resulted in a 26% YoY decline for TRP. Increased competition in certain products led to a
9% YoY decline in US sales for ALKEM.
On an aggregate basis, ~885 ANDAs were pending approval in 1QFY22 (v/s 903 ANDAs at the end of 4QFY21).
ARBP/LPC/CDH had the maximum ANDAs pending approval at the end of 1QFY22.
API sales
were almost flat YoY in 1QFY22. Muted growth was due to pre-buying in earlier quarters. API prices
have now started cooling off from their peak. A supply-chain disruption in shipping, resulting in higher costs,
poses a risk to sales and may disrupt schedules as customers delay accepting deliveries in anticipation of lower
supply costs.
Our EPS estimates have seen more downgrades than upgrades, on an average, as compared to the period prior
to the 1QFY22 results (down 5.4%/0.6% in FY22E/FY23E). The maximum upgrade in earnings estimates were for
largecaps like GLAND/CIPLA/SUNP (7.6%/6.3%/5.6%) and midcaps like GRAN (14%). The maximum downgrade
was seen in midcaps such as STR (PAT loss in FY22)/ALPM/JP (-22%/-14.5%) and LPC (-22%) among largecaps.
August 2021
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Top picks: DIVI, GLAND, and SUNP
Positive surprise:
ALKEM, CIPLA, GLAND, GRANULES, IPCA, and SUNP.
Negative surprise:
BIOS, STR, ALPM, ARBP, GLAXO, LPC, LAURUS, and CDH
SUNP’s
Specialty sales stood at USD148m v/s USD143m. Global Specialty sales rose QoQ, despite the entry of g-
Absorica in the market. SUNP is tracking well on product development to enhance its Specialty portfolio.
DIVI
has highlighted growth engines over the next 4-5 years: 1) to bolster its high market share portfolio, 2)
backward integration in Sartans, 3) increase traction in Contrast Media, 4) scale up of the two CS projects other
than Molnupiravir, and 5) opportunities from the expiry of patents over FY23-25.
DRRD
expects the supply of Sputnik V vaccine to increase over Sep-Nov’21, with the six contract manufacturers
commencing supply in a phased manner. A higher level of price erosion is seen in the base business in the US.
CIPLA
indicated that a meaningful benefit from complex products can be expected only from FY23. It guided at a
FY22 EBITDA margin of 22.5-23%, adjusting for the COVID-related benefit.
ARBP
expects 3-4 Complex Injectable products to be filed in FY22: two in Europe and 1-2 in the US. The
management maintained its global Injectable sales guidance of USD650-700m by FY24.
TRP
expects 10-12 ANDAs to be filed per year in the US and aims to add one or two 505(b)(2) products annually.
It also plans to have a small promotional presence in the US through partnerships.
BIOS
would invest USD100m each in the Generics/Biologics segment over the next 2-3 years. The physical
inspection required for insulin Aspart and the USFDA’s visit to its Malaysia facility is expected in 2QFY22. B-
Insulin glargine received approval as the first interchangeable Biosimilar in the US, but BIOS will need to secure
formulary access.
LPC
expects double-digit revenue growth in FY22, led by a ramp-up in Albuterol, and growth momentum in
India/growth markets. LPC revised its FY22 EBITDA margin downwards to 16-17% from its previous guidance of
19-20%. It is exploring a potential spin-off of the NCE business.
CDH
aims to achieve USD250m in revenue from Injectables in the US market over the next 3-4 years. It has filed
for a 3mg*2-dose, in addition to the 2mg*3 dose regimen of its COVID vaccine and expects an approval soon.
ALKEM
has guided at an EBITDA margin of 20-21% for FY22. It maintained its guidance of 15-16% YoY growth in
the US business for FY22. It has invested INR6.5b in the Biotech segment to date.
Raw material as well as logistics cost may remain at elevated levels over the near to medium term due to
significant supply disruptions.
IPCA
has been able to hike prices to offset the impact to some extent. IPCA will
focus on higher level of backward integration in its Formulations business.
ALPM
withdrew its FY22 EPS guidance of INR50 due to additional competition in its base portfolio and delay in
USFDA inspection at its sites. It is seeing a higher level of price erosion in the base business in the US due to
increased competition.
JP
is reorganizing its API business after the demerger from Jubilant Generics (a wholly-owned subsidiary) and
vesting the same under it. The company would create service offerings across the value chain from CRO/CDMO
for innovative and generic APIs.
AJP
remains confident of outperforming the industry in Branded Generics in India, Asia, and Africa on the back
of enhanced marketing efforts on new launches as well as existing products.
GRAN
has guided at an 8-10% sales CAGR in Core Molecules and 50% sales CAGR in non-core products over the
next 2-3 years. It has guided at an overall revenue/PAT CAGR of 20% over the next 2-3 years. It expects 8-10
ANDA launches in FY22, with a market value of ~USD150m.
LAURUS
has remained committed to its USD1b revenue target for FY23. The share of ARV sales is expected to
reduce to 33% by FY25 (from 66% currently). Capex remains on track for non-ARV as well as the CDMO segment.
GLAND
is working on 14 complex products, of which two/three will be filed in FY22/FY23. It is developing 25-30
complex products over the next 2-3 years. It remains on track for commercial production of Sputnik vaccine by
Oct’21. It has also signed a contract with Hetero for fill-finish of the Sputnik vaccine.
Guidance highlights
August 2021
32
 Motilal Oswal Financial Services
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STR
experienced a higher level of competition in base products, leading to its first ever operating level loss.
Despite weak US sales in 1Q and a subdued 2Q, STR guided at 10-15% YoY growth in US sales for FY22, led by
new launches, including products acquired from Endo.
SOLARA
expressed its long-term aspiration of 25% revenue CAGR, EBITDA margin of 23-25%, and ~30% revenue
from CRAMS over FY21-25. This would be led by the organic route. It completed backward integration for its
Ibuprofen API plant and is now one of the only two manufacturers in the world to be fully backward integrated.
Exhibit 51: DF sales show supernormal growth in 1QFY22
DF sales growth YoY (%)
28.5
0.7
(4.6)
0.1
7.5
-0.5
15.4
6.2
10.7
-0.5
20.8
6.3
12.4
10.3
46.2
Exhibit 50: US sales flat YoY, despite a low base 1QFY22
US Sales YoY growth (%)
18.3
9.1
4.8
(1.0)
(7.6)
4.0
15.1
7.2
0.1 0.9
-0.4
Source: MOFSL, Company
Source: MOFSL, Company
Exhibit 52: Aggregate EBITDA (excluding GLAND and JP) grew 9% YoY to INR123b in 1QFY22
Aggregate EBITDA (INRb)
140.0
Aggregate EBITDA growth (%)
23.1%
4.9%
9.0%
31.4%
29.8%
24.4%
9.4%
40.0%
30.9%
1.8%
12.3%
14.4%
120.0
21.0%
100.0
14.8%
30.0%
20.0%
80.0
10.0%
60.0
0.0%
40.0
-10.0%
20.0
75.6
1QFY18
83.7
2QFY18
91.0
3QFY18
82.4
4QFY18
91.5
1QFY19
96.1
2QFY19
95.5
3QFY19
89.9
4QFY19
112.7
1QFY20
126.2
2QFY20
123.9
3QFY20
111.8
4QFY20
123.3
1QFY21
-20.0%
0.0
-30.0%
*GLAND
excluded from comparison due to lack of historical data, JP excluded as its earnings are not comparable after the Ingrevia demerger
Source: MOFSL, Company
Exhibit 53: Aggregate PAT (excluding GLAND and JP) grew faster than EBITDA, at 16% YoY to INR77b in 1QFY22
90.0
Aggregate PAT (INRb)
36.8%
23.1%
1.0%
9.6%
6.6%
Aggregate PAT growth (%)
27.1%
14.9%
3.7%
9.5%
35.3%
48.9%
60.0%
80.0
39.9%
16.1%
50.0%
70.0
40.0%
60.0
30.0%
50.0
20.0%
40.0
10.0%
30.0
0.0%
20.0
-10.0%
10.0
42.3
1QFY18
50.3
2QFY18
51.0
3QFY18
45.4
4QFY18
52.1
1QFY19
57.7
2QFY19
52.9
3QFY19
49.8
4QFY19
66.2
1QFY20
78.1
2QFY20
78.8
3QFY20
69.6
4QFY20
76.9
1QFY21
-20.0%
0.0
-30.0%
*GLAND
excluded from comparison due to lack of historical data, JP excluded as its earnings are not comparable after the Ingrevia demerger
Source: MOFSL, Company
August 2021
33
 Motilal Oswal Financial Services
Strategy
Metals: Strong performance continues despite volume headwinds
Ferrous:
Domestic steel companies clocked yet another record-high quarter, led by higher steel prices and
volumes, partly offset by higher iron ore prices (for JTSL) and lower volumes. Our Steel Coverage Universe
(TATA, JSTL, JSP, and SAIL) reported record-high revenue/EBITDA/PAT of INR1,135b/INR375b/INR214b (up
1%/10%/16% QoQ). Volumes for our Coverage Universe declined 15% QoQ to 12.7mt (34% YoY) on weak
domestic demand. Average realization was up 17% QoQ (69% YoY) to INR68,568/t in 1QFY22, led by strong
pricing in both the domestic and export markets. The increase in realization was partly offset by higher iron ore
costs (for JSPL and JSTL) and lower operating leverage. As a result, average industry EBITDA/t rose 30% QoQ to
INR27,830. EBITDA and EBITDA/t for all companies under our Coverage Universe (barring JSP) were at record
highs in 1QFY22. TATA/JSTL stood out among the ferrous companies with a 14%/22% QoQ jump in EBITDA to
INR161.1b/INR102.7b. SAIL saw modest growth of 7% to INR65.6b due to ~24% decline in volumes. JSP saw 9%
QoQ de-growth to INR45.4b on 16% volume de-growth and the exhaustion of free-of-cost iron ore during the
quarter. TATA (standalone)/JSTL/JSP/SAIL posted EBITDA/t of INR35,558/INR26,291/INR28,098/INR19,728.
While we expect margins to remain strong in the coming quarter, a USD100/t increase in coking coal prices in
the last few months could dent margins.
Non-ferrous – higher LME boosts profitability:
Among the non-ferrous companies, HNDL reported a robust set
of results with strong performances from the India and Novelis businesses. It reported 12% QoQ growth in
EBITDA to INR67b on the back of record-high margins of USD1,052/t in India aluminum operations and USD522/t
in Novelis. VEDL’s EBITDA increased 9% QoQ to INR98.7b on the back of a 36% QoQ jump in Aluminum segment
EBITDA to INR37.5b. HZ EBITDA declined 8% QoQ to INR35.6b on ~9% decline in volumes. NALCO disappointed
with ~38% decline in EBITDA to INR5.8 as the higher LME benefit was offset by lower volumes and higher costs.
Deleveraging takes back seat on working capital expansion:
An
increase in working capital due to finished
inventory pile-up and higher commodity prices led to limited debt reduction during the quarter. SAIL/VEDL
reduced net debt by ~16% QoQ to INR311b/INR203b. Tata Steel and JSP (excl the JPL divestment) reported
marginal decline (2–4%) in net debt. On the other hand, JSTL/Hindalco reported a net debt increase of 4%/9%.
Top picks: SAIL and HNDL
Guidance highlights:
Managements expect commodity prices to remain strong over the near term, supported by
structural changes such as focus on de-carbonization, limited capacity additions, and China’s focus on lowering
exports.
Domestic demand and pricing are expected to improve from mid-2QFY22. While balance sheet deleveraging remains
the key focus, companies would also use cash flows to chase capacity growth. Steel companies highlighted their
interest in acquiring assets such as NINL and RINL. Deleveraging should accelerate in the coming quarters as the
increase in working capital in the first quarter is expected to reverse, particularly in steel companies.
JSTL:
The Dolvi commissioning is expected to be completed in Sep’21. The company would invest ~INR4.5b for a
26% stake in SPV floated by JSW Steel and JSW Energy. This would be towards setting up a 958MW renewable
energy plant to meet its increased power needs post the expansion and also reduce power cost.
TATA:
The management guided for significant improvement in realization in Europe (EUR200–240/t) in 2QFY22,
against a marginal increase of USD20/t in coking coal and USD10/t in iron ore prices. It further guided for an
increase in India realization by INR3,000/t in 2QFY22. The CRM and pellet capacities at Kalinganagar are
expected to be completed in 2HCY22.
JSP:
The management aims to reduce net debt to INR80b by FY22-end, factoring in the JPL divestment in FY22.
