Motilal Oswal Financial Services

Contents

Summary............................................................................................................................................... 3

Sectors & Companies

....................................................................................................................

9-296

Automobiles ...................................... 9-32

Amara Raja ............................................. 10

Apollo Tyres ............................................ 11

Ashok Leyland ......................................... 12

Bajaj Auto ............................................. 14

Balkrishna Inds........................................ 15

Bharat Forge ........................................... 16

Bosch ...................................................... 17

CEAT ....................................................... 18

Craftsman Auto....................................... 20

Eicher Motors ......................................... 21

Endurance Tech. ..................................... 22

Escorts Kubota ........................................ 23

Hero Motocorp ....................................... 24

Mahindra & Mahindra ......................... 25

Maruti Suzuki .......................................... 26

Motherson Wiring .................................. 27

Samvardhan Motherson ......................... 28

Sona BLW ................................................ 29

Tata Motors ......................................... 30

Tube Invst ............................................... 30

TVS Motor............................................... 31

Capital Goods .................................. 33-39

Cummins ................................................. 34

Hitachi Energy ......................................... 35

Kalpataru Proj ......................................... 35

KEC Intl ................................................... 36

Larsen & Toubro ..................................... 37

Thermax .................................................. 38

Triveni Turbine........................................ 39

Cement ........................................... 40-53

Ambuja Cement ...................................... 41

Birla Corp ................................................ 43

Dalmia Bharat ......................................... 44

Grasim Industries ................................. 45

JK Cements ............................................. 47

JK Lakshmi Cem. ..................................... 48

Shree Cement ......................................... 49

Ramco Cement ....................................... 50

Ultratech Cement ................................... 51

Chemicals-Speciality ........................ 54-59

Clean Science .......................................... 55

Deepak Nitrite ........................................ 56

Galaxy Surfactants .................................. 57

NOCIL ...................................................... 57

Vinati Organics........................................ 58

Consumer ........................................ 60-81

Asian Paints ......................................... 61

Britannia ................................................. 62

Dabur ...................................................... 63

Emami ..................................................... 65

Godrej Consumer.................................... 66

Hind. Unilever ......................................... 67

Indigo Paints ........................................... 69

Jyothy Labs ............................................. 70

Marico .................................................... 72

Page Industries ....................................... 73

Pidilite Inds. ............................................ 74

Tata Consumer ....................................... 76

United Breweries .................................... 78

United Spirits .......................................... 79

Varun Beverages ..................................... 80

Financials .......................................82-111

AU Small Finance .................................... 83

Axis Bank ................................................ 85

Bank of Baroda ....................................... 87

Bandhan Bank ......................................... 88

Canara Bank ......................................... 90

DCB Bank ................................................ 91

Equitas Small Fin Bank ............................ 92

Federal Bank ........................................... 94

HDFC Bank ........................................... 95

ICICI Bank ............................................. 97

IDFC First Bank ........................................ 98

Indian Bank ............................................. 99

IndusInd Bank ....................................... 101

Kotak Mahindra Bank ........................... 103

Punjab National Bank ........................... 105

RBL Bank ............................................... 106

St.Bank of India .................................. 107

SBI Cards ............................................... 109

Union Bank ........................................... 110

NBFC ........................................... 112-155

360 One Wam ....................................... 113

AAVAS Financiers .................................. 115

Aditya Birla Capital ................................ 116

Angel One ............................................. 118

BSE ........................................................ 119

Bajaj Finance ......................................... 120

Can Fin Homes ...................................... 123

Chola. Inv & Fin. .................................... 124

CAMS..................................................... 126

Creditacess Grameen ......................... 127

Fusion Micro Finance ............................ 129

Home First Fin. ...................................... 130

L&T Fin. Holdings .................................. 132

LIC Housing Fin ...................................... 134

IIFL Finance ........................................... 136

M & M Financial .................................... 137

Manappuram Finance ........................... 139

MAS Financial ........................................ 141

MCX....................................................... 143

Muthoot Finance .................................. 144

Piramal Enterprise................................. 145

PNB Housing ......................................... 147

Poonawalla Fincorp............................... 148

Repco Home Fin .................................... 150

Shriram Fin. ........................................... 151

Spandana Sphoorty ............................... 153

Insurance ..................................... 156-165

HDFC Life ............................................... 157

ICICI Lombard ........................................ 158

ICICI Pru Life .......................................... 159

Life Insurance Corp ............................... 161

Max Financial Service ............................ 162

SBI Life................................................... 163

Star Health ............................................ 164

Healthcare ................................... 166-178

Ajanta Pharma ...................................... 167

Alembic Pharma .................................... 167

Alkem Lab ............................................. 168

Apollo Hospitals .................................... 168

Aurobindo Pharma ................................ 169

Biocon ................................................... 169

Cipla ................................................... 170

Divis Labs .............................................. 170

Dr Reddy’ s Labs

................................ 171

ERIS Life................................................. 171

Gland Pharma ....................................... 172

Global Health ........................................ 173

Glenmark Pharma ................................. 173

Granules India ....................................... 174

IPCA Labs............................................... 174

Laurus Labs ........................................... 175

Lupin ..................................................... 175

Max Healthcare ..................................... 176

Piramal Pharma..................................... 176

Sun Pharma ........................................... 177

Torrent Pharma ..................................... 177

Zydus Life .............................................. 178

Logistics ....................................... 179-188

Adani Ports ............................................ 180

Blue Dart Express .................................. 182

Container Corp ...................................... 183

Mahindra Logistics ................................ 184

TCI Express ............................................ 185

Transport Corp ...................................... 186

VRL Logistics .......................................... 187

Media .......................................... 189-192

PVR Inox ................................................ 189

Zee Entp ................................................ 191

Metal........................................... 193-204

Hindustan Zinc ...................................... 194

Hindalco Inds ........................................ 195

Jindal Steel ............................................ 196

JSW Steel ............................................... 197

NMDC .................................................... 198

SAIL ....................................................... 199

Tata Steel .............................................. 200

Vedanta ................................................. 202

Oil & Gas ..................................... 205-213

BPCL ...................................................... 206

Castrol India .......................................... 207

HPCL ......................................................207

IGL .........................................................208

Mahanagar Gas .....................................208

Oil India .................................................209

ONGC .....................................................211

Petronet LNG .........................................212

Reliance Inds. ........................................213

Real Estate ................................... 214-219

DLF.........................................................215

Godrej Properties ..................................215

Macrotech Developers ..........................216

Mahindra Life ........................................217

Oberoi Realty .........................................217

Prestige Estate .......................................218

Sobha.....................................................218

Sunteck Realty .......................................219

Retail ........................................... 220-240

Aditya Birla Fashion ...............................221

Barbeque Nation ...................................223

Bata India ..............................................224

Campus Activewear ...............................225

Devyani Intl............................................226

Jubilant Foods........................................227

Metro Brands ........................................228

Raymond ...............................................229

Restaurants Brand .................................230

Sapphire Foods ......................................232

Shoppers Stop .......................................233

Titan ......................................................235

V-Mart ...................................................236

Vedant Fashions ....................................238

Westlife Foodworld ...............................239

Technology .................................. 241-253

Cyient ....................................................242

Coforge ..................................................243

HCL Technologies ..................................244

Infosys .................................................244

LTI Mindtree ..........................................245

L&T Technology .....................................246

Mphasis .................................................247

Persistent Systems ................................248

TCS .........................................................249

Tech Mahindra ......................................250

Wipro ..................................................251

Zensar Tech ...........................................252

Telecom ....................................... 254-259

Bharti Airtel ...........................................254

Indus Towers .........................................256

Tata Comm ............................................257

Vodafone Idea .......................................258

Others.......................................... 260-296

APL Apollo Tubes ...................................260

Avalon Tech ...........................................262

Coromandel International .....................263

Cyient DLM ............................................265

Data Patterns.........................................266

EPL .........................................................267

Godrej Agrovet ......................................269

GR Infra .................................................270

Havells India ..........................................271

Indiamart Inter. .....................................272

Indian Hotels .........................................272

Info Edge ...............................................275

IRB Infra .................................................276

Kajaria Ceramics ....................................277

Kaynes Tech ...........................................278

KNR Constructions .................................279

Lemon Tree Hotel ..................................280

One 97 Comm........................................282

P I Industries ..........................................284

Quess Corp ............................................286

SIS ..........................................................286

SRF .........................................................287

Syrma SGS Tech .....................................288

Tata Chemicals ......................................290

Team Lease ............................................291

UPL ........................................................

292

Voltas ........................................................ 294

Zomato ...................................................... 296

Note:

All stock prices and indices are as on 20

February 2024, unless otherwise stated.

3QFY24 | India Inc on Call

Voices | 3QFY24

Voices

BSE Sensex: 72,623

S&P CNX: 22,055

Domestic cyclicals propel growth; earnings beat expectations

In this report, we present the detailed takeaways from our 3QFY24 conference calls with

various company managements as we refine the essence of India Inc.’s ‘VOICES’.



Corporate earnings

–

Financials and Autos drive earnings:

The 3QFY24

corporate earnings ended on a strong note, with widespread outperformance

across aggregates, driven by continued margin tailwinds. Domestic cyclicals such

as Autos and Financials, along with global cyclicals (i.e., Metals and O&G) drove

the beat. Technology posted a marginal decline in earnings, its first in 26

quarters.

Many

banks

have indicated a consistent trajectory of loan growth, driven

primarily by ongoing momentum in the Retail, Business Banking, and SME

segments, coupled with improved utilization of sanctions in the corporate sector.

Despite this positive outlook, concerns persist regarding deposit mobilization,

leading banks to increasingly turn to bulk TDs and CDs to fund asset growth.

Within the

NBFC/HFC

sector, managements highlighted the following: 1)

Adjusting growth trajectory in the personal loans segment due to sector-wide

elevated delinquencies in the small-ticket personal loans segment; 2) Anticipating

a moderation in disbursement volumes for Select Vehicle Financiers in FY25

(relative to FY24); 3) CoB has largely peaked out or may experience a slight uptick

for one more quarter before stabilizing; and 4) Asset quality is expected to remain

favorable and 5) Operating leverage will start playing out especially for entities

that have made substantial investments in technology upgradation and

distribution expansion in recent years.

Most of the

Automobile

managements have guided for the near-term demand

headwinds in both domestic and global markets. Near-term challenges

withstanding in 4QFY24, FY25 volume growth should be in the range of 4-6%

YoY for most of the segments due to high base and moderation in demand.

However, 2Ws and SUVs should outperform the auto pack with 8-12% YoY

growth in FY25.

Management of IT

companies remain cautious on the near-term demand

environment for key verticals (BFSI, Retail). While a few companies have

witnessed early signs of recovery, they are hesitant to label it as a definitive

trend. The management indicated that the reprioritization of projects and

execution deferrals on discretionary areas continue to exert significant pressure

on revenue conversion.

Revenue growth of consumer companies remain subdued due to weakness in

the rural market and competition from the local and regional players. The

management highlighted the delayed onset of winter adversely impacted the

winter portfolio during the quarter. Companies continuously passed on the

benefits of lower commodity prices across categories such as soaps, detergents,

paints, oils, and biscuits. The management anticipates volume recovery in FY25

and has also highlighted that gross margins have already rebounded

satisfactorily for most companies in 9MFY24.

Healthcare,

companies indicated sustained growth momentum in the chronic

category of therapies in the domestic formulation segment for the quarter. The

weak seasonality adversely impacted the off-take of products in acute therapies

February 2024

Voices | 3QFY24

as per the management. Companies witnessed the benefit of lower raw material

cost for the quarter. They expect this benefit to sustain over the near term.

In the ferrous

Metals

space, managements across companies pointed to: 1)

higher coking coal costs; and 2) development of captive raw material mines.

Though a better performance from Indian operations backed by strong domestic

demand should aid volumes and margins in the near term, managements

believe that global uncertainties might pose challenges to international steel,

base metal, and raw material prices in the short term. In the non-ferrous space,

managements maintained their CoP and EBITDA guidance for FY24.

For

Cement,

most managements have guided for industry volume growth of ~8-

9% YoY in FY25. Cement prices have corrected in Dec’23 across regions and this

weakness persisted in Jan-Feb’24.



Autos



Most of the managements have guided for the near-term demand headwinds in

both domestic and global markets. Near-term challenges withstanding in

4QFY24, FY25 volume growth should be in the range of 4-6% YoY for most of the

segments due to high base and moderation in demand. However, 2Ws and SUVs

should outperform the auto pack with 8-12% YoY growth in FY25. The macro

environment remains uncertain due to geopolitical tensions. However, the

continuing devaluation of emerging market currencies has eased now. The

companies have hinted toward stable commodity prices in 4QFY24. While the

Rea Sea crisis has not had any material impact on any of the coverage

companies so far, there was an indication toward a rise in logistics costs in 4Q

and shipping times to increase by about 3-4 weeks.

Capital Goods



EPC companies reported robust visibility from sectors such as power T&D,

renewable energy, data centers, real estate, and defence. In international

markets such as the Middle East, companies have guided for a better-than-

expected tendering pipeline, chiefly from Saudi Arabia, UAE, Kuwait, Qatar.

Margin guidance has been revised slightly downward, with the expectation that

a return to double-digit levels will take a few quarters. This is due to the winding

down of legacy projects nearing completion, while newer projects are yet to the

margin recognition threshold. Accordingly, double-digit performance has been

deferred to 2HFY25. Most of the companies reported healthy order inflow and

execution growth during the quarter, largely led by up-fronting before the

election schedule kicks in. Most companies foresee a temporary slowdown in

government ordering in the ensuing one to two quarters; however, private

sector should not really be affected by the same. Product companies have seen

improving margins, led by easing RM inflation and favorable product mix,

especially for genset players. International geographies have been a mixed bag

for companies with continued weak exports for Cummins, while L&T, Kalpataru,

Triveni Turbine witnessed strong traction.

Cement



Cement demand was subdued in 3Q due to multiple reasons (festive season,

labor unavailability, excessive rains, flood and state elections in a few regions,

fiscal challenges).

However, demand has improved in Jan’24, supported by

government-led infrastructure projects and pick-up in housing demand. Most

managements have guided for industry volume growth of ~8-9% YoY in FY25.

Cement prices have corrected in Dec’23 across regions and this weakness

February 2024

Voices | 3QFY24

persisted in Jan-Feb’24.

Fuel consumption costs for

cement players declined 5-

15% QoQ (except for ACC and ACEM, which reported 1-2% QoQ increase) to

INR1.50-INR2.05/Kcal in 3QFY24. Companies expected fuel cost to either remain

flat or decline 4-5% in 4Q.

Chemicals Specialty



Chemical companies mentioned that destocking intensity is down and in some

cases, it is almost over. However, there were no signs of revival in demand as

mentioned by most of chemical company and it could be sometime away till

there is a sustained demand recovery. Chinese dumping is still very much an

issue and therefore pricing pressure still exists for most companies. Some firms

experienced declining input costs, leading to lower product prices eventually.

Management anticipates recovery in FY25, although some projects have been

postponed further.

Consumer



Revenue growth of consumer companies remain subdued due to weakness in

the rural market and competition from the local and regional players.

Management highlighted the delayed onset of the winter season adversely

impacted the winter portfolio during the quarter. Companies continuously

passed on the benefits of commodity prices in categories such as soaps,

detergents, paints, oils, and biscuits. This resulted in the sequential

improvement in volume growth in 3QFY24. The trajectory of gross margin

expansion remained strong. EBITDA margin expansion is trailing behind gross

margin growth, primarily attributed to increased investments in marketing and

distribution. Management anticipates volume recovery in FY25. Additionally, it

has also highlighted that gross margins have already rebounded satisfactorily for

most companies in 9MFY24.

Financials

Banks



Many banks have indicated a consistent trajectory of loan growth, driven

primarily by ongoing momentum in the Retail, Business Banking, and SME

segments, coupled with improved utilization of sanctions in the corporate

sector. Despite this positive outlook, concerns persist regarding deposit

mobilization, leading banks to increasingly turn to bulk TDs and CDs to fund

asset growth. The industry-wide CASA mix has been declining, resulting in a

sequential increase in funding costs. While several banks have faced stagnation

or decline in NIM, they anticipate that the rising cost of funds will contribute to

further margin moderation in the upcoming quarters, albeit at a more moderate

pace.



PSU Banks have reported enhanced asset quality, although elevated opex ratios

persist due to wage provisions for PSU banks and ongoing investments in branch

expansion and technological advancements. The SMA pool remains low, and

controlled slippages from the restructuring book, combined with a robust PCR

and contingency buffers, are expected to mitigate credit costs and support

earnings. Provisioning expenses have generally remained manageable for most

banks, and although there is vigilance regarding the turn in the delinquency

cycle for unsecured loans, the expectation is that credit costs will remain under

control in the coming quarters.

February 2024

Voices | 3QFY24

NBFC



Within the NBFC/HFC sector, managements highlighted the following: 1)

Adjusting growth trajectory in the personal loans segment due to sector-wide

elevated delinquencies in the small-ticket personal loans segment; 2) Anticipating

a moderation in disbursement volumes for Select Vehicle Financiers in FY25

(relative to FY24); 3) CoB has largely peaked out or may experience a slight uptick

for one more quarter before stabilizing; and 4) Asset quality is expected to remain

favorable and 5) Operating leverage will start playing out especially for entities

that have made substantial investments in technology upgradation and

distribution expansion in recent years.

Capital Markets



With strong traction in equity markets, capital market activity measured in any

parameter (demat accounts, ADTO, NSE active clients, SIP monthly run-rate)

continues to remain upbeat. Most players are indicating investments into the

business, which is restricting the benefits of scale. Companies have also been

expanding their presence deeper into lower tier cities and also launching new

products to diversify their revenue streams.

Insurance



Life insurance companies alluded to changing product mix toward lower profit

products as the key reason for muted VNB margin trajectory during the quarter.

Going ahead, managements are conscious of the ensuing change in surrender

charge regulations, which could dent margins further. On the other hand,

players are expecting strong traction in premiums from FY25. Health insurance

players saw elevated loss ratio in 3QFY24, but expect normalization in 4QFY24.

They continue to remain upbeat on growth in premiums, particularly retail

health.

Healthcare



Healthcare,

companies indicated sustained growth momentum in chronic

category of therapies in domestic formulation segment for the quarter. The

weak seasonality adversely impacted the off-take of products in acute therapies

as per management. Companies witnessed the benefit of lower raw material

costs for the quarter. They expect this benefit to sustain over the near term.

Considering the inflation scenario, companies do not expect any benefit from

WPI-linked price changes for FY25. For the US generics space, management

indicated low intensity of price erosion (mid-single digit on a QoQ basis) in their

base portfolio. The filings are inclined toward complex products, and thus, there

is reduction in overall pace of filings as per management. On the hospitals front,

the festivals period led to lower planned In-patients (IPDs) on a QoQ basis. The

management continues to indicate robust demand in North India. Companies

indicated the benefit being accrued on account of revision in realization for

patients under the Central government healthcare scheme (CGHS) category.

Overall, the healthcare space continues to witness tailwinds on account of niche

pipeline in the US and limited availability of hospital services in certain regions

of India. The DF is witnessing seasonality led by some slowdown over the near

term.

Logistics



In the logistics sector, demand activity remained low due to an extended holiday

season and weak economic conditions. The management anticipates improved

operational performance after the elections, particularly with reduced fuel

charges and stable operating costs. However, ongoing issues in the Red Sea

February 2024

Voices | 3QFY24

could disrupt the supply chain and cause container shortages, though the overall

impact on port volumes is expected to be minimal. In the long term, companies

are optimistic about sector growth, driven by e-way bills, GST implementation,

expanded routes on the Dedicated Freight Corridor (DFC), and enhanced

connectivity of major ports, which are expected to encourage businesses to

move toward the organized sector.

Metals



In the ferrous

Metals

space, managements across companies pointed to: 1)

higher coking coal costs; and 2) development of captive raw material mines.

Though a better performance from Indian operations backed by strong domestic

demand should aid volumes and margins in the near term, managements

believe that global uncertainties might pose challenges to international steel,

base metal, and raw material prices in the short term. In the non-ferrous space,

managements maintained their CoP and EBITDA guidance for FY24.

Oil & Gas



RIL anticipates strong global oil demand, especially in transportation fuel,

despite potential short-term challenges in downstream chemical margins. Major

expansions for OMCs will conclude within the next two years, paving the way for

significant growth. CGDs are concerned about volumes due to lower-than-

expected Morbi uptake and increasing competition from EVs. However,

domestic gas demand remains robust, with expectations of increased

transmission volumes. Upstream companies are poised to benefit from new

production wells, with strong guidance for future growth.

Real Estate



Amid strong demand tailwinds, companies continue to remain confident of

achieving 15-20% growth over the medium term and are developing a project

pipeline that can support their growth ambitions. There are no supply-side

concerns at least in the near term and while the realization growth on account

of product mix will continue, companies remain disciplined on taking calibrated

price hikes on an LFL basis.

Retail



Retail:

Sector-wide management commentary indicated that the continued

demand slowdown (weak SSSG) and the revenue growth is driven largely by

footprint addition. 4QFY24 further saw early onset of EOSS, as retailers looked

to liquidate the old inventory due to soft demand.



QSR:

QSR companies sustained sluggish performance as growth metrics (SSSG,

ADS) remained weak despite Cricket World Cup and various other initiatives.

Most companies have maintained the aggressive store addition in 3QFY24 and

the momentum is expected to sustain into 4Q. We expect QSR companies to

sustain growth weakness in the near term, which will likely keep operating

margins under pressure.

Technology



companies’ management remain cautious on the near-term

demand

environment for key verticals (BFSI, Retail). While a few companies have

witnessed early signs of recovery, they are hesitant to label it as a definitive

trend. The management indicated that the reprioritization of projects and

execution deferrals on discretionary areas continue to exert significant pressure

February 2024

Voices | 3QFY24

on revenue conversion. Weak growth in 3Q was attributed to the impact of

furloughs and ongoing softness in key verticals, notably BFS, Retail, and Hi-Tech,

which experienced significant weakness. Although deal signing activities

moderated in 3Q due to furloughs, the management pointed out that the earlier

wins (mega deals) in 9MFY24 have built a strong foundation for FY25 and should

support growth. Additionally, despite the slowdown in revenue growth,

management expressed confidence in sustaining margins in FY25.

Telecom



Earnings growth continued to remain moderate due to limited tariff hikes.

Market consolidation continues to favor Bharti/RJio. Companies remain focused

on deleveraging their balance sheets, as capex peaked out in 3QFY24.

Bharti/RJio have completed the rollout of 5G rollout in the majority of India.

February 2024

AUTOMOBILE | Voices

Key takeaways from management commentary

AUTOMOBILES



Most of the managements have guided for the near-term demand headwinds in both domestic and global

markets. Near-term challenges withstanding in 4QFY24, FY25 volume growth should be in the range of 4-6%

YoY for most of the segments due to high base and moderation in demand. However, 2Ws and SUVs should

outperform the auto pack with 8-12% YoY growth in FY25. The macro environment remains uncertain due to

geopolitical tensions. However, the continuing devaluation of emerging market currencies has eased now. The

companies have hinted toward stable commodity prices in 4QFY24. While the Rea Sea crisis has not had any

material impact on any of the coverage companies so far, there was an indication toward a rise in logistics

costs in 4Q and shipping times to increase by about 3-4 weeks.

Other key takeaways from the call



KEY HIGHLIGHTS FROM CONFERENCE CALL

Demand outlook



Ashok Leyland



FY24 volumes are estimated to be below FY18 peak as

4QFY24 is expected to see some moderation in growth due

to the high base of last year.

The management expects volumes moderate till elections

(1QFY25) as the tendering process across underlying

industries slow down. However, macro indicators, including

GDP growth, government focus on infrastructure, are intact

for the underlying CV industry growth.

India 2W outlook:

The management expects industry

volumes to grow 8-10% in the coming months.

Export 2W outlook:

The macro environment remains

uncertain due to geopolitical issues. However, the

continuing devaluation of emerging market currencies has

started to subside. Exports currently stand at 70% of the

peak FY22 volumes. The sluggish performance in Africa and

South Asia is dragging down the recovery.

RE launched two new models,

Himalayan 450 and

ShotGun650, in 3Q. Although the management refrained

from giving out any guidance on bookings, it indicated that

these models received healthy bookings during the

quarter. The order book is healthy at 3-4 weeks,

depending on models and variants.

Exports-

The management expects demand to recover

from key export markets after 2-3 quarters.

Overall 2W industry revenue should grow in double digits

in FY25 and HMCL expects to outperform the industry with

its new launches, thereby implying market share gains.

Industry growth is likely to be driven by the 125cc+

segment in FY25 as well.

Automotive:

Expects the SUV portfolio to grow by mid-to-

high teens in FY25 vs. SIAM’s industry

projection of 3-4%

for overall PVs and 10-12% for UVs. Expects 4Q run rate to

be flat due to XUV300 ramp-down for mid-cycle

enhancement.

Tractor/FES

Expects tractor volumes to decline 10% YoY

in 4QFY24 and 5% YoY in FY24. Guidance for FY25 tractor

demand directionally positive. Retail demand is currently

weak. Dealer inventory is slightly higher than 30 days and

the company expects to bring it down in the next three

months.

Preliminary estimates by SIAM indicate that PV volumes in

FY25 should be ~4.3m units (vs. 4.18-4.20m in FY24E). The

small car segment is shrinking both in absolute and

percentage terms. The first-time buyer mix is ~41% now



Bajaj Auto



Eicher Motors



Hero MotoCorp



M&M



Various cost-control measures are in place

to reduce

overheads. It would be focusing on market share

expansion, on the back of launch of new products

and expansion of dealer network, but not at the cost

of profitability.

The company would not compromise on the

profitability of the ICE business as cash flows from the

ICE business would be used to fund new EV

businesses.

Red Sea issue-

Freight has doubled and supply has

been delayed by three weeks for LatAm and Africa. As

of now, it is not expected to impair the performance

on a continuous basis unless there is a wild

escalation.

Triumph-

Scrambler 400X sales are 50% of the total

Triumph sales. Both models put together retailed

2,800 units in just 40 cities.

On account of the Red Sea crisis, RE is seeing some

impact on logistics costs, which have gone up by 25-

30% in specific routes and the shipping time has

increased by 30 days.

VECV-

Regarding EV orders for buses from STUs, the

management has clarified that it would not bid

aggressively to win contracts just for market share

gains in this segment

Margins:

ICE margins stood at 16% in 3Q. The margin

impact of EV sales was high in 3Q (200bp) due to the

festive season and is likely to be at 100- 150bp in

FY24. While input costs would remain stable, the

management expects margins to be on a gradual

uptrend with an improved mix.

Open bookings

stand at 226k units (vs. 286k units in

2QFY24), including ~101k/71k/35k open bookings for

Scorpio/Thar/XUV700.

Farm:

Expects tractor volumes

to decline 10% YoY in 4QFY24

Last-mile mobility (LMM)-

LMM business has

qualified for both PLI and FAME. Products are ready

and will get the first disbursement in 1Q. NIIF’s India-

Japan Fund (IJF) invested at a valuation of INR66b,

10% higher than the previous valuation.



Maruti

EVs: MSIL will start the production of BEV in 2024.

The mid-SUV model will be sold in the domestic

market, along with the exports market, such as Japan

and Europe. The model is an upmarket EV. It is bigger

February 2024

AUTOMOBILE | Voices

vs. a low of 38% in the last quarter.



than the Grand Vitara, and has a higher range of

550km with a battery of 60kWh.



Tata Motors



TVS Motor Co.



Tube

Investments



BHFC



BIL

CV outlook: Fleet utilization continues to be at a healthy

level. Transporters’ profitability remained stable.

The

management is witnessing a drop in government spending

due to the election, and seeing a pause in growth in

4QFY24. It expects 4Q volume to decline by a single digit,

followed by a soft 1QFY25.

PV outlook: FY25 industry growth will be challenging, and

the industry is likely to grow by less than 5% YoY.

Domestic:

The management expects positive demand

momentum to continue into 4Q, driven by healthy growth

in rural areas despite some challenges encountered in

sowing activities. Retail financing has also been favorable.

TVSL believes growth will be significant in urban and semi-

urban regions.

Exports:

A recovery in international markets should

continue as inflation is settling down; however, currency

availability is still an issue in African markets. Customer

retails are happening. Sri Lanka has started opening up.

Metal formed -

Tenders are coming back; however, the

business is getting competitive. Margins seem to be under

pressure in the near term. If the announcement of

converting 40k wagons to Vande Bharat standard gets

implemented, then it will boost demand and add to

revenue.

Mobility-

Taking steps to diversify into exports. However, it

will take some time for customer approval as it needs to go

through an entire process.

As per the management, the near-term outlook is mixed.

While demand for PV exports, industrial, and defense

sectors remains robust, CV demand from Europe is tapering

off.

Oil and gas demand is also weak. While domestic CV

demand remains weak, the management is confident of a

revival in the medium to long term.

Retail demand outlook improving:

With the demand

slowly picking up, the company did not undertake any price

hikes. Both India and EU markets remained stable. While

the Indian market continues to grow, the company does

not expect the business share from India to surpass the

current levels of 30%.

JLR

–

Demand: Not seeing any demand issues in the

US, while Europe is relatively stable. The

management is not seeing any change in the pace of

EV penetration. It continues to expect operating cash

flow to support net debt of less than GBP1b by the

end of FY24, and anticipates a net cash in FY25.



Red sea crisis:

The pricing of containers has gone up

due to the ongoing supply chain crisis.

iQube:

The company currently has 400 touchpoints

and it aims to double that in the next three months.

New product launches are likely to follow. Gross

margins are positive and will continue to improve.



Capex for standalone business-

Incurred capex of

INR2.2b in 9MFY24, of which, INR1.6b was for the

engineering division.

Guided for capex of INR3.5b in FY25.

It is currently

operating at the utilization level of 85% and is

expected to reach 95% by the end of this year.



The management indicated that emission norms will

be effective in the US Class8 segment in CY27. Hence,

it expects pre-buying to get triggered in 2025 and

2026.

Overseas subsidiaries are likely to post mid- to- high

single-digit EBIDTA margin in FY25E.

RM prices to remain stable: Softness in crude oil

prices was offset by pickup in natural rubber prices,

and hence, do not expect any major effect on the

gross margins.



Amara Raja Energy

Current Price INR 852



Neutral

Click below for

Detailed Concall Transcript &

Results Update

Revenue from LAB grew 12% YoY, led by 4W/2W volume growth, while

industrials grew 6-7% YoY. The telecom sector exhibited a growth of 2-3%,

surpassing the average growth rate. Additionally, trading accounted for around

7% of revenues, primarily driven by sales in tubular batteries.



4W- Revenue for the aftermarket grew 11% YoY, while OEM grew 2% YoY

marginally.



2W- Aftermarket grew 15% YoY, while OEM revenue grew 30% YoY.



Home inverter segment - growth was stagnant as the company is meeting

requirements through the trading route.



Exports: 4W exports grew 25% YoY. The company has commenced shipments to

North American geography for 4W AGM batteries.

Margins:



Lead prices during the quarter were around INR200k/ton, which is 8-9% higher

on a YoY basis, adversely impacting margins.

February 2024

AUTOMOBILE | Voices

There were no price hikes taken during the quarter in the B2C segment but the

B2B segment had some cost pass through. If lead remains at USD2150-

2200/ton, then it may have to take price hikes.



Other costs were higher due to a) a quarterly insurance cost of INR100m and b)

consultancy charges aimed at improving the efficiency within the plant.

New energy business:



Revenues have doubled during the period. The Battery pack segment

contributes 80% of the revenues, supplying to both e-2Ws and e-3Ws.

Furthermore, the company has initiated supply of Li-ion battery packs to

telecom players (supply operations already underway for BSNL) and meeting

industrial backup storage requirements. It is working on battery pack and

chargers for higher voltage requirements for PVs. The current pack capacity is at

500MW, which it plans to take it 2GW. This is not a capital-intensive business. It

has the capacity to do INR2b/quarter of revenues (vs. INR1.5b currently).



Supplying chargers to 3W OEMs such as Piaggio and M&M. Supply to e-2W

OEMs is still low.



9MFY24 revenues stood at INR4b.

Cell manufacturing plant:



This plant would be operational by FY26. Considering the current lead prices and

the capex requirements, this business has the potential to achieve 10-11%

EBITDA and a ROE of 10-11%, once it scales up to 7-9GW. Achieving these

targets might pose challenges if the business operates below this specified scale.

Initially, the company will initiate the supply of NMC chemistry cells and

eventually progress into LFP chemistry cells. The company anticipates that, I the

future, LFP chemistry will constitute 60% of the market, with the remaining

share contributed by other chemistries.

There are few changes in the second cell PLI bidding for 10GW where ARE&M

would participate.

Capex in FY24 for LAB business would be INR2.5b and INR2.5-3b for the lead

recycling plant (expected to commence in 1QFY25) and new energy business.

FY25 total capex would be INR6b (INR2.5-3b for LAB and INR3-3.5b for new

energy business).

Integration of plastic component business has been complete with the effective

date of merger as Feb 01, 2024.

Apollo Tyres

Current Price INR 518

Click below for

Detailed Concall Transcript &

Results Update

Buy

India performance highlights



Overall, APTY saw a mid-single digit volume growth in 3Q.



While truck volume growth in 3Q was 3%, PCR was 7%. Further, truck

replacement growth was 8% and cars replacement was 4%. However, CV OE

segment’s demand remained flat YoY as the MAV segment, where Apollo has a

strong position, has underperformed the industry



As per the management, exports are now seeing signs of pick-up for the first

time and have seen QoQ growth. If not for the disruption caused by the Red Sea

crisis, Apollo would have seen higher growth in exports QoQ.



Management indicated that while APTY has maintained its market share in the

PCR segment, it is likely to have lost market share in the TBR segment.

February 2024

AUTOMOBILE | Voices

Outlook - India business



Management has indicated that the near-term volume outlook for the domestic

India business appears muted. However, exports momentum is likely to

continue in the coming quarters as per the management.



The company would continue to ramp-up its presence in the higher-inch

premium segments. The 14-inch tyre is now the largest selling tyre for Apollo.

APTY has also launched the Vredestein brand in India for luxury brands like

BMW, Audi and Mercedes and is seeing good acceptance in the domestic

market. It also targets to open up independent Vredestein retail stores soon.



Input cost is expected to remain fairly stable QoQ. They have not taken any

price hike in 3Q and do not expect to take any hike in 4Q as well



More importantly, industry continues to observe good pricing discipline which

has sustained over many quarters now



They would continue to focus on posting strong operating performance in

coming quarters on the back of soft input costs and focus on premiumization.

European performance

–

update



The all-season segment has registered a double-digit growth in 3Q.



The PCT segment in Europe is seeing some marginal growth



APTY has gained market share across all segments in Europe



The mix of UHP and UUHP has crossed 45% now in Europe for Apollo

Outlook

–

European business



Management expects marginal growth in PCR in near term and anticipates the

segment to post much better 2HCY24 performance.



Freight costs have gone up by 30-40% and transit times to Europe have

increased as well by 14-15 days. However, management has indicated that if this

situation prevails, the company will pass on this cost increase to the end

distributor, as was done post-Covid.



Hence, APTY expects operating performance to remain healthy in Europe

Outlook

–

Consolidated business and capex guidance



Management has maintained its capex guidance for FY24 at INR11b (INR5b

already spent in 9MFY24).



Given that capacity utilization both in Europe and India is in the mid-to-high 70%

levels, no new major capex would be announced in the near term. APTY would

continue to sweat the existing assets and ramp-up productivity further, thereby

reducing debt and improving RoCE.

Ashok Leyland

Current Price INR 173



Buy

Click below for

Detailed Concall Transcript &

Results Update



MHCV growth outlook:

Domestic MHCV industry grew 9% YoY in 9MFY24

(1HFY24 growth was 10% while 3Q saw low growth of 7%). 3Q performance was

affected due to elections in five major states. FY24 volumes are estimated to be

below FY18 peak as 4QFY24 is expected to see moderation in growth due to the

high base of last year. It expects volumes to see moderation till elections

(1QFY25) as the tendering process across underlying industries slow down.

However, underlying macro indicators such as GDP growth and government

focus on infrastructure are intact for the underlying CV industry growth.

LCVs:

Domestic LCV industry for AL’s addressable market has declined 3% YoY

for 9MFY24, while AL has seen a growth of 2% YoY, indicating market share gain.

February 2024

AUTOMOBILE | Voices

Future drivers for growth for MHCV industry:

Buses should continue their

growth momentum for the next six to eight months. There is also a considerable

shift occurring from multi-axle vehicles to tractor-trailer category, alongside

notable growth in the tipper segment, driven by infrastructure development.

Buses



Bus demand to be driven by several factors, including the replacement of

existing buses, the growing need for public transport, and increasing demand for

school/staff transportation services. TIV for the bus industry has grown by 38%

in 3Q vs. AL’s growth

of 65% YoY.



Electric buses are seeing a lot of traction with government focus on converting

diesel buses to electric buses. It is also participating in the PM’s e-bus

Seva

orders as it currently has a range of products under Switch Mobility division. It is

also actively working with the government to sort out the payment security

mechanism hurdle for participation in the tenders.

Margin expansion drivers:



Better product mix, higher price realizations, and softer RM costs aided better

gross margin expansion in 3QFY24. Various cost-control measures are in place to

reduce overheads.



It would be focusing on market share expansion, on the back of launch of new

products and expansion of dealer network, but not at the cost of profitability.



Price hike- The company has been taking calibrated price hikes in each of the

three quarters in 9MFY24, both in MHCVs and LCVs. It has also taken a price

hike in Jan’24.



Focus on distribution: It has partnered with TVS for network expansion in the

NCR region. It has added 44/37 new dealers/authorized service centers in

9MFY24, taking the total count to 491/399 for domestic MHCV business. Target

is to scale it to 1,000 centers. Similarly, for the LCV business, it added 17/23 new

dealers/authorized service centers, taking the total count to 690.

Investment in EVs:



The board has already approved INR12b of equity investment in Optare PLC

(holding company of Switch and Ohm mobility). It has invested INR6.6b in

3QFY24 into Optare PLC/Switch, driven by the promising prospects of e-LCVs

and eBuses.



The company would not compromise on the profitability of the ICE business as

cash flows from the ICE business would be used to fund new EV businesses.



It is actively looking for an external investor for funding, but is very keen on the

quality of the investor.



Target is to be cash neutral in Switch Mobility India by the end of 4QFY25.

E-trucks:



Displayed BOSS 14T electric truck for medium distance transportation. Market

trials for 55T tractor trailer are going on. The company is not currently focusing

on volumes, but it is more focused on the application and target markets,

before a large commercial rollout. Presently, TCO vs. diesel truck is five to seven

years, which the company plans to bring it to less than five years. Electric trucks

sales would be accounted in the standalone entity.



The first batch of e-LCVs will roll out in a few months. It has signed MoU with

customers for ~12-13k units. Similarly, it has an order book for ~1,000 e-buses.



HLFL- The total book for HLFL stands at INR450b. Disbursed ~INR179b and PAT is

at around 13%. NPA stood at 2.6-2.8%.



February 2024

AUTOMOBILE | Voices

Other data:



Exports grew 7% YoY despite weak global macros. Aftermarket sales grew 30%

YoY to INR6.6b in 3QFY24. Power genset volumes grew 24% YoY to 7.3k units.



Defence business should be doing INR9-10b in FY24.



Operating WC stood at INR20b (grew INR8.5b from 2QFY24 from INR11.1b) as of

Dec’23.



Capex for 3QFY24/9MFY24 stood at INR900m/INR2.9b.



Consol net debt at the end of Dec’23 stood at INR17.5b (grew INR6.1b QoQ),

which is post infusion of INR9.5b in Switch and Ohm.

Bajaj Auto

Current Price INR 8,293



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Domestic 2W-

Retails grew 11% YoY for the industry in 3QFY24 and the

management expects industry volumes to grow by 8-10% in the coming months.

Festive demand was strong and it was further supported by healthy retails in

Dec’23.

Exports-

The macro environment remains uncertain due to geopolitical tensions.

However, the continuing devaluation of emerging market currencies has eased

now. Exports currently stand at 70% of peak FY22 volumes. However, volume

grew ~2% sequentially during the quarter. Africa and South Asia are dragging

the recovery. LATAM, Middle East, and Philippines have crossed their previous

peak volumes. Recorded highest ever retail in Mexico.

Pulsar’s mix increased from 19% 3QFY23 to 28% 3QFY24. Export revenue grew

10% YoY, despite a 4% volume decline, due to a better mix and Fx.

Geography mix- Africa 45-48%, LatAm ~25%, South Asia 15-18%, Middle East

and North America is 19%.

Brazil

–

Starting new a new plant wherein production is expected to start by end

of 1Q.

Red Sea issue- Freight has doubled and supply has been delayed by 3 weeks for

LatAm and Africa. As of now, it is not expected to impair the performance on a

continuous basis unless there is a wild escalation. Alternate routes are being put

in place.

Chetak-

BJAUT has a presence in 140 cities, with 160 all exclusive dealerships

covering 80% of the high-speed market. Retail market share has reached 14%,

which is the third largest. The company aims to achieve 15k units per month

sales mark, which will be driven by new launches and network expansion. The

segment reported revenue of INR10b in 9MFY24.

Triumph-

Scrambler 400X sales are 50% of the total Triumph sales. Both models

put together retailed 2,800 units in just 40 cities. In places like Bangalore and

Kerala, market share of BJUAT has reached 20% in the category. It plans to grow

footprint beyond 100 cities, covering 50% of the market. The current capacity

now stands at 10k units per month and is being increased to 20k units, with a

target to reach ~30k units in 1HFY25.

3W business-

BJAUT’s

overall market share stands at 77%, while it is ~85% for

the passenger segment. CNG now contributes ~60% of the industry and BJAUT’s

market share in the category is 80%.

February 2024

AUTOMOBILE | Voices

3W EV-

Currently the company has a presence in 23 cities and it plans to expand

to 50 cities in 4Q and 400 cities before the season in 2024. Capacity has already

been put in position.



Payback for CNG 3W is just 6-9 months and BJAUT aims to leverage the growing

CNG infrastructure of ~4000 stations. As CNG is more efficient vs. petrol, the

company is also working on 2W CNG.

Others



The USD-INR situation rate is stable as it stood at 83.2 vs. 82.6 in previous

quarter and 81.7 in 3QFY23.



Current cash balance stands at INR18.5k crore.



Spares revenue stood at INR13b, with domestic revenue of INR10b and exports

at INR10.5b; Export revenue stood at USD450m.



Balkrishna Inds

Current Price INR 2,294



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Red sea crisis:

Due to the red sea crisis and geopolitical issues, 4Q volumes

would be flat on a YoY/QoQ basis. This would have an impact on the margins in

the near term. Retail demand at the end markets remain stable and showing

gradual improvement. Retail

inventory at the dealers’ end is around 30-45

days

and the company is watchful how the crisis unfolds.

Presently, there is no shortage of customers, but there is an uptick in freight

costs. Normally, freight costs are 3-4% of sales, but if there is a significant

change, then it takes ~two quarters to pass on to the end customer. Owing to

this uncertainty, the company has not given any volume guidance for FY25;

however, it has ample capacity to cater to the sudden demand if it comes. It

sees an opportunity to capture EU markets also as companies who import RM

from Asia would get affected due to this crisis.

3Q operational highlights:

With the demand slowly picking up, the company did

not undertake any price hikes. Both India and EU markets remained stable.

India market showing resilience:

The Indian market continues to grow, the

company does not expect the business share from India to surpass the current

levels of 30%. This expectation is rooted in the belief that as the overall market

picks up, economies across the board would perform well, thereby maintaining

a similar contribution from various regions.

Softness in crude oil prices was offset by pickup in natural rubber prices, hence,

we do not expect any major effect on the gross margins.

Carbon black sales:

9MFY24 carbon black sales were 7.5% of the total revenues.

This is expected to scale up to 8-9% in FY25. India has ample carbon black

capacity, but EU has seen some shortage as major supply would come from

Russia before the war. Current BIL capacity for carbon black stands at 170k tons,

which is expected to reach 200k tons. Capacity utilization stands at Rs~85-90%.

Gross debt stood at INR28.8b as on Dec’23, with 65% of it contributing to

working capital requirement. Cash on the balance sheet stands at INR3.3b.

The EUR-INR hedge rate stood at 89-90 in 3Q and 91-92 in FY25.