SAIL:
SAIL lowered its steel volume guidance to 16.5mt v/s the earlier guidance of 18.5mt. The key focus would
be on utilizing cash flows to lower debt to sub-INR200b levels in FY22. The company aspires for a 12–14mt
capacity expansion; however, meaningful cash outflow towards the same would start only from FY24.
HNDL:
It guided for a CoP increase of 5% (QoQ) in the Aluminum business. In line with its vision to expand its
downstream capacities, it announced a 170ktpa expansion in FRPs for capex of INR30b. The expansion would be
completed in 36 months.
August 2021
34
 Motilal Oswal Financial Services
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Exhibit 54: Aggregate EBITDA for Metals up 9% QoQ and 429% YoY in 1QFY22
660
495
330
165
0
191
211
248
303
289
299
282
284
237
180
190
218
111
275
Tata Steel
SAIL
JSW Steel
JSP
NMDC
VEDL
Hindalco
Nalco
Total
410
537
585
Source: Company, MOSL; NMDC and NALCO are yet to declare their results
Exhibit 55: Steel EBITDA (INR/t) at record highs
39,500
29,500
19,500
9,500
-500
Tata Steel - India
SAIL
JSW Steel
JSP
Weighted Average
1QFY19 2QFY19 3QFY19 4QFY19 1QFY20 2QFY20 3QFY20 4QFY20 1QFY21 2QFY21 3QFY21 4QFY21 1QFY22
Source: MOFSL, Company
Exhibit 56: Steel sales down 15% QoQ and up 34% YoY
Tata Steel
14.7
11.5
Exhibit 57: Steel realization up 17% QoQ in 1QFY22
Average
75
12.7
1.6
3.6
3.3
4.2
SAIL
JSW Steel
14.6
1.7
4.0
4.1
4.9
12.9
1.4
3.7
3.7
4.0
JSP
1.9
4.1
4.2
5.1
Total steel
65
55
45
35
25
Tata Steel
SAIL
JSW Steel
JSP
13.1 12.1
12.5 12.3
1.5
1.3
1.3 4.0 1.3 4.3 1.5 1.5
3.8 3.6
3.7
3.8
4.1
3.5 3.2
3.2 3.1
3.3
3.1 4.3 3.9 4.7 4.0 4.1
15.3 14.6 15.0
9.5
1.6
2.8
2.2
2.9
1.9
3.9
4.1
4.7
1.9
4.1
4.4
4.7
Source: Company, MOFSL; TATA include India operations
Source: Company, MOFSL
Exhibit 58: Aluminum sales (kt) down 3% QoQ / up 12% YoY
kt
VEDL
Balco
Hindalco
Nalco
Exhibit 59: HNDL’s copper sales down 25% QoQ
kt
VEDL
Hindalco
113 91
105 115 104 117 103 110 96 87 73 123 103
329 303
300 326 323 325 320 328 328 314 303 303 315
144
141 142 145 143 137 138 141 145 137 141 147 144
328 335 344 325 333 338 342 329 331 331 350 387 404
82
24
79
15
99 100
82
16
82
16
84
20
86
26
58
1
107
75
25
73
25
35
80
28
23
26
Source: MOFSL, Company
Source: MOFSL, Company
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OIL & GAS: Marketing margins for OMCs and EBITDA/scm expansion in CGDs drive surprise performance
Aggregates:
Revenue for our coverage universe grew 77% YoY (8% above our estimate due to beat from GAIL
and OMCs), while ex-OMCs revenue grew 64% YoY (in line with our estimates). EBITDA was up 56% YoY (17%
above our estimate - led by beat in OMCs), while excluding OMCs it was up 71% YoY (in-line). PAT grew 84% YoY
(35% above our estimate), while excluding OMCs PAT grew 119% YoY (16% ahead of our estimate) owing to
lower depreciation/interest cost for ONGC/OINL respectively.
Marketing segment remains compelling:
Implied gross marketing margins (including inventory) were stronger at
INR5.7–6.2/lit (similar on a QoQ basis at INR6.0–6.1/lit) v/s our estimate of INR3.9–4.2/lit in 1QFY22. This was
despite subdued gross marketing margins during the quarter, as Brent prices saw a sudden spike owing to the
opening up of the global economy. That said, gross marketing margins (as per our tracker) improved QoQ – as
Brent prices stabilize and OMCs align the pricing of retail fuel with global prices. Marketing volumes were also
higher (by 5–10%) v/s our estimate, down 13–14% QoQ for BPCL/HPCL and down just 6% QoQ for IOCL – due to
the second COVID wave led lockdown during the quarter.
Refining segment performs in-line – GRMs improve:
IOCL’s reported GRM stood at USD6.6/bbl (the highest
among the OMCs), with BPCL/HPCL at USD4.1/bbl / USD3.3/bbl, against SG GRM of USD2.0/bbl during the
quarter. MRPL’s reported GRM stood at USD4.5/bbl in 1QFY22. SG GRM further improved to ~USD3.5/bbl in Aug
(average to date), the highest ever since the COVID outbreak in Feb'20. Recovery is entirely driven by higher
demand for gasoline, while ATF/gasoil margins remain subdued.
EBITDA in-line for RIL:
EBITDA for the consolidated/standalone business rose 38%/61% YoY in 1QFY22 on a low
base of last year (2% beat). On a QoQ basis, consolidated revenue/EBITDA was up -6%/1%. RJio’s EBITDA was in-
line (up 23% YoY), while the same for Retail grew 79% YoY (6% beat) on a low base. O2C EBITDA stood at
INR114.6b (+6% est.; +61% YoY, +12% QoQ). Production meant for sale stood at 16.5mmt (+10% est., +4% YoY) –
translating to EBITDA/mt of USD94.4 in 1QFY22 (-3% est.; +59% YoY, +12% QoQ).
CGDs – impacted by second COVID wave (volumes in-line):
Total volumes for GUJGA and MAHGL were down
17% QoQ, while they were down 22% QoQ for IGL – as CNG volumes were impacted by the lockdowns during
the quarter. IGL reported flat EBITDA margins QoQ (INR7.9/scm) on a much lower spot LNG mix, while peers
MAHGL (INR13.9/scm; +INR1.8 QoQ) and GUJGA (INR7.9/scm; +INR2.8 QoQ) reported margin expansion QoQ on
account of a higher mix of spot LNG. CGD margins with a higher mix of CNG/PNG households would be severely
pressured by an expected (60%) rise in APM gas prices in 2HFY22.
Ratings and earnings change:
We have left our ratings unchanged during 1QFY22. The streak of quarterly EPS
revisions continues for GUJGA, with 1QFY22 being the sixth consecutive quarter of EPS upgrades.
Top picks:
GAIL and GSPL are our top picks in the Gas space, with probable re-ratings/upgrades. We prefer BPCL
in the OMC space, with optimism on ongoing privatization progress and process.
GAIL – top pick in largecap space:
GAIL expects gas transmission volumes to grow 7–8% YoY over the next 3–4
years, with a further upside post the completion of the national gas grid. Increased demand would primarily
come from the commissioning of fertilizer plants, ongoing refinery and petchem expansions, and the
development of CGDs (under IX-X round). We conservatively forecast transmission volumes of
115/125/130mmscmd in FY22E/FY23E/FY24E v/s 104mmscmd in FY21 (110mmscmd in 4QFY21). An increase of
10mmscmd in transmission volumes would result in a rise of ~5% in our EPS estimate. GAIL has started supplying
2.5–3mmscmd of gas to various newly commissioned fertilizer plants, which is expected to reach 11–12mmscmd
by the end of the year (as fertilizer plants at Sindri, Baurani, and Matix begin pre-commissioning and come on
stream), thus de-risking the US HH contracts.
BPCL:
A virtual data room has been opened up since Apr’21, and the next two steps consist of a discussion with
the senior management and visiting physical assets. BPCL has further rationalized its employee costs (with
employee strength now at 9,027, down from 11,249/9,100 in FY20/FY21). It is also working with the
Government of India to protect its interest in IGL and PLNG and avoid an open offer in these subsidiaries. The
steady progress on privatization, along with improvement in SG GRM and recovery in gross marketing margins to
normal levels (after a significant dip in 1QFY22), augurs well for the company. We reiterate our Buy rating.
August 2021
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GUJS:
The management expects over 10–12% volume CAGR over the next 4–5 years (as available LNG regas
capacity is expected to jump by 75% to 42mmtpa over the next 2–3 years in Gujarat). PNGRB has taken up a
tariff review of GUJS’s HPP grid to determine the new tariff from FY22. It would also adjust this for the new tax
regime (16% pre-tax IRR v/s 18.45% in FY19). The company has proposed to undertake a capex plan of INR45.4b
over the remaining life of the pipeline (i.e., over the next 10 years up to FY32) on the net block of INR53.8b at
end-FY21. This is in line with the management’s repeated guidance of increased capex to augment newer LNG
terminal capacities on the grid, which would obviate the need for a tariff cut. Maintain Buy.
Positive surprises:
IOCL, HPCL, BPCL, MAHGL, GUJGA, and Oil India
Negative surprises:
MRPL
Guidance highlights:
RIL:
The company believes that increased vaccination coverage (especially in populated emerging economies)
would drive business confidence and further boost demand. Continued recovery in road and air mobility would
lift demand for transportation fuel in the coming quarters. The company guided that new capacity additions in
the global Polyolefin space should be absorbed by strong demand in Asia. This would keep polyester margins
firm in the near term, thus proving beneficial to integrated players. Gas production of over 18mmscmd is
expected in FY22 (from the already commissioned R-Cluster and Sat-Cluster), while the MJ field would be
commissioned in 3QFY23. The KG Basin is expected to achieve peak production of ~30mmscmd by CY23E.
OMCs:
With the easing of the lockdowns in India in July, demand for petroleum products such as MS/LPG has
surpassed 2019 levels (+5%/+10%), while HSD demand remains subdued (-8%). An increase in personal mobility
due to COVID continues to drive demand higher for MS (thus aiding cracks). Demand for HSD is also seeing
strong recovery in the US, coupled with the re-opening of the Chinese and Indian economies. Although, high
levels of HSD inventory globally have resulted in suppressed cracks.
GAIL – to fare even better:
The management guided that the petchem plant is currently operating at over 100%
utilization and would achieve 100% utilization in FY22, despite the lower utilization rate in 1Q (amid planned
shutdown). In the current high spot LNG price environment (JKM forward curve at ~USD16/mmbtu, up from
USD10/mmbtu in 1QFY22), the company expects the trading segment to do even better in 2Q. Transmission
volumes – which were lower in 1QFY22 (108mmscmd; -2% QoQ on account of lower offtake by certain
customers) – have recovered back to ~115mmscmd. The management expects 8–10mmscmd of volume growth
in FY22 from the commissioning of fertilizer plants, thus aiding the domestic placement of trading volumes.
CGDs:
Volume recovery in the aftermath of the last two lockdowns has been the quickest for GUJGA (current
volumes at 12mmscmd v/s 10mmscmd in 1QFY22, with Morbi at 7.1mmscmd). CNG volumes for both IGL and
MAHGL are picking up as lockdowns are gradually lifted in Delhi and Mumbai, respectively. The management of
MAHGL stated prices of CNG and PNG Industrial/Commercial are linked to the prevailing prices of alternate
fuels. Negotiations with OMCs on higher commissions to sell CNG are still on; these, combined with an increase
in domestic APM gas prices, could be critical for the margin going forward.