February 2024

AUTOMOBILE | Voices

Bharat Forge

Current Price INR 1,121

Buy

Click below for

Results Update

Outlook

–

near-term outlook mixed



As per the management, the near term outlook is mixed. While demand for PV

exports, Industrial and defense in healthy, CV Europe demand is tapering off.

Also, oil and gas demand is weak. While domestic CV demand remains weak, the

management is confident of a revival in the medium to long term.



However, the management expects its growth momentum to sustain in the

medium to long term on the back of strong growth drivers for Industrial

segment, castings, and new export opportunities in both domestic and export

markets, including in aerospace segment.



The management has indicated that given the macro-economic challenges

globally, it expects revenue growth to moderate in FY25 and they would

continue to outperform industry growth.

Defense and aerospace update



Defense revenue in 3Q stood at INR3.5b.



The management indicated that they are working on multiple new programs in

defense, which include artillery guns, vehicle, naval, aerospace, components,

and MRO.



BHCF is now participating in few large development programs which have huge

business potential if these fructify.



The company expects to receive the domestic ATAG order anytime now as the

bidding process is in its final stages.



It sees a significant growth opportunity in the aerospace segment and expects

this business to double every 2 years (80% exports mix)



The company expects the defense segment to garner INR10b in revenues in

FY24, which is expected to ramp up to INR25b in the next 2-2.5 years.



Defense business on an aggregate basis has strong double-digit margins.

CV exports outlook



The management indicated that emission norms will be effective in the US

Class8 segment in CY27. Hence, BHFC expects pre-buying to get triggered in

2025 and 2026. Hence, over the next three years, the US Class8 industry is

expected to clock 1mn sales, as per the management.



Hence, while the economic outlook remains uncertain, the US Class8 industry is

likely to see steady demand in coming years, led by pre-buying.



However, demand for Europe EV segment remains weak.

Update on overseas subsidiary



The management has indicated that it is passing on the impact of cost increases

to customers. Accordingly, it expects Europe margins to significantly improve in

FY25. While US margins are also expected to improve, it will happen with a lag.



Overseas subsidiaries are likely to post mid to high single digit EBIDTA margin in

FY25E.



While the US subsidiary is operating at 50% utilization, the Europe subsidiary is

operating at 70% utilization.

Update on JS Auto Cast



Although offtake from its key customer Vestas has declined, BHFC continues to

get new business wins and has secured INR2b worth of new business already

across segments.

February 2024

AUTOMOBILE | Voices

Also, after the acquisition of Indo-Shell, BHFC has a lot of capacity to ramp up in

coming years.



The management expects JS Auto Cast margins to improve from hereon.

Update on EV business



The management targets to supply a slew of products in the EV CV segment in

India, including motor, inverter, convertor and casting, chassis components, etc.



It expects content per vehicle to significantly increase in EVs in coming years.



While initial margins may not be good, BHFC expects a significant increase in

content supplied to EVs going forward.



BOSCH

Current Price INR 29,134



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Outlook for FY25:

IMF has predicted the global growth to be 3.1% in CY24, with

India seeing a higher growth rate at 6.5% due to solid domestic demand.

Considering the high base of last year and upcoming general elections, BOS

believes auto segment growth to see some moderation. Most of the advanced

economies are not doing well, in addition to the Red Sea crisis.

Segmental performance:

3QFY24 witnessed stable demand across segments

with 4% YoY growth (except 2Ws). There was 19% YoY growth in 2Ws due to a

low base effect.

In autos, powertrain segment solutions grew 20% YoY. The segment

outperformed the broader industry, driven by increased content per vehicle

mainly of exhaust gas treatment (EGT) components, higher preference for UVs

and MHCVs. 2Ws business grew 7% QoQ (vs. industry decline of 1%).

Automotive aftermarket grew 8.6% YoY due to higher sales of spark plugs,

filters, other BS6 requirements, and higher lubricant sales.

The non-auto segment grew ~32.5% YoY, led by 30% YoY growth in consumer

products and building technologies growth of 18% YoY. Growth was driven by

increased market demand for blue tools and accessories and execution of higher

number of orders for installation of security systems.

The company took another step in localization as it assembled and set up its first

fuel cell power module (FCPM). It would aid in testing fuel cell requirement in

domestic market. 3QFY24 saw a drop in traded goods on YoY basis to 51% from

55%,

indicating the company’s focus on localization.

Other expenses: There has been a reduction of INR470m due to the sale of

‘project house mobility solutions’ business, which the company transferred in

2QFY24. There has also been a reduction of warranty expenses on a YoY basis.

There is also a revaluation of payables, which may lead to an increase or

decrease in other expenses. There are also expenses due to BOS’s effort to

service clients, hence an increased income from services may lead to a rise in

these expenses. There are technical fees that BOS charges to its customers,

which were higher on a QoQ basis, indicating BOS’s focus on localization. The

company has a target to maintain other expenses as % of sales at 14.5% in a

normal business scenario.

TREM V guidelines for tractors:

The consensus view of the tractor OEMs is that

the guidelines are due in CY26. BOS is ready to supply to OEMs without much

delay.

Electrification:

BOS believes that the domestic commuter scooter segment will

see significant electrification. It is already supplying hub motors to OEMs and

February 2024

AUTOMOBILE | Voices

has been localizing production lines of motors for OEMs so that customers

receive PLI benefits. Globally, EV is a low margin business and so BOS is taking a

calibrated approach toward profitability, moving in tandem with customers. As

the tier-1 supplier in China, it has just broken-even despite China being the

largest EV market. In India, it has qualified for the PLI scheme with Bosch Auto

Automotive electronics (contract manufacturer for BOS), but disbursements

have not started yet.

Hydrogen truck:

This is the easier platform for OEMs to adopt as there are

modifications to the existing ICE platform. Hydrogen is highly corrosive gas, with

high safety requirements needed for its smooth operation. BOS believes,

despite numerous challenges, pilot vehicles should be out in the next one year.

There are challenges even on the distribution side of hydrogen.



CEAT

Current Price INR 2,888

Click below for

Detailed Concall Transcript &

Results Update



Buy

Outlook:

Rabi sowing has been normal and all economic macro indicators are

positive. OEM volumes should see a slower growth in CY24, due to high base

effect of CY23. However, replacement and exports should continue performing

well.



3QFY24 volumes grew 12.5% YoY, driven by 11%/9%/25% YoY growth in

replacement/OEM and exports.



Replacement-

The industry experienced double-digit volume growth in scooter

tyres, with CEAT securing an increased market share in this segment. PVs/CVs

witnessed low double-digit growth, while 2Ws exhibited over 20% volume

growth. TBR tires showed growth on a small base of last year. OHT remained

weak in terms of performance.



Overall volumes registered a 2% decline QoQ wherein OEMs experienced a

decline and other segments remained relatively flat or showed a slight positive

trend.

Exports



Export volumes grew 25% YoY (flat QoQ). The EU is facing a challenging

environment in EU due to the shift from summer to winter tyres (with

customers already having old winter tyres at home). Volumes are anticipated to

rebound in 4Q to cater this demand. Additionally, the company would be

launching two of its tyre categories (PCR and TBR) in the US/LatAm markets,

leveraging its presence in OHT. Operations in Africa and the Middle East are

performing well. In Sri Lanka, the business witnessed a strong revenue growth

and profits on a YoY basis with the local currency stabilizing.

Plans to double exports revenue in the next three years. This would be on the

back of a) Market-specific products b) strong distribution partner c) investments

for branding in the geographies (e.g., IPL in India)

It would be focusing on the value segment of the market. It reduced prices in

the export markets to stay competitive v/s Korean peers as market may see

down-trading, due to a weak environment and CEAT may gain market share.

Despite these, Chinese tyres are the cheapest in the market and European tyres

the most expensive ones. However, despite the price correction, margins of

export markets remain attractive.

February 2024

AUTOMOBILE | Voices

Freight rates would be affected due to Red Sea crisis both on the import and

export side. But it would be more significant on the western side, particularly in

the EU, as opposed to China/South-east

Asia, where CEAT’s most imports

happen. Hence, the major influence will likely be felt on the export side, mostly

to EU, rather than affecting countries such as the US/LatAm. It sees steel radial

opportunity even in OHT, which should pan out in the next 12-15 months.

Replacement market:



CEAT has able to maintain prices in the replacement market.



Its market share in PV has increased to 16% now (vs. 11% in FY19). After two

years of strong OEM growth in PVs, the replacement side of business should be

picking up where CEAT is seeing premiumization playing out in terms of higher

rim sizes of tyres. It also has brands such as Secura Drive, and CrossDriveAT to

cater to this demand.

OEM market



There were some price corrections attributed to indexation-related changes

occurring every quarter, with an anticipated reversal in 4Q due to elevated RM

costs in 3Q.



It has a 40% market share in EV OEMs across categories.



RM prices remained elevated in 3Q and saw a 2.5% growth sequentially. RM

costs are expected to remain stable at these levels in 4Q.



Margins to remain range bound at ~14% despite good growth in the domestic

replacement and focus on exports.



New launch of steel radial tyres for domestic premium motorcycles (an import

substitution opportunity): Presently, only 3% of the motorcycles use steel radial

tyres and they are mostly in the premium segment (1000cc segment). Steel

radial tyres are expected to see a strong growth in the coming years as people

are travelling long distances and the requirement of these tyres are higher. It

has already launched these tyres with RE 450/650cc motorcycles.

Capex-



Maintained earlier guidance of INR8b (9MFY24/3QFY24 capex incurred at

INR6.05b/INR2.1b). The company anticipates reaching INR10b in FY25, although

a reassessment will be conducted at a later stage.



The OTR segment to see expansion to 160tons/day from 105tons/day with a

capex of INR1.6b.

Others-



Working capital during the quarter came down by INR1.1b, driven by

improvement in receivables. Ended quarter with a negative WC of INR2.5b.

However, due to the recent Red sea crisis, WC cycles may get disturbed owing

to longer shipping times to customers.

Capacity utilization at all plants stood at 75-80% levels (vs. TBR which is at 95%

levels).

Net debt stood at INR17.3b as of Dec’23 (-INR1.6b

vs 2Q). D/E stood at 0.4x and

D/EBITDA at 1.05x. Would be comfortable at D/EBITDA at 1x.

February 2024

AUTOMOBILE | Voices

Craftsman Automation

Current Price INR 4,452



Buy

Click below for

Detailed Concall Transcript &

Results Update

Powertrain- Expects high single-digit growth in FY25 as end-user industries are

likely to witness flat growth. However, it should see healthy double-digit growth

in FY26. There was a marginal increase in demand; however, overall it was a

weak quarter. The weakness in the market was due to the election year, and

hence there can be some reduction in volumes, especially in the construction

side and flat performance in CVs next year.



TREM-V

norms in the construction industry were supposed to come in Apr’23;

however, the government has deferred the timeline because of a huge cost

impact, especially on the farm sector. The company has already invested in

these lines and some of the products are totally new.



It has increased its capacity by 10% and has also refurbished old equipment,

which are more than 15 years old. About 70% of refurbishment has been done

so far and the balance will be done over the next two quarters.



The company won new orders for cylinder blocks from an SUV manufacturer

who was importing from Italy. It has already started supplying from last month.

The segment is going to benefit from the focus of large MNC players in India.



Aluminum Casting- Expects the division (including DR Axion) to grow by high

teens in FY25. With the new facility coming up, FY26 growth should be over

20%. Peak revenue from the new plant stood at INR3b. Healthy growth was

led by 2Ws, while the PV segment has not picked up materially during the

quarter.



Expects EBITDA margin to sustain in the range of 16-18%.



The company is looking at the global scale of operations in aluminum. The size

of top 10 players is between USD1b to USD4b, and the company aspires to scale

up its operations to at least USD500m over the next 2-3 years.



Industrials- Expects the storage segment to grow by ~15% in FY25 on a lower

base.



The storage division’s turnover stood at INR2.61b (vs. INR2.71b) due to low

investments in the warehouse industry. It is expected to recover in FY26.



The company is now looking for backward integration by doing castings of more

critical parts of windmill gearbox housing. It is at an advanced stage of

negotiations and should get LoA in the next few months with a sizable order.

Financials



EBITDA for Powertrain/aluminum/industrial categories stood at INR3.33b/

INR1.27b/INR0.68b. Value add for the segments stood at

INR2.37b/INR0.97b/INR0.73b, respectively.



The company believes the current D/E of 0.86x and debt/EBITDA of 1.6x are at

comfortable levels.



Incurred capex of INR3.95b as of Dec’23 to address new opportunities

expected

to come in the near future. Looking at capex of INR5b in FY24. FY25 capex will

depend on the operations of its plant in the north region.

Details about the two new plants-



Kothavadi- This is a 50-acre campus and it will house all three segments. The

size of the foundry is ~2k ton. Construction activity is in line with the timeline

and the company is looking to fast track the start-up production process, which

was earlier expected in 24-36 months.

February 2024

AUTOMOBILE | Voices



NCR- Making a composite unit in the vicinity of NCR for major customers in the

auto sector and for the storage solutions segment. The company has already

progressed with two clients and is under discussions with two more. The

company already has one bid in the auction in the Rajasthan industrial land

where it has got the allocation.

Eicher Motors

Current Price INR 3,828

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Royal Enfield:



RE launched two new models, Himalayan 450 and ShotGun650, in 3Q. Although

the management refrained from giving out any guidance on bookings, it

indicated that these models received healthy bookings in 3Q.



RE’s order book remains healthy at 3-4

weeks, depending on models and

variants.



While RE continues to have a healthy launch pipeline, the management

indicated that the bulk of its important launches are done and it would target to

leverage on these launches and get more revenues from existing products.



RE has seen retail sales growth of 13% in this festive season.



Export wholesales were down 24% YoY and retails declined 11% YoY, as RE

undertook inventory corrections given the slowing demand in key regions.



The management expects export demand to recover from key markets after 2-3

quarters.



The management indicated that the enquiry rate has increased by 15-16% YoY

in 3Q and bookings grew by 11-12%.



RE has maintained its market share in key geographies: 8-9% in Europe; 9% in

APAC; and 8% in the Americas.



The all-new Himalayan, which has many segment-first features, will be exported

to Europe in the coming months.



RE targets to launch multiple models on this new 450cc platform over time.



It has now launched two customer-friendly programs: 1) assured buyback

(industry first) and 2) REOwn. RE has almost 6mn active customers as per the

management. These programs are expected to facilitate their upgrade cycle.



RE has won the Indian Motorcycle of the Year award for the 4th consecutive

time in the last six years.



The management has refrained from giving any guidance on the launch timeline

for its EV project.



On account of the Red Sea crisis, RE is seeing some impact on logistics costs,

which have gone up by 25-30% in specific routes and the shipping time has

increased by 30 days.

VECV:



VECV gained market share in most major segments in 3Q.



It sold 20,706 units in 3Q, up 12.4% YoY.



In the HD segment, VECV posted 18% YoY growth to 6,210 units and gained

market share to 9.6%.



In the LMD segment, it posted 6% growth and gained market share to 34.5%.



In the bus segment, it posted strong 50% YoY growth to 3,409 units.

February 2024

AUTOMOBILE | Voices



VECV has unveiled its EV SCV in the 2-3.5T segment at the Bharat Mobility

Conclave, which is likely to be launched by 1QFY25. It will have an addressable

market of 300k units p.a. and would cater to last-mile delivery.

VECV also commenced delivery of their first EV truck in the 5.5T segment.

Regarding EV orders for buses from STUs, the management has clarified that

they would not bid aggressively to win contracts just for market share gains in

this segment.

Endurance Technologies

Current Price INR 1,831



Buy

Click below for

Detailed Concall Transcript &

Results Update

Demand:

2Ws should be doing 21m units in FY24 compared to the peak of

24.5mn in FY19. While 1H was weak, demand momentum picked up in 3Q, and

4Q is also looking encouraging.



3Q performance:

ENDU reported 25% YoY growth in revenue compared with

16% YoY growth in total vehicles. This outperformance was driven by the

execution of its order backlog in brakes, suspension, casting, and alloy wheels.

New order wins:



In 9MFY24, the company won new business worth INR9410m from OEMs other

than BJAUT (~60% new business and the rest was replacement). These orders

would peak in FY26.



In the last five years, ENDU won business worth INR39b (70% new order wins).



In 9MFY24, business wins from PVs stood at INR1285m (orders from Punch

Powertrain, TTMT, M&M and JLR).



INR17.3b worth of RFQs received from OEMs.



New order wins from OEMs:



EV orders - India:

ENDU has so far won orders worth INR6.8b in EVs

(HMSI/Ather Energy/BJAUT/Hero Electric/Greaves Electric/Bounce). This is apart

from new order wins of INR3.8b by Maxwell.

Expansion in manufacturing:



Commenced commercial production of surface mounting technology-based

battery management systems for Maxwell at Waluj in Feb’24. The peak value of

this business is 1,200m per annum, which would be achieved in FY26.



Al forging capacity at Waluj has been expanded to 1250 tpa in FY24. The

addition of another new press shall take the capacity to 1750 tpa in 1QFY25,

which would generate additional business of INR750m.



ABS capacity has been increased from 400,000 to 640,000 units per annum and

the company plans to increase it to 1.2m single/dual channel ABS by 2HFY25.



Alloy wheel capacity to increase from 4.5mn to 5.5mn wheels per annum by

1QFY25.



Established a new assembly line for scooter suspensions in Waluj for a Japanese

OEM.



Expanding Vallam/Waluj plants to cater to machined aluminum casting needs of

EV scooters for a Japanese/Indian OEM, respectively.



Structural Aluminum castings: Last year, it started a niche business of structural

aluminum castings, like swing arms, sub-frames, etc., for both EVs and ICE

models. This was done for BJAUT/TVSL and Piaggio. SOP for TVSL would start in

1QFY25, which would peak in FY25 with business value of INR1b. This would

have a higher content for ENDU.

February 2024

AUTOMOBILE | Voices



Targets to increase 4W revenue contribution from 26% to 45% by FY30: ENDU

targets to increase its 4W mix by increasing penetration in Al castings/forgings,

suspension, and brake assembly. Alloy wheel in 4W is another area, which ENDU

is exploring. The products would be powertrain agnostic and ENDU is open to

collaborations, acquisitions or JVs to gain access to OEMs or acquire new

technology.

EU:

Orders worth EUR29m won in 9MFY24 from VW/Mercedes.



Out of EUR113m of cumulative orders won in last 21 months; EUR60m (36%)

from BEVs, for which penetration in Europe has increased to 15% now.



There has been a slight delay in SOPs, especially in EVs, but this is expected to

be temporary and should normalize in the coming years, as per management.



ENDU plans to invest EUR50m to increase manufacturing capacity in EU.

Maxwell:



Orders worth INR1.2b won in FY23 and INR792m in 9MFY24 for BMS. RFQs

worth INR1b received from OEMs. Since FY22, orders worth INR3.8b have been

won by Maxwell, which would be fully realizes in FY27.



Won a new BMS order worth INR300m from RE; SOP

would start in Jan’25.



Due to localization issues, ENDU’s major EV customer Hero Electric (LOI worth

INR700m) is seeing a slow ramp-up in the current fiscal. The management

expects its ramp-up to resume in FY25.



As ENDU is a late entrant in EVs, it is taking longer than expected to enter

mainstream 2Ws, like BJAUT/TVSL.



Escorts Kubota

Current Price INR 2,928

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Agri machinery update:



Domestic tractors could see a 6-7% YoY decline in volumes in FY24, led by a high

base of last year and erratic and deficient rainfall. Commercial demand is also

soft due to a weakness in construction and mining. This translates to a volume

decline of 12-13% YoY in 4Q.



Inventory for ESCORTS stands at ~35-37 days (vs. 40-45 days for the industry)

and the company targets to maintain inventory at current levels going forward.



The company is focusing on ramping up its dealer network in Maharashtra and

Gujarat, which contribute to about 20-21% of industry volumes.

Exports:



Tractor industry exports declined 30% YoY as demand remained weak in the

US/EU. High inflation in these markets is hurting demand. There is also stiff

competition from Indian and Korean OEMs.



Currently 47% of the company’s exports are done through the Kubota

channel.

It targets to ramp up exports to 20-30k units in the next 2-3 years (from current

7-8k units). It is in the process of dealer consolidation and the whole process

should be over by next year.



Product gaps in the portfolio are currently being addressed and this should aid

growth in FY25.



Farm equipment exports are already happening to US/Thailand and this

generates INR1-1.5b revenues.

February 2024

AUTOMOBILE | Voices

Regulations: Upcoming TREM 5 norms for less than 50HP tractors have been

postponed to Apr’26. Post the implementation

of TREM 4 norms in the above-

50HP segment, there has been a shift toward the 40-50HP segment given the

sharp price increases. The contribution of the above-50HP segment in the

overall industry stands at 2% (vs. 7% pre-TREM 4 norms).



It has incorporated its captive NBFC last month and would take 6-8 months for

approval from RBI.



Replacement cycle for Agri tractor is 5-7 years and for Agri + commercial

tractors is 3-6 years.

Update on Construction Equipment Segment



While the long-term growth outlook remains strong, demand is likely to be weak

till Q1FY25 given the upcoming elections.



Note that BS-5

norms would be applicable from Jan’25, which could affect

demand due to price hikes.

Update on Railways segment



The order book stands at INR9b currently, up 40-50% in 3Q vs. 1HFY24 levels.



The management expects this demand momentum to continue in FY25 as well,

given the government’s long-term

plans to revamp Indian Railways.



Hero MotoCorp

Current Price INR 4,661



Buy

Click below for

Detailed Concall Transcript &

Results Update



Demand outlook-

Overall 2W industry revenues should be growing in double

digits in FY25 and HMCL expects to outperform the industry on the back of its

new launches, thereby implying market share gains. Also, industry growth is

likely to be driven by 125cc+ segment in FY25 as well.

Its inventory remains comfortable at 4-6 weeks.

New launches and distribution strategy:

While the management refrained from

giving out an order book number, it indicated that online searches for Xtreme

125R are higher than those for peer brands. HD X440 has an order book of 3-4

months. The company also launched Maverick 440, for which bookings would

commence this month and delivery is expected to start in Apr’24. The expansion

of Hero 2.0 stores is underway and the target is to scale up to 400 stores by the

end of 4QFY24 (vs. 300 currently) and 500 by FY25. The scale up of its

distribution network and new launches is expected to have a positive rub-off on

its existing models as well.

Electric scooters:

The company plans to launch more products in different price

points starting 1QFY25. It would launch one in the affordable category (possibly

priced closer to INR100k) and another in the mid segment (possibly priced closer

to INR125k). It would not look at discounting in EVs, like peers. The company

rather aims to expand the distribution; it is present in 100 cities/150 dealers /3-

4 formats. It has 18 Vida hubs

—

small-format exclusive dealerships, which

HMCL plans to scale up to 100 by FY25. It is also ramping up capacities to scale

up fast in FY25.

Electric motorcycles:

The management expects the EV transition to continue to

pick up pace in scooters and may not see any material ramp-up in motorcycles

in the near term, given unfavorable TCO economics for commuter electric

motorcycles at current prices. It would focus on premium electric motorcycles in

collaboration with Zero Motorcycles.

February 2024

AUTOMOBILE | Voices



Margins:

ICE margins stood at 16% in 3Q. As per the management, the impact of

EV sales on core was higher in 3Q (200bp) given the festive season and is likely

to be at 100-150bp in FY24. While input costs should remain stable, the

management expects a gradual uptrend in margins with improved mix.

Financing:

Finance penetration stands at 60-65% for the industry. Given that

financing remains one of the key growth drivers for the industry, HMCL has now

started a pilot e-Fin platform, where all financers are present on a single

platform for the ease of finance availability for customers.

Parts/accessories/merchandise revenues for 3QFY24 stood at INR1.43b (vs.

INR1.3b in 3QFY23).

It has approved an investment of INR6b over the next two

years to set up a global parts center (2.0) with a storage capacity of 36.7k SKUs

in Andhra Pradesh, which will take the total spare-parts revenues to INR10b.

This investment would be funded through internal accruals. Spare-parts sales

are expected to grow in double digits over the next few years. It would be

launching exclusive merchandise for HD X440/Maverick to enhance the

premium buying experience.

Focus on alternative fuels:

It is investing in R&D at a double rate vs.

competition. It is also working on flex fuel and new battery technologies. It is

also focusing on improving mileage of its vehicles.

Mahindra & Mahindra

Current Price INR 1,852



Buy

Click below for

Detailed Concall Transcript &

Results Update



Auto:

Expects MM’s SUV portfolio to grow by mid-to-high

teens in FY25 vs.

SIAM’s industry projection of 3-4%

growth for PVs and 10-12% growth for UVs.

Open bookings now stand at 226k units

(vs. 286k units in 2QFY24), including

~101k/71k/35k open bookings for Scorpio/Thar/XUV700. Cancellations were

10% in 3QFY24 due to year-end VIN change; however, they have now

normalized to ~8% in Jan’24.

Average monthly bookings continue

to be in the range of ~50k and delivery

average has increased to 40k units per month.

On track to achieve 4QFY24-exit capacity of 49k units per month.

However,

MM would not be able to scale up to 49k units wholesales due to variant level

demand-supply mismatch. 4Q is also likely to see some softness in wholesales

due to XUV300 ramp-down for mid-cycle enhancement.

Product-wise bookings:

i) Thar- healthy bookings of 71k units; 2WD contributes

50% of overall volumes. Not been able to ramp up 2WD production due to

engine-related capacity issues; ii) XUV700- 70% of the orders from higher-end

series. They would now target to advocate capacity and supplies for entry and

mid-level variants as well to get more breadth of customers in the same model.

The company is now reaching out to old XUV500 customers and focusing on

lower-end XUV700 models; iii) Scorpio Classic- continues to see better-than-

expected momentum despite the launch of Scorpio N series.

New launches-

MM is mindful of having a strong ICE portfolio. Two new

launches are coming in FY25: Thar 5 door and XUV300 mid-cycle refresh.

LCV- 3QFY24 market share stood at 49.6%, up 3.1% YoY.

M&M enjoys market

leadership in 3W EVs with 59.5% market share. EV in L5

category now stands at 11.6% for YTD and the management expects this

segment to see rapid electrification in the coming quarters.

February 2024

AUTOMOBILE | Voices



Farm- MM expects tractor

volumes to decline 10% YoY in 4QFY24 and 5% YoY in

FY24. Guidance for FY25 tractor demand is directionally positive. Some of the

positive indicators for FY25 demand revival include: expectations of healthy

monsoon, positive terms of trade for farmers, and normalized festive period

next year.

Retail demand is currently weak. Dealer inventory is slightly higher than 30 days

and the company expects to bring it down in next 3 months. Weak tractor

demand was partly attributed to reduced govt spending in rural regions in the

recent past, as per the management.

Tractor margins have been relatively low in FY24 due to adverse regional mix.

The management indicated that Telangana, Karnataka and Maharashtra have

underperformed other regions and these states see a higher mix of high-HP

tractor sales, which have higher margins.

PV EV industry has recently seen aggressive price cuts by competition due to

reducing battery prices and in response to MM’s re-launch

of XUV400.

CAFÉ norms- Likely to meet the norms comfortably in FY24.

LMM business has qualified for both

PLI and FAME benefits. NIIF’s India-Japan

Fund (IJF) invested in LMM at a valuation of INR66b, 10% higher than the

previous valuation.

For the EV SUV business, MM is expected to meet the localization norms by

2QFY25 and then it will apply for PLI.

Truck and bus business-

Market share has increased from 2.2% to now 3.2%.

Out of the top-40 dealers, 8 or 10 have more than 10% market share in their

respective regions. MM expects to gradually ramp up its dealer network in CVs

going forward while focusing on dealer viability. This business already has a

revenue of INR30b with a 3% market share and MM targets to get to INR10b in

revenue and 7% market share, which would make the business profitable.

Farm machinery business-

As per management, this business is 1.5 to 2 years

away from breakeven; by the time, it is expected to meaningfully contribute to

revenue.

Red Sea issues-

The only minor impact for MM is the delay in exports of Oja

tractor to North America by 4-5 weeks, which is now factored in by distributors

as well. MM does not see any material increase in input costs or any material

disruptions in its supply chain currently.

EVs



Maruti Suzuki

Current Price INR 11,446

Click below for

Detailed Concall Transcript &

Results Update



Buy



Demand outlook:

Preliminary estimates by SIAM indicate that PV volumes in

FY25 should be ~4.3m units (vs. 4.18-4.20m in FY24E).

The small car segment is shrinking both in absolute and percentage terms.

Recovery will largely depend upon the improving income level of the customers

of those segments.

The first-time buyer (FTB) mix reached the highest of 47% in FY21 and it went to

a low of 38% in the last quarter. It has now increased to 41%, however, the

outlook still remains uncertain.

Semiconductor shortage

is over for the foreseeable future. However, there are

some minor bottlenecks, which are holding up CNG supplies.

February 2024

AUTOMOBILE | Voices

Exports:

The company aims to sell ~750k units in the exports market by the end

of the decade (vs. ~270k in CY23).



Africa

is turning out to be a good market. The Middle East has picked up quite

well. The government is also signing FTA’s due to which the company has got

benefits of duty in UAE and gulf countries. Top MSIL models in exports are

Baleno, Dzire, Jimny, Swift and Vitara.



The Red Sea crisis is impacting the overall logistics arrangement adversely, and

has also resulted in a minor increase in the cost.



CNG mix was 16.5% in 3QFY24 (vs. 15% in 2Q) for the industry and ~30% for

MSIL. The company has a portfolio of 14 vehicles in the segment. MSIL sold

~127k units in 3QFY24.



MSIL is seeing further headroom for penetration as there are key models with

higher CNG penetration such as Ertiga (57%), WagonR (50%), and Dzire (44%).

Delhi, Mumbai and Gujarat have been traditional CNG markets and now

markets like Pune are also picking up.



EVs:

MSIL will start the production of BEV in 2024. The mid-SUV model will be

sold in the domestic market, along with the exports market, such as Japan and

Europe. The model is an upmarket EV. It is bigger than the Grand Vitara, and has

a higher range of 550km with a battery of 60kWh.



Capacity expansion-

As mentioned earlier, the company is planning a two-fold

increase in its annual production capacity to ~4m units by FY31.



It is setting up a greenfield at Kharkhoda and construction is already in progress

for its first plant with a capacity of 250k units, to be operational in 2025.



It also plans to set up four such plants with total capacity of 1m units.



It has signed an MoU with the Gujarat government to set up a new

manufacturing plant, with an aim to start production in FY28-29.



Inventory level

stood at ~45k units at the quarter end after de-stocking

happened in Dec’23, wherein it reduced the stock by ~115k units. The pending

order backlog stood at ~215k units (vs. ~288k units in 2QFY24).

Other highlights



MSIL’s retailed ~530k units in 3QFY24.



Discount for the quarter stood at INR23,300/vehicle in 3QFY24 vs. INR17,700/

vehicle in 2QFY24.



Announced price hikes of 0.4-0.5%.



Commodity: Steel prices may show upward movements, while management

expects continuation of the past benefits of palladium, rhodium, etc.



Motherson Wiring

Current Price INR 72



Buy

Click below for

Detailed Concall Transcript &

Results Update

3Q performance and demand: Strong revenue growth was driven by healthy

demand for feature-rich models, leading to higher content per vehicle. This was

achieved despite maintenance shutdowns and no impact of copper price pass-

through at customer’s end. The company is seeing stable demand from

2Ws,

PVs, buses, and SCVs, while truck demand is muted.

Focus on localization: MSUMI is working in tandem with customers to localize

parts, but there are some parts that are still imported. The company has



February 2024

AUTOMOBILE | Voices

localized connectors and is setting up a new plant to localize a new range of

electric wires, which are as per global standards.



The share of EVs in the total mix remained stable QoQ. The US/EU are seeing

some weakness in EVs, but India is doing fine.

New capacities are ramping up well and the company would further expand

capacity to fulfil future demand.

FY24 capex would be ~INR1.25b, with plans for FY25 still being evaluated.



Samvardhan Motherson

Current Price INR 113



Buy

Click below for

Results Update



3QFY24 performance-

Global automotive PV volumes remained positive overall.

Production grew YoY across geographies.

Contribution from acquisitions: 3QFY24 revenues/EBITDA of INR257b/INR23.7b

included INR39.9b/INR4.1b of revenues/EBITDA from acquired assets (vs.

INR18.25b/INR1.8b in 2QFY24).

Outlook:

Truck demand is softening in EU but remains strong in the US.

The devaluation of Argentina’s currency (Argentina Peso/USD at 808 as of

Dec’23 end vs. 203 as of Mar’23 end) affected the company’s EBITDA/PAT. It led

to an impact of INR690m in other expenses (EBITDA margins would have been

2-3% higher) and INR1.2b loss in net monetary position (accounted in increased

interest expenses) in subsidiaries. Discussions are going on with customers to

address the currency devaluation situation.

Recent acquisitions of Yachio/Cirma/ADI group/Lumen

are expected to yield

EUR1.2-1.3b in revenues in FY25. Depreciation costs are also expected to remain

high for the next 3-4 years due to the acquisitions.

Finance costs

would remain elevated as loans with lower interest rates are

getting refinanced at higher rates and the Argentina Peso devaluation led to a

rise in interest costs. A EUR300m bond payout due in Jun’24 would be

refinanced at a higher rate. However, the average yield on debt should decline.

Net debt-to-EBITDA ratio is at 1.7x

(vs. 1.9x at the end of Sep’23 vs. target of

1.6x at end of 4QFY24). Net debt declined by INR8.7b QoQ to INR12.55b despite

M&A payouts of Dr. Schneider, Deltacarb, and SMAST.

Red Sea crisis:

The company has passed on the majority of freight costs to

customers.

Out of INR45b capex guidance for FY24, it has already spent INR33b in 9MFY24

(INR18b is growth capex, of which 50% is spent in India). To cater to the rising

demand, the company is setting up 11 greenfield plants in India, which would be

operational by FY25.

RoCE for 9MFY24 stood at 17%,

excluding the acquisitions and the greenfield

plant (vs. 16% in 1HFY24 and 12% in FY23).

February 2024

AUTOMOBILE | Voices

SONA BLW Precision

Current Price INR 639



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Outlook:

North America (39% contribution) and EU (25% contribution) light

vehicle markets (70% revenue contribution in 9MFY24) appear promising going

ahead, with major OEMs focusing their attention on electrification (70% of new

model launches in CY24/25 are EVs). Further, NA customers are offered

USD7,500 tax rebate (USD 3,750 for PHEV), providing an incentive that is

expected to drive demand among end users. In contrast, the India market

remains a mixed bag with CVs anticipated to experience a decline due to

election year and weakness in the off-highway segment. However, PVs are

expected to remain stable. The current impact of the Red sea crisis remains

negligible; however, it may lead to higher inventories and longer delivery time

to NA and EU customers.

3Q operational highlights:

Revenue growth stood at 13% YoY (vs. 11% YoY

growth in top-3 markets of NA, India, EU). Weakness in the domestic off-

highway segment resulted in a decline in revenues for both differential gears

and differential assemblies during the quarter. Some e-2W OEMs offered

aggressive discounts (expected to continue for a few more months), which led

to a decline in sales for SONACOMS customers, thus impacting the contribution

from traction motors. Additionally, the company incurred a revenue loss of

INR250m due to the UAW strike in NA in Oct’23. And it expressed confidence in

partially recovering this loss 4Q.

Raised EBITDA margin guidance to >28% (vs. 25-27%) quoted in earlier

interactions.

BEV contributed 30% of the revenue (vs. 27% in 2QFY24) at INR2.2b in 3QFY24,

resulting in 28% YoY growth.

Added 5 new EV programs (including 2 new EV customers):

New order book has increased to INR240b at the end of 3QFY24 vs. INR221b by

2QFY24-end, 79% of which is EVs.

Won an order from Indian ICE & EV 2W customer of INR3.45b for integrated

motor controller. The SOP is scheduled for 1QFY26.

Received another order from an existing customer (Global OEM of EVs for

electric SUV) for spool gears, with an order size of INR5.7b. The SOP is set for

4QFY24.

Received another order from an existing customer (North American new age

OEM of electric PVs) for epicyclic geartrain and rotor shaft with an order size of

INR990m; SOP from 1HFY27.

Added a new product- Integrated motor controller

which would be supplied to

e-2W OEMs. The product has a compact design and better thermal

management system, which would improve electric powertrains.

Currently, it is testing and validating EV bus motors with Equipmake; planned

launch by 4QCY25/1QCY26

Its global market shares in differential gears/starter motors stood at 8.1%/4.2%

in CY23 (vs. 7.2%/4.1% in CY22).

February 2024

AUTOMOBILE | Voices

Tata Motors

Current Price INR 926

Click below for

Detailed Concall Transcript &

Results Update

Buy

Outlook



Demand- Not seeing any demand issues in the US while Europe is relatively

stable. Not seeing any change in the pace of EV penetration.



EBIT margin expected to be over the 8% target for FY24.



Investment spending is expected to be GBP3.2b in FY24.



It continues to expect operating cash flow to support net debt of <GBP1b by the

end of FY24, and anticipates net cash in FY25.



Decline in Defender sales in 3Q (27.1k unit’s v/s 30.5k units in 2QFY24) was due

to supply-side issues and not due to demand contraction.



Gross margin was higher due to favorable product mix and seasonality. There

was a one-off employee cost incurred by TTMT. The company has concluded a

deal with the labor union for a 3% base pay increase plus a fixed bonus and 3.5%

bonus with company performance-related bonus in the second year amounting

to 11% over two years, if the targets are met.

Performance



Order book continues to reduce as production increases followed by a focus on

building demand as supply constraints ease. OB stands at 150k units (vs. 168k

units in 2QFY24).



EV Range Rover’s electric waiting list opened up in Dec’23 with 16k clients (the

no. of deposits taken from these clients).



Investing GBP70m in an underbody facility opened at Solihull to accommodate

production.



There will be no change in JLR’s EV plan due to UK government’s change in

stance for EVs.



Red Sea crisis: 15% of sales in China goes through the Red Sea route. There is an

initial impact and TTMT will keep an eye on it



Expect some increase in VME from 2.5% but not materially high. Would expect

little bit working capital in 4QFY24.



Range Rover BEV is expected to be in the market in the next 12 months.



Breakeven will increase over the next 18 months as mix move away from

Defender. However, it will not change materially.



EBIT margin guidance of 10% by FY26.



Tax rate is volatile and is trending at ~22%. It should be around 25% in the

coming years.

Tube Investments

Current Price INR 3,716



Buy

Click below for

Detailed Concall Transcript &

Results Update



Metal form-

Tenders are coming back; however, the business is getting more

competitive. Margins seem to be under pressure in the near term. If the

announcement of converting 40k wagons to Vande Bharat standard gets

implemented, then it will boost demand and will add to revenue.

Hyundai will use its Gujarat plant for the door frame project and the company

has already submitted the samples. However, this should take another one year.

Mobility-

Taking steps to diversify into exports. However, it will take some time

for customer approval as it needs to go through an entire process. It is also

February 2024

AUTOMOBILE | Voices

focusing on other accessories business like spares. Cost reduction efforts are

being undertaken and business should start showing positive momentum in the

next couple of quarters.

Engineering-

2W segment is seeing growth revival, but the company is

diversifying into PV, HCV, and 3Ws as well.

TICMPL-

The company plans to raise funds in the near term. It has incurred a

capex of INR3b in 9MFY24 and targets a capex of INR4.6b in FY25 for all

businesses. The company has incurred a capex of INR17.7b in 9MFY24.

3Ws-

it is in the process of expanding its dealership network and increasing

production, while supply chain issues have already been addressed. Received a

healthy response in south and currently in the process of adding dealerships in

the north. Expects to have 75 dealers by 4Q-end vs. 40 by 3Q-end.

HCV-

Added 1 large order and delivery should start in 4Q. For SCV, the company

will incur costs related to tooling for the cabin and factory build-out in 3Q.

Tractors-

It is in the process of homologation of tractors and expected to launch

in the market by Sep’24. The factory is 85% build-out

and it will require some

more costs around homologation and factory build-out over the next 3 quarters.

Standalone business-

Incurred capex of INR2.2b in 9MFY24, of which INR1.6b

was for the engineering division. Guided for capex of INR3.5b in FY25. It is

currently operating at a utilization level of 85% and is expected to reach 95% by

end of this year. The capex cycle time is 12-15 months. Exports (15% to revenue)

is back to normal in terms of customer uptake. However, currently there are

supply challenges due to the Red Sea crisis.

The current net debt stands at INR2b. The company will generate FCF of

~INR6.5b on a standalone basis.

Jayem-

It is leading the development of first SCV, which is of 3.5-ton. It will

develop three products on that platform.

Lotus Surgical-

Lot of investments are going into building the sales team and

getting certifications. It is also investing in Europe. The company expects the

business to pick up in future. Amortization of intangible assets is impacting EBIT

margin; however, it is already generating cash.

CDMO-

The company has already developed a couple of products, which will go

into the facility.

Large diameter-

Capex is half way through and is expected to be completed by

2QFY25. Trials are happening on the capex that has already been completed and

it is in the process of getting products approved by customers. There is a good

headroom available for the export market.



TVS Motors

Current Price INR 2,119

Click below for

Detailed Concall Transcript &

Results Update



Neutral



Domestic-

The management expects positive demand momentum to continue

in 4Q, driven by healthy growth in rural areas despite some challenges in

sowing. Retail financing has also been favorable. TVSL believes growth will be

significant in urban and semi-urban regions.

Exports-

A recovery in international markets should continue as inflation is

settling down; however, currency availability is still an issue in African markets.

Customer retails are happening. Sri Lanka has started opening up.

February 2024

AUTOMOBILE | Voices

Red sea crisis-

The pricing of containers has gone up due to the ongoing supply

chain crisis.



iQube-

The company currently has 400 touchpoints and it aims to double that in

the next three months. New product launches are likely to follow. Gross margins

are positive and will continue to improve. Capacity is in place and got a

supportive supply chain as well; hence, it will take just 3-4 months to increase

the capacity if required.



Norton-

Coming out with a very clear product plan and the focus will be in India

as well. It will take 6-8 quarters to realize the product benefits.

Financials-



Spares parts revenue stood at INR7.92b for 3Q and exports at INR18.82b.



Retail finance penetration for the quarter stood at 65%.



USD-INR rate stood at INR83.



Investments- TVSL has invested INR800m in Norton, INR1-1.2b in other

subsidiaries, and some investments in Killwatt and TVS Digital.



The company has guided for capex of INR20b (including INR10b for EVs) for

FY24.



TVS credit-

PBT grew 75% to 2.29b in 3QFY24. Gross book size stands at

INR250b with GNPA at 3.1% and capital adequacy ratio of 8.6%. Disbursements

stood at INR70b vs. ~INR60b in 3QFY23.



February 2024

CAPITAL GOODS | Voices

CAPITAL GOODS



| Voices

EPC companies reported robust visibility from sectors such as power T&D, renewable energy, data centers,

real estate, and defence. In international markets such as the Middle East, companies have guided for a

better-than-expected tendering pipeline, chiefly from Saudi Arabia, UAE, Kuwait, Qatar. Margin guidance has

been revised slightly downward, with the expectation that a return to double-digit levels will take a few

quarters. This is due to the winding down of legacy projects nearing completion, while newer projects are yet

to the margin recognition threshold. Accordingly, double-digit performance has been deferred to 2HFY25.

Most of the companies reported healthy order inflow and execution growth during the quarter, largely led by

up-fronting before the election schedule kicks in. Most companies foresee a temporary slowdown in

government ordering in the ensuing one to two quarters; however, private sector should not really be

affected by the same. Product companies have seen improving margins, led by easing RM inflation and

favorable product mix, especially for genset players. International geographies have been a mixed bag for

companies with continued weak exports for Cummins, while L&T, Kalpataru, Triveni Turbine witnessed strong

traction.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook



Decline in order inflow for DI business



Expect this to normalize 3QFY24 onwards

Siemens



Domestic Capex Cycle

Capex demand across segments, largely driven by capex

spending in Public Infrastructure, continues to be good.

Private capex is also beginning to pick up.

Robust demand from commercial and residential real

estate, data centres, etc.

Muted demand from the railways segment

Strong demand across key industries

B2C business too expected to ramp up in the coming

quarters

Outlook remains robust on the back of government

spending and stable macroeconomic situation. Some

transient slowdown can be expected due to elections.



Cummins

Maintained double-digit revenue growth

guidance for FY24 with ~100bp margin

expansion

Expect some amount of pre-buying in 4QFY24

Reiterated strategy of 2X3Y by FY25



KOEL



Larsen and

Toubro



FY24 revenue and OI guidance revised upwards

on the back of strong YTD performance

Healthy prospect pipeline in the MENA region



While base ordering momentum is stable, large

orders will start flowing in FY25 onwards



Thermax

Strong domestic order pipeline, especially from power

and steel. Cement is fairly decent, but still below levels

seen two years ago. FY25 to see pick-up in steel and

power (both utility and captive).



BEL

Maintained FY24 revenue growth guidance of

15% and order inflow guidance of INR250b for

FY25 and FY26 each.

Robust prospects for exports and aftermarkets

for near to medium term

Domestic order inflows to improve in 4QFY24

Maintained guidance of double-digit margin by

FY25



Triveni Turbine

Witnessing a healthy uptick in private sector capex,

which seems to be sustainable



Hitachi Energy

Robust traction in power T&D, renewables, data

centers, etc.

February 2024

CAPITAL GOODS | Voices



Kalpataru

4QFY24 will see a 25% revenue growth, leading

to an overall FY24 growth of 20-21%. The order

book is expected to touch ~INR520b-530b by

FY24-end

FY24 margin and order inflow guidance cut;

double-digit margin to be achieved in 2HFY25



Strong domestic and international T&D pipeline, driven

by the shift towards renewable energy

Healthy traction in real estate, data centers, water, etc.



KEC

International

T&D pipeline in both India and international is very

strong; expect 1 or 2 HVDC projects to be awarded in

FY25.

Cummins India

Current Price INR 2,629



Buy

Click below for

Detailed Concall Transcript &

Results Update



Domestic demand:

Domestic demand traction is robust across key industries,

such as commercial and residential real estate, data centers, infrastructure,

manufacturing, etc. Data centers will continue to see strong capacity additions,

driven by 5G rollouts, better connectivity, and expansion of the telecom

network, which will lead to higher data consumption and therefore higher

storage demand. Similarly, real estate, which had underperformed in the past, is

now seeing healthy momentum. All these factors are translating into a strong

demand environment for Cummins and other players.

Export markets:

Exports witnessed a sharp decline in 3QFY24 due to muted

market sentiments across key geographies, e.g., the Middle East, Europe, LatAm

and APAC. The weakness in exports can be partly attributed to seasonality

because of the festive period and inventory corrections, which typically take

place in 3Q. The company believes exports have bottomed out, and we expect

exports to start recovering in the coming quarters.

Distribution segment:

The distribution segment is exhibiting robust growth with

higher demand for spares. There is a higher requirement of service and O&M as

customers are more sensitive to downtime in case of any product glitches.

Industrial segment:

There is a marked slowdown in the domestic railways

business (part of Industrial segment) and the company is entering into

segments, in which it lacks a meaningful presence.

3QFY24 performance: The current quarter witnessed a record-high operational

performance on the back of a favorable revenue mix (higher share of HHP and

aftermarket), commodity benefits, and cost reduction initiatives. Notably, there

was a delivery of a lumpy order from the data centers side, which provided a

boost to revenue and margins. By its very nature, data centers will continue to

be a lumpy business and there is robust visibility for the coming 2-3 years.

CPCB IV+ transition:

The contribution of CPCB IV+ in the current quarter was

less than 25%, with ~3,000 units sold in the regions where emission norms are

more stringent. It would, therefore, be premature to extrapolate any pricing

trends. While the company was able to fully pass on price hikes for ~3,000 units,

more clarity will emerge once the entire transition takes place by 1QFY25.

Supply chain:

The Red Sea crisis and other geopolitical tensions have not had a

material impact on the company’s operations and have only led to a marginal

increase in shipping costs and delays (2-4 weeks). The slowdown in China has

ensured better availability of electronic components; however, some issues

persist. If the situation in China improves, supplies of such components might be

affected.

February 2024

CAPITAL GOODS | Voices



3QFY24 revenue breakup:

Industrial

–

INR4.12b (+ 20% YoY), Powergen

–

INR10.7b (+51% YoY), Distribution

–

INR6.6b (+26% YoY), HHP exports

–

INR1.4b

(-38% YoY) and LHP exports

–

INR1.5b (-44% YoY).

Guidance:

The management has maintained double-digit revenue growth

guidance for FY24, with a ~100bp margin expansion on the base of past three

years’ average.

Hitachi Energy

Current Price INR 6,100

Click below for

Detailed Concall Transcript

& Results Update



Sell



Management highlighted that macroeconomic indicators continue to be robust,

and growth drivers such as renewables, T&D, railways, data centers, steel,

cement, etc. are expected to witness a long-term growth trajectory on the back

of government’s thrust on

capex and manufacturing-led growth.

During the quarter, order inflow momentum remained strong from renewables

and data centers, while transmission and railways saw some moderation.

However, the long-term outlook remains intact with a healthy investment

pipeline in the form of HVDC, TBCB projects, metros, HSR, electrification, etc.

Management maintained its double-digit EBITDA margin guidance by the end of

FY25. Margin improvement will be driven by higher share of exports, services

and operating leverage benefits from ramping up of recently-added capacities.

The share of exports is at ~25% and services is ~9-10% in the current order book.

3QFY24 margin had an adverse impact of forex loss of INR98m.

The Board has approved related-party transactions for an aggregate value up to

INR7b, involving the purchase and sale of products and services to Hitachi

Energy Sweden AB on an arms’ length basis. Since it is above the threshold of

10% of previous year’s revenue, minority shareholders’ approval is being sought

for the same (68% of INR7b has already been spent to date). Management

assured that this transaction is not expected to have any bearing on the margin

trajectory.

Out of overall exports, ~50-60% are done to the parent entity and the balance to

the third parties. Exports accounted for ~25% of the order book of INR75.5b.

Revenue recognition for the Mumbai HVDC project will commence by 4QFY24

based on milestone completion. Similarly, the STATCOM project has an

execution timeline of ~24 months. Revenue recognition can start upon receipt

of technical, design and other approvals which are expected to take two

quarters.

Capacity utilization across various facilities is in the range of ~75-90%, and the

new facilities are expected to ramp up soon, which should support further

margin expansion.

Kalpataru Projects

Current Price INR 925



Buy

Click below for

Detailed Concall Transcript &

Results Update

Strong domestic T&D pipeline:

There is a very robust T&D pipeline in India and

international markets given the shift towards renewable energy and relative

underinvestment in the past few years. There is a domestic pipeline of INR400b

in the near term basis the announcements by REC and PFC for renewable

projects. LatAm, the Middle East. and Africa to provide healthy visibility, and

herefore, clocking in 15-20% revenue growth should not be a challenge.

February 2024

CAPITAL GOODS | Voices



Non-T&D outlook is also strong:

On the non-T&D side as well, there are strong

prospects across the Buildings & Factories, Water and Oil & Gas segments. B&F

is benefiting from investments taking place in airports, commercial and

residential real estate, data centers, industrial plants, educational institutes, etc.

Similarly, there is a healthy execution of water supply projects and ordering is

expected to pick up next year. The railways segment continues to see

heightened competition, and smaller players are bidding aggressively owing to

which the company has adopted a selective approach. Management doesn’t

expect any material improvement in FY25 either.

Ordering to see some impact of election:

The company has managed to achieve

~95% of the targeted order inflows for FY24 in 9MFY24 itself. Though 4Q is

expected to see some slowdown owing to the general elections, international

non-T&D ordering can offset the same. The company is confident of the 3QFY24

L1 position of ~INR60b getting converted to order inflows in 4QFY24. By end-

FY24, the order book is expected to touch ~INR520b-530b.

Guidance on revenues:

4QFY24 execution growth is expected to be above 25%,

and therefore overall FY24 growth should be in the region of 20-21%.

Capex: The company has incurred capex of ~INR2b in 9MFY24 with another

~INR1b earmarked for 4Q. for FY25, initial capex guidance stood at ~INR4-5b.

Fixed and variable pricing contracts:

The current order book of INR517.5b has a

fixed/variable component of 35%/65%. However, the variable component in

B&F is much higher at 90%.

Non-core divestment still some time away:

In terms of divesting non-core

businesses, the company expects to exit the Indore project by Dec’24 and has

already appointed bankers for the road project (VEPL). However, Shubham

Logistics will not be divested earlier than FY26, while the other two road assets

will be concluded at a later date.

KEC International

Current Price INR 654



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Management indicated healthy opportunity pipeline in T&D segment for both

India and the Middle East led by investments taking place towards renewable

energy and strong budgetary support for infrastructure. There is a domestic T&D

pipeline of ~INR250b from TBCB projects and one or two HVDC projects in

Gujarat, Rajasthan and Madhya Pradesh. KEC expects to bag at least one such

project in FY25. However, ordering activity could slow down in the election

period.

Similarly, the situation in the Middle East remains sanguine, especially in Saudi

Arabia, Oman, UAE, Kuwait, etc. on the back of a continued capex thrust in the

region. Compared to domestic tenders, the eligibility criteria are very stringent

and

hence competition isn’t as intense as India. The company has an order book

+ L1 of ~INR65b in the Middle East. Notably, demand is robust in other countries

such as Chile, Colombia, Australia, etc. and the company has earmarked a capex

of ~INR600m to expand

its Dubai conductor’s facility by 20%.

The company has an order book of INR301.1b and is L1 in an additional ~INR8b

of tenders. Order inflow during the quarter slowed down to ~INR38.5b vs.

~INR45b in 2QFY24. Given the robust momentum in T&D, the company opted to

bid selectively for civil and railways orders where competition is rising. Given

February 2024

CAPITAL GOODS | Voices

weaker-than-expected order inflow and 4QFY24 being impacted by elections,

KEC might not be able to achieve its earlier order inflow guidance for FY24.

Given the below-expected margins, management slightly revised its FY24 margin

guidance downwards and double-digit performance has been deferred to

2HFY25. Legacy orders will largely be over by 1QFY25. Similarly, tentative

revenue guidance for FY24 was ~INR180b-190b.

Though Civil segment order inflow was on the lower side, management

maintained its target of achieving 30% revenue growth in FY25 on a healthy

base of FY24. The confidence stems from healthy opportunities across

commercial and residential real estate, data centers, water, etc.

Working capital situation has improved marginally to 129 days in 3QFY24.

Management expects a further reduction to ~110 days by 4QFY24. Net debt

(including acceptances) reduced sequentially by ~INR3b to ~INR60b.



Larsen & Toubro

Current Price INR 3,354



Buy

Click below for

Detailed Concall Transcript &

Results Update



Record high order book:

Driven by a strong capex trend in the Middle East,

9MFY24 order inflows at INR1.8t for core E&C (+65% YoY) surpassed the FY23

level, taking the total order book to a record INR4.7t (+22% YoY). International

orders accounted for 39% of the order book. Order inflows came mainly from

the hydrocarbon, solar EPC & power transmission, water utilities, buildings &

factories, and minerals & metals sectors. The domestic order book is comprised

of orders from the central government (12%), state government (31%), state

PSUs (35%), and private players (22%). About 18% of the order book is funded

by multilateral agencies. The Middle East accounted for 92% of the international

order book,

with 80% of orders coming from Saudi Arabia. LT’s exposure to

Saudi Arabia stood at ~INR1.34t.

Core E&C performance:

Revenue grew 25% YoY to INR393b. Margin contracted

~80bp YoY to 7.7% on the back of legacy order execution and new jobs yet to

reach the margin recognition threshold. The order inflow was robust at

INR601.6b (+32% YoY). Near-term order prospects have improved to INR6.3t for

4QFY24 vs. INR4.9t in 4QFY23, largely driven by improving prospects in the

Middle East.

4Q ordering pipeline robust:

The management has indicated a strong

improvement in the prospect pipeline for 4Q at INR6.3t, especially from the

hydrocarbon space in the Middle East. The infrastructure pipeline stood at

INR4.1t spread across transportation (28%), metals and mining (17%), buildings

& factories (19%), power T&D (4%), and heavy civil infra (16%). The energy

segment pipeline stood at INR2t, comprising hydrocarbon (INR1.7t) and power

(INR0.3t). High-tech manufacturing prospects stood at INR0.16t (flat YoY due to

subdued progress in nuclear jobs).

Hyderabad Metro:

Average ridership improved to 444k pax per day vs. 394k in

3QFY23. Sequentially, however, it was lower vs. 462k pax per day due to fewer

holidays in 2QFY24. Inter-corporate debt of ~INR30b was converted into equity,

which could potentially result in interest cost savings of ~INR2.4b on Hyderabad

Metro books.

Capex:

Electrolyser capex will be in the range of INR5-6b. On the data center

front, ~INR6.5b has been capitalized, with a further planned investment of

~INR14b. Similarly, investment in semiconductors could be to the tune of

February 2024

CAPITAL GOODS | Voices

INR8b/USD100m over the next two years; a part of this investment could

potentially be earmarked for an inorganic expansion.

Guidance:

Since 9MFY24 order inflows have already surpassed the initial FY24

guidance, LT has increased the full-year guidance by 20% vs. FY23. Similarly,

FY24 revenue growth guidance has been raised to high-teens from 10-12%

earlier. However, given the job mix and completion stage, there would be a

deferral of margin recognition to FY25. Accordingly, LT has revised core E&C

margin guidance to the range of 8.25-8.5% vs. 8.5-9% earlier. The NWC-to-sales

ratio will be broadly in the same range as the 3QFY24 level of 16.6%.

Outlook:

General elections could result in a temporary slowdown in domestic

ordering momentum in 4QFY24 and 1QFY25. Private capex, though, is

witnessing green shoots, but it is yet to see a full recovery. However, the order

inflows from the Middle East remain strong in the hydrocarbon and renewable

energy segments. Other geographies are a mixed bag in light of geopolitical

tensions, inflation, economic slowdown, etc.



Thermax

Current Price INR 3,511



Neutral

Click below for

Detailed Concall Transcript &

Results Update



Order pipeline:

The domestic order pipeline and inquiries are strong in sectors

such as power and steel; however, no major orders are expected in 4QFY24.

Cement is fairly decent but is still below levels seen two years ago. Ethanol is a

slight concern because of the policy shift, and the refinery business continues to

be flattish. FY25 is likely to see a significant uptick, especially in greenfield

expansion in steel and thermal power orders from both utility and captive

projects. On the international front, the Middle East is witnessing robust

activity, largely in the hydrocarbon and downstream areas. Notably, the base

business continues to be growing at a healthy pace, while large orders are

expected to flow in from FY25 onwards only.

Segmental outlook:

Industrial Products

–

Margin expansion levers as Water and

other businesses scale up. Core boiler and heating business is also picking up but

competition is fast catching up. Industrial Infra

–

much headroom to expand

margins as Bio CNG projects have the potential to achieve better profitability vs.

historical levels. Sugar/ethanol can do much better if India is to achieve the

EBP20 targets. Chemicals

–

volume growth can be significant; however, not

much scope to improve margins that are at healthy levels already. Green

Solutions

–

will continue to report losses until 2HFY25 as FEPL sees a turnaround

and better operational performance.

Margin weakness:

Order inflow, execution, and margin for certain EPC projects

were below expectations and dragged down the overall performance. There was

a mismatch in the company’s quotation vs. actual cost incurred for an order

worth ~INR100m (Sulphur Recovery Unit) that was booked two years ago. This

led to a poor margin performance.

Subsidiary performance:

Danstoker

–

profitability is improving and the company

is taking on orders with better margin profile. Focus would be on profitability

and not on topline growth. PT TI

–

still reporting losses; however, order

prospects have improved that should narrow the losses. TOESL

–

ordering

momentum has slowed down but execution, margin, and return ratios are in

line with expectations. TBSPL

–

subsidiary is going through a challenging period

as bio CNG projects in the order book have come at a cost. However, there has

February 2024

CAPITAL GOODS | Voices



been a steep learning curve for the company on the rice husk side which should

hold in good stead for upcoming projects.

Acquisition of TSA Process Equipment:

Demand for ultra-pure water is

expected to improve in a meaningful way from semiconductors and food &

beverage. The recent acquisition will provide synergies in the form of

technology access and capabilities that Thermax did not possess.

Coal gasification:

Despite the budgetary announcement on coal gasification,

there is no imminent activity and it is still at the discussion stage. The company

is in talks with government entities as to the extent of VGF it can avail. Carbon

Capture is even further away however the company is confident it will be

implemented sooner or later in order to make coal gasification environmentally

viable.

Zero-liquid discharge (ZLD) too has a healthy pipeline across industries. Flexi-

boilers are also doing very well however there is a transient slowdown due to

the policy shift on ethanol. It may pick up in around two quarters.

Triveni Turbine

Current Price INR 451



Buy

Click below for

Detailed Concall Transcript &

Results Update



There is robust traction across renewable energy, industrial turbines, API

turbines, biomass, and aftermarket services, which is visible in the inquiry book

(+14% YoY).

The company believes domestic private capex is showing encouraging signs and

there isn’t a sudden spurt in investment, which is expected to be more

sustainable going forward.

The foray into the US market via the incorporation of a wholly owned subsidiary

is expected to open up vast opportunities in the US and adjacent geographies.

The subsidiary will cater to the installed base of turbines, primarily on the

aftermarket side. Notably, consolidation in the steam turbine industry has led to

underservicing of customers. Vis-à-vis product sales, refurbishment presents

faster scaling-up potential, which the company envisages to focus on. There will

be more clarity on this entity in 4QFY24.

Given the entry into the US market, there would be certain upfront costs in

terms of personnel and setting up a local presence. On a consolidated basis,

staff costs are likely to go up by 15% in FY24 and 20% in FY25 as the higher share

of aftermarket calls for a significant addition to the existing employee base.

Though 3QFY24 domestic revenues declined by 7% YoY, on a 9MFY24 basis it

was flattish as order finalizations got delayed owing to the festive period and

weak enquiry levels in 2QFY24. There

aren’t any structural concerns in the

domestic market and the company expects the growth momentum to continue.

Barring East Asia which is muted, other international geographies such as

MENA, Turkey, SE Asia, Europe, etc. are witnessing robust traction from

industrial, renewable, API turbine, and aftermarket sides.

Margin expansion levers for the near-to-medium term are very much intact, as

the company intends to improve the product mix and further increase the share

of aftermarket and export revenue.

Owing to the global change in energy mix, the company sees ample

opportunities to continue its growth trajectory. The company aspires to sustain

the growth momentum witnessed in the past two years going forward.

February 2024

CEMENT | Voices

CEMENT



Cement demand was subdued in 3Q due to multiple reasons (festive season, labor unavailability, excessive

rains, flood and state elections in a few regions, fiscal challenges). However, demand has improved

in Jan’24,

supported by government-led infrastructure projects and pick-up in housing demand. Most managements

have guided for industry volume growth of ~8-9%

YoY in FY25. Cement prices have corrected in Dec’23 across

regions and this weakness persisted in Jan-Feb’24.

Fuel consumption costs for cement players declined 5-15%

QoQ (except for ACC and ACEM, which reported 1-2% QoQ increase) to INR1.50-INR2.05/Kcal in 3QFY24.

Companies expected fuel cost to either remain flat or decline 4-5% in 4Q.

Capex plans



KEY HIGHLIGHTS FROM CONFERENCE CALL

Insights and future outlook FY24



UltraTech

Cement



Ambuja

Cements



Shree Cement



Dalmia Bharat



The Ramco

Cements



J K Cement



There are substantial construction activities

across the country and demand has started to

improve since mid-Dec’23.

Capacity utilization

should improve to 80-85% in 4Q and industry

volume growth is estimated to be ~8-9% in FY24.

Avg. fuel cost stood at INR2.05/kcal in 3QFY24 vs.

INR2.18 in 2Q. Fuel cost is expected to decline

further by 7-8% in the next six months.

The company’s consolidated volume grew

YoY. Demand growth should be at 7-8% in the

mid-term and current capacities will help the

group to match industry demand growth.

Cost savings of INR400/t achieved after the

acquisition and it anticipates the possibility of

achieving additional savings of INR300/t in the

next two years.

Volume growth is estimated at ~11% in FY24 (vs.

13% YoY in 9MFY24). It is targeting ~13% volume

growth in FY25.

Revamped its brand strategy and launched

‘Bangur’ as the master brand for all product

categories across markets. Streamlined premium

offerings, with only one premium product

‘Bangur Magna’.

It expects volume growth in mid-teens in FY25.

Further, in Jan’24,

cement prices were weak. The

prices could be volatile in the near term, but in

the long term, it expects a 1.5% CAGR.

Fuel consumption costs stood at INR1.50/Kcal vs.

INR1.58/Kcal in 2QFY24. It expects a further

reduction of ~3% QoQ in fuel costs in 4QFY24.

Guided sales volume of 5mt in 4QFY24 (up ~7%

YoY) and ~19- 20mt in FY25 (up 6-11% YoY).

Cement prices are under pressure in its key

markets. However, the prices are expected to

improve going forward.

Blended coal consumption cost was USD138/t

(INR1.64/kcal) vs. USD148/t (INR1.75/kcal) in

2QFY24. In 4QFY24, fuel cost is estimated to be at

similar levels as in 3QFY24.

Grey cement volume should be at 16.5mtpa+ in

FY24, which indicates a growth of 16% YoY (4%+

in 4QFY24). Cement demand growth has been

estimated between 7% and 9% in the medium

term.

Fuel cost was INR1.8/kcal in 3Q vs. INR1.9 in

2QFY24. Further cost savings of INR30-40/t are

expected in 4QFY24. It is carrying a fuel inventory

of 60-75 days and benefits of the recent decline

in fuel price will reflect from 1QFY25E.



The company is expanding capacity under Phase II

(24.4mtpa) and Phase III (21.9mtpa) to reach ~180mtpa by

FY27 through organic routes.

Capex is pegged at INR90b for FY24/FY25 each and INR70b

for FY26. Debt increased in 3QFY24, but it should reduce

by Mar’24 with

an improvement in cash flows and

reduction in working capital.

The company’s cement capacity increased to 77.4mtpa

and another ~32mtpa expansion (consolidated) is

underway at various stages. These expansions will help it

reach 110mtpa capacity by FY27 (consolidated).

Capex in FY24 is estimated to be INR35b and every year

INR50-60b will be spent. All these capex plans will be met

through internal sources.

Greenfield integrated cement plant at Guntur, Andhra

Pradesh, with clinker/grinding capacity of 1.5mtpa

/3.0mtpa, is likely to be commissioned by Mar’24.

It expects grinding capacity to increase to 56mtpa/62mtpa

/75mtpa

by Mar’24/Mar’25/Mar’27 from 53mtpa

currently. Cumulative capex is pegged at INR125b for the

next three years. The capex plans will be funded by

internal accruals and the current cash balance of INR60b.

Capex stood at INR21b in 9MFY24 and total capex in FY24E

should be INR30b. Additional cash outflow is expected to

be INR33b for JPA cement asset acquisition by Mar’24-end

(one month here and there). Capex guidance for FY25 is

INR30-35b (incl. expansion in east and north-east region).

It targets to increase capacity to 75mtpa by FY27, and a

detailed plan will be shared in the next earnings call.

Announced brownfield expansion of clinker/cement

capacity of 3.15mtpa/1.5mtpa at its Kurnool (Andhra

Pradesh) plant (including 15MW of WHRS) at an estimated

capex of INR12.5b. It is likely to be completed by 4QFY26.

The grinding capacity at Haridaspur, Odisha, is being

increased from 0.9mtpa to 1.8mtpa. This project is

expected to be completed in Mar’24.

In 9MFY24, capex stood at INR16.1b and further INR4b will

be spent in 4QFY24. Capex is pegged at INR17b in FY25E.

It announced capacity expansion of 6mtpa spread across

the Central and East (Bihar) regions, which are likely to be

commissioned by FY26.

Capex stood at INR9b in 9MFY24, and it should be INR12b

in FY24. Capex pegged at INR22b (including INR12b for the

recently announced expansion) and INR18b in FY25 and

FY26, respectively.



February 2024

CEMENT | Voices



Birla Corp



BCORP marginally cut its volume growth guidance

to ~13% from ~15% in FY24. It

maintained its



EBITDA/t guidance at INR850 in FY24.

The Mukutban plant is seeing steady progress. It

achieved a capacity utilization of +60%

in Jan’24.

It expects total dispatches from Mukutban plant

of ~0.6mt in 4QFY24 vs. 0.49mt in 3QFY24

(growth of ~22% QoQ).

Cement volume growth (consolidated) should be

at ~10% YoY in FY24 (vs. earlier estimated ~12-

15%). The Eastern region continues to see higher

growth, driven by the IHB segment. Cement

prices were soft in both Jan-Feb’24.

Average fuel cost stood at INR1.75/Kcal vs.

INR2.04/Kcal in 2QFY24. It is expected to decline

up to INR1.70/Kcal in 4QFY24.



It is setting up a greenfield grinding unit of 1.4mtpa in

Prayagraj, Uttar Pradesh, with an investment of INR4b.

This unit is likely to be commissioned by FY25-end and

start commercial production from the beginning of FY26.

The next expansion plan includes doubling of clinker

capacity at Maihar, MP, and setting up of grinding units in

Bihar/Uttar Pradesh or in West markets. It targets to

increase the capacity to 25mtpa/30mtpa by FY27/FY30.

Grinding capacity of 2.5mtpa at Udaipur cement works

(UCWL), a subsidiary of the company, is likely to be

commissioned by Mar’24-end.

Further, brownfield

expansion of 1.35mtpa grinding capacity at its GU in Surat,

Gujarat, is as per schedule.

It announced an expansion of 4.6mtpa in east and central

regions at an estimated capex of INR25b. Also, it approved

the acquisition of an 85% equity shareholding in Agrani

Cement, which has limestone reserves in Assam.



JK Lakshmi

Cement



Ambuja Cements

Current Price INR 589

Neutral

Click below

Results Update

Operational highlights



About 12% of ACEM’s standalone clinker capacity was under maintenance, and

one kiln experienced a breakdown. This led to INR150-200/t impact on EBITDA

(maintenance expense, higher sales of traded goods, consumption of clinker).

Blended cement sales was 87% and premium cement contributed 22% to sales

volumes.



Energy cost/t declined 21% YoY, led by better fuel management and kiln fuel cost

declined 22%. Direct dispatches increased to 52% vs. 50% in Dec’22 and transport

through railways stood at 26%. Capex incurred was at INR10.5b and acquisition of

Sanghi industries led to cash outflow of INR38b. Consolidated cash balance stands

at INR85.9b.



EBITDA/t guidance: EBITDA/t should reach INR1,400+ for ACEM. This does not

consider price hikes. It expects RoCE of 19% and OPM of 25-26% by FY28.

Capacity expansion and capex plan



Clinker capacity has increased to 51mtpa, post commissioning of the Ametha unit

(3.3mtpa) and the acquisition of Sanghi Industries (6.6mtpa). Grinding capacity

increased to 77.4mtpa, post commissioning of 1mtpa plant at Ametha, the

acquisition of 6.6mtpa plant of Sanghi and stake increase in Asian Concrete

(1.5mtpa).



Bhatapara clinker unit of 4mtpa is expected to get commissioned by 4QFY25,

which will cater to grinding units of Sankrail (2.4mtpa) and Farakka (4.8mtpa). The

Maratha clinker unit of 4mtpa is expected to get commissioned by 2QFY26. The

Board has approved clinker capacity expansion of 2.25mtpa at Mundra and

grinding units of 2.5mtpa each at Hoshiarpur, Amravati, Jalgaon, Warisaliganj, and

Pune. Completion of these plants will help the company reach a grinding capacity

of 110mtpa.



Debottlenecking will be done at Clinker plant of ACC at Wadi, Karnataka. Further,

brownfield expansions at clinker plants have been considered and the company is

awaiting the completion of public hearings (expected by Jun’24).

Brownfield

clinker expansion will be completed within 18-20 months, following the receipt of

EC.

February 2024

CEMENT | Voices

Capex: Capex in FY24 is estimated to be INR35b and every year INR50-60b will be

spent. All these capex plans will be met through internal sources.

Cost reduction and future targets



It has achieved cost savings of INR400/t after acquisition of ACC and ACEM plants.

WHRS capacity has been increased to 119MW, which was at 40MW at the time of

acquisition and will further be increased to 186MW by Mar’25.



It will commission renewable energy (RE) capacity of 1GW (200MW by FY24’end)

by FY26 and green energy will help to fulfil 60% of power requirements. This will

lead to cost savings of INR90/t by FY28.



The company had captive coal mine at Gare Palma and has further won 2mtpa

coal mine in Maharashtra. Both these mines will fulfil 40-50% of its coal

requirements.



The target is to reduce lead distance to 100kms (currently at 284km vs. 291km at

the time of acquisition - 277km for ACEM and 295km for ACC). Direct dispatches

continue to increase and it was at 52% vs. 50% in Dec-22.



The company is also procuring 11 general purpose wagons (7 delivered and 4 will

be procured by FY24-end). Additionally, 26 rakes have been ordered, facilitating

the movement of fly ash. Vehicles have been tagged with GPS to help efficient

tracking/movement (98% completed).



Another INR300/t of savings will come in the next 12-24 months, led by 1) INR90/t

through green power, 2) INR50-60/t through logistics, 3) INR50/t in RM

procurement and 4) INR50/t through footprint optimization. Own fuel

procurement will further add to profitability.

Update on subsidiaries and other highlights



ACC:

A lot of inefficiencies have been addressed; footprint optimization is also

being done. Profitability gap between ACEM and ACC has narrowed.



Sanghi Industries:

Capacity utilization will increase to 75-80% vs. 25-30% as of

now. It will install a conveyor belt from the plant to Jetty, which will entail a capex

of INR2b. The entire sales have been shifted into the brands of ACC and ACEM.

This plant has limestone reserves of 1b tons and would help further expansion of

capacities. The group will also try to sell in parts of coastal Maharashtra and

coastal areas of the Southern region.



MSA volumes:

Total MSA volumes stood at 2.9mt (1.7mt from ACC to ACEM and

1.3mt from ACEM to ACC). Every year, 10-15% new capacities are being added,

which can help drive MSA volumes.



Industry growth:

Industry volumes grew ~3.5%YoY in 3QFY24. Demand growth

should be at 7-8% in the mid-term and current capacities will help the group to

match industry demand growth. Additional growth is expected to materialize

from the capacities that have been announced.



Arrangement with Dahej plant:

Adani Cement’s grinding unit at Dahej is being

operated as a tolling unit (INR350-400/t tolling charges).



Birla Corp

Current Price INR 1,700

Buy

Highlights of the Mukutban operations



Mukutban plant is seeing steady progress and beating the projections. It achieved

a capacity utilization of more than 60% in Jan’24 (vs. Mar’24, which was estimated

February 2024

CEMENT | Voices

earlier). In Jan’24, the company crossed 0.2mt of dispatches from Mukutban

plant. It estimates total dispatches from Mukutban plant of ~0.6mt in 4QFY24 vs.

0.49mt in 3QFY24 (growth of ~22% QoQ).



Mukutban plant remained EBITDA positive through 9MFY24 and management

expects improvement going forward. Premium products contributed ~40% of the

trade volumes from this plant.



The company has substantially increased its presence in Gujarat markets by

leveraging Mukutban plant. Gujarat market seeing huge growth led by various

government-led infra projects. Similarly, it increased presence in the Southern

Madhya Pradesh and other adjacent markets (like Chhattisgarh and Telangana)

through supplying from Mukutban. Although, it continues to sell ~65% of the sales

volume of Mukutban plant in the Maharashtra markets.



State incentives for the Mukutban plant are likely to accrue in 4QFY24, and these

incentives will help to reach its annual EBITDA/t guidance of INR850/t in FY24E.

Demand and pricing outlook



Sales volume and realizations were partly hurt by unseasonal heavy rainfall and

assembly elections in key

markets in Nov’23. Prices increased during Sep-Oct’23,

and partially rolled back in the later part of the quarter.



Cement demand was subdued in Jan’24 due to extreme winter and fog across

north India. This also led to correction in cement prices in the past few days.

Volumes are expected to pick up in the coming days; however, upcoming general

elections and the imposition of model code of conduct may adversely impact

demand in short-term.



Accordingly, the management cut volume guidance marginally to ~13% YoY in

FY24E (implying volume growth of ~12% in 4QFY24) vs. earlier estimate of ~15%.

The major increase in the volumes will come from Mukutban plant.

Operational data points and progress on cost saving initiates



The company’s capacity utilization stood

at 85%/86% in 3QFY24/9MFY24 v/s

74%/79% in 3QFY23/9MFY23.



Blended cement sales stood at 83%/85% of total volumes in 3QFY24/9MFY24 v/s

89%/90% in 3QFY23/9MFY23.



Premium products contributed to 52%/53% of total volumes in 3QFY24/9MFY24

v/s 51%/49% in 3QFY23/9MFY23.



The company stepped up generations of its captive power plants and share of

captive power increased to ~60% of the power requirements of integrated unit

v/s 12% in 3QFY23, supported by falling coal prices. Further, share of renewable

power stood at ~23% (flat QoQ) in 3QFY24.



Operations at Bikram coal block is expected to commence from 2QFY25, which

will further reduce dependency on imported coal. During the quarter share of



imported coal come down from 31% to 25% sequentially and balance was

domestic coal (linkage and captive mines).



“Project Shikhar” has yielded ~INR55/t of cost savings so far led by improvement

in operating efficiency and cost optimization.



"Project Unnati" mainly focused on reduction in logistics cost, increase in share

premium product, identify high contribution zone with focus on "Go-to-Market"

strategy, and network optimization.

Click below for

Detailed Concall Transcript &

Results Update

February 2024

CEMENT | Voices

Despite capacity addition by peers, the company not only retained its market

share in its key markets (eastern UP, MP) but also increasing premium product

sales.

Capacity expansion and net debt



The company is setting up a greenfield grinding unit of 1.4mtpa in Prayagraj, Uttar

Pradesh with an investment of INR4b. This unit is likely to be commissioned by

FY25-end and start commercial production from beginning of FY26.



The next expansion plan includes doubling of clinker capacity at Maihar, MP and

setup grinding units in Bihar/Uttar Pradesh or in West markets. The company

targets to increase the capacity to 25mtpa/30mtpa by FY27/FY30. The capex

guidance will be communicated post the board approval, which is likely in FY25-

beginning.



Capex stood at INR4.5b in 9MFY24 and estimated full-year (FY24) capex at

~INR7b. BCORP’s net debt stood at INR34.7b as of Dec’23, and the company

expects this to reduce to INR34b by FY24-end.



Dalmia Bharat

Current Price INR 2,082

Buy

Click below for

Detailed Concall Transcript &

Results Update

Demand and pricing outlook



The company’s volume grew 8% YoY, with ~2% YoY volume growth in its core

markets after adjusting for volume on tolling basis (0.4mt) from JP group plants.

Despite demand softness in the east markets, the company’s volume grew, which

indicates some market share gain. It anticipates mid-teens volume growth in

FY25.



Cement prices increased in its core markets (South and East) in 3QFY24, which led

to a ~4% QoQ increase in realization. However, prices declined by 3Q-end, and

Dec’23-exit

price was similar to Sep’23-exit

price. In Jan’24, prices remained weak.

The prices could be volatile in the near term, but in the long term, the company

expects a 1.5% CAGR in cement prices.

Operational highlights and cost insights



The cost of raw materials consumed was largely flat QoQ/YoY at INR781.

However, due to increasing volume with JPA (under tolling arrangement), the

purchase of traded goods increased, leading to an overall increase in total RM

costs.



Power and fuel costs declined due to a softening in fuel prices. Fuel consumption

costs stood at INR1.50/Kcal (decline of USD50/t YoY) vs. INR1.58 in 2QFY24. It

expects further reduction of ~3% QoQ in fuel costs in 4QFY24. Renewable energy

share dropped to ~25% vs. ~29% in 2QFY24 due to RE plant



shutdown, which has again normalized. DALBHARA expects green energy share to

increase to ~35% by FY25. Green energy capacity stood at 177MW and the

company aims to increase it to 202MW/328MW+ by FY24/FY25.



Freight costs increased QoQ due to an increase in lead distance (+6km QoQ to

283km) and a busy season surcharge by Indian railways on rail freight. Road:Rail

mix was at 86:16. It does not expect a material change in lead distance.



Blended cement sales stood at 84% vs. 88% 2QFY24. The C:C (clinker to cement

conversion) ratio stood at 1.66x vs. 1.71x, and the company remains focused on

increasing the C:C ratio. Trade share stood at 63% and premium product sales

stood at 43% of trade volume in 3QFY24.

February 2024

CEMENT | Voices

Incentives accrued stood at INR690m in 3QFY24, and incentives received stood at

INR153m. For 9MFY24, incentive accrual stood at INR2.2b and incentives received

stood at INR2.2b. Incentives receivable stand at INR7.2b as of Dec’23. For FY24,

total incentive accruals should be between INR2.5b and INR3.0b.

Expansion plans and capex



Capex stood at INR21b in 9MFY24 and total capex in FY24E should be INR30b.

Additional cash outflow is expected to be INR33b for JPA cement asset acquisition

by Mar’24-end

(one month here and there). Capex guidance for FY25 is INR30-35b

(included expansion in east and north-east region). The company targets to

increase capacity to 75mtpa by FY27, for which a detailed plan will be shared in

the next earnings call.



The company commissioned 0.9mtpa grinding capacity at Belgaum, Karnataka, in

3QFY24. Its total clinker/grinding capacity stood at 22.4mtpa/44.6mtpa. Further,

brownfield expansion of 1mtpa (each) at Ariyalur, Tamil Nadu, and Kadapa,

Andhra Pradesh, is likely to be completed in 4QFY24. Post completion of these

expansions, the company’s grinding capacity will

increase to 46.6mtpa.



The approval process for the JPA acquisition from various banks is pending and

this transaction is expected to be finalized by Mar’24.

Debt and other key highlights



Gross debt stood at INR49.3b vs. INR52.9b in Sep’23. Net debt stood

at INR431m

vs. INR15b in Sep’23. Its net debt to EBITDA stood at 0.16x vs. 0.59x as of Sep’23.

The company has surplus cash, hence repaid some of short-term debt in 3QFY24.



The company received the second installment of INR3.2b for the sale of its stake

in the refractory business and the final installment of INR1.2b for the sale of Hippo

stores (non-core businesses) from the promoter group companies. The balance

INR3.2b for refractory business divestment will be received in Sep’24.



Grasim Industries

Current Price INR 2,193

Buy

Click below for

Detailed Concall Transcript &

Results Update

VSF segment



VSF business is making new strides in the area of sustainability. The business has

received first rank in Canopy's Hot Button Report 2023 with a rating of ‘Dark

Green Shirt’. The business has implemented the EU bet technology at Kharach

Unit and achieved its feat of pioneering circular solutions in the fashion industry.

It has made its first shipment of Lyocell fibre produced with recycled cotton waste

for use in the textile value chain, and the response has been promising, with

repeat orders.



The Viscose business saw a strong YoY growth, partially due to a low base (as

3QFY23 was an exceptionally weak quarter). However, the realization was further

hit by cheaper imports from China. VFY sales, which are used in embroidery and

home furnishing, witnessed lower demand in 3QFY24.



VSF plants’ operating rate in China improved to 88% from 85% in 2QFY24, with a

decline in inventory days (10 days in 3QFY24 vs. 12 in 2QFY24).



VSF’s capacity utilization was >95%, though the value chain is still concerned

about poor realization amid higher inventory levels.



The company sold 92% of VSF volumes in domestic markets vs. 90% in 2QFY24.

Specialty fibres contributed 19% of total volumes (similar to last quarter).

Caustic Soda and advance material business

February 2024

CEMENT | Voices

International Caustic Soda spot prices (CFR SEA) increased 6% QoQ to USD444/t in

3QFY24. Prices had improved to USD488/t in Oct ‘23, but the quarter exit price

declined to USD423/t. The sharp YoY decline in caustic prices appears to be

bottoming out at current levels of about USD400 to USD450 level. However, the

market remains oversupplied due to large capacity additions in FY23.



The company has completed an expansion of specialty chemicals capacity (epoxy

polymers and curing agents). It doubled the capacity to 246KTPA in Dec’23. This

will enable it to meet the growing demand in value-added products and specialty

chemicals. Chlorine integration will increase to ~70% from the current level of

~63%.

Paints business



The Paints business has started trial production at three plants; Ludhiana,

Cheyyar, and Panipat. The brand architecture under Bila Opus is complete and the

full range of products will be launched in FY25. Each location has a capacity of

~200mlpa and one facility also has a capacity of 30mlpa of solvent paints.



Management plans to roll out the Paints business gradually, starting with North

and a few areas of South, and gradually rolling it out nation-wide.



The sub-brand portfolios, across multiple categories of luxury, premium and

economy segments and development work for design, package, artwork,

consumer communication etc. have been completed.



The supply chain, logistics, and distribution network is also in place to support the

launch. It would offer a complete range of high-performance, superior products in

the premium, midrange, and mass markets that are favorably placed across

multiple price points.



The dealer on-boarding has already commenced. It is largely on-boarding existing

paint dealers, but could also add new dealers as well.



Capex for the Paints business stands at INR60b till now (INR34b in 9MFY24).

B2B E-commerce (Birla Pivot)



Birla Pivot

–

B2B E-commerce achieved monthly revenue run-rate of INR1.2b in

Dec’23. The private label ‘Birla pivot tiles’ are gaining good response and is now

launching private label in plywood and doors categories.

Capex and debt position



Capex in 3QFY24/9MFY24 stood at INR14.3b/44.6b, including INR10.9b/INR34b

for the Paints business. The budgeted capex for FY24 is INR59.3b (including

INR42.8b for the Paints business).



Standalone net debt stood at INR57.3b vs. INR44.6b/INR17.8b in Sep’23/ Mar’23.

The company maintains its guidance to keep the net debt/EBITDA below 3.5x,

including the Paints business.



JK Cement

Current Price INR 4,205

Click below for

Detailed Concall Transcript &

Results Update

Buy

Demand and pricing trends



Grey cement capacity utilization stood at 75% in 3QFY24. Grey cement volume

should be at 16.5mtpa+ in FY24, which indicates a growth of 16% YoY (4%+ in

4QFY24). Cement demand growth should be between 7% and 9% in the medium

term and capacity addition is estimated to be lower than the incremental

February 2024

CEMENT | Voices

demand. It can achieve a minimum incremental volume of 2mt annually with its

capacity expansion plans.



Realization in Jan’24 has been marginally lower than the 3QFY24-exit.

However,

there are expectations of price hikes.

Operational highlights



WHRS at Muddapur, Karnataka plant is under trial run, and the entire benefits will

accrue from 1QFY25. Current capacity of WHRS is 64MW, which will rise to 82MW

post-commissioning of the 18MW plant at Muddapur. The company will also set

up WHRS with new clinker line at Panna, MP. Overall, additional 50MW of

renewable power (25MW WHRS at Line II, Panna and 25MW Solar power plant)

will be commissioned in FY25E/26E.



Green energy/thermal substitution rate stood at 50%/14.6% YTD vs. 44%/13.9% in

FY23. It targets raising green energy/TSR to 75%/35% by FY30.



Fuel cost was INR1.8/kcal in 3Q vs. INR1.9 in 2QFY24. Further cost savings of

INR30-40/t are expected in 4QFY24. It is carrying a fuel inventory of 60-75 days

and benefits of the recent decline in fuel price will reflect from 1QFY25E.



Fright cost increased due to a rise in lead distance by 9-10km (as it extended

dispatches in eastern UP and Bihar) and change in market mix. Freight cost is

expected to remain at similar levels in the near term. Fright cost could decline

post-commissioning of the GU in Prayagraj, UP.



Blended cement sales stood at 66% vs. 69% in 2QFY24, and trade sales stood at

62% vs. 69% in 2QFY24. Premium product sales as a % of trade sales stood at 12%

vs. 13% in 2QFY24. There has been an improvement in trade market share of the

company in new markets. Non-trade sales increased due to higher demand in that

segment.



Employee cost rose due to provisioning for variable payouts. Employee cost

should be marginally lower in 4QFY24.



State incentives will be between INR750m and 800m every quarter. Total

incentive for the Panna project should be INR3.5b, and there are fiscal incentives

for grinding units as well. Overall cumulative incentive of INR3b should continue

for the next few years.