Exhibit 60: Implied gross marketing margins (INR/liter)
Implied marketing margins (INR/lit)
IOCL
BPCL
HPCL
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Exhibit 61: Reported refining margins (USD/bbl)
IOCL reported GRM
6.4
8.3
7.3
7.0
6.0
6.1
4.2
BPCL reported GRM
3.2
3.5
6.5
HPCL Reported GRM
1.6
1.2
(0.9)
0.1
SG GRM
1.2
1.8
2.0
Exhibit 62: Sales volume of CGDs (mmscmd)
Volumes mmscmd
GUJGA
IGL
9.2
6.1
4.9
2.6
5.7
5.2
2.7
6.3
5.3
2.7
6.8
5.4
2.8
6.4
5.5
2.9
6.7
5.9
3.0
6.6
5.9
3.0
6.5
6.3
3.0
6.3
3.0
6.6
3.0
6.7
3.1
4.1
6.2
2.8
2.7
1.1
5.5
2.1
6.3
2.8
6.8
2.9
2.4
5.3
9.3
9.3
MAHGL
9.9
9.8
11.4
12.1 10.0
Exhibit 63: EBITDA/scm trend for CGDs (INR)
EBITDA/scm
GUJGA
IGL
MAHGL
6.2
5.9
5.4
5.7
5.8
5.7
5.8
5.9
6.3
6.5
6.4
6.6
8.0
3.4
8.7
8.0
7.9
RETAIL: Second wave interrupts revival, but see signs of healthy recovery
Impact of second COVID wave lockdown lower v/s last year
The steady recovery in grocery and apparel retailers from last year’s lockdown was once again impacted by the
second wave led lockdowns across most states. However, unlike last year, the lockdown was not as stringent,
leading to higher operational days during the quarter and quicker recovery v/s the previous fiscal. Grocery retail,
particularly DMart, saw 33% growth YoY and stood at 89% of pre-COVID levels (1QFY20), much better than the
1QFY21 YoY decline of 33%. Apparel retailers saw average decline of ~60% v/s pre-COVID (1QFY20). This was much
better than last year – 1QFY21 saw 80–85% YoY decline v/s pre-COVID (1QFY20). This was due to much quicker
recovery as soon as the lockdown was lifted and more operational days during the quarter.
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Better cost management
Despite the sharp increase in yarn prices (key raw materials for apparel retailers), lower rentals, and employee
benefits, EBITDA and net loss were lower. This was due to lower provisioning – as retailers were more prepared to
build inventory at the start of the new season v/s last year. Also, higher revenue allowed the mitigation of fixed
costs. Subsequently, apparel players saw an improvement in both gross and EBITDA margins, led by a) lower
provisioning, b) a price increase to pass on higher yarn pricing, and c) operating leverage from higher revenues.
DMart had a mixed bag with possibly higher provisioning. This dragged down gross margins YoY, which already had a
lower base; nevertheless, its EBITDA margin improved with higher revenue recovery.
Store additions on track
Store additions were marginal – most retailers have nearly 5–10% stores ready for fit-outs, but are waiting for the
lockdowns to be lifted and stability in operations. Retailers have highlighted that they would resume their strong
addition plans with 15–20% new stores in FY22, thus maintaining their guidance for store additions.
Focus on liquidity and leverage
Unlike last year, most retailers are well-capitalized with a) a better working capital position – as they were better
prepared and, therefore, limited the inventory buildup before the start of the season and b) fundraises – V-Mart and
ABFRL raised funds recently, while DMart and Trent had healthy cash balances, supported by fundraises just a few
months before the lockdown. This helped alleviate balance liquidity and leverage concerns relatively better than in
1QFY21.
Top picks:
ABFRL, VMART
Positive surprises:
ABFRL, VMART
Guidance highlights:
ABFRL:
(1) Sharp revenue recovery is expected by 2QFY22, with July seeing strong recovery of 85%/70% in
Lifestyle/Pantaloons v/s pre-COVID levels. (2) It plans to launch two news ethnic wear brands by the next
quarter and expects to achieve breakeven over the next 2–3 years.
VMART:
(2) It aims to increase its retail space by 20–25% with FY22 capex of INR1b – INR500m each towards
store adds and new warehouses. (3) Cost efficiencies should help improve the operating margins v/s pre-COVID
levels.
Exhibit 65: …with growth in gross profits
YoY growth (%. RHS)
100
50
0
-50
-100
40
30
20
10
0
Aggregate Gross Profit (INR b, LHS)
Aggregate gross margin (%)
38
32
26
20
14
Exhibit 64: Revenue up 50.4% YoY…
Aggregate revenue (INR b, LHS)
160
120
80
40
0
Source: Company, MOFSL
Source: Company, MOFSL
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Exhibit 67: Retailers’ profitability turns red with net loss of
INR4.5b
Aggregate PAT (INR b, LHS)
20
10
0
-10
-20
10
5
0
-5
-10
YoY growth (%, RHS)
600
400
200
0
-200
Exhibit 66: Sector sees EBITDA recovery YoY
Aggregate EBITDA (INR b, LHS)
18
12
6
0
-6
Aggregate EBITDA margin (%, RHS)
Source: Company, MOFSL
Source: Company, MOFSL
Exhibit 68: Retail store adds – snapshot
4QFY19
Total Store count
Madura EBO's
Pantaloons
DMART
Shoppers Stop
Westside
V-Mart
Store adds
Madura EBO's
Pantaloons
DMART
Shoppers Stop
Westside
V-Mart
Total
2406
308
176
83
150
214
1QFY20
2506
314
184
83
155
227
2QFY20
2544
331
189
84
161
239
3QFY20
2656
343
196
89
167
257
4QFY20
2699
342
214
84
165
266
1QFY21
2662
342
216
84
166
266
2QFY21
2686
339
220
85
166
264
3QFY21
2813
344
221
84
169
274
4QFY21
2866
346
234
84
174
279
1QFY22
2874
342
238
83
184
282
37
6
12
0
8
14
102
100
6
8
0
5
13
132
38
17
5
1
6
12
79
112
12
7
5
6
18
160
43
-1
18
-5
-2
9
62
-37
0
2
0
1
0
-34
24
-3
4
1
0
-2
24
127
5
1
-1
3
10
145
53
2
13
0
5
5
78
8
-4
4
-1
10
3
20
Source: Company, MOFSL
Specialty Chemicals: Margins contract after peaking in FY21
Aggregates:
Revenue for our coverage universe grew 76% YoY (6% above our estimate), primarily driven by beat
on revenues by Deepak Nitrite (DN), Galaxy Surfactants (GALSURF) and Vinati Organics (VO). EBITDA/PAT were
up 69%/71% respectively (5% above our estimate), with highest beat from DN and NOCIL – on the back of
margin expansion.
Margins come under pressure after peaking in FY21:
Higher raw material prices, owing to the spike in Brent
prices, and demand-supply mismatch in raw material/product availability, due to the rapid opening up of
economies, impacted the gross margin of companies. Disruption to the international supply chain and higher
freight cost resulted in companies absorbing higher cost in 1QFY22. Companies believe that cost pressures are
likely to continue for a couple of more quarters. While raw material cost pressure may be passed on, the
companies are negotiating for sharing the rise in freight cost with the buyers.
From our coverage universe, GALSURF/Alkyl Amines (AACL)/VO saw a gross margin compression of 5%/8%/15%
QoQ, with NOCIL and NFIL recording a slight (2-5% QoQ) margin expansion due to better realization. Atul Limited
(ATLP), DN, and Fine Organics (FINEORG) reported a flat margin QoQ, amid a demand recovery for colors and
polymers for ATPL and robust phenol prices for DN, in 1QFY22.
EBITDA margin remained flat for most companies apart from VO and AACL (compression of 7-9% QoQ), with
NOCIL recording an EBIDTA margin expansion of 5% on the rise in realization (on per kg basis).
August 2021
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Ratings and earnings change:
On the back of the aforementioned factors (for margin), we lower our estimates
for VO and AACL (who also revised down their EBITDA margin guidance), and raise our estimates for NOCIL,
which saw a huge margin expansion over our estimates. Being abreast of the current volatility, we remain
conservative on our margin assumptions and keep our estimates unchanged for other companies.
Top picks:
DN and NOCIL remain our preferred picks, amid relatively cheaper valuations, and are likely
candidates for re-rating as the mix of Specialty in total product sales increases.
DN:
In addition to annual capex plans of INR4b, the board has approved downstream investments of INR7b in
Deepak Phenolics (for the higher production of solvents). It aims to be the largest player in solvents and
capitalize on import substitution. We reiterate that the increased focus on advance/high-value products would
aid margin expansion and sustainability for the company, of which investors are the most wary. This would
further result in re-rating of multiples for the stock, as the mix of Specialty/Complex Chemistry products
increases. Even on a conservative margin assumption, we forecast an EBITDA/PAT CAGR of 14-16% over FY22-
24E. The stock trades at relatively cheaper valuations. We maintain our Buy rating.
NOCIL:
The management said that with no further supply surplus in the market, NOCIL should be able to pass on
cost going forward as well. It guided that optimal capacity utilization for expanded capacity (of 110ktpa) would
be achieved by 1HFY24. The recent import restriction on various classes of tyres to India should further help
domestic tyre companies to operate at higher utilization rates. We expect return ratios to recover to 16-17%
over FY23-24E (up from 7% in FY21), with asset turnover increasing to 1.1x over FY23-24E (from ~0.7x in FY21).
We reiterate our Buy rating.
Positive surprises:
DN and NOCIL.
Negative surprises:
GALSURF, VO, AACL, and NFIL.
Guidance highlights:
DN:
The management aims to transition from being a Chemical Intermediates company to an advance products
one. On this path: DN would continue to focus on bringing additional products under the Fine and Specialty
segment and close the gaps in the production value chain.
GALSURF:
The management said the international logistics scenario is likely to remain challenging for the
remainder of FY22. Demand for Performance Surfactants remains strong. The opening up of developing
economies would aid higher growth in the Specialty segment as well.
NFIL:
The management said gross margin is likely to remain under pressure as one of its key raw materials saw a
significant price increase in 1QFY22 and the same is likely to continue for another quarter. A large mineral mine
was shut due to labor issues and is expected to resume operations by the end of FY22. The management expects
raw material price inflation to continue, with customers absorbing the increase in costs (from 3Q to 4QFY22) as
per varied contracts.
NOCIL:
The management said there is no further supply surplus in the market, and NOCIL should be able to pass
on cost going forward. The recent import restriction on various classes of tyres to India should further help
domestic tyre companies to operate at higher utilization rates. Domestic companies such as APTY, CEAT, and
MRF are planning a ramp up in production.
VO:
Higher freight costs, along with an increase in Phenol and Acrylonitrile prices, impacted margin. Freight
costs to the US and Europe were the highest, and are likely to remain at similar levels for the next few quarters.
VO is in talks with customers to share the cost increase. The management has revised down its gross margin
guidance to 45-50%, with EBITDA margin normalization at 32-33% going forward (unchanged). Higher
efficiencies, led by a ramp-up, would lower operating costs and aid EBITDA margin.
August 2021
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Exhibit 69: Gross margin for our coverage universe
Aggregate Gross margin (%)
44%
46%
43%
43%
48%
46%
47%
50%
49%
48%
48%
45%
42%
Exhibit 70: EBITDA margin for our coverage universe
Aggregate EBITDA margin (%)
24%
18%
19%
19%
20%
23%
23%
23%
24%
25%
25%
25%
23%
Exhibit 71: EBIT margin for our coverage universe
Aggregate EBIT margin (%)
21%
15%
17%
17%
17%
20%
22%
19%
19%
20%
22%
21%
20%
TECHNOLOGY: Growth outlook remains solid; supply-led margin concerns increase
Aggregate performance:
Aggregate sales grew 20.4% YoY to USD18.4b in 1QFY22. Revenue for Tier I/II
companies grew 4.3%/6.2% sequentially in USD terms. EBIT margin in 1QFY22 declined by 120bp QoQ, but
increased 120bp YoY. Aggregate PAT grew 26.5% YoY on the back of robust revenue growth and margin
expansion.
Growth momentum continues to accelerate:
1QFY22 was one of the best growth performances of IT Services
companies, with USD revenue for our coverage universe growing by 4.5% QoQ. IT Services companies delivered
strong sequential growth (3-16%) in USD terms (baring seasonal impact at CYL), aided by broad based growth
across geographies and services. The FY22 outlook for most companies also saw an upward revision, led by a
strong start to the fiscal and a supportive demand environment.
Robust deal pipeline and healthy deal wins in 1QFY22:
The commentary on the deal pipeline and conversions
continue to be supportive in 1QFY22. While deal wins (+30% YoY) remain strong, there was some moderation
from record highs in 3Q/4QFY21. The management commentaries continue to highlight a very strong tech-
spending environment, led by Cloud migration-related work. 1QFY22 saw strong net new deal wins, with a
healthy mix of large, medium, and small deals. The median book-to-bill improved in 1Q to 1.3x (from 1.2x in
1QFY21), which provides us strong growth visibility for FY22.
August 2021
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Industry focus continues to be on Digital and Cloud migration:
Companies
continue to see acceleration in Cloud
migration work. Managements expect the same to continue over the next 3-5 years. Cloud migration, Cyber
Security, and IoT are frequently coming up in client discussions. Indian IT companies expect native Cloud
applications to continue to be a major growth driver over the long term.
Record high headcount additions:
IT companies in our coverage universe together added 71k employees (all
time high), despite a robust (39k/53k) increase in 3Q/4QFY21. Strong hiring indicates expectations of continued
momentum in deal wins and a robust demand environment.