Clinker factor should be at 62%-64% until FY26E. The company has tie-ups for

blending materials for all grinding units and it is in the process of finalizing a long-

term supply agreement for the upcoming Bihar grinding unit.

Capacity expansion and capex update



The Greenfield grinding unit at Prayagraj, UP, with a capacity of 2mtpa will be

commissioned in 2QFY25, after which the total grey cement capacity will increase

to 24.2mtpa.



Work on the recently announced capacity addition of 6mtpa will start in Mar-

Apr’24 and it should be commissioned by FY26E in a phased manner. JKCE has

identified a few locations for its Greenfield grinding unit in Bihar, but the process

is yet to start (land should be finalized in 3-4 months and land acquisition/EC will

take 6-9 months, after which the plant should get commissioned within 12

months). Order finalization for the main plant and machinery is expected within 3-

4months. Capex is estimated to be INR22b for clinker line

–

II (including WHRS) at

Panna, MP and INR6.0-6.5b for the grinding units.

February 2024

CEMENT | Voices

The company has further expansion opportunities at Panna, MP; Mudappur,

Karnataka; Jaisalmer, Rajasthan and then at Toshali, Odisha, if acquisition gets

completed.

Debt and other highlights



Gross debt was

INR45.9b as of 31st Dec’23. Net debt/EBITDA was 1.64x vs. 2.21x

in Mar’23. Gross debt is likely to increase to INR55-56b

post-commissioning of the

recently announced capacity expansion.



There is a steep competition in white cement; especially in the Putty segment.

Volume of this segment grew 5% YoY in 9MFY24. Profitability is not improving and

OPM is expected to be ~15-18%.



Ramp up of the paints business is happening and it has crossed a turnover of

INR1b in 9MFY24 (INR460m in 3QFY24). It targets a revenue of INR1.5b+ in FY24;

though; there would be an operational loss of INR200-250m (INR150m in

9MFY24). Gross margin of this business is as per initial plans. In FY25, the turnover

should be ~INR2.5-3b with a marginal profit or loss. This business should generate

EBITDA in FY26E when the turnover reaches INR4-5b.



The company is working on the turnaround of Fujairah plant. A decline in fuel cost

has also aided in the improved performance of this plant. It launched value-

added products. EBITDA was at INR210m in 3QFY24 vs. INR250m in 2Q. The

sustainable EBITDA for this plant should be at INR300-400m annually.



JK Lakshmi Cement

Current Price INR 943

Click below for

Detailed Concall Transcript &

Results Update

Buy

Demand and pricing



Clinker/cement capacity utilization (standalone) stood at 105%/79% in 3QFY24.

Cement volume growth (consolidated) should be at ~10% YoY in FY24 (earlier

guidance of 12-15%). Extreme cold, fog, restrictions on construction adversely

impacted volume in the northern market. The Eastern region continues to see

higher growth, driven by the IHB segment.



It believes the company’s volume growth would surpass that of the industry’s,

aided by commissioning of grinding capacity in UCWL by Mar’24-end

(clinker was

already commissioned in 2QFY24). Industry growth is estimated at ~8% in FY25;

however, JKCE is expected to register double-digit growth (consolidated).



Cement prices were soft in Jan’24 and in Feb’24 as well, varying for different

markets.

Operational highlights



Standalone sales volume was up 2% YoY at 2.36mt. Consolidated sales volume

(after eliminating inter-company sales) grew 8% YoY to 2.96mt.



Non-cement revenue stood at INR1.34b vs. INR1.16b in 3QFY23. RMC revenue

stood at INR670m vs. INR560m in 3QFY23. Margin stood at ~5%.



Average fuel cost stood at INR1.78/Kcal vs. INR2.04/Kcal in 2QFY24. It is expected

to decline up to INR1.7/Kcal in 4QFY24. Its green energy share stood at ~44%.



Blended cement share stood at ~65%, while trade sales share stood at ~58%. Lead

distance was 377km (declined from 387Km in 2QFY24).

Capacity expansion and capex plans



Grinding capacity of 2.5mtpa at Udaipur cement works (UCWL), a subsidiary of the

company is likely to be commissioned by Mar’24-end.

Further, brownfield

February 2024

CEMENT | Voices

expansion of 1.35mtpa grinding capacity at its GU in Surat, Gujarat is as per

schedule.



It announced an expansion of 4.6mtpa in phases, which includes

–

1) brownfield

clinker/cement expansion of 2.3mtpa/1.2mtpa at Durg, Chhattisgarh; and 2)

greenfield split location grinding units with an aggregate capacity of 3.4mtpa at

three different locations Prayagraj, Uttar Pradesh, Madhubani, Bihar, and Patratu,

Jharkhand. This will be funded through a mix of debt (up to INR17.5b) and internal

accruals. In Phase

–

I, it plans to commission grinding capacity of 1.2mtpa at Durg

and Bihar (each) in the next two years.



It is setting up a railway siding at its Durg, Chhattisgarh Plant (in phases) at a capex

of INR3.25b, which will be funded through a mix of debt and internal accruals.

Phase

– I is likely to be completed by Sep’24 and Phase – II is expected by Mar’26.



The board also approved the acquisition of an 85% equity shareholding in Agrani

Cement, which, along with its subsidiary, holds rights to limestone reserves of

335mt in Assam. The acquisition cost amounts to INR3.25b, and it is expected to

be completed by Mar’24-end.

In Phase

–

I, the company has plans to set up

1mtpa/1.5mtpa clinker/cement capacity.

Other highlights



Standalone net debt stood at INR500m, while consolidated net debt stood at

INR11.4b. Peak net debt (consolidated) is estimated at INR26b, considering the

announced expansion plans. Also, the company aims to maintain a net debt to

EBITDA ratio of less than 2.5x.



AFR project at the Sirohi plant achieved

TSR of ~11% in Jan’24 and it will further

increase to ~13-14% in the upcoming months. In the next phase, it targets to

increase this share to ~16-17% by FY25-end.

Shree Cement

Current Price INR 26,525

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Cement demand and pricing



Cement demand is expected to remain robust in the medium term on account of

rising expenditure on infrastructure and housing. Capacity utilization stood at 77%

in 3QFY24 vs. 72%/76% in 3QFY23/2QFY24. Volume growth is estimated at ~11%

in FY24 (vs. 13% YoY in 9MFY24). Demand grew 12-13% YoY in the north region,

~11% in the south and west regions, and ~7-8% in the east region. It is targeting

~13% volume growth in FY25 to achieve sales volume of 40mt.



Cement realization increased 3% QoQ to INR5,006/t in 3QFY24.

Operational highlights



Average fuel consumption cost/kcal stood at INR1.76 vs. INR2.5/INR2.05 in

3QFY23/2QFY24. The management estimates the average fuel cost to be flat QoQ

in 4QFY24, based on the carrying inventory. The company’s fuel mix during the

quarter was 73%/15% petcoke/coal and remaining was alternative fuel.



Green power share stood at 57% in 9MFY24 vs. 51% in FY23. The green power

capacity stood at 474MW and further addition of green power capacities (WHRS,

solar and wind) will help to increase green power share to 65% by FY25.



Trade sales stood at 76% in 3QFY24 and blended cement share stood at 72%.

Sales of premium products stood at 9.5% vs. 7.2% in 3QFY23.

February 2024

CEMENT | Voices

Lead distance declined to 448km vs. 472km in 2QFY24. The company now has

highly professional logistics teams, who are continuously trying to improve the

lead distances. It expects the lead distance to further decrease after the

commissioning of new grinding units.



Revenue from the power business stood at INR3.5b and EBITDA margin was ~10%

in 3QFY24. In 9MFY24, power business revenue stood at INR11.73b and EBITDA

margin was at ~10%.

Capacity expansion and capex plans



Capex stood at INR26b in 9MFY24 and is estimated to be is INR6b in 4QFY24. The

Greenfield expansion at Nawalgarh (Rajasthan), having clinker/grinding capacity

of 3.8mtpa/3.5mtpa, has been commissioned in 3Q and it started commercial

dispatches in Jan’24. Greenfield integrated cement plant at Guntur,

Andhra

Pradesh, with clinker/grinding capacity of 1.5mtpa/3.0mtpa, is likely to be

commissioned by Mar’24.



It expects grinding capacity to increase to 56mtpa/62mtpa/75mtpa by Mar’24/

Mar’25/Mar’27 from 53mtpa currently. Cumulative capex is pegged at

INR125b

for the next three years. The capex plans will be funded by internal accruals and

the current cash balance of INR60b.

Revamped brand strategy



In last one year it has worked comprehensively to revamp its brand strategy and

has redefined business objectives. During the quarter, the company undertook a

major initiative of revamping its brand identity with ‘Bangur Cement’ as the

master brand. This was implemented with a new brand identity through a new

logo and pack graphics, along with a new premium product launch - Bangur

Magna. A new multi-media advertising campaign has been launched across

television, outdoor, print, digital, and retail touchpoints.



The Ramco Cement

Current Price INR 884

Neutral

Click below for

Results Update

Capex and project update



A brownfield expansion of clinker/cement capacity of 3.15mtpa/1.5mtpa will be

carried out at its Kurnool (Andhra Pradesh) plant (including 15MW of WHRS),

which will entail a capex of INR12.5b. It is likely to be completed by 4QFY26. In

9MFY24, capex stood at INR16.1b and further INR4b will be spent in 4QFY24.



Capex is pegged at INR17b in FY25E towards brownfield expansion at Kurnool,

Andhra Pradesh (INR7.5b), land acquisition for a greenfield project in Karnataka

(INR2b), maintenance capex (INR3b), and the balance for debottlenecking, WHRS

at RR Nagar, and the leftover Kurnool project (line I).



Clinker capacity was increased by 0.65 MTPA at Kurnool, Andhra Pradesh and

0.35mtpa at Ariyalur, Tamil Nadu through the pyro-process optimization in 3Q.

Cement capacity will be increased by 1mtpa through debottlenecking. Expansion

of Dry Mortar Plant 2 units (capacity of 80t/hour for each plant) in Andhra

Pradesh and Odisha will be completed in Mar’24. It has acquired 500 acres of

mining land in the states of Karnataka till date.



The grinding capacity at Haridaspur, Odisha is being increased to 1.8mtpa from

0.9mtpa. This project is expected to be completed in Mar’24.



The thermal power plant of 18MW will be commissioned in Mar’24 and the

railway

siding will be commissioned during Jun’24.

February 2024

CEMENT | Voices

Cement demand trend and volume guidance



Heavy rainfall and the subsequent flooding due to cyclone “Michaung" adversely

affected the cement demand in Tamil Nadu and Andhra Pradesh. While in the

eastern market, demand was hit by festival holidays. Cement capacity utilization

stood at 74% vs. 70%/82% in 3QFY23/ 2QFY24, respectively. In 9MFY24, capacity

utilization stood at 78% vs. 69% in 9MFY23. Dry-motor sale volume grew 22% YoY

and 1% QoQ.



It expects to clock a sales volume of 5mt in 4QFY24 (growth of ~7% YoY), which

will lead to a 20%+ growth in FY24. It expects to clock a volume of ~19-20mt in

FY25E.

Operational highlights



The share of premium products was at 29% vs. 30% in 3QFY23 in the South region.

In the East region, the share of premium products was at 20% vs. 16% in 3QFY23.



OPC share was ~33% of total volumes in 3QFY24 vs. 32%/31% in 3QFY23/ 2QFY24.



Blended coal consumption cost was at USD138/t (INR1.64/kcal) vs. USD191/t

(INR2.43/kcal) in 3QFY23. It used 51% petcoke vs. 59%/53% in 3QFY23/ 2QFY24.



Green energy contributed 36% of power requirements vs. 20%/38% in

3QFY23/2QFY24. Green power share is likely to reach 42% in FY25 and 48% in

FY26, post-commissioning of WHRS of 10MW at the Tamil Nadu plant.

Debt and other highlights



Net debt increased to INR50b (including working capital loan) from INR42.9b in

Mar’23. The average cost of borrowing has increased to 7.8% for 9MFY24 vs. 6.2%

in 9MFY23 due to increase in market rates.



Net debt is estimated to peak at INR50b as the future expansions will largely be

funded through internal accruals.

Ultratech Cement

Current Price INR 9,984

Buy

Click below for

Detailed Concall Transcript &

Results Update

Demand and pricing outlook



Industry demand growth in 3Q should be 3-4%, partly impacted by elections in

four major states, fiscal challenges in Bihar/West Bengal, a construction ban in

Delhi-NCR,

and floods/rains in few states. Also, the first two days of Jan’24 were

impacted by truckers’

strike. Amongst its regional capacity utilization; 83-84%

was

the highest in one region, while the lowest regional capacity utilization was 73-

74%. The south region is witnessing improvement in capacity utilization and

industry capacity utilization has reached above 70% vs. earlier ~50%.



There are substantial construction activities across the country and demand has

started to improve since mid-Dec’23.

Capacity utilization should improve to 80-

85% in 4Q and industry volume growth is estimated to be ~8-9% in FY24. Demand

has improved in all regions, except the North region. UTCEM’s volume growth

would continue to be higher than industry growth.



Cement prices saw some improvement in 3Q but corrected to a large extent by

Dec’23-end.

Prices should increase when demand recovers.

February 2024

CEMENT | Voices

Operational highlights



The clinker-to-cement conversion (C:C) ratio stood at 1.42x vs. 1.44x in 2Q. The

company continues to focus on improving the C:C ratio and plans to launch new

products. Its blended cement share stood at 68% vs. 70% in 2QFY24. Trade share

stood at ~64% vs. 67% in 2QFY24. Premium cement share increased by 130bp

QoQ to 23%.



Total 44 kilns are operational as of now, out of which 29 kilns have WHRS. WHRS

is being set up for five more kilns. The company will have 48 kilns (considering

greenfield lines) by FY27E; out of which 41 kilns will be covered by WHRS. All

future kilns will have WHRS and the company will not add a new thermal power

plant. 16 to 20MW of WHRS capacity will be commissioned by Mar’24. Its green

power share stood at ~24% and this will be doubled by FY25E. It aims to increase

green power share to 60%/85% by FY26/FY30, largely through other renewable

sources (solar and wind).



In 3Q, fuel consumption cost was USD150/t vs. USD162/t in 2QFY24. Fuel mix was

44% pet coke (vs. 39% in 2QFY24), 46% imported coal, 6% domestic coal and the

rest was AFR. Average fuel cost stood at INR2.05/kcal vs. INR2.18/kcal in 2Q.



Lead distance declined to 397Km vs. 413Km/403km in 3QFY23/2QFY24. Benefits

of lead optimization and operating efficiencies absorbed busy season surcharge

on rail freight.



White cement volume rose 18% YoY to 0.48mt, whereas revenue grew 13% YoY

to INR5.9b. RMC revenue increased 29% YoY to INR12.9b. EBITDA margin in RMC

was ~4%.



Other expenses in 3Q were higher due to the advancement of maintenance work

at few plants amid a demand slowdown in Oct-Nov’23.

Expansion and debt position



Some expansion projects are running ahead of the schedule. It has placed orders

for the main plant and machinery for Phase III expansion. Civil work has also

started at few sites.



Capex is pegged at INR90b for FY24/FY25 each and INR70b for FY26. Capex stood

at INR69b in 9MFY24. Working capital has increased due to the purchase of

coal/petcoke. Debt increased in 3QFY24 but should reduce by Mar’24 with

improvement in cash flows and reduction in working capital. The management

maintains its target of becoming net cash

positive by Mar’25 (without considering

INR20b debt due to acquisition of Kesoram). The company has organic

opportunities available post phase III expansion and capex/t will be below USD90-

100.



Consolidated net debt increased to INR55b vs. INR49b as of

Sep’23.



In Phase-III, clinker capacities of 10-12mtpa will be added in East, North and South

(in Phase II clinker addition is 14mtpa). All grinding capacity additions are clinker

backed. The company will have state incentives for expansion in Rajasthan, Bihar,

Uttar Pradesh, and Punjab. IRR of 15% for expansion plans does not consider

incentives.

February 2024

CEMENT | Voices

Others



Kesoram cement asset acquisition: The CCI application will be filed by Jan’24-end,

after which the NCLT process will start. The effective date of the merger would be

1st Apr’24. The company looks for profitable growth opportunities, which should

be value accretive. This asset has good limestone quality and markets are also

attractive.

February 2024

CHEMICALS-SPECIALTY | Voices

CHEMICALS -

SPECIALTY



Chemical companies mentioned that destocking intensity is down and in some cases, it is almost over.

However, there were no signs of revival in demand as mentioned by most of chemical company and it could

be sometime away till there is a sustained demand recovery. Chinese dumping is still very much an issue and

therefore pricing pressure still exists for most companies. Some firms experienced declining input costs,

leading to lower product prices eventually. Management anticipates recovery in FY25, although some projects

have been postponed further.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook



Quarterly snapshot



Clean

Science



Deepak

Nitrite



Galaxy

Surfactants



Navin

Fluorine

The management highlighted that the

sequential improvement in revenue was on

account of higher volumes. Realization

remained flat due to downward pressure from

China and is expected to remain subdued in the

near term amid capacity additions in China.

Commercial production from CFCL is expected

to commence in 4QFY24 and the company

expects HALS utilization to reach 80% in three

years. Commercial production of pharma

intermediate is expected to commence in

3QFY25 and will cater primarily to Indian

customers.

The management has reiterated that the

Polycarbonate compounding, fluorination, acid,

MIBK, and MIBC projects are expected to

commence operations by end-CY24, with all

these plants projected to achieve optimal

utilization from FY26 onward. New projects

currently underway are expected to yield

incremental margins of 2-3% compared to

historical margins. Additionally, the greenfield

Phenol plant is expected to be commissioned in

CY27.

The quarterly volumes were adversely impacted

by the Red Sea escalations, because of which

some orders have shifted to 4QFY24. Further

escalations of the Red Sea issue remain one of

the biggest threats as of now. Freight costs and

lead times have gone higher than usual, which

may in turn lead to slower-than expected

recovery in North America.

The management is confident of achieving

volume growth in the guided range of 6-8% in

FY24 with both Performance Surfactants and

Specialty Care Products doing well in 9MFY24.

EBITDA/kg guidance remains at INR19.5-20.5

for FY24, however, the company will re-look at

the margin guidance in 1QFY25. We remain

confident on the long-term growth trajectory of

the company.

There was pricing pressure in R22 exports and

the management expects it to stabilize by

1QFY25. The HFO plant is also taking longer

than expected to ramp up and the management



Clean Science’s (CLEAN) reported EBITDA in 3QFY24

came in line with our estimate at INR866m, with a gross

margin of 66.8% (vs. est. 68.5%). EBITDAM contracted

to 44.5% from 45.6% in 3QFY23. Revenue contribution

of FMCG Chemicals contracted QoQ in 3QFY24, while

that of Performance Chemicals and Pharma & Agro

stood flat.

Revenue from Pharma Chemicals stood at INR370m (

down 3% YoY), while that from Performance Chemicals

came in at INR1.3b (down 23% YoY). Revenue from

FMCG Chemicals stood at INR370m (down 11% YoY).



Deepak Nitrite (DN) delivered a miss in 3QFY24, led by a

weaker-than-expected performance in advance

intermediate (AI). The quarter saw persistent pricing

pressure by Chinese suppliers in chemical

intermediates. EBITDA at INR3b missed our estimate by

15%, while PAT stood at INR2b vs. our estimate of

INR2.5b. Margin also declined YoY due to the AI

segment.



Galaxy Surfactants (GALSURF) reported EBITDA/kg of

INR17.8, down 33% YoY (our estimate of INR21.2). The

company achieved a total volume growth of ~8% YoY to

63.3tmt (our est. of 62.9tmt) with volume momentum

sustaining in India and AMET regions. Subsequently,

EBITDA stood at INR1.1b (down 27% YoY), while PAT

came in at INR714m (down 33% YoY).

Total volumes in 3Q stood at 63.3tmt (est. of 62.9tmt,

up 8% YoY). Implied realization stood at INR148.7/kg

(est. of INR154, down 20% YoY) with EBITDA/kg at

INR17.8 (our est. of INR21.2, down 33% YoY).



Navin Fluorine’s(NFIL) EBITDA/adj. PAT in 3QFY24 came

in 40%/45% lower than our estimates due to subdued

performances in the Specialty Chemicals/Navin

Molecular Businesses YoY. Gross margin stood at 53.9%,

February 2024

CHEMICALS-SPECIALTY | Voices

is in discussion with the customer about the

delay. AHF capacity expansion is well on track,

with NFIL announcing the doubling of R32

capacity with an investment of INR840m to be

commissioned by Feb’25.

while EBITDA margin dipped 12.5pp YoY to 15.1%. The

postponement of some key molecules and channel

inventory destocking led to subdued performance in the

quarter.

Domestic sales made up 32% of total revenue in

3QFY24, while exports accounted for 68% (75% in

2QFY23). HPP business contributed 42% to domestic

sales, while Specialty Chemicals business contributed

32%. Exports accounted for 100% of revenue of the

CDMO business.

NOCIL’s EBITDA/kg stood at INR38.3 in 3QFY24, up 13%

YoY, missing our estimate. Sales volumes increased 14%

YoY to 12.5tmt. The management believes there would

be positive volume growth in 4Q on a sequential basis.

Realization stood at INR274/kg, down 8% YoY.

Consequently, EBITDA stood at INR477m (up 28% YoY)

with a PAT of INR298m (up 59% YoY).



NOCIL



Vinati

Organics



The tyre industry seems to be well-positioned in

the automotive sector with India being the third

largest automotive market globally and the

fastest growing one. Tyre exports have been

making slow recovery, barring some hiccups

because of the Red Sea issue.

No new capacity expansion is planned for the

next few years. Going forward, only

maintenance capex is expected.

The management highlighted that destocking in

ATBS is almost over now, and VO expects

demand to normalize in the coming months.

The management has guided a strong 30% YoY

growth in ATBS sales in FY25, with the plant

currently running at 60-65% utilization.

There has been a decent growth in Butyl

Phenol, with IBB sales also picking up, and the

management expects sales to be higher in FY25.

The ongoing slowdown in the US and Europe is

expected to persist for another quarter. There

have been no specific changes in contracts with

customers thus far. Freight costs for exports to

the US and Europe have risen due to the Red

Sea crisis.

Currently, vegetable oil prices are steady due to

subdued demand, with expectations for peak

prices in Nov-Dec. RM prices are likely to

decrease once fresh crops enter the market

around Mar’24.



FINEORG



Vinati Organics (VO)’s 3QFY24 revenue came in above

our estimate due to better-than-expected sales in IBB

and the customized product portfolio. Gross margin

contracted 280bp YoY to 47.2%, while EBITDAM was

down 300bp YoY to 25.6%. EBITDA was INR1.1b, while

PAT stood at INR770m (our est. INR649m) during the

quarter.

Sales mix in 3QFY24 stood at 30% for ATBS, IBB (20%),

BP & IB Derivatives (20%), IB (10%), and AO & other

products (including customized ones) at 20%.

Fine Organics (FINEORG) reported in-line EBITDA at

INR924m in 3QFY24. EBITDAM contracted 160bp YoY to

21.7%, while gross margin improved 660bp YoY to

41.8%, primarily due to a sharp decline in raw material

costs. In a declining input cost scenario, the company

would have to pass on the benefits of the same to the

customers, and therefore, we expect its margin to

contract further in the coming quarters.

Clean Science Technology

Current Price INR 1,406



Neutral

Click below for

Detailed Concall Transcript &

Results Update



QoQ revenue growth was driven by higher volumes.

However, realization remained flat amid continued dumping from China.

The share of principal products increased to 78% in 3QFY24 from 73% in 2Q.

YoY revenue declined 18%, of which 5% was due to volume and 13% due to

realization.

Segment-wise revenue trends:

Performance chemicals revenue declined YoY due to lower realizations.

Pharma and agro intermediates were steady as volume-led growth offset lower

realization.

FMCG chemicals revenue declined due to lower realization.

Commercial production from Clean Finochem expected in 4QFY24.

February 2024

CHEMICALS-SPECIALTY | Voices



Margins for MEHQ and BHA have reached pre-Covid levels in percentage terms;

however, they are still lower compared to pre-Covid levels on per kg basis

All 10 HALS products can be manufactured from 1st day at the new plant;

however, the company will start with one product at a time and will not start all

products simultaneously.

CLEAN is not planning to start entire HALS capacity and will be starting just 25%

initially.

Even if HALS demand remains subdued, the company expects to sell enough

quantity to utilize 25% of installed capacity.

HALS utilization is expected to reach 80% in three years.

The destocking trend is most likely over; however, demand concerns persist.

MEHQ utilization is at 60-65%.

Commercial production of new pharma intermediates will start in 3QFY25 and

will cater primarily to domestic customers.

Deepak Nitrite

Current Price INR 2,357



Neutral

Click below for

Detailed Concall Transcript &

Results Update



The chemical industry continued to face headwinds in 3QFY24.

Stretched cash conversion cycles and cost optimization measures have been

taking place on the customers’ end.

Therefore, global consumption trends have been impacted.

Persistent pricing pressure by Chinese suppliers on intermediates of various

chemicals

Volume gains and improved realization in DPL

Debottlenecking via software and hardware continues for the company

Utilization of Phenol plant at a new benchmark now.

AI has reflected subdued demand in agrochem, textiles, and dyes & pigments

industries

Construction, infra, and home care segments continue to show healthy demand

Prices of some RMs have declined, but prices of petchem-linked RMs remain

firm due to operating rates in refineries and war premiums on crude.

Lot of capacities have come up in China and the ME, which was expected.

The Red Sea issue has divided the world in half in terms of logistics Asia is the

world’s largest manufacturer of petchem.

Company buys Benzene at n-1 and sell Phenol at market rates, which gives

company a breathing room of 1-1.5 months.

Polycarbonate compounding, fluorination, acid and MIBK projects are expected

to come online by end-CY24.

Expect all these plant to run at optimal utilization from FY26 onward.

New projects would be with an incremental margin of 2-3%.

Force majeure in Germany in the INEOS Phenol plant and this is not permanent.

Some benefits in terms of wallet share gain and increased volumes being seen

Greenfield expansion of Phenol expected to be commissioned by CY27 and of

almost the same capacity as the initial Phenol capacity back in CY18.

No ADD on any of the existing products in the portfolio as of now.

February 2024

CHEMICALS-SPECIALTY | Voices

Galaxy Surfactants

Current Price INR 2,544



Buy

Click below for

Detailed Concall Transcript &

Results Update



The receding effects of inflation and emerging signs of demand recovery would

be key going forward

The second half of December was dampened by challenges in the Red Sea

region, leading to a spill-over of volumes into 4Q

An increase in freight costs and lead time could have an adverse impact on the

company’s volumes

India continues to be the bright spot although rural demand remains muted

AMET region has grown at 2.3% for 9MFY24

The RoW region has registered a 7% volume growth in 9MFY24

Both Performance Surfactants and Specialty segments have done well in

9MFY24

There was an EBITDA impact of INR 70m due to higher freight costs resulting

from the ongoing challenges in the Red Sea region Excluding this, the

EBITDA/kg would have been within the guided range of the management

Export incentives were only accounted for in cash, with INR 210m received for

3QFY23, but none for 3QFY24.

Commodity prices in Egypt have begun to decrease. The management

anticipates a positive trajectory for Egypt in the future.

In North America, destocking has probably bottomed out and new demand and

orders are being seen

Seeing signs of revival in North America

9MFY24 capex of INR900m and full-year guidance remains the same

Average capacity utilization stands at 70% currently

Overall export on consol revenues is 65% and 35% is domestic sales.

NOCIL

Current Price INR 292



Neutral

Click below for

Detailed Concall Transcript &

Results Update



The ongoing global recessionary trend, coupled with the growing influx of

Chinese imports, resulted in volume remaining flattish QoQ

Subdued demand in international markets, including China, is putting pressure

on sales volumes in both China and export markets.

The tyre industry is well positioned in the automotive sector

India is the third largest automotive market and fastest growing in the world.

Tyre exports have been making slow recovery, barring some hiccups because of

Rea Sea issue.

Domestic OEM and replacement sales volumes in the tyre industry is expected

to register a CAGR of 3-6% over FY24-26E.

Production is bound to improve next year and the management expects to grow

at least in line with the market growth if not more.

The Non-tyre sector also looks promising according to the management.

Short-term challenges remain, but long-term outlook for rubber chemicals intact

The Specialty segment currently accounts for around 15-17% of the total

revenue

Exports constitute a smaller portion of overall revenues

February 2024

CHEMICALS-SPECIALTY | Voices



No major impact on the business for NOCIL because of the Red Sea issue, but

freight costs are on the higher side.

Had to plan for abnormal times, but no major negative effect on the RM

sourcing front.

The company has not lost market share in India.

The Latex industry has bottomed out and there is some recovery being seen.

Contributes 15-16% to the overall volumes for NOCIL

Some incremental volumes from the Latex market could also be expected from

FY25

4QFY24 volumes could be better than 3Q volumes

Lanxess possesses rubber chemicals capacity in India for a couple of products

that overlap with NOCIL’s manufacturing portfolio.

For 3Q domestic: export= 61%:31% and for 9MFY24, domestic: exports=

66%:34%

Vinati Organics

Current Price INR 1,712



Buy

Click below for

Detailed Concall Transcript &

Results Update

NCLT sanctioned the scheme of amalgamation of VAL with VO from 1st Apr’21.

Therefore, numbers restated were of previous periods.



Expect 4Q numbers to slightly improve or be on similar lines compared to 3Q



ATBS destocking almost over now



Capacity expansion o

f 50% to be completed by Dec’24



Demand to normalize in coming months



FY25 sales expected to be 30% higher than in FY24



ATBS 60-65% utilization rate for 9MFY24



VO has not lost market share in ATBS because of LT contracts with the

customers



BP has reported a decent growth



Most of the Di-BP to be captively used to produce AOs



Sales of IBB also picked up



Next higher numbers compared to this year



NaATBS and IB sales also stabilized



AO business sales to be ~INR1-1.2b (at 25% capacity utilization) in FY24.



Revenue to double in FY25 and reach INR2.5b



Global market has been going through weakness in past 15-18months



But have made meaningful inroads in the market despite headwinds



Doubly backward-integrated company in AO



Growth driver for the company



Full utilization in the next 2-3 years



Both export and domestic markets are being catered to



Long-term outlook remains intact



Domestic demand is 12-14ktpa



Hindustan Polyamides is a competitor based out of North India (5ktpa capacity)

VOL



Total capex of INR4.8b [MEHQ (2ktpa), Guaiacol (1ktpa), 4-MAP (1ktpa), Anisole

(5ktpa, making through Phenol and Methanol) and Iso Amylene]



MEHQ and Guaiacol plant to be commissioned

by Mar’24 (to be made through

Anisole and Hydrogen Peroxide)

February 2024

CHEMICALS-SPECIALTY | Voices



Rest products to be commissioned by 2HFY25 (by Dec’24)

RoI @15-20% with ATR @1x, blended margin to be ~20%

Another 5MW captive power plant to be commissioned in 1HFY25

Revenue CAGR of 15-20% during the next 2-3 years

Sales mix in 3QFY24: ATBS: 30%, IBB: 20%, BP and IB derivatives: 20%, IB: 10%,

AO and other products (includes customized products): 20%

FY24’YTD: ATBS

32% IBB 18% others are more or less similar to 3Q

Sustainable EBITDAM: 25-27%

Capex of INR3b for FY24’td with INR4.5-5.0b

capex for FY25E

IBB running at 65% with IB running at 100% utilization levels.

February 2024

CONSUMER | Voices

CONSUMER



Revenue growth of consumer companies remain subdued due to weakness in the rural market and

competition from the local and regional players. Management highlighted the delayed onset of the winter

season adversely impacted the winter portfolio during the quarter. Companies continuously passed on the

benefits of commodity prices in categories such as soaps, detergents, paints, oils, and biscuits. This resulted in

the sequential improvement in volume growth in 3QFY24. The trajectory of gross margin expansion remained

strong. EBITDA margin expansion is trailing behind gross margin growth, primarily attributed to increased

investments in marketing and distribution. Management anticipates volume recovery in FY25. Additionally, it

has also highlighted that gross margins have already rebounded satisfactorily for most companies in 9MFY24.

Outlook for FY24

The Home Décor business contributed 4% of revenue

during the quarter, with a target to increase it to 8-10%

by FY26.

The management has maintained its EBITDA guidance of

18-20%.

Capex is expected to reach ~INR20b by the end of FY24.

The company expects to achieve a high single-digit or

double-digit volume growth.

With expanded distribution reach, cheese has the

potential to generate ~INR10b in revenue over the

next five years.

KEY HIGHLIGHTS FROM CONFERENCE CALL

Salient takeaways from the 3QFY24 performance



Asian Paints



Britannia



Dabur



Godrej Cons.



Asian Paints maintains its commitment to a double-digit



volume trajectory on a four-year CAGR basis

A 3QFY24 price decrease of ~1%, combined with a prior

reduction of 0.3%, results in an overall reduction of 1.3%.



This pricing strategy aims to boost demand in smaller towns.

Distribution footprint expands to over 1.62 lakh touchpoints,



with another 2,000 added in 3QFY24.

The volume growth was 5.5% during the quarter. The volume



growth in terms of the pack was 3-3.5%. The company has

taken price cuts of 3-4% on a YoY basis and 2-2.5% on a QoQ



basis.

The management commented that local players will not

remain longer in the market. They operate by giving price

benefits to customers and margin benefits to distributors

and retailers.

The number of direct reach now stands at 2.76m outlets,

with a focused effort to strengthen rural distribution by

reaching 29k distributors.

Rural growth stands at 6-6.5%, surpassing urban growth at



around 3.8%. This consolidates to an overall growth of about

5%.

The current direct reach is 1.42m outlets, and it is set to rise

to 1.5m by the end of the fiscal year. Village coverage stands

strong at 1.17lakh villages, backed by the support of over



18,700 yodhas.



The company is allocating a capex of INR 1.35b to establish a

new greenfield plant in South India and is focusing on

expanding the capacity for Red Toothpaste, Odonil, and

Honey.

GCPL’s volumes expanded 8% YoY, while sales grew 2% YoY,



driven by organic underlying volume growth of 5%.

The company's EBITDA margin has surpassed 20%, with

ongoing structural cost reduction actions expected to drive

further improvement.

The launch of Fab Liquid Detergent at an INR99 per liter



category-defining price has commenced in select markets

and will gradually expand to others.



Dabur is extending its presence to Madhya Pradesh and

Rajasthan, leveraging its distribution network. The

international business, currently at 5-6% of Badshah

sales, is set to mirror Dabur's model, aiming for almost

30% contribution.

The company has introduced Goodknight Agarbatti with

an exclusive new molecule (RNF), which is ~2x more

effective than most other molecules. The launch is aimed

at tapping the INR12b incense stick market (growing at

10%) that is largely dominated by unorganized players.

GCPL anticipates over 20% growth in operating cash flow

and EBITDA, while PAT growth may be hit by net tax

credits and other factors.

The beauty and personal care business will be separated

into two independent business units, namely beauty &

well-being

and personal care in Apr’24.

The ETR for FY24 anticipates to be slightly over 26%.



Hindustan

Unilever



Urban markets (3% growth) consistently outpaced rural



markets (1% growth).

Urban-rural disparities are evident in consumption patterns

across different sales channels and price segments, with



modern trade outperforming others.

The premium portfolio remains the primary driver of growth,

expanding at a rate more than 2.5x that of the mass

portfolio.

February 2024

CONSUMER | Voices



Marico



Pidilite



UNSP

Demand trends remained steady, and there was no apparent



improvement from the previous quarter. FMCG volume

growth, on a four-year CAGR basis, remained in low single

digits.



Digital businesses amounted to INR4.5b- 5b, and the

company anticipates a double-digit EBITDA from them in the

next two to three years.



Both urban and rural markets expanded, with rural and



small-town markets outperforming urban areas.

The paints business, as consistently stated, solely focuses on



small towns and rural areas.



The waterproofing paint market is growing at a faster pace;

therefore, the company will not lose market share due to the

entry of new players.

The demand environment is muted sequentially; however,



premiumization trends continue.

Despite the festive season, Cricket World Cup, and the



wedding season, demand has not picked up as consumers

are cutting down on the number of occasions to better

manage their finances.



The food business has consistently excelled and is

expected to reach a minimum of INR7.5b by the end of

FY24.

Digital-first brand Beardo is expected to generate

EBITDA this year, while Just Herbs and True Elements

could break-even in the coming year.

The lending business pilot is underway and will be

launched in a southern Indian city in Feb’24.

The company maintains its guidance of double-digit sales

growth.

The management guides EBITDA margins ahead of 15%

for FY24 and expects to achieve mid-to-high-teens

margin in the next two to three years.

Asian Paints

Current Price INR 3,012

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Performance and outlook



The Decorative business witnessed a 12% volume growth, driven by double-digit

increases in both urban and rural markets, supported by festive demand.

Sustaining a 4year CAGR double-digit volume growth trajectory.



The volume and value growth gap persists, primarily due to an 80% contribution

from the economy and premium segments compared to luxury segments. The

management anticipates a continuation of a 3-4% gap in volume and value

growth.



Rural markets, initially stressed in 2QFY24, demonstrated recovery in 3QFY24.

Economy range products exhibited growth, particularly in Tier-3 and Tier-4

cities. While luxury products thrive, premium products experience a slower pace

of growth.



Distribution footprint expands to over 1.62 lakh touchpoints, with another 2,000

added in 3QFY24. Innovation accounts for 12% of the overall revenue in the

same period.



Projects and institutional business growth continues, with key contributions

from builders, factories, and government sectors.



A 3QFY24 price decrease of ~1%, combined with a prior reduction of 0.3%,

results in an overall reduction of 1.3%. This pricing strategy aims to boost

demand in smaller towns.

Segmental highlights



The Home Décor business contributed 4% of revenue during the quarter, with a

target set to comprise 8-10% of the decorative business by FY26.



The Kitchen business delivered flat revenue, while the bath business exhibited a

5% decline in growth due to weak demand trend at industry level. The company

has retained this business as its integration helps in strengthening the Beautiful



home network. It complements the decorative and paints business of the

company.



White Teak (Offering Decorative & Designer Lights) and Weatherseal (uPVC

Windows and Doors) demonstrated robust performance, marked by network

expansion and a two-fold increase in business value for Weatherseal.

February 2024

CONSUMER | Voices

Industrial business, including auto refinishes and protective paints, maintains a

strong growth trajectory. The general industrial business is getting doubled in

three years.

Cost and margins



In 3QFY24, there has been a 0.2% decrease in the deflation of material prices.



Margins experienced a substantial increase driven by the growth in luxury

products and a decline in raw material prices. This was further complemented

by operational, formulation, and sourcing efficiencies in Q3.



The management maintained the EBITDA guidance of 18-20%.



The company will be deploying higher money toward marketing, ATL spends,

and on brand building.



Generally, the overall margins in the projects business tend to be lower than in

the retail business. However, the profitability can vary based on the nature of

projects; for instance, premium luxury projects delivered higher margins.

Capex plans



The capex is expected to reach ~INR20bn by the end of FY24.



The backward integration plan with Cement is scheduled to be completed by

Dec’25 and the integration with VAM is expected to follow 4-5

months after the

completion of the cement integration.



The softening in raw material prices will continue as the consumption at global

level decrease. However, continuous monitoring will also be required on the

crude derivatives.



Brownfield expansions at both Khandala and Kasna have been completed with

installed production capacity increasing from 300,000 KL p.a. to 400,000 KL p.a.

and 80,000 KL p.a. to 100,000 KL p.a., respectively.

International Business



The international business reported a flat sales growth in INR terms, but a

demonstrated growth of 5.2% in constant currency (CC) terms.



The Middle East and Africa markets have exhibited a positive growth trajectory,

and there has been notable improvement observed in Sri Lanka.



Persistent high inflation and currency devaluation in Egypt continued to exert an

impact on the business.



Sales in Nepal remained muted due to liquidity crunch, and macro uncertainty is

expected to continue, affecting Bangladesh.



Britannia Inds

Current Price INR 4,924

Neutral

Click below for

Detailed Concall Transcript

& Results Update

Business environment and performance



The company has taken pricing actions in their key SKUs and also taken

promotions to drive the consumption and remain competitive.



The volume growth was 5.5% during the quarter. The volume growth in terms of

pack was 3-3.5%.



BRIT aspirated to achieve a high single-digit or the double-digit volume growth.



It has taken price cuts of 3-4% on YoY and 2-2.5% on QoQ basis.



In 9MFY24, the ratio of India biscuit portfolio of company and others is 65:35.



It more focus on the growth of Non-biscuit category and aspiration of 50%

higher growth than the base biscuit business.



The company will not take any further price hike. However, commodity prices

continue to remain a key monitorable.

February 2024

CONSUMER | Voices

The company continues to face competitive intensity from the local players and

modern trade.



Management commented that the local players will not remain longer in the

market. They operate by giving price benefit to customers and margin benefit to

the distributors and retailers.



The growth in urban area is outpacing rural growth.



The company continues to gain market share mainly in the Hindi belt states

driven by premium portfolio.

Cost and margins



Cost reduction stepped up to 7x in FY24 compared to FY14.



Overall commodity cost remains soft during the quarter. It reduces 3-4% on

QoQ basis.



Management focusing more on top line growth compared to margin expansion.



The EBITDA margin of 19% is at the peak level.

Segmental performance



The new launches are Tiger Krunch coconut, Britannia Treat, Cake and energy

protein bars Be you. It contributes ~INR2b in topline on an annualized basis.



Rusk volume has recovered on back of product restage and distribution focus.



Differentiated cheese formats continue to gain traction and it contributes 10%

of the cheese business.



Cheese can achieve ~INR10b in revenue over the next five years by expanding

distribution reach. Currently, BRIT has 13% market share in the cheese category.

Others



The number of direct reach now stands at 2.76m outlets and also strengthening

rural distribution reach to 29k distributors.



E-commerce and quick commerce seen good growth mainly in B2C. It

contributes 2.9-3% of business.



Company not focus E-commerce on B2B side as it disrupted the supply chain.



Double-digit profitable growth across markets of Middle East & Africa, and Rest

of International.



Nepal stays on consistent growth both in revenues & profitability.



It set up a packing unit in the Egypt.



Companies factory efficiency has been increased to 7000ton/month from

1800/month.



The mega plant at Ranjangaon has 17 food lines and average factory output is

20,000tonn/month including dairy production.



Dabur

Current Price INR 548

Buy

Click below for

Detailed Concall Transcript

& Results Update

Environment and outlook



The FMCG sector experienced a consistent YoY increase in volume growth,

although certain areas faced challenges due to liquidity issues and delayed

winters.



The impact of pricing decelerated as the effects of previous price hikes were

integrated into the baseline, and growth was primarily driven by volume.



The current direct reach is 1.42m outlets, and it is set to rise to 1.5m by the end

of the fiscal year. Village coverage stands strong at 1.17lakh villages, backed by

the support of over 18,700 yodhas.

February 2024

CONSUMER | Voices

Dabur experienced a resurgence in rural demand, outpacing urban growth by

200bp.



Rural growth stands at 6-6.5%, surpassing urban growth at around 3.8%. This

consolidates to an overall growth of about 5%.



The company is allocating a capex of INR 1.35b to establish a new greenfield

plant in South India and is focusing on expanding the capacity for Red

Toothpaste, Odonil, and Honey.



Legal costs during the quarter stood at INR 220m. Dabur affiliates or products

are not addressed in this case. Their impact is negligible, making up less than 1%

of the turnover, and their influence is confined to the US market.

Cost and margins



The gross margin experienced a robust expansion of approximately 300bp,

driven by material deflation observed during the quarter.



There has been a 36% increase in A&P investments, emphasizing the importance

of media investments for long-term sustainable growth and maintaining market

leadership.

Segmental highlights

HPC



The HPC portfolio experienced a 6.6% YoY growth during the quarter,

maintaining a four-year CAGR of 8.2%.



Home care demonstrated a 6.6% YoY growth, propelled by double-digit

increases in odomos, resulting in a 1,000bp gain in market share.



Odonil strengthened its No. 1 position in the air fresheners category, with a

market share increase of over 180bp.



Hair oil achieved a 4.5% growth, and the market share for the hair oils portfolio

improved 140bp, reaching 17.1%.



Market shares for coconut oils saw a 50bp increase.



Dabur holds a 16-17% market share in the hair oil category.



In the hair care category, shampoo is growing at 3%, while Dabur's growth

stands at ~11%.



Dabur’s market share in shampoos is at 7%.



Dabur Fresh Gel, launched a couple of months ago, generated a turnover of INR

170m and secured a market share ranging from 1-1.5%.

Healthcare



The healthcare portfolio maintained a four-year CAGR of 7% with a 3% growth.



The delay in the onset of winters had a slight impact on the Healthcare and

Winter portfolio.



Market shares increased in the health supplement portfolio, with Chyawanprash

gaining 151bp.



Dabur Honey showed a 33bp improvement for the quarter.



The Digestives category experienced a 15% growth, driven by the strong

performance of the Hajmola franchise.



The OTC portfolio, including Lal Tail, Health Juices, and Shilajit, performed

exceptionally well.



The Therapeutic portfolio is performing well and remains on track.

Foods and Beverages



The Foods business, including Badshah, achieved a 22% growth for the quarter,

maintaining a four-year CAGR of 12.4%.



February 2024

CONSUMER | Voices

Real Fruit Juice delivered a strong performance, with Real Activ experiencing

double-digit growth.



Badshah is experiencing a volume growth of 20-23%, while the corresponding

value growth is 9-10%.

International business



With moderation in inflation and distribution changes in the international

business, a robust recovery has been witnessed, resulting in a 11.7% constant

currency growth.



This growth is attributed to substantial increases across regions, including the

MENA region at 14.3%, Nigeria business at 52%, Egypt business at 43.1%, Turkey

at 43.8%.



Emami

Current Price INR 467

Buy

Click below for

Detailed Concall Transcript

& Results Update

Performance and outlook



Revenue was hit by subdued demand in the rural market, and the late onset of

winter hurt the winter portfolio.



The volume growth remained flattish (down 0.9%) during the quarter.



Demand should improve in FY25E, owing to benign inflation and rising

government spending to revive the rural economy.



In 3QFY24, e-commerce grew 15% YoY, while Modern Trade saw 10% YoY

growth. Both channels together contributed more than 22% of sales.



Emami launched 90 new products in the last three years and 20 products in

9MFY24.



Management aspires to achieve 6-8% volume growth.



The company is continuously reducing the dependency on seasonality by

launching new non-seasonal products.

Cost and margins



GP margin expanded due to the favorable input cost. Further, there is no

pressure on material costs during the quarter.



Margin improvement in modern trade was below expectation during the year.

Therefore, there is still headroom for the expansion.

Segmental information



The company launched five digital-first portfolios on Zanducare D2C platform

i.e., Zandu Mahabhringraj Tel, Zandu Shilajitprash, Zandu Livital-Ayurvedic Liver

Syrup & Tablets, and Zandu Dantveer Ayurvedic Toothpaste.



The healthcare range growth remained flattish during the quarter hit by the

delayed winter. Excluding Chwayanprash, it rose 3% YoY.



The BoroPlus range continued to maintain its leadership position at 60.5% in the

Antiseptic cream category.



The Kesh King category declined 13% during the quarter. The Hair Oil category is

striving but management believes that it will bounce back going forward.



Emami 7 Oils in One was down 5% YoY in 3QFY24, and remained flattish in

9MFY24.



The Man Company’s operating margin became positive, and Brillare’s operating

margin improved to -20% from -45% in 3QFY24.

Other points



The company had a good cash balance of INR4b.

February 2024

CONSUMER | Voices



The promoter’s stake was reduced to 12% after the disinvestment of the

promoter’s majority stake

in AMRI Hospital. Management plans to bring it down

to a single digit.

The international market delivered 8% YoY growth (11% in CC term) led by the

MENAP region, despite currency fluctuations and geopolitical disturbances in

key geographies.

The effective tax rate would be in the range of 7-8% for FY24E and ~10% for

FY25E.

Godrej Consumer

Current Price INR 1,228

Click below for

Detailed Concall Transcript

& Results Update

Buy

Performance and Outlook



GCPL’s volumes expanded 8% YoY, while

sales grew 2% YoY, driven by organic

underlying volume growth of 5%.



Despite a steady performance, revenue growth lagged volume growth due to

personal wash price declines.



Hair color, air fresheners, and fabric care all experienced robust double-digit

growth, contributing to market share gains in these categories.



The hair color business exhibited improvement, especially in shampoo hair

colors.

Cost and margins



A&P increased 200bp YoY during the quarter.



The company's EBITDA margin has surpassed 20%, with ongoing structural cost

reduction actions expected to drive further improvement.



The current year anticipates over 20% growth in operating cash flow and

EBITDA, while PAT growth may be hit by net tax credits and other factors.

RCCL business updates



The integration of Raymond's consumer business is now complete, with cost

synergies flowing, operating at around 30% of the overheads.



RCCL achieved sales of INR400m during the quarter.

International market updates



In Indonesia, there was a consistent performance with 9% volume growth, 8%

revenue growth, and 12% EBITDA, including Forex growth.



In Indonesia, the hair color business is relatively small, but it is experiencing

rapid growth, particularly through shampoo hair color.



The East Africa reorganization is progressing as planned; it is set to conclude by

4QFY24-1QFY25.



The demand for shampoo hair color in Indonesia is exceptionally high,

prompting the company to commence domestic manufacturing.

New launches



GCPL has entered the INR12b market of anti-mosquito incense sticks,

dominated by unorganized players.



Goodnight Agarbatti, India's only government-registered, active-based anti-

mosquito agarbatti, utilizes the highly effective Renofluthrin molecule.



The legal instance represents between 15% and 20% of this market and is

growing rapidly at 15%.



In the laundry liquid category, GCPL holds a market share of 15% to 20%.

February 2024

CONSUMER | Voices

The launch of Fab Liquid Detergent at an INR99 per liter category-defining price

has commenced in select markets and will gradually expand to others.



The hair color market, including hair crème and shampoo hair color, is

anticipated to endure and achieve double-digit volume growth.



Air Freshener is identified as a high-potential growth strategy in India. The

company has achieved a significant market share, positioning itself as the

leader. The category has consistently grown at 20% for the past two years, and

the anticipation is for continued growth in the high-teens to early 20%.

Others



The company has a long-standing strategic partnership with the manufacturer of

Renofluthrin, a unique molecule developed in India. The company holds

exclusive rights for this molecule in India for the medium term.



The company is introducing a new product, RNF, an Indian-patented molecule,

entirely developed within India.



Hindustan Unilever

Current Price INR 2,403

Buy

Click below for

Detailed Concall Transcript &

Results Update

Operational environment



The impact of the uneven monsoon on Kharif crops was adverse and hit

agricultural yields and rural incomes. Concerns persist over lower reservoir

levels for Rabi crops despite recovering crop sowing rates.



Weather anomalies continued with a delayed and less-severe winter and above-

average temperatures. The subsequent effects on winter crop categories will be

discussed later.



Compared to 2021, the corporate value market share was up by nearly 200bp.



The premium portfolio remains the primary driver of growth, expanding at a

rate more than 2.5x that of the mass portfolio.



The premium beauty business unit, the Horlicks Plus range, the mayo, butter,

and peanut butter in foods, and the premium laundry portfolio are experiencing

robust double-digit growth.



Cumulative market volumes reported a marginal 2% CAGR over last two years.



Subdued rural consumer sentiment, due to lower agriculture yields and

uncertainty, led to unmet expectations from the festive season.



Urban markets consistently outpaced rural markets, growing at 3% vs. rural

growth of 1%. Urban-rural disparities are evident in consumption patterns

across different sales channels and price segments, with modern trade

outpacing traditional trade.



Market dualism was evident as certain segments recovered faster than others,

with urban growth consistently outpacing rural growth.



Market price growth has sequentially reduced, moving from +8% in the June

quarter to marginally negative in the current quarter. Over a three-year period,

pricing remains relatively high due to unprecedented commodity inflation.



More than 75% of the business experienced penetration, both in absolute and

relative terms, indicating an expansion of the consumer base.



Over 80% of the businesses have either been growing or maintaining brand

power scores, showcasing success in terms of mental reach and brand

recognition.



FMCG market trends have remained stable, mirroring the previous quarter.

February 2024

CONSUMER | Voices

The company achieved a steady underlying volume growth of 2% YoY, despite

market conditions.

Costs and margins



Advertising and promotional investments rose to 10.7%, a 270bp YoY rise.

Absolute A&P investments were almost INR4b higher than last year. In the first

nine months of this fiscal, A&P has been 33% higher than the same period last

year.



Categories that are price driven will require higher ATL and BTL.



Current EBITDAM is healthy, and hence expansion would be well calibrated.

Segmental highlights

Home Care



Due to price cuts implemented during the year, there was a slight decline in USG

for home care, while built-in personal care maintained a flat trajectory.



Home care achieved a robust 14% revenue growth on a two-year CAGR basis,

propelled by high single-digit UVG.



Fabric Wash volumes witnessed a mid-single-digit growth.



Home Care segment’s margin was at

18% during the quarter.

Beauty and personal care (BPC)



BPC achieved a mid-single-digit volume growth for the quarter.



Skin Cleans declined YoY due to pricing actions, as lower commodity price

benefits were passed on to the consumers.



Body Wash is scaling up well with good growth, and Healthcare had a strong

quarter.



The non-winter premium portfolio remained strong, with Lakme and Ponds

experiencing double-digit volume growth driven by impactful innovations.



Oral care delivered a mid-single-digit growth led by Close Up.



BPC reported a healthy margin of 26%.

Food & Refreshment



In Foods and Refreshments, there was a low single-digit decline in UVG, mainly

attributed to pricing adjustments made during the year to counter the impact of

increased commodity costs. As a result, USG stood at 1%.



Within F&R, three-quarters of the portfolio consisted of coffee and tea where

volume recovery was yet to be observed.



Commodity inflation is hurting the tea business, and consumers are shifting to

lower-tier options in tea, driven by the price difference between premium and

regular tea.



Coffee achieved double-digit growth, primarily driven by pricing strategies;

while Health Food Drinks demonstrated competitive price growth fueled by the

‘plus’ range.



Mayonnaise and peanut butter continued to attract strong consumer interest,

and food solutions maintained the robust double-digit growth momentum.



Despite an overall muted performance, tea strengthened its market leadership

with significant gains in both value and volume.



In the F&R segment, strategic price increases were implemented throughout the

year to counter inflation, resulting in a slight YoY decline in volumes.



Challenges persisted in the business as consumers continued to downgrade, but

Green tea and flavored tea delivered positive performance.



F&R margin was at 19%.



February 2024

CONSUMER | Voices

Other points



HUVR has a direct reach to 3m outlets; the distribution network covers 2.3m

outlets, while Shakti Entrepreneurs handle the remainder in rural areas.



From 1st Apr’24, the beauty and personal care business will transition into two

independent business units, namely beauty & well-being and personal care.



Beauty and well-being business unit will comprise skin care, premium beauty,

hair care, color cosmetics, and health & well-being categories, while personal

care will include skin cleansing, oral care, and deodorants.



Management anticipates the full-year ETR to be slightly over 26%.



Rural income growth and winter crop yields will be the key factors that will

determine the pace of recovery.



Commodity prices remain at their current levels; management expects prices to

decline a bit in the March quarter.



Other income from 1st Jan’24 will not have an impact of GSK’s distribution fees.

Indigo Paints

Current Price INR 1,502

Buy

Click below for

Detailed Concall Transcript &

Results Update

Performance and outlook



Sales grew at more than 3x-4x the industry growth rate, indicating significant

market share gain.



Sales growth at Tier1/2 cities continues to exceed the growth in Tier3/4 cities

and rural areas.



The gradual premiumization in the emulsions has boosted value growth,

surpassing volume growth.



There is no price change in the cement paints and putty category.



The company continues to focus on waterproofing and construction chemicals.

These segments have begun to gain good sales traction in Jan’24, and we

anticipate this trend to continue in the following quarters.



Market share gain is mainly from the organized players. However, due to

smaller size gain, it is not noticeable by larger players.



The price-cut initiatives is normally taken by the industry leaders.



Industry had a taken price cut in Jan’24, mainly in the premium portfolio.

However, it has had no major impact on Indigo Paints, due to its lower share in

the premium category.



The company is confident of achieving INR13.5-14b sales in FY24. In 9MFY24, it

has already achieved INR9.2b and the fourth quarter is a seasonally strong

quarter.



Management has targeted to achieve INR20b sales in FY25.

Costs and margins



A&P spends increased during the quarter due to marketing efforts related to the

World Cup series.



It has recently launched a new advertisement campaign with cricketer MS Dhoni

to promote Waterproofing products.



Gross and EBITDA margins are generally quite high in 4Q, compared to other

quarters.



Management guided 18.5% EBITDA margin for FY24.



Depreciation also increased due to commissioning of the new plant at Tamil

Nadu, which went on

stream in Sep’23.

February 2024

CONSUMER | Voices

Fright costs depend on both the distance from the factory and premium product

sales.

Distribution Network



The company added two more depots (one each in North India & East India) to

improve its distribution efficiency. As of Dec’23,

the company has a total 53

depots.



It added 396 tinting machines, taking the total to 9,510 in 3QFY24 from 9,114 in

2QFY24.

Other points



On the B2B front, during the past three quarters, Apple Chemie has been

steadily investing in salesforce expansion and has established its presence in

seven to eight more states. Apple Chemie is expected to clock healthy sales in

4QFY24.



Civil work is progressing well in the proposed new water-based paint plant at

Jodhpur, which is expected to commence operation in Mar’25.



The capacity at Jodhpur plant will be 10-11k ton/month for putty, 1,200

tons/month for cement and 12k Kl/annum for solvent-based paint. Capacity will

increase to 90k KL/annum from 54k KL/annum for waterproofing paints.



Currently, the capacity of waterproofing paint at Cochin plant stands at 42k

KL/annum and at 55k KL/annum for the Tamil Nadu plant.



Southern region has contributed more than 25% of overall sales due to

increased contribution from Kerala.



The company has seen a healthy contribution from the west and east regions.

While the northern region's contribution has been less, it is expected to improve

gradually following the establishment of the new water-based plant at Jodhpur.



Dealers receive higher margins on Indigo Paints products compared to those of

peers.



The entry of a new competitor is not expected to significantly impact existing

players, given the high barriers of entry in the industry.



Jyothy Labs

Current Price INR 470

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Performance and outlook



Demand environment is mixed. Consumer spending has diminished due to

inflation, which has intensified competitive pressures.



The recovery in demand from rural India has not yet gained momentum.



The overall growth is primarily led by volume growth at 11% YoY. The company

has not taken any major price cuts during the quarter.



The company continues to invest in brand building, direct distribution, and

augmentation of its manufacturing capacity.



The company operates across all channels, which helps in the growth of both

premiumization and LUPs.



The three key initiatives are

–

increasing the distribution reach, including direct

distribution, enhancing the digital spends on other platforms such as social

media, newspapers, in addition to TV for a wider reach, and focusing on R&D,

which resulted in new launches such as liquid detergent Ujala and Henko.



The management aspires to achieve INR 50b revenue in the next four years.

February 2024

CONSUMER | Voices

Direct distribution reached 1.1m outlets in FY23 and the company targets to add

75k-100k outlets in FY24.



The E-commerce contribution is 5-6% of sales. All SKUs are available on the e-

commerce platform.

Costs and margins



The prices of raw materials such as soda ash and palm oil prices have been

stable during the quarter, which helped sustain margins.



A&P spends increased 45% YoY in 3QFY24 to 9% of sales. The management

plans to maintain 8-9% going forward.



The management maintains an EBITDA guidance of 16-17% in FY24.

Segmental details

Fabric Care



The segment has seen healthy growth across post wash and main wash brands

and liquid detergent launched last year.



Good demand seen in the mid-price detergent powder.



The company continues to distribute Mr. white and More light to increase the

brand penetration across geographies.



Ujala detergent powder is also expanding its reach beyond Kerala to other

states.



Henko liquid growth was higher than the category growth.

Dishwashing



Category primarily faces competition from local and regional players. However,

it performs better than the other organized players.



Category also faces pressure in the rural market.



The company continues focus on LUPs, enabling it to reach a broader consumer

base.



Premium SKUs supported by the OFOs and e-commerce.



Pril has consistently registered high growth on e-commerce channels.

Household Insecticides



The company continue to focus on innovations such as liquid format and the

automatic features of the machine.



The market share of coil is 23.9% in CY23 vs 23.3% in CY22 and liquid vaporizer is

8.5% in CY23 vs 8.9% in CY22.



The category has a higher market share in eastern India such as Bihar, Eastern

UP, and Bengal.

Personal Care



Good consumer attraction seen in Neem-based Margo soaps along with its new

variants of Rose, lemon, and jasmine. It delivered double-digit growth.

Other points



The management is more focused on the organic business growth, recognizing

the untapped potential for further expansion in that segment.



In the event of any M&A, the company intends to explore opportunities within

the FMCG product category.



Currently, the company has 23 manufacturing plants and is not looking for more

capacity extensions.



Capex for the development of new category in FY25 is expected to exceed INR

300-400m.



February 2024

CONSUMER | Voices

Marico

Current Price INR 536

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business environment and outlook



During the quarter, demand trends remained steady, and there was no apparent

improvement from the previous quarter. FMCG volume growth, on a four-year

CAGR basis, remained in low single digits.



The mass home and personal care categories closely followed the subdued rural

demand, while packaged foods led due to higher urban salience and

penetration-driven growth.



Rural demand remained subdued, while urban demand maintained its modest

growth path.



The current consumption growth pattern, resembling a K-shape, has widened

the gap between general trade and organized retail.



GT faced low growth, rising costs, and challenges in profitability and liquidity.



The India business reported a 2% volume growth, decreasing sequentially due to

stock reductions in key portfolios to support GT channel partners.



There was a 5% volume growth on a four-year basis, and sequential growth

improved for the core portfolio.



Over 3/4th of the business is either gaining or maintaining market share and

penetration levels.



The performance of the new food business has consistently excelled and is

expected to reach a minimum of INR 7.5b by year-end.



True Elements and Plix have been experiencing significant growth in their

respective categories.



Beardo is expected to generate EBITDA this year, while Just Herbs and True

Elements are anticipated to approach breakeven in the coming year.



Management is optimistic about a gradual improvement in consumption trends

over the next 4-5 quarters.



In the overall digital business, there are growth drivers and significant GT

potential and MRCO initiated this journey with Beardo in a small way.



The company is consistently implementing a 2% to 3% price increase across the

portfolio. It has had a minimal impact on volume. Considering these factors,

management is confident of achieving a double-digit revenue growth in FY25.

Material costs, margin and guidance



Despite an increased brand-building investments in both core and new

businesses, the gross margin is likely to expand by 450-500bp in FY24.



Management expects an EBITDA margin expansion of ~250bp YoY in FY24.

Segmental performance

Parachute coconut oil



Volume was up 3%.



Gained ~40bp in market share on a MAT basis.



Management anticipates a gradual improvement in volume growth, driven by an

upward bias in input costs and stable consumer pricing.

Saffola edible oil



Edible oil posted a mid-single-digit volume decline on a high base and extended

sluggishness in trade sentiment, resulting in lower inventory levels YoY.



There was a mid-twenties YoY decline in revenue, attributed to pricing

corrections over the last 12 months that had not yet impacted the base.

February 2024

CONSUMER | Voices

The foods business delivered a steady performance with 18% YoY value growth.



Saffola Oats maintained its category leadership, while Honey and Soya Chunks

have been scaling up on expected lines.

VAHO



VAHO value growth was 3%, indicating a slower recovery in rural demand.



Value growth on a four-year CAGR basis was at 6%.



The VAHO portfolio showed mixed trends, with bottom-of-the-pyramid

segments being subdued and mid-to-premium segments growing in the mid-to-

high-single digits.

Premium-personal care



The premium Personal Care sustained its strong double-digit growth trajectory

during the quarter.



The Digital-first portfolio reported an annual recurring revenue of ~INR4b+ in

3QFY24.



Foods and Premium Personal Care's strong growth positions us to achieve 20%

of domestic revenues from these portfolios this year.



Digital businesses amounted to 4.5b- 5b, and the company anticipates a double-

digit EBITDA from them in the next two to three years.



For foods and digital, the gross margin has been higher than that of the core

portfolio this year.



Plix makes a far higher margin than normal food because wellness brands get to

make higher margins.

International business



Bangladesh saw a 6% decline in CC growth due to transient macroeconomic

challenges.



Shampoo and baby care portfolios experienced healthy growth.



Anticipate improved business performance in Bangladesh in the upcoming

quarter.



South-East Asia achieved 4% CC growth, hit by slower HPC demand in Vietnam.



MENA sustained strong growth, delivering a 26% CC growth, with double-digit

growth in the Gulf region and Egypt.



South Africa recorded a 33% CC growth, primarily driven by the ethnic hair care

segment.



NCD and Exports exhibited a robust 16% growth.



In the Middle East, North Africa, and other markets with potential for improved

operating margin expansion, the goal is to sustain double-digit bottom-line

growth in the coming year.



Page Inds

Current Price INR 36,415

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Performance and demand environment



Overall the retail sector experienced subdued demand with consumer

expenditures shifting toward travel and leisure.



The apparel industry has seen low-single digit growth across categories.



The ARS system reduces overall inventory level, helping improve inventory mix

and better ROI at the distributor level.



Athleisure category has excess inventory due to weak demand post covid.



The e-commerce channel witnessed 28% growth in 9MFY24 and 39% in 3QFY24.

February 2024

CONSUMER | Voices

The company refrains from discounting products for clearing its inventory.



Management focuses on the penetration of women’s innerwear, which

currently lags behind men’s

innerwear. Initiatives such as product innovation,

and increased marketing investment will be undertaken to improve the

category.



The company will not take price increases in the near future, despite the

inflationary pressures seen in input cost.

Costs and margins



Despite the lower cost of fresh fabrics, GP margins continue to be affected due

to the accumulation of inventory at elevated prices.



Marketing investments on online and offline channels has been consistent over

the last three years. In overall marketing spends, 13-15% is on e-commerce

business.



Employee cost is on a decline due to increased efficiency. Several initiatives

have been taken to reduce throughput time.



The management has maintained the EBITDA margin guidance of 19%-21%.



EBITDA Margins were adversely impacted during the quarter due to subdued

demand. However, measures such as controlling operating expenses and

efficiently managing inventory have been undertaken.

Distribution channels and supply chain



Distribution network expansion

aligns with the company’s plans, boasting

110,000+ MBOs, 1,394 EBOs, and 2,300+ large format stores as of December.

Strategic focus includes metros and tier two/three cities.



There are total 1,390+ EBOs with 42/62 exclusive for woman/children. The

Women EBOs were down due to consolidation of stores.



Presence has been extended to over 114k+ retail network.



Expanding its footprint to 2,750+ cities/Towns.



There is a minor drop in the outlets due to closure of non-traditional outlets

opened during the pandemic. However, management continues to focus

expansion.



The company is on track to open 150-200 EBOs in FY24, as guided earlier.

Other points



Inventory duration reduced to 95 days by the end of Dec’23, down from 122

days in the beginning of FY24.



Net working capital days is INR9,278m in 3QFY24 vs INR7,680m in 4QFY23.



The Cash balance stands at INR3b as on Dec’23.



BOD declared the third interim dividend of INR100/share.



Pidilite Industries

Current Price INR 2,745

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Demand environment and outlook



Strong revenue growth was supported by a robust 10.4% volume increase, as

the C&B and B2B segments posted double-digit volume growth.



The four-year volume CAGR is 12-12.5%, primarily attributed to inorganic

growth, with a significant contribution from the inclusion of Araldite.



Revenue growth of 4.6% was achieved by passing on the moderation in input

prices through pricing adjustments.

February 2024

CONSUMER | Voices

Both urban and rural markets expanded, with rural and small-town markets

outpacing urban areas.



Domestic subsidiaries posted strong sales growth, with double-digit increases in

both the C&B and B2B segments.



Domestic subsidiaries such as IPCA and Nina Percept are showing normal YTD

business performance. They are on a healthy growth and profit trajectory in

their respective sectors.



Excluding the Pidilite USA business, the subsidiaries collectively reported modest

sales growth, with EBITDA doubling in absolute terms compared to the same

period last year. EBITDA margins showed improvements YoY and QoQ.



Three years ago, Pidilite Ki Duniya covered 2,000 to 2,500 rural areas. Presently,

in villages with populations ranging from 5,000 to 10,000, there are now 12,000

stores.



In the B2B segment, the price cut is higher, while in the B2C segment, it is lower.

Woodworking adhesives, with their maximum impact, are prevalent not only

within this category but also in other areas.

Cost and margin



VAM’s consumption costs

stood at USD900/t vs. USD2,000/t in 3QFY23.



Gross margins are consistently similar across all categories.



EBITDA margin would be in the range of 20-24% for FY24.

Lending business



The lending business pilot is underway and will be launched in a southern Indian

city in the next 15 to 20 days.



A dedicated team, separate from Pidilite employees, is established at an arm's

length.



The INR1b commitment over two years remains unchanged, depending on the

pilot's success.

Paint Business



The paints business, as consistently stated, focuses solely on small towns and

rural areas.



It commenced in Andhra Pradesh and Orissa and has expanded into Tamil Nadu

and Karnataka.



The management sees an opportunity in the lower segment of the market due

to its extensive distribution network.

Others



The growth proportion in Pioneer compared to Core increases by about 5% each

quarter. The initial years’ objective of 60-40

is currently tracking around 55-60

for Pioneer and 40-45 for Core.



Growth drivers in new categories include tile adhesives, wood finishes, and

joinery businesses. PIDI plans to achieve growth rates 2x-4x GDP.



It is constructing larger factories for existing products, with two massive ones

recently built in Vizag. The most recent facility in Vizag is now its largest

adhesives factory, while the newly commissioned factory in Vizag is its biggest

coatings factory.



Pidilite has introduced two major products. In the Fevicol division, the premium

variant Fevicol Hyperstar, a new range of sealants two years ago, and in the

waterproofing business, new offerings include a variety of roof ceiling and

exterior products at different price points.



February 2024

CONSUMER | Voices

Tata Consumer Products

Current Price INR 1,154

Click below for

Detailed Concall Transcript &

Results Update

Buy

India Packaged Beverages



The India Packaged Beverages business witnessed revenue growth of 4% YoY in

3QFY24 (four-year revenue CAGR of ~8%), backed by 2% volume growth.

Premium and sub-premium brands outperformed popular and economy brands.



Tea: The segment witnessed a market share loss of 70p YoY. TATACONS

continued its hyperlocal strategy for Tata Tea Premium, with the launch of

Madhya Pradesh packs.



Coffee continued its strong performance, with a revenue growth of 32% YoY in

3QFY24.

India Foods business



The business registered 13% YoY revenue growth in 3QFY24. The segment

recorded a volume growth of 5% YoY during the quarter.



Tata Sampann portfolio witnessed another strong quarter with 40% YoY growth,

aided by robust volume growth (four-year revenue CAGR of ~29%). Multiple

Sampann categories, such as Pulses and Poha, registered their highest-ever

sales.



Dry fruits witnessed yet another robust quarter, up over 70% YoY.



TATACONS Cold Pressed Oils witnessed strong consumer response, clocking 6x

of launch value in Dec’23.

India Salt



The salt portfolio grew by 6% YoY during the quarter (four-year CAGR of 16%),

led by ~5% YoY volume growth.



Salt saw its highest-ever quarterly volume market share in Q3FY24. However, in

value terms, the company lost ~10bp of market share YoY.



Value-added salts grew 23% YoY, in line with the premiumization agenda.



The company expects a huge runway to gain market share in salt. Around 87-

88% of the salt volume comes from the basic salt category (non-value added

product).

Tata Coffee (including Vietnam ex EOC)



Revenue grew 3% YoY (constant currency growth) on account of 44% YoY

growth in the plantation business (primarily led by higher coffee realizations).



The Vietnam business continued to deliver strong sales with improved

profitability, driven by higher sales of premium products.



Revenue for the extractions business declined 3% YoY; however, the business

witnessed significant improvement in margins.



Tata Coffee (inc. Vietnam) revenue growth for 9MFY24 was driven by a run-up in

coffee prices, while volume declined by 3% over the period.

NourishCo



NourishCo witnessed revenue growth of ~34% YoY to INR1.59b in 3QFY24. For

9MFY24, NourishCo witnessed revenue growth of ~41% YoY.



3Q is generally a weak quarter for NourishCo due to lower sales in Northern

India



Profitability improved significantly on YoY basis, on account of higher scale and

strong cost control.

February 2024

CONSUMER | Voices

JV: Starbucks



Tata Starbucks revenue grew 7%/14% YoY in 3QFY24/9MFY24. QSR sector were

under pressure during 3QFY24.



The company added 22/59 new net stores in 3QFY24/9MFY24, taking the total

count to ~392. Starbucks entered six new cities during the quarter, taking the

overall presence to 55 cities.

Distribution



The company expanded its total reach to 3.9m outlets as of Dec’23, with a direct

reach of ~1.5m outlets.



The company is witnessing higher throughput in towns where it has

implemented the salesmen split-routes strategy.



With all 50k+ population towns now having a direct distributor, TATACONS will

now focus on 10k/20k+ population town, where it is appointing distributors.



TATACONS has put up 45 new SKUs on shelf in modern trade.

Guidance



The company expects to take the contribution of new business (including Capital

foods and Organic India) to 30% of India Branded business, led by a 30%

revenue CAGR.



It is confident of delivering revenue of INR9-10b in NourishCo.



The company aims to expand the store network of Starbucks to ~1,000 stores by

FY28.

International operations



US business

–

Coffee revenue declined 8% YoY (constant currency) due to stress

on the demand side. However, volume growth has started to come back. Tea

revenue declined 14% YoY in 3QFY24.



UK business revenue grew 14% YoY (constant currency) in 3QFY24. Reported

revenue grew 24% YoY. Market share in the Fruit & Herbal tea category reached

8.9% during the quarter.



Canada business revenue stood flat on YoY basis. However, revenue of specialty

tea business grew 3% YoY. Overall tea market share (in value terms) stood at

~27.7%.



International businesses is margin-accretive as compared to India (but will

witness slower revenue growth). Margins have started to pick up in

International business.

Other highlights



The company witnessed EBITDA margin expansion on consolidated level on

account of pricing interventions in most of the international markets, softening

of commodity costs, and strong operating cost controls



Standalone EBITDA Margin expansion was led by Premiumization, favorable

business mix, softness in input prices and operating leverage.



Growth business (includes Tata Sampann, NourishCo, Tata Soulfull, the RTE/RTC

business) recorded combined YoY growth of ~42% in 3QFY24. The share of

growth businesses within the total India branded business stood at ~17% in

3QFY24 vs. ~13% in 3QFY23.



Tea prices in North India were stable, while it was down ~10% YoY in southern

India for 3QFY24

February 2024

CONSUMER | Voices



Arabia coffee prices witnessed a sharp uptick in 3QFY24 on the back of tight

global supplies. The surge in prices continued in Jan’24. Robusta coffee prices

also witnessed sharp uptick in Jan’24.

TATACONS has completed the integration of capital foods in Feb’24. Capital

Foods front-end sales integration was substantially completed within 2 days of

the transaction closing date. Capital Foods’s product has started to move into

TATACONS common warehouse and network.

Net cash stood at ~INR29.45b (up 40% YoY).

Exceptional items include costs related to UK pension and acquisition.

United Breweries

Current Price INR 1,729

Sell

Click below for

Detailed Concall Transcript &

Results Update

Environment and outlook



Net sales increased 13%, driven by an 8% rise in volume across diverse markets

including Tamil Nadu, Telangana, Orissa, Maharashtra, and Rajasthan, with

additional tailwinds observed in Delhi and Kerala.



Premium volume remains robust, with a 14% surge, particularly driven by strong

double-digit growth in key premium brands such as Ultra and Ultra Max.



The price mix has increased from 3% to nearly 5%, attributed to premiumization

efforts and appropriate pricing strategies.



UBBL is building further category growth, while driving the share of Premium

category in the company’s portfolio remains a key focus area.



Beer consumption in India remains low, with only 85-90m people consuming

beer, compared to 200m people who consume any type of liquor.



Despite facing supply challenges in Karnataka, UBBL managed an increase in

shares by ~200-300bp from the previous quarter.



The rise in excise duty in Karnataka is not expected to have a significant impact

on the MRP.



For 4QFY24, a mid-to-high-single-digit volume growth is expected with mid-

single-digit pricing growth.

Costs and margins



The GP margin expanded on lower input cost and price hike taken by the

company.



Spending on A&P increased by nearly 300bp in 3QFY24 compared to the

previous quarter due to the World Cup campaign.



The level of bottle returns fell short of expectations, leading to the purchase of

new bottles at increased costs.



Over the medium term, there will be an improvement in margins.

Other points



Nearly INR1.3b has already been invested in supply chain initiatives.



Volume growth was strong across regions: 22% in the East, led by Orissa and

Jharkhand; 10% in the South, driven by Tamil Nadu, Karnataka, Telangana,

Andhra Pradesh, and Kerala; 9% in the West. However, the North experienced a

decline mainly due to issues in Delhi that need to be addressed locally.



UBBL is currently awaiting approvals in Karnataka to initiate a new

manufacturing line for 'Heineken'. Management anticipates that it will receive

the approvals within a few weeks.

February 2024

CONSUMER | Voices

United Spirits

Current Price INR 1,143

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Operational environment and outlook



The demand environment is muted sequentially; however, premiumization

trends continue.



Despite the festive season, the Cricket World Cup, and the peak wedding

season, demand has not increased as the consumers are reducing the number of

occasions to manage their budgets.



The demand environment remained subdued in Jan’24. However, there is no

down trading compared to 3QFY24.



P&A growth stood at 10% YoY, with double-digit growth in its scotch portfolio.



Price mix stood at 9.3% driven by premiumization focus, the flow-through

impact of headline pricing, and other revenue growth initiatives.



The hike in excise duty in Karnataka is adversely impacting the volume growth.



The company will continue to drive its double-digit growth guidance.

Costs and margins



The ad-spends was up 18.4% YoY in 3QFY24, driven by the festive quarter, the

peak wedding season, and the Cricket World Cup.



It is expected to remain elevated in 4QFY24 due to the IPL, promotion of the

new launch ‘Don Julio’, and increased investment in popular brands that have

not performed well.



The ENA prices experienced inflation during the quarter, which was partially

offset by the stability in the other commodity prices. However, it is expected to

remain elevated.



The glass cost remained stable during the quarter.



The company is looking to offset inflation through internal management

productivity and advocating with the government for price increases.



The GP margin remained flat sequentially despite a rise in the ENA prices due to

high salience of the P&A segment during the quarter.



The management maintained the EBITDA guidance ahead of 15% for FY24.



The guidance for the next two to three is to achieve mid-to-high-teens margins.

Brands/New launches/re-launches



The Royal Challenger American pride expanded to three new markets, i.e.,

Himachal Pradesh, Arunachal Pradesh, and Uttarakhand.



The company launched a new bundle of Antiquity Blue, which is performing well

in launched markets and adding to the steady performance of Signature and

Royal Challenge American Pride.



The company launched the MacDowell's No. 1 Premium Smooth variant in

Assam, which is at a premium to the core MacDowell's No. 1 luxury in the state.



The company's global brand portfolio continues to witness healthy

premiumization trends, with premium and luxury offerings growing ahead of the

prestige segment.



The company is scaling up investment in Don Julio to play the role of a market

maker for the segment.

February 2024

CONSUMER | Voices

Varun Beverages

Current Price INR 1,438

Buy

Click below for

Detailed Concall Transcript &

Results Update

Operating Performance



Net Revenue from operations grew 22% YoY in CY23, driven by volume growth

in both Indian & International markets and an increase in net realization per

case.



Net realization per case increased 7% in CY23, driven by continued

improvement in the mix of smaller SKUs (250ml) in Indian Markets and

improved realization per case in International markets.



Gross margins improved during the year, primarily because of softening of PET

chips prices, although sugar prices increased slightly during the year. EBITDA

margin improved in CY23, led by increased realization and higher gross margins.



Working capital days have remained steady with both inventory days and trade

payable days reducing slightly.

Outlook



The period from Mar to Jul is the peak season for the company. Even after

witnessing a washout peak season in CY23, the company delivered healthy

volume growth of ~14% in CY23. This, coupled with an increase in capacity, gives

management the confidence to continue the growth momentum.



Going ahead, the company will focus on improving the go-to-market (expanding

to 400-500k outlets every year) and adding more chilling equipment. It will focus

on going deeper into the existing market.

Capex



In CY23, the net capex capitalized amounted to ~INR21b. This primarily includes

(a) the establishment of new greenfield production facilities in Bundi (Rajasthan)

& Jabalpur (MP) for INR8.5b (b) Brownfield expansion at six existing facilities in

India for ~INR8b (c) the acquisition of land in Bihar and Andhra Pradesh for

construction of plant in the future, amounting to INR1.5b.



Balance capex comprises international projects, factoring in write-offs and forex

fluctuations



Post this capex, the company expects capacity in CY24 to increase by ~45% over

CY22 capacity.



The company expects to incur a capex of ~INR12b in CY24.

Debt



Net debt stood at INR47.3b as on 31 Dec’23 vs. INR34.1b as on 31 Dec’22.



Net debt majorly increased due to an increase in CWIP and capital advances

(incremental addition by ~INR12b). This increase was on account of a new

facility in Maharashtra, which was about near completion (commissioned on

25th Jan’24).

African business



VBL already got approval from Botswana for setting up a facility and is awaiting

approval for Namibia and South Africa, which is likely to expected by the end of

February’24.



PepsiCo’s share is ~1.5% in the African market, while BevCo’s share is ~12%.

Sting



Generally, energy drink mix constitutes ~14-15% of the total beverage market in

most countries. Sting has achieved a market share of ~14-15% within the overall

volume of PepsiCo at VBL.



Sting has reached ~3.5m outlets in India.

February 2024

CONSUMER | Voices

Dairy segment



Going ahead, VBL is expecting huge growth in Gatorade, Juice, and value-added

dairy segment as the production capacity has increased by 200%.



Currently, the Dairy share is just ~0.5% of the total volume and the company

expects to double this in CY24.



Currently, the dairy plant was just within the Northern part of India. Now the

company has commissioned a plant in the Western region and will be soon

setting up a plant in the Eastern market.

Others



VBL’s PET recycling plant will start production in CY25 and will cater to ~25% of

the volume.



VBL’s new facility in Maharashtra is already being commissioned and the

Gorakhpur facility is likely to commission in Mar/Apr’24.



The international market has grown by ~16%/18% for 4QCY23/CY23. Zimbabwe

has grown by ~23% YoY in CY23.



The company is looking to add ~30m cases in DRC.



The company has incorporated a new subsidiary -

‘VBL Mozambique, SA’ in

Mozambique, South Africa, to carry on the business of distribution of Beverages.



In Oct’23, the company has acquired a 5.03% shareholding in Lunarmech

Technologies Private Limited for a purchase consideration of INR100m, taking its

total holding in the company to ~60.07%.

February 2024

FINANCIALS/BANKS| Voices

FINANCIALS/BANKS



Many banks have indicated a consistent trajectory of loan growth, driven primarily by ongoing momentum in

the Retail, Business Banking, and SME segments, coupled with improved utilization of sanctions in the

corporate sector. Despite this positive outlook, concerns persist regarding deposit mobilization, leading

banks to increasingly turn to bulk TDs and CDs to fund asset growth. The industry-wide CASA mix has been

declining, resulting in a sequential increase in funding costs. While several banks have faced stagnation or

decline in NIM, they anticipate that the rising cost of funds will contribute to further margin moderation in

the upcoming quarters, albeit at a more moderate pace.

PSU Banks have reported enhanced asset quality, although elevated opex ratios persist due to wage

provisions for PSU banks and ongoing investments in branch expansion and technological advancements. The

SMA pool remains low, and controlled slippages from the restructuring book, combined with a robust PCR

and contingency buffers, are expected to mitigate credit costs and support earnings. Provisioning expenses

have generally remained manageable for most banks, and although there is vigilance regarding the turn in

the delinquency cycle for unsecured loans, the expectation is that credit costs will remain under control in

the coming quarters.

Outlook for FY24

Asset quality and collection efficiency



AXSB has also suggested that it will continue to invest in



The GNPA ratio improved 15bp QoQ to 1.58%, while

the business, taking advantage of controlled credit costs.

the net NPA ratio stood stable at 0.4%. PCR moderated

This will keep cost/asset ratios elevated, much higher

165bp QoQ to 77.8%.

than the earlier guidance of reaching ~2% cost/assets by



Fresh slippages came in at INR37.2b (vs. INR32.5b in

the end of FY25.

2QFY24). Recoveries from written-off accounts



The bank expects the LCR ratio to be ~115-120% going

amounted to INR6.35b in 3QFY24.

forward.



Restructured loans stood at 0.16%. The bank



AXSB has maintained its guidance of 400-600bp

carries 20% provisioning on these loans.

differential between the bank’s growth and industry

growth over the medium term.



CD ratio stands at ~93%; high CD ratio will constrain

credit growth, while continued re-pricing of deposits will

likely exert pressure on margins over the coming

quarters.



Margins stood largely flat even as the bank deployed



GNPA/NNPA ratio improved 8bp/4bp QoQ to

excess liquidity and significantly drew down the LCR

1.3%/0.31% as of 3QFY24.

ratio. Margin is currently at the lower end of the



HDFCB has reported a credit cost of 49bp in

spectrum and should recover to 3.7% in the next 18-24

3QFY24 vs. 74bp in 3QFY23. The decline in credit

months.

cost will allow for higher investments in



About 84% of deposits were retail. A shift toward a more

subsidiaries and technology.

retail-focused mix is expected to result in improved



Contingent and floating provisions amounted to

margins going forward.

INR154b, and general provision amounted to



The RoE/RoA stood at 15.8%/2% in 3QFY24 and the

INR104b as of 3QFY24. Additional contingent

same is expected to improve going forward.



The CASA ratio is expected to increase going forward as

provision of INR12.2b was provided for in 3QFY24.

customer spending is expected to decline at some point,

The bank reported a 26bp slippage ratio

and new customers are being acquired. Deposit rates

amounting to INR70b for 3QFY24.

have reached their peak, and the bank expects deposit

repricing to end in the next two quarters.



KEY HIGHLIGHTS FROM CONFERENCE CALL

Axis Bank

HDFC

Bank

ICICI

Bank



NIMs declined 10bp to 4.43%. The impact of

interest on the income tax refund was 4bp in

3QFY24. It expects FY24 margins to be at similar

levels as of FY23. The management expects some

moderation in margins, but at a slower pace vs.

3QFY24.

On unsecured loans, the bank has refined credit

parameters and has increased pricing on PL by 20-

25bp. The bank expects growth to moderate from

its current levels.

The bank added 123 branches in the quarter. It



Gross NPA stood at 2.3% and Net NPA ratio at

0.44% as of Dec’23 (vs. 2.48% in 2QFY24).

The bank holds INR131b of contingency

provisions, same as 2QFY24.

Slippages in retail, rural, and BB increased. There

is no stress on the retail side as of now. Retail

additions should go up as the portfolio grows. On

the corporate side, we saw an upgrade in 3Q,

largely offset by AIF provisioning.

February 2024

FINANCIALS/BANKS | Voices

plans to follow a bottom-up approach, and does

not have a target for branch addition.



IndusInd

Bank



Kotak

Mahindra



SBI



Loan growth is expected to be ~18-23%, with

the retail loan mix at ~55%-60%. Customer

base to be >50m by FY26 vs 38m in 3QFY24.

The bank’s LCR has improved to 122% in

3QFY24 from 117% in 2QFY24.

The bank’s CD ratio is in line with the

banking industry and there has been no

communication from the regulator regarding

any adjustments. The bank is managing its

CD ratio at 86-90%.

The bank expects RoA to sustain at ~2-2.1% going

forward.

Deposits have picked up, driven by ActivMoney

product launched by KMB six months ago. CASA

ratio stood at 47.7% in 3QFY24 vs 48.3% in

2QFY24.

NIM remained stable at 5.22% in 3QFY24, with a 3-

4bp differential attributed to the CRR impact

addressed in the previous quarter. The primary

reason for the stable NIMs is the change in the mix

of advances.

Wage revisions increased to 17% from 14%; 10%

was provided from Nov’22 onwards. The bank had

provided INR88.9b as of Sep’23 and provided an

additional INR63.13b in 3Q. Total provisions thus

stood at INR127.18b in FY24. The bank expects to

make residual INR54.08b of wage-related

provisions in 4Q.