Guidance revised upward, but continues to be conservative:
Many IT Services companies (INFO, TECHM,
COFORGE, etc.) revised their FY22 revenue growth guidance from the commentary shared in 4QFY21. But
growth and deal traction continue to point towards an upside in performance v/s the guidance. We remain
confident of IT Services companies growing in mid-teens in FY22. We expect companies to revise their guidance
over the next few quarters as they gain further visibility.
Dip in margin led by wage hikes and hiring:
Cumulative EBIT margin for our largecap/midcap IT universe dipped
80bp/90bp QoQ on account of wage hikes, employee additions, and ramp-ups in deal wins. On a YoY basis,
margin is still 110bp/180bp higher on account of lower travel expenses, increased offshoring, and relatively
higher utilization. While continued hiring and supply-side cost pressures remain a key concern for margin, IT
Services companies have started indicating pricing as a lever for specific skill sets after a long gap. This, coupled
with operating leverage and cost optimization, should keep margin rangebound in the near term.
Top picks:
We expect tech spends to remain a critical enabler for enterprises to transform in preparation for the
new normal. Some of this has been factored into valuations as stocks trade at a significant premium to its
historical P/E multiple. We feel the re-rating is justified, given the sector’s resiliency and better-than-expected
recovery. We continue to like INFO/HCLT among Tier I IT and LTTS/MPHL/CYL/ZENT among Tier II players. This is
attributable to their robust business models, high return ratios, and strong management teams.
Positive surprises:
INFO, WPRO, MTCL, COFORGE, PSYS, and ZENT.
Earnings upgraded for most companies:
With the exception of TCS, INFO, and HCLT, we have seen 2-10% EPS
upgrade for FY22E on account of a better revenue growth momentum. We bake in some conservatism in our
revenue estimates to factor in the growth guidance by companies.
PSYS downgraded to Neutral:
PSYS’ operational performance continues to remain strong. We expect it to
continue to deliver top tier IT Services revenue growth among our midcap IT coverage (over 18% FY20-23E
CAGR). The stock has delivered returns of 290% v/s 77% for the Nifty IT index over the last one year, and is now
trading at 30x FY23E P/E. This is one of the highest in our Midcap IT Services peer group, and factors in a
favorable growth and demand environment. We have downgraded the stock to Neutral (from Buy) as we see
limited upside from current levels.
Exhibit 73: …increased client tech spends
Tier II Revenue Growth (USD, YoY %)
22.2
7.6
8.5
8.1
7.8
20.4
3.4
-0.3
2.7
8.4
Exhibit 72: Robust revenue growth on the back of…
Tier I Revenue Growth (USD, YoY %)
10.9
8.7
9.0
9.1
7.9
-0.3
1.3
3.2
7.1
-4.2
Source: Company, MOFSL
Source: Company, MOFSL
August 2021
43
 Motilal Oswal Financial Services
Strategy
Exhibit 75: …due to the impact of wage hikes and employee
additions
Tier II EBIT margin (%)
22.9
15.9
22.1
14.9
13.4 13.5
14.2 14.4 13.9
16.8 16.6
Exhibit 74: EBIT margin declines on a QoQ basis…
Tier I EBIT margin (%)
23.2
21.5
20.2
21.0
21.4
21.1 21.0
24.1
15.7
Source: Company, MOFSL
Figures exclude ZENT. Source: Company, MOFSL
Exhibit 76: Median utilization remains high
IT sector
–
median utilization (incl. trainees, %)
81.6%
78.9%
80.0%
82.3% 82.2%
80.4%
79.0%
78.2%
80.6%
83.3%
Exhibit 77: Median attrition saw a big jump
IT sector
–
median attrition (%)
17%
17%
17%
16%
16%
15%
14%
11%
12%
12%
Figures exclude TCS, HCLT, MPHL; Source: Company, MOFSL
Figures exclude INFO, MPHL. Source: Company, MOFSL
Exhibit 78: Upgrade/downgrade to our EPS estimates shows resilience of the sector, despite COVID-related disruptions (%)
Company
TCS
INFO
WPRO
HCLT
TECHM
LTI
LTTS
MTCL
MPHL
COFORGE
PSYS
CYL
ZENT
2QFY21
FY22E
6
12
2
2
-11
11
NA
3
7
3
-4
8
5
FY23E
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
NA
3QFY21
FY22E
4
3
15
4
7
1
NA
10
1
6
9
14
-2
FY23E
6
7
16
7
10
2
NA
11
0
8
8
7
1
4QFY21
FY22E
-1
-4
-6
-9
-1
-2
-5
3
-1
6
7
-1
-12
FY23E
-1
-4
1
-7
-3
-1
-4
4
0
12
9
4
-5
1QFY22
FY22E
FY23E
-3
-2
-3
-2
6
6
-4
-4
3
5
3
3
2
2
4
6
2
5
10
14
7
6
4
4
7
8
Source: MOFSL
August 2021
44
 Motilal Oswal Financial Services
Strategy
Telecom: Lockdowns halt subscriber and ARPU growth
Telecom:
While most sectors were reeling under the pressure of the nationwide lockdown led by the second
COVID wave led lockdown, the Telecom sector was up and running, with a limited impact on earnings. Operators
witnessed marginal revenue impact owing to a) the free extension of plan validity in May'21 and b) SIM
consolidation and loss of revenue from feature phone subscribers due to the low economic impact of the
pandemic. Subsequently, revenue grew 2%/4% QoQ for Bharti/RJio, while VIL continued to be impacted by
market share loss (5% revenue decline). TCOM's revenue growth was flattish at 1% QoQ.
Subscriber market sees SIM consolidation:
The Indian Telecom market is witnessing the consolidation of the
dual SIM card phenomenon. Subsequently, Bharti held its position in terms of overall subscribers and added
4m/19m data/4G subscribers. While this was much lower than the 14–15m addition in the last few quarters, the
impact on additions was due to the lockdown. Although, RJio continued its steady pace of 14.4m additions –
which is estimated to have come from the recent JioPhone launch – and saw limited impact from the lockdown.
However, VIL drove the industry consolidation with subscriber decline of 12m, with data/4G subscribers also
declining by 4m/1m. This is attributable to the lockdown – however, even in the previous lockdown, it did not
see much subscriber recovery.
ARPU trends muted:
As telcos provided free extension in validity periods and the lockdowns also impacted
recharge availability, a marginal impact was seen on ARPUs. Nevertheless, Bharti/RJio saw gradual improvement
to INR146/INR138. On the other hand, VIL saw ARPUs decline 3% to INR105 – we estimate the lockdowns to
have triggered some consolidation in the market.
Margin profile:
Despite moderate revenue growth, both Bharti India Mobile and RJio saw marginal improvement
in EBITDA margins by 160bp and 10bp, respectively. On the other hand, VIL’s revenue decline sharply impacted
the EBITDA margin by 540bp on a reported basis.
Capex intensity remains high:
While RIL did not disclose specific capex for RJio, it did indicate that it had
completed the deployment of spectrum acquired in the recent auction, which may have expanded capacity
significantly. Similarly, Bharti mentioned that its high India Mobile capex of INR43.7b was primarily towards the
deployment of spectrum acquired in the recent auction and intensifying site coverage.
Leverage remains high for Bharti/VIL:
VIL’s earnings and cash position have continued to hurt its leverage, with
debt (including the AGR liability) ballooning to INR1,907b (up by INR107b). Bharti, despite its strong cash flows,
also saw debt increasing by INR110b to INR1,265b (net debt to EBITDA of 3x).
Top picks:
Bharti Airtel
Positive surprise:
Bharti Airtel
Guidance highlights:
Bharti:
1) June–July subscriber and ARPU traction indicate strong and healthy recovery from the lockdown
impact. 2) Airtel’s customer segmentation strategy stresses its focus on the top 50m customers, along with
500m aspirers, which are high-ARPU customers that contribute 85–90% to the market. 3) FY22 capex is expected
to trend lower v/s FY21, and higher capex in 1QFY22 was attributable to the deployment of spectrum acquired
at the recent auction.
VIL:
1) The management aims to scale up higher ARPU subscriber programs in partnership with OEMs and NBFCs
for 4G devices. 2) VIL plans to achieve INR40b in annualized cost savings by CY21. It has already achieved ~70%
of its target at the end of Jun’21. 3) Capex run-rate for FY22 is expected to remain at levels similar to the last two
quarters.
Indus Towers:
1) Opportunities in 5G (telcos already doing trial-runs), in building solutions, and in small cells,
among others, remain high. Moreover, with reducing churn, tenancies should remain healthy. 2) Energy margins
may be reversed as customers shift from the pass-through to fixed energy model, and both parties would
benefit from the investments to reduce energy costs.
Tata Communications:
1) The deal funnel has improved and is expected to drive revenue, but it is seeing longer
lead times to close large transformation deals. 2.) Capex guidance of ~USD250m for FY22 is driven by new
August 2021
45
 Motilal Oswal Financial Services
Strategy
orders, maintenance capex (2% of revenue), and strategic capex. 3.) The EBITDA margin guidance is maintained
at 23–25% over the long term.
Exhibit 79: Operator-wise active subscriber market share (%)
RJio
45.0%
35.0%
25.0%
15.0%
5.0%
Bharti
Vodafone-Idea
Other players
Exhibit 80: Operator-wise ARPU (INR)
200
170
140
110
80
FY19
FY20
FY21
FY22E
Bharti (India)
Idea
RJio
Exhibit 81: Wireless KPI comparison
FY20
1Q
EOP Wireless SUBS (m)
Bharti (India)
Idea
RJio
Avg. Wireless Subs (m)
Bharti (India)
Idea
RJio
ARPU (INR/month)
Bharti (India)
Idea
RJio
MOU/Sub (min)
Bharti (India)
Idea
RJio
Wireless traffic (B min)
Bharti (India)
Idea
RJio
Data usage/Sub (Gb)
Bharti (India)
Idea
RJio
Data traffic (B Gb)
Bharti (India)
Idea
RJio
4.2
3.2
10.9
4.8
3.5
12.0
5.5
3.8
12.1
6.5
4.1
12.8
7.2
4.5
14.2
7.6
4.3
14.2
11.9
7.4
11.4
13.1
8.2
11.7
13.9
9.0
11.1
15.0
9.7
11.3
16.7
11.0
12.0
16.4
10.6
11.8
737
676
786
717
631
813
759
624
826
822
616
876
820
579
891
861
555
932
888
690
821
848
669
789
898
674
760
965
688
771
994
678
756
1,005
673
773
129
108
122
128
107
128
135
109
128
154
121
131
157
114
140
162
119
145
280
327
319
278
316
343
281
308
363
283
298
379
282
285
393
287
276
402
277
320
331
279
311
355
283
304
370
284
291
388
280
280
398
294
272
406
2Q
3Q
4Q
1Q
2Q
FY21
*Vodafone Idea merged company performance
FY22
3Q
308
270
411
301
271
408
166
121
151
1,027
673
796
925
547
975
16.8
10.9
13.0
8.5
4.5
15.9
4Q
321
268
426
315
269
419
145
107
138
1,053
657
820
997
529
1030
16.8
11.7
13.3
9.2
4.9
16.7
1Q
321
255
441
321
262
433
146
105
138
1,044
641
815
1,002
503
1060
18.9
13.3
15.6
10.8
5.5
YoY
(%)
14.8
-8.7
10.6
14.0
-8.4
10.3
-7.0
-8.0
-1.4
5.0
-5.5
7.8
22.2
-13.0
18.9
13.7
21.2
29.6
48.8
21.5
QoQ
(%)
0.0
-4.6
3.4
2.1
-2.7
3.6
0.7
-2.0
0.1
-0.9
-2.4
-0.6
0.5
-4.9
2.9
12.4
13.8
17.4
17.0
13.2
20.3
43.0
21.6
Source: Company, MOFSL
August 2021
46
 Motilal Oswal Financial Services
Strategy
UTILITIES: Recovering demand and reducing interest costs
Power demand increased by ~17% YoY in 1QFY22, thereby showing continued improvement since the start of the
calendar year. Generation from coal-based plants rose 29% YoY in 1QFY22. The rise in coal-based generation comes
on the back of a low base last year, which saw coal bear the brunt of a fall in demand, amid the must run status for
renewables. At the system level, coal inventory at the end of 1QFY22 stood at 90mt. With a recovery in Power
demand continuing into 2QFY22 as well, coal stocks continue to decline. Based on initial data from Power System
Operation Corporation (POSOCO), demand for Power has grown at 11% YoY in the first half of 2QFY22.