CET-1 ratio stands at 10.38% and the bank is open

to raising more capital if growth trends demand.

The bank is also reviewing AT1 prices and will make

sure that the capital will not be a constraint for

growth.

The bank believes that credit growth will be at 14-

15%. The bank has enough elbowroom to grow at

the pace of INR7.5t per year (18-20% growth). The

bank’s CD

ratio is 66% and LCR too is healthy at

131%.



The bank expects slippages to normalize to

around INR12b going ahead. Slippages in VF is

normalizing; however, the bank expects the

slippages to be lower in the corporate segment.

The bank has utilized INR2.2b of contingent

provisions; it has created contingent provisions on

the part of one large account, which may get

upgraded on Feb 2024 and the bank may not

utilize this buffer.

NNPA ratio improved 3bp to 0.34% with GNPA

ratio remaining stable at 1.7% in 3QFY24. PCR

improved 150bp QoQ to 80.6% in 3QFY24.

The bank reported slippages amounting to

INR11.8b as on 3QFY24, while upgrades stood at

INR2.9b.

The bank holds outstanding Covid provisions of

INR2.95b.



GNPA/NNPA ratios moderated to 2.42%

(lowest in >10 years) or 0.64% as of 3QFY24.

The slippage ratio improved 5bp YoY to 0.67%.

Credit cost stood at 0.25%; improved 12bp in

9MFY24.

The bank does not expect any lumpy

recoveries in AUCA accounts. On NCLT

recoveries, the bank has to depend on the

consortium and ecosystem.

AU Small Finance Bank

Current Price INR 600

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Balance sheet and P&L



Deposit repricing continued, and the cost of funds rose by 20bp QoQ to 6.90%

with average CoF of 6.74% as of 9MFY24.



The bank has maintained LCR in the range of 120%+, with additional liquidity in

high-quality non-LCR instruments.



The bank has brought down the CD ratio to 83%. CASA+RTD stood at 64% of

total deposits.



Gross advances grew 20% YoY and were marginally lower due to a high base

effect as there was no major securitization in 3QFY23. However, securitization

picked up in Mar’23 and thus the base

effect for gross advance growth will

normalize from the next quarter.



The bank has created a new banking unit, Swadesh, to focus on rural areas.

February 2024

FINANCIALS/BANKS | Voices

The bank securitized INR27.4b of loans in 3Q across Wheels and Home loans.

The total securitized book stood

at INR85.5b as on 3QFY24. Last year’s

securitization was recognized in the current year.



The bank has seen a sustainable growth, with deposits crossing INR800b; loan

portfolio, gross of securitized assets, crossing INR750b, and the balance sheet

crossing INR1t.



The cost of funds increased by 77bp in 9MFY24 and 20bp in 3Q. Disbursement

yield increased by 38bp YTD.



Differential between home loan yield and credit card yield stands at 40bp.



It has diversified away from the fixed-rate loan book to achieve a 62:38 ratio of

the fixed rate and floating rate loans, which will help the bank manage the

cycles better and reduce earnings volatility.



Apart from investments in digital initiatives and wealth and transaction banking,

3Q saw an increased spending on brand and marketing in the festive season.



The bank has taken cautious steps on Unsecured lending (4–5%), even though it

is a high-yielding and scalable segment. After the merger, the bank wants its MFI

book to be ~10% of overall loan book.



A higher percentage of the fixed-rate book will help the bank increase its

margins once the interest rate cycle reverses.



Interest rates remain elevated amid persistent competition for deposits.



The bank remains confident about its liquidity, with highly liquid non-SLR book

and LCR ratio at 123%.



The entire portfolio of two-wheeler and personal car is now migrated to the

SFDC + FICO platform.



Excluding securitized book, NIM moderated 30bp in the current quarter.

However, including the securitized book, NIM stood at 5.5% in 3Q.



Overall issuance to NTB customers stands at ~75%. It added more than 16k

wealth customers during the quarter.



Yield are down on credit card book as there is a regulation that the bank cannot

charge interest on interest.



45% of new customers in Q3FY24 were acquired via digital products. Credit card

business will support the bank’s liability business.



Merger with Fincare SFB is on track and has received CCI approval earlier this

week. The bank is awaiting approval from the RBI.



Operating expenses on new investments are largely related to credit cards,

which account for ~50-60% of overall growth in expenses. The bank expects

these expenses to remain similar going forward.



The bank avoided partnerships with fintech firms for digital lending and piloted

its own digital products and services.

Asset quality



Credit costs, net of recovery, for the quarter normalized at 61bp as the bank

wrote off INR1.2b of its portfolio in 3QFY24.



Asset quality remained range-bound with no specific pockets of stress or any

EWS.



SMA book declined by ~250bp over the last 18 months, reflecting de-risking of

the portfolio

– from 14.49% in Jun’22 to 11.95% as of Dec’23.



February 2024

FINANCIALS/BANKS | Voices

Excluding credit cards, the net credit cost normalized to 0.44% in 3Q. As the

credit card book attains a size and gets seasoned, the credit cost will normalize

and it is currently in line with the industry average.



The GNPA ratio increased by 7bp in 3Q to 1.98%. Adjusting for the securitized

book, it was at 1.83%.



Standard restructured assets declined to 0.7% of gross advances. Provision +

write-offs on credit cards stood at INR450m.



The bank has INR830m of provisions against contingency and standard

restructured assets, and INR410m of floating provisions.



The bank has INR0.83b of contingency and standard restructured assets.

Guidance



NIM is expected to be at the lower end of the guided range of 5.5%- 5.7% for

FY24.



The C/I ratio for FY24 is expected to stay flat YoY vs. FY23



AUSFB expects loan growth to be ~26-27% YoY by the end of FY24.



Normalized credit cost is expects to be ~0.5%-0.6% going forward. Once the

merger happens, the bank expects a credit cost of 3% in the MFI book.



Axis Bank

Current Price INR 1,088

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Business performance, balance sheet and P&L



Retail term deposits continued to grow at ~17%. 1.47m retail term deposits

acquired in 3QFY24.



The bank has gained incremental market share of 6.7% in the last three years.



AXSB added 100 branches in 3QFY24, taking the total branch count to 5,252.



It has made full provisions for its entire AIF investments of INR1.82b (46% in

government-related securities).



The bank has not utilized its Covid provisions during the quarter.



The share of low-yielding RIDF bonds declined to 1.8% as a % of total assets.



Nearly 60% of incremental deposits came from non-retail term deposits.



Subsidiaries contributed 9bp to consolidated RoA and 54bp to consolidated RoE.



Bulk deposit prices are inching up as system liquidity remains tight, and the bank

expects this to continue.



In wholesale banking as well, the bank has launched Axis Neo cards in the

current quarter. Sparsh is embedded across customer touchpoints, processes,

and metrics.



Integration expenses contributed 4% to YoY growth in opex and accounted for

13% of total opex.



The bank has no intention of raising capital in the near term.



It has launched a new digital savings account proposition, which provides

spending-based rewards with a nominal fee.



About 93% of fees are granular. The fee-to-total assets ratio stood at 1.5% in

3QFY24.



Unsecured disbursements were 22% of retail disbursements in 3Q. 75% of retail

book is secured in nature.



ETB mix in retail portfolio: Personal loan-81%, LAP-76%, Auto loan-65%, credit

card-52%, SBB-39% in 3QFY24.

February 2024

FINANCIALS/BANKS | Voices

MSME remains a key segment of the bank, which grew 26% YoY (4.2% QoQ).

The Retail book grew 27.4%.



The loans, which are linked to the repo rate, grew at a healthy pace, as a

majority of retail, all of SME book, and some part of corporate book are repo

linked. About 69% of loans are floating rate.



On incremental disbursements of personal loans, the bank has increased its

prices, taking into account the RBI regulation on risk weights.



The bank will continue to invest in the franchise, which will increase the cost.



Fee income grew 29% YoY to INR51.7b. About 72% of the bank’s fee income is

retail fees.



Salaried customers account for 100% of PL and 78% of Credit Cards portfolio.



In 9MFY24, around 33% of credit cards were acquired through the known-to-

bank (KTB) channel.



The CD ratio stood at 92.8% in 3QFY24 vs. 93.9% in 2QFY24.



About 77% of the book is rated SME3 or better.



Technology-related expenses formed 9% of total operating expenses in 3QFY24.



Treasury gains stood at INR2.9b in 3QFY24 due to a reversal of MTM book and a

good performance in trading.

Asset quality



The GNPA ratio improved by 15bp QoQ to 1.58%, while the net NPA ratio stood

stable at 0.4%. PCR moderated 165bp QoQ to 77.8%.



RWA to total assets increased to 71%. There has been a 370bp impact of

regulatory changes in risk weights.



Fresh slippages came in at INR37.2b (vs. INR32.5b in 2QFY24). Recoveries from

written-off accounts amounted to INR6.35b in 3QFY24.



3QFY24 net credit costs (annualized) stood at 28bp, aided by higher recoveries.

Gross credit, which stood at 54bp, should be monitored.



Restructured loans stood at 0.16%. The bank carries 20% provisioning on these

loans.

Guidance



The bank expects LCR ratio to be around 115-120% going forward.



It expects credit growth to taper down and deposit growth to be constrained

going forward.



AXSB has maintained its guidance of 400-600bp differential between bank and

industry growth over the medium term.



The bank expects deposit repricing to continue through FY24, but the pace of

increase will reduce. Deposit repricing also to spill into 1QFY25.



The bank expects recoveries and upgrades to decline and credit costs to move

up going forward.

Subsidiaries’ performance



Axis Finance: It has been investing in building a strong customer-focused

franchise. Its overall assets under finance grew 38% YoY. Retail book grew 45%

YoY and constituted 44% of total loans.



Axis AMC: Quarterly average AUM grew 6% YoY to INR2.6t. 9MFY24 PAT stood

at INR2.97b.



Axis Capital: It completed 71 investment banking transactions in 9MFY24.



Axis Securities: In 9MFY24, broking revenue grew 42% YoY to INR7.57b and PAT

grew 31% YoY to INR1.98b.



February 2024

FINANCIALS/BANKS | Voices

Bank of Baroda

Current Price INR 273

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Results Update

Balance sheet and P&L



Global advances grew 13.6% YoY, domestic advances rose 13.4% YoY and

international advances increased 14.4% YoY. The bank expects international

advances to grow at a slower pace, in line with overall advances growth.



PL growth moderated in 3Q at 8% QoQ vs. 16% QoQ in 2Q, but it was in line with

the bank’s strategy and guidance.



Bulk deposits declined 6.6% QoQ, which was NIMs-accretive and led to a 3bp

QoQ improvement in NIMs in 3Q.



RoA stood at 1.2%, higher than the bank’s guidance of 1%.



Yields on advances improved 8bp QoQ and the cost of deposits increased 4bp

QoQ. The bank guides for a slower pace of increase in the deposit cost going

ahead.



BoB expects NIMs at around 3.15% (+/- 5 bp) in FY24.



RWAs went up due to the RBI’s measure on risk weights and

as a result, the

CRAR ratio declined to 14.7% vs. 15.3% in 2QFY24. LCR is comfortable at 133%.



The bank has introduced new types of differentiated savings accounts during

the festive season to attract customers.



It expects healthy deposit growth in 4Q.



BoB World is only one of the digital channels and the bank has increased other

channels for sourcing customers. For BoB World, the bank is already in

compliance with the RBI.



BoB had more than adequately provided for wage provisions. It has made

provisions of INR4.2b for wage provisions in 3Q. The bank has total wage

provisions of INR17.45b.



Growth in CASA has been low. The bank has reduced its dependency on bulk

deposits. It expects credit growth of 14-16%. The bank focuses on maintaining

margins.



Standard

asset provision reversals have continued as the bank’s restructured

book continued to run down.



Restructured book stood at INR99b. Every quarter, the book declines by 15-20%

and as a result, provisions also come down.



The CD ratio stood at 82% and is expected to be around 80%.



4Q advances growth will be at 14-16% and will depend on the resource

mobilization strategy. On the liability side, the bank has different options for

deposits, as well as raising bonds, which can support advances growth.



In terms of yields, levers like MCLR repricing and the improvement in yields of

NBFC should help BoB improve the yields.



The bank has increased rates for the below 1-year

TD. After May’24, the bank

expects the liquidity scenario to change.



BoB is going to introduce MIBOR deposits and all these measures will reduce the

pressure on retail TDs.

Asset quality



GNPA/NNPA ratios improved by 24/6bp QoQ to 3.08%/0.7%.



Slippages stood at 0.95% in 3Q vs. guidance of 1-1.2%.

February 2024

FINANCIALS/BANKS | Voices

SMA1 and 2 remained under control and the bank indicates no signs of stress

yet.



Slippages stood at 1% in retail (INR5.53b). NPAs in retail were lower, while there

was no NPA from co-lending.



Recoveries for the bank dropped in 3Q, but the target recoveries have already

been achieved. There is no big NCLT recovery in the pipeline, but the bank has

been aggressive on recovery.

Guidance for FY24



BoB guides for NIMs at 3.15% (+/- 5bp). The bank, as previously guided,

continues to reduce its dependency on bulk deposits.



International book is expected to grow 15% YoY.



BoB guides for RoA to be above 1%.



Total advances growth is expected to be 14%-16% in FY24. The bank looks to

reduce growth in the PL segment.



BoB maintains its deposit growth guidance of ~12-13% in FY24.



The bank expects the domestic CD ratio to be in the range of 80%.



Bandhan Bank

Current Price INR 203

Neutral

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Detailed Concall Transcript &

Results Update

Balance sheet



Advances grew 18.6% YoY and 7.7% QoQ, driven by a demand uptick across all

asset verticals.



Retail book grew 17% YoY/15% QoQ, commercial banking grew 60% YoY/9%

QoQ, and housing book grew more than 7% YoY (adjusting for sale to ARC, up

9% YoY).



Currently ~44.5% of the book is secured in nature, which the bank plans to

increase through geographical expansion and internal sourcing, where cross-

offering is possible.



About 66% of the retail book is secured in nature, with the bank focusing more

on the affordable housing yield. The LCR ratio stood at 142% in 3QFY24.



Deposits grew 15% YoY, a tad stronger than industry growth. The retail-to-total

deposits ratio declined to 71%.



CASA deposits grew 14% YoY but declined 2% QoQ. The bank’s CASA ratio stood

at 36.1% despite the tight liquidity condition in the market.



MFI customers contribute 4% of total deposits.



The bank added 600k new borrowers in EEB and onboarded total 900k new

borrowers.



Wholesale savings stood at ~INR50b of total deposits, and the balance were

retail savings.



There is a 100bp differential between retail TD and non-retail TD. Bulk deposit

rate is slightly above 8%.



Deposit growth is mainly funded by non-retail TD; the bank is not worried about

the near-term growth whether it is from wholesale or retail.

P&L and asset quality



CE stood at 98%, EEB (ex-NPA stood at 99%, up from 96% a year ago).



The bank sold housing NPAs of ~INR7.2b to ARC in 3QFY24.

February 2024

FINANCIALS/BANKS | Voices

GNPA is high in the rest of India compared to West Bengal and Assam. From an

industry perspective, Maharashtra and UP are facing issues. BANDHAN has

taken corrective measures to improve asset quality in other areas as well.



The bank added 26 branches in 3Q and has presence across 35 states and UT.



CGFMU was availed in FY21 (not taken after that); from this, the bank disbursed

INR208b (CGFMU) and INR19.50b in ECLGS. Nearly 85% of the portfolio has

been repaid, however, the balance is in the stress pool. Against the stress pool,

the bank has ~89% of provisions.



As per the guidelines, the insurance claim can be 15%,

i.e., INR31b. The bank’s

total claim in both tranches is INR22b, of which INR9.17b has been claimed and

received. However, with respect to the additional claim of INR12.96b in 2QFY24,

NCGTC made some observations, which were inadequate (per the bank), and

hence it conducted an additional audit (forensic), which is expected to

completed in the next few months and the bank remains confident of

recovering the amount from CGFMU.



The cost of fund is likely to come down in the future, which will keep margins

healthy.



Credit costs came in at 2.45% in 3Q vs. 2.41% in 2Q.



Recoveries from EEB stood at INR1.78b vs. INR1.39b in 2Q. By FY24 end,

recoveries are expected to normalize.



GNPA stood at 7.0%, led by improvements in the housing segment.



During the quarter, out of total slippages of INR13.9b, slippage in the EEB book

stood at INR9.9b; ~45% came in Oct’23 on account of system migration followed

by the festive season.



BANDHAN reported PAT of INR7.3b, up 152% YoY. NII grew 21.4% YoY to

INR25.3b vs. INR20.8b in 3QFY23.



The bank has delivered RoA at 1.9% and RoE at 14% in 3QFY24.



Geographical diversification of the EEB portfolio is on track

–

the contribution of

West Bengal and Assam is less than 45%.



About 85% of total EEB book is live and is disbursed in FY23-24.



The slippages run rate is expected to go down going forward.

Guidance for FY24



The cost-to-asset ratio is expected to be around ~3.5%-3.7% going forward.



The bank has guided for ~7%-7.5% NIMs in 4QFY24.



It guides for long-term RoA of ~2.5-2.8% and RoE of ~14%-18%.



BANDHAN expects 50% of the loan book to be secured by FY26.



Due to stringent norms undertaken by the bank, INR3b-5b additions to DPD are

expected in the next couple of quarters.

Digital



Around 92% of savings accounts are opened digitally and 95% of retail

transactions are digital.



The bank has completed its migration to the core banking system, and has

increased employee productivity on the digital platform.



It has appointed the second executive director, and the new CFO is also

expected to be on-boarded soon.



February 2024

FINANCIALS/BANKS | Voices

Canara Bank

Current Price INR 569

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Results Update

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Balance sheet and P&L



In 9MFY24, PAT stood at INR108b, which has surpassed the full-year profit of

FY23.



Business growth was in double digits in 3Q, with gross advances up 12.8% YoY.



RAM credit grew 14.56% YoY. Retail grew 12.14% YoY, Agriculture grew 19.26%

YoY, Housing loan grew 12.1% YoY, and Vehicle loans grew 13.2% YoY.



Mix of RAM: Corporate stood at 56:44 in 3QFY24.



LCR stood at 135% in 3QFY24 and the bank remains comfortable with its

liquidity conditions.



The C/I ratio was high due to wage revision settlement at 17% as the bank fully

provided the shortfall of wage revisions as of Dec’23.



The bank made additional provisions of INR7b

—

INR2.5b for actuarial pension

and INR4.5b for wage revisions over and above, which should have been

previously made.



Earlier, provisions were made for a 15% wage revision. After the 17% wage

revision, INR1.29b per month shall be provided.



The bank expects two disinvestments to happen in FY25, one of which has

already been announced by the bank.



The bank’s UPI transactions per month stood at ~830m as of Dec’23.



RoA/RoE stood at 1.01%/21.95% in 3QFY24 as against guidance of 1%/19.5%.



Advances/deposits growth stood at 11.7%/8.6% YoY in 3QFY24 as against

guidance of 10.5%/8.5%.



NIMs improved 3bp QoQ to 3.03%, but the bank expects margins to remain

under pressure as the cost of funds rises.



The bank is yet to raise about INR61b from the market.



Of the bank’s total loan book, it has 51% book as MCLR and 38% as RRLR.



Due to RBI regulation on risk weights, the bank has seen an impact of ~52bp.



NBFC exposure has come down in large corporates due to the increase in risk

weights.



CASA remains a concern for the bank and it aims to reach to ~35%.



The bank expects faster growth in the RAM segment than in the corporate

segment. In FY25 as well, corporate growth will be broadly similar.



The bank has increased its C/D ratio to 75% and expects to maintain this level

going forward.

Asset quality



GNPA fell 150bp YoY to 4.39% and NNPA declined 64bp YoY to 1.32%.



Written-off accounts stood at INR690b

—

INR520b in NCLT book and remaining

in RAM and other cases.



Credit costs declined to 1% for the first time as against its guidance of 1.2%.



The bank aims to maintain similar write-offs going forward as well.



Recovery from written-off accounts was mainly from small loan accounts and

NCLT recovery of INR4.50b.



Slippages breakup: INR10b as Agri slippages, INR12b as MSME, INR4b as retail

slippages.



Total restructured book stood at INR240b, of which INR170b was standard.

February 2024

FINANCIALS/BANKS | Voices

The bank maintains aggressive provisions and expects the policy to be

continued. The bank has a PCR of 89% and expects it to be at 90% in FY24.

Guidance for FY24



CBK expects to sustain NIMs at 3.0%.



The bank remains confident of growing advances at 12%+ YoY.



It guides for deposit growth at 8%+ YoY.



CBK expects C/I to be maintained at the range of 45%.



The bank has maintained ~10% target growth for corporate book.



DCB Bank

Current Price INR 136

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Detailed Concall Transcript &

Results Update

Neutral

Balance sheet and P&L related



During 3Q, the bank’s advances grew 18% YoY, while deposits rose 19% YoY.



NIM contracted 21bp QoQ to 3.48% in 3QFY24 due to increase in cost of funds,

which will persist for one more quarter before it stabilizes.



CASA ratio improved 109bp to 26.13% in 3QFY24.



The bank expects cost of fund to stabilize in 4-5 months from now, which will

stabilize margins gradually.



Transition from home loans to loan against property has not yet completed,

which gives the bank an additional yield.



The bank is aiming for 100bp differential between LAP and home loans.



SME is itself contributing to ~INR3b to disbursals.



There is no material one-off during the quarter. Co-lending (much of which is

low rate) has led to a decrease in yield on advances.



Co-lending of the bank is based on partnership with originators, who are either

in different segment or different geography.



Co-lending growth will be similar to asset growth going forward.



53% of the book were mortgages. Product mix change will lead to an increase in

yield on advances going forward.



The bank will continue to grow Deposit base higher than the advances base.

Incremental loans are priced right so as to be high-yielding advances.



Within co-lending, most of it is gold loans which are low rate loans; change in

mix of co-lending will also lead to an improvement in yields (of advances).



The bank is not actively increasing its CV book and some decline will be seen in

this.



It is digitally acquiring NTB customers in partnership with Niyo. The bank has a

separate team to focus on the Retail CASA deposits.



Bank has launched a product named DCB Happy in which the customer gets

cashback on UPI transaction, which is attracting a lot of customers.



Margins have been impacted by TD rates only. The bank doesn’t expect the

higher SA rates to impact the margins adversely.



Most of old deposits have already been repriced. Part of book which is not yet

repriced from mortgages will also be repriced that will support margins.



Mortgages (Home Loan + LAP), MSME, Gold Loan, Co-lending, AIB, Construction

Finance are expected to lead the growth.



Top 20 deposits have come down to 6.75% of total deposits in a tight liquidity

market.

February 2024

FINANCIALS/BANKS | Voices

The bulk of SA account balances for the bank comes at the lower-bucket pricing

band. The bank offers higher rates on higher-bucket ticket sizes to attract

customers for SA.



Income has been hit by NIM compression, but as this is bottoming out, the goal

is to increase the deposit base in line with loan growth.



The impact of RBI regulation on risk weights was ~20bp on capital adequacy

ratio of the bank.



It is not looking to grow in the corporate book, but will keep it at a similar level.



Organic portfolio is starting to show growth and will have monthly disbursals.



45% retail mortgage, 8% of gold, 8% of SME will be the key growth drivers.



On the deposits front, the bank aims to focus on CASA and for this the bank has

launched new products; effective fintech tie-ups have resulted in higher SA

deposits.



Majority of the deposits are coming from retail and not bulk, otherwise cost will

be impacted adversely.



If EBLR rate gets cut going forward, the bank will have saving deposit where

rates can be cut to maintain its margins.



Collection efficiency is improving and the bank expects this to improve going

forward as well.

Asset quality related



GNPA ratio increased 7bp QoQ while NNPA ratio moderated 6bp QoQ to 1.22%.

PCR nevertheless improved 232bp QoQ to 65.1%.



The bank has guided for GNPA of below 2.50% and NNPA of 1.00%.



Bank expects the upgrades to be higher than the recoveries. Recoveries and

upgrades have gone up to 79% in 3QFY24.



Management guided for credit cost of ~45-55bp.



Slippages, excluding gold, stood at 2.55% in 3QFY24 vs. 2.69% in 2QFY24. Most

of the slippages are coming from the restructured book. The bank expects

recoveries and upgrades to stay healthy.

Guidance related



The bank guided for RoA of 1% or above and RoE closer to 14% in the near term.



The bank guided for C/I ratio of 55% or below in the near term and cost-to-

average assets at 2.4% to 2.5%.



Management targets for 20% growth. The bank aims to double the book in the

next 3-4 years.



Bank will continue to add the headcount to continue to fund the growth, for

branch addition, the bank will look to add 25-30 branches every year. NIMs

likely to stabilize after FY24. The bank guided for 3.65-3.75% of NIMs.



Equitas Small Finance Bank

Current Price INR 106

Click below for

Detailed Concall Transcript &

Results Update

Buy

Operating environment, balance sheet and P&L



AUM growth was healthy at 32% YoY/5% QoQ, with growth across all business

segments.



NIM stood at 8.37%, impacted by increased balance sheet liquidity as the CD

ratio improved.



About 77% of incremental deposits in 3Q came from retail term deposits.

February 2024

FINANCIALS/BANKS | Voices

EQUITAS sees good demand across all product segments. All lead indicators

remain healthy and give comfort about a healthy growth pace going forward.



On the CV segment, the bank focuses on LCV and small CV. In used cars, the

bank focuses on personal used cars.



The CASA ratio moderated 85bp QoQ to 32.7% and the bank expects CASA to

remain under pressure going forward as well.



NII grew 21% YoY, other income grew 35% YoY, Opex grew by 21% YoY, and the

C/I ratio declined to 63.6%. PPoP grew 29% YoY. PAT grew 19% YoY.



RoA stood at 1.98% and RoE stood at 14.4%.



CRAR was healthy at 20.2%, Tier 1 stood at 19.7%, and Tier 2 stood at 0.6%.



The bank expects that interest rates could marginally go down in the next

quarter, which may dent margins. It expects NIMs to improve from next

financial year if the interest rate remains stable.



Interest rates have increased in SBL, vehicle finance and MFI book. Affordable

housing has seen a marginal hike in interest rates in the current quarter.



The bank’s ability to raise retail deposits has been stable and is strengthening on

the basis of prices it offers. So the bank is confident of acquiring retail deposits.



In Q3FY24, the bank securitized/assigned advances worth INR13.9b.



Bulk term deposits accounted for only ~23% of incremental deposits.



~85% of the portfolio is fixed rate loans with an average tenure of 2.5 years.



Disbursement yields improved, with yields at 18.8% in Q3FY24. SBL

–17.16%,

MFI-25%, Used CV at 19.56%, New CV at 13.69%.



The bank has adequate eligible advances available to raise funds through

refinance or IBPC whenever required, which provides strong cushion to ALM

position of the bank.



The profit from the sale of investments was INR269m. Income from the sale to

ARC stood at INR700m.



The bank expects the cost of branch expansion to be very low going forward,

but it will be investing in tech, and therefore the cost will remain at the current

level.



In SBL business growth, non-Tamil-Nadu disbursements rose 46% YoY in 3Q.



The bank remains comfortable about liquidity, with LCR of 211.6%.

Asset quality



GNPA increased to 2.5%, NNPA at 1.1%, PCR remained at 56% in 3QFY24.



Slippages were high due to heavy floods in Tamil Nadu and high slippages in

vehicle finance and micro finance.



Collection efficiency for the bank will remain healthy in 4Q.



9MFY24 credit cost run rate is 90bp. Credit cost stood at 1.05% in 3QFY24.



Normal slippage run rate is 3-4%. Including securitization book, GNPA would

stand at 2.29%.



The increase in disbursement yield of SBL has not led to deterioration in asset

quality.



The bank is not seeing any stress in the portfolio and should be consistent. It

expects the credit cycle to be good in FY24.

Guidance



The bank guides for healthy growth in advances in the range of 25-28% for FY24.



It expects a CD ratio of ~85% by FY25.



February 2024

FINANCIALS/BANKS | Voices



Credit cost guidance for FY24 stood at ~1.25%.

The bank retains its earlier NIM guidance of 8.5% for FY24.

The bank expects the interest cost to move up in FY25. The bank has increased

interest rates in the last few months, which will have benefits going forward.

The bank expects disbursements to stay strong, which will result in better fee

income.

The banks expected to sustain RoA at 2.25%; it has been able to maintain RoA at

this level in the past too.

Federal Bank

Current Price INR 154

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Detailed Concall Transcript &

Results Update

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Balance sheet



FB added 65 branches in 9MFY24; added 30 in 3QFY24.



In terms of the cost of deposits, the bank expects a challenging environment.

Retail deposits still stand strong. The bank is confident about its business growth

trajectory.



FB expects challenges, like AIF and higher wage provisions, to stay in 4QFY24.



The regulator is looking to push banks to moderate their C/D ratio to a

comfortable level of 80% and FB expects to achieve this target by CY24 end by

rebalancing its business mix.



The bank is aiming for a C/D ratio of 80% and 18% in its advances portfolio.



It expects the cost of deposits to remain high as liquidity conditions remain

tighter and so does the competition.



The bank’s co-lending

business is starting out, and it has done some work in the

MFI space. The bank’s underwriting through partners is of

the same standard as

the bank.



The increase in risk weight (RWA) in 3Q was due to a regulatory change.



FB has not revised anything in unsecured loans. While it has only tightened the

filters, it expects to sustain 40-50% growth in unsecured. The unsecured

segment has been scaled up to 4.5% of the overall book. In credit cards, out of

100 spending transactions, 30 are EMI and 30 are revolver, while the remaining

40 are transctors. Hence, better growth in unsecured does not necessarily

translate into better NIMs.



In 3QFY24, INR450b of IBPC was done, and the bank is looking at IBPC in terms

of funding mobilization. FB wants to leverage on the PSL front, and as a result it

had done higher IBPC in 3Q.



The cost of NBFC has gone up and the bank has repriced its existing book. The

cost of deposits increased by about 30-35bp. Many NBFCs are qualifying for PSL.



Partnerships on the liability side is filtering out, but the bank does not expect

any impact on fee income.



In NRE deposits, the behavior has changed and the bank is changing its strategy

to gain the share. The bank will continue to grow and will invest in branches.



PL loans are pre-approved based on the CIBIL score. FB does not do open-

market sourcing in PL and credit cards.

P&L



Credit cost was slightly higher but still lower than the previous guidance.



Along with NIMs, the bank wants to focus on RoA and RoE as it aims to deliver

RoA of ~1.4%. The bank has doubled its RoA in the last five years.

February 2024

FINANCIALS/BANKS | Voices

FB had planned 15% of wage provisions and pension; some part of the pension

provision will be carried out in future quarters. The bank has fully provided for

the wage provisions.



The yield on advances is stagnant despite the bank moving to higher-yielding

segments. FB expects yields to move upward going forward as the mix of higher-

yielding segments improves.



Other income has been higher amid gains from the FedFina stake sale.

Asset Quality & Others



One account of INR7.8b has slipped in 3Q and will be upgraded in 4Q; the

account had some challenges, which have now been resolved.



Retail slippages are only a tad higher; the retail book is also growing at a healthy

pace.



The recovery from the ADAG group is expected in 4Q. The exposure for NBFC is

about INR10b and other is INR18b.



For succession planning, the board has already started the process. The bank

will submit candidate names to the RBI in the coming months and is open to

considering external candidates as well.



HDFC Bank

Current Price INR 1,454

Click below for

Detailed Concall Transcript &

Results Update

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Opening remarks



Economic activity is strong in 3QFY24, with healthy GST collections and

continuous growth in remittances, retail, and consumer spending.



HDFCB has launched separate journeys for savings accounts, consumer durables

and credit card, which help customers open accounts with just one click.



After watching for two cycles, the bank will look to have partnerships with

fintechs and also intends to do small elements of co-lending.



The bank will launch its new app and start offering a 10-second NTB personal

loan, credit cards, and business loans.



The bank added 2.2m customers and the customer base stood at 93m in

3QFY24.

P&L and balance sheet



HDFCB has added 150 branches during the quarter, taking the tally to 8,091

branches as of 3QFY24.



C/I moderated 13bps to 40.3% and the cost-to-asset ratio stood at 1.9% in

3QFY24.



The bank will not take its eyes off the granular liability franchise and will focus

on having the low-cost deposits.



LCR ratio stood at 110%. Due to temporary liquidity issues, deposits growth was

modest in 3QFY24.



Retail deposits grew 2.9% QoQ; however, non-retail deposits fell 3.3% QoQ.



~84% of deposits are retail. A change in mix towards retail will lead to better

margins going forward.



About 500-550 branches are in pipeline by the end of FY24.



Retail current deposits formed 72% of total deposits as of 3QFY24.



CRB book continues its healthy momentum at 6.7% QoQ, while the other

wholesale book grew at 2% QoQ in 3QFY24.



The RoE/RoA stood at 15.8%/2% in 3QFY24 and the same is expected to

improve going forward.

February 2024

FINANCIALS/BANKS | Voices

The bank is aiming to sustain an RoA of ~2% by the end of FY24.



Management said that margin is currently at the lower end of the spectrum and

should recover to 3.7% in 18-24 months



The bank is confident of its growth as it has been able to maintain its

incremental market share of ~16-20% despite an increase in bank size.



CD ratio is more than 110% and therefore to reduce this, the bank is trying to

grow deposits more than that of loans.



The bank has provided an LCR guidance of 110-120%.



Management indicated that it aims to sustain a CASA mix of 39-40% over the

next 18-24 months.



CASA ratio is expected to increase going forward as customer spending will

abate in some point of time and new customers are coming in.



Deposit rate has peaked and the bank expects deposit repricing to end in two

quarters.



The bank has provided a C/I ratio guidance of 35% over the long term.



The bank is ensuring that the mix of funding moves more towards deposits to

bring down its CD ratio.

Asset quality



GNPA/NNPA ratio improved 8bp/4bp QoQ to 1.3%/0.31% as of 3QFY24.



Recoveries stood at INR45b, whereas write-offs were at INR31b as of 3QFY24.



Bank reported a 26bp slippage ratio amounting to INR70b for 3QFY24.



There has been no sale of NPA accounts during the quarter.



HDFCB has reported a credit cost of 49bp in 3QFY24 vs. 74bp in 3QFY23. The

decline in credit cost will allow for higher investments in subsidiaries and

technology.



Contingent and floating provisions amounted to INR154b, and general provision

amounted to INR104b as of 3QFY24.



Additional contingent provision of INR12.2b was provided for in 3QFY24.

Subs performance

HDB Financials



HDB loan book stood at INR840b, up 29% YoY and 8% sequentially.



14.6m customers were added during the quarter and the total branch count

stood at 1,618 as of 3QFY24.



The quality of the book remained healthy with Gross Stage 3 assets improving to

2.25% compared to 3.73% in the prior year.



HDB reported an RoA of 3.1% and an RoE of 19.9% as of 3QFY24.



HDB Financials is well capitalized with a CAR of 18%.

HDFC Securities



HDFC Securities serviced 5m customers.



HSL reported a revenue of INR7b and a PAT of INR2.3b in 3QFY24.



HSL has 193 branches across 143 cities in the country

HDFC Life Insurance



288k individual policies were sold during the quarter; up 8% from the prior year

and overall 16m lives were insured during the quarter



HDFC Life reported a total premium income of INR155b and a PAT of INR3.7b in

3QFY24.



Solvency Ratio stood at 190% in 3QFY24.



February 2024

FINANCIALS/BANKS | Voices

ICICI Bank

Current Price INR 1,049

Click below for

Detailed Concall Transcript &

Results Update

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Operating environment, balance sheet and P&L



Profit before tax (ex of treasury) grew 23.4% YoY to INR135.5b in 3Q. Profit after

tax rose 23.6% YoY to INR102.72b.



Core operating profit increased by 10.3% YoY to INR146.01b.



Domestic loans grew 18.8% YoY and 3.8% QoQ, Retail loans grew 21.4% YoY and

4.5% QoQ, and Retail portfolio stands at 46% of the total loan portfolio.



The bank believes in ‘one bank, one team’.



Average LCR stands at 121%.



It has made INR6.3b of provisions related to alternative investment funds as per

the RBI circular dated 19th Dec’23.



CET-1 stands at 16.03%, including 9M and after taking the impact of increase in

risk weights on unsecured and NBFC loans.



Deposits grew 18.7% YoY, while CASA ratio moderated by 60bp to 39.4% in 3Q.



Of the total domestic loan book, 31% has fixed interest rate, 49% has interest

rate linked to repo rate, 2% has interest rate linked to other external

benchmarks, and 18% has interest rate linked to MCLR and other older

benchmarks.



The bank has 6.8% of the advances toward NBFCs and HFCs, while 4% belongs to

the builder portfolio.



In opex, non-employee expenses are growing as per the business trends, while

marketing expenses were high in 3Q due to the festive season. Headcount

addition will see some moderation from hereon.



ICICIBC does not expect any inch-up in the credit cost in the near term.



The bank is monitoring its risk exposure to NBFCs and this exposure has been

adequately priced in. There were some pre-payments by a couple of NBFCs in

the current quarter.



There is competitive intensity in interest rates. In Q3, most of the products are

facing competition in terms of rate, but the bank is focusing on being disciplined

in the pricing and working on the relationship value of clients, rather than solely

focusing on loan growth. The bank does not see any decrease in mortgage yields

as of now.



The bank’s LCR and NFSR are well above the regulatory requirements, which

are

key parameters for a bank’s CD ratio. The bank also has to look at overseas

operations where the deposit inflow is low. Higher capitalization leads to a

higher CD ratio for a bank.



Reductions in the NBFC portfolio were rated A and above; hence, the bank saw a

decrease in the portfolio. Upgrades in the quarter led to an increase in the BBB

portfolio share.



The bank added 123 branches in the quarter. It plans to follow a bottom-up

approach, and does not have a target for branch addition.



CASA is weak across banks. ICICIBC is doing better on the CA side due to better

payment products, while the SA is more of a function of rates and consumption.

It will wait for a couple of quarters to see how the CASA ratio moves.

Margins



NIMs declined by 10bp to 4.43% due to an increase in CoF. The impact of

interest on the income tax refund was 4bp in 3Q.

February 2024

FINANCIALS/BANKS | Voices

Retail deposit rates have remained stable for a quite long time. 3Q saw some

hardening in wholesale deposit rates. The current systemic liquidity is running in

negative.



ICICIBC expects FY24 margins to be at the similar levels of FY23 and expects

some moderation in margins in 4Q but at a slower pace.



Yield impact was also due to KCC slippages, which were higher in 3Q. The share

of the high-yielding portfolio is also not very high, while there has been

competition in auto and corporate rates.



The cost of deposits increased in 3Q, which will flow into 4Q and possibly in

1QFY25, but the run rate should be less than the previous quarter’s run rate.

Unsecured portfolio



The unsecured loan mix: The bank has refined credit parameters. It has moved

pricing on PL by 20-25bp. Growth may continue to moderate from the current

levels. The bank does not expect to have much impact on P&L.



The performance of the unsecured portfolio is unchanged as of now, but the

bank is looking at it closely in the bottom cohorts. Given the overall situation,

the bank plans to trim the portfolio.

Asset quality



Gross NPA stood at 2.3% and Net NPA ratio at 0.44% as of Dec’23 (vs. 2.48% in

2QFY24).



PCR declined to 80.7% vs. 82.6% in 2QFY24.



The bank holds INR131b of contingency provisions, same as 2QFY24.

Subsidiaries



ICICI Pru Life reported VNB of INR14.5b in 9MFY24, with VNB margin of 26.7%.



ICICI Lombard’s gross direct premium income (GDPI) grew 16.5%

YoY to

INR187.03b in 9MFY24.



ICICI Securities retail equity market share increased to 13.1% in 3QFY24 from

12.8% in 2QFY24.



ICICI AMC’s AAUM grew 25.9% YoY to INR6.1t in 3Q. It has a market share of

13.3% as of Dec’23.



IDFC First Bank

Current Price INR 82

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Balance sheet and P&L



CASA ratio improved 40bp QoQ to 46.8%; 79% of the book is now retail

deposits.



Asset-side book is well diversified; mortgage book forms 28% of the overall

book, VF at 10%, CV at 3%, Rural at 11%, Consumer loan at 14%, etc.



The bank has not been impacted by the RBI’s recent AIF investment guidance.



In Oct’23, the bank successfully

raised INR30b through QIP.



The balance sheet expanded 22% YoY; lending and deposit mobilization stay

strong.



Customer deposits grew 43% YoY and retail deposits grew 47% YoY in 3QFY24.



Overall funded assets grew 24.5% YoY in 3QFY24.



The bank issued more than 2.2m credit card as on 3QFY24.



NIM increased 10bp QoQ to 6.42% vs 6.32% in 2QFY24.



The bank has maintained LCR on consistent basis. Average LCR stood at 121% in

3QFY24.

February 2024

FINANCIALS/BANKS | Voices

Cost-income ratio is higher at 73.1%, as the bank is in the expansion phase. The

drag is mainly coming from the liability side of the book and the bank expects it

to improve successively from FY25-end.



The bank’s tier 1 ratio has decreased due to the RBI regulation on risk weights

despite raising capital in Oct’23.



The bank is focusing more on used car finance as there are less margins in new

car finance. Also, credit quality is better in used car loans.



CD ratio stood at 101.6%, which the bank expects to come down to below 100

by the end of FY24.



Incremental CD ratio for the quarter was just 60% and 80% for the year.



In FY25, the bank expects opex to increase by ~20% and income to increase by

~24-25%.



By FY29-end, the bank expects C/I ratio of ~58% and margins to remain stable.



Digital loan portfolio, portfolio buyout and revolver book are growing well.



In credit cards, the bank expects to break-even by FY25 and report profit by

FY26.



Retail deposits are growing at a faster rate. TD too grew faster at 59% YoY as

customers are looking to lock in at a higher rate.



The bank expects positive momentum in C/I ratio, RoA and RoE by FY25, and

therefore the expense ratio will decline going forward.



Funded assets grew 24.5% YoY. Infra book is 1.6% of the overall asset. Retail

book grew 29% YoY, SME grew 16% YoY.

Asset quality



On retail side, GNPA was 1.5% and NNPA was 0.5% in 3QFY24.



~0.35% of funded asset is restructured book. More than 90% of restructured

book is secured in nature.



Gross slippages of the bank stood at INR14b and net slippages stood at

~INR8.50b.



Credit cost stood at 1.26% for 9MFY24 and the bank has guided for 1.5-1.6%

going forward.

Guidance 2.0 (FY24-FY29)



IDFCB unveiled Guidance 2.0, under which it targets a 24.8% CAGR in deposits

and 20.3% CAGR in loans over FY24-29.



The bank has guided for 1.9-2.0% RoA and 17-18% RoE.



It has guided for GNPA/NNPA ratio to be ~1.5%/0.4% by FY29.



IDFCB expects consistent balance sheet growth of ~20% with profit of INR120b-

130b by FY29.



In next five years, the bank expects to open ~1,700-1,800 branches.



Indian Bank

Current Price INR 538

Buy

Click below for

Detailed Concall Transcript &

Results Update

P&L and balance sheet



Business grew 11% YoY and deposits grew 10% YoY and advances grew 13% YoY.

CASA grew by 8% YoY and TD by 11% YoY.



RAM advances grew 13% YoY, Retail was up 14% YoY, Agri increased 14% YoY,

MSME grew 7.5% YoY, and Corporate grew 10% YoY.



PAT jumped 52% YoY, backed by NII growth of 6% and other income grew 11%.

PPoP grew modestly by 1% due to wage provisions.

February 2024

FINANCIALS/BANKS | Voices

IBA has agreed for 17% wage provisions; the bank has also made provisions for

retirement benefits, and made a total provision of INR5.62b in 3Q. INBK

cumulatively holds a total of INR12.52b provisions towards wage provisioning.

Close to INR3.42b of additional wage provisions were made towards this in 3Q.

The bank had 21% of provisions against the 17% of wage provisions that was

finalized. Management believed that it had not over provided in wage

provisioning. Further, INBK believes that if pension costs arise then there will be

some minor increase in opex.



For wage provisioning increase, the bank will incur an additional average

expense of INR750m per month i.e. INR2.2b per quarter.



Margins reduced 3bp QoQ to 3.49%, Yield rose 3bp, cost of deposits grew 10bp,

and as a result NIMs reduced 3bp. The bank is still 10-13bp higher than the

overall NIMs guidance.



The bank endeavors to reduce the cost of deposits and it has been successful in

managing the same.



INBK has 15.58% of CRAR; the bank has raised INR40b of capital through QIP, it

has been adequately capitalized.



The bank’s 57bp of capital was hit by an increase in risk weights. The RBI

increased 25% risk weights on NBFCs and unsecured loans, as a result 57bp of

capital was hit. But this cannot be passed on to the NBFCs at uniformity.



The bank is increasing the exposure to the AFS book and it expects the 10-year

G-sec to soften. This will provide an opportunity to make money in treasury.



The bank has been focusing on the CASA deposits to manage the costs. The

current environment for the deposits remains a challenge, but the INBK is taking

various steps to sustain healthy deposit growth.



The bank’s

LCR is at 142% and on the LDR side the bank can still go up by 2%

from the current levels. The bank will continue to grow on the deposits and the

advances.

Asset quality



The bank guided for recoveries to be at INR80b, i.e. INR20b per quarter.



It maintained the trend of recoveries more than slippages, and expects the

trend to continue in FY24.



The asset quality may continue to improve with NNPA already at lower levels.



MSME and corporate recoveries are from NCLT, OTS, ARC sale. The bank expects

the recoveries to be ahead of the overall slippages.



The exposure at BGR Energy, which has defaulted, was already provided in 2Q

and the bank holds 96-97% of the PCR.



Ten districts were hit by floods and natural calamities, and the bank has already

doing some restructuring

on the same, but it doesn’t have much of the exposure

in these accounts. The bank has done some small restructuring in the state of

Manipur. INBK has INR500-600m of restructuring in 3QFY24.

Guidance



Bank guided for 8-10% YoY of deposits growth, while guidance for credit growth

is maintained at 10-12% YoY. Credit growth will be broad-based across all the

sectors. The bank will move towards the 63% of RAM advances, which will be

better in yields and lower in risk.

Management guided for 3.41% +/- 10bp of NIM (supported by MCLR repricing);

the NIM is still above the guidance. The bank will try to get the benefit of the

MCLR repricing.

100

February 2024

FINANCIALS/BANKS | Voices

Digitization Initiatives



It launched 15 journeys in 3Q vs. 12 journeys in 2Q and the bank now has totally

78 journeys.

Mobile banking users have gone up by 47% YoY, UPI users have grown 38% YoY,

the remitter transactions grew 72% YoY. Net banking users have grown 78%

YoY, debit card users grew 10% YoY and credit card users grew 19% YoY.

The bank is planning 8-10 digital journeys in the march quarter.

The bank’s digital business grew INR 520 b, with RAM and deposits business too

doing healthy.

The bank targeted INR 700 b of business target through digitization. The NPA

levels in these loans are usually lower in these loans while the data is kept

handy in these types of loans.

The bank has got final approval in the subsidiary for which bank has already

started to hiring the new team, which will improve

The bank will incur INR5b cost every year on the tech side.

IndusInd Bank

Current Price INR 1,504

Click below for

Detailed Concall Transcript &

Results Update

Buy

Balance sheet and P&L related



NIM stable at 4.29%, up 2bp YoY. The management expects the NIMs to stay

healthy at 4.3%. While the bank expects the margins to improve as the interest

rate cycle reverses.



Repricing on retail has helped to improve the yields on the overall assets. The

bank is currently in the last stage of deposits repricing.



The bank’s overall revenue grew 17% YoY. While opex grew 6% QoQ, the bank’s

employee base grew 5% QoQ.



Retail deposits as per LCR stands at a healthy 45%, and the bank aims to

maintain it around 45-50% under PC-6. The bank reduced some of the CDs in

3Q.



CASA ratio is stable at 38.5%. The bank is one of the few banks that has been

seeing accretion in the SA book.



The bank conducted an aggressive marketing campaign during the ODI Cricket

World Cup and intends to maintain its strong focus on marketing. The bank is

currently deriving benefits from the marketing project and the benefits are

expected to surpass the associated costs.



The bank’s share of borrowings in total liabilities stands at 8%.



The

bank’s LCR has improved to 122% in 3QFY24 from 117% in 2QFY24.



The bank has acquired 0.8m customers through Indie, opening one account

every five seconds. The bank also offers NRI services and a credit card

proposition in the Indie market.



CRAR has reduced

due to RBI’s measure of increase in risk weights.



Retail deposits growth has been bright and the bank aims to maintain its retail

deposits at levels of 45-50%.



The bank expects the lending margins to be 4.2-4.3%.



Fixed rate book is market driven, and the bank does not expect any increase in

the lending rates.

February 2024

101

FINANCIALS/BANKS | Voices

The bank expects C/I ratio to stabilize at 41-43% in the next two years. While the

bank will keep retail book below 55-60%.



The bank’s CD ratio is in line with

the banking industry and there has been no

communication from the regulator regarding any adjustments. The bank is

managing its CD ratio at 86-90%.



Smaller banks have been offering higher deposits rate and growing the book.

The bank acknowledges that there is a degree of sensitivity to these elevated

deposit rates.



Net Security Receipt stands at 37bp at INR12.1b.

Asset Quality



Slippages Break-up: Corporate at INR3.12b (INR 1.4b pertaining to one large

account), Consumer at INR 14.5b (of which, VF at INR6b, SME/BB at INR0.8b, 3

large LAP account at INR0.4b, Agri had extra slippages of INR 0.25b, while

Merchant acquiring business had INR0.3b of extra slippages in 3Q). Net

slippages has been adversely impacted due to higher slippages from the VF

book.



The bank expects slippages to normalize to around INR12b going ahead.

Slippages in VF is normalizing; however, the bank expects the slippages to be

lower in the corporate segment.



Restructured book continues to run down at 0.5% of the book. Annualized

provision has come down to 119bps in 3Q.



SR reduced to 37bp. The bank has made additional provisions of INR1.37b in 3Q.



The bank has maintained PCR at 71% in 3Q.



The bank has used contingent provisions on the back of reduced stress from the

telco exposure.



The bank is not expecting delinquencies from the upcoming election. It has

diversified its portfolio to eliminate the concentration risk.



The bank has utilized INR2.2b of contingent provisions; it has created contingent

provisions on the part of one large account which may get upgraded on 8th Feb

2024 and the bank may not utilize this buffer.

MFI business



Loan book is growing at 24% YoY. The bank is focused on not over leveraging the

customers through top-up or extra loans.



MFI business grew 20% YoY; net slippages reduced to 0.55%.



MFI collection efficiency stands at 98.6%.



MFI 30-90DPD book stands at 1.7%.

Vehicle segment



Business growth robust, with the segment recording the highest ever

disbursements. Book grew 20% YoY.



2Ws demand improves on the back of rural demand.



Doubled the auto loan book and now have a market share of 4%.



MHCV demand is looking dull in the quarter. The bank is looking to grow in used

CVs and auto loans. Tractor is growing slow and looks dull.



11k employees are deployed in the VF business.



The bank will do INR140b disbursements in the VF segment and it aims to grow

its book by 20% in FY25E.



February 2024

102

FINANCIALS/BANKS | Voices

Retail



In retail book, LAP book grew at 10% YoY/ 3% QoQ, while other retail loans grew

54% YoY/ 5% QoQ.



The bank expects the share of unsecured to stay at the current levels.



Credit cards business is growing at healthy levels of 33% YoY and the credit cost

is fairly in line with the industry.

Corporate



The corporate segment continues to grow 15% YoY, led by small corporates.

Large corporates grew 2% QoQ and are in line with the bank’s expectations.



A & above rated book at 77%.



The bank has witnessed INR1.4b of slippage from one corporate account.

Guidance



The bank aims for 45-50% of Retail deposits under PC-6.



Loan growth is expected to be around ~18-23% in PC-6 cycle.



Customer base to be >50m by FY26 vs 38m in 3QFY24.

Kotak Mahindra Bank

Current Price INR 1,763

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Balance sheet and P&L



Opex grew 14% YoY, primarily due to higher employee-related expenses

(majorly due to retiral cost) in 3QFY24 and also because of commercial and

marketing expenses.



Consolidated PAT grew 6.1% YoY to INR42b as on 3QFY24 vs. INR39.5b as on

3QFY23.



Provision of INR649m with respect to Security Receipts is classified as Non

Performing Investments (NPI) during the quarter, which was earlier accounted

as Mark-to-Market

losses under ‘Other Income’. Accordingly, this has no impact

on profit after tax.



AFS+HFT book as a % of investment book stood at 81% and modified duration is

1.1 years.



Unsecured book accounts for 11.6% of the total advances as on 3QFY24.



Total customers of the bank as on 3QFY24 stood at 48m vs 39m in 3QFY23.



3QFY24 results include INR1.4b provision (post tax) on applicable Alternate

Investment Fund (AIF) investments pursuant to RBI’s circular.



AIF investments totaling INR1.9b, with downstream exposure to debtor

companies of the bank, has been fully provided. As of 3QFY24, the bank’s

funded o/s to such companies stands at INR650m.



The bank has no investments in subordinated units with priority distribution.



LCR stood at 120% for the bank and 127% for the group level in 3QFY24.



56-58% of the book are repo linked. If the repo rate falls, the deposits are likely

to be repriced.



Over 76% of CA-OD transaction volumes and over 98% of savings account

transaction volume occurred through digital channels.



Deposits have picked up, driven by ActivMoney product launched by KMB 6

months ago. CASA ratio stood at 47.7% in 3QFY24 vs 48.3% in 2QFY24.



Unsecured retail advances (incl. Retail Micro Finance) as a % of net advances

stood at 11.6% as on 3QFY24 vs. 9.3% in 3QFY23 and the portfolio continues to

hold well.

103

February 2024

FINANCIALS/BANKS | Voices

CV disbursements have grown 30% YoY and the Collection Efficiency continues

to be stable for this book.



Construction Equipment book grew 38% YoY and the Collection Efficiency for

this book also continues to be stable with the bank expecting 4QFY24 growth

momentum to remain healthy.



MFI book disbursements grew 66% YoY, serving a customer base of 1.8m unique

borrowers.



Agriculture SME side growth was muted and the management expects this to

increase going forward.



Overall, the risk matrix is stable in unsecured advances and is appropriately

priced; however, there is some observed risk on the credit card side, which is

also taken care of by the bank.



Unsecured advances grew 40% YoY and 9% QoQ. Delinquencies in both secured

and unsecured business banking remains stable.



NIM stood stable at 5.22% in 3QFY24, with a 3-4bp differential attributed to the

CRR impact addressed in the previous quarter with the major reason for stable

NIMs being change in the mix of advances.



Overall, funded asset grew 7.7% QoQ, including credit substitutes.



Among various segments, mid-market and the SME segment grew robust. A

majority of mid corporate book is working capital intensive. However, some

pricing-related challenges can be seen in the SME side.



The bank has seen some challenges in deal closure, therefore income was

subdued this quarter.



KMB has been successful in migrating all CMS customers to the new CMS

platform.



Cost of term deposits stood at 6.5-6.7%. SA account deposit starts to see some

positive growth.



CD ratio stood at 88% in 3QFY24, however, the bank’s industry-leading

tier-1

ratio, consisting entirely of equity, remains a positive factor.



The bank expects RoA to sustain at ~2-2.1% going forward.



There has been no recent change in the PSL framework. The bank largely fulfills

the PSL requirements, with only a slight shortfall in one category.

Asset Quality



NNPA ratio improved 3bp to 0.34% with GNPA ratio remaining stable at 1.7% in

3QFY24.



PCR improved 150bp QoQ to 80.6% in 3QFY24.



The bank reported slippages amounting to INR11.8b as on 3QFY24, while

upgrades stood at INR2.9b.



SMA 2 book stood at INR2.1b as on 3QFY24.



The bank reported a credit cost of 40bp in 3QFY24 (incl. standard provision,

excluding the reversal of Covid & restructuring).

Subsidiaries



Kotak Securities reported a PAT of INR3.1b in 3QFY24 with its market share

increasing to 10.3% in 3QFY24 vs. 5.8% in 3QFY23.



Self-trading customers accounted for 65% of cash market volume and 99% of

derivatives market volume of Kotak Securities.



February 2024

104

FINANCIALS/BANKS | Voices



Kotak General Insurance had an agreement with Zurich Insurance for the

company to take majority stake (51%) and increase that to 70% over the coming

years.

Kotak prime reported a PAT of INR2.4b in 3QFY24 with the vehicle book growing

by 30% YoY.

Kotak AMC reported a PAT of INR1.5b in 3QFY24 with a 32% YoY increase in

Equity-AUM.

With an AUM of USD3.9b, Kotak Funds

–

India Midcap Fund continues to be the

largest India focused offshore funds (actively managed with daily liquidity).

Punjab National Bank

Current Price INR 130

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Operating environment and business



Business grew 10.8% YoY, Deposits grew 9.35% YoY, and advances grew 12.9%.



RAM share in the overall book increased to 55.07%, up 113bp YoY.



PAT stood at the highest level in 15 quarters.



NIMs improved by 4bp in 3Q; guides for NIMs to be in the range of 3%.



Credit cost was 1.26%, as NPA provisions further declined in 3Q.



CRAR declined to 14.63% due to an increase in RWA due to the NBFC portfolio.

PNB raised INR11.53b in Tier-1. CET stands at 9.86%.



PNB has approval of raising INR120b, of which Tier 1 is INR70b and tier 2 is

INR50b.



The cost of deposits increased by 10bp to 4.96%.



The C/I ratio declined in 3Q to 51.2%.



The bank made AS-15 provisions of INR3.22b and extra provisions of INR8b for a

17% wage settlement. The bank has been making provisions for pensions and

has increased liability provisions. In 2Q, the bank made INR6.9b in provisions

toward the wage revision.



The C/D ratio is 69.2%. The bank is not raising the bulk deposits. It has excess

SLR. As a result, deposits will never be a constraint for PNB.



On the recovery part, PNB has around INR5-6b impact on NII-line items in every

quarter. In 3Q, there was an extra recovery of about INR1b.



One account was shifted from NPA to standard account. As a result, there was a

MTM loss on the treasury part.



NBFC exposure has increased. PNB expects higher pricing negotiations with

NBFCs.



The bank may look at growing its corporate book. There is demand in infra and

roads. The bank guides for 12-13% of growth in advances.



Unsecured loans stand at INR268b, of which INR35b are education loans and the

remaining are personal loans. The bank expects housing and vehicle loans to

grow at the same pace. RAM will grow at 15-16%.



The bank is currently following the old tax regime and is discussing with its tax

consultant for transition to the new tax regime.



PNB guides for 1% RoA by FY25-end.



PV01 as on 3Q would be INR100m.



On restructuring - OTR-1 stands at INR29.4b, OTR-2 at INR 67.3b.



Fee income is under pressure; the bank will not compromise on the asset

quality, rather it will compromise on yields.

February 2024

105

FINANCIALS/BANKS | Voices

Asset quality



GNPA declined to 6.24%, NNPA fell to 0.96% (below 1%).



Slippages declined to 0.81%, reducing consequently for the past eight quarters.



Slippage breakup

–

Agri at INR 4.39b, MSME at INR7.09b, Retail at INR 4.34b,

Others at 0.13b and INR1.98b from existing NPA.



Recovery from NCLT was INR18.31b in 3Q; guides for recovery of more INR12b

in 4Q from NCLT.



The bank expects recoveries to be at 2x of slippages. The bank expects the

recovery trend to continue at a healthy pace.



PNB has PCR of 94%, and expects credit cost to be below 1%.



From NCLT, the bank recovered two major accounts in 3Q. It expects INR40-50b

recovery every year, with INR12b expected in 4Q.



There was an account in technical write-off, but it was restructured, resulting in

an increase in GNPA in the energy account.

RBL Bank

Current Price INR 263

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Business performance and assets



Advances grew 20% YoY, within which Retail growth was faster at 33% YoY.



Disbursements stood at INR60b vs. INR50b in 2QFY24 and INR35b in 3QFY23.

MFI disbursements were flat QoQ, housing loan disbursements stood at INR14b.

The bank went slow in MFI disbursements in 3Q due to elections in some states,

while it expects to ramp up MFI disbursements in 4Q.



RBK will look to monetize surplus PSL over the next few quarters.



The bank ran down its mortgage loans as it started direct sourcing of loans. It

has a market share of 4-5% in Rural VF and in the area where the bank operates,

while the bank will look to expand in new states.



575k cards were issued by the banks in 3Q. It will add more partners to source

cards business. About 65% of the sourcing is done by Bajaj and the bank will

look to ramp up its internal sourcing to 50%. It will look at expanding the co-

branded business. RBL is looking for other co-brand partners and will announce

a couple of new partners in the next 30-40 days.



The bank has seen broad-based retail growth and has expanded footprints in

new areas.



Deposits grew 13% YoY/3% QoQ, with 23% YoY growth in deposits below

INR20m (45% of overall deposits, aims to increase to 50%). Further, it will look

for granular deposits to fund the advances growth.



NII was up 21% YoY/5% QoQ, Other income was up 26% YoY/11% QoQ. Opex

grew 17% YoY/7.6% QoQ, while PAT grew 11.5% YoY.



NIM was 5.52%; the bank expects NIM to be in the same range in 4Q.



CET-1 stands at 14.58% and CRAR at 16.4%. The 57bp of impact in CET-1 was

due to regulatory changes.



The cost of deposits was higher by 10bp, while the bank believes that NIM

would be maintained in 4Q as a part of the better-yield portfolio was back-

ended in the quarter.



RBK expects to sustain the CD ratio at the same level, while deposit growth is

expected to be faster than advances growth.

February 2024

106

FINANCIALS/BANKS | Voices

The bank is expanding its housing loan category, with a focus on small LAP with

better yields, thus would be beneficial in terms of overall yields.



The bank has agreement with BFIL in place and plans to bring down this

partnership to 40%. Further, the bank aims to add several partners and will

reveal new partners in a couple of months.



RBK has disclosed that RoA for Bajaj portfolio cards is slightly lower vs. internally

sourced cards. The RoA range is broad for both Bajaj and non-Bajaj portfolio.



The bank has recently sold few NPA credit card portfolios to Kotak Bank at a

haircut.



The customers that are on-boarded through partners are customers of the bank,

but they can be tapped by other partners to cross sell.



The bank’s credit card customers with

less than INR25k spending would be

around 3-4% of the total credit card customers.

Contingent provisions on AIF Investments



The bank took INR4.6b of extra provisions, with INR1.15b on AIF (total exposure

at INR1.20b). These AIF investments are venture debt funds. RBK does not see

any issue in these debt funds.



AIF investments are fully provided for. Excluding these provisions, PAT would

have increased 53% YoY and RoA would be 1.03%.



The bank has partnered with venture debt funds in the last 10 years. On the

three funds that the bank has invested in, the bank has been getting good

returns. While extra AIF provisions are solely due to regulatory requirements

and there are no signs of discomfort regarding these investments.

Asset quality



Gross slippages stood at INR6.66b, of which Cards at INR3.7b, MFI at INR1b, and

Other retail assets at INR1.5b.



RBK’s asset quality ratios were

largely flat, with GNPA at 3.12%, NNPA at 0.80%,

PCR at 75.1%.



The bank had some impact from lower recoveries. Some recoveries were

affected in some states by state elections. The bank is not seeing any impact on

its MFI business, and its collection efficiency is healthy.



Overall collection efficiency is also healthy at 99.41%.

Guidance for FY24-26



Advances growth is expected to be healthy at 20% YoY, which will be led by

retail business.



NIM for 4Q is expected to be at the similar level of 3Q on a conservative side.



Granular deposits will grow faster in overall deposits.



Deposit growth is expected to be healthy, while the bank will not tweak any

deposit rates. The bank is sourcing well from existing branches, and it has

started cross-selling in deposits.



State Bank of India

Current Price INR 760

Buy

Click below for

Results Update

Balance sheet, P&L and others



The global economy is expected to grow by 3.1% in FY24 and 3.2% in FY25. The

projected growth is below the historical average of 3.8%.



Real GDP growth is expected to be 7.3%.

February 2024

107

FINANCIALS/BANKS | Voices

3Q net profit stood at INR 91.64b after absorbing the additional liability of

INR71b, which comprised INR54b for pension at a uniform rate and INR17b

provisions for ex-gratia benefits and neutralization of Dearness Relief to pre-

Nov’02 retirees and family

pensioners.



The bank is mindful of its liability profile and expects to reduce the dependency

of wholesale deposits.



Excess SLR stands at INR4t and LCR is healthy at 131%, well above the regulatory

requirement.



Advances witnessed healthy growth across all segments in 3Q.



About 59% of savings accounts were opened through the YONO app. SBIN

continues to focus on CA accounts too.



CET1 ratio stands at 10.38% and the bank is open to raising more capital if

growth trends demand.



With inclusion of profits, CRAR would have been 14.31%, CET-1 at 10.38%, RoE

growth at 19-20% and loan growth would have been 14-15%. The bank is open

to raising capital from all types of avenues. It is also reviewing AT1 prices. The

bank will make sure that capital will not be an obstacle for growth.



The bank believes that credit growth will be at 14-15%. The bank has made total

provisions of ~INR200b in FY24. Despite this, RoE is 19.5%.



The bank has enough elbowroom to grow at the pace of INR7.5t per year (18-

20% growth).



The bank’s

CD ratio is 66% and LCR too is healthy at 131%.



RBI decisions are independent of the FOMC. The bank expects repo rate cuts in

2Q or 3Q.



The bank is reporting a 14% CAGR and will reach the INR50t mark in few years.



SBIN is leveraging analytics and possible applications of Gen-AI and using tech

for the benefits of employees. The bank will be in a position to create a new

opportunity.



SBIN’s Chairman aims for a profit of INR1t in the next few years to become the

highest profit making entity in the country.



A credit pipeline of INR4.6t is available in the corporate loan segment and the

bank will be happy to cater to the corporates. The bank has not received any

communication from private banks for the sale of corporate assets.



A revised regulatory framework for the valuation of its investment portfolio vide

RBI circular dated 12th Sep’23 is estimated to add ~ 50bp to CET-1 in Apr’24.



The CD ratio increased but the margins did not, as majority of the growth was

back-ended in 3Q. And as a result, its benefits will be seen in 4Q.

Margins



SBIN expects margins to remain similar to that of 3Q level and hence there could

be only 1-2bp of decline in NIMs from hereon.



Most of the deposits have already been repriced; hence, there should not be

any pressure from deposit repricing.

Asset quality



GNPA/NNPA ratios moderated to 2.42% (lowest in >10 years) or 0.64% as of

3QFY24.



The slippage ratio improved by 5bp YoY to 0.67%. Credit cost stands at 0.25%,

improved by 12bp in 9MFY24.



February 2024

108

FINANCIALS/BANKS | Voices

The bank has worked on credit costs and strengthened the mechanism for

underwriting the risk. The bank is clear in terms of portfolio composition and

selection. The bank has improved its loan management system and is controlling

the quality of the overall book.



The bank does not expect any lumpy recoveries in AUCA accounts. On NCLT

recoveries, the bank has to depend on the consortium and ecosystem.



The bank had lumpy recovery of INR2b in FY24.

Wage revisions and one-offs



Wage revisions increased to 17% from

14%; 10% was provided from Nov’22

onward. SBIN had provided INR88.9b as of Sep’23 and provided additional

INR63.13b in 3Q. Total provisions stand at INR127.18b in FY24. Going forward,

the bank expects additional wage-related provisions of INR54.08b in 4Q.



In 3Q, there was a one-time item of INR71b due to differential pension at 40%

or 50%, while this order was pending from 2002. Since this event was bound to

happen, the bank made INR54b and another of INR17b for neutralization of DA

relief for pre-Nov’02

retirees

and family pensioners.



The bank will get the tax benefits for the additional provisions.



The INR17b one-time item was related to DA relief, which can be applicable to

all other banks.



The bank has done all settlements and the wage bill will be INR660b in FY25E vs.

INR770b (total at INR 770b+ INR 71b {one offs} = INR 841b) in FY24.



The employee cost was higher vs. other PSUs as there have been pensioners in

the bank. But the bank expects efficiency to improve further and employee

costs should moderate.



SBI Cards & Payment Services

Current Price INR 740

Click below for

Detailed Concall Transcript &

Results Update

Neutral

Business performance



Credit card industry has been witnessing robust growth and the highest-ever

credit card spending.



Regulatory measures, such as the increase in risk weights, will have prudent

credit growth and good asset quality.



Outstanding cards-in-force stood at 185m (up 16% YoY, market share at 18.9%,

added 1.1m new accounts). Spending grew 41% YoY to INR986.6 (market share

at 18.4%), and Receivables increased by 26% YoY / 8% QoQ to INR488.5b.



Rolled 22,200 offers across 200 cities in 3Q. UPI on Ru-pay is gaining traction;

monthly avg UPI spending increased to INR12k.



SBICARD has launched a new co-branded credit card with Reliance, which is

available online and at all Reliance retail stores.



State Bank of India’s YONO customers can now get SBI cards digitally.



Revenue and profit growth remained healthy. Revenue at INR47.42b was up

30% YoY, and PAT at INR5.49b was up 8% YoY.



CoF increased to 7.6% vs. 7.1% in 3QFY23 amid a higher borrowing rate and also

due to an increase in RWAs from NBFCs. The rates have gone up by 25-30bp.

CoF will increase in 4Q as the full quarter will be impacted.



CRAR stood at 18.4%. Profits will continue to improve capital adequacy (above

RBI’s guidance of 15%). The company has increased its tier-2

bonds to meet this

increase.

February 2024

109

FINANCIALS/BANKS | Voices

RoA stood at 4.1%, impacted by increased credit cost and CoF.



CoF is guided to be higher in 4Q, but the company will try to minimize the

compression.



The company will not look at curtailing growth in credit cards but will look at the

district level and area level data for limiting the growth.



SBIC does not serve new-to-credit customers in the open market but can acquire

from the SBI.



The festival season spending in retail grew 20% QoQ. In Oct’23, spending was at

the peak, with some moderation in Nov-Dec’23.



Corporate spending does not impact NIMs.



NIMs stood flat QoQ, but cost pressure due to the increase in risk weights is

expected to impact margins in 4Q.



SBICARD has a comfortable level of Tier-1 capital and has raised tier-2 in this

week and will be further looking to add.



From 2QFY25, the cost of funds is expected to stabilize.



The credit cost guidance was 6% in 1QFY24, but now the company is already at

7.5%, amid the RBI’s caution on rising delinquencies in unsecured retail.



The company acquires customers who have a bureau score of around 720-750,

but as and when customers become vintage, the score may move toward 600.



The company does not expect a slowdown in the credit card industry and

expects growth to remain healthy.



The company aims to maintain its current customer acquisition run rate going

forward.

Asset quality



GNPA was at 2.64%; credit cost stood at 7.5%.



Credit bureau suggests some increase in delinquencies in credit cards and PL.

There is an increase in 30+ DPD as stated by the bureau report and the RBI has

taken certain measures.



The company has refined underwriting practices when accounting for

delinquencies.



When an account gets into NPL, the credit limit gets reinstated and the company

looks at bureau data.



In 3Q, credit cost increased by INR1.40b and is expected to stay high. But the

company may look at the data for the next two quarters.



The company will look at the bureau behavior for the movement in asset

quality. The company also looks at various cohorts like age, geography, income

level, etc.



The ECL model requires validation on annual basis. The company continues to

refresh the model as and when required.



Union Bank of India

Current Price INR 141

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business performance, balance sheet, and P&L



UNBK has earlier made wage provisions to reflect a 15% wage hike, which has

now increased to 17%. Hence, the bank in 3Q provided INR2.33b for 11 months.

The bank has been providing INR1.3b per month for extra wage provisions

(INR3.9b in 3Q).

February 2024

110

FINANCIALS/BANKS | Voices

The cumulative wage provisions stood at INR17.54b, and the bank has an

additional INR5b of wage provisions. UNBK has not made any retirement benefit

provisions but will consider it in future quarters.



The bank had been maintaining a CD ratio of 76-77%, which can go up to 78%.

The bank will continue to maintain LCR at 125% going ahead.



UNBK has already raised INR50b and has approval for QIP of INR30b, which is

expected to come out next year.



Treasury income is dependent on the benchmark yield. The bank will maintain

healthy treasury yields.



CRAR was impacted by 60bp due to an increase in risk weights by the RBI.



The bank will file tax rates based on a 25% run rate for FY24. The bank had

provided at 25% in FY23 too.



The banking sector is facing challenges in garnering deposits. UNBK is re-pricing

its NBFCs portfolio at a higher rate to maintain the margins. The bank has raised

15-20bp on the NBFC portfolio.



Risk-weighted assets for the bank stood at INR6,580b.



The bank has increased TD rates on shorter-term maturity TDs. The cost of

deposits has increased by 6bp, while yields has declined by 6bp. The bank is not

seeing any major increase in the cost of deposits. While it expects some

improvements in yields due to MCLR repricing.



The bank expects a credit cost of 50bp over the next few quarters.



The C/I ratio is already at the lower end and is expected to be at the lower end.



Bulk deposits increased in 3Q, but the bank is confident of maintaining margins

at 3% and above.



The bank successfully raised capital of INR50b in 2QFY24.

Asset quality related



GNPA/NNPA improved by 155bp/22bp YoY to 4.8%/1.1% in 3QFY24.



The bank has minimal exposure to BGR Energy Systems, which defaulted in 3Q.



UNBK made INR59b of total recoveries in 3Q vs. INR55b in 2Q. The recovery

consists of technical write-offs at INR9.95b and interest components at INR9b.



The accounts that slipped in 3Q were mainly from the textile and infra sectors.

Guidance for FY24



Gross recoveries guidance stands at INR160b; the bank is already at INR140b

and will surpass the stated guidance.



Slippages are expected to be at INR120b; 9M slippages stood at INR85b.



UNBK expects to sustain margins at ~3%; its current margins are already above

the guided range.



Advances growth is expected to be 10-12% and deposit growth is likely to be ~8-

10%.



The bank has given guidance of retail and wholesale mix of 55:45 for FY24.



It targets business growth of 1.5x of GDP growth.



RoA guidance is 1% for FY25; the bank has already achieved this.



February 2024

111

FINANCIALS/NBFC| Voices

FINANCIALS/NBFC



Within the NBFC/HFC sector, managements highlighted the following: 1) Adjusting growth trajectory in the

personal loans segment due to sector-wide elevated delinquencies in the small-ticket personal loans

segment; 2) Anticipating a moderation in disbursement volumes for Select Vehicle Financiers in FY25

(relative to FY24); 3) CoB has largely peaked out or may experience a slight uptick for one more quarter

before stabilizing; and 4) Asset quality is expected to remain favorable and 5) Operating leverage will start

playing out especially for entities that have made substantial investments in technology upgradation and

distribution expansion in recent years.

Asset quality and others



KEY HIGHLIGHTS FROM CONFERENCE CALL

Outlook for FY24



360 ONE



Angel One



The next six to nine months is going to be an

investment phase for 360ONE WAM. The company

recently added 35 new hires to its wealth sales team.

Typically, wealth sales teams mature and achieve

breakeven within 15 to 18 months.

The launch of the HNI and global propositions are

progressing as planned. These initiatives have the

potential to generate INR 100b of flows (65-70% from

HNI and rest from global platform). Yields from these

new businesses are expected to fall within the range

of 70-75bp.

The company anticipates a further decrease in CIR to

45% by FY26 from current levels of around 49%, due to

new business initiatives and the commencement of

revenue generation by newly established teams.

Angel One is focused on scaling up the assisted

business and building an ecosystem to offer a full

product suite. It will be leveraging NXT (an in-house

developed technology platform) to enhance partner

engagement and user personalization for high impact.

It is awaiting MF license from SEBI and is setting up

processes for AMC business.

Angel One has also strategically planned higher

investment in client acquisition to capitalize on robust

market environment.



Out of the total INR 2.21t ARR assets, ~INR 1.85t is fee

earning and the remaining INR 350b is non-fee paying.

Of the non-fee paying, ~50% (INR 170b) would

convert to fee paying and it typically takes about two

to three quarters.

Carry income should be ~150m every quarter (broadly

15bp of the carry AUM).

For the quarter, operating costs rose 8% QoQ and

24.3% YoY. The employment cost rose 8.1% QoQ on

account of additional headcount, including certain

senior-level hires in the ultra HNI segment, which is

not supported by corresponding revenues at this

stage.



Change in tariff structure for the cash intraday

segment led to a marginal decline in net broking

income.

The anticipated INR400m rise in net finance costs for

FY24 is attributed to the heightened borrowing for

substituting the underlying collateral for bank

guarantees. ~INR160m has been incurred between

Jul’23 and Dec’23 and it is estimated to incur another

INR150m.

Customer Acquisition costs for AngelOne have not

increased, and thus, life-time value justifies the cost of

acquisition. The breakeven for cost of acquisition is

steady at six months.



Bajaj Fin.



Rural B2C delinquencies is inside out; BAF will not

shy away from cutting business/risk in this

segment

The company continues to make substantial

investments and and expects the digital platforms

to get fully refreshed by Jun'24. It anticipates a

growth trajectory from 5m to 10m monthly

downloads on the App.

Ambition is to dominate all digital platforms and

deliver ~25% of business volumes.



BSE



BSE is developing a colocation facility

–

strategic investment in the short term that will

benefit in the long term.

2024 will be a transformational year as BSE is

committed to growing in new areas such as

expansion of data centers, new MF platform,

improving clearing & settlement services, and

enhancing index and data services.

In order to further reduce clearing and

settlement costs, the exchange is trying to

review the contract terms with NSCL and



Guided for gross credit costs of ~175-185bp

(which is the pre-COVID levels of credit costs).

Except Rural B2C, all other products segments

have delinquencies, which are within

acceptable levels.

Bounce-rate in Urban B2C and Rural B2C are

materially lower than pre-Covid, but flow

rates are higher than pre-Covid.

Urban B2B and Rural B2B are not showing any

signs of stress.

Two factors adversely impacted profitability:

1) Core SGF of INR917m, ~67% higher than

previous year; 2) Clearing and settlement

charges of INR638m in standalone financial

statements vs. INR438m in consolidated

financials

Sensex derivatives broke its recorded orders

of 22m and achieved 180m trades with 8b+

contracts.

In the MF segment, the market share is more

112

February 2024

FINANCIALS/NBFC/INSURANCE | Voices

increase its institutional presence.

than 85% among the exchange platforms and

is reaching new heights as the volumes are

increasing day by day.



Mahindra

Finance



Expects incremental CoB in 4Q to remain at the

same levels as 3Q.

Looking to maintain opex to average assets at

~2.8% in the foreseeable future and then bring it

down to ~2.5%

Disbursements in FY25 are expected to be less

robust compared to FY24, with the company

anticipating tempered performance in FY25

compared to FY24.



Will be looking to deliver credit costs <1.5% in

FY25 (vs. guidance of 1.5-1.7% in FY24)

Guided for the PCR and LGD levels to

decline/normalize by 3QFY25.

During 3QFY24, MMFSL updated the ECL

model for its retail vehicle loans by including

multi-factor macroeconomic variables, and

product classification of loan portfolio.

Guided for much lower volatility in Stage 3

even when the external environment gets

tough or the cycle gets adverse.

Outstanding value of SR receipts declined to

INR2.3b (PQ: ~INR6b). When the SRs

completely run-down, recoveries over and

above the outstanding principal will also be

shared in the same 85:15 proportion.

Floods in TN had a minor impact

on Belstar’s

asset quality in Nov/Dec'23, but it got

corrected in Jan'24.



Muthoot Fin.



Continued to guide for ~15% YoY gold loan growth

in FY24 and has guided for same growth in the

next year as well

Cost of bank borrowings might converge from

8.55% (now) to ~9% over the next three-four

months.

Unless the cost of borrowings goes up

substantially, it will not increase the gold loan

yields, but will instead mitigate it with better

operational efficiency.



360 One WAM

Current Price INR 706

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business



ARR AUM came in at INR2,200b, up 32.6% YoY. This growth was driven by strong

net flows of INR 88.65b during the quarter. Wealth ARR AUM stood at

INR1,510b, up 41% YoY, while AMC ARR AUM stood at INR691b, up 17% YoY.



Out of the total INR 2.21t ARR assets, ~INR 1.85t is fee earning and the

remaining INR 350b is non-fee paying. Of the non-fee paying, ~50% (INR 170b)

would convert to fee paying and it typically takes anywhere from 2-3 quarters.



Recurring revenues increased 10.8% YoY at INR3.38b and up 9.2% at INR9.73b in

9MFY24.



9MFY24 recurring revenue comprises 76% of overall operating revenue. 9MFY24

retention on ARR assets was 67bp, while wealth ARR retentions stood at 63bp

and AMC retentions at 74bp.



Excluding carry, the ARR retentions have remained stable at 61bp.



Carry income should be ~INR150m every quarter (broadly 15bp of the carry

AUM).



The lag between inflows and the conversion to a steady-state retention does

continue, particularly considering prevailing market conditions. However, there

has been strong growth in active ARR AUM, accompanied by improving

retentions. Management expects this positive trend to continue over the next

few quarters as well.



The top 10 cities would be accounting for ~88% to 91% of the business two

years back, today, it would be closer to 80% to 83%.



Active discussions are currently underway regarding institutional mandates, and

the company anticipates the conversion of 2-3 mandates over the next 6-9

months.

113

February 2024

FINANCIALS/NBFC/INSURANCE | Voices

In 9MFY24, 360ONE WAM on-boarded 400 new clients (clients with INR50m

plus of ARR AUM) and the number of clients with ARR AUM above INR500m

increased by over 100 for the same period.

Cost



For the quarter, operating costs rose by 8% QoQ and 24.3% YoY. The

employment cost rose by 8.1% QoQ, on account of additional headcount,

including certain senior level hires in the ultra HNI segment, which is not

supported by corresponding revenues at this stage.



The cost-to-income ratio is expected to gradually settle down over the next few

quarters as the new business initiatives and new teams start generating

revenues.



The wealth sales team has recently added 35 new hires, bringing the total count

to 85-90. From a capacity perspective, with this addition, 360One is theoretically

is well positioned to manage around about 8000-9000 families with assets

above INR50m, compared to the current capacity of ~4000 families.



The CIR is expected to reduce to 47-47.5% from the current 49% and from FY26,

the company aims to reduce it further to 45%.

Asset Management Business



The AMC business witnessed planned outflows during 9MFY24. The

performance of funds across the different strategies and vintages continues to

rank in the top quartile. The company maintains a robust pipeline of new

products to be launched in the upcoming quarters.



To augment investment capabilities, 360ONE is investing in deepening channel

presence in the domestic market, specifically through MFDs.



Management expects better mutual fund outcome in the next 12 to 24 months.



The SOF12 fund is set to launch this week. By the end of this quarter and the

subsequent one, the fund is anticipated to reach a size of at least ~ INR30-40b

on the late-stage PIP side. Additionally, the healthcare fund AUM are expected

to reach INR115b. A credit fund is also slated for launch in the next 10-15 days,

with an estimated size of ~INR 20-25b.

New business



The launch of the HNI proposition in the new businesses is progressing as

planned, with an expanded pilot underway over the next couple of months. The

development of the Go-to market and sales teams is also progressing well.



This segment remains highly attractive and underpenetrated and opens an

additional prospective client base of approximately 160k-170k households in the

domestic market.



The next six to nine months is going to be an investment phase. The wealth sales

teams typically mature over and break even in 15 to 18 months.



From a business construct perspective opportunity, 360One remains quite

convinced in investing that extra 2-3% cost-to-income through the next year.

Flows



It expects flows to end the year with INR 350-400b and for the next year at least

20-30% higher (excluding new business). But more importantly to push the

active number closer to the 65% to 70% of the ARR flows.



New business can potentially add INR 100b (65-70% from HNI and the remaining

from the global platform). Yields are expected to be range bound at 70-75bp.



ARR net flows continues to be very strong at over INR270b for 9MFY24. This is

equivalent to our full FY23 business net flows.



February 2024

114

FINANCIALS/NBFC/INSURANCE | Voices

360ONE Plus



~80% of these ARR net flows are coming to flagship advisory Proposition 360

One plus, with retentions on active ARR for this proposition gradually increasing

and standing at 35bp for the last quarter.



From FY25, the yields shall stabilize at 29-30bp on the active non-discretionary

assets. Yields shall move to 35bp with all the new mandates coming in closer to

35-40bp. So on a blended basis, 40-45bp for 360ONE Plus.

Aavas Financiers

Current Price INR 1,437

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Business Updates



bandwidth to the business teams to work on newer opportunities.



AAVAS is working on E-Mitra Tie-up (in parts of Rajasthan) which is an opex-light

model. Existing geographies have enough opportunities for penetration and it

will continue its contiguous expansion.



9MFY24 RoA/RoE stood at 3.22%/13.5%

Yields, CoB and Spreads



Spreads stood at ~5.1% and were maintained above the guidance of ~5%,

despite competitive pricing pressure.



CoB rose ~9bp QoQ to 7.95%. Incremental CoB was 8.0% (vs. 8.35% in 2QFY24).

Ex-NHB, the incremental CoB stood at ~8.2%.



Management guided that it is almost at the peak levels of CoB, given that the

portfolio CoB and incremental CoB are now converging



AAVAS last raised its PLR by ~40bp in Apr'23



It is working with its business team to improve its core product of ~INR750K

ticket size which has better yields. It is reinforcing this product and targets to

increase it in the disbursement mix by ~5%.

Opex



Opex to Assets moderated from a peak of ~3.8% (in 1QFY24) to 3.5% (in

3QFY24). CIR was ~45% (vs. ~47% in 1QFY24). Guided that it will bring down the

Opex to Assets in a gradual manner to ~3%.

Tech Transformation



Tech Transformation right from LoS, LMS and ERP - LMS is under

implementation and will take 3-4 months for them to go live. Ability to have

~30% lead generation coming from digital channels.



Tech transformation and behavioral transformation across 350 branches takes

some time to settle down. There are early green-shoots from improvement in

the TAT and moderation in cost ratios.



Lead generation of ~14600 applications and ~INR22b in Jan'24. MoM

improvement in the number of logins.



Sanction to disbursement ratio has also increased to 83% (vs. 79-80% earlier)



Salesforce, FlexCube and Oracle Fusion are in the opex model - It will keep

paying to the vendor - No inflation on software costs for the next years

Disbursements and AUM growth



MoM growth in disbursement even in Jan'24



Disbursal growth to catch up which will enable it to deliver its guided AUM

growth of 20-25% and expects doubling of AUM in the next 3 years

February 2024

115

FINANCIALS/NBFC/INSURANCE | Voices

Asset Quality



GS3 at ~1.1% and NS3 stood at ~0.8%. Asset quality remains pristine - GNPAs are

broadly stable with seasonality impact of ~5bp QoQ.



Guided for 1+dpd to be <5%



Restructured accounts with an outstanding amount of ~INR713m as of Dec'23

have been classified under Stage 2 and have been provided as per regulatory

guidelines

Liabilities



Raised INR41.9b at ~8.14% during 9MFY24 and ~INR12.2b at ~8% during 3QFY24



Introduced newer liability products wherein it got ~10-15 tenor money from the

banks at low interest rates, and also partly drew down from NHB during the

quarter. Borrowed ~INR3b from NHB during 3QFY24.

Others



Employee count stood at ~6,000



Another 15-20 branches will be added in 4QFY24, both across older and newer

states



Strengthening the Regional Rural Officer (RRO) model wherein only when there

are volumes from touchpoints, it considers opening a branch



BT-OUT is ~6% of the opening AUM



No manpower additions on the collection side



CAR was hit by ~277bp on account of a new regulation on non-housing portfolio

which is ~15% of the total AUM.

Aditya Birla Capital

Current Price INR 184

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business update



Lending businesses’ AUM grew 34% YoY and 6% QoQ



Consolidated PAT grew 39% YoY to INR7.36b



There is a B2B platform for MSMEs, Udyog Plus, with more than 400K

registrations as of Dec'23. Integrated Udyog Plus with ABG ecosystem to provide

channel financing to dealers. Udyog Plus has clocked disbursements of ~INR1.8b

till date with ABG ecosystem contributing >60% of the business. Total AUM of

Udyog Plus reached ~INR1b as of Dec'23



Branch expansions are targeted at Tier 3 and 4 towns



Tightening the underwriting in the personal and consumer (P&C) loans; QoQ

growth has declined to ~1% in P&C



Consumer loans (including BNPL) declined to ~INR27b at the end of Dec'23 from

~INR41b (in Sep'23).