In terms of earnings, the central public sector enterprises (CSPEs) under our coverage – NTPC and PWGR – reported
steady numbers, led by capitalization and offset by lower surcharge income. While higher coal availability has
generally led to better plant availability factors (PAFs), maintenance-related activities at Rihand and Simhadri
resulted in fixed charge under-recoveries (FC u/r) for NTPC. Private players such as TPW and TPWR reported strong
reduction in interest costs, led by lesser debt and lower cost of borrowing.
Major highlights
NTPC:
Standalone PAT (excluding FC u/r) was flat YoY at INR33.1b, adjusted for one-offs. This was largely
attributable to an increase in other income, boosted by dividend from subsidiaries and joint ventures.
PWGR:
Reported standalone PAT rose 3x YoY to INR60.8b, aided by the gain on the sale of assets to InvIT and
other one-offs. Adjusted for prior period sales and above one-offs, PAT rose 5.5% YoY at INR29.6b.
COAL:
Operationally adjusted EBITDA (excluding OBR) was up 64% YoY to INR45.9b. Offtake rose 33% YoY to
160mt in 1QFY22, led by demand revival and a low base of last year. PAT rose 53% YoY to INR31.8b.
CESC’s
standalone PAT grew 3% YoY to INR1.4b, despite a 22.5% jump in sales volumes. The jump in profit was
restricted by higher O&M and other expenses. Dhariwal remained profitable, and losses at DFs reduced.
TPW
reported EBITDA rose 7% YoY to INR7.5b in 1QFY22. Demand for its DF business was up 38% YoY and T&D
losses for the circles have reduced.
IEX’s
standalone EBITDA grew 57% YoY to INR766m in 1QFY22 on higher volumes. Electricity volumes (DAM +
TAM + RTM) rose 43% YoY to 21.3BU, but the lack of any Renewable Energy Certificate (REC) volumes impacted
revenue. Standalone revenue/PAT rose 36%/48% YoY to INR905m/INR636m.
TPWR:
Adjusted PAT grew sharply to INR4.3b (1QFY21: INR2.3b) in 1QFY22, led by better workings of the
Mundra coal JV hedge and a reduction in interest cost. Revenue from Solar EPC saw a 5x YoY jump to INR19.5b.
Interest costs fell 13% YoY to INR9.5b.
PWGR
is looking at opportunities to be brought about by the government’s distribution reforms. It sees an
incremental INR2t of funding/investment needs for DISCOMs for distribution network upgrade and smart
meters. The management expects capitalization in FY22 to be at INR150b, with a capex of INR75b. For FY23E, it
expects capitalization to be at INR120-150b, with a capex of INR75-100b.
COAL’s
management noted that while dispatches/production targets were set at 740mt/670mt for FY22, it is
realistically looking at dispatches/production of 700mt/630-640mt.
COAL highlighted that e-auction dispatches in 1QFY22 were for quantities booked in 3Q/4QFY21, with premiums
at 10% to the notified price. It is witnessing premiums of 30% on the notified price in Aug’21 and expects better
realizations going forward. The company is also working on increasing FSA prices.
NTPC
focuses on transitioning towards renewables, and plans to spearhead new technologies such as green
hydrogen. It is undertaking a pilot project at Vindhyanchal for green hydrogen, with a potential cost of less than
USD3/kg. The company plans to achieve a RE capacity of 15GW/60GW by FY24/CY32. Upcoming bids in the
market, along with tie-ups for solar parks/UMREPP, will provide a basis for growth. NTPC is looking to monetize
its: a) renewables subsidiary, and b) NVVN (Power trading subsidiary) over the next 18 months and has begun
work on the same.
Guidance highlights:
August 2021
47
 Motilal Oswal Financial Services
Strategy
Top picks
NTPC
has set an RE capacity target of 60GW by CY32. While this may seem ambitious (implying 5-5.5GW p.a. of
RE additions over the next 11 years), the management has taken steps on improving its renewable footprint.
Around 3GW of renewable capacities are under construction and are expected to be commissioned in the next
two years. Even as the company gradually scales up its renewable journey, we expect continued capitalization
for its thermal projects to drive 12% growth in regulated equity over FY21-23E and improve RoE. Receivables
have significantly reduced as money from PFC-REC has come through and Power demand continues to recover.
The stock trades at an attractive 0.9x FY22E P/BV and dividend yield of 6%. We maintain our
Buy
rating, with a
DCF-based TP of INR140/share.
PWGR
should see an increase in payouts going forward. While awarding of transmission schemes under
renewable integration provides an opportunity for new wins, our checks suggest continued challenges
(deferment in their awarding). The capex trajectory is on a decline and with proceeds from InvIT, we see strong
scope for higher dividends. This should aid payout ratios (60-70%) and translate to a DPS of INR25-27/share over
the next two years – a dividend yield of 7-8%. Share in dividends from the SPVs of the InvIT, sale of 26% stake in
the five SPVs, and further transfer of assets to the InvIT provides an additional distribution potential. Given the
7-8% dividend yield, backed by steady earnings growth (5-6% CAGR) and 18% RoE, PWGR remains attractively
valued at 1.6x FY22E P/BV. We maintain our
Buy
rating with a DCF-based TP of INR205/share.
Exhibit 82: Net capacity additions (MW)
Net capacity additions (MW)
Exhibit 83: India’s electricity generation (BUs)
Total electricity generation
5 11 3
Change YoY (%)
22
0
39
8
8
-3 -2
-8
-15 -10
-23
5
6
Source: MOFSL, CEA
Source: MOFSL, CEA
Exhibit 84: India’s coal based generation (BUs)
Coal based generation
Change YoY (%)
32
7
9
4
64
16 12
Exhibit 85: COAL’s offtake
Dispatches - mt
9
32 25
8
YoY - %
38 38
-2 -5 -6
12
23
-14
-20
-32 -24
-3 -2
10 15 4
-25 -23
-15
-7
76 59 70 70 78 73 79 83 76 86 92 85 100 97 81 79
39 40 42 43 44 46 51 51 53 53 51 60 54 55 51
Source: MOFSL, CEA
Source: MOFSL, Company
August 2021
48
 Motilal Oswal Financial Services
Strategy
Exhibit 86: Coal stocks at Power plants (mt)
Coal stocks at power plants (LHS)
27
19
16
15
75
47
41
38
34
34
37
38
34
32
29
24
29
29
69
62
56
52
53
59
66
76
Stocks in days (RHS)
Exhibit 87: Coal stocks at COAL’s mines (mt)
Coal inventories at CIL mines
98
86
73
61
Source: MOFSL, CEA
Source: MOFSL, Company
August 2021
49
 Motilal Oswal Financial Services
Strategy
ANNEXURE:
MOFSL UNIVERSE (ACTUAL VS EXPECTATION)
Sales (INR m)
Gr (%)
YoY
124.7
63.8
353.4
139.9
221.3
146.4
70.2
141.3
180.8
57.4
60.7
84.7
110.4
177.7
332.7
98.2
107.6
174.8
40.6
44.6
-2.2
45.7
137.8
57.1
15.1
38.0
124.3
58.3
56.2
49.4
54.9
43.1
31.2
181.7
35.1
69.3
49.2
17.9
48.3
54.2
76.3
59.8
63.5
126.3
52.8
36.1
53.3
223.4
66.8
30.6
91.1
-0.5
EBITDA (INR m)
Gr (%)
YoY
5,937.0
63.9
Loss
174.1
22,559.9
LP
62.9
9,477.0
471.8
95.0
75.5
376.5
184.7
LP
LP
LP
727.2
LP
279.2
304.2
-57.2
Loss
5,030.7
387.1
-18.0
95.7
LP
LP
71.5
66.8
61.2
47.4
14.0
LP
4.0
85.6
50.7
40.0
44.7
59.2
68.7
43.1
48.8
148.6
-3.3
19.9
49.7
871.4
4.5
32.1
88.7
-22.8
QoQ
-48.3
-21.1
PL
-26.5
17.4
-33.4
-36.3
-47.0
-26.5
-32.3
-36.8
-57.5
-16.8
-9.4
-58.8
-27.1
-58.7
-48.9
-58.1
-28.4
-96.8
Loss
-11.2
-36.4
-54.9
-50.4
-48.3
-54.9
-9.5
1.8
-1.8
-12.4
-9.8
-8.7
-19.2
-9.0
-19.3
-18.9
-13.9
-10.4
-2.5
-17.0
-7.2
-0.7
8.7
-7.6
-7.4
44.5
2.4
-8.1
-30.7
9.6
Jun-21
Automobiles
1500,249
Amara Raja Batt.
18,859
Ashok Leyland
29,510
Bajaj Auto
73,860
Bharat Forge
13,718
Bosch
24,435
CEAT
19,064
Eicher Motors
19,743
Endurance Tech.
16,937
Escorts
16,715
Exide Inds.
24,864
Hero MotoCorp
54,871
Mahindra & Mahindra 1,17,628
Mahindra CIE
20,425
Maruti Suzuki
1,77,707
Motherson Sumi
1,68,505
Tata Motors
6,64,065
TVS Motor
39,344
Capital Goods
4,35,153
ABB
14,250
Bharat Electronics
16,346
BHEL
29,013
Cummins India
11,845
Engineers India
7,349
K E C International
25,400
Larsen & Toubro
2,93,347
Siemens
27,080
Thermax
10,524
Cement
3,57,525
ACC
38,848
Ambuja Cements
33,712
Birla Corporation
17,491
Dalmia Bharat
25,890
Grasim Industries
37,627
India Cements
10,225
J K Cements
16,337
JK Lakshmi Cem.
12,315
Ramco Cements
12,287
Shree Cement
34,495
UltraTech Cement
1,18,298
Chemicals-Speciality 52,292
Alkyl Amines
3,918
Atul
10,802
Deepak Nitrite
15,262
Fine Organic
3,599
Galaxy Surfactants
8,264
Navin Fluorine
3,139
NOCIL
3,445
Vinati Organics
3,864
Consumer
5,76,073
Asian Paints
55,854
Britannia
34,035
QoQ
-23.0
-10.3
-57.8
-14.1
4.9
-24.1
-16.7
-32.9
-20.6
-24.4
-15.4
-36.8
-11.8
-6.7
-26.0
-6.3
-25.1
-26.1
-42.3
-12.5
-76.3
-59.5
-5.0
-34.2
-41.8
-39.0
-19.3
-33.2
-15.9
-9.5
-6.9
-18.0
-21.1
-14.4
-29.5
-20.4
-6.8
-24.6
-12.2
-17.9
4.7
2.5
-3.2
4.3
11.9
5.5
-3.1
7.0
38.1
-4.9
-16.0
8.7
Var. over
Exp. (%)
6.2
26.0
8.7
0.9
23.1
9.5
3.1
10.7
40.4
7.8
23.6
-3.9
-2.0
12.4
2.1
-2.0
10.6
3.7
-3.1
-1.4
-31.9
-12.1
16.1
31.6
9.6
-3.1
7.7
-1.3
-3.0
5.0
8.8
3.4
-13.7
-21.7
-9.6
4.1
16.2
-17.4
1.5
-0.9
6.3
-5.1
-4.7
19.5
3.6
9.0
-5.3
1.7
20.1
9.9
56.6
9.3
Jun-21
1,34,159
2,499
-1,401
11,198
3,918
3,066
1,662
3,630
2,443
2,332
2,606
5,148
16,317
2,598
8,211
14,620
52,576
2,738
35,594
947
629
-4,740
1,488
1,043
1,599
31,715
2,283
630
90,809
8,747
9,597
3,436
7,000
7,402
1,620
3,996
2,161
3,640
10,135
33,075
12,089
1,107
2,361
4,515
499
1,085
780
727
1,015
1,29,897
9,136
5,538
Var. over
Exp. (%)
4.2
22.3
Loss
-10.4
55.1
25.0
-0.9
12.3
59.4
20.0
17.2
-1.2
5.2
14.3
-8.9
-18.1
13.5
1.5
-12.5
3.9
-84.6
Loss
19.2
260.9
-16.9
-4.8
-11.7
-14.9
7.0
21.0
24.5
5.3
-10.0
16.8
-18.5
20.6
11.8
-18.7
-4.2
9.4
5.2
-17.7
-3.6
27.3
6.9
-8.8
-11.5
41.9
-7.9
7.2
34.1
1.4
PAT (INR m)
Gr (%)
QoQ
PL
-34.6
PL
-20.3
3.9
-24.9
-84.3
-57.9
-35.8
-31.7
-48.6
-57.8
-6.8
-10.7
-62.2
-59.4
PL
-73.8
-73.3
-27.9
-99.2
Loss
-29.6
-41.4
-76.3
-65.6
-48.9
-60.5
-5.0
2.6
8.8
-22.4
97.0
-8.3
-47.8
-17.4
-29.1
-21.2
-13.8
-6.2
-0.2
-15.2
-6.5
4.3
20.9
-2.4
-20.5
30.7
14.2
-13.5
-34.0
7.6
Var. over
Exp. (%)
PL
22.8
Loss
-5.0
76.8
23.1
-29.2
26.6
135.5
24.7
21.2
-1.4
11.9
25.3
-28.9
-25.6
Loss
-20.7
-29.8
3.6
-95.5
Loss
8.3
92.5
-36.5
-19.1
-15.6
-21.4
11.3
25.5
21.9
6.9
-6.2
36.5
-28.8
26.7
30.0
-33.2
7.2
8.8
5.3
-17.7
-10.6
29.8
20.4
5.6
-21.7
41.7
0.4
3.0
43.9
-2.1
Jun-21
YoY
(actual)
-1,402
Loss
1,239
97.7
-2,810
Loss
10,612
101.0
2,140
LP
2,598
390.4
240
LP
2,371
LP
1,203
LP
1,852
101.0
1,254
185.4
3,654
496.1
9,340 2,294.9
1,362
LP
4,408
LP
2,900
LP
-44,523
Loss
757
LP
12,799
LP
683
347.9
112
-79.4
-4,454
Loss
1,307
372.5
906
88.4
461
-34.8
11,744
878.0
1,615 1,499.0
424
LP
50,462
115.5
5,719
93.3
7,231
59.5
1,415
115.3
2,660
-2.6
4,459
LP
374
120.6
2,083
168.1
1,187
167.2
1,690
54.2
6,617
78.5
17,026
91.7
8,386
71.1
785
48.8
1,613
37.1
3,026
205.8
349
22.1
768
36.0
564
9.4
471
300.3
809
11.9
89,231
27.4
5,743
161.5
3,868
-28.7
August 2021
50
 Motilal Oswal Financial Services
Strategy
Sales (INR m)
Gr (%)
Jun-21
Colgate
Dabur
Emami
Godrej Consumer
Hind. Unilever
ITC
Jyothy Labs
Marico
Nestle
Page Industries
Pidilite Inds.