NBFC



Disbursements grew ~26% YoY to INR165.5b



Loan portfolio grew ~35% YoY and 5% QoQ to INR986b



RoA was at ~2.4% and RoE was at ~17%



Infused ~INR8.5b in the NBFC business in 3QFY24. So far it has infused ~INR16b

into ABFL.



Tightened underwriting and will continue to dial-down the consumer loans

portfolio



Consumer loans portfolio sourced from PayTM is <1%



All the digital sourcing journeys are designed for end-to-end control with

complete control over customers

116

February 2024

FINANCIALS/NBFC/INSURANCE | Voices

The business loans segment was the largest contributor; 50% of the

disbursements in business loans segment is done directly.



Asset quality has shown consistent improvement; GS3 at 2.95% and enhanced

PCR to ~50% (PQ: 48%)



BNPL will be dialed down further - dialed down before it could see any

deterioration in asset quality.



Recent developments increased the Branch Network, Udyog Plus and D2C App

which is being launched next month



Lot of focus is on the Secured SME segment even as it is dialing down the

Consumer Loan Book



Not looking at any fintech for large ticket loan sourcing since it requires a

physical evaluation



SIDBI guarantees ~75% of the principal outstanding in unsecured business loans.

It takes ~12 months for the money to come from SIDBI in case of any defaults.



Majority of the allocation from the earlier capital raise will be towards the

lending businesses and does not foresee any capital raise till Mar'25.



Sourcing Mix: Secured Business Loans: 61% Direct and 29% through DSAs;

Unsecured Business Loans: 53% DSA, 41% Digital and 6% Direct; P&C loans:

~84% of P&C is through digital journeys and ~5% Direct sourcing



Sourcing Mix at the overall NBFC level: Direct is ~45%; ~22% and ~32% from

digital



Increased its lending rates by 20-25bp across product/customer segments

Housing



There was a sustained robust momentum in disbursals. Disbursements grew

45% YoY to ~INR20b



AUM grew by 27% YoY and 7% QoQ to INR165.4b



RoA/RoE of 2%/14.6%



NHB mix in the borrowings has improved to ~23% (PY: 17%)



CoB has sustained at ~7.65%



HFC now has 130 branches across 19 states. Contribution of ABG ecosystem in

HFC disbursements has improved to ~9%



Launched channel engagement program across 24 cities covering 1,600+

partners



HFC sector is at ~18.5t and ABHFL has a very small market share. Acceleration is

coming at the cost of market share gains from the competition



Competitive intensity will remain high in the last quarter - HFC also launched a

host of exciting products

AMC



Monthly SIP flows grew by 7% YoY to ~INR10b for Dec'23

Life Insurance



Consistent growth of >20% in both individual and group business



Commenced business with newer partner banks like IDFC First and Bank of

Maharashtra. Signed Corporate Agency agreement with Axis Bank during the

quarter.



Net VNB margin was 15.6% (broadly flat YoY) over 9MFY24



Digital collections account for ~80% of the renewal premiums



~28% AUM is in Equity and ~72% is in debt

Health Insurance



Expects the Combined Ratio to decline YoY/QoQ in 4QFY24.



February 2024

117

FINANCIALS/NBFC/INSURANCE | Voices

Does not envisage the need for any equity infusion.



9MFY24 loss ratio is trending well for both Retail as well as Group. Loss Ratios

are trending well compared to the last financial year.

Others



Aditya Birla Capital App is in CUG and it will be launched next month.



Angel One

Current Price INR 3,150

Click below for

Detailed Concall Transcript &

Results Update

Buy

Financials



Angel One recorded the highest ever client additions in 3QFY24 at 2.5m, a

growth of 16.2% QoQ.



Client base grew 14% QoQ to ~19.5m, primarily driven by superior tech

advancements. Gross client additions are counted only when the customers

complete the KYC process for demat opening and not for SIP registrations.



ADTO grew to INR 36t in 3QFY24 vs. INR 29.6t in 2QFY24, up 21.4% QoQ.



Angel One’s consolidated total gross revenue increased to INR 10,608m in

3QFY24 vs INR 10,493m in 2QFY24, flat QoQ.



Change in tariff structure for the cash intraday segment led to a marginal

decline in net broking income. The main purpose here is to gain market share in

new geographies.



Angel One’s consolidated EBDAT came in at INR 3,641m in 3QFY24 vs. INR

4,185m in 2QFY24, a decline of 13% on a QoQ basis. EBDAT Margin (as % of Net

Income) stood at 44% in 3QFY24.



Consolidated PAT grew to INR 2,603m in 3QFY24 vs. INR 3,045m in 2QFY24, a

decline of 14.5% on a QoQ basis.

Expenses



Overall expenses for the quarter increased 17% QoQ and 75% YoY.



ESOP cost for the quarter came in at INR 1.7b. This is on account of headcount

addition in asset management business, data & analytics, technology and

operations functions.



Higher depreciation during the quarter was on account of commissioning of

network infrastructure.



Angel One has also strategically planned higher investment in client acquisition

to capitalize on robust market environment. In 3QFY24, the company incurred

higher spends on tech infrastructure, demat charges, and CSR.



It believes that these strategic investments in client acquisitions and new

businesses should reap benefits of better operating leverage.



Customer acquisition cost for Angel One has not increased, and thus, life time

value justifies the cost of acquisition. The breakeven for cost of acquisition is

steady at 6 months Angel One is expected to experience some cost impact as

new businesses are still at their nascent stage.



The anticipated INR400m rise in net finance costs is attributed to the

heightened borrowing for substituting the underlying collateral for bank

guarantees. These funds are directed toward margins with the clearing

corporation. ~INR160m has been incurred between Jul’23 and Dec’23 and it is

estimated to incur another INR150m. This is due to the fact that most of the BGs

with collateral as client funds matured by the end of Sep’23 and the

requirement for incremental borrowings went up after this.

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Assisted Partner Network



Angel One will be leveraging NXT (an in-house developed technology platform),

to enhance partner engagement and user personalization for high impact.



Angel One is focused on scaling up the assisted business and building an

ecosystem to offer a full product suite. This shall be achieved by deepening the

channel partner network with multiple products and expanding geographical

reach.

Super App



Super App has witnessed huge traction since its launch. The Super App, along

with its incredible feature enhancements, has resonated well with clients. This

success is instrumental in Angel

One’s efforts to expand the client’s product

portfolio, thereby enabling access to a variety of new financial products. Open

Interest data and Stock discovery feature has been launched on the app, which

has improved client engagement on the platform.



It is consistently ranked among the top 10 finance apps on the play store.



Angel One soon plans to roll out charts with tick-by-tick data and an aggregate

portfolio, further enhancing its product stack.

Others



Angel One during 3QFY24 has on-boarded multiple senior personnel across AMC

and broking businesses.



The data does not suggest that tier-3 clients take a longer period to breakeven

than tier-1 clients. The quality of client acquired through an authorized person

surpasses than that of digitally acquired customers.



Ancillary income has declined sequentially on account of 3 less trading days in

the quarter.



Angel One has started offering consumer credit products by offering unsecured

consumer loans (ticket size ~INR 0.1m).



Angel One is awaiting MF license from SEBI and is setting up processes for AMC

business.

BSE

Current Price INR 2,297

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Future investments



Invested in the expansion of core data centers, which will solidify its

performance and the on-boarding of new members.



BSE is developing a colocation facility - a strategic investment in the short term

to benefit in the long term.



2024 will be a transformational year as BSE is committed to growing in new

areas such as expansion of data centers, new MF platform, improving clearing &

settlement services, and enhancing index and data services.



For the GIFT City merger, the company is working to expedite the process;

however, timelines cannot be predicted as it needs multiple regulatory

approvals.



The company is implementing a colocation project and the racks are expected to

be delivered in 1QCY24. The current focus is on setting up the infrastructure and

facilitation of brokers to utilize the services. Eventually, the rack rates will be in

line with industry rates.

February 2024

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Derivatives



BSE is now the second biggest global exchange in terms of volumes and Sensex

is the fourth largest product globally.



Sensex derivatives broke its recorded orders of 22m and achieved 180m trades

with 8b+ contracts.



BSE is now focusing on the diversification of participation base and building

volumes in longer-dated contracts.



Active UCCs stand at 2.3m for Sensex derivatives and 0.2m for Bankex

derivatives.



About 82% of total volumes come from Sensex options and the rest from

Bankex.



Pricing in the derivatives segment will not be dependent on benchmarking with

NSE. Liquidity and rise in bid-ask spread owing to increase in charges is critical

for pricing decision.

Finance



Two factors impacted profitability

–

1) Core SGF of INR917m, ~67% higher than

previous year; 2) Clearing and settlement charges of INR638m in standalone

financial statements vs. INR438m in consolidated financials.



In the primary market, it enabled transactions worth INR4.1t (equity, bonds,

CPs).



SGF for currency volumes went up in spite of falling volumes as the

concentration risk increased.



In order to further reduce clearing and settlement costs, the exchange is trying

to review the contract terms with NSCL and increase its institutional presence,

for which it is closely working with FPIs as DIIs do not have a lot of scope to

increase activity.



Net cash balance on the funding side stood at INR20b.

StAR MF



In the MF segment, the market share is more than 85% among the exchange

platforms.



The MF business is reaching new heights as the volume of transactions is

increasing day by day (434m transactions in Jan’24) and it will remain the focus

area of the company.

Bajaj Finance

Current Price INR 6,769

Click below for

Detailed Concall Transcript &

Results Update

Buy

Business Update



Credit costs were elevated because of: a) elevated Rural B2C delinquencies, and

2) lower collection efficiencies of Urban B2C.



GNPA/NNPA stood at 0.81/0.37%



RoA/RoE in 3QFY24 stood at 4.9%/~22%



Capital adequacy stood at ~23.9%. Tier-1

capital was ~22.8%. On 16th Nov’23

the RBI increased risk weights on consumer credit exposure from ~100% to

~125% which had an impact of ~290bp on the CRAR.

Guidance



Guided for gross credit costs of ~175-185bp (which is the pre-COVID levels of

credit costs). BAF has ~INR5.9b of management/macro overlay and will give a

final guidance on management overlay in 4Q results.

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Update on the Regulatory matter



BAF does ~250-280K loans per month between market-place and e-comm loans.



BAF temporarily suspended the sanction and disbursal of new ‘eCOM’ loans and

loans on ‘Insta EMI Card’ effective 16th Nov’23. It has also temporarily

suspended sourcing and issuance of EMI cards to new customers and levy of

annual renewal fees on existing EMI cards.



The digital signature on every KFS account and vernacular description is still

pending. BAF expects to complete it within the next few weeks and will be filing

with the RBI for compliance purpose.



BAF has already made initial submissions to the RBI (except for digital signatures

and vernaculars), and expects the final submission (including digital signatures

and vernaculars) to happen within the next few weeks.

Key Senior management portfolio changes



Anup Saha has been re-designated as the Deputy MD. He will continue to

oversee all businesses of the company (excluding LAS and Commercial lending).

He will also have expanded functional responsibilities and will be assisted by

three new COOs. Anup will report to the MD.



Appointment of three COOs with all of them reporting in the Deputy MD



Deepak Bagati: President Debt Management Services is being promoted to Chief

Operating Officer. In his new role, he will continue to oversee Debt

Management Services. He will also have expanded leadership responsibility for

Operations, Service and Public Relations.



Sandeep Jain: CFO promoted to COO and CFO. He will oversee Finance, FP&A,

Treasury and Investor Relations. Henceforth, he will also have expanded

leadership responsibility for Human Resources, Administration and Legal.



Anurag Chottani: Chief Information Officer promoted to COO. He will continue

to oversee Technology and Corporate Strategy and will also have expanded

leadership responsibility for Marketing and Digital Platforms.



Three COO positions are new positions, which have been created to build a

mature organization.

Personal loans (B2C businesses)



BAF has taken preventive actions in Urban B2C, which is reflective of ~3% lower

growth.



BAF has the latitude to calibrate between these three dimensions - Growth

(Tailwind), Margin (Headwind) and Risk (Headwind). Continues to pivot and re-

pivot between growth, margin and risk. Out of the monthly industry PL

disbursements of ~INR700b, BAF just does ~INR40-50b.



Absolute size of the PL market has grown 89% (from pre-COVID to now)



Sweets spot in Urban B2C PL is INR200K-400K and in Rural B2C is INR125-350K.

It does not disburse PL of <INR50K ticket sizes. Rural B2C delinquencies is inside-

out; BAF will not shy away from cutting business/risk in this segment



In the B2C businesses, the ability to pick and choose is what has changed, given

significant competitive activity and strong supply predominantly from public

sector banks.

Asset quality



Except Rural B2C which is amber, all other products segments are in green



Bounce-rate in Urban B2C and Rural B2C are materially lower than pre-Covid but

flow rates are higher than pre-Covid.



Urban B2B and Rural B2B are not showing any signs of stress

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Newer products scaling up well



LAP monthly disbursements at ~INR2.5b



New auto loans across 85-90 locations and auto monthly disbursements at

~INR2.0-2.5b



2W open architecture: ~25-27K accounts a month; 250 locations; 50-55% are

existing customers;



MFI is clearly an LRS view; BAF will take its time to build out the MFI vertical and

it will be longer-haul



Gold loans in Rural B2C is growing at >100% YoY.

Co-branded credit cards



The RBI has granted one-year renewal; the RBI has communicated that it has

observed some deficiencies in the co-branded credit cards; BAF will work with

RBL Bank to get these deficiencies ironed out

LRS 2024-28

Additions to business construct



Customer Share: To grow its share of customer’s wallet by offering all products

and services in a frictionless manner and deliver highest Customer Satisfaction

(CSAT) Score and Products Per Customer (PPC).



Technology & Data-first: Technology and data-first as an organization culture to

solve all problems. Be an early adopter and invest in emerging technologies and

data practices.

Update on LRS 2023-27



Products: The company has launched five new product initiatives so far in FY24.



Geography: added 139 locations in UP, Bihar and North-East.

Strategic Construct



On products, ambition is to be amongst top 5 players in each product line in LRS

period. BAF has planned nine new product initiatives in the LRS period.



On geography, the company will continue to strive to get all products in all

locations in a sustained manner



On platforms, its ambition is to dominate all digital platforms and deliver ~25%

of business volumes. The strategy is to grow from 5m to 10m monthly

downloads on App, originate 1b organic traffic on Web and deeply invest in

marketplaces, social and rewards platforms.

Others



Continues to invest deeply and expects the digital platforms to be fully

refreshed by Jun'24. Expects to grow from 5m a month to 10m monthly

downloads on the App. Ambition is to dominate all digital platforms and deliver

~25% of business volumes



BAF has taken a decision that by Mar'24 it will do a KFS and vernacular for all its

products;



Increased yields by ~25bp across all products (both secured and unsecured).



SME is instead MSME for BAF. Up to ~INR500m of turnover, present in 2,000

cities in India where it serves businesses, traders and professionals.



Commercial business with customers having >INR2.5b turnover. Prime pricing

and compete head-on with leading banks.



In the LAS business, average client exposures will be ~INR50m and this product

is very low on Retail and predominantly HNI.

February 2024

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Can Fin Homes

Current Price INR 798

Neutral

Click below for

Detailed Concall Transcript &

Results Update

Business update



Process changes (including centralization of disbursements and reconciliations)

impacted Oct’23 disbursements. Dec’23 disbursements reached a run rate of

~INR7b.



Received a credit rating upgrade from ICRA to AAA from AA+. This would aid the

company’s borrowing

costs. Moreover, the management also expects to receive

sanctions from NHB this year.



NIMs and spreads expanded QoQ due to the repricing of last tranche of loan

book (of ~INR67b), leading to higher yields.

Guidance



Guides for FY24 spreads of ~2.6% and NIM of ~3.7-3.8%. However, it expects

spreads to moderate to ~2.5% and NIM to ~3.5% as it pursues loan growth in

higher ticket sizes.



Targets to bring down the DSA sourcing mix to ~60% over a period of time.



Guides for GS3 to decline by INR200-300m in 4QFY24, resulting in GS3 of 0.75-

0.8% by Mar’24.



FY24 guidance for CIR is revised to ~16% (from 18% earlier) due to the

postponement of IT transformation costs. However, it continues to guide for CIR

of 18.0-18.5% in FY25.



Expects disbursements of ~INR25-28b in 4QFY24 (vs. ~INR25b in 4QFY23), which

would lead to AUM growth of 13-14%.



Guides for disbursements of ~INR120b in FY24. Loan growth will be lower than

~20% in FY25 but targets a CAGR of ~20% in loans over the next four years.



Salaried mix would remain above 70%.



The company will not require additional ECL provisioning in 4QFY24, but the PCR

coverage will be decided by the Board.

Yields and Margins



CANF has received board approval to transition from an annual interest rate

reset to a quarterly

reset policy effective Jan’24 for all new loans disbursed.

Existing customers have also been given a choice to transition to a quarterly

reset.



Even in a declining interest rate environment, it should be able to maintain its

spreads since it expects benefits on the borrowing side.

Opex



Opex declined QoQ to ~INR490m in 3QFY24 due to annual incentives and one-

time process change-related expenses in the prior quarter. Guides for quarterly

opex run rate of INR520-530m (excluding IT transformation cost of INR150-

200m in FY25).

AUM & Disbursement



Disbursements have been centralized wherein scheduled disbursals are verified

and documentation is checked. For disbursements scheduled before 2pm,

demand drafts are generated and delivered to the branches on the same day by

5pm. However, for cases received after 2pm, DDs are delivered to the branches

next day.



Guidance of strong disbursements/loan growth is predicated on a) the tie-up

with CRM and lead-sourcing from digital channels, b) new branches (~15

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branches planned in FY24) becoming productive, and c) higher ticket sizes

through the developer channel.



In higher ticket-size loans, affluent customers would have a propensity to pre-

pay but this segment also offers opportunities for top-up loans and cross-selling.

Asset Quality



CANF board and management have reversed (or utilized) the management

overlay. This led to high credit costs in 3Q; to extend provisions on new

slippages from the restructured pool.

Branches



Opened five branches in north and west India. Looking to expand in north and

west India to bring down dependency on the southern region.



Will target Gujarat, Maharashtra, Punjab, and Haryana to expand footprint in

North and South.

Other



CANF acquires ~4.0-4.2k customers every month.



Its exiting IT system (which is 12 years old) has been beefed up to generate

more reports to perform better monitoring. Cluster-level monitoring (focusing

on 18 parameters) has been introduced.



Non-performing DSAs have been de-empaneled. It will continue to churn and

remove the DSAs who are not performing.



Yields will be lower for loans sourced from developers. CANF is offering interest

rates of ~8.95% for loans with a ticket size of >INR2m.



DSA payouts are around 0.3-0.65% (blended of ~0.43%). Developers expect 0.1-

0.25% of commission payouts.



Opex (acquisition costs) - Average quarterly payout to DSAs is INR60-65m.

Cholamandalam Inv. & Finance

Current Price INR 1,100

Click below for

Detailed Concall Transcript &

Results Update

Buy

Performance Update



3QFY24 disbursements stood at ~INR224b and grew 27% YoY and 4% QoQ.



PAT at ~INR8.8b grew 28% YoY. 9MFY24 PAT rose 30% YoY to INR23.7b.



Vehicle Finance (VF) disbursements in 3QFY24 were at INR123.5b and grew 18%

YoY. LAP disbursements grew 51% YoY and Home Loans disbursements grew by

48%, driven by branch expansion into Tier 3 and 4 locations.



Disbursement in the three new businesses grew ~33% YoY.



CRAR was at ~19.4% with T1 at ~15.6% and T2 at ~3.8%.



Board of Directors of the Company approved the payment of Interim dividend of

~INR1.3/share.

Guidance



LAP and HL will grow faster than other product segments.



The Cost to Assets guidance stands at ~3%. Although it is currently on an

upward trend, the company anticipates that operating leverage will begin to

yield benefits from next year onwards.



Guided for RoTA (PBT) of 3.5%, but the endeavor will be to improve the RoA

from next year onwards.

Vehicle Finance



CIFC has a presence across both new and old tractors, enabling it to

demonstrate healthy growth in the tractor segment despite the overall decline

in industry volumes.

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Marginal book yield is 100bp higher than portfolio yields and the company the

improvement in VF NIM to sustain



Tamil Nadu floods did not have any significant impact on the portfolio.



~30% of the disbursements in VF comes from existing customers. There is hardly

any cross-sell between the businesses.



Industry growth in CV will be in single digits. The management is confident of

achieving a growth rate between 15-20% in Vehicle Finance.

New Businesses



The GS3 in CSEL (traditional) stood at ~0.6%, while in CSEL (Partnerships), it was

2.7%. The company has reduced the disbursements from four partners, leading

to a decrease in the monthly run-rate of CSEL disbursements from INR5.5-6.0b

to INR2.5-3.0b.



Tightened the underwriting standards with the existing partners and the

company has been sharing flow data with them.



In the newer businesses, FLDG is restricted to ~5%. After the change in

regulations, CIFC has been keeping a higher interest income to mitigate the

impact of lower FLDG (post change in guidelines).



As the fully provided loans in the CSEL segment were written-offs, the provision

cover declined. Newer businesses include SME, SBPL, and CSEL and the current

provision cover will be adequate.



Chola makes 50% provisions on 90+ dpd and 100% provisions on 180+dpd. Post

180+dpd, the loans are written-off because it then becomes eligible for FLDG

and tax benefits. Unless the loans are written-off, NBFCs do not get tax benefits.



FLDG recoveries are shown under 'Other income'. To the extent of write-offs,

the FLDG income of ~INR120m was recognized

in ‘other income’.

LAP



LAP business has ATS of ~INR5m and LTV of ~50%.



The robust growth in LAP is attributed to a) branch expansions, b) Micro-LAP

catching up and c) contributions from the East Zone.



Delinquencies are continuously coming down in LAP and the implementation of

SARFAESI has also facilitated resolutions.

Home Loans



In Tier 2 and 3 towns, the company maintains slightly higher rates, aiming to

operate at those yields so that it can adequately price them going forward.



In the Home Loans segment, the ATS is ~INR1.32m, with a tenor of 14 years and

LTV ratio of ~50% (Home Loans and Self-construction). The expansion of Home

Loans in non-South regions contributed to the increase in yield, along with the

repricing of a portion of the existing book.

Liabilities and CoB



Cost of bank borrowings have not gone up significantly since they are linked to

EBLR and the spreads on EBLR have remained stable.



CoB has peaked out, and unless there are significant changes, the company does

not anticipate any further increases. It does not anticipate any interest rate cuts

and expects the CoB to hover around the current levels.



Priority Sector Loans are linked to EBLR and non-PSL loans are linked to MCLR.

15% of the bank borrowings are fixed-rate, 25-30% are MCLR-linked, and the

remaining are EBLR-linked.



In this quarter, the company secured loans from IFC amounting to USD150m.

Additionally, it has issued Retail debentures and is now leveraging multiple



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sources for raising liabilities. As a result, the company expects better traction in

liabilities, and it reassures that there is no such deficit in systemic liquidity which

will constrain its growth.

Others



The restructured book is currently classified under Stage 2B. Now that these

loans have completed more than one year, discussions with auditors are

underway to explore the possibility of reclassifying the performing loans under

Stage 1.



Earlier, the company the insurance agency license, and the insurance

distribution business was booked in the subsidiary, reflecting in Chola's ‘other

income’ from the dividends received from subsidiaries. Now, with the

acquisition of insurance agency license, Chola can directly book the insurance

commission as fee income within its standalone entity.

Computer Ages Management

Current Price INR 2,860

Buy

Click below for

Detailed Concall Transcript &

Results Update

MF business:



Out of the last seven mutual fund mandates, CAMS won five mandates. Helios

MF and Zerodha Fund House went live in 3QFY24. Recently, CAMS won a major

fund RTA mandate of Unifi Capital, based in Chennai.



CAMS MF AUM stood at INR33.95t, up 22% YoY. The overall market share is

68.2%. CAMS Equity AUM stood at INR16.9t, up 31% YoY.



CAMS Equity AUM market share grew by 140bp YoY to 66%. Live SIP book grew

29% YoY, faster than the rest of the industry, which saw 19% growth.



Net inflows into equity assets increased by 18.8 % YoY in 9mFY24. Inflows

through SIPs increased by 29.1% YoY vs. 19% growth for the industry. SIP

registrations reached a lifetime high, taking the live SIP stock to ~43.9m.



CAMS MF segment in 3Q marked the historic high in transaction volume to

~153.5m and a consistent increase in equity AUM and new investor count.

Non-MF business:



Beyond MF, the consistent focus on expanding non-MF businesses led to a

330bp increase YoY in the share of non-MF revenue to ~13% of total revenue.



Non-MF revenue grew 59% YoY (41% growth on constant base, excluding

contribution of Think360.ai), with major contributions from AIF and CAMSPay.



CAMS continues to be the market leader in the Alternatives Services space,

catering to 180+ fund houses. The business grew by 21% YoY. It added 32 new

mandates, including four in the current quarter in the GIFT City (total 15). In the

AIF segment, CAMS has even bought multi-currency funding capability, moving

some of the existing and new clients to that platform.



CAMSPay on-boarded LIC as an exclusive partner to execute customer account

authentication.



Revenue for CAMS KRA grew 129% YoY. The 10-minute KYC feature has been

the foundational component, which has helped it penetrate into brokerages and

FedEx.



CAMSRep has gained entry into the non-life segment with digital KYC mandate

from Oriental Insurance, a joint offering from CAMS Rep and Think360.



Progress in the Bima Central app is not as fast as the company expected but the

first few insurance companies are now fully integrated into the program.

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In the EIA segment, CAMS maintains a market share of 39% in policies and 31%

in EIA accounts. The transaction revenue has not kicked in yet as the business is

close to a breakout and will start making profits in 1QFY25.



CAMS Finserve gains a 13.3% market share for customers successfully linked to

AA ecosystem. On the funding accounting side, it services almost 70 to 80

unique consumers. The management is confident that the company has the

right offering, the right go-to-market strategy and the right teams to continue to

scale up this segment.



Algo360 is the flagship product of Think360, which is live with SBI Cards. It has

contracts with top 10 PSU banks. CAMS has developed Affluence360, a

geographic data product to help businesses strategize and prioritize market

expansion and customer experience.

Margins:



EBIDTA margins stood at 44.8%, up 30bp YoY, on strong sales and operating

performance. It is expected to improve 20-30bp in the next few quarters. Of

this, currently 10% comes from the non-MF segment and the balance from the

MF segment.



The management expects margins in the non-MF segment to increase to ~25%

in the next few quarters as the contribution from the segment grows.



Costs:



Total costs increased by ~INR50m in 3Q as ESOP costs grew by INR17m QoQ and

out-of-pocket expenses in KRA and MF business rose INR25m. About 2.5%-3% of

increase in costs was due to annual appraisals. The rest of expenses were in line

with the company strategy.



CAMS plans to spend ~INR50-60m on platform building in the non MF segment

and launching new AIF products. On the MF side, the company targets to spend

more on scaling up the manpower and leadership teams, cybersecurity, and

other data-related expenses.



CreditAccess Grameen

Current Price INR 1,499

Click below for

Detailed Concall Transcript &

Results Update

Buy

Business update and financial performance



Successfully completed the core banking system upgrade; business momentum

was temporarily affected for 2-3 weeks because of the CBS upgrade.



Got a credit rating upgrade to AA- from CRISIL in Nov'23 while Ind-Ra and ICRA

already had an AA- rating on CREDAG.



Customer base grew 19% YoY while AUM jumped ~31% YoY



Opex-to-AUM stood at 4.4%



CE (excl. arrears) stood at 98.3% (PQ: 98.7%). PAR 90+ stood at 0.75% (PQ: 0.6%)

while PAR 30+ stood at 1.2% (PQ: 0.9%)



RoA/RoE stood at 5.5%/23.6% (PQ: 5.6%/24.7%) in 3QFY24.

Guidance



Guided that the CoB has peaked out and will remain stable in the near-term



Opex-to-AUM was in the range of 4.5-4.6% and cost-to-income ratio was at 31-

32%



The company reiterated its FY24 AUM growth guidance of 25%



Equity Raise



It does not expect to raise equity capital for 2-3 years and will raise equity

capital when CRAR is below 20%

February 2024

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FINANCIALS/NBFC/INSURANCE | Voices

Asset Quality



Fresh PAR accretion of 1.2% (1.6% annualized) during Mar-23 to Dec-23 is within

the guided range



Sep-23 to Dec-23 PAR increase is primarily driven by a) business as usual PAR

accretion due to seasonality, b) higher steady-state PAR outside Karnataka

(Karnataka PAR 0+ is 1.0%) and c) TN flood impact



PAR in flood-impacted TN continues to decline



Expects PAR to revert to normalcy from 4Q onwards and remain within the

guided ranged



Slightly higher PAR in parts of Northern Gujarat, and Rajasthan was a bit of an

aberration.

NIM



CRED reduced its lending rates by ~50bp in both MFI and Retail Finance.



Drivers for rate reduction were: a) consistent improvement in operating

efficiency, b) cost of borrowing having peaked out in 2Q/3QFY24 and is

anticipated to remain stable from 4QFY24 onwards



Does not anticipate any change in its NIM and return ratios guidance because of

the ~50bp reduction in the lending rates since a) full impact of the revised

pricing on the portfolio yield will be gradual over the coming 18-20 months, and

b) strong control on the cost of borrowing on the back of a diversified liability

profile and continued access to PSL-linked funds

Branch additions



Most of the branch additions have been outside the Top-3 states. Within its

Top-3 states, the branch expansions have predominantly come from splitting

the branches.

Liabilities



Marginal CoB is broadly stable and the bank borrowings have declined from 53%

to 50%. Bank borrowings will continue to decline towards ~45% in the near-to-

medium term. However, bank borrowings will increase in 4Q since it is planning

to drawdown all the undrawn bank sanctions.



The marginal CoB from banks was 9.4-9.5% and from DFI was 9.3-9.5%

Retail Finance



Total Retail Finance was ~2%, o/w ~80% were unsecured loans and ~20% were

secured loans.



LAP ATS was ~INR550K and as the proportion of LAP increases, the ATS in retail

finance will increase.



Medium-term guidance of ~12-15% of the GLP mix from Retail Finance and ~6-

7% by FY26/FY27.



Attrition of customers who do not want a new loan or customers which CREDAG

does not want to retain is 8-10% and 4-5% because the company did not have a

product to retain them.



Retail products have been launched to stem customer attrition who move out

because of their need for a higher-ticket loan.

Others



Customer acquisition of ~330K in 2QFY24 and ~270K in 3QFY24. 3Q customer

acquisition impacted by implementation of CBS.



It will take 2-3 quarters for the benefits of the CBS upgrade to start showing up.



CREDAG has a Board-approved pricing policy in place which is reviewed every

quarter. Pricing depends on credit costs, funding costs and capital costs.



Customers unique to CREADAG stood at 33-34%. If it attracts customers from

other MFIs, the unique customers will come down. But over a course of time,

many customers become unique to CREDAG.

February 2024

128

FINANCIALS/NBFC/INSURANCE | Voices

Fusion Micro Finance

Current Price INR 555

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business update



AUM grew 24% YoY to INR107b.



Disbursements stood at ~INR27.2b and grew ~16% QoQ despite calibrating its

growth in some geographies and maintaining one of the lowest ticket sizes in

the industry.



Added ~78 new branches in 3Q; 70% of the new branches were added in Non-

Top 5 states.



Total customer base stood at 3.8m, which grew ~11% YoY (in line with the

guidance of 10-12%).



FUSION has a credit rating of A+ from all three credit rating agencies.



3QFY24 PAT of ~INR1.26b grew ~23% YoY and 9MFY24 PAT of INR3.7b grew

~37% YoY.

Guidance



On track to deliver AUM growth of mid-20s in FY24.



Confident of FY24 credit costs to be contained at ~3.5% and normalized credit

costs from FY25 onward.



Guides for cross-cycle RoA of 4.25%-4.5% and RoE of ~18-20%.



Disbursement momentum will continue despite calibration in few states.



GS3 of 1.75%-2.0% is sustainable - there is still a pool of loans, which would be

written-off.

Yields, CoB and Margins



CoB declined ~10bp QoQ to 10.45%. It will look to further diversify its liability

mix to reduce dependence on bank loans.



NIM expanded ~42bp QoQ to 11.54%, in line with guidance of ~11.2-11.5%.



Once it sees benefits on CoB, it might pass on the benefits to customers, but

there are no such immediate plans to reduce lending rates.

Asset Quality



FUSION in its 2Q earnings call highlighted lower CE in Rajasthan, Gujarat, and

Haryana.



60+dpd in Punjab was >20% as of Jan'24.



GS3/NS3 stood at ~3.05%/0.77%.



Punjab portfolio of ~INR805m was reclassified from Stage 1 to Stage 3. Fusion

has ~16% provisions on the Punjab portfolio.



Targets to open total 200 branches in FY24 (including 150+ branches opened in

9MFY24).



270+dpd loans were written-off particularly from the Punjab portfolio.



Front-loaded some of the asset quality stress and credit costs so that it can start

FY25 on a clean slate. It does not plan to utilize the management overlay in the

next quarter.



Out of ~102 branches in TN, only ~19-20 branches were impacted by the floods;

however, collections have started recovering in those branches too.

Updates on Punjab/Haryana portfolio



Only certain districts of Punjab were impacted by the narrative of loan waivers.



CE in Punjab stood at ~82% in Dec'23 but dropped by 5-6% in the first few days

of Jan’24. CE has now stabilized

and may not deteriorate further.



Completely stopped disbursements in Punjab since Dec'23

129

February 2024

FINANCIALS/NBFC/INSURANCE | Voices

Expects some slippages in 4Q from in Punjab and Haryana; Collection patterns

have stabilized in the last 10-12 days



Engaging with the Punjab administration and reaching out to customers to

educate them against these mischievous elements. MFIN delegation has met

the Finance Minister of Punjab and there could be some action soon.



Two Fusion MFI veterans are looking into Punjab collections. Also, it is engaging

local people to impress upon customers the impact it can have on their bureau

scores and their inability to borrow from other MFIs as well.

Others



About 70% of new branches were added in non-Top 5 states. 67 branches (out

of 156 branches) were added in AP, Telangana, and Karnataka.



It remains committed to new states like Karnataka, AP, and Telangana - for the

long term, it focuses on its strategy of diversification.



Derecognized interest income of ~INR188m because of reclassification of a

Stage 1 portfolio into Stage 3.



The cost-income ratio rose by ~40bp QoQ due to the opening of 78 branches

Pan-India and additional manpower of 1,155 in the quarter.



Average outstanding stood at INR27.2k (which is one of the lowest in MFI

industry as per MFIN data).



Top 5 States form ~70.4% of the AUM. UP stood at INR23.3b, Bihar at INR20b,

Odisha at INR12.17b, MP at INR9.7b and TN at INR6.9b.



Average yields of ~23% and loan processing fees of ~1.25% on two-year loans.



~60% of the MSME book (AUM of INR4.6b) is secured.



Home First Finance

Current Price INR 930

Click below for

Detailed Concall Transcript &

Results Update

Buy

Guidance



AUM CAGR of 30% in the medium term and management targets to achieve

AUM of ~INR200b by FY27.



Guided for yields between 13-13.5% and spreads between 5%-5.25%. The

business model works best from a growth perspective with this range of

spreads.



Leverage [Assets/Equity] can go up to 5.5x-6.0x. Targets RoA of 3.5-3.6% and

RoE of 17-18% with leverage of 5x. NIM will decline as the leverage/debt on the

balance sheet increases.



The company guided for CoB to increase by ~10bp and it expects the CoB to

stabilize at ~8.3% in the next quarter.



Management does not foresee any equity capital raise over the next two years.

Yields and spreads



There has not been any significant repricing of the back-book. Only a few

customers who explicitly request for repricing get revised rates.



Yields compressed by ~8bp QoQ of which NHB borrowings contributed ~5bp, co-

lending contributed ~2bp and ~1bp from BT-out.



New business from NHB, disbursed at 10.5% yields, contributed to lower yields

for HFFC. Spreads of ~5.5% on the NHB borrowings deployed for lending. When

the company receives NHB funds, customer interest rate is adjusted downward,

leading to lower yields.

February 2024

130

FINANCIALS/NBFC/INSURANCE | Voices

Origination yields do not include co-lending yields. Yields are similar across

ticket sizes, but as ticket sizes go up, yields would typically decline.



CoF benefits will be passed on to customers. CoF have peaked out, but there are

ongoing MCLR adjustments with banks.



Incremental spreads at 5.3% are within the guided range. Any borrowing cost

reductions will be passed on to customers, aiming to keep spreads between 5%

and 5.3%.

Asset Quality



Asset quality looks very stable and there are no concerns on delinquencies in

affordable housing segment



The fluctuation in the bounce rates is within the 100-150bp range, but it is not a

cause for concern. Increase in the bounce rate is not specific to any particular

region.



No headwinds seen in collections. No concerns in Rajasthan and MP markets;

overall asset quality remains stable.



BT-outs have declined marginally, predominantly due to efforts to retain

customers, and BT-out is expected to decline to historical levels. The majority of

BT-outs are directed towards banks.

Underwriting



Customer (bank) account statement received from an account aggregator

guarantees authenticity and expedites the process.



Only ~10% of business comes from customers with credit scores below 700.

Branches



The company has ~305 touchpoints and plans to increase it to ~500 over the

next three years. Plans to add 25 branches each year to take the total to 200

over next three years.



Gujarat disbursement market share stood at 3.0-4.0% and Maharashtra stood at

1.0-1.5%. Will endeavor to increase market share to ~3.0% where it is 1.0-1.5%

and in areas with a 3.0-3.5% share, efforts will be made to increase it to ~5.0%.



Management looks to expand in existing states and penetrate in northern states

of Rajasthan, UP and MP. Currently, there are ~2,900 active connectors with 800

RMs.

Others



Co-lending accounts for 5-6% of disbursals and targets to increase it to ~10%. If

interest rates start trending down, spreads on the co-lending portfolio should

improve, making it RoE-accretive



INR1-2m ticket-size segments are growing faster than smaller ticket size

segments.



Employee attrition stood at 30-35%.



Cautious stance on LAP but strong credit performance provides ample room for

growth.



Investments as on Dec’23 were higher than prior quarter. Liquid funds carry a

~100% risk weight and fixed deposits have a ~0% risk weight. Impact of ~2pp on

CRAR was because of investments in liquid funds and ~3% from organic growth.

This will revert back by Mar'24.



There is no clarity on increase in risk-weights on the LAP product. If there is

indeed an increase in the risk-weights on LAP, it will impact the CRAR of

HomeFirst by ~2pp.



February 2024

131

FINANCIALS/NBFC/INSURANCE | Voices

L&T Finance

Current Price INR 174

Buy

Click below for

Detailed Concall Transcript &

Results Update

Business Update



LTFH registered the highest-ever quarterly retail disbursements.



PAT grew 41% YoY to INR6.4b



Subsidiaries L&T Finance and L&T Infra Credit have been merged into LTFH. The

combined entity will be renamed as L&T Finance, which will be one entity for all

the lending businesses of the company.



LTFH has been working on its key pillars of 1) enhancing customer acquisition, 2)

sharpening credit underwriting and continuously reducing credit costs, 3)

heightened brand building, and 4) capability building.



Festive-led demand was healthy in 3QFY24. Consumption remained stable in

high income groups. Hopeful of a recovery in FY25 on account of an expected

increase in rural outlay of the government.

Status check on Lakshya Goals



Achieved all its Lakshya 2026 targets in FY24. Retail mix stood at 91% and it

expects to maintain this positive momentum going forward.



Retail asset quality metrics are well within guided levels, with GS3 at 2.95% and

NS3 at 0.64%.



Retail RoA stood at ~3.4% in 3QFY24.

Financial performance



Retail NIM + Fees remained at ~12.1%.



Retail disbursements grew 25% YoY to INR145.3b. Retail loan book grew ~31%

YoY to ~INR750b.



Retail GS3/NS3 stood at 2.9%/0.64%.



Consol. PAT in 3QFY24 stood at INR6.4b, up 41% YoY. CRAR stood at ~24.9%.

Consol. NIM +Fees stood at 10.93%.



3QFY24 credit costs declined to 2.52% (vs. 2.67% in 3QFY23).



Guided for a consistent and sustained improvement in the RoA profile.

Confident that by FY26 end, it should be able to improve consol. RoA to 2.8%-

3.0%.



Guided for unsecured (MFI, Personal loans and SME) mix of 45-50%.

Retail



Monthly disbursement run rate maintained at ~INR18b in microfinance.



Urban Finance - 2W, Personal Loans, Home Loans and LAP - Urban loan book

grew 29% YoY. 2W disbursements crossed INR25b (up 20% YoY). Personal Loans

disbursements grew 36% YoY to ~INR8.5b. Home Loans grew 33% YoY.



There was a temporary pause in personal loan disbursements - During the

quarter, it sharpened the credit funnel and improved the digital journey of

customers. It also improved the regulatory compliance in terms of Video KYC.

Will resume its strong growth trajectory in personal loans.



Launched 56 new locations in SME business and total locations rose to 109.



Retail credit costs declined to ~2.6% in 3QFY24 (2Q: 2.74%). LTFH is trying to

shift the portfolio toward prime customers (Bureau score of 750+ and loans of

>INR150k).



Within Urban businesses, ~94% of the collections are digital and within rural

businesses, 19% of the collections are digital.

February 2024

132

FINANCIALS/NBFC/INSURANCE | Voices

Guided for retail credit costs of 2.5%-2.7% and credit costs will continue to trend

down secularly. It has ~INR12b of macro-prudential provisions for any localized

deterioration in pockets or particular product segments.

Housing



The average ticket size is INR6.0-6.5m; It focuses on three channels for sourcing

home loans: 1) developer tie-ups (APF), 2) DSA, and 3) channels partners/digital.

It is present in prime to near-prime customer segment.



LTFH can compete in the prime space because of its lower cost of funds.



Healthy end-user demand in some markets; objective is to sharply define its

product proposition; focus is to grow this business to a reasonable scale.

Micro Finance and Rural Businesses



The monthly collection model has worked well for LTFH. Emphasis on collections

in the first half of the month gives it ample room to focus on new business in the

rest of the month.



LTFH has a decade-long experience in the rural businesses and its collection

discipline is very strong. Because of the experience, its credit engine is designed

in such a way that it has ~45% approval rates.



Rural business loans are given specifically for business purpose; the RBI's RWA

circular talks about unsecured personal loans and higher risk weights, which will

not apply to rural business loans (MFI) book of LTFH.

Personal Loans



LTFH is implementing video KYC, which will make consumer loans 100% digital

KYC enabled.



Yields on personal loans have increased by 1% over the last one year. LTFH has

not re-priced its personal loans after the RBI RWA circular.



In personal loans, the asset quality and collections remain good. LTHF never

offered BNPL loans. The focus was on building a credit risk engine, and it is

extremely conservative in scaling up the loan book.



Internal discussions: It would look to create macro prudential provisions on the

unsecured book (Personal loans and SME) as well.



Sharpening credit underwriting and credit funnels; Focus on new customer

acquisition and cross-selling; Tightened business, credit and regulatory

compliances. It will grow the personal loans business in a risk calibrated fashion.

Two wheeler



LTFH does not have any significant presence in rural two wheelers. It is

predominantly present in urban and semi-urban segments.



Prime customer share (in 2W) has improved from ~41% (vs. 35% in 3QFY23).

Wholesale



Continued accelerated reductions in the wholesale book, which declined to

~INR70b (~9% of the loan book).



Overall wholesale book sold to ARCs was INR190b. Out of this, ~INR40b was

received in cash. SRs have total provisions of ~INR73b and the net value of SRs

(~INR77b) is ~40% of the original value of wholsale assets.



Recovered ~INR4.2b from SRs in 3QFY24. Net SRs stood at ~INR77b and expects

SRs to get resolved within 15-18 months.



Credit costs from the wholesale book will not exceed INR500m in any quarter,

and it guided for ~INR2b annual credit costs from the wholesale book.



Wholesale book has loans which are standard. The target is to increase the retail

mix to 95%. Wholesale should decline to <INR50b by Mar'24.



February 2024

133