Tata Consumer
United Breweries
United Spirits
Varun Beverages
Consumer Durables
Blue Star
CG Consumer Elect.
Havells India
Orient Electric
Voltas
Whirlpool India
Financials
Banks-Private
AU Small Finance
Axis Bank
Bandhan Bank
DCB Bank
Equitas Holdings
Federal Bank
HDFC Bank
ICICI Bank
IndusInd Bank
Kotak Mahindra Bank
RBL Bank
SBI Cards
Banks-PSU
Bank of Baroda
State Bank
Life Insurance
HDFC Life Insur.
ICICI Pru Life
Max Financial
SBI Life Insurance
NBFC
AAVAS Financiers
Bajaj Finance
Can Fin Homes
Chola. Inv & Fin.
HDFC
ICICI Securities
IIFL Wealth Mgt
L&T Fin.Holdings
11,660
26,115
6,610
28,945
1,19,150
1,22,171
5,219
25,250
34,767
5,015
19,368
30,085
11,180
16,151
24,498
82,445
10,520
10,462
25,982
4,223
17,852
13,406
1323,025
5,01,305
7,240
77,603
21,141
3,087
4,610
14,184
1,70,090
1,09,358
35,637
39,417
9,695
9,244
3,55,301
78,917
2,76,384
2,59,369
75,385
66,019
34,840
83,126
2,07,049
1,502
37,007
1,812
12,674
41,252
7,417
2,834
14,994
YoY
12.0
31.9
37.3
24.4
12.8
37.1
21.8
31.2
14.0
76.1
120.6
10.9
120.6
56.8
49.4
54.9
68.1
46.7
75.7
136.2
37.6
30.5
11.4
10.2
40.4
11.1
16.7
0.6
14.0
9.4
8.6
17.8
7.7
5.8
-6.9
-18.7
6.2
15.8
3.7
20.0
31.7
18.9
26.6
9.5
13.5
28.6
12.3
-5.3
34.8
23.7
35.8
42.6
13.8
QoQ
-9.1
11.8
-9.6
6.0
-1.8
-8.1
7.1
25.5
-3.7
-43.1
-13.4
-0.9
-27.6
-27.4
9.3
-29.5
-34.7
-31.0
-22.0
-47.3
-32.7
-24.7
-13.0
2.7
10.4
2.7
20.3
-0.8
2.8
-0.1
-0.6
4.8
0.8
2.6
7.0
11.6
4.0
11.0
2.1
-45.3
-41.4
-44.4
-51.0
-46.6
-4.5
14.0
-3.6
-2.5
1.4
2.4
0.3
6.7
-7.1
Var. over
Exp. (%)
-3.4
11.8
3.2
1.5
4.0
7.0
7.7
2.5
-2.6
3.6
47.1
-1.5
10.3
25.4
14.8
3.8
-15.2
3.6
26.7
6.2
-9.0
4.5
-2.4
-1.3
6.4
-1.2
4.1
-4.4
-1.5
-3.6
-4.1
1.9
-0.9
-1.8
-2.6
1.9
-1.1
10.1
-3.9
-4.2
-10.2
0.5
9.1
-6.9
-4.8
8.5
-5.4
-3.0
1.1
2.3
18.4
12.1
-3.3
Jun-21
EBITDA (INR m)
Gr (%)
YoY
QoQ
-15.8
24.8
4.2
11.3
-3.7
-10.8
-6.9
50.8
-10.3
-79.9
-24.6
33.1
-63.5
-59.3
49.6
-49.5
-58.5
-45.4
-30.2
-76.9
-58.9
-70.8
-4.1
-0.7
20.7
-6.5
8.2
-2.0
-34.2
28.3
-2.5
4.2
1.8
-8.4
-7.9
12.2
-4.9
-8.9
-3.7
-77.8
-86.4
-70.8
NA
-78.0
-4.9
-9.8
2.1
1.9
19.9
-3.8
-6.9
15.1
-16.5
Var. over
Exp. (%)
-5.4
15.0
8.0
5.5
4.8
0.0
-17.4
-1.2
-4.6
17.7
106.7
-2.2
157.8
303.0
24.3
7.4
-14.9
-5.0
70.6
-12.7
-27.2
-33.8
-0.4
0.3
6.5
-2.8
4.6
-4.7
-23.8
17.0
0.8
-2.6
4.9
-0.4
5.3
1.6
4.2
28.1
-1.3
-54.2
-62.9
-43.9
NA
-59.4
-6.1
6.7
-7.1
-4.2
10.7
0.8
34.2
18.1
-12.4
PAT (INR m)
Gr (%)
Jun-21
YoY
(actual)
2,332
17.7
4,373
28.0
1,404
44.4
4,152
8.8
19,620
4.8
30,135
28.6
401
-20.5
3,560
7.6
5,245
5.4
109
LP
2,154 1,303.0
1,881
-28.8
308
LP
863
LP
3,082
118.9
4,903
161.2
127
LP
931
26.3
2,343
269.9
50
LP
1,218
50.1
233
41.7
3,15,386 20.9
1,79,981 29.3
2,032
14.7
21,602
94.2
3,731
-32.1
338
-57.5
119
-79.3
3,673
-8.4
77,296
16.1
46,160
77.6
10,161
99.1
16,419
31.9
-4,595
PL
3,046
-22.5
77,126
132.0
12,086
LP
65,040
55.3
4,168
-68.0
3,024
-33.0
-1,857
PL
770
-55.0
2,232
-42.9
54,110
-28.3
599
19.6
10,025
4.2
1,088
16.8
3,268
-24.2
25,915
2.1
3,047
57.8
1,169
42.0
1,770
20.1
QoQ
-25.9
15.8
-6.0
-3.4
-6.7
-19.6
-20.6
49.6
-12.9
-90.5
-30.5
65.9
-80.6
-64.6
138.4
-50.8
-81.3
-45.2
-30.1
-92.0
-48.8
-81.2
-7.3
-5.6
20.2
-19.3
262.1
-56.7
-89.4
-23.1
-5.6
4.8
9.7
-2.4
PL
73.6
42.7
LP
0.8
-59.1
-4.9
PL
-27.4
-58.1
-36.5
-31.6
-25.6
6.1
34.4
-6.3
-7.5
13.1
-33.4
Var. over
Exp. (%)
-7.2
11.3
21.2
1.6
2.3
-9.3
-22.0
0.2
-7.8
41.7
118.6
-21.3
LP
LP
54.3
11.2
-19.4
-6.9
97.0
-36.8
-14.8
-57.7
-6.1
1.1
24.6
-0.5
102.7
-51.9
-83.1
-2.2
-1.6
11.6
15.5
5.0
PL
34.1
23.0
174.9
11.6
-57.1
-1.7
PL
-36.6
-29.8
-36.6
0.8
-27.0
4.2
10.8
4.6
33.5
13.6
-34.5
3,552
15.3
5,520
32.5
1,697
38.0
6,111
29.3
28,470
7.7
39,922
50.8
650
-16.9
4,810
3.0
8,339
9.9
342
LP
3,476
423.7
3,995
-17.2
954
LP
1,677
LP
5,708
51.1
7,317
125.0
422
3,005.1
1,228
24.2
3,531
169.8
223
LP
1,358
103.4
555
18.9
8,41,116
6.8
4,24,386
6.1
4,513
1.3
64,160
9.8
18,711
18.1
2,012
5.3
1,644
15.8
11,352
21.8
1,51,370 18.0
88,944
-17.5
31,855
8.8
31,211
19.0
8,075
17.1
10,540
4.0
2,46,822 11.7
57,074
41.2
1,89,748
5.1
3,261
-78.2
592
-76.5
1,550
-75.4
NA
NA
1,119
-81.6
1,66,647 10.0
919
32.9
31,162
4.0
1,526
-10.4
9,927
55.8
39,033
23.1
4,107
58.3
1,304
89.3
11,441
-6.8
August 2021
51
 Motilal Oswal Financial Services
Strategy
Sales (INR m)
Gr (%)
Jun-21
YoY
QoQ
-15.3
-23.4
-2.1
0.6
-7.4
-2.2
0.4
2.5
-6.3
7.0
-1.2
3.6
24.6
-5.0
-4.2
4.6
18.4
9.6
4.0
30.0
3.7
6.3
-2.9
40.5
3.5
-9.5
3.0
-8.7
-24.2
14.7
10.2
-14.0
-27.1
1.2
-20.9
-9.5
-69.2
3.6
-9.7
0.7
2.1
-6.0
-10.7
7.3
-12.3
-4.9
-11.4
6.8
0.7
-4.4
-3.7
-32.9
-7.8
Var. over
Exp. (%)
-12.7
-23.9
-5.0
-1.8
-12.7
-2.4
-2.2
0.3
-8.3
2.1
1.8
8.8
24.5
-8.3
-8.4
-1.8
-1.5
-1.4
1.2
16.6
-2.6
3.3
-1.9
23.0
19.9
-6.3
-1.2
-29.5
-21.6
12.6
2.7
39.4
38.0
49.1
23.3
1.2
299.7
-5.9
2.5
-1.5
-1.9
-1.5
-4.1
1.7
-15.7
-16.7
3.2
-2.3
0.9
7.8
2.1
-43.5
9.9
Jun-21
EBITDA (INR m)
Gr (%)
YoY
QoQ
-23.1
-29.2
-2.8
10.7
-2.0
-11.9
2.7
3.2
0.8
10.7
-15.1
-30.9
59.8
-5.1
-10.7
9.1
62.6
19.0
-10.5
33.1
9.6
-0.3
-11.2
82.0
0.2
-16.3
-21.7
-7.8
PL
36.8
16.3
-15.8
-40.4
-7.9
-21.3
-24.9
Loss
-9.5
-36.4
7.8
17.4
-8.3
-14.2
21.7
-38.5
-0.8
6.7
13.6
9.2
-5.4
5.2
4.9
-34.8
Var. over
Exp. (%)
-23.1
-31.1
-5.4
-2.1
-10.5
-8.5
-6.1
-1.8
-1.2
2.7
-11.1
-23.8
49.3
-8.7
-11.4
1.4
21.2
4.8
-15.2
18.8
-0.8
11.3
-12.4
21.6
5.8
-8.9
-27.2
-35.6
PL
29.0
6.9
44.1
48.7
45.9
32.7
-13.1
Loss
-10.9
-8.4
-0.9
8.3
-0.6
-3.6
9.2
-34.8
-0.5
-2.9
-6.2
-1.3
16.9
3.2
-4.3
79.3
PAT (INR m)
Gr (%)
Jun-21
YoY
(actual)
1,534
-81.2
-15,288
PL
4,369
18.7
368
0.6
9,712
15.5
2,433
-5.4
321
-49.8
2,080
8.2
1,699
-46.9
81,975
17.6
1,540
4.2
1,646
-45.4
4,681
17.1
7,483
-7.4
1,207
-18.9
5,648
24.4
7,881
36.4
5,437
12.8
5,708
-1.5
3,506
11.8
3,065
49.0
1,202
-2.1
1,055
34.1
3,067
-31.2
1,605
353.5
2,416
40.7
2,426
111.0
507
19.9
-1,358
PL
19,954
74.1
3,300
-2.1
2,462
212.8
1,013
46.7
719
LP
730
83.5
4,689
65.4
-1,419
Loss
3,898
37.8
2,210
56.1
3,36,772
LP
23,222
276.2
21,170
55.8
25,433 1,974.7
59,040
LP
3,477 1,991.0
31,927
498.6
38,500
LP
90,893
LP
43,110
333.2
2,98,550 84.4
2,05,590 119.0
666
123.3
15,596
-24.9
QoQ
-61.5
PL
-6.7
0.8
-2.5
91.5
-49.2
-26.3
-77.5
13.0
-3.3
-34.3
47.6
-5.3
-24.5
20.4
90.7
8.9
21.4
34.6
31.1
-5.8
-20.9
90.2
-10.6
-18.6
-46.3
-10.5
PL
37.0
1.9
-23.9
-32.1
-26.2
-5.2
-15.6
Loss
-13.4
-18.1
12.4
33.1
-14.8
-13.4
37.9
-44.7
0.4
7.9
19.0
23.5
-24.2
-8.6
1.8
-69.5
Var. over
Exp. (%)
-78.1
PL
-8.2
40.4
-8.6
42.6
-54.1
-13.5
-71.3
3.5
-7.0
-24.8
49.8
-8.5
-33.1
-5.5
27.6
-4.2
-6.5
25.4
12.1
11.6
-17.3
18.6
-2.7
-12.8
-38.5
-37.3
PL
33.4
3.3
101.0
123.3
282.5
25.1
-6.3
Loss
-3.8
-28.1
-0.5
-5.7
-9.0
4.3
14.0
-38.7
1.6
-1.3
-6.8
5.6
35.4
15.6
8.2
161.2
LIC Housing Fin
12,753
4.5
M & M Financial
11,580
-15.8
Manappuram Finance 10,285
13.2
MAS Financial
786
-13.7
Muthoot Finance
17,015
17.8
PNB Housing
5,085
16.1
Repco Home Fin
1,448
13.1
Shriram City Union
8,793
3.1
Shriram Transport Fin. 19,812
7.9
Healthcare
5,56,586 15.5
Ajanta Pharma
7,479
11.9
Alembic Pharma
13,260
-1.1
Alkem Lab
27,314
38.1
Aurobindo Pharma
57,020
-3.8
Biocon
17,610
5.4
Cadila Health
40,254
10.6
Cipla
54,532
25.5
Divi’s Labs
19,606
13.3
Dr Reddy’ s Labs
49,194
11.4
Gland Pharma
11,539
30.5
Glenmark Pharma
29,649
26.4
Granules India
8,498
15.5
GSK Pharma
7,900
21.8
Ipca Labs.
15,658
2.0
Jubilant Pharmova
16,347
41.4
Laurus Labs
12,785
31.2
Lupin
38,968
10.5
Solara Active Pharma 4,056
16.4
Strides Pharma
6,884
-12.0
Sun Pharma
96,694
29.5
Torrent Pharma
21,340
3.8
Infrastructure
33,771
62.8
Ashoka Buildcon
10,114
76.7
IRB Infra
16,257
59.0
KNR Constructions
7,400
54.4
Media
26,362
37.1
PVR
511
1,096.3
Sun TV
8,101
33.7
Zee Entertainment
17,750
35.3
1988,1315
94.2
Metals
Hindalco
4,13,580 63.6
Hindustan Zinc
65,310
63.7
JSPL
1,06,095 42.1
JSW Steel
2,89,020 145.3
Nalco
24,746
79.2
NMDC
65,122
236.1
SAIL
2,06,424 127.7
Tata Steel
5,33,718 109.5
Vedanta
2,84,120 77.9
Oil & Gas
4721,864 76.9
Oil Ex OMCs
2101,513 64.2
Aegis Logistics
6,781
6.5
BPCL
7,09,213 82.9
10,276
-4.5
7,488
-28.3
7,086
11.1
636
-19.2
13,338
17.0
4,748
17.3
1,221
13.0
5,693
0.5
16,743
12.0
1,31,388 10.8
2,201
-1.4
2,360
-42.1
5,929
16.9
12,094
-8.2
3,890
-5.7
9,330
14.4
12,947
23.4
8,521
21.7
9,025
-18.9
4,363
5.7
5,736
20.0
2,014
1.4
1,517
33.0
4,165
-29.2
3,752
109.3
3,954
42.0
5,542
9.0
914
9.1
-554
PL
26,919
63.5
6,770
0.0
9,631
47.3
1,199
46.5
6,999
46.5
1,433
51.9
7,093
38.5
-1,296
Loss
4,950
18.8
3,440
56.4
6,20,349 391.1
63,307
141.6
35,580
125.8
45,390
118.0
1,02,740 666.1
5,808
350.0
42,074
457.4
65,636
LP
1,61,106 2,886.8
98,710
147.2
6,03,601 55.8
4,26,703 71.4
1,051
56.1
32,994
-16.9
August 2021
52
 Motilal Oswal Financial Services
Strategy
Sales (INR m)
Gr (%)
Jun-21
Castrol India
8,896
GAIL
1,73,866
Gujarat Gas
30,109
Gujarat State Pet.
4,397
HPCL
7,24,434
Indraprastha Gas
12,574
IOC
11,86,705
Mahanagar Gas
6,155
MRPL
1,12,981
Oil India
30,070
ONGC
2,30,216
Petronet LNG
85,979
Reliance Inds.
13,99,490
Retail
1,12,741
Aditya Birla Fashion
7,740
Avenue Supermarts
51,831
Jubilant FoodWorks
8,790
Shoppers Stop
2,011
Titan Company
34,730
Trent
3,273
V-Mart Retail
1,774
Westlife Development 2,592
Staffing
67,430
Quess Corp
29,869
SIS
23,793
Team Lease Serv.
13,768
Technology
1364,750
Coforge
14,616
Cyient
10,582
HCL Technologies
2,00,680
Infosys
2,78,960
L&T Infotech
34,625
L&T Technology
15,184
Mindtree
22,917
Mphasis
26,909
Persistent Systems
12,299
TCS
4,54,110
Tech Mahindra
1,01,976
Wipro
1,82,524
Zensar Tech
9,368
Telecom
4,69,057
Bharti Airtel
2,68,536
Indus Towers
67,970
Tata Comm
41,028
Vodafone Idea
91,523
Utilities
8,11,398
CESC
19,310
Coal India
2,52,822
Indian Energy
905
Exchange
JSW Energy
17,275
NHPC
21,702
NTPC
2,68,259
YoY
81.3
43.8
178.0
9.1
92.1
96.9
90.2
135.1
152.6
72.4
76.9
76.1
58.6
63.8
141.9
33.5
131.1
272.9
75.5
239.8
127.3
176.0
18.0
24.0
9.8
21.1
17.4
38.3
6.7
12.5
17.9
17.4
17.3
20.1
17.6
24.1
18.5
12.0
22.4
-1.2
4.0
12.2
11.7
-6.8
-14.1
20.7
21.8
36.8
36.4
-4.3
-13.8
10.6
QoQ
-21.9
11.8
-12.2
11.6
-3.2
-18.9
-4.1
-14.2
-16.8
16.6
8.6
13.5
-6.4
-43.3
-56.6
-30.1
-14.3
-70.0
-53.7
-57.7
-49.6
-27.5
-0.7
-0.6
-2.7
2.7
5.5
15.9
-3.2
2.2
6.0
5.9
5.4
8.6
6.6
10.5
3.9
4.8
12.4
6.9
2.1
4.3
4.7
0.7
-4.7
0.8
14.4
-5.3
-4.8
10.1
61.8
2.1
Var. over
Exp. (%)
-5.5
11.3
4.0
8.1
38.4
-3.7
3.0
-2.1
-0.3
-3.1
-0.3
0.5
2.3
7.6
16.1
0.6
3.9
93.2
19.0
-11.9
-4.3
10.4
-1.0
-0.7
-3.0
2.2
0.5
4.3
-0.4
-1.6
0.8
1.3
1.5
1.3
3.0
2.9
-0.9
1.7
4.3
1.7
1.4
3.3
2.0
-2.4
-2.5
2.7
5.8
6.0
-0.1
-19.6
-12.8
-2.0
Jun-21
1,975
24,113
7,229
3,744
32,643
3,809
1,11,261
3,040
3,660
12,331
1,21,528
10,543
2,33,680
3,169
-1,618
2,242
2,115
-628
1,370
-318
-20
25
2,837
1,329
1,214
295
3,36,710
2,200
1,878
49,080
74,320
6,478
3,177
4,645
4,895
2,090
1,26,630
18,764
40,827
1,726
2,11,908
1,29,803
35,167
9,861
37,077
2,70,932
3,110
45,867
766
6,984
12,793
82,263
EBITDA (INR m)
Gr (%)
YoY
107.2
287.3
289.2
8.2
-25.0
356.4
101.8
280.0
LP
525.3
105.7
15.9
38.5
LP
Loss
100.6
778.7
Loss
LP
Loss
Loss
LP
3.1
2.4
0.4
20.0
22.7
30.5
88.7
7.5
21.1
9.4
54.3
33.6
17.2
42.7
26.3
44.3
23.7
21.7
13.9
24.7
15.0
-5.3
-9.5
10.6
36.4
63.9
56.5
-6.3
-10.0
-3.8
QoQ
-41.9
-6.0
30.4
8.8
-30.0
-22.6
-17.6
-3.8
-57.1
190.3
20.0
-3.4
0.1
-85.9
PL
-63.4
-15.1
PL
-83.2
PL
PL
-94.6
-7.5
-15.6
-1.6
13.0
1.4
1.5
0.3
12.3
2.2
-9.5
8.4
0.4
4.8
11.0
-1.1
-3.7
-0.8
-1.0
0.1
5.3
3.0
-2.9
-15.9
2.9
0.3
-42.5
-5.3
10.4
195.3
32.4
Var. over
Exp. (%)
-20.5
-13.7
43.9
4.5
91.9
-0.9
65.0
18.3
-15.2
53.1
4.2
5.4
2.5
160.0
Loss
-26.0
11.1
Loss
358.2
Loss
Loss
-78.6
-9.2
-11.7
-11.1
15.3
-0.4
-4.9
4.0
-7.8
-3.5
0.8
6.7
-4.0
1.3
4.7
1.0
4.6
8.1
1.3
1.2
5.1
-0.4
-7.7
-7.0
-2.3
-37.0
0.0
0.1
-7.1
-20.1
-8.9
Jun-21
(actual)
1,400
15,299
4,762
2,329
17,950
2,443
59,414
2,041
-863
5,079
43,348
6,357
1,22,730
-4,023
-3,352
954
681
-1,028
180
-838
-287
-334
1,078
306
528
243
2,39,305
1,332
1,150
32,150
51,950
4,968
2,162
3,434
3,397
1,587
90,310
13,534
32,321
1,010
-55,248
2,664
14,153
2,905
-74,970
1,14,138
1,380
31,752
636
2,011
9,123
33,069
PAT (INR m)
Gr (%)
YoY
114.1
498.8
711.7
16.8
-36.2
667.2
210.9
351.0
Loss
LP
774.0
22.2
46.7
Loss
Loss
137.9
LP
Loss
LP
Loss
Loss
Loss
24.8
168.1
-8.8
42.4
26.3
36.1
41.3
10.0
22.3
19.3
84.3
61.2
23.5
76.3
28.1
39.2
35.2
38.9
Loss
LP
26.3
8.3
Loss
15.4
3.0
52.8
48.4
-5.7
0.5
-0.4
QoQ
-42.5
-21.7
36.1
12.3
-40.5
-26.2
-32.3
-4.1
PL
-44.6
-9.0
2.0
-1.8
PL
Loss
-77.0
-34.7
Loss
-96.8
PL
Loss
Loss
-53.8
-73.0
-43.4
-9.3
5.3
-3.2
3.9
34.7
2.3
1.7
11.2
8.2
7.2
15.2
-2.7
11.7
8.7
11.6
Loss
-17.3
3.8
-2.5
Loss
-13.5
-48.9
-30.9
-0.3
88.6
125.7
-14.2
Var. over
Exp. (%)
-22.0
-18.3
54.4
5.9
140.5
-3.6
103.5
16.2
Loss
104.7
22.6
6.9
18.6
Loss
Loss
-44.9
35.2
Loss
LP
Loss
Loss
Loss
-24.7
-43.1
-23.3
18.9
0.7
-0.5
7.0
-4.4
-5.9
9.0
7.8
8.0
1.7
13.5
-3.4
16.4
24.7
10.1
Loss
-40.5
3.2
-6.8
Loss
-4.7
-29.4
-8.9
-2.5
-22.2
-4.5
-1.9
August 2021
53
 Motilal Oswal Financial Services
Strategy
Sales (INR m)
Gr (%)
Jun-21
YoY
QoQ
Var. over
Exp. (%)
4.9
17.2
-2.1
0.9
1.7
4.9
Jun-21
EBITDA (INR m)
Gr (%)
YoY
QoQ
Var. over
Exp. (%)
5.0
20.8
-8.0
-1.2
10.9
31.4
Jun-21
(actual)
29,613
4,320
2,234
-2,045
428
2,549
3,378
PAT (INR m)
Gr (%)
YoY
5.5
88.3
43.3
Loss
72.1
313.4
34.8
QoQ
-7.4
23.0
-37.3
PL
65.2
156.1
116.7
1.9
87.3
32.0
Loss
44.5
Loss
LP
Loss
3.5
4.1
4.2
2,346.5
102.2
-14.7
Var. over
Exp. (%)
-2.2
18.6
-14.4
PL
-11.3
33.5
23.3
-19.5
2.6
11.8
Loss
52.9
Loss
-36.0
Loss
-16.1
-10.8
24.8
246.9
120.9
18.3
Power Grid Corp.
1,02,946
9.7
7.5
90,904
9.9
8.5
Tata Power
97,190
50.6
-4.0
20,755
19.9
43.6
Torrent Power
30,989
16.4
0.5
7,491
7.3
-13.2
Others
2,98,907 33.0
-15.5
38,866
60.2
-33.4
BSE
1,527
47.9
3.1
464
LP
10.5
Concor
18,075
52.0
-6.8
4,335
172.6
129.4
Coromandel
36,639
14.0
28.3
-7.1
4,831
17.1
85.1
21.8
International
EPL
7,991
7.8
-1.4
-5.4
1,449
-1.2
3.6
-11.8
Godrej Agrovet
19,928
28.2
36.3
7.3
1,695
2.2
51.1
-10.0
IndiaMART Inter.
1,816
18.6
1.1
1.2
886
20.9
3.7
4.9
Indian Hotels
3,446
139.9
-44.0
23.0
-1,488
Loss
PL
Loss
Info Edge
3,197
14.1
10.2
7.3
997
-4.6
87.4
67.4
Interglobe Aviation
30,069
292.2
-51.7
-5.8
-14,176
Loss
PL
Loss
Kaveri Seed
6,298
-12.5
880.2
-20.7
1,996
-30.4
LP
-37.7
Lemon Tree Hotel
422
3.7
-55.7
-19.0
-1
PL
PL
PL
MCX
876
20.0
-9.7
-5.6
369
39.0
-16.7
-12.2
P I Industries
11,938
12.6
-0.3
-8.7
2,489
8.6
9.5
-6.3
SRF
26,994
74.7
3.5
14.5
6,644
78.4
4.7
20.6
Tata Chemicals
29,772
26.8
12.9
8.6
6,012
67.1
112.7
45.6
Trident
14,770
108.6
9.4
12.9
3,734
216.1
64.4
66.1
UPL
85,150
8.7
-33.5
0.2
18,630
4.7
-34.4
-7.0
Note: Actual Vs Expectation is taken In Line for +/- 5% Variance. PL: Profit to Loss; LP: Loss to Profit
579
-4.3
1,060
19.7
879
18.6
-2,926
Loss
1,010
21.4
-31,793
Loss
2,037
-31.0
-401
Loss
398
-29.5
1,872
28.7
3,881
108.7
2,880 2,068.3
1,973 1,219.7
10,153
50.4
August 2021
54
 Motilal Oswal Financial Services
THEMATIC/STRATEGY RESEARCH GALLERY
Strategy
August 2021
55
 Motilal Oswal Financial Services
Strategy
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Acts, any brokerage and investment services provided by MOFSL, including the products and services described herein are not available to or intended for U.S. persons. This report is intended for distribution only to "Major Institutional Investors" as defined by
Rule 15a-6(b)(4) of the Exchange Act and interpretations thereof by SEC (henceforth referred to as "major institutional investors"). This document must not be acted on or relied on by persons who are not major institutional investors. Any investment or investment
activity to which this document relates is only available to major institutional investors and will be engaged in only with major institutional investors. In reliance on the exemption from registration provided by Rule 15a-6 of the U.S. Securities Exchange Act of 1934,
as amended (the "Exchange Act") and interpretations thereof by the U.S. Securities and Exchange Commission ("SEC") in order to conduct business with Institutional Investors based in the U.S., MOFSL has entered into a chaperoning agreement with a U.S.
registered broker-dealer, Motilal Oswal Securities International Private Limited. ("MOSIPL"). Any business interaction pursuant to this report will have to be executed within the provisions of this chaperoning agreement.
The Research Analysts contributing to the report may not be registered /qualified as research analyst with FINRA. Such research analyst may not be associated persons of the U.S. registered broker-dealer, MOSIPL, and therefore, may not be subject to NASD
rule 2711 and NYSE Rule 472 restrictions on communication with a subject company, public appearances and trading securities held by a research analyst account.
For Singapore:
In Singapore, this report is being distributed by Motilal Oswal Capital Markets Singapore Pte Ltd (“MOCMSPL”) (Co.Reg. NO. 201129401Z) which is a holder of a capital markets services license and an exempt financial adviser in Singapore,
as per the approved agreement under Paragraph 9 of Third Schedule of Securities and Futures Act (CAP 289) and Paragraph 11 of First Schedule of Financial Advisors Act (CAP 110) provided to MOCMSPL by Monetary Authority of Singapore. Persons in
Singapore should contact MOCMSPL in respect of any matter arising from, or in connection with this report/publication/communication. This report is distributed solely to persons who qualify as “Institutional Investors”, of which some of whom may consist of
"accredited" institutional investors as defined in section 4A(1) of the Securities and Futures Act, Chapter 289 of Singapore (“the SFA”). Accordingly, if a Singapore person is not or ceases to be such an institutional investor, such Singapore Person must
immediately discontinue any use of this Report and inform MOCMSPL.
Disclaimer:
The report and information contained herein is strictly confidential and meant solely for the selected recipient and may not be altered in any way, transmitted to, copied or distributed, in part or in whole, to any other person or to the media or
reproduced in any form, without prior written consent. This report and information herein is solely for informational purpose and may not be used or considered as an offer document or solicitation of offer to buy or sell or subscribe for securities or other financial
instruments. Nothing in this report constitutes investment, legal, accounting and tax advice or a representation that any investment or strategy is suitable or appropriate to your specific circumstances. The securities discussed and opinions expressed in this report
may not be suitable for all investors, who must make their own investment decisions, based on their own investment objectives, financial positions and needs of specific recipient. This may not be taken in substitution for the exercise of independent judgment by
any recipient. Each recipient of this document should make such investigations as it deems necessary to arrive at an independent evaluation of an investment in the securities of companies referred to in this document (including the merits and risks involved), and
should consult its own advisors to determine the merits and risks of such an investment. The investment discussed or views expressed may not be suitable for all investors. Certain transactions -including those involving futures, options, another derivative
products as well as non-investment grade securities - involve substantial risk and are not suitable for all investors. No representation or warranty, express or implied, is made as to the accuracy, completeness or fairness of the information and opinions contained
in this document. The Disclosures of Interest Statement incorporated in this document is provided solely to enhance the transparency and should not be treated as endorsement of the views expressed in the report. This information is subject to change without
any prior notice. The Company reserves the right to make modifications and alternations to this statement as may be required from time to time without any prior approval. MOFSL, its associates, their directors and the employees may from time to time, effect or
have effected an own account transaction in, or deal as principal or agent in or for the securities mentioned in this document. They may perform or seek to perform investment banking or other services for, or solicit investment banking or other business from, any
company referred to in this report. Each of these entities functions as a separate, distinct and independent of each other. The recipient should take this into account before interpreting the document. This report has been prepared on the basis of information that
is already available in publicly accessible media or developed through analysis of MOFSL. The views expressed are those of the analyst, and the Company may or may not subscribe to all the views expressed therein. This document is being supplied to you
solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, copied, in whole or in part, for any purpose. This report is not directed or intended for distribution to, or use by, any person or
entity who is a citizen or resident of or located in any locality, state, country or other jurisdiction, where such distribution, publication, availability or use would be contrary to law, regulation or which would subject MOFSL to any registration or licensing requirement
within such jurisdiction. The securities described herein may or may not be eligible for sale in all jurisdictions or to certain category of investors. Persons in whose possession this document may come are required to inform themselves of and to observe such
restriction. Neither the Firm, not its directors, employees, agents or representatives shall be liable for any damages whether direct or indirect, incidental, special or consequential including lost revenue or lost profits that may arise from or in connection with the use
of the information.
The person accessing this information specifically agrees to exempt MOFSL or any of its affiliates or employees from, any and all responsibility/liability arising from such misuse and agrees not to hold MOFSL or any of its affiliates or employees
responsible for any such misuse and further agrees to hold MOFSL or any of its affiliates or employees free and harmless from all losses, costs, damages, expenses that may be suffered by the person accessing this information due to any errors and delays.
Registered Office Address: Motilal Oswal Tower, Rahimtullah Sayani Road, Opposite Parel ST Depot, Prabhadevi, Mumbai-400025; Tel No.: 022 71934200/ 022-71934263; Website
www.motilaloswal.com.
CIN No.: L67190MH2005PLC153397.Correspondence Office Address: Palm Spring Centre, 2nd Floor, Palm Court Complex, New Link Road, Malad(West), Mumbai- 400 064. Tel No: 022 7188 1000.
Registration Nos.: Motilal Oswal Financial Services Limited (MOFSL)*: INZ000158836(BSE/NSE/MCX/NCDEX); CDSL and NSDL: IN-DP-16-2015; Research Analyst: INH000000412. AMFI: ARN - 146822; Investment Adviser: INA000007100; Insurance
Corporate Agent: CA0579 ;PMS:INP000006712. Motilal Oswal Asset Management Company Ltd. (MOAMC): PMS (Registration No.: INP000000670); PMS and Mutual Funds are offered through MOAMC which is group company of MOFSL. Motilal Oswal Wealth
Management Ltd. (MOWML): PMS (Registration No.: INP000004409) is offered through MOWML, which is a group company of MOFSL. Motilal Oswal Financial Services Limited is a distributor of Mutual Funds, PMS, Fixed Deposit, Bond, NCDs,Insurance
Products and IPOs.Real Estate is offered through Motilal Oswal Real Estate Investment Advisors II Pvt. Ltd. which is a group company of MOFSL. Private Equity is offered through Motilal Oswal Private Equity Investment Advisors Pvt. Ltd which is a group
company of MOFSL. Research & Advisory services is backed by proper research. Please read the Risk Disclosure Document prescribed by the Stock Exchanges carefully before investing. There is no assurance or guarantee of the returns. Investment in
securities market is subject to market risk, read all the related documents carefully before investing. Details of Compliance Officer: Name: Neeraj Agarwal, Email ID: na@motilaloswal.com, Contact No.:022-71881085.
* MOSL has been amalgamated with Motilal Oswal Financial Services Limited (MOFSL) w.e.f August 21, 2018 pursuant to order dated July 30, 2018 issued by Hon'ble National Company Law Tribunal, Mumbai Bench.
